-----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, VGwq2uSVRODsNlDRncM3c6qoNkkppSpncfwAFbzFXDwv+bz0eFJv7AC1lQ76kyh/ FRWaNHR17hN8M2sRMBYNiA== /in/edgar/work/20000811/0000083246-00-000016/0000083246-00-000016.txt : 20000921 0000083246-00-000016.hdr.sgml : 20000921 ACCESSION NUMBER: 0000083246-00-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HSBC USA INC /MD/ CENTRAL INDEX KEY: 0000083246 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 132764867 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07436 FILM NUMBER: 694749 BUSINESS ADDRESS: STREET 1: 452 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2125256100 MAIL ADDRESS: STREET 1: 452 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10018 10-Q 1 0001.txt CONFORMED 1. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2000 Commission file number 1-7436 HSBC USA Inc. (Exact name of registrant as specified in its charter) Maryland Corporation 13-2764867 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 452 Fifth Avenue, New York, New York 10018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 525-6100 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 37 pages. 2. Part I - FINANCIAL INFORMATION Page Item 1 - Financial Statements Consolidated Balance Sheet June 30, 2000 and December 31, 1999 3 Consolidated Statement of Income For The Quarter and Six Months Ended June 30, 2000 and 1999 4 Consolidated Statement of Changes in Shareholders' Equity For The Six Months Ended June 30, 2000 and 1999 5 Consolidated Statement of Cash Flows For The Six Months Ended June 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 12 Part II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18
3. HSBC USA Inc. - ------------------------------------------------------------------------------- C O N S O L I D A T E D B A L A N C E S H E E T June 30, December 31, 2000 1999 - ------------------------------------------------------------------------------- in thousands Assets Cash and due from banks $ 2,073,075 $ 1,977,756 Interest bearing deposits with banks 5,348,441 4,234,668 Federal funds sold and securities purchased under resale agreements 2,438,516 2,318,361 Trading assets 4,357,221 4,526,988 Securities available for sale 18,944,053 25,973,805 Securities held to maturity (fair value $4,647,127 and $4,811,695) 4,633,200 4,811,695 Loans 38,146,289 37,909,143 Less - allowance for credit losses 636,166 659,603 - ------------------------------------------------------------------------------- Loans, net 37,510,123 37,249,540 Premises and equipment 765,887 745,910 Accrued interest receivable 823,545 778,363 Equity investments 2,567,107 2,540,927 Goodwill and other acquisition intangibles 3,217,577 3,307,147 Other assets 2,146,592 1,774,459 - ------------------------------------------------------------------------------- Total assets $ 84,825,337 $ 90,239,619 =============================================================================== Liabilities Deposits in domestic offices Noninterest bearing $ 6,850,109 $ 6,003,813 Interest bearing 29,054,325 29,393,957 Deposits in foreign offices Noninterest bearing 146,522 187,099 Interest bearing 18,457,641 20,865,022 - ------------------------------------------------------------------------------- Total deposits 54,508,597 56,449,891 - ------------------------------------------------------------------------------- Trading account liabilities 2,403,592 2,440,729 Short-term borrowings 9,332,661 5,271,597 Interest, taxes and other liabilities 2,772,884 3,059,993 Payable to shareholders of acquired company - 7,091,209 Subordinated long-term debt and perpetual capital notes 3,424,539 3,427,649 Guaranteed mandatorily redeemable securities 710,998 710,259 Other long-term debt 1,761,072 1,747,131 - ------------------------------------------------------------------------------- Total liabilities 74,914,343 80,198,458 - ------------------------------------------------------------------------------- Shareholders' equity Preferred stock 500,000 500,000 Common shareholder's equity Common stock 4 4 Capital surplus 8,923,059 8,920,113 Retained earnings 534,885 671,578 Accumulated other comprehensive loss (46,954) (50,534) - ------------------------------------------------------------------------------- Total common shareholder's equity 9,410,994 9,541,161 - ------------------------------------------------------------------------------- Total shareholders' equity 9,910,994 10,041,161 - ------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 84,825,337 $ 90,239,619 =============================================================================== The accompanying notes are an integral part of the consolidated financial statements.
4. HSBC USA Inc. - -------------------------------------------------------------------------------- C O N S O L I D A T E D S T A T E M E N T O F I N C O M E Quarter ended June 30, Six months ended June 30, 2000 1999 2000 1999 - -------------------------------------------------------------------------------- in thousands Interest income Loans $ 728,791 $ 456,902 $ 1,449,812 $ 922,732 Securities 433,288 53,858 854,255 112,701 Trading assets 23,795 10,597 52,393 22,496 Other short-term investments 168,275 52,777 275,563 93,318 - -------------------------------------------------------------------------------- Total interest income 1,354,149 574,134 2,632,023 1,151,247 - -------------------------------------------------------------------------------- Interest expense Deposits 569,285 208,930 1,094,725 409,863 Short-term borrowings 124,350 31,114 223,324 69,751 Long-term debt 112,136 27,158 216,319 53,447 - -------------------------------------------------------------------------------- Total interest expense 805,771 267,202 1,534,368 533,061 - -------------------------------------------------------------------------------- Net interest income 548,378 306,932 1,097,655 618,186 Provision for credit losses 28,007 22,500 56,000 45,000 - -------------------------------------------------------------------------------- Net interest income, after provision for credit losses 520,371 284,432 1,041,655 573,186 - -------------------------------------------------------------------------------- Other operating income Trust income 22,400 13,450 42,544 26,109 Service charges 43,173 30,516 86,681 59,709 Mortgage banking revenue 8,577 8,775 15,164 19,990 Other fees and commissions 74,247 41,076 153,690 81,038 Trading revenues 29,516 2,884 81,743 5,476 Security gains 4,024 4,855 745 7,306 Earnings from equity investments 19,303 1,132 32,525 1,792 Other income 10,611 6,206 21,407 29,075 - -------------------------------------------------------------------------------- Total other operating income 211,851 108,894 434,499 230,495 - -------------------------------------------------------------------------------- Total income from operations 732,222 393,326 1,476,154 803,681 - -------------------------------------------------------------------------------- Other operating expenses Salaries and employee benefits 251,450 104,909 502,342 209,409 Occupancy expense, net 44,567 21,512 86,667 44,264 Goodwill amortization 43,731 9,771 87,461 19,353 Other expenses 136,551 67,655 274,709 137,334 - -------------------------------------------------------------------------------- Total operating expenses 476,299 203,847 951,179 410,360 - -------------------------------------------------------------------------------- Income before taxes 255,923 189,479 524,975 393,321 Applicable income tax expense 87,800 76,000 197,800 158,400 - -------------------------------------------------------------------------------- Net income $ 168,123 $ 113,479 $ 327,175 $ 234,921 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements.
5. HSBC USA Inc. - ------------------------------------------------------------------------------------------------- C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N S H A R E H O L D E R S' E Q U I T Y Six months ended June 30, 2000 1999 - ------------------------------------------------------------------------------------------------- Share- Compre- Share- Compre- holders' hensive holders' hensive Equity Income Equity Income - ------------------------------------------------------------------------------------------------- in thousands Preferred stock Balance, January 1, $ 500,000 $ - * - ------------------------------------------------------------ ----------- Balance, June 30, 500,000 - - ------------------------------------------------------------ ----------- Common stock Balance, January 1, 4 5 - ------------------------------------------------------------ ----------- Balance, June 30, 4 5 - ------------------------------------------------------------ ----------- Capital surplus Balance, January 1, 8,920,113 1,806,563 Capital contribution from parent 2,946 1,375 - ------------------------------------------------------------ ----------- Balance, June 30, 8,923,059 1,807,938 - ------------------------------------------------------------ ----------- Retained earnings Balance, January 1, 671,578 377,179 Net income 327,175 $ 327,175 234,921 $ 234,921 Cash dividends declared: Preferred stock (13,868) - Common stock (450,000) (155,000) - ------------------------------------------------------------ ----------- Balance, June 30, 534,885 457,100 - ------------------------------------------------------------ ----------- 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 7,161 (67,226) Foreign currency translation adjustments, net of taxes (3,581) - Change in accumulated other comprehensive income, net 3,580 (67,226) --------- --------- Comprehensive income $ 330,755 $ 167,695 - ------------------------------------------------------------ ========= ----------- ========= Balance, June 30, (46,954) (22,720) - ------------------------------------------------------------ ----------- Total shareholders' equity, June 30 $ 9,910,994 $ 2,242,323 ============================================================ =========== The accompanying notes are an integral part of the consolidated financial statements. * $100 aggregate par value.
6. HSBC USA Inc. - ----------------------------------------------------------------------------------- C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S Six months ended June 30, 2000 1999 - ----------------------------------------------------------------------------------- in thousands Cash flows from operating activities Net income $ 327,175 $ 234,921 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization and deferred taxes 210,295 18,521 Provision for credit losses 56,000 45,000 Net change in other accrual accounts (165,885) 74,007 Net change in loans originated for sale (1,389,625) 596,186 Net change in trading assets and liabilities 71,032 (33,428) Other, net (345,609) (51,516) - ----------------------------------------------------------------------------------- Net cash provided (used) by operating activities (1,236,617) 883,691 - ----------------------------------------------------------------------------------- Cash flows from investing activities Net change in interest bearing deposits with banks (1,113,773) 934,836 Net change in short-term investments (120,155) (2,978,613) Purchases of securities (9,881,884) (1,506,552) Sales of securities 6,562,011 1,726,999 Maturities of securities 10,382,808 529,388 Payment to shareholders of acquired company (7,091,209) - Net originations and maturities of loans 943,182 355,637 Sales of loans 167,010 - Expenditures for premises and equipment (66,541) (12,997) Cash used in acquisitions, net of cash acquired - (8,787) Other, net (124,539) (58,746) - ----------------------------------------------------------------------------------- Net cash used by investing activities (343,090) (1,018,835) - ----------------------------------------------------------------------------------- Cash flows from financing activities Net change in deposits (1,941,294) 554,764 Net change in short-term borrowings 4,061,064 (500,821) Issuance of long-term debt 439,291 200,132 Repayment of long-term debt (428,994) (100,582) Capital contributions 2,946 1,375 Dividends paid (457,987) (155,000) - ----------------------------------------------------------------------------------- Net cash provided (used) by financing activities 1,675,026 (132) - ----------------------------------------------------------------------------------- Net change in cash and due from banks 95,319 (135,276) Cash and due from banks at beginning of period 1,977,756 1,262,423 - ----------------------------------------------------------------------------------- Cash and due from banks at end of period $ 2,073,075 $ 1,127,147 =================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
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. - --------------------------------------------------------------------------------- Historical Amortization ------------------ of HSBC Republic Acquisition Pro Forma Six months ended June 30, 1999 USA Inc. NY Corp. Adjustments Combined - --------------------------------------------------------------------------------- (in millions) Net interest income $618 $529 $ (16) $1,131 Provision for credit losses 45 8 - 53 - --------------------------------------------------------------------------------- Net interest income after provision for credit losses 573 521 (16) 1,078 Other operating income 230 360 (42) 548 - --------------------------------------------------------------------------------- 803 881 (58) 1,626 Operating expenses 410 625 66 1,101 - --------------------------------------------------------------------------------- Income before taxes 393 256 (124) 525 Income tax expense (benefit) 158 66 (8) 216 - --------------------------------------------------------------------------------- Net income $235 $190 $(116) $ 309 - ---------------------------------------------------------------------------------
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 June 30, 2000. - ---------------------------------------------------------------------------- Severance Related Premises Other Total - ---------------------------------------------------------------------------- (in millions) Liabilities assumed $133.9 $ 9.7 $14.0 $157.6 Restructuring charges 5.7 21.0 - 26.7 - ---------------------------------------------------------------------------- Balance December 31, 1999 139.6 30.7 14.0 184.3 Payments 45.2 1.0 9.5 55.7 - ---------------------------------------------------------------------------- Balance June 30, 2000 $ 94.4 $29.7 $ 4.5 $128.6 - ----------------------------------------------------------------------------
8. 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 June 2000, two additional civil actions arising from the Princeton Note Matter were 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). Those actions, entitled Kita-Hyogo Shinyo-Kumiai v. Republic New York Securities Corporation, et. al. and Ozawa Denki Koji Co., et. al. v. Republic New York Securities Corporation, et. al., allege unpaid notes of approximately $21.4 million and $29.6 million on behalf of twelve separate entities, respectively, and assert common law claims, claims under the federal securities laws, the Commodities Exchange Act and the Racketeer Influenced and Corrupt Organizations Act (RICO). These actions seek compensatory and punitive damages and treble damages under the RICO statute. Proceedings in all fifteen civil actions arising from the Princeton Note Matter have been temporarily stayed by the court with the consent of all parties at the request of the U.S. Attorney for the Southern District of New York. It is not possible to assess the outcome of these proceedings at present. The Republic Parties intend to defend vigorously against these claims. 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. 9. 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 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 June 30, 2000, securities, loans and other assets carried at $13.4 billion were pledged as collateral for borrowings, to secure public and trust deposits and for other purposes. 6. Business Segments As a result of the Republic acquisition, 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, mutual funds, estate planning and other investment management services. These products are marketed to individuals through the branch banking network. Residential mortgage lending 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. 10. 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.
- ---------------------------------------------------------------------------------------------------------- Segments ----------------------------------------------------- Corporate/ Investment Commercial Institutional Personal Banking/ Banking Banking Banking Markets Other Total - ---------------------------------------------------------------------------------------------------------- (in millions) Six months ended June 30, 2000 Net interest income $ 253 $ 75 $ 541 $ 216 $ 13 $ 1,098 Other operating income 49 45 180 181 (21) 434 - ---------------------------------------------------------------------------------------------------------- Total income 302 120 721 397 (8) 1,532 Operating expenses 130 44 419 198 160 951 - ---------------------------------------------------------------------------------------------------------- Pretax income (loss) before provision for credit losses 172 76 302 199 (168) 581 Provision for credit losses 28 12 34 14 (32) 56 - ---------------------------------------------------------------------------------------------------------- Pretax income (loss) 144 64 268 185 (136) 525 Taxes/preferred dividends 48 21 88 61 (6) 212 - ---------------------------------------------------------------------------------------------------------- Net income (loss) after preferred dividends 96 43 180 124 (130) 313 - ---------------------------------------------------------------------------------------------------------- Average assets 13,002 5,836 19,565 43,908 2,799 85,110 Average liabilities/equity 8,211 5,281 29,861 34,873 6,884 85,110 - ---------------------------------------------------------------------------------------------------------- Six months ended June 30, 1999 Net interest income $ 174 $ 58 $ 350 $ 25 $ 11 $ 618 Other operating income 41 36 139 5 10 231 - ---------------------------------------------------------------------------------------------------------- Total income 215 94 489 30 21 849 Operating expenses 89 28 260 7 27 411 - ---------------------------------------------------------------------------------------------------------- Pretax income (loss) before provision for credit losses 126 66 229 23 (6) 438 Provision for credit losses 16 3 39 - (13) 45 - ---------------------------------------------------------------------------------------------------------- Pretax income 110 63 190 23 7 393 Taxes/preferred dividends 44 25 76 9 4 158 - ---------------------------------------------------------------------------------------------------------- Net income after preferred dividends 66 38 114 14 3 235 - ---------------------------------------------------------------------------------------------------------- Average assets 7,385 3,718 12,566 8,831 1,444 33,944 Average liabilities/equity 5,985 2,018 16,078 6,942 2,921 33,944 - ----------------------------------------------------------------------------------------------------------
11. 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. - - 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. The Company is in the process of evaluating the potential impact of FAS 133 including reconsidering the Company's risk management strategies. 12. Management's Discussion and Analysis of Financial Condition and Results of Operations HSBC USA Inc. (the Company) reported second quarter 2000 net income of $168.1 million, compared with $113.5 million in the second quarter of 1999. For the first six months of 2000, net income was $327.2 million compared with $234.9 million for the first six months of last year. Net income plus goodwill amortization was $454.8 million for the first six months of 2000 compared with $254.3 million for the first six 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 second quarter of 2000 was $548.4 million compared with $306.9 million for the second quarter of 1999. For the first six months of 2000, net interest income was $1,097.7 million compared with $618.2 million for the first six months of 1999. The Republic acquisition was the principal factor contributing to the increase. Interest income was $1,354.2 million in the second quarter of 2000 compared with $574.1 million in the second quarter of 1999. Average earning assets were $75.7 billion for the second quarter of 2000 compared with $32.0 billion a year ago. The average rate earned on earning assets was 7.23% for the second quarter of 2000 compared with 7.21% a year ago. Interest income was $2,632.0 million for the first six months of 2000 compared with $1,151.2 million in the first six months of 1999. Average earning assets were $74.6 billion for the first six months of 2000 compared with $31.7 billion the first six months of 1999. The average rate earned on earning assets was 7.13% for the first six months of 2000 compared with 7.33% a year ago. Interest expense for the second quarter of 2000 was $805.8 million compared with $267.2 million in the second quarter of 1999. Average interest bearing liabilities for the second quarter of 2000 were $64.1 billion, compared with $28.1 billion a year ago. The average rate paid on interest bearing liabilities was 5.06% compared with 3.82% a year ago. Interest expense for the first six months of 2000 was $1,534.4 million compared with $533.1 million in the first six months of 1999. Average interest bearing liabilities for the first six months of 2000 were $62.7 billion, compared with $27.8 billion a year ago. The average rate paid on interest bearing liabilities was 4.92% for the first six months of 2000 compared with 3.86% a year ago. The taxable equivalent net yield on average total assets for the second quarter of 2000 was 2.59%, compared with 3.61% a year ago. The taxable equivalent net yield on average total assets for the first six months of 2000 was 2.62%, compared with 3.68% a year ago. The reduced yield earned from 1999 relates primarily to higher levels of lower yielding treasury assets and higher costing foreign deposits as a result of the Republic acquisition. Other Operating Income Total other operating income was $211.9 million in the second quarter of 2000, compared with $108.9 million in the 1999 second quarter. For the first six months of 2000, total operating income was $434.5 million compared with $230.5 million for the first six months of 1999. Fee income categories of trust, service charges and other fees and commissions were up 71.1% during the first six months of 2000 compared with the first six 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. 13.
Republic was an active participant in trading activities including derivatives, foreign exchange and precious metals. The following table presents information related to trading revenues. - ------------------------------------------------------------------------- Six months ended June 30 2000 1999 - ------------------------------------------------------------------------- (in millions) Derivatives $24.0 $(.5) Foreign exchange 52.5 3.1 Precious metals 2.5 - Trading account profits and commissions 2.7 2.9 - ------------------------------------------------------------------------- Total trading revenue $81.7 $5.5 - -------------------------------------------------------------------------
Earnings from equity investments includes $29.4 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 $40.2 million as well as a gain of $12.2 million on the redemption of debentures. Other Operating Expenses Other operating expenses were $476.3 million in the 2000 second quarter compared with $203.8 million for the 1999 second quarter. The expense increase relates directly to the Republic acquisition. Other operating expenses were $951.2 million for the first six months of 2000 compared with $410.4 million a year ago. Operating expenses included $18.1 million and $20.5 million in the second quarter and first six 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 $87.5 million for the first six months of 2000 compared with $19.4 million in the first six months of 1999. The cost:income ratio, excluding goodwill amortization as well as the goodwill associated with the investment in HSBC Republic, was 53.0% in the second quarter of 2000 and 53.5% for the first six months of 2000, compared with 46.7% and 46.1% for the same periods of 1999, respectively. Income Taxes The effective tax rate for the 2000 second quarter was 34% based on further analysis of tax strategies of the Company. The effective tax rate was 38% in the first half of 2000 compared with 40% in the same period of 1999. The deferred tax asset at June 30, 2000 was $71.4 million compared with $120.7 million at December 31, 1999.
Asset Quality The following table provides a summary of the allowance for credit losses and nonaccruing loans. - ---------------------------------------------------------------------------------------- 2nd 2nd 6 Months Year 6 Months Quarter Quarter Ended Ended Ended 2000 1999 6/30/00 12/31/99 6/30/99 - ---------------------------------------------------------------------------------------- (in millions) Allowance for Credit Losses Balance at beginning of period $659.6 $386.3 $659.6 $ 379.7 $379.7 Allowance related to acquired (sold) companies (3.5) - (3.5) 290.2 1.1 Provision charged to income 28.0 22.5 56.0 90.0 45.0 Net charge offs (47.7) (37.2) (75.5) (100.3) (54.2) Translation adjustment (.2) - (.4) - - - ---------------------------------------------------------------------------------------- Balance at end of period $636.2 $371.6 $636.2 $ 659.6 $371.6 - ----------------------------------------------------------------------------------------
14.
- --------------------------------------------------------------------------- June 30, December 31, June 30, 2000 1999 1999 - --------------------------------------------------------------------------- (in millions) Nonaccruing Loans Balance at end of period $ 352.2 $ 343.5 $ 278.6 As a percent of loans outstanding .92% .91% 1.20% Nonperforming Loans and Assets * Balance at end of period $364.4 $ 357.5 $ 282.1 As a percent of total assets .43% .40% .82% Allowance Ratios Allowance for credit losses as a percent of: Loans 1.67% 1.74% 1.61% Nonaccruing loans 180.62 192.01 133.36 - --------------------------------------------------------------------------- * Includes nonaccruing loans, other real estate and other owned assets.
Provisions for credit losses were $28.0 million in the second quarter of 2000 compared with $22.5 million in the second quarter of 1999. Provisions for credit losses for the first half of 2000 were $56.0 million compared with $45.0 million during the first half of 1999. Net charge offs in the credit card portfolio were $30.8 million and $39.0 million in the first half of 2000 and 1999, respectively. The delinquency rate for the credit card portfolio was 3.36% at June 30, 2000, compared with 3.41% at December 31, 1999 and 3.59% at June 30, 1999. Commercial loan credit quality resulted in net charge offs of $41.5 million in the first half of 2000 compared with net charge-offs of $3.7 million in the first half of 1999. 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 $168 million at June 30, 2000, of which $103 million had a specific credit loss allowance of $50 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 June 30, 2000, $94 billion notional value of such positions, with an estimated positive fair value of approximately $230 million were outstanding. At December 31, 1999, $40.9 billion notional value of such positions, with an estimated positive fair value of $759 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 June 30, 2000, $239 billion notional value of such positions with an estimated negative fair value of $251 million were outstanding. At December 31, 1999, $220.2 billion of notional value of such positions with an estimated positive fair value of $182 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. 15. 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 June 30, 2000. Wholesale liabilities increased to $28.1 billion at June 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. Capital Total common shareholder's equity was $9.4 billion at June 30, 2000, approximately the same level as December 31, 1999. Under risk-based capital guidelines, the Company's capital ratios were 13.25% at the Tier 1 level and 14.93% at the total capital level at June 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 8.83% at June 30, 2000 compared with 23.41% at December 31, 1999. Based on period end assets, the ratio was 8.48% at December 31, 1999. Pending 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 will be accounted for as a purchase transaction. Assets acquired and liabilities assumed will be 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 second half of 2000. 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.
16. HSBC USA Inc. - -------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES* Second Quarter 2000 Second Quarter 1999 Balance Interest Rate Balance Interest Rate - -------------------------------------------------------------------------------------- in millions Assets Interest bearing deposits with banks $ 5,872 $ 103.4 7.08 % $ 1,902 $ 24.2 5.11 % Federal funds sold and securities purchased under resale agreements 3,838 64.9 6.80 2,331 28.6 4.91 Trading assets 4,669 23.9 2.04 781 10.7 5.44 Securities 23,783 439.7 7.44 3,607 53.9 5.99 Loans Domestic Commercial 18,211 347.1 7.67 10,502 208.1 7.95 Consumer Residential mortgages 14,060 258.7 7.36 9,438 163.2 6.92 Other consumer 2,554 69.1 10.87 2,421 71.5 11.84 - -------------------------------------------------------------------------------------- Total domestic 34,825 674.9 7.79 22,361 442.8 7.94 International 2,752 54.1 7.91 997 14.5 5.85 - -------------------------------------------------------------------------------------- Total loans 37,577 729.0 7.80 23,358 457.3 7.85 - -------------------------------------------------------------------------------------- Total earning assets 75,739 $1,360.9 7.23 % 31,979 $574.7 7.21 % - -------------------------------------------------------------------------------------- Allowance for credit losses (652) (386) Cash and due from banks 1,765 1,019 Other assets 9,258 1,528 - -------------------------------------------------------------------------------------- Total assets $86,110 $34,140 ====================================================================================== Liabilities and Shareholders' Equity Interest bearing demand deposits $ 2,877 $ 6.9 0.97 % $ 2,255 $ 5.1 0.91 % Consumer savings deposits 10,531 69.1 2.64 5,714 35.7 2.51 Other consumer time deposits 8,191 104.3 5.12 6,836 77.8 4.56 Commercial, public savings and other time deposits 7,591 104.7 5.55 4,280 38.5 3.61 Deposits in foreign offices 18,990 284.3 6.02 4,566 51.8 4.55 - -------------------------------------------------------------------------------------- Total interest bearing deposits 48,180 569.3 4.75 23,651 208.9 3.54 - -------------------------------------------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements 2,181 31.1 5.70 901 9.9 4.41 Other short-term borrowings 7,762 93.3 4.83 1,663 21.2 5.12 Long-term debt 5,941 112.1 7.59 1,847 27.2 5.90 - -------------------------------------------------------------------------------------- Total interest bearing liabilities 64,064 $ 805.8 5.06 % 28,062 $267.2 3.82 % - -------------------------------------------------------------------------------------- Interest rate spread 2.17 % 3.39 % - -------------------------------------------------------------------------------------- Noninterest bearing deposits 6,266 3,037 Other liabilities 5,932 827 Shareholders' equity 9,848 2,214 - -------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $86,110 $34,140 ====================================================================================== Net yield on average earning assets 2.95 % 3.86 % Net yield on average total assets 2.59 3.61 ====================================================================================== * Interest and rates are presented on a taxable equivalent basis.
17. HSBC USA Inc. - -------------------------------------------------------------------------------------- CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES* Six Months 2000 Six Months 1999 Balance Interest Rate Balance Interest Rate - -------------------------------------------------------------------------------------- in millions Assets Interest bearing deposits with banks $ 4,632 $ 162.3 7.04 % $ 1,997 $ 51.8 5.23 % Federal funds sold and securities purchased under resale agreements 3,406 113.3 6.69 1,708 41.5 4.90 Trading assets 4,975 52.5 2.11 828 22.6 5.45 Securities 23,775 866.7 7.33 3,802 112.8 5.98 Loans Domestic Commercial 18,127 685.1 7.60 10,459 416.4 8.03 Consumer Residential mortgages 13,751 501.1 7.29 9,481 328.7 6.93 Other consumer 2,570 136.1 10.65 2,447 146.0 12.03 - -------------------------------------------------------------------------------------- Total domestic 34,448 1,322.3 7.72 22,387 891.1 8.03 International 3,407 128.0 7.55 988 32.5 6.64 - -------------------------------------------------------------------------------------- Total loans 37,855 1,450.3 7.70 23,375 923.6 7.97 - -------------------------------------------------------------------------------------- Total earning assets 74,643 $2,645.1 7.13 % 31,710 $1,152.3 7.33 % - -------------------------------------------------------------------------------------- Allowance for credit losses (658) (384) Cash and due from banks 1,766 1,086 Other assets 9,359 1,532 - -------------------------------------------------------------------------------------- Total assets $85,110 $33,944 ====================================================================================== Liabilities and Shareholders' Equity Interest bearing demand deposits $ 2,852 $ 13.7 0.97 % $ 2,234 $ 10.1 0.91 % Consumer savings deposits 10,554 137.2 2.61 5,670 70.4 2.51 Other consumer time deposits 8,163 203.4 5.01 6,836 157.6 4.65 Commercial, public savings and other time deposits 7,501 201.5 5.40 4,097 74.1 3.65 Deposits in foreign offices, primarily banks 18,711 538.9 5.79 4,354 97.7 4.52 - -------------------------------------------------------------------------------------- Total interest bearing deposits 47,781 1,094.7 4.61 23,191 409.9 3.56 - -------------------------------------------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements 2,006 55.8 5.56 938 20.4 4.39 Other short-term borrowings 7,012 167.6 4.81 1,877 49.4 5.30 Long-term debt 5,909 216.3 7.36 1,825 53.4 5.91 - -------------------------------------------------------------------------------------- Total interest bearing liabilities 62,708 $1,534.4 4.92 % 27,831 $ 533.1 3.86 % - -------------------------------------------------------------------------------------- Interest rate spread 2.21 % 3.47 % - -------------------------------------------------------------------------------------- Noninterest bearing deposits 6,284 3,138 Other liabilities 6,213 786 Shareholders' equity 9,905 2,189 - -------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $85,110 $33,944 ====================================================================================== Net yield on average earning assets 2.99 % 3.94 % Net yield on average total assets 2.62 3.68 ====================================================================================== * Interest and rates are presented on a taxable equivalent basis.
18. Part II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 3 Registrant's By-Laws, as Amended to Date 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 19. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HSBC USA Inc. (Registrant) Date: August 11, 2000 /s/ Gerald A. Ronning Gerald A.Ronning Executive Vice President & Controller (On behalf of Registrant and as Chief Accounting Officer)
20. Exhibit 12.01 HSBC USA Inc. Computation of Ratio of Earnings to Fixed Charges (in millions, except ratios) - ------------------------------------------------------------------------------- Six months ended June 30, 2000 1999 - ------------------------------------------------------------------------------- Excluding interest on deposits Net income $ 327 $ 235 Applicable income tax expense 198 158 Less undistributed equity earnings 33 2 Fixed charges: Interest on: Borrowed funds 223 70 Long-term debt 216 53 One third of rents, net of income from subleases 11 7 - ------------------------------------------------------------------------------- Total fixed charges 450 130 Earnings before taxes based on income and fixed charges $ 942 $ 521 - ------------------------------------------------------------------------------- Ratio of earnings to fixed charges 2.09 4.01 - ------------------------------------------------------------------------------- Including interest on deposits Total fixed charges (as above) $ 450 $ 130 Add: Interest on deposits 1,095 410 - ------------------------------------------------------------------------------- Total fixed charges and interest on deposits $1,545 $ 540 - ------------------------------------------------------------------------------- Earnings before taxes based on income and fixed charges (as above) $ 942 $ 521 Add: Interest on deposits 1,095 410 - ------------------------------------------------------------------------------- Total $2,037 $ 931 - ------------------------------------------------------------------------------- Ratio of earnings to fixed charges 1.32 1.72 - -------------------------------------------------------------------------------
21. Exhibit 12.02 HSBC USA Inc. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends (in millions, except ratios) - ------------------------------------------------------------------------------- Six months ended June 30, 2000 1999 - ------------------------------------------------------------------------------- Excluding interest on deposits Net income $ 327 $ 235 Applicable income tax expense 198 158 Less undistributed equity earnings 33 2 Fixed charges: Interest on: Borrowed funds 223 70 Long-term debt 216 53 One third of rents, net of income from subleases 11 7 - ------------------------------------------------------------------------------- Total fixed charges 450 130 Earnings before taxes based on income and fixed charges $ 942 $ 521 - ------------------------------------------------------------------------------- Total fixed charges $ 450 $ 130 Preferred dividends 14 - Ratio of pretax income to income after applicable income tax expense 1.60 1.67 - ------------------------------------------------------------------------------- Total preferred stock dividend factor 22 - Fixed charges, including preferred stock dividend factor $ 472 $ 130 - ------------------------------------------------------------------------------- Ratio of earnings to combined fixed charges and preferred dividends 2.00 4.01 - ------------------------------------------------------------------------------- Including interest on deposits Total fixed charges, including preferred stock dividend factor (as above) $ 472 $ 130 Add: Interest on deposits 1,095 410 - ------------------------------------------------------------------------------- Fixed charges, including preferred stock dividend factor and interest on deposits $1,567 $ 540 - ------------------------------------------------------------------------------- Earnings before taxes based on income and fixed charges (as above) $ 942 $ 521 Add: Interest on deposits 1,095 410 - ------------------------------------------------------------------------------- Total $2,037 $ 931 - ------------------------------------------------------------------------------- Ratio of earnings to combined fixed charges and preferred dividends 1.30 1.72 - -------------------------------------------------------------------------------
22. HSBC USA INC. BY-LAWS (As Amended and Restated effective April 20, 2000) 1 23. BY-LAWS OF HSBC USA INC. ARTICLE I OFFICES Section 1.1 The principal office of HSBC USA Inc. (the "Corporation") in the State of Maryland shall be in the City of Baltimore, State of Maryland. Section 1.2 The Corporation may also have offices at such other place or places, both within and without the State of Maryland, as the Board of Directors, or the President of the Corporation acting under delegated authority, may from time to time determine. ARTICLE II STOCKHOLDERS Section 2.1 Place of Stockholders' Meetings. Meetings of the Corporation's stockholders shall be held at such place in the United States as is set from time to time by the Corporation's Board of Directors. Section 2.2 Annual Meetings of Stockholders. An annual meeting of the Corporation's stockholders shall be held in April each year. At each annual meeting, the Corporation's stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting in accordance with these By-Laws. Except as the Charter or statute provides otherwise, any business may be considered at an annual meeting without the purpose of the meeting having been specified in the notice. Failure to hold an annual meeting does not invalidate the Corporation's corporate existence or affect any otherwise valid corporate acts of the Corporation. Section 2.3 Special Meetings of Stockholders. At any time in the interval between annual meetings, a special meeting of the Corporation's stockholders may be called by the Chairman of the Board or the President or by a majority of the Corporation's Board of Directors by vote at a meeting or in writing (addressed to the Corporate Secretary of the Corporation) with or without a meeting. Special meetings of the Corporation's stockholders shall be called by the Corporate Secretary on the written request of stockholders of the Corporation entitled to cast at least 25 percent of all the votes entitled to be cast at the meeting. A stockholders' request for a special meeting shall state the purpose of the meeting and the matters proposed to be acted on at it. The Corporate Secretary shall inform the stockholders who make the request of the reasonably estimated costs of preparing and mailing a notice of meeting and, on payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting. Unless requested by stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any special meeting of stockholders of the Corporation held in the preceding 12 months. Business transacted at any special meeting of stockholders shall be limited to the purpose stated in the notice thereof. 2 24. Section 2.4 Notice of Stockholders' Meetings; Waiver of Notice. Not less than 10 days nor more than 90 days before the date of every stockholders' meeting, the Corporate Secretary shall give to each stockholder entitled to vote at such meeting written notice stating the time and place of the meeting and, in the case of a special meeting or if notice of the purpose is required by statute, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provisions, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such persons. Section 2.5 Quorum at Stockholders' Meetings; Voting; Adjournments. Unless any statute or the Charter provides otherwise, at each meeting of the Corporation's stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum, and a majority of all the votes cast at a meeting at which a quorum is present is sufficient to approve any matter which properly comes before the meeting, except that a plurality of all votes cast at a meeting at which a quorum is present is sufficient to elect a director. Whether or not a quorum is present, a meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice by a majority vote of the stockholders present in person or by proxy to a date not more than 120 days after the original record date. Any business which might have been transacted at the meeting as originally notified may be deferred and transacted at any such adjourned meeting at which a quorum is present. Section 2.6 General Right to Vote; Proxies. Unless the Charter provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders; however, a share is not entitled to be voted if any installment payable on it is overdue and unpaid. In all elections of directors, each share of stock may be voted for as many persons as there are directors to be elected and for whose election the share is entitled to be voted. A stockholder may vote the stock the stockholder owns of record either in person or by proxy. A stockholder may sign a writing authorizing another person to act as proxy. Signing may be accomplished by the stockholder or the stockholder's authorized agent signing the writing or causing the stockholder's signature to be affixed to the writing by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, a telegram, cablegram, datagram, or other means of electronic transmission to the person authorized to act as proxy or to a proxy solicitation firm, proxy support service organization, or other person authorized by the person who will act as proxy to receive the transmission. Unless a proxy provides for a longer period, it is not valid more than eleven months after its date. A proxy is revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the Corporation or its assets or liabilities. 3 25. Section 2.7 List of Stockholders. At each meeting of stockholders, a full, true and complete list of all stockholders entitled to vote at such meeting, showing the number and class of shares held by each and certified by the transfer agent for such class or by the Corporate Secretary, shall be furnished by the Corporate Secretary. Section 2.8 Conduct of Voting. At all meetings of stockholders, unless the voting is conducted by inspectors, the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies, the acceptance or rejection of votes and procedures for the conduct of business not otherwise specified by these By-Laws, the Charter or law, shall be decided or determined by the chairman of the meeting. If demanded by stockholders, present in person or by proxy, entitled to cast 10% in number of votes entitled to be cast, or if ordered by the chairman of the meeting, the vote upon any election or question shall be taken by ballot. Before any meeting of the stockholders, the Board of Directors may appoint persons to act as inspectors of election at the meeting and any adjournment thereof. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of stockholders, present in person or by proxy, entitled to cast 10% in number of votes entitled to be cast, shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one or more. If inspectors are appointed at a meeting on the request of stockholders, the holders of a majority of shares present in person or by proxy shall determine whether one or more inspectors are to be appointed. No candidate for election as a director at a meeting shall serve as an inspector thereat. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of a stockholder shall, appoint a person to fill that vacancy. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receive votes, ballots or consents; hear and determine all challenges and questions in any way arising in connection with the right to vote; count and tabulate all votes or consents; determine when polls shall close; determine the result; and do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. Unless so demanded or ordered, no vote need be by ballot and voting need not be conducted by inspectors. Section 2.9 Advance Notice Provisions for Election of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.9 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2.9. To be timely, a stockholder's notice must be delivered to or mailed and received by the Corporate Secretary at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than 120 days nor more than 150 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 150th day prior to such annual meeting and not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made; and (b) in the case of a special meeting of stockholders called for the purpose 4 26. of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Corporate Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in connection with solicitations of proxies for election of directors pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and address of such stockholder as they appear on the Corporation's books and of the beneficial owner, if any, on whose behalf the nomination is made, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Regulation 14A of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.9. If the chairman of the meeting determines that nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice of a stockholder proposal hereunder. Section 2.10 Advance Notice Provisions for Business to be Transacted at Annual Meeting. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.10 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.10. To be timely, a stockholder's notice must be delivered to or mailed and received by the Corporate Secretary at the principal executive offices of the Corporation not less than 120 days nor more than 150 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 150th day prior to such annual meeting and not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. 5 27. To be in proper written form, a stockholder's notice to the Corporate Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of such stockholder as they appear on the Corporation's books and of the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder and such beneficial owner, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business, and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in Section 2.09 or in this Section 2.10, provided, however, that once business has been properly brought before the annual meeting in accordance with such procedures, nothing in Section 2.09 nor in this Section 2.10 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice of a stockholder proposal hereunder. ARTICLE III DIRECTORS Section 3.1 The number of directors of the Corporation which shall constitute the whole of the Corporation's Board of Directors (the "Board") shall not be less than three nor more than thirty. Within the limits above specified, the number of directors constituting the Board shall be determined by resolution of the Board or by the Corporation's stockholders at the Annual Meeting, but the tenure of office of a director shall not be affected by any decrease in the number of directors so made by the Board. The directors shall be elected at the Annual Meeting of stockholders, except as provided in Section 3.2 of this Article, and each director elected shall hold office until the succeeding Annual Meeting of stockholders or until his successor is elected and qualified. Directors need not be stockholders. Section 3.2 Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next Annual Meeting and until their successors are duly elected and shall qualify, unless sooner displaced. 6 28. Section 3.3 The business of the Corporation shall be managed by its Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. The directors shall choose from among their number a Chairman of the Board. Section 3.4 At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast on the election or removal of such director, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. In case such a removal occurs but the stockholders entitled to vote thereon fail to fill any resulting vacancies, such vacancies may be filled by the Board of Directors pursuant to Section 3.2. MEETINGS OF THE BOARD OF DIRECTORS Section 3.5 The Board may hold meetings, both regular and special, either within or without the State of Maryland. Section 3.6 After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet, as soon as practicable, for the purpose of organization and the transaction of other business; and, in the event that no other time is designated by the stockholders, the Board of Directors shall meet one hour after the time for such stockholders' meeting or immediately following the close of such meeting, whichever is later, on the day of such meeting. No notice of such meeting shall be necessary if held as hereinabove provided. Section 3.7 Regular meetings of the Board shall be held at such time and place as designated by the Board. No notice of a Regular Meeting shall be required if the meeting is held according to a Schedule of Regular Meetings approved by the Board. Section 3.8 Special Meetings of the Board may be called by the Chairman or the President upon notice to each director, either personally, by mail, by telex or by telegram. Special Meetings shall be called by the President or Secretary in like manner and on like notice upon the written request of three or more directors. Notice of the place, day and hour of every Special Meeting shall be given to each director at least twenty-four (24) hours before the time of the meeting, by delivering the same to him personally, by telephone, by telex, by telegraph, or by delivering the same at his residence or usual place of business, or, in the alternative, by mailing such notice at least seventy-two (72) hours before the time of the meeting, postage paid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by the By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, Annual or Special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. 7 29. Section 3.9 One third of the entire Board shall constitute a quorum at any meeting except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum shall not be present at any meeting of the Board, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Members of the Board or any committee designated thereby may participate in a meeting of the Board or any such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at such meeting. Section 3.10 Unless otherwise restricted by the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto, in writing or writings and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.11 On any question on which the Board of Directors shall vote, the names of those voting and their votes shall be entered in the minutes of the meeting when any member of the Board so requests. COMMITTEES OF DIRECTORS Section 3.12 Executive Committee. The Board of Directors may appoint from among its members an Executive Committee of not less than five directors and one of which shall be appointed Chairman of the Executive Committee. When the Board of Directors is not in session, the Executive Committee shall have and may exercise, in the absence of or subject to any restrictions which the Board of Directors may from time to time impose, all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to authorize dividends on stock, elect directors, issue stock other than as provided in the next sentence, recommend to the stockholders any action which requires stockholder approval, amend these By-Laws, or approve any merger or share exchange which does not require stockholder approval. If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the number of shares to be issued, a committee of the Board, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors. Section 3.13 Audit & Examining Committee. The Board shall designate an Audit & Examining Committee, which shall hold office until the next annual meeting of the Board following the annual meeting of stockholders, consisting of not less than three of its members, other than officers of the Corporation, and whose duty it shall be to make an examination at least once during each calendar year and within 15 months of the last such examination into the affairs of the Corporation including the administration of fiduciary powers, or cause suitable examinations to be made by auditors responsible only to the Board and to report the result of such examination in writing to the Board. Such report shall state whether the Corporation is in a sound condition, whether adequate internal controls and procedures are being maintained and 8 30. shall recommend to the Board such changes in the manner of conducting the affairs of the Corporation as shall be deemed advisable. Section 3.14 Other Committees. The Board of Directors may appoint any other committees, each of which shall be composed of one or more directors, as determined by the Board from time to time. Such other committees shall have such powers, subject to the same limitations as are applicable to the Executive Committee under Section 3.12, as shall be designated by the Board from time to time. Section 3.15 Committee Procedure. Each committee shall keep minutes of its proceedings when exercising powers of the Board of Directors and may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business and the act of a majority of those present at a meeting at which a quorum is present shall be the act of the committee. The members of a committee present at any meeting, whether or not they constitute a quorum, may appoint an eligible director to act in the place of an absent member. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if an unanimous written consent which sets forth the action is signed by each member of the committee and filed with the minutes of the committee. The members of a committee may conduct any meeting thereof by conference telephone in accordance with the provisions of Section 3.9. COMPENSATION OF DIRECTORS Section 3.16 The Board shall fix the amounts to be paid directors for their services as directors and for their attendance at the meetings of the Board or of committees or otherwise. No director who receives a salary from the Corporation shall receive any fee for attending meetings of the Board or of any of its committees. RESIGNATION OF DIRECTORS Section 3.17 Any director may resign at any time either by oral tender of such resignation at any meeting of the Board or to the Chairman or President or by giving written notice thereof to the Corporation. Any resignation shall be effective immediately, unless a date certain is specified for it to take effect. ARTICLE IV OFFICERS Section 4.1 The Corporation shall have a President, a Corporate Secretary and a Treasurer who shall be the Chief Financial Officer, and who need not be directors. The Corporation shall also have a Chairman of the Board and a Chairman of the Executive Committee, each of whom shall be directors. The Board shall designate who shall serve as Chief Executive Officer, who shall have general supervision of the business and affairs of the Corporation. The Corporation may also have one or more Vice-Presidents, assistant and subordinate officers, other officers not designated by these By-Laws, and agents as it shall deem necessary, none of whom need be a director. A person may hold more than one office in the Corporation except that no person may serve concurrently as both President and Vice-President of the Corporation. 9 31. Section 4.2 Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board and of the Stockholders at which he shall be present. Section 4.3 Chairman of the Executive Committee. The Chairman of the Executive Committee shall be a director and shall chair meetings of the Executive Committee, supervise and carry out policies adopted or approved by the Board and exercise such further powers and duties as are, from time to time, conferred upon or assigned to him by the Board. Section 4.4 President. The President shall be a director. The President may execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the execution thereof shall have been expressly delegated to some other officer or agent of the Corporation. In general, he shall perform such duties usually performed by a president of a corporation and shall perform such other duties and may have such other powers as are from time to time assigned to him by the Board. Section 4.5 Chief Executive Officer. The Chief Executive Officer shall exercise general supervision over the policies and business affairs of the Corporation and the carrying out of the policies adopted or approved by the Board. The Chairman of the Board or the President may at the same time be appointed Chief Executive Officer. Except as otherwise provided by these By- Laws, he shall have power to determine the duties to be performed by the officers appointed as provided in Section 4.9 of these By-Laws, and to employ and discharge officers and employees. Except as otherwise provided by the By- Laws or the Board, he shall be a member ex officio of all committees authorized by these By-Laws or created by the Board. In the absence of the Chairman of the Board and the President, he shall preside at all meetings of the Board and of shareholders. Section 4.6 Corporate Secretary. The Corporate Secretary shall attend all meetings of the stockholders and all meetings of the Board and record, or cause to be recorded, all the procedures of the meetings of the stockholders and the Board in books to be kept for that purpose. The Corporate Secretary may perform like duties for the standing committees when required. He shall, as required, give, or cause to be given, notice of all meetings of the stockholders and meetings of the Board. He shall have custody of the corporate seal of the Corporation and he, or a Deputy or Associate or Assistant Corporate Secretary, shall affix the same to any instrument which is required or desired to be under its seal and when so affixed, it may be attested by his signature or by the signature of such Deputy or Associate or Assistant Corporate Secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. In general, the Corporate Secretary shall perform all duties incident to the office of a secretary of a corporation, and shall perform such other duties and may have such other powers as are from time to time assigned to him by the Board, the Chief Executive Officer or the President. Section 4.7 Deputy Corporate Secretary, Associate Corporate Secretary and Assistant Corporate Secretary. The Deputy Corporate Secretary or the Associate Corporate Secretary or the Assistant Corporate Secretary, or if there be more than one, each of them, may, in the absence of the Corporate Secretary or during his inability or refusal to act, perform the duties and exercise the powers of the Corporate Secretary and shall perform such other duties and have such other powers as are from time to time assigned to each of them by the Board, the Chief Executive Officer, the President or the Corporate Secretary. Section 4.8 Treasurer. The Treasurer shall be the Chief Financial Officer and shall have charge of and be responsible for all corporate funds and securities and shall keep, or cause to be kept, full 10 32. and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit, or cause to be deposited, all moneys and other valuable effects, in the name and to the credit of the Corporation, in such depositories as may from time to time be designated. He shall render to the Board, the Chief Executive Officer or the President, when so required, an account of the financial condition of the Corporation. In general, the Treasurer shall perform all the duties incident to the office of a treasurer of a corporation, and shall perform such other duties and may have such other powers as are from time to time assigned to him by the Board, the Chief Executive Officer or the President. Section 4.9 Executive and Other Senior Officers. The Board shall by resolution determine from time to time those officers whose appointment shall require approval by the Board or a committee of the Board. Each such officer shall have such powers and duties as may be assigned by the Board, a committee of the Board, the President or the Chief Executive Officer. Section 4.10 Other Officers. The President or the Chief Executive Officer or his designee may appoint all officers whose appointment does not require approval by the Board or a committee of the Board, and assign to them such titles, as from time to time may appear to be required or desirable to transact the business of the Corporation. Each such officer shall have such powers and duties as may be assigned by the Board, the President or the Chief Executive Officer. Section 4.11 Tenure of Office. The Chairman of the Board, the President and the Chief Executive Officer shall hold office for the current year for which the Board was elected, unless they shall resign, become disqualified, or be removed. All other officers shall hold office until their successors have been appointed and qualify unless they shall resign, become disqualified or be removed. The Board shall have the power to remove the Chairman of the Board, the President and the Chief Executive Officer. The Board or the President or the Chief Executive Officer or his designee shall have the power to remove all other officers and employees. Any vacancy occurring in the offices of Chairman of the Board, President or Chief Executive Officer shall be filled promptly by the Board. Section 4.12 Compensation. The Board shall by resolution determine from time to time the officers whose compensation will require approval by the Board or a committee of the Board. The Chief Executive Officer shall fix the compensation of all officers and employees whose compensation does not require approval by the Board. ARTICLE V CERTIFICATES OF STOCK Section 5.1 Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by the Chairman of the Board or President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or a Deputy or Associate or Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 5.2 Where a certificate is manually countersigned (1) by a transfer agent, other than the Corporation or its employee, or, (2) by a registrar, other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is signed, it may be issued by the 11 33. Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 5.3 The Board may authorize a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 5.4 Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5.5 The Board may, at its discretion, appoint one or more banks or trust companies in New York City, and in such other city or cities as the Board may deem advisable, including any banking subsidiary of the Corporation, from time to time, to act as transfer agent(s) and registrar(s) of the stock of the Corporation. FIXING RECORD DATE Section 5.6 The Board is hereby empowered to fix, in advance, date as the record date for the purpose of determining stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make determination of stockholders for any other proper purpose. Such date in any case shall be not more than ninety (90) days, and in case of a meeting of stockholders, not less than ten (10) days, prior to the date of which the particular action, requiring such determination of stockholders is to be taken. In lieu of fixing a record date, the Board may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty (20) days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. STOCK LEDGER Section 5.7 Original or duplicate stock ledgers, containing the name and addresses of the stockholders of the Corporation and the number of shares of each class held by them respectively, shall be kept at the offices of a transfer agent for the particular class of stock, within or without 12 34. the State of Maryland, or, if none, at a principal office or the principal executive offices of the Corporation. REGISTERED STOCKHOLDERS Section 5.8 The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Maryland. ARTICLE VI GENERAL PROVISIONS DIVIDENDS Section 6.1 Subject to the provisions of the Articles of Incorporation, dividends, if any, may be declared by the Board at any meeting, pursuant to the law. EXECUTION OF INSTRUMENTS Section 6.2 All agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted on behalf of the Corporation by the Chairman of the Board, or the President, or the Chief Executive Officer, or the Secretary, or any Vice President, or any other officer or employee designated by the Board or the Chief Executive Officer or his designee. Any such instruments may also be executed, acknowledged, verified, delivered or accepted in behalf of the Corporation in such other manner and by such other officers as the Board may from time to time direct. The provisions of this Section 6.2 are supplementary to any other provisions of these By-Laws. Each of the foregoing authorizations shall be at the pleasure of the Board, and each such authorization by the Chief Executive Officer or his designee also shall be at the pleasure of the Chief Executive Officer. FISCAL YEAR Section 6.3 The fiscal year of the Corporation shall be the calendar year. SEAL Section 6.4 The Corporation's seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SHARES OF OTHER CORPORATIONS Section 6.5 The Chairman of the Board, the President, any Vice President, and the Secretary is each authorized to vote, represent and exercise on behalf of the Corporation all rights incident to 13 35. any and all shares of any other corporation or corporations standing in the name of the Corporation. The authority herein granted to said officer to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised either by said officer in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. Notwithstanding the above, however, the Board, in its discretion, may designate by resolution the person to vote or represent said shares of other corporations. RECORDS Section 6.6 The By-Laws and the proceedings of all meeting of the shareholders, the Board, and standing committees of the Board, shall be recorded in appropriate minute books provided for the purpose. The minutes of each meeting shall be signed by the Secretary or other officer appointed to act as Secretary of the meeting. EMERGENCY OPERATIONS Section 6.7 In the event of war or warlike damage or disaster of sufficient severity to prevent the conduct and management of the affairs, business, and property of the Corporation by its directors and officers as contemplated by these By-Laws, any two or more available members of the then incumbent Board shall constitute a quorum for the full conduct and management of the affairs, business, and property of the Corporation. This By-Law shall be subject to implementation by resolutions of the Board passed from time to time for that purpose, and any provisions of these By-Laws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary resolutions shall be suspended until it shall be determined by any interim Board acting under this Section that it shall be to the advantage of the Corporation to resume the conduct and management of its affairs, business, and property under all of the other provisions of these By-Laws. RIGHT TO INDEMNIFICATION Section 6.8 (a). Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation or, while a director or officer of the Corporation is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (an "Indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Annotated Code of Maryland, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith and such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of the Indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 6.8(b) hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such Indemnitee in connection with a proceeding (or party thereof) initiated by such Indemnitee only if such proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this Section 6.8 14 36. shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Annotated Code of Maryland so requires, an advancement of expenses incurred by an Indemnitee shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such Indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. (b) Right of Indemnitee to Bring Suit. If a claim under paragraph (a) of this Section 6.8 is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of such Indemnitee's undertaking the Indemnitee shall be entitled to be paid the expense of prosecuting or defending such suit. In any suit brought by the Indemnitee to enforce a right to indemnification hereunder it shall be a defense that, and in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met the applicable standard of conduct set forth in the Annotated Code of Maryland. Neither the failure of the Corporation to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the Annotated Code of Maryland, nor an actual determination by the Corporation that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking by the Indemnitee, the Corporation shall have the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section 6.8 or otherwise. (c) Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Section 6.8 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, By-Law, agreement, vote of shareholders or disinterested directors or otherwise. (d) Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board, grant rights to indemnification, and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Section 6.8 with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. (e) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, 15 37. liability or loss under the Delaware General Corporation Law, as the same exists or may hereafter be amended. ARTICLE VII AMENDMENTS Section 7.1 The By-Laws may be added to, amended, altered or repealed at any regular meeting of the Board, by a vote of a majority of the total number of the directors, or at any meeting of shareholders, duly called and held, by a majority of the stock represented at such meeting. ARTICLE VIII Section 8.1 Notwithstanding any other provision of the charter of the Corporation or these By-Laws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to the acquisition of all of the common stock, $5.00 par value per share, of the Corporation by HSBC Holdings plc, an English public limited company, pursuant to that certain Transaction Agreement and Plan of Merger, dated May 10, 1999, as amended by Amendment No. 1, dated November 8, 1999, and as may be further amended from time to time, by and among HSBC Holdings Plc, the Corporation, Safra Republic Holdings S.A., a societe anonyme organized and existing under the laws of Luxembourg, and RNYC Merger Corporation, a Maryland corporation, and to the other transactions contemplated thereby. Section 8.2 Notwithstanding any other provision of the charter of the Corporation or these By-Laws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to the grant by the Corporation of the option to HSBC Holdings Plc, an English public limited company, pursuant to that certain Stock Option Agreement, dated May 10, 1999, between the Corporation and HSBC of shares of the Corporation s common stock pursuant thereto. Section 8.3 Notwithstanding any other provision of the charter of the Corporation or these By-Laws, Title 3, Subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland (or any successor statute) shall not apply to the Stockholders Agreement, dated May 10, 1999, as amended by Amendment No. 1 to the Stockholders Agreement, dated November 8, 1999, and as may be further amended from time to time, among HSBC, an English public limited company, RNYC Holdings Limited, a Gibraltar corporation, Congregation Beit Yaakov, Saban S.A., a Panamanian corporation, Mr. Edmond J. Safra, HSBC North America Inc., a Delaware corporation, and in part, the Corporation, or the exercise by HSBC of its rights thereunder. 16 EX-27 2 0002.txt
9 1,000,000 6-MOS DEC-31-2000 JUN-30-2000 2,073 5,348 2,439 4,357 18,944 4,633 4,647 38,146 636 84,825 54,509 9,332 5,176 5,186 711 500 0 9,411 84,825 1,450 854 328 2,632 1,095 1,534 1,098 56 1 951 525 0 0 0 327 0 0 2.99 352 60 0 0 660 95 19 636 348 127 161
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