HSBC Bank Malta Plc — Earnings Release 2013

Aug 5, 2013

COMPANY ANNOUNCEMENT

The following is a company announcement issued by HSBC Bank Malta p.l.c. pursuant to Malta Financial Services Authority Listing Rules.

Quote:

In a meeting of 5 August 2013, the Board of Directors of HSBC Bank Malta p.l.c. approved the attached Group and Bank Interim Unaudited Financial Statements for the six-month period ended 30 June 2013. The Board also declared the payment of an ordinary interim dividend of 10.0 cent gross per share (6.5 cent net of tax).

The Interim Accounts for the period ending 30 June 2013 are available for viewing and download on the bank's website at www.hsbc.com.mt

Unquote

Dr. George Brancaleone LL.D. Company Secretary

5 August 2013

HSBC Bank Malta p.l.c. Company Secretary, Head Office, 116, Archbishop Street, Valletta VLT1444 Tel: (+356) 23802404 23802405

Registered in Malta number C3177. Registered Office: 116, Archbishop Street, Valletta VLT 1444, Malta Regulated by the Malta Financial Services Authority and listed on the Malta Stock Exchange. Licensed to conduct Investment Services business by the Malta Financial Services Authority.

5 August 2013

HSBC BANK MALTA P.L.C. HALF-YEARLY RESULTS FOR 2013

• Profit before tax of €53m for the six months ended 30 June 2013 in line with the same period in 2012.
• Profit attributable to shareholders of €34m for the six months ended 30 June 2013 - in line with the same period in 2012, resulting in earnings per share of 11.8 cent.
• Total assets of €5,748m at 30 June 2013, down €139m, or 2%, compared with 31 December 2012.
• Customer accounts of €4,447m at 30 June 2013, down €70m, or 2%, compared with 31 December 2012.
• Return on equity for the six months ended 30 June 2013 of 16.3%, compared with 17.8% for the first half of 2012.
• Cost efficiency ratio for the period ended 30 June 2013 of 45.9%, compared with 45.4% for the same period in 2012.
• Capital adequacy ratio of 12.9% at 30 June 2013 compared with 12.4% at 31 December 2012. Core tier 1 ratio of 8.9% at 30 June 2013, compared with 8.3% at 31 December 2012.

Commentary

HSBC Bank Malta p.l.c. delivered a resilient performance in the six months ended 30 June 2013 reporting a profit before tax of €53m in line with the comparable period in 2012. This was principally the result of strong balance sheet management, effective cost control and a good performance from the Life business offset by the impact of lower interest margin earned.

All the three main business lines, Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets, were profitable during the period under review.

Net interest income reduced by 6% to €63m compared with €68m in the first half of 2012. The fall in net interest income reflected the impact of lower yields as the loan portfolio repriced in the low interest environment and lower average lending balances. This was partially offset by a fall in the cost of funds resulting from a move by customers to more readily accessible, shorter-dated deposits. In addition, a lower level of interest income was earned on debt securities as the proceeds of higher yielding maturing bonds were re-invested at lower yields.

Net fee and commission income of €16m for the six months ended 30 June 2013 was in line with first half of 2012.

HSBC Life Assurance (Malta) Ltd reported a profit before tax of €8m compared with €7m in the first half of 2012 reflecting a release in with profits modelling reserves as a result of improved product performance.

A net gain of €4m was reported on a higher level of disposals of available-for-sale securities compared to a net gain of €2m in the comparable period in 2012.

Operating expenses at €45m were well controlled and broadly in line with the first half of 2012. The increase of €1m, or 9%, in administrative expenses reflected a higher contribution by the bank to the depositor guarantee scheme and a rise in compliance, security and fraud-risk related costs. The continued investment to improve technology capabilities was funded by savings from simplification and reengineering of processes. Cost efficiency ratio at 45.9% is in line with last year's ratio of 45.4%.

The bank's focus continues to be that of building a high quality asset base and, despite the ongoing economic uncertainties, there were no material new loan impairments reported in the period. Loan impairments at €0.8m were in line with the comparable period in 2012. At a bank level, non-performing loans remained stable at 5% of gross loans and asset quality remains generally good.

Net loans and advances to customers at €3,336m were only €18m lower than at 31 December 2012. In spite of a softening in loan demand the bank provided gross new lending to customers of €318m in the period. This reflects the bank's continued support to the local economy.

Customer deposits declined by €70m to €4,447m reflecting the normal volatility of corporate and institutional deposits. This fall was partially offset by higher levels of retail deposits achieved despite the heightened competition for deposits.

The bank's available-for-sale investment portfolio remains well diversified and conservatively positioned.

The bank's liquidity position remains strong with an advances-to-deposits ratio of 75% compared with 74% at 31 December 2012.

The bank continued to strengthen its capital ratio which was 12.9% at 30 June 2013, comfortably exceeding the 8% minimum regulatory capital requirement. The bank intends to maintain a conservative approach to capital and will continue to build its capital where considered appropriate.

Mark Watkinson, Director and Chief Executive Officer of HSBC Malta, said: "We have continued to deliver resilient results for our shareholders against a very challenging European backdrop. Global conditions look to remain difficult for the medium term. However as part of one of the world's largest banking groups, operating in 80 countries and territories, HSBC Malta is well positioned to assist its customers explore opportunities in some of the world's faster growing markets.

"I would like to take this opportunity to thank our staff, directors and shareholders for their commitment, hard work and support during the first half of 2013."

The board is declaring an interim gross dividend of 10.0 cent per share (6.5 cent net of tax). This will be paid on 5 September 2013 to shareholders who are on the bank's register of shareholders at 16 August 2013.

Income Statements for the period 1 January 2013 to 30 June 2013

	Group		Bank
	6 mths to 30/06/13	6 mths to 30/06/12	6 mths to 30/06/13	6 mths to 30/06/12
	€000	€000	€000	€000
Interest receivable and similar income
- on loans and advances, balances with Central Bank of Malta, Treasury Bills
and other instruments	72,757	76,742	72,745	76,733
- on debt and other fixed income instruments	9,516	12,137	9,152	11,094
Interest expense	(18,766)	(21,248)	(18,826)	(21,434)
Net interest income	63,507	67,631	63,071	66,393
Fee and commission income	16,491	16,821	14,730	14,584
Fee and commission expense	(861)	(1,015)	(732)	(821)
Net fee and commission income	15,630	15,806	13,998	13,763
Dividend income	-	-	7,692	7,680
Trading profits	4,885	4,525	4,885	4,525
Net income from insurance financial instruments
designated at fair value	12,687	17,385	-	-
Net gains on sale of
available-for-sale financial investments	3,595	2,247	3,568	2,175
Net earned insurance premiums	34,493	33,446	-	-
Net other operating (expense)/income	(619)	4,510	397	431
Total operating income	134,178	145,550	93,611	94,967
Net insurance claims incurred and movement
in policyholders' liabilities	(35,596)	(46,435)	-	-
Net operating income	98,582	99,115	93,611	94,967
Employee compensation and benefits	(24,035)	(25,007)	(22,326)	(23,378)
General and administrative expenses	(18,051)	(16,613)	(16,791)	(15,480)
Depreciation	(1,734)	(2,144)	(1,730)	(2,140)
Amortisation	(1,428)	(1,196)	(1,413)	(1,187)
Net operating income before net impairment
charges and provisions	53,334	54,155	51,351	52,782
Net impairment	(351)	(826)	(351)	(806)
Net provisions for liabilities and other recoveries	52	-	52	-
Profit before tax	53,035	53,329	51,052	51,976
Tax expense	(18,689)	(18,819)	(17,995)	(18,337)
Profit for the period	34,346	34,510	33,057	33,639
Profit attributable to shareholders	34,346	34,510	33,057	33,639
Earnings per share	11.8c	11.8c	11.3c	11.5c

Statements of Comprehensive Income for the period 1 January 2013 to 30 June 2013

	Group		Bank
	6 mths to 30/06/13	6 mths to 30/06/12	6 mths to 30/06/13	6 mths to 30/06/12
	€000	€000	€000	€000
Profit attributable to shareholders	34,346	34,510	33,057	33,639
Other comprehensive income
Available-for-sale investments:
- fair value gains	6,089	3,700	6,186	3,664
- fair value gains transferred to profit
or loss on disposal	(3,595)	(2,247)	(3,568)	(2,175)
- income taxes	(873)	(509)	(916)	(521)
Other comprehensive income for the period, net of
tax	1,621	944	1,702	968
Total comprehensive income for the period, net of
tax	35,967	35,454	34,759	34,607

Statements of Financial Position at 30 June 2013

31/12/12 31/12/12 30/06/13 30/06/13 €000 €000 €000 €000 Assets Balances with Central Bank of Malta, Treasury Bills and cash 114,017 106,991 109,626 106,990 Cheques in course of collection 7,211 7,211 11,647 11,647 Derivatives 17,615 17,615 12,473 12,473 Financial assets designated at fair value 467,174 454,591 - - Financial investments 995,837 987,471 972,993 962,721 Loans and advances to banks 537,445 681,352 537,233 678,765 Loans and advances to customers 3,354,413 3,354,413 3,336,120 3,336,120 Shares in subsidiary companies - - 35,707 35,707 Intangible assets 88,859 91,210 10,894 11,943 Property, plant and equipment 54,872 54,953 53,809 53,894 Investment property 14,471 11,660 14,471 11,660 Non-current assets held for sale 10,809 11,240 10,809 11,240 Current tax assets 5,544 6,134 979 2,727 Deferred tax assets 9,351 11,273 9,331 11,253 Other assets 46,509 8,982 50,307 8,755 Prepayments and accrued income 41,121 35,699 40,007 35,544 Total assets 5,886,474 5,311,879 5,747,870 5,157,665 Liabilities Derivatives 13,053 17,857 13,084 18,172 Deposits by banks 149,091 258,611 149,091 258,611 Customer accounts 4,516,999 4,537,127 4,446,579 4,472,073 Current tax liabilities 24 - 8,366 8,218 Deferred tax liabilities 27,221 24,363 - - Liabilities to customers under investment contracts 17,355 17,254 - - Liabilities under insurance contracts issued 493,254 - 509,075 - Other liabilities 29,222 24,395 33,272 27,474 Accruals and deferred income 30,905 33,559 29,882 32,143 Provisions for liabilities and other charges 4,047 7,493 3,980 7,423 Subordinated liabilities 87,266 87,240 88,013 87,987 Total liabilities 5,485,876 4,965,858 5,326,230 4,791,815 Equity Called up share capital 87,552 87,552 87,552 87,552 Revaluation reserve 37,637 36,975 39,258 38,677 Retained earnings 275,409 221,494 294,830 239,621 Total equity 421,640 400,598 365,850 346,021 Total liabilities and equity 5,886,474 5,311,879 5,747,870 5,157,665 Memorandum items Contingent liabilities 105,172 104,569 106,875 106,272 Commitments 1,073,831 1,081,194 1,046,182 1,051,759	Group		Bank

The financial statements were approved and authorised for issue by the Board of Directors on 5 August 2013 and signed on its behalf by:

Sonny Portelli Chairman Mark Watkinson, Chief Executive Officer

€000 €000 €000 €000 Group 87,552 37,637 275,409 400,598 At 1 January 2013 - Profit for the period - 34,346 34,346 Other comprehensive income Available-for-sale investments: 3,958 3,958 - fair value gains, net of tax - - - fair value gains transferred to profit or loss (2,337) on disposal, net of tax (2,337) - - 1,621 - 1,621 Total other comprehensive income - Total comprehensive income for the period - 1,621 34,346 35,967 Transactions with owners, recognised directly in equity Contributions by and distributions to owners: - share-based payments - 61 61 - - dividends (14,986) (14,986) - - Total contributions by and distributions to - owners (14,925) - (14,925) At 30 June 2013 87,552 39,258 294,830 421,640 At 1 January 2012 87,552 32,872 246,041 366,465 Profit for the period - - 34,510 34,510 Other comprehensive income Available-for-sale investments: - fair value gains, net of tax - 2,405 - 2,405 - fair value gains transferred to profit or loss on disposal, net of tax - (1,461) - (1,461) - 944 - 944 Total other comprehensive income Total comprehensive income for the period - 944 34,510 35,454 Transactions with owners, recognised directly in equity Contributions by and distributions to owners: - share-based payments - - 156 156 - dividends - - (13,658) (13,658) Total contributions by and distributions to owners - - (13,502) (13,502) At 30 June 2012 87,552 33,816 267,049 388,417	Share capital	Revaluation reserve	Retained earnings	Total equity

Statements of Changes in Equity for the period 1 January 2013 to 30 June 2013

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€000 €000 €000 €000 Bank 87,552 36,975 221,494 At 1 January 2013 - Profit for the period - 33,057 Other comprehensive income Available-for-sale investments: 4,021 - fair value gains, net of tax - - - fair value gains transferred to profit or loss on disposal, net of tax - - (2,319) - 1,702 Total other comprehensive income - Total comprehensive income for the period - 1,702 33,057		Share capital	Revaluation reserve	Retained earnings	Total equity
					346,021
					33,057
					4,021
					(2,319)
					1,702
					34,759
directly in equity	Transactions with owners, recognised
Contributions by and distributions to owners: - share-based payments 56					56
- - - dividends (14,986) - -					(14,986)
Total contributions by and distributions to owners - - (14,930)					(14,930)
At 30 June 2013 87,552 239,621 38,677					365,850
At 1 January 2012 87,552 32,099 192,203					311,854
Profit for the period - - 33,639					33,639
Other comprehensive income
Available-for-sale investments: - fair value gains, net of tax - 2,382 - - fair value gains transferred to profit or loss					2,382
on disposal, net of tax - (1,414) -					(1,414)
Total other comprehensive income - 968 - 968
Total comprehensive income for the period - 968 33,639					34,607
Transactions with owners, recognised directly in equity Contributions by and distributions to owners:
- share-based payments - - 148					148
- dividends - - (13,658)					(13,658)
Total contributions by and distributions to
owners - - (13,510) At 30 June 2012 87,552 33,067 212,332					(13,510) 332,951

Statements of Changes in Equity for the period 1 January 2013 to 30 June 2013

Statements of Cash Flows for the period 1 January 2013 to 30 June 2013

6 mths to 6 mths to 6 mths to 6 mths to 30/06/13 30/06/13 30/06/12 30/06/12 €000 €000 €000 €000 Cash flows from operating activities Interest, commission and premium receipts 130,984 132,959 92,030 94,950 Interest, commission and claims payments (45,329) (20,801) (45,098) (18,729) Payments to employees and suppliers (45,106) (41,819) (43,099) (40,941) Operating profit before changes in operating 42,524 32,330 42,787 32,360 assets/liabilities (Increase)/decrease in operating assets: Financial assets designated at fair value (1,385) (13,536) - - Reserve deposit with Central Bank of Malta 44,668 44,668 637 637 Loans and advances to customers and banks (45,435) (45,435) 14,484 14,484 Treasury Bills 74,079 74,079 (5,380) (989) Other receivables (8,643) (17,288) (4,614) (7,244) (Decrease)/increase in operating liabilities: Customer accounts and deposits by banks (66,317) 250,688 (61,242) 248,591 Other payables 7,567 (280) 3,473 (253) Net cash (used in)/ from operating activities 343,267 346,709 before tax (20,344) (19,617) Tax paid (6,509) (5,601) (5,901) (4,369) Net cash (used in)/from operating activities 336,758 341,108 (26,245) (23,986) Cash flows from investing activities Dividends received 367 327 5,000 5,000 Interest received from financial investments 15,685 13,509 21,754 15,376 Purchase of financial investments (259,937) (259,937) (375,666) (373,631) Proceeds from sale and maturity of financial 228,649 investments 223,263 365,251 361,442 Purchase of property, plant and equipment and (2,431) intangible assets (616) (576) (2,399) Proceeds on sale of property, plant and 21 21 equipment and intangible assets - - Net cash from/(used in) investing activities 5,021 (11,617) 5,744 (18,676) Cash flows from financing activities Dividends paid (13,658) (13,658) (14,986) (14,986) Cash used in financing activities (14,986) (13,658) (14,986) (13,658) (Decrease)/increase in cash and (36,210) 311,483 (33,228) 308,774 cash equivalents Effect of exchange rate changes (7,282) 21,704 (7,281) 22,029 on cash and cash equivalents Net (decrease)/increase in cash and 289,779 286,745 cash equivalents (28,928) (25,947) (33,228) (36,210) 311,483 308,774 Cash and cash equivalents at beginning of 428,661 207,764 426,073 207,709 period Cash and cash equivalents at end of 519,247 516,483 392,451 392,845 period	Group		Bank

Segmental analysis

a) Class of business

The group's segments are organised into three global businesses: Retail Banking and Wealth Management, Commercial Banking and Global Banking and Markets. The global businesses reflect the way the CEO, as chief operating decisionmaker, reviews financial information in order to make decisions about allocating resources and assessing performance. Information provided to the chief operating decision-maker is measured in accordance with IFRSs as adopted by the EU.

	Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Inter-segment		Group Total
	6 mths to 30/06/13	6 mths to 30/06/12	6 mths to 30/06/13	6 mths to 30/06/12	6 mths to 30/06/13	6 mths to 30/06/12	6 mths to 30/06/13	6 mths to 30/06/12	6 mths to 30/06/13	6 mths to 30/06/12
	€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Group
Net interest income
- External	21,512	22,357	33,940	34,875	8,055	10,399	-	-	63,507	67,631
- Inter-segment	8,358	8,335	(9,291)	(6,326)	933	(2,009)	-	-	-	-
	29,870	30,692	24,649	28,549	8,988	8,390	-	-	63,507	67,631
Net non-interest income
- External	19,621	18,113	7,392	6,664	8,062	6,707	-	-	35,075	31,484
- Inter-segment	(548)	(565)	453	484	423	465	(328)	(384)	-	-
	19,073	17,548	7,845	7,148	8,485	7,172	(328)	(384)	35,075	31,484
External employee compensation and benefits - External	(15,971)	(16,735)	(6,164)	(6,377)	(1,900)	(1,895)	-	-	(24,035)	(25,007)
General and administrative expenses
- External	(13,078)	(11,808)	(3,993)	(3,944)	(980)	(861)	-	-	(18,051)	(16,613)
- Inter-segment	(328)	(384)	-	-	-	-	328	384	-	-
	(13,406)	(12,192)	(3,993)	(3,944)	(980)	(861)	328	384	(18,051)	(16,613)
External
depreciation	(1,368)	(1,705)	(312)	(358)	(53)	(81)	-	-	(1,734)	(2,144)
External amortisation	(954)	(802)	(430)	(355)	(45)	(39)	-	-	(1,428)	(1,196)
External net
impairment	(423)	(699)	(28)	(107)	100	(20)	-	-	(351)	(826)
External net provisions for liabilities and other recoveries
	-	-	52	-	-	-	-	-	52	-
Profit before tax	16,821	16,107	21,619	24,556	14,595	12,666	-	-	53,035	53,329

Retail Banking and Wealth Management		Commercial Banking		Global Banking and Markets		Inter-segment		Group Total
30/06/13	31/12/12	30/06/13	31/12/12	30/06/13	31/12/12	30/06/13	31/12/12	30/06/13	31/12/12
€000	€000	€000	€000	€000	€000	€000	€000	€000	€000
Total assets
Segment total assets
2,584,370	2,535,765	1,572,310	1,624,874	1,591,190	1,725,835			5,747,870	5,886,474
Average total assets
2,590,067	2,511,192	1,568,592	1,627,247	1,658,513	1,717,219			5,817,172	5,855,658
Total equity 203,734	197,198	186,771	177,737	31,135	25,663	-	-	421,640	400,598
							- -	- -

Segmental analysis (continued)

b) Geographical segments

The group's activities are carried out within Malta. There are no identifiable geographical segments or other material concentrations.

c) Products and services

The group provides a comprehensive range of banking and related financial services to its customers. The products and services offered to customers are organised by global businesses.

– Retail Banking and Wealth Management ('RBWM') offers a broad range of products and services to meet the personal banking, consumer finance and wealth management needs of individual customers. Typically, customer offerings include personal banking products (current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services) and wealth management services (insurance and investment products, global asset management services and financial planning services).

– Commercial Banking ('CMB') product offerings include the provision of receivables financing services, payments and cash management, international trade finance, commercial cards, insurance, cash and derivatives in foreign exchange and interest rates, and online and direct banking offerings.

– Global Banking and Markets ('GB&M') provides tailored solutions to corporate and institutional clients. The client-focused business lines deliver a full range of banking capabilities including financing, advisory and transaction services; a markets business that provides services in rates, foreign exchange, money markets and securities services; and principal investment activities.

Basis of preparation

The condensed interim financial statements have been extracted from HSBC Bank Malta p.l.c.'s (the 'bank') and its subsidiary undertakings (collectively referred to as the 'group') unaudited management accounts for the six month period ended 30 June 2013. These condensed interim financial statements are being published in terms of Chapter 5 of the Listing Rules issued by the Listing Authority and in terms of the Prevention of Financial Markets Abuse Act, 2005.

The condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, adopted by the EU. They do not include all the information required for a complete set of annual financial statements, and should be read in conjunction with the financial statements for the year ended 31 December 2012.

The accounting policies applied in these condensed interim financial statements are the same as those applied by the group in its financial statements as at and for the year ended 31 December 2012.

As required by IAS 34, Interim Financial Reporting, adopted by the EU, these interim financial statements include comparative statements of financial position information at the previous financial year end and comparative income statements and statements of comprehensive income information for the comparable interim periods of the immediately preceding financial year.

Related party transactions with other members of the HSBC Group covering the period 1 January to 30 June 2013 have not materially affected the performance for the period under review.

Certain comparative amounts have been reclassified to comply with the current period's presentation.

HSBC Bank Malta p.l.c. is a member of the HSBC Group, whose ultimate parent company is HSBC Holdings plc. HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 6,600 offices in 80 countries and territories in Europe, Hong Kong, Rest of Asia-Pacific, North and Latin America, and the Middle East and North Africa. With assets of US\$2,645bn at 30 June 2013, the HSBC Group is one of the world's largest banking and financial services organisations.

Statement pursuant to Listing Rule 5.75.3 issued by the Listing Authority

I confirm that to the best of my knowledge:

• the condensed interim financial statements give a true and fair view of the financial position as at 30 June 2013, financial performance and cash flows for the period then ended, in accordance with IAS 34 Interim Financial Reporting, adopted by the EU; and
• the commentary includes a fair review of the information required in terms of Listing Rule 5.81 to 5.84.

Mark Watkinson, Chief Executive Officer

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