Quarterly Financial Supplement for the quarter ended June 30, 2004

EX-99 2 dex99.htm QUARTERLY FINANCIAL SUPPLEMENT FOR THE QUARTER ENDED JUNE 30, 2004 Quarterly Financial Supplement for the quarter ended June 30, 2004

Exhibit 99

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Quarterly Financial Supplement—June 30, 2004


Index		Page No.
Basis of Reporting		2
Consolidated Statements of Income—Owned Basis:
Three Months		3
Six Months		5
Receivables Analysis		7
Financial Highlights—Managed Basis:
Three Months		8
Six Months		9
Credit Quality/Credit Loss Reserves—Managed Basis		10
Reconciliations to GAAP Financial Measures:
Revenues, Average Interest-Earning Assets and Net Interest Income:
Three Months		11
Six Months		12
Selected Financial Ratios		13
Credit Quality/Credit Loss Reserves:
Two-Months-and-Over Contractual Delinquency		14
Quarter-to-Date Charge-offs, Net of Recoveries		14
Real Estate Charge-offs and REO Expense		16
Credit Loss Reserves		16
Nonperforming Assets		17

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 Quarterly Reports on Form 10-Q.

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 statements 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 our securitized levels fall 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 $167.3 million, after-tax, of HSBC acquisition related costs and other merger related items incurred by Household in the first quarter of 2003. This nonrecurring item is also excluded in calculating our operating basis efficiency ratios. We believe that excluding this nonrecurring item helps readers of our financial statements to better understand the results and trends of our underlying business.

A reconciliation of net income to operating net income follows:


	Three Months Ended				Six Months Ended
($ millions)	6/30/04		3/31/04		6/30/03		6/30/04		6/30/03
Net income	$	394.7	$	481.1	$	364.0	$	875.8	$	619.4
HSBC acquisition related costs and other merger related items incurred by Household, after-tax		—		—		—		—		167.3

Operating net income	$	394.7	$	481.1	$	364.0	$	875.8	$	786.7

Predecessor and Successor Periods

Household’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 June 30, 2003) to present “combined” results for the six months ended June 30, 2003.

Consolidated Statements of Income—Owned Basis

Three Months


	Three Months Ended						% Change from Prior
	6/30/04		3/31/04		6/30/03		Qtr.		Year
	(dollars are in millions)
Finance and other interest income	$	2,650.3	$	2,542.8	$	2,504.1	4.2	%	5.8	%
Interest expense		640.2		637.3		558.8	.5		14.6

*Net interest income*		2,010.1		1,905.5		1,945.3	5.5		3.3
Provision for credit losses		997.4		927.8		1,039.3	7.5		(4.0	)

*Net interest income after provision for credit losses*		1,012.7		977.7		906.0	3.6		11.8

Other revenues:
Securitization revenue		253.0		333.7		282.6	(24.2	)	(10.5	)
Insurance revenue		204.2		210.9		183.3	(3.2	)	11.4
Investment income		30.2		40.8		33.2	(26.0	)	(9.0	)
Fee income		247.2		267.6		259.7	(7.6	)	(4.8	)
Other income		178.9		301.9		131.5	(40.7	)	36.0

*Total other revenues*		913.5		1,154.9		890.3	(20.9	)	2.6

Costs and expenses:
Salaries and employee benefits		457.4		485.8		488.6	(5.8	)	(6.4	)
Sales incentives		89.8		78.6		83.2	14.2		7.9
Occupancy and equipment expenses		76.3		82.7		100.0	(7.7	)	(23.7	)
Other marketing expenses		131.2		131.7		135.2	(.4	)	(3.0	)
Other servicing and administrative expenses		198.1		226.1		263.7	(12.4	)	(24.9	)
Support services from HSBC affiliates		196.4		177.4		—	10.7		100.0
Amortization of intangibles		79.4		115.6		78.3	(31.3	)	1.4
Policyholders’ benefits		93.2		112.8		98.4	(17.4	)	(5.3	)
HSBC acquisition related costs incurred by Household		—		—		—	—		—

*Total costs and expenses*		1,321.8		1,410.7		1,247.4	(6.3	)	6.0

Income before income tax expense		604.4		721.9		548.9	(16.3	)	10.1
Income tax expense		209.7		240.8		184.9	(12.9	)	13.4

*Net income*	$	394.7	$	481.1	$	364.0	(18.0	)	8.4	%

Consolidated Statements of Income—Owned Basis

Securitization Revenue


	Three Months Ended
	6/30/04		3/31/04		6/30/03
	(in millions)
Net initial gains	$	22.3	$	2.9	$	32.3
Net replenishment gains		112.9		119.8		134.5
Servicing revenue and excess spread		117.8		211.0		115.8

Total	$	253.0	$	333.7	$	282.6

Receivables Securitized


	Three Months Ended
	6/30/04		3/31/04		6/30/03
	(in millions)
Auto finance	$	300.0		—	$	596.3
MasterCard/Visa (1)		500.0	$	50.0		—
Private label		190.0		—		250.0
Personal non-credit card		—		—		305.0

Total	$	990.0	$	50.0	$	1,151.3

(1)

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

Consolidated Statements of Income—Owned Basis

Six Months


	Six Months Ended				% Change
	6/30/04		6/30/03 (1)		% Change
	(dollars are in millions)
Finance and other interest income	$	5,193.1	$	5,049.1	2.9	%
Interest expense		1,277.5		1,470.8	(13.1	)

*Net interest income*		3,915.6		3,578.3	9.4
Provision for credit losses		1,925.2		2,048.9	(6.0	)

*Net interest income after provision for credit losses*		1,990.4		1,529.4	30.1

Other revenues:
Securitization revenue		586.7		723.7	(18.9	)
Insurance revenue		415.1		360.6	15.1
Investment income		71.0		114.5	(38.0	)
Fee income		514.8		556.8	(7.5	)
Other income		480.8		375.3	28.1

*Total other revenues*		2,068.4		2,130.9	(2.9	)

Costs and expenses:
Salaries and employee benefits		943.2		997.2	(5.4	)
Sales incentives		168.4		122.3	37.7
Occupancy and equipment expenses		159.0		201.2	(21.0	)
Other marketing expenses		262.9		278.7	(5.7	)
Other servicing and administrative expenses		424.2		586.6	(27.7	)
Support services from HSBC affiliates		373.8		—	100.0
Amortization of intangibles		195.0		92.6	100+
Policyholders’ benefits		206.0		192.4	7.1
HSBC acquisition related costs incurred by Household		—		198.2	(100.0	)

*Total costs and expenses*		2,732.5		2,669.2	2.4

Income before income tax expense		1,326.3		991.1	33.8
Income tax expense		450.5		371.7	21.2

*Net income*	$	875.8	$	619.4	41.4	%

HSBC acquisition related costs incurred by Household		—		167.3	(100.0	)

Operating net income (2)	$	875.8	$	786.7	11.3	%

(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 June 30, 2003) to present “combined” results for the six months ended June 30, 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.

Consolidated Statements of Income—Owned Basis

Securitization Revenue


	Six Months Ended
	6/30/04		6/30/03
	(in millions)
Net initial gains	$	25.2	$	67.6
Net replenishment gains		232.7		271.4
Servicing revenue and excess spread		328.8		384.7

Total	$	586.7	$	723.7

Receivables Securitized


	Six Months Ended
	6/30/04		6/30/03
	(in millions)
Auto finance	$	300.0	$	1,007.1
MasterCard/Visa		550.0		320.0
Private label		190.0		250.0
Personal non-credit card		—		815.0

Total	$	1,040.0	$	2,392.1

Receivables Analysis

End-of-Period Receivables


							% Change from Prior
	6/30/04		3/31/04		6/30/03		Qtr.		Year
	(dollars are in millions)
Owned receivables:
Real estate secured	$	56,033.0	$	52,440.2	$	49,756.2	6.9	%	12.6	%
Auto finance		5,459.1		4,936.3		2,576.3	10.6		100+
MasterCard/Visa		10,815.9		10,787.9		9,368.6	.3		15.4
Private label		12,759.3		11,759.1		12,060.1	8.5		5.8
Personal non-credit card		14,019.2		13,343.4		14,115.2	5.1		(.7	)
Commercial and other		345.9		383.1		430.6	(9.7	)	(19.7	)

Total owned receivables		99,432.4		93,650.0		88,307.0	6.2		12.6

Receivables serviced with limited recourse:
Real estate secured		175.3		182.1		237.0	(3.7	)	(26.0	)
Auto finance		3,877.1		4,092.5		5,285.3	(5.3	)	(26.6	)
MasterCard/Visa		9,345.2		9,535.7		9,604.8	(2.0	)	(2.7	)
Private label		4,722.7		5,261.3		4,261.3	(10.2	)	10.8
Personal non-credit card		4,715.1		5,285.3		4,879.8	(10.8	)	(3.4	)

Total receivables serviced with limited recourse		22,835.4		24,356.9		24,268.2	(6.2	)	(5.9	)

Managed receivables: (1)
Real estate secured		56,208.3		52,622.3		49,993.2	6.8		12.4
Auto finance		9,336.2		9,028.8		7,861.6	3.4		18.8
MasterCard/Visa		20,161.1		20,323.6		18,973.4	(.8	)	6.3
Private label		17,482.0		17,020.4		16,321.4	2.7		7.1
Personal non-credit card (2)		18,734.3		18,628.7		18,995.0	.6		(1.4	)
Commercial and other		345.9		383.1		430.6	(9.7	)	(19.7	)

Total managed receivables	$	122,267.8	$	118,006.9	$	112,575.2	3.6	%	8.6	%

(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.

(2)

Personal non-credit card receivables are comprised of the following:


	6/30/04		3/31/04		6/30/03
	(in millions)
Domestic personal unsecured	$	9,787.0	$	9,658.6	$	10,076.3
Union Plus personal unsecured		576.6		640.4		862.0
Personal homeowner loans		4,555.6		4,580.3		4,742.0
Foreign unsecured		3,815.1		3,749.4		3,314.7

Total	$	18,734.3	$	18,628.7	$	18,995.0

Financial Highlights—Managed Basis (1)

Revenues, Average Interest-Earning Assets and Net Interest Income

Three Months


	Three Months Ended															% Change from Prior
	6/30/04			(2)		3/31/04			(2)		6/30/03			(2)		Qtr.		Year
	(dollars are in millions)
Finance and other interest income	$	3,416.6		10.95	%	$	3,416.6		10.94	%	$	3,368.1		11.67	%	—	%	1.4	%
Interest expense		767.9		2.46			772.0		2.47			704.5		2.44		(.5	)	9.0

*Net interest income*		2,648.7		8.49	%		2,644.6		8.47	%		2,663.6		9.23	%	.2		(.6	)
Provision for credit losses		1,145.4					1,180.9					1,656.3				(3.0	)	(30.8	)

*Net interest income after provision for credit losses*	$	1,503.3				$	1,463.7				$	1,007.3				2.7	%	49.2	%

Other revenues:
Insurance revenue	$	204.2				$	210.9				$	183.3				(3.2	)%	11.4	%
Investment income		30.2					40.8					33.2				(26.0	)	(9.0	)
Fee income		445.1					464.9					427.0				(4.3	)	4.2
Securitization revenue		(435.5	)				(349.6	)				14.0				24.6		(100+	)
Other income		178.9					301.9					131.5				(40.7	)	36.0

*Total other revenues*	$	422.9				$	668.9				$	789.0				(36.8	)%	(46.4	)%

Average managed receivables
Real estate secured	$	54,398.0				$	52,164.8				$	48,619.4				4.3	%	11.9	%
Auto finance		9,177.5					8,902.0					7,601.4				3.1		20.7
MasterCard/Visa		20,211.7					20,823.0					18,788.8				(2.9	)	7.6
Private label		17,362.5					17,470.5					15,816.7				(.6	)	9.8
Personal non-credit card		18,567.6					18,857.3					19,049.7				(1.5	)	(2.5	)
Commercial and other		366.9					391.0					442.8				(6.2	)	(17.1	)
Purchase accounting fair value adjustments		346.4					390.5					580.8				(11.3	)	(40.4	)

Average managed receivables	$	120,430.6				$	118,999.1				$	110,899.6				1.2	%	8.6	%
Average noninsurance investments		3,727.9					5,313.2					3,949.5				(29.8	)	(5.6	)
Other interest-earning assets		647.1					641.2					626.2				.9		3.3

Average managed interest-earning assets	$	124,805.6				$	124,953.5				$	115,475.3				(.1	)%	8.1	%

*Selected Financial Ratios:*
Return on average managed assets		1.12	%				1.33	%				1.08	%			(15.8	)%	3.7	%
Efficiency ratio		41.3					40.6					34.3				1.7		20.4
Net interest margin		8.49					8.47					9.23				.2		(8.0	)
Risk adjusted revenue		6.86					7.11					7.26				(3.5	)	(5.5	)

(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.

Financial Highlights—Managed Basis (1)

Revenues, Average Interest-Earning Assets and Net Interest Income

Six Months


	Six Months Ended										% Change
	6/30/04			(2)		6/30/03 (3)			(2)		% Change
	(dollars are in millions)
Finance and other interest income	$	6,833.2		10.94	%	$	6,791.1		11.85	%	.6	%
Interest expense		1,539.9		2.46			1,768.9		3.09		(12.9	)

*Net interest income*		5,293.3		8.48	%		5,022.2		8.76	%	5.4
Provision for credit losses		2,326.3					3,073.2				(24.3	)

*Net interest income after provision for credit losses*	$	2,967.0				$	1,949.0				52.2	%

Other revenues:
Insurance revenue	$	415.1				$	360.6				15.1	%
Investment income		71.0					114.5				(38.0	)
Fee income		910.0					878.8				3.6
Securitization revenue		(785.1	)				(17.9	)			100+
Other income		480.8					375.3				28.1

*Total other revenues*	$	1,091.8				$	1,711.3				(36.2	)%

Average managed receivables
Real estate secured	$	53,281.4				$	47,688.0				11.7	%
Auto finance		9,039.7					7,482.1				20.8
MasterCard/Visa		20,517.4					18,732.6				9.5
Private label		17,416.5					15,327.9				13.6
Personal non-credit card		18,712.5					19,223.9				(2.7	)
Commercial and other		379.0					450.6				(15.9	)
Purchase accounting fair value adjustments		368.4					318.9				15.5

Average managed receivables	$	119,714.9				$	109,224.0				9.6	%
Average noninsurance investments		4,520.5					4,750.7				(4.8	)
Other interest-earning assets		644.1					623.0				3.4

Average managed interest-earning assets	$	124,879.5				$	114,597.7				9.0	%

*Selected Financial Ratios:*
Return on average managed assets		1.23	%				.96	%			28.1	%
Efficiency ratio		40.9					37.9				7.9
Net interest margin		8.48					8.76				(3.2	)
Risk adjusted revenue		6.98					7.22				(3.3	)
*Excluding Nonrecurring Items/Operating Basis:*
Return on average managed assets		1.23					1.21				1.7
Efficiency ratio		40.9					34.8				17.5

(1)

(2)

% Columns: comparison to average managed interest-earning assets, annualized.

(3)

Credit Quality/Credit Loss Reserves—Managed Basis (1)

Two-Months-and-Over Contractual Delinquency


As a percent of managed consumer receivables, excludes commercial.	6/30/04			3/31/04			6/30/03
Real estate secured		3.41	%		3.89	%		4.31	%
Auto finance		3.03			2.63			3.08
MasterCard/Visa		4.21			4.35			4.19
Private label		4.81			4.98			5.16
Personal non-credit card		9.81			10.36			10.04

Total		4.70	%		5.06	%		5.30	%


*Quarter-to-Date Charge-offs, Net of Recoveries*

As a percent of average managed consumer receivables, annualized, excludes commercial.	6/30/04			3/31/04			6/30/03
Real estate secured		1.04	%		1.15	%		1.03	%
Auto finance		5.04			7.81			6.69
MasterCard/Visa		7.62			7.08			7.90
Private label		4.92			5.06			6.26
Personal non-credit card		11.00			11.21			9.92

Total		4.57	%		4.88	%		4.89	%

Real estate charge-offs and REO expense as a percent of average managed real estate secured receivables		1.47	%		1.63	%		1.46	%


*Credit Loss Reserves*

	6/30/04			3/31/04			6/30/03
	(dollars are in millions)
Reserves for managed receivables at beginning of quarter	$	5,911.5		$	6,166.6		$	5,259.3
Provision for credit losses		1,145.4			1,180.9			1,656.3
Charge-offs, net of recoveries		(1,367.1	)		(1,441.9	)		(1,343.5	)
Other, net		8.9			5.9			66.8

Reserves for managed receivables at end of quarter	$	5,698.7		$	5,911.5		$	5,638.9

Reserves as a percent of managed receivables		4.66	%		5.01	%		5.01	%


*Nonperforming Assets*

	6/30/04			3/31/04			6/30/03
	(dollars are in millions)
Nonaccrual managed receivables	$	3,506.4		$	3,726.7		$	3,703.2
Accruing managed receivables 90 or more days delinquent		1,133.9			1,208.0			1,140.1
Renegotiated commercial loans		1.5			1.5			1.5

Total nonperforming managed receivables		4,641.8			4,936.2			4,844.8
Real estate owned		624.2			656.4			486.3

Total nonperforming assets	$	5,266.0		$	5,592.6		$	5,331.1

Managed credit loss reserves as a percent of nonperforming managed receivables		122.8	%		119.8	%		116.4	%

(1)

Reconciliation to GAAP Financial Measures

Revenues, Average Interest-Earning Assets and Net Interest Income

Three Months


	Three Months Ended 6/30/04									Three Months Ended 3/31/04									Three Months Ended 6/30/03
	Owned			Serviced with Limited Recourse (1)			Managed			Owned			Serviced with Limited Recourse (1)			Managed			Owned			Serviced with Limited Recourse (1)			Managed
	(dollars are in millions)
Finance and other interest income	$	2,650.3		$	766.3		$	3,416.6		$	2,542.8		$	873.8		$	3,416.6		$	2,504.1		$	864.0		$	3,368.1
Interest expense		640.2			127.7			767.9			637.3			134.7			772.0			558.8			145.7			704.5

*Net interest income*		2,010.1			638.6			2,648.7			1,905.5			739.1			2,644.6			1,945.3			718.3			2,663.6
Provision for credit losses		997.4			148.0			1,145.4			927.8			253.1			1,180.9			1,039.3			617.0			1,656.3

*Net interest income after provision for credit losses*	$	1,012.7		$	490.6		$	1,503.3		$	977.7		$	486.0		$	1,463.7		$	906.0		$	101.3		$	1,007.3

Other revenues:
Securitization revenue	$	253.0		$	(688.5	)	$	(435.5	)	$	333.7		$	(683.3	)	$	(349.6	)	$	282.6		$	(268.6	)	$	14.0
Insurance revenue		204.2			—			204.2			210.9			—			210.9			183.3			—			183.3
Investment income		30.2			—			30.2			40.8			—			40.8			33.2			—			33.2
Fee income		247.2			197.9			445.1			267.6			197.3			464.9			259.7			167.3			427.0
Other income		178.9			—			178.9			301.9			—			301.9			131.5			—			131.5

*Total other revenues*	$	913.5		$	(490.6	)	$	422.9		$	1,154.9		$	(486.0	)	$	668.9		$	890.3		$	(101.3	)	$	789.0

Average receivables:
Real estate secured	$	54,220.1		$	177.9		$	54,398.0		$	51,976.2		$	188.6		$	52,164.8		$	48,333.2		$	286.2		$	48,619.4
Auto finance		5,197.2			3,980.3		$	9,177.5			4,511.2			4,390.8			8,902.0			2,436.5			5,164.9			7,601.4
MasterCard/Visa		10,912.7			9,299.0		$	20,211.7			11,129.0			9,694.0			20,823.0			9,109.6			9,679.2			18,788.8
Private label		12,249.0			5,113.5		$	17,362.5			12,209.2			5,261.3			17,470.5			11,836.0			3,980.7			15,816.7
Personal non-credit card		13,570.5			4,997.1		$	18,567.6			13,114.6			5,742.7			18,857.3			14,080.9			4,968.8			19,049.7
Commercial and other		366.9			—		$	366.9			391.0			—			391.0			442.8			—			442.8
Purchase accounting fair value adjustments		346.4			—		$	346.4			390.5			—			390.5			580.8			—			580.8

Average receivables	$	96,862.8		$	23,567.8		$	120,430.6		$	93,721.7		$	25,277.4		$	118,999.1		$	86,819.8		$	24,079.8		$	110,899.6
Average noninsurance investments		3,727.9			—			3,727.9			5,313.2			—			5,313.2			3,949.5			—			3,949.5
Other interest-earning assets		647.1			—			647.1			641.2			—			641.2			626.2			—			626.2

Average interest-earning assets	$	101,237.8		$	23,567.8		$	124,805.6		$	99,676.1		$	25,277.4		$	124,953.5		$	91,395.5		$	24,079.8		$	115,475.3

Net interest income as a percentage of average interest-earning assets		7.94	%		10.84	%		8.49	%		7.65	%		11.70	%		8.47	%		8.51	%		11.93	%		9.23	%

(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.

Reconciliation to GAAP Financial Measures

Revenues, Average Interest-Earning Assets and Net Interest Income

Six Months


	Six Months Ended 6/30/04									Six Months Ended 6/30/03
	Owned			Serviced with Limited Recourse (1)			Managed			Owned			Serviced with Limited Recourse (1)			Managed
	(dollars are in millions)
Finance and other interest income	$	5,193.1		$	1,640.1		$	6,833.2		$	5,049.1		$	1,742.0		$	6,791.1
Interest expense		1,277.5			262.4			1,539.9			1,470.8			298.1			1,768.9

*Net interest income*		3,915.6			1,377.7			5,293.3			3,578.3			1,443.9			5,022.2
Provision for credit losses		1,925.2			401.1			2,326.3			2,048.9			1,024.3			3,073.2

*Net interest income after provision for credit losses*	$	1,990.4		$	976.6		$	2,967.0		$	1,529.4		$	419.6		$	1,949.0

Other revenues:
Securitization revenue	$	586.7		$	(1,371.8	)	$	(785.1	)	$	723.7		$	(741.6	)	$	(17.9	)
Insurance revenue		415.1			—			415.1			360.6			—			360.6
Investment income		71.0			—			71.0			114.5			—			114.5
Fee income		514.8			395.2			910.0			556.8			322.0			878.8
Other income		480.8			—			480.8			375.3			—			375.3

*Total other revenues*	$	2,068.4		$	(976.6	)	$	1,091.8		$	2,130.9		$	(419.6	)	$	1,711.3

Average receivables:
Real estate secured	$	53,098.1		$	183.3		$	53,281.4		$	47,359.2		$	328.8		$	47,688.0
Auto finance		4,854.4			4,185.3			9,039.7			2,302.4			5,179.7			7,482.1
MasterCard/Visa		11,020.8			9,496.6			20,517.4			8,995.6			9,737.0			18,732.6
Private label		12,229.1			5,187.4			17,416.5			11,549.0			3,778.9			15,327.9
Personal non-credit card		13,342.5			5,370.0			18,712.5			14,130.8			5,093.1			19,223.9
Commercial and other		379.0			—			379.0			450.6			—			450.6
Purchase accounting fair value adjustments		368.4			—			368.4			318.9			—			318.9

Average receivables	$	95,292.3		$	24,422.6		$	119,714.9		$	85,106.5		$	24,117.5		$	109,224.0
Average noninsurance investments		4,520.5			—			4,520.5			4,750.7			—			4,750.7
Other interest-earning assets		644.1			—			644.1			623.0			—			623.0

Average interest-earning assets	$	100,456.9		$	24,422.6		$	124,879.5		$	90,480.2		$	24,117.5		$	114,597.7

Net interest income as a percentage of average interest-earning assets		7.80	%		11.28	%		8.48	%		7.91	%		11.97	%		8.76	%

(1)

Reconciliation to GAAP Financial Measures

Selected Financial Ratios


	Three Months Ended									Six Months Ended
	6/30/04			3/31/04			6/30/03			6/30/04			6/30/03
	(dollars are in millions)
Return on Average Common Shareholder’s(s’) Equity:
Net income	$	394.7		$	481.1		$	364.0		$	875.8		$	619.4
Dividends on preferred stock		(17.9	)		(17.9	)		(18.5	)		(35.7	)		(40.8	)

Net income available to common shareholders	$	376.8		$	463.2		$	345.5		$	840.1		$	578.6
HSBC acquisition related costs incurred by Household		—			—			—			—			167.3

Operating net income available to common shareholders	$	376.8		$	463.2		$	345.5		$	840.1		$	745.9

Average common shareholder’s(s’) equity	$	17,345.2		$	16,800.4		$	14,830.9		$	17,072.8		$	12,181.7

Return on average common shareholder’s(s’) equity		8.7	%		11.0	%		9.3	%		9.8	%		9.5	%
Return on average common shareholder’s(s’) equity, operating basis		8.7			11.0			9.3			9.8			12.2

Return on Average Assets:
Net income	$	394.7		$	481.1		$	364.0		$	875.8		$	619.4
Operating net income		394.7			481.1			364.0			875.8			786.7

Average assets:
Owned basis	$	117,523.2		$	119,461.5		$	110,363.7		$	118,492.4		$	105,400.8
Serviced with limited recourse		23,567.8			25,277.4			24,079.8			24,422.6			24,117.5

Managed basis	$	141,091.0		$	144,738.9		$	134,443.5		$	142,915.0		$	129,518.3

Return on average owned assets		1.34	%		1.61	%		1.32	%		1.48	%		1.18	%
Return on average owned assets, operating basis		1.34			1.61			1.32			1.48			1.49
Return on average managed assets		1.12			1.33			1.08			1.23			.96
Return on average managed assets, operating basis		1.12			1.33			1.08			1.23			1.21

Efficiency Ratio:
Total costs and expenses less policyholders’ benefits	$	1,228.6		$	1,297.9		$	1,149.0		$	2,526.5		$	2,476.8
HSBC acquisition related costs incurred by Household		—			—			—			—			(198.2	)

Total costs and expenses less policyholders’ benefits, excluding nonrecurring items	$	1,228.6		$	1,297.9		$	1,149.0		$	2,526.5		$	2,278.6

Net interest income and other revenues less policyholders’ benefits:
Owned basis	$	2,830.4		$	2,947.6		$	2,737.2		$	5,778.0		$	5,516.8
Serviced with limited recourse		148.0			253.1			617.0			401.1			1,024.3

Managed basis	$	2,978.4		$	3,200.7		$	3,354.2		$	6,179.1		$	6,541.1

Owned basis efficiency ratio		43.4	%		44.0	%		42.0	%		43.7	%		44.9	%
Owned basis efficiency ratio, operating basis		43.4			44.0			42.0			43.7			41.3
Managed basis efficiency ratio		41.3			40.6			34.3			40.9			37.9
Managed basis efficiency ratio, operating basis		41.3			40.6			34.3			40.9			34.8

Managed Basis Risk Adjusted Revenue:
Net interest income	$	2,648.7		$	2,644.6		$	2,663.6		$	5,293.3		$	5,022.2
Other revenues, excluding securitization revenue		858.4			1,018.5			775.0			1,876.9			1,729.2
Less: Net charge-offs		(1,367.1	)		(1,441.9	)		(1,343.5	)		(2,809.0	)		(2,615.9	)

Risk adjusted revenue	$	2,140.0		$	2,221.2		$	2,095.1		$	4,361.2		$	4,135.5
Average interest-earning assets		124,805.6			124,953.5			115,475.3			124,879.5			114,597.7

Managed basis risk adjusted revenue		6.86	%		7.11	%		7.26	%		6.98	%		7.22	%

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-and-Over Contractual Delinquency		Consumer Receivables Outstanding		Two-Months-and-Over Contractual Delinquency		Net Charge-offs		Average Consumer Receivables		Net Charge-offs
	(dollars are in millions)
June 30, 2004
Owned:
First mortgage	$	1.6	$	28.7	5.57	%	$	.3	$	39.4	3.05	%
Real estate secured		1,897.1		56,033.0	3.39			141.5		54,220.1	1.04
Auto finance		116.0		5,459.1	2.12			39.6		5,197.3	3.05
MasterCard/Visa		631.1		10,815.9	5.83			270.3		10,912.7	9.91
Private label		638.1		12,759.3	5.00			155.0		12,249.0	5.06
Personal non-credit card		1,250.5		14,019.2	8.92			359.2		13,570.5	10.59

Total	$	4,534.4	$	99,115.2	4.57	%	$	965.9	$	96,189.0	4.02	%

Serviced with Limited Recourse:
Real estate secured	$	20.8	$	175.3	11.87	%	$	.3	$	177.9	.67	%
Auto finance		167.2		3,877.1	4.31			76.0		3,980.2	7.64
MasterCard/Visa		216.8		9,345.2	2.32			114.9		9,299.0	4.94
Private label		202.1		4,722.7	4.28			58.6		5,113.5	4.58
Personal non-credit card		587.1		4,715.1	12.45			151.3		4,997.1	12.11

Total	$	1,194.0	$	22,835.4	5.23	%	$	401.1	$	23,567.7	6.81	%

Managed:
First mortgage	$	1.6	$	28.7	5.57	%	$	.3	$	39.4	3.05	%
Real estate secured		1,917.9		56,208.3	3.41			141.8		54,398.0	1.04
Auto finance		283.2		9,336.2	3.03			115.6		9,177.5	5.04
MasterCard/Visa		847.9		20,161.1	4.21			385.2		20,211.7	7.62
Private label		840.2		17,482.0	4.81			213.6		17,362.5	4.92
Personal non-credit card		1,837.6		18,734.3	9.81			510.5		18,567.6	11.00

Total	$	5,728.4	$	121,950.6	4.70	%	$	1,367.0	$	119,756.7	4.57	%

March 31, 2004
Owned:
First mortgage	$	2.2	$	31.8	6.92	%	$	.4	$	33.5	4.78	%
Real estate secured		2,030.7		52,440.2	3.87			149.1		51,976.2	1.15
Auto finance		82.8		4,936.3	1.68			52.4		4,511.2	4.65
MasterCard/Visa		636.9		10,787.9	5.90			240.9		11,129.0	8.66
Private label		632.5		11,759.1	5.38			161.4		12,209.2	5.29
Personal non-credit card		1,285.8		13,343.4	9.64			366.2		13,114.6	11.17

Total	$	4,670.9	$	93,298.7	5.01	%	$	970.4	$	92,973.7	4.17	%

Serviced with Limited Recourse:
Real estate secured	$	18.3	$	182.1	10.05	%	$	.5	$	188.6	1.06	%
Auto finance		155.0		4,092.5	3.79			121.5		4,390.8	11.07
MasterCard/Visa		246.6		9,535.7	2.59			127.7		9,694.0	5.27
Private label		215.4		5,261.3	4.09			59.6		5,261.3	4.53
Personal non-credit card		645.0		5,285.3	12.20			162.2		5,742.7	11.30

Total	$	1,280.3	$	24,356.9	5.26	%	$	471.5	$	25,277.4	7.46	%

Managed:
First mortgage	$	2.2	$	31.8	6.92	%	$	.4	$	33.5	4.78	%
Real estate secured		2,049.0		52,622.3	3.89			149.6		52,164.8	1.15
Auto finance		237.8		9,028.8	2.63			173.9		8,902.0	7.81
MasterCard/Visa		883.5		20,323.6	4.35			368.6		20,823.0	7.08
Private label		847.9		17,020.4	4.98			221.0		17,470.5	5.06
Personal non-credit card		1,930.8		18,628.7	10.36			528.4		18,857.3	11.21

Total	$	5,951.2	$	117,655.6	5.06	%	$	1,441.9	$	118,251.1	4.88	%

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-and-Over Contractual Delinquency		Consumer Receivables Outstanding		Two-Months-and-Over Contractual Delinquency		Net Charge-offs		Average Consumer Receivables		Net Charge-offs
	(dollars are in millions)
June 30, 2003
Owned:
First mortgage	$	3.7	$	38.9	9.51	%	$	—	$	40.2	—	%
Real estate secured		2,125.0		49,756.2	4.27			124.1		48,333.2	1.03
Auto finance		64.1		2,576.3	2.49			32.3		2,436.5	5.30
MasterCard/Visa		559.5		9,368.6	5.97			237.5		9,109.6	10.43
Private label		656.9		12,060.1	5.45			189.8		11,836.0	6.41
Personal non-credit card		1,324.8		14,115.2	9.39			347.5		14,081.0	9.87

Total	$	4,734.0	$	87,915.3	5.38	%	$	931.2	$	85,836.5	4.34	%

Serviced with Limited Recourse:
Real estate secured	$	28.9	$	237.0	12.19	%	$	1.0	$	286.2	1.40	%
Auto finance		178.4		5,285.3	3.38			94.9		5,165.0	7.35
MasterCard/Visa		235.2		9,604.8	2.45			133.5		9,679.2	5.52
Private label		185.4		4,261.3	4.35			57.9		3,980.7	5.82
Personal non-credit card		583.0		4,879.8	11.95			125.0		4,968.7	10.06

Total	$	1,210.9	$	24,268.2	4.99	%	$	412.3	$	24,079.8	6.85	%

Managed:
First mortgage	$	3.7	$	38.9	9.51	%	$	—	$	40.2	—	%
Real estate secured		2,153.9		49,993.2	4.31			125.1		48,619.4	1.03
Auto finance		242.5		7,861.6	3.08			127.2		7,601.5	6.69
MasterCard/Visa		794.7		18,973.4	4.19			371.0		18,788.8	7.90
Private label		842.3		16,321.4	5.16			247.7		15,816.7	6.26
Personal non-credit card		1,907.8		18,995.0	10.04			472.5		19,049.7	9.92

Total	$	5,944.9	$	112,183.5	5.30	%	$	1,343.5	$	109,916.3	4.89	%

Reconciliation to GAAP Financial Measures

Credit Quality/Credit Loss Reserves (Continued)


	Owned			Serviced with Limited Recourse			Managed
	(dollars are in millions)
Real Estate Charge-offs and REO Expense:
Three months ended June 30, 2004
Real estate charge-offs and REO expense	$	199.4		$	.3		$	199.7
Average real estate secured receivables		54,220.1			177.9			54,398.0

Real estate charge-offs and REO expense as a percentage of average real estate secured receivables		1.47	%		0.67	%		1.47	%

Three months ended March 31, 2004
Real estate charge-offs and REO expense	$	212.1		$	.5		$	212.6
Average real estate secured receivables		51,976.2			188.6			52,164.8

Real estate charge-offs and REO expense as a percentage of average real estate secured receivables		1.63	%		1.06	%		1.63	%

Three months ended June 30, 2003
Real estate charge-offs and REO expense	$	176.3		$	1.0		$	177.3
Average real estate secured receivables		48,333.2			286.2			48,619.4

Real estate charge-offs and REO expense as a percentage of average real estate secured receivables		1.46	%		1.40	%		1.46	%

Credit Loss Reserves:
Three months ended June 30, 2004
Reserves for receivables at beginning of quarter	$	3,753.0		$	2,158.5		$	5,911.5
Provision for credit losses		997.4			148.0			1,145.4
Charge-offs, net of recoveries		(965.9	)		(401.2	)		(1,367.1	)
Other, net		10.2			(1.3	)		8.9

Reserves for receivables at end of quarter	$	3,794.7		$	1,904.0		$	5,698.7

Receivables	$	99,432.4		$	22,835.4		$	122,267.8
Credit loss reserves as a percent of receivables		3.82	%		8.34	%		4.66	%

Three months ended March 31, 2004
Reserves for receivables at beginning of quarter	$	3,793.1		$	2,373.5		$	6,166.6
Provision for credit losses		927.8			253.1			1,180.9
Charge-offs, net of recoveries		(970.4	)		(471.5	)		(1,441.9	)
Other, net		2.5			3.4			5.9

Reserves for receivables at end of quarter	$	3,753.0		$	2,158.5		$	5,911.5

Receivables	$	93,650.0		$	24,356.9		$	118,006.9
Credit loss reserves as a percent of receivables		4.01	%		8.86	%		5.01	%

Three months ended June 30, 2003
Reserves for receivables at beginning of quarter	$	3,483.1		$	1,776.2		$	5,259.3
Provision for credit losses		1,039.3			617.0			1,656.3
Charge-offs, net of recoveries		(931.2	)		(412.3	)		(1,343.5	)
Other, net		67.4			(.6	)		66.8

Reserves for receivables at end of quarter	$	3,658.6		$	1,980.3		$	5,638.9

Receivables	$	88,307.0		$	24,268.2		$	112,575.2
Credit loss reserves as a percent of receivables		4.14	%		8.16	%		5.01	%

Reconciliation to GAAP Financial Measures

Credit Quality/Credit Loss Reserves (Continued)


	Owned			Serviced with Limited Recourse		Managed
	(dollars are in millions)
Nonperforming Assets:
June 30, 2004
Nonaccrual receivables	$	2,832.5		$	673.9	$	3,506.4
Accruing receivables 90 or more days delinquent		849.6			284.3		1,133.9
Renegotiated commercial loans		1.5			—		1.5

Total nonperforming receivables		3,683.6			958.2		4,641.8
Real estate owned		624.2			—		624.2

Total nonperforming assets	$	4,307.8		$	958.2	$	5,266.0

Credit loss reserves as a percent of nonperforming receivables		103.0	%		—		122.8	%

March 31, 2004
Nonaccrual receivables	$	3,003.2		$	723.5	$	3,726.7
Accruing receivables 90 or more days delinquent		876.1			331.9		1,208.0
Renegotiated commercial loans		1.5			—		1.5

Total nonperforming receivables		3,880.8			1,055.4		4,936.2
Real estate owned		656.4			—		656.4

Total nonperforming assets	$	4,537.2		$	1,055.4	$	5,592.6

Credit loss reserves as a percent of nonperforming receivables		96.7	%		—		119.8	%

June 30, 2003
Nonaccrual receivables	$	3,021.2		$	682.0	$	3,703.2
Accruing receivables 90 or more days delinquent		843.8			296.3		1,140.1
Renegotiated commercial loans		1.5			—		1.5

Total nonperforming receivables		3,866.5			978.3		4,844.8
Real estate owned		486.3			—		486.3

Total nonperforming assets	$	4,352.8		$	978.3	$	5,331.1

Credit loss reserves as a percent of nonperforming receivables		94.6	%		—		116.4	%