HSBC Holdings Regulatory News (HSBA)

6 Mar 2006 11:00

HSBC Holdings PLC06 March 2006 -------------------------------------------------------------------------------- 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: MARCH 6, 2006 --------------------- 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, 60070 ILLINOIS (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, 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 and year ended December 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: March 6, 2006 EXHIBIT 99 HSBC FINANCE CORPORATION QUARTERLY FINANCIAL SUPPLEMENT -- DECEMBER 31, 2005 INDEX PAGE NO.----- --------Basis of Reporting.......................................... 2Consolidated Statements of Income -- Owned Basis: Three Months.............................................. 3 Twelve Months............................................. 5Receivables Analysis........................................ 7Financial Highlights -- Managed Basis: Three Months.............................................. 8 Twelve 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 Twelve 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 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 have historically monitored our operations andevaluated trends on a managed basis (a non-GAAP financial measure), whichassumes that securitized receivables have not been sold and remain on ourbalance sheet. This is because the receivables that we securitize are subjectedto underwriting standards comparable to our owned portfolio, are serviced byoperating personnel without regard to ownership and result in a similar creditloss exposure for us. In addition, we fund our operations and make decisionsabout allocating resources such as 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 related 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 fixed income investors have alsohistorically evaluated our operations on a managed basis for the reasonsdiscussed above and have historically requested managed basis information fromus. We believe that managed basis information enables such investors and otherinterested parties to better understand the performance and quality of ourentire loan portfolio and is important to understanding the quality oforiginations and the related credit risk inherent in our owned and securitizedportfolios. As the level of our securitized receivables falls over time, managedbasis and owned basis results will eventually converge. OPERATING RESULTS, PERCENTAGES AND RATIOS Certain percentages and ratioshave been presented on an operating basis and have been calculated using"operating net income", a non-GAAP financial measure. "Operating net income" isnet income excluding 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 2005 on Form 10-K forfurther discussion of these items. A reconciliation of net income to operating net income follows: THREE MONTHS ENDED TWELVE MONTHS ENDED ----------------------------- ------------------- 12/31/05 9/30/05 12/31/04 12/31/05 12/31/04--------------------------------------------------------------------------------------------------- (IN MILLIONS)Net income.................................... $393 $281 $712 $1,772 $1,940Gain 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 ---- ---- ---- ------ ------Operating net income.......................... $393 $281 $410 $1,772 $1,638 ==== ==== ==== ====== ====== 2 HSBC Finance Corporation-------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME -- OWNED BASIS THREE MONTHS % CHANGE FROM THREE MONTHS ENDED PRIOR ----------------------------- -------------- 12/31/05 9/30/05 12/31/04 QTR. YEAR------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income................ $3,725 $3,402 $3,001 9.5% 24.1%Interest expense: HSBC affiliates................................ 206 222 130 (7.2) 58.5 Non-affiliates................................. 1,221 1,017 788 20.1 54.9 ------ ------ ------ ----- ------NET INTEREST INCOME.............................. 2,298 2,163 2,083 6.2 10.3Provision for credit losses...................... 1,310 1,361 1,286 (3.7) 1.9 ------ ------ ------ ----- ------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES......................................... 988 802 797 23.2 24.0 ------ ------ ------ ----- ------Other revenues: Securitization related revenue................. 31 41 127 (24.4) (75.6) Insurance revenue.............................. 239 229 221 4.4 8.1 Investment income.............................. 35 33 30 6.1 16.7 Derivative income (expense).................... (34) (53) 263 (35.8) (100+) Fee income..................................... 469 439 282 6.8 66.3 Taxpayer financial services revenue (expense)................................... 17 (1) 8 100+ 100+ Gain on receivable sales to HSBC affiliates.... 105 99 677 6.1 (84.5) Servicing fees from HSBC affiliates............ 106 102 13 3.9 100+ Other income................................... 175 213 137 (17.8) 27.7 ------ ------ ------ ----- ------TOTAL OTHER REVENUES............................. 1,143 1,102 1,758 3.7 (35.0) ------ ------ ------ ----- ------Costs and expenses: Salaries and employee benefits................. 536 513 472 4.5 13.6 Sales incentives............................... 108 117 104 (7.7) 3.8 Occupancy and equipment expenses............... 82 83 86 (1.2) (4.7) Other marketing expenses....................... 170 196 199 (13.3) (14.6) Other servicing and administrative expenses.... 235 149 209 57.7 12.4 Support services from HSBC affiliates.......... 237 226 194 4.9 22.2 Amortization of intangibles.................... 65 90 85 (27.8) (23.5) Policyholders' benefits........................ 109 109 113 -- (3.5) ------ ------ ------ ----- ------TOTAL COSTS AND EXPENSES......................... 1,542 1,483 1,462 4.0 5.5 ------ ------ ------ ----- ------Income before income tax expense................. 589 421 1,093 39.9 (46.1)Income tax expense............................... 196 140 381 40.0 (48.6) ------ ------ ------ ----- ------NET INCOME....................................... $ 393 $ 281 $ 712 39.9% (44.8)% ====== ====== ====== ===== ======Gain on bulk sale of private label receivables, after-tax...................................... -- -- (423) -- 100.0Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax.......................... -- -- 121 -- (100.0) ------ ------ ------ ----- ------Operating net income(1).......................... $ 393 $ 281 $ 410 39.9% (4.1)% ====== ====== ====== ===== ====== --------------- (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 RELATED REVENUE THREE MONTHS ENDED ----------------------------- 12/31/05 9/30/05 12/31/04------------------------------------------------------------------------------------------- (IN MILLIONS)Net initial gains(1)........................................ $-- $-- $ --Net replenishment gains(1).................................. 19 38 69Servicing revenue and excess spread......................... 12 3 58 --- --- ----Total....................................................... $31 $41 $127 === === ==== --------------- (1) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED THREE MONTHS ENDED ----------------------------- 12/31/05 9/30/05 12/31/04------------------------------------------------------------------------------------------- (IN MILLIONS)Auto finance................................................ $ -- $ -- $ --MasterCard/Visa(1).......................................... -- -- --Private label............................................... -- -- -- ----- ----- -----Total....................................................... $ -- $ -- $ -- ===== ===== ===== --------------- (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 TWELVE MONTHS TWELVE MONTHS ENDED ------------------------------ 12/31/05 12/31/04 % CHANGE -------- -------- -------- (DOLLARS ARE IN MILLIONS)Finance and other interest income........................... $13,216 $10,945 20.7%Interest expense: HSBC affiliates........................................... 713 343 100+ Non-affiliates............................................ 4,119 2,800 47.1 ------- ------- ------NET INTEREST INCOME......................................... 8,384 7,802 7.5Provision for credit losses................................. 4,543 4,334 4.8 ------- ------- ------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 3,841 3,468 10.8 ------- ------- ------Other revenues: Securitization related revenue............................ 211 1,008 (79.1) Insurance revenue......................................... 918 839 9.4 Investment income......................................... 134 137 (2.2) Derivative income......................................... 249 511 (51.3) Fee income................................................ 1,568 1,091 43.7 Taxpayer financial services revenue....................... 277 217 27.6 Gain on bulk sale of private label receivables............ -- 663 (100.0) Gain on receivable sales to HSBC affiliates............... 413 39 100+ Servicing fees from HSBC affiliates....................... 409 24 100+ Other income.............................................. 652 544 19.9 ------- ------- ------TOTAL OTHER REVENUES........................................ 4,831 5,073 (4.8) ------- ------- ------Costs and expenses: Salaries and employee benefits............................ 2,072 1,886 9.9 Sales incentives.......................................... 397 363 9.4 Occupancy and equipment expenses.......................... 334 323 3.4 Other marketing expenses.................................. 731 636 14.9 Other servicing and administrative expenses............... 785 868 (9.6) Support services from HSBC affiliates..................... 889 750 18.5 Amortization of intangibles............................... 345 363 (5.0) Policyholders' benefits................................... 456 412 10.7 ------- ------- ------TOTAL COSTS AND EXPENSES.................................... 6,009 5,601 7.3 ------- ------- ------Income before income tax expense............................ 2,663 2,940 (9.4)Income tax expense.......................................... 891 1,000 (10.9) ------- ------- ------NET INCOME.................................................. $ 1,772 $ 1,940 (8.7)% ======= ======= ======Gain on bulk sale of private label receivables, after-tax... -- (423) 100.0Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios, after-tax....... -- 121 (100.0) ------- ------- ------Operating net income(1)..................................... $ 1,772 $ 1,638 8.2% ======= ======= ====== --------------- (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. 5 HSBC Finance Corporation-------------------------------------------------------------------------------- SECURITIZATION RELATED REVENUE TWELVE MONTHS ENDED ------------------- 12/31/05 12/31/04--------------------------------------------------------------------------------- (IN MILLIONS)Net initial gains(1)........................................ $ -- $ 25Net replenishment gains(1).................................. 154 414Servicing revenue and excess spread......................... 57 569 ---- ------Total....................................................... $211 $1,008 ==== ====== --------------- (1) Net of our estimate of probable credit losses under the recourse provisions. RECEIVABLES SECURITIZED TWELVE MONTHS ENDED ------------------- 12/31/05 12/31/04--------------------------------------------------------------------------------- (IN MILLIONS)Auto finance................................................ $ -- $ --MasterCard/Visa............................................. -- 550Private label............................................... -- 190 ---- ----Total....................................................... $ -- $740 ==== ==== 6 HSBC Finance Corporation-------------------------------------------------------------------------------- RECEIVABLES ANALYSIS END-OF-PERIOD RECEIVABLES % CHANGE FROM PRIOR -------------- 12/31/05 9/30/05 12/31/04 QTR. YEAR---------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)OWNED RECEIVABLES: Real estate secured........................ $ 82,826 $ 78,130 $ 64,820 6.0% 27.8% Auto finance............................... 10,704 10,137 7,544 5.6 41.9 MasterCard/Visa............................ 24,110 18,974 14,635 27.1 64.7 Private label(1)........................... 2,520 2,777 3,411 (9.3) (26.1) Personal non-credit card................... 19,545 18,484 16,128 5.7 21.2 Commercial and other....................... 208 220 317 (5.5) (34.4) -------- -------- -------- ----- ------Total owned receivables...................... 139,913 128,722 106,855 8.7 30.9 -------- -------- -------- ----- ------RECEIVABLES SERVICED WITH LIMITED RECOURSE: Real estate secured........................ -- -- 81 -- (100.0) Auto finance............................... 1,192 1,474 2,679 (19.1) (55.5) MasterCard/Visa............................ 1,875 3,615 7,583 (48.1) (75.3) Private label(1)........................... -- -- -- -- -- Personal non-credit card................... 1,007 1,670 3,882 (39.7) (74.1) -------- -------- -------- ----- ------Total receivables serviced with limited recourse................................... 4,074 6,759 14,225 (39.7) (71.4) -------- -------- -------- ----- ------MANAGED RECEIVABLES:(2) Real estate secured........................ 82,826 78,130 64,901 6.0 27.6 Auto finance............................... 11,896 11,611 10,223 2.5 16.4 MasterCard/Visa............................ 25,985 22,589 22,218 15.0 17.0 Private label(1)........................... 2,520 2,777 3,411 (9.3) (26.1) Personal non-credit card(3)................ 20,552 20,154 20,010 2.0 2.7 Commercial and other....................... 208 220 317 (5.5) (34.4) -------- -------- -------- ----- ------Total managed receivables.................... $143,987 $135,481 $121,080 6.3% 18.9% ======== ======== ======== ===== ====== --------------- (1) On December 29, 2004, we sold $12.2 billion of domestic private label receivables ($15.6 billion on a managed basis) 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: 12/31/05 9/30/05 12/31/04----------------------------------------------------------------------------------------- (IN MILLIONS)Domestic personal unsecured............................... $12,190 $11,571 $10,725Union Plus personal unsecured............................. 333 374 474Personal homeowner loans.................................. 4,384 4,360 4,582Foreign unsecured......................................... 3,645 3,849 4,229 ------- ------- -------Total..................................................... $20,552 $20,154 $20,010 ======= ======= ======= 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 ------------------------------------------------------ ------------- 12/31/05 (2) 9/30/05 (2) 12/31/04 (2) QTR. YEAR---------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income.......................... $ 3,933 10.88% $ 3,671 10.89% $ 3,601 10.64% 7.1% 9.2%Interest expense.................. 1,502 4.15 1,331 3.95 1,050 3.10 12.8 43.0 -------- ----- -------- ----- -------- ----- ----- -----NET INTEREST INCOME............... 2,431 6.73% 2,340 6.94% 2,551 7.54% 3.9 (4.7)Provision for credit losses....... 1,358 1,338 1,305 1.5 4.1 -------- -------- -------- ----- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES..... $ 1,073 $ 1,002 $ 1,246 7.1% (13.9)% ======== ======== ======== ===== =====Other revenues:Insurance revenue................. $ 239 $ 229 $ 221 4.4% 8.1%Investment income................. 35 33 30 6.1 16.7Fee income........................ 510 497 437 2.6 16.7Securitization related revenue.... (95) (217) (477) (56.2) (80.1)Derivative income (expense)....... (34) (53) 263 (35.8) (100+)Taxpayer financial services revenue (expense)............... 17 (1) 8 100+ 100+Gain on receivable sales to HSBC affiliates...................... 105 99 677 6.1 (84.5)Servicing fees from HSBC affiliates...................... 106 102 13 3.9 100+Other income...................... 175 213 137 (17.8) 27.7 -------- -------- -------- ----- -----TOTAL OTHER REVENUES.............. $ 1,058 $ 902 $ 1,309 17.3% (19.2)% ======== ======== ======== ===== =====Average managed receivablesReal estate secured............... $ 81,332 $ 74,369 $ 61,543 9.4% 32.2%Auto finance...................... 11,771 11,230 10,052 4.8 17.1MasterCard/Visa................... 24,248 22,536 21,221 7.6 14.3Private label..................... 2,708 2,840 17,858 (4.6) (84.8)Personal non-credit card.......... 20,324 19,944 19,593 1.9 3.7Commercial and other.............. 217 234 321 (7.3) (32.4)Purchase accounting fair value adjustments..................... 83 116 243 (28.4) (65.8) -------- -------- -------- ----- -----Average managed receivables....... $140,683 $131,269 $130,831 7.2% 7.5%Average noninsurance investments..................... 3,176 2,868 3,889 10.7 (18.3)Other interest-earning assets..... 686 680 660 .9 3.9 -------- -------- -------- ----- -----Average managed interest-earning assets.......................... $144,545 $134,817 $135,380 7.2% 6.8% ======== ======== ======== ===== =====SELECTED FINANCIAL RATIOS:Return on average managed assets.......................... 1.01% .75% 1.87% 34.7% (46.0)%Efficiency ratio.................. 42.40 43.86 36.00 (3.3) 17.8Net interest margin............... 6.73 6.94 7.54 (3.0) (10.7)Risk adjusted revenue............. 6.81 7.34 8.37 (7.2) (18.6) ======== ======== ======== ===== ===== --------------- (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 TWELVE MONTHS TWELVE MONTHS ENDED ------------------------------------ 12/31/05 (2) 12/31/04 (2) % CHANGE----------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income............. $ 14,483 10.83% $ 13,928 10.83% 4.0%Interest expense.............................. 5,207 3.89 3,671 2.86 41.8 -------- ----- -------- ----- -----NET INTEREST INCOME........................... 9,276 6.94% 10,257 7.97% (9.6)Provision for credit losses................... 4,650 4,522 2.8 -------- -------- -----NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES...................................... 4,626 $ 5,735 (19.3)% ======== ======== =====Other revenues: Insurance revenue........................... $ 918 $ 839 9.4% Investment income........................... 134 137 (2.2) Fee income.................................. 1,831 1,836 (.3) Securitization related revenue (expense).... (837) (2,004) (58.2) Derivative income........................... 249 511 (51.3) Taxpayer financial services revenue......... 277 217 27.6 Gain on receivable sales to HSBC affiliates............................... 413 702 (41.2) Servicing fees from HSBC affiliates......... 409 24 100+ Other income................................ 652 544 19.9 -------- -------- -----TOTAL OTHER REVENUES.......................... $ 4,046 $ 2,806 44.2% ======== ======== =====Average managed receivables Real estate secured......................... $ 73,120 $ 56,462 29.5% Auto finance................................ 10,937 9,432 16.0 MasterCard/Visa............................. 22,694 20,674 9.8 Private label............................... 2,948 17,579 (83.2) Personal non-credit card.................... 19,956 18,986 5.1 Commercial and other........................ 255 354 (28.0) Purchase accounting fair value adjustments.............................. 134 319 (58.0) -------- -------- -----Average managed receivables................... $130,044 $123,806 5.0%Average noninsurance investments.............. 3,018 4,203 (28.2)Other interest-earning assets................. 676 650 4.0 -------- -------- -----Average managed interest-earning assets....... $133,738 $128,659 3.9% ======== ======== =====SELECTED FINANCIAL RATIOS:Return on average managed assets.............. 1.19% 1.33% (10.5)%Efficiency ratio.............................. 43.16 41.02 5.2Net interest margin........................... 6.94 7.97 (12.9)Risk adjusted revenue......................... 7.18 7.30 (1.6) -------- -------- ----- --------------- (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. 12/31/05 9/30/05 12/31/04-------------------------------------------------------------------------------------------------Real estate secured............................................ 2.72% 2.51% 2.97%Auto finance................................................... 2.76 2.67 2.96MasterCard/Visa(2)............................................. 3.52 4.13 3.98Private label.................................................. 5.43 5.22 4.13Personal non-credit card....................................... 9.54 9.36 9.30 ---- ---- ----TOTAL.......................................................... 3.89% 3.87% 4.24% ==== ==== ==== QUARTER-TO-DATE CHARGE-OFFS, NET OF RECOVERIES AS A PERCENT OF AVERAGE MANAGED CONSUMER RECEIVABLES, ANNUALIZED, EXCLUDES COMMERCIAL. 12/31/05 9/30/05 12/31/04---------------------------------------------------------------------------------------------------------------------Real estate secured...................................................... .66% .75% 1.04%Auto finance............................................................. 4.40 4.41 4.47MasterCard/Visa(3)....................................................... 7.85 6.11 7.54Private label(3)......................................................... 5.60 5.35 9.22Personal non-credit card................................................. 7.59 8.15 8.55 ---- ---- ----TOTAL.................................................................... 3.31% 3.21% 4.61% ==== ==== ====Real estate charge-offs and REO expense as a percent of average managed real estate secured receivables.................................................... .78% .88% 1.17% ==== ==== ==== CREDIT LOSS RESERVES 12/31/05 9/30/05 12/31/04------------------------------------------------------------------------------------------- (IN MILLIONS)Reserves for managed receivables at beginning of quarter.... $ 4,571 $ 4,281 $ 5,199Provision for credit losses................................. 1,358 1,338 1,305Charge-offs................................................. (1,297) (1,185) (1,632)Recoveries.................................................. 134 133 130Other, net.................................................. (30) 4 (487) ------- ------- -------Reserves for managed receivables at end of quarter.......... $ 4,736 $ 4,571 $ 4,515 ======= ======= =======Reserves as a percent of managed receivables................ 3.29% 3.37% 3.73% ------- ------- ------- NONPERFORMING ASSETS 12/31/05 9/30/05 12/31/04 -------- ------- --------------------------------------------------------------------------------------------------- (IN MILLIONS)Nonaccrual managed receivables.............................. $3,709 $3,541 $3,558Accruing managed receivables 90 or more days delinquent..... 642 604 607Renegotiated commercial loans............................... -- -- 2 ------ ------ ------Total nonperforming managed receivables..................... 4,351 4,145 4,167Real estate owned........................................... 510 462 587 ------ ------ ------TOTAL NONPERFORMING ASSETS.................................. $4,861 $4,607 $4,754 ====== ====== ======Managed credit loss reserves as a percent of nonperforming managed receivables....................................... 108.8% 110.3% 108.4% --------------- (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) In December 2005, we completed the acquisition of Metris which included receivables of $5.3 billion. Excluding the receivables from the Metris acquisition from this calculation, our consumer delinquency ratio for our MasterCard/Visa portfolio was 3.79% and total consumer delinquency was 3.95%. (3) 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 (excluding retail sales contracts at our consumer lending business) 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. 10 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES REVENUES, AVERAGE INTEREST-EARNING ASSETS AND NET INTEREST INCOME THREE MONTHS THREE MONTHS ENDED 12/31/05 THREE MONTHS ENDED 9/30/05 ----------------------------------- ----------------------------------- SERVICED WITH SERVICED WITH LIMITED LIMITED OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED------------------------------------------------------------------------------------------------------------------ (DOLLARS ARE IN MILLIONS)Finance and other interest income...... $ 3,725 $ 208 $ 3,933 $ 3,402 $ 269 $ 3,671Interest expense....................... 1,427 75 1,502 1,239 92 1,331 -------- ------ -------- -------- ------- --------NET INTEREST INCOME.................... 2,298 133 2,431 2,163 177 2,340Provision for credit losses............ 1,310 48 1,358 1,361 (23) 1,338 -------- ------ -------- -------- ------- --------NET INTEREST INCOME AFTER PROVISION for CREDIT LOSSES......................... $ 988 $ 85 $ 1,073 $ 802 $ 200 $ 1,002Other revenues: Securitization related revenue........ $ 31 $ (126) $ (95) $ 41 $ (258) $ (217) Insurance revenue..................... 239 -- 239 229 -- 229 Investment income..................... 35 -- 35 33 -- 33 Fee income............................ 469 41 510 439 58 497 Derivative income (expense)........... (34) -- (34) (53) -- (53) Taxpayer financial services revenue (expense)........................... 17 -- 17 (1) -- (1) Gain on receivable sales to HSBC affiliates.......................... 105 -- 105 99 -- 99 Servicing fees from HSBC affiliates... 106 -- 106 102 -- 102 Other income.......................... 175 -- 175 213 -- 213 -------- ------ -------- -------- ------- --------TOTAL OTHER REVENUES................... $ 1,143 $ (85) $ 1,058 $ 1,102 $ (200) $ 902Average receivables: Real estate secured................... $ 81,332 $ -- $ 81,332 $ 74,369 $ -- $ 74,369 Auto finance.......................... 10,420 1,351 11,771 9,585 1,645 11,230 MasterCard/Visa....................... 21,143 3,105 24,248 18,442 4,094 22,536 Private label......................... 2,708 -- 2,708 2,840 -- 2,840 Personal non-credit card.............. 19,023 1,301 20,324 17,904 2,040 19,944 Commercial and other.................. 217 -- 217 234 -- 234 Purchase accounting fair value adjustments......................... 83 -- 83 116 -- 116 -------- ------ -------- -------- ------- --------Average receivables.................... $134,926 $5,757 $140,683 $123,490 $ 7,779 $131,269Average noninsurance investments....... 3,176 -- 3,176 2,868 -- 2,868Other interest-earning assets.......... 686 -- 686 680 -- 680 -------- ------ -------- -------- ------- --------Average interest-earning assets........ $138,788 $5,757 $144,545 $127,038 $ 7,779 $134,817Net interest income as a percentage of average interest-earning assets....... 6.62% 9.24% 6.73% 6.81% 9.10% 6.94% ======== ====== ======== ======== ======= ======== THREE MONTHS ENDED 12/31/04 ----------------------------------- SERVICED WITH LIMITED OWNED RECOURSE(1) MANAGED--------------------------------------- ----------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income...... $ 3,001 $ 600 $ 3,601Interest expense....................... 918 132 1,050 -------- ------- --------NET INTEREST INCOME.................... 2,083 468 2,551Provision for credit losses............ 1,286 19 1,305 -------- ------- --------NET INTEREST INCOME AFTER PROVISION for CREDIT LOSSES......................... $ 797 $ 449 $ 1,246Other revenues: Securitization related revenue........ $ 127 $ (604) $ (477) Insurance revenue..................... 221 -- 221 Investment income..................... 30 -- 30 Fee income............................ 282 155 437 Derivative income (expense)........... 263 -- 263 Taxpayer financial services revenue (expense)........................... 8 -- 8 Gain on receivable sales to HSBC affiliates.......................... 677 -- 677 Servicing fees from HSBC affiliates... 13 -- 13 Other income.......................... 137 -- 137 -------- ------- --------TOTAL OTHER REVENUES................... $ 1,758 $ (449) $ 1,309Average receivables: Real estate secured................... $ 61,445 $ 98 $ 61,543 Auto finance.......................... 7,191 2,861 10,052 MasterCard/Visa....................... 13,009 8,212 21,221 Private label......................... 14,349 3,509 17,858 Personal non-credit card.............. 15,671 3,922 19,593 Commercial and other.................. 321 -- 321 Purchase accounting fair value adjustments......................... 243 -- 243 -------- ------- --------Average receivables.................... $112,229 $18,602 $130,831Average noninsurance investments....... 3,889 -- 3,889Other interest-earning assets.......... 660 -- 660 -------- ------- --------Average interest-earning assets........ $116,778 $18,602 $135,380Net interest income as a percentage of average interest-earning assets....... 7.13% 10.06% 7.54% ======== ======= ======== --------------- (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 related 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 TWELVE MONTHS TWELVE MONTHS ENDED 12/31/05 TWELVE MONTHS ENDED 12/31/04 ----------------------------------- ---------------------------------- SERVICED WITH SERVICED LIMITED WITH LIMITED OWNED RECOURSE(1) MANAGED OWNED RECOURSE(1) MANAGED--------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)Finance and other interest income....................... $ 13,216 $ 1,267 $ 14,483 $ 10,945 $ 2,983 $ 13,928Interest expense............... 4,832 375 5,207 3,143 528 3,671 -------- ------- -------- -------- ------- --------NET INTEREST INCOME............ 8,384 892 9,276 7,802 2,455 10,257Provision for credit losses.... 4,543 107 4,650 4,334 188 4,522 -------- ------- -------- -------- ------- --------NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....................... $ 3,841 $ 785 $ 4,626 $ 3,468 $ 2,267 $ 5,735Other revenues: Securitization related revenue.................... $ 211 $(1,048) $ (837) $ 1,008 $(3,012) $ (2,004) Insurance revenue............ 918 -- 918 839 -- 839 Investment income............ 134 -- 134 137 -- 137 Fee income................... 1,568 263 1,831 1,091 745 1,836 Derivative income............ 249 -- 249 511 -- 511 Taxpayer financial services revenue.................... 277 -- 277 217 -- 217 Gain on receivable sales to HSBC affiliates............ 413 -- 413 702 -- 702 Servicing fees from HSBC affiliates................. 409 -- 409 24 -- 24 Other income................. 652 -- 652 544 -- 544 -------- ------- -------- -------- ------- --------TOTAL OTHER REVENUES........... $ 4,831 $ (785) $ 4,046 $ 5,073 $(2,267) $ 2,806Average receivables: Real estate secured.......... $ 73,097 $ 23 $ 73,120 $ 56,303 $ 159 $ 56,462 Auto finance................. 9,074 1,863 10,937 5,785 3,647 9,432 MasterCard/Visa.............. 17,823 4,871 22,694 11,575 9,099 20,674 Private label................ 2,948 -- 2,948 13,029 4,550 17,579 Personal non-credit card..... 17,558 2,398 19,956 14,194 4,792 18,986 Commercial and other......... 255 -- 255 354 -- 354 Purchase accounting fair value adjustments.......... 134 -- 134 319 -- 319 -------- ------- -------- -------- ------- --------Average receivables............ $120,889 $ 9,155 $130,044 $101,559 $22,247 $123,806Average noninsurance investments.................. 3,018 -- 3,018 4,203 -- 4,203Other interest-earning assets....................... 676 -- 676 650 -- 650 -------- ------- -------- -------- ------- --------Average interest-earning assets....................... $124,583 $ 9,155 $133,738 $106,412 $22,247 $128,659Net interest income as a percentage of average interest-earning assets...... 6.73% 9.74% 6.94% 7.33% 11.04% 7.97% ======== ======= ======== ======== ======= ======== --------------- (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 related 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 TWELVE MONTHS ENDED ------------------------------ ------------------- 12/31/05 9/30/05 12/31/04 12/31/05 12/31/04------------------------------------------------------------------------------------------------------------------ (DOLLARS ARE IN MILLIONS)RETURN ON AVERAGE COMMON SHAREHOLDER'S EQUITY:Net income.................................................. $ 393 $ 281 $ 712 $ 1,772 $ 1,940 Dividends on preferred stock............................... (21) (25) (18) (83) (72) -------- -------- -------- -------- --------Net income available to common shareholders................. $ 372 $ 256 $ 694 $ 1,689 $ 1,868Gain 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 -------- -------- -------- -------- --------Operating net income available to common shareholders....... $ 372 $ 256 $ 392 $ 1,689 $ 1,566 -------- -------- -------- -------- --------Average common shareholder's equity......................... $ 17,932 $ 16,973 $ 16,838 $ 16,936 $ 17,003 -------- -------- -------- -------- --------Return on average common shareholder's equity............... 8.30% 6.03% 16.49% 9.97% 10.99%Return on average common shareholder's equity, operating basis...................................................... 8.30 6.03 9.31 9.97 9.21 ======== ======== ======== ======== ========RETURN ON AVERAGE ASSETS:Net income.................................................. $ 393 $ 281 $ 712 $ 1,772 $ 1,940Operating net income........................................ 393 281 410 1,772 1,638 -------- -------- -------- -------- --------Average assets: Owned basis................................................ $150,644 $141,765 $134,316 $139,800 $123,921 Serviced with limited recourse............................. 5,757 7,779 18,602 9,155 22,247 -------- -------- -------- -------- -------- Managed basis.............................................. $156,401 $149,544 $152,918 $148,955 $146,168Return on average owned assets.............................. 1.04% .79% 2.12% 1.27% 1.57%Return on average owned assets, operating basis............. 1.04 .79 1.22 1.27 1.32Return on average managed assets............................ 1.01 .75 1.87 1.19 1.33Return on average managed assets, operating basis........... 1.01 .75 1.07 1.19 1.12 ======== ======== ======== ======== ========EFFICIENCY RATIO:Total costs and expenses less policyholders' benefits....... $ 1,433 $ 1,374 $ 1,349 $ 5,553 $ 5,189 -------- -------- -------- -------- --------Net interest income and other revenues less policyholders' benefits: Owned basis................................................ $ 3,332 $ 3,156 $ 3,728 $ 12,759 $ 12,463 Serviced with limited recourse............................. 48 (23) 19 107 188 -------- -------- -------- -------- -------- Managed basis.............................................. $ 3,380 $ 3,133 $ 3,747 $ 12,866 $ 12,651 -------- -------- -------- -------- --------Gain on bulk sale of private label receivables.............. -- -- (663) -- (663)Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios: Owned basis................................................ -- -- 151 -- 151 Managed basis.............................................. -- -- 107 -- 107Net interest income and other revenues less policyholders' benefits, excluding nonrecurring items: Owned basis................................................ $ 3,332 $ 3,156 $ 3,216 $ 12,759 $ 11,951 Serviced with limited recourse............................. 48 (23) (25) 107 144 -------- -------- -------- -------- -------- Managed basis.............................................. $ 3,380 $ 3,133 $ 3,191 $ 12,866 $ 12,095 -------- -------- -------- -------- --------Owned basis efficiency ratio................................ 43.01% 43.54% 36.19% 43.52% 41.64%Owned basis efficiency ratio, operating basis............... 43.01 43.54 41.95 43.52 43.42Managed basis efficiency ratio.............................. 42.40 43.86 36.00 43.16 41.02Managed basis efficiency ratio, operating basis............. 42.40 43.86 42.28 43.16 42.90 ======== ======== ======== ======== ========MANAGED BASIS RISK ADJUSTED REVENUE:Net interest income......................................... $ 2,431 $ 2,340 $ 2,551 $ 9,276 $ 10,257Other revenues, excluding securitization related revenue as well as the mark-to-market on derivatives which do not qualify as effective hedges and ineffectiveness associated with qualifying hedges under SFAS No. 133.................. 1,193 1,185 1,786 4,686 4,810Less: Net charge-offs....................................... (1,163) (1,052) (1,502) (4,361) (5,674) -------- -------- -------- -------- --------Risk adjusted revenue....................................... $ 2,461 $ 2,473 $ 2,835 $ 9,601 $ 9,393Gain on bulk sale of private label receivables.............. -- -- (663) -- (663)Adoption of FFIEC charge-off policies for domestic private label and MasterCard and Visa portfolios................... -- -- 309 -- 309 -------- -------- -------- -------- --------Risk adjusted revenue, excluding nonrecurring items......... $ 2,461 $ 2,473 $ 2,481 $ 9,601 $ 9,039 -------- -------- -------- -------- --------Average interest-earning assets............................. $144,545 $134,817 $135,380 $133,738 $128,659 -------- -------- -------- -------- --------Managed basis risk adjusted revenue......................... 6.81% 7.34% 8.37% 7.18% 7.30%Managed basis risk adjusted revenue, operating basis........ 6.81 7.34 7.32 7.18 7.03 -------- -------- -------- -------- -------- 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 NET AVERAGE CONTRACTUAL RECEIVABLES CONTRACTUAL CHARGE- CONSUMER NET DELINQUENCY OUTSTANDING DELINQUENCY(1) OFFS RECEIVABLES CHARGE-OFFS(1)------------------------------------------------------------------------------------------------------------------ (DOLLARS ARE IN MILLIONS)DECEMBER 31, 2005 OWNED: First mortgage............. $ 2 $ 21 8.41% $ -- $ 21 2.80% Real estate secured........ 2,257 82,826 2.72 134 81,332 .66 Auto finance............... 250 10,704 2.34 89 10,420 3.42 MasterCard/Visa............ 884 24,110 3.66 422 21,143 7.99 Private label.............. 137 2,520 5.43 38 2,708 5.60 Personal non-credit card... 1,836 19,545 9.40 361 19,023 7.59 ------ -------- ----- ------ -------- ----- Total...................... $5,366 $139,726 3.84% $1,044 $134,647 3.10% ====== ======== ===== ====== ======== ===== SERVICED WITH LIMITED RECOURSE: Real estate secured........ $ -- $ -- --% $ -- $ -- --% Auto finance............... 79 1,192 6.63 40 1,351 11.84 MasterCard/Visa............ 30 1,875 1.60 54 3,105 6.96 Personal non-credit card... 125 1,007 12.41 25 1,301 7.69 ------ -------- ----- ------ -------- ----- Total...................... $ 234 $ 4,074 5.74% $ 119 $ 5,757 8.27% ====== ======== ===== ====== ======== ===== MANAGED: First mortgage............. $ 2 21 8.41% $ -- $ 21 2.80% Real estate secured........ 2,257 82,826 2.72 134 81,332 .66 Auto finance............... 329 11,896 2.76 129 11,771 4.40 MasterCard/Visa............ 914 25,985 3.52 476 24,248 7.85 Private label.............. 137 2,520 5.43 38 2,708 5.60 Personal non-credit card... 1,961 20,552 9.54 386 20,324 7.59 ------ -------- ----- ------ -------- ----- Total...................... $5,600 $143,800 3.89% $1,163 $140,404 3.31% ====== ======== ===== ====== ======== =====SEPTEMBER 30, 2005 OWNED: First mortgage............. $ 1 $ 22 6.04% $ -- $ 23 --% Real estate secured........ 1,961 78,130 2.51 140 74,369 .75 Auto finance............... 212 10,137 2.09 78 9,585 3.25 MasterCard/Visa............ 846 18,974 4.46 288 18,442 6.24 Private label.............. 145 2,777 5.22 38 2,840 5.35 Personal non-credit card... 1,696 18,484 9.18 358 17,904 8.01 ------ -------- ----- ------ -------- ----- Total...................... $4,861 $128,524 3.78% $ 902 $123,163 2.93% ====== ======== ===== ====== ======== ===== SERVICED WITH LIMITED RECOURSE: Real estate secured........ $ -- $ -- --% $ -- $ -- --% Auto finance............... 98 1,474 6.65 46 1,645 11.19 MasterCard/Visa............ 87 3,615 2.41 56 4,094 5.47 Personal non-credit card... 191 1,670 11.44 48 2,040 9.41 ------ -------- ----- ------ -------- ----- Total...................... $ 376 $ 6,759 5.56% $ 150 $ 7,779 7.71% ====== ======== ===== ====== ======== ===== MANAGED: First mortgage............. $ 1 $ 22 6.04% $ -- $ 23 --% Real estate secured........ 1,961 78,130 2.51 140 74,369 .75 Auto finance............... 310 11,611 2.67 124 11,230 4.41 MasterCard/Visa............ 933 22,589 4.13 344 22,536 6.11 Private label.............. 145 2,777 5.22 38 2,840 5.35 Personal non-credit card... 1,887 20,154 9.36 406 19,944 8.15 ------ -------- ----- ------ -------- ----- Total...................... $5,237 $135,283 3.87% $1,052 $130,942 3.21% ====== ======== ===== ====== ======== ===== --------------- (1) Certain percentages may not recompute from the dollar figures presented due to rounding. 14 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED) TWO-MONTHS-AND-OVER CONTRACTUAL DELINQUENCY QUARTER-TO-DATE CHARGE-OFFS, --------------------------------------------- NET OF RECOVERIES TWO-MONTHS TWO-MONTHS- -------------------------------------- AND-OVER CONSUMER AND-OVER NET AVERAGE CONTRACTUAL RECEIVABLES CONTRACTUAL CHARGE- CONSUMER NET DELINQUENCY OUTSTANDING DELINQUENCY(1) OFFS RECEIVABLES CHARGE-OFFS(1)--------------------------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)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. 15 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED) SERVICED WITH OWNED LIMITED RECOURSE MANAGED-------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)REAL ESTATE CHARGE-OFFS AND REO EXPENSE:THREE MONTHS ENDED DECEMBER 31, 2005Real estate charge-offs and REO expense..................... $ 158 $-- $ 158Average real estate secured receivables..................... 81,332 -- 81,332 ------- --- -------Real estate charge-offs and REO expense as a percentage of average real estate secured receivables(1)................ .78% -- .78% ======= === =======THREE MONTHS ENDED SEPTEMBER 30, 2005Real estate charge-offs and REO expense..................... $ 163 $-- $ 163Average real estate secured receivables..................... 74,369 -- 74,369 ------- --- -------Real estate charge-offs and REO expense as a percentage of average real estate secured receivables(1)................ .88% -- .88% ======= === =======THREE MONTHS ENDED DECEMBER 31, 2004Real estate charge-offs and REO expense..................... $ 179 $ 1 $ 180Average real estate secured receivables..................... 61,445 98 61,543 ------- --- -------Real estate charge-offs and REO expense as a percentage of average real estate secured receivables(1)................ 1.17% -- 1.17% ======= === ======= --------------- (1)Certain percentages may not recompute from the dollar figures presented due to rounding. 16 HSBC Finance Corporation-------------------------------------------------------------------------------- RECONCILIATION TO GAAP FINANCIAL MEASURES CREDIT QUALITY/CREDIT LOSS RESERVES (CONTINUED) SERVICED WITH OWNED LIMITED RECOURSE MANAGED---------------------------------------------------------------------------------------------------- (DOLLARS ARE IN MILLIONS)CREDIT LOSS RESERVES:THREE MONTHS ENDED DECEMBER 31, 2005Reserves for receivables at beginning of quarter............ $ 4,220 $ 351 $ 4,571Provision for credit losses................................. 1,310 48 1,358Charge-offs, net of recoveries.............................. (1,044) (119) (1,163)Other, net.................................................. 35 (65) (30) -------- ------- --------Reserves for receivables at end of quarter.................. $ 4,521 $ 215 $ 4,736Receivables................................................. $139,913 $ 4,074 $143,987Credit loss reserves as a percent of receivables............ 3.23% 5.28% 3.29% -------- ------- --------THREE MONTHS ENDED SEPTEMBER 30, 2005Reserves for receivables at beginning of quarter............ $ 3,756 $ 525 $ 4,281Provision for credit losses................................. 1,361 (23) 1,338Charge-offs, net of recoveries.............................. (902) (150) (1,052)Other, net.................................................. 5 (1) 4 -------- ------- --------Reserves for receivables at end of quarter.................. $ 4,220 $ 351 $ 4,571Receivables................................................. $128,722 $ 6,759 $135,481Credit loss reserves as a percent of receivables............ 3.28% 5.19% 3.37% -------- ------- --------THREE MONTHS ENDED DECEMBER 31, 2004Reserves for receivables at beginning of quarter............ $ 3,953 $ 1,246 $ 5,199Provision for credit losses................................. 1,286 19 1,305Charge-offs, net of recoveries.............................. (1,127) (375) (1,502)Other, net.................................................. (487) -- (487) -------- ------- --------Reserves for receivables at end of quarter.................. $ 3,625 $ 890 $ 4,515Receivables................................................. $106,855 $14,225 $121,080Credit loss reserves as a percent of receivables............ 3.39% 6.26% 3.73% -------- ------- --------NONPERFORMING ASSETS:DECEMBER 31, 2005Nonaccrual receivables...................................... $ 3,533 $ 176 $ 3,709Accruing receivables 90 or more days delinquent............. 621 21 642Renegotiated commercial loans............................... -- -- -- -------- ------- --------Total nonperforming receivables............................. 4,154 197 4,351Real estate owned........................................... 510 -- 510 -------- ------- --------Total nonperforming assets.................................. $ 4,664 $ 197 $ 4,861Credit loss reserves as a percent of nonperforming receivables............................................... 108.8% -- 108.8% -------- ------- --------SEPTEMBER 30, 2005Nonaccrual receivables...................................... $ 3,273 $ 268 $ 3,541Accruing receivables 90 or more days delinquent............. 563 41 604Renegotiated commercial loans............................... -- -- -- -------- ------- --------Total nonperforming receivables............................. 3,836 309 4,145Real estate owned........................................... 462 -- 462 -------- ------- --------Total nonperforming assets.................................. $ 4,298 $ 309 $ 4,607Credit loss reserves as a percent of nonperforming receivables............................................... 110.0% -- 110.3% -------- ------- --------DECEMBER 31, 2004Nonaccrual receivables...................................... $ 3,012 $ 546 $ 3,558Accruing receivables 90 or more days delinquent............. 507 100 607Renegotiated commercial loans............................... 2 -- 2 -------- ------- --------Total nonperforming receivables............................. 3,521 646 4,167Real estate owned........................................... 587 -- 587 -------- ------- --------Total nonperforming assets.................................. $ 4,108 $ 646 $ 4,754Credit loss reserves as a percent of nonperforming receivables............................................... 103.0% -- 108.4% -------- ------- -------- 17 This information is provided by RNS The company news service from the London Stock Exchange