CONFORMED 1.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999 Commission file number 1-2940
HSBC USA Inc.
(Exact name of registrant as specified in its charter)
Delaware Corporation 22-1093160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One HSBC Center, Buffalo, N.Y. 14203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 841-2424
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
All voting stock (1,001 shares of Common Stock, $5 par value) is owned by HSBC
Holdings B.V., an indirect wholly owned subsidiary of HSBC Holdings plc.
This report includes a total of 30 pages.
2.
Part I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements
Consolidated Balance Sheet
June 30, 1999 and December 31, 1998 3
Consolidated Statement of Income
For The Quarter and Six Months
Ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in
Shareholders' Equity For The Six Months
Ended June 30, 1999 and 1998 5
Consolidated Statement of Cash Flows
For The Six Months Ended
June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
<TABLE>
<CAPTION>
3.
HSBC USA Inc.
- -------------------------------------------------------------------------------
C O N S O L I D A T E D B A L A N C E S H E E T
June 30, December 31,
1999 1998
- -------------------------------------------------------------------------------
in thousands
<S> <C> <C>
Assets
Cash and due from banks $ 1,127,147 $ 1,262,423
Interest bearing deposits with banks 1,462,632 2,373,550
Federal funds sold and securities
purchased under resale agreements 3,065,532 86,919
Trading assets 834,032 826,019
Securities available for sale 3,473,981 4,237,679
Loans 23,124,309 24,049,499
Less - allowance for credit losses 371,601 379,652
- -------------------------------------------------------------------------------
Loans, net 22,752,708 23,669,847
Premises and equipment 200,416 207,685
Accrued interest receivable 207,262 238,790
Intangible assets 484,044 469,194
Other assets 675,871 571,980
- -------------------------------------------------------------------------------
Total assets $ 34,283,625 $ 33,944,086
===============================================================================
Liabilities
Deposits in domestic offices
Noninterest bearing $ 3,358,185 $ 3,552,303
Interest bearing 18,766,118 18,168,438
Interest bearing deposits in foreign offices 4,776,525 4,545,069
- -------------------------------------------------------------------------------
Total deposits 26,900,828 26,265,810
Short-term borrowings 2,430,066 2,961,063
Interest, taxes and other liabilities 863,760 741,269
Long-term debt 1,846,648 1,747,691
- -------------------------------------------------------------------------------
Total liabilities 32,041,302 31,715,833
- -------------------------------------------------------------------------------
Shareholders' equity
Preferred stock - -
Common stock 5 5
Capital surplus 1,807,938 1,806,563
Retained earnings 457,100 377,179
Accumulated other comprehensive income (loss) (22,720) 44,506
- -------------------------------------------------------------------------------
Total shareholders' equity 2,242,323 2,228,253
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 34,283,625 $ 33,944,086
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
4.
HSBC USA Inc.
- -----------------------------------------------------------------------------------
C O N S O L I D A T E D S T A T E M E N T O F I N C O M E
Quarter ended June 30, Six months ended June 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------
in thousands
<S> <C> <C> <C> <C>
Interest income
Loans $ 456,902 $ 447,844 $ 922,732 $ 895,376
Securities 53,858 56,612 112,701 115,561
Trading assets 10,597 11,941 22,496 26,280
Deposits with banks 24,242 27,921 51,806 57,562
Federal funds sold and
securities purchased
under resale agreements 28,535 49,059 41,512 61,372
- -----------------------------------------------------------------------------------
Total interest income 574,134 593,377 1,151,247 1,156,151
- -----------------------------------------------------------------------------------
Interest expense
Deposits
In domestic offices 157,119 168,095 312,184 327,813
In foreign offices 51,811 50,833 97,679 88,035
Short-term borrowings 31,114 56,905 69,751 107,721
Long-term debt 27,158 23,681 53,447 50,348
- -----------------------------------------------------------------------------------
Total interest expense 267,202 299,514 533,061 573,917
- -----------------------------------------------------------------------------------
Net interest income 306,932 293,863 618,186 582,234
Provision for credit losses 22,500 19,500 45,000 39,000
- -----------------------------------------------------------------------------------
Net interest income, after
provision for credit losses 284,432 274,363 573,186 543,234
- -----------------------------------------------------------------------------------
Other operating income
Trust income 13,450 12,069 26,109 23,157
Service charges 30,516 28,648 59,709 56,484
Mortgage servicing revenue 8,775 12,813 19,990 23,911
Other fees and commissions 41,076 34,146 81,038 70,751
Trading revenues 2,884 2,672 5,476 4,160
Other income 12,193 24,361 38,173 49,529
- -----------------------------------------------------------------------------------
Total other operating income 108,894 114,709 230,495 227,992
- -----------------------------------------------------------------------------------
393,326 389,072 803,681 771,226
- -----------------------------------------------------------------------------------
Other operating expenses
Salaries and employee benefits 104,909 101,000 209,409 201,961
Net occupancy expense 21,512 21,557 44,264 43,838
Other expenses 77,426 72,078 156,687 141,567
- -----------------------------------------------------------------------------------
Total other operating expenses 203,847 194,635 410,360 387,366
- -----------------------------------------------------------------------------------
Income before taxes 189,479 194,437 393,321 383,860
Applicable income tax expense 76,000 68,200 158,400 134,500
- -----------------------------------------------------------------------------------
Net income $ 113,479 $ 126,237 $ 234,921 $ 249,360
===================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
5.
HSBC USA Inc.
- -------------------------------------------------------------------------------------------
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S
I N S H A R E H O L D E R S' E Q U I T Y
Six months ended June 30,
1999 1998
- -------------------------------------------------------------------------------------------
Share- Compre- Share- Compre-
holders' hensive holders' hensive
Equity Income Equity Income
- -------------------------------------------------------------------------------------------
in thousands
<S> <C> <C> <C> <C>
Common stock
Balance, January 1, 5 5
- ------------------------------------------------------------ ----------
Balance, June 30, 5 5
- ------------------------------------------------------------ ----------
Capital surplus
Balance, January 1, 1,806,563 1,804,527
Capital contribution from parent 1,375 806
- ------------------------------------------------------------ ----------
Balance, June 30, 1,807,938 1,805,333
- ------------------------------------------------------------ ----------
Retained earnings
Balance, January 1, 377,179 205,112
Net income 234,921 $ 234,921 249,360 $ 249,360
Cash dividends declared on common stock (155,000) (240,000)
- ------------------------------------------------------------ ----------
Balance, June 30, 457,100 214,472
- ------------------------------------------------------------ ----------
Accumulated other comprehensive income (loss)
Balance, January 1, 44,506 29,309
Net unrealized gains (losses) arising during
the period, less taxes of ($34,618) and $509
in 1999 and 1998, respectively (62,477) 720
Reclassification adjustment for net gains
included in net income, less taxes of $2,557 and
$2,169 in 1999 and 1998, respectively (4,749) (4,028)
Change in net unrealized gains on securities
available for sale, net of taxes (67,226) (3,308)
--------- ---------
Comprehensive income $ 167,695 $ 246,052
- ------------------------------------------------------------ ========= ---------- =========
Balance, June 30, (22,720) 26,001
- ------------------------------------------------------------ ----------
Total shareholders' equity, June 30, $2,242,323 $2,045,811
============================================================ ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
6.
HSBC USA Inc.
------------------------------------------------------------------------------------
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
Six months ended June 30,
1999 1998
------------------------------------------------------------------------------------
in thousands
<S> <C> <C>
Cash flows from operating activities
Net income $ 234,921 $ 249,360
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and deferred taxes 18,521 39,495
Provision for credit losses 45,000 39,000
Net change in other accrual accounts 74,598 (71,818)
Net change in loans originated for sale 596,186 (351,018)
Net change in trading assets (3,843) 216,400
Other, net (50,141) (52,007)
------------------------------------------------------------------------------------
Net cash provided by operating activities 915,242 69,412
------------------------------------------------------------------------------------
Cash flows from investing activities
Net change in interest bearing deposits with banks 934,836 (743,522)
Net change in short-term investments (2,978,613) (2,833,166)
Purchases of securities (1,506,552) (793,070)
Sales of securities 1,726,999 422,606
Maturities of securities 529,388 632,463
Sales of credit card portfolios - 395,148
Other net changes in credit card receivables (25,566) 32,670
Net change in other short-term loans 204,220 (26,847)
Net originations and maturities of long-term loans 176,983 597,115
Expenditures for premises and equipment (12,997) (5,958)
Cash used in acquisitions, net of cash acquired (8,787) -
Other, net (58,746) (63,081)
------------------------------------------------------------------------------------
Net cash used by investing activities (1,018,835) (2,385,642)
------------------------------------------------------------------------------------
Cash flows from financing activities
Net change in deposits 554,764 3,138,737
Net change in short-term borrowings (530,997) 12,379
Issuance of long-term debt 200,132 -
Repayment of long-term debt (100,582) (338,678)
Dividends paid (155,000) (240,000)
------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (31,683) 2,572,438
------------------------------------------------------------------------------------
Net change in cash and due from banks (135,276) 256,208
Cash and due from banks at beginning of period 1,262,423 928,691
------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 1,127,147 $ 1,184,899
====================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
7.
Notes to Consolidated Financial Statements
1. Basis of Presentation
HSBC USA Inc. (the Company) until June 28, 1999 was known as HSBC Americas,
Inc. The accounting and reporting policies of the Company and its
subsidiaries including its principal subsidiary, HSBC Bank USA (formerly known
as Marine Midland Bank) conform to generally accepted accounting principles
and to predominant practice within the banking industry. Such policies,
except as noted below, are consistent with those applied in the presentation
of the Company's annual financial statements.
The interim financial information in this report has not been audited. In the
opinion of the Company's management, all adjustments necessary for a fair
presentation of financial position, results of operations and cash flows for
the interim periods have been made. The interim financial information should
be read in conjunction with the 1998 Annual Report on Form 10-K.
2. Derivative Financial Instruments
The Company uses a variety of derivative instruments to manage interest rate
risk. These derivative instruments follow either the synthetic alteration or
hedge model of accounting. Interest rate risk is managed by achieving a mix
of derivative instruments and balance sheet assets and liabilities deemed
consistent and desirable given expectations of interest rate movements,
balance sheet changes and risk management strategies.
Under the synthetic alteration accounting model, the related derivative
contract must be linked to specific individual assets or liabilities or pools
of similar balance sheet assets or liabilities by the notional and interest
rate risk characteristics of the associated instruments.
Under the hedge accounting model, the related derivative likewise is linked to
specific individual or pools of similar balance sheet assets or liabilities by
the notional and interest rate risk characteristics of the associated
instruments.
In addition, it must be demonstrated that the asset, liability or event that
the derivative is associated with exposes the enterprise to price or interest
rate risk and that the related derivative contract effectively reduces that
risk. Accordingly, there must be high correlation between the changes in
market value of the derivative and the fair value or cash flows associated
with the hedged item so that it is probable that the results of the derivative
will substantially offset the effects of price or interest rate movement on
the hedged item.
To the extent these criteria are satisfied, the derivative contract is
accounted for on a basis consistent with that of the underlying hedged item.
For a derivative financial instrument synthetically altering an asset or
liability accounted for on an historical cost basis, accrual based accounting
is applied. Specifically, income or expense is recognized and accrued to the
next settlement date in accordance with the contractual terms of the agreement
as an adjustment to the income or expense associated with the underlying
balance sheet position. The derivative position would not be marked to
market. Derivative instruments that are entered into for the purpose of
generating trading revenues are accounted for on a mark to market basis.
Associated income and expense is recognized as trading revenue. For
derivatives linked to securities classified as available for sale, the mark to
market is considered a component of the market value of the related securities
and is recorded through shareholders' equity consistent with the valuation of
the assets. Derivatives used to limit the potential for loss associated with
the valuation of mortgage servicing rights are also considered in the
valuation of the related asset.
8.
Derivatives that do not qualify as synthetic alterations or hedges at
inception, are marked to market through earnings. Derivatives that cease to
qualify as synthetic alterations or hedges are marked to market prospectively
with any gains or losses at that time being deferred and amortized to earnings
over the remaining life of the derivative or the altered or hedged item
provided the hedged position has not been liquidated. When the altered or
hedged position is liquidated the gain or loss, including any deferred amount
is recognized in earnings.
3. Pledged Financial Instruments
At June 30, 1999, securities, loans and other assets carried at $4.0 billion
were pledged as collateral for borrowings, to secure public and trust deposits
and for other purposes.
4. Business Segments
The Company has four distinct segments that it utilizes for management
reporting and analysis purposes. These segments are described in the
Company's 1998 Annual Report on Form 10-K. The segment results show the
financial performance of the major business units. These results are
determined based on the Company's management accounting process, which assigns
balance sheet, revenue and expense items to each reportable business unit on a
systematic basis. With respect to segment results, management does not
analyze depreciation and amortization expense or expenditures for additions to
long-lived assets which are not considered significant. As such, these
amounts are included in other expenses and average assets, respectively, in
the table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Segments
-------------------------------------------
Corporate
Commercial Mortgage Personal and
Banking Banking Banking Treasury Other Total
- --------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1999
Net interest income $ 202 $ 47 $ 280 $ 13 $ 76 $ 618
Other operating income 79 24 114 2 12 231
Total income 281 71 394 15 88 849
Provision for credit losses 19 (1) 40 - (13) 45
Other expenses 120 29 230 5 27 411
Pretax income 142 43 124 10 74 393
Average assets 11,704 8,523 4,043 4,492 5,182 33,944
Average liabilities & equity 6,766 321 15,003 6,451 5,403 33,944
Six months ended June 30, 1998
Net interest income $ 167 $ 35 $ 284 $ 8 $ 88 $ 582
Other operating income 64 29 117 3 15 228
Total income 231 64 401 11 103 810
Provision for credit losses (6) (13) 30 - 28 39
Other expenses 101 26 220 4 36 387
Pretax income 136 51 151 7 39 384
Average assets 8,626 8,749 4,442 5,242 5,000 32,059
Average liabilities & equity 5,526 313 14,687 6,344 5,189 32,059
- --------------------------------------------------------------------------------------------------
</TABLE>
9.
5. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (FAS 133). FAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that all derivatives be recognized as either assets or liabilities in
the balance sheet and that those instruments be measured at fair value. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation as described below.
- - For a derivative designated as hedging the exposures to changes in the fair
value of a recognized asset or liability or a firm commitment, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged.
- - For a derivative designated as hedging the exposure to variable cash flows,
the derivatives gain or loss associated with the effective portion of the
hedge is initially reported as a component of other comprehensive income
and subsequently reclassified into earnings when the forecasted transaction
affects earnings. The ineffective portion is reported in earnings
immediately.
- - For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change in fair value.
FAS 133 is effective beginning January 1, 2001. The Company is in the process
of evaluating the potential impact of FAS 133 including reconsidering the
Company's risk management strategies.
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
HSBC USA Inc. (the Company) reported pretax income of $189.5 million and
$393.3 million for the second quarter and first six months of 1999,
respectively. This compared with pretax income of $194.4 million and $383.9
million for the second quarter and first six months of 1998. The Company's
second quarter net income was $113.5 million, compared with a $126.2 million
in the 1998 second quarter. For the first six months of 1999, net income was
$234.9 million, compared with $249.4 million for the first six months of last
year.
Net Interest Income
Net interest income for the second quarter of 1999 was $306.9 million compared
with $293.9 million for the second quarter of 1998. For the first six months
of 1999, net interest income was $618.2 million compared with $582.2 million
for the first six months of 1998.
Interest income was $574.1 million in the second quarter of 1999 compared with
$593.4 million in the second quarter of 1998. Average earning assets of $32.0
billion for the second quarter of 1999 were 3.0% higher than a year ago. The
average rate earned on earning assets was 7.21% for the second quarter of 1999
compared with 7.68% a year ago. Interest income was $1,151.2 million for the
first six months of 1999 compared with $1,156.1 million in the first six
months of 1998. Average earning assets of $31.7 billion for the first six
months of 1999 were 5.3% higher than the first six months of 1998. The
average rate earned on earning assets was 7.33% for the first six months of
1999 compared with 7.75% a year ago.
Interest expense for the second quarter of 1999 was $267.2 million compared
with $299.5 million in the second quarter of 1998. Average interest bearing
liabilities for the second quarter of 1999 were $28.1 billion, 6.0% higher
than a year ago. The average rate paid on interest bearing liabilities was
3.82% compared with 4.54% a year ago. Interest expense for the first six
months of 1999 was $533.0 million compared with $573.9 million in the first
six months of 1998. Average interest bearing liabilities for the first six
months of 1999 were $27.8 billion, 8.8% higher than a year ago. The average
rate paid on interest bearing liabilities was 3.86% for the first six months
of 1999 compared with 4.53% a year ago.
The taxable equivalent net yield on average total assets for the second
quarter of 1999 was 3.61%, compared with 3.58% a year ago. The taxable
equivalent net yield on average total assets for the first six months of 1999
was 3.68%, compared with 3.67% a year ago. The positive impact of higher
levels of commercial loans and lower rates paid on deposit and wholesale
liabilities were partially offset by lower rates earned on loans (prime rate
decreased 75 basis points) and wholesale/treasury assets.
Other Operating Income
For the second quarter of 1999, total other operating income was $108.9
million, compared with $114.7 million in the 1998 second quarter. For the
first six months of 1999, total other operating income was $230.5 million,
compared with $228.0 million for the first six months of 1998. Other
operating income continues to benefit from increases in service charges and
commissions on the sale of mutual funds and securities. Other income for the
first six months of 1999 included a gain of $15.0 on the sale of a student
loan business in California compared with the first six months of 1998 which
included gains of $28.1 million on the sales of selected credit card
portfolios.
11.
Other Operating Expenses
Other operating expenses were $203.8 million in the 1999 second quarter
compared with $194.6 million for the 1998 second quarter. Other operating
expenses were $410.4 million for the first six months of 1999 compared with
$387.4 million a year ago. Operating costs associated with the commercial
loan portfolio acquired from The Hongkong and Shanghai Banking Corporation
Limited late in 1998 and expenses related to strategic business initiatives
accounted for increased operating costs. The cost:income ratio was 49.0% in
the second quarter of 1999 and 48.4% for the first six months of 1999,
compared with 47.6% and 47.8% for the same periods of 1998, respectively.
Year 2000 Readiness Disclosure
The Company recognizes that with the approach of the new millennium the
inability of information technology (IT) and other systems around the world to
recognize the date change from December 31, 1999 to January 1, 2000 could pose
significant issues. The Company has assessed the impact of Year 2000 and does
not expect either its operations or service to customers to be significantly
disrupted as a result of its systems not being Year 2000 compliant. Steering
committees have been formed in all the key business units and progress on the
Year 2000 compliance program is reported to the Board of Directors at each
meeting.
The Year 2000 Program involves testing all the Company's relevant systems to
ensure that they are Year 2000 compliant and seeking confirmation from
suppliers and service providers that their products and services are Year 2000
compliant. The Company is also assessing its customers' commitment to
achieving compliance and is providing information and assistance to help
customers understand the risks and issues. Relevant credit and investment
policies have been revised and relationship managers trained to ensure that
Year 2000 risks are taken account of in credit and investment evaluations.
All lines of program code in the Company's computer systems have already been
reviewed for Year 2000 compliance and the required amendments or replacements
have been made. As of June 30, 1999 all mission critical systems have been
tested and are in use. In addition, one computer system which remains non-
compliant is planned to be replaced by October 1999 and is non critical in
nature. In other areas of IT, the Company is reviewing its end-user computing
applications, networks, centralized data systems, and the desktop environment
for Year 2000 compliance. Substantially all of the end-user computing
applications and inventory items related to the Company's networks have
already been made compliant. The program to ensure the hardware and software
elements of the data center systems have been made Year 2000 compliant is on
schedule and substantially complete.
The Company has evaluated the potential effect of the Year 2000 on its non-IT
systems, including its facilities and other business processes. Substantially
all of the Company's facilities and related systems have been evaluated and,
where not already compliant, are in the process of being made so compliant.
Revisions to Company-wide business contingency plans have been finalized to
address the perceived risks associated with the arrival of the Year 2000.
These plans include mitigating the effects of any failure to complete remedial
work on critical business systems, business resumption contingency plans to
address the possibility of systems failure, and market resumption contingency
plans to address the possibility of the failure of systems or processes
outside the Company's control. The Company is, however, unable to predict the
effect if any of the efforts to address the Year 2000 problem fail.
Lack of readiness on the part of third parties could expose the Company to the
potential for loss, impairment of business processes and activities, and
disruption of financial markets. The Company has been actively communicating
with third parties concerning the status of their Year 2000 readiness. An
12.
inventory of the status of all vendors and suppliers has been completed and
their products and services are being tested for Year 2000 compliance.
Information received from third parties is being analyzed as part of the
process of evaluating options and mitigating third-party risk.
The Company estimates that the total cost of the project will be $60 million,
including $10 million relating to non-IT projects. Approximately $52 million
has been incurred to date for the total project, including $8 million in the
first six months of 1999. These costs include estimated capitalizable costs
of $15 million for upgrading personal computers and replacing software, of
which approximately $12 million has been incurred through June 30, 1999.
Management does not anticipate any material incremental costs to be incurred
in any single period as generally the costs represent the redeployment of
existing IT resources. Although the redeployment has resulted in deferral of
some IT projects and the acceleration of others, the Company does not expect
the deferrals to have a material effect on its financial position or results
of operations.
Income Taxes
The effective rate was 40% in the first half of 1999 compared with 35% in the
first half of 1998. Tax loss carryforwards which had led to reduced tax
charges in the past have been generally utilized, causing the effective tax
rate to rise toward the statutory rate.
The net deferred tax asset at June 30, 1999 was $99 million, compared with $59
million at December 31, 1998.
<TABLE>
<CAPTION>
Asset Quality
The following tables provide a summary of the allowance for credit losses and
nonperforming assets.
2nd 2nd 6 Months Year 6 Months
Quarter Quarter Ended Ended Ended
1999 1998 6/30/99 12/31/98 6/30/98
---- ---- ------- -------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
Allowance for Credit Losses
Balance at beginning of period $386.3 $406.7 $379.7 $409.4 $409.4
Allowance related to acquired
companies - - 1.1 - -
Provision charged to income 22.5 19.5 45.0 80.0 39.0
Net charge offs 37.2 20.0 54.2 109.7 42.2
----- ----- ----- ----- -----
Balance at end of period $371.6 $406.2 $371.6 $379.7 $406.2
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
---- ---- ----
(in millions)
<S> <C> <C> <C>
Nonaccruing Loans
Balance at end of period $278.6 $336.8 $283.9
As a percent of loans outstanding 1.20% 1.40% 1.35%
Nonperforming Loans and Assets*
Balance at end of period $282.1 $345.6 $300.3
As a percent of total assets .82% 1.02% .88%
Allowance Ratios
Allowance for credit losses as
a percent of:
Loans 1.61% 1.58% 1.94%
Nonaccruing loans 133.36 112.74 143.07
* Includes nonaccruing loans, other real estate and other owned assets.
</TABLE>
Provisions for credit losses were $22.5 million in the second quarter of 1999
compared with $19.5 million in the second quarter of 1998. Provisions for
credit losses for the first half of 1999 were $45.0 million compared with
$39.0 million during the first half of 1998. Net charge offs in the credit
13.
card portfolio were $39.0 million and $45.8 million in the first half of 1999
and 1998, respectively. The delinquency rate for the credit card portfolio
was 3.59% at June 30, 1999, compared with 3.91% at December 31, 1998 and 4.16%
at June 30, 1998. Commercial loan credit quality resulted in net charge-offs
of $3.7 million in the first half of 1999 compared with net recoveries of
$10.9 million in the first half of 1998.
The Federal Financial Institutions Examination Council revised its policy for
classification and charge offs for consumer installment credit including
residential mortgages. Certain revisions were to be implemented by June 30,
1999. The Company recognized charge offs associated with the revised policy
of $5.3 million in the second quarter of 1999.
The Company identified impaired loans as defined by FAS 114 totaling $165
million at June 30, 1999, of which $89 million had a specific credit loss
allowance of $44 million. At December 31, 1998, impaired loans were $183
million, of which $81 million had a specific credit loss allowance of $32
million.
Derivative Financial Instruments
As principally an end-user of off-balance sheet financial instruments, the
Company uses various derivative financial instruments to manage its overall
interest rate risk and to reduce the risk associated with changes in the
income stream of certain on-balance sheet assets and liabilities. At June 30,
1999, $15.3 billion notional value of such positions, with an estimated
positive fair value of approximately $32.9 million were outstanding. At
December 31, 1998, $12.4 billion notional value of such positions, with an
estimated positive fair value of $165.0 million were outstanding.
The Company also maintains various derivatives in its trading portfolio to
offset risk associated with changes in market value of certain trading assets,
and to satisfy the foreign currency requirements of retail customers. These
derivatives are carried at fair value. At June 30, 1999, $.4 billion notional
value of such positions, with an estimated positive fair value of $.1 million
were outstanding. At December 31, 1998, $.5 billion of notional value of such
positions, with a nominal fair value were outstanding.
The Company's credit risk associated with off-balance sheet positions is not
considered material, since almost all derivative contracts are executed with
counterparties affiliated through common ownership. Collateral is maintained
on these positions, the amount of which is consistent with the measurement of
exposure used in the risk-based capital ratio calculations under the banking
regulators' guidelines.
Liquidity
The Company maintains a strong liquidity position. The size and stability of
its deposit base are complemented by its maintenance of a surplus borrowing
capacity in the money markets, including the ability to issue additional
commercial paper and access unused lines of credit of $500 million at June 30,
1999. Wholesale liabilities were $8.0 billion at June 30, 1999, approximately
the same level as December 31, 1998. The Company also has strong liquidity as
a result of a high level of immediately saleable or pledgeable assets
including its securities available for sale portfolio, mortgages and other
assets.
14.
Capital
Shareholders' equity was $2.2 billion at June 30, 1999 approximately the same
level as December 31, 1998.
Under risk-based capital guidelines, the Company's capital ratios were 8.79%
at the Tier 1 level and 12.54% at the total capital level at June 30, 1999.
These ratios compare with 8.62% at the Tier 1 level and 12.04% at the total
capital level at December 31, 1998.
Under guidelines for leverage ratios, the Company's ratio of Tier 1 capital to
quarterly average total assets was 6.90% at June 30, 1999 compared with 6.76%
at December 31, 1998.
Pending Acquisition
On May 10, 1999, HSBC Holdings plc, the ultimate parent of the Company
(Parent), Republic New York Corporation (Republic), and Safra Republic
Holdings S.A. (SRH), which is owned 49% by Republic, entered into a
Transaction Agreement and Plan of Merger. Republic is the parent corporation
of Republic National Bank of New York, which at December 31, 1998 had reported
total assets of $46.5 billion and 83 branches in New York State. In
accordance with the agreement, Republic will become a subsidiary of Parent and
Parent will offer to acquire all of the outstanding shares of SRH not already
owned by Republic. The pending acquisition, which is subject to required
approvals by Republic's stockholders and regulatory agencies, is expected to
close during the fourth quarter of 1999.
Following the merger, it is expected that HSBC Bank USA will be merged with
Republic National Bank of New York. In addition, Parent may determine,
subject to regulatory approval, to combine certain other businesses of
Republic or SRH with those of the Company.
Forward-Looking Statements
This report includes forward-looking statements that involve inherent risks
and uncertainties. Statements that are not historical facts, including
statements about management's beliefs and expectations, are forward-looking
statements. A number of important factors could cause actual results to
differ materially from those contained in any forward-looking statements.
Such factors include, but are not limited to: sharp and/or rapid changes in
interest rates; significant changes in the economic conditions which could
materially change anticipated credit quality trends and the ability to
generate loans; technology changes and challenges such as Year 2000 systems
remediation as well as uncertainties relating to the ability of third parties
with whom the Company does business to address the Year 2000 issue in a timely
and adequate manner; significant changes in accounting, tax or regulatory
requirements; and competition in the geographic and business areas in which
the Company conducts its operations.
<TABLE>
<CAPTION>
15.
HSBC USA Inc.
- -----------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
Second Quarter 1999 Second Quarter 1998
Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 1,902 $ 24.2 5.11 % $ 1,901 $ 27.9 5.89 %
Federal funds sold and
securities purchased under
resale agreements 2,331 28.6 4.91 3,520 49.1 5.59
Trading assets 781 10.7 5.44 787 12.0 6.09
Securities 3,607 53.9 5.99 3,753 56.6 6.05
Loans
Domestic
Commercial 10,503 208.1 7.95 8,252 181.6 8.83
Consumer
Residential mortgages 9,431 163.1 6.92 9,648 176.2 7.31
Other consumer 2,427 71.6 11.83 2,567 79.8 12.47
- -----------------------------------------------------------------------------
Total domestic 22,361 442.8 7.94 20,467 437.6 8.58
International 997 14.5 5.85 606 10.8 7.13
- -----------------------------------------------------------------------------
Total loans 23,358 457.3 7.85 21,073 448.4 8.53
- -----------------------------------------------------------------------------
Total earning assets 31,979 $574.7 7.21 % 31,034 $594.0 7.68 %
- -----------------------------------------------------------------------------
Allowance for credit losses (386) (406)
Cash and due from banks 1,019 1,141
Other assets 1,528 1,261
- -----------------------------------------------------------------------------
Total assets $34,140 $33,030
=============================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,255 $ 5.1 0.91 % $ 2,103 $ 5.9 1.13 %
Consumer savings deposits 5,714 35.7 2.51 5,511 37.1 2.70
Other consumer time deposits 6,836 77.8 4.56 6,313 88.4 5.61
Commercial, public savings
and other time deposits 4,280 38.5 3.61 3,325 36.7 4.43
Deposits in foreign offices,
primarily banks 4,566 51.8 4.55 3,814 50.8 5.35
- -----------------------------------------------------------------------------
Total interest bearing deposits 23,651 208.9 3.54 21,066 218.9 4.17
- -----------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 901 9.9 4.41 769 10.7 5.56
Other short-term borrowings 1,663 21.2 5.12 3,204 46.2 5.79
Long-term debt 1,847 27.2 5.90 1,436 23.7 6.61
- -----------------------------------------------------------------------------
Total interest bearing
liabilities 28,062 $267.2 3.82 % 26,475 $299.5 4.54 %
- -----------------------------------------------------------------------------
Interest rate spread 3.39 % 3.14 %
- -----------------------------------------------------------------------------
Noninterest bearing deposits 3,037 3,780
Other liabilities 827 679
Shareholders' equity 2,214 2,096
- -----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $34,140 $33,030
=============================================================================
Net yield on average earning assets 3.86 % 3.81 %
Net yield on average total assets 3.61 3.58
=============================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
<TABLE>
<CAPTION>
16.
HSBC USA Inc.
- ---------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
Six Months 1999 Six Months 1998
Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 1,997 $ 51.8 5.23 % $ 1,953 $ 57.5 5.94 %
Federal funds sold and
securities purchased under
resale agreements 1,708 41.5 4.90 2,210 61.4 5.60
Trading assets 828 22.6 5.45 864 26.3 6.10
Securities 3,802 112.8 5.98 3,812 115.7 6.12
Loans
Domestic
Commercial 10,459 416.4 8.03 8,124 360.2 8.94
Consumer
Residential mortgages 9,474 328.5 6.93 9,806 349.0 7.12
Other consumer 2,454 146.2 12.02 2,741 165.5 12.18
- ---------------------------------------------------------------------------------
Total domestic 22,387 891.1 8.03 20,671 874.7 8.53
International 988 32.5 6.64 599 21.8 7.34
- ---------------------------------------------------------------------------------
Total loans 23,375 923.6 7.97 21,270 896.5 8.50
- ---------------------------------------------------------------------------------
Total earning assets 31,710 $1,152.3 7.33 % 30,109 $1,157.4 7.75 %
- ---------------------------------------------------------------------------------
Allowance for credit losses (384) (407)
Cash and due from banks 1,086 1,127
Other assets 1,532 1,230
- ---------------------------------------------------------------------------------
Total assets $33,944 $32,059
=================================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,234 $ 10.1 0.91 % $ 2,094 $ 11.8 1.13 %
Consumer savings deposits 5,670 70.4 2.51 5,513 74.0 2.70
Other consumer time deposits 6,836 157.6 4.65 6,299 176.1 5.64
Commercial, public savings
and other time deposits 4,097 74.1 3.65 3,040 66.0 4.38
Deposits in foreign offices,
primarily banks 4,354 97.7 4.52 3,321 88.0 5.35
- ---------------------------------------------------------------------------------
Total interest bearing deposits 23,191 409.9 3.56 20,267 415.9 4.14
- ---------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 938 20.4 4.39 951 26.7 5.67
Other short-term borrowings 1,877 49.4 5.30 2,826 81.0 5.78
Long-term debt 1,825 53.4 5.91 1,525 50.3 6.66
- ---------------------------------------------------------------------------------
Total interest bearing
liabilities 27,831 $ 533.1 3.86 % 25,569 $ 573.9 4.53 %
- ---------------------------------------------------------------------------------
Interest rate spread 3.47 % 3.22 %
- ---------------------------------------------------------------------------------
Noninterest bearing deposits 3,138 3,750
Other liabilities 786 646
Shareholders' equity 2,189 2,094
- ---------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $33,944 $32,059
=================================================================================
Net yield on average earning assets 3.94 % 3.91 %
Net yield on average total assets 3.68 3.67
=================================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
17.
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3 a Registrant's Restated Certificate of Incorporation and
Amendments Thereto
b Registrant's By-Laws, as Amended to Date
12 Computation of Ratio of Earnings to Fixed Charges
(b) Report on Form 8-K
A current report on Form 8-K dated June 28, 1999 was filed on June 28,
1999 to report the Company's change in name from HSBC Americas, Inc. to
HSBC USA Inc.
18.
SIGNATURES
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.
HSBC USA Inc.
(Registrant)
Date: August 11, 1999 /s/ Gerald A. Ronning
Gerald A. Ronning
Executive Vice President & Controller
(On behalf of Registrant and
as Chief Accounting Officer)
19.
<TABLE>
<CAPTION>
Exhibit 12
HSBC USA Inc.
Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
- --------------------------------------------------------------------------------
Six months ended June 30,
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Excluding interest on deposits
Net income $ 235 $ 249
Applicable income tax expense 158 135
Less undistributed equity earnings 2 1
Fixed charges:
Interest on:
Borrowed funds 70 108
Long-term debt 53 50
One third of rents, net of income from
subleases 7 7
- --------------------------------------------------------------------------------
Total fixed charges 130 165
Earnings before taxes based on income
and fixed charges $ 521 $ 548
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges 4.01 3.32
- --------------------------------------------------------------------------------
Including interest on deposits
Total fixed charges (as above) $ 130 $ 165
Add: interest on deposits 410 416
- --------------------------------------------------------------------------------
Total fixed charges and interest on deposits $ 540 $ 581
- --------------------------------------------------------------------------------
Earnings before taxes based on income and
fixed charges (as above) $ 521 $ 548
Add: interest on deposits 410 416
- --------------------------------------------------------------------------------
Total $ 931 $ 964
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.72 1.66
- --------------------------------------------------------------------------------
</TABLE>
20.
State of Delaware
PAGE 1
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "HSBC AMERICAS, INC.",
CHANGING ITS NAME FROM "HSBC AMERICAS, INC." TO "HSBC USA INC.",
FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF MAY, A.D.
1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE
NEW CASTLE COUNTY RECORDER OF DEEDS.
/S/ EDWARD J. FREEL
Edward J. Freel, Secretary of State
0268504 8100 AUTHENTICATION: 9772018
991213152 DATE: 05-27-99
21.
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
HSBC AMERICAS, INC.
HSBC Americas, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware DOES HEREBY CERTIFY:
FIRST: that a resolution was adopted at a regular meeting
of the Board of Directors of said corporation, at which a quorum
was present and acting throughout, proposing and declaring
advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Certificate of
Incorporation be amended at Article First to
change the corporate name so that Article
First reads in its entirety as follows:
The name of this corporation is HSBC USA
Inc.
SECOND: that the aforesaid amendment was duly adopted
pursuant to a written consent adopted by the sole holder of all
outstanding shares of common stock par value $5.00 per share, of
HSBC Americas, Inc. in accordance with the applicable provisions of
Sections 242 and 228 of the General Corporation Law of the State of
Delaware.
THIRD: that the effective date of this amendment shall be
June 28, 1999.
22.
-2-
IN WITNESS WHEREOF, said HSBC Americas, Inc. has caused this
certificate to be signed by Robert M. Butcher, its Executive Vice
President and Chief Financial Officer, and attested by Philip S.
Toohey, its Secretary, this 26 of May, 1999.
HSBC AMERICAS, INC.
By /s/ Robert M. Butcher
Executive Vice President and
Chief Financial Officer
ATTEST:
By /s/ Philip S. Toohey
Secretary
23.
(Restated as amended as of February 29, 1996)
(Name changed effective June 28, 1999)
BY-LAWS
of
HSBC USA INC.
(Formerly known as HSBC AMERICAS, INC.)
ARTICLE I
SHAREHOLDERS' MEETINGS
Section 1.1 Annual Meeting. The Annual Meeting of the shareholders for
the election of directors and the transaction of such other business as may
properly come before the meeting, shall be held in April each year at the
Office of the Corporation, One HSBC Center, City of Buffalo, State of New
York, or at such other place and at such time and on such day as may be
designated from time to time by the Board of Directors.
Section 1.2 Special Meeting. Except as otherwise specifically provided
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board, the Chairman of the Board, the President, the Chief
Executive Officer or the Secretary. Business transacted at all special
meetings of shareholders shall be confined to the purposes stated in the
Notice of Meeting.
Section 1.3 Quorum. The holders of a majority of the stock issued and
outstanding, and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of shareholders unless
otherwise provided by law.
Section 1.4 Voting. At any meeting of the shareholders each shareholder
may vote in person or by proxy duly authorized in writing. Each shareholder
shall at every meeting of shareholders be entitled to one vote for each share
of stock held by such shareholder. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Certificate of Incorporation.
Any action required to be taken at an annual or special meeting of
shareholders may be taken without a meeting by written consent setting forth
the action and signed by the holders of outstanding shares having not less
than the minimum number of shares necessary to authorize or to take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Section 1.5 Notice of Meeting. Written notice of each meeting of
shareholders stating the place, date, and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered personally or shall be mailed postage prepaid to
each shareholder entitled to vote at such meeting, directed to the shareholder
at his address as it appears on the records of the Corporation, not less than
ten days before the date of the meeting.
-1-
24.
ARTICLE II
DIRECTORS
Section 2.1 Board of Directors. The Board of Directors (hereinafter
referred to as the "Board"), shall have the power to manage and administer the
business and affairs of the Corporation, and, except as expressly limited by
law, all corporate powers of the Corporation shall be vested in an may be
exercised by said Board unless such powers are required by statute, by the
Certificate of Incorporation, or by these By-laws to be done by the
shareholders.
Section 2.2 Number and Term. The Board shall consist of not less than
three nor more than twenty-five directors, the exact number within such
minimum and maximum limits to be fixed and determined from time to time by
resolution of a majority of the full Board or by resolution of the
shareholders at any meeting of shareholders. Unless sooner removed or
disqualified, each director shall hold office until the next annual meeting of
the shareholders and until his successor has been elected and qualified.
Section 2.3 Organization Meeting. At its first meeting after each
annual meeting of shareholders, the Board shall choose a Chairman of the
Board, a President and a Chief Executive Officer from its own members and
otherwise organize the new Board and appoint officers of the Corporation for
the succeeding year.
Section 2.4 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board and of shareholders and perform such
duties as shall be assigned to him from time to time by the Board. Except as
may be otherwise provided by the By-Laws or the Board, he shall be a member ex
officio of all committees authorized by these By-Laws or the Board. He shall
be kept informed by the executive officers about the affairs of the
Corporation.
Section 2.5 Regular Meetings. The Regular Meetings of the Board shall
be held at such time and place as designated by the Board. No notice of a
Regular Meeting shall be required if the meeting is held according to a
Schedule of Regular Meetings approved by the Board.
Section 2.6 Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, the President, the Chief Executive
Officer or the Secretary or at the written request of any three or more
directors. Each member of the Board shall be given notice stating the time
and place of each such special meeting by telegram, telephone, or similar
electronic means, or in person, at lease one day prior to such meeting, or by
mail at least three days prior.
Section 2.7 Quorum. Three directors shall constitute a quorum at any
meeting, except when otherwise provided by law. If a quorum is not present at
any meeting, the directors present may adjourn the meeting, and the meeting
may be held, as adjourned, without further notice provided that a quorum is
then present. The act of a majority of the directors present at any meeting
at which there is a quorum, shall be the act the Board, unless otherwise
specifically provided by statute, by the Certificate of Incorporation, or by
these By-laws.
-2-
25.
Section 2.8 Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board may appoint a director to fill each such
vacancy at any regular meeting of the Board, or at a special meeting called
for that purpose. Any director so appointed shall hold office until the next
annual meeting or the shareholders and until his successor has been elected
and qualified, unless sooner displaced.
Section 2.9 Removal of Directors. Any director may be removed either
with or without cause, at any time, by a vote of the holders of a majority of
the shares of the Corporation at any meeting of shareholders called for that
purpose. A director may be removed for cause by a vote of a majority of the
full Board.
Section 2.10 Compensation of Directors. The Board shall fix the amounts
to be paid directors for their services as directors and for their attendance
at the meetings of the Board or of committees or otherwise. No director who
receives a salary from the Corporation shall receive any fee for attending
meetings of the Board or of any of its committees.
Section 2.11 Action of the Board. Except as otherwise provided by law,
corporate action to be taken by the Board shall mean such action at a meeting
of the Board. Any action required or permitted to be taken by the Board or
any committee of the Board may be taken without a meeting if all members of
the Board or the committee consent in writing to a resolution authorizing the
action. The resolution and the written consents thereto shall be filed with
the minutes of the proceedings of the Board or committee. Any one or more
members of the Board or any committee may participate in a meeting of the
Board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
Section 2.12 Waiver of Notice. Notice of the Meeting need not be given
to any director who submits a signed Waiver of Notice whether before or after
the meeting, or who attends the meeting without protesting, prior thereto or
at its commencement, a lack of such notice.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1 Committees. The Board, by a resolution or resolutions
adopted by a majority of the members of the whole Board, may appoint an
Executive Committee, an Audit Committee, and any other committees as it may
deem appropriate. Each committee shall have and may exercise any and all
powers as are conferred or authorized by the resolution appointing it. A
majority of each committee may determine its action and may fix the time and
place of its meetings, unless provided otherwise by the Board. The Board
shall have the power at any time to fill vacancies in, to change the size of
membership of, and to discharge any committee.
-3-
26.
ARTICLE IV
OFFICERS
Section 4.1 President. The Board shall appoint one of its members to be
President. In the absence of the Chairman of the Board, the President shall
preside at all meetings of the Board and of shareholders. Except as may be
otherwise provided by the By-Laws or the Board, he shall be a member ex
officio of all committees authorized by these By-Laws or the Board. The
President shall have general executive powers, shall participate actively in
all major policy decisions and shall have and may exercise any and all other
powers and duties pertaining by law, regulation, or practice, to the Office of
President, or imposed by these By-Laws. The President shall also have and may
exercise such further powers and duties as from time to time may be conferred,
or assigned by the Board or the Chief Executive Officer.
Section 4.2 Chief Executive Officer. The Board shall appoint one of its
members to be Chief Executive Officer of the Corporation. The Chairman of the
Board or the President may at the same time be appointed Chief Executive
Officer. The Chief Executive Officer shall exercise general supervision over
the policies and business affairs of the Corporation and the carrying out of
the policies adopted or approved by the Board. Except as otherwise provided
by these By-Laws, he shall have power to determine the duties to be performed
by the officers appointed as provided in Section 4.5 of these By-Laws, and to
employ and discharge officers and employees. Except as otherwise provided by
the By-Laws or the Board, he shall be a member ex officio of all committees
authorized by these By-Laws or created by the Board. In the absence of the
Chairman of the Board and the President, he shall preside at all meetings of
the Board and of shareholders.
Section 4.3 Executive and Other Senior Officers. The Board shall by
resolution determine from time to time those officers whose appointment shall
require approval by the Board or a committee of the Board. Each such officer
shall have such powers and duties as may be assigned by the Board, a committee
of the Board, the President or the Chief Executive Officer.
Section 4.4 Secretary. The Board shall appoint a Secretary who shall be
the Secretary of the Board and of the Corporation and shall keep accurate
minutes of all the meetings of shareholders and of the Board. The Secretary
shall attend to the giving of all notices required to be given by these
By-Laws; shall be custodian of the corporate seal, records, documents, and
papers of the Corporation; shall provide for the keeping of proper records of
all transactions of the Corporation; shall have and may exercise any and all
other powers and duties pertaining by law, regulation or practice, to the
Office of Secretary, or imposed by these By-Laws; and shall also perform such
other duties as may be assigned from time to time by the Board, the President
or the Chief Executive Officer.
Section 4.5 Other Officers. The President or the Chief Executive
Officer or his designee may appoint all officers whose appointment does not
require approval by the Board or a committee of the Board, and assign to them
such titles, as from time to time may appear to be required or desirable to
transact the business of the Corporation. Each such officer shall have such
powers and duties as may be assigned by the Board, the President or the Chief
Executive Officer.
-4-
27.
Section 4.6 Tenure of Office. The Chairman of the Board, the President
and the Chief Executive Officer shall hold office for the current year for
which the Board was elected, unless they shall resign, become disqualified, or
be removed. All other officers shall hold office until their successors have
been appointed and qualify unless they shall resign, become disqualified or be
removed. The Board shall have the power to remove the Chairman of the Board,
the President and the Chief Executive Officer. The Board or the Chief
Executive Officer or his designee shall have the power to remove all other
officers and employees. Any vacancy occurring in the offices of Chairman
of the Board, President or Chief Executive Officer shall be filled promptly by
the Board.
Section 4.7 Compensation. The Board shall by resolution determine from
time to time the officers whose compensation will require approval by the
Board or a committee of the Board. The Chief Executive Officer shall fix the
compensation of all officers and employees whose compensation does not require
approval by the Board.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 5.1 Transfers. Shares of stock shall be transferable on the
books of the Corporation only by the person named in the certificate or by an
attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor. Every person becoming a shareholder by such transfer
shall, in proportion to his shares, succeed to all rights of the prior holder
of such shares.
Section 5.2 Stock Certificates. The certificates of stock of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall exhibit the holder's name and
number of shares and shall be signed by the Chairman of the Board, the
President, the Chief Executive Officer, a Vice President or any other officer
appointed by the Board for this purpose, and the Secretary or an Assistant
Secretary.
ARTICLE VI
CORPORATE SEAL
Section 6.1 Corporate Seal. The Chairman of the Board, the President
the Chief Executive Officer, the Secretary, any Assistant Secretary, Vice
President, Assistant Vice President, or other officer thereunto designated by
the Board or the Chief Executive Officer or his designee, shall have authority
to affix the corporate seal to any document requiring such seal, and to attest
the same. Such seal shall be substantially in the following form:
( impression )
( of )
( Seal )
-5-
28.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Fiscal Year. The Fiscal Year of the Corporation shall be
the calendar year.
Section 7.2 Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations,
receipts, discharges, releases, satisfactions, settlements, petitions,
schedules, accounts, affidavits, bonds, undertakings, proxies and other
instruments or documents may be signed, executed, acknowledged, verified,
delivered or accepted on behalf of the Corporation by the Chairman of the
Board, or the President, or the Chief Executive Officer, or the Secretary, or
any Vice President, or any other officer or employee designated by the
Board or the Chief Executive Officer or his designee. Any such instruments
may also be executed, acknowledged, verified, delivered or accepted in behalf
of the Corporation in such other manner and by such other officers as the
Board may from time to time direct. The provisions of this Section 7.2
are supplementary to any other provisions of these By-Laws. Each of the
foregoing authorizations shall be at the pleasure of the Board, and each such
authorization by the Chief Executive Officer or his designee also shall be at
the pleasure of the Chief Executive Officer.
Section 7.3 Records. The By-Laws and the proceedings of all meeting of
the shareholders, the Board, and standing committees of the Board, shall be
recorded in appropriate minute books provided for the purpose. The minutes of
each meeting shall be signed by the Secretary or other officer appointed to
act as Secretary of the meeting.
Section 7.4 Emergency Operations. In the event of war or warlike damage
or disaster of sufficient severity to prevent the conduct and management of
the affairs, business, and property of the Corporation by its directors and
officers as contemplated by these By-Laws, any two or more available members
of the then incumbent Board shall constitute a quorum for the full conduct and
management of the affairs, business, and property of the Corporation. This
By-Law shall be subject to implementation by resolutions of the Board passed
from time to time for that purpose, and any provisions of these By-Laws (other
than this Section) and any resolutions which are contrary to the provisions of
this Section or to the provisions of any such implementary resolutions shall
be suspended until it shall be determined by any interim Board acting under
this Section that it shall be to the advantage of the Corporation to resume
the conduct and management of its affairs, business, and property under all of
the other provisions of these By-Laws.
Section 7.5 (a) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer
of the Corporation or, while a director or officer of the Corporation is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan
(an "Indemnitee"), whether the basis of such proceeding is alleged action in
an official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director or officer, shall be indemnified and held
-6-
29.
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended,
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith and
such indemnification shall continue as to an Indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the Indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Section 7.5(b) hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a proceeding (or party thereof) initiated by such Indemnitee
only if such proceeding (or part thereof) was authorized by the Board. The
right to indemnification conferred in this Section 7.5 shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
so requires, an advancement of expenses incurred by an Indemnitee shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such Indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise.
(b) Right of Indemnitee to Bring Suit. If a claim under paragraph (a)
of this Section 7.5 is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
such Indemnittee's undertaking the Indemnitee shall be entitled to be paid the
expense of prosecuting or defending such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification hereunder it shall be a
defense that, and in any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
Indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation to
have made a determination prior to the commencement of such suit that
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking by the Indemnitee, the Corporation
shall have the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Section 7.5 or
otherwise.
-7-
30.
(c) Non-Exclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Section 7.5 shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation, By-Law, agreement,
vote of shareholders or disinterested directors or otherwise.
(d) Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board,
grant rights to indemnification, and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent of the provisions
of this Section 7.5 with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
(e) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law, as the
same exists or may hereafter be amended.
Section 7.6 Amendments. The By-Laws may be added to, amended, altered
or repealed at any regular meeting of the Board, by a vote of a majority of
the total number of the directors, or at any meeting of shareholders, duly
called and held, by a majority of the stock represented at such meeting.
I, Helen Kujawa, CERTIFY that: (1) I am the duly constituted Assistant
Corporate Secretary of HSBC USA Inc., formerly known as HSBC Americas, Inc.,
and as such officer have access to its official records; (2) the foregoing
By-Laws are the By-Laws of said Corporation, and all of them are now
lawfully in force and effect.
IN TESTIMONY WHEREOF, I have hereunto affixed my official signature and
the seal of the said Corporation, in the city of Buffalo, New York, on this
6th day of July, 1999.
/s/ Helen Kujawa
HK/HUSABYLW.mis
-8-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,127
<INT-BEARING-DEPOSITS> 1,463
<FED-FUNDS-SOLD> 3,066
<TRADING-ASSETS> 834
<INVESTMENTS-HELD-FOR-SALE> 3,474
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 23,124
<ALLOWANCE> 372
<TOTAL-ASSETS> 34,284
<DEPOSITS> 26,901
<SHORT-TERM> 2,430
<LIABILITIES-OTHER> 864
<LONG-TERM> 1,447
400
0
<COMMON> 0
<OTHER-SE> 2,242
<TOTAL-LIABILITIES-AND-EQUITY> 34,284
<INTEREST-LOAN> 923
<INTEREST-INVEST> 112
<INTEREST-OTHER> 116
<INTEREST-TOTAL> 1,151
<INTEREST-DEPOSIT> 410
<INTEREST-EXPENSE> 533
<INTEREST-INCOME-NET> 618
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 410
<INCOME-PRETAX> 393
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.94
<LOANS-NON> 279
<LOANS-PAST> 23
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 380
<CHARGE-OFFS> 71
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 372
<ALLOWANCE-DOMESTIC> 151
<ALLOWANCE-FOREIGN> 33
<ALLOWANCE-UNALLOCATED> 188
</TABLE>
