<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
ANNUAL REPORT
[X] PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 1993 Commission file number: 1-5945
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
THE CHASE MANHATTAN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-2633613
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1 CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10081
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(212) 552-2222
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS
-------------------
<S> <C>
Common Stock ($2.00 Par Value) 7 1/2% Subordinated Notes Due 1997
Junior Participating Preferred Stock Purchase Rights 7 3/4% Subordinated Notes Due 1999
Common Stock Subscription Warrants 8% Subordinated Notes Due 1999
Preferred Stock, Floating Rate Series F Floating Rate Notes Due 1999
Preferred Stock, 10.50% Series G 7.50% Subordinated Notes Due 2003
Preferred Stock, 9.76% Series H Floating Rate Subordinated Notes Due 2003
Preferred Stock, 10.84% Series I Floating Rate Subordinated Notes Due August 1, 2003
Preferred Stock, 9.08% Series J 6.50% Subordinated Notes Due 2005
Preferred Stock, 8 1/2% Series K 6 1/8% Subordinated Notes Due 2008
Preferred Stock, 8.32% Series L 6.75% Subordinated Notes Due 2008
Preferred Stock, 8.40% Series M
</TABLE>
All such securities are listed on the New York Stock Exchange.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of shares outstanding of the registrant's common stock ($2.00
Par Value) was 184,571,221 at January 31, 1994. The aggregate market value of
the voting stock held by nonaffiliates of the registrant amounted to
approximately $6,600,000,000 at January 31, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Documents Part of Form 10-K Incorporated into
--------- -----------------------------------
<S> <C>
The Registrant's Notice of 1994 Annual Meeting
of Stockholders and Proxy Statement* Part III
<FN>
* Such document is incorporated herein only to the extent specifically set forth in response to an item herein.
</TABLE>
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Exhibit Index Located on Page 96.
89
<PAGE> 2
FINANCIAL CONTENTS
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations
Summary of Selected Financial Data 34
Overview 34
Earnings Analysis
Net Interest Revenue-Taxable Equivalent Basis 35
Provisions for Possible Credit Losses and Assets Held for Accelerated Disposition 37
Other Operating Revenue 37
Other Operating Expenses 37
Provision for Income Taxes 38
Credit Risk Management
Overview 38
Loan Composition 39
Reserve for Possible Credit Losses 43
Net Loan Charge-offs and Credit Loss Ratios 44
Nonaccrual, Restructured and Past Due Outstandings and Domestic Real Estate Acquired 45
Assets Held for Accelerated Disposition 47
Asset/Liability Management
Overview 48
Liquidity Risk Management 48
Interest Rate Risk Management 50
Capital Management 51
Trading Activities 53
Recent Acquisitions and Divestitures 55
Business Operations 55
Independent Accountants' Report 57
Consent of Independent Accountants 57
Report of Management 57
The Chase Manhattan Corporation and Subsidiaries
Consolidated Statement of Condition 58
Consolidated Statement of Income 59
Consolidated Statement of Changes in Stockholders' Equity 60
Consolidated Statement of Cash Flows 61
The Chase Manhattan Bank, N.A. and Subsidiaries
Consolidated Statement of Condition 62
Notes to Financial Statements 63
Supplementary Financial Information
Consolidated Summary of Quarterly Financial Information 83
Average Balances, Interest and Average Rates-Taxable Equivalent 84
Consolidated Analysis of Credit Loss Experience 86
Selected Loan Maturities and Sensitivity to Changes in Interest Rates 87
Financial Ratios 87
Stockholder Data 88
SEC Report on Form 10-K 89
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Chase Manhattan Corporation and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
($ in millions, except per share data) 1993 1992 1991 1990 1989
- -------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
For the Year
Net Interest Revenue $ 3,863 $ 3,564 $ 3,345 $ 3,188 $ 3,025
Provision for Possible Credit Losses 995 1,220 1,085 1,300 1,737
Provision for Loans Held for Accelerated Disposition 566 -- -- -- --
Other Operating Revenue 2,949 2,349 2,167 2,075 1,931
Provision for Other Real Estate Held for Accelerated Disposition 318 -- -- -- --
Other Operating Expenses 4,202* 3,868 3,783 4,094 3,688
Income (Loss) Before Cumulative Effect of Change in Accounting Principle 466 639 520 (334) (665)
Cumulative Effect of Change in Accounting Principle--Adoption of SFAS 109 500 -- -- -- --
Net Income (Loss) 966 639 520 (334) (665)
Net Income (Loss) Applicable to Common Stock 826 515 420 (417) (743)
-------- -------- -------- -------- --------
Per Common Share
Income (Loss) Before Cumulative Effect of Change in Accounting Principle $ 1.89 $ 3.46 $ 3.12 $ (3.31) $ (7.94)
Net Income (Loss) 4.79 3.46 3.12 (3.31) (7.94)
Cash Dividends Declared 1.20 1.20 1.20 2.16 2.36
Dividend Payout Ratio 24.7% 34.4% 38.3% N/M N/M
Common Stockholders' Equity at Year-End (Book Value) $ 36.48 $ 32.25 $ 30.62 $ 29.54 $ 36.40
Market Price at Year-End 33.88 28.50 17.25 10.50 34.75
-------- -------- -------- -------- --------
Average Common Shares Outstanding (in thousands) 172,334 148,726 134,759 125,944 93,606
-------- -------- -------- -------- --------
At Year-End
Loans $ 60,493 $ 62,558 $ 67,785 $ 74,727 $ 76,692
Total Assets 102,103 95,862 98,197 98,064 107,369
Intermediate- and Long-Term Debt 5,641 6,913 6,612 6,527 7,681
Nonredeemable Preferred Stock 1,399 1,477 1,042 842 842
Common Stockholders' Equity 6,723 5,034 4,282 3,890 4,102
-------- -------- -------- -------- --------
Financial Ratios
Return on Average Total Assets .94% .64% .52% N/M N/M
Return on Average Common Stockholders' Equity 14.59 11.14 10.49 N/M N/M
-------- -------- -------- -------- --------
Capital Ratios
Common Stockholders' Equity as % of Total Assets 6.58% 5.25% 4.36% 3.97% 3.82%
Total Stockholders' Equity as % of Total Assets 7.95 6.79 5.42 4.83 4.60
Tier I Leverage 7.81 6.66 5.28 4.40 4.40
Tier I Capital as % of Net Risk-Weighted Assets 8.44 6.76 5.32 4.32 4.44
Total Capital as % of Net Risk-Weighted Assets 13.22 11.12 9.74 8.33 8.87
-------- -------- -------- -------- --------
<FN>
N/M--As a result of Net Loss, these ratios are not meaningful.
*Excludes $318 million Provision for Other Real Estate Held for Accelerated Disposition, shown separately.
</TABLE>
OVERVIEW
This section of the Annual Report should be read in conjunction with the
Description of Business section beginning on page 90. Chase's net income was
up 51% in 1993 to $966 million ($4.79 per share), compared with $639 million in
1992 ($3.46 per share), and up 86% from $520 million in 1991 ($3.12 per share).
Selected key performance indicators for 1993 were as follows:
EARNINGS
o Financial ratios improved in 1993. Return on average total assets
increased by 30 basis points and return on average common stockholders' equity
increased by 345 basis points, compared with 1992.
o Net interest revenue increased 8.4% compared with 1992 and 15.5% compared
with 1991, due to improved spreads on higher levels of interest-earning assets.
Average gross interest-earning assets increased to $89.9 billion in 1993, an
increase of approximately $1.7 billion and $1.4 billion, compared with 1992 and
1991, respectively.
o Provision for possible credit losses, excluding the accelerated
disposition portfolio, was $225 million and $90 million lower than 1992 and
1991, respectively.
o Other operating revenue increased 25.5% and 36.1%, compared with 1992 and
1991, respectively, reflecting increased trading revenue, higher investment and
corporate finance-related equity securities gains, and gains related to sales
of assets in the accelerated disposition portfolio. Trading revenue, which
includes foreign exchange and trading account revenue, was $716 million in
1993, compared with $468 million for 1992 and $335 million for 1991.
o Other operating expenses, excluding both other real estate (ORE) expenses
and the provision for ORE held for accelerated disposition, increased 6.5% and
8.5% compared with 1992 and 1991, respectively, primarily resulting from higher
incentive compensation related to higher earnings. Chase improved its expense
to revenue ratio, as adjusted, to 60% for 1993, compared with 63% in 1992 and
66% in 1991.
o Adoption of SFAS 109, "Accounting for Income Taxes," resulted in a
positive cumulative effect on net income of $500 million.
o Primary earnings per share for 1993, which increased $1.33 from 1992, was
affected by the increase in the average number of common and common-equivalent
shares.
ASSET QUALITY
o Consistent with its strategic and financial goals of reducing its overall
exposure to domestic commercial real estate, Chase segregated $2.0 billion of
lower quality domestic commercial real estate assets for accelerated
disposition as of March 31, 1993. Special provisions of $884 million and the
utilization of $135 million of existing credit loss reserves reduced such
assets to their estimated disposition value of approximately $1.0 billion at
March 31, 1993. The net carrying value of the assets in this portfolio was
reduced by approximately $802 million, or 78%, through December 31, 1993.
o Chase reduced its overall domestic commercial real estate loan exposure
by $3.6 billion, or 54.0%, from $6.7 billion at December 31, 1992 to $3.1
billion at December 31, 1993, primarily through transfers to the accelerated
disposition portfolio, repayments and charge-offs.
34
<PAGE> 4
o Chase reduced its medium- and long-term restructured exposure to both
refinancing countries and Mexican Brady bonds by $1.7 billion through sales,
charge-offs and valuations to market. Substantially all of the reductions
occurred during the fourth quarter. For the year, sales resulted in a net
pre-tax gain of approximately $2 million. Not included in this gain was $163
million of interest revenue realized from the sales of Brazilian and Argentine
past due interest bonds. In addition, net loan charge-offs of $476 million were
recorded, which effectively eliminated the reserve applicable to refinancing
countries. Chase transferred $418 million of cross-border extensions of credit
to the trading account with no impact on net income, because such assets were
recorded at amounts less than their current fair values. Additionally, Chase
transferred approximately $1.0 billion of cross-border extensions of credit and
Mexican Brady bonds to Investment Securities Available for Sale upon the
adoption of SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities," on December 31, 1993. The aggregate fair value of the remaining
cross-border extensions of credit exceeded their aggregate book value as of
December 31, 1993.
o Nonaccrual loans were reduced by $2.9 billion, or 73%, during 1993 to
$1.1 billion at December 31, 1993. The ratio of the reserve for possible credit
losses to nonaccrual outstandings improved to 135% at December 31, 1993 from
49% at December 31, 1992.
CAPITAL
o Chase continued to strengthen its capital base in 1993. The common
stockholders' equity ratio improved to 6.58% and the total stockholders' equity
ratio increased to 7.95%, compared with 5.25% and 6.79%, respectively, in 1992.
This was largely due to the issuance of 25.3 million shares of common stock
through a public offering, which added $746 million to capital, and through
retained earnings.
o Regulatory capital ratios continued to exceed the required minimums. At
year-end 1993, the Tier I Capital, Total Capital and Tier I Leverage ratios
improved to 8.44%, 13.22% and 7.81%, respectively, compared with 6.76%, 11.12%
and 6.66%, respectively, at December 31, 1992.
o Chase adopted SFAS 115 on December 31, 1993, which resulted in a positive
impact on stockholders' equity of $264 million.
EARNINGS ANALYSIS
[GRAPH 1]
The increase in total revenue, comprised of net interest revenue and other
operating revenue, for the three year period reflected above, is attributable
to strong growth in Chase's other operating revenue, primarily corporate
finance-related equity investment gains and trading revenue, and to an expanded
net interest margin. As a percentage of total revenue, other operating revenue
represented 43.3%, 39.7% and 39.3% for the years ended 1993, 1992 and 1991,
respectively.
<TABLE>
<CAPTION>
NET INTEREST REVENUE-- TAXABLE EQUIVALENT BASIS*
- -----------------------------------------------
1993 1992 1991
------------------- -------------------- ------------------
($ in millions) Amount Rate Amount Rate Amount Rate
- --------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Domestic Offices
Net Interest Revenue:
Financial Statement Basis $ 2,921 $ 2,751 $ 2,805
Taxable Equivalent Basis 2,944 4.33% 2,783 3.67% 2,857 3.30%
- --as a % of Average Gross Interest-Earning Assets 4.94 4.53 4.39
------- ----- ------- ----- ------- -----
Average Balances:
Gross Interest-Earning Assets 59,565 7.29 61,442 8.07 65,014 9.95
Interest-Bearing Liabilities** 47,233 2.96 49,349 4.40 54,283 6.65
------- ----- ------- ----- ------- -----
Overseas Offices
Net Interest Revenue:
Financial Statement Basis 942 813 540
Taxable Equivalent Basis 948 2.59 820 2.74 548 1.80
- --as a % of Average Gross Interest-Earning Assets 3.13 3.07 2.34
------- ----- ------- ----- ------- -----
Average Balances:
Gross Interest-Earning Assets 30,286 13.72 26,675 14.20 23,472 13.77
Interest-Bearing Liabilities** 28,812 11.13 25,897 11.46 22,400 11.97
------- ----- ------- ----- ------- -----
Consolidated Corporation
Net Interest Revenue:
Financial Statement Basis 3,863 3,564 3,345
Taxable Equivalent Basis 3,892 3.40 3,603 3.09 3,405 2.75
- --as a % of Average Gross Interest-Earning Assets 4.33 4.09 3.85
------- ----- ------- ----- ------- -----
Average Balances:
Gross Interest-Earning Assets 89,851 9.46 88,117 9.92 88,486 10.96
Interest-Bearing Liabilities 76,045 6.06 75,246 6.83 76,683 8.21
------- ----- ------- ----- ------- -----
<FN>
* Taxable equivalent amounts have been adjusted (by applying a combined U.S. Federal, state and local income tax rate of 41%) to
recognize the differential between interest revenue that is fully or partially exempt from taxes and interest revenue that is
fully taxable.
** Reflects appropriate allocations for the cost of time deposits received by overseas offices for domestic use and the cost of
domestic monies raised for use in overseas offices.
</TABLE>
35
<PAGE> 5
Net interest revenue includes interest earned on interest-earning assets
less interest expense incurred on interest-bearing liabilities, as well as such
items as loan fees and the recognition of cash interest collected on nonaccrual
loans.
Net interest margin, defined as net interest revenue-taxable equivalent
basis divided by average gross interest-earning assets, was 4.33% for 1993, up
24 basis points from 1992 and up 48 basis points from 1991. The increase in the
consolidated net interest margin primarily reflected the changing composition
of Chase's loan assets and liabilities. Higher yielding consumer loans
increased, while wholesale loans, particularly nonaccrual domestic commercial
real estate loans, decreased during 1993. Also in 1993, higher cost liabilities
were replaced by lower cost deposits and increased capital. Information on
Chase's asset/liability activities is presented in the Asset/Liability
Management section beginning on page 48.
Average gross interest-earning assets were up $1.7 billion, or 2.0%, from
1992 and up $1.4 billion, or 1.5%, from 1991. Average loans decreased in 1993
to $61.5 billion from the $64.6 billion and $70.9 billion levels reported for
1992 and 1991, respectively, representing decreases of 4.8% and 13.3% from
1992 and 1991 levels, respectively.
DOMESTIC OFFICES
Net interest revenue, on a taxable equivalent basis, was up $161 million in
1993, or 5.8%, from 1992, and up $87 million, or 3.0%, from 1991, as a result of
improved spreads on interest-earning assets, a decreased level of domestic
commercial real estate nonaccrual loans and changes in the deposit mix. Net
interest revenue was also favorably affected by a lower volume of consumer loan
sales and securitization activities of portfolio assets in 1993, compared with
1992 and 1991. Compared with 1992 and 1991, with respect to those consumer
assets sold or securitized in 1993, an increased percentage was originated
for sale and, therefore, was not considered a material contributor to net
interest revenue.
The 1993 average balance of gross interest-earning assets in domestic
offices was $59.6 billion, down $1.9 billion, or 3.1%, and $5.4 billion, or
8.4%, from 1992 and 1991 levels, respectively.
OVERSEAS OFFICES
Net interest revenue, on a taxable equivalent basis, as shown in the previous
table, was up $128 million in 1993, or 15.6%, from 1992 and up $400 million, or
73.0%, from 1991 as a result of a higher volume of interest-earning assets
which more than offset the reduced spread. Net interest revenue also included
revenue realized from the sale of Brazilian and Argentine past due interest
bonds of $142 million and $21 million, respectively. Chase received the
Brazilian bonds in settlement of interest due for 1989 and 1990, pursuant to an
agreement previously reached with the Brazilian government. The Argentine bonds
were received in settlement of a portion of the interest due for 1988 through
March 31, 1993, the date of the restructuring. The value of the bonds had not
been previously recognized in interest revenue.
In addition, approximately $48 million, $64 million and $73 million of
interest payments on Brazilian cross-border medium- and long-term nonaccrual
debt were recognized as interest revenue for 1993, 1992 and 1991, respectively.
Excluding the effect of the sale of past due interest bonds in 1993 and the
Brazilian interest payments recognized in net interest revenue in 1993, 1992
and 1991, the net interest margin for overseas offices would have been 2.43%,
2.83% and 2.02%, respectively.
The 1993 average volume of gross interest-earning assets in overseas
offices was $30.3 billion, up $3.6 billion, or 13.5%, from 1992 and up $6.8
billion, or 29.0%, from 1991. The increase in interest-earning assets resulted
primarily from attractive rates offered in overseas countries on
interest-bearing deposits placed with banks. The increase over 1991 also
reflected the consolidation of The Chase Manhattan Bank Australia Limited
(Chase Australia) in 1992, partially offset by the discontinuation of selected
business activities.
<TABLE>
<CAPTION>
NET INTEREST REVENUE--TAXABLE EQUIVALENT BASIS INCREASE (DECREASE) DUE TO CHANGES IN AVERAGE BALANCES AND INTEREST RATES*
1993 vs. 1992 1992 vs. 1991
------------------------------- -------------------------------
($ in millions) Balance Rate Total Balance Rate Total
- --------------- ------- ---- ----- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-Bearing Deposits Placed with Banks $146 $(188) $(42) $414 $(189) $ 225
Federal Funds Sold and Securities Purchased Under
Resale Agreements 197 61 258 154 226 380
Trading Account Assets (6) (68) (74) 140 (24) 116
Investment Securities 138 (37) 101 (44) 61 17
Loans:
Domestic Offices (334) (273) (607) (622) (826) (1,448)
Overseas Offices 88 (22) 66 (3) (241) (244)
Accelerated Disposition Portfolio--Interest-Earning 51 -- 51 -- -- --
---- ----- ---- ---- ----- -------
Total Interest-Earning Assets 280 (527) (247) 39 (993) (954)
---- ----- ---- ---- ----- -------
Interest-Bearing Liabilities:
Deposits:
Domestic Offices (30) (497) (527) (92) (780) (872)
Overseas Offices 153 (547) (394) (193) (374) (567)
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements (10) (5) (15) 190 (136) 54
Other Short-Term Borrowings 16 522 538 (143) 469 326
Intermediate- and Long-Term Debt (40) (98) (138) 5 (98) (93)
---- ----- ---- ---- ----- -------
Total Interest-Bearing Liabilities 89 (625) (536) (233) (919) (1,152)
---- ----- ---- ---- ----- -------
Net Interest Revenue--Taxable Equivalent Basis $191 $ 98 $289 $272 $ (74) $ 198
---- ----- ---- ---- ----- -------
<FN>
* Changes not due solely to average balances or interest rates have been allocated equally to average balances and interest rates.
</TABLE>
36
<PAGE> 6
PROVISIONS FOR POSSIBLE CREDIT LOSSES AND ASSETS HELD FOR ACCELERATED
DISPOSITION
A discussion of Chase's credit risk management policies and performance,
including the provision for possible credit losses, the related reserve for
possible credit losses, and the provision for assets held for accelerated
disposition, is presented in the Credit Risk Management section beginning on
page 38.
<TABLE>
<CAPTION>
OTHER OPERATING REVENUE
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Fees and Commissions:
Consumer Banking $ 457 $ 549 $ 585
Trust and Fiduciary 465 407 375
Investment Banking 194 200 212
Other 446 426 406
------ ------ ------
Total Fees and Commissions 1,562 1,582 1,578
------ ------ ------
All Other Operating Revenue:
Foreign Exchange Trading 356 327 215
Trading Account 360 141 120
Investment Securities Gains 47 13 3
Asset Securitizations and Loan Sales 98 126 111
Corporate Finance-Related Equity
Investment Gains 259 125 25
Accelerated Disposition Portfolio Gains 291 -- --
Other (24) 35 115
------ ------ ------
Total Other Operating Revenue $2,949 $2,349 $2,167
------ ------ ------
</TABLE>
Total other operating revenue for 1993, compared with 1992 and 1991, reflected
significant increases in trading account and trust and fiduciary revenues, as
well as improvements in foreign exchange trading revenue and significant gains
on sales of corporate finance-related equity investments and assets held for
accelerated disposition.
Consumer banking fees, which include credit card fees, service charges on
deposits and fees on other consumer products, such as retail insurance and
mortgage banking, increased 2.4% and 3.3% over 1992 and 1991, respectively,
excluding charges resulting from accelerated writedowns of mortgage servicing
assets.
Mortgage servicing assets result either from the purchase of servicing
rights, such as in the recent acquisition of Troy & Nichols, Inc., a consumer
mortgage origination and servicing company, or from the retention of servicing
in connection with the sale and securitization of mortgage loans. The value of
these assets represents the discounted present value of the estimated future
servicing revenue stream and is sensitive to changes in market interest rates
and anticipated prepayment levels of the underlying mortgage loans serviced.
These assets are deferred and amortized in proportion to, and over the period
of, estimated future net servicing revenue. Due to the extraordinarily high
industry-wide levels of mortgage refinancing activity in 1993, Chase recorded
$147 million of accelerated mortgage servicing writedowns, compared with $41
million in 1992. At December 31, 1993, mortgage servicing assets were
approximately $381 million. Accelerated writedowns of mortgage servicing assets
are dependent on mortgage refinancing activity. Although it is difficult to
predict refinancing activity, it currently is anticipated that such activity
in 1994 will not be as high as the 1993 level.
Trust and fiduciary fees in 1993 increased 14.2% and 23.9% from 1992 and
1991, respectively. This growth is attributed to a combination of factors,
principally growth in client assets under management in both the Transaction
and Information Services and Global Private Banking units. The increase in such
assets is largely attributed to emerging and expanding overseas markets, as
well as growth in the Vista family of mutual funds, for which Chase serves as
Investment Advisor. In addition, these units experienced increased transaction
volumes.
Total investment banking revenue from global corporate finance activities
increased in 1993, although the portion of such activities recorded as fees was
comparable with 1992. In 1993 and 1992, the growth in revenue was reflected in
related net interest revenue and all other operating revenue, rather than in
fee revenue.
Other fees and commissions, primarily fees on international bank services,
including fees on letters of credit and bankers' acceptances, and service
charges related to Transaction and Information Services products, increased
4.8% compared with 1992 and increased 9.8% compared with 1991.
The increase in foreign exchange trading and trading account revenue over
the past two years resulted from a higher volume of customers' foreign exchange
transactions associated with volatile markets, and customer demand for
derivatives and capital markets-related transactions across geographic regions.
Total trading revenue of $716 million for 1993 increased 53.0% over 1992 and
more than doubled over 1991. For more information, see the Trading Activities
section beginning on page 53 and Note 18 of Notes to Financial Statements.
Included in 1993 asset securitizations and loan sales were gains of $49
million and $23 million from mortgage and automobile loan securitizations,
respectively, which are further discussed in the Credit Risk Management section
beginning on page 38.
In 1993, Chase realized significant gains related to the disposition of
U.S. and foreign corporate finance-related equity investments, other equity
investments and securities received during loan restructurings in previous
years. While Chase expects to continue to realize gains from these sources,
such gains in 1994 may not continue at the 1993 level.
In addition, Chase recognized $291 million of net gains from the repayments
and sales of assets held for accelerated disposition. For more information, see
Assets Held for Accelerated Disposition beginning on page 47.
Other revenue for 1993 included a net gain of approximately $2 million from
sales of approximately $1.3 billion of medium- and long-term restructured
refinancing countries' loans and Mexican Brady bonds. This gain was net of
losses of approximately $140 million from the sale of $650 million of Mexican
par bonds, offset by sales of refinancing country extensions of credit at
amounts in excess of carrying values as a result of previous writedowns. In
addition, losses of approximately $30 million were recognized to write down the
remaining Mexican par bonds to fair value. Such bonds were then transferred
at current fair value to Investment Securities Available for Sale at December
31, 1993, upon adoption of SFAS 115. Other revenue for 1993 also included a net
gain of approximately $30 million resulting from the intended or completed
restructuring and disposition of several business investments, including a gain
from the sale of a 46% interest in Manhattan Card Co. Limited in Hong Kong,
partially offset by an adjustment to the carrying value of Chase Bank of
Arizona in anticipation of its sale.
Other revenue for 1992 included a $27 million gain from the disposition of
warrants related to a subsidiary that Chase sold several years ago and for 1991
included a $21 million net gain from the disposition of several business
entities.
<TABLE>
<CAPTION>
OTHER OPERATING EXPENSES
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Salaries and Employee Benefits $2,077 $1,916 $1,875
Net Occupancy 404 383 405
Equipment Rentals, Depreciation
and Maintenance 298 285 281
Other 1,423 1,284 1,222
------ ------ ------
Subtotal 4,202 3,868 3,783
------ ------ ------
Provision for Other Real Estate
Held for Accelerated Disposition 318 -- --
------ ------ ------
Total Other Operating Expenses $4,520 $3,868 $3,783
------ ------ ------
</TABLE>
During the period 1991 through 1993, Chase improved its operating efficiency;
other operating expenses, excluding ORE expenses, as a percentage of total
gross revenue declined from 66% to 60%. Amounts for 1993 also excluded the
provision for ORE held for accelerated disposition and the revenue realized
from the sale of Brazilian and Argentine past due interest bonds.
37
<PAGE> 7
Salaries and employee benefits increased 8.4% during 1993, compared with
1992, and were 10.8% higher than 1991, primarily as a result of increased
compensation accruals related to higher earnings, an additional $30 million
related to the adoption of SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," $10 million related to the adoption of SFAS 112,
"Employers' Accounting for Postemployment Benefits," and $10 million applicable
to the acquisition of Troy & Nichols, Inc. See Note 17 of Notes to Financial
Statements for additional details on SFAS 106 and SFAS 112.
Included in other expenses were ORE expenses of $213 million, $122 million
and $107 million for 1993, 1992 and 1991, respectively. ORE expenses include
valuation losses, operating expenses and net gains or losses on the sale of
such properties. The level of such expenses for 1993 was higher, compared with
1992 and 1991, largely due to an accrual for valuation losses related to ORE
transactions expected to close in 1994. It is anticipated that ORE expenses
will decline over the course of 1994.
Other expenses for 1993 also included charges of $45 million for
business-related investments, primarily for costs associated with expanding
dealer trading activities, principally in Europe, data center consolidations
and enhanced information systems. For additional details on other expenses, see
Note 23 of Notes to Financial Statements.
See Assets Held for Accelerated Disposition beginning on page 47 for
information on the provision for ORE held for accelerated disposition.
<TABLE>
<CAPTION>
NUMBER OF FULL-TIME EQUIVALENT EMPLOYEES
December 31,
------------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
Domestic Offices: 25,970* 25,310 26,030
------ ------ ------
Overseas Offices:
Asia 3,230 3,390 3,610
Europe, Middle East and Africa 3,230 3,210 3,540
Western Hemisphere 1,960 2,630 3,030
------ ------ ------
Total Overseas Offices 8,420 9,230 10,180
------ ------ ------
Total Employees 34,390 34,540 36,210
------ ------ ------
<FN>
* Includes approximately 650 employees of Troy & Nichols, Inc., which was acquired in 1993.
</TABLE>
PROVISION FOR INCOME TAXES
The provision applicable to income before taxes was $265 million in 1993,
compared with $186 million in 1992 and $124 million in 1991. Income taxes for
1992 and 1991 reflected the utilization of available income tax benefits of
$120 million and $145 million, respectively. The 1993 tax provision was $41
million lower than the 1992 tax provision, before the utilization of available
tax benefits. The decrease in 1993 was due to a higher level of pre-tax income
in 1992. See Note 20 of Notes to Financial Statements for additional details.
Chase adopted SFAS 109 on a prospective basis as of January 1, 1993. This
action resulted in a $500 million increase in both net income and deferred tax
assets from the cumulative effect of this change in accounting principle.
Netting these deferred tax assets against existing deferred foreign tax
liabilities of $120 million brought total net deferred tax assets to $380
million as of January 1, 1993. SFAS 109 requires that net deferred tax assets
be recognized when a more-likely-than-not criterion is met, that is, unless a
greater than 50% probability exists that the tax benefits will not actually be
realized some time in the future. In determining the amount of any such net
deferred tax assets to be recognized, significant judgment must be exercised
because the related realization depends on future events. These assets can be
reported as long as positive evidence exists regarding the existence of future
income or tax-planning strategies and as long as this evidence is not
outweighed by negative evidence.
During the remainder of 1993, total net deferred tax assets were reduced
primarily through the recognition of the net unrealized gains recorded upon
the adoption of SFAS 115 and the realization of certain previously deferred
loan losses in arriving at Chase's current 1993 tax liability. At December 31,
1993, Chase had total net deferred tax assets of $150 million, which was net of
a valuation allowance of $120 million.
Management believes that this asset recognition is appropriate because
Chase's current and expected future levels of income are sufficient to realize
these benefits, there is an absence of material tax return net operating loss
and credit carryforwards, and since tax-planning strategies exist.
A portion of the valuation allowance relates to the realization of state
and local tax benefits. As a result of differing state and local tax laws,
Management believes that significant uncertainty remains concerning the
realization of tax benefits at various state and local levels. These benefits
will be recorded in the future, generally as they are realized.
Net deferred tax assets are included in the determination of regulatory
capital ratios to the extent permissible.
CREDIT RISK MANAGEMENT
OVERVIEW
Chase actively manages credit risk, both on- and off-balance sheet, by
establishing and implementing policies and procedures to achieve objectives in
certain areas, including:
o centralized monitoring of Chase's global wholesale credit portfolio
composition, including the consolidation of several businesses in 1993 into a
Global Wholesale Portfolio Management sector.
o product-based management of Chase's consumer portfolio through the
establishment of separate comprehensive credit policies and risk rating
processes to address the individual risk and return characteristics of each
product portfolio.
o diversification of risk characteristics in terms of credit structure,
product, industry, geography and return, including potential risk of loss.
A significant element of credit risk management is portfolio
diversification, achieved primarily through Chase's lending franchise. This
franchise is comprised of the global wholesale businesses, which target
multinational and local corporations, governments, financial institutions and
wealthy individuals on a global basis; the National Consumer Product companies
that provide nationwide origination, distribution and servicing of consumer
products; and a full service Regional Bank that serves consumers, small
businesses and middle market companies located in the Northeast corridor.
Diversification and targeted risk retention levels are also achieved by the
sale or securitization of loans. Credit facilities, such as loans and loan
commitments, may be syndicated or sold or securitized after origination.
Syndication consists of arranging a credit facility between a borrower and
a group of lenders, in which each lender assumes a share of the facility,
thereby limiting Chase's risk with regard to the facility, since the syndicated
portions are not recorded on Chase's Consolidated Statement of Condition. These
activities, primarily conducted through the Global Capital Markets sector,
enable Chase to function as a financial intermediary between other suppliers
and users of funds. In contrast, loan sales occur only after a loan is funded
by Chase. Such loans are generally sold to maturity and without recourse to
Chase. Securitization involves the pooling of a number of loans and then
selling interests in the pool.
Chase's Asset Quality Council, chaired by the Senior Loan and Investment
Officer, operates as the principal corporate forum where senior credit and
business executives review developments in the portfolio. The Asset Quality
Council, together with the Credit Risk Management Policy Committee, comprised
of senior credit executives, participates in the definition and development of
credit policy and approves new credit products significant in scope or
potential volume to Chase. The Country Risk Committee reviews major sources of
country risk and their impact on Chase's business in the context of global risk
factors.
Within this overall framework, the risk management function for Chase's
trading businesses is responsible for managing counterparty credit risk. This
function quantifies transaction and counterparty risks and approves credit
lines governing customer transactions. It monitors portfolio composition and
compliance with credit policies and limits, manages credit exposure, determines
credit pricing methodologies and ensures appropriate documentation of
transactions.
38
<PAGE> 8
The credit risk management process is regularly reviewed by an internal
credit function, internal and external auditors and the federal banking
agencies. This process is designed to assess risk and identify credit
deterioration on a timely basis. In addition, such reviews monitor compliance
with credit policies.
Overall credit quality improved in 1993, primarily as a result of
initiatives taken to reduce problem asset concentrations in domestic commercial
real estate and medium- and long-term restructured exposures to both
refinancing countries and Mexican Brady bonds.
Where indicated in certain tables in this section, the assets in the
accelerated disposition portfolio were excluded in the determination of certain
amounts as these assets are separately managed and reported on Chase's
Consolidated Statement of Condition. Such exclusions favorably affected
certain amounts reported for 1993, compared with the amounts reported for 1992,
such as the provision for possible credit losses, net loan charge-offs and the
reserve for possible credit losses. See Assets Held for Accelerated Disposition
on page 47.
<TABLE>
<CAPTION>
LOAN COMPOSITION
December 31,
------------
($ in millions) 1993* 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Domestic Offices:
Wholesale:
Commercial Real Estate $ 3,099 $ 6,744 $ 8,603 $ 9,061 $ 9,163
Commercial and Industrial 8,032 9,185 9,972 12,950 13,932
Financial Institutions 1,391 1,718 2,028 2,543 2,054
Lease Financings 1,617 1,827 2,240 2,934 2,615
Purchasing or Carrying Securities 591 663 188 133 381
Tax-Exempt 191 344 447 1,006 1,390
Other 678 414 730 911 715
Consumer:
Secured by 1-4 Family Residential Properties 14,126 10,670 13,043 12,989 12,887
Credit Card 6,426 6,317 7,370 8,552 7,585
Other Consumer 8,009 7,343 5,924 6,469 6,166
------- ------- ------- ------- -------
Total Domestic Offices, Gross 44,160 45,225 50,545 57,548 56,888
Less: Unearned Discount and Fee Revenue 188 339 503 1,013 1,017
------- ------- ------- ------- -------
Total Domestic Offices 43,972 44,886 50,042 56,535 55,871
------- ------- ------- ------- -------
Overseas Offices:
Wholesale:
Commercial Real Estate 281 314 446 238 262
Commercial and Industrial 10,002 8,615 8,513 8,287 10,076
Financial Institutions 1,513 1,731 1,573 1,852 3,086
Government and Official Institutions 972 3,478 3,407 3,178 2,526
Other 1,511 1,263 1,504 2,329 2,114
Consumer 2,283 2,314 2,381 2,541 2,988
------- ------- ------- ------- -------
Total Overseas Offices, Gross 16,562 17,715 17,824 18,425 21,052
Less: Unearned Discount and Fee Revenue 41 43 81 233 231
------- ------- ------- ------- -------
Total Overseas Offices 16,521 17,672 17,743 18,192 20,821
------- ------- ------- ------- -------
Total Loans $60,493 $62,558 $67,785 $74,727 $76,692
------- ------- ------- ------- -------
<FN>
*Excludes accelerated disposition portfolio.
</TABLE>
Loan balances averaged $61.5 billion in 1993, down from the 1992 average
balance of $64.6 billion. In 1993, the loan portfolio experienced growth in the
consumer sector, primarily due to higher levels of demand for loans secured by
1-4 family residential properties and for automotive finance. Total average
loan balances in 1993 declined due to a combination of factors, including
Chase's focus on improving credit quality, specifically reducing commercial
real estate and refinancing countries exposures, and the emphasis on improving
the portfolio mix and profitability. Coupled with weak commercial loan demand,
these factors resulted in a reduction in total credit exposure, primarily in
the wholesale portfolio.
The average interest rate earned, on a taxable equivalent basis, on the
loan portfolio during 1993 was 9.36%, compared with 9.75% for 1992 and 11.26%
for 1991. The decrease in 1993, compared with the prior two years, was
due to the significant decline in short-term interest rates.
Chase originates selected short-term commercial loans for sale. Sales of
such loans amounted to $19.8 billion and $14.8 billion in 1993 and 1992,
respectively. These loans, which are accounted for at lower of cost or market,
were less than $100 million at both year-end 1993 and 1992. In 1993 and 1992,
Chase also sold $1.4 billion and $1.6 billion, respectively, of medium-term
commercial loans.
39
<PAGE> 9
DOMESTIC OFFICES
Loans in domestic offices averaged $42.9 billion in 1993, compared with $46.8
billion in 1992.
WHOLESALE PORTFOLIO:
The domestic wholesale portfolio is largely comprised of loans extended to
entities in the commercial and industrial and commercial real estate
businesses. Chase's wholesale loan portfolio in domestic offices decreased to
$15.6 billion at December 31, 1993 from $20.9 billion at December 31, 1992.
COMMERCIAL REAL ESTATE
As of March 31, 1993, Chase took actions to reduce its domestic commercial real
estate exposure by segregating a portion of its portfolio for accelerated
disposition. This portfolio is managed and reported separately from the core
credit portfolio and, therefore, amounts related to these assets are generally
excluded from the discussion of domestic commercial real estate loans in this
section. A detailed discussion of Assets Held for Accelerated Disposition can
be found on page 47.
At December 31, 1993, commercial real estate loans in domestic offices
decreased by $3.6 billion, or 54.0%, to $3.1 billion, compared with year-end
1992. This decrease resulted from the transfer of $1,465 million to the
accelerated disposition portfolio, $1,067 million of net principal repayments,
which included $58 million of interest applied to principal, and $305 million
of gross loan charge-offs. In addition, a net amount of $808 million of assets
was transferred to ORE. For 1993, commercial real estate loans in domestic
offices averaged $4.6 billion, excluding the accelerated disposition portfolio,
compared with $7.9 billion for 1992. The average interest rate earned on
domestic commercial real estate loans was 4.95%, compared with 4.85% for 1992
and 6.83% for 1991.
During 1992, Chase received $897 million of net principal repayments, which
included $116 million of interest applied to principal, recorded $456 million
of gross loan charge-offs and transferred a net amount of $506 million to ORE.
Chase continues to monitor its exposure to domestic commercial real estate
loans closely and expects that such exposure will continue to decrease.
<TABLE>
<CAPTION>
DOMESTIC COMMERCIAL REAL ESTATE LOANS BY GEOGRAPHIC REGION AND PROPERTY TYPE
December 31,
December 31, 1993* 1992
------------------ ------------
Office Other
($ in millions) Buildings Commercial** Residential Land Other*** Total Total
- --------------- --------- ---------- ----------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
New York City $ 173 $ 165 $ 243 $ 20 $ 62 $ 663 $1,313
New York (Excluding New York City) 273 473 200 27 124 1,097 1,400
------ ------ ------ ---- ---- ------ ------
Total New York 446 638 443 47 186 1,760 2,713
Arizona -- 39 3 3 -- 45 126
California 124 134 35 60 7 360 811
Connecticut 29 57 4 -- 6 96 161
Florida 18 7 1 23 15 64 659
New Jersey 63 31 6 27 55 182 511
Ohio 6 38 -- -- 11 55 228
Other New England 37 47 5 3 -- 92 226
Texas 15 21 -- 2 2 40 110
Washington, D.C./Metro 43 75 -- 10 33 161 405
Other 42 159 28 12 3 244 794
------ ------ ------ ---- ---- ------ ------
1993 Total $ 823 $1,246 $ 525 $187 $318 $3,099 --
------ ------ ------ ---- ---- ------ ------
1992 Total $1,861 $2,740 $1,123 $487 $533 -- $6,744
------ ------ ------ ---- ---- ------ ------
<FN>
* Excludes the accelerated disposition portfolio.
** Includes shopping centers and other commercial and industrial properties.
*** Includes mixed use properties and working capital loans.
</TABLE>
COMMERCIAL AND INDUSTRIAL
Commercial and industrial loans, the largest component of Chase's domestic
wholesale loan portfolio, consist primarily of loans to large corporate and
middle market customers.
At year-end 1993, commercial and industrial loans in domestic offices
decreased $1.2 billion from year-end 1992 as a result of net repayments and
lower loan demand.
During 1993, commercial and industrial loans in domestic offices averaged
$8.7 billion, compared with $9.5 billion in 1992. The average interest rate
earned on domestic commercial and industrial loans was 6.58% for 1993, 6.72%
for 1992 and 8.80% for 1991.
CONSUMER PORTFOLIO:
Consumer loans consist of residential mortgage loans, home equity loans, credit
card receivables, automobile loans and other forms of installment credit.
Chase's consumer loan portfolio in domestic offices increased to $28.6 billion
at December 31, 1993 from $24.3 billion at December 31, 1992.
SECURED BY 1-4 FAMILY RESIDENTIAL PROPERTIES
Loans secured by 1-4 family residential properties increased $3.5 billion, or
32.4%, in 1993, compared with year-end 1992. The increase in 1-4 family
residential property loans was largely due to the increased demand for
refinancings and originations as a result of lower interest rates and the
acquisition of $380 million of 1-4 family residential property loans from
Chase's purchase of Troy & Nichols, Inc.
Loans secured by 1-4 family residential properties averaged $11.7 billion
in 1993, compared with $11.6 billion in 1992. The average interest rate earned
on these loans decreased to 7.23% in 1993, compared with 8.66% in 1992 and
9.86% in 1991, as a result of lower interest rates. In 1992, the principal
composition of this loan portfolio shifted from fixed-rate to adjustable-rate
mortgage loans.
During 1993 and 1992, $4.7 billion and $5.7 billion, respectively, of 1-4
family residential property loans were securitized. Of these amounts,
approximately $4.5 billion and $4.1 billion of such loans were originated for
sale and accounted for at lower of cost or market in 1993 and 1992,
respectively, and $200 million and $1.6 billion were held in portfolio prior to
sale and accounted for at historical cost. An additional $4.6 billion and $2.6
billion of 1-4 family residential property loans were sold in 1993 and 1992,
respectively, primarily through traditional secondary market outlets.
At December 31, 1993 and 1992, domestic consumer loans included
approximately $2.9 billion and $1.5 billion, respectively, of 1-4 family
residential property loans and other consumer loans that were held for sale.
Such loans are carried at lower of cost or market.
Included in the following table are $10.1 billion and $7.6 billion of
adjustable-rate 1-4 family residential property loans for 1993 and 1992,
respectively, which include $1.2 billion and $1.0 billion in 1993 and 1992,
respectively, of loans under home equity lines of credit.
40
<PAGE> 10
<TABLE>
<CAPTION>
DOMESTIC LOANS SECURED BY 1-4 FAMILY RESIDENTIAL PROPERTIES BY GEOGRAPHIC REGION
- --------------------------------------------------------------------------------
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
New York City $ 902 $ 679
New York (Excluding New York City) 2,256 2,240
------- -------
Total New York 3,158 2,919
California 3,534 2,335
Colorado 312 199
Connecticut 810 537
Florida 814 486
Georgia 139 111
Illinois 572 381
Massachusetts 475 332
New Jersey 757 570
Ohio 108 160
Pennsylvania 444 400
Texas 688 443
Washington, D.C./Metro 1,124 1,146
Other 1,191 651
------- -------
Total $14,126 $10,670
------- -------
</TABLE>
The January 1994 earthquake in southern California is not expected to have a
material impact on Chase's 1-4 family residential property loan portfolio or on
the related interest revenue.
CREDIT CARD
Credit card loans averaged $5.9 billion in 1993, compared with $6.2 billion in
1992. During 1993, credit card volume was impacted by aggressive offers made by
new entrants in an already competitive marketplace. Chase responded by
repricing to lower annual variable percentage rates for its eligible
cardholders and launching aggressive solicitation programs. These efforts
contributed to credit card loans increasing from $5.8 billion to $6.4 billion
in the second half of the year.
The average interest rate earned on domestic credit card loans was 16.66%
for 1993, compared with 17.48% for 1992 and 17.89% for 1991. At year-end 1993,
Chase had credit card outstandings in every state in the U.S., with the largest
concentrations in New York (14%) and California (10%). In 1993, there were no
credit card securitizations, compared with a $750 million securitization in
1992.
OTHER CONSUMER
Other consumer loans increased $666 million, or 9.1%, in 1993, from year-end
1992, primarily due to an increase in 1993 of approximately $1.0 billion in
automobile financings, from $3.1 billion in 1992 to $4.1 billion in 1993. Such
loans are originated by Chase Automotive Finance, a national indirect auto
lender that focuses on the luxury automotive market. Other consumer loans also
included $2.0 billion and $2.2 billion of Advantage Credit loans at year-end
1993 and 1992, respectively. With respect to Advantage Credit loans, Chase had
its largest concentrations in California (21%) and New York (15%).
Other consumer loans averaged $7.5 billion in 1993, compared with $6.7
billion in 1992. The average interest rate earned on other consumer loans was
9.16% for 1993, compared with 10.57% for 1992 and 12.17% for 1991.
During 1993, $750 million of automobile loans was securitized, compared
with none in 1992.
OVERSEAS OFFICES
Chase's loan portfolio in overseas offices was $16.5 billion at year-end 1993,
down 6.5%, compared with $17.7 billion at year-end 1992. Average international
loans, based on the domiciles of the obligors, including loans to non-U.S.
obligors booked in domestic offices, were $18.7 billion in 1993, compared with
$18.0 billion in 1992. The portfolio experienced growth in commercial and
industrial loans in 1993, partially offset by reductions in Chase's
exposure to medium- and long-term restructured cross-border extensions of
credit to refinancing countries and to Mexican Brady bonds and Chase's
continued program to refocus certain of its overseas consumer businesses. The
average yield on loans booked in Chase's overseas offices was 11.59% for 1993,
compared with 11.70% for 1992 and 13.06% for 1991. Foreign local currency
denominated loans constituted 27% of total overseas loans at both year-end 1993
and 1992. Substantially all of Chase's international extensions of credit are
booked in overseas offices.
International extensions of credit require not only the normal credit risk
analysis associated with the decision to extend financing to a particular
customer, but also an assessment of country risk. Country risk arises from
economic, social and political factors that might affect a borrower's ability
to repay in the currency of the extension of credit. Cross-border credit
exposures are those that borrowers must repay in a currency other than their
local currency or to a lender in a different country. One of the major risk
factors associated with cross-border credit exposures is the possibility that a
country's foreign exchange reserves may be insufficient or unavailable to
permit timely repayment by borrowers domiciled in that country, even if the
borrowers possess sufficient local currency. In addition, global economic,
social and political conditions, local and foreign government actions and
associated events can affect business activities in a country and a borrower's
ability and/or willingness to repay external debt obligations.
Chase has a systematic country risk assessment process by which it monitors
and analyzes the economic, social and political environments in all the
countries in which it conducts business or in which its borrowers reside. These
in-depth assessments, performed by a team of economists and political analysts,
in conjunction with local Chase management, are utilized by Chase within its
planning cycle for such countries as well as in Chase's system of managing
total country exposures.
At December 31, 1993, included in the various overseas offices loan
categories on page 39, were cross-border extensions of credit to refinancing
countries of $1,530 million, which included $690 million of short-term
extensions of credit, principally trade financings, and $570 million of
corporate finance-related financings. The restructured medium- and long-term
loans of $270 million represent loans that have been subject to restructuring
such as under The Brady Proposals or other agreements. The Brady Proposals are
various proposals announced during 1989 by the U.S. Treasury that contemplate
some degree of relief from existing debt coupled with some form of credit
enhancement. These proposals are coordinated with the programs of international
agencies, such as the International Monetary Fund (IMF) and the International
Bank for Reconstruction and Development (The World Bank). The corporate
finance-related loans which have not been subject to restructurings generally
relate to Chase's focus on selective corporate finance transactions in Latin
America, such as those related to project finance and private banking.
<TABLE>
<CAPTION>
CROSS-BORDER EXTENSIONS OF CREDIT TO REFINANCING COUNTRIES
- ----------------------------------------------------------
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Medium- and Long-Term:
Restructured:
Brazil $ -- $ 600
Venezuela -- 900
Other 270 780
------ ------
Subtotal 270 2,280
------ ------
Corporate Finance-Related 570 290
------ ------
Short-Term* 690 810
------ ------
Total $1,530** $3,380
------ ------
<FN>
* Principally trade financings.
** Excludes loans transferred to Trading Account Assets and Brady bonds that were transferred to Investment Securities Available for
Sale upon adoption of SFAS 115.
</TABLE>
41
<PAGE> 11
<TABLE>
<CAPTION>
RECONCILIATION OF CROSS-BORDER EXTENSIONS OF CREDIT TO REFINANCING COUNTRIES
- ----------------------------------------------------------------------------
($ in millions)
- ---------------
<S> <C>
Balance at December 31, 1992 $3,380
Proceeds from Sales (730)*
Charge-offs (500)
Transfers to Trading Account (420)
Transfers to Investment Securities--Adoption of SFAS 115 (510)
Gains on Sales 140
Other, Net 170
------
Balance at December 31, 1993 $1,530
------
<FN>
* Net book value of approximately $590 million sold.
</TABLE>
In 1990, approximately $1.2 billion of Mexican extensions of credit were
exchanged for bonds collateralized by U.S. Treasury securities pursuant to The
Brady Proposals. As of December 31, 1991, Mexico was no longer designated as
part of Chase's refinancing country portfolio as a result of being upgraded by
the Interagency Country Exposure Review Committee. During 1993, Chase reduced
its exposure to Mexican Brady bonds as follows:
<TABLE>
<CAPTION>
RECONCILIATION OF MEXICAN BRADY BONDS
- -------------------------------------
($ in millions)
- ---------------
<S> <C>
Balance at December 31, 1992 $1,185
Less:
Proceeds from Sales 510*
Losses on Sales 140
Valuation Losses 30
------
Balance at December 31, 1993 $ 505**
------
<FN>
* Net book value of approximately $650 million sold.
** Transferred to Investment Securities Available for Sale upon adoption of SFAS 115.
</TABLE>
Cross-border outstandings that exceed 1 % of total assets, in the table
below, include only those amounts recorded on Chase's Consolidated Statement of
Condition and consist of extensions of credit (loans, interbank placings,
including interest-bearing deposits placed with central banks, and
acceptances), accrued interest, interest-bearing investments (investment
securities and trading account assets, including Brady bonds) and any other
monetary assets denominated in dollars or other nonlocal currency. Not included
below are amounts related to off-balance sheet commitments, such as commitments
to sell or buy trading account assets. The 1993 outstandings, particularly
Brazil and Argentina, do not reflect any reductions caused by the net effect of
such commitments. Amounts for 1993 also reflected Chase's shift in focus to
short-term trade finance, trading account assets and corporate finance-related
loans.
<TABLE>
<CAPTION>
CROSS-BORDER OUTSTANDINGS THAT EXCEED 1% OF TOTAL ASSETS
Banks and
% of Governments Other Commercial
Total Total and Official Financial and Other Other
($ in millions) Assets Outstandings Institutions Institutions Industrial Borrowers Outstandings
- --------------- ------ ------------ ------------ ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993
United Kingdom 2.0% $2,050 $ 30 $ 170 $480 $860 $ 510
Japan 1.9 1,980 -- 1,630 150 80 120
Brazil 1.8 1,800 -- 100 300 170 1,230
Mexico 1.2 1,230 20 80 160 210 760
Argentina 1.1 1,120 -- 40 70 260 750
Venezuela 1.0 1,060 -- -- 90 190 780
--- ------ ------ ------ ---- ---- ------
December 31, 1992
United Kingdom 2.5% $2,410 $ 10 $ 290 $510 $860 $ 740
Japan 2.4 2,270 -- 1,920 180 150 20
Mexico 1.9 1,830 1,060 90 90 140 450
Brazil 1.6 1,530 150 280 180 550 370
Venezuela 1.5 1,400 890 10 100 10 390
--- ------ ------ ------ ---- ---- ------
December 31, 1991
Japan 3.6% $3,580 $ -- $2,750 $520 $240 $ 70
United Kingdom 2.6 2,550 -- 350 910 380 910
Mexico 1.4 1,420 1,090 10 60 -- 260
Venezuela 1.3 1,250 900 20 190 -- 140
Brazil 1.3 1,240 300 50 260 320 310
--- ------ ------ ------ ---- ---- ------
<FN>
Note: Government entities that are majority-owned are classified by type of borrower based on the industry of the business
enterprise.
</TABLE>
42
<PAGE> 12
<TABLE>
<CAPTION>
CROSS-BORDER OUTSTANDINGS BETWEEN .75% AND 1% OF TOTAL ASSETS
- -------------------------------------------------------------
December 31,
------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
.75% Through 1% Range: $770 to $1,020 $720 to $960 $735 to $980
Countries: Singapore Italy Canada
France Canada
-------------- ------------ ------------
Total Outstandings $1,770 $1,600 $770
-------------- ------------ ------------
</TABLE>
Chase continues to participate in efforts to construct specific restructuring
agreements incorporating The Brady Proposals and, in November 1993, signed an
agreement with the Government of Brazil to restructure the country's medium-
and long-term external debt. Under the agreement, Chase expects to exchange
its eligible debt in the first half of 1994 for a combination of debt
securities, which could include debt service-reduction, principal-reduction,
front loaded-interest reduction, debt conversion and new money bonds. In
addition, Chase expects to receive bonds for past due interest. The exchange is
expected to have a positive impact on Chase's financial position.
RESERVE FOR POSSIBLE CREDIT LOSSES
Implicit in lending activities is the expectation that losses will be
experienced and that the amount of such losses will vary from time to time.
Loss experiences depend upon the risk characteristics of the loan portfolio as
affected by economic conditions and the financial experiences of borrowers. The
reserve for possible credit losses, which provides for the risk of losses
inherent in the credit extension process, is increased by the provision for
possible credit losses charged to expenses and decreased by the amount of
charge-offs, net of recoveries. There is no precise method of predicting
specific losses or amounts that ultimately may be charged off on particular
segments of the loan portfolio, especially in light of the volatility in the
domestic and global economies and political environments. The conclusion that a
loan may become uncollectible, in whole or in part, and, therefore, should be
charged off against the reserve, is a matter of judgment.
Chase builds its reserve for possible credit losses based on a review of
the overall loan portfolio and other extensions of credit, including
off-balance sheet commitments, such as commitments to extend credit, guarantees
and standby letters of credit. Specific attention is paid to nonaccrual loans
and those loans that have been identified as possibly having a higher than
normal risk of becoming nonaccrual or restructured. However, the establishment
of reserves with respect to such loans does not necessarily indicate a serious
doubt about their ultimate collectibility. Rather, it reflects increased
potential with respect to default and nonaccrual status. Management determines
the adequacy of the reserve using a systematic approach whereby risk is first
segregated into three categories--wholesale risk, consumer risk and country
risk. Each of these categories is further analyzed to determine the related
potential for loss. Such analysis is a continuing process that gives
consideration to the following factors:
o Economic conditions and their effects on particular countries,
industries, specific borrowers and credit products;
o Borrowers' financial data, together with evaluations of industry data,
competition, the borrowers' management capabilities and the underlying
collateral for secured lending, including, when appropriate, independent
appraisals of real estate properties and other factors;
o Macro trends of nonaccrual loans and loan charge-offs;
o Consumer loan growth trends and delinquency and default rates, together
with analysis of behavioral patterns, past and present, as to payment
performance;
o Certain loans that are contractually current as to payments of principal
and interest, but which Chase has identified as possibly having a somewhat
higher than normal risk of becoming nonaccrual or restructured in the near
term;
o A continuing evaluation of the performing loan portfolio, other
outstandings and off-balance sheet credit commitments, including monitoring by
lending officers and credit supervisory personnel of loans that are identified
as being of less than desirable quality. The portfolio evaluation process is
also supported by periodic examinations conducted in lending areas by Chase's
Credit Audit Division;
o A continuing evaluation of loans identified as having loss potential. If,
as a result of such evaluation, all or a portion of a loan is judged to be
uncollectible, then the carrying value of the loan is reduced, in accordance
with internal policy, to the amount which is considered to be collectible. The
amount of the reduction is charged off against the reserve.
In addition to the continuing internal assessment of the loan portfolio and
off-balance sheet credit exposures, the consolidated financial statements are
examined by Chase's independent accountants, whose examination includes a
review of the adequacy of the reserve for possible credit losses. Also,
examinations of Chase's loan portfolio and off-balance sheet credit commitments
are conducted periodically by the federal banking agencies.
During the 1980's, Chase had made special additions to the reserve for
possible credit losses in light of developments pertaining to the debt
situation of refinancing countries. Such amounts, which Management allocated to
refinancing countries, were utilized as the exposure to such refinancing
countries was reduced by sales, swaps, exchanges and charge-offs. Due to
Chase's 1993 actions to reduce its exposure to restructured refinancing
countries outstandings, Management determined that a separate allocation to
refinancing countries was no longer necessary.
<TABLE>
<CAPTION>
RECONCILIATION OF RESERVE FOR POSSIBLE CREDIT LOSSES APPLICABLE TO REFINANCING COUNTRIES
- ----------------------------------------------------------------------------------------
($ in millions)
- ---------------
<S> <C>
Balance at December 31, 1992 $490*
Recoveries 25
Less:
Charge-offs--Sales of Loans 132
Charge-offs--Valuations 369
Reallocation 14
----
Balance at December 31, 1993 $ 0
----
<FN>
* Allocation for refinancing countries loans is included in the international allocation.
</TABLE>
The reserve for possible credit losses is a general reserve available against
the total loan portfolio and off-balance sheet credit commitments. In the
opinion of Management, the reserve for possible credit losses at December 31,
1993 was adequate to absorb all losses in the loan portfolio and off-balance
sheet credit commitments anticipated at that date. Chase's independent
accountants have concurred with Management's opinion.
Given the 1993 actions taken to reduce Chase's exposure to lower quality
loans coupled with the improved credit quality due to the decline in nonaccrual
loans, Management expects that the provision for possible credit losses in 1994
will be lower than previous years. For 1993, 1992 and 1991, the provision for
possible credit losses was $995 million, excluding the provision for assets
held for accelerated disposition, $1,220 million and $1,085 million,
respectively.
To comply with the Securities and Exchange Commission's requirement to
provide an allocation of the reserve, the following table sets forth Chase's
allocation of the reserve for possible credit losses. This allocation is based
on Management's subjective estimates. The amount allocated to a particular
segment should not be construed as the only amount available for future
charge-offs that might occur within that segment. In addition, the amounts so
allocated by segment may not be indicative of future charge-off trends. The
allocation of the reserve account may change from year to year should
Management determine that the risk characteristics of the loan portfolio and
off-balance sheet credit commitments have changed.
43
<PAGE> 13
<TABLE>
<CAPTION>
ALLOCATION OF THE RESERVE FOR POSSIBLE CREDIT LOSSES
Reserve Amount Loan Category as % of Total Loans
December 31, December 31,
------------------------------------------ -------------------------------------------
($ in millions) 1993* 1992 1991 1990 1989 1993* 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocated Portion of Reserve:
Domestic:
Wholesale $ 460 $ 765 $ 750 $ 680 $ 265 25.6% 33.2% 35.4% 38.8% 38.9%
Consumer 400 400 400 350 325 47.1 38.7 38.5 36.9 34.1
International 130 565 635 1,640 2,600 27.3 28.1 26.1 24.3 27.0
------ ------ ------ ------ ------ ---- ---- ---- ---- ----
Total Allocated Portion 990 1,730 1,785 2,670 3,190
Unallocated Portion 435 183 175 167 100 N/A N/A N/A N/A N/A
------ ------ ------ ------ ------ ---- ---- ---- ---- ----
Total $1,425 $1,913 $1,960 $2,837 $3,290 100% 100% 100% 100% 100%
------ ------ ------ ------ ------ ---- ---- ---- ---- ----
Reserve as Percentage of:
Total Loans 2.36% 3.06% 2.89% 3.80% 4.29%
Nonaccrual Outstandings 135% 49% 45% 62% 82%
------ ------ ------ ------ ------
<FN>
* Excludes accelerated disposition portfolio.
</TABLE>
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for Impairment
of a Loan," which is effective January 1, 1995, with early adoption permitted.
This accounting standard modifies the accounting for impaired loans, defined as
those loans where, based on current information and events, it is probable that
a creditor will be unable to collect all amounts, both the interest and
principal payments, due according to the contractual terms of the loan
agreement. Specifically, SFAS 114 requires that impairment be measured based on
the present value of expected cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
As previously described, Chase determines the adequacy of its reserve for
possible credit losses based on an evaluation of various factors. Chase's
current methodology, however, does not specifically incorporate the concept of
the time value of money and expected future interest cash flows, as set forth
in SFAS 114.
Chase is studying the impact of adopting SFAS 114, but does not expect it
to have a material effect based on the loan portfolio and market conditions as
of December 31, 1993.
<TABLE>
<CAPTION>
NET LOAN CHARGE-OFFS AND CREDIT LOSS RATIOS
- -------------------------------------------
($ in millions) 1993* 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Loan Charge-offs:
Domestic:
Consumer $ 394 $ 464 $ 491 $ 366 $ 264
Commercial Real Estate 277 453 377 189 95
Commercial and Other 166 215 152 139 102
------ ------ ------ ------ ------
Total Domestic 837 1,132 1,020 694 461
------ ------ ------ ------ ------
International:
Refinancing Countries 476 68 817 966 706
Other 24 66 90 94 15
------ ------ ------ ------ ------
Total International 500 134 907 1,060 721
------ ------ ------ ------ ------
Total $1,337 $1,266 $1,927 $1,754 $1,182
------ ------ ------ ------ ------
Net Loan Charge-offs as a Percentage of Average Loans:
Domestic:
Consumer 1.57% 1.89% 1.81% 1.33% 1.14%
Commercial Real Estate 6.02 5.73 4.18 1.99 1.23
Commercial and Other 1.26 1.52 .90 .71 .57
------ ------ ------ ------ ------
Total Domestic Credit Loss Ratio 1.95 2.43 1.93 1.22 .88
------ ------ ------ ------ ------
International:
Refinancing Countries 20.50 2.24 25.45 21.37 11.27
Other .15 .44 .61 .60 .10
------ ------ ------ ------ ------
Total International Credit Loss Ratio 2.68 .74 5.04 5.26 3.52
------ ------ ------ ------ ------
Total Credit Loss Ratio 2.17% 1.96% 2.72% 2.28% 1.62%
------ ------ ------ ------ ------
<FN>
* Excludes accelerated disposition portfolio.
</TABLE>
Total net loan charge-offs for 1993, excluding the accelerated disposition
portfolio, were up $71 million, or 5.6%, from 1992 and down $590 million, or
30.6%, from 1991. Net loan charge-offs for 1993, excluding the amounts related
to refinancing countries, were down $337 million, or 28.1%, and $249 million,
or 22.4%, from 1992 and 1991, respectively. Also excluded from 1993 amounts was
the accelerated disposition portfolio.
Domestic consumer net loan charge-offs included credit card net loan
charge-offs of $253 million, $307 million and $337 million for 1993, 1992 and
1991, respectively. The credit card loss ratios were 4.3% for 1993, 4.9% for
1992 and 4.4% for 1991.
Included in domestic consumer net loan charge-offs were $9 million, $7
million and $6 million of net loan charge-offs for loans secured by 1-4 family
residential properties for 1993, 1992 and 1991, respectively. The credit loss
ratios of these loans were less than 0.1% per annum for the same three years.
During 1993, net loan charge-offs related to refinancing countries included
$132 million related to sales, $369 million related to the valuation to market
of certain cross-border extensions of credit to refinancing countries and
$25 million of recoveries.
Details of loan charge-offs and recoveries by loan type may be found on
page 86.
44
<PAGE> 14
NONACCRUAL, RESTRUCTURED AND PAST DUE OUTSTANDINGS AND DOMESTIC REAL ESTATE
ACQUIRED
Nonaccrual outstandings are outstandings on which interest revenue accruals
have been suspended. Loans that have been renegotiated for economic or other
reasons related to debtors' financial difficulties on terms that Chase would
not be willing to accept for new loans with comparable risk are designated as
restructured loans.
Domestic nonaccrual outstandings decreased substantially during 1993 due to
the establishment of the accelerated disposition portfolio for domestic
commercial real estate loans, repayments, charge-offs and transfers to ORE.
Refinancing countries nonaccrual outstandings decreased during 1993 as a
result of sales, valuations to market and the transfer of $418 million of
nonaccrual refinancing countries outstandings to the trading account. ORE
decreased during 1993 from a combination of factors, as shown on page 46.
[GRAPH 2]
<TABLE>
<CAPTION>
NONACCRUAL AND RESTRUCTURED OUTSTANDINGS AND DOMESTIC ORE
December 31,
------------
($ in millions) 1993* 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Domestic Outstandings:
Commercial Real Estate $ 475 $2,057 $2,423 $1,780 $ 783
Commercial and Industrial 226 503 512 549 399
Financial Institutions 37 62 61 56 121
Other 144 167 150 118 63
------ ------ ------ ------ ------
Total Domestic Outstandings 882 2,789 3,146 2,503 1,366
------ ------ ------ ------ ------
International Outstandings:
Refinancing Countries 74 997 978 1,868 2,450
Commercial Real Estate 14 9 6 11 8
Commercial and Industrial 22 66 73 98 70
Financial Institutions 41 49 74 53 33
Other 21 32 75 56 66
------ ------ ------ ------ ------
Total International Outstandings 172 1,153 1,206 2,086 2,627
------ ------ ------ ------ ------
Total Nonaccrual and Restructured Outstandings $1,054 $3,942 $4,352 $4,589 $3,993
------ ------ ------ ------ ------
Domestic ORE $ 895 $1,137 $ 897 $ 824 $ 196
------ ------ ------ ------ ------
As a % of Total Gross Assets:
Nonaccrual and Restructured Outstandings 1.02% 4.03% 4.35% 4.55% 3.61%
Nonaccrual and Restructured Outstandings and Domestic ORE 1.88 5.19 5.24 5.36 3.79
------ ------ ------ ------ ------
<FN>
* Excludes accelerated disposition portfolio.
</TABLE>
Nonaccrual loans that have been restructured but remain in nonaccrual status,
which amounted to $107 million and $633 million at December 31, 1993 and 1992,
respectively, continue to be included in the above nonaccrual table. Loans that
have been restructured and are now accruing are not material.
45
<PAGE> 15
<TABLE>
<CAPTION>
RECONCILIATION OF NONACCRUAL AND RESTRUCTURED OUTSTANDINGS
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Beginning Balance $3,942 $4,352
Additions 1,088 2,178
Deductions:
Repayments 724 741
Interest Applied to Principal 77 138
Charge-offs 742 845
Transfers to Trading Account 418 --
Transfers to Accelerated Disposition Portfolio 843 --
Transfers to ORE--Net 817 507
Transfers to Accrual Status 332 294
Other 23 63
------ ------
Ending Balance $1,054 $3,942
------ ------
</TABLE>
<TABLE>
<CAPTION>
NEGATIVE IMPACT OF NONACCRUAL AND RESTRUCTURED OUTSTANDINGS
Total Domestic International
---------------- ----------------- ---------------
($ in millions) 1993 1992 1993* 1992 1993 1992**
- --------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Interest Revenue That Would
Have Been Recorded
Under Original Terms $ 86 $197 $54 $130 $ 32 $ 67
Interest Revenue
Actually Realized 206 90 6 8 200*** 82
----- ---- --- ---- ----- ----
Negative (Positive)
Impact on Interest
Revenue $(120) $107 $48 $122 $(168) $(15)
----- ---- --- ---- ----- ----
<FN>
* Excludes loans held for accelerated disposition since March 31, 1993.
** Excludes the positive impact on interest revenue of approximately $835 million of accruing Mexican bonds that have been
restructured pursuant to The Brady Proposals.
*** Includes $142 million of interest revenue realized from the sales of Brazilian past due interest bonds.
</TABLE>
The year-to-year decrease in the negative impact on interest revenue of
international nonaccrual and restructured outstandings resulted primarily from
the lower level of nonaccrual loans, lower interest rates and the receipt of
$142 million of interest revenue from the sale of Brazilian past due interest
bonds in 1993. The decrease in the negative impact of domestic nonaccrual and
restructured outstandings for 1993, compared with 1992, resulted primarily from
charge-offs and transfers to the accelerated disposition portfolio and to ORE.
<TABLE>
<CAPTION>
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
- ---------------------------------------
December 31,
------------
($ in millions) 1993* 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Domestic Loans:
Consumer $186 $211 $255 $296 $186
Commercial Real Estate 42 176 169 90 52
Commercial and Other 21 26 37 53 60
---- ---- ---- ---- ----
Total Domestic Loans 249 413 461 439 298
---- ---- ---- ---- ----
International Loans 12 45 49 66 86
---- ---- ---- ---- ----
Total Accruing Loans Past Due 90 Days or More $261 $458 $510 $505 $384
---- ---- ---- ---- ----
<FN>
* Excludes loans held for accelerated disposition.
</TABLE>
Accruing loans that are contractually past due 90 days or more are loans
that are both well secured or guaranteed by financially responsible third
parties and are in the process of collection. Past due consumer loans, with the
exception of 1-4 family residential property loans, are generally charged off
according to internally established delinquency schedules, which do not permit
delinquencies to exceed 180 days. Such 1-4 family residential property loans
are placed in nonaccrual status if reasonable doubt exists as to timely
collectibility or if payment of principal or interest is contractually past due
90 days or more and the loan is not well secured and in the process of
collection.
<TABLE>
<CAPTION>
DOMESTIC COMMERCIAL REAL ESTATE NONACCRUAL LOANS BY GEOGRAPHIC REGION AND PROPERTY TYPE
- ---------------------------------------------------------------------------------------
December 31,
------------
Office Other 1993 1992
($ in millions) Buildings Commercial* Residential Land Other** Total*** Total
- --------------- --------- ---------- ----------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
New York City $ 45 $ 7 $ 13 $ -- $ 3 $ 68 $ 390
New York (Excluding New York City) 16 78 11 10 12 127 203
---- ---- ---- ---- ---- ---- ------
Total New York 61 85 24 10 15 195 593
California 11 36 1 14 2 64 286
Florida -- -- -- 23 2 25 316
New England 5 4 -- 3 -- 12 89
New Jersey 19 26 2 20 21 88 281
Texas 10 -- 1 2 -- 13 57
Washington, D.C./Metro 11 40 -- 3 -- 54 139
Other -- 15 3 6 -- 24 296
---- ---- ---- ---- ---- ---- ------
1993 Total*** $117 $206 $ 31 $ 81 $ 40 $475 --
---- ---- ---- ---- ---- ---- ------
1992 Total $613 $742 $286 $285 $131 -- $2,057
---- ---- ---- ---- ---- ---- ------
<FN>
* Includes shopping centers and other commercial and industrial properties.
** Includes mixed use properties and working capital loans.
*** Excludes loans held for accelerated disposition.
</TABLE>
46
<PAGE> 16
<TABLE>
<CAPTION>
RECONCILIATION OF DOMESTIC COMMERCIAL REAL ESTATE NONACCRUAL LOANS
- ------------------------------------------------------------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Beginning Balance $2,057 $2,423
Additions 657 1,147
Deductions:
Transfer to Accelerated Disposition Portfolio 843 --
Repayments 174 251
Interest Applied to Principal 58 116
Gross Charge-offs 305 456
Transfers to ORE 813 537
Transfers to Accrual Status 51 184
Transfers from ORE (5) (31)
------ ------
Ending Balance $ 475* $2,057
------ ------
<FN>
* At December 31, 1993, the carrying value was 65% of the contractual value.
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF DOMESTIC REAL ESTATE ACQUIRED IN SATISFACTION OF LOANS
- ------------------------------------------------------------------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Beginning Balance $1,137 $ 897
Additions 813 537
Deductions:
Transfer to Accelerated Disposition Portfolio 578 --
Repayments and Sales 259 193
Valuation Losses 213 83
Return to Loan Status 5 31
Other -- (10)
------ ------
Ending Balance* $ 895** $1,137
------ ------
<FN>
* Includes in-substance foreclosure amounts of $758 million and $668 million, respectively.
** ORE at December 31, 1993 was carried at approximately 45% of original outstandings, primarily as a result of $1,089 million of
cumulative charge-offs, interest applied to principal and valuation losses.
</TABLE>
<TABLE>
<CAPTION>
DOMESTIC REAL ESTATE ACQUIRED IN SATISFACTION OF LOANS BY GEOGRAPHIC REGION AND PROPERTY TYPE
- ---------------------------------------------------------------------------------------------
December 31,
------------
Office Other 1993 1992
($ in millions) Buildings Commercial* Residential Land Other Total** Total
- --------------- --------- ---------- ----------- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
New York City $ 40 $ 24 $ 17 $ 33 $-- $114 $ 125
New York (Excluding New York City) 7 56 60 5 27 155 100
---- ---- ---- ---- --- ---- ------
Total New York 47 80 77 38 27 269 225
California 70 15 9 13 37 144 94
Connecticut 3 1 8 3 -- 15 55
Florida 8 6 1 10 2 27 123
Massachusetts 42 17 2 5 1 67 32
New Jersey 29 56 24 19 4 132 207
Washington, D.C./Metro 6 49 2 24 -- 81 136
Other 31 95 25 8 1 160 265
---- ---- ---- ---- --- ---- ------
Total 1993** $236 $319 $148 $120 $72 $895 --
---- ---- ---- ---- --- ---- ------
Total 1992 $301 $337 $197 $255 $47 -- $1,137
---- ---- ---- ---- --- ---- ------
<FN>
* Includes shopping centers and other commercial and industrial properties.
** Excludes ORE held for accelerated disposition.
</TABLE>
ASSETS HELD FOR ACCELERATED DISPOSITION
In conjunction with Chase's ongoing review and evaluation of its strategic and
financial goals pertaining to each of its significant businesses, Management
determined to accelerate the reduction of the overall level of exposure in its
domestic commercial real estate portfolio. Accordingly, as of March 31, 1993,
Chase designated for accelerated disposition (i) selected lower quality
performing loans and selected nonaccrual loans, and (ii) selected ORE which
collectively had a carrying value of $2,043 million at March 31, 1993, before
the related valuation adjustment.
The assets held for accelerated disposition were individually reviewed and
written down to values that Management estimated would be received as assets
are sold on a bulk sale liquidation basis. Based upon such review, the
estimated disposition value of the assets at March 31, 1993 was determined to
be $1,024 million, resulting in a valuation adjustment of $1,019 million,
comprised of the utilization of approximately $135 million of existing reserves
for possible credit losses and special provisions of $884 million. Included in
the special provisions of $884 million were $566 million for loans and $318
million for ORE.
Until their disposition, assets held for accelerated disposition are
carried at the lower of their initial estimated disposition value at March 31,
1993 (cost) or their current disposition value, which is updated on a quarterly
basis utilizing the same valuation methodology as was initially applied to the
assets as of March 31, 1993. Any change in individual carrying values and gains
and losses realized upon disposition of assets are reflected in Chase's
Consolidated Statement of Income. Chase's reserve for possible credit losses
is not available to the assets in the accelerated disposition portfolio.
Interest revenue is recognized based upon the credit characteristics of the
individual assets in the accelerated disposition portfolio.
Since March 31, 1993, the total amount of assets held for accelerated
disposition has been reduced by approximately 78% to $222 million at December
31, 1993, resulting in net gains of $291 million. These reductions and related
net gains resulted from improved liquidity in the domestic commercial real
estate market, partially due to the lower interest rate environment in 1993. As
previously mentioned, the initial valuation assumed bulk sale liquidation of
these assets. Chase received unanticipated repayments from borrowers, resulting
in more favorable realization amounts. In addition, attractive returns in the
bulk sale liquidation market increased participation of potential buyers,
resulting in gains.
<TABLE>
<CAPTION>
ASSETS HELD FOR ACCELERATED DISPOSITION
- ---------------------------------------
($ in millions) December 31, 1993 March 31, 1993
- --------------- ----------------- --------------
<S> <C> <C>
Loans $151 $ 764
ORE* 71** 260
---- ------
Total $222 $1,024
---- ------
Total as a % of Aggregate
Contractual Amount 38% 39%
---- ------
<FN>
* Includes $40 million and $112 million of in-substance foreclosures at December 31, 1993 and March 31, 1993, respectively.
** December 31, 1993 includes $22 million of foreclosed and in-substance foreclosed real estate that was included in loans held for
accelerated disposition at March 31, 1993.
</TABLE>
47
<PAGE> 17
<TABLE>
<CAPTION>
RECONCILIATION OF ASSETS HELD FOR ACCELERATED DISPOSITION
- ---------------------------------------------------------
Carrying Related
($ in millions) Value Net Gains
- --------------- -------- ---------
<S> <C> <C>
Balance at March 31, 1993 $1,024
Sales (453) $125*
Repayments (349) 166
------ ----
Balance at December 31, 1993 $ 222 --
------ ----
Year ended December 31, 1993 -- $291
------ ----
<FN>
* Includes valuation losses of $26 million.
</TABLE>
<TABLE>
<CAPTION>
ASSETS HELD FOR ACCELERATED DISPOSITION BY GEOGRAPHIC REGION
- ------------------------------------------------------------
Percentage of Portfolio
December 31, 1993
-----------------
<S> <C>
New York City 5%
New York (Excluding New York City) 16
---
Total New York 21
Other Northeast 41
Southeast 18
Midwest 11
Southwest/West 9
---
Total 100%
---
</TABLE>
<TABLE>
<CAPTION>
ASSETS HELD FOR ACCELERATED DISPOSITION BY PROPERTY TYPE
- --------------------------------------------------------
Percentage of Portfolio
December 31, 1993
-----------------
<S> <C>
Office Buildings 30%
Other Commercial* 56
Land 11
Residential 3
---
Total 100%
---
<FN>
* Includes shopping centers and other commercial and industrial properties.
</TABLE>
Chase continues to actively market the remaining assets held for accelerated
disposition and estimates that, based on the liquidity currently being
experienced in the marketplace, substantially all of such assets will be
disposed of by the end of 1994.
ASSET/LIABILITY MANAGEMENT
OVERVIEW
Asset/liability management (ALM) is an important ongoing process, which
requires the management of both liquidity risk and interest rate risk
particularly as financial products become increasingly more complex. The
policies and guidelines for the management of Chase's liquidity and interest
rate risks are established by Chase's Asset/Liability Management Committee
(ALMAC). ALMAC is composed of senior market risk managers and key business
sector executives and is chaired by Chase's Chief Executive Officer. ALMAC sets
limits on potential earnings fluctuations that could arise from the interest
rate risk of on- and off-balance sheet accrual positions. ALMAC monitors
exposures in view of market developments and Chase's financial condition, sets
guidance for interest rate risk management decisions, ensures consistency in
the measurement of risk throughout Chase and monitors liquidity and capital
adequacy.
LIQUIDITY RISK MANAGEMENT
Chase manages liquidity to achieve two principal objectives. One is to ensure
that the Company and its subsidiaries have sufficient liquid assets to meet the
normal transaction requirements of their customers and to provide a cushion
against unforeseen liquidity needs. The second is to maintain a stable,
cost-effective, relationship-based source of financing that is diversified over
geographic locations and customer segments. Chase's financing is built on a
strong base of customer deposits from its strategic businesses.
The Company also finances itself with a mixture of common and preferred
stock, intermediate- and long-term senior and subordinated debt and commercial
paper.
In October 1993, the Company entered into a revolving credit agreement that
expires on October 24, 1994. The agreement, which permits the Company to borrow
up to $750 million, replaces three existing agreements that totaled $620
million. No borrowings have ever been made under any of these credit
facilities.
In managing liquidity, Chase takes into account the various legal
limitations to the extent to which banks may pay dividends to their parent
companies or finance or otherwise supply funds to certain of their affiliates,
as discussed in Note 14 of Notes to Financial Statements.
ASSETS
Chase's primary liquidity sources include a large portfolio of assets,
including cash and due from banks, interest-bearing deposits placed with banks,
federal funds sold and securities purchased under resale agreements, trading
account assets and investment securities available for sale. These assets
totaled $32.6 billion at December 31, 1993, compared with $24.5 billion at
December 31, 1992. During 1993, Chase maintained an average liquid assets to
average total assets ratio of 32%, compared with 29% for 1992. Chase also had
approximately $2.9 billion of 1-4 family residential property loans and other
consumer loans held for sale at December 31, 1993. In addition, Chase can
liquefy other assets, through securitizing loans, to satisfy funding needs.
[GRAPH 3]
INVESTMENT SECURITIES
On December 31, 1993, Chase adopted SFAS 115, which requires securities to be
classified as trading, available for sale or held to maturity. Prior to
adoption, Management completed a review of its debt and equity investments to
evaluate its intentions with respect to these securities.
48
<PAGE> 18
Securities designated as available for sale are accounted for at fair
value, with the unrealized gain (loss), net of deferred taxes, reported as a
separate component of Stockholders' Equity. These securities totaled $7.7
billion at December 31, 1993 and included debt and marketable equity securities
previously classified as Loans, primarily Mexican Brady bonds and cross-border
refinancing countries securities, of approximately $1.0 billion. The total
unrealized positive equity adjustment to stockholders' equity resulting from
the adoption of SFAS 115 was $264 million at December 31, 1993.
Investment Securities at December 31, 1993 that Management has both the
positive intent and the ability to hold to maturity totaled $1.4 billion and
are accounted for at historical cost. For additional information, refer to
Notes 1 and 2 of Notes to Financial Statements.
For additional information on the $6.2 billion of trading account assets,
see the Trading Activities section beginning on page 53.
INTEREST-BEARING DEPOSITS PLACED WITH BANKS
Chase places deposits with other banks, principally at their overseas offices
for earnings and liquidity purposes. Year-end 1993 deposit balances placed with
banks decreased to $5.3 billion from the year-end 1992 level of $5.7 billion,
partially due to the transfer to the trading account and sales of certain
cross-border deposits in refinancing countries. The average balance of
interest-bearing deposits placed with banks increased to $6.8 billion for 1993,
from $5.6 billion for 1992, as a result of attractive interest rates available
overseas.
LIABILITIES
Deposits represent Chase's principal source of funds. Retail deposits represent
a large portion of Chase's funding; however, a growing amount of deposits was
received from corporate institutional client sources.
Chase's branch distribution network has enhanced the stability of its
deposit base and, in conjunction with its direct sources of funding, such as
the issuance of intermediate- and long-term debt and commercial paper, has
provided reliable and diversified sources of funds.
DEPOSITS
Chase's deposit base consists of demand deposits, certificates of deposit,
savings and money market accounts and other time deposits. Total deposits
increased to $71.5 billion at December 31, 1993, compared with $67.2 billion at
December 31, 1992. Demand deposits increased by $3.7 billion to $19.4 billion
at December 31, 1993, compared with $15.7 billion at December 31, 1992. Money
market accounts were also up by $1.1 billion to $11.9 billion at December 31,
1993, compared with $10.8 billion at December 31, 1992. Consumer certificates
of deposit declined $1.4 billion to $8.4 billion at December 31, 1993 from $9.8
billion at December 31, 1992. These shifts in deposits reflect a growing
consumer preference for liquidity in a continuing low interest rate
environment. Domestic deposits totaled $41.9 billion at year-end 1993, up from
$41.1 billion at year-end 1992. Contributing to this increase, primarily in
noninterest-bearing deposits, was an increase in domestic custody services.
Brokered deposits have declined since year-end 1991, reflecting Chase's
decision not to renew such high cost deposits.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
- ----------------------------------------------------------
December 31, 1993
-----------------
Certifi- Other
cates of Time
($ in millions) Deposit Deposits Total
- --------------- ------- -------- -----
<S> <C> <C> <C>
Domestic Offices:
3 Months or Less $1,666 $ 1,924 $ 3,590
Over 3 Through 6 Months 494 22 516
Over 6 Through 12 Months 273 2 275
Over 12 Months 1,257 479 1,736
------ ------- -------
Total Domestic Offices $3,690 $ 2,427 $ 6,117
------ ------- -------
Total Overseas Offices $ 875 $20,283 $21,158
------ ------- -------
</TABLE>
Overseas deposits of $29.6 billion at year-end 1993 were up $3.5 billion,
compared with 1992 as a result of increases in private banking and overseas
custody and treasury businesses. Deposits by foreign depositors in domestic
offices at year-end 1993 and 1992 were $3.6 billion and $2.9 billion,
respectively.
SHORT-TERM FUNDS BORROWED
Short-term funds borrowed consist principally of federal funds purchased,
securities sold under repurchase agreements, commercial paper and other
short-term borrowings. Federal funds purchased represent overnight funds,
securities sold under repurchase agreements generally mature between one
day and three months, and commercial paper is issued with maturities of not
greater than 270 days. Other short-term borrowings consist principally of term
federal funds purchased, notes payable and funds borrowed in overseas offices,
which have original maturities of one year or less.
Average outstandings increased in 1993 for federal funds purchased,
securities sold under repurchase agreements and commercial paper, when compared
with 1992, as a result of generally lower interest rates for these types of
borrowings than for longer term funding sources.
<TABLE>
<CAPTION>
SELECTED SHORT-TERM FUNDS BORROWED
- ----------------------------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements:
Balance at End of Year $ 7,890 $ 6,961 $ 5,605
Daily Average Balance Outstanding
During Year 11,269 11,453 8,186
Maximum Balance Outstanding as of
Any Month-End During Year 13,334 14,811 13,787
Daily Average Interest Rate During Year* 5.06% 5.11% 6.49%
Average Interest Rate on Balance at End
of Year* 6.14 5.00 4.37
------- ------- -------
Commercial Paper of the Company:
Balance at End of Year $ 1,521 $ 1,186 $ 996
Daily Average Balance Outstanding
During Year 1,535 1,121 791
Maximum Balance Outstanding as of
Any Month-End During Year 1,839 1,296 1,007
Daily Average Interest Rate During Year 3.12% 3.60% 5.79%
Average Interest Rate on Balance at End
of Year 3.14 3.27 4.57
------- ------- -------
Other Short-Term Borrowings:
Balance at End of Year $ 1,813 $ 1,774 $ 2,097
Daily Average Balance Outstanding
During Year 1,824 2,162 3,074
Maximum Balance Outstanding as of
Any Month-End During Year 2,249 3,152 5,400
Daily Average Interest Rate During Year* 81.35% 44.02% 20.17%
Average Interest Rate on Balance at End
of Year* 58.07 29.63 35.10
------- ------- -------
<FN>
* The average interest rates denoted above reflect the extraordinarily high level of local interest rates prevailing in certain
Latin American countries with highly inflationary economies.
</TABLE>
49
<PAGE> 19
INTERMEDIATE- AND LONG-TERM DEBT
To supply term liquidity, Chase has a medium-term note program that provides
for the ongoing issuance of senior and subordinated medium-term notes with
maturities of nine months or longer. During 1993, Chase issued approximately
$1.0 billion of subordinated debt to take advantage of the lower interest rate
environment and Chase's improved debt rating. The proceeds from these issuances
were used mainly to retire existing debt and for general corporate purposes. In
1993, approximately $1.0 billion of higher priced debt was called.
Intermediate- and long-term debt maturities are discussed in Note 15 of Notes
to Financial Statements.
INTEREST RATE RISK MANAGEMENT
Chase's net interest revenue can be affected by fluctuations in market interest
rates as a result of timing differences in the repricing of its assets and
liabilities. These repricing differences are quantified in specific time
intervals and are referred to as interest rate sensitivity gaps. Chase manages
the earnings sensitivity that arises from interest rate risk to a level that is
consistent with Chase's mix of businesses and products and seeks to limit such
risk exposure to a percentage of earnings and capital. The objective in
managing interest rate risk is to support the achievement of business
strategies, while protecting earnings and liquidity. Chase also positions
itself to selectively take advantage of market opportunities in a controlled
manner that is consistent with the execution of overall business strategies.
Management of interest rate risk focuses on both tactical (18 months or
less) and structural (beyond 18 months) time frames. Chase has established
interest rate risk limits based on an Earnings at Risk (EAR) concept. EAR
measures the potential adverse impact on earnings from a given shift in the
yield curve, which is statistically determined based on past interest rate
movements. EAR is calculated by multiplying the gap between asset and liability
maturities/repricings by this yield curve shift. In the tactical time horizon,
EAR is measured for each calendar quarter assuming a shift in the yield curve
over one month that would encompass approximately 95% of the range of potential
outcomes. Longer term structural exposure is similarly measured and then
expressed on a present value basis.
EAR limits are established by ALMAC to control the extent of Chase's
interest rate risk exposure. The tactical risk limit is set in terms of a
percentage of core net income, while the structural risk limit is set in terms
of a percentage of common stockholders' equity. Compliance with established
limits is monitored by ALMAC on a weekly basis and Chase's interest rate risk
profile is presented to the Board of Directors on a monthly basis. EAR assesses
Chase's interest rate risk based on current positions. Chase supplements this
measure with extensive use of simulation techniques. Simulations enable
Management to assess Chase's interest rate risk from both the current position
and forecasted positions assuming new business over a variety of interest rate
environments.
Chase's predominant interest rate sensitivity is to changes in U.S. dollar
interest rates. Foreign currency interest rate sensitivity, in general, is
limited to the tactical time horizon. During 1993, the quarterly exposures in
the tactical time horizon averaged 2.0% of quarterly core net income and the
structural time frame exposure averaged 2.4% of common stockholders' equity.
During 1994, Chase's interest rate risk exposure is to a rising rate
environment, that is, assuming no Management action, net interest revenue would
be expected to be adversely affected by a rise in interest rates. Conversely,
interest rate risk exposure beyond this period is to a declining rate scenario,
principally due to Chase's high level of core wholesale and consumer deposits,
which exceed the level of fixed-rate assets. This interest rate profile for
1995 and beyond was amplified during 1993 as a result of the conversion of
credit cards to floating-rate pricing, the sale of fixed-rate assets, the
increase in equity and other factors.
In managing interest rate risk, Chase uses both cash and derivative
products, including interest rate swaps, futures, forwards and option-related
products. Derivative products used for asset/liability management purposes are
linked to assets, liabilities or groups of similar assets and liabilities and
are specifically related to balance sheet management strategies. Correlation
and hedge effectiveness tests between the derivative product and the linked
balance sheet position are also performed.
The following chart provides a quantification of Chase's interest rate
sensitivity gap as of December 31, 1993, based upon the known repricing dates
of certain assets and liabilities and the assumed repricing dates of others.
This chart illustrates the impact of including and excluding the related
derivative products on these gaps. This chart also displays only a static view
of Chase's interest rate sensitivity gap and does not capture the dynamics of
balance sheet, rate and spread movements, nor Management's actions that may be
taken to manage this position.
[GRAPH 4]
Notes to chart:
(1) Cumulative Interest rate gaps are defined as the average cumulative
fixed rate positions (assets less liabilities) for a given calendar period. The
gaps measure the time weighted dollar equivalent volume of positions fixed for
a particular calendar period. The gap positions reflect a stock concept rather
than the traditional flow concept as measured by runoff. For example, a $100
million certificate of deposit made on January 1 and maturing on February 28
would have a gap impact of $66 million ($100 million x 59 days/90 days) in the 1
to 3 month repricing timefrace.
(2) Variable rate balances are reported based on their repricing
dates. Fixed rate balances are reported based on their scheduled contractual
maturity dates, except for certain investment securities and loans secured by
1-4 family residential properties that are based on anticipated prepayments,
Given the indeterminate date of any sales, Investment securities that may be
sold prior to maturity are similarly reported, depending on their variable or
fixed rate terms.
(3) Prime-priced loans are considered as 1 to 3 month assets, fixed rate
credit card receivables are classified as a 2-year maturity, while
stockholders' equity is assigned a 5-year maturity.
(4) Trading Account Assets are considered overnight assets.
(5) Core demand deposits, noninterest-bearing time deposits, savings accounts
and money market accounts are classified as 7-year maturities, The balance, or
noncore portions of these deposits, are traunched from overnight to 1-year
maturities. The Interest rate sensitivity assumptions presented for these
deposts are based on historical and current experiences regarding product
portfolio retention and interest rate repricing behavior.
50
<PAGE> 20
As indicated, Chase uses derivative products principally to manage the timing
difference also in repricing characteristics arising from its customer-related
assets and liabilities. As set forth in Note 18 of Notes to Financial
Statements, Chase had approximately $37 billion and $14 billion of notional
swap principal and other ALM contracts outstanding, respectively, related to
such activities at December 31, 1993. The primary use of such swaps and other
ALM contracts is to convert certain deposits and intermediate- and long-term
debt to a floating-rate basis or to convert certain loans and interest-bearing
placings to fixed rates of interest. Such transactions mitigate Chase's
structural risk, which reflects more fixed-rate liabilities than assets. In
addition, Chase hedges certain of its balance sheet assets and liabilities,
such as investment securities, to lock in spreads and mitigate the risk of a
decline in value due to a change in rates. The income effect of these
activities is recorded in the applicable interest revenue or interest expense
captions associated with the balance sheet accounts to which the derivatives
are linked.
The following table summarizes certain of Chase's 1993 on-balance sheet
assets and liabilities, the corresponding interest revenue earned or interest
expense incurred, as well as the notional or contract amounts of derivative
products used for ALM purposes. Also disclosed is the approximate percentage
impact these derivative products had on the related interest amounts reflected
in Chase's Consolidated Statement of Income. The percentage impact represents
the reduction in interest revenue or interest expense on the related balance
sheet items from the use of such derivative products. These impacts must be
viewed in conjunction with Chase's overall long-term ALM strategies and may be
mitigated by corresponding changes in interest revenue or interest expense
associated with the related assets and liabilities.
<TABLE>
<CAPTION>
DERIVATIVE PRODUCTS AND RELATED BALANCE SHEET POSITIONS AND INTEREST REVENUE (EXPENSE)
- --------------------------------------------------------------------------------
Contract/
Notional Amount Income
--------------- Statement
Balance Interest Other Interest
Sheet Rate ALM Revenue Percentage
($ in millions) Amount Swaps Contracts (Expense) Impact*
- --------------- ------ ----- --------- -------- ------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Interest-Bearing Deposits
Placed with Banks $ 5,309 $ 1,000 $ 400 $ 717 (1)%
Investment Securities 9,074 1,600 -- 685 (4)
Loans 60,493 9,200 500 5,795 -
Deposits 71,509 23,100 12,800 (2,014) 15
Intermediate- and
Long-Term Debt 5,641 2,400 400 (491) 13
------- ------- ------- ------- ---
<FN>
* Represents the approximate percentage impact of the interest revenue or interest expense arising from ALM derivative products on
the related interest revenue or interest expense amount prior to the impact of the derivative products.
</TABLE>
At December 31, 1993, the weighted average duration of ALM swaps was
approximately 2.9 years. Other ALM contracts generally mature in one year or
less.
As set forth in Note 25 of Notes to Financial Statements, at December 31,
1993, the fair value of Chase's open derivative contracts used for ALM purposes
reflected a net unrealized gain of $140 million. Chase's Consolidated Statement
of Condition included deferred gains and losses related to closed ALM
derivative contracts and open futures contracts, and unamortized premiums on
open ALM option products amounting to a net gain (credit balance) of $336
million. Over 90% of this amount is expected to amortize to income
over the next 7 years, with nearly 60% occurring within the next 2 years.
CAPITAL MANAGEMENT
Capital management is an ongoing process that consists of providing equity and
long-term debt for both current and future financial positioning. Chase manages
its capital to execute its strategic business plans and to support its growth
and investments, including acquisition strategies, in its core businesses.
During 1993, Chase strengthened its capital base primarily through a common
equity offering, retained earnings and subordinated debt issuances. In
addition, Chase reduced its average cost of capital by redeeming and then
replacing various preferred stock and subordinated debt issues. Chase expects
to continue to strengthen its capital position through the retention of
earnings and the issuances of various types of capital.
Chase and its banking subsidiaries are subject to the capital adequacy
guidelines of various federal banking agencies, such as the Federal Reserve
Board and the Office of the Comptroller of the Currency. At December 31, 1993,
Chase and each of its banking subsidiaries were in compliance with the capital
guidelines of their respective regulatory agencies and are expected to remain
in compliance in the future. Furthermore, pursuant to the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), the federal banking
regulators have set the minimum capital ratios for a well-capitalized banking
institution at 6% Tier I Capital, 10% Total Capital and 5% Tier I Leverage. The
capital ratios of all of Chase's banking subsidiaries exceeded these levels at
December 31, 1993.
<TABLE>
<CAPTION>
CAPITAL RATIOS*
December 31, Minimum
------------ Regulatory
1993 1992 1991 Guidelines
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Tier I Leverage Ratio(a) 7.81% 6.66% 5.28% 3.00-5.00%
Risk-Based Capital Ratios(b)
Tier I 8.44 6.76 5.32 4.00
Total Capital 13.22 11.12 9.74 8.00
----- ----- ---- ---------
<FN>
* Based on Federal Reserve Board definitions. Risk-based capital and leverage ratios exclude the assets and off-balance sheet
financial instruments of Chase Securities, Inc. (CSI). For capital calculations, one-half of the investment in CSI is deducted
from both Tier I and Tier II Capital.
(a) Tier I Capital divided by adjusted average assets. Adjusted average assets are defined as total quarterly average assets less
the assets of CSI and other adjustments.
(b) Tier I Capital or Total Capital divided by net risk-weighted assets. Net risk-weighted assets include assets and off-balance
sheet positions, weighted by the type of instrument and the risk weight of the counterparty, collateral or guarantor.
</TABLE>
51
<PAGE> 21
<TABLE>
<CAPTION>
RISK-WEIGHTED ASSETS AND OFF-BALANCE SHEET EXPOSURES*
December 31,
------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Balance Sheet Risk-Weighted Assets $66,413 $67,371 $68,379
Off-Balance Sheet Risk-Weighted Items 23,081 24,972 26,522
Net Risk-Weighted Assets 89,192 91,587 94,127
------- ------- -------
<FN>
* Based on Federal Reserve Board definitions.
</TABLE>
The risk-based capital guidelines are designed to measure Tier I and Total
Capital (Tier I and Tier II) in relation to the credit risk of both on- and
off-balance sheet items.
The following table shows the components of regulatory capital as defined by
the banking regulators for risk-based capital and leverage ratio guidelines.
<TABLE>
<CAPTION>
COMPONENTS OF CAPITAL*
December 31,
------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Tier I Capital
Common Stockholders' Equity $6,723 $5,034 $4,282
Minority Interest 66 3 3
Nonredeemable Preferred Stock 1,399 1,477 1,042
Less:
50% of Investment in CSI 139 114 93
Other 521 206 226
------- ------- ------
Tier I Capital 7,528 6,194 5,008
------- ------- ------
Tier II Capital
Redeemable Preferred Stock -- 53 53
Mandatory Convertible Debt 98 212 507
Subordinated Notes 3,178 2,684 2,504
Reserve for Possible Credit Losses 1,122 1,157 1,186
Less:
50% of Investment in CSI 139 114 93
------- ------- ------
Tier II Capital 4,259 3,992 4,157
------- ------- ------
Total Capital $11,787 $10,186 $9,165
------- ------- ------
<FN>
* Based on Federal Reserve Board definitions.
</TABLE>
The increase in Tier I Capital over 1992 primarily resulted from the issuance
of $818 million in common stock, increased retained earnings (including the
effect of the adoption of SFAS 109 to the extent applicable under current
capital guidelines) and the issuance of $172 million Preferred Stock, Series M,
partially offset by the redemption of $250 million Preferred Stock, Series E.
In addition to the increase in Tier I Capital, Tier II Capital increased by
$267 million, compared with 1992, primarily as a result of the issuance of $1.0
billion of subordinated notes. The increase was partially offset by
approximately $664 million from the redemption of Tier II qualifying
securities, including the retirement of Redeemable Preferred Stock, Series B
and C totalling $53 million, and from the effect of the discount applicable to
subordinated notes with remaining maturities of five years or less.
Excluded from Tier I and Total Capital for 1993, in the other category,
shown in the preceding table, is primarily goodwill and net unrealized gains
on Investment Securities Available for Sale that arose from the adoption of
SFAS 115 on December 31, 1993. The bank regulatory agencies are currently
evaluating public comments received on proposed amendments to their regulatory
capital guidelines that would include in Tier I Capital net unrealized gains
and losses on such securities. However, until such amendments are finalized,
any net unrealized changes must be excluded from the determination of Tier I
and Total Capital.
The FASB has issued Interpretation 39, "Offsetting of Amounts Related to
Certain Contracts," which Chase adopted on January 1, 1994. This accounting
standard requires the fair value of certain financial contracts (i.e., single
and cross currency interest rate swaps, foreign exchange contracts, options and
other conditional and exchange contracts) used in trading activities to be
presented on a gross basis in the Consolidated Statement of Condition, unless
master netting agreements are in place. As such, all amounts related to each
contract (e.g., mark-to-market adjustment, accrued interest receivable, accrued
interest payable, etc.) are combined and, if positive, reported as Trading
Account Assets and, if negative, reported as Trading Account Liabilities. The
implementation of this accounting standard will increase total assets and
liabilities, since Chase previously reported the fair value of these contracts
on a net basis in the Consolidated Statement of Condition, consistent with
industry practice. Such implementation will not affect risk-based capital
ratios since, for purposes of computing regulatory capital, these amounts have
been reported on a gross basis, but will decrease the Tier I Leverage ratio. At
December 31, 1993, the amount of such increase in assets and liabilities was
estimated at approximately $10 billion after giving effect to master netting
agreements currently in place which, on a pro forma basis, would have reduced
the asset-based Tier I Leverage ratio from 7.81% to 7.07%.
<TABLE>
<CAPTION>
COMMON STOCK ISSUANCES
1993 1992
-------------- ---------------
($ in millions, shares in thousands) Shares Shares
- ------------------------------------ ------ ------
<S> <C> <C> <C> <C>
Common Stock Offering $746 25,300 $ -- --
Dividend Reinvestment and Stock
Purchase Plan (DRIP):
Dividends Reinvested 15 502 59 2,510
Optional Cash Deposits 41 1,312 200 8,590
Equity Contracts -- -- 132 3,176
Subordinated Notes due 1996* -- -- 35 1,422
Stock Option and Incentive Plans 16 1,078 8 540
Other -- 2 -- --
---- ------ ---- ------
Total $818 28,194 $434 16,238
---- ------ ---- ------
<FN>
* Interest on the Company's Floating Rate Subordinated Notes due 1996 was paid in shares of common stock of the Company to the
extent of 8.50% per annum.
</TABLE>
The Company is using the net proceeds from the common stock offering to provide
funding to support its growth and acquisition strategies for its core
businesses and for general corporate purposes.
The Company's Board of Directors declared a common stock cash dividend of
30 cents per share for each quarter during 1993 and 1992 and on January 19,
1994, declared an increased quarterly dividend of 33 cents per share.
Also on January 19, 1994, the Board adopted a new broad-based employee
stock option plan. Under the plan, substantially all full-time employees were
awarded options to purchase 400 shares of common stock of the Company, and
substantially all part-time employees were awarded options to purchase 200
shares of common stock of the Company at an exercise price of $35.50 per share.
The options become exercisable on January 19, 2003, and all options expire on
January 19, 2004. The options may, however, be exercised on an accelerated
basis if certain share price performance levels are achieved during the period
from January 19, 1994 through March 31, 1997. For additional details, see Note
11 of Notes to Financial Statements.
In 1993 and 1992, common dividends reinvested in common stock under the
DRIP represented an average participation rate of eligible shares of 8% and
34%, respectively. Participants in the DRIP may invest in additional shares of
common stock by making optional cash deposits within specified limits. From
time to time, optional cash deposits have been accepted at rates discounted
below the then
52
<PAGE> 22
current market prices for the Company's common stock. In April
1993, the Company amended the DRIP to limit to a maximum of $6,000 per quarter
the amount of cash dividends that may be reinvested at a 5% discount from the
current market price by any participant. Reinvestment of cash dividends in
excess of that amount continues to be permitted without any discount. In
addition, the maximum amount of optional cash purchases at a 3% discount by any
participant is limited to $2,000 per month. Waivers of these limitations are no
longer permitted. These amendments significantly reduced the number of shares
of common stock issued under the DRIP in 1993.
In 1992, registered owners of Equity Contracts, which were sold with the
15.50% notes due 1992 as units (each consisting of $1,000 principal amount of
such notes and a $1,000 equity contract), were obligated to purchase shares of
the Company's common stock at a price of $41.67 per share, which resulted in the
addition of approximately $132 million to Tier I Capital.
TRADING ACTIVITIES
Chase conducts its trading activities predominantly in two business sectors:
Global Risk Management (GRM) and Global Capital Markets (GCM). GRM designs and
markets a broad range of risk management products that provide customers with
the ability to manage currency, interest rate and other financial exposures.
The net portfolio exposures created as a result of providing this service to
customers are managed by GRM as part of Chase's trading portfolio. As a
secondary business objective, GRM creates proprietary positions in its trading
portfolio to take advantage of market opportunities that are not associated
with customer activities. GRM's trading activity is concentrated in major
currencies and products, including foreign currency, precious metals, and
interest rate, commodity and equity derivative products.
GCM functions as an intermediary between customers (both issuers and
investors) and the capital markets worldwide. Issuer needs are met through
primary market activities, including underwriting, private placement and
syndication. In order to meet investor needs, as well as to provide secondary
market support to primary market activity, GCM sells and trades a variety of
instruments in the U.S. and international capital markets, including Brady
bonds and restructured loans of emerging market countries, U.S. government and
government agency securities, money market instruments, and investment grade
and noninvestment grade fixed income securities.
The trading activities described above give rise to financial instruments
that are included in Chase's financial statements and are discussed in the
footnotes. Trading Account Assets at both December 31, 1993 and 1992 were
comprised of securities, loans, precious metals and the net fair value of
foreign exchange and derivative products. The level of such assets is affected
by customer needs and various market factors, including interest and exchange
rates. The 1993 increase in securities was primarily the result of growth in
the emerging markets area.
<TABLE>
<CAPTION>
TRADING ACCOUNT ASSETS
December 31,
------------
($ in millions) 1993 1992*
- --------------- ---- -----
<S> <C> <C>
Securities and Loans $6,171 $4,748
Other 762 585
------ ------
Total $6,933 $5,333
------ ------
<FN>
* Includes $528 million that was reported in the Other Assets financial statement classification.
</TABLE>
Note 18 of Notes to Financial Statements provides a description of the
above-mentioned foreign exchange and derivative products, including a summary
of the contract or notional amounts associated with these financial
instruments. The notional or contract amounts are not recorded as assets or
liabilities on the balance sheet, but solely represent the volume of
outstanding transactions for foreign exchange and derivative products.
The customer-initiated activity in these businesses often arises from
customer needs identified in Chase's other business sectors. Further discussion
of Chase's approach to integrated delivery of global products and services can
be found in the Description of Business section beginning on page 90.
Trading returns are realized by retaining the spread and managing the net
risk exposure on customer-initiated transactions, through fees on services
provided to customers, and by positioning risk, within established guidelines,
to take advantage of discretionary market opportunities. Trading and
trading-related revenues (including revenue classified as net interest revenue
for financial statement purposes) for GRM and GCM totaled $808 million in 1993,
up from $603 million in 1992. Total trading and trading-related revenues were
well-distributed across businesses and geographic markets:
<TABLE>
<CAPTION>
TOTAL TRADING AND TRADING-RELATED REVENUES*
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Business Diversification:
Foreign Exchange and Precious Metals $390 $343
Derivative Products 201 121
GCM Trading and Underwriting 217 139
---- ----
Total $808 $603
---- ----
Geographic Distribution:
The Americas $427 $265
Europe 231 176
Asia 150 162
---- ----
Total $808 $603
---- ----
<FN>
* Net interest revenue attributable to trading activities of approximately $90 million in 1993 and approximately $145 million in
1992 includes accruals on interest-earning and interest-bearing trading-related positions, as well as allocated amounts
reflecting the cost or benefit, based on short-term interest rates, associated with net trading-related positions.
</TABLE>
In addition to trading and trading-related revenues, GCM also generated fee
revenue from loan syndication and private placement activities in both 1993 and
1992.
Although no system or control process can replace the judgment of
experienced traders and trading managers, a structured risk management process,
which allows for risk taking within defined limits, is integral to driving
balanced customer, product and service objectives and ensuring that the trading
businesses continue to add value to both customers and shareholders.
53
<PAGE> 23
Within its trading businesses, Chase has two primary risk management
objectives: to eliminate excessive and unacceptable risk; and to optimize the
risk/return profile of each business. In order to ensure that trading
activities are consistent with these objectives, and to provide a framework
within which business decisions can be made, Chase has defined a set of
fundamental risk management principles, including:
o Formal definition of risk management responsibilities.
o Measurement of risk in accordance with "Value-at-Risk" methodologies.
o Continual evaluation of Chase's risk appetite, communicated and managed
through risk limits and controls.
o Evaluation of business performance, relative to risks taken.
RISK MANAGEMENT RESPONSIBILITIES
In order to provide for the comprehensive integration of risk management
practices and business strategies, while ensuring the appropriate degree of
control and independence, Chase has established risk management functions.
These functions are independent of the units that create risk exposure and are
responsible for the measurement and management of the market, credit, and
administrative, operational and technology risks of the trading businesses, the
communication of these risks to senior management and the Board of Directors,
as well as the continuous review of the risk management approach, policies and
procedures. These risk management functions report jointly and are accountable
to both the senior business executives as well as the appropriate corporate
functional executives.
The Market Risk Policy Committee is responsible for the oversight and
direction of Chase's combined market risk profile and appetite, including the
establishment of corporate practices and policies, and the governance of
institutional risk tolerance, limits and compliance. Reporting to this
committee is a group of risk management and marketing executives from the
trading businesses whose primary objectives are to promote a forum for
appropriate discussion of market activities and performance expectations, and
to identify market risk governance issues.
The senior management framework for establishing policies and guidelines
for credit risk management of trading transactions is identical to that for
credit risk in the traditional lending portfolio. Refer to the Credit Risk
Management section beginning on page 38 for more information.
RISK MEASUREMENT
Chase uses Value-at-Risk methodologies to capture the potential expected and
unexpected changes in the market value, or price, of individual and aggregate
trading positions that can result from changes in risk factors, including
credit risk factors. Value-at-Risk provides a measure of risk across diverse
financial markets and products for a given time horizon and confidence level.
Market risk can be defined as the risk of loss resulting from changes in
the financial markets in which Chase participates, such as changes in the level
of interest rates or exchange rates. Market risk at Chase is currently measured
through "risk dollars," which quantify the loss that could occur in a 24-hour
period, within a two standard deviation confidence interval (i.e., 97.5%),
under normal market conditions. Risk dollars, however, are not an absolute
measure of market risk under all conditions and the professional judgment of
experienced business and risk managers is used to evaluate and supplement the
risk dollar methodology, including liquidity, event, concentration and
historical price volatility and correlation reliance risks.
Using this methodology, Chase's predominant market risk exposures are in
its foreign currency and securities trading portfolios. On average, market
risk associated with derivative products during 1993 accounted for less than
25% of Chase's total market risk exposure from all trading activities.
Credit risks include both counterparty and issuer risks. Counterparty risk
can be defined as the risk of loss resulting from a counterparty's inability or
unwillingness to fulfill its obligations to Chase, as well as other risks that
might impede Chase's ability to enforce full performance by the counterparty.
Issuer risk can be defined as the risk of loss resulting from adverse movements
in the price of a trading asset due to changes in the market's perception of
the issuer's financial strength. These risk exposures are measured by
Value-at-Risk methodologies that assess the size of the potential exposure
during the life of the transaction, the probability of a credit event occurring
during the transaction, and the probable impact of such an event. These
methodologies use a statistical confidence approach to determine potential
exposure when the level of exposure cannot be definitely ascertained at the
outset of the transaction.
Chase's predominant credit risk exposures in its trading businesses relate
to derivative products, as derivative credit risk exposures are primarily of a
medium-term nature, while credit exposures in most other trading products are
of a short-term nature. Approximately 70% of these derivative credit exposures
are with counterparties of investment grade quality. In addition, financial
institutions, 90% of which are from OECD countries, represent the dominant
industry exposure. No other industry segment is greater than 3% of the total.
All individual credit exposures are strictly controlled through a limit
monitoring process, and, in addition, certain other techniques to reduce
exposures, such as collateral requirements, are employed when appropriate.
Documentation allowing for the netting of offsetting contractual exposures is
obtained whenever possible. Netting can reduce credit exposures.
Administrative, operational and technology risk is defined as the risk of
loss resulting from the attributes of the trading businesses, including
production disruptions, inadequate systems planning and legal risks. While
market and credit risks can largely be assessed based on models that quantify
the risk elements in order to set limits, administrative, operational and
technology risk assessment is based largely on a qualitative assessment of
potential risk exposures.
RISK APPETITE
Chase's risk appetite is continually evaluated and communicated through risk
limits to ensure that the level of risk in the trading activities is consistent
with Chase's mission, strategy and objectives. Market risk is primarily
controlled through the use of risk dollar limits, as an extension of notional
position limits and loss limits. Risk dollar limits are reviewed at least
quarterly to ensure consistency with the historical and anticipated financial
performance of a business, as well as alignment with strategic business
objectives. Credit risk is controlled through a variety of policies, limits and
procedures to ensure that potential losses resulting from credit-related events
do not exceed Chase's risk appetite, and that trading activities are conducted
in accordance with risk management objectives. All counterparties and issuers
are evaluated by methods consistent with the practices found in traditional
bank lending activities, which are discussed in more detail in the Credit Risk
Management section beginning on page 38. Administrative, operational and
technology risks are monitored through a qualitative assessment of risk,
including annual production planning, service delivery standards and back-up
and contingency plans, and are managed through extensive controls, including
front- and back-office system reconciliation, confirmation processes, and daily
position and performance validation.
54
<PAGE> 24
PERFORMANCE EVALUATION
The assessment of the potential unexpected losses resulting from each of the
identified risks (market, credit, and administrative, operational and
technology) provides Management with a consistent framework in which to
evaluate business risk/return profiles, validate objectives and strategies, and
optimally allocate resources. Further analysis of the trading business
risk/return profile, including the attribution of trading revenues to risk
components, provide business and risk management with information relating to
both the business decision framework (e.g., the validation of pricing
methodologies), and the business strategic outlook (e.g., the sustainability of
risk/return relationships).
RECENT ACQUISITIONS AND DIVESTITURES
In December 1993, Chase entered into an agreement to sell Chase Bank of Arizona
and its subsidiary, Chase Trust Company of Arizona. Such sale, which is
subject to regulatory approval, is expected to close during the second quarter
of 1994.
In July 1993, Chase acquired Troy & Nichols, Inc., a consumer mortgage
origination and servicing company, with total assets of approximately $565
million and a mortgage servicing portfolio of approximately $9.6 billion. In
addition, Chase purchased other mortgage servicing portfolios totaling $7.4
billion in 1993.
In 1992 and 1991, mortgage servicing portfolios totaling $3.4 billion and
$6.1 billion, respectively, were purchased.
During 1993, continuing its restructuring of certain overseas businesses,
specifically its decision to focus on its U.S. distribution capabilities for
consumer products, Chase sold its Singapore credit card business and a 46%
interest in Manhattan Card Co. Limited, its Hong Kong credit card business. In
addition, Chase closed its consumer banking activities in Singapore and Chile.
BUSINESS OPERATIONS
A description of the products and services offered by Chase's major businesses
is provided in the Description of Business section on page 90.
The following table sets forth the estimated net income (loss), average
assets and return on average assets for 1993, 1992 and 1991 for the major
businesses of Chase.
<TABLE>
<CAPTION>
Net Income (Loss) Average Assets Return on
($ in millions) ($ in billions) Average Assets
----------------------- ------------------------- --------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Businesses $585 $580 $465 $ 38.7 $ 38.0 $ 42.0 1.51% 1.53% 1.11%
Wholesale Businesses 685 385 275 55.6 51.6 46.9 1.23 0.75 0.59
Real Estate Finance Sector (765) (465) (425) 5.0 7.8 8.8 (15.18) (5.98) (4.85)
LDC Portfolio Management 130 50 30 3.7 4.2 4.7 3.54 1.20 0.63
Unallocated Corporate Items 331 89 175 (0.3) (1.2) (1.6) N/M N/M N/M
---- ---- ---- ------ ------ ------ ----- ---- ----
Total Corporation $966 $639 $520 $102.7 $100.4 $100.8 0.94% 0.64% 0.52%
<FN>
N/M--not meaningful.
</TABLE>
The estimated results for Chase's major businesses are derived from Chase's
internal accounting systems, which are continually refined to better reflect
organizational performance. These systems allocate to each business: revenue,
expenses and balances related to the business, as well as corporate overhead,
operations expenses and systems development charges. They also incorporate
processes for allocating Chase's capital base and for matching, within each
business, assets and liabilities with similar maturity, liquidity and interest
rate characteristics. Prior years' business results have been restated to be
consistent with 1993; restatements reflect changes in organizational structure,
as well as ongoing refinements of allocation methodologies.
RETAIL BUSINESSES
The net income of Retail Businesses includes the results of the business
components that provide retail banking, investment management and other
financial services to retail customers, primarily in the U.S. These businesses,
National Consumer Products, Regional Banking and Global Private Banking,
produced net income, estimated on the basis described above, of $585 million in
1993, comparable with the $580 million in 1992 and $465 million in 1991. The
factors contributing to the flat earnings compared with the prior year
included: the effect of accelerated mortgage servicing writedowns in the
mortgage business due to the high level of refinancings in the U.S. mortgage
market; charges related to continued restructuring of the consumer banking
network and a decline in Regional Banking deposits. These negative factors were
offset by the previously described gain from the sale of 46% of Manhattan Card
Co. Limited in Hong Kong, continued revenue growth in consumer credit products
in the U.S., as well as a substantial increase in Global Private Banking
income, reflecting a higher level of assets under management. In general, the
retail businesses continued to benefit from controls in place to ensure strong
credit quality in the loan portfolio and the availability of funding for new
investments due to savings from restructuring programs and efficiency measures
implemented over the past few years.
WHOLESALE BUSINESSES
The net income of Wholesale Businesses includes the results of the business
components that serve the financial needs of wholesale customers, both in the
U.S. and overseas. These are Global Corporate Finance, Global Risk Management,
Global Capital Markets and Transaction and Information Services (doing business
as Chase InfoServ International). In 1993, the estimated net income of the
Wholesale Businesses was $685 million, compared with $385 million in 1992, an
increase of 78%, and $275 million in 1991. The increase in 1993 included
significant growth in all of these businesses. Global Corporate Finance showed
improvement in all geographic areas, with improved asset quality and higher
investment banking-related revenue in 1993, including the realization of gains
from the sales of equity investments. The Global Risk Management business, as
well as Chase's wholesale treasury activities, benefited from favorable
interest rate environments. Additionally, Global Risk Management achieved a
record level of trading revenue, partially offset by higher operating expenses,
including increased investments in new products and systems. Global Capital
Markets performance was driven by increased trading profits in the emerging
markets activities, as well as successful development of the high-yield debt
business and continued strong loan syndication performance. In 1993, Chase
InfoServ International's revenues increased substantially, reflecting increased
client activity in cross-border investing, higher client asset values in
custody services and overseas growth in other product areas including payments
and trusts. Continued gains in productivity throughout the sector contributed
to improvement in its profitability.
55
<PAGE> 25
REAL ESTATE FINANCE SECTOR
The Real Estate Finance Sector is the New York-based business component of
Chase that serves the financial needs of certain commercial real estate owners
and developers in the U.S. and manages the assets related to discontinued real
estate lending activities for both these businesses, and those in the Regional
Banking units outside New York. Its assets include loans not categorized as
commercial real estate loans and do not include the commercial real estate
loans related to the continuing real estate business in Regional Banking. Prior
years' results have been restated to reflect changes in organizational
structure, due to the transfer of discontinued real estate activities in
Regional Banking to the Real Estate Finance Sector. In 1993, the Real Estate
Finance Sector's net loss was $765 million, compared with net losses of $465
million in 1992 and $425 million in 1991. The increase in the net loss in 1993,
compared with the prior years, primarily reflected the charges associated with
establishing the accelerated disposition portfolio and higher foreclosed
property expenses.
LDC PORTFOLIO MANAGEMENT
LDC Portfolio Management is the component of Chase that oversees the loan
portfolio of cross-border extensions of credit to refinancing countries. This
business unit reported net income of $130 million in 1993, compared with $50
million in 1992 and $30 million in 1991. The improvement in 1993, compared with
1992, reflects the interest revenue from sale of Brazilian and Argentine past
due interest bonds.
UNALLOCATED CORPORATE ITEMS
The net income (loss) of each of the four major businesses as reported in the
preceding table includes the applicable provision for income taxes. The $500
million favorable impact from the adoption of SFAS 109 in 1993, as well as
Chase's utilization of tax benefits in 1992 and 1991, is included in
Unallocated Corporate Items. Unallocated Corporate Items also included a
portion of the charges associated with the adoption of SFAS 106 and SFAS 112,
described elsewhere in this Annual Report. Also included in 1993 and 1992 are
certain unallocated costs associated with Chase's banking premises. The assets
in Unallocated Corporate Items represent Chase's credit loss reserves, net of
certain premises and other assets, not allocated to specific business units.
56
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
To the Board of Directors and Stockholders
of The Chase Manhattan Corporation
In our opinion, the accompanying consolidated statement of condition of The
Chase Manhattan Corporation and Subsidiaries and the related consolidated
statements of income, of changes in stockholders' equity and of cash flows and
the consolidated statement of condition of The Chase Manhattan Bank, N.A. and
Subsidiaries appearing on pages 58 through 82, present fairly, in all material
respects, the financial position of The Chase Manhattan Corporation and
Subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 and the financial position of The Chase Manhattan Bank, N.A. and
Subsidiaries at December 31, 1993 and 1992, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of The Chase Manhattan Corporation and The
Chase Manhattan Bank, N.A.; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in notes 1, 2, 17 and 20 to the consolidated financial
statements, The Chase Manhattan Corporation and Subsidiaries changed their
method of accounting for investments in debt and equity securities,
postretirement benefit plans and income taxes in 1993.
/s/ Price Waterhouse
January 19, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 2-99686,
33-7299, 33-13729, 33-20950, 33-51044, 33-58144, 33-61364 and 33-63018) and
Form S-8 (Nos. 2-84856, 2-61480, 2-91637, 2-90759, 33-28024, 33-29140, 33-29614
and 33-44863) of The Chase Manhattan Corporation of our report dated January
19, 1994 appearing above. We also consent to the reference to us under the
heading "Experts" in such Prospectuses.
/s/ Price Waterhouse
February 25, 1994
REPORT OF MANAGEMENT
TO THE STOCKHOLDERS
Management is responsible for the content of the financial statements included
in this annual report and the information contained in other sections of this
annual report, which information is believed to be consistent with the content
of the financial statements. Management believes that the financial statements
have been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included. The financial
statements of necessity reflect Management's judgments and estimates as to the
effects of events and transactions that are accounted for or disclosed.
Management has long recognized the importance of the Corporation
maintaining and reinforcing the highest possible standards of conduct in all of
its actions, including the preparation and dissemination of statements fairly
presenting the financial condition of the Corporation. In this regard, it has
developed a system of internal accounting control that plays an important role
in assisting Management in fulfilling its responsibilities in preparing the
Corporation's financial statements. The Corporation's system of internal
accounting control is designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with Management's
authorizations and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles. This
system is augmented by written policies and procedures and by an independent
worldwide internal audit staff, which reports to the Audit Committee of the
Board of Directors. Management recognizes that because of cost-benefit
considerations and other inherent limitations on the effectiveness of any
internal accounting control system, some errors or irregularities may occur.
However, Management believes that the Corporation's internal accounting control
system provides reasonable assurance that errors and irregularities that could
be material to the financial statements are prevented or would be detected on a
timely basis and corrected in the normal course of business.
The Audit Committee of the Board of Directors, composed entirely of outside
Directors, has responsibility for recommending the independent accountants for
the Corporation who are appointed by the Board of Directors. The Audit
Committee reviews with the independent accountants the scope of their audit and
audit reports and meets with them on a scheduled basis to review their findings
and any actions to be taken thereon. In addition, the Audit Committee meets
with the internal auditors and with Management to review the scope of the
internal audit program and the performance and findings of the internal audit
staff and any actions to be taken by Management. The independent accountants
and the internal auditors have free access to the Audit Committee without
Management being present.
The independent accountants are engaged in their annual audit function to
express an opinion on the Corporation's financial statements, which opinion is
based on their performance of generally accepted auditing procedures believed
by them to be sufficient to provide reasonable assurance that the financial
statements included in this annual report are free of material misstatement.
/s/ Thomas G. Labreque
Chairman and Chief Executive Officer
/s/ E. Michel Kruse
Executive Vice President and Chief Financial Officer
January 19, 1994
57
<PAGE> 27
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION
The Chase Manhattan Corporation and Subsidiaries
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Assets
Cash and Due from Banks $ 6,068 $ 5,008
Interest-Bearing Deposits Placed with Banks 5,309 5,722
Federal Funds Sold and Securities Purchased Under Resale Agreements 6,586 4,191
Trading Accounts Assets 6,933 4,805
Investment Securities:
Held to Maturity (Market Value of $1,417 and $1,464, Respectively) 1,384 1,431
Available for Sale Carried at Fair Value 7,690 --
At Lower of Cost or Market (Market Value of $5,087) -- 4,749
-------- -------
Total Investment Securities 9,074 6,180
Loans 60,493 62,558
Less: Reserve for Possible Credit Losses 1,425 1,913
-------- -------
Loans, Net 59,068 60,645
Assets Held for Accelerated Disposition 222 --
Customers' Liability on Acceptances 689 608
Accrued Interest Receivable 871 976
Premises and Equipment 1,782 1,858
Other Assets 5,501 5,869
-------- -------
Total Assets $102,103 $95,862
-------- -------
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Deposits:
Domestic Offices:
Noninterest-Bearing $ 14,217 $12,398
Interest-Bearing 27,648 28,663
Overseas Offices:
Noninterest-Bearing 2,473 1,718
Interest-Bearing 27,171 24,445
-------- -------
Total Deposits 71,509 67,224
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 7,890 6,961
Commercial Paper 1,465 1,145
Other Short-Term Borrowings 1,813 1,774
Acceptances Outstanding 696 619
Accrued Interest Payable 416 578
Accounts Payable, Accrued Expenses and Other Liabilities 4,551 4,084
Intermediate- and Long-Term Debt 5,641 6,913
-------- -------
Total Liabilities 93,981 89,298
Redeemable Preferred Stock (Without Par Value, None and 530,369 Shares Outstanding, Respectively) -- 53
-------- -------
Stockholders' Equity:
Nonredeemable Preferred Stock (Without Par Value, 51,439,738 and 49,539,738 Shares
Outstanding, Respectively) 1,399 1,477
Common Stock:
1993 1992
----------- -----------
<C> <C>
Par Value $2.00 $2.00
Number of Shares Authorized 500,000,000 500,000,000
Number of Shares Outstanding 184,290,491 156,096,382 369 312
Surplus 3,922 3,174
Net Unrealized Gains on Investment Securities--Available for Sale 264 --
Retained Earnings 2,168 1,548
-------- -------
Total Stockholders' Equity 8,122 6,511
-------- -------
Total Liabilities, Redeemable Preferred Stock and Stockholders' Equity $102,103 $95,862
-------- -------
<FN>
The accompanying notes on pages 63 to 82 are an integral part of the financial statements.
</TABLE>
58
<PAGE> 28
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
-----------------------
($ in millions, except per common share data) 1993 1992 1991
- --------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Interest Revenue
Interest and Fees on Loans $5,795 $6,280 $7,961
Interest on Deposits Placed with Banks 717 759 534
Interest and Dividends on Investment Securities:
Held to Maturity 168 579 553
Available for Sale 517 -- --
Interest on Federal Funds Sold and Securities Purchased Under Resale Agreements 1,029 771 391
Interest on Trading Account Assets 242 316 199
------ ------ ------
Total Interest Revenue 8,468 8,705 9,638
------ ------ ------
Interest Expense
Deposits 2,014 2,935 4,374
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 570 585 531
Commercial Paper 46 40 47
Other Short-Term Borrowings 1,484 952 619
Intermediate- and Long-Term Debt 491 629 722
------ ------ ------
Total Interest Expense 4,605 5,141 6,293
------ ------ ------
Net Interest Revenue 3,863 3,564 3,345
Provision for Possible Credit Losses 995 1,220 1,085
Provision for Loans Held for Accelerated Disposition 566 -- --
------ ------ ------
Net Interest Revenue After Provisions for Possible Credit Losses
and Loans Held for Accelerated Disposition 2,302 2,344 2,260
------ ------ ------
Other Operating Revenue
Fees and Commissions 1,562 1,582 1,578
Foreign Exchange Trading Revenue 356 327 215
Trading Account Revenue 360 141 120
Investment Securities Gains 47 13 3
Other Revenue 624 286 251
------ ------ ------
Total Other Operating Revenue 2,949 2,349 2,167
------ ------ ------
Other Operating Expenses
Salaries and Employee Benefits:
Salaries 1,590 1,505 1,468
Employee Benefits 487 411 407
------ ------ ------
2,077 1,916 1,875
Net Occupancy 404 383 405
Equipment Rentals, Depreciation and Maintenance 298 285 281
Provision for Other Real Estate Held for Accelerated Disposition 318 -- --
Other Expenses 1,423 1,284 1,222
------ ------ ------
Total Other Operating Expenses 4,520 3,868 3,783
------ ------ ------
Income Before Taxes 731 825 644
Applicable Income Taxes 265 186 124
------ ------ ------
Income Before Cumulative Effect of Change in Accounting Principle 466 639 520
Cumulative Effect of Change in Accounting Principle--Adoption of SFAS 109 500 -- --
------ ------ ------
Net Income $ 966 $ 639 $ 520
------ ------ ------
Net Income Applicable to Common Stock $ 826 $ 515 $ 420
------ ------ ------
Average Common and Common Equivalent Shares Outstanding (in millions) 172.3 148.7 134.8
Primary Earnings Per Common Share, Before Cumulative Effect of Change in
Accounting Principle, Based on Average Shares Outstanding $ 1.89 $ 3.46 $ 3.12
Cumulative Effect of Change in Accounting Principle--Adoption of SFAS 109 2.90 -- --
------ ------ ------
Primary Earnings Per Common Share $ 4.79 $ 3.46 $ 3.12
------ ------ ------
Cash Dividends Declared Per Common Share $ 1.20 $ 1.20 $ 1.20
------ ------ ------
<FN>
The accompanying notes on pages 63 to 82 are an integral part of the financial
statements.
</TABLE>
59
<PAGE> 29
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
-----------------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Nonredeemable Preferred Stock
Balance at Beginning of Year (49,539,738, 29,639,738 and 21,639,738 Shares, Respectively) $1,477 $1,042 $ 842
Issuance of Preferred Series I (8,000,000 Shares) -- -- 200
Issuance of Preferred Series J (6,000,000 Shares) -- 150 --
Issuance of Preferred Series K (6,800,000 Shares) -- 170 --
Issuance of Preferred Series L (9,600,000 Shares) -- 240 --
Issuance of Preferred Series M (6,900,000 Shares) 172 -- --
Redemption of Preferred Stock Series D (2,500,000 Shares) -- (125) --
Redemption of Preferred Stock Series E (5,000,000 Shares) (250) -- --
------ ------ ------
Balance at End of Year (51,439,738, 49,539,738 and 29,639,738 Shares, Respectively) 1,399 1,477 1,042
------ ------ ------
Common Stock
Balance at Beginning of Year (156,096,382, 139,857,939 and 131,693,748 Shares, Respectively) 312 280 263
Shares Issued Pursuant to Common Stock Offering (25,300,000 Shares) 51 -- --
Shares Issued Pursuant to Dividend Reinvestment and Stock Purchase Plan
(1,813,905, 11,100,324 and 4,403,372 Shares, Respectively) 4 22 9
Shares Issued Pursuant to Common Stock Equity Contracts (3,176,040 Shares) -- 6 --
Shares Issued Pursuant to Floating Rate Subordinated Notes Due 1996 (1,422,245 and 2,148,075
Shares, Respectively) -- 3 4
Shares Issued Pursuant to Private Placement (1,547,518 Shares) -- -- 4
Shares Issued Pursuant to Stock Option and Incentive Plans (1,078,018, 539,834 and 65,226
Shares, Respectively) 2 1 --
Shares Issued Pursuant to Stock Warrants (2,186 Shares) -- -- --
------ ------ ------
Balance at End of Year (184,290,491, 156,096,382 and 139,857,939 Shares, Respectively) 369 312 280
------ ------ ------
Surplus
Balance at Beginning of Year 3,174 2,795 2,679
Shares Issued Pursuant to Common Stock Offering 695 -- --
Shares Issued Pursuant to Dividend Reinvestment and Stock Purchase Plan 52 237 64
Shares Issued Pursuant to Common Stock Equity Contracts -- 126 --
Shares Issued Pursuant to Floating Rate Subordinated Notes Due 1996 -- 32 31
Shares Issued Pursuant to Private Placement -- -- 21
Shares Issued Pursuant to Stock Option and Incentive Plans 14 7 2
Other (13) (23) (2)
------ ------ ------
Balance at End of Year 3,922 3,174 2,795
------ ------ ------
Net Unrealized Gains on Investment Securities--Available for Sale
Balance at Beginning of Year -- -- --
Cumulative Effect of Adoption of SFAS 115, Net of Deferred Taxes of $174 264 -- --
------ ------ ------
Balance at End of Year 264 -- --
------ ------ ------
Retained Earnings
Balance at Beginning of Year 1,548 1,207 948
Net Income 966 639 520
Cash Dividends:
Redeemable Preferred Stock (3) (4) (4)
Nonredeemable Preferred Stock (138) (120) (96)
Common Stock (204) (177) (161)
Foreign Exchange Translation Adjustments (1) 3 --
------ ------ ------
Balance at End of Year (Includes Foreign Exchange Translation
Adjustments of $12, $13 and $10, Respectively) 2,168 1,548 1,207
------ ------ ------
Total Stockholders' Equity $8,122 $6,511 $5,324
------ ------ ------
<FN>
The accompanying notes on pages 63 to 82 are an integral part of the financial statements.
</TABLE>
60
<PAGE> 30
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
-----------------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 966 $ 639 $ 520
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Cumulative Effect of Change in Accounting Principle--Adoption of SFAS 109 (500) -- --
Provision for Possible Credit Losses 995 1,220 1,085
Provision for Loans Held for Accelerated Disposition 566 -- --
Provision for Other Real Estate Held for Accelerated Disposition 318 -- --
Depreciation and Amortization of Premises and Equipment 261 243 255
Accretion and Amortization 193 157 93
Other Real Estate Valuation Losses 213 83 74
Deferred Income Taxes 230 48 22
Net Gains on Sales of Assets (671) (299) (254)
Net (Increase) Decrease in Operating Assets:
Trading Account Assets (1,715) (2,037) (1,218)
Accrued Interest Receivable 103 54 (141)
Other Assets 355 661 (2,631)
Net Increase (Decrease) in Operating Liabilities:
Accrued Interest Payable (161) (284) (148)
Accounts Payable, Accrued Expenses and Other Liabilities 493 33 422
Other--Net 17 (508) 496
------- ------- -------
Net Cash Provided (Used) by Operating Activities 1,663 10 (1,425)
------- ------- -------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Interest-Bearing Deposits Placed with Banks 296 (1,484) (1,915)
Net Increase in Federal Funds Sold and Securities Purchased Under Resale Agreements (2,395) (271) (2,692)
Investment Securities--Held to Maturity:
Payments for Purchases (737) (4,708) (2,197)
Proceeds from Sales -- 1,674 1,886
Proceeds from Maturities, Calls and Prepayments 656 2,055 1,213
Investment Securities--At Lower of Cost or Market:
Payments for Purchases (10,798) -- --
Proceeds from Sales 6,675 -- --
Proceeds from Maturities, Calls and Prepayments 2,733 -- --
Loans:
Net Increase in Loans Made to Customers (14,303) (7,901) (10,201)
Payments for Purchases (2,525) (273) (1,786)
Proceeds from Sales and Securitizations 13,479 11,526 16,975
Proceeds from Sales and Repayments of Assets Held for Accelerated Disposition 1,093 -- --
Net Purchases of Premises and Equipment (191) (444) (427)
Acquisition of Mortgage Subsidiary (202) -- --
Proceeds from the Sale of Other Assets and Premises 122 26 1,946
------- ------- -------
Net Cash Provided (Used) by Investing Activities (6,097) 200 2,802
------- ------- -------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits 4,986 (3,450) (1,124)
Net Increase in Federal Funds Purchased and Securities Sold Under Repurchase Agreements 973 1,382 2,720
Net Increase (Decrease) in Commercial Paper 320 131 (6)
Net Increase (Decrease) in Other Short-Term Borrowings 88 (290) (2,504)
Intermediate- and Long-Term Debt:
Proceeds from Issuance 1,102 2,424 1,998
Repayments and Redemptions (2,279) (1,968) (1,677)
Redemption of Redeemable Preferred Stock (53) -- --
Stockholders' Equity:
Cash Dividends (345) (301) (261)
Proceeds from Issuance of Nonredeemable Preferred Stock 167 542 193
Redemption of Nonredeemable Preferred Stock (250) (130) --
Proceeds from Issuance of Common Stock 790 386 75
------- ------- -------
Net Cash Provided (Used) by Financing Activities 5,499 (1,274) (586)
------- ------- -------
Effect of Exchange Rate Changes on Cash (5) (5) (9)
------- ------- -------
Net Increase (Decrease) in Cash and Due from Banks 1,060 (1,069) 782
------- ------- -------
Cash and Due from Banks at Beginning of Year 5,008 6,077 5,295
------- ------- -------
Cash and Due from Banks at End of Year $ 6,068 $ 5,008 $ 6,077
------- ------- -------
Cash Paid for: Interest $ 4,767 $ 5,413 $ 6,442
Income Taxes $ 155 $ 167 $ 134
Noncash Investing and Financing Activities:
Net Loan Transfers to Other Real Estate $ 817 $ 507 $ 331
<FN>
The accompanying notes on pages 63 to 82 are an integral part of the financial statements.
</TABLE>
61
<PAGE> 31
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION
The Chase Manhattan Bank, N.A. and Subsidiaries
December 31,
------------
($ in millions) 1993 1992*
- --------------- ---- -----
<S> <C> <C>
Assets
Cash and Due from Banks $ 5,772 $ 4,697
Interest-Bearing Deposits Placed with Banks 5,431 5,813
Federal Funds Sold and Securities Purchased Under Resale Agreements 4,439 3,865
Trading Account Assets 6,309 4,177
Investment Securities:
Held to Maturity (Market Value of $684 and $729, Respectively) 657 703
Available for Sale Carried at Fair Value 6,766 --
At Lower of Cost or Market (Market Value of $4,016) -- 3,889
------- -------
Total Investment Securities 7,423 4,592
Loans 48,109 49,261
Less: Reserve for Possible Credit Losses 1,085 1,547
------- -------
Loans, Net 47,024 47,714
Assets Held for Accelerated Disposition 219 --
Customers' Liability on Acceptances 689 608
Accrued Interest Receivable 566 639
Premises and Equipment 1,617 1,690
Other Assets 4,514 4,207
------- -------
Total Assets $84,003 $78,002
------- -------
Liabilities and Stockholders' Equity
Deposits:
Domestic Offices:
Noninterest-Bearing $13,740 $11,701
Interest-Bearing 21,276 21,809
Overseas Offices:
Noninterest-Bearing 2,473 1,718
Interest-Bearing 28,120 24,955
------- -------
Total Deposits 65,609 60,183
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 3,534 4,008
Other Short-Term Borrowings 1,253 1,216
Acceptances Outstanding 696 614
Accrued Interest Payable 347 503
Accounts Payable, Accrued Expenses and Other Liabilities 3,088 2,764
Intermediate- and Long-Term Debt 3,032 3,425
------- -------
Total Liabilities 77,559 72,713
------- -------
Stockholder's Equity:
Capital Stock:
1993 1992*
---------- ----------
<C> <C>
Par Value $15.00 $15.00
Number of Shares Authorized 81,744,445 81,744,445
Number of Shares Outstanding 60,699,597 60,220,121 910 903
Surplus 4,383 3,983
Net Unrealized Gains on Investment Securities--Available for Sale 187 --
Undivided Profits 964 403
------- -------
Total Stockholder's Equity 6,444 5,289
------- -------
Total Liabilities and Stockholder's Equity $84,003 $78,002
------- -------
<FN>
* As restated for the merger of Chase Lincoln First Bank, N.A. into The Chase Manhattan Bank, N.A. on January 1, 1993.
The accompanying notes on pages 63 to 82 are an integral part of the financial statements.
Member Federal Deposit Insurance Corporation
</TABLE>
62
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
The Chase Manhattan Corporation and Subsidiaries
NOTE 1. GENERAL
The accounting policies followed by The Chase Manhattan Corporation (the
Company) and its subsidiaries are disclosed below in the accompanying Summary
of Significant Accounting Policies. This summary is an integral part of the
financial statements and should be read in conjunction with these notes.
Throughout the notes, the term Chase refers to The Chase Manhattan Corporation
and its direct and indirect subsidiaries. The term banking subsidiaries, as
used in these notes, includes any of the following commercial banks: The Chase
Manhattan Bank, N.A. (the Bank), The Chase Manhattan Bank (USA) (Chase USA),
The Chase Manhattan Bank of Connecticut, N. A., Chase Bank of Maryland (Chase
Maryland), The Chase Manhattan Bank of Florida, N.A. and Chase Bank of Arizona
(Chase Arizona). Chase has entered into an agreement to sell Chase Arizona in
a transaction expected to close during the second quarter of 1994. Chase
Lincoln First Bank, N.A. (Chase Lincoln), previously an indirect subsidiary of
the Company, was merged into the Bank on January 1, 1993. The term Bank, as
used in these notes, refers to The Chase Manhattan Bank, N.A. and its
subsidiaries, including Chase Manhattan Overseas Banking Corporation, which
holds investments in overseas commercial banking and financial services
subsidiaries. The term nonbanking subsidiaries, as used in these notes, refers
to subsidiaries of the Company not chartered as commercial banks that are
engaged in investment banking, mortgage banking, commercial and consumer
financing, and other financial services.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Chase follows generally accepted accounting principles and, where applicable,
the accounting and reporting guidelines prescribed by the Securities and
Exchange Commission and bank regulatory authorities. Chase carries its assets
and liabilities principally on the historical cost basis and follows the
accrual method of accounting.
Assets held in an agency or fiduciary capacity by commercial banking
subsidiaries and by trust and investment advisory subsidiaries are not assets
of Chase and, accordingly, are not included in the accompanying financial
statements.
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
CONSOLIDATION POLICIES
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries, principally the Bank, after elimination of
material intercompany transactions.
Investments in associated companies (20%-50% ownership interest) are
accounted for under the equity method and are reported in Other Assets. Chase's
equity interest in the earnings (losses) of these associated companies and
gains (losses) realized on dispositions of investments in associated companies
are reported in Other Revenue.
Investments in companies that are less than 20% owned are accounted for
under the cost method and are recorded in Investment Securities as other stock
investments. Cash dividends received on these investments are reported in
Interest and Dividends on Investment Securities. Gains (losses) realized on the
disposition of these investments are reported in Investment Securities Gains
(Losses).
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Assets and liabilities of overseas entities are translated into U.S. dollars at
the respective year-end exchange rates. Revenue and expenses are translated
monthly at prevailing rates of exchange.
Foreign exchange translation gains (losses) resulting from Chase's
investments in overseas entities, except for those located in highly
inflationary economies, net of related hedging transactions and income tax
effects, are credited or charged directly to Retained Earnings. Foreign
exchange translation gains (losses) pertaining to entities located in highly
inflationary economies are reported in Other Revenue.
TRADING ACTIVITIES
Chase trades foreign exchange contracts, securities, certain loans, interest
rate derivative products (including interest rate swaps and currency exchange
agreements) and commodity contracts. Positions are valued at estimated current
market prices. Chase trades these instruments for market-making and proprietary
purposes.
Realized and unrealized gains (losses) related to foreign exchange
contracts are recognized in Foreign Exchange Trading Revenue.
Realized and unrealized gains (losses) related to securities, certain
loans, interest rate derivative products and commodity contracts are recognized
in Trading Account Revenue. Certain refinancing country extensions of credit
previously written down were transferred to the trading account. Unrealized
gains on these extensions of credit are deferred until realized.
Obligations to deliver securities sold but not yet purchased are included
in Accounts Payable, Accrued Expenses and Other Liabilities. A portion of
income related to credit risk and ongoing servicing of interest rate swaps and
currency exchange agreements is deferred and accreted into income over the
terms of these contracts.
ASSET/LIABILITY MANAGEMENT ACTIVITIES
As part of its asset/liability management (ALM) program, which includes
activities relating to interest rate and foreign currency exposures, Chase
enters into various contracts, including interest rate swaps and currency
exchange agreements, forward, futures, option, cap and floor contracts.
ALM contracts are accounted for on an accrual basis. Swap and currency
exchange agreement income and expense are reported in Interest Revenue or
Interest Expense applicable to the related assets or liabilities. Yield-related
payments or receipts associated with such contracts are accrued over the terms
of the contracts. Gains (losses) realized on other ALM interest rate contracts
are generally deferred and amortized over the terms of the related assets or
liabilities and are included as adjustments to Interest Revenue or Interest
Expense, as appropriate.
INVESTMENT SECURITIES
Prior to December 31, 1992, all investment securities were carried at
historical cost, adjusted for amortization of premiums and accretion of
discounts. As of December 31, 1992, Chase elected to carry at historical cost,
adjusted for amortization of premiums and accretion of discounts, only those
investment securities for which it had both the positive intent and ability to
hold to maturity. All remaining securities that might be sold prior to maturity
were then carried at the lower of aggregate cost or market, with valuation
adjustments, if any, reported in Investment Securities Gains (Losses).
At December 31, 1993, Chase adopted Statement of Financial Accounting
Standards (SFAS) 115, "Accounting for Certain Investments in Debt and Equity
Securities." Securities that Chase has both the positive intent and ability to
hold to maturity were classified as Investment Securities Held to Maturity and
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts. Investment Securities Available for Sale, which are those
securities that may be sold prior to maturity as part of asset/liability
management or in response to other factors, are carried at fair value with any
valuation adjustments reported in a separate component of stockholders' equity,
net of deferred taxes. Also included in Investment Securities Available for
Sale are investments resulting from corporate finance-related activities.
Interest and dividends on investment securities and amortization of
premiums and accretion of discounts are reported in Interest and Dividends on
Investment Securities. Gains (losses) realized on sales of investment
securities are generally determined on the specific identification method and
are reported in Investment Securities Gains (Losses), except for realized gains
(losses) on corporate finance-related securities which are reported in Other
Revenue.
63
<PAGE> 33
LOANS
Loans are generally reported at their principal amounts outstanding, net of
unearned discount and fee revenue, if any. Loans held for sale are carried at
lower of cost or market. Interest revenue on loans not made on a discount basis
is credited to Interest Revenue based on loan principal amounts outstanding at
appropriate interest rates. Unearned discount on loans is credited to Interest
Revenue on a basis that approximates level rates of return over the terms of
the loans.
Chase recognizes loan-related fees as an adjustment of the loan's yield
over the life of the loan utilizing an interest method that results in a level
rate of return.
Fees related to commitments to extend credit are generally deferred until
the credit is extended and are then recognized over the life of the loan. Fees
on expired, but unused commitments, are recognized in revenue at expiration.
Fees from issuing standby letters of credit are generally recognized over the
period to maturity. Loan syndication fees are generally recognized when the
syndication is complete and specific yield-related requirements have been
satisfied.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Loans, excluding most consumer loans, are placed in
nonaccrual status if reasonable doubt exists as to timely collectibility or if
payment of principal or interest is contractually past due ninety days or more
and the loan is not well secured and in the process of collection. Any accrued
but unpaid interest previously recorded on such loans is reversed against
current period interest revenue. Interest revenue on nonaccrual loans is
recognized subsequently only in the period realized. Except in cases where
other accounting or regulatory rules apply, loans are generally returned to
accrual status when the collectibility of both principal and interest on a
timely basis is reasonably assured and all delinquent principal and interest
are brought current or the loan becomes well secured and in the process of
collection. Consumer loans are generally charged off against the Reserve for
Possible Credit Losses according to established delinquency schedules, except
for loans secured by 1-4 family residential properties.
Loans that have been renegotiated for economic or other reasons related to
debtors' financial difficulties on terms that Chase would not be willing to
accept for new loans with comparable risk are designated as restructured loans.
Interest on such loans is accrued at the renegotiated rates. If reasonable
doubt exists with respect to timely collectibility of interest at the
renegotiated rates, then such loans are transferred to nonaccrual status. Where
arrangements provide for additional interest to be paid on a contingent basis,
such interest is not recognized until deemed realizable.
Chase sells or securitizes certain commercial and consumer loans. Such
sales are generally to maturity and without recourse to Chase. A limited number
of assets are sold with recourse for which appropriate reserves are provided.
Gains or losses, as appropriate, are recognized immediately to the extent the
sales price of loans sold differs from the related carrying amount.
RESERVE FOR POSSIBLE CREDIT LOSSES
The Reserve for Possible Credit Losses provides for risks of losses inherent in
the credit extension process. This reserve is a general reserve, available to
absorb losses related to the total loan portfolio and other extensions of
credit, including off-balance sheet credit commitments, such as commitments to
extend credit, guarantees and standby letters of credit. The reserve is
increased by provisions charged to expense and decreased by charge-offs, net of
recoveries.
The Provision for Possible Credit Losses is based on Management's
evaluation of the adequacy of the Reserve for Possible Credit Losses. This
evaluation encompasses consideration of past and potential future loss
experience and changes in other factors, including the composition and volume
of the loan portfolio and off-balance sheet commitments, the relationship of
the reserve to the loan portfolio and off-balance sheet credit commitments and
worldwide economic conditions.
REAL ESTATE PROPERTIES ACQUIRED IN SATISFACTION OF LOANS
Real estate properties acquired in satisfaction of loans (ORE), including
in-substance foreclosures, are reported in Other Assets and are recorded at the
lower of cost or estimated fair market value, less estimated selling expenses,
on their acquisition dates and at the lower of such initial amount or estimated
fair market value, less estimated selling expenses, thereafter. Subsequent
writedowns are recorded in Other Operating Expenses, along with operating
expenses of such properties, net of related revenue, and gains (losses) on
their dispositions.
A collateralized loan is deemed in-substance foreclosed and reclassified to
Other Assets when it has been determined that repayment in full is not expected
and the borrower has little or no equity in the collateral and is not expected
to be able to rebuild equity in the foreseeable future.
ASSETS HELD FOR ACCELERATED DISPOSITION
In 1993, Chase designated for accelerated disposition selected lower quality
performing real estate loans, nonaccrual real estate loans and ORE. Each asset
held for accelerated disposition is carried at the lower of its initial
estimated disposition value (cost) or its current estimated disposition value,
which is updated on a quarterly basis. Any adjustments to the carrying value of
the assets are reflected in Other Revenue. The Reserve for Possible Credit
Losses does not cover the assets in the accelerated disposition portfolio.
The recognition of interest income on the assets is dependent upon the
credit characteristics of the related asset. As assets are sold, realized gains
and losses are reflected in Other Revenue.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, representing the cost of investments in subsidiaries and affiliated
companies in excess of fair value of net assets acquired at acquisition, is
amortized over periods not exceeding twenty years.
Other acquired intangible assets, such as the value of purchased core
deposits, mortgage servicing rights and credit card relationships, are
amortized over the periods benefited, not exceeding fifteen years. An
impairment valuation is performed quarterly on these assets.
PREMISES AND EQUIPMENT
Premises and Equipment, excluding land, are reported at original cost less
accumulated depreciation and amortization. Land is reported at original cost.
Depreciation is charged to operating expenses over the estimated useful lives
of the related assets. Leasehold improvements are amortized over the terms of
the respective leases or the estimated useful lives of the improvements,
whichever is shorter. Depreciation and amortization are generally computed on
the straight-line method. Maintenance and repairs are charged to operating
expenses as incurred, while major improvements are capitalized.
64
<PAGE> 34
EMPLOYEE BENEFITS
Chase has trusteed, noncontributory pension plans covering substantially all
full-time and part-time employees. Costs of the plans, based on actuarial
computations of current and future benefits for employees, are charged to
Salaries and Employee Benefits.
Chase also provides certain postretirement and postemployment benefits,
such as health care, life insurance and disability benefits. Costs of such
benefits are generally accrued over a period to the date that employees attain
full eligibility for these benefits and are based on actuarial computations.
Such costs are charged to Salaries and Employee Benefits.
INCOME TAXES
Chase adopted SFAS 109, "Accounting for Income Taxes," on a prospective basis
as of January 1, 1993. SFAS 109 recognizes both the current and deferred tax
consequences of all transactions that have been recognized in the financial
statements, calculated based on the provisions of enacted tax laws, including
the tax rates in effect for current and future years. Net deferred tax assets,
whose realization is dependent on taxable earnings of future years, are
recognized when a more-likely-than-not criterion is met, that is, unless a
greater than 50% probability exists that the tax benefits will not actually be
realized sometime in the future.
Prior to 1993, Chase followed SFAS 96 also entitled, "Accounting for Income
Taxes." Under SFAS 96, deferred tax assets whose realization was dependent on
taxable earnings of future years were not recognized.
The Company and certain of its subsidiaries file consolidated tax returns
with the Federal, New York State and New York City taxing authorities. Other
subsidiaries file separate domestic and foreign tax returns as required.
Applicable taxes of the individual companies are generally determined on the
basis of filing separate returns. Amounts to be paid or credited with respect
to current taxes determined for subsidiaries included in consolidated tax
returns are paid to or received from the Company.
STATEMENT OF CASH FLOWS
For purposes of preparing the Consolidated Statement of Cash Flows, Chase
defines cash and cash equivalents as Cash and Due from Banks, while the
Company's cash and cash equivalents are defined as Demand Deposits with the
Bank.
Cash flows of hedge instruments are reported together with the cash flows
of the related assets or liabilities.
Changes in assets and liabilities are net of the effects of sales and
acquisitions.
65
<PAGE> 35
NOTE 2. INVESTMENT SECURITIES
On December 31, 1993, Chase adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires Investment
Securities to be classified as either Held to Maturity or Available for Sale.
SFAS 115 changed the accounting for investment securities available for sale
from the lower of cost or market to fair value. In addition, certain securities
previously classified as loans were reclassified to Investment Securities
Available for Sale on December 31, 1993 as a result of the adoption of SFAS
115.
<TABLE>
<CAPTION>
1993 1992
---- ----
Securities--Held to Maturity Securities--Held to Maturity
---------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
($ in millions) Cost Gains Losses Value* Cost Gains Losses Value*
- --------------- ---- ----- ------ ------ ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 31 $ 2 $ -- $ 33 $ 53 $ 1 $ -- $ 54
Federal Agency Securities** 662 4 -- 666 610 7 1 616
State and Political Subdivision Securities 419 28 1 446 484 28 2 510
Other Bonds, Notes and Debentures:
Securities Issued by OECD Central
Governments and their Agencies*** 16 -- -- 16 10 -- -- 10
Securities Issued by Other Foreign
Central Governments and their Agencies 10 -- -- 10 4 -- -- 4
Privately-Issued Mortgage-Backed Securities 35 1 1 35 51 -- 1 50
Corporate and Other Debt Securities 35 -- -- 35 51 1 -- 52
------ --- ---- ------ ------ --- ---- ------
Total Other Bonds, Notes and Debentures 96 1 1 96 116 1 1 116
------ --- ---- ------ ------ --- ---- ------
Federal Reserve Bank and Other Stock Investments 176 -- -- 176 168 -- -- 168
------ --- ---- ------ ------ --- ---- ------
Total $1,384 $35 $ 2 $1,417 $1,431 $37 $ 4 $1,464
------ --- ---- ------ ------ --- ---- ------
</TABLE>
<TABLE>
<CAPTION>
1993 1992
---- ----
Securities--Available for Sale at Fair Value Securities--At Lower of Cost or Market
-------------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
($ in millions) Cost Gains Losses Value* Cost Gains Losses Value*
- --------------- ---- ----- ------ ------ ---- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $2,273 $ 34 $ -- $2,307 $1,908 $ 62 $ -- $1,970
Federal Agency Securities** 1,202 16 5 1,213 632 20 -- 652
Other Bonds, Notes and Debentures:
Securities Issued by OECD Central
Governments and their Agencies*** 1,535 30 1 1,564 908 4 5 907
Securities Issued by Other Foreign
Central Governments and their Agencies 1,476 180 38 1,618 409 2 8 403
Privately-Issued Mortgage-Backed Securities 136 3 -- 139 201 2 1 202
Corporate and Other Debt Securities 318 21 1 338 429 4 1 432
------ ---- ---- ------ ------ ---- ---- ------
Total Other Bonds, Notes and Debentures 3,465 234 40 3,659 1,947 12 15 1,944
------ ---- ---- ------ ------ ---- ---- ------
Federal Reserve Bank and Other Stock Investments 312 199 -- 511 262 259 -- 521
------ ---- ---- ------ ------ ---- ---- ------
Total $7,252 $483 $ 45 $7,690 $4,749 $353 $ 15 $5,087
------ ---- ---- ------ ------ ---- ---- ------
<FN>
* The fair values of securities are estimated utilizing independent pricing services and are based on available market data,
which often reflect transactions of relatively small size and are not necessarily indicative of the prices at which large
amounts of particular issues could be sold.
** Primarily Mortgage-Backed Federal Agency Securities.
*** OECD includes all countries that are members of the Organization for Economic Cooperation and Development, excluding the
United States.
Note: The amortized cost at December 31, 1991 of U.S. Treasury Securities; Federal Agency Securities; State and Political
Subdivision Securities; Other Bonds, Notes and Debentures; and Federal Reserve Bank and Other Stock Investments was $584
million, $1,170 million, $712 million, $2,123 million and $383 million, respectively.
</TABLE>
Interest and dividends on investment securities in terms of taxable
interest income, nontaxable interest income, and dividends were for 1993: $630
million, $34 million and $21 million; for 1992: $515 million, $40 million and
$24 million; and for 1991: $471 million, $59 million and $23 million,
respectively.
There were no sales of Investment Securities Held to Maturity in 1993. In
1992, sales of Investment Securities Held to Maturity with an amortized cost of
$1,661 million resulted in net realized gains of $13 million.
Proceeds from sales of Investment Securities at Lower of Cost or Market
were $6,675.00 million for the year ended December 31, 1993. Gross gains of $59
million and gross losses of $12 million were realized for the year ended
December 31, 1993.
The U.S. Government is the only single issuer whose securities held in
Chase's investment securities portfolios exceeded 10% of Chase's total
stockholders' equity at December 31, 1993.
The amortized cost and fair value of investment securities, excluding
mortgage-backed securities, at December 31, 1993 and 1992 are shown in the
following tables by contractual maturity. Actual maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. The amortized cost
and market value of mortgage-backed securities are reported in the maturity
classifications equivalent to the securities' estimated duration after
considering scheduled payments and anticipated prepayments.
66
<PAGE> 36
<TABLE>
<CAPTION>
INVESTMENT SECURITIES--HELD TO MATURITY
After 1 After 5
But But
Within Within Within After
($ in millions) 1 Year 5 Years 10 Years 10 Years Total
- --------------- ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
1993
U.S. Treasury Securities:
Amortized Cost $ 19 $ 12 $ -- $ -- $ 31
Fair Value 19 14 -- -- 33
Yield 6.64% 7.58% --% --% 7.02%
------- ------- ------ ----- --------
Federal Agency Securities:
Amortized Cost $ -- $ 432 $ 222 $ 8 $ 662
Fair Value -- 431 227 8 666
Yield --% 6.00% 6.50% 9.06% 6.20%
------- ------- ------ ----- --------
State and Political Subdivision Securities:
Amortized Cost $ 9 $ 65 $ 104 $ 241 $ 419
Fair Value 8 72 111 255 446
Yield 8.70% 10.82% 10.75% 12.10% 11.49%
------- ------- ------ ----- --------
Other Bonds, Notes and Debentures:
Amortized Cost $ 47 $ 6 $ 9 $ 34 $ 96
Fair Value 47 5 9 35 96
Yield 7.81% 6.03% 3.41% 6.78% 6.93%
------- ------- ------ ----- --------
Federal Reserve Bank and Other Stock Investments:
Cost $ -- $ -- $ -- $ 176 $ 176
Fair Value -- -- -- 176 176
Yield --% --% --% 5.94% 5.94%
------- ------- ------ ----- --------
1993--Total Investment Securities--Held to Maturity:
Amortized Cost $ 75 $ 515 $ 335 $ 459 $ 1,384
Fair Value 74 522 347 474 1,417
Yield 7.33% 6.18% 6.60% 7.13% 6.66%
------- ------- ------ ----- --------
1992--Total Investment Securities--Held to Maturity:
Amortized Cost $ 62 $ 367 $ 443 $ 559 $ 1,431
Fair Value 62 371 455 576 1,464
Yield 6.80% 7.27% 7.42% 7.27% 7.29%
------- ------- ------ ----- --------
<FN>
Note: Yields are derived by dividing Interest Revenue, adjusted for amortization of premiums and accretion of discounts, by total
amortized cost. Yields are stated on a taxable equivalent basis applying a combined U.S. Federal, state and local tax rate of
41%. For 1993, the annualized taxable equivalent adjustments for the maturity ranges and totals shown above are none, $2
million, $4 million, $10 million and $16 million, respectively.
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES--AVAILABLE FOR SALE
After 1 After 5
But But
Within Within Within After
($ in millions) 1 Year 5 Years 10 Years 10 Years Total
- --------------- ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
1993
U.S. Treasury Securities:
Amortized Cost $ 513 $ 1,760 $ -- $ -- $ 2,273
Fair Value 516 1,791 -- -- 2,307
Yield 5.49% 5.82% --% --% 5.74%
------- ------- ------ ------ --------
Federal Agency Securities:
Amortized Cost $ 1 $ 118 $ 418 $ 665 $ 1,202
Fair Value 1 114 421 677 1,213
Yield 3.34% 4.99% 5.79% 6.43% 6.06%
------- ------- ------ ------ --------
Other Bonds, Notes and Debentures:
Amortized Cost $ 779 $ 1,393 $ 165 $1,128 $ 3,465
Fair Value 790 1,419 182 1,268 3,659
Yield 10.05%* 5.82% 5.92% 6.31% 6.94%
------- ------- ------ ------ --------
Other Stock Investments:
Amortized Cost $ -- $ -- $ -- $ 312 $ 312
Fair Value -- -- -- 511 511
Yield --% --% --% 3.71% 3.71%
------- ------- ------ ------ --------
1993--Total Investment Securities--Available for Sale
at Fair Value:
Amortized Cost $ 1,293 $ 3,271 $ 583 $2,105 $ 7,252
Fair Value 1,307 3,324 603 2,456 7,690
Yield 8.24% 5.79% 5.83% 5.96% 6.28%
------- ------- ------ ------ --------
1992--Total Investment Securities--At Lower of Cost
or Market:
Amortized Cost $ 1,048 $ 2,958 $ 233 $ 510 $ 4,749
Fair Value 1,046 3,039 233 769 5,087
Yield 9.27%* 7.16% 7.82% 4.45% 7.36%
------- ------- ------ ------ --------
<FN>
* Reflects the effects of local investments in certain Latin American countries with highly inflationary economies.
Note: Yields are derived by dividing Interest Revenue, adjusted for amortization of premiums and accretion of discounts, by total
amortized cost.
</TABLE>
67
<PAGE> 37
NOTE 3. LOANS
<TABLE>
<CAPTION>
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C> <C> <C>
Domestic Offices:
Commercial Real Estate Loans:
Construction and Development $ 1,124 1.9% $ 3,252 5.2%
Other Real Estate Loans 1,975 3.2 3,492 5.5
Loans to Financial Institutions 1,391 2.3 1,718 2.7
Loans for Purchasing or Carrying Securities 591 1.0 663 1.1
Commercial and Industrial Loans 8,032 13.2 9,185 14.6
Consumer Loans:
Loans Secured by 1-4 Family Residential Properties 14,126 23.3 10,670 17.0
Credit Card Loans 6,426 10.6 6,317 10.0
Other 8,009 13.2 7,343 11.7
Lease Financings 1,617 2.6 1,827 2.9
Tax-Exempt Loans 191 0.3 344 0.5
Other Loans 678 1.1 414 0.7
------- ---- ------- ----
Total Domestic Offices, Gross 44,160 72.7 45,225 71.9
Less: Unearned Discount and Fee Revenue 188 339
------- ---- ------- ----
Total Domestic Offices 43,972 44,886
------- ---- ------- ----
Overseas Offices:
Commercial Real Estate Loans 281 0.5 314 0.5
Loans to Financial Institutions 1,513 2.5 1,731 2.7
Loans to Governments and Official Institutions 972 1.6 3,478 5.5
Commercial and Industrial Loans 10,002 16.5 8,615 13.7
Consumer Loans:
Loans Secured by 1-4 Family Residential Properties 846 1.4 905 1.4
Credit Card Loans 283 0.4 294 0.5
Other 1,154 1.9 1,115 1.8
Lease Financings 34 0.1 54 0.1
Other Loans 1,477 2.4 1,209 1.9
------- ---- ------- ----
Total Overseas Offices, Gross 16,562 27.3 17,715 28.1
Less: Unearned Discount and Fee Revenue 41 43
------- ---- ------- ----
Total Overseas Offices 16,521 17,672
------- ---- ------- ----
Total Loans $60,493 $62,558
------- ---- ------- ----
</TABLE>
At December 31, 1993 and 1992, unused conditional commitments to lend to
borrowers whose loans were in nonaccrual or restructured status aggregated $46
million and $82 million, respectively.
NOTE 4. RESERVE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Balance at Beginning of Year $1,913 $1,960 $2,837
Additions:
Provision for Possible Credit
Losses Charged to Expense 995 1,220 1,085
Provision for Loans Held for
Accelerated Disposition 566 -- --
Deductions:
Charge-Offs 1,511 1,370 2,055
Less: Recoveries 174 104 128
------ ------ ------
Net Charge-Offs 1,337 1,266 1,927
Writedowns of Loans Transferred
to the Accelerated Disposition
Portfolio (701) -- --
Reserves of Disposed Subsidiaries
and Other Adjustments (10) 1 (24)
Foreign Exchange Translation
Adjustments (1) (2) (11)
------ ------ ------
Balance at End of Year $1,425 $1,913 $1,960
------ ------ ------
</TABLE>
As part of the initial valuation adjustment of loans held for accelerated
disposition, Management established a special provision of $566 million and
subsequently wrote down $701 million of these loans as of March 31, 1993. The
Provision for Possible Credit Losses for 1993 and related net charge-offs and
the Reserve for Possible Credit Losses do not apply to loans or assets held for
accelerated disposition.
NOTE 5. OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Accounts Receivable $1,261 $ 855
Real Estate Properties Acquired in Satisfaction of
Loans* 905 1,147
Goodwill 185 206
Other Intangible Assets 607 575
Due for Securities Sold 558 215
Investments in Associated Companies 158 66
Other 1,827 2,805
------ ------
Total Other Assets $5,501 $5,869
------ ------
<FN>
* Amounts for 1993 and 1992 include $766 million and $668 million, respectively, of in-substance foreclosures.
</TABLE>
NOTE 6. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Accounts Payable $1,057 $ 557
Accrued Taxes and Other Expenses 1,185 1,017
Due for Securities Purchased 388 364
Securities Sold But Not Yet Purchased 736 427
Other Liabilities 1,185 1,719
------ ------
Total Accounts Payable, Accrued Expenses
and Other Liabilities $4,551 $4,084
------ ------
</TABLE>
68
<PAGE> 38
NOTE 7. NONREDEEMABLE PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance by the
Company of up to 100 million shares of redeemable and nonredeemable preferred
stock. At December 31, 1993, 1992 and 1991, 51,439,738, 49,539,738, and
29,639,738 shares, respectively, of nonredeemable preferred stock were
outstanding. The stated value of shares of Series F is $50 per share and the
stated value of shares of Series G, H, I, J, K, L and M is $25 per share.
<TABLE>
<CAPTION>
($ in millions)
- ---------------
Floating Floating
10.50% Rate Rate 10.50% 9.76% 10.84%
Series D Series E* Series F* Series G Series H Series I
2.5 5.0 4.5 5.6 4.0 8.0
Shares (in millions) Shares Shares Shares Shares Shares Shares
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31,:
1993 $-- $-- $227 $140 $100 $200
1992 -- 250 227 140 100 200
1991 125 250 227 140 100 200
----- ----- ------ ------- ------- -------
Adjustable Dividend Rates:
Minimum Rate --% 7.50% 6.00% --% --% --%
Maximum Rate -- 16.25 15.00 -- -- --
----- ----- ------ ------- ------- -------
Selected Per Share
Information
Liquidation Preference** $50 $50 $50 $25 $25 $25
Earliest Redemption Date *** **** 9/1/89 9/30/98 9/30/99 6/30/01
Redemption Amount** *** **** $50 $25 $25 $25
----- ----- ------ ------- ------- -------
Dividend Rate Per Annum
at Year-End:
1993 --% --% 6.00% 10.50% 9.76% 10.84%
1992 -- 8.05 7.50 10.50 9.76 10.84
1991 10.50 8.90 7.80 10.50 9.76 10.84
----- ----- ------ ------- ------- -------
<FN>
* Floating rates are based on certain money market rates.
** Plus accrued and unpaid dividends.
*** The entire 2.5 million shares of Series D were redeemed on August 17, 1992 at a price of $52.10 per share plus accrued
dividends to the redemption date, for a total amount of approximately $132 million.
**** The entire 5.0 million shares of Series E were redeemed on September 20, 1993 at a price of $50.00 per share plus accrued
dividends to the redemption date, for a total amount of approximately $254 million.
</TABLE>
<TABLE>
<CAPTION>
Total
9.08% 8.50% 8.32% 8.40% Non-
Series J Series K Series L Series M redeemable
6.0 6.8 9.6 6.9 Preferred
Shares (in millions) Shares Shares Shares Shares Stock
- -------------------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Outstanding at December 31,:
1993 $150 $170 $240 $172 $1,399
1992 150 170 240 -- 1,477
1991 -- -- -- -- 1,042
------- ------- ------- ------- ------
Adjustable Dividend Rates:
Minimum Rate --% --% --% --%
Maximum Rate -- -- -- --
------- ------- ------- ------- ------
Selected Per Share
Information
Liquidation Preference** $25 $25 $25 $25
Earliest Redemption Date 3/31/97 6/30/97 9/30/97 3/31/98
Redemption Amount** $25 $25 $25 $25
------- ------- ------- ------- ------
Dividend Rate Per Annum
at Year-End:
1993 9.08% 8.50% 8.32% 8.40%
1992 9.08 8.50 8.32 --
1991 -- -- -- --
------- ------- ------- ------- ------
<FN>
** Plus accrued and unpaid dividends.
</TABLE>
Dividends on shares of each Series are payable quarterly and are
cumulative. Holders of shares of each Series generally have only contingent
voting rights. The shares of each Series are not subject to any sinking fund or
other repurchase or retirement obligation of the Company.
NOTE 8. REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
December 31,
------------
Stated Value ($ in millions) 1993 1992 1991
- ---------------------------- ---- ---- ----
<S> <C> <C> <C>
6.75% Series B (260,273 Shares) $-- $26 $26
7.60% Series C (270,096 Shares) -- 27 27
--- --- ---
Total Redeemable Preferred Stock
(530,369 Shares) $-- $53 $53
--- --- ---
</TABLE>
In the third quarter of 1993, the Company redeemed all of its outstanding
shares of Redeemable Preferred Stock for a total amount of approximately $53
million plus accrued and unpaid dividends.
NOTE 9. COMMON STOCK AND SURPLUS
The Company's Certificate of Incorporation authorizes the issuance by the
Company of up to 500 million shares of common stock, par value $2.00 per share.
<TABLE>
<CAPTION>
Shares Reserved
at December 31, 1993*
----------------------
<S> <C>
Dividend Reinvestment and Stock Purchase Plan 9,772,086
Stock Option and Incentive Plans 11,027,192
Common Stock Subscription Warrants 3,312,814
----------
Total 24,112,092
----------
<FN>
* An additional 14.0 million shares were reserved for issuance under a new broad-based stock option plan for employees approved
by the Board of Directors on January 19, 1994 (see Note 11 for additional information).
</TABLE>
Under the Dividend Reinvestment and Stock Purchase Plan, as in effect at
December 31, 1993, domestic common stockholders of record may reinvest all or
part of their quarterly common stock dividends to a maximum of $6,000 per
quarter, in shares of common stock at a 5% discount from the current average
market prices, without payment of service charges or brokerage commissions.
Reinvestment of cash dividends in excess of that amount is permitted without
any discount. Optional cash purchases of common stock may be made by common
stockholders of the Company at a 3% discount from the current market price.
Optional cash purchases in any month are limited to $2,000 per stockholder.
Optional cash purchases and dividend reinvestments were approximately $41
million and $15 million, respectively, in 1993.
Unless full cumulative dividends have been paid on all of the outstanding
shares of nonredeemable preferred stock of the Company and the Company is not
in default or in arrears with respect to any sinking fund or redemption
requirement, no cash dividends may be paid on or any payments made to purchase
or redeem any shares of common stock of the Company.
The Company issued warrants during 1993 in settlement of a previously
reported legal action. The warrants cover 3,315,000 shares of common stock at
an exercise price of $34.6125 per share, and expire on June 30, 1996. During
1993, approximately 2,000 warrants were exercised.
69
<PAGE> 39
NOTE 10. JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
Pursuant to a Rights Agreement dated February 15, 1989, there is attached to
each share of common stock of the Company one junior participating preferred
stock purchase right (Right). Each Right entitles the holder to buy from the
Company one one-hundredth of a share of junior participating preferred stock at
an exercise price of $125, subject to adjustment.
The Rights will expire on February 27, 1999 unless redeemed earlier and
will not be exercisable or transferable separately from the shares of common
stock to which they are attached until the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an Acquiring Person) has acquired beneficial ownership of 20% or more of the
outstanding shares of common stock of the Company (the Stock Acquisition Date)
or (ii) 10 business days following a public announcement of the commencement of
a tender offer or exchange offer that would result in the offeror beneficially
owning 25% or more of the outstanding shares of common stock of the Company.
The Rights are redeemable, for cash or other consideration deemed
appropriate by the Board of Directors of the Company, at $0.01 per Right,
subject to adjustment, at any time prior to 10 days after the Stock Acquisition
Date, which redemption period may be extended under certain conditions.
In the event that any person becomes an Acquiring Person other than
pursuant to an offer for all outstanding shares of common stock which the
independent directors of the Company determine to be fair to and in the best
interests of the Company and its shareholders (a Flip-In Event), each holder of
a Right, other than Rights beneficially owned by an Acquiring Person and
certain transferees (which Rights will be void), will thereafter have the right
to acquire, upon exercise, shares of common stock (or, in certain
circumstances, property) having a value equal to two times the exercise price
of the Right. However, Rights will not be exercisable following the occurrence
of a Flip-In Event until such time as the Rights are no longer redeemable by
the Company. At any time after the occurrence of a Flip-In Event, the Board of
Directors of the Company may exchange the Rights (other than Rights which have
become void as described above), in whole or in part, at an exchange ratio of
one share of common stock per Right, subject to adjustment.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction
in which the Company is not the surviving corporation (other than a merger
which follows an offer described in the preceding paragraph), or (ii) 50
percent or more of the Company's assets or earning power is sold or
transferred, each holder of a Right (except Rights which have become void as
set forth previously) will thereafter have the right to acquire, upon exercise,
shares of common stock of the acquiring company having a value equal to two
times the exercise price of the Right.
Until a Right is exercised, the holder thereof will have no rights as a
shareholder of the Company.
NOTE 11. STOCK OPTION AND INCENTIVE PLANS
<TABLE>
<CAPTION>
Option Price Market Value
----------------------------- ------------------------------
Stock Options
with Stock
Stock Appreciation Aggregate Aggregate
Options Rights Per Share (in millions) Per Share (in millions)
------- ------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1991 4,222,446 697,854 $10.625-$41.00 $126 $17.8125 $ 88
Granted during 1992 1,300,450 -- 21.375 28 21.3750 28
Exercised during 1992 (477,480) (11,156) 10.625-26.188 (6) 20.375-29.8750 (12)
Canceled during 1992 (161,837) (21,797) 10.625-41.00 (5) 28.5000 (5)
--------- ------- -------------- ---- -------------- ----
Outstanding at December 31, 1992 4,883,579 664,901 $10.625-$41.00 $143 $28.5000 $158
Granted during 1993 1,672,050 -- 29.9375 50 29.9375 50
Exercised during 1993 (750,321) (41,432) 10.625-31.156 (15) 28.1875-37.750 (19)
Canceled during 1993 (99,432) (19,311) 10.625-41.00 (6) 33.8750 (4)
--------- ------- -------------- ---- -------------- ----
Outstanding at December 31, 1993 5,705,876 604,158 $10.625-$41.00 $172 $33.8750 $214
--------- ------- -------------- ---- -------------- ----
Exercisable at December 31, 1992 3,224,788 664,901 $10.625-$41.00 $116 $28.5000 $111
--------- ------- -------------- ---- -------------- ----
Exercisable at December 31, 1993 3,870,282 604,158 $10.625-$41.00 $121 $33.8750 $152
--------- ------- -------------- ---- -------------- ----
</TABLE>
Chase has various stock option and incentive plans that provide for the
granting of various types of awards to key personnel: options to purchase
shares of common stock with or without related stock appreciation rights,
restricted stock units and performance share units.
In accordance with the plans, options may be granted from time to time at a
purchase price per share equal to the market price on the date of grant and are
exercisable not less than one year nor more than ten years from the date of
grant. Stock appreciation rights permit their holders to surrender their
related options in exchange for cash or shares in an amount equal to the excess
of the market price per share of the stock on the date the right is exercised
over the related option price. Stock appreciation rights related to
nonqualified stock options are recorded as compensation expense based on the
excess of the fair market value of the stock over the option price times the
number of stock appreciation rights outstanding.
Restricted stock units and restricted stock, into which the units may be
converted, entitle their holders to receive shares of common stock after a
certain period of continued employment. The holders of restricted stock units
are entitled to receive cash payments equivalent to the dividends that would
have been received if the units were shares of common stock. The market value
of the shares at the date of grant is amortized to compensation expense over
the restriction period.
Performance share units entitle their holders to receive cash, shares of
common stock or a combination thereof at the end of the performance period upon
the satisfactory attainment of specified financial goals and departmental
objectives. Compensation expense is recorded over the service period based on
the market price per share of the common stock at the end of each reported
period.
During 1993 and 1992, approximately 210,000 and 320,000 restricted stock
units, respectively, were granted under the plans, while no performance share
units were granted. At December 31, 1993, approximately 730,000 restricted
stock units and no performance share units were outstanding.
The total number of shares of common stock and restricted stock units that
may be issued under the plans and the total number of performance share units
that may be granted under the plans may not exceed 12 million shares and
550,000 units, respectively. At December 31, 1993, approximately 3.5 million
shares were available for granting of stock options or restricted stock units
and approximately 400,000 performance share units were available for grant
under the plans.
In January 1994, Chase adopted a new broad-based employee stock option
plan. Under the plan, substantially all full-time employees were awarded
options to purchase 400 shares of common stock,
70
<PAGE> 40
and substantially all part-time employees were awarded options to purchase 200
shares of common stock at an exercise price of $35.50 per share. The options
become exercisable on January 19, 2003, and all options expire on January 19,
2004. The options may, however, be exercised on an accelerated basis (but not
earlier than January 19, 1997) if certain share price performance levels are
achieved during the period from January 19, 1994 through March 31, 1997. One
half of the options become exercisable if the common stock trades, over a
defined period, at an average price of $52 per share by March 31, 1997; all of
the options become exercisable if the common stock trades, over a defined
period, at an average price of $60 per share by that date. Neither the grant
nor the exercise of the options will result in a charge to the Corporation's
earnings under current accounting rules. The Corporation does not expect these
options to materially dilute earnings per share.
NOTE 12. EARNINGS PER COMMON SHARE
Primary earnings per common share amounts are computed by dividing Net Income
after deduction of preferred stock dividends by the average number of common
and common equivalent shares outstanding during the period. The fully dilutive
effects in 1993 of certain instruments (i.e., the assumed exercise of
outstanding dilutive stock options and conversion of restricted stock units)
were below the 3% standard of materiality and, therefore, not presented in the
financial statements. The average fully diluted common shares in the 1993
denominator were 173.2 million.
NOTE 13. PLEDGED ASSETS AND REQUIRED RESERVES
Pledged assets consisted of certain investment and trading account securities
and other assets aggregating approximately $10.7 billion at December 31, 1993.
Of these, approximately $6.4 billion were pledged to secure repurchase
agreements and approximately $4.3 billion were pledged to secure public and
trust deposits and for other purposes.
In addition, the Bank and certain banking subsidiaries of the Company are
required to maintain average reserves on deposit with Federal Reserve Banks
against certain outstanding domestic deposit liabilities. The reserves, which
are included in Cash and Due from Banks, were $0.3 billion at both December 31,
1993 and 1992. Average required reserves during 1993 and 1992 were $0.6
billion.
NOTE 14. REGULATORY LIMITATIONS
The Federal Reserve Act and regulations thereunder impose various legal
limitations on the extent banks with deposits that are insured by the FDIC may
finance or otherwise supply funds to certain of their affiliates. In
particular, each bank that is a subsidiary of the Company is subject to certain
restrictions on extensions of credit to or other covered transactions, such as
certain purchases of assets, with the Company or such affiliates. Such
restrictions prevent banking subsidiaries of the Company from lending to the
Company and their affiliates unless such extensions of credit are secured by
collateral in specified amounts and are made on terms and conditions that are
substantially the same as those prevailing for comparable transactions with
nonaffiliated companies. Further, such covered transactions by any such bank
are limited in amount as to the Company or any such affiliate to 10% of such
bank's capital and surplus and as to the Company and all such affiliates in the
aggregate to 20% of such bank's capital and surplus.
The Company's ability to pay dividends on its preferred and common stock is
derived from several sources, including, among other sources, dividends from
the Bank, Chase USA, Chase Maryland and the Company's nonbanking subsidiaries.
The ability of the Company's banking subsidiaries to pay dividends is subject
to certain restrictions.
National banks are subject to various legal limitations on the amount of
dividends that may be paid to their stockholders. Under the provisions of 12
U.S.C. Section 56, a national bank may not pay a dividend in an amount greater
than its net profits then on hand after deducting therefrom its losses and bad
debts. For this purpose, "bad debts" are defined to include generally the
principal amount of matured loans which are in arrears with respect to payment
of interest for six months or more and "net profits" has been construed by the
Comptroller of the Currency to mean retained earnings plus that portion of a
bank's capital surplus which was transferred from retained earnings. Generally,
a debt is considered "matured" when all or a part of the principal is due and
payable as a result of demand, arrival of a stated maturity date, or
acceleration by contract or operation of law. The amount of bad debts to be
deducted is limited to such amount thereof as exceeds a bank's allowance for
loan and lease losses. Under the provisions of 12 U.S.C. Section 60, the
approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds such bank's
net profits (as defined) for that year, combined with its retained net profits
for the preceding two calendar years, less any required transfers to surplus.
At December 31, 1993, under the more restrictive of these limitations, the
Bank could declare dividends in 1994 of approximately $930 million, combined
with an additional amount equal to its retained net profits for 1994 up to the
date of any dividend declaration. Under applicable state and federal laws,
Chase USA and Chase Maryland could declare dividends in 1994 of approximately
$870 million and $15 million, respectively, combined with an additional amount
equal to their respective retained net profits for 1994 up to the date of any
dividend declaration. In determining whether, and to what extent, to pay
dividends, each subsidiary bank must also consider the effect of applicable
risk-based capital guidelines and leverage limitations.
71
<PAGE> 41
NOTE 15. INTERMEDIATE- AND LONG-TERM DEBT
Intermediate- and Long-Term Debt consists of obligations having an original
maturity at issuance of more than one year. A summary of Intermediate- and
Long-Term Debt, net of unamortized original issue discount, outstanding at
December 31, 1993 and 1992 and certain applicable terms is presented below. The
distribution of maturities is based on contractual maturity or the earliest
date which the debt can be redeemed at the option of the holder.
<TABLE>
<CAPTION>
Amount Outstanding
at December 31,
------------------
Maturity Interest Other
($ in millions) Date Rate* 1993 1992** Data***
- --------------- -------- -------- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Company:
Medium-Term Notes 1993-1997 4.49-9.61% $ 530 $ 958
Floating Rate Medium-Term Notes 1993-1995 3.54-4.60 409 537
Subordinated European Currency Unit Bonds 1993 7.38 -- 72 S
Floating Rate Oil-Linked Notes 1994 4.56 10 10
Notes 1994 7.38 158 158 T
Floating Rate Subordinated Notes 1995 5.25 -- 350 S,R,T
Floating Rate Subordinated Notes 1996 8.50 -- 400 S,R
Notes 1996 8.50 250 250 T
Notes 1997 7.88 227 227 T
Floating Rate Subordinated Notes 1997 3.75 175 175 S,T
Subordinated Notes 1997 7.50 200 200 S,T
Non-U.S. Currency Borrowings 1998 5.30 45 40
Floating Rate Notes 1999 4.10 11 11 R
Subordinated Medium-Term Notes 1999 7.58-9.00 175 175 S,T
Subordinated Notes 1999 10.00 275 275 S,T
Subordinated Notes 1999 8.00 200 200 S,T
Subordinated Notes 1999 7.75 200 200 S,T
Floating Rate Subordinated Notes 2000 5.00 250 250 S,R,T
Subordinated Notes 2001 9.38 200 200 S,T
Subordinated Notes 2001 9.75 150 150 S,T
Floating Rate Subordinated Notes (Three Issues) 2003 4.35-5.50 341 -- S,T
Subordinated Notes 2003 7.50 200 -- S,T
Subordinated Notes 2005 6.50 198 -- S,T
Subordinated Notes 2008 6.13 99 -- S,T
Subordinated Notes 2008 6.75 199 -- S,T
Floating Rate Subordinated Notes 2009 5.25 321 321 S,R,T
Floating Rate Notes 2009 6.50 -- 114 F,R,T
Sinking Fund Debentures 2009 8.50 -- 147 F,R,T
Other Borrowings 1994-1996 **** 13 22
--------- --------- ------ ------ -----
Total 4,836 5,442
------ ------
Bank:
Floating Rate Notes 1993 5.25 -- 144 G,R
Deutsche Mark Bearer Bonds 1993 6.00 -- 7 G,F,R
Swiss Franc Bonds 1993 4.00 -- 26 G,F
French Franc Floating Rate Bonds 1993 10.39 -- 4 G,F,R
Floating Rate Subordinated Debenture 1996 8.50 400 400 S,C
Subordinated Note Issued with Equity Contract 1999 9.25 150 150 S,C
Subordinated Debenture 1999 6.25 260 -- S,C
Fixed Rate Subordinated Debentures (Three Issues) 2010 9.00 1,100 1,100 S,C
Subordinated Notes (Two Issues) 2012 9.00 450 450 S,C
Mortgages and Capital Leases 2013 10.00 8 8
Student Loan Marketing Association Borrowings 1993-1994 3.48-4.26 500 804
Other Borrowings 1993-2006 **** 164 332
--------- --------- ------ ------ -----
Total 3,032 3,425
------ ------
Other Subsidiaries 1993-2012 **** 383 396 C
--------- --------- ------ ------ -----
Less: Investment by the Company in a Subordinated Note Issued
with Equity Contract of the Bank and other Subordinated
Debentures 2,610 2,350 S,C
------ ------ -----
Total Intermediate- and Long-Term Debt $5,641 $6,913
------ ------
<FN>
* The interest rates shown for floating rate issues are those in effect at December 31, 1993, or in the case of those issues
redeemed in 1993 at the date of redemption. Such interest rates are determined by formulas, subject to certain minimum rates.
** As restated for the merger of Chase Lincoln into the Bank on January 1, 1993.
*** Issues indicated by:
"S"--Subordinated in right of payment to claims of depositors and certain other creditors, as applicable.
"G"--Guaranteed as to payment by the Company.
"F"--Subject to sinking fund requirements.
"C"--Held by the Company.
"R"--Redeemable in whole, or in part, at the option of Chase, prior to maturity.
"T"--Qualifies as Tier II capital under the Risk-based Capital guidelines.
**** Consists of numerous borrowings which bear interest at rates generally reflecting market conditions in the applicable countries
at the time of issuance or repricing.
</TABLE>
72
<PAGE> 42
Chase issues long-term debt denominated in various currencies with both
fixed and floating interest rates.
The interest rates for fixed rate subordinated and other debt obligations
ranged from 3.50% to 19.80% at December 31, 1993 and 3.18% to 19.80% at
December 31, 1992. The weighted average interest rates on fixed rate debt were
7.84% and 8.13% at December 31, 1993 and 1992, respectively.
The interest rates for floating rate subordinated and other debt
obligations ranged from 3.48% to 8.56% at December 31, 1993 and 3.38% to 12.50%
at December 31, 1992. The weighted average interest rates on floating rate debt
were 4.42% and 5.34% at December 31, 1993 and December 31, 1992, respectively.
The aggregate amounts of maturities for the five years subsequent to
December 31, 1993 are $1,315 million (1994), $208 million (1995), $784 million
(1996), $764 million (1997) and $46 million (1998).
NOTE 16. INTERNATIONAL ACTIVITIES
International activities include the business conducted by overseas offices, as
well as international business conducted from domestic offices, principally the
Head Office of the Bank in New York. Because of the close integration of
Chase's foreign and domestic activities, it is difficult to estimate the
amounts of assets, liabilities, revenue and expenses attributable to
international activities. Such amounts are based on internal allocations and
allowances, which are necessarily subjective. Such allocations of assets,
liabilities, revenue and expenses to geographic areas are based on the
domiciles of the obligors. The principal internal allocations and allowances
used to estimate the assets, liabilities, revenue and expenses related to
international activities are as follows:
o Allocation of the cost of funds based on a process that attempts to match
assets and liabilities with similar maturities, liquidity and interest rate
characteristics.
o Allocation of capital based on an internal methodology that takes into
account risks associated with businesses in each geographic area.
o Allocation of expenses incurred by one geographic area on behalf of
another, including general and administrative costs.
o Allocation of the Provision for Possible Credit Losses based on
charge-off experience and risk characteristics of the portfolio, and an
allocation of the total Reserve for Possible Credit Losses to international
activities.
o Allowance for the differences between foreign and United States tax
rates.
The following table sets forth estimated Total Assets at December 31, 1993,
1992, and 1991 and estimated Gross Revenue, Gross Expenses, Income (Loss)
Before Taxes and Net Income (Loss) for the respective years then ended:
<TABLE>
<CAPTION>
Income (Loss) Net
1993 ($ in millions) Total Assets Gross Revenue Gross Expenses Before Taxes Income (Loss)
-------------------- ------------ ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Domestic $ 71,643 $ 5,872 $ 6,082 $(210) $105
-------- ------- ------- ----- ----
International:
Asia 9,069 968 699 269 164
Europe, Middle East and Africa 9,815 1,245 1,084 161 103
Western Hemisphere 11,576 3,332 2,821 511 594
-------- ------- ------- ----- ----
Total International 30,460 5,545 4,604 941 861
-------- ------- ------- ----- ----
Total* $102,103 $11,417 $10,686 $ 731 $966
-------- ------- ------- ----- ----
1992 ($ in millions)
--------------------
Domestic $ 66,435 $ 6,052 $ 5,802 $ 250 $168
-------- ------- ------- ----- ----
International:
Asia 7,901 954 760 194 121
Europe, Middle East and Africa 10,741 1,084 1,078 6 (3)
Western Hemisphere 10,785 2,964 2,589 375 353
-------- ------- ------- ----- ----
Total International** 29,427 5,002 4,427 575 471
-------- ------- ------- ----- ----
Total $ 95,862 $11,054 $10,229 $ 825 $639
-------- ------- ------- ----- ----
1991 ($ in millions)
--------------------
Domestic $ 70,674 $ 7,422 $ 7,027 $ 395 $211
-------- ------- ------- ----- ----
International:
Asia 8,367 799 648 151 96
Europe, Middle East and Africa 9,784 1,131 1,252 (121) (74)
Western Hemisphere 9,372 2,453 2,234 219 287
-------- ------- ------- ----- ----
Total International** 27,523 4,383 4,134 249 309
-------- ------- ------- ----- ----
Total $ 98,197 $11,805 $11,161 $ 644 $520
-------- ------- ------- ----- ----
<FN>
* The 1993 tax provision reflects the $500 million of tax benefits recognized as a result of the adoption of SFAS 109. The
benefits allocated primarily relect previously unrecorded deferred tax assets related to prior period refinancing country and
commercial real estate loss provisions.
** The reserve and provision for possible credit losses applicable to refinancing countries have been allocated to the applicable
international areas. Tax benefits applicable to the provision are reflected in the year(s) in which such benefits are included
in Chase's consolidated income tax provision.
</TABLE>
In 1993, 1992 and 1991, net foreign exchange translation losses on
investments in overseas branches, subsidiaries and associated companies,
included in revenue, amounted to approximately $28 million, $30 million and $24
million, respectively, after applicable income taxes.
73
<PAGE> 43
NOTE 17. EMPLOYEE BENEFIT PLANS
PENSION PLANS
Chase has a number of pension plans covering substantially all employees.
During 1988, Chase's major domestic plan was modified, subject to approval from
the Internal Revenue Service, from a final pay defined benefit formula to a
cash balance form of defined benefit formula that provides for contributions by
Chase that are determined as a percentage of pay, based on salary and service,
subject to a minimum benefit level. In addition, special transition benefits
are being provided to certain participants through 1995, based on salary and
period of service. Chase's funding policy is to contribute annually an amount,
based on actuarial present value computations, which satisfies the Internal
Revenue Service's funding standards.
<TABLE>
<CAPTION>
PENSION EXPENSE
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Pension Expense:
Service Cost--Benefits Earned
During the Year $84 $84 $ 76
Interest Cost on Projected Benefit
Obligation 44 39 32
Actual Return on Plan Assets (83) (44) (117)
Net Amortization and Deferral 23 (17) 62
--- --- ----
Net Pension Expense $68 $62 $ 53
--- --- ----
</TABLE>
<TABLE>
<CAPTION>
FUNDED STATUS
December 31, December 31,
1993 1992
-------------------------- ----------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
($ in millions) Benefits Assets* Benefits Assets*
- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Accumulated Benefit Obligations:
Vested $478 $ 96 $389 $ 79
Nonvested 26 4 21 4
---- ---- ---- ----
Total $504 $100 $410 $ 83
---- ---- ---- ----
Projected Benefit Obligations for Service Rendered to Date $558 $121 $456 $106
Plan Assets at Fair Value** 768 30 701 27
---- ---- ---- ----
Plan Assets in Excess of (Less Than) Projected Benefit Obligations 210 (91) 245 (79)
Unrecognized Net (Asset) Obligation (9) 1 (16) 3
Unrecognized Prior Service Cost 21 -- 23 --
Unrecognized Net (Gains) Losses (29) 13 (17) 4
Minimum Liability Adjustment -- (9) -- (6)
---- ---- ---- ----
Prepaid (Accrued) Pension Costs Included in Other Assets (Liabilities) $193 $(86) $235 $(78)
---- ---- ---- ----
<FN>
* Consists primarily of domestic plans not subject to Title IV of ERISA and overseas pension plans where funding strategies vary
according to legal requirements and local practice.
** Plan assets at fair value consisted primarily of listed stocks, fixed income securities, commingled funds and participation
rights.
</TABLE>
Assumptions used in determining the actuarial present value of the
projected benefit obligation for Chase's major domestic defined benefit plan
included a weighted-average discount rate of 7.25% for 1993 and 8.00% for 1992
and a rate of increase in future compensation levels of 6.00% for both 1993 and
1992. The assumed long-term rate of return on the major defined benefit plan's
assets was 8.50% for both 1993 and 1992. Actuarial assumptions used for other
domestic plans are similar to those of the major defined benefit plan.
Actuarial assumptions used for each overseas plan are commensurate with the
respective country's averages.
In 1992, Chase settled certain pension plan obligations related to
ancillary retirement benefits through additional deposits to an existing
participating annuity contract. No gain or loss was recognized upon such
settlements.
POSTRETIREMENT PLANS
Chase provides certain health care and life insurance benefits for eligible
retirees covered by its major domestic defined benefit plan. Chase's retiree
medical plan is contributory, while the retiree life insurance plan is
noncontributory.
Effective January 1, 1993, Chase modified its retiree medical benefit plan
and established an annual limitation ("cap") on the dollar amount of Chase's
share of the cost of covered benefits incurred by the retiree group as a whole.
The cap applies to all current and future retirees and limits Chase's annual
cost of retiree medical benefits to two times what Chase will contribute to
retiree medical coverage in 1996. Once the cap has been activated, the
shortfall in a year (the amount by which Chase's retiree medical benefits
exceeds the cap on retiree medical coverage) will be borne by the retiree
population existing at that time.
As of January 1, 1993, Chase adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Chase elected to amortize the
transition liability for accumulated postretirement benefits (liability for
benefits earned to date for retirees and active employees) of approximately
$270 million over a 20-year period.
<TABLE>
<CAPTION>
NET PERIODIC POSTRETIREMENT BENEFIT COST
($ in millions) 1993
- --------------- ----
<S> <C>
Service Cost $ 6
Interest Cost 21
Amortization of Transition Obligation 14
---
Net Periodic Postretirement Benefit Cost $41
</TABLE>
Prior to the adoption of SFAS 106, the annual expense associated with these
benefits of $11 million and $10 million for 1992 and 1991, respectively, was
expensed as incurred.
<TABLE>
<CAPTION>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
($ in millions) December 31, 1993
- --------------- -----------------
<S> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $179
Fully-Eligible Active Plan Participants 38
Other Active Plan Participants 88
----
Total Accumulated Postretirement Benefit Obligation $305
Plan Assets at Fair Value --
----
Accumulated Postretirement Benefit Obligation in
Excess of Plan Assets $305
Unrecognized Transition Obligation 261
Unrecognized Net Loss 17
----
Accrued Postretirement Benefit Cost $ 27
----
</TABLE>
74
<PAGE> 44
Assumptions used in determining the accumulated postretirement benefit
obligation included a weighted-average discount rate of 7.25% for 1993. The
health care cost trend rate used for participants under age 65 was 12.0% for
1993, gradually decreasing to 5.6% by 2021 and thereafter. The health care cost
trend rate used for those 65 and over was 11.7% for 1993, gradually decreasing
to 5.6% by 2021 and thereafter.
The health care cost trend rate has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each future year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by approximately $12
million and the aggregate of the service and interest cost components of the
1993 net periodic postretirement benefit cost by approximately $1 million.
OTHER BENEFIT PLANS
Chase also provides certain benefits to former or inactive employees after
employment but before retirement. These benefits include health care, life
insurance and disability. During 1993, Chase adopted SFAS 112, "Employers'
Accounting for Postemployment Benefits," which requires accrual of the cost of
such benefits. In 1993, Chase recorded approximately $10 million of expense as
a result of the adoption of SFAS 112.
NOTE 18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
SFAS 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," requires disclosures about financial instruments with off-balance sheet
risk and credit risk concentrations (see Note 19 - Significant Credit Risk
Concentrations).
Credit Risks: Credit risk, as defined by SFAS 105, is the possibility that
loss may occur from counterparty failure to perform according to the terms of
the contract. Such credit risk is controlled through credit approvals, limits
and monitoring procedures based on the same credit policies used for on-balance
sheet instruments. Chase attempts to limit its credit risk by dealing with
counterparties believed to be creditworthy and obtaining collateral, where
appropriate.
Chase segregates its off-balance sheet risk into three areas:
lending-related, trading and asset/liability management.
<TABLE>
<CAPTION>
OFF-BALANCE SHEET LENDING-RELATED RISK
1993 1992
---- ----
Contract Credit Risk Contract Credit Risk
($ in millions) Amount* Amount** Amount* Amount**
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Commitments to Extend Credit*** $28,100 $28,100 $26,900 $26,900
Standby Letters of Credit and Foreign Office
Guarantees 11,400 11,400 10,900 10,900
Other Letters of Credit 2,100 2,100 2,600 2,600
------- ------- ------- -------
<FN>
* Contract amounts of these instruments, which are not included in the Consolidated Statement of Condition, are indicators of the
level of Chase's activities in particular classes of financial instruments.
** As required by SFAS 105, credit risk amounts do not consider the value of any collateral and assume the total potential loss on
undrawn commitments, standby letters of credit and similar arrangements.
*** Excludes credit card commitments of $26.9 billion and $27.5 billion and Advantage Credit loan commitments of $2.4 billion and
$2.5 billion at December 31, 1993 and 1992, respectively.
</TABLE>
LENDING-RELATED ACTIVITIES
Chase designs and markets various products that provide its customers with
working capital. These products may be in the form of commitments to extend
credit, standby letters of credit, foreign office guarantees and other letters
of credit that provide for the performance of a customer. These products have
potential off-balance sheet risk for Chase, as Chase's contractual commitment
is not reflected in the Consolidated Statement of Condition until the
commitment has been fulfilled.
COMMITMENTS TO EXTEND CREDIT, which generally have fixed expiration dates or
other termination clauses, are legally binding agreements to lend to customers
(provided there are no violations of any conditions established in the
contracts). Since many commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
liquidity requirements. Collateral held, if any, varies but typically includes
cash, marketable securities, accounts receivable, inventory, property, plant
and equipment and residential homes. Credit card and Advantage Credit loan
commitments are unsecured agreements to extend credit. Such commitments are
reviewed periodically, at which time the commitments may be maintained,
increased, decreased or canceled depending upon Management's evaluation of the
customer's creditworthiness and other considerations.
STANDBY LETTERS OF CREDIT AND FOREIGN OFFICE GUARANTEES (SBLCS) AND OTHER
LETTERS OF CREDIT are conditional commitments issued by Chase guaranteeing the
performance of a customer to a designated third party (beneficiary). Although
Chase generally does not expect the beneficiary to draw funds under an SBLC, it
is obligated to pay the beneficiary upon presentation of a claim that satisfies
the terms of the commitment. SBLCs may be fully or partially collateralized by
cash, marketable securities and other types of collateral. Other Letters of
Credit principally include commercial letters of credit that are used to
facilitate trade transactions and are generally secured by the underlying
goods.
At December 31, 1993, total SBLCs, which have been reduced by approximately
$1.6 billion for SBLCs participated to other financial institutions or
collateralized by cash or marketable securities, have been issued in support of
the obligations in the table below. These SBLCs have an average risk profile
generally comparable to investment grade obligations.
<TABLE>
<CAPTION>
Remaining
Average
Maturities
Percentage (Months)
---------- ----------
<S> <C> <C>
Private debt 10% 10
Public debt 5 25
Purchase of products and services 50 10
Other 35 10
</TABLE>
75
<PAGE> 45
<TABLE>
<CAPTION>
OFF-BALANCE SHEET TRADING RISK
December 31, 1993 1992
- ------------ ---------------------------------- ----------------------------------
Contract/Notional Credit Risk Contract/Notional Credit Risk
($ in millions) Amount* Amount** Amount* Amount**
- --------------- ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Interest Rate Contracts:
Interest Rate Swaps $178,700 $5,600 $192,500 $ 4,600
Currency Exchange Agreements 13,900 700 14,600 600
Forwards and Futures 123,200 70 91,600 100
Options, Caps and Floors Purchased 61,400 900 32,500 400
Options, Caps and Floors Written 57,500 --*** 36,000 --***
Foreign Exchange Contracts:
Spot, Forwards and Futures 418,300 5,400 432,700 11,700
Options Purchased 29,600 600 20,400 600
Options Written 33,200 --*** 18,900 --***
Commodity Contracts 3,200 500 1,500 20
-------- ------ -------- -------
<FN>
* Contract or notional amounts of these instruments, which are not included in the Consolidated Statement of Condition, are
indicators of the level of Chase's activities in particular classes of financial instruments.
** As required by SFAS 105, credit risk amounts do not consider the value of any collateral. For interest rate, foreign exchange
and commodity contracts, the credit risk amounts represent the gross unrealized gains, without giving effect to any possible
reduction due to master netting agreements by counterparty.
*** Options, caps and floors written have no credit risk.
</TABLE>
TRADING ACTIVITIES
Chase designs and markets a broad range of risk management products that
provide its corporate and institutional customers with the ability to hedge
interest rate and currency exposures, providing both issuers and investors with
the ability to modify transactions in terms of their maturities, interest rate
risk, currency or other financing characteristics. These products, which are
subject to varying degrees of off-balance sheet credit and market risk, may be
in the form of swaps, forwards, futures, and options in the interest rate,
foreign exchange, and commodity markets.
INTEREST RATE CONTRACTS include interest rate swaps, currency exchange
agreements, forwards, futures, options, caps and floors. Interest rate swaps
and currency exchange agreements are contractual agreements between two
counterparties for the exchange of periodic interest payments generally based
on a notional principal amount and agreed-upon fixed and floating rates.
Principal amounts are generally not exchanged, with the exception of currency
exchange agreements, where the principal amounts may be exchanged at inception
and re-exchanged at maturity. Forwards, which include future rate agreements,
and futures are contracts for delivery at a future date in which the buyer
agrees to take delivery of a specified instrument or cash at a specified price
or yield. Futures contracts are traded on organized exchanges (exchange traded)
and require initial margin (collateral) in the form of cash or marketable
securities. Holders of futures contracts look to the exchange for performance
under the contract and not to the entity holding the offsetting futures
position. The net change in the futures contract value is settled daily in cash
with the exchanges. Accordingly, the amount at risk due to nonperformance of
counterparties to futures contracts is minimal. In contrast, forward contracts
are generally negotiated between two counterparties and, therefore, are subject
to the performance of the related counterparties. Options, which may be either
exchange traded or negotiated directly between two counterparties, grant the
buyer the right, but not the obligation, to purchase or sell at a specified
price, a stated number of units of an underlying financial instrument, at a
future date. Caps and floors are option-like agreements where the seller agrees
to pay the purchaser, in relation to a notional principal amount, the agreed
upon differential if the pre-specified index is above (below) the cap (floor)
rate. The seller receives a premium and bears the risk of unfavorable interest
rate changes.
FOREIGN EXCHANGE CONTRACTS include spot, forward, futures and option contracts
and involve the exchange of two currencies at a rate agreeable to the
contracting parties. Spot contracts require the exchange of currencies to occur
within two business days of the contract date, while forward and futures
contracts settle three or more business days from the contract date. Spot and
forward contracts are negotiated between two counterparties, while futures
contracts are exchange traded. Foreign currency options, which are either
negotiated between two counterparties or are exchange traded, are similar to
interest rate option contracts, except that they are based on currencies
instead of interest rates.
COMMODITY CONTRACTS include swaps, caps and floors and are similar to interest
rate contracts, except that they are based on commodity indices instead of
interest rates. Commodity swap, cap and floor transactions are required to be
settled in cash and not by delivery of the underlying commodity.
Credit and Market Risks--The contract or notional amounts of these instruments
represent the volume of outstanding transactions and do not represent the
potential for gain or loss associated with the credit or market risk of such
transactions. SFAS 105 defines credit risk as the possibility that a loss may
occur from counterparty failure to perform according to the terms of the
contract. Credit exposure exists at a particular point in time when a
derivative instrument has a positive market value. The effect of such defaults
varies as the market value of instruments changes. Chase manages its credit
risk by dealing with counterparties believed to be creditworthy, obtaining
collateral where appropriate, and increasingly requiring the use of legally
enforceable master netting agreements. The market risk of these derivative
instruments is due to market price, interest rate and foreign exchange rate
fluctuations that may result in a decrease in the market value of such
derivatives. Exposure to market risk is managed through risk limits and other
controls and by entering into counterbalancing positions.
During 1993 and 1992, Chase reported the fair value of trading derivatives
on a net basis in the Statement of Condition, consistent with industry
practice. On January 1, 1994, Chase adopted FASB Interpretation 39, "Offsetting
of Amounts Related to Certain Contracts" (FIN 39). FIN 39 requires the fair
value of trading derivatives to be reported on a gross basis in the Statement
of Condition beginning in 1994, except for contracts executed with the same
counterparty under legally enforceable master netting agreements, which will
continue to be presented on a net basis. If Chase had adopted FIN 39 as of
December 31, 1993, total assets and total liabilities would each have been
increased by approximately $10 billion. Chase's asset-based ratios, including
the Tier I leverage ratio would have been lower, although net income and the
risk-based capital ratios would not have been affected.
<TABLE>
<CAPTION>
OFF-BALANCE SHEET ASSET/LIABILITY MANAGEMENT RISK
1993 1992
---- ----
Contract/Notional Contract/Notional
($ in millions) Amount* Amount*
- --------------- ----------------- -----------------
<S> <C> <C>
Interest Rate Swaps $37,300 $29,700
All Other ALM Contracts 14,100 15,900
<FN>
* Contract or notional amounts of these instruments, which are not included in the Consolidated Statement of Condition, are
indicators of the level of Chase's activities in particular classes of financial instruments.
</TABLE>
76
<PAGE> 46
ASSET/LIABILITY MANAGEMENT ACTIVITIES
As part of Chase's asset/liability management (ALM) program, derivative
products, primarily interest rate swaps, are used to manage the interest rate
risk of balance sheet assets and liabilities accounted for on an accrual basis.
Interest rate risk involves the possibility of loss or underperformance due to
a variety of factors, such as timing differences in repricings and maturities
of assets and liabilities.
Derivative products are linked to assets, liabilities or groups of similar
assets or liabilities. Initial and ongoing assessments are performed to monitor
the effectiveness of these contracts.
ALM contracts are accounted for on the accrual basis. The carrying values
and fair values of ALM contracts are reflected with the assets, liabilities and
commitments linked to such contracts in Note 25 (Fair Value of Financial
Instruments).
Credit and Market Risks--As defined by SFAS 105, credit risk represents the
accounting loss of off-balance sheet instruments that may occur from failure of
a counterparty to perform according to the terms of a contract. However, credit
risk for ALM derivative products is recorded on the balance sheet and consists
of accrued receivables on ALM swap contracts and unamortized premiums on open
ALM option products. Market risk, the possibility of an increase or decrease
in the market value of the contracts, represents the exposure related to the
replacement of an ALM contract in the event of counterparty default. See
Off-Balance Sheet Trading Risks on the previous page for a further discussion
of credit and market risks.
NOTE 19. SIGNIFICANT CREDIT RISK CONCENTRATIONS
Chase has identified several credit risk concentrations in relation to its on-
and off-balance sheet financial instruments. A credit risk concentration is
defined as a significant credit exposure to an individual or a group engaged in
similar activities or affected similarly by economic conditions. A significant
portion of Chase's financial instruments with off-balance sheet risk are
transacted with other financial institutions, such as banks and broker-dealers.
However, no one financial institution represents a credit risk concentration.
A summary of credit risk concentrations of on-balance sheet (principally
loans) and off-balance sheet (principally commitments to extend credit)
financial instruments at December 31, 1993 and 1992 is set forth below.
<TABLE>
<CAPTION>
OECD
Depository
1-4 Family Institutions
Credit Residential Commercial Refinancing and their
($ in billions) Cards Properties Real Estate Countries Guarantees*
--------------- ------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1993
On-Balance Sheet $ 6.7 $15.1** $3.4*** $1.5 $ 6.9
Off-Balance Sheet 26.9 0.9 0.1 0.4 12.3
----- ----- ---- ---- -----
Total $33.6 $16.0 $3.5 $1.9 $19.2
----- ----- ---- ---- -----
1992
On-Balance Sheet $ 6.6 $11.8** $7.1 $3.4 $ 7.0
Off-Balance Sheet 27.5 0.8 0.4 0.4 14.7
----- ----- ---- ---- -----
Total $34.1 $12.6 $7.5 $3.8 $21.7
----- ----- ---- ---- -----
<FN>
* OECD includes all countries that are members of the Organization for Economic Cooperation and Development. Balances are
principally comprised of Interest-Bearing Deposits Placed with Banks and interest rate and foreign exchange contracts.
** Includes $174 million and $252 million in 1993 and 1992, respectively, of privately-issued mortgage-backed
securities.
*** Excludes $222 million of credit exposure related to assets in the accelerated disposition portfolio.
</TABLE>
NOTE 20. INCOME TAXES
SFAS 109, "Accounting for Income Taxes," superseded SFAS 96 also entitled,
"Accounting for Income Taxes," the accounting standard that Chase had followed
since 1988. Chase adopted SFAS 109 on a prospective basis as of January 1,
1993. This action resulted in a $500 million increase in both net income and
deferred tax assets from the cumulative effect of this change in accounting
principle. Netting these deferred tax assets against existing deferred foreign
tax liabilities of $120 million brought total net deferred tax assets to $380
million as of January 1, 1993.
The current and deferred tax provisions for the years ended December 31,
1993, 1992, and 1991 were as follows:
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 30 $ 19 $ 6
State and Local 40 23 28
Foreign 142 97 73
---- ---- ----
Total Current 212 139 107
---- ---- ----
Deferred:
Federal 193 20 18
State and Local 32 9 (1)
Foreign 5 19 5
---- ---- ----
Total Deferred 230 48 22
---- ---- ----
Total Provision for Income Taxes $442 $187 $129
---- ---- ----
</TABLE>
Although not affecting the total tax provision, current tax payments may
differ from the amounts reported above as current, pending final determinations
as to the timing of certain income, deductions and credits. The effects, if
any, of these determinations are reflected in the following year.
The provision for income taxes for each of the years ended December 31,
1993, 1992 and 1991 varies from the amounts computed by applying the applicable
U.S. Federal income tax rate to income before taxes. The principal reasons for
these differences follow:
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Income Before Taxes at U.S.
Statutory Income Tax Rate $256 $281 $219
Increase (Decrease):
Tax-Exempt Interest on
Investments in State
and Political Subdivision Securities (10) (14) (19)
Tax-Exempt Interest--Loans (8) (10) (16)
State and Local Income Taxes,
Net of Federal Income Tax Benefits 25 21 16
Net Recognized Federal Tax Benefits -- (116) (133)
Other--Net 2 24 57
---- ---- ----
Provision Applicable to Income Before Taxes 265 186 124
Provision Applicable to
Foreign Exchange Translation
Adjustments Included in
Stockholders' Equity 3 1 5
Provision Applicable to Unrealized
Gain on Investment Securities--Available
for Sale Included in Stockholders' Equity
from Adoption of SFAS 115 174 -- --
---- ---- ----
Total Provision for Income Taxes $442 $187 $129
---- ---- ----
</TABLE>
77
<PAGE> 47
Chase's effective tax rate on continuing operations was 36% for 1993,
compared with 23% and 19% for 1992 and 1991, respectively. The increase is
primarily attributable to the adoption of SFAS 109, since the tax benefits
recorded upon such adoption are no longer reflected as adjustments to the tax
provision.
Chase increased its U.S. deferred tax asset in 1993 by $13 million as a
result of federal legislation enacted during 1993 increasing the corporate tax
rate to 35% from 34%.
The significant components of deferred tax assets and liabilities, after
considering adoption of SFAS 109 and existing deferred foreign tax liabilities
of $125 million and $120 million at December 31,1993 and January 1, 1993,
respectively, were as shown in the following table.
<TABLE>
<CAPTION>
December 31, January 1,
($ in millions) 1993 1993
- --------------- ------------ ----------
<S> <C> <C>
Deferred Tax Liabilities:
Lease Financing Transactions
and Premises and Equipment $ 635 $ 552
Pension Obligation 74 87
Undistributed Earnings of Overseas Subsidiaries 64 26
Investment Securities--Available for Sale
from Adoption of SFAS 115 174 --
Other 8 10
------ ------
Total Deferred Liabilities 955 675
------ ------
Deferred Tax Assets:
Reserve for Possible Credit Losses 451 626
Operating Expenses
Not Yet Deducted for Tax Purposes 264 206
Asset Valuation Reserves 288 163
Interest on Nonaccrual Loans 89 113
Other 133 87
------ ------
Total Deferred Tax Assets
Before Valuation Allowance 1,225 1,195
Less: Valuation Allowance (120) (140)
------ ------
Deferred Tax Assets Less Valuation Allowance 1,105 1,055
------ ------
Total Net Deferred Tax Assets $ 150 $ 380
------ ------
</TABLE>
Management believes that this asset recognition is appropriate because
Chase's current and expected future levels of income are sufficient to realize
these benefits, there is an absence of material tax return net operating loss
and credit carryforwards, and since tax-planning strategies exist. A portion of
the valuation allowance relates to the realization of state and local tax
benefits. Such benefits will be recorded in the future, generally as they are
realized.
The following table sets forth the income before taxes from domestic and
foreign operations for the years ended December 31, 1993, 1992 and 1991. As
specifically defined by the Securities and Exchange Commission for this
purpose, the determination of income from foreign operations is based on the
fact that such operations are located outside the United States.
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Domestic Locations $(199) $150 $469
Foreign Locations 930 675 175
----- ---- ----
Total $ 731 $825 $644
----- ---- ----
</TABLE>
Income taxes applicable to investment securities gains for the years ended
December 31, 1993, 1992 and 1991 were $15 million, $5 million and $1 million,
respectively.
NOTE 21. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, Chase makes various commitments and incurs
certain contingent liabilities that are not reflected in the accompanying
financial statements.
GUARANTEES
The Company may guarantee the obligations of its subsidiaries. A summary of
significant guarantees at December 31, 1993 follows:
o The Chase Manhattan Bank of Canada--up to U.S. $250 million for
promissory notes.
o Chase Securities, Inc.--with the Bank for varying amounts for repurchase
and reverse repurchase agreements involving U.S. Treasury and agencies
securities, certain swap and option transactions and certain other
transactions.
o Chase Trust of California (CTC)--$100 million bond to permit CTC to
perform securities safekeeping services in California.
These guarantees rank on a parity with all other unsecured and
unsubordinated indebtedness of the Company.
LEASE COMMITMENTS
The Corporation leases many properties under standard real estate leases that
include renewal options and escalation clauses. Equipment is rented under both
long-term and month-to-month leases. Certain of these leases are cancelable in
the normal course of business without substantial penalty. Rental expense
charged to operating expenses in 1993, 1992 and 1991 was approximately $237
million, $222 million and $210 million, respectively.
Minimum future rentals under long-term noncancelable operating leases at
December 31, 1993 are shown below:
<TABLE>
<CAPTION>
Years ($ in millions)
- ----- --------------
<S> <C>
1994 $ 166
1995 138
1996 113
1997 95
1998 82
1999 and Thereafter (Aggregate) 744
------
Total Minimum Future Rentals $1,338
------
</TABLE>
LITIGATION
Various actions and proceedings are pending against the Company, the Bank and
certain of their subsidiaries, in which claims for substantial money damages
are asserted based on alleged violations of various laws, including certain
proceedings specifically described in Item 3 of the Company's 1993 Annual
Report on Form 10-K included herein on page 93. Management, after consultation
with legal counsel, is of the opinion that the ultimate effect on Chase of all
such pending actions and proceedings would not be material in relation to its
financial position or its results of operations.
NOTE 22. FEES AND COMMISSIONS
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Consumer Banking $ 457 $ 549 $ 585
Trust and Fiduciary 465 407 375
Investment Banking 194 200 212
Other 446 426 406
------ ------ ------
Total Fees and Commissions $1,562 $1,582 $1,578
------ ------ ------
</TABLE>
78
<PAGE> 48
NOTE 23. OTHER EXPENSES
<TABLE>
<CAPTION>
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Amortization of Goodwill and Other
Intangible Assets $ 78 $ 79 $ 83
Real Estate Properties Acquired in
Satisfaction of Loans, Net 213 122 107
Federal Deposit Insurance
Corporation Expense 97 96 87
Consulting and External Services 325 291 268
Marketing and Public Relations 178 158 161
Supplies, Postage and Shipping 132 128 139
Communications 104 107 102
Travel 106 100 94
Other 190 203 181
------ ------ ------
Total Other Expenses $1,423 $1,284 $1,222
------ ------ ------
</TABLE>
NOTE 24. THE CHASE MANHATTAN CORPORATION (COMPANY ONLY)
Notes Receivable from Nonbanking Subsidiaries of the Company are evidenced
by promissory notes. The average interest rates earned on these notes were
4.10%, 4.67% and 6.88% for the years 1993, 1992 and 1991, respectively. These
notes represent funding of the nonbanking subsidiaries.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
The Chase Manhattan Corporation (Company Only)
December 31,
------------
($ in millions) 1993 1992
- --------------- ---- ----
<S> <C> <C>
Assets
Demand Deposits with the Bank $ 8 $ 32
Money Market Instruments with the Bank and
Nonbanking Subsidiary 1,414 957
Notes Receivable from Subsidiaries:
Nonbanking Subsidiaries 925 1,839
Banking Subsidiaries 1 28
Investment Securities:
Available for Sale Carried at Fair Value 456 --
At Lower of Cost or
Market (Market Value of $522) -- 465
Receivables from Banking Subsidiaries:
Subordinated Debentures from:
The Bank 2,210 1,950
Chase USA 250 250
Subordinated Equity Contract Note
from the Bank 150 150
Investments in Subsidiaries (at Equity in Net Assets):
Banking Subsidiaries*:
The Bank 6,444 5,289
Other Banking Subsidiaries 1,699 1,622
Nonbanking Subsidiaries 955 870
Other Assets 196 203
------- -------
Total Assets $14,708 $13,655
------- -------
Liabilities, Redeemable Preferred
Stock and Stockholders' Equity
Commercial Paper $ 1,521 $ 1,186
Other Short-Term Borrowings -- 205
Other Liabilities 229 258
Intermediate- and Long-Term Debt 4,836 5,442
------- -------
Total Liabilities 6,586 7,091
------- -------
Redeemable Preferred Stock -- 53
Net Unrealized Gains on Investment
Securities--Available for Sale 264 --
Other Stockholders' Equity 7,858 6,511
------- -------
Total Liabilities, Redeemable
Preferred Stock and
Stockholders' Equity $14,708 $13,655
------- -------
<FN>
* As restated for the merger of Chase Lincoln into the Bank on January 1, 1993.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
The Chase Manhattan Corporation (Company Only)
Year Ended
December 31,
------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Revenue
Dividends Received:
The Bank $107 $ -- $ --
Other Banking Subsidiaries 200 271 240
Nonbanking Subsidiaries 38 27 179
Investment Securities 2 2 1
---- ---- ----
347 300 420
Interest Revenue on Receivables:
Banking Subsidiaries 225 188 148
Nonbanking Subsidiaries 84 122 202
---- ---- ----
309 310 350
Interest on Banking Subsidiaries'
Money Market Instruments with the
Bank and Nonbanking Subsidiary 29 33 14
Interest on Investment Securities 17 14 --
Interest on Securities Purchased Under Resale
Agreements with Others -- 2 --
Other Revenue 21 36 122
---- ---- ----
Total Revenue 723 695 906
---- ---- ----
Expenses
Interest on Commercial Paper 48 40 46
Interest on Other Short-Term Borrowings 3 15 15
Interest on Intermediate- and Long-Term
Debt 271 342 412
Other Expenses 46 44 23
---- ---- ----
Total Expenses 368 441 496
Income Before Income Taxes (Benefits)
and Equity in Undistributed
Net Income of Subsidiaries 355 254 410
Applicable Income Taxes (Benefits) 37 (7) 17
Equity in Undistributed Net Income
of Subsidiaries 648 378 127
---- ---- ----
Net Income $966 $639 $520
---- ---- ----
</TABLE>
79
<PAGE> 49
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
The Chase Manhattan Corporation (Company Only)
Year Ended December 31,
-----------------------
($ in millions) 1993 1992 1991
- --------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income $ 966 $ 639 $ 520
Adjustments to Reconcile Net Income
to Net Cash Provided
by Operating Activities:
Equity in Income
of Subsidiaries (648) (378) (127)
Accretion and Amortization 5 11 26
Deferred Income Taxes (Benefits) 11 2 (1)
Net Gains on Sales of Assets (15) (31) (93)
Net (Increase) Decrease in Operating
Assets (17) (8) 3
Net Decrease in Other Liabilities (72) (86) (95)
-------- -------- -------
Net Cash Provided by
Operating Activities 230 149 233
-------- -------- -------
Cash Flows from Investing Activities:
Placings of Interest-Bearing Deposits
with the Bank (101,449) (110,056) (35,971)
Proceeds from Sales and Maturities of
Interest-Bearing Deposits Placed with
the Bank 101,024 110,525 35,604
Notes Receivable from Nonbanking and
Banking Subsidiaries:
Repayments 105,419 97,947 91,439
Issuances (104,477) (97,402) (90,934)
Investment Securities--
Held to Maturity:
Payments for Purchases -- (450) (17)
Proceeds from Sales -- 7 217
Investment Securities--
Lower of Cost or Market:
Payments for Purchases (258) -- --
Proceeds from Sales 102 -- --
Proceeds from Maturities 250 -- --
Net Increase in Securities Purchased
Under Resale Agreements with
Nonbanking Subsidiary (25) (85) (340)
Purchase of Subordinated Debentures
of Banking Subsidiaries (260) (700) --
Investments in Subsidiaries, Net (440) (786) (407)
-------- -------- -------
Net Cash Provided (Used) by
Investing Activities (114) (1,000) (409)
-------- -------- -------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Short-Term
Borrowings 131 133 40
Intermediate- and Long-Term Debt:
Proceeds from Issuance 1,094 1,642 1,019
Repayments (1,674) (1,395) (890)
Cash Dividends (345) (301) (261)
Redemption of Redeemable Preferred Stock (53) -- --
Proceeds from Issuance of
Nonredeemable Preferred Stock 167 542 193
Redemption of Nonredeemable
Preferred Stock (250) (130) --
Proceeds from Issuance of Common
Stock 790 386 75
-------- -------- -------
Net Cash Provided (Used) by
Financing Activities (140) 877 176
-------- -------- -------
Net Increase (Decrease) in
Demand Deposits with the Bank (24) 26 --
-------- -------- -------
Demand Deposits with the Bank
at Beginning of Year 32 6 6
-------- -------- -------
Demand Deposits with the Bank
at End of Year $ 8 $ 32 $ 6
-------- -------- -------
Cash Paid (Received) for:
Interest $ 326 $ 395 $ 422
Income Tax (Benefits) $ (2) $ 18 $ (51)
-------- -------- -------
</TABLE>
NOTE 25. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures About Fair Value of Financial Instruments," requires
entities to disclose information about the estimated fair values of financial
instruments. Substantially all of Chase's assets, liabilities and off-balance
sheet products are considered financial instruments as defined by SFAS 107.
For the majority of Chase's financial instruments, principally loans and
deposits, fair values are not readily available since there are no available
trading markets as characterized by current exchanges between willing parties.
Accordingly, fair values can only be derived or estimated using various
valuation techniques, such as present valuing estimated future cash flows using
discount rates believed to be commensurate with the risks involved. However,
the determination of estimated future cash flows and discount rates is
inherently subjective and imprecise, especially with respect to nonaccrual
assets. In addition, for those financial instruments with option-related
features, prepayment assumptions are incorporated into the valuation
techniques. It should be noted that minor changes in assumptions or estimation
methodologies can have a material effect on these derived or estimated fair
values.
The fair values reflected below are indicative of the interest rate
environments at December 31, 1993 and 1992 and do not take into consideration
the effects of interest rate fluctuations. In different interest rate
environments, fair value results can differ significantly, especially for
certain fixed-rate financial instruments and nonaccrual assets. In addition,
the fair values presented do not attempt to estimate the value of Chase's many
fee generating businesses and anticipated future business activities, that is,
they do not represent Chase's value as a going concern. Furthermore, the
differences between the carrying amounts and the fair values presented may not
be realized since, in the majority of cases, Chase generally intends to hold
these financial instruments to maturity and realize the recorded values.
Reasonable comparability of fair values among financial institutions is not
likely due to the wide range of permitted valuation techniques and numerous
estimates that must be made in the absence of secondary market prices. This
lack of objective pricing standards introduces a greater degree of subjectivity
to these derived or estimated fair values. Therefore, readers are cautioned in
using this information for purposes of evaluating the financial condition of
Chase.
Overall, the difference between the net fair values and the net carrying
values of all Chase's financial instruments has increased between 1992 and
1993, mainly as a result of the reduction, through sales and valuation
adjustments during 1993, of certain financial instruments whose estimated fair
value results were lower than their carrying values at December 31, 1992, and
as a result of the favorable change in the interest rate environment during
1993.
The methodologies used and key assumptions made to estimate fair values,
the estimated fair values determined and recorded carrying values at December
31, 1993 and 1992 follow.
INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS USED FOR ASSET/LIABILITY
MANAGEMENT PURPOSES were valued using market prices or pricing models
consistent with methods used by Chase in valuing similar instruments used for
trading purposes. These contracts had net fair value gains of $140 million and
$258 million at December 31, 1993 and 1992, respectively, and net deferred
gains of $336 million and $185 million at December 31, 1993 and 1992,
respectively. Unamortized premiums on open option contracts are included in net
deferred gains as a reduction. The fair value gains and net deferred gains were
reflected in the fair values and carrying values, respectively, of the assets,
liabilities and commitments to which they relate.
SHORT-TERM FINANCIAL INSTRUMENTS include Cash and Due from Banks, Federal Funds
Sold and Securities Purchased Under Resale Agreements, Customers' Liability on
Acceptances, Accrued Interest Receivable, Federal Funds Purchased and
Securities Sold Under Repurchase Agreements, Commercial Paper, Acceptances
Outstanding, and Accrued Interest Payable. Also, included in Accounts Payable,
Accrued Expenses and Other Liabilities are $2,181 million and $1,348 million of
financial instruments at December 31, 1993 and 1992, respectively. These
financial instruments have been valued at their
80
<PAGE> 50
carrying amounts reflected in the Consolidated Statement of Condition as these
are reasonable estimates of fair value given the relatively short period of
time between origination of the instruments and their expected realization.
FINANCIAL INSTRUMENTS THAT ARE PRIMARILY TRADED IN SECONDARY MARKETS were
valued using either market prices, pricing models, dealer quotes where
available or quoted market prices of financial instruments with similar
characteristics.
FINANCIAL INSTRUMENTS THAT ARE NOT GENERALLY TRADED were fair valued, for the
most part, by present valuing estimated future cash flows using discount rates
believed to be appropriate.
Loans held for accelerated disposition were valued at amounts that
Management estimated would be received as assets are sold on a bulk sale
liquidation basis.
In accordance with SFAS 107, the fair value of deposits with no defined
maturities, such as noninterest-bearing deposits, money market and savings
accounts, was reported as the amounts payable on demand. Interest-bearing time
deposits were fair valued using rates representing Chase's cost to raise funds
of similar remaining maturities. Retail brokered certificates of deposit were
valued using broker quotes.
Other Short-Term Borrowings and Intermediate- and Long-Term Debt were
valued using market rates where available. However, for the majority of these
borrowings, fair values were estimated using a discounted cash flow model based
on rates representing Chase's cost to raise funds of similar remaining
maturity.
LOANS, excluding loans held for accelerated disposition and those included in
the trading account, were fair valued using methodologies believed to be
suitable for each loan type. Certain of these methodologies and key assumptions
made are discussed below.
In determining the fair value of loans, future receipts of both principal
and interest were estimated and discounted at various rates believed to be
appropriate. In contrast, when determining the adequacy of the Reserve for
Possible Credit Losses for historical cost financial statements, only expected
principal losses are included, without consideration as to the timing and
related present value of such losses.
Homogeneous categories of consumer loans, such as loans secured by 1-4
family residential properties, credit card receivables and certain other
consumer loans, were fair valued using discounted cash flow models that
incorporated quoted market prices for securities backed by similar loans,
adjusted for differences in loan characteristics.
The fair values for most other types of loans were generally determined by
estimating future cash flows on the basis of broad portfolio assumptions and
discounting these future cash flows using current rates at which similar loans
would currently be made to borrowers with similar credit risks and for the same
remaining maturities. For floating rate loans, which represent most of Chase's
loans, market rates were determined based on market spreads obtained from
external loan pricing services and extrapolated to correspond to the risk and
maturity profile of Chase's loans. Similarly, the discount rates used for
overseas loans also reflected the economic conditions of local markets and
currencies in which the loans were originated.
For nonaccrual loans, Chase attempted to estimate the amount and timing of
future cash flows (e.g., contractual cash flows were adjusted to derive
estimated future cash flows) and what further adjustments would be required to
these estimated cash flows so that these loans could be considered analogous to
higher risk performing loans. These estimated future cash flows were then
discounted at rates similar to the rates used for the higher risk performing
loans plus an incremental spread due to the greater risk.
The estimated fair values presented below for Chase's loans include fair
values lower than the carrying values for domestic commercial real estate
loans, which are offset by fair values greater than the carrying values for
domestic consumer and other loans. The difference between fair values and
carrying values increased since 1992 mainly as a result of significant
reductions in Chase's domestic commercial real estate loans, refinancing
countries loans and Mexican Brady bonds and lower levels of nonaccrual loans.
These estimated fair values assume various holding periods for purposes of
discounting estimated future cash flows. Accelerated holding periods could
result in values less than the estimated fair values reflected.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, FOREIGN OFFICE
GUARANTEES AND COMMERCIAL LETTERS OF CREDIT (Commitments) were fair valued
using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For those commitments where a future stream of fees is
charged, a discounted cash flow model was used to present value the difference
between contractual fees actually charged and fees currently charged at
year-end for agreements of similar credit rating and maturity. Market
commitment fees were obtained from external pricing services, where available.
Discount rates used were the same as those used to fair value loans with
similar credit risk and tenor. At December 31, 1993, Chase had approximately
$28 billion, $11 billion and $2 billion, respectively, in contracts outstanding
for commitments to extend credit, standby letters of credit including foreign
office guarantees, and commercial letters of credit compared with approximately
$27 billion, $11 billion and $3 billion, respectively, at December 31, 1992. At
December 31, 1993, the estimated cost to terminate these commitments was
minimal compared with approximately $30 million at December 31, 1992.
SUPPLEMENTAL DISCLOSURE OF CERTAIN NONFINANCIAL INSTRUMENTS
Although SFAS 107 does not consider intangible assets as financial instruments,
it does not prohibit the voluntary disclosure of information about the fair
value of such assets. Chase has developed relationships with its core
depositors, credit cardholders, and mortgage servicing customers that, in the
opinion of Management, have significant economic value not currently reflected
in the Consolidated Statement of Condition (to the extent Chase has not
purchased such intangibles).
Specifically, a very significant core deposit intangible value arises from
the domestic retail consumer deposit portfolio, comprised of
noninterest-bearing and interest-bearing demand deposits, and savings and money
market deposit accounts of approximately $18 billion and $16 billion at
December 31, 1993 and 1992, respectively, which represents a low-cost stable
source of funds.
Likewise, a significant credit card intangible value arises from Chase's
domestic credit card portfolio of approximately $10.1 billion and $10.0 billion
at December 31, 1993 and 1992, respectively, (which includes $6.4 billion and
$6.3 billion of credit card receivables, respectively and approximately $3.7
billion of securitized receivables in each year), which results from future
receivables and related cash flows generated from future credit card usage. A
significant intangible value also arises from the future receivables and
related cash flows generated from Chase's domestic Advantage Credit loan
portfolio of approximately $2.0 billion and $2.2 billion, respectively, at
December 31, 1993 and 1992. Chase services a 1-4 family mortgage portfolio of
approximately $48.7 billion and $34.9 billion, respectively, at December 31,
1993 and 1992. A significant mortgage servicing intangible value arises from
the future fees that can be generated from servicing this portfolio. Due to the
inherent subjectivity in assumptions and methodologies associated with such
valuations, no fair values are reported for such intangibles.
81
<PAGE> 51
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
--------------------------------- ------------------------------
Estimated Fair Estimated Fair
($ in millions) Carrying Value* Value* Carrying Value* Value*
- --------------- -------------- ----- -------------- -----
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS THAT ARE PRIMARILY TRADED IN
SECONDARY MARKETS
Assets:
Trading Account Assets** $ 6,933 $ 7,187 $ 4,805 $ 4,805
Investment Securities 9,074 9,107 6,180 6,551
Liabilities:
Redeemable Preferred Stock -- -- 53 49
------- ------- ------- -------
FINANCIAL INSTRUMENTS THAT ARE NOT GENERALLY TRADED
Assets:
Interest-Bearing Deposits Placed with Banks $ 5,309 $ 5,302 $ 5,722 $ 5,690
Assets Held for Accelerated Disposition--Loans 151 151 -- --
Other Assets--Financial Instruments 2,672 2,672 2,300 2,675
Liabilities:
Deposits:
Noninterest-Bearing 16,690 16,690 14,116 14,116
Interest-Bearing 54,819 54,714 53,108 53,044
Other Short-Term Borrowings 1,813 1,816 1,774 1,774
Intermediate- and Long-Term Debt 5,641 5,750 6,913 6,945
------- ------- ------- -------
LOANS
Gross Loans $60,722 $60,944 $62,940 $61,070
Less: Unearned Discount and Fee Revenue 229 -- 382 --
Reserve for Possible Credit Losses 1,425 -- 1,913 --
------- ------- ------- -------
Net Loans $59,068 $60,944 $60,645 $61,070
------- ------- ------- -------
<FN>
* The amounts above include the impact from related interest rate contracts used for asset/liability management purposes as follows:
</TABLE>
<TABLE>
<CAPTION>
Deferred Fair Value Deferred Fair Value
Gains (Losses)(1) Gains (Losses) Gains (Losses)(1) Gains (Losses)
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Loans $ 70 $ (8) $ (11) $ (52)
Investment Securities (5) (28) 2 (3)
Financial Liabilities:
Intermediate- and Long-Term Debt 7 121 27 69
Interest-Bearing Deposits 272 55 176 244
----- ---- ----- -----
Other, Net (8) -- (9) --
----- ---- ----- -----
<FN>
(1) Included as deferred losses are unamortized premiums related to options and option-like products.
** Included in 1993 amounts are certain cross-border extensions of credit that were previously written down prior to being
transferred to the trading account. Such assets are carried at lower of cost or market.
</TABLE>
82
<PAGE> 52
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF QUARTERLY FINANCIAL INFORMATION
The Chase Manhattan Corporation and Subsidiaries
1993 Quarter Ended
---- -------------
($ in millions, except per common share data) Dec. 31, 1993 Sept. 30, 1993 June 30, 1993 March 31, 1993
--------------------------------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest Revenue $2,155 $2,094 $2,058 $2,161
Interest Expense 1,153 1,175 1,164 1,113
------ ------ ------ ------
Net Interest Revenue 1,002 919 894 1,048
Provision for Possible Credit Losses 195 215 225 360
Provision for Loans Held for Accelerated Disposition -- -- -- 566
------ ------ ------ ------
Net Interest Revenue After Provision for Possible Credit Losses
and Loans Held for Accelerated Disposition 807 704 669 122
------ ------ ------ ------
Other Operating Revenue 878 720 693 658
Other Operating Expenses 1,199 1,025 995 1,301
------ ------ ------ ------
Income (Loss) Before Taxes 486 399 367 (521)
Applicable Income Taxes (Benefits) 173 132 134 (174)
------ ------ ------ ------
Income (Loss) Before Cumulative Effect of Change
in Accounting Principle 313 267 233 (347)
------ ------ ------ ------
Cumulative Effect of Change in Accounting Principle--
Adoption of SFAS 109 -- -- -- 500
------ ------ ------ ------
Net Income $ 313 $ 267 $ 233 $ 153
------ ------ ------ ------
Net Income Applicable to Common Stock $ 282 $ 231 $ 196 $ 117
------ ------ ------ ------
Average Common Shares Outstanding (in millions) 184.8 184.3 162.4 157.6
Primary Earnings (Loss) Per Common Share, Before
Cumulative Effect of Change in Accounting Principle,
Based on Average Shares Outstanding $ 1.53 $ 1.25 $ 1.20 $(2.43)
Cumulative Effect of Change in Accounting Principle--
Adoption of SFAS 109 -- -- -- 3.17
------ ------ ------ ------
Primary Earnings Per Common Share $ 1.53 $ 1.25 $ 1.20 $ .74
------ ------ ------ ------
Cash Dividends Declared Per Common Share $ .30 $ .30 $ .30 $ .30
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
1992 Quarter Ended
---- -------------
($ in millions, except per common share data) Dec. 31, 1992 Sept. 30, 1992 June 30, 1992 March 31, 1992
- --------------------------------------------- ------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Interest Revenue $2,165 $2,069 $2,182 $2,289
Interest Expense 1,208 1,181 1,313 1,439
------ ------ ------ ------
Net Interest Revenue 957 888 869 850
Provision for Possible Credit Losses 305 320 295 300
------ ------ ------ ------
Net Interest Revenue After Provision for Possible Credit Losses 652 568 574 550
------ ------ ------ ------
Other Operating Revenue 571 609 593 576
Other Operating Expenses 1,019 957 945 947
------ ------ ------ ------
Income Before Taxes 204 220 222 179
Applicable Income Taxes 34 44 70 38
------ ------ ------ ------
Net Income $ 170 $ 176 $ 152 $ 141
------ ------ ------ ------
Net Income Applicable to Common Stock $ 137 $ 142 $ 122 $ 114
------ ------ ------ ------
Average Common Shares Outstanding (in millions) 155.3 151.5 146.6 141.4
Primary Earnings Per Common Share $ .87 $ .94 $ .83 $ .81
------ ------ ------ ------
Cash Dividends Declared Per Common Share $ .30 $ .30 $ .30 $ .30
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
1991 Quarter Ended
---- -------------
($ in millions, except per common share data) Dec. 31, 1991 Sept. 30, 1991 June 30, 1991 March 31, 1991
- --------------------------------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest Revenue $2,377 $2,343 $2,325 $2,593
Interest Expense 1,523 1,494 1,507 1,769
------ ------ ------ ------
Net Interest Revenue 854 849 818 824
Provision for Possible Credit Losses 315 265 265 240
------ ------ ------ ------
Net Interest Revenue After Provision for Possible Credit Losses 539 584 553 584
------ ------ ------ ------
Other Operating Revenue 596 530 546 495
Other Operating Expenses 976 949 930 928
------ ------ ------ ------
Income Before Taxes 159 165 169 151
Applicable Income Taxes 24 29 37 34
------ ------ ------ ------
Net Income $ 135 $ 136 $ 132 $ 117
------ ------ ------ ------
Net Income Applicable to Common Stock $ 109 $ 107 $ 108 $ 96
------ ------ ------ ------
Average Common Shares Outstanding (in millions) 137.0 135.3 134.0 132.6
Primary Earnings Per Common Share $ .80 $ .79 $ .80 $ .73
------ ------ ------ ------
Cash Dividends Declared Per Common Share $ .30 $ .30 $ .30 $ .30
------ ------ ------ ------
</TABLE>
83
<PAGE> 53
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE RATES-TAXABLE EQUIVALENT
The Chase Manhattan Corporation and Subsidiaries
1993 1992
-------------------------------- -------------------------------
Average Average Average Average
($ in millions, based on daily averages) Balance Interest Rate Balance Interest Rate
- ---------------------------------------- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Interest-Bearing Deposits Placed with Banks $ 6,834 $ 717 10.49%** $ 5,614 $ 759 13.51%**
Federal Funds Sold and Securities Purchased Under
Resale Agreements 10,106 1,029 10.18 8,108 771 9.51
Trading Account Assets 4,237 242 5.71 4,323 316 7.31
Investment Securities:
Held to Maturity:
Taxable 1,010 134 13.25 4,914 539 10.97
Tax Exempt 449 51 11.46 560 62 11.07
-------- ------ ------ -------- ------ -----
Total Held to Maturity 1,459 185 12.70 5,474 601 10.99
Available for Sale 5,305 517 9.75 -- -- --
-------- ------ ------ -------- ------ -----
Total Investment Securities 6,764 702 10.38 5,474 601 10.99
Loans:
Domestic Offices 42,947 3,606 8.39 46,791 4,213 9.00
Overseas Offices 18,559 2,150 11.59** 17,807 2,084 11.70**
-------- ------ ------ -------- ------ -----
Total Loans 61,506 5,756 9.36 64,598 6,297 9.75
Less: Reserve for Possible Credit Losses* 1,933 -- -- 1,987 -- --
-------- ------ ------ -------- ------ -----
Loans, Net 59,573 5,756 9.36 62,611 6,297 9.75
-------- ------ ------ -------- ------ -----
Accelerated Disposition Portfolio, Interest-Earning 404 51 12.68 -- -- --
-------- ------ ------ -------- ------ -----
Total Interest-Earning Assets*, Net 87,918 8,497 9.46% 86,130 8,744 9.92
-------- ------ ------ -------- ------ -----
Summary--Gross Interest-Earning Assets:
Domestic Offices 59,565 4,342 7.29 61,442 4,956 8.07
Overseas Offices 30,286 4,155 13.72 26,675 3,788 14.20
-------- ------ ------ -------- ------ -----
Total Gross Interest-Earning Assets 89,851 $8,497 9.46% 88,117 $8,744 9.92%
-------- ------ ------ -------- ------ -----
Noninterest-Earning Assets:
Cash and Due from Banks 6,211 6,236
Customers' Liability on Acceptances 743 713
Premises and Equipment 1,938 1,767
Accrued Interest Receivable 750 815
Other Assets 5,117 4,691
-------- --------
Total Noninterest-Earning Assets 14,759 14,222
-------- --------
Total Assets $102,677 $100,352
-------- --------
Liabilities, Redeemable Preferred Stock and
Stockholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Domestic Offices:
Savings and Negotiable Order of Withdrawal Deposits $ 4,731 $ 89 1.88% $ 4,553 $ 124 2.72%
Savings Certificates and Nest Egg Account Deposits 655 16 2.42 771 30 3.93
Money Market Deposits 11,385 166 1.46 10,018 300 2.99
Negotiable Certificates of Deposit 1,959 140 7.12 3,439 272 7.90
Other Time Deposits 9,461 188 1.99 10,407 400 3.85
-------- ------ ------ -------- ------ -----
Total Domestic Offices 28,191 599 2.12 29,188 1,126 3.86
Overseas Offices 26,916 1,415 5.26 24,504 1,809 7.39
-------- ------ ------ -------- ------ -----
Total Interest-Bearing Deposits 55,107 2,014 3.65 53,692 2,935 5.47
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 11,269 570 5.06** 11,453 585 5.11**
Other Short-Term Borrowings:
Domestic Offices 2,323 130 5.59 2,301 173 7.49
Overseas Offices 981 1,400 142.71** 961 819 85.23**
-------- ------ ------ -------- ------ -----
Total Other Short-Term Borrowings 3,304 1,530 46.31 3,262 992 30.39
Intermediate- and Long-Term Debt 6,365 491 7.71 6,839 629 9.20
-------- ------ ------ -------- ------ -----
Total Interest-Bearing Liabilities 76,045 4,605 6.06 75,246 5,141 6.83
-------- ------ ------ -------- ------ -----
Summary--Interest-Bearing Liabilities:
Domestic Offices 47,233 1,398 2.96 49,349 2,173 4.40
Overseas Offices 28,812 3,207 11.13 25,897 2,968 11.46
-------- ------ ------ -------- ------ -----
Noninterest-Bearing Liabilities:
Deposits in Domestic Offices 13,549 12,712
Deposits in Overseas Offices 2,015 1,775
Acceptances Outstanding 753 726
Accounts Payable, Accrued Expenses and
Other Liabilities 3,049 3,908
-------- --------
Total Noninterest-Bearing Liabilities 19,366 19,121
-------- --------
Total Liabilities 95,411 94,367
-------- --------
Redeemable Preferred Stock 39 53
-------- --------
Stockholders' Equity:
Nonredeemable Preferred Stock 1,564 1,313
Common Stockholders' Equity 5,663 4,619
-------- --------
Total Stockholders' Equity 7,227 5,932
-------- --------
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $102,677 $100,352
-------- --------
Taxable Equivalent Net Interest Revenue and Average
Interest Rate Spread $3,892 3.40% $3,603 3.09%
------ ------ ------ -----
Net Interest Revenue as a Percentage of Gross
Interest-Earning Assets 4.33% 4.09%
------ -----
<FN>
* Reserve for Possible Credit Losses is excluded from calculations of average balances and average rates, as appropriate.
** Reflects the extraordinarily high level of local interest rates prevailing in certain Latin American countries with highly
inflationary economies.
NOTE: Loan and other asset amounts include nonaccrual and restructured loans and ORE, as applicable, and amounts attributable
during the first quarter of 1993 to assets held in the accelerated disposition portfolio since they were transferred as of
March 31, 1993. Subsequent to this date, accruing, nonaccruing and restructured loans in the accelerated disposition
portfolio were treated as interest-earning in the above table, while ORE in the accelerated disposition portfolio was
treated as noninterest-earning.
</TABLE>
84
<PAGE> 54
<TABLE>
<CAPTION>
Fourth Quarter Fourth Quarter
1991 1993 1992
--------------------------------- ----------------------------------- ----------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ---- ------- -------- ---- ------- -------- ----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,979 $ 534 17.91%** $ 5,938 $ 164 10.93%** $ 6,140 $ 206 13.37%**
6,163 391 6.34 10,550 245 9.21 8,701 223 10.17
2,497 200 8.00 5,686 91 6.38 5,497 87 6.29
5,115 494 9.66 980 33 13.53 5,204 152 11.59
783 90 11.49 424 12 11.36 492 14 11.29
-------- ------ ----- -------- ------ ------ -------- ------ ------
5,898 584 9.92 1,404 45 12.87 5,696 166 11.61
-- -- -- 6,061 133 8.68 -- -- --
-------- ------ ----- -------- ------ ------ -------- ------ ------
5,898 584 9.92 7,465 178 9.47 5,696 166 11.61
53,115 5,661 10.66 43,485 890 8.12 45,175 996 8.77
17,834 2,328 13.06** 18,907 580 12.16** 17,885 496 11.02**
-------- ------ ----- -------- ------ ------ -------- ------ ------
70,949 7,989 11.26 62,392 1,470 9.35 63,060 1,492 9.41
2,429 -- -- 1,912 -- -- 1,997 -- --
-------- ------ ----- -------- ------ ------ -------- ------ ------
68,520 7,989 11.26 60,480 1,470 9.35 61,063 1,492 9.41
-------- ------ ----- -------- ------ ------ -------- ------ ------
-- -- -- 369 11 12.30 -- -- --
-------- ------ ----- -------- ------ ------ -------- ------ ------
86,057 9,698 10.96 90,488 2,159 9.27 87,097 2,174 9.70
-------- ------ ----- -------- ------ ------ -------- ------ ------
65,014 6,467 9.95 62,288 1,089 6.94 61,794 1,180 7.59
23,472 3,231 13.77 30,112 1,070 14.10 27,300 994 14.49
-------- ------ ----- -------- ------ ------ -------- ------ ------
88,486 $9,698 10.96% 92,400 $2,159 9.27% 89,094 $2,174 9.70%
-------- ------ ----- -------- ------ ------ -------- ------ ------
6,256 6,262 6,233
709 715 515
1,556 1,986 1,838
1,971 757 836
4,257 5,401 5,012
-------- -------- --------
14,749 15,121 14,434
-------- -------- --------
$100,806 $105,609 $101,531
-------- -------- --------
$ 3,612 $ 169 4.66% $ 4,721 $ 21 1.76% $ 4,646 $ 26 2.23%
643 37 5.82 691 3 1.65 614 8 4.89
8,649 445 5.14 11,940 23 0.78 10,560 67 2.52
4,590 367 8.00 1,690 29 6.73 2,787 55 7.89
13,471 980 7.27 8,761 33 1.51 9,292 42 1.78
-------- ------ ----- -------- ------ ------ -------- ------ ------
30,965 1,998 6.45 27,803 109 1.56 27,899 198 2.82
26,878 2,376 8.84 28,131 359 5.06 24,696 372 6.00
-------- ------ ----- -------- ------ ------ -------- ------ ------
57,843 4,374 7.56 55,934 468 3.32 52,595 570 4.31
8,186 531 6.49** 12,451 127 4.06** 12,028 171 5.64**
2,536 212 8.38 2,106 35 6.59 2,429 73 11.94
1,329 454 34.16** 1,074 436 161.17** 915 279 121.40**
-------- ------ ----- -------- ------ ------ -------- ------ ------
3,865 666 17.24 3,180 471 58.79 3,344 352 41.89
6,789 722 10.63 5,863 85 5.74 6,831 115 6.71
-------- ------ ----- -------- ------ ------ -------- ------ ------
76,683 6,293 8.21 77,428 1,151 5.90 74,798 1,208 6.42
-------- ------ ----- -------- ------ ------ -------- ------ ------
54,283 3,610 6.65 49,468 323 2.59 48,035 456 3.78
22,400 2,683 11.97 27,960 828 11.76 26,763 752 11.17
-------- ------ ----- -------- ------ ------ -------- ------ ------
11,552 14,273 13,672
1,795 2,258 1,889
717 720 529
5,024 3,278 4,196
-------- -------- --------
19,088 20,529 20,286
-------- -------- --------
95,771 97,957 95,084
-------- -------- --------
53 -- 53
-------- -------- --------
977 1,399 1,477
4,005 6,253 4,917
-------- -------- --------
4,982 7,652 6,394
-------- -------- --------
$100,806 $105,609 $101,531
-------- -------- --------
$3,405 2.75% $1,008 3.37% $ 966 3.28%
------ ----- ------ ------ ------ -----
3.85% 4.33% 4.31%
----- ------ -----
</TABLE>
85
<PAGE> 55
<TABLE>
<CAPTION>
CONSOLIDATED ANALYSIS OF CREDIT LOSS EXPERIENCE
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
-----------------------
($ in millions) 1993 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans
- --Outstanding Balance of Loans $60,493 $62,558 $67,785 $74,727 $76,692
- --Average Balance of Loans 61,506 64,598 70,949 76,965 72,890
------- ------- ------- ------- -------
Reserve for Possible Credit Losses at Beginning of Year $ 1,913 $ 1,960 $ 2,837 $ 3,290 $ 2,742
Charge-Offs:
Domestic Loans:
Commercial Real Estate Loans 305 456 378 191 108
Loans to Financial Institutions 28 29 8 7 18
Commercial and Industrial Loans 173 183 168 139 91
Consumer Loans 441 516 547 425 313
Lease Financings 16 18 12 12 9
Other Loans 2 -- 1 -- 2
------- ------- ------- ------- -------
Total Domestic Loans 965 1,202 1,114 774 541
------- ------- ------- ------- -------
International Loans:
Commercial Real Estate Loans 1 -- -- -- --
Loans to Financial Institutions -- 3 93 105 40
Loans to Foreign Governments and Official Institutions 470 76 502 887 500
Commercial and Industrial Loans 68 71 319 74 189
Consumer Loans 7 18 24 22 15
Lease Financings -- -- -- 8 2
Other Loans -- -- 3 -- --
------- ------- ------- ------- -------
Total International Loans 546 168 941 1,096 746
------- ------- ------- ------- -------
Total Charge-Offs 1,511 1,370 2,055 1,870 1,287
------- ------- ------- ------- -------
Recoveries:
Domestic Loans:
Commercial Real Estate Loans 28 3 1 2 13
Loans to Financial Institutions -- 1 -- -- 1
Commercial and Industrial Loans 49 10 35 16 14
Consumer Loans 47 52 56 59 49
Lease Financings 4 4 2 3 2
Other Loans -- -- -- -- 1
------- ------- ------- -------- -------
Total Domestic Loans 128 70 94 80 80
------- ------- ------- -------- -------
International Loans:
Commercial Real Estate Loans -- -- -- -- 1
Loans to Financial Institutions 5 -- -- -- --
Loans to Foreign Governments and Official Institutions 17 2 2 7 1
Commercial and Industrial Loans 19 18 18 20 14
Consumer Loans 4 9 11 9 9
Other Loans 1 5 3 -- --
------- ------- ------- -------- -------
Total International Loans 46 34 34 36 25
------- ------- ------- -------- -------
Total Recoveries 174 104 128 116 105
------- ------- ------- -------- -------
Net Charge-Offs 1,337 1,266 1,927 1,754 1,182
------- ------- ------- -------- -------
Provision for Possible Credit Losses Charged to Expenses 995 1,220 1,085 1,300 1,737
Provision for Loans Held for Accelerated Disposition 566 -- -- -- --
Writedowns of Loans Transferred to the Accelerated
Disposition Portfolio (701) -- -- -- --
Reserves of Disposed Subsidiaries
and Other Adjustments (10) 1 (24) -- (5)
Foreign Exchange Translation Adjustments (1) (2) (11) 1 (2)
------- ------- ------- -------- -------
Reserve for Possible Credit Losses at End of Year $ 1,425 $ 1,913 $ 1,960 $ 2,837 $ 3,290
------- ------- ------- -------- -------
Ratios:
Total Recoveries to Total Charge-Offs 11.5% 7.6% 6.2% 6.2% 8.2%
Net Charge-Offs to:
Outstanding Balance of Loans 2.21 2.02 2.84 2.35 1.54
Average Balance of Loans 2.17 1.96 2.72 2.28 1.62
Reserve for Possible Credit Losses 93.8 66.2 98.3 61.8 35.9
Provision for Possible Credit Losses 134.4 103.8 177.6 134.9 68.1
Reserve for Possible Credit Losses to:
Outstanding Balance of Loans 2.36 3.06 2.89 3.80 4.29
Average Balance of Loans 2.32 2.96 2.76 3.69 4.51
------- ------- ------- ------- -------
Summary of Net Charge-Offs:
Domestic Loans $ 837 $ 1,132 $ 1,020 $ 694 $ 461
International Loans 500 134 907 1,060 721
------- ------- ------- ------- -------
Total Net Charge-Offs $ 1,337 $ 1,266 $ 1,927 $ 1,754 $ 1,182
------- ------- ------- ------- -------
</TABLE>
86
<PAGE> 56
<TABLE>
<CAPTION>
SELECTED LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The Chase Manhattan Corporation and Subsidiaries
After 1
Within But Within After
($ in millions) 1 Year 5 Years 5 Years Total
- --------------- ------ ------- ------- -----
<S> <C> <C> <C> <C>
Remaining Maturities of Selected Loans at December 31, 1993:
Domestic Offices:
Commercial Real Estate Loans:
Construction and Development $ 713 $ 354 $ 57 $ 1,124
Other Real Estate Loans 530 693 752 1,975
Loans to Financial Institutions 1,247 78 66 1,391
Loans for Purchasing or Carrying Securities 591 -- -- 591
Commercial and Industrial Loans 6,487 1,316 229 8,032
Tax-Exempt Loans 61 58 72 191
Other Loans (Excluding Consumer Loans and Lease Financings) 619 44 15 678
------- ------ ------ -------
Total Domestic Offices 10,248 2,543 1,191 13,982
Overseas Offices 10,816 3,037 2,709 16,562
------- ------ ------ -------
Total Selected Loans $21,064 $5,580 $3,900 $30,544
------- ------ ------ -------
Interest Rate Sensitivity of Selected Loans:*
Domestic Offices: --Fixed Rate $1,404 $ 739
--Variable Rate 1,139 452
------ ------
--Total 2,543 1,191
------ ------
Overseas Offices: --Fixed Rate 643 445
--Variable Rate 2,394 2,264
------ ------
--Total 3,037 2,709
------ ------
Consolidated: --Fixed Rate 2,047 1,184
--Variable Rate 3,533 2,716
------ ------
--Total $5,580 $3,900
------ ------
<FN>
* Excludes consumer loans and lease financings in domestic offices.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL RATIOS
The Chase Manhattan Corporation and Subsidiaries
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Ratios
Net Income (Loss) as a Percentage of Average:
Total Assets .94% .64% .52% N/M N/M
Common Stockholders' Equity* 14.59 11.14 10.49 N/M N/M
Total Stockholders' Equity 13.33 10.71 10.36 N/M N/M
----- ----- ----- ----- -----
Cash Dividends Paid on Common Stock as a Percentage of
Net Income (Loss) Applicable to Common Stock 24.74% 34.40% 38.26% N/M N/M
Total Cash Dividends Paid as a Percentage of Net Income (Loss) 35.65 47.17 50.14 N/M N/M
----- ----- ----- ----- -----
Leverage Ratios--Averages
Common Stockholders' Equity as a Percentage of:
Total Assets 5.52% 4.60% 3.97% 3.90% 3.99%
Total Stockholders' Equity, Redeemable Preferred Stock and
Intermediate- and Long-Term Debt 41.54 36.02 33.87 31.94 30.99
Total Stockholders' Equity as a Percentage of Total Assets 7.04 5.91 4.94 4.69 4.75
----- ----- ----- ----- -----
Leverage Ratios--at December 31,
Common Stockholders' Equity as a Percentage of:
Total Assets 6.58% 5.25% 4.36% 3.97% 3.82%
Total Stockholders' Equity, Redeemable Preferred Stock and
Intermediate- and Long-Term Debt 48.84 37.35 35.72 34.39 32.35
Total Stockholders' Equity as a Percentage of Total Assets 7.95 6.79 5.42 4.83 4.60
----- ----- ----- ----- -----
Capital Ratios--at December 31,**
Tier I Leverage 7.81% 6.66% 5.28% 4.40% 4.40%
Tier I Capital as a Percentage of Net Risk-Weighted Assets 8.44 6.76 5.32 4.32 4.44
Total Capital as a Percentage of Net Risk-Weighted Assets 13.22 11.12 9.74 8.33 8.87
----- ----- ----- ----- -----
<FN>
* Based on Net Income (Loss), adjusted as applicable.
** Based on Federal Reserve Board definitions. Risk-based capital and leverage ratios exclude the equity, assets and off-balance
sheet positions of Chase Securities Inc., the Corporation's U.S. underwriting and dealing subsidiary.
N/M--As a result of Net Loss, these ratios are not meaningful.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
The Chase Manhattan Bank, N.A. and Subsidiaries
Capital Ratios--at December 31,*
Tier I Leverage 6.98% 6.50%** 5.11%** 4.06%** 4.61%**
Tier I Capital as a Percentage of Net Risk-Weighted Assets 7.63 6.85** 5.41** 4.26** 5.02**
Total Capital as a Percentage of Net Risk-Weighted Assets 11.74 10.71** 8.75** 7.49** 6.95**
<FN> ----- ----- ---- ---- ----
* Based on Office of the Comptroller of the Currency definition.
** As restated for the merger of Chase Lincoln into the Bank on January 1, 1993.
</TABLE>
87
<PAGE> 57
<TABLE>
<CAPTION>
STOCKHOLDER DATA
The Chase Manhattan Corporation and Subsidiaries
Common Stock Preferred Stock
------------------- -------------------------------------------------------------
($ in millions, except Per Floating Floating
per common Total Common 6.75 % 7.60 % 10.50 % Rate Rate
share data) Paid Share Series B Series C Series D Series E Series F
- ---------------------- ---- ----- -------- -------- -------- -------- --------
Quarterly Cash
Dividends
<S> <C> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $ 46.9 $ .30 $ .4 $ .5 $ -- $ 5.2 $ 4.3
2nd Qtr. 47.3 .30 .4 .5 -- 4.9 4.1
3rd Qtr. 55.0 .30 .3 .4 -- 4.2 3.9
4th Qtr. 55.1 .30 -- -- -- -- 3.6
------ ----- ---- ---- ---- ----- -----
Total $204.3 $1.20 $1.1 $1.4 $ -- $14.3 $15.9
------ ----- ---- ---- ---- ----- -----
1992
1st Qtr. $ 42.2 $ .30 $ .4 $ .5 $3.3 $ 5.4 $ 4.4
2nd Qtr. 43.1 .30 .4 .5 3.3 5.5 4.5
3rd Qtr. 45.1 .30 .4 .5 1.7 5.5 4.4
4th Qtr. 46.5 .30 .4 .5 -- 5.1 4.1
------ ----- ---- ---- ---- ----- -----
Total $176.9 $1.20 $1.6 $2.0 $8.3 $21.5 $17.4
------ ----- ---- ---- ---- ----- -----
</TABLE>
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------------------------------------------------------------------
($ in millions, except
per common 10.50 % 9.76 % 10.84 % 9.08 % 8.50 % 8.32 % 8.40 % Total
share data) Series G Series H Series I Series J Series K Series L Series M Paid
- ---------------------- -------- -------- -------- -------- -------- -------- -------- ----
Quarterly Cash
Dividends
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Qtr. $ 3.7 $ 2.5 $ 5.4 $ 3.4 $ 3.6 $ 5.0 $ 2.4 $ 36.4
2nd Qtr. 3.7 2.5 5.4 3.4 3.6 5.0 3.6 37.1
3rd Qtr. 3.7 2.5 5.4 3.4 3.6 5.0 3.6 36.0
4th Qtr. 3.7 2.5 5.4 3.4 3.6 5.0 3.6 30.8
----- ----- ----- ----- ----- ----- ----- ------
Total $14.8 $10.0 $21.6 $13.6 $14.4 $20.0 $13.2 $140.3
----- ----- ----- ----- ----- ----- ----- ------
1992
1st Qtr. $ 3.7 $ 2.5 $ 5.4 $ 1.5 $ -- $ -- $ -- $ 27.1
2nd Qtr. 3.7 2.5 5.4 3.4 -- -- -- 29.2
3rd Qtr. 3.7 2.5 5.4 3.4 3.9 3.1 -- 34.5
4th Qtr. 3.7 2.5 5.4 3.4 3.6 5.0 -- 33.7
----- ----- ----- ----- ----- ----- ----- ------
Total $14.8 $10.0 $21.6 $11.7 $ 7.5 $ 8.1 $ -- $124.5
----- ----- ----- ----- ----- ----- ----- ------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY COMPARISON OF MARKET PRICES*
Common Stock
Common Stock Subscription Warrants
--------------------------------- ------------------------------
High Low Close High Low Close
---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $35.625 $27.375 $34.875 $ -- $ -- $ --
2nd Qtr. 38.000 28.375 32.250 -- -- --
3rd Qtr. 37.875 31.375 37.125 10.125 5.000 9.500
4th Qtr. 38.000 31.125 33.875 10.000 7.250 8.125
------- ------- ------- ------- ------ ------
1992
1st Qtr. $25.250 $17.250 $23.875 -- -- --
2nd Qtr. 30.375 20.375 27.625 -- -- --
3rd Qtr. 29.625 21.625 22.500 -- -- --
4th Qtr. 30.000 20.750 28.500 -- -- --
------- ------- ------- ------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
Redeemable Preferred Stock
6.75% Series B** 7.60% Series C**
--------------------------------- ------------------------------
High Low Close High Low Close
---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $94.000 $85.000 $92.250 $ 99.000 $94.250 $97.250
2nd Qtr. 94.000 92.250 93.375 101.000 96.000 101.000
3rd Qtr. -- -- -- -- -- --
4th Qtr. -- -- -- -- -- --
------- ------- ------- ------- -------- -------
1992
1st Qtr. $83.000 $69.500 $79.500 $90.000 $79.000 $87.875
2nd Qtr. 83.000 77.000 82.000 95.000 87.250 95.000
3rd Qtr. 90.000 78.500 87.500 97.750 94.000 96.625
4th Qtr. 88.250 85.000 85.000 98.250 96.500 98.000
------- ------- ------- ------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
Nonredeemable Preferred Stock
Floating Rate Floating Rate
10.50% Series D Series E Series F
--------------------------------- ----------------------------- --------------------------------
High Low Close High Low Close High Low Close
---- --- ----- ---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $ -- $ -- $ -- $52.375 $49.625 $50.375 $49.875 $47.250 $49.875
2nd Qtr. -- -- -- 51.375 50.250 50.375 51.000 49.625 50.375
3rd Qtr. -- -- -- -- -- -- 51.000 50.125 50.250
4th Qtr. -- -- -- -- -- -- 50.875 49.750 50.125
------- ------- ------- ------- ------- ------- ------- ------- -------
1992
1st Qtr. $54.500 $49.375 $53.000 $48.500 $40.000 $47.125 $43.875 $35.375 $43.375
2nd Qtr. 55.250 51.750 52.375 51.250 45.500 49.625 47.875 42.000 46.500
3rd Qtr. -- -- -- 51.375 49.500 49.750 49.000 46.375 48.500
4th Qtr. -- -- -- 50.750 49.250 49.750 49.000 47.000 47.250
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
10.50 % Series G 9.76 % Series H
--------------------------------- -----------------------------
High Low Close High Low Close
---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $30.500 $27.750 $29.500 $28.875 $26.125 $28.000
2nd Qtr. 30.250 28.750 29.500 29.250 26.375 28.125
3rd Qtr. 31.625 29.375 30.125 30.250 28.125 29.500
4th Qtr. 31.625 28.750 29.375 30.250 28.000 28.625
------- ------- ------- ------- ------- -------
1992
1st Qtr. $28.750 $26.000 $27.625 $27.250 $24.375 $26.000
2nd Qtr. 29.375 27.000 28.750 28.375 25.875 26.625
3rd Qtr. 30.750 28.000 28.500 28.750 26.500 27.500
4th Qtr. 28.875 26.875 27.750 27.875 26.000 26.750
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Nonredeemable Preferred Stock
10.84 % Series I 9.08 % Series J
----------------------------- -----------------------------
High Low Close High Low Close
---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $31.500 $28.500 $30.375 $27.500 $25.125 $26.750
2nd Qtr. 31.750 30.250 31.000 27.625 26.375 27.125
3rd Qtr. 32.500 30.875 31.875 28.125 27.000 27.625
4th Qtr. 32.375 30.500 31.500 28.125 26.875 27.250
------- ------- ------- ------- ------- -------
1992
1st Qtr. $28.875 $26.250 $27.500 $25.000 $24.625 $24.625
2nd Qtr. 29.500 27.375 28.750 26.375 24.750 25.750
3rd Qtr. 31.125 28.750 29.625 27.000 25.250 25.875
4th Qtr. 29.750 27.875 28.750 26.375 25.000 25.375
------- ------- ------- --------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
8.50 % Series K 8.32 % Series L 8.40 % Series M
------------------------------ ----------------------------- --------------------------------
High Low Close High Low Close High Low Close
---- --- ----- ---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
1st Qtr. $26.750 $24.375 $25.625 $26.500 $23.750 $25.375 $26.500 $25.250 $25.500
2nd Qtr. 26.625 25.375 26.125 26.375 25.000 25.875 26.500 25.250 26.000
3rd Qtr. 27.250 26.125 26.625 27.000 25.875 26.375 27.250 26.000 26.375
4th Qtr. 27.500 25.875 26.500 27.375 25.750 26.500 27.625 25.500 26.500
1992
1st Qtr. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
2nd Qtr. -- -- -- -- -- -- -- -- --
3rd Qtr. 26.250 25.000 25.250 25.250 24.750 24.750 -- -- --
4th Qtr. 25.250 24.000 24.625 25.250 23.250 23.875 -- -- --
------- ------- ------- ------- ------- ------- ------- -------- -------
<FN>
* The high, low and closing sales prices for transactions reported on the NYSE composite tape.
** No sales. Based on the average of bid and asked prices.
</TABLE>
NUMBER OF COMMON STOCKHOLDERS, PREFERRED STOCKHOLDERS AND CONVERTIBLE SECURITY
HOLDERS
The following table sets forth the approximate number of holders of record of
each class of equity and securities convertible into equity securities of the
Company at the end of the years indicated:
<TABLE>
<CAPTION>
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Common Stock 51,200 51,500 Preferred Stock, 10.50 % Series G 1,900 1,800
Junior Participating Preferred Stock Purchase Rights 51,200 51,500 Preferred Stock, 9.76 % Series H 1,000 1,000
Common Stock Subscription Warrants 14,500 -- Preferred Stock, 10.84 % Series I 1,900 1,900
Preferred Stock, 6.75 % Series B -- 400 Preferred Stock, 9.08 % Series J 1,300 1,300
Preferred Stock, 7.60 % Series C -- 100 Preferred Stock, 8.50 % Series K 1,500 1,400
Preferred Stock, Floating Rate Series E -- 500 Preferred Stock, 8.32 % Series L 2,400 2,200
Preferred Stock, Floating Rate Series F 4,700 5,000 Preferred Stock, 8.40 % Series M 1,000 --
<FN>
Note: The principal market in which the Company's Common Stock is traded is the New York Stock Exchange.
</TABLE>
88
<PAGE> 58
DESCRIPTION OF BUSINESS
GENERAL
The Chase Manhattan Corporation (the Company) is a bank holding company that
was incorporated in 1969 and whose principal subsidiary is The Chase Manhattan
Bank, N.A. (the Bank). As used herein, the term Corporation or "Chase" means
the Company and its subsidiaries, and the term Bank means the Bank and its
subsidiaries.
In addition to the Bank, the Corporation holds investments in other
subsidiaries that provide a variety of financial services, including commercial
and consumer financing, investment banking, securities trading and investment
advisory services. The Corporation's primary strategy is that of a global bank
with a diversified domestic base serving three interrelated franchises: global
financial services, domestic consumer products and regional banking in the
northeastern United States. Over the last few years, the Corporation has
focused its business and marketing efforts on two types of customers--retail
(individuals and small and medium-sized businesses) and wholesale (primarily
large corporations and institutions). The Corporation's business groups serving
retail customers are National Consumer Product Companies, Regional Banking and
Global Private Banking; those serving wholesale customers are Global Corporate
Finance, Global Risk Management, Global Capital Markets and Transaction and
Information Services. In addition to these core business groups, the Real
Estate Finance Sector manages the Corporation's loan portfolio related to the
domestic commercial real estate business and the LDC Portfolio Management group
oversees the Corporation's portfolio of cross-border extensions of credit to
refinancing countries; the domestic commercial real estate and cross-border
extensions of credit to refinancing countries are discussed in the Management's
Discussion and Analysis section of this report.
A description of the Corporation's core businesses is set forth below.
RETAIL BUSINESSES
In 1993, there continued to be significant growth in the Corporation's retail
banking business, with emphasis on developing strategic focus and on
maintaining asset quality. Retail banking activities were a large contributor
to the Corporation's income in 1993 and are expected to continue to be a
significant component of the Corporation's future earnings.
NATIONAL CONSUMER PRODUCT COMPANIES
Through its Chase BankCard Services unit, the Corporation is the second largest
commercial bank issuer of credit cards and lender of unsecured revolving credit
products (Advantage Credit) in the U.S., with approximately $12 billion in
total revolving credit balances (including securitized assets). The Corporation
continues to invest in the acquisition of new customers, while capitalizing on
efficiencies of scale.
The Corporation participates in all aspects of the residential mortgage
market, principally via Chase Manhattan Mortgage Holdings, Inc. (CMMH), a
subsidiary of the Bank. At December 31, 1993, the Corporation's U.S. mortgage
servicing portfolio was $47.8 billion, ranking it among the largest servicers
in the U.S. Most servicing for the Corporation's various originating units has
been consolidated in CMMH, including CMMH's subsidiary Troy & Nichols, Inc.
acquired in June 1993. The Corporation is also a major lender in the
residential mortgage market, originating $16.7 billion of mortgages in 1993.
With respect to credit quality, the Corporation's domestic residential
mortgage portfolio has performed substantially better than the industry
average. In recent years, the Corporation has increased the amount of
residential mortgage loans sold by converting non-conforming mortgage loans
into private mortgage-backed securities and by selling conforming loans to
traditional secondary market agencies. In 1993, the Corporation issued
mortgage-backed securities totaling $4.7 billion and was one of the top five
private issuers in the market. The Corporation's Personal Financial Services
unit (PFS) provides jumbo home mortgages and other financing to affluent
consumers through a network of 61 lending offices in 20 U.S. states. Since its
inception in 1981, PFS has grown substantially. In 1993, PFS originated $6.2
billion of the Corporation's originations of residential mortgages.
The Corporation markets other products to affluent customers. Chase
Automotive Finance (CAF) is a national indirect auto lender with a focus on
the luxury market; CAF has a leading share of this market in the United
States. Chase Manhattan Investment Services, Inc., a subsidiary of the Bank,
began operations in April 1990 and provides a vehicle for sales of investment
products to the domestic consumer market; it has opened 16 offices in seven
states since its inception.
The Corporation's education finance unit specializes in offering student
loans for college and university educations. The Corporation is a top-ranked
originator of student loans for two- and four-year colleges in the United
States. Under an agreement entered into in 1990 with the Student Loan
Marketing Association (Sallie Mae), the Corporation has agreed to sell all
such loans to Sallie Mae until 1995. In accordance with this agreement, the
Corporation sold $719 million of insured student loans to Sallie Mae in 1993.
In 1993, the Corporation continued to restructure its overseas consumer
operations, withdrawing from consumer banking businesses in Singapore and
Chile to concentrate its investments in markets with higher returns.
Additionally, on June 4, 1993, the Corporation formed Manhattan Card Co.
Limited (MCCL) in Hong Kong to hold its Hong Kong credit card portfolio. The
Corporation sold 46% of MCCL to local investors in a private placement and
public offering. MCCL offers credit cards in the Hong Kong markets and at
December 31, 1993 had over 300,000 cardholders.
REGIONAL BANKING
The Corporation's Regional Banking Sector provides a broad range of retail and
commercial services to consumers (including residents in low to moderate income
communities), small businesses and middle market companies located in the
Northeast corridor. The Regional Banking Sector, with $22 billion in deposits
at December 31, 1993, emphasizes "value-added" relationship building and serves
over one million customers in the tri-state (New York, New Jersey, Connecticut)
area alone. Service is provided primarily through 340 full-service branches
supplemented by a 600 unit ATM network. This includes the 50 branch
distribution system of The Chase Manhattan Bank of Connecticut, N.A. (Chase
Connecticut), located mainly in Fairfield and New Haven counties.
Over the past two years, the Regional Bank has been consolidating its
position in New York State by combining its upstate and downstate presences
into a single integrated organization with common management, systems and
support functions. On January 1, 1993, its upstate banking subsidiary (Chase
Lincoln First Bank, N.A.) was merged into the Bank.
In December 1993, the Corporation announced its intent to sell Chase Bank
of Arizona (Chase Arizona), to concentrate its investment in the northeastern
U.S.
GLOBAL PRIVATE BANKING
High-net-worth individuals are served through the Corporation's Global Private
Banking business, which provides a broad range of wealth management and
investment services for clients in and outside the U.S. through locations
worldwide. In addition to such services as portfolio management, trust and
estate planning and custody accounts, the Corporation provides its clients with
a wide range of customized investment vehicles and risk management tools.
Private banking clients also are offered access to the full range of the
Corporation's corporate finance and capital markets resources.
Chase makes available the Vista Family of Mutual Funds to its U.S.
clients, and Chase Vista Unit Trust Funds to clients outside the U.S. The
portfolios, which are advised by the investment professionals of the Bank,
include a variety of stock, bond and money market funds that invest in both
U.S. and international markets. During 1993, the Vista funds acquired the
assets of six California-based Olympus funds. The merger added to Vista's
assets, broadened its fund offerings, and added depth to its broker/dealer
distribution network.
As of December 31, 1993, Chase Manhattan Private Bank client assets under
management totaled approximately $63 billion, an increase of 18% over 1992.
90
<PAGE> 59
WHOLESALE BUSINESSES
The Corporation serves the global financial services needs of its wholesale
clients as they raise, invest, move and track their financial resources around
the world. These clients range from multinationals and local corporations to
governments and financial institutions. These clients are also diverse in
geographic location, capital markets access and scope of international
business. Many fall within specialized areas where the Corporation's tradition
of industry expertise serves these customers' unique financing, investing and
operating requirements. The Corporation maintains a presence in key financial
centers, including London, Tokyo, Hong Kong and New York, and in other
important markets of North America, Asia-Pacific, Europe-Middle East and Latin
America. Its network, spanning over 50 countries, enables the Corporation to
identify users and sources of capital on a worldwide basis, and to serve the
cross-border requirements of customers through integrated delivery of products
and services across all its global businesses. Wholesale banking activities
contributed significantly to the Corporation's earnings, with all units
recording improved performance in 1993.
GLOBAL CORPORATE FINANCE
Corporate finance activities of the Corporation include identifying and
executing a wide range of financial solutions for wholesale customers, bringing
together products and service resources from across the Corporation. Global
reach and perspective, coupled with advisory skill, technical proficiency and
knowledge across a range of complex industries characterize the Corporation's
service as a major financial advisor worldwide.
In Project Finance, the Corporation is recognized for its innovative
transactions encompassing industrial and infrastructure projects in Eastern
Europe, Latin America, Asia and the U.S. The Corporation acts in multiple
roles, including financial advisor, underwriter, equity investor and agent,
meeting the needs of clients in industries ranging from natural resources to
power generation, environmental technologies and aerospace.
Through its Merchant Banking activities, the Corporation serves large and
mid-sized companies, primarily in the U.S., whose financing requirements
involve senior debt, subordinated debt and equity. By providing financing and
acting as principal, the Corporation has built new customer relationships and a
diversified equity portfolio, from which it realized significant revenue in
1993.
The Corporation's Mergers & Acquisitions business provides advice
pertaining to corporate acquisitions, divestitures and joint ventures, as well
as other services to aid its clients in enhancing their shareholder value.
Operating globally, these activities build upon the Corporation's areas of
industry expertise and worldwide customer reach.
GLOBAL CAPITAL MARKETS
The Global Capital Markets business functions as an intermediary between
issuers and investors and the capital markets around the world. Issuer needs
are met through primary market activities, including underwriting, private
placement and loan syndication. In order to meet investor needs, as well as to
provide secondary market support to primary market activity, Global Capital
Markets sells and trades a variety of instruments in the U.S. and international
capital markets.
The Corporation is a recognized leader in a number of products and
markets, ranking third for volume of lead managed issues of emerging markets
debt in 1993, third in number of global syndicated loan transactions, and top
10 in private placements and asset-backed securities. Trading volume in
emerging markets debt topped $140 billion for the year, significantly
surpassing 1992. The U.S. high yield product unit exceeded management
expectations for both revenues and number of lead and co-lead positions in
1993, its first full year of operations.
The Corporation plans to expand its presence in capital markets around the
globe in order to better serve our expanding issuer and investor base.
GLOBAL RISK MANAGEMENT
The Corporation's risk management activities, concentrated in key financial
centers around the world, are offered in conjunction with its corporate
finance, capital markets, transaction and information services. Given the
growing sophistication of clients' capital raising and investment strategies,
this approach enables the Corporation to deliver relationship-driven service
and advice within the context of clients' total financial needs.
Through serving a strong corporate and institutional franchise, the
Corporation remains a top-ranked provider in foreign exchange. It is a market
maker in virtually all of the world's freely traded currencies, specializing in
the secondary and less frequently traded currencies of Asia and Latin America.
It also participates in bullion and commodity swap markets.
The Corporation designs and markets a broad range of risk management
products, including swaps, caps, floors and option-related products. The
Corporation ranks among the top financial institutions worldwide in interest
rate swap volume outstanding.
The Corporation also acts both as a managed commodity funds sponsor and
consultant and as a full-service broker globally for exchange-traded futures
and options. The Corporation has expanded its managed funds business by
becoming a commodity trading advisor and manages clients' funds on a
discretionary basis in foreign exchange, bullion, interest rates and selected
commodity futures markets. The Corporation plans to further develop its
existing customer base and to expand its offerings in commodities, options and
equity-linked index products to continue to provide a full range of
sophisticated, tailor-made financial instruments and advisory services.
TRANSACTION AND INFORMATION SERVICES
Chase InfoServ International (InfoServ) helps corporate and institutional
clients move and track financial resources throughout the U.S. and in major
markets around the world. Services include cash management, payments, trade
services, custody, trust and other fiduciary services. InfoServ's principal
activities are described below. At December 31, 1993, InfoServ's businesses
were custodian or trustee for approximately $1.2 trillion in client assets.
Global Securities Services (GSS) serves the requirements of global
institutional investors, including mutual funds, insurance companies, pension
funds, public retirement funds and foundations. Services provided include
custody, trust, safekeeping, portfolio reporting, securities lending and
investment funds services. As the originator of the global custody product in
the mid-1970s, GSS remains the market leader in global custody, with over $300
billion in assets under custody at December 31, 1993. The Corporation is also
a leading unit trust trustee in the U.K. The unit also services the insurance
industry's specialized operating requirements and is the leading provider of
electronic premium collection and annuity payments.
For issuers of private and public debt, InfoServ's Institutional Trust unit
functions as trustee and paying agent. InfoServ is a leading paying agent for
municipal tax-exempt debt and a leader in both the domestic corporate trust and
Eurobond markets. In the U.S., the Institutional Trust business was ranked in
the top five in 1993 in new public corporate debt issues (straight debt and
medium-term notes), with an 8% market share.
For U.S. and international corporations and financial institutions,
InfoServ's Global Payments & Treasury Services (GP&TS) unit meets a broad range
of transaction and information requirements, providing collection, payment,
trade, information and investment services. GP&TS continues to lead in
transaction volume for the Automated Clearing House. The Corporation is a
market leader in international money transfer and is the largest U.S. dollar
clearing bank in the world. In addition, InfoServ provides foreign currency
clearing in selected locations, including deutsche mark clearing in Germany and
yen clearing in Japan.
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<PAGE> 60
COMPETITION
The Corporation competes with various financial institutions, ranging from
multinational bank holding companies and their subsidiaries to local thrift
institutions as well as with securities brokers, underwriters, government
agencies and other businesses providing financial services. The Bank and other
banking subsidiaries of the Corporation compete for deposits with other banks
and thrift institutions and for other sources of funds and retail products,
such as credit cards, with both banking and nonbanking institutions. Other
institutions may not be subject to the same regulatory restrictions as the
Corporation's subsidiaries, which intensifies the competition for business both
domestically and abroad.
SUPERVISION AND REGULATION
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Act"), and is required to file with the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
an annual report and other information required pursuant to the Act. The
Company is subject to inspection by the Federal Reserve Board.
Under the Act and Regulation Y of the Federal Reserve Board, the Company,
with certain exceptions, may not acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank without the prior
approval of the Federal Reserve Board. While many states have adopted laws
authorizing certain acquisitions by out-of-state bank holding companies, a
number of states do not currently permit unrestricted entry by bank holding
companies located in New York.
Pursuant to the Act, the Company may not engage in any business directly
or through a nonbanking subsidiary other than managing and controlling banks,
furnishing certain services or engaging in businesses that the Federal Reserve
Board deems to be closely related to banking. In making any such determination,
the Federal Reserve Board is required to consider whether the performance of
such activities can reasonably be expected to produce benefits to the public,
such as greater convenience, increased competition or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. Further, the Federal Reserve Board is empowered to differentiate
between activities commenced de novo and activities commenced by acquisition,
in whole or in part, of a going concern.
The Bank, The Chase Manhattan Bank of Florida, N.A. and Chase Connecticut,
as national banks and members of the Federal Reserve System, are subject to the
supervision of the Office of the Comptroller of the Currency and the Federal
Reserve Board. Chase Bank of Maryland, as a state bank and member of the
Federal Reserve System, is subject to supervision by state banking regulators
and the Federal Reserve Board. The Chase Manhattan Bank (USA) and Chase
Arizona, as state banks that are not members of the Federal Reserve System,
are subject to the supervision of state banking regulators and the Federal
Deposit Insurance Corporation (FDIC). Such supervision includes periodic
examinations, periodic reporting requirements, limitations on investment and
other powers and regulation of the establishment and operation of branches.
Deposits of all these banks are insured by the FDIC.
The Company, the Bank and their affiliates are also subject to
restrictions with respect to issuing, floating and underwriting, or publicly
selling or distributing, securities in the United States. The Bank and its
affiliates may underwrite and deal in specific categories of securities,
including U.S. government and certain U.S. agency, state and municipal
securities. In addition, the Corporation, through Chase Securities Inc. (CSI),
is authorized to underwrite and deal, to a limited extent (subject to certain
conditions), in certain other categories of securities, including municipal
revenue bonds, mortgage-related and consumer receivable-related securities and
corporate debt.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) was enacted, among other things, to increase funding for the FDIC's
Bank Insurance Fund, and establish standards for, restrictions on, activities
of depository institutions based upon capital status and supervisory evaluation
by federal banking regulators. Federal banking agencies were required to adopt
various rules and regulations implementing FDICIA, some of which have already
been promulgated; others of which are still in the rulemaking process. Through
December 31, 1993, regulations have been promulgated under FDICIA covering a
variety of matters including assessment of risk-based deposit insurance and
prompt corrective action measures available to federal regulators based on the
capital category of an institution. Based upon its assessment of the impact of
all of the regulations issued under FDICIA, the Company does not expect any of
them to have a material effect on its operations.
Further rules proposed or to be proposed under FDICIA, governing such
matters as operational and managerial standards and capital requirements, are
expected to be finalized and become effective in 1994. Until the various
regulations are adopted in final form, however, it is difficult to assess how
they will impact Chase's financial condition or operations.
EFFECT OF GOVERNMENT POLICIES
The earnings of the Corporation are significantly influenced by fluctuations in
economic activity, the general price level and relative prices throughout the
world economy. In addition, fiscal and other policies adopted by the United
States and foreign governments can have important consequences on the financial
performance of the Corporation. In particular, the actions and policies of the
Federal Reserve Board and foreign central banks exert a major influence on
interest rates, credit conditions, exchange rates and asset prices. Recognizing
the inherent difficulties of forecasting government behavior and asset prices,
the Corporation endeavors to accurately assess and manage these economic risks
and other risks that it faces in the conduct of its business.
PROPERTIES
The Bank owns the land and a 60-story building at 1 Chase Manhattan Plaza (1
CMP), in downtown Manhattan, New York, which houses the Company's Executive
Office and the Bank's Head Office. This property represents a significant
portion of the value of banking premises owned by the Bank. Of total space of
approximately two million square feet in this building, approximately
two-thirds is occupied by the Bank and the Company and most of the remainder is
leased to tenants.
In addition to 1 CMP, the Bank owns the land and 50-story building known
as 1 New York Plaza in downtown Manhattan. Chase is currently renovating the
facility in anticipation of leasing the vacant space to outside tenants. Chase
has entered into a twenty year lease for approximately one million square feet
of this facility with Prudential Securities Inc.
The Corporation built in 1992 and fully occupies a two-building complex
known as Chase MetroTech in downtown Brooklyn, New York. This facility contains
approximately 1.75 million square feet and houses, among other things, the
Corporation's operations and product support functions that were housed in 1
New York Plaza and other downtown and midtown locations.
In November of 1993, Chase Home Mortgage Corporation (CHMC) purchased its
headquarters: a two-building, 258,000 square foot complex known as Fountain
Square in Tampa, Florida for $31 million. In addition, CHMC has an option to
purchase two adjacent parcels of land in the same office park. The Corporation
also owns and occupies a two-building, 300,000 square foot complex in Tempe,
Arizona that serves as its western regional processing center for Chase USA.
The Lincoln First Tower, a 27-story building with approximately 424,000
square feet of space, located in Rochester, New York, is the leased
headquarters for the Upstate New York Region of The Corporation's
Regional Banking Sector. This lease expires February 23, 2011, with options to
renew to the year 2041, and includes a purchase option exercisable at various
dates in the future. Chase Plaza, a 14-story building with approximately
240,000 square feet of space, located in Wilmington, Delaware, is the leased
headquarters of Chase USA. This lease expires December 4, 2001, with options to
renew to the year 2016 and includes a purchase option at various dates now and
in the future.
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<PAGE> 61
The Bank assumed the lease for 20 Pine Street (renamed 2 Chase Manhattan
Plaza) on December 15, 1988, which includes an option to purchase the 38-story,
600,000 square foot office building adjacent to 1 CMP. Leasing this space
permitted the consolidation of a substantial number of personnel who occupy
space in several locations in the downtown Manhattan area.
The Bank also owns other banking premises, principally in overseas
locations such as England, Switzerland, Puerto Rico, Panama, Brazil and Japan.
The Bank leases space occupied by many of its branch offices and facilities
used in its domestic and foreign operations.
LEGAL PROCEEDINGS
Various actions and proceedings are pending against the Company, the Bank and
certain of their subsidiaries and certain of their present officers and
directors, in which claims for substantial money damages are asserted based on
alleged violations of various laws. Management, after consultation with legal
counsel, is of the opinion that the ultimate effect on the Corporation of all
such pending actions and proceedings would not be material in relation to its
financial position or its results of operations. Certain of these actions and
proceedings, including recent developments, are described below.
Pesce et. al. v. Norcal Solid Waste Systems, Inc., et. al. CSI has been
named as one of several defendants in a second amended complaint filed in San
Mateo County (California) Superior Court and served on Chase in May 1993. The
action has been brought by two plaintiffs on behalf of a purported class of
former shareholders of Envirocal, Inc., a California refuse company which was
the subject of a leveraged buyout. In the course of the buyout, CSI made
statements which plaintiffs now contend contained misrepresentations.
Plaintiffs claim that they relied on the statements in accepting the buyout
proposal which included an exchange of their stock in part for notes which,
according to plaintiffs, are now essentially worthless. The complaint seeks
class certification as well as compensatory and punitive damages in an
unspecified amount. CSI has filed an Answer generally denying the allegations
of the complaint and asserting affirmative defenses. A provisional order by the
Special Master assigned to the case was filed in December 1993 denying class
certification.
Heidorn v. AmBase Corporation et. al. On July 2, 1992, the Supreme Court of
the State of New York rendered a decision dismissing this action on grounds of
forum non conveniens. In the complaint, claims had been alleged against the
Bank, among other defendants, for unspecified damages in connection with the
disposition by AmBase of its subsidiary, Home Insurance Company. An order was
entered in September 1992, and plaintiff has filed a notice of appeal.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list as of February 25, 1994 showing the names and ages of
all executive officers of the Company, the positions and offices with the
Company held by them and the dates from which those positions and offices have
been continuously held. There are no family relationships between any of the
principal executive officers or directors of the Company. Under the By-Laws,
the Chairman of the Board, the President and the Vice Chairman of the Board
hold office until the next annual organization meeting of the Board. All other
officers hold office at the pleasure of the Board.
<TABLE>
<CAPTION>
Positions and Offices Held and
Name Age Dates from Which Held
- ---- --- ------------------------------
<S> <C> <C>
Thomas G. Labrecque 55 Chairman of the Board and
Chief Executive Officer--
October 31, 1990 and
Director--June 25, 1980
Arthur F. Ryan 51 President and Chief Operating
Officer--October 31, 1990
and Director--July 1, 1985
Richard J. Boyle 50 Vice Chairman of the Board
and Director--
August 20, 1987
A. Wright Elliott 58 Executive Vice President--
April 1, 1983
Michael P. Esposito, Jr. 54 Executive Vice President--
April 1, 1983 and Chief
Corporate Compliance, Control
and Administrative Officer--
August 5, 1992
E. Michel Kruse 50 Executive Vice President--
August 5, 1992 and Chief
Financial Officer--
August 5, 1992
Arjun K. Mathrani 49 Treasurer--June 3, 1991 and
Executive Vice President--
September 18, 1991
John V. Scicutella 44 Executive Vice President--
August 19, 1987
L. Edward Shaw, Jr. 49 Executive Vice President--
December 18, 1985 and
General Counsel--
February 1, 1983
Lester J. Stephens, Jr. 50 Senior Vice President--
March 1,1985 and Controller--
January 1, 1987
</TABLE>
Each officer, has been employed in such principal occupation or in other
executive positions with the Bank or other subsidiaries of the Company for more
than the last five years and other than Mr. Mathrani, has as his principal
occupation the corresponding office with the principal subsidiary of the
Company, the Bank. In addition to the primary occupation listed, Mr. Mathrani
also is principally employed as an Executive Vice President of the Bank.
93
<PAGE> 62
<TABLE>
<CAPTION>
CROSS-REFERENCE INDEX FORM 10-K
PART I
ITEM NO. PAGES
<S> <C>
ITEM 1. BUSINESS.
Description of Business 90
Number of Employees 38
Domestic and International Operations 73
Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differentials 84
The Effect of Changes in Average Balances and
Average Rates on Interest Revenue 36
Investment Portfolio 48,66
Loan Portfolio 39,68,87
Risk Elements 40-42,45-47
Summary of Credit Loss Experience 86
Allocation of the Reserve for Possible Credit Losses 44
Deposits 49,84
Return on Equity and Assets 87
Short-Term Borrowings 49
ITEM 2. PROPERTIES. 92
ITEM 3. LEGAL PROCEEDINGS. 93
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS--The company has
nothing to report under this item.
--EXECUTIVE OFFICERS OF THE COMPANY. 93
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS. 70,88
ITEM 6. SELECTED FINANCIAL DATA. 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA. 58
The Chase Manhattan Corporation and Subsidiaries:
Consolidated Statement of Condition 58
Consolidated Statement of Income 59
Consolidated Statement of Changes in Stockholders' Equity 60
Consolidated Statement of Cash Flows 61
The Chase Manhattan Bank, N.A. and
Subsidiaries: Consolidated Statement of Condition 62
Notes to Financial Statements 63
Independent Accountants' Report 57
Consolidated Summary of Quarterly Financial Information 83
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE--The Company has nothing to
report under this item.
</TABLE>
PART III
The information required by Items 10 through 13 in this part is omitted
pursuant to Instruction G of Form 10-K because the Company intends to file with
the Commission a definitive Proxy Statement, pursuant to Regulation 14A, not
later than 120 days after December 31, 1993.
<TABLE>
<CAPTION>
PART IV
ITEM NO.
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements--See Item 8
(2) Financial Statement Schedules--None
(3) Exhibits*
<FN>
* Stockholders may obtain a copy of any Exhibit listed in Item 14(a)(3) by writing to Ronald C. Mayer, Secretary of the Company,
The Chase Manhattan Corporation, 1 Chase Manhattan Plaza, New York, NY 10081. The index below is a summary. The detailed index
is included in the Form 10-K filed with the Securities and Exchange Commission.
</TABLE>
All schedules normally required by Form 10-K are omitted because they are
either not applicable or the required information is set forth in the financial
statements or in the notes related thereto.
EXHIBIT 3A--Restated Certificate of Incorporation of the Company (including
certificates of designation, preferences and rights of series of Preferred
Stock).
EXHIBIT 3B--By-Laws of the Company.
EXHIBIT 4--Instruments defining the Rights of Security Holders,
including Indentures. **
** Neither the Company nor any of its subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed is a party to
an instrument with respect to long-term debt where the securities
authorized thereunder exceed 10% of the total assets of the Corporation. In
accordance with subsection (b)(4)(iii)(A) of Item 601 of Regulation S-K,
the Company hereby agrees to furnish to the Commission, on request, a copy
of all instruments defining the rights of holders of long-term debt of the
Company or any of its subsidiaries for which consolidated or unconsolidated
financial statements must be filed.
EXHIBIT 10--Material Contracts.
EXHIBIT 11--Computation of Earnings Per Common Share.
EXHIBIT 12--Computation of Ratios of Earnings to Fixed Charges.
EXHIBIT 21--Subsidiaries of the Company.
EXHIBIT 23--Consent of Independent Accountants--See page 57.
EXHIBIT 24--Power of Attorney.
(b) REPORTS ON FORM 8-K
The Company filed two reports on Form 8-K during the quarter ended December 31,
1993.
- -- The report dated October 8, 1993 with respect to the issuance and sale of
$100,000,000 aggregate principal amount of 6 1/8% Subordinated Notes Due
2008.
- -- The report dated October 18, 1993 with respect to the Corporation's Press
Release dated October 18, 1993, which announced the Corporation's earnings
for the third quarter of 1993.
This report on Form 10-K has not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this report. Portions of the 1993 Annual Report to the Company's
stockholders are not required by the Form 10-K report and are not "filed" as
part of the Form 10-K. Only those sections of the Annual Report referenced in
the above index are incorporated in the Form 10-K.
EDGAR Graphics Appendix
Pursuant to Regulation S-T Item 304, the following is a description of the
graphic image material identified in the foregoing Management's Discussion and
Analysis of Financial Condition and Results of Operations by the word [GRAPH]
followed by the number of the graphic or image in order of appearance.
<TABLE>
<CAPTION>
Graphic Number Page Description
- -------------- ---- -----------
<S> <C> <C>
1 35 Bar graph entitled "Total Revenue
$ in millions" showing total
revenue of 5,512 for 1991, 5,913
for 1992, and 6,812 for 1993. The
bars reflect the components of
total revenue as other operating
revenue of 2,167, 2,349 and 2,949
and net interest revenue of 3,345,
3,564 amd 3,863 for 1991, 1992 and
1993, respectively.
2 45 Bar graph entitled "Nonaccrual and
Restructured Outstandings $ in
millions at 12/31" showing total
nonaccrual and restructured
outstanding of 4,352 for 1991,
3,942 for 1992, and 1,054 for
1993. The bars reflect the
components of Nonaccrual and
Restructured Outstandings as
Other of 951, 888 and 505;
Refinancing Countries of 978,
997 and 74; and Domestic
Commercial Real Estate of 2,423,
2,057 and 475, for 1991, 1992 and
1993, respectively.
3 48 Bar graph entitled "Average Liquid
Assets As a % of Average Total
Assets" showing 22% for 1991, 29%
for 1992, and 32% for 1993.
4 50 Bar graph entitled "Cumulative
Interest Rate Gaps Year Ended
1993 $ in millions" showing the
net assets or net liabilities,
in separate bars titled including
derivatives and excluding derivatives,
respectively, for the following
periods: net assets of 5,070 and
230 for 1-3 months, net assets of
3,200 and net liabilities of 5,440 for
3-12 months, net liabilities of 2,420
and 8,100 for 1995, net liabilities
of 6,400 and 12,420 for 1996, net
liabilities of 6,120 and 12,830
for 1997, net liabilities of
7,460 and 13,520 for 1998, net
liabilities of 4,680 and 10,240 for
1999, and net liabilities of 4,610
and 9,970 for 2000.
Notes to chart:
(1) Cumulative interest rate
gaps are defined as the average
cumulative fixed rate positions
(assets less liabilities) for
a given calendar period. The
gaps measure the time weighted
dollar equivalent volume of
positions fixed for a
particular calendar period. The
gap positions reflect a stock
concept, rather than the
traditional flow concept as
measured by runoff. For
example, a $100 million
certificate of deposit made on
January 1 and maturing on
February 28 would have a gap
impact of $66 million ($100
million x 59 days/90 days) in
the 1-3 month repricing
timeframe.
(2) Variable rate balances are
reported based on their
repricing dates. Fixed rate
balances are reported based on
their scheduled contractual
maturity dates, except for
certain investment securities
and loans secured by 1-4 family
residential properties that are
based on anticipated
prepayments. Given the
indeterminate date of any
sales, investment securities
that may be sold prior to
maturity are similarly
reported, depending on their
variable or fixed rate terms.
(3) Prime-priced loans are
considered as 1 to 3 month
assets, fixed-rate
credit card receivables are
classified as a 2-year
maturity, while stockholders'
equity is assigned a 5-year
maturity.
(4) Trading Account Assets are
considered overnight assets.
(5) Core demand deposits,
noninterest-bearing time
deposits, savings accounts
and money market accounts are
classified as 7-year
maturities. The balance, or
noncore portions of these
deposits, are traunched from
overnight to 1-year maturities.
The interest rate sensitivity
assumptions presented for these
deposits are based on
historical and current
experiences regarding product
portfolio retention and
interest rate repricing
behavior.
</TABLE>
94
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE CHASE MANHATTAN CORPORATION
(Registrant)
By: /s/ LESTER J. STEPHENS, JR.
-----------------------
(Lester J. Stephens, Jr.) DATE: February 25, 1994
(Senior Vice President and Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ THOMAS G. LABRECQUE Director, Chairman of the Board and Chief February 25, 1994
- ------------------------------- Executive Officer (Principal Executive Officer)
(Thomas G. Labrecque)
/s/ ARTHUR F. RYAN Director, President and Chief Operating Officer February 25, 1994
- -------------------------------
(Arthur F. Ryan)
/s/ RICHARD J. BOYLE Director and Vice Chairman of the Board February 25, 1994
- -------------------------------
(Richard J. Boyle)
M. Anthony Burns, Joan Ganz Cooney, Jairo Directors February 25, 1994
A. Estrada, James L. Ferguson, Edward S.
Finkelstein, H. Laurance Fuller, William H.
Gray III, Howard C. Kauffmann, David T.
Kearns, Delano E. Lewis, Paul W. MacAvoy,
John H. McArthur, Edmund T. Pratt, Jr.,
Henry B. Schacht and Donald H. Trautlein
By: /s/ RONALD C. MAYER
- -------------------------------
Attorney-in-Fact
/s/ E. MICHEL KRUSE Executive Vice President and Chief Financial February 25, 1994
- ------------------------------- Officer (Principal Financial Officer)
(E. Michel Kruse)
/s/ LESTER J. STEPHENS, JR. Senior Vice President and Controller February 25, 1994
- ------------------------------- (Principal Accounting Officer)
(Lester J. Stephens, Jr.)
</TABLE>
95
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION IN THIS
EXHIBIT NO. DESCRIPTION FORM 10-K
----------- ----------- -----------------
<S> <C>
EXHIBIT 3A Restated Certificate of Incorporation of the Company
(including certificates of designation, preferences and
rights of series of Preferred Stock) (incorporated by
reference to Exhibit (4) (r) to the Company's
Registration Statement on Form S-3, File No. 33-
58144, filed on February 11, 1993).
EXHIBIT 3B By-Laws of the Company (incorporated by reference
to Exhibit (4) (b) to the Company's Registration
Statement on Form S-3, File No. 33-42366, filed on
August 21, 1991).
EXHIBIT 4 Rights Agreement dated as of February 15, 1989 be-
tween the Company and the Bank, as Rights Agent
(incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form 8-A dated
February 16, 1989).
EXHIBIT 10A The Chase Manhattan 1987 Long-Term Incentive Plan,
as amended (incorporated by reference to
Exhibit 10A to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
EXHIBIT 10B The Chase Manhattan 1982 Long-Term Incentive
Plan, as amended (incorporated by reference to
Exhibit 10A to the Company's Annual Report on
Form 10-K for the year ended December 31, 1986).
EXHIBIT 10C The Chase Manhattan Management Incentive Plan,
as amended (incorporated by reference to Exhibit
10C to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991).
EXHIBIT 10D Supplemental Retirement Plan of the Bank, as
amended (incorporated by reference to Exhibit 10G
of the Company's Annual Report on Form 10-K for
the year ended December 31, 1989).
EXHIBIT 10E Further Amendment to the Supplemental Retirement
Plan of the Bank (incorporated by reference to
Exhibit 10G of the Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
EXHIBIT 10F Supplemental Benefit Plan of the Bank, as amended
(incorporated by reference to Exhibit 10H of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1990).
EXHIBIT 10G TRA 86 Supplemental Benefit Plan of the Bank, as
amended (incorporated by reference to Exhibit 10I of
the Company's Annual Report on Form 10-K for the
year ended December 31, 1990).
</TABLE>
96
<PAGE> 65
<TABLE>
<CAPTION>
LOCATION IN THIS
EXHIBIT NO. DESCRIPTION FORM 10-K
----------- ----------- -----------------
<S> <C> <C>
EXHIBIT 10H Description of the Non-qualified Retirement Plan for
Non-officer Directors of the Company (incorporated
by reference to Exhibit 10J of the Company's Annual
Report on Form 10-K for the year ended December
31, 1990).
EXHIBIT 10I Terms and Provisions Governing the Deferral of
Chase Directors' Retainer and Fees, as amended, and
Description of Stock Retainer Arrangement for
Directors (incorporated by reference to Exhibit 10K
of the Company's Annual Report on Form 10-K for
the year ended December 31, 1990).
EXHIBIT 10J Forms of termination agreements entered into be-
tween the Company and certain of its officers (incor-
porated by reference to Exhibit 10L of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1990).
EXHIBIT 10K Amended list of Executive Vice Page 98
Presidents who have entered into
termination agreements with the
Company.
EXHIBIT 10L Special Severance Plan of the Company (incor-
porated by reference to Exhibit 10M of the Company's
Annual Report on Form 10-K for the year ended
December 31, 1990).
EXHIBIT 10M Agreement by and among Mr. Willard C. Butcher, the
Company and the Bank (incorporated by reference
to Exhibit 10M of the Company's Annual Report on
Form 10-K for the year ended December 31, 1991).
EXHIBIT 10N Form of The Chase Manhattan Stock Page 99
Option Program for Employees.
EXHIBIT 11 Computation of Earnings Page 103
Per Common Share.
EXHIBIT 12 Computation of Ratios of Page 104
Earnings to Fixed Charges.
EXHIBIT 21 Subsidiaries of the Company. Page 105
EXHIBIT 23 Consent of Independent Page 57
Accountants.
EXHIBIT 24 Power of Attorney. Page 106
</TABLE>
97
<PAGE> 1
EXHIBIT 10K
Amended list of Executive Vice Presidents who have entered into termination
agreements with the Company (a form of such agreement was filed as Exhibit
10L of the Company's Annual Report on Form 10-K for the year ended
December 31, 1990):
Michael F. Dacey
A. Wright Elliot
E. Michel Kruse
Arjun K. Mathrani
Kathylynn O'Donnell
John V. Scicutella
L. Edward Shaw, Jr.
98
<PAGE> 1
EXHIBIT 10N
[Form of]
THE CHASE MANHATTAN
STOCK OPTION PROGRAM FOR EMPLOYEES
The Chase Manhattan Corporation ("CMC") has adopted The Chase Manhattan
Stock Option Program for Employees (the "Program") to advance CMC's interests
by providing stock ownership opportunities to employees of CMC and its
Subsidiaries, thereby further aligning the interests of employees with the
interests of CMC's shareholders. The definitions of capitalized terms used but
not otherwise defined in the Program appear in Section 8 below.
SECTION 1. STOCK OPTIONS.
(a) Grants to Current Employees.
Effective January 19, 1994, CMC shall grant to each Current Employee who
is a Full Time Employee on such date Options to purchase from CMC 400 shares of
Common Stock. Effective January 19, 1994, CMC shall grant to each Current
Employee who is a Part Time Employee on such date Options to purchase from CMC
200 shares of Common Stock. The exercise price for each Option shall be $35.50
per share of Common Stock.
(b) Grants to Future Employees.
Each Future Employee, effective the last day of the calendar quarter in
which such Employee becomes a Future Employee, shall be granted Options by CMC
to purchase from CMC such number of shares of Common Stock as are determined
under the following applicable formula (rounded down to the nearest whole
number of Option Shares):
<TABLE>
<CAPTION>
Formula
-------
<S> <C>
Number of Option Shares 400 X [36 - Y]
for Full Time Future --------
Employees 36
Number of Option Shares 200 X [36 - Y]
for Part Time Future --------
Employees 36
</TABLE>
In the foregoing formulas, the term "Y" equals the number of full or partial
calendar months elapsed from January 19, 1994, through the effective date of
the grant. The exercise price of any Option granted to a Future Employee
shall be the Market Value per Share on the effective date of such grant.
Grants to Future Employees shall be made effective the last day of the
calendar quarter in which such Employee becomes a Future Employee. If the
Fifty Two Dollar Trigger is reached after a Future Employee becomes employed
but on or before the end of the then current calendar quarter, such Future
Employee shall not be entitled to the grant of any Options hereunder.
(c) Exercise Periods.
(i) Fifty Two Dollar Trigger. In the event that the Fifty Two Dollar
Trigger is reached on or before March 31, 1997, an Eligible Employee may
exercise up to one half of such Eligible Employee's Options (rounded down, if
necessary, to the nearest whole Option) during the period commencing on the
later to occur of (x) the first date the Fifty Two Dollar Trigger is reached
and (y) January 19, 1997. The Eligible Employee's remaining Options may be
exercised only on and after January 19, 2003, unless the Sixty Dollar Trigger
is reached on or before March 31, 1997.
(ii) Sixty Dollar Trigger. In the event that the Sixty Dollar Trigger
is reached on or before March 31, 1997, an Eligible Employee may exercise all
of such Eligible Employee's remaining Options at any time during the period
commencing on the later to occur of (x) the first date the Sixty Dollar Trigger
is reached and (y) January 19, 1997.
(iii) Triggers Not Reached. In the event neither the Fifty Two Dollar
Trigger nor the Sixty Dollar Trigger has been reached on or before March 31,
1997, each Option may be exercised only on and after January 19, 2003.
(iv) Expiration Date. In no event may any Option be exercised after
January 19, 2004, whether or not either Trigger has been reached.
(v) Right to Require Exercise of All Exercisable Options if Any Are
Exercised. The Executive from time to time and at any time may require any
Eligible Employee exercising Options to exercise all of such Eligible
Employee's Options that are exercisable at the time of such exercise.
(d) Termination, Retirement, Death; Manner of Exercise and Payment.
(i) Termination of Employment By Chase or Employee.
In the event an Eligible Employee's employment by CMC or any Subsidiary
terminates, the Eligible Employee's Options, to the extent exercisable
immediately prior to such termination, shall remain exercisable for a period of
90 days following such termination but shall terminate thereafter if not
exercised.
(ii) Retirement.
[If any termination of employment of an Eligible Employee is due to
Retirement on or after such Eligible Employee's normal retirement date, such
Eligible Employee's Options shall become immediately exercisable, whether or
not the Fifty Two Dollar Trigger or the Sixty Dollar Trigger has been reached,
on the later to occur of (x) the date of such Retirement and (y) January 19,
1997. Such Options may be exercised at any time within the 36 month period
after the date of Retirement but shall terminate thereafter if not exercised.]
[If any termination of employment of an Eligible Employee prior to such
Eligible Employee's normal retirement date has been determined by the Executive
to be considered a Retirement for purposes of the Program, the Eligible
Employee shall have the right to exercise Options at any time within the 36
month period after the date of such Retirement to the extent such Options are
or become exercisable during such 36 month period. Such Options shall
terminate thereafter if not exercised.]
(iii) Death.
[In the event an Eligible Employee (including any retired Eligible
Employee) dies while entitled to exercise an Option, the Eligible Employee's
estate, personal representative or beneficiary shall have the right to exercise
such Option at any time within 36 months from the date of the Eligible
Employee's death (but in no event more than 36 months from the date of the
Eligible Employee's Retirement), to the extent that the Eligible Employee was
entitled to exercise such Options immediately prior to the Eligible Employee's
death.]
(iv) Manner of Exercise and Payment.
Options may be exercised only upon submission of such completed forms and
compliance with such procedures as are required from time to time by the
Executive. Such forms shall contain such agreements and representations as the
Executive shall require. Upon exercise of an Option, the exercise price shall
be payable to CMC in United States dollars by personal or certified check
payable to the order of CMC (or such other forms of payment as the Executive
may determine to be acceptable). Checks and other payment instruments will be
received subject to collection.
(v) Withholding for Taxes.
No distribution or delivery of shares of Common Stock upon exercise of an
Option shall occur until arrangements satisfactory
99
<PAGE> 2
to the Executive have been made for the payment of any amounts which may be
required to be withheld or paid in connection with such exercise. Such
arrangements may include withholding the distribution of a portion of the
shares of Common Stock otherwise issuable or the tendering of such shares back
to CMC (under such rules as may be established by the Executive) in order to
satisfy all or a portion of the required withholdings or payments.
(vi) No Extension of Exercise Periods.
Nothing in this paragraph (d) shall extend the exercise periods for
Options set forth in paragraph (c) above.
SECTION 2. ADMINISTRATION.
The Executive shall have the authority to interpret the Program, to adopt,
amend and rescind rules and regulations for the administration of the Program
and the Options granted under the Program and to make all determinations under
the Program that may be necessary or advisable. The day-to-day administration
of the Program shall be carried out by such officers and employees of CMC or
such Subsidiaries as the Executive shall designate from time to time.
The interpretation and construction by the Executive of any provision of
the Program and any determination by the Executive under any provision of the
Program shall be final and conclusive, unless otherwise determined by the Board
of Directors, in which event the determination of the Board of Directors shall
be final and conclusive. None of the Board of Directors, the Executive and any
officer or employee designated by the Executive to administer the Program shall
be liable for any act, omission, interpretation, construction or determination
made in connection with the Program in good faith.
SECTION 3. AMENDMENT AND TERMINATION.
The Board of Directors or the Executive may from time to time and at any
time alter, amend, suspend, discontinue or terminate (collectively, a "Change")
this Program and any Options granted hereunder; provided, however, that no
Change may materially adversely affect any Option granted hereunder prior to
such action without consent of the affected Eligible Employee. Notwithstanding
the foregoing, any Change made (i) to cure any ambiguity, to correct any errors
herein, to correct any provision herein that may be inconsistent with any other
provision herein or to adopt any provision, not inconsistent with the existing
provisions hereof, with respect to matters or questions arising under the
Program or (ii) to comply with present or future laws, rules, regulations,
orders or requirements of any governmental authority shall not be deemed to
materially adversely affect any Option.
SECTION 4. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS.
Notwithstanding anything to the contrary in the Program, if, at any time
for the making of any determination or the issue or other distribution of
shares of Common Stock, any law, rule, regulation, order or requirement of any
governmental authority shall require either CMC or the employee to take any
action in connection with any such determination, issuance or distribution, the
shares then to be issued or distributed or the issue or distribution of such
shares or the making of such determination, as the case may be, shall be
deferred until such action shall have been taken.
Notwithstanding anything to the contrary in the Program, the Program as
applied to Eligible Employees located outside the United States and all Options
granted to such Employees shall be subject to applicable laws, rules,
regulations, orders and requirements from time to time in effect in such
jurisdictions that limit, restrict or prevent such awards or the exercise of
any Options. CMC shall have no obligation to take any action required to
comply with any such laws, rules, regulations, orders or requirements in order
to grant any Option to, or to make any Option exercisable by, any employee.
SECTION 5. CERTAIN OTHER ADMINISTRATIVE PROVISIONS.
(a) Termination Followed by Subsequent Employment.
In the event an Eligible Employee whose employment by CMC or any
Subsidiary has terminated and whose Options have terminated as provided in
Section 1(d)(i) above is subsequently re-employed by CMC or any Subsidiary in a
capacity that qualifies such employee as a Future Employee, such employee shall
be treated as a Future Employee and granted new Options in accordance with
Section 1(b) above as if such employee had never been previously employed by
CMC or any Subsidiary.
(b) Disability; Approved, Unpaid Absence.
(i) In the event an employee is on short or long term disability on
January 19, 1994, as determined by the Executive, and was a Full Time Employee
or a Part Time Employee prior to such disability, and such employee returns to
work in a capacity that qualifies such employee as a Future Employee, such
employee shall be granted the number of Options to which such employee would
have been entitled if such employee had been a Current Employee as of January
19, 1994, but the exercise price for such Options shall be the Market Price per
Share as of the last day of the calendar quarter in which such employee returns
to work.
(ii) In the event an Eligible Employee shall go on short or long term
disability after January 19, 1994, as determined by the Executive, such
Eligible Employee's outstanding Options hereunder shall not terminate but such
Options shall not be exercisable until such time, if any, as such Employee
returns to work as a Full Time Employee or a Part Time Employee. Any such
employee returning to full or part time employment shall not be deemed a Future
Employee.
(iii) If any person shall be on an approved, unpaid leave of absence on
January 19, 1994, as determined by the Executive, such person shall not be
deemed a Current Employee but may be deemed a Future Employee if such person
returns to employment in a capacity that otherwise entitles such person to be
deemed a Future Employee. If any Eligible Employee goes on an approved, unpaid
leave of absence after January 19, 1994, as determined by the Executive, such
Employee's employment shall not be deemed terminated for a period of time, if
any, to be determined by the Executive, after which time such Employee's
employment shall be deemed terminated and the provisions of Section 1(d)(i)
shall apply.
(iv) Nothing in this paragraph (b) shall extend the exercise periods for
Options set forth in Section 1(c) hereof.
(c) Determination of Full Time or Part Time Status.
The Executive shall be entitled, after consideration of the purposes of
the Program and the facts and circumstances of the particular case, to deem any
Eligible Employee who would otherwise be considered a Part Time Employee as of
any date to be a Full Time Employee as of such date for purposes of the Program
and to deem any Eligible Employee who would otherwise be considered a Full Time
Employee as of any date to be a Part Time Employee as of such date for purposes
of the Program.
A change in any Eligible Employee's status after commencement of
employment from part time to full time status or from full time to part time
status shall not affect any Options previously granted to such employee
hereunder, unless otherwise determined by the Executive.
SECTION 6. CHANGE IN CONTROL PROVISIONS.
(a) Stock Options.
Notwithstanding any provision in the Program to the contrary, if there is
Change in Control, as defined in paragraph (b) below, any Option which is not
otherwise exercisable at the date of the Change in Control may be exercised,
subject to the provisions of Section 1(c)(iv) and (d), at any time after date
of the Change in Control.
100
<PAGE> 3
(b) Definitions for Change of Control Provisions.
For purposes of this Section 6, the following words and phrases shall have
the meaning specified:
(1) "Beneficial Owner" shall have the meaning defined in Rule 13d-3
of the Exchange Act.
(2) A "Change in Control" shall be deemed to have occurred if any
one of the following conditions shall have been satisfied:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of CMC (not including in the securities
beneficially owned by such Person any securities acquired directly from
CMC or its affiliates) representing 25 percent or more of the combined
voting power of CMC's then outstanding securities; or
(ii) during any period of twenty-four consecutive months (not
including any period prior to January 19, 1994), individuals who at the
beginning of such period constitute the Board of Directors and any new
director (other than a director designated by Person who has entered into
an agreement with CMC to effect a transaction described in subsections
(i), (iii) or (iv) of this Section) whose election by the Board of
Directors or nomination for election by CMC's stockholders was approved by
a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board of Directors; or
(iii) the stockholders of CMC approve a merger or consolidation of
CMC with any other corporation, or a plan of complete liquidation of CMC,
other than (A) a merger, consolidation or liquidation which would result
in the voting securities of CMC outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of CMC or a Subsidiary, at least 80 percent
of the combined voting power of the voting securities of CMC or such
surviving entity outstanding immediately after such merger, consolidation
or liquidation, or (B) a merger, consolidation or liquidation effected to
implement a recapitalization of CMC (or similar transaction) in which no
Person acquires more than 50 percent of the combined voting power of CMC's
then outstanding securities; or
(iv) the stockholders of CMC approve an agreement for the sale or
disposition by CMC (other than to a Subsidiary) of all or substantially
all CMC's assets.
Notwithstanding the foregoing, with respect to a particular employee, a Change
in Control shall not include any event, circumstance or transaction occurring
during the twelve-month period following a Potential Change in Control which
results from the action of any entity or group which includes, is affiliated
with or is wholly or partly controlled by one or more executive officers of CMC
in which the employee participates (a "Management Group"); provided, however,
that such action shall not be taken into account for this purpose if it occurs
within a twelve-month period following a Potential Change in Control resulting
from the action of any Person which is not a Management Group.
(3) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(4) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
provided, however, a Person shall not include (i) CMC or any Subsidiary, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
CMC or a Subsidiary, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of CMC in substantially the same
proportions as their ownership of stock of CMC.
(5) "Potential Change in Control" shall be deemed to have occurred
if any one of the following conditions shall have been satisfied:
(i) CMC enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control;
(ii) CMC or any Person publicly announces an intention to take or
to consider taking actions which, if consummated, would constitute a
Change in Control;
(iii) any Person who is or becomes the Beneficial Owner, directly
or indirectly, of securities of CMC representing 15 percent or more of the
combined voting power of CMC's then outstanding securities, increases such
Person's beneficial ownership of such securities by 5 percentage points or
more over the percentage so owned by such Person on January 19, 1994; or
(iv) the Board of Directors adopts a resolution to the effect that,
for purposes of the Program, a Potential Change in Control has occurred.
SECTION 7. MISCELLANEOUS.
(a) No Employment Contract.
Nothing contained in the Program shall be construed as conferring upon an
employee the right to continue in the employ of CMC or any Subsidiary.
(b) Subsidiaries.
The sale of any Subsidiary shall be deemed a termination of employment of
the Eligible Employees of such Subsidiary, unless the Executive determines
otherwise.
(c) No Rights as a Stockholder.
An employee shall have no rights as a stockholder with respect to Option
Shares covered by the employee's Options until the date of the issuance of such
shares. No adjustment will be made for dividends or other distributions or
rights for which the record date is prior to the date of such issuance.
(d) No Right to Corporate Assets.
Nothing contained in the Program shall be construed as giving an employee,
the employee's beneficiaries or any other person any equity or interest of any
kind in any assets of CMC or a Subsidiary or creating a trust of any kind or a
fiduciary relationship of any kind between CMC or a Subsidiary and any such
person.
(e) No Restriction on Corporate Action.
Nothing contained in the Program shall be construed to prevent CMC or any
Subsidiary from taking any corporate action which is deemed by CMC or such
Subsidiary to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Program or any award made under the
Program. No employee, beneficiary or other person shall have any claim against
CMC or any Subsidiary as a result of any such action.
(f) Non-assignability.
Neither an employee nor an employee's beneficiary shall have the power or
right to sell, exchange, pledge, transfer, assign or otherwise encumber or
dispose of such employee's or beneficiary's interest in the Program or in any
award received under the Program; nor shall such interest be subject to seizure
for the payment of an employee's or beneficiary's debts, judgments, alimony, or
separate
101
<PAGE> 4
maintenance or be transferable by operation of law in the event of an
employee's or beneficiary's bankruptcy or insolvency.
(g) Other Benefit Plans.
No awards or payments under the Program shall be taken into account in
determining any benefits under any retirement, profit-sharing or other plan
maintained by CMC or a Subsidiary.
(h) Recapitalization.
The number of Option Shares to which each outstanding Option relates, the
exercise price in respect of each such Option, the Fifty Two Dollar Trigger
price, the Sixty Dollar Trigger price and the numbers 400 and 200 used in the
calculation in Section 1(b) above for Options for Future Employees, shall all
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a subdivision or consolidation of
shares or other capital adjustments, or the payment of a stock dividend or
other increase or decrease in such shares, effected without receipt of
consideration by CMC or a Subsidiary; provided, however, that any fractional
shares resulting from any such adjustment shall be eliminated.
(i) Merger or Consolidation.
After a merger of one or more corporations into CMC, or after a
consolidation of CMC and one or more corporations, in which CMC shall be the
surviving or resulting corporation, an Eligible Employee shall, at the same
cost, be entitled upon the exercise of an Option, to receive (subject to any
required action by stockholders) such securities of the surviving or resulting
corporation as the board of directors of such corporation, in its sole
discretion and without liability to any person, shall determine to be
equivalent, as nearly as practicable, to the nearest whole number and class of
shares of stock or other securities, to the Option Shares which were then
subject to such Option, and such shares of stock or other securities shall,
after such merger or consolidation, be deemed to be Option Shares for all
purposes of the Program and of the Options granted under the Program ;
provided, however, that, anything herein contained to the contrary
notwithstanding, upon any shareholder approval, which approval does not
constitute a Change of Control under Section 6 hereof, of the dissolution or
liquidation of CMC, or a merger or consolidation in which CMC is not the
surviving or resulting corporation, every Option outstanding hereunder shall
become immediately exercisable, subject to the provisions of Section 1(c)(iv)
and (d) hereof.
(j) Eligible Employee's Agreement.
If, at the time of the exercise of any Option, in the opinion of counsel
for CMC, it is necessary or desirable, in order to comply with any then
applicable laws, rules, regulations, orders or requirements relating to the
issuance or sale of securities or any other matters, that the Eligible Employee
exercising the Option shall agree to hold any Option Shares issued to the
Eligible Employee for investment and without any present intention to resell or
distribute the same and that the Eligible Employee will dispose of such shares
only in compliance with such laws, rules, regulations, orders and requirements,
the Eligible Employee will, upon the request of CMC, execute and deliver to CMC
a further agreement to such effect.
(k) Governing Law; Construction.
All rights and obligations under the Program shall be governed by, and the
Program shall be construed in accordance with, the laws of the State of New
York. Titles and headings to Sections herein are for purposes of reference
only, and shall in no way limit, define or otherwise affect the meaning or
interpretation of any provisions of the Program.
SECTION 8. DEFINITIONS.
As used in the Program, the following terms have the following meanings:
"Common Stock" means CMC's authorized but unissued common stock, par value
$2.00 per share, and shares, if any, of such Common Stock held as treasury
stock by CMC. In the event of a change in the Common Stock that is limited to
a change in the designation thereof to "Capital Stock" or other similar
designation, or to a change in the par value thereof, or from par value to no
par value, without increase or decrease in the number of issued shares, the
shares resulting from any such change shall be deemed to be Common Stock within
the meaning of the Program.
"Current Employees" means all Full Time Employees and Part Time Employees of
CMC or of any Subsidiary who are so employed on January 19, 1994, and who are
determined by the Executive to be in active status on such date. Current
Employees shall not include any Excluded Employees.
"Eligible Employees" means all Current Employees and all Future Employees.
"Excluded Employees" means all (i) employees who are subject to Section 16 of
the Securities Exchange Act of 1934, (ii) employees who received any award in
1994 pursuant to The Chase Manhattan Long-Term Incentive Plan, (iii) employees
whose compensation is determined under or pursuant to the terms or provisions
of any collective bargaining or similar arrangement and (iv) seasonal,
temporary, seconded or leased employees, and independent contractors, in each
case as determined by the Executive.
"Executive" means the Corporate Human Resources Executive of CMC or such
person's designee or designees.
The "Fifty Two Dollar Trigger" shall be deemed to have been reached on any date
if on such date the average over the 10 consecutive Trading Days ending on such
date of the mean between the highest and the lowest quoted selling prices for
shares of Common Stock on the New York Stock Exchange, Inc. is at least $52.00.
Each of such 10 days must fall within the period commencing on January 19,
1994, and ending on March 31, 1997.
"Full Time Employee" means as of any date any employee scheduled to work and
who in fact regularly works all of the hours per week designated as the number
of hours constituting the regular work week, as determined by the Executive.
"Future Employees" shall mean all persons who become Full Time Employees or
Part Time Employees of CMC or any Subsidiary after January 19, 1994, but before
the earlier to occur of (i) October 1, 1996, and (ii) the date the Fifty Two
Dollar Trigger is reached. Future Employees shall not include any Excluded
Employees.
"Market Value per Share" as of any particular date shall be the mean between
the highest and lowest quoted selling prices for shares of Common Stock as
reported on the composite tape on such date (or, if such date shall not be a
business day, then the next preceding day which shall be a business day); or,
if no sale takes place, then the mean between the bid and asked prices on such
date; and if no bid and asked prices are quoted for such date, then such value
as shall be determined by such method as the Executive shall deem to reflect
fair market value as of such date.
"Option" means an option granted under the Program to purchase a share of
Common Stock.
"Option Share" means a share of Common Stock that is subject to an Option
granted under the Program.
"Part Time Employee" means as of any date any employee (other than a Full Time
Employee) [scheduled to work at least 20 hours per week and who has completed
at least one year of service,] as determined by the Executive.
"Retirement" means [retirement by an Eligible Employee on or after the Eligible
Employee's normal retirement date in accordance with the provisions of the
retirement plan of CMC or a Subsidiary under which the Eligible Employee is
then covered.] Whether any other termination of employment is to be considered
Retirement shall be determined by the Executive.
The "Sixty Dollar Trigger" shall be deemed to have been reached on any date if
on such date the average over the 10 consecutive Trading Days ending on such
date of the mean between the highest and the lowest quoted selling prices for
shares of Common Stock on the New York Stock Exchange, Inc. is at least $60.00.
Each of such 10 days must fall within the period commencing on January 19,
1994, and ending on March 31, 1997.
"Subsidiary" is any corporation in which CMC has a direct or indirect ownership
interest, including any corporation in which CMC acquires any such interest
after the adoption of this Program, but only if CMC owns or controls, directly
or indirectly, not less than 75 percent of the total outstanding common equity
securities of such corporation.
"Trading Day" means any day on which the New York Stock Exchange, Inc. is open
for the trading of shares of Common Stock.
102
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<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
------------------------
($ in millions, except per share amounts) 1993 1992 1991
- ----------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Primary:
Net Income Before Cumulative Effect of Change In Accounting Principle $ 466 $ 639 $ 520
Cumulative Effect of Change In Accounting Principle-Adoption of SFAS 109 500 - -
------------ -------------- -------------
Net Income 966 639 520
Less: Preferred Stock Dividend Requirements 140 124 100
------------ -------------- -------------
Net Income Applicable to Common Stock $ 826 $ 515 $ 420
------------ -------------- -------------
Average Common and Common Equivalent Shares Outstanding 172,334,060 148,725,742 134,759,130
------------ -------------- -------------
Before Cumulative Effect of Change In Accounting Principle $ 1.89 $ 3.46 $ 3.12
Cumulative Effect of Change In Accounting Principle-Adoption of SFAS 109 2.90 - -
------------ -------------- -------------
Primary Earnings Per Common Share $ 4.79 $ 3.46 $ 3.12
------------ -------------- -------------
Assuming Full Dilution:
Net Income Applicable to Common Stock $ 826 $ 515 $ 420
------------ -------------- -------------
Average Common and Common Equivalent Shares Outstanding 172,334,060 148,725,742 134,759,130
Add:
Shares Issuable upon Exercise of Stock Options
and Conversion of Restricted Stock Units 817,358 1,918,801 1,385,842
------------ -------------- -------------
Shares of Common Stock Outstanding-as Adjusted 173,151,418 150,644,543 136,144,972
------------ -------------- -------------
Earnings Per Common Share Assuming Full Dilution $ 4.77 $ 3.41 $ 3.08
------------ -------------- -------------
</TABLE>
103
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
The Chase Manhattan Corporation and Subsidiaries
Year Ended
December 31,
------------
($ in millions) 1993 1992 1991 1990 1989
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net Income (Loss) $ 966 $ 639 $ 520 $ (334) $ (665)
Less: Cumulative Effect of Change in
Accounting Principle* 500 - - - -
------ ------ ------ ------ ------
Net Income (Loss) Before Cumulative Effect
of Change in Accounting Principle $ 466 $ 639 $ 520 $ (334) $ (665)
Less: Equity in Undistributed Income
(Loss) of Unconsolidated Subsidiaries
and Associated Companies 36 11 (32) (40) (20)
Income Taxes 265 186 124 203 196
Fixed Charges, Excluding Interest on Deposits 2,670 2,277 1,988 3,190 3,938
------ ------ ------ ------ ------
Total Earnings, Excluding
Interest on Deposits, as Adjusted 3,365 3,091 2,664 3,099 3,489
Interest on Deposits 2,014 2,935 4,374 5,273 5,080
------ ------ ------ ------ ------
Total Earnings, Including
Interest on Deposits, as Adjusted $5,379 $6,026 $7,038 $8,372 $8,569
------ ------ ------ ------ ------
FIXED CHARGES:
Interest Expense and Amortization of Debt Discount
and Issuance Costs, Excluding Interest on Deposits $2,591 $2,205 $1,920 $3,115 $3,860
One-Third of Net Rental Expense 79 72 68 75 78
------ ------ ------ ------ ------
Total Fixed Charges for Ratio, Excluding
Interest on Deposits 2,670 2,277 1,988 3,190 3,938
Interest on Deposits 2,014 2,935 4,374 5,273 5,080
------ ------ ------ ------ ------
Total Fixed Charges for Ratio, Including
Interest on Deposits $4,684 $5,212 $6,362 $8,463 $9,018
------ ------ ------ ------ ------
RATIO OF EARNINGS TO FIXED CHARGES:
Excluding Interest on Deposits 1.3x 1.4x 1.3x ** **
Including Interest on Deposits 1.1x 1.2x 1.1x ** **
------ ------ ------ ------ ------
<FN>
* Represents the cumulative effect of change in accounting principle relating to the adoption of SFAS 109 ("Accounting for
Income Taxes") in the first quarter of 1993.
** For the years ended December 31, 1990 and 1989, earnings did not cover fixed charges by $91 million and $449 million
respectively, primarily as a result of large additions to the Reserve for Possible Credit Losses and special charges.
</TABLE>
For purposes of computing the consolidated ratios, earnings represent net
income (loss) plus applicable income taxes and fixed charges, less
cumulative effect of change in accounting principle for the year ended
December 31, 1993 and equity in undistributed earnings (losses) of
unconsolidated subsidiaries and associated companies. Fixed charges
represent interest expense (exclusive of interest on deposits in one case
and inclusive of such interest in the other), amortization of debt discount
and issuance costs and one-third (the amount deemed to represent an interest
factor) of net rental expense under all lease commitments.
104
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Company
The Company's only significant subsidiaries, as defined in Rule 1.02(d) of
Regulation S-X, are The Chase Manhattan Bank, N.A. and The Chase Manhattan
Bank (USA).
105
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each person who is a Director of The Chase Manhattan Corporation (the
Company) and whose signature appears below hereby authorizes any of Thomas
G. Labrecque, E. Michel Kruse, Lester J. Stephens, Jr. and Ronald C. Mayer
to execute, in the name of, and on behalf of such person, in such person's
capacity as a Director of the Company, the Annual Report on Form 10-K of
the Company for year ended December 31, 1993, and any amendments thereto.
IN WITNESS THEREOF, the undersigned have executed this power of attorney
on February 16, 1994.
THOMAS G. LABRECQUE HOWARD C. KAUFFMANN
- ---------------------------------- ----------------------------------
(Thomas G. Labrecque) (Howard C. Kauffmann)
ARTHUR F. RYAN DAVID T. KEARNS
- ---------------------------------- ----------------------------------
(Arthur F. Ryan) (David T. Kearns)
RICHARD J. BOYLE DELANO E. LEWIS
- ---------------------------------- ----------------------------------
(Richard J. Boyle) (Delano E. Lewis)
M. ANTHONY BURNS PAUL W. MACAVOY
- ---------------------------------- ----------------------------------
(M. Anthony Burns) (Paul W. MacAvoy)
JOAN GANZ COONEY JOHN H. MCARTHUR
- ---------------------------------- ----------------------------------
(Joan Ganz Cooney) (John H. McArthur)
JAIRO A. ESTRADA
- ---------------------------------- ----------------------------------
(Jairo A. Estrada) (David T. McLaughlin)
JAMES L. FERGUSON EDMUND T. PRATT, JR.
- ---------------------------------- ----------------------------------
(James L. Ferguson) (Edmund T. Pratt, Jr.)
EDWARD S. FINKELSTEIN HENRY B. SCHACHT
- ---------------------------------- ----------------------------------
(Edward S. Finkelstein) (Henry B. Schacht)
H. LAURANCE FULLER DONALD H. TRAUTLEIN
- ---------------------------------- ----------------------------------
(H. Laurance Fuller) (Donald H. Trautlein)
WILLIAM H. GRAY, III
- ---------------------------------- ----------------------------------
(William H. Gray, III) (Kay R. Whitmore)
106
