HSBC Bank Canada Reports First Quarter 2017 Financial Results

VANCOUVER, May 3, 2017 /CNW/ -

  • Profit before income tax expense for the quarter ended 31 March 2017 was $243m
  • Profit attributable to the common shareholder was $177m for the quarter ended 31 March 2017
  • Return on average common equity was 15.4% for the quarter ended 31 March 2017
  • The cost efficiency ratio was 61.5% for the quarter ended 31 March 2017
  • Total assets were $95.7bn at 31 March 2017
  • Common equity tier 1 capital ratio was 10.6%, tier 1 ratio 12.6% and total capital ratio 13.5% at 31 March 2017

The abbreviations'$m' and '$bn' represent millions and billions of Canadian dollars, respectively.

HSBC Bank Canada
Financial Commentary

Overview

HSBC Bank Canada reported a profit before income tax expense of $243m for the first quarter of 2017, an increase of $85m, or 54% compared with the first quarter of 2016.  The increase is due to recoveries in loan impairment charges on improved credit quality in the oil and gas sector compared to the high impairment charges in the first quarter last year.  This was partially offset by a decrease of $25m in trading revenues as a result of favourable changes in the credit valuation, debt valuation, and funding fair value adjustments on derivative contracts in the prior year.

Commercial banking remains focused on enhancing and simplifying its delivery model, improving productivity for the benefit of its customers and employees.  We continue to focus on international subsidiary banking as a driver of growth through strategic trade corridors and leverage our global trade and cash management product platforms for client acquisition and fee income. 

Global Banking and Markets increased fee revenues through increased advisory and underwriting activities on a year to date basis by leveraging HSBC's global network on behalf of its clients.

Retail Banking and Wealth Management benefited from growth in assets under management during the quarter.

Commenting on the results, Sandra Stuart, President and Chief Executive Officer of HSBC Bank Canada, said: "In the first quarter of 2017, profit before tax at HSBC Bank Canada was 54% higher than in the same quarter in 2016.  This was primarily due to significant improvements in the oil and gas sector which resulted in a net recovery of loan loss provisions and was also central to a 243% increase in profit before tax in Commercial Banking.  In Global Banking & Markets, although profit before tax was down 42% compared to the same period last year due to adverse credit valuation adjustments the business saw increased volume of deposits and higher advisory and debt underwriting fees. In Retail Banking and Wealth Management, cost saving initiatives and lower loan impairment charges drove a 110% increase in profit before tax.  Canada is a great place to do business and we are continuing to make significant investments to grow here. In the first quarter, we expanded in key markets by hiring in Commercial Banking and Global Banking and Markets and continued our drive to make the bank simpler and more secure for our clients, introducing biometric identification to our mobile banking and preparing for the launch of additional innovations in Retail Banking and Wealth Management. We also continued to invest in efficiency improvements, as well as in risk and compliance resources and practices to protect our customers, our business and the financial system."

Analysis of consolidated financial results for the first quarter of 2017

Net interest income for the first quarter of 2017 was broadly unchanged at $282m, an increase of $1m, compared with the first quarter of 2016.

Net fee income for the first quarter of 2017 was broadly unchanged at $160m, a decrease of $1m, or 1%, compared with the first quarter of 2016.                             

Net trading income for the first quarter of 2017 was $31m, a decrease of $36m, or 54%, compared with the first quarter of 2016.  There were $25m of favourable changes to the credit valuation, debt valuation, and funding fair valuation adjustment in the prior year due to the tightening of client and HSBC's own credit spreads. Furthermore, trading activities decreased by $13m due to refinement of prior year valuation methodology and lower treasury bills and other trading income in the current year.  

Gains less losses from financial investments for the first quarter of 2017 were $18m, a decrease of $3m, or 14%, compared with the first quarter of 2016. Gains on sale of available-for-sale debt securities arose from the continued rebalancing of the bank's liquid assets. 

Net expense from financial instruments designated at fair value for the first quarter of 2017 was $3m compared with net expense of $1m in the first quarter of 2016. The net expense from financial instruments designated at fair value was caused from narrowing of the bank's own credit spread.

Other operating income for the first quarter of 2017 was $18m, an increase of $3m, or 20%, compared with the first quarter of 2016. The increase was mainly due to higher activities with other Group entities.

Loan impairment recoveries and other credit risk provisions for the first quarter of 2017 were $49m, a change of $134m compared with the first quarter of 2016. This net recovery over the comparative periods largely reflects improving economic conditions, primarily in the oil and gas sector, resulting in higher collateral values and improvements in credit quality. Loan impairment charges in the first quarter for 2016 were high due to credit deterioration on specific accounts in the oil and gas portfolio. 

Total operating expenses for the first quarter of 2017 were $311m, an increase of $10m, or 3%, compared with the first quarter of 2016 driven by strategic spending to reduce future costs.

Share of profit in associates for the first quarter of 2017 was a loss of $1m, a decrease of $1m compared with the first quarter of 2016.

Income tax expense. The effective tax rate in the first quarter of 2017 was 23%, compared with 27% in the first quarter of 2016 due to adjustment to prior years' provision for tax.

Business performance in the first quarter of 2017

Commercial Banking
Profit before income tax expense was $161m for the first quarter of 2017, an increase of $114m, or 243%, compared with the first quarter of 2016, primarily due to lower loan impairment charges largely reflecting improved credit quality in the oil and gas sectors, offset partially by lower revenue as a result of lower lending balances and higher interest expense from long-term borrowings.  

Global Banking and Markets
Profit before income tax expense was $40m for the first quarter of 2017, a decrease of $29m, or 42%, compared with the first quarter of 2016.  The decrease was driven by prior year trading revenues realized from favourable changes in the credit and funding valuation adjustments due to the tightening of clients and HSBC's own credit.  This was partially offset by higher revenues from advisory and debt underwriting activities.

Retail Banking and Wealth Management
Profit before income tax expense relating to ongoing business (excluding the run-off consumer finance portfolio) was $16m for the first quarter of 2017, an increase of $11m, or 220%, compared with the first quarter of 2016. The increase in profit before income tax expense relating to ongoing business was due to lower operating expenses primarily driven by cost saving initiatives and lower loan impairment charges due to a release of collective allowances in the current period. Profit before income tax expense relating to the run-off consumer finance portfolio for the first quarter of 2017 was $5m, unchanged from the first quarter of 2016. Lower revenues due to continued run-off of the portfolio was offset by the release related to collective allowance.

Corporate Centre
Profit before income tax expense was $21m for the first quarter of 2017, a decrease of $11m, or 34%, compared with the first quarter of 2016. The decrease in profit was driven by higher operating expenses due to investments in streamlining initiatives, partially offset by higher net interest income from balance sheet management due to higher yields earned on financial investments. The bank realizes gains and losses from financial investments from disposals of available-for-sale financial investments.

Dividends
During the first quarter of 2017, the bank declared and paid $47m in dividends on HSBC Bank Canada common shares, a decrease of $1m compared with the same quarter last year. Regular quarterly dividends have been declared on all series of HSBC Bank Canada Class 1 Preferred Shares in the amounts of $0.31875, $0.3125 and $0.25 for Series C, Series D and Series G respectively and will be paid on 30 June 2017 for shareholders of record on 15 June 2017.

About HSBC Bank Canada

HSBC Bank Canada, a subsidiary of HSBC Holdings plc, is the leading international bank in the country. We help companies and individuals across Canada to do business and manage their finances internationally through three global business lines: Commercial Banking, Global Banking and Markets, and Retail Banking and Wealth Management. Canada is a priority market for the HSBC Group - one of the world's largest banking and financial services groups with assets of US$2,416bn at 31 March 2017. Linked by advanced technology, HSBC serves customers worldwide through an international network of around 4,000 offices in 70 countries and territories in Europe, Asia, North and Latin America, and the Middle East and North Africa.

Copies of HSBC Bank Canada's First Quarter 2017 Interim Report will be sent to shareholders in May 2017.

HSBC Bank Canada

Summary



($ millions, except where otherwise stated)

Quarter ended


31 March 2017

31 March 2016




Finance performance for the period




Total operating income

506

544


Profit before income tax expense

243

158


Profit attributable to the common shareholder

177

106


Basic earnings per common share ($)

0.35

0.21




Performance ratios (%)1




Return ratios (%)1




Return on average common shareholders' equity

15.4

9.4


Post-tax return on average total assets

0.76

0.46


Pre-tax return on average risk-weighted assets2

2.3

1.5




Credit coverage ratios (%)1




Loan impairment charges to total operating income

n/a

15.6


Loan impairment charges to average gross customer advances and acceptances

n/a

0.7


Total impairment allowances to impaired loans and advances at period-end

60.7

74.3




Efficiency and revenue mix ratios (%)1




Cost efficiency ratio

61.5

55.3


Adjusted cost efficiency ratio

61.1

55.2


As a percentage of total operating income:





- net interest income

55.7

51.7



- net fee income

31.6

29.6



- net trading income

6.1

12.3





At period ended


31 March 2017

31 December 2016

Financial position at period-end




Loan and advances to customers

46,967

46,907


Customer accounts

54,283

56,674


Ratio of customer advances to customer accounts (%)1

86.5

82.8


Shareholders' equity

5,581

5,415


Average total shareholders' equity to average total assets (%)1

5.8

5.7




Capital measures2





Common equity tier 1 capital ratio (%)

10.6

10.5



Tier 1 ratio (%)

12.6

12.5



Total capital ratio (%)

13.5

13.5



Leverage ratio (%)

4.8

4.7



Risk-weighted assets

42,921

42,005

1

 Refer to the 'Use of non-IFRS's financial measures' section of the MD&A for a discussion of non-IFRS's financial measures.

2

The bank assesses capital adequacy against standards established in guidelines issued by OSFI in accordance with the Basel III capital adequacy
frameworks.
                 

 

HSBC Bank Canada

 Consolidated income statement (unaudited)



(Figures in $m, except per share amounts)        

Quarter ended


31 March 2017


31 March 2016





Interest income

451


418

Interest expense

(169)


(137)

Net interest income

282


281





Fee income

177


178

Fee expense

(17)


(17)

Net fee income

160


161





Trading income excluding net interest income

26


62

Net interest income on trading activities

5


5

Net trading income

31


67





Net (expense)/income from financial instruments designated at fair value

(3)


(1)

Gains less losses from financial investments

18


21

Other operating income

18


15

Total operating income

506


544

Loan impairment recoveries/(charges) and other credit risk provisions

49


(85)

Net operating income

555


459





Employee compensation and benefits

(181)


(169)

General and administrative expenses

(121)


(122)

Depreciation of property, plant and equipment

(7)


(7)

Amortisation and impairment of intangible assets

(2)


(3)

Total operating expenses

(311)


(301)





Operating profit

244


158

Share of (loss)/profit in associates

(1)


Profit before income tax expense

243


158

Income tax expense

(57)


(43)

Profit for the period

186


115





Profit attributable to the common shareholder

177


106

Profit attributable to preferred shareholders

9


9

Profit attributable to shareholders

186


115





Average number of common shares outstanding (000's)

498,668


498,668

Basic earnings per common share ($)

0.35


0.21

 

HSBC Bank Canada

Consolidated balance sheet (unaudited)





(Figures in $m)

31 March 2017


31 December 2016





ASSETS








Cash and balances at central bank

57


66

Items in the course of collection from other banks

32


58

Trading assets

9,158


6,288

Derivatives

3,061


3,850

Loans and advances to banks

891


1,071

Loans and advances to customers

46,967


46,907

Reverse repurchase agreements – non-trading

7,068


5,938

Financial investments

22,825


25,231

Other assets

888


447

Prepayments and accrued income

221


186

Customers' liability under acceptances

4,254


4,322

Property, plant and equipment

101


104

Goodwill and intangible assets

74


70

Deferred assets

117


119

Total assets

95,714


94,657





LIABILITIES AND EQUITY








Liabilities




Deposits by banks

930


946

Customer accounts

54,283


56,674

Repurchase agreements – non-trading

7,700


4,345

Items in the course of transmission to other banks

236


82

Trading liabilities

5,438


3,784

Financial liabilities designated at fair value

400


403

Derivatives

3,041


3,838

Debt securities in issue

9,341


10,256

Other liabilities

2,620


2,610

Acceptances

4,254


4,322

Accruals and deferred income

363


475

Retirement benefit liabilities

343


342

Subordinated liabilities

1,039


1,039

Provisions

112


116

Current taxes

33


10

Total liabilities

90,133


89,242





Equity




Preferred shares

850


850

Common shares

1,225


1,225

Other reserves

61


27

Retained earnings

3,445


3,313

Total equity

5,581


5,415





Total equity and liabilities

95,714


94,657

 

HSBC Bank Canada

Global business segmentation (unaudited)



(Figures in $m)

Quarter ended


31 March 2017


31 March 2016

Commercial Banking




Net interest income

133


139

Net fee income

70


74

Net trading income

7


7

Gains less losses from financial investments


2

Other operating income

6


5

Total operating income

216


227

Loan impairment recoveries/(charges) and other credit risk provisions

39


(78)

Net operating income

255


149

Total operating expenses

(94)


(102)

Profit before income tax expense

161


47





Global Banking and Markets




Net interest income

21


16

Net fee income

37


33

Net trading income

12


55

Total operating income

70


104

Loan impairment recoveries/(charges) and other credit risk provisions

5


(3)

Net operating income

75


101

Total operating expenses

(35)


(32)

Profit before income tax expense

40


69





Retail Banking and Wealth Management




Net interest income

96


100

Net fee income

53


54

Net trading income

6


5

Other operating income

1


2

Total operating income

156


161

Loan impairment recoveries/(charges) and other credit risk provisions

5


(4)

Net operating income

161


157

Total operating expenses

(140)


(147)

Profit before income tax expense

21


10





Corporate Centre




Net interest income

32


26

Net trading income

6


(1)

Net (expense)/income from financial instruments designated at fair value

(3)


Gains less losses from financial investments

18


19

Other operating income

11


8

Net operating income

64


52

Total operating expenses

(42)


(20)

Operating profit

22


32

Share of loss in associates

(1)


Profit before income tax expense

21


32

 

SOURCE HSBC Bank Canada

For further information: Media enquiries to: Sharon Wilks, 416-868-3878, sharon_wilks@hsbc.ca; Aurora Bonin, 604-641-1905, aurora.f.bonin@hsbc.ca

RELATED LINKS
http://www.hsbc.ca/1/2/personal

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