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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission file number: 000-23745
---------------------------------
BNP U.S. Funding L.L.C.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3972207
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
499 Park Avenue, New York, N.Y. 10022
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 415-9400
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Name of Each Exchange on
Title of Each Class to be Registered which Registered
------------------------------------ ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Noncumulative Preferred Securities, Series A
(Liquidation Preference US$10,000 per Series A Preferred Security)
(Title of class)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No /_/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Number of Shares of Common Stock outstanding on December 31, 1998: 53,011
All outstanding shares of Common Stock were held by Banque Nationale de
Paris, the Registrant's parent Company, at December 31, 1998.
Document incorporated by reference Part of Form 10-K
in this Form 10-K which incorporated
------------------------------------ ------------------
None --
Form 10-K Index
PAGE
----
PART I.......................................................................1
Item 1: Business.....................................................1
Item 2: Properties...................................................9
Item 3: Legal Proceedings............................................9
Item 4: Submission of Matters to a Vote
of Security Holders..........................................9
PART II.....................................................................10
Item 5: Market for Registrant's Common Equity and
Related Securityholder Matters..............................10
Item 6: Selected Financial Data.....................................10
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations...............11
Item 7A: Quantitative and Qualitative Disclosure About
Market Risk.................................................16
Item 8: Financial Statements and Supplementary Data.................19
Item 9: Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.........................36
PART III....................................................................36
Item 10: Directors and Executive Officers of the Company.............36
Item 11: Executive Compensation......................................37
Item 12: Security Ownership of Certain Beneficial
Owners and Management.......................................37
Item 13: Certain Relationships And Related Transactions..............37
PART IV.....................................................................37
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K.........................................37
ITEM 1: BUSINESS
General
BNP U.S. Funding L.L.C. (the "Company" or the "Registrant") is a Delaware
limited liability company formed on October 14, 1997 for the purpose of
acquiring and holding certain types of eligible securities that generate net
income for distribution to the holders of its Series A Preferred Securities (as
defined below) and its redeemable Common Securities (as defined below). The
Company has no subsidiaries. The Company is a wholly owned subsidiary of the New
York Branch (the "Branch") of Banque Nationale de Paris, a societe anonyme or
limited liability corporation organized under the laws of the Republic of France
(the "Bank" or "BNP"). The Company was continued pursuant to the Amended and
Restated Limited Liability Company Agreement of the Company (the "Company's
Charter" or the "Charter") entered into on December 5, 1997 by the New York
Branch of BNP (the "Branch"), as holder of all of the redeemable common limited
liability company interests of the Company, $10,000 par value (the "Common
Securities"), and the holders of the preferred limited liability company
interests of the Company, including the Noncumulative Preferred Securities,
Series A, liquidation preference $10,000 per security, (the "Series A Preferred
Securities") as they may exist and be outstanding from time to time.
The Company was initially capitalized on October 14, 1997 with the issuance
to the Branch of one share of the Company's Common Securities. On December 5,
1997 (inception), the Company commenced operations concurrent with the issuance
of 50,000 Series A Preferred Securities to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, and the issuance of
53,010 Common Securities to the Branch. These issuances raised in the aggregate
$1,030,115,873 of net capital (including $5,873 of additional paid in capital).
This entire amount was used to acquire a portfolio of debt securities (the
"Initial Portfolio") at their fair values from the Branch.
The Company entered into a services agreement (the "Services Agreement")
with the Branch on December 5, 1997 pursuant to which the Branch maintains the
securities portfolio of the Company (the "Portfolio") and performs other
administrative functions. All of the Company's officers and employees are
officers or employees of the Branch or the Bank. The securities in the Portfolio
are held by Citibank N.A., acting as trustee (the "Trustee") under the trust
agreement between the Company and Citibank N.A. dated December 1, 1997 (the
"Trust Agreement").
General Description of Portfolio
Types of Eligible Securities
Pursuant to its Charter and resolutions adopted by its Board of Directors,
the Company may invest only in specified types of securities ("Eligible
Securities"). Eligible Securities currently consist of (i) mortgage pass-through
securities issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC") that represent fractional undivided
interests in pools of the relevant mortgage loans ("Agency Securities"); (ii)
REMIC securities that are issued or guaranteed by GNMA, FHLMC or FNMA and that
represent beneficial ownership interests in trusts established by GNMA, FHLMC or
FNMA, the assets of which consist directly or indirectly of Agency Securities or
other, previously issued REMIC securities of this type ("REMIC Agency
Securities"); (iii) REMIC securities that are issued by an unrelated private
company and secured directly or indirectly by Agency Securities and rated AAA by
Standard & Poor's as to creditworthiness, that represent beneficial ownership
interests in a trust established by such private company, the assets of which
consist directly or indirectly of Agency Securities, REMIC Agency Securities, or
other previously issued REMIC securities of this type ("Agency Collateralized
Securities"); (iv) unsecured, current pay, direct debt obligations of FNMA and
FHLMC ("Agency Debentures"); (v) U.S. Treasury securities with a maturity of up
to ten years ("Treasuries"); and (vi) specified short-term investments not
subject to U.S. withholding tax ("Short-Term Instruments" and, collectively with
the securities included in (i)-(v) above, the "Eligible Securities"). Categories
(i) through (iii) above are referred to herein as "Mortgage-Backed Securities".
The types of Agency Securities in the Portfolio are (i) securities backed
only by mortgages with adjustable rates that reset annually at a given rate plus
a net margin ("Agency ARMs") or (ii) securities backed by mortgages with a fixed
rate for a specified period of time, after which they reset annually at a given
rate plus a net margin ("Agency Hybrid ARMs"). REMIC Agency Securities include
GNMA REMIC Securities, FHLMC REMIC Securities and FNMA REMIC Securities. The
trusts set up in connection with REMIC Agency Securities and Agency
Collateralized Securities may have elected to be treated as real estate mortgage
investment conduits ("REMICs") for federal income tax purposes.
Set forth below is a description, as of December 31, 1998 of the Portfolio.
As of December 31, 1998, the Eligible Securities included in the Portfolio had
an aggregate book value of $945,722,453 and an estimated fair value of
$962,027,350. As of such date, calculated by aggregate book value, 20.78% of the
securities in the Portfolio were floating rate REMIC securities ("Floating-rate
REMICs"), 10.57% were fixed rate REMIC securities ("Fixed-rate REMICs"), 18.15%
were Agency ARMs, 22.39% were Agency Hybrid ARMs, 12.69% were Agency Debentures
and 15.42% were Treasuries.
The following table sets forth certain information with respect to each
type of security included in the Portfolio:
Portfolio
As of December 31, 1998
Percentage of
Aggregate Portfolio by Number of
Type of Security Book Value ($000) Aggregate Book Value Securities
- - ---------------------------------------------------- -------------------- ---------------------- ------------
Floating-rate REMICs.............................. $196,589 20.78% 23
Fixed-rate REMICs ................................ 100,057 10.57 3
Agency ARMs....................................... 171,454 18.15 28
Agency Hybrid ARMs................................ 211,759 22.39 19
Agency Debentures................................. 119,981 12.69 3
Treasuries........................................ 145,882 15.42 2
------- ------ --
TOTAL............................................. $945,722 100.00% 78
======== ====== ==
Description of Types of Securities
Floating-rate REMICs
Floating-rate REMICs are backed by Agency Securities where a particular
portion of the cash flows are directed to the Floating-rate REMICs. FNMA, FHLMC,
and GNMA all guarantee the full and timely payment of principal and interest on
the pools of mortgages, which flow through to the REMICs. These REMICs are
floating-rate securities whose interest rate reset monthly at the then-current
rate of one-month LIBOR plus a margin. The interest ratio is subject to a
lifetime cap and floor. The interest cap, floor, and margin all vary by
security.
FLOATING-RATE REMICS
As of December 31, 1998
Book Value Maturity
Series ($000) Date
- - ------ ------------ ----------
FANNIE MAE 1993-210 FB.............................................. $33,721 10-25-2022
FHLMC-GNMA 38 F..................................................... 5,238 8-25-2023
FANNIE MAE 1997-28 FA............................................... 10,879 5-25-2027
FANNIE MAE 1996-51 FA............................................... 7,650 3-18-2025
FANNIE MAE 1990-121 F............................................... 14,036 10-25-2020
FREDDIE MAC 1382 LC................................................. 312 11-15-2018
FANNIE MAE 1992-141 FA.............................................. 5,450 8-25-2007
FREDDIE MAC 1256 CA................................................. 3,261 1-15-2022
Morgan Stanley Mortgage
Trust 41 Class 1(1)............................................. 5,365 2-20-2022
FANNIE MAE 1993-155 FG.............................................. 2,362 6-25-2023
FREDDIE MAC 1040 H.................................................. 16,416 2-15-2021
FANNIE MAE 1997-37 F................................................ 7,474 6-18-2027
FANNIE MAE 1997-52 F................................................ 7,497 2-20-2024
FANNIE MAE 1997-42 F................................................ 5,667 12-18-2025
FANNIE MAE 1997-44 F................................................ 1,419 7-18-2027
FANNIE MAE 1997-67 FB............................................... 221 10-18-2012
FANNIE MAE 1935 FA.................................................. 14,431 2-15-2026
FANNIE MAE 2020 FB.................................................. 10,255 9-15-2023
FANNIE MAE 2054 FA.................................................. 15,259 9-15-2026
FANNIE MAE 1721 M................................................... 19,246 5-15-2024
FANNIE MAE 2034 FB.................................................. 5,340 9-15-2026
FANNIE MAE X-188B TA................................................ 2,915 10-25-2013
FANNIE MAE G92 60 F................................................. 4,875 10-25-2022
--------
Total............................................................... $196,589
========
- - -------------------------
(1) Morgan Stanley Mortgage Trust 41 was established as of December 1, 1991
by Morgan Stanley Capital I Inc.
Fixed-rate REMICs
Fixed-rate REMICs are backed by Agency Securities where a particular
portion of the cash flows is directed to the Fixed-rate REMICs. FNMA, GNMA and
FHLMC all guarantee the full and timely payment of principal and interest on the
pools of mortgages, which flow through to the Fixed-rate REMICs.
FIXED-RATE REMICS
As of December 31, 1998
Book Value Maturity
Series ($000) Date
- - ------ ------------ ----------
FANNIE MAE 1997-56 PE.......................................................... $ 46,831 6-18-2026
FANNIE MAE 1993-80A............................................................ 47,244 5-25-2023
FANNIE MAE 1396A............................................................... 5,982 4-15-2019
--------
Total.......................................................................... $100,057
========
Agency ARMs
The Agency ARMs in the Adjustable Rate Mortgage ("ARM") pools consist of
securities having the timely payment of principal and interest generally
guaranteed by GNMA, FNMA and FHLMC. The securities consist of pools of
adjustable rate mortgages, whose interest rate reset annually at a rate equal to
the then-current rate of the One-Year Constant Maturity Treasury Index (as
defined below) plus a net margin. The interest ratio for each ARM pool is
subject to a periodic cap and a lifetime cap, which vary by agency and pool.
The One-Year Constant Maturity Treasury Index ("CMT") is the weekly average
yield on U.S. Treasury securities adjusted to a constant maturity of one year as
published by the Federal Reserve Board in Statistical Release H. 15(519) or any
similar publication or, if not so published, as reported by any Federal Reserve
Bank or by any U.S. Government department or agency. The Three-Year Constant
Maturity Treasury Index is the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of three years as published in a similar manner
as The One-Year Constant Maturity Treasury Index.
AGENCY ARMs
As of December 31, 1998
Book Value Maturity
Pool No. (1) ($000) Date
------------ ------------ ----------
FN 394850.............................................................. $ 4,249 7-1-2027
FN 397901.............................................................. 4,497 8-1-2027
FH 846384.............................................................. 5,216 12-1-2026
FN 374711.............................................................. 2,424 7-1-2027
FN 374773.............................................................. 770 3-1-2027
FH 410544.............................................................. 1,563 9-1-2027
FH 610727.............................................................. 1,787 5-1-2027
G2 080094.............................................................. 35,265 7-20-2027
G2 8506................................................................ 13,619 9-20-2024
G2 8001................................................................ 3,565 10-20-2026
FN 313242.............................................................. 2,014 11-1-2026
FN 367349.............................................................. 1,782 12-1-2026
FN 313311.............................................................. 2,344 12-1-2026
FN 363057.............................................................. 2,914 2-1-2027
FN 313190.............................................................. 3,574 9-1-2026
FN 363070.............................................................. 1,384 3-1-2027
FN 313377.............................................................. 7,802 2-1-2027
FN 370479.............................................................. 2,222 3-1-2027
FN 378243.............................................................. 917 7-1-2027
FN 313432.............................................................. 3,578 2-1-2027
FN 370478.............................................................. 1,139 2-1-2027
FN 396355.............................................................. 2,190 8-1-2027
FN 374774.............................................................. 338 3-1-2027
FN 391247.............................................................. 9,558 4-1-2027
FN 419444 ............................................................. 3,302 2-1-2028
FH 786213............................................................. 19,664 12-1-2027
G 28506................................................................ 24,299 12-1-2027
G 280001............................................................... 8,478 5-1-2027
--------
Total............................................................. $171,454
========
- - --------------
(1) "FN"= FNMA; "G"= GNMA; and "FH"= FHLMC.
Agency Hybrid ARMs
The Agency Hybrid ARMs consist of securities having the timely payment of
principal and interest guaranteed by FNMA and FHLMC. The securities consist of
mortgages that have a fixed interest rate for a specified period of time, after
which the interest rate reset annually at a rate equal to the then-current rate
of the One-Year Constant Maturity Treasury Index (as defined above) plus a
security net margin, except that pools underlying the Fannie Mae 422268 have a
coupon that resets every three years at a rate equal to the then-current rate of
the Three-Year Constant Maturity Treasury Index (as defined above) plus a
security net margin. The interest rate of each ARM pool is subject to a periodic
cap and a lifetime cap which vary by pool.
AGENCY HYBRID ARMs
As of December 31, 1998
Book Value Maturity
Pool No. (1) ($ 000) Date
------------ ------------ -----------
FN 345856................................................. $ 11,218 8-1-2036
FN 374138................................................. 14,573 3-1-2027
FN 361370................................................. 28,726 7-1-2026
FN 397136................................................. 9,740 6-1-2027
FN 361372................................................. 36,503 7-1-2026
FN 312824................................................. 5,372 6-1-2025
FN 362968................................................. 3,924 1-1-2026
FN 374917................................................. 6,327 4-1-2027
FN 403006................................................. 7,970 11-1-2007
FN 404484................................................. 9,403 11-1-2027
FN 422276................................................. 23,743 12-1-2027
FN 422268................................................. 4,048 12-1-2024
FN 422265................................................. 8,260 1-1-2026
FN 415286................................................. 8,233 2-1-2028
FN 342054................................................. 4,251 4-1-2036
FN 409850................................................. 4,923 3-1-2028
FN 417833................................................. 11,423 3-1-2028
FN 40330.................................................. 7,858 8-1-2000
FN 786414................................................. 5,264 7-1-2028
--------
Total................................................. $211,759
========
- - -------------------------
(1) "FN"= FNMA.
Agency Debentures
Pursuant to a Board of Directors resolution of November 4, 1998, the
Company may invest in Agency Debentures. The Agency Debentures consist of
conventional debt securities issued periodically directly by either FNMA or
FHLMC. Such Agency Debentures are not secured by any collateral and represent
general unsecured obligations of FNMA or FHLMC. The Company is permitted to
purchase only unsubordinated debentures which pay interest on a current basis.
On November 25, 1998, the Company purchased Agency Debentures with an aggregate
principal amount of $120,000,000. Two of the Agency Debentures (with an
aggregate principal amount of $100,000,000) are denominated in Japanese Yen. The
Agency Debentures purchased by the Company bear interest at a fixed rate and are
not redeemable by the issuer prior to maturity.
AGENCY DEBENTURES
As of December 31, 1998
Security Book Value
Description ($ 000)
------------- ------------
FNMA 380583................................................. $ 19,981
FNMA 31359MCYT.............................................. 58,000
FNMA 31359MDR1.............................................. 42,000
--------
Total.................................................. $119,981
========
TREASURIES
As of December 31, 1998
Security Book Value Maturity
Description ($ 000) Date
------------- ---------- -----------
Tnote 6.625 05-15-07....................... $ 73,338 5-15-2007
Tnote 6.5 10-15-06......................... 72,544 10-15-2006
--------
Total................................. $145,882
========
ITEM 2: PROPERTIES
The Company does not own or lease any property. It uses the facilities of
the Branch located at 499 Park Avenue, New York, New York 10022.
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITYHOLDER
MATTERS
Market Information
There is no established public trading market for the Company's Common
Securities, all of which are held by the Branch. The Bank has agreed with the
Company that, so long as any Series A Preferred Securities are outstanding, it
will maintain direct or indirect ownership of 100% of the outstanding Common
Securities.
Dividends
Holders of Common Securities are entitled to receive dividends when, as and
if declared by the Company's Board of Directors out of net gains from the
disposition of securities in the Portfolio and net income not required to be
applied to fund dividends with respect to the Series A Preferred Securities.
As of December 31, 1998, the Company had declared and paid $14,134,492 in
dividends on the Common Securities.
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the year ended
December 31, 1998 and the period from December 5, 1997 (inception) through
December 31, 1997.
(in thousands, except share and yield data)
Period from
Year Ended December 5, 1997
December 31, 1998 (inception) to
December 31, 1997
------------------- -------------------
Income Statement:
Interest income $ 53,703 $ 4,188
Net income 53,432 4,142
Average number of redeemable Common Securities outstanding 53,011 53,011
Net income per redeemable Common Security 278.10 78.14
Balance Sheet:
Investment Securities at fair value 962,027 997,748
Total Assets 1,574,170 2,032,914
Series A Preferred Securities outstanding 500,000 500,000
Total Redeemable Common Securities, Preferred Securities, and
Securityholders' Equity $1,044,151 $1,034,258
Other Data:
Comprehensive Income 62,717 4,142
Dividends paid on Series A Preferred Securities $ 38,690 $ 0
Dividends paid on redeemable Common Securities $ 14,134 $ 0
Number of Series A Preferred Securities outstanding 50,000 50,000
Number of redeemable Common Securities outstanding 53,011 53,011
Average yield on investment securities 5.15% 5.92%
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion pertains to the year ended December 31, 1998 and
the period from December 5, 1997 (inception) through December 31, 1997 (the
"1997 Period").
General
The Company was formed on October 14, 1997 and commenced operations on
December 5, 1997 by the sale to qualified institutional buyers of 50,000 Series
A Preferred Securities and the sale to the Branch of BNP of 53,011 Common
Securities. Together, such sales raised net capital of $1,030,115,873, which the
Company used to purchase the Initial Portfolio from the Branch.
The Company's sole business is to acquire, hold and manage debt
instruments, largely consisting of mortgage obligations, in the Portfolio, which
generate net income for distribution to securityholders. The Company's sole
source of income is interest generated by the securities in the Portfolio.
Results of Operations
The Company had revenues of $53,703,474 for 1998 and $4,188,125 for the
1997 Period. These amounts consisted entirely of interest income. Interest on
the securities in the Portfolio for 1998 and the 1997 Period amounted to
$51,226,580 and $4,162,524, respectively, representing an aggregate yield of
5.15% and 5.92%, respectively. Interest earned and average yield with respect to
each category of security in the Portfolio was as follows:
1998 1997 Period
------------------------ ---------------------------
Floating-rate REMICs.................. $ 14,874,016 5.70% $ 1,175,000 6.34%
Fixed-rate REMICs..................... $ 4,104,877 4.41% $ 225,000 6.92%
Agency ARMs........................... $ 10,245,224 5.63% $ 1,443,000 5.62%
Agency Hybrid ARMs.................... $ 12,958,164 6.48% $ 708,000 5.66%
Agency Debentures..................... $ 553,473 2.75% $ -- --%
Treasuries............................ $ 8,490,824 5.80% $ 612,000 5.86%
The average book value of the Portfolio during 1998 and the 1997 Period was
$989,170,343 and $1,010,016,312, respectively. This reflects the following
prepayments and reinvestments:
PREPAYMENTS 1998 1997 Period
- - ------------------------ --------------- --------------
Floating-rate REMICs.................. $188,840,328 $ 6,986,866
Fixed-rate REMICs..................... $ 19,823,014 $ --
Agency ARMs........................... $266,494,555 $18,597,468
Agency Hybrid ARMs.................... $101,443,581 $ 3,389,795
Agency Debentures..................... $ 18,425 $ --
REINVESTMENTS 1998 1997 Period
- - --------------------------- -------------- --------------
Floating-rate REMICs.................. $124,837,899 $ --
Fixed-rate REMICs..................... $ 78,641,348 $ --
Agency ARMs........................... $ 40,874,409 $ --
Agency Hybrid ARMs.................... $169,715,612 $ --
Agency Debentures..................... $120,000,000 $ --
The Company also recorded interest income from the short-term investment
for 1998 and the 1997 Period of $2,477,193 and $25,601, respectively. These
amounts are attributable to (i) interest payments on securities in the Portfolio
and (ii) prepayments of principal pending their reinvestment.
The decrease in the aggregate yield on the securities in the Portfolio to
5.15% for 1998 from 5.92% for the 1997 Period was due primarily to prevailing
market conditions resulting in a lower interest rate environment in the United
States. The CMT index (as defined in Item 1), on which yields on the Agency ARMs
and Agency Hybrid ARMs are based, stood at 4.53% at December 31, 1998 as
compared to 5.51% at December 31, 1997. The average for the year was 5.05% with
a low of 3.86% on October 16, 1998.
At December 31, 1998, approximately 71.89% of the Portfolio consisted of
collateralized mortgage obligations (Floating-rate REMICs and Fixed-rate REMICs)
and Mortgage-Backed Securities (Agency ARMs and Agency Hybrid ARMs),
approximately 15.43% consisted of Treasuries and approximately 12.68% consisted
of Agency Debentures. Floating rate securities accounted for approximately
85.28% of the portfolio of collateralized mortgage obligations and
Mortgage-Backed Securities. In addition, the Agency Debentures are hedged so
that the fixed rate payments received are converted into prevailing floating
rates. The decline in market interest rates resulted in significant prepayments
of principal throughout 1998 of collateralized mortgage obligations and
Mortgage-Backed Securities as mortgage holders refinanced to lower rate
obligations.
The aggregate market value of the securities in the Portfolio as of
December 31, 1998 was higher than the book value by approximately 1.72%, due to
a decrease in interest rates. These securities are classified as available for
sale and unrealized net gain is recorded in Accumulated Other Comprehensive
Income.
Operating expenses for 1998 and the 1997 Period totaled $271,589 and
$45,877 respectively. Operating expenses consisted largely of audit fees, fees
of Citibank as Trustee and fees paid to the Branch under the Services Agreement.
The Company's net income in 1998 was $53,432,185 and for the 1997 Period it
was $4,142,248. As of December 31, 1998, the Company had declared and paid
dividends as follows:
Security Amount Date Paid
- - ------------------------ ----------- -----------------
Series A Preferred Securities $19,345,000 June 5, 1998
$19,345,000 December 5, 1998
Common Securities $5,347,365 June 22, 1998
$8,787,127 December 15, 1998
These amounts were paid from the Company's retained earnings generated from
net income for the period from December 5, 1997 to November 30, 1998.
SFAS 125 Receivable and Obligation
Under Statement of Financial Accounting Standard (SFAS) 125, transfers of
financial assets that do not meet certain sale accounting requirements must be
accounted for as a secured borrowing transaction with a pledge of collateral.
Due to the potential consequences of a Shift Event, the Company's purchase of
the Initial Portfolio (as defined in Item 1 herein) from the Branch did not meet
certain SFAS 125 sale accounting requirements. Accordingly, the Company recorded
at December 5, 1997 a receivable for the consideration paid to the Branch for
the Initial Portfolio treated as collateral. Since the Company has the right to
sell and pledge the securities in the Initial Portfolio treated as collateral,
in applying SFAS 125 the Company recognized the securities in the Initial
Portfolio as assets and recorded at December 5, 1997 a related obligation to
return them to the Branch. As a legal and economic matter, however, there is no
such receivable or obligation since (a) neither the Bank nor the Branch has any
obligation to repay any part of the purchase price for the Initial Portfolio or
to repurchase or redeem any of the securities included therein, and (b) the
Company has no obligation to return any of such securities to the Bank or the
Branch (except in the limited circumstances and to the extent that the
occurrence of a Shift Event (Defined herein Item 8, Note 2) under the Charter
would require the transfer of any assets held by the Company at the time). As
the securities in the Initial Portfolio are paid, the receivable will be deemed
to be realized and the obligation will be reduced, each by an amount
corresponding to the amount of the payments received. At December 31, 1998 and
December 31,1997, respectively, the receivable arising from payment for
securities amounted to $521,643,688 and $996,259,635 and the obligation arising
from the receipt of securities amounted to $529,905,305 and $998,609,635. (The
difference between the amounts of the receivable and the obligation result from
a requirement to mark the obligation to market in parallel with the related
securities). The decrease in the amount of such receivable and such obligation
between the two dates reflects the prepayment of securities in the Initial
Portfolio. The Company recognized the cash proceeds of such prepayments as a
reduction in the receivable and concurrently reduced the associated obligation.
Such decreases in the receivable and the obligation did not affect the Company's
results of operations or cash flow. Such transactions are accounted for as a
purchase under SFAS 125.
Year 2000 Issue
The Year 2000 issue is the result of computer programs that were designed
using coding that defined the applicable year with two digits rather than four.
Such coding may prevent many of these programs from distinguishing the year 2000
from 1900. This "Year 2000 Issue" may affect computer systems that include, but
are not limited to, those imbedded in business data processing systems,
management and planning systems and communications systems. Systems that do not
properly recognize dates on or after January 1, 2000 could generate erroneous
data or fail. The Company uses the Branch's hardware and software for all of its
operations. Failure to be Year 2000 compliant could result in major disruptions
of the operations of the Branch and thus the Company.
The Branch has implemented a comprehensive Year 2000 response program to
modify or replace the affected systems within its own operations and to assist
third parties who maintain material relationships with the Branch with their
Year 2000 initiatives. In May 1997, the Branch established a committee to:
assess the Year 2000 impact; develop an action plan; develop a Year 2000
contingency plan; and monitor the Branch's progress toward its Year 2000
compliance. The Branch's action plan addresses compliance of information
technology and non-information technology systems as well as customer
preparedness. Since May 1997, the planning, assessment, renovation, and level 1
system testing phases have been completed. The application testing phase is
substantially completed and full completion is expected by June 30, 1999. The
Branch is closely monitoring the Year 2000 compliance of its significant
vendors, facility operators, custodial banks, fiduciary agents and customers to
determine the extent to which the Branch is vulnerable to failure by those third
parties to remediate their own year 2000 issues. The Branch has contacted all
significant external vendors in an effort to confirm their readiness for the
Year 2000 and is in the process of testing their Year 2000 compliance.
The Branch has and will continue to utilize internal resources for this
project. No external resources are expected to be used. To date, the amounts
incurred and expensed related to the assessment of, and efforts in connection
with, the Year 2000 Issue and the development of a remediation plan are
approximately $890,000. This amount was funded through operating cash flows and
expensed as incurred. It is estimated that the total cost of remediation
incurred by the Branch will be $1,267,500. The Company itself has not incurred
any expenses in the preparation of the Year 2000 Issue.
The Branch presently believes that the activities that it is undertaking in
the Year 2000 project should satisfactorily resolve Year 2000 compliance
exposures within its own systems. The Branch has completed the reprogramming and
replacement phases of the project. No Information Technology projects have been
deferred to after the Year 2000. However, if such modifications and conversions
are not operationally effective on a timely basis, the Year 2000 issue could
have a material adverse impact on the operations of the Branch and thus on the
Company. Furthermore, there can be no assurance that the systems of other
companies on which the Branch's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible with
the Branch systems, would not have a material adverse effect on the Branch or
hence on the Company.
The Branch has developed well-defined business continuity plans in an
effort to mitigate unforeseen risks. The Branch believes that these action plans
significantly reduce the risk of a Year 2000 Issue that is serious enough to
cause a business disruption. With regard to Year 2000 compliance of other
external entities, the Branch is monitoring developments closely.
Liquidity and Capital Resources
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments. The
Company's sole liquidity needs are to acquire reinvestment securities as
original securities repay or prepay and to pay dividends on the Series A
Preferred Securities. The acquisition of reinvestment securities is funded with
the proceeds of principal repayments or prepayments on original securities, and
the payments of dividends on the Series A Preferred Securities are funded
through interest income from the securities in the Portfolio. Given the limited
scope of its activites (acquiring and holding Eligible Securities to fund the
payment of dividends on the Series A Preferred Securities and the Common
Securities), and the fact that the Company is prohibited from incurring
indebtedness, the Company believes that its liquidity and capital resources will
be sufficient to meet its liquidity requirements in the short and long term.
Recent Development Regarding the Bank
On March 9, 1999, BNP announced that it intended to launch exchange offers
for 100% of the outstanding voting shares of Societe Generale and Paribas. The
exchange offers are expected to commence shortly, following receipt of necessary
French regulatory approval. BNP may (but is not required to) withdraw each
exchange offer if less than 50.01% of the Societe Generale and Paribas voting
shares, respectively, are tendered. The exchange offers are not interdependent.
If successful, the exchange offers will create a French banking group with
a European dimension and a strong domestic base. SBP is the temporary name that
will be used to refer to the combined Societe Generale, BNP and Paribas group.
SBP will conduct its retail banking through several brands with a balanced
business mix. It will be a group of distinct brands and activities, sharing
common support functions and investments, and following the same principles of
strict management practices, service quality and risk control:
The industrial plan on which the SBP project is based has four key drivers:
1. Multi-channel, multi-brand strategy in France, through the combination
of the three separate branch networks of Societe Generale, Credit
du Nord and BNP, and their respective multiple regional and local
brand names.
2. Rationalization of support functions in France, and combination of
Societe Generale's and BNP's networks abroad.
3. Re-allocation of the excess capital of the group, including Paribas'
unrealized gains on investments.
4. Sharing of the best management practices in terms of risk management,
service quality, cost controls and capital allocation throughout
SBP.
The main business units will include retail banking, specialized financial
services, private banking and asset management, and corporate and investment
banking. Real estate activities and investment portfolios will also be run as
profit centres.
While no assurances can be given as to the actual short-term or long-term
effect of the SBP project on BNP's risk-based capital ratios, management does
not currently expect the project to have a material adverse effect on such
ratios.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Sensitivity
The Company's principal market risk exposure is to changes in interest
rates. This exposure arises from its investments in collateralized mortgage
obligations, Mortgage-Backed Securities, Agency Debentures, Treasuries and
certain derivative instruments used by the Company to modify interest rate
exposures.
The outstanding principal amount and estimated fair value as of December
31, 1998, by each category of investment is set forth in Footnote 4 of the
financial statements contained in Item 8 herein.
Interest Rate Risk
The Company's income consists primarily of interest payments on
collateralized mortgage obligations, Mortgage-Backed Securities, Agency
Debentures and Treasuries. Currently, the Company uses derivative products to
manage a portion of its interest rate risk. Due to a decline in market interest
rates, as occurred throughout 1998, the Company experienced a reduction in
interest income on its collateralized mortgage obligations and its Mortgage-
Backed Securities and a corresponding decrease in funds available to be
distributed to its securityholders. The reduction in interest income resulted
from downward adjustments of the indices upon which the interest rates on ARM
mortgage loans are based and from prepayment of mortgage loans with fixed
interest rates, resulting in reinvestment of the proceeds in lower yielding
securities. There can be no assurance that an interest rate environment in which
there is a significant decline in interest rates over an extended period of time
would not adversely affect the Company's ability to pay dividends on the Series
A Preferred Securities.
The Company is a party to three interest rate swaps with BNP. In all of
these swaps the Company pays a fixed coupon and receives floating rate payments
on the notional balances (in thousands) as set out below:
Notional Fair Value At
Balance December 31,1998 Value Date Maturity Date Fixed Rate Receive Rate
- - ---------- ---------------- ----------------- -------------- ---------- ----------------------
$42,000 1,524 November 25, 1998 March 26, 2008 JPY 1.75 US Three-Month LIBOR
plus Six Basis Points
$58,000 (109) November 25, 1998 October 9, 2007 JPY 2.125 US Three-Month LIBOR
plus Six Basis Points
$20,000 (171) November 25, 1998 August 25, 2008 US 6.15 US One-Month LIBOR
plus Five Basis Points
The Company regularly reviews its hedging requirements. In the future, the
Company expects to enter into additional swaps, unwind part or all of the
initial and any future swaps in order to rebalance the fixed and floating mix of
interest obligations (including those arising as a result of previous interest
rate swaps entered into) and the fixed and floating mix of interest payments.
The Company's interest rate management strategy will continue to be
rebalanced with any purchase of new investments. There can be no assurance,
however, that the Company's interest rate risk management strategies will be
effective in this regard.
The breakdown of the Company's available-for-sale securities by category
and weighted average life distribution (stated in terms of amortized cost) is
summarized below ($ in thousands) based on management's prepayment assumptions:
Due after Due after Due after Due after Due after 2004 and
At December 31, 1998 1999 2000 2001 2002 2003 Thereafter Total
- - ----------------------------- -------------- --------------- ------------ ------------- ---------- ---------- ----------
Fixes Rate Instruments:
Fixed-rate REMICs............ 5,982 47,244 $ 46,831 $ 100,057
Agency Debentures ......... 119,981 119,981
Treasuries ................ 145,882 145,882
Total Fixed Rate Instruments $ 5,982 $ 47,244 $ 312,694 $ 365,920
------------ ------------ --------- ---------
Due after Due after Due after Due after Due after 2004 and
At December 31, 1998 1999 2000 2001 2002 2003 Thereafter Total
- - ----------------------------- -------------- -------------- ------------ ------------- ---------- ---------- ----------
Floating Rate Instruments:
Floating-rate REMICs .......... $ 22,416 $ 45,986 $ 72,236 $ 51,076 $ 4,875 $ 196,589
Agency ARMS ................. 31,816 73,580 8,748 24,299 33,281 171,454
Agency Hybrid ARMs .......... 117,506 19,479 45,966 4,048 14,573 10,187 211,759
Total Floating Rate Instruments $ 171,738 $ 261,739 $ 126,680 $ 79,423 52,729 $ 10,187 579,802
------------ ------------ ----------- ----------- ---------- --------- ----------
TOTAL ......................... $ 177,720 $ 186,289 $ 126,680 $ 79,423 $ 52,729 $ 322,881 $ 945,722
============ ============ =========== =========== ========= ========= ==========
Actual maturities may differ from maturities shown above due to prepayments.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors and
Stockholders of BNP U.S. Funding L.L.C.
In our opinion, the accompanying balance sheet and the related statements
of income, comprehensive income, changes in redeemable common securities,
preferred securities and securityholders' equity and of cash flows present
fairly, in all material respects, the financial position of BNP U.S. Funding
L.L.C. (the "Company") at December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998 and the
period from inception (December 5, 1997) through December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
/s/ PricewaterhouseCoopers LLP
- - ------------------------------
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BNP U.S. FUNDING L.L.C.
BALANCE SHEET
(in thousands, except per share data)
December 31, 1998 December 31,1997
----------------- ------------------
ASSETS:
Cash and cash equivalents.................................. $ 84,013 $ 33,762
Investment securities (Notes 3 and 4)
Available-for-sale, at fair value....................... 962,027 997,748
Receivable arising from payment for securities,
pursuant to the application of SFAS 125 (Note 3)........ 521,644 996,260
Accounts Receivable........................................ 458
Accrued interest receivable................................ 4,784 5,144
Other Assets............................................... 1,244 --
------------ ---------------
TOTAL ASSETS............................................... $ 1,574,170 $ 2,032,914
============ ===============
LIABILITIES:
Obligation arising from the receipt of securities,
pursuant to the application of SFAS 125 (Note 3)........ $ 529,905 $ 998,610
Due to affiliates.......................................... -- 12
Accrued expenses........................................... 114 34
------------ ---------------
TOTAL LIABILITIES.......................................... 530,019 998,656
============ ===============
Redeemable Common Securities, par value and redeemable
value $10,000 per security; 150,000 securities
authorized, 53,011 securities issued and outstanding 530,110 530,110
(Note 5)................................................
Preferred Securities, liquidation preference $10,000 per
security; 150,000 securities authorized, 50,000
securities issued and outstanding....................... 500,000 500,000
Additional paid in capital................................. 6 6
Accumulated other comprehensive income..................... 9,285 --
Retained earnings.......................................... 4,750 4,142
------------ ---------------
TOTAL REDEEMABLE COMMON SECURITIES, PREFERRED SECURITIES
AND
SECURITYHOLDERS' EQUITY................................. 1,044,151 1,034,258
------------ ---------------
TOTAL LIABILITIES AND TOTAL REDEEMABLE COMMON SECURITIES,
PREFERRED
SECURITIES AND SECURITYHOLDERS' EQUITY.................. $ 1,574,170 $ 2,032,914
============ ===============
The accompanying Notes to Financial Statements are an integral part of these
Statements.
BNP U.S. FUNDING L.L.C.
STATEMENT OF INCOME
(in thousands, except per share data)
Period from
Twelve-month December 5, 1997
period ended (inception) to
December 31, 1998 December 31, 1997
----------------- -------------------
INTEREST INCOME:
Collateralized Mortgage Obligations:
Floating-rate REMICs....................................... $ 14,874 $ 1,175
Fixed-rate REMICs.......................................... 4,105 225
Mortgage-Backed Securities:
Agency ARMs................................................ 10,245 1,443
Agency Hybrid ARMs......................................... 12,958 708
Agency Debentures.......................................... 553
Treasuries ................................................ 8,491 612
Interest on Deposits....................................... 2,477 25
------------ ---------------
Total...................................................... 53,703 4,188
------------ ---------------
NONINTEREST EXPENSE:
Fees and expenses.......................................... 271 46
------------ ---------------
NET INCOME APPLICABLE TO PREFERRED
AND REDEEMABLE COMMON SECURITIES........................ $ 53,432 $ 4,142
------------ ---------------
NET INCOME PER REDEEMABLE COMMON SECURITY.................. $ 278.10 $ 78.14
============ ===============
The accompanying Notes to Financial Statements are an integral part of these
Statements.
BNP U.S. FUNDING L.L.C.
STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
Period from
Twelve-month December 5, 1997
period ended (inception) to
December 31, 1998 December 31,1997
------------------- ------------------
NET INCOME $ 53,432 $ 4,142
OTHER COMPREHENSIVE INCOME:
Net change in unrealized gain (loss) in fair value of
securities available-for-sale treated as collateral 5,913 2,350
(Note 3)
Net change in unrealized loss in fair value of obligation arising
from the receipt of securities pursuant to the
application of SFAS 125 (Note 3) (5,913) (2,350)
Net change in unrealized gain (loss) in fair value of
securities available-for-sale not treated as collateral 9,285 --
(Note 3) ------------ ------------
ACCUMULATED OTHER COMPREHENSIVE INCOME 9,285 --
COMPREHENSIVE INCOME $ 62,717 $ 4,142
============ ============
The accompanying Notes to Financial Statements are an integral part of these
Statements.
BNP U.S. FUNDING L.L.C.
STATEMENT OF CHANGES IN REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND SECURITYHOLDERS' EQUITY
(in thousands)
TOTAL REDEEMABLE
COMMON SECURITIES,
ACCUMULATED PREFERRED SECURITIES
REDEEMABLE ADDITIONAL OTHER AND
COMMON PREFERRED PAID IN COMPREHENSIVE RETAINED SECURITYHOLDERS'
SECURITIES SECURITIES CAPITAL INCOME EARNINGS EQUITY
---------- ---------- ---------- ------------- --------- --------------------
Beginning Balance $ 10 $ -- $ -- $ -- $ -- $ 10
Issuance on December 5, 1997
(inception)................... 530,100 -- 6 -- -- 530,106
Private Placement
on December 5, 1997........... -- 500,000 -- -- -- 500,000
Net Share -- -- -- -- 4,142 4,142
--------- --------- ----
Balance at December 31, 1997.. 530,110 500,000 6 -- 4,142 1,034,258
--------- --------- ----
Net income.................... -- -- -- -- 53,432 53,432
Other comprehensive income.... -- -- -- 9,285 -- 9,285
Dividends Paid --
Preferred Securities.......... (38,690) (38,690)
Dividends Paid --
Common Securities............. (14,134) (14,134)
--------- --------- ---- ------- -------- ------------
Balance at December 31, 1998.. $ 530,110 $ 500,000 $ 6 $ 9,285 $ 4,750 $ 1,044,151
========= ========= ==== ======= ======== ===========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
BNP U.S. FUNDING L.L.C.
STATEMENT OF CASH FLOWS
(in thousands)
Twelve-month Period from
period ended December 5, 1997
December 31, (inception) to
1998 December 31, 1997
-------------- -----------------
OPERATING ACTIVITIES:
Net income............................................................... $ 53,432 4,142
Adjustments to reconcile net income to cash provided from operating activities:
Premium amortization..................................................... 9,992 262
Net change in interest receivable........................................ 2,119 337
Net change in accrued expenses........................................... 79 34
Net change in accounts receivable........................................ (458)
Net change in due to affiliates.......................................... (12) 12
---------- ----------
Net cash provided from operating activities.............................. 65,152 4,787
---------- ----------
INVESTING ACTIVITIES:
Purchase of investment securities:
Floating-rate REMICs..................................................... (124,838)
Fixed Rate REMICs........................................................ (78,641)
Agency ARMs.............................................................. (40,874)
Agency Hybrid ARMs....................................................... (169,716)
Agency Debentures........................................................ (120,000)
Premium paid............................................................. (2,869)
Interest receivable...................................................... (1,759)
Payments for securities treated as collateral............................ (1,030,115)
Decrease in receivable arising from payment for securities, pursuant
to the application of SFAS 125 (Note 3)............................... 474,616 33,855
----------
Proceeds from principal payments of securities available-for-sale,
not treated as collateral............................................. 114,239
Proceeds from principal payments of securities available-for-sale,
treated as collateral................................................. 462,381 28,974
---------- ----------
Net cash provided (used) by investing activities......................... 37,923 (1,001,141)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from Preferred Securities issuance.............................. 500,000
Proceeds from Common Securities issuance ................................ 530,106
Cash dividends-- Preferred Securities.................................... (38,690)
Cash dividends-- Common Securities....................................... (14,134)
Net cash provided (used) by financing activities......................... (52,824) 1,030,106
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................................... 50,251 33,752
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................... 33,762 10
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................. $ 84,013 $ 33,762
========== ==========
NONCASH FINANCING AND INVESTING ACTIVITIES:
Decrease in receivable arising from payment for securities, pursuant
to the application of SFAS 125 (Note 3) ............................... 474,616 33,855
Decrease in obligation arising from receipt of securities, pursuant to
the application of SFAS 125 (Note 3) .................................. (474,616) (33,855)
TOTAL NONCASH FINANCING AND INVESTING ACTIVITIES ........................ -- --
========== ==========
The accompanying Notes to Financial Statements are an integral part of these
Statements.
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION:
BNP U.S. Funding L.L.C. (the "Company") is a Delaware limited liability
company formed on October 14, 1997 for the purpose of acquiring and holding
Eligible Securities (as defined in Item 1 herein) that will generate net income
for distribution to the holders of its Series A Preferred Securities (as defined
below) and its redeemable Common Securities (as defined below). The Company is a
wholly owned subsidiary of the New York Branch (the "Branch") of Banque
Nationale de Paris (the "Bank" or "BNP"). BNP is a French corporation that
conducts retail banking activities in France and corporate and private banking
and other financial activities both in France and throughout the world.
The Company was initially capitalized on October 14, 1997 with the issuance
to the Branch of one share of the Company's redeemable common securities,
$10,000 par value (the "Common Securities"). On December 5, 1997 (inception),
the Company commenced operations concurrent with the issuance of 50,000
noncumulative preferred securities, Series A, liquidation preference $10,000 per
security, (the "Series A Preferred Securities") to qualified institutional
buyers, and the issuance of 53,010 Common Securities to the Branch. These
issuances raised in the aggregate $1,030,115,873 of net capital (including
$5,873 of additional paid in capital). This entire amount was used to acquire
from the Branch a portfolio of debt securities (including accrued interest) at
their fair values (the "Initial Portfolio").
The accounting and financial reporting policies of the Company conform to
U.S. generally accepted accounting principles and current industry practices.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and revenues during the
reporting periods. Actual results could differ from those estimates.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investment Securities
Investments in debt securities, both collateral and noncollateral (Note 3),
are classified as available for sale and are carried at fair value. Unrealized
gains and losses on these securities are reported as a component of other
comprehensive income.
Interest on securities is included in interest income and is recognized
using the interest method. Premiums and discounts are amortized using the
effective interest method and are recognized in interest income.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires the Company to report items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately in Total Redeemable
Common Securities, Preferred Securities and Securityholders' Equity.
Comprehensive income includes net income, as reported, as well as the change in
unrealized gains and losses on available-for-sale securities and in the
obligation arising from the receipt of securities, pursuant to the application
of SFAS 125.
Cash And Cash Equivalents
Cash and cash equivalents includes cash and short-term deposits with
original maturities of three months or less.
Dividends
Dividends on the Series A Preferred Securities, when, as and if declared by
the Company's Board of Directors, are payable out of the Company's net income,
determined without regard to capital gains or losses, semi-annually in arrears
on a non-cumulative basis on the fifth day of June and December of each year,
commencing June 5, 1998, at a rate per annum of 7.738% of the liquidation
preference through and including December 5, 2007. Thereafter, dividends, when
as, and if declared by the Company's Board of Directors, will be payable
quarterly in arrears on the third Wednesday of March, June, September, and
December of each year and will be calculated on a weekly basis in each quarter
at a rate per annum of the liquidation preference equal to 2.8% per annum above
one-week LIBOR for the week concerned as determined on the related LIBOR
Determination Date. Holders of Common Securities are entitled to receive
dividends when, as and if declared by the Company's Board of Directors out of
the Company's net income not required to be applied to fund dividends with
respect to the Series A Preferred Securities.
To date, the Company has declared and paid dividends as follows:
Security Amount Date Paid
- - -------------------- -------------- ------------------
Series A Preferred Securities......... $ 19,345,000 June 5, 1998
Common Securities..................... $ 5,347,365 June 22, 1998
Series A Preferred Securities......... $ 19,345,000 December 5, 1998
Common Securities..................... $ 8,787,127 December 15, 1998
If the Bank's financial condition were to deteriorate with the consequence
that a Shift Event (as defined below) were to occur, substantially all of the
Common Securities would be redeemed automatically without prior redemption of
the Series A Preferred Securities and dividends payable on each Series A
Preferred Security could be substantially reduced or completely eliminated. In
addition, if the Bank's Tier 1 risk-based capital ratio were to decline below
the minimum percentage required by French banking regulations (currently 4%),
the Company would pay a special dividend consisting of all of the Company's net
assets (other than assets having a total market value of approximately $40
million) to the Bank as holder of the Common Securities.
A "Shift Event" would be deemed to have occurred if (i) the Bank's total
risk-based capital ratio or Tier 1 risk-based capital ratio were to decline
below the minimum percentages required by French banking regulations, (ii) the
Bank were to become subject to certain specified receivership proceedings or
(iii) the French Banking Commission (Commission bancaire), in its sole
discretion, were to notify the Bank and the Company that it has determined that
the Bank's financial condition was deteriorating such that either of the
foregoing clauses (i) or (ii) would apply in the near term. French banking
regulations currently require French banks to maintain a minimum total
risk-based capital ratio of at least 8.0% and a minimum Tier 1 risk-based
capital ratio of at least 4.0%.
The Company may not pay dividends or make other distributions on the Common
Securities or the Series A Preferred Securities if, after giving effect to the
distributions, the Company's liabilities would exceed the fair value of its
assets. Additionally, as long as any Series A Preferred Securities are
outstanding, except during a Shift Period (i.e., following the occurrence of a
Shift Event causing a shift in dividend preference and before the termination
thereof), the amount of dividends on the Common Securities in any fiscal year
may not exceed the amount by which the net income of the Company for such fiscal
year exceeds the stated dividends on the Series A Preferred Securities scheduled
to be paid during such fiscal year irrespective of whether dividends on the
Series A Preferred Securities are in fact declared and paid. Additionally, other
than during a Shift Period, no dividends may be declared, paid or set apart for
payment on the Common Securities (a) with respect to any period of time included
in any Dividend Period unless full dividends have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof is
set apart for such payment on the Series A Preferred Securities for the
then-current Dividend Period and (b) the Company may not declare, pay or set
apart funds for any dividends or other distributions with respect to any Common
Securities unless and until (x) full dividends on the Series A Preferred
Securities for the two most recent preceding Dividend Periods are declared and
paid, or declared and a sum sufficient for payment has been paid over to the
dividend disbursing agent for payment of such dividends and (y) the Company has
declared a cash dividend on the Series A Preferred Securities at the annual
dividend rate for the then-current Dividend Period, and sufficient funds have
been paid over to the dividend disbursing agent for payment of such cash
dividends for such then-current Dividend Period.
Net Income Per Redeemable Common Security
Net income per redeemable common security is calculated by dividing net
income after preferred dividends by the weighted average number of Common
Securities outstanding.
Income Taxes
The Company expects to be treated as a partnership for U.S. Federal income
tax purposes. As a partnership is not a taxable entity, the Company will not be
subject to U.S. federal, state and local income tax on its income. Instead, each
securityholder is required to take into account its allocable share of items of
income, gain, loss and deduction of the partnership in computing its U.S.
Federal tax liability. Accordingly, the Company has made no provision for income
taxes in the accompanying statement of income.
Derivatives Used In Asset Management Activities
As part of its asset management activities the Company uses foreign
exchange and interest rate swaps to modify the interest rate and foreign
exchange characteristics of existing assets. The swaps are highly correlated to
the asset which they hedge, both at inception and throughout the hedge period.
These swaps are carried at fair value. The accrual of interest receivable
or interest payable on these swaps are reported in Interest Income: Agency
Debentures. Changes in the market values of these swaps, exclusive of net
interest accruals, are reported in Stockholders' Equity: Accumulated other
comprehensive income.
Foreign Currency Translation
Assets denominated in foreign currencies are translated to US dollars using
applicable rates of exchange. The entire change in the fair value of foreign
currency denominated investment securities classified as available for sale
(both the change in the market price of the security as expressed in US Dollars
and the change in the exchange rate between the assets denominated in foreign
currencies and the functional currency), together with the effects of hedging
instruments, is reported in Accumulated Other Comprehensive Income within
Stockholders' Equity. Revenues and expenses are translated monthly at amounts
which approximate weighted average exchange rates.
Accounting for Derivatives and Hedging Activities
In June of 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"), which
establishes accounting and reporting standards for all derivative instruments
and hedging activities. SFAS 133 requires that an entity measure all hedging
activities. SFAS 133 requires that an entity measure all derivatives at fair
value and recognize those derivatives as either assets or liabilities on the
balance sheet. The change in the derivative's fair value is generally to be
recognized in current period earnings. However, if certain conditions are met, a
derivative may be specifically designated as a hedge of an exposure to changes
in fair value, variability of cash flows, or certain foreign currency exposures.
Based on the hedge designation, special hedge accounting rules would allow the
derivative's change in value to be recognized either in current period earnings,
together with the offsetting change in value of the risk being hedged or to the
extent the hedge is effective, in comprehensive income and subsequently
reclassified into earnings when the hedge item affects earnings. Depending on
the underlying risk management strategy, these accounting changes could affect
reported earnings, assets, liabilities, and stockholders' equity. As a result,
the Company will have to reconsider their risk management strategies, since the
new standard will not reflect the results of many of those strategies in the
same manner as current accounting practice. The Company is in the process of
evaluating the potential impact of the new accounting standard. SFAS 133 is
effective for all fiscal years beginning after June 15, 1999.
NOTE 3--RECEIVABLE ARISING FROM PAYMENT FOR SECURITIES, PURSUANT TO THE
APPLICATION OF SFAS 125, AND OBLIGATION ARISING FROM THE RECEIPT OF SECURITIES,
PURSUANT TO THE APPLICATION OF SFAS 125:
Statement of Financial Accounting Standards No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125") governs the accounting for the transfer of financial assets. Under
SFAS 125, transfers of financial assets that do not meet certain sale accounting
requirements must be accounted for as a secured borrowing transaction with a
pledge of collateral.
Due to the potential consequences of a Shift Event (as described above),
the Company's purchase of the Initial Portfolio from the Branch did not meet
certain SFAS 125 sale accounting requirements. Therefore, the purchase of the
Initial Portfolio has been accounted for as a secured borrowing transaction with
a pledge of collateral. In accounting for this transaction as a secured
borrowing transaction in accordance with SFAS 125, the Company has recorded a
receivable in an amount equal to the remaining amount paid to the Branch to
acquire the Initial Portfolio. In this case, however, having delivered the
securities in the Initial Portfolio to the Company, neither the Branch nor BNP
has any further obligation to the Company to repay any part of the purchase
price for the Initial Portfolio or otherwise to repurchase or redeem any
securities in the Initial Portfolio.
Other provisions of SFAS 125 govern the accounting for financial assets
treated as collateral that an entity has the right to sell or repledge. In
accordance with such provisions, the Company has recognized the securities in
the Initial Portfolio and recorded a related obligation. In this case, the
Company has in fact no obligation to return any such securities to the Branch or
to BNP, except to the extent that the consequences of a Shift Event (as
described above) might affect securities still held by the Company at the time.
As securities within the Initial Portfolio mature or prepay, the Company
recognizes the cash proceeds as a reduction in a receivable arising from payment
for securities. Concurrent with the receipt of such cash proceeds, the Company
derecognizes such securities and reduces the associated obligation.
The obligation arising from the receipt of securities is stated at the fair
value of the related securities. Changes in the value of the obligation due to
corresponding changes in the fair value of the related securities are reported
as an element of other comprehensive income.
NOTE 4--INVESTMENT SECURITIES:
The amortized cost and estimated fair value of available-for-sale
securities were as follows ($ in 000's) based on management's prepayment
assumptions:
Gross
Gross Unrealized
December 31, 1998 Amortized Cost Unrealized Gains Losses Fair Value
- - ----------------- -------------- ---------------- ----------- -------------
Collateralized Mortgage Obligations:
Floating-rate REMICs................... $ 196,589 $ 20 $ 1,010 $ 195,599
Fixed-rate REMICs...................... 100,057 239 99,818
Mortgage-Backed Securities:
Agency ARMs............................ 171,454 28 3,183 168,299
Agency Hybrid ARMs..................... 211,759 1,081 176 212,664
Agency Debentures......................... 119,981 9,303 129,284
Treasuries ............................... 145,882 10,481 -- 156,363
---------- --------- ---------- -----------
Total................................ $ 945,722 $ 20,913 $ 4,608 $ 962,027
========== ========= ========== ===========
Gross
Gross Unrealized
December 31, 1997 Amortized Cost Unrealized Gains Losses Fair Value
- - ----------------- -------------- ---------------- ---------- ------------
Collateralized Mortgage Obligations:
Floating-rate REMICs................... $ 263,209 $ 118 $ 585 $ 262,742
Fixed-rate REMIC....................... 46,837 -- 607 46,230
Mortgage-Backed Securities:
Agency ARMs............................ 360,343 1,283 909 360,717
Agency Hybrid ARMs..................... 178,405 2,271 -- 180,676
Treasuries ............................... 146,604 779 -- 147,383
---------- --------- ---------- -----------
Total................................ $ 995,398 $ 4,451 $ 2,101 $ 997,748
========== ========= ========== ===========
The breakdown of the Company's available-for-sale securities by category
and weighted average life distribution (stated in terms of amortized cost) is
summarized below ($ in 000's) based on management's prepayment assumptions:
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1998 or less years years years Total
- - ----------------- -------------- ----------- ----------- -------------- ------------
Collateralized Mortgage Obligations:
Floating-rate REMICs............... $ 22,416 $ 174,173 $ $ $ 196,589
Fixed-rate REMICs.................. 5,982 47,244 46,831 100,057
Mortgage-Backed Securities:
Agency ARMs........................ 31,816 139,638 171,454
Agency Hybrid ARMs................. 117,506 84,066 10,187 211,759
Agency Debentures..................... 119,981 119,981
Treasuries ........................... -- -- 145,882 -- 145,882
------------- ------------- ------------- ----------- -----------
Total............................ $ 177,720 $ 445,121 $ 312,694 $ 10,187 $ 945,722
============= ============= ============= =========== ===========
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1997 or less years years years Total
- - ----------------- -------------- ------------- -------------- -------------- --------------
Collateralized Mortgage Obligations:
Floating-rate REMICs............... $ 1,470 $ 261,739 $ -- $ -- $ 263,209
Fixed-rate REMIC................... -- -- -- 46,837 46,837
Mortgage-Backed Securities:
Agency ARMs........................ -- -- 360,343 -- 360,343
Agency Hybrid ARMs................. -- -- 178,405 -- 178,405
Treasuries ........................... -- -- 146,604 -- 146,604
------------- ------------- ------------- ------------- -------------
Total............................ $ 1,470 $ 261,739 $ 685,352 $ 46,837 $ 995,398
============= ============= ============= ============= =============
Actual maturities may differ from maturities shown above due to
prepayments.
The breakdown of the Company's available-for-sale securities by category
and yield is summarized below:
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1998 or less years years years Total
- - ----------------- ------------- ----------- ----------- ------------ -----
Collateralized Mortgage Obligations:
Floating-rate REMICs.............. 5.42% 5.73% % % 5.70%
Fixed-rate REMICs................. 5.77 2.20 6.47 4.41
Mortgage-Backed Securities:
Agency ARMs....................... 2.00 6.45 5.63
Agency Hybrid ARMs................ 6.37 6.39 8.68 6.48
Agency Debentures..................... -- -- 2.75 -- 2.75
Treasuries ........................... -- -- 5.80 -- 5.80
---------- -------- -------- -------- -------
Total......................... 5.44% 5.71% 4.73% 8.68% 5.15%
========== ======== ======== ======== =======
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after 10
December 31, 1997 or less years years years Total
- - ----------------- ------------- ------------ ----------- ------------- ------
Collateralized Mortgage Obligations:
Floating-rate REMICs.............. 6.22% 6.34% --% --% 6.34%
Fixed-rate REMIC.................. -- -- -- 6.92 6.92
Mortgage-Backed Securities:
Agency ARMs....................... -- -- 5.62 -- 5.62
Agency Hybrid ARMs................ -- -- 5.66 -- 5.66
Treasuries ........................... -- -- 5.86 -- 5.86
--------- -------- --------- ---------- -------
Total......................... 6.22% 6.34% 5.68% 6.92% 5.92%
========= ======== ========= ========= =======
There were no sales of available-for-sale securities from December 5, 1997
(inception) to December 31, 1998.
NOTE 5--REDEEMABLE COMMON SECURITIES:
General
The Company is authorized to issue up to 150,000 Common Securities; as of
December 31, 1998 and December 31, 1997, the Company had outstanding 53,011
Common Securities, all of which were held by the Branch. The Bank has agreed
with the Company in the Contingent Support Agreement that, so long as any Series
A Preferred Securities are outstanding, it will maintain direct or indirect
ownership of 100% of the outstanding Common Securities.
Dividends
Holders of Common Securities are entitled to receive dividends when, as and
if declared by the Company's Board of Directors out of the Company's net income
not required to be applied to fund dividends with respect to the Series A
Preferred Securities; provided that so long as any Series A Preferred Securities
are outstanding, no dividends or other distributions (including redemptions and
purchases) may be made with respect to the Common Securities unless full
dividends on all Series A Preferred Securities have been paid for the current
and the two immediately preceding Dividend Periods (except during a Shift Period
if the Bank does not distribute dividends on its common stock).
Redemption Requirements
If the Bank's financial condition were to deteriorate with the consequence
that a Shift Event were to occur, substantially all the Common Securities would
be redeemed automatically without prior redemption of any Series A Preferred
Securities.
Voting Rights
Subject to the rights, if any, of the holders of Series A Preferred
Securities (in particular the right to remove and replace any Independent
Director and to elect an additional director, in certain circumstances), all
voting rights are vested in the Common Securities. The Holders of Common
Securities are entitled to one vote per security.
Rights Upon Liquidation
In the event of the dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, after there shall have been paid or set aside
for the holders of all Series A Preferred Securities the full preferential
amounts to which such holders are entitled, the holders of Common Securities
will be entitled to share equally and ratably in any assets remaining after the
payment of all debts and liabilities. Upon a liquidation of the Company during a
Shift Period, the Common Securities will have a preference over the Series A
Preferred Securities to the extent, if any, that the liabilities of the Bank
(including any debt instruments, such as titres participatifs and prets
participatifs) have not been paid in full.
NOTE 6--RELATED PARTY TRANSACTIONS:
The Company entered into a Services Agreement with the Branch on December
5, 1997 pursuant to which the Branch manages the securities portfolio of the
Company and performs other administrative functions for a fee of $50,000 per
annum. Expenses incurred under such Agreement were $50,000 as of December 31,
1998. While the amount of the fee payable under the Agreement is somewhat less
than the fee which would be payable in an arm's length transaction with a third
party, Management does not believe that the difference is material.
French American Banking Corporation (FABC), an affiliate of BNP, serves as
the dividend paying agent, registrar, and transfer agent with respect to the
Series A Preferred Securities. The Company paid FABC an up-front fee of $4,000
and will pay a fee of $4,000 per annum for these services.
The Company maintains a credit balance account with the Branch for clearing
certain transactions.
All of the Company's officers and employees and all but one of the members
of the Company's Board of Directors are officers and employees of the Branch or
BNP.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair values of securities at December 31,1998 and December 31, 1997
were obtained from independent market sources and are summarized in Note 4. The
carrying values of investment securities, as shown in Note 4, and the obligation
arising from the receipt of securities, pursuant to the application of SFAS 125,
approximates their fair value. The fair value of the receivable arising from
payment for securities, pursuant to the application of SFAS 125, approximates
the aggregate carrying value of the investment securities treated as collateral,
which at December 31, 1998 and December 31, 1997 was $529,905,305 and
$998,609,635 respectively.
The carrying value of cash and cash equivalents, accounts receivable,
accrued interest receivable, accrued expenses, and due to affiliates
approximates fair value.
The fair value of the interest rate swaps described in Note 8 below at
December 31, 1998 was $1,243,783.
NOTE 8--DERIVATIVE ACTIVITY:
In order to modify the interest rate and foreign exchange characteristics
of a portion of its assets, the Company engaged in derivative activities by
entering into interest rate swaps. The assets to which the swaps relate consist
of foreign currency-denominated debt instruments with fixed rate interest
payments. The Company entered into interest rate swaps primarily based on LIBOR,
in order to convert fixed rate foreign-currency denominated interest payments on
such assets into variable rate U.S. dollar payments. At December 31, 1998, the
Company had outstanding swap agreements with a notional principal amount of
$120,000,000.
BNP U.S. FUNDING L.L.C.
QUARTERLY FINANCIAL INFORMAITON (UNAUDITED)
(in thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
INTEREST INCOME:
Collateralized Mortgage Obligations:
Floating-rate REMICs........................... $ 3,797 $ 3,830 $ 4,096 $ 3,151
Fixed-rate REMICs ............................. 756 761 922 1,666
Mortgage-Backed Securities:
Agency ARMs.................................... 2,826 2,171 2,839 2,409
Agency Hybrid ARMs............................. 3,046 3,230 3,713 2,969
Agency Debentures................................. -- -- -- 553
Treasuries ....................................... 2,094 2,045 2,181 2,171
Interest on Deposits 379 433 676 989
---------- ---------- ---------- ----------
12,898 12,470 14,427 13,908
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Fees and expenses................................. 52 65 56 98
---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO PREFERRED
AND REDEEMABLE COMMON SECURITIES................ $ 12,846 $ 12,405 $ 14,371 $ 13,810
========== ========== ========== ==========
NET INCOME PER REDEEMABLE
COMMON SECURITY................................. $ 242.32 $ (130.92) $ 271.10 $ (104.40)
========== ========== ========== ==========
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning the directors and
executive officers of the Company. The directors serve 3-year terms (5 years in
the case of the independent director), subject to earlier resignation or
removal. The current term of office of each officer and director commenced on
December 5, 1997.
Name and Age Position and Offices Held
------------ -------------------------
Jean-Francois Lepetit (57) Chairman and Director
Martine Billeaud (53) Director
Jean-Pierre Beck (55) Director
Donald J. Puglisi (53) Independent Director
Eric Deudon (35) President and Director
Bruno Di Nardo (59) Secretary and Director
Lisa Hermann (38) Treasurer
The following is a summary of the experience of the executive officers and
directors of the Company:
Jean-Francois Lepetit is Chairman of the Bank's Market Risk Committee and
is also in charge of the Bank's Asset and Liability Management. In addition, he
is also Chairman of the Conseil des Marches Financiers. He was previously Vice
Chairman of the Board and Chief Executive Officer of Banque Indosuez. Mr.
Lepetit was born in 1942.
Martine Billeaud is in charge of the Bank's funding activities related to
Asset and Liability Management. She was previously responsible for worldwide
foreign exchange and interest rate products distribution and French Franc
trading. Ms Billeaud was born in 1945.
Jean-Pierre Beck is an Executive Vice President in charge of Asset and
Liability Management and Capital Markets Activities of the Bank's U.S. branches.
Prior to this position, he was the General Market Risk Manager of the Bank. He
has worked for the Bank since 1964. Mr. Beck was born in 1943 in Mulhouse,
France.
Donald J. Puglisi, the Independent Director, is the MBNA America Business
Professor and Professor of Finance at the University of Delaware where he has
been on the faculty since 1971. In addition, he is the Managing Director of
Puglisi and Associates, a company which provides investment management,
accounting and other administrative services to a variety of different
companies. Mr. Puglisi holds a Directorship or Trusteeship in the following
companies that are registered under either the Exchange Act or the 1940 Act: AJL
PEPS Trust, Automatic Common Exchange Security Trust II, DECS Trust, DECS Trust
II, Dole Food Automatic Common Exchange Security Trust, Great Lakes Fund, Inc.,
Huron Investment Fund, Inc., Mandatory Common Exchange Trust, Nextel STRYPES
Trust, Select Asset Fund, Series 1, Inc., Select Asset Fund, Series 2, Inc.,
Snyder STRYPES Trust, and WBK STRYPES Trust.
Eric Deudon is Senior Vice President in charge of Capital Markets
activities of the Branch and is Managing Director, head of trading for BNP
Capital Markets, LLC. Since joining the Bank in 1990 in Tokyo, he has run or
supervised securities trading and investment portfolios and foreign exchange
activities. Mr. Deudon was born in 1963 in Saint Cloud, France.
Bruno Di Nardo is an attorney in New York and has acted as General Counsel
of the Bank and its subsidiary French American Banking Corporation in New York
for the past 24 years. He was born in 1939.
Lisa Hermann is Vice President responsible for securities trading and
investment portfolios at the Branch. She joined the Information Systems
Department of the Bank in New York in 1990 and in 1993 was appointed to the
trading room as a securities trader. Ms. Hermann was born in 1960 in
Philadelphia, Pennsylvania.
ITEM 11: EXECUTIVE COMPENSATION
The Independent Director Donald J. Puglisi, receives director's fees of
$6,000 per year. All of the other members of the Company's Board of Directors
and Officers are also Officers or employees of the Branch or the Bank and do not
receive compensation from the Company or additional compensation from the Branch
or the Bank for services rendered to the Company.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
None.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to Item 1. Business and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for a
discussion of the Company's various relationships with the Branch, the sole
holder of all its outstanding Common Securities.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Index To Exhibits
Exhibit 11: Computation of net income per share
Exhibit 12(a): Computation of ratio of earnings to fixed charges
Exhibit 12(b): Computation of ratio of earnings to fixed charges
and preferred securities dividend
Exhibit 27: Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) 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.
BNP U.S Funding L.L.C.
-------------------------------------------
Registrant
Date: March 31, 1999 By: /s/ Eric Deudon
----------------------------------------
Eric Deudon
President and Director
Date: March 31, 1999 By: /s/ Lisa Hermann
----------------------------------------
Lisa Hermann
Treasurer