CONFORMED 1.
SECURITIES AND EXCHANGE COMMMISSION
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 September 30, 2000
Commission file number 1-7436
HSBC USA INC.
(Exact name of registrant as specified in its charter)
Maryland Corporation
(State or other jurisdiction of
incorporation or organization)
13-2764867
(I.R.S. Employer Identification No.)
452 Fifth Avenue, New York, New York 10018
(Address of principal executive offices)
(212) 525-6100
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
All voting stock (704 shares of Common Stock, $5 par value) is
owned by HSBC North America Inc., an indirect wholly owned
subsidiary of HSBC Holdings plc.
This report includes a total of 27 pages.
2.
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements Page
Consolidated Balance Sheet
September 30, 2000 and December 31, 1999 3
Consolidated Statement of Income
For The Quarter and Nine Months
Ended September 30, 2000 and 1999 4
Consolidated Statement of Changes in
Shareholders' Equity For The Nine Months
Ended September 30, 2000 and 1999 5
Consolidated Statement of Cash Flows
For The Nine Months Ended
September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 22
Signatures 23
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3.
HSBC USA 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
September 30, December 31,
2000 1999
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in thousands
<S> <C> <C>
Assets
Cash and due from banks $ 2,029,872 $ 1,977,756
Interest bearing deposits with banks 6,557,518 4,234,668
Federal funds sold and securities
purchased under resale agreements 2,629,177 2,318,361
Trading assets 5,276,584 4,526,988
Securities available for sale 18,072,186 25,973,805
Securities held to maturity
(fair value $4,540,714 and $4,811,695) 4,486,292 4,811,695
Loans 39,247,169 37,909,143
Less - allowance for credit losses 558,337 659,603
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Loans, net 38,688,832 37,249,540
Premises and equipment 753,565 745,910
Accrued interest receivable 877,600 778,363
Equity investments 2,581,682 2,540,927
Goodwill and other acquisition intangibles 3,254,459 3,307,147
Other assets 1,856,658 1,774,459
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Total assets $ 87,064,425 $ 90,239,619
=============================================================================
Liabilities
Deposits in domestic offices
Noninterest bearing $ 5,626,408 $ 6,003,813
Interest bearing 29,641,450 29,393,957
Deposits in foreign offices
Noninterest bearing 247,698 187,099
Interest bearing 19,636,623 20,865,022
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Total deposits 55,152,179 56,449,891
Trading account liabilities 2,272,295 2,440,729
Short-term borrowings 10,434,549 5,271,597
Interest, taxes and other liabilities 3,489,826 3,059,993
Payable to shareholders of acquired company - 7,091,209
Subordinated long-term debt and perpetual
capital notes 3,323,624 3,427,649
Guaranteed mandatorily redeemable securities 711,368 710,259
Other long-term debt 1,666,760 1,747,131
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Total liabilities 77,050,601 80,198,458
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Shareholders' equity
Preferred stock 500,000 500,000
Common shareholder's equity
Common stock 4 4
Capital surplus 8,924,925 8,920,113
Retained earnings 554,513 671,578
Accumulated other comprehensive income (loss) 34,382 (50,534)
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Total common shareholder's equity 9,513,824 9,541,161
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Total shareholders' equity 10,013,824 10,041,161
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Total liabilities and shareholders' equity $ 87,064,425 $ 90,239,619
=============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
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4.
HSBC USA Inc.
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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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
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in thousands
<S> <C> <C> <C> <C>
Interest income
Loans $ 764,915 $ 456,846 $ 2,214,727 $ 1,379,579
Securities 431,193 50,308 1,285,448 163,009
Trading assets 37,892 13,327 90,285 35,824
Other short-term investments 131,406 59,601 406,969 152,918
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Total interest income 1,365,406 580,082 3,997,429 1,731,330
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Interest expense
Deposits 594,473 215,591 1,689,199 625,455
Short-term borrowings 110,644 31,325 333,967 101,076
Long-term debt 101,032 27,657 317,352 81,104
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Total interest expense 806,149 274,573 2,340,518 807,635
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Net interest income 559,257 305,509 1,656,911 923,695
Provision for credit losses 29,000 22,500 85,000 67,500
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Net interest income, after
provision for credit losses 530,257 283,009 1,571,911 856,195
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Other operating income
Trust income 20,776 12,554 63,319 38,662
Service charges 42,834 33,205 129,515 92,914
Mortgage banking revenue 7,739 6,086 22,903 26,076
Other fees and commissions 71,778 41,933 225,468 122,972
Trading revenues 29,337 1,801 111,080 7,277
Security gains 11,706 (65) 12,451 7,241
Earnings from equity investments 10,576 991 43,102 2,783
Other income 27,526 11,605 48,933 40,680
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Total other operating income 222,272 108,110 656,771 338,605
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Total income from operations 752,529 391,119 2,228,682 1,194,800
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Other operating expenses
Salaries and employee benefits 243,343 110,011 745,684 319,421
Occupancy expense, net 42,304 23,051 128,971 67,314
Goodwill amortization 44,417 6,994 131,878 26,347
Other expenses 147,885 60,303 422,594 197,637
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Total operating expenses 477,949 200,359 1,429,127 610,719
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Income before taxes 274,580 190,760 799,555 584,081
Applicable income tax expense 98,000 75,850 295,800 234,250
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Net income $ 176,580 $ 114,910 $ 503,755 $ 349,831
========================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
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5.
HSBC USA Inc.
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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
Nine months ended September 30,
2000 1999
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Share- Compre- Share- Compre-
holders' hensive holders' hensive
Equity Income Equity Income
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in thousands
<S> <C> <C> <C> <C>
Preferred stock
Balance, January 1, $ 500,000 $ - *
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Balance, September 30, 500,000 -
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Common stock
Balance, January 1, 4 5
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Balance, September 30, 4 5
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Capital surplus
Balance, January 1, 8,920,113 1,806,563
Capital contribution from parent 4,812 2,586
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Balance, September 30, 8,924,925 1,809,149
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Retained earnings
Balance, January 1, 671,578 377,179
Net income 503,755 $ 503,755 349,831 $ 349,831
Cash dividends declared:
Preferred stock (20,820) -
Common stock (600,000) (155,000)
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Balance, September 30, 554,513 572,010
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Accumulated other comprehensive income (loss)
Balance, January 1, (50,534) 44,506
Change in unrealized gains (losses) on
securities available for sale, net of
taxes and reclassification adjustments 100,803 (72,790)
Foreign currency translation adjustments,
net of taxes (15,887) -
Change in accumulated other comprehensive
income, net 84,916 (72,790)
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Comprehensive income $ 588,671 $ 277,041
------------------------------------------------------ ========= ----------- =========
Balance, September 30, 34,382 (28,284)
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Total shareholders' equity,
September 30, $ 10,013,824 $ 2,352,880
====================================================== ===========
The accompanying notes are an integral part of the consolidated financial statements.
* $100 aggregate par value.
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6.
HSBC USA Inc.
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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
Nine months ended September 30,
2000 1999
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in thousands
<S> <C> <C>
Cash flows from operating activities
Net income $ 503,755 $ 349,831
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and deferred taxes 340,500 43,303
Provision for credit losses 85,000 67,500
Net change in other accrual accounts 232,250 91,793
Net change in loans originated for sale (1,471,028) 789,980
Net change in trading assets and liabilities (1,082,838) (167,128)
Other, net (205,142) (67,806)
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Net cash provided (used) by operating activities (1,597,503) 1,107,473
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Cash flows from investing activities
Net change in interest bearing deposits with banks (2,322,851) 106,034
Net change in short-term investments (310,816) (2,054,931)
Purchases of securities (11,755,627) (1,900,500)
Sales of securities 8,349,237 1,953,629
Maturities of securities 12,168,844 796,194
Payment to shareholders of acquired company (7,091,209) -
Net originations and maturities of loans 466,500 (284,667)
Sales of loans 167,042 -
Expenditures for premises and equipment (90,949) (20,910)
Cash used in acquisitions, net of cash acquired (87,492) (8,787)
Other, net (194,162) (118,345)
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Net cash used by investing activities (701,483) (1,532,283)
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Cash flows from financing activities
Net change in deposits (2,021,728) 385,882
Net change in short-term borrowings 5,162,952 (303,428)
Issuance of long-term debt 594,219 200,132
Repayment of long-term debt (774,426) (101,057)
Capital contributions 4,812 2,587
Dividends paid (614,727) (155,000)
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Net cash provided (used) by financing activities 2,351,102 29,116
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Net change in cash and due from banks 52,116 (395,694)
Cash and due from banks at beginning of period 1,977,756 1,262,423
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Cash and due from banks at end of period $ 2,029,872 $ 866,729
====================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
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7.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accounting and reporting policies of HSBC USA Inc. (the
Company) and its subsidiaries including its principal
subsidiary, HSBC Bank USA conform to generally accepted
accounting principles and to predominant practice within the
banking industry. Such policies, except as described in
Note 6 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 1999
Annual Report on Form 10-K.
2. Acquisition
Following the acquisition of Republic New York Corporation
(Republic) by HSBC Holdings plc (HSBC) on December 31, 1999,
HSBC merged Republic with the Company. Republic had total
assets of $46.9 billion and deposits of $29.9 billion at
that date. The transaction was accounted for as a purchase
and the operating results of Republic are included from
January 1, 2000. Goodwill was approximately $3.0 billion
and is being amortized against income over 20 years.
The following pro forma financial information presents the
combined results of the Company and Republic as if the
acquisition had occurred as of the beginning of 1999, after
giving effect to certain adjustments, including accounting
adjustments related to fair value adjustments, amortization
of goodwill and related income tax effect. The proforma
financial information does not necessarily reflect the
results of operations that would have occurred had the
Company and Republic constituted a single entity during
such period.
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Historical Amortization
------------------ of
Nine months ended HSBC Republic Acquisition Pro Forma
September 30, 1999 USA Inc. NY Corp. Adjustments Combined
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(in millions)
<S> <C> <C> <C> <C>
Net interest income $ 924 $ 789 $ (15) $ 1,698
Provision for credit lossses 68 12 - 80
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Net interest income after
provision for credit losses 856 777 (15) 1,618
Other operating income 339 509 (63) 785
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1,195 1,286 (78) 2,403
Operating expenses 611 857 99 1,567
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Income before taxes 584 429 (177) 836
Income tax expense (benefit) 234 113 (9) 338
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Net income $ 350 $ 316 $ (168) $ 498
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8.
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As a result of the acquisition as of December 31, 1999 the
Company assumed certain liabilities associated with merging
Republic's operations with those of the Company and
recognized restructuring costs relating to the planned
severance of employees and exiting of businesses of the
Company. The following table represents the activity in
these reserves through September 30, 2000.
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Severance
Related Premises Other Total
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(in millions)
<S> <C> <C> <C> <C>
Liabilities assumed $ 133.9 $ 9.7 $ 14.0 $ 157.6
Restructuring charges 5.7 21.0 - 26.7
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Balance December 31, 1999 139.6 30.7 14.0 184.3
Payments 50.9 1.0 12.1 64.0
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Balance September 30, 2000 $ 88.7 $ 29.7 $ 1.9 $ 120.3
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3. Litigation
As described in Note 27 to the financial statements
contained in the Company's Annual Report on Form 10-K for
1999 (the 1999 10-K) and Note 3 to the financial statements
contained in the Company's Quarterly Report on Form 10-Q for
the first quarter of 2000, the Company and certain of its
subsidiaries are defendants in a number of legal actions
arising out of the Princeton Note Matter (as defined in the
1999 10-K). Regulatory and law enforcement agencies,
including the U.S. Attorney for the Southern District of New
York, the Securities and Exchange Commission and the
Commodity Futures Trading Commission, are continuing to
investigate the Princeton Note Matter, including the
activities of Republic New York Securities Corporation
(RNYSC) and Republic New York Corporation (Republic) with
respect to the Princeton Note Matter. In addition, in
August 2000, an additional civil action arising from the
Princeton Note Matter was commenced in the United States
District Court for the Southern District of New York against
RNYSC, the Company (as successor to Republic) and HSBC Bank
USA (as successor to Republic National Bank of New York)
(together the Republic Parties). That action, entitled
Eichi Takagi and Koei Shoji, Ltd. v. HSBC USA Inc., et. al.,
alleges unpaid notes of approximately $2.1 million and $1.21
million on behalf of an individual and corporation and
asserts common law claims, claims under the federal
securities laws, the Commodities Exchange Act and the
Racketeer Influenced and Corrupt Organizations Act (RICO).
The action seeks compensatory and punitive damages and
treble damages under the RICO statute. The temporary stay
in these civil actions that was previously reported ended in
September 2000 and discovery proceedings have commenced. It
is not possible to assess the outcome of these proceedings
at present. The Republic Parties intend to defend
vigorously against these claims.
9.
4. Derivative Financial Instruments
Derivatives used by the Company include futures, forwards,
swaps, caps, floors and options in the interest rate, and
foreign exchange markets and, as a result of the Republic
acquisition, the precious metals markets. The Company uses
these instruments for trading purposes and as part of its
asset and liability management activities.
Derivatives that are used for trading purposes or are linked
to other trading instruments are carried on a mark to market
basis with the resultant gains and losses reported as
trading revenue. Foreign exchange trading positions are
revalued daily by pricing spot foreign exchange and forward
contracts for foreign exchange at prevailing rates with the
resultant gains and losses reported as trading revenue.
Unrealized gains and the balances of unamortized option
premiums paid are included in trading account assets while
unrealized losses and the unamortized balances of option
premiums received are included in trading account
liabilities.
In conjunction with the Republic acquisition, the Company is
involved in various precious metals activities including
arbitrage, purchases and sales of precious metals for
forward delivery, options on precious metals and precious
metals lending and borrowing. Precious metals inventory,
outstanding open positions in contracts for forward
delivery, options contracts and precious metals loans and
borrowings are revalued monthly at prevailing market rates.
Precious metals interest arbitrage balances are recorded at
cost, with the difference between the fixed forward contract
price and cost accreted into trading revenue ratably over
the life of the contracts.
The Company uses a variety of derivative instruments to
manage interest rate risk in conjunction with its asset and
liability management process. Risk is managed by achieving
a mix of derivative instruments and balance sheet assets and
liabilities deemed consistent with expectations of interest
rate movements, balance sheet changes and risk management
strategies.
These instruments follow either the synthetic alteration or
hedge model of accounting with cash flows recognized on an
accrual basis as an adjustment to the interest income or
interest expense associated with the balance sheet items
being synthetically altered or hedged. Under both the
synthetic alteration and hedge accounting models, derivative
instruments are linked to specific individual assets or
liabilities or pools of similar assets or liabilities by the
notional and interest rate characteristics of the associated
instruments.
Under the hedge accounting model, it must be demonstrated
that the hedged asset, liability or event being hedged
exposes the enterprise to price or interest rate risk and
that the related derivative reduces that risk. Accordingly
there must be high correlation between changes in the market
10.
value of the derivative and the market value or cash flows
associated with the hedged items 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.
Derivatives that cease to qualify for synthetic alteration
or hedge accounting are marked to market prospectively
through current period earnings with any unrealized gains or
losses at that time being deferred and amortized over the
life of the original hedge. When the altered or hedged
position is liquidated, any deferred amounts are immediately
recognized in earnings. Gains or losses realized on
terminated derivatives that were used as hedges are deferred
and amortized over the life of the hedged item.
5. Pledged Financial Instruments
At September 30, 2000, securities, loans and other assets
carried at $12.3 billion were pledged as collateral for
borrowings, to secure public and trust deposits and for
other purposes.
6. Business Segments
The Company altered its business segments that it uses to
manage operations as of January 1, 2000. The Company has
four distinct segments that it utilizes for management
reporting: commercial banking, corporate and institutional
banking, personal banking and investment banking and
markets.
The Commercial Banking Segment provides a diversified range
of financial products and services. This segment provides
loan and deposit products to small and middle-market
corporations including specialized products such as
equipment and real estate financing. These products and
services are offered through multiple delivery systems,
including the branch banking network. In addition, various
credit and trade related products are offered such as
standby facilities, performance guarantees, acceptances and
accounts receivable factoring.
The Corporate and Institutional Banking Segment provides
deposit and lending functionality to large corporate and
multi-national corporations. U.S. dollar clearing services
are offered for domestic and international wire transfer
transactions. Corporate trust provides various trustee,
agency and custody products and services for both corporate
and municipal customers. Credit and trade related products
such as standby facilities, performance guarantees and
acceptances are also provided to large corporate entities.
The Personal Banking Segment provides an extensive array of
products and services including installment and revolving
term loans, deposits, branch services and domestic private
banking products (mutual funds, estate planning and other
investment management services). These products are
marketed to individuals through the branch banking network.
Residential mortgage lending
11.
provides loan financing through direct retail and wholesale
origination channels. Mortgage loans are originated through
a network of brokers, wholesale agents and retail
originations offices. Servicing is performed for the
individual mortgage holder or on a contractual basis for
mortgages owned by third parties.
The Investment Banking and Markets Segment comprises
treasury, traded markets and international private banking
businesses. The treasury function maintains overall
responsibility for the investment and borrowing of funds to
ensure liquidity, maximize return and manage interest rate
risk. Traded markets encompasses the trading and sale of
foreign exchange, banknotes, derivatives, precious metals,
securities and emerging markets instruments, both
domestically and internationally. International private
banking offers a full range of services for high net worth
individuals throughout the world including deposit, lending,
trading, trust and investment management.
Other consists of certain non-recurring expenses and the
provision for credit losses not assigned to business units.
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. Prior year
results have been restated according to the redefined
segments.
12.
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Segments
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Corporate/ Investment
Commercial Institutional Personal Banking/
Banking Banking Banking Markets Other Total
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(in millions)
<S> <C> <C> <C> <C> <C> <C>
Nine months ended September 30, 2000
Net interest income $ 430 $ 113 $ 791 $ 321 $ 2 $ 1,657
Other operating income 90 70 268 257 (28) 657
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Total income 520 183 1,059 578 (26) 2,314
Operating expenses 249 66 594 274 246 1,429
---------------------------------------------------------------------------------------------------
Pretax income (loss)
before provision for
credit losses 271 117 465 304 (272) 885
Provision for
credit losses 75 7 52 (5) (44) 85
---------------------------------------------------------------------------------------------------
Pretax income (loss) 196 110 413 309 (228) 800
Taxes/preferred dividends 59 33 124 93 8 317
---------------------------------------------------------------------------------------------------
Net income (loss)after
preferred dividends 137 77 289 216 (236) 483
---------------------------------------------------------------------------------------------------
Average assets 14,077 5,714 20,014 42,412 2,990 85,207
Average liabilities/equity 10,084 5,168 29,151 34,161 6,643 85,207
---------------------------------------------------------------------------------------------------
Nine months ended September 30, 1999
Net interest income $ 264 $ 84 $ 522 $ 21 $ 33 $ 924
Other operating income 63 55 203 4 14 339
---------------------------------------------------------------------------------------------------
Total income 327 139 725 25 47 1,263
Operating expenses 138 44 392 6 31 611
---------------------------------------------------------------------------------------------------
Pretax income (loss)
before provision for
credit losses 189 95 333 19 16 652
Provision for
credit losses 20 5 56 - (13) 68
---------------------------------------------------------------------------------------------------
Pretax income 169 90 277 19 29 584
Taxes/preferred dividends 67 36 111 8 12 234
---------------------------------------------------------------------------------------------------
Net income after
preferred dividends 102 54 166 11 17 350
---------------------------------------------------------------------------------------------------
Average assets 7,365 3,781 12,485 8,374 2,035 34,040
Average liabilities/equity 5,962 1,982 16,146 6,975 2,975 34,040
---------------------------------------------------------------------------------------------------
</TABLE>
7. New Accounting Standards
In 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 associated loss or gain on the hedged item
attributable to the risk being hedged.
13.
- 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, as amended, is effective for the Company beginning
January 1, 2001. Adoption is not expected to have a
material financial statement impact. At transition, all
derivatives will be recognized on the balance sheet at
current market value. It is expected that certain of the
derivative contracts currently accounted for as hedges,
including many of those with most significant market
valuations will continue to be accounted for as hedges under
FAS 133. Based upon current market rates, the net
transition amount is expected to be less than $10.0 million.
It is noted that market values are subject to change based
upon fluctuations in interest rates and market conditions.
We will continue to mitigate economic risks with
derivatives, which will result in increased volatility in
earnings, related to the timing of their recognition, in
certain future periods.
In September 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (FAS 140). FAS 140
replaces Statement of Financial Accounting Standards No.
125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (FAS 125). It
revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of
FAS 125's provisions without consideration.
FAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities of the
Company occurring after March 31, 2001. However, the
provisions of FAS 140 concerning the recognition and
reclassification of collateral and disclosures relating to
securitization transactions and collateral are effective for
the Company for year ending December 31, 2000. FAS 140 is
to be applied prospectively with certain exceptions.
Adoption is not expected to have a material impact on the
Company's financial statements.
14.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
HSBC USA Inc. (the Company) reported third quarter 2000 net
income of $176.6 million, compared with $114.9 million
in the third quarter of 1999. For the first nine months of
2000, net income was $503.8 million compared with $349.8
million for the first nine months of last year. Net income
plus goodwill amortization was $695.9 million for the first
nine months of 2000 compared with $376.2 million for the
first nine months of 1999. The largest factor contributing
to the increased net income between 2000 and 1999 was the
acquisition of Republic New York Corporation (Republic) on
December 31, 1999. Republic had consolidated total assets
of $46.9 billion and deposits of $29.9 billion on December 31,
1999.
Net Interest Income
Net interest income for the third quarter of 2000 was $559.3
million compared with $305.5 million for the third quarter
of 1999. For the first nine months of 2000, net interest
income was $1,656.9 million compared with $923.7 million for
the first nine months of 1999. The Republic acquisition was
the principal factor contributing to the increase.
Interest income was $1,365.4 million in the third quarter of
2000 compared with $580.1 million in the third quarter of
1999. Average earning assets were $74.8 billion for the
third quarter of 2000 compared with $32.0 billion a year
ago. The average rate earned on earning assets was 7.30%
for the third quarter of 2000 compared with 7.19% a year
ago. Interest income was $3,997.4 million for the first
nine months of 2000 compared with $1,731.3 million in the
first nine months of 1999. Average earning assets were
$74.8 billion for the first nine months of 2000 compared
with $31.8 billion for the first nine months of 1999. The
average rate earned on earning assets was 7.17% for the
first nine months of 2000 compared with 7.28% a year ago.
Interest expense for the third quarter of 2000 was $806.1
million compared with $274.6 million in the third quarter of
1999. Average interest bearing liabilities for the third
quarter of 2000 were $62.8 billion, compared with $28.0
billion a year ago. The average rate paid on interest
bearing liabilities was 5.10% compared with 3.90% a year
ago. Interest expense for the first nine months of 2000 was
$2,340.5 million compared with $807.6 million in the first
nine months of 1999. Average interest bearing liabilities
for the first nine months of 2000 were $62.8 billion,
compared with $27.9 billion a year ago. The average rate
paid on interest bearing liabilities was 4.98% for the first
nine months of 2000 compared with 3.87% a year ago.
The taxable equivalent net yield on average total assets for
the third quarter of 2000 was 2.65%, compared with 3.55% a
year ago. The taxable equivalent net yield on average total
assets for the first nine months of
15.
2000 was 2.63%, compared with 3.63% a year ago. The reduced
yield earned from 1999 relates primarily to higher levels of
lower yielding treasury assets and higher costing deposits
as a result of the Republic acquisition.
Other Operating Income
Total other operating income was $222.3 million in the third
quarter of 2000, compared with $108.1 million in the 1999
third quarter. For the first nine months of 2000, total
operating income was $656.8 million compared with $338.6
million for the first nine months of 1999. Fee income
categories of trust, service charges and other fees and
commissions were up 65.7% during the first nine months of
2000 compared with the first nine months of 1999, primarily
as a result of the Republic acquisition. Mortgage banking
revenue declined in 2000 due to lower gains on sales of
mortgages compared with 1999.
<TABLE>
<CAPTION>
Republic was an active participant in trading activities
including derivatives, foreign exchange and precious metals.
The following table presents information related to trading
revenues.
---------------------------------------------------------------------
Nine months ended September 30 2000 1999
---------------------------------------------------------------------
(in millions)
<S> <C> <C>
Derivatives $ 27.7 $ (.2)
Foreign exchange 76.3 4.5
Precious metals 2.5 -
Trading account profits and commissions 4.6 3.0
---------------------------------------------------------------------
Total trading revenue $ 111.1 $ 7.3
---------------------------------------------------------------------
</TABLE>
Earnings from equity investments for the nine months ended
September 30, 2000 includes $38.2 million earned from the
Company's 49% ownership in HSBC Republic Holdings
(Luxembourg) S.A. (HSBC Republic), formerly Safra Republic
Holdings S.A. This amount includes goodwill amortization
expense of $60.3 million as well as a gain of $12.2 million
on the redemption of debentures.
Other Operating Expenses
Other operating expenses were $477.9 million in the 2000
third quarter compared with $200.4 million for the 1999
third quarter. The expense increase relates directly to the
Republic acquisition. Other operating expenses were
$1,429.1 million for the first nine months of 2000 compared
with $610.7 million a year ago. Operating expenses included
$21.7 million and $42.2 million in the third quarter and
first nine months of 2000, respectively, in restructuring
costs relating to integration activities associated with the
Republic acquisition. Since the acquisition was accounted
for as a purchase, goodwill was recognized and amortization
of goodwill increased to $131.9 million for the first nine
months of 2000 compared with $26.3 million in the first nine
months of 1999. The cost:income ratio, excluding goodwill
amortization and restructuring costs was 51.2% in the third
quarter of 2000 and 52.7% for the first nine months of 2000,
compared with 46.7% and 46.3% for the same periods of 1999,
respectively.
16.
Income Taxes
The effective tax rate was 37% in the first nine months of
2000 compared with 40% in the same period of 1999. The
deferred tax asset at September 30, 2000 was $39.2 million
compared with $120.7 million at December 31, 1999.
<TABLE>
<CAPTION>
Asset Quality
The following table provides a summary of the allowance for
credit losses and nonaccruing loans.
----------------------------------------------------------------------------------------
3RD 3RD 9 Months Year 9 Months
Quarter Quarter Ended Ended Ended
2000 1999 9/30/00 12/31/99 9/30/99
----------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
Allowance for Credit Losses
Balance at beginning
of period $ 636.2 $ 371.6 $ 659.6 $ 379.7 $ 379.7
Allowance related to
acquired (sold) companies (8.5) - (12.0) 290.2 1.1
Provision charged to income 29.0 22.5 85.0 90.0 67.5
Net charge offs (98.3) (25.8) (173.8) (100.3) (80.0)
Translation adjustment (.1) - (.5) - -
----------------------------------------------------------------------------------------
Balance at end of period $ 558.3 $ 368.3 $ 558.3 $ 659.6 $ 368.3
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
September 30, December 31, September 30,
2000 1999 1999
----------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Nonaccruing Loans
Balance at end of period $ 299.1 $ 343.5 $ 293.9
As a percent of loans outstanding .76 % .91 % 1.25 %
Nonperforming Loans and Assets *
Balance at end of period $ 317.6 $ 357.5 $ 296.2
As a percent of total assets .36 % .40 % .86 %
Allowance Ratios
Allowance for credit losses as
a percent of:
Loans 1.42 % 1.74 % 1.56 %
Nonaccruing loans 186.68 192.01 125.32
----------------------------------------------------------------------------------------
* Includes nonaccruing loans, other real estate and other owned assets.
</TABLE>
Provisions for credit losses were $29.0 million in the third
quarter of 2000 compared with $22.5 million in the third quarter
of 1999. Provisions for credit losses for the first nine months
of 2000 were $85.0 million compared with $67.5 million during
the same period of 1999. Net charge offs in the credit card
portfolio were $15.0 million and $17.5 million in the third
quarter of 2000 and 1999, respectively, and $45.8 million
and $56.5 million in the first nine months of 2000 and 1999,
respectively. The delinquency rate for the credit card
portfolio was 3.64% at September 30, 2000, compared with
3.41% at December 31, 1999 and 3.58% at September 30, 1999.
17.
Net charge offs on commercial loans were $79.7 million and
$6.4 million in the third quarter of 2000 and 1999,
respectively, and $121.2 million and $10.1 million in the
first nine months of 2000 and 1999, respectively.
Commercial charge offs in 2000 included reduction in
certain credits reported as impaired at December 31, 1999
and charge offs on three large credits. While credit
quality has generally been stable, we have seen a
deterioration in credit quality of leveraged commercial
loans.
The Company identified impaired loans totaling $163 million
at September 30, 2000, of which $62 million had a specific
credit loss allowance of $31 million. At December 31, 1999,
impaired loans were $216 million of which $110 million had a
specific credit loss allowance of $65 million.
Derivative 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 September 30, 2000,
$64.5 billion notional value of such positions, with an
estimated positive fair value of approximately $53 million
were outstanding. At December 31, 1999, $40.9 billion
notional value of such positions, with an estimated positive
fair value of $170 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 for speculative
purposes, as hedges in conjunction with the acquired
precious metals businesses, foreign exchange trading
activities and to facilitate customer transactions. These
derivatives are carried at fair value. At September 30,
2000, $252.0 billion notional value of such positions with
an estimated negative fair value of $112 million were
outstanding. At December 31, 1999, $220.2 billion of
notional value of such positions with an estimated negative
fair value of $22 million were outstanding.
The Company controls the credit risk associated with these
positions by dealing with investment grade counterparties
including other members of the HSBC Group, obtaining
collateral where appropriate and by using master netting
agreements where available.
Liquidity
The Company maintains a strong liquidity position which was
further enhanced by the Republic acquisition. 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 $600
million at September 30, 2000. Wholesale liabilities
increased to $30.3 billion at September 30, 2000 compared
with $26.9 billion at December 31, 1999. 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, trading assets,
mortgages and other assets.
18.
Capital
Total common shareholder's equity was $9.5 billion at
September 30, 2000, approximately the same level as
December 31, 1999.
Under risk-based capital guidelines, the Company's capital
ratios were 12.82% at the Tier 1 level and 14.17% at the
total capital level at September 30, 2000. These ratios
compared with 13.42% at the Tier 1 level and 15.53% at the
total capital level at December 31, 1999.
Under guidelines for leverage ratios, the Company's ratio of
Tier 1 capital to quarterly average total assets was 8.91%
at September 30, 2000 compared with 23.41% at December 31,
1999. Based on period end assets, the ratio was 8.48% at
December 31, 1999.
Acquisitions
The Company purchased the banking operations of Chase
Manhattan Bank, Panama on August 1, 2000 for $115 million.
The branch operations had $730 million in assets and net
book value of $33 million. The acquisition was accounted
for as a purchase transaction. Assets acquired and
liabilities assumed were recorded at their estimated fair
values.
As a separate transaction, the Company plans to purchase the
branches of HSBC Bank plc in Panama. These branches had
approximately $540 million in assets and net book value of
$15 million at March 31, 2000. This transaction is expected
to occur in the fourth quarter of 2000.
Recent Developments
As part of the integration of Republic into the Company (the
acquisition of which was completed by HSBC on December 31,
1999), including the integration of Republic's overseas
activities with the foreign operations of HSBC, various
transactions have either taken place or are proposed to be
undertaken within the fourth quarter of 2000 and subsequent
quarters in 2001. To date various operations of foreign
branches and subsidiaries of the Company have been
transferred to foreign operations of HSBC, such as the
transfer of a branch in Tokyo to the Asia Pacific operations
of HSBC. Such plans also involve the reorganization of the
private banking business of HSBC outside the Americas to
operate through one global private banking organization in
Switzerland and operating in various locations throughout
the world.
In conjunction with the private banking reorganization, the
Company will distribute its 49% ownership interest in HSBC
Republic as a return of capital to its parent. Thereafter,
the private banking operations of HSBC Republic will be
transferred to the global private banking organization. In
addition, the Company will transfer certain other private
banking operations, primarily in Asia, in exchange for
shares in the newly formed global private banking business.
The 49% ownership interest in HSBC Republic currently has
a book value of approximately $2.5 billion, and is deducted
from regulatory capital
19.
for the purpose of calculating the total capital ratio of
the Company. After the completion of the transaction, the
Company will continue to be well capitalized, as defined by
U.S. banking regulators. These plans are subject to U.S.
regulatory approval.
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;
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>
20.
HSBC USA Inc.
-------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
Third Quarter 2000 Third Quarter 1999
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 4,107 $ 71.1 6.88 % $ 1,346 $ 18.3 5.40 %
Federal funds sold and
securities purchased under
resale agreements 3,638 60.3 6.60 3,097 41.3 5.29
Trading assets 5,698 37.9 2.66 974 13.4 5.49
Securities 22,819 437.4 7.63 3,370 50.3 5.93
Loans
Domestic
Commercial 18,062 350.9 7.73 10,491 205.3 7.76
Consumer
Residential mortgages 15,028 281.4 7.49 9,240 162.5 7.03
Other consumer 2,608 80.6 12.31 2,428 70.3 11.49
-------------------------------------------------------------------------------------
Total domestic 35,698 712.9 7.94 22,159 438.1 7.84
International 2,799 52.2 7.43 1,083 19.2 7.05
-------------------------------------------------------------------------------------
Total loans 38,497 765.1 7.91 23,242 457.3 7.81
-------------------------------------------------------------------------------------
Total earning assets 74,759 $1,371.8 7.30 % 32,029 $580.6 7.19 %
-------------------------------------------------------------------------------------
Allowance for credit losses (619) (374)
Cash and due from banks 1,969 982
Other assets 8,949 1,591
-------------------------------------------------------------------------------------
Total assets $85,058 $34,228
=====================================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,901 $ 7.3 1.00 % $ 2,245 $ 5.1 0.91 %
Consumer savings deposits 10,209 71.6 2.79 5,682 36.2 2.53
Other consumer time deposits 8,931 121.8 5.43 6,892 79.9 4.60
Commercial, public savings
and other time deposits 7,110 87.9 4.92 4,067 36.3 3.54
Deposits in foreign offices 19,384 305.9 6.28 4,751 58.1 4.85
-------------------------------------------------------------------------------------
Total interest bearing deposits 48,535 594.5 4.87 23,637 215.6 3.62
-------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 1,828 28.5 6.24 915 11.4 4.96
Other short-term borrowings 6,736 82.1 4.85 1,556 19.9 5.07
Long-term debt 5,742 101.0 7.00 1,846 27.7 5.94
-------------------------------------------------------------------------------------
Total interest bearing
liabilities 62,841 $ 806.1 5.10 % 27,954 $274.6 3.90 %
-------------------------------------------------------------------------------------
Interest rate spread 2.20 % 3.29 %
-------------------------------------------------------------------------------------
Noninterest bearing deposits 6,123 3,041
Other liabilities 6,201 938
Shareholders' equity 9,893 2,295
-------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $85,058 $34,228
=====================================================================================
Net yield on average earning assets 3.01 % 3.79 %
Net yield on average total assets 2.65 3.55
=====================================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
<TABLE>
<CAPTION>
21.
HSBC USA Inc.
-----------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES*
Nine Months 2000 Nine Months 1999
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------
in millions
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
with banks $ 4,569 $ 233.3 6.82 % $ 1,778 $ 70.1 5.27 %
Federal funds sold and
securities purchased under
resale agreements 3,484 173.6 6.66 2,176 82.8 5.09
Trading assets 5,218 90.4 2.31 877 35.9 5.46
Securities 23,454 1,304.1 7.43 3,656 163.2 5.97
Loans
Domestic
Commercial 18,105 1,035.2 7.64 10,470 621.7 7.94
Consumer
Residential mortgages 14,180 782.4 7.36 9,399 491.1 6.97
Other consumer 2,583 217.6 11.25 2,441 216.3 11.85
----------------------------------------------------------------------------------------
Total domestic 34,868 2,035.2 7.80 22,310 1,329.1 7.97
International 3,203 180.3 7.52 1,020 51.8 6.79
----------------------------------------------------------------------------------------
Total loans 38,071 2,215.5 7.77 23,330 1,380.9 7.91
----------------------------------------------------------------------------------------
Total earning assets 74,796 $4,016.9 7.17 % 31,817 $1,732.9 7.28 %
----------------------------------------------------------------------------------------
Allowance for credit losses (645) (381)
Cash and due from banks 1,834 1,051
Other assets 9,222 1,553
----------------------------------------------------------------------------------------
Total assets $85,207 $34,040
========================================================================================
Liabilities and Shareholders' Equity
Interest bearing demand
deposits $ 2,868 $ 21.0 0.98 % $ 2,238 $ 15.2 0.91 %
Consumer savings deposits 10,438 208.7 2.67 5,674 106.7 2.51
Other consumer time deposits 8,421 325.3 5.16 6,855 237.5 4.63
Commercial, public savings
and other time deposits 7,370 289.4 5.25 4,087 110.4 3.61
Deposits in foreign offices,
primarily banks 18,937 844.8 5.96 4,487 155.7 4.64
----------------------------------------------------------------------------------------
Total interest bearing deposits 48,034 1,689.2 4.70 23,341 625.5 3.58
----------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under
repurchase agreements 1,947 84.3 5.77 930 31.8 4.58
Other short-term borrowings 6,919 249.7 4.82 1,769 69.2 5.23
Long-term debt 5,853 317.3 7.24 1,832 81.1 5.92
----------------------------------------------------------------------------------------
Total interest bearing
liabilities 62,753 $2,340.5 4.98 % 27,872 $ 807.6 3.87 %
----------------------------------------------------------------------------------------
Interest rate spread 2.19 % 3.41 %
----------------------------------------------------------------------------------------
Noninterest bearing deposits 6,230 3,106
Other liabilities 6,323 837
Shareholders' equity 9,901 2,225
----------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $85,207 $34,040
========================================================================================
Net yield on average earning assets 2.99 % 3.89 %
Net yield on average total assets 2.63 3.63
========================================================================================
* Interest and rates are presented on a taxable equivalent basis.
</TABLE>
22.
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit
3 Amendment to the Registrant's Certificate of Incorporation
12.01 Computation of Ratio of Earnings to Fixed Charges
12.02 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends.
(b) Reports on Form 8-K
None
23.
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: November 8, 2000 /s/ Gerald A. Ronning
Gerald A.Ronning
Executive Vice President &
Controller
(On behalf of Registrant and
as Chief Accounting Officer)
24.
<TABLE>
<CAPTION>
Exhibit 12.01
HSBC USA Inc.
Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
--------------------------------------------------------------------------
Nine months ended September 30,
2000 1999
--------------------------------------------------------------------------
<S> <C> <C>
Excluding interest on deposits
Net income $ 504 $ 350
Applicable income tax expense 296 234
Less undistributed equity earnings 43 3
Fixed charges:
Interest on:
Borrowed funds 334 101
Long-term debt 317 81
One third of rents, net of income
from subleases 17 11
--------------------------------------------------------------------------
Total fixed charges 668 193
Earnings before taxes based on income
and fixed charges $ 1,425 $ 774
--------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.13 4.01
--------------------------------------------------------------------------
Including interest on deposits
Total fixed charges (as above) $ 668 $ 193
Add: Interest on deposits 1,689 625
--------------------------------------------------------------------------
Total fixed charges and interest on deposits 2,357 818
--------------------------------------------------------------------------
Earnings before taxes based on income and
fixed charges (as above) 1,425 774
Add: Interest on deposits 1,689 625
--------------------------------------------------------------------------
Total $ 3,114 $ 1,399
--------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.32 1.71
--------------------------------------------------------------------------
</TABLE>
25.
<TABLE>
<CAPTION>
Exhibit 12.02
HSBC USA Inc.
Computation of Ratio of Earnings to Fixed Charges
(in millions, except ratios)
--------------------------------------------------------------------------
Nine months ended September 30,
2000 1999
--------------------------------------------------------------------------
<S> <C> <C>
Excluding interest on deposits
Net income $ 504 $ 350
Applicable income tax expense 296 234
Less undistributed equity earnings 43 3
Fixed charges:
Interest on:
Borrowed funds 334 101
Long-term debt 317 81
One third of rents, net of income
from subleases 17 11
--------------------------------------------------------------------------
Total fixed charges 668 193
Earnings before taxes based on income
and fixed charges 1,425 774
--------------------------------------------------------------------------
Total fixed charges 668 193
Preferred dividends 21 -
Ratio of pretax income to income
after applicable income tax expense 1.59 1.67
--------------------------------------------------------------------------
Total preferred stock dividend factor 33 -
Fixed charges, including preferred stock
dividend factor $ 701 $ 193
--------------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred dividends 2.03 4.01
--------------------------------------------------------------------------
Including interest on deposits
Total fixed charges, including preferred
stock dividend factor (as above) $ 701 $ 193
Add: Interest on deposits 1,689 625
--------------------------------------------------------------------------
Fixed charges, including preferred stock
dividend factor and interest on deposits 2,390 818
--------------------------------------------------------------------------
Earnings before taxes based on income and
fixed charges (as above) 1,425 774
Add: Interest on deposits 1,689 625
--------------------------------------------------------------------------
Total $ 3,114 $ 1,399
--------------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred dividends 1.30 1.71
--------------------------------------------------------------------------
</TABLE>
26.
Exhibit 3
HSBC USA INC.
ARTICLES OF AMENDMENT
HSBC USA INC., a Maryland corporation, having its
principal office in Baltimore City, Maryland (which is
hereinafter called the "Corporation"), hereby certifies to
the State Department of Assessments and Taxation of Maryland
(the "Department") that:
FIRST: The Charter of the Corporation is hereby
amended as follows:
Article SECOND, Section 10 of the Articles
Supplementary of the Corporation dated December 16, 1999 and
filed with the Department on December 16, 1999 containing
the terms of the Series X Preferred Stock of the Corporation
is amended in its entirety to read as follows:
10. Transferability. No holders of shares of
Series X Preferred Stock may transfer or assign
shares of Series X Preferred Stock held by such
holder, in whole or in part, except to The Toronto-
Dominion Bank, CT Financial Services Inc. or to any
direct or indirect wholly-owned subsidiary of The
Toronto-Dominion Bank organized under the laws of
Canada or any Province thereof or under the laws of
the United States of America, any State thereof or
the District of Columbia, or to any other party the
Corporation may approve in writing in its sole and
absolute discretion without any requirement that the
Corporation be reasonable in the exercise of such
discretion.
SECOND: The foregoing amendment to the Charter of
the Corporation does not increase the authorized capital
stock of the Corporation.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, HSBC USA INC. has caused these
presents to be signed in its name and on its behalf by its
Executive Vice President and witnessed by its Assistant
Corporate Secretary on September 26, 2000.
WITNESS: HSBC USA INC.
By: /s/ Helen Kujawa By: /s/ Gerald A. Ronning
------------------- -----------------------
Assistant Corporate Executive Vice President
Secretary
27.
THE UNDERSIGNED, Executive Vice President of HSBC USA
INC., who executed on behalf of the Corporation the
foregoing Articles of Amendment of which this certificate is
made a part, hereby acknowledges in the name and on behalf
of said Corporation the foregoing Articles of Amendment to
be the corporate act of said Corporation and hereby
certifies that to the best of his knowledge, information,
and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true
in all material respects under the penalties of perjury.
/s/ Gerald A. Ronning
------------------------
Executive Vice President
