<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
FOR THE QUARTER ENDED JUNE 30, 1999 COMMISSION FILE NUMBER 1-5805
THE CHASE MANHATTAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 13-2624428
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 832,389,214
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
STOCK ON JULY 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 June 30, 1999 and
December 31, 1998. 3
Consolidated Statement of Income for three and six months
ended June 30, 1999 and June 30, 1998. 4
Consolidated Statement of Changes in Stockholders' Equity for the
six months ended June 30, 1999 and June 30, 1998. 5
Consolidated Statement of Cash Flows for the six months
ended June 30, 1999 and June 30, 1998. 6
Notes to Consolidated Financial Statements. 7-11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations. 12-39
Glossary of Terms. 40
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. 41
Item 2 Sales of Unregistered Common Stock. 41
Item 4 Submission of Matters to a Vote of Security Holders 42
Item 6 Exhibits and Reports on Form 8-K. 43
</TABLE>
-2-
<PAGE> 3
Part I
Item 1.
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 16,037 $ 17,068
Deposits with Banks 5,851 7,212
Federal Funds Sold and Securities
Purchased Under Resale Agreements 28,052 18,487
Trading Assets:
Debt and Equity Instruments 26,232 24,844
Risk Management Instruments 25,115 32,848
Securities:
Available-for-Sale 48,098 62,803
Held-to-Maturity (Market Value: $1,093 at June 30, 1999 and
$1,703 at December 31, 1998) 1,092 1,687
Loans (Net of Allowance for Loan Losses of $3,554 in 1999
and $3,552 in 1998) 171,487 169,202
Premises and Equipment 4,185 4,055
Due from Customers on Acceptances 914 1,223
Accrued Interest Receivable 2,103 2,316
Other Assets 27,702 24,130
--------- ---------
TOTAL ASSETS $ 356,868 $ 365,875
========= =========
LIABILITIES
Deposits:
Domestic:
Noninterest-Bearing $ 49,874 $ 47,541
Interest-Bearing 81,068 85,886
Foreign:
Noninterest-Bearing 4,645 4,082
Interest-Bearing 73,915 74,928
--------- ---------
Total Deposits 209,502 212,437
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 40,899 41,632
Commercial Paper 5,047 7,788
Other Borrowed Funds 6,613 7,239
Acceptances Outstanding 914 1,223
Trading Liabilities 36,835 38,502
Accounts Payable, Accrued Expenses and Other Liabilities, Including
the Allowance for Credit Losses of $170 in 1999 and 1998 14,231 14,291
Long-Term Debt 17,031 16,187
Guaranteed Preferred Beneficial Interests in Corporation's
Junior Subordinated Deferrable Interest Debentures 2,538 2,188
--------- ---------
TOTAL LIABILITIES 333,610 341,487
--------- ---------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 9)
PREFERRED STOCK OF SUBSIDIARY 550 550
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock 1,028 1,028
Common Stock (Authorized 1,500,000,000 Shares, Issued 881,860,876
Shares at June 30, 1999 and 881,688,611 Shares at December 31, 1998) 882 882
Capital Surplus 9,628 9,836
Retained Earnings 15,381 13,544
Accumulated Other Comprehensive Income (Loss) (722) 392
Treasury Stock, at Cost (49,397,932 Shares at June 30, 1999
and 33,703,249 Shares at December 31, 1998) (3,489) (1,844)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 22,708 23,838
--------- ---------
TOTAL LIABILITIES, PREFERRED STOCK OF SUBSIDIARY
AND STOCKHOLDERS' EQUITY $ 356,868 $ 365,875
========= =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these Statements.
-3-
<PAGE> 4
Part I
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,165 $ 3,316 $ 6,374 $ 6,721
Securities 747 889 1,582 1,778
Trading Assets 411 716 829 1,392
Federal Funds Sold and Securities Purchased
Under Resale Agreements 389 554 770 1,225
Deposits with Banks 161 148 345 300
------- ------- ------- -------
Total Interest Income 4,873 5,623 9,900 11,416
------- ------- ------- -------
INTEREST EXPENSE
Deposits 1,558 1,784 3,156 3,599
Short-Term and Other Borrowings 851 1,478 1,765 2,987
Long-Term Debt 319 325 630 630
------- ------- ------- -------
Total Interest Expense 2,728 3,587 5,551 7,216
------- ------- ------- -------
NET INTEREST INCOME 2,145 2,036 4,349 4,200
Provision for Loan Losses 388 328 769 660
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,757 1,708 3,580 3,540
------- ------- ------- -------
NONINTEREST REVENUE
Investment Banking Fees 585 438 902 799
Trust, Custody and Investment Management Fees 461 383 875 731
Credit Card Revenue 438 365 817 665
Fees for Other Financial Services 587 509 1,140 1,019
Trading Revenue 526 323 1,144 791
Securities Gains 5 98 161 181
Private Equity Gains 513 370 838 663
Other Revenue 356 233 534 329
------- ------- ------- -------
Total Noninterest Revenue 3,471 2,719 6,411 5,178
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries 1,416 1,270 2,800 2,524
Employee Benefits 238 215 493 439
Occupancy Expense 206 191 424 380
Equipment Expense 239 212 482 421
Restructuring Costs -- 8 -- 529
Other Expense 969 826 1,814 1,570
------- ------- ------- -------
Total Noninterest Expense 3,068 2,722 6,013 5,863
------- ------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 2,160 1,705 3,978 2,855
Income Tax Expense 767 631 1,412 1,056
------- ------- ------- -------
NET INCOME $ 1,393 $ 1,074 $ 2,566 $ 1,799
======= ======= ======= =======
NET INCOME APPLICABLE TO COMMON STOCK $ 1,375 $ 1,050 $ 2,530 $ 1,741
======= ======= ======= =======
NET INCOME PER COMMON SHARE:
Basic $ 1.65 $ 1.24 $ 3.02 $ 2.06
======= ======= ======= =======
Diluted $ 1.60 $ 1.20 $ 2.92 $ 2.00
======= ======= ======= =======
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these Statements.
-4-
<PAGE> 5
Part I
Item 1. (continued)
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 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 -- (772)
-------- --------
Balance at End of Period $ 1,028 $ 1,168
-------- --------
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 (208) (181)
-------- --------
Balance at End of Period $ 9,628 $ 9,738
-------- --------
RETAINED EARNINGS
Balance at Beginning of Year $ 13,544 $ 11,086
Net Income 2,566 1,799
Cash Dividends Declared:
Preferred Stock (36) (58)
Common Stock (693) (616)
-------- --------
Balance at End of Period $ 15,381 $ 12,211
-------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at Beginning of Year $ 392 $ 112
Other Comprehensive Income (Loss) (1,114) 1
-------- --------
Balance at End of Period $ (722) $ 113
-------- --------
COMMON STOCK IN TREASURY, AT COST
Balance at Beginning of Year $ (1,844) $ (1,997)
Purchase of Treasury Stock (3,057) (268)
Reissuance of Treasury Stock 1,412 763
-------- --------
Balance at End of Period $ (3,489) $ (1,502)
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 22,708 $ 22,610
======== ========
COMPREHENSIVE INCOME
Net Income $ 2,566 $ 1,799
Other Comprehensive Income (Loss) (1,114) 1
-------- --------
Comprehensive Income $ 1,452 $ 1,800
======== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these Statements.
-5-
<PAGE> 6
THE CHASE MANHATTAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,566 $ 1,799
Adjustments to Reconcile Net Income to Net Cash Provided (Used)
by Operating Activities:
Provision for Loan Losses 769 660
Restructuring Costs -- 529
Depreciation and Amortization 692 558
Net Change In:
Trading-Related Assets 6,592 756
Accrued Interest Receivable 213 492
Other Assets (3,559) (2,854)
Trading-Related Liabilities (1,340) (6,202)
Accrued Interest Payable (285) 16
Other Liabilities 774 1,568
Other, Net (63) (897)
-------- --------
Net Cash Provided (Used) by Operating
Activities 6,359 (3,575)
-------- --------
INVESTING ACTIVITIES
Net Change In:
Deposits with Banks 1,361 (3,084)
Federal Funds Sold and Securities Purchased Under Resale Agreements (15,066) 894
Loans Due to Sales and Securitizations 23,528 21,787
Other Loans, Net (27,250) (22,735)
Other, Net (46) 208
Proceeds from the Maturity of Held-to-Maturity Securities 595 706
Purchases of Held-to-Maturity Securities -- (54)
Proceeds from the Maturity of Available-for-Sale Securities 4,937 12,727
Proceeds from the Sale of Available-for-Sale Securities 59,120 78,887
Purchases of Available-for-Sale Securities (51,517) (94,334)
Proceeds from Sales of Nonstrategic Assets 182 --
Cash Used in Acquisitions (52) (254)
-------- --------
Net Cash (Used) by Investing Activities (4,208) (5,252)
-------- --------
FINANCING ACTIVITIES
Net Change In:
Noninterest-Bearing Domestic Demand Deposits 2,333 1,363
Domestic Time and Savings Deposits (4,818) 3,842
Foreign Deposits (450) 8,198
Federal Funds Purchased and Securities Sold Under Repurchase Agreements 4,768 (5,548)
Other Borrowed Funds (3,367) 1,048
Other, Net (340) (461)
Proceeds from the Issuance of Long-Term Debt and Capital Securities 3,260 2,257
Maturity and Redemption of Long-Term Debt (2,035) (994)
Proceeds from the Issuance of Stock 1,204 782
Redemption of Preferred Stock -- (772)
Treasury Stock Purchased (3,057) (268)
Cash Dividends Paid (688) (625)
-------- --------
Net Cash Provided (Used) by Financing Activities (3,190) 8,822
-------- --------
Effect of Exchange Rate Changes on Cash and Due from Banks 8 (8)
-------- --------
Net (Decrease) in Cash and Due from Banks (1,031) (13)
Cash and Due from Banks at January 1, 17,068 15,704
-------- --------
Cash and Due from Banks at June 30, $ 16,037 $ 15,691
======== ========
Cash Interest Paid $ 5,836 $ 7,200
-------- --------
Taxes Paid $ 290 $ 822
-------- --------
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of these Statements.
-6-
<PAGE> 7
Part I
Item 1. (continued)
See Glossary of Terms on page 40 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. Certain
amounts in prior periods have been reclassified to conform to the current
presentation.
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 gains from Available-for-Sale ("AFS")
securities sold in the second quarter of 1999 amounted to $5 million (gross
gains of $73 million and gross losses of $68 million) and for the first six
months of 1999 amounted to $161 million (gross gains of $284 million and gross
losses of $123 million). Net gains on sales of these types of securities for the
same periods in 1998 amounted to $98 million (gross gains of $144 million and
gross losses of $46 million), and $181 million (gross gains of $278 million and
gross losses of $97 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 for the dates indicated:
<TABLE>
<CAPTION>
JUNE 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 $27,451 $26,541 $42,916 $42,994
CMOs & U.S. Treasuries 11,302 10,794 9,104 9,376
Debt Securities Issued by Foreign Governments 8,898 8,795 8,176 8,226
Corporate Debt and Equity Securities 989 1,210 1,093 1,313
Other, primarily Asset-Backed Securities (b) 727 758 854 894
------- ------- ------- -------
Total Available-for-Sale Securities (c) $49,367 $48,098 $62,143 $62,803
======= ======= ======= =======
HELD-TO-MATURITY SECURITIES (d) $ 1,092 $ 1,093 $ 1,687 $ 1,703
======= ======= ======= =======
</TABLE>
(a) Gross unrealized gains and losses on available-for-sale securities were
$829 million and $2,098 million, respectively, at June 30, 1999 and $771
million and $111 million, respectively, at December 31, 1998. Gross
unrealized gains and losses on held-to-maturity securities were $4 million
and $3 million, respectively, at June 30, 1999 and $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 agencies and corporations 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 $306 million and $276 million, respectively, at June 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
Part I
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 June 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 issuances or redemptions of capital securities in
the first quarter of 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 June 30, 1999, the reserve balance was $261
million, of which $154 million related to staff reductions, $95 million related
to dispositions of certain premises and equipment and $12 million related to
other expenses. Chase expects that the remaining reserve related to staff
reductions will be largely used during the next six to nine 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 Six Months Ended June 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 -- (1,114)(a) (1,114) -- 1 1
--------- ------- -------- --------- --------- -------
Ending Balance $ 17 $ (739)(b) $ (722) $ 17 $ 96(b) $ 113
========= ======= ======== ========= ========= =======
</TABLE>
(a) The increase in net unrealized loss on securities available-for-sale is due
to the rise in interest rates during the 1999 first half.
(b) Represents the after-tax difference between the fair value and amortized
cost of the available-for-sale 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>
JUNE 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 $ 342,296 $ 345,605 $ 3,309 $ 355,738 $ 358,559 $ 2,821
========== =========== =========== ===========
Total Financial Liabilities $ 332,748 $ 332,555 193 $ 340,643 $ 340,519 124
========== =========== --------- =========== =========== ----------
Estimated Fair Value in Excess
of Carrying Value $ 3,502 $ 2,945
========= ---------
</TABLE>
Derivative contracts used in connection with Chase's ALM activities had an
unrecognized net loss of $492 million at June 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
Part I
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 June 30, 1999, Chase and each of its
depository institutions were "well capitalized" as defined by banking
regulators.
<TABLE>
<CAPTION>
JUNE 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) $ 24,395 $ 18,496 $ 1,572 $ 2,707
Total Capital 35,006 26,484 2,231 3,876
Risk-Weighted Assets (b) 291,700 232,834 18,880 33,805
Adjusted Average Assets 359,195 284,170 21,993 34,813
Tier 1 Capital Ratio (b)(d) 8.36% 7.94% 8.33% 8.01%
Total Capital Ratio (b)(d) 12.00% 11.37% 11.82% 11.47%
Tier 1 Leverage Ratio (c)(d) 6.79% 6.51% 7.15% 7.78%
</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. Risk-weighted assets include off-balance sheet risk-weighted assets
in the amounts of $92,419 million, $84,763 million, $3,959 million and
$2,254 million.
(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 and
foreign exchange contracts as well as the credit exposure related to these
instruments (after taking into account the effects of legally enforceable master
netting agreements).
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS (a) CREDIT EXPOSURE
------------------------------ ------------------------
JUNE 30, December 31, JUNE 30, December 31,
(in billions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Rate Contracts $ 9,371.6 $ 8,171.9 $ 10.8 $ 13.0
Foreign Exchange Contracts 1,697.9 2,040.6 10.1 16.0
Debt, Equity, Commodity and Other Contracts 158.1 140.5 4.7 4.3
---------- ---------
Total Credit Exposure Recorded on the Balance Sheet $ 25.6 $ 33.3
========== =========
</TABLE>
(a) Includes notional amount relating to ALM activities totaling $263.0 billion
at June 30, 1999, of which $248.8 billion relates to interest rate
contracts and $14.2 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
Part I
Item 1. (continued)
NOTE 10 - SEGMENT INFORMATION
Effective December 31, 1998, Chase adopted SFAS 131, which defines the criteria
by which management determines the number and nature of its "operating segments"
and sets forth the financial information that is required to be disclosed about
these operating segments.
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. For recent organizational
changes to Chase's franchises, see page 18.
Chase uses SVA, Operating Earnings and Cash Operating Earnings as its measures
of franchise profitability. For a discussion of these measurements, see
Management Performance Measurements in the Management's Discussion and Analysis
("MD&A") on page 19 and Note Twenty-three of the 1998 Annual Report. 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>
FOR THREE MONTHS ENDED
JUNE 30, 1999
Operating Revenue (b) $ 2,722 $ 2,209 $ 777 $ (12) $ 5,696
Intersegment Revenue (b) (27) (6) 19 14 --
Operating Earnings 929 319 124 (21) 1,351
Cash Operating Earnings (c) 940 361 140 (14) 1,427
Average Managed Assets 240,536 114,989 15,437 7,774 378,736
SVA 491 144 47 14 696
For Three Months Ended
June 30, 1998
Operating Revenue (b) $ 2,409 $ 1,998 $ 684 $ (50) $ 5,041
Intersegment Revenue (b) (11) (1) 13 (1) --
Operating Earnings 770 243 110 (44) 1,079
Cash Operating Earnings (c) 780 287 115 (39) 1,143
Average Managed Assets 265,840 106,471 12,764 7,199 392,274
SVA 341 68 49 (18) 440
</TABLE>
<TABLE>
<CAPTION>
(in millions) NATIONAL CORPORATE/
GLOBAL CONSUMER GLOBAL RECONCILING
BANK SERVICES SERVICES ITEMS (a) TOTAL
---- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
FOR SIX MONTHS ENDED
JUNE 30, 1999
Operating Revenue (b) $ 5,296 $ 4,366 $ 1,505 $ (58) $ 11,109
Intersegment Revenue (b) (53) (9) 38 24 --
Operating Earnings 1,765 624 221 (86) 2,524
Cash Operating Earnings (c) 1,787 707 252 (73) 2,673
Average Managed Assets 244,057 113,542 15,670 8,534 381,803
SVA 889 276 65 (33) 1,197
For Six Months Ended
June 30, 1998
Operating Revenue (b) $ 4,768 $ 3,924 $ 1,351 $ (99) $ 9,944
Intersegment Revenue (b) (37) (2) 32 7 --
Operating Earnings 1,527 486 221 (102) 2,132
Cash Operating Earnings (c) 1,548 571 231 (93) 2,257
Average Managed Assets 268,710 105,759 12,771 6,320 393,560
SVA 668 136 97 (33) 868
</TABLE>
(a) Corporate/Reconciling Items includes Chase's Global Asset Management and
Mutual Funds business 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
Part I
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>
SECOND QUARTER SIX MONTHS
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(in millions)
SEGMENTS' CASH OPERATING EARNINGS $ 1,441 $ 1,182 $ 2,746 $ 2,350
Corporate/Reconciling Items (14) (39) (73) (93)
------- ------- ------- -------
CONSOLIDATED CASH OPERATING EARNINGS 1,427 1,143 2,673 2,257
Amortization of Goodwill and Certain Intangibles (76) (64) (149) (125)
------- ------- ------- -------
CONSOLIDATED OPERATING EARNINGS 1,351 1,079 2,524 2,132
Special Items and Restructuring Costs 42 (5) 42 (333)
------- ------- ------- -------
CONSOLIDATED NET INCOME $ 1,393 $ 1,074 $ 2,566 $ 1,799
======= ======= ======= =======
</TABLE>
-11-
<PAGE> 12
Part I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
<TABLE>
<CAPTION>
Second Quarter For Six Months Ended June 30,
--------------------------------- -----------------------------------
(in millions, except per share Over(Under) Over(Under)
and ratio data) 1999 1998 1998 1999 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING BASIS (a)
Operating Revenue $5,696 $5,041 13% $11,109 $9,944 12%
Operating Earnings 1,351 1,079 25% 2,524 2,132 18%
Diluted Earnings Per Share 1.55 1.21 28% 2.87 2.38 21%
Shareholder Value Added 696 440 58% 1,197 868 38%
Cash Operating Earnings 1,427 1,143 25% 2,673 2,257 18%
Return on Average Common Equity 24.3% 20.2% 410bp 22.5% 20.3% 220bp
Efficiency Ratio 52 54 (200)bp 53 53 --
REPORTED BASIS
Net Income $1,393 $1,074 30% $ 2,566 $1,799 43%
Diluted Earnings Per Share 1.60 1.20 33% 2.92 2.00 46%
Return on Average Common Equity 25.1% 20.1% 500bp 22.8% 17.0% 580bp
</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 40.
bp - Denotes basis points; 100 bp equals 1%.
Chase's 1999 second quarter operating earnings of $1.35 billion, operating
diluted earnings per share of $1.55 and return on equity of 24% were record
results for Chase. Operating earnings and diluted earnings per share increased
25% and 28%, respectively, from the second quarter of 1998. For the first six
months of 1999, operating earnings and diluted earnings per share rose 18% and
21%, respectively, from the first six months of 1998.
Reported diluted earnings per share were $1.60 in the 1999 second quarter, up
33% from the same period in 1998. For the first half of 1999, reported diluted
earnings per share were $2.92, up 46% from the same prior year period. Reported
net income in the 1999 second quarter increased 30% and for the first six months
of 1999 increased 43% from the same 1998 periods.
Operating highlights for the second quarter of 1999 included:
- Operating revenues increased by 13%.
- Operating earnings per share rose 28%.
- Return on common stockholders' equity was 24% with
Shareholder Value Added (SVA) up 58%.
- Common stock repurchases were $968 million, on a net
basis, while the Tier 1 capital ratio of 8.4% remained
above Chase's target.
The strong 1999 second quarter results were driven by Chase's growing business
franchises and continued financial discipline and demonstrated Chase's continued
strategic focus.
Business Franchises: Each of Chase's three business franchises, Global Banking,
National Consumer Services and Global Services, posted double-digit revenue
growth and more than 20% growth in cash operating earnings during the quarter.
Chase's businesses continued to gain market share and improve its rankings in
league tables. For the first half 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. Market-sensitive revenues
for the second quarter were exceptional, increasing 30% over the prior year.
Chase anticipates that the financial markets in the 1999 fourth quarter may slow
down, as corporations and customers prepare for the Year 2000 implementation.
-12-
<PAGE> 13
Financial Discipline: Expense, credit and capital discipline also contributed to
the results. Total operating noninterest expense for the second quarter was
almost flat when compared to the 1999 first quarter, credit costs remained
stable, and the capital discipline imposed by the Shareholder Value Added
methodology ("SVA") enabled Chase to purchase $968 million of common stock on
a net basis while maintaining the Tier 1 capital ratio at 8.4%.
Strategic Focus: Finally, the quarter demonstrated Chase's strategic focus: its
commitment to use its resources to strengthen its competitive positions where it
has leadership positions and, at the same time, exit businesses where this is
not the case. During the 1999 second quarter, Chase established Chase.com to
enable Chase to initiate and respond to opportunities on the internet; at the
same time, Chase has completed or announced sales of non-strategic businesses in
Beaumont, Texas, the Virgin Islands and selected upstate-New York retail
markets.
Chase has targeted its financial performance goals over time as: average return
on common equity of 18% or higher, growth in operating revenues accelerating to
10% per year and double-digit growth in operating earnings per share. These
goals were achieved in the 1999 second quarter.
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 40 for a definition of terms used throughout this
Form 10-Q.
LINES OF BUSINESS RESULTS
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.
The table below provides summary financial information on an operating basis for
Chase's three major business franchises. The discussion that follows the table
focuses on business unit performance within these franchises. See Note Ten of
this Form 10-Q for a further discussion of Chase's business segments.
<TABLE>
<CAPTION>
For Three Months GLOBAL BANK NATIONAL CONSUMER SERVICES
---------------------------------------- ------------------------------------------
Ended June 30, 1999 Over/ (Under) 1998 1999 Over/(Under) 1998
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 2,722 $ 313 13% $ 2,209 $ 211 11%
Operating Earnings 929 159 21 319 76 31
Cash Operating Earnings (a) 940 160 21 361 74 26
Average Common Equity 13,543 427 3 6,542 (14) --
Average Managed Assets 240,536 (25,304) (10) 114,989 8,518 8
Shareholder Value Added 491 150 44 144 76 112
Cash Return on Common Equity 27.5% -- 410 bp 21.8% -- 470 bp
Cash Efficiency Ratio 43 -- (200) 49 -- (100)
</TABLE>
<TABLE>
<CAPTION>
For Three Months GLOBAL SERVICES TOTAL (b)
---------------------------------------- ------------------------------------------
Ended June 30, 1999 Over/ (Under) 1998 1999 Over/(Under) 1998
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 777 $ 93 14% $ 5,696 $ 655 13%
Operating Earnings 124 14 13 1,351 272 25
Cash Operating Earnings (a) 140 25 22 1,427 284 25
Average Common Equity 2,782 807 41 21,986 1,032 5
Average Managed Assets 15,437 2,673 21 378,736 (13,538) (3)
Shareholder Value Added 47 (2) (4) 696 256 58
Cash Return on Common Equity 19.8% -- (310) bp 25.7% -- 430 bp
Cash Efficiency Ratio 72 -- (100) 51 -- (100)
</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%.
-13-
<PAGE> 14
<TABLE>
<CAPTION>
For Six Months GLOBAL BANK NATIONAL CONSUMER SERVICES
-------------------------------------------- ---------------------------------------
Ended June 30, 1999 Over/ (Under) 1998 1999 Over/(Under) 1998
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 5,296 $ 528 11% $ 4,366 $ 442 11%
Operating Earnings 1,765 238 16 624 138 28
Cash Operating Earnings (a) 1,787 239 15 707 136 24
Average Common Equity 13,604 475 4 6,525 37 1
Average Managed Assets 244,057 (24,653) (9) 113,542 7,783 7
Shareholder Value Added 889 221 33 276 140 103
Cash Return on Common Equity 26.2% -- 290 bp 21.5% -- 430 bp
Cash Efficiency Ratio 44 -- (100) 49 -- (100)
</TABLE>
<TABLE>
<CAPTION>
For Six Months GLOBAL SERVICES TOTAL (b)
---------------------------------------- ------------------------------------------
Ended June 30, 1999 Over/ (Under) 1998 1999 Over/(Under) 1998
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue $ 1,505 $ 154 11% $ 11,109 $ 1,165 12%
Operating Earnings 221 -- -- 2,524 392 18
Cash Operating Earnings (a) 252 21 9 2,673 416 18
Average Common Equity 2,823 832 42 22,337 1,685 8
Average Managed Assets 15,670 2,899 23 381,803 (11,757) (3)
Shareholder Value Added 65 (32) (33) 1,197 329 38
Cash Return on Common Equity 17.7% -- (520) bp 23.8% -- 230 bp
Cash Efficiency Ratio 74 -- 200 52 -- --
</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%.
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.
Global Bank operating revenues rose $313 million (or 13%) and $528 million (or
11%) for the 1999 second quarter and six months, respectively. SVA increased by
44% to $491 million in the 1999 second quarter and by 33% to $889 million for
the first six months of 1999. These favorable results were driven by strong
trading-related revenue, investment banking fees and private equity gains,
partially offset by lower securities gains.
-14-
<PAGE> 15
The following table sets forth certain key financial performance measures of the
businesses within Global Bank for the periods indicated.
<TABLE>
<CAPTION>
1999 Over(Under) 1998
----------------------------------------- -----------------------------------------
THREE MONTHS ENDED CASH CASH Cash Cash
JUNE 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 $ 993 $ 333 48% 19% 37% (500) bp
Global Investment Banking 467 128 57 18 22 200
Corporate Lending 375 123 33 (2) - 300
Chase Capital Partners 454 267 8 32 33 (100)
Global Private Banking 221 42 68 -- (19) 800
Middle Markets 247 59 55 4 9 100
Other Global Bank (35) (12) NM NM NM NM
----------- --------
Total $ 2,722 $ 940 43 13% 21% (200) bp
========== ========
SIX MONTHS ENDED
JUNE 30,
(in millions, except ratios)
Global Markets $ 2,262 $ 816 44% 25% 43% (600) bp
Global Investment Banking 689 137 69 (8) (28) 1,200
Corporate Lending 763 263 30 2 10 --
Chase Capital Partners 733 423 9 20 21 (100)
Global Private Banking 433 85 67 2 (10) 500
Middle Markets 481 111 56 1 2 200
Other Global Bank (65) (48) NM NM NM NM
----------- --------
Total $ 5,296 $ 1,787 44% 11% 15% (100) bp
========== ========
</TABLE>
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 international
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 second quarter and first half of 1999
were $733 million (a 45% increase) and $1,570 million (a 32% increase),
respectively. The results reflect strong performance in traditional products,
including interest rate derivatives, and in newer products such as equity
derivatives. The total return (pretax before expenses) from interest rate risk
management activities amounted to $(11) million and $240 million for the second
quarter and first half of 1999, respectively. The total return of $(11) million
in the second quarter of 1999 was due to a rise in interest rates domestically
and in Europe. The total return for the second quarter and first six months of
1998 was $92 million and $178 million, respectively.
GLOBAL INVESTMENT BANKING
Global Investment Banking advises corporations, financial institutions,
financial sponsors and governments by providing integrated one-stop 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 22% in the second
quarter of 1999 to $128 million, when compared with the same quarter in 1998,
reflecting continued growth in market share in mergers and acquisitions
advisory, corporate bond underwriting, and loan syndications. For the first six
months of 1999, cash operating earnings decreased by 28%, reflecting lower
trading results on high yield securities throughout 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.
Revenues and cash operating earnings in the second quarter of 1999 remained flat
when compared with the 1998 second quarter. For the first six months of 1999,
revenues increased 2%, while cash operating earnings increased 10%, reflecting
lower credit costs.
CHASE CAPITAL PARTNERS
Chase Capital Partners ("CCP") is one of the largest global private equity
organizations with approximately $7.9 billion under management, including $5.2
billion in direct equity and equity-related investments and $1.5 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 first half of 1999, CCP's direct investments totaled approximately
$900 million in 59 venture capital, management buyout, recapitalization, growth
equity and mezzanine transactions, compared with approximately $870 million in
62 direct investments for the first half 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 quarter 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 second quarter and the first
half of 1999 remained flat, when compared with the same 1998 periods.
Double-digit revenue growth in the U.S. was offset by lower revenues in Europe
and Asia as a result of a strategic change in the product mix offered by Chase
in Europe and Asia. Revenues from managed investment products, including
discretionary portfolio management, grew at double-digit rates for the 1999
first half. Cash operating earnings decreased 19% and 10% for the second
quarter and first six months of 1999, respectively, from comparable 1998
periods, reflecting an increase in expenses due primarily to on-going
technology and productivity initiatives.
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 slightly in the
second quarter and first six months of 1999, compared with the respective 1998
periods reflecting lower credit costs.
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 second quarter and first six months of 1999, NCS's cash operating
earnings increased $74 million and $136 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 and managed funds levels and higher fees and increased
level of customer activity through Brown & Company, Chase's discount brokerage
firm.
Management expects the rate of growth in NCS revenues for the second half of
1999 (in comparison to revenues in the second half of 1998) to be somewhat lower
than the corresponding growth rate for the first half of 1999. This anticipated
moderation in growth rate would be due, in part, to pricing initiatives in the
latter part of 1998.
-16-
<PAGE> 17
The following table sets forth certain key financial performance measures of the
businesses within NCS for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1999 Over(Under) 1998
----------------------------------------- -----------------------------------------
(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 $ 1,016 $ 132 35% 5% 15% --
Regional Consumer Banking 593 101 70 9 19 (300) bp
Chase Home Finance 291 70 55 19 21 (100)
Diversified Consumer Services 292 54 50 35 145 (800)
Other NCS 17 4 NM NM NM NM
---------- --------
Total $ 2,209 $ 361 49% 11% 26% (100) bp
========== ========
SIX MONTHS ENDED
JUNE 30,
(in millions, except ratios)
Chase Cardmember Services $ 2,017 $ 250 35% 6% 10% 100bp
Regional Consumer Banking 1,167 200 70 8 22 (400)
Chase Home Finance 563 132 57 16 13 200
Diversified Consumer Services 582 112 49 36 143 (700)
Other NCS 37 13 NM NM NM NM
---------- --------
Total $ 4,366 $ 707 49% 11% 24% (100) bp
========== ========
</TABLE>
NM - Not meaningful
bp - Denotes basis points; 100 bp equals 1%.
CHASE CARDMEMBER SERVICES
Chase Cardmember Services ("CCS") ranks as the fourth-largest bank 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 June 30, 1999, CCS had a $33 billion
managed world-wide credit card portfolio. CCS's cash operating earnings for the
second quarter of 1999 were $132 million, a 15% increase over 1998. Cash
operating earnings for the first six months of 1999 rose 10% to $250 million.
The increases in cash operating earnings reflect higher card usage, pricing
initiatives started in the 1998 second quarter, 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. It also has 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 second quarter and first six months of 1999, cash
operating earnings increased 19% to $101 million and 22% to $200 million,
respectively, compared with the same periods in 1998, benefiting from higher
deposit and managed funds balances coupled with growth in consumer banking fees
and strong expense discipline.
CHASE HOME FINANCE
Chase Home Finance serves more than 2 million customers nationwide and is the
largest originator and third-largest servicer of residential mortgage loans in
the U.S. It is also a leading provider of home-equity secured lending and
manufactured housing financing. During the first six months of 1999, $56 billion
in residential first-mortgage loans, home-equity and manufactured housing
financing were originated, a 56% increase over the same period last year. Chase
Home Finance's servicing portfolio increased 33% over the past twelve months and
totaled $245 billion at June 30, 1999. Cash operating earnings increased 21% to
$70 million and 13% to $132 million for the second quarter and first half of
1999, respectively. The increases were fueled by growth in originations and
servicing, 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 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. During the first half of
1999, auto finance originations were strong, increasing 14% when compared to the
same period in 1998. At June 30, 1999, Chase Auto Finance had $24 billion in
managed receivables and $20 billion in balance sheet receivables. Increases in
cash operating earnings of 145% and 143% for DCS in the second quarter and first
half of 1999, respectively, were driven by the strong growth in auto finance and
by higher revenues in Chase's investment and insurance businesses. Also included
in revenues for the first half of 1999 were $49 million of gains on sales of
student loans, which reflects a shift to a loan origination and sale strategy.
GLOBAL SERVICES
Global Services is a leading provider of information and transaction services
globally and includes custody and other investor services, treasury and cash
management, trade finance, debt, agency 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 $5.0 trillion in assets and
serviced over $3.0 trillion in outstanding debt at June 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 second quarter and six months ended June 30, 1999, cash operating
earnings for Global Services increased $25 million and $21 million,
respectively, when compared with the same periods in 1998. Revenue growth was
14% in the second quarter and 11% for the first six months of 1999, driven by
acquisitions completed in 1998 and internally generated growth in investor
services and structured finance activities. These increases were offset
partially by a decline in excess deposit balances in cash management services.
Expenses for the first six months of 1999 were higher than the same period in
1998, reflecting ongoing investment spending and costs related to Year 2000
initiatives.
Management anticipates that results for Global Services for the 1999 third
quarter will be generally consistent with that of the 1999 second quarter;
however, the 1999 fourth quarter revenue growth rate (in comparison to the
fourth quarter of 1998) might be lower than the corresponding revenue growth
rate in the current quarter, as business transaction volume is expected to slow
in light of customer concerns involving the Year 2000.
CORPORATE
Corporate includes Chase's Global Asset Management and Mutual Funds business,
which provides investment management for institutional investors globally and
manages the Chase Global Mutual Funds. Total assets under management amounted
to $213 billion at June 30, 1999. Corporate also includes the effects remaining
at the Corporate level after the implementation of management accounting
policies. For the second quarter and six months ended June 30, 1999, Corporate
had a cash operating loss of $14 million and $73 million, respectively,
compared with a cash operating loss of $39 million and $93 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.
ORGANIZATIONAL CHANGES
In the 1999 second quarter, Chase announced a reorganization within each of its
three major franchises. For example, the Middle Markets business will report
into the National Consumer Services franchise. These changes will be reflected
in the lines of business results for the 1999 third quarter.
In June 1999, Chase created a new organization called Chase.com. This
organization will have direct management responsibility for new internet related
ventures and for working with Chase's lines of businesses to capitalize on
internet opportunities. The Chase.com organization has recently created an
alliance with Shopnow.com, which will provide customers a convenient way to make
internet purchases across the United States. Also, Chase.com has formed a joint
venture with Wells Fargo & Company and First Union Corporation called "Spectrum
EBP, LLC", which will permit the payment of bills electronically.
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. To further facilitate its analysis of Chase's financial results,
management categorizes revenue components as market-sensitive or as
less-market-sensitive revenues. Market-sensitive revenues include trading
revenues (including trading-related net interest income), investment banking
fees, securities gains and private equity gains. The remaining revenue
components are categorized as less-market-sensitive revenue.
-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 for risk management instruments, previously
included in credit costs, are now netted against trading revenue. All prior
periods have been restated.
(in millions, except per share data)
<TABLE>
<CAPTION>
SECOND QUARTER 1999 Second 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 $ 1,836 $ -- $ -- $ 1,836 $ 1,413 $ -- $ -- $ 1,413
Less-Market-Sensitive 3,780 246 (166) 3,860 3,342 286 -- 3,628
--------- -------- -------- -------- ------- ------- ------- --------
Total Revenue 5,616 246 (166) 5,696 4,755 286 -- 5,041
Noninterest Expense 3,065 -- (100) 2,965 2,712 -- -- 2,712
--------- -------- -------- -------- ------- ------- ------- --------
Operating Margin 2,551 246 (66) 2,731 2,043 286 -- 2,329
Credit Costs 391 246 -- 637 330 286 -- 616
--------- -------- ------- -------- ------- ------- ------- --------
Income Before
Restructuring Costs 2,160 -- (66) 2,094 1,713 -- -- 1,713
Restructuring Costs -- -- -- -- 8 -- (8) --
--------- -------- ------- -------- ------- ------- -------- --------
Income Before Taxes 2,160 -- (66) 2,094 1,705 -- 8 1,713
Tax Expense 767 -- (24) 743 631 -- 3 634
--------- -------- -------- -------- ------- ------- ------- --------
Net Income $ 1,393 $ -- $ (42) $ 1,351 $ 1,074 $ -- $ 5 $ 1,079
========= ======== ======== ======== ======= ======= ======= ========
NET INCOME PER COMMON SHARE
Basic $ 1.65 $ 1.60 $ 1.24 $ 1.24
Diluted $ 1.60 $ 1.55 $ 1.20 $ 1.21
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS 1999 Six Months 1998
--------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Market-Sensitive $ 3,471 $ -- $ -- $ 3,471 $ 2,830 $ -- $ -- $ 2,830
Less-Market-Sensitive 7,289 515 (166) 7,638 6,548 566 -- 7,114
---------- -------- -------- ---------- ------- ------- ------- ---------
Total Revenue 10,760 515 (166) 11,109 9,378 566 -- 9,944
-
Noninterest Expense 6,005 -- (100) 5,905 5,328 -- -- 5,328
---------- -------- -------- ---------- ------- ------- ------- ---------
Operating Margin 4,755 515 (66) 5,204 4,050 566 -- 4,616
Credit Costs 777 515 -- 1,292 666 566 -- 1,232
---------- -------- ------- ---------- ------- ------- ------- ---------
Income Before
Restructuring Costs 3,978 -- (66) 3,912 3,384 -- -- 3,384
Restructuring Costs -- -- -- -- 529 -- (529) --
---------- -------- ------- ---------- ------- ------- -------- ---------
Income Before Taxes 3,978 -- (66) 3,912 2,855 -- 529 3,384
Tax Expense 1,412 -- (24) 1,388 1,056 -- 196 1,252
---------- -------- -------- ---------- ------- ------- ------- ---------
Net Income $ 2,566 $ -- $ (42) $ 2,524 $ 1,799 $ -- $ 333 $ 2,132
========== ======== ======== ========== ======= ======= ======= =========
NET INCOME PER COMMON SHARE
Basic $ 3.02 $ 2.97 $ 2.06 $ 2.45
Diluted $ 2.92 $ 2.87 $ 2.00 $ 2.38
</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.
(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 40.
-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 second quarter and first six months, market-sensitive revenues in 1999
increased 30% and 23%, respectively, over the same 1998 periods, reflecting
increases in trading-related revenues, investment banking fees and private
equity gains. A discussion of the components within market-sensitive revenue is
presented below.
INVESTMENT BANKING FEES
Investment banking fees of $585 million in the 1999 second quarter were up 34%
from Chase's previous record of $438 million in the second quarter of 1998; fees
of $902 million for the first six months of 1999 were 13% higher than the first
half of 1998. These strong results reflect continued growth in market share in
mergers and acquisitions advisory, corporate bond underwriting, and loan
syndications, as Chase leverages its broad customer base and leadership
positions in attractive markets.
TRADING-RELATED REVENUE
Trading revenues and related net interest income rose 45% to $733 million for
the 1999 second quarter and 32% to $1,570 million for the first half of 1999.
The results reflect strong performance across the full range of trading
products.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
------------------- -------------------
(in millions) 1999 1998 1999 1998
- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Trading Related Revenue by Type
Trading Revenue (a) $ 526 $ 323 $ 1,144 $ 791
Trading Related NII (b) 207 184 426 396
--------- -------- ---------- ---------
Total $ 733 $ 507 $ 1,570 $ 1,187
========= ======== ========== =========
Product Diversification
Interest Rate Contracts (c) $ 260 $ 95 $ 582 $ 226
Foreign Exchange Spot and Option Contracts 218 260 417 546
Equities and Commodities (d) 91 53 174 105
Debt Instruments and Other (e) 164 99 397 310
--------- -------- ---------- ---------
Total $ 733 $ 507 $ 1,570 $ 1,187
========= ======== ========== =========
</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 second quarter and first half of
1999 as a result of interest rate movements in the European markets. Foreign
exchange spot and option contract revenue declined in the second quarter and for
the first half 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 first half of 1999. The increase in debt
instruments and other resulted from continued improvement in emerging markets
activities and high-grade bonds.
SECURITIES GAINS
Securities gains realized for the 1999 second quarter were $5 million, compared
with $98 million in the prior year's second quarter. Total securities gains for
the first half of 1999 were $161 million, an 11% decrease over the same period
in 1998. The decline in securities gains was due to a lower level of sales in
the current quarter 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 $1.3 billion, before
taxes, at June 30, 1999, a decrease from a net unrealized gain of approximately
$600 million, before taxes, at year-end 1998, reflecting a rise in interest
rates during the 1999 first half. 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
second quarter and first half of 1999 were $143 million higher (an increase of
39%) and $175 million higher (an increase of 26%) than the same periods in the
prior year. These results reflect gains on investments in several technology and
internet companies which completed initial public offerings during the 1999
second quarter, as well as the positive impact of maturing investments within
the portfolio.
-20-
<PAGE> 21
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 6% in the 1999 second quarter and by
7% for the first half of 1999 reflecting increases across all categories for
both periods, with the exception of operating other revenue which declined in
the 1999 second quarter. A discussion of less-market-sensitive revenue
components is presented below.
NET INTEREST INCOME
Reported net interest income was $2.15 billion for the 1999 second quarter and
$4.35 billion for the 1999 first six months, increasing 5% and 4%, respectively,
from the comparable 1998 periods. Reported results include trading-related net
interest income of $207 million for the 1999 second quarter and $426 million for
the first half of 1999, increases of 13% and 8%, respectively, from the same
1998 periods. For purposes of internal analysis, management combines
trading-related net interest income with trading revenue, as discussed under the
trading-related revenue caption in the Market-Sensitive Revenue section.
The following table provides a reconciliation between reported net interest
income as presented on the Consolidated Statement of Income and operating net
interest income.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
-------------------------------- ----------------------------
NET INTEREST INCOME
(in millions) 1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Reported Net Interest Income $ 2,145 $ 2,036 5% $ 4,349 $ 4,200 4%
Less Trading-Related Net Interest Income (207) (184) (426) (396)
----------- ----------- ----------- ---------
Subtotal 1,938 1,852 5% 3,923 3,804 3%
Add Impact of Credit Card Securitizations 341 371 668 719
---------- ---------- ---------- --------
Operating Net Interest Income $ 2,279 $ 2,223 3% $ 4,591 $ 4,523 2%
========== ========== ========== ========
AVERAGE INTEREST-EARNING ASSETS
(in billions)
Reported $ 289.0 $ 299.3 (3)% $ 289.9 $ 300.4 (3)%
Add Credit Card Securitizations 17.7 18.2 17.8 17.7
Less Trading-Related Assets (51.5) (68.2) (50.2) (68.8)
----------- ----------- ----------- --------
Managed $ 255.2 $ 249.3 2% $ 257.5 $ 249.3 3%
========== ========== ========== ========
NET YIELD ON INTEREST-EARNING ASSETS (a)
Reported 2.98% 2.74% 24 bp 3.03% 2.83% 20 bp
Add Impact of Securitizations .28 .31 (3) .26 .30 (4)
Impact of Trading-Related NII .33 .54 (21) .31 .54 (23)
---------- ---------- ---------- --------
Managed 3.59% 3.59% -- bp 3.60% 3.67% (7) bp
========== ========== ========== ========
</TABLE>
(a) Disclosed on a taxable equivalent basis.
bp - Denotes basis points; 100 bp equals 1%.
Operating net interest income was $2.28 billion in the 1999 second quarter, an
increase of 3% from the 1998 second quarter, and $4.59 billion for the 1999
first six months, an increase of 2% from the 1998 first six months. 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
foreign commercial loan portfolio, as Chase significantly reduced its exposure
to emerging markets during the latter part of 1998. The growth in managed
interest-earning assets in 1999 was funded by interest-bearing deposits.
The net yield on a managed basis was 3.59% for the 1999 second quarter, stable
with the 1998 second quarter. The net yield on a managed basis for the first six
months of 1999 was 3.60%, a seven basis point decline from the net yield for the
first six months of 1998. A slight improvement in commercial loan spreads was
offset by a decline in excess free balances. As a result of decreases in both
the volume and rate earned on interest-free funds, interest-free funds
contributed 60 basis points to the net yield in the 1999 second quarter,
compared to 81 basis points in the 1998 second quarter, and contributed 61 basis
points to the net yield in the first six months of 1999, compared to 83 basis
points in the first six months of 1998.
-21-
<PAGE> 22
TRUST, CUSTODY AND INVESTMENT MANAGEMENT FEES
Trust, custody and investment management fees continued their strong performance
in the 1999 second quarter and first half by increasing 20% 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
Credit card revenue on a reported basis rose $73 million, or 20%, in the 1999
second quarter and for the 1999 first six months, credit card revenue increased
$152 million, or 23%. These increases were the result of increased credit card
customer purchase volume and higher late charges.
The following table provides a reconciliation between reported credit card
revenue as presented on the Consolidated Statement of Income and operating
credit card revenue, which excludes the impact of credit card securitizations.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
--------------------- ----------------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Reported Credit Card Revenue $ 438 $ 365 $ 817 $ 665
Less Impact of Credit Card Securitizations (90) (87) (141) (153)
--------- ------- --------- -------
Operating Credit Card Revenue $ 348 $ 278 $ 676 $ 512
========= ======= ========= =======
</TABLE>
FEES FOR OTHER FINANCIAL SERVICES
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
-------------------- ----------------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 96 $ 92 $ 185 $ 183
Fees in Lieu of Compensating Balances 94 91 181 171
Mortgage Servicing Fees 77 49 142 106
Commissions on Letters of Credit and Acceptances 69 72 138 146
Brokerage and Investment Services 50 35 93 67
Insurance Fees (a) 41 32 80 63
Loan Commitment Fees 36 32 67 70
Other Fees 124 106 254 213
--------- ------- --------- ---------
Total $ 587 $ 509 $ 1,140 $ 1,019
========= ======= ========= =========
</TABLE>
(a) Insurance amounts exclude certain insurance fees related to credit cards
and mortgage products, which are included in those revenue captions.
Mortgage servicing fees increased by 57% and 34% for the second quarter and
first half of 1999, respectively, due to a larger servicing balance. The
servicing portfolio increased 33% from prior year levels due to higher
origination volume. Brokerage and investment services rose $15 million in the
second quarter and $26 million in the first half, 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 second quarter and first half reflected increased business
volume. Other fees rose in both the second quarter and for the first half 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>
SECOND QUARTER SIX MONTHS
-------------------- ------------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Residential Mortgage Origination/Sales Activities $ 88 $ 84 $ 180 $ 136
All Other Revenue 97 151 176 193
--------- -------- ------- --------
Operating Other Revenue 185 235 356 329
Gains on Sales of a Non-strategic Building and Branches 166 -- 166 --
Other Revenue - Credit Card Securitizations 5 (2) 12 --
--------- --------- ------- --------
Reported Other Revenue $ 356 $ 233 $ 534 $ 329
========= ======== ======= ========
</TABLE>
-22-
<PAGE> 23
Other revenue on a reported basis increased for both 1999 periods, when compared
with the same 1998 periods. The 1999 second quarter results included $166
million in gains from sales of nonstrategic assets, of which $95 million was
from the sale of One New York Plaza and $71 million was from the sale of
branches in Beaumont, Texas.
Other revenue on an operating basis decreased $50 million in the 1999 second
quarter and increased $27 million for the first six months, compared with the
same 1998 periods. The 1999 second quarter results included gains from the sale
of student loans, while the 1998 second quarter results included gains from the
sale of a variety of assets. Contributing to the 1999 six month increase was
higher revenue from residential mortgage originations and sales activities, a
reflection of the favorable interest-rate environment in early 1999, as well as
higher revenues from the Octagon Credit Investment Fund, which was established
late in the 1998 first quarter.
NONINTEREST EXPENSE
Total reported noninterest expense was $3.07 billion in the 1999 second quarter
and $6.01 billion in the first half of 1999. The second quarter of 1999 included
a special contribution to The Chase Manhattan Foundation totaling $100 million.
Operating noninterest expense increased 9% and 11% for the second quarter and
first half of 1999, respectively, reflecting technology-related costs, incentive
costs tied to higher market-sensitive revenues and a change in the long-term
compensation program of the Global Bank. Chase continues to manage its operating
noninterest expense to support its revenue growth.
<TABLE>
<CAPTION>
(in millions) SECOND QUARTER SIX MONTHS
-------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries $ 1,416 $ 1,270 $ 2,800 $ 2,524
Employee Benefits 238 215 493 439
Occupancy Expense 206 191 424 380
Equipment Expense 239 212 482 421
Other Expense 866 824 1,706 1,564
--------- --------- ---------- ---------
Operating Noninterest Expense 2,965 2,712 5,905 5,328
Special Contribution to the Foundation (a) 100 -- 100 --
Restructuring Costs -- 8 -- 529
Foreclosed Property Expense (b) 3 2 8 6
--------- --------- ---------- ---------
Reported Noninterest Expense $ 3,068 $ 2,722 $ 6,013 $ 5,863
========= ========= ========== =========
Efficiency Ratio (c) 54% 57% 56% 57%
Operating Efficiency Ratio (c) (d) 52% 54% 53% 53%
</TABLE>
(a) Represents a $100 million special contribution to The Chase Manhattan
Foundation.
(b) Included within Other Expense on the Consolidated Statement of Income.
For purposes of reviewing the results 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 second quarter and
first half was due to higher incentive costs, mainly driven by higher
market-sensitive revenues and a change in the long-term compensation program of
the Global Bank. Also contributing to the increase was the net addition of 2,712
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 JUNE 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Domestic Offices 62,300 60,074
Foreign Offices 11,105 10,619
------ ------
Total Full-Time Equivalent Employees 73,405 70,693
====== ======
</TABLE>
OCCUPANCY AND EQUIPMENT EXPENSE
Occupancy expense increased $15 million in the 1999 second quarter and $44
million during the first six months of 1999 when compared with the second
quarter and first six months of 1998. The increases were primarily due to higher
rental costs resulting from business expansions and acquisitions occurring
during the latter half of 1998. The higher level of equipment expense during the
1999 second quarter and first six months was the result of an 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
33.
-23-
<PAGE> 24
OTHER EXPENSE
<TABLE>
<CAPTION>
(in millions) SECOND QUARTER SIX MONTHS
-------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Professional Services $ 178 $ 161 $ 340 $ 303
Marketing Expense 114 108 228 198
Telecommunications 97 91 188 168
Amortization of Intangibles 76 64 149 125
Travel and Entertainment 59 67 109 119
Minority Interest (a) 12 12 25 24
Foreclosed Property Expense 3 2 8 6
Special Contribution to the Foundation (b) 100 -- 100 --
All Other 330 321 667 627
--------- --------- ---------- ---------
Total $ 969 $ 826 $ 1,814 $ 1,570
========= ========= ========== =========
</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.
Other expenses for the 1999 second quarter and first six months increased $143
million and $244 million, respectively, when compared with the second quarter
and first six months of 1998. Professional services costs for both 1999 periods
reflected a higher level of contract computer professionals associated with the
Year 2000 efforts. The increase in marketing expenses was due to higher costs at
Chase Cardmember Services and for the Chase brand campaign. 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. All other expenses for the
1999 first six months increased $40 million when compared to the same period of
1998, reflecting a growth in business volume at Chase Cardmember Services and
the global custody acquisition. In the second quarter of 1999, a $100 million
special contribution was made to The Chase Manhattan Foundation in order to
increase the endowment of the foundation. This contribution is treated as a
special item.
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 provisions for loan losses, foreclosed property expense and
credit costs associated with credit card securitizations. The following table
shows the components of credit costs.
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
-------------------- ----------------------
(in millions) 1999 1998 1999 1998
- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Provision for Loan Losses $ 388 $ 328 $ 769 $ 660
Credit Costs Associated with Credit Card Securitizations 246 286 515 566
Foreclosed Property Expense (a) 3 2 8 6
-------- --------- ---------- ---------
Operating Credit Costs (b) $ 637 $ 616 $ 1,292 $ 1,232
======== ========= ========== =========
</TABLE>
(a) Included in Other Expense on the Consolidated Statement of Income.
(b) Excludes provision for risk management instrument credit losses of $10
million in the second quarter of 1998 and $22 million for the first six
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 portfolio.
For a discussion of Chase's net charge-offs, see page 26.
INCOME TAXES
Chase recognized income tax expense of $767 million in the second quarter of
1999 compared with $631 million in the second quarter of 1998. For the first six
months, Chase recorded income tax expense of $1.41 billion in 1999, compared
with $1.06 billion in 1998. The effective tax rates were 35.5% for both 1999
periods and 37.0% for both 1998 periods.
-24-
<PAGE> 25
CREDIT RISK MANAGEMENT
The following discussion of Chase's credit risk management focuses primarily on
developments since December 31, 1998 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
---------------------- ------------------------ ----------------------
JUNE 30, Dec 31, JUNE 30, Dec 31, JUNE 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 $ 42,003 $ 41,831 $ 303 $ 313 $ 1 $ 3
Credit Card - Reported 15,270 14,229 -- -- 270 302
Credit Card Securitizations (a) 16,944 18,033 -- -- 301 379
------------ ----------- --------- -------- -------- --------
Credit Card - Managed 32,214 32,262 -- -- 571 681
Auto Financings 18,301 16,456 59 50 14 20
Other Consumer 6,299 8,375 5 6 52 97
------------ ----------- --------- -------- -------- --------
Total Domestic Consumer 98,817 98,924 367 369 638 801
Foreign Consumer 2,860 2,939 27 23 11 10
------------ ----------- --------- -------- -------- --------
TOTAL CONSUMER 101,677 101,863 394 392 649 811
------------ ----------- --------- -------- -------- --------
COMMERCIAL:
Domestic Commercial:
Commercial and Industrial 45,942 43,123 381 331 15 42
Commercial Real Estate 3,733 3,984 52 41 7 1
Financial Institutions 6,095 6,583 24 1 2 --
------------ ----------- --------- -------- -------- --------
Total Domestic Commercial 55,770 53,690 457 373 24 43
Foreign Commercial:
Commercial and Industrial 25,894 25,532 556 603 13 7
Commercial Real Estate 293 367 -- -- -- --
Financial Institutions 4,263 4,537 31 22 20 24
Foreign Governments 4,088 4,798 54 50 -- --
------------ ----------- --------- -------- -------- --------
Total Foreign Commercial 34,538 35,234 641 675 33 31
Derivative and FX Contracts 25,558 33,255 36 50 -- --
------------ ----------- --------- -------- -------- --------
TOTAL COMMERCIAL CREDIT-RELATED 115,866 122,179 1,134 1,098 57 74
------------ ----------- --------- -------- -------- --------
Total Managed Credit-Related $ 217,543 $ 224,042 1,528 1,490 $ 706 $ 885
============ =========== --------- -------- ======== ========
Assets Acquired as Loan Satisfactions 105 116
--------- --------
TOTAL NONPERFORMING ASSETS $ 1,633 $ 1,606
========= ========
</TABLE>
<TABLE>
<CAPTION>
NET CHARGE-OFFS
-------------------------------------------------------------------
Second Quarter Six Months
----------------------- -----------------------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSUMER:
Domestic Consumer:
1-4 Family Residential Mortgages $ 9 $ 6 $ 10 $ 16
Credit Card - Reported 218 184 434 363
Credit Card Securitizations (a) 246 286 515 566
--------- --------- -------- ---------
Credit Card-Managed 464 470 949 929
Auto Financings 19 18 38 41
Other Consumer 47 43 95 84
--------- --------- -------- ---------
Total Domestic Consumer 539 537 1,092 1,070
Foreign Consumer 9 5 18 8
--------- --------- -------- ---------
TOTAL CONSUMER 548 542 1,110 1,078
--------- --------- -------- ---------
COMMERCIAL:
Domestic Commercial:
Commercial and Industrial 29 (26) 49 (17)
Commercial Real Estate (2) (3) (11) (6)
Financial Institutions 3 (1) 28 (1)
--------- --------- -------- ---------
Total Domestic Commercial 30 (30) 66 (24)
Foreign Commercial:
Commercial and Industrial 58 108 110 164
Commercial Real Estate -- -- -- --
Financial Institutions (1) (5) (2) 10
Foreign Governments (1) (1) (1) (2)
--------- --------- -------- ---------
Total Foreign Commercial 56 102 107 172
--------- --------- -------- ---------
TOTAL COMMERCIAL 86 72 173 148
--------- --------- -------- ---------
TOTAL MANAGED LOANS (b) $ 634 $ 614 $ 1,283 $ 1,226
========= ========= ======== =========
</TABLE>
(a) Represents the portion of Chase's credit card receivables that have
been securitized.
(b) Excludes charge-offs for risk management instruments of $10 million
in the second quarter of 1998 and $22 million for the first six months
of 1998, which are netted against trading revenues.
-25-
<PAGE> 26
Chase's managed credit-related assets totaled $218 billion at June 30, 1999, a
decrease of $6 billion, or 3%, during the first six months of 1999. The decrease
was primarily due to lower derivative and foreign exchange receivables, as loan
balances remained relatively stable.
Chase's nonperforming assets at June 30, 1999 increased $27 million, or 2%, from
the 1998 year-end level. This increase occurred primarily in the domestic
commercial loan portfolio and was partially offset by a decrease in the foreign
commercial loan portfolio.
Total net charge-offs on a retained basis increased by $60 million during the
1999 second quarter and by $108 million for the first six months of 1999, when
compared to the same periods in 1998. Managed net charge-offs increased in both
1999 periods by $20 million and $57 million, respectively. The increase in net
charge-offs on both a managed and retained basis is primarily due to increased
charge-off levels in the retained credit card portfolio and lower recoveries in
the domestic commercial and industrial loan portfolio. These increases were
partially offset by lower levels of net charge-offs in the securitized credit
card and foreign commercial loan portfolios.
Management expects that credit costs, on a managed basis, will remain
relatively stable over the remainder of 1999 and for full year 1999 will be of
a similar magnitude to total credit costs incurred in 1998. For the consumer
portfolio, management expects net charge-off rates will be approximately the
same as in 1998; however, reported net charge-offs will vary depending on the
level of credit card securitizations completed during the year.
AVERAGE ANNUAL NET CHARGE-OFF RATES
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
-------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consumer Loans:
1-4 Family Residential Mortgages .08% .06% .05% .08%
Credit Card-Managed (a) 5.80 5.94 5.95 5.82
Auto Financings .42 .53 .43 .60
Other Consumer (b) 2.01 1.47 1.95 1.41
Total Consumer Loans 2.13 2.18 2.16 2.17
Total Commercial Loans (b) .39 .33 .39 .34
Total Managed Loans 1.33 1.32 1.34 1.31
</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 June 30, 1999, when compared with year-end balances, while the level
of nonperforming domestic residential mortgage loans decreased by 3%. The loss
rate of .08% for the 1999 second quarter was up slightly from the previous year.
However, for the first six months of 1999, net charge-offs decreased by $6
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 six
month periods ended June 30, 1999, compared with the same periods last year. The
decrease in the net charge-off percentage rate for the second quarter of 1999
was a result of lower customer bankruptcy levels.
MANAGED CREDIT CARD PORTFOLIO (a)
<TABLE>
<CAPTION>
As of or for the As of or for the
Three Months Ended Six months Ended
June 30, June 30,
----------------------- --------------------
(in millions, except ratios) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Credit Card Receivables $ 32,553 $ 31,906 $ 32,323 $ 32,155
Past Due 90 Days or More and Accruing $ 587 $ 658 $ 587 $ 658
As a Percentage of Average Credit Card Receivables 1.80% 2.06% 1.82% 2.05%
Net Charge-offs $ 472 $ 474 $ 962 $ 936
As a Percentage of Average Credit Card Receivables 5.80% 5.94% 5.95% 5.82%
</TABLE>
(a) Includes domestic and foreign credit card activity.
-26-
<PAGE> 27
Auto Financings: Auto financings outstanding increased 11%, reflecting continued
strong consumer demand due to favorable pricing programs. Total originations
were $6.7 billion in the first six months of 1999, an increase of 14% when
compared with the same 1998 period. The charge-off rates of .42% for the second
quarter and .43% for the first six months of 1999 are indicative of the
selective approach to asset origination.
Other Consumer: Other consumer loans decreased 25% from the year-end level due
to the sale of student loans during the first six months of 1999.
COMMERCIAL PORTFOLIO
The domestic commercial portfolio at June 30, 1999 increased $2.1 billion from
the year-end level. Net charge-offs were $30 million during the 1999 second
quarter and $66 million for the first half of 1999, compared with net recoveries
in the same prior year periods. The net charge-offs for the portfolio remained
at a low level, indicative of the portfolio's diversification and strong credit
quality.
The foreign commercial portfolio totaled $34.5 billion at June 30, 1999 and
outstandings and nonperforming loan levels both declined slightly from 1998
year-end levels. Net charge-off levels for the 1999 second quarter and first
half decreased in comparison with the prior year by $46 million, or 45%, and $65
million, or 38%, respectively, due to stabilizing financial conditions in Asia.
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 JUNE 30, 1999 At Dec 31, 1998
------------------------------------------------------------------- ------------------------
COUNTRY
GROSS NET 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 $ 1.5 $ 0.3 $ 0.8 $ (0.7) $ 1.9 $ 1.0 $ 2.3 $ 0.9
Argentina 1.8 0.3 0.3 (0.3) 2.1 0.7 2.3 0.5
Mexico 1.1 0.6 0.3 (0.3) 1.7 0.4 1.8 0.4
Chile 1.0 -- 0.2 (0.2) 1.0 -- 0.9 --
Colombia 0.7 -- -- -- 0.7 -- 0.8 --
Venezuela 0.2 0.1 -- -- 0.3 0.2 0.4 --
All Other Latin America (d) 0.4 0.3 0.8 (0.8) 0.7 0.1 1.0 --
------ ------ ------ ------- ------- ------ ------- -------
Total Latin America $ 6.7 $ 1.6 $ 2.4 $ (2.3) $ 8.4 $ 2.4 $ 9.5 $ 1.8
====== ====== ====== ======= ======= ====== ======= =======
ASIAN IMF COUNTRIES
South Korea $ 0.9 $ 0.2 $ 0.9 $ (0.5) $ 1.5 $ 0.1 $ 2.4 $ --
Indonesia 1.0 0.1 0.1 (0.1) 1.1 -- 1.2 --
Thailand 0.2 0.1 0.8 (0.1) 1.0 -- 0.9 --
------ ------ ------ ------- ------- ------ ------- -------
Subtotal 2.1 0.4 1.8 (0.7) 3.6 0.1 4.5 --
OTHER EMERGING ASIA
Hong Kong 0.6 0.1 4.7 (4.7) 0.7 -- 0.8 --
Singapore 0.6 0.1 0.3 (0.3) 0.7 -- 0.8 --
Philippines 0.2 0.1 0.2 (0.2) 0.3 -- 0.6 --
Malaysia 0.2 -- 0.6 (0.1) 0.7 -- 0.6 --
China 0.3 0.4 0.2 (0.1) 0.8 -- 0.6 --
All Other Asia 0.4 0.1 0.3 (0.3) 0.5 -- 0.5 --
------ ------ ------ ------- ------- ------ ------- -------
Total Asia excluding Japan,
Australia and New Zealand $ 4.4 $ 1.2 $ 8.1 $ (6.4) $ 7.3 $ 0.1 $ 8.4 $ --
====== ====== ====== ======= ======= ====== ======= =======
Japan $ 2.8 $ 2.3 $ 1.8 $ (1.8) $ 5.1 $ 1.3 $ 5.2 $ 1.7
Australia 0.4 0.4 2.5 (2.1) 1.2 -- 1.9 --
New Zealand 0.1 0.2 -- -- 0.3 -- 0.6 --
------ ------ ------ ------- ------- ------ ------- -------
Total Japan, Australia
and New Zealand $ 3.3 $ 2.9 $ 4.3 $ (3.9) $ 6.6 $ 1.3 $ 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.
-27-
<PAGE> 28
At June 30, 1999, Chase had approximately $64 million in lending and trading
related exposure to Russia, a decrease of $32 million from December 31, 1998.
Chase also had at June 30, 1999 approximately $30 million in resale agreements
with non-Russian counterparties collateralized by non-ruble denominated Russian
debt, a decrease of $57 million from the 1998 year-end.
Chase significantly reduced its exposure to emerging markets in Asia and Latin
America from a year ago (by 30% and 19%, respectively) and further lowered its
exposure to Asia from year-end (by 12%). Total nonperforming assets in Asia
increased by $21 million from 1998 year-end to $522 million at June 30, 1999.
Asian commercial loan net charge-offs for the 1999 second quarter and first six
months were $71 million and $130 million, respectively, compared with $112
million and $192 million, respectively, in the same 1998 periods. There were no
charge-offs for Latin American commercial loans during the first six months of
1999.
Management completed a strategic review of its cross-border activities during
the first quarter of 1999. As a result of that review, 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.
DERIVATIVE AND FOREIGN EXCHANGE CONTRACTS
For a discussion of the derivative and foreign exchange contracts utilized in
connection with Chase's trading and ALM activities, see pages 34-35 and Notes
One and Nineteen of Chase's 1998 Annual Report. Chase's 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 June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
AT JUNE 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% 30% 33% 15% 93% 38% 37%
1 to 5 years 51 6 67 42 48 5 59 37
Over 5 years 33 2 3 25 37 2 3 26
---- ---- --- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100% 100% 100%
==== ==== === === === === === ===
</TABLE>
At June 30, 1999, nonperforming derivative contracts were $36 million, compared
with $50 million at December 31, 1998. The decrease in nonperforming derivative
contracts was due to stabilizing financial conditions in Asia since the 1998
fourth quarter.
-28-
<PAGE> 29
ALLOWANCES FOR CREDIT LOSSES
The following discussion of Chase's allowances for credit losses focuses
primarily on developments since December 31, 1998 and should be read in
conjunction with page 35 and Notes One and Five of Chase's 1998 Annual Report.
(in millions, except ratios)
<TABLE>
<CAPTION>
JUNE 30, June 30,
Allowances for Credit Losses: (a) 1999 1998
---- ----
<S> <C> <C>
Loans $ 3,554 $ 3,629
Lending-Related Commitments 170 170
</TABLE>
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
--------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Allowance for Loan Losses at Beginning of Period $ 3,552 $ 3,622 $ 3,552 $ 3,624
Provision for Loan Losses 388 328 769 660
Charge-Offs (449) (427) (901) (834)
Recoveries 61 99 133 174
---------- --------- --------- ---------
Net Charge-Offs (388) (328) (768) (660)
Other 2 7 1 5
---------- --------- --------- ---------
Allowance for Loan Losses at End of Period $ 3,554 $ 3,629 $ 3,554 $ 3,629
========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Allowance for Loan Losses to:
<S> <C> <C>
Nonperforming Loans 238% 297%
Loans at Period-End 2.03 2.15
Average Loans (Six Months) 2.05 2.15
</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 June 30, 1999 to be adequate
(i.e., sufficient to absorb losses that may currently exist for all credit
activities, but are not yet identifiable). 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.
-29-
<PAGE> 30
MARKET RISK MANAGEMENT
The following discussion of Chase's market risk management focuses primarily on
developments since December 31, 1998 and should be read in conjunction with
pages 36-39 and Notes One and Nineteen of Chase's 1998 Annual Report.
The total VAR for Chase's trading portfolio, market risk-related ALM portfolio,
and aggregate portfolio as of and for the twelve-month period ended June 30,
1999 were as follows:
<TABLE>
<CAPTION>
Mark-to-Market Trading Portfolio Market Risk-Related ALM Activities
--------------------------------------------- ----------------------------------------------
Twelve-Month Period Twelve-Month Period
Ended June 30, 1999 At Ended June 30, 1999 At
---------------------------------- June 30, ---------------------------------- June 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 $ 20.7 $ 10.7 $ 36.8 $ 20.7 $ 69.5 $ 41.5 $ 94.0 $ 79.6
Foreign Exchange 8.5 2.2 21.6 11.0 --- --- --- ---
Commodities 3.2 1.9 5.0 2.6 --- --- --- ---
Equities 5.3 1.9 10.1 4.9 --- --- --- ---
Fund Investments (a) 4.2 4.1 4.4 4.4 15.0 14.6 15.4 14.6
Less:
Portfolio
Diversification (18.0) (8.5) (33.0) (19.8) (14.9) (14.6) (15.4) (13.3)
-------- ---------- -------- ------- -------- -------- -------- ------
Total VAR $ 23.9 $ 12.3 $ 44.9 $ 23.8 $ 69.6 $ 41.5 $ 94.0 $ 80.9
======== ========== ======== ======= ======== ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Aggregate Portfolio
Average VAR
Twelve-Month Period Ended VAR at
-------------------------------------- ----------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Marked-to-Market Trading Portfolio $ 23.9 $ 24.4 $ 23.8 $ 28.9
Market Risk-Related ALM Activities 69.6 47.6 80.9 45.0
Less: Portfolio Diversification (21.7) (18.2) (20.7) (22.6)
------------ ---------- ----------- ----------
Aggregate VAR $ 71.8 $ 53.8 $ 84.0 $ 51.3
============ ========== =========== ==========
</TABLE>
(a) Fund Investments represent Chase's exposure to hedge fund activities.
Chase's average aggregate VAR (VAR for both trading and ALM activities) for the
twelve-month period ended June 30, 1999 was $71.8 million and at June 30, 1999
was $84.0 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
$21.7 million and $20.7 million, respectively) due to risk offsets, resulting
from portfolio diversification which occurs across the trading and ALM
portfolios. The increases in the aggregate VAR levels for 1999 were primarily
the result of the adverse market conditions that existed in the 1998 third
quarter.
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 mark-to-market activities, there
were 2 days during the twelve months ended June 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. These losses occurred during the
third quarter of 1998 and resulted from the adverse market conditions in effect
at that time.
The following chart contains a histogram of Chase's 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 231 out of 259 business
trading days, with 60 business days exceeding positive $20 million. Chase
incurred five daily trading losses in excess of negative $20 million over the
past twelve months. All five daily trading losses occurred in the 1998 third
quarter and resulted from the adverse global market conditions of that period.
-30-
<PAGE> 31
[Graphic of Daily Market Risk-Related Revenue - See Appendix I]
ASSET/LIABILITY MANAGEMENT
Measuring Interest Rate Sensitivity: As noted in the 1998 Annual Report,
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.
Chase, as part of its ALM process, employs a variety of instruments including
securities and derivatives in managing its exposure to fluctuations in interest
rates. At year end, Chase presented its market risk exposure in the form of an
aggregate net gap position. In net gap analysis, assets, liabilities and
derivative instruments are placed in gap intervals based on their repricing
dates. For a more complete discussion of gap analysis, see page 38 of the 1998
Annual Report. Although gap analysis is a widely used representation of interest
rate risk, it is limited in that it does not include the impact of factors such
as basis risk. Basis risk results from the fact that assets may be repriced on a
different interest rate index than liabilities (for instance, LIBOR vs. prime
rate repricing). In addition, the position risk presented in gap analysis cannot
reveal the impact of other factors, such as pricing strategies on consumer and
business deposits or changes in balance sheet mix, on Chase's earnings or
economic value.
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 June 30, 1999, Chase had a BPV value of $5.0 million (pre-tax), indicating
that the economic value of Chase's ALM positions would decline $5.0 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 June 30, 1999 would result in a $5.0 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.
-31-
<PAGE> 32
At June 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.
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 at June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
JUNE 30, December 31,
(in millions) 1999 1998 Change
---- ---- ------
<S> <C> <C> <C>
ALM Derivative Contracts:
Net Deferred Gains $ 486 $ 402 $ 84
Net Unrecognized Gains (Losses) (a) (492) 110 (602)
---------- ---------- --------
Net ALM Derivative Gains (Losses) $ (6) $ 512 $ (518)
========== ========== ========
</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 first six months of 1999, Chase issued $3.3 billion of long-term debt
and capital securities of subsidiaries, more than offsetting $1.8 billion of
long-term debt that matured and $277 million that was redeemed.
For a discussion of liquidity risk related to Year 2000, see the Operating Risk
Management section of this Form 10-Q on pages 33 and 34, and pages 41-42 of
Chase's 1998 Annual Report.
CAPITAL
Chase's capital levels at June 30, 1999 remained strong, with capital ratios
well in excess of regulatory guidelines. At June 30, 1999, the Tier 1 and Total
Capital ratios were 8.4% and 12.0%, respectively, and the Tier 1 leverage ratio
was 6.8%.
Management believes a reasonable long-term growth rate for balance sheet assets
is approximately 6% - 7%. However, during the first half of 1999, Chase's
balance sheet assets decreased by 2%, primarily as a result of continued focus
on removing non-positive SVA assets from the balance sheet. The following table
shows the impact this disciplined approach has had on the growth in Chase's
risk-weighted assets.
<TABLE>
<CAPTION>
JUNE 30, Increase During Dec 31, Increase During June 30,
1999 18 Month Period 1997 18 Month Period 1996
---- --------------- ---- --------------- ----
<S> <C> <C> <C> <C> <C>
($ in billions)
Risk-Weighted Assets $ 292 2% $ 286 20% $ 238
</TABLE>
At June 30, 1999, the Tier 1 capital ratio was the same as at March 31, 1999,
and had increased from year-end 1998, notwithstanding net equity purchases
during the second quarter of approximately $968 million and for the first six
months of approximately $1.8 billion. These results were due to strong income
growth, with minimal growth in risk-weighted assets, during the first six months
of 1999.
-32-
<PAGE> 33
Management's current intention is to target a Tier 1 ratio in the range of 8% to
8.25% over the long term, recognizing that the Tier 1 ratio may be outside that
range from time to time, as it was at the end of both quarters of 1999. Capital
generated in excess of this target ratio will be used to purchase Chase common
stock or for future reinvestment and acquisition opportunities.
The following table shows the sources and uses of Chase's free cash flow for the
periods indicated.
<TABLE>
<CAPTION>
FULL YEAR
SIX MONTHS ---------------------
(in billions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
SOURCES OF FREE CASH FLOW
Operating Earnings Less Dividends $ 1.8 $ 2.7 $ 2.5
Plus: Preferred Stock and Equivalents / Special Items 0.4 (0.4) 1.0
Less: Capital for Internal Growth (0.2) (0.3) (2.5)
---------- --------- ----------
Total Sources of Free Cash Flow $ 2.0 $ 2.0 $ 1.0
========== ======== =========
USES OF FREE CASH FLOW
Increases (Decreases) in Capital Ratios $ 0.2 $ 1.3 $ (0.6)
Acquisitions -- 0.8 0.4
Net Repurchases (Issuances) 1.8 (0.1) 1.2
---------- -------- ---------
Total Uses of Free Cash Flow $ 2.0 $ 2.0 $ 1.0
========== ======== =========
</TABLE>
During the first six months of 1999, $2.0 billion of free cash flow was
generated, the same amount as for full year 1998 and twice that for full year
1997, as 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 equity 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 June 30, 1999, Chase
repurchased approximately net $1.8 billion.
At June 30, 1999, the total capitalization of Chase (the sum of Tier 1 and Tier
2 capital) was $35.0 billion, an increase of $177 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 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.
Year 2000: Chase's Year 2000 efforts, including a description of each of the
items listed in the table below, are discussed on pages 41-42 of Chase's 1998
Annual Report and on pages 32-33 of Chase's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 ("First Quarter 10-Q"). The information below
updates Chase's Year 2000 disclosures.
Chase achieved near-perfect compliance with the June 30, 1999 milestones for
"mission-critical" systems applications established by the federal bank
regulatory authorities. The status of Chase's Year 2000 remediation and testing
efforts, for both "mission-critical" and "non-mission-critical" systems at June
30, 1999 is set forth below.
-33-
<PAGE> 34
<TABLE>
<CAPTION>
% REMEDIATED AT JUNE 30, 1999 (a)
----------------------------------
Forecasted Actual
---------- ------
<S> <C> <C>
TYPE OF SYSTEM
Technical Infrastructure 100% 100% (b)
Business Software Applications 100% 100% (c)
Facility Systems 100% 100% (b)
Desktop Systems 100% 100% (b)
</TABLE>
(a) While testing and implementation have been completed, efforts will continue
around external testing and certification throughout the year.
(b) Actual percentage remediated is over 99.5%. For each of these types of
systems, actual percentage remediated also indicates the percentage tested
to be Year 2000 compliant and implemented.
(c) For Business Software Applications, actual percentage remediated is 100%,
of which 99.66% have also been tested to be Year 2000 compliant and
implemented.
With remediation and testing of systems essentially completed, Chase's
information technology teams will continue to manage system changes to ensure
that applications remain Year 2000 compliant. In addition, Chase's Independent
Validation and Verification (IVV) efforts have proven very successful in
confirming the quality of code remediation and testing. IVV is a means of
uncovering potential Year 2000 errors in remediated code that may have been
missed in testing. Independent systems analysts, utilizing sophisticated Year
2000 code examination tools, were contracted by Chase to identify remaining
potential Year 2000 errors. Over 80% of Chase's internal mission critical
software, representing more than 130 million lines of code, have been processed
through IVV. A small number of errors were identified using IVV and were
repaired by Chase.
The major focus of the balance of this year is business risk management,
contingency planning and event preparation. Under the auspices of Chase's Year
2000 Business Risk Council, contingency plans have been refined and are in the
process of being 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. In addition, Chase has
performed a Year 2000 credit assessment of its loan portfolios. Chase has also
developed Year 2000 stress scenarios in order to stress test its
market-sensitive portfolios. These scenarios will continue to be updated
throughout the year as more information about world-wide Year 2000 readiness
evolves. Chase has performed stress testing, and will continue to perform stress
testing, on at least a monthly basis through 1999, for its market-sensitive
portfolios utilizing these scenarios. Chase is also in the process of making
preparations to have appropriate liquidity funding available at year-end,
including increased cash reserves for ATM machines.
Event preparation activities also continue. Year 2000 command centers are being
created; problem tracking and reporting tools designed; key operational and
service performance measures identified for tracking; "wellness checks" of
facilities, services, and systems planned; and training of "rapid response
teams" scheduled. Dress rehearsals have been scheduled for three weekends during
the fourth quarter of 1999 and command centers will become operational in late
December.
Chase currently estimates that full year 1999 Year 2000 costs will increase to
approximately $158 million (versus the $127 million reported in the First
Quarter 10-Q). The largest portion of the $31 million increase is directly
related to the cost of IVV. The balance is due to increased levels of testing
and additional costs associated with event preparation and contingency planning.
-34-
<PAGE> 35
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 $3.4 billion at
June 30, 1999.
ACCOUNTING DEVELOPMENTS
DERIVATIVES
In June 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 August 2, 1999, Chase announced that Neal S. Garonzik had joined Chase as
Vice Chairman, with responsibilities for asset management and strategic
initiatives in equities and other areas.
On August 4, 1999, Chase reached an agreement to acquire the residential
mortgage business of Mellon Bank, N.A. The proposed acquisition would make Chase
the largest U.S. mortgage servicer, with more than 3.1 million customers and a
combined servicing portfolio of $292 billion.
-35-
<PAGE> 36
THE CHASE MANHATTAN CORPORATION
FINANCIAL HIGHLIGHTS
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
----------------------------------- --------------------------------------------
Over(Under) Over(Under)
1999 1998 2Qtr98 1999 1998 1998
---- ---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
AS REPORTED BASIS
Revenue $5,616 $4,755 18% $ 10,760 $ 9,378 15%
Noninterest Expense
(excluding Restructuring Costs) 3,068 2,714 13 6,013 5,334 13
Restructuring Costs -- 8 NM -- 529 NM
Provision for Loan Losses 388 328 18 769 660 17
Net Income 1,393 1,074 30 2,566 1,799 43
Net Income Per Common Share:
Basic 1.65 1.24 33 3.02 2.06 47
Diluted 1.60 1.20 33 2.92 2.00 46
Cash Dividends Declared 0.41 0.36 14 0.82 0.72 14
Book Value at Period End 26.04 25.14 4 26.04 25.14 4
Share Price at Period End 86.50 75.50 15 86.50 75.50 15
Performance Ratios:
Return on Average Common Equity (a) 25.1% 20.1% 500bp 22.8% 17.0% 580bp
Return on Average Assets (a) 1.55 1.15 40 1.42 0.97 45
OPERATING BASIS (b)
Operating Revenue $5,696 $5,041 13% $ 11,109 $ 9,944 12%
Operating Noninterest Expense 2,965 2,712 9 5,905 5,328 11
Credit Costs (c) 637 616 3 1,292 1,232 5
Operating Earnings 1,351 1,079 25 2,524 2,132 18
Operating Earnings Per Common Share:
Basic 1.60 1.24 29 2.97 2.45 21
Diluted 1.55 1.21 28 2.87 2.38 21
Operating Performance Ratios:
Return on Average Common Equity (a) 24.3% 20.2% 410bp 22.5% 20.3% 220bp
Return on Average Managed Assets (a) 1.43 1.10 33 1.33 1.09 24
Common Dividend Payout Ratio 26 29 (300) 28 30 (200)
Efficiency Ratio 52 54 (200) 53 53 --
Cash Operating Basis:
Cash Operating Earnings (d) $1,427 $1,143 25% $ 2,673 $ 2,257 18%
Diluted Net Income Per Common Share 1.64 1.28 28 3.04 2.52 21
Shareholder Value Added (SVA) 696 440 58 1,197 868 38
Cash Return on Average Common Equity (a) 25.7% 21.4% 430bp 23.8% 21.5% 230bp
Selected Balance Sheet Items at Period
End:(e)
Managed Loans $191,985 $186,924 3%
Total Managed Assets 373,812 385,214 (3)
</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 40.
(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
-36-
<PAGE> 37
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
JUNE 30, 1999 June 30, 1998
--------------------------------------- -----------------------------------------
AVERAGE RATE Average Rate
BALANCE INTEREST (ANNUALIZED) Balance Interest (Annualized)
------- -------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Deposits with Banks $ 6,103 $ 161 10.55% $ 4,611 $ 148 12.88%
Federal Funds Sold and
Securities Purchased Under
Resale Agreements 32,145 389 4.87% 35,409 554 6.27%
Trading Assets-Debt and Equity
Instruments 24,920 411 6.61% 34,442 716 8.34%
Securities:
Available-for-Sale 51,571 731 5.69%(b) 54,515 855 6.29%(b)
Held-to-Maturity 1,196 18 6.30% 2,518 40 6.37%
Loans 173,067 3,168 7.34% 167,807 3,319 7.93%
----------- ------- ----------- --------
Total Interest-Earning Assets 289,002 4,878 6.77% 299,302 5,632 7.55%
Allowance for Loan Losses (3,493) (3,548)
Cash and Due from Banks 14,293 14,907
Trading Assets - Risk
Management Instruments 27,043 33,288
Other Assets 34,212 30,102
----------- -----------
Total Assets $ 361,057 $ 374,051
=========== ===========
LIABILITIES
Domestic Retail Deposits $ 61,732 530 3.44% $ 59,554 596 4.01%
Domestic Negotiable
Certificates of Deposit
and Other Deposits 19,278 169 3.52% 16,780 179 4.30%
Deposits in Foreign Offices 77,646 859 4.44% 75,294 1,009 5.37%
----------- ------- ----------- --------
Total Time and Savings
Deposits 158,656 1,558 3.94% 151,628 1,784 4.72%
----------- ------- ----------- --------
Short-Term and Other Borrowings:
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 50,564 548 4.35% 66,835 886 5.32%
Commercial Paper 4,980 57 4.58% 4,568 60 5.25%
Other Borrowings (c) 15,189 246 6.49% 16,610 532 12.84%
----------- ------- ----------- --------
Total Short-Term and
Other Borrowings 70,733 851 4.82% 88,013 1,478 6.74%
Long-Term Debt 19,783 319 6.46% 16,492 325 7.89%
----------- ------- ----------- --------
Total Interest-Bearing Liabilities 249,172 2,728 4.39% 256,133 3,587 5.62%
----------- ------- ----------- --------
Noninterest-Bearing Deposits 47,652 45,757
Trading Liabilities - Risk
Management Instruments 26,791 35,032
Other Liabilities 13,878 14,370
----------- -----------
Total Liabilities 337,493 351,292
----------- -----------
PREFERRED STOCK OF SUBSIDIARY 550 550
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock 1,028 1,255
Common Stockholders' Equity 21,986 20,954
----------- -----------
Total Stockholders' Equity 23,014 22,209
----------- -----------
Total Liabilities, Preferred
Stock of Subsidiary and
Stockholders' Equity $ 361,057 $ 374,051
=========== ===========
INTEREST RATE SPREAD 2.38% 1.93%
==== ====
NET INTEREST INCOME AND NET
YIELD ON INTEREST-EARNING
ASSETS $ 2,150(a) 2.98% $ 2,045(a) 2.74%
======= ==== ======== ====
</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 June 30, 1999 and June 30, 1998, the annualized
rate for available-for-sale securities based on historical cost was 5.61%
and 6.31%, respectively.
(c) Includes securities sold but not yet purchased and structured notes.
-37-
<PAGE> 38
THE CHASE MANHATTAN CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEET, INTEREST AND RATES
(TAXABLE-EQUIVALENT INTEREST AND RATES; IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED Six months Ended
JUNE 30, 1999 June 30, 1998
-------------------------------------- -----------------------------------------
AVERAGE RATE Average Rate
BALANCE INTEREST (ANNUALIZED) Balance Interest (Annualized)
------- -------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Deposits with Banks $ 6,527 $ 345 10.65% $ 4,397 $ 300 13.78%
Federal Funds Sold and
Securities Purchased Under
Resale Agreements 29,635 770 5.24% 36,639 1,225 6.74%
Trading Assets-Debt and Equity
Instruments 24,824 829 6.74% 33,879 1,392 8.29%
Securities:
Available-for-Sale 54,592 1,547 5.72%(b) 53,637 1,703 6.40%(b)
Held-to-Maturity 1,339 41 6.24% 2,676 86 6.47%
Loans 172,993 6,377 7.43% 169,142 6,724 8.02%
----------- ------- ----------- --------
Total Interest-Earning Assets 289,910 9,909 6.89% 300,370 11,430 7.67%
Allowance for Loan Losses (3,491) (3,553)
Cash and Due from Banks 15,106 14,542
Trading Assets - Risk
Management Instruments 28,244 36,312
Other Assets 34,208 28,141
----------- -----------
Total Assets $ 363,977 $ 375,812
=========== ===========
LIABILITIES
Domestic Retail Deposits $ 61,478 1,040 3.41% $ 59,244 1,168 3.98%
Domestic Negotiable
Certificates of Deposit
and Other Deposits 20,851 370 3.58% 16,115 366 4.58%
Deposits in Foreign Offices 78,475 1,746 4.49% 76,110 2,065 5.47%
----------- ------- ----------- --------
Total Time and Savings
Deposits 160,804 3,156 3.96% 151,469 3,599 4.79%
----------- ------- ----------- --------
Short-Term and Other Borrowings:
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 50,753 1,117 4.44% 67,543 1,833 5.47%
Commercial Paper 5,121 117 4.62% 4,352 114 5.27%
Other Borrowings (c) 14,276 531 7.49% 17,044 1,040 12.30%
----------- ------- ----------- --------
Total Short-Term and
Other Borrowings 70,150 1,765 5.07% 88,939 2,987 6.77%
Long-Term Debt 19,237 630 6.60% 16,102 630 7.89%
----------- ------- ----------- --------
Total Interest-Bearing Liabilities 250,191 5,551 4.47% 256,510 7,216 5.67%
----------- ------- ----------- --------
Noninterest-Bearing Deposits 47,815 45,165
Trading Liabilities - Risk
Management Instruments 27,982 37,043
Other Liabilities 14,074 14,425
----------- -----------
Total Liabilities 340,062 353,143
----------- -----------
PREFERRED STOCK OF SUBSIDIARY 550 550
-----------
STOCKHOLDERS' EQUITY
Preferred Stock 1,028 1,467
Common Stockholders' Equity 22,337 20,652
----------- -----------
Total Stockholders' Equity 23,365 22,119
----------- -----------
Total Liabilities, Preferred
Stock of Subsidiary and
Stockholders' Equity $ 363,977 $ 375,812
=========== ===========
INTEREST RATE SPREAD 2.42% 2.00%
==== ====
NET INTEREST INCOME AND NET
YIELD ON INTEREST-EARNING
ASSETS $ 4,358(a) 3.03% $ 4,214(a) 2.83%
======= ==== ======== ====
</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 six months ended June 30, 1999 and June 30, 1998, the annualized
rate for available-for-sale securities based on historical cost was 5.69%
and 6.43%, respectively.
(c) Includes securities sold but not yet purchased and structured notes.
-38-
<PAGE> 39
THE CHASE MANHATTAN CORPORATION
QUARTERLY FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
------------------ --------------------------------------------
SECOND FIRST Fourth Third Second First
QUARTER QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,165 $ 3,209 $ 3,381 $ 3,287 $ 3,316 $ 3,405
Securities 747 835 964 874 889 889
Trading Assets 411 418 435 604 716 676
Federal Funds Sold and Securities
Purchased Under Resale Agreements 389 381 469 517 554 671
Deposits with Banks 161 184 192 150 148 152
------- ------- ------- ------- ------- -------
Total Interest Income 4,873 5,027 5,441 5,432 5,623 5,793
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Deposits 1,558 1,598 1,717 1,524 1,784 1,815
Short-Term and Other Borrowings 851 914 1,247 1,378 1,478 1,509
Long-Term Debt 319 311 317 324 325 305
------- ------- ------- ------- ------- -------
Total Interest Expense 2,728 2,823 3,281 3,226 3,587 3,629
------- ------- ------- ------- ------- -------
NET INTEREST INCOME 2,145 2,204 2,160 2,206 2,036 2,164
Provision for Loan Losses 388 381 411 272 328 332
------- ------- ------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,757 1,823 1,749 1,934 1,708 1,832
------- ------- ------- ------- ------- -------
NONINTEREST REVENUE
Investment Banking Fees 585 317 381 322 438 361
Trust, Custody and Investment
Management Fees 461 414 414 398 383 348
Credit Card Revenue 438 379 428 381 365 300
Fees for Other Financial Services 587 553 552 522 509 510
Trading Revenue 526 618 516 (69) 323 468
Securities Gains 5 156 167 261 98 83
Private Equity Gains 513 325 244 60 370 293
Other Revenue 356 178 198 137 233 96
------- ------- ------- ------- ------- -------
Total Noninterest Revenue 3,471 2,940 2,900 2,012 2,719 2,459
------- ------- ------- ------- ------- -------
NONINTEREST EXPENSE
Salaries 1,416 1,384 1,296 1,205 1,270 1,254
Employee Benefits 238 255 194 221 215 224
Occupancy Expense 206 218 220 198 191 189
Equipment Expense 239 243 250 219 212 209
Restructuring Costs -- -- -- -- 8 521
Other Expense 969 845 913 804 826 744
------- ------- ------- ------- ------- -------
Total Noninterest Expense 3,068 2,945 2,873 2,647 2,722 3,141
------- ------- ------- ------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 2,160 1,818 1,776 1,299 1,705 1,150
Income Tax Expense 767 645 630 462 631 425
------- ------- ------- ------- ------- -------
NET INCOME $ 1,393 $ 1,173 $ 1,146 $ 837 $ 1,074 $ 725
NET INCOME APPLICABLE TO
COMMON STOCK $ 1,375 $ 1,155 $ 1,128 $ 815 $ 1,050 $ 691
======= ======= ======= ======= ======= =======
NET INCOME PER COMMON SHARE:
Basic $ 1.65 $ 1.37 $ 1.34 $ 0.96 $ 1.24 $ 0.82
------- ======= ======= ======= ======= =======
Diluted $ 1.60 $ 1.32 $ 1.31 $ 0.94 $ 1.20 $ 0.80
======= ======= ======= ======= ======= =======
</TABLE>
-39-
<PAGE> 40
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 7-10, 13, 25, 27-33, 35, 41, 46)
Asset/Liability Management ("ALM"): The management of the sensitivity of Chase's
income to changes in market interest rates. (Pages 8, 9, 28, 30-32)
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 31)
Cash Operating Earnings: Operating earnings excluding the impact of amortization
of goodwill and certain intangibles. (Pages 10-18, 36)
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, 25-26,
28)
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, 23, 36)
FASB: Financial Accounting Standards Board. (Page 35)
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 25-26, 36)
Net Yield on Interest-Earning Assets: The average rate for interest-earning
assets less the average rate paid for all sources of funds. (Pages 21, 37-38)
Operating Basis or Operating Earnings: Reported results excluding the impact of
credit card securitizations, restructuring costs and special items. (Pages
10-14, 18-19, 23, 36)
REIT: A real estate investment trust subsidiary of Chase. (Pages 23-24)
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 131: "Disclosure about Segments of an Enterprise and Related Information."
(Page 10)
SFAS 133: "Accounting for Derivative Instruments and Hedging Activities." (Page
35)
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 35)
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, 32, 36)
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 1999 first quarter or for the first six months of 1998. (Pages 10, 12, 19,
23, 36)
Value-at-Risk ("VAR"): The potential overnight loss from adverse market
movements. (Page 30)
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, 23-24, 33-34)
-40-
<PAGE> 41
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.
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, plus post-judgment interest. Both the plaintiff and
Chase filed petitions for rehearing with the Fifth Circuit, which
petitions were denied. Chase does not expect the final outcome of
the lawsuit to have a material adverse effect on its consolidated
financial position.
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 Organizations Act ("RICO") and
New York common law and alleges damages of $532 million (subject
to trebling under RICO), plus punitive damages. Chase believes
this action is without merit and intends to contest it vigorously.
Item 2. Sales of Unregistered Common Stock
----------------------------------
During the second 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 April
1, 1999, 317 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.
-41-
<PAGE> 42
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The following is a summary of matters submitted to vote at the
Annual Meeting of Stockholders of the Corporation held on May 18,
1999. A total of 729,565,319 shares, or 86.1% of the 847,163,749
shares entitled to vote at the Annual Meeting, were represented at
the meeting.
(A) Election of Directors
---------------------
The following sixteen (16) directors were elected to hold office
until the 2000 Annual Meeting or until their successors are
elected and have qualified.
<TABLE>
<CAPTION>
Votes Received Votes Withheld
-------------- --------------
<S> <C> <C>
Hans W. Becherer 727,145,073 2,420,246
Frank A. Bennack Jr. 727,022,404 2,542,915
Susan V. Berresford 727,085,088 2,480,231
M. Anthony Burns 727,171,024 2,394,295
H. Laurance Fuller 727,139,015 2,426,304
Melvin R. Goodes 727,108,380 2,456,939
William H. Gray III 726,630,552 2,934,767
William B. Harrison Jr. 727,113,254 2,452,065
Harold S. Hook 726,992,674 2,572,645
Helene L. Kaplan 726,829,476 2,735,843
Thomas G. Labrecque 726,889,833 2,675,486
Henry B. Schacht 726,830,925 2,734,394
Walter V. Shipley 726,928,162 2,637,157
Andrew C. Sigler 726,908,635 2,656,684
John R. Stafford 727,015,601 2,549,718
Marina v. N. Whitman 726,874,385 2,690,934
</TABLE>
(B) (1) Ratifying Independent Accountants
---------------------------------
A proposal to ratify PricewaterhouseCoopers LLP as independent
accountants was approved by 99.84% of the votes cast. There were
727,236,531 votes in favor of the proposal, and 1,192,146 votes
opposed. The number of votes abstaining was 1,136,642. There were
no broker non-votes.
-42-
<PAGE> 43
PART II - OTHER INFORMATION continued
(2) Reapproving the Key Executive Performance Plan
----------------------------------------------
A proposal to reapprove the Key Executive Performance Plan
was approved by 97.03% of the votes cast. There were
704,513,394 votes in favor of the proposal and 21,577,175
votes opposed. The number of votes abstaining was 3,461,973.
There were 12,777 broker non-votes.
(3) Stockholder Proposal Re: Annual Reports of Political
Contributions
----------------------------------------------------
A proposal by Evelyn Y. Davis requiring that management
publish annual reports of political contributions made by
Chase was rejected by 96.58% of the votes cast. There were
20,414,715 votes in favor of the proposal and 577,131,849
votes opposed. The number of votes abstaining was 35,436,203
and there were 96,582,552 broker non-votes.
(4) Stockholder Proposal Re: Lesser Developed Countries
----------------------------------------------------
A proposal by the Sisters of Charity of St. Elizabeth and
other church groups that the Board of Directors develop a
policy for Chase's lending and services to, and operations
in, lesser-developed countries was rejected by 97.29% of the
votes cast. There were 16,192,028 votes in favor of the
proposal and 580,678,138 votes opposed. The number of votes
abstaining was 36,119,807 and there were 96,575,346 broker
non-votes.
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.
27 - Financial Data Schedule
(B) Reports on Form 8-K:
Chase filed three reports on Form 8-K during the quarter
ended June 30, 1999, as follows:
Form 8-K dated April 20, 1999: Chase announced the results
of operations for the first quarter of 1999.
Form 8-K dated May 21, 1999: Chase reported the issuance and
sale of 7.00% Capital Securities, Series G, by Chase Capital
VII.
Form 8-K dated June 3, 1999: Management of Chase Capital
Partners ("CCP"), Chase's equity-investment business,
discussed certain investments held in CCP's portfolio,
including StarMedia Network, Inc., and stated that, as a
result of this and other investments, CCP's private equity
gains could be substantially higher in the 1999 second
quarter than the 1999 first quarter.
-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 August 16, 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.
GRAPHIC
NUMBER PAGE DESCRIPTION
- ------ ---- -----------
1 31 Bar Graph entitled "Histogram of Daily Market
Risk-Related Revenue for the twelve months ended June 30,
1999" presenting the following information:
<TABLE>
<CAPTION>
Millions of Dollars 0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30
------------------- ----- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of trading
days revenue was
within the above
prescribed positive
range 34 49 47 41 28 13
30 - 35 Over 35
------- -------
8 11
</TABLE>
<TABLE>
<CAPTION>
Millions of Dollars 0 - (5) (5) - (10) (10) - (15) (15) - (20) (20) - (25)
------------------- ------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of trading
days revenue was
within the above
prescribed negative
range 9 8 3 3 0
(25) - (30) Over (30)
----------- ---------
3 2
</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 Six Months Ended
June 30, June 30,
------------------ ----------------
EARNINGS PER SHARE 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Earnings:
Net Income $ 1,393 $ 1,074 $ 2,566 $ 1,799
Less: Preferred Stock Dividends 18 24 36 58
--------- -------- --------- ---------
Net Income Applicable to Common Stock $ 1,375 $ 1,050 $ 2,530 $ 1,741
========= ======== ========= =========
Shares:
Basic Average Common Shares Outstanding 832.9 848.8 838.2 846.8
Net Income Per Share $ 1.65 $ 1.24 $ 3.02 $ 2.06
========= ======== ========= =========
DILUTED EARNINGS PER SHARE
Earnings:
Net Income Applicable to Common Stock $ 1,375 $ 1,050 $ 2,530 $ 1,741
Shares:
Basic Average Common Shares Outstanding 832.9 848.8 838.2 846.8
Additional Shares Issuable Upon Exercise of Stock Options
for Dilutive Effect 28.4 26.7 28.4 24.7
--------- -------- --------- ---------
Average Common Shares Outstanding Assuming Dilution 861.3 875.5 866.6 871.5
Net Income Per Share $ 1.60 $ 1.20 $ 2.92 $ 2.00
========= ======== ========== =========
</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>
Six months Ended
June 30, 1999
-------------
<S> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes $ 3,978
-------
Fixed charges:
Interest expense 2,395
One third of rents, net of income from subleases (a) 67
-------
Total fixed charges 2,462
-------
Less: Equity in undistributed income of affiliates (62)
-------
Earnings before taxes and fixed charges, excluding capitalized interest $ 6,378
=======
Fixed charges, as above $ 2,462
=======
Ratio of earnings to fixed charges 2.59
=======
INCLUDING INTEREST ON DEPOSITS
Fixed charges, as above $ 2,462
Add: Interest on deposits 3,156
-------
Total fixed charges and interest on deposits $ 5,618
=======
Earnings before taxes and fixed charges, excluding capitalized interest,
as above $ 6,378
Add: Interest on deposits 3,156
-------
Total earnings before taxes, fixed charges, and interest on deposits $ 9,534
=======
Ratio of earnings to fixed charges 1.70
=======
</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>
Six months Ended
June 30, 1999
-------------
<S> <C>
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes $ 3,978
-------
Fixed charges:
Interest expense 2,395
One third of rents, net of income from subleases (a) 67
-------
Total fixed charges 2,462
Less: Equity in undistributed income of affiliates (62)
-------
Earnings before taxes and fixed charges, excluding capitalized interest $ 6,378
=======
Fixed charges, as above $ 2,462
Preferred stock dividends 36
-------
Fixed charges including preferred stock dividends $ 2,498
=======
Ratio of earnings to fixed charges and
preferred stock dividend requirements 2.55
=======
INCLUDING INTEREST ON DEPOSITS
Fixed charges including preferred stock dividends, as above $ 2,498
Add: Interest on deposits 3,156
-------
Total fixed charges including preferred stock
dividends and interest on deposits $ 5,654
=======
Earnings before taxes and fixed charges, excluding capitalized interest,
as above $ 6,378
Add: Interest on deposits 3,156
-------
Total earnings before taxes, fixed charges, and interest on deposits $ 9,534
=======
Ratio of earnings to fixed charges
and preferred stock dividend requirements 1.69
=======
</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 June 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
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 16,037
<INT-BEARING-DEPOSITS> 5,851
<FED-FUNDS-SOLD> 28,052
<TRADING-ASSETS> 51,347
<INVESTMENTS-HELD-FOR-SALE> 48,098
<INVESTMENTS-CARRYING> 1,092
<INVESTMENTS-MARKET> 1,093
<LOANS> 175,041
<ALLOWANCE> 3,554
<TOTAL-ASSETS> 356,868
<DEPOSITS> 209,502
<SHORT-TERM> 52,559
<LIABILITIES-OTHER> 51,066
<LONG-TERM> 17,031
0
1,028
<COMMON> 882
<OTHER-SE> 20,798
<TOTAL-LIABILITIES-AND-EQUITY> 356,868
<INTEREST-LOAN> 6,374
<INTEREST-INVEST> 1,582
<INTEREST-OTHER> 1,115
<INTEREST-TOTAL> 9,900
<INTEREST-DEPOSIT> 3,156
<INTEREST-EXPENSE> 5,551
<INTEREST-INCOME-NET> 4,349
<LOAN-LOSSES> 769
<SECURITIES-GAINS> 161
<EXPENSE-OTHER> 6,013
<INCOME-PRETAX> 3,978
<INCOME-PRE-EXTRAORDINARY> 2,566
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,566
<EPS-BASIC> 3.02
<EPS-DILUTED> 2.92
<YIELD-ACTUAL> 3.03
<LOANS-NON> 1,492
<LOANS-PAST> 405
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,552
<CHARGE-OFFS> 901
<RECOVERIES> 133
<ALLOWANCE-CLOSE> 3,554
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
