HSBC USA Inc. 2002 first quarter results

29 April 2002

• Net income for the quarter ended 31 March 2002 increased by 16 per cent to US$210 million compared to US$181 million in the first quarter of 2001.
  
• Cash earnings* for the quarter ended 31 March 2002 were US$210 million, a decrease of 5 per cent compared to US$222 million in the first quarter of 2001.
  
• The cost:income ratio for the 2002 first quarter was 52.6 per cent compared to 58.8 per cent for the same period in 2001. The ratio for the first quarter of 2001, put on a comparable basis by excluding goodwill amortisation and restructuring costs, was 52.7 per cent.
  
• Tier 1 capital to risk-weighted assets was 8.4 per cent at 31 March 2002 compared to 8.1 per cent at 31 March 2001.
  
• Cash earnings* as a percentage of average common equity for the quarter ended 31 March 2002 were 12.8 per cent compared to 13.1 per cent during the quarter ended 31 March 2001.
  
• Client assets under administration at 31 March 2002 were US$49.9 billion, of which US$33.3 billion were funds under management and US$16.6 billion were custody accounts.

* Cash earnings are net income after preferred dividends and after adding back goodwill amortisation and expense associated with HSBC Group share option plans.

HSBC USA Inc. reported net income of US$210 million for the quarter ended 31 March 2002, an increase of 16 per cent from US$181 million for the first quarter of 2001. Revenue growth and the implementation of SFAS 142 in January 2002 (which eliminated the amortisation of goodwill through operating expenses), more than offset lower levels of securities gains, increased provisions and a higher underlying tax rate. Cash earnings in the first quarter of 2002 decreased to US$210 million from US$222 million in the comparable period in 2001.

Commenting on the results, Youssef A Nasr, Chief Executive Officer of HSBC USA Inc., said: "Overall, we are pleased with the first quarter operating and financial results that we have reported today. Net interest income and most categories of fee income showed healthy growth from last year’s levels while cash expenses were flat. However, more difficult conditions in the capital markets prevented a recurrence of the record gains reported last year from securities sales and FX trading."

In March, HSBC USA Inc. and HSBC Canada announced the alignment of their North American operations, with the primary goal of providing seamless North American services to their customers.

Mr. Nasr added: "The aligning of our American and Canadian operations will allow management to better leverage the strengths and practices of each bank. It will also enable us to increase economic profit in North America by improving HSBC’s overall position in terms of brand awareness, cost efficiencies, revenue generation, distribution and risk management.

"HSBC is already known as both one of the world’s largest financial services organizations and a local bank in the markets we serve. This new alignment presents us with the opportunity to become North America’s premier cross-border bank."

Total assets of HSBC USA Inc. were US$87.5 billion at 31 March 2002 compared to US$84.5 billion at 31 March 2001. Total deposits were US$59.7 billion at 31 March 2002, compared to US$57.7 billion at 31 March 2001. Within deposits, personal demand, personal money market and commercial money market balances increased.

Total funds under management at 31 March 2002 were US$33.3 billion, up US$2.3 billion, or 7.5 per cent from 31 March 2001, largely due to the movement of new and existing deposits to investment products. Including custody balances, assets under administration at 31 March 2002 totalled US$49.9 billion. Total loans at 31 March 2002 were US$42.8 billion, compared to US$41.0 billion at 31 March 2001. Residential mortgage loans originated and held in the portfolio increased, and lower margin corporate loans were reduced. HSBC Bank USA’s residential mortgage business, with approximately 325,000 customers, originated US$5.4 billion in mortgages in the first quarter of 2002, an increase of more than 90 per cent over the US$2.8 billion originated in the first quarter of 2001.

For the quarter ended 31 March 2002, net interest income increased by US$38 million, or 7.0 per cent, to US$582 million. Total average earning assets increased by US$2.0 billion or 2.6 per cent compared to 2001. In addition the benefits of lower costing personal and commercial deposits and cuts in short-term rates over the past twelve months have led to wider interest margins in certain commercial businesses, the residential mortgage business and treasury.

For the quarter, other operating income was US$277 million, a decrease of US$15 million, or 5.1 per cent compared to US$292 million in the first quarter of 2001. Wealth management, insurance and bankcard fees all continued to show growth in the first quarter of 2002. Brokerage revenues were 60 per cent higher due in part to sales of annuity products and increased transaction volumes. Insurance revenues increased by 73 per cent over the comparable quarter of 2001. However, difficult conditions in the capital markets prevented a recurrence of last year’s record results from Treasury trading and securities gains. Treasury trading revenues for the quarter ended 31 March 2002 were US$43 million, a decrease of US$14 million from the US$57 million reported in the first quarter of 2001. Securities gains for the quarter ended 31 March 2002 were US$38 million, a decrease of US$31 million from the US$69 million in the comparable period in 2001. The first quarter of 2002 included sales of mortgage-backed treasury securities and Latin American securities. Securities gains in the first quarter of 2001 were unusually high as the company sold securities to adjust to interest rate changes, to reconfigure exposure to residential mortgages and included a US$19 million one-time gain on the sale of shares in Canary Wharf.

Operating expenses decreased 8.1 per cent to US$452 million in the first quarter of 2002 compared to US$492 million in the first quarter of 2001.

The decrease was primarily a result of the previously mentioned adoption of SFAS 142 with goodwill no longer being amortised through operating expenses. The impact of goodwill amortisation on net income in the first quarter of 2001 was US$43 million. Allowing for this accounting change, operating expenses were essentially flat when compared to the first quarter of 2001 but were almost 4 per cent lower than the fourth quarter of 2001.

Overall credit quality in the first quarter was mixed. Non-accruing loans were lower and the reserve to non-accrual ratio improved to 138.2 per cent from 125.1 per cent. However, the provisions for credit losses of US$73.5 million were US$25.9 million higher than for the first quarter of 2001. Net charge-offs of US$61 million for the first quarter of 2002 were US$40 million higher than in the first quarter of 2001, largely related to a small number of problem loans.

As part of its strategy of providing customers with multiple choices for product and service delivery, HSBC Bank USA offers a comprehensive internet banking service. At 31 March 2002, more than 310,000 customers had registered for the service, up from approximately 275,000 at year-end 2001. The HSBC Bank USA web site, us.hsbc.com, where customers can apply for accounts, conduct financial planning and link to online services, receives over 31,000 visits daily.