SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission file number: 000-23745
---------------------------------
BNP U.S. Funding L.L.C.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3972207
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
499 Park Avenue, New York, N.Y. 10022
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 415-9400
Securities registered pursuant to Section 12(b) of the Act: None
Name of Each Exchange on
Title of Each Class to be Registered which Registered
- - ----------------------------------------- ----------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Noncumulative Preferred Securities, Series A
(Liquidation Preference US$10,000 per Series A Preferred Security)
(Title of class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Number of Shares of Common Stock outstanding on December 31, 1999: 53,011
All outstanding shares of Common Stock were held by Banque Nationale de
Paris, the Registrant's parent Company, at December 31, 1999
Document incorporated by reference Part of Form 10-K
in this Form 10-K which incorporated
---------------------------------- ----------------------------------
None --
<PAGE>
Form 10-K Index
PAGE
----
PART I
Item 1: Business..........................................................3
Item 2: Properties........................................................9
Item 3: Legal Proceedings.................................................9
Item 4: Submission of Matters to a Vote of Security Holders...............9
PART II
Item 5: Market for Registrant's Common Equity and Related
Securityholder Matters..........................................9
Item 6: Selected Financial Data...........................................9
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................10
Item 7A: Quantitative and Qualitative Disclosure About Market Risk........14
Item 8: Financial Statements and Supplementary Data......................17
Item 9: Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.......................................33
PART III
Item 10: Directors and Executive Officers of the Company.................33
Item 11: Executive Compensation..........................................34
Item 12: Security Ownership of Certain Beneficial Owners and Management..34
Item 13: Certain Relationships and Related Transactions..................34
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on
Form 8-K......................................................34
<PAGE>
Item 1: Business
General
BNP U.S. Funding L.L.C. (the "Company" or the "Registrant") is a
Delaware limited liability company formed on October 14, 1997 for the purpose of
acquiring and holding certain types of eligible securities that generate net
income for distribution to the holders of its Series A Preferred Securities (as
defined below) and its redeemable Common Securities (as defined below). The
Company has no subsidiaries. The Company is a wholly owned subsidiary of the New
York Branch (the "Branch") of Banque Nationale de Paris, a societe anonyme or
limited liability corporation organized under the laws of the Republic of France
(the "Bank" or "BNP"). The Company was continued pursuant to the Amended and
Restated Limited Liability Company Agreement of the Company (the "Company's
Charter" or the "Charter") entered into on December 5, 1997 by the New York
Branch of BNP (the "Branch"), as holder of all of the redeemable common limited
liability company interests of the Company, $10,000 par value (the "Common
Securities"), and the holders of the preferred limited liability company
interests of the Company, including the Noncumulative Preferred Securities,
Series A, liquidation preference $10,000 per security, (the "Series A Preferred
Securities") as they may exist and be outstanding from time to time.
The Company was initially capitalized on October 14, 1997 with the
issuance to the Branch of one share of the Company's Common Securities. On
December 5, 1997 (inception), the Company commenced operations concurrent with
the issuance of 50,000 Series A Preferred Securities to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, and the issuance
of 53,011 Common Securities to the Branch. These issuances raised in the
aggregate $1,030,115,873 of net capital (including $5,873 of additional paid in
capital). This entire amount was used to acquire a portfolio of debt securities
(the "Initial Portfolio") at their fair values from the Branch.
The Company entered into a services agreement (the "Services
Agreement") with the Branch on December 5, 1997 pursuant to which the Branch
maintains the securities portfolio of the Company (the "Portfolio") and performs
other administrative functions. All of the Company's officers and employees are
officers or employees of the Branch or the Bank. The securities in the Portfolio
are held by Citibank N.A., acting as trustee (the "Trustee") under the trust
agreement between the Company and Citibank N.A. dated December 1, 1997 (the
"Trust Agreement").
General Description of Portfolio
Types of Eligible Securities
Pursuant to its Charter and resolutions adopted by its Board of
Directors, the Company may invest only in specified types of securities
("Eligible Securities"). Eligible Securities currently consist of (i) mortgage
pass-through securities issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") that represent fractional
undivided interests in pools of the relevant mortgage loans ("Agency
Securities"); (ii) REMIC securities that are issued or guaranteed by GNMA, FHLMC
or FNMA and that represent beneficial ownership interests in trusts established
by GNMA, FHLMC or FNMA, the assets of which consist directly or indirectly of
Agency Securities or other, previously issued REMIC securities of this type
("REMIC Agency Securities"); (iii) REMIC securities that are issued by an
unrelated private company and secured directly or indirectly by Agency
Securities and rated AAA by Standard & Poor's as to creditworthiness, that
represent beneficial ownership interests in a trust established by such private
company, the assets of which consist directly or indirectly of Agency
Securities, REMIC Agency Securities, or other previously issued REMIC securities
of this type ("Agency Collateralized Securities"); (iv) unsecured, current pay,
direct debt obligations of FNMA and FHLMC ("Agency Debentures"); (v) U.S.
Treasury securities with a maturity of up to ten years ("Treasuries"); and (vi)
specified short-term investments not subject to U.S. withholding tax
("Short-Term Instruments" and, collectively with the securities included in
(i)-(v) above, the "Eligible Securities"). Categories (i) through (iii) above
are referred to herein as "Mortgage-Backed Securities". REMIC Agency Securities
include GNMA REMIC Securities, FHLMC REMIC Securities and FNMA REMIC Securities.
The trusts set up in connection with REMIC Agency Securities and Agency
Collateralized Securities may have elected to be treated as real estate mortgage
investment conduits ("REMICs") for federal income tax purposes.
The types of Agency Securities in the Portfolio are (i) securities
backed only by mortgages with adjustable rates that reset annually at a given
rate plus a net margin ("Agency ARMs"); (ii) securities backed by mortgages with
a fixed rate for a specified period of time, after which they reset annually at
a given rate plus a net margin ("Agency Hybrid ARMs"); and (iii) securities
backed by fixed rate loans on multifamily properties ("Agency DUSs").
Set forth below is a description, as of December 31, 1999 of the
Portfolio. As of December 31, 1999, the Eligible Securities included in the
Portfolio had an aggregate book value of $1,001,622,585 and an estimated fair
value of $981,351,754. As of such date, calculated by aggregate book value,
11.12% of the securities in the Portfolio were floating rate REMIC securities
("Floating-rate REMICs"), 6.11% were fixed rate REMIC securities ("Fixed-rate
REMICs"), 10.61% were Agency ARMs, 13.69% were Agency Hybrid ARMs, 38.83% were
Agency Debentures and 19.64% were Agency DUSs.
The following table sets forth certain information with respect to each
type of security included in the Portfolio:
Portfolio
As of December 31, 1999
<TABLE>
Percentage of
Portfolio by
Aggregate Aggregate Number of
Type of Security Book Value ($000) Book Value Securities
- - ----------------------------------------- ----------------- ------------- ----------
<S> <C> <C> <C>
Floating-rate REMICs..................... $111,364 11.12% 19
Fixed-rate REMICs........................ 61,216 6.11 2
Agency ARMs.............................. 106,267 10.61 28
Agency Hybrid ARMs....................... 137,097 13.69 19
Agency Debentures........................ 388,969 38.83 10
Agency DUSs ............................. 196,709 19.64 17
------- ----- --
TOTAL.................................... $1,001,622 100.00% 95
========== ======== ===
</TABLE>
Description of Types of Securities
Floating-rate REMICs
Floating-rate REMICs are backed by Agency Securities where a particular
portion of the cash flows are directed to the Floating-rate REMICs. FNMA, FHLMC,
and GNMA all guarantee the full and timely payment of principal and interest on
the pools of mortgages, which flow through to the REMICs. These REMICs are
floating-rate securities whose interest rate reset monthly at the then-current
rate of one-month LIBOR plus a margin. The interest ratio is subject to a
lifetime cap and floor. The interest cap, floor, and margin all vary by
security.
FLOATING-RATE REMICS
As of December 31, 1999
<TABLE>
Weighted
Book Value Average Life Maturity
Series ($000) Current Coupon Life Cap (Years) Date
- - --------------------------------- ---------- -------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
FANNIE MAE 1993-210 FB........... $25,522 6.056% 9% 2.36 10-25-2022
FHLMC-GNMA 38 F.................. 3,335 6.125 10 3.76 8-25-2023
FANNIE MAE 1997-28 FA............ 5,487 4.983 10 10.31 5-25-2027
FANNIE MAE 1996-51 FA............ 2,339 6.25 9 3.48 3-18-2025
FANNIE MAE 1990-121 F............ 9,153 6.456 11.5 4.57 10-25-2020
FANNIE MAE 1992-141 FA........... 3,649 5.562 10.5 2.88 8-25-2007
FREDDIE MAC 1256 CA.............. 969 5.012 10.5 1.22 1-15-2022
Morgan Stanley Mortgage 3,578 4.75 10 4.89
Trust 41 Class 1(1).......... 2-20-2022
FANNIE MAE 1993-155 FG........... 1,243 6.156 9.5 2.73 6-25-2023
FREDDIE MAC 1040 H............... 10,641 6.575 11 7.92 2-15-2021
FANNIE MAE 1997-52 F............. 1,830 6.187 9.5 1.95 2-20-2024
FANNIE MAE 1997-42 F............. 3,563 6.187 9 5.17 12-18-2025
FANNIE MAE 1935 FA............... 7,733 6.037 9 5.75 2-15-2026
FANNIE MAE 2020 FB............... 1,550 6.976 9 .88 9-15-2023
FANNIE MAE 2054 FA............... 12,133 5.975 9 14.19 9-15-2026
FANNIE MAE 1721 M................ 13,291 5.818 9 11.57 5-15-2024
FANNIE MAE 2034 FB............... 69 6.006 9 .24 9-15-2026
FANNIE MAE X-188B TA............. 1,832 6.50 N/A 2.16 10-25-2013
FANNIE MAE G92 60 F.............. 3,447 5.719 10 6.36 10-25-2022
Total............................ $111,364
=======
(1) Morgan Stanley Mortgage Trust 41 was established as of December 1, 1991 by
Morgan Stanley Capital I Inc.
</TABLE>
Fixed-rate REMICs
Fixed-rate REMICs are backed by Agency Securities where a particular
portion of the cash flows are directed to the Fixed-rate REMICs. FNMA, GNMA and
FHLMC all guarantee the full and timely payment of principal and interest on the
pools of mortgages, which flow through to the Fixed-rate REMICs.
FIXED-RATE REMICS
As of December 31, 1999
Weighted
Book Value Current Average Maturity
Series ($000) Coupon Life (Years) Date
- - ------------------------------ ---------- ------- ------------ ---------
FANNIE MAE 1997-56 PE......... $ 46,817 6.50 12.30 6-18-2026
FANNIE MAE 1993-80A........... 14,399 5.50 .72 5-25-2023
------
Total......................... $ 61,216
======
Agency ARMs
The Agency ARMs in the Adjustable Rate Mortgage ("ARM") pools consist
of securities having the timely payment of principal and interest generally
guaranteed by GNMA, FNMA and FHLMC. The securities consist of pools of
adjustable rate mortgages, whose interest rates reset annually at a rate equal
to the then-current rate of the One-Year Constant Maturity Treasury Index (as
defined below) plus a net margin. The interest ratio for each ARM pool is
subject to a periodic cap and a lifetime cap, which vary by agency and pool.
The One-Year Constant Maturity Treasury Index ("CMT") is the weekly
average yield on U.S. Treasury securities adjusted to a constant maturity of one
year as published by the Federal Reserve Board in Statistical Release H. 15(519)
or any similar publication or, if not so published, as reported by any Federal
Reserve Bank or by any U.S. Government department or agency. The Three-Year
Constant Maturity Treasury Index is the weekly average yield on U.S. Treasury
securities adjusted to a constant maturity of three years as published in a
similar manner as The One-Year Constant Maturity Treasury Index.
AGENCY ARMs
As of December 31, 1999
<TABLE>
Weighted
Book Value Average Life Maturity
Pool No. (1) ($000) Current Coupon Life Cap (Years) Date
---------- -------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
FN 394850....................... $1,359 6.062 12.06% 10.62 7-1-2027
FN 397901....................... 1,776 5.887 11.89 10.65 8-1-2027
FH 846384....................... 3,178 7.109 11.73 3.80 12-1-2026
FN 374711....................... 1,279 5.719 11.68 10.25 7-1-2027
FN 374773....................... 602 5.826 11.82 10.54 3-1-2027
FH 410544....................... 261 5.908 11.91 3.65 9-1-2027
FH 610727....................... 656 5.739 11.74 4.00 5-1-2027
G 280094........................ 20,885 6.75 11.00 3.97 7-20-2027
G 28506......................... 10,619 6.75 12.50 5.33 9-20-2024
G 280001 ....................... 2,687 6.125 12.50 5.41 10-20-2026
FN 313242....................... 1,145 7.305 11.86 4.42 11-1-2026
FN 367349....................... 982 5.934 11.93 10.35 12-1-2026
FN 313311....................... 1,310 7.197 11.77 10.52 12-1-2026
FN 363057....................... 1,825 5.401 11.39 10.30 2-1-2027
FN 313190....................... 1,971 7.103 12.08 2.08 9-1-2026
FN 363070....................... 838 5.495 11.50 10.49 3-1-2027
FN 313377....................... 4,570 6.106 11.56 10.16 2-1-2027
FN 370479....................... 814 5.336 11.33 10.52 3-1-2027
FN 378243....................... 290 6.22 12.22 10.46 7-1-2027
FN 313432....................... 2,465 5.928 11.81 4.94 2-1-2027
FN 370478....................... 747 5.367 11.35 9.79 2-1-2027
FN 396355....................... 757 5.80 11.80 10.63 8-1-2027
FN 374774....................... 71 5.392 11.39 .1 3-1-2027
FN 391247....................... 5,310 6.289 11.38 10.72 4-1-2027
FN 419444 ...................... 1,318 5.586 11.46 2.08 2-1-2028
FH 786213....................... 14,804 6.874 11.87 5.38 12-1-2027
FH 786088 ...................... 17,828 6.761 11.76 5.06 12-1-2027
FH 785825 ..................... 5,920 6.714 11.72 4.91 5-1-2027
-----
Total...................... $106,267
=======
- - --------------
(1)"FN"= FNMA; "G"= GNMA; and "FH"= FHLMC.
</TABLE>
Agency Hybrid ARMs
The Agency Hybrid ARMs consist of securities having the timely payment
of principal and interest guaranteed by FNMA and FHLMC. The securities consist
of mortgages that have a fixed interest rate for a specified period of time,
after which the interest rate reset annually at a rate equal to the then-current
rate of the One-Year Constant Maturity Treasury Index (as defined above) plus a
security net margin, except that pools underlying the Fannie Mae 422268 have a
coupon that resets every three years at a rate equal to the then-current rate of
the Three-Year Constant Maturity Treasury Index (as defined above) plus a
security net margin. The interest rate of each ARM pool is subject to a periodic
cap and a lifetime cap which vary by pool.
AGENCY HYBRID ARMs
As of December 31, 1999
<TABLE>
Book Value Weighted Average Maturity
Pool No. (1) ($ 000) Current Coupon Life Cap Life (Years) Date
---------- -------------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C>
FN 345856............ $ 7,531 6.839% 11.86 10.96 8-1-2036
FN 374138............ 10,000 6.331 11.35 10.44 3-1-2027
FN 361370............ 17,761 7.484 13.56 9.92 7-1-2026
FN 397136............ 7,248 7.72 13.75 10.18 6-1-2027
FN 361372............ 20,633 7.831 12.88 9.79 7-1-2026
FN 312824............ 3,650 7.375 12.38 9.85 6-1-2025
FN 362968............ 2,390 7.701 12.27 9.9 1-1-2026
FN 374917............ 4,514 6.666 11.74 10.41 4-1-2027
FN 403006............ 6,437 6.439 11.5 10.53 11-1-2007
FN 404484............ 6,199 6.486 11.5 10.53 11-1-2027
FN 422276............ 15,525 7.533 13.2 4.73 12-1-2027
FN 422268............ 2,764 8.00 12.9 8.21 12-1-2024
FN 422265............ 5,860 7.55 13.25 9.34 1-1-2026
FN 415286............ 5,822 6.341 12.34 10.65 2-1-2028
FN 342054............ 2,238 5.686 11.34 11.40 4-1-2036
FN 409850............ 3,836 6.637 11.63 10.59 3-1-2028
FN 417833............ 8,826 6.412 11.39 10.57 3-1-2028
FG G40330............ 1,695 7.00 N/A .13 8-1-2000
FH 786414............ 4,168 6.521 11.38 5.31 7-1-2028
-------
Total............ $137,097
=======
(1) "FN"= FNMA.
</TABLE>
Agency Debentures
Pursuant to a Board of Directors resolution of November 4, 1998, the
Company may invest in Agency Debentures. The Agency Debentures consist of
conventional debt securities issued periodically directly by either FNMA or
FHLMC. Such Agency Debentures are not secured by any collateral and represent
general unsecured obligations of FNMA or FHLMC. The Company is permitted to
purchase only unsubordinated debentures which pay interest on a current basis.
The Agency Debentures purchased by the Company bear interest at a fixed rate and
are not redeemable by the issuer prior to maturity.
AGENCY DEBENTURES
As of December 31, 1999
<TABLE>
Security Book Value
Description ($ 000) Current Coupon Weighted Average Life (Years)
- - ------------------------------- ---------- -------------- -----------------------------
<S> <C> <C> <C>
FHLMC 3134A2DT2 24,141 5.75% 8.05
FNMA 31359MCY7................. 114,400 2.13 N/A
FNMA 31359MDR1................. 42,000 1.75 N/A
FNMA 31359MDU4................. 45,723 6.00 8.13
FNMA 31359C5BO................. 23,865 6.44 7.70
FNMA 31359C6C7................. 7,494 6.48 7.74
FNMA 31359CU55................. 12,258 6.70 7.55
FNMA 31359CYE2................. 50,000 6.68 7.32
FNMA 31359CYX0................. 50,000 6.80 7.34
FNMA 31359C5Q7................. 19,090 6.55 7.47
-------
TOTAL 388,969
=======
</TABLE>
Agency DUSs
Pursuant to a Board of Directors resolution of November 4, 1998, the
Company may invest in Agency DUSs. A Delegated Underwriting and Servicing (DUS)
pool is 100% guaranteed by FNMA and backed by loans on multifamily properties.
These are fixed-rate loans ranging in size from $1 million to $50 million. FNMA
guarantees timely payment of interest and principal, including any balloon
payments. Consequently, there is no risk of a loss of principal. Loans include
yield maintenance provisions that permit the borrower to prepay his mortgage but
only with a penalty that is sufficient to compensate the investor for early
prepayment. Any yield maintenance collected is passed through to the investor.
Lenders share any loss on defaulted loans, assuming that the loans are
underwritten properly.
Agency DUSs
As of December 31, 1999
<TABLE>
Security Book Value
Description ($ 000) Current Coupon Weighted Average Life (Years)
- - ------------------------------- ---------- -------------- -----------------------------
<S> <C> <C> <C>
FNMA 380491.................... 5,908 6.11 7.91
FNMA 380583.................... 19,753 6.15 7.96
FNMA 380933.................... 8,210 5.92 8.28
FNMA 381152.................... 5,303 5.88 8.35
FNMA 381294.................... 2,007 5.81 8.42
FNMA 381578.................. 23,246 6.23 8.67
FNMA 381608.................... 7,250 5.93 8.67
FNMA 381640.................... 5,872 5.86 8.60
FNMA 381488.................... 4,409 6.19 8.61
FNMA 381514.................... 5,068 6.19 8.61
FNMA 381705.................... 4,086 6.26 8.77
FNMA 381730.................... 16,048 6.39 8.77
FNMA 381115.................... 11,923 5.97 8.27
FNMA 380115.................... 44,484 6.29 7.62
FNMA 381117.................... 5,098 5.80 8.34
FNMA 381450.................... 12,150 5.78 8.49
FNMA 381556.................... 15,894 6.24 8.57
------
Total..................... $196,709
=======
</TABLE>
Item 2: Properties
The Company does not own or lease any property. It uses the facilities
of the Branch located at 499 Park Avenue, New York, New York 10022.
Item 3: Legal Proceedings
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5: Market for Registrant's Common Equity and Related Security holder
Matters
Market Information
There is no established public trading market for the Company's Common
Securities, all of which are held by the Branch. The Bank has agreed with the
Company that, so long as any Series A Preferred Securities are outstanding, it
will maintain direct or indirect ownership of 100% of the outstanding Common
Securities.
Dividends
Holders of Common Securities are entitled to receive dividends when, as
and if declared by the Company's Board of Directors, out of net gains from the
disposition of securities in the Portfolio and net income not required to be
applied to fund dividends with respect to the Series A Preferred Securities.
During 1999 the Company had declared and paid $18,806,956 in dividends
on the Common Securities.
Item 6: Selected Financial Data
The following table sets forth selected financial data for the years
ended December 31, 1999 and December 31, 1998
(in thousands, except share and yield data)
<TABLE>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Income Statement:
- - ----------------
<S> <C> <C>
Interest income $ 58,485 $ 53,703
Net income 57,685 53,432
Average number of redeemable Common Securities outstanding 53,011 53,011
Net income per redeemable Common Security 358.33 278.10
Balance Sheet:
- - -------------
Investment Securities at fair value 981,352 962,027
Total Assets 1,263,193 1,574,170
Series A Preferred Securities outstanding 500,000 500,000
Total Redeemable Common Securities, Preferred Securities,
and Securityholders' Equity $1,030,131 $1,044,151
Other Data:
- - ----------
Comprehensive Income $ 43,477 $ 62,717
Dividends paid on Series A Preferred Securities $ 38,690 $ 38,690
Dividends paid on redeemable Common Securities $ 18,807 $ 14,134
Number of Series A Preferred Securities outstanding 50,000 50,000
Number of redeemable Common Securities outstanding 53,011 53,011
Average yield on investment securities 6.07% 5.15%
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion pertains to the years ended December 31, 1999
and December 31, 1998.
General
The Company was formed on October 14, 1997 and commenced operations on
December 5, 1997 by the sale to qualified institutional buyers of 50,000 Series
A Preferred Securities and the sale to the Branch of BNP of 53,011 Common
Securities. Together, such sales raised net capital of $1,030,115,873, which the
Company used to purchase the Initial Portfolio from the Branch.
The Company's sole business is to acquire, hold and manage debt
instruments, largely consisting of mortgage obligations, in the Portfolio, which
generate net income for distribution to securityholders. The Company's major
source of income is interest generated by the securities in the Portfolio.
Results of Operations
The Company had revenues of $58,485,217, for the year ended December
31, 1999 and $53,703,474 for the year ended December 31, 1998. These amounts
consisted entirely of interest income. Interest on the securities in the
Portfolio amounted to $49,599,666 and $51,226,580, respectively, representing an
aggregate yield of 6.07% and 5.15%, respectively. Interest earned and average
yield with respect to each category of security in the Portfolio was as follows:
<TABLE>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Floating-rate REMICs.............. $ 7,597,094 5.44% $ 14,874,017 5.70%
Fixed-rate REMICs................. $ 4,530,699 6.31% $ 4,104,877 4.41%
Agency ARMs....................... $ 7,390,529 5.81% $ 10,245,225 5.63%
Agency Hybrid ARMs................ $ 9,724,696 5.93% $ 12,958,164 6.48%
Agency Debentures................. $ 10,116,794 6.67% $ 553,473 2.75%
Agency DUS........................ $ 5,782,550 6.47% - -%
Treasuries........................ $ 4,457,304 5.72% $ 8,490,824 5.80%
</TABLE>
The yield on the Agency Debentures was approximately 5.41% when taking
into account the income from the derivative products used to hedge these
securities. The yield on the Agency DUSs was approximately 5.90% when taking
into account the income from the derivative products used to hedge these
securities.
During the third quarter of 1999 the Company sold its entire position
in U.S. Treasury Notes, with a par value of $140 million and an aggregate book
value of $145,240,859 at the time of their sale. These sales were made pursuant
to a unanimous resolution of the Board of Directors adopted on June 30, 1999.
They resulted in an aggregate loss of $338,192. The Company reinvested the
proceeds of such sales in fixed-rate eligible securities Agency Debentures
having a maturity at least equal to, and a yield higher than, the U.S. Treasury
Notes.
The average book value of the Portfolio during 1999 and the 1998 Period
was $967,177,785 and $989,170,343, respectively. This reflects the following
prepayments and reinvestments:
PREPAYMENTS 1999 1998
- - -------------------------------- ------------- -------------
Floating-rate REMICs............ $ 89,582,824 $ 188,840,328
Fixed-rate REMICs............... $ 38,956,064 $ 19,823,014
Agency ARMs..................... $ 59,239,363 $ 266,494,555
Agency Hybrid ARMs.............. $ 72,933,937 $ 101,443,581
Agency DUS $ 826,116 $ -
Agency Debentures............... $ 0 $ 18,425
REINVESTMENTS 1999 1998
- - -------------------------------- ------------- -------------
Floating-rate REMICs............ - $ 124,837,899
Fixed-rate REMICs............... - $ 78,641,348
Agency ARMs..................... - $ 40,874,409
Agency Hybrid ARMs.............. - $ 169,715,612
Agency DUS...................... $ 177,545,235 $ -
Agency Debentures............... $ 288,874,293 $ 120,000,000
The Company also recorded interest income from the short-term
investment for 1999 and the 1998 of $2,837,021 and $2,477,193, respectively.
These amounts are attributable to (i) interest payments on securities in the
Portfolio and (ii) prepayments of principal pending their reinvestment.
The increase in the aggregate yield on the securities in the Portfolio
to 6.07% for 1999 from 5.15% for the 1998 was due primarily to prevailing market
conditions resulting in a higher interest rate environment in the United States.
The CMT index (as defined in Item 1), on which yields on the Agency ARMs and
Agency Hybrid ARMs are based, stood at 5.98% at December 31, 1999 as compared to
4.53% at December 31, 1998. The average for the year ended December 31, 1999 was
5.08% with a low of 4.41% on January 14, 1999, as compared to the average for
the year ended December 31, 1998 of 5.05%, with a low of 3.86 on October 16,
1998.
As of December 31, 1999, approximately 80.36% of the Portfolio
consisted of collateralized mortgage obligations (Floating-Rate REMICs and
Fixed-Rate REMICs) and Mortgage-Backed Securities (Agency ARMs, Agency Hybrid
ARMs and Agency DUSs), and approximately 19.64% consisted of Agency Debentures.
Floating Rate securities accounted for approximately 35.42% of the Portfolio's
collateralized mortgage obligations and mortgage backed securities. In addition,
the agency debentures and the Agency DUSs are hedged so that the fixed rate
payments received are converted into prevailing floating rates. This accounted
for approximately 58.47% of the Portfolio.
The aggregate market value of the securities in the Portfolio as of
December 31, 1999 was lower than the book value by approximately 2.02%, due to
an increase in interest rates. These securities are classified as available for
sale and the unrealized net gain (loss) is recorded in Accumulated Other
Comprehensive Income.
Operating expenses for the years ended December 31, 1999 and December
31, 1998 totaled $462,661 and $271,589 respectively. Operating expenses
consisted largely of audit fees, fees of Citibank as Trustee and fees paid to
the Branch under the Services Agreement.
The Company's net income for the year ended December 31, 1999 was
$57,685,365 and for the year ended December 31, 1998 it was $53,432,185. As of
December 31, 1999, the Company had declared and paid dividends as follows:
Security Amount Date Paid
- - ----------------------------- ----------- ------------------
Series A Preferred Securities $19,345,000 June 5, 1999
$19,345,000 December 5, 1999
Common Securities $8,454,284 June 15, 1999
$10,352,672 December 15, 1999
These amounts were paid from the Company's retained earnings generated
from net income for the period from December 1, 1998 to November 30, 1999.
SFAS 125 Receivable and Obligation
Under Statement of Financial Accounting Standard (SFAS) 125, transfers
of financial assets that do not meet certain sale accounting requirements must
be accounted for as a secured borrowing transaction with a pledge of collateral.
Due to the potential consequences of a Shift Event, the Company's purchase of
the Initial Portfolio (as defined in Item 1 herein) from the Branch did not meet
certain SFAS 125 sale accounting requirements. Accordingly, the Company recorded
at December 5, 1997 a receivable for the consideration paid to the Branch for
the Initial Portfolio treated as collateral. Since the Company has the right to
sell and pledge the securities in the Initial Portfolio treated as collateral,
in applying SFAS 125 the Company recognized the securities in the Initial
Portfolio as assets and recorded at December 5, 1997 a related obligation to
return them to the Branch. As a legal and economic matter, however, there is no
such receivable or obligation since (a) neither the Bank nor the Branch has any
obligation to repay any part of the purchase price for the Initial Portfolio or
to repurchase or redeem any of the securities included therein, and (b) the
Company has no obligation to return any of such securities to the Bank or the
Branch (except in the limited circumstances and to the extent that the
occurrence of a Shift Event (Defined herein Item 8, Note 2) under the Charter
would require the transfer of any assets held by the Company at the time). As
the securities in the Initial Portfolio are paid, the receivable will be deemed
to be realized and the obligation will be reduced, each by an amount
corresponding to the amount of the payments received. At December 31, 1999 and
December 31,1998, respectively, the receivable arising from payment for
securities amounted to $238,038,499 and $521,643,688 and the obligation arising
from the receipt of securities amounted to $233,056,327 and $529,905,305 . (The
difference between the amounts of the receivable and the obligation result from
a requirement to mark the obligation to market in parallel with the related
securities). The decrease in the amount of such receivable and such obligation
between the two dates reflects the prepayment of securities in the Initial
Portfolio. The Company recognized the cash proceeds of such prepayments as a
reduction in the receivable and concurrently reduced the associated obligation.
Such decreases in the receivable and the obligation did not affect the Company's
results of operations or cash flow. Such transactions are accounted for as a
purchase under SFAS 125.
Year 2000 Issue
The potential Year 2000 issue is the result of computer programs that
were designed using coding that defined the applicable year with two digits
rather than four. Such coding may prevent many of these programs from
distinguishing the year 2000 from 1900. This "Year 2000 Issue" may affect
computer systems that include, but are not limited to, those imbedded in
business data processing systems, management and planning systems and
communications systems. Systems that do not properly recognize dates on or after
January 1, 2000 could generate erroneous data or fail. The Company uses the
Branch's hardware and software for all of its operations. Failure to be Year
2000 compliant could result in major disruptions of the operations of the Branch
and thus the Company.
Through February 2, 2000, the amounts incurred by the Branch related to the
assessment of, and efforts in connection with, the Year 2000 and the development
and execution of a remediation plan have approximated $1,247,500. The Branch's
total remaining Year 2000 project cost as of February 2, 2000 is estimated at
approximately $32,500.
Nothing has come to the Branch's attention, which would cause it to believe that
its Year 2000 compliance effort was not successful. While the Branch will
continue to monitor for Year 2000 related problems, to date no significant Year
2000 issues have been encountered.
Liquidity and Capital Resources
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments. The
Company's sole liquidity needs are to acquire reinvestment securities as
original securities repay or prepay and to pay dividends on the Series A
Preferred Securities. The acquisition of reinvestment securities is funded with
the proceeds of principal repayments or prepayments on original securities, and
the payments of dividends on the Series A Preferred Securities are funded
through interest income from the securities in the Portfolio. Given the limited
scope of its activities (acquiring and holding Eligible Securities to fund the
payment of dividends on the Series A Preferred Securities and the Common
Securities), and the fact that the Company is prohibited from incurring
indebtedness, the Company believes that its liquidity and capital resources will
be sufficient to meet its liquidity requirements in the short and long term.
Recent Development Regarding the Bank
Pursuant to two tender offers conducted recently, BNP has acquired
control of Paribas. In the first tender offer which closed on August 6, 1999,
BNP acquired 64.99% of Paribas' shares, and in the second tender offer which
closed on October 21, 1999, BNP increased its shareholding in Paribas to 96.26%.
After a public buyout offer as of January 31, 2000, the shareholding increased
to 98.90%.
BNP Paribas Group total and Tier 1 capital ratios at December 31, 1999
were 9.50% and 6.61%.
Item 7A: Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
The Company's principal market risk exposure is to changes in interest
rates. This exposure arises from its investments in collateralized mortgage
obligations, mortgage backed securities, Agency Debentures, and certain
derivative instruments used by the Company to modify interest rate exposures.
The outstanding principal amount and estimated fair value as of
December 31, 1999, by each category of investment is set forth in Footnote 4 of
the financial statements contained in Item 8 herein.
Interest Rate Risk
The Company's income consists primarily of interest payments on
collateralized mortgage obligations, Mortgage-Backed Securities, Agency
Debentures and Treasuries. Currently, the Company uses derivative products to
manage a portion of its interest rate risk.
Due to a moderate increase in market interest rates, as occurred
throughout 1999, the Company experienced a stabilization/increase in interest
income on its collateralized mortgage obligations and its Mortgage-Backed
Securities. The increase in interest income resulted from upward adjustments of
the indices upon which the interest rates on floating rate mortgage loans are
based.
The Company is a party to fourteen interest rate swaps with BNP. In all of these
swaps the Company pays a fixed coupon and receives floating rate payments on the
notional balances (in thousands) as set out below:
<TABLE>
Fair Value at Notional
December 31, 1999 Balance Value Date Maturity Date Fixed Rate Receive Rate
- - ------------------- -------- ----------------- --------------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
80 $42,000 November 25, 1998 March 26, 2008 JPY 1.75 US Three Month Libor
plus Six Basis Points
(2,150) $58,000 November 25, 1998 October 9, 2007 JPY 2.125 US Three Month Libor
plus Six Basis Points
1,306 $19,753 November 25, 1998 August 25, 2008 US 6.15 US One Month Libor
plus Five Basis
Points
1,547 $23,246 May 25, 1999 May 25, 2009 US 6.23 US One Month Libor
Plus One and half
Basis Points
258 $50,000 February 12, 1999 March 5, 2007 US 6.68 US One Month Libor
minus Two Basis
Points
(97) $50,000 February 11, 1999 March 14, 2007 US 6.80 US One Month Libor
minus Two Basis
Points
(1,327) $30,000 March 29, 1999 October 9, 2007 JPY 2.125 US Three Month Libor
minus Two and half
Basis Points
(828) $26,400 April 6, 1999 October 9, 2007 JPY 2.125 US Three Month Libor
minus One Basis
Points
1,793 $26,686 June 25, 1999 June 25, 2009 US 6.23 US One Month Libor
Plus Three and half
Basis Points
2,578 $21,427 February 25, 1999 February 25, 2009 US 5.41 US One Month Libor
plus Three Basis
Points
899 $16,047 July 1, 1999 June 25, 2009 US 6.39 US One Month Libor
Plus Three and half
Basis Points
2,410 $44,484 September 27, 1999 March 28, 2008 US 6.29 US One Month Libor
plus Five Basis
Points
1,256 $15,894 November 26, 1999 April 27, 2009 US 6.04 US One Month Libor
plus Four Basis
Points
2,642 $29,171 September 27, 1999 February 25, 2009 US 5.85 US One Month Libor
Plus Three Basis
Points
</TABLE>
The Company regularly reviews its hedging requirements. In the future,
the Company expects to enter into additional swaps, unwind part or all of the
initial and any future swaps in order to rebalance the fixed and floating mix of
interest obligations (including those arising as a result of previous interest
rate swaps entered into) and the fixed and floating mix of interest payments.
The Company's interest rate management strategy will continue to be
rebalanced with any purchase of new investments. There can be no assurance,
however, that the Company's interest rate risk management strategies will be
effective in this regard.
The breakdown of the Company's available-for-sale securities by category and
weighted average life distribution (stated in terms of amortized cost) is
summarized below ($ in thousands) based on management's prepayment assumptions:
<TABLE>
Due after Due after Due after Due after Due after 2005 and
At December 31, 1999 2000 2001 2002 2003 2004 thereafter Total
- - ----------------------------- --------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Instruments:
Fixed-rate REMICs............ $ 14,399 $ 46,817 $ 61,216
Agency Debentures......... 388,969 388,969
Agency DUSs 196,709 196,709
--------- --------- --------- --------- ---------- --------- ----------
Total Fixed Rate Instruments. $ 14,399 $ 632,495 $ 646,894
--------- --------- --------- --------- ---------- --------- ----------
Floating Rate Instruments:
Floating-rate REMICs......... $ 1,038 $ 23,259 $ 21,364 $ 27,861 $ 8,971 $ 28,871 $ 111,364
Agency ARMS............... 261 28,489 33,210 3,910 19,209 21,188 106,267
Agency Hybrid ARMs........ 72,106 2,239 25,525 22,765 2,763 11,699 137,097
--------- --------- --------- --------- --------- --------- ----------
Total Floating Rate Instruments $ 73,405 $ 53,987 $ 80,099 $ 54,536 $ 30,943 $ 61,758 $ 354,728
--------- --------- --------- --------- --------- --------- ----------
TOTAL $ 87,804 $ 53,987 $ 80,099 $ 54,536 $ 30,943 $ 694,253 $1,001,622
========= ========= ========= ========= ========= ========= ==========
Due after Due after Due after Due after Due after 2004 and
At December 31, 1998 1999 2000 2001 2002 2003 thereafter Total
- - ----------------------------- --------- --------- --------- --------- --------- ---------- ----------
Fixed Rate Instruments:
Fixed-rate REMICs............ $ 5,982 $ 47,244 $ 46,831 $ 100,057
Agency Debentures......... 119,981 119,981
Treasuries ............... 145,882 145,882
--------- --------- --------- --------- --------- --------- ----------
Total Fixed Rate Instruments. $ 5,982 $ 47,244 $ 312,694 $ 365,920
--------- --------- --------- --------- --------- --------- ----------
Floating Rate Instruments:
Floating-rate REMICs......... $ 22,416 $ 45,986 $ 72,236 $ 51,076 $ 4,875 $ 196,589
Agency ARMS............... 31,816 73,580 8,748 24,299 33,281 171,454
Agency Hybrid ARMs........ 117,506 19,479 45,966 4,048 14,573 10,187 211,759
Total Floating Rate Instruments $ 171,738 $ 261,739 $ 126,680 $ 79,423 $ 52,729 $ 10,187 $ 579,802
--------- --------- --------- --------- --------- --------- ----------
TOTAL $ 177,720 $ 186,289 $ 126,680 $ 79,423 $ 52,729 $ 322,881 $ 945,722
========= ========= ========= ========= ========= ========= ==========
Actual maturities may differ from maturities shown above due to prepayments.
</TABLE>
Item 8: Financial Statements and Supplementary Data
Report of Independent Accountants
To the Board of Directors and
Stockholders of BNP U.S. Funding L.L.C.
In our opinion, the accompanying balance sheets and the related
statements of income, comprehensive income, changes in redeemable common
securities, preferred securities and securityholders' equity and of cash flows
present fairly, in all material respects, the financial position of BNP U.S.
Funding L.L.C. (the "Company") at December 31, 1999 and December 31, 1998, and
the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 27, 2000
/s/ PricewaterhouseCoopers LLP
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BNP U.S. FUNDING L.L.C.
BALANCE SHEET
(in thousands, except per share data)
<TABLE>
December 31, 1999 December 31,1998
----------------- ----------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents.................................. $ 27,189 $ 84,013
Investment securities (Notes 3 and 4)
Available-for-sale, at fair value....................... 981,352 962,027
Receivable arising from payment for securities,
pursuant to the application of SFAS 125 (Note 3)........ 238,038 521,644
Accounts Receivable........................................ 15 458
Accrued interest receivable................................ 6,232 4,784
Other Assets............................................... 10,367 1,244
----------- -----------
TOTAL ASSETS............................................... $ 1,263,193 $ 1,574,170
=========== ===========
LIABILITIES:
Obligation arising from the receipt of securities,
pursuant to the application of SFAS 125 (Note 3)........ $ 233,056 $ 529,905
Due to affiliates..........................................
Accrued expenses........................................... 6 114
----------- -----------
TOTAL LIABILITIES.......................................... 233,062 530,019
----------- -----------
Redeemable Common Securities, par value and redeemable
value $10,000 per security; 150,000 securities
authorized, 53,011 securities issued and outstanding 530,110 530,110
(Note 5)................................................
Preferred Securities, liquidation preference $10,000 per
security; 150,000 securities authorized, 50,000
securities issued and outstanding....................... 500,000 500,000
Additional paid in capital................................. 6 6
Accumulated other comprehensive income..................... (4,923) 9,285
Retained earnings.......................................... 4,938 4,750
----------- -----------
TOTAL REDEEMABLE COMMON SECURITIES, PREFERRED SECURITIES
AND SECURITYHOLDERS' EQUITY............................. 1,030,131 1,044,151
----------- -----------
TOTAL LIABILITIES AND TOTAL REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND SECURITYHOLDERS' EQUITY........ $ 1,263,193 $ 1,574,170
=========== ===========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
</TABLE>
BNP U.S. FUNDING L.L.C.
STATEMENT OF INCOME
(in thousands, except per share data)
<TABLE>
Twelve-month Twelve-month
period ended period ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INTEREST INCOME:
Collateralized Mortgage Obligations:
Floating-rate REMICs...................... $ 7,597 $ 14,874
Fixed-rate REMICs......................... 4,530 4,105
Mortgage-Backed Securities:
Agency ARMs............................... 7,390 10,245
Agency Hybrid ARMs........................ 9,725 12,958
Agency DUSs 5,273 ----
Agency Debentures............................ 16,676 553
Treasuries................................... 4,457 8,491
Interest on Deposits......................... 2,837 2,477
---------- ----------
Total........................................ 58,485 53,703
---------- ----------
NONINTEREST EXPENSE:
Realized Loss on Treasury Notes 338
Fees and expenses............................ 462 271
---------- ----------
NET INCOME APPLICABLE TO PREFERRED
AND REDEEMABLE COMMON SECURITIES.......... $ 57,685 $ 53,432
---------- ----------
NET INCOME PER REDEEMABLE COMMON SECURITY.... $ 358.33 $ 278.10
========== ==========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
</TABLE>
BNP U.S. FUNDING L.L.C.
STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
Twelve-month Twelve-month
period ended period ended
December 31, 1999 December 31,1998
----------------- ----------------
<S> <C> <C> <C>
NET INCOME $ 57,685 $ 53,432
OTHER COMPREHENSIVE INCOME:
Net change in unrealized gain (loss) in fair value of
securities available-for-sale treated as collateral
(Note 3) (13,243) 5,913
Netchange in unrealized loss in fair value of obligation
arising from the receipt of securities pursuant to the
application of SFAS 125 (Note 3) 13,243 (5,913)
Net change in unrealized gain (loss) in fair value of
securities and related interest and foreign exchange rate
swaps available-for-sale not treated as collateral
(Note 3) (14,208) 9,285
----------- ----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (14,208) 9,285
----------- ----------
COMPREHENSIVE INCOME $ 43,477 $ 62,717
========== ==========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
</TABLE>
BNP U.S. FUNDING L.L.C.
STATEMENT OF CHANGES IN REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND SECURITYHOLDERS' EQUITY
(in thousands)
<TABLE>
TOTAL REDEEMABLE
ACCUMULATED COMMON SECURITIES,
REDEEMABLE ADDITIONAL OTHER PREFERRED SECURITIES
COMMON PREFERRED PAID IN COMPREHENSIVE RETAINED AND SECURITYHOLDERS'
SECURITIES SECURITIES CAPITAL INCOME EARNINGS EQUITY
---------- ---------- ---------- ------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance $ 10 $ -- $ -- $ -- $ -- $ 10
Issuance on December 5, 1997
(inception)................... 530,100 -- 6 -- -- 530,106
Private Placement
on December 5, 1997........... -- 500,000 -- -- -- 500,000
Net income -- -- -- -- 4,142 4,142
--------- --------- --------- --------- --------- -----------
Balance at December 31, 1997.. 530,110 500,000 6 -- 4,142 1,034,258
--------- --------- --------- --------- --------- -----------
Net income.................... -- -- -- -- 53,432 53,432
Other comprehensive income.... -- -- -- 9,285 -- 9,285
Dividends Paid--
Preferred Securities.......... (38,690) (38,690)
Dividends Paid--
Common Securities............. (14,134) (14,134)
--------- --------- --------- --------- --------- -----------
Balance at December 31, 1998.. 530,110 500,000 6 9,285 4,750 1,044,151
--------- --------- --------- --------- --------- -----------
Net income 57,685 57,685
Other comprehensive income (14,208) (14,208)
Dividends Paid--
Preferred Securities.......... (38,690) (38,690)
Dividends Paid--
Common Securities............. (18,807) (18,807)
--------- --------- --------- --------- --------- -----------
Balance at December 31, 1999.. $ 530,110 $ 500,000 $ 6 $ (4,923) $ 4,938 $ 1,030,131
========= ========= ========= ========= ========= ===========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
</TABLE>
BNP U.S. FUNDING L.L.C.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
Twelve-month Twelve-month
period ended period ended
December 31, 1999 December 31, 1998
----------------- -----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income............................................................ $ 57,685 $ 53,432
Adjustments to reconcile net income to cash provided from
operating activities:
Premium amortization.................................................. 4,395 9,992
Net change in interest receivable..................................... 469 2,119
Net change in accrued expenses........................................ (108) 79
Net change in accounts receivable..................................... 443 (458)
Net change in due to affiliates....................................... (12)
---------- ----------
Net cash provided from operating activities........................... 62,884 65,152
---------- ----------
INVESTING ACTIVITIES:
Purchase of investment securities:
Floating-rate REMICs............................................... - (124,838)
Fixed Rate REMICs.................................................. - (78,641)
Agency ARMs........................................................ - (40,874)
Agency Hybrid ARMs................................................. - (169,716)
Agency DUSs (177,546)
Agency Debentures..................................................... (288,874) (120,000)
Premium paid.......................................................... (652) (2,869)
Interest receivable................................................... (1,917) (1,759)
Sale of Treasury Note................................................. 145,240
Proceeds from principal payments of securities available-for-sale,
not treated as collateral.......................................... 126,380 114,239
Proceeds from principal payments of securities available-for-sale,
treated as collateral.............................................. 135,158 462,381
---------- ----------
Net cash provided (used) by investing activities...................... (62,211) 37,923
---------- ----------
FINANCING ACTIVITIES:
Cash dividends-- Preferred Securities................................. (38,690) (38,690)
Cash dividends-- Common Securities.................................... (18,807) (14,134)
---------- -----------
Net cash provided (used) by financing activities...................... (57,497) (52,824)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................................ (56,824) 50,251
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 84,013 33,762
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 27,189 $ 84,013
========== ==========
NONCASH FINANCING AND INVESTING ACTIVITIES:
Decrease in receivable arising from payment for securities,
pursuant to the application of SFAS 125 (Note 3)................... 283,606 474,616
Decrease in obligation arising from receipt of securities,
pursuant to the application of SFAS 125 (Note 3)................... (283,606) (474,616)
---------- ----------
TOTAL NONCASH FINANCING AND INVESTING ACTIVITIES...................... - -
========== ==========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
</TABLE>
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION:
BNP U.S. Funding L.L.C. (the "Company") is a Delaware limited liability
company formed on October 14, 1997 for the purpose of acquiring and holding
Eligible Securities (as defined in Item 1 herein) that will generate net income
for distribution to the holders of its Series A Preferred Securities (as defined
below) and its redeemable Common Securities (as defined below). The Company is a
wholly owned subsidiary of the New York Branch (the "Branch") of Banque
Nationale de Paris (the "Bank" or "BNP"). BNP is a French corporation that
conducts retail banking activities in France and corporate and private banking
and other financial activities both in France and throughout the world.
The Company was initially capitalized on October 14, 1997 with the
issuance to the Branch of one share of the Company's redeemable common
securities, $10,000 par value (the "Common Securities"). On December 5, 1997
(inception), the Company commenced operations concurrent with the issuance of
50,000 noncumulative preferred securities, Series A, liquidation preference
$10,000 per security, (the "Series A Preferred Securities") to qualified
institutional buyers, and the issuance of 53,011 Common Securities to the
Branch. These issuances raised in the aggregate $1,030,115,873 of net capital
(including $5,873 of additional paid in capital). This entire amount was used to
acquire from the Branch a portfolio of debt securities (including accrued
interest) at their fair values (the "Initial Portfolio").
The accounting and financial reporting policies of the Company conform
to U.S. generally accepted accounting principles and current industry practices.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and revenues during the
reporting periods. Actual results could differ from those estimates.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investment Securities
Investments in debt securities, both collateral and noncollateral (Note
3), are classified as available for sale and are carried at fair value.
Unrealized gains and losses on these securities are reported as a component of
other comprehensive income.
Interest on securities is included in interest income and is recognized
using the interest method. Premiums and discounts are amortized using the
effective interest method and are recognized in interest income.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires the Company to report items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately in Total Redeemable
Common Securities, Preferred Securities and Securityholders' Equity.
Comprehensive income includes net income, as reported, as well as the change in
unrealized gains and losses on available-for-sale securities and in the
obligation arising from the receipt of securities, pursuant to the application
of SFAS 125.
Cash And Cash Equivalents
Cash and cash equivalents includes cash and short-term deposits with
original maturities of three months or less.
Dividends
Dividends on the Series A Preferred Securities, when, as and if
declared by the Company's Board of Directors, are payable out of the Company's
net income, determined without regard to capital gains or losses, semi-annually
in arrears on a non-cumulative basis on the fifth day of June and December of
each year, commencing June 5, 1998, at a rate per annum of 7.738% of the
liquidation preference through and including December 5, 2007. Thereafter,
dividends, when, as and if declared by the Company's Board of Directors, will be
payable quarterly in arrears on the third Wednesday of March, June, September,
and December of each year and will be calculated on a weekly basis in each
quarter at a rate per annum of the liquidation preference equal to 2.8% per
annum above one-week LIBOR for the week concerned as determined on the related
LIBOR Determination Date. Holders of Common Securities are entitled to receive
dividends when, as and if declared by the Company's Board of Directors out of
the Company's net income not required to be applied to fund dividends with
respect to the Series A Preferred Securities.
To date, the Company has declared and paid dividends as follows:
<TABLE>
Security Amount Date Paid
- - ------------------------ ------------ ------------------
<S> <C> <C>
Series A Preferred Securities.................... $ 19,345,000 June 5, 1998
Common Securities................................ $ 5,347,365 June 22, 1998
Series A Preferred Securities.................... $ 19,345,000 December 5, 1998
Common Securities................................ $ 8,787,127 December 15, 1998
Series A Preferred Securities.................... $ 19,345,000 June 5, 1999
Common Securities................................ $ 8,454,284 June 15, 1999
Series A Preferred Securities.................... $ 19,345,000 December 5, 1999
Common Securities................................ $ 10,352,672 December 15, 1999
</TABLE>
If the Bank's financial condition were to deteriorate with the
consequence that a Shift Event (as defined below) were to occur, substantially
all of the Common Securities would be redeemed automatically without prior
redemption of the Series A Preferred Securities and dividends payable on each
Series A Preferred Security could be substantially reduced or completely
eliminated. In addition, if the Bank's Tier 1 risk-based capital ratio were to
decline below the minimum percentage required by French banking regulations
(currently 4%), the Company would pay a special dividend consisting of all of
the Company's net assets (other than assets having a total market value of
approximately $40 million) to the Bank as holder of the Common Securities.
A "Shift Event" would be deemed to have occurred if (i) the Bank's
total risk-based capital ratio or Tier 1 risk-based capital ratio were to
decline below the minimum percentages required by French banking regulations,
(ii) the Bank were to become subject to certain specified receivership
proceedings or (iii) the French Banking Commission (Commission bancaire), in its
sole discretion, were to notify the Bank and the Company that it has determined
that the Bank's financial condition was deteriorating such that either of the
foregoing clauses (i) or (ii) would apply in the near term. French banking
regulations currently require French banks to maintain a minimum total
risk-based capital ratio of at least 8.0% and a minimum Tier 1 risk-based
capital ratio of at least 4.0%.
The Company may not pay dividends or make other distributions on the
Common Securities or the Series A Preferred Securities if, after giving effect
to the distributions, the Company's liabilities would exceed the fair value of
its assets. Additionally, as long as any Series A Preferred Securities are
outstanding, except during a Shift Period (i.e., following the occurrence of a
Shift Event causing a shift in dividend preference and before the termination
thereof), the amount of dividends on the Common Securities in any fiscal year
may not exceed the amount by which the net income of the Company for such fiscal
year exceeds the stated dividends on the Series A Preferred Securities scheduled
to be paid during such fiscal year irrespective of whether dividends on the
Series A Preferred Securities are in fact declared and paid. Additionally, other
than during a Shift Period, no dividends may be declared, paid or set apart for
payment on the Common Securities (a) with respect to any period of time included
in any Dividend Period unless full dividends have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof is
set apart for such payment on the Series A Preferred Securities for the
then-current Dividend Period and (b) the Company may not declare, pay or set
apart funds for any dividends or other distributions with respect to any Common
Securities unless and until (x) full dividends on the Series A Preferred
Securities for the two most recent preceding Dividend Periods are declared and
paid, or declared and a sum sufficient for payment has been paid over to the
dividend disbursing agent for payment of such dividends and (y) the Company has
declared a cash dividend on the Series A Preferred Securities at the annual
dividend rate for the then-current Dividend Period, and sufficient funds have
been paid over to the dividend disbursing agent for payment of such cash
dividends for such then-current Dividend Period.
Net Income Per Redeemable Common Security
Net income per redeemable common security is calculated by dividing net
income after preferred dividends by the weighted average number of Common
Securities outstanding.
Income Taxes
The Company expects to be treated as a partnership for U.S. Federal
income tax purposes. As a partnership is not a taxable entity, the Company will
not be subject to U.S. federal, state and local income tax on its income.
Instead, each securityholder is required to take into account its allocable
share of items of income, gain, loss and deduction of the partnership in
computing its U.S. Federal tax liability. Accordingly, the Company has made no
provision for income taxes in the accompanying statement of income.
Derivatives Used In Asset Management Activities
As part of its asset management activities the Company uses foreign
exchange and interest rate swaps to modify the interest rate and foreign
exchange characteristics of existing assets. The swaps are highly correlated to
the asset which they hedge, both at inception and throughout the hedge period.
These swaps are carried at fair value. The accrual of interest
receivable or interest payable on these swaps are reported in Interest Income:
Agency Debentures and Agency DUSs. Changes in the market values of these swaps,
exclusive of net interest accruals, are reported in Stockholders' Equity:
Accumulated other comprehensive income.
Foreign Currency Translation
Assets denominated in foreign currencies are translated to US dollars
using applicable rates of exchange. The entire change in the fair value of
foreign currency denominated investment securities classified as available for
sale (both the change in the market price of the security as expressed in US
Dollars and the change in the exchange rate between the assets denominated in
foreign currencies and the functional currency), together with the effects of
hedging instruments, is reported in Accumulated Other Comprehensive Income
within Stockholders' Equity. Revenues and expenses are translated monthly at
amounts which approximate weighted average exchange rates.
Accounting for Derivatives and Hedging Activities
In June of 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"), which
establishes accounting and reporting standards for all derivative instruments
and hedging activities. SFAS 133 requires that an entity measure all hedging
activities. SFAS 133 requires that an entity measure all derivatives at fair
value and recognize those derivatives as either assets or liabilities on the
balance sheet. The change in the derivative's fair value is generally to be
recognized in current period earnings. However, if certain conditions are met, a
derivative may be specifically designated as a hedge of an exposure to changes
in fair value, variability of cash flows, or certain foreign currency exposures.
Based on the hedge designation, special hedge accounting rules would allow the
derivative's change in value to be recognized either in current period earnings,
together with the offsetting change in value of the risk being hedged or to the
extent the hedge is effective, in comprehensive income and subsequently
reclassified into earnings when the hedge item affects earnings. Depending on
the underlying risk management strategy, these accounting changes could affect
reported earnings, assets, liabilities, and stockholders' equity. As a result,
the Company will have to reconsider their risk management strategies, since the
new standard will not reflect the results of many of those strategies in the
same manner as current accounting practice. The Company is in the process of
evaluating the potential impact of the new accounting standard. SFAS 133 is
effective for all fiscal years beginning after June 15, 1999. The original
effective date for the implementation of SFAS 133 has been amended by the
issuance of SFAS 137, entitled Accounting for Derivatives and Hedging
Activities- Deferral of the Effective Date of FASB Statement No. 133. Thus, SFAS
133 is effective for all fiscal quarters beginning after June 15, 2000.
NOTE 3--RECEIVABLE ARISING FROM PAYMENT FOR SECURITIES, PURSUANT TO THE
APPLICATION OF SFAS 125, AND OBLIGATION ARISING FROM THE RECEIPT OF SECURITIES,
PURSUANT TO THE APPLICATION OF SFAS 125:
Statement of Financial Accounting Standards No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125") governs the accounting for the transfer of financial assets. Under
SFAS 125, transfers of financial assets that do not meet certain sale accounting
requirements must be accounted for as a secured borrowing transaction with a
pledge of collateral.
Due to the potential consequences of a Shift Event (as described
above), the Company's purchase of the Initial Portfolio from the Branch did not
meet certain SFAS 125 sale accounting requirements. Therefore, the purchase of
the Initial Portfolio has been accounted for as a secured borrowing transaction
with a pledge of collateral. In accounting for this transaction as a secured
borrowing transaction in accordance with SFAS 125, the Company has recorded a
receivable in an amount equal to the remaining amount paid to the Branch to
acquire the Initial Portfolio. In this case, however, having delivered the
securities in the Initial Portfolio to the Company, neither the Branch nor BNP
has any further obligation to the Company to repay any part of the purchase
price for the Initial Portfolio or otherwise to repurchase or redeem any
securities in the Initial Portfolio.
Other provisions of SFAS 125 govern the accounting for financial assets
treated as collateral that an entity has the right to sell or repledge. In
accordance with such provisions, the Company has recognized the securities in
the Initial Portfolio and recorded a related obligation. In this case, the
Company has in fact no obligation to return any such securities to the Branch or
to BNP, except to the extent that the consequences of a Shift Event (as
described above) might affect securities still held by the Company at the time.
As securities within the Initial Portfolio mature or prepay, the
Company recognizes the cash proceeds as a reduction in a receivable arising from
payment for securities. Concurrent with the receipt of such cash proceeds, the
Company derecognizes such securities and reduces the associated obligation.
The obligation arising from the receipt of securities is stated at the
fair value of the related securities. Changes in the value of the obligation due
to corresponding changes in the fair value of the related securities are
reported as an element of other comprehensive income.
NOTE 4--INVESTMENT SECURITIES:
The amortized cost and estimated fair value of available-for-sale
securities were as follows ($ in 000's) based on management's prepayment
assumptions:
<PAGE>
<TABLE>
Gross Gross
Unrealized Unrealized
December 31, 1999 Amortized Cost Gains Losses Fair Value
- - ----------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Collateralized Mortgage Obligations:
Floating-rate REMICs................... $ 111,364 $ $ 1,090 $ 110,274
Fixed-rate REMICs...................... 61,216 3,349 57,867
Mortgage Backed Securities:
Agency ARMs............................ 106,267 16 1,518 104,765
Agency Hybrid ARMs..................... 137,097 2,596 134,501
Agency Debentures......................... 388,969 4,046 6,873 386,142
Agency DUSs............................... 196,709 8,906 187,803
---------- --------- -------- ---------
Total................................ $1,001,622 $ 4,062 $ 24,332 $ 981,352
========== ========= ======== =========
Gross Gross
Unrealized Unrealized
December 31, 1998 Amortized Cost Gains Losses Fair Value
- - ----------------- -------------- ---------- ---------- ----------
Collateralized Mortgage Obligations:
Floating-rate REMICs................... $ 196,589 $ 20 $ 1,010 $ 195,599
Fixed-rate REMIC....................... 100,057 239 99,818
Mortgage Backed Securities:
Agency ARMs............................ 171,454 28 3,183 168,299
Agency Hybrid ARMs..................... 211,759 1,081 176 212,664
Agency Debenture 119,981 9,303 129,284
Treasuries................................ 145,882 10,481 156,363
---------- --------- -------- ---------
Total................................ $ 945,722 $ 20,913 $ 4,608 $ 962,027
========== ========= ======== =========
</TABLE>
The breakdown of the Company's available-for-sale securities by
category and weighted average life distribution (stated in terms of amortized
cost) is summarized below ($ in 000's) based on management's prepayment
assumptions:
<TABLE>
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1999 or less years years years Total
- - ----------------- ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Collateralized Mortgage Obligations:
Floating-rate REMICs............... $ 1,038 $ 81,455 $ 28,871 $ $ 111,364
Fixed-rate REMICs.................. 14,399 46,817 61,216
Mortgage Backed Securities:
Agency ARMs........................ 261 84,818 20,516 672 106,267
Agency Hybrid ARMs................. 72,106 53,292 11,699 137,097
Agency Debentures..................... 388,969 388,969
Agency DUSs........................... -- -- 196,709 -- 196,709
---------- ---------- ---------- ---------- -----------
Total............................ $ 87,804 $ 219,565 $ 693,581 $ 672 $ 1,001,622
========== ========== ========== ========== ===========
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1998 or less years years years Total
- - ----------------- ------------- ----------- ----------- ------------ -----------
Collateralized Mortgage Obligations:
Floating-rate REMICs............... $ 22,416 $ 174,173 $ $ $ 196,589
Fixed-rate REMIC................... 5,982 47,244 46,831 100,057
Mortgage Backed Securities:
Agency ARMs........................ 31,816 139,638 171,454
Agency Hybrid ARMs................. 117,506 84,066 10,187 211,759
Agency Debentures..................... 119,981 119,981
Treasury.............................. -- -- 145,882 -- 145,882
---------- ---------- ---------- ---------- -----------
Total............................ $ 177,720 $ 445,121 $ 312,694 $ 10,187 $ 945,722
========== ========== ========== ========== ===========
Actual maturities may differ from maturities shown above due to prepayments.
</TABLE>
The breakdown of the Company's available-for-sale securities by
category and yield is summarized below:
<TABLE>
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1999 or less years years years Total
- - ----------------- ------------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Collateralized Mortgage Obligations:
Floating-rate REMICs.............. 4.77% 5.24% 6.25% % 5.44%
Fixed-rate REMICs................. 6.00 6.47 6.31
Mortgage Backed Securities:
Agency ARMs....................... 3.80 5.75 6.14 5.36 5.81
Agency Hybrid ARMs................ 5.73 6.19 5.94 5.93
Agency DUSs........................... -- -- 6.47 -- 6.47
Agency Debentures..................... -- -- 6.67 -- 6.67
------- ------- ------- ------- -------
Total......................... 5.73% 5.79% 6.50% 5.36% 6.07%
======= ======= ======= ======= =======
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1998 or less years years years Total
- - ----------------- ------------- ----------- ----------- ------------- ---------
Collateralized Mortgage Obligations:
Floating-rate REMICs.............. 5.42% 5.73% % % 5.70%
Fixed-rate REMIC.................. 5.77 2.20 6.47 4.41
Mortgage Backed Securities:
Agency ARMs....................... 2.00 6.45 5.63
Agency Hybrid ARMs................ 6.37 6.39 8.68 6.48
Agency Debentures -- -- 2.75 -- 2.75
Treasuries............................ -- -- 5.80 -- 5.80
------- ------- ------- ------- -------
Total......................... 5.44% 5.71% 4.73% 8.68% 5.15%
======= ======= ======= ======= =======
</TABLE>
For the period December 31, 1998 to December 31, 1999, the Company sold
its entire position of $145 Million Treasury Notes. There were no sales during
1998.
NOTE 5--REDEEMABLE COMMON SECURITIES:
General
The Company is authorized to issue up to 150,000 Common Securities; as
of December 31, 1999 and December 31, 1998, the Company had outstanding 53,011
Common Securities, all of which were held by the Branch. The Bank has agreed
with the Company in the Contingent Support Agreement that, so long as any Series
A Preferred Securities are outstanding, it will maintain direct or indirect
ownership of 100% of the outstanding Common Securities.
Dividends
Holders of Common Securities are entitled to receive dividends when, as
and if declared by the Company's Board of Directors out of the Company's net
income not required to be applied to fund dividends with respect to the Series A
Preferred Securities; provided that so long as any Series A Preferred Securities
are outstanding, no dividends or other distributions (including redemptions and
purchases) may be made with respect to the Common Securities unless full
dividends on all Series A Preferred Securities have been paid for the current
and the two immediately preceding Dividend Periods (except during a Shift Period
if the Bank does not distribute dividends on its common stock).
Redemption Requirements
If the Bank's financial condition were to deteriorate with the
consequence that a Shift Event were to occur, substantially all the Common
Securities would be redeemed automatically without prior redemption of any
Series A Preferred Securities.
Voting Rights
Subject to the rights, if any, of the holders of Series A Preferred
Securities (in particular the right to remove and replace any Independent
Director and to elect an additional director, in certain circumstances), all
voting rights are vested in the Common Securities. The Holders of Common
Securities are entitled to one vote per security.
Rights Upon Liquidation
In the event of the dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, after there shall have been paid or
set aside for the holders of all Series A Preferred Securities the full
preferential amounts to which such holders are entitled, the holders of Common
Securities will be entitled to share equally and ratably in any assets remaining
after the payment of all debts and liabilities. Upon a liquidation of the
Company during a Shift Period, the Common Securities will have a preference over
the Series A Preferred Securities to the extent, if any, that the liabilities of
the Bank (including any debt instruments, such as titres participatifs and prets
participatifs) have not been paid in full.
NOTE 6--RELATED PARTY TRANSACTIONS:
The Company entered into a Services Agreement with the Branch on
December 5, 1997 pursuant to which the Branch manages the securities portfolio
of the Company and performs other administrative functions. Expenses incurred
under such Agreement were $250,000 as of December 31, 1999 and $50,000 as of
December 31, 1998. While the amount of the fee payable under the Agreement is
somewhat less than the fee which would be payable in an arm's length transaction
with a third party, Management does not believe that the difference is material.
French American Banking Corporation (FABC), an affiliate of BNP, serves
as the dividend paying agent, registrar, and transfer agent with respect to the
Series A Preferred Securities. The Company paid FABC an up-front fee of $4,000
and will pay a fee of $4,000 per annum for these services.
The Company maintains a credit balance account with the Branch for
clearing certain transactions.
All of the Company's officers and employees and all but one of the
members of the Company's Board of Directors are officers and employees of the
Branch or BNP.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair values of securities at December 31,1999 and December 31, 1998
were obtained from independent market sources and are summarized in Note 4. The
carrying values of investment securities, as shown in Note 4, and the obligation
arising from the receipt of securities, pursuant to the application of SFAS 125,
approximates their fair value. The fair value of the receivable arising from
payment for securities, pursuant to the application of SFAS 125, approximates
the aggregate carrying value of the investment securities treated as collateral,
which at December 31, 1999 and December 31, 1998 was $233,056,326 and
$529,905,305 respectively.
The carrying value of cash and cash equivalents, accounts receivable,
accrued interest receivable, accrued expenses, and due to affiliates
approximates fair value.
The fair value of the interest rate swaps described in Note 8 below at
December 31, 1999 was $10,367,233 and $1,243,783 at December 31, 1998.
NOTE 8--DERIVATIVE ACTIVITY:
In order to modify the interest rate and foreign exchange
characteristics of a portion of its assets, the Company engaged in derivative
activities by entering into interest rate swaps. The assets to which the swaps
relate consist of foreign currency-denominated debt instruments with fixed rate
interest payments. The Company entered into swaps primarily based on LIBOR, in
order to convert fixed rate foreign-currency denominated interest payments on
such assets into variable rate U.S. dollar payments. At December 31, 1999, the
Company had outstanding swap agreements with a notional principal amount of
$453,107,327.
BNP U.S. FUNDING L.L.C.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)
<TABLE>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Collateralized Mortgage Obligations:
Floating-rate REMICs...................... $ 2,314 $ 1,903 $ 1,701 $ 1,679
Fixed-rate REMICs......................... 1,352 1,154 1,043 981
Mortgage-Backed Securities:
Agency ARMs............................... 2,157 1,875 1,678 1,680
Agency Hybrid ARMs........................ 2,560 2,490 2,391 2,284
Agency DUSs 359 802 1,397 2,715
Agency Debentures............................ 1,966 3,249 5,421 6,040
Treasuries................................... 2,141 2,138 178
Interest on Deposits 929 699 778 431
---------- ---------- ---------- ----------
13,778 14,310 14,587 15,810
---------- ---------- ---------- ----------
NONINTERESTEXPENSE:
Realized Loss on Treasury Notes 16
322
Fees and expenses............................ 112 117 107 126
---------- ---------- ---------- ----------
112 133 429 126
---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO PREFERRED
AND REDEEMABLE COMMON SECURITIES........... $ 13,666 $ 14,177 $ 14,158 $ 15,684
========== ========== ========== ==========
NET INCOME PER REDEEMABLE
COMMON SECURITY............................ $ 257.78 $ (97.51) $ 267.09 $ (69.03)
========== ========== ========== ==========
</TABLE>
Item 9: Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 10: Directors and Executive Officers of the Company
The following table sets forth information concerning the directors and
executive officers of the Company. The directors serve 3-year terms (5 years in
the case of the independent director), subject to earlier resignation or
removal. The current term of office of each officer and director commenced on
December 5, 1998.
Name and Age Position and Offices Held
------------ -------------------------
Jean-Francois Lepetit (58) Chairman and Director
Martine Billeaud (54) Director
Jean-Pierre Beck (56) Director
Donald J. Puglisi (54) Independent Director
Eric Deudon (36) President and Director
Bruno Di Nardo (60) Secretary and Director
Lisa Hermann (39) Treasurer
The following is a summary of the experience of the executive officers
and directors of the Company:
Jean-Francois Lepetit is Chairman of the Bank's Market Risk Committee
and is also in charge of the Bank's Asset and Liability Management. In addition,
he is also Chairman of the Conseil des Marches Financiers. He was previously
Vice Chairman of the Board and Chief Executive Officer of Banque Indosuez. Mr.
Lepetit was born in 1942.
Martine Billeaud is in charge of the Bank's medium and long term
funding activities related to Asset and Liability Management. She was previously
responsible for domestic treasury business. Ms Billeaud was born in 1945 in
Choisy-le-Roi, France.
Jean-Pierre Beck is an Executive Vice President in charge of Asset and
Liability Management and Capital Markets Activities of the Bank's U.S. branches.
Prior to this position, he was the General Market Risk Manager of the Bank. He
has worked for the Bank since 1964. Mr. Beck was born in 1943 in Mulhouse,
France.
Donald J. Puglisi, the Independent Director, is the MBNA America
Business Professor and Professor of Finance at the University of Delaware where
he has been on the faculty since 1971. In addition, he is the Managing Director
of Puglisi and Associates, a company which provides investment management,
accounting and other administrative services to a variety of different
companies. Mr. Puglisi holds a Directorship or Trusteeship in the following
companies that are registered under either the Exchange Act or the 1940 Act: AJL
PEPS Trust, Automatic Common Exchange Security Trust II, DECS Trust, DECS Trust
II, Dole Food Automatic Common Exchange Security Trust, Great Lakes Fund, Inc.,
Huron Investment Fund, Inc., Mandatory Common Exchange Trust, Nextel STRYPES
Trust, Select Asset Fund, Series 1, Inc., Select Asset Fund, Series 2, Inc.,
Snyder STRYPES Trust, and WBK STRYPES Trust.
Eric Deudon is Senior Vice President in charge of Capital Markets
activities of the Branch and is Executive Managing Director, head of trading for
BNP Capital Markets, LLC. Since joining the Bank in 1990 in Tokyo, he has run or
supervised securities trading and investment portfolios and foreign exchange
activities. Mr. Deudon was born in 1963 in Saint Cloud, France.
Bruno Di Nardo is an attorney in New York and has acted as General
Counsel of the Bank and its subsidiary French American Banking Corporation in
New York for the past 25 years. He was born in 1939.
Lisa Hermann is Vice President responsible for securities trading and
investment portfolios at the Branch. She joined the Information Systems
Department of the Bank in New York in 1990 and in 1993 was appointed to the
trading room as a securities trader. Ms. Hermann was born in 1960 in
Philadelphia, Pennsylvania.
Item 11: Executive Compensation
The Independent Director Donald J. Puglisi, receives director's fees of
$6,000 per year. All of the other members of the Company's Board of Directors
and Officers are also Officers or employees of the Branch or the Bank and do not
receive compensation from the Company or additional compensation from the Branch
or the Bank for services rendered to the Company.
Item 12: Security Ownership of Certain Beneficial Owners and Management
None.
Item 13: Certain Relationships and Related Transactions
Reference is hereby made to Item 1. Business and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of the Company's various relationships with the Branch, the sole
holder of all its outstanding Common Securities.
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
Index To Exhibits
Exhibit 11: Computation of net income per share
Exhibit 12(a): Computation of ratio of earnings to fixed charges
Exhibit 12(b): Computation of ratio of earnings to fixed charges
and preferred securities dividend
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) 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.
BNP U.S Funding L.L.C.
----------------------
Registrant
Date: March 27, 2000 By: /s/ Eric Deudon
---------------------
Eric Deudon
President and Director
Date: March 27, 2000 By: /s/ Lisa Hermann
----------------------
Lisa Hermann
Treasurer
Exhibit 11
BNP U.S. FUNDING L.L.C.
-----------------------
Computation of net income per share
(in thousands, except per share data)
Twelve-month
period ended
December 31, 1999
-----------------
Net Income $ 57,685
Less: Preferred Securities Dividend
Net Income Applicable to Common Securities 38,690
---------
$ 18,995
=========
Securities:
Weighted Average Number of Common Securities 53,011
=========
Outstanding
Net Income per Common Security $ 358.33
=========
Exhibit 12(a)
BNP U.S. FUNDING L.L.C.
-----------------------
Computation of ratio of earnings to fixed charges
(in thousands, except ratios)
Twelve-month
period ended
December 31, 1999
-----------------
Net income.......................................... $ 57,685
Fixed Charges
Audit Fees.................................... 30
Trustee Fees.................................. 120
Administrative Fees........................... 250
---------
Total Fixed Charges................................. 400
---------
Earnings before fixed charges....................... 58,085
Fixed charges, as above............................. 400
---------
Ratio of earnings to fixed charges.................. 145.21
=========
Exhibit 12(b)
BNP U.S. FUNDING L.L.C.
Computation of ratio of earnings to fixed charges
and preferred securities dividend
(in thousands, except ratios)
Twelve-month
period ended
December 31, 1999
-----------------
Net income.......................................... $ 57,685
Fixed Charges
Audit Fees.................................... 30
Trustee Fees.................................. 120
Administrative Fees........................... 250
---------
Total Fixed Charges................................. 400
---------
Earnings before fixed charges....................... 58,085
---------
Fixed charges, as above............................. 400
Preferred securities dividend....................... 38,690
------
Fixed charges including preferred securities
dividends........................................ 39,090
---------
Ratio of earnings to fixed charges
and preferred securities dividend................... 1.49
---------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 27,189
<SECURITIES> 981,352
<RECEIVABLES> 238,038
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,263,193
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
500,000
<COMMON> 530,110
<OTHER-SE> 21
<TOTAL-LIABILITY-AND-EQUITY> 1,263,193
<SALES> 0
<TOTAL-REVENUES> 58,485
<CGS> 0
<TOTAL-COSTS> 800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,685
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
