SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission file number 1-5805
-------------- ------
THE CHASE MANHATTAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2624428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Park Avenue, New York, New York 10017
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes..X.. No...
Common Stock, $1 Par Value 435,237,903
- -----------------------------------------------------------------------
Number of shares outstanding of each of the issuer's classes of common stock on
April 30, 1996.
-1-
FORM 10-Q INDEX
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<S> <C>
Part I Page
Item I Financial Statements - The Chase Manhattan Corporation
and Subdiaries:
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995. 3
Consolidated Statement of Income for the three months
ended March 31, 1996 and March 31, 1995. 4
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 1996 and March 31, 1995. 5
Consolidated Statement of Cash Flows for the three months
ended March 31, 1996 and March 31, 1995. 6
Notes to Financial Statements. 7-15
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations. 16-46
Part II
Item 1 Legal Proceedings 47
Item 6 Exhibits and Reports on Form 8-K. 47
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Part I
Item 1.
THE CHASE MANHATTAN CORPORATION and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in millions, except share data)
March 31, December 31,
1996 1995
--------- ------------
ASSETS
<S> <C> <C>
Cash and Due from Banks $ 10,846 $ 14,794
Deposits with Banks 6,257 8,468
Federal Funds Sold and Securities
Purchased Under Resale Agreements 19,292 17,461
Trading Assets:
Debt and Equity Instruments 24,804 26,212
Risk Management Instruments 23,641 25,825
Securities:
Available-for-Sale 38,646 37,141
Held-to-Maturity (Fair Value: $4,382 and $4,659) 4,398 4,628
Loans (Net of Unearned Income: $1,199 and $1,073) 149,331 150,207
Allowance for Credit Losses (3,683) (3,784)
Premises and Equipment 3,801 3,757
Due from Customers on Acceptances 2,053 1,896
Accrued Interest Receivable 2,489 2,541
Other Assets 20,109 14,843
---------- -----------
TOTAL ASSETS $ 301,984 $ 303,989
========== ===========
LIABILITIES
Deposits:
Domestic:
Noninterest-Bearing $ 28,518 $ 35,414
Interest-Bearing 68,085 64,640
Foreign:
Noninterest-Bearing 3,898 3,702
Interest-Bearing 68,433 67,778
------- -------
Total Deposits 168,934 171,534
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 37,369 37,263
Other Borrowed Funds 12,746 13,936
Acceptances Outstanding 2,060 1,915
Trading Liabilities 33,025 34,341
Accounts Payable, Accrued Expenses and Other Liabilities 15,106 11,339
Long-Term Debt 12,977 12,825
---------- -----------
TOTAL LIABILITIES 282,217 283,153
---------- -----------
COMMITMENTS AND CONTINGENCIES (See Note 9)
STOCKHOLDERS' EQUITY
Preferred Stock 2,650 2,650
Common Stock (Issued 438,170,891 and 457,587,675 Shares) 438 458
Capital Surplus 10,558 11,075
Retained Earnings 6,969 7,997
Net Unrealized Loss on Securities Available-for-Sale, Net of Taxes (610) (237)
Treasury Stock, at Cost (3,859,143 and 22,583,225 Shares) (238) (1,107)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 19,767 20,836
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 301,984 $ 303,989
========== ===========
The Notes to Financial Statements are an integral part of these Statements.
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Part I
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended March 31,
(in millions, except per share data)
1996 1995
--------- --------
INTEREST INCOME
<S> <C> <C>
Loans $ 3,241 $ 3,069
Securities 720 618
Trading Assets 429 359
Federal Funds Sold and Securities
Purchased Under Resale Agreements 501 468
Deposits with Banks 172 225
--------- --------
Total Interest Income 5,063 4,739
--------- --------
INTEREST EXPENSE
Deposits 1,644 1,500
Short-Term and Other Borrowings 1,026 978
Long-Term Debt 227 234
--------- --------
Total Interest Expense 2,897 2,712
--------- --------
NET INTEREST INCOME 2,166 2,027
Provision for Losses 245 185
--------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES 1,921 1,842
--------- --------
NONINTEREST REVENUE
Corporate Finance and Syndication Fees 224 169
Trust and Investment Management Fees 285 240
Credit Card Revenue 233 182
Service Charges on Deposit Accounts 99 104
Fees for Other Financial Services 378 367
Trading Revenue 339 99
Securities Gains (Losses) 52 (18)
Other Revenue 259 414
--------- --------
Total Noninterest Revenue 1,869 1,557
--------- --------
NONINTEREST EXPENSE
Salaries 1,076 997
Employee Benefits 305 234
Occupancy Expense 221 228
Equipment Expense 184 198
Foreclosed Property Expense (9) (25)
Restructuring Charge and Expenses 1,656 --
Other Expense 660 703
-------- -------
Total Noninterest Expense 4,093 2,335
-------- -------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
AND EFFECT OF ACCOUNTING CHANGE (303) 1,064
Income Tax Expense (Benefit) (214) 414
--------- --------
INCOME (LOSS) BEFORE EFFECT OF ACCOUNTING CHANGE (89) 650
Effect of Change in Accounting Principle -- (11)
--------- --------
NET INCOME (LOSS) $ (89) $ 639
========== ========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (143) $ 578
========== ========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Income (Loss) Before Effect of Accounting Change $ (0.32) $ 1.37
Effect of Change in Accounting Principle -- (0.03)
--------- ---------
Net Income (Loss) $ (0.32) $ 1.34
========== ========
Assuming Full Dilution:
Income (Loss) Before Effect of Accounting Change $ (0.32) $ 1.36
Effect of Change in Accounting Principle -- (0.03)
--------- ---------
Net Income (Loss) $ (0.32) $ 1.33
========== ========
The Notes to Financial Statements are an integral part of these Statements.
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Part I
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(in millions)
Three Months Ended
March 31,
---------------------------
1996 1995
-------- ----------
Preferred Stock:
<S> <C> <C>
Balance at Beginning and End of Period: $ 2,650 $ 2,850
--------- ----------
Common Stock:
Balance at Beginning of Year $ 458 $ 447
Retirement of Treasury Stock (20)(a) --
Issuance of Common Stock -- 1
--------- ----------
Balance at End of Period $ 438 $ 448
--------- ----------
Capital Surplus:
Balance at Beginning of Year $ 11,075 $ 10,671
Retirement of Treasury Stock (433)(a) --
Issuance of Common Stock (100) 44
Restricted Stock Granted, Net of Amortization 16 1
--------- ----------
Balance at End of Period $ 10,558 $ 10,716
--------- ----------
Retained Earnings:
Balance at Beginning of Year $ 7,997 $ 6,045
Net Income (Loss) (89) 639
Cash Dividends Declared:
Preferred Stock (54) (61)
Common Stock (328)(b) (177)
Retirement of Treasury Stock (557)(a) --
Accumulated Translation Adjustment -- 10
--------- ----------
Balance at End of Period $ 6,969 $ 6,456
--------- ----------
Net Unrealized Loss on Securities Available-for-Sale:
Balance at Beginning of Year $ (237) $ (473)
Net Change in Fair Value of Securities Available-for-Sale,
Net of Taxes (373) (37)
---------- -----------
Balance at End of Period $ (610) $ (510)
---------- -----------
Common Stock in Treasury, at Cost:
Balance at Beginning of Year $ (1,107) $ (667)
Retirement of Treasury Stock 1,010(a) --
Purchase of Treasury Stock (708) (189)
Issuance of Treasury Stock 567 6
--------- ----------
Balance at End of Period $ (238) $ (850)
---------- -----------
Total Stockholders' Equity $ 19,767 $ 19,110
========= ==========
<FN>
(a) Under the terms of the merger agreement, all of The Chase Manhattan
Corporation's ("Chase") treasury stock was cancelled and retired. In
accordance with existing accounting pronouncements, if the average price
per share of the treasury stock at the time of retirement is higher than
the average price per share in capital surplus, then the excess amount
should be applied against retained earnings.
(b) Includes fourth quarter 1995 common stock dividends of $80 million paid by
Chase in February of 1996.
</FN>
The Notes to Financial Statements are an integral part of these Statements.
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Part I
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
(in millions)
1996 1995
-------- --------
Operating Activities
- --------------------
<S> <C> <C>
Net Income (Loss) $ (89) $ 639
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
by Operating Activities:
Effect of Change in Accounting Principle -- 11
Provision for Losses 245 185
Restructuring Charge and Expenses 1,656 --
Depreciation and Amortization 208 218
Net Change In:
Trading-Related Assets 847 2,528
Accrued Interest Receivable 51 40
Other Assets (1,504) (108)
Trading-Related Liabilities 297 (408)
Accrued Interest Payable (189) 46
Other Liabilities (73) (414)
Other, Net 262 (132)
-------- --------
Net Cash Provided by Operating Activities 1,711 2,605
-------- --------
Investing Activities
- --------------------
Net Change In:
Deposits with Banks 2,212 3,201
Federal Funds Sold and Securities Purchased Under Resale Agreements (2,829) (2,315)
Loans Due to Sales and Securitizations 10,433 4,249
Other Loans, Net (10,051) (7,552)
Other, Net 228 (780)
Proceeds from the Maturity of Held-to-Maturity Securities 300 447
Purchases of Held-to-Maturity Securities (69) (233)
Proceeds from the Maturity of Available-for-Sale Securities 3,032 1,201
Proceeds from the Sale of Available-for-Sale Securities 10,433 9,730
Purchases of Available-for-Sale Securities (16,132) (11,540)
Cash Used in Acquisitions -- (98)
-------- --------
Net Cash Used by Investing Activities (2,443) (3,690)
-------- --------
Financing Activities
- --------------------
Net Change In:
Noninterest-Bearing Domestic Demand Deposits (6,896) (3,333)
Domestic Time and Savings Deposits 3,445 (1,184)
Foreign Deposits 851 1,773
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 1,104 2,440
Other Borrowed Funds (1,190) 544
Other, Net (206) 3
Proceeds from the Issuance of Long-Term Debt 725 594
Repayments of Long-Term Debt (571) (669)
Proceeds from the Issuance of Stock 513 50
Treasury Stock Purchased (708) (189)
Cash Dividends Paid (284) (238)
-------- --------
Net Cash Provided by Financing Activities (3,217) (209)
-------- --------
Effect of Exchange Rate Changes on Cash and Due from Banks 1 (8)
-------- --------
Net Increase (Decrease) in Cash and Due from Banks (3,948) (1,302)
Cash and Due from Banks at January 1, 14,794 13,545
-------- --------
Cash and Due from Banks at March 31, $ 10,846 $ 12,243
======== ========
Cash Interest Paid $ 3,091 $ 3,777
-------- --------
Taxes Paid $ 335 $ 95
-------- --------
The Notes to Financial Statements are an integral part of these Statements.
</TABLE>
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Part I
Item 1. (continued)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The unaudited financial statements of The Chase Manhattan Corporation and
subsidiaries (the "Corporation") are prepared in accordance with generally
accepted accounting principles for interim financial information. In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and the results of
operations for the interim periods presented have been included.
NOTE 2 - MERGER BETWEEN CHASE AND CHEMICAL
- ------------------------------------------
On March 31, 1996, The Chase Manhattan Corporation ("Chase") merged with and
into Chemical Banking Corporation ("Chemical"). Upon consummation of the merger,
Chemical changed its name to "The Chase Manhattan Corporation" (the
"Corporation").
Under the terms of the merger agreement, 183 million shares of the Corporation's
common stock were issued in exchange for all of the outstanding shares of
Chase's common stock (based on an exchange ratio of 1.04 shares of the
Corporation's common stock for each share of Chase's common stock). All of
Chase's series of preferred stock were exchanged on a one-for-one basis for a
corresponding series of the Corporation's preferred stock having substantially
the same terms as the Chase preferred stock so converted. The merger was
accounted for as a pooling-of-interests and, accordingly, the information
included in the financial statements and consolidated notes of the Corporation
presents the combined results of Chase and Chemical as if the merger had been in
effect for all periods presented.
In connection with the merger, $1.9 billion of one-time merger-related costs
have been identified, of which $1.65 billion was taken as a restructuring charge
on March 31, 1996. In addition, $6 million of merger-related expenses were
incurred in the 1996 first quarter and included in the restructuring charge
caption on the income statement. The remaining $244 million of one-time
merger-related costs will be incurred substantially over the next two years as
these costs do not qualify for immediate recognition under a recently issued
accounting pronouncement. These remaining costs will be reflected in the
restructuring charge caption when incurred. The $1.9 billion of merger-related
costs reflects severance and other termination-related costs to be incurred in
connection with anticipated staff reductions (approximately $600 million), costs
in connection with planned dispositions of certain facilities, premises and
equipment (approximately $700 million), and other merger-related expenses,
including costs to eliminate redundant back office and other operations of
Chemical and Chase and other expenses related directly to the merger
(approximately $600 million).
NOTE 3 - TREASURY STOCK
- -----------------------
The Corporation has revised its previously announced buy-back program to
terminate at September 30, 1996 and to provide that purchases of shares of
common stock of the Corporation under the plan to such date would be in
accordance with the pooling-of-interests accounting rules.
During the 1996 first quarter, the Corporation repurchased approximately 11.0
million shares of its outstanding common stock in the open market. The
repurchases were largely undertaken to meet the anticipated needs of the
Corporation's employee stock option and incentive plans in accordance with
pooling-of-interest accounting rules. During the 1996 first quarter,
approximately 10.4 million shares were issued (all of which were from treasury)
under various employee stock option and incentive plans.
Under the terms of the merger agreement, all 18.6 million shares of Chase's
treasury stock (which included approximately 9.0 million shares which were
considered "tainted" under pooling-of-interests accounting rules), amounting to
$1,010 million at March 31, 1996, were cancelled and retired.
As of March 31, 1996, after taking into consideration the aforementioned shares
held in Chase's treasury that were considered "tainted" along with the
approximately 3.9 million shares held in treasury by Chemical that are
considered "tainted", the aggregate number of the Corporation's shares deemed
"tainted" under pooling-of- interest accounting rules approximated 12.9 million.
- 7 -
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Part I
Item 1. (continued)
NOTE 4 - TRADING ACTIVITIES
- ---------------------------
The Corporation uses its trading assets and liabilities to meet the financing
needs of its customers and to generate revenue through its trading activities.
For a discussion of the Corporation's risk management instrument activity and
related trading revenue for the 1996 first quarter, see Management's Discussion
and Analysis on pages 21-22 and page 38 of this Form 10-Q.
Trading Assets and Liabilities
Trading assets include debt and equity instruments and risk management
instruments with positive fair values. Trading liabilities are comprised of
securities sold, not yet purchased and risk management instruments with negative
fair values. Trading assets and trading liabilities (which are carried at
estimated fair value, after taking into account the effects of legally
enforceable master netting agreements on risk management instruments) are
presented in the following table for the dates indicated.
<TABLE>
<CAPTION>
======================================================================================================================
March 31, December 31,
(in millions) 1996 1995
--------- -----------
Trading Assets - Debt and Equity Instruments:
<S> <C> <C>
U.S. Government, Federal Agencies and Municipal Securities $ 8,848 $ 9,601
Certificates of Deposit, Bankers' Acceptances,
and Commercial Paper 2,427 2,560
Debt Securities Issued by Foreign Governments 5,904 6,318
Debt Securities Issued by Foreign Financial Institutions 3,510 3,467
Loans 595 666
Corporate Securities 2,179 2,224
Other 1,341 1,376
------------ -------------
Total Trading Assets-Debt and Equity Instruments (a) $ 24,804 $ 26,212
============ =============
Trading Assets - Risk Management Instruments:
Interest Rate Contracts $ 10,940 $ 12,408
Foreign Exchange Contracts 11,337 12,384
Stock Index Options and Commodity Contracts 1,364 1,033
------------ -------------
Total Trading Assets-Risk Management Instruments $ 23,641 $ 25,825
============ =============
Trading Liabilities-Risk Management Instruments:
Interest Rate Contracts $ 11,635 $ 13,975
Foreign Exchange Contracts 11,045 13,295
Stock Index Options and Commodity Contracts 984 831
------------ -------------
Trading Liabilities-Risk Management Instruments $ 23,664 $ 28,101
Securities Sold, Not Yet Purchased $ 9,361 $ 6,240
------------ -------------
Total Trading Liabilities $ 33,025 $ 34,341
============ =============
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes emerging markets instruments of $4,285 million at March 31, 1996.
</FN>
======================================================================================================================
</TABLE>
NOTE 5 - SECURITIES
- -------------------
For a discussion of the accounting policies relating to securities, see Note One
of the Corporation's 1995 Annual Report to its shareholders filed with the
Securities and Exchange Commission on Form 8-K dated April 16, 1996 (the "1995
Annual Report").
The fair valuation of the securities classified as available-for-sale (including
loans which are subject to the provisions of SFAS 115) resulted in a net after-
tax unfavorable impact of $610 million on the Corporation's stockholders'
equity at March 31, 1996, compared with a net after-tax unfavorable impact
of $237 million at December 31, 1995. The change from the 1995 year-end
was the result of an increase in interest rates during the 1996 first quarter.
- 8 -
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Part I
Item 1. (continued)
Net gains from available-for-sale securities sold in the first quarter of 1996
amounted to $52 million (gross gains of $74 million and gross losses of $22
million). Net losses on such sales for the same period in 1995 amounted to $18
million (gross gains of $38 million and gross losses of $56 million).
Available-for-Sale Securities
The amortized cost and estimated fair value of available-for-sale securities,
including the impact of related derivatives, were as follows for the dates
indicated:
<TABLE>
<CAPTION>
March 31, 1996 (in millions) Gross Gross
- ---------------------------- Amortized Unrealized Unrealized Fair
Cost Gains Losses Value(a)
U.S. Government and Federal ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Agency/Corporation Obligations:
Mortgage-Backed Securities $ 19,452 $ 37 $ 284 $ 19,205
Collateralized Mortgage Obligations 899 -- 3 896
Other, primarily U.S. Treasuries 7,090 2 232 6,860
Obligations of State and Political Subdivisions 623 2 -- 625
Debt Securities Issued by Foreign Governments 8,299 60 58 8,301
Corporate Debt Securities 728 31 6 753
Collateralized Mortgage Obligations (b) 227 1 6 222
Equity Securities 1,033 152 3 1,182
Other, primarily Asset-Backed Securities 603 5 6 602
--------- ------ ------ ---------
Total Available-for-Sale Securities $ 38,954 $ 290 $ 598 $ 38,646
========= ====== ====== =========
December 31, 1995 (in millions) Gross Gross
- ------------------------------- Amortized Unrealized Unrealized Fair
Cost Gains Losses Value(a)
U.S. Government and Federal --------- ----------- ----------- --------
Agency/Corporation Obligations:
Mortgage-Backed Securities $ 19,029 $ 205 $ 2 $ 19,232
Collateralized Mortgage Obligations 1,132 -- 8 1,124
Other, primarily U.S. Treasuries 5,020 4 53 4,971
Obligations of State and Political Subdivisions 633 6 -- 639
Debt Securities Issued by Foreign Governments 8,084 234 146 8,172
Corporate Debt Securities 716 31 10 737
Collateralized Mortgage Obligations (b) 246 -- 1 245
Equity Securities 999 169 4 1,164
Other, primarily Asset-Backed Securities 853 9 5 857
--------- ------ ------ ---------
Total Available-for-Sale Securities $ 36,712 $ 658 $ 229 $ 37,141
========= ====== ====== =========
<FN>
(a) The Corporation's portfolio of securities generally consists of
investment-grade securities. The fair value of actively-traded securities
is determined by the secondary market, while the fair value for
non-actively- traded securities is based on independent broker quotations.
(b) Collateralized mortgage obligations of private issuers generally have
underlying collateral consisting of obligations of U.S. Government and
Federal agencies and corporations.
</FN>
</TABLE>
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<PAGE>
Part I
Item 1. (continued)
Held-to-Maturity Securities
The amortized cost and estimated fair value of held-to-maturity securities for
the dates indicated were as follows:
<TABLE>
<CAPTION>
March 31, 1996 (in millions) Gross Gross
- ---------------------------- Amortized Unrealized Unrealized Fair
Cost Gains Losses Value(a)
U.S. Government and Federal --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Agency/Corporation Obligations:
Mortgage-Backed Securities $ 1,723 $ 4 $ 11 $ 1,716
Collateralized Mortgage Obligations 2,460 5 16 2,449
Other, primarily U.S. Treasuries 82 -- -- 82
Collateralized Mortgage Obligations (b) 47 1 -- 48
Other, primarily Asset-Backed Securities 86 1 -- 87
-------- ------ ------ ---------
Total Held-to-Maturity Securities $ 4,398 $ 11 $ 27 $ 4,382
======== ====== ====== =========
December 31, 1995 (in millions) Gross Gross
- ------------------------------- Amortized Unrealized Unrealized Fair
Cost Gains Losses Value(a)
U.S. Government and Federal ---------- ---------- ---------- ----------
Agency/Corporation Obligations:
Mortgage-Backed Securities $ 1,782 $ 24 $ 1 $ 1,805
Collateralized Mortgage Obligations 2,624 11 6 2,629
Other, primarily U.S. Treasuries 82 -- -- 82
Collateralized Mortgage Obligations (b) 48 2 -- 50
Other, primarily Asset-Backed Securities 92 1 -- 93
--------- ------- ------- ---------
Total Held-to-Maturity Securities $ 4,628 $ 38 $ 7 $ 4,659
========= ======= ======= =========
<FN>
(a) The Corporation's portfolio of securities generally consists of
investment-grade securities. The fair value of actively-traded securities
is determined by the secondary market, while the fair value for
non-actively- traded securities is based on independent broker quotations.
(b) Collateralized mortgage obligations of private issuers generally have
underlying collateral consisting of obligations of U.S. Government and
Federal agencies and corporations.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
Part I
Item 1. (continued)
NOTE 6 - LOANS
- --------------
For a discussion of the Corporation's loans which are subject to the provisions
of SFAS 115, reference is made to page 63 of the Corporation's 1995 Annual
Report. The following table reflects the amortized cost and estimated fair value
of loans measured pursuant to SFAS 115 (which are all available-for-sale),
including the impact of related derivatives, for the dates indicated.
(in millions) Gross Gross
- ------------- Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
March 31, 1996 $ 2,800 $ 48 $ 830 $ 2,018
========== ========= ======= =========
December 31, 1995 $ 2,849 $ 47 $ 917 $ 1,979
========== ========= ======= =========
</TABLE>
The first quarter of 1996 included a net loss of $35 million related to the
disposition of available-for-sale emerging market securities compared
with a net gain of $24 million in the same 1995 period.
For a discussion of the accounting policies relating to loans, see Note One of
the Corporation's 1995 Annual Report. The following table sets forth impaired
loan disclosures under SFAS 114. The Corporation uses the discounted cash
flow method as its primary method for valuing impaired loans.
<TABLE>
<CAPTION>
March 31, March 31,
(in millions) 1996 1995
- ------------ ----------- --------
<S> <C> <C>
Impaired Loans with an Allowance $ 514 $ 717
Impaired Loans without an Allowance (a) 714 944
---------- --------
Total Impaired Loans $ 1,228 $ 1,661
========== ========
Allowance for Impaired Loans under
SFAS 114 (b) $ 153 $ 235
---------- --------
Average Balance of Impaired Loans
during the three months ended March 31, $ 1,212 $ 1,682
---------- --------
Interest Income Recognized on Impaired
Loans during the three months ended March 31, $ 8 $ 7
---------- --------
<FN>
(a) Impaired loans for which the discounted cash flows, collateral value or
market price equals or exceeds the carrying value of the loan. Such loans
do not require an allowance under SFAS 114.
(b) The Allowance for Impaired Loans under SFAS 114 is a part of the
Corporation's overall Allowance for Credit Losses.
</FN>
</TABLE>
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<PAGE>
Part I
Item 1. (continued)
NOTE 7 - POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
- -----------------------------------------------------------
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"), for postretirement medical benefits for its
eligible foreign employees. Consistent with the January 1, 1993 adoption of SFAS
106 for domestic employees, the Corporation elected to expense the entire
unrecognized accumulated obligation as of the date of adoption of SFAS 106
related to its foreign employees via a one-time pre-tax charge of $17 million
($11 million after-tax).
NOTE 8 - RESTRUCTURING CHARGES
- ------------------------------
See Note 2 for a discussion of the $1.65 billion merger-related restructuring
charge. For a discussion of the Corporation's restructuring charges taken in
prior years, reference is made to Note Fifteen of the Corporation's 1995 Annual
Report. At March 31, 1996, the reserve balance related to the charge taken in
connection with the Corporation's program to improve earnings per share was
approximately $108 million relating substantially to the disposition of certain
facilities, premises and equipment and the termination of leases.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
For a discussion of certain legal proceedings, see Part II, Item 1 of this Form
10-Q.
NOTE 10 - DERIVATIVE AND FOREIGN EXCHANGE FINANCIAL INSTRUMENTS
- ---------------------------------------------------------------
The Corporation utilizes various derivative and foreign exchange financial
instruments for trading purposes and for purposes other than trading, such as
asset/liability management ("ALM"). These financial instruments represent
contracts with counterparties where payments are made to or from the
counterparty based upon specific interest rates, currency levels, other market
rates or on terms predetermined by the contract. Such derivative and foreign
exchange transactions involve, to varying degrees, credit risk and market risk.
For a discussion of the credit and market risks involved with derivative and
foreign exchange financial instruments, reference is made to pages 32 and
38-44 and Note Eighteen of the Corporation's 1995 Annual Report.
Derivative and Foreign Exchange Instruments Used for Trading Purposes: The
financial instruments used for the Corporation's trading activities are
disclosed in Note 4 of this Form 10-Q. The credit risk relating to the
Corporation's trading activities is recorded on the balance sheet. The effects
of market risk (gains or losses) on the Corporation's trading activities have
been reflected in trading revenue, as the trading instruments are
marked-to-market on a daily basis.
Derivative and Foreign Exchange Instruments Used for Purposes Other Than
Trading: The Corporation's principal objective in using off-balance sheet
instruments for purposes other than trading is for its ALM activities. A
discussion of the Corporation's objectives and strategies for employing
derivative and foreign exchange instruments for ALM activities is included on
pages 41 and 44 of the Corporation's 1995 Annual Report.
At March 31, 1996, gross deferred gains and gross deferred losses relating to
closed derivative contracts used in ALM activities were $547 million and $721
million, respectively. See page 56 of the Corporation's 1995 Annual Report for
the accounting method used for these contracts and see page 41 of this Form
10-Q for the Amortization of Net Deferred Gains (Losses) on Closed ALM
Contracts.
The Corporation also uses selected derivative financial instruments to manage
the sensitivity to changes in market interest rates on anticipated transactions;
however, such transactions are not significant. Accordingly, at March 31, 1996,
deferred gains and losses associated with such transactions were insignificant.
- 12 -
<PAGE>
Part I
Item 1. (continued)
The following table summarizes the aggregate notional amounts of interest rate
and foreign exchange contracts as well as the credit exposure related to these
instruments (after taking into account the effects of legally enforceable master
netting agreements) for the dates indicated below. The table should be read in
conjunction with the descriptions of these products and their risks included on
pages 73-75 of the Corporation's 1995 Annual Report.
<TABLE>
<CAPTION>
Notional Amounts (a) Credit Exposure
-------------------- ---------------
March 31, December 31, March 31, December 31,
(in billions) 1996 1995 1996 1995
- ------------- --------- ----------- -------- -----------
Interest Rate Contracts
Futures, Forwards and Forward Rate Agreements
<S> <C> <C> <C> <C>
Trading $ 1,132.1 $ 1,047.5 $ 0.7 $ 1.3
Asset and Liability Management 31.1 40.0 --- 0.1
Interest Rate Swaps
Trading 1,839.4 1,692.6 9.7 10.4
Asset and Liability Management 81.4 69.7 0.2 0.3
Purchased Options
Trading 159.1 147.2 0.5 0.7
Asset and Liability Management 40.0 26.0 --- ---
Written Options
Trading 177.5 161.0 --- ---
Asset and Liability Management 19.6 6.4 --- ---
----------- ---------- ---------- ---------
Total Interest Rate Contracts $ 3,480.2 $ 3,190.4 $ 11.1 $ 12.8
=========== ========== ========== =========
Foreign Exchange Contracts
Spot, Forward and Futures Contracts
Trading $ 1,349.2 $ 1,352.1 $ 8.1 $ 8.8
Asset and Liability Management 23.1 10.9 --- ---
Other Foreign Exchange Contracts (b)
Trading 263.0 241.6 3.2 3.6
Asset and Liability Management 2.0 1.6 --- ---
----------- ---------- ---------- ---------
Total Foreign Exchange Contracts $ 1,637.3 $ 1,606.2 $ 11.3 $ 12.4
=========== ========== ========== =========
Stock Index Options and Commodity
Contracts
Trading $ 46.1 $ 37.7 $ 1.4 $ 1.0
----------- ----------- ----------- ----------
Total Stock Index Options and
Commodity Contracts $ 46.1 $ 37.7 $ 1.4 $ 1.0
=========== ========== ========== ===========
Total Credit Exposure Recorded on the Balance Sheet $ 23.8 $ 26.2
========== ===========
<FN>
(a) The notional amounts of exchange-traded interest rates contracts, foreign
exchange contracts, and stock index options and commodity contracts were
$449.2 billion, $15.2 billion and $7.8 billion, respectively, at March
31, 1996, compared with $417.7 billion, $10.6 billion and $5.1 billion,
respectively, at December 31, 1995. The credit risk amounts of these
contracts were minimal since exchange-traded contracts principally settle
daily in cash.
(b) Includes notional amounts of purchased options, written options and
cross-currency interest rate swaps of $97.9 billion, $102.1 billion and
$65.0 billion, respectively, at March 31, 1996, compared with $92.2
billion, $92.4 billion and $58.6 billion, respectively, at December 31,
1995.
</FN>
</TABLE>
- 13 -
<PAGE>
Part I
Item 1. (continued)
NOTE 11 - OFF-BALANCE SHEET LENDING-RELATED FINANCIAL INSTRUMENTS
- -----------------------------------------------------------------
The following table summarizes the Corporation's credit risk which is
represented by contract amounts relating to lending-related financial
instruments at March 31, 1996 and December 31, 1995. The table should be read in
conjunction with the description of these products and their risks included on
page 75 of the Corporation's 1995 Annual Report.
<TABLE>
<CAPTION>
Off-Balance Sheet Lending-Related Financial Instruments
March 31, December 31,
(in millions) 1996 1995
- ------------- ---------- -----------
<S> <C> <C>
Commitments to Extend Credit $ 97,605(a) $ 95,555(a)
Standby Letters of Credit and Guarantees (Net of Risk
Participations of $4,524 and $4,861) 24,922 24,745
Other Letters of Credit 5,985 5,907
Customers' Securities Lent 31,156 27,169
<FN>
(a) Excludes credit card commitments of $50.0 billion and $47.6 billion at
March 31, 1996 and December 31, 1995, respectively.
</FN>
</TABLE>
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------
For a discussion of the Corporation's fair value methodologies, see pages 76 -77
of the Corporation's 1995 Annual Report. The following table presents the
carrying value and estimated fair value at March 31, 1996 of financial assets
and liabilities valued under SFAS 107 and certain derivatives contracts used for
ALM activities related to such financial assets and liabilities.
- 14 -
<PAGE>
Part I
Item 1. (continued)
<TABLE>
<CAPTION>
Financial Assets/
Financial Liabilities Derivative Contracts Used for ALM Activities
---------------------------- --------------------------------------------------------
Estimated Gross Gross Estimated
Carrying Fair Carrying Unrecognized Unrecognized Fair
(in millions) Value(a)(b) Value(a)(b) Value(c) Gains Losses Value(e)
- ------------- -------------- ----------- -------- ------------- ----------- ----------
Financial Assets:
Assets for Which Fair Value
<S> <C> <C> <C> <C> <C> <C>
Approximates Carrying Value $ 56,882 $ 56,886 $ (3) $ 4 $ -- $ 1
Trading Assets:
Debt and Equity Instruments 24,804 24,804 --- --- --- ---
Risk Management Instruments 23,641 23,641 --- --- --- ---
Securities Available-for-Sale 38,646 38,646 80 --- --- 80
Securities Held-to-Maturity 4,398 4,382 --- --- --- ---
Loans, Net of Unearned Income 149,331 149,630 86 257 (299) 44
Allowance for Credit Losses (3,683) --- --- -- --- --
Derivatives in Lieu of Cash
Market Instruments (d) (3) 43 (3) 212 (166) 43
Other Assets 2,088 2,498 --- --- --- ---
----------- ---------- ------- ------ -------- ------
Total Financial Assets $ 296,104 $ 300,530 $ 160 $ 473 $ (465) $ 168
=========== ========== ======= ====== ======== ======
Financial Liabilities:
Liabilities for Which Fair Value
Approximates Carrying Value $ 213,942 $ 213,985 $ 39 $ 97 $ (140) $ (4)
Domestic Time Deposits 27,578 27,538 252 122 (177) 197
Trading Liabilities 33,025 33,025 --- --- --- ---
Long-Term Debt 12,977 13,224 23 114 (184) (47)
----------- ---------- ------- ------ -------- ------
Total Financial Liabilities $ 287,522 $ 287,772 $ 314 $ 333 $ (501) $ 146
=========== ========== ======= ====== ======== ======
<FN>
(a) The carrying value and estimated fair value include the carrying value and
estimated fair value of derivative contracts used for ALM activities.
(b) The carrying value and estimated fair value of daily margin settlements on
open futures contracts are primarily included in Other Assets on the
balance sheet, except when used in connection with available-for- sale
securities, which are carried at fair value and are included in securities
available-for-sale on the balance sheet. The Corporation uses these
contracts in its ALM activities to modify the interest rate
characteristics of balance sheet instruments such as securities
available-for-sale, loans and deposits. Gross unrecognized gains and
losses from daily margin settlements on open futures contracts were $25
million and $19 million, respectively, at March 31, 1996.
(c) The carrying value of derivatives used for ALM activities is recorded as
receivables and payables and is primarily included in Other Assets on the
balance sheet, except derivatives used in connection with available-
for-sale securities which are carried at fair value and are included in
securities available-for-sale on the balance sheet.
(d) Represents derivative contracts that, as part of the Corporation's ALM
activities are used in place of cash market instruments. For a discussion
of the Corporation's accounting policy relative to these instruments, see
page 56 of the Corporation's 1995 Annual Report.
(e) Derivative Contracts Used for ALM Activities were valued using market
prices or pricing models consistent with methods used by the Corporation
in valuing similar instruments used for trading purposes.
</FN>
</TABLE>
In addition to the derivative contracts in the above table, the Corporation also
uses derivative contracts (interest rate swaps, futures and purchased option
contracts) to manage the risk associated with its mortgage servicing rights that
are not required to be fair valued under SFAS 107. At March 31, 1996, the
carrying value of such derivative contracts was $32.5 million, and gross
unrecognized gains and losses were $18.8 million and $55.4 million,
respectively, resulting in an estimated negative fair value of $4.1 million.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE CHASE MANHATTAN CORPORATION
QUARTERLY FINANCIAL HIGHLIGHTS
(in millions, except per share and ratio data)
1996 1995
-------- -----------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
EARNINGS:
<S> <C> <C> <C> <C> <C>
Income Before Restructuring Charge $ 937 $ 827 $ 764 $ 729 $ 650
Restructuring Charge (after-tax) (a) (1,026) -- -- -- --
-------- -------- -------- -------- ----------
Income (Loss) After Restructuring Charge and
Before Effect of Accounting Change (89) 827 764 729 650
Effect of Change in Accounting Principle -- -- -- -- (11)(b)
-------- -------- -------- -------- -------
Net Income (Loss) $ (89) $ 827 $ 764 $ 729 $ 639
======== ======== ======== ======== ==========
Net Income (Loss) Applicable to Common Stock $ (143) $ 773 $ 708 $ 673 $ 578
======== ======== ======== ======== ==========
INCOME (LOSS) PER COMMON SHARE:
Primary:
Income Before Restructuring Charge $ 1.98 $ 1.73 $ 1.58 $ 1.54 $ 1.37
Restructuring Charge (2.30) -- -- -- --
-------- -------- -------- -------- ----------
Income (Loss) After Restructuring Charge and
Before Effect of Accounting Change (0.32) 1.73 1.58 1.54 1.37
Effect of Change in Accounting Principle -- -- -- -- (0.03)(b)
-------- -------- -------- -------- ----------
Net Income (Loss) $ (0.32) $ 1.73 $ 1.58 $ 1.54 $ 1.34
======== ======== ======== ======== ==========
Assuming Full Dilution:
Income Before Restructuring Charge $ 1.97 $ 1.73 $ 1.55 $ 1.52 $ 1.36
Restructuring Charge (2.29) -- -- -- --
-------- -------- -------- -------- ----------
Income (Loss) After Restructuring Charge and
Before Effect of Accounting Change (0.32) 1.73 1.55 1.52 1.36
Effect of Change in Accounting Principle -- -- -- -- (0.03)(b)
-------- -------- -------- -------- ----------
Net Income (Loss) $ (0.32) $ 1.73 $ 1.55 $ 1.52 $ 1.33
======== ======== ======== ======== ==========
PER COMMON SHARE:
Book Value $ 39.41 $ 41.81 $ 40.93 $ 39.66 $ 38.22
Market Value $ 70.50 $ 58.75 $ 60.88 $ 47.25 $ 37.75
Common Stock Dividends Declared (c) $ 0.56 $ 0.50 $ 0.50 $ 0.50 $ 0.44
COMMON SHARES OUTSTANDING:
Average Common and Common Equivalent Shares 446.1 446.0 448.4 436.2 430.5
Average Common Shares Assuming Full Dilution 449.1 447.7 456.4 444.4 439.5
Common Shares at Period End 434.3 435.0 438.6 430.9 425.4
PERFORMANCE RATIOS: (Average Balances) (d)
Income Before Restructuring Charge:
Return on Assets 1.20% 1.04% .99% .95% .87%
Return on Common Stockholders' Equity 19.53% 17.33% 16.17% 16.31% 14.64%
Return on Total Stockholders' Equity 18.09% 16.13% 15.14% 15.13% 13.74%
Net Income (Loss):
Return on Assets N/M 1.04% .99% .95% .87%
Return on Common Stockholders' Equity N/M 17.33% 16.17% 16.31% 14.64%
Return on Total Stockholders' Equity N/M 16.13% 15.14% 15.13% 13.74%
Efficiency Ratio (e) 59.5% 61.9% 61.9% 63.2% 67.4%
<FN>
(a) Reflects restructuring charge taken in connection with the merger of The
Chase Manhattan Corporation and Chemical Banking Corporation on March 31,
1996.
(b) On January 1, 1995, the Corporation adopted SFAS 106 for the accounting
for other postretirement benefits relating to its foreign plans.
(c) The Corporation increased its quarterly common stock dividend from $0.50
per share to $0.56 per share in the first quarter of 1996.
(d) Quarterly performance ratios are based on annualized net income amounts.
(e) Excludes restructuring charges, foreclosed property expense, and
nonrecurring items. During the 1996 first quarter, such nonrecurring items
were the receipt of interest related to Federal and State tax audit
settlements, loss on the sale of a building in Japan and costs incurred in
combining the Corporation's foreign retirement plans. The 1995 first
quarter excluded the gain on the sale of the Corporation's investment in
Far East Bank and Trust Company.
N/M - As a result of the loss, these ratios are not meaningful.
</FN>
</TABLE>
- 16 -
<PAGE>
Part I
Item 2 (continued)
On March 31, 1996, The Chase Manhattan Corporation ("Chase") merged with and
into Chemical Banking Corporation ("Chemical"). Upon consummation of the merger,
Chemical changed its name to "The Chase Manhattan Corporation" (the
"Corporation"). The merger was accounted for as a pooling of interests and,
accordingly, the information included in this Form 10-Q presents the combined
results of Chase and Chemical as if the merger had been in effect for all
periods presented. Certain forward-looking statements contained herein are
subject to risks and uncertainties. The Corporation's actual results following
the merger may differ materially from those set forth in such forward-looking
statements. Reference is made to the Corporation's reports filed with the
Securities and Exchange Commission, [in particular the Form 8-K dated April 16,
1996] for a discussion of factors that may cause such differences to occur.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
The Chase Manhattan Corporation (the "Corporation") reported first quarter 1996
net income of $937 million, before a merger-related restructuring charge, a 44
percent increase from first quarter 1995 results of $650 million. Primary
earnings per share in the first quarter of 1996 were $1.98, before the charge,
compared with $1.37 in the same 1995 period. Fully diluted earnings per share in
the first quarter of 1996 were $1.97, before the charge, compared with $1.36 in
the first quarter of 1995. Including the merger-related charge of $1.65 billion
($1.026 billion after-tax), the Corporation reported a net loss of $89 million
in the first quarter of 1996.
The Corporation's 1996 first quarter results reflected strong revenue growth,
coupled with continued success in managing its expenses. The Corporation
achieved solid and balanced performances in each of its global banking,
regional banking and nationwide consumer businesses, which placed the
Corporation in a strong position to achieve the performance targets it has
announced for 1996.
The Corporation's return on average common stockholders' equity excluding the
restructuring charge was 19.5% for the first quarter of 1996, compared with
14.6% for the 1995 comparable quarter. The Corporation's efficiency ratio
improved to 59.5% for the first quarter of 1996, compared with 67.4% for the
first quarter of 1995.
During the 1996 first quarter, the Corporation recognized a number of special
items including a charge of $102 million against the Corporation's allowance for
credit losses, as a result of conforming charge-off policies with respect to
credit card receivables; a loss of $60 million ($37 million after-tax) on the
sale of a building in Japan; a charge of $40 million ($25 million after-tax)
related to conforming its foreign retirement plans; and aggregate tax benefits
and refunds of $132 million.
At March 31, 1996, the Corporation's Tier 1 Capital and Total Capital ratios
were 7.92% and 11.99%, respectively (excluding the assets and off-balance sheet
financial instruments of the Corporation's securities subsidiaries, as well as
the Corporation's investment in these subsidiaries). These risk-based capital
ratios were well in excess of the minimum ratios specified by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board") and at March
31, 1996, the Corporation was "well capitalized" as defined by the Federal
Reserve Board.
The Corporation's nonperforming assets at March 31, 1996 were $1,686 million,
compared with $1,664 million on December 31, 1995, and declined $371 million
from $2,057 million at March 31, 1995. Nonperforming assets have declined by
approximately $9.8 billion, or 85%, from their peak level of $11.5 billion in
1991.
- 17 -
<PAGE>
<TABLE>
<CAPTION>
Part I
Item 2 (continued)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Net Interest Income
First Quarter
--------------------------
(in millions) 1996 1995
- ------------- --------- -----------
Net Interest Income
<S> <C> <C>
Domestic $ 1,733 $ 1,588
Overseas 433 439
----------- -----------
Total Net Interest Income 2,166 2,027
Taxable-Equivalent Adjustment 5 14
----------- -----------
Net Interest Income-Taxable-Equivalent Basis (a) $ 2,171 $ 2,041
=========== ===========
Average Interest-Earning Assets:
Domestic $ 181,890 $ 170,391
Overseas 72,771 67,474
----------- -----------
Total Average Interest-Earning Assets $ 254,661 $ 237,865
=========== ===========
Net Yield on Interest-Earning Assets:
Domestic 3.84% 3.81%
Overseas 2.40 2.64
Consolidated Net Yield on Interest-Earning Assets 3.43% 3.48%
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a) Reflected on a taxable equivalent basis in order to permit comparison of
yields on tax-exempt and taxable assets.
</FN>
================================================================================================================
</TABLE>
Reported net interest income for the first quarter of 1996 was $2,166 million,
compared with $2,027 million for the same 1995 period. The 1996 first quarter
results included $54 million of interest related to Federal and State tax audit
settlements. Excluding the impact of the interest related to the aforementioned
settlements, net interest income for the 1996 first quarter increased $85
million from 1995 due to a higher level of interest-earning assets (led by
growth in consumer loans) as well as higher levels of trading-related net
interest income, partially offset by the effect of a higher level of credit card
securitizations.
The interest rate spread, which is the difference between the average rate on
interest-earning assets and the average rate on interest-bearing liabilities,
was 2.58% for the 1996 first quarter, compared with 2.75% for the 1995 first
quarter. The net yield on interest-earning assets, which is the average rate for
interest-earning assets less the average rate paid for all sources of funds,
including the impact of interest-free funds, was 3.43% in 1996, compared with
3.48% in 1995. Excluding the impact of credit card securitizations in both years
and the impact of the interest on the tax settlements in 1996, the net yield in
the 1996 first quarter was 3.52%, compared with 3.54% in the prior year period.
The following table reflects the composition of interest-earning assets as a
percentage of total earning assets, as well as the interest rate spread and the
net yield on interest-earning assets, for the periods indicated.
- 18 -
<PAGE>
<TABLE>
<CAPTION>
Part I
Item 2 (continued)
Average Interest-Earning Asset Mix First Quarter
- ---------------------------------- ------------------------------------------------------
(in billions) 1996 1995
- ------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Consumer Loans $ 72.3 28% $ 66.0 28%
Commercial Loans 77.3 30 75.2 32
--------- ------- --------- --
Total Loans 149.6 58 141.2 60
Securities 42.7 17 34.6 14
Liquid Interest-Earning Assets 62.4 25 62.1 26
--------- ------- --------- ----
Total Interest-Earning Assets $ 254.7 100% $ 237.9 100%
========= ======= ========= ====
Interest Rate Spread 2.58% 2.75%
========= =========
Net Yield on Interest-Earning Assets 3.43% 3.48%
========= =========
</TABLE>
The Corporation's average total loans in the first quarter of 1996 were $149.6
billion, compared with $141.2 billion in the comparable 1995 period. The
increase reflected the continued growth in consumer loans (despite the impact of
a higher level of credit card securitizations) and commercial lending, partially
offset by the continued reduction in the commercial real estate portfolio.
The growth in interest-earning assets was funded by a $9.0 billion increase in
interest-bearing liabilities. For the 1996 first quarter, average
interest-bearing liabilities were $214.6 billion, compared with $205.6 billion
for the first quarter of 1995, principally due to a higher level of foreign
interest-bearing deposits and Federal funds purchased and securities sold under
repurchase agreements. The Corporation utilizes repurchase agreements as a
source of short-term funding for trading-related positions and for its
securities portfolio.
The negative impact on net interest income from nonperforming loans in the first
quarter of 1996 was $29 million, compared with $31 million in the same quarter
in 1995, reflecting the reduction in the level of the Corporation's
nonperforming loans.
For additional information on average balances and net interest income, see
Average Consolidated Balance Sheet, Interest and Rates on page 45.
Management anticipates that, given its current expectations for interest rate
movements in 1996, the Corporation's net interest income in 1996 will be
modestly higher than in 1995 (prior to the impact of securitizations to be
undertaken during 1996).
Provision for Losses
- --------------------
The Corporation's provision for losses was $245 million for the 1996 first
quarter, compared with $186 million in the 1995 fourth quarter, and $185 million
in the 1995 first quarter. The increase in the provision for losses from the
1995 first quarter was primarily the result of slightly higher credit card net
charge-offs, as well as higher commercial net charge-offs as a result of a lower
level of recoveries.
Management anticipates that the provision for losses in 1996 will increase over
the 1995 level due to a lower level of commercial loan recoveries and higher
credit card charge-offs. For a discussion of the Corporation's net charge-offs,
see the Credit Risk Management Section on pages 30-35.
- 19 -
<PAGE>
Part I
Item 2 (continued)
Noninterest Revenue
- -------------------
Noninterest revenue totaled $1,869 million in the 1996 first quarter, an
increase of $312 million, or 20%, when compared with the same period last year.
The 1996 first quarter results reflect a $240 million improvement in trading
revenue, a 15% increase in fees and commissions (principally from corporate
finance and syndication activities, credit card revenue and trust and investment
management fees), and higher securities gains. These increases were partially
offset by lower other revenue as the 1996 quarter includes a loss of $60 million
on the sale of a building in Japan while the 1995 quarter included a gain of $85
million on the sale of the investment in Far East Bank and Trust Company.
The following table presents the components of noninterest revenue for the
periods indicated.
<TABLE>
<CAPTION>
First Quarter
----------------------
(in millions) 1996 1995
- ------------- ---- ----
<S> <C> <C>
Corporate Finance and Syndication Fees $ 224 $ 169
Trust and Investment Management Fees 285 240
Credit Card Revenue 233 182
Service Charges on Deposit Accounts 99 104
Fees for Other Financial Services 378 367
------- --------
Total Fees and Commissions 1,219 1,062
Trading Revenue 339 99
Securities Gains (Losses) 52 (18)
Other Revenue 259 414
------- --------
Total $ 1,869 $ 1,557
======= ========
</TABLE>
Fees and Commissions
Corporate finance and syndication fees were a record $224 million in the 1996
first quarter, an increase of 33% from the prior year period. This resulted from
a higher level of investment banking activity in both loan syndications and new
issues of high-yield securities. During the 1996 first quarter, the Corporation
acted as agent or co-agent for approximately $98 billion of syndicated credit
facilities, a reflection of the Corporation's large client base and strong
emphasis on distribution.
Trust and investment management fees rose $45 million in the 1996 first quarter
due to higher global services activity, reflecting, in part, the acquisition of
the securities processing businesses of U.S. Trust Corporation ("U.S. Trust") in
September 1995 which contributed approximately $24 million of revenue. The
remainder of the increase reflects higher fees resulting from growth in assets
under management.
Credit card revenue increased $51 million to $233 million for the 1996 first
quarter, primarily the result of an increase in securitization volume as well as
growth in outstandings and active accounts. During the 1996 first quarter, $2.9
billion of credit card receivables were securitized. The favorable impact of
the securitizations on credit card revenue was $75 million in the 1996 first
quarter compared with $26 million in the same 1995 period. Average managed
credit card receivables (credit card receivables on the balance sheet plus
securitized credit card receivables) grew to $23.2 billion for the first quarter
of 1996, compared with $19.3 billion for the prior year's comparable period. For
a further discussion of the credit card portfolio and related securitization
activity, see pages 32-33 of this Form 10-Q.
- 20 -
<PAGE>
Part I
Item 2 (continued)
The following table sets forth the components of fees for other financial
services for the periods indicated.
<TABLE>
<CAPTION>
First Quarter
----------------------
(in millions) 1996 1995
- ------------- ---- ----
Fees for Other Financial Services:
<S> <C> <C>
Commissions on Letters of Credit and Acceptances $ 89 $ 91
Fees in Lieu of Compensating Balances 74 69
Mortgage Servicing Fees 50 54
Loan Commitment Fees 30 33
Other Fees 135 120
------- --------
Total $ 378 $ 367
======= ========
</TABLE>
Contributing to the rise in other fees for the first quarter of 1996 were
increased brokerage commissions of $6 million, largely due to higher transaction
volume and a larger customer base at the Corporation's discount brokerage firm,
Brown and Company.
Trading Revenue
The following table sets forth the components of trading revenue for the first
quarter of 1996 and 1995.
<TABLE>
<CAPTION>
First Quarter
----------------------------
(in millions) 1996 1995
- ------------- ---- ----
<S> <C> <C>
Trading Revenue $ 339 $ 99
Net Interest Income Impact (a) 148 84
-------- ---------
Total Trading-Related Revenue $ 487 $ 183
======== =========
Product Diversification:
Interest Rate Contracts (b) $ 146 $ 66
Foreign Exchange Contracts (c) 140 174
Debt Instruments and Other (d) 201 (57)
-------- ---------
Total Trading-Related Revenue $ 487 $ 183
======== =========
<FN>
(a) Net interest income attributable to trading activities includes accruals on
interest-earning and interest-bearing trading-related positions as well as
management allocations reflecting the funding cost or benefit associated
with trading positions. This amount is included in the net interest income
caption on the Consolidated Statement of Income.
(b) Includes interest rate swaps, cross-currency interest rate swaps, foreign
exchange forward contracts, interest rate futures, and forward rate
agreements and related hedges.
(c) Includes foreign exchange spot and option contracts.
(d) Includes U.S. and foreign government and government agency securities,
corporate debt securities, emerging markets debt instruments, debt-related
derivatives, equity securities, equity derivatives, and commodity
derivatives.
</FN>
</TABLE>
- 21 -
<PAGE>
Part I
Item 2 (continued)
The $80 million increase in revenue from interest rate contracts during the 1996
first quarter was primarily due to anticipated volatility in certain Western
European, Asian and U.S. interest rate markets. Foreign exchange revenue in
1996, while down from the first quarter 1995 level, continued to benefit from
volatility in the currency markets and from the Corporation's market-making
activities. The increase in debt instrument revenue during the
1996 first quarter, when compared to the same 1995 period, was primarily the
result of the 1995 first quarter results being adversely affected by major
declines in the prices of emerging markets debt instruments.
Trading revenues are affected by many factors, including volatility of
currencies and interest rates, the volume of transactions executed by the
Corporation on behalf of its customers, the Corporation's success in proprietary
positioning, the credit standing of the Corporation, and the steps taken by
central banks and governments which affect financial markets. The Corporation
expects its trading revenues will fluctuate as these factors will vary from
period to period.
Other Noninterest Revenue
The following table presents securities gains (losses) and the composition of
other revenue for the first quarter of 1996 and 1995.
<TABLE>
<CAPTION>
First Quarter
-----------------------
(in millions) 1996 1995
- ------------- ---- ----
<S> <C> <C>
Securities Gains (Losses) $ 52 $ (18)
======== ========
Other Revenue:
Revenue from Equity-Related Investments $ 223 $ 181
Net Gains (Losses) on Emerging Markets Securities Sales (35) 24
Gain on Sale of Investment in Far East Bank & Trust Company -- 85
Residential Mortgage Origination/Sales Activities 28 41
Loss on Sale of a Building in Japan (60) --
All Other Revenue 103 83
-------- --------
Total Other Revenue $ 259 $ 414
======== ========
</TABLE>
The higher level of securities gains, all of which resulted from sales from the
available-for-sale portfolio, were made in connection with the Corporation's
asset/liability management ("ALM") activities. For a further discussion of the
Corporation's securities, see Note 5 - Securities of the Notes to Financial
Statements.
The Corporation's other revenue was $259 million for the first quarter of 1996,
compared with $414 million for the first quarter of 1995. Revenue from
equity-related investments, which includes income from venture capital
activities and emerging markets investments, was $223 million in the 1996 first
quarter, an increase of $42 million from the comparable 1995 quarter, benefiting
from a broad-based portfolio of investments in an active market. Revenue from
equity-related investments has averaged approximately $157 million per quarter,
based on revenues during the last eight quarterly periods. At March 31, 1996,
the Corporation had equity-related investments with a carrying value of
approximately $2.8 billion. The Corporation believes that equity-related
investments will continue to make contributions to the Corporation's earnings,
although the timing of the recognition of gains from these activities is
unpredictable and revenues from such activities could vary significantly from
period to period.
The first quarter of 1996 included net losses of $35 million related to the
disposition of available-for-sale emerging market securities. The comparable
period in 1995 included a net gain of $24 million on the sale of
available-for-sale emerging market securities.
- 22 -
<PAGE>
Part I
Item 2 (continued)
The $13 million decline in residential mortgage origination/sales activities is
entirely attributable to a lower level of gains from the sale of mortgage
servicing rights in the 1996 first quarter.
All other revenue in the 1996 first quarter included $11 million in net gains
from the securitization of automobile financing loans and credit card
receivables. All other revenue reflected $8 million lower income from the
Corporation's investment in CIT, as a result of the sale of half of the
Corporation's investment in CIT in December 1995.
Noninterest Expense
- -------------------
Noninterest expense in the 1996 first quarter was $2,437 million (excluding the
restructuring charge and other expenses relating to the merger of $1,656
million), compared with $2,364 million in the 1995 fourth quarter and $2,335
million in the first quarter of 1995. The Corporation recognized a special
charge of $40 million in the 1996 first quarter to conform retirement benefits
provided to foreign employees. Excluding the restructuring charge, the special
conformity adjustment for the foreign retirement plans, and foreclosed property
expense, noninterest expense increased 2% from the comparable quarter last year,
and 1% from the preceding quarter. The increases from the prior quarters
primarily reflect costs related to stronger revenues, including higher
incentive costs. Additionally, the first quarter of 1996 includes
approximately $35 million of noninterest expense as a result of the acquisition
of the U.S. Trust processing business in September 1995, and the consolidation
of a foreign investment previously recorded on an equity basis, partially offset
by the absence of expenses due to the sale of the southern and central
New Jersey banking operations in the fourth quarter of 1995.
First Quarter
------------------------
(in millions) 1996 1995
- ------------- ------- ---------
Salaries $ 1,076 $ 997
Employee Benefits 305 234
Occupancy Expense 221 228
Equipment Expense 184 198
Foreclosed Property Expense (9) (25)
Other Expense 660 703
---------- ---------
Total Before Restructuring Charge 2,437 2,335
Restructuring Charge and Expenses 1,656 --
---------- ---------
Total $ 4,093 $ 2,335
========== =========
The Corporation's efficiency ratio improved to 59.5% in the 1996 first quarter,
compared with 67.4% in the 1995 first quarter. The computation of the efficiency
ratio (noninterest expense as a percentage of the total of net interest income
and noninterest revenue) excludes restructuring charges, foreclosed property
expense, and nonrecurring items. During the 1996 first quarter, nonrecurring
items reflected the receipt of interest related to Federal and State tax audit
settlements, a loss on sale of a building in Japan and costs incurred in
combining the Corporation's foreign retirement plans. The 1995 first quarter
excluded the gain on the sale of the Corporation's investment in Far East Bank
and Trust Company.
Salaries and Employee Benefits
The increase in salaries for the 1996 first quarter was primarily due to higher
incentive costs as a result of stronger earnings for most businesses. Also
contributing to the increase in salaries was the vesting of various stock-based
incentive awards due to the improvement in the Corporation's stock price, the
continued growth in the Corporation's securities underwriting business and the
additional staff costs resulting from the U.S. Trust acquisition in September
1995. Partially offsetting these increases were the impact of personnel
reductions undertaken since March 31, 1995 and the aforementioned sale of
Chemical New Jersey Holdings.
- 23 -
<PAGE>
Part I
Item 2 (continued)
The following table presents the Corporation's full-time equivalent employees at
the dates indicated.
March 31, December 31,
1996 1995
--------- ------------
Domestic Offices 59,818 60,904
Foreign Offices 11,493 11,792
------- ----------
Total Full-Time Equivalent Employees 71,311 72,696
======= ==========
Employee benefits in the 1996 first quarter increased $71 million from the prior
year's first quarter primarily as a result of the $40 million charge to
conform retirement benefits provided to foreign employees, and other expenses
associated with a newly consolidated foreign investment. Also impacting employee
benefits was an increase in FICA expenses associated with the vesting of
stock-based incentive awards.
Occupancy and Equipment Expense
Occupancy expense in the 1996 first quarter decreased by $7 million from the
prior year's comparable quarter. The decline from 1995 is largely the result of
the consolidation of operational and branch facilities and other
expense-reduction initiatives.
The lower level of equipment expense in the 1996 first quarter was primarily the
result of expense reduction initiatives relating to software costs and equipment
rentals.
Foreclosed Property Expense
Foreclosed property expense was a credit of $9 million in the 1996 first quarter
compared with a credit of $25 million in the first quarter of 1995. The results
reflected continued progress in reducing the Corporation's real estate
portfolio as a result of improved real estate market conditions. The 1995 amount
included proceeds received from the sale of certain foreclosed properties
previously written down.
Restructuring Charge
In connection with the merger, $1.9 billion of one-time merger-related costs
have been identified, of which $1.65 billion was taken as a restructuring charge
on March 31, 1996. In addition, $6 million of merger-related expenses were
incurred in the 1996 first quarter and included in the restructuring charge
caption on the income statement. The remaining $244 million of one-time
merger-related costs will be incurred substantially over the next two years as
these costs do not qualify for immediate recognition under a recently issued
accounting pronouncement. These remaining costs will be reflected in the
restructuring charge caption when incurred. The $1.9 billion of merger-related
costs reflect severance and other termination-related costs to be incurred in
connection with anticipated staff reductions (approximately $600 million), costs
in connection with the planned disposition of certain facilities, premises and
equipment (approximately $700 million), and other merger-related expenses,
including costs to eliminate redundant back office and other operations and
other expenses related directly to the merger (approximately $600 million).
Management does not anticipate that the restructuring charge will have a
material impact on the Corporation's future liquidity. Because of the inherent
uncertainties associated with merging two large corporations, there can be no
assurance that the $1.9 billion of merger- related costs will reflect the actual
costs ultimately incurred by the Corporation in implementing the merger or that
the Corporation would not deem it appropriate to take additional charges, as the
merger implementation process continues.
- 24 -
<PAGE>
Part I
Item 2 (continued)
Other Expense
The following table presents the components of other expense for the periods
indicated.
First Quarter
---------------------------
(in millions) 1996 1995
- ------------- ------- --------
Other Expense:
Professional Services $ 129 $ 135
Marketing Expense 90 81
FDIC Assessments 1 57
Telecommunications 85 81
Amortization of Intangibles 43 47
All Other 312 302
------- --------
Total $ 660 $ 703
======= ========
Other expense for the 1996 first quarter was $660 million, a decrease of $43
million, or 6%, from the first quarter of 1995. The improvement reflected a $56
million decline in FDIC assessments compared with the first quarter of 1995
resulting from the elimination of a FDIC assessment, with the exception of
deposits associated with the acquisition of former savings and loan branches.
Partially offsetting the 1996 first quarter decline were slight increases in
other expenses as a result of the aforementioned U.S. Trust acquisition, and
consolidation of a foreign investment.
Income Taxes
- ------------
The Corporation recognized income tax benefits of $214 million in the first
quarter of 1996, compared with income tax expense of $414 million in the first
quarter of 1995. The 1996 amount includes tax benefits related to the
restructuring charge, as well as aggregate tax benefits and refunds of $132
million. Excluding the tax benefits and refunds of $132 million , the
Corporation's effective tax rate was 38.0% in the first quarter of 1996 compared
with 38.9% in the comparable 1995 quarter.
- --------------------------------------------------------------------------------
PRO FORMA LINES OF BUSINESS RESULTS
- --------------------------------------------------------------------------------
Profitability of the Corporation is tracked with an internal management
information system that produces lines-of- business performance for all sectors.
The current presentation of lines-of-business results is based on existing
management accounting policies at both Chemical and Chase. A uniform set of
management accounting policies is being developed and is expected to be
implemented in the second quarter of 1996. Lines-of-business results
are subject to restatement as appropriate whenever there are refinements in
management reporting policies, changes to the management organization or to
reflect future changes in internal management reporting.
Guidelines exist for assigning expenses that are not directly incurred by the
businesses, such as overhead and taxes, as well as for allocating shareholders'
equity and the provision for losses, utilizing a risk-based methodology. Also
incorporated in the guidelines is a process for matching assets and liabilities
with similar maturity, liquidity and interest characteristics within each
business. Noninterest expenses of the Corporation are fully allocated to the
business units except for special corporate one-time charges. Management has
developed a risk-adjusted capital methodology that quantifies different types of
risk -- credit, market, and operating/business -- within various businesses and
assigns capital accordingly. Credit risk is computed using a risk-grading system
that is consistently applied throughout the Corporation. A long-term expected
tax rate is assigned in evaluating the Corporation's businesses.
- 25 -
<PAGE>
Part I
Item 2 (continued)
<TABLE>
<CAPTION>
Regional and Consumer Global
For the three months ended Global Bank Banking Services
------------------------ ----------------------- ------------------
March 31, (in millions, except ratios) 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 667 $ 538 $ 1,425 $ 1,374 $ 213 $ 184
Noninterest Revenue 1,146 716 623 569 308 264
Noninterest Expense 896 831 1,197 1,277 388 352
----------- ---------- ---------- --------- -------- --------
Operating Margin 917 423 851 666 133 96
Credit Provision (a) 68 72 343 255 4 --
Foreclosed Property Expense -- -- 2 (19) -- --
----------- ---------- ---------- --------- -------- --------
Income Before Taxes 849 351 506 430 129 96
Income Taxes 316 123 198 171 55 37
----------- ---------- ---------- --------- -------- --------
Operating Net Income 533 228 308 259 74 59
Special Items (b) -- 51 -- -- -- --
----------- ---------- ---------- --------- -------- --------
Net Income $ 533 $ 279 $ 308 $ 259 $ 74 $ 59
=========== ========== ========== ========= ======== ========
Average Assets $ 192,741 $ 179,780 $ 111,470 $ 103,510 $ 9,852 $ 9,614
Return on Common Equity (c) 28.1% 11.7% 18.6% 14.8% 20.2% 17.4%
Return on Assets (c) 1.11% .51% 1.11% 1.01% 3.02% 2.49%
Efficiency Ratio (d) 49.4% 66.3% 58.5% 65.7% 74.5% 78.6%
Terminal
(LDC and Real Estate) Total(e)
------------------------ ------------------------
For the three months ended March 31, 1996 1995 1996 1995
---- ---- ---- ----
(in millions, except ratios)
Net Interest Income $ 19 $ 30 $ 2,112 $ 2,027
Noninterest Revenue (19) 58 1,929 1,472
Noninterest Expense 14 18 2,406 2,360
--------- --------- --------- -----------
Operating Margin (14) 70 1,635 1,139
Credit Provision (a) 10 (3) 245 185
Foreclosed Property Expense (11) (13) (9) (25)
--------- --------- --------- -----------
Income (Loss) Before Taxes (Benefits) (13) 86 1,399 979
Income Taxes (Benefits) (1) 36 532 380
--------- --------- --------- -----------
Operating Net Income (Loss) (12) 50 867 599
Restructuring Charge -- -- (1,026) --
Special Items (b) -- -- 70 51
Accounting Change -- -- -- (11)
--------- --------- --------- -----------
Net Income (Loss) $ (12) $ 50 $ (89) $ 639
========= ========= ========= ===========
Average Assets $ 5,620 $ 8,870 $ 312,925 $ 299,298
Return on Common Equity (c) NM NM 18.0% 13.6%
Return on Assets (c) NM NM 1.11% .81%
Efficiency Ratio (d) NM NM 59.5% 67.4%
<FN>
(a) The provision is allocated to each sector utilizing a credit risk
methodology which is computed using a risk grading system for that
sector's loan portfolio that is consistently applied throughout the
Corporation. The difference between the risk-based provision and the
Corporation provision is included in the Corporate sector.
(b) Special items in the 1996 first quarter include the loss on the sale of a
building in Japan and costs incurred in combining the Corporation's
foreign retirement plans as well as aggregate tax benefits and refunds.
The 1995 first quarter included the gain on the sale of the Corporation's
investment in Far East Bank and Trust Company.
(c) Based on annualized operating net income amounts.
(d) The computation of the efficiency ratio excludes restructuring charges,
foreclosed property expense and the nonrecurring items discussed in (b)
above.
(e) Total column includes Corporate sector. See description of Corporate
sector on page 29.
NM - Not meaningful.
</FN>
</TABLE>
- 26 -
<PAGE>
Part I
Item 2 (continued)
GLOBAL BANK
The Global Bank provides banking, financial advisory, trading and investment
services to corporations and public-sector clients worldwide through a network
of offices in 52 countries, including major operations in all key international
financial centers. Its network enables the Corporation to identify users and
sources of capital on a global basis and to serve the cross-border requirements
of clients through integrated delivery across all its businesses.
The Global Bank includes a dedicated Global Client Management organization
(focusing on corporate clients, credit and general advisory); Global Investment
Banking (including acquisition finance, syndicated finance, high yield finance,
private placements, leasing, mergers and acquisitions, and other global
investment banking activities); Global Markets (foreign exchange dealing and
trading, derivatives trading and structuring, including equity and commodity
derivatives, risk management, securities structuring, underwriting, trading
and sales, and the Corporation's funding and securities investment activities);
Regional Centers (all wholesale banking; investment banking; capital markets and
other activities outside of the United States and the major cross-border
financial centers); and Equity Investments. In addition, the Global Asset
Management and Private Banking group serves high net worth individuals worldwide
with banking and investment services, including the Hanover Funds, Vista family
of mutual funds and Vista unit trust funds. The Global Bank seeks to optimize
its risk profile and profitability by emphasizing originations, underwriting,
distribution and risk management products.
The Global Bank's net income in the first quarter of 1996 was $533 million, an
increase of $254 million from the first quarter of 1995. The sector's return on
equity in the first quarter of 1996 was 28.1%, compared with 11.7% in 1995 first
quarter. The increase in the first quarter was primarily due to a 13% increase
in fee revenue, securities gains, and equity investment gains.
The following table sets forth the significant components of Global Bank's total
revenue by business for the periods indicated.
- --------------------------------------------------------------------------------
First Quarter
------------------
($ in millions) 1996 1995
---- ----
Total Revenue:
Client Management and Investment Banking $ 533 $ 523
Global Markets 587 267
Regional Centers 279 200(a)
Equity Investments 213 83
Global Asset Management & Private Banking 199 170
(a) Excludes $85 million gain on sale of investment in Far East Bank and Trust
Company.
- --------------------------------------------------------------------------------
Revenue from Client Management and Investment Banking increased $10 million in
the first quarter of 1996 reflecting a higher level of investment banking
activity, including loan syndications and new issues of high-yield bonds.
Trading-related revenue at Global Markets was higher in the first quarter of
1996 when compared with 1995 because the trading results in the first quarter of
1995 were adversely affected by major declines in the prices of emerging markets
debt instruments. Also contributing to the revenue increase was higher
securities gains.
Revenue increased $79 million at the Regional Centers in the first quarter of
1996 compared with last year's first quarter reflecting higher net interest
income due to a 12% increase in loan volume and an increase in trading
revenues.
Revenue from equity-related investments increased in the first quarter of 1996
compared with 1995 resulting from the benefit from a broad-based portfolio of
investments in an active market.
Revenue at Global Asset Management and Private Banking rose $29 million, in
part, since the 1995 first quarter results were adversely affected by the
permanent impairment of Barings Bank PLC securities. Also, contributing to the
favorable results was an increase in net interest income resulting from
higher loan and deposit volume.
- 27 -
<PAGE>
Part I
Item 2 (continued)
REGIONAL AND CONSUMER BANKING
Regional and Consumer Banking includes Chase cardmember services (Credit Cards);
Deposits and Investments (consumer banking and commercial and professional
banking); Mortgage Banking; Chase Consumer Credit (home equity secured lending,
student lending, and other consumer lending); International Consumer (consumer
activities in Asia and Latin America); Middle Market and Community Development
(regional commercial banking); Texas Commerce Equity Holdings Inc. ("Texas
Commerce"), the holding company for Texas Commerce Bank National Association;
and the Corporation's franchise in northeastern New Jersey, where it has 39
branches and private banking operations. The Corporation maintains a leading
market share position in serving the financial needs of consumers, middle market
commercial enterprises and small businesses in the New York metropolitan area.
Texas Commerce is a leader in providing financial products and services to
businesses and individuals throughout Texas and is the primary bank for more
large corporations and middle market companies than any other bank in Texas.
Regional and Consumer Banking's net income of $308 million in the first quarter
of 1996 increased $49 million from last year's first quarter results of $259
million. The increase in earnings for the first quarter of 1996 were due
primarily to lower noninterest expense of $80 million reflecting
the reduced FDIC premium expense and the absence of expenses for Chemical New
Jersey Holdings Inc. (which was sold in October 1995). Also contributing were
increases in noninterest revenue and net interest income of $54 million and $51
million, respectively. These favorable results were partially offset by higher
loan loss provision of $88 million and an increase in foreclosed property
expense of $21 million. The higher credit provision in 1996 reflects the
substantial growth in credit card outstandings.
The following table sets forth the significant components of Regional and
Consumer Banking's total revenue by business for the periods indicated.
- --------------------------------------------------------------------------------
First Quarter
-------------------------
($ in millions) 1996 1995
- --------------- ---- ----
Total Revenue:
Credit Cards $ 669 $ 610
Deposits and Investments 453 470
Mortgage Banking 165 143
Chase Consumer Credit 181 145
International Consumer 60 51
Middle Market and Community Development 243 223
Texas Commerce 309 276
- --------------------------------------------------------------------------------
Credit Cards revenue increased $59 million, or 10%, in the first quarter of
1996, compared with last year's first quarter due to a 20% increase in the loan
portfolio and a 7% increase in fee revenue reflecting higher late charges.
The $17 million decrease at Deposits and Investments in the first quarter of
1996 from last year's first quarter is due to a decline in net interest income
reflecting less favorable spreads.
Revenue from Mortgage Banking rose $22 million in the first quarter of 1996 from
the same period in 1995 due to higher net interest income resulting from a 31%
increase in loan volume, higher deposit volume and improved loan spreads.
Chase Consumer Credit revenues increased $36 million, or 25%, in the first
quarter of 1996 compared with last year's first quarter. This favorable result
is due to higher retail banking fees and an increase in net interest income
reflecting a 9% increase in loan outstandings.
The revenue for International Consumer increased $9 million in the first quarter
of 1996 from the same period in 1995 due to higher net interest income
reflecting increased loan volumes for international residential mortgages and
credit cards and improved loan spreads.
- 28 -
<PAGE>
Part I
Item 2 (continued)
Middle Market and Community Development revenues increased 9% in the first
quarter of 1996, when compared with last year's first quarter, due to higher
corporate finance fees and an increase in net interest income reflecting higher
loan volume and improved spreads.
Texas Commerce's revenue increased $33 million, or 12%, in the first quarter of
1996 when compared with the first quarter of 1995. The improvement in 1996 was
due to higher net interest income resulting from 14% growth in loan volume as
well as an increase in securities. Also contributing to the increase was an 8%
increase in fee revenue and higher securities gains. These favorable results
were partially offset by higher foreclosed property expense in the 1996
first quarter, when compared with the prior year period, as the 1995 first
quarter reflected the recognition of recoveries in the Texas real estate market.
GLOBAL SERVICES
Global Services include custody, cash management, payments, trade services,
trust and other fiduciary services. At March 31, 1996, the Corporation was
custodian or trustee for approximately $3.4 trillion of assets. The strategy for
Global Services is to build world class product capabilities in transaction and
information services. The earnings for Global Services in the first quarter of
1996 increased $15 million when compared with the same period in 1995. The
increase is due primarily to higher noninterest revenue and a 16% increase in
net interest income partially offset by higher noninterest expense due to the
acquisition of the securities processing businesses of U.S. Trust in
September 1995. Noninterest revenue rose $44 million, reflecting a 22% increase
in fee revenue; due to trust fees as a result of the U.S. Trust acquisition
coupled with earnings growth in custody services. The increase in net interest
income is due primarily to higher investable balances and the U.S. Trust
acquisition.
TERMINAL BUSINESSES (LDC AND REAL ESTATE)
Terminal Businesses represents discontinued portfolios, which are primarily
refinancing country debt and the Corporation's commercial real estate
problem asset and nonperforming portfolio, primarily at The Chase Manhattan
Bank N.A. and Chemical Bank. Terminal businesses had a net loss of $12 million
for the first quarter of 1996, compared with $50 million in net income for the
first quarter of 1995 primarily due to a $35 million net loss related to
the disposition of available-for-sale emerging markets securities in the
first quarter of 1996 (compared with a net gain of $24 million from sales of
such securities in last year's first quarter). Also, net interest income
decreased $11 million in the first quarter of 1996 compared with the same
period in 1995, due to a decline in loan outstandings.
CORPORATE
Corporate includes the management results attributed to the parent company; the
Corporation's investment in CIT; the impact of credit card securitizations; and
some effects remaining at the corporate level after the implementation of
management accounting policies, including residual credit provision and tax
expense. Corporate had a net loss of $992 million including the restructuring
charge of $1.026 billion (after-tax) related to the merger and the following
special items: $132 million (after-tax) in tax refunds and benefits; $37 million
loss(after-tax) on the sale of a building in Japan and $25 million loss
(after-tax)related to the costs incurred in combining the Corporation's
foreign retirement plans. For the first quarter of 1995, Corporate had a net
loss of $8 million which included an $11 million after-tax charge due to the
adoption of SFAS 106 for foreign employees and a $6 million writedown
associated with certain nonperforming residential mortgages.
- 29 -
<PAGE>
Part I
Item 2 (continued)
- --------------------------------------------------------------------------------
CREDIT RISK MANAGEMENT
- --------------------------------------------------------------------------------
For a discussion of the Corporation's procedures for the management of its
credit risk, reference is made to pages 31-32 of the Corporation's 1995 Annual
Report.
LOAN PORTFOLIO
The following loan discussion focuses primarily on developments since December
31, 1995 and should be read in conjunction with the Loan Portfolio section on
pages 32 through 39 of the Corporation's 1995 Annual Report.
The Corporation's loans outstanding totaled $149.3 billion at March 31, 1996, a
decrease of $0.9 billion from year-end 1995, but an increase of $4.3 billion
from March 31, 1995. The growth in loans outstanding from the 1995 first quarter
reflects increases in both the consumer and commercial loan portfolios and the
decrease from the prior quarter reflects $2.9 billion of securitizations
completed during the 1996 first quarter.
The Corporation's nonperforming assets at March 31, 1996 were $1,686 million, an
increase of $22 million from the 1995 year-end level but a decrease of $371
million, or 18%, from last year's comparable quarter. The reduction in
nonperforming assets from March 31, 1995 reflects the improvement in the
Corporation's credit profile as a result of a lower level of loans being placed
on nonperforming status, repayments, charge-offs, and the Corporation's
continuing loan workout and collection activities. For a description of the
Corporation's accounting policies for its nonperforming loans, renegotiated
loans and assets acquired as loan satisfactions, see Note One of the Notes to
the Consolidated Financial Statements on page 57 of the Corporation's 1995
Annual Report.
Total net charge-offs were $347 million in the first quarter of 1996, compared
with $207 million for the comparable period in 1995. The 1996 amount included a
charge of $102 million related to conforming the credit card charge-off policies
of Chase and Chemical. For a further discussion of nonperforming assets and net
charge-offs, see the provision for losses section on page 19 and the various
credit portfolio sections that follow.
The following table presents the Corporation's loan and nonperforming asset
balances by portfolio at the dates indicated and the related net charge-off
amounts for the periods indicated. Additionally, loans which were past due 90
days and over as to principal or interest but not characterized as nonperforming
are also included in the table.
- 30 -
<PAGE>
Part I
Item 2 (continued)
<TABLE>
<CAPTION>
Loans Nonperforming Assets
---------------------------------------- ------------------------------------
March 31, Dec 31, March 31, March 31, Dec 31, March 31,
1996 1995 1995 1996 1995 1995
(in millions) ---------- -------- --------- --------- ------- ---------
Domestic Consumer:
<S> <C> <C> <C> <C> <C> <C>
Residential Mortgage(a) $ 35,908 $ 34,060 $ 29,449 $ 246 $ 238 $ 211
Credit Card 13,704 17,078 16,145 -- -- --
Auto Loans 6,235 6,290 8,367 23 20 8
Other Consumer(b) 13,214 12,003 10,328 14 19 37
----------- ----------- ----------- -------- -------- --------
Total Domestic Consumer 69,061 69,431 64,289 283 277 256
----------- ---------- ----------- -------- -------- --------
Domestic Commercial:
Commercial and Industrial 31,833 32,276 31,875 474 496 495
Commercial Real Estate(c) 6,514 6,660 7,847 442 375 635
Financial Institutions 6,268 5,714 4,784 2 2 29
----------- ---------- ----------- -------- -------- --------
Total Domestic Commercial 44,615 44,650 44,506 918 873 1,159
----------- ---------- ----------- -------- -------- --------
Total Domestic 113,676 114,081 108,795 1,201 1,150 1,415
----------- ---------- ----------- -------- -------- --------
Foreign, primarily Commercial 35,655 36,126 36,258 336 343 487
----------- ---------- ----------- -------- -------- --------
Total Loans $ 149,331 $ 150,207 $ 145,053 1,537 1,493 1,902
=========== ========== =========== -------- -------- --------
Assets Acquired as Loan Satisfactions 149 171 155
-------- -------- --------
Total Nonperforming Assets $ 1,686 $ 1,664 $ 2,057
======== ======== ========
Past Due 90 Days and Over
Net Charge-offs & Still Accruing
------------------------ -----------------------------------
First Quarter March 31, Dec 31, March 31,
1996 1995 1996 1995 1995
(in millions) --------- ------- ---------- ------- ---------
- -------------
Domestic Consumer:
Residential Mortgage(a) $ 8 $ 12 $ -- $ -- $ --
Credit Card 165 158 283 352 310
Auto Loans 8 4 15 13 7
Other Consumer(b) 29 27 161 151 153
---------- ---------- --------- -------- --------
Total Domestic Consumer 210 201 459 516 470
---------- ---------- --------- -------- --------
Domestic Commercial:
Commercial and Industrial 48 23 25 38 55
Commercial Real Estate(c) (4) (1) 22 66 31
Financial Institutions -- (5) -- -- --
---------- ----------- --------- -------- --------
Total Domestic Commercial 44 17 47 104 86
---------- ---------- --------- -------- --------
Total Domestic 254 218 506 620 556
---------- ---------- --------- -------- --------
Foreign, primarily Commercial (9) (11) 12 44 173
---------- ---------- --------- -------- --------
Total Loans 245 207 $ 518 $ 664 $ 729
---------- ---------- ========= ======== ========
Charge Related to Conforming
Credit Card Charge-off Policies 102 --
---------- ----------
Total $ 347 $ 207
========== ==========
<FN>
(a) Consists of 1-4 family residential mortgages.
(b) Consists of installment loans (direct and indirect types of consumer
finance) and student loans. There are essentially no credit losses in the
student loan portfolio due to the existence of Federal and State government
agency guarantees. Student loans which were past due 90 days and over and
still accruing were approximately $106 million, $107 million, and $103
million at March 31, 1996, December 31, 1995 and March 31, 1995,
respectively.
(c) Represents loans secured primarily by real property, other than loans
secured by mortgages on 1-4 family residential properties.
</FN>
</TABLE>
- 31 -
<PAGE>
Part I
Item 2 (continued)
Domestic Consumer Portfolio
- ---------------------------
The domestic consumer loan portfolio consists of one-to-four family residential
mortgages, credit cards, auto and other consumer loans. The domestic consumer
loan portfolio totaled $69.1 billion at March 31, 1996, a decrease of $0.3
billion from the 1995 year-end but an increase of 7% from March 31, 1995. As a
percentage of the total loan portfolio, consumer loans grew to 46% at the end of
the 1996 first quarter, from 44% at March 31, 1995.
Residential Mortgage Loans: Residential mortgage loans at March 31, 1996 were
$35.9 billion, an increase of $1.8 billion from the 1995 year-end and an
increase of $6.5 billion from March 31, 1995, primarily reflecting increases in
adjustable-rate loan outstandings.
Total nonperforming residential mortgage loans at March 31, 1996 were $246
million, compared with $238 million at December 31, 1995 and $211 million at
March 31, 1995. At March 31, 1996, nonperforming domestic residential mortgage
loans as a percentage of the domestic residential mortgage portfolio was 0.69%,
compared with 0.70% at the 1995 year-end and 0.72% at March 31, 1995. Total net
charge-offs of residential mortgage loans were $8 million in the first quarter
of 1996, a decrease from $12 million in the comparable 1995 period. The
percentage of net charge-offs to average residential mortgage loan outstandings
for the first quarter of 1996 declined to 0.09% from 0.17% for the comparable
period in the prior year.
The Corporation's residential mortgage servicing portfolio amounted to $133.1
billion at March 31, 1996, compared with $119.7 billion at March 31, 1995. A
discussion of the Corporation's mortgage servicing and loan origination
activities is included on page 34 of the Corporation's 1995 Annual Report.
The following table presents the residential mortgage servicing portfolio
activity for the first quarters of 1996 and 1995.
First Quarter
-------------------------
(in billions) 1996 1995
- ------------- ---- ----
Balance at Beginning of Year $ 132.1 $ 118.3
Originations 7.5 2.6
Acquisitions 1.1 3.8
Repayments and Sales (7.6) (5.0)
--------- ---------
Balance at March 31, $ 133.1 $ 119.7
========= =========
Mortgage servicing rights (included in other assets) amounted to $1,203 million
at March 31, 1996, compared with $1,037 million at March 31, 1995. The increase
from the prior year's comparable period reflects the corresponding increase in
the Corporation's residential mortgage servicing portfolio and the
aforementioned adoption of SFAS 122. For a discussion of derivatives used
in connection with mortgage servicing, see page 15 of this Form 10-Q.
Credit Card Loans: The Corporation evaluates its credit card exposure based on
its "managed receivables" which include credit card receivables on the balance
sheet as well as credit card receivables which have been securitized. During the
1996 first quarter, the Corporation securitized $2.9 billion of credit card
receivables, compared with $1.0 billion in the 1995 first quarter. At March 31,
1996, the Corporation had $23.1 billion of managed receivables ($13.7 billion of
receivables on the balance sheet), compared with $23.7 billion ($17.1 billion on
the balance sheet) at year-end 1995 and $19.6 billion at March 31, 1995 ($16.1
billion on the balance sheet). The increase in managed receivables from March
31, 1995 reflects the continued strong growth in credit card outstandings,
principally due to the co-branded Shell MasterCard and other solicitation
programs.
- 32 -
<PAGE>
Part I
Item 2 (continued)
The following table presents the Corporation's average managed credit card
receivables, the amount of these receivables past due 90 days and over and
accruing, net charge-offs and related ratios for the managed credit card
portfolio for the periods presented.
<TABLE>
<CAPTION>
As of or for the three months ended March 31,
(in millions) 1996 1995
----------- ----------
<S> <C> <C>
Average Managed Credit Card Receivables $ 23,183 $ 19,276
Past Due 90 Days & Over and Accruing $ 495 $ 439
As a Percentage of Average Credit Card Receivables 2.15% 2.28%
Net Charge-offs $ 270(a) $ 189(a)
As a Percentage of Average Credit Card Receivables 4.66% 3.92%
<FN>
(a) Includes $105 million and $31 million, respectively, of net charge-offs
related to securitized credit card receivables. Excludes $102 million
charge related to conforming the credit card charge-off policies of Chase
and Chemical.
</FN>
</TABLE>
Net charge-offs on managed credit card receivables were $270 million in the
first quarter of 1996, compared with $189 million in the 1995 first quarter
reflecting growth in average managed credit card outstandings and continuing
higher levels of personal bankruptcies. While net charge-offs as a percentage
of average managed credit card receivables were 4.66% in the 1996 first quarter,
the Corporation has indicated that the ratio for the full year 1996 will
approximate 4.5%. Management anticipates continued growth in credit card
outstandings and continued higher levels of charge-offs, especially related to
higher personal bankruptcies in 1996. If bankruptcies and delinquencies
accelerate at greater than expected levels or if the anticipated growth in
outstandings is slower than anticipated, or both, the ratio of net charge-offs
as a percentage of average managed credit card outstandings in 1996 could be
higher than the anticipated 4.5%.
Credit Card Securitizations: For a discussion of the Corporation's credit card
securitizations, see page 35 of the Corporation's 1995 Annual Report.
The following table outlines the impact of the securitizations of credit card
receivables by showing the favorable (unfavorable) change in the reported
Consolidated Statement of Income line items.
Favorable (Unfavorable) Impact First Quarter
(in millions) 1996 1995
- ------------- -------- -------
Net Interest Income $ (187) $ (57)
Provision for Losses 105 31
Credit Card Revenue 75 26
Other Revenue 3 7
------- -------
Pre-tax Income Impact of Securitizations $ (4) $ 7
======= =======
Auto and Other Consumer Loans: These consumer loans consist of installment loans
(direct and indirect types of consumer finance), automobile financings and
student loans.
Automobile financing loans were $6.2 billion at March 31, 1996, compared with
$6.3 billion at December 31, 1995 and $8.4 billion at March 31, 1995. The
decrease in automobile financing loans was due mainly to the securitization of
approximately $3.0 billion of these loans during the last nine months of 1995,
partially offset by increased demand during the year. Net charge-offs of auto
loans were $8 million in the 1996 first quarter, compared with $4 million in the
same period in 1995.
Other consumer loans were $13.2 billion at March 31, 1996, an increase of 10%
when compared with $12.0 billion at December 31, 1995, and an increase of $2.9
billion from March 31, 1995. Net charge-offs of other consumer loans were $29
million in the first quarter of 1996, an increase of $2 million from the 1995
comparable period.
- 33 -
<PAGE>
Part I
Item 2 (continued)
Domestic Commercial Portfolio
- -----------------------------
Domestic Commercial and Industrial Portfolio: The domestic commercial and
industrial portfolio totaled $31.8 billion at March 31, 1996, a decrease from
$32.3 billion at December 31, 1995 and $31.9 billion at March 31, 1995. The
portfolio consists primarily of loans made to large corporate and middle market
customers and is diversified geographically and by industry. At March 31, 1996,
there was no concentration of loans to any industry which exceeded 2% of total
loans.
The Corporation is a leading participant in loan originations and sales. This
activity is comprised of the sale of loans and lending commitments to investors,
generally without recourse. These sales include syndication, assignment and
participation, and include both short- and medium-term transactions. This loan
distribution capability allows the Corporation to compete aggressively and
profitably in wholesale lending markets by enabling it to reduce larger
individual credit exposures and thereby to price more flexibly than if all loans
were held as permanent investments. The Corporation also benefits from increased
liquidity. During the first three months of 1996, the Corporation acted as agent
or co-agent for approximately $98 billion in syndicated credit facilities.
Nonperforming domestic commercial and industrial loans were $474 million at
March 31, 1996, compared with $495 million at March 31, 1995. In the first
quarter of 1996, the Corporation had net charge-offs of domestic commercial and
industrial loans of $48 million, compared with net charge-offs of $23 million in
the first quarter of 1995.
Management believes that the credit quality of the Corporation's commercial and
industrial loan portfolio will remain relatively stable in 1996, as compared
with 1995 (although it expects to have higher net charge-offs in its commercial
and industrial loan portfolio in 1996 - rather than net recoveries of $4 million
as it did in 1995 - because of lower gross recoveries).
Domestic Commercial Real Estate Portfolio: The domestic commercial real estate
portfolio represents loans secured primarily by real property, other than loans
secured by one-to-four family residential properties (which are included in the
consumer loan portfolio). The domestic commercial real estate loan portfolio
totaled $6.5 billion at March 31, 1996, a decrease from $6.7 billion at December
31, 1995 and from $7.8 billion at March 31, 1995. The decreases are principally
attributable to repayments from borrowers.
The table below sets forth the major components of the domestic commercial real
estate loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(in millions) 1996 1995 1995
- ------------- ---------- ----------- -----------
<S> <C> <C> <C>
Commercial Mortgages $ 5,308 $ 5,512 $ 6,296
Construction 1,206 1,148 1,551
--------- ---------- -----------
Total Domestic Commercial Real Estate Loans $ 6,514 $ 6,660 $ 7,847
========= ========== ===========
</TABLE>
Commercial mortgages provide financing for the acquisition or refinancing of
commercial properties, and typically have terms ranging from two to five years.
Construction loans are generally originated to finance the construction of real
estate projects. When the real estate project has cash flows sufficient to
support a commercial mortgage, the loan is transferred from construction status
to commercial mortgage status.
The largest concentration of domestic commercial real estate loans is in the New
York/New Jersey and Texas markets, representing 52% and 24%, respectively, of
the domestic commercial real estate portfolio. No other state represented more
than 5% of the domestic commercial real estate loan portfolio.
Nonperforming domestic commercial real estate loans were $442 million at March
31, 1996, an 18% increase from the December 31, 1995 level, but a decrease of
$193 million, or 30%, from March 31, 1995. The improvement in nonperforming
domestic commercial real estate asset levels since March 31, 1995 is the result
of increased liquidity in the commercial real estate markets coupled with
successful workout activities. The increase from the 1995 year-end resulted from
the classification of certain retail-related loans as nonperforming.
- 34 -
<PAGE>
Part I
Item 2 (continued)
Net recoveries of domestic commercial real estate loans in the first quarter of
1996 totaled $4 million, compared with $1 million in the same period a year ago.
Domestic Financial Institutions Portfolio: The domestic financial institutions
portfolio includes loans to commercial banks and companies whose businesses
primarily involve lending, financing, investing, underwriting, or insurance.
Loans to domestic financial institutions were $6.3 billion, or 4% of total loans
outstanding, at March 31, 1996, compared with $5.7 billion at December 31,
1995 and $4.8 billion at March 31, 1995. Loans to domestic financial
institutions are predominantly secured loans to broker-dealers, domestic
commercial banks and domestic branches of foreign banks.
FOREIGN PORTFOLIO
Foreign portfolio includes commercial and industrial loans, loans to financial
institutions, commercial real estate, loans to governments and official
institutions, and consumer loans. At March 31, 1996, the Corporation's total
foreign loans were $35.7 billion, compared with $36.1 billion at December 31,
1995, and $36.3 billion at March 31, 1995.
Included in foreign loans were foreign commercial and industrial loans of $22.0
billion at March 31, 1996, an increase of $1.2 billion from the 1995 year-end
and an increase of $2.5 billion from March 31, 1995. Total foreign commercial
real estate loans at March 31, 1996 were $0.8 billion, unchanged from each of
December 31, 1995 and March 31, 1995.
Foreign nonperforming loans at March 31, 1996 were $336 million, a decrease from
$343 million at December 31, 1995 and from $487 million at March 31, 1995. Net
recoveries of foreign loans were $9 million in the first quarter of 1996,
compared with net recoveries of $11 million in the 1995 first quarter.
ASSETS HELD FOR ACCELERATED DISPOSITION
For a discussion of the Corporation's Assets Held for Accelerated Disposition
portfolio, reference is made to page 38 of the Corporation's 1995 Annual Report.
The following table presents the reconciliation of Assets Held for Accelerated
Disposition for the periods indicated.
Carrying Value
First Quarter
(in millions) 1996 1995
- ------------- ------ -------
Balance at January 1, $ 412 $ 526
Additions -- --
Sales (200) (124)
------- -------
Balance at March 31, (a) $ 212 $ 402
======= =======
(a) Includes $212 million and $18 million of loans that were performing at March
31, 1996 and 1995, respectively.
- 35 -
<PAGE>
Part I
Item 2 (continued)
DERIVATIVE AND FOREIGN EXCHANGE FINANCIAL INSTRUMENTS
In the normal course of its business, the Corporation utilizes various
derivative and foreign exchange financial instruments to meet the financial
needs of its customers, to generate revenues through its trading activities, and
to manage its exposure to fluctuations in interest and currency rates.
Derivative and foreign exchange instruments represent contracts with
counterparties where payments are made to or received from the counterparty
based upon specific interest rates, currency levels, other market rates,
or on terms predetermined by the contract. These instruments can provide a
cost-effective alternative to assuming and mitigating risks associated with
traditional on-balance sheet instruments.
Derivative and foreign exchange transactions involve, to varying degrees, credit
risk and market risk. The effective management of credit and market risk is
vital to the success of the Corporation's trading and asset/liability management
activities. Because of the changing market environment, the monitoring and
managing of these risks is a continual process. For a further discussion of
credit risk, reference is made to pages 38 and 39 of the Corporation's 1995
Annual Report.
A discussion of the derivative and foreign exchange financial instruments
utilized in connection with the Corporation's trading activities and
asset/liability management activities is provided in Notes 4, 10 and 12 of this
Form 10-Q and pages 40-44 of the Corporation's 1995 Annual Report.
Many of the Corporation's derivative and foreign exchange contracts are
short-term, which mitigates credit risk as transactions settle quickly. The
following table provides the remaining maturities of derivative and foreign
exchange contracts outstanding at March 31, 1996 and December 31, 1995.
Percentages are based upon remaining contract life of mark-to-market exposure
amounts. For the notional amounts and credit exposure outstandings of the
Corporation's interest rate contracts and foreign exchange contracts, see Note
10 of this Form 10-Q.
<TABLE>
<CAPTION>
At March 31, 1996 At December 31, 1995
--------------------------------------- --------------------------------------
Interest Foreign Interest Foreign
Rate Exchange Rate Exchange
Contracts Contracts Total Contracts Contracts Total
--------- --------- ----- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Less than 3 months 16% 60% 35% 11% 55% 29%
3 to 6 months 7 27 13 8 27 15
6 to 12 months 9 11 11 8 13 10
1 to 5 years 54 2 33 45 5 29
Over 5 years 14 -- 8 28 -- 17
---- ---- ---- ----- ---- ----
Total 100% 100% 100% 100% 100% 100%
==== ==== ==== ===== ==== ====
</TABLE>
The Corporation routinely enters into derivative and foreign exchange
transactions with regulated financial institutions, which the Corporation
believes have relatively low credit risk. At March 31, 1996, approximately 86%
of the mark-to-market exposure of such transactions were with commercial bank
and financial institution counterparties, most of which are dealers in these
products. Non-financial institutions accounted for only approximately 14% of the
Corporation's derivative and foreign exchange mark-to-market exposure.
The Corporation does not deal, to any significant extent, in derivatives, which
dealers of derivatives (such as other banks and financial institutions) consider
to be "leveraged". As a result, the mark-to-market exposure as well as the
notional amount of such derivatives were insignificant at March 31, 1996.
- 36 -
<PAGE>
Part I
Item 2 (continued)
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is available to absorb potential credit losses
from the entire loan portfolio, as well as derivative and foreign exchange
transactions. The Corporation deems its allowance for credit losses at March 31,
1996 to be adequate. Although the Corporation considers that it has sufficient
reserves to absorb losses that may currently exist in the portfolio, but are not
yet identifiable, the precise loss content is subject to continuing review based
on quality indicators, industry and geographic concentrations, changes in
business conditions, and other external factors such as competition and legal
and regulatory requirements. The Corporation will continue to reassess the
adequacy of the allowance for credit losses.
During the 1996 first quarter, the Corporation incurred a charge of $102 million
against its allowance for credit losses as a result of conforming charge-off
policies with respect to credit card receivables.
The Corporation's actual credit losses arising from derivative and foreign
exchange transactions were immaterial during the first quarters of 1996 and
1995. Additionally, at March 31, 1996 and 1995, nonperforming derivatives
contracts were immaterial.
The accompanying table reflects the activity in the Corporation's allowance for
credit losses for the first quarters of 1996 and 1995.
First Quarter
------------------------
(in millions) 1996 1995
- ------------- ------ -------
Total Allowance at Beginning of Period $ 3,784 $ 3,894
Provision for Losses 245 185
Charge-Offs (312) (283)
Recoveries 67 76
--------- --------
Subtotal Net Charge-Offs (245) (207)
Charge Related to Conforming Credit
Card Charge-off Policies (102) --
--------- --------
Total Net Charge-offs (347) (207)
Other 1 2
--------- --------
Total Allowance at End of Period $ 3,683 $ 3,874
========= ========
The following table presents the Corporation's allowance coverage ratios at
March 31, 1996, December 31, 1995 and March 31, 1995.
<TABLE>
<CAPTION>
Allowance Coverage Ratios
- -------------------------
March 31, December 31, March 31,
For the Period Ended: 1996 1995 1995
--------- ------------ ---------
Allowance for Credit Losses to:
<S> <C> <C> <C>
Loans at Period-End 2.47% 2.52% 2.67%
Average Loans 2.46 2.58 2.74
Nonperforming Loans 239.62 253.45 203.68
</TABLE>
- 37 -
<PAGE>
Part I
Item 2 (continued)
- --------------------------------------------------------------------------------
MARKET RISK MANAGEMENT
- --------------------------------------------------------------------------------
TRADING ACTIVITIES
Measuring Market Risk: Market risk is measured and monitored on a daily basis
through a value-at-risk ("VAR") methodology. VAR is defined as the potential
overnight dollar loss from adverse market movements, with 97.5% confidence based
on historical prices and market rates. The quantification of market risk through
a VAR methodology requires a number of key assumptions including confidence
level for losses, number of days of price history, the holding period, the
measurement of inter-business correlation, and the treatment of risks outside
the VAR methodology, including event risk and liquidity risk. The approach
utilized for these other methodological issues varies among institutions.
[Graph Number 1]
The preceding chart contains a histogram of the Corporation's daily market
risk-related revenue. Market risk-related revenue is defined as the daily
change in value in marked-to-market trading portfolios plus any trading-related
net interest income or other revenue. Based on actual trading results for the
twelve months ended March 31, 1996 which capture the historical correlation
among business units, 95% of the variation in the Corporation's daily trading
results fell within a $22 million band centered on the daily average amount of
$8 million for the quarter. For the twelve months ended March 31, 1996, the
Corporation posted positive daily market risk-related revenue for 238 out of
259 business trading days for international and domestic units. For 237 of the
259 days, the Corporation's daily market risk-related revenue or losses
occurred within the negative $5 million to positive $15 million range,
which is representative of the Corporation's emphasis on market-making
and sales activities. For a further discussion of measuring market risk, see
pages 40-41 of the Corporation's 1995 Annual Report.
ASSET/LIABILITY MANAGEMENT
The objective of the ALM process is to manage and control the sensitivity of the
Corporation's income to changes in market interest rates. The Corporation's net
interest income is affected by changes in the level of market interest rates
based upon differences in timing between the contractual maturity or the
repricing (the "repricing") of its assets and liabilities. Interest rate
sensitivity arises in the ordinary course of the Corporation's banking business
as the repricing characteristics of its loans do not necessarily match those of
its deposits and other borrowings. This sensitivity can be managed by altering
the repricing of the Corporation's assets or liabilities, and with the use of
derivative instruments. For a further discussion of the Corporation's ALM
process, and the derivative instruments used in its ALM activities, see
pages 41-44 and Note Eighteen of the Corporation's 1995 Annual Report.
Measuring Interest Rate Sensitivity: One tool used by management to measure
the interest rate sensitivity of the Corporation is aggregate net gap
analysis, an example of which is presented below. Assets and liabilities
are placed in gap intervals based on their repricing dates. Assets and
liabilities for which no specific repricing dates exist are placed in gap
intervals based on management's judgment concerning their most likely
repricing behaviors. Derivatives used in interest rate sensitivity
management are also included in the applicable gap intervals.
A net gap for each time period is calculated by subtracting the liabilities
repricing in that interval from the assets repricing. A negative gap - more
liabilities repricing than assets - will benefit net interest income in a
declining interest rate environment and will detract from net interest income in
a rising interest rate environment. Conversely, a positive gap - more assets
repricing than liabilities - will benefit net interest income if rates are
rising and will detract from net interest income in a falling rate environment.
- 38 -
<PAGE>
Part I
Item 2 (continued)
<TABLE>
<CAPTION>
==============================================================================================================================
(in millions) 1-3 4-6 7-12 1-5 Over
At March 31, 1996 Months Months Months Years 5 Years Total
- ----------------- ---------- --------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet $ (23,557) $ 405 $ 1,526 $ 32,938 $ (11,312) $ ---
Derivative Instruments Affecting
Interest-Rate Sensitivity (a) 2,083 144 1,410 (10,933) 7,296 ---
Interest-Rate-Sensitivity Gap (21,474) 549 2,936 22,005 (4,016) ---
Cumulative Interest-Rate
Sensitivity Gap (21,474) (20,925) (17,989) 4,016 --- ---
% of Total Assets (7)% (7)% (6)% 1% --- ---
(in millions) 1-3 4-6 7-12 1-5 Over
At December 31, 1995 Months Months Months Years 5 Years Total
- -------------------- ---------- --------- ---------- --------- ---------- -------
Balance Sheet $ (18,402) $ 2,454 $ (800) $ 32,239 $ (15,491) $ ---
Derivative Instruments Affecting
Interest-Rate Sensitivity (a) (787) (799) (3,137) (1,945) 6,668 ---
Interest-Rate-Sensitivity Gap (19,189) 1,655 (3,937) 30,294 (8,823) ---
Cumulative Interest-Rate
Sensitivity Gap $ (19,189) $ (17,534) $ (21,471) $ 8,823 $ --- ---
% of Total Assets (6)% (6)% (7)% 3% --- ---
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents net repricing effect of derivative positions, which include
interest rate swaps, futures, forwards, forward rate agreements and
options that are used as part of the Corporation's overall asset/liability
management activities.
==============================================================================================================================
</FN>
</TABLE>
At March 31, 1996, the Corporation had $17,989 million more liabilities than
assets repricing within one year (including net repricing effect of
derivative positions), amounting to 6% of total assets. This compares
with $21,471 million, or 7%, of total assets at December 31, 1995.
At March 31, 1996, based on the Corporation's simulation models, which are
comprehensive simulations of net interest income under a variety of market
interest rate scenarios, earnings at risk to an immediate 100 basis point rise
in market interest rates over the next twelve months was estimated to be
slightly over 2% of projected 1996 after-tax net income excluding the
restructuring charge. At December 31, 1995, the Corporation's earnings at
risk to a similar increase in market rates was estimated at approximately 3%
of projected after-tax net income excluding the restructuring charge.
An immediate 100 basis point rise in interest rates is a hypothetical rate
scenario, used to calibrate risk, and does not necessarily represent
management's current view of future market developments.
Interest Rate Swaps: Interest rate swaps are one of the various financial
instruments used in the Corporation's ALM activities. Although the Corporation
believes the results of its ALM activities should be evaluated on an integrated
basis, taking into consideration all on-balance sheet and related derivative
instruments and not a specific financial instrument, the interest rate swap
maturity table, which follows, provides an indication of the Corporation's
interest rate swap activity.
The following table summarizes the outstanding ALM interest rate swap notional
amounts at March 31, 1996, by twelve-month intervals (i.e., April 1, 1996 to
March 31, 1997). The decrease in notional amounts from one period to the next
period represents maturities of the underlying contracts. The weighted-average
interest rates to be received and paid on such swaps are presented for each
twelve-month interval. Variable rates presented are generally based on the
short-term interest rates for relevant currencies, such as the London Interbank
Offered Rate (LIBOR). Basis swaps are interest rate swaps based on two floating
rate indices (e.g., LIBOR and prime). The table was prepared under the
assumption that variable interest rates remain constant at March 31, 1996 levels
and, accordingly, the actual interest rates to be received or paid will be
different to the extent that such variable rates fluctuate from March 31, 1996
levels. However, the Corporation expects the impact of any interest rate changes
to be largely mitigated by corresponding changes in the interest rates and
values associated with the linked assets and liabilities.
- 39 -
<PAGE>
Part I
Item 2 (continued)
<TABLE>
<CAPTION>
==============================================================================================================================
For the twelve-month period beginning April 1,
(in millions) 1996 1997 1998 1999 2000 Thereafter
- ------------- --------- -------- ---------- --------- -------- ------------
Receive fixed swaps
<S> <C> <C> <C> <C> <C> <C>
Notional amount $ 32,559 $ 23,789 $ 16,623 $ 14,615 $ 12,893 $ 10,821
Weighted-average:
Receive rate 6.88% 6.72% 6.72% 6.71% 6.56% 6.38%
Pay rate 5.63 5.50 5.56 5.63 5.60 5.71
Pay fixed swaps
Notional amount $ 38,039 $ 26,860 $ 20,927 $ 13,458 $ 9,008 $ 6,030
Weighted-average:
Receive rate 5.33% 5.42% 5.42% 5.45% 5.71% 5.49%
Pay rate 6.57 6.39 6.31 6.51 6.89 6.97
Basis Swaps
Notional amount $ 10,782 $ 8,989 $ 8,168 $ 7,749 $ 851 $ 611
Weighted-average:
Receive rate 8.84% 5.47% 5.46% 5.44% 5.53% 5.55%
Pay rate 8.81 5.36 5.49 5.49 5.46 5.49
----------- --------- ---------- --------- ---------- ----------
Total Notional
Amount (a) $ 81,380 $ 59,638 $ 45,718 $ 35,822 $ 22,752 $ 17,462
========== ========== ========== ========== ========== ==========
<FN>
(a) At March 31, 1996 approximately $14 billion of notional amounts are
interest rate swaps that, as part of the Corporation's asset/liability
management, are used in place of cash market instruments. Of this amount,
$6 billion is expected to mature in 1996, $5 billion in 1997 with the
remaining $3 billion in 1998 and thereafter. For a discussion of the
accounting policies relating to derivatives used for ALM activities, see
Note One of the Corporation's 1995 Annual Report.</FN>
==============================================================================================================================
</TABLE>
The following table summarizes the Corporation's assets and liabilities at March
31, 1996 with the notional amount of related derivatives used for ALM purposes.
<TABLE>
<CAPTION>
Derivative Contracts and Related Balance Sheet Positions Notional Amount (a)
--------------------------------
Balance Interest Other ALM
(in millions) Sheet Amount Rate Swaps Contracts(b)
- ------------- --------------- ------------ ------------
<S> <C> <C> <C>
Deposits with Banks $ 6,257 $ 68 $ 220
Securities - Available for Sale 38,646 4,872 1,170
Loans 149,331 35,603 60,780
Other Assets 20,109 3,873 5,590
Deposits 168,934 17,392 21,905
Long-Term Debt 12,977 5,654 581
<FN>
(a) At March 31, 1996, notional amounts of approximately $14 billion for
interest rate swaps and $1 billion for other ALM contracts, both of which
are used in place of cash market instruments, have been excluded from the
above table.
(b) Includes futures, forward rate agreements and options.</FN>
</TABLE>
- 40 -
<PAGE>
Part I
Item 2 (continued)
The favorable impact on net interest income from the Corporation's ALM
derivative activities, whereby derivative instruments are used to alter the
yield on certain of the Corporation's assets and liabilities, was $11 million
for the first quarter of 1996, compared with $54 million for the first quarter
of 1995.
Approximately $5.6 billion notional amount of derivatives related to mortgage
servicing assets and approximately $7.7 billion notional amount of derivatives
related to mortgage and consumer loans held for sale were outstanding at March
31, 1996. The weighted average maturity of contracts linked to mortgage
servicing assets is approximately four years. Contracts related to loans held
for sale generally mature within one year.
The following table reflects the deferred gains/losses and unrecognized
gains/losses of the Corporation's ALM derivative contracts for March 31, 1996
and December 31, 1995.
<TABLE>
<CAPTION>
March 31, December 31,
(in millions) 1996 1995 Change
- ------------- --------- ------------ ------
ALM Derivative Contracts:
<S> <C> <C> <C>
Net Deferred Gains (Losses) $ (174) $ (98) $ (76)
Net Unrecognized Gains (Losses)(a) (191) 184 (375)
------- ------ ------
Net ALM Derivative Gains (Losses) $ (365) $ 86 $ (451)
======= ====== ======
<FN>
(a) The March 31, 1996 amount includes $37 million in net unrecognized
losses from derivatives related to mortgage servicing rights, and $6
million in net unrecognized gains from daily margin settlements on open
futures contracts. At December 31, 1995, there was $69 million in net
unrecognized gains from derivatives related to mortgage servicing rights
and $99 million in net unrecognized losses from daily margin settlements
on open future contracts.</FN>
</TABLE>
The net deferred losses at March 31, 1996 are expected to be amortized as yield
adjustments in interest income or interest expense, as applicable, over the
periods reflected in the following table.
Amortization of Net Deferred Gains (Losses) on Closed ALM Contracts
(in millions)
- -------------
1996 $ 9
1997 (35)
1998 (73)
1999 (58)
2000 (60)
2001 and After 43
--------------
Total $ (174)
==============
The Consolidated Balance Sheet includes unamortized premiums on open ALM option
contracts which will be amortized as a reduction to net interest income over the
periods indicated in the following table.
Amortization of Premiums on Open ALM Option Contracts
(in millions)
- -------------
1996 $ 23
1997 22
1998 21
1999 18
2000 16
2001 and After 46
--------------
Total $ 146
==============
- 41 -
<PAGE>
Part I
Item 2 (continued)
- --------------------------------------------------------------------------------
OPERATING RISK MANAGEMENT
- --------------------------------------------------------------------------------
The Corporation, like all large financial institutions, is exposed to many types
of operating risk, including the risk of fraud by employees or outsiders,
unauthorized transactions by employees, and errors relating to computer and
telecommunications systems. The Corporation maintains a system of controls that
is designed to keep operating risk at appropriate levels in view of the
financial strength of the Corporation, the characteristics of the businesses and
markets in which the Corporation operates, competitive circumstances and
regulatory considerations. However, from time to time in the past, the
Corporation has suffered losses from operating risk and there can be no
assurance that the Corporation will not suffer such losses in the future.
- --------------------------------------------------------------------------------
CAPITAL AND LIQUIDITY RISK MANAGEMENT
- --------------------------------------------------------------------------------
The following capital and liquidity discussion focuses primarily on developments
since December 31, 1995. Accordingly, it should be read in conjunction with the
Capital and Liquidity Risk Management section on pages 45-47 of the
Corporation's 1995 Annual Report.
CAPITAL
The Corporation's level of capital at March 31, 1996 remained strong, with
capital ratios well in excess of regulatory guidelines. The Corporation's Tier 1
and Total Capital ratios were 7.92% and 11.99%, respectively. These ratios, as
well as the leverage ratio, exclude the assets and off-balance sheet financial
instruments of the Corporation's securities subsidiaries as well as the
Corporation's investment in such subsidiaries. In addition, the provisions of
SFAS 115 do not apply to the calculation of these ratios.
Total capitalization (the sum of Tier 1 Capital and Tier 2 Capital) decreased by
$726 million during the first quarter of 1996 to $27.6 billion at March 31, 1996
primarily due to the impact of the restructuring charge. The Corporation
manages its capital to execute its strategic business plans and support
its growth and investments, including acquisition strategies in its core
businesses.
During the first quarter of 1996, the Corporation repurchased approximately 11.0
million shares of its outstanding common stock in the open market. These
repurchases were largely undertaken to meet the needs of the
Corporation's employee stock option and incentive plans. During the 1996 first
quarter, approximately 10.4 million shares were issued (all of which were from
treasury) under various employee stock option and incentive plans. The buy-back
program under which these repurchases were made has been revised to terminate at
September 30, 1996. For a further discussion see Note 3 of this Form 10-Q.
The Corporation raised the cash dividend on its common stock to $.56 per share,
an increase from $.50 per share, commencing with the dividend payable on April
30, 1996. Management's current expectation is that the dividend policy of the
Corporation will generally be to pay a common stock dividend equal to
approximately 25- 35% of the Corporation's net income (excluding restructuring
charges) less preferred dividends. Future dividend policies will be determined
by the Board of Directors in light of the earnings and financial condition of
the Corporation and its subsidiaries and other factors, including applicable
governmental regulations and policies.
Total stockholders' equity at March 31, 1996 was $19.8 billion, compared with
$20.8 billion at December 31, 1995. The $1.0 billion decrease from the 1995
year-end primarily reflects the after-tax impact of the restructuring charge on
net income ($1,026 million), a $373 million unfavorable impact on the fair value
of available-for-sale securities accounted for under SFAS 115 and the effects of
common and preferred stock dividends totaling $382 million. These declines were
partially offset by $937 million of net income generated during the quarter
before the restructuring charge. The market valuation of the available-for-sale
securities does not include the impact of related funding sources.
- 42 -
<PAGE>
Part I
Item 2 (continued)
The tables which follow set forth various capital ratios and components of
capital at the dates indicated.
<TABLE>
<CAPTION>
Capital Ratios
=========================================================================================================================
Minimum
March 31, December 31, Regulatory
1996 1995 Requirement
--------- ------------ -----------
<S> <C> <C> <C>
Tier 1 Capital Ratio (a)(c) 7.92% 8.22% 4.00%
Total Capital Ratio (a)(c) 11.99 12.27 8.00
Tier 1 Leverage Ratio (b)(c) 6.38 6.68 3.00 -5.00
Common Stockholders' Equity to Total Assets 5.67 5.98 --
Total Stockholders' Equity to Total Assets 6.54 6.85 --
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Tier 1 Capital or Total Capital divided by risk-weighted assets.
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.
(b) Tier 1 Capital divided by adjusted average assets.
(c) Including the Corporation's securities subsidiaries, the March 31, 1996 Tier
1 Capital, Total Capital and Tier 1 Leverage ratios were 8.10%, 12.42% and
6.06%, respectively, compared with 8.37%, 12.67% and 6.27%, respectively, at
December 31, 1995.</FN>
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Components of Capital
=========================================================================================================================
March 31, December 31,
(in millions) 1996 1995
- ------------- -------------- -----------
Tier 1 Capital
<S> <C> <C>
Common Stockholders' Equity $ 17,727 $ 18,424
Nonredeemable Preferred Stock 2,650 2,650
Minority Interest 177 162
Less: Goodwill 1,426 1,446
Non-Qualifying Intangible Assets 110 116
50% Investment in Securities and Unconsolidated Subsidiaries 771 698
-------------- -----------
Tier 1 Capital $ 18,247 $ 18,976
-------------- -----------
Tier 2 Capital
Long-Term Debt Qualifying as Tier 2 $ 7,224 $ 7,139
Qualifying Allowance for Credit Losses 2,898 2,907
Less: 50% Investment in Securities and Unconsolidated Subsidiaries 771 698
-------------- -----------
Tier 2 Capital $ 9,351 $ 9,348
-------------- -----------
Total Qualifying Capital $ 27,598 $ 28,324
============== ===========
Risk-Weighted Assets (a) $ 230,248 $ 230,887
============== ===========
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes off-balance sheet risk-weighted assets in the amount of
$67,628 million and $68,153 million, respectively, at March 31, 1996 and
December 31, 1995.</FN>
=========================================================================================================================
</TABLE>
As part of the Corporation's commitment to a disciplined capital policy,
management has targeted a Tier 1 capital ratio for the Corporation of 8 to
8.25%. In addition, as stated above, the Corporation has revised its
previously announced buy-back program to terminate at September 30, 1996 and to
provide that purchases of shares of common stock of the Corporation under the
plan to such date would be in accordance with the pooling-of-interests
accounting rules.
- 43 -
<PAGE>
Part I
Item 2 (continued)
LIQUIDITY
The primary source of liquidity for the bank subsidiaries of the Corporation
derives from their ability to generate core deposits (which includes all
deposits except noninterest-bearing time deposits, foreign deposits and
certificates of deposit of $100,000 or more). The Corporation considers funds
from such sources to comprise its subsidiary banks' "core" deposit base because
of the historical stability of such sources of funds. These deposits fund a
portion of the Corporation's asset base, thereby reducing the Corporation's
reliance on other, more volatile, sources of funds. The average core deposits at
the Corporation's bank subsidiaries for the first three months of 1996 were $79
billion, and represented 53% of average loans for the period. Foreign deposits
generated in the Corporation's global wholesale and retail businesses are also
considered to be an additional source of liquidity for the Corporation.
The Corporation is an active participant in the capital markets. In addition to
issuing commercial paper and medium-term notes, the Corporation raises funds
through the issuance of long-term debt, common stock and preferred stock. The
Corporation's long-term debt at March 31, 1996 was $12,977 million, an increase
of $152 million from the 1995 year-end. The increase resulted from additions to
the Corporation's long-term debt of $725 million (including $250 million of
senior medium-term notes, $75 million of subordinated medium-term notes, $200
million of other senior notes and $200 million of other subordinated notes).
These increases were partially offset by maturities of $566 million of the
Corporation's long-term debt (including $201 million of senior medium-term
notes, $115 million of other senior notes and $250 million of other subordinated
notes) and the redemption of $5 million of medium-term notes. The Corporation
will continue to evaluate the opportunity for future redemptions of its
outstanding debt in light of current market conditions.
- --------------------------------------------------------------------------------
SUPERVISION AND REGULATION
- --------------------------------------------------------------------------------
The following supervision and regulation discussion focuses primarily on
developments since December 31, 1995. Accordingly, it should be read in
conjunction with Supervision and Regulation of The Chase Manhattan Corporation,
filed as Exhibit 99.3 of the Corporation's Form 8-K dated April 16, 1996.
DIVIDENDS
At March 31, 1996, in accordance with the dividend restrictions applicable to
them, the Corporation's bank subsidiaries could, during 1996, without the
approval of their relevant banking regulators, pay dividends in the aggregate of
approximately $2.1 billion to their respective bank holding companies, plus an
additional amount equal to their net income from April 1, 1996 through the date
in 1996 of any such dividend payment.
In addition to the dividend restrictions set forth in statutes and regulations,
the Federal Reserve Board, the Office of the Comptroller of the Currency and the
FDIC have authority under the Financial Institutions Supervisory Act to prohibit
or to limit the payment of dividends by the banking organizations they
supervise, including the Corporation and its subsidiaries that are banks or bank
holding companies, if, in the banking regulator's opinion, payment of a dividend
would constitute an unsafe or unsound practice in light of the financial
condition of the banking organization.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required the FDIC to establish a risk-based assessment system for FDIC deposit
insurance. FDICIA also contained provisions limiting certain activities and
business methods of depository institutions. Finally, FDICIA provided for
expanded regulation of depository institutions and their affiliates, including
parent holding companies, by such institutions' appropriate Federal banking
regulator. Each of the Corporation's banking institutions were "well
capitalized" as that term is defined under the various regulations promulgated
under FDICIA and, therefore, the Corporation does not expect such regulations to
have a material adverse impact on their business operations.
- --------------------------------------------------------------------------------
ACCOUNTING DEVELOPMENTS
- --------------------------------------------------------------------------------
ACCOUNTING FOR STOCK-BASED COMPENSATION
For a discussion of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), see page 47 of the
Corporation's 1995 Annual Report. The Corporation intends to continue accounting
for its employee stock compensation plans under its current method (APB 25), and
will adopt the disclosure requirements of SFAS 123 at year-end 1996.
- 44 -
<PAGE>
<TABLE>
<CAPTION>
The Chase Manhattan Corporation and Subsidiaries
Average Consolidated Balance Sheet, Interest and Rates
(Taxable-Equivalent Interest and Rates; in millions)
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
----------------------------------------- ------------------------------------------
Average Rate Average Rate
Balance Interest (Annualized) Balance Interest (Annualized)
ASSETS ---------- --------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deposits with Banks $ 8,238 $ 172 8.39% $ 13,023 $ 225 7.01%
Federal Funds Sold and
Securities Purchased Under
Resale Agreements 26,793 501 7.55% 29,270 468 6.49%
Trading Assets-Debt and Equity
Instruments 27,290 429 6.33% 19,783 359 7.36%
Securities:
Available-for-Sale 38,191 645 6.79%(b) 24,040 442 7.46%(b)
Held-to-Maturity 4,515 80 7.16% 10,581 184 7.06%
Loans 149,634 3,241 8.71% 141,168 3,075 8.83%
---------- -------- ------------ -------
Total Interest-Earning Assets 254,661 5,068 8.01% 237,865 4,753 8.10%
Allowance for Credit Losses (3,776) (3,890)
Cash and Due from Banks 13,051 13,633
Risk Management Instruments 25,570 29,790
Other Assets 23,419 21,900
---------- ------------
Total Assets $ 312,925 $ 299,298
========== ============
LIABILITIES
Domestic Retail Deposits $ 55,290 489 3.55% $ 55,924 482 3.49%
Domestic Negotiable
Certificates of Deposit
and Other Deposits 11,029 73 2.66% 12,590 148 4.78%
Deposits in Foreign Offices 68,554 1,082 6.35% 64,284 870 5.49%
---------- -------- ------------ -------
Total Time and Savings
Deposits 134,873 1,644 4.90% 132,798 1,500 4.58%
---------- ------------ -------
Short-Term and Other Borrowings:
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 44,953 621 5.57% 42,092 628 6.05%
Commercial Paper 5,578 75 5.40% 5,137 73 5.77%
Other Borrowings (c) 16,211 330 8.21% 12,499 277 8.99%
---------- -------- ------------ -------
Total Short-Term and
Other Borrowings 66,742 1,026 6.20% 59,728 978 6.64%
Long-Term Debt 12,976 227 7.05% 13,054 234 7.28%
---------- -------- ------------ -------
Total Interest-Bearing Liabilities 214,591 2,897 5.43% 205,580 2,712 5.35%
-------- ------------ -------
Demand Deposits 37,652 35,478
Risk Management Instruments 27,554 28,907
Other Liabilities 12,290 10,472
---------- ------------
Total Liabilities 292,087 280,437
---------- ------------
STOCKHOLDERS' EQUITY
Preferred Stock 2,650 2,850
Common Stockholders' Equity 18,188 16,011
---------- ------------
Total Stockholders' Equity 20,838 18,861
---------- ------------
Total Liabilities and
Stockholders' Equity $ 312,925 $ 299,298
========== ============
INTEREST RATE SPREAD 2.58% 2.75%
===== ====
NET INTEREST INCOME AND NET
YIELD ON INTEREST-EARNING
ASSETS $2,171(a) 3.43% $2,041(a) 3.48%
====== ===== ====== ====
<FN>
(a) Reflects a pro forma adjustment to the net interest income amount included
in the Statement of Income to permit comparisons of yields on tax-exempt and
taxable assets.
(b) For the three months ended March 31, 1996 and March 31, 1995, the annualized
rate for securities available-for-sale based on historical cost was 6.82%
and 7.41%, respectively.
(c) Includes securities sold but not yet purchased.
</FN>
</TABLE>
- 45 -
<PAGE>
<TABLE>
<CAPTION>
THE CHASE MANHATTAN CORPORATION and Subsidiaries
QUARTERLY FINANCIAL INFORMATION
(in millions, except per share data)
1996 1995
-------- ------------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
--------- --------- ---------- --------- ---------
Interest Income
<S> <C> <C> <C> <C> <C>
Loans $ 3,241 $ 3,252 $ 3,280 $ 3,241 $ 3,069
Securities 720 718 639 616 618
Trading Assets 429 402 360 343 359
Federal Funds Sold and Securities
Purchased Under Resale Agreements 501 491 448 482 468
Deposits with Banks 172 187 194 218 225
--------- -------- --------- -------- --------
Total Interest Income 5,063 5,050 4,921 4,900 4,739
--------- -------- --------- -------- --------
Interest Expense
Deposits 1,644 1,602 1,593 1,596 1,500
Short-Term and Other Borrowings 1,026 1,139 1,020 1,038 978
Long-Term Debt 227 231 239 238 234
--------- -------- --------- -------- --------
Total Interest Expense 2,897 2,972 2,852 2,872 2,712
--------- -------- --------- -------- --------
Net Interest Income 2,166 2,078 2,069 2,028 2,027
Provision for Losses 245 186 192 195 185
--------- -------- --------- -------- --------
Net Interest Income After Provision For Losses 1,921 1,892 1,877 1,833 1,842
--------- -------- --------- -------- --------
Noninterest Revenue
Corporate Finance and Syndication Fees 224 220 210 197 169
Trust and Investment Management Fees 285 277 258 243 240
Credit Card Revenue 233 246 210 196 182
Service Charges on Deposit Accounts 99 101 105 107 104
Fees for Other Financial Services 378 363 370 353 367
Trading Revenue 339 274 342 301 99
Securities Gains (Losses) 52 25 53 72 (18)
Other Revenue 259 259 162 257 414
--------- -------- --------- -------- --------
Total Noninterest Revenue 1,869 1,765 1,710 1,726 1,557
--------- -------- --------- -------- --------
Noninterest Expense
Salaries 1,076 1,130 1,074 1,007 997
Employee Benefits 305 206 213 246 234
Occupancy Expense 221 224 227 218 228
Equipment Expense 184 187 177 193 198
Foreclosed Property Expense (9) (15) (7) (28) (25)
Restructuring Charge and Expenses 1,656 --- --- 15 ---
Other Expense 660 632 648 708 703
--------- -------- --------- -------- --------
Total Noninterest Expense 4,093 2,364 2,332 2,359 2,335
--------- -------- --------- -------- --------
Income (Loss) Before Income Tax Expense
(Benefit) and Effect of Accounting Change (303) 1,293 1,255 1,200 1,064
Income Tax Expense (Benefit) (214) 466 491 471 414
--------- -------- --------- -------- --------
Income (Loss) Before Effect of Accounting Change (89) 827 764 729 650
Effect of Change in Accounting Principle --- --- --- --- (11)
--------- -------- --------- -------- --------
Net Income (Loss) $ (89) $ 827 $ 764 $ 729 $ 639
========= ======== ========= ======== ========
Net Income (Loss) Applicable To Common Stock $ (143) $ 773 $ 708 $ 673 $ 578
========= ======== ========= ======== ========
Earnings Per Share:
Primary:
Income (Loss) Before Effect of Accounting Change $ (0.32) $ 1.73 $ 1.58 $ 1.54 $ 1.37
Effect of Change in Accounting Principle --- --- --- --- (0.03)
--------- -------- --------- -------- --------
Net Income (Loss) $ (0.32) $ 1.73 $ 1.58 $ 1.54 $ 1.34
========= ======== ========= ======== ========
Assuming Full Dilution:
Income (Loss) Before Effect of Accounting Change $ (0.32) $ 1.73 $ 1.55 $ 1.52 $ 1.36
Effect of Change in Accounting Principle --- --- --- --- (0.03)
--------- -------- --------- -------- --------
Net Income (Loss) $ (0.32) $ 1.73 $ 1.55 $ 1.52 $ 1.33
========= ======== ========= ======== ========
</TABLE>
- 46 -
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Reference is made to page 6 of the Chemical 1995 Form 10-K relating
to the investigation commenced by the Securities and Exchange
Commission pertaining to the $70 million loss incurred by the
Corporation in the fourth quarter of 1994 resulting from
unauthorized foreign exchange transactions involving the Mexican
peso. The Corporation is cooperating with this investigation. The
Corporation cannot determine at this time the outcome of the
investigation but believes it will not have a material adverse
effect on the consolidated financial condition of the Corporation.
Litigation Relating to the Merger
---------------------------------
On August 28, 1995, three complaints were filed in the Court of
Chancery for New Castle County, Delaware, in actions entitled Simon
v. Chase Manhattan Corporation, et al., Civil Action No. 14505,
Rampel & Rampel, P.A. Profit Sharing Plan v. Chase Manhattan Corp.,
et. al., Civil Action No. 14506 and Goldstein v. Chase Manhattan
Corp., et al., Civil Action No. 14508. The complaints, each of
which purports to initiate a class action on behalf of all Chase
stockholders, name Chase, the Corporation and certain current and
former directors of Chase as defendants. The complaints allege that
(i) the Chase Merger entails breaches of fiduciary duties owed by
the director defendants to Chase stockholders, (ii) the
consideration provided in the Chase Merger by the Corporation is
inadequate, (iii) the Merger is unfair to Chase stockholders and a
product of Chase's directors' acting out of self-interest and (iv)
the Corporation aided and abetted the Chase directors' alleged
breach of fiduciary duties. The complaints seek, among other
relief, damages in unspecified amounts. The Corporation believes
the actions to be without merit and intends to contest them
vigorously.
The Corporation and its subsidiaries are defendants in a number of
legal proceedings. After reviewing with counsel all actions and
proceedings pending against or involving the Corporation and its
subsidiaries, management does not expect the aggregate liability or
loss, if any, resulting therefrom to have a material adverse effect
on the consolidated financial condition of the Corporation.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Exhibits:
11 - Computation of net income per share.
12(a) - Computation of ratio of earnings to fixed charges.
12(b) - Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements.
27 - Financial Data Schedule.
(B) Reports on Form 8-K:
The Corporation filed six reports on Form 8-K during the
quarter ended March 31, 1996, as follows:
Form 8-K Dated January 12, 1996: Announcing Chemical Banking
Corporation and The Chase Manhattan Corporation have
received all regulatory approvals necessary to consummate
their merger.
Form 8-K Dated January 18, 1996: January 16, 1996 Press
Release announcing results of operations for the fourth
quarter of 1995.
Form 8-K dated January 19, 1996: January 18, 1996 Press
Release announcing Chemical Banking Corporation would redeem
all outstanding rights issued under its shareholders' rights
plan.
Form 8-K dated February 6, 1996: February 1, 1996 Press
Release announcing the effective date of the merger of the
holding companies of Chemical Banking Corporation and The
Chase Manhattan Corporation.
Form 8-K dated March 25, 1996: March 19, 1996 Press Release
announcing Chemical Banking Corporation raises dividend;
March 21, 1996 Press Release announcing Chemical Banking
Corporation and The Chase Manhattan Corporation raise
estimates of annual expense savings and one-time costs of
their merger.
Form 8-K dated March 31, 1996 - April 1, 1996 Press Release
announcing consummation of merger and change of common stock
symbol; April 1, 1996 Press Release announcing changes in
preferred stock trading symbols.
- 47 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHASE MANHATTAN CORPORATION
(Registrant)
Date May 15, 1996 By \s\ JOSEPH L. SCLAFANI
------------ -------------------------
Joseph L. Sclafani
Controller
[Principal Accounting Officer]
- 48 -
<PAGE>
APPENDIX 1
----------
NARRATIVE DESCRIPTION OF GRAPHIC IMAGE MATERIAL
-----------------------------------------------
Pursuant to Item 304 of Regulation S-T, the following is a description of the
graphic image material included in the foregoing Management's Discussion and
Analysis of Financial Condition.
<TABLE>
<CAPTION>
GRAPHIC
NUMBER PAGE DESCRIPTION
-------- -------- -----------------------------------------------------------------------
<S> <C> <C>
1 38 Bar Graph entitled "Histogram of Daily Market Risk-related Trading
Revenue for the Twelve Months ended March 31, 1996" presenting the
following information:
Millions of Dollars 0 -5 5 - 10 10 -15 15 - 20 20 -25
------------------- ---- ------ ------ ------- ------
Number of days trading
revenue was within the
above prescribed posi-
tive range 54 102 63 16 3
Millions of Dollars 0 -(5) (5)-(10) (10)-(15)
------------------- ------ --------- ---------
Number of days trading
revenue was within the
above prescribed nega-
tive range 18 2 1
The Histogram includes all business trading days for international
and domestic units.
-49-
</TABLE>
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED
EXHIBIT NO. EXHIBITS PAGE AT WHICH LOCATED
- ----------- ------------------------------ ---------------------
11 Computation of net income 51
per share
12 (a) Computation of ratio of 52
earnings to fixed charges
12 (b) Computation of ratio of 53
earnings to fixed charges
and preferred stock dividend
requirements
27 Financial Data Schedule 54
- 50 -
<PAGE>
EXHIBIT 11
THE CHASE MANHATTAN CORPORATION and Subsidiaries
Computation of net income per share
Net income for primary and fully diluted earnings per share are computed by
subtracting from the applicable earnings the dividend requirements on preferred
stock to arrive at earnings applicable to common stock and dividing this amount
by the weighted average number of common and common equivalent shares
outstanding during the period. For a further discussion of the Corporation's
earnings per share computation, reference is made to Note One of the
Corporation's 1995 Annual Report.
<TABLE>
<CAPTION>
(in millions, except per share amounts): Three Months Ended
March 31,
------------------------
EARNINGS PER SHARE 1996 1995
--------- ---------
Primary
Earnings:
<S> <C> <C>
Income (Loss) Before Effect of Accounting Change $ (89) $ 650
Effect of Change in Accounting Principle -- (11)(a)
--------- --------
Net Income (Loss) $ (89) 639
Less: Preferred Stock Dividend Requirements 54 61
--------- --------
Net Income (Loss) Applicable to Common Stock $ (143) $ 578
========= ========
Shares:
Average Common and Common Equivalent Shares Outstanding 446.1 430.5
--------- --------
Primary Earnings Per Share:
Income (Loss) Before Effect of Accounting Change $ (0.32) $ 1.37
Effect of Change in Accounting Principle -- (0.03)(a)
--------- --------
Net Income (Loss) $ (0.32) $ 1.34
========= ========
Assuming Full Dilution
Earnings:
Net Income (Loss) Applicable to Common Stock $ (143) $ 578
Add: Applicable Dividend on Convertible Preferred Stock -- 5
--------- --------
Adjusted Net Income (Loss) $ (143) $ 583
========= ========
Shares:
Average Common and Common Equivalent Shares Outstanding 446.1 430.5
Additional Shares Issuable Upon Exercise of Stock Options for maximum
dilutive effect and Conversion of Preferred Stock (b) 3.0 9.0
--------- --------
Adjusted Shares of Common and Equivalent Shares Outstanding 449.1 439.5
--------- --------
Earnings Per Share Assuming Full Dilution:
Income (Loss) Before Effect of Accounting Change $ (0.32) $ 1.36
Effect of Change in Accounting Principle -- (0.03)(a)
--------- --------
Net Income (Loss) $ (0.32) $ 1.33
========= ========
<FN>
(a) On January 1, 1995, the Corporation adopted SFAS 106 for accounting for
other postretirement benefits relating to the Corporation's foreign plans.
(b) During the second quarter of 1995, the Corporation called all of the
outstanding shares of its 10% convertible preferred stock for redemption.
Substantially all of the 10% convertible preferred stock was converted, at
the option of the holders thereof, to common stock. The common stock was
issued from treasury.
</FN>
</TABLE>
- 51 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12(a)
THE CHASE MANHATTAN CORPORATION and Subsidiaries
Computation of ratio of earnings to fixed charges
(in millions, except ratios)
Three Months Ended
March 31, 1996
-----------------
EXCLUDING INTEREST ON DEPOSITS
- ------------------------------
<S> <C>
Loss before Income Tax Benefit $ (303)
---------
Fixed charges:
Interest expense 1,253
One third of rents, net of income from subleases (a) 31
--------
Total fixed charges 1,284
Less: Equity in undistributed income of affiliates (11)
--------
Earnings before taxes and fixed charges, excluding capitalized interest $ 970
========
Fixed charges, as above $ 1,284
========
Ratio of earnings to fixed charges 0.76(b)
========
INCLUDING INTEREST ON DEPOSITS
- ------------------------------
Fixed charges, as above $ 1,284
Add: Interest on deposits 1,644
--------
Total fixed charges and interest on deposits $ 2,928
========
Earnings before taxes and fixed charges, excluding capitalized interest,
as above $ 970
Add: Interest on deposits 1,644
--------
Total earnings before taxes, fixed charges, and interest on deposits $ 2,614
========
Ratio of earnings to fixed charges 0.89(b)
========
<FN>
(a) The proportion deemed representative of the interest factor.
(b) Earnings did not cover fixed charges by $314 million as a result of a
$1,650 million restructuring charge and $6 million of merger related
expenses incurred in the 1996 first quarter.
</FN>
</TABLE>
- 52 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12(b)
THE CHASE MANHATTAN CORPORATION and Subsidiaries
Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements
(in millions, except ratios)
Three Months Ended
March 31, 1996
EXCLUDING INTEREST ON DEPOSITS ------------------
- ------------------------------
<S> <C>
Loss before Income Tax Benefit $ (303)
--------
Fixed charges:
Interest expense 1,253
One third of rents, net of income from subleases (a) 31
--------
Total fixed charges 1,284
Less: Equity in undistributed income of affiliates (11)
--------
Earnings before taxes and fixed charges, excluding capitalized interest $ 970
========
Fixed charges, as above $ 1,284
Preferred stock dividends 54
--------
Fixed charges including preferred stock dividends $ 1,338
========
Ratio of earnings to fixed charges and
preferred stock dividend requirements 0.72(b)
========
INCLUDING INTEREST ON DEPOSITS
- ------------------------------
Fixed charges including preferred stock dividends $ 1,338
Add: Interest on deposits 1,644
--------
Total fixed charges including preferred stock
dividends and interest on deposits $ 2,982
========
Earnings before taxes and fixed charges, excluding capitalized interest,
as above $ 970
Add: Interest on deposits 1,644
--------
Total earnings before taxes, fixed charges, and interest on deposits $ 2,614
========
Ratio of earnings to fixed charges
and preferred stock dividend requirements 0.88(b)
========
<FN>
(a) The proportion deemed representative of the interest factor.
(b) Earnings did not cover fixed charges and preferred stock dividend
requirements by $368 million as a result of a $1,650 million restructuring
charge and $6 million of merger related expenses incurred in the 1996
first quarter.
</FN>
</TABLE>
- 53 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000019617
<NAME> THE CHASE MANHATTAN CORPORATION
<MULTIPLIER> 1,000,000
<CURRENCY> UNITED STATES DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,846
<INT-BEARING-DEPOSITS> 6,257
<FED-FUNDS-SOLD> 19,292
<TRADING-ASSETS> 48,445
<INVESTMENTS-HELD-FOR-SALE> 38,646
<INVESTMENTS-CARRYING> 4,398
<INVESTMENTS-MARKET> 4,382
<LOANS> 149,331
<ALLOWANCE> 3,683
<TOTAL-ASSETS> 301,984
<DEPOSITS> 168,934
<SHORT-TERM> 50,115
<LIABILITIES-OTHER> 48,131
<LONG-TERM> 12,977
0
2,650
<COMMON> 438
<OTHER-SE> 16,679
<TOTAL-LIABILITIES-AND-EQUITY> 301,984
<INTEREST-LOAN> 3,241
<INTEREST-INVEST> 720
<INTEREST-OTHER> 673
<INTEREST-TOTAL> 5,063
<INTEREST-DEPOSIT> 1,644
<INTEREST-EXPENSE> 2,897
<INTEREST-INCOME-NET> 2,166
<LOAN-LOSSES> 245
<SECURITIES-GAINS> 52
<EXPENSE-OTHER> 4,093
<INCOME-PRETAX> (303)
<INCOME-PRE-EXTRAORDINARY> (89)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
<YIELD-ACTUAL> 3.43
<LOANS-NON> 1,537
<LOANS-PAST> 518
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,784
<CHARGE-OFFS> 414
<RECOVERIES> 67
<ALLOWANCE-CLOSE> 3,683
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<PAGE>
</TABLE>
