-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQCtuxEElBnzEmcjpVYIifXlregaRMnpyFgrxnhEsgijPHBq8C02ooXrlHwk/AKr mgO3c5xlygOWpqd2DDxZLw== 0000083246-00-000006.txt : 20000309 0000083246-00-000006.hdr.sgml : 20000309 ACCESSION NUMBER: 0000083246-00-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000308 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC NEW YORK CORP CENTRAL INDEX KEY: 0000083246 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 132764867 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-07436 FILM NUMBER: 563359 BUSINESS ADDRESS: STREET 1: 452 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2125256100 8-K 1 CONFORMED 1. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 31, 1999 HSBC USA Inc. (Exact name of registrant as specified in charter) MARYLAND 1-7436 13-2764867 (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification No.) 452 FIFTH AVENUE, NEW YORK, NEW YORK 10018 (Address of principal executive offices) Registrant's telephone number, including area code: (212) 525-6100 Not applicable (Former name or former address, if changed since last report) 2. Item 2. Acquisition or Disposition of Assets As reported on Form 8-K dated January 7, 2000, the merger of Republic New York Corporation (Republic) with HSBC USA Inc. (the Company) was completed on December 31, 1999. The required pro forma financial statements relating to the merger are provided in Item 7. 3. Item 7. Financial Statements and Exhibits The following unaudited pro forma financial statements are provided: - - Pro Forma Combined Condensed Balance Sheet of HSBC USA Inc. as of September 30, 1999 - - Pro Forma Combined Condensed Income Statement of HSBC USA Inc. for the year ended December 31, 1998 - - Pro Forma Combined Condensed Income Statement of HSBC USA Inc. for the nine months ended September 30, 1999 - - Notes to Pro Forma Combined Condensed Financial Information of HSBC USA Inc. 4. HSBC USA Inc. Unaudited Pro Forma Combined Condensed Financial Information Effective December 31, 1999, the Company acquired Republic through a contribution from its parent, HSBC Holdings plc. The transaction was accounted for under the purchase method of accounting. The following provides the basis of presentation of the acquisition in the Company's unaudited pro forma combined condensed financial information. The accompanying unaudited pro forma combined condensed balance sheet as of September 30, 1999 includes the assets and liabilities of Republic as adjusted for their respective fair values at the date the transaction was consummated. The accompanying unaudited pro forma combined condensed income statements, for the nine months ended September 30, 1999 and the year ended December 31, 1998 present the pro forma impact of the acquisition of Republic assuming that the acquisition had been completed as of the beginning of the respective periods presented. The pro forma information is based on the historical financial statements after giving effect to the impact of purchase accounting adjustments relating to the acquisition. Assumptions and adjustments made in connection with the preparation of the pro forma combined condensed financial information are set forth in the accompanying notes. Purchase accounting adjustments to reflect estimated fair values have been made with respect to the assets and liabilities acquired. The pro forma information with respect to Republic has been prepared by the Company's management based upon the historical financial information of Republic obtained by the Company during its investigation of the activities acquired. The pro forma financial information should be read in conjunction with the notes thereto. This pro forma information may not be indicative of the results that actually would have occurred if the purchase had been consummated on the dates indicated or which may be obtained in the future. While the Company expects to achieve certain operating cost savings as a result of the combination, no adjustment has been included in the pro forma amounts for anticipated operating cost savings or revenue enhancements.
5. HSBC USA INC. Pro Forma Combined Condensed Balance Sheet September 30, 1999 (unaudited) (in millions) - ------------------------------------------------------------------------------------------ HSBC USA Republic Pro Forma Combined Inc. NY Corp. Adjustments Proforma - ------------------------------------------------------------------------------------------ Assets Cash and due from banks $ 867 $ 836 $ $ 1,703 Interest bearing deposits with banks 2,291 6,855 (18)(3) 9,128 Federal funds sold and securities purchased under resale agreements 2,142 2,188 4,330 Trading assets 979 3,856 4,835 Securities 3,308 21,708 (106)(3) 24,910 Loans 23,541 14,731 (47)(3) 38,225 Less - allowance for credit losses 368 293 661 - ------------------------------------------------------------------------------------------ Loans, net 23,173 14,438 (47) 37,564 Goodwill and other acquisition intangibles 326 236 2,745 (1) 3,307 Investment in affiliate 28 839 1,610 (2) 2,477 Other assets 1,263 2,096 329 (3) 3,688 - ------------------------------------------------------------------------------------------ Total assets $34,377 $53,052 $4,513 $91,942 ========================================================================================== Liabilities Deposits in domestic offices $21,974 $13,225 $ (26)(3) $35,173 Deposits in foreign offices 4,758 18,631 (11)(3) 23,378 - ------------------------------------------------------------------------------------------ Total deposits 26,732 31,856 (37) 58,551 Trading account liabilities 56 3,142 3,198 Short-term borrowings 2,637 8,585 11,222 Interest, taxes and other liabilities 753 2,052 328 (3) 3,133 Long-term debt 1,846 4,139 (91)(3) 5,894 - ------------------------------------------------------------------------------------------ Total liabilities 32,024 49,774 200 81,998 - ------------------------------------------------------------------------------------------ Shareholders' equity Preferred stock 500 500 Common shareholders' equity Common stock 524 (524)(4) Capital surplus 1,809 117 6,974 8,900 Retained earnings 572 2,589 (2,589)(4) 572 Accumulated other comprehensive loss (28) (452) 452 (4) (28) - ------------------------------------------------------------------------------------------ Total common shareholders' equity 2,353 2,778 4,313 9,444 - ------------------------------------------------------------------------------------------ Total shareholders' equity 2,353 3,278 4,313 9,944 - ------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $34,377 $53,052 $4,513 $91,942 ========================================================================================== See Notes to Pro Forma Combined Condensed Financial Information (1) Purchase price of Republic $7,091, less Republic common equity $2,778, less fair value adjustment attributable to HSBC Republic (formerly Safra Republic Holdings S.A.) $1,610, plus $437 costs related to restructuring, asset write offs and deferred tax adjustments, less $395 net other fair value adjustments. (2) Fair value adjustment for 49% equity investment in HSBC Republic. (3) Fair value adjustments and other purchase accounting entries. (4) Elimination of Republic common shareholders' equity and recognition of $7,091 capital contribution for purchase price.
6.
HSBC USA Inc. Pro Forma Combined Condensed Income Statement Year Ended December 31, 1998 (unaudited) (in millions) - ------------------------------------------------------------------------------- Historical -------------------- Republic HSBC New York Pro Forma Pro Forma USA Inc. Corp. Adjustments Combined - ------------------------------------------------------------------------------- Interest income $2,333 $3,234 $ 30 $5,597 Interest expense 1,168 2,200 46 3,414 - ------------------------------------------------------------------------------- Net interest income 1,165 1,034 (16) 2,183 Provision for credit loss 80 8 - 88 - ------------------------------------------------------------------------------- Net interest income after provision for credit loss 1,085 1,026 (16) 2,095 Other operating income 460 289 (84) 665 - ------------------------------------------------------------------------------- 1,545 1,315 (100) 2,760 Operating expenses 780 979 131 1,890 - ------------------------------------------------------------------------------- Income before taxes 765 336 (231) 870 Income tax expense (benefit) 238 88 (11) 315 - ------------------------------------------------------------------------------- Net income $ 527 $ 248 $(220) $ 555 =============================================================================== See Notes to Pro Forma Combined Condensed Financial Information
HSBC USA Inc. Pro Forma Combined Condensed Income Statement Nine Months Ended September 30, 1999 (unaudited) (in millions) - ------------------------------------------------------------------------------- Historical -------------------- Republic HSBC New York Pro Forma Pro Forma USA Inc. Corp. Adjustments Combined - ------------------------------------------------------------------------------- Interest income $1,731 $2,080 $ 22 $3,833 Interest expense 808 1,291 34 2,133 - ------------------------------------------------------------------------------- Net interest income 923 789 (12) 1,700 Provision for credit loss 67 12 - 79 - ------------------------------------------------------------------------------- Net interest income after provision for credit loss 856 777 (12) 1,621 Other operating income 339 509 (63) 785 - ------------------------------------------------------------------------------- 1,195 1,286 (75) 2,406 Operating expenses 611 857 98 1,566 - ------------------------------------------------------------------------------- Income before taxes 584 429 (173) 840 Income tax expense (benefit) 234 113 (8) 339 - ------------------------------------------------------------------------------- Net income $ 350 $ 316 $(165) $ 501 =============================================================================== See Notes to Pro Forma Combined Condensed Financial Information
7. HSBC USA Inc. Notes to Pro Forma Combined Condensed Financial Information (unaudited) NOTE 1. The assumptions underlying the pro forma purchase accounting adjustments are summarized as follows: (a) The estimated fair value adjustments have been determined by the Company based upon information provided by Republic New York Corporation (Republic), additional information obtained in the preliminary review of the operations of the seller and various assumptions deemed appropriate by the Company. The fair values ultimately determined may be different from those values used in the pro forma adjustments included herein. (1) Investment in affiliate, representing 49% equity interest in HSBC Republic, formerly Safra Republic Holdings S.A. (a Luxembourg bank holding company), was valued based upon price paid by HSBC for majority share ownership. (2) Interest bearing deposits with banks were valued based upon current market rates. (3) Securities were valued at their estimated fair market value. (4) Loans were valued based upon current market interest rates. The resulting net discount is being amortized to income over the remaining estimated life of the portfolio utilizing certain prepayment assumptions so as to produce a constant yield to maturity. (5) Premises and equipment, included in other assets, were recorded at their estimated fair value. (6) Mortgage servicing rights, included in other assets, represent acquired servicing rights and were valued at fair value. The resulting premium is being amortized against income over the remaining life of the servicing portfolio utilizing certain prepayment assumptions. (7) Derivatives were valued based upon current market rates. (8) Prepaid pension asset was based on the excess of fair market value over estimated projected benefit obligation. (9) Deposits in domestic offices were valued based upon interest rates for comparable deposit liabilities. (10) Long-term debt was valued based upon current interest rates for comparable borrowed funds. (11) Excess of the cost of net assets acquired over their fair value is being amortized into expense on a straight line basis over 20 years. 8.
(b) The purchase price is estimated to be allocated as described in the table below: (in millions) Cost of acquisition $ 7,091 Net assets acquired 2,778 ------ 4,313 Fair value adjustments: Investment in affiliate (1,610) Other Interest bearing deposits $ 18 Securities 106 Loans 47 Other assets: Premises and equipment (138) Mortgage servicing rights (32) Derivatives (169) Prepaid pension (95) Deposits (37) Other liabilities Postretirement benefits (4) Long-term debt (91) (395) ---- Write off of assets Existing intangible assets 236 Other 105 Restructuring costs 189 Deferred tax adjustment 143 ------ Excess of cost of net assets acquired over fair value (goodwill) $ 2,981 ======
NOTE 2. The Pro Forma Combined Condensed Income Statements for the year ended December 31, 1998 and the nine months ended September 30, 1999 reflect the combination of historical operating results of Company and Republic and include the necessary purchase accounting adjustments as if the combination had taken place at the beginning of the periods presented. The purchase accounting adjustments used in the preparation of the Pro Forma Combined Condensed Income Statements are summarized below: - ------------------------------------------------------------------------------ Year Ended Nine months ended December 31, 1998 September 30, 1999 - ------------------------------------------------------------------------------ (in millions) Net income of the Company $ 527 $350 Net income of Republic 248 316 Pro forma adjustments Amortization/accretion of purchase accounting adjustments: Investment in affiliate (80) (60) Interest bearing deposits 18 13 Securities 80 60 Loans (36) (27) Other assets (43) (32) Deposits (37) (27) Long-term debt (9) (7) Other (4) (3) Goodwill (120) (90) Net tax effect associated with above adjustments excluding amortization of goodwill and investment in affiliate 11 8 - ------------------------------------------------------------------------------ Pro forma net income $ 555 $501 ==============================================================================
9.
NOTE 3. The following table sets forth the projected effect of purchase accounting adjustments relating to the Republic acquisition on the operating results of future periods. The annual amortization of goodwill of $149 million (incremental $120 million) as well as the amortization of the premium associated with the investment in affiliate of $80 million, is not subject to deduction for Federal and state taxes. The projected amortization and accretion is subject to change in the event of changes in fair value on the consummation date, if such assets and liabilities are subsequently sold and variations between future prepayments assumed in the preparation of the table and those which may actually occur. - ------------------------------------------------------------------------------ 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------ (in millions) Amortization of: Premium/discount on: Interest bearing deposits $ 18 $ - $ - $ - $ - Securities 80 80 80 80 80 Loans (36) (8) 18 18 18 Other assets (43) (43) (43) (43) (43) Deposits (37) - - - - Long-term debt (9) (9) (9) (9) (9) Other (4) (4) (4) (4) (4) Investment in affiliate (80) (80) (80) (80) (80) Goodwill (120) (120) (120) (120) (120) - ------------------------------------------------------------------------------ Charge to operations $(231) $(184) $(158) $(158) $(158) ============================================================================== * Income statement impact includes consideration of discount related to available for sale securities of $322 million.
10. 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) /s/ Gerald A. Ronning NAME: GERALD A. RONNING TITLE: EXECUTIVE VICE PRESIDENT & CONTROLLER Date: March 8, 2000 -----END PRIVACY-ENHANCED MESSAGE-----