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 1-2940

HSBC Americas, Inc.
  (Exact name of registrant as specified in its charter)
One Marine Midland Center
Buffalo, New York  14203
  (Address of principal executive offices)
Telephone (716) 841-2424

IRS Employer Identification No. 22-1093160.  State of Incorporation: Delaware

Securities registered on the New York Stock Exchange pursuant to Section 12(b)
of the Act: 

7% Subordinated Notes due 2006

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) had 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 the Form 10-K or any amendment to
this Form 10-K. [X]

All voting stock (1,001 shares of Common Stock $5 par value) is owned by HSBC
Holdings B.V., an indirect wholly owned subsidiary of HSBC Holdings plc.

Documents incorporated by reference: None


                                       1




                      This page is intentionally left blank.





                                        2




T A B L E  O F  C O N T E N T S

                                                   Page

Part I


 1.   Business                                        4
 2.   Properties                                      5
 3.   Legal Proceedings                               6
 4.   Submission of Matters to a Vote of  
      Security Holders                                6


Part II


 5.   Market for the Registrant's Common Equity 
      and Related Stockholder Matters                 6
 6.   Selected Financial Data                         7
 7.   Management's Discussion and Analysis 
      of Financial Condition and 
      Results of Operations                          10
 7A.  Quantitative and Qualitative Disclosures 
      About Market Risk                              30
 8.   Financial Statements and 
      Supplementary Data                             32
 9.   Changes in and Disagreements with 
      Accountants on Accounting and        
      Financial Disclosure                           72


Part III


10.   Directors and Executive Officers 
      of the Registrant                              72
11.   Executive Compensation                         73
12.   Security Ownership of Certain Beneficial 
      Owners and Management                          75
13.   Certain Relationships and Related 
      Transactions                                   75


Part IV


14.   Exhibits, Financial Statement Schedules 
      and Reports on Form 8-K                        76



                                       3



P A R T  I 


Item 1. Business


HSBC Americas, Inc. (the Company) is a New York State based bank holding
company registered under the Bank Holding Company Act of 1956, as amended.  At
December 31, 1998, the Company, together with its subsidiaries, had assets of  
$33.9 billion and employed approximately 9,400 full and part time employees.

All of the Company's common stock is owned by HSBC Holdings B.V., an indirect
wholly owned subsidiary of HSBC Holdings plc (HSBC).  HSBC, the ultimate
parent company of The Hongkong and Shanghai Banking Corporation Limited
(HongkongBank) and Midland Bank plc, is an international banking and financial
services organization with major commercial and investment banking franchises
operating in the Asia-Pacific region, Europe, the Americas, the Middle East
and Africa.  The principal executive offices of HSBC are located in London,
England.  HSBC, with assets of $483 billion at December 31, 1998, is one of
the world's largest banking groups.

The Company's principal subsidiary Marine Midland Bank (the Bank), which had
assets of $33.8 billion and deposits of $27.3 billion at December 31, 1998, is
supervised and routinely examined by the State of New York Banking Department
and the Board of Governors of the Federal Reserve System (the Federal
Reserve).  The Bank will change its name to HSBC Bank USA, pending regulatory
approval.  This change is part of a global branding initiative by the
Company's parent, HSBC.  The Company also is a participant in a joint venture,
Wells Fargo HSBC Trade Bank.

The Bank is a regional bank with a distinctive geographic franchise
encompassing the entire State of New York.  Selected commercial and consumer
banking products are offered on a national basis.  The Bank is engaged in a
general commercial banking business, offering a full range of banking products
and services to individuals, corporations, institutions and governments. 
Through its affiliation with HSBC, the Bank offers its customers access to
global markets and services.  In turn, the Bank plays a role in the delivery
and processing of other HSBC products.

The Bank is subject to banking laws and regulations which place various
restrictions on and requirements regarding its operations and administration,
including the establishment and maintenance of branch offices, capital and
reserve requirements, deposits and borrowings, investment and lending
activities, payment of dividends and numerous other matters.  The deposits of
the Bank are insured by the Federal Deposit Insurance Corporation (FDIC) and
subject to relevant FDIC regulations.  The Company is also prohibited, with
certain exceptions, from engaging, directly or indirectly, in activities which
are not closely related to banking.  In addition, the Federal Reserve Act
restricts certain transactions between banks and their nonbank affiliates.  

The Company and the Bank are subject to risk-based capital and leverage
guidelines issued by the Federal Reserve.  The Federal Reserve is required by
law to take specific prompt actions with respect to financial institutions
that do not meet minimum capital standards.  Five capital standards have been 


                                       4



P A R T  I  Continued


Item 1. Business  Continued


identified, the highest of which is well-capitalized.  A well-capitalized bank
must have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based
capital ratio of at least 10% and a leverage ratio of at least 5% and not be
subject to a capital directive order.  The leverage ratio measures Tier 1
capital against total non-risk weighted assets.  The Bank's ratios at 
December 31, 1998 exceeded all ratios required for the well-capitalized
category.  Revisions to the risk-based capital guidelines regarding market
risk were effective January 1, 1998.  These guidelines have not had a
significant effect on the Bank's risk-based capital ratios.

As further assurance for the safety and soundness of financial institutions,
the Federal Reserve has guidelines on operations, management, and
compensation, as well as standards for asset quality and earnings.  The
guidelines have not had a significant effect on the Company's operations.

The Company and its subsidiaries face competition in all the markets they
serve, competing with other major financial institutions, including commercial
banks, investment banks, savings and loan associations, credit unions,
consumer finance companies, money market funds and other non-banking
institutions such as insurance companies, major retailers, brokerage firms and
investment companies.  Many of these institutions are not subject to the same
laws and regulations imposed on the Company and its subsidiaries.


Item 2. Properties


The principal executive offices of the Company and the Bank are located in
Buffalo, New York, in a building under a long-term lease.  The Bank has more
than 370 other banking offices in New York State located in 49 counties. 
Approximately 60% of these offices are located in buildings owned by the Bank
and the remaining are located in leased quarters.  In addition, there are
branch offices and locations for other activities occupied under various types
of ownership and leaseholds in 12 states other than New York, none of which is
materially important to the respective activities.  For information relating
to lease commitments, see Note 23 to the Financial Statements.



                                       5




Item 3. Legal Proceedings


The Company and its subsidiaries are defendants in a number of legal
proceedings arising out of, and incidental to, their businesses.  Management
of the Company, based on its review with counsel of the development of these 
matters to date, is of the opinion that the ultimate resolution of these
pending proceedings will not have a material adverse effect on the business or
financial position of the Company.


Item 4. Submission of Matters to a Vote of Security Holders


Reference is made to Item 5.



P A R T  II


Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters


Since all common stock of the Company is owned by HSBC Holdings B.V., shares
of the Company's common stock are not listed or traded on a securities
exchange.


                                       6


<TABLE>
<CAPTION>


Item 6. Selected Financial  Data
----------------------------------------------------------------------------------------------------------
 
Year Ended December 31,                                   1998       1997      1996      1995      1994
----------------------------------------------------------------------------------------------------------
                                                                              in millions
<S>                                                   <C>        <C>        <C>       <C>       <C>         
Net interest income                                   $1,165.3   $1,173.4   $ 961.8   $ 892.2   $ 782.1
Securities transactions                                   13.8       17.4       7.9      12.3       7.9
Interest on Brazilian tax settlement                      32.7          -         -         -         -
Other operating income                                   413.6      342.0     303.0     302.5     288.1
Other operating expenses                                 780.2      781.4     656.8     695.8     820.8
Provision for credit losses                               80.0       87.4      64.7     175.3     168.7
----------------------------------------------------------------------------------------------------------
Income before taxes                                      765.2      664.0     551.2     335.9      88.6
Applicable income tax expense                            238.1      193.0     171.0      52.3     125.6
----------------------------------------------------------------------------------------------------------
Net income (loss)                                     $  527.1   $  471.0   $ 380.2   $ 283.6   $ (37.0)
----------------------------------------------------------------------------------------------------------

Balances at year end
Total assets                                          $ 33,944   $ 31,518   $23,630   $20,553   $19,120
Long-term debt                                           1,748      1,708     1,080       710       713
Common shareholder's equity                              2,228      2,039     1,875     1,599     1,559
Total shareholders' equity                               2,228      2,039     1,973     1,697     1,657
Ratio of shareholders' equity to total assets             6.56 %     6.47 %    8.35 %    8.26 %    8.67 %
----------------------------------------------------------------------------------------------------------

Selected financial data (1) 
Rate of return on
  Total assets                                            1.60 %     1.62 %    1.83 %    1.50 %   (0.20)%
  Total common shareholder's equity                      24.93      22.93     21.33     16.53     (2.72)
Total shareholders' equity to total assets                6.44       7.14      8.90      9.37      9.00
----------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

Quarterly Results of Operations
                                                       1998                                    1997
                                       -------------------------------------------------------------------------
                                         4th Q  3rd Q  2nd Q      1st Q      4th Q     3rd Q     2nd Q    1stQ
----------------------------------------------------------------------------------------------------------------
                                                                          in millions
<S>                                    <C>     <C>    <C>        <C>        <C>       <C>       <C>      <C> 
Net interest income                    $ 295.3 $287.8 $  293.8   $  288.4   $ 290.1   $ 298.6   $ 299.7  $285.0
Securities transactions                    3.3    4.4      1.5        4.6       3.3       4.9       4.8     4.4
Interest on Brazilian tax settlement      32.7      -        -          -         -         -         -       -
Other operating income                    94.0   97.7    113.2      108.7      94.1      88.2      84.1    75.6
Other operating expenses                 200.2  192.7    194.6      192.7     200.4     201.9     196.3   182.8
Provision for credit losses               21.0   20.0     19.5       19.5      24.0      24.0      21.0    18.4
----------------------------------------------------------------------------------------------------------------
Income  before taxes                     204.1  177.2    194.4      189.5     163.1     165.8     171.3   163.8
Applicable income tax expense             45.5   58.1     68.2       66.3      42.7      45.8      55.2    49.3
----------------------------------------------------------------------------------------------------------------
Net income                             $ 158.6 $119.1 $  126.2   $  123.2   $ 120.4   $ 120.0   $ 116.1  $114.5
================================================================================================================

(1) Based on average daily balances.

                                                                  7

</TABLE>

<TABLE>
<CAPTION>

CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES - THREE YEARS
 
The following table shows the average balances of the principal components 
of assets, liabilities and shareholders' equity, together with their 
respective interest amounts and rates earned or paid on a taxable 
equivalent basis.
                                                               1998
                                                   ---------------------------
                                                   Balance   Interest  Rate
------------------------------------------------------------------------------
<S>                                             <C>         <C>        <C> 
Assets
Interest bearing deposits with banks            $    2,377  $   136.6    5.75 %
Federal funds sold and securities purchased
 under resale agreements                             2,299      128.0    5.57
Trading assets                                         851       51.0    5.99
Securities                                           3,930      232.6    5.92
Loans
  Domestic
    Commercial                                       8,569      738.3    8.62
    Consumer                                                            
      Residential mortgages                          9,527      684.5    7.18
      Other consumer                                 2,656      320.0   12.05
------------------------------------------------------------------------------
    Total domestic                                  20,752    1,742.8    8.40
  International                                        640       44.6    6.96
------------------------------------------------------------------------------
      Total loans                                   21,392    1,787.4    8.36
------------------------------------------------------------------------------
Total earning assets                                30,849  $ 2,335.6    7.57 %
------------------------------------------------------------------------------
Allowance for credit losses                           (404)
Cash and due from banks                              1,128
Other assets                                         1,274
------------------------------------------------------------------------------
Total assets                                    $   32,847
==============================================================================
Liabilities and Shareholders' Equity            
Interest bearing demand deposits                $    2,097  $    22.9    1.09 %
Consumer savings deposits                            5,527      148.3    2.68
Other consumer time deposits                         6,452      352.2    5.46
Commercial, public savings and other time deposits   3,132      133.0    4.25
Deposits in foreign offices, primarily banks         4,074      211.0    5.18
------------------------------------------------------------------------------
Total interest bearing deposits                     21,282      867.4    4.08
------------------------------------------------------------------------------
Federal funds purchased and securities sold
 under repurchase agreements                           917       48.1    5.24
Other short-term borrowings                          2,715      156.1    5.75
Long-term debt                                       1,469       96.1    6.54
------------------------------------------------------------------------------
Total interest bearing liabilities                  26,383  $ 1,167.7    4.43 %
------------------------------------------------------------------------------
Interest rate spread                                                     3.14 %
------------------------------------------------------------------------------
Noninterest bearing deposits                         3,665
Other liabilities                                      685
Total shareholders' equity                           2,114
------------------------------------------------------------------------------
Total liabilities and shareholders' equity      $   32,847
==============================================================================
Net yield on average earning assets                                      3.79 %
Net yield on average total assets                                        3.56
==============================================================================
Total weighted average rate earned on earning assets is interest and fee
earnings divided by daily average amounts of total interest earning assets,
including the daily average amount on nonaccruing loans. Loan fees 
included were $28 million for 1998, $20 million for 1997 and $17 million 
for 1996.
                                                              
</TABLE>
                                           8

 
<TABLE>
<CAPTION>
 

                  1997                                  1996             
    ------------------------------        ------------------------------
    Balance     Interest   Rate           Balance   Interest     Rate
    ----------------------------------------------------------------------
                in millions
   <C>         <C>           <C>         <C>         <C>          <C>
   $  1,698    $    98.7     5.82 %      $  1,173    $    65.4     5.58 %
        977         51.8     5.30             540         28.8     5.34
        980         58.9     6.01             845         51.3     6.07
      3,567        219.2     6.14           3,082        188.3     6.11
                                                                  
                                                                  
      7,457        666.9     8.94           6,661        578.5     8.68
                                                                  
      8,829        652.8     7.39           3,357        270.5     8.06
      3,083        369.8    12.00           3,375        398.0    11.79
    ----------------------------------------------------------------------
     19,369      1,689.5     8.72          13,393      1,247.0     9.31
        680         45.9     6.76             512         35.0     6.84
    ----------------------------------------------------------------------
     20,049      1,735.4     8.66          13,905      1,282.0     9.22
    ----------------------------------------------------------------------
     27,271    $ 2,164.0     7.94 %        19,545    $ 1,615.8     8.27 %
    ----------------------------------------------------------------------
       (426)                                 (454)
      1,010                                   939
      1,171                                   782
    ----------------------------------------------------------------------
   $ 29,026                              $ 20,812
    ======================================================================

   $  1,974    $    22.7     1.15 %      $  1,666    $    22.3     1.34 %
      5,369        155.7     2.90           4,051        125.0     3.09
      5,971        318.6     5.34           3,595        191.1     5.32
      2,105         86.9     4.13           1,853         74.2     4.01
      1,846         95.2     5.15           1,343         68.8     5.12
    ----------------------------------------------------------------------
     17,265        679.1     3.93          12,508        481.4     3.85
    ----------------------------------------------------------------------
      1,977        108.3     5.48           1,085         55.7     5.13
      1,585         88.4     5.58           1,289         65.2     5.06
      1,755        111.8     6.37             733         47.6     6.50
    ----------------------------------------------------------------------
     22,582    $   987.6     4.37 %        15,615    $   649.9     4.16 %
    ----------------------------------------------------------------------
                             3.57 %                                4.11 %
    ----------------------------------------------------------------------
      3,891                                 3,040
        481                                   304
      2,072                                 1,853
    ----------------------------------------------------------------------
   $ 29,026                              $ 20,812
    ======================================================================
                             4.31 %                                4.94 %
                             4.05                                  4.64  
    ======================================================================
                            
</TABLE>
                                       9  



Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations


The Company reported net income for 1998 of $527.1 million compared with 
$471.0 million in 1997, or an increase of 11.9%.  Return on average common
shareholder's equity increased to 24.93% in 1998 from 22.93% in 1997.

Business growth and expense discipline helped spur growth in income in 1998 as
well as did certain one-time items.  Results for 1998 included the settlement
with the U.S. Internal Revenue Service on Brazilian tax credits disallowed in
the 1980's.  The settlement contributed $32.7 million to pretax income and
reduced taxes by a net amount of $10.2 million.  Results also included pretax
gains on the sales of credit card portfolios of $28.1 million.

This report includes forward-looking statements.  Statements that are not
historical facts, including statements about management's beliefs and
expectations, are forward-looking statements and involve inherent risks and
uncertainties.  A number of important factors could cause actual results to
differ materially from those contained in any forward-looking statements. 
Such factors include, but are not limited to: sharp and/or rapid changes in
interest rates; significant changes in the economic conditions which could
materially change anticipated credit quality trends and the ability to
generate loans; technology changes and challenges such as Year 2000 systems
remediation as well as uncertainties relating to the ability of third parties
with whom the Company does business to address the Year 2000 issue in a timely
and adequate manner; significant changes in accounting, tax or regulatory
requirements; and competition in the geographic and business areas in which
the Company conducts its operations.

A detailed review comparing 1998 operations with 1997 and 1996 follows.  It
should be read in conjunction with the consolidated financial statements of
the Company which begin on page 35.


                                       10



E A R N I N G S   P E R F O R M A N C E   R E V I E W

Net Interest Income


Net interest income is the total interest income on earning assets less the
interest expense on deposits and borrowed funds.  In the discussion that
follows, interest income and rates are presented and analyzed on a taxable
equivalent basis, in order to permit comparisons of yields on tax-exempt and
taxable assets.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                       Increase(Decrease)              Increase(Decrease)
                                1998    Amount         %        1997    Amount         %        1996 
-----------------------------------------------------------------------------------------------------         
                                                         in millions
<S>                         <C>         <C>        <C>      <C>         <C>        <C>      <C> 
Interest income             $2,335.6    $171.6       7.9    $2,164.0    $548.2      33.9    $1,615.8 
Interest expense             1,167.7     180.1      18.2       987.6     337.7      52.0       649.9 
-----------------------------------------------------------------------------------------------------
Net interest income -
 taxable equivalent basis    1,167.9      (8.5)      (.7)    1,176.4     210.5      21.8       965.9 
Taxable equivalent
 adjustment                      2.6       (.4)    (15.1)        3.0      (1.1)    (25.7)        4.1 
-----------------------------------------------------------------------------------------------------
Net interest income         $1,165.3    $ (8.1)      (.7)   $1,173.4    $211.6      22.0    $  961.8 
-----------------------------------------------------------------------------------------------------
Average earning assets      $ 30,849    $3,578      13.1    $ 27,271    $7,726      39.5    $ 19,545 
Average nonearning assets      1,998       243      13.8       1,755       488      38.5       1,267 
-----------------------------------------------------------------------------------------------------
Average total assets        $ 32,847    $3,821      13.2    $ 29,026    $8,214      39.5    $ 20,812 
-----------------------------------------------------------------------------------------------------
Net yield on:
 Average earning assets         3.79%     (.52)%   (12.1)       4.31%     (.63)%   (12.8)       4.94%
 Average total assets           3.56      (.49)    (12.1)       4.05      (.59)    (12.7)       4.64 
=====================================================================================================

</TABLE>

Net interest income was $1,167.9 million in 1998 compared with $1,176.4
million in 1997.  The decrease in net yield from 1997 to 1998 was the result
of the placement of increased deposits in short-term investments, a flatter
yield curve and competitive pricing pressures.

The following table presents net interest income components on a taxable
equivalent basis, using marginal tax rates of 35%, and quantifies the changes
in the components according to "volume and rate". 


                                        11


<TABLE>
<CAPTION>

Net Interest Income Components Including Volume/Rate Analysis

---------------------------------------------------------------------------------------------------------------------
                                                   1998 Compared to 1997              1997 Compared to 1996       
                                                     Increase(Decrease)                 Increase(Decrease)        
                                             1998    Volume      Rate         1997     Volume      Rate         1996 
---------------------------------------------------------------------------------------------------------------------
                                                                          in millions        
<S>                                      <C>         <C>       <C>        <C>          <C>       <C>        <C> 
Interest income:
Interest bearing deposits with banks     $  136.6    $ 39.1    $ (1.2)    $   98.7     $ 30.4    $  2.9     $   65.4 
Federal funds sold and securities 
 purchased under resale agreements          128.0      73.4       2.8         51.8       23.2       (.2)        28.8 
Trading assets                               51.0      (7.7)      (.2)        58.9        8.1       (.5)        51.3 
Securities                                  232.6      21.6      (8.2)       219.2       29.8       1.1        188.3 
Loans:                                                         
  Domestic:                                                     
     Commercial                             738.3      96.5     (25.1)       666.9       70.7      17.7        578.5 
     Consumer 
       Residential mortgages                684.5      50.6     (18.9)       652.8      406.3     (24.0)       270.5 
       Credit card receivables              212.0     (52.9)     10.7        254.2      (17.6)      6.4        265.4 
       Other consumer                       108.0      (6.4)     (1.2)       115.6      (14.8)     (2.2)       132.6 
  International                              44.6      (2.7)      1.4         45.9       11.3       (.4)        35.0 
---------------------------------------------------------------------------------------------------------------------
Total interest income                     2,335.6     211.5     (39.9)     2,164.0      547.4        .8      1,615.8 
---------------------------------------------------------------------------------------------------------------------
Interest expense:                                               
Interest bearing demand deposits             22.9       1.4      (1.2)        22.7        3.8      (3.4)        22.3 
Consumer savings and                           
 other time deposits                        500.5      26.7       (.5)       474.3      154.5       3.7        316.1 
Commercial and public savings                             
 and other time deposits                    133.0      43.5       2.6         86.9       10.4       2.3         74.2 
Deposits in foreign offices                 211.0     115.4        .4         95.2       26.0        .4         68.8 
Short-term borrowings                       204.2       3.9       3.6        196.7       64.9      10.9        120.9 
Long-term debt                               96.1     (18.6)      2.9        111.8       65.1       (.9)        47.6 
---------------------------------------------------------------------------------------------------------------------
Total interest expense                    1,167.7     172.3       7.8        987.6      324.7      13.0        649.9 
---------------------------------------------------------------------------------------------------------------------
Net interest income -                          
 taxable equivalent basis                $1,167.9    $ 39.2    $(47.7)    $1,176.4     $222.7    $(12.2)    $  965.9 
=====================================================================================================================

</TABLE>

The changes in interest income and interest expense due to both rate and
volume have been allocated in proportion to the absolute amounts of the change
in each.

Average Balances and Interest Rates


Average balances and interest rates earned or paid for the past three years
are reported on pages 8 and 9.  Average earning assets increased to $30,849    
million in 1998 from $27,271 million in 1997 resulting in increased interest
income even though rates earned declined to 7.57% in 1998 from 7.94% in 1997. 
The decline in net interest income is primarily attributable to the flattened
yield curve and the lower collection of interest on nonaccruing loans.

Average commercial loans were $8,569 million in 1998, compared with $7,457
million in 1997.  Growth in commercial loans occurred in most commercial
lending units.  Yields on commercial loans were 8.62% in 1998 compared with
8.94% in 1997.  Average residential mortgages were $9,527 million in 1998
compared with $8,829 million in 1997.  The full year impact of the First
Federal Savings and Loans Association (First Federal) acquisition in March
1997 contributed to the increased level of residential mortgage loans in 1998
compared with 1997.  The yield on residential mortgages was 7.18% in 1998
compared with 7.39% in 1997.  


                                       12



Average credit card receivables decreased to $1,406 million in 1998 from
$1,760 million in 1997.  Certain credit card portfolios totalling
approximately $370 million were sold during the first four months of 1998.

Average short-term investments and trading assets increased to $5,527 million
in 1998 from $3,655 million in 1997.  Interest bearing deposits averaged
$21,282 million during 1998 compared with $17,265 million in 1997.  A
significant part of this increase was attributable to higher levels of
deposits placed by institutional customers and other members of the HSBC
Group.  These increases provided the funding for the increased holdings.  

<TABLE>
<CAPTION>

Other Operating Income


Other operating income was $460.1 million in 1998 compared with $359.4 million
in 1997 and $310.9 million in 1996.

---------------------------------------------------------------------------------------------------------
                                              Increase(Decrease)             Increase(Decrease)
                                       1998    Amount         %       1997    Amount        %       1996 
---------------------------------------------------------------------------------------------------------
                                                               in millions           
<S>                                  <C>       <C>        <C>       <C>        <C>      <C>       <C>  
Trust income                         $ 47.3    $  4.3      10.0     $ 43.0     $ 1.8      4.4     $ 41.2 
Service charges                       115.4      11.4      11.0      104.0      14.1     15.7       89.9 
Mortgage servicing income              18.9      (2.7)    (12.0)      21.6       6.8     45.8       14.8 
Letter of credit fees                  25.9       4.4      20.4       21.5       1.9      9.7       19.6 
Credit card fees                       41.5      (9.4)    (18.6)      50.9      (2.1)    (3.9)      53.0 
Other fee-based income                 78.1      15.8      25.3       62.3      18.6     42.5       43.7 
Investment product fees                26.7       6.5      32.6       20.2       9.6     90.1       10.6 
Interest on Brazilian tax settlement   32.7      32.7         -          -         -        -          - 
Other income                           56.1      43.7     352.6       12.4     (14.1)   (53.2)      26.5 
---------------------------------------------------------------------------------------------------------
Nontrading income                     442.6     106.7      31.8      335.9      36.6     12.2      299.3 
---------------------------------------------------------------------------------------------------------
Trading asset revenue (loss)           (1.7)     (3.4)   (200.9)       1.7       1.9    989.0        (.2)
Foreign exchange revenue                5.4       1.0      21.2        4.4        .5     11.4        3.9 
---------------------------------------------------------------------------------------------------------
Trading revenues                        3.7      (2.4)    (39.2)       6.1       2.4     63.1        3.7 
---------------------------------------------------------------------------------------------------------
Securities transactions                13.8      (3.6)    (20.6)      17.4       9.5    119.9        7.9 
---------------------------------------------------------------------------------------------------------
Total other operating income         $460.1    $100.7      28.0     $359.4     $48.5     15.6     $310.9 
=========================================================================================================

</TABLE>


  Nontrading Income


Nontrading income was $442.6 million in 1998 compared with $335.9 million in
1997.  The Company received interest of $32.7 million in 1998 as a result of
the settlement of previously disallowed income tax credits on Brazilian debt. 
Other income in 1998 included gains of $28.1 million on the sales of selected
credit card portfolios and gains of $24.2 million on the sale of residential
mortgages.


                                      13



  Trading Asset Revenues


Trading revenues include securities trading gains and losses, commissions
earned from distributing municipal obligations, and foreign exchange revenue
from transactions with corporate clients and correspondent banks.  It does not
include interest income from these activities (included as a component of net
interest income), which is usually substantial.  The following is an analysis
of the average balance outstanding, interest income (on a taxable equivalent
basis) and trading revenue related to trading assets.  This analysis excludes
foreign exchange revenue which is separately disclosed in the table of other
operating income.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
                                                Mortgage 
                                               and Other 
                                   U.S.     Asset-Backed          Other              
                             Government       Securities     Securities     Derivatives     Total  
--------------------------------------------------------------------------------------------------
                                                            in millions 
<S>                               <C>              <C>             <C>            <C>       <C>
1998                      
  Average balance                 $  9             $ 834           $  6           $   2     $ 851  
  Interest income                   .5              50.0             .5               -      51.0  
  Trading asset revenue (loss)      .7              (2.6)           1.5            (1.3)     (1.7) 
1997                                                            
  Average balance                    2               972              5               1       980  
  Interest income                   .2              58.3             .4               -      58.9  
  Trading asset revenue (loss)      .3                .4            1.3             (.3)      1.7  
1996                      
  Average balance                   32               808              4               1       845  
  Interest income                  1.8              49.2             .3               -      51.3  
  Trading asset revenue (loss)     1.8              (2.6)           1.4             (.8)      (.2) 
===================================================================================================

</TABLE>


  Securities Transactions


Securities transactions during 1998 resulted in net gains of $13.8 million
compared with net gains of $17.4 million in 1997.  These gains result from the
sale of investments classified as available for sale, primarily highly
leveraged partnership interests.

<TABLE>
<CAPTION>

Other Operating Expenses
------------------------------------------------------------------------------------------------------------
                                              Increase(Decrease)                Increase(Decrease)   
                                     1998     Amount          %        1997      Amount         %      1996 
------------------------------------------------------------------------------------------------------------
                                                                in millions                            
<S>                                <C>        <C>       <C>          <C>         <C>        <C>      <C>
Salaries and employee benefits     $410.3     $ 12.3        3.1      $398.0      $ 45.9      13.0    $352.1 
Net occupancy                        89.4       (1.6)      (1.7)       91.0        12.5      15.8      78.5 
Equipment                            51.4        6.3       13.9        45.1        14.0      45.0      31.1 
Amortization of intangibles          37.7        3.3        9.7        34.4        20.0     139.6      14.4 
FDIC assessment                       4.5         .3        6.6         4.2         3.6     646.2        .6 
Marketing                            21.4       (5.6)     (20.6)       27.0         1.0       3.9      26.0 
Outside services                     40.3        1.4        3.7        38.9        12.1      45.0      26.8 
Professional fees                    19.7       (3.1)     (13.9)       22.8         (.5)     (1.9)     23.3 
Other real estate and 
 owned asset expense                (17.1)     (19.6)    (775.3)        2.5        (4.6)    (64.2)      7.1 
Other                               122.6        5.1        4.3       117.5        20.6      21.3      96.9 
------------------------------------------------------------------------------------------------------------
Total other operating expenses     $780.2     $ (1.2)       (.2)     $781.4      $124.6      19.0    $656.8 
------------------------------------------------------------------------------------------------------------
Personnel - average number          8,938        (72)       (.8)      9,010         973      12.1     8,037 
============================================================================================================

</TABLE>

                                       14



Other operating expenses were $780.2 million in 1998 compared with $781.4
million in 1997.  As a result of the Company's efforts to leverage existing
infrastructure, the cost:income ratio for 1998 was 48.0% compared with 51.0%
in 1997.  Personnel expense was $410.3 million in 1998 compared with $398.0
million in 1997.  Average staffing levels (full time equivalents) were 8,938
in 1998 compared with 9,010 in 1997.  Other real estate and owned asset
expense in 1998 benefited from gains on disposals of properties.

Year 2000 Readiness Disclosure 


The Company recognizes that with the approach of the new millennium the
inability of systems around the world to recognize the date change from
December 31, 1999 to January 1, 2000 could pose significant issues.  The
Company has assessed the impact of Year 2000 and does not expect either its
operations or service to customers to be significantly disrupted as a result
of its systems not being Year 2000 compliant.  Steering committees have been
formed in all the key business units and progress on the Year 2000 compliance
program is reported to the Board of Directors at each meeting.

The Year 2000 Program involves testing all the Company's relevant systems to
ensure that they are Year 2000 compliant and seeking confirmation from
suppliers and service providers that their products and services are Year 2000
compliant.  The Company is also assessing its customers' commitment to
achieving compliance and is providing information and assistance to help
customers understand the risks and issues.  Relevant credit and investment
policies have been revised and relationship managers trained to ensure that
Year 2000 risks are taken account of in credit and investment evaluations.

Substantially all lines of program code in the Company's computer systems have
already been reviewed for Year 2000 compliance and amended or replaced where
necessary.  The great majority of these systems have been tested and are in
use.  In addition, the small number of computer systems which remain non-
compliant are planned to be replaced by mid-1999 and are of a non critical
nature.  In other areas of information technology (IT), the Company is
reviewing its end-user computing applications, networks, centralized data
systems, and the desktop environment for Year 2000 compliance.  Substantially
all of the end-user computing applications and inventory items related to the
Company's networks have already been made compliant.  The program to ensure
the hardware and software elements of the data center systems have been made
Year 2000 compliant is on schedule and substantially complete.

The Company has evaluated the potential effect of the Year 2000 on its non-IT
systems, including its facilities and other business processes.  Substantially
all of the Company's facilities and related systems have been investigated
and, where not already compliant, are in the process of being made so
compliant.

Revisions to Company-wide business contingency plans are being finalized to
address the perceived risks associated with the arrival of the Year 2000. 
These plans include mitigating the effects of any failure to complete remedial
work on critical business systems, business resumption contingency plans to
address the possibility of systems failure, and market resumption contingency 



                                      15




plans to address the possibility of the failure of systems or processes
outside the Company's control.  The Company is, however, unable to predict the
effect, if any of the efforts to address the Year 2000 problem fail.

Lack of readiness on the part of third parties would expose the Company to the
potential for loss, impairment of business processes and activities, and
disruption of financial markets.  The Company has been actively communicating
with third parties concerning the status of their Year 2000 readiness.  An
inventory of the status of all vendors and suppliers has been completed and
their products and services are being tested for Year 2000 compliance. 
Information received from third parties is being analyzed as part of the
process of evaluating options and mitigating third-party risk.

The Company estimates that the total cost of the project will range between
$50 million and $60 million, including $10 million relating to non-IT
projects.  Approximately $44 million has been incurred to date for the total
project, including $36 million in 1998.  These costs include estimated
capitalizable costs of $15 million for upgrading personal computers and
replacing software, of which approximately $9 million has been incurred
through December 31, 1998.  Management does not anticipate any material
incremental costs to be incurred in any single period as generally the costs
represent the redeployment of existing IT resources.  Although the
redeployment has resulted in deferral of some IT projects and the acceleration
of others, the Company does not expect the deferrals to have a material effect
on its financial position or results of operations.

Provision for Credit Losses


Provision for credit losses was $80.0 million in 1998 compared with $87.4
million in 1997 and $64.7 million in 1996.  Net charge offs in the credit card
portfolio were $90.1 million and $123.1 million in 1998 and 1997,
respectively.  The Company sold a $325 million credit card portfolio in 1998
which maintained significantly lower delinquency rates than the remaining
credit card portfolio.  Although still high by historical standards, credit
card delinquencies have declined in the 1998 period.  The delinquency rate for
the credit card portfolio, excluding this sold portfolio was 3.91% at December
31, 1998 compared with 4.57% at December 31, 1997.  Commercial loan credit
quality resulted in net charge offs of $5.0 million in 1998 compared with net
recoveries of $3.0 million in 1997.

An analysis of the allowance for credit loss and the provision for credit
losses begins on page 26.

Income Taxes


The Company recognized income tax expense of $238.1 million and $193.0 million
in 1998 and 1997, respectively.  The 1998 amount includes the credit of $10.2
million relating to the income tax refund received from the U.S. Internal
Revenue Service on the Brazilian tax credits, net of additional taxes due on
the interest income received on the tax settlement.  Without this credit the
effective tax rates were 34.2% and 29.1% in 1998 and 1997, respectively.

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement 


                                      16




carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards.  The Company has a valuation allowance
for the portion of the Company's net deductible temporary differences which
are not expected to be realized.  Income tax expense was reduced in 1998 and
1997 through reductions in the valuation allowance of $45.0 million and $81.2
million, respectively.  The reduction in 1997 is recognition of the Company's
three consecutive years of earnings.  At December 31, 1998, the Company had a
net deferred tax asset of $59.3 million, as compared with a net deferred tax
asset of $39.6 million at December 31, 1997.


<TABLE>
<CAPTION>

Business Segments

The Company has four distinct business segments for purposes of management
reporting: commercial banking, mortgage banking, personal banking and
treasury.  A description of each segment and the methodologies used to measure
financial performance are included in Note 22. Business Segments.  The
following summarizes the results for each segment.
-----------------------------------------------------------------------------------------------------------
                                                          Average Liabilities/  
                              Average Assets                      Equity                  Pretax Income  
                      ----------------------------    -----------------------------   --------------------- 
                         1998       1997      1996       1998       1997       1996    1998    1997    1996
-----------------------------------------------------------------------------------------------------------
                                                               in millions
<S>                   <C>        <C>       <C>        <C>        <C>        <C>        <C>     <C>     <C>
Segments:        
 Commercial Banking   $ 9,215    $ 7,683   $ 6,498    $ 5,873    $ 5,272    $ 4,121    $240    $259    $209
 Mortgage Banking       8,489      7,792     2,522        327        296        153      87      55      42
 Personal Banking       4,333      4,691     4,518     14,731     14,037      9,915     256     178     133
 Treasury               5,279      3,677     2,580      6,720      3,683      2,550      11       8       5
Corporate and Other     5,531      5,183     4,694      5,196      5,738      4,073     171     164     162
-----------------------------------------------------------------------------------------------------------
Total                 $32,847    $29,026   $20,812    $32,847    $29,026    $20,812    $765    $664    $551
-----------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

The following summarizes the results for the commercial banking segment.
-----------------------------------------------------------------------------------------------------------
                              Average Assets                 Average Liabilities          Pretax Income  
                      ----------------------------     ----------------------------   ---------------------
                         1998       1997      1996       1998       1997       1996    1998    1997    1996
-----------------------------------------------------------------------------------------------------------
                                                               in millions        
<S>                    <C>        <C>       <C>        <C>        <C>        <C>       <C>     <C>     <C>
Loans                  $7,667     $6,258    $5,567     $    4     $    4     $    5    $ 93    $116    $ 99
Deposits                  649        567       539      4,817      3,960      3,682      88      83      69
Payment processing        444        499       186        928      1,193        344      36      40      23
Other                     455        359       206        124        115         90      23      20      18
-----------------------------------------------------------------------------------------------------------
Total                  $9,215     $7,683    $6,498     $5,873     $5,272     $4,121    $240    $259    $209
-----------------------------------------------------------------------------------------------------------

</TABLE>

Commercial banking segment's pretax income decreased in 1998 from 1997. 
Average loan balances increased from 1997 in the major lending products of
corporate and specialized lending, such as equipment, highly leveraged and
real estate financing, as a result of improvement in the business environment. 
However, declining interest rates in particular tightened net interest income. 
Increased credit loss provisions for corporate regional market and equipment
lending loans were partially offset by improved credit quality in real estate
lending.  Deposits' pretax income increased in 1998 from 1997 due to growth in
outstanding balances partially offset by the general tightening of spreads
resulting from declining interest rates.  Payment processing pretax income
decreased in 1998 from 1997 as 1997 benefited from balances and revenues
attributable to clients acquired in a late 1996 acquisition, some of whom did
not continue their relationship with the Company.  Other pretax income, which
includes trade services, standby credit facilities and corporate trust
activities, increased as a result of the Company's efforts to grow fee-based
businesses.


                                       17


<TABLE>
<CAPTION>

The following summarizes the results for the mortgage banking segment.
----------------------------------------------------------------------------------------------------------
                                Average Assets            Average Liabilities           Pretax Income  
                        ----------------------------     ----------------------     ---------------------- 
                          1998       1997       1996     1998     1997     1996     1998     1997     1996
----------------------------------------------------------------------------------------------------------
                                                              in millions        
<S>                     <C>        <C>        <C>        <C>      <C>      <C>       <C>      <C>      <C>
Mortgages held          $7,994     $7,535     $2,367     $  -     $  -     $  -      $53      $36      $28
Mortgages serviced *       495        257        155      327      296      153       34       19       14
----------------------------------------------------------------------------------------------------------
Total                   $8,489     $7,792     $2,522     $327     $296     $153      $87      $55      $42
----------------------------------------------------------------------------------------------------------
* Represents on-balance sheet assets.  The notional amount of mortgage loans held by others and 
  serviced on their behalf was $12.1 billion, $11.8 billion and $6.2 billion at year ends 1998,
  1997 and 1996, respectively.

</TABLE>

The mortgage banking segment's pretax income increased in 1998 because of a
significant increase in residential mortgage production and a general
improvement in credit quality.  The increased production is a result of the
declining interest rate environment for long-term residential mortgages.  The
increased production resulted in greater gains on mortgages sold and serviced
for others.  While the size of the held portfolio increased in 1997 because of
the acquisition of First Federal, the earnings improvement in 1998 primarily
reflects an improvement in credit quality.

<TABLE>
<CAPTION>

The following summarizes the results for the personal banking segment.
------------------------------------------------------------------------------------------------------------------
                                Average Assets                  Average Liabilities             Pretax Income  
                        ----------------------------        ---------------------------    ----------------------- 
                          1998       1997       1996        1998        1997       1996     1998     1997     1996
------------------------------------------------------------------------------------------------------------------
                                                                    in millions        
<S>                     <C>        <C>        <C>        <C>         <C>         <C>        <C>      <C>      <C>
Revolving credit        $1,410     $1,738     $1,867     $     3     $     4     $    4     $ 41     $(18)    $  8
Installment loans        2,500      2,543      2,385           5           4          3       44       36       34
Deposits                   152        151        201      14,507      13,826      9,755      169      164       89
Other                      271        259         65         216         203        153        2       (4)       2
------------------------------------------------------------------------------------------------------------------
Total                   $4,333     $4,691     $4,518     $14,731     $14,037     $9,915     $256     $178     $133
------------------------------------------------------------------------------------------------------------------

</TABLE>

During 1998, pretax income for the personal banking segment increased as a
result of a combination of gains on certain transactions, improved credit
quality and increased fees on the sale of investment products.  Specifically,
pretax income on revolving credit products increased as a result of $28.1
million of gains from the sale of certain credit card portfolios and improved
credit quality as evidenced by a decline in credit card delinquencies, offset
by the reduction in the size of the revolving credit portfolio to $1.4 billion
due to the credit card portfolio sales.  Pretax income on installment loans
increased as a result of improved credit quality on these loans.  Pretax
income on personal deposits increased as a result of an increase in deposit
balances, partially offset by a general tightening of deposit spreads.  The
increase in pretax income on other results from wealth management activities
where the overall volume of transactions increased as the customer base
continued to expand.  

During 1998, pretax income in the treasury segment increased as a result of
increased short-term assets and liabilities, including higher levels of
deposits placed by HSBC Group members, and better net interest margins which
were partially offset by trading losses resulting from unfavorable market
conditions.  The treasury segment results do not significantly impact the
financial results of the Company.  See Note 22 for further discussion.

Corporate and other pretax income reflects reduced corporate provision
credits, offset by the favorable one-time Brazilian tax settlement.



                                      18




B A L A N C E   S H E E T   R E V I E W

Risk Management


The Company's organizational structure includes a Risk Management Committee
comprised of senior officers to oversee the risk management process.  This
committee is charged with the review of the internal control framework which
identifies, measures, monitors and controls the risks undertaken by the
various business and support units and the Company as a whole.  It is
responsible for the review of all risks associated with significant new
products and activities and their primary internal controls prior to
implementation.  The spectrum of risks includes, but is not limited to,
liquidity, market, credit, operational, legal and reputational risk.  The
Asset and Liability Policy Committee manages the details of liquidity and
interest rate risk.  The management of credit risk is further discussed on
page 22.

Asset-Liability Management


The principal objectives of asset-liability management are to ensure adequate
liquidity and to manage exposure to interest rate risk.  Liquidity management
requires maintaining funds to meet customers' borrowing and deposit withdrawal
requirements as well as funding anticipated growth.  Interest rate exposure
management seeks to control both near term and longer term interest rate risk
in order to provide a more stable base of net interest income and other income
correlated to interest rate movements.

The Bank has a variety of available techniques for implementing asset-
liability management decisions.  Overall balance sheet strategy is centralized
under the Asset and Liability Policy Committee, comprised of senior officers. 
Authority and responsibility for implementation of the Committee's broad
strategy is controlled under a framework of defined balance sheet position
limits.

The Company maintains a strong liquidity position.  The size and stability of
its deposit base are complemented by its maintenance of a surplus borrowing
capacity in the money markets, including the ability to issue additional
commercial paper and access unused lines of credit of $500 million at 
December 31, 1998.  Wholesale liabilities increased to $7,960 million at
December 31, 1998 from $7,133 million a year ago primarily to fund increased
money market assets.  The Company also has strong liquidity as a result of a
high level of immediately saleable or pledgeable assets including its
securities available for sale portfolio, mortgages and other assets.

The Company is subject to interest rate risk associated with the repricing
characteristics of its balance sheet assets and liabilities.  Specifically, as
interest rates change, interest earning assets reprice at intervals that do
not correspond to the maturities or repricing patterns of interest bearing
liabilities.  This mismatch between assets and liabilities in repricing
sensitivity results in shifts in net interest income as interest rates move.

To help manage the risks associated with the effects of changes in interest
rates, and to optimize net interest income within the ranges of interest rate
risk that the Company's management considers acceptable, the Company maintains
a portfolio of off-balance sheet derivative financial instruments.  Consisting


                                       19



principally of interest rate swaps and futures contracts, these derivative
financial instruments mitigate interest rate risk by altering the repricing
characteristics of certain on-balance sheet assets and liabilities.

The Company employs a combination of interest rate risk assessment techniques,
principally dynamic simulation modeling, capital at risk analysis and gap
analysis to analyze the sensitivity of its earnings and capital positions to
changes in interest rates.  These techniques are comprehensive, in that they
include all on-balance sheet and off-balance sheet items.  In dynamic
simulation modeling, our primary technique, reaction to a range of positive
and negative interest rate movements is projected with consideration given to
known activities and to the behavioral patterns of specific pools of assets
and liabilities in the corresponding rate environments.  Patterns of certain
asset and liability movements can be reasonably estimated based upon available
historical data.  

<TABLE>
<CAPTION>

Interest Rate Sensitivity


The following table shows the repricing structure of assets and liabilities as
of December 31, 1998.  For assets and liabilities whose cash flows are subject
to change due to movements in interest rates, such as the sensitivity of
mortgage loans to prepayments, data is reported based on the earlier of
expected repricing or maturity.  The resulting "gaps" are reviewed to assess
the potential sensitivity to earnings with respect to the direction, magnitude
and timing of changes in market interest rates.  Data shown is as of one day,
and one day figures can be distorted by temporary swings in assets or
liabilities.  
-------------------------------------------------------------------------------------------------------------
                                                                Interest Bearing Funds       
                                    Noninterest      -------------------------------------------
                                        Bearing         0-90      91-180     181-365      Over 1 
December 31, 1998                         Funds         Days        Days        Days        Year        Total
-------------------------------------------------------------------------------------------------------------
                                                                      in millions     
<S>                                     <C>          <C>          <C>         <C>        <C>          <C>
Assets                                  $ 2,370      $15,195      $2,750      $2,514     $11,115      $33,944
Liabilities and shareholders' equity      6,522       14,812       2,565       3,441       6,604       33,944
-------------------------------------------------------------------------------------------------------------
                                         (4,152)         383         185        (927)      4,511
Effect of derivative contracts                -       (3,731)        980         530       2,221
-------------------------------------------------------------------------------------------------------------
Gap position                            $(4,152)     $(3,348)     $1,165      $ (397)    $ 6,732 
=============================================================================================================

</TABLE>

Liabilities and shareholders' equity at year-end 1998 include time deposits of
$100,000 or more with maturity dates as follows: $2,139 million, 0-90 days; 
$454 million, 91-180 days; $298 million, 181-365 days, and $97 million over 1
year.

The Company does not use the static "gap" measurement of interest rate risk
reflected in the table above as a primary management tool.  See pages 30 and
31 for further description of earnings at risk measurements and dynamic
simulation modeling employed by the Company to manage interest rate risk.


                                       20


<TABLE>
<CAPTION>

Commercial Loan Maturities and Sensitivity to Changes in Interest Rates

------------------------------------------------------------------------------
                                                  One      Over One      Over 
                                                 Year       Through      Five 
December 31, 1998                             or Less    Five Years     Years 
------------------------------------------------------------------------------
                                                        in millions
<S>                                            <C>           <C>         <C>
Domestic:                                             
  Construction loans                           $   96        $   66      $ 14 
  Mortgage loans                                  862         1,495       563 
  Other business and financial                  5,751         1,924       128 
International                                     739            45       289 
------------------------------------------------------------------------------
Total                                          $7,448        $3,530      $994 
==============================================================================
Loans with fixed interest rates                $1,891        $1,491      $697 
Loans having variable interest rates            5,557         2,039       297 
------------------------------------------------------------------------------
Total                                          $7,448        $3,530      $994 
==============================================================================

</TABLE>

The table presents the contractual maturity and interest sensitivity of
domestic commercial and international loans at year-end 1998.  

Securities Portfolios


Debt securities that the Company has the ability and intent to hold to
maturity are reported at amortized cost.  Securities acquired principally for
the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.  All other securities are classified as available for
sale and carried at fair value, with unrealized gains and losses included in
other comprehensive income and reported as a separate component of
shareholders' equity.

<TABLE>
<CAPTION>

The following table is an analysis of available for sale securities at the end
of each of the last three years.

------------------------------------------------------------------------------
December 31,                                  1998          1997         1996 
------------------------------------------------------------------------------
                                                     in millions
<S>                                         <C>           <C>          <C>
Available for sale:                       
  U.S. Treasury                             $1,580        $2,433       $2,275 
  U.S. Government agency obligations         1,921         1,109          374 
  Other debt securities                        561           285          151 
  Equity securities                            176           172           70 
------------------------------------------------------------------------------ 
Total                                       $4,238        $3,999       $2,870 
==============================================================================

</TABLE>

The following table reflects the distribution of maturities of debt securities
held in the available for sale portfolio at year-end 1998 together with the
approximate taxable equivalent yield of the portfolio.  The yields shown are
calculated by dividing annual interest income, including the accretion of
discounts and the amortization of premiums, by the fair value of securities
outstanding at December 31, 1998.  Yields on tax-exempt obligations have been
computed on a taxable equivalent basis using applicable statutory tax rates. 
Equity securities include Federal Reserve Bank and Federal Home Loan Bank
stock totaling $156 million at December 31, 1998.


                                      21


<TABLE>
<CAPTION>

Securities - Contractual Final Maturities and Yield 

------------------------------------------------------------------------------------------------------
                              Within            After One          After Five              After     
Taxable                        One              but Within         but Within               Ten      
equivalent                     Year             Five Years         Ten Years               Years     
basis                     Amount   Yield      Amount   Yield     Amount    Yield      Amount    Yield 
------------------------------------------------------------------------------------------------------
                                                         in millions   
<S>                         <C>     <C>       <C>       <C>        <C>      <C>       <C>        <C>
Available for sale:               
  U.S. Treasury             $121    5.90%     $1,396    5.91%      $ 63     5.29%     $    -        -%
  U.S. Gov't agency          311    5.50         230    6.23        113     5.67       1,267     6.38 
  Other debt securities        -       -         100    5.68        370     5.26          91     6.24 
------------------------------------------------------------------------------------------------------
Total fair value            $432    5.61%     $1,726    5.94%      $546     5.35%     $1,358     6.37%
------------------------------------------------------------------------------------------------------
Total amortized cost        $431              $1,684               $544               $1,340          
======================================================================================================

</TABLE>

The maturity distribution of U.S. Government agency obligations and other
securities which include asset-backed securities, primarily mortgages, are
based on the contractual due date of the final payment.  These securities have
an anticipated cash flow that includes contractual principal payments and 
estimated prepayments.  Based on the anticipated cash flows, the total
maturity distributions for the portfolio would be $723 million, $2,423
million, $640 million and $276 million for within one year, after one but
within five years, after five but within ten years and after ten years,
respectively.

Credit Risk Management


The credit policy function is centralized under the control of the Chief
Credit Officer.  The structure is designed to emphasize credit decision
accountability, optimize credit quality, facilitate control of credit policies
and procedures and encourage consistency in the approach to, and management
of, the credit process throughout the Company.

The Risk Management Committee is responsible for oversight of credit policy
and the credit risk profile of the loan portfolio.  The Chief Credit Officer
is responsible for the design and management of the credit function including
monitoring and making changes, where appropriate, to written credit policies.

In addition to active supervision and evaluation by lending officers, periodic
reviews of the loan portfolio are made by internal auditors, independent
auditors, the Board of Directors and regulatory agency examiners.  These
reviews cover selected borrowers' current financial position, past and
prospective earnings and cash flow, and realizable value of collateral and
guarantees.  These reviews also serve as an early identification of problem
credits.

Loans Outstanding


In the fourth quarter of 1998 the Company acquired $1 billion of commercial
mortgage loans and $700 million of other business and financial loans from the
U.S. corporate banking unit of The Hongkong and Shanghai Banking Corporation
Limited.  This completed the consolidation of HSBC's commercial banking
activities in the U.S.  Credit card portfolios of approximately $370 million
were sold in 1998.  International loans to banks and other financial
institutions included $609 million and $37 million at year ends 1998 and 1997,
respectively, to the HSBC Group.



                                      22




Acquisitions in 1997 included a commercial mortgage portfolio of approximately
$400 million and a residential mortgage portfolio of $5.1 billion, and 1996
included a commercial mortgage portfolio of $600 million and a residential
mortgage portfolio of $300 million.  With respect to other business and
financial commercial loans, no single industry group's aggregate borrowings
from the Company exceeded 10% of the total loan portfolio at December 31,
1998.  

<TABLE>
<CAPTION>

The following table provides a breakdown of major loan categories as of year
end for the past five years.  
---------------------------------------------------------------------------------------------------
                                              1998        1997        1996        1995        1994
---------------------------------------------------------------------------------------------------
                                                                  in millions          
<S>                                        <C>         <C>         <C>         <C>         <C>
Domestic:                                                      
  Commercial:                                                  
    Construction loans                     $   176     $   359     $   396     $   428     $   480
    Mortgage loans                           2,920       1,876       1,689         999         931
    Other business and financial             7,803       5,811       5,094       5,208       5,295
  Consumer:                                               
    Residential mortgages                    9,467      10,008       3,632       3,080       2,738
    Credit card receivables                  1,291       1,780       1,939       1,844       1,656
    Other consumer loans                     1,319       1,179       1,433       1,472       1,406
---------------------------------------------------------------------------------------------------
                                            22,976      21,013      14,183      13,031      12,506
---------------------------------------------------------------------------------------------------
International:                                                           
  Government and official institutions         331         345         359         373         383
  Banks and other financial institutions       622          65          95         284         191
  Commercial and industrial                    120         199          55          84          54
---------------------------------------------------------------------------------------------------
                                             1,073         609         509         741         628
---------------------------------------------------------------------------------------------------
Total loans                                $24,049     $21,622     $14,692     $13,772     $13,134
===================================================================================================

</TABLE>

Problem Loan Management


Borrowers who experience difficulties in meeting the contractual payment terms
of their loans receive special attention.  Depending on circumstances,
decisions may be made to cease accruing interest on such loans or to record
interest at a reduced rate.

The Company complies with regulatory requirements which mandate that interest
not be accrued on commercial loans with principal or interest past due for a
period of ninety days unless the loan is both adequately secured and in
process of collection.  In addition, commercial loans are designated as
nonaccruing when, in the opinion of management, reasonable doubt exists with
respect to collectibility of all interest and principal based on certain
factors, including adequacy of collateral.

Interest that has been recorded but unpaid on loans placed on nonaccruing
status generally is reversed and reduces current income at the time loans are
so categorized.  Interest income on these loans may be recognized to the
extent of cash payments received.  In those instances where there is doubt as
to collectibility of principal, any cash interest payments received are
applied as principal reductions.  Loans are not reclassified as accruing until
interest and principal payments are brought current and future payments are
reasonably assured.


                                      23

<TABLE>
<CAPTION>

Risk Elements in the Loan Portfolio at Year End

----------------------------------------------------------------------------------------------
                                                1998      1997      1996      1995       1994 
----------------------------------------------------------------------------------------------
                                                                in millions                      
<S>                                            <C>       <C>       <C>       <C>       <C>
Nonaccruing loans:                                             
  Domestic:                                                    
    Construction and other commercial 
     real estate                               $ 104     $ 129     $ 176     $ 170     $  365 
    Other domestic loans                         233       181       181       298        696 
----------------------------------------------------------------------------------------------
      Subtotal                                   337       310       357       468      1,061 
  International                                    -         1         -         -          - 
----------------------------------------------------------------------------------------------
Total nonaccruing loans                          337       311       357       468      1,061 
Restructured accruing loans                        -         6        25        13         10 
----------------------------------------------------------------------------------------------
Total nonaccruing and restructured loans         337       317       382       481      1,071 
Other real estate and owned assets                 9        12        14       110        152 
----------------------------------------------------------------------------------------------
Total nonaccruing and restructured loans,                      
 other real estate and owned assets            $ 346     $ 329     $ 396     $ 591     $1,223 
==============================================================================================
Ratios:                                                  
  Nonaccruing and restructured                           
   loans to total loans                         1.40%     1.47%     2.60%     3.50%      8.16%
  Nonaccruing loans, restructured loans,                       
   other real estate and owned assets 
   to total assets                              1.02      1.04      1.68      2.88       6.40 
----------------------------------------------------------------------------------------------
Accruing loans contractually past due                          
 90 days or more as to principal or 
 interest (all domestic):
  Residential real estate mortgages            $   2     $   1     $  12     $  15     $   18 
  Credit card receivables                          5        33        35        22          9 
  Other consumer loans                            10        10        12        14         11 
  All other                                       13        13        16         9         17 
----------------------------------------------------------------------------------------------
Total accruing loans contractually past
 due 90 days or more                           $  30     $  57     $  75     $  60     $   55 
==============================================================================================

</TABLE>

In certain situations where the borrower is experiencing temporary cash flow
problems, and after careful examination by management, the interest rate and
payment terms may be adjusted from the original contractual agreement.  When
this occurs and the revised terms at the time of renegotiation are less than
the Company would be willing to accept for a new loan with comparable risk,
the loan is separately identified as restructured.

Nonaccruing loans at December 31, 1998 totaled $337 million compared with $311
million a year ago.  Nonaccruing loans that have been restructured but remain
in nonaccruing status amounted to $21 million, $34 million and $76 million at
December 31, 1998, 1997 and 1996, respectively.  Cash payments received on
loans on nonaccruing status during 1998, or since loans were placed on
nonaccruing status, whichever was later, totaled $60 million, $35 million of
which was recorded as interest income and $25 million as reduction of loan
principal.

Residential mortgages are generally designated as nonaccruing when delinquent
for more than ninety days.  Loans to credit card customers that are past due
more than ninety days are designated as nonaccruing if the customer has agreed
to credit counseling.  The Company adopted a more aggressive procedure for the
handling of credit card delinquencies including acceleration of the timing of
collection efforts and increased emphasis on credit counseling.  


                                      24



Other consumer loans are generally not designated as nonaccruing and are
charged off against the allowance for credit losses according to an
established delinquency schedule. 

The Company identified impaired loans totaling $183 million at December 31,
1998 of which $81 million had an allocation from the allowance of $32 million. 
At December 31, 1997, identified impaired loans were $153 million, of which
$54 million had an allocation from the allowance of $21 million.    

Other Problem Assets


Where loans are secured by real estate or other assets and the borrower cannot
continue to meet its obligations, the property can be acquired through
foreclosure.  When property is so acquired, the lower of cost or fair value
(including cost to dispose) is reported on the balance sheet in other assets. 
Any part of the loan exceeding the value of the property at the time of
transfer is charged against the allowance for credit losses.  Subsequent
decreases in fair value are included in other real estate and owned asset
(income) expense.

<TABLE>
<CAPTION>

Foreign Country Outstandings Which Exceed .75% of Total Assets

-----------------------------------------------------------------------------
                                    Banks and Other     Commercial     
                                          Financial            and          
                                       Institutions     Industrial     Total 
-----------------------------------------------------------------------------
                                                       in millions          
<S>                                            <C>            <C>       <C>
December 31, 1998: 
  France                                       $345           $  -      $345
  United Kingdom                                 52            641       693
December 31, 1997:              
  Canada                                        170             82       252 
  France                                        267              -       267 
  Japan                                         268              -       268 
  Netherlands                                   231             28       259 
  United Kingdom                                 56            185       241 
=============================================================================

</TABLE>

Outstandings shown by category of borrower in the table include loans,
interest bearing deposits and other assets.  Loans are distributed on the
basis of the location of the head office or residence of the borrower or, in
the case of certain guaranteed loans, the guarantor.  Interest bearing
deposits with banks and their branches are grouped by the location of the head
office of the foreign bank.  Investments and acceptances are distributed on
the basis of the location of the borrower.  

The table excludes bonds issued by the United Mexican States and the Republic
of Venezuela whose outstanding principal amounts are collateralized by zero-
coupon U.S. Treasury securities that will accrete to a face value at maturity
equal to that of the underlying bonds.  They are known as "Brady bonds."  The
fair value of such collateral for $190 million of 6.25% Mexican bonds due 2019
and for $166 million book value ($177 million face value) of 6.75% Venezuelan
bonds due 2020 was approximately $39 million and $32 million, respectively, at
year end 1998.  These bonds with an aggregate carrying value of $356 million
had an aggregate fair value of $272 million at December 31, 1998 and are
classified as loans in the accompanying financial statements.


                                      25




<TABLE>
<CAPTION>

Allowance for Credit Loss and Charge Offs


At year-end 1998, the allowance was $379.7 million, or 1.58% of total loans,
compared with $409.4 million, or 1.89% of total loans, a year ago.  The ratio
of the allowance to nonaccruing loans was 112.74% at December 31, 1998
compared with 131.62% a year earlier.  The Company's nonaccruing loans were
$336.8 million at December 31, 1998 compared with $311.1 million at 
December 31, 1997.
-------------------------------------------------------------------------------------------------
                                             1998        1997       1996        1995        1994 
------------------------------------------------------------------------------------------------- 
                                                               in millions              
  
<S>                                       <C>         <C>        <C>         <C>         <C>
Total loans at year end                   $24,049     $21,622    $14,692     $13,772     $13,134 
Average total loans                        21,392      20,049     13,905      13,200      12,714 
                                                 
Allowance for credit losses:                      
 Balance at beginning of year             $ 409.4     $ 418.2    $ 477.5     $ 531.5     $ 524.3 
 Allowance related to acquired                           
   businesses                                   -        40.3        3.4          .4         1.2 
Charge offs:                                             
 Commercial:                                             
  Construction loans                            -           -          -        44.4        68.8 
  Mortgage loans                                -           -          -          .5        14.8 
  Other business and financial               27.9        28.3       69.8       174.8        92.2 
 Consumer:                                               
  Credit card receivables                   105.0       137.2       97.9        57.8        54.8 
  Residential mortgages                      10.2         7.7        2.6         2.0         7.3 
  Other consumer loans                        9.5        13.5       11.2         6.3         5.9 
-------------------------------------------------------------------------------------------------
Total charge offs                           152.6       186.7      181.5       285.8       243.8 
-------------------------------------------------------------------------------------------------
Recoveries on loans charged off:                         
 Commercial:                                             
   Construction loans                           -           -        1.1        11.9        10.7 
   Other business and financial              22.9        31.3       38.3        29.8        53.6 
 Consumer:                                               
   Credit card receivables                   14.9        14.1       10.2         9.2         9.3 
   Residential mortgages                       .8         1.0         .5           -          .2 
   Other consumer loans                       4.3         3.8        4.0         5.2         7.3 
-------------------------------------------------------------------------------------------------
Total recoveries                             42.9        50.2       54.1        56.1        81.1 
-------------------------------------------------------------------------------------------------
Total net charge offs                       109.7       136.5      127.4       229.7       162.7 
-------------------------------------------------------------------------------------------------
Provision charged to income                  80.0        87.4       64.7       175.3       168.7 
-------------------------------------------------------------------------------------------------
Balance at end of year                    $ 379.7     $ 409.4    $ 418.2     $ 477.5     $ 531.5 
-------------------------------------------------------------------------------------------------
Allowance ratios:                                        
 Total net charge offs to 
  average loans                               .51%        .68%       .92%       1.74%       1.28%
 Year-end allowance to:                                  
   Year-end total loans                      1.58        1.89       2.85        3.47        4.05 
   Year-end total nonaccruing loans        112.74      131.62     116.98      101.95       50.08 
=================================================================================================

</TABLE>

Charge offs of individual commercial loans and residential mortgages reflect
management's judgment with respect to the ultimate collectibility of all or
part of the specific loan.  Charge offs of consumer loans, excluding
residential mortgages, occur according to an established delinquency schedule.

The allowance for credit losses is evaluated based on an assessment of the
losses inherent in the loan portfolio.  This assessment results in an
allowance consisting of allocated and unallocated components.

The allocated component of the allowance includes specific reserves resulting
from the analysis of individual loans and formula-based reserves assigned to
pools of similar loans based on historical loss experience for each loan



                                      26



category.  The specific reserves are based on a regular analysis of all
significant commercial credits where the internal credit rating is at or below
a predetermined classification.  All other commercial loans are grouped into
pools by credit facility grade.  Formula reserves are established based on
historical one year default rates for each pool using data from the last eight
quarters, adjusted for known changes in the economic environment and
management judgment.  The allocated portion of the allowance also includes
management's determination of the amounts necessary for loan concentrations.

Residential mortgage loans which are more than 90 days past due are
individually analyzed and appropriate specific reserves are assigned.  Other
residential mortgages are grouped into pools based on delinquency status and
formula reserves are established to cover twelve months of historical net
charge offs using data from the past twelve months' pool loss rates.

Other consumer loans, including credit card receivables are grouped into pools
based on product and delinquency status.  Formula reserves are established to
cover six months of historical charge offs using data from the past twelve
months' pool loss rates.

The unallocated portion of the allowance is determined based on management's
assessment of general economic conditions as well as specific economic factors
in the individual markets in which the Company operates.  This determination
inherently involves a higher degree of uncertainty and considers current risk
factors that may not have yet manifested themselves in the Company's
historical loss factors used to determine the allocated component of the
allowance, and it recognizes that knowledge of the portfolio may be
incomplete.

<TABLE>
<CAPTION>

An allocation of the allowance by major loan categories follows.

Allocation of Allowance for Credit Loss
------------------------------------------------------------------------------------------------------------------------
                                       1998               1997               1996               1995               1994       
                           ---------------------------------------------------------------------------------------------
                                      % of                % of               % of               % of               % of
                                      Loans              Loans              Loans              Loans              Loans
                                         to                 to                 to                 to                 to
                                      Total              Total              Total              Total              Total
                            Amount    Loans    Amount    Loans    Amount    Loans    Amount    Loans    Amount    Loans
------------------------------------------------------------------------------------------------------------------------
                                                                     in millions 
<S>                           <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>
Domestic:                                                       
 Commercial:                                                    
  Construction loans          $  3       .7      $  5      1.7      $  2      2.7      $  3      3.1      $ 40      3.7
  Mortgage loans                20     12.1        26      8.7        19     11.5        10      7.3        12      7.1
  Other business                62     32.4        53     26.9        75     34.7       149     37.8       221     40.3
 Consumer:                                           
  Credit card receivables       45      5.4        60      8.2        55     13.2        40     13.4        42     12.6
  Residential mortgages         12     39.4        30     46.3         7     24.7         6     22.3         5     20.8
  Other consumer                12      5.5        17      5.4         9      9.8         8     10.7         7     10.7
International                   31      4.5        26      2.8        26      3.4        28      5.4         2      4.8
Unallocated                    195        -       192        -       225        -       234        -       202        -
------------------------------------------------------------------------------------------------------------------------
Total                         $380    100.0      $409    100.0      $418    100.0      $478    100.0      $531    100.0
========================================================================================================================

</TABLE>

Changes in the allocated reserves are due principally to the decreasing
delinquency in consumer loans and sale of the credit card portfolios.


                                      27



The allocations in the table are based on management's current allocation
methodologies.  The use of other methods to allocate the allowance would
change the assigned allocation.  Specifically, increasing the loss coverage of
consumer loans from six months of historical charge offs to twelve months,
would increase the allocated allowance by $52 million at year-end 1998.  In
addition, revising the method used for allocation of the allowance for
unclassified commercial loans from one year default rate to remaining term to
maturity default rate would increase the allocated allowance by $32 million at
year-end 1998.

Management concludes that the allowance for credit losses, including the
unallocated component, is appropriately stated at December 31, 1998.  The U.S.
banking industry continues to carefully assess credit risk considering, among
other things, (1) credit issues still remaining in U.S. consumer banking
businesses, (2) the ultimate effect that current Pacific Rim and South
American economic problems may have on domestic commercial loan portfolios,
and (3) uncertainties regarding the impact that Year 2000 compliance may have
on bank customers.

Capital Resources


Total shareholders' equity at year-end 1998 was $2,228 million, compared with
$2,039 million at year-end 1997.  The equity base was increased by $527.1
million from net income and $15.2 million from the change in net unrealized
gains on securities available for sale, and reduced by $355 million for common
shareholder dividends paid to HSBC Holdings B.V.  The capital contribution
from the parent of $2.0 million relates to an HSBC stock option plan in which
almost all of the Company's employees are eligible to participate.

The ratio of shareholders' equity to total year-end assets was 6.56% at
December 31, 1998 compared with 6.47% at December 31, 1997. 

Capital Adequacy


The Federal Reserve Board has Risk-Based Capital Guidelines for assessing the
capital adequacy of U.S. banking organizations.  The guidelines place balance
sheet assets into four categories of risk weights, primarily based on the
relative credit risk of the counterparty.  Some off-balance sheet items such
as letters of credit and loan commitments are taken into account by applying
different categories of "credit conversion factors" to arrive at
credit-equivalent amounts, which are then weighted in the same manner as
balance sheet assets involving similar counterparties.  For off-balance sheet
items relating to interest rate and foreign exchange rate contracts, the
credit-equivalent amounts are arrived at by estimating both the current
exposure, mark to market value and the potential exposure over the remaining
life of each contract.  The credit-equivalent amount is similarly assigned to
the risk weight category appropriate to the counterparty.


                                      28


<TABLE>
<CAPTION>

The guidelines include the concept of Tier 1 capital and total capital.  
The guidelines establish a minimum standard risk-based target ratio of 8%, of
which at least 4% must be in the form of Tier 1 capital.  The following table
shows the components of the Company's risk-based capital.
------------------------------------------------------------------------------
December 31,                                            1998             1997 
------------------------------------------------------------------------------
                                                            in millions        
<S>                                                   <C>              <C>
Common shareholder's equity                           $2,228           $2,039 
Guaranteed mandatorily redeemable
 preferred securities of subsidiaries                    400              400 
Less: goodwill and other deductions*                    (380)            (400)
------------------------------------------------------------------------------
Tier 1 capital                                         2,248            2,039 
------------------------------------------------------------------------------
Long-term debt qualifying as risk-
 based capital                                           562              602 
Qualifying aggregate allowance for
 credit losses                                           327              274 
45% of unrealized gain on available 
 for sale equity securities                                3                - 
------------------------------------------------------------------------------
Tier 2 capital                                           892              876 
------------------------------------------------------------------------------
Total capital                                         $3,140           $2,915 
------------------------------------------------------------------------------

* Other deductions include the unrealized net gain on available for sale 
  securities carried at fair value.

</TABLE>

The capital adequacy guidelines establish a limit on the amount of certain
deferred tax assets that may be included in (that is, not deducted from) Tier
1 capital for risk-based and leverage capital purposes.  The deferred tax
asset recognized by the Company meets the criteria for capital recognition and
has been included in the calculation of the Company's capital ratios.

The Company's total risk adjusted assets and off-balance sheet items were
approximately $26.1 billion and $21.8 billion at year ends 1998 and 1997,
respectively.  Risk adjusted capital ratios were 8.62% at the Tier 1 level and
12.04% at the total capital level.  These ratios compared with 9.36% at the
Tier 1 level and 13.38% at the total capital level at December 31, 1997.  

Banking industry regulators also have guidelines that set forth the leverage
ratios to be applied to banking organizations in conjunction with the
risk-based capital framework.  Under these guidelines, strong bank holding
companies must maintain a minimum leverage ratio of Tier 1 capital to
quarterly average total assets of 3%.  At December 31, 1998, the Company had a 
6.76% leverage ratio compared with 6.68% at December 31, 1997. 

The bank regulators amended their risk-based capital guidelines to incorporate
a measure for market risk inherent in the trading portfolio.  Under the market
risk requirements, capital is allocated to support the amount of market risk
that relates to the Company's trading activities including off-balance sheet
derivative contracts associated with trading activities.  The market risk
rules apply to institutions with significant trading activities.  The new
amended rules did not significantly affect the risk-based capital ratios of
the Company.

From time to time, the bank regulators propose amendments to or issue
interpretations of risk-based capital guidelines.  Such proposals or
interpretations could, upon implementation, affect reported capital ratios and
net risk adjusted assets.


                                     29



Item 7A. Quantitative and Qualitative Disclosures About Market Risk


In consideration of the degree of interest rate risk inherent in the banking
industry, the Company has interest rate risk management policies designed to
meet performance objectives within defined risk/safety parameters.  In the
course of managing interest rate risk, a combination of risk assessment
techniques, including dynamic simulation modeling, gap analysis, and capital
at risk analysis are employed.  The combination of these tools enables
management to identify and assess the potential impact of interest rate
movements and take appropriate action.

Certain limits and benchmarks that serve as guidelines in determining the
appropriate levels of interest rate risk for the institution have been
established.  The overall institutional interest rate risk limit is expressed
in terms of the Present Value of a Basis Point (PVBP), which reflects the
change in value of the balance sheet for a one basis point movement in all
interest rates.  The institutional limit is plus or minus $.6 million, which
includes distinct limits associated with trading portfolio activities and off
balance sheet instruments.  Thus, for a one basis point change in rates, the
policy dictates that the value of the balance sheet shall not change by more
than $.6 million.  As of December 31, 1998, the Company had a position of
$(.5) million PVBP.  Mortgage servicing rights are excluded from the PVBP
determination as their interest rate risk is significantly different from
other balance sheet items.  The mortgage servicing rights risk is to lower
interest rates, which is managed through the purchase of interest rate caps
and floors.

In addition to the above mentioned limits, the Company's Asset and Liability
Policy Committee monitors, on a monthly basis, the impact of a number of
interest rate scenarios on net interest income.  These scenarios include both
rate shock scenarios which assume immediate market rate movements of +/- 100
and 200 basis points, as well as rate change scenarios in which rates rise or
fall by 200 basis points over a twelve month period.  Simulations are also
performed for other relevant interest rate scenarios including changes in the
shape of the yield curve or in competitive pricing policies.  Net interest
income under the various scenarios is reviewed over a twelve month period, as
well as over a three year period.  The simulations capture the effects of the
timing of the repricing of all on-balance sheet assets and liabilities, as
well as all off-balance sheet positions such as interest rate swaps, futures
and option contracts.  Additionally, the simulations incorporate any
behavioral aspects such as prepayment sensitivity under various scenarios.

For purposes of simulation modeling, base case earnings reflect the existing
balance sheet composition, with balances generally maintained at current
levels by the anticipated reinvestment of expected runoff.  These balance
sheet levels will however, factor in specific known or likely changes
including material increases, decreases or anticipated shifts in balances due
to management actions.  Current rates and spreads are then applied to produce
base case earnings estimates on both a twelve month and three year time
horizon.  Rate shocks are then modeled and compared to base earnings (earnings
at risk), and include behavioral assumptions as dictated by specific scenarios
relating to such factors as prepayment sensitivity and the tendency of
balances to shift among various products in different rate environments. 


                                      30



Utilizing these modeling techniques, an immediate hypothetical 100 basis point
parallel rise and fall in the yield curve on January 1, 1999, would cause
projected 1999 net interest income to decrease by $4.0 million and decrease 
by $9.0 million, respectively.  A 200 basis point parallel rise and fall would
decrease projected net interest income by $19.0 million and $33.0 million,
respectively.  Note that these projections include all assets and liabilities, 
including those that have an insignificant impact.

The projections noted above do not take into consideration possible
complicating factors such as the effect of changes in interest rates on the
credit quality, size and composition of the balance sheet.  Therefore,
although this provides a reasonable estimate of interest rate sensitivity,
actual results will vary from these estimates, possibly by significant
amounts.

Management of Primary Market Risk Exposures


The primary market risk exposure to the Company's earnings lies in sudden and
drastic shifts in interest rates, with exposure to other market factors such
as exchange rates being minimal.  The management of this interest rate risk is
undertaken with the overall objective of meeting the Company's performance
objective within defined risk/safety parameters.  The strategies developed
reflect the goal of minimizing exposure to sudden and drastic upward and
downward movements in rates.  These strategies entail the use of both on- and
off-balance sheet instruments to effectively mitigate the risk inherent in the
Company's balance sheet.

The acquisition of First Federal in 1997 had the effect of increasing
residential mortgage outstandings and mortgage servicing rights as a
percentage of the overall balance sheet.  As a result, one of the predominant
risks facing the Company has been the increased exposure to accelerated
prepayment speeds in residential mortgages that may result from significant
declines in the level of interest rates.  In anticipation of this increased
exposure to falling rates, a program using a combination of both on- and off
balance sheet instruments designed to increase levels of fixed rate assets
that will gain in value as rates decline was instituted in 1997.  The overall
result of this program has been to increase base earnings and to decrease
potential benefits from higher rates in return for less exposure to falling
rates.  The Company's interest rate risk position continues to be actively
monitored.

Material changes to the overall risks and strategies of the institution are
not anticipated, but may occur as a result of changes in the marketplace.

Trading Activities


The Company's trading portfolio has distinct limits pertaining to permissible
investments, interest rate risk exposure, stop loss, foreign exchange,
options, balance sheet size and product concentrations.  The stop loss limits
are $1 million daily, $2 million monthly, and $4 million annually.  "Stop
loss" refers to the maximum amount of loss that may be incurred before sale of
the items causing the loss is required.  


                                     31



Item 8. Financial Statements and Supplementary Data


                                              Page

Report of Management                            33

Report of Independent Auditors                  34

HSBC Americas, Inc.:                       
  Consolidated Balance Sheet                    35
  Consolidated Statement of Income              36
  Consolidated Statement of Changes in 
   Shareholders' Equity                         37
  Consolidated Statement of Cash Flows          38

Marine Midland Bank:
  Consolidated Balance Sheet                    39

Summary of Significant Accounting Policies      40

Notes to Financial Statements                   44



                                      32




R E P O R T  O F  M A N A G E M E N T

Management of HSBC Americas, Inc. is responsible for the integrity of the
financial information presented in this annual report.  Management has
prepared the financial statements in conformity with generally accepted
accounting principles.  In preparing the financial statements, management
makes judgments and estimates of the expected effect of unsettled transactions
and events that are accounted for or disclosed.

The Company's systems of internal accounting control are designed to provide
reasonable but not absolute assurance that assets are safeguarded against loss
from unauthorized acquisition, use or disposition and that the financial
records are reliable for preparing financial statements.  The selection and
training of qualified personnel and the establishment and communication of
accounting and administrative policies and procedures are elements of these
control systems.  Management believes that the system of internal control,
which is subject to close scrutiny by management and by internal auditors,
supports the integrity and reliability of the financial statements.  

The Board of Directors meets regularly with management, internal auditors and
the independent auditors to discuss internal control, internal auditing and
financial reporting matters, and also the scope of the annual audit and
interim reviews.  Both the internal auditors and the independent auditors have
direct access to the Board of Directors.


                                      33




R E P O R T  O F  I N D E P E N D E N T  A U D I T O R S

The Board of Directors and Shareholders of
HSBC Americas, Inc.

We have audited the accompanying consolidated balance sheets of HSBC Americas,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1998,
and the accompanying consolidated balance sheets of Marine Midland Bank and
subsidiaries as of December 31, 1998 and 1997.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards 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.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HSBC
Americas, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998, and the financial position of
Marine Midland Bank and subsidiaries as of December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.


/s/ KPMG LLP

Buffalo, New York
January 21, 1999



                                      34


<TABLE>
<CAPTION>

                                                    HSBC Americas, Inc. 1998
-------------------------------------------------------------------------------
C O N S O L I D A T E D    B A L A N C E    S H E E T



December 31,                                             1998             1997
-------------------------------------------------------------------------------
                                                              in thousands
<S>                                              <C>              <C>   
Assets                                                      
Cash and due from banks                          $  1,262,423     $    928,691
Interest bearing deposits with banks                2,373,550        2,643,010
Federal funds sold and securities
 purchased under resale agreements                     86,919          497,992
Trading assets                                        826,019          979,454
Securities available for sale                       4,237,679        3,998,773
Loans                                              24,049,499       21,622,232
Less - allowance for credit losses                    379,652          409,409
-------------------------------------------------------------------------------
      Loans, net                                   23,669,847       21,212,823
Premises and equipment                                207,685          225,753
Accrued interest receivable                           238,790          233,849
Intangible assets                                     469,194          481,953
Other assets                                          571,980          315,275
-------------------------------------------------------------------------------
Total assets                                     $ 33,944,086     $ 31,517,573
===============================================================================

Liabilities
Deposits in domestic offices
  Noninterest bearing                            $  3,552,303     $  4,195,248
  Interest bearing                                 18,168,438       15,981,866
Interest bearing deposits in foreign offices        4,545,069        2,640,050
-------------------------------------------------------------------------------
      Total deposits                               26,265,810       22,817,164
Short-term borrowings                               2,961,063        4,202,175
Interest, taxes and other liabilities                 741,269          751,217
Long-term debt                                      1,747,691        1,708,064
-------------------------------------------------------------------------------
Total liabilities                                  31,715,833       29,478,620
-------------------------------------------------------------------------------

Commitments and contingent liabilities (Notes 23 and 24)
Shareholders' equity
Preferred stock (Note 13)                                   -                -
Common shareholder's equity
  Common stock, $5 par; Authorized - 1,100 shares
                        Issued - 1,001 shares               5                5
  Capital surplus                                   1,806,563        1,804,527
  Retained earnings                                   377,179          205,112
  Accumulated other comprehensive income               44,506           29,309
-------------------------------------------------------------------------------
      Total common shareholder's equity             2,228,253        2,038,953
-------------------------------------------------------------------------------
Total shareholders' equity                          2,228,253        2,038,953
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity       $ 33,944,086     $ 31,517,573
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.

</TABLE>
 
                                               35

<TABLE>
<CAPTION>

                                                    HSBC Americas, Inc. 1998
------------------------------------------------------------------------------
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


Year Ended December 31,                  1998            1997            1996 
------------------------------------------------------------------------------
                                                    in thousands
<S>                               <C>             <C>             <C>
Interest income
 Loans                            $ 1,785,122     $ 1,732,705     $ 1,278,681
 Securities                           232,440         218,977         187,539
 Trading assets                        50,843          58,796          51,231
 Deposits with banks                  136,594          98,750          65,439
 Federal funds sold and securities
   purchased under resale agreements  127,982          51,786          28,831
------------------------------------------------------------------------------
Total interest income               2,332,981       2,161,014       1,611,721
------------------------------------------------------------------------------
Interest expense
 Deposits
  In domestic offices                 656,361         583,904         412,679
  In foreign offices                  211,030          95,150          68,773
 Short-term borrowings                204,171         196,727         120,873
 Long-term debt                        96,079         111,848          47,628
------------------------------------------------------------------------------
Total interest expense              1,167,641         987,629         649,953
------------------------------------------------------------------------------
Net interest income                 1,165,340       1,173,385         961,768
Provision for credit losses            80,000          87,400          64,750
------------------------------------------------------------------------------
Net interest income, after 
  provision for credit losses       1,085,340       1,085,985         897,018
------------------------------------------------------------------------------
Other operating income
 Trust income                          47,290          42,995          41,175
 Service charges                      115,382         103,975          89,856
 Mortgage servicing income             18,949          21,529          14,762
 Other fees and commissions           145,505         134,828         116,427
 Trading revenues                       3,700           6,089           3,735
 Interest on Brazilian tax 
  settlement                           32,700               -               -
 Other income                          96,571          50,009          44,988
------------------------------------------------------------------------------
Total other operating income          460,097         359,425         310,943
------------------------------------------------------------------------------
                                    1,545,437       1,445,410       1,207,961
------------------------------------------------------------------------------
Other operating expenses
 Salaries and employee benefits       410,323         397,966         352,134
 Net occupancy expense                 89,423          90,989          78,541
 Other expenses                       280,524         292,505         226,098
------------------------------------------------------------------------------
Total other operating expenses        780,270         781,460         656,773
------------------------------------------------------------------------------
Income  before taxes                  765,167         663,950         551,188
Applicable income tax expense         238,100         193,000         171,000
------------------------------------------------------------------------------
Net income                        $   527,067     $   470,950     $   380,188
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.

</TABLE>
  
                                           36


<TABLE>
<CAPTION>

                                                                                 HSBC Americas, Inc. 1998
-----------------------------------------------------------------------------------------------------------
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

                                                       1998                 1997                 1996
-----------------------------------------------------------------------------------------------------------
                                             Share-     Compre-   Share-     Compre-   Share-     Compre-
                                             holders'   hensive   holders'   hensive   holders'   hensive
                                             Equity     Income    Equity     Income    Equity     Income
-----------------------------------------------------------------------------------------------------------
                                                                       in thousands
<S>                                         <C>         <C>      <C>        <C>       <C>        <C>
Preferred stock
Balance, January 1,                         $        - *         $   98,063           $   98,063
Redemption of stock                                  -              (98,063)                   -
-------------------------------------------------------           ----------           ----------
Balance, December 31,                                -                    -               98,063
-------------------------------------------------------           ----------           ----------
Common stock
Balance, January 1,                                  5                    5                    5
-------------------------------------------------------           ----------           ----------
Balance, December 31,                                5                    5                    5
-------------------------------------------------------           ----------           ----------
Capital surplus
Balance, January 1,                          1,804,527            1,803,427            1,803,094
Capital contribution from parent                 2,036                1,100                  333
-------------------------------------------------------           ----------           ----------
Balance, December 31,                        1,806,563            1,804,527            1,803,427
-------------------------------------------------------           ----------           ----------
Retained earnings 
Balance, January 1,                            205,112               60,630             (233,686)
Net income                                     527,067 $ 527,067    470,950 $ 470,950    380,188 $ 380,188
Cash dividends declared:
   Preferred stock                                   -               (1,468)              (5,872)
   Common stock                               (355,000)            (325,000)             (80,000)
-------------------------------------------------------           ----------           ----------
Balance, December 31,                          377,179              205,112               60,630
-------------------------------------------------------           ----------           ----------
Accumulated other comprehensive income
Net unrealized gains on securities 
  available for sale, net of taxes
Balance, January 1,                             29,309               10,852               29,390
Net unrealized gains (losses) arising 
  during the period, less taxes of 
  $13,275, $16,289, and $(7,721) in 
  1998, 1997 and 1996, respectively             24,203               29,799              (13,380)
Reclassification adjustment for net gains
  included in net income, less taxes of
  $4,849, $6,107 and $2,777 in 1998, 1997
  and 1996, respectively                        (9,006)             (11,342)              (5,158)
                                             ----------           ----------           ----------
Change in net unrealized gains on securities
  available for sale, net of taxes                        15,197               18,457              (18,538)
                                                        ---------            ---------            ---------
Comprehensive income                                   $ 542,264            $ 489,407            $ 361,650
------------------------------------------------------- ========= ---------- ========= ---------- =========
Balance, December 31,                           44,506               29,309               10,852
-------------------------------------------------------           ----------           ----------
Total shareholders' equity, December 31,    $2,228,253           $2,038,953           $1,972,977
=======================================================           ==========           ==========
The accompanying notes are an integral part of the consolidated financial
statements.
* $100 aggregate par value.

</TABLE>

                                                       37


<TABLE>
<CAPTION>

                                                                   HSBC Americas, Inc. 1998
  ------------------------------------------------------------------------------------------
  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


  Year Ended December 31,                                    1998         1997         1996
  ------------------------------------------------------------------------------------------
                                                                    in thousands
  <S>                                                 <C>          <C>          <C>
  Cash flows from operating activities
    Net income                                        $   527,067  $   470,950  $   380,188
    Adjustments to reconcile net income to net cash     
    provided (used) by operating activities             
         Depreciation, amortization and deferred taxes     85,752      109,988      103,055
         Provision for credit losses                       80,000       87,400       64,750
         Net change in other accrual accounts             (61,530)     124,141       73,698
         Net change in loans originated for sale         (789,258)     (16,797)     325,109
         Net change in trading assets                     149,643      (93,542)    (270,047)
         Other, net                                      (109,811)     (45,028)     (49,107)
  ------------------------------------------------------------------------------------------
   Net cash provided (used) by operating activities      (118,137)     637,112      627,646
  ------------------------------------------------------------------------------------------
  Cash flows from investing activities
    Net change in interest bearing deposits with banks    269,460     (709,974)    (218,875)
    Net change in short-term investments                  411,073    1,371,872     (378,485)
    Purchases of securities                            (2,423,032)  (2,193,729)    (956,647)
    Sales of securities                                 1,421,318    1,364,331       89,780
    Maturities of securities                              803,463      579,710      650,584
    Sales of credit card portfolios                       395,148            -            -
    Other net change in credit card receivables            37,422     (101,372)    (181,915)
    Net change in other short-term loans                 (212,732)     (51,067)      43,540
    Net originations and maturities of long-term loans   (253,219)    (952,442)    (172,860)
    Expenditures for premises and equipment               (21,255)     (40,400)     (32,605)
    Net cash used in acquisitions, net                               
     of cash acquired                                  (1,619,278)    (607,388)     (40,094)
    Other, net                                            (35,359)      54,569       85,803
  ------------------------------------------------------------------------------------------
   Net cash used by investing activities               (1,226,991)  (1,285,890)  (1,111,774)
  ------------------------------------------------------------------------------------------
  Cash flows from financing activities
    Net change in deposits                              3,357,242      680,151      (21,173)
    Net change in short-term borrowings                (1,241,112)     557,011      (56,768)
    Issuance of long-term debt                            500,000      200,000      497,522
    Repayment of long-term debt                          (459,306)    (527,043)    (125,000)
    Capital contributions                                   2,036        1,101          333
    Redemption of preferred stock                               -      (98,063)           -
    Dividends paid                                       (480,000)    (202,937)     (85,872)
  ------------------------------------------------------------------------------------------
   Net cash provided by financing activities            1,678,860      610,220      209,042
  ------------------------------------------------------------------------------------------
  Net change in cash and due from banks                   333,732      (38,558)    (275,086)
  Cash and due from banks at beginning of year            928,691      967,249    1,242,335
  ------------------------------------------------------------------------------------------
  Cash and due from banks at end of year              $ 1,262,423  $   928,691  $   967,249
  ==========================================================================================
  Cash paid for:  Interest                            $ 1,136,748  $   941,851  $   638,997
                  Income taxes                            208,191      173,930       76,788
  Non-cash activities
       Dividends declared but unpaid                            -      125,000        1,468
       Fair value of liabilities assumed in
         acquisitions                                      91,949    6,665,279    2,413,110
  ------------------------------------------------------------------------------------------
  The accompanying notes are an integral part of the consolidated financial statements.
 
</TABLE>

  
                                                  38

<TABLE>
<CAPTION>


                                                    Marine Midland Bank 1998
------------------------------------------------------------------------------
C O N S O L I D A T E D    B A L A N C E    S H E E T



December 31,                                             1998            1997
------------------------------------------------------------------------------
                                                              in thousands
<S>                                              <C>             <C>       
Assets
Cash and due from banks                          $  1,262,346    $    928,754
Interest bearing deposits with banks                2,301,100       2,571,410
Federal funds sold and securities
 purchased under resale agreements                     86,919         497,992
Trading assets                                        826,019         979,454
Securities available for sale                       4,213,348       3,968,838
Loans                                              24,009,332      21,550,115
Less - allowance for credit losses                    377,667         407,355
------------------------------------------------------------------------------
      Loans, net                                   23,631,665      21,142,760
Premises and equipment                                207,597         225,646
Accrued interest receivable                           237,527         232,874
Intangible assets                                     469,194         479,712
Other assets                                          540,230         288,181
------------------------------------------------------------------------------
Total assets                                     $ 33,775,945    $ 31,315,621
==============================================================================

Liabilities
Deposits in domestic offices:
  Noninterest bearing                            $  3,398,751    $  4,091,216
  Interest bearing                                 18,168,438      15,981,866
Interest bearing deposits in foreign offices        5,724,057       3,834,827
------------------------------------------------------------------------------
      Total deposits                               27,291,246      23,907,909
Short-term borrowings                               2,051,801       3,354,745
Interest, taxes and other liabilities                 736,004         746,501
Long-term debt                                      1,323,238       1,083,561
------------------------------------------------------------------------------
Total liabilities                                  31,402,289      29,092,716
------------------------------------------------------------------------------

Commitments and contingent liabilities (Notes 23 and 24)
Shareholder's equity
Common shareholder's equity
  Common stock, $100 par; Authorized - 2,250,000 shares
                          Issued - 2,050,000 shares   205,000         205,000
  Capital surplus                                   1,986,361       1,984,326
  Retained earnings                                   141,699           8,678
  Accumulated other comprehensive income               40,596          24,901
------------------------------------------------------------------------------
Total shareholder's equity                          2,373,656       2,222,905
------------------------------------------------------------------------------
Total liabilities and shareholder's equity       $ 33,775,945    $ 31,315,621
==============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.

</TABLE>

                                      39




S U M M A R Y  O F  S I G N I F I C A N T  A C C O U N T I N G  
P O L I C I E S

HSBC Americas, Inc. (the Company) is a New York State based bank holding
company.  All of the common stock of the Company is owned by HSBC Holdings
B.V., an indirect wholly owned subsidiary of HSBC Holdings plc (HSBC).

The accounting and reporting policies of the Company and its subsidiaries,
including its principal subsidiary, Marine Midland Bank (the Bank), conform to
generally accepted accounting principles and to predominant practice within
the banking industry.  The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of estimates
and assumptions relating principally to unsettled transactions and events as
of the date of the financial statements.  Accordingly, upon settlement, actual
results may differ from estimated amounts.  Prior years' financial statements
have been reclassified to conform with the current financial statement
presentation.

The following is a description of the significant policies and practices.

Principles of Consolidation


The financial statements of the Company and the Bank are consolidated with
those of their respective wholly owned subsidiaries.  All material
intercompany transactions and balances have been eliminated.  Investments in
companies in which the percentage of ownership is at least 20%, but not more
than 50%, are accounted for under the equity method and are included in other
assets in the consolidated balance sheets.

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities


Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities (FAS 125), that were
required to be adopted on that date, on a prospective basis, and adopted the
remaining provisions on January 1, 1998.  FAS 125 established criteria
primarily based on legal control to determine whether a transfer of a
financial asset is a sale or a secured borrowing.  The adoption of the
provisions of FAS 125 did not have a material effect on the financial position
or results of operations of the Company.

Securities


Debt securities that the Company has the ability and intent to hold to
maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts.  Securities acquired principally for the purpose of
selling them in the near term are classified as trading assets and reported at
fair value, with unrealized gains and losses included in earnings.  All other
securities are classified as available for sale and carried at fair value,
with unrealized gains and losses, net of related income taxes, included in
other comprehensive income and reported as a separate component of
shareholders' equity.


                                       40



Realized gains and losses on sales of securities are computed on a specific
identified cost basis and are reported within other income in the consolidated
statement of income.  Adjustments of trading assets to fair value and gains
and losses on the sale of such securities are recorded in trading revenues.

Loans


Loans are stated at their principal amount outstanding, net of unearned
income, purchase premium, unamortized nonrefundable fees and related direct
loan origination costs.  Loans held for sale are carried at the lower of
aggregate cost or market value.  Interest income is recorded based on methods
that result in level rates of return over the terms of the loans.  

Commercial loans are categorized as nonaccruing when, in the opinion of
management, reasonable doubt exists with respect to collectibility of interest
or principal based on certain factors including period of time past due
(principally ninety days) and adequacy of collateral.  At the time a loan is
classified as nonaccruing, any accrued interest recorded on the loan is
generally reversed and charged against income.  Interest income on these loans
is recognized only to the extent of cash received.  In those instances where
there is doubt as to collectibility of principal, any interest payments
received are applied to principal.  Loans are not reclassified as accruing
until interest and principal payments are brought current and future payments
are reasonably assured.  

Residential mortgages are generally designated as nonaccruing when delinquent
for more than ninety days.  Loans to credit card customers that are past due
more than ninety days are designated as nonaccruing if the customer has agreed
to credit counseling.  Other consumer loans are generally not designated as
nonaccruing and are charged off against the allowance for credit losses
according to an established delinquency schedule.

A loan is considered impaired when, based on current information it is
probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement.  Impaired loans are valued at
the present value of expected future cash flows, discounted at the loan's
original effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent.  

Restructured loans are loans for which the original contractual terms have
been modified to provide for terms that are less than the Company would be
willing to accept for new loans with comparable risk because of a
deterioration in the borrowers' financial condition.  Interest on these loans
is accrued at the renegotiated rates.  

Loan Fees


Nonrefundable fees and related direct costs associated with the origination or
purchase of loans are deferred and netted against outstanding loan balances. 
The amortization of net deferred fees and costs are recognized in interest
income, generally by the interest method, based on the estimated lives of the
loans.  Nonrefundable fees related to lending activities other than direct
loan origination are recognized as other income over the period the related 


                                      41



service is provided.  This includes fees associated with the issuance of loan
commitments where the likelihood of the commitment being exercised is 
considered remote.  In the event of the exercise of the commitment, the
remaining unamortized fee is recognized in interest income over the loan term
using the interest method.  Other credit-related fees, such as standby letter
of credit fees, loan syndication and agency fees and annual credit card fees
are recognized as other operating income over the period the related service
is performed.

Allowance for Credit Losses


The allowance for credit losses is that amount believed adequate to absorb
estimated credit losses in the loan portfolios based on management's
evaluation of various factors including overall growth in the portfolios, an
analysis of individual credits, adverse situations that could affect a
borrower's ability to repay (including the timing of future payments), prior
and current loss experience, and current economic conditions.  A provision for
credit losses is charged to operations based on management's periodic
evaluation of these and other pertinent factors.

Mortgage Servicing Rights


Mortgage servicing rights (MSRs) represent the right to service loans for
others, whether acquired directly or in conjunction with the acquisition of
mortgage loan assets.  As originated or purchased loans are sold or
securitized, their total cost is allocated between MSRs and the loans, based
on relative fair values.

MSRs are amortized over the expected life of the loans serviced, including
expected prepayments, using a method that approximates the level yield method. 
The carrying value of the MSRs is periodically evaluated for impairment based
on the difference between the carrying value of such rights and their current
fair value.  For purposes of measuring impairment, which is recorded through
the use of a valuation reserve, MSRs are stratified based upon interest rates
and whether such rates are fixed or variable and other loan characteristics. 
The evaluation of future net servicing income is based on a discounted and
disaggregated (individual portfolio) methodology.

Income Taxes


Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, as well as the estimated future tax consequences attributable to net
operating loss and tax credit carryforwards.  A valuation allowance is
established to reduce deferred tax assets to the amounts expected to be
realized. 

The Company and its subsidiaries file a consolidated federal income tax
return.  Taxes of each subsidiary of the Company are generally determined on
the basis of filing separate returns.


                                     42




Derivative Financial Instruments


The Company uses a variety of derivative instruments to manage interest rate
risk.  These derivative instruments follow either the synthetic alteration or
hedge model of accounting.  Interest rate risk is managed by achieving a mix
of derivative instruments and balance sheet assets and liabilities deemed
consistent and desirable given expectations of interest rate movements,
balance sheet changes and risk management strategies. 

Under the synthetic alteration accounting model, the related derivative
contract must be linked to specific individual assets or liabilities or pools
of similar balance sheet assets or liabilities by the notional and interest
rate risk characteristics of the associated instruments.    

Under the hedge accounting model, the related derivative must likewise be
linked to specific individual or pools of similar balance sheet assets or
liabilities by the notional and interest rate risk characteristics of the
associated instruments.  In addition, it must be demonstrated that the asset,
liability or event that the derivative is associated with exposes the
enterprise to price or interest rate risk and that the related derivative
contract effectively reduces that risk.  Accordingly, there must be high
correlation between the changes in market value of the derivative and the fair
value or cash flows associated with the hedged item so that it is probable
that the results of the derivative will substantially offset the effects of
price or interest rate movement on the hedged item.  To the extent these
criteria are satisfied, the derivative contract is accounted for on a basis
consistent with that of the underlying hedged item. For a derivative financial
instrument synthetically altering an asset or liability accounted for on an
historical cost basis, accrual based accounting is applied. Specifically,
income or expense is recognized and accrued to the next settlement date in
accordance with the contractual terms of the agreement as an adjustment to the
income or expense associated with the underlying balance sheet position. The
derivative position would not be marked to market.
 
Derivative instruments that are entered into for the purpose of generating
trading revenues are accounted for on a mark to market basis. Associated
income and expense is recognized as trading revenue. For derivatives linked to
securities classified as available for sale, the mark to market is considered
a component of the market value of the related securities and is recorded
through shareholders' equity consistent with the valuation of the assets. 
Derivatives used to limit the potential for loss associated with the valuation
of mortgage servicing rights are also considered in the valuation of the
related asset.

Derivatives that do not qualify as synthetic alterations or hedges at
inception are marked to market through earnings. Derivatives that cease to
qualify as synthetic alterations or hedges are marked to market prospectively
with any gains or losses at that time being deferred and amortized to earnings
over the remaining life of the derivative or the altered or hedged item
provided the hedged balance sheet position has not been liquidated. When the
altered or hedged position is liquidated the gain or loss, including any
deferred amount is recognized in earnings. 


                                      43




N O T E S  T O  F I N A N C I A L  S T A T E M E N T S

Note 1. Acquisitions


In the fourth quarter of 1998, the Company purchased the $1.7 billion
commercial loan portfolio and assumed $91 million of deposit liabilities of
the U.S. corporate banking unit of The Hongkong and Shanghai Banking
Corporation Limited (HongkongBank).  Both the Company and HongkongBank are
wholly owned subsidiaries of HSBC Holdings plc (HSBC).  Funding for the
transaction was mainly provided by the sale of short-term investments.  The
assets and liabilities acquired were recorded at the HongkongBank's carrying
values, which approximated fair value.

The Company acquired CTUS Inc. (CTUS), a unitary thrift holding company on
March 1, 1997.  CTUS owned First Federal Savings and Loan Association of
Rochester (First Federal), a thrift institution which had $7.0 billion in
assets and deposits of $4.3 billion.  The transaction was accounted for as a
purchase and the results of CTUS operations are included in the Company's
financial statements from the date of acquisition.  The excess fair value of
net assets acquired was $238 million and is being amortized against income
over fifteen years.  See Note 13 for preferred stock issued in connection with
the acquisition.

<TABLE>
<CAPTION>

The following pro forma financial information presents the combined results of
the Company and CTUS as if the acquisition had occurred as of the beginning of
1996, after giving effect to certain adjustments, including accounting
adjustments relating to fair value adjustments, amortization of goodwill and
related income tax effect.  The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company and CTUS constituted a single entity during such periods.
------------------------------------------------------------------------------
Year Ended December 31,                                    1997          1996
------------------------------------------------------------------------------
                                                             (unaudited)      
                                                             in millions      
<S>                                                      <C>           <C>
Net interest income after provision for credit losses    $1,112        $1,040
Net income                                                  468           426
------------------------------------------------------------------------------

</TABLE>

The Company acquired the institutional dollar clearing activity of Morgan
Guaranty Trust Company of New York on December 31, 1996.  The Company assumed
$945 million in deposit liabilities and acquired a like amount of Federal
funds sold.  The transaction was accounted for as a purchase.  The excess of
fair value of net assets acquired is being amortized against income over ten
years.  

The Company acquired $1.1 billion in selected assets and assumed $1.2 billion
in deposits of East River Savings Bank for a purchase price of $93 million in
1996.  The acquisition was accounted for as a purchase.  The excess fair value
of net assets acquired is being amortized against income over fifteen years.  

Note 2. Cash and Due from Banks


The Bank is required to maintain noninterest bearing balances at Federal
Reserve Banks as part of its membership requirements in the Federal Reserve
System.  These balances averaged $182.8 million in 1998 and $211.8 million in
1997.


                                      44


<TABLE>
<CAPTION>

Note 3. Trading Assets


An analysis of trading assets, which are valued at market, follows.
------------------------------------------------------------------------------
December 31,                                                  1998       1997 
------------------------------------------------------------------------------
                                                              in thousand
<S>                                                       <C>        <C>
U.S. Government                                           $  5,996   $      - 
Mortgage and other asset backed securities                 813,234    970,782 
Other securities                                             5,072      7,231 
Derivatives                                                  1,717      1,441 
------------------------------------------------------------------------------
                                                          $826,019   $979,454 
------------------------------------------------------------------------------

</TABLE>


<TABLE>
<CAPTION>

The net gains (losses) resulting from trading activities are summarized by
categories of financial instruments in the following table.
------------------------------------------------------------------------------
Year Ended December 31,                            1998       1997       1996 
------------------------------------------------------------------------------
                                                      in thousands            
<S>                                             <C>         <C>       <C>
U.S. Government                                 $   720     $  342    $ 1,830 
Mortgage and other asset backed securities       (2,627)       451     (2,621)
Other securities                                  1,430      1,272      1,430 
Derivatives                                      (1,278)      (327)      (835)
------------------------------------------------------------------------------
Trading asset revenues (loss)                    (1,755)     1,738       (196)
Foreign exchange revenue                          5,455      4,351      3,931 
------------------------------------------------------------------------------
Trading revenues                                $ 3,700     $6,089    $ 3,735 
------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

Note 4. Securities


The amortized cost and fair value of securities available for sale follows.
------------------------------------------------------------------------------------------------------------
                                                   1998                                       1997          
                            --------------------------------------------------------------------------------
                                              Gross         Gross                          
                            Amortized    Unrealized    Unrealized          Fair     Amortized          Fair 
December 31,                     Cost         Gains        Losses         Value          Cost         Value 
------------------------------------------------------------------------------------------------------------
                                                             in thousands                                       
<S>                        <C>              <C>            <C>       <C>           <C>           <C>
U.S. Treasury              $1,539,471       $40,923        $    -    $1,580,394    $2,415,835    $2,432,546
U.S. Government agency      1,902,243        20,899         2,115     1,921,027     1,088,798     1,108,506 
Other debt securities         557,848         6,059         3,398       560,509       284,135       285,245 
Equity securities             169,733         6,016             -       175,749       165,695       172,476 
------------------------------------------------------------------------------------------------------------
                           $4,169,295       $73,897        $5,513    $4,237,679    $3,954,463    $3,998,773 
------------------------------------------------------------------------------------------------------------

</TABLE>

At December 31, 1997, with regard to securities available for sale, the
Company had gross unrealized gains of $18.6 million, $24.4 million and $8.8
million and gross unrealized losses of $1.9 million, $4.7 million and $.9
million related to U.S. Treasury, U.S. Government agency and other securities,
respectively.

The Company sold securities available for sale resulting in gross realized
gains of $15.9 million, $19.7 million and $12.9 million, and gross realized
losses of $1.7 million, $.4 million and $5.0 million in the years 1998, 1997
and 1996, respectively.  Substantially all interest income on securities is
taxable.

The amortized cost and fair values of debt securities available for sale at 
December 31, 1998, by contractual maturity are shown in the following table. 
Expected maturities differ from contractual maturities because borrowers have
the right to prepay obligations without prepayment penalties in certain cases.


                                      45

<TABLE>
<CAPTION>

The amounts reflected in the table exclude $169.7 million amortized cost, 
($175.7 million fair value) of equity securities available for sale that do
not have fixed maturities.
------------------------------------------------------------------------------
                                                  Amortized              Fair 
December 31, 1998                                      Cost             Value 
------------------------------------------------------------------------------
                                                         in thousands       
<S>                                              <C>               <C>
Within one year                                  $  430,714        $  432,043 
After one but within five years                   1,684,504         1,725,641 
After five but within ten years                     544,068           546,144 
After ten years                                   1,340,276         1,358,102 
------------------------------------------------------------------------------
                                                 $3,999,562        $4,061,930 
------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

Note 5. Loans


Loans are presented net of unearned income, unamortized nonrefundable fees and
related direct loan origination costs of $164.5 million and $129.3 million at
December 31, 1998 and 1997, respectively.  A distribution of the loan
portfolio follows.  
------------------------------------------------------------------------------
December 31,                                           1998              1997 
------------------------------------------------------------------------------
                                                         in thousands       
<S>                                             <C>               <C>
Domestic:                                           
  Commercial:                                       
    Construction loans                          $   175,927       $   359,021 
    Mortgage loans                                2,919,899         1,876,243 
    Other business and financial                  7,802,733         5,811,432 
  Consumer:                                         
    Residential mortgages                         9,466,912        10,007,694 
    Credit card receivables                       1,291,071         1,780,055 
    Other consumer loans                          1,319,519         1,178,337 
International                                     1,073,438           609,450 
------------------------------------------------------------------------------
                                                $24,049,499       $21,622,232 
------------------------------------------------------------------------------

</TABLE>

Residential mortgages include $1,082.2 million and $329.6 million of mortgages
held for sale at December 31, 1998 and 1997, respectively.  Other consumer
loans include $432.4 million and $366.0 million of higher education loans also
held for sale at December 31, 1998 and 1997, respectively.

International loans include "Brady bonds" issued by the United Mexican States
and the Republic of Venezuela in the refinancing of their debt obligations. 
These bonds had an aggregate carrying value of $356.1 million (face value
$368.3 million) and an aggregate fair value of $271.8 million at year end
1998.  The Company's intent is to hold these instruments until maturity.  The
bonds are fully secured as to principal by zero-coupon U.S. Treasury
securities with face value equal to that of the underlying bonds.  Aggregate
carrying value, face value and fair value was $353.3 million, $365.6 million
and $311.2 million, respectively, at year end 1997.

At December 31, 1998 and 1997, the Company's nonaccruing loans were 
$336.8 million and $311.1 million, respectively.  At December 31, 1998 and
1997, the Company had commitments to lend additional funds of $24.9 million
and $.9 million, respectively, to borrowers whose loans are classified as 


                                      46



nonaccruing.  A significant portion of these commitments include clauses that
provide for cancellation in the event of a material adverse change in the
financial position of the borrower.

<TABLE>
<CAPTION>

------------------------------------------------------------------------------
Year Ended December 31,                               1998      1997      1996
------------------------------------------------------------------------------
                                                        in thousands
<S>                                                <C>       <C>       <C>
Interest revenue on nonaccruing loans which 
 would have been recorded had they been 
 current in accordance with their original terms   $19,802   $23,922   $39,597
Interest revenue recorded on nonaccruing loans      34,824    42,287    35,858
------------------------------------------------------------------------------

</TABLE>

Other real estate and owned assets included in other assets amounted to $8.8
million and $11.7 million net of allowances for losses of $13.4 million and
$21.6 million at December 31, 1998 and 1997, respectively.

The Company identified impaired loans totaling $182.6 million at December 31,
1998, of which $81.3 million had an allocation from the allowance of $32.2
million.  At December 31, 1997, the Company had identified impaired loans of
$152.6 million of which $54.1 million had an allocation from the allowance of
$20.7 million.  The average recorded investment in such impaired loans was 
$169.9  million, $183.5 million and $278.0 million in 1998, 1997 and 1996,
respectively.

The Company has loans outstanding to certain executive officers and directors. 
The loans were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other persons and do not involve more than normal risk of
collectibility.  The aggregate amount of such loans did not exceed 5% of
shareholders' equity at December 31, 1998 and 1997.

<TABLE>
<CAPTION>

Note 6. Allowance for Credit Losses


An analysis of the allowance for credit losses follows.
------------------------------------------------------------------------------
                                                 1998        1997        1996 
------------------------------------------------------------------------------
                                                     in thousands      
<S>                                         <C>         <C>         <C>
Balance at beginning of year                $ 409,409   $ 418,159   $ 477,502 
Allowance related to acquired businesses            -      40,294       3,415 
Provision charged to income                    80,000      87,400      64,750 
Recoveries on loans charged off                42,908      50,261      54,006 
Loans charged off                            (152,665)   (186,705)   (181,514)
------------------------------------------------------------------------------
Balance at end of year                      $ 379,652   $ 409,409   $ 418,159 
------------------------------------------------------------------------------

</TABLE>

Note 5 provides information on impaired loans and the related specific credit
loss allowance.  

Note 7. Mortgage Servicing Rights


Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets.  The unpaid principal balances of these loans
were $12.06 billion and $11.83 billion at December 31, 1998 and 1997,
respectively.  Custodial balances maintained in connection with the 
foregoing loan servicing, and included in noninterest bearing deposits in
domestic offices were $232.8 million and $223.2 million at December 31, 1998 
and 1997, respectively.


                                      47


<TABLE>
<CAPTION>

An analysis of MSRs, reported in intangible assets, follows.
------------------------------------------------------------------------------
                                                1998         1997        1996 
------------------------------------------------------------------------------
                                                     in thousands 
<S>                                         <C>          <C>         <C>
Balance at beginning of year                $111,501     $ 33,897    $ 36,822 
Additions                                     48,765      102,312      11,385 
Amortization                                 (26,462)     (24,708)    (14,310)
------------------------------------------------------------------------------
Balance at end of year                      $133,804     $111,501    $ 33,897 
------------------------------------------------------------------------------

</TABLE>

Additions reported for 1997 include $83.2 million in MSRs obtained in the
acquisition of First Federal.  No valuation reserve has been established
against MSRs.  The fair value of MSRs as of December 31, 1998 and 1997 was
approximately $198.5 million and $179.4 million, respectively.  

Note 8. Goodwill and Other Acquisition Intangibles


Goodwill and other acquisition intangibles included in intangible assets
totaled $335.4 million and $370.5 million at December 31, 1998 and 1997,
respectively.  These amounts are amortized over the estimated periods to be
benefited, not exceeding 15 years.  Amortization totaled $37.7 million, 
$34.4 million and $14.4 million during the years 1998, 1997, and 1996,
respectively.  

<TABLE>
<CAPTION>

Note 9. Deposits


The aggregate amount of time deposit accounts (primarily certificates of
deposits) each with a minimum of $100,000 included in domestic office deposits
were $2.99 billion and $1.91 billion at December 31, 1998 and 1997,
respectively.  Substantially all deposits in foreign offices exceed $100,000.
The scheduled maturities of time deposits at December 31, 1998 follows.
------------------------------------------------------------------------------
                                                                  in thousands 
<S>                                                                 <C>
1999                                                                $7,563,501 
2000                                                                   727,062 
2001                                                                   125,616 
2002                                                                    72,420 
2003                                                                    26,447 
Later years                                                             21,140 
------------------------------------------------------------------------------
                                                                    $8,536,186 
------------------------------------------------------------------------------
</TABLE>

                                      48


<TABLE>
<CAPTION>

Note 10. Short-Term Borrowings


The following table shows detail relating to short-term borrowings in 1998,
1997 and 1996.  Average interest rates during each year are computed by
dividing total interest expense by the average amount borrowed.
---------------------------------------------------------------------------------------------------------
                                            1998                     1997                     1996       
                                   -------------------      -------------------      -------------------
                                               Average                  Average                  Average 
                                       Amount     Rate          Amount     Rate          Amount     Rate 
---------------------------------------------------------------------------------------------------------
                                                                in thousands      
<S>                                <C>            <C>       <C>            <C>       <C>            <C>
Federal funds purchased 
 (day to day):
     At December 31                $  607,124     4.59%     $1,389,854     5.19%     $1,225,738     5.36%
     Average during year              617,542     5.20       1,266,663     5.50         619,775     5.26 
     Maximum month-end balance        908,542                2,164,329                1,225,738     
Securities sold under                             
 repurchase agreements:                           
     At December 31                   206,048     4.41         617,628     4.34          58,491     4.98 
     Average during year              299,588     5.34         710,716     5.44         465,147     4.95 
     Maximum month-end balance        832,312                2,680,576                  809,703     
Commercial paper:                                 
     At December 31                   909,261     5.05         847,431     5.61         473,633     5.30 
     Average during year              826,650     5.49         721,995     5.53         338,505     5.32 
     Maximum month-end balance      1,002,479                  896,574                  590,358                    
All other short-term borrowings:                          
     At December 31                 1,238,630     4.57       1,347,262     5.70         723,480     5.68 
     Average during year            1,888,166     5.86         862,856     5.62         950,020     4.97 
     Maximum month-end balance      2,972,341                1,670,339                1,231,399     
-----------------------------------------------------------------------------------------------------------

</TABLE>

All other short-term borrowings at year ends 1998 and 1997 included $1,025
million and $850 million, respectively, from the Federal Home Loan Bank.  At
December 31, 1998, the Company had unused lines of credit with HSBC
aggregating $500 million.  These lines of credit do not require compensating
balance arrangements and commitment fees are not significant.  


<TABLE>
<CAPTION>

Note 11. Income Taxes


Total income taxes (benefit) were allocated as follows.
------------------------------------------------------------------------------------
Year Ended December 31,                                 1998        1997       1996 
------------------------------------------------------------------------------------
                                                            in thousands      
<S>                                                 <C>         <C>        <C>
To income before income taxes                       $238,100    $193,000   $171,000 
To shareholders' equity unrealized gain (loss) 
 on securities available for sale, net of taxes        8,426      10,182    (10,498)
------------------------------------------------------------------------------------
                                                    $246,526    $203,182   $160,502 
------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

The components of income tax expense follow.
------------------------------------------------------------------------------------
Year Ended December 31,                                 1998        1997       1996 
------------------------------------------------------------------------------------
                                                            in thousands      
<S>                                                 <C>         <C>        <C>
Current:                                                        
  Federal                                           $209,729    $109,570   $ 57,220
  State and local                                     56,487      67,117     70,280 
------------------------------------------------------------------------------------
Total current                                        266,216     176,687    127,500 
Deferred, primarily federal                          (28,116)     16,313     43,500 
------------------------------------------------------------------------------------
Total income taxes                                  $238,100    $193,000   $171,000 
------------------------------------------------------------------------------------

</TABLE>

                                      49


<TABLE>
<CAPTION>

The following table is an analysis of the difference between effective rates
based on the total income tax provision attributable to pretax income and the
statutory U.S. Federal income tax rate.
------------------------------------------------------------------------------
Year Ended December 31,                           1998        1997       1996 
------------------------------------------------------------------------------
<S>                                               <C>        <C>         <C>
Statutory rate                                    35.0%       35.0%      35.0%
Increase (decrease) due to:                          
  State and local income taxes                     4.8         6.5        8.3 
  Valuation allowance                             (5.9)      (12.2)      (9.8)
  Tax exempt interest income                       (.2)        (.3)       (.4)
  Brazilian tax credit settlement                 (3.1)          -          - 
  Other items                                       .5          .1       (2.1)
------------------------------------------------------------------------------
Effective income tax rate                         31.1%       29.1%      31.0%
------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

The components of the net deferred tax asset are summarized below.
------------------------------------------------------------------------------
December 31,                                                  1998       1997 
------------------------------------------------------------------------------
                                                              in thousands     
<S>                                                       <C>        <C>
Deferred tax assets:                                            
  Allowance for credit losses                             $123,395   $141,131
  Deferred charge offs                                      11,305     20,472 
  Depreciation and amortization                             16,346     17,011 
  Accrued expenses not currently deductible                 55,559     53,561 
  Other                                                     82,699     70,473 
------------------------------------------------------------------------------
                                                           289,304    302,648 
  Less valuation allowance                                  28,329    130,702 
------------------------------------------------------------------------------
    Total deferred tax assets                              260,975    171,946 
------------------------------------------------------------------------------
Less deferred tax liabilities:
  Lease financing income accrued                            30,881     32,136 
  Accrued pension cost                                      11,294      2,948 
  Accrued income on foreign bonds                           20,909     21,270 
  Deferred net operating loss recognition                   90,018     38,018 
  Securities available for sale                             23,934     15,509 
  Other                                                     24,670     22,486 
------------------------------------------------------------------------------
    Total deferred tax liabilities                         201,706    132,367 
------------------------------------------------------------------------------
    Net deferred tax asset                                $ 59,269   $ 39,579 
------------------------------------------------------------------------------

</TABLE>

Realization of deferred tax assets is contingent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period.  A valuation allowance is provided when it is more likely
than not that some portion of the deferred tax assets will not be realized. 
In assessing the need for a valuation allowance, management considers the
scheduled reversal of the deferred tax liabilities, the level of historical
taxable income, and projected future taxable income over the periods in which
the temporary differences comprising the deferred tax assets will be
deductible.  Based upon the level of historical taxable income and the
scheduled reversal of the deferred tax liabilities over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net
of the existing valuation allowance.


                                      50




<TABLE>
<CAPTION>

Note 12. Long-Term Debt


The following is a summary of long-term debt, net of unamortized original
issue debt discount, where applicable.
------------------------------------------------------------------------------------------
December 31,                                                          1998           1997 
------------------------------------------------------------------------------------------
                                                                      in thousands      
<S>                                                             <C>            <C>
Issued by the Company or subsidiaries other than the Bank:           
  Floating rate subordinated notes due 2000  (5.3750%)          $  200,000     $  200,000
  Floating rate subordinated notes due 2009  (5.4375%)             124,320        124,320 
  Floating rate subordinated capital notes due 1999 (5.5000%)      100,000        100,000 
  7% subordinated notes due 2006                                   298,026        297,774 
  Guaranteed mandatorily redeemable preferred securities
   7.808% Capital Securities due 2026                              200,000        200,000 
   8.38% Capital Securities due 2027                               200,000        200,000 
  Other notes payable                                                  134            183 
------------------------------------------------------------------------------------------
                                                                 1,122,480      1,122,277 
Issued or acquired by the Bank or its subsidiaries:
  Fixed rate Federal Home Loan Bank of New York advances           590,877        498,741 
  Floating rate Federal Home Loan Bank of New York advances              -         50,000 
  Collateralized mortgage obligations                                4,562          5,942 
Obligations under capital leases                                    29,772         31,104 
------------------------------------------------------------------------------------------
                                                                $1,747,691     $1,708,064 
------------------------------------------------------------------------------------------

</TABLE>

Debt issued by Marine Midland Bank or its subsidiaries excludes the following
notes payable to the Company: a floating rate note of $100 million due 2000; a
7.234% note of $298 million due 2006; a floating rate note of $100 million due
2012; and a floating rate note of $200 million due 2013.

Interest rates on floating rate notes are determined periodically by formulas
based on certain money market rates or, in certain instances, by minimum
interest rates as specified in the agreements governing the respective issues. 
Interest rates on the floating rate notes in effect at December 31, 1998 are
shown in parentheses.

At maturity, the floating rate subordinated capital notes due 1999 were to be 
exchanged by the Company for capital securities of the Company, or at the
Company's option, the principal amount may be paid from funds designated by
the Board of Governors of the Federal Reserve System as available for the
retirement or redemption of the notes.  In 1998, the Federal Reserve Board
approved a waiver for issuing new capital securities at the maturity of the
notes.

The guaranteed mandatorily redeemable preferred securities (Capital
Securities) are issued by trusts all of whose outstanding common securities
are owned by the Company.  The Capital Securities represent preferred
beneficial interests in the assets of the trusts and are guaranteed by the
Company.  The sole assets of the trusts consist of junior subordinated
debentures of the Company.  The Capital Securities qualify as Tier 1 capital
under the risk-based capital guidelines of the Federal Reserve Board.  

The Capital Securities are redeemable at the option of the Company in the case
of a tax event or regulatory capital event at the prepayment price equal to
the greater of (i) 100% of the principal amount of the Capital Securities or
(ii) the sum of the present values of a stated percentage of the principal
amount of the Capital Securities plus the remaining scheduled payments of
interest thereon from the prepayment date.  Tax event refers to notice that 


                                      51



the interest payable on the Capital Securities would not be deductible. 
Regulatory capital event refers to notice that the Capital Securities would
not qualify as Tier 1 capital.  

In the absence of a tax or regulatory capital event, the 7.808% Capital
Securities are redeemable at the option of the Company on December 15, 2006 at
a premium of 3.904% in the first twelve months after December 15, 2006 and
varying lesser amounts thereafter and without premium if redeemed after
December 15, 2016.  Similarly, the 8.38% Capital Securities are redeemable at
the option of the Company on May 15, 2007 at a premium of 4.19% in the first
twelve months after May 15, 2007 and varying lesser amounts thereafter and
without premium if redeemed after May 15, 2017.

The fixed rate Federal Home Loan Bank of New York advances have interest rates
ranging from 2.67% to 8.61%.  The mortgage bonds are collateralized by a
pledge of FHLMC mortgage-backed securities.  All payments received on the
pledged mortgage-backed securities, net of certain costs, must be applied to
repay the bonds.  The stated maturity and stated rate for the three bonds are:
January, 2000 at 7.33%; September, 2002 at 7.89%; and October, 2006 at 7.27%. 
It is expected that the actual life of the bonds will be less than their
stated maturity.

Contractual scheduled maturities for the debt, excluding obligations under
capital leases, over the next five years are as follows: 1999, $409.8 million;
2000, $451.1 million; 2001, $21.3 million; 2002, $1.3 million; and $.5 million
in 2003.  Maturities for obligations under capital leases are reported in Note
23, Commitments and Contingent Liabilities.

Note 13. Preferred Stock


The CTUS Inc. acquisition agreement (see Note 1) provided that the Company
issue preferred shares to CT Financial Services Inc. (the Seller).  The
preferred shares provide for, and only for, a contingent dividend or
redemption equal to the amount of recovery, net of taxes and costs, if any, by
First Federal resulting from the pending action against the United States
government alleging breaches by the government of contractual obligations to
First Federal following passage of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989.  The Company issued 100 preferred shares at a par
value of $1.00 per share in connection with the acquisition.

On March 31, 1997 the Company redeemed its outstanding shares of $5.50
cumulative and adjustable rate cumulative preferred stock.  The outstanding
22,154 shares of $5.50 cumulative preferred stock were redeemed at $100 plus
accrued and unpaid dividends of $1.375 per share.  The outstanding 1,916,950
shares of adjustable rate cumulative preferred stock were redeemed at $50 plus
accrued and unpaid dividends of $.75 per share.

Note 14. Common Stock


All of the common stock of the Company is owned by HSBC Holdings B.V.  Common
shares authorized and issued are 1,100 and 1,001, respectively, with a par
value of $5.00.



                                      52



Note 15. Retained Earnings


Bank dividends are a major source of funds for payment by the Company of
shareholder dividends and along with interest earned on investments, cover the
Company's operating expenses which consist primarily of interest on
outstanding debt.  The approval of the Federal Reserve Board is required if
the total of all dividends declared by the Bank in any year would exceed the
net profits for that year, combined with the retained profits for the two
preceding years.  Under a separate restriction, payment of dividends is
prohibited in amounts greater than undivided profits then on hand, after
deducting actual losses and bad debts.  Bad debts are debts due and unpaid for
a period of six months unless well secured and in the process of collection.  

Under these rules the Bank can pay dividends to the Company as of December 31,
1998 of approximately $141.7 million, adjusted by the effect of its net income
(loss) for 1999 up to the date of such dividend declaration.

Note 16. Comprehensive Income


Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (FAS
130).  FAS 130 establishes standards for reporting the components of
comprehensive income and requires that all such components be included in a
financial statement that is displayed with the same prominence as other
financial statements.  Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
shareholders' equity.  The Company has reported comprehensive income in the
consolidated statement of changes in shareholders' equity.  The disclosure
requirements of FAS 130 have no impact on the financial position or results of
operation of the Company.

Note 17. Impact of Recently Issued Accounting Standards


In March 1998, the AICPA issued Statement of Position 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use (SOP 98-1). 
The provisions of SOP 98-1 require the capitalization of eligible costs of
specified activities related to computer software developed or obtained for
internal use and becomes effective for fiscal year 1999.  Historically these
costs were generally expensed.  The statement, when implemented, is not
expected to materially impact the financial position or results of operation
of the Company.

In June 1998, the FASB 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.


                                      53



-  For a derivative designated as hedging the exposures to changes in the fair
value of a recognized asset or liability or a firm commitment, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged.

-  For a derivative designated as hedging the exposure to variable cash flows,
the derivatives gain or loss associated with the effective portion of the
hedge is initially reported as a component of other comprehensive income and
subsequently reclassified into earnings when the forecasted transaction
affects earnings.  The ineffective portion is reported in earnings
immediately.

-  For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change in fair value.

FAS 133 is effective beginning January 1, 2000.  The Company is in the process
of evaluating the potential impact of FAS 133 including reconsidering the
Company's risk management strategies.

Note 18. Regulatory Matters


The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies.  Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the financial statements.  Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, specific
capital guidelines must be met that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices.  The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined)
of 8% and 4%, respectively.  Also required are ratios of Tier 1 capital (as
defined) to average assets (as defined) of 4% at the Bank level and 3% at the
Company level as long as the Company has a strong supervisory rating. 

As of December 31, 1998, the most recent notification from the Federal Reserve
Board categorized the Company and the Bank as well-capitalized under the
regulatory framework for prompt corrective action.  To be categorized as well
capitalized, a banking institution must have minimum total risk-based ratio of
at least 10%, Tier 1 risk-based ratio of at least 6%, and Tier 1 leverage
ratio of at least 5%.  There are no conditions or events since that
notification that management believes have changed the categories.


                                      54


<TABLE>
<CAPTION>

The capital amounts and ratios are presented in the table.
--------------------------------------------------------------------------------------
                                          1998                          1997
                               ------------------------     --------------------------            
                                   Actual                       Actual        
                               --------------   Minimum     --------------    Minimum
December 31,                   Amount   Ratio    Amount     Amount   Ratio     Amount
--------------------------------------------------------------------------------------
                                                    in millions
 <S>                           <C>      <C>      <C>        <C>       <C>      <C>
 Total capital 
  (to risk weighted assets)
   Company                     $3,140   12.04%   $2,087     $2,915    13.38%   $1,744
   Bank                         2,941   11.33     2,077      2,540    11.75     1,730
 Tier 1 capital 
  (to risk weighted assets)
   Company                      2,248    8.62     1,043      2,039     9.36       872
   Bank                         1,998    7.70     1,038      1,830     8.46       865
 Tier 1 capital 
  (to average assets)
   Company                      2,248    6.76       998      2,039     6.68       915
   Bank                         1,998    6.04     1,324      1,830     6.04     1,212
--------------------------------------------------------------------------------------

</TABLE>

Under the framework, the Bank's capital levels allow the Bank to accept
brokered deposits without prior regulatory approval.  As of December 31, 1998,
the Bank had no brokered deposits.

Note 19. Transactions with Principal Shareholder and Related Parties


The Company's common stock is owned by HSBC Holdings B.V., an indirect wholly
owned subsidiary of HSBC.  In the normal course of business, the Company
conducts transactions with HSBC, including its 25% or more owned subsidiaries
(HSBC Group).  These transactions occur at prevailing market rates and terms
and include deposits taken and placed, short-term borrowings and interest rate
contracts.

At December 31, 1998 and 1997 assets of $631.2 million and $47.1 million,
respectively, and liabilities of $3,066.8 million and $1,496.7 million,
respectively, related to such transactions with the HSBC Group were included
in the Company's balance sheet.  Income and expense associated with such
transactions was not material to the Company's financial results of operation.

Interest rate forward and futures contracts and interest rate swap contracts
entered into with the HSBC Group are used primarily as an asset and liability
management tool to manage interest rate risk.  At December 31, 1998 and 1997,
the notional amounts of these contracts with members of the HSBC Group were 
$9.85 billion and $9.04 billion, respectively.

Legal restrictions on extensions of credit by the Bank to the HSBC Group
require that such extensions be secured by eligible collateral.  At 
December 31, 1998 and 1997, outstanding extensions of credit secured by
eligible collateral were $852.3 million and $204.7 million, respectively.

See Note 1 for loans purchased and deposits assumed from HongkongBank during
1998.  During 1997 the Company purchased commercial loans having aggregate
book values of $178.7 million from another wholly owned subsidiary of HSBC for
fair value which approximated book value.


                                      55



Note 20. Stock Option Plans


Options have been granted to employees of the Company under the HSBC Holdings
Executive Share Option Scheme (the Executive Plan) and under the HSBC Savings
Related Share Option Contribution Program (the Savings Plan).  Compensation
expense associated with such options is recognized over the vesting period
based on the estimated fair value of such options at grant date.

Under the Executive Plan, options have been awarded to certain officers of the
Company to acquire shares of HSBC.  The exercise price of each option is equal
to the market price of the stock of HSBC on the date of grant.  The maximum
term of the options is ten years and they vest at the end of three years. 
Additionally, the Company adopted the Savings Plan effective July 1, 1996
whereby eligible employees can elect to participate in the Savings Plan
through the Company's 401(k) plan and acquire contributions based on HSBC
stock at 85% of market on date of grant.  An employee's agreement to
participate is a five year commitment.  At the end of each five year period
employees receive the appreciation of the HSBC stock over the initial exercise
price in the form of stock of HSBC.

Since the shares and contribution commitment have been granted directly by
HSBC, the offset to compensation cost was a credit to capital surplus
representing a contribution of capital from HSBC.  The options granted and
their related compensation cost are insignificant to the financial results of
the Company.


                                      56




Note 21. Postretirement Benefits


The Company, the Bank and certain other subsidiaries maintain a
noncontributory pension plan covering substantially all of their employees
hired prior to January 1, 1997 and those who joined the Company through
acquisitions.  Certain other HSBC subsidiaries participate in this plan.

The Company also maintains unfunded noncontributory health and life insurance
coverage for all employees who retired from the Company and were eligible for
immediate pension benefits from the Company's retirement plan.  Employees
retiring after January 1, 1993 will absorb a portion of the cost of these
benefits.  Employees hired after that same date are not eligible for these
benefits.  A premium cap has been established for the Company's share of
retiree medical cost.

<TABLE>
<CAPTION>

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits (FAS 132).  FAS 132 revised disclosure requirements;
it did not change measurement recognition.  The following table provides data
concerning the Company's benefit plans.
-------------------------------------------------------------------------------------------
                                                                             Other         
                                             Pension Benefits       Postretirement Benefits
                                           --------------------     -----------------------
                                               1998        1997          1998         1997 
-------------------------------------------------------------------------------------------
                                                             in thousands         
<S>                                        <C>         <C>           <C>          <C>
Change in benefit obligation
  Benefit obligation, January 1            $420,600    $333,115      $ 75,217     $ 70,180 
  Service cost                               17,512      17,220         1,959        1,890 
  Interest cost                              29,014      27,751         5,064        4,871 
  Participant contributions                       -           -           279          334 
  Actuarial (gain) loss                        (482)     24,418         1,629       (2,595)
  Acquisitions/plan merger                        -      31,847             -        4,957 
  Benefits paid                             (14,539)    (13,751)       (6,178)      (4,420)
-------------------------------------------------------------------------------------------
Benefit obligation, December 31            $452,105    $420,600      $ 77,970     $ 75,217 
===========================================================================================

Change in plan assets
  Fair value of plan assets, January 1     $424,530    $328,900      $      -     $      - 
  Actual return on plan assets               80,398      69,357             -            - 
  Company contribution                       30,000           -         5,899        4,086 
  Participant contributions                       -           -           279          334 
  Acquisition                                     -      40,024             -            - 
  Benefits paid                             (14,539)    (13,751)       (6,178)      (4,420)
-------------------------------------------------------------------------------------------
Fair value of plan assets, December 31     $520,389    $424,530      $      -     $      - 
===========================================================================================

Funded status of plan
  Funded status, December 31               $ 68,284    $  3,930      $(77,970)    $(75,217)
  Unrecognized actuarial gain               (42,519)     (2,182)       (5,967)      (7,596)
  Unrecognized prior service cost             6,906       7,779             -            - 
  Unrecognized net transition obligation          -      (1,340)       45,459       48,706 
-------------------------------------------------------------------------------------------
Recognized amount                          $ 32,671    $  8,187      $(38,478)    $(34,107)
===========================================================================================
  
Amount recognized in the consolidated 
 balance sheet
  Prepaid benefit cost                     $ 32,671    $  8,187      $      -     $      - 
  Accrued benefit liability                       -           -       (38,478)     (34,107)
-------------------------------------------------------------------------------------------
Recognized amount                          $ 32,671    $  8,187      $(38,478)    $(34,107)
===========================================================================================

</TABLE>


                                      57


<TABLE>
<CAPTION>

Operating expenses for 1998, 1997 and 1996 included the following components.
--------------------------------------------------------------------------------------------------------------
                                                                                          Other              
                                                 Pension Benefits                Postretirement Benefits     
                                     ----------------------------------     ----------------------------------
                                         1998         1997         1996        1998       1997        1996    
--------------------------------------------------------------------------------------------------------------
                                                                     in thousands     
<S>                                  <C>          <C>          <C>          <C>         <C>        <C>  
Net periodic benefit cost
  Service cost                       $ 17,512     $ 17,220     $ 14,696     $ 1,959     $1,890     $ 2,024    
  Interest cost                        29,014       27,751       20,789       5,064      4,871       4,794    
  Expected return on plan assets      (40,631)     (34,395)     (25,080)          -          -           -    
  Prior service cost amortization         961          954          632           -          -           -    
  Actuarial (gain) loss                     -            -        1,335           -       (486)          -    
  Transition amount amortization       (1,340)      (1,341)      (1,341)      3,247      3,247       3,247    
--------------------------------------------------------------------------------------------------------------
Net periodic benefit cost            $  5,516     $ 10,189     $ 11,031     $10,270     $9,522     $10,065    
==============================================================================================================

Weighted-average assumptions
 as of December 31
  Discount rate                          7.00%        7.25%        7.75%       6.25%      6.75%       7.50%   
  Expected return on plan assets         9.50         9.50         9.50           -          -           -    
  Rate of compensation increase          4.65         4.90         5.40        4.65 (1)   4.90 (1)    5.40 (1)
--------------------------------------------------------------------------------------------------------------

(1) Applicable to life insurance only.

</TABLE>

Net periodic pension cost includes $1.9 million, $2.0 million and $1.2 million
for 1998, 1997 and 1996, respectively, recognized in the financial statements
of other HSBC subsidiaries participating in the Company's pension plan.

The Company has assumed a health care cost trend rate of 12% for 1999,
decreasing 1% per year to an ultimate rate of 7% in the year 2004.

The assumed health care cost trend rate has a significant effect on the
amounts reported.  For example, increasing the assumed health care cost trend
by 1% would increase the aggregate service and interest cost component by $.1
million and the accumulated postretirement benefit obligation by $.9 million. 
Decreasing the health care cost trend rate by 1% would decrease the aggregate
service and interest cost components by $.1 million and the accumulated post
retirement benefit obligation by $1.0 million.

Employees hired after January 1, 1997, after one year of service, become
participants in a defined contribution plan.  The Company also maintains a
401(k) plan covering substantially all employees.  Contributions to these
defined contribution plans are based on a percentage of employees'
compensation or their own contributions in the case of the 401(k) plan. 
Pension expenses recognized for defined contribution plans totaled $8.9
million in 1998, $8.3 million in 1997 and $6.9 million in 1996.


                                      58

<TABLE>
<CAPTION>

Note 22. Business Segments
----------------------------------------------------------------------------------------------------------
                                                     Segments
                                  -----------------------------------------------    Corporate 
                                  Commercial    Mortgage    Personal                       and 
                                     Banking     Banking     Banking    Treasury         Other      Total 
----------------------------------------------------------------------------------------------------------
                                                         in millions
<S>                                   <C>         <C>        <C>          <C>           <C>       <C>
1998            
----
Net interest income (1)               $  369      $   75     $   567      $   22        $  132    $ 1,165 
Other operating income                   138          53         211          (4)           62        460 
Total income                             507         128         778          18           194      1,625 
Provision for credit losses (2)           34         (11)         79           -           (22)        80 
Other expenses (3)                       233          52         443           7            45        780 
Pretax income                            240          87         256          11           171        765 
Average assets                         9,215       8,489       4,333       5,279         5,531     32,847 
Average liabilities/equity (4)         5,873         327      14,731       6,720         5,196     32,847 

1997
----
Net interest income (1)               $  365      $   83     $   578     $    14        $  134    $ 1,174 
Other operating income                   117          37         168           1            36        359 
Total income                             482         120         746          15           170      1,533 
Provision for credit losses (2)            8           6         144           -           (70)        88 
Other expenses (3)                       215          59         424           7            76        781 
Pretax income                            259          55         178           8           164        664 
Average assets                         7,683       7,792       4,691       3,677         5,183     29,026 
Average liabilities/equity (4)         5,272         296      14,037       3,683         5,738     29,026 

1996
----
Net interest income (1)               $  309      $   50     $   466      $   11        $  126    $   962 
Other operating income                   106          24         143           -            38        311 
Total income                             415          74         609          11           164      1,273 
Provision for credit losses (2)            8           1         113           -           (57)        65 
Other expenses (3)                       198          31         363           6            59        657 
Pretax income                            209          42         133           5           162        551 
Average assets                         6,498       2,522       4,518       2,580         4,694     20,812 
Average liabilities/equity (4)         4,121         153       9,915       2,550         4,073     20,812 
----------------------------------------------------------------------------------------------------------

(1) Net interest income of each segment represents the difference between actual interest earned
    on assets and interest paid on liabilities of the segment adjusted for a funding charge or
    credit.  Segments are charged a cost to fund assets (e.g. customer loans) and receive a
    funding credit for funds provided (e.g. customer deposits) based on equivalent market rates.

(2) The provision apportioned to the segments is based on the segments  net charge offs and the
    change in allowance for credit losses.  Credit loss reserves are established at a level
    sufficient to absorb the losses considered to be inherent in the portfolio.  The difference
    between segment provisions and the Company provision is included in corporate and other.

(3) Expenses for the segments include fully apportioned corporate overhead expenses with the
    exception of non-recurring corporate expenses.  

(4) Equity is not allocated to segments; it is included in corporate and other.

</TABLE>

The Company has four distinct segments that it utilizes for management
reporting and analysis purposes.  These segments are based upon products and
services offered and are identified in a manner consistent with the
requirements outlined in Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information.  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.  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. 
The following describes the four reportable segments.



                                      59



The Commercial Banking Segment provides a diversified range of wholesale
financial products and services.  This segment provides loan and deposit
products to small, middle market and large corporations including specialized
products such as highly leveraged financings, equipment financing 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 document handling.  U.S. dollar
clearings 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.

The Mortgage Banking Segment provides residential mortgage loan financing
through direct retail and wholesale origination channels.  This segment 
originates loans through a network of brokers, wholesale agents and retail
origination offices.  It also manages the held portfolio, consisting of
investments in various mortgage loan products originated by the Bank.  
Originations provides services ranging from application taking to loan
closing.  Servicing provides loan servicing functions on a contractual basis
for mortgage loans owned by third parties.

The Personal Banking Segment provides an extensive variety of products and
services including various loans, deposits, mutual funds, sales, investment
management services and estate planning in addition to a wide array of branch
services.  This segment provides revolving cards and installment loan products 
marketed to individuals through the branch banking network.

The Treasury Segment maintains overall responsibility for the investment and
borrowing of funds to ensure liquidity, maximize return and manage interest
rate risk exposure.  This segment is primarily responsible for trading
activities for the purpose of generating profits by selling securities in the
near term and for various wholesale funding of assets and liabilities.

Corporate and Other consists primarily of available for sale securities, held
for investment purposes and earnings on capital which are not allocated to the
business segments.  Other also includes certain non-recurring expenses and the
provision for credit losses not assigned to business units.


                                      60




Note 23. Commitments and Contingent Liabilities


At December 31, 1998 securities, loans and other assets carried in the
consolidated balance sheet at $3.91 billion were pledged as collateral for
borrowings, to secure governmental and trust deposits and for other purposes.

<TABLE>
<CAPTION>

The Company and its subsidiaries are obligated under a number of
noncancellable leases for premises and equipment.  Certain leases contain
renewal options and escalation clauses.  Minimum future rental commitments on
leases in effect at December 3l, l998 were:
----------------------------------------------------------------------------------------
                                                                    Capital   Operating 
                                                                     Leases      Leases 
----------------------------------------------------------------------------------------
                                                                       in thousands       
<S>                                                                 <C>        <C>
1999                                                                $ 6,504    $ 34,765 
2000                                                                  6,408      30,984 
2001                                                                  6,377      27,164 
2002                                                                  6,309      19,189 
2003                                                                  6,090      24,749 
Thereafter                                                           53,998      45,383 
----------------------------------------------------------------------------------------
Total minimum lease payments                                         85,686    $182,234 
Less: executory costs                                                32,309             
----------------------------------------------------------------------------------------
Net minimum obligation                                               53,377             
Less: amount representing interest                                   23,605             
----------------------------------------------------------------------------------------
Present value of net minimum lease payments at December 31, 1998    $29,772      
----------------------------------------------------------------------------------------  

</TABLE>


Operating expenses include rental expense, net of sublease rentals, of $43.2
million, $42.1 million and $36.7 million in 1998, 1997 and 1996, respectively.

The Company and its subsidiaries are defendants in a number of legal
proceedings arising out of, and incidental to, their businesses.  Management
of the Company, based on its review with counsel of the development of these
matters to date, is of the opinion that the ultimate resolution of these
pending proceedings will not have a material adverse effect on the business or
financial position of the Company.

Note 24. Financial Instruments With Off-Balance Sheet Risk


The Company is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers, to
reduce its own exposure to fluctuations in interest rates and to realize
profits.  These financial instruments involve, to varying degrees, elements of
credit and market risk in excess of the amount recognized in the consolidated
balance sheet.  Credit risk represents the possibility of loss resulting from
the failure of another party to perform in accordance with the terms of a
contract.  The Company uses the same credit policies in making commitments and
conditional obligations as it does for balance sheet instruments.

Market risk represents the exposure to future loss resulting from the decrease
in value of an on- or off-balance sheet financial instrument caused by changes
in interest rates.  Market risk is a function of the type of financial
instrument involved, transaction volume, tenor and terms of the agreement and
the overall interest rate environment.  The Company controls market risk by
managing the mix of the aggregate financial instrument portfolio and by
entering into offsetting positions.


                                      61



<TABLE>
<CAPTION>

A summary of financial instruments with off-balance sheet risk follows.
-----------------------------------------------------------------------------------------------------
December 31,                                                                        1998        1997 
-----------------------------------------------------------------------------------------------------
                                                                                     in millions    
<S>                                                                               <C>        <C>
Financial instruments whose contractual amounts represent the associated risk:      
   Standby letters of credit and financial guarantees           
      Guarantees for certain debt obligations of borrowers      
        State and municipal                                                       $   125    $   147 
        Industrial revenue                                                            310        287 
        Other, primarily corporate                                                     25         10 
      Other                                                                         1,227        601 
   Other letters of credit                                                            490        295 
   Commitments to extend credit                                                    15,460     10,588 
Financial instruments whose notional or contractual amounts do not represent 
 the associated risk:                                           
   Interest rate swaps                                                              5,943      6,908 
   Forward rate agreements                                                          1,600        600 
   Futures contracts                                                                2,815      3,786 
   Interest rate caps and floors                                                    2,323      1,671 
   Options on futures contracts                                                         -        600 
   Foreign exchange contracts                                                         159        134 
   Commitments to deliver mortgaged-backed securities                                 850        275 
-----------------------------------------------------------------------------------------------------

</TABLE>

For commitments to extend credit, standby letters of credit and guarantees,
the Company's exposure to credit loss in the event of non-performance by the
counterparty to the financial instrument, is represented by the contractual
amount of those instruments.  Although management does not anticipate any
significant loss as a result of these transactions, an allowance for credit
loss related to these instruments of $10 million is included in interest,
taxes and other liabilities on the consolidated balance sheet at December 31,
1998.

For those financial instruments whose contractual or notional amount does not
represent the amount exposed to credit loss, risk at any point in time
represents the cost, on a present value basis, of replacing these existing
instruments at considering interest and exchange rates.  Based on this
measurement, $182.8 million was at risk at December 31, 1998.  See Note 25 for
further discussion of activities in derivative financial instruments.  The
Company controls the credit risk associated with off-balance sheet derivative
financial instruments established for each counterparty through the normal
credit approval process.  See Note 19 for contracts entered into with the HSBC
Group.  Collateral is maintained on these positions, the amount of which is
consistent with the measurement of exposure used in the risk-based capital
ratio calculations under the banking regulators' guidelines. 

Standby letters of credit and guarantees have been reduced by $76.6 million
and $15.8 million at December 31, 1998 and 1997, respectively, which represent
the amounts participated to other institutions.  Maturities of guarantees for
certain debt obligations of borrowers range from 1999 to 2019.  Fees received
are generally recognized as revenue over the life of the guarantee.

Foreign exchange contracts represent the gross amount of contracts to purchase
and sell foreign currencies.  The extent to which offsets may exist are not
considered.


                                      62




Note 25. Derivative Financial Instruments


As principally an end user of off-balance sheet financial instruments, the
Company uses various derivative products to manage its overall interest rate
risk within the context of a comprehensive asset and liability strategy.  The
Company also uses derivatives to offset risk associated with changes in the
market value in its trading and available for sale securities portfolios, to
protect against the impairment in value of mortgage servicing rights and to
satisfy the foreign currency requirements of customers.

The derivative instrument portfolios are actively managed in response to
changes in overall and specific balance sheet positions, cash requirements,
expectations of future interest rates, market environments and business
strategies.  Associated credit risk is controlled through the establishment
and monitoring of approved limits in derivative positions.  Credit risk is
also mitigated by executing almost all derivative contracts with members of
the HSBC Group, and such contracts are subject to enforceable master netting
agreements.


<TABLE>
<CAPTION>

The following summarizes the outstanding positions of derivative contracts.
----------------------------------------------------------------------------------
                                                      Notional        Fair Value   
December 31,                                       1998      1997    1998    1997 
----------------------------------------------------------------------------------
                                                            in millions                  
<S>                                              <C>       <C>       <C>      <C>
Asset/liability management positions                            
  Interest rate swaps                            $5,468    $6,323    $136     $56 
  Forward rate agreements                         1,600       600       -       - 
  Futures contracts                               2,320     2,650       -      (1)
  Interest rate caps and floors                       -        10       -       - 
  Options on futures contracts                        -       600       -       - 
Available for sale portfolio positions     
  Interest rate swaps                               475       445      (3)     (4)
  Futures contracts                                 195       225       1       1 
  Interest rate caps and floors                     300       300       2       - 
Mortgage servicing rights portfolio positions
  Interest rate caps and floors                   2,023     1,361      29      12 
Trading positions  
  Interest rate swaps                                 -       140       -       - 
  Futures contracts                                 300       911       -       - 
  Foreign exchange contracts                        159       134       -       - 
----------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

A maturity analysis of notional values of the outstanding positions of
derivative contracts (excluding trading positions) follows.
--------------------------------------------------------------------------------------------------------
                                                                                        2004-
December 31,                                1999    2000      2001    2002      2003    2026      Total
--------------------------------------------------------------------------------------------------------
                                                                   in millions                
<S>                                       <C>       <C>     <C>       <C>     <C>       <C>      <C>
Asset/liability management positions                       
  Interest rate swaps                     $2,512    $628    $1,525    $  6    $  270    $527     $5,468
  Forward rate agreements                  1,600       -         -       -         -       -      1,600
  Futures contracts                        2,320       -         -       -         -       -      2,320
Available for sale portfolio positions               
  Interest rate swaps                          -       -         -     120        75     280        475
  Futures contracts                           30      60        60      45         -       -        195
  Interest rate caps and floors                -       -         -     200         -     100        300
Mortgage servicing rights portfolio 
 positions
  Interest rate caps and floors                -       -        16     690     1,317       -      2,023
--------------------------------------------------------------------------------------------------------

</TABLE>


                                      63




Asset/liability management positions - Through the normal course of
operations, the Company is subject to risk associated with changes in interest
rates to the extent that interest earning assets and interest bearing
liabilities mature or reprice at different times or by differing amounts. 
Pursuant to an overall balance sheet risk management strategy, derivative
financial instruments are used to alter the cash flows and maturity
characteristics of certain of these assets and liabilities and hedge
anticipated repricing in order to maintain net interest margin within a range
that management considers acceptable given various assumptions as to changes
in interest rates.

Currently, the Company manages risk within the context of an asset sensitive
balance sheet position.  That is, interest earning assets tend to respond to
changes in interest rates by repricing in advance of interest bearing
liabilities.  While increasing net interest margin in upward rate
environments, net interest margin decreases when rates fall.  As such,
interest rate swaps, along with futures contracts and forward rate agreements 
are used to synthetically alter the cash flow associated with certain long-
term floating rate assets and fixed rate liabilities.  Swaps, put and call
options are utilized to extend the maturities and financial futures are used
to hedge the anticipated re-pricing of certain short-term assets and
liabilities in order to limit exposure to changes in interest rates.

<TABLE>
<CAPTION>

The following table summarizes the linkage of notional value derivative
financial instruments utilized for asset/liability management positions to
balance sheet assets and liabilities at December 31, 1998.
-------------------------------------------------------------------------------
                                         Interest        Forward           
                                             Rate           Rate       Futures
December 31, 1998                           Swaps     Agreements     Contracts
-------------------------------------------------------------------------------
                                                     in millions
<S>                                        <C>              <C>         <C>
Loans                                      $2,256           $600        $  185
Federal funds sold/deposits placed          1,955            400         1,800
Federal funds/purchased deposits              100              -           335
Deposits                                      467            600             -
Debt                                          690              -             -
-------------------------------------------------------------------------------

</TABLE>

Available for sale portfolio positions - In addition, the Company uses
derivative contracts to synthetically convert fixed rate investment securities
held in the available for sale portfolio to variable in order to mitigate the
effects of changes in interest rates on the market valuation of these assets.

Mortgage servicing rights portfolio positions - Interest rate caps and floor
contracts are used to limit the potential for loss on the valuation of
mortgage servicing rights.  As interest rates decline, mortgage prepayments
generally accelerate, thereby eroding the value of the rights and requiring
the Company to increase amortization.  As interest rates decline below a
specified level, the value of the derivative increases.  The increased value
of the derivative effectively offsets the decline in value of the rights.

Trading activities - The Company deploys excess liquidity by maintaining
active trading positions in a variety of highly-liquid debt instruments
including U.S. Government obligations, non-high risk mortgages, asset-backed
and other securities.  The trading portfolio is managed to realize profits
from short-term price movements associated with holding high credit quality
securities and associated off-balance sheet derivative instruments.


                                      64



The majority of derivative instruments held in the trading portfolio are used
to hedge market and interest rate risk associated with the on-balance sheet
cash instruments to which they are linked.  That is, changes in value of cash
instruments are effectively offset by changes in value of the related
derivative to the extent the on-balance sheet positions are hedged.  The
Company had no speculative derivative positions at December 31, 1998 outside
the trading portfolio.

The Company's derivative trading positions are subject to interest rate risk,
maturity and credit exposure limits.  Stop loss limits have been imposed on
all trading positions, including derivatives, to mitigate exposure to price
movements.

Derivative trading positions are marked to market with gains and losses
recorded as a component of net trading revenues.  Generally, as individual
trading assets are sold, the corresponding derivative positions are liquidated
and gains and losses realized.  See Note 3 for net revenues associated with
trading activities during 1998, 1997 and 1996.

<TABLE>
<CAPTION>

The following summarizes by instrument type, the year-end and average fair
values of derivative trading positions.
------------------------------------------------------------------------------
                                                               Fair Value       
December 31, 1998                                         Year-end    Average 
------------------------------------------------------------------------------
                                                                in millions     
<S>                                                          <C>        <C>
Interest rate swaps                                             
  Assets                                                     $   -      $  .9 
  Liabilities                                                    -       (1.1)
Futures contracts                                               
  Assets                                                         -         .1 
  Liabilities                                                    -        (.3)
Foreign exchange contracts                                      
  Assets                                                       1.7        1.5 
  Liabilities                                                 (1.6)      (1.3)
------------------------------------------------------------------------------

</TABLE>


Foreign exchange trading activities - The Company maintains open positions in
various foreign exchange contracts, principally to accommodate customer
demands for specific currencies.  Foreign currencies are purchased and sold on
a spot basis, with settlement occurring within a two day period.  Also,
certain forward purchase and sale agreements are entered into in order to
match customer requests with settlement requirements associated with foreign
markets.  Additionally a limited number of open positions are maintained.  Net
revenues from foreign exchange trading were $5.4 million, $4.4 million and
$4.0 million in 1998, 1997 and 1996, respectively.

<TABLE>
<CAPTION>

The following summarizes the foreign currency trading contracts outstanding.
------------------------------------------------------------------------------
                                                          Notional       Fair 
December 31, 1998                                           Amount      Value 
------------------------------------------------------------------------------
                                                               in millions       
<S>                                                         <C>           <C>
Spot contracts                                              $ 17.0        $ - 
Forward contracts                                            142.0          - 
------------------------------------------------------------------------------

</TABLE>

Approximately 60% of the foreign currency contracts outstanding are
denominated in major currencies.  All open foreign exchange contracts are
marked to market on a daily basis with gains and losses recorded as a
component of net trading revenues.


                                      65



Relating to certain contracts, the Company records unrealized gains as assets
and unrealized losses as liabilities on the balance sheet.  Offsetting of
unrealized gains and losses is recognized for multiple contracts executed with
the same counterparty if a valid right and intent to set off exists.  The
majority of the Company's arrangements are subject to legally enforceable
master netting agreements with affiliated companies which provide for the
right of set off.

Note 26. Concentrations of Credit Risk


The Company enters into a variety of transactions in the normal course of
business that involve both on- and off-balance sheet credit risk.  Principal
among these activities is lending to various commercial, institutional,
governmental and individual customers.  Although the Company actively
participates in lending activity throughout the United States and on a limited
basis abroad, credit risk is concentrated in the Northeastern United States. 
The ability of individual borrowers to repay is generally linked to the
economic stability of the regions from where the loans originate, as well as
the creditworthiness of the borrower.  With emphasis on the Western, Central
and Metropolitan regions of New York State, the Company maintains a
diversified portfolio of loan assets.

<TABLE>
<CAPTION>

Significant concentrations of credit risk are summarized below.
---------------------------------------------------------------------------------
                                                                     Off-Balance 
                                                       On-Balance          Sheet 
December 31, 1998                                           Sheet    Commitments 
---------------------------------------------------------------------------------
                                                                in millions        
<S>                                                         <C>           <C>
Consumer:                                                       
  Credit card receivables                                   $1,291        $5,614 
  Residential mortgages                                      9,467           763 
Real estate - commercial construction and mortgage loans     3,096           186 
---------------------------------------------------------------------------------

</TABLE>

At December 31, 1998 59% of credit card receivables, 63% of residential
mortgages and 61% of commercial construction and mortgage loans were located
within the Northeastern United States.  

In general, the Company controls the varying degrees of credit risk involved
in on- and off-balance sheet transactions through specific credit policies. 
These policies and procedures provide for a strict approval, monitoring and
reporting process.  It is the Company's policy to require collateral when it
is deemed appropriate.  Varying degrees and types of collateral are secured
depending upon management's credit evaluation.


                                      66


<TABLE>
<CAPTION>

Note 27. Geographic Distribution of Revenues and Assets


The following table summarizes the Company's activities by geographic areas.
------------------------------------------------------------------------------------
                                          Period End             
                                            Assets             Total Revenue (1)
                                    ------------------    --------------------------
                                       1998       1997      1998      1997      1996
------------------------------------------------------------------------------------
                                                     in millions    
<S>                                 <C>        <C>        <C>       <C>       <C>
United States                       $32,207    $29,230    $1,553    $1,438    $1,213
Europe/Middle East/Africa             1,367      1,499         8        38         7
Asia/Pacific                            278        564        46        36        37
Other Western Hemisphere                472        634        18        21        16
Less allowance for credit losses       (380)      (409)        -         -         -
------------------------------------------------------------------------------------
Total                               $33,944    $31,518    $1,625    $1,533    $1,273
------------------------------------------------------------------------------------

(1) Includes net interest income and other operating income.

</TABLE>


Loans are distributed geographically primarily on the basis of the location of
the head office or residence of the borrowers or, in the case of certain
guaranteed loans, the guarantors.  Interest bearing deposits with banks are
grouped by the location of the head office of the bank.  Investments and
acceptances are distributed on the basis of the location of the issuers or
borrowers.  

Interest and fee related income is distributed geographically on the same
basis as the related asset.  A charge or credit is made at market rates for
use of funds after consideration has been given for the use of capital.  Other
operating income is distributed to the geographic area where the service or
operation is performed.

Note 28. Fair Value of Financial Instruments


The following disclosures represent the Company's best estimate of the fair
value of on- and off-balance sheet financial instruments.  The following
methods and assumptions have been used to estimate the fair value of each
class of financial instrument for which it is practicable to do so.

Financial instruments with carrying value equal to fair value - The carrying
value of certain financial assets including cash and due from banks, interest
bearing deposits with banks, federal funds sold and securities purchased under
resale agreements, accrued interest receivable, and customers' acceptance
liability and certain financial liabilities including short-term borrowings,
interest, taxes and other liabilities and acceptances outstanding, as a result
of their short-term nature, are considered to be equal to fair value.

Securities and trading assets - Fair value has been based upon current market
quotations, where available.  If quoted market prices are not available, fair
value has been estimated based upon the quoted price of similar instruments.

Loans - The fair value of the performing loan portfolio has been determined
principally based upon a discounted analysis of the anticipated cash flows,
adjusted for expected credit losses.  The loans have been grouped to the
extent possible, into homogeneous pools, segregated by maturity and the
weighted average maturity and average coupon rate of the loans within each
pool.  Depending upon the type of loan involved, maturity assumptions have
been based on either contractual or expected maturity.  


                                      67




Credit risk has been factored into the present value analysis of cash flows
associated with each loan type, by allocating the allowance for credit losses. 
The allocated portion of the allowance, adjusted by a present value factor
based upon the timing of expected losses, has been deducted from the gross
cash flows prior to calculating the present value.

As a result of the allocation of the allowance to adjust the anticipated cash
flows for credit risk, a published interest rate that equates as closely as
possible to a "risk-free" or "low-risk" loan has been selected for the purpose
of discounting the commercial loan portfolio, adjusted for a liquidity factor
where appropriate.

Consumer loans have been discounted at the estimated rate of return an
investor would demand for the product, without regard to credit risk.  This
rate has been formulated based upon reference to current market rates.  The
fair value of the residential mortgage portfolio has been determined by
reference to quoted market prices for loans with similar characteristics and
maturities.

The portion of the allowance attributable to nonperforming loans has been
deducted from carrying value to arrive at an estimate of fair value for
nonperforming loans.

Intangible assets - The Company has elected not to specifically disclose the
fair value of certain intangible assets.  In addition, the Company has not
estimated the fair value of unrecorded intangible assets associated with its
own portfolio such as core deposits.  The fair value of the Company's
intangibles is believed to be significant.

Deposits - The fair value of demand, savings and certain money market deposits
is equal to the amount payable on demand at the reporting date.  For deposits
with fixed maturities, fair value has been estimated based upon interest rates
currently being offered on deposits with similar characteristics and
maturities.

Long-term debt - Fair value has been estimated based upon interest rates
currently available to the Company for borrowings with similar characteristics
and maturities.


                                      68


<TABLE>
<CAPTION>

The following, which is provided for disclosure purposes only, provides a
comparison of the carrying value and fair value of the Company's financial
instruments.  Fair values have been determined based on applicable
requirements and do not necessarily represent the amount that would be
realized upon their liquidation.  The fair value of derivative financial
instruments is disclosed in Note 25, Derivative Financial Instruments.
----------------------------------------------------------------------------------
                                               1998                    1997        
                                      -------------------     --------------------  
                                      Carrying       Fair     Carrying       Fair 
December 31,                             Value      Value        Value      Value 
----------------------------------------------------------------------------------
                                                     in millions                                
<S>                                    <C>        <C>          <C>        <C> 
Financial assets:                                               
  Instruments with carrying value    
   equal to fair value                 $ 4,223    $ 4,169      $ 4,328    $ 4,328 
    Related derivatives                     55          1            -          - 
  Trading assets                           826        826          979        979 
  Securities available for sale          4,238      4,238        4,002      4,002 
    Related derivatives                      -          -           (3)        (3)
  Loans, net of allowance for 
   credit losses                        23,716     23,787       21,219     21,461 
    Related derivatives                     46         66            6         29 
Financial liabilities:                                          
  Instruments with carrying value                      
   equal to fair value                   3,702      3,702        4,953      4,955 
    Related derivatives                      -          -            -          2 
  Deposits:                                                     
   Without fixed maturities             18,211     18,211       15,636     15,636 
   Fixed maturities                      8,046      8,076        7,157      7,194 
    Related derivatives                     (8)        (1)         (24)         2 
  Long-term debt                         1,744      1,814        1,704      1,731 
    Related derivatives                     (4)       (68)          (4)       (30)
----------------------------------------------------------------------------------

</TABLE>


The above table excludes $2,023 million of notional value interest rate caps
and floors with a fair value of $29 million associated with mortgage servicing
rights and $18 million of notional value customer facilitation interest rate
swaps with a nominal fair value which are outside of the scope required in
this footnote.

The fair value of commitments to extend credit, standby letters of credit and
financial guarantees, is not included in the previous table.  These
instruments generate fees which approximate those currently charged to
originate similar commitments.  Further detail with respect to off-balance
sheet financial instruments is provided in Note 24, Financial Instruments With
Off-Balance Sheet Risk.


                                      69


<TABLE>
<CAPTION>

Note 29. Financial Statements of HSBC Americas, Inc. (parent)


Condensed parent company financial statements follow.
----------------------------------------------------------------------------------------------
Balance Sheet
December 31,                                                              1998           1997 
----------------------------------------------------------------------------------------------
                                                                           in thousands
<S>                                                                 <C>            <C>
Assets:        
Interest bearing deposits with banks (including 
 $1,012,800 and $1,070,400 in banking subsidiary)                   $1,077,800     $1,135,400 
Securities available for sale                                           24,330         29,935 
Loans (net of allowance for credit losses of $1,284)                    37,694         57,628 
Receivable from subsidiaries                                           702,759        627,461 
Investment in subsidiaries at amount of their 
 net assets
    Banking                                                          2,373,656      2,222,905 
    Other                                                               23,892         43,668 
Other assets                                                            47,324         42,180 
----------------------------------------------------------------------------------------------
Total assets                                                        $4,287,455     $4,159,177 
----------------------------------------------------------------------------------------------
Liabilities:                                                    
Interest, taxes and other liabilities                               $   14,027     $  138,327 
Short-term borrowings                                                  910,457        847,431 
Long-term debt                                                         722,346        722,094 
Long-term debt due to subsidiary                                       412,372        412,372 
----------------------------------------------------------------------------------------------
Total liabilities                                                    2,059,202      2,120,224 
Shareholders' equity                                                 2,228,253      2,038,953 
----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                          $4,287,455     $4,159,177 
----------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------
Statement of Income
Year Ended December 31,                                    1998           1997           1996 
----------------------------------------------------------------------------------------------
                                                                    in thousands
<S>                                                    <C>            <C>            <C>
Income:                
  Dividends from banking subsidiaries                  $405,000       $275,000       $130,000
  Dividends from other subsidiaries                       7,001            804          7,465 
  Interest from banking subsidiaries                     91,405         84,599         65,963 
  Interest from other subsidiaries                          241              -             27 
  Other interest income                                   7,641         12,290          5,429 
  Securities transactions                                 7,529         12,650          7,915 
  Other income                                            2,226          2,492          2,369 
----------------------------------------------------------------------------------------------
Total income                                            521,043        387,835        219,168 
----------------------------------------------------------------------------------------------
Expenses:                                                       
  Interest (including $33,382, $26,813,
   and $852 paid to subsidiaries)                       123,053        114,294         81,554 
  Other expenses                                          6,504          7,535          6,302 
----------------------------------------------------------------------------------------------
Total expenses                                          129,557        121,829         87,856 
----------------------------------------------------------------------------------------------
Income before taxes and equity in undistributed 
 income of subsidiaries                                 391,486        266,006        131,312 
Income tax benefit                                       (5,962)        (2,527)        (3,312)
----------------------------------------------------------------------------------------------
Income before equity in undistributed income 
 of subsidiaries                                        397,448        268,533        134,624 
Equity in undistributed income of subsidiaries          129,619        202,417        245,564 
----------------------------------------------------------------------------------------------
Net income                                             $527,067       $470,950       $380,188 
----------------------------------------------------------------------------------------------

</TABLE>


                                      70


<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------
Statement of Cash Flows
Year Ended December 31,                                    1998           1997           1996 
----------------------------------------------------------------------------------------------
                                                                   in thousands           
<S>                                                   <C>            <C>            <C>
Cash flows from operating activities:                           
  Net income                                          $ 527,067      $ 470,950      $ 380,188 
  Adjustments to reconcile net income
   to net cash provided (used) by 
   operating activities:                                        
    Depreciation and amortization                         3,128          3,693          3,278 
    Net change in other accrued accounts                 (4,294)        49,380        (15,155)
    Undistributed income of subsidiaries               (129,619)      (202,417)      (245,564)
    Other, net                                          116,636       (149,056)        (8,190)
----------------------------------------------------------------------------------------------
      Net cash provided by operating 
       activities                                       512,918        172,550        114,557 
----------------------------------------------------------------------------------------------
Cash flows from investing activities:                           
  Net change in interest bearing 
   deposits with banks                                   57,600         81,700         61,300 
  Purchases of securities                                     -         (5,000)          (125)
  Sales of securities                                    12,366         20,785         12,829 
  Net change in other short-term loans                        -              -         78,000 
  Principal collected on long-term loans                 19,934         55,658          5,592 
  Long-term loans advanced                             (200,000)      (100,000)      (414,333)
  Investment in banking subsidiary                            -        (95,298)             - 
  Other, net                                             14,156            229            219 
----------------------------------------------------------------------------------------------
      Net cash used by investing 
       activities                                       (95,944)       (41,926)      (256,518)
----------------------------------------------------------------------------------------------
Cash flows from financing activities:                           
  Net change in short-term borrowings                    63,026         90,798       (265,458)
  Issuance of long-term debt                                  -        200,000        497,480 
  Repayment of long-term debt                                 -       (125,000)             - 
  Redemption of preferred stock                               -        (98,063)             - 
  Dividends paid                                       (480,000)      (202,937)       (85,872)
----------------------------------------------------------------------------------------------
      Net cash provided (used) by 
       financing activities                            (416,974)      (135,202)       146,150 
----------------------------------------------------------------------------------------------
Net change in cash and due from banks                         -         (4,578)         4,189 
Cash and due from banks at beginning of year                  -          4,578            389 
----------------------------------------------------------------------------------------------
Cash and due from banks at end of year                $       -      $       -      $   4,578 
----------------------------------------------------------------------------------------------
Supplementary data                                              
  Interest paid                                       $ 121,889      $ 120,840      $  72,662 
  Income taxes paid                                           -              -          5,155 
----------------------------------------------------------------------------------------------

</TABLE>

The Bank is subject to legal restrictions on certain transactions with its
nonbank affiliates in addition to the restrictions on the payment of dividends
to the Company (see Note 15).  


                                      71



Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure


There were no disagreements on accounting and financial disclosure matters
between the Company and its independent accountants during 1998.

P A R T  III

Item 10. Directors and Executive Officers of the Registrant


Directors
Set forth below is certain biographical information relating to the members of
the Company's Board of Directors.  Each director is elected annually.  There
are no family relationships among the directors.

John R. H. Bond, age 57, Chairman of the Company and the Bank since January 1,
1997 and Group Chairman of HSBC since May 29, 1998.  Formerly President and
Chief Executive Officer of the Company and the Bank from 1991 through 1992. 
Previously Executive Director Banking, HongkongBank from 1990 to 1991 and
Executive Director Americas from 1988 to 1990.  Mr. Bond is director and
Chairman of HSBC Finance (Netherlands) Limited, Chairman of Midland Bank plc,
Chairman of The British Bank of the Middle East and a director of
HongkongBank, the London Stock Exchange, Saudi British Bank and Orange plc. 
Elected in 1987.

I. Malcolm Burnett, age 51, President and Chief Executive Officer of the
Company and the Bank from January 1998 and director of the Bank since 1996. 
Formerly Chief Operating Officer of the Bank since 1992.  He joined the HSBC
Group in 1966 and has served in various positions in the United Kingdom, Hong
Kong, India, Indonesia and the Solomon Islands.  Prior to joining the Bank he
was Chief Operating Officer of HongkongBank Singapore, a position held since
1989.  Mr. Burnett is also a director of HSBC Holdings B.V., HSBC Markets
Holdings (USA), Inc., Hongkong Bank of Canada, and Wells Fargo HSBC Trade
Bank, N.A.  Elected in 1997.

James H. Cleave, age 56, formerly President and Chief Executive Officer of the
Company and the Bank from 1993 through 1997 and formerly Executive Director
from June 1992 through December 1992.  Previously Director, President and
Chief Executive Officer of Hongkong Bank of Canada since 1987.  Mr. Cleave is
also Chairman of Hongkong Bank of Canada and a director of that Bank.  Elected
in 1991.

Youssef A. Nasr, age 44, Director, President and Chief Executive Officer of
Hongkong Bank of Canada since January 1998.  Mr. Nasr is also a director of
the Bank.  Previously he was Deputy Chief Executive and he has held various
executive positions with Hongkong Bank of Canada since 1990.  He has been a
member of the HSBC Group since 1976 and was appointed a Group General Manager
in 1998.  Elected in 1998.

Keith R. Whitson, age 55, Group Chief Executive Officer of HSBC since May 29,
1998 and a director of HSBC since 1994.  Formerly Chief Executive Officer of
Midland Bank plc from 1992 through 1998.  Prior to that he was Executive
Director of the Company from 1990 through 1992.  He has been with HSBC since
1961.  Elected in 1998.



                                      72




Directors' Compensation


Directors who are employees of the Company, HSBC or other group affiliates do
not receive compensation for their services as Company directors.  

Executive Officers

<TABLE>
<CAPTION>

The table below shows the names and ages of all executive officers of the
Company and the positions held by them as of March 1, 1999 and the dates when
elected an executive officer of the Company or the Bank.

---------------------------------------------------------------------------------
                                Year
Name                   Age   Elected     Present Position with the Company
---------------------------------------------------------------------------------
<S>                     <C>     <C>      <C>
I. Malcolm Burnett      51      1998     President and Chief Executive Officer
Robert B. Engel         45      1994     Chief Banking Officer
Robert H. Muth          46      1993     Chief Administrative Officer
Robert M. Butcher       55      1988     Executive Vice President and
                                          Chief Financial Officer
Vincent J. Mancuso      52      1996     Executive Vice President and
                                          Group Audit Executive, USA
Paul E. Martin          46      1998     Executive Vice President and
                                          Chief Credit Officer
Gerald A. Ronning       51      1991     Executive Vice President and Controller
Philip S. Toohey        55      1990     Legal Advisor, Americas and Secretary
---------------------------------------------------------------------------------

</TABLE>

All executive officers have served the Company or the Bank in executive
capacities for more than five years.  There are no family relationships among
the above officers.

Item 11. Executive Compensation


The following table sets forth information as to the compensation earned
through December 31, 1998 by I. Malcolm Burnett, President and Chief Executive
Officer and by the four most highly compensated officers of the Company and
the Bank.  

<TABLE>
<CAPTION>

Summary Compensation Table

--------------------------------------------------------------------------------------------
                                           Annual Compensation                           All
Name and                                                                               Other
Principal Position                Year     Salary        Bonus        Other     Compensation
--------------------------------------------------------------------------------------------
<S>                               <C>    <C>          <C>          <C>               <C>
I. Malcolm Burnett                1998   $618,736     $ 55,500     $386,737          $     -
 President and                    1997    474,793       44,938      258,851                -
 Chief Executive Officer          1996    499,592       21,814      256,753                -
John A. D. Hamilton               1998    527,256       48,622      230,586                -
 Executive Vice President         1997    452,932       41,312      275,198                -
 Information Technology           1996    425,241       27,069      215,877                -
Robert B. Engel                   1998    300,565      211,825        7,475           12,223
 Chief Banking Officer            1997    204,385      122,875        5,783            7,440
                                  1996    197,308       95,900        5,633            7,892
Robert H. Muth                    1998    299,593      211,825        5,093           10,400
 Chief Administrative Officer     1997    231,985      135,025        4,588            9,194
                                  1996    202,573      104,600        3,561            7,595
Robert M. Butcher                 1998    313,358      173,000       12,721            6,400
 Executive Vice President and     1997    307,015      184,250        9,315            6,844
 Chief Financial Officer          1996    300,554      144,775        9,165            5,960
--------------------------------------------------------------------------------------------

</TABLE>


                                      73



Mr. Burnett and Mr. Hamilton have been seconded to the Bank by HSBC which pays
their salary and other benefits pursuant to arrangements applicable to
international HSBC officers.  Other Annual Compensation for Mr. Burnett
includes $274,164, $147,093, and $143,046 for 1998, 1997 and 1996,
respectively, received for housing allowance.  Mr. Hamilton's Other Annual
Compensation includes a housing allowance of $70,561, $69,767 and $81,161 for
1998, 1997 and 1996, respectively.  It also includes an education allowance of
$105,860, $81,987 and $74,925 for 1998, 1997 and 1996, respectively.  Other
Annual Compensation for the other named executives includes health and
insurance benefits.

Amounts reported as All Other Compensation include the Company's contributions
to its 401(k) plan and a four percent credit on salary deferred under the
Company's deferred salary plan.  Since deferred salary is not eligible for the
company matching contributions under the 401(k) plan, salary deferrals are
increased by four percent, which is the maximum matching contribution
available under the 401(k) plan.  HSBC secondees to the Company do not
participate in these benefit plans.  

HSBC has granted options on HSBC common stock to the named executives. 
Options were granted on March 16, 1998, exercisable beginning March 16, 2001
conditional upon the growth in earnings per share of HSBC over the three year
period and expiring March 16, 2008.  

<TABLE>
<CAPTION>

The following table shows the estimated annual retirement benefit payable upon
normal retirement on a straight life annuity basis to participating employees,
including officers, in the compensation and years of service classifications
indicated under the Company's retirement plans which cover most officers and
employees on a non-contributory basis.  The amounts shown are before
application of social security reductions.  Years of service credited for
benefit purposes is limited to 30 years in the aggregate.
---------------------------------------------------------------------------------- 
                               Estimated Annual Retirement Benefits for
Five Year Average              Representative Years of Credited Service
  Compensation              15           20           25           30           35
----------------------------------------------------------------------------------
    <C>               <C>          <C>          <C>          <C>          <C>
    $125,000          $ 36,875     $ 49,375     $ 61,875     $ 74,375     $ 74,688
     150,000            44,250       59,250       74,250       89,250       89,265
     175,000            51,625       69,125       86,625      104,125      104,563
     200,000            59,000       79,000       99,000      119,000      119,500
     225,000            66,375       88,875      111,375      133,875      134,438
     250,000            73,750       98,750      123,750      148,750      149,375
     300,000            88,500      118,500      148,500      178,500      179,250
     350,000           103,250      138,250      173,250      208,250      209,125
     400,000           118,000      158,000      198,000      238,000      239,000
     450,000           132,750      177,750      222,750      267,750      268,875
----------------------------------------------------------------------------------

</TABLE>

The Pension Plan is a non-contributory defined benefit pension plan under
which the Bank and other participating subsidiaries of the Company make
contributions in actuarially determined amounts.  Compensation covered by the
Pension Plan includes regular basic earnings (including salary reduction
contributions to the 401(k) plan), but not incentive awards, bonuses, special
payments or deferred salary.  The Company maintains supplemental benefit plans
which provide for the difference between the benefits actually payable under
the Pension Plan and those that would have been payable if certain other
awards, special payments and deferred salaries were taken into account and if 


                                      74



compensation in excess of the limitations set by the Internal Revenue Code
could be counted.  Payments under these plans are unfunded and will be made
out of the general funds of the Bank or other participating subsidiaries.  The
calculation of retirement benefits is based on the highest five-consecutive
year compensation.

Members of the Senior Management Committee of the Bank receive two times their
normal credited service for each year and fraction thereof served as a
committee member in determining pension and severance benefits to a maximum of
30 years of credited service in total.  This additional service accrual is
unfunded and payments will be made from the general funds of the Bank or other
subsidiaries.  As of December 31, 1998, the individuals listed in the Summary
Compensation Table, have total years of credited service in determining
benefits payable under the plans as follows:  Mr. Engel, 17.4; Mr. Muth, 11.5; 
and Mr. Butcher, 19.7.  HSBC secondees to the Company do not participate in
the retirement plans.

Item 12. Security Ownership of Certain Beneficial Owners and Management


Principal Holder of Securities
The Company is 100 percent owned by HSBC Holdings B.V.  HSBC Holdings B.V. is
an indirect wholly owned subsidiary of HSBC Holdings plc.

Messrs. Bond and Whitson are officers and directors of HSBC.

None of the directors or executive officers owned any of the Company's common
stock at December 31, 1998.

Item 13. Certain Relationships and Related Transactions


Directors and officers of the Company, members of their immediate families and
HSBC and its affiliates were customers of, and had transactions with, the
Company, the Bank and other subsidiaries of the Company in the ordinary course
of business during 1998.  Similar transactions in the ordinary course of
business may be expected to take place in the future.

All loans to executive officers and directors and members of their immediate
families and to HSBC and its affiliates were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than normal risk of collectibility or present other unfavorable features.


                                      75




P A R T  I V 

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K


A


1. and 2. Financial Statements and Schedules
   The following financial statements and schedules of the Company and its    
   subsidiaries are included in Item 8:
     Report of Independent Auditors
     HSBC Americas, Inc.:
       Consolidated Balance Sheet
       Consolidated Statement of Income
       Consolidated Statement of Changes in Shareholders' Equity
       Consolidated Statement of Cash Flows
     Marine Midland Bank:
       Consolidated Balance Sheet
     Summary of Significant Accounting Policies
     Notes to Financial Statements

3.  Exhibits
    3   a  Registrant's Restated Certificate of Incorporation and Amendments 
           Thereto 
        b  Registrant's By-Laws, as Amended to Date 
    4   Instruments Defining the Rights of Security Holders, Including
        Indentures

        Registrant has previously filed with the Commission as Exhibits to
        various registration statements and periodic reports the Restated
        Certificate of Incorporation, as amended, By-Laws and all Indentures 
        and other Instruments Defining the Rights of Security Holders

    12.01  Computation of Ratio of Earnings to Fixed Charges (filed herewith)
    12.02  Computation of Ratio of Earnings to Combined Fixed Charges and
           Preferred Dividends (filed herewith)

    22  Subsidiaries of the Registrant
        The Company's only significant subsidiary, as defined, is Marine
        Midland Bank, a state bank organized under the laws of New York State.
    23  Consent of independent accountants


B


Reports on Form 8-K

Report on Form 8-K dated January 27, 1999 was filed which reported the
issuance of a press release reporting the Company's earnings for the three and
twelve month periods ended December 31, 1998.

Report on Form 8-K dated January 27, 1999 was filed which provided the
computation of the ratio of earnings to fixed charges and the computation of
the ratio of earnings to combined fixed charges and preferred dividends for
the nine months ended September 30, 1998.


                                      76




S I G N A T U R E S

Pursuant to the requirements of Section 13 or 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.

HSBC Americas, Inc.
Registrant                             



/s/ Philip S. Toohey
                                    
Philip S. Toohey
Legal Advisor, Americas
and Secretary


                                    

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 1, 1999 by the following persons on behalf of
the Registrant and in the capacities indicated:

                                   John R. H. Bond*
/s/ Robert M. Butcher              Chairman of the Board 
                                   I. Malcolm Burnett*
Robert M. Butcher                  Director, President & Chief Executive Officer
Executive Vice President &         James H. Cleave* Director
Chief Financial Officer            Youssef A. Nasr* Director
(Principal Financial Officer)      Keith R. Whitson* Director


/s/ Gerald A. Ronning                                    

Gerald A. Ronning
Executive Vice President &
Controller
(Principal Accounting Officer)     * /s/ Philip S. Toohey
                                    
                                   Philip S. Toohey
                                   Attorney-in-fact


                                     77


<TABLE>
<CAPTION>
                                                                                Exhibit 12.01



                                HSBC Americas, Inc.
                   Computation of Ratio of Earnings to Fixed Charges
                           (in millions, except ratios)

----------------------------------------------------------------------------------------------
                                                             Years Ended December 31,     
                                                   1998      1997     1996      1995     1994
----------------------------------------------------------------------------------------------
<S>                                              <C>       <C>      <C>        <C>      <C>
Excluding interest on deposits

Net income (loss)                                $  527    $  471   $  380     $ 284    $ (37)
Applicable income tax expense                       238       193      171        52      126 
Less undistributed equity earnings                    2         2        2         -        4 
Fixed charges:
  Interest on:
   Borrowed funds                                   204       197      121        81       81 
   Long-term debt                                    96       112       48        50       86 
One third of rents, net of income from 
 subleases                                           14        14       12        12       11 
----------------------------------------------------------------------------------------------
Total fixed charges                                 314       323      181       143      178 
Earnings before taxes based on income 
 and fixed charges                               $1,077    $  985   $  730     $ 479    $ 263 
----------------------------------------------------------------------------------------------

Ratio of earnings to fixed charges                 3.43      3.05     4.03      3.35     1.48 
----------------------------------------------------------------------------------------------


Including interest on deposits                 

Total fixed charges (as above)                   $  314    $  323    $  181    $ 143    $ 178 
Add: Interest on deposits                           867       679       481      465      308
---------------------------------------------------------------------------------------------- 
Total fixed charges and interest on deposits     $1,181    $1,002    $  662    $ 608    $ 486 
----------------------------------------------------------------------------------------------

Earnings before taxes based on income and
 fixed charges (as above)                        $1,077    $  985    $  730    $ 479    $ 263 
Add: Interest on deposits                           867       679       481      465      308 
----------------------------------------------------------------------------------------------
Total                                            $1,944    $1,664    $1,211    $ 944    $ 571 
----------------------------------------------------------------------------------------------

Ratio of earnings to fixed charges                 1.65      1.66      1.83     1.55     1.17 
----------------------------------------------------------------------------------------------

</TABLE>

                                      78

<TABLE>
<CAPTION>

                                                                                Exhibit 12.02



                                HSBC Americas, Inc.
            Computation of Ratio of Earnings to Combined Fixed Charges
                              and Preferred Dividends
                           (in millions, except ratios)
                                    
----------------------------------------------------------------------------------------------
                                                             Years Ended December 31,     
                                                   1998      1997      1996     1995     1994 
----------------------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>       <C>      <C>
Excluding interest on deposits

Net income (loss)                                $  527    $  471    $  380    $ 284    $ (37)
Applicable income tax expense                       238       193       171       52      126 
Less undistributed equity earnings                    2         2         2        -        4 
Fixed charges:
  Interest on:
   Borrowed funds                                   204       197       121       81       81 
   Long-term debt                                    96       112        48       50       86 
One third of rents, net of income from 
 subleases                                           14        14        12       12       11 
----------------------------------------------------------------------------------------------
Total fixed charges                                 314       323       181      143      178 
Earnings before taxes based on income 
 and fixed charges                               $1,077    $  985    $  730    $ 479    $ 263 
----------------------------------------------------------------------------------------------

Total fixed charges                              $  314    $  323    $  181    $ 143    $ 178 
Preferred dividends                                   -         1         6        6        6 
Ratio of pretax income to income (loss) 
 after applicable income tax expense               1.45      1.41      1.45     1.18        * 
----------------------------------------------------------------------------------------------
Total preferred stock dividend factor                 -         2         9        7        6 
Fixed charges, including preferred stock 
 dividend factor                                 $  314    $  325    $  190    $ 150    $ 184
----------------------------------------------------------------------------------------------

Ratio of earnings to combined fixed charges 
 and preferred dividends                           3.43      3.03      3.84     3.19     1.43
----------------------------------------------------------------------------------------------


Including interest on deposits

Total fixed charges, including preferred
 dividend factor (as above)                      $  314    $  325    $  190    $ 150    $ 184 
Add: Interest on deposits                           867       679       481      465      308 
----------------------------------------------------------------------------------------------  
Fixed charges, including preferred stock
 dividend factor and interest on deposits        $1,181    $1,004    $  671    $ 615    $ 492
----------------------------------------------------------------------------------------------

Earnings before taxes based on
 income and fixed charges (as above)             $1,077    $  985    $  730    $ 479    $ 263 
Add: Interest on deposits                           867       679       481      465      308 
----------------------------------------------------------------------------------------------
Total                                            $1,944    $1,664    $1,211    $ 944    $ 571 
----------------------------------------------------------------------------------------------

Ratio of earnings to combined fixed charges
 and preferred dividends                           1.65      1.66      1.80     1.53     1.16 
----------------------------------------------------------------------------------------------

* Ratio is less than one, therefore actual preferred stock dividend amount used.

</TABLE>

                                      79




                                                            Exhibit 23   





The Board of Directors
HSBC Americas, Inc.:

We consent to incorporation by reference in the registration statement (No.
333-53647) on Form S-3 of HSBC Americas, Inc. of our report dated January 21,
1999, relating to the consolidated balance sheets of HSBC Americas, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for 
each of the years in the three-year period ended December 31, 1998, and the
consolidated balance sheets of Marine Midland Bank and subsidiaries as of
December 31, 1998 and 1997, which report appears in the December 31, 1998
annual report on Form 10-K of HSBC Americas, Inc. 


/s/ KPMG LLP

March 25, 1999
Buffalo, New York



                                      80