<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NUMBER 1-5805
------------------ ------
</TABLE>
THE CHASE MANHATTAN CORPORATION
-------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-2624428
--------------------------- -----------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
270 PARK AVENUE, NEW YORK, NEW YORK 10017
------------------------------------------ ---------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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 824,776,623
--------------------------------------------------------------------------
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
STOCK ON OCTOBER 31, 1999.
<PAGE> 2
================================================================================
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1 Financial Statements - The Chase Manhattan Corporation:
Consolidated Balance Sheet at September 30, 1999 and
December 31, 1998. 3
Consolidated Statement of Income for three and nine months
ended September 30, 1999 and September 30, 1998. 4
Consolidated Statement of Changes in Stockholders' Equity for the
nine months ended September 30, 1999 and September 30, 1998. 5
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 and September 30, 1998. 6
Notes to Consolidated Financial Statements. 7-11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations. 12-40
Glossary of Terms. 41
PART II - OTHER INFORMATION
- ---------------------------
Item 1 Legal Proceedings. 42
Item 2 Sales of Unregistered Common Stock. 43
Item 6 Exhibits and Reports on Form 8-K. 43
</TABLE>
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-2-
<PAGE> 3
Item 1.
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 16,490 $ 17,068
Deposits with Banks 5,856 7,212
Federal Funds Sold and Securities
Purchased Under Resale Agreements 28,368 18,487
Trading Assets:
Debt and Equity Instruments 26,069 24,844
Risk Management Instruments 31,123 32,848
Securities:
Available-for-Sale 54,138 62,803
Held-to-Maturity (Market Value: $970 at September 30, 1999 and
$1,703 at December 31, 1998) 975 1,687
Loans (Net of Allowance for Loan Losses of $3,555 in 1999
and $3,552 in 1998) 169,903 169,202
Premises and Equipment 4,306 4,055
Due from Customers on Acceptances 728 1,223
Accrued Interest Receivable 2,267 2,316
Other Assets 30,821 24,130
------------ -----------
TOTAL ASSETS $ 371,044 $ 365,875
============ ===========
LIABILITIES
Deposits:
Domestic:
Noninterest-Bearing $ 49,722 $ 47,541
Interest-Bearing 78,993 85,886
Foreign:
Noninterest-Bearing 6,363 4,082
Interest-Bearing 84,545 74,928
------------ -----------
Total Deposits 219,623 212,437
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 43,879 41,632
Commercial Paper 5,996 7,788
Other Borrowed Funds 7,046 7,239
Acceptances Outstanding 728 1,223
Trading Liabilities 37,084 38,502
Accounts Payable, Accrued Expenses and Other Liabilities, Including
the Allowance for Credit Losses of $170 in 1999 and 1998 14,615 14,291
Long-Term Debt 16,644 16,187
Guaranteed Preferred Beneficial Interests in Corporation's
Junior Subordinated Deferrable Interest Debentures 2,538 2,188
------------ -----------
TOTAL LIABILITIES 348,153 341,487
------------ -----------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)
PREFERRED STOCK OF SUBSIDIARY 550 550
------------ -----------
STOCKHOLDERS' EQUITY
Preferred Stock 928 1,028
Common Stock (Authorized 1,500,000,000 Shares, Issued 881,862,887
Shares at September 30, 1999 and 881,688,611 Shares at December 31, 1998) 882 882
Capital Surplus 9,635 9,836
Retained Earnings 16,210 13,544
Accumulated Other Comprehensive Income (Loss) (1,038) 392
Treasury Stock, at Cost (58,646,535 Shares at September 30, 1999
and 33,703,249 Shares at December 31, 1998) (4,276) (1,844)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 22,341 23,838
------------ -----------
TOTAL LIABILITIES, PREFERRED STOCK OF SUBSIDIARY
AND STOCKHOLDERS' EQUITY $ 371,044 $ 365,875
============ ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-3-
<PAGE> 4
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
-------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,288 $ 3,287 $ 9,662 $ 10,008
Securities 762 874 2,344 2,652
Trading Assets 399 604 1,228 1,996
Federal Funds Sold and Securities Purchased
Under Resale Agreements 352 517 1,122 1,742
Deposits with Banks 195 150 540 450
---------- ---------- ---------- ---------
Total Interest Income 4,996 5,432 14,896 16,848
---------- ---------- ---------- ---------
INTEREST EXPENSE
Deposits 1,650 1,524 4,806 5,123
Short-Term and Other Borrowings 870 1,378 2,635 4,365
Long-Term Debt 306 324 936 954
---------- ---------- ---------- ---------
Total Interest Expense 2,826 3,226 8,377 10,442
---------- ---------- ---------- ---------
NET INTEREST INCOME 2,170 2,206 6,519 6,406
Provision for Loan Losses 398 272 1,167 932
---------- ---------- ---------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,772 1,934 5,352 5,474
---------- ---------- ---------- ---------
NONINTEREST REVENUE
Investment Banking Fees 486 322 1,388 1,121
Trust, Custody and Investment Management Fees 457 398 1,332 1,129
Credit Card Revenue 441 381 1,258 1,046
Fees for Other Financial Services 637 522 1,777 1,541
Trading Revenue 462 (69) 1,606 722
Securities Gains (1) 261 160 442
Private Equity Gains 377 60 1,215 723
Other Revenue 162 137 696 466
---------- ---------- ---------- ---------
Total Noninterest Revenue 3,021 2,012 9,432 7,190
---------- ---------- ---------- ---------
NONINTEREST EXPENSE
Salaries 1,417 1,205 4,217 3,729
Employee Benefits 238 221 731 660
Occupancy Expense 218 198 642 578
Equipment Expense 255 219 737 640
Restructuring Costs -- -- -- 529
Other Expense 853 804 2,667 2,374
---------- ---------- ---------- ---------
Total Noninterest Expense 2,981 2,647 8,994 8,510
---------- ---------- ---------- ---------
INCOME BEFORE INCOME TAX EXPENSE 1,812 1,299 5,790 4,154
Income Tax Expense 625 462 2,037 1,518
---------- ---------- ---------- ---------
NET INCOME $ 1,187 $ 837 $ 3,753 $ 2,636
========== ========== ========== =========
NET INCOME APPLICABLE TO COMMON STOCK $ 1,168 $ 815 $ 3,698 $ 2,556
========== ========== ========== =========
NET INCOME PER COMMON SHARE:
Basic $ 1.42 $ 0.96 $ 4.44 $ 3.02
========== ========== ========== =========
Diluted $ 1.37 $ 0.94 $ 4.30 $ 2.93
========== ========== ========== =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-4-
<PAGE> 5
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
PREFERRED STOCK
Balance at Beginning of Year $ 1,028 $ 1,740
Issuance of Stock -- 200
Redemption of Stock (100) (912)
----------- -----------
Balance at End of Period $ 928 $ 1,028
----------- -----------
COMMON STOCK
Balance at Beginning of Year $ 882 $ 441
Issuance of Common Stock for a Two-for-One Stock Split -- 441
----------- -----------
Balance at End of Period $ 882 $ 882
----------- -----------
CAPITAL SURPLUS
Balance at Beginning of Year $ 9,836 $ 10,360
Issuance of Common Stock for a Two-for-One Split -- (441)
Shares Issued and Commitments to Issue Common Stock for
Employee Stock-Based Awards and Related Tax Effects (201) (67)
----------- -----------
Balance at End of Period $ 9,635 $ 9,852
----------- -----------
RETAINED EARNINGS
Balance at Beginning of Year $ 13,544 $ 11,086
Net Income 3,753 2,636
Cash Dividends Declared:
Preferred Stock (55) (80)
Common Stock (1,032) (920)
----------- -----------
Balance at End of Period $ 16,210 $ 12,722
----------- -----------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at Beginning of Year $ 392 $ 112
Other Comprehensive Income (Loss) (1,430) 589
----------- -----------
Balance at End of Period $ (1,038) $ 701
----------- -----------
TREASURY STOCK, AT COST
Balance at Beginning of Year $ (1,844) $ (1,997)
Purchase of Treasury Stock (4,172) (1,038)
Reissuance of Treasury Stock 1,740 1,068
----------- -----------
Balance at End of Period $ (4,276) $ (1,967)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY $ 22,341 $ 23,218
=========== ===========
COMPREHENSIVE INCOME
Net Income $ 3,753 $ 2,636
Other Comprehensive Income (Loss) (1,430) 589
----------- -----------
Comprehensive Income $ 2,323 $ 3,225
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-5-
<PAGE> 6
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income $ 3,753 $ 2,636
Adjustments to Reconcile Net Income to Net Cash Provided (Used)
by Operating Activities:
Provision for Loan Losses 1,167 932
Restructuring Costs -- 529
Depreciation and Amortization 1,028 836
Net Change In:
Trading-Related Assets 1,519 10,498
Accrued Interest Receivable 49 786
Other Assets (4,870) (6,181)
Trading-Related Liabilities (1,338) (7,947)
Accrued Interest Payable (1,848) (384)
Other Liabilities 1,139 1,296
Other, Net (50) (617)
----------- ---------
Net Cash Provided by Operating Activities 549 2,384
----------- ---------
INVESTING ACTIVITIES
- --------------------
Net Change In:
Deposits with Banks 1,356 (991)
Federal Funds Sold and Securities Purchased Under Resale Agreements (11,233) 1,582
Loans Due to Sales and Securitizations 35,621 30,935
Other Loans, Net (37,638) (30,226)
Other, Net (592) 136
Proceeds from the Maturity of Held-to-Maturity Securities 712 1,020
Purchases of Held-to-Maturity Securities -- (67)
Proceeds from the Maturity of Available-for-Sale Securities 7,119 19,703
Proceeds from the Sale of Available-for-Sale Securities 74,575 129,014
Purchases of Available-for-Sale Securities (75,313) ( 153,000)
Proceeds from Sales of Nonstrategic Assets 182 --
Cash Used in Acquisitions (1,252) (254)
----------- ---------
Net Cash (Used) by Investing Activities (6,463) (2,148)
----------- ---------
FINANCING ACTIVITIES
- --------------------
Net Change In:
Noninterest-Bearing Domestic Demand Deposits 2,181 (372)
Domestic Time and Savings Deposits (6,893) 4,539
Foreign Deposits 11,898 2,464
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 3,599 (7,215)
Other Borrowed Funds (1,985) 47
Other, Net (478) (384)
Proceeds from the Issuance of Long-Term Debt and Capital Securities 3,430 2,580
Maturity and Redemption of Long-Term Debt (2,640) (1,307)
Proceeds from the Issuance of Stock 1,539 1,201
Redemption of Preferred Stock (100) (912)
Treasury Stock Purchased (4,172) (1,038)
Cash Dividends Paid (1,048) (956)
----------- ---------
Net Cash Provided (Used) by Financing Activities 5,331 (1,353)
----------- ---------
Effect of Exchange Rate Changes on Cash and Due from Banks 5 (2)
----------- ---------
Net (Decrease) in Cash and Due from Banks (578) (1,119)
Cash and Due from Banks at January 1, 17,068 15,704
----------- ---------
Cash and Due from Banks at September 30, $ 16,490 $ 14,585
=========== =========
Cash Interest Paid $ 10,225 $ 10,828
----------- ---------
Taxes Paid $ 459 $ 1,025
----------- ---------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-6-
<PAGE> 7
Item 1. (continued)
- --------------------------------------------------------------------------------
See Glossary of Terms on page 41 for definition of terms used throughout the
Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The accounting and financial reporting policies of The Chase Manhattan
Corporation ("Chase") conform to generally accepted accounting principles
("GAAP") and prevailing industry practices for interim reporting. Additionally,
where applicable, the policies conform to the accounting and reporting
guidelines prescribed by bank regulatory authorities. The unaudited consolidated
financial statements prepared in conformity with GAAP require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expense and disclosure of contingent assets and
liabilities. In the opinion of management, all necessary adjustments have been
included for a fair presentation of this interim financial information. The
provision for risk management instrument credit losses, previously included in
credit costs, is now netted against trading revenue. All prior periods have been
restated.
NOTE 2 - SECURITIES
For a discussion of the accounting policies relating to securities, see Note One
of Chase's 1998 Annual Report. Net losses from Available-for-Sale ("AFS")
securities sold in the third quarter of 1999 amounted to $1 million (gross gains
of $88 million and gross losses of $89 million) and for the nine months of 1999
net gains amounted to $160 million (gross gains of $372 million and gross losses
of $212 million). Net gains on sales of these types of securities for the same
periods in 1998 amounted to $261 million (gross gains of $354 million and gross
losses of $93 million), and $442 million (gross gains of $632 million and gross
losses of $190 million), respectively. There were no sales of held-to-maturity
securities in the periods presented. The amortized cost and estimated fair value
of securities, including the impact of related derivatives, were as follows:
================================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 December 31, 1998
-------------------------------- -------------------------
(in millions) AMORTIZED FAIR Amortized Fair
AVAILABLE-FOR-SALE SECURITIES: COST VALUE (a) Cost Value (a)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and Federal
Agency/Corporation Obligations:
Mortgage-Backed Securities $ 28,383 $ 27,103 $ 42,916 $ 42,994
CMOs & U.S. Treasuries 16,762 16,194 9,104 9,376
Debt Securities Issued by Foreign Governments 9,271 9,137 8,176 8,226
Corporate Debt and Equity Securities 924 1,043 1,093 1,313
Other, primarily Asset-Backed Securities (b) 623 661 854 894
----------- ---------- ---------- ----------
Total Available-for-Sale Securities (c) $ 55,963 $ 54,138 $ 62,143 $ 62,803
=========== ========== ========== ==========
HELD-TO-MATURITY SECURITIES (d) $ 975 $ 970 $ 1,687 $ 1,703
=========== ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(a) Gross unrealized gains and losses on available-for-sale securities were
$679 million and $2,504 million, respectively, at September 30, 1999 and
$771 million and $111 million, respectively, at December 31, 1998. Gross
unrealized losses on held-to-maturity securities were $5 million at
September 30, 1999. Gross unrealized gains and losses on held-to-maturity
securities were $17 million and $1 million, respectively, at December 31,
1998.
(b) Includes collateralized mortgage obligations of private issuers, which
generally have underlying collateral consisting of obligations of U.S.
Government and Federal Agency/Corporation Obligations and obligations of
State and Political Subdivisions.
(c) Excludes securities classified as loans, which are subject to the
provisions of SFAS 115. The amortized cost and fair value of these loans
were $195 million and $175 million, respectively, at September 30, 1999.
This compares with $623 million and $569 million, respectively, at December
31, 1998.
(d) Primarily U.S. Government and Federal Agency/Corporation Obligations.
================================================================================
-7-
<PAGE> 8
Item 1. (continued)
NOTE 3 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES
For a discussion of Chase's wholly owned business trusts, see page 57 of
Chase's 1998 Annual Report.
At September 30, 1999, seven separate wholly-owned Delaware statutory business
trusts established by Chase had issued an aggregate $2,538 million in capital
securities, net of discount. During the 1999 second quarter, Chase Capital VII
Trust issued $350 million of capital securities having a stated maturity of May
15, 2029 and bearing an interest rate of 7.00%, payable quarterly commencing on
July 31, 1999. There were no other issuances or redemptions of capital
securities during 1999.
NOTE 4 - RESTRUCTURING COSTS
For a discussion of Chase's restructuring costs, refer to Note Twelve and page
28 of Chase's 1998 Annual Report.
During the 1998 first quarter, Chase incurred a pre-tax charge of $510 million
taken in connection with initiatives to streamline support functions and realign
certain business activities. As of September 30, 1999, the reserve balance was
$198 million, of which $100 million related to staff reductions, $91 million
related to dispositions of certain premises and equipment and $7 million related
to other expenses. Chase expects that the remaining reserve related to staff
reductions will be largely used during the next three to six months.
NOTE 5 - COMPREHENSIVE INCOME
Comprehensive income for Chase includes net income as well as the change in
unrealized gains and losses on available-for-sale securities and foreign
currency translation (each of which includes the impact of related derivatives).
Chase has presented these items net of tax in the Statement of Changes in
Stockholders' Equity.
================================================================================
For Nine Months Ended September 30,
(in millions)
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------- ------------------------------------------------
NET UNREALIZED ACCUMULATED Net Unrealized Accumulated
ACCUMULATED GAIN(LOSS) ON OTHER Accumulated Gain(Loss) on Other
TRANSLATION SECURITIES COMPREHENSIVE Translation Securities Comprehensive
ADJUSTMENT AVAILABLE-FOR-SALE INCOME Adjustment Available-for-Sale Income
---------- ------------------ ------ ---------- ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Beginning Balance $ 17 $ 375 $ 392 $ 17 $ 95 $ 112
Change During Period -- (1,430) (a) (1,430) -- 589 589
--------- ------- ----------- --------- -------- ---------
Ending Balance $ 17 $(1,055) (b) $ (1,038) $ 17 $ 684 (b) $ 701
========= ======= =========== ========= ======== =========
</TABLE>
- --------------------------------------------------------------------------------
(a) The increase in net unrealized loss on AFS securities is due to the rise in
interest rates during 1999.
(b) Represents the after-tax difference between the fair value and amortized
cost of the AFS securities portfolio including securities classified as
loans, which are subject to the provisions of SFAS 115. See Note Two.
================================================================================
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
For a discussion of Chase's fair value methodologies, see Note Twenty-Two of the
1998 Annual Report. The following table presents the financial assets and
liabilities valued under SFAS 107.
================================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 December 31, 1998
--------------------------------------------- ------------------------------------------
CARRYING ESTIMATED APPRECIATION/ Carrying Estimated Appreciation/
(in millions) VALUE FAIR VALUE (DEPRECIATION) Value Fair Value (Depreciation)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Financial Assets $ 358,978 $ 361,668 $ 2,690 $ 355,738 $ 358,559 $ 2,821
========== =========== =========== ===========
Total Financial Liabilities $ 347,297 $ 346,848 449 $ 340,643 $ 340,519 124
========== =========== --------- =========== =========== ----------
Estimated Fair Value in Excess
of Carrying Value $ 3,139 $ 2,945
========= ==========
</TABLE>
================================================================================
Derivative contracts used in connection with Chase's ALM activities had an
unrecognized net loss of $827 million at September 30, 1999 and an unrecognized
net gain of $110 million at December 31, 1998, both of which are included in the
above amounts.
-8-
<PAGE> 9
Item 1. (continued)
NOTE 7 - CAPITAL
For a discussion of the calculation of risk-based capital ratios, see Note
Eighteen of Chase's 1998 Annual Report.
The following table presents the risk-based capital ratios for Chase and its
significant banking subsidiaries. At September 30, 1999, Chase and each of its
depository institutions were "well capitalized" as defined by banking
regulators.
================================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 The Chase Chase
(in millions, except ratios) Chase (a) Manhattan Bank Texas Chase USA
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital (d) $ 24,451 $ 18,532 $ 1,642 $ 2,404
Total Capital 35,063 26,342 2,306 3,555
Risk-Weighted Assets 297,624 238,569 18,912 32,293
Adjusted Average Assets 363,704 286,260 22,197 34,842
Tier 1 Capital Ratio (b)(d) 8.22% 7.77% 8.68% 7.44%
Total Capital Ratio (b)(d) 11.78% 11.04% 12.19% 11.01%
Tier 1 Leverage Ratio (c)(d) 6.72% 6.47% 7.40% 6.90%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assets and capital amounts for Chase's banking subsidiaries reflect
intercompany transactions, whereas the respective amounts for Chase reflect
the elimination of intercompany transactions.
(b) Tier 1 capital or Total capital, as applicable, divided by risk-weighted
assets.
(c) Tier 1 capital divided by adjusted average assets (net of allowance for
loan losses, goodwill and certain intangible assets).
(d) The provisions of SFAS 115 do not apply to the calculation of the Tier 1
capital and Tier 1 leverage ratios.
================================================================================
NOTE 8 - DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS
Chase utilizes various derivative and foreign exchange contracts for trading
purposes and for purposes other than trading, such as ALM. For a discussion of
the various financial instruments used and the credit and market risks involved,
see Note Nineteen of Chase's 1998 Annual Report.
The following table summarizes the aggregate notional amounts of derivative,
foreign exchange and other contracts as well as the credit exposure related to
these instruments (after taking into account the effects of legally enforceable
master netting agreements).
================================================================================
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS (a) CREDIT EXPOSURE
SEPTEMBER 30, December 31, SEPTEMBER 30, December 31,
(in billions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Contracts $ 11,022.0 $ 8,171.9 $ 11.9 $ 13.0
Foreign Exchange Contracts 1,931.4 2,040.6 13.8 16.0
Debt, Equity, Commodity and Other Contracts 163.7 140.5 5.7 4.3
-------- --------
Total Credit Exposure Recorded on the Balance Sheet $ 31.4 $ 33.3
======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes notional amount relating to ALM activities totaling $290.5 billion
at September 30, 1999, of which $278.0 billion relates to interest rate
contracts and $12.5 billion relates to foreign exchange contracts. These
amounts compare with $310.7 billion, $252.5 billion and $58.2 billion,
respectively, at December 31, 1998.
================================================================================
NOTE 9 - COMMITMENTS AND CONTINGENCIES
For a discussion of legal proceedings, see Part II, Item 1 of this Form 10-Q.
-9-
<PAGE> 10
Item 1. (continued)
NOTE 10 - SEGMENT INFORMATION
Chase's businesses are organized into three major franchises (segments): Global
Bank, National Consumer Services ("NCS") and Global Services. These franchises
are based on the nature of the products and services provided, the type or class
of customer, and Chase's management organization. Segment results are subject to
restatement as appropriate whenever there are refinements in management
reporting policies or changes to the management organization. During the third
quarter of 1999, organizational changes occurred that are reflected in the lines
of business results. The Middle Markets business, which previously reported into
the Global Bank franchise, now reports into the National Consumer franchise. The
Global Asset Management and Mutual Fund business, which previously was in
Corporate, now reports into the Global Bank franchise. All prior periods have
been restated to reflect these organizational changes.
Chase uses SVA, Operating Earnings and Cash Operating Earnings as measures of
franchise profitability. For a definition of these measurements, see Glossary of
Terms on page 41. The following table provides Chase's segment results on an
operating basis.
================================================================================
<TABLE>
<CAPTION>
(in millions) NATIONAL CORPORATE/
GLOBAL CONSUMER GLOBAL RECONCILING
BANK SERVICES SERVICES ITEMS (a) TOTAL
---- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
THIRD QUARTER 1999
Operating Revenue (b) $ 2,234 $ 2,498 $ 801 $ (104) $ 5,429
Intersegment Revenue (b) (11) -- 30 (19) --
Operating Earnings 663 399 134 (9) 1,187
Cash Operating Earnings (c) 674 435 150 (2) 1,257
Average Managed Assets 231,811 129,561 15,462 5,260 382,094
SVA 247 173 55 64 539
Third Quarter 1998
Operating Revenue (b) $ 1,390 $ 2,295 $ 710 $ (70) $ 4,325
Intersegment Revenue (b) (42) -- 18 24 --
Operating Earnings 291 307 115 25 738
Cash Operating Earnings (c) 301 348 120 32 801
Average Managed Assets 244,707 118,772 11,481 6,332 381,292
SVA (104) 86 53 33 68
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions) NATIONAL CORPORATE/
GLOBAL CONSUMER GLOBAL RECONCILING
BANK SERVICES SERVICES ITEMS (a) TOTAL
---- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
NINE MONTHS 1999
Operating Revenue (b) $ 7,179 $ 7,343 $ 2,308 $ (292) $ 16,538
Intersegment Revenue (b) (42) 1 69 (28) --
Operating Earnings 2,338 1,131 351 (109) 3,711
Cash Operating Earnings (c) 2,371 1,251 397 (89) 3,930
Average Managed Assets 232,104 127,119 15,576 7,105 381,904
SVA 1,117 481 116 22 1,736
Nine Months 1998
Operating Revenue (b) $ 5,764 $ 6,685 $ 2,059 $ (239) $ 14,269
Intersegment Revenue (b) (84) 3 50 31 --
Operating Earnings 1,699 899 334 (62) 2,870
Cash Operating Earnings (c) 1,730 1,024 349 (45) 3,058
Average Managed Assets 253,090 117,989 12,370 5,975 389,424
SVA 522 246 150 18 936
</TABLE>
- --------------------------------------------------------------------------------
(a) Corporate/Reconciling Items includes Chase.com and the effects remaining at
the Corporate level after the implementation of management accounting
policies.
(b) Operating Revenue includes Intersegment Revenue, which includes revenue and
revenue sharing agreements between segments, net of intersegment expenses.
Transactions between business segments are primarily conducted at fair
value.
(c) Cash Operating Earnings excludes the impact of credit card securitizations,
restructuring costs, special items, and amortization of goodwill and
certain intangibles.
================================================================================
-10-
<PAGE> 11
Item 1. (continued)
The table below presents a reconciliation of the combined segment information to
Chase's consolidated net income as included in the Consolidated Statement of
Income. For a further discussion concerning the results of Chase's business
franchises (segments), see Lines of Business Results in the MD&A on pages 13-18.
================================================================================
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
----------------------------- ---------------------------
1999 1998 1999 1998
------------- ---------- ----------- -------
(in millions)
<S> <C> <C> <C> <C>
SEGMENTS' CASH OPERATING EARNINGS $ 1,259 $ 769 $ 4,019 $ 3,103
Corporate/Reconciling Items (2) 32 (89) (45)
---------- --------- ----------- --------
CONSOLIDATED CASH OPERATING EARNINGS 1,257 801 3,930 3,058
Amortization of Goodwill and Certain Intangibles (70) (63) (219) (188)
---------- --------- ----------- --------
CONSOLIDATED OPERATING EARNINGS 1,187 738 3,711 2,870
Special Items and Restructuring Costs -- 99 42 (234)
---------- --------- ----------- --------
CONSOLIDATED NET INCOME $ 1,187 $ 837 $ 3,753 $ 2,636
========== ========= =========== ========
</TABLE>
================================================================================
-11-
<PAGE> 12
Part I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions, except per share THIRD QUARTER NINE MONTHS
and ratio data) ------------------------------------------- -------------------------------------
1999 Over(Under) 1998 1999 Over(Under) 1998
---- -------------------------- ---- ---------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING BASIS (a)
Operating Revenue $ 5,429 $ 1,104 26% $ 16,538 $ 2,269 16%
Operating Earnings 1,187 449 61 3,711 841 29
Diluted Earnings Per Share 1.37 .55 67 4.25 1.05 33
Shareholder Value Added 539 471 693 1,736 800 85
Cash Operating Earnings 1,257 456 57 3,930 872 29
Return on Average Common Equity 21.7% 860 bp 22.2% 440 bp
Efficiency Ratio 55 (500) 53 (200)
REPORTED BASIS
Net Income $ 1,187 $ 350 42% $ 3,753 $ 1,117 42%
Diluted Earnings Per Share 1.37 .43 46 4.30 1.37 47
Return on Average Common Equity 21.7% 680 bp 22.5% 620 bp
</TABLE>
- --------------------------------------------------------------------------------
(a) OPERATING BASIS excludes the impact of credit card securitizations,
restructuring costs and special items. For a further discussion, see
Glossary of Terms on page 41.
bp - Denotes basis points; 100 bp equals 1%.
================================================================================
Chase's 1999 third quarter operating earnings were $1.19 billion, diluted
earnings per share on an operating basis were $1.37, and return on average
common equity was 22%. Operating earnings and diluted earnings per share
increased 61% and 67%, respectively, from the third quarter of 1998. For the
nine months of 1999, operating earnings and diluted earnings per share rose 29%
and 33%, respectively, from the nine months of 1998.
Reported diluted earnings per share were $1.37 in the 1999 third quarter, an
increase of 46% from the same period in 1998. For the nine months of 1999,
reported diluted earnings per share were $4.30, 47% higher than the same prior
year period. Reported net income in the 1999 third quarter and for the first
nine months of 1999 increased 42% from the same 1998 periods. For a
reconciliation of Chase's results as reported in its consolidated financial
statements and as presented on an operating basis, see page 19.
Operating highlights for the third quarter of 1999 included:
- Operating revenues of $5.4 billion, an increase of 26%.
- Operating earnings per share of $1.37, an increase of 67%.
- Return on average common stockholders' equity ("ROCE") of
22%, with Shareholder Value Added (SVA) of $539 million.
- Common stock repurchases of $780 million, on a net basis,
with a Tier 1 capital ratio of 8.2%.
The strong 1999 third quarter results continued to demonstrate Chase's
disciplined approach to managing capital and making investments that propel
future growth.
BUSINESS FRANCHISES: Each of Chase's three business franchises, Global
Banking, National Consumer Services and Global Services, produced third quarter
cash operating earnings growth of 25% or more and a return on equity in excess
of 20%. In Global Banking, the efficiency ratio was better than 50%, with a cash
ROCE of 21%, for the 1999 third quarter. Chase's investment banking businesses
continued to gain market share and improve its rankings in league tables. For
the nine months of 1999 in the U.S., Chase ranked #1 in loan syndications, #3 in
both high yield and investment grade corporate debt securities, and #8 in merger
and acquisition advisory. In Global Services, revenue and cash operating
earnings growth for the 1999 third quarter were 13% and 25%, respectively.
National Consumer Services had revenue growth of 9%, and when combined with
improvements in asset quality and expense management, resulted in income growth
of 25%.
-12-
<PAGE> 13
FINANCIAL DISCIPLINE: Expense, credit and capital discipline also contributed
to the results. Total operating noninterest expense for the third quarter was
almost flat when compared to the 1999 second quarter. Chase continues to manage
its operating noninterest expense to support its revenue growth. Credit costs
remained stable with second quarter 1999. Although nonperforming assets
increased from the second quarter due to a single foreign customer,
nonperforming assets as a percentage of total assets remained low at .54%.
Finally, the capital discipline imposed by Chase's Shareholder Value Added
("SVA") methodology enabled Chase to repurchase $780 million of its common stock
on a net basis during the 1999 third quarter, while maintaining a Tier 1
capital ratio at 8.2%.
STRATEGIC PRIORITIES: Actions during the third quarter continue to demonstrate
Chase's strategic priorities: a commitment to use resources to strengthen
its competitive positions where it has leadership positions. Recent investments
by Chase include an acquisition of a major mortgage business, a private-label
credit card acquisition and the pending acquisition of Hambrecht & Quist.
Progress also continued on Chase.com initiatives, including an initial public
offering by Shopnow.com, an internet company in which Chase has both an equity
investment and a credit card alliance; and an equity investment in Intellisys,
an e-commerce procurement company.
Chase has targeted its financial performance goals over time as:
-average ROCE of 18% or higher
-growth in operating revenues accelerating to 10% per year
-double-digit growth in operating earnings per share
This Management's Discussion and Analysis contains certain forward-looking
statements, including without limitation, statements related to credit, market,
liquidity and operating risk. These forward-looking statements are subject to
risks and uncertainties and Chase's actual results may differ materially from
those included in these statements. Reference is made to Chase's reports filed
with the Securities and Exchange Commission, in particular the 1998 Annual
Report, for a discussion of factors that may cause such differences to occur.
See Glossary of Terms on page 41 for a definition of terms used throughout this
Form 10-Q.
- --------------------------------------------------------------------------------
LINES OF BUSINESS RESULTS
- --------------------------------------------------------------------------------
The table below provides summary financial information on an operating basis for
Chase's three major business franchises. For a description of the basis of
presentation that management uses to measure and evaluate business unit
profitability, see page 19 of the 1998 Annual Report.
================================================================================
<TABLE>
<CAPTION>
GLOBAL BANK NATIONAL CONSUMER SERVICES
------------------------------------------ -----------------------------------------
Third Quarter 1999 Over/(Under) 1998 1999 Over/(Under) 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 2,234 $ 844 61% $ 2,498 $ 203 9%
Operating Earnings 663 372 128 399 92 30
Cash Operating Earnings (a) 674 373 124 435 87 25
Average Common Equity 12,707 719 6 7,802 51 1
Average Managed Assets 231,811 (12,896) (5) 129,561 10,789 9
Shareholder Value Added 247 351 NM 173 87 101
Cash Return on Common Equity 20.7% 1,110 bp 21.8% 440 bp
Cash Efficiency Ratio 49 (1,700) 50 (100)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL SERVICES TOTAL (b)
------------------------------------------ -----------------------------------------
Third Quarter 1999 Over/(Under) 1998 1999 Over/(Under) 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 801 $ 91 13% $ 5,429 $ 1,104 26%
Operating Earnings 134 19 17 1,187 449 61
Cash Operating Earnings (a) 150 30 25 1,257 456 57
Average Common Equity 2,827 860 44 21,328 (353) (2)
Average Managed Assets 15,462 3,981 35 382,094 802 --
Shareholder Value Added 55 2 4 539 471 693
Cash Return on Common Equity 20.7% (310) bp 23.0% 870 bp
Cash Efficiency Ratio 71 (100) 53 (600)
</TABLE>
- --------------------------------------------------------------------------------
(a) CASH OPERATING EARNINGS represent operating earnings excluding the
amortization of goodwill and certain intangibles.
(b) Total column includes Corporate results. See description of Corporate
results on page 18.
bp - Denotes basis points; 100bp equals 1%.
Note: The Middle Market business, which previously reported into the Global Bank
franchise, now reports into the National Consumer Services franchise. The
Global Assets Management and Mutual Funds business, which previously was
in Corporate, now reports into the Global Bank franchise. Prior periods
have been restated.
================================================================================
-13-
<PAGE> 14
================================================================================
<TABLE>
<CAPTION>
GLOBAL BANK NATIONAL CONSUMER SERVICES
For Nine Months -------------------------------------------- --------------------------------------
Ended September 30, 1999 Over/ (Under) 1998 1999 Over/(Under) 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 7,179 $ 1,415 25% $ 7,343 $ 658 10%
Operating Earnings 2,338 639 38 1,131 232 26
Cash Operating Earnings (a) 2,371 641 37 1,251 227 22
Average Common Equity 12,588 598 5 7,726 (1) --
Average Managed Assets 232,104 (20,986) (8) 127,119 9,130 8
Shareholder Value Added 1,117 595 114 481 235 96
Cash Return on Common Equity 24.9% 610 bp 21.3% 400 bp
Cash Efficiency Ratio 45 (500) 50 --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL SERVICES TOTAL (b)
For Nine Months ---------------------------------------- ----------------------------------------
Ended September 30, 1999 Over/ (Under) 1998 1999 Over/(Under) 1998
- --------------------------------------------------------------------------------------------------------------------------------
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 2,308 $ 249 12% $ 16,538 $ 2,269 16%
Operating Earnings 351 17 5 3,711 841 29
Cash Operating Earnings (a) 397 48 14 3,930 872 29
Average Common Equity 2,821 840 42 21,997 998 5
Average Managed Assets 15,576 3,206 26 381,904 (7,520) (2)
Shareholder Value Added 116 (34) (23) 1,736 800 85
Cash Return on Common Equity 18.5% (460) bp 23.6% 460 bp
Cash Efficiency Ratio 73 100 52 (200)
</TABLE>
- --------------------------------------------------------------------------------
(a) Cash Operating Earnings represent operating earnings excluding the
amortization of goodwill and certain intangibles.
(b) Total column includes Corporate results. See description of Corporate
results on page 18.
bp - Denotes basis points; 100bp equals 1%.
Note: The Middle Market business, which previously reported into the Global Bank
franchise, now reports into the National Consumer Services franchise. The
Global Assets Management and Mutual Funds business, which previously was
in Corporate, now reports into the Global Bank franchise. Prior periods
have been restated.
================================================================================
GLOBAL BANK
Global Bank combines the strengths of a leading commercial bank and a leading
investment bank to meet the needs of corporations, institutions, governments and
wealthy individuals around the world. With operations in approximately 50
countries, including major operations in all key international financial
centers, Global Bank integrates a broad range of leading product capabilities,
industry knowledge and geographic reach to produce superior customer solutions.
Cash operating earnings in the 1999 third quarter were more than double the
amount in the same quarter of the prior year, but less than the record breaking
second quarter 1999, when Chase benefited from unusually high market-sensitive
revenues. For the Global Bank, the 1999 third quarter results were significantly
higher than the prior year quarter, as the 1998 third quarter results reflected
the adverse market conditions in effect at that time. The 1999 third quarter
results continued to reflect Chase's strong competitive position. The efficiency
ratio was better than 50%, with a cash ROCE of 21%, for the 1999 third quarter.
For the nine months of 1999, operating revenues and cash operating earnings
increased 25% and 37%, respectively, over the same period in 1998. These
favorable results were driven by strong trading-related revenue, investment
banking fees and private equity gains, partially offset by lower securities
gains. Chase anticipates that the financial markets may slow down later in the
1999 fourth quarter, as corporations and customers prepare for the Year 2000
implementation.
-14-
<PAGE> 15
================================================================================
<TABLE>
<CAPTION>
1999 Over(Under) 1998
--------------------------------------------- ----------------------------------------------
THREE MONTHS ENDED CASH CASH Cash Cash
SEPTEMBER 30, OPERATING OPERATING EFFICIENCY Operating Operating Efficiency
(in millions, except ratios) REVENUES EARNINGS RATIO Revenues Earnings Ratio
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Global Markets $ 922 $ 280 54% 64% 359% (2,600) bp
Global Investment Banking 402 94 61 100 571 (3,100)
Corporate Lending 398 144 27 (1) 2 (100)
Chase Capital Partners 294 165 13 NM NM NM
Global Private Banking 229 49 63 8 7 --
Other Global Bank (a) (11) (58) NM NM NM NM
---------- --------
Total $ 2,234 $ 674 49% 61% 124% (1,700) bp
========== ========
NINE MONTHS ENDED
SEPTEMBER 30,
(in millions, except ratios)
Global Markets $ 3,192 $ 1,097 47% 34% 73% (1,100) bp
Global Investment Banking 1,096 232 66 15 13 200
Corporate Lending 1,164 418 27 1 7 (100)
Chase Capital Partners 1,058 608 10 82 95 (600)
Global Private Banking 661 133 65 4 (5) 300
Other Global Bank (a) 8 (117) NM NM NM NM
---------- --------
Total $ 7,179 $ 2,371 45% 25% 37% (500) bp
========== ========
</TABLE>
- --------------------------------------------------------------------------------
(a) Other Global Bank includes Chase's Global Asset Management and Mutual Funds
business and discontinued operations. Total assets under management
amounted to $211 billion at September 30, 1999.
NM - Not meaningful
bp - Denotes basis points; 100 bp equals 1%.
================================================================================
GLOBAL MARKETS
Global Markets' activities are diverse, by product and geography, and encompass
the trading and sale of foreign exchange, derivatives, fixed income securities
and commodities. Chase trades 24 hours a day covering the major cross-border
financial markets, as well as many local markets. Also included within Global
Markets are Chase's domestic and international treasury units, which have the
primary responsibility for managing Chase's interest rate risk exposures and
investment securities activities. Treasury results are managed on a total return
basis with one of the primary objectives being the creation of economic value
over time. Total return combines reported revenues (net interest income and
securities gains/losses) and the change in the net unrealized
appreciation/depreciation of all financial instruments and underlying balance
sheet items.
Chase's trading-related revenues for the third quarter and nine months of 1999
were $679 million and $2,249 million, respectively. The results reflect strong
performance in traditional products, including interest rate derivatives, and in
other products such as equity derivatives. The total return (pretax before
expenses) from interest rate risk management activities amounted to $(14)
million and $226 million for the third quarter and nine months of 1999, compared
with $351 million and $529 million for the third quarter and nine months of
1998, respectively. The decline in total return is due to the significant rise
in interest rates during 1999.
GLOBAL INVESTMENT BANKING
Global Investment Banking advises corporations, financial institutions,
financial sponsors and governments by providing integrated financial solutions
and industry expertise to clients globally. Chase's corporate finance client
base is extensive and is managed through global client industry groups. Product
offerings encompass syndicated finance, high yield securities, mergers and
acquisitions advisory, project finance, real estate advisory and placement,
restructuring and private placements. Chase is the largest arranger of U.S.
corporate debt, with a major presence in both the public and private debt
markets, and has built a strong presence in the advisory area by leveraging its
debt market leadership.
-15-
<PAGE> 16
Cash operating earnings for Global Investment Banking rose 571% in the third
quarter of 1999 to $94 million, when compared with the same quarter in 1998,
reflecting continued growth in market share in mergers and acquisitions
advisory, high-yield bond underwriting, and loan syndications. For the nine
months of 1999, cash operating earnings increased 13%, reflecting the strong
growth over the past two quarters partially offset by the impact of lower
trading results on high-yield securities during the first quarter of 1999.
CORPORATE LENDING
Corporate Lending provides credit and lending services to clients globally
within a strategy that emphasizes origination for distribution. An active
portfolio management effort is an integral part of corporate lending activities
and is focused on managing concentrations by product, borrower, risk grade,
industry and geography. The use of SVA for product and customer decisions
resulted in higher spreads on retained assets and the disposition of
less-SVA-attractive loans. Management expects to continue to manage the
commercial loan portfolio for shareholder value rather than revenue growth. In
addition, as the largest structurer and syndicator of commercial loans, Chase
originates loans for distribution to other financial institutions. In this
process, Chase targets retaining, for its own account, approximately 9% of the
principal amount of the loan. Revenues and cash operating earnings in the third
quarter of 1999 remained flat when compared with the 1998 third quarter. For the
nine months of 1999, revenues increased 1%, while cash operating earnings
increased 7%, reflecting lower credit costs.
CHASE CAPITAL PARTNERS
Chase Capital Partners ("CCP") is one of the largest global private equity
organizations with approximately $8.5 billion under management, including $5.7
billion in direct equity and equity-related investments and $1.6 billion in fund
investments. CCP provides equity and mezzanine financing for a wide variety of
investment opportunities in the United States and, to a lesser extent, abroad.
During the nine months of 1999, CCP's direct investments totaled approximately
$1.5 billion in 102 venture capital, management buyout, recapitalization, growth
equity and mezzanine transactions, compared with approximately $1.2 billion in
84 direct investments for the nine months of 1998. Earnings reflected continued
strength in the equity markets, a favorable environment for technology and
internet initial public offerings (IPOs) (particularly in the second and third
quarters of 1999), and the positive impact of maturing investments within the
portfolio, partially offset by higher costs to support a higher level of
investments.
GLOBAL PRIVATE BANK
The Global Private Bank serves a global client base of high net worth
individuals and families, offering a full range of private banking services as
well as access to the broad product capabilities of the Global Bank. Services
include investment management, global capital market products and services, risk
management, alternative investments such as private equity funds, trust and
estate planning, global custody, mutual funds, credit and banking, and
philanthropic advisory services. Revenues for the third quarter and the nine
months of 1999 grew 8% and 4%, when compared with the same 1998 periods. The
revenue growth in the business continues to reflect strong growth rates in the
U.S. Cash operating earnings increased 7% and decreased 5% for the third quarter
and nine months of 1999, respectively, from comparable 1998 periods, reflecting
an increase in expenses due primarily to on-going technology and productivity
initiatives.
NATIONAL CONSUMER SERVICES
National Consumer Services ("NCS") serves more than 30 million customers
nationwide offering a wide variety of financial products and services through a
diverse array of channels. Characterized by significant scale, and operating
under the strong Chase brand, NCS combines nationwide presence with a leading
consumer and small business banking franchise in the New York metropolitan
tri-state region and key Texas markets.
For the third quarter and nine months of 1999, NCS's cash operating earnings
increased $87 million and $227 million, respectively, over the same 1998
periods. These increases in cash operating earnings are attributable to growth
in origination and servicing volume of residential mortgages and auto loans,
higher deposit levels and higher fees including increased level of customer
activity through Brown & Company, Chase's discount brokerage firm.
Management expects that the rate of growth in NCS revenues for the fourth
quarter of 1999 (in comparison to the same quarter of 1998) to be somewhat lower
than the 10% year-to-date growth rate. This anticipated moderation in growth
rate will be due, in part, to pricing initiatives in the latter part of 1998.
-16-
<PAGE> 17
================================================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1999 Over(Under) 1998
SEPTEMBER 30, ------------------------------------------- ----------------------------------------------
(in millions, except ratios) CASH CASH Cash Cash
OPERATING OPERATING EFFICIENCY Operating Operating Efficiency
REVENUES EARNINGS RATIO Revenues Earnings Ratio
-------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Chase Cardmember Services $ 1,003 $ 133 35% 3% 36% (100) bp
Regional Consumer Banking 611 103 70 9 11 (100)
Chase Home Finance 307 73 55 17 18 (100)
Diversified Consumer Services 262 36 57 13 -- 400
Middle Markets 252 63 53 4 15 (200)
Other NCS 63 27 NM NM NM NM
---------- --------
Total $ 2,498 $ 435 50% 9% 25% (100) bp
========== ========
NINE MONTHS ENDED
SEPTEMBER 30,
(in millions, except ratios)
Chase Cardmember Services $ 3,020 $ 383 35% 5% 17% -- bp
Regional Consumer Banking 1,779 304 70 9 18 (300)
Chase Home Finance 870 205 56 16 15 100
Diversified Consumer Services 845 148 52 29 80 (300)
Middle Markets 729 172 55 2 6 --
Other NCS 100 39 NM NM NM NM
---------- --------
Total $ 7,343 $ 1,251 50% 10% 22% -- bp
========== ========
</TABLE>
- --------------------------------------------------------------------------------
NM - Not meaningful
bp - Denotes basis points; 100 bp equals 1%.
================================================================================
CHASE CARDMEMBER SERVICES
Chase Cardmember Services ("CCS") ranks as the fifth-largest card issuer in the
United States. CCS also reflects the results of Chase's international consumer
business, which includes Chase Manhattan Card Company Limited, the third largest
credit card issuer in Hong Kong, as well as consumer banking activities
primarily in Hong Kong. At September 30, 1999, CCS had a $33 billion world-wide
managed credit card portfolio. CCS's cash operating earnings for the third
quarter of 1999 were $133 million, a 36% increase over 1998. Cash operating
earnings for the nine months of 1999 rose 17% to $383 million. The increases in
cash operating earnings reflect higher card usage, pricing initiatives started
in late 1998 and improved credit quality. These favorable results were partially
offset by higher marketing costs.
REGIONAL CONSUMER BANKING
Regional Consumer Banking has a leading share of primary bank relationships
among consumers and small businesses in the New York metropolitan tri-state area
and is a leading retail institution in key Texas markets. Regional Consumer
Banking offers customers convenient access to financial services through their
choice of distribution channels, including the largest branch and proprietary
ATM networks in the New York metropolitan region, plus telephone, PC and
Internet services. For the third quarter and nine months of 1999, cash operating
earnings increased 11% to $103 million and 18% to $304 million, respectively,
compared with the same periods in 1998, benefiting from higher deposit levels
coupled with growth in consumer banking fees and strong expense discipline.
CHASE HOME FINANCE
Chase Home Finance serves more than 3.2 million customers nationwide and is the
largest originator and servicer of residential mortgage loans (after the
acquisition of the Mellon Mortgage business on September 30, 1999) in the U.S.
It is also a leading provider of home-equity secured lending and manufactured
housing financing. During the nine months of 1999, $79 billion in residential
first-mortgage loans, home-equity and manufactured housing financing were
originated, a 40% increase over the same period last year. Management
anticipates a decline in origination volume for the fourth quarter of 1999
compared with the same period in the prior year, as a result of increasing
interest rates. Chase Home Finance's servicing portfolio increased 58% over the
past twelve months and totaled $301 billion at September 30, 1999. Cash
operating earnings increased 18% to $73 million and 15% to $205 million for the
third quarter and nine months of 1999, respectively. The increases were fueled
by growth in originations and servicing revenue, partially offset by lower net
interest income as a result of higher funding costs associated with the increase
in servicing balances and higher expenses stemming from greater business volume
and technology investments.
-17-
<PAGE> 18
DIVERSIFIED CONSUMER SERVICES
Diversified Consumer Services ("DCS") is one of the largest bank originator of
auto loans and leases in the United States and a leading provider of student
loans and unsecured consumer lending. In addition to its financing activities,
DCS offers brokerage services and investment products nationwide and is one of
the most diversified bank insurance providers in the U.S. At September 30, 1999,
Chase Auto Finance had $24 billion in managed receivables including $21 billion
in balance sheet receivables. Cash operating earnings increased 80% in the first
nine months of 1999 and was driven by the strong growth in auto finance and by
higher revenues in Chase's investment and insurance businesses, offset partially
by higher expenses due to increased business volumes. Also included in revenues
for the nine months of 1999 were $49 million of gains on sales of student loans,
which occurred in the first half of 1999 and reflected a shift to a loan
origination and sale strategy.
MIDDLE MARKETS
Chase is the premier provider of financial services to middle-market companies
(companies with sales ranging from $10 million to $500 million) regionally, with
a national focus in selected industries. It is the market leader in the New York
metropolitan tri-state area. Cash operating earnings increased in the third
quarter and nine months of 1999, compared with the respective 1998 periods,
reflecting growth in loan volume along with improved credit quality and
disciplined expense management.
GLOBAL SERVICES
Global Services is a leading provider of information and transaction services
globally and includes custody, cash management, trust and other fiduciary
services. As the world's largest provider of global custody and a leader in
trust and agency services, Global Services was custodian for over $5 trillion in
assets and serviced over $3 trillion in outstanding debt at September 30, 1999.
Global Services also operates the largest U.S. dollar funds transfer business in
the world and is a market leader in FedWire, ACH and CHIPS volume.
For the third quarter and nine months ended September 30, 1999, cash operating
earnings for Global Services increased $30 million and $48 million,
respectively, when compared with the same periods in 1998. Revenue growth was
13% in the third quarter and 12% for the nine months of 1999, driven in part by
acquisitions completed in 1998. These increases were offset partially by a
decline in excess deposit balances in cash management services. Expenses for the
nine months of 1999 were higher than the same period in 1998, reflecting ongoing
investment spending and costs related to Year 2000 initiatives.
Management expects that the rate of growth in Global Services revenue for the
fourth quarter of 1999 (in comparison to the same quarter of 1998) may be lower
than the 12% year-to-date growth rate. This anticipated moderation in the
growth rate is due to the inclusion of revenues from an acquisition in the 1998
fourth quarter and the possibility of lower business transaction volume as a
result of customer concerns involving the Year 2000.
CORPORATE
Corporate includes Chase.com and the effects remaining at the Corporate level
after the implementation of management accounting policies. Chase.com has a
direct management responsibility for new internet related ventures and for
working with Chase's lines of businesses to capitalize on internet
opportunities.
For the third quarter and nine months ended September 30, 1999, Corporate had a
cash operating loss of $2 million and $89 million, respectively, compared with
cash operating earnings of $32 million and a cash operating loss of $45 million
for the same periods in 1998. Prior periods have been restated to reflect
refinements in management reporting policies or changes to the management
organization.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following section provides a discussion of Chase's results of operations as
reported under generally accepted accounting principles as well as on the
operating basis that is used by management in measuring Chase's financial
performance.
-18-
<PAGE> 19
The following table provides a reconciliation between Chase's results as
reported in its Consolidated Financial Statements and as presented on an
operating basis. Charge-offs and provisions for risk management instruments,
included in credit costs prior to 1999, are now netted against trading revenue.
All prior periods have been restated.
================================================================================
<TABLE>
<CAPTION>
(in millions, except per share data)
THIRD QUARTER 1999 Third Quarter 1998
------------------------------------------------ ---------------------------------------------------
REPORTED CREDIT SPECIAL OPERATING Reported Credit Special Operating
RESULTS CARD ITEMS BASIS Results Card Items Basis
Revenue: (a) (b) (c) (a) (b) (c)
---------- --------- ------- --------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market-Sensitive $ 1,541 $ -- $ -- $ 1,541 $ 719 $ -- $ -- $ 719
Less-Market-Sensitive 3,650 238 -- 3,888 3,499 298 (191) 3,606
--------- -------- ------- -------- ------- ------- ------- --------
Total Revenue 5,191 238 -- 5,429 4,218 298 (191) 4,325
Noninterest Expense 2,975 -- -- 2,975 2,651 -- (37) 2,614
--------- -------- ------- -------- ------- ------- ------- --------
Operating Margin 2,216 238 -- 2,454 1,567 298 (154) 1,711
Credit Costs 404 238 -- 642 268 298 -- 566
--------- -------- ------- -------- ------- ------- ------- --------
Income Before Taxes 1,812 -- -- 1,812 1,299 -- (154) 1,145
Tax Expense 625 -- -- 625 462 -- (55) 407
--------- -------- ------- -------- ------- ------- ------- --------
Net Income $ 1,187 $ -- $ -- $ 1,187 $ 837 $ -- $ (99) $ 738
========= ======== ======= ========= ======= ======= ======= ========
NET INCOME PER COMMON SHARE
- ---------------------------
Basic $ 1.42 $ 1.42 $ 0.96 $ 0.84
Diluted $ 1.37 $ 1.37 $ 0.94 $ 0.82
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS 1999 Nine Months 1998
------------------------------------------------ ---------------------------------------------------
Revenue:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market-Sensitive $ 5,012 $ -- $ -- $ 5,012 $ 3,549 $ -- $ -- $ 3,549
Less-Market-Sensitive 10,939 753 (166) 11,526 10,047 864 (191) 10,720
---------- -------- ------- ---------- -------- ------- ------- ---------
Total Revenue 15,951 753 (166) 16,538 13,596 864 (191) 14,269
Noninterest Expense 8,980 -- (100) 8,880 7,979 -- (37) 7,942
---------- -------- ------- ---------- -------- ------- ------- ---------
Operating Margin 6,971 753 (66) 7,658 5,617 864 (154) 6,327
Credit Costs 1,181 753 -- 1,934 934 864 -- 1,798
---------- -------- ------- ---------- -------- ------- ------- ---------
Income Before
Restructuring Costs 5,790 -- (66) 5,724 4,683 -- (154) 4,529
Restructuring Costs -- -- -- -- 529 -- (529) --
---------- -------- ------- ---------- -------- ------- ------- ---------
Income Before Taxes 5,790 -- (66) 5,724 4,154 -- 375 4,529
Tax Expense 2,037 -- (24) 2,013 1,518 -- 141 1,659
---------- -------- ------- ---------- -------- ------- ------- ---------
Net Income $ 3,753 $ -- $ (42) $ 3,711 $ 2,636 $ -- $ 234 $ 2,870
========== ======== ======= ========== ======== ======= ======= =========
NET INCOME PER COMMON SHARE
- ---------------------------
Basic $ 4.44 $ 4.39 $ 3.02 $ 3.29
Diluted $ 4.30 $ 4.25 $ 2.93 $ 3.20
</TABLE>
- --------------------------------------------------------------------------------
(a) Represents results as reported in Chase's financial statements, except that
revenues are categorized between market-sensitive and less-market-sensitive
revenues, foreclosed property expense is reclassified from noninterest
expense to credit costs, and restructuring costs have been separately
displayed. Market-sensitive revenues include trading revenues (including
trading-related net interest income), investment banking fees, securities
gains and private equity gains.
(b) This column excludes the impact of credit card securitizations. For
securitized receivables, amounts that would previously have been reported
as net interest income and as provision for loan losses are instead
reported as components of noninterest revenue (credit card revenue and
other revenue).
(c) Includes restructuring costs and special items. For a description of
special items, see Glossary of Terms on page 41.
================================================================================
-19-
<PAGE> 20
MARKET-SENSITIVE REVENUE
Market-sensitive revenues are, in management's view, typically more sensitive to
changes in general market conditions than those revenue components management
considers as less-market-sensitive. While components of market-sensitive
revenues experience volatility (particularly on a quarter-to-quarter basis),
over the past ten years total market-sensitive revenues have increased at a
compound annual growth rate ("CAGR") of approximately 14% and have exhibited
limited annual volatility around the regression trendline.
For the third quarter and nine months, market-sensitive revenues in 1999
increased 114% and 41%, respectively, over the same 1998 periods, reflecting
increases in trading-related revenues, investment banking fees and private
equity gains. Chase anticipates that the financial markets in the latter part of
the 1999 fourth quarter may slow down, as corporations and customers prepare
for the Year 2000 implementation.
INVESTMENT BANKING FEES
Investment banking fees of $486 million in the 1999 third quarter were up 51%
from the prior-year quarter and represent the second highest quarter for Chase,
immediately following the record 1999 second quarter results. Fees of $1,388
million for the nine months of 1999 were 24% higher than the nine months of
1998. These strong results reflect market share gains in loan syndications,
mergers and acquisitions advisory, and corporate bond underwriting, as Chase
leverages its broad customer base and leadership positions in attractive
markets.
TRADING-RELATED REVENUE
Trading revenues and related net interest income increased to $679 million for
the 1999 third quarter and to $2,249 million for the first nine months of 1999.
The results reflect strong performance across a wide variety of trading
products.
================================================================================
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
----------------------------- -----------------------------
(in millions) 1999 1998 1999 1998
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Trading Related Revenue by Type
- -------------------------------
Trading Revenue (a) $ 462 $ (69) $ 1,606 $ 722
Trading Related NII (b) 217 145 643 541
--------- -------- ---------- ---------
Total $ 679 $ 76 $ 2,249 $ 1,263
========= ======== ========== =========
Product Diversification
- -----------------------
Interest Rate Contracts (c) $ 223 $ 66 $ 805 $ 292
Foreign Exchange Spot and Option Contracts 199 250 616 796
Equities and Commodities (d) 129 19 303 124
Debt Instruments and Other (e) 128 (259) 525 51
--------- --------- ---------- ---------
Total $ 679 $ 76 $ 2,249 $ 1,263
========= ======== ========== =========
</TABLE>
- --------------------------------------------------------------------------------
(a) Charge-offs for risk management instruments are included in trading
revenue. All prior periods have been restated.
(b) Trading-related net interest income includes interest recognized 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 net interest income on
the Consolidated Statement of Income.
(c) Includes interest rate swaps, cross-currency interest rate swaps, foreign
exchange forward contracts, interest rate futures and options, forward
rate agreements and related hedges.
(d) Includes equity securities, equity derivatives, commodities and commodity
derivatives.
(e) Includes U.S. and foreign government agency securities, corporate debt
instruments, emerging markets debt instruments, debt-related derivatives
and credit derivatives.
================================================================================
Interest rate contract revenue increased in the third quarter and nine months of
1999 as a result of interest rate movements in the European markets. Foreign
exchange spot and option contract revenue declined in the third quarter and for
the nine months of 1999, due to reduced volume because of a return to normal
volatility in the Asian markets. Equities and commodities revenue increased for
both 1999 periods as a result of favorable market conditions for equity
derivative products throughout the nine months of 1999. The increase in debt
instruments and other resulted from continued improvement in emerging markets
activities and high-grade bonds due to the unsettled markets in the 1998
third quarter.
Chase disclosed on November 1, 1999 that trading revenues in the fourth quarter
would be reduced by approximately $60 million before tax ($40 million after tax)
as a result of a correction of trading revenues from previous periods.
-20-
<PAGE> 21
SECURITIES GAINS
Securities losses realized for the 1999 third quarter were $1 million, compared
with securities gains of $261 million in the prior year's third quarter. The
1998 third quarter gains were largely from sales of U.S. Government and agency
securities. Due to adverse market conditions during the 1998 third quarter, many
investors chose safer investments, such as U.S. Treasuries. Total securities
gains for the nine months of 1999 were $160 million, a 64% decrease over the
same period in 1998. The decline in securities gains was due to a lower level of
sales as a result of higher market interest rates, which reduced the market
value of these securities. Unrealized net losses in Chase's available-for-sale
securities portfolio were approximately $1.8 billion, before taxes, at September
30, 1999, a decrease from a net unrealized gain of approximately $.6 billion,
before taxes, at year-end 1998, reflecting a rise in interest rates during 1999.
The market valuation does not include the favorable impact of changes in
interest rates on related funding.
PRIVATE EQUITY GAINS
Private equity gains include income from a wide variety of investments in the
United States and, to a lesser extent, abroad. Private equity gains in the third
quarter and nine months of 1999 were $317 million higher and $492 million higher
(an increase of 68%) than the same periods in the prior year. These results
reflect gains on investments in companies that had initial public offerings in
1999 and on sales of companies in the telecommunications and internet
marketplace. The 1999 third quarter results, while less than the 1999 second
quarter, continued to be strong, despite a decline in the market value of a
large investment.
LESS-MARKET-SENSITIVE REVENUE
The less-market-sensitive revenue captions are generally subject to less market
volatility than market-sensitive revenues. However, certain components within
less-market-sensitive revenue are subject to market volatility, particularly
assets that are held-for-sale and are accounted for on either a mark-to-market
basis or lower-of-cost-or-market basis.
Less-market-sensitive revenues increased by 8% in both the 1999 third quarter
and first nine months reflecting across the board increases in all categories
for both periods.
NET INTEREST INCOME
Reported net interest income ("NII") was $2.17 billion for the 1999 third
quarter and $6.52 billion for the 1999 nine months. Excluding the impact of $191
million of interest income resulting from prior years' tax refunds which was
recognized in the 1998 third quarter, NII increased 8% for the quarter and 5%
for the first nine months when compared with the 1998 periods. For purposes of
internal analysis, management combines trading-related NII with trading revenue.
Therefore, trading-related NII is excluded from the following analysis.
-21-
<PAGE> 22
The following table provides a reconciliation between reported NII as presented
on the Consolidated Statement of Income and operating NII.
================================================================================
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
-------------------------------------- --------------------------------
NET INTEREST INCOME 1999 1998 Change 1999 1998 Change
(in millions) ----------- ---------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Reported NII $ 2,170 $ 2,206 (2)% $ 6,519 $ 6,406 2%
Less Interest on Tax Refunds -- (191) -- (191)
---------- ---------- ---------- --------
Subtotal 2,170 2,015 8% 6,519 6,215 5%
Add Impact of Credit Card Securitizations 332 374 1,000 1,093
Less Trading-Related NII (217) (145) (643) (541)
---------- ---------- ---------- --------
Operating NII $ 2,285 $ 2,244 2% $ 6,876 $ 6,767 2%
========== ========== ========== ========
AVERAGE INTEREST-EARNING ASSETS
(in billions)
Reported $ 290.2 $ 286.9 1% $ 290.0 $ 295.8 (2)%
Add Impact of Credit Card Securitizations 17.2 18.4 17.6 18.0
Less Trading-Related Assets (53.4) (56.9) (51.3) (64.8)
---------- ---------- ---------- --------
Managed $ 254.0 $ 248.4 2% $ 256.3 $ 249.0 3%
========== ========== ========== ========
NET YIELD ON INTEREST-EARNING ASSETS (a)
Reported 2.97% 3.06% (9) bp 3.01% 2.90% 11 bp
Add Impact of Credit Card Securitizations .27 .30 (3) .26 .30 (4)
Impact of Trading-Related NII .34 .48 (14) .32 .52 (20)
Less Impact of Tax Refunds -- (.25)% 25 -- (.08) 8
---------- ---------- ---------- --------
Managed 3.58% 3.59% (1) bp 3.59% 3.64% (5) bp
========== ========== ========== ========
</TABLE>
- --------------------------------------------------------------------------------
(a) Disclosed on a taxable equivalent basis.
bp - Denotes basis points; 100 bp equals 1%.
================================================================================
Operating NII of $2.29 billion in the 1999 third quarter and $6.88 billion in
the 1999 nine months increased 2% from both the 1998 comparable periods. The
increases were primarily due to higher average managed interest-earning assets,
particularly domestic consumer loans (notably auto financings), and domestic
commercial loans. These increases were partially offset by a decline in the
average foreign commercial loan portfolio, as Chase reduced its exposure to
emerging markets over the past twelve months.
The net yield on a managed basis was 3.58% for the 1999 third quarter, stable
with the 1998 third quarter. For the nine months of 1999, it was 3.59%, a five
basis point decline from the net yield for the nine months of 1998. A slight
improvement in commercial loan spreads was offset by a decline in interest- free
balances. As a result of decreases in both the volume and rate earned on
interest-free funds, interest-free funds contributed 59 basis points to the net
yield in the 1999 third quarter, compared to 83 basis points in the 1998 third
quarter, and contributed 61 basis points to the net yield in the nine months of
1999, compared to 83 basis points in the nine months of 1998.
TRUST, CUSTODY AND INVESTMENT MANAGEMENT FEES
Trust, custody and investment management fees continued their strong performance
in the 1999 third quarter and nine months by increasing 15% and 18% over the
same periods in 1998. These favorable results were largely attributable to
portfolio acquisitions of custody and corporate trust businesses in late 1998
and internally generated growth in investor services and structured finance
activities.
CREDIT CARD REVENUE
The following table provides a reconciliation between reported and operating
credit card revenue. Operating credit card revenue excludes the impact of credit
card securitizations.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
----------------------------- ------------------------------
1999 1998 1999 1998
(in millions) ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reported Credit Card Revenue $ 441 $ 381 $ 1,258 $ 1,046
Less Impact of Credit Card Securitizations (86) (69) (227) (222)
--------- ------- ---------- ---------
Operating Credit Card Revenue $ 355 $ 312 $ 1,031 $ 824
========= ======= ========== =========
</TABLE>
================================================================================
-22-
<PAGE> 23
Reported credit card revenue rose $60 million, or 16%, in the 1999 third quarter
and for the 1999 nine months, revenue increased $212 million, or 20%. These
increases were the result of higher late charges and increased credit card
customer purchase volume.
FEES FOR OTHER FINANCIAL SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
--------------------------- -----------------------------
1999 1998 1999 1998
(in millions) ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 104 $ 92 $ 289 $ 275
Fees in Lieu of Compensating Balances 106 85 287 256
Mortgage Servicing Fees 96 43 238 149
Commissions on Letters of Credit and Acceptances 69 72 207 218
Brokerage and Investment Services 43 35 136 102
Insurance Fees (a) 44 40 124 103
Loan Commitment Fees 44 31 111 101
Other Fees 131 124 385 337
--------- ------- ---------- ---------
Total $ 637 $ 522 $ 1,777 $ 1,541
========= ======= ========== =========
</TABLE>
- --------------------------------------------------------------------------------
(a) Insurance amounts exclude certain insurance fees related to credit cards
and mortgage products, which are included in those revenue captions.
================================================================================
SERVICE CHARGES ON DEPOSITS increased 13% for the third quarter 1999, due to
higher fees charged on overdrafts. FEES IN LIEU OF COMPENSATING BALANCES
increased 25% for the third quarter 1999, due to an increase in the fee
structure and customer volume. MORTGAGE SERVICING FEES increased by 123% and 60%
for the third quarter and nine months of 1999, respectively, due to a larger
servicing balance. The servicing portfolio increased 58% from prior year levels
due to higher origination volume and an acquisition of mortgage servicing
rights. BROKERAGE AND INVESTMENT SERVICES rose $8 million in the third quarter
and $34 million in the nine months, due to a significant increase in customer
activity through Brown & Company, Chase's discount brokerage firm. In the past
year, Brown & Company has tripled its average trades per day to approximately
35,000, two-thirds of which are now on-line. HIGHER INSURANCE FEES in both the
1999 third quarter and nine months reflected increased business volume, a direct
result of increased marketing. LOAN COMMITMENT FEES increased 42% for the third
quarter of 1999, due to increased volume in investment banking activity. OTHER
FEES rose in both the third quarter and for the nine months of 1999 due to ATM
fees charged to non-Chase customers, new cash management products and higher
business volume across a number of products.
OTHER REVENUE
================================================================================
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
-------------------------- ----------------------
1999 1998 1999 1998
(in millions) ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Residential Mortgage Origination/Sales Activities $ 95 $ 105 $ 275 $ 241
All Other Revenue 59 25 235 218
--------- -------- ------- --------
Operating Other Revenue 154 130 510 459
Gains on Sales of Non-strategic Assets -- -- 166 --
Other Revenue - Credit Card Securitizations 8 7 20 7
--------- -------- ------- --------
Reported Other Revenue $ 162 $ 137 $ 696 $ 466
========= ======== ======= ========
</TABLE>
================================================================================
Operating other revenue increased 18% for the third quarter of 1999 (over the
same period in 1998), due to improved results from the Octagon Credit Investment
Fund and a gain on the sale of upstate New York branches. Partially offsetting
these increases were lower revenue from residential mortgage activities (which
includes origination and sale of loans and selective disposition of mortgage
servicing rights) as a result of higher interest rates during the quarter and a
gain in the 1998 third quarter from the sale of a foreign operation.
The 1999 nine months included gains from the sales of student loans, higher
revenue from residential mortgage activities, a reflection of the favorable
interest-rate environment in early 1999, as well as improved results from the
Octagon Credit Investment Fund, which was established late in the 1998 first
quarter.
The 1999 nine month reported results included two special gains: $95 million
from the sale of One New York Plaza and $71 million from the sale of branches in
Beaumont, Texas.
-23-
<PAGE> 24
NONINTEREST EXPENSE
Operating noninterest expense increased 14% and 12% for the third quarter and
first nine months of 1999. Both increases were driven primarily by incentive
costs tied to higher market sensitive revenues and ongoing technology-related
investments. Chase continues to manage its operating noninterest expense to
support its revenue growth.
================================================================================
<TABLE>
<CAPTION>
(in millions) THIRD QUARTER NINE MONTHS
----------------------------- ----------------------------
1999 1998 1999 1998
----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Salaries $ 1,417 $ 1,168 $ 4,217 $ 3,692
Employee Benefits 238 221 731 660
Occupancy Expense 218 198 642 578
Equipment Expense 255 219 737 640
Other Expense 847 808 2,553 2,372
---------- --------- ---------- ---------
Operating Noninterest Expense 2,975 2,614 8,880 7,942
Special Contribution to the Foundation (a) -- -- 100 --
Restructuring Costs -- -- -- 529
Accelerated Vesting of Stock-Based Incentive Awards -- 37 -- 37
Foreclosed Property Expense (b) 6 (4) 14 2
---------- --------- ---------- ---------
Reported Noninterest Expense $ 2,981 $ 2,647 $ 8,994 $ 8,510
========== ========= ========== =========
Efficiency Ratio (c) 57% 65% 56% 59%
Operating Efficiency Ratio (c) (d) 55% 60% 53% 55%
</TABLE>
- --------------------------------------------------------------------------------
(a) Represents a $100 million special contribution to The Chase Manhattan
Foundation in the 1999 second quarter.
(b) Included within Other Expense on the Consolidated Statement of Income. On
an operating basis, these expenses are reflected in Credit Costs.
(c) Excludes restructuring costs, foreclosed property expense, costs
associated with the REIT and special items.
(d) Excludes the impact of credit card securitizations.
================================================================================
The increase in salaries and employee benefits for the 1999 third quarter and
nine months was due to higher incentive costs, mainly driven by higher
market-sensitive revenue. Also contributing to the increase was the net addition
of almost 1,700 full-time equivalent employees as a result of acquisitions (in
the mortgage, credit card, and custody and fiduciary services businesses) and
growth in certain businesses.
================================================================================
<TABLE>
<CAPTION>
FULL-TIME EQUIVALENT EMPLOYEES SEPTEMBER 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Domestic Offices 61,665 60,538
Foreign Offices 11,353 10,806
-------- -------
Total Full-Time Equivalent Employees 73,018 71,344
======== =======
</TABLE>
================================================================================
OCCUPANCY AND EQUIPMENT EXPENSE
Occupancy expense increased $20 million in the 1999 third quarter and $64
million during the first nine months of 1999 when compared with same periods in
1998. The increases were primarily due to higher rental costs resulting from
business expansions and acquisitions occurring in late 1998 and during 1999. The
higher level of equipment expense during the 1999 third quarter and nine months
was due to the increase in depreciation expense from the capitalization of costs
related to more advanced hardware systems across all businesses. The increase
was also related to higher rental costs for Year 2000 compliant computer
equipment. For a further discussion of Year 2000 efforts, see Operating Risk
Management section on page 34.
-24-
<PAGE> 25
OTHER EXPENSE
================================================================================
<TABLE>
<CAPTION>
(in millions) THIRD QUARTER NINE MONTHS
----------------------------- ----------------------------
1999 1998 1999 1998
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Professional Services $ 170 $ 180 $ 510 $ 483
Marketing Expense 128 108 356 306
Telecommunications 96 90 284 258
Amortization of Intangibles 70 63 219 188
Travel and Entertainment 54 58 163 177
Minority Interest (a) 12 12 37 36
All Other 317 297 984 924
--------- --------- ---------- ---------
Total Operating Other Noninterest Expense 847 808 2,553 2,372
Foreclosed Property Expense 6 (4) 14 2
Special Contribution to the Foundation (b) -- -- 100 --
--------- --------- ---------- ---------
Total Reported Other Noninterest Expense $ 853 $ 804 $ 2,667 $ 2,374
========= ========= ========== =========
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes REIT minority interest expense of $11 million in each quarter.
(b) Represents a $100 million special contribution to The Chase Manhattan
Foundation.
================================================================================
OPERATING OTHER EXPENSE for the 1999 third quarter and nine months increased $39
million and $181 million, respectively, when compared with the third quarter and
nine months of 1998. PROFESSIONAL SERVICES COSTS for the first nine months
reflect a higher level of contract computer professionals associated with the
Year 2000 efforts. The increase in MARKETING EXPENSE was due to higher costs at
Chase Cardmember Services. Additionally, costs incurred for the Chase brand
campaign and sponsorship of various events also increased marketing expenses.
The rise in TELECOMMUNICATIONS COSTS primarily reflects both installation and
usage stemming from the growth in business volume at all of Chase's major
franchises. The purchase of a global custody business during the fourth quarter
1998 contributed to the increase in the AMORTIZATION OF INTANGIBLES. For the
1999 third quarter and first nine months, ALL OTHER EXPENSE increased $20
million and $60 million, respectively, when compared to the same periods of
1998, reflecting growth in business volume at Chase Cardmember Services and
the global custody acquisition.
RESTRUCTURING COSTS
For a discussion of Chase's restructuring costs, see Note Four on page 8 of this
Form 10-Q.
CREDIT COSTS
Credit costs include provision for loan losses, credit costs associated with
credit card securitizations and foreclosed property expense.
================================================================================
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
----------------------------- ------------------------------
(in millions) 1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Provision for Loan Losses $ 398 $ 272 $ 1,167 $ 932
Credit Costs Associated with Credit Card Securitizations 238 298 753 864
Foreclosed Property Expense (a) 6 (4) 14 2
-------- ---------- ---------- ---------
Operating Credit Costs (b) $ 642 $ 566 $ 1,934 $ 1,798
======== ========= ========== =========
</TABLE>
- --------------------------------------------------------------------------------
(a) Included in Other Expense on the Consolidated Statement of Income.
(b) Excludes provision for risk management instrument credit losses of $183
million in the third quarter of 1998 and $205 million for the nine months
of 1998, which are netted against trading revenue. Prior periods have been
restated.
================================================================================
Credit costs in 1999 increased from the respective 1998 levels, primarily due to
higher credit losses and lower recoveries in the domestic commercial loan
portfolio.
INCOME TAXES
Chase recognized income tax expense of $625 million in the third quarter of 1999
compared with $462 million in the third quarter of 1998. The effective tax rate
for each period was 34.5% and 35.6%, respectively. For the nine months, Chase
recorded income tax expense of $2.04 billion in 1999, compared with $1.52
billion in 1998, at an effective tax rate of 35.2% and 36.5%, respectively.
-25-
<PAGE> 26
- --------------------------------------------------------------------------------
CREDIT RISK MANAGEMENT
- --------------------------------------------------------------------------------
The following discussion of Chase's credit risk management focuses primarily on
developments in 1999 and should be read in conjunction with pages 29-35 and
50-51 of Chase's 1998 Annual Report.
The following table presents Chase's credit-related information for the dates
indicated.
================================================================================
<TABLE>
<CAPTION>
PAST DUE 90 DAYS & OVER
CREDIT-RELATED ASSETS NONPERFORMING ASSETS AND STILL ACCRUING
--------------------- -------------------- ---------------------------
SEPTEMBER 30, Dec 31, SEPTEMBER 30, Dec 31, SEPTEMBER 30, Dec 31,
(in millions) 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSUMER:
Domestic Consumer:
1-4 Family Residential Mortgages $ 42,134 $ 41,831 $ 308 $ 313 $ 2 $ 3
Credit Card - Reported 14,246 14,229 -- -- 252 302
Credit Card Securitizations (a) 18,028 18,033 -- -- 324 379
-------- -------- -------- -------- -------- --------
Credit Card - Managed 32,274 32,262 -- -- 576 681
Auto Financings 18,429 16,456 73 50 3 20
Other Consumer 6,536 8,375 5 6 57 97
-------- -------- -------- -------- -------- --------
Total Domestic Consumer 99,373 98,924 386 369 638 801
Foreign Consumer 2,822 2,939 30 23 11 10
-------- -------- -------- -------- -------- --------
TOTAL CONSUMER 102,195 101,863 416 392 649 811
-------- -------- -------- -------- -------- --------
COMMERCIAL:
Domestic Commercial:
Commercial and Industrial 47,151 43,123 435 331 29 42
Commercial Real Estate 3,363 3,984 50 41 5 1
Financial Institutions 4,843 6,583 23 1 -- --
-------- -------- -------- -------- -------- --------
Total Domestic Commercial 55,357 53,690 508 373 34 43
Foreign Commercial:
Commercial and Industrial 25,565 25,532 884 603 12 7
Commercial Real Estate 203 367 -- -- -- --
Financial Institutions 4,352 4,537 23 22 20 24
Foreign Governments 3,814 4,798 43 50 -- --
-------- -------- -------- -------- -------- --------
Total Foreign Commercial 33,934 35,234 950 675 32 31
Derivative and FX Contracts 31,408 33,255 36 50 -- --
-------- -------- -------- -------- -------- --------
TOTAL COMMERCIAL CREDIT-RELATED 120,699 122,179 1,494 1,098 66 74
-------- -------- -------- -------- -------- --------
Total Managed Credit-Related $ 222,894 $ 224,042 1,910 1,490 $ 715 $ 885
======== ======== -------- -------- ======== ========
Assets Acquired as Loan Satisfactions 105 116
-------- --------
TOTAL NONPERFORMING ASSETS $ 2,015 $ 1,606
======== ========
</TABLE>
================================================================================
<TABLE>
<CAPTION>
NET CHARGE-OFFS
----------------------------------------------------
Third Quarter Nine Months
---------------------- ----------------------
(in millions) 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
CONSUMER:
Domestic Consumer:
1-4 Family Residential Mortgages $ 9 $ 6 $ 19 $ 22
Credit Card - Reported 207 187 641 550
Credit Card Securitizations (a) 238 298 753 864
------- ------- ------- -------
Credit Card-Managed 445 485 1,394 1,414
Auto Financings 19 17 57 58
Other Consumer 49 39 144 123
------- ------- ------- -------
Total Domestic Consumer 522 547 1,614 1,617
Foreign Consumer 9 6 27 14
------- ------- ------- -------
TOTAL CONSUMER 531 553 1,641 1,631
------- ------- ------- -------
COMMERCIAL:
Domestic Commercial:
Commercial and Industrial 57 (58) 106 (75)
Commercial Real Estate (2) (3) (13) (9)
Financial Institutions 11 (1) 39 (2)
------- ------- ------- -------
Total Domestic Commercial 66 (62) 132 (86)
Foreign Commercial:
Commercial and Industrial 29 140 139 304
Commercial Real Estate -- -- -- --
Financial Institutions 7 14 5 24
Foreign Governments -- -- (1) (2)
------- ------- ------- -------
Total Foreign Commercial 36 154 143 326
------- ------- ------- -------
TOTAL COMMERCIAL 102 92 275 240
------- ------- ------- -------
TOTAL MANAGED LOANS (b) $ 633 $ 645 $ 1,916 $ 1,871
======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
(a) Represents the portion of Chase's credit card receivables that have been
securitized. (b) Excludes charge-offs for risk management instruments, which are
netted against trading revenues.
-26-
<PAGE> 27
Chase's managed credit related assets totaled $223 billion at September 30,
1999, a slight decrease of $1 billion or 1% during the nine months of 1999
reflecting lower derivatives and foreign exchange receivables and foreign
commercial loans. Chase's nonperforming assets at September 30, 1999 increased
$409 million, or 25%, from the 1998 year-end level. This increase occurred
primarily in the foreign commercial loan portfolio, due to one customer.
RETAINED NET CHARGE-OFFS increased $48 million during the 1999 third quarter and
$156 million for the nine months of 1999, when compared to the same periods in
1998. MANAGED NET CHARGE-OFFS decreased in the 1999 third quarter by $12 million
and increased by $45 million for the first nine months of 1999, as compared to
1998. The increase in retained net charge-offs was due primarily to higher
charge-off levels in the retained credit card portfolio and lower recoveries on
the domestic commercial portfolio. On a managed basis, these increases were
offset by lower charge-offs on securitized credit cards.
Management expects that credit costs, on a managed basis, will remain relatively
stable over the remainder of 1999 and for the full year 1999 will be of a
similar magnitude to credit costs incurred in 1998. For the consumer portfolio,
management expects net charge-off rates will be slightly lower than in 1998. The
commercial charge-off rate varies more than the consumer charge-off rate and,
over time, Chase expects annual commercial net charge-offs to be in the range of
40-60 basis points.
AVERAGE ANNUAL NET CHARGE-OFF RATES
================================================================================
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
------------------------------------ -----------------------------
1999 1998 1999 1998
--------------- --------------- -------------- ---------
<S> <C> <C> <C> <C>
CONSUMER LOANS:
1-4 Family Residential Mortgages .08% .06% 0.6% .07%
Credit Card-Managed (a) 5.53 6.19 5.81 5.94
Auto Financings .41 .49 .42 .56
Other Consumer (b) 2.25 1.43 2.05 1.62
Total Consumer Loans 2.07 2.23 2.13 2.23
COMMERCIAL LOANS:
Total Commercial Loans .46 .43 .42 .36
Total Managed Loans 1.33 1.40 1.34 1.34
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes domestic and foreign credit card activity.
(b) Includes foreign loans.
================================================================================
CONSUMER LOAN PORTFOLIO
Residential Mortgage Loans: Residential mortgage loans outstanding remained
stable at September 30, 1999, when compared with year-end balances, while the
level of nonperforming domestic residential mortgage loans decreased by 2%. The
loss rate of .08% for the 1999 third quarter was up slightly from the previous
year. However, for the nine months of 1999, net charge-offs decreased by $3
million when compared to the same period in 1998. This portfolio's asset quality
continues to be strong.
Credit Card Loans: Chase analyzes its credit card portfolio on a managed basis,
which includes credit card receivables on the balance sheet as well as credit
card receivables that have been securitized.
Average managed credit card receivables increased slightly for the three and
nine month periods ended September 30, 1999, compared with the same periods last
year. The decrease in the net charge-off rate for the third quarter of 1999 and
the first nine months was a result of lower customer bankruptcy levels.
Management has been targeting net charge-offs, as a percentage of average credit
card receivables, to range from 5 1/2 - 6% for the 1999 full year and
anticipates continuing improvement in credit quality in the credit card
portfolio into next year.
MANAGED CREDIT CARD PORTFOLIO (a)
================================================================================
<TABLE>
<CAPTION>
As of or for the As of or for the
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(in millions, except ratios) 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Credit Card Receivables $32,869 $31,607 $32,510 $31,991
Past Due 90 Days or More and Accruing $ 591 $ 675 $ 591 $ 675
As a Percentage of Average Credit Card Receivables 1.80% 2.14% 1.82% 2.11%
Net Charge-offs $ 454 $ 489 $ 1,416 $ 1,425
As a Percentage of Average Credit Card Receivables 5.53% 6.19% 5.81% 5.94%
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes domestic and foreign credit card activity.
================================================================================
-27-
<PAGE> 28
Auto Financings: Auto financings increased 12%, reflecting continued strong
customer demand due to favorable pricing programs. The charge-off rates of .41%
for the third quarter and .42% for the nine months of 1999 are indicative of the
selective approach to asset origination.
Other Consumer: Other domestic consumer loans decreased 22% from the year-end
level due to the sale of student loans during the first half of 1999. The
increase in the net charge-off rates in 1999 reflects the sale of
government-guaranteed student loans and higher losses in certain new and
existing product lines.
COMMERCIAL PORTFOLIO
The DOMESTIC COMMERCIAL portfolio increased $1.7 billion from the 1998 year-end.
Net charge-offs were $66 million during the 1999 third quarter and $132 million
for the nine months of 1999, compared with net recoveries in the same prior year
periods. Net charge-offs for the portfolio remain at a low level, indicative
of the portfolio's diversification and strong credit quality.
The FOREIGN COMMERCIAL portfolio totaled $33.9 billion at September 30, 1999 and
outstandings declined slightly from 1998 year-end levels as Chase continued to
reduce its exposure to emerging markets. Nonperforming assets increased $275
million due primarily to a single foreign credit. Net charge-off levels for the
1999 third quarter and nine months decreased in comparison with the prior year
by $118 million, or 77%, and $183 million, or 56%, respectively, due to the
adverse market conditions in the third quarter of 1998.
COUNTRY EXPOSURE
The following table presents Chase's country exposure to Asia and Latin America.
Country exposure is based on the Federal Financial Institutions Examination
Council ("FFIEC") guidelines governing the determination of cross-border risk.
For a further discussion of Chase's country exposure, see pages 33-34 of Chase's
1998 Annual Report.
SELECTED COUNTRY EXPOSURE (a)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999 At Dec 31, 1998
----------------------------------------------------------------------------------------------------
GROSS NET COUNTRY RELATED Country
LENDING- TRADING- LOCAL LESS CROSS-BORDER RESALE Net Related
(in billions) RELATED RELATED COUNTRY LOCAL EXPOSURE AGREEMENTS Cross-Border Resale
(b) (c) ASSETS FUNDING (a) (a) Exposure Agreements
---------- ---------- ------ ------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LATIN AMERICA
- -------------
Brazil $ 1.1 $ 0.3 $ 1.0 $ (0.6) $ 1.8 $ 1.2 $ 2.3 $ 0.9
Argentina 1.9 0.2 0.3 (0.3) 2.1 0.7 2.3 0.5
Mexico 1.0 0.7 0.4 (0.4) 1.7 0.4 1.8 0.4
Chile 0.8 -- 0.1 (0.1) 0.8 -- 0.9 --
Colombia 0.7 -- -- -- 0.7 -- 0.8 --
Venezuela 0.3 -- -- -- 0.3 0.2 0.4 --
All Other Latin America (d) 0.4 0.5 0.7 (0.7) 0.9 -- 1.0 --
-------- -------- ------- --------- --------- --------- --------- ---------
Total Latin America $ 6.2 $ 1.7 $ 2.5 $ (2.1) $ 8.3 $ 2.5 $ 9.5 $ 1.8
======== ======== ======= ========= ========= ========= ========= =========
ASIAN IMF COUNTRIES
- --------------------
South Korea $ 0.6 $ 0.3 $ 0.9 $ (0.4) $ 1.4 $ -- $ 2.4 $ --
Indonesia 0.9 0.1 0.1 (0.1) 1.0 -- 1.2 --
Thailand 0.2 0.1 0.8 (0.4) 0.7 -- 0.9 --
-------- -------- ------- -------- --------- --------- --------- ---------
Subtotal 1.7 0.5 1.8 (0.9) 3.1 -- 4.5 --
OTHER EMERGING ASIA
- --------------------
Hong Kong 0.6 0.1 4.9 (4.9) 0.7 -- 0.8 --
Singapore 0.7 0.1 0.1 (0.1) 0.8 -- 0.8 --
Philippines 0.2 0.1 0.2 (0.1) 0.4 0.1 0.6 --
Malaysia 0.2 0.1 0.5 (0.1) 0.7 -- 0.6 --
China 0.3 0.1 0.2 (0.1) 0.5 -- 0.6 --
All Other Asia 0.3 0.1 0.2 (0.2) 0.4 -- 0.5 --
-------- -------- ------- -------- --------- --------- --------- ---------
Total Asia excluding Japan,
Australia and New Zealand $ 4.0 $ 1.1 $ 7.9 $ (6.4) $ 6.6 $ 0.1 $ 8.4 $ --
======== ======== ======= ======== ========= ========= ========= =========
Japan $ 3.0 $ 1.8 $ 2.1 $ (2.1) $ 4.8 $ 1.0 $ 5.2 $ 1.7
Australia 0.6 0.7 2.7 (2.0) 2.0 -- 1.9 --
New Zealand 0.1 0.3 -- -- 0.4 0.1 0.6 --
-------- -------- ------- --------- --------- --------- --------- ---------
Total Japan, Australia
and New Zealand $ 3.7 $ 2.8 $ 4.8 $ (4.1) $ 7.2 $ 1.1 $ 7.7 $ 1.7
======== ======== ======= ======== ========= ========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
(a) Country exposure is based on FFIEC guidelines governing the determination
of cross-border risk. Under FFIEC guidelines, resale agreements are
reported by the country of the issuer of the underlying security. Chase,
however, does not consider the cross-border risk of resale agreements to
depend upon the country of the issuer of the underlying security and, as a
result, has presented these amounts separately in the above table.
(b) Includes loans and accrued interest, interest-bearing deposits with banks,
acceptances, other monetary assets, issued letters of credit and undrawn
commitments to extend credit.
(c) Includes cross-border trading debt and equity instruments and the
mark-to-market exposure of foreign exchange and derivative contracts. The
amounts associated with foreign exchange and derivative contracts are
presented after taking into account the impact of legally enforceable
master netting agreements.
(d) Excludes Bermuda and Cayman Islands.
-28-
<PAGE> 29
At September 30, 1999, Chase had approximately $44 million in lending and
trading related exposure to Russia, a decrease of $52 million from December 31,
1998. Chase also had at September 30, 1999 approximately $33 million in resale
agreements with non-Russian counterparties collateralized by non-ruble
denominated Russian debt, a decrease of $54 million during 1999.
Chase reduced its exposure to emerging markets in Asia and Latin America from
year-end (by 20% and 4%, respectively). Total nonperforming assets in Asia
increased by $292 million from 1998 year-end to $793 million at September 30,
1999. Asian commercial loan net charge-offs for the 1999 third quarter and nine
months were $22 million and $152 million, respectively, compared with $29
million and $221 million, respectively, in the same 1998 periods. There were net
recoveries of $1 million and $3 million for Latin American commercial loans
during the third quarter and first nine months of 1999, respectively.
Management believes that Chase's current levels of cross-border exposure reflect
appropriate levels of business, market, credit and capital risk in light of
Chase's cross-border business activities and, accordingly, management currently
does not expect there will be significant changes in Chase's cross-border
exposures over the balance of 1999 and into early next year.
DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS
For a discussion of the derivative and foreign exchange contracts utilized in
connection with trading and ALM activities, see pages 34-35 and Notes One and
Nineteen of Chase's 1998 Annual Report. Counterparties in derivatives and
foreign exchange are primarily investment grade financial institutions, most of
which are dealers in these products. The following table provides the remaining
maturities of derivative and foreign exchange contracts outstanding at September
30, 1999 and December 31, 1998.
================================================================================
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999 At December 31, 1998
------------------------------------------------ ----------------------------------------------------
INTEREST FOREIGN EQUITY, Interest Foreign Equity,
RATE EXCHANGE COMMODITY AND Rate Exchange Commodity and
CONTRACTS CONTRACTS OTHER CONTRACTS TOTAL Contracts Contracts Other Contracts Total
--------- --------- --------------- ----- --------- --------- --------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than 1 year 16% 92% 32% 35% 15% 93% 38% 37%
1 to 5 years 47 6 65 38 48 5 59 37
Over 5 years 37 2 3 27 37 2 3 26
--- --- --- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100% 100% 100%
=== === === === === === === ===
</TABLE>
================================================================================
At September 30, 1999, nonperforming derivative contracts were $36 million,
compared with $50 million at December 31, 1998.
-29-
<PAGE> 30
ALLOWANCES FOR CREDIT LOSSES
The following discussion should be read in conjunction with page 35 and Notes
One and Five of Chase's 1998 Annual Report.
================================================================================
<TABLE>
<CAPTION>
(in millions, except ratios)
SEPTEMBER 30, September 30,
Allowances for Credit Losses: (a) 1999 1998
------- -------
Loans $ 3,555 $ 3,554
Lending-Related Commitments 170 170
- ----------------------------------------------------------------------------------------------------------------
THIRD QUARTER NINE MONTHS
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Allowance for Loan Losses at Beginning of Period $ 3,554 $ 3,629 $ 3,552 $ 3,624
Provision for Loan Losses 398 272 1,167 932
Charge-Offs (452) (466) (1,353) (1,300)
Recoveries 57 119 190 293
------- ------- ------- -------
Net Charge-Offs (395) (347) (1,163) (1,007)
Other (2) -- (1) 5
------- ------- ------- -------
Allowance for Loan Losses at End of Period $ 3,555 $ 3,554 $ 3,555 $ 3,554
======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses to:
Nonperforming Loans 190% 257%
Loans at Period-End 2.05 2.13
Average Loans (Nine months) 2.05 2.11
</TABLE>
- --------------------------------------------------------------------------------
(a) During the second quarter of 1999, Chase reclassified the Allowance for
Credit Losses on Risk Management Instruments to be included as part of the
valuation of its Trading Assets: Risk Management Instruments.
================================================================================
Chase deems its allowances for credit losses at September 30, 1999 to be
adequate. Estimating losses is inherently uncertain and depends on many factors,
including general macroeconomic and political conditions, rating migration,
structural changes within industries which alter competitive positions, event
risk, unexpected correlations within the portfolio, and other external factors
such as legal and regulatory requirements. Chase periodically reviews such
factors and reassesses the adequacy of the allowances for credit losses.
-30-
<PAGE> 31
- --------------------------------------------------------------------------------
MARKET RISK MANAGEMENT
- --------------------------------------------------------------------------------
The following discussion focuses primarily on developments during 1999 and
should be read in conjunction with pages 36-39 and Notes One and Nineteen of
Chase's 1998 Annual Report.
The table that follows provides information on Chase's value-at-risk on its
trading and asset/liability management ("ALM") portfolios.
================================================================================
<TABLE>
<CAPTION>
Trading Portfolio Market Risk-Related ALM Activities
--------------------------------------------- --------------------------------------------
Twelve-Month Period Twelve-Month Period
Ended September 30, 1999 At Ended September 30, 1999 At
----------------------------------- -------------------------------------
Sept 30, Sept 30,
Average Minimum Maximum 1999 Average Minimum Maximum 1999
(in millions) VAR VAR VAR VAR VAR VAR VAR VAR
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate $ 20.5 $ 10.7 $ 36.5 $ 21.3 $ 77.4 $ 59.9 $ 94.0 $ 87.6
Foreign Exchange 7.5 2.2 21.3 5.9 -- -- -- --
Commodities 3.2 1.9 7.6 7.6 -- -- -- --
Equities 5.8 2.1 10.1 5.2 -- -- -- --
Hedge Fund Investments 4.4 4.1 4.6 4.6 12.7 9.9 15.4 10.2
Less:
Portfolio Diversification (17.5) NM NM (18.0) (12.3) NM NM (11.4)
------- ----------- --------- ------- ------- --------- ---------- -------
Total VAR $ 23.9 $ 12.3 $ 41.8 $ 26.6 $ 77.8 $ 59.9 $ 94.0 $ 86.4
======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Portfolio
---------------------------------------------------------------------------------
Average VAR
Twelve-Month Period Ended VAR at
------------------------------------- ------------------------------------
Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Trading Portfolio $ 23.9 $ 27.3 $ 26.6 $ 24.7
Market Risk-Related ALM Activities 77.8 48.6 86.4 59.1
Less: Portfolio Diversification (20.2) (21.9) (22.5) (33.3)
------------- ----------- ------------ -----------
Aggregate VAR $ 81.5 $ 54.0 $ 90.5 $ 50.5
============= =========== ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
NM: Because the minimum and maximum VARs may occur on different days for
different risk components, it is not meaningful to compute a portfolio
diversification effect.
Average aggregate VAR (VAR for both trading and ALM activities) for the
twelve-month period ended September 30, 1999 was $81.5 million and at September
30, 1999 was $90.5 million. Chase's aggregate average and period-end VARs are
less than the sum of the respective trading and ALM VARs shown in the above
table (by $20.2 million and $22.5 million, respectively) due to risk offsets,
resulting from portfolio diversification which occurs across the trading and ALM
portfolios. The increase in the aggregate VAR levels through September 30, 1999
were primarily due to the increase in interest rate volatility over the past
twelve months, and the increase in net risk resulting from the Mellon Mortgage
Servicing Portfolio acquisition.
Chase conducts daily VAR backtesting for both regulatory compliance with the
Basle Committee on Banking Supervision market risk capital rules and internal
evaluation of VAR against trading revenues. For trading activities, there were
no days during the twelve months ended September 30, 1999 in which a daily
trading loss exceeded that day's VAR. This compares to an expected number of
approximately 3 days under Chase's VAR model.
The following chart contains a histogram of daily market risk-related revenue,
which is defined as the daily change in value of mark-to-market trading
portfolios plus any trading-related net interest income or other revenue. Chase
posted positive daily market risk-related revenue for 244 out of 259 business
trading days, with 61 business days exceeding positive $20 million. Chase
incurred no daily trading losses in excess of $20 million over the past twelve
months.
-31-
<PAGE> 32
[Graphic of Daily Market Risk-Related Revenue - See Appendix I]
ASSET/LIABILITY MANAGEMENT
MEASURING INTEREST RATE SENSITIVITY: Oversight of Chase's ALM interest rate risk
and Market Risk Management functions was consolidated under the Market Risk
Committee at the beginning of 1999. At that time, Chase began to extend the
market risk procedures and measurements utilized for its trading and investment
portfolios to its ALM activities.
In order to improve its management of interest rate exposure and as part of the
convergence of the ALM and market risk management processes, Chase implemented
during the first quarter of 1999 a new measure to estimate the potential change
in value to Chase's ALM portfolio as a result of changes in interest rates. This
new measure is used in conjunction with existing earnings simulation measures.
The new measure, which is called "Basis Point Value" (BPV), quantifies the
change in the economic value of Chase's ALM portfolio (non-trading on- and
off-balance sheet positions) that would result from a 1 basis point change in
interest rates. This same measure is also used to quantify the economic value
sensitivity of the ALM positions to basis risk.
At September 30, 1999, Chase had a BPV value of $4.1 million (pre-tax),
indicating that the economic value of Chase's ALM positions would decline $4.1
million for every 1 basis point increase in interest rates, assuming all rates
moved in parallel together. This compares with a BPV of $6.4 million at December
31, 1998. The BPV measure is generally "symmetrical"; that is, a 1 basis point
decrease in interest rates at September 30, 1999 would result in a $4.1 million
(pre-tax) increase in economic value. The BPV measure includes exposure to U.S.
dollar interest rates as well as exposure to non-U.S. dollar interest rates in
currency markets in which Chase does business. Since U.S. dollar interest rates
and non-U.S. dollar interest rates may not move in tandem, the reported BPV
value may not represent the actual change in economic value of Chases' ALM
portfolio.
At September 30, 1999, based on Chase's simulation models and applying immediate
increases to various market interest rates (100 bp increase for US
dollar-denominated positions and a range from 100 bp to 1500 bp increases for
non-US dollar-denominated positions), earnings at risk over the next twelve
months are estimated to be approximately 3% of projected 1999 net income. During
1998, Chase's earnings at risk to an immediate rise in interest rates averaged
less than 4% of net income for 1998. The hypothetical rate shocks are used to
calculate risk that Chase believes to be reasonably possible of occurring in the
near term, but these scenarios do not necessarily represent management's current
view of future market interest rate developments.
-32-
<PAGE> 33
Impact of ALM Derivative Activity:
The following table reflects the deferred gains/losses on closed derivative
contracts and unrecognized gains/losses on open derivative contracts utilized in
Chase's ALM activities.
================================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
(in millions) 1999 1998 Change
------------ ------------- ------------
<S> <C> <C> <C>
ALM Derivative Contracts:
Net Deferred Gains $ 403 $ 402 $ 1
Net Unrecognized Gains (Losses) (a) (827) 110 (937)
------------- ------------- -----------
Net ALM Derivative Gains (Losses) $ (424) $ 512 $ (936)
============= ============= ===========
</TABLE>
(a) These net unrecognized gains/(losses) do not include the net
unfavorable/(favorable) impact from the assets/liabilities being hedged by these
derivative contracts.
================================================================================
LIQUIDITY RISK MANAGEMENT
- --------------------------------------------------------------------------------
The following liquidity and capital discussion should be read in conjunction
with the Liquidity Risk Management section on pages 40-41 and Note Eighteen of
Chase's 1998 Annual Report.
LIQUIDITY
During the nine months of 1999, Chase issued $3.4 billion of long-term debt and
capital securities of subsidiaries, more than offsetting $2.1 billion of
long-term debt that matured and $0.5 billion that was redeemed.
For a discussion of liquidity risk related to Year 2000, see the Operating Risk
Management section of this Form 10-Q on pages 35 and 36.
CAPITAL
Chase's capital levels at September 30, 1999 remained strong, with capital
ratios well in excess of regulatory guidelines. At September 30, 1999, the Tier
1 and Total Capital ratios were 8.2% and 11.8%, respectively, and the Tier 1
leverage ratio was 6.7%.
During the nine months of 1999, Chase's balance sheet assets increased by only
1% as a result of continued focus on SVA. Management believes a reasonable
long-term growth rate for balance sheet assets is approximately 6% - 7%.
The following table shows the impact Chase's disciplined approach to balance
sheet management has had on the growth in risk-weighted assets.
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
---------------------------------------------------
1999 1998 1997 1996
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
($ in billions)
Risk-Weighted Assets $ 298 $ 289 $ 286 $ 249
Growth Rate 3% 1% 15%
</TABLE>
================================================================================
At September 30, 1999, the Tier 1 capital ratio was within management's intended
long-term target range of 8% to 8.25%, notwithstanding net equity purchases
during the third quarter of approximately $780 million and for the nine months
of approximately $2.6 billion, and a slight increase in risk-weighted assets.
Capital generated in excess of this target ratio will be used to purchase Chase
common stock or for future reinvestment and acquisition opportunities. As a
result of the pending Hambrecht & Quist acquisition, management anticipates that
it will be reducing the pace of its stock repurchases for the remainder of the
year.
-33-
<PAGE> 34
The following table shows the sources and uses of Chase's free cash flow for
the periods indicated.
================================================================================
<TABLE>
<CAPTION>
NINE MONTHS FULL YEAR
-----------------------------------------------------
(in billions) 1999 1998 1997
------------------ ---------- ---------
<S> <C> <C> <C>
SOURCES OF FREE CASH FLOW
Operating Earnings Less Dividends $ 2.6 $ 2.7 $ 2.5
Plus: Preferred Stock and Equivalents/Special Items 0.3 (0.5) 1.0
Less: Capital for Internal Growth (0.6) (0.3) (2.6)
------------ ---------- ----------
Total Sources of Free Cash Flow $ 2.3 $ 1.9 $ 0.9
=========== ========= =========
USES OF FREE CASH FLOW
Increases (Decreases) in Capital Ratios $ (0.3) $ 1.2 $ (0.7)
Acquisitions -- 0.8 0.4
Net Repurchases (Issuances) 2.6 (0.1) 1.2
----------- --------- ---------
Total Uses of Free Cash Flow $ 2.3 $ 1.9 $ 0.9
=========== ========= =========
</TABLE>
================================================================================
During the nine months of 1999, $2.3 billion of free cash flow was generated,
more than that generated during the full year 1998 and more than double for the
full year 1997. During 1999, less capital was needed for internal growth (as was
the case in 1997), or to bolster capital ratios (as was the case in 1998). The
excess cash in 1999 was primarily used for stock repurchases.
In the first quarter of 1999, Chase raised the cash dividend on its common stock
to $.41 per share from $.36 per share. Chase has over the past several years
been paying a common stock dividend that has generally been equal to
approximately 25% to 35% of Chase's operating net income, less preferred stock
dividends. Chase's future dividend policies will be determined by its Board of
Directors taking into consideration Chase's earnings and financial condition and
applicable governmental regulation and policies.
Under its equity repurchase program, which became effective January 4, 1999,
Chase may repurchase up to $3 billion of its common stock in the open market or
through negotiated transactions, in addition to any amounts that may need to be
purchased to provide for issuances under Chase's dividend reinvestment plan and
its various stock-based employee benefit plans. As of September 30, 1999, Chase
had repurchased approximately net $2.6 billion. Management anticipates that it
will be reducing the pace of its stock repurchases for the remainder of the year
to offset the capital impact of the acquisition of Hambrecht & Quist.
At September 30, 1999, the total capitalization of Chase (the sum of Tier 1 and
Tier 2 capital) was $35.1 billion, an increase of $234 million from December 31,
1998. This increase reflects retained earnings (net income less common and
preferred dividends) generated during the period and new issuance of capital
securities of subsidiaries qualifying as Tier 1 capital, partially offset by
common stock repurchases, the redemption of $100 million of preferred stock and
a net decline in debt issuances qualifying as Tier 2 capital.
- --------------------------------------------------------------------------------
OPERATING RISK MANAGEMENT
- --------------------------------------------------------------------------------
The following discussion of Chase's operating risk management focuses primarily
on developments since December 31, 1998.
Chase, 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. Chase maintains systems of controls that it believes
are reasonably designed to provide senior management and the Board of Directors
with timely and accurate information about the operations of Chase. These
systems have been designed to keep operating risk at appropriate levels in view
of Chase's financial strength, the characteristics of its businesses and the
markets in which it operates, and the competitive and regulatory environment to
which it is subject. However, Chase has suffered losses from operating risk from
time to time as discussed below, and there can be no assurance that Chase will
not suffer such losses in the future.
-34-
<PAGE> 35
Chase has identified some deficiencies in the computerized bond recordkeeping
system in the bond paying agency function within Chase's Capital Markets
Fiduciary Services group. These deficiencies include an overstatement by the
computer system of the amount of outstanding bonds and matured unpresented bonds
and other items. Because of these deficiencies, Chase is currently unable to
confirm through a complete reconciliation of the relevant accounts that the
value of bonds that could potentially be presented for payment does not exceed
the amount of cash on hand for payment of such bonds. Chase has underway a
project to correct the system's deficiencies and to reconcile the affected
accounts. In the third quarter of 1999, in the course of this project, certain
past operating errors in bond administration were discovered, which required a
write-off of an immaterial amount. While management considers it likely that
other write-offs will be taken in the remaining course of the project, it does
not expect them to be material. The staff of the Securities and Exchange
Commission has initiated an inquiry relating to the question of whether, in
connection with this matter, there have been violations of its transfer agency
recordkeeping or reporting regulations.
YEAR 2000: Chase's Year 2000 efforts are discussed on pages 41-42 of Chase's
1998 Annual Report, on pages 32-33 of Chase's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 ("First Quarter 10-Q") and on pages 33-34 of
Chase's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
("Second Quarter 10-Q"). The information below updates Chase's Year 2000
disclosures.
As of September 30, 1999, Chase's computer systems applications currently
in operation have been remediated and tested for Year 2000 compliance. Chase's
information technology teams are now managing systems changes to ensure that
Chase's computer systems applications remain Year 2000 compliant. Chase has
also imposed a "freeze" on technology changes from October 1, 1999 through the
end of January 2000. The freeze is intended to ensure that Chase's technology
environment will be highly stable at year-end.
Due diligence efforts of external Year 2000 risks are continuing. This includes
due diligence on settlement counterparties, business partners (such as
correspondents, sub custodians, and investment advisors), and customers. In
addition, stress testing, on at least a monthly basis, of Chase's
market-sensitive portfolios is being performed. The stress test scenarios
continue to be updated as more information about worldwide Year 2000 readiness
becomes available. Chase continues to evaluate potential Year 2000 impacts upon
its funding capability and has taken actions to incorporate such risks into its
capital and liquidity planning in order to meet anticipated funding needs at
year end.
The results of Chase's due diligence and other assessment efforts are utilized
by Chase to help it manage its Year 2000 business risks. Under the auspices of
Chase's Year 2000 Business Risk Council, contingency plans have been developed,
refined and tested. Approximately 250 different risk scenarios have been
identified across all geographies and Chase businesses, resulting in the
development of approximately 1,400 individual Year 2000 contingency plans. These
plans include identification of possible alternative methods by which to provide
service, alternative locations for operations, increased staff support to
service customers, as well as ways for Chase to maintain critical services in
the event of environmental infrastructure outages.
Chase's Year 2000 program is now focused almost entirely on final preparations
for the event. Year 2000 command centers have been created; problem tracking and
reporting tools designed; key operational and service performance measures
identified for tracking; "wellness checks" of facilities, services, and systems
have been planned; and training of "rapid response teams" is in process. Three
dress rehearsals have been scheduled during the fourth quarter of 1999. The
first dress rehearsal, scheduled for October 15, 1999, tested command center
connectivity and processes. The second dress rehearsal, scheduled for October 29
and 30, 1999, tested Chase's Year 2000 tracking, monitoring and communications
processes. These dress rehearsals were successful in identifying areas for
improved communication and more efficient decision making at the event. The
third dress rehearsal, scheduled for early December 1999, is intended to refine
business status reporting and test back-up command center infrastructure and
processes. The Year 2000 command center structure will become operational in
late December and will continue in place until a stable operating environment is
achieved.
Chase continues to estimate that full year 1999 Year 2000 costs will be
approximately $158 million.
-35-
<PAGE> 36
- --------------------------------------------------------------------------------
SUPERVISION AND REGULATION
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the Supervision and
Regulation section on pages 1-4 of Chase's 1998 Annual Report.
DIVIDENDS
Chase's bank subsidiaries could, without the approval of their relevant banking
regulators, pay dividends to their respective bank holding companies in amounts
up to the limitations imposed upon such banks by regulatory restrictions. These
dividend limitations, in the aggregate, totaled approximately $3.5 billion at
September 30, 1999.
- --------------------------------------------------------------------------------
ACCOUNTING DEVELOPMENTS
- --------------------------------------------------------------------------------
DERIVATIVES
In September 1998, the FASB issued SFAS 133, which establishes accounting and
reporting standards for all derivative instruments, including certain derivative
instruments embedded in other financial instruments (collectively referred to as
derivatives), and for hedging activities. During the second quarter of 1999, the
FASB issued SFAS 137, which delayed the effective date of SFAS 133 for one year,
with early adoption permitted. Chase will, therefore, not be required to adopt
SFAS 133 until calendar year 2001. For a further discussion of the requirements
of SFAS 133, see the Accounting and Reporting Developments section on page 43 of
the 1998 Annual Report.
- --------------------------------------------------------------------------------
OTHER EVENTS
- --------------------------------------------------------------------------------
On September 28, 1999, Chase and Hambrecht & Quist Group announced an agreement
under which Chase would acquire Hambrecht & Quist for $50 per share in cash or
a total consideration of $1.35 billion. The boards of directors of both
companies have approved the agreement and Chase expects the acquisition to be
completed by the end of the year. Revenues and expenses associated with the
acquisition of Hambrecht & Quist will be integrated into Chase's Global Bank
line of business.
-36-
<PAGE> 37
THE CHASE MANHATTAN CORPORATION
FINANCIAL HIGHLIGHTS
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
------------------------------------- ------------------------------------
Over(Under) Over(Under)
1999 1998 3Qtr98 1999 1998 1998
---- ---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
AS REPORTED BASIS
Revenue $ 5,191 $ 4,218 23% $ 15,951 $ 13,596 17%
Noninterest Expense
(excluding Restructuring Costs) 2,981 2,647 13 8,994 7,981 13
Restructuring Costs -- -- -- -- 529 NM
Provision for Loan Losses 398 272 46 1,167 932 25
Net Income 1,187 837 42 3,753 2,636 42
Net Income Per Common Share:
Basic 1.42 .96 48 4.44 3.02 47
Diluted 1.37 .94 46 4.30 2.93 47
Cash Dividends Declared .41 .36 14 1.23 1.08 14
Book Value at Period End 26.01 26.24 (1) 26.01 26.24 (1)
Share Price at Period End 75.38 43.13 75 75.38 43.13 75
Performance Ratios:
Return on Average Common Equity (a) 21.7% 14.9% 680 bp 22.5% 16.3% 620 bp
Return on Average Assets (a) 1.29 .92 37 1.38 .95 43
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING BASIS (b)
Operating Revenue $ 5,429 $ 4,325 26% $ 16,538 $ 14,269 16%
Operating Noninterest Expense 2,975 2,614 14 8,880 7,942 12
Credit Costs (c) 642 566 13 1,934 1,798 8
Operating Earnings 1,187 738 61 3,711 2,870 29
Operating Earnings Per Common Share:
Basic 1.42 .84 69 4.39 3.29 33
Diluted 1.37 .82 67 4.25 3.20 33
Operating Performance Ratios:
Return on Average Common Equity (a) 21.7% 13.1% 860 bp 22.2% 17.8% 440 bp
Return on Average Managed Assets (a) 1.23 .77 46 1.30 .99 31
Common Dividend Payout Ratio 29 42 (1,300) 28 33 (500)
Efficiency Ratio 55 60 (500) 53 55 (200)
Cash Operating Basis:
Cash Operating Earnings (d) $ 1,257 $ 801 57% $ 3,930 $ 3,058 29%
Diluted Net Income Per Common Share 1.46 .89 64 4.50 3.42 32
Shareholder Value Added (SVA) 539 68 693 1,736 936 85
Cash Return on Average Common Equity (a) 23.0% 14.3% 870 bp 23.6% 19.0% 460 bp
Selected Balance Sheet Items at Period End: (e)
Managed Loans $ 191,486 $185,544 3%
Total Managed Assets 389,072 375,422 4
</TABLE>
- --------------------------------------------------------------------------------
(a) Based on annualized amounts.
(b) Excludes the impact of credit card securitizations, restructuring costs and
special items. See Glossary of Terms on page 41.
(c) Includes provision for loan losses, foreclosed property expenses and credit
costs related to the securitized credit card portfolio.
(d) Cash Operating Earnings represent operating earnings excluding the
amortization of goodwill and certain intangibles.
(e) Excludes the impact of credit card securitizations.
bp - Denotes basis points; 100 bp equals 1%
NM - Not meaningful
================================================================================
-37-
<PAGE> 38
THE CHASE MANHATTAN CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEET, INTEREST AND RATES
(TAXABLE-EQUIVALENT INTEREST AND RATES; IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Three months Ended
SEPTEMBER 30, 1999 September 30, 1998
---------------------------------------- -----------------------------------
AVERAGE RATE Average Rate
BALANCE INTEREST (ANNUALIZED) Balance Interest (Annualized)
---------- ---------- ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Deposits with Banks $ 5,134 $ 195 15.09% $ 5,312 $ 150 11.15%
Federal Funds Sold and
Securities Purchased Under
Resale Agreements 32,281 352 4.32% 30,270 517 6.77%
Trading Assets-Debt and Equity
Instruments 26,568 399 5.95% 28,271 604 8.47%
Securities:
Available-for-Sale 51,977 750 5.72% (b) 54,721 845 6.12% (b)
Held-to-Maturity 1,039 17 6.39% 2,176 34 6.26%
Loans 173,246 3,289 7.53% 166,134 3,288 7.86%
---------- -------- ---------- -------
Total Interest-Earning Assets 290,245 5,002 6.84% 286,884 5,438 7.52%
Allowance for Loan Losses (3,484) (3,573)
Cash and Due from Banks 13,799 13,743
Trading Assets - Risk
Management Instruments 28,938 36,295
Other Assets 35,347 29,516
---------- ----------
Total Assets $ 364,845 $ 362,865
========== ==========
LIABILITIES
Domestic Retail Deposits $ 61,438 573 3.70% $ 59,671 586 3.89%
Domestic Negotiable
Certificates of Deposit
and Other Deposits 17,032 156 3.62% 15,986 (52)(d) (1.27)%
Deposits in Foreign Offices 82,350 921 4.43% 75,130 990 5.23%
---------- -------- ---------- -------
Total Time and Savings
Deposits 160,820 1,650 4.07% 150,787 1,524 4.01%
---------- -------- ---------- -------
Short-Term and Other Borrowings:
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 49,290 543 4.37% 55,819 818 5.81%
Commercial Paper 5,032 61 4.84% 4,286 56 5.24%
Other Borrowings (c) 16,786 266 6.28% 14,509 504 13.78%
---------- -------- ---------- -------
Total Short-Term and
Other Borrowings 71,108 870 4.85% 74,614 1,378 7.33%
Long-Term Debt 19,291 306 6.30% 16,362 324 7.87%
---------- -------- ---------- -------
Total Interest-Bearing Liabilities 251,219 2,826 4.46% 241,763 3,226 5.29%
---------- -------- ---------- -------
Noninterest-Bearing Deposits 48,636 45,684
Trading Liabilities - Risk
Management Instruments 27,640 37,797
Other Liabilities 14,446 14,224
---------- ----------
Total Liabilities 341,941 339,468
---------- ----------
PREFERRED STOCK OF SUBSIDIARY 550 550
---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock 1,026 1,166
Common Stockholders' Equity 21,328 21,681
---------- ----------
Total Stockholders' Equity 22,354 22,847
---------- ----------
Total Liabilities, Preferred Stock of
Subsidiary and Stockholders' Equity $ 364,845 $ 362,865
========== ==========
INTEREST RATE SPREAD 2.38% 2.23%
==== ====
NET INTEREST INCOME AND NET
YIELD ON INTEREST-EARNING
ASSETS $ 2,176 (a) 2.97% $ 2,212 (a) 3.06% (d)
========= ==== ======= ====
</TABLE>
- --------------------------------------------------------------------------------
(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 September 30, 1999 and September 30, 1998, the
annualized rate for available-for-sale securities based on historical cost
was 5.53% and 6.19%, respectively.
(c) Includes securities sold but not yet purchased and structured notes.
(d) Includes $191 million pre-tax interest income for prior years' refunds.
Excluding this amount, the net yield on interest-earning assets would be
2.81% for the 1998 third quarter.
================================================================================
-38-
<PAGE> 39
THE CHASE MANHATTAN CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEET, INTEREST AND RATES
(TAXABLE-EQUIVALENT INTEREST AND RATES; IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED Nine months Ended
SEPTEMBER 30, 1999 September 30, 1998
-------------------------------------------- -----------------------------------
AVERAGE RATE Average Rate
BALANCE INTEREST (ANNUALIZED) Balance Interest (Annualized)
----------- ---------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Deposits with Banks $ 6,058 $ 540 11.92% $ 4,705 $ 450 12.78%
Federal Funds Sold and
Securities Purchased Under
Resale Agreements 30,527 1,122 4.91% 34,493 1,742 6.75%
Trading Assets-Debt and Equity
Instruments 25,412 1,228 6.46% 31,989 1,996 8.34%
Securities:
Available-for-Sale 53,710 2,297 5.72% (b) 54,003 2,548 6.31% (b)
Held-to-Maturity 1,238 58 6.28% 2,508 120 6.40%
Loans 173,078 9,666 7.47% 168,128 10,012 7.96%
--------- ------ --------- ---------
Total Interest-Earning Assets 290,023 14,911 6.87% 295,826 16,868 7.62%
Allowance for Loan Losses (3,489) (3,560)
Cash and Due from Banks 14,666 14,273
Trading Assets - Risk
Management Instruments 28,478 36,264
Other Assets 34,591 28,646
--------- ---------
Total Assets $ 364,269 $ 371,449
========= =========
LIABILITIES
Domestic Retail Deposits $ 61,463 1,614 3.51% $ 59,389 1,754 3.95%
Domestic Negotiable
Certificates of Deposit
and Other Deposits 19,564 525 3.59% 16,071 314 (d) 2.62%
Deposits in Foreign Offices 79,782 2,667 4.47% 75,780 3,055 5.39%
--------- ----- --------- ---------
Total Time and Savings
Deposits 160,809 4,806 4.00% 151,240 5,123 4.53%
--------- ----- --------- ---------
Short-Term and Other Borrowings:
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 50,260 1,660 4.42% 63,592 2,651 5.57%
Commercial Paper 5,091 179 4.69% 4,330 170 5.26%
Other Borrowings (c) 15,123 796 7.04% 16,188 1,544 12.75%
--------- ----- --------- ---------
Total Short-Term and
Other Borrowings 70,474 2,635 5.00% 84,110 4,365 6.94%
Long-Term Debt 19,255 936 6.50% 16,190 954 7.88%
--------- ----- --------- ---------
Total Interest-Bearing Liabilities 250,538 8,377 4.47% 251,540 10,442 5.55%
--------- ----- --------- ---------
Noninterest-Bearing Deposits 48,091 45,340
Trading Liabilities - Risk
Management Instruments 27,867 37,297
Other Liabilities 14,199 14,358
--------- ---------
Total Liabilities 340,695 348,535
--------- ---------
PREFERRED STOCK OF SUBSIDIARY 550 550
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock 1,027 1,365
Common Stockholders' Equity 21,997 20,999
--------- ---------
Total Stockholders' Equity 23,024 22,364
--------- ---------
Total Liabilities, Preferred Stock of
Subsidiary and Stockholders' Equity $ 364,269 $ 371,449
========= =========
INTEREST RATE SPREAD 2.40% 2.07%
==== =====
NET INTEREST INCOME AND NET
YIELD ON INTEREST-EARNING
ASSETS $ 6,534 (a) 3.01% $ 6,426 (a) 2.90% (d)
======== ====== ========= =====
</TABLE>
- --------------------------------------------------------------------------------
(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 nine months ended September 30, 1999 and September 30, 1998, the
annualized rate for available-for-sale securities based on historical cost
was 5.63% and 6.35%, respectively.
(c) Includes securities sold but not yet purchased and structured notes.
(d) Includes $191 million pre-tax interest income for prior years' refunds.
Excluding this amount, the net yield on interest-earning assets would be
2.82% for the 1998 first nine months.
================================================================================
-39-
<PAGE> 40
THE CHASE MANHATTAN CORPORATION
QUARTERLY FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------------------
THIRD Second First Fourth Third Second First
QUARTER Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,288 $ 3,165 $ 3,209 $ 3,381 $ 3,287 $ 3,316 $ 3,405
Securities 762 747 835 964 874 889 889
Trading Assets 399 411 418 435 604 716 676
Federal Funds Sold and Securities
Purchased Under Resale Agreements 352 389 381 469 517 554 671
Deposits with Banks 195 161 184 192 150 148 152
------- ------- ------- ------- ------- ------- -------
Total Interest Income 4,996 4,873 5,027 5,441 5,432 5,623 5,793
------- ------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Deposits 1,650 1,558 1,598 1,717 1,524 1,784 1,815
Short-Term and Other Borrowings 870 851 914 1,247 1,378 1,478 1,509
Long-Term Debt 306 319 311 317 324 325 305
------- ------- ------- ------- ------- --------- -------
Total Interest Expense 2,826 2,728 2,823 3,281 3,226 3,587 3,629
------- ------- ------- ------- ------- --------- -------
NET INTEREST INCOME 2,170 2,145 2,204 2,160 2,206 2,036 2,164
Provision for Loan Losses 398 388 381 411 272 328 332
------- ------- ------- ------- ------- --------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,772 1,757 1,823 1,749 1,934 1,708 1,832
------- ------- ------- ------- ------- --------- -------
NONINTEREST REVENUE
Investment Banking Fees 486 585 317 381 322 438 361
Trust, Custody and Investment
Management Fees 457 461 414 414 398 383 348
Credit Card Revenue 441 438 379 428 381 365 300
Fees for Other Financial Services 637 587 553 552 522 509 510
Trading Revenue 462 526 618 516 (69) 323 468
Securities Gains (1) 5 156 167 261 98 83
Private Equity Gains 377 513 325 244 60 370 293
Other Revenue 162 356 178 198 137 233 96
------- ------- ------- ------- ------- --------- -------
Total Noninterest Revenue 3,021 3,471 2,940 2,900 2,012 2,719 2,459
------- ------- ------- ------- ------- --------- -------
NONINTEREST EXPENSE
Salaries 1,417 1,416 1,384 1,296 1,205 1,270 1,254
Employee Benefits 238 238 255 194 221 215 224
Occupancy Expense 218 206 218 220 198 191 189
Equipment Expense 255 239 243 250 219 212 209
Restructuring Costs -- -- -- -- -- 8 521
Other Expense 853 969 845 913 804 826 744
------- ------- ------- ------- ------- --------- -------
Total Noninterest Expense 2,981 3,068 2,945 2,873 2,647 2,722 3,141
------- ------- ------- ------- ------- --------- -------
INCOME BEFORE INCOME TAX EXPENSE 1,812 2,160 1,818 1,776 1,299 1,705 1,150
Income Tax Expense 625 767 645 630 462 631 425
------- ------- ------- ------- ------- --------- -------
NET INCOME $ 1,187 $ 1,393 $ 1,173 $ 1,146 $ 837 $ 1,074 $ 725
======= ======== ======= ======= ======= ========= =======
NET INCOME APPLICABLE TO
COMMON STOCK $ 1,168 $ 1,375 $ 1,155 $ 1,128 $ 815 $ 1,050 $ 691
======= ======= ======= ======= ======= ========= =======
NET INCOME PER COMMON SHARE:
Basic $ 1.42 $ 1.65 $ 1.37 $ 1.34 $ 0.96 $ 1.24 $ 0.82
======= ======= ======= ======= ======= ========= =======
Diluted $ 1.37 $ 1.60 $ 1.32 $ 1.31 $ 0.94 $ 1.20 $ 0.80
======= ======= ======= ======= ======= ========= =======
</TABLE>
-40-
<PAGE> 41
- --------------------------------------------------------------------------------
GLOSSARY OF TERMS
- --------------------------------------------------------------------------------
The page numbers included after each definition represent the pages in this Form
10-Q where the term is primarily used.
1998 Annual Report: Annual Report on Form 10-K for the year ended December 31,
1998. (Pages 7-9, 13, 26, 28-33, 35-36, 42, 46)
Asset/Liability Management ("ALM"): The management of the sensitivity of Chase's
income to changes in market interest rates. (Pages 8, 9, 29, 31-33)
BPV: Basis Point Value. This measurement quantifies the change in the value of
Chase's non-trading balance sheet positions (interest rate risk) that would
result from a 1 basis point change in interest rates. (Page 32)
Cash Operating Earnings: Operating earnings excluding the impact of amortization
of goodwill and certain intangibles. (Pages 10-18, 37)
Chase Texas: Chase Bank of Texas, National Association. (Page 9)
Chase USA: Chase Manhattan Bank USA, National Association. (Page 9)
Derivative and Foreign Exchange ("FX") Contracts: Interest rate swaps, forward
rate agreements, futures, forwards, options, debt, equity, commodity and other
contracts used for asset/liability management or trading purposes. The
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. (Pages 9, 26-27,
29)
Efficiency Ratio: Noninterest expense as a percentage of the total of net
interest income and noninterest revenue (excluding restructuring costs,
foreclosed property expense, special items and costs associated with the REIT).
(Pages 12-15, 17, 24, 37)
FASB: Financial Accounting Standards Board. (Page 36)
Managed Credit Card Receivables or Managed Basis: Consistent with industry
practice, Chase uses this terminology to define its credit card receivables on
the balance sheet plus securitized credit card receivables. (Pages 26-27)
Net Yield on Interest-Earning Assets: The average rate for interest-earning
assets less the average rate paid for all sources of funds. (Pages 22, 38-39)
Operating Basis or Operating Earnings: Reported results excluding the impact of
credit card securitizations, restructuring costs and special items. (Pages
10-19, 24, 34, 37)
REIT: A real estate investment trust subsidiary of Chase. (Pages 24-25)
SFAS: Statement of Financial Accounting Standards.
SFAS 107: "Disclosures about Fair Value of Financial Instruments." (Page 8)
SFAS 115: "Accounting for Certain Investments in Debt and Equity Securities."
(Pages 7-9)
SFAS 133: "Accounting for Derivative Instruments and Hedging Activities." (Page
36)
SFAS 137: "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB
Statement No. 133." (Page 36)
Shareholder Value Added ("SVA"): Represents operating earnings excluding the
amortization of goodwill and certain intangibles (i.e., cash operating earnings)
minus preferred dividends and an explicit charge for capital. (Pages 10, 12-14,
16, 33, 37)
Special Items: The 1999 second quarter included a gain on the sale of One New
York Plaza and on the sale of branches in Beaumont, Texas as well as a special
contribution to The Chase Manhattan Foundation. There were no special items in
the first and third quarters of 1999. The 1998 third quarter and nine months
included interest income from prior years' tax refunds and costs incurred for
accelerated vesting of stock-based incentive awards. (Pages 10, 12, 19, 24, 37)
Value-at-Risk ("VAR"): The potential overnight loss from adverse market
movements. (Page 31)
Year 2000: The problem of many existing computer programs not being able to
recognize properly a year beginning with "20" instead of "19", as these programs
only use the last two digits to refer to a year. (Pages 18, 24-25, 34-36)
-41-
<PAGE> 42
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The following discussion of certain legal proceedings focuses
primarily on developments since December 31, 1998 and updates the
discussion entitled "Legal Proceedings" appearing on page 6 of Chase's
1998 Annual Report.
As previously reported in the 1998 Annual Report, in 50-Off Stores,
Inc. v. Banque Paribas (Suisse) S.A., a lawsuit in the United States
District Court for the Western District of Texas alleging conversion
of shares of common stock held in a custody account of The Chase
Manhattan Bank, judgment was entered against the Bank for $148.6
million in punitive and compensatory damages, plus post-judgment
interest. On appeal by Chase, the United States Court of Appeals for
the Fifth Circuit reversed the punitive damage award of $138 million,
resulting in a remaining award of $10.6 million in compensatory
damages. Both the plaintiff and Chase filed petitions for rehearing
with the Fifth Circuit which petitions were denied. Plaintiff has
filed a petition for a writ of certiorari with the U.S. Supreme Court.
In June 1999, Sumitomo Corporation filed a lawsuit against The Chase
Manhattan Bank in the United States District Court for the Southern
District of New York. The complaint alleges that during the period
from 1994 to 1996, the Bank assisted a Sumitomo employee in making
copper trades by funding unauthorized loans to the Sumitomo employee.
The complaint alleges that the Bank knew the employee did not have
authority to enter into the transactions on behalf of Sumitomo. The
complaint asserts claims under the Racketeer Influenced and Corrupt
Practices Act ("RICO") and New York common law and alleges damages of
$532 million (subject to trebling under RICO), plus punitive damages.
Chase Securities Inc. ("CSI") has been named as a defendant in three
of seven actions that were filed in the United States District Court
for the Northern District of Oklahoma in October 1999 arising out of
the failure of Commercial Financial Service, Inc. ("CFS"). Plaintiffs
in these actions are institutional investors who purchased over $1.6
billion in original face amount of asset-backed securities issued by
CFS. The securities were backed by delinquent credit card receivables.
In addition to CSI, the defendants in various of the actions are the
founders and key executives of CFS, as well as its auditors, its
outside counsel and the rating agencies that rated the securities. CSI
is alleged to have been the investment banker to CFS and to have acted
as an initial purchaser and as placement agent in connection with the
issuance of certain of the securities. Plaintiffs allege that
defendants either knew or were reckless in not knowing that the
securities were sold to plaintiffs on the basis of misleading
misrepresentations and omissions of material facts. The complaints
against CSI assert claims under the Securities Exchange Act of 1934,
the Oklahoma Securities Act, and under common law theories of fraud
and negligent misrepresentation. In the actions against CSI,
plaintiffs seek approximately $500 million in damages allegedly
suffered as a result of defendants' misrepresentations and omissions.
A date for CSI to answer or move with respect to the complaints has
not yet been set.
In addition to the matters described above, Chase and its subsidiaries
have been named from time to time as defendants in various legal
actions and proceedings arising in connection with their respective
businesses and have been involved from time to time in investigations
and proceedings by governmental agencies. In view of the inherent
difficulty of predicting the outcome of such matters, Chase cannot
state what the eventual outcome of pending matters will be. Chase is
contesting the allegations made in each pending matter and believes,
based on current knowledge and after consultation with counsel that
the outcome of such matters will not have a material adverse effect on
the consolidated financial condition of Chase, but may be material to
Chase's operating results for any particular period, depending on the
level of Chase's income for such period.
-42-
<PAGE> 43
Item 2. Sales of Unregistered Common Stock
During the third quarter of 1999, shares of common stock of Chase were
issued in transactions exempt from registration under the Securities
Act of 1933 pursuant to Section 4(2) thereof. On July 1, 1999, 319
shares of common stock were issued to retired directors who had
deferred receipt of such common stock pursuant to The Deferred
Compensation Plan for Non-Employee Directors.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
11 - Computation of earnings per common 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.
(B) Reports on Form 8-K:
Chase filed two reports on Form 8-K during the quarter ended September
30, 1999, as follows:
Form 8-K dated July 21, 1999: Chase announced the results of
operations for the second quarter of 1999.
Form 8-K dated September 28, 1999: Chase announced an agreement to
acquire Hambrecht & Quist Group for $50 per share in cash or a total
consideration of $1.35 billion.
-43-
<PAGE> 44
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 November 8, 1999 By /s/ Joseph L. Sclafani
---------------- -----------------------------
Joseph L. Sclafani
Executive Vice President and Controller
[Principal Accounting Officer]
-44-
<PAGE> 45
INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS PAGE AT WHICH LOCATED
- ----------- -------------------------- --------------------
<S> <C> <C>
11 Computation of earnings 46
per common share
12(a) Computation of ratio of 47
earnings to fixed charges
12(b) Computation of ratio of 48
earnings to fixed charges
and preferred stock dividend
requirements
27 Financial Data Schedule 49
</TABLE>
-45-
<PAGE> 46
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 and Results of Operations.
<TABLE>
<CAPTION>
GRAPHIC
NUMBER PAGE DESCRIPTION
- ------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 32 Bar Graph entitled "Histogram of Daily Market Risk-Related Revenue for the
twelve months ended September 30, 1999" presenting the following information:
Millions of Dollars 0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30
------------------- ----- ------ ------- ------- ------- -------
Number of trading
days revenue was
within the above
prescribed positive
range 33 53 46 51 31 14
30 - 35 Over 35
------- -------
8 8
Millions of Dollars 0 - (5) (5) - (10) (10) - (15) (15) - (20) (20) - (25)
------------------- ------- --------- ---------- ---------- ----------
Number of trading
days revenue was
within the above
prescribed negative
range 7 7 1 0 0
(25) - (30) Over (30)
----------- ---------
0 0
</TABLE>
<PAGE> 1
EXHIBIT 11
THE CHASE MANHATTAN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
For a discussion of the computation of basic and diluted earnings per common
share, see Note Ten of Chase's 1998 Annual Report.
<TABLE>
<CAPTION>
(in millions, except per share amounts) Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
EARNINGS PER SHARE 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Earnings:
Net Income $ 1,187 837 $ 3,753 $ 2,636
Less: Preferred Stock Dividends 19 22 55 80
--------- -------- --------- ---------
Net Income Applicable to Common Stock $ 1,168 $ 815 $ 3,698 $ 2,556
========= ======== ========= =========
Shares:
Basic Average Common Shares Outstanding 821.6 848.3 832.6 847.4
Net Income Per Share $ 1.42 $ 0.96 $ 4.44 $ 3.02
========= ======== ========= =========
DILUTED EARNINGS PER SHARE
Earnings:
Net Income Applicable to Common Stock $ 1,168 $ 815 $ 3,698 $ 2,556
Shares:
Basic Average Common Shares Outstanding 821.6 848.3 832.6 847.4
Additional Shares Issuable Upon Exercise of Stock Options
for Dilutive Effect 28.1 22.8 28.3 23.8
--------- -------- --------- ---------
Average Common Shares Outstanding Assuming Dilution 849.7 871.1 860.9 871.2
Net Income Per Share $ 1.37 $ 0.94 $ 4.30 $ 2.93
========= ======== ========= =========
========================================================================================================================
</TABLE>
-46-
<PAGE> 1
EXHIBIT 12(a)
THE CHASE MANHATTAN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
<S> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes $ 5,790
--------------
Fixed charges:
Interest expense 3,571
One third of rents, net of income from subleases (a) 106
--------------
Total fixed charges 3,677
--------------
Less: Equity in undistributed income of affiliates (66)
--------------
Earnings before taxes and fixed charges, excluding capitalized interest $ 9,401
==============
Fixed charges, as above $ 3,677
==============
Ratio of earnings to fixed charges 2.56
==============
INCLUDING INTEREST ON DEPOSITS
Fixed charges, as above $ 3,677
Add: Interest on deposits 4,806
--------------
Total fixed charges and interest on deposits $ 8,483
==============
Earnings before taxes and fixed charges, excluding capitalized interest,
as above $ 9,401
Add: Interest on deposits 4,806
--------------
Total earnings before taxes, fixed charges, and interest on deposits $ 14,207
==============
fpRatio of earnings to fixed charges 1.67
==============
</TABLE>
- --------------------------------------------------------------------------------
(a) The proportion deemed representative of the interest factor.
-47-
<PAGE> 1
EXHIBIT 12(b)
THE CHASE MANHATTAN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Nine months Ended
September 30, 1999
------------------
<S> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes $ 5,790
--------------
Fixed charges:
Interest expense 3,571
One third of rents, net of income from subleases (a) 106
--------------
Total fixed charges 3,677
--------------
Less: Equity in undistributed income of affiliates (66)
---------------
Earnings before taxes and fixed charges, excluding capitalized interest $ 9,401
==============
Fixed charges, as above $ 3,677
Preferred stock dividends 55
--------------
Fixed charges including preferred stock dividends $ 3,732
==============
Ratio of earnings to fixed charges and
preferred stock dividend requirements 2.52
==============
INCLUDING INTEREST ON DEPOSITS
Fixed charges including preferred stock dividends, as above $ 3,732
Add: Interest on deposits 4,806
--------------
Total fixed charges including preferred stock
dividends and interest on deposits $ 8,538
==============
Earnings before taxes and fixed charges, excluding capitalized interest,
as above $ 9,401
Add: Interest on deposits 4,806
--------------
Total earnings before taxes, fixed charges, and interest on deposits $ 14,207
==============
Ratio of earnings to fixed charges
and preferred stock dividend requirements 1.66
==============
</TABLE>
- --------------------------------------------------------------------------------
(a) The proportion deemed representative of the interest factor.
-48-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains selected summary financial information extracted from the
September 30, 1999 Form 10-Q for The Chase Manhattan Corporation and is
qualified in its entirety by reference to such financial statements and
disclosures.
</LEGEND>
<CIK> 0000019617
<NAME> THE CHASE MANHATTAN CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,490
<INT-BEARING-DEPOSITS> 5,856
<FED-FUNDS-SOLD> 28,368
<TRADING-ASSETS> 57,192
<INVESTMENTS-HELD-FOR-SALE> 54,138
<INVESTMENTS-CARRYING> 975
<INVESTMENTS-MARKET> 970
<LOANS> 173,458
<ALLOWANCE> 3,555
<TOTAL-ASSETS> 371,044
<DEPOSITS> 219,623
<SHORT-TERM> 56,921
<LIABILITIES-OTHER> 51,699
<LONG-TERM> 16,644
0
928
<COMMON> 882
<OTHER-SE> 20,531
<TOTAL-LIABILITIES-AND-EQUITY> 371,044
<INTEREST-LOAN> 9,662
<INTEREST-INVEST> 2,344
<INTEREST-OTHER> 1,662
<INTEREST-TOTAL> 14,896
<INTEREST-DEPOSIT> 4,806
<INTEREST-EXPENSE> 8,377
<INTEREST-INCOME-NET> 6,519
<LOAN-LOSSES> 1,167
<SECURITIES-GAINS> 160
<EXPENSE-OTHER> 8,994
<INCOME-PRETAX> 5,790
<INCOME-PRE-EXTRAORDINARY> 3,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,753
<EPS-BASIC> 4.44
<EPS-DILUTED> 4.30
<YIELD-ACTUAL> 3.01
<LOANS-NON> 1,874
<LOANS-PAST> 391
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,552
<CHARGE-OFFS> 1,353
<RECOVERIES> 190
<ALLOWANCE-CLOSE> 3,555
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
