UNITED STATES SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2003

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

For the transition period from to

Commission file number 1-75

HOUSEHOLD FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		36-1239445
(State of Incorporation)		(I.R.S. Employer Identification No.)

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

(847) 564-5000

(Registrant’s telephone number, including area code)

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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

At ~~July~~October 31, 2003, there ~~were~~ ~~100~~were 1,000 shares of the registrant’s common stock outstanding.

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

Table of Contents

PART I.	Financial Information	Page
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited)	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4.	Controls and Procedures	2933
PART II.	Other Information
Item 6.	Exhibits and Reports on Form 8-K	30
Item 1.	Legal Proceedings	34
Signature		30
Item 6.	Exhibits and Reports on Form 8-K	37
Signature		37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Threemonths ended June 30,2003		Threemonths ended June 30,2002		March 29 through June 30,2003		January 1 through March 28,2003		Six months ended June 30,2002
	ThreemonthsendedSept. 30,2003		Threemonthsended Sept. 30,2002		March 29throughSept. 30,2003		January 1throughMarch 28,2003		Nine monthsended Sept. 30,2002
	(Successor)		(Predecessor)		(Successor)		(Predecessor)		(Predecessor)
(In millions)	(Note 2)		(Note 2)		(Note 2)		(Note 2)		(Note 2)
Finance and other interest income	$	2,~~296~~357.21	$	2,~~272~~399.67	$	24,~~363~~721.90	$	2,266.9	$	46,~~455~~855.64
Interest expense		~~457~~455.5		~~767~~792.49		~~471~~927.61		784.6		12,~~493~~286.4
Net interest margin		1,~~838~~901.76		1,~~505~~606.28		13,~~892~~793.39		1,482.3		24,~~962~~569.20
Provision for credit losses on owned receivables		~~979~~922.5		~~773~~901.10		1,~~011~~933.05		920.7		12,~~607~~508.2
Net interest margin after provision for credit losses		~~859~~979.21		~~732~~705.18		~~881~~1,860.34		561.6		12,~~355~~060.08
Securitization revenue		~~273~~373.15		~~465~~505.37		~~281~~654.38		413.2		~~955~~1,461.85
Insurance revenue		~~124~~128.53		~~135~~131.72		~~128~~256.58		118.8		~~265~~397.81
Investment income		3134.50		4143.65		3266.7		75.8		83126.49
Fee income		~~239~~279.14		~~177~~244.40		~~247~~526.26		270.6		~~363~~607.5
Other income		~~122~~33.61		58125.37		~~127~~160.2		231.6		~~216~~342.73
Total other revenues		~~790~~848.83		~~878~~1,050.31		~~816~~1,665.91		1,110.0		12,~~885~~935.23
Salaries and fringe benefits		~~404~~409.49		~~379~~373.20		~~417~~827.10		378.1		~~748~~1,121.4
Sales incentives		7872.51		6457.13		79151.89		34.8		~~115~~173.81
Occupancy and equipment expense		8075.35		74.76		83158.05		77.9		~~148~~223.84
Other marketing expenses		130.29		~~123~~126.90		~~134~~265.65		127.5		~~251~~377.9
Other servicing and administrative expenses		~~220~~228.65		~~155~~196.56		~~228~~456.05		268.6		~~356~~552.16
Amortization of acquired intangibles		7274.2		12.67		73148.92		12.3		3245.41
Policyholders’ benefits		7872.56		7285.86		80153.94		71.1		~~146~~232.62
Total costs and expenses		1,064.7		882.8		1,097.3		970.3		1,800.0
Settlement charge and related expenses		—		525.0		—		—		525.0
Income before income taxes		585.3		727.6		600.9		701.3		1,440.2
Total costs and expenses		1,063.7		1,450.8		2,161.0		970.3		3,250.7
Income taxes		200.6		251.7		206.1		240.6		492.5
Income before income taxes		763.7		305.1		1,364.5		701.3		1,745.4
Net income	$	384.7	$	475.9	$	394.8	$	460.7	$	947.7
Income taxes		262.7		98.4		468.7		240.6		590.9
Net income	$	501.0	$	206.7	$	895.8	$	460.7	$	1,154.5

See notes to interim condensed consolidated financial statements.

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,2003		December 31,2002
	September 30,2003		December 31,2002
	(Unaudited)
	(Successor)		(Predecessor)
(In millions, except share data)	(Note 2)		(Note 2)
ASSETS
Cash	$	~~251~~249.57	$	667.9
Investment securities		6,~~084~~470.26		6,707.6
Receivables, net		7882,~~404~~786.32		74,828.4
Acquired intangibles, net		2,~~775~~701.31		386.4
Goodwill		2,~~016~~159.54		1,117.7
Properties and equipment, net		~~363~~376.56		403.1
Real estate owned		~~482~~539.2		423.9
Derivative financial assets		31,~~445~~934.0		1,805.0
Other assets		2,~~653~~189.95		2,032.9
Total assets	$	9699,~~476~~406.43	$	88,372.9
LIABILITIES AND SHAREHOLDER’S EQUITY
Debt:
Due to affiliates	$	~~768~~2,759.2	$	86.9
Commercial paper, bank and other borrowings		67,~~463~~845.17		4,143.3
Senior and senior subordinated debt (with original maturities over one year)		7071,~~495~~603.41		70,275.6
Total debt		7782,~~726~~208.70		74,505.8
Insurance policy and claim reserves		1,~~188~~154.58		890.9
Derivative related liabilities		~~2,916~~277.42		1,087.5
Other liabilities		2,~~133~~643.32		1,847.2
Total liabilities		8386,~~964~~283.92		78,331.4
Common shareholder’s equity:
Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding at June 30, 2003 and December 31, 2002, and additional paid-in capital		12,076.1		3,790.8
Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding, and additional paid-in capital		12,076.1		3,790.8
Retained earnings		~~394~~895.8		6,642.4
Accumulated other comprehensive income (loss)		40151.62		(391.7	)
Total common shareholder’s equity		1213,~~511~~123.51		10,041.5
Total liabilities and shareholder’s equity	$	9699,~~476~~406.43	$	88,372.9

See notes to interim condensed consolidated financial statements.

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	March 29throughJune 30, 2003			January 1throughMarch 28, 2003			Six monthsendedJune 30, 2002
	March 29 through Sept. 30,2003			January 1 through March 28,2003			Nine months ended Sept. 30,2002
	(Successor)			(Predecessor)			(Predecessor)
(In millions)	(Note 2)			(Note 2)			(Note 2)
CASH PROVIDED BY OPERATIONS
Net income	$	~~394~~895.8		$	460.7		$	~~947~~1,154.75
Adjustments to reconcile net income to cash provided by operations:
Provision for credit losses on owned receivables		1,~~011~~933.05			920.7			12,~~607~~508.2
Insurance policy and claim reserves		(2992.6	)		65.3			(8.79	)
Depreciation and amortization		~~108~~203.49			46.1			97147.84
Interest-only strip receivables, net change		~~184~~264.47			32.4			(3893.94	)
Other, net		~~863~~40.80			46.6			~~681~~1,702.75
Cash provided by operations		23,~~532~~245.83			1,571.8			35,~~304~~410.23
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased		(12,~~166~~579.06	)		(981.4	)		(23,~~602~~640.58	)
Matured		~~540~~1,897.38			534.5			~~304~~1,330.76
Sold		~~234~~470.63			768.4			~~232~~488.06
Short-term investment securities, net change		~~1,018~~389.26			(203.2	)		(2,~~268~~504.31	)
Receivables:
Originations, net		(1226,~~380~~724.89	)		(7,758.2	)		(2132,~~142~~707.6	)
Purchases and related premiums		(1,~~361~~597.36	)		(129.0	)		(2,~~067~~405.94	)
Initial and fill-up securitizations		918,~~078~~240.18			7,234.4			1625,~~494~~563.45
Whole loan sales		—			—			~~882~~1,959.35
Properties and equipment purchased		(2362.92	)		(16.0	)		(6793.76	)
Properties and equipment sold		—			.1			—12.8
Cash decrease from investments in operations		(49,~~060~~965.8	)		(550.4	)		(1011,~~235~~996.65	)
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change		35,~~626~~009.62			(1,306.8	)		(64,~~041~~865.37	)
Due to affiliates, net change		13,~~308~~299.6			(627.3	)		(13,~~428~~384.61	)
Senior and senior subordinated debt issued		~~990~~9,276.56			4,232.8			1924,~~520~~565.62
Senior and senior subordinated debt retired		(410,~~512~~955.09	)		(3,566.1	)		(59,~~260~~325.39	)
Policyholders’ benefits paid		(3058.05	)		(26.8	)		(5073.52	)
Cash received from policyholders		4.60			.1			—
Cash increase (decrease) from financing and capital transactions		1,384.3			(1,294.1	)		6,739.9
Dividends paid to Parent Company		—			—			(300.0	)
Decrease in cash		(143.7	)		(272.7	)		(191.5	)
Cash increase (decrease) from financing and capital transactions		6,575.0			(1,294.1	)		6,616.3
Increase (decrease) in cash		(145.5	)		(272.7	)		30.1
Cash at beginning of period		395.2			667.9			553.1
Cash at end of period	$	~~251~~249.57		$	395.2		$	~~361~~583.62
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	~~936~~1,417.63		$	754.9		$	12,~~469~~190.48
Income taxes paid		~~492~~550.20			147.7			~~508~~671.83
SUPPLEMENTAL NON-CASH FINANCING AND CAPITAL ACTIVITIES
Push-down of purchase price by Parent Company (Note 2)		—		$	12,076.1			—

See notes to interim condensed consolidated financial statements.

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Household Finance Corporation (“HFC”), a wholly owned subsidiary of Household International, Inc., (“Household International” or the “Parent Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2002.

2. Acquisition of Household International

On March 28, 2003, HSBC Holdings plc (“HSBC”) completed its acquisition of Household International by way of merger with H2 Acquisition Corporation (“H2”), a wholly owned subsidiary of HSBC, acquiring 100% of the ~~vesting~~voting equity interest of Household International in a purchase business combination. Subsequent to the merger, H2 was renamed “Household International, Inc.” HSBC believes that the merger offers significant opportunities to extend its business model into countries and territories currently served by HSBC and broadens the product range available to the enlarged customer base.

In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus related purchase accounting adjustments have been “pushed-down” and recorded in our financial statements for the period subsequent to March 28, 2003. This has resulted in a new basis of accounting reflecting the fair market value of our assets and liabilities for the “successor” period beginning March 29, 2003. Information for all “predecessor” periods prior to the merger are presented using our historical basis of accounting., which impacts comparability to our “successor” periods. Results for the periods ended ~~June~~September 30, 2003 should not be considered indicative of the results for any future quarters or the year ending December 31, 2003.

The purchase price paid by HSBC for Household International plus related purchase accounting adjustments was valued at approximately $14.6 billion. Of this amount, approximately $12.1 billion has been assigned to HFC and is presented as “Additional paid-in capital” in the accompanying condensed consolidated balance sheet.

As of the acquisition date, we recorded our assets and liabilities at their estimated fair values. During the second quarter, we made adjustments to our preliminary fair value estimates as additional information, including third party valuation data, was obtained. Additional adjustments were made in the third quarter, including adjustments to accumulated other comprehensive income. As of ~~June~~September 30, 2003, our fair value estimates have resulted in recording approximately $2.02 billion of goodwill and $2.9 billion of acquired intangibles. Additionally, as of September ~~June~~ 30, 2003, net fair value adjustments, before amortization, of approximately $.5 billion have been made to increase assets and approximately $2.5 billion to increase liabilities to fair value. These fair value adjustments represent current estimates and are subject to further adjustment. None of the goodwill is expected to be deductible for tax purposes.

These fair value adjustments represent current estimates and are subject to further adjustment as our valuation data is finalized. Goodwill has not yet been allocated to our operating units. None of the goodwill is expected to be deductible for tax purposes.

Approximately $2.9 billion of acquired intangibles were recorded as part of the allocation of the purchase price. Total acquired intangibles resulting from the merger were comprised of the following:

(In millions)
Purchased credit card relationships and related programs	$	1,272.0
Retail Services merchant relationships		277.0
Other loan related relationships		326.1
Trade names		700.0
Technology, customer lists and other contracts		281.0

Total acquired intangibles	$	2,856.1

The trade names are not subject to amortization. The remaining acquired intangibles are being amortized over their estimated useful lives either on a straight-line basis or in proportion to the underlying revenues generated. These useful lives range from 5 years for Retail Services merchant relationships to approximately 10 years for certain loan related relationships.

3. Investment Securities

Investment securities consisted of the following available-for-sale investments:

	June 30, 2003				December 31, 2002
	September 30, 2003				December 31, 2002
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Corporate debt securities	$	2,~~081~~052.95	$	2,~~157~~092.26	$	2,030.4	$	2,107.6
Money market funds		~~402~~498.75		~~402~~498.75		1,610.5		1,610.5
Certificates of deposit		12.6		12.6		9.9		9.9
Time deposits		410.1		410.1		46.3		46.3
U.S. government and federal agency debt securities		2,~~430~~172.04		2,~~433~~174.86		1,804.4		1,820.8
Marketable equity securities		19.5		2122.95		28.6		19.8
Non-government mortgage backed securities		~~535~~406.86		~~538~~406.78		655.6		664.0
Other		~~470~~822.70		~~473~~824.67		~~412~~375.17		~~424~~388.73
Subtotal		56,~~953~~381.26		6,~~040~~429.58		6,551.5		6,657.3
Accrued investment income		4340.78		4340.78		50.3		50.3
Total available-for-sale investments	$	56,~~996~~422.94	$	6,~~084~~470.26	$	6,601.8	$	6,707.6

4. Receivables

Receivables consisted of the following:

(In millions)	~~June~~September 30,2003			December 31,2002
Real estate secured	$	4750,~~759~~708.47		$	44,052.1
Auto finance		23,~~580~~704.56			2,028.1
MasterCard(1)/Visa(1)		78,~~576~~200.28			7,600.2
Private label		9,~~549~~903.06			9,365.2
Personal non-credit card		1110,~~410~~970.14			11,706.9
Commercial and other		~~425~~404.52			457.2
Total owned receivables		7983,~~300~~892.73			75,209.7
Purchase accounting fair value adjustments		~~470~~417.4			—
Accrued finance charges		1,~~435~~445.82			1,446.7
Credit loss reserve for owned receivables		(3,~~449~~549.27	)		(3,156.9	)
Unearned credit insurance premiums and claims reserves		(~~537~~487.35	)		(632.7	)
Interest-only strip receivables		~~969~~918.72			1,083.3
Amounts due and deferred from receivable sales		~~214~~150.23			878.3
Total owned receivables, net		7882,~~404~~786.32			74,828.4
Receivables serviced with limited recourse		2322,~~019~~982.85			23,422.2
Total managed receivables, net	$	~~101~~105,~~424~~768.17		$	98,250.6

(1)

MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc.

Purchase accounting fair value adjustments represent adjustments which have been “pushed down” to record our receivables at fair value at the acquisition date.

Interest-only strip receivables are reported net of our estimate of probable losses under the recourse provisions for receivables serviced with limited recourse. Our estimate of the recourse obligation totaled $1,~~854~~842.85 million at ~~June~~September 30, 2003 and $1,638.3 million at December 31, 2002. Interest-only strip receivables also included fair value mark-to-market adjustments to accumulated other comprehensive income of $~~110~~132.50 million at ~~June~~September 30, 2003 and $356.8 million at December 31, 2002.

Receivables serviced with limited recourse consisted of the following:

(In millions)	~~June~~September 30,2003		December 31,2002
Real estate secured	$	~~237~~214.01	$	456.3
Auto finance		54,~~285~~699.36		5,418.6
MasterCard/Visa		89,~~943~~263.10		9,272.5
Private label		4,261.34		3,577.1
Personal non-credit card		4,~~293~~544.14		4,697.7
Total	$	2322,~~019~~982.85	$	23,422.2

The combination of receivables owned and receivables serviced with limited recourse, which we consider our managed portfolio, is shown below:

(In millions)	~~June~~September 30,2003		December 31,2002
Real estate secured	$	4750,~~996~~922.48	$	44,508.4
Auto finance		78,~~865~~404.82		7,446.7
MasterCard/Visa		1617,~~519~~463.38		16,872.7
Private label		1314,~~810~~165.30		12,942.3
Personal non-credit card		15,~~703~~514.28		16,404.6
Commercial and other		~~425~~404.52		457.2
Total	$	~~102~~106,~~320~~874.58	$	98,631.9

5. Credit Loss Reserves

An analysis of credit loss reserves for the three and ~~six~~ nine months ended ~~June~~September 30 was as follows:

	Three months endedJune 30,						Six months endedJune 30,
	Three months endedSeptember 30,						Nine months endedSeptember 30,
(In millions)	2003			2002			2003			2002
Owned receivables:
Credit loss reserves at beginning of period	$	3,~~296~~449.62		$	2,~~630~~711.64		$	3,156.9		$	2,440.6
Provision for credit losses		~~979~~922.5			~~773~~901.10			12,~~931~~854.72			12,~~607~~508.2
Charge-offs		(~~934~~909.80	)		(~~762~~810.39	)		(12,~~813~~722.2	)		(12,~~482~~293.43	)
Recoveries		5969.87			5552.31			~~112~~181.29			~~106~~158.89
Other, net		4817.13			148.72			6178.69			3947.24
Credit loss reserves for ownedreceivables at June 30		3,449.2			2,711.4			3,449.2			2,711.4
Credit loss reserves for owned receivables at September 30		3,549.7			2,861.8			3,549.7			2,861.8
Receivables serviced with limited recourse:
Credit loss reserves at beginning of period		1,~~648~~854.8			1,~~196~~281.98			1,638.3			1,062.1
Provision for credit losses		~~591~~397.65			~~392~~482.01			~~971~~1,369.40			~~820~~1,302.5
Charge-offs		(~~417~~442.87	)		(~~339~~343.86	)		(~~815~~1,258.96	)		(~~663~~1,007.62	)
Recoveries		22.18			2319.6			4063.97			4464.30
Other, net		10.1			9.15			2030.1			1828.50
Credit loss reserves for receivables serviced with limited recourse atJune 30		1,854.8			1,281.8			1,854.8			1,281.8
Credit loss reserves for receivables serviced with limited recourse at September 30		1,842.5			1,449.4			1,842.5			1,449.4
Total credit loss reserves for managed receivables at June 30	$	5,304.0		$	3,993.2		$	5,304.0		$	3,993.2
Total credit loss reserves for managed receivables at September 30	$	5,392.2		$	4,311.2		$	5,392.2		$	4,311.2

We maintain credit loss reserves to cover probable losses of principal, interest and fees, including late, overlimit and annual fees. Credit loss reserves are based on a range of estimates and are intended to be adequate but not excessive. We estimate probable losses for consumer receivables based on delinquency and restructure status and past loss experience. Credit loss reserves take into account whether loans have been restructured, rewritten or are subject to forbearance, ~~credit~~an ~~counseling~~external ~~accommodation~~debt management plan, modification, extension or deferment. Our credit loss reserves also take into consideration the loss severity expected based on the underlying collateral, if any, for the loan in the event of default. Approximately two-thirds of all restructured receivables are secured products which may have less loss severity exposure because of the underlying collateral. In addition, loss ~~reserves on consumer receivables reflect our assessment of portfolio risk factors which may not be fully reflected in the statistical~~

~~calculation~~reserves on consumer receivables reflect our assessment of portfolio risk factors which ~~uses~~may ~~roll~~not ~~rates~~be ~~and~~fully ~~migration~~reflected ~~analysis~~in the statistical calculation which uses roll rates. Roll rates ~~and~~are a form of migration analysis ~~are~~which ~~techniques~~is a technique used to estimate the likelihood that a loan will progress through the various delinquency buckets and ultimately charge off. Risk factors considered in establishing loss reserves on consumer receivables include recent growth, product mix, bankruptcy trends, geographic concentrations, economic conditions and current levels of charge-offs and delinquencies. We also consider key ratios such as reserves to nonperforming loans and reserves as a percentage of net charge-offs in developing our loss reserve estimate.

~~HSBC~~Subject ~~intends, subject~~ to receipt of regulatory and other approvals, HSBC currently intends to hold our private label credit card receivables within HSBC’s U.S. banking subsidiary. ~~As a result,~~ HSBC anticipates regulatory accounting charge-off, loss provisioning and account management guidelines issued by the Federal Financial Institutions Examination Council, or FFIEC, will need to be applied to these receivables. Implementation of such guidelines ~~will~~would result in private label credit card receivables being charged off at 6 months contractually delinquent (end of the month 60 days after notification for receivables involving a bankruptcy) versus the current practice of generally being charged off the month following the month in which the account becomes 9 months contractually delinquent (end of the month 90 days after notification for receivables involving a bankruptcy). HSBC’s plans for ultimate collection on these receivables ~~will~~would therefore be ~~demonstrably~~ different ~~from~~ from the current practice and ~~may~~would require different reserve requirements. AsWe ofand ~~June~~HSBC ~~30,~~are ~~2003,~~also weevaluating ~~have~~whether ~~not~~select ~~allocated~~other ~~any~~products ~~purchase~~will ~~price~~also ~~adjustment~~be toheld ~~owned loss reserves~~ in ~~contemplation of this change as~~ the ~~process for preparing regulatory approval requests for the movement of our private label card receivables to~~ HSBC’s U.S. banking subsidiary, ~~has~~including ~~only~~certain ~~recently~~real ~~been~~estate ~~initiated.~~secured Toloans ~~the~~and ~~extent~~certain MasterCard weand ~~proceed~~Visa ~~with~~receivables. ~~this~~The ~~business~~process ~~plan,~~for weobtaining ~~currently~~regulatory ~~estimate~~approval ~~that~~requests ~~such~~is ~~fair~~still ~~value~~ongoing. ~~adjustment~~We ~~to reflect~~do ~~the~~not ~~expected~~anticipate ~~impact~~that ofwe ~~the~~will ~~implementation~~allocate ofany ~~the~~purchase ~~regulatory~~price ~~guidelines~~adjustment ~~would be an increase~~ to owned loss reserves ~~for~~as ~~such~~the ~~existing~~regulatory ~~private~~guidelines ~~label credit card receivables which were originated prior to March 29, 2003. We and HSBC~~ are ~~also evaluating whether select other products will also be held in the HSBC U~~implemented.~~S. banking subsidiary.~~

6. Acquired Intangibles

Acquired intangibles consisted of the following:

(In millions) June 30, 2003	Gross		AccumulatedAmortization		CarryingValue
(In millions) September 30, 2003	Gross		AccumulatedAmortization		CarryingValue
Purchased credit card relationships and related programs	$	1,272.0	$	4080.94	$	1,~~231~~191.16
Retail Services merchant relationships		270.1		1428.32		~~255~~241.89
Other loan related relationships		326.1		922.72		~~316~~303.49
Trade names		700.0		—		700.0
Technology, customer lists and other contracts		281.0		917.03		~~272~~263.07
Acquired intangibles	$	2,849.2	$	73148.91	$	2,~~775~~701.31
(In millions) December 31, 2002	Gross		AccumulatedAmortization		CarryingValue
Purchased credit card relationships	$	1,027.3	$	659.5	$	367.8
Other intangibles		26.5		7.9		18.6
Acquired intangibles	$	1,053.8	$	667.4	$	386.4

(In millions) December 31, 2002	Gross		AccumulatedAmortization		CarryingValue
Purchased credit card relationships	$	1,027.3	$	659.5	$	367.8
Other intangibles		26.5		7.9		18.6
Acquired intangibles	$	1,053.8	$	667.4	$	386.4

Estimated amortization expense associated with our acquired intangibles for each of the following years is as follows:

(In millions) Year ending December 31,
2003	$	233.6
2004		318.8
2005		298.1
2006		290.7
2007		273.0

7. Income Taxes

For the ~~second~~ quarter, our effective tax rate was 34.34 percent in 2003 (successor) and 3432.63 percent in 2002 (predecessor). ~~Our~~ Our effective tax rate was 34.3 percent for the ~~periods~~period March 29 through ~~June~~September 30, 2003 (successor); ~~and~~34.3 percent for the period January 1 through March 28, 2003 (predecessor); and 3433.29 percent for the ~~first~~nine ~~six~~ months ofended ~~2002~~September 30, 2002 (predecessor). ~~The effective tax rate differs from the statutory federal income tax rate primarily because of the effects of state and local income taxes and tax credits.~~

The effective tax rates for the quarter and nine months ended September 30, 2002 were positively impacted by the settlement charge and related expenses. Excluding this charge of $525.0 million, which resulted in a $191.8 million tax benefit, our effective tax rate was 35.0 percent for the quarter and 34.5 percent for the nine months ended September 30, 2002.

The effective tax rate differs from the statutory federal income tax rate primarily because of the effects of state and local income taxes and tax credits.

8. Transactions with Affiliates

We periodically advance funds to Household International, Inc. and affiliates or receive amounts in excess of our Parent Company’s current requirements. Additionally, beginning in the second quarter of 2003, we received funding from affiliates of HSBC. This funding was onat ~~terms~~rates comparable to those that would be made with unaffiliated parties. Net amounts due to affiliates were $~~768.~~2.8 ~~million~~billion at ~~June~~September 30, 2003 and $86.9 million at December 31, 2002. Included in the ~~June~~September 30, 2003 balance was $13.89 billion in funding from HSBC affiliates.

In 2003, net interest expense on affiliated balances was $15.69 million for the ~~second~~third quarter (successor), $2.3 million for the period January 1 through March 28 (predecessor) and $17.53 million for the period March 29, 2003 through ~~June~~September 30, 2003 (successor).

In 2002, net interest income (expense) on affiliated balances was $12.97 million for the ~~second~~third quarter (predecessor) and ($118.36) million for the ~~six~~nine months ended ~~June~~ September 30 (predecessor).

During the third quarter of 2003, we implemented a $2.5 billion revolving credit facility with HSBC and began utilizing an affiliate, HSBC Bank USA, as the primary provider of new derivative products. At September 30, 2003, we had derivative contracts with a notional value of approximately $16.2 billion outstanding with this affiliate. Going forward, it is expected that most of our existing third party derivative contracts will be assigned to HSBC Bank USA, making them our primary counterparty in derivative transactions.

9. Comprehensive Income

In 2003, comprehensive income was $~~475~~512.7 million for the ~~second~~third quarter (successor), $~~435~~1,047.40 million for the period March 29 through ~~June~~September 30 (successor) and $~~642~~543.01 million for the period January 1 through March 28 (predecessor).

In 2002, comprehensive income was $~~297~~19.05 million for the ~~second~~third quarter (predecessor) and $1,~~094~~114.51 million for the ~~six~~nine months ended ~~June~~September 30 (predecessor).

The components of accumulated other comprehensive income (loss) were as follows:

(In millions)	June 30,2003				December 31,2002
	September 30,2003			December 31,2002
Unrealized losses on cash flow hedging instruments	$	(93.2	)		$	(685.0	)
(In millions)	(Successor)			(Predecessor)
Unrealized gains on investments and interest-only strip receivables		127.4				292.9
Unrealized gains (losses) on cash flow hedging instruments	$	31.5		$	(685.0	)
Foreign currency translation adjustments		6.4				.4
Unrealized gains on investments and interest-only strip receivables		112.7			292.9
Accumulated other comprehensive income (loss)	$	40.6			$	(391.7	)
Foreign currency translation adjustments		7.0			.4
Accumulated other comprehensive income (loss)	$	151.2		$	(391.7	)

The balances associated with the components of accumulated other comprehensive income (loss) on a “predecessor” basis were eliminated as a result of push-down accounting effective March 29, 2003 when the “successor” period began.

10. New Accounting Pronouncements

~~sufficient~~The ~~equity~~balances atassociated ~~risk~~with ~~for~~ the ~~entity~~components toof ~~finance~~accumulated ~~its activities without additional subordinated financial support from~~ other ~~parties.~~comprehensive ~~Qualifying~~income ~~special purpose~~(loss) ~~entities~~on ~~as defined by FASB Statement Number 140,~~ a “~~Accounting~~predecessor” ~~for~~basis ~~Transfers~~were ~~and~~eliminated ~~Servicing~~as ofa ~~Financial~~result ~~Assets and Extinguishments~~ of ~~Liabilities”~~push-down ~~are~~accounting ~~excluded from the scope of Interpretation No. 46. Interpretation No. 46 applies immediately to all variable interest entities created after January 31, 2003 and is~~ effective ~~for~~March ~~fiscal periods beginning after July 1~~29, 2003 ~~for~~when ~~existing variable interest entities. We adopted Interpretation No. 46 in~~ the ~~second~~“successor” ~~quarter~~period ~~of 2003~~began. ~~This~~ ~~adoption did not have a material impact on our financial position or results of operations.~~

~~In April 2003, the FASB issued Statement Number 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No~~10. New ~~149”).~~Accounting ~~This~~Pronouncements statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The guidelines are to be applied prospectively. The provisions of SFAS No.149 that relate to Statement 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. We do not expect SFAS No. 149 will have a material impact to our financial position or results of operations.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number 46, “Consolidation of Variable Interest Entities” (“Interpretation No. 46”). Interpretation No. 46 clarifies the application of Accounting Research Bulletin Number 51, “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Qualifying special purpose entities as defined by FASB Statement Number 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” are excluded from the scope of Interpretation No. 46. Interpretation No. 46 applies immediately to all variable interest entities created after January 31, 2003 and is effective for fiscal periods beginning after July 1, 2003 for existing variable interest entities. In October 2003, the FASB postponed the effective date of Interpretation No. 46 to December 31, 2003. We adopted Interpretation No. 46 in the second quarter of 2003. This adoption did not have a material impact on our financial position or results of operations.

In April 2003, the FASB issued Statement Number 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The guidelines are to be applied prospectively. The provisions of SFAS No.149 that relate to Statement 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have a material impact on our financial position or results of operations.

11. Segment Reporting

We have one reportable segment, Consumer, which includes our consumer lending, mortgage services, retail services, credit card services and auto finance businesses. There has been no change in the basis of our segmentation or in the measurement of segment profit as compared with the presentation in our Annual Report on Form 10-K for the year ended December 31, 2002.

We allocate resources and provide information to management for decision making on a managed basis. Therefore, an adjustment is required to reconcile the managed financial information to our reported financial information in our consolidated financial statements. This adjustment reclassifies net interest margin, fee income and loss provision into securitization revenue. Income statement information included in the table for the six months ended June 30, 2003 combines January 1 through March 28, 2003 (the “predecessor period”) and March 29 to June 30, 2003 (the “successor period”) in order to present “combined” financial results for the six-month period. Fair value adjustments related to purchase accounting and related amortization have been allocated to Corporate, which is included in the “All Other” caption within our segment disclosure.

Income statement information included in the table for the nine months ended September 30, 2003 combines January 1 through March 28, 2003 (the “predecessor period”) and March 29 to September 30, 2003 (the “successor period”) in order to present “combined” financial results for the nine months ended September 30, 2003. Fair value adjustments related to purchase accounting and related amortization have been allocated to Corporate, which is included in the “All Other” caption within our segment disclosure.

Reportable Segments—Managed Basis

(In millions)	Consumer		~~All Other~~AllOther			Totals		Adjustments/ ~~Reconciling Items~~ReconcilingItems			~~ManagedBasis Consolidated Totals~~ManagedBasisConsolidatedTotals		~~Securitization Adjustments~~SecuritizationAdjustments			Owned ~~Basis Consolidated Totals~~BasisConsolidatedTotals
Three months ended June 30, 2003
Three months ended September 30, 2003
Net interest margin	$	2,~~294~~388.34	$	~~225~~188.8		$	2,~~520~~577.12		—		$	2,~~520~~577.12	$	(~~681~~675.46	)(4)	$	1,~~838~~901.76
Fee income		~~404~~468.6		12.95			~~406~~471.51		—			~~406~~471.51		(~~167~~191.47	)(4)		~~239~~279.14
Other revenues, excluding fee income		~~180~~44.59		~~154~~90.1			~~334~~135.60	$	(4035.19	)(1)		~~294~~99.51		~~257~~469.28	(4)		~~551~~568.79
Intersegment revenues		3733.23		2.96			4035.19		(4035.19	)(1)		—		—			—
Provision for credit losses		1,~~566~~319.28		(2.90	)		1,~~569~~317.18		2.02	(2)		1,~~571~~320.10		(~~591~~397.65	)(4)		~~979~~922.5
Net income		~~274~~438.48		~~137~~86.05			~~411~~525.43		(2624.73	)		~~384~~501.70		—			~~384~~501.70
Receivables		101,366.4		954.1			102,320.5		—			102,320.5		(23,019.8	)(5)		79,300.7
Operating net income (6)		438.8		86.5			525.3		(24.3	)		501.0		—			501.0
Assets		106,349.2		21,340.5			127,689.7		(8,193.5	)(3)		119,496.2		(23,019.8	)(5)		96,476.4
Receivables		105,945.6		929.2			106,874.8		—			106,874.8		(22,982.5	)(5)		83,892.3
Three months ended June 30, 2002
Assets		110,832.4		19,691.6			130,524.0		(8,135.2	)(3)		122,388.8		(22,982.5	)(5)		99,406.3
Net interest margin	$	2,075.4	$	33.2		$	2,108.6		—		$	2,108.6	$	(603.4	)(4)	$	1,505.2
Three months ended September 30, 2002
Fee income		341.1		1.4			342.5		—			342.5		(165.1	)(4)		177.4
Net interest margin	$	2,183.7	$	34.8		$	2,218.5		—		$	2,218.5	$	(611.7	)(4)	$	1,606.8
Other revenues, excluding fee income		173.8		202.1			375.9	$	(51.5	)(1)		324.4		376.5	(4)		700.9
Fee income		407.8		1.3			409.1		—			409.1		(165.1	)(4)		244.0
Intersegment revenues		51.0		.5			51.5		(51.5	)(1)		—		—			—
Other revenues, excluding fee income		367.2		189.6			556.8	$	(45.4	)(1)		511.4		294.7	(4)		806.1
Provision for credit losses		1,171.3		(8.2	)		1,163.1		2.0	(2)		1,165.1		(392.0	)(4)		773.1
Intersegment revenues		45.6		(.2	)		45.4		(45.4	)(1)		—		—			—
Net income		402.9		106.9			509.8		(33.9	)		475.9		—			475.9
Provision for credit losses		1,351.8		28.6			1,380.4		2.7	(2)		1,383.1		(482.1	)(4)		901.0
Receivables		91,181.6		1,112.8			92,294.4		—			92,294.4		(20,588.9	)(5)		71,705.5
Net income		174.6		62.6			237.2		(30.5	)		206.7		—			206.7
Assets		94,092.4		18,072.1			112,164.5		(8,269.8	)(3)		103,894.7		(20,588.9	)(5)		83,305.8
Operating net income (6)		507.8		62.6			570.4		(30.5	)		539.9		—			539.9
Six months ended June 30, 2003
Receivables		93,506.4		1,175.2			94,681.6		—			94,681.6		(21,830.6	)(5)		72,851.0
Net interest margin	$	4,529.2	$	211.0		$	4,740.2		—		$	4,740.2	$	(1,365.6	)(4)	$	3,374.6
Assets		99,201.0		17,245.1			116,446.1		(8,216.7	)(3)		108,229.4		(21,830.6	)(5)		86,398.8
Fee income		836.8		3.1			839.9		—			839.9		(322.1	)(4)		517.8
Nine months ended September 30, 2003
Other revenues, excluding fee income		246.8		522.5			769.3	$	(76.5	)(1)		692.8		716.3	(4)		1,409.1
Net interest margin	$	6,917.5	$	399.8		$	7,317.3		—		$	7,317.3	$	(2,041.1	)(4)	$	5,276.2
Intersegment revenues		71.7		4.8			76.5		(76.5	)(1)		—		—			—
Fee income		1,305.3		5.7			1,311.0		—			1,311.0		(513.8	)(4)		797.2
Provision for credit losses		2,897.2		2.6			2,899.8		3.3	(2)		2,903.1		(971.4	)(4)		1,931.7
Other revenues, excluding fee income		291.8		612.6			904.4	$	(112.4	)(1)		792.0		1,185.9	(4)		1,977.9
Net income		623.6		282.9			906.5		(51.0	)		855.5		—			855.5
Intersegment revenues		104.9		7.5			112.4		(112.4	)(1)		—		—			—
Six months ended June 30, 2002
Provision for credit losses		4,217.0		.7			4,217.7		5.5	(2)		4,223.2		(1,369.0	)(4)		2,854.2
Net interest margin	$	4,083.3	$	96.5		$	4,179.8		—		$	4,179.8	$	(1,217.6	)(4)	$	2,962.2
Net income		1,062.4		369.4			1,431.8		(75.3	)		1,356.5		—			1,356.5
Fee income		679.8		4.1			683.9		—			683.9		(320.4	)(4)		363.5
Operating net income (6)		1,062.4		369.4			1,431.8		(75.3	)		1,356.5		—			1,356.5
Other revenues, excluding fee income		421.1		481.0			902.1	$	(97.9	)(1)		804.2		717.5	(4)		1,521.7
Nine months ended September 30, 2002
Intersegment revenues		96.7		1.2			97.9		(97.9	)(1)		—		—			—
Net interest margin	$	6,266.8	$	131.4		$	6,398.2		—		$	6,398.2	$	(1,829.2	)(4)	$	4,569.0
Provision for credit losses		2,429.5		19.8			2,449.3		(21.6	)(2)		2,427.7		(820.5	)(4)		1,607.2
Fee income		1,087.7		5.3			1,093.0		—			1,093.0		(485.5	)(4)		607.5
Net income		757.0		239.1			996.1		(48.4	)		947.7		—			947.7
Other revenues, excluding fee income		788.2		670.6			1,458.8	$	(143.2	)(1)		1,315.6		1,012.2	(4)		2,327.8
Intersegment revenues		142.3		.9			143.2		(143.2	)(1)		—		—			—
Provision for credit losses		3,781.2		48.5			3,829.7		(19.0	)(2)		3,810.7		(1,302.5	)(4)		2,508.2
Net income		931.6		301.8			1,233.4		(78.9	)		1,154.5		—			1,154.5
Operating net income (6)		1,264.8		301.8			1,566.6		(78.9	)		1,487.7		—			1,487.7

(1)

Eliminates intersegment revenues.

(2)

Eliminates bad debt recovery sales and reclassifies loss reserves between operating segments.

(3)

Eliminates investments in subsidiaries and intercompany borrowings.

(4)

Reclassifies net interest margin, fee income and loss provisions relating to securitized receivables to other revenues.

(5)

Represents receivables serviced with limited recourse.

(6)

This non-GAAP financial measure is provided for comparison of our operating trends only and should be read in conjunction with our owned basis GAAP financial information. Operating net income excludes the settlement charge and related expenses of $333.2 million (after-tax) in the three and nine months ended September 30, 2002. See “Reconciliation to GAAP Financial Measures” in Management’s Discussion and Analysis for additional discussion and quantitative reconciliations to GAAP basis net income.

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

HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES

Financial Highlights

(Dollar amounts are in millions)	Three ~~months~~monthsended ~~ended~~Sept. ~~June~~ 30, 2003			Three ~~months~~monthsended ~~ended~~Sept. ~~June~~ 30, 2002			~~Combined~~Combinednine ~~six~~monthsended ~~months~~Sept. ~~ended June~~ 30, 2003			~~Six~~Nine ~~months~~monthsended ~~ended~~Sept. ~~June~~ 30, 2002
Net income	$	~~384~~501.70		$	~~475~~206.97	(1)	$	~~855~~1,356.5		$	~~947~~1,154.75	(1)
Net interest margin		1,~~838~~901.76			1,~~505~~606.28			35,~~374~~276.62			24,~~962~~569.20
Provision for credit losses on owned receivables		~~979~~922.5			~~773~~901.10			12,~~931~~854.72			12,~~607~~508.2
Owned Basis Ratios:
Return on average owned assets		12.6006	%		2.4296	%(1)		1.8391	%		21.4592	%(1)
Return on average common shareholder’s equity		1215.6			188.64	(1)		15.13			1916.21	(1)
Net interest margin		8.8975			8.3022			8.2241			8.3731
Consumer net charge-off ratio, annualized		4.5112			4.0719			4.4533			4.0308
Reserves as a percentage of net charge-offs, annualized		98105.57			9594.93			~~101~~104.48			98100.6
Efficiency ratio(1)		38.7			35.1			37.2			35.2
Efficiency ratio (2)		37.0			53.1	(1)		37.1			41.5	(1)
Managed Basis Ratios:(2)
Managed Basis Ratios: (3)
Return on average managed assets		1.2967	%		1.9377	%(1)		1.4754	%		1.9453	%(1)
Net interest margin		9.5641			98.1195			9.0517			9.1911
Consumer net charge-off ratio, annualized		54.0784			4.5764			4.9994			4.5155
Reserves as a percentage of net charge-offs, annualized		~~104~~107.41			9799.65			~~107~~108.13			~~100~~105.1
Efficiency ratio(1)		31.4			30.0			31.3			30.0
Efficiency ratio (2)		32.2			44.7	(1)		31.6			35.2	(1)
	Owned Basis						Managed Basis (3)
(Dollar amounts are in millions)	Sept. 30, 2003			December 31, 2002			Sept. 30, 2003			December 31,2002
Total assets	$	99,406.3		$	88,372.9		$	122,388.8		$	111,795.1
Receivables		83,892.3			75,209.7			106,874.8			98,631.9
Two-month-and-over contractual delinquency ratio		5.46	%		5.38	%		5.44	%		5.29	%
Reserves as a percentage of receivables		4.23			4.20			5.05			4.86
Reserves as a percentage of nonperforming loans		94.5			97.6			113.3			114.7
Common equity to assets		13.20			11.36			10.72			8.98
Tangible shareholder’s equity to tangible managed assets (4)		n/a			n/a			7.47			8.70

(Dollar amounts are in millions)	June 30, 2003			December 31, 2002
Owned Basis:
Total assets	$	96,476.4		$	88,372.9
Receivables		79,300.7			75,209.7
Two-month-and-over contractual delinquency ratio		5.51	%		5.38	%
Reserves as a percentage of receivables		4.35			4.20
Reserves as a percentage of nonperforming loans		97.0			97.6
Managed Basis(2):
Total assets	$	119,496.2		$	111,795.1
Receivables		102,320.5			98,631.9
Common equity to managed assets		10.47	%		8.98	%
Tangible shareholder’s equity to tangible managed assets(3)		7.37			8.70
Two-month-and-over contractual delinquency ratio		5.39			5.29
Reserves as a percentage of receivables		5.18			4.86
Reserves as a percentage of nonperforming loans		118.4			114.7

(1)

The following non-GAAP financial information is provided for comparison of our operating trends only and should be read in conjunction with our owned basis GAAP financial information. For the three and nine months ended September 30, 2002, the operating results, percentages and ratios exclude the $333.2 million, after-tax, settlement charge and related expenses. See “Reconciliation to GAAP Financial Measures” for additional discussion and quantitative reconciliations to the equivalent GAAP basis financial measure.

(1) Ratio of total costs and expenses less policyholders’ benefits to net interest margin and other revenues less policyholders’ benefits.

	Three months ended Sept. 30, 2003			Three months ended Sept. 30, 2002			Combined nine months ended Sept. 30, 2003			Nine months ended Sept. 30, 2002
Operating net income (in millions)	$	501.0		$	539.9		$	1,356.5		$	1,487.7
Return on average owned assets		2.06	%		2.52	%		1.91	%		2.47	%
Return on average common shareholder’s equity		15.6			21.7			15.3			20.6
Owned basis efficiency ratio (2)		37.0			32.7			37.1			34.3
Return on average managed assets		1.67			2.02			1.54			1.97
Managed basis efficiency ratio (2)		32.2			27.5			31.6			29.1

(2) We monitor our operations and evaluate trends on both an owned basis as shown in our financial statements and on a managed basis. Managed basis reporting adjustments assume that securitized receivables have not been sold and are still on our balance sheet. Managed basis information is intended to supplement, and should not be considered a substitute for, owned basis reporting and should be read in conjunction with reported owned basis results.

(3) Tangible shareholder’s equity to tangible managed assets (“TETMA”) is a non-GAAP financial ratio that, when calculated for Household International, is used by certain rating agencies as a measure to evaluate capital adequacy. This ratio may differ from similarly named measures presented by other companies. Because it includes obligations to purchase HSBC ordinary shares in 2006, we include our Adjustable Conversion-Rate Equity Security Units as equity in calculating TETMA. Excluding the impact of “push-down” accounting on our assets and common shareholder’s equity, TETMA would have been 9.21 percent at June 30, 2003. Common equity to total managed assets, the most directly comparable GAAP financial measure to TETMA, is also presented in our financial highlights.

(2)

Ratio of total costs and expenses less policyholders’ benefits to net interest margin and other revenues less policyholders’ benefits.

(3)

We monitor our operations and evaluate trends on both an owned basis as shown in our financial statements and on a managed basis. Managed basis reporting adjustments assume that securitized receivables have not been sold and are still on our balance sheet. Managed basis information is intended to supplement, and should not be considered a substitute for, owned basis reporting and should be read in conjunction with reported owned basis results. See “Reconciliation to GAAP Financial Measures” for additional discussion and quantitative reconciliations to the equivalent GAAP basis financial measure.

(4)

Tangible shareholder’s equity to tangible managed assets (“TETMA”) is a non-GAAP financial ratio that, when calculated for Household International, is used by certain rating agencies as a measure to evaluate capital adequacy and may differ from similarly named measures presented by other companies. Common equity to total owned assets is the most directly comparable GAAP financial measure. Excluding the impact of “push-down” accounting on our assets and common shareholder’s equity, TETMA would have been 9.28 percent at September 30, 2003. See “Reconciliation to GAAP Financial Measures” for additional discussion and quantitative reconciliations to the equivalent GAAP basis financial measure.

Basis of Reporting

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements, notes and tables included elsewhere in this report and in the Household Finance Corporation Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”). Management’s discussion and analysis may contain certain statements that may be forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Our results may differ materially from those noted in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “intend”, “probable”, “may”, “will”, “should”, “would” and “could”. Forward-looking statements involve risks and uncertainties and are based on current views and assumptions. For a list of important factors that may affect our actual results, see our 2002 Form 10-K. In addition, as an indirect subsidiary of HSBC, we may be affected by decisions made by HSBC or the perception investors, regulators or rating agencies have of HSBC. Such decisions and perceptions may also affect our forward-looking statements.

WeReconciliation monitor our operations and evaluate trends on a managed basis which assumes that securitized receivables have not been sold and are still on our balance sheet. We manage our operations on a managed basis because the receivables that we securitize are subjected to ~~underwriting~~GAAP ~~standards~~Financial ~~comparable to~~Measures our owned portfolio, are serviced by operating personnel without regard to ownership and result in a similar credit loss exposure for us. In addition, we fund our operations, review our operating results and make decisions about allocating resources such as employees and capital on a managed basis. See Note 11, “Segment Reporting,” to the accompanying condensed consolidated financial statements for additional information related to our results on a managed basis.

~~Management’s~~Our ~~discussion~~consolidated ~~and~~financial ~~analysis~~statements isare ~~presented~~prepared onin anaccordance ~~owned~~with ~~basis of~~accounting ~~reporting~~principles ~~unless~~generally ~~specifically~~accepted ~~noted~~in the United States (“GAAP”). OnIn addition anto ~~owned~~the ~~basis~~GAAP offinancial ~~reporting,~~results ~~net~~reported ~~interest~~in ~~margin,~~our ~~provision~~consolidated ~~for~~financial ~~credit~~statements, ~~losses~~Management’s Discussion and ~~fee~~Analysis ~~income~~includes ~~resulting~~reference ~~from~~to ~~securitized~~the ~~receivables~~following ~~are~~information ~~included~~which asis ~~components~~presented ofon ~~securitization~~a ~~revenue.~~non-GAAP basis:

~~Acquisition~~Operating Results, Percentages and Ratios Certain percentages and ratios have been presented on an operating basis and have been calculated using “operating net income”, a non-GAAP financial measure. “Operating net income” is net income excluding certain nonrecurring expenses. These nonrecurring expenses are also excluded in calculating our “normalized” efficiency ratios. We believe that excluding nonrecurring items helps readers of ~~Household~~our ~~International~~financial statements to better understand the results and trends of our underlying business.

OnA ~~March~~reconciliation ~~28, 2003, HSBC Holdings, plc (“HSBC”) completed its acquisition~~ of ~~Household~~net ~~International~~income by way of merger with H2 Acquisition Corporation (“H2”), a wholly owned subsidiary of HSBC, acquiring 100% of the voting equity interest of Household International in a purchase business combination (see Note 2). Subsequent to ~~the~~operating ~~merger,~~net H2income ~~was~~follows: renamed “Household International, Inc.” In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus related purchase accounting adjustments have been “pushed-down” and recorded in our financial statements for periods subsequent to March 28, 2003, resulting in a new basis of accounting for the “successor” period beginning March 29, 2003. As of the acquisition date, we recorded our assets and liabilities at their estimated fair value. During the second quarter, we made adjustments to our preliminary fair value estimates as additional information, including third party valuation data, was obtained. Information for all “predecessor” periods prior to the merger is presented on the historical basis of accounting.

To assist in the comparability of our financial results and to make it easier to discuss and understand our results of operations, the following discussion combines the “predecessor period” (January 1 to March 28, 2003) with the “successor period” (March 29 to June 30, 2003) to present “combined” results for the six months ended June 30, 2003.

	Three Months Ended				Nine Months Ended
	September 30, 2003		September 30, 2002		September 30, 2003		September 30, 2002
(In millions)
Net income	$	501.0	$	206.7	$	1,356.5	$	1,154.5
Settlement charge and related expenses, after-tax		—		333.2		—		333.2

Operating net income	$	501.0	$	539.9	$	1,356.5	$	1,487.7

Though we are still in the early stages of evaluating the impact that the merger may have on our total operations, we have identified the following items as near term priorities:

· Funding benefits—during the quarter, we received $1.8 billion in funding from affiliates of HSBC and $1.1 billion from HSBC’s customers. We currently anticipate that we will continue to use HSBC’s available funding to partially fund our operations. This will reduce our reliance on the debt markets. Since

Net income during both the ~~merger~~quarter and nine months ended September 30, we2003 ~~have~~were ~~experienced~~positively ~~lower~~impacted ~~funding~~by purchase ~~costs~~accounting ~~because~~adjustments weand ~~are~~by ~~now~~the andiscontinuation ~~indirect~~of ~~subsidiary~~the shortcut method of ~~HSBC~~accounting for our interest rate swaps under SFAS No. We133 ~~anticipate~~due ~~that~~to the ~~tighter~~merger. ~~spreads~~Amortization weof ~~have~~purchase ~~experienced~~accounting asadjustments aincreased ~~result~~net ofincome ~~Household~~by ~~International’s~~$32.1 ~~merger~~million for ~~with~~the ~~HSBC~~quarter ~~along~~and ~~with~~$78.5 ~~other~~million ~~funding~~for ~~synergies~~the ~~will~~nine ~~eventually~~months ~~lead~~ended toSeptember ~~funding~~30, ~~expense~~2003. ~~savings~~The loss of ~~approximately~~the shortcut method of accounting for our interest rate swaps also increased net income by $14.04 million ~~billion~~for ~~per~~the ~~year~~quarter and $51.7 ~~However,~~million itfor ~~will~~the ~~take~~nine months usended ~~some~~September ~~time~~30, to2003. ~~realize~~During the ~~full~~third ~~amount~~quarter, we completed the restructure of ~~these~~substantially ~~savings~~all asof our ~~existing~~interest ~~term~~rate ~~debt~~swap ~~will~~portfolio ~~mature~~to ~~over~~regain use of the ~~course~~shortcut method of accounting and reduce the ~~next~~potential ~~several~~volatility ~~years~~of future earnings.

·Managed ~~Technology~~Basis Reporting We ~~integration~~monitor our operations and evaluate trends on a managed basis (a non-GAAP financial measure), which assumes that securitized receivables have not been sold and are still on our balance sheet. We manage and evaluate our operations on a managed basis because the receivables that we securitize are subjected to underwriting standards comparable to our owned portfolio, are serviced by operating personnel without regard to ownership and result in a similar credit loss exposure for us. In addition, we fund our operations, review our operating results, and make decisions about allocating resources such as employees and capital on a managed basis.

·When ~~Exporting~~reporting ~~and~~on ~~using~~a ~~our~~managed ~~consumer~~basis, net interest margin, provision for credit losses ~~business~~and ~~models~~fee income related to receivables securitized and ~~“best~~sold ~~practices”~~are reclassified from securitization revenue in our owned statements of income into ~~HSBC’s~~the ~~operations~~appropriate caption. Additionally, charge-off and delinquency associated with these receivables are included in our managed basis credit quality statistics.

·Debt ~~Expanding~~analysts, ~~business~~rating ~~opportunities~~agencies ~~including~~and ~~broader~~others ~~consumer~~also ~~product~~evaluate ~~offerings~~our operations on a managed basis for the reasons discussed above and ~~leveraging~~have historically requested managed basis information from us. We believe that managed basis information, which enables investors and other interested parties to better understand the performance and quality of our ~~existing~~entire ~~business~~managed loan portfolio, is important to ~~business~~understanding ~~model~~the ~~with~~quality ~~HSBC’s~~of ~~capabilities~~originations and the related credit risk inherent in our owned portfolio. ~~This~~See ~~includes~~Note ~~working~~11 ~~with~~to ~~HSBC~~the ~~Bank~~accompanying ~~USA~~condensed consolidated financial statements, “Segment Reporting,” for a reconciliation of managed basis net interest margin, fee income and provision for credit losses to ~~develop~~the comparable owned basis amounts. See Note 4 to the accompanying condensed consolidated financial statements, “Receivables,” for a ~~customer~~reconciliation ~~referral~~of ~~program~~our owned loan portfolio by product to our managed loan portfolio.

·15 ~~Global processing opportunities.~~

ItTable isof too early to quantify the aggregate financial impact these business modifications may have with respect to HFC. Contents

Reconciliations between owned basis GAAP reported amounts and non-GAAP operating basis and managed basis amounts are as follows:

	Three Months Ended						Nine Months Ended
(Dollar amounts are in millions)	September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002
Return on Average Assets:
Net income	$	501.0		$	206.7		$	1,356.5		$	1,154.5
Operating net income		501.0			539.9			1,356.5			1,487.7
Average assets:
Owned	$	97,237.9		$	85,850.3		$	94,753.5		$	80,284.6
Serviced with limited recourse		22,570.4			20,877.6			22,666.4			20,374.7

Managed	$	119.808.3		$	106,727.9		$	117,419.9		$	100,659.3


Return on average owned assets		2.06	%		.96	%		1.91	%		1.92	%
Return on average owned assets, operating basis		2.06			2.52			1.91			2.47
Return on average managed assets		1.67			.77			1.54			1.53
Return on average managed assets, operating basis		1.67			2.02			1.54			1.97

Return on Average Common Shareholder’s Equity:
Net income	$	501.0		$	206.7		$	1,356.5		$	1,154.5
Operating net income		501.0			539.9			1,356.5			1,487.7
Average common shareholder’s equity		12,874.6			9,893.3			11,832.3			9,591.1
Return on average common shareholder’s equity		15.6	%		8.4	%		15.3	%		16.1	%
Return on average common shareholder’s equity, operating basis		15.6			21.7			15.3			20.6

	Three months ended September 30, 2003									Three months ended September 30, 2002
(Dollar amounts are in millions)	Owned			Serviced with Limited Recourse			Managed			Owned			Serviced with Limited Recourse			Managed
Net interest margin:
Net interest margin	$	1,901.6		$	675.6		$	2,577.2		$	1,606.8		$	611.7		$	2,218.5
Average interest-earning assets		86,978.4			22,570.4			109,548.8			78,232.5			20,877.6			99,110.1

Net interest margin, annualized		8.75	%		11.97	%		9.41	%		8.22	%		11.72	%		8.95	%

Consumer net charge-offs:
Consumer net charge-offs	$	836.9		$	419.9		$	1,256.8		$	759.2		$	324.0		$	1,083.2
Average consumer receivables		81,339.2			22,570.4			103,909.6			72,549.9			20,877.6			93,427.6

Consumer net charge-off ratio, annualized		4.12	%		7.44	%		4.84	%		4.19	%		6.21	%		4.64	%

Reserves as a percentage of net charge-offs:
Reserves	$	3,549.7		$	1,842.5		$	5,392.2		$	2,861.8		$	1,449.4		$	4,311.2
Net charge-offs		839.3			419.9			1,259.2			758.8			324.0			1,082.8

Reserves as a percentage of net charge-offs, annualized		105.7	%		109.7	%		107.1	%		94.3	%		111.8	%		99.5	%

Efficiency ratio:
Total costs and expenses less policyholders’ benefits	$	991.1			—		$	991.1		$	1,365.2			—		$	1,365.2
Settlement charge and related expenses		—			—			—			525.0			—			525.0

Total costs and expenses less policyholders’ benefits, operating basis	$	991.1			—		$	991.1		$	840.2			—		$	840.2
Net interest margin and other revenues less policyholders’ benefits	$	2,677.3		$	397.5		$	3,074.8		$	2,571.3		$	482.1		$	3,053.4

Efficiency ratio		37.0	%					32.2	%		53.1	%					44.7	%

Efficiency ratio, normalized		37.0	%					32.2	%		32.7	%					27.5	%

	Nine months ended September 30, 2003									Nine months ended September 30, 2002
(Dollar amounts are in millions)	Owned			Serviced with Limited Recourse			Managed			Owned			Serviced with Limited Recourse			Managed
Net interest margin:
Net interest margin	$	5,276.2		$	2,041.1		$	7,317.3		$	4,569.0		$	1,829.2		$	6,398.2
Average interest-earning assets		83,699.3			22,666.4			106,365.7			73,292.3			20,374.7			93,667.0

Net interest margin, annualized		8.41	%		12.01	%		9.17	%		8.31	%		11.97	%		9.11	%

Consumer net charge-offs:
Consumer net charge-offs	$	2,538.0		$	1,194.8		$	3,732.8		$	2,136.1		$	943.1		$	3,079.2
Average consumer receivables		78,071.7			22,666.4			100,738.1			69,780.1			20,374.7			90,154.8

Consumer net charge-off ratio, annualized		4.33	%		7.03	%		4.94	%		4.08	%		6.17	%		4.55	%

Reserves as a percentage of net charge-offs:
Reserves	$	3,549.7		$	1,842.5		$	5,392.2		$	2,861.8		$	1,449.4		$	4,311.2
Net charge-offs		2,540.3			1,194.9			3,735.2			2,134.4			943.2			3,077.6

Reserves as a percentage of net charge-offs, annualized		104.8	%		115.7	%		108.3	%		100.6	%		115.3	%		105.1	%

Efficiency ratio:
Total costs and expenses less policyholders’ benefits	$	2,906.8			—		$	2,906.8		$	3,018.5			—		$	3,018.5
Settlement charge and related expenses		—			—			—			525.0			—			525.0

Total costs and expenses less policyholders’ benefits, operating basis	$	2,906.8			—		$	2,906.8		$	2,493.5			—		$	2,493.5
Net interest margin and other revenues less policyholders’ benefits	$	7,826.8		$	1,369.0		$	9,195.8		$	7,272.1		$	1,302.5		$	8,574.6

Efficiency ratio		37.1	%					31.6	%		41.5	%					35.2	%

Efficiency ratio, normalized		37.1	%					31.6	%		34.3	%					29.1	%


	September 30, 2003									December 31, 2002
(Dollar amounts are in millions)	Owned			Serviced with Limited Recourse			Managed			Owned			Serviced with Limited Recourse			Managed
Total assets	$	99,406.3		$	22,982.5		$	122,388.8		$	88,372.9		$	23,422.2		$	111,795.1
Total receivables		83,892.3			22,982.5			106,874.8			75,209.7			23,422.2			98,631.9
Two-month-and-over contractual delinquency:
Two-month-and-over contractual delinquency	$	4,563.0		$	1,227.6		$	5,790.6		$	4,024.8		$	1,171.7		$	5,196.5
Consumer receivables		83,521.9			22,982.5			106,504.4			74,792.5			23,422.2			98,214.7

Two-month-and-over contractual delinquency ratio		5.46	%		5.34	%		5.44	%		5.38	%		5.00	%		5.29	%

Reserves as a percentage of receivables:
Reserves	$	3,549.7		$	1,842.5		$	5,392.2		$	3,156.9		$	1,638.3		$	4,795.2
Receivables		83,892.3			22,982.5			106,874.8			75,209.7			23,422.2			98,631.9

Reserves as a percentage of receivables		4.23	%		8.02	%		5.05	%		4.20	%		6.99	%		4.86	%

Reserves as a percentage of nonperforming loans:
Reserves	$	3,549.7		$	1,842.5		$	5,392.2		$	3,156.9		$	1,638.3		$	4,795.2
Nonperforming loans		3,757.1			1,000.9			4,758.0			3,235.0			947.1			4,182.1

Reserves as a percentage of nonperforming loans		94.5	%					113.3	%		97.6	%					114.7	%

	June 30, 2003									September 30, 2002
(Dollar amounts are in millions)	Owned			Serviced with Limited Recourse			Managed			Owned			Serviced with Limited Recourse			Managed
Reserves as a percentage of receivables:
Reserves	$	3,449.2		$	1,854.8		$	5,304.0		$	2,861.8		$	1,449.4		$	4,311.2
Receivables		79,300.7			23,019.8			102,320.5			72,851.0			21,830.6			94,681.6

Reserves as a percentage of receivables		4.35	%		8.06	%		5.18	%		3.93	%		6.64	%		4.55	%

Reserves as a percentage of nonperforming loans:
Reserves	$	3,449.2		$	1,854.8		$	5,304.0		$	2,861.8		$	1,449.4		$	4,311.2
Nonperforming loans		3,554.1			924.0			4,478.1			2,917.5			812.4			3,729.9

Reserves as a percentage of nonperforming loans		97.0	%					118.4	%		98.1	%					115.6	%


	Three months ended June 30, 2003
(Dollar amounts are in millions)	Owned			Serviced with Limited Recourse			Managed
Reserves as a percentage of net charge-offs:
Reserves	$	3,449.2		$	1,854.8		$	5,304.0
Net charge-offs		875.0			395.7			1,270.7

Reserves as a percentage of net charge-offs, annualized		98.5	%		117.2	%		104.4	%

Equity Ratios Tangible shareholder’s equity to tangible managed assets (“TETMA”) is a non-GAAP financial measure that, when calculated for Household International, is used by certain rating agencies as a measure to evaluate capital adequacy. This ratio may differ from similarly named measures presented by other companies. The most directly comparable GAAP financial measure is common equity to owned assets.

We also monitor TETMA excluding the impact of purchase accounting adjustments. We do so because we believe that the purchase accounting adjustments represent non-cash transactions which do not affect our business operations, cash flows or ability to meet our debt obligations.

Equity ratios are calculated as follows:

(Dollar amounts are in millions)	September 30, 2003			June 30, 2003			December 31, 2002
Tangible shareholder’s equity:
Common shareholder’s equity	$	13,123.1		$	12,511.5		$	10,041.5
Exclude:
Unrealized (gains) losses on cash flow hedging instruments		(31.5	)		93.2			685.0
Unrealized gains on investments and interest-only strip receivables		(112.7	)		(127.4	)		(292.9	)
Acquired intangibles		(2,701.1	)		(2,775.3	)		(386.4	)
Goodwill		(2,159.4	)		(2,016.5	)		(1,117.7	)
Adjustable Conversion-Rate Equity Security Units		511.0			511.0			511.0

Tangible shareholder’s equity		8,629.4			8,196.5			9,440.5
Purchase accounting adjustments		2,062.0			2,017.1			—

Tangible shareholder’s equity, excluding purchase accounting adjustments	$	10,691.4		$	10,213.6		$	9,440.5


Tangible managed assets:
Owned assets	$	99,406.3		$	96,476.4		$	88,372.9
Receivables serviced with limited recourse		22,982.5			23,019.8			23,422.2

Managed assets		122,388.8			119,496.2			111,795.1
Exclude:
Acquired intangibles		(2,701.1	)		(2,775.3	)		(386.4	)
Goodwill		(2,159.4	)		(2,016.5	)		(1,117.7	)
Derivative financial assets		(1,934.0	)		(3,445.0	)		(1,805.0	)

Tangible managed assets		115,594.3			111,259.4			108,486.0
Purchase accounting adjustments		(434.8	)		(398.4	)		—

Tangible managed assets, excluding purchase accounting adjustments	$	115,159.5		$	110,861.0		$	108,486.0


Equity Ratios:
Common equity to owned assets		13.20	%		12.97	%		11.36	%
Common equity to managed assets		10.72			10.47			8.98
Tangible shareholder’s equity to tangible managed assets		7.47			7.37			8.70
Tangible shareholder’s equity to tangible managed assets, excluding purchase accounting adjustments		9.28			9.21			8.70

Our Adjustable Conversion-Rate Equity Security Units, which exclude purchase accounting adjustments, are also considered equity in the TETMA calculation because they include obligations to purchase HSBC ordinary shares in 2006.

Acquisition of Household International

On March 28, 2003, HSBC Holdings, plc (“HSBC”) acquired Household International by way of merger with H2 Acquisition Corporation (“H2”), a wholly owned subsidiary of HSBC, acquiring 100% of the voting equity interest of Household International in a purchase business combination (see Note 2 to the accompanying condensed consolidated financial statements). Subsequent to the merger, H2 was renamed “Household International, Inc.” In accordance with the guidelines for accounting for business combinations, the purchase price paid by HSBC plus related purchase accounting adjustments have been “pushed-down” and recorded in our

financial statements for periods subsequent to March 28, 2003, resulting in a new basis of accounting for the “successor” period beginning March 29, 2003. As of the acquisition date, we recorded our assets and liabilities at their estimated fair value. During the second quarter, we made adjustments to our preliminary fair value estimates as additional information, including third party valuation data, was obtained. Additional adjustments were made in the third quarter, including adjustments to accumulated other comprehensive income. Information for all “predecessor” periods prior to the merger is presented on the historical basis of accounting which impacts its comparability to our “successor” periods.

To assist in the comparability of our financial results and to make it easier to discuss and understand our results of operations, the following discussion combines the “predecessor period” (January 1 to March 28, 2003) with the “successor period” (March 29 to September 30, 2003) to present “combined” results for the nine months ended September 30, 2003.

At the time of the merger, both we and Household International identified several items as near term priorities. Since the merger, numerous integration teams have been established and the following progress has been made:

Funding benefits — As of September 30, 2003, we have received $5.8 billion in HSBC related funding. This total includes $3.9 billion in advances from affiliates of HSBC and $1.9 billion in funding from HSBC’s customers. We also implemented a $2.5 billion revolving credit facility with HSBC (none of which has been drawn upon). We currently anticipate that we will continue to use HSBC’s available funding to partially fund our operations. This will reduce our reliance on the debt markets. Since the merger, we have experienced lower funding costs because we are now a subsidiary of HSBC. We anticipate that the tighter spreads we have experienced and will continue to experience as a result of our merger with HSBC along with other funding synergies will eventually lead to cash funding expense savings of approximately $1.0 billion per year. However, it will take us some time to realize the full amount of these cash savings as our existing term debt will mature over the course of the next several years.

Technology integration — To date, we have made significant progress in integrating technology teams and systems, including identifying HSBC data centers for consolidation. We have also renegotiated our telecommunications contracts.

Exporting and using our consumer credit business models and “best practices” into HSBC’s operations — Our credit risk management department is providing on-going assistance to HSBC affiliates. Additionally, our credit card services business is providing collections and other card management practices assistance.

Expanding business opportunities including broader consumer product offerings and leveraging our existing business to business model with HSBC’s capabilities — Efforts have been focused on our mortgage services, insurance services and retail services businesses. Also, in conjunction with HSBC Bank USA we have initiated a customer referral program.

Global processing opportunities — We have identified areas for better utilization of our existing processing centers as well as the use of new centers in more cost effective countries.

Operations Summary

Our net income was $~~384~~501.70 million in the ~~second~~third quarter of 2003, ~~$470.8 million in the first quarter of 2003~~ and $~~475~~206.97 million in the ~~second~~third quarter of 2002. Net income ~~for the first six months of 2003~~ was $~~855~~1.54 ~~million,~~billion ~~compared~~for ~~to $947.7 million in~~ the ~~year-ago~~first ~~period.~~nine ~~Our~~months ~~net income during the second quarter~~ of 2003 ~~was~~and ~~positively impacted by purchase accounting adjustments which increased net income by~~ $461.42 ~~million~~billion ~~and~~for by the ~~discontinuation~~first ofnine ~~the~~months ~~shortcut method~~ of ~~accounting for our interest rate swaps under SFAS No~~2002. 133 due to the merger which increased net income by $47.3 million. Higher credit loss provision due to higher charge-offs and lower securitization revenue contributed to the decreases compared to the prior quarter and the prior year periods. Higher operating expenses to support receivables growth, as well as increased legal and compliance costs, also contributed to the decline over the prior year periods. Compared to the prior quarter, our net income also reflects lower revenue from our seasonal tax refund lending business. Partially offsetting these decreases to net income were higher net interest margin and, compared to the prior year periods, higher fee income.

WeOperating ~~are~~net ~~committed~~income to(a ~~taking~~non-GAAP afinancial ~~leadership~~measure ~~role~~which inexcludes the ~~consumer~~settlement ~~finance~~charge ~~industry~~and byrelated ~~establishing~~expenses aof ~~benchmark for quality~~$333.2 Asmillion, ~~a result~~after-tax, weincurred ~~will significantly~~in ~~increase~~September ~~our~~2002) ~~investment~~was $501.0 million in ~~compliance,~~the ~~monitoring~~third ~~and~~quarter ~~training~~of to2003 ~~approximately~~and $~~150~~539.9 million ~~during~~in ~~2003~~the ~~which~~third isquarter ~~more~~of ~~than~~2002. ~~double~~Operating net income for the ~~amount~~first ~~invested~~nine months of 2003 was $1.4 billion, compared to $1.5 billion in ~~2002~~the year-ago period.

Compared to the prior year periods, operating net income for the quarter and nine months ended September 30, 2003, declined due to higher credit loss provision due to higher charge-offs and lower securitization activity as a result of the use of alternative funding sources. Higher operating expenses to support receivables growth as well as increased legal and compliance costs and amortization of intangibles also contributed to the decline over prior year periods. Partially offsetting these decreases were higher net interest margin and fee income.

Net income during both the quarter and nine months ended September 30, 2003 were positively impacted by purchase accounting adjustments and by the discontinuation of the shortcut method of accounting for our interest rate swaps under SFAS No. 133 due to the merger. Amortization of purchase accounting adjustments increased net income by $32.1 million for the quarter and $78.5 million for the nine months ended September 30, 2003. The loss of the shortcut method of accounting for our interest rate swaps also increased net income by $4.4 million for the quarter and $51.7 million for the nine months ended September 30, 2003. During the third quarter, we completed the restructure of substantially all of our interest rate swap portfolio to regain use of the shortcut method of accounting and reduce the potential volatility of future earnings.

We are committed to taking a leadership role in the consumer finance industry by establishing a benchmark for quality. As a result, we are significantly increasing our investment in compliance, monitoring and training to approximately $150 million during 2003 which is more than double the amount invested in 2002.

Segment Results—Managed Basis

Our Consumer segment reported net income of $~~274~~438.4 8 million for the ~~second~~third quarter of 2003 compared to $~~402~~174.96 million in the year-ago quarter. Year-to-date, net income was $~~623~~1.61 ~~million~~billion compared to $~~757~~931.06 million for the first ~~six~~nine months of 2002. ~~Increases~~Net ~~in net interest margin and fee~~ income ~~due~~in toboth ~~higher~~prior ~~receivable~~year ~~levels~~periods ~~were~~was ~~more~~impacted ~~than offset~~ by the ~~higher~~$525.0 ~~credit~~million ~~loss~~settlement ~~provision~~agreement ~~due~~with ~~to higher~~state ~~charge-offs~~attorneys general and ~~higher~~regulatory ~~operating expenses~~agencies. ~~Year-to-date,~~Operating ~~other~~net ~~revenues~~income ~~declined as~~ (a ~~result~~non-GAAP measurement of ~~lower~~net ~~securitization~~income ~~levels~~excluding ~~during~~ the ~~first~~settlement ~~six~~charge ~~months of 2003~~ and ~~the~~related ~~impact~~expenses of ~~higher~~$333.2 ~~securitization~~million, ~~levels~~after-tax, incurred in September 2002) aswas ~~a result of our liquidity management plans. Our managed basis credit loss provision rose~~ $~~394~~507.98 million ~~to $1.6 billion~~ in the year-ago quarter and $~~467~~1.73 ~~million to $2.9~~ billion ~~year-to-date~~for asthe afirst ~~result~~nine ofmonths ~~increased levels~~ of ~~receivables and higher charge-offs~~2002. ~~We increased~~Increases ~~our~~in ~~managed~~net ~~loss~~interest ~~reserves~~margin byand ~~recording~~fee ~~loss~~income ~~provision~~were ~~greater~~more than ~~charge-offs~~offset ofby ~~$298.5~~higher ~~million~~operating inexpenses ~~the quarter~~ and ~~$426.4~~lower ~~million~~other ~~year-to-date.~~revenues ~~Higher~~as ~~operating~~a ~~expenses were the~~ result of a ~~additional~~decline ~~operating~~in ~~costs~~securitization activity. Year-to-date ~~support~~results ~~the increased~~also ~~receivable~~reflect ~~levels and~~ higher ~~legal~~credit ~~and~~loss ~~compliance costs~~provision.

15Net interest margin increased $204.7 million to $2.4 billion for the quarter and $650.7 million to $6.9 billion year-to-date and fee income increased $60.8 million to $468.6 million for the quarter and $217.6 million to $1.3 billion year-to-date as a result of higher receivable levels. Other revenues decreased $322.3 million for the quarter and $496.4 million year-to-date as a result of a decline in receivables securitized. Securitization levels were much higher in 2002 as a result of our liquidity management plans. Operating expenses, excluding the third quarter 2002 settlement charge, increased $95.8 million to $884.0 million for the quarter and $274.8 million to $2.6 billion year-to-date as the result of additional operating costs to support the increased receivable levels and higher legal and compliance costs. Our managed basis credit loss provision decreased $32.0 million for the quarter primarily due to decreases in loss provision on securitized receivables including the impact of lower securitized levels, but increased $435.8 million year-to-date. We increased our managed loss reserves by recording loss provision greater than charge-offs of $65.5 million in the quarter and $492.0 million year-to-date.

Managed receivables grew to $105.9 billion at September 30, 2003, compared to $101.4 billion at June 30, 2003 and $93.5 billion at September 30, 2002. Compared to June 30, 2003, growth was driven by higher real estate secured receivables primarily in our correspondent business. Our branch-based Consumer Lending business reported strong originations during the quarter, however, this growth was partially offset by higher run-off. Compared to September 30, 2002, growth was strongest in our real estate secured and private label portfolios. Strong year-over-year real estate secured growth in our correspondent business including correspondent real estate secured acquisitions from an affiliate in the fourth quarter of 2002 was partially offset by whole loan sales of $.8 billion in the fourth quarter of 2002. Year-over-year growth in our branch-based

~~Managed receivables grew to $101.4 billion at June 30, 2003, compared to $97.6 billion at March 31, 2003~~ ~~and~~Consumer ~~$91.2~~Lending ~~billion~~business ~~at June 30, 2002. Compared to the prior quarter, growth~~ was ~~driven~~impacted by ~~higher~~weak real estate secured receivables in our correspondent business and by portfolio acquisitions. During the quarter, we acquired a $1.2 billion private label portfolio and $.5 billion in newly originated auto finance loans from recently established strategic alliances. Compared to the prior year, growth was strongest in real estate secured receivables and reflects growth in our correspondent business despite $1.9 billion of whole loan sales inmomentum ~~the~~through ~~second half of 2002 as well as acquisitions from an affiliate in~~ the ~~second~~first ~~half~~part of ~~2002.~~2003 ~~Receivable levels in our branch-based Consumer Lending business continue to reflect weak sales momentum~~ following our intentional fourth quarter 2002 slowdown and higher run-off. ~~Our~~Growth in our private label portfolio ~~also~~since ~~reported~~September ~~strong~~30, ~~year-over-year~~2002 ~~growth~~was asthe a result of portfolio acquisitions and organic growth. ~~Return~~Our onMasterCard ~~average~~and ~~managed~~Visa ~~assets (“ROMA”)~~portfolio ~~was~~also ~~1.05~~reported ~~and~~growth ~~1.20~~over ~~percent~~both inprior ~~the~~periods ~~second~~as ~~quarter~~a ~~and~~result ~~first six months~~ of ~~2003~~a ~~compared to 1~~$.755 ~~and~~billion portfolio ~~1.66~~acquisition ~~percent~~during in the ~~year-ago~~quarter ~~periods.~~as ~~The~~well ~~decline~~as inorganic ~~the~~growth ~~ratios~~in ~~reflect~~our ~~higher~~subprime ~~provision~~direct ~~for~~mail ~~credit~~and ~~losses~~our ~~and~~partner ~~operating~~programs, ~~expenses. The~~which ~~year-to-date~~include ~~ratio~~both ~~also~~our ~~reflects~~GM ~~lower~~and ~~securitization~~Union ~~revenue~~Plus portfolios.

~~Balance~~Return on average managed assets (“ROMA”) was 1.62 and 1.34 percent in the third quarter and first nine months of ~~Sheet~~2003 ~~Review~~compared to .71 and 1.33 percent in the year-ago periods. Excluding the settlement charge and related expenses, ROMA was 2.08 percent in the third quarter and 1.81 percent in the first nine months of 2002. The decline in the ratios reflect lower securitization revenue and higher operating expenses. The year-to-date ratio also reflects higher credit loss provision.

	June 30,2003		Increase(decrease) fromMarch 31, 2003					Increase(decrease) fromJune 30, 2002
(All dollar amounts are stated in millions)			$			%		$			%
Real estate secured	$	47,759.4	$	2,334.6		5.1	%	$	5,456.1		12.9	%
Auto finance		2,580.5		419.2		19.4			211.1		8.9
MasterCard(1)/Visa(1)		7,576.2		719.7		10.5			1,375.6		22.2
Private label		9,549.0		357.8		3.9			454.0		5.0
Personal non-credit card(2)		11,410.1		(71.2	)	(.6	)		141.7		1.3
Commercial and other		425.5		(26.0	)	(5.8	)		(43.3	)	(9.2	)
Total owned receivables	$	79,300.7	$	3,734.1		4.9	%	$	7,595.2		10.6	%

Receivable Review

	September 30, 2003		Increase (decrease) from June 30, 2003					Increase (decrease) from September 30, 2002
(All dollar amounts are stated in millions)	September 30, 2003		$			%		$			%
Real estate secured	$	50,708.7	$	2,949.3		6	%	$	7,463.9		17	%
Auto finance		3,704.6		1,124.1		44			1,383.5		60
MasterCard(1)/Visa(1)		8,200.8		624.6		8			1,613.3		24
Private label		9,903.6		354.6		4			1,045.7		12
Personal non-credit card(2)		10,970.4		(439.7	)	(4	)		(408.9	)	(4	)
Commercial and other		404.2		(21.3	)	(5	)		(56.2	)	(12	)

Total owned receivables	$	83,892.3	$	4,591.6		6	%	$	11,041.3		15	%

(1)

MasterCard is a registered trademark of MasterCard International, Incorporated and Visa is a registered trademark of VISA USA, Inc.

(2)

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

(In millions)	~~June~~September 30, 2003		~~March~~June 3130, 2003		~~June~~September 30, 2002
Personal unsecured	$	6,~~696~~480.60	$	6,~~529~~696.56	$	6,~~730~~929.78
Union Plus personal unsecured		~~862~~755.04		~~977~~862.60		~~144~~110.53
Personal homeowner loans		3,~~851~~735.50		3,~~974~~851.25		4,~~393~~339.2
Total personal non-credit card	$	1110,~~410~~970.14	$	11,~~481~~410.31	$	11,~~268~~379.43

Owned receivables of $7983.39 billion at ~~June~~September 30, 2003 increased $711.60 billion from a year ago. Driven by growth in our correspondent business and acquisitions from an affiliate, ~~real~~partially ~~estate~~offset ~~secured~~by ~~receivables~~whole ~~increased~~loan sales of $5.58 billion ~~over~~in the ~~year-ago~~fourth ~~period,~~quarter ~~despite~~of ~~whole~~2002, real ~~loan~~estate ~~sales~~secured ofreceivables increased $17.95 billion inover the ~~second~~year-ago ~~half of 2002~~period. ~~Overall~~Receivable ~~receivable~~levels ~~growth~~ in our branch-based Consumer Lending business ~~throughout~~are beginning to improve, with stronger sales volume over the ~~first~~past ~~half~~several ofmonths ~~2003~~compared ~~reflects~~to ~~weak~~earlier ~~sales~~in ~~momentum~~the year following our intentional fourth quarter 2002 slowdown ~~and higher run-off~~. Auto finance receivables increased $~~211.~~1.4 ~~million~~billion year-over-year to $23.67 billion at ~~June~~September 30, 2003 ~~which~~due ~~reflected~~to ~~$.6 billion in~~ newly originated loans acquired from our dealer network and strategic alliances established during the year. ~~Growth~~as ~~resulting~~well ~~from~~as ~~these channels~~lower ~~and from originations was partially offset by~~ securitization ~~activity~~levels. MasterCard and Visa receivables increased $1.4 6 billion to $78.62 billion at ~~June~~September 30, 2003. ~~despite~~MasterCard ~~increased~~and ~~securitization~~Visa ~~activity~~growth inincludes ~~2002~~a $.5 ~~MasterCard~~billion ~~and~~portfolio ~~Visa~~acquisition during the quarter as well as organic growth which was strongest in our subprime direct mail portfolio. Our partner programs, which include both our GM and Union Plus portfolios, also reported growth. Private label receivables increased $~~454~~1.0 ~~million~~billion to $9.5 9 billion. This growth reflects owned portfolio acquisitions of $.8 billion during the current quarter and $.5 billion during the fourth quarter of 2002 as well as organic growth through existing merchants which were partially offset by securitization activity. Personal non-credit card ~~receivable growth generated by our branches was partially offset by securitization activity in 2002.~~

1622

~~Compared to March 31, 2003, growth in our real estate secured portfolio was due to growth in our~~ ~~correspondent~~of ~~business~~$.8 ~~MasterCard~~billion ~~and~~during ~~Visa~~the ~~growth~~second ~~was~~quarter ~~largely~~of ~~due~~2003 ~~to growth in our GM portfolio~~ and ~~reduced securitization levels~~$.5 Asbillion ~~previously~~during ~~discussed,~~the ~~growth~~fourth inquarter ~~private~~of ~~label~~2002 ~~receivables~~as ~~reflects~~well aas ~~portfolio~~organic ~~acquisition~~growth ~~and~~through ~~growth~~existing inmerchants ~~auto~~which ~~finance~~were ~~receivables~~partially ~~reflects~~offset ~~the~~by ~~benefit~~securitization ~~of new strategic alliances~~activity. ~~Both~~Personal ~~private~~non-credit ~~label~~card ~~and~~receivable ~~auto~~growth ~~finance~~generated ~~portfolios also were impacted~~ by ~~higher~~our ~~levels~~branches ofwas ~~securitizations~~more ~~compared~~than tooffset ~~the~~by ~~first~~securitization ~~quarter~~activity.

Compared to June 30, 2003, growth in our real estate secured portfolio was primarily due to growth in our correspondent business. MasterCard and Visa growth was largely due to a $.5 billion portfolio acquisition. Our auto finance portfolio was impacted by lower levels of securitizations.

Liquidity and Capital Resources

The merger with HSBC has improved our access to the capital markets and lowered our funding costs compared with those that we would have incurred had the merger not occurred. ~~Following~~We ~~completion~~currently ofanticipate ~~the~~that ~~merger~~we ~~with~~will ~~HSBC,~~continue ~~Standard~~to &use ~~Poor~~HSBC’s ~~upgraded~~available funding to partially fund our ~~long-term~~operations. This will reduce our reliance on the debt ~~rating~~markets. toWe ~~“A”~~anticipate ~~and~~that ~~our~~the ~~short-term~~tighter spreads we have experienced ~~debt~~and ~~rating~~will continue to ~~“A-1”;~~experience ~~Moody’s~~as ~~Investors~~a ~~Service~~result ~~(“Moody’s”)~~of ~~placed~~ our ~~long-term~~merger ~~debt~~with ~~ratings~~HSBC onalong ~~review~~with ~~for~~other ~~possible~~funding ~~upgrade~~synergies ~~and~~will ~~Fitch~~eventually ~~Ratings~~lead ~~confirmed~~to ~~our~~cash ~~debt~~funding ~~ratings~~expense ~~and~~savings ~~removed~~of approximately $1.0 billion per year. However, it will take us ~~from~~some ~~“Ratings~~time ~~Watch~~to realize the ~~Evolving”.~~full Inamount ~~June 2003,~~of ~~Moody’s~~these ~~upgraded~~cash savings as our ~~senior~~existing term debt ~~rating~~will ~~from~~mature A2over tothe A1course of the next several years.

Significant liquidity and capital transactions during the first ~~half~~nine months of 2003, included the following:

· WeAt ~~received~~September ~~$1.8~~30, ~~billion~~2003, inadvances ~~funding~~ from affiliates of HSBC ~~during~~totaled ~~the current quarter~~$3.9 ~~This~~billion, ~~total~~a ~~included~~ $12.51 billion ofincrease ~~short-term~~from ~~domestic~~June ~~funding~~30, ~~and $300 million of long-term funding~~2003. The interest rates on this funding are comparable to those available to us from unaffiliated parties.

· We increased our outstanding commercial paper balance by $2.3.7 billion to $67.48 billion at ~~June~~September 30, 2003. The increase is attributable to the upgrade of our debt ratings following the HSBC merger which expanded our universe of potential buyers and to a new Euro commercial paper program. At ~~June~~September 30, 2003, outstanding Euro commercial paper totaled $12.42 billion, including $1.19 billion which was sold to customers of HSBC. This program has expanded our European investor base.

· WeInvestment ~~reduced~~securities ~~our~~totaled ~~investment~~$6.5 ~~security~~billion ~~liquidity~~at ~~portfolio~~September ~~from~~30, 2003 and $36.97 billion at December 31, 2002 ~~to $3~~.2 ~~billion~~Included atin ~~June~~the September 30, 2003. Ofbalance ~~these~~was ~~amounts,~~ $2.34 billion ~~was~~ dedicated to our credit card bank ~~at June 30, 2003~~ and $2.27 billion ~~was~~held ~~dedicated~~by to our ~~credit~~insurance ~~card~~subsidiaries. ~~bank~~Included atin the December 31, 2002. Asbalance ~~the~~was maintenance of this portfolio adversely impacts our net interest margin and net income due to the lower return generated by these assets, we plan to reduce this portfolio given the increased available liquidity arising from HSBC affiliates and customers. Our insurance subsidiaries held an additional $2.82 billion ofdedicated ~~investment~~to ~~securities~~our atcredit ~~June~~card ~~30,~~bank ~~2003~~and ~~compared with~~ $2.7 billion atheld ~~December~~by ~~31,~~our ~~2002~~insurance subsidiaries.

· We reduced our committed back-up lines of credit with third parties by $2.4 billion ~~to $7~~.6 ~~billion.~~In Wethe ~~also~~third ~~reduced~~quarter, ~~our~~we ~~conduit~~also ~~capacity~~established ~~for~~a ~~real estate secured receivables by~~ $42.255 billion ~~and~~revolving ~~for~~credit ~~MasterCard~~facility ~~and~~with ~~Visa~~HSBC. ~~receivables~~There byhave ~~$350~~been ~~million.~~no ~~Both~~draws ~~reductions~~against ~~were~~our ~~the~~back-up ~~result~~lines of ~~additional liquidity capacity now available from HSBC and its affiliates~~credit.

· We ~~issued~~reduced ~~$850.0~~our ~~million~~conduit ofcapacity ~~domestic~~for ~~medium-term~~real ~~notes,~~estate secured receivables by $14.65 billion inand ~~foreign~~for ~~currency-denominated~~MasterCard ~~bonds~~ and Visa receivables by $~~2.05~~850 ~~billion~~million as a result of ~~global~~additional ~~debt~~liquidity capacity now available from HSBC and its affiliates. We increased our conduit capacity for personal non-credit card receivables by $800 million.

· We issued $~~674~~3.7 billion of domestic medium-term notes, $4.2 ~~million~~billion in foreign currency-denominated bonds (including $.9 billion issued to affiliates of HSBC) and $3.3 billion of global debt. We also issued $1.2 billion of InterNotes(SM) (retail-oriented medium-term notes).

The composition of receivables securitized (excluding replenishments of certificateholder interests) was as follows:

	Three months endedJune 30,				Six months endedJune 30,
	Three months endedSeptember 30,				Nine months endedSeptember 30,
(In millions)	2003		2002		2003		2002
MasterCard/Visa		—		—	$	320.0	$	600.0
Auto finance		—	$	986.0	$	1,007.1	$	2,336.0
Auto finance	$	596.3	$	925.0		1,007.1		1,350.0
MasterCard/Visa	$	350.0		160.0		670.0		760.0
Private label		~~250.0~~—		—390.0		250.0		~~500~~890.0
Personal non-credit card		~~305~~885.0		~~450~~1,000.0		~~815~~1,700.0		12,352.7
Total	$	1,~~151~~235.30	$	12,~~375~~536.0	$	23,~~392~~627.1	$	36,~~802~~338.7

~~Securitization~~23 ~~levels in the first half of 2002 reflect the impact of our liquidity management plans.~~

~~Our~~Securitization ~~ratio~~levels ofduring ~~tangible shareholder’s equity to tangible managed assets (“TETMA”) was 7.37 percent at June 30,~~ 2003, ~~7.57~~reflect percent at March 31, 2003, and 8.70 percent at December 31, 2002. This ratio represents a non-GAAP financial ratio that, when calculated for Household International, is used by certain rating agencies to evaluate capital adequacy and may differ from similarly named measures presented by other companies. This ratio was negatively impacted by the ~~purchase~~use accounting adjustments which were “pushed down” to HFC which increased goodwill by approximately $.9 billion, acquired intangibles by approximately $2.5 billion, and common equity by approximately $1.4 billion at the time of ~~acquisition.~~additional ~~Excluding~~sources ~~the impact~~ of ~~“push-down” accounting on our assets and common~~liquidity ~~shareholder’s~~provided ~~equity,~~by ~~TETMA~~HSBC ~~would have been 9.21 percent at June 30, 2003~~ and ~~9.15~~its ~~percent at March 31, 2003~~affiliates. WeSecuritization ~~are committed to maintaining at least a mid single “A” rating and will continue to review appropriate capital~~ levels ~~with our~~in ~~rating agencies. Common equity to total managed assets,~~ the ~~GAAP~~first ~~financial~~nine ~~measure~~months ~~most~~of ~~directly comparable to TETMA, was 10.47 percent at June 30, 2003, 10.33 percent at March 31, 2003, and 8.98 percent at December 31,~~ 2002. ~~Because~~reflect ~~they include~~the ~~obligations~~impact toof ~~purchase HSBC ordinary shares in 2006, we include~~ our ~~Adjustable~~liquidity ~~Conversion-Rate~~management ~~Equity Security Units as equity in calculating TETMA~~plans.

~~Commercial~~· ~~paper,~~We ~~bank~~issued ~~and~~securities ~~other~~backed ~~borrowings~~by ~~increased~~dedicated ~~$3.4~~home ~~billion~~equity ~~from~~loans ~~March~~of ~~31, 2003 and~~ $21.39 billion ~~from~~during ~~year-end 2002 to $6.5 billion at June 30, 2003. The increases are due to~~ the ~~previously~~current ~~discussed increases in commercial paper~~quarter. ~~Senior~~For ~~and~~accounting ~~senior subordinated debt (with original maturities over one year) was $70.5 billion at June 30~~purposes, ~~2003~~these ~~and~~transactions ~~$70.3~~were ~~billion~~structured atas ~~December~~secured ~~31, 2002~~financings. ~~The increase reflects purchase accounting adjustments which have been “pushed down” to record our debt at fair value. Excluding purchase accounting adjustments~~Therefore, ~~senior~~the receivables and ~~senior~~the ~~subordinated~~related debt ~~decreased~~remain ason ~~maturities~~our ~~and~~balance ~~retirements were replaced with short-term funding, including funding from affiliates of HSBC~~sheet.

~~Prior~~· toSelected ~~the~~capital ~~merger~~ratios with HSBC, the majority of our fair value and cash flow hedges qualified for shortcut accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”). Under the Financial Accounting Standards Board’s interpretations of SFAS No. 133, the shortcut method of accounting is no longer allowed for interest rate swaps which were ~~outstanding~~as at the time of the merger. The discontinuation of shortcut accounting increased net income by $47.3 million during the second quarter of 2003 and has been recorded in other income. We currently are in the process of restructuring our swap portfolio to regain use of the shortcut method of accounting in order to reduce the potential volatility of future earnings. follows:

Securitizations and Secured Financings Securitizations (which are structured to receive sale treatment under Statement of Financial Accounting Standards No. 140 (“SFAS No. 140”) and secured financings (which do not receive sale treatment under SFAS No. 140) of consumer receivables have been, and will continue to be, a source of liquidity for us. Securitizations and secured financings are used to limit our reliance on the unsecured debt markets and often are more cost-effective than alternative funding sources.

	Sept. 30, 2003		June 30, 2003		Dec. 31, 2002
TETMA(1)	7.47	%	7.37	%	8.70	%
Common equity to owned assets	13.20		12.97		11.36
TETMA(1), excluding purchase accounting adjustments	9.28		9.21		8.70

In(1) aTETMA ~~securitization,~~represents a ~~designated pool of~~ non-~~real~~GAAP ~~estate~~financial ~~consumer~~ratio ~~receivables~~that, iswhen ~~removed~~calculated ~~from~~for ~~the~~Household ~~balance~~International, ~~sheet and transferred to an unaffiliated trust. This unaffiliated trust~~ is aused ~~qualifying special purpose entity (“QSPE”) as defined~~ by ~~SFAS~~certain ~~No.~~rating ~~140~~agencies ~~and, therefore, is not consolidated. The QSPE funds its receivable purchase through the issuance of securities~~ to ~~investors,~~evaluate ~~entitling~~capital ~~them to~~adequacy ~~receive~~and ~~specified~~may ~~cash~~differ ~~flows~~from ~~during~~similarly ~~the~~named ~~life~~measures ofpresented ~~the securities. The securities are collateralized~~ by ~~the~~other ~~underlying receivables transferred to the QSPE~~companies. AtSee ~~the~~“Reconciliation ~~time of sale, an interest-only strip receivable is recorded, representing the present value of the cash flows we expect~~ to ~~receive~~GAAP ~~over~~Financial ~~the~~Measures” ~~life~~for ofadditional ~~the~~discussion ~~securitized receivables, net of estimated credit losses. Under the terms of the securitizations, we receive annual servicing fees on the outstanding balance of the securitized receivables~~ and ~~the~~quantitative ~~rights~~reconciliations to ~~future residual cash flows on~~ the ~~sold~~equivalent ~~receivables~~GAAP ~~after~~basis ~~the~~financial ~~investors receive their contractual return~~measure. ~~Cash flows related to the interest-only strip receivables and servicing the receivables are collected over the life of the underlying securitized receivables.~~

InWe ~~a secured financing, a designated pool of receivables, typically real estate secured,~~ are ~~conveyed~~committed to amaintaining ~~wholly~~at ~~owned~~least ~~limited purpose subsidiary which in turn transfers the receivables to~~ a ~~trust~~mid-single ~~which~~“A” ~~sells~~rating and ~~interests~~as topart ~~investors. Repayment~~ of ~~the~~that ~~debt~~effort ~~issued by~~will ~~the~~continue ~~trust~~to isreview ~~secured~~appropriate bycapital ~~the~~levels ~~receivables~~with ~~transferred.~~our ~~The~~rating ~~transactions are structured as secured financings under SFAS No~~agencies. ~~140. Therefore, the receivables and the underlying debt of~~

18Commercial paper, bank and other borrowings increased $1.4 billion from June 30, 2003 and $3.7 billion from year-end 2002 to $7.8 billion at September 30, 2003. The increases are due to the previously discussed increases in commercial paper.

Senior and senior subordinated debt (with original maturities over one year) was $71.6 billion at September 30, 2003 and $70.3 billion at December 31, 2002. The increase reflects purchase accounting adjustments which have been “pushed down” to record our debt at fair value. Excluding purchase accounting adjustments, senior and senior subordinated debt decreased as maturities and retirements were replaced with short-term funding, including funding from affiliates of HSBC.

Prior to the merger with HSBC, the majority of our fair value and cash flow hedges qualified for shortcut accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”). Under the Financial Accounting Standards Board’s interpretations of SFAS No. 133, the shortcut method of accounting is no longer allowed for interest rate swaps which were outstanding at the time of the merger. The discontinuation of shortcut accounting has been recorded in other income and increased net income by $4.4 million during the third quarter of 2003 and $51.7 million year-to-date. During the third quarter, we restructured substantially all of our swap portfolio to regain use of the shortcut method of accounting and reduce the potential volatility of future earnings.

During the third quarter of 2003, we began utilizing an affiliate, HSBC Bank USA, as the primary provider of new derivative products. At September 30, 2003, we had derivative contracts with a notional value of approximately $16.2 billion outstanding with this affiliate. Going forward, it is expected that most of our existing third party derivative contracts will be assigned to HSBC Bank USA, making them our primary counterparty in derivative transactions.

Securitizations and Secured Financings Securitizations (which are structured to receive sale treatment under Statement of Financial Accounting Standards No. 140 (“SFAS No. 140”) and secured financings (which do not receive sale treatment under SFAS No. 140) of consumer receivables have been, and are expected to continue to be, a source of liquidity for us. Securitizations and secured financings are used to limit our reliance on the unsecured debt markets and often are more cost-effective than alternative funding sources.

~~the~~In ~~trust~~a ~~remain~~securitization, ona ~~our~~designated pool of non-real estate consumer receivables is removed from the balance sheet and transferred to an unaffiliated trust. WeThis dounaffiliated ~~not~~trust ~~recognize~~is a ~~gain~~qualifying inspecial apurpose ~~secured~~entity ~~financing~~(“QSPE”) ~~transaction.~~as ~~Because~~defined ~~the~~by ~~receivables~~SFAS No. 140 and, ~~the~~therefore, ~~debt~~is ~~remain~~not onconsolidated. ~~our~~The QSPE funds its receivable purchase through ~~balance~~the ~~sheet~~issuance of securities to investors, ~~revenues~~entitling ~~and~~them ~~expenses~~to receive specified cash flows during the life of the securities. The securities are ~~reported~~collateralized ~~consistently~~by ~~with~~the ~~our~~underlying ~~owned~~receivables ~~balance~~transferred ~~sheet~~to ~~portfolio~~the QSPE. ~~Using~~At ~~this~~the ~~source~~time of ~~funding~~sale, ~~results~~an ininterest-only strip ~~similar~~receivable is recorded, representing the present value of the cash flows aswe ~~issuing~~expect ~~debt~~to ~~through~~receive ~~alternative~~over ~~funding~~the ~~sources~~life of the securitized receivables, net of estimated credit losses. AsUnder the terms of ~~June~~the 30securitizations, ~~2003,~~we ~~closed-end~~receive annual servicing ~~real~~fees ~~estate~~on ~~secured~~the outstanding balance of the securitized receivables ~~totaling~~and ~~$6.5~~the ~~billion~~rights ~~secured~~to ~~$5.6~~future ~~billion~~residual ofcash ~~outstanding~~flows ~~debt~~on ~~related~~the tosold ~~these~~receivables ~~transactions~~after the investors receive their contractual return. AtCash ~~December~~flows ~~31,~~related ~~2002,~~to ~~closed~~the interest-~~end~~only ~~real~~strip ~~estate~~receivables ~~secured~~and servicing the receivables ~~totaling~~are $8collected over the life of the underlying securitized receivables.5 ~~billion~~Our ~~secured~~securitized receivables totaled $723.50 billion ofat ~~outstanding debt~~September ~~related~~30, 2003, compared to ~~these~~$23.4 ~~transactions~~billion at December 31, 2002.

~~Our~~In ~~securitized receivables~~a ~~totaled~~secured ~~$23.0~~financing, ~~billion~~a atdesignated ~~June~~pool 30of receivables, ~~2003~~typically real estate secured, ~~compared~~are conveyed to ~~$23.4~~a ~~billion~~wholly atowned ~~December 31,~~limited ~~2002~~purpose subsidiary which in turn transfers the receivables to a trust which sells interests to investors. WeRepayment ~~believe~~of the ~~market~~debt ~~for~~issued ~~securities~~by ~~backed~~the trust is secured by the receivables istransferred. The transactions are structured as secured financings under SFAS No. 140. Therefore, the receivables and the underlying debt of the trust remain on our balance sheet. We do not recognize a ~~reliable~~gain in a secured financing transaction. Because the receivables and the debt remain on our balance sheet, ~~efficient~~revenues and ~~cost-effective~~expenses are reported consistently with our owned balance sheet portfolio. Using this source of ~~funds~~funding results in similar cash flows as issuing debt through alternative funding sources. AtAs ~~June~~of September 30, 2003, ~~securitizations~~ ~~structured~~closed-end asreal ~~sales~~estate ~~represented~~secured 23receivables ~~percent~~totaling ~~and~~$7.5 billion secured ~~financings represented~~ $6.4 ~~percent~~billion of ~~the~~outstanding ~~funding~~debt ~~associated~~related ~~with~~to ~~our~~these ~~managed portfolio~~transactions. At December 31, 2002, ~~securitizations~~closed-end ~~structured~~real asestate ~~sales~~secured ~~represented~~receivables 24totaling ~~percent~~$8.5 ~~and~~billion secured ~~financings~~$7.5 ~~represented~~billion ~~8 percent~~ of ~~the~~outstanding ~~funding~~debt ~~associated~~related ~~with~~to ~~our~~these ~~managed portfolio~~transactions.

We believe the market for securities backed by receivables is a reliable, efficient and cost-effective source of funds. At September 30, 2003, securitizations structured as sales represented 22 percent and secured financings represented 7 percent of the funding associated with our managed portfolio. At December 31, 2002, securitizations structured as sales represented 24 percent and secured financings represented 8 percent of the funding associated with our managed portfolio.

Results of Operations

Unless noted otherwise, the following discusses amounts reported in our owned basis statements of income.

Net interest margin Net interest margin on an owned basis was $1.89 billion for the ~~second~~third quarter of 2003, upcompared ~~from~~ to $1.58 billion ~~for~~in ~~both~~ the previous quarter and $1.6 billion in the prior-year ~~quarters~~quarter. Net interest margin on an owned basis for the first ~~six~~nine months of 2003 was $35.43 billion, up from $34.06 billion in the prior-year period. The increases over the prior year periods were primarily due to amortization of purchase accounting adjustments. ~~Receivables growth and lower funding costs also contributed to the increase.~~ Excluding amortization of purchase accounting adjustments, net interest margin on an owned basis was $1.7 billion in the current quarter, $1.6 billion in the ~~current~~previous quarter and $34.18 billion year-to-date. Receivables growth and lower funding costs also contributed to the increases over all prior periods.

Net interest margin as a percent of average owned interest-earning assets, annualized, was 8.8975 percent in the quarter and 8.2241 percent in the first ~~six~~nine months of 2003, compared to 8.3022 and 8.3731 percent in the year-ago periods. The 2003 ratios were both positively impacted by lower interest expense resulting from amortization of purchase accounting fair value adjustments which totaled $222.6 million in the quarter and $482.0 million for the first nine months of 2003. Excluding amortization of the fair value adjustments, net interest margin as a percent of average owned interest-earning assets, ~~annualized,~~ was ~~7.71 percent~~down incompared ~~the~~to ~~quarter~~both ~~and~~prior 7year periods.62 ~~percent~~Compared into the ~~first~~prior-year ~~six~~periods, ~~months~~lower offunding ~~2003.~~costs ~~Excluding~~were ~~amortization~~more ofthan ~~fair~~offset ~~value~~by ~~adjustments, the decreases were attributable to~~ lower yields on our receivables due to repricings and to our liquidity-related investment portfolio, which was substantially increased during the first half of 2002 and has lower yields than our receivable portfolio~~, partially offset by lower funding costs~~.

~~Our~~25 net interest margin on a managed basis includes finance income earned on our owned receivables as well as on our securitized receivables. This finance income is offset by interest expense on the debt recorded on our balance sheet as well as the contractual rate of return on the instruments issued to investors when the receivables were securitized. Managed basis net interest margin was $2.5 billion in the second quarter of 2003, up from $2.2 billion in the previous quarter and $2.1 billion in the year-ago quarter. For the six months ended June 30, managed basis net interest margin was $4.7 billion in 2003 and $4.2 billion in 2002. Net interest margin as a percent of average managed interest-earning assets, annualized, was 9.56 percent in the current quarter and 9.05 percent for the first six months of 2003, compared to 9.11 and 9.19 percent in the year-ago periods. The increases in 2003 were attributable to lower interest expense partially offset by lower yields on our receivables as explained above.

Our net interest margin on a managed basis includes finance income earned on our owned receivables as well as on our securitized receivables. This finance income is offset by interest expense on the debt recorded on our balance sheet as well as the contractual rate of return on the instruments issued to investors when the receivables were securitized. Managed basis net interest margin was $2.6 billion in the third quarter of 2003, compared to $2.5 billion in the previous quarter and $2.2 billion in the year-ago quarter. For the nine months ended September 30, managed basis net interest margin was $7.3 billion in 2003 and $6.4 billion in 2002. Net interest margin as a percent of average managed interest-earning assets, annualized, was 9.41 percent in the current quarter and 9.17 percent for the first nine months of 2003, compared to 8.95 and 9.11 percent in the year-ago periods. The increases in 2003 were attributable to lower interest expense as explained above partially offset by lower yields on our receivables.

Net interest margin as a percent of receivables on a managed basis is greater than on an owned basis because the managed basis portfolio includes relatively more unsecured loans, which have higher yields.

Provision for credit losses The provision for credit losses for receivables was $1922.05 ~~billion~~million for the ~~second~~third quarter of 2003, ~~compared to~~ $1.0 billion infor the previous quarter and $~~773~~901.10 million in the prior-year quarter. The provision for the first ~~six~~nine months of 2003 was $12.9 billion, compared to $12.65 billion in the year-ago period. The provision as a percent of average owned receivables, annualized, was 4.52 percent in the third quarter of 2003, 5.03 percent in the second quarter of 2003 and 4.94 percent in the third quarter of 2002. Receivables growth, increases in personal bankruptcy filings and the weak economy contributed to higher provision dollars compared to the prior year periods. In 2003, we recorded owned loss provision greater than charge-offs of $83.2 million in the third quarter and $313.9 million year-to-date. In 2002, we recorded owned loss provision greater than charge-offs of $142.2 million in the third quarter and $373.8 million year-to-date. The provision for credit losses may vary from quarter to quarter, depending on the product mix and credit quality of loans in our portfolio. See Note 5, “Credit Loss Reserves” to the accompanying condensed consolidated financial statements for further discussion of factors affecting the provision for credit losses.

19Other revenues Total other revenues were $848.3 million and $2.8 billion for the third quarter and first nine months of 2003, compared to $1.1 and $2.9 billion for the same periods in 2002 and included the following:

(In millions)	Three months ended September 30, 2003		Three months ended September 30, 2002		Combined nine months ended September 30, 2003		Nine months ended September 30, 2002
Securitization revenue	$	373.5	$	505.7	$	1,068.0	$	1,461.5
Insurance revenue		128.3		131.2		375.6		397.1
Investment income		34.0		43.5		142.5		126.9
Fee income		279.4		244.0		797.2		607.5
Other income		33.1		125.7		391.8		342.3

Total other revenues	$	848.3	$	1,050.1	$	2,775.1	$	2,935.3

Securitization revenue is the result of the securitization of our receivables and included the following:

(In millions)	Three months ended September 30, 2003		Three months ended September 30, 2002		Combined nine months ended September 30, 2003		Nine months ended September 30, 2002
Net initial gains(1)	$	24.5	$	78.2	$	92.1	$	201.8
Net replenishment gains(1)		131.5		125.3		386.6		372.9
Servicing revenue and excess spread		217.5		302.2		589.3		886.8

Total	$	373.5	$	505.7	$	1,068.0	$	1,461.5

(1)

Net of our estimate of probable credit losses under the recourse provisions

~~provision~~The asdecreases ain ~~percent~~securitization ofrevenue ~~average~~were ~~owned~~due ~~receivables,~~to ~~annualized,~~decreases ~~was~~in ~~5.03~~the ~~percent~~level inof ~~both~~receivables securitized during the ~~second~~third quarter and first ~~quarter~~nine months of 2003 ~~and~~as ~~4.42~~a ~~percent~~result inof the ~~second quarter~~use of ~~2002.~~alternative ~~Receivables~~funding ~~growth,~~sources ~~increases~~and inlower ~~personal~~excess ~~bankruptcy~~spread ~~filings,~~which ~~higher~~included ~~delinquencies~~amortization ~~and~~of ~~the~~purchase ~~weak~~accounting ~~economy~~fair ~~contributed~~value adjustments to ~~the~~our ~~higher~~interest-only ~~provision~~strip receivables. Under WeU.K. ~~recorded~~GAAP ~~owned~~as ~~loss~~reported ~~provision~~by ~~greater~~HSBC, ~~than~~our ~~charge-offs~~ultimate ofparent, ~~$104~~securitizations are treated as financing transactions.5 ~~million~~Securitization levels in the ~~second quarter~~first nine months of ~~2003~~2002 ~~and~~were ~~$230.7~~higher ~~million~~pursuant ~~year-~~to~~-date.~~ ~~The~~our ~~provision~~liquidity ~~for~~management ~~credit~~plans. ~~losses~~Securitization ~~may~~revenue will vary ~~from~~each ~~quarter~~period tobased ~~quarter, depending~~ on the ~~product~~level and mix of receivables securitized in that particular period (which will impact the gross initial gains and related estimated probable credit ~~quality~~losses under the recourse provisions). It is also affected by the overall level and mix of ~~loans~~previously insecuritized ~~our~~receivables ~~portfolio~~(which will impact servicing revenue and excess spread). ~~See~~The ~~Note~~estimate 5,for ~~“Credit~~probable ~~Loss~~credit ~~Reserves”~~losses tofor securitized receivables is also impacted by the level and mix of current period ~~accompanying~~securitizations ~~condensed~~because, ~~consolidated~~depending ~~financial~~upon ~~statements~~loss ~~for~~estimates ~~further~~and ~~discussion~~severities, ofsecuritized ~~factors~~receivables ~~affecting~~with ~~the~~longer ~~provision~~lives ~~for~~may ~~credit~~result in higher over-the-life losses than receivables securitized with shorter lives.

~~Other~~Our ~~revenues Total~~interest-only ~~other~~strip ~~revenues~~receivables, ~~were~~net ~~$790.8~~of ~~million~~the related loss reserve and excluding the mark-to-market adjustment recorded in accumulated other comprehensive income (loss), decreased $180.93 ~~billion~~million ~~for~~in the ~~second~~third quarter of 2003 and $297.1 million for the first ~~six~~nine months of 2003, compared to increases of $~~878~~54.35 million in the third quarter and $193.94 ~~billion~~million ~~for~~in the ~~same~~first ~~periods~~nine inmonths of 2002. ~~and included the following:~~

	Three monthsendedJune 30,		Three monthsendedJune 30,		Combinedsix monthsendedJune 30,		Six monthsendedJune 30,
(In millions)	2003		2002		2003		2002
Securitization revenue	$	273.1	$	465.3	$	694.5	$	955.8
Insurance revenue		124.5		135.7		247.3		265.8
Investment income		31.5		41.6		108.5		83.4
Fee income		239.1		177.4		517.8		363.5
Other income		122.6		58.3		358.8		216.7
Total other revenues	$	790.8	$	878.3	$	1,926.9	$	1,885.2

Insurance revenue was $128.3 and $375.6 million in the third quarter and first nine months of 2003 compared to $131.2 and $397.1 million in the year-ago periods. The decreases reflect decreased sales.

~~Securitization~~Investment income, which includes interest income on investment ~~revenue~~securities isin our insurance business as well as realized gains and losses from the ~~result~~sale of investment securities, was $34.0 and $142.5 million in the ~~securitization~~third quarter and first nine months of ~~our~~2003 ~~receivables~~compared to $43.5 and ~~includes~~$126.9 ~~initial~~million ~~and~~in ~~replenishment~~the ~~gains~~year-ago periods. onThe ~~sale,~~decrease ~~net~~in ofthe ~~our~~quarter ~~estimate~~was primarily attributable to the amortization of ~~probable~~purchase ~~credit~~accounting ~~losses~~adjustments. ~~under~~Gains from security sales totaled $49.5 million for the ~~recourse~~nine ~~provisions~~months ended September 30, as2003 ~~well~~and as$4.6 ~~servicing~~million ~~revenue~~in ~~and~~the ~~excess~~prior ~~spread.~~year period.

~~Securitization~~Fee ~~revenue~~income, ~~included~~which includes revenues from fee-based products such as credit cards, was $279.4 and $797.2 million in the ~~following:~~third quarter and first nine months of 2003 compared to $244.0 and $607.5 million in the year-ago periods. The increases were due to higher levels of credit card fees from both credit card businesses. See Note 11, “Segment Reporting,” to the accompanying condensed consolidated financial statements for additional information on fee income on a managed basis.

	Three monthsendedJune 30,		Three monthsendedJune 30,		Combinedsix monthsendedJune 30,		Six monthsendedJune 30,
(In millions)	2003		2002		2003		2002
Net initial gains	$	32.3	$	49.2	$	67.6	$	123.6
Net replenishment gains		126.3		153.8		255.1		302.4
Servicing revenue and excess spread		114.5		262.3		371.8		529.8
Total	$	273.1	$	465.3	$	694.5	$	955.8

Other income, which includes revenue from our tax refund lending business, was $33.1 and $391.8 million in the third quarter and first nine months of 2003 compared to $125.7 and $342.3 million in the year-ago periods. The decrease in the quarter reflects lower revenues from our tax refund lending business and lower gains on whole loan sales, partially offset by higher revenues from our mortgage operations. For the nine months, lower revenues from our tax refund lending business and lower gains on whole loan sales were more than offset by higher revenues from our mortgage operations and higher SFAS No. 133 income. SFAS No. 133 income due to our discontinuation of the shortcut method of accounting totaled $6.6 million for the quarter and $81.0 million year-to-date.

~~The~~Expenses Total ~~decreases~~costs ~~in securitization~~and ~~revenue~~expenses were $1.1 ~~due~~billion tofor ~~decreases~~both in the ~~level~~third ~~of receivables securitized during the second~~ quarter ~~and first six months~~ of 2003 and ~~lower~~the ~~excess~~previous ~~spread~~quarter ~~which~~and ~~included amortization of purchase accounting fair value adjustments to our interest-only strip receivables~~$1.5 ~~Securitization~~billion ~~levels~~ in the ~~first~~year-ago ~~half~~quarter. ~~of 2002 were higher pursuant~~ Year-to-date, ~~our~~total ~~liquidity~~costs ~~management plans. Securitization revenue will vary each period based on the level~~ and ~~mix~~expenses ofwere ~~receivables~~$3.1 ~~securitized~~billion in ~~that particular~~2003 ~~period (which will impact the gross initial gains~~ and ~~related estimated probable credit losses under the recourse provisions)~~$3.3 Itbillion is also affected by the overall level and mix of previously securitized receivables (which will impact servicing revenue and excess spread). The estimate for probable credit losses for securitized receivables is also impacted by the level and mix of current period securitizations because, depending upon loss estimates and severities, securitized receivables with longer lives may result in ~~higher over-the-life losses than receivables securitized with shorter lives~~2002.

Our ~~interest-only~~owned ~~strip~~basis ~~receivables,~~efficiency ~~net~~ratio ofwas 37.0 percent for the ~~related~~third ~~loss~~quarter ~~reserve~~of 2003, 38.7 percent for the previous quarter and ~~excluding~~53.1 percent for the ~~mark~~year-ago quarter. Year-to-~~market~~date, ~~adjustment~~our ~~recorded~~owned basis efficiency ratio was 37.1 percent in ~~accumulated~~2003 ~~other comprehensive~~and ~~income~~41.5 ~~(loss)~~percent in 2002. Excluding the settlement charge and related expenses, ~~decreased~~our ~~$179~~owned basis efficiency ratio was 32.7 percent for the third quarter of 2002 and 34.3 ~~million~~percent in the ~~second~~first nine months of 2002. See “Reconciliation to GAAP Financial Measures” for a quantitative reconciliation of our operating efficiency ratio to our owned basis GAAP efficiency ratio.

2027

quarter of 2003 and $216.8 million for the first six months of 2003, compared to increases of $4.4 in the second quarter and $38.9 million in the first six months of 2002.

Insurance revenue was $124.5 and $247.3 million in the second quarter and first six months of 2003 compared to $135.7 and $265.8 million in the year-ago periods. The decreases reflect decreased sales.

Investment income, which includes interest income on investment securities in the insurance business as well as realized gains and losses from the sale of investment securities, was $31.5 and $108.5 million in the second quarter and first six months of 2003 compared to $41.6 and $83.4 million in the year-ago periods. The decrease in the quarter was primarily attributable to the amortization of purchase accounting adjustments. Gains from security sales totaled $40.5 million for the six months ended June 30, 2003 and $1.3 million in the prior year period.

Fee income, which includes revenues from fee-based products such as credit cards, was $239.1 and $517.8 million in the second quarter and first six months of 2003 compared to $177.4 and $363.5 million in the year-ago periods. The increases were due to higher levels of credit card fees from both credit card businesses. See Note 11, “Segment Reporting,” to the accompanying condensed consolidated financial statements for additional information on fee income on a managed basis.

Other income, which includes revenue from our tax refund lending business, was $122.6 and $358.8 million in the second quarter and first six months of 2003 compared to $58.3 and $216.7 million in the year-ago periods. The increases were primarily attributable to $74.4 million in SFAS No. 133 income due to our discontinuation of the shortcut method of accounting and higher revenues from our mortgage operations. These increases were partially offset by lower revenues from our tax refund lending business.

Expenses Total costs and expenses were $1.1 billion for the second quarter of 2003, $1.0 billion in the previous quarter and $.9 billion in the year-ago quarter. Year-to-date, total costs and expenses were $2.1 billion in 2003 and $1.8 billion in 2002. Our owned basis efficiency ratio was 38.7 percent for the second quarter of 2003, 35.8 percent for the previous quarter and 35.1 percent for the year-ago quarter. Year-to-date, our owned basis efficiency ratio was 37.2 percent in 2003 and 35.2 percent in 2002.

Total costs and expenses included the following:

	Three monthsendedJune 30,		Three monthsendedJune 30,		Combinedsix monthsendedJune 30,		Six monthsendedJune 30,
(In millions)	Three monthsendedSept. 30, 2003		Three monthsendedSept. 30, 2002		Combinednine monthsended Sept. 30, 2003		Nine monthsended Sept. 30, 2002
(In millions)	2003		2002		2003		2002
Salaries and fringe benefits	$	409.9	$	373.0	$	1,205.1	$	1,121.4
Salaries and fringe benefits	$	404.4	$	379.2	$	795.2	$	748.4
Sales incentives		72.1		57.3		186.7		173.1
Sales incentives		78.5		64.1		114.6		115.8
Occupancy and equipment expense		75.5		74.6		236.4		223.4
Occupancy and equipment expense		80.3		74.7		160.9		148.8
Other marketing expenses		130.9		126.0		393.0		377.9
Other marketing expenses		130.2		123.9		262.1		251.9
Other servicing and administrative expenses		228.5		196.6		725.1		552.6
Other servicing and administrative expenses		220.6		155.5		496.6		356.1
Amortization of acquired intangibles		74.2		12.7		160.5		45.1
Amortization of acquired intangibles		72.2		12.6		86.2		32.4
Policyholders’ benefits		72.6		85.6		224.5		232.2
Policyholders’ benefits		78.5		72.8		152.0		146.6
Settlement charge and related expenses		—		525.0		—		525.0
Total costs and expenses	$	1,~~064~~063.7	$	~~882~~1,450.8	$	23,~~067~~131.63	$	13,~~800~~250.07

Salaries and fringe benefits for the ~~second~~third quarter and first ~~six~~nine months of 2003 were $~~404~~409.49 million and $~~795~~1.2 billion ~~million~~ compared to $~~379~~373.20 million and $~~748~~1.41 billion in the ~~second~~third quarter and first ~~six~~nine months of 2002. The increases were primarily due to additional staffing ~~in our businesses~~ as well as higher employee benefit expenses.

21Sales incentives for the third quarter and first nine months of 2003 were $72.1 and $186.7 million compared to $57.3 and $173.1 million in the comparable prior-year periods. The increases were primarily due to increases in our mortgage services business. For the year-to-date period, these increases were partially offset by lower new loan volume in our branches and in our auto finance business.

Occupancy and equipment expense for the third quarter and first nine months of 2003 were $75.5 and $236.4 million compared to $74.6 and $223.4 million in the comparable prior-year periods. The increases were primarily the result of higher repairs and occupancy maintenance costs.

Other marketing expenses for the third quarter and first nine months of 2003 were $130.9 and $393.0 million compared to $126.0 and $377.9 million in the comparable prior-year periods. The increases were primarily due to increases in our MasterCard and Visa business.

Other servicing and administrative expenses for the third quarter and first nine months of 2003 were $228.5 and $725.1 million compared to $196.6 and $552.6 million in the comparable prior-year periods. The increases were primarily due to receivable growth as well as higher legal and compliance costs. Higher collection expenses also contributed to the increases.

Amortization of acquired intangibles for the third quarter and first nine months of 2003 were $74.2 and $160.5 million compared to $12.7 and $45.1 million in the comparable prior-year periods. The increases were primarily attributable to acquired intangibles established in conjunction with the HSBC merger.

Policyholders’ benefits for the third quarter and first nine months of 2003 were $72.6 and $224.5 million compared to $85.6 and $232.2 million in the comparable prior-year periods. Both current year periods reflect amortization of fair value adjustments relating to our insurance business, which were more than offset by lower expense associated with our discontinued insurance business and lower sales.

Settlement charge and related expenses were $525.0 million in both the third quarter and first nine months of 2002. The charges were the result of an agreement with a multi-state group of state attorneys general and regulatory agencies to effect a nationwide resolution of alleged violations of federal and state consumer protection, consumer finance and banking laws and regulations relating to real estate secured lending in our retail branch consumer lending operations as operated under the HFC and Beneficial brand names.

Sales incentives for the second quarter and first six months of 2003 were $78.5 and $114.6 million compared to $64.1 and $115.8 million in the comparable prior-year periods. Our Mortgage Services business reported increases in both periods. For the year-to-date period, these increases were more than offset by lower new loan volume in our branches.

Occupancy and equipment expense for the second quarter and first six months of 2003 were $80.3 and $160.9 million compared to $74.7 and $148.8 million in the comparable prior-year periods. The increases were primarily the result of higher repairs and occupancy maintenance costs.

Other marketing expenses for the second quarter and first six months of 2003 of $130.2 and $262.1 million were comparable to $123.9 and $251.9 million in the same prior-year periods.

Other servicing and administrative expenses for the second quarter and first six months of 2003 were $220.6 and $496.6 million compared to $155.5 and $356.1 million in the comparable prior-year periods. The increases were primarily due to receivable growth as well as higher legal and compliance costs. Higher collection expenses also contributed to the increases.

Amortization of acquired intangibles for the second quarter and first six months of 2003 were $72.2 and $86.2 million compared to $12.6 and $32.4 million in the comparable prior-year periods. The increases were primarily attributable to acquired intangibles established in conjunction with the HSBC merger.

Policyholders’ benefits for the second quarter and first six months of 2003 were $78.5 and $152.0 million compared to $72.8 and $146.6 million in the comparable prior-year periods. The increases reflect amortization of fair value adjustments relating to our insurance business.

Credit Loss Reserves

We maintain credit loss reserves to cover probable losses of principal, interest and fees, including late, overlimit and annual fees. Credit loss reserves are based on a range of estimates and intended to be adequate but not excessive. We estimate probable losses for consumer receivables based on delinquency and restructure status and past loss experience. Credit loss reserves take into account whether loans have been restructured, rewritten or are subject to forbearance, an external debt management plan, modification, extension, or deferment. Our credit loss reserves also take into consideration the loss severity expected based on the underlying collateral, if any, for the loan. Our consumer credit management policies focus on product type and specific portfolio risk factors. Our consumer credit portfolio is diversified by product and geographic location. See Note 4, “Receivables,” in the accompanying condensed consolidated financial statements for receivables by product type and Note 5, “Credit Loss Reserves,” for our credit loss reserve methodology and an analysis of changes in the credit loss reserves for the ~~second~~third quarter and first ~~six~~nine months of 2003 and 2002.

The following table sets forth owned basis credit loss reserves for the periods indicated:

(All dollar amounts are stated in millions)	~~June~~September 30, 2003			~~March~~June 3130,2003			~~June~~September 30, 2002
Owned credit loss reserves	$	3,~~449~~549.27		$	3,~~296~~449.62		$	2,~~711~~861.48
Reserves as a percent of:
Receivables		4.3523	%		4.3635	%		3.7893	%
Net charge-offs(1)		98105.57			9998.85			9594.93
Nonperforming loans		9794.05			9597.40			98.51

(1)

Quarter-to-date, annualized

We recorded owned loss provision greater than charge-offs of $83.2 million in the third quarter of 2003. Reserves as a percentage of receivables at September ~~June~~ 30, 2003 reflect the impact of the weak economy, ~~higher delinquency levels,~~ and the continuing uncertainty as to the ~~ultimate~~timing ~~impact~~and extent of an economic recovery in the ~~weakened~~United ~~economy~~States. ~~will~~Reserve ~~have~~levels onat September 30, 2003 also reflect consideration of key ratios such as reserves as a percentage of net charge-~~off~~offs and ~~delinquency~~reserves ~~levels~~as a percentage of nonperforming loans.

For securitized receivables, we also record a provision for estimated probable losses that we expect to incur under the recourse provisions. The following table sets forth managed credit loss reserves for the periods indicated:

(All dollar amounts are stated in millions)

~~June~~September 30, 2003

~~March~~June 3130,2003

~~June~~September 30,2002

Managed credit loss reserves

5,~~304~~392.02

45,~~945~~304.40

34,~~993~~311.2

Reserves as a percent of:

Receivables

5.1805

5.0218

4.3355

Net charge-offs(1)

~~104~~107.41

~~102~~104.64

9799.65

Nonperforming loans

~~118~~113.43

~~112~~118.94

~~113~~115.46

(1)

Quarter-to-date, annualized

See “Reconciliation to GAAP Financial Measures” for quantitative reconciliations of the non-GAAP financial measures to the comparable GAAP basis financial measure.

Credit Quality

~~HSBC intends,~~Subject ~~subject~~ to receipt of regulatory and other approvals, HSBC currently intends to hold our private label credit card receivables within HSBC’s U.S. banking subsidiary. ~~As a result,~~ HSBC anticipates regulatory accounting charge-off, loss provisioning and account management guidelines issued by the Federal Financial Institutions Examination ~~Council, or FFIEC, will need to be applied to these receivables. Implementation of such guidelines will result in private label credit card receivables being~~ charged off at 6 months contractually delinquent (end of the month 60 days after notification for receivables involving a bankruptcy) versus the current practice of generally being charged off the month following the month in which the account becomes 9 months contractually delinquent (end of the month 90 days after notification for receivables involving a bankruptcy). HSBC’s plans for ultimate collection on these receivables will therefore be demonstrably different from the current practice and may require different reserve requirements. As of June 30, 2003, we have not allocated any purchase price adjustment to owned loss reserves in contemplation of this change as the process for preparing regulatory approval requests for the movement of our private label card receivables to HSBC’s U.S. banking subsidiary has only recently been initiated. To the extent we proceed with this business plan, we currently estimate that such fair value adjustment to reflect the expected impact of the implementation of the regulatory guidelines would be an increase to owned loss reserves for such existing private label credit card receivables which were originated prior to March 29, 2003. We and HSBC are also evaluating whether select other products will also be held in the HSBC U.S. banking subsidiary.

Council, or FFIEC, will need to be applied to these receivables. Implementation of such guidelines would result in private label credit card receivables being charged off at 6 months contractually delinquent (end of the month 60 days after notification for receivables involving a bankruptcy) versus the current practice of generally being charged off the month following the month in which the account becomes 9 months contractually delinquent (end of the month 90 days after notification for receivables involving a bankruptcy). HSBC’s plans for ultimate collection on these receivables would therefore be different from the current practice and would require different reserve requirements. We and HSBC are also evaluating whether select other products will also be held in the HSBC U.S. banking subsidiary, including certain real estate secured loans and certain MasterCard and Visa receivables. As of September 30, 2003, the process for obtaining regulatory approval requests is still ongoing. We do not anticipate that we will allocate any purchase price adjustment to owned loss reserves as the regulatory guidelines are implemented.

Delinquency—Owned Basis

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

	June 30, 2003		March 31,2003		June 30, 2002(1)
	September 30,2003		June 30,2003		September 30,2002(1)
Real estate secured	4.2721	%	4.1327	%	23.8522	%
Auto finance	2.4814		2.7448		23.9832
MasterCard/Visa	6.9075		76.7190		6.0669
Private label	6.0614		6.5506		67.5129
Personal non-credit card	10.0081		910.7800		9.7435
Total	5.5146	%	5.5851	%	45.6900	%

(1)

As discussed in our quarterly report on Form 10-Q for the quarter ended March 31, 2003, owned two-months-and-over contractual delinquency for personal non-credit card was overstated due to a calculation error. The correct percentages are included in the table above. The managed two-months-and-over contractual delinquency ratios reported for prior periods were correct.

Total owned delinquency decreased 5 basis points compared to the prior quarter. The ~~increase~~ decrease in our real estate secured portfolio reflects receivables growth partially offset by the seasoning and maturation of the portfolio, and higher levels of receivables in the process of foreclosure. The decrease in auto finance delinquency reflects the positive impact of ~~first~~acquisitions ~~payment~~from ~~default~~strategic ~~repurchases~~alliances and lower securitization levels during the quarter. The decrease in MasterCard and Visa delinquency reflects the positive impact of a third quarter acquisition. The increase in private label delinquency was primarily due to maturation of the portfolio. The increase in personal non-credit card delinquency was primarily due to higher bankruptcies and continued maturation of accounts booked in the second quarter of 2002.

23Compared to a year ago, higher levels of new bankruptcy filings and continued softness of the economy, including higher unemployment, caused the rise in the total delinquency ratio. A major contributor to the higher real estate secured delinquency ratio was reduced growth in the portfolio due to loan sales and reduced originations, especially in the fourth quarter of 2002 as well as the impact of first payment default repurchases from previous loan sales. Tightened underwriting contributed to the improvements in both our auto finance and private label portfolios. Our auto finance portfolio also reflects the positive impact of lower securitization levels.

from previous loan sales, and higher levels of receivables in the process of foreclosure. The decrease in auto finance delinquency reflects the positive impact of second quarter acquisitions from strategic alliances which were partially offset by seasonal increases. The decrease in MasterCard and Visa delinquency is consistent with historical seasonal trends. Lower private label delinquency was due in large part to a portfolio acquisition during the quarter.

Compared to a year ago, higher levels of new bankruptcy filings and continued softness of the economy, including higher unemployment, caused the overall rise in the delinquency ratio. A major contributor to the higher real estate secured delinquency ratio was reduced growth in the portfolio due to loan sales and reduced originations, especially in the fourth quarter of 2002.

Net Charge-offs of Consumer Receivables—Owned Basis

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

	June 30, 2003		March 31,2003		June 30,2002
	September 30,2003		June 30,2003		September 30,2002
Real estate secured	1.0493	%	1.1404	%	1.9408	%
Auto finance	54.2962		75.6929		45.7849
MasterCard/Visa	1210.4908		1012.8449		119.0973
Private label	75.0691		67.8206		67.1420
Personal non-credit card	11.0497		1011.0604		910.9703
Total	4.5112	%	4.3951	%	4.0719	%
Real estate charge-offs and REO expense as a percent of average real estate secured receivables	1.4939	%	1.5649	%	1.3835	%

~~The~~Net ~~weakened economy~~charge-offs ~~caused~~decreased 39 basis points compared to the ~~increase~~prior inquarter. Net charge-off ~~ratios~~dollars ~~over~~also ~~both~~decreased ~~the~~$35.7 ~~previous~~million ~~and~~compared ~~prior~~to ~~year~~the ~~quarters~~prior quarter. Compared to the previous quarter, the decrease in auto finance charge-offs reflects improved seasonal trends ~~and~~ , tightened credit standards ~~on new originations and purchases~~ over the last several months. ~~Higher~~as ~~bankruptcies~~well ~~contributed~~as toreduced securitization activity during the ~~increase~~current quarter. The decrease in our MasterCard/Visa portfolio reflects both seasonal trends as well as the timing and mix of securitization transactions. The decrease in private label charge-offs is primarily attributable to higher recoveries and improvements in collections. Increases in our personal non-credit card ~~portfolios~~portfolio are primarily the result of higher bankruptcies.

~~Compared~~Net tocharge-offs ~~the~~decreased ~~prior~~7 ~~year~~basis ~~quarter,~~points compared ~~the~~to ~~increase in~~ the ~~charge-off~~prior ~~ratio~~year ~~was~~despite ~~primarily attributable to~~ the weakened economy and higher bankruptcy filings. Charge-offs in our personal non-credit card portfolio increased ~~more than most other products~~ because our typical personal non-credit card customer is less resilient and, therefore, more exposed to the recent economic downturn.

Owned Nonperforming Assets

(In millions)

~~June~~September 30, 2003

~~March~~June 3130,2003

~~June~~September 30,2002(1)

Nonaccrual receivables

2,~~740~~905.87

2,~~607~~740.28

2,~~029~~120.57

Accruing consumer receivables 90 or more days delinquent

~~813~~851.34

~~850~~813.23

~~723~~796.08

Total nonperforming receivables

3,~~554~~757.1

3,~~457~~554.41

2,~~752~~917.5

Real estate owned

~~482~~539.2

~~441~~482.42

~~449~~437.80

Total nonperforming assets

4,~~036~~296.3

34,~~898~~036.83

3,~~202~~354.35

Credit loss reserves as a percent of nonperforming receivables

9794.05

9597.40

98.51

(1)

As discussed in our quarterly report on Form 10-Q for the quarter ended March 31, 2003, nonaccrual receivables, total nonperforming receivables and total nonperforming assets for personal non-credit card receivables were overstated due to a calculation error. As a result, credit loss reserves as a percentage of nonperforming receivables was understated in those periods. The correct amounts are included in the table above. The managed nonperforming asset statistics reported for prior periods were correct.

24The increase in nonaccrual receivables is primarily attributable to increases in our real estate secured and personal non-credit card portfolios. Accruing consumer receivables 90 or more days delinquent includes MasterCard and Visa and private label credit card receivables, consistent with industry practice. The increase in total nonperforming assets is attributable to growth in our owned portfolio as well as the weak economy.

The increase in nonaccrual receivables is primarily attributable to increases in our real estate secured and personal non-credit card portfolios. Accruing consumer receivables 90 or more days delinquent includes domestic MasterCard and Visa and private label credit card receivables, consistent with industry practice. The increase in total nonperforming assets is attributable to growth in our owned portfolio as well as the weak economy.

Account Management Policies and Practices

Our policies and practices for the collection of consumer receivables, including our restructuring policies and practices, permit us to reset the contractual delinquency status of an account to current, based on indicia or criteria which, in our judgment, evidence continued payment probability. Such restructuring policies and practices vary by product and are designed to manage customer relationships, maximize collections and avoid foreclosure or repossession if reasonably possible. As summarized in the tables that follow, in the third quarter of 2003, we intend to implement certain changes to the restructuring policies that were disclosed in our 2002 Form 10-K. These changes are intended to eliminate and/or streamline exception provisions to our existing policies and will generally be effective for receivables originated or acquired after January 1, 2003. Receivables originated or acquired prior to January 1, 2003 will generally be subject to the restructure and account management policies described in our 2002 Form 10-K. However, certain business units may, for ease of administration, elect to adopt uniform policies for all products regardless of the date an account was originated or acquired. Though we anticipate that these changes may result in some short term increase in delinquency which may lead to higher charge-offs, we do not expect the changes to have a significant impact on our business model or on our results of operations as these changes will generally be phased in as new receivables are originated or acquired.

~~Approximately~~We ~~two-thirds~~monitor ofrestructuring ~~all~~statistics ~~restructured~~on ~~receivables~~a ~~are~~managed ~~secured~~basis ~~products,~~only ~~which may have less loss severity exposure~~ because of the ~~underlying~~receivables ~~collateral.~~that ~~Credit~~we ~~loss~~securitize ~~reserves~~are ~~take~~subject ~~into~~to ~~account~~underwriting ~~whether~~standards ~~loans~~comparable ~~have~~to our ~~been~~owned ~~restructured~~portfolio, ~~rewritten~~ or are ~~subject~~serviced toand ~~forbearance,~~collected anwithout ~~external~~regard ~~debt~~to ~~management~~ownership ~~plan,~~and ~~modification,~~result ~~extension~~in ora ~~deferment.~~similar ~~Our~~ credit loss ~~reserves~~exposure ~~also take into consideration the loss severity expected based on the underlying collateral, if any,~~ for ~~the loan~~us.

~~The~~As ~~main~~discussed ~~criteria~~in ~~for~~ our ~~restructuring~~Form ~~policies~~10-Q ~~and practices~~for ~~vary~~the byquarter ~~product~~ended ~~and~~June ~~are~~30, ~~described~~2003, inwe ~~the~~implemented ~~table~~certain ~~that~~changes ~~follows.~~to ~~The~~our ~~fact~~restructuring ~~that~~policies in the ~~restructuring~~third quarter ~~criteria~~of ~~may~~2003. beThese ~~met~~changes ~~for~~are aintended ~~particular~~to ~~account~~eliminate ~~does~~and/or ~~not~~streamline ~~require~~exception usprovisions to ~~restructure~~our ~~that~~existing ~~account,~~policies and ~~the~~generally ~~extent~~are toeffective ~~which~~for wereceivables ~~restructure~~originated ~~accounts~~or ~~that are~~acquired ~~eligible~~after ~~under~~January ~~the~~1, ~~criteria~~2003. ~~will~~Receivables ~~vary~~originated ~~depending~~or ~~upon~~acquired prior ~~our~~to ~~view~~January of1, ~~prevailing~~2003 ~~economic~~generally ~~conditions~~are subject to the restructure and ~~other~~account ~~factors~~management ~~which~~policies ~~may~~described ~~change~~in ~~from~~our ~~period~~2002 toForm ~~period~~10-K. ~~In addition~~However, for ~~some~~ease ~~products~~of administration, ~~accounts~~in ~~may~~the bethird ~~restructured~~quarter ~~without~~our ~~receipt~~mortgage ofservices abusiness ~~payment in~~elected ~~certain~~to ~~special~~adopt ~~circumstances~~uniform policies ~~(e.g.~~for ~~upon~~all ~~reaffirmation~~products regardless of athe ~~debt~~date ~~owed~~an toaccount uswas inoriginated ~~connection~~or ~~with~~acquired. aImplementation ~~Chapter~~of 7the ~~bankruptcy~~uniform ~~proceeding).~~policy Ashas ~~indicated,~~the ~~our~~effect ~~account~~of ~~management~~only ~~policies~~counting ~~and~~restructures ~~practices~~occurring ~~are~~on ~~designed~~or toafter ~~manage~~January ~~customer~~1, ~~relationships~~2003 ~~and~~in toassessing restructure eligibility for ~~help~~purposes ~~maximize~~of ~~collection~~the ~~opportunities.~~limitation Wethat ~~use~~no account ~~restructuring~~may asbe anrestructured ~~account~~more ~~and~~than ~~customer~~four ~~management~~times ~~tool~~ in ana ~~effort~~rolling to60 ~~increase~~month ~~the~~period. ~~value~~However, ofmortgage ~~our~~services ~~account~~will ~~relationships,~~continue ~~and~~to ~~accordingly,~~have the ~~application~~ability ofto ~~this~~report ~~tool~~historical isrestructure ~~subject~~statistics toas set forth in the table ~~complexities,~~below. ~~variations~~Other ~~and~~business ~~changes~~units ~~from~~may ~~time~~also elect to ~~time.~~adopt ~~These~~uniform policies. ~~and~~Though ~~practices~~we ~~are~~anticipate ~~continually~~that ~~under~~these ~~review~~changes ~~and~~may ~~assessment~~result toin ~~assure~~some ~~that~~short ~~they~~term ~~meet~~increase ~~the~~in ~~goals~~delinquency ~~outlined~~which ~~above,~~may ~~and~~lead ~~accordingly~~to higher charge-offs, we ~~modify~~do ornot ~~permit~~expect ~~exceptions~~the changes to ~~these~~have ~~general~~a ~~policies~~significant ~~and~~impact ~~practices~~on ~~from~~our ~~time~~business tomodel ~~time.~~or Inon ~~addition,~~our ~~exceptions~~results toof ~~these~~operations ~~policies~~as ~~and~~currently ~~practices~~most ~~may~~of bethese ~~made~~changes inare ~~specific~~generally ~~situations~~expected into ~~response~~be tophased ~~legal~~in oras ~~regulatory~~new ~~agreements~~receivables are originated or ~~orders~~acquired.

~~Changes~~The totables ~~general~~below ~~policies~~summarize ~~and~~approximate ~~practices~~restructuring ~~will~~statistics bein ~~implemented~~our managed ~~with~~basis ~~respect~~portfolio ~~to various~~as ~~products~~of ~~during~~September ~~the~~30, ~~third~~2003 ~~quarter~~and ofJune 30, 2003 and, ~~generally,~~in ~~will~~Household ~~apply~~International’s todomestic ~~loans~~managed ~~originated~~basis orportfolio ~~acquired~~as inof ~~2003~~September 30, 2002. InWe did not track separate restructure statistics for any period prior to the ~~policies~~year ended ~~summarized~~December ~~below~~31, ~~“hardship~~2002. ~~restructures”~~Our restructure statistics are compiled using certain assumptions and ~~“workout~~estimates ~~restructures”~~and ~~refer~~we continue to ~~situations~~enhance inour ability to capture restructure data across all business units. When comparing restructuring statistics from ~~which~~different periods the ~~payment~~fact that our restructure policies and~~/or~~ ~~interest~~practices ~~rate~~will ~~may~~change over time, that exceptions are made to those policies and practices, and that our data capture methodologies will be ~~modified~~enhanced onover atime, ~~temporary~~should orbe ~~permanent~~taken ~~basis~~into account. Further, Into ~~each~~the ~~case~~best of our knowledge, ~~the~~most ~~contractual~~of ~~delinquency~~our ~~status~~competitors isdo ~~reset~~not todisclose ~~current.~~account ~~“External~~restructuring, ~~debt~~reaging, ~~management~~loan ~~plans”~~rewriting, ~~refers~~forbearance, modification, deferment or extended payment information comparable to ~~situations~~the ininformation ~~which~~we ~~consumers~~have disclosed, and ~~receive~~the ~~assistance~~lack inof ~~negotiating~~such ordisclosure ~~scheduling~~by ~~debt~~other ~~repayment~~lenders ~~through~~may ~~public~~limit orthe ~~private~~ability ~~agencies~~to ~~such~~draw asmeaningful ~~Consumers~~conclusions ~~Credit~~about ~~Counseling~~us ~~Services~~and our business based solely on data or information regarding account restructuring statistics or policies.

Total Restructured by Restructure Period—(1) (Managed Basis)	September 30, 2003		June 30, 2003		September 30, 2002
Never restructured	84.2	%	83.7	%	83.9	%
Restructured:
Restructured in the last 6 months	7.3		7.2		6.6
Restructured in the last 7–12 months	3.5		3.8		4.9
Previously restructured beyond 12 months	5.0		5.3		4.6

Total ever restructured	15.8		16.3		16.1

Total	100.0	%	100.0	%	100.0	%

Restructuring Policies and Practices In Effect as of June 30, 2003 (1) (2)	Changes to Existing Restructuring Policies and Practices Being Implemented in the Third Quarter 2003(1)(2)
Total Restructured by Product—(1) (Managed Basis)	September 30, 2003			June 30,2003			September 30, 2002
REAL ESTATE SECURED	REAL ESTATE SECURED
(In millions)
Real Estate – Overall · An account may be restructured if we receive two qualifying payments within the 60 days preceding the restructure; we may restructure accounts in hardship, disaster or strike situations with one qualifying payment or no payments · Accounts that have filed for Chapter 7 bankruptcy protection may be restructured upon receipt of a signed reaffirmation agreement · Accounts subject to a Chapter 13 plan filed with a bankruptcy court generally require one qualifying payment to be restructured · Except for bankruptcy reaffirmation and filed Chapter 13 plans, agreed automatic payment withdrawal or hardship/disaster/strike, accounts are generally limited to one restructure every 12 months · Accounts generally are not eligible for restructure until on books for at least six months	Real Estate – Overall · Accounts in workout situations may be restructured with the equivalent of two qualifying payments · Except bankruptcy reaffirmation and filed Chapter 13 plans, generally an account will not be restructured more than once in a 12 month period · Accounts will be limited to four restructures in a rolling 60 month period · Customers affected by a disaster may be allowed to skip a payment
Real estate secured	$	9,531.5		$	9,225.0		$	8,778.2
Real Estate – Consumer Lending · Accounts that agree to pay by automatic withdrawal are generally restructured with one qualifying payment	Real Estate – Consumer Lending · Accounts will generally not be eligible for restructure until nine months after origination
Auto finance		1,268.5			1,360.1			1,189.2
	Real Estate – Mortgage Services(3) · Accounts will generally not be eligible for restructure until nine months after origination and six months after acquisition
MasterCard/Visa		578.1			579.6			535.4
AUTO FINANCE · Accounts may be extended if we receive one qualifying payment within the 60 days preceding the extension · Accounts may be extended no more than three months at a time and by no more than three months in any 12-month period · Extensions are limited to six months over the contractual life · Accounts that have filed for Chapter 7 bankruptcy protection may be restructured upon receipt of a signed reaffirmation agreement	AUTO FINANCE · Extensions will generally require two qualifying payments within the 60 days preceding the extension · Accounts will be limited to four extensions in a rolling 60 month period, but in no case will an account be extended more than a total of six months over the life of the account · Extensions will be limited to one every six months · Accounts will not be eligible for extensions until on books for at least six months
Private label		1,090.7			1,146.3			1,237.5
Personal non-credit card		4,136.4			4,202.3			4,195.1
Total	$	16,605.2		$	16,513.3		$	15,935.5
	September 30,2003			June 30,2003			September 30,2002
(As a percent of managed receivables)
Real estate secured		18.7	%		19.2	%		18.5	%
Auto finance		15.1			17.3			16.2
MasterCard/Visa		3.3			3.5			3.4
Private label		7.7			8.3			10.4
Personal non-credit card		26.7			26.8			25.3
Total		15.8	%		16.3	%		16.1	%

26(1) Excludes commercial and other. Amounts also include accounts as to which the delinquency status has been reset to current for reasons other than restructuring (e.g., correcting the misapplication of a timely payment).

The amount of managed receivables in forbearance, modification, Credit Card Services approved external debt management plans, rewrites or other account management techniques for which we have reset delinquency and that is not included in the restructured or delinquency statistics was approximately $1.1 billion or .9 percent of managed receivables at September 30, 2003, $1.1 billion or 1.0 percent of managed receivables at June 30, 2003 and approximately $.8 billion or .8 percent of managed receivables at September 30, 2002.

Item 4. Controls and Procedures

We maintain a system of internal and disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Within the 90-day period prior to the date of this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Household Finance Corporation (including its consolidated subsidiaries) required to be included in this Form 10-Q.

There have been no significant changes in our internal and disclosure controls or in other factors which could significantly affect internal and disclosure controls subsequent to the date that we carried out our evaluation.

Restructuring Policies and Practices In Effect as of June 30, 2003 (1) (2)		Changes to Existing Restructuring Policies and Practices Being Implemented in the Third Quarter 2003(1)(2)
MASTERCARD AND VISA · Typically, accounts qualify for restructuring if we receive two or three qualifying payments prior to the restructure, but accounts in approved external debt management programs may generally be restructured upon receipt of one qualifying payment · Generally, accounts may be restructured once every six months		MASTERCARD AND VISA · No changes
PRIVATE LABEL · An account may generally be restructured if we receive one or more qualifying payments, depending upon the merchant · Restructuring is limited to once every six months (or longer, depending upon the merchant) for revolving accounts and once every 12 months for closed-end accounts		PRIVATE LABEL · Accounts originated after October 1, 2002 for certain merchants require two or three qualifying payments, except accounts in an approved, external debt management program may be restructured upon receipt of one qualifying payment. · Accounts must be on the books for nine months and we must receive the equivalent of two qualifying payments within the 60 days preceding the restructure · Accounts are not eligible for subsequent restructure until 12 months after a prior restructure and upon our receipt of three qualifying payments within the 90 days preceding the restructure
PERSONAL NON-CREDIT CARD · Accounts may be restructured if we receive one qualifying payment within the 60 days preceding the restructure; may restructure accounts in a hardship/disaster/strike situation with one qualifying payment or no payments · If an account is never more than 90 days delinquent, it may generally be restructured up to three times per year · If an account is ever more than 90 days delinquent, it may be restructured with one qualifying payment no more than four times over its life; however, generally the account may thereafter be restructured if two qualifying payments are received · Accounts subject to programs for hardship or strike may require only the receipt of reduced payments in order to be restructured; disaster may be restructured with no payments		PERSONAL NON-CREDIT CARD · Accounts require at least two qualifying payments within the 60 days preceding the restructure · Accounts in a strike situation require two qualifying payments to be restructured · Accounts in a disaster situation may be allowed to skip a payment · Accounts will be limited to one restructure every six months · Accounts will be limited to four restructures in a rolling 60 month period · Accounts will not be eligible for restructure until six months after origination

PART II. OTHER INFORMATION

~~(1)~~Item ~~We employ account restructuring and other account management policies and practices as flexible account management tools~~1. Legal InProceedings addition to variances in criteria by product, criteria may also vary within a product line (for example, in our private label credit card business, criteria may vary from merchant to merchant). Also, we continually review our product lines and assess restructuring criteria and they are subject to

27General We are parties to various legal proceedings resulting from ordinary business activities relating to our current and/or former operations. Certain of these actions are or purport to be class actions seeking damages in very large amounts. These actions assert violations of laws and/or unfair treatment of consumers. Due to the uncertainties in litigation and other factors, we cannot be certain that we will ultimately prevail in each instance. We believe that our defenses to these actions have merit and any adverse decision should not materially affect our consolidated financial condition.

Merger Litigation Several lawsuits were filed alleging violations of law with respect to the merger of Household International with HSBC. While the lawsuits are in their preliminary stages, we believe that the claims lack merit and the defendants deny the substantive allegations of the lawsuits. These lawsuits are described below.

Two of the lawsuits are pending in the Circuit Court of Cook County, Illinois, Chancery Division. One, McLaughlin v. Aldinger et al., No. 02 CH 20683 (filed on November 15, 2002), asserts claims on behalf of a purported class of holders of Household International common stock against Household International and certain of its officers and directors for breach of fiduciary duty in connection with the then pending merger with HSBC on the grounds that the defendants allegedly failed to take appropriate steps to maximize the value of a merger transaction for holders of Household International common stock. While the complaint contends that plaintiffs would suffer irreparable harm unless the merger with HSBC was enjoined, it seeks only unspecified damages. The other, Pace v. Aldinger et al., No. 02 CH 19270 (filed on October 24, 2002 and amended on November 15, 2002), is both a purported derivative lawsuit on behalf of Household International and a purported class action on behalf of holders of Household International common stock. This lawsuit was filed prior to the announcement of the merger with HSBC and originally asserted claims relating to the restatement of Household International’s consolidated financial statements, the preliminary agreement with a multi-state working group of state attorneys general and regulators, and other accounting matters. It was amended to allege that Household International and certain of its officers and directors breached their fiduciary duties in connection with the merger with HSBC and sought to enjoin the merger with HSBC, as well as unspecified damages allegedly stemming both from the merger and the original claims described above.

A third lawsuit relating to the merger with HSBC, Williamson v. Aldinger et al., No. 03 CO0331 (filed on January 15, 2003), is pending in the United States District Court for the Northern District of Illinois. This derivative lawsuit on behalf of Household International claims that certain of Household International’s officers and directors breached their fiduciary duties and committed corporate waste by agreeing to the merger with HSBC and allegedly failing to take appropriate steps to maximize the value of a merger transaction. The complaint sought to enjoin the then pending merger with HSBC.

On March 18, 2003, the plaintiffs in the three actions (together with the plaintiff in another related action pending in the Circuit Court of Cook County, Illinois, Chancery Division (Bailey v. Aldinger et al., No. 02 CH 16476 (filed August 27, 2002)) agreed in principle to a settlement of the actions based on, among other things, the additional disclosures above relating to their allegations and HSBC’s agreement to waive $55 million of the termination fee otherwise payable to HSBC from Household International under the merger agreement in certain circumstances. That agreement in principle is subject to customary conditions including definitive documentation of the settlement, additional confirmatory discovery by the plaintiffs and approval by the Courts following notice to the stockholders of Household International and a hearing. The confirmatory discovery has been completed and the Court has preliminarily approved the settlement. Notices of the settlement were sent to shareholders in October, 2003. A hearing is scheduled for December 1, 2003, at which the Court will consider the fairness, reasonableness and adequacy of the settlement which, if approved, will resolve all of the claims that have or could have been brought in the actions, including all claims relating to the merger.

~~modification~~Consumer orLending ~~exceptions~~Regulatory ~~from~~Settlement On ~~time~~October 11, 2002, Household International reached a preliminary agreement with a multi-state working group of state attorneys general and regulatory agencies to ~~time.~~effect ~~Accordingly,~~a ~~the~~nationwide ~~description~~resolution of ~~our~~alleged ~~account~~violations ~~restructuring~~of ~~policies~~federal and/or ~~practices~~state ~~provided~~consumer inprotection, ~~this~~consumer financing ~~table~~and ~~should~~banking belaws ~~taken~~and ~~only~~regulations aswith ~~general~~respect ~~guidance~~ to ~~the~~secured ~~restructuring~~real ~~approach~~estate ~~taken~~lending ~~within~~from ~~each~~Household ~~product~~Finance ~~line,~~Corporation and ~~not~~Beneficial asCorporation ~~assurance~~and ~~that~~their ~~accounts~~subsidiaries ~~not~~conducting ~~meeting~~retail ~~these~~branch ~~criteria~~consumer ~~will~~lending ~~never~~operations. beThis ~~restructured~~preliminary agreement, ~~that~~and ~~every~~related ~~account~~subsequent ~~meeting~~consent ~~these~~decrees ~~criteria~~and ~~will~~similar indocumentation ~~fact~~entered beinto ~~restructured~~with oreach ~~that~~of ~~these~~the ~~criteria~~50 ~~will~~states ~~not~~and ~~change~~the orDistrict ~~that~~of ~~exceptions~~Columbia, ~~will~~are ~~not~~referred beto ~~made~~collectively inas ~~individual~~the ~~cases.~~“Multi-State InSettlement ~~addition~~Agreement”, inwhich anbecame effective ~~effort~~on toDecember ~~determine~~16, ~~optimal~~2002. ~~account~~Pursuant ~~management~~to ~~strategies~~the Multi-State Settlement Agreement, ~~management~~we ~~may~~funded ~~run~~a ~~more~~$484 ~~conservative~~million ~~tests~~settlement onfund ~~some~~that orwas ~~all~~divided ~~accounts~~among inthe states (and the District of Columbia), with each state receiving a ~~product~~proportionate ~~line~~share ~~for~~of ~~fixed~~the ~~periods~~funds based upon the volume of ~~time~~the retail branch originated real estate secured loans we made in ~~order~~that tostate ~~evaluate~~during the ~~impact~~period of ~~alternative~~January ~~policies~~1, ~~and~~1999 ~~practices~~to September 30, 2002. No fines, penalties or punitive damages were assessed by the states pursuant to the Multi-State Settlement Agreement.

~~(2)~~In ~~Generally~~August 2003, ~~policy~~notices ~~changes~~of ~~will~~a claims ~~not~~procedure bewere ~~applied~~distributed to ~~the~~holders ~~entire portfolio on the date~~ of ~~implementation and may be applied to new~~591,000 oraccounts ~~recently~~identified ~~originated~~as orhaving ~~acquired~~potential ~~accounts~~claims. ~~However,~~As ~~for~~of ~~ease~~November of12, ~~administration~~2003, ~~certain~~approximately ~~business~~80 ~~units~~percent ~~may~~of ~~elect~~affected tocustomers ~~adopt~~had ~~uniform~~accepted ~~policies~~funds ~~for~~in ~~all~~settlement ~~products~~and ~~regardless~~had ofexecuted ~~the~~a ~~date~~release anof ~~account~~all ~~was~~civil claims ~~originated~~against orus ~~acquired.~~relating ~~Unless otherwise noted, the revisions~~ to the ~~restructure~~specified ~~policies~~consumer ~~and~~lending practices. ~~implemented~~(Rhode inIsland ~~the~~has ~~third~~yet ~~quarter 2003 will generally be applied only~~ to ~~accounts~~mail ~~originated~~its orclaim ~~acquired~~packages.) ~~after~~Each ~~January~~state 1,has ~~2003~~agreed ~~and~~that the ~~policies~~settlement ~~and~~resolves ~~practices in effect as of June 30, 2003 are effective for~~ all ~~accounts~~current ~~originated~~civil orinvestigations ~~acquired~~and ~~prior~~proceedings toby ~~January 1, 2003. Though we anticipate that~~ the ~~changes~~attorneys ~~implemented~~general and instate ~~the~~lending ~~third~~regulators ~~quarter~~relating ~~2003 may result in some short term increase in delinquency that may lead~~ to ~~higher charge-offs, we do not expect~~ the ~~changes~~lending topractices ~~have~~at ~~a significant impact on our business model or results of operations as these changes will generally be phased in as receivables are originated or acquired~~issue.

We have also been named in purported class actions by individuals and consumer groups directly or supporting individuals in the United States (3such as AARP and the “Association of Community Organizations for Reform Now”) ~~Prior~~claiming that various loan products or lending policies and practices are unfair or misleading to ~~January~~consumers. 1Judicial certification of a class is required before any claim can proceed on behalf of a purported class and, ~~2003~~to date, only ~~accounts~~one purported class claim has been certified. The certification ruling in that ~~had~~case ~~made~~will atbe ~~least~~appealed ~~six~~and ~~qualifying~~discovery ~~payments~~has ~~during~~commenced. Although the ~~life~~Multi-State Settlement Agreement does not cause the immediate dismissal of these purported class actions, we believe it substantially reduces our risk of any material liability that may result since every consumer who receives payments as a result of the ~~loan~~Multi-State Settlement Agreement must release us from any liability for such claims generally as alleged by these individuals and groups. We intend to seek resolution of these related legal actions provided it is financially prudent to do so. Otherwise, we intend to defend vigorously against the allegations. Regardless of the approach taken with respect to these purported class actions, we believe that ~~agreed~~any liability that may result will not have a material financial impact. We expect, however, that consumer groups and plaintiffs lawyers will continue to ~~pay~~target byus ~~automatic~~in ~~withdrawal~~the media, ~~were~~with ~~generally~~regulators, ~~restructured~~with legislators and with ~~one~~legal ~~qualifying~~actions ~~payment~~to pressure us and the nonprime lending industry into accepting concessions that would more heavily regulate the nonprime lending industry.

Securities Litigation In ~~addition~~ toAugust ~~our restructuring policies and practices~~2002, we restated ~~employ~~previously ~~other~~reported ~~account~~consolidated ~~management~~financial ~~techniques,~~statements. ~~which~~The werestatement ~~typically~~related ~~use~~to on a ~~more~~MasterCard ~~limited~~and ~~basis,~~Visa ~~that~~affinity ~~are~~credit ~~similarly~~card ~~designed~~relationship toand ~~manage~~a ~~customer~~third ~~relationships~~party ~~and~~marketing ~~maximize~~agreement, ~~collections.~~which ~~These~~were ~~can include,~~entered atinto ~~our~~between ~~discretion,~~1996 ~~actions~~and ~~such~~1999. asAll ~~extended~~were ~~payment~~part ~~arrangements,~~of our ~~Credit~~credit ~~Card~~card ~~Services~~services ~~approved~~business. ~~external~~In ~~debt~~consultation ~~management~~with ~~plans,~~our ~~forbearance,~~prior ~~modifications~~auditors, ~~loan~~Arthur ~~rewrites~~Andersen ~~and/or~~LLP, ~~deferment~~we ~~pending~~treated apayments ~~change~~made in ~~circumstances.~~connection Wewith ~~typically~~these ~~enter into forbearance~~ agreements, ~~extended~~as ~~payment~~prepaid assets and ~~modification~~amortized ~~arrangements~~them orin ~~deferments~~accordance with ~~individual~~the ~~borrowers~~underlying ineconomics ~~transitional~~of ~~situations,~~the agreements. ~~usually~~Our ~~involving~~current ~~borrower~~auditors, ~~hardship~~KPMG ~~circumstances~~LLP, oradvised ~~temporary~~us ~~setbacks~~ that, ~~are~~in ~~expected~~their toview, ~~affect~~these ~~the borrower’s~~payments ~~ability~~should tohave ~~pay~~either ~~the~~been ~~contractually~~charged ~~specified~~against ~~amount~~earnings ~~for~~at ~~some~~the ~~period of~~ time. ~~These~~they ~~actions~~were ~~vary~~made byor ~~product~~amortized ~~and~~over ~~are~~a ~~under~~shorter ~~continual~~period ~~review~~of ~~and~~time. ~~assessment~~There towas ~~determine~~no ~~that~~significant ~~they~~change ~~meet~~as ~~the goals outlined above. For example, under~~ a ~~forbearance~~result ~~agreement,~~of wethese ~~may~~adjustments ~~agree~~on ~~not~~the toprior ~~take~~periods ~~certain~~net ~~collection~~earnings ortrends ~~credit~~previously ~~agency~~reported. ~~reporting~~The ~~actions~~restatement ~~with~~resulted ~~respect~~in toa ~~missed~~$70.2 ~~payments~~million, ~~often~~after-tax, inretroactive ~~return~~reduction ~~for the borrower’s agreeing~~ to ~~pay~~retained usearnings anat ~~extra~~December ~~amount~~31, ~~in connection with making future payments~~1998. InAs ~~some cases,~~ a ~~forbearance~~result ~~agreement~~of asthe ~~well~~restatement, asand other ~~extended~~corporate ~~payment~~events, ~~or modification arrangements~~including, ~~deferments~~e.g., ~~Credit~~the ~~Card~~Multi-State ~~Services~~Settlement ~~approved~~Agreement, ~~external~~Household ~~debt management plans~~International, orand ~~loan~~its ~~rewrites~~directors, ~~may~~certain ~~involve~~officers ~~us agreeing to lower the contractual payment amount~~ and~~/or~~ ~~reduce~~former ~~the~~auditors, ~~periodic~~have ~~interest~~been ~~rate.~~involved Inin ~~most~~various ~~cases~~legal proceedings, ~~the~~some ~~delinquency status~~ of anwhich ~~account~~purport ~~is considered~~ to be ~~current~~class actions. ifA ~~the~~number ~~borrower~~of ~~immediately~~these ~~begins~~actions ~~payment~~allege ~~under~~violations ~~the~~of ~~new~~federal ~~account~~securities ~~terms~~laws, ~~although~~were iffiled ~~the~~between ~~agreed~~August ~~terms~~and ~~are~~October ~~not adhered~~2002, toand byseek ~~the~~to ~~customer~~recover ~~the~~damages ~~account~~in ~~status~~respect ~~may~~of beallegedly ~~reversed~~false and ~~collection~~misleading ~~action~~statements ~~resumed.~~about ~~When~~Household weInternational’s common ~~use~~stock. ~~one~~To ~~of these account management techniques~~date, wenone ~~may~~of ~~treat~~ the ~~account~~class asclaims ~~being~~has ~~contractually~~been ~~current and will not reflect it as a delinquent account in our delinquency statistics~~certified. WeThese ~~generally~~legal ~~consider~~actions ~~loan~~have ~~rewrites~~been toconsolidated ~~involve~~into ana ~~extension~~single ofpurported aclass ~~new loan~~action, ~~and such new loans are not reflected in our delinquency or restructuring statistics.~~

~~The~~35 tables below summarize approximate restructuring statistics in our managed basis portfolio as of June 30, 2003 and March 31, 2003 and in Household International’s domestic managed basis portfolio as of June 30, 2002. We did not track separate restructure statistics for any period prior to the year ended December 31, 2002. Our restructure statistics are compiled using certain assumptions and estimates and we continue to enhance our ability to capture restructure data across all business units. When comparing restructuring statistics from different periods, the fact that our restructure policies and practices will change over time, that exceptions are made to those policies and practices and that our data capture methodologies will be enhanced over time, should be taken into account. Further, to the best of our knowledge, most of our competitors do not disclose account restructuring, reaging, loan rewriting, forbearance, modification, deferment or extended payment information comparable to the information we have disclosed, and the lack of such disclosure by other

~~lenders~~Jaffe ~~may~~v. ~~limit~~Household ~~the~~International, ~~ability~~Inc., toet ~~draw~~al., ~~meaningful~~No. ~~conclusions~~02 ~~about~~C us5893 (N.D. Ill., filed August 19, 2002), and ~~our~~a ~~business~~consolidated ~~based~~and ~~solely~~amended complaint was filed on ~~data~~March 7, 2003. The amended complaint purports to assert claims under the federal securities laws, on behalf of all persons who purchased or ~~information~~otherwise ~~regarding~~acquired ~~account~~Household ~~restructuring~~International securities between October 23, 1997 and October 11, 2002, ~~statistics~~arising orout ~~policies~~of alleged false and misleading statements in connection with Household International’s sales and lending practices, the Multi-State Settlement Agreement, the restatement and the HSBC merger. The amended complaint, which also names as defendants Arthur Andersen LLP, Goldman, Sachs & Co., and Merrill Lynch, Pierce, Fenner & Smith, Inc., fails to specify the amount of damages sought. In May 2003, we filed a motion to dismiss the complaint. The parties are awaiting a ruling on the motion.

Total Restructured by Restructure Period(1) (Managed Basis)	June 30, 2003		March 31,2003		June 30,2002
Never restructured	83.7	%	83.3	%	83.3	%
Restructured:
Restructured in the last 6 months	7.2		7.5		7.4
Restructured in the last 7-12 months	3.8		3.6		5.1
Previously restructured beyond 12 months	5.3		5.6		4.2
Total ever restructured	16.3		16.7		16.7
Total	100.0	%	100.0	%	100.0	%

Other actions arising out of the restatement, which purport to assert claims under ERISA on behalf of participants in Household International’s Tax Reduction Investment Plan, have been consolidated into a single purported class action, In re Household International, Inc. ERISA Litigation, Master File No. 02 C 7921 (N.D. Ill). A consolidated and amended complaint was filed against Household International, William Aldinger and individuals on the Administrative Investment Committee of the plan. The consolidated complaint purports to assert claims under ERISA that are similar to the claims in the Jaffe case. Essentially, the plaintiffs allege that the defendants breached their fiduciary duties to the plan by investing in Household International stock and failing to disclose information to Plan participants. We filed a motion to dismiss the complaint in June 2003. The parties are awaiting a ruling on the motion.

Total Restructured by Product(1) (Managed Basis)	June 30, 2003			March 31,2003			June 30,2002
(In millions)
Real estate secured	$	9,225.0		$	9,163.4		$	9,045.1
Auto finance		1,360.1			1,247.7			1,094.1
MasterCard/Visa		579.6			549.2			519.7
Private label		1,146.3			1,225.8			1,233.4
Personal non-credit card		4,202.3			4,127.5			4,352.8
Total	$	16,513.3		$	16,313.6		$	16,245.1
	June 30, 2003			March 31,2003			June 30,2002
(As a percent of managed receivables)
Real estate secured		19.2	%		20.0	%		19.1	%
Auto finance		17.3			16.9			15.9
MasterCard/Visa		3.5			3.4			3.4
Private label		8.3			9.6			10.5
Personal non-credit card		26.8			25.8			27.1
Total		16.3	%		16.7	%		16.7	%

On June 27, 2003, a case entitled, West Virginia Laborers Pension Trust Fund v. Caspersen, et al., was filed in the Chancery Division of the Circuit Court of Cook County, Illinois as case number 03CH10808. This purported class action names as defendants the directors of Beneficial Corporation at the time of the 1998 merger of Beneficial Corporation into a subsidiary of Household International, and claims that those directors’ due diligence of Household International at the time they considered the merger was inadequate. The Complaint claims that as a result of some of the securities law and other violations alleged in the Jaffe case, Household International’s common shares lost value. Under the merger agreement with Beneficial Corporation, we assumed the defense of this litigation. In September of 2003, the defendants filed a motion to dismiss. The insurance carriers for Beneficial Corporation have been notified of the action.

~~(1)~~With ~~Excludes~~respect ~~commercial~~to ~~and~~these ~~other.~~securities ~~Amounts~~litigation ~~also~~matters, ~~include~~we ~~accounts~~believe asthat towe ~~which~~have ~~the~~not, ~~delinquency~~Household ~~status~~International has ~~been~~not ~~reset~~and toour ~~current~~respective ~~for~~officers ~~reasons~~and directors ~~other~~have ~~than~~not, ~~restructuring~~committed ~~(e.g.~~any ~~correcting~~wrongdoing ~~the~~and ~~misapplication~~in each instance there will be no finding of improper activities that may result in a ~~timely~~material ~~payment)~~liability to us or any of our officers or directors.

~~The~~Regulatory ~~amount~~Proceedings In June 2000, the attorney general for the State of ~~managed~~Arizona ~~receivables~~added inHousehold ~~forbearance~~Bank (SB), ~~modification~~N.A. (the “Bank”) and an affiliate as defendants in the State’s lawsuit against Hispanic Air Conditioning and Heating (“Hispanic Air”). From 1997 to 1999, ~~Credit~~the ~~Card~~Bank ~~Services~~provided ~~approved~~financing ~~external~~for ~~debt~~Hispanic ~~management~~Air’s ~~plans~~sales of heating, ~~rewrites~~ventilation orand ~~other~~air ~~account~~conditioning ~~management~~(“HVAC”) ~~techniques~~systems under a private label credit card program established with manufacturers of HVAC equipment for ~~which~~whom weHispanic Air ~~have~~was ~~reset~~an ~~delinquency~~authorized dealer. In September, 2003, the court entered judgment in the Bank’s favor and ~~that~~the isState elected to not ~~included~~appeal inthe decision. In connection with the ~~restructured~~Arizona lawsuit, the Bank requested that the OCC, as the agency with ~~statistics~~exclusive ~~above~~visitorial ~~was~~powers ~~approximately~~over $1the Bank, intervene and the OCC commenced an investigation.1 ~~billion~~The orBank 1has provided information to the OCC from time to time in connection with this investigation.0 ~~percent~~As part of ~~managed~~our ~~receivables~~efforts atto ~~June~~resolve 30any open regulatory issues with the OCC prior to the HSBC merger, ~~2003~~the Bank executed an agreement with the OCC, ~~$1.0~~under ~~billion~~which orthe 0Bank is required to take certain additional actions to supplement its prior remediation program.9 ~~percent~~These actions involve providing additional notification to all eligible consumers of ~~managed~~the ~~receivables~~availability atof ~~March~~remediation, 31providing inspection and repair or replacement of equipment, ~~2003~~providing reimbursement to customers who have incurred expenses to repair equipment, providing reductions to principal and ~~approximately~~interest ~~$700~~of ~~million~~consumer orcredit ~~0.7~~card ~~percent~~balances, providing reimbursement for warranties and late fees and developing an action plan to enhance the administration of ~~managed~~the ~~receivables~~Bank’s atprivate ~~June~~label credit card programs. This program is now ~~30,~~underway ~~2002~~and the cost of such remedial actions is not expected to be material. The written agreement makes it clear that the Bank neither admits nor denies that it has engaged in any unsafe or unsound banking practices or violated any law or regulation.

~~Item~~36 ~~4. Controls and Procedures~~

We maintain a system of internal and disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Within the 90-day period prior to the date of this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Household Finance Corporation (including its consolidated subsidiaries) required to be included in this Form 10-Q.

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.
31		Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Selected Debt Securities Ratings.

Statement of Computation of Ratio of Earnings to Fixed Charges

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1

Selected Debt Securities Ratings

(b) Reports on Form 8-K

During the ~~second~~third quarter of 2003, the Registrant filed ~~the~~a ~~following~~ Current ~~Reports~~Report on Form 8-K: on September 19, 2003 with respect to a presentation to investors at the headquarters of HSBC Holdings plc in London, England on September 19, 2003.

· Report filed May 5, 2003 with respect to a Prospectus relating to the offering of $10,000,000,000 aggregate amount of HFC InterNotes(SM).

· Report filed May 8, 2003 with respect to a slide presentation of representatives of Household Finance Corporation.

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 FINANCE CORPORATION (Registrant)~~	HOUSEHOLD FINANCE CORPORATION (Registrant)
Date: August 4, 2003	By: /S/ STEVEN L. MCDONALD
Date: November 14, 2003		By: /S/ SIMON C. PENNEY
	Steven L. McDonald Executive Vice President and Chief Accounting Officer and Controller (as principal financial officer)
		Simon C. Penney Chief Financial Officer

3037

EXHIBIT INDEX

12		Statement of Computation of Ratio of Earnings to Fixed Charges.
31		Certification of Chief Executive Officer and ~~Principal~~Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and ~~Principal~~Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Selected Debt Securities Ratings.

3138

Filing Compare · HOUSEHOLD FINANCE CORP