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 March 31, 1999 Commission file number 1-2940
HSBC Americas, 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 18 pages.
2.
Part I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements
Consolidated Balance Sheet
March 31, 1999 and December 31, 1998 3
Consolidated Statement of Income
For The Three Months
Ended March 31, 1999 and 1998 4
Consolidated Statement of Changes in
Shareholders' Equity For The Three Months
Ended March 31, 1999 and 1998 5
Consolidated Statement of Cash Flows
For The Three Months Ended
March 31, 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 16
Signatures 17
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3.
HSBC Americas, Inc.
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C O N S O L I D A T E D B A L A N C E S H E E T
March 31, December 31,
1999 1998
- -------------------------------------------------------------------------------
in thousands
<S> <C> <C>
Assets
Cash and due from banks $ 916,342 $ 1,262,423
Interest bearing deposits with banks 2,648,269 2,373,550
Federal funds sold and securities
purchased under resale agreements 736,181 86,919
Trading assets 802,364 826,019
Securities available for sale 3,904,554 4,237,679
Loans 23,654,683 24,049,499
Less - allowance for credit losses 386,331 379,652
- -------------------------------------------------------------------------------
Loans, net 23,268,352 23,669,847
Premises and equipment 205,704 207,685
Accrued interest receivable 218,139 238,790
Intangible assets 486,156 469,194
Other assets 587,212 571,980
- -------------------------------------------------------------------------------
Total assets $ 33,773,273 $ 33,944,086
===============================================================================
Liabilities
Deposits in domestic offices
Noninterest bearing $ 2,986,575 $ 3,552,303
Interest bearing 19,098,274 18,168,438
Interest bearing deposits in foreign offices 4,231,402 4,545,069
- -------------------------------------------------------------------------------
Total deposits 26,316,251 26,265,810
Short-term borrowings 2,610,095 2,961,063
Interest, taxes and other liabilities 832,084 741,269
Long-term debt 1,847,253 1,747,691
- -------------------------------------------------------------------------------
Total liabilities 31,605,683 31,715,833
- -------------------------------------------------------------------------------
Shareholders' equity
Preferred stock - -
Common stock 5 5
Capital surplus 1,807,259 1,806,563
Retained earnings 343,621 377,179
Accumulated other comprehensive income 16,705 44,506
- -------------------------------------------------------------------------------
Total shareholders' equity 2,167,590 2,228,253
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 33,773,273 $ 33,944,086
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
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4.
HSBC Americas, 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
Three months ended March 31,
1999 1998
- ---------------------------------------------------------------------------------
in thousands
<S> <C> <C>
Interest income
Loans $ 465,830 $ 447,532
Securities 58,843 58,949
Trading assets 11,900 14,338
Deposits with banks 27,564 29,641
Federal funds sold and
securities purchased
under resale agreements 12,977 12,313
- ---------------------------------------------------------------------------------
Total interest income 577,114 562,773
- ---------------------------------------------------------------------------------
Interest expense
Deposits
In domestic offices 155,065 159,718
In foreign offices 45,868 37,202
Short-term borrowings 38,637 50,816
Long-term debt 26,290 26,667
- ---------------------------------------------------------------------------------
Total interest expense 265,860 274,403
- ---------------------------------------------------------------------------------
Net interest income 311,254 288,370
Provision for credit losses 22,500 19,500
- ---------------------------------------------------------------------------------
Net interest income, after
provision for credit losses 288,754 268,870
- ---------------------------------------------------------------------------------
Other operating income
Trust income 12,658 11,087
Service charges 29,194 27,836
Mortgage servicing revenue 11,216 11,098
Other fees and commissions 39,962 36,606
Trading revenues 2,592 1,488
Other income 25,979 25,169
- ---------------------------------------------------------------------------------
Total other operating income 121,601 113,284
- ---------------------------------------------------------------------------------
410,355 382,154
- ---------------------------------------------------------------------------------
Other operating expenses
Salaries and employee benefits 104,500 100,961
Net occupancy expense 22,752 22,281
Other expenses 79,261 69,489
- ---------------------------------------------------------------------------------
Total other operating expenses 206,513 192,731
- ---------------------------------------------------------------------------------
Income before taxes 203,842 189,423
Applicable income tax expense 82,400 66,300
- ---------------------------------------------------------------------------------
Net income $ 121,442 $ 123,123
=================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
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5.
HSBC Americas, 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
Three months ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------
Share- Compre- Share- Compre-
holders' hensive holders' hensive
Equity Income Equity Income
- -------------------------------------------------------------------------------------------
in thousands
<S> <C> <C> <C> <C>
Preferred stock
Balance, January 1, $ - * $ - *
- ------------------------------------------------------------ ----------
Balance, March 31, - -
- ------------------------------------------------------------ ----------
Common stock
Balance, January 1, 5 5
- ------------------------------------------------------------ ----------
Balance, March 31, 5 5
- ------------------------------------------------------------ ----------
Capital surplus
Balance, January 1, 1,806,563 1,804,527
Capital contribution from parent 696 403
- ------------------------------------------------------------ ----------
Balance, March 31, 1,807,259 1,804,930
- ------------------------------------------------------------ ----------
Retained earnings
Balance, January 1, 377,179 205,112
Net income 121,442 $ 121,442 123,123 $ 123,123
Cash dividends declared on common stock (155,000) (115,000)
- ------------------------------------------------------------ ----------
Balance, March 31, 343,621 213,235
- ------------------------------------------------------------ ----------
Accumulated other comprehensive income
Balance, January 1, 44,506 29,309
Net unrealized gains (losses) arising during
the period, less taxes of ($14,691) and $1,175
in 1999 and 1998, respectively (26,208) 2,069
Reclassification adjustment for net gains
included in net income, less taxes of $858 and
$1,620 in 1999 and 1998, respectively (1,593) (3,008)
Change in net unrealized gains on securities
available for sale, net of taxes (27,801) (939)
--------- ---------
Comprehensive income $ 93,641 $ 122,184
- ------------------------------------------------------------ =========---------- =========
Balance, March 31, 16,705 28,370
- ------------------------------------------------------------ ----------
Total shareholders' equity, March 31, $2,167,590 $2,046,540
============================================================ ==========
The accompanying notes are an integral part of the consolidated financial
statements.
* $100 aggregate par value.
</TABLE>
<TABLE>
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6.
HSBC Americas, 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
Three months ended March 31,
1999 1998
- --------------------------------------------------------------------------------------
in thousands
<S> <C> <C>
Cash flows from operating activities
Net income $ 121,442 $ 123,123
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and deferred taxes 13,723 14,090
Provision for credit losses 22,500 19,500
Net change in other accrual accounts 104,639 134,213
Net change in loans originated for sale 119,103 (345,020)
Net change in trading assets 26,042 82,681
Other, net (31,628) (21,767)
------------------------------------------------------------------------------------
Net cash provided by operating activities 375,821 6,820
------------------------------------------------------------------------------------
Cash flows from investing activities
Net change in interest bearing deposits with banks (250,801) 548,579
Net change in short-term investments (649,262) (1,260,457)
Purchases of securities (1,036,113) (455,697)
Sales of securities 942,755 196,241
Maturities of securities 405,356 529,092
Net changes in credit card receivables 6,660 96,691
Net change in other short-term loans 71,840 (42,421)
Net originations and maturities of long-term loans 261,969 329,504
Expenditures for premises and equipment (7,946) 538
Cash used in acquisitions, net of cash acquired (8,787) -
Other, net (21,639) (32,096)
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Net cash used by investing activities (285,968) (90,026)
------------------------------------------------------------------------------------
Cash flows from financing activities
Net change in deposits (29,813) 1,298,709
Net change in short-term borrowings (350,968) (554,450)
Issuance of long-term debt 200,000 -
Repayment of long-term debt (100,153) (208,302)
Dividends paid (155,000) (125,000)
------------------------------------------------------------------------------------
Net cash provided by financing activities (435,934) 410,957
------------------------------------------------------------------------------------
Net change in cash and due from banks (346,081) 327,751
Cash and due from banks at beginning of period 1,262,423 928,691
------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 916,342 $1,256,442
====================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
7.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accounting and reporting policies of HSBC Americas, Inc. (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 March 31, 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
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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.
- -----------------------------------------------------------------------------------------------
Segments
------------------------------------------
Corporate
Commercial Mortgage Personal and
Banking Banking Banking Treasury Other Total
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(in millions)
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
Net interest income $ 102 $ 25 $ 140 $ 6 $ 38 $ 311
Other operating income 38 14 64 1 5 122
Total income 140 39 204 7 43 433
Provision for credit losses 2 1 21 - (2) 22
Other expenses 60 14 116 2 15 207
Pretax income 78 24 67 5 30 204
Average assets 11,708 8,549 4,090 3,970 5,428 33,745
Average liabilities/equity 6,759 305 14,966 6,423 5,292 33,745
Three months ended March 31, 1998
Net interest income $ 77 $ 13 $ 141 $ 4 $ 54 $ 289
Other operating income 32 14 57 1 9 113
Total income 109 27 198 5 63 402
Provision for credit losses 4 (11) 18 - 8 19
Other expenses 44 13 109 2 25 193
Pretax income 61 25 71 3 30 190
Average assets 8,422 8,896 4,610 4,243 4,906 31,077
Average liabilities/equity 5,227 277 14,639 5,709 5,225 31,077
- ----------------------------------------------------------------------------------------------
</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, 2000. 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 Americas, Inc. (the Company) reported first quarter 1999 pre tax income
of $203.8 million, compared with $189.4 million in the first quarter of 1998.
Net income for the quarter declined to $121.4 million from $123.1 million in
the first quarter of 1998.
Net Interest Income
Net interest income for the first quarter of 1999 was $311.2 million compared
with $288.4 million for the first quarter of 1998.
Interest income of $577.1 million in the first quarter of 1999 was 2.5% higher
than the first quarter of 1998. Average earning assets of $31.4 billion in
the first quarter of 1999 were $2.3 billion higher than a year ago. Growth in
average earning assets was primarily from the acquisition of the $1.7 billion
commercial loan portfolio from the U.S. branches of The Hongkong and Shanghai
Banking Corporation Limited (HongkongBank) late in 1998. The average rate
earned on earning assets was 7.45% compared with 7.83% a year ago.
Interest expense for the first quarter of 1999 was $265.9 million,
representing a 3.1% decrease over the first quarter of 1998. Average interest
bearing liabilities for the first quarter of 1999 were $27.6 billion,
compared with $24.7 billion a year ago. The average rate paid on interest
bearing liabilities was 3.91% compared with 4.51% a year ago.
The taxable equivalent net yield on average total assets for the current
year's first quarter was 3.75% compared with 3.77% in the 1998 first quarter.
Other Operating Income
Total other operating income was $121.6 million in the first quarter of 1999,
compared with $113.3 million in the 1998 first quarter. Fee income categories
of trust, service charges and other fees and commissions were up 3.2% during
the first quarter of 1999 compared with the first quarter of 1998, as a result
of improved product marketing. Also, other operating income included a $15
million gain on the sale of the Company's student loan business in California
in 1999 compared with an $11 million gain on the sale of a credit card
portfolio in the 1998 period.
Other Operating Expenses
Other operating expenses were $206.5 million in the 1999 first quarter
compared with $192.7 million for the 1998 first quarter. Operating costs
associated with the commercial loan portfolio acquired from the HongkongBank
and expenses related to strategic business initiatives accounted for increased
operating expense. The cost:income ratio was 47.7% in the first quarter of
1999 compared with 48.0% for the first quarter of 1998.
Year 2000 Readiness Disclosure
The Company recognizes that with the approach of the new millennium the
inability of 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.
11.
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 amended or replaced where necessary. As
of March 31, 1999 all mission critical systems have been tested and are in
use. In addition, two computer systems which remain non-compliant are planned
to be replaced by mid-1999 and are of a non critical nature. In other areas
of information technology (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 investigated
and, where not already compliant, are in the process of being made so
compliant.
Revisions to Company-wide business contingency plans are being 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 would 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
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 $49 million
has been incurred to date for the total project, including $5 million in the
first quarter of 1999. These costs include estimated capitalizable costs of
$15 million for upgrading personal computers and replacing software, of which
approximately $11 million has been incurred through March 31, 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.
12.
Income Taxes
The effective tax rate was 40% in the first quarter of 1999 compared with 35%
in the same quarter 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 deferred tax asset at March
31, 1999 was $73 million compared with $59 million at December 31, 1998.
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Asset Quality
The following table provides a summary of the allowance for credit losses and
nonaccruing loans:
3 Months 3 Months Year
Ended Ended Ended
3/31/99 3/31/98 12/31/98
------- ------- --------
(in millions)
<S> <C> <C> <C>
Allowance for Credit Losses
Balance at beginning
of period $379.7 $409.4 $409.4
Allowance related to
acquired companies 1.1 - -
Provision charged to income 22.5 19.5 80.0
Net charge offs 17.0 22.2 109.7
----- ----- -----
Balance at end of period $386.3 $406.7 $379.7
===== ===== =====
March 31, December 31, March 31,
1999 1998 1998
(in millions)
Nonaccruing Loans
Balance at end of period $321.0 $336.8 $314.0
As a percent of loans
outstanding 1.36% 1.40% 1.45%
Nonperforming Loans and Assets *
Balance at end of period $325.5 $345.6 $330.7
As a percent of total assets .96% 1.02% 1.03%
Allowance Ratios
Allowance for credit losses
as a percent of:
Loans 1.63% 1.58% 1.88%
Nonaccruing loans 120.36 112.74 129.52
* Includes nonaccruing loans, other real estate and other owned assets.
</TABLE>
Provisions for credit losses were $22.5 million in the first quarter of 1999
compared with $19.5 million in the first quarter of 1998. Net charge offs in
the credit card portfolio were $19.0 million and $25.0 million in the first
quarters of 1999 and 1998, respectively. The delinquency rate for the credit
card portfolio was 3.86% at March 31, 1999, compared with 3.91% at December
31, 1998 and 4.02% at March 31, 1998. Commercial loan credit quality resulted
in net recoveries of $4.4 million in the first quarter of 1999 compared with
net recoveries of $6.8 million in the first quarter of 1998.
The Federal Financial Institutions Examination Council has revised its policy
for classification and charge offs for consumer installment credit including
residential mortgages. Certain revisions are to be implemented by June 30,
1999. The Company estimates that charge offs relating to the implementation
of the revised policy could total $9 million in the second quarter of 1999.
13.
The Company identified impaired loans totaling $190 million at March 31, 1999,
of which $81 million had a specific credit loss allowance of $37 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
March 31, 1999, $15.2 billion notional value of such positions, with an
estimated positive fair value of approximately $99 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 March 31, 1999, $.3 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 positive 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
March 31, 1999. Wholesale liabilities were $7.6 billion at March 31, 1999
compared with $8.0 billion at December 31, 1998. The Company also has strong
liquidity as a result of a high level of immediately saleable or pledgeable
assets including its available for sale securities portfolio, mortgages and
other assets.
Capital
Shareholders' equity was $2.2 billion at March 31, 1999, approximately the
same level as December 31, 1998.
Under risk-based capital guidelines, the Company's capital ratios were 8.68%
at the Tier 1 level and 12.54% at the total capital level at March 31, 1999.
These ratios compared 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 6.62% at March 31, 1999 compared with 6.76%
at December 31, 1998.
14.
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., an approximately 49% controlled subsidiary of Republic (SRH),
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 late in the third quarter or 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. Statements that are not
historical facts, including statements about management's beliefs and
expectations, are forward-looking statements and involve inherent risks and
uncertainties. 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 Americas, Inc.
- -----------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
First Quarter 1999 First Quarter 1998
Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 2,092 $ 27.6 5.34 % $ 2,007 $ 29.6 5.99 %
Federal funds sold and
securities purchased under
resale agreements 1,079 13.0 4.88 885 12.3 5.64
Trading assets 875 11.9 5.46 942 14.4 6.10
Securities 3,999 58.9 5.97 3,870 59.0 6.18
Loans
Domestic
Commercial 10,415 208.3 8.11 7,995 178.6 9.06
Consumer
Residential mortgages 9,517 165.5 6.96 9,967 172.8 6.93
Other consumer 2,481 74.5 12.18 2,916 85.7 11.92
- -----------------------------------------------------------------------------
Total domestic 22,413 448.3 8.11 20,878 437.1 8.49
International 979 18.0 7.46 592 11.0 7.56
- -----------------------------------------------------------------------------
Total loans 23,392 466.3 8.08 21,470 448.1 8.46
- -----------------------------------------------------------------------------
Total earning assets 31,437 $577.7 7.45 % 29,174 $563.4 7.83 %
- -----------------------------------------------------------------------------
Allowance for credit losses (383) (408)
Cash and due from banks 1,154 1,113
Other assets 1,537 1,198
- -----------------------------------------------------------------------------
Total assets $33,745 $31,077
=============================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,214 $ 4.9 0.91 % $ 2,086 $ 5.9 1.14 %
Consumer savings deposits 5,625 34.7 2.50 5,514 36.8 2.71
Other consumer time deposits 6,835 79.8 4.73 6,285 87.8 5.66
Commercial, public savings
and other time deposits 3,913 35.6 3.69 2,750 29.3 4.31
Deposits in foreign offices,
primarily banks 4,139 45.9 4.49 2,823 37.2 5.35
- -----------------------------------------------------------------------------
Total interest bearing deposits 22,726 200.9 3.59 19,458 197.0 4.10
- -----------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 974 10.5 4.37 1,134 16.0 5.74
Other short-term borrowings 2,094 28.2 5.45 2,444 34.8 5.77
Long-term debt 1,803 26.3 5.91 1,615 26.6 6.70
- -----------------------------------------------------------------------------
Total interest bearing
liabilities 27,597 $265.9 3.91 % 24,651 $274.4 4.51 %
- -----------------------------------------------------------------------------
Interest rate spread 3.54 % 3.32 %
- -----------------------------------------------------------------------------
Noninterest bearing deposits 3,241 3,721
Other liabilities 744 613
Shareholders' equity 2,163 2,092
- -----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $33,745 $31,077
=============================================================================
Net yield on average earning assets 4.02 % 4.02 %
Net yield on average total assets 3.75 3.77
=============================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
16.
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
12. Computation of Ratio of Earnings to Fixed Charges
(b) Report on Form 8-K
A Current Report on Form 8-K dated March 29, 1999 was filed on March 29,
1999 to report the change in name of the Company's significant subsidiary
from Marine Midland Bank to HSBC Bank USA and to report a change in its
address to One HSBC Center, Buffalo, New York 14203.
17.
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 Americas, Inc.
(Registrant)
Date: May 12, 1999 /s/ Gerald A. Ronning
Gerald A.Ronning
Executive Vice President & Controller
(On behalf of Registrant and
as Chief Accounting Officer)
<TABLE>
<CAPTION>
18.
Exhibit 12
HSBC Americas, Inc.
Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
- -------------------------------------------------------------------------------------
Three months ended March 31,
1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Excluding interest on deposits
Net income $121 $123
Applicable income tax expense 82 66
Less undistributed equity earnings 1 1
Fixed charges:
Interest on:
Borrowed funds 39 51
Long-term debt 26 27
One third of rents, net of income from
subleases 4 3
- -------------------------------------------------------------------------------------
Total fixed charges 69 81
Earnings before taxes based on income
and fixed charges $271 $269
- -------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 3.93 3.32
- -------------------------------------------------------------------------------------
Including interest on deposits
Total fixed charges (as above) $ 69 $ 81
Add: interest on deposits 201 197
- -------------------------------------------------------------------------------------
Total fixed charges and interest on deposits $270 $278
- -------------------------------------------------------------------------------------
Earnings before taxes based on income and
fixed charges (as above) $271 $269
Add: interest on deposits 201 197
- -------------------------------------------------------------------------------------
Total $472 $466
- -------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.75 1.68
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 916
<INT-BEARING-DEPOSITS> 2,648
<FED-FUNDS-SOLD> 736
<TRADING-ASSETS> 802
<INVESTMENTS-HELD-FOR-SALE> 3,905
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 23,655
<ALLOWANCE> 386
<TOTAL-ASSETS> 33,773
<DEPOSITS> 26,316
<SHORT-TERM> 2,610
<LIABILITIES-OTHER> 832
<LONG-TERM> 1,447
400
0
<COMMON> 0
<OTHER-SE> 2,168
<TOTAL-LIABILITIES-AND-EQUITY> 33,773
<INTEREST-LOAN> 466
<INTEREST-INVEST> 59
<INTEREST-OTHER> 52
<INTEREST-TOTAL> 577
<INTEREST-DEPOSIT> 201
<INTEREST-EXPENSE> 266
<INTEREST-INCOME-NET> 311
<LOAN-LOSSES> 23
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 207
<INCOME-PRETAX> 204
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.02
<LOANS-NON> 321
<LOANS-PAST> 25
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 380
<CHARGE-OFFS> 27
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 386
<ALLOWANCE-DOMESTIC> 157
<ALLOWANCE-FOREIGN> 32
<ALLOWANCE-UNALLOCATED> 197
</TABLE>
