10-Q 1 reit1stq-01.txt REIT 1ST QUARTER SEC FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended: March 31, 2001 Commission file number: 1-12151 ------- CHASE PREFERRED CAPITAL CORPORATION ----------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3899576 -------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 270 Park Avenue, New York, New York 10017 --------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 270-6000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Common Stock, $171,500,000 Par Value 1 ------------------------------------------------------------------------------- Number of shares outstanding of each of the issuer's classes of common stock on March 31, 2001. ================================================================================ FORM 10-Q INDEX Part I Page ------ ---- Item 1. Financial Statements - Chase Preferred Capital Corporation: Balance Sheet at March 31, 2001 and December 31, 2000 3 Statement of Income for the Three Months Ended March 31, 2001 and 2000 4 Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 2001 and 2000 5 Statement of Cash Flows for the Three Months Ended March 31, 2001 and 2000 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Part II ------- Item 4. Exhibits and Current Reports on Form 8-K 22 2 Part I Item 1. CHASE PREFERRED CAPITAL CORPORATION BALANCE SHEET (in thousands, except share data) (Unaudited) March 31, 2001 December 31, 2000 -------------- ----------------- ASSETS: Residential First Mortgage Loans $ 1,024,955 $ 1,039,913 Commercial First Mortgage Loans 35,617 37,339 Residential Second Mortgage Loans 3,346,179 3,279,021 Residential Manufactured Housing Loans 2,908,036 2,470,573 Intercompany Loans 2,627,193 2,627,193 ------------ ----------- 9,941,980 9,454,039 Less: allowance for loan losses (154,292) (132,719) ------------ ----------- 9,787,688 9,321,320 Cash and cash equivalents 58,633 31,982 Accrued interest receivable due from affiliates 12,129 14,580 Accrued interest receivable due from third parties 36,396 35,910 Account receivable due from affiliates 1,149 0 Accounts receivable due from third parties 8 9 Assets acquired as loan satisfaction 11,331 6,981 ------------ ----------- TOTAL ASSETS $ 9,907,334 $ 9,410,782 ============ =========== LIABILITIES: Intercompany borrowings 1,141,000 679,000 Due to affiliates 618 594 Accounts payable and accrued liabilities 162 70 ------------ ----------- TOTAL LIABILITIES 1,141,780 679,664 ------------ ----------- STOCKHOLDERS' EQUITY: Preferred Stock, par value $25 per share; 50,000,000 shares authorized, 22,000,000 shares Series A issued and outstanding; stated value $25 per share 550,000 550,000 7,600 shares Series B issued and outstanding; stated value $1,000,000 per share 7,600,000 7,600,000 Common stock, par value $171,750,000 per share; one share authorized and outstanding 171,750 171,750 Capital surplus 382,005 382,005 Retained earnings * 61,799 27,363 --------- --------- TOTAL STOCKHOLDERS' EQUITY 8,765,554 8,731,118 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,907,334 $9,410,782 =========== ========== * No retained earnings related to property sales The Notes to Financial Statements are an integral part of these Statements. 3 Part I Item 1. (continued) CHASE PREFERRED CAPITAL CORPORATION STATEMENT OF INCOME Three Months Ended March 31, (in thousands) (Unaudited) 2001 2000 ---- ---- INTEREST INCOME: Residential first mortgage loans $ 18,250 $ 15,970 Commercial first mortgage loans 853 1,292 Residential second mortgage loans 68,299 0 Residential manufactured housing loans 56,165 0 Intercompany loans 36,761 0 Interest on overnight investments 336 730 ------------ ---------- Total interest income 180,664 17,992 Interest expense on intercompany borrowings 12,760 0 ------------ ---------- Net interest income 167,904 17,992 Provision for credit losses 0 0 ------------ ---------- Net interest income after provision for credit losses 167,904 17,992 ------------ ----------- Other revenue 68 0 NONINTEREST EXPENSE: Servicing fees 9,904 668 Advisory fees 125 63 Foreclosure and other expenses 738 56 ------------ ---------- Total noninterest expense 10,767 787 ------------ ---------- NET INCOME $ 157,205 $ 17,205 ============ ========== NET INCOME APPLICABLE TO COMMON SHARE $ 36,844 $ 6,068 ============ ========== BASIC AND FULLY DILUTED NET INCOME PER COMMON SHARE $ 36,844 $ 6,068 ============ ========== The Notes to Financial Statements are an integral part of these Statements. 4 Part I Item 1. (continued) CHASE PREFERRED CAPITAL CORPORATION STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Three Months Ended March 31, (in thousands) (Unaudited) 2001 2000 ---- ---- SERIES A PREFERRED STOCK: Balance at beginning of period $ 550,000 $ 550,000 ------------ ----------- Balance at end of period 550,000 550,000 ============ =========== SERIES B PREFERRED STOCK: Balance at beginning of period 7,600,000 0 ------------ ----------- Balance at end of period 7,600,000 0 ============ =========== COMMON STOCK: Balance at beginning of period 171,750 171,750 ------------ ----------- Balance at end of period 171,750 171,750 ============ =========== CAPITAL SURPLUS: Balance at beginning of period 382,005 382,005 ------------ ----------- Balance at end of period 382,005 382,005 ============ =========== RETAINED EARNINGS: Balance at beginning of period 27,363 15,419 Net income 157,205 17,205 Capital distribution to affiliate (2,408) 0 Common dividends 0 (6,480) Series A Preferred dividends (11,137) (11,137) Series B Preferred dividends (109,224) 0 ------------ ----------- Balance at end of period 61,799 15,007 ============ =========== TOTAL STOCKHOLDERS' EQUITY $ 8,765,554 $ 1,118,762 ============ =========== The Notes to Financial Statements are an integral part of these Statements. 5 Part I Item 1. (continued) CHASE PREFERRED CAPITAL CORPORATION STATEMENT OF CASH FLOWS Three Months Ended March 31, (in thousands) (Unaudited) 2001 2000 ---- ---- OPERATING ACTIVITIES: Net income $ 157,205 $ 17,205 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred costs 15,630 1,665 Net change in: Accrued interest receivable due from affiliates 2,451 0 Accrued interest receivable due from third parties 4,425 491 Accounts receivable due from affiliates (1,149) 0 Accounts receivable due from third parties 1 0 Due to affiliates 24 (80) Accounts payable and accrued liabilities 92 (42) --------- --------- Net cash provided by operating activities 178,679 19,239 --------- --------- INVESTING ACTIVITIES: Purchase of residential first mortgage loans (85,320) (50,444) Purchase of second mortgage loans (385,116) 0 Purchase of manufactured housing loans (484,542) 0 Principal payments received 468,630 44,820 Purchase of accrued interest receivable (4,911) (214) --------- --------- Net cash used by investing activities (491,259) (5,838) --------- --------- FINANCING ACTIVITIES: Net capital distribution to affiliate (2,408) 0 Intercompany borrowings 462,000 0 Dividends paid (120,361) (17,617) --------- --------- Net cash provided (used) by financing activities 339,231 (17,617) --------- --------- NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 26,651 (4,216) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,982 47,703 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,633 $ 43,487 ========= ========= Supplemental disclosure of non-cash investing activities Net change in assets acquired as loan satisfaction $ 4,350 $ 0 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 12,509 $ 0 Taxes (State) 51 22 The Notes to Financial Statements are an integral part of these Statements. 6 Part I Item 1. (continued) NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION ----------------------------------------------- Chase Preferred Capital Corporation (the "Company") is a Delaware corporation incorporated on June 28, 1996 and created for the purpose of acquiring, holding, and managing real estate assets. The Company is a subsidiary of The Chase Manhattan Bank (the "Bank"), a banking corporation organized under the laws of the State of New York. The Bank is a wholly-owned subsidiary of J.P. Morgan Chase & Co. (formerly, The Chase Manhattan Corporation ("JPMC")). The Company began operating in 1996, upon completion of an initial public offering of 22,000,000 shares of its 8.10% Cumulative Preferred Stock, Series A, $25 par value per share (the "Series A Preferred Stock"), which are currently traded on the New York Stock Exchange. The Company's Common Stock, par value $171,750,000 per share ("Common Stock"), and Floating Rate Cumulative Preferred Stock, Series B, par value $25 per share and liquidation value $1,000,000 per share ("Series B Preferred Stock"), are owned by the Bank. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --------------------------------------------------- The accounting and financial reporting policies of the Company conform to generally accepted accounting principles and prevailing industry practices for interim reporting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all necessary adjustments (consisting of a normal recurring nature) have been made for a fair presentation of this interim financial information. These notes to our interim financial statements highlight any significant changes to the financial statements included in our 2000 Form 10-K. As a result, these notes to our interim financial statements should be read together with the financial statements and notes thereto included in our 2000 Form 10-K. Loans secured by first mortgages on residential and commercial properties ("First Mortgage Loans"), loans secured by second mortgages on single family (one-to-four unit) residential real estate properties ("Second Mortgage Loans") and loans secured by first priority security interests in manufactured housing units ("Manufactured Housing Loans") are carried at the principal amount outstanding, net of any premium or discount associated with these loans. Interest income, including amortization of premiums and accretion of discounts on loans held for investment, is recognized using the interest method or on a basis approximating a level rate of return over the term of the loan. Loans acquired from the Bank are initially recorded at the historical cost basis in the accompanying balance sheet. Any difference between the amount paid by the Company and the historical cost basis is treated as an adjustment to equity. Loans acquired from the Chase Manhattan Bank USA, National Association ("Chase USA") and Chase Mortgage Holdings Inc., a subsidiary of the Bank, are initially recorded at fair value. The First Mortgage Loans, Second Mortgage Loans and Manufactured Housing Loans are collectively referred to as the "Direct Loans". The Direct Loans are held for investment and are non-trading items. The Company has also extended non-recourse intercompany loans ("Intercompany Loans") to the Bank and Chase USA which are secured by pledges by the Bank and Chase USA of all outstanding loans under home equity lines of credit ("HELOCs") originated by the Bank or Chase USA, as the case may be. The Second Mortgage Loans, the Manufactured Loans and the Intercompany Loans are collectively referred to as the "Additional Assets". Nonaccrual loans are those loans on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management, full payment of principal or interest is in doubt, or when principal or interest is past due 90 days or more and collateral, if any, is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. In addition, the amortization of net premiums and discounts are suspended when a loan is placed on nonaccrual status. Interest income on nonaccrual loans is recognized only to the extent received in cash. However, where there is doubt regarding the ultimate collectibility of the loan principal, cash receipts, whether designated as principal or interest, are thereafter applied to reduce the carrying value of the loan. Loans are restored to accrual status only when interest and principal payments are brought current and future payments are reasonably assured. A loan is considered impaired when, based on current information, it is probable that the borrower will be unable to pay contractual interest or principal payments as scheduled in the loan agreement. The Company accounts for and discloses nonaccrual commercial First Mortgage Loans and Intercompany Loans as impaired. Impaired loans are carried at the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price, or the fair value of the collateral, if the loan is collateral dependent. The Company recognizes interest income on impaired loans in the manner set forth above for nonaccrual loans. The Company excludes from impaired loans its residential First Mortgage Loans, Second Mortgage Loans and Manufactured Housing Loans. 7 A collateralized loan is reclassified to Assets Acquired as Loan Satisfactions only when the Company has taken physical possession of the collateral regardless of whether formal foreclosure proceedings have taken place. Certain amounts in the accompanying prior year financial statements have been reclassified to conform to the current year presentation. NOTE 3 - RELATED PARTY TRANSACTIONS ----------------------------------- The Company maintains an intercompany line of credit with the Bank. The Company may make prepayments towards the principal amount of the loan at any time without penalty. The Company may use proceeds from any such borrowings to purchase Additional Assets or other corporate purposes. At March 31, 2001, the Company had borrowed approximately $1,141,000,000 under the line of credit. The weighted average interest rate paid by the Company to the Bank on the borrowings outstanding during 2001 was 5.7%. Approximately $859,000,000 of the line of credit remained unused as of March 31, 2001. The Company is a party to an agreement (the "Advisory Agreement") with the Bank (the "Advisor") pursuant to which the Advisor provides advice to the Board of Directors and manages the operations of the Company in accordance with the parameters established in the Advisory Agreement. The Advisory Agreement has an initial term of five years commencing on September 18, 1996 and automatically renews for an additional five years unless the Company delivers a notice of nonrenewal to the Advisor. The Advisory Agreement was amended effective April 2000 to increase the Advisor's annual fee from $250,000 to $500,000 in connection with the acquisition by the Company of the Additional Assets. The Company is also party to servicing agreements with the Bank, as servicer, for the servicing of the commercial and residential First Mortgage Loans. The Bank has entered into sub-servicing agreements with Chase Manhattan Mortgage Corporation ("CMMC"), a wholly-owned subsidiary of Chase USA and an indirect wholly-owned subsidiary of JPMC, with respect to the servicing of the First Mortgage Loans. CMMC is also the servicer of the Second Mortgage Loans and Manufactured Housing Loans acquired by the Company. Pursuant to each servicing agreement, the Bank and CMMC, as the case may be, perform the servicing of the Direct Loans owned by the Company in accordance with (i) normal industry practices, (ii) servicing guidelines promulgated by the Company, and (iii) in the case of residential First Mortgage Loans and Second Mortgage Loans, FNMA and FHLMC guidelines and procedures. Aggregate advisory fees and servicing fees for the quarters ended March 31, 2001 and 2000 totaled approximately $10,029,000 and $731,000, respectively. Pursuant to the terms of the servicing agreement and subservicing agreements relating to the First Mortgage Loans, the Company receives loan payments collected by the servicer (and sub-servicer) in the month immediately following their collection. Pursuant to the terms of the servicing agreement relating to the Second Mortgage Loans and Manufactured Housing Loans, the Company receives loan payments collected by CMMC on the next business day immediately following its collection. The Company maintains its cash in an overnight deposit account with the Bank and earns a market rate of interest. Interest income on these deposits for the quarters ended March 31, 2001 and 2000 amounted to approximately $336,000 and $730,000 respectively. 8 NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS -------------------------------------------- For a further discussion on the methodology for determining the fair value of the Direct Loans and Intercompany Loans, reference is made to Note 8 included in the Company's 2000 Annual Report. The carrying value and fair value of the Direct Loans held by the Company at March 31, 2001 and December 31, 2000 are as follows (in thousands):

Assets and Liabilities in which Fair Value Approximates Carrying Value: The fair values of certain financial assets and liabilities carried at cost, including cash and cash equivalents, intercompany loans, accrued interest receivable due from affiliates, accrued interest receivable due from third parties, accounts receivable due from affiliates, accounts receivable due from third parties, assets acquired as loan satisfaction, due to affiliates, intercompany borrowings, and accounts payable and accrued liabilities, are considered to approximate their respective carrying value due to their short-term nature and negligible credit losses. 8 Part I Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHASE PREFERRED CAPITAL CORPORATION FINANCIAL HIGHLIGHTS Three Months Ended March 31, (in thousands, except per share, unit and ratio data) (Unaudited) 2001 2000 ---- ---- INCOME STATEMENT: Interest Income $ 180,664 $ 17,992 Net Interest Income 167,904 17,992 Net Income 157,205 17,205 Net Income Applicable to Common Share 36,844 6,068 Income Per Common Share 36,844 $ 6,068 BALANCE SHEET: Direct Loans $ 7,314,787 $ 1,073,403 Intercompany Loans 2,627,193 0 Total Assets 9,907,334 1,118,846 Series A Preferred Stock Outstanding 550,000 550,000 Series B Preferred Stock Outstanding 7,600,000 0 Total Stockholders' Equity $ 8,765,554 $ 1,118,762 OTHER DATA: Dividends paid on Series A Preferred Stock $ 11,137 $ 11,137 Dividends paid on Series B Preferred Stock $ 109,224 $ 0 Dividends paid on common shares $ 0 $ 6,480 Number of Series A preferred shares outstanding 22,000,000 22,000,000 Number of Series B preferred shares outstanding 7,600 0 Number of Common Shares Outstanding 1 1 Average Yield on Direct Loans 8.1% 6.5% 10 Part I Item 2. (continued) The Management's Discussion and Analysis in this Form 10-Q may contain certain forward-looking statements, which are subject to risks and uncertainties. The Company's actual results may differ materially from those set forth in these forward-looking statements. Reference is made to the Company's reports filed with the Securities and Exchange Commission, in particular the 2000 Annual Report, for a discussion of factors that may cause such differences to occur. ================================================================================ OVERVIEW ================================================================================ Chase Preferred Capital Corporation (the "Company") is a Delaware corporation and a subsidiary of The Chase Manhattan Bank (the "Bank"), a banking corporation organized under the laws of the State of New York. The Company began operations in 1996 upon completion of an initial public offering of 22,000,000 shares of 8.10% Cumulative Preferred Stock, Series A (the "Series A Preferred Stock "). The Series A Preferred Stock is traded on the New York Stock Exchange. The Company is a real estate investment trust ("REIT") under the Internal Revenue Code of 1986 (the "Code"). The principal business of the Company is to acquire, hold and manage assets that qualify as REIT real estate assets under the Code in order to generate net income for distribution to stockholders. As of March 31, 2001, the Company held assets, as described below, in each of the following four categories: First Mortgage Loans, Second Mortgage Loans, Manufactured Housing Loans and Intercompany Loans (each as defined below). First Mortgage Loans. The Company holds mortgage loans acquired from the Bank or its affiliates that are whole loans secured by first mortgages or deeds of trust on single family (one-to-four unit) residential or commercial real properties ("First Mortgage Loans"). Over time, as commercial First Mortgage Loans have prepaid or matured, the Company has replaced them with residential First Mortgage Loans. As of March 31, 2001, approximately 96.6% of the Company's portfolio of First Mortgage Loans was comprised of residential First Mortgage Loans, with the balance constituting commercial First Mortgage Loans. The Company expects the percentage of First Mortgage Loans consisting of commercial First Mortgage Loans to continue to decline over time. The Company's residential First Mortgage Loans consist of the following: |_| six-month prime rate adjustable rate mortgages ("ARMS"); |_| six-month treasury ARMs; |_| three-year fixed rate loans with an automatic conversion to six-month, one-year and three-year treasury ARMs; |_| one-year, five-year, seven-year and ten-year fixed rate loans with an automatic conversion to one-year treasury ARMs; and |_| fixed rate loans. The Company's commercial First Mortgage Loans consist of fixed and variable rate loans. Second Mortgage Loans and Manufactured Housing Loans. In April 2000, the Company acquired approximately $2.1 billion of loans (and related servicing rights) that had been originated or acquired by the Bank or Chase USA or their affiliates and that are secured by second mortgages on single family (one-to-four unit) residential real properties ("Second Mortgage Loans"). In May 2000, the Company acquired approximately $1.9 billion of loans (and related servicing rights) that had been originated or acquired by the Bank and Chase USA or their affiliates and that are secured by first priority security interests in manufactured housing units ("Manufactured Housings Loans"). The Second Mortgage Loans and the Manufactured Housing Loans were acquired through the transfer of 100% participation interests by the Bank and Chase USA, as the case may be, of such loans to the Company. The participation interests were purchased at prices equal to the estimated fair values of the loans. On a monthly basis following the initial acquisitions of the Second Mortgage Loans and Manufactured Housing Loans, the Company has purchased 100% participation interests in substantially all Second Mortgage Loans and Manufactured Housing Loans originated by the Bank and Chase USA meeting certain specified credit criteria. (The First Mortgage Loans, Second Mortgage Loans and Manufactured Housing Loans are hereinafter referred to as the "Direct Loans".) Intercompany Loans. In April 2000, the Company also extended approximately $2.6 billion of non-recourse intercompany loans ("Intercompany Loans") to the Bank and Chase USA which are secured by pledges by the Bank and Chase USA of all outstanding loans under home equity lines of credit ("HELOCs") originated by the Bank or Chase USA, as the case may be. The initial aggregate principal amount of the Intercompany Loans equaled approximately 80% of the outstanding principal balance of 11 the HELOCs pledged as security therefor. On a quarterly basis, the Company may, but is not required to, make additional Intercompany Loans to the Bank and/or Chase USA in an aggregate amount not to exceed 80% of the then outstanding principal balance of HELOCs pledged by the applicable entity. The Intercompany Loan documents also require that the outstanding principal balance of the Intercompany Loans will at no time exceed 85% of the outstanding principal balance of the HELOCs pledged as security and require the Bank and/or Chase USA to make prepayments of their respective Intercompany Loans to ensure that such ceiling is not exceeded. As of March 31, 2001, the outstanding principal balance of the Intercompany Loans equaled $2,627,193,000, representing 58.17% of the then outstanding principal balance of the HELOCs pledged as security. The funds required by the Company to acquire the Second Mortgage Loans and Manufactured Housing Loans and to make the Intercompany Loans (the Second Mortgage Loans, the Manufactured Housing Loans and the Intercompany Loans being collectively referred to as the "Additional Assets") were obtained through the sale by the Company to the Bank of 7,600 shares of Floating Rate Cumulative Preferred Stock, Series B, having a par value of $25 per share and a liquidation preference of $1,000,000 per share (the "Series B Preferred Stock"). Proceeds obtained from the sale or repayment of principal balances of Additional Assets will generally be applied to acquire Additional Assets. However, the Company has issued, and may in the future issue, additional Series B Preferred Shares to the Bank from time to time, as discussed in "Management's Discussion and Analysis of Financial Conditions and Results of Operation - Liquidity Risk Management" below. The Company has no foreign operations. CONSIDERATIONS RELATING TO AFFILIATE TRANSACTIONS The Bank administers the day-to-day activities of the Company in its role as advisor ("Advisor") under an agreement (the "Advisory Agreement"). CMMC, a wholly-owned subsidiary of Chase USA (i) sub-services the Company's First Mortgage Loans on behalf of the Bank in its capacity as servicer under servicing agreements for the First Mortgage Loans, and (ii) is the servicer of the Company's Second Mortgage Loans and Manufactured Housing Loans pursuant to the agreements by which the Second Mortgage Loans and Manufactured Housing Loans were participated to the Company. See Note 3 to Notes to Financial Statements herein. The Bank and its affiliates may have interests that are not identical to those of the Company. Consequently, conflicts of interest may arise with respect to transactions, including without limitation, future acquisitions of assets from the Bank or its affiliates; servicing of those assets, particularly with respect to assets that become classified or placed in nonaccrual status or which have been, more than once during the preceding twelve months, more than 30 days past due in the payment of principal and interest; future dispositions of assets to JPMC or any of its nonbank subsidiaries; the modification of the Advisory Agreement or the Servicing Agreements; and the entry into additional agreements with JPMC, the Bank or their affiliates. The Company intends that any agreements and transactions between the Company, on the one hand, and JPMC, the Bank or their affiliates, on the other hand, will be fair to all parties and consistent with market terms. The requirement in the Certificate of Designation establishing the Series A Preferred Stock that certain actions of the Company be approved by a majority of the Independent Directors is also intended to ensure fair dealing between the Company and JPMC, the Bank and their respective affiliates. The Company's Board of Directors, with the approval of its Independent Directors, approved the initial acquisition of the Additional Assets and also authorized the Company to make further acquisitions of Additional Assets as described above. The Company believes that the prices it paid for the Second Mortgage Loans and Manufactured Housing Loans approximated their fair value; however, no third party appraisals for those assets have been or will be obtained. Similarly, no third party appraisals will be obtained to determine the value of the HELOCs securing the Intercompany Loans. RESULTS OF OPERATIONS For the quarters ended March 31, 2001 and 2000, the Company reported net interest income of approximately $167,904,000 and $17,992,000, respectively. Interest income from residential and commercial First Mortgage Loans was approximately $18,250,000 and $853,000, respectively, for the quarter ended March 31, 2001 and approximately $15,970,000 and $1,292,000, respectively, for the quarter ended March 31, 2000. Interest income from the Second Mortgage Loans and Manufactured Housing Loans was approximately $68,299,000 and $56,165,000, respectively, for the quarter ended March 31, 2001. The total average yield of the Direct Loans for the quarters ended March 31, 2001 and 2000 was 8.1% and 6.5%, respectively. For the quarter ended March 31, 2001, interest income from the Intercompany Loans was $36,761,000, which resulted in an average yield of 5.6%. After deduction of approximately $9,904,000, $125,000 and $738,000 in servicing fees, advisory fees, and foreclosure and other expenses, respectively, the Company reported net income of approximately $157,205,000 for the quarter ended March 31, 2001. This 12 compared to net income of approximately $17,205,000 for the quarter ended March 31, 2000, after deducting approximately $668,000, $63,000 and $56,000 in servicing fees, advisory fees, and foreclosure and other expenses, respectively. The Company reported basic earnings per share of $36,844,000 and $6,068,000 for the quarters ended March 31, 2001 and 2000, respectively. The Company paid $11,137,000 in each of the quarters ended March 31, 2001 and 2000 in dividends on the Series A Preferred Stock. As of the date hereof, all dividend payments on Series A Preferred Stock are current. During the quarter ended March 31, 2001, the Company paid $109,224,000 in dividends on the Series B Preferred Stock. There were no shares of Series B Preferred Stock outstanding during the three months ended March 31, 2000. For the three months ended March 31, 2000, the Company paid Common Stock dividends of approximately $6,480,000. Dividends on the Common Stock are paid to the Bank when, as and if declared by the Board of Directors of the Company out of funds legally available therefore. No dividend on the Common Stock was paid for the three months ended March 31, 2001. The Company expects to pay Common Stock dividends at least annually in amounts necessary to continue to preserve its status as a REIT under the Code. At March 31, 2001, the Company borrowed approximately $1,141,000,000 of funds from the Bank pursuant to its line of credit with the Bank. During the quarter ended March 31, 2001, the Company paid to the Bank interest of approximately $12,760,000 on the borrowing, which was based on a variable interest rate equal to the Federal funds (effective) rate. LOAN PORTFOLIO As of March 31, 2001 and December 31, 2000, the Company's loan portfolio was as follows: ($ in thousands)

First Mortgage Loans. At March 31, 2001, First Mortgage Loans consisted of both residential and commercial mortgage loans. At that date, residential First Mortgage Loans in the portfolio consisted of six-month treasury and prime rate adjustable mortgages ("ARMs"); one-year, five-year, seven-year, and ten-year fixed rate loans with an automatic conversion to one-year treasury ARMs; three-year fixed rate loans with an automatic conversion to six-month, one-year and three-year treasury ARMs; and fixed rate loans. The commercial First Mortgage Loans consisted of fixed and variable rate loans, a majority of which have balloon payments. As commercial First Mortgage Loans continue to prepay or mature, they will continue to be replaced with residential First Mortgage Loans. For the quarters ended March 31, 2001 and 2000, the Company purchased First Mortgage Loans having an outstanding principal balance of approximately $85,320,000 and $50,444,000, respectively, from affiliates of the Bank. During the quarters ended March 31, 2001 and 2000, there were no sales of non-performing loans. The Company received approximately $100,837,000 and $44,820,000 of principal payments on its portfolio of First Mortgage Loans from the servicer (and sub-servicer) of such Loans for the quarters ended March 31, 2001 and 2000, respectively. 13 Second Mortgage Loans. At March 31, 2001, Second Mortgage Loans consisted of only residential mortgage loans. At that date, Second Mortgage Loans in the portfolio consisted of one-year treasury ARMs, and 15-year and 30-year fixed rate loans. The Second Mortgage Loans are acquired from the Bank and Chase USA through the purchase by the Company of an 100% participation interest in such Loans, including the related servicing rights. For the quarter ended March 31, 2001, the Company purchased Second Mortgage Loans having an outstanding aggregate principal balance of approximately $385,116,000 from the Bank and Chase USA. In addition, for the quarter ended March 31, 2001, the Company received approximately $299,519,000 of principal payments on its portfolio from the servicer of the Second Mortgage Loans. Manufactured Housing Loans. At March 31, 2001, Manufactured Housing Loans consisted of 15-year and 30-year fixed rate loans. The Manufactured Housing Loans are acquired through the purchase by the Company of an 100% participation interest in such Loans, including the related servicing rights. For the quarter ended March 31, 2001, the Company purchased Manufactured Housing Loans having an outstanding aggregate principal balance of approximately $484,542,000 from the Bank and Chase USA. In addition, for the quarter ended March 31, 2001, the Company received approximately $72,623,000 of principal payments on its portfolio from the servicer of the Manufactured Housing Loans. During the quarter ended March 31, 2001, approximately $4,350,000 of the Manufactured Housing Loans purchased from the Bank and its affiliates were reclassified to Assets Acquired as Loan Satisfactions. Collateralized loans are reclassified to Assets Acquired as Loan Satisfactions only when the Company has taken physical possession of the collateral regardless of whether formal foreclosure proceedings have taken place. Intercompany Loans. The Intercompany Loans to the Bank and Chase USA are variable rate loans bearing interest rates equal to the Federal funds (effective) rate. The Intercompany Loans are secured by the pledge of the Bank and Chase USA of all loans originated under home equity lines of credit extended by those banks. The security agreements with respect to the Intercompany Loans provide that all HELOCs, regardless of their credit quality, will be pledged to the Company, although the Company has the discretion to release its security interest in any particular HELOC or to require the Bank or Chase USA, as the case may be, to take appropriate action with respect to the borrower under the HELOC including, without limitation, initiating foreclosure proceedings with respect to the property securing the HELOC. The Intercompany Loan documents require that the outstanding principal balance of the Intercompany Loans will at no time exceed 85% of the outstanding principal balance of the HELOCs pledged as security and require the Bank and/or Chase USA to make prepayments of their respective Intercompany Loans to make sure that ceiling is not exceeded. At March 31, 2001, the outstanding principal balance of the Intercompany Loans equaled 58.17% of the then outstanding principal balance of the HELOCs pledged as security. Credit Policies. The Board of Directors, with the approval of the Independent Directors, has implemented certain policies with respect to the acquisition of the Direct Loans to be acquired by the Company. First Mortgage Loans. Under the Company's current policies relating to the First Mortgage Loans the Company intends that each First Mortgage Loan acquired from the Bank or one of its affiliates in the future will be a whole loan, will represent a first lien position and will be originated by the Bank or such affiliate in the ordinary course of its real estate lending activities based on the underwriting standards generally applied at the time of origination for its own account by the Bank or the affiliate of the Bank that originated the First Mortgage Loan. Currently, the Company does not intend to acquire any additional commercial First Mortgage Loans. In addition, the Company's current policy prohibits the acquisition of any First Mortgage Loan or any interest in a First Mortgage Loan (other than an interest resulting from the acquisition of Mortgage-Backed Securities), that (i) is delinquent in the payment of principal or interest at the time of proposed acquisition; (ii) is or was at any time during the preceding 12 months (a) classified, (b) in nonaccrual status, or (c) renegotiated due to financial deterioration of the borrower; or (iii) has been, more than once during the preceding 12 months, more than 30 days past due in the payment of principal or interest. The Company may choose, at any time subsequent to its acquisition of any First Mortgage Loan, to require the servicer to dispose of the First Mortgage Loan, for any reason, including as a result of the First Mortgage Loan becoming classified or being placed in nonaccrual status or having been, more than once during the preceding 12 months, more than 30 days past due in the payment of principal or interest. The Bank has indicated to the Company that it will not purchase any First Mortgage Loan of the Company that the Company chooses to dispose of for the foregoing reasons. Accordingly, the Company currently anticipates that the Company would continue to sell any such First Mortgage Loan at its then current fair value only to JPMC, a nonbank subsidiary of JPMC, or an unrelated third party. 14 Second Mortgage Loans and Manufactured Housing Loans. The Company currently intends that each Second Mortgage Loan and each Manufactured Housing Loan acquired from the Bank or Chase USA or their affiliates will be originated by the Bank, Chase USA or their respective affiliate, as the case may be, in the ordinary course of its real estate lending activities based on the underwriting standards generally applied at the time of origination for its own account by the Bank or Chase USA or the affiliate that originated the Second Mortgage Loan or Manufactured Housing Loan. The Company currently intends to continue to acquire, on a monthly basis (i) all additional Second Mortgage Loans and Manufactured Housing Loans originated by the Bank and (ii) all Second Mortgage Loans and Manufactured Housing Loans originated by Chase USA other than those that would be considered "low quality" assets under applicable regulatory standards. No Second Mortgage Loan or Manufactured Housing Loans will be acquired by the Company prior to the six month following its origination. Currently, the Company does not intend to require CMMC, as servicer of the Second Mortgage Loans and Manufactured Housing Loans, to dispose of such Loans by reason of any such Second Mortgage Loan or Manufactured Housing Loan becoming classified and being placed on nonaccrual status. Accordingly, the Company anticipates that there may be nonaccruing Second Mortgage Loans and Manufactured Housing Loans in the Company's portfolio from time to time. Servicing Arrangements. The First Mortgage Loans have been, and will continue to be, sold to the Company on a servicing-retained basis. Accordingly, the servicing rights associated with the First Mortgage Loans continue to be owned by the Bank or the affiliate of the Bank that sold the First Mortgage Loans to the Company. The Bank, as servicer, receives an annual servicing fee from the Company for each First Mortgage Loan it services which (i) is equal to 0.25% of the outstanding principal balance for residential First Mortgage Loans and (ii) ranges from 0.08% - 0.30% of the outstanding principal balances for commercial First Mortgage Loans, depending upon the outstanding principal amount. The Manufactured Housing Loans and the Second Mortgage Loans have been, and will continue to be, acquired on a servicing-released basis. Accordingly, the Company owns the servicing rights associated with the Second Mortgage Loans and Manufactured Housing Loans. The Company has engaged CMMC to service these assets on the Company's behalf. The servicing arrangements between the Company and CMMC provide that the Company retains the power to direct CMMC to foreclose on any Manufactured Housing Loan or Second Mortgage Loan. CMMC, as servicer, receives an annual servicing fee from the Company for each Manufactured Housing Loan and Second Mortgage Loan it services. Each of the servicing agreements for the First Mortgage Loans, Second Mortgage Loans and Manufactured Housing Loans requires servicing in accordance with (i) normal industry practices, (ii) with any servicing guidelines promulgated by the Company, and (iii) in the case of the residential First Mortgage Loans and Second Mortgage Loans, with FNMA and FHLMC guidelines and procedures. The HELOCs securing the Intercompany Loans continue to be owned by the Bank or Chase USA, as the case may be, and will continue to be serviced in accordance with their current servicing arrangements. However, as noted above, the security agreements with respect to the Intercompany Loans give the Company the power to direct the servicer of the HELOCs to foreclose on HELOCs under certain circumstances specified in the security agreements. ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses is intended to cover probable credit losses for which either the asset is not specifically identified or the size of the loss has not been fully determined. The allowance for loan losses is based upon management estimates, which are inherently uncertain. Factors affecting the uncertainty of specific loss and expected loss estimates include the volatility of default possibilities, rating migrations and loss severity. These uncertainties also could relate to current macroeconomic conditions, changes in underwriting standards, unexpected correlations within the portfolio or other factors. The allowance for loan losses is increased by allowances related to purchased Direct Loan portfolios at amounts equal to the predecessor's historical cost basis, and by provisions for losses charged against income and is reduced by charge-offs, net of recoveries. Direct Loans, other than commercial First Mortgage Loans, are generally charged to the allowance for loan losses upon reaching specified stages of delinquency in accordance with the Federal Financial Institutions Examination Council's ("FFIEC") policy. For example, residential First Mortgage Loans and Second Mortgage Loans are generally charged off to net realizable value at 180 days past due, while Manufactured Housing Loans are generally charged off (to net realizable value if collateralized) at 120 days past due. The allowance for loan losses is reviewed in light of the risk profile of the portfolio and current economic conditions. The allowance is adjusted based on that review if, in management's judgment, changes are warranted. At March 31, 2001, management of the Company deemed its allowance for loan losses to be adequate. 15 Part I Item 2. (continued) The accompanying table reflects the activity in the Company's allowance for loan losses for the periods indicated: March 31, 2001 March 31, 2000 -------------- -------------- Allowance for Loan Losses (in thousands) ------------------------------------------------------------------------------- Total allowance at beginning of period $ 132,719 $ 4,962 Acquired allowance 31,327 67 Provision for loan losses 0 0 Charge-offs (10,038) 0 Recoveries 284 0 ------------ ----------- Total allowance at end of period $ 154,292 $ 5,029 ============ =========== Allowance for Loan Losses to: Total Direct Loans at period end 2.11% .47% =============================================================================== INTEREST RATE RISK The Company's income consists primarily of interest payments on the Direct Loans and the Intercompany Loans. The Direct Loans are held for investment and are non-trading items. Currently, the Company does not use any derivative products to manage its interest rate risk. If there is a decline in market interest rates, the Company may experience a reduction in interest income and a corresponding decrease in funds available to be distributed to its stockholders. The reduction in interest income may result from downward adjustments of the indices upon which the interest rates on adjustable rate mortgages are based and from prepayments of Direct Loans with fixed interest rates, resulting in reinvestment of the proceeds in lower-yielding Direct Loans. There can be no assurance that an interest rate environment in which there is a significant decline in interest rates over an extended period of time would not adversely affect the Company's ability to pay dividends on the Series A Preferred Shares and Series B Preferred Shares. The following table sets forth certain information concerning the current interest rates borne by the Loans constituting the Company's portfolio. ($ in thousands)

------------- * % of portfolio The Company monitors the impact that changes in market interest rates are expected to have on its interest rate sensitive assets and liabilities. The Company periodically performs analyses to quantify the estimated impact that changes in market interest rates are expected to have on net interest income and the fair value of these asset and liabilities. 16 A decline in market interest rates is expected to have the following impact on net interest income: o Reduction in interest income on adjustable rate loans or partially fixed rate loans that are in interest rate reset periods o Reduction in interest income on the fixed or partially fixed loans that are not in interest rate reset periods as declines in interest rates generally will increase prepayments on such loans, resulting in lower interest income because the prepayment proceeds are reinvested in lower-yielding Direct Loans or other investments o Reduction in interest income on the Intercompany Loans o Reduction in interest expense on the intercompany borrowings Conversely, an increase in market interest rates is expected to have the following impact on net interest income: o Increase interest income on adjustable rate loans or partially fixed rate loans that are in interest rate reset periods o Increase in interest income on the fixed or partially fixed loans that are not in interest rate reset periods as increases in interest rates generally slow prepayments and the Company continues to earn the stated fixed rate on relatively higher loan portfolio balances o Increase in interest income on the Intercompany Loans o Increase interest expense on the intercompany borrowings Using the Company's option-adjusted spread (OAS) valuation model, the Company estimates that a decline in market interest rates of 100 basis points will reduce net interest income by approximately 2.8% of annualized 2001 net interest income. A decline in interest rates will increase the fair value of the fixed rate and partially fixed rate loans in the portfolio. Conversely an increase in interest rates will reduce the fair value of the fixed rate and partially fixed rate loans in the portfolio. Changes in interest rates generally do not have a significant impact on the Company's loans with variable interest rates or the intercompany borrowings as these instruments bear interest rates that approximate prevailing market rates. Using the OAS valuation model, the Company estimates that an increase in market interest rates of 100 basis points will reduce the fair value of the Direct Loan portfolio by 3.3% of the fair value of the Direct Loan portfolio as of March 31, 2001. The OAS valuation and modeling techniques used by the Company assume that market interest rates will change instantaneously and that the yield curve will move in a parallel fashion. The modeling technique assumes that prepayment proceeds are reinvested in similar investments at prevailing market rates. The technique does not include the potential impact of widening or tightening of the spreads inherent in the Company's loan portfolio that may occur as interest rates change, or the potential impact that changes in interest rates may have on the credit risk inherent in the portfolio. CREDIT RISK Concentration of credit risk arises when a number of borrowers engage in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Concentration of credit risk indicates the relative sensitivity of the Company's performance to both positive and negative developments affecting a particular industry or geographic region. The following table shows the Company's Direct Loan portfolio by geographic area as of March 31, 2001 and March 31, 2000: ($ in thousands) Geographic Area March 31, 2001 March 31, 2000 --------------- -------------- -------------- New York $1,130,360 15.5% $85,346 8.0% California 1,071,113 14.6% 399,171 37.2% Texas 650,673 8.9% 50,434 4.7% Colorado 163,045 2.2% 73,459 6.8% Other (no state has more 4,299,596 58.8% 464,993 43.3% than 5%) --------- ----- ------- ----- Total $7,314,787 100.0% $1,073,403 100.0% At March 31, 2001, approximately 15.5% and 14.6% of the Company's Direct Loan portfolio consisted of loans collateralized by residential real estate properties located in New York and California, respectively. Consequently, these residential mortgage loans may be subject to a greater risk of default than other comparable residential mortgage loans in the event of adverse economic, political or business developments or natural hazards (earthquake, for example) in these geographic areas that may affect the ability of residential property owners in New York and California to make payments of principal and interest on the underlying Direct Loans. 17 Part I Item 2. (continued) At March 31, 2001, the HELOCs that are pledged as collateral for the Intercompany Loans are collateralized by residential real estate properties located in New York (43%), California (25%), Connecticut (7%) and New Jersey (6%). No other state constituted more than 5% of the HELOC portfolio that collateralized the Intercompany Loans on that date. LIQUIDITY RISK MANAGEMENT The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all of the Company's financial commitments. In managing liquidity, the Company takes into account various legal limitations placed on a REIT. The Company's principal liquidity needs are to maintain its current portfolio size of First Mortgage Loans, to acquire the Additional Assets, and to pay dividends on its outstanding securities, including the Series A Preferred Shares and Series B Preferred Shares. The initial acquisition of First Mortgage Loans was funded by the proceeds of the sale of the Series A Preferred Stock. Additional First Mortgage Loans are intended to be funded with the proceeds obtained from the sale or repayment by individual borrowers of the principal balances of First Mortgage Loans that are currently held in the portfolio. The acquisition of the Additional Assets was funded through the issuance to the Bank of the Series B Preferred Shares. The acquisition of the Additional Assets in the future are intended to be purchased with the proceeds obtained from the sale or repayment of principal balances of Additional Assets. The Company may also increase the size of its portfolio of Additional Assets from time to time. Any such increases may be funded either through intercompany advances made by the Bank to the Company or through the sale to the Bank of additional shares of Series B Preferred Stock. The Company has entered into an intercompany line of credit with the Bank, which is utilized to meet short term funding needs. The Company may make prepayments towards the principal amount of the loan at any time without penalty. The Company may use proceeds from any such borrowings to purchase Additional Assets or for other corporate purposes. At March 31, 2001, the Company had borrowed approximately $1,141,000,000 under the line of credit. On April 1, 2001, the Company purchased 1,300 additional shares of the Series B Preferred Stock from the Bank. The proceeds from such sale were used to repay a portion of the amount outstanding under the line of credit. The Company does not anticipate having any material capital expenditures. OPERATIONAL RISK MANAGEMENT As noted above, the Company is a subsidiary of the Bank, which is itself a wholly-owned subsidiary of JPMC. The Company has no employees. In accordance with agreements between the Company and the Bank, the Bank manages all of the Company's operations. In addition, the Bank and CMMC service all of the Company's Loans. Accordingly, the Company may be subject to certain operating risks impacting the operations of JPMC, the Bank and CMMC. Such operating risks include the risk of fraud by employees of the Bank or its affiliates or by outsiders, unauthorized transactions by such employees and errors relating to computer and telecommunications systems. Although JPMC, the Bank and CMMC maintain a system of controls designed to provide management with timely and accurate operational information and to keep operating risks at appropriate levels, there can be no assurance that the Company will not suffer loss from operating risk in the future. ACCOUNTING DEVELOPMENTS In 1998, the Financial Accounting Standards Board ("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. SFAS 133 requires that an entity measure all derivatives at fair value and recognize those derivatives as either assets or liabilities on the balance sheet. The change in a derivative's fair value is generally to be recognized in current period earnings or equity. Currently, the Company does not utilize derivative products to hedge its interest rate risk, nor does it maintain freestanding derivatives or embedded derivatives that require bifurcation. As a result, the Company did not have a SFAS 133 transition adjustment on January 1, 2001 and the adoption of SFAS 133 did not affect the Company's earnings or financial position. 18 Part I Item 2. (continued) In September 2000, the FASB issued SFAS 140, which revises the standards set forth in SFAS 125 for the accounting of securitizations and other transfers of financial assets and collateral. Statement 140 modifies the criteria for determining whether the transferor has relinquished control of assets and therefore whether the transfer may be accounted for as a sale. SFAS 140 requires new disclosures about securitization activities and incremental disclosures about collateral in addition to maintaining the existing disclosure requirements of SFAS 125. The disclosure provisions of SFAS 140 became effective for the 2000 fiscal year end (December 31, 2000) and the provisions of SFAS 140 relating to the transfer of financial assets and the extinguishment of liabilities are effective for transfers only after March 31, 2001. The Company believes that the adoption of SFAS 140 will not significantly affect the Company's earnings or financial position. In 1999, the Accounting Standard Executive Committee of the AICPA formed the Allowance for Loan Losses Task Force ("Task Force") to research current accounting guidance and practices as they relate to loan losses. The expectations are that the Task Force will develop a statement of position that will provide additional accounting and reporting guidance and clarification on the factors to consider in determining the allowance for loan losses. The Task Force is continuing its deliberation and its impact is yet to be determined. OTHER MATTERS As of March 31, 2001 the Company believed that it was in full compliance with the REIT tax rules and that it will continue to qualify as a REIT under the provisions of the Code. The Company calculates that: o its Qualified REIT Assets, as defined in the Code, are 91.09% of its total assets, as compared to the federal tax requirement that at least 75% of its total assets must be Qualified REIT assets. o 89.98% of its revenues qualify for the 75% source of income test and 99.96% of its revenues qualify for the 95% source of income test under the REIT rules. o none of its revenues were subject to the 30% income limitation under the REIT rules. The Company also met all REIT requirements regarding the ownership of its Common Stock, the Series A Preferred Stock and the Series B Preferred Stock and anticipates meeting the 2001 annual distribution and administrative requirements. Part I Item 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding interest rate risk, see the Interest Rate Risk section on page 16. 19 CHASE PREFERRED CAPITAL CORPORATION AVERAGE BALANCE SHEET Three Months Ended March 31, (in thousands, except per share data) (Unaudited)

20 CHASE PREFERRED CAPITAL CORPORATION QUARTERLY FINANCIAL INFORMATION (in thousands, except per share data) (Unaudited)

21 Part II - OTHER INFORMATION Item 4. Exhibits and Current Reports on Form 8-K ---------------------------------------- (A) Exhibits: 11 - Computation of net income per share. 12 - Computation of ratio of earnings to fixed charges and preferred stock dividend requirements. (B) Reports on Form 8-K: None 22 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. CHASE PREFERRED CAPITAL CORPORATION ----------------------------------- (Registrant) Date: May 14, 2001 By /s/ Louis M. Morrell ------------------------------- Louis M. Morrell Treasurer 23 Part II Item 4. (continued) EXHIBIT 11 CHASE PREFERRED CAPITAL CORPORATION Computation of net income per common share (in thousands, except share and per share amounts) (Unaudited) Net income for basic and fully diluted earnings per share is computed by subtracting from the applicable earnings the dividend requirements on preferred stock to arrive at earnings applicable to common stock and dividing this amount by the weighted average number of shares of common shares outstanding during the period. Three Months Ended March 31, 2001 2000 ---- ---- (in thousands, except shares outstanding) Earnings: Net income $ 157,205 $ 17,205 Less: preferred stock dividend requirements 120,361 11,137 ----------- ---------- Net income applicable to common stock $ 36,844 $ 6,068 ----------- ---------- Shares: Average common shares outstanding 1 1 Basic and fully diluted net income per share: $ 36,844 $ 6,068 =========== ========== =============================================================================== 24 Part II Item 4. (continued) EXHIBIT 12 CHASE PREFERRED CAPITAL CORPORATION Computation of ratio of earnings to fixed charges and preferred stock dividend requirements (Unaudited) Three Months Ended (in thousands, except ratio): March 31, 2001 ---------------------------------------------------------------------------- Net income $ 157,205 ----------- Fixed charges 12,760 Total fixed charges 12,760 ----------- Earnings before fixed charges $ 169,965 =========== Fixed charges, as above $ 12,760 Preferred stock dividend requirements 120,361 ----------- Fixed charges including preferred stock dividends $ 133,121 =========== Ratio of earnings to fixed charges and preferred stock dividend requirements 1.28 =========== ================================================================================ 25

CHASE PREFERRED CAPITAL CORP 10-Q