<PAGE> 1
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 Commission file
December 31, 1996 number 1-12151
CHASE PREFERRED CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3899576
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Park Avenue, New York, N.Y. 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 270-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class which Registered
------------------------- ------------------------
8.10% Cumulative Preferred Stock,
Series A (Par Value --$25 Per Share) New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Number of Shares of Common Stock outstanding on December 31, 1996:
572,500
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
All shares of Common Stock were held by The Chase Manhattan Bank at
December 31, 1996; therefore, no Common Stock is held by non-affiliates.
Documents incorporated by reference Part of Form 10-K
in this Form 10-K which incorporated
- ------------------------------------------------- -------------------
None -
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FORM 10-K
<TABLE>
<CAPTION>
<S> <C>
PART I PAGE
- ---------- ----------
Item 1 Business............................ 1
Item 2 Properties.......................... 3
Item 3 Legal Proceedings................... 3
Item 4 Submission of Matters to a Vote
of Security Holders........................... 3
Part II
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Item 5 Market for Registrant's Common
Equity and Related Stockholder Matters........ 3
Item 6 Selected Financial Data............. 5
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 6
Item 8 Financial Statements and Supplementary
Data.......................................... 11
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................... 20
Part III
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Item 10 Directors and Executive Officers
of the Corporation........................... 20
Item 11 Executive Compensation.............. 21
Item 12 Security Ownership of Certain
Beneficial Owners and Management.............. 21
Item 13 Certain Relationships and Related
Transactions.................................. 21
Part IV
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Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................... 22
</TABLE>
<PAGE> 3
ITEM 1: BUSINESS
Chase Preferred Capital Corporation (the "Company") is a Delaware
corporation incorporated on June 28, 1996 and created for the purpose
of acquiring, holding and managing mortgage assets. The Company is
a wholly-owned subsidiary of The Chase Manhattan Bank (the "Bank"), a
banking corporation organized under the laws of the State of New
York.
On September 18, 1996, the Company commenced its operations upon
consummation of an initial public offering of 22,000,000 shares of
the Company's 8.10% Cumulative Preferred Stock, Series A , $25 par
value per share (the "Series A Preferred Shares"), and the sale to
the Bank of 572,500 shares of the Company's Common Stock, $300 par
value per share ("Common Stock"). These offerings raised net capital
of $1,103,386,000. All shares of Common Stock are held by the
Bank. The Series A Preferred Shares are traded on the New York Stock
Exchange.
The Company used the proceeds raised from the public offering of the
Series A Preferred Shares and the sale of Common Stock to the Bank to
pay expenses incurred during the offering and the formation of the
Company and to purchase from the Bank the Company's portfolio of
residential and commercial mortgage loans ("Mortgage Loans") at their
estimated fair values. The Mortgage Loans were recorded in the
accompanying financial statements at the Bank's historical cost basis
which approximates their estimated fair values.
The Company's principal business objective is to acquire, hold and
manage mortgage loans that will generate net income for
distribution to stockholders. The Company currently anticipates
that it will maintain approximately 90% of its mortgage loan
portfolio in residential mortgage loans and approximately 10% of
its portfolio in commercial mortgage loans. Residential mortgage loans
consist of Six-Month Prime Rate Adjustable Rate Mortgages ("ARMs");
Six-Month Treasury ARMs; One-Year ARMs; Three-Year, Five-Year, Seven-Year
and Ten-Year Fixed Rate Loans with an automatic conversion to One-Year ARMs;
and Fixed Rate Loans. The commercial mortgage loans consist of Fixed and
Variable Rate loans, a majority of which have balloon payments. The
Company currently anticipates that it will continue to acquire all
its Mortgage Loans from the Bank, or affiliates of the Bank, as whole
loans secured by first mortgages or deeds of trust on single-family
(one to four-unit) residential real estate properties or on
commercial real estate properties on terms that are substantially
identical to those that could be obtained by the Company if such
additional mortgage loans were purchased from third parties
unaffiliated with the Company. The Company may also from time to
time acquire securities that qualify as real estate assets under
Section 856(c)(6)(B) of the Internal Revenue Code of 1986 (the
"Code") that are rated by at least one nationally independent rating
organization and that represent interests in or obligations backed by
pools of mortgage loans ("Mortgage-Backed Securities"). Mortgage
loans underlying the Mortgaged-Backed Securities will be secured by
single-family residential, multifamily or commercial real estate
properties located in the United States.
In order to preserve its status as a real estate investment trust
("REIT") under the Code, the Company must distribute annually at
least 95% of its "REIT taxable income" (excluding capital gains) to
stockholders and meet certain capital ownership and administrative
tests as defined by the Code. The Company must also annually satisfy
three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property
(as interest on obligations secured by mortgages on real property,
certain "rents from real property" or as gain on the sale or exchange
of such property and certain fees with respect to agreements to make
or acquire mortgage loans), from certain types of temporary
investments or certain other types of gross income. Second, at least
95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from
such real property investments as aforesaid and from dividends,
interest, and gain from the sale or other disposition of stock or
securities and certain other types of gross income (or from any
combination of the foregoing). Third, short-term gain from the sale
or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary
conversions and sales of foreclosure property) from the date of
acquisition must represent less than 30% of the Company's gross
income (including gross income from prohibited transactions) for each
taxable year. The Company must also satisfy three tests relating to
the nature of its assets at the close of each quarter of its taxable
year. First, at least 75% of the value of the Company's total assets
must be represented by real estate assets (including stock or debt
instruments held for not more than one year that were purchased with the
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proceeds of a stock offering or long-term (at least five years) debt
offering of the Company), cash, cash items, and government
securities. Second, not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company
may not own more than 10% of any one issuer's outstanding voting
securities.
The Company does not anticipate that it will engage in the business
of originating Mortgages Loans and does not expect to compete with
mortgage conduit programs, investment banking firms, savings and loan
associations, banks, thrift and loan associations, finance companies,
mortgage bankers or insurance companies in acquiring its Mortgage
Loans. As noted above, the Company anticipates that all Mortgage
Loans purchased by it, in addition to those in the initial Portfolio,
will be purchased from the Bank or affiliates of the Bank.
The Company has entered into an Advisory Agreement (the "Advisory
Agreement") with the Bank (the "Advisor"). In administering the
Company's Mortgage Loans, the Advisor has a high degree of autonomy.
The Board of Directors, however, has adopted certain policies to
guide the administration of the Company and the Advisor with respect
to the acquisition and disposition of assets, use of capital and
leverage, credit risk management and certain other activities. These
policies may be amended or revised from time to time at the
discretion of the Board of Directors (in certain circumstances
subject to the approval of a majority of the Independent Directors)
without a vote of the Company's stockholders, including holders of
the Series A Preferred Shares.
The Mortgage Loans have been sold to the Company by the Bank on a
servicing retained basis. The Bank services the Mortgage Loans
pursuant to the terms of the servicing agreements that have been
entered into as of September 18, 1996 between the Company and the
Bank. (The Bank in its role as servicer under the terms of the
servicing agreements is herein referred to as the "Servicer"). The
Servicer receives an annual servicing fee with respect to each
Mortgage Loan serviced for the Company which (i) equals the
outstanding principal balance of residential mortgage loans
multiplied by a fee of .25% and (ii) equals the outstanding principal
balance of commercial mortgage loans multiplied by a fee ranging from
.08% to .30%, depending upon the outstanding principal amount of such
commercial mortgage loan.
The Company intends to operate in a manner that will not subject it
to regulation under the Investment Company Act of 1940. The Company
does not intend to (i) invest in the securities of other issuers for
the purpose of exercising control over such issuers, (ii) underwrite
securities of other issuers, (iii) actively trade in loans or other
investments, (iv) offer securities in exchange for property or (v)
make loans to third parties, including, without limitation, officers,
directors or other affiliates of the Company. The Company may, under
certain circumstances, purchase the Series A Preferred Shares and
other shares of its capital stock in the open market or otherwise,
provided, however, that the Company will not redeem or repurchase any
shares of its Common Stock for so long as any Series A Preferred
Shares are outstanding without the approval of a majority
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of the Independent Directors (as defined in the Certificate of
Designation relating to the Series A Preferred Shares). The Company
has no present intention of causing the Company to repurchase any
shares of its capital stock, and any such action would be taken only
in conformity with applicable federal and state laws and regulations
and the requirements for qualifying as a REIT.
The Company has no foreign operations.
ITEM 2: PROPERTIES
The Company, a subsidiary of The Chase Manhattan Bank, utilizes space
located in New York City at 270 Park Avenue, which is a 50-story bank
and office building owned by the Bank.
ITEM 3: LEGAL PROCEEDINGS
The Company is not the subject of any material litigation. None of
the Company, the Advisor, the Bank or any of its affiliates is
currently involved in nor, to the Company's knowledge, currently
threatened with any material litigation with respect to the Mortgage
Loans included in the portfolio, which litigation would have a material
adverse effect on the business or operations of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is authorized to issue up to 5,000,000 shares of Common
Stock and 50,000,000 shares of Preferred Stock, $25 par value per share
("Preferred Stock"), of which 22,000,000 shares have been issued as
the Series A Preferred Shares. The Bank owns 100% of the Company's
572,500 shares of Common Stock outstanding at December 31, 1996 and,
accordingly, there is no trading market for the Company's Common
Stock. In addition, The Chase Manhattan Corporation ("CMC") intends
that, as long as any Series A Preferred Shares are outstanding, it
will maintain direct or indirect ownership of at least 80% of the
outstanding Common Stock of the Company. Subject to the rights, if
any, of the holders of Series A Preferred Stock, all voting rights
are vested in the Common Stock. The holders of Common Stock are
entitled to one vote per share.
Holders of Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors of the Company out of funds
legally available therefor, provided that, so long as any shares of
Preferred Stock (including the Series A Preferred Shares) are
outstanding, no dividends or other distributions (including
redemptions and purchases) may be made with respect to the Common
Stock unless full dividends on the shares of the Preferred
Stock, including accumulations in the case of cumulative Preferred
Stock, have been paid. The Company must distribute annually at
least 95% of its annual "REIT taxable income" (not including capital
gains) to stockholders.
In the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, after there have been paid
or set aside for the holders of all series of Preferred Stock the
full preferential amounts to which such holders are entitled, the
holders of Common Stock will be entitled to share equally and ratably
in any assets remaining after the payment of all debts and
liabilities.
Restrictions on Ownership and Transfer:
The Company's Certificate of Incorporation contains certain
restrictions on the number of shares of Common Stock and Preferred
Stock that individual stockholders may own. For the Company to
qualify as a REIT under the Code, no more than 50% in number or value
of its outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a
shorter taxable year (the
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"Five or Fewer Test"). The capital stock of the Company must also be
beneficially owned by 100 or more persons during at least 335 days of
a taxable year or during a proportionate part of a shorter taxable
year (the "One Hundred Persons Test"). The ownership by the Bank of
100% of the shares of Common Stock of the REIT will not adversely
affect the Company's REIT qualification because each stockholder of
CMC (the sole stockholder of the Bank) counts as a separate
beneficial owner for purposes of the Five or Fewer Test and the
capital stock of CMC is widely held. Further, the Certificate of
Incorporation of the Company contains restrictions on the acquisition
of Preferred Stock intended to ensure compliance with the One Hundred
Persons Test. Such provisions include a restriction that if any
transfer of shares of capital stock of the Company would cause the
Company to be beneficially owned by fewer than 100 persons, such
transfer shall be null and void and the intended transferee will
acquire no rights to the stock.
Subject to certain exceptions specified in the Company's Certificate
of Incorporation, no holder of Preferred Stock is permitted to own
(including shares deemed to be owned by virtue of the attribution
provisions of the Code) more than 9.9% (the "Ownership Limit") of any
issued and outstanding class or series of Preferred Stock. The Board
of Directors may (but in no event will be required to), upon receipt
of a ruling from the IRS or an opinion of counsel satisfactory to it,
waive the Ownership Limit with respect to a holder if such holder's
ownership will not then or in the future jeopardize the Company's
status as a REIT.
The Certificate of Incorporation provides that shares of any class or
series of Preferred Stock owned, or deemed to be owned, by or
transferred to a stockholder in excess of the Ownership Limit (the
"Excess Shares") will automatically be transferred, by operation of
law, to a trustee as a trustee of a trust for the exclusive benefit
of a charity to be named by the Company as of the day prior to the
day the prohibited transfer took place. Any distributions paid prior
to the discovery of the prohibited transfer are to be repaid by the
original transferee to the Company and by the Company to the trustee;
any vote of the shares while the shares were held by the original
transferee prior to the Company's discovery thereof shall be void ab
initio and the original transferee shall be deemed to have given its
proxy to the trustee. Any unpaid distributions with respect to the
original transferee will be rescinded as void ab initio. In
liquidation, the original transferee stockholder's ratable share of
the Company's assets would be limited to the price paid by the
original transferee for the Excess Shares or, if no value was given,
the price per share equal to the closing market price on the date of
the purported transfer. The trustee of the trust shall promptly sell
the shares to any person whose ownership is not prohibited, whereupon
the interest of the trust shall terminate. Proceeds of the sale
shall be paid to the original transferee up to its purchase price
(or, if the original transferee did not purchase the shares, the
value on its date of acquisition) and any remaining proceeds shall
be paid to a charity to be named by the Company.
The constructive ownership rules of the Code are complex and may
cause Preferred Stock owned, directly or indirectly, by a group of
related individuals and/or entities to be deemed to be constructively
owned by one individual or entity. As a result, the acquisition of
less than 9.9% of a class or series of issued and outstanding
Preferred Stock (or the acquisition of an interest in an entity that
owns shares of such series of Preferred Stock) by an individual or
entity could cause that individual or entity (or another individual
or entity) to own constructively in excess of 9.9% of such class or
series of Preferred Stock, and thus subject such stock to the
Ownership Limit. Direct or constructive ownership in excess of the
Ownership Limit would cause ownership of the shares in excess of the
limit to be transferred to the trustee.
All certificates representing shares of Preferred Stock, including
the Series A Preferred Shares, do or will bear a legend referring to
the restrictions described above. The Ownership Limit provisions will
not be automatically removed even if sections 856 through 860 of the
Code and the applicable Treasury regulations are changed so as to
eliminate any ownership concentration limitation or if the ownership
concentration limitation is increased. The Certificate of
Incorporation may not be amended to alter, change, repeal or amend
any of the Ownership Limit provisions without the prior approval of a
majority of the Independent Directors.
The Certificate of Incorporation requires that any person who
beneficially owns 1% (or such lower percentage as may be required by
the Code or the Treasury Regulations) of the outstanding shares of
any class or series of Preferred Stock of the Company must provide
certain information to the Company within 30 days of June 30 and
December 31 of each year. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such
information as the Company may request in order to determine the
effect, if any, of such stockholder's actual and constructive
ownership on the Company's status as a REIT and to ensure compliance
with the Ownership Limit.
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ITEM 6: SELECTED FINANCIAL DATA
FINANCIAL DATA
As of December 31, 1996 and for the Period from Inception (September
18, 1996)
through December 31, 1996
(in thousands, except per share and yield data)
<TABLE>
<CAPTION>
INCOME STATEMENT:
<S> <C>
Interest income $22,830
Net interest income 22,156
Net income 22,085
Average number of common shares outstanding 572,500
Net income applicable to common shares 9,339
Income per common share 16.31
BALANCE SHEET:
Mortgage loans $1,059,981
Total assets 1,113,398
Preferred shares outstanding 550,000,000
Total stockholder's equity 1,112,726
OTHER DATA:
Dividends paid on preferred shares 12,746,360
Number of preferred shares outstanding 22,000,000
Number of common shares outstanding 572,500
Average yield on mortgage loans 7.4%
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The principal business of the Company is to acquire, hold and manage
residential and commercial mortgage loans ("Mortgage Loans") that will
generate net income for distribution to stockholders. The Company
currently intends to continue to acquire all its Mortgage Loans from
the Bank or affiliates of the Bank as whole loans secured by first
mortgages or deeds of trust on single-family (one to four-unit) residential
real estate properties or on commercial real estate properties. The Company
may also from time to time acquire securities that qualify as real estate
assets under Section 856(c)(6)(B) of the Internal Revenue Code of 1986 (the
"Code") that are rated by at least one nationally independent
rating organization and that represent interests in or obligations
backed by pools of mortgage loans ("Mortgage-Backed Securities").
Mortgage loans underlying the Mortgaged-Backed Securities will be
secured by single-family residential, multifamily or commercial real
estate properties located in the United States.
On September 18, 1996, the Company commenced its operations upon the
initial public offering of 22,000,000 shares of the Company's 8.10%
Cumulative Preferred Stock, Series A (the "Series A Preferred
Shares"), and the sale to the Bank of 572,500 shares of the Company's
Common Stock, $300 par value "Common Stock". These offerings raised
net capital of $1,103,386,000. All shares of Common Stock are held by
the Bank. The Series A Preferred Shares are traded on the New York
Stock Exchange.
The Bank and its affiliates are involved in virtually every aspect of
the Company's existence. The Bank is the sole holder of the Common
Stock of the Company and administers the day-to-day activities of the
Company in its role as Advisor under the Advisory Agreement. The Bank
also services the Company's Mortgage Loans in its role as Servicer
under each of the Servicing Agreements.
The Bank and its affiliates may have interests that are not identical
to those of the Company. Consequently, conflicts of interest may
arise with respect to transactions, including without limitation,
future acquisitions of Mortgage Loans from the Bank or its
affiliates; servicing of Mortgage Loans, particularly with respect to
Mortgage Loans that become classified or placed in nonaccrual status
or which have been, more than once during the preceding twelve
months, more than 30 days past due in the payment of principal and
interest; future dispositions of Mortgage Loans to The Chase
Manhattan Corporation ("CMC") or any of its nonbank subsidiaries; and
the modification of the Advisory Agreement or the Servicing
Agreement.
It is the intention of the Company, CMC and the Bank that any
agreements and transactions between the Company, on the one hand, and
CMC, the Bank or their affiliates, on the other hand, are fair to all
parties and consistent with market terms, including the price paid
and received for Mortgage Loans, including those in the initial
portfolio, on their acquisition or disposition by the Company or in
connection with the servicing of such Mortgage Loans. The requirement
in the Certificate of Designation establishing the Series A Preferred
Shares that certain actions of the Company be approved by a majority
of the Independent Directors (as defined in the Certificate of
Designation) is also intended to ensure fair dealing between the
Company and CMC, the Bank and their respective affiliates. However,
there can be no assurance that such agreements or transactions will
be on terms as favorable to the Company as those that could have been
obtained from unaffiliated third parties.
RESULTS OF OPERATIONS
The Company reported net interest income of approximately
$22,156,000. Interest income from residential and commercial mortgage
loans was $19,337,000 and $2,782,000, respectively, representing a
total average yield of 7.4%. After deduction of approximately
$71,000 in advisory fees, the Company reported net income of
approximately $22,085,000.
The Company paid $12,746,360 in Preferred Stock dividends and
reported net income per common share of $16.31 for the period from
inception (September 18, 1996) through December 31, 1996.
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MORTGAGE LOANS
As of December 31, 1996, the Company had $1,059,981,000 invested in
Mortgage Loans. This amount represents (i) the principal amount of
mortgage loans purchased on September 18, 1996; (ii) the principal
amount of mortgage loans purchased on November 18, 1996 with the
remaining proceeds received from the initial public offering of the
Series A Preferred Shares, less (iii) collections of the principal amount of
loans in the portfolio. All Mortgage Loans were purchased from the
Bank or its affiliates.
The following table reflects the composition of interest-earning
assets as a percentage of total interest-earning assets as of
December 31, 1996 (in thousands):
</TABLE>
<TABLE>
<CAPTION>
Interest-Earning Asset Mix
(in thousands)
Amount Percent
<S> <C> <C>
Residential mortgage loans $958,411 90%
Commercial mortgage loans 101,570 10%
Total interest-earning assets $1,059,981 100%
</TABLE>
At December 31, 1996, there were $236,012 of nonaccruing residential
mortgage loans and no nonaccruing commercial loans. Nonaccruing loans
represent .02% of the total loan portfolio.
There have been no sales of past due loans to any affliliate or
unrelated third parties.
The Company expects that each Mortgage Loan acquired from the Bank or
one of its affiliates in the future will be a whole loan, will
represent a first lien position and will be originated by the Bank or
such affiliate in the ordinary course of its real estate lending
activities based on the underwriting standards generally applied (at
the time of origination) for its own account by the Bank or the
affiliate of the Bank which originated the Mortgage Loan. The Company
also expects that all Mortgage Loans held by the Company will be
serviced pursuant to the Servicing Agreements, which require
servicing in conformity with accepted secondary market standards,
with any servicing guidelines promulgated by the Company and, in the
case of residential mortgage loans, with FNMA and FHLMC guidelines
and procedures.
Currently, the Company has a policy not to acquire any commercial
mortgage loan that constitutes more than 5% of the total book value
of the mortgage assets of the Company at the time of its acquisition.
In addition, the Company's current policy prohibits the acquisition
of any mortgage loan or any interest in a mortgage loan (other than
an interest resulting from the acquisition of Mortgage-Backed
Securities) which mortgage loan (i) is delinquent in the payment of
principal or interest at the time of proposed acquisition; (ii) is
or was at any time during the preceding 12 months (a) classified, (b)
in nonaccrual status, or (c) renegotiated due to financial
deterioration of the borrower; or (iii) has been, more than once
during the preceding 12 months, more than 30 days past due in the
payment of principal or interest.
The Company may choose, at any time subsequent to its acquisition of
any mortgage loan, to require the Servicer of the mortgage loan to
dispose of any mortgage loan, for any reason, including as a result
of such mortgage loan becoming classified or being placed in
nonaccrual status or having been, more than once during the preceding
12 months, more than 30 days past due in the payment of principal or
interest. The Bank has indicated to the Company that it will not
purchase any mortgage loan of the Company that the Company chooses to
dispose of for the foregoing reasons; accordingly, the Company
currently anticipates that any such mortgage loan would be sold at
its then current fair value by the Company only to CMC, a nonbank
subsidiary of CMC or an unrelated third party.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is available to absorb potential
credit losses from the entire Mortgage Loan portfolio. The Company
deems its allowance for credit losses as of December 31, 1996 to be
adequate.
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<PAGE> 10
Although the Company considers that it has sufficient reserves to
absorb losses that currently may exist in the portfolio, but are not
yet identifiable, the precise loss content is subject to continuing
review based on quality indicators, industry and geographic
concentrations, changes in business conditions, and other external
factors such as competition, legal and regulatory requirements. The
Company will continue to reassess the adequacy of the allowance for
credit losses.
The accompanying table reflects the activity in the Company's
allowance for credit losses for the period from inception (September
18, 1996) through December 31, 1996.
<TABLE>
<CAPTION>
Allowance for loan losses
(in thousands)
<S> <C>
Total allowance at beginning of period $ -
Acquired allowance 3,150
Provision for losses -
Charge-offs -
Recoveries -
Total allowance at end of year $3,150
</TABLE>
At December 31, 1996, the Company's allowance for credit losses as a
percentage of total loans was .30%.
INTEREST RATE RISK
The Company's income consists primarily of interest payments on
Mortgage Loans. Currently, the Company does not use any derivative
products to manage its interest rate risk. If there is a decline in
interest rates (as measured by the indices upon which the interest
rates of the Mortgage Loans are based), then the Company will
experience a decrease in income available to be distributed to its
shareholders. There can be no assurance that an interest rate
environment in which there is a significant decline in interest rates
over an extended period of time would not adversely affect the
Company's ability to pay dividends on the Series A Preferred Shares.
SIGNIFICANT CONCENTRATION OF CREDIT RISK
Concentration of credit risk arises when a number of customers engage
in similar business activities, or activities in the same
geographical region, or have similar economic features that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic conditions. Concentration of credit
risk indicates the relative sensitivity of the Company's performance
to both positive and negative developments affecting a particular
industry.
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<PAGE> 11
The Company's balance sheet exposure to geographic concentrations
directly affects the credit risk of the Mortgage Loans within the
portfolio. The following table shows the Mortgage Loan portfolio by
geographical area as of December 31, 1996:
<TABLE>
<CAPTION>
Loans
(in thousands) Amount Percent
<S> <C> <C>
Residential Mortgage Loans:
California $507,552 47.88%
Florida 60,462 5.70%
Other States (no State has more than 4%) 390,397 36.83%
Total Residential Mortgage Loans 958,411 90.41%
Commercial Mortgage Loans:
New York Metropolitan Tri-State Area 97,159 9.17%
Other States (no State has more than 3%) 4,411 .42%
Total Commercial Mortgage Loans 101,570 9.59%
Total $1,059,981 100.00%
</TABLE>
Approximately 47.88% of the Company's total Mortgage Loan portfolio
are loans secured by residential real estate properties located in
California. Consequently, these residential mortgage loans may be
subject to a greater risk of default than other comparable
residential mortgage loans in the event of adverse economic,
political or business developments and natural hazards (earthquakes,
for example) in California that may affect the ability of residential
property owners in California to make payments of principal and
interest on the underlying mortgages.
In addition, the majority of the commercial mortgage properties
underlying the Company's commercial mortgage loans are located in the
New York metropolitan tri-state area. Substantially all of these
mortgaged properties were, at the time of their origination, at least
70% occupied by the borrowers or their affiliates. Consequently,
these commercial mortgage loans may be subject to greater risk of
default than other comparable commercial mortgage loans in the event
of adverse economic, political or business developments in the New
York metropolitan tri-state area that may affect the ability of
businesses in that area to make payments of principal and interest on
the underlying mortgages.
LIQUIDITY RISK MANAGEMENT
The objective of liquidity management is to ensure the availability
of sufficient cash flows to meet all of the Company's financial
commitments and to capitalize on opportunities for the Company's
business expansion. In managing liquidity, the Company takes into
account various legal limitations placed on a REIT as discussed below
in Other Matters.
The Company's principal liquidity needs are to maintain the current
portfolio size through the acquisition of additional Mortgage Loans
as Mortgage Loans currently in the portfolio mature or prepay and to
pay dividends on the Series A Preferred Shares. The acquisition of
additional Mortgage Loans is intended to be funded with the
proceeds obtained from repayment of principal balances by individual
mortgagees. The Company does not have and does not anticipate having
any material capital expenditures.
-9-
<PAGE> 12
To the extent that the Board of Directors determines that additional
funding is required, the Company may raise such funds through
additional equity offerings, debt financing or retention of cash flow
(after consideration of provisions of the Code requiring the
distribution by a REIT of at least 95% of its "REIT taxable income"
and taking into account taxes that would be imposed on undistributed
income), or a combination of these methods. The organizational documents
of the Company do not contain any limitation on the amount or
percentage of debt, funded or otherwise, the Company might incur.
Notwithstanding the foregoing, the Company may not, without the
approval of a majority of the Independent Directors, incur debt
for borrowed money other than debt not in excess of 20% of the
aggregate amount of net proceeds received in connection with the
issuance of all outstanding Preferred Stock and Common Stock of
the Company. Any such debt incurred may include intercompany advances
made by the Bank to the Company.
The Company may also issue additional series of Preferred Stock.
However, the Company may not issue additional shares of Preferred
Stock senior to the Series A Preferred Shares without the consent of
holders of at least 66 2/3% of the shares of Preferred Stock
outstanding at that time, including the Series A Preferred Shares,
and the Company may not issue additional shares of Preferred Stock on
a parity with the Series A Preferred Shares without the approval of a
majority of the Company's Independent Directors.
OTHER MATTERS
As of December 31, 1996, the Company believed that it was in full
compliance with the REIT tax rules and that it will continue to
qualify as a REIT under the provisions of the Code. The Company
calculates:
o its Qualified REIT Assets, as defined in the Code, to be 100% of
its total assets, as compared to the federal tax requirements that at
least 75% of its total assets must be Qualified REIT assets.
o that 97% of its revenues qualify for the 75% source of income
test and 100% of its revenues qualify for the 95% source of income
test under the REIT rules.
o none of the revenues were subject to the 30% income limitation
under the REIT rules.
The Company also met all REIT requirements regarding the ownership of
its common and preferred stocks and anticipates meeting the 1996
annual distribution and administrative requirements.
-10-
<PAGE> 13
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors and
Stockholders of Chase Preferred Capital Corporation
In our opinion, the accompanying balance sheet and the related
statements of income, of changes in stockholders' equity and of cash
flows present fairly, in all material respects, the financial
position of Chase Preferred Capital Corporation (the "Company") at
December 31, 1996, and the results of its operations and its cash
flows for the period from inception (September 18, 1996) through
December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
March 24, 1997
-11-
<PAGE> 14
CHASE PREFERRED CAPITAL CORPORATION
BALANCE SHEET
at December 31, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Residential Mortgage Loans $ 958,411
Commercial Mortgage Loans 101,570
----------
1,059,981
Less: allowance for loan losses (3,150)
-----------
1,056,831
Cash 31,091
Due from affiliates
18,743
Accrued interest receivable 6,733
-----------
TOTAL ASSETS $1,113,398
LIABILITIES:
Accounts payable $ 430
Due to affiliates 242
-----------
TOTAL LIABILITIES 672
STOCKHOLDERS' EQUITY:
Preferred stock, par value $25 per share;
50,000,000 shares authorized, 22,000,000 shares
issued and outstanding 550,000
Common stock, par value $300 per share;
5,000,000 shares authorized, 572,500 shares
issued and outstanding 171,750
Additional paid in capital 381,637
Retained earnings * 9,339
------------
TOTAL STOCKHOLDERS' EQUITY 1,112,726
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,113,398
</TABLE>
* No retained earnings related to property sales.
The Notes to Financial Statements are an integral part of these
Statements.
-12-
<PAGE> 15
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF INCOME
For the Period from Inception (September 18, 1996)
through December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
INTEREST INCOME:
<S> <C>
Residential mortgage loans $19,337
Commercial mortgage loans 2,782
Interest on overnight deposits 711
--------
22,830
Less: servicing fees (674)
---------
Net Interest Income 22,156
NONINTEREST EXPENSE:
Advisory Fees 71
---------
NET INCOME $22,085
---------
NET INCOME APPLICABLE TO COMMON SHARES $ 9,339
---------
NET INCOME PER COMMON SHARE $16.31
</TABLE>
The Notes to Financial Statements are an integral part of these
Statements.
- 13 -
<PAGE> 16
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from Inception (September 18, 1996)
through December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
PREFERRED STOCK:
<S> <C>
Initial public offering on September 18, 1996 $ 550,000
-----------
Balance at end of year $ 550,000
COMMON STOCK:
Shares issued at incorporation (June 28, 1996) $ 1
Issuance of common stock on September 18, 1996 171,749
-----------
Balance at end of year $ 171,750
ADDITIONAL PAID IN CAPITAL:
Shares issued at incorporation (June 28, 1996) $ -
Issuance of common stock on September 18, 1996 381,637
-----------
Balance at end of year $ 381,637
RETAINED EARNINGS:
Net Income $ 22,085
Preferred dividends (12,746)
-----------
Balance at end of year $ 9,339
-----------
TOTAL STOCKHOLDERS' EQUITY $ 1,112,726
</TABLE>
The Notes to Financial Statements are an integral part of these
Statements.
-14-
<PAGE> 17
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
For the Period from Inception (September 18, 1996)
through December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES:
<C> <C>
Net income $22,085
Adjustments to reconcile net income to net cash
provided by operating activities:
Net change in:
Due from affiliates (18,743)
Accrued interest receivable (2,741)
Accounts payable 430
Due to affiliates 242
--------
Net cash provided by operating activities 1,273
INVESTING ACTIVITIES:
Purchase of mortgage loans (1,119,254)
Principal payments received 62,423
Purchase of accrued interest receivable (3,992)
----------
Net cash used by investing activities (1,060,823)
FINANCING ACTIVITIES:
Proceeds from common stock issued 572,499
Proceeds from preferred stock issued 550,000
Offering costs (19,113)
Dividends paid (12,746)
---------
Net cash provided by financing activities 1,090,640
NET INCREASE IN CASH 31,090
CASH AT BEGINNING OF PERIOD 1
--------
CASH AT END OF YEAR $ 31,091
</TABLE>
The Notes to Financial Statements are an integral part of these
Statements.
-15-
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Chase Preferred Capital Corporation (the "Company") is a Delaware
corporation incorporated on June 28, 1996 and created for the purpose
of acquiring, holding and managing real estate assets. The Company is
a wholly-owned subsidiary of The Chase Manhattan Bank (the "Bank"), a
banking corporation organized under the laws of the State of New
York.
On September 18, 1996, the Company commenced its operations upon
consummation of an initial public offering of 22,000,000 shares of
the Company's 8.10% Cumulative Preferred Stock, Series A, $25 par
value per share (the "Series A Preferred Shares"), and
the sale to the Bank of 572,500 shares of the Company's Common Stock,
$300 par value per share ("Common Stock"). These offerings raised net
capital of $1,103,386,000. All shares of Common Stock are held by the
Bank. The Series A Preferred Shares are traded on the New York Stock
Exchange.
The Company used the proceeds raised from the public offering
of the Series A Preferred Shares and the sale of Common Stock to the
Bank to pay expenses incurred during the offering and the formation
of the Company and to purchase from the Bank the Company's
portfolio of residential and commercial mortgage loans ("Mortgage
Loans") at their estimated fair values. The Mortgage Loans were
recorded in the accompanying financial statements at the Bank's
historical cost basis which approximates their estimated fair
values.
The accounting and financial reporting policies of the Company
conform to generally accepted accounting principles and prevailing
industry practices. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mortgage Loans:
Mortgage loans are carried at the principal amount outstanding, net
of deferred loan fees and direct origination costs. Loans held for
sale are carried at the lower of aggregate cost or fair value.
Interest income is recognized using the interest method or on a basis
approximating a level rate of return over the term of the loan.
Mortgage loans acquired from the Bank or its affiliates are recorded
at the Bank's historical cost basis in the accompanying balance
sheet. Any difference between the amount paid and the Bank's
historical cost basis is treated as an adjustment to additional paid
in capital.
Nonaccrual loans are those loans on which the accrual of interest has
ceased. Loans are placed on nonaccrual status immediately if, in the
opinion of management, principal or interest is not likely to be paid
in accordance with the terms of the loan agreement, or when principal
or interest is past due 90 days or more and collateral is
insufficient to cover principal and interest. Interest accrued but
not collected at the date a loan is placed on a nonaccrual status is
reversed against interest income. In addition, the amortization of
net deferred loan fees and costs are suspended when a loan is placed
on nonaccrual status. Interest income on nonaccrual loans is
recognized only to the extent of cash receipts. However, where there
is doubt regarding the ultimate collectibility of the loan principal,
cash receipts, whether designated as principal or interest, are
thereafter applied to reduce the carrying value of the loan. Loans
are restored to accrual status only when interest and principal
payments are brought current and future payments are reasonably
assured.
Statement of Financial Accounting Standards No. 114, entitled
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"),
requires that the carrying value of an impaired loan be based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price, or the fair value or the collateral, if the
loan is collateral dependent. Under SFAS 114, a loan is considered
impaired when, based on current information, it is probable that the
borrower
-16-
<PAGE> 19
will be unable to pay contractual interest or principal payments as
scheduled in the loan agreement. SFAS 114 applies to all loans except
smaller-balance homogeneous consumer loans, loans carried at fair
value or the lower of cost or fair value, debt securities and leases.
The Company applies SFAS 114 to nonaccrual commercial mortgage loans.
In addition, SFAS 114 modifies the accounting for in-substance
foreclosures ("ISF"). A collateralized loan is considered an ISF and
is reclassified to Assets Acquired as Loan Satisfactions only when
the Company has taken physical possession of the collateral
regardless of whether formal foreclosure proceedings have taken
place.
Statement of Financial Accounting Standards No. 118, entitled
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure" ("SFAS 118"), permits a creditor to use
existing methods for recognizing interest revenue on impaired loans.
The Company recognizes interest income on impaired loans pursuant to
the discussion above for nonaccrual loans.
Allowance for loan losses:
The allowance for loan losses provides for risk of losses inherent in
the credit extension process. The allowance is a general allowance
and is based on a periodic review and analysis of the portfolio,
which is comprised of residential and commercial mortgage loans. The
periodic analysis includes consideration of such factors as the risk
rating of individual credits, the size and diversity of the
portfolio, economic conditions and market conditions, prior loss
experience and results of periodic credit reviews of the portfolio.
The allowance for loan losses is increased by provisions for losses
charged against income and is reduced by charge-offs, net of
recoveries. Charge-offs are recorded when, in the judgment of
management, an extension of credit is deemed uncollectible, in whole
or in part.
Cash and Cash Equivalents:
The Company considers all short-term, highly liquid investments that
are both readily convertible to cash and have a maturity of generally
three months or less at the time of purchase to be cash equivalents.
At December 31, 1996, the Company's cash and cash equivalent
(overnight deposits) were held in custody at the Bank.
Offering Costs:
Costs incurred in connection with the raising of capital through the
sale of preferred stock were charged against shareholders' equity
upon the issuance of shares to shareholders.
Dividends:
Preferred Stock. Dividends on the Series A Preferred Shares are
cumulative from issuance (September 18, 1996) and are payable
quarterly on the last day of March, June, September and December at a
rate of 8.10% per annum of the initial liquidation preference ($25.00
per share).
Common Stock. Shareholders are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally
available after all preferred dividends have been paid.
Net Income Per Common Share:
Net income per share is computed by dividing net income after
preferred dividends by the weighted average number of common shares
outstanding.
-17-
<PAGE> 20
Income Taxes:
The Company has elected to be treated as a Real Estate Investment
Trust ("REIT") pursuant to provisions of the Internal Revenue Code of
1986, as amended (the "Code"). As a result, the Company will not be
subject to federal income tax on its taxable income to the extent it
distributes at least 95% of its taxable income to its shareholders
and it meets certain other requirements as defined in the Code. The
Company intends to maintain its qualification as a REIT for federal
income tax purposes. The Company intends to make qualifying dividends
(for federal income tax purposes) of all of its taxable income to
its Common and Preferred Stock shareholders, a portion of which may
be in the form of "consent" dividends, as defined under the Code.
As a result, the Company has made no provision for income taxes
in the accompanying financial statements.
NOTE 3 - MORTGAGE LOANS
Mortgage loans consist of both residential and commercial mortgage
loans. Residential mortgage loans consist of Six-Month Prime Rate
Adjustable Rate Mortgages ("ARMs"); Six-Month Treasury ARMs; One-Year
ARMs; Three-Year, Five-Year, Seven-Year and Ten-Year Fixed Rate Loans
with an automatic conversion to One-Year ARMs; and Fixed Rate Loans.
The commercial mortgage loans consist of Fixed and Variable Rate
loans, a majority of which have balloon payments.
The following represents the Mortgage Loan portfolio before allowance
for credit losses as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Residential mortgage loans $ 958,411
Commercial mortgage loans 101,570
Total portfolio $ 1,059,981
</TABLE>
Each of the Mortgage Loans are secured by a mortgage, deed of trust
or other security instrument which created a first lien on the
residential dwellings and/or commercial property located in their
respective jurisdictions.
NOTE 4 - DIVIDENDS
For the period from inception (September 18, 1996) through December
31, 1996, the Company paid dividends on the Series A Preferred Shares
in the amount of $12,746,360.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company has entered into an Advisory Agreement (the "Advisory
Agreement") with the Bank (the "Advisor") requiring an annual payment
of $250,000. The Advisor provides advice to the Board of Directors
and manages the operations of the Company as defined in the
Agreement. The Agreement has an initial term of five years commencing
on September 18, 1996 and automatically renews for an additional five
years unless the Company delivers a notice of nonrenewal to the
Advisor as defined in the Advisory Agreement.
The Company also entered into two servicing agreements with the Bank
for the servicing of the commercial and residential mortgage loans.
Pursuant to each servicing agreement, the servicer performs the
actual servicing of the Mortgage Loans held by the Company, in
accordance with normal industry practice. The Servicing Agreements
can be terminated without cause with at least thirty days notice to
the servicer. The servicing fee is 0.25% of the outstanding principal
balance for the residential mortgage loans and ranges from 0.08% -
0.30% of the outstanding principal balances for the commercial
mortgage loans depending upon the outstanding principal amount.
The Bank has entered into sub-servicing agreements ("Sub-Agreements")
with Chase Manhattan Mortgage Corporation ("CMMC"), a wholly-owned
subsidiary of Chase Manhattan Bank USA, N.A., an indirect wholly-
owned subsidiary of The Chase Manhattan Corporation.
-18-
<PAGE> 21
Advisory fees and servicing fees incurred for the period from
inception (September 18, 1996) through December 31, 1996 totaled
approximately $745,000.
In its capacity as sub-servicer, CMMC owes the Company $18,743,000,
primarily consisting of mortgage loan payments received on behalf of
the Company. Pursuant to the terms of the servicing and subservicing
agreements, the Company receives mortgage loan payments collected by
the servicer (and sub-servicer) in the month immediately following
its collection.
The Company maintains its cash in an overnight deposit account with
the Bank and earns a market rate of interest. Interest income on
these deposits amounted to approximately $711,000 for the period from
inception (September 18, 1996) through December 31, 1996.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, entitled "Disclo-
sures About Fair Value of Financial Instruments" ("SFAS 107"),
requires the Company to disclose fair value information about
financial instruments for which it is practicable to estimate the
value, whether or not such financial instruments are recognized on
the balance sheet. Fair value is defined as the amount at which a
financial instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation,
and is best evidenced by a quoted market price, if one exists. The
calculation of estimated fair value is based on market conditions at
a specific point in time and may not be reflective of future fair
values.
Certain financial instruments and all nonfinancial instruments are
excluded from the scope of SFAS 107. Accordingly, the fair value
disclosures required by SFAS 107 provide only a partial estimate of
the fair value of the Company. Fair values among REITs are not
comparable due to the wide-range of limited valuation techniques and
numerous estimates which must be made. This lack of objective
valuation standard introduces a great degree of subjectivity to these
derived or estimated fair values. Therefore, readers are cautioned
in using this information for purposes of evaluating the financial
condition of the Company compared with other REITs.
Loans:
Loans were valued using methodologies suitable for each loan type.
Certain of these methodologies and the key assumptions made are
discussed below.
The fair value of the Company's commercial loans was estimated by
assessing the two main risk components: credit and interest. The
estimated cash flows were adjusted to reflect the inherent credit
risk and then discounted, using rates appropriate for each maturity
that incorporates the effects of interest rate changes.
For residential mortgage loans for which market rates for comparable
loans are readily available, the fair value was estimated by
discounting cash flows, adjusted for prepayments. The discount rates
used for residential mortgages were secondary market yields for
comparable mortgage-backed securities, adjusted for risk. The
discount rates used incorporated the effects of interest rate changes
only, since the estimated cash flows were adjusted for credit risk.
The book value and fair value of Mortgage Loans at December 31, 1996
are as follows (in thousands):
<TABLE>
<CAPTION>
Book Value Fair Value
<S> <C> <C>
Residential Mortgage Loans $958,411 $954,186
Commercial Mortgage Loans 101,570 101,433
</TABLE>
Assets and liabilities in which fair value approximates carrying
value:
The fair values of certain financial assets and liabilities carried
at cost, including cash, due from affiliates, accrued interest
receivable, accounts payable, due to affiliates and dividends
payable, are considered to approximate their respective carrying
value due to their short-term nature and negligible credit losses.
-19-
<PAGE> 21
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
Richard J. Boyle 53 Director. Retired as Vice Chairman of
the Board of The Chase Manhattan Corporation ("Old Chase") and The
Chase Manhattan Bank, N.A. upon consummation of the merger of Old
Chase into Chemical Banking Corporation on March 31, 1996. Mr. Boyle
served in such positions since 1987.
Deborah L. Duncan 41 President and Director. An Executive
Vice President of CMC and the Bank, treasurer of CMC and a member of
CMC's Policy Council. Prior to the merger of Old Chase into Chemical
Banking Corporation, Ms. Duncan was co-head of Old Chase's Global
Markets business, with responsibility for trading activities
worldwide. Ms. Duncan joined Old Chase's Corporate Controllers unit
in 1979 and served in various positions at Old Chase, including
Corporate treasurer, Western Hemisphere treasurer, treasurer of
Individual Banking,treasurer of Chase Tokyo, manager of Derivative
Products-Asia, Asian treasury coordinator and financial analyst for
the Europe area and the Asia area.
Thomas Jacob 58 Director. The Chairman and Chief Executive
Officer of Chase Manhattan Mortgage Corporation, the mortgage
subsidiary of CMC. Mr. Jacob is also the Chairman of Chase Manhattan
Bank USA, N.A., and a director of Chase Insurance Agency, Inc. For
the six years prior to the merger of Old Chase and Chemical Banking
Corporation, Mr. Jacob was the executive responsible for the
residential retail mortgage business of Chemical Banking Corporation.
William C. Langley 58 Director. Retired as an Executive Vice
President and Chief Credit and Risk Policy Officer of Chemical
Banking Corporation and Chemical Bank, effective July 31, 1996.
Prior to becoming an Executive Vice President of Chemical Banking
Corporation and Chemical Bank in 1991, Mr. Langley had served as an
Executive Vice President since 1983, and the Chief Credit Officer
since 1990 of Manufacturers Hanover Corporation. Mr. Langley is a
director of Robert Morris Associates, Morrison Knudsen Corp. and
Seven-Up/RC Bottling Company of Southern California, Inc.
Neila B. Radin 43 Secretary. A Senior Vice President and
Associate General Counsel of the Bank. Ms. Radin joined the Bank in
1987 and has been a member of its legal department since 1988.
-20-
<PAGE> 23
Robert S. Strong 47 Chairman and Director. An Executive
Vice President and the Chief Credit Officer of CMC and the Bank and a
member of CMC's policy council. Mr. Strong joined Old Chase in 1971
and served in various positions at Old Chase, including as executive
in charge of the Global Portfolio Management Group, the Real Estate
Finance Group, the Transportation and Defense Group, the Diversified
Industries Group and the Public Utilities Group.
Don B. Taggart 49 Treasurer and Director. A Senior Vice
President of CMC and the Bank. Mr. Taggart joined Old Chase in 1989.
Immediately prior to the merger of Old Chase into Chemical Banking
Corporation, Mr. Taggart was responsible for funding/liquidity, short-
term interest rate risk management and world-wide Treasury
relationships and products at Old Chase.
Peter J. Tobin 52 Director. Chief Financial Officer of CMC
and the Bank. As a member of CMC's Policy Council, Mr. Tobin has
responsibility for corporate treasury, controllership, corporate
taxes, financial management information systems, insurance, planning
and investor relations. Prior to the merger of Old Chase into
Chemical Banking Corporation, Mr. Tobin held the same positions at
Chemical Banking Corporation and Chemical Bank, and had similar
responsibilities at Manufacturers Hanover Corporation before its
merger with Chemical Banking Corporation on December 31, 1991. Mr.
Tobin is a director of The CIT Group Holdings, Inc.
ITEM 11: EXECUTIVE COMPENSATION
The Company does not pay any compensation to its officers or
employees or to directors who are not Independent Directors. The
Company intends to pay the Independent Directors of the Company
(Messrs. Boyle and Langley) fees for their services as directors. The
Independent Directors will receive annual compensation of $10,000
plus a fee of $750 for attendance (in person or by
telephone) at each meeting of the Board of Directors.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
None.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-21-
<PAGE> 24
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
No Current Reports on Form 8-K were filed during the fourth quarter
of 1996.
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBITS
3(a) (i) Form of Amended and Restated Certificate of
Incorporation of the Company (Incorporated by reference to Exhibit
3(a) (iii) to the Registration Statement on Form S-11 (File No. 333-
08001) of Chase Preferred Capital Corporation).
3(a) (ii) Form of Certificate of Designation establishing the
Series A Preferred Shares (Incorporated by reference to Exhibit 3(a)
(ii) to the Registration Statement on Form S-11 (File No. 333-08001)
of Chase Preferred Capital Corporation).
3(b) Form of Amended and Restated By-laws of the Company
(Incorporated by reference to Exhibit 3(b)(ii) to the Registration
Statement on Form S-11 (File No. 333-08001) of Chase Preferred
Capital Corporation).
4 Specimen of certificate representing Series A
Preferred Shares (Incorporated by reference to Exhibit 4 to the
Registration Statement on Form S-11 (File No. 333-08001 of Chase
Preferred Capital Corporation).
10(a) Form of Residential Mortgage Loan Purchase and
Warranties Agreement between the Company and The Chase Manhattan Bank
(Incorporated by reference to Exhibit 10(a) to the Registration
Statement on Form S-11 (File No. 333-08001) of Chase Preferred
Capital Corporation).
10(b) Form of Commercial Mortgage Loan Purchase and
Warranties Agreement between the Company and The Chase Manhattan Bank
(Incorporated by reference to Exhibit 10(b) to the Registration
Statement on Form S-11 (File No. 333-08001) of Chase Preferred
Capital Corporation).
10(c) Form of Residential Mortgage Loan Servicing
Agreement between the Company and The Chase Manhattan Bank
(Incorporated by reference to Exhibit 10(c) to the Registration
Statement on Form S-11 (File No. 333-08001) of Chase Preferred
Capital Corporation).
10(d) Form of Commercial Mortgage Loan Servicing
Agreement between the Company and The Chase Manhattan Bank
(Incorporated by reference to Exhibit 10(d) to the Registration
Statement on Form S-11 (File No. 333-08001) of Chase Preferred
Capital Corporation).
10(e) Form of Advisory Agreement between the Company and
The Chase Manhattan Bank (Incorporated by reference to Exhibit 10(e)
to The Registration Statement on Form S-11 (File No. 333-08001) of
Chase Preferred Capital Corporation).
11 Computation of net income per share
12(a) Computation of ratio of earnings to fixed charges
-22-
<PAGE> 25
12(b) Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements
27 Financial Data Schedule
-23-
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the section 13 and 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CHASE PREFERRED CAPITAL CORPORATION
(Registrant)
Date: March 27, 1997 By /s/ Deborah L. Duncan
----------------------
Deborah L. Duncan
President and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signatuture Title Date
/s/ Robert S. Strong Chairman and Director March 27, 1997
- ------------------------
Robert S. Strong (Principal Executive Officer)
/s/ Deborah L. Duncan President and Director March 27, 1997
- ------------------------
Deborah L. Duncan
/s/ Don B. Taggart Treasurer and Director March 27, 1997
- -------------------------
Don B. Taggart (Principal financial and accounting officer)
/s/ Richard J. Boyle Director March 27, 1997
- -------------------------
Richard J. Boyle
/s/ Thomas Jacob Director March 27, 1997
- -------------------------
Thomas Jacob
/s/ William C. Langley Director March 27, 1997
- -------------------------
William C. Langley
/s/ Peter J. Tobin Director March 27, 1997
- ------------------------
Peter J. Tobin
146281
<PAGE> 1
EXHIBIT 11
CHASE PREFERRED CAPITAL CORPORATION
Computation of net income per share
Net income for primary earnings per share is computed by
subtracting from the applicable earnings the dividend requirements
on preferred stock to arrive at earnings applicable to common stock
and dividing this amount by the weighted average number of common
shares outstanding during the period.
<TABLE>
<CAPTION>
For the Period from
Inception (September 18, 1996)
through December 31, 1996
(in thousands, except per share amount):
<S> <C>
Earnings:
Net income $ 22,085
Less: preferred stock dividend 12,746
requirements
Net income applicable to common stock $ 9,339
Shares:
Average common shares outstanding 572,500
Net income per share: $ 16.31
===================================================
</TABLE>
<PAGE> 1
EXHIBIT 12(a)
CHASE PREFERRED CAPITAL CORPORATION
Computation of ratio of earnings to fixed charges
<TABLE>
<CAPTION>
For the Period from
Inception (September 18, 1996)
through December 31, 1996
(in thousands, except ratio):
<S> <C>
Net income $22,085
Fixed charges:
Advisory fees 71
Total fixed charges 71
Earnings before fixed charges $22,156
Fixed charges, as above $ 71
Ratio of earnings to fixed charges 312.06
=============================================================
</TABLE>
<PAGE> 1
EXHIBIT 12(b)
CHASE PREFERRED CAPITAL CORPORATION
Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements
<TABLE>
<CAPTION>
For the Period from
Inception (September 18, 1996)
through December 31, 1996
(in thousands, except ratio):
<S> <C>
Net income $22,085
Fixed charges:
Advisory fees 71
Total fixed charges 71
Earnings before fixed charges $22,156
Fixed charges, as above $ 71
Preferred stock dividend requirements 12,746
Fixed charges including preferred $12,817
stock dividends
Ratio of earnings to fixed charges and
preferred stock
dividend requirements 1.73
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 9
<CIK> 0001018450
<NAME> CHASE PREFERRED CAPITAL
CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> UNITED STATES DOLLAR
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-18-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 31,091
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,059,981
<ALLOWANCE> 3,150
<TOTAL-ASSETS> 1,113,398
<DEPOSITS> 0
<SHORT-TERM> 672
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
550,000
<COMMON> 171,750
<OTHER-SE> 390,976
<TOTAL-LIABILITIES-AND-EQUITY> 1,113,398
<INTEREST-LOAN> 22,156
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 22,156
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 22,156
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 71
<INCOME-PRETAX> 22,085
<INCOME-PRE-EXTRAORDINARY> 22,085
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,085
<EPS-PRIMARY> 16.31
<EPS-DILUTED> 16.31
<YIELD-ACTUAL> 7.40
<LOANS-NON> 236,012
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,150
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,150
<ALLOWANCE-DOMESTIC> 3,150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
