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: September 30, 1999 Commission File Number: 1-12151
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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, $171,500,000 Par Value 1
------------------------------------------------------------------------
Number of shares outstanding of each of the issuer's classes of common stock on
September 30, 1999.
<PAGE>
================================================================================
FORM 10-Q INDEX
PART I PAGE
- ------ ----
Item 1. Financial Statements - Chase Preferred Capital Corporation:
Balance Sheet at September 30, 1999 and December 31, 1998. 3
Statement of Income for the Three Months Ended September
30, 1999 and 1998. 4
Statement of Income for the Nine Months Ended September
30, 1999 and 1998. 5
Statement of Changes in Stockholders' Equity for the Nine
Months Ended September 30, 1999 and 1998. 6
Statement of Cash Flows for the Nine Months Ended September
30, 1999 and 1998. 7
Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II
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Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Current Reports on Form 8-K. 21
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-2-
<PAGE>
Part I
Item 1.
CHASE PREFERRED CAPITAL CORPORATION
BALANCE SHEET
(in thousands, except share data)
(Unaudited)
SEPTEMBER 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
ASSETS:
Residential Mortgage Loans $ 1,024,714 $ 944,012
Commercial Mortgage Loans 62,139 77,356
-------------- -------------
1,086,853 1,021,368
Less: Allowance for Loan Losses (4,928) (4,120)
-------------- -------------
1,081,925 1,017,248
Cash 7,805 25,215
Due from Affiliates 22,851 71,140
Accrued Interest Receivable 6,336 7,703
-------------- -------------
TOTAL ASSETS $ 1,118,917 $ 1,121,306
============== =============
LIABILITIES:
Accounts Payable $ 47 432
-------------- -------------
TOTAL LIABILITIES 47 432
-------------- -------------
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 $171,750,000
per share; one share authorized,
issued and outstanding 171,750 171,750
Capital Surplus 382,005 381,637
Retained Earnings 15,115 17,487
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,118,870 1,120,874
-------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,118,917 $ 1,121,306
============== =============
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 September 30,
(in thousands)
(Unaudited)
1999 1998
INTEREST INCOME:
Residential Mortgage Loans $ 15,823 $ 17,011
Commercial Mortgage Loans 1,300 1,746
Overnight Investments 968 1,371
-------------- -------------
18,091 20,128
Less: Servicing Fees (657) (670)
-------------- -------------
Net Interest Income 17,434 19,458
-------------- -------------
NON INTEREST EXPENSE:
Advisory Fees 62 63
Other Administrative Expenses 58 93
-------------- -------------
Total Noninterest Expense 120 156
-------------- -------------
NET INCOME $ 17,314 $ 19,302
============== =============
NET INCOME APPLICABLE TO COMMON SHARE $ 6,177 $ 8,164
============== =============
NET INCOME PER COMMON SHARE $ 6,177 $ 8,164
============== =============
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 INCOME
Nine Months Ended September 30,
(in thousands)
(Unaudited)
1999 1998
INTEREST INCOME:
Residential Mortgage Loans $ 46,363 $ 47,209
Commercial Mortgage Loans 4,756 6,073
Overnight Investments 3,749 5,902
-------------- -------------
54,868 59,184
Less: Servicing Fees (1,930) (1,828)
-------------- -------------
Net Interest Income 52,938 57,356
-------------- -------------
NON INTEREST EXPENSE:
Advisory Fees 188 188
Other Administrative Expenses 241 308
-------------- -------------
Total Noninterest Expense 429 496
-------------- -------------
NET INCOME $ 52,509 $ 56,860
============== =============
NET INCOME APPLICABLE TO COMMON SHARE $ 19,097 $ 23,447
============== =============
NET INCOME PER COMMON SHARE $ 19,097 $ 23,447
============== =============
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 CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30,
(in thousands)
(Unaudited)
1999 1998
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
Refund for unused organizational costs 368 0
-------------- -------------
Balance at End of Period 382,005 381,637
============== =============
RETAINED EARNINGS:
Balance at Beginning of Year 17,487 16,543
Net Income 52,509 56,860
Common Dividends (21,469) (22,965)
Preferred Dividends (33,412) (33,413)
-------------- -------------
Balance at End of Period 15,115 17,025
============== =============
TOTAL STOCKHOLDERS' EQUITY $ 1,118,870 $ 1,120,412
============== =============
The Notes to Financial Statements are an integral part of these Statements.
-6-
<PAGE>
Part I
ITEM 1. (continued)
CHASE PREFERRED CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
(in thousands)
(Unaudited)
1999 1998
OPERATING ACTIVITIES:
Net Income $ 52,509 $ 56,860
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Receivable for Loan Payment Collected in
Subsequent Month (43,903) 16,618
Amortization of Deferred Costs 3,175 1,653
Net Change In:
Due From Affiliates 48,289 (8,020)
Accrued Interest Receivable 3,068 1,889
Accounts Payable (17) 0
Due to Affiliates 0 54
---------- ----------
Net Cash Provided by Operating Activities 63,121 69,054
---------- ----------
INVESTING ACTIVITIES:
Purchase of Mortgage Loans (479,563) (484,783)
Acquired Reserve 808 822
Principal Payments Received 454,806 414,453
Purchase of Accrued Interest Receivable (1,701) (2,145)
Sale of Loans (Net of Reserves) 0 1,146
--------- ----------
Net Cash Used by Investing Activities (25,650) (70,507)
--------- ----------
FINANCING ACTIVITIES:
Dividends Paid (54,881) (56,378)
--------- ----------
Net Cash Used by Financing Activities (54,881) (56,378)
--------- ----------
NET DECREASE IN CASH (17,410) (57,831)
CASH AT BEGINNING OF PERIOD 25,215 93,919
--------- ----------
CASH AT END OF PERIOD $ 7,805 $ 36,088
========= ==========
The Notes to Financial Statements are an integral part of these Statements.
-7-
<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. 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. The Company began operating in 1996, upon
completion of an initial public offering of 22,000,000 shares of its 8.10%
Cumulative Preferred Stock, Series A, $25 par value per share (the "Series A
Preferred Shares"), which are currently traded on the New York Stock Exchange.
The Company used the proceeds of that offering (after payment of offering
expenses), together with capital invested by the Bank, to purchase a 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.
On December 29, 1998, the Bank, as sole common stockholder, approved an
amendment to the Company's Certificate of Incorporation that reduced the
Company's authorized Common Stock from 5,000,000 shares to one share and
recapitalized the outstanding Common Stock from 572,500 shares having a par
value of $300 per share ($171,750,000 in the aggregate) to one share having a
par value of $171,750,000. All references to numbers of shares of common stock,
per common share amounts and common stock par values have been restated to
reflect the effects of the amendment.
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.
Certain amounts in the statement of cash flows have been reclassified to conform
to the current presentation.
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, 1998 (the "1998 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").
-8-
<PAGE>
Part I
Item 1. (Continued)
For the quarters ended September 30, 1999 and 1998, aggregate advisory and
servicing fees totaled approximately $719,000 and $733,000, respectively. For
the nine months ended September 30, 1999 and 1998, aggregate advisory and
servicing fees totaled approximately $2,118,000 and $2,016,000, respectively.
In its capacity as Sub-Servicer, CMMC owed the Company approximately $22,851,000
and $71,140,000 at September 30, 1999 and December 31, 1998, respectively,
primarily consisting of mortgage loan payments received on behalf of the
Company. Pursuant to the terms of the Servicing Agreement and Subservicing
Agreements, the Company receives mortgage loan payments collected by the
Servicer (and sub-servicer) in the month immediately following their 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 September 30, 1999 and 1998 amounted to approximately $968,000
and $1,371,000, respectively. Interest income on these deposits for the nine
months ended September 30, 1999 and 1998 amounted to approximately $3,749,000
and $5,902,000, 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 1998 Annual Report.
Mortgage Loans:
The book value and fair value of Mortgage Loans at September 30, 1999 and
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
Carrying Estimated Carrying Estimated
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Residential Mortgage Loans $ 1,024,714 $ 1,036,139 $ 944,012 $ 957,395
Commercial Mortgage Loans 62,139 65,894 77,356 82,763
Allowance for Loan Losses (4,928) (4,928) (4,120) (4,120)
-------------- ------------- ------------- --------------
Mortgage Loans, net of allowance
for loan losses $ 1,081,925 $ 1,097,105 $ 1,017,248 $ 1,036,038
</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 and due to affiliates, are considered to approximate their respective
carrying value due to their short-term nature and negligible credit losses.
-9-
<PAGE>
Part I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
CHASE PREFERRED CAPITAL CORPORATION
FINANCIAL HIGHLIGHTS
(in thousands, except per share, unit and ratio data)
(Unaudited)
<TABLE>
1999 1998
---------------------------------------------- ------- Nine Months Ended
THIRD SECOND FIRST THIRD SEPTEMBER 30,
--------------------------
QUARTER QUARTER QUARTER QUARTER 1999 1998
------- ------- ------- ------- --------------------------
<CAPTION>
INCOME STATEMENT:
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 18,091 $ 18,852 $ 17,925 $ 20,128 $ 54,868 $ 59,184
Net Interest Income 17,434 18,213 17,291 19,458 52,938 57,356
Net Income 17,314 18,048 17,147 19,302 52,509 56,860
Net Income Applicable to
Common Share $ 6,177 6,910 6,010 8,164 19,097 23,447
Income Per Common Share (a) $ 6,177 $ 6,910 $ 6,010 $ 8,164 $ 19,097 $ 23,447
BALANCE SHEET:
Mortgage Loans $ 1,086,853 $ 1,059,016 $ 1,027,272 $ 1,035,541 $ 1,086,853 $ 1,035,541
Total Assets 1,118,917 1,119,627 1,118,712 1,123,700 1,118,917 1,123,700
Preferred Stock Outstanding 550,000 550,000 550,000 550,000 550,000 550,000
Total Stockholders' Equity $ 1,118,870 $ 1,119,225 $ 1,118,324 $ 1,120,412 $ 1,118,870 $ 1,120,412
OTHER DATA:
Dividends Paid on Preferred Shares $ 11,137 11,138 $ 11,137 $ 11,138 $ 33,412 $ 33,413
Dividends Paid on Common Shares $ 6,900 $ 6,009 $ 8,560 $ 7,400 $ 21,469 $ 22,965
Number of Preferred Shares
Outstanding 22,000,000 22,000,000 22,000,000 22,000,000 22,000,000 22,000,000
Number of Common Shares
Outstanding (a) 1 1 1 1 1 1
Average Yield on Mortgage Loans 6.7% 6.9% 7.1% 7.6% 6.9% 7.6%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(a) All common and per share amounts have been restated to reflect the change,
effected on December 29, 1998, of the Company's outstanding Common Stock from
572,500 shares, par value $300 per share, to one share, par value $171,750,000
per share.
-10-
<PAGE>
Part I
Item 2. (continued)
Certain forward-looking statements contained in this Form 10-Q are subject to
risks and uncertainties. The Company's actual results may differ materially from
those included in these forward-looking statements. Reference is made to the
Company's reports filed with the Securities and Exchange Commission, in
particular the 1998 Annual Report, for a discussion of factors that may cause
such differences to occur.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
The Company is a real estate investment trust ("REIT") under the Internal
Revenue Code of 1986 (the "Code"). The principal business of the Company is to
acquire, hold and manage assets that qualify as REIT real estate assets under
the Code and that will generate net income for distribution to stockholders. To
date, the Company has acquired the following types of assets: (i) Mortgage Loans
acquired 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 and
(ii) securities that qualify as real estate assets under Section 856(c)(6)(B) of
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 are secured by single-family residential, multifamily
or commercial real estate properties located in the United States.
The Company began operations in 1996 upon completion of an initial public
offering of 22,000,000 Series A Preferred Shares. The Series A Preferred Shares
are traded on the New York Stock Exchange. The Company's Common Stock is held
solely by the Bank.
POSSIBLE FUTURE DEVELOPMENTS
The Company is currently evaluating a proposal (the "Expansion Proposal")
pursuant to which the Company may acquire additional assets qualifying as REIT
real estate assets under the Code. If the Expansion Proposal is implemented, it
is currently anticipated that the additional assets acquired by the Company
would consist of (i) additional loans acquired from the Bank and its affiliates
consisting of loans secured by manufactured housing units ("MHLS") and
residential second mortgages ("2ND mortgages") and (ii) loans made by the
Company to the Bank or its affiliates secured by home equity lines of credit
("HELOCs") pledged by the borrower to the Company. The MHLS, 2ND mortgages and
HELOCs subject to the Expansion Proposal would be serviced by CMMC on behalf of
the Company. If the Expansion Proposal is implemented, the Company will continue
to acquire Mortgage Loans in accordance with the policies and contractual terms
currently in effect with respect to those Mortgage Loans.
The Company's Board of Directors has determined that the Expansion Proposal will
only be effected if approved by the Company's Independent Directors, and after
receipt of regulatory approval and receipt of confirmations by the rating
agencies rating the Series A Preferred Shares that implementation of the
proposal will not adversely affect their ratings of the Series A Preferred
Shares. Accordingly, there is no assurance that the Expansion Proposal will be
implemented. However, if the Expansion Proposal is approved, it is currently
expected to be implemented in the first half of 2000.
CONSIDERATIONS RELATING TO AFFILIATE TRANSACTIONS
The Bank administers the day-to-day activities of the Company in its role as
Advisor under the Agreement. CMMC sub-services the Company's Mortgage Loans on
behalf of the 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 assets from
the Bank or its affiliates; servicing of those assets, particularly with respect
to assets 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 assets to
CMC or any of its nonbank subsidiaries; the modification of the Agreement or the
Servicing Agreements; and the entry into additional agreements with CMC, the
Bank or their affiliates (including agreements contemplated by the Expansion
Proposal).
-11-
<PAGE>
Part I
Item 2. (continued)
The Company intends that any agreements and transactions between the Company, on
the one hand, and CMC, the Bank or their affiliates, on the other hand
(including any agreements and transactions contemplated by the Expansion
Proposal), will be fair to all parties and consistent with market terms. 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 those
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 September 30, 1999 and 1998, the Company reported net
interest income of approximately $17,434,000 and $19,458,000, respectively.
Interest income from residential and commercial mortgage loans was approximately
$15,823,000 and $1,300,000, respectively, for the quarter ended September 30,
1999 and approximately $17,011,000 and $1,746,000, respectively, for the quarter
ended September 30, 1998. The total average yield for the quarters ended
September 30, 1999 and 1998 was 6.7% and 7.6%, respectively. After deduction of
approximately $63,000 and $57,000 in advisory fees and other administrative
expenses, respectively, the Company reported net income of approximately
$17,314,000 for the quarter ended September 30, 1999. This compared to net
income of approximately $19,302,000 for the quarter ended September 30, 1998,
after deducting approximately $63,000 and $93,000 in advisory fees and other
administrative expenses, respectively. The lower results for the third quarter
of 1999 when compared to the third quarter of 1998 are primarily due to the
lower yield on mortgage loans during the quarter ended September 30, 1999.
The Company reported basic earnings per share of $6,177,000 and $8,164,000 for
the quarters ended September 30, 1999 and 1998, respectively. The lower results
for the third quarter of 1999 when compared to the third quarter of 1998 reflect
the impact of lower yield on mortgage loans during the quarter ended September
30, 1999.
For the nine months ended September 30, 1999 and 1998, the Company reported net
interest income of approximately $52,938,000 and $57,356,000, respectively.
Interest income from residential and commercial mortgage loans was approximately
$46,363,000 and $4,756,000, respectively, for the nine months ended September
30, 1999 and approximately $47,209,000 and $6,073,000, respectively, for the
nine months ended September 30, 1998. The total average yield on the Mortgage
Loans for the nine months ended September 30, 1999 and 1998 was 6.9% and 7.6%,
respectively. After deduction of approximately $188,000 and $241,000 in advisory
fees and other administrative expenses, respectively, the Company reported net
income of approximately $52,509,000 for the nine months ended September 30,
1999. This is compared to net income of approximately $56,860,000 for the nine
months ended September 30, 1998, after deducting approximately $188,000 and
$308,000 in advisory fees and other administrative expenses, respectively. The
Company reported basic earnings per share of $19,097,000 and $23,447,000 for the
nine months ended September 30, 1999 and 1998, respectively. The lower results
for the 9 months ended 1999 when compared with the same period in 1998 reflect
the impact of the lower yield on mortgage loans during the nine months ended
September 30, 1999.
The Company paid $11,137,000 and $11,138,000 for the quarters ended September
30, 1999 and 1998, respectively, and $33,412,000 and $33,413,000 for the nine
months ended September 30, 1999 and 1998, respectively, in dividends on the
Series A Preferred Shares. As of this date, all dividend payments on Series A
Preferred Shares are current. For the nine months ended September 30, 1999, the
Company paid Common Stock dividends of approximately $21,469,000. 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 REIT.
-12-
<PAGE>
Part I
Item 2. (continued)
MORTGAGE LOANS
At September 30, 1999, mortgage loans consisted of both residential and
commercial mortgage loans. At that date, residential mortgage loans in the
portfolio consisted of treasury and prime rate adjustable mortgages ("ARMs");
one-year and six-month 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 and six-month 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's initial
portfolio of Mortgage Loans was 90% residential and 10% commercial. Over time,
as commercial mortgage loans have matured or prepaid, they have been replaced
with residential mortgage loans. At September 30, 1999, 94.3% of the Company's
portfolio was comprised of residential mortgage loans, with the balance
consisting of commercial mortgage loans, and, as commercial loans continue to
prepay or mature, the proportion of the Company's portfolio consisting of
commercial loans is expected to decrease.
For the quarters ended September 30, 1999 and 1998, the Company purchased
Mortgage Loans having an outstanding principal balance of approximately
$126,829,000 and $174,316,000, respectively, from affiliates of the Bank. In
addition, for the quarters ended September 30, 1999 and 1998, the Company
received approximately $118,240,000 and $153,105,000, respectively, of principal
payments on its portfolio from the Servicer (and Sub-Servicer).
For the nine months ended September 30, 1999 and 1998, the Company purchased
Mortgage Loans having an outstanding principal balance of approximately
$479,563,000 and $484,783,000, respectively, from affiliates of the Bank. In
addition, for the nine months ended September 30, 1999 and 1998, the Company
received approximately $454,806,000 and $414,453,000, 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:
<TABLE>
Interest-Earning Asset Mix At September 30, 1999 At December 31, 1998
(in thousands) Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Residential Mortgage Loans $ 1,024,714 94.3% $ 944,012 92.4%
Commercial Mortgage Loans 62,139 5.7% 77,356 7.6%
------------- -------- ------------ -------
TOTAL INTEREST-EARNING ASSETS $ 1,086,853 100% $ 1,021,368 100%
============= ======== ============ =======
- ---------------------------------------------------------------------------------------
</TABLE>
For a further discussion on the Company's acquisition and disposition policies
for Mortgage Loans, reference is made to Note 2 of the Company's 1998 Annual
Report.
At September 30, 1999 and December 31, 1998, there were no nonaccruing
residential mortgage loans. For the quarter and nine months ended September 30,
1999, there were no sales of nonaccruing loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is available to absorb potential credit losses
from the entire Mortgage Loan portfolio. The Company deems its allowance for
loan losses as of September 30, 1999 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 loan losses.
-13-
<PAGE>
Part I
Item 2. (continued)
The accompanying table reflects the activity in the Company's allowance for loan
losses for the periods indicated:
<TABLE>
Three Months Ended Nine Months Ended
Allowance for Loan Losses Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
(in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Total Allowance at Beginning of Period $ 4,715 $ 3,555 $ 4,120 $ 3,468
Acquired Allowance 213 295 808 822
Provision for Losses 0 0 0 0
Charge-Offs 0 0 0 (78)
Recoveries 0 0 0 0
Sale of Loans 0 0 0 (362)
---------- ---------- ----------- -----------
Total Allowance at End of Period $ 4,928 $ 3,850 $ 4,928 $ 3,850
========== ========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1999 and 1998, the Company's allowance for loan losses as a
percentage of total loans was .45% and .37%, respectively.
INTEREST RATE RISK
The Company's income currently 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, if the Expansion Proposal is implemented, on the additional assets
acquired pursuant to that proposal) 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 adjustable rate loans are based and from prepayments of loans
with fixed interest rates, resulting in reinvestment of the proceeds in
lower-yielding 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
September 30, 1999 and December 31, 1998:
<TABLE>
Geographical Breakout September 30, 1999 December 31, 1998
(in thousands) Amount Percent Amount Percent
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Residential Mortgage Loans:
California $ 388,298 35.7% $ 372,200 36.4%
Colorado 83,330 7.7% 63,278 6.2%
Other States (no State has more than 5% of total loans) 553,086 50.9% 508,534 49.8%
------------ ----- ------------ -----
Total Residential Mortgage Loans 1,024,714 94.3% 944,012 92.4%
------------ ----- ------------ -----
Commercial Mortgage Loans:
New York Metropolitan Tri-State Area 58,534 5.4% 73,523 7.2%
Other States (no State has more than .24% of total loans) 3,605 .3% 3,833 0.4%
------------ ------ ------------ -----
Total Commercial Mortgage Loans 62,139 5.7% 77,356 7.6%
------------ ------ ------------ -----
TOTAL $ 1,086,853 100% $ 1,021,368 100%
============ ====== ============= ====
</TABLE>
-14-
<PAGE>
Part I
Item 2. (continued)
At September 30, 1999, approximately 35.7% 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, a substantial majority of the commercial mortgage
properties underlying the Company's commercial mortgage loans were 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 current 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 of Mortgage Loans by individual borrowers.
The Company currently anticipates that, if the Expansion Proposal is approved,
the initial purchase by the Company of the portfolio of additional assets
contemplated by that proposal (and any subsequent purchases intended to increase
the size of that portfolio of additional assets) will be fully funded through
additional investments by the Bank. Subsequent purchases to maintain the size of
the portfolio acquired pursuant to the Expansion Proposal will be funded with
proceeds obtained by the Company as the acquired assets mature, are prepaid by
the borrowers or are sold by the Company.
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
10 of the Company's 1998 Annual Report.
OPERATIONAL RISK
YEAR 2000. As noted above, the Company is a wholly-owned subsidiary of the Bank,
which is itself a wholly-owned subsidiary of CMC. The Company has no employees.
In accordance with agreements between the Company and the Bank, the Bank manages
all of the Company's operations, including the servicing of all of the Company's
Mortgage Loans. Year 2000 efforts for the Company are likewise being
coordinated, managed and monitored as part of the Year 2000 efforts of CMC by
CMC's Year 2000 Enterprise Program Office. The Program Office, which reports
directly to CMC's Executive Committee, together with 34 business area project
offices, coordinates, manages and monitors all aspects of CMC's Year 2000 effort
on a global basis, both technical- and business-related. In addition, a Year
2000 Core Team, consisting of senior managers from CMC's internal audit,
technology risk and control, financial management and control, the technology
infrastructure division, legal and the Program Office, provides independent
oversight of the process. The Core Team, which also reports directly to CMC's
Executive Committee, is charged with identifying key risks and ensuring
necessary management attention for timely resolution of project issues.
On January 1, 1999, CMC established a Year 2000 Business Risk Council, comprised
of approximately 20 senior business leaders - line managers, risk managers and
representatives of key staff functions - to identify potential Year 2000
business risks and to coordinate planning and readiness efforts, contingency
plans for Year 2000 and the establishment of a Year 2000 command center
structure and rapid response teams.
-15-
<PAGE>
Part I
Item 2. (continued)
CMC's Year 2000 Program is tracked against a well-defined set of milestones. CMC
completed its inventory and assessment phases in 1997, identifying affected
hardware and software, prioritizing tasks and establishing implementation plans.
Approximately 3,900 business applications (approximately 1,000 of which are
provided by third-party vendors, were identified by CMC as requiring Year 2000
remediation. As of September 30, 1999, CMC's software applications currently in
operation have been remediated and tested for Year 2000 compliance. CMC's
information technology teams are now managing systems changes to ensure that
CMC's applications remain Year 2000 compliant. CMC has also imposed a "freeze"
on technology changes from October 1, 1999 through the end of January 2000. The
freeze is intended to ensure that CMC's technology environment will be highly
stable at year-end.
Due diligence efforts of external Year 2000 risks are continuing. This includes
due diligence on settlement counterparties (such as correspondents,
sub-custodians and investment advisors) and customers. In addition, stress
testing, on at least a monthly basis, of CMC's market-sensitive portfolios is
being performed. The stress test scenarios continue to be updated as more
information about worldwide Year 2000 readiness becomes available. CMC continues
to evaluate potential Year 2000 impacts upon its funding capability and has
taken actions to incorporate such risks into its capital and liquidity planning
in order to meet anticipated funding needs at year end.
The results of CMC's due diligence and other assessment efforts are utilized by
CMC to help it manage its Year 2000 business risks. Under the auspices of CMC's
Year 2000 Business Risk Council, contingency plans have been developed, refined
and tested. Approximately 250 different risk scenarios have been identified
across all geographies and CMC businesses, resulting in the development of
approximately 1,400 individual Year 2000 contingency plans. These plans include
identification of possible alternative methods by which to provide service,
alternative locations for operations, increased staff support to service
customers, as well as ways for CMC to maintain critical services in the event of
environmental infrastructure outages.
CMC's Year 2000 program is now focused almost entirely on final preparations for
the event. Year 2000 command centers have been created; problem tracking and
reporting tools designed; key operational and service performance measures
identified for tracking; "wellness checks" of facilities, services, and systems
have been planned; and training of "rapid response teams" is in process. Three
dress rehearsals have been scheduled for the fourth quarter of 1999. The first
dress rehearsal, scheduled for October 15, 1999, tested command center
connectivity and processes. The second dress rehearsal, scheduled for October 29
and 30, 1999, tested CMC's Year 2000 tracking, monitoring and communications
processes. These dress rehearsals were successful in identifying areas for
improved communication and more efficient decision making at the event. The
third dress rehearsal, scheduled for early December 1999, is intended to refine
business status reporting and test back-up command center infrastructure and
processes. The Year 2000 command center structure will become operational in
late December and will continue in place until a stable operating environment is
achieved.
CMC continues to estimate that full year 1999 Year 2000 costs will be
approximately $158 million.
CMC's expectations about completion of its Year 2000 remediation and testing
efforts, the anticipated costs to complete the project and the anticipated
business, operational and financial risks to CMC and its subsidiaries, including
the Company, are subject to a number of uncertainties. CMC's estimates as to the
cost to prepare for the Year 2000 are based on numerous assumptions regarding
future events, including, among others, continued availability of trained
personnel, expectations regarding third party modification plans and the nature
and amount of testing that may be required. The operations or financial results
of CMC and its subsidiaries, including the Company, could be materially
adversely affected if vendors, service providers, customers or securities
exchanges are unable to successfully implement their Year 2000 plans and
continue operations; if CMC is unsuccessful in identifying or fixing all Year
2000 problems in its critical operations; or if CMC is unable to retain the
staff or third party consultants necessary to implement its technology plans at
currently projected costs and timetables.
-16-
<PAGE>
Part I
Item 2. (continued)
OTHER MATTERS
As of September 30,1999 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, are 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 93% 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
Stock and the Series A Preferred Shares and anticipates meeting the 1999 annual
distribution and administrative requirements.
-17-
<PAGE>
Part I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
For information regarding interest rate risk, see the Interest Rate Risk section
on page 14.
CHASE PREFERRED CAPITAL CORPORATION
AVERAGE BALANCE SHEET
Three Months Ended September 30,
(in thousands, except per share data)
(Unaudited)
<TABLE>
1999 1998
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
(Annualized) (Annualized)
<CAPTION>
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Residential Mortgage Loans $ 958,689 $ 15,823 6.6% $ 896,559 $ 17,011 7.6%
Commercial Mortgage Loans 63,307 1,300 8.2% 84,232 1,746 8.3%
CASH 64,570 968 6.0% 89,123 1,371 6.2%
------------- -------- ---- ----------- ---------- ----
TOTAL INTEREST-EARNING ASSETS 1,086,566 18,091 6.7% 1,069,914 20,128 7.5%
------------- -------- ---- ----------- ---------- ----
Allowance for Loan Losses (4,738) (3,577)
Due from Affiliates 38,727 56,219
Accrued Interest Receivable 6,415 6,551
------------- -----------
TOTAL ASSETS $ 1,126,970 $ 1,129,107
============= ===========
LIABILITIES:
Accounts Payable $ 5,048 $ 2,924
Due to Affiliates 0 3,941
------------- -----------
TOTAL LIABILITIES 5,048 6,865
------------- -----------
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 $171,750,000 Per Share;
One Share Authorized, Issued and Outstanding 171,750 171,750
Capital Surplus 381,641 381,637
RETAINED EARNINGS 18,531 18,855
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,121,922 1,122,242
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 1,126,970 $ 1,129,107
============= ===========
EQUITY
</TABLE>
-18-
<PAGE>
CHASE PREFERRED CAPITAL CORPORATION
AVERAGE BALANCE SHEET
Nine Months Ended September 30,
(in thousands, except per share data)
(Unaudited)
<TABLE>
1999 1998
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
(Annualized) (Annualized)
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Residential Mortgage Loans $ 918,038 $ 46,363 6.7% $ 847,840 $ 47,209 7.4%
Commercial Mortgage Loans 70,440 4,756 9.0% 89,524 6,073 9.0%
Cash 85,371 3,749 5.9% 145,318 5,902 5.4%
------------- ---------- ---- ------------ --------- ----
TOTAL INTEREST-EARNING ASSETS 1,073,849 54,868 6.8% 1,082,682 59,184 7.3%
------------- ---------- ---- ------------ --------- ----
Allowance for Loan Losses (4,439) (3,541)
Due from Affiliates 50,559 46,356
Accrued Interest Receivable 6,936 6,255
------------- ------------
TOTAL ASSETS $ 1,126,905 $ 1,131,752
============= ============
LIABILITIES:
Accounts Payable $ 4,470 $ 3,315
Due to Affiliates 1 3,570
------------- ------------
TOTAL LIABILITIES 4,471 6,885
------------- ------------
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 $171,750,000 Per Share;
One Share Authorized, Issued and Outstanding 171,750 171,750
Capital Surplus 381,638 381,637
Retained Earnings 19,046 21,480
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,122,434 1,124,867
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 1,126,905 $ 1,131,752
============= =============
EQUITY
</TABLE>
-19-
<PAGE>
CHASE PREFERRED CAPITAL CORPORATION
QUARTERLY FINANCIAL INFORMATION
(in thousands, except per share data)
(Unaudited)
<TABLE>
1999 1998
-------------------------------------- -------------------------------------------------
THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<CAPTION>
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C> <C>
Residential Mortgage Loans $ 15,823 $ 15,209 $ 15,331 $ 17,221 $ 17,011 $ 14,446 $ 15,752
Commercial Mortgage Loans 1,300 1,730 1,726 1,836 1,746 2,141 2,186
Overnight Investments 968 1,913 868 1,187 1,371 2,668 1,863
---------- ---------- ---------- ---------- ---------- --------- ---------
18,091 18,852 17,925 20,244 20,128 19,255 19,801
Less: Servicing Fees (657) (639) (634) (421) (670) (559) (599)
---------- ---------- ---------- ---------- --------- --------- ---------
Net Interest Income 17,434 18,213 17,291 19,823 19,458 18,696 19,202
---------- ---------- ---------- ---------- --------- --------- ---------
NON INTEREST EXPENSE:
Advisory Fees 63 63 63 63 63 62 63
Other Administrative Expenses 57 102 81 61 93 92 123
---------- ---------- ---------- --------- --------- --------- ---------
Total Noninterest Expense 120 165 144 124 156 154 186
---------- ---------- ---------- --------- --------- --------- ---------
NET INCOME $ 17,314 $ 18,048 $ 17,147 $ 19,699 $ 19,302 $ 18,542 $ 19,016
========== ========== =========== ========== ========== ========= =========
NET INCOME APPLICABLE TO
COMMON SHARE $ 6,177 $ 6,910 $ 6,010 $ 8,562 $ 8,164 $ 7,404 $ 7,879
========== ========== =========== ========== ========== ========= =========
NET INCOME PER COMMON
SHARE(a) $ 6,177 $ 6,910 $ 6,010 $ 8,562 $ 8,164 $ 7,404 $ 7,879
========== ========== =========== ========== ========== ========= =========
</TABLE>
- ----------
(a) All per share amounts have been restated to reflect the change, effected on
December 29, 1998, of the Company's outstanding Common Stock from 572,500
shares, par value $300 per share, to one share, par value $171,750,000 per
share.
-20-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On September 17, 1999, the Bank, the sole holder of the Company's Common Stock,
by 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
-21-
<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: November 12, 1999 By /s/ Louis M. Morrell
----------------- ---------------------------------
Louis M. Morrell
Treasurer
Part II
Item 6. (continued)
EXHIBIT 11
CHASE PREFERRED CAPITAL CORPORATION
Computation of net income per common share
------------------------------------------
(in thousands, except share and 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.
<TABLE>
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
1999 1998 1999 1998
=========================================================================================================================
<CAPTION>
Earnings:
<S> <C> <C> <C> <C>
Net Income $ 17,314 $ 19,302 $ 52,509 $ 56,860
Less: Preferred Stock Dividend Requirements 11,137 11,138 33,412 33,413
----------- ----------- ----------- -----------
Net Income Applicable to Common Stock $ 6,177 $ 8,164 $ 19,097 $ 23,447
----------- ----------- ----------- -----------
Shares:
Weighted Average Number of Common Shares Outstanding (a) 1 1 1 1
Net Income Per Share: (a) $ 6,177 $ 8,164 $ 19,097 $ 23,447
=========== =========== =========== ===========
=========================================================================================================================
</TABLE>
- ----------
(a) All common and per share amounts have been restated to reflect the change,
effected on December 29, 1998, of the Company's outstanding Common Stock from
572,500 shares, par value $300 per share, to one share, par value $171,750,000
per share.
-22-
Part II
Item 6. (continued)
EXHIBIT 12(a)
CHASE PREFERRED CAPITAL CORPORATION
computation of ratio of earnings to fixed charges
-------------------------------------------------
(in thousands, except ratio)
(Unaudited)
Nine Months Ended
September 30, 1999
------------------
Net income $ 52,509
-----------
Fixed charges:
Advisory fees 188
Total fixed charges 188
Earnings before fixed charges $ 52,697
===========
Fixed charges, as above $ 188
===========
Ratio of earnings to fixed charges 280.30
===========
-23-
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)
Nine Months Ended
September 30, 1999
------------------
Net income $ 52,509
-----------
Fixed charges:
Advisory fees 188
Total fixed charges 188
Earnings before fixed charges $ 52,697
===========
Fixed charges, as above $ 188
Preferred stock dividend requirements 33,412
-----------
Fixed charges including preferred stock dividends $ 33,600
===========
Ratio of earnings to fixed charges and
preferred stock dividend requirements 1.57
-24-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001018450
<NAME> CHASE PREFERRED CAPITAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> UNITED STATES DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,805
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,086,853
<ALLOWANCE> 4,928
<TOTAL-ASSETS> 1,118,917
<DEPOSITS> 0
<SHORT-TERM> 47
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
550,000
<COMMON> 171,750
<OTHER-SE> 397,120
<TOTAL-LIABILITIES-AND-EQUITY> 1,118,917
<INTEREST-LOAN> 51,119
<INTEREST-INVEST> 0
<INTEREST-OTHER> 3,749
<INTEREST-TOTAL> 54,868
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 1,930
<INTEREST-INCOME-NET> 52,938
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 429
<INCOME-PRETAX> 52,509
<INCOME-PRE-EXTRAORDINARY> 52,509
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,509
<EPS-BASIC> 19,097
<EPS-DILUTED> 19,097
<YIELD-ACTUAL> 6.9
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,928
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 4,928
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
