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HSBC Finance Corp – ‘10-Q’ for 9/30/97

On: Wednesday, 11/12/97 · As of: 11/13/97 · For: 9/30/97 · Accession #: 354964-97-26 · File #: 1-08198

  As Of                Filer                Filing    For·On·As Docs:Size

11/13/97  HSBC Finance Corp                 10-Q        9/30/97    5:76K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      25    132K 
 2: EX-12       Statement re: Computation of Ratios                    1      7K 
 3: EX-21       Subsidiaries of the Registrant                         5     20K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     2±     7K 
 5: EX-99.1     Miscellaneous Exhibit                                  1      7K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Credit Loss Reserves Delinquency Exhibits and Reports on Form 8-K Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations
1	1st Page - Filing Submission
3	Item 1. Financial Statements
13	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
20	Credit Loss Reserves
21	Delinquency
23	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 25 TOC ↑Top Previous Next ↓Bottom Just 1st
 

FORM 10-Q             

UNITED STATES             
SECURITIES AND EXCHANGE COMMISSION              
Washington, D.C. 20549              

(Mark One)                                                                      

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                    
SECURITIES EXCHANGE ACT OF 1934                                       

For the quarterly period ended September 30, 1997                               
------------------

OR              

[ ]  TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                  
SECURITIES EXCHANGE ACT OF 1934                                       

For the transition period from               to                                 
             -------------    --------------

Commission file number 1-8198                                                   
------                            

HOUSEHOLD INTERNATIONAL, INC.             
------------------------------------------------------              
(Exact name of registrant as specified in its charter)              

Delaware                           36-3121988                         
------------------------      ------------------------------------              
(State of Incorporation)      (I.R.S. Employer Identification No.)              

2700 Sanders Road, Prospect Heights, Illinois     60070                         
-------------------------------------------------------                         
(Address of principal executive offices)     (Zip Code)                         

Registrant's telephone number, including area code:   (847) 564-5000            
                                          --------------

Indicate by check mark whether the registrant (1) has filed all                 
reports required to be filed by Section 13 or 15(d) of the                      
Securities Exchange Act of 1934 during the preceding 12 months (or              
for such shorter period that the registrant was required to file                
such reports), and (2) has been subject to such filing requirements             
for the past 90 days. Yes [X] No [ ]                                            

At November 7, 1997, there were 107,008,611 shares of registrant's              
common stock outstanding.                                                       

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HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES              

Table of Contents             

PART I.   Financial Information                                 Page            
                                                    ----
Item 1. Financial Statements                                                

Condensed Consolidated Statements of Income                 
(Unaudited) - Three Months and Nine Months                  
Ended September 30, 1997 and 1996                        2  

Condensed Consolidated Balance Sheets -                     
September 30, 1997 (Unaudited) and December 31, 1996     3  

Condensed Consolidated Statements of Cash Flows             
(Unaudited) - Nine Months Ended                             
September 30, 1997 and 1996                              4  

Financial Highlights                                     5  

Notes to Interim Condensed Consolidated Financial           
Statements (Unaudited)                                   6  

Item 2. Management's Discussion and Analysis of                             
Financial Condition and Results of Operations           12  

PART II.  Other Information                                                     

Item 6. Exhibits and Reports on Form 8-K                        22          

Signature                                                       23          

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PART 1.   FINANCIAL INFORMATION                                                 

Item 1.   FINANCIAL STATEMENTS                                                  

Household International, Inc. and Subsidiaries                                  

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)                         
-------------------------------------------------------                         

All amounts, except per share data, are stated in millions.                     

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------- 
                                                  Three months ended              Nine months ended 
                                                       September 30,                  September 30, 
                                                1997            1996             1997          1996 
--------------------------------------------------------------------------------------------------- 
                                                                                                    
Finance income                                $790.0          $755.6         $2,271.5      $2,136.4 
Interest income from noninsurance                                                                   
 investment securities                           6.2            12.1             30.2          71.4 
Interest expense                               389.2           384.7          1,116.1       1,121.8 
                                              ------          ------         --------      -------- 
Net interest margin                            407.0           383.0          1,185.6       1,086.0 
Provision for credit losses on owned                                                                
 receivables                                   257.8           169.5            802.8         537.3 
                                              ------          ------         --------      -------- 
Net interest margin after provision for                                                             
  credit losses                                149.2           213.5            382.8         548.7 
                                              ------          ------         --------      -------- 
Securitization income                          366.5           282.0          1,041.5         841.9 
Insurance revenues                              69.6            63.6            203.5         185.9 
Investment income                               32.9            34.8             95.0         128.0 
Fee income                                     108.7            62.1            263.5         165.3 
Other income                                    48.8            31.5            146.5         195.4 
                                              ------          ------         --------      -------- 
Total other revenues                           626.5           474.0          1,750.0       1,516.5 
                                              ------          ------         --------      -------- 
Salaries and fringe benefits                   168.7           138.1            472.5         409.8 
Occupancy and equipment expense                 52.5            48.3            156.5         163.6 
Other marketing expenses                       128.9           132.3            358.1         374.5 
Other servicing and administrative expenses     92.6            98.0            286.6         360.2 
Policyholders' benefits                         47.6            57.2            142.9         183.6 
                                              ------          ------         --------      -------- 
Total costs and expenses                       490.3           473.9          1,416.6       1,491.7 
                                              ------          ------         --------      -------- 
Income before income taxes                     285.4           213.6            716.2         573.5 
Income taxes                                    98.2            73.7            247.2         198.5 
                                              ------          ------         --------      -------- 
Net income                                    $187.2          $139.9         $  469.0      $  375.0 
                                              ======          ======         ========      ======== 

Earnings per common share:                                                                          
 Net income                                   $187.2          $139.9         $  469.0      $  375.0 
 Preferred dividends                            (2.9)           (4.2)            (9.0)        (12.5)
                                              ------          ------         --------      -------- 
 Net income available to common                                                                     
  shareholders                                $184.3          $135.7         $  460.0      $  362.5 
                                              ======          ======         ========      ======== 
 Average common and common equivalent                                                               
  shares                                       108.4            98.2            102.3          98.4 
                                              ------          ------         --------      -------- 
 Net income per common share                  $ 1.70          $ 1.38         $   4.50      $   3.68 
                                              ------          ------         --------      -------- 
Dividends declared per common share              .42             .39             1.20          1.07 
                                              ------          ------         --------      -------- 

See notes to interim condensed consolidated financial statements.               

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Household International, Inc. and Subsidiaries                                  

CONDENSED CONSOLIDATED BALANCE SHEETS                                           
-------------------------------------                                           

In millions, except share data.                                                 

                                                                [Download Table]

--------------------------------------------------------------------------------- 
                                                   September 30,     December 31, 
                                                            1997             1996 
--------------------------------------------------------------------------------- 
ASSETS                                                (Unaudited)                 
------                                                                            
                                                                                  
Cash                                                   $   345.1        $   239.2 
Investment securities                                    2,261.5          2,282.0 
Receivables, net                                        24,467.0         24,244.8 
Acquired intangibles and goodwill, net                   1,593.1            969.4 
Properties and equipment, net                              321.6            353.1 
Real estate owned                                          150.5            136.6 
Other assets                                             1,512.0          1,369.4 
                                                       ---------        --------- 
Total assets                                           $30,650.8        $29,594.5 
                                                       =========        ========= 

LIABILITIES AND SHAREHOLDERS' EQUITY                                              
------------------------------------                                              
Debt:                                                                             
  Deposits                                             $ 1,951.2        $ 2,365.1 
  Commercial paper, bank and other borrowings            6,082.3          6,428.1 
  Senior and senior subordinated debt (with                                       
     original maturities over one year)                 15,168.0         14,802.0 
                                                       ---------        --------- 
Total debt                                              23,201.5         23,595.2 
Insurance policy and claim reserves                      1,250.4          1,205.3 
Other liabilities                                        1,557.8          1,472.8 
                                                       ---------        --------- 
Total liabilities                                       26,009.7         26,273.3 
                                                       ---------        --------- 
Company obligated mandatorily redeemable                                          
  preferred securities of subsidiary trusts*               175.0            175.0 
                                                       ---------        --------- 
Preferred stock                                            150.0            205.0 
                                                       ---------        --------- 
Common shareholders' equity:                                                      
  Common stock, $1.00 par value, 250,000,000                                      
    shares authorized, 124,331,175 and                                            
    115,231,175 shares issued at September 30,                                    
    1997 and December 31, 1996, respectively               124.3            115.2 
  Additional paid-in capital                             1,398.0            397.3 
  Retained earnings                                      3,412.4          3,076.8 
  Foreign currency translation adjustments                (127.1)          (126.7)
  Unrealized loss on investments, net                       (3.4)           (12.9)
  Less common stock in treasury, 17,431,526 and                                   
     18,165,921 shares at September 30, 1997 and                                  
     December 31, 1996, respectively, at cost             (488.1)          (508.5)
                                                       ---------        --------- 
Total common shareholders' equity                        4,316.1          2,941.2 
                                                       ---------        --------- 
Total liabilities and shareholders' equity             $30,650.8        $29,594.5 
                                                       =========        ========= 

* As described in note 8 to the financial statements, the sole                  
asset of the two trusts are Junior Subordinated Deferrable                  
Interest Notes issued by Household International, Inc. in June              
1996 and June 1995, bearing interest at 8.70 and 8.25 percent,              
respectively, with principal balances of $103.1 and $77.3                   
million, respectively, and due June 30, 2036 and June 30, 2025,             
respectively.                                                               

See notes to interim condensed consolidated financial statements.               

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Household International, Inc. and Subsidiaries                                  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                     
-----------------------------------------------------------                     

In millions.                                                                    

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------- 
Nine months ended September 30                                   1997            1996 
------------------------------------------------------------------------------------- 
                                                                                      
CASH PROVIDED BY OPERATIONS                                                           
Net income                                                 $    469.0      $    375.0 
Adjustments to reconcile net income to cash                                           
  provided by operations:                                                             
  Provision for credit losses on owned receivables              802.8           537.3 
  Insurance policy and claim reserves                            70.4            57.0 
  Depreciation and amortization                                 189.7           178.4 
  Net realized gains from sales of assets                       (84.6)         (119.0)
  Other, net                                                    (55.7)          203.9 
                                                           ----------      ---------- 
Cash provided by operations                                   1,391.6         1,232.6 
                                                           ----------      ---------- 
INVESTMENTS IN OPERATIONS                                                             
Investment securities:                                                                
  Purchased                                                  (1,019.5)       (1,880.9)
  Matured                                                       246.0           684.7 
  Sold                                                          810.7         2,262.9 
Short-term investment securities, net change                      1.1           252.2 
Receivables:                                                                          
  Originations, net                                         (19,229.8)      (20,017.8)
  Purchased                                                    (632.9)       (4,250.4)
  Sold                                                       21,861.4        20,776.8 
Purchase capital stock of Transamerica Financial                                      
  Services Holding Company                                   (1,065.0)            -   
Disposition of consumer banking operations:                                           
  Assets sold, net                                                -             472.3 
  Deposits and other liabilities sold                             -          (2,809.8)
Acquisition of portfolios, net                                    -            (620.1)
Properties and equipment purchased                              (47.4)          (58.1)
Properties and equipment sold                                     7.3            11.4 
                                                           ----------      ---------- 
Cash increase (decrease) from investments in operations         931.9        (5,176.8)
                                                           ----------      ---------- 
FINANCING AND CAPITAL TRANSACTIONS                                                    
Short-term debt and demand deposits, net change                (412.1)          (43.4)
Time certificates, net change                                  (258.8)          299.1 
Senior and senior subordinated debt issued                    4,461.8         6,759.0 
Senior and senior subordinated debt retired                  (4,060.2)       (2,706.0)
Repayment of Transamerica Financial Services                                          
  Holding Company debt                                       (2,795.0)            -   
Policyholders' benefits paid                                    (95.2)         (484.0)
Cash received from policyholders                                 93.3           192.4 
Shareholders' dividends                                        (133.4)         (116.4)
Purchase of treasury stock                                        -             (48.9)
Redemption of preferred stock                                   (55.0)            -   
Issuance of common stock                                      1,016.5            11.4 
Issuance of company obligated mandatorily                                             
  redeemable preferred securities of subsidiary trusts            -             100.0 
                                                           ----------      ---------- 
Cash increase (decrease) from financing and capital                                   
  transactions                                               (2,238.1)        3,963.2 
                                                           ----------      ---------- 
Effect of exchange rate changes on cash                          20.5              .2 
                                                           ----------      ---------- 
Increase in cash                                                105.9            19.2 
Cash at January 1                                               239.2           270.4 
                                                           ----------      ---------- 
Cash at September 30                                       $    345.1      $    289.6 
                                                           ==========      ========== 
Supplemental cash flow information:                                                   
Interest paid                                              $  1,081.4      $  1,116.8 
                                                           ----------      ---------- 
Income taxes paid                                               163.2           220.4 
                                                           ----------      ---------- 

See notes to interim condensed consolidated financial statements.               

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Household International, Inc. and Subsidiaries                                  

FINANCIAL HIGHLIGHTS                                                            
--------------------                                                            

All dollar amounts are stated in millions.                                      

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------- 
                                            Three Months Ended             Nine Months Ended 
                                                 September 30,                 September 30, 
                                            1997          1996            1997          1996 
-------------------------------------------------------------------------------------------- 
                                                                                             
Net income                              $  187.2      $  139.9        $  469.0      $  375.0 
                                        --------      --------        --------      -------- 
Revenues                                 1,422.7       1,241.7         4,051.7       3,724.3 
                                        --------      --------        --------      -------- 
Return on average common                                                                     
  shareholders' equity <F1>                 17.4%         19.8%           17.7%         17.8%
                                        --------      --------        --------      -------- 
Return on average owned assets <F1>         2.37          1.87            2.09          1.71 
                                        --------      --------        --------      -------- 
Managed basis efficiency                                                                     
  ratio, normalized <F2>                    35.1          39.9            36.5          41.5 
                                        --------      --------        --------      -------- 

All dollar amounts are stated in millions.                                      

                                                                [Download Table]

---------------------------------------------------------------------------- 
                                        September 30,           December 31, 
                                                 1997                   1996 
---------------------------------------------------------------------------- 
                                                                             
Total assets:                                                                
  Owned                                     $30,650.8              $29,594.5 
  Managed                                    50,289.2               48,120.9 
                                            ---------              --------- 
Receivables:                                                                 
  Owned                                     $24,445.0              $24,067.0 
  Serviced with limited recourse             19,638.4               18,526.4 
                                            ---------              --------- 
  Managed                                   $44,083.4              $42,593.4 
                                            =========              ========= 
Total shareholders' equity as a percent                                      
  of owned assets <F3>                          15.14%                 11.22%
                                           ----------              --------- 
Total shareholders' equity as a percent                                      
  of managed assets <F3>                         9.23                   6.90 
                                           ----------              --------- 

<FN>                                                                         
<F1>  Annualized.                                                            

<F2>  Ratio of normalized operating expenses to managed net interest         
      margin and other revenues less policyholders' benefits.                

<F3>  Total shareholders' equity at September 30, 1997 and December 31,      
      1996 includes common shareholders' equity, preferred stock             
      and company obligated mandatorily redeemable preferred                 
      securities of subsidiary trusts.                                       
</FN>                                                                        

See notes to interim condensed consolidated financial statements.               

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Household International, Inc. and Subsidiaries                                  

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)        

1.   BASIS OF PRESENTATION                                                      
--------------------------                                                      
The accompanying unaudited condensed consolidated financial                     
statements of Household International, Inc. and its subsidiaries                
(the "company") have been prepared in accordance with generally                 
accepted accounting principles for interim financial information                
and with the instructions to Form 10-Q and Article 10 of Regulation             
S-X. Accordingly, they do not include all of the information and                
footnotes required by generally accepted accounting principles for              
complete financial statements. Certain prior period amounts have                
been reclassified to conform with the current period's                          
presentation. In the opinion of management, all adjustments                     
(consisting of normal recurring accruals) considered necessary for              
a fair presentation have been included. Operating results for the               
three and nine months ended September 30, 1997 are not necessarily              
indicative of the results that may be expected for the year ending              
December 31, 1997. For further information, refer to the                        
consolidated financial statements and footnotes thereto included in             
the company's annual report on Form 10-K for the year ended                     
December 31, 1996.                                                              

2.   ACQUISITIONS AND STOCK OFFERING                                            
------------------------------------                                            
On June 23, 1997, Household International and a wholly-owned                    
subsidiary of Household Finance Corporation (a wholly-owned                     
subsidiary of Household International) acquired the capital stock               
of Transamerica Financial Services Holding Company ("TFS"), the                 
branch-based consumer finance subsidiary of Transamerica                        
Corporation ("TA"). The company paid $1.1 billion for the stock of              
TFS and repaid approximately $2.8 billion of TFS debt owed to                   
affiliates of TA. The acquisition added approximately $3.2 billion              
of receivables, of which approximately $3.1 billion were home                   
equity loans secured primarily by home mortgages. The acquisition               
of TFS was accounted for as a purchase, and accordingly, TFS'                   
operations have been included in the company's results of                       
operations from June 24, 1997. The acquisition of TFS was not                   
material to the company's consolidated financial statements.                    

In June 1997, the company completed a public underwritten offering              
of 9.1 million shares of its common stock for approximately $1.0                
billion. Net proceeds from the offering were used to repay certain              
short-term borrowings in connection with the acquisition of TFS.                

On October 21, 1997, Household International and a wholly-owned                 
subsidiary acquired the capital stock of ACC Consumer Finance                   
Corporation ("ACC"), a non-prime auto finance company. The                      
acquisition of ACC will be accounted for as a purchase and will not             
be material to the company's consolidated financial statements.                 

3.   INVESTMENT SECURITIES                                                      
--------------------------                                                      
Investment securities consisted of the following:                               

                                                        [Enlarge/Download Table]

-----------------------------------------------------------------------------------------
In millions.                             September 30, 1997             December 31, 1996
-----------------------------------------------------------------------------------------
                                   Amortized           Fair      Amortized           Fair
                                        Cost          Value           Cost          Value
-----------------------------------------------------------------------------------------
                                                                                         
AVAILABLE-FOR-SALE INVESTMENTS                                                           
Marketable equity securities        $  129.0       $  131.4       $  212.7       $  213.1
Corporate debt securities            1,251.5        1,257.7        1,081.4        1,070.5
U.S. government and federal                                                              
  agency debt securities               231.5          217.9          287.0          277.7
Other                                  623.8          623.8          690.5          690.5
                                    --------       --------       --------       --------
Subtotal                             2,235.8        2,230.8        2,271.6        2,251.8
Accrued investment income               30.7           30.7           30.2           30.2
                                    --------       --------       --------       --------
Total investment securities         $2,266.5       $2,261.5       $2,301.8       $2,282.0
                                    ========       ========       ========       ========

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4.   RECEIVABLES                                                                
----------------                                                                
Receivables consisted of the following:                                         

                                                                [Download Table]

--------------------------------------------------------------------- 
                                        September 30,    December 31, 
In millions.                                     1997            1996 
--------------------------------------------------------------------- 
                                                                      
First mortgage                              $   482.9       $   725.6 
Home equity                                   7,605.0         3,647.9 
Visa/MasterCard                               5,668.6         8,587.7 
Private label                                 5,230.1         5,070.0 
Other unsecured                               4,622.1         5,098.0 
Commercial                                      836.3           937.8 
                                            ---------       --------- 
Total owned receivables                      24,445.0        24,067.0 

Accrued finance charges                         414.9           397.6 
Credit loss reserve for                                               
  owned receivables                          (1,062.7)         (900.2)
Unearned credit insurance premiums                                    
  and claims reserves                          (216.2)         (184.6)
Amounts due and deferred from                                         
  receivables sales                           1,632.5         1,561.0 
Reserve for receivables serviced with                                 
  limited recourse                             (746.5)         (696.0)
                                            ---------      ---------- 
Total owned receivables, net                 24,467.0        24,244.8 
Receivables serviced with limited                                     
  recourse                                   19,638.4        18,526.4 
                                            ---------       --------- 
Total managed receivables, net              $44,105.4       $42,771.2 
                                            =========       ========= 

The outstanding balance of receivables serviced with limited recourse           
consisted of the following:                                                     

                                                                [Download Table]

---------------------------------------------------------------------
                                        September 30,    December 31,
In millions.                                     1997            1996
---------------------------------------------------------------------
                                                                     
Home equity                                 $ 3,371.8       $ 4,337.5
Visa/MasterCard                              11,210.2        10,149.7
Private label                                   375.0           517.0
Other unsecured                               4,681.4         3,522.2
                                            ---------       ---------
Total                                       $19,638.4       $18,526.4
                                            =========       =========

The combination of receivables owned and receivables serviced with limited      
recourse, which the company considers its managed portfolio, is shown below:    

                                                                [Download Table]

---------------------------------------------------------------------
                                        September 30,    December 31,
In millions.                                     1997            1996
---------------------------------------------------------------------
                                                                     
First mortgage                              $   482.9       $   725.6
Home equity                                  10,976.8         7,985.4
Visa/MasterCard                              16,878.8        18,737.4
Private label                                 5,605.1         5,587.0
Other unsecured                               9,303.5         8,620.2
Commercial                                      836.3           937.8
                                            ---------       ---------
Total                                       $44,083.4       $42,593.4
                                            =========       =========

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At September 30, 1997 and December 31, 1996, the amounts due and                
deferred from receivables sales of $1,632.5 and $1,561.0 million,               
respectively, included  unamortized securitization assets and funds             
established pursuant to the recourse provisions for certain sales               
totaling $1,522.3 and $1,235.4 million, respectively. The amounts               
due and deferred also included customer payments not yet remitted               
by the securitization trustee to the company of $84.6 and $310.3                
million at September 30, 1997 and December 31, 1996, respectively.              
In addition, the company has subordinated interests in certain                  
transactions, which were recorded as receivables, of $857.0 and                 
$485.0 million at September 30, 1997 and December 31, 1996,                     
respectively. The company has agreements with a "AAA"-rated third               
party who will indemnify the company for up to $21.2 million in                 
losses relating to certain securitization transactions. The company             
maintains credit loss reserves pursuant to the recourse provisions              
for receivables serviced with limited recourse which are based on               
estimated probable losses under such provisions. These reserves                 
totaled $746.5 and $696.0 million at September 30, 1997 and                     
December 31, 1996, respectively, and represent the company's best               
estimate of possible losses on receivables serviced with limited                
recourse.                                                                       

5.   CREDIT LOSS RESERVES                                                       
-------------------------                                                       
An analysis of credit loss reserves for the three and nine months               
ended September 30 was as follows:                                              

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------- 
                                            Three Months Ended             Nine Months Ended 
                                                 September 30,                 September 30, 
In millions.                                 1997         1996            1997          1996 
-------------------------------------------------------------------------------------------- 
                                                                                             
Credit loss reserves for owned                                                               
 receivables at beginning                                                                    
 of period                               $1,051.0     $  858.3        $  900.2      $  720.4 
Provision for credit losses                 257.8        169.5           802.8         537.3 
Chargeoffs                                 (271.9)      (207.2)         (788.5)       (561.3)
Recoveries                                   32.0         30.6            98.8          91.6 
Portfolio acquisitions, net                  (6.2)        11.3            49.4          74.5 
                                         --------     --------        --------      -------- 
TOTAL CREDIT LOSS RESERVES FOR                                                               
 OWNED RECEIVABLES AT SEPTEMBER 30        1,062.7        862.5         1,062.7         862.5 
                                         --------     --------        --------      -------- 

Credit loss reserves for                                                                     
 receivables serviced with                                                                   
 limited recourse at beginning                                                               
 of period                                  719.9        592.8           696.0         457.0 
Provision for credit losses                 294.6        245.0           769.8         663.2 
Chargeoffs                                 (287.4)      (181.7)         (764.7)       (475.3)
Recoveries                                   20.3          9.9            43.1          22.3 
Other, net                                    (.9)         (.6)            2.3          (1.8)
                                         --------     --------        --------      -------- 
TOTAL CREDIT LOSS RESERVES FOR                                                               
 RECEIVABLES SERVICED WITH                                                                   
 LIMITED RECOURSE AT SEPTEMBER 30           746.5        665.4           746.5         665.4 
                                         --------     --------        --------      -------- 
TOTAL CREDIT LOSS RESERVES FOR                                                               
 MANAGED RECEIVABLES AT SEPTEMBER 30     $1,809.2     $1,527.9        $1,809.2      $1,527.9 
                                         ========     ========        ========      ======== 

6.   INCOME TAXES                                                               
-----------------                                                               
Effective tax rates for the nine months ended September 30, 1997                
and 1996 of 34.5 and 34.6 percent, respectively, differ from the                
statutory federal income tax rate for the respective periods                    
primarily because of the effects of (a) domestic and foreign loss               
carryforwards, (b) amortization and write-offs of intangible assets,            
(c) state and local income taxes, (d) reduction of noncurrent tax               
requirements and (e) leveraged lease tax benefits.                              

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7.   NET INCOME PER COMMON SHARE                                                
--------------------------------                                                
Computations of net income per common share for the three and nine              
months ended September 30 were as follows:                                      

                                                                [Download Table]

---------------------------------------------------------------------------- 
                                                          Three Months Ended 
                                                               September 30, 
                                                   1997                 1996 
---------------------------------------------------------------------------- 
                                                  Fully                Fully 
In millions, except per share data.   Primary   Diluted   Primary    Diluted 
-----------------------------------   -------   -------    -------   ------- 
                                                                             
Earnings:                                                                    
  Net income                           $187.2    $187.2    $139.9     $139.9 
  Preferred dividends                    (2.9)     (2.9)     (4.2)      (4.2)
                                       ------    ------    ------     ------ 
Net income available to common                                               
  shareholders                         $184.3    $184.3    $135.7     $135.7 
                                       ======    ======    ======     ====== 
Average shares:                                                              
  Common                                106.8     106.8      96.9       96.9 
  Common equivalents                      1.6       1.6       1.3        1.3 
                                       ------    ------    ------     ------ 
Total                                   108.4     108.4      98.2       98.2 
                                       ======    ======    ======     ====== 
Net income per common share            $ 1.70    $ 1.70    $ 1.38     $ 1.38 
                                       ======    ======    ======     ====== 
                                                                [Download Table]

---------------------------------------------------------------------------- 
                                                           Nine Months Ended 
                                                               September 30, 
                                                   1997                 1996 
---------------------------------------------------------------------------- 
                                                  Fully                Fully 
In millions, except per share data.   Primary   Diluted   Primary    Diluted 
-----------------------------------   -------   -------   -------    ------- 
                                                                             
Earnings:                                                                    
  Net income                           $469.0    $469.0    $375.0     $375.0 
  Preferred dividends                    (9.0)     (9.0)    (12.5)     (12.5)
                                       ------    ------    ------     ------ 
Net income available to common                                               
  shareholders                         $460.0    $460.0    $362.5     $362.5 
                                       ======    ======    ======     ====== 
Average shares:                                                              
  Common                                100.7     100.7      97.1       97.1 
  Common equivalents                      1.5       1.6       1.3        1.3 
                                       ------    ------    ------     ------ 
Total                                   102.2     102.3      98.4       98.4 
                                       ======    ======    ======     ====== 
Net income per common share            $ 4.50    $ 4.50    $ 3.68     $ 3.68 
                                       ======    ======    ======     ====== 

8.   COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF           
SUBSIDIARY  TRUSTS                                                    
---------------------------------------------------------------------           
In June 1996 Household Capital Trust II ("HCT II"), a wholly-owned              
subsidiary of the company, issued 4 million 8.70 percent Trust                  
Preferred Securities ("preferred securities") at $25 per preferred              
security. The sole asset of HCT II is $103.1 million of 8.70                    
percent Junior Subordinated Deferrable Interest Notes issued by the             
company. The junior subordinated notes held by HCT II mature on                 
June 30, 2036 and are redeemable by the company in whole or in part             
beginning on June 30, 2001, at which time the HCT II preferred                  
securities are callable at par value of $25 per preferred security              
plus accrued and unpaid dividends. Net proceeds from the issuance               
of preferred securities were used for general corporate purposes.               

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In 1995 Household Capital Trust I ("HCT I"), a wholly-owned                     
subsidiary of the company, issued 3 million 8.25 percent preferred              
securities at $25 per preferred security. The sole asset of HCT I               
is $77.3 million of 8.25 percent Junior Subordinated Deferrable                 
Interest Notes issued by the company. The junior subordinated notes             
held by HCT I mature on June 30, 2025 and are redeemable by the                 
company in whole or in part beginning June 30, 2000, at which time              
the HCT I preferred securities are callable at par value of $25 per             
preferred security plus accrued and unpaid dividends. HCT I may                 
elect to extend the maturity of its preferred securities to June 30, 2044.      

The obligations of the company with respect to the junior                       
subordinated notes, when considered together with certain                       
undertakings of the company with respect to HCT I and HCT II,                   
constitute full and unconditional guarantees by the company of HCT              
I's and HCT II's obligations under the respective preferred                     
securities. The preferred securities are classified in the                      
company's balance sheets as company obligated mandatorily                       
redeemable preferred securities of subsidiary trusts (representing              
the minority interest in the trusts) at their face and redemption               
amount of $175 million at September 30, 1997 and December 31, 1996.             
The preferred securities have a liquidation value of $25 per                    
preferred security. Dividends on the preferred securities are                   
cumulative, payable quarterly in arrears, and are deferrable at the             
company's option for up to five years from date of issuance. The                
company cannot pay dividends on its preferred and common stocks                 
during such deferments.                                                         

9.   INTEREST RATE CONTRACTS                                                    
----------------------------                                                    
At September 30, 1997 and December 31, 1996, all of the company's               
interest rate contracts qualified as hedges or synthetic                        
alterations.                                                                    

The nature and composition of the company's assets and liabilities              
and off-balance sheet items expose the company to interest rate                 
risk. The company enters into a variety of interest rate contracts              
for managing its interest rate exposure. Interest rate swaps are                
the principal vehicle used to manage interest rate risk; however,               
interest rate futures, options, caps and floors, and forward                    
contracts also are utilized. The company also has entered into                  
currency swaps to convert both principal and interest payments on               
debt issued from one currency to the appropriate functional currency.           

Interest rate swaps are designated, and effective, as synthetic                 
alterations of specific assets or liabilities (or specific groups               
of assets or liabilities) and off-balance sheet items. The interest             
rate differential to be paid or received on these contracts is                  
accrued and included in net interest margin in the statements of                
income. Interest rate futures, forwards, options, and caps and                  
floors used in hedging the company's exposure to interest rate                  
fluctuations are designated, and effective, as hedges of balance                
sheet items.                                                                    

Correlation between all interest rate contracts and the underlying              
asset, liability or off-balance sheet item is direct because the                
company uses interest rate contracts which mirror the underlying                
item being hedged/synthetically altered. If correlation between the             
hedged/synthetically altered item and related interest rate                     
contract would cease to exist, the interest rate contract would be              
recorded at fair value and the associated unrealized gain or loss               
would be included in net interest margin, with any future realized              
and unrealized gains or losses recorded in other income.                        

Interest rate contracts are recorded at amortized cost. If interest             
rate contracts are terminated early, the realized gains and losses              
are deferred and amortized over the life of the hedged/synthetically            
altered item as adjustments to net interest margin. These deferred              
gains and losses are recorded on the accompanying balance sheets                
as adjustments to the carrying value of the hedged items. In                    
circumstances where the underlying assets or liabilities are sold,              
any remaining carrying value adjustments or cumulative change in                
value on any open positions are recognized immediately as a component           
of the gain or loss upon disposition.  Any remaining interest rate              
contracts previously designated to the sold hedged/synthetically                
altered item are recorded at fair value with realized and unrealized            
gains and losses included in other income.                                      

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10.  RECENT ACCOUNTING DEVELOPMENTS                                             
-----------------------------------                                             
Effective January 1, 1997, the company adopted Statement of                     
Financial Accounting Standards No. 125, "Accounting for Transfers               
and Servicing of Financial Assets and Extinguishments of                        
Liabilities" ("FAS No. 125"). FAS No. 125 provides accounting and               
reporting standards for transfers and servicing of financial assets             
and extinguishment of liabilities based on an approach that focuses             
on control of the assets and extinguishment of the liabilities. The             
statement is effective for securitization transactions occurring                
subsequent to December 31, 1996. The adoption of FAS No. 125 did                
not have a material impact on the company's consolidated financial              
statements.                                                                     

In February 1997, the Financial Accounting Standards Board issued               
Statement of Financial Accounting Standards No. 128, "Earnings Per              
Share" ("FAS No. 128"), which establishes standards for computing               
and presenting earnings per share ("EPS"). FAS No. 128 replaces the             
presentation of primary EPS with a presentation of basic EPS. Basic             
EPS excludes dilution and is computed by dividing income available              
to common shareholders by the weighted-average number of common                 
shares outstanding for the period. FAS No. 128 also requires                    
presentation of diluted EPS which is computed similarly to fully                
diluted EPS currently presented. The statement is effective for                 
financial statements issued for periods ending after December 15,               
1997, including interim periods. On adoption, it will require the               
restatement of all prior period EPS data. The company will adopt                
FAS No. 128 in the fourth quarter of 1997. At such time, all prior              
period EPS data will be restated. The company believes the adoption             
of FAS No. 128 will not have a material impact on its EPS or EPS                
trends and comparisons.                                                         

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Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION              
AND RESULTS OF OPERATIONS                                         

OPERATIONS SUMMARY                                                              
------------------                                                              
Net income for the third quarter and first nine months of 1997 was              
$187.2 and $469.0 million, up 34 and 25 percent from $139.9 and                 
$375.0 million in the respective 1996 periods. Earnings per share               
was $1.70 for the third quarter and $4.50 for the first nine months             
of 1997, up 23 and 22 percent from $1.38 and $3.68 per share in the             
same periods in 1996. The difference between the percentage                     
increases in net income and earnings per share for the third                    
quarter was due to the company's issuance of approximately nine                 
million common shares in late June 1997. The company's annualized               
return on average common shareholders' equity for the third quarter             
and first nine months of 1997 was 17.4 and 17.7 percent,                        
respectively, down from 19.8 and 17.8 percent in the respective                 
year-ago periods, reflecting the increase in average equity from                
the June common stock offering. The annualized return on average                
owned assets improved to 2.37 and 2.09 percent in the third quarter             
and first nine months of 1997, respectively, up from 1.87 and 1.71              
percent in the same year-ago periods.                                           

- The following is a summary of the operating results of the                    
company's key businesses for the third quarter and first nine               
months of 1997 compared to the corresponding prior year periods:            

Net interest margin in the domestic consumer finance business               
continued to expand in the third quarter and first nine months              
of 1997 due to improved pricing and higher levels of managed                
receivables, but was partially offset by increased credit losses            
primarily due to higher levels of personal bankruptcies.                    

In the third quarter, the Visa/MasterCard* business achieved                
higher fee income and improved efficiency, which was offset by              
higher credit losses resulting primarily from increased personal            
bankruptcy filings. During the first nine months of 1997, the               
Visa/MasterCard business realized higher net interest margin and            
fee income, and improved efficiency, which more than offset                 
higher credit losses resulting primarily from increased personal            
bankruptcy filings. The company has continued its program to                
improve the profitability of its credit card portfolios by                  
selling non-strategic portfolios, refining pricing strategies,              
increasing fees and systematically eliminating unprofitable                 
accounts. Results for this business continued to benefit from               
the company's co-branding and affinity relationship strategies,             
in particular the association with the General Motors credit                
card ("GM Card") program and the Union Privilege Visa/MasterCard            
portfolio acquired in June 1996.                                            

The private-label credit card business reported higher credit               
losses reflecting the maturing of promotional balances and                  
increased personal bankruptcy filings in the third quarter and              
first nine months of 1997, which were partially offset by higher            
net interest margin.                                                        

The United Kingdom operation realized higher net interest                   
margin, interchange income and insurance premiums, due to                   
receivables growth. During the quarter, United Kingdom credit               
card accounts grew 7 percent and credit card receivables grew to            
nearly $750 million. The Goldfish Card, issued in alliance with             
British Gas, contributed significantly to the growth in credit              
card receivables during the quarter.                                        

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

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- On June 23, 1997, Household International and a wholly-owned                  
subsidiary of Household Finance Corporation acquired the capital            
stock of Transamerica Financial Services Holding Company                    
("TFS"), the branch-based consumer finance subsidiary of                    
Transamerica Corporation ("TA"). The company paid $1.1 billion              
for the stock of TFS and repaid approximately $2.8 billion of               
TFS debt owed to affiliates of TA. The acquisition added                    
approximately $3.2 billion of receivables, of which                         
approximately $3.1 billion were home equity loans secured                   
primarily by home mortgages. The acquisition of TFS strengthened            
the company's core consumer finance operations by expanding its             
branch network by 92 branches, adding new customer accounts, and            
increasing the secured loan portion of the company's receivables            
portfolio. As of September 30, 1997, the company has essentially            
completed the integration of TFS. The company has closed all                
redundant branches and has completely integrated all back-office            
functions.                                                                  

In connection with the acquisition, in June 1997, the company               
completed a public underwritten offering of 9.1 million shares              
of its common stock for approximately $1.0 billion. Net proceeds            
from the offering were used to repay certain short-term                     
borrowings in connection with the acquisition.                              

- The company's normalized managed basis efficiency ratio                       
improved to 35.1 and 36.5 percent for the third quarter and first           
nine months of 1997, respectively, compared to 39.9 and 41.5                
percent in 1996. The improvement resulted from a 21 and 18 percent          
growth in normalized managed net revenues over the third quarter            
and first nine months of 1996, respectively, compared to a 6 and 4          
percent increase, respectively, in normalized operating expenses.           

- The company continues to maintain its credit loss reserve                     
position due to uncertainty over consumer payment patterns and              
seasoning of unsecured loan products. The company increased its             
credit loss reserves during the first nine months of 1997 by                
providing reserves in excess of net chargeoffs for owned                    
receivables of $113 million.                                                

- On October 21, 1997, Household International and a wholly-                    
owned subsidiary acquired the capital stock of ACC Consumer Finance         
Corporation ("ACC"), a non-prime auto finance company. The                  
acquisition of ACC will be accounted for as a purchase and will not         
be material to the company's consolidated financial statements.             

BALANCE SHEET REVIEW                                                            
--------------------                                                            
- Managed consumer receivables (owned and serviced with limited                 
recourse) were $43.2 billion at September 30, 1997, compared to             
$43.8 billion at June 30, 1997 and $40.5 billion at September 30,           
1996. The increase from the prior year was primarily due to the             
acquisition of TFS in June 1997. Core products, which exclude first         
mortgages and commercial receivables, increased 10 percent from a           
year ago. Private label and other unsecured product lines grew              
approximately 11 and 13 percent, respectively, over prior year              
levels. Home equity loans rose 27 percent year over year.                   
Visa/MasterCard receivables were flat with the level of a year ago.         

- Compared to the second quarter, core receivables were down one                
percent. Home equity receivables fell slightly during the quarter           
as the company's sales force focused on the conversion and                  
retention of TFS customers. Although successful in the retention of         
TFS customers, the company experienced some attrition in the base           
portfolio as new volume did not keep pace with runoff. The                  
Visa/MasterCard portfolio was also down due to the sale and planned         
runoff of non-strategic and less profitable receivables during the          
third quarter.                                                              

- Owned consumer receivables were $23.6 billion at September 30,                
1997, compared to $23.9 billion at June 30, 1997 and $23.1 billion          
at September 30, 1996. Changes in owned receivables from period to          
period may vary depending on the timing and significance of                 
securitization transactions.                                                

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- The company's managed credit loss reserves were $1,809.2 million at           
September 30, 1997, up from $1,770.9 million at June 30, 1997 and           
$1,527.9 million at September 30, 1996. Credit loss reserves as a           
percent of managed receivables were 4.10 percent, compared to 3.97          
percent at June 30, 1997 and 3.67 percent at September 30, 1996.            
Reserves as a percent of nonperforming managed receivables were             
117.3 percent, compared to 118.5 percent at June 30, 1997 and 126.6         
percent at September 30, 1996. Consumer two-months-and-over                 
contractual delinquency ("delinquency") as a percent of managed             
consumer receivables was 4.62 percent, compared to 4.32 percent at          
June 30, 1997 and 3.83 percent at September 30, 1996. The                   
annualized total consumer managed chargeoff ratio in the third              
quarter of 1997 was 4.63 percent, compared to 4.58 percent in the           
prior quarter and 3.52 percent in the year-ago quarter.                     

- The ratio of total shareholders' equity (including trust                      
originated securities) to total owned assets was 15.14 percent,             
compared to 11.22 percent at December 31, 1996. The ratio of total          
shareholders' equity to managed assets was 9.23 percent, compared           
to 6.90 percent at December 31, 1996. The increase in the ratios            
from the year-end 1996 levels was primarily due to the issuance of          
9.1 million shares of common stock in June 1997.                            

LIQUIDITY AND CAPITAL RESOURCES                                                 
-------------------------------                                                 
The major use of cash by the company's subsidiaries is the                      
origination or purchase of receivables or investment securities.                
The main sources of cash are the collection and sales of receivable             
balances; maturities or sales of investment securities; proceeds                
from the issuance of debt and deposits; and cash provided by                    
operations.                                                                     

The following describes major changes in the company's funding base             
from December 31, 1996 to September 30, 1997:                                   

- On January 23, 1997, the company redeemed, at par, all                        
outstanding shares of its 9.50% Preferred Stock, Series 1991-A, for         
$10 per depositary share plus accrued and unpaid dividends.                 

- In June 1997, the company entered into a $1.0 billion back-up                 
line for its commercial paper program and established a $1.0                
billion asset-backed conduit. Products that may be sold into the            
conduit include credit card receivables and unsecured consumer              
loans.  The company subsequently terminated the $1.0 billion back-          
up line and, in August 1997, replaced it with a $1.3 billion back-          
up line for its commercial paper program.                                   

- In June 1997, the company completed a public underwritten                     
offering of 9.1 million shares of common stock at $110.50 per               
share. Net proceeds from the offering of approximately $1.0 billion         
were used to repay certain short-term borrowings in connection with         
the acquisition of the capital stock of TFS.                                

- On August 15, 1997, the company redeemed, at par, all                         
outstanding shares of its 7.25% term cumulative preferred Series            
1992-A, for $100 per depositary share plus accrued and unpaid               
dividends.                                                                  

- The funding requirements of the company increased by $.9                      
billion primarily due to the acquisition of TFS in June 1997,               
partially offset by lower receivable levels in the company's                
existing businesses.                                                        

- The company had securitized home equity, Visa/MasterCard,                     
private label and other unsecured receivables outstanding of $19.6          
and $18.5 billion at September 30, 1997 and December 31, 1996,              
respectively. During the three months and nine months ended                 
September 30, 1997, the company securitized, excluding                      
replenishments of certificate holder interests, $1.0 and $4.1               
billion, respectively, of Visa/MasterCard and other unsecured               
receivables.                                                                

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The composition of these securitizations by type is as follows                  
(in billions):                                                                  

                                                                [Download Table]

-----------------------------------------------------------------
                            Three months ened   Nine months ended
                                September 30,       September 30,
                                         1997                1997
-----------------------------------------------------------------
                                                                 
Visa/MasterCard                          $ .1                $2.4
Other unsecured                            .9                 1.7
                                         ----                ----
Total                                    $1.0                $4.1
                                         ====                ====

The market for securities backed by receivables is a reliable,                  
efficient and cost-effective source of funds, which the company                 
plans to continue to utilize in the future.                                     

PRO FORMA MANAGED STATEMENTS OF INCOME                                          
--------------------------------------                                          
Securitizations of consumer receivables have been, and will                     
continue to be, an important source of liquidity for the company.               
The company continues to service the securitized receivables after              
such receivables have been sold and retains a limited recourse                  
obligation. Securitizations impact the classification of revenues               
and expenses in the statements of income. Amounts related to                    
receivables serviced, including net interest margin, fee and other              
income, and provision for credit losses on receivables serviced                 
with limited recourse are reported as a net amount in                           
securitization income in the company's statements of income.                    

Management monitors the company's operations on a managed basis as              
well as on the historical owned basis reflected in its statements               
of income. The managed basis assumes that the receivables                       
securitized are held in the portfolio. Pro forma statements of                  
income on a managed basis for the third quarter and nine months                 
ended September 30, 1997 and 1996 are presented below. For purposes             
of this analysis, the results do not reflect the differences                    
between the company's accounting policies for owned receivables and             
receivables serviced with limited recourse. Accordingly, net income             
on a pro forma managed basis equals net income on an owned basis.               

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Pro Forma Managed Statements of Income                                          

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------------------    
                                             Three Months Ended                               Nine Months Ended             
All dollar amounts are                            September 30,                                   September 30,             
stated in millions.                 1997        *          1996        *          1997        *            1996        *    
------------------------------------------------------------------------------------------------------------------------    
                                                                                                                            
Finance income                 $ 1,532.8    13.71%    $ 1,360.1    13.30%    $ 4,376.4    13.63%      $ 3,829.6    13.24%   
Interest income from                                                                                                        
 noninsurance investment                                                                                                    
 securities                          6.2     6.65          12.1     5.84          30.2     5.92            71.4     5.70    
Interest expense                   689.9     6.14         639.2     6.13       1,987.7     6.09         1,831.1     6.07    
                               ---------    -----     ---------    -----     ---------    -----       ---------    -----    
Net interest margin                849.1     7.56         733.0     7.03       2,418.9     7.44<F1>     2,069.9     6.99<F1>
Provision for credit losses        552.4                  414.5                1,572.6                  1,200.5             
                               ---------              ---------              ---------                ---------             
Net interest margin after                                                                                                   
 provision for credit losses       296.7                  318.5                  846.3                    869.4             
                               ---------              ---------              ---------                ---------             
Insurance revenues                  69.6                   63.6                  203.5                    185.9             
Investment income                   32.9                   34.8                   95.0                    128.0             
Fee income                         327.7                  239.1                  841.5                    686.5             
Other income                        48.8                   31.5                  146.5                    195.4             
                               ---------              ---------              ---------                ---------             
Total other revenues               479.0                  369.0                1,286.5                  1,195.8             
                               ---------              ---------              ---------                ---------             
Salaries and fringe                                                                                                         
 benefits                          168.7                  138.1                  472.5                    409.8             
Occupancy and equipment                                                                                                     
 expense                            52.5                   48.3                  156.5                    163.6             
Other marketing expenses           128.9                  132.3                  358.1                    374.5             
Other servicing and                                                                                                         
 administrative expenses            92.6                   98.0                  286.6                    360.2             
Policyholders' benefits             47.6                   57.2                  142.9                    183.6             
                               ---------              ---------              ---------                ---------             
Total costs and expenses           490.3                  473.9                1,416.6                  1,491.7             
                               ---------              ---------              ---------                ---------             
Income before taxes                285.4                  213.6                  716.2                    573.5             
Income taxes                        98.2                   73.7                  247.2                    198.5             
                               ---------              ---------              ---------                ---------             
Net income                     $   187.2              $   139.9              $   469.0                $   375.0             
                               =========              =========              =========                =========             
Average managed receivables    $44,554.6              $40,896.6              $42,857.1                $38,577.4             
Average noninsurance                                                                                                        
 investments                       372.7                  829.3                  679.9                  1,670.2             
                               ---------              ---------              ---------                ---------             
Average managed interest-                                                                                                   
 earning assets                $44,927.3              $41,725.9              $43,537.0                $40,247.6             
                               =========              =========              =========                =========             

* As a percent, annualized, of appropriate earning assets.                                                                  

<FN>                                                                                                                        
<F1>  Managed net interest margin as a percent of average managed                                                           
interest-earning assets for the nine months of 1997 and 1996                                                                
excludes temporary investments that were used for pre-funding                                                               
acquisitions in the second quarter of each year, and, in the second                                                         
quarter of 1996, for the sale of the company's remaining consumer                                                           
banking operations. Including the impact of these temporary                                                                 
investments, managed net interest margin was 7.41 and 6.86 percent                                                          
for the nine months ended September 30, 1997 and 1996, respectively.                                                        
</FN>                                                                                                                       

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Unless noted, the following discussion on revenues and provision                
for credit losses includes comparisons to amounts reported on the               
company's historical statements of income ("Owned Basis") as well               
as on the above pro forma statements of income ("Managed Basis").               

Net interest margin                                                             
-------------------                                                             
Net interest margin on an Owned Basis was $407.0 and $1,185.6                   
million for the third quarter and first nine months of 1997, up                 
from $383.0 and $1,086.0 million in the prior year periods. The                 
increase was primarily due to an increase in average owned home                 
equity loans, as a result of the acquisition of TFS, and growth in              
private label receivables.                                                      

Net interest margin on a Managed Basis was $849.1 and $2,418.9                  
million for the third quarter and first nine months of 1997, up 16              
and 17 percent, respectively, compared to $733.0 and $2,069.9                   
million in the same year-ago periods, primarily due to managed                  
receivable growth and improved pricing. Net interest margin as a                
percent of average managed interest-earning assets, annualized, was             
7.56 percent compared to 7.41 percent in the previous quarter and               
7.03 percent in the year-ago quarter. The net interest margin                   
percentage on a Managed Basis in the second quarter of 1997                     
excludes the impact of temporary investments that were used to pre-             
fund the acquisition of TFS. Including the impact of these                      
temporary investments, net interest margin as a percent of average              
managed interest-earning assets, annualized, was 7.31 percent in                
the second quarter of 1997. The improvement over the year-ago                   
quarter was primarily due to improved pricing, the continuing                   
change in product mix and lower leverage.                                       

Provision for credit losses                                                     
---------------------------                                                     
The provision for credit losses for receivables on an Owned Basis               
for the third quarter and first nine months of 1997 totaled $257.8              
and $802.8 million, up 52 and 49 percent from $169.5 and $537.3                 
million in the comparable prior year periods. The provision as a                
percent of average owned receivables, annualized, was 4.07 percent              
in the third quarter of 1997 compared to 2.84 percent in the third              
quarter of 1996. In view of uncertainty regarding consumer payment              
patterns, the continued high levels of personal bankruptcies and                
seasoning of unsecured loan products, the company continued to                  
increase its credit loss reserves in excess of current period                   
chargeoffs. Provision in excess of net chargeoffs related to owned              
receivables was $18 million for the three months ended September                
30, 1997 compared to net chargeoffs in excess of provision of $7                
million for the same period in 1996. For the nine months ended                  
September 30, 1997 and 1996, provision in excess of net chargeoffs              
related to owned receivables was $113 and $68 million,                          
respectively. The provision for credit losses on an Owned Basis may             
vary from quarter to quarter, depending on the amount of                        
securitizations in a particular period.                                         

The provision for credit losses for receivables on a Managed Basis              
totaled $552.4 and $1,572.6 million in the third quarter and first              
nine months of 1997, up 33 percent from $414.5 million and 31                   
percent from $1,200.5 million in the comparable periods of 1996. As             
a percent of average managed receivables, annualized, the provision             
increased to 4.96 percent from 4.05 percent in the third quarter of             
1996. As noted above, the company increased credit loss reserves                
during the quarter due to seasoning of unsecured loan products and              
uncertainty over consumer payment patterns. In addition, the                    
Managed Basis provision includes the over-the-life reserve                      
requirement on securitized receivables. These provisions are                    
impacted by the type and amount of receivables securitized in a                 
given period and substantially offset the income recorded on the                
securitization transactions. In the third quarter of 1997, the                  
company securitized approximately $1.0 billion of other unsecured               
and Visa/MasterCard receivables, compared to approximately $1.4                 
billion of other unsecured receivables a year ago. For the first                
nine months of 1997, the company securitized approximately $4.1                 
billion of other unsecured and Visa/MasterCard receivables compared             
to approximately $4.8 billion of home equity, other unsecured and               
Visa/MasterCard receivables in 1996. See the credit quality section             
for further discussion of factors affecting the provision for                   
credit losses.                                                                  

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Other revenues                                                                  
--------------                                                                  
Securitization income on an Owned Basis was $366.5 and $1,041.5                 
million for the third quarter and first nine months of 1997, up                 
from $282.0 and $841.9 million in the year-ago periods.                         
Securitization income consists of income associated with the                    
securitization and sale of receivables with limited recourse,                   
including net interest income, fee and other income and provision               
for credit losses related to those receivables. The 30 and 24                   
percent increases in securitization income on an Owned Basis                    
compared to the third quarter and first nine months of 1996,                    
respectively, were primarily due to the increase in average                     
securitized receivables. The components of securitization income                
are reclassified to the appropriate lines in the statements of                  
income on a Managed Basis.                                                      

Fee income on an Owned Basis includes revenues from fee-based                   
products such as credit cards and, in 1996, fees related to                     
consumer banking deposits. Fee income was $108.7 and $263.5 million             
in the third quarter and first nine months of 1997, up from $62.1               
and $165.3 million in the comparable periods of the prior year. The             
increase over the prior year quarter reflected higher late fees as              
a result of increased average owned credit card receivables                     
compared to 1996. The increase over the prior year-to-date amount               
also reflected higher late fees, coupled with higher interchange                
income.                                                                         

Fee income on a Managed Basis, which in addition to the items                   
discussed above includes fees and other income related to                       
receivables serviced with limited recourse, increased to $327.7 and             
$841.5 million in the third quarter and first nine months of 1997               
from $239.1 and $686.5 million in the same periods in 1996. The                 
increase was primarily attributable to higher fees in the domestic              
Visa/MasterCard business, as well as increases in interchange                   
income.                                                                         

Other income was $48.8 and $146.5 million compared to $31.5 and                 
$195.4 million in the third quarter and first nine months of 1996.              
The increase compared to the third quarter of 1996 was the result               
of nonrecurring gains recognized on the sales of Visa/MasterCard                
receivables from the company's non co-branded portfolio. Other                  
income in the first nine months of 1997 compared to the year-ago                
period decreased as the 1996 amount included a $116.3 million                   
premium received on the sale of the company's banking operations in             
Illinois in June 1996. Additionally, other income for the first                 
nine months of 1997 included nonrecurring gains of $50 million                  
related to the sale of certain non-strategic assets during the                  
first quarter.                                                                  

Expenses                                                                        
--------                                                                        
Operating expenses for the third quarter and first nine months of               
1997 were $442.7 and $1,273.7 million, respectively, compared to                
$416.7 and $1,308.1 million, respectively, in the comparable prior              
year periods. The prior year-to-date amount included $78 million in             
nonrecurring charges, as discussed below.                                       

Salaries and fringe benefits were $168.7 and $472.5 million                     
compared to $138.1 and $409.8 million in the third quarter and                  
first nine months of 1996. The higher expense was primarily due to              
an increase in sales force in the domestic consumer finance                     
business resulting from the acquisition of TFS in June 1997.                    

Occupancy and equipment expense for the third quarter and first                 
nine months of 1997 totaled $52.5 and $156.5 million, as compared               
to $48.3 and $163.6 million in the prior year periods. In the                   
second quarter of 1996, the company recorded nonrecurring costs of              
approximately $14 million related to the rationalization of office              
space.                                                                          

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Other marketing expenses for the third quarter and first nine                   
months of 1997 totaled $128.9 and $358.1 million, down from $132.3              
and $374.5 million in the comparable prior year periods. The 1997               
third quarter expense reflected decreased marketing spending on the             
company's credit card programs, partially offset by increased                   
goodwill amortization resulting from the TFS acquisition in June                
1997. The decrease in year-to-date marketing spending for the                   
domestic credit card programs reflects the deferral of major                    
mailings during the first six months of 1997 as the company worked              
on marketing plans with the individual AFL/CIO unions in the Union              
Privilege program.                                                              

Other servicing and administrative expenses for the third quarter               
and first nine months of 1997 totaled $92.6 and $286.6 million,                 
down from $98.0 and $360.2 million in the comparable periods. The               
decrease in the year-to-date amount was primarily due to $64                    
million of nonrecurring charges included in 1996, as well as lower              
expenses in 1997 as the result of the 1996 sale of the company's                
Illinois banking operations.                                                    

CREDIT LOSS RESERVES                                                            
--------------------                                                            
The company's consumer credit management policies focus on product              
type and specific portfolio risk factors. The consumer credit                   
portfolio is diversified by product and geographic location. See                
Note 4, "Receivables" in the accompanying financial statements for              
receivables by product type.                                                    

Total managed credit loss reserves, which include reserves for recourse         
obligations for receivables sold, were as follows (in millions):                

                                                                [Download Table]

-----------------------------------------------------------------------------------
                      September 30,     June 30,     December 31,     September 30,
                               1997         1997             1996              1996
-----------------------------------------------------------------------------------
                                                                                   
Owned                      $1,062.7     $1,051.0         $  900.2          $  862.5
Serviced with limited                                                              
 recourse                     746.5        719.9            696.0             665.4
                           --------     --------         --------          --------
Total                      $1,809.2     $1,770.9         $1,596.2          $1,527.9
                           ========     ========         ========          ========

Credit loss reserves have increased due to seasoning of unsecured               
products and increased personal bankruptcies. Managed credit loss               
reserves as a percent of nonperforming managed receivables were                 
117.3 percent, compared to 118.5 percent at June 30, 1997 and 126.6             
percent at September 30, 1996.                                                  

Total owned and managed credit loss reserves as a percent of                    
receivables were as follows:                                                    

                                                                [Download Table]

----------------------------------------------------------------------------------- 
                      September 30,     June 30,     December 31,     September 30, 
                               1997         1997             1996              1996 
----------------------------------------------------------------------------------- 
                                                                                    
Owned                          4.35%        4.24%            3.74%             3.57%
Managed                        4.10         3.97             3.75              3.67 
                               ----         ----             ----              ---- 

The level of reserves for consumer credit losses is based on                    
delinquency and chargeoff experience by product and judgmental                  
factors. Management also evaluates the potential impact of existing             
and anticipated national and regional economic conditions on the                
managed receivable portfolio when establishing credit loss                      
reserves. See Note 5, "Credit Loss Reserves" in the accompanying                
financial statements for analyses of reserves.                                  

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CREDIT QUALITY                                                                  
--------------                                                                  
Delinquency and chargeoff levels in the consumer portfolio were                 
higher compared to the prior and year-ago quarters. Delinquency and             
chargeoff levels are monitored on a managed basis since all of the              
receivables are originated using comparable underwriting standards,             
are managed by operating personnel without regard to portfolio                  
ownership and result in a similar credit loss exposure.                         

Delinquency                                                                     
-----------                                                                     
Two-Months-and-Over Contractual Delinquency (as a percent of                    
managed consumer receivables):                                                  

                                                                [Download Table]

------------------------------------------------------------------------------
                      9/30/97   6/30/97    3/31/97   12/31/96   9/30/96       
------------------------------------------------------------------------------
                                                                              
First mortgage           9.27%    10.27%      8.19%      9.49%     3.82%      
Home equity              3.41      3.18       3.85       3.96      3.55       
Visa/MasterCard          3.17      3.10       3.13       2.71      2.54       
Private label            6.54      5.89       5.52       5.50      5.43       
Other unsecured          7.28      6.77       6.68       6.13      5.79       
                         ----      ----       ----       ----      ----       
Total                    4.62%     4.32%      4.45%      4.15%     3.83%      
                         ====      ====       ====       ====      ====       

Delinquency as a percent of managed consumer receivables increased              
from the prior quarter and the prior year. The increase in                      
delinquency from the second quarter was primarily due to seasoning              
of the other unsecured portfolio, as well as seasoning of                       
promotional business in the private label portfolio. Home equity                
delinquency was up due to the normal maturation of the TFS                      
acquisition. Visa/MasterCard delinquency was moderately flat in the             
quarter. Dollars of delinquency in the first mortgage portfolio                 
were down from June as this portfolio continues to liquidate.                   

The increase in the delinquency ratio compared to a year ago was                
primarily due to seasoning of the portfolios and the company's                  
continued shift in portfolio mix away from traditional first                    
mortgages and toward unsecured products.                                        

Net Chargeoffs of Consumer Receivables                                          
--------------------------------------                                          
Net Chargeoffs of Consumer Receivables (as a percent, annualized,               
of average managed consumer receivables):                                       

                                                                [Download Table]

------------------------------------------------------------------------- 
                        Third     Second      First     Fourth      Third 
                      Quarter    Quarter    Quarter    Quarter    Quarter 
                         1997       1997       1997       1996       1996 
------------------------------------------------------------------------- 
                                                                          
First mortgage           1.21%       .87%       .94%       .30%       .50%
Home equity               .77       1.17       1.38       1.18        .98 
Visa/MasterCard          6.42       5.84       4.90       4.66       4.71 
Private label            4.99       4.63       4.85       3.70       3.54 
Other unsecured          5.93       5.41       4.97       4.18       4.35 
                         ----       ----       ----       ----       ---- 
Total                    4.63%      4.58%      4.15%      3.59%      3.52%
                         ====       ====       ====       ====       ==== 

10-Q 22nd Page of 25 TOC 1st Previous Next ↓Bottom Just 22nd

Net chargeoffs as a percent of average managed consumer receivables             
for the third quarter of 1997 increased compared to both the prior              
and year-ago periods. The increase in Visa/MasterCard chargeoffs in             
the quarter was primarily due to the maturation of the portfolio                
purchased from Barnett Banks, Inc. in the fourth quarter of 1996.               
The Visa/MasterCard chargeoff ratio was also negatively affected by             
lower average receivables compared to the prior quarter. Chargeoffs             
in the private label portfolio also increased due to the maturing               
of promotional balances and high levels of personal bankruptcies.               
The remaining increase in the total chargeoff ratio was primarily               
attributable to the continued seasoning of the other unsecured                  
portfolio, also coupled with high levels of personal bankruptcies.              

The increase in the chargeoff ratio compared to a year ago was                  
primarily due to increased bankruptcy filings in the                            
Visa/MasterCard portfolio and continued seasoning of the private                
label and other unsecured portfolios.                                           

Nonperforming Assets                                                            
--------------------                                                            
Nonperforming assets consisted of the following:                                

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------ 
In millions.                         9/30/97      6/30/97      3/31/97     12/31/96      9/30/96 
------------------------------------------------------------------------------------------------ 
                                                                                                 
Nonaccrual managed                                                                               
  receivables                       $  894.3     $  865.0     $  820.1     $  778.5     $  741.1 
Accruing managed consumer                                                                        
  receivables 90 or more days                                                                    
  delinquent                           634.7        616.3        598.5        549.0        446.1 
Renegotiated commercial                                                                          
  loans                                 12.9         12.9         12.9         12.9         19.9 
                                    --------     --------     --------     --------     -------- 
Total nonperforming managed                                                                      
  receivables                        1,541.9      1,494.2      1,431.5      1,340.4      1,207.1 
Real estate owned                      150.5        149.4        152.6        136.6        137.6 
                                    --------     --------     --------     --------     -------- 
Total nonperforming assets          $1,692.4     $1,643.6     $1,584.1     $1,477.0     $1,344.7 
                                    ========     ========     ========     ========     ======== 
Managed credit loss reserves as                                                                  
  a percent of nonperforming                                                                     
  managed receivables                  117.3%       118.5%       118.6%       119.1%       126.6%
                                    --------     --------     --------     --------     -------- 

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PART II.  OTHER INFORMATION                                                     

Item 6.   Exhibits and Reports on Form 8-K                                      

(a)  Exhibits                                                               

12      Statement of Computation of Ratio of Earnings             
to Fixed Charges and to Combined Fixed Charges and
Preferred Stock Dividends.                        

21      List of Household International subsidiaries.             

27      Financial Data Schedule.                                  

99.1    Debt and Preferred Stock Securities Ratings.              

(b)  Reports on Form 8-K                                                    

No Form 8-K reports were filed during the third quarter of 1997.  

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SIGNATURE             
---------             

Pursuant to the requirements of the Securities Exchange Act of                  
1934, the registrant has duly caused this report to be signed on                
its behalf by the undersigned thereunto duly authorized.                        

         HOUSEHOLD INTERNATIONAL, INC.
         -----------------------------
(Registrant)        

Date:  November 13, 1997      By: /s/ David A. Schoenholz                       
-----------------      -----------------------------              
David A. Schoenholz 
      Executive Vice President -
   Chief Financial Officer
and on behalf of    
         Household International, Inc.

10-Q Last Page of 25 TOC 1st Previous Next ↓Bottom Just 25th

Exhibit Index             
-------------             

12      Statement of Computation of Ratio of Earnings             
to Fixed Charges and to Combined Fixed Charges and
Preferred Stock Dividends.                        

21      List of Household International subsidiaries.             

27      Financial Data Schedule.                                  

99.1    Debt and Preferred Stock Securities Ratings.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	6/30/36	4	10
	6/30/25	4	11
	6/30/01	10		10-Q, 8-K
	6/30/00	11		10-Q
	12/31/97	7		10-K405
	12/15/97	12
Filed as of:	11/13/97	24
Filed on:	11/12/97
	11/7/97	1
	10/21/97	7	14
For Period End:	9/30/97	1	18
	8/15/97	15
	6/30/97	14	20	10-Q
	6/24/97	7
	6/23/97	7	14	8-K, 8-K/A
	1/23/97	15		8-K
	1/1/97	12
	12/31/96	4	15	10-K405
	9/30/96	2	20	10-Q
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Filing Submission 0000354964-97-000026 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

HSBC Finance Corp – ‘10-Q’ for 9/30/97

On: Wednesday, 11/12/97 · As of: 11/13/97 · For: 9/30/97 · Accession #: 354964-97-26 · File #: 1-08198

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