exv99

EX-99 2 c92547exv99.htm QUARTERLY FINANCIAL SUPPLEMENT exv99

EXHIBIT 99

HSBC Finance Corporation

Quarterly Financial Supplement – December 31, 2004


Index			Page No.

Basis of Reporting				2
Consolidated Statements of Income – Owned Basis:
	Three Months			4
	Twelve Months			6
Receivables Analysis				8
Financial Highlights – Managed Basis:
	Three Months			9
	Twelve Months			10
Credit Quality/ Credit Loss Reserves – Managed Basis				11
Reconciliations 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 for the previously reported quarterly periods ended March 31, 2004, June 30, 2004 and September 31, 2004; and the period March 29, 2003 through December 31, 2003. This Quarterly Financial Supplement includes all adjustments relating to the restatement for these prior periods. See Note 3, “Restatement,” to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2004 for further discussion of the restatement.

Basis of Reporting

Non-GAAP Financial Measures

This Quarterly Financial Supplement includes financial information which is presented on a non-GAAP basis as discussed below. Information included in this Quarterly Financial Supplement is intended to supplement and should not be considered a substitute for owned basis reporting. This Quarterly Financial Supplement should be read in conjunction with the owned basis information reported in our Annual Report on Form 10-K.

See “Reconciliations to GAAP Financial Measures” for quantitative reconciliations of non-GAAP financial information to the equivalent owned basis GAAP financial information.

Managed basis reporting We monitor our operations and evaluate trends on a managed basis (a non-GAAP financial measure), which assumes that securitized receivables have not been sold and are still on our balance sheet. We manage and evaluate our operations on a managed basis because the receivables that we securitize are subjected to underwriting standards comparable to our owned portfolio, are serviced by operating personnel without regard to ownership and result in a similar credit loss exposure for us. In addition, we fund our operations, review our operating results, and make decisions about allocating resources such as employees and capital on a managed basis.

When reporting on a managed basis, net interest income, provision for credit losses and fee income related to receivables securitized are reclassified from securitization revenue in our owned statement of income into the appropriate caption. Additionally, charge-off and delinquency associated with these receivables are included in our managed basis credit quality statistics.

Debt analysts, rating agencies and others also evaluate our operations on a managed basis for the reasons discussed above and have historically requested managed basis information from us. We believe that managed basis information enables investors and other interested parties to better understand the performance and quality of our entire managed loan portfolio and is important to understanding the quality of originations and the related credit risk inherent in our owned and securitized portfolios. As the level of our securitized receivables falls over time, managed basis and owned basis results will eventually converge, and we will only report owned basis results.

Operating results, percentages and ratios Certain percentages and ratios have been presented on an operating basis and have been calculated using “operating net income”, a non-GAAP financial measure. “Operating net income” is net income excluding certain nonrecurring items shown in the table below. These nonrecurring items are also excluded in calculating our operating basis efficiency ratios. We believe that excluding these nonrecurring items helps readers of our financial statements to better understand the results and trends of our underlying business. See our Annual Report for 2004 on Form 10-K for further discussion of these items.

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		$	1,603
Gain 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 in a new basis of accounting reflecting the fair value of our assets and liabilities for the “successor” period beginning March 29, 2003. Information for all “predecessor” periods prior to the merger are presented using our historical basis of accounting, which impacts comparability with the “successor” period beginning March 29, 2003. To assist in the comparability of our financial results and to make it easier to discuss and understand our results of operations, this Quarterly Financial Supplement combines the “predecessor” period (January 1 to March 28, 2003) with the “successor” period (March 29 to December 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 to the current period presentation. Immaterial adjustments have been made to decrease finance income and increase securitization revenue as reported in prior periods. These adjustments reflect corrections after discovery of a system programming error in the posting of finance income between owned receivables and receivables serviced with limited recourse. Reported net income for all prior periods was not affected by these adjustments.

HSBC Finance Corporation

CONSOLIDATED STATEMENTS OF INCOME – OWNED BASIS

Three Months



											% Change from
		Three Months Ended									Prior

		12/31/04			9/30/04			12/31/03			Qtr.			Year
					(Restated)			(Restated)



		(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			6.5
Provision 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+			21.7
Income 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.

HSBC Finance Corporation

Securitization Revenue



	Three Months Ended

	12/31/04		9/30/04		12/31/03



	(in millions)
Net initial gains⁽¹⁾	$	-	$	-	$	84
Net replenishment gains⁽¹⁾		69		112		139
Servicing 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	$	-	$	-	$	516
MasterCard/ Visa⁽¹⁾		-		-		-
Private label		-		-		1,000
Personal non-credit card		-		-		1,620

Total	$	-	$	-	$	3,136

⁽¹⁾ MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc., respectively.

HSBC Finance Corporation

CONSOLIDATED STATEMENTS OF INCOME – OWNED BASIS

Twelve Months



		Twelve Months Ended

		12/31/04			12/31/03⁽¹⁾		% Change
					(Restated)



		(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		6.7
Provision 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		18.8
Income 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			-		100.0
HSBC 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.

HSBC Finance Corporation

Securitization Revenue



	Twelve Months Ended

	12/31/04		12/31/03⁽¹⁾



	(in millions)
Net initial gains⁽²⁾	$	25	$	176
Net replenishment gains⁽²⁾		414		548
Servicing revenue and excess spread		569		737

Total	$	1,008	$	1,461

Receivables Securitized



	Twelve Months Ended

	12/31/04		12/31/03⁽¹⁾



	(in millions)
Auto finance	$	-	$	1,523
MasterCard/ Visa		550		670
Private label		190		1,250
Personal non-credit card		-		3,320

Total	$	740	$	6,763

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	$	9,966
Union Plus personal unsecured		474		510		714
Personal homeowner loans		4,582		4,587		4,639
Foreign unsecured		4,229		3,923		3,617

Total	$	20,010	$	19,074	$	18,936

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	)%		16.9
Net interest margin			7.54						7.88						8.54						(4.3	)%		(11.7	)
Risk adjusted revenue			8.37						6.66						7.51						25.7	%		11.5
*Excluding 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	)%		37.0
Risk adjusted revenue			7.32						6.66						7.51						9.6	%		(2.8	)

HSBC Finance Corporation

FINANCIAL HIGHLIGHTS — MANAGED BASIS⁽¹⁾

Revenues, Average Interest-Earning Assets and Net Interest Income

Twelve Months



		Twelve Months Ended

								12/31/03(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	%		.7
Provision 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						15.2
Net interest margin			7.97						8.60						(7.3	)
Risk adjusted revenue			7.30						7.18						1.7
*Excluding Nonrecurring Items/ Operating Basis:⁽⁴⁾*
Return on average managed assets			1.12						1.32						(15.2	)
Efficiency ratio			42.9						34.1						25.8
Risk 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.

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			3.84
MasterCard/Visa		3.98			4.44			4.16
Private label		4.13			4.76			4.94
Personal 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			6.27
MasterCard/Visa⁽²⁾		7.54			6.92			7.03
Private label⁽²⁾		9.22			4.85			4.95
Personal 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		$	5,733
Provision for credit losses		1,305			891			1,748
Charge-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		$	4,009
Accruing managed receivables 90 or more days delinquent		607			1,201			1,215
Renegotiated commercial loans		2			1			2

Total nonperforming managed receivables		4,167			4,678			5,226
Real 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	%

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 12/31/03
		Three Months Ended 12/31/04									(Restated)									(Restated)

					Serviced with									Serviced with									Serviced with
					Limited									Limited									Limited
		Owned			Recourse⁽¹⁾			Managed			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		$	3,494		$	2,625		$	847		$	3,472
Interest expense			918			132			1,050			810			134			944			669			134			803

*Net interest income*			2,083			468			2,551			1,969			581			2,550			1,956			713			2,669
Provision for credit losses			1,286			19			1,305			1,123			(232	)		891			917			831			1,748

*Net interest income after provision for credit losses*		$	797		$	449		$	1,246		$	846		$	813		$	1,659		$	1,039		$	(118	)	$	921

Other revenues:
	Securitization revenue	$	127		$	(604	)	$	(477	)	$	267		$	(1,009	)	$	(742	)	$	347		$	(83	)	$	264
	Insurance revenue		221			-			221			203			-			203			193			-			193
	Investment income		30			-			30			36			-			36			45			-			45
	Fee income		282			155			437			302			196			498			281			201			482
	Derivative income		263			-			263			72			-			72			107			-			107
	Taxpayer financial services income		8			-			8			(3	)		-			(3	)		(1	)		-			(1	)
	Other income		164			-			164			163			-			163			158			-			158
	Gain on bulk sale of private label receivables		663			-			663			-			-			-			-			-			-

*Total other revenues*		$	1,758		$	(449	)	$	1,309		$	1,040		$	(813	)	$	227		$	1,130		$	118		$	1,248

Average receivables:
	Real estate secured	$	61,445		$	98		$	61,543		$	57,570		$	171		$	57,741		$	53,642		$	203		$	53,845
	Auto finance		7,191			2,861		$	10,052			6,238			3,360			9,598			3,961			4,667			8,628
	MasterCard/Visa		13,009			8,212		$	21,221			11,251			9,190			20,441			10,379			9,944			20,323
	Private label		14,349			3,509		$	17,858			13,310			4,316			17,626			12,564			4,494			17,058
	Personal non-credit card		15,671			3,922		$	19,593			14,423			4,505			18,928			13,606			5,260			18,866
	Commercial and other		321			-		$	321			336			-			336			403			-			403
	Purchase accounting fair value adjustments		243			-		$	243			295			-			295			444			-			444

Average receivables		$	112,229		$	18,602		$	130,831		$	103,423		$	21,542		$	124,965		$	94,999		$	24,568		$	119,567
Average noninsurance investments			3,889			-			3,889			3,878			-			3,878			4,793			-			4,793
Other interest-earning assets			660			-			660			654			-			654			637			-			637

Average interest-earning assets		$	116,778		$	18,602		$	135,380		$	107,955		$	21,542		$	129,497		$	100,429		$	24,568		$	124,997

Net interest income as a percentage of average interest-earning assets			7.13	%		10.06	%		7.54	%		7.29	%		10.79	%		7.88	%		7.79	%		11.61	%		8.54	%

⁽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 revenue in our owned statements of income into the appropriate caption.

HSBC Finance Corporation

RECONCILIATION TO GAAP FINANCIAL MEASURES

Revenues, Average Interest-Earning Assets and Net Interest Income

Twelve Months



											Twelve Months Ended 12/31/03
		Twelve Months Ended 12/31/04									(Restated)

					Serviced with									Serviced
					Limited									with Limited
		Owned			Recourse⁽¹⁾			Managed			Owned			Recourse⁽¹⁾			Managed



		(dollars are in millions)
Finance and other interest income		$	10,945		$	2,983		$	13,928		$	10,242		$	3,440		$	13,682
Interest expense			3,143			528			3,671			2,928			566			3,494

*Net interest income*			7,802			2,455			10,257			7,314			2,874			10,188
Provision for credit losses			4,334			188			4,522			3,967			2,275			6,242

*Net interest income after provision for credit losses*		$	3,468		$	2,267		$	5,735		$	3,347		$	599		$	3,946

Other revenues:
	Securitization revenue	$	1,008		$	(3,012	)	$	(2,004	)	$	1,461		$	(1,314	)	$	147
	Insurance revenue		839			-			839			746			-			746
	Investment income		137			-			137			196			-			196
	Fee income		1,091			745			1,836			1,064			715			1,779
	Derivative income		511			-			511			286			-			286
	Taxpayer financial services income		217			-			217			185			-			185
	Other income		607			-			607			381			-			381
	Gain on bulk sale of private label receivables		663			-			663			-			-			-

*Total other revenues*		$	5,073		$	(2,267	)	$	2,806		$	4,319		$	(599	)	$	3,720

Average receivables:
	Real estate secured	$	56,303		$	159		$	56,462		$	49,852		$	272		$	50,124
	Auto finance		5,785			3,647			9,432			2,920			4,998			7,918
	MasterCard/ Visa		11,575			9,099			20,674			9,517			9,755			19,272
	Private label		13,029			4,550			17,579			11,942			4,074			16,016
	Personal non-credit card		14,194			4,792			18,986			14,009			5,032			19,041
	Commercial and other		354			-			354			430			-			430
	Purchase accounting fair value adjustments		319			-			319			397			-			397

Average receivables		$	101,559		$	22,247		$	123,806		$	89,067		$	24,131		$	113,198
Average noninsurance investments			4,203			-			4,203			4,651			-			4,651
Other interest-earning assets			650			-			650			629			-			629

Average interest-earning assets		$	106,412		$	22,247		$	128,659		$	94,347		$	24,131		$	118,478

Net interest income as a percentage of average interest-earning assets			7.33	%		11.04	%		7.97	%		7.75	%		11.91	%		8.60	%

HSBC Finance Corporation

RECONCILIATION TO GAAP FINANCIAL MEASURES

Selected Financial Ratios



		Three Months Ended									Twelve Months Ended

					9/30/04			12/31/03			12/31/04			12/31/03
		12/31/04			(Restated)			(Restated)						(Restated)



		(dollars are in millions)
Return on Average Common Shareholder’s(s’) Equity:
Net income		$	712		$	325		$	592		$	1,940		$	1,603
	Dividends on preferred stock		(18	)		(18	)		(18	)		(72	)		(76	)

Net income available to common shareholders		$	694		$	307		$	574		$	1,868		$	1,527
Gain 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 incurred by HSBC Finance Corporation, after-tax			-			-			-			-			167

Operating net income available to common shareholders		$	392		$	307		$	574		$	1,566		$	1,694

Average common shareholder’s(s’) equity		$	16,838		$	17,367		$	15,902		$	17,003		$	14,209

Return on average common shareholder’s(s’) equity			16.5	%		7.1	%		14.5	%		11.0	%		10.7	%
Return on average common shareholder’s(s’) equity, operating basis			9.4			7.1			14.5			9.2			11.9

Return on Average Assets:
Net income		$	712		$	325		$	592		$	1,940		$	1,603
Operating net income			410			325			592			1,638			1,770

Average assets:
	Owned basis	$	134,316		$	124,512		$	117,532		$	123,921		$	110,097
	Serviced with limited recourse		18,602			21,542			24,568			22,247			24,131

	Managed basis	$	152,918		$	146,054		$	142,100		$	146,168		$	134,228

Return on average owned assets			2.12	%		1.04			2.02	%		1.57	%		1.46	%
Return on average owned assets, operating basis			1.22			1.04			2.02			1.32			1.61
Return on average managed assets			1.87			.89			1.67			1.33			1.19
Return on average managed assets, operating basis			1.07			.89			1.67			1.12			1.32

HSBC Finance Corporation



			Three Months Ended									Twelve Months Ended

						9/30/04			12/31/03			12/31/04			12/31/03
			12/31/04			(Restated)			(Restated)						(Restated)



			(dollars are in millions)
Efficiency Ratio:
Total costs and expenses less policyholders’ benefits			$	1,349		$	1,315		$	1,181		$	5,189		$	4,814
	HSBC acquisition related costs incurred by HSBC Finance Corporation			-			-			-			-			(198	)

	Total costs and expenses less policyholders’ benefits, excluding nonrecurring items		$	1,349		$	1,315		$	1,181		$	5,189		$	4,616

Net interest income and other revenues less policyholders’ benefits:
	Owned basis		$	3,728		$	2,916		$	2,996		$	12,463		$	11,256
	Serviced with limited recourse			19			(232	)		831			188			2,275

	Managed basis		$	3,747		$	2,684		$	3,827		$	12,651		$	13,531

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			-			-			107			-
Net interest income and other revenues less policyholders’ benefits, excluding nonrecurring items:
	Owned basis		$	3,216		$	2,916		$	2,996		$	11,951		$	11,256
	Serviced with limited recourse			(25	)		(232	)		831			144			2,275

	Managed basis		$	3,191		$	2,684		$	3,827		$	12,095		$	13,531

Owned basis efficiency ratio				36.1	%		45.1	%		39.4	%		41.6	%		42.8	%
Owned basis efficiency ratio, operating basis				41.9			45.1			39.4			43.4			41.0
Managed basis efficiency ratio				36.0			49.0			30.8			41.0			35.6
Managed basis efficiency ratio, operating basis				42.2			49.0			30.8			42.9			34.1

Managed Basis Risk Adjusted Revenue:
Net interest income			$	2,551		$	2,550		$	2,669		$	10,257		$	10,188
Other revenues, excluding securitization revenue				1,786			969			984			4,810			3,573
Less: Net charge-offs				(1,502	)		(1,363	)		(1,304	)		(5,674	)		(5,254	)

Risk adjusted revenue			$	2,835		$	2,156		$	2,349		$	9,393		$	8,507
	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			309			-			-			309			-

Risk adjusted revenue, excluding nonrecurring items				2,481			2,156			2,349			9,039			8,507

Average interest-earning assets			$	135,380		$	129,497		$	124,997		$	128,659		$	118,478

Managed basis risk adjusted revenue				8.37	%		6.66	%		7.51	%		7.30	%		7.18	%
Managed basis risk adjusted revenue, operating basis				7.32			6.66			7.51			7.03			7.18

HSBC Finance Corporation

RECONCILIATION TO GAAP FINANCIAL MEASURES

Credit Quality/ Credit Loss Reserves



		Two-Months-and-Over							Quarter-to-Date Charge-offs,
		Contractual Delinquency							Net of Recoveries

		Two-Months-				Two-Months-
		and-Over		Consumer		and-Over					Average
		Contractual		Receivables		Contractual			Net		Consumer		Net
		Delinquency		Outstanding		Delinquency⁽¹⁾			Charge-offs		Receivables		Charge-offs⁽¹⁾



		(dollars are in millions)
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	%

September 30, 2004
	*Owned:*
	First mortgage	$	2	$	27		5.78	%	$	-	$	28		.41	%
	Real estate secured		1,921		58,726		3.27			171		57,570		1.19
	Auto finance		124		6,823		1.81			57		6,238		3.66
	MasterCard/ Visa		681		11,666		5.84			239		11,251		8.50
	Private label		660		14,000		4.72			159		13,310		4.79
	Personal non-credit card		1,314		14,888		8.83			343		14,423		9.50

	Total	$	4,702	$	106,130		4.43	%	$	969	$	102,820		3.77	%

	*Serviced with Limited Recourse:*
	Real estate secured	$	21	$	165		12.73	%	$	-	$	171		-	%
	Auto finance		146		3,060		4.77			88		3,360		10.48
	MasterCard/ Visa		230		8,843		2.60			115		9,190		5.01
	Private label		193		3,921		4.92			55		4,316		5.10
	Personal non-credit card		502		4,186		11.99			136		4,505		12.08

	Total	$	1,092	$	20,175		5.41	%	$	394	$	21,542		7.32	%

	*Managed:*
	First mortgage	$	2	$	27		5.78	%	$	-	$	28		.41	%
	Real estate secured		1,942		58,891		3.30			171		57,741		1.19
	Auto finance		270		9,883		2.74			145		9,598		6.04
	MasterCard/ Visa		911		20,509		4.44			354		20,441		6.92
	Private label		853		17,921		4.76			214		17,626		4.85
	Personal non-credit card		1,816		19,074		9.52			479		18,928		10.12

	Total	$	5,794	$	126,305		4.59	%	$	1,363	$	124,362		4.38	%

⁽¹⁾ Certain percentages may not recompute from the dollar figures presented due to rounding.

HSBC Finance Corporation

RECONCILIATION TO GAAP FINANCIAL MEASURES

Credit Quality/ Credit Loss Reserves (Continued)



									Quarter-to-Date Charge-offs,
		Two-Months-and-Over Contractual Delinquency							Net of Recoveries

		Two-Months-				Two-Months-
		and-Over		Consumer		and-Over					Average
		Contractual		Receivables		Contractual			Net		Consumer		Net
		Delinquency		Outstanding		Delinquency⁽¹⁾			Charge-offs		Receivables		Charge-offs⁽¹⁾



		(dollars are in millions)
December 31, 2003
	*Owned:*
	First mortgage	$	3	$	35		9.14	%	$	-	$	35		1.13	%
	Real estate secured		2,217		51,221		4.33			126		53,642		.94
	Auto finance		104		4,138		2.51			33		3,961		3.36
	MasterCard/Visa		644		11,182		5.76			222		10,379		8.55
	Private label		683		12,604		5.42			159		12,564		5.05
	Personal non-credit card		1,285		12,832		10.01			344		13,606		10.11

	Total	$	4,936	$	92,012		5.36	%	$	884	$	94,187		3.75	%

	*Serviced with Limited Recourse:*
	Real estate secured	$	21	$	194		11.05	%	$	1	$	203		1.58	%
	Auto finance		234		4,675		5.01			102		4,667		8.74
	MasterCard/Visa		237		9,967		2.38			135		9,944		5.43
	Private label		200		5,261		3.79			52		4,494		4.66
	Personal non-credit card		740		6,104		12.12			130		5,260		9.90

	Total	$	1,432	$	26,201		5.47	%	$	420	$	24,568		6.85	%

	*Managed:*
	First mortgage	$	3	$	35		9.14	%	$	-	$	35		1.13	%
	Real estate secured		2,238		51,415		4.35			127		53,845		.94
	Auto finance		338		8,813		3.84			135		8,628		6.27
	MasterCard/Visa		881		21,149		4.16			357		20,323		7.03
	Private label		883		17,865		4.94			211		17,058		4.95
	Personal non-credit card		2,025		18,936		10.69			474		18,866		10.05

	Total	$	6,368	$	118,213		5.39	%	$	1,304	$	118,755		4.39	%

⁽¹⁾ Certain percentages may not recompute from the dollar figures presented due to rounding.

HSBC Finance Corporation


				Serviced with
	Owned			Limited Recourse			Managed



	(dollars are in millions)
Real Estate Charge-offs and REO Expense:
Three months ended December 31, 2004
Real estate charge-offs and REO expense	$	179		$	1		$	180
Average 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	%

Three months ended September 30, 2004
Real estate charge-offs and REO expense	$	189		$	-		$	189
Average real estate secured receivables		57,570			171			57,741

Real estate charge-offs and REO expense as a percentage of average real estate secured receivables⁽¹⁾		1.31	%		-			1.31	%

Three months ended December 31, 2003
Real estate charge-offs and REO expense	$	183		$	1		$	184

Average real estate secured receivables		53,642			203			53,845

Real estate charge-offs and REO expense as a percentage of average real estate secured receivables⁽¹⁾		1.37	%		1.58	%		1.37	%

⁽¹⁾ Certain percentages may not recompute from the dollar figures presented due to rounding.

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, 2004
Reserves for receivables at beginning of quarter	$	3,953		$	1,246		$	5,199
Provision for credit losses		1,286			19			1,305
Charge-offs, net of recoveries		(1,127	)		(375	)		(1,502	)
Other, net		(487	)		-			(487	)

Reserves for receivables at end of quarter	$	3,625		$	890		$	4,515

Receivables	$	106,855		$	14,225		$	121,080
Credit loss reserves as a percent of receivables		3.39	%		6.26	%		3.73	%

Three months ended September 30, 2004
Reserves for receivables at beginning of quarter	$	3,795		$	1,904		$	5,699
Provision for credit losses		1,123			(232	)		891
Charge-offs, net of recoveries		(969	)		(394	)		(1,363	)
Other, net		4			(32	)		(28	)

Reserves for receivables at end of quarter	$	3,953		$	1,246		$	5,199

Receivables	$	106,437		$	20,175		$	126,612
Credit loss reserves as a percent of receivables		3.71	%		6.18	%		4.11	%

Three months ended December 31, 2003
Reserves for receivables at beginning of quarter	$	3,779		$	1,954		$	5,733
Provision for credit losses		917			831			1,748
Charge-offs, net of recoveries		(884	)		(420	)		(1,304	)
Other, net		(19	)		9			(10	)

Reserves for receivables at end of quarter	$	3,793		$	2,374		$	6,167

Receivables	$	92,378		$	26,201		$	118,579
Credit loss reserves as a percent of receivables		4.11	%		9.06	%		5.20	%

Nonperforming Assets:
December 31, 2004
Nonaccrual receivables	$	3,012		$	546		$	3,558
Accruing receivables 90 or more days delinquent		507			100			607
Renegotiated commercial loans		2			-			2

Total nonperforming receivables		3,521			646			4,167
Real estate owned		587			-			587

Total nonperforming assets	$	4,108		$	646		$	4,754

Credit loss reserves as a percent of nonperforming receivables		103.0	%		-			108.4	%

September 30, 2004
Nonaccrual receivables	$	2,891		$	585		$	3,476
Accruing receivables 90 or more days delinquent		905			296			1,201
Renegotiated commercial loans		1			-			1

Total nonperforming receivables		3,797			881			4,678
Real estate owned		601			-			601

Total nonperforming assets	$	4,398		$	881		$	5,279

Credit loss reserves as a percent of nonperforming receivables		104.1	%		-			111.1	%

December 31, 2003
Nonaccrual receivables	$	3,144		$	865		$	4,009
Accruing receivables 90 or more days delinquent		904			311			1,215
Renegotiated commercial loans		2			-			2

Total nonperforming receivables		4,050			1,176			5,226
Real estate owned		631			-			631

Total nonperforming assets	$	4,681		$	1,176		$	5,857

Credit loss reserves as a percent of nonperforming receivables		93.7	%		-			118.0	%


⁽¹⁾	Net of our estimate of probable credit losses under the recourse provisions.


⁽¹⁾	MasterCard and Visa are registered trademarks of MasterCard International, Incorporated and VISA USA Inc., respectively.


⁽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.


⁽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:


⁽¹⁾	When reporting on a managed basis, finance and other interest income, interest expense, provision for credit losses and fee income related to securitized receivables are reclassified from securitization revenue in our owned statements of income into the appropriate caption.


⁽¹⁾	Certain percentages may not recompute from the dollar figures presented due to rounding.