BNP US FUNDING LLC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterended June 30, 2004

Commissionfile number: 000-23745

BNP U.S.Funding L.L.C.
(Exact name of registrantas specified in itscharter)

Delaware (State or other jurisdiction of incorporation or organization)	13-3972207 (I.R.S.Employer IdentificationNo.)
787 Seventh Avenue, New York, N.Y. (Address of principal executive offices)	10019 (Zip Code)

Registrant's telephone number, including area code:
(212) 841-2000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No

All outstanding shares of Common Stock were held by BNP PARIBAS at June 30, 2004.

Number of Shares of Common Stock outstanding on June 30, 2004: 53,011


Part I		Page
Item 1.	Financial Statements
	Balance Sheets at June 30, 2004 (Unaudited) and December 31, 2003	3
	Statements of Income (Unaudited) for the Three Months and Six Months Ended June 30, 2004 and June 30, 2003	4
	Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months and Six Months Ended June 30, 2004 and June 30, 2003	5
	Statement of Changes in Redeemable Common Securities, Preferred Securities and Securityholders' Equity (Unaudited) for the Three Months Ended March 31, 2004 and June 30, 2004	6
	Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2004 and June 30, 2003	7
	Notes to Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operation	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	24
Part II
Item 1.	Legal Proceedings	25
Item 2.	Changes in Securities, Use of the Proceeds and Issuer Purchases of Equity Securities	25
Item 3.	Defaults upon Senior Securities	25
Item 4.	Submission of Matters to a Vote of Securityholders	25
Item 5.	Other Information	25
Item 6.	Exhibits and Current Reports on Form 8-K	25

Item 1.
FINANCIAL STATEMENTS

BNP U.S. FUNDING L.L.C.
BALANCE SHEETS
(in thousands, except per share data)


		June 30, 2004		December 31, 2003
		(unaudited)		(audited)


ASSETS

Cash and cash equivalents	$	26,651	$	25,181

Investment securities (Notes 3 and 4)
Available-for-sale, at fair value		1,065,455		1,088,876

Receivable arising from payment for securities, pursuant
to the application of SFAS 125, as replaced by
SFAS 140 (Note 3)		24,732		30,663

Accounts receivable		200		54

Accrued interest receivable		8,322		8,299


TOTAL ASSETS	$	1,125,360	$	1,153,073


LIABILITIES

Accrued interest payable	$	2,724	$	2,719
Accrued expenses		440		242
Other liabilities		72,326		94,598


TOTAL LIABILITIES		75,490		97,559


Redeemable common securities, par value and redeemable
value $10,000 per security; 150,000 securities authorized,
53,011 securities issued and outstanding (Note 5)		530,110		530,110
Preferred securities, liquidation preference $10,000 per
security; 150,000 securities authorized, 50,000 securities
issued and outstanding		500,000		500,000
Additional paid-in capital		483		229
Accumulated other comprehensive income		17,017		22,969
Retained earnings		2,260		2,206


TOTAL REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND
SECURITYHOLDERS' EQUITY		1,049,870		1,055,514


TOTAL LIABILITIES AND TOTAL REDEEMABLE
COMMON SECURITIES, PREFERRED
SECURITIES AND SECURITYHOLDERS' EQUITY	$	1,125,360	$	1,153,073

The accompanying Notes to Financial Statements are an integral part of these statements.

BNP U.S. FUNDING L.L.C.

STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)


		For the Three Months						For the Six Months
		Ended June 30,						Ended June 30,

INTEREST INCOME		2004			2003			2004			2003


Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	28		$	108		$	62		$	238
Fixed-Rate REMICs		171			281			200			754
Mortgage Backed Securities:
Agency ARMs		96			200			205			440
Agency Hybrid ARMs		192			318			390			737
Agency DUSs		1,396			1,406			2,668			2,718
Agency Debentures		4,067			3,942			8,366			8,153
Interest on deposits		42			89			107			191


Total		5,992			6,344			11,998			13,231


NONINTEREST INCOME (EXPENSE)

Other financial instrument		310			909			(143	)		605
Fees and expenses		(385	)		(388	)		(702	)		(720	)

		(75	)		521			(845	)		(115	)



NET INCOME APPLICABLE TO PREFERRED AND
REDEEMABLE COMMON SECURITIES	$	5,917		$	6,865		$	11,153		$	13,116


NET LOSS PER REDEEMABLE
COMMON SECURITY	$	(253.31	)	$	(235.42	)	$	(154.53	)	$	(117.50	)

The accompanying Notes to Financial Statements are an integral part of these statements.

BNP U.S. FUNDING L.L.C.

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)


		For the Three Months					For the Six Months
		Ended June 30,					Ended June 30,

	2004			2003		2004			2003

NET INCOME	$	5,917		$	6,865	$	11,153		$	13,116

OTHER COMPREHENSIVE INCOME

Net change in unrealized gain (loss) in fair value
of available-for-sale securities that are not treated
as collateral (Note 3) and that are not hedged by
derivative instruments		(9,718	)		2,977		(5,952	)		3,463

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)		(9,718	)		2,977		(5,952	)		3,463


COMPREHENSIVE INCOME (LOSS)	$	(3,801	)	$	9,842	$	5,201		$	16,579

The accompanying Notes to Financial Statements are an integral part of these statements.

BNP U.S. FUNDING L.L.C.

STATEMENT OF CHANGES IN REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND SECURITYHOLDERS' EQUITY (UNAUDITED)
(in thousands)


		For the Three Months Ended March 31, 2004 and June 30, 2004
		Redeemable Common Securities		Preferred Securities		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total Redeemable Common Securities, Preferred Securities and Securityholders' Equity





Balance at December 31, 2003	$	530,110	$	500,000	$	229		$	22,969		$	2,206		$	1,055,514

Net income												5,236			5,236
Other comprehensive income									3,766						3,766

Balance at March 31, 2004	$	530,110	$	500,000	$	229		$	26,735		$	7,442		$	1,064,516


Net income												5,917			5,917
Other comprehensive loss									(9,718	)					(9,718	)
Additional paid-in capital						8,500									8,500
Dividends paid - preferred securities						(8,246	)					(11,099	)		(19,345	)


Balance at June 30, 2004	$	530,110	$	500,000	$	483		$	17,017		$	2,260		$	1,049,870

The accompanying Notes to Financial Statements are an integral part of these statements.

BNP U.S. FUNDING L.L.C.

STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	For the Six Months Ended June 30,

	2004			2003

OPERATING ACTIVITIES


Net income	$	11,153		$	13,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization		432			616
(Gain) loss on other financial instrument		143			(604	)
(Gain) loss on hedge activity		(123	)		285
Changes in assets and liabilities:
Interest receivable		(23	)		237
Accounts receivable		(146	)		541
Accrued expenses		198			(11	)
Accrued interest payable		5			1,559

Net cash provided by operating activities		11,639			15,739


INVESTING ACTIVITIES

Purchase of investment securities:
Agency DUSs		-			(38,122	)
Agency Debentures		-			(20,038	)
Fixed-Rate REMICs		(20,915	)		-
Proceeds from principal payments of securities
available-for-sale, not treated as collateral		15,762			28,028
Proceeds from principal payments of securities
available-for-sale, treated as collateral		5,829			34,062

Net cash provided by investing activities		676			3,930


FINANCING ACTIVITIES

Additional paid-in capital		8,500			5,500
Cash dividends - preferred securities		(19,345	)		(19,345	)

Net cash used in financing activities		(10,845	)		(13,845	)


NET INCREASE IN CASH AND CASH EQUIVALENTS		1,470			5,824

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		25,181			40,180


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	26,651		$	46,004


NONCASH FINANCING AND INVESTING ACTIVITIES

Decrease in receivable arising from payment for securities, pursuant
to the application of SFAS 125, as replaced by SFAS 140 (Note 3)	$	5,931		$	34,268

The accompanying Notes to Financial Statements are an integral part of these statements.

FORWARD LOOKING DISCLOSURE STATEMENT

From time to time, the Company may publish, verbally or in written form, forward-looking statements relating to such matters as anticipated financial performance, economic conditions, interest rate levels, investment prospects and similar matters. In fact, this quarterly report on Form 10-Q (or any other periodic reporting documents required by the Securities Exchange Act of 1934 Act, as amended (the "Exchange Act")) may contain forward-looking statements reflecting the current views of the Company concerning potential future events or developments. The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements. In order to comply with the terms of the "safe harbor," the Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties which may affect the operations, performance, development and results of the Company's business include, but are not limited to, the following: uncertainties relating to economic conditions and interest rate levels, and uncertainties relating to government and regulatory policies. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made.

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

BNP U.S. Funding L.L.C. (the "Company" or the "Registrant") is a Delaware limited liability company formed on October 14, 1997, for the purpose of acquiring and holding certain types of eligible securities that generate net income for distribution to the holders of its Series A Preferred Securities (as defined below) and its redeemable Common Securities (as defined below). The Company has no subsidiaries and is a wholly owned subsidiary of the New York Branch (the "Branch") of BNP PARIBAS (formerly, Banque Nationale de Paris), a société anonyme or limited liability corporation organized under the laws of the Republic of France (the "Bank", "BNP PARIBAS" or "BNPP"). The Company was continued pursuant to the Amended and Restated Limited Liability Company Agreement of the Company (the "Company's Charter" or the "Charter") entered into on December 5, 1997, by the Branch.

The Company was initially capitalized on October 14, 1997, with the issuance to the Branch of one share of the Company's redeemable common securities, $10,000 par value (the "Common Securities"). On December 5, 1997 (inception), the Company commenced operations concurrent with the issuance of 50,000 noncumulative preferred securities, Series A, liquidation preference $10,000 per security (the "Series A Preferred Securities"), to qualified institutional buyers, and the issuance of an additional 53,010 Common Securities to the Branch. These issuances raised in the aggregate $1,030,115,873 of net capital (including $5,873 of additional paid-in capital). This entire amount was used to acquire a portfolio of debt securities (the "Initial Portfolio") at their fair values from the Branch. The Branch contributed additional paid-in capital of $3,000,000, $5,500,000, $7,500,000 and $8,500,000 on December 3, 2002, June 3, 2003, December 3, 2003, and June 3, 2004, respectively.

The Company entered into a services agreement (the "Services Agreement") with the Branch on December 5, 1997, pursuant to which the Branch maintains the securities portfolio of the Company (the "Portfolio") and performs other administrative functions. The Company has no employees. All of the Company's officers are officers or employees of the Branch or the Bank or their affiliates. The securities in the Portfolio are held by Citibank N.A., acting as trustee (the "Trustee") under the trust agreement between the Company and Citibank N.A. dated December 1, 1997 (the "Trust Agreement").

The accounting and financial reporting policies of the Company conform to U.S. generally accepted accounting principles and current industry practices. The preparation of financial statements in conformity with generally accepted accounting pr