==================================
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, 1994 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:
Title of each Class
Common Stock ($2.00 Par Value)
Junior Participating Preferred Stock Purchase Rights
Common Stock Subscription Warrants
Preferred Stock, 10.50% Series G
Preferred Stock, 9.76% Series H
Preferred Stock, 10.84% Series I
Preferred Stock, 9.08% Series J
Preferred Stock, 8-1/2% Series K
Preferred Stock, 8.32% Series L
Preferred Stock, 8.40% Series M
Preferred Stock, Adjustable Rate Series N
7-1/2% Subordinated Notes Due 1997
7-3/4% Subordinated Notes Due 1999
8% Subordinated Notes Due 1999
Floating Rate Notes Due 1999
8.80% Subordinated Notes Due 2000
9.05% Subordinated Notes Due 2002
7.50% Subordinated Notes Due 2003
Floating Rate Subordinated Notes Due 2003
Floating Rate Subordinated Notes Due August 1, 2003
7-7/8% Subordinated Notes Due 2004
8% Subordinated Notes Due 2004
6.50% Subordinated Notes Due 2005
6-1/8% Subordinated Notes Due 2008
6.75% Subordinated Notes Due 2008
6.50% Subordinated Notes Due 2009
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. [X]
The number of shares outstanding of the registrant's common stock
($2.00 Par Value) was 177,301,668 at January 31, 1995. The aggregate market
value of the voting stock held by nonaffiliates of the registrant amounted
to approximately $5,860,000,000 at January 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Documents Part of Form 10-K Incorporated into
--------- ------------------------------------
<S> <C>
The Registrant's Notice of 1995
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 70.
<PAGE> 25
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The Chase Manhattan Corporation
=============================================================================
Financial Contents
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
26 Summary of Selected Financial Data
26 Overview of 1994
27 Business Operations
31 Consolidated Statement of Income Analysis
34 Asset/Liability Management
38 Trading Activities
42 Capital Management
43 Credit Risk Management
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50 Report of Independent Accountants
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50 Consent of Independent Accountants
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50 Report of Management
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The Chase Manhattan Corporation and Subsidiaries
51 Consolidated Statement of Condition
52 Consolidated Statement of Income
53 Consolidated Statement of Changes in Stockholders' Equity
54 Consolidated Statement of Cash Flows
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The Chase Manhattan Bank, N.A. and Subsidiaries
55 Consolidated Statement of Condition
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56 Notes To Financial Statements
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Supplementary Financial Information
78 Consolidated Summary of Quarterly Financial Information
79 Net Interest Revenue Analysis--Taxable Equivalent Basis
80 Average Balances, Interest and Average Rates--Taxable Equivalent
82 Consolidated Analysis of Credit Loss Experience
83 Selected Loan Maturities and Sensitivity to Changes in Interest Rates
83 Financial Ratios
84 Stockholder Data
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85 SEC Report on Form 10-K
<PAGE> 26
<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
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share data) 1994 1993 1992 1991 1990
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For the Year
Net Interest Revenue $ 3,689 $ 3,863 $ 3,564 $ 3,345 $ 3,188
Provision for Possible Credit Losses 500 995 1,220 1,085 1,300
Provision for Assets Held for Accelerated Disposition -- 884 -- -- --
Other Operating Revenue 3,053 2,949 2,349 2,167 2,075
Other Operating Expenses 4,472 4,202 3,868 3,783 4,094
Net Income (Loss) Before Adoption of SFAS 109 1,205 466 639 520 (334)
Cumulative Effect of Change in Accounting Principle -- 500 -- -- --
Net Income (Loss) 1,205 966 639 520 (334)
Net Income (Loss) Applicable to Common Stock 1,078 826 515 420 (417)
- ---------------------------------------------------------------------------------------------------------------------------------
Per Common Share
Net Income (Loss) $ 5.87 $ 4.79 $ 3.46 $ 3.12 $ (3.31)
Cash Dividends Declared 1.46 1.20 1.20 1.20 2.16
Dividend Payout Ratio 24.8% 24.7% 34.4% 38.3% N/M
Common Stockholders' Equity at Year-End (Book Value) $ 39.28 $ 36.48 $ 32.25 $ 30.62 $ 29.54
Market Price at Year-End 34.38 33.88 28.50 17.25 10.50
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Average Common Shares Outstanding (in thousands) 183,636 172,334 148,726 134,759 125,944
- ---------------------------------------------------------------------------------------------------------------------------------
At Year-End
Loans $ 63,038 $ 60,493 $ 62,558 $ 67,785 $ 74,727
Total Assets 114,038 102,103 95,862 98,197 98,064
Deposits 69,956 71,509 67,224 71,517 70,713
Intermediate- and Long-Term Debt 5,070 5,641 6,913 6,612 6,527
Common Stockholders' Equity 6,959 6,723 5,034 4,282 3,890
Total Stockholders' Equity 8,359 8,122 6,511 5,324 4,732
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Profitability Ratios
Return on Average Total Assets 1.01%* .94% .64% .52% N/M
Return on Average Common Stockholders' Equity 15.79 14.59 11.14 10.49 N/M
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Ratios
Common Stockholders' Equity as % of Total Assets 6.10%* 6.58% 5.25% 4.36% 3.97%
Total Stockholders' Equity as % of Total Assets 7.33* 7.95 6.79 5.42 4.83
Tier 1 Leverage 7.37* 7.81 6.66 5.28 4.40
Tier 1 Capital as % of Net Risk-Weighted Assets 8.30 8.44 6.76 5.32 4.32
Total Capital as % of Net Risk-Weighted Assets 12.78 13.22 11.12 9.74 8.33
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
N/M--As a result of the loss, these ratios are not meaningful.
*Excluding the impact of adopting FIN 39 on January 1, 1994, the comparable ratios would have been 1.10%, 6.56%,
7.88% and 8.08%, respectively.
</TABLE>
==============================================================================
Overview of 1994
The Chase Manhattan Corporation and Subsidiaries (Chase) earned net income of
$1,205 million for 1994 ($5.87 per share), an increase of 25% from $966
million for 1993 ($4.79 per share).
Earnings
- --Return on common equity improved to 15.79%, up from 14.59% in 1993. Return
on assets rose to 101 basis points, up from the 1993 level of 94 basis
points.
- --Net income for 1994 of $1,205 million was $239 million higher than 1993 due to
increases in most fee income categories and significantly improved asset
quality. Offsetting these favorable impacts were a decline in net interest
revenue, caused primarily by a rising interest rate environment, and a
reduction in total trading revenue due to overall weakness in the global
markets. Expenses for 1994 reflect continued investing for growth in Chase's
core businesses.
- --Earnings per common share rose by $1.08 to $5.87 per share; the annual cash
dividend per common share increased 22%, or
$0.26 per share.
Asset Quality
- --Nonperforming assets continued to decline, with year-end 1994 balances 37%
lower than year-end 1993.
- --The ratio of loan loss reserves to nonperforming loans rose to 214%, up
from 135% at year-end 1993.
- --At December 31, 1994, the accelerated disposition portfolio that consisted
of lower quality domestic commercial real estate assets was fully liquidated
ahead of schedule. Chase exceeded the
recovery goals established for this program.
Capital
- --During 1994, Chase increased its capital base primarily through retained
earnings and subordinated debt issuances. At year-end 1994, the risk-based
capital ratios of Tier 1 Capital and Total Capital were 8.30% and 12.78%,
respectively, exceeding the minimum ratios specified by the Federal Reserve
Board.
Building the Franchise
- --In September 1994, Chase further expanded its mortgage origination and
servicing businesses through the acquisition of American Residential Holding
Corporation (American Residential), which had a servicing portfolio of $15.4
billion at June 30, 1994 and operated 100 branches in 32 states.
- --In November 1994, Chase reached an agreement with the U.S. Trust
Corporation (U.S. Trust) under which its securities processing businesses
<PAGE> 27
will be merged into Chase. These businesses are Unit Investment Trust
Services, Institutional Asset Services and Mutual Fund Services.
Productivity Initiatives
- --A Voluntary Retirement Program was offered to 2,600 eligible employees, of
which approximately 1,200 accepted. The cost of the program was $105 million
($65 million after-taxes).
- --Productivity initiatives, such as exiting from certain consumer activities
overseas, regionalizing foreign operations and stream-
lining the domestic infrastructure, resulted in $52 million ($32
million after-taxes) of fourth quarter 1994 operating expenses.
- --Management estimates these initiatives will reduce the future annual
expense base by approximately $100 million.
=============================================================================
Business Operations
Chase is a global financial services company with a strong and diversified
domestic base and has three interrelated franchises: global financial
services, national consumer products, and regional banking. The Global
Financial Services business serves the financial needs of wholesale issuer
and investor clients through integrated delivery of global products and
services. Retail businesses include the National Consumer Products business,
which provides consumer credit products throughout the U.S., and the Regional
Banking business, which primarily serves individuals and
small-to-medium-sized businesses in New York, New Jersey and Connecticut. In
addition to these core business groups, Real Estate Finance manages Chase's
domestic commercial real estate loan portfolio and LDC Portfolio Management
oversees Chase's remaining portfolio of previously refinanced LDC assets.
The financial results of business operations are summarized below.
Additional information on each of the core businesses is provided on the
following pages.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income Average Assets Return on
($ in millions) ($ in billions) Average Assets
1994 1993 1992 1994 1993 1992 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Global Financial Services $ 565 $765 $430 $ 75.6 $58.9 $53.9 .75% 1.30% .80%
Retail Businesses 550 505 545 38.6 34.6 35.2 1.42 1.46 1.55
Real Estate Finance 20 (765) (465) 1.8 4.7 7.3 1.10 (16.39) (6.37)
LDC Portfolio Management 80 130 50 1.3 3.2 3.6 6.14 4.01 1.38
Unallocated Corporate Items (10) 331 79 1.5 1.3 0.4 N/M N/M N/M
- ----------------------------------------------------------------------------------------------------------------------------------
Total $1,205 $966 $639 $118.8 $102.7 $100.4 1.01% .94% .64%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
N/M--not meaningful
Estimated results for Chase's major businesses are derived from internal accounting systems, which are continually refined to
better reflect organizational performance. These systems allocate to each business: revenue, provision, expenses, assets, and
liabilities as well as corporate overhead, operations expenses and systems development charges. They also incorporate processes
for matching, within each business, assets and liabilities with similar maturity, liquidity and interest rate characteristics.
Chase also allocates common equity to each of its businesses based on credit risk, financial market risk, and operating and residual
business risk. Prior years' business results have been restated to be consistent with 1994; restatements reflect changes in
organizational structure, as well as ongoing refinements of allocation methodologies.
Unallocated Corporate Items reflect transactions not allocable to a specific business. Amounts for 1994 include $65 million of
Voluntary Retirement Program charges and a $70 million tax benefit from the reduction of the deferred federal income tax valuation
allowance. Amounts for 1993 and 1992 include tax benefits of $500 million related to the adoption of SFAS 109 and $120 million
related to the utilization of available tax benefits, respectively, and other corporate charges.
</TABLE>
Global Financial Services
Global Financial Services (GFS) serves the needs of its wholesale clients as
they raise, invest, move and monitor their financial resources around the
world. These clients include multinationals and local corporations,
governments, financial institutions and high net worth individuals. GFS
clients are diverse in geographic location, capital markets access and scope
of international business. Many clients fall within specialized areas where
Chase's tradition of industry expertise serves these customers' unique
financing, investing and operating requirements. The GFS strategy represents
a balance between pursuing preferred supplier relationships with major
clients and building world class product capabilities in transaction and
information services, global markets trading activities and underwriting,
corporate finance, and individual investment services.
Chase maintains a presence in key financial centers, including New
York, London, Tokyo, Hong Kong and other major markets in North America,
Asia, Europe, the Middle East and Latin America. Its network, spanning 50
countries, enables Chase to identify users and sources of capital on a global
basis, and to serve the cross-border requirements of customers through
integrated delivery across all its businesses.
<TABLE>
<CAPTION>
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Global Financial Services Results
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Total Revenue $3,165 $3,259 $2,764
Allocated Credit Loss Provision 50 141 215
Total Expenses 2,223 1,962 1,866
Net Income 565 765 430
- -----------------------------------------------------------------------------
Return on Average Assets .75% 1.30% .80%
Return on Allocated Equity 15.2% 26.7% 12.9%
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 28
In 1994, GFS reported net income of $565 million, compared with $765 million
in 1993. Results for 1994 were characterized by continued strong net interest
revenue, significantly increased fee revenue, particularly in transaction and
information services and private banking, and lower overall credit costs.
These positive trends were offset by a weakness in trading revenue and by the
effect of increased investments in certain key business areas. Higher asset
levels for trading activities, including $8 billion arising from the adoption
of FIN 39 described on page 39, contributed significantly to the 55 basis
point decline in return on assets.
GFS revenue of $3,165 million is diversified by geographic region,
with a balance between the developed and emerging markets.
[GRAPH 1]
GFS has continued to develop and enhance its flow of business from overseas
customers and markets; in 1994, these activities generated 56% of GFS
revenue, up from 50% in 1993. GFS activities in Asia and Europe remained a
relatively consistent percentage of the total. Western Hemisphere revenue was
positively affected by emerging markets trading activities early in the year.
GFS revenue is also diversified by product, characterized by both
stand alone and highly integrated product sales to deliver customized
solutions for client needs. More than half of GFS revenue comes from products
with a stable base of fee and deposit revenue, including transaction and
information services, which accounted for 36% of total GFS revenues.
[GRAPH 2]
While many of the GFS products are primarily provided in one business unit,
given the integrated nature of these activities, there is not a one-for-one
match between products and the businesses described below. Transaction and
information services are provided by Chase InfoServ International and include
revenue from certain trading activities linked to securities, payments and
trade transactions. Trading products are provided by Global Markets; the
business also generates investment banking revenue from its loan syndication,
securities underwriting, and private placement activities. Loan
portfolio revenue includes credit-related activities in all GFS customer
segments. The investment banking product revenue includes fees from all
corporate advisory products, including mergers and acquisitions, as well as
gains from equity investments. Individual investment services include the
deposit and fee-based services provided to Global Private Banking clients,
but exclude other product revenue from that customer segment. Product revenue
overlap, eliminated for financial reporting purposes, consists primarily of
revenue accounted for by more than one product group. For example, foreign
exchange revenue from a custody transaction is included in the revenue of
both product groups. Also included here for both years is revenue from
discontinued business activities, which is immaterial.
These product activities are more fully described in the business
descriptions that follow.
Global Client Management
During 1994, Chase combined its client management groups into the Global
Client Management business, which is responsible for managing those corporate
and institutional client relationships that buy multiple products from Chase.
Central to all of these clients is the premise that their buying behavior and
business strategies require an integrated relationship approach.
Across Global Client Management, Chase seeks to be a preferred
provider of financial services to relationship clients--integrating and
selling the broad array of Chase products and deploying the global network to
serve their international needs. Management believes that the strongest
relationships are based on understanding the total financial services needs
of Chase clients and on providing solutions to those needs. Responsibility
for each relationship rests with the client executive, who coordinates
delivery of all Chase capabilities.
<PAGE> 29
In those industries that are global in scope and in which industry
knowledge is key to understanding clients' financial needs, Chase has
organized along industry lines. These industry experts work with relationship
managers throughout the Chase network to deploy industry knowledge globally.
The combination of industry expertise, global network, product
capabilities and customer franchise create the GFS competitive advantage as
one of a limited number of financial service companies that can provide
clients with solutions and ideas to address their overall global financial
objectives. Global Client Management is a critical leverage point in bringing
Chase's strengths to clients--combining them to create differentiated solutions
to client needs.
Chase InfoServ International
Chase InfoServ International (InfoServ) helps corporate and institutional
clients transfer and monitor financial resources throughout the U.S. and in
major markets around the world. Transaction and information services include
custody, cash management, payments, trade services, trust and other fiduciary
services. At December 31, 1994, Chase was custodian or trustee for
approximately $1.5 trillion in client assets. In 1994, total revenue from
transaction and information services activities grew by 11% over 1993 levels,
particularly due to growth in global custody product revenue.
Global Securities Services (GSS) serves the requirements of global
institutional investors, including mutual funds, insurance companies, pension
funds, public retirement funds and foundations. Services include custody,
trust services, safekeeping, portfolio reporting, securities lending and
investment funds services. Pioneering the global custody product in the mid-
1970s, GSS remains the market leader, with over $400 billion in assets under
custody at December 31, 1994. Chase also meets the insurance industry's
specialized operating requirements and is the leading provider of electronic
premium collection and annuity payments. As discussed on page 26, the pending
acquisition of U.S. Trust's securities processing businesses will add $300
billion of trust and custody assets, solidifying Chase's market leadership in
this business. GSS revenue continued to improve in 1994 due to substantial
growth in cross-border assets, particularly mutual and offshore fund customers,
and the effect of new business volumes.
InfoServ's Global Payments & Treasury Services (GPTS) provides a
broad range of services including collection, payment, trade, information and
investment services for corporations and financial institutions in the U.S.
and overseas. Chase continues to lead in ACH transaction volume, is a market
leader in international money transfer, and is the largest U.S. dollar clearing
bank in the world. In addition, Chase provides foreign currency clearing in
select locations, including deutsche mark clearing in Germany and yen
clearing in Japan. GPTS also contributed to InfoServ's revenue increase due
to growth in value-added services and focus on large scale customized cash
management solutions.
For issuers of private and public debt, InfoServ's Institutional
Trust unit provides trust, agency and depository services to corporations,
governments and municipalities around the world. Chase is a leading paying
agent for municipal tax-exempt debt and a leading trustee in both the
domestic corporate trust and Eurobond markets. In the U.S., the Institutional
Trust business was ranked in the top four in 1994 in new public corporate
debt issues (straight debt and medium-term notes), with an 8% market share.
Global Markets
Global Markets functions as an intermediary between issuers and investors in
the foreign exchange and 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 support to primary market activities, Chase sells and trades a
variety of public and private financial instruments in the U.S. and
international markets. To provide clients with the ability to manage currency,
interest rate, commodity, and other financial exposures, Global Markets designs
and markets a broad range of derivative risk management products, including
swaps, caps, floors and options.
Chase is one of the leading providers of foreign exchange products,
making a market in virtually all of the world's freely traded currencies.
Chase also has a leading position in emerging markets and in interest rate
and commodity derivatives.
Chase has been significantly building capital market and risk
management product capabilities. Given the growing sophistication of clients'
capital raising and investment strategies, Chase's integrated approach is
designed to enable Chase to deliver solutions in the context of clients'
total financial needs.
Global Markets principal sources of revenue include foreign exchange,
securities trading and derivatives. Trading and trading-related revenue
totaled $702 million in 1994, down from $808 million in 1993, and up from
$603 million in 1992. For additional information, refer to the Trading
Revenue and the Trading Activities sections on pages 32 and 38, respectively.
Trading revenue derived from customer-related activities represents a
significant portion of total trading revenue. Excluded from these revenues
are investment banking revenue derived from Global Markets' loan syndication
and private placement activities.
Global Portfolio Management
Global Portfolio Management (GPM) oversees credit risk activities across all
GFS businesses, as described under the Credit Risk Management section
beginning on page 43.
The loan product continues to be an important part of Chase's overall
preferred supplier relationships with issuer clients. Working closely with
Global Client Management, GPM manages Chase's wholesale loan portfolio,
specifically addressing issues of portfolio composition, risk-adjusted return
and risk diversification.
Revenue from the GFS loan portfolio totaled $656 million in 1994,
compared with $700 million in 1993, largely due to lower loan volumes.
Investment Banking
In creating financial solutions for its clients, Chase acts in multiple
roles, including financial advisor, underwriter, equity investor and agent.
Through project finance, mergers and acquisitions, specialized financing
activities and loan syndications, Chase generates advisory fees, net interest
income and equity gains. Operating globally, these activities build upon
Global Client Management areas of industry expertise and worldwide client
reach.
Chase maintains a top five position in global loan syndications and
has gained particular recognition for its innovative transactions involving
industrial and infrastructure projects in Eastern Europe, Latin America, Asia
and the U.S. Chase's specialized financing activities have produced continuing
revenue through gains from a diversified equity portfolio that has resulted
from Chase's ongoing principal role in client transactions.
Revenue from investment banking products provided to wholesale clients
totaled $434 million in 1994, up from $420 million in 1993.
Global Private Banking
Global Private Banking provides a broad range of wealth management and
investment management services for high net worth individuals worldwide. In
addition to portfolio management, trust and estate planning, and custody
accounts, Chase provides its clients with customized investment vehicles and
risk management tools. Private banking clients also have access to the full
range of Chase's global markets and investment banking resources.
Chase makes available the Vista Family of Mutual Funds to a
<PAGE> 30
broad range of U.S. clients, and the Chase Vista Unit Trust Funds to clients
outside the U.S. Chase is the investment advisor to these funds which include
a variety of stock, bond and money market funds that invest in both U.S. and
international markets.
As of December 31, 1994, Global Private Banking's client assets under
administration totaled $67 billion, up from $63 billion at year-end 1993.
Revenue earned in 1994 from the individual investment services offered by
Global Private Banking totaled $337 million, compared with $351 million in
1993.
Retail Businesses
Chase's Retail businesses, comprised of National Consumer Products and
Regional Banking, provide branch banking with a focus in the N.Y. tri-state
area, as well as consumer credit products and other financial services to
retail customers nationwide. The Retail businesses strategy emphasizes product
excellence, service quality, customer segmentation, and ease of access through
multiple distribution channels.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Retail Businesses Results
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
Total Revenue $3,231 $3,140 $3,153
Allocated Credit Loss Provision 397 458 519
Total Expenses 1,979 1,866 1,743
Net Income 550 505 545
- -----------------------------------------------------------------------------
Return on Average Assets 1.42% 1.46% 1.55%
Return on Allocated Equity 23.0% 23.8% 25.4%
- -----------------------------------------------------------------------------
</TABLE>
The Retail businesses contributed $550 million of net income in 1994, compared
with $505 million in 1993. Results were positively impacted by strong mortgage
servicing revenue growth and improved asset quality. These positive factors
were offset by the changing market environment for mortgage originations and
the competitive repricing of the credit card portfolio. Results for 1994 also
included gains from the sale of regional banking businesses in Arizona and
Florida. Further information on the gains is provided on page 32.
The graph below presents total revenue contributed by National
Consumer Products and Tri-State Regional Banking, as well as revenue generated
jointly by the product companies and regional banking in the tri-state area.
(Excluded from this graph are the other retail business activities described on
page 31.)
[GRAPH 3]
The product company results for tri-state customers are reflected in both
National Consumer Products and Tri-State Regional Banking. This product and
geographic presentation creates an overlap that is eliminated for financial
reporting purposes.
[GRAPH 4]
Retail revenue is diversified by product; 42% of Retail revenue of $3,231
million in 1994 came from credit card, 21% from branch deposits, 14% from
middle market and small business services, and 11% related to the mortgage
business. Additional information on product revenue is included in the retail
business descriptions below.
National Consumer Products
Chase's National Consumer Product companies offer credit cards, mortgages,
auto finance, home equity loans, insurance, and investment products to
targeted customer segments nationwide. National Consumer Products financial
results included improved fee revenue in mortgage banking and lower credit
losses in credit card and auto. Expenses were higher in 1994 due to the
impact of expanding the mortgage business by the 1993 mid-year acquisition of
Troy & Nichols, Inc. and the 1994 acquisition of American Residential.
Through its BankCard Services unit, Chase is a leading provider of
credit cards and unsecured revolving credit products in the U.S., with
approximately $12 billion in revolving credit balances (including securitized
assets).
<PAGE> 31
In 1994, BankCard Services responded to competitive pressures by
repricing the interest rate charged to both new and existing customers.
Although this action contributed to the decline in revenue of 7% compared
with 1993, Chase expects it to have a positive impact on balance retention
and market position. Furthermore, Chase is actively pursuing co-branding
opportunities to offer customers credit cards with added value features.
Chase is a major player in the U.S. residential mortgage market, both
in originations and servicing. Chase ranked fourth in mortgage originations
in 1994. At December 31, 1994, Chase's mortgage servicing portfolio was $66
billion, also ranking it among the largest servicers in the U.S. The
acquisition of American Residential in September 1994, broadens Chase's
geographic coverage and product offerings, while leveraging the existing
production base. Chase is also a major securitizer of mortgage loans,
securitizing approximately $8 billion in 1994. Chase's domestic residential
mortgage portfolio continued its strong credit performance, substantially
outperforming the industry average.
A national program offering home equity lines of credit (HELOC) was
launched in 1994 consistent with Chase's national product focus and strategy
to build on existing product capability and client base.
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 U.S. Chase Manhattan Investment Services, Inc. provides investment
services to targeted consumers in the U.S. In addition, initiatives in the
insurance product group increased multi-product offerings to specific customer
segments.
Tri-State Regional Banking
Tri-State Regional Banking provides a full range of commercial and consumer
banking products to consumers, small businesses and middle market companies,
including residents of all income levels, located in the New York, New Jersey
and Connecticut marketplace. At the end of 1994, Tri-State Regional Banking
had total loans of $12 billion and deposits of $21 billion.
Regional Banking focuses on meeting the evolving financial services
needs of its customers. Delivery of distinctive "product value" packages for
each segment is accomplished through the integrated efforts of segment,
distribution channels, and product company capabilities. The strategy
emphasizes the ability to provide customers with full access to their entire
Chase relationship whenever and wherever they decide to access Chase.
The Tri-State Regional Bank's distribution network consists of 324
full-service branches, including 49 branches in Connecticut, and 690 ATM
units. In addition, Chase is investing in the development of a broad range of
delivery systems utilizing state of the art technology. This is geared to
materially enhance revenue streams and at the same time, reduce overall
service and delivery costs.
Earnings in 1994 were down slightly due to lower consumer credit
product earnings, offset by better asset quality, improved deposit spreads
and higher levels of investment banking revenue.
Other Retail Businesses
In addition to National Consumer Product companies and Tri-State Regional
Banking, Chase conducts other retail business activities. These include
consumer banking operations in Maryland, Panama, the Virgin Islands and Hong
Kong. These activities are not material to Chase's results.
Real Estate Finance
Real Estate Finance manages Chase's domestic commercial real estate
portfolio, other than the continuing real estate business in
Tri-State Regional Banking. Its assets include commercial real estate loans,
owned real estate and in-substance foreclosure assets. Discontinued real
estate activities have been substantially reduced with the liquidation of the
accelerated disposition portfolio that was initiated in March 1993. In 1994,
net income for Real Estate Finance was $20 million, compared with net losses
of $765 million in 1993 and $465 million in 1992.
LDC Portfolio Management
LDC Portfolio Management is the component of Chase that oversees the
previously refinanced loan portfolio of cross-border extensions of credit to
refinancing countries. The business unit reported net income of $80 million
in 1994, compared with $130 million in 1993 and $50 million in 1992.
============================================================================
Consolidated Statement of Income Analysis
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Net Interest Revenue--Taxable Equivalent Basis
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
Net Interest Revenue:
Domestic $ 2,684 $ 2,983 $ 2,793
Overseas 1,030 909 810
- -----------------------------------------------------------------------------
Total $ 3,714 $ 3,892 $ 3,603
- -----------------------------------------------------------------------------
Average Earning Assets:
Domestic $64,759 $59,565 $61,442
Overseas 30,723 30,286 26,675
- -----------------------------------------------------------------------------
Total $95,482 $89,851 $88,117
- -----------------------------------------------------------------------------
Net Interest Margin:
Domestic 4.14% 5.01% 4.55%
Overseas 3.35% 3.00% 3.04%
- -----------------------------------------------------------------------------
Net Interest Margin 3.89% 4.33% 4.09%
- -----------------------------------------------------------------------------
</TABLE>
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 cash interest collections on nonaccrual loans.
Excluding the 1993 revenue realized from the sale of Brazilian and
Argentine past due interest (PDI) bonds and $48 million of interest payments
on Brazilian cross-border nonaccrual loans, net interest revenue of $3,714
for 1994 was essentially unchanged compared with 1993. Net interest
revenue for 1994 reflected a higher volume of interest-earning assets and a
reduction in the cost of carrying nonperforming assets and assets held for
accelerated disposition, offset by reduced interest rate spreads. Excluding
the 1992 interest payments on Brazilian nonaccrual loans of $64 million, net
interest revenue for 1994 was up $175 million, or 5%, compared with 1992
due to the higher level of interest-earning assets, partially offset by a
decline in net interest rate spread. Average nonperforming loans were
$0.9 billion for 1994, compared with $2.5 billion in 1993 and $4.4 billion
in 1992.
Net interest margin, defined as net interest revenue--taxable
equivalent basis divided by average gross interest-earning assets, was 3.89%
for 1994. Excluding the effect of the sale of PDI bonds in 1993 and the
Brazilian interest payments discussed above, the net interest margin in 1993
<PAGE> 32
and 1992 would have been 4.10% and 4.02%, respectively. The net interest
margin decline in 1994 primarily reflected the effect of a rising interest
rate environment as well as increased competition on loan pricing in certain
businesses and a change in composition of average interest-earning assets.
Average interest-earning assets increased approximately $5.6 billion, from
$89.9 billion in 1993 to $95.5 billion in 1994, due primarily to growth in
securities and other liquid assets to support trading businesses. Management
expects such factors to continue to impact net interest margin in 1995.
Provision for Possible Credit Losses
In 1994, the provision for possible credit losses was $500 million
compared with $995 million for 1993 (excluding the accelerated
disposition portfolio) and $1,220 million for 1992. The lower levels of
provision reflect improved credit quality and the decline in net loan
charge-offs.
A discussion of Chase's 1994 credit risk management policies and
performance and the reserve for possible credit losses is presented in the
Credit Risk Management section beginning on page 43.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Other Operating Revenue
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Fees and Commissions:
Consumer Banking $ 638 $ 457 $ 549
Trust and Fiduciary 567 465 407
Investment Banking 233 194 200
Other 438 446 426
- -----------------------------------------------------------------------------
Total Fees and Commissions 1,876 1,562 1,582
- -----------------------------------------------------------------------------
Trading Revenue:
Foreign Exchange Trading 280 356 327
Trading Account 271 360 141
- -----------------------------------------------------------------------------
Total Trading Revenue 551 716 468
- -----------------------------------------------------------------------------
All Other Operating Revenue:
Investment Securities Gains 105 47 13
Asset Securitizations and Loan Sales 1 98 126
Corporate Finance-Related
Investment Gains 215 259 125
Accelerated Disposition
Portfolio Gains 104 291 --
Other 201 (24) 35
- -----------------------------------------------------------------------------
Total All Other Operating Revenue 626 671 299
- -----------------------------------------------------------------------------
Total Other Operating Revenue $3,053 $2,949 $2,349
- -----------------------------------------------------------------------------
</TABLE>
Fees and Commissions
Fees and commissions increased $314 million, or 20%, from 1993
and $294 million, or 19%, from 1992, reflecting improvement in all major
categories of fees and commissions. Consumer banking fees, which include
credit card fees, service charges on deposits and fees on other consumer
products, such as retail insurance and mortgage products, increased 40% and
16% over 1993 and 1992, respectively. Mortgage banking fees improved
substantially compared with 1993 and 1992 due to a higher level of mortgage
servicing and the absence of write-downs of mortgage servicing assets in
1994. Due to industry-wide high levels of mortgage refinancing activity in
prior years, Chase recorded $147 million of accelerated mortgage servicing
write-downs in 1993 and $41 million in 1992.
Trust and fiduciary fees in 1994 increased 22% and 39% over 1993 and
1992, respectively, due to the growth in client assets under management in both
the transaction and information services and Global Private Banking businesses,
particularly in the emerging and expanding overseas markets and the Vista
Family of Mutual Funds. In addition, these businesses experienced increased
transaction volumes, particularly in the Global Securities Services business.
Investment banking revenue from corporate finance activities
increased 20% compared with 1993 and 17% compared with 1992 due to higher
levels of loan syndications, mergers and acquisitions, and project finance
activities.
Other fees and commissions, primarily fees on international bank
services, including fees on letters of credit, bankers' acceptances and
service charges on wholesale deposit accounts, were essentially unchanged,
compared with the previous two years.
Trading Revenue
Total trading revenue for 1994 was $551 million compared with $716 million
for 1993 and $468 million for 1992. In early 1994, the securities trading and
underwriting business realized substantial revenue from the sale of emerging
markets trading positions as well as the recognition of market valuation
gains that arose when certain Brazilian loans were exchanged for securities
pursuant to the Brazilian debt restructuring. However, several factors
contributed to the decline in 1994 trading revenue, the most significant of
which was the overall weakness in the global securities and derivatives
markets throughout most of the year. In addition, the devaluation of the
Mexican peso in December 1994, and the subsequent deterioration of the
emerging markets, adversely affected trading revenue in the fourth quarter,
as did the failure by a few counterparties to perform fully their obligations
under derivative contracts.
The difficult market conditions have continued into early 1995.
Although Chase has reduced its exposure to the emerging markets, Management
believes that trading revenue in 1995, particularly in the first quarter, is
likely to be adversely affected by these conditions.
For additional information, refer to the Trading Activities section
beginning on page 38.
All Other Operating Revenue
Net realized gains from the sales of investment securities available for sale
increased $58 million and $92 million, compared with 1993 and 1992,
respectively, due to the sale of Brady bonds. There were no sales of securities
from the held to maturity portfolio.
Chase continued to realize significant gains from the disposition of
U.S. and foreign corporate finance-related investments, other investments and
securities received from loan restructurings.
In 1994, Chase recognized $104 million of net gains from repayments
and sales of assets held for accelerated disposition, compared with $291
million for 1993. This portfolio was fully liquidated by year-end 1994.
Other revenue for 1994 included gains of $29 million from the fourth
quarter sale of the deposit-taking business of Chase Bank of Florida, $53
million from the sale of mortgage servicing rights ($31 million in the fourth
quarter) and $55 million from the sale of Chase Bank of Arizona. Other revenue
for 1993 included a net gain of $30 million from intended or completed
productivity initiatives, such as the disposition of several business
investments, including the sale of a 46% interest in Manhattan Card Co. Limited
in Hong Kong. In addition, the sales of refinancing countries' loans and
Mexican Brady bonds of approximately $1.3 billion and write-downs of Mexican
par bonds to fair value prior to their transfer to Investment Securities
Available for Sale resulted in a net loss of $28 million reflected in Other
Revenue in 1993. Other revenue for 1992 included gains of $27 million from the
disposition of warrants.
<TABLE>
<CAPTION>
<PAGE> 33
- -----------------------------------------------------------------------------
Other Operating Expenses
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
Salaries and Employee Benefits $2,422 $2,077 $1,916
Net Occupancy 395 404 383
Equipment Rentals, Depreciation
and Maintenance 307 298 285
Other Real Estate (ORE) 7 213 122
Other Expenses 1,341 1,210 1,162
- -----------------------------------------------------------------------------
Subtotal 4,472 4,202 3,868
- -----------------------------------------------------------------------------
Provision for Other Real Estate
Held for Accelerated Disposition -- 318 --
- -----------------------------------------------------------------------------
Total Other Operating Expenses $4,472 $4,520 $3,868
- -----------------------------------------------------------------------------
</TABLE>
Other operating expenses, excluding ORE expenses and the provision for ORE held
for accelerated disposition, were $4,465 million for 1994, compared with $3,989
million and $3,746 million for 1993 and 1992, respectively. The increase in
expenses in 1994 resulted from the funding of business growth opportunities,
particularly in Chase's Global Securities Services, National Consumer Products
and Global Markets activities, as well as from the fourth quarter 1994
Voluntary Retirement Program and productivity initiatives. Chase's expense to
revenue ratio for 1994 was 66%. More specifically, as previously mentioned,
amounts for 1994 include productivity initiative expenses of $105 million for a
Voluntary Retirement Program and $52 million related to other productivity
initiatives, such as exiting from certain consumer activities overseas,
regionalizing overseas branch operations and streamlining the domestic
infrastructure. Management estimates that these actions will reduce the
future annual expense base by approximately $100 million. Although Management
has undertaken these fourth quarter 1994 initiatives as well as other efforts
to control expenses, it is unlikely that the expense to revenue ratio will
decline significantly in 1995.
Salaries and Employee Benefits
Salaries and employee benefits in 1994 increased 17% compared with 1993, and
were 26% higher than 1992, primarily as a result of the previously mentioned
productivity initiatives, the cost of funding business growth opportunities,
increased compensation related to higher earnings and the third quarter
acquisition of American Residential.
Expenses for 1994 and 1993 included an additional $22 million and $30
million, respectively, related to the 1993 adoption of Statement of Financial
Accounting Standards (SFAS) 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
Chase's full-time equivalent employees at December 31, 1994 reflects
the acquisition of American Residential and the decline attributable to the
Voluntary Retirement Program, while the 1993 number reflects the acquisition
of Troy & Nichols, Inc.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Number of Full-Time Equivalent Employees
- -----------------------------------------------------------------------------
December 31,
1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Offices 26,972 25,970 25,310
- -----------------------------------------------------------------------------
Overseas Offices:
Asia 3,330 3,230 3,390
Europe, the Middle East 3,690 3,230 3,210
and Africa
Western Hemisphere 1,782 1,960 2,630
- -----------------------------------------------------------------------------
Total Overseas Offices 8,802 8,420 9,230
- -----------------------------------------------------------------------------
Total Employees 35,774 34,390 34,540
- -----------------------------------------------------------------------------
</TABLE>
ORE Expenses
ORE expenses include valuation losses, operating expenses and net gains or
losses realized upon the sale of such properties. Expenses for 1994 were down
significantly, compared with 1993 and 1992, due to the corresponding decline
in ORE assets. Such assets were $257 million, $905 million and $1,147 million
at December 31, 1994, 1993 and 1992, respectively. The level of such expenses
for 1993 was higher than 1992 largely due to an accrual for valuation losses
related to ORE transactions that closed in 1994.
Other Expenses
Other expenses for 1994 increased 11% and 15% compared with 1993 and 1992,
respectively, due to expanded marketing programs in support of certain
businesses, particularly credit card and transaction and information
services. Included in 1993 expenses were charges of $45 million for
business-related investments, primarily costs associated with expanding
dealer trading activities, principally in Europe, data center consolidations
and enhanced information systems. For additional information, refer to Note 20
of Notes to Financial Statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Provision for Income Taxes
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
Provision $565 $265 $186
Effective Tax Rate 32% 36% 23%
- -----------------------------------------------------------------------------
</TABLE>
The increase in the provision for income taxes in 1994 over 1993 and 1992 was
due to higher earning levels. In the fourth quarter of 1994, the federal
deferred tax valuation allowance was reduced by $70 million due to a
reassessment of the ultimate recovery of such deferred tax assets. Excluding
the tax benefits applicable to the 1993 special provisions for the accelerated
disposition portfolio, Chase's tax provision for 1993 would have been
approximately $575 million. Income taxes for 1992 reflected the utilization of
available income tax benefits of $120 million.
In 1993, Chase adopted SFAS 109, "Accounting for Income Taxes,"
resulting in a $500 million net benefit reflected as a cumulative effect of a
change in accounting principle.
For additional information, refer to Note 10 of Notes to Financial
Statements.
<PAGE> 34
===============================================================================
Asset/Liability Management
Overview
Asset/liability management (ALM) is an important ongoing process that
requires the management of both liquidity risk and interest rate risk. The
policies and guidelines for 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 Chairman and 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 and
monitors liquidity and capital adequacy.
Liquidity Risk Management
Chase manages liquidity to achieve two principal objectives. One is to ensure
that The Chase Manhattan Corporation (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.
On October 28, 1994, the Company entered into a $750 million
revolving credit agreement that expires on October 27, 1995, replacing a
previous $750 million agreement that expired on October 28, 1994. No
borrowings have ever been made under either of these credit facilities.
In managing liquidity, Chase takes into account the various legal
limitations on the extent to which banks may pay dividends to their parent
companies or finance or otherwise supply funds to certain of their
affiliates. For additional information, refer to Note 24 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. At
December 31, 1994, these assets totaled $39.0 billion, or approximately $31.1
billion before the effect of the adoption of FIN 39, as discussed on page
42, compared with $32.6 billion at December 31, 1993. During 1994, Chase
maintained an average liquid asset ratio of 42% of average total assets.
Adjusting for the effect of FIN 39, the average liquid asset ratio in 1994
would have been 36% compared with 32% for 1993. Chase also had approximately
$1.7 billion and $2.9 billion of loans secured by 1-4 family residential
properties and other consumer loans held for sale at December 31, 1994 and
1993, respectively. In addition, Chase could raise additional funding through
the securitization of its other consumer loans.
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 available for sale or held to maturity.
SFAS 115 changed the accounting for investment securities available for sale
from the lower of cost or market to fair value. Certain securities of
approximately $1 billion, 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.
At December 31, 1994, net unrealized losses in the investment
securities held to maturity portfolio were $30 million, compared with net
unrealized gains of $33 million at December 31, 1993. This decline in value
was attributable to the rise in domestic interest rates during 1994. With
respect to those investment securities that are available for sale and
carried at fair value, the net unrealized losses reflected in stockholders'
equity, net of taxes, was $35 million at December 31, 1994, compared with net
unrealized gains, net of taxes, of $264 million at December 31, 1993. This
decrease resulted from various factors, including declines in values due to
rising interest rates as well as political and economic factors that
negatively impacted the value of securities, particularly securities of
emerging markets, and the realization of net gains. For additional
information, refer to Note 8 of Notes to Financial Statements.
Interest-Bearing Deposits Placed with Banks
Chase places deposits with other banks primarily for earnings and liquidity
purposes. At December 31, 1994, deposit balances placed with banks increased
to $6.8 billion from the December 31, 1993 level of $5.3 billion. The average
balance of such deposits was $7.2 billion for 1994, up from $6.8 billion for
1993.
Liabilities
Deposits represent Chase's principal source of funds. Retail deposits
represent a large portion of Chase's funding; however, a growing level of
deposits has been raised from corporate and institutional clients. Chase's
distribution network in the New York tri-state area represents an important
deposit base and, in conjunction with the other funding sources, such as
the issuance of intermediate- and long-term debt and commercial paper, has
provided diversified sources of funds. The following sections give details on
Chase's deposits, short-term funds borrowed and intermediate- and long-term
debt.
Deposits
Chase's deposit base consists of demand deposits, certificates of deposit,
savings and money market accounts and other time deposits. Total deposits
were $70.0 billion at December 31, 1994, compared with $71.5 billion at
December 31, 1993. Domestic deposits totaled $33.3 billion at year-end 1994,
down from $40.5 billion at year-end 1993. Contributing to the domestic deposits
decrease were the sale of certain retail deposits, continued decreases in
brokered certificates of deposits, a decline in year-end float balances and a
reduction in certain custody and institutional customer balances compared with
the relatively high levels maintained at year-end 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Maturity Distribution of Time Deposits of
$100,000 or More
- -----------------------------------------------------------------------------
December 31, 1994
- -----------------------------------------------------------------------------
Certifi- Other
cates of Time
($ in millions) Deposit Deposits Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Offices
3 Months or Less $1,495 $ 2,081 $ 3,576
Over 3 Through 6 Months 393 15 408
Over 6 Through 12 Months 417 2 419
Over 12 Months 712 210 922
- -----------------------------------------------------------------------------
Total Domestic Offices $3,017 $ 2,308 $ 5,325
- -----------------------------------------------------------------------------
Total Overseas Offices $3,315 $23,059 $26,374
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 35
Overseas deposits of $36.7 billion at year-end 1994 were up $5.7 billion
compared with 1993 due to increased custody deposits and deposits from
corporate and institutional clients, primarily attributed to Chase's credit
upgrades and increased wholesale deposit-raising activities. Deposits by
foreign customers in domestic offices at year-end 1994 and 1993 were $4.1
billion and $3.6 billion, respectively.
Short-Term Funds Borrowed
Short-term funds borrowed consists of federal funds purchased, securities
sold under repurchase agreements, commercial paper and other short-term
borrowings. Federal funds purchased represents overnight funds. Securities
sold under repurchase agreements generally mature between one day and three
months and commercial paper is issued with maturities of not greater than 270
days. Other short-term borrowings consist principally of term federal funds
purchased, notes payable and funds borrowed in overseas offices, with
original maturities of one year or less.
Average outstandings increased in 1994 for Federal Funds Purchased
and Securities Sold Under Repurchase Agreements compared with 1993, as a
result of the growth in trading business-related activities.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Selected Short-Term Funds Borrowed
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements:
Balance at End of Year $ 9,312 $ 7,890 $ 6,961
Daily Average Balance
Outstanding During Year 15,265 11,269 11,453
Maximum Balance Outstanding
as of Any Month-End
During Year 19,587 13,334 14,811
Daily Average Interest Rate
During Year* 4.97% 5.06% 5.11%
Average Interest Rate on
Balance at End of Year* 5.48 6.14 5.00
- -----------------------------------------------------------------------------
Commercial Paper of
the Company:
Balance at End of Year $ 1,779 $ 1,521 $ 1,186
Daily Average Balance
Outstanding During Year 1,668 1,535 1,121
Maximum Balance Outstanding
as of Any Month-End
During Year 1,925 1,839 1,296
Daily Average Interest Rate
During Year 4.24% 3.12% 3.60%
Average Interest Rate on
Balance at End of Year 5.61 3.14 3.27
- -----------------------------------------------------------------------------
Other Short-Term Borrowings:
Balance at End of Year $ 2,884 $ 1,813 $ 1,774
Daily Average Balance
Outstanding During Year 2,600 1,824 2,162
Maximum Balance Outstanding
as of Any Month-End
During Year 3,911 2,249 3,152
Daily Average Interest Rate
During Year* 37.66% 81.35% 44.02%
Average Interest Rate on
Balance at End of Year* 6.22 58.07 29.63
- -----------------------------------------------------------------------------
<FN>
*The average interest rates denoted above reflect the high levels of local
interest rates prevailing in certain Latin American countries with highly
inflationary economies. The 1994 rates reflect lower interest rates due to the
significant decrease in Brazilian inflation beginning in the third quarter of
1994.
</TABLE>
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 1994, Chase issued approximately
$459 million of subordinated debt. The proceeds from these issuances were used
for general corporate purposes and to retire higher priced existing debt. For
maturities of intermediate- and long-term debt, refer to Note 9 of Notes to
Financial Statements.
Moody's and Standard & Poor's, both public rating agencies, upgraded
their ratings on the Company's senior debt securities and other obligations,
primarily as a result of Chase's improved capital and liquidity position,
lower level of nonperforming assets and growth in earnings. These upgrades
should enable the Company to continue to issue debt at attractive rates of
interest.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Debt Ratings
- -----------------------------------------------------------------------------
December 31,
----------------------------
The Chase Manhattan Corporation 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Moody's
Senior A3 Baa1 Baa2
Subordinated Baa1 Baa2 Baa3
Standard & Poor's
Senior A A- BBB+
Subordinated A- BBB+ BBB
- -----------------------------------------------------------------------------
</TABLE>
On January 13, 1995, Moody's upgraded its rating of the Company's senior debt
to A2 and subordinated debt to A3.
Interest Rate Risk Management
ALM Risk Management
Chase's net interest revenue is 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 interest rate risk of current and future earnings to a level that
is consistent with Chase's mix of businesses and seeks to limit such risk
exposure to a percentage of earnings and common stockholders' equity. The
objective in managing interest rate risk is to support the achievement of
business strategies, while protecting earnings and liquidity.
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 change 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 change in the yield curve. In the tactical time
horizon, EAR is measured for each calendar quarter assuming a change in this
yield curve over one month that would encompass approximately 97.5% of the
range of potential unfavorable outcomes. Longer term structural exposure is
similarly measured using a 3-month time horizon 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 and Chase's interest rate risk
profile is presented to the Board of Directors at each Board meeting. EAR
assesses Chase's interest rate risk based on current positions. Chase
supplements this measure with the use of simulation techniques. Simulations
<PAGE> 36
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 interest rate sensitivity is to changes in both U.S. dollar
and foreign currency interest rates. Foreign currency interest rate
sensitivity, in general, is limited to the tactical time horizon. Chase uses
both cash instruments and derivative contracts, primarily interest rate
swaps, as well as currency exchange agreements, forward, futures and
purchased option and option-related contracts, principally to manage the
timing differences in repricing characteristics arising from its
customer-related assets and liabilities. Derivative contracts used for ALM
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
contracts and the linked balance sheet positions are also performed.
Correlation and hedge effectiveness assessments statistically support
the price/value relationship between the hedge instrument and the underlying
balance sheet position. At inception, a historical correlation of at least
80% must exist between the price changes of the derivative contracts and the
balance sheet position hedged by such derivative contracts. Typically,
slightly over two years of price change data are measured at four-week
nonoverlapping intervals and a simple ordinary least squares regression
analysis is performed to determine initial correlation. Over the life of the
hedge, the ratio between the cumulative change in value of the derivative
contracts and the cumulative change in value of the hedged balance sheet
position is monitored to assure that the hedge relationship continues. In
implementing its strategy, Chase does not use derivative contracts with
leverage features.
Chase had $50 billion and $17 billion of notional swap principal and
other derivative contracts outstanding, respectively, related to ALM
activities at December 31, 1994, compared with $37 billion and $14 billion
of notional swap principal and other derivative contracts outstanding,
respectively, at December 31, 1993. Contract or notional amounts of these
derivative contracts, which are not included in the Consolidated Statement
of Condition, are indicators of the level of Chase's derivative usage and
do not represent potential credit or market risk associated with such
positions.
Interest Rate Risk Measurement
During 1994, the quarterly exposures in the tactical time frame averaged
1.8% of quarterly core net income and the structural time frame exposure
averaged 2.1% of common stockholders' equity.
The following chart provides a quantification of Chase's interest
rate sensitivity gap as of December 31, 1994, based upon the known repricing
dates of certain assets and liabilities and the assumed repricing dates of
others. As shown in the chart below, at December 31, 1994, assuming no
Management action, Chase's near-term interest rate risk is to a rising rate
environment, that is, net interest revenue would be expected to be adversely
affected by a rise in interest rates above the rates embedded in the current
yield curve. Over the first nine months of 1995, approximately 50% of Chase's
interest rate sensitivity is related to changes in foreign interest rates,
primarily in Europe and Asia. Conversely, interest rate risk exposure in the
structural time frame 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 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 5]
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 Jan. 1 and
maturing on Feb. 28 would have a gap impact of $66 million ($100 million
x 59 days/90 days) in the 1 to 3 month repricing time frame.
(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 reported based on a declining schedule over
a five-year period, 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 tranched 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.
The following table summarizes certain of Chase's assets and liabilities at
December 31, 1994, the corresponding interest revenue earned on such assets
or interest expense incurred on such liabilities for the year ended December
31, 1994, as well as the notional or contract amounts of the related linked
deriviative contracts used for ALM purposes. Also disclosed is the favorable
or unfavorable percentage impact these derivative contracts had on the
related interest revenue or expense amounts reflected in Chase's Consolidated
Statement of Income. As shown, Chase's use of derivative contracts reduced
interest expense on deposits and intermediate- and long-term debt and
interest revenue on placings and investment securities by the percentages
indicated.
<PAGE> 37
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Derivative Contracts and Related Linked Balance Sheet Positions and Interest Revenue (Expense)
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended
Contract/ December 31, 1994
Notional Amount Income Statement
--------------------- ----------------------
Published Published Favorable
Balance Interest Other Interest (Unfavorable)
Sheet Rate ALM Revenue Percentage
($ in millions) Amount Swaps Contracts* (Expense) Impact**
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1994
Interest-Bearing Deposits Placed with Banks $ 6,791 $ -- $ 300 $ 498 (1)%
Investment Securities 7,219 1,000 2,700 669 (2)
Loans 63,038 12,400 1,300 5,270 --
Deposits 69,956 33,700 12,000 (2,326) 9
Intermediate- and Long-Term Debt 5,070 3,100 1,000 (312) 17
--------------------
$50,200 $17,300
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Includes currency exchange agreements, forward, futures and purchased options and option-related contracts.
**Represents the favorable (unfavorable) percentage impact of ALM derivative contracts on the related interest revenue or interest
expense amount prior to the impact of derivative contracts.
</TABLE>
The following table summarizes the outstanding ALM contract/notional amounts
of interest rate swaps and other ALM contracts at December 31, 1994, by
yearly intervals. The decrease in notional amounts from one period to the
next period represents maturities of the underlying contracts. At December 31,
1994, the weighted average durations of receive fixed swaps and pay fixed
swaps were approximately 2.4 years and 1.3 years, respectively. The weighted
average interest rates to be received and paid on such swaps are presented
for each yearly interval. The variable rates, which are generally based on
London Interbank Offered Rate (LIBOR), are presented using the forward yield
curve at December 31, 1994.
However, actual repricings are generally based on the 3-month or
6-month LIBOR rates in effect at the actual repricing dates, not the forward
yield curve. To the extent that the current 3-month and 6-month LIBOR rates
change, the variable rates of interest received or paid will change. Future
interest rate changes are not known, but could materially impact the variable
rates presented below. However, Chase expects the impact of these changes to
be mitigated by corresponding changes in the interest rates and values
associated with the linked assets and liabilities. In addition, net interest
revenue will be affected by the amortization of net deferred gains (losses)
on closed derivative contracts and premiums paid on open ALM option contracts
purchased, as reflected in the tables on page 38.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding ALM Contract/Notional Amounts by Yearly Intervals
- ----------------------------------------------------------------------------------------------------------------------------------
January 1,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1995 1996 1997 1998 1999 Thereafter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps:
Contract/Notional Amount $31,000 $17,800 $13,400 $8,000 $5,300 $3,800
Weighted Average:
Receive Rate 6.28% 6.77% 6.88% 7.26% 7.53% 7.24%
Pay Rate 7.46 8.53 8.30 8.14 8.15 8.28
Pay Fixed Swaps:
Contract/Notional Amount $19,200 $ 7,700 $ 2,700 $1,700 $1,300 $1,000
Weighted Average:
Receive Rate 7.46% 8.52% 8.28% 8.13% 8.13% 8.19%
Pay Rate 5.84 7.37 7.42 7.30 7.74 8.11
Other ALM Contracts $17,300 $ 9,300 $ 7,100 $6,800 $6,500 $4,300
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The rise in interest rates during 1994 resulted in a decline in the value of
Chase's ALM derivative contracts. This decline in value was more than offset
by an increase in value to Chase of the related linked balance sheet positions
during 1994. This net increase in balance sheet value reflected the
substantially higher economic value of Chase's core deposit funding base. The
benefits of this low cost funding are currently being recognized in income as
a lower level of interest expense. As interest rates rise, core deposits
increase in value as they provide a less costly funding source than other
funding alternatives. During 1994, the value of such deposits increased by
approximately $1,616 million as compared with a decrease of $847 million in
the value of the related ALM derivative contracts linked to such core deposits.
The difference between the change in value of the linked balance sheet
positions and the related ALM derivative contracts resulted primarily from
Chase's strategy to hedge less than 100% of its balance sheet positions
as shown in the Derivative Contracts and Related Linked Balance Sheet
Positions and Interest Revenue (Expense) table. Of the remaining linked balance
sheet positions, the only other significant change in value related to
intermediate- and long-term debt of the Company. Most of this debt was issued
at a fixed rate of interest and, therefore, increases in value as interest
rates rise. Correspondingly, the value of the derivative contracts used to
convert such fixed rate debt to floating rate debt declines. This activity is
consistent with Chase's overall ALM strategy of providing floating rate funding
to match Chase's predominant base of floating rate assets. These significant
changes in value to Chase's ALM derivative contracts and related linked balance
sheet positions for 1994 are presented in the following table.
<PAGE> 38
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Change in Value of Certain ALM Derivative Contracts
and Linked Balance Sheet Positions
- -----------------------------------------------------------------------------
For the Year Ended
December 31, 1994
---------------------------
Change in Change in
Value of Value of
Linked Balance Related ALM
($ in millions) Sheet Positions Derivatives
- -----------------------------------------------------------------------------
<S> <C> <C>
Deposits* $1,616 $(847)
Company's Intermediate- and
Long-Term Debt 422 (320)
- -----------------------------------------------------------------------------
<FN>
*Core deposits are valued using a model that forecasts future core deposit
costs versus an alternative source of funds using simulation techniques. Key
assumptions include alternative cost of funds of 3-month LIBOR, core deposit
operating costs, reserve requirement of 10%, inflation of 3% per annum, and
an interest elasticity of demand for balances of (0.4). This valuation is
performed on a "going concern" basis, and assumes new business replaces any
runoff.
</TABLE>
The change in value of Chase's ALM derivative contracts from December 31, 1993
to December 31, 1994 was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Change in Value of ALM Derivative Contracts
- -----------------------------------------------------------------------------
December 31,
---------------- Change
($ in millions) 1994 1993 in Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
ALM Derivative Contracts:
Net Deferred Gains (Losses) $ (97) $359 $ (456)
Net Unrealized Gains (Losses)* (597) 117 (714)
- -----------------------------------------------------------------------------
Net ALM Derivative Contract
Gains (Losses) $(694) $476 $(1,170)
- -----------------------------------------------------------------------------
<FN>
*Includes $134 million and $23 million of premiums on open ALM option and
option-related contracts purchased and variation margin on open futures
contracts at December 31, 1994 and 1993, respectively, in addition to
the fair value of these derivative contracts.
</TABLE>
Net deferred losses at December 31, 1994 will be amortized over
the periods reflected in the following table. The amortizations of deferred
gains and losses are recognized as yield adjustments to the interest revenue
or interest expense associated with the linked assets or liabilities.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Amortization of Net Deferred Gains (Losses)
Related to Closed ALM Derivative Contracts
- -----------------------------------------------------------------------------
($ in millions)
- -----------------------------------------------------------------------------
<S> <C>
1995 $ 55
1996 19
1997 (21)
1998 (54)
1999 (58)
Thereafter (38)
- -----------------------------------------------------------------------------
Total $(97)
- -----------------------------------------------------------------------------
</TABLE>
Given the volatile interest rate environment prevailing during 1994, an ALM
strategy was initiated in the second quarter of 1994 to replace certain
receive fixed-rate swap contracts by the purchase of long-term option (floor)
contracts. This action was taken to mitigate a possible decline in value of
such swaps which occurs in a period of rising interest rates. By utilizing
option contracts, the possible loss in value is limited to the amount of the
option premium paid. The Consolidated Statement of Condition includes
unamortized premiums on open ALM option contracts purchased amounting to $140
million and $23 million at December 31, 1994 and 1993, respectively. The
premiums at December 31, 1994 will be amortized over the periods indicated
in the following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Amortization of Premiums on Open ALM
Option Contracts Purchased
- -----------------------------------------------------------------------------
($ in millions)
- -----------------------------------------------------------------------------
<S> <C>
1995 $ 19
1996 18
1997 18
1998 17
1999 14
Thereafter 54
- -----------------------------------------------------------------------------
Total $140
- -----------------------------------------------------------------------------
Other Risk Management Activities
Chase also uses various derivative contracts to reduce interest rate, foreign
currency and other market risks associated with certain assets and
liabilities.
The value of Chase's mortgage servicing assets, consisting of
purchased mortgage servicing rights and excess servicing fees receivable, is
affected by the level of prepayments made by mortgage holders resulting from
changes in interest rates. Interest rate swaps, futures and purchased
option-related contracts are used to mitigate such risk. Chase also
originates certain mortgage loans for sale or securitization to third-party
investors. To reduce the risk of changes in value between the time that such
loans are originated and the date of sale, approximately a 3-month period,
Chase generally enters into Fannie Mae forward interest rate contracts.
Derivative contract principal of approximately $6 billion and $1
billion related to mortgage servicing assets and mortgage loan sales,
respectively, were outstanding at December 31, 1994. These contracts,
primarily related to mortgage servicing assets, had net unrealized losses of
$42 million and net deferred gains of $10 million at year-end 1994, which were
less than the unrealized appreciation of the related assets. Contracts
linked to mortgage servicing assets have maturities consistent with the
estimated lives of the underlying mortgage loans. Approximately 70% of such
contracts mature within five years. All forward contracts mature within one
year. Gains (losses) related to these activities are recognized in income.
Foreign currency exposures, primarily the net investments in overseas
entities, are managed through the use of foreign exchange forward contracts
matching outstanding foreign currency positions on a currency by currency
basis. Approximately $1 billion of such contracts were outstanding at
December 31, 1994. Gains (losses) on these contracts, which hedge Chase's
investments in overseas entities in other than highly inflationary
economies, are charged directly to Retained Earnings. The effect of these
activities is not material to Chase's consolidated financial position
or results of operations.
==============================================================================
Trading Activities
Overview
Chase conducts its trading activities in the Global Markets business sector,
functioning as an intermediary between customers (both issuers and investors)
and the global foreign exchange and capital markets. Global Markets designs,
trades and markets a broad range of derivative risk management products.
The net market risk exposures created as a result of providing these
services to customers are managed on a consolidated basis by Global Markets
as part of Chase's trading activities. As a secondary business objective,
Global Markets may create proprietary positions to take advantage of market
opportunities that are not directly associated with customer activities.
<PAGE> 39
Trading Revenue
Trading revenue is generated by capturing the bid/offer spread on
customer-related transactions, through fees for services provided to
customers, and by managing the market risk created by customer-initiated
transactions and proprietary trading, within established guidelines, to take
advantage of market opportunities. Chase manages its trading activities as
presented in the following table. Trading and trading-related revenue
(including revenue classified as net interest revenue for financial statement
purposes) totaled $702 million in 1994, down from $808 million in 1993, and up
from $603 million in 1992. The 1995 environment for trading activities continues
to be challenging. Issuer, investor and risk management transactions may be
constrained, as financial markets adjust to changes in global economic and risk
fundamentals, which is likely to adversely affect Chase's 1995 trading revenue,
particularly in the first quarter.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Total Trading and Trading-Related Revenue
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Classification:
Foreign Exchange Trading Revenue $280 $356 $327
Trading Account Revenue 271 360 141
Net Interest Revenue* 151 92 135
- -----------------------------------------------------------------------------
Total $702 $808 $603
- -----------------------------------------------------------------------------
Business Diversification:
Foreign Exchange and
Precious Metals** $302 $390 $343
Interest Rate and Commodity
Derivatives*** 108 201 121
Securities Trading and
Underwriting**** 292 217 139
- -----------------------------------------------------------------------------
Total $702 $808 $603
- -----------------------------------------------------------------------------
<FN>
*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.
**Includes gains and losses from foreign exchange and precious metals spot,
forward, futures and options contracts.
***Includes gains and losses from interest rate swaps, currency exchange
agreements, future rate agreements, interest rate futures, options, caps
and floors, and commodity and equity index linked derivative contracts.
****Includes gains and losses from U.S. and foreign government, government
agency, and corporate debt securities, emerging markets securities and
loans, and related derivative contracts.
</TABLE>
A substantial portion of Chase's trading revenue was derived directly or
indirectly from customer-related activities. In addition to these trading and
trading-related revenues, Global Markets also generated fee revenue from loan
syndication and private placement activities.
Trading Account Assets and Liabilities
Trading Account Assets at both December 31, 1994 and 1993 were comprised of
securities, loans, precious metals and derivative contracts, including
foreign exchange, interest rate and commodity contracts. The level of such
assets is affected by customer needs and various market factors, including
interest and exchange rates. The 1994 increase in Trading Account Assets
reflects Chase's adoption, on January 1, 1994, of FASB Interpretation 39,
"Offsetting of Amounts Related to Certain Contracts" (FIN 39). FIN 39
requires the fair value of trading derivative contracts to be reported on a
gross basis in the Consolidated Statement of Condition, except for contracts
executed with the same counterparty under legally enforceable master netting
agreements, which can continue to be presented on a net basis. During 1993,
Chase reported the fair value of trading derivative contracts on a net basis
in the Consolidated Statement of Condition, consistent with industry
practice. Trading Account Liabilities at December 31, 1994 were comprised of
securities sold but not yet purchased and derivative contracts with a
negative fair value.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Trading Account Assets and Liabilities
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets:
Securities and Loans $ 6,833 $6,171
Other, Principally Derivative Contracts 8,276 762*
- -----------------------------------------------------------------------------
Total $15,109 $6,933
- -----------------------------------------------------------------------------
Liabilities:
Securities Sold But Not Yet Purchased $ 1,692 $ 736*
Derivative Contracts 7,972 --*
- -----------------------------------------------------------------------------
Total $ 9,664 $ 736
- -----------------------------------------------------------------------------
<FN>
*Prior to the adoption of FIN 39, trading derivative contracts were shown on a
net basis and securities sold but not yet purchased were classified as
Accounts Payable, Accrued Expenses and Other Liabilities.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Trading Account Securities and Loans
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S. Government and Agency and
Municipal Securities $1,126 $1,631
Foreign Securities 3,437 3,176
Loans 887 788
Corporate Debt Securities 763 309
Other 620 267
- -----------------------------------------------------------------------------
Total $6,833 $6,171
- -----------------------------------------------------------------------------
</TABLE>
Trading Derivative Contracts
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 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 in which the buyer agrees to deliver or take delivery
of a specified instrument or cash at a specified price or yield at a
specified future date. Futures are traded on organized exchanges (exchange
traded) and require initial margin (collateral) in the form of cash or
marketable securities. Holders of futures 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 value is settled daily in
cash with the exchange. Accordingly, the amount at risk due to nonperformance
by counterparties to futures is minimal. In contrast, forwards are generally
negotiated between two counterparties and, therefore, are subject to
performance by 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-related agreements where the seller
agrees to pay the purchaser, in relation to a notional principal amount, the
<PAGE> 40
agreed upon differential if a 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 an agreed rate by 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.
The notional amounts of these contracts 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.
The following table presents the notional amounts along with the
credit risk amount or replacement value (which exists when a derivative
contract has a positive fair value) by type of derivative contract. These
credit risk amounts do not consider the value of collateral, but the impact
of master netting agreements is reflected on an aggregated basis as a
reduction to the credit risk amount by category.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Trading Derivative Contracts
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993
----------------------- -----------------------
Notional Credit Risk Notional Credit Risk
($ in millions) Amount Amount Amount Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S>
Interest Rate Contracts: <C> <C> <C> <C>
Interest Rate Swaps $250,100 $4,800 $178,700 $ 5,600
Currency Exchange Agreements 18,900 1,100 13,900 700
Forwards and Futures 252,300 200 123,200 100
Options, Caps and Floors Purchased 57,900 700 61,400 900
Options, Caps and Floors Written* 72,200 -- 57,500 --
- ----------------------------------------------------------------------------------------------------------------------------------
Less: Master Netting Agreements 3,000 2,300
Net Interest Rate Contracts 3,800 5,000
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Contracts:
Spot, Forwards and Futures 541,900 6,600 418,300 5,400
Options Purchased 36,800 700 29,600 600
Options Written* 49,000 -- 33,200 --
- ----------------------------------------------------------------------------------------------------------------------------------
Less: Master Netting Agreements 3,100 700
Net Foreign Exchange Contracts 4,200 5,300
- ----------------------------------------------------------------------------------------------------------------------------------
Commodity Contracts* 13,400 400 9,600 800
- ----------------------------------------------------------------------------------------------------------------------------------
Total Before Cross Product Netting Agreements 8,400 11,100
- ----------------------------------------------------------------------------------------------------------------------------------
Less: Cross Product Netting Agreements 100 100
- ----------------------------------------------------------------------------------------------------------------------------------
Total Trading Derivative Contracts $8,300 $11,000**
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Options, caps and floors written have no credit risk. Commodity contract notional amounts include options written of $2.8
billion and $1.5 billion for 1994 and 1993, respectively.
**Trading derivative contracts for 1993 are shown on a proforma basis, as prior to adoption of FIN 39, such contracts were
reported on a net basis.
</TABLE>
The following table provides a maturity profile of the interest rate and
foreign exchange contracts in Chase's trading portfolio:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Maturity of Trading Derivative Contracts*
- -----------------------------------------------------------------------------
Interest Foreign
Rate Exchange
December 31, 1994 Contracts Contracts
- -----------------------------------------------------------------------------
<S> <C> <C>
Less than 3 months 22% 63%
3 to 6 months 13 20
6 to 12 months 18 14
1 to 3 years 29 2
3 to 5 years 10 1
Over 5 years 8 --
- -----------------------------------------------------------------------------
Total 100% 100%
- -----------------------------------------------------------------------------
<FN>
*Approximate percentages based upon remaining life of notional amounts.
</TABLE>
The maturity profile of derivative contracts is not an indication of likely
future cash flows since these contracts may be traded at any time in response
to customer needs, risk management or proprietary trading decisions.
Trading Risk Management
Chase has two primary risk management objectives within its trading
activities: to eliminate excessive and unacceptable risk and to optimize the
risk/return profile of each business. In order to ensure that the behavior
within the trading businesses is 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:
- --Formal definition of risk management responsibilities.
- --Continual evaluation of Chase's risk appetite, communicated and managed
through risk limits and controls and the allocation of business risk capital.
<PAGE> 41
- --Measurement of risk in accordance with "value-at-risk" methodologies.
- --Evaluation of business performance, including risk/return relationships.
As a firm's ability to measure and control complex financial risks
becomes increasingly important, selective quantitative risk disclosures,
qualified with meaningful business analyses, can allow investors to better
understand and evaluate trading business strategies and objectives. To that
end, the following enhanced risk disclosures have been included: daily
average value-at-risk for Chase's trading activities and actual daily changes
in value experienced against statistically predicted changes in value.
Risk Management Responsibilities
Chase has established three risk management functions--market, credit, and
administrative, operational and technology--which are independent of the
units that create or actively manage risk exposures. These functions are
responsible for the measurement of the risks in the trading businesses, the
review of the aggregate risk profile 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 to ensure that Chase's risk management capabilities are aligned with
the needs of Chase customers and the needs of the trading businesses. These
risk management functions report jointly to the appropriate corporate
functional executives and the senior business executives.
Risk Appetite
Chase's risk appetite is continually evaluated and communicated through risk
limits and controls and the allocation of business risk capital to ensure
that the levels and the types of risk in its trading activities are consistent
with Chase's mission, strategy and objectives.
Market risk is monitored on a day-to-day basis through the use of
"risk dollar" limits, as an extension of notional position limits and loss
limits. Risk dollars estimate the potential loss that could occur in a
24-hour period, with 97.5% confidence, based on the prior 100 days of price
history. Risk dollar limits are reviewed in conjunction with the annual
business planning process, and then reviewed at least quarterly, to ensure
consistency with the historical and anticipated financial performance of a
business, including returns achieved on risks taken, 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 the Credit Risk
Management section beginning on page 43.
Administrative, operational and technology risks are monitored
through a qualitative assessment of risk, including annual production
planning, service delivery standards and backup and contingency plans, and
are managed through extensive controls, including front- and back-office
systems reconciliations, confirmation processes, and daily position and
performance validation.
The quantification of the potential losses resulting from each of
these identified risks provides management with a consistent framework for
the quantification of Chase's risk appetite, and the associated capital
allocation, for the trading activities. The total business risk capital
allocation includes assessments for market, credit and administrative,
operational and technology risks, as well as an estimate as to the impact of
inter-risk correlations. It also includes certain judgments by Management to
capture those risks outside of value-at-risk methodologies, including event
risk. An example of an "event" risk in this context could be a stressful
market period in which severe restrictions to market liquidity occur,
e.g., the devaluation of the Mexican peso in December 1994.
Risk Measurement Methodologies
Chase measures the risks in its trading activities in accordance with
value-at-risk methodologies, which utilize historical price data to
estimate the size and the probability of future potential losses.
Value-at-risk provides a consistent measure of risk across diverse financial
markets and products, as all potential losses are expressed in a common
denominator, U.S. dollars, for a given time horizon and confidence level.
The quantification of market risk through value-at-risk methodologies
requires a number of key assumptions. These assumptions include: the
selection of a confidence level for losses, the number of days of price
history utilized in the value-at-risk model, the holding period chosen for
the value-at-risk calculation and the treatment of risks outside of value-at-
risk methodologies, including liquidity risk and event risk. The approach
utilized for these and other methodological issues can vary and care must be
taken in making comparisons between data that are not based on identical
measurement methodologies. Each institution selects its own approach to risk
measurement based on its activities. Users of this information should therefore
evaluate an institution's performance within its selected risk management and
measurement approach, rather than trying to make direct comparisons of risk
levels across institutions.
Market Risk
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. Risk dollars are not an absolute measure
of market risk under all conditions for all products. In addition to the risk
dollar calculations, Chase performs alternative scenario analyses to estimate
the economic impact of a sudden market movement on the value of the trading
portfolios (i.e., stress testing). The results of the stress testing, along
with the professional judgments of experienced business and risk managers,
are used to supplement the risk dollar methodology and capture additional
market-related risks, including liquidity, event, concentration and historical
price volatility and correlation reliance risks.
Chase's base level of daily risk dollars for its trading activities
(before Management's judgment overlays or stress testing) are estimated to be
approximately $10 million in aggregate at year-end 1994, having averaged
approximately $17 million during the year. The decline in year-end risk
dollars from the average can be attributed to declining price volatility
throughout 1994 in certain markets, particularly the overseas markets, as
well as reduced positions in international securities.
For foreign exchange and derivative activities, risk dollars can
generally be considered a good predictor of future price movements, assuming
normal market conditions. However, for the securities activities, in
particular the international securities activities, future price movements
are influenced by occasional price "events," specific to the particular
issuer, issue or country, that will not have been captured in the prior 100
days of price history, e.g., the Mexican peso devaluation.
Chase continuously validates the accuracy and applicability of risk
dollars by comparing actual portfolio changes in value against predicted
changes in value, or risk dollars. During 1994, actual declines in value were
within predicted declines in value at a frequency consistent with Chase's
defined confidence level of 97.5%.
Credit Risk
Credit risk includes 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 is the risk of loss resulting from adverse
<PAGE> 42
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 using 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. Chase manages its credit risk by dealing with counterparties
believed to be creditworthy, utilizing a credit limit monitoring process,
obtaining collateral where appropriate and increasingly requiring the use of
legally enforceable master netting agreements.
Chase's predominant credit risk exposures (net replacement values) in
its trading businesses relate to derivative contracts. As disclosed on page
40, derivative credit risk exposures are primarily of a medium-term nature,
while credit exposures in most other products are of a short-term nature. In
terms of industry exposure, depository institutions, substantially all in OECD
countries, represent 65% of net replacement value, with no other major
industry greater than 5% of the total net exposure. For other than depository
institutions, no single counterparty has a credit exposure exceeding $75
million. The net replacement value of contracts identified as being potential
problem contracts was minimal at December 31, 1994. Presented in the following
table are the percentages of total net replacement value by counterparty type
and by major country exposures.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Derivative-Related Credit Risk Exposure*
- -----------------------------------------------------------------------------
Percentage of Total Net
December 31, 1994 Replacement Value
- -----------------------------------------------------------------------------
<S> <C>
Counterparty Type:
Depository Institutions 65%
Other 35
- -----------------------------------------------------------------------------
Total 100%
- -----------------------------------------------------------------------------
Country of Risk:
United States 27%
Japan 17
United Kingdom 9
Italy 9
France 4
Other 34
- -----------------------------------------------------------------------------
Total 100%
- -----------------------------------------------------------------------------
<FN>
*Includes foreign exchange, interest rate and commodity contracts.
</TABLE>
Chase's credit losses arising from derivative contracts have not been
material in 1994 or in 1993.
Leveraged derivatives are contracts that contain features that may
increase the contract's volatility by a factor significantly disproportionate
to its stated notional amount. Chase does not engage in these types of
derivatives to any material extent and, at December 31, 1994, the amount of
such contracts was minimal.
Performance Evaluation
The evaluation of business performance requires an assessment of volatility
and sustainability of earnings and their associated risks.
Chase's risk appetite for the trading activities, as captured by the
business risk capital allocation, is the aggregation of quantitative and
qualitative assessments of the levels and types of risks in the business. As
such, it provides a consistent foundation on which business performance can
be evaluated. Business performance is assessed in light of associated levels
of capital, in terms of risk/return relationships.
================================================================================
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 support its growth and
investments, including acquisition strategies in its core businesses. During
1994, Chase increased its capital base primarily through retained earnings
and subordinated debt issuances. In addition, Chase reduced its average cost of
capital by repurchasing shares of common stock and through the redemption of a
higher cost preferred stock and the issuance of another series at a lower cost.
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, 1994, Chase and each of its banking subsidiaries were in compliance with
the capital requirements 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 1 Capital, 10% Total Capital
and 5% Tier 1 Leverage. At December 31, 1994, the capital ratios of all of
the Company's banking subsidiaries exceeded these levels and are expected to
be in excess of the minimum ratios required of a well-capitalized institution
in the future.
In June 1994, Chase announced a stock repurchase program to purchase
up to 8.5 million shares of its common stock over the next 12 to 18 months.
By December 31, 1994, the program was completed with all 8.5 million shares
being repurchased at an average cost of $36 per share. The shares will be
utilized to help offset the effects of common stock issuable upon the
exercise of outstanding warrants and various outstanding employee stock
option and incentive plans.
In November 1994, Chase entered into an agreement with U.S. Trust
under which its securities processing businesses will be merged into Chase.
Upon closing in mid-1995, Chase expects to issue common stock with a market
value of approximately $364 million. The Company's Board of Directors has
authorized a stock repurchase program for the same number of shares to be
issued.
The Company's Board of Directors increased the quarterly common stock
cash dividend to 33 cents per share during the first quarter of 1994 and
further increased the quarterly dividend to 40 cents per share during the
third quarter of 1994. The quarterly dividend during 1993 and 1992 was 30
cents per share.
Chase's total stockholders' equity at December 31, 1994 was $8,359
million, or 7.33% of total assets, compared with $8,122 million, or 7.95%, at
December 31, 1993. The increase in stockholders' equity was due to the
increase from retained earnings reduced by the change in net unrealized
losses on investment securities available for sale of $299 million, the
repurchase of common stock of $306 million and the declaration of dividends
of $393 million.
In 1993, Chase issued 25.3 million shares of common stock that
increased capital by $746 million.
On January 1, 1994, Chase adopted FIN 39. Such adoption increased
total assets and liabilities by approximately $8 billion at December 31, 1994,
thereby reducing the Tier 1 Leverage ratio and Total Stockholders' Equity
ratio by 71 and 55 basis points, respectively. Such implementation did not
affect the calculation of risk-based capital ratios.
The risk-based capital guidelines are designed to measure Tier 1 and
Total Capital (Tier 1 and Tier 2) in relation to the credit risk of both on-
and off-balance sheet items.
<PAGE> 43
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Capital Ratios*
- -----------------------------------------------------------------------------
December 31, Minimum
------------------------ Regulatory
1994 1993 1992 Requirement
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Leverage Ratio(a) 7.37% 7.81% 6.66% 3.00-5.00%
Risk-Based Capital Ratios(b)
Tier 1 8.30 8.44 6.76 4.00
Total Capital 12.78 13.22 11.12 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, including any commitment to invest, in CSI is deducted from both
Tier 1 and Tier 2 Capital.
(a)Tier 1 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 1 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>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Risk-Weighted Assets and
Off-Balance Sheet Exposures*
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance Sheet Risk-Weighted Assets $69,496 $66,413 $67,371
Off-Balance Sheet Risk-
Weighted Items 24,260 23,081 24,972
Net Risk-Weighted Assets 93,523 89,192 91,587
- -----------------------------------------------------------------------------
<FN>
*Based on Federal Reserve Board definition.
</TABLE>
Chase's Tier 1 and Total Capital ratios decreased at December 31, 1994 compared
with December 31, 1993, due to the increase in risk-weighted assets. The
following table shows the components of regulatory capital as defined by the
banking regulators for risk-based capital and leverage ratio guidelines.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Components of Capital*
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 Capital:
Common Stockholders' Equity $ 6,959 $ 6,723 $ 5,034
Minority Interest 80 66 3
Nonredeemable Preferred Stock 1,400 1,399 1,477
Less:
50% of Investment in CSI 378 139 114
Other** 302 521 206
- -----------------------------------------------------------------------------
Tier 1 Capital 7,759 7,528 6,194
- -----------------------------------------------------------------------------
Tier 2 Capital:
Redeemable Preferred Stock -- -- 53
Mandatory Convertible Debt 98 98 212
Subordinated Notes 3,293 3,178 2,684
Reserve for Possible Credit Losses 1,181 1,122 1,157
Less:
50% of Investment in CSI 378 139 114
- -----------------------------------------------------------------------------
Tier 2 Capital 4,194 4,259 3,992
- -----------------------------------------------------------------------------
Total Capital $11,953 $11,787 $10,186
- -----------------------------------------------------------------------------
<FN>
*Based on Federal Reserve Board risk-based capital guidelines.
**Consists primarily of goodwill and the net unrealized gains and losses on
investment securities available for sale.
</TABLE>
The increase in Tier 1 Capital of $231 million over 1993 resulted from
increased retained earnings, offset by increased investment and commitment to
invest in Chase Securities, Inc. (CSI), the Company's U.S. securities
underwriting and dealing subsidiary, the repurchase of 8.5 million shares of
the Company's common stock and the goodwill resulting from the acquisition of
American Residential.
Tier 2 Capital decreased by $65 million, compared with 1993,
primarily due to the discount applicable to subordinated notes with remaining
maturities of five years or less and the increase in investment in CSI,
partially offset by the issuance of $459 million of subordinated notes.
For additional information, refer to Note 16 of Notes to Financial
Statements.
================================================================================
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:
- --diversification of risk characteristics in terms of credit structure,
product, industry, geography and return, including potential risk of loss.
- --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.
- --centralized management of Chase's global wholesale credit portfolio
composition.
A significant element of credit risk management is portfolio
diversification, which is achieved through Chase's lending franchise as well
as specific portfolio management activities. This franchise is comprised of
the Global Financial Services 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 full service Regional Banking that services consumers, small
businesses and middle market companies located in the New York tri-state area.
Diversification and targeted risk retention levels are also achieved
through the sale or securitization of loans. In addition, credit facilities,
such as loans and loan commitments, are syndicated, 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 Global Markets,
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 selling
interests in the pool.
Overseas 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,
<PAGE> 44
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
countries in which it conducts business or in which its borrowers reside.
These in-depth assessments, conducted 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.
For year-end loan balances by type of loan and office of origination,
refer to Note 4 of Notes to Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Loans
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Loan Balance ------------------------------------------------------
as of Average Loan Average
December 31, Balance Interest Rate Credit Loss Ratio*
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993 1994 1993 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Secured by 1-4 Family Residential Properties $15,092 $14,126 $14,109 $11,719 6.82% 7.23% .09% .08%
Credit Card 7,733 6,426 6,501 5,858 15.42 16.66 3.90 4.31
Other Consumer 9,638 8,009 8,690 7,517 8.38 9.16 1.20 1.76
Overseas 2,500 2,283 2,503 2,297 9.95 10.23 .05 .12
- ----------------------------------------------------------------------------------------------------------------------------------
Total Consumer Loans, Gross $34,963 $30,844 $31,803 $27,391 9.25% 10.03% 1.17% 1.45%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Net loan charge-offs divided by average loans.
</TABLE>
Consumer loans, principally comprised of loans in domestic offices, consist
of residential mortgage loans, home equity loans, credit card receivables and
other forms of installment credit.
Secured by 1-4 Family Residential Properties
Loans secured by 1-4 family residential properties increased $966 million, or
7%, in 1994, compared with year-end 1993, largely due to Chase's purchase of
American Residential and demand for refinancings and originations in early
1994. In 1994, the principal component of this loan portfolio continued to be
adjustable-rate mortgage loans.
The average interest rate earned in 1994 on these loans decreased
principally as a result of the origination of adjustable-rate mortgage loans
at comparatively lower rates during late 1993 and early 1994. These loans
began to reprice in late 1994 to reflect the increasing interest rate
environment.
Net loan charge-offs were $13 million and $10 million for loans
secured by 1-4 family residential properties for 1994 and 1993, respectively.
The credit loss ratios of these loans continued to be less than 0.1% per
annum for the same two years.
During 1994 and 1993, $2.9 billion and $4.7 billion, respectively, of
loans secured by 1-4 family residential properties were securitized or sold.
Of these amounts, approximately $2.4 billion and $4.5 billion of such loans
were originated for sale and accounted for at lower of cost or fair value in
1994 and 1993, respectively, and $450 million and $200 million, respectively,
were held in portfolio prior to sale and accounted for at historical cost.
An additional $5.3 billion and $4.6 billion of such loans originated for
sale were securitized or sold in 1994 and 1993, respectively, primarily
through traditional secondary market outlets.
At December 31, 1994 and 1993, domestic consumer loans included
approximately $1.7 billion and $2.9 billion, respectively, of loans secured
by 1-4 family residential properties and other consumer loans that were held
for sale. Such loans are carried at lower of cost or fair value.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Domestic Loans Secured by 1-4 Family Residential
Properties by Geographic Region
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
New York City $ 773 $ 902
New York (Excluding New York City) 2,956 2,256
- -----------------------------------------------------------------------------
Total New York 3,729 3,158
California 4,162 3,534
Colorado 357 312
Connecticut 763 810
Florida 638 814
Illinois 624 572
Massachusetts 487 475
New Jersey 773 757
Pennsylvania 470 444
Texas 672 688
Washington, D.C./Metro 1,023 1,124
Other 1,394 1,438
- -----------------------------------------------------------------------------
Total $15,092 $14,126
- -----------------------------------------------------------------------------
</TABLE>
Credit Card
Credit card receivables increased $1.3 billion, or 20%, in 1994, compared
with year-end 1993. The increase in credit card receivables was largely due
to the return of previously securitized amounts to the Consolidated Statement of
Condition.
During 1994 and 1993, credit card volume was impacted by aggressive
offers from new and existing issuers in an already competitive marketplace.
Chase continued to respond by repricing its card products to lower annual
variable percentage rates and by launching aggressive solicitation programs.
These actions also contributed to the increase in credit card receivables
during late 1994.
The average interest rate earned on credit card receivables decreased
primarily as a result of such repricing.
Credit card receivable net charge-offs were $254 million and $253
million for 1994 and 1993, respectively. Credit card loss ratios continued
to decrease in 1994 compared with 1993 due to improved domestic economic
conditions.
At year-end 1994, Chase had credit card receivables in every state in
the U.S., with the largest concentrations in New York (14%) and California
(11%). There were no credit card securitizations in 1994 and 1993.
<PAGE> 45
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Domestic Credit Card Receivables by
Geographic Region
- -----------------------------------------------------------------------------
December 31,
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
New York $1,109 $ 891
California 885 670
Connecticut 208 188
Florida 430 353
Illinois 236 186
Massachusetts 509 501
Michigan 539 552
New Jersey 464 376
Ohio 194 153
Pennsylvania 334 270
Texas 461 358
Virginia 140 109
Other 2,224 1,819
- -----------------------------------------------------------------------------
Total $7,733 $6,426
- -----------------------------------------------------------------------------
</TABLE>
Other Consumer
Other consumer loans increased $1.6 billion, or 20%, in 1994, from year-end
1993, primarily due to an increase of approximately $2 billion in automobile
financings originated by Chase Automotive Finance, a national indirect auto
lender that focuses on the luxury automotive market. Other consumer loans
also included $1.7 billion and $2.0 billion of Advantage Credit loans at
year-end 1994 and 1993, respectively. With respect to Advantage Credit loans,
Chase had its largest concentrations in California (21%) and New York (15%).
The average interest rate earned on other consumer loans was down as
a result of increasing competition in the automobile financing marketplace.
Other consumer loan credit losses were down as a result of improved
domestic economic conditions and continued historically low net charge-offs
of Chase automobile financings.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Wholesale Loans*
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Loan Balance ------------------------------------------------------
as of Average Loan Average
December 31, Balance Interest Rate Credit Loss Ratio**
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993 1994 1993 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial and Industrial $ 8,291 $ 8,032 $ 8,570 $ 8,693 6.97% 6.58% (.05)% 1.42%
Commercial Real Estate 2,055 3,099 2,471 4,614 6.17 4.95 5.05 6.02
Other 3,973 4,468 3,852 4,821 8.38 7.30 .58 .91
Overseas:
Commercial and Industrial 9,020 10,002 9,648 9,305 9.64 10.44 .08 .53
Other 4,965 4,277 4,639 6,999 6.64 12.36 (.11) 6.42
- ----------------------------------------------------------------------------------------------------------------------------------
Total Wholesale Loans, Gross $28,304 $29,878 $29,180 $34,432 7.92% 8.68% .50% 2.73%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Excludes accelerated disposition portfolio.
**Net loan charge-offs divided by average loans.
</TABLE>
Commercial and Industrial
Commercial and industrial loans, the largest component of Chase's wholesale
loan portfolio, consist primarily of loans made to large corporate and middle
market customers in diversified industries. Such industries include
transportation, energy, communications, utilities, wholesale manufacturing
and consumer products. No industry group accounts for more than 11% of the
commercial and industrial loans.
At year-end 1994, commercial and industrial loans decreased $723
million from year-end 1993 as a result of both net repayments and lower loan
demand at overseas locations.
The average interest rate earned on domestic commercial and
industrial loans increased due to an increasing interest rate environment.
Chase principally bases its commercial and industrial lending rates on LIBOR.
The decrease in the average interest rate earned on overseas commercial and
industrial loans reflected significantly lower Brazilian rates due to the
significant decrease in Brazilian inflation beginning in the third quarter of
1994.
Net loan charge-offs were $4 million and $173 million for commercial
and industrial loans for 1994 and 1993, respectively. The decrease in net
loan charge-offs reflected improved economic conditions.
In 1994 and 1993, Chase sold $1.5 billion and $1.4 billion of
medium-term commercial loans, respectively. In addition, Chase originates
selected short-term commercial loans for resale. Sales of such loans amounted
to $39.9 billion and $19.8 billion in 1994 and 1993, respectively. These
loans, which are accounted for at lower of cost or fair value, were less than
$200 million at year-end 1994.
In 1994 and 1993, Chase acted as agent or co-agent in loan
syndication transactions of $155.6 billion and $87.1 billion, respectively.
Fee income recognized from loan syndication activities is recorded in Fees
and Commissions--Investment Banking.
Commercial Real Estate
Over the past two years, Chase has taken initiatives to better focus the
activities of its domestic commercial real estate finance business. This
included the accelerated disposition of selected lower quality loans and
identification and sales of loans not consistent with Chase's ongoing core
real estate portfolio activities.
As previously reported, Chase established an accelerated disposition
portfolio of selected lower quality domestic commercial real estate assets at
March 31, 1993. These assets had a net carrying value at that date of $1,024
million and were completely liquidated at December 31, 1994. The proceeds
from collections and dispositions of assets in this portfolio amounted to a
recovery of approximately 54% of the original contractual amounts.
At December 31, 1994, domestic commercial real estate loans decreased
by $1.0 billion, or 34%, compared with year-end 1993, as a result of net
repayments of outstanding loans of $730 million as well as gross loan charge-
offs of $185 million and transfers to ORE of $204 million.
The average interest rate earned on domestic commercial real estate
loans increased during 1994 due to an increasing interest rate environment
and a decrease in nonaccrual loans.
Net charge-offs were $125 million and $277 million for domestic
commercial real estate loans for 1994 and 1993, respectively. The continued
decrease in net charge-offs primarily resulted from Chase's decreased
exposure to commercial real estate loans.
<PAGE> 46
Other Wholesale
Other wholesale loans consist principally of domestic and overseas loans to
financial, governmental and official institutions, lease financings and loans
for purchasing and carrying securities.
The average interest rate earned on other wholesale loans for 1994
decreased due to the realization of $163 million in 1993 resulting from the
sale of Brazilian and Argentine PDI bonds, and significantly lower Brazilian
rates due to the significant decrease in Brazilian inflation beginning in the
third quarter of 1994, offset by the increase in interest rates during 1994.
Net loan charge-offs in 1994 were $17 million compared with $490 million in
1993, which primarily included net loan charge-offs related to refinancing
countries.
Cross-Border Outstandings
Cross-border outstandings that exceed 1% of total assets, in the table below,
include only those amounts recorded on Chase's Consolidated Statement of
Condition and consist of extensions of credit (loans, interbank placings,
including interest-bearing deposits placed with central banks, and
acceptances), accrued interest, and other interest-bearing investments
(investment securities and trading account assets) and any other monetary
assets denominated in dollars or other nonlocal currency. Not included below
are amounts related to trading account liabilities and off-balance sheet
commitments, primarily comprised of commitments to sell trading account
assets. Such items can have the effect of significantly reducing the gross
exposures, as shown in the following table, for Brazil and Mexico. Amounts
in 1994 and 1993 reflect Chase's shift in focus to interbank placings,
short-term trade finance, trading account assets and corporate finance-related
loans.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Cross-Border Outstandings that Exceed 1% of Total Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Banks and
% of Governments Other Commercial
Total Total and Official Financial and Other Other
($ in millions) Assets Outstandings Institutions Institutions Industrial Borrowers Outstandings
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994
Japan 2.9% $3,260 $ -- $2,080 $250 $110 $ 820
United Kingdom 2.4 2,790 40 610 430 830 880
Brazil 1.8* 2,080* -- 50 350 110 1,570
Mexico 1.3* 1,510* 60 300** 310 130 710
France 1.2 1,370 -- 290 30 10 1,040
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: Government entities that are majority-owned are classified by type of borrower based on the industry of the business
enterprise.
*Total cross-border outstandings at December 31, 1994 for Brazil and Mexico include short-term extensions of credit and
trading account assets of $1,450 million and $1,320 million, respectively. In addition, the net economic exposures at
December 31, 1994 for Brazil and Mexico after giving effect to trading account liabilities and off-balance sheet
commitments, not reflected in the table above, were $1,400 million (1.2% of total assets) and $1,330 million
(1.2% of total assets), respectively.
**Includes a $250 million loan made on December 30, 1994 and repaid on January 3, 1995.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Cross Border Outstandings Between
.75% and 1% of Total Assets
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
.75% Through 1%: $860 to $1,140 $770 to $1,020 $720 to $960
Countries: Singapore Singapore Italy
Argentina France Canada
Korea
Switzerland
Hong Kong
- -----------------------------------------------------------------------------
Total Outstandings $4,750 $1,770 $1,600
- -----------------------------------------------------------------------------
</TABLE>
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.
<PAGE> 47
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 for such loans does not necessarily indicate a
serious doubt about their ultimate collectibility. Rather, it reflects
increased potential for default and potential for 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:
- --Economic conditions and their effects on particular countries, industries,
specific borrowers and credit products;
- --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;
- --Macro trends of nonaccrual loans and loan charge-offs;
- --Consumer loan growth trends and delinquency and default rates, together
with analysis of behavioral patterns, past and present, as to payment
performance;
- --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;
- --A continuing evaluation of the performing loan portfolio, other outstandings
and off-balance sheet credit exposures, 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;
- --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 for possible
credit losses.
In addition to the continuing internal assessment of the loan
portfolio and off-balance sheet credit commitments, 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.
The reserve for possible credit losses is a general reserve available
against the total loan portfolio and off-balance sheet credit exposures. In
the opinion of Management, the reserve for possible credit losses at December
31, 1994 was adequate to absorb all losses in the loan portfolio and
off-balance sheet credit exposures anticipated at that date. Chase's
independent accountants have concurred with Management's opinion.
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 exposures have changed.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Allocation of the Reserve for Possible Credit Losses
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve Amount Loan Category as % of Total Loans
December 31, December 31,
- ----------------------------------------------------------------------------------- --------------------------------------
($ in millions) 1994 1993* 1992 1991 1990 1994 1993* 1992 1991 1990
- ----------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocated Portion of Reserve:
Wholesale $ 300 $ 590 $1,330 $1,385 $2,320 45% 49% 58% 58% 60%
Consumer 400 400 400 400 350 55 51 42 42 40
- ----------------------------------------------------------------------------------- --------------------------------------
Total Allocated Portion 700 990 1,730 1,785 2,670 100% 100% 100% 100% 100%
Unallocated Portion 714 435 183 175 167 --------------------------------------
- -----------------------------------------------------------------------------------
Total Reserve for Possible Credit Losses $1,414 $1,425 $1,913 $1,960 $2,837
- -----------------------------------------------------------------------------------
Reserve as Percentage of:
Total Loans 2.24% 2.36% 3.06% 2.89% 3.80%
Nonaccrual Outstandings 214% 135% 49% 45% 62%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Excludes accelerated disposition portfolio.
</TABLE>
The Financial Accounting Standards Board has issued SFAS 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosure," which amends
SFAS 114 to permit a creditor to use existing methods for recognizing interest
income on impaired loans. Chase will adopt SFAS 114 and SFAS 118 effective
January 1, 1995. SFAS 114 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 due, both the interest
and principal payments, 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 described previously, Chase determines the adequacy of the 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.
<PAGE> 48
The adoption of SFAS 114 and SFAS 118 would not have had a material
effect based on the loan portfolio and market conditions as of December 31,
1994.
Total net loan charge-offs for 1994 were $517 million, down $820
million, or 61%, from 1993 due to the decline of overseas loans, domestic
commercial real estate and domestic commercial and industrial loan
charge-offs of $497 million, $152 million and $128 million, respectively.
Details of loan charge-offs and recoveries by loan type may be found on
page 82.
Nonaccrual, Restructured and Past Due Outstandings
and Domestic ORE
Nonaccrual outstandings are those on which interest revenue accruals have
been suspended. Loans that have been renegotiated for economic or other reasons
related to debtors' financial difficulties on terms that Chase would not be
willing to accept for new loans with comparable risk are designated as
restructured loans.
Domestic nonaccrual outstandings continued to decrease substantially
during 1994 due to repayments, charge-offs and transfers to accrual status
and ORE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Nonaccrual and Restructured Outstandings and Domestic ORE
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993* 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic Outstandings:
Commercial Real Estate $266 $ 475 $2,057 $2,423 $1,780
Commercial and Industrial 109 226 503 512 549
Other 135 181 229 211 174
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic Outstandings 510 882 2,789 3,146 2,503
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Outstandings:
Refinancing Countries 54 74 997 978 1,868
Commercial Real Estate 8 14 9 6 11
Commercial and Industrial 47 22 66 73 98
Other 41 62 81 149 109
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Outstandings 150 172 1,153 1,206 2,086
- ----------------------------------------------------------------------------------------------------------------------------------
Total Nonaccrual and Restructured Outstandings $660 $1,054 $3,942 $4,352 $4,589
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic ORE $251 $ 895 $1,137 $ 897 $ 824
- ----------------------------------------------------------------------------------------------------------------------------------
As a % of Total Gross Assets:
Nonaccrual and Restructured Outstandings .57%** 1.02% 4.03% 4.35% 4.55%
Nonaccrual and Restructured Outstandings and Domestic ORE .79** 1.88 5.19 5.24 5.36
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Excludes accelerated disposition portfolio.
**Total gross assets reflect Chases's adoption of FIN 39 on January 1, 1994.
</TABLE>
Nonaccrual loans that have been restructured but remain in nonaccrual status,
primarily commercial and industrial and domestic commercial real estate loans,
which amounted to $44 million and $107 million at December 31, 1994 and 1993,
respectively, continue to be included in the above nonaccrual table. Loans
that have been restructured and are now accruing are not material.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Reconciliation of Nonaccrual and
Restructured Outstandings
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance $1,054 $3,942
Additions 741 1,088
Deductions:
Repayments 453 724
Interest Applied to Principal 33 77
Charge-offs 290 742
Transfers to Trading Account -- 418
Transfers to Accelerated Disposition Portfolio -- 843
Transfers to ORE--Net 204 817
Transfers to Accrual Status 141 332
Other 14 23
- -----------------------------------------------------------------------------
Ending Balance $ 660 $1,054
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Negative Impact of Nonaccrual and Restructured
Outstandings
- -----------------------------------------------------------------------------
Total Domestic Overseas
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1994 1993 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Revenue That
Would Have Been
Recorded Under
Original Terms $48 $ 86 $36 $54 $12 $ 32
Interest Revenue
Actually Realized 7 206 4 6 3 200**
- -----------------------------------------------------------------------------
Negative (Positive)
Impact on
Interest
Revenue $41 $(120) $32 $48 $ 9 $(168)
- -----------------------------------------------------------------------------
<FN>
*Excludes loans held for accelerated disposition since March 31, 1993.
**Includes $163 million of interest revenue realized from the sales of
Brazilian and Argentine PDI bonds.
</TABLE>
<PAGE> 49
The year-to-year change in the negative impact on interest revenue of
international nonaccrual and restructured outstandings resulted primarily
from the realization of $163 million of interest revenue from the sale of
Brazilian and Argentine PDI bonds in 1993.
Accruing loans that are contractually past due 90 days or more are
generally loans that are both well secured or guaranteed by financially
responsible third parties and are in the process of collection. Past due
consumer loans, with the exception of loans secured by 1-4 family residential
properties, are generally charged off according to internally established
delinquency schedules, which do not permit delinquencies to exceed 180 days.
Such loans secured by 1-4 family residential properties are placed in
nonaccrual status if reasonable doubt exists as to timely collectibility or
if payment of principal or interest is contractually past due 90 days or more
and the loan is not well secured or guaranteed by financially responsible
third parties and in the process of collection.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Accruing Loans Past Due 90 Days or More
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993* 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
Consumer** $191 $186 $211 $255 $296
Commercial Real Estate 8 42 176 169 90
Commercial and Other 20 21 26 37 53
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Loans 219 249 413 461 439
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Loans 181 12 45 49 66
- ----------------------------------------------------------------------------------------------------------------------------------
Total Accruing Loans Past Due 90 Days or More $400 $261 $458 $510 $505
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Excludes loans held for accelerated disposition.
**Includes loans secured by 1-4 family residential properties.
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Reconciliation of Domestic ORE
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance $ 895 $1,137
Additions 202 813
Deductions:
Transfer to Accelerated
Disposition Portfolio -- 578
Repayments and Sales 742 259
Valuation Losses 104 213
Returned to Loan Status -- 5
- -----------------------------------------------------------------------------
Ending Balance* $ 251** $ 895
- -----------------------------------------------------------------------------
<FN>
*Includes in-substance foreclosure amounts of $218 million and $758 million, respectively.
**ORE at December 31, 1994 was carried at approximately 34% of original outstandings, primarily as a result of $492 million of
cumulative charge-offs, interest applied to principal and valuation losses.
</TABLE>
<PAGE> 50
==============================================================================
Report of Independent Accountants
Price Waterhouse LLP
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 51 through 77, present fairly, in all
material respects, the financial position of The Chase Manhattan Corporation
and Subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994 and the financial position of The Chase Manhattan
Bank, N.A. and Subsidiaries at December 31, 1994 and 1993, 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, 10 and 11 to the consolidated financial
statements, The Chase Manhattan Corporation and Subsidiaries changed their
method of accounting for the offsetting of amounts related to certain
derivative contracts in 1994, and their method of accounting for investments
in debt and equity securities, postretirement benefit plans and income taxes
in 1993.
/s/ PRICE WATERHOUSE LLP
January 17, 1995
- ------------------------------------------------------------------------------
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, 33-55295, 33-58144, 33-61364 and
33-63018), Form S-4 (No. 33-57649) and Form S-8 (Nos. 2-84856, 2-61480,
2-91637, 2-90759, 33-28024, 33-29140, 33-29614, 33-44863 and 33-55611) of
The Chase Manhattan Corporation of our report dated January 17, 1995
appearing above. We also consent to the reference to us under the heading
"Experts" in such Prospectuses.
/s/ PRICE WATERHOUSE LLP
February 28, 1995
===============================================================================
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. LABRECQUE
Chairman and Chief Executive Officer
/s/ ARJUN K. MATHRANI
Executive Vice President and Chief Financial Officer
January 17, 1995
<PAGE> 51
<TABLE>
<CAPTION>
==================================================================================================================================
Consolidated Statement of Condition
The Chase Manhattan Corporation and Subsidiaries
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks $ 4,713 $ 6,068
Interest-Bearing Deposits Placed with Banks 6,791 5,309
Federal Funds Sold and Securities Purchased Under Resale Agreements 7,280 6,586
Trading Account Assets 15,109 6,933
Investment Securities:
Held to Maturity (Market Value of $2,054 and $1,417, Respectively) 2,084 1,384
Available for Sale Carried at Fair Value 5,135 7,690
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities 7,219 9,074
Loans 63,038 60,493
Less: Reserve for Possible Credit Losses 1,414 1,425
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, Net 61,624 59,068
Assets Held for Accelerated Disposition -- 222
Customers' Liability on Acceptances 520 689
Accrued Interest Receivable 1,276 871
Premises and Equipment 1,895 1,782
Other Assets 7,611 5,501
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $114,038 $102,103
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits:
Domestic Offices:
Noninterest-Bearing $ 11,990 $ 14,217
Interest-Bearing 21,264 26,247
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Offices:
Noninterest-Bearing 2,320 2,473
Interest-Bearing 34,382 28,572
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 69,956 71,509
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 9,312 7,890
Commercial Paper 1,766 1,465
Other Short-Term Borrowings 2,884 1,813
Trading Account Liabilities 9,664 --
Acceptances Outstanding 525 696
Accrued Interest Payable 651 416
Accounts Payable, Accrued Expenses and Other Liabilities 5,851 4,551
Intermediate- and Long-Term Debt 5,070 5,641
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 105,679 93,981
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Nonredeemable Preferred Stock (Without Par Value, 56,000,000 and 51,439,738
Shares Outstanding, Respectively) 1,400 1,399
Common Stock ($2.00 Par Value):
1994 1993
----------- -----------
<C> <C>
Number of Shares:
Authorized 500,000,000 500,000,000
Issued 185,674,178 184,290,491
Outstanding 177,174,178 184,290,491 371 369
Surplus 3,949 3,922
Net Unrealized Gains (Losses) on Investment Securities-Available for Sale (35) 264
Retained Earnings 2,980 2,168
- ----------------------------------------------------------------------------------------------------------------------------------
Total 8,665 8,122
Less: Treasury Stock at Cost (8,500,000 Shares) 306 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,359 8,122
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $114,038 $102,103
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes on pages 56 to 77 are an integral part of the financial statements.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
==================================================================================================================================
Consolidated Statement of Income
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per common share data) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Revenue
Interest and Fees on Loans $5,270 $5,795 $6,280
Interest on Deposits Placed with Banks 498 717 759
Interest and Dividends on Investment Securities:
Held to Maturity 144 168 579
Available for Sale 525 517 --
Interest on Federal Funds Sold and Securities Purchased Under Resale
Agreements 1,277 1,029 771
Interest on Trading Account Assets 420 242 316
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Revenue 8,134 8,468 8,705
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits 2,326 2,014 2,935
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 759 570 585
Commercial Paper 68 46 40
Other Short-Term Borrowings 980 1,484 952
Intermediate- and Long-Term Debt 312 491 629
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 4,445 4,605 5,141
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 3,689 3,863 3,564
Provision for Possible Credit Losses 500 995 1,220
Provision for Loans Held for Accelerated Disposition -- 566 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue After Provisions for Possible Credit Losses
and Loans Held for Accelerated Disposition 3,189 2,302 2,344
- ----------------------------------------------------------------------------------------------------------------------------------
Other Operating Revenue
Fees and Commissions 1,876 1,562 1,582
Foreign Exchange Trading Revenue 280 356 327
Trading Account Revenue 271 360 141
Investment Securities Gains 105 47 13
Other Revenue 521 624 286
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Operating Revenue 3,053 2,949 2,349
- ----------------------------------------------------------------------------------------------------------------------------------
Other Operating Expenses
Salaries and Employee Benefits:
Salaries 1,773 1,590 1,505
Employee Benefits 649 487 411
- ----------------------------------------------------------------------------------------------------------------------------------
2,422 2,077 1,916
Net Occupancy 395 404 383
Equipment Rentals, Depreciation and Maintenance 307 298 285
Provision for Other Real Estate Held for Accelerated Disposition -- 318 --
Other Expenses 1,348 1,423 1,284
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Operating Expenses 4,472 4,520 3,868
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 1,770 731 825
Applicable Income Taxes 565 265 186
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of Change in Accounting Principle 1,205 466 639
Cumulative Effect of Change in Accounting Principle--Adoption of SFAS 109 -- 500 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $1,205 $ 966 $ 639
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $1,078 $ 826 $ 515
- ----------------------------------------------------------------------------------------------------------------------------------
Average Common and Common Equivalent Shares Outstanding (in millions) 183.6 172.3 148.7
Primary Earnings Per Common Share, Before Cumulative Effect of Change in
Accounting Principle, Based on Average Shares Outstanding $ 5.87 $ 1.89 $ 3.46
Cumulative Effect of Change in Acounting Principle--Adoption of SFAS 109 -- 2.90 --
- ----------------------------------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share $ 5.87 $ 4.79 $ 3.46
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared Per Common Share $ 1.46 $ 1.20 $ 1.20
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes on pages 56 to 77 are an integral part of the financial statements.
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
==================================================================================================================================
Consolidated Statement of Changes in Stockholders' Equity
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonredeemable Preferred Stock
Balance at Beginning of Year (51,439,738, 49,539,738 and 29,639,738 Shares, Respectively) $1,399 $1,477 $1,042
Issuance of Preferred Stock Series J (6,000,000 Shares) -- -- 150
Issuance of Preferred Stock Series K (6,800,000 Shares) -- -- 170
Issuance of Preferred Stock Series L (9,600,000 Shares) -- -- 240
Issuance of Preferred Stock Series M (6,900,000 Shares) -- 172 --
Issuance of Preferred Stock Series N (9,100,000 Shares) 228 -- --
Redemption of Preferred Stock Series D (2,500,000 Shares) -- -- (125)
Redemption of Preferred Stock Series E (5,000,000 Shares) -- (250) --
Redemption of Preferred Stock Series F (4,539,738 Shares) (227) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (56,000,000, 51,439,738 and 49,539,738 Shares, Respectively) 1,400 1,399 1,477
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance at Beginning of Year (184,290,491, 156,096,382 and 139,857,939 Shares, Respectively) 369 312 280
Shares Issued Pursuant to Common Stock Offering (25,300,000 Shares) -- 51 --
Shares Issued Pursuant to Dividend Reinvestment and Stock Purchase Plan
(521,056, 1,813,905 and 11,100,324 Shares, Respectively) 1 4 22
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 Shares) -- -- 3
Shares Issued Pursuant to Stock Option and Incentive Plans (860,494, 1,078,018, and
539,834 Shares, Respectively) 1 2 1
Shares Issued Pursuant to Stock Warrants (2,137, 2,186 and No Shares, Respectively) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (185,674,178, 184,290,491, and 156,096,382 Shares, Respectively) 371 369 312
- ----------------------------------------------------------------------------------------------------------------------------------
Surplus
Balance at Beginning of Year 3,922 3,174 2,795
Shares Issued Pursuant to Common Stock Offering -- 695 --
Shares Issued Pursuant to Dividend Reinvestment and Stock Purchase Plan 17 52 237
Shares Issued Pursuant to Common Stock Equity Contracts -- -- 126
Shares Issued Pursuant to Floating Rate Subordinated Notes Due 1996 -- -- 32
Shares Issued Pursuant to Stock Option and Incentive Plans 17 14 7
Other (7) (13) (23)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year 3,949 3,922 3,174
- ----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Gains (Losses) on Investment Securities--Available for Sale
Balance at Beginning of Year 264 -- --
Net Change In Unrealized Gains (Losses) on Investment Securities--Available for Sale
(Net of Deferred Tax (Benefits) of ($204), $174 and None, Respectively) (299) 264 --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (35) 264 --
- ----------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance at Beginning of Year 2,168 1,548 1,207
Net Income 1,205 966 639
Cash Dividends:
Redeemable Preferred Stock -- (3) (4)
Nonredeemable Preferred Stock (127) (138) (120)
Common Stock (266) (204) (177)
Aggregate Foreign Exchange Translation Gain (Loss) -- (1) 3
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year (Includes Foreign Exchange Translation
Adjustments of $12, $12 and $13, Respectively) 2,980 2,168 1,548
- ----------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at Beginning of Year -- -- --
Purchases (8,500,000 Shares) (306) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Period (8,500,000 Shares) (306) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $8,359 $8,122 $6,511
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes on pages 56 to 77 are an integral part of the financial statements.
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
==================================================================================================================================
Consolidated Statement of Cash Flows
The Chase Manhattan Corporation and Subsidiaries
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,205 $ 966 $ 639
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 500 995 1,220
Provisions for Loans and Other Real Estate Held for Accelerated Disposition -- 884 --
Depreciation and Amortization of Premises and Equipment 277 261 243
Accretion and Amortization 122 193 157
Other Real Estate Valuation Losses 105 213 83
Deferred Income Taxes 84 230 48
Net Gains on Sales of Assets (626) (671) (299)
Net (Increase) Decrease in Operating Assets:
Trading Account Assets 266 (1,715) (2,037)
Accrued Interest Receivable (404) 103 54
Other Assets (485) 355 661
Net Increase (Decrease) in Operating Liabilities:
Trading Account Liabilities 1,330 -- --
Accrued Interest Payable 240 (161) (284)
Accounts Payable, Accrued Expenses and Other Liabilities 773 493 33
Other-Net (1,163) 17 (508)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,224 1,663 10
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Interest-Bearing Deposits Placed with Banks (1,247) 296 (1,484)
Net Increase in Federal Funds Sold and Securities Purchased Under Resale Agreements (695) (2,395) (271)
Investment Securities-Held to Maturity:
Payments for Purchases (1,420) (737) (4,708)
Proceeds from Sales -- -- 1,674
Proceeds from Maturities, Calls and Prepayments 738 656 2,055
Investment Securities-Available for Sale Carried at Fair Value; At Lower of
Cost or Market in 1993:
Payments for Purchases (4,800) (10,798) --
Proceeds from Sales 5,218 6,675 --
Proceeds from Maturities, Calls and Prepayments 1,859 2,733 --
Loans:
Net Increase in Loans Made to Customers (12,396) (14,303) (7,901)
Payments for Purchases (3,619) (2,525) (273)
Proceeds from Sales and Securitizations 13,048 13,479 11,526
Proceeds from Sales and Repayments of Assets Held for Accelerated Disposition 325 1,093 --
Net Purchases of Premises and Equipment (391) (191) (444)
Acquisition of Mortgage Subsidiaries (348) (202) --
Proceeds from the Sale of Other Assets and Premises 102 122 26
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (3,626) (6,097) 200
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits (1,490) 4,986 (3,450)
Net Increase in Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,436 973 1,382
Net Increase in Commercial Paper 301 320 131
Net Increase (Decrease) in Other Short-Term Borrowings 1,021 88 (290)
Intermediate- and Long-Term Debt:
Proceeds from Issuance 741 1,102 2,424
Repayments and Redemptions (1,327) (2,279) (1,968)
Redemption of Redeemable Preferred Stock -- (53) --
Stockholders' Equity:
Cash Dividends (393) (345) (301)
Proceeds from Issuance of Nonredeemable Preferred Stock 221 167 542
Redemption of Nonredeemable Preferred Stock (227) (250) (130)
Proceeds from Issuance of Common Stock 36 790 386
Purchase of Treasury Stock (306) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 13 5,499 (1,274)
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 34 (5) (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Due from Banks (1,355) 1,060 (1,069)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at Beginning of Year 6,068 5,008 6,077
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at End of Year $ 4,713 $ 6,068 $ 5,008
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Paid for: Interest $ 4,210 $ 4,767 $ 5,413
Income Taxes $ 190 $ 155 $ 167
Noncash Investing and Financing Activities:
Net Loan Transfers to Other Real Estate $ 204 $ 817 $ 507
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes on pages 56 to 77 are an integral part of the financial statements.
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
==================================================================================================================================
Consolidated Statement of Condition
The Chase Manhattan Bank, N.A. and Subsidiaries
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and Due from Banks $ 4,518 $ 5,772
Interest-Bearing Deposits Placed with Banks 7,002 5,431
Federal Funds Sold and Securities Purchased Under Resale Agreements 3,824 4,439
Trading Account Assets 13,088 6,309
Investment Securities:
Held to Maturity (Market Value of $1,739 and $684, Respectively) 1,760 657
Available for Sale Carried at Fair Value 4,502 6,766
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities 6,262 7,423
Loans 50,607 48,109
Less: Reserve for Possible Credit Losses 1,092 1,085
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, Net 49,515 47,024
Assets Held for Accelerated Disposition -- 219
Customers' Liability on Acceptances 520 689
Accrued Interest Receivable 966 566
Premises and Equipment 1,759 1,617
Other Assets 6,525 4,514
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $93,979 $84,003
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
Deposits:
Domestic Offices:
Noninterest-Bearing $11,648 $13,740
Interest-Bearing 17,888 21,276
Overseas Offices:
Interest-Bearing 2,320 2,473
Interest-Bearing 33,645 28,120
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 65,501 65,609
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 2,580 3,534
Other Short-Term Borrowings 2,308 1,253
Trading Account Liabilities 8,066 --
Acceptances Outstanding 525 696
Accrued Interest Payable 574 347
Accounts Payable, Accrued Expenses and Other Liabilities 4,620 3,088
Intermediate- and Long-Term Debt 2,803 3,032
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 86,977 77,559
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholder's Equity:
Capital Stock ($15 Par Value):
1994 1993
---------- ----------
<C> <C>
Number of Shares:
Authorized 81,744,445 81,744,445
Outstanding 61,038,415 60,699,597 916 910
Surplus 4,656 4,383
Net Unrealized Gains (Losses) on Investment Securities-Available for Sale (65) 187
Undivided Profits 1,495 964
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholder's Equity 7,002 6,444
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $93,979 $84,003
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes on pages 56 to 77 are an integral part of the financial statements.
Member Federal Deposit Insurance Corporation
</TABLE>
<PAGE> 56
=============================================================================
Notes to Financial Statements
The Chase Manhattan Corporation and Subsidiaries
Note 1. Significant Accounting Policies
The accounting policies followed by The Chase Manhattan Corporation (the
Company) and its subsidiaries are disclosed below. They are 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 Connecticut), The Chase Manhattan Bank of Maryland (Chase
Maryland), The Chase Manhattan Private Bank (Florida), N.A. (Chase Florida)
and Chase Bank of Arizona (Chase Arizona). Chase sold Chase Arizona during
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 refers to The Chase Manhattan Bank, N.A. and its subsidiaries,
including Chase Manhattan Overseas Banking Corporation (CMOBC), which holds
investments in overseas commercial banking and financial services
subsidiaries. The term nonbanking subsidiaries 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.
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.
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 derivative contracts used as part of
Chase's asset/liability management activities 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 securities, certain loans, precious metals and derivative
contracts. Positions are valued at estimated fair values.
Realized and unrealized gains (losses) related to foreign exchange
derivative contracts are recognized in Foreign Exchange Trading Revenue.
Realized and unrealized gains (losses) related to securities, certain
loans, precious metals, interest rate derivative contracts and commodity
contracts are recognized in Trading Account Revenue. 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. 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.
Interest revenue and expense arising from trading instruments are
included in the income statement as part of net interest revenue.
During 1993, Chase reported the fair value of trading derivative
contracts on a net basis in the Consolidated 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 derivative contracts to
be reported on a gross basis as trading account assets and liabilities in the
statement of condition beginning in 1994, except for contracts executed with
the same counterparty under legally enforceable master netting agreements,
which continue to be presented on a net basis.
Obligations to deliver securities sold but not yet purchased are
included in Trading Account Liabilities as a result of the adoption of
FIN 39. For 1993, these amounts were included in Accounts Payable, Accrued
Expenses and Other Liabilities.
Asset/Liability Management Activities
As part of its asset/liability management (ALM) activities, which include
both interest rate and foreign currency risk management, Chase enters into
various derivative contracts, including interest rate swaps and currency
exchange agreements and forward, futures, option, cap and floor contracts.
ALM contracts are accounted for in a manner consistent with the
accounting treatment appropriate for the asset or liability hedged by such
contracts, generally on an accrual basis. Swap and currency exchange
agreement income and expense are reported in Interest Revenue or Interest
Expense applicable to the related hedged assets or liabilities in the period
that they accrue. Yield-related payments or receipts associated with such
contracts are accrued over the terms of the contracts. Premiums on purchased
option and option-related products are amortized over the term of the option
contract. Gains (losses) realized on interest rate contracts that are
effective as hedges are generally deferred and amortized over the remaining
life of the related assets or liabilities. Such deferred gains and losses are
reflected in the carrying amounts of the related assets and liabilities and
are amortized to income as adjustments to Interest Revenue or Interest
Expense arising from those assets or liabilities.
Open derivative contracts linked to assets or liabilities that are
sold or otherwise disposed of are terminated at the time of disposition. Any
gains and losses on such derivative contracts are recognized in current
period income as an adjustment to the gain or loss on disposition of the
related assets or liabilities.
Investment Securities
Prior to December 31, 1992, all investment securities were carried at
historical cost, adjusted for amortization of premiums and accretion of
discounts. On 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 have been sold prior
to maturity were then carried at the lower of aggregate cost or market, with
any valuation adjustments reported in Investment Securities Gains (Losses).
At December 31, 1993, Chase adopted Statement of Financial Accounting
<PAGE> 57
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 are 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 income 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.
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 fair value. 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, except for
loans secured by 1-4 family residential properties, are generally charged off
against the Reserve for Possible Credit Losses according to established
delinquency schedules.
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 value, less estimated selling expenses,
on their acquisition dates and at the lower of such initial amount or
estimated fair value, less estimated selling expenses, thereafter. Subsequent
write-downs are recorded in Other Operating Expenses, along with operating
expenses of such properties, net of related revenue, and gains (losses) on
their dispositions.
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-five 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
<PAGE> 58
expenses as incurred, while major improvements are capitalized.
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 is
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 derivative contracts 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.
Earnings per 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 of certain instruments were not material and, therefore, not
presented in the financial statements.
===============================================================================
Note 2. Derivative Contracts
Effective December 31, 1994, SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," requires
disclosures about derivative contracts--swap, forward, futures, and
option-related contracts, and other financial instruments with similar
characteristics--distinguished between derivative contracts held
for trading and those used for purposes other than trading
(i.e., asset/liability management (ALM)).
Trading Activities
The nature and terms of trading derivative contracts--interest rate, foreign
exchange and commodity contracts--and a summary of the notional amounts and
related credit risk amounts at December 31, 1994 and 1993 are included in the
Trading Derivative Contracts section within the Management's Discussion and
Analysis (MD&A) on page 39.
The 1994 period-end fair value of trading derivative contract assets
of $8.3 billion and trading derivative contract liabilities of $8.0 billion
are included in the Trading Account Assets and Liabilities table in the MD&A
section on page 39. The 1994 average fair values of trading derivative
contract assets and liabilities were $10.2 billion and $9.7 billion,
respectively.
The net gains and losses arising from trading activities during 1994,
1993 and 1992, disaggregated by category consistent with the management of
these activities (i.e., foreign exchange and precious metals, interest rate
and commodity derivatives, and securities trading and underwriting) are
presented in the Total Trading and Trading-Related Revenues table in the MD&A
section on page 39.
Asset/Liability Management Activities
Derivative contracts used for ALM activities at December 31, 1994 and 1993
are discussed in the ALM Risk Management section on page 35 and Other Risk
Management Activities section on page 38 of the MD&A. The carrying values
and estimated fair values of these contracts are disclosed in Note 3 -- Fair
Value of Financial Instruments. The description of derivative contracts used
for ALM purposes is the same as that presented in the Trading Derivative
Contracts section on page 39 of the MD&A.
Credit and Market Risk
Credit risk, as defined by SFAS 105, "Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments
with Concentrations of Credit Risk," is the possibility that a loss may occur
from counterparty failure to perform according to the terms of the contract.
Credit exposure (i.e., the risk of accounting loss) exists when a trading
derivative contract has a positive fair value, which is recorded on-balance
sheet in trading account assets. For ALM contracts, credit exposure primarily
consists of accrued receivables on open swap contracts and unamortized
premiums on open option-related contracts.
Market risk is the risk of change in value due to changes in the
financial markets, such as changes in the level of interest and foreign
exchange rates, that may result in a negative impact to the fair value of the
derivative contracts.
===============================================================================
Note 3. 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 discounting 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. In addition, for those
<PAGE> 59
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, 1994 and 1993 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. 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, while still favorable,
has decreased from 1993, mainly as a result of the increasing interest rate
environment and the realization of gains from certain financial instruments
whose estimated fair values were higher than their carrying values at
December 31, 1993.
The net decline in the value of Chase's ALM derivative contracts from
1993 to 1994 was more than offset by a net increase in value of the related
linked balance sheet position. This net increase in value of the related
linked positions reflected the substantially higher economic value of Chase's
core deposit funding base and lower cost intermediate- and long-term debt.
The benefits of this low cost funding are currently being recognized in
income as a lower level of interest expense. However, the economic value of
the core deposit funding base is not reflected in the fair values disclosed
below, since SFAS 107 states that in estimating the fair value of deposit
liabilities, the value of core deposit intangibles cannot be taken into
consideration.
The estimated fair values and carrying values at December 31, 1994
and 1993, the methodologies used and key assumptions made to estimate fair
values follow.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Estimated Fair Estimated Fair
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Carrying Value Value Carrying Value Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Financial Instruments
Assets $ 13,789 $ 13,789 $ 14,214 $ 14,214
Liabilities (14,763) (14,763) (12,648) (12,648)
- ----------------------------------------------------------------------------------------------------------------------------------
Financial Instruments That Are Primarily Traded in Financial Markets
Assets:
Trading Account Assets* $ 15,109 $ 15,122 $ 6,933 $ 7,187
Investment Securities 7,219 7,160 9,074 9,135
Related Derivative Assets (Liabilities)** 29 (28)
Liabilities:
Trading Account Liabilities (9,664) (9,664) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Financial Instruments That Are Not Generally Traded
Assets:
Interest-Bearing Deposits Placed with Banks $ 6,791 $ 6,780 $ 5,309 $ 5,302
Assets Held for Accelerated Disposition--Loans -- -- 151 151
Other Assets--Financial Instruments 4,381 4,463 2,672 2,665
Related Derivative Assets (Liabilities)** (38) 7
Liabilities:
Deposits*** (70,272) (70,149) (71,237) (71,459)
Related Derivative Assets (Liabilities)** (315) 55
Other Short-Term Borrowings (2,884) (2,884) (1,813) (1,816)
Intermediate- and Long-Term Debt (5,070) (4,903) (5,641) (5,871)
Related Derivative Assets (Liabilities)** (195) 121
- ----------------------------------------------------------------------------------------------------------------------------------
Loans
Gross Loans $ 63,267 $ 62,782 $ 60,722 $ 60,952
Less: Unearned Discount and Fee Revenue 229 -- 229 --
Reserve for Possible Credit Losses 1,414 -- 1,425 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loans 61,624 62,782 59,068 60,952
Related Derivative Assets (Liabilities)** 18 (8)
- ----------------------------------------------------------------------------------------------------------------------------------
Commitments -- (8) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Included in these 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 fair value.
**The on-balance sheet amount of open purchased options and option-related contracts for 1994 was $169 million. At December
31, 1994, derivative fair values were comprised of gross positive fair values of $416 million and gross negative fair values
of $917 million.
***Carrying values exclude $316 million and $(272) million for 1994 and 1993, respectively, of deferred (gains) losses and
premiums on open purchased options and option-related contracts.
</TABLE>
<PAGE> 60
Derivative 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.
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 $2,509 million
and $2,181 million of financial instruments at December 31, 1994 and 1993,
respectively. These financial instruments have been valued at their carrying
values given the relatively short period of time between origination of the
instruments and their expected realization.
Financial Instruments That Are Primarily Traded in Financial 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 valued, for the
most part, by discounting estimated future cash flows using rates believed to
be appropriate.
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 amount payable on demand. Interest-
bearing time deposits were 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 were 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 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 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. 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 and what further cash flow adjustments would be
required 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.
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 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 discount
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, 1994, Chase had
approximately $31 billion, $11 billion and $3 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 $28 billion, $11 billion and $2 billion,
respectively, at December 31, 1993.
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 significant intangible value arises from Chase's core
deposit funding base, comprised of demand deposits, noninterest-bearing time
deposits, savings accounts and money market accounts, which represents a
low-cost stable source of funds. As interest rates rise, core deposits
increase in value as they provide a less costly funding source than other
funding alternatives.
Likewise, a significant intangible value arises from Chase's credit
card portfolio 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 Advantage Credit loan portfolio. Chase services a significant 1-4
family mortgage portfolio. 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.
<PAGE> 61
<TABLE>
<CAPTION>
==================================================================================================================================
Note 4. Loans
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993* 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic Offices:
Wholesale:
Commercial Real Estate
Construction and Development $ 610 $ 1,124 $ 3,252 $ 4,233 $ 4,924
Other Real Estate 1,445 1,975 3,492 4,370 4,137
Commercial and Industrial 8,291 8,032 9,185 9,972 12,950
Financial Institutions 989 1,391 1,718 2,028 2,543
Lease Financings 2,007 1,617 1,827 2,240 2,934
Other 977 1,460 1,421 1,365 2,050
Consumer:
Loans Secured by 1-4 Family Residential Properties 15,092 14,126 10,670 13,043 12,989
Credit Card Loans 7,733 6,426 6,317 7,370 8,552
Other 9,638 8,009 7,343 5,924 6,469
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Offices, Gross 46,782 44,160 45,225 50,545 57,548
Less: Unearned Discount and Fee Revenue 177 188 339 503 1,013
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Offices 46,605 43,972 44,886 50,042 56,535
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Offices:
Wholesale:
Commercial Real Estate 304 281 314 446 238
Commercial and Industrial 9,020 10,002 8,615 8,513 8,287
Financial Institutions 1,963 1,513 1,731 1,573 1,852
Loans to Governments and Official Institutions 866 972 3,478 3,407 3,178
Lease Financings 59 34 54 171 901
Other Loans 1,773 1,477 1,209 1,333 1,428
Consumer Loans:
Loans Secured by 1-4 Family Residential Properties 884 846 905 1,208 1,387
Credit Card Loans 390 283 294 245 369
Other 1,226 1,154 1,115 928 785
- ----------------------------------------------------------------------------------------------------------------------------------
Total Overseas Offices, Gross 16,485 16,562 17,715 17,824 18,425
Less: Unearned Discount and Fee Revenue 52 41 43 81 233
- ----------------------------------------------------------------------------------------------------------------------------------
Total Overseas Offices 16,433 16,521 17,672 17,743 18,192
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans $63,038 $60,493 $62,558 $67,785 $74,727
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Excludes accelerated disposition portfolio.
</TABLE>
At December 31, 1994 and 1993, unused conditional commitments to lend to
borrowers whose loans were in nonaccrual or restructured status aggregated
$11 million and $46 million, respectively.
==============================================================================
Note 5. Financial Instruments with Off-Balance Sheet Risk
SFAS 105 requires disclosures about financial instruments with off-balance
sheet risk and credit risk concentrations (see Note 7--Significant Credit Risk
Concentrations).
Credit risk, as defined by SFAS 105, is the possibility that loss may
occur from counterparty failure to perform according to the terms of the
contract. Such credit risk is controlled through credit approvals, limits and
monitoring procedures based on the same credit policies used for on-balance
sheet instruments. Chase attempts to limit its credit risk by dealing with
counterparties believed to be creditworthy and obtaining collateral, where
appropriate.
Chase segregates the required disclosures into three areas: lending-
related, trading and ALM. See Note 2 -- Derivative Contracts for further
discussion on trading and ALM activities.
<PAGE> 62
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Off-Balance Sheet Lending--Related Risk
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Contract Credit Risk Contract Credit Risk
($ in millions) Amount* Amount** Amount* Amount**
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments to Extend Credit*** $31,000 $31,000 $28,100 $28,100
Standby Letters of Credit and Foreign Office
Guarantees 11,400 11,400 11,400 11,400
Other Letters of Credit 2,900 2,900 2,100 2,100
- ----------------------------------------------------------------------------------------------------------------------------------
<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 $28.7 billion and $26.9 billion and Advantage Credit loan commitments of $2.5 billion
and $2.4 billion at December 31, 1994 and 1993, 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, 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 properties. 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 Chase'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, 1994, total SBLCs, which have been reduced by
approximately $1.7 billion for SBLCs participated to other financial
institutions or collateralized by cash or marketable securities, have been
issued in support of the obligations in the table below. These SBLCs have an
average risk profile generally comparable to investment grade obligations.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Remaining
Average
Maturities
Percentage (Months)
- -----------------------------------------------------------------------------
<S> <C> <C>
Private debt 15% 5
Public debt 1 35
Purchase of products and services 55 10
Other 29 15
- -----------------------------------------------------------------------------
</TABLE>
=============================================================================
Note 6. Reserve For Possible Credit Losses
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $1,425 $1,913 $1,960
Additions:
Provision for Possible Credit
Losses Charged to Expense 500 995 1,220
Provision for Loans Held for
Accelerated Disposition -- 566 --
Deductions:
Charge-Offs 704 1,511 1,370
Less: Recoveries 187 174 104
- -----------------------------------------------------------------------------
Net Charge-Offs 517 1,337 1,266
Writedowns of Loans Transferred
to the Accelerated Disposition
Portfolio -- (701) --
Reserves of Purchased (Disposed)
Subsidiaries and Other Adjustments 4 (10) 1
- -----------------------------------------------------------------------------
Foreign Exchange Translation
Adjustments 2 (1) (2)
- ------------------------------------------------------------------------------
Balance at End of Year $1,414 $1,425 $1,913
- ------------------------------------------------------------------------------
</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 $701 million of these loans as of March 31, 1993.
The Provision for Possible Credit Losses for 1994 and 1993, and related net
charge-offs and the Reserve for Possible Credit Losses did not apply to loans
or assets held for accelerated disposition.
<PAGE> 63
===============================================================================
Note 7. Significant Credit Risk Concentrations
Chase has identified several credit risk concentrations in relation to its
on- and off-balance sheet financial instruments. A credit risk concentration
is defined as a significant credit exposure to an individual or a group
engaged in similar activities or affected similarly by economic conditions.
A significant portion of Chase's financial instruments with off-balance sheet
risk are transacted with other financial institutions, such as banks and
broker-dealers. However, no one financial institution represents a credit risk
concentration.
A summary of credit risk concentrations of on-balance sheet
(principally loans) and off-balance sheet (principally commitments to extend
credit) financial instruments at December 31, 1994 and 1993 is set forth
below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
OECD
Depository
1-4 Family Institutions
Credit Residential Commercial and their
($ in billions) Cards Properties Real Estate Guarantees*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
On-Balance Sheet $ 8.1 $16.1** $2.4 $ 8.3
Off-Balance Sheet 28.7 1.2 .1 12.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total $36.8 $17.3 $2.5 $20.9
- ----------------------------------------------------------------------------------------------------------------------------------
1993
On-Balance Sheet $ 6.7 $ 15.1** $ 3.4*** $ 6.9
Off-Balance Sheet 26.9 0.9 0.1 12.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 33.6 $ 16.0 $ 3.5 $19.2
- ----------------------------------------------------------------------------------------------------------------------------------
<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 $109 million and $174 million in 1994 and 1993, respectively, of privately-issued mortgage-backed securities.
***Excludes $222 million of credit exposure related to assets in the accelerated disposition portfolio.
</TABLE>
=============================================================================
Note 8. Investment Securities
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Securities--Held to Maturity December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
($ in millions) Cost Gains Losses Value* Cost Gains Losses Value*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 115 $ -- $-- $ 115 $ 31 $ 2 $-- $ 33
Federal Agency Securities** 452 -- 21 431 662 4 -- 666
State and Political Subdivision Securities 335 3 4 334 419 28 1 446
Other Bonds, Notes and Debentures:
Securities Issued by OECD Central
Governments and their Agencies*** 724 2 10 716 16 -- -- 16
Securities Issued by Other Foreign
Central Governments and their Agencies 10 -- -- 10 10 -- -- 10
Privately-Issued Mortgage-Backed
Securities 33 -- -- 33 35 1 1 35
Corporate and Other Debt Securities 229 -- -- 229 35 -- -- 35
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Bonds, Notes and Debentures 996 2 10 988 96 1 1 96
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Reserve Bank and Other
Stock Investments 186 -- -- 186 176 -- -- 176
- ----------------------------------------------------------------------------------------------------------------------------------
Total $2,084 $ 5 $35 $2,054 $1,384 $35 $ 2 $1,417
- ----------------------------------------------------------------------------------------------------------------------------------
<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, 1992 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
$53 million, $610 million, $484 million, $116 million and $168 million, respectively.
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Securities--Available For Sale December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
($ in millions) Cost Gains Losses Value* Cost Gains Losses Value*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $2,445 $ 44 $ 71 $2,418 $2,273 $ 34 $-- $2,307
Federal Agency Securities** 646 5 30 621 1,202 16 5 1,213
State and Political Subdivision Securities 89 -- 1 88 -- -- -- --
Other Bonds, Notes and Debentures:
Securities Issued by OECD Central
Governments and their Agencies*** 537 1 16 522 1,535 30 1 1,564
Securities Issued by Other Foreign
Central Governments and their Agencies 811 5 102 714 1,476 180 38 1,618
Privately-Issued Mortgage-Backed Securities 77 -- 1 76 136 3 -- 139
Corporate and Other Debt Securities 173 17 2 188 318 21 1 338
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Bonds, Notes and Debentures 1,598 23 121 1,500 3,465 234 40 3,659
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Reserve Bank and Other
Stock Investments 422 86 -- 508 312 199 -- 511
- ----------------------------------------------------------------------------------------------------------------------------------
Total $5,200 $158 $223 $5,135 $7,252 $483 $45 $7,690
- ----------------------------------------------------------------------------------------------------------------------------------
<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, 1992 of U.S. Treasury Securities; Federal Agency Securities; Other Bonds, Notes and
Debentures; and Federal Reserve Bank and Other Stock Investments was $1,908 million, $632 million, $1,947 million and
$262 million, respectively.
</TABLE>
Interest and dividends on investment securities in terms of taxable interest
income, nontaxable interest income and dividends were for 1994: $624 million,
$28 million and $17 million; for 1993: $630 million, $34 million and $21
million; and for 1992: $515 million, $40 million and $24 million, respectively.
There were no sales of Investment Securities Held to Maturity in 1994
and 1993. In 1992, proceeds from sales of Investment Securities Held to
Maturity were $1,674 million, with realized gross gains and gross losses of
$36 million and $23 million, respectively.
For the year ended December 31, 1994, proceeds from sales of
Investment Securities Available for Sale were $5,218 million with realized
gross gains and gross losses of $218 million and $113 million, respectively.
For the year ended December 31, 1993, proceeds from sales of Investment
Securities at Lower of Cost or Market were $6,675 million with realized gross
gains and gross losses of $59 million and $ 12 million, respectively.
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, 1994.
The amortized cost and fair value of investment securities, excluding
mortgage-backed securities, at December 31, 1994 and 1993 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.
<PAGE> 65
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Securities--Held to Maturity
- ----------------------------------------------------------------------------------------------------------------------------------
After 1 After 5
Within But Within But Within After
($ in millions) 1 Year 5 Years 10 Years 10 Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
U.S. Treasury Securities:
Amortized Cost $ 5 $ 110 $ -- $ -- $ 115
Fair Value 5 110 -- -- 115
Yield 5.45% 5.94% --% --% 5.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Agency Securities:
Amortized Cost $ 52 $ 400 $ -- $ -- $ 452
Fair Value 51 380 -- -- 431
Yield 5.63% 7.75% --% --% 7.50%
- ----------------------------------------------------------------------------------------------------------------------------------
State and Political Subdivision Securities:
Amortized Cost $ 10 $ 74 $ 103 $ 148 $ 335
Fair Value 9 77 103 145 334
Yield 6.85% 10.68% 11.25% 11.25% 11.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Other Bonds, Notes and Debentures:
Amortized Cost $ 421 $ 559 $ 9 $ 7 $ 996
Fair Value 422 550 9 7 988
Yield 5.39% 7.57% 10.03% 10.25% 6.69%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Reserve Bank and Other Stock Investments:
Amortized Cost $ -- $ -- $ -- $ 186 $ 186
Fair Value -- -- -- 186 186
Yield --% --% --% 6.55% 6.55%
- ----------------------------------------------------------------------------------------------------------------------------------
1994--Total Investment Securities--Held to Maturity:
Amortized Cost $ 488 $1,143 $ 112 $ 341 $ 2,084
Fair Value 487 1,117 112 338 2,054
Yield 5.40% 7.42% 7.48% 6.89% 6.87%
- ----------------------------------------------------------------------------------------------------------------------------------
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%
- ----------------------------------------------------------------------------------------------------------------------------------
<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 1994, the annualized taxable equivalent adjustments for the maturity ranges and totals shown above are
none, $3 million, $4 million, $6 million and $13 million, respectively.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Securities--Available for Sale
- ----------------------------------------------------------------------------------------------------------------------------------
After 1 After 5
Within But Within But Within After
($ in millions) 1 Year 5 Years 10 Years 10 Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
U.S. Treasury Securities:
Amortized Cost $ 564 $1,881 $ -- $ -- $2,445
Fair Value 556 1,862 -- -- 2,418
Yield 4.83% 6.09% --% --% 5.80%
- ----------------------------------------------------------------------------------------------------------------------------------
Federal Agency Securities:
Amortized Cost $ 129 $ 515 $ 2 $ -- $ 646
Fair Value 126 493 2 -- 621
Yield 4.98% 6.08% 7.34% --% 5.87%
- ----------------------------------------------------------------------------------------------------------------------------------
State and Political Subdivision Securities:
Amortized Cost $ 88 $ 1 $ -- $ -- $ 89
Fair Value 87 1 -- -- 88
Yield 5.18% 6.29% --% --% 5.19%
- ----------------------------------------------------------------------------------------------------------------------------------
Other Bonds, Notes and Debentures:
Amortized Cost $ 348 $ 576 $ 280 $ 394 $1,598
Fair Value 348 569 249 334 1,500
Yield 10.97% 7.44% 9.23% 7.91% 8.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Other Stock Investments:
Amortized Cost $ -- $ -- $ -- $ 422 $ 422
Fair Value -- -- -- 508 508
Yield --% --% --% .96% .96%
- ----------------------------------------------------------------------------------------------------------------------------------
1994--Total Investment Securities--Available for Sale at Fair Value:
Amortized Cost $1,129 $2,973 $ 282 $ 816 $5,200
Fair Value 1,117 2,925 251 842 5,135
Yield 6.67% 6.35% 9.22% 4.32% 6.26%
- ----------------------------------------------------------------------------------------------------------------------------------
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%
- ----------------------------------------------------------------------------------------------------------------------------------
<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 1994, the annualized taxable equivalent adjustments for the maturity ranges and totals shown above are
$1 million, none, none, none and $1 million, respectively.
</TABLE>
<PAGE> 66
==============================================================================
Note 9. Intermediate- and Long-Term Debt
Intermediate- and Long-Term Debt consists of obligations having an original
maturity at issuance of more than one year. A summary of Intermediate- and
Long-Term Debt, net of unamortized original issue discount, outstanding at
December 31, 1994 and 1993 and certain applicable terms is presented below.
The distribution of maturities is based on contractual maturity or the
earliest date that the debt can be redeemed at the option of the holder.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Modified Amount Outstanding
Maturity Interest December 31, Other
($ in millions) Date Rate* 1994 1993 Data**
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Company:
Floating Rate Oil-Linked Notes 1994 4.61% $ -- $ 10
Notes 1994 7.38 -- 158 T
Medium-Term Notes 1995-1997 6.90-9.61 321 530
Floating Rate Medium-Term Notes 1995 5.79-7.38 58 409
Notes 1996 7.13 250 250 T
Notes 1997 6.46 227 227 T
Floating Rate Subordinated Notes 1997 6.25 175 175 S,T
Subordinated Notes 1997 7.55 200 200 S,T
Non-U.S. Currency Borrowings 1998 5.30 52 45
Floating Rate Notes 1999 6.10 10 11 R
Subordinated Medium-Term Notes 1999-2004 6.79-7.33 184 175 S,T
Subordinated Notes 1999 9.79 275 275 S,T
Subordinated Notes 1999 7.35 200 200 S,T
Subordinated Notes 1999 7.15 200 200 S,T
Floating Rate Subordinated Notes 2000 6.00 250 250 S,R,T
Subordinated Notes 2001 10.06 200 200 S,T
Subordinated Notes 2001 7.82 150 150 S,T
Subordinated Notes 2003 6.04 200 200 S,T
Floating Rate Subordinated Notes (Three Issues) 2003 5.50-5.75 333 341 S,T
Subordinated Notes 2004 6.49 149 -- S,R,T
Subordinated Notes 2004 5.33 148 -- S,R,T
Subordinated Notes 2005 5.61 198 198 S,T
Subordinated Notes 2008 5.66 199 199 S,T
Subordinated Notes 2008 6.07 99 99 S,T
Subordinated Notes 2009 5.54 149 -- S,T
Floating Rate Subordinated Notes 2009 6.50 311 321 S,R,T
Other Borrowings 1995-1996 *** 5 13
- ----------------------------------------------------------------------------------------------------------------------------------
Total 4,543 4,836
- ----------------------------------------------------------------------------------------------------------------------------------
Bank:
Student Loan Marketing Association Borrowings 1994 3.48-4.26 -- 500
Floating Rate Subordinated Note 1996 8.50 400 400 S,C
Subordinated Note Issued with Equity Contract 1999 9.25 150 150 S,C
Subordinated Note 1999 6.25 260 260 S,C
Fixed Rate Subordinated Notes (Three Issues) 2010 9.00 1,100 1,100 S,C
Subordinated Notes (Two Issues) 2012 9.00 450 450 S,C
Other Borrowings 1995-2013 *** 443 172
- ----------------------------------------------------------------------------------------------------------------------------------
Total 2,803 3,032
- ----------------------------------------------------------------------------------------------------------------------------------
Other Subsidiaries:
Subordinated Notes (Two Issues) 1997 5.63-7.25 235 -- S,C
Subordinated Note 2012 9.00 250 250 S,C
Other Borrowings 1995-2014 *** 84 133
- ----------------------------------------------------------------------------------------------------------------------------------
Total 569 383
- ----------------------------------------------------------------------------------------------------------------------------------
Less: Investment by the Company in a Subordinated Note Issued
with Equity Contract of the Bank and other Subordinated Notes 2,845 2,610 S,C
- ----------------------------------------------------------------------------------------------------------------------------------
Total Intermediate- and Long-Term Debt $5,070 $5,641
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*The interest rates shown have been adjusted to reflect the effect of ALM derivative contracts, primarily interest rate swaps,
used to convert a majority of the Company's fixed rate debt to floating rates. The interest rates shown for floating rate
issues, including the aforementioned converted issues, are those in effect at December 31, 1994, or in the case of those
issues redeemed in 1994 at the date of redemption. Such floating interest rates are determined by formulas, subject to
certain minimum rates.
**Issues indicated by:
"S"--Subordinated in right of payment to claims of depositors and certain other creditors, as applicable.
"C"--Held by the Company.
"R"--Redeemable in whole, or in part, at the option of Chase, prior to maturity.
"T"--Qualifies as Tier 2 capital under the Risk-based Capital guidelines.
***Consists of numerous borrowings that bear interest at rates generally reflecting market conditions in the applicable countries
at the time of issuance or repricing.
</TABLE>
<PAGE> 67
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 18.90% at December 31, 1994 and 3.50% to
19.80% at December 31, 1993. The weighted average interest rates on fixed
rate debt were 7.53% and 7.84% at December 31, 1994 and 1993, respectively.
The interest rates for floating rate subordinated and other debt
obligations ranged from 2.67% to 10.06% at December 31, 1994 and 3.48% to
8.56% at December 31, 1993. The weighted average interest rates on floating
rate debt were 6.80% and 4.42% at December 31, 1994 and December 31, 1993,
respectively.
The aggregate amounts of maturities for the five years subsequent to
December 31, 1994 are $231 million (1995), $384 million (1996), $760 million
(1997), $105 million (1998) and $869 million (1999).
==============================================================================
Note 10. Income Taxes
Chase adopted SFAS 109, "Accounting for Income Taxes," on a prospective basis
on January 1, 1993, resulting in a $500 million increase in both net income
and deferred tax assets from the cumulative effect of this change in
accounting principle. Prior to 1993, Chase followed SFAS 96 also entitled,
"Accounting for Income Taxes."
The current and deferred tax provisions for the years ended December
31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 89 $ 30 $ 19
State and Local 33 40 23
Foreign 136 142 97
- ------------------------------------------------------------------------------
Total Current 258 212 139
- ------------------------------------------------------------------------------
Deferred:
Federal 76 193 20
State and Local 11 32 9
Foreign (2) 5 19
- ------------------------------------------------------------------------------
Total Deferred 85 230 48
- ------------------------------------------------------------------------------
Total Provision for Income Taxes $343 $442 $187
- ------------------------------------------------------------------------------
</TABLE>
Although not affecting the total tax provision, current tax payments may
differ from the amounts reported above as current, pending final
determinations as to the timing of certain income, deductions and credits.
The effects, if any, of these determinations are reflected in the following
year.
The provision for income taxes for each of the years ended December 31,
1994, 1993 and 1992 varies from the amounts computed by applying the applicable
U.S. Federal income tax rate to income before taxes. The principal reasons for
these differences follow.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Taxes at U.S.
Statutory Income Tax Rate $619 $256 $281
Increase (Decrease):
Tax-Exempt Interest on
Investments in State and
Political Subdivision Securities (9) (10) (14)
Tax-Exempt Interest--Loans (4) (8) (10)
State and Local Income Taxes,
Net of Federal Income Tax
Benefits 60 25 21
Net Recognized
Federal Tax Benefits -- -- (116)
Reduction in Federal Deferred Tax
Asset Valuation Allowance (70) -- --
Other--Net (31) 2 24
- ------------------------------------------------------------------------------
Provision Applicable to Income
Before Taxes 565 265 186
Provision (Benefit) Applicable to
Foreign Exchange Translation
Adjustments Included in
Stockholders' Equity (18) 3 1
Provision (Benefit) Applicable to
Unrealized Gain (Loss) on
Investment Securities-
Available for Sale Included in
Stockholders' Equity (204) 174 --
- ------------------------------------------------------------------------------
Total Provision for Income Taxes $343 $442 $187
- ------------------------------------------------------------------------------
</TABLE>
Chase's effective tax rate on continuing operations was 32% for 1994, compared
with 36% and 23% for 1993 and 1992, respectively. The rate decreased in 1994
as compared to 1993, primarily as a result of the $70 million reduction in the
Federal deferred tax asset valuation allowance recorded during 1994 due to a
reassessment of the ultimate recovery of such deferred tax assets. The
increase from 1992 is primarily attributable to the adoption of SFAS 109 in
1993, since the tax benefits recorded upon such adoption are no longer
reflected as adjustments to the tax provision.
Chase's U.S. deferred tax asset increased in 1993 by $13 million as a
result of federal legislation enacted during 1993 increasing the corporate tax
rate to 35% from 34%.
<PAGE> 68
The significant components of deferred tax assets and liabilities at
December 31, 1994 and 1993, respectively, were as shown in the following
table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
December 31,
($ in millions) 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Liabilities:
Lease Financing Transactions and
Premises and Equipment $ 617 $ 635
Pension Obligation 23 74
Undistributed Earnings of Overseas
Subsidiaries 83 64
Investment Securities-Available for Sale -- 174
Securities Marked to Market for Tax
Purposes* 268 --
Other 40 8
- ------------------------------------------------------------------------------
Total Deferred Tax Liabilities 1,031 955
- ------------------------------------------------------------------------------
Deferred Tax Assets:
Reserve for Possible Credit Losses 483 451
Operating Expenses Not Yet Deducted for
Tax Purposes 305 264
Asset Valuation Reserves 149 288
Interest on Nonaccrual Loans 22 89
Investment Securities-Available for Sale 30 --
Securities Marked to Market for Tax
Purposes* -- 51
Other 117 82
- ------------------------------------------------------------------------------
Total Deferred Tax Assets Before
Valuation Allowance 1,106 1,225
Less: Valuation Allowance (29) (120)
- ------------------------------------------------------------------------------
Deferred Tax Assets Less Valuation Allowance 1,077 1,105
- ------------------------------------------------------------------------------
Total Net Deferred Tax Assets $ 46 $ 150
- ------------------------------------------------------------------------------
<FN>
*Securities as defined by IRC Section 475.
</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 tax-planning strategies exist.
The entire December 31, 1993 state and local valuation allowance of
approximately $21 million was released to the income statement during 1994,
as a reduction of the state and local tax provision, due to the realization
of the associated net deferred tax assets during the year.
The following table sets forth the income before taxes from domestic
and foreign operations for the years ended December 31, 1994, 1993 and 1992.
As specifically defined by the Securities and Exchange Commission for this
purpose, the determination of income from foreign operations is based on the
fact that such operations are located outside the United States.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Locations $ 725 $(199) $150
Foreign Locations 1,045 930 675
- ------------------------------------------------------------------------------
Total $1,770 $731 $825
- ------------------------------------------------------------------------------
</TABLE>
Income taxes applicable to investment securities gains for the years ended
December 31, 1994, 1993 and 1992 were $46 million, $15 million and $5 million,
respectively.
=============================================================================
Note 11. Employee Benefit Plans
Pension Plans
Chase has a number of pension plans covering substantially all employees.
Chase's major domestic plan employs, subject to approval from the Internal
Revenue Service, a cash balance form of defined benefit formula that provides
for contributions by Chase that are determined as a percentage of pay, based
on salary and service, subject to a minimum benefit level. Chase's funding
policy is to contribute annually an amount, based on actuarial present value
computations, which satisfies the Internal Revenue Service's funding standards.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Net Periodic Pension Cost
- ------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost--Benefits Earned
During the Year $ 96 $ 84 $ 84
Interest Cost on Projected Benefit
Obligation 48 44 39
Actual Return on Plan Assets 12 (83) (44)
Net Amortization and Deferral (80) 23 (17)
- ------------------------------------------------------------------------------
Net Periodic Pension Cost $ 76 $ 68 $ 62
- ------------------------------------------------------------------------------
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Funded Status
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
($ in millions) Benefits Assets* Benefits Assets*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated Benefit Obligations:
Vested $635 $ 114 $478 $ 96
Nonvested 32 8 26 4
- ----------------------------------------------------------------------------------------------------------------------------------
Total Accumulated Benefit Obligation $667 $ 122 $504 $100
- ----------------------------------------------------------------------------------------------------------------------------------
Projected Benefit Obligation for Service Rendered to Date $725 $ 137 $558 $121
Plan Assets at Fair Value** 726 30 768 30
- ----------------------------------------------------------------------------------------------------------------------------------
Plan Assets in Excess of (Less Than) Projected Benefit Obligations 1 (107) 210 (91)
Unrecognized Net Transition (Asset) Obligation (7) -- (9) 1
Unrecognized Prior Service Cost 20 3 21 --
Unrecognized Net (Gain) Loss 58 (2) (29) 13
Minimum Liability Adjustment -- -- -- (9)
- ----------------------------------------------------------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost Included in Other Assets (Liabilities) $ 72 $(106) $193 $(86)
- ----------------------------------------------------------------------------------------------------------------------------------
<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 8.50% for 1994 and 7.25% for 1993 and a rate
of increase in future compensation levels of 6.00% for both 1994 and 1993. The
assumed long-term rate of return on the major defined benefit plan's assets was
8.50% for 1994 and 1993. 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.
During 1994, Chase offered and completed a voluntary retirement
program in which eligible participants in Chase's major defined benefit pension
and postretirement benefit plans received accelerated and enhanced benefits if
they elected to retire under the program. The voluntary retirement program was
accounted for under SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
and a loss of $105 million, primarily relating to pension benefits, was
recorded.
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 effectively
freezes Chase's annual contribution for retiree medical benefits at twice the
1996 contribution per retiree. Once Chase's cost for retiree medical benefits
exceeds twice Chase's 1996 contribution per retiree for the retiree population
existing at that time, the shortfall will be borne by the retirees.
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) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Service Cost-Benefits Earned During the Year $ 6 $ 6
Interest Cost on Accumulated Postretirement
Benefit Obligation 16 21
Net Amortization and Deferral 11 14
- -----------------------------------------------------------------------------
Net Periodic Postretirement Benefit Cost $33 $41
- -----------------------------------------------------------------------------
</TABLE>
Prior to the adoption of SFAS 106, the annual expense associated with these
benefits of $11 million for 1992 was expensed as incurred.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $176 $179
Fully-Eligible Active Plan Participants 8 38
Other Active Plan Participants 49 88
- -----------------------------------------------------------------------------
Total Accumulated Postretirement Benefit Obligation $233 $305
Plan Assets at Fair Value -- --
- -----------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation in
Excess of Plan Assets $233 $305
Unrecognized Transition Obligation 248 261
Unrecognized Net (Gain) Loss (74) 17
- -----------------------------------------------------------------------------
Accrued Postretirement Benefit Cost $ 59 $ 27
- -----------------------------------------------------------------------------
</TABLE>
Assumptions used in determining the accumulated postretirement benefit
obligation included a weighted-average discount rate of 8.50% for 1994 and
7.25% for 1993. The weighted-average health care cost trend rate was 10.5%
for 1994, gradually decreasing to 5.5% by 2005 and thereafter. The weighted-
average health care cost trend rate was 12.0% for 1993, gradually decreasing
to 5.6% by 2005 and thereafter.
The health care cost trend rate has an 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, 1994 by approximately
$6 million and the aggregate of the service and interest cost components of
the 1994 net periodic postretirement benefit cost by approximately $1 million.
<PAGE> 70
Other Benefit Plans
Chase also provides certain benefits to former or inactive employees after
employment but before retirement. These benefits include disability, health
care and life insurance. During 1993, Chase adopted SFAS 112, "Employers'
Accounting for Postemployment Benefits," which requires accrual of the cost
of such benefits. The impact of SFAS 112 was not material for both 1994 and
1993.
==============================================================================
Note 12. 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, 1994 follows:
- --The Chase Manhattan Bank of Canada--up to U.S. $250 million for promissory
notes.
- --Chase Securities, Inc.--with the Bank or certain of its subsidiaries for
varying amounts for repurchase and reverse repurchase agreements involving
U.S. Treasury securities, certain swap and option transactions and certain
other transactions.
- --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 1994, 1993 and 1992 was
approximately $203 million, $237 million and $222 million, respectively.
Minimum future rentals under long-term noncancelable operating leases
at December 31, 1994 are shown below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Years ($ in millions)
- -----------------------------------------------------------------------------
<S> <C>
1995 $ 164
1996 144
1997 111
1998 88
1999 79
2000 and Thereafter (Aggregate) 754
- -----------------------------------------------------------------------------
Total Minimum Future Rentals $1,340
- -----------------------------------------------------------------------------
</TABLE>
Litigation
Various actions and proceedings are pending against the Company, the Bank and
certain of their subsidiaries, in which claims for substantial money damages
are asserted based on alleged violations of various laws. Management, after
consultation with legal counsel, is of the opinion that the ultimate effect
on Chase of all such pending actions and proceedings would not be material
in relation to its financial position or its results of operations.
==============================================================================
Note 13. Other Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Accounts Receivable $1,521 $1,261
Real Estate Properties Acquired in
Satisfaction of Loans* 257 905
Goodwill 311 185
Other Intangible Assets 813 607
Due for Securities Sold 2,127 558
Investments in Associated Companies 56 158
Other 2,526 1,827
- -----------------------------------------------------------------------------
Total Other Assets $7,611 $5,501
- -----------------------------------------------------------------------------
<FN>
*Included in the 1994 and 1993 amounts were $220 million and $766 million,
respectively, of in-substance foreclosures.
</TABLE>
==============================================================================
Note 14. Accounts Payable, Accrued Expenses
and Other Liabilities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Accounts Payable $ 590 $1,057
Accrued Taxes and Other Expenses 1,489 1,185
Due for Securities Purchased 1,919 388
Securities Sold But Not Yet Purchased --* 736
Other Liabilities 1,853 1,185
- -----------------------------------------------------------------------------
Total Accounts Payable, Accrued Expenses
and Other Liabilities $5,851 $4,551
- -----------------------------------------------------------------------------
<FN>
*For 1994, amounts have been reclassified to Trading Account Liabilities with
the adoption of FIN 39.
</TABLE>
<PAGE> 71
===============================================================================
Note 15. 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, 1994, 1993 and 1992, 56,000,000, 51,439,738 and
49,539,738 shares, respectively, of nonredeemable preferred stock were
outstanding. The stated value of shares of Series G, H, I, J, K, L, M and
N is $25 per share.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Adjust- Total
Floating Floating able Non-
Rate Rate 10.50% 9.76% 10.84% 9.08% 8.50% 8.32% 8.40% Rate redeem-
Series E* Series F* Series G Series H Series I Series J Series K Series L Series M Series N* able
($ and Shares 5.0 4.5 5.6 4.0 8.0 6.0 6.8 9.6 6.9 9.1 Preferred
in millions) Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
December 31,:
1994 $ -- $ -- $140 $100 $200 $150 $170 $240 $172 $228 $1,400
1993 -- 227 140 100 200 150 170 240 172 -- 1,399
1992 250 227 140 100 200 150 170 240 -- -- 1,477
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustable Dividend
Rates:
Minimum Rate 7.50% 6.00% --% --% --% --% --% --% --% 4.50%
Maximum Rate 16.25 15.00 -- -- -- -- -- -- -- 10.50
- ----------------------------------------------------------------------------------------------------------------------------------
Selected Per Share
Information
Liquidation Preference** $ 50 $ 50 $ 25 $ 25 $ 25 $ 25 $ 25 $ 25 $ 25 $ 25
Earliest Redemption Date *** **** 9/30/98 9/30/99 6/30/01 3/31/97 6/30/97 9/30/97 3/31/98 6/30/99
Redemption Amount** *** **** $ 25 $ 25 $ 25 $ 25 $ 25 $ 25 $ 25 $ 25
- ----------------------------------------------------------------------------------------------------------------------------------
Dividend Rate Per Annum
at Year-End:
1994 --% --% 10.50% 9.76% 10.84% 9.08% 8.50% 8.32% 8.40% 6.51%
1993 -- 6.00 10.50 9.76 10.84 9.08 8.50 8.32 8.40 --
1992 8.05 7.50 10.50 9.76 10.84 9.08 8.50 8.32 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Floating rates are based on certain money market rates.
**Plus accrued and unpaid dividends. ***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, for a total amount of approximately $254 million.
****The entire 4.5 million shares of Series F were redeemed on July 14, 1994 at a price of $50.00 per share plus accrued
dividends, for a total amount of approximately $229 million.
</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 16. 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, 1994
- -----------------------------------------------------------------------------
<S> <C>
Dividend Reinvestment and Stock Purchase Plan 9,251,030
Stock Option and Incentive Plans 18,154,383
Common Stock Subscription Warrants 3,310,677
Employee Stock Option Plan 14,000,000
- -----------------------------------------------------------------------------
Total 44,716,090
- -----------------------------------------------------------------------------
</TABLE>
Under the Dividend Reinvestment and Stock Purchase Plan, as in effect at
December 31, 1994, domestic common stockholders of record may reinvest all
or part of their quarterly cash 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 $17
million and $1 million, respectively, in 1994.
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 with respect to 3,315,000
shares of common stock (at an exercise price of $34.6125 per share through
1996) in settlement of a previously reported legal action. The warrants expire
on June 30, 1996. Approximately 2,000 warrants were exercised in both 1994
and 1993, respectively.
==============================================================================
Note 17. 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
<PAGE> 72
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 18. Stock Option and Incentive Plans
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Executive Incentive Plans
- ----------------------------------------------------------------------------------------------------------------------------------
Stock Options
with Stock
Stock Appreciation Option Price
Options Rights Per Share
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1992 4,883,579 664,901 $ 10.625--$41.000
Granted during 1993 1,672,050 -- 29.938
Exercised during 1993 (750,321) (41,432) 10.625-- 31.156
Canceled during 1993 (99,432) (19,311) 10.625-- 41.000
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 5,705,876 604,158 $ 10.625--$41.000
Granted during 1994 2,593,700 -- 35.375-- 35.500
Exercised during 1994 (787,250) (123,208) 10.625-- 37.813
Canceled during 1994 (332,766) (105,264) 10.625-- 41.000
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 7,179,560 375,686 $ 10.625--$41.000
- ----------------------------------------------------------------------------------------------------------------------------------
Exercisable at December 31, 1993 3,870,282 604,158 $ 10.625--$41.000
- ----------------------------------------------------------------------------------------------------------------------------------
Exercisable at December 31, 1994 4,668,860 375,686 $ 10.625--$41.000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Executive Incentive Plans
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 and
restricted stock units.
In accordance with the plans, options may be granted from time to
time at a purchase price per share not less than the market price on the date
of grant and are generally 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.
On May 1, 1994, The Chase Manhattan 1994 Long-Term Incentive Plan
(1994 Plan) became effective, replacing The Chase Manhattan 1987 Long-Term
Incentive Plan (1987 Plan). Under the 1994 Plan, the total number of shares
of common stock as to which options and restricted stock units that could
have been granted between May 1, 1994 and December 31, 1994 was 100,000
shares. During 1994, 2,500 stock options were granted under the 1994 Plan.
The maximum number of shares of common stock as to which options and
<PAGE> 73
restricted stock units could be awarded in 1995 is approximately 2.7 million
shares.
During 1994, approximately 150,000 restricted stock units were
granted under the 1987 Plan. The amounts granted were in compliance with
the 1987 Plan limitations in effect prior to May 1, 1994. During 1993
approximately 210,000 restricted stock units were granted under the 1987
Plan. At December 31, 1994, approximately 688,000 restricted stock units were
outstanding.
Employee Stock Option Plan
On January 19, 1994, Chase adopted a broad-based employee stock option plan.
Under the plan, substantially all full-time employees were awarded options to
purchase 400 shares of common stock, 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. Employees who begin employment after
January 19, 1994 are awarded options to purchase a proportionately reduced
number of shares based on the time remaining between the commencement of
employment and the first date the options can be excercised, which is January
19, 1997. No options will be granted after September 30, 1996. 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. No options will be
granted under this plan once the average share price, over a defined period,
reaches $52 on or before September 30, 1996. Neither the grant nor the
exercise of the options will result in a charge to the Corporation's earnings
under current accounting rules.
Following is the activity in the Employee Stock Option Plan during
1994:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Employee Stock Option Plan
- -----------------------------------------------------------------------------
Stock Option Price
Options Per Share
- -----------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1993 -- $ --
Granted during 1994 15,554,978 32.00-38.50
Exercised during 1994 -- --
Canceled during 1994 (2,369,486) 32.00-38.50
Outstanding at December 31, 1994 13,185,492 $32.00-38.50
- -----------------------------------------------------------------------------
</TABLE>
==============================================================================
Note 19. Fees and Commissions
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Fees and Commissions:
Consumer Banking $ 638 $ 457 $ 549
Trust and Fiduciary 567 465 407
Investment Banking 233 194 200
Other 438 446 426
- -----------------------------------------------------------------------------
Total Fees and Commissions $1,876 $1,562 $1,582
- -----------------------------------------------------------------------------
</TABLE>
==============================================================================
Note 20. Other Expenses
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of Goodwill and
Other Intangible Assets $ 77 $ 78 $ 79
Real Estate Properties Acquired in
Satisfaction of Loans, Net 7 213 122
Federal Deposit Insurance
Corporation Expense 90 97 96
Consulting and External Services 377 325 291
Marketing and Public Relations 203 178 158
Supplies, Postage and Shipping 134 132 128
Communications 124 104 107
Travel 128 106 100
Other 208 190 203
- -----------------------------------------------------------------------------
Total Other Expenses $1,348 $1,423 $1,284
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 74
==============================================================================
Note 21. 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:
- --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.
- --Allocation of capital based on an internal methodology that takes into
account risks associated with businesses in each geographic area.
- --Allocation of expenses incurred by one geographic area on behalf of another,
including general and administrative costs.
- --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.
- --Allowance for the differences between foreign and United States tax rates.
The following table sets forth estimated Average Assets at December
31, 1994, 1993 and 1992 and estimated Revenue, Expenses, Income (Loss) Before
Taxes and Net Income (Loss) for the respective years then ended.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Net
($ in millions) Average Assets Revenue* Expenses** Before Taxes Income (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic $ 77,582 $ 4,599 $ 3,617 $ 982 $ 659
- ----------------------------------------------------------------------------------------------------------------------------------
International:
Asia 12,526 526 473 53 45
Europe, Middle East and Africa 16,475 675 519 156 111
Western Hemisphere 12,215 942 363 579 390
- ----------------------------------------------------------------------------------------------------------------------------------
Total International 41,216 2,143 1,355 788 546
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 118,798 $ 6,742 $ 4,972 $1,770 $1,205
- ----------------------------------------------------------------------------------------------------------------------------------
1993
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic $ 68,049 $ 4,618 $ 4,828 $ (210) $ 105
- ----------------------------------------------------------------------------------------------------------------------------------
International:
Asia 9,399 687 418 269 164
Europe, Middle East and Africa 12,718 701 540 161 103
Western Hemisphere 12,511 806 295 511 594
- ----------------------------------------------------------------------------------------------------------------------------------
Total International 34,628 2,194 1,253 941 861
- ----------------------------------------------------------------------------------------------------------------------------------
Total*** $ 102,677 $ 6,812 $ 6,081 $ 731 $ 966
- ----------------------------------------------------------------------------------------------------------------------------------
1992
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic $ 70,344 $ 4,100 $ 3,850 $ 250 $ 168
- ----------------------------------------------------------------------------------------------------------------------------------
International:
Asia 8,980 542 348 194 121
Europe, Middle East and Africa 10,630 594 588 6 (3)
Western Hemisphere 10,398 677 302 375 353
- ----------------------------------------------------------------------------------------------------------------------------------
Total International**** 30,008 1,813 1,238 575 471
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 100,352 $ 5,913 $ 5,088 $ 825 $ 639
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Total Revenue is composed of Net Interest Revenue and Total Other Operating Revenue.
**Total Expenses are composed of Total Other Operating Expenses and Provisions.
***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 reflect previously unrecorded deferred tax assets related to prior period refinancing
country and commercial real estate loan 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 1994, 1993 and 1992, net foreign exchange translation losses on investments
in overseas branches, subsidiaries and associated companies, included in
revenue, amounted to approximately $7 million, $28 million and $30 million,
respectively, after applicable income taxes.
<PAGE> 75
==============================================================================
Note 22. The Chase Manhattan Corporation (Company Only)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Condensed Balance Sheet
The Chase Manhattan Corporation (Company Only)
- -----------------------------------------------------------------------------
December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Demand Deposits with the Bank $ 11 $ 8
Money Market Instruments with
the Bank and Nonbanking Subsidiary 1,710 1,414
Notes Receivable from Subsidiaries:
Nonbanking Subsidiaries 329 925
Banking Subsidiaries 1 1
Investment Securities:
Available for Sale Carried at Fair Value 295 456
Receivables from Banking Subsidiaries:
Subordinated Debentures from:
The Bank 2,210 2,210
Chase USA 250 250
Subordinated Equity Contract Note
from the Bank 150 150
Receivable from Nonbanking Subsidiary 235 --
Investments in Subsidiaries (at Equity in
Net Assets):
Banking Subsidiaries:
The Bank 7,002 6,444
Other Banking Subsidiaries 1,855 1,699
Nonbanking Subsidiaries 773 955
Other Assets 186 196
- -----------------------------------------------------------------------------
Total Assets $15,007 $14,708
- -----------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Commercial Paper $ 1,779 $ 1,521
Other Liabilities 326 229
Intermediate- and Long-Term Debt 4,543 4,836
- -----------------------------------------------------------------------------
Total Liabilities 6,648 6,586
- -----------------------------------------------------------------------------
Net Unrealized Gains (Losses) on
Investment Securities--
Available for Sale (35) 264
Other Stockholders' Equity 8,394 7,858
- -----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $15,007 $14,708
- -----------------------------------------------------------------------------
</TABLE>
Notes Receivable from Nonbanking Subsidiaries of the Company are evidenced by
promissory notes. The average interest rates earned on these notes were
4.29%, 4.10% and 4.67% for the years 1994, 1993 and 1992, respectively.
These notes represent funding of the nonbanking subsidiaries.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Condensed Statement of Income
The Chase Manhattan Corporation (Company Only)
- -----------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Dividends Received:
The Bank $ 238 $107 $ --
Other Banking Subsidiaries 77 200 271
Nonbanking Subsidiaries -- 38 27
Investment Securities 2 2 2
- -----------------------------------------------------------------------------
317 347 300
Interest Revenue on Receivables:
Banking Subsidiaries 239 225 188
Nonbanking Subsidiaries 47 84 122
- -----------------------------------------------------------------------------
286 309 310
Interest on Instruments with Banking
and Nonbanking Subsidiaries 58 29 33
Interest on Investment Securities 11 17 14
Interest on Securities Purchased
Under Resale Agreements with Others -- -- 2
Other Revenue 27 21 36
- -----------------------------------------------------------------------------
Total Revenue 699 723 695
- -----------------------------------------------------------------------------
Interest Expense
Commercial Paper 71 48 40
Other Short-Term Borrowings 1 3 15
Intermediate- and Long-Term Debt 261 271 342
Other Expenses 43 46 44
- -----------------------------------------------------------------------------
Total Expenses 376 368 441
- -----------------------------------------------------------------------------
Income Before Income Taxes (Benefits)
and Equity in Undistributed
Net Income of Subsidiaries 323 355 254
Applicable Income Taxes (Benefits) (4) 37 (7)
Equity in Undistributed Net Income
of Subsidiaries 878 648 378
- -----------------------------------------------------------------------------
Net Income $1,205 $966 $639
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Condensed Statement of Cash Flows
The Chase Manhattan Corporation (Company Only)
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,205 $ 966 $ 639
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Income of Subsidiaries (878) (648) (378)
Accretion and Amortization 11 5 11
Deferred Income Taxes (Benefits) (35) 11 2
Net Gains on Sales of Assets (27) (15) (31)
Net (Increase) Decrease in Operating Assets 9 (17) (8)
Net Increase (Decrease) in Other Liabilities 132 (72) (86)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 417 230 149
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Placings of Interest-Bearing Deposits with the Bank (86,701) (101,449) (110,056)
Proceeds from Sales and Maturities of Interest-Bearing Deposits Placed with
the Bank 86,449 101,024 110,525
Notes Receivable from Nonbanking and Banking Subsidiaries:
Repayments 128,581 105,419 97,947
Issuances (127,985) (104,477) (97,402)
Investment Securities--Held to Maturity:
Payments for Purchases -- -- (450)
Proceeds from Sales -- -- 7
Available for Sale Carried at Fair Value;
At Lower of Cost or Market in 1993 Payments for Purchases (323) (258) --
Proceeds from Sales 13 102 --
Proceeds from Maturities 425 250 --
Net Increase in Securities Purchased Under Resale Agreements with Nonbanking Subsidiary (45) (25) (85)
Purchase of Subordinated Debentures of Nonbanking Subsidiary (235) -- --
Purchase of Subordinated Debentures of Banking Subsidiaries -- (260) (700)
Investments in Subsidiaries, Net 111 (440) (786)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 290 (114) (1,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase in Short-Term Borrowings 258 131 133
Intermediate- and Long-Term Debt:
Proceeds from Issuance 462 1,094 1,642
Repayments (755) (1,674) (1,395)
Cash Dividends (393) (345) (301)
Redemption of Redeemable Preferred Stock -- (53) --
Proceeds from Issuance of Nonredeemable Preferred Stock 221 167 542
Redemption of Nonredeemable Preferred Stock (227) (250) (130)
Proceeds from Issuance of Common Stock 36 790 386
Purchase of Treasury Stock (306) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities (704) (140) 877
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Demand Deposits with the Bank 3 (24) 26
- ----------------------------------------------------------------------------------------------------------------------------------
Demand Deposits with the Bank at Beginning of Year 8 32 6
- ----------------------------------------------------------------------------------------------------------------------------------
Demand Deposits with the Bank at End of Year $ 11 $ 8 $ 32
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Paid for:
Interest $ 335 $ 326 $ 395
Income Tax (Benefits) $ -- $ (2) $ 18
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 77
==============================================================================
Note 23. Pledged Assets and Required Reserves
Pledged assets consisted of certain investment and trading account securities
and other assets aggregating approximately $11.3 billion at December 31, 1994.
Of these, approximately $7.8 billion were pledged to secure repurchase
agreements and approximately $3.5 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, 1994 and 1993. Average required reserves during 1994 and 1993
were $0.6 billion.
==============================================================================
Note 24. Regulatory Limitations
The Federal Reserve Act and regulations thereunder impose various legal
limitations on the extent to which banks with deposits 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 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. 56, a national bank may not pay a dividend in an amount greater than
undivided net profits. Under the provisions of 12 U.S.C. 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
income for that year, combined with its retained net income for the preceding
two calendar years, less any required transfers to surplus.
At December 31, 1994, under the more restrictive of these
limitations, the Bank could declare dividends in 1995 of approximately $1.4
billion, combined with an additional amount equal to its net income for 1995
up to the date of any dividend declaration. Under applicable state and
federal laws, Chase USA and Chase Maryland could declare dividends in 1995 of
approximately $1 billion and $8 million, respectively, combined with an
additional amount equal to their respective retained net income for 1995 up
to the date of any dividend declaration. In determining whether, and to what
extent, to pay dividends, each subsidiary bank must also consider the effect
of applicable regulatory capital guidelines and leverage limitations.
<PAGE> 78
<TABLE>
<CAPTION>
=================================================================================================================================
Consolidated Summary of Quarterly Financial Information
The Chase Manhattan Corporation and Subsidiaries
1994 Quarter Ended
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per common share data) Dec. 31, 1994 Sept. 30, 1994 June 30, 1994 March 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Revenue $1,946 $1,801 $2,305 $2,082
Interest Expense 1,042 885 1,387 1,131
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue 904 916 918 951
Provision for Possible Credit Losses 90 100 150 160
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue After Provision for Possible Credit Losses 814 816 768 791
- ----------------------------------------------------------------------------------------------------------------------------------
Other Operating Revenue 673 727 800 853
Other Operating Expenses 1,275 1,067 1,073 1,057
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 212 476 495 587
Applicable Income Taxes (Benefits) (17) 171 188 223
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 229 $ 305 $ 307 $ 364
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 199 $ 274 $ 272 $ 333
- ----------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding (in millions) 179.8 184.4 186.2 185.4
Primary Earnings Per Common Share $ 1.10 $ 1.49 $ 1.46 $ 1.80
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared Per Common Share $ .40 $ .40 $ .33 $ .33
- ----------------------------------------------------------------------------------------------------------------------------------
1993 Quarter Ended
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per common share data) Dec. 31, 1993 Sept. 30, 1993 June 30, 1993 March 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
1992 Quarter Ended
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per common share data) Dec. 31, 1992 Sept. 30, 1992 June 30, 1992 March 31, 1992
- ----------------------------------------------------------------------------------------------------------------------------------
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>
<PAGE> 79
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue Analysis--Taxable Equivalent Basis*
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic Offices
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Revenue:
Financial Statement Basis $ 2,664 $ 2,960 $ 2,761
Taxable Equivalent Basis 2,684 3.37% 2,983 4.33% 2,793 3.66%
- --as a % of Average Gross Interest-Earning Assets 4.14 5.01 4.55
- ----------------------------------------------------------------------------------------------------------------------------------
Average Balances: Gross Interest-Earning Assets 64,759 7.42 59,565 7.29 61,442 8.07
Interest-Bearing Liabilities** 52,354 4.05 45,953 2.96 49,042 4.41
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Offices
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue:
Financial Statement Basis 1,025 903 803
Taxable Equivalent Basis 1,030 2.74 909 2.93 810 2.84
- --as a % of Average Gross Interest-Earning Assets 3.35 3.00 3.04
- ----------------------------------------------------------------------------------------------------------------------------------
Average Balances: Gross Interest-Earning Assets 30,723 10.91 30,286 13.72 26,675 14.20
Interest-Bearing Liabilities** 28,445 8.17 30,092 10.79 26,204 11.36
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue:
Financial Statement Basis 3,689 3,863 3,564
Taxable Equivalent Basis 3,714 3.05 3,892 3.40 3,603 3.09
- --as a % of Average Gross Interest-Earning Assets 3.89 4.33 4.09
- ----------------------------------------------------------------------------------------------------------------------------------
Average Balances: Gross Interest-Earning Assets 95,482 8.55 89,851 9.46 88,117 9.92
Interest-Bearing Liabilities 80,799 5.50 76,045 6.06 75,246 6.83
- ----------------------------------------------------------------------------------------------------------------------------------
<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>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue--Taxable Equivalent Basis Increase (Decrease) due to
Changes in Average Balances and Interest Rates*
- ----------------------------------------------------------------------------------------------------------------------------------
1994 vs. 1993 1993 vs. 1992
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) Balance Rate Total Balance Rate Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-Bearing Deposits Placed with Banks $ 34 $(253) $(219) $ 146 $(188) $ (42)
Federal Funds Sold and Securities Purchased Under
Resale Agreements 319 (71) 248 197 61 258
Trading Account Assets 134 44 178 (6) (68) (74)
Investment Securities 89 (106) (17) 138 (37) 101
Loans: Domestic Offices 91 84 175 (334) (273) (607)
Overseas Offices (186) (472) (658) 88 (22) 66
Accelerated Disposition Portfolio--Interest-Earning (48) 3 (45) 51 - 51
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets 433 (771) (338) 280 (527) (247)
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits: Domestic Offices (73) 227 154 (59) (497) (556)
Overseas Offices 197 (39) 158 212 (577) (365)
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 201 (12) 189 (10) (5) (15)
Other Short-Term Borrowings 334 (816) (482) 16 522 538
Intermediate- and Long-Term Debt (80) (99) (179) (40) (98) (138)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 579 (739) (160) 119 (655) (536)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue--Taxable Equivalent Basis $(146) $ (32) $(178) $ 161 $ 128 $ 289
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Changes not due solely to average balances or interest rates have been allocated equally to average balances and interest rates.
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
=================================================================================================================================
Average Balances, Interest and Average Rates--Taxable Equivalent
The Chase Manhattan Corporation and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
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 $ 7,221 $ 498 6.90% $ 6,834 $ 717 10.49%
Federal Funds Sold and Securities Purchased Under Resale Agreements 13,332 1,277 9.58 10,106 1,029 10.18
Trading Account Assets--Interest-Earning* 6,434 420 6.53 4,237 242 5.71
Investment Securities:
Held to Maturity:
Taxable 1,339 117 8.76 1,010 134 13.25
Tax Exempt 368 42 11.40 449 51 11.46
- ----------------------------------------------------------------------------------------------------------------------------------
Total Held to Maturity 1,707 159 9.33 1,459 185 12.70
Available for Sale:
Taxable 5,949 524 8.81 5,305 517 9.75
Tax Exempt 33 2 5.67 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Available for Sale 5,982 526 8.80** 5,305 517 9.75**
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities 7,689 685 8.91 6,764 702 10.38
Loans:
Domestic Offices 44,021 3,781 8.59 42,947 3,606 8.39
Overseas Offices 16,742 1,492 8.91 18,559 2,150 11.59
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans 60,763 5,273 8.68 61,506 5,756 9.36
Less: Reserve for Possible Credit Losses*** 1,430 -- -- 1,933 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, Net 59,333 5,273 8.68 59,573 5,756 9.36
- ----------------------------------------------------------------------------------------------------------------------------------
Accelerated Disposition Portfolio, Interest-Earning 43 6 14.16 404 51 12.68
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets***, Net 94,052 8,159 8.55 87,918 8,497 9.46
- ----------------------------------------------------------------------------------------------------------------------------------
Summary-Gross Interest-Earning Assets:
Domestic Offices 64,759 4,806 7.42 59,565 4,342 7.29
Overseas Offices 30,723 3,353 10.91 30,286 4,155 13.72
- ----------------------------------------------------------------------------------------------------------------------------------
Total Gross Interest-Earning Assets 95,482 $8,159 8.55% 89,851 $8,497 9.46%
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-Earning Assets:
Cash and Due from Banks 6,050 6,211
Trading Account Assets--Noninterest-Earning**** 10,177 --
Customers' Liability on Acceptances 657 743
Premises and Equipment 1,825 1,938
Accrued Interest Receivable 904 750
Other Assets 5,133 5,117
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-Earning Assets 24,746 14,759
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $118,798 $102,677
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Domestic Offices:
Savings and Negotiable Order of Withdrawal Deposits $ 5,498 $ 106 1.93% $ 5,386 $ 104 1.93%
Money Market Deposits 10,684 216 2.02 11,385 161 1.41
Negotiable Certificates of Deposit 1,311 99 7.53 1,959 139 7.08
Other Time Deposits 6,534 293 4.49 8,181 156 1.91
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Offices 24,027 714 2.97 26,911 560 2.08
Overseas Offices 32,055 1,612 5.03 28,196 1,454 5.15
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 56,082 2,326 4.15 55,107 2,014 3.65
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 15,265 759 4.97 11,269 570 5.06
Other Short-Term Borrowings:
Domestic Offices 3,138 217 6.91 2,323 130 5.59
Overseas Offices 1,105 831 75.16 981 1,400 142.71
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Short-Term Borrowings 4,243 1,048 24.69 3,304 1,530 46.31
Intermediate- and Long-Term Debt 5,209 312 6.00 6,365 491 7.71
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 80,799 4,445 5.50 76,045 4,605 6.06
- ----------------------------------------------------------------------------------------------------------------------------------
Summary--Interest-Bearing Liabilities:
Domestic Offices 52,354 2,122 4.05 45,953 1,359 2.96
Overseas Offices 28,445 2,323 8.17 30,092 3,246 10.79
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-Bearing Liabilities:
Deposits in Domestic Offices 13,367 13,549
Deposits in Overseas Offices 2,491 2,015
Trading Account Liabilities***** 9,774 --
Acceptances Outstanding 660 753
Accounts Payable, Accrued Expenses and Other Liabilities 3,438 3,049
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-Bearing Liabilities 29,730 19,366
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 110,529 95,411
- ----------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock -- 39
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Nonredeemable Preferred Stock 1,441 1,564
Common Stockholders' Equity 6,828 5,663
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,269 7,227
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and
Stockholders' Equity $118,798 $102,677
- ----------------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Net Interest Revenue and Average Interest
Rate Spread $3,714 3.05% $3,892 3.40%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue as a Percentage of Gross Interest-Earning Assets 3.89% 4.33%
- ----------------------------------------------------------------------------------------------------------------------------------
- --2nd section--
- ----------------------------------------------------------------------------------------------------------------------------------
1992
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average
($ in millions, based on daily averages) Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-Earning Assets:
Interest-Bearing Deposits Placed with Banks $ 5,614 $ 759 13.51%
Federal Funds Sold and Securities Purchased Under Resale Agreements 8,108 771 9.51
Trading Account Assets--Interest-Earning* 4,323 316 7.31
Investment Securities:
Held to Maturity:
Taxable 4,914 539 10.97
Tax Exempt 560 62 11.07
- ----------------------------------------------------------------------------------------------------------------------------------
Total Held to Maturity 5,474 601 10.99
Available for Sale:
Taxable -- -- --
Tax Exempt -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Available for Sale -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities 5,474 601 10.99
Loans:
Domestic Offices 46,791 4,213 9.00
Overseas Offices 17,807 2,084 11.70
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans 64,598 6,297 9.75
Less: Reserve for Possible Credit Losses*** 1,987 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, Net 62,611 6,297 9.75
- ----------------------------------------------------------------------------------------------------------------------------------
Accelerated Disposition Portfolio, Interest-Earning -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets***, Net 86,130 8,744 9.92
- ----------------------------------------------------------------------------------------------------------------------------------
Summary-Gross Interest-Earning Assets:
Domestic Offices 61,442 4,956 8.07
Overseas Offices 26,675 3,788 14.20
- ----------------------------------------------------------------------------------------------------------------------------------
Total Gross Interest-Earning Assets 88,117 $8,744 9.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-Earning Assets:
Cash and Due from Banks 6,236
Trading Account Assets--Noninterest-Earning**** --
Customers' Liability on Acceptances 713
Premises and Equipment 1,767
Accrued Interest Receivable 815
Other Assets 4,691
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-Earning Assets 4,222
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $100,352
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Domestic Offices:
Savings and Negotiable Order of Withdrawal Deposits $ 5,324 $ 154 2.89%
Money Market Deposits 10,018 300 2.99
Negotiable Certificates of Deposit 3,439 272 7.90
Other Time Deposits 10,100 390 3.86
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Offices 28,881 1,116 3.86
Overseas Offices 24,811 1,819 7.33
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 53,692 2,935 5.47
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 11,453 585 5.11
Other Short-Term Borrowings:
Domestic Offices 2,301 173 7.49
Overseas Offices 961 819 85.23
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Short-Term Borrowings 3,262 992 30.39
Intermediate- and Long-Term Debt 6,839 629 9.20
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 75,246 5,141 6.83
- ----------------------------------------------------------------------------------------------------------------------------------
Summary--Interest-Bearing Liabilities:
Domestic Offices 49,042 2,163 4.41
Overseas Offices 26,204 2,978 11.36
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-Bearing Liabilities:
Deposits in Domestic Offices 12,712
Deposits in Overseas Offices 1,775
Trading Account Liabilities***** --
Acceptances Outstanding 726
Accounts Payable, Accrued Expenses and Other Liabilities 3,908
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-Bearing Liabilities 19,121
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 94,367
- ----------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock 53
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Nonredeemable Preferred Stock 1,313
Common Stockholders' Equity 4,619
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 5,932
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and
Stockholders' Equity $100,352
- ----------------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Net Interest Revenue and Average Interest
Rate Spread $3,603 3.09%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue as a Percentage of Gross Interest-Earning Assets 4.09%
- ----------------------------------------------------------------------------------------------------------------------------------
- --third section--
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 1994 Fourth Quarter 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
($ in millions, based on daily averages) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
Interest-Earning Assets:
Interest-Bearing Deposits Placed with Banks $ 7,937 $ 133 6.64% $ 5,938 $ 164 10.93%
Federal Funds Sold and Securities Purchased Under Resale Agreements 14,116 228 6.43 10,550 245 9.21
Trading Account Assets--Interest-Earning* 7,298 121 6.57 5,686 91 6.38
Investment Securities:
Held to Maturity:
Taxable 1,786 25 5.64 980 33 13.53
Tax Exempt 347 10 11.49 424 12 11.36
- ----------------------------------------------------------------------------------------------------------------------------------
Total Held to Maturity 2,133 35 6.59 1,404 45 12.87
Available for Sale:
Taxable 5,354 92 6.81 6,061 133 8.68
Tax Exempt 73 1 5.43 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Available for Sale 5,427 93 6.73** 6,061 133 8.68**
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities 7,560 128 6.74 7,465 178 9.47
Loans:
Domestic Offices 44,980 1,029 9.07 43,485 890 8.12
Overseas Offices 16,217 315 7.71 18,907 580 12.16
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans 61,197 1,344 8.71 62,392 1,470 9.35
Less: Reserve for Possible Credit Losses*** 1,409 -- -- 1,912 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, Net 59,788 1,344 8.71 60,480 1,470 9.35
- ----------------------------------------------------------------------------------------------------------------------------------
Accelerated Disposition Portfolio, Interest-Earning 3 -- -- 369 11 12.30
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets***, Net 96,702 1,954 7.90 90,488 2,159 9.27
- ----------------------------------------------------------------------------------------------------------------------------------
Summary-Gross Interest-Earning Assets:
Domestic Offices 67,168 1,357 8.01 62,288 1,089 6.94
Overseas Offices 30,943 597 7.65 30,112 1,070 14.10
- ----------------------------------------------------------------------------------------------------------------------------------
Total Gross Interest-Earning Assets 98,111 $1,954 7.90% 92,400 $2,159 9.27%
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-Earning Assets:
Cash and Due from Banks 5,952 6,262
Trading Account Assets--Noninterest-Earning**** 9,670 --
Customers' Liability on Acceptances 577 715
Premises and Equipment 1,887 1,986
Accrued Interest Receivable 1,052 757
Other Assets 5,099 5,401
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-Earning Assets 24,237 15,121
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $120,939 $105,609
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities, Redeemable Preferred Stock and Stockholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Domestic Offices:
Savings and Negotiable Order of Withdrawal Deposits $ 5,297 $ 28 2.13% $ 5,412 $ 24 1.74%
Money Market Deposits 9,930 73 2.91 11,939 21 0.70
Negotiable Certificates of Deposit 1,168 23 7.84 1,690 28 6.65
Other Time Deposits 5,909 80 5.38 7,406 26 1.39
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Offices 22,304 204 3.64 26,447 99 1.49
Overseas Offices 33,818 405 4.75 29,487 369 4.96
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 56,122 609 4.31 55,934 468 3.32
Federal Funds Purchased and Securities Sold Under
Repurchase Agreements 17,742 256 5.73 12,451 127 4.06
Other Short-Term Borrowings:
Domestic Offices 3,616 69 7.53 2,106 35 6.59
Overseas Offices 890 26 11.41 1,074 436 161.17
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Short-Term Borrowings 4,506 95 8.30 3,180 471 58.79
Intermediate- and Long-Term Debt 5,016 83 6.59 5,863 85 5.74
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 83,386 1,043 4.96 77,428 1,151 5.90
- ----------------------------------------------------------------------------------------------------------------------------------
Summary--Interest-Bearing Liabilities:
Domestic Offices 55,451 689 4.93 48,112 313 2.58
Overseas Offices 27,935 354 5.03 29,316 838 11.34
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-Bearing Liabilities:
Deposits in Domestic Offices 13,032 14,273
Deposits in Overseas Offices 2,577 2,258
Trading Account Liabilities***** 9,343 --
Acceptances Outstanding 567 720
Accounts Payable, Accrued Expenses and Other Liabilities 3,699 3,278
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-Bearing Liabilities 29,218 20,529
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 112,604 97,957
- ----------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Nonredeemable Preferred Stock 1,400 1,399
Common Stockholders' Equity 6,935 6,253
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,335 7,652
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and
Stockholders' Equity $120,939 $105,609
- ----------------------------------------------------------------------------------------------------------------------------------
Taxable Equivalent Net Interest Revenue and Average Interest
Rate Spread $ 911 2.94% $1,008 3.37%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Revenue as a Percentage of Gross Interest-Earning Assets 3.68% 4.33%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Includes only trading securities.
**Average rate based on average amortized cost.
***Reserve for Possible Credit Losses excluded from calculations of
average balances and average rates as appropriate.
****Includes foreign exchange, interest rate and commodity derivative contracts.
*****Includes short sales and foreign exchange, interest rate and commodity derivative contracts.
Note: Loan and other asset amounts include nonaccrual and restructured loans
and ORE, as applicable, but exclude assets held in the accelerated
disposition portfolio. Accruing, nonaccruing and restructured loans in the
accelerated disposition portfolio were treated as interest-earning in the
above table, while ORE in the accelerated disposition portfolio was treated
as noninterest-earning.
Note: Average rates for overseas offices in the above table reflect
significantly lower Brazilian rates due to the significant decrease in
Brazilian inflation beginning in the third quarter of 1994.
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
=============================================================================
Consolidated Analysis of Credit Loss Experience
The Chase Manhattan Corporation and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans:
Outstanding Balance of Loans $63,038 $60,493 $62,558 $67,785 $74,727
Average Balance of Loans 60,763 61,506 64,598 70,949 76,965
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve for Possible Credit Losses at Beginning of Year $ 1,425 $ 1,913 $ 1,960 $ 2,837 $ 3,290
Charge-Offs:
Domestic Loans:
Commercial Real Estate Loans 185 305 456 378 191
Loans to Financial Institutions 19 28 29 8 7
Commercial and Industrial Loans 33 173 183 168 139
Consumer Loans 413 441 516 547 425
Lease Financings 11 16 18 12 12
Other Loans 2 2 -- 1 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Loans 663 965 1,202 1,114 774
- ----------------------------------------------------------------------------------------------------------------------------------
International Loans:
Commercial Real Estate Loans -- 1 -- -- --
Loans to Financial Institutions 7 -- 3 93 105
Loans to Foreign Governments and Official Institutions -- 470 76 502 887
Commercial and Industrial Loans 30 68 71 319 74
Consumer Loans 4 7 18 24 22
Lease Financings -- -- -- -- 8
Other Loans -- -- -- 3 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total International Loans 41 546 168 941 1,096
- ----------------------------------------------------------------------------------------------------------------------------------
Total Charge-Offs 704 1,511 1,370 2,055 1,870
- ----------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic Loans:
Commercial Real Estate Loans 60 28 3 1 2
Loans to Financial Institutions 6 -- 1 -- --
Commercial and Industrial Loans 37 49 10 35 16
Consumer Loans 43 47 52 56 59
Lease Financings 3 4 4 2 3
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Loans 149 128 70 94 80
- ----------------------------------------------------------------------------------------------------------------------------------
International Loans:
Loans to Financial Institutions 1 5 -- -- --
Loans to Foreign Governments and Official Institutions 11 17 2 2 7
Commercial and Industrial Loans 22 19 18 18 20
Consumer Loans 4 4 9 11 9
Other Loans -- 1 5 3 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total International Loans 38 46 34 34 36
- ----------------------------------------------------------------------------------------------------------------------------------
Total Recoveries 187 174 104 128 116
- ----------------------------------------------------------------------------------------------------------------------------------
Net Charge-Offs 517 1,337 1,266 1,927 1,754
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for Possible Credit Losses Charged to Expenses 500 995 1,220 1,085 1,300
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 4 (10) 1 (24) --
Foreign Exchange Translation Adjustments 2 (1) (2) (11) 1
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve for Possible Credit Losses at End of Year $ 1,414 $ 1,425 $ 1,913 $ 1,960 $ 2,837
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios:
Total Recoveries to Total Charge-Offs 26.6% 11.5% 7.6% 6.2% 6.2%
Net Charge-Offs to:
Outstanding Balance of Loans .82 2.21 2.02 2.84 2.35
Average Balance of Loans .85 2.17 1.96 2.72 2.28
Reserve for Possible Credit Losses 36.6 93.8 66.2 98.3 61.8
Provision for Possible Credit Losses 103.4 134.4 103.8 177.6 134.9
Reserve for Possible Credit Losses to:
Outstanding Balance of Loans 2.24 2.36 3.06 2.89 3.80
Average Balance of Loans 2.33 2.32 2.96 2.76 3.69
- ----------------------------------------------------------------------------------------------------------------------------------
Summary of Net Charge-Offs:
Domestic Loans $ 514 $ 837 $ 1,132 $ 1,020 $ 694
International Loans 3 500 134 907 1,060
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Charge-Offs $ 517 $ 1,337 $ 1,266 $ 1,927 $ 1,754
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<PAGE> 83
=============================================================================
Selected Loan Maturities and Sensitivity to Changes in Interest Rates
The Chase Manhattan Corporation and Subsidiaries
Within After 1 But After
($ in millions) 1 Year Within 5 Years 5 Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Remaining Maturities of Selected Loans at December 31, 1994:
Domestic Offices:
Commercial Real Estate Loans:
Construction and Development $ 454 $ 122 $ 34 $ 610
Other Real Estate Loans 914 434 97 1,445
Loans to Financial Institutions 970 19 -- 989
Loans for Purchasing or Carrying Securities 330 -- -- 330
Commercial and Industrial Loans 7,093 972 226 8,291
Tax-Exempt Loans 72 29 60 161
Other Loans (Excluding Consumer Loans and Lease Financings) 612 66 343 1,021
- ----------------------------------------------------------------------------------------------------------------------------------
Total Domestic Offices 10,445 1,642 760 12,847
Overseas Offices 10,955 3,138 2,392 16,485
- ----------------------------------------------------------------------------------------------------------------------------------
Total Selected Loans $21,400 $4,780 $3,152 $29,332
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity of Selected Loans:*
Domestic Offices: Fixed Rate $1,075 $ 639
Variable Rate 566 122
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,641 761
- ----------------------------------------------------------------------------------------------------------------------------------
Overseas Offices: Fixed Rate 787 348
Variable Rate 2,352 2,043
- ----------------------------------------------------------------------------------------------------------------------------------
Total 3,139 2,391
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated: Fixed Rate 1,862 987
Variable Rate 2,918 2,165
- ----------------------------------------------------------------------------------------------------------------------------------
Total $4,780 $3,152
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Excludes consumer loans and lease financings in domestic offices.
</TABLE>
<TABLE>
<CAPTION>
=============================================================================
Financial Ratios
The Chase Manhattan Corporation and Subsidiaries
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings Ratios
Net Income (Loss) as a Percentage of Average:
Total Assets 1.01% .94% .64% .52% N/M
Common Stockholders' Equity* 15.79 14.59 11.14 10.49 N/M
Total Stockholders' Equity 14.57 13.33 10.71 10.36 N/M
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Paid on Common Stock as a Percentage of
Net Income (Loss) Applicable to Common Stock 24.84% 24.74% 34.40% 38.26% N/M
Total Cash Dividends Paid as a Percentage of Net Income (Loss) 32.73 35.65 47.17 50.14 N/M
- ----------------------------------------------------------------------------------------------------------------------------------
Leverage Ratios--Averages
Common Stockholders' Equity as a Percentage of:
Total Assets 5.75% 5.52% 4.60% 3.97% 3.90%
Total Stockholders' Equity, Redeemable Preferred Stock and
Intermediate- and Long-Term Debt 50.66 41.54 36.02 33.87 31.94
Total Stockholders' Equity as a Percentage of Total Assets 6.96 7.04 5.91 4.94 4.69
- ----------------------------------------------------------------------------------------------------------------------------------
Leverage Ratios--at December 31,
Common Stockholders' Equity as a Percentage of:
Total Assets 6.10% 6.58% 5.25% 4.36% 3.97%
Total Stockholders' Equity, Redeemable Preferred Stock and
Intermediate- and Long-Term Debt 51.82 48.84 37.35 35.72 34.39
Total Stockholders' Equity as a Percentage of Total Assets 7.33 7.95 6.79 5.42 4.83
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Ratios--at December 31,**
Tier 1 Leverage 7.37% 7.81% 6.66% 5.28% 4.40%
Tier 1 Capital as a Percentage of Net Risk--Weighted Assets Guidelines 8.30 8.44 6.76 5.32 4.32
Total Capital as a Percentage of Net Risk--Weighted Assets Guidelines 12.78 13.22 11.12 9.74 8.33
- ---------------------------------------------------------------------------------------------------------------------------------
<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 1 Leverage 6.97% 6.98% 6.50% 5.11% 4.06%
Tier 1 Capital as a Percentage of Net Risk-Weighted Assets Guidelines 8.18 7.63 6.85 5.41 4.26
Total Capital as a Percentage of Net Risk-Weighted Assets Guidelines 11.93 11.74 10.71 8.75 7.49
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Based on Office of the Comptroller of the Currency definition.
</TABLE>
<TABLE>
<CAPTION>
<PAGE> 84
=================================================================
Stockholder Data
The Chase Manhattan Corporation and Subsidiaries
- -----------------------------------------------------------------
Common Stock
- -----------------------------------------------------------------
($ in millions, Per
except per common Total Common
share data) Paid Share
- -----------------------------------------------------------------
<S> <C> <C>
Quarterly Cash
Dividends
1994
1st Qtr. $ 60.9 $ .33
2nd Qtr. 61.0 .33
3rd Qtr. 73.8 .40
4th Qtr. 72.2 .40
- -----------------------------------------------------------------
Total $267.9 $1.46
- -----------------------------------------------------------------
1993
1st Qtr. $ 46.9 $ .30
2nd Qtr. 47.3 .30
3rd Qtr. 55.0 .30
4th Qtr. 55.1 .30
- -----------------------------------------------------------------
Total $204.3 $1.20
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --2nd section--
- --------------------------------------------------------------------------------------------------------------------
Preferred Stock
- --------------------------------------------------------------------------------------------------------------------
($ in millions, Floating Floating
except per common 6.75% 7.60% Rate Rate 10.50% 9.76%
share data) Series B Series C Series E Series F Series G Series H
- --------------------------------------------------------------------------------------------------------------------
Quarterly Cash
Dividends
<S> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $ -- $ -- $ -- $ 3.4 $ 3.7 $ 2.5
2nd Qtr. -- -- -- 5.4 3.7 2.5
3rd Qtr. -- -- -- -- 3.7 2.5
4th Qtr. -- -- -- -- 3.7 2.5
- --------------------------------------------------------------------------------------------------------------------
Total $ -- $ -- $ -- $ 8.8 $14.8 $10.0
- --------------------------------------------------------------------------------------------------------------------
1993
1st Qtr. $ .4 $ .5 $ 5.2 $ 4.3 $ 3.7 $ 2.5
2nd Qtr. .4 .5 4.9 4.1 3.7 2.5
3rd Qtr. .3 .4 4.2 3.9 3.7 2.5
4th Qtr. -- -- -- 3.6 3.7 2.5
- --------------------------------------------------------------------------------------------------------------------
Total $1.1 $1.4 $14.3 $15.9 $14.8 $10.0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --3rd section--
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock
- ----------------------------------------------------------------------------------------------------------------------------------
($ in millions, Adjustable
except per common 10.84% 9.08% 8.50% 8.32% 8.40% Rate Total
share data) Series I Series J Series K Series L Series M Series N Paid
- ----------------------------------------------------------------------------------------------------------------------------------
Quarterly Cash
Dividends
<S> <C> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $ 5.4 $ 3.4 $ 3.6 $ 5.0 $ 3.6 $ -- $ 30.6
2nd Qtr. 5.4 3.4 3.6 5.0 3.6 2.0 34.6
3rd Qtr. 5.4 3.4 3.6 5.0 3.6 3.5 30.7
4th Qtr. 5.4 3.4 3.6 5.0 3.6 3.7 30.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total $21.6 $13.6 $14.4 $20.0 $14.4 $9.2 $126.8
- ----------------------------------------------------------------------------------------------------------------------------------
1993
1st Qtr. $ 5.4 $ 3.4 $ 3.6 $ 5.0 $ 2.4 $ -- $ 36.4
2nd Qtr. 5.4 3.4 3.6 5.0 3.6 -- 37.1
3rd Qtr. 5.4 3.4 3.6 5.0 3.6 -- 36.0
4th Qtr. 5.4 3.4 3.6 5.0 3.6 -- 30.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total $21.6 $13.6 $14.4 $20.0 $13.2 $ -- $140.3
- ----------------------------------------------------------------------------------------------------------------------------------
</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>
1994
1st Qtr. $36.625 $30.375 $32.250 $ 8.625 $ 5.250 $ 5.875
2nd Qtr. 40.000 31.250 38.250 9.625 5.500 8.250
3rd Qtr. 38.875 34.625 34.625 8.750 5.875 5.875
4th Qtr. 37.000 33.500 34.375 6.875 4.500 4.875
- -----------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --2nd section--
Redeemable Preferred Stock
6.75% Series B 7.60% Series C
- -----------------------------------------------------------------------------------------------
High Low Close High Low Close
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $ -- $ -- $ -- $ -- $ -- $ --
2nd Qtr. -- -- -- -- -- --
3rd Qtr. -- -- -- -- -- --
4th Qtr. -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------
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. -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --3rd section--
Nonredeemable Preferred Stock
Floating Rate Floating Rate
Series E Series F 10.50% Series G
- ----------------------------------------------------------------------------------------------------------------------------------
High Low Close High Low Close High Low Close
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $ -- $ -- $ -- $ 50.625 $49.875 $ 50.125 $30.750 $27.000 $27.875
2nd Qtr. -- -- -- 50.813 50.000 50.250 29.500 26.750 28.750
3rd Qtr. -- -- -- -- -- -- 29.625 28.000 28.000
4th Qtr. -- -- -- -- -- -- 28.500 26.250 27.000
- ----------------------------------------------------------------------------------------------------------------------------------
1993
1st Qtr. $52.375 $49.625 $50.375 $ 49.875 $47.250 $ 49.875 $30.500 $27.750 $29.500
2nd Qtr. 51.375 50.250 50.375 51.000 49.625 50.375 30.250 28.750 29.500
3rd Qtr. -- -- -- 51.000 50.125 50.250 31.625 29.375 30.125
4th Qtr. -- -- -- 50.875 49.750 50.125 31.625 28.750 29.375
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --4th section--
9.76% Series H 10.84% Series I
- ----------------------------------------------------------------------------------------------
High Low Close High Low Close
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $30.000 $25.250 $26.875 $32.000 $28.500 $29.125
2nd Qtr. 29.000 25.750 28.000 30.750 28.250 29.625
3rd Qtr. 28.500 27.000 27.000 31.000 29.250 29.625
4th Qtr. 27.750 25.500 26.250 30.000 27.500 27.750
- ----------------------------------------------------------------------------------------------
1993
1st Qtr. $28.875 $26.125 $28.000 $31.500 $28.500 $30.375
2nd Qtr. 29.250 26.375 28.125 31.750 30.250 31.000
3rd Qtr. 30.250 28.125 29.500 32.500 30.875 31.875
4th Qtr. 30.250 28.000 28.625 32.375 30.500 31.500
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --5th section--
Nonredeemable Preferred Stock
9.08% Series J 8.50% Series K
- ----------------------------------------------------------------------------------------------
High Low Close High Low Close
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $27.750 $25.250 $25.750 $27.250 $24.625 $24.875
2nd Qtr. 26.750 24.750 26.125 26.875 23.375 25.250
3rd Qtr. 26.625 25.500 25.750 26.250 24.750 24.875
4th Qtr. 26.000 24.500 24.875 25.000 23.250 23.750
- ----------------------------------------------------------------------------------------------
1993
1st Qtr. $27.500 $25.125 $26.750 $26.750 $24.375 $25.625
2nd Qtr. 27.625 26.375 27.125 26.625 25.375 26.125
3rd Qtr. 28.125 27.000 27.625 27.250 26.125 26.625
4th Qtr. 28.125 26.875 27.250 27.500 25.875 26.500
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --6th section--
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustable Rate
8.32% Series L 8.40% Series M Series N
- ----------------------------------------------------------------------------------------------------------------------------------
High Low Close High Low Close High Low Close
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
1st Qtr. $27.250 $23.875 $24.875 $27.500 $24.625 $25.000 $ -- $ -- $ --
2nd Qtr. 26.250 23.625 24.750 26.375 23.250 25.125 25.500 24.625 24.875
3rd Qtr. 26.688 23.750 24.500 26.000 24.500 24.750 25.750 23.500 23.500
4th Qtr. 24.875 22.750 23.500 25.000 23.000 23.625 24.500 20.750 21.594
- ----------------------------------------------------------------------------------------------------------------------------------
1993
1st Qtr. $26.500 $23.750 $25.375 $26.500 $25.250 $25.500 $ -- $ -- $ --
2nd Qtr. 26.375 25.000 25.875 26.500 25.250 26.000 -- -- --
3rd Qtr. 27.000 25.875 26.375 27.250 26.000 26.375 -- -- --
4th Qtr. 27.375 25.750 26.500 27.625 25.500 26.500 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*The high, low and closing sales prices for transactions reported on the NYSE composite tape.
</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>
- ---------------------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 48,400 51,200
Junior Participating Preferred Stock Purchase Rights 48,400 51,200
Common Stock Subscription Warrants 12,600 14,500
Preferred Stock, Floating Rate Series F -- 4,700
Preferred Stock, 10.50% Series G 1,900 1,900
Preferred Stock, 9.76% Series H 1,000 1,000
- ---------------------------------------------------------------------------------------
- --2nd section--
- ---------------------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock, 10.84% Series I 1,900 1,900
Preferred Stock, 9.08% Series J 1,300 1,300
Preferred Stock, 8.50% Series K 1,500 1,500
Preferred Stock, 8.32% Series L 2,400 2,400
Preferred Stock, 8.40% Series M 1,100 1,000
Preferred Stock, Adjustable Rate, Series N 50 --
- ---------------------------------------------------------------------------------------
<FN>
Note: The principal market in which the Company's Common Stock is traded is
the New York Stock Exchange.
</TABLE>
Description of Business
<PAGE> 86
General
The Chase Manhattan Corporation (the Company) is a bank holding company
incorporated in 1969, 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. A description of Chase core businesses is set
forth in Management's Discussion and Analysis beginning on page 26.
- -------------------------------------------------------------------------------
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. Until September 29, 1995,
the Act prohibits the acquisition by a bank holding company of shares of a
bank located outside the state in which the operations of the bank holding
company's banking subsidiaries are principally conducted, unless such
acquisition is specifically authorized by a statute of the state in which the
bank to be acquired is located.
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, Chase Florida 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 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. Chase USA, a state bank that is not a member of the Federal Reserve
System, is 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., is
authorized to underwrite and deal, to a limited extent and is subject to
various conditions, in certain other categories of securities, including asset
backed securities and corporate debt and equity.
Regulations implementing the International Lending Supervision Act of
1983 (ILSA) require federal banking agencies to jointly determine when and to
what extent banking institutions are to establish and maintain special
reserves against certain foreign loans or other foreign assets. Reserves are
required whenever, in the judgment of the federal banking agencies, the
quality of these loans or assets has been impaired by the protracted
inability of public or private borrowers in a foreign country to make
payments on their external indebtedness and no definite prospects exist for
orderly restoration of debt service.
<PAGE> 87
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, and 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 have been
or are to be proposed. Through December 31, 1994, 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. These rules and regulations have resulted in increased costs to
the Company, the Bank and their affiliates: however, they have not had a
material effect on Chase's operations.
Further rules have been proposed under FDICIA, governing such matters
as accounting and capital requirements. 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
one-half 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 has essentially
completed renovating the facility and has leased substantially all of the
space to outside tenants.
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 Manhattan Mortgage Corporation purchased
its headquarters: a two-building, 258,000 square foot complex known as
Fountain Square in Tampa, Florida for $31 million. 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.
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 Chase
Manhattan Plaza. Leasing this space permitted the consolidation of a
substantial number of personnel who previously occupied 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.
<PAGE> 88
===============================================================================
Executive Officers of the Company
The following is a list as of February 27, 1995 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 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.
Positions and Offices Held and
Name Age Dates from Which Held
- --------------------------------------------------------------------------------
Thomas G. Labrecque 56 Chairman of the Board and Chief
Executive Officer--
October 31, 1990
and Director--
June 25, 1980
Richard J. Boyle 51 Vice Chairman of the Board
and Director--
August 20, 1987
Donald L. Boudreau 54 Senior Executive Vice President--
October 20, 1994
Robert D. Hunter 51 Senior Executive Vice President--
October 20, 1994
E. Michel Kruse 51 Senior Executive Vice President--
October 20, 1994
Deborah L. Duncan 39 Treasurer--
August 1, 1994
and Executive Vice President--
September 1, 1994
A. Wright Elliott 59 Executive Vice President--
April 1, 1983
Michael P. Esposito, Jr. 55 Executive Vice President--
April 1, 1983
and Chief Compliance, Control and
Administrative Officer--
August 5, 1992
John J. Farrell 43 Executive Vice President--
September 1, 1994
Arjun K. Mathrani 50 Executive Vice President--
September 18, 1991
and Chief Financial Officer--
August 1, 1994
L. Edward Shaw, Jr. 50 Executive Vice President--
December 18, 1985
and General Counsel--
February 1, 1983
Douglas T. Williams 54 Executive Vice President--
January 26, 1995
Lester J. Stephens, Jr. 51 Senior Vice President--
March 1, 1985
and Controller--
January 1, 1987
Each officer, has been employed in such principal occupation or in
other positions with the Bank or other subsidiaries of the Company for more
than the last five years and other than Ms. Duncan, has as his principal
occupation the corresponding office with the principal subsidiary of the
Company, the Bank. In addition to the primary occupation listed, Ms. Duncan
also is principally employed as an Executive Vice President of the Bank.
<PAGE> 89
================================================================================
Cross-Reference Index Form 10-K
Part I
Item No. Pages
- --------------------------------------------------------------------------------
Item 1. Business.
Description of Business 27,86
Number of Employees 33
Domestic and International Operations 74
Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differentials 80
The Effect of Changes in Average Balances and
Average Rates on Interest Revenue 79
Investment Portfolio 34,63
Loan Portfolio 44,61,83
Risk Elements 35-49
Summary of Credit Loss Experience 82
Allocation of the Reserve for Possible Credit Losses 47
Deposits 34,80
Return on Equity and Assets 83
Short-Term Borrowings 35
Item 2. Properties. 87
Item 3. Legal Proceedings. 87
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 88
- --------------------------------------------------------------------------------
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. 72,84
Item 6. Selected Financial Data. 26
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 26
Item 8. Financial Statements and Supplementary Data. 51
The Chase Manhattan Corporation and Subsidiaries:
Consolidated Statement of Condition 51
Consolidated Statement of Income 52
Consolidated Statement of Changes in Stockholders' Equity 53
Consolidated Statement of Cash Flows 54
The Chase Manhattan Bank, N.A. and Subsidiaries:
Consolidated Statement of Condition 55
Notes to Financial Statements 56
Independent Accountants' Report 50
Consolidated Summary of Quarterly Financial Information 78
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure--
The Company has nothing to report under this item.
- --------------------------------------------------------------------------------
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, 1994.
- --------------------------------------------------------------------------------
Part IV
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*
*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.
- --------------------------------------------------------------------------------
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 50.
Exhibit 24. Power of Attorney.
Exhibit 99. Additional Exhibits--None.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K during the quarter ended
December 31, 1994.
- --The report dated October 18, 1994 with respect to the Corporation's Press
Release dated October 18, 1994, which announced the Corporation's earnings
for the third quarter of 1994.
- --The report dated November 18, 1994 with respect to the Corporation's
agreement to purchase the securities processing business of the U. S. Trust
Corporation.
- --The report dated December 7, 1994 with respect to the Corporation's
entering into a distribution agreement covering the issuance and placement
of up to $2,627,525,000 aggregate principal amount of Senior/Subordinated
Medium-Term Notes, Series B.
- --The report dated December 14, 1994 with respect to the Corporation's
entering into a distribution agreement covering the issuance and placement
of up to $200,000,000 aggregate principal amount of Senior/Subordinated
Medium-Term Notes, Series C.
- -------------------------------------------------------------------------------
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 1994 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.
=============================================================================
Graphic 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.
- -----------------------------------------------------------------------------
Graphic
Number Page Description
- ------------------------------------------------------------------------------
1 28 Pie graph entitled, "Global Financial Services -Revenue
by Geography", showing the percentage of revenue, in
separate pie slices, for 1994: North America -44%,
Western Hemisphere -24%, Europe -21% and Asia -11%;
for 1993: North America -50%, Western Hemisphere -15%,
Europe -21%, and Asia -14%.
2 28 Bar graph entitled, "Global Financial Services -Revenue
by Product $ in millions" showing the following revenue
amounts in separate bars by product for 1994 and 1993,
respectively: Transaction & Information Services -1,152
and 1,037; Trading -702 and 808; Loan Portfolio -656
and 700; Investment Banking - 434 and 420; Individual
Investment Services -337 and 351; and Product Revenue
Overlap & Other - (116) and (57).
3 30 Venn diagram entitled, "Retail Businesses - 1994 Revenue
by Geography $ in millions", showing National Consumer
Products revenue of 2,025 in a circle; Tri-State
Regional Banking revenue of 1,487 in another circle;
and the overlap of the circles of 475 represents
revenue from National Consumer products generated in
Tri-State Regional Banking.
4 30 Bar graph entitled, "Retail Businesses - Revenue by
Product $ in millions", showing the following revenue
amounts in separate bars by product for 1994 and 1993,
respectively: Credit Card -1,360, and 1,463;
Consumer Deposit Products -685 and 758;
Business Services -442 and 390; Mortgage -343 and 175;
Other Retail Products - 318 and 316; and
All Other -83 and 38.
5 36 Bar graph entitled "Cumulative Interest Rate Gaps Year
End 1994 $ in billions" showing the net assets or net
liabilities, in separate bars titled including
derivatives and excluding derivatives, respectively,
for the following periods: net assets of 10.0 and 4.2,
for 1-3 months; net assets of 6.4 and net liabilities
of 1.2, for 3-12 months; net assets of 3.1 and net
liabilities of 5.5, for 1996; net liabilities of 0.6 and
8.6, for 1997; net liabilities of 6.6 and 11.9, for
1998; net liabilities of 9.9 and 13.7, for 1999;
net liabilities of 6.8 and 10.1, for 2000 and net
liabilities of 7.3 and 10.4, for 2001.
<PAGE> 90
================================================================================
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 28, 1995
(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:
Signature Capacity Date
/s/ THOMAS G. LABRECQUE Director,
- --------------------- Chairman of the Board and Chief February 28, 1995
(Thomas G. Labrecque) Executive Officer
(Principal Executive Officer)
/s/ RICHARD J. BOYLE Director and
- --------------------- Vice Chairman of the Board February 28, 1995
(Richard J. Boyle)
M. Anthony Burns, Directors February 28, 1995
Joan Ganz Cooney,
Jairo A. Estrada,
James L. Ferguson,
H. Laurance Fuller,
William H. Gray III,
David T. Kearns,
Delano E. Lewis,
Paul W. MacAvoy,
John H. McArthur,
David T. McLaughlin,
Edmund T. Pratt, Jr.,
Henry B. Schacht and
Donald H. Trautlein
By: /s/ RONALD C. MAYER
- ---------------------
Attorney-in-Fact
/s/ ARJUN K. MATHRANI Executive Vice President and
- --------------------- Chief Financial Officer February 28, 1995
(Arjun K. Mathrani) (Principal Financial Officer)
/s/ LESTER J. STEPHENS, JR. Senior Vice President and
Controller February 28, 1995
(Lester J. Stephens, Jr.) (Principal Accounting Officer)
- --------------------------------------------------------------------------------
<PAGE> 91
=============================================================================
Sources
Page 8
Largest and Best Global Custodian Largest Global Custodian:
INSTITUTIONAL INVESTOR's annual ranking of global custodians,
published October 1994. Best Global Custodian: EUROMONEY's third
annual Awards for Excellence, published July 1994.
#1 U.S. Dollar Clearing Worldwide Based on average daily volume
for 1993, according to data from the New York Clearinghouse Association,
the second district Federal Reserve Bank and AMERICAN BANKER.
Top Five Global Loan Syndications Chase was ranked fifth in number
of deals for which it was either agent or co-agent, according to
league tables published by GOLD SHEETS newsletter, January 16, 1995.
#1 Jumbo Mortgage Lender in Market Share DATAQUICK, Geomortgage,
TRW, RMS, Lusk and Realist provided data--compiled and published
September 6, 1994--on mortgage originations of $350,000 to $1 million
for the 12-month period ending March 31, 1994, in all Personal Financial
Services-served territories in the U.S. except Minnesota, Pennsylvania
and parts of New York. Market share based on dollar volume. PFS
ranked #1, with 4.50% market share in dollar volume for this
12-month period.
#1 Independent Auto Finance Company in the U.S. Excluding finance
companies owned by auto manufacturers, Chase Auto Finance is the leader
in terms of market share and loan volume.
Regional Community Development Chase's support of the Harlem Restoration
Project was cited by The Social Compact, an affiliation of 270 financial
services institutions committed to increasing investment in the U.S.'s
"at-risk" neighborhoods. Chase Community Development Corporation provided
$474,000, representing the private-sector component of financing that will
enable HRP to rehabilitate 77 units of affordable housing.
Page 12
Tier 1 Capital Chase's Tier 1 Capital ratio at December 31, 1994,
was 8.30%, compared with a ratio of 8.44% at December 31, 1993.
Total Capital Chase's Total Capital ratio at December 31, 1994,
was 12.78%, compared with a ratio of 13.22% at December 31, 1993.
Total Net Loan Charge-Offs Total net loan charge-offs for full-year 1994
were $517 million, compared with $1,337 million for 1993.
Total Nonaccrual Loans Total nonaccrual loans at December 31, 1994,
were $660 million, compared with $1,054 million at December 31, 1993.
Revenue per Employee Total revenue divided by number of employees as
calculated for full-year 1990 ($139,000) and full-year 1994 ($184,000).
Recognition from the Debt Rating Agencies In December 1994, Thomson BankWatch
awarded a AA- rating to the long-term deposits of Chase Manhattan Bank.
Page 16
Best in Foreign Exchange EUROMONEY's third annual Awards for Excellence,
published July 1994.
Most Knowledgeable About the Energy Industry PETROLEUM ECONOMIST
Energy Finance Awards, published June 1994. Chase ranked first in
three individual categories.
Most Professional Traders in Caps SWAPS MONITOR's fifth annual survey,
published November 1994, to determine which companies are regarded by their
peers as the most professional in their approach to the OTC derivatives
business. Chase finished first out of 27 companies that received votes.
#1 in Transaction Volume for ACH Business Annual data compiled by AMERICAN
BANKER, published May 1994. For 1993, Chase's automated clearinghouse volume
totaled 163.4 million transactions.
Credit Card Innovator of the Year CREDIT CARD MANAGEMENT's annual recognition
issue, published August 1994, on superior performance in the industry.
Best Problem-Solving Abilities/Platform Staff/Tellers Survey including more
than 2,500 Regional Banking customers in New York and Connecticut, results
released December 1993. In downstate New York, Chase ranked #1, with 66%
of its customers ranking service quality "excellent" or "very good."
<PAGE> 92
==============================================================================
Information
- -----------------------------------------------------------------------------
Products and Services
The Chase Information Center, on 1-800-AT-CHASE, provides information
about Chase retail products and services in the U.S. 24 hours a day,
seven days a week. Chase can also be reached by electronic mail:
Chase @CMB.com
- -----------------------------------------------------------------------------
Annual Meeting
The annual meeting of the shareholders of The Chase Manhattan Corporation
will be held at 2:30 p.m. on Tuesday, April 18, 1995, in the auditorium
on the ground floor of 1 Chase Manhattan Plaza, New York, NY.
The Chase Manhattan Corporation common stock is officially listed on the
following stock exchanges:
- --The New York Stock Exchange
- --Dusseldorf Stock Exchange
- --Frankfurt Stock Exchange
- --Paris Stock Exchange
- --The Stock Exchange (London)
The New York Stock Exchange ticker symbols for stock of
The Chase Manhattan Corporation are as follows:
CMB (Common)
CMB Pr G (Series G Preferred)
CMB Pr H (Series H Preferred)
CMB Pr I (Series I Preferred)
CMB Pr J (Series J Preferred)
CMB Pr K (Series K Preferred)
CMB Pr L (Series L Preferred)
CMB Pr M (Series M Preferred)
CMB Pr N (Series N Preferred)
CMB WS (Warrants)
- -----------------------------------------------------------------------------
Dividend Reinvestment and Stock Purchase Plan
As of the February 15, 1995 dividend, 43% of Chase's common shareholders
were participating in the plan. By enrolling in the plan, common
shareholders with U.S. addresses may:
- --Purchase additional shares of Chase common stock at a 5% discount from
current market price by reinvesting their Chase common stock dividends;
- --Purchase additional shares of Chase common stock at a 3% discount from
the current market price by making additional cash deposits; and
- --Make all purchases free of service charges or brokerage commissions.
Please note that the plan's discount and terms are subject to change. For
complete details and enrollment material, write to:
Mellon Securities Transfer Services
Dividend Reinvestment Services
P.O. Box 750
Pittsburgh, PA 15230-0750
- -----------------------------------------------------------------------------
Transfer Agent and Registrar
(common stock)
Mellon Securities Trust Company
Questions regarding shareholder accounts and the direct dividend deposit
service may be directed to:
Mellon Securities Transfer Services
Shareholder Relations
P.O. Box 590
Ridgefield Park, NJ 07660-9940
(800) 284-4262
- -----------------------------------------------------------------------------
Investor Contact
Investors and shareholders may obtain additional financial data and
information from:
Investor Relations Division
The Chase Manhattan Corporation
1 Chase Manhattan Plaza, 30th floor
New York, NY 10081-0001
(212) 552-4237
- -----------------------------------------------------------------------------
Corporate Responsibility
Chase strives to serve its communities in a variety of ways. Reports
regarding Chase's community investment activities, The Chase Manhattan
Bank, N .A.'s Community Reinvestment Act performance evaluation, certain
related Home Mortgage Disclosure Act data and Chase's philanthropic
programs are available to interested shareholders upon request to:
Chase Community Investment Committee
2 Chase Manhattan Plaza, 12th floor
New York, NY 10081-0001
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Equal Opportunity at Chase
Chase actively seeks to identify, develop and advance talented people,
and to promote an environment free from discrimination. Shareholders wishing
to receive information regarding Chase's programs may request additional
information from the corporation.
Design: Corporate Communications 0694068. Printed in USA.
<PAGE> 93
<TABLE>
<CAPTION>
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EXHIBIT INDEX
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Location in this
Exhibit No. Description Form 10-K
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<S> <C> <C>
Exhibit 3(i)A 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 3(i)B Certificate of Designation, Preferences and Rights of
Preferred Stock, Adjustable Rate Series N (incorporated by
reference to Exhibit (4)(e) to the Company's Current Report
on Form 8-K dated April 29, 1994, File No. 1-5945).
Exhibit 3(ii) 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 relating to
the Junior Participating Preferred Stock Purchase Rights of
the Company (incorporated by reference to Exhibit 28 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 1-5945).
Exhibit 10A The Chase Manhattan 1994 Long-Term Incentive Plan
(incorporated herein by reference to Exhibit 10O to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, File No. 1-5945).
Exhibit 10B 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, File No. 1-5945).
Exhibit 10C 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, File No. 1-5945).
Exhibit 10D 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, File No. 1-5945).
Exhibit 10E The Chase Manhattan Annual Incentive Compensation Program. Page 95
Exhibit 10F 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, File No. 1-5945).
Exhibit 10G 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, File No. 1-5945).
Exhibit 10H 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, File No. 1-5945).
<PAGE> 94
Exhibit 10I 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, File No. 1-5945).
Exhibit 10J Description of 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, File No. 1-5945).
Exhibit 10K 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, File No. 1-5945).
Exhibit 10L Forms of termination agreements entered into between the
Company and certain of its officers (incorporated by reference
to Exhibit 10L of the Company's Annual Report on Form 10-K
for the year ended December 31, 1990, File No. 1-5945).
Exhibit 10M Amended list of Executive Officers who have entered into
termination agreements with the Company. Page 97
Exhibit 10N Special Severance Plan of the Company (incorporated by
reference to Exhibit 10M of the Company's Annual Report
on Form 10-K for the year ended December 31, 1990,
File No. 1-5945).
Exhibit 10O 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, File No. 1-5945).
Exhibit 10P The Chase Manhattan Stock Option Program for Employees
(incorporated by reference to Exhibit 10N of the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, File No. 1-5945).
Exhibit 11 Computation of Earnings Per Common Share. Page 98
Exhibit 12 Computation of Ratios of Earnings to Fixed Charges. Page 99
Exhibit 21 Subsidiaries of the Company. Page 100
Exhibit 23 Consent of Independent Accountants. Page 50
Exhibit 24 Power of Attorney. Page 101
Exhibit 27 Financial Data Schedule Page 101
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</TABLE>
<PAGE> 95
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Exhibit 10E
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The Chase Manhattan Corporation Annual Incentive
Compensation Program
The Chase Manhattan Corporation ("CMC") hereby sets forth the principles and
primary terms and conditions for annual incentive compensation plans and
programs maintained for employees of CMC, The Chase Manhattan Bank, N.A.
(the "Bank") or other subsidiaries of CMC (together, the "Subsidiaries").
Several of the Subsidiaries, including the Bank, have implemented Plans
(the "Plans") for incentive awards which provide for annual cash bonuses to
be paid to selected employees. It is intended that the Plans will operate in
accordance with the principles, terms and conditions of this Program under
the supervision of the Compensation Committee of the Board of Directors of CMC
(the "Committee").
1.Purpose
The purpose of these Plans is to attract and retain highly qualified
employees who will be motivated toward the success of CMC and its
Subsidiaries, and to reward such employees in a manner which is consistent
with competitive practice and the performance of CMC, the Subsidiary and/or
various business units of the Subsidiary.
2.Administration and Interpretation
Administration. The overall administration and operation of the Plans shall
be consistent with the principles, terms and provisions of this Program and
shall be supervised by the Committee. The Committee shall review and approve
any Plan, and any amendment to any Plan, prior to its implementation. The
Committee shall establish guidelines for the interpretation of Plans, as
well as rules and regulations for the administration of Plans. The day-to-day
administration and operation of the Plans may be carried out by such employees
of CMC or its Subsidiaries as shall be provided in each Plan or as may be
designated from time to time by the Committee.
3.Eligibility for an Award
Selected employees of CMC or its Subsidiaries who are employed for the
required period during a calendar year may be eligible to receive an award
under a Plan for that calendar year. Eligibility for an award shall be
governed by the individual Plans approved by the Committee.
4.Determination of Plan Awards
a. Total Amount of Awards. The aggregate amount of awards is contingent on
the evaluation by the Committee, or other appropriate body, of performance
factors for CMC and the Subsidiary and, if appropriate, the various business
unit covered by the Plan. This evaluation will include measures of financial
performance and risk management objectives, and the aggregate amount of
awards may be adjusted, as appropriate, to reflect longer term trends in
performance and portfolio quality or other factors.
The aggregate amount to be made available for awards for performance
during a calendar year under the Plans shall be reviewed by the Committee.
b. Determination of Individual Awards. An individual may be recommended for
an award on the basis of his/her performance. The amount of individual
award opportunity, and any limits on awards, shall be governed by the
applicable Plan provisions.
Individual awards may be recommended only after a thorough review of
performance, including reviews with other business managers, business
credit officers, internal control officers, and functional executives,
as appropriate. The review process shall ensure that individual results
achieved are qualitatively balanced with corporate values regarding
customer focus, respect, teamwork, professionalism and quality.
All award recommendations require the specific approval of two levels of
management. Any award to the Chairman, President, or inside director of
CMC or the Bank must be approved by the Board of Directors of CMC or the
Bank as the case may be.
5. Payment of Awards
a. Payment of Cash Awards. Except to the extent that receipt of all or a
portion of an employee's award for performance during a calendar year is
deferred under paragraph 6 below, such award shall be paid to such employee
in a lump sum payment no later than March 1st of the calendar year following
the year for which the award is made.
b. Withholding Taxes, etc. All award payments shall be reduced by any required
withholdings.
6. Deferral of Receipt of an Award
a. Deferral Methods. Where appropriate, a Plan may provide for the deferral of
awards either at the discretion of the Committee or other supervising body
or by an irrevocable election by the potential award recipient. Any such
irrevocable election shall be made by the employee's filing a written notice
on the correct form and under the terms and conditions prescribed by the
Plan or the Corporate Human Resources Executive.
b. Payments in the Event of a Change in Control of CMC. The terms and
conditions for the deferral of the payment of an award shall include an
acceleration of payment in the event of a "change in control" of CMC as
defined in the resolutions of the Board of Directors of CMC of July 18,
1990, as amended from time to time.
c. Acceleration of Payments. In the event of a change in the Federal income
tax laws, regulations, rulings or other factors affecting the continued
appropriateness of deferred awards under a Plan, the Committee or other
appropriate person or entity may, in its sole discretion, accelerate or
change the rate of payment or distribution of any employee's interest
in the Plan.
<PAGE> 96
7. Termination of Employment
An eligible employee whose employment terminates without the consent of
his/her employer(s) prior to the completion of the annual performance period
shall forfeit eligibility for any award.
If an employee is transferred to another business unit within CMC or a
Subsidiary, such transfer shall not be a termination of employment for
purposes of this Program.
8. Miscellaneous
a. No Employment Contract, etc. Nothing in this Program or in any of the Plans
shall be construed as conferring upon an employee any right to continue in
the employ of his/her employer, CMC or any Subsidiary, or any right to any
award prior to advice by CMC or the relevant Subsidiary that a specific
award has been made to such employee.
b. No Restriction on Corporate Action. Nothing contained in the Plans shall be
construed to prevent CMC or any Subsidiary from taking any action which is
deemed to be appropriate, whether or not such action would have an adverse
effect on any of the Plans or any possible awards or accounts under the
Plan. No employee, beneficiary or other person shall have any claims
against CMC or any Subsidiary as a result of any such action.
c. No Assignment. Neither an employee nor an employee's beneficiary shall have
the power or right to transfer, mortgage or otherwise encumber any interest
in a Plan in advance of the time such interest is awarded and paid under
the terms of the Plan.
Generally, the obligations of any employer under a Plan is not assignable
or transferable except to a corporation that acquires all or substantially
all of the assets of the employer or any corporation into which the employer
may be merged or consolidated.
d. Limitation on Liability. No Directors, officers or employees of CMC or any
Subsidiary, shall be liable for any act, omission, interpretation,
construction or determination made in connection with a Plan in good faith
and such individuals shall be entitled to indemnification and reimbursement
in respect of any claim, loss, damage or expense (including counsel fees)
arising from their acts, omissions and conduct in their official capacity
with respect to the Plan to the full extent permitted by law and under any
directors' and officers' liability insurance coverage which may be in effect
from time to time.
e. Governing Law. To the extent possible Plans shall be construed in accordance
with and be governed by the laws of the State of New York without reference
to conflict of law provisions.
9. Amendment and Termination
The sponsor of each Plan shall reserve the right from time to time and at any
time to amend, suspend, discontinue or terminate its Plan; provided however,
that no such amendment, suspension, discontinuance or termination shall
adversely affect the rights of any employee already accrued under the
particular Plan unless such employee consents to such change.
<PAGE> 97
==============================================================================
Exhibit 10M
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The Company has two different forms of termination agreements, forms of which
were filed as Exhibit 10L to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990, File No. 1-5945.
As of December 31, 1994, the following Executive Officers had entered into
the first form of such termination agreement with the Company:
Thomas G. Labrecque
Richard J. Boyle
Michael P. Esposito, Jr.
As of December 31, 1994, the following Executive Officers had entered into
the second form of such termination agreement with the Company:
Donald L. Boudreau
Deborah L. Duncan
A. Wright Elliott
John J. Farrell
Robert D. Hunter
E. Michel Kruse
Arjun K. Mathrani
John V. Scicutella*
L. Edward Shaw, Jr.
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*Resigned January 26, 1995
<PAGE> 98
<TABLE>
<CAPTION>
==============================================================================
Computation of Earnings Per Common Share Exhibit 11
The Chase Manhattan Corporation and Subsidiaries
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Year Ended December 31,
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($ in millions, except per share amounts) 1994 1993 1992
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<S> <C> <C> <C>
Primary:
Net Income Before Cumulative Effect of Change in Accounting Principle $ 1,205 $ 466 $ 639
Cumulative Effect of Change in Accounting Principle---Adoption of SFAS 109 -- 500 --
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Net Income $ 1,205 $ 966 $ 639
Less: Preferred Stock Dividend Requirements 127 140 124
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Net Income Applicable to Common Stock $ 1,078 $ 826 $ 515
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Average Common and Common Equivalent Shares Outstanding 183,635,824 172,334,060 148,725,742
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Before Cumulative Effect of Change in Accounting Principle $ 5.87 $ 1.89 $ 3.46
Cumulative Effect of Change in Accounting Principle---Adoption of SFAS 109 -- $ 2.90 --
- ----------------------------------------------------------------------------------------------------------------------------------
Primary Earnings Per Common Share $ 5.87 $ 4.79 $ 3.46
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Assuming Full Dilution:
Net Income Applicable to Common Stock $ 1,078 $ 826 $ 515
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Average Common and Common Equivalent Shares Outstanding 183,635,824 172,334,060 148,725,742
Add: Shares Issuable Upon Exercise of Stock Options, Warrants and
Conversion of Restricted Stock Units 1,001,952 817,358 1,918,801
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Shares of Common and Common Equivalent Stock Outstanding---As Adjusted 184,637,776 173,151,418 150,644,543
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Earnings Per Common Share Assuming Full Dilution $ 5.84 $ 4.77 $ 3.41
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</TABLE>
<PAGE> 99
=============================================================================
Computation of Ratios of Earnings to Fixed Charges Exhibit 12
The Chase Manhattan Corporation and Subsidiaries
<TABLE>
<CAPTION>
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Year Ended December 31,
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($ in millions) 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Earnings:
Net Income (Loss) $1,205 $ 966 $ 639 $ 520 $ (334)
Less: Cumulative Effect of Change in Accounting Principle* -- 500 -- -- --
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Net Income (Loss) Before Cumulative Effect of Change
in Accounting Principle $1,205 $ 466 $ 639 $ 520 $ (334)
Less: Equity in Undistributed Income (Loss) of Unconsolidated
Subsidiaries and Associated Companies 7 36 11 (32) (40)
Income Taxes 565 265 186 124 203
Fixed Charges Excluding Interest On Deposits 2,187 2,670 2,277 1,988 3,190
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Total Earnings, Excluding Interest On Deposits, As Adjusted 3,950 3,365 3,091 2,664 3,099
Interest On Deposits 2,326 2,014 2,935 4,374 5,273
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Total Earnings, Including Interest On Deposits, As Adjusted $6,276 $5,379 $6,026 $7,038 $8,372
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Fixed Charges:
Interest Expense and Amortization of Debt Discount and Issuance
Costs, Excluding Interest On Deposits $2,119 $2,591 $2,205 $1,920 $3,115
One-Third of Net Rental Expenses 68 79 72 68 75
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Total Fixed Charges For Ratio, Excluding Interest On Deposits 2,187 2,670 2,277 1,988 3,190
Interest On Deposits 2,326 2,014 2,935 4,374 5,273
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Total Fixed Charges For Ratio, Including Interest On Deposits $4,513 $4,684 $5,212 $6,362 $8,463
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Ratio Of Earnings To Fixed Charges:
Excluding Interest On Deposits 1.8x 1.3x 1.4x 1.3x **
Including Interest On Deposits 1.4x 1.1x 1.2x 1.1x **
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<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 year ended December 31, 1990, earnings did not cover fixed charges by $91 million primarily as a result of large
additions to the Reserve for Possible Credit Losses and special charges.
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.
</TABLE>
<PAGE> 100
=============================================================================
Subsidiaries of the Company Exhibit 21
The Chase Manhattan Corporation and Subsidiaries
- -----------------------------------------------------------------------------
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).
<PAGE> 101
==============================================================================
Power of Attorney Exhibit 24
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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, Arjun K. Mathrani, 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, 1994, and any
amendments thereto.
IN WITNESS THEREOF, the undersigned have executed this power of attorney on
February 15, 1995.
/s/ THOMAS G. LABRECQUE
- -----------------------
(Thomas G. Labrecque)
/s/ RICHARD J. BOYLE
- ---------------------
(Richard J. Boyle)
/s/ M. ANTHONY BURNS
- ---------------------
(M. Anthony Burns)
/s/ JOAN GANZ COONEY
- ---------------------
(Joan Ganz Cooney)
/s/ JAIRO A. ESTRADA
- ---------------------
(Jairo A. Estrada)
/s/ JAMES L. FERGUSON
- ---------------------
(James L. Ferguson)
/s/ H. LAURANCE FULLER
- ----------------------
(H. Laurance Fuller)
/s/ WILLIAM H. GRAY, III
- ------------------------
(William H. Gray, III)
/s/ DAVID T. KEARNS
- ---------------------
(David T. Kearns)
/s/ DELANO E. LEWIS
- ---------------------
(Delano E. Lewis)
/s/ PAUL W. MACAVOY
- ---------------------
(Paul W. MacAvoy)
/s/ JOHN H. MCARTHUR
- ---------------------
(John H. McArthur)
/s/ DAVID T. MCLAUGHLIN
- -----------------------
(David T. McLaughlin)
/s/ EDMUND T. PRATT, JR.
- ------------------------
(Edmund T. Pratt, Jr.)
/s/ HENRY B. SCHACHT
- ---------------------
(Henry B. Schacht)
/s/ DONALD H. TRAUTLEIN
- -----------------------
(Donald H. Trautlein)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Chase Manhattan Corporation and Subsidiaries (Chase) Consolidated Statement
of Condition at December 31, 1994; The Consolidated Statements of Income,
Changes in Stockholders' Equity and Cash Flows for the twelve months ended
December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 4,713
<INT-BEARING-DEPOSITS> 6,791
<FED-FUNDS-SOLD> 7,280
<TRADING-ASSETS> 15,109
<INVESTMENTS-HELD-FOR-SALE> 5,135
<INVESTMENTS-CARRYING> 2,084
<INVESTMENTS-MARKET> 2,054
<LOANS> 63,038
<ALLOWANCE> 1,414
<TOTAL-ASSETS> 114,038
<DEPOSITS> 69,956
<SHORT-TERM> 13,962 <F1>
<LIABILITIES-OTHER> 16,691 <F2>
<LONG-TERM> 5,070
<COMMON> 65
0
1,400
<OTHER-SE> 6,894
<TOTAL-LIABILITIES-AND-EQUITY> 114,038
<INTEREST-LOAN> 5,270
<INTEREST-INVEST> 669
<INTEREST-OTHER> 2,195 <F3>
<INTEREST-TOTAL> 8,134
<INTEREST-DEPOSIT> 2,326
<INTEREST-EXPENSE> 4,445
<INTEREST-INCOME-NET> 3,689
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 105
<EXPENSE-OTHER> 4,472
<INCOME-PRETAX> 1,770
<INCOME-PRE-EXTRAORDINARY> 1,205
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,205
<EPS-PRIMARY> 5.87
<EPS-DILUTED> 5.84
<YIELD-ACTUAL> 3.89
<LOANS-NON> 660
<LOANS-PAST> 400
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,425
<CHARGE-OFFS> 704
<RECOVERIES> 187
<ALLOWANCE-CLOSE> 1,414
<ALLOWANCE-DOMESTIC> 0 <F4>
<ALLOWANCE-FOREIGN> 0 <F4>
<ALLOWANCE-UNALLOCATED> 714
<FN>
<F1>FED FUNDS PURCH. AND SSURA 9,312
COMM. PAPER AND OTHER S-T BORROW. 4,650
<F2>TRADING ACCOUNT LIABILITIES 9,664
ACCEPTANCES O/S AND ACCR. INT PAY. 1,176
ACCTS. PAY., ACCRU. EXP. AND OTHER LIAB. 5,851
<F3>INTEREST ON DEP. PLACED WITH BANKS 498
INTEREST ON FED FUNDS SOLD AND SPURA 1,277
INTEREST ON TRADING ACCOUNT ASSETS 420
<F4>ALLOWANCE-WHOLESALE 300
ALLOWANCE-CONSUMER 400
</TABLE>
