SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: March 31, 1998 Commission file 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, New York 10017
- ----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 270-6000
--------------
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 |_|
Common Stock, $300 Par Value 572,500
------------------------------------------------------------------------
Number of shares outstanding of each of the issuer's classes of common stock on
March 31, 1998.
<PAGE>
================================================================================
FORM 10-Q INDEX
Part I Page
- ------ ----
Item 1. Financial Statements - Chase Preferred Capital Corporation:
Balance Sheet at March 31, 1998 and December 31, 1997. 3
Statement of Income for the Three Months Ended March 31, 1998
and 1997. 4
Statement of Changes in Stockholders' Equity for the Three
Months Ended March 31, 1998 and 1997. 5
Statement of Cash Flows for the Three Months Ended
March 31, 1998 and 1997. 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 9
Part II
- -------
Item 4. Submission of Matters to a Vote of Security Holders. 16
Item 6. Exhibits and Current Reports on Form 8-K. 16
================================================================================
-2-
<PAGE>
Part I
Item 1.
CHASE PREFERRED CAPITAL CORPORATION
BALANCE SHEET
(in thousands, except per share data)
March 31, 1998 December 31, 1997
(Unaudited)
ASSETS:
Residential Mortgage Loans $ 828,715 $ 889,696
Commercial Mortgage Loans 92,154 95,372
----------- -----------
920,869 985,068
Less: Allowance for Credit Losses (3,572) (3,468)
----------- -----------
917,297 981,600
Cash 149,929 93,919
Due from Affiliates 57,293 40,664
Accrued Interest Receivable 6,525 6,981
----------- -----------
TOTAL ASSETS $ 1,131,044 $ 1,123,164
=========== ===========
LIABILITIES:
Accounts Payable $ 367 $ 367
Due to Affiliates 2,868 2,867
----------- -----------
TOTAL LIABILITIES 3,235 3,234
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, Par Value $25 Per Share;
50,000,000 Shares Authorized, 22,000,000
Issued and Outstanding 550,000 550,000
Common Stock, Par Value $300 Per Share;
5,000,000 Shares Authorized, 572,500
Shares Issued and Outstanding 171,750 171,750
Capital Surplus 381,637 381,637
Retained Earnings 24,422 16,543
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,127,809 1,119,930
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,131,044 $ 1,123,164
=========== ===========
The Notes to Financial Statements are an integral part of these Statements.
-3-
<PAGE>
Part I
Item 1. (continued)
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF INCOME
Three Months Ended March 31,
(in thousands, except per share data)
(Unaudited)
1998 1997
INTEREST INCOME:
Residential Mortgage Loans $ 15,752 $ 17,666
Commercial Mortgage Loans 2,186 2,386
Interest on Overnight Investments 1,863 689
-------- --------
19,801 20,741
Less: Servicing Fees (599) (665)
-------- --------
Net Interest Income 19,202 20,076
-------- --------
NON INTEREST EXPENSE:
Advisory Fees 63 62
Other Administrative Expenses 123 90
-------- --------
Total Noninterest Expense 186 152
-------- --------
NET INCOME $ 19,016 $ 19,924
======== ========
NET INCOME APPLICABLE TO COMMON SHARES $ 7,879 $ 8,787
======== ========
NET INCOME PER COMMON SHARE $ 13.76 $ 15.35
======== ========
The Notes to Financial Statements are an integral part of these Statements.
-4-
<PAGE>
Part I
Item 1. (continued)
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31,
(in thousands)
(Unaudited)
1998 1997
PREFERRED STOCK:
Balance at Beginning of Year $ 550,000 $ 550,000
----------- -----------
Balance at End of Period 550,000 550,000
=========== ===========
COMMON STOCK:
Balance at Beginning of Year 171,750 171,750
----------- -----------
Balance at End of Period 171,750 171,750
=========== ===========
ADDITIONAL PAID IN CAPITAL:
Balance at Beginning of Year 381,637 381,637
----------- -----------
Balance at End of Period 381,637 381,637
=========== ===========
RETAINED EARNINGS:
Balance at Beginning of Year 16,543 9,339
Net Income 19,016 19,924
Common Dividends 0 0
Preferred Dividends (11,137) (11,137)
----------- -----------
Balance at End of Period 24,422 18,126
=========== ===========
TOTAL STOCKHOLDERS' EQUITY $ 1,127,809 $ 1,121,513
=========== ===========
The Notes to Financial Statements are an integral part of these Statements
-5-
<PAGE>
Part I
Item 1. (continued)
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
Three Months Ended March 31,
(in thousands)
(Unaudited)
1998 1997
OPERATING ACTIVITIES:
Net Income $ 19,016 $ 19,924
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Net Change In:
Due From Affiliates (16,629) 4,702
Accrued Interest Receivable 759 237
Accounts Payable 0 (27)
Due to Affiliates 1 2,592
--------- ---------
Net Cash Provided by Operating Activities 3,147 27,428
--------- ---------
INVESTING ACTIVITIES:
Purchase of Mortgage Loans Net of Reserve (59,806) (74,693)
Principal Payments Received 124,109 36,877
Purchase of Accrued Interest Receivable (303) (413)
--------- ---------
Net Cash Provided (Used) by Investing Activities 64,000 (38,229)
--------- ---------
FINANCING ACTIVITIES:
Dividends Paid (11,137) (11,137)
--------- ---------
Net Cash Used by Financing Activities (11,137) (11,137)
--------- ---------
NET INCREASE (DECREASE) IN CASH 56,010 (21,938)
CASH AT BEGINNING OF PERIOD 93,919 31,091
--------- ---------
CASH AT END OF PERIOD $ 149,929 $ 9,153
========= =========
The Notes to Financial Statements are an integral part of these Statements.
-6-
<PAGE>
Part I
Item 1. (continued)
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 (the "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 sales of the Common Stock and
Series A Preferred Shares to pay expenses incurred in connection with the
offering and the formation of the Company and to purchase from the Bank the
Company's initial 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 approximated their estimated fair values.
The unaudited financial statements of the Company are prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and the results of operations for the interim period presented have
been included.
For further discussion of the Company's accounting policies, reference is made
to Note 2 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "1997 Annual Report").
NOTE 2 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has entered into an Advisory Agreement (the "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 in accordance with the parameters established 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 Agreement.
The Company also entered into two servicing agreements with the Bank for the
servicing of the commercial and residential mortgage loans. (The Bank in its
role as servicer under the terms of the servicing agreements is herein referred
to as the "Servicer"). 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 by the Company 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 balance 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, National Association, an indirect wholly-owned subsidiary of
The Chase Manhattan Corporation ("CMC").
The Company currently intends to continue to acquire all its Mortgage Loans from
the Bank or from 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.
For the quarters ended March 31, 1998 and 1997, advisory fees and servicing fees
totaled approximately $662,000 and $727,000, respectively.
-7-
<PAGE>
Part I
Item 1. (Continued)
At March 31, 1998 and December 31, 1997, due from affiliates was approximately
$57,293,000 and $40,664,000, respectively, which consisted primarily of mortgage
loan payments received by CMMC, in its capacity as Sub-Servicer, 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 for the
quarters ended March 31, 1998 and 1997 amounted to approximately $1,863,000 and
$689,000, respectively.
NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
For further discussion on the methodology for determining the fair value of the
Mortgage Loans, reference is made to Note 7 of the Company's 1997 Annual Report.
Loans:
The carrying value and estimated fair value of Mortgage Loans at March 31, 1998
and December 31, 1997 are as follows (in thousands):
March 31, 1998 December 31, 1997
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Residential Mortgage Loans $ 828,715 $ 842,262 $ 889,696 $ 901,616
Commercial Mortgage Loans 92,154 99,968 95,372 103,462
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 and due to affiliates, are considered to approximate their respective
carrying value due to their short-term nature and negligible credit losses.
-8-
<PAGE>
Part I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
CHASE PREFERRED CAPITAL CORPORATION
QUARTERLY FINANCIAL HIGHLIGHTS
Three Months Ended March 31,
(in thousands, except per share, unit and ratio data)
(Unaudited)
1998 1997
INCOME STATEMENT:
Interest Income $ 19,801 $ 20,741
Net Interest Income 19,202 20,076
Net Income 19,016 19,924
Average Number of Common Shares Outstanding 572,500 572,500
Net Income Applicable to Common Shares 7,879 8,787
Income Per Common Share $ 13.76 $ 15.35
BALANCE SHEET:
Mortgage Loans $ 920,869 $ 1,097,952
Total Assets 1,131,044 1,124,750
Preferred Stock Outstanding 550,000 550,000
Total Stockholders' Equity $ 1,127,809 $ 1,121,513
OTHER DATA:
Dividends Paid on Preferred Shares $ 11,137 $ 11,137
Number of Preferred Shares Outstanding 22,000,000 22,000,000
Number of Common Shares Outstanding 572,500 572,500
Average Yield on Mortgage Loans 7.5% 7.6%
================================================================================
-9-
<PAGE>
Part I
Item 2. (continued)
================================================================================
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 Chase Manhattan Bank (the "Bank'), a
banking corporation organized under the laws of the State of New York, or from
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 recognized statistical rating organization and that represent
interests in or obligations backed by pools of mortgage loans ("Mortgage-Backed
Securities"). Mortgage loans underlying the Mortgage-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, $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 (the "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 administers the day-to-day activities of the
Company in its role as Advisor under the Agreement. Chase Manhattan Mortgage
Corporation ("CMMC") sub- services the Company's Mortgage Loans on behalf of the
Bank (the "Servicer") under each of the Servicing Agreements.
The Bank and its affiliates may have interests which 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 Agreement or the
Servicing Agreements.
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 its
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
For the quarters ended March 31, 1998 and 1997, the Company reported net
interest income of approximately $19,202,000 and $20,076,000, respectively.
Interest income from residential and commercial mortgage loans was approximately
$15,752,000 and $2,186,000, respectively, for the quarter ended March 31, 1998
and $17,666,000 and $2,386,000, respectively, for the quarter ended March 31,
1997. The total average yield for the quarters ended March 31, 1998 and 1997
were 7.5% and 7.6%, respectively. After deduction of approximately $63,000 and
$123,000 in advisory fees and other administrative expenses, respectively, the
Company reported net income of approximately $19,016,000 for the quarter ended
March 31, 1998. This is compared to net income of approximately $19,924,000 for
the quarter ended March 31, 1997, after deducting approximately $62,000 and
$90,000 in advisory fees and other administrative expenses, respectively.
The Company reported basic earnings per share of $13.76 and $15.35 for the
quarters ended March 31, 1998 and 1997, respectively.
-10-
<PAGE>
Part I
Item 2. (continued)
The Company paid $11,137,000 for the quarter ended March 31, 1998, in dividends
on the Series A Preferred Shares. As of this date, all dividend payments on
Series A Preferred Shares are current. Dividends on the Common Stock are paid to
the Bank when, as and if declared by the Board of Directors of the Company out
of funds legally available therefor. The Company expects to pay Common Stock
dividends at least annually in amounts necessary to continue to preserve its
status as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended (the "Code").
MORTGAGE LOANS
Mortgage loans consist of both residential and commercial mortgage loans.
Residential mortgage loans consist of six-month adjustable rate mortgages
("ARMs"); one-year ARMs; three-year, five-year, seven-year, and ten-year fixed
rate loans with an automatic conversion to one-year ARMs; three-year fixed rate
loans with an automatic conversion to three-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
maintain approximately 90% of its mortgage loan portfolio in residential
mortgage loans and approximately 10% of its portfolio in commercial mortgage
loans, although that ratio may change over time as maturing and prepaying
commercial loans commence to be replaced by residential mortgage loans. All
Mortgage Loans were purchased from the Bank or its affiliates. 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.
For the quarters ended March 31, 1998 and 1997, the Company purchased Mortgage
Loans having an outstanding principal balance of approximately $59,910,000 and
$74,848,000, respectively, from the Bank and its affiliates. In addition, for
the quarters ended March 31, 1998 and 1997, the Company received approximately
$124,109,000 and $36,877,000, respectively, of principal payments on its
portfolio from the Servicer (and Sub-Servicer).
The following table reflects the composition of interest-earning assets as a
percentage of total interest-earning assets:
Interest-Earning Asset Mix At March 31, 1998 At December 31, 1997
(in thousands) Amount Percent Amount Percent
================================================================================
Residential Mortgage Loans $ 828,715 90.0% $ 889,696 90.3%
Commercial Mortgage Loans 92,154 10.0% 95,372 9.7%
--------- ---- --------- ----
Total Interest-Earning Assets $ 920,869 100% $ 985,068 100%
========= ==== ========= ====
================================================================================
For further discussion on the Company's acquisition and disposition policies for
Mortgage Loans, reference is made to Note 2 of the Company's 1997 Annual Report.
At March 31, 1998 and December 31, 1997, there were approximately $4,078,000 and
$3,330,000, respectively, of nonaccruing residential mortgage loans. There were
no nonaccruing commercial loans for either period. At March 31, 1998 and
December 31,1997, nonaccruing loans represented .44% and .34%, respectively, of
the total loan portfolio. There were no sales of nonaccruing loans during the
quarters ended March 31, 1998 and 1997.
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 March 31, 1998 to be adequate. 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, and legal and regulatory requirements. The Company
will continue to reassess the adequacy of the allowance for credit losses.
-11-
<PAGE>
Part I
Item 2. (continued)
The accompanying table reflects the activity in the Company's allowance for
credit losses for the three months ended:
Allowance for Credit Losses March 31, 1998 March 31, 1997
(in thousands)
================================================================================
Total Allowance at Beginning of Period $3,468 $3,150
Acquired Allowance 104 155
Provision for Losses 0 0
Charge-Offs 0 0
Recoveries 0 0
Sale of Loans 0 0
------ ------
Total Allowance at End of Period $3,572 $3,305
====== ======
================================================================================
At March 31, 1998 and December 31, 1997, the Company's allowance for credit
losses as a percentage of total loans was .39% and .35%, respectively.
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 market interest rates, the Company
may experience a reduction in interest income on its Mortgage Loans and a
corresponding decrease in funds available to be distributed to its shareholders.
The reduction in interest income may result from downward adjustments of the
indices upon which the interest rates on ARM mortgage loans are based and from
prepayments of mortgage loans with fixed interest rates, resulting in
reinvestment of the proceeds in lower-yielding mortgage loans. 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 borrowers 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. 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
March 31, 1998 and December 31, 1997:
Geographical Breakout March 31, 1998 December 31, 1997
(in thousands) Amount Percent Amount Percent
================================================================================
Residential Mortgage Loans:
California $ 391,302 42.5% $ 444,078 45.1%
New York 63,981 7.0% 66,972 6.8%
Florida 46,417 5.0% 50,559 5.1%
Other States (no State has more
than 4% of total loans) 327,015 35.5% 328,087 33.3%
--------- ---- --------- ----
Total Residential Mortgage Loans 828,715 90.0% 889,696 90.3%
--------- ---- --------- ----
Commercial Mortgage Loans:
New York Metropolitan Tri-State
Area 88,112 9.6% 91,260 9.3%
Other States (no State has more
than 3% of total loans) 4,042 0.4% 4,112 0.4%
--------- ---- --------- ----
Total Commercial Mortgage Loans 92,154 10.0% 95,372 9.7%
--------- ---- --------- ----
Total $ 920,869 100% $ 985,068 100%
========= ==== ========= ====
-12-
<PAGE>
Part I
Item 2. (continued)
At March 31, 1998, approximately 42.5% of the Company's total Mortgage Loan
portfolio consisted of 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 at such date, 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 areas 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.
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, prepay or are sold ,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 the sale or repayment of
principal balances by individual borrowers. The Company does not have and does
not anticipate having any material capital expenditures.
For further discussion on liquidity risk management, reference is made to page 9
of the Company's 1997 Annual Report.
OTHER MATTERS
As of March 31,1998, 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 that:
o its Qualified REIT Assets, as defined in the Code, to be 100% of its total
assets, as compared to the federal tax requirement that at least 75% of
its total assets must be Qualified REIT assets.
o 91% 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 its 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 1998 and 1997 annual
distribution and administrative requirements.
-13-
<PAGE>
CHASE PREFERRED CAPITAL CORPORATION
AVERAGE BALANCE SHEET
Three Months Ended March 31,
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
ASSETS:
<S> <C> <C> <C> <C> <C>
Residential Mortgage Loans $ 859,836 15,752 7.3% $ 942,207 17,666 7.5%
Commercial Mortgage Loans 94,727 2,186 9.2% 102,806 2,386 9.3%
Cash 138,323 1,863 5.4% 62,104 689 4.4%
--------- ------ --- --------- ------ ---
TOTAL INTEREST-EARNING ASSETS 1,092,886 19,801 7.2% 1,107,117 20,741 7.5%
--------- ------ --- --------- ------ ---
Allowance for Credit Losses (3,474) (3,155)
Due from Affiliates 33,471 16,392
Accrued Interest Receivable 5,945 6,734
--------- ---------
TOTAL ASSETS $1,128,828 $ 1,127,088
========== ===========
LIABILITIES:
Accounts Payable $ 4,079 4,142
Due to Affiliates 2,681 1,106
---------- ---------
TOTAL LIABILITIES 6,760 5,248
---------- ---------
STOCKHOLDERS' EQUITY:
Preferred Stock, Par Value $25
Per Share; 50,000,000 Shares
Authorized, 22,000,000 Issued
and Outstanding 550,000 550,000
Common Stock, Par Value $300 Per
Share; 5,000,000 Shares
Authorized, 572,500 Shares
Issued and Outstanding 171,750 171,750
Capital Surplus 381,637 381,637
Retained Earnings 18,681 18,453
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,122,068 1,121,840
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,128,828 $ 1,127,088
========== ===========
</TABLE>
-14-
<PAGE>
CHASE PREFERRED CAPITAL CORPORATION
QUARTERLY FINANCIAL INFORMATION
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ---------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
INTEREST INCOME:
<S> <C> <C> <C> <C> <C>
Residential Mortgage Loans $ 15,752 $ 16,511 $ 17,994 $ 18,619 $ 17,666
Commercial Mortgage Loans 2,186 2,334 2,286 2,385 2,386
Interest on Overnight Investments 1,863 1,064 624 383 689
-------- -------- -------- -------- --------
19,801 19,909 20,904 21,387 20,741
Less: Servicing Fees (599) (643) (654) (671) (665)
-------- -------- -------- -------- --------
Net Interest Income 19,202 19,266 20,250 20,716 20,076
-------- -------- -------- -------- --------
NON INTEREST EXPENSE:
Advisory Fees 63 62 63 63 62
Other Administrative Expenses 123 66 25 98 90
-------- -------- -------- -------- --------
Total Noninterest Expense 186 128 88 161 152
-------- -------- -------- -------- --------
NET INCOME $ 19,016 $ 19,138 $ 20,162 $ 20,555 $ 19,924
======== ======== ======== ======== ========
NET INCOME APPLICABLE TO COMMON
SHARES $ 7,879 $ 8,001 $ 9,024 $ 9,417 $ 8,787
======== ======== ======== ======== ========
NET INCOME PER COMMON SHARES $ 13.76 $ 13.98 $ 15.76 $ 16.45 $ 15.35
======== ======== ======== ======== ========
</TABLE>
-15-
<PAGE>
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 1, 1998, Deborah L. Duncan and Don B. Taggart resigned from
the Board. On that day, the Bank, the holder of all outstanding shares
of Common Stock of the Company, by unanimous written consent, elected
the following persons as directors of the Company to serve until their
respective successors shall have been elected and qualified: Richard
J. Boyle, Dina Dublon, Thomas Jacob, William C. Langley, Louis M.
Morrell, Joseph L. Sclafani and Robert S. Strong.
Item 6. Exhibits and Current Reports on Form 8-K
----------------------------------------
(A) Exhibits:
11 - Computation of net income per share.
12(a) - Computation of ratio of earnings to fixed charges.
12(b) - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements.
27 - Financial Data Schedule.
(B) Reports on Form 8-K: None
-16-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------
(Registrant)
Date: May 14, 1998 By /s/ Robert S. Strong
------------ -------------------------------
Robert S. Strong
Chairman and Director
Part II
Item 6. (continued)
EXHIBIT 11
CHASE PREFERRED CAPITAL CORPORATION
Computation of net income per share
-----------------------------------
(in thousands, except per share amounts)
(Unaudited)
Net income for basic earnings per share are 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 shares of common stock outstanding during the period.
Three Months Ended
March 31,
---------------------
1998 1997
================================================================================
Earnings:
Net Income $ 19,016 $ 19,924
Less: Preferred Stock Dividend Requirements 11,137 11,137
-------- --------
Net Income Applicable to Common Stock $ 7,879 $ 8,787
-------- --------
Shares:
Weighted Average Number of Common Shares
Outstanding 572,500 572,500
Net Income Per Share: $ 13.76 $ 15.35
======== ========
================================================================================
-17-
Part II
Item 6. (continued)
EXHIBIT 12(a)
CHASE PREFERRED CAPITAL CORPORATION
Computation of ratio of earnings to fixed charges
-------------------------------------------------
(in thousands, except ratios)
(Unaudited)
Three Months Ended
March 31, 1998
------------------
Net income $ 19,016
---------
Fixed charges:
Advisory fees 63
---------
Total fixed charges 63
---------
Earnings before fixed charges $ 19,079
=========
Fixed charges, as above $ 63
=========
Ratio of earnings to fixed charges 302.84
=========
================================================================================
-18-
Part II
Item 6. (continued)
EXHIBIT 12(b)
CHASE PREFERRED CAPITAL CORPORATION
Computation of ratio of earnings to fixed charges and
preferred stock dividend requirements
-------------------------------------
(in thousands, except ratio)
(Unaudited)
Three Months Ended
March 31, 1998
------------------
Net income $ 19,016
---------
Fixed charges:
Advisory fees 63
---------
Total fixed charges 63
---------
Earnings before fixed charges $ 19,079
=========
Fixed charges, as above $ 63
Preferred stock dividend requirements 11,137
---------
Fixed charges including preferred stock dividends $ 11,200
=========
Ratio of earnings to fixed charges and
preferred stock dividend requirements 1.70
=========
================================================================================
-19-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001018450
<NAME> CHASE PREFERRED CAPITAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> UNITED STATES DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 149,929
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 920,869
<ALLOWANCE> 3,572
<TOTAL-ASSETS> 917,297
<DEPOSITS> 0
<SHORT-TERM> 3,235
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
550,000
<COMMON> 171,750
<OTHER-SE> 406,059
<TOTAL-LIABILITIES-AND-EQUITY> 1,131,044
<INTEREST-LOAN> 17,938
<INTEREST-INVEST> 0
<INTEREST-OTHER> 1,863
<INTEREST-TOTAL> 19,801
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 599
<INTEREST-INCOME-NET> 19,202
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 186
<INCOME-PRETAX> 19,016
<INCOME-PRE-EXTRAORDINARY> 19,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,016
<EPS-PRIMARY> 13.76
<EPS-DILUTED> 13.76
<YIELD-ACTUAL> 7.50
<LOANS-NON> 4,078
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,468
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,572
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
