BANK ONE CORPORATION
Financial Supplement and Form 10-Q
Contents Page
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Five-Quarter Summary of Selected Financial Information 1
Business Segments 2
Consolidated Results 19
Risk Management 21
Liquidity Risk Management 22
Market Risk Management 22
Credit Risk Management 24
Operating Risk Management 24
Credit Portfolio Composition 24
Asset Quality 27
Derivative Financial Instruments 29
Loan Securitizations 31
Capital Management 33
Forward-Looking Statements 34
Consolidated Financial Statements 36
Notes to Consolidated Financial Statements 40
Selected Statistical Information 45
Form 10-Q 47
Five-Quarter Summary of Selected Financial Information
BANK ONE CORPORATION and Subsidiaries
Three Months Ended
March 31 December 31 September 30 June 30 March 31
2001 2000 2000 2000 2000
---------- ------------- -------------- --------- ----------
(In millions, except per share data)
Income Statement Data:
Total revenue, net of interest expense................... $ 3,792 $ 3,461 $ 3,942 $ 2,509 $ 4,014
Net interest income--fully taxable-equivalent basis
("FTE") basis.......................................... 2,218 2,247 2,242 2,257 2,228
Noninterest income....................................... 1,607 1,247 1,734 288 1,821
Provision for credit losses.............................. 585 1,507 516 1,013 362
Noninterest expense...................................... 2,236 2,847 2,593 3,507 2,661
Net income (loss)........................................ 679 (512) 581 (1,269) 689
Per Common Share Data:
Net income (loss):
Basic.................................................. $ 0.58 $ (0.44) $ 0.50 $ (1.11) $ 0.60
Diluted (1)............................................ 0.58 (0.44) 0.50 (1.11) 0.60
Cash dividends declared.................................. 0.21 0.21 0.21 0.42 0.42
Book value............................................... 16.20 15.90 16.47 16.12 17.43
Balance Sheet Data - Ending Balances:
Loans:
Managed................................................ $229,942 $236,492 $237,505 $234,412 $229,673
Reported............................................... 171,427 174,251 176,419 172,591 168,078
Deposits................................................. 163,555 167,077 164,130 163,169 164,643
Long-term debt (2)....................................... 42,197 40,911 42,641 39,093 38,753
Total assets:
Managed................................................ 315,104 309,096 324,780 316,011 317,176
Reported............................................... 274,352 269,300 283,373 272,709 273,008
Common stockholders' equity.............................. 18,876 18,445 19,042 18,630 20,081
Total stockholders' equity............................... 19,066 18,635 19,232 18,820 20,271
Credit Quality Ratios:
Net charge-offs to average loans - managed (3)........... 2.40% 2.22% 1.86% 1.99% 2.04%
Allowance for credit losses to period end loans.......... 2.45 2.36 1.75 1.73 1.39
Nonperforming assets to related assets................... 1.55 1.48 1.21 1.03 0.99
Financial Performance Ratios:
Return (loss) on average assets.......................... 1.02% (0.75)% 0.85% (1.87)% 1.03%
Return (loss) on average common equity................... 14.6 (10.7) 12.2 (26.0) 13.9
Net interest margin:
Managed................................................ 4.76 4.65 4.66 4.80 4.91
Reported............................................... 3.71 3.67 3.68 3.77 3.78
Efficiency ratio:
Managed................................................ 47.6 66.0 54.6 103.8 53.7
Reported............................................... 58.5 81.5 65.2 137.8 65.7
__________
(1) Common equivalent shares and related income were excluded from the
computation of diluted loss per share for the three months ended December
31, 2000 and June 30, 2000, as the effect would be antidilutive.
(2) Includes trust preferred capital securities.
(3) First quarter 2001 amounts include $40 million of charge-offs, which are
not so classified in the Corporations GAAP financials because they are part
of a portfolio that has been accounted for as loans held at a discount. The
inclusion of these amounts in charge-offs more accurately reflects the
performance of this portfolio. In the Corporation's consolidated financial
statements, this item results in a higher provision in excess of net
charge-offs.
-1-
Five-Quarter Summary of Selected Financial Information
BANK ONE CORPORATION and Subsidiaries--continued
Three Months Ended
March 31 December 31 September 30 June 30 March 31
(In millions, except per share data) 2001 2000 2000 2000 2000
---------- ------------- -------------- ----------- ----------
Capital Ratios:
Risk-based capital:
Tier 1................................................. 7.8% 7.3% 7.5% 7.2% 7.7%
Total.................................................. 11.2 10.8 10.9 10.3 10.6
Tangible common equity/tangible managed assets........... 5.6 5.5 5.4 5.4 5.7
Common Stock Data:
Average shares outstanding:
Basic.................................................. 1,163 1,158 1,156 1,153 1,149
Diluted................................................ 1,173 1,158 1,167 1,153 1,155
Stock price, quarter-end................................. $ 36.18 $ 36.63 $ 38.06 $ 26.56 $34.38
Employees (1)............................................ 79,157 80,778 81,291 82,443 N/A
__________
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded. Prior period
data have not been restated for this change. Excluding this change in
methodology, headcount declined 328 in the first quarter of 2001. First
quarter 2000 employee headcount data is not available.
Business Segments
Bank One Corporation ("Bank One" or the "Corporation") is managed on a line of
business basis. The business segments' financial results presented reflect the
current organization of the Corporation. The following table summarizes certain
financial information by line of business for the periods indicated:
Net Income Average
(Loss) Managed Assets
(In millions) (In billions)
------------------------ -------------------------
Three Months Ended March 31 2001 2000 2001 2000
------------------------ -------------------------
Retail........................................................ $ 349 $ 236 $ 81.0 $ 79.6
Commercial Banking............................................ 159 200 102.1 110.2
First USA..................................................... 148 67 68.2 72.8
Investment Management......................................... 82 81 8.0 7.7
Corporate Investments......................................... (29) 141 9.3 8.0
Corporate/Unallocated......................................... (30) (36) 40.5 35.3
----- ----- ------ ------
Total Corporation............................................ $ 679 $ 689 $309.1 $313.6
===== ===== ====== ======
The information provided in the line of business tables beginning with the
caption entitled "Financial Performance" is included herein for analytical
purposes only and is based on management information systems, assumptions and
methodologies that are under continual review. For a detailed discussion of the
various business activities of Bank One's business segments, see pages 4 - 13 of
the Corporation's 2000 Annual Report on Form 10-K.
-2-
Retail
Retail includes consumer and small business banking, auto and consumer
lending, and interactive banking and financial management through bankone.com
and WingspanBank.com.
Three Months Ended March 31
----------------------------------
(Dollars in millions) 2001 2000 % Change
-------- -------- ----------
Net interest income--FTE basis......................... $ 1,317 $ 1,236 7%
Non-deposit service charges ...................... 93 109 (15)
Credit card revenue .............................. 36 33 9
Service charges on deposits ...................... 186 179 4
Fiduciary and investment management fees ......... 29 30 (3)
Other income (loss) .............................. 16 (45) N/M
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Noninterest income .................................... 360 306 18
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Total revenue ......................................... 1,677 1,542 9
Provision for credit losses ........................... 244 167 46
Salaries and employee benefits ................... 336 350 (4)
Other expense .................................... 551 652 (15)
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Noninterest expense ................................... 887 1,002 (11)
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Pretax income - FTE basis ............................. 546 373 46
Tax expense and FTE basis adjustment .................. 197 137 44
------- ------
Net income ............................................ $ 349 $ 236 48
======= ======
FINANCIAL PERFORMANCE:
Return on equity ...................................... 23% 18%
Efficiency ratio ...................................... 53 65
Headcount--full-time (1) .............................. 35,365 N/A N/A
ENDING BALANCES (in billions):
Commercial loans .................................. $ 12.0 $ 11.6 3
Home equity loans ................................. 30.8 27.2 13
Indirect auto loans / leases ...................... 22.2 24.8 (10)
Other personal loans (2) .......................... 11.1 11.8 (6)
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Total loans ........................................... 76.1 75.4 1
Assets ................................................ 79.7 77.3 3
Demand deposits .................................... 24.5 25.7 (5)
Savings ............................................ 33.3 34.1 (2)
Time ............................................... 31.2 30.1 4
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Total deposits ........................................ 89.0 89.9 (1)
Common equity ......................................... 6.1 5.9 3
-3-
Three Months Ended March 31
-----------------------------------
2001 2000 % Change
--------- --------- ---------
AVERAGE BALANCES (in billions):
Commercial loans........................................................ $ 11.9 $ 11.5 3
Home equity loans....................................................... 31.1 25.5 22
Indirect auto loans / leases............................................ 22.4 24.3 (8)
Other personal loans (2) ............................................... 11.3 11.8 (4)
-------- --------
Total loans.............................................................. 76.7 73.1 5
Assets................................................................... 81.0 79.6 2
Demand deposits......................................................... 24.1 24.8 (3)
Savings................................................................. 32.5 34.1 (5)
Time.................................................................... 31.9 29.4 9
-------- ---------
Total deposits........................................................... 88.5 88.3 --
Common equity............................................................ 6.0 5.3 14
CREDIT QUALITY (in millions):
Net charge-offs:
Small business commercial............................................... $ 10 $ 5 N/M
Home equity loans....................................................... 73 21 N/M
Indirect auto loans / leases (3)........................................ 89 44 N/M
Other personal loans.................................................... 34 28 21%
-------- --------
Total consumer (3)..................................................... 196 93 N/M
-------- --------
Total net charge-offs (3)............................................... 206 98 N/M
Net charge-offs:
Small business commercial............................................... 0.33% 0.19%
Home equity loans....................................................... 0.94 0.33
Indirect auto loans / leases (3)... .................................... 1.59 0.73
Other personal loans.................................................... 1.21 0.95
Total consumer (3) .................................................... 1.21 0.61
Total net charge-offs (3) .............................................. 1.08 0.54
Nonperforming assets:
Commercial............................................................. $ 231 $ 183 26
Consumer............................................................... 728 462 58
-------- --------
Total nonperforming loans................................................ 959 645 49
Other including OREO................................................... 77 68 13
--------- --------
Total nonperforming assets............................................... $ 1,036 $ 713 45
Allowance for loan losses................................................ $ 924 N/A N/A
Allowance to period end loans............................................ 1.21 N/A
Allowance to nonperforming loans......................................... 96 N/A
Nonperforming assets to related assets................................... 1.36 0.93%
DISTRIBUTION:
Banking centers........................................................ 1,811 1,839 (2)
ATMs................................................................... 5,762 6,651 (13)
# On-line customers (in thousands)..................................... 931 590 58
# Households (in thousands)............................................ 7,586 7,610 ---
# Business customers (in thousands).................................... 513 528 (3)
# Debit cards issued (in thousands).................................... 4,178 4,225 (1)
-4-
Three Months Ended March 31
-----------------------------------
2001 2000 % Change
--------- -------- ----------
INVESTMENTS:
Sales volume (in millions).......................................... $1,138 $1,193 (5)
_______
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; see Note 5 on page
59 in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded.
(2) First quarter of each year favorably affected by tax-refund-anticipation
loan activity.
(3) First quarter 2001 amounts include $40 million of charge-offs which are not
so classified in the Corporations GAAP financials because they are part of a
portfolio that has been accounted for as loans held at a discount. The
inclusion of these amounts in charge-offs more accurately reflects the
performance of this portfolio. In the Corporation's consolidated financial
statements, this item results in a higher provision in excess of net charge-
offs.
Retail reported first quarter net income of $349 million, up 48% from the
year-ago quarter. This reflected the benefit of a $135 million, or 9%, increase
in revenue and a $115 million, or 11%, decline in expenses, which was partially
offset by higher provision for credit losses. Return on average equity was 23%,
compared with 18% in the year-ago quarter. First quarter results from both
periods included the seasonal impact from tax refund anticipation lending. The
efficiency ratio was 53% in the first quarter. While this benefited from
seasonal lending activity, progress in reducing expense is evidenced by the
decline from the year-ago efficiency ratio of 65%.
Net interest income was $1.317 billion, up $81 million, or 7%, from the
year-ago quarter (excluding the impact of the sale of the consumer finance
business in the first quarter of 2000, net interest income increased 10%). This
increase was driven by wider loan spreads and a 5% increase in average loans
outstanding, partially offset by deposit margin compression. Loan growth was
concentrated in home equity loans, where average loans increased 22% from a year
ago. Average loans were unchanged from the 2000 fourth quarter, reflecting the
more disciplined approach toward managing the consumer credit portfolios that
was implemented last year. This has led to an improved portfolio mix by reducing
reliance on brokered home equity loans and auto leases. These portfolios are now
managed to maximize return on capital.
Noninterest income was $360 million, up $54 million, or 18%, from the
year-ago quarter. The change reflected the absence of auto lease residual losses
in the first quarter, compared with $262 million in the 2000 fourth quarter and
$56 million in the year-ago quarter.
Provision for credit losses was $244 million, up $77 million from the
year-ago quarter. Retail's managed net charge-offs totaled $206 million, an
increase from $98 million in the year-ago quarter and $159 million in the prior
quarter. The increased net charge-offs related to the expected increases from
brokered home equity loans as well as deterioration in certain parts of the
auto-lending portfolio. Retail's net charge-off ratio was 1.08%, up from 0.83%
in the prior quarter and 0.54% in the year-ago quarter.
The allowance for loan losses increased $78 million, bringing the loan loss
reserve as a percent of loans to 1.21%, up from 1.10% at December 31, 2000, and
approximately 0.84% at March 31, 2000. Total Retail nonperforming assets
increased $323 million from a year ago, largely driven by a $266 million
increase in consumer nonperforming loans, which primarily represent 90-day loan
delinquencies. Compared with the prior quarter, Retail nonperforming assets
increased $41 million, or 4%.
Noninterest expense was $887 million, down $115 million, or 11%, from the
year-ago quarter. This decrease reflected the positive impacts from
waste-reduction initiatives, reduced headcount in the lending and staff units
and the sale of the consumer finance business. Compared with the 2000 fourth
quarter, adjusted to exclude that quarter's significant items, noninterest
expense declined $78 million, or 8%.
-5-
Commercial Banking
Commercial Banking offers a broad array of products, including cash
management, capital markets and lending, to Corporate Banking and Middle Market
Banking customers.
Three Months Ended March 31
------------------------------------
2001 2000 % Change
---------- -------- -------------
(Dollars in millions)
Net interest income--FTE basis........................................... $ 665 $ 664 --%
Non-deposit service charges.......................................... 158 132 20
Credit card revenue.................................................. 22 18 22
Service charges on deposits.......................................... 132 135 (2)
Fiduciary and investment management fees............................. 1 3 (67)
Trading.............................................................. 77 53 45
Other income ........................................................ 8 13 (38)
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Noninterest income...................................................... 398 354 12
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Total revenue........................................................... 1,063 1,018 4
Provision for credit losses............................................. 264 132 N/M
Salaries and employee benefits....................................... 270 277 (3)
Other expense........................................................ 274 293 (6)
------- -------
Noninterest expense..................................................... 544 570 (5)
------- -------
Pretax income - FTE basis .............................................. 255 316 (19)
Tax expense and FTE basis adjustment.................................... 96 116 (17)
------- -------
Net income ............................................................. $ 159 $ 200 (21)
======= =======
FINANCIAL PERFORMANCE:
Return on equity........................................................ 10% 13%
Efficiency ratio........................................................ 51 56
Headcount--full-time
Corporate Banking (including Capital Markets)........................ 3,581 N/A N/A
Middle Market........................................................ 2,825 N/A N/A
Treasury management services......................................... 7,258 N/A N/A
Support and other administration..................................... 2,363 N/A N/A
------- ------
Total headcount - full-time (1)......................................... 16,027 N/A N/A
ENDING BALANCES (in billions):
Loans................................................................... $ 78.5 $ 80.2 (2)
Assets.................................................................. 100.5 108.5 (7)
Demand deposits...................................................... 20.0 19.9 1
Savings.............................................................. 2.6 N/A N/A
Time (+ Savings in 2000) ............................................ 6.0 9.6 (38)
Foreign offices...................................................... 6.6 9.2 (28)
------- -------
Total deposits.......................................................... 35.2 38.7 (9)
Common equity........................................................... 6.9 6.2 11
-6-
Three Months Ended March 31
------------------------------------
2001 2000 % Change
---------- -------- -------------
AVERAGE BALANCES (in billions):
Loans................................................................... $ 80.6 $ 80.4 --
Assets.................................................................. 102.1 110.2 (7)
Demand deposits...................................................... 20.3 20.9 (3)
Savings.............................................................. 2.6 N/A N/A
Time (+ Savings in 2000) ........................................... 5.9 9.2 (36)
Foreign offices...................................................... 7.1 9.1 (22)
------- --------
Total deposits.......................................................... 35.9 39.2 (8)
Common equity........................................................... 6.9 6.2 11
CREDIT QUALITY (in millions):
Net commercial charge-offs.............................................. $ 249 $ 84 N/M
Net commercial charge-off ratios........................................ 1.23% 0.42%
Nonperforming assets:
Commercial nonperforming loans.................................... $ 1,544 $ 888 74
Other including OREO.............................................. 19 12 58
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Total nonperforming assets............................................. $ 1,563 $ 900 74
Allowance for loan losses............................................... $ 3,034 N/A N/A
Allowance to period end loans........................................... 3.86% N/A
Allowance to nonperforming loans........................................ 197 N/A
Nonperforming assets to related assets.................................. 1.99 1.12%
CORPORATE BANKING (in billions):
Loans--ending balance.................................................... $ 44.1 $ 48.6 (9)
--average balance.............................................. 46.2 49.4 (6)
Deposits--ending balance................................................. $ 17.4 $ 18.1 (4)
--average balance.......................................... 18.0 20.5 (12)
Credit Quality (in millions):
Net commercial charge-offs.............................................. $ 186 $ 60 N/M
Net commercial charge-off ratio......................................... 1.61% 0.49%
Nonperforming loans..................................................... $ 952 $ 593 61
Nonperforming loans to loans............................................ 2.16% 1.22%
SYNDICATIONS:
Lead Arranger Deals:
Volume (in billions)................................................... $ 12.8 $ 9.6 33
Number of transactions................................................. 36 35 3
League table standing--rank............................................ 4 5 (20)
League table standing--market share.................................... 6% 5%
-7-
Three Months Ended March 31
------------------------------------
2001 2000 % Change
---------- -------- -------------
MIDDLE MARKET BANKING (in billions):
Loans--ending balance.................................................... $ 34.4 $ 31.6 9
--average balance................................................... 34.4 31.0 11
Deposits--ending balance................................................. $ 17.8 $ 20.6 (14)
--average balance................................................ 17.9 18.7 (4)
Credit Quality (in millions):
Net commercial charge-offs.............................................. $ 63 $ 24 N/M
Net commercial charge-off ratio......................................... 0.73% 0.31%
Nonperforming loans..................................................... $ 592 $ 295 N/M
Nonperforming loans to loans............................................ 1.72% 0.93%
-------
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; see Note 5 on page
59 in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded.
Commercial Banking reported first quarter net income of $159 million, down
$41 million, or 21%, from a year ago. This reflected the impact of a higher
provision for credit losses, partially offset by a 4% increase in revenue and a
5% decrease in expenses. The return on average equity was 10% in the first
quarter, down from 13% a year ago.
As previously announced, Corporate Banking has been actively reviewing all
relationships in its portfolio to assess both overall exposure as well as
relationship profitability. The goal is to enhance overall profitability. These
reviews have resulted in the exiting of some customer relationships, but have
also produced additional business such as treasury management services and
capital market business. A direct result of this initiative was the reduction of
$3.9 billion of Corporate Banking loans. This decrease included $599 million in
loan sales, of which $375 million were nonperforming credits. First quarter
results from these sales included charge-offs of $89 million. The proceeds from
these sales were well within specifically established credit reserves for these
loans.
Net interest income was $665 million, comparable to the year-ago quarter.
Total average loans of $80.6 billion were essentially unchanged from the
year-ago quarter. Middle Market Banking average loans increased $3.4 billion, or
11%, from the year-ago quarter and $1.3 billion, or 4%, from the 2000 fourth
quarter. Corporate Banking average loans decreased $3.2 billion, or 6%, from the
year-ago quarter, and $3.9 billion, or 8%, from the prior quarter. Impacting the
margin were slightly narrower loan spreads, the cost of carrying a higher level
of non-performing assets and the effect of an 8% decline in average deposits.
Compared with the 2000 fourth quarter, net interest income declined slightly,
reflecting wider loan spreads offset by the cost of carrying a higher level of
non-performing assets and the effect of a 7% decline in total average deposits.
Noninterest income totaled $398 million, an increase of $44 million, or
12%, from the year-ago quarter. Trading income increased $24 million, or 45%,
from the 2000 first quarter and $20 million, or 35%, from the prior quarter,
reflecting healthy asset-backed finance, fixed income and derivative trading
activities. Non-deposit service charges increased $26 million, or 20%, from the
2000 first quarter, reflecting strong underwriting fees, corporate debt issuance
revenues and strong loan fees, partially offset by weak syndication activity.
Service charges on deposits decreased $3 million, or 2%, from the year-ago
quarter. Compared to the prior quarter, service charges on deposits declined $5
million, or 4%, reflecting the seasonality of treasury management services fees.
The provision for credit losses was $264 million, a $132 million increase
from the year-ago quarter. Total net charge-offs were $249 million in the first
quarter, representing 1.23% of average commercial loans, up from 0.42% in the
year-ago quarter and down slightly from 1.24% in the prior quarter. Corporate
Banking net charge-offs were 1.61% of average loans in the first quarter, up
from 0.49% in the year-ago quarter and up from 1.58% in the prior quarter. The
year-over-year increase reflected the accelerated disposition of problem loans
through loan
-8-
sales. Middle Market net charge-offs were 0.73% of average loans in
the first quarter, compared to 0.31% in the year-ago quarter and 0.74% in the
prior quarter, reflecting overall economic weakness.
The allowance for credit losses was $3.034 billion at March 31, 2001, up
from $3.020 billion at the end of the prior quarter. This represented 3.86% of
period-end loans and 197% of nonperforming loans, compared to 3.71% and 198%,
respectively, at December 31, 2000.
At March 31, 2001, Corporate Banking nonperforming loans were $952 million,
down $113 million, or 11%, from December 31, 2000, reflecting the sale of
problem credits. Overall, increases in Corporate Banking nonperforming loans
have continued at approximately the same pace as in the prior two quarters.
Middle Market nonperforming loans increased $134 million, or 29%, to $592
million during the same time period, reflecting continued economic
deterioration.
Noninterest expense totaled $544 million, down $26 million, or 5%, from the
year-ago quarter and $13 million, or 2%, from the prior quarter. Salaries and
benefits expense was down slightly from the year-ago quarter. Compared to the
prior quarter, salaries and benefits expense was up due to higher incentive
compensation. Other noninterest expense decreased $19 million, or 6%, from the
year-ago quarter and $42 million, or 13%, from the prior quarter, reflecting the
continued impact of waste reduction activities, partially offset by capital
markets infrastructure improvements. The efficiency ratio in the first quarter
was 51%, improved from 56% in the year-ago quarter.
-9-
First USA
First USA is the third largest credit card company in the United States and
is the largest Visa(R) credit card issuer in the world, with $67 billion in
managed credit card receivables and 50.6 million cardmembers.
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
(Dollars in millions)
Net interest income--FTE basis........................................... $1,391 $ 1,525 (9)%
Non-deposit service charges.......................................... 2 3 (33)
Credit card revenue.................................................. 247 196 26
Fiduciary and investment management fees............................. 23 25 (8)
Investment securities gains ......................................... -- 11 N/M
Other income ........................................................ 37 29 28
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Noninterest income....................................................... 309 264 17
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Total revenue............................................................ 1,700 1,789 (5)
Provision for credit losses.............................................. 950 969 (2)
Salaries and employee benefits....................................... 129 142 (9)
Other expense........................................................ 385 573 (33)
------- -------
Noninterest expense...................................................... 514 715 (28)
------- -------
Pretax income - FTE basis ............................................... 236 105 N/M
Tax expense and FTE basis adjustment..................................... 88 38 N/M
------- -------
Net income .............................................................. $ 148 $ 67 N/M
======= =======
Memo: Net securitization gains (amortization).......................... $ (1) $ (41) 98
FINANCIAL PERFORMANCE:
% of average outstandings:
Net interest income (FTE basis).................................... 8.63% 9.14%
Provision for credit losses........................................ 5.89 5.78
Noninterest income................................................. 1.92 1.58
--------- --------
Risk adjusted margin....................................... 4.66 4.94
Noninterest expense................................................ 3.19 4.29
--------- --------
Pretax income (FTE basis )--Return on outstandings................. 1.46 0.63
Net income......................................................... 0.92 0.40
Return on equity........................................................ 10% 4%
Efficiency ratio........................................................ 30 40
Headcount--full-time (1)................................................ 11,122 N/A N/A
-10-
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
ENDING BALANCES (in billions):
Owned............................................................... $ 5.5 $ 4.9 12
Seller's interest................................................... 17.8 17.4 2
------ ------
Loans on balance sheet.............................................. 23.3 22.3 4
Securitized......................................................... 40.7 44.2 (8)
------ ------
Loans - managed......................................................... $ 64.0 $ 66.5 (4)
Assets - managed........................................................ 67.1 72.3 (7)
Common equity........................................................... 6.2 6.1 1
AVERAGE BALANCES (in billions):
Owned............................................................... $ 5.2 $ 4.3 21
Seller's interest................................................... 20.6 18.0 14
------ -------
Loans on balance sheet.............................................. 25.8 22.3 16
Securitized......................................................... 39.6 44.8 (12)
------ -------
Loans - managed......................................................... $ 65.4 $ 67.1 (3)
Assets - managed........................................................ 68.2 72.8 (6)
Common equity........................................................... 6.2 6.2 --
CREDIT QUALITY (in millions):
Net charge-offs:
Credit card--managed............................................... $ 950 $ 969 (2)
Net charge-off ratios:
Credit card--managed............................................... 5.81% 5.78%
Delinquency ratio--30+ days.............................................. 4.33% 4.08%
--90+ days.................................. 2.02 1.91
Allowance for loan losses............................................... $ 197 N/A N/A
Allowance to period end owned loans..................................... 3.58% N/A
OTHER DATA:
Charge volume (in billions)........................................ $ 32.5 $ 34.0 (4)
New accounts opened (in thousands)................................. 775 950 (18)
Cards issued (in thousands)........................................ 50,644 56,378 (10)
Number of FUSA.com customers (in millions)......................... 2.4 1.4 71
-----
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; see Note 5 on page
59 in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded.
First USA reported first quarter net income of $148 million, up $81 million
from the year-ago quarter and 10% from the 2000 fourth quarter. The year-over-
year increase primarily reflected the impact of lower expenses and managed
provision for credit losses, it was partially offset by an $89 million, or 5%,
decline in revenues. First quarter results represented a 1.46% pretax return on
outstandings, up from 0.63% in the year-ago and 1.28% in the 2000 fourth
quarter.
Net interest income was $1.391 billion, down $134 million, or 9%, from the
year-ago quarter, reflecting lower fee revenue, a decline in average
outstandings and a narrower spread. Compared with the prior quarter, net
interest income decreased 2%, reflecting lower fee revenue.
-11-
Average managed outstandings for the first quarter were $65.4 billion, down
3% from the year-ago period and essentially unchanged from the 2000 fourth
quarter average. End-of-period managed loans declined to $64.0 billion.
Attrition on mature vintage balances improved from the year-ago quarter and was
consistent with the previous quarter. While attrition improved, customer card
usage and related balances have declined, reflecting current economic
conditions. First USA opened 775,000 new accounts during the quarter, down
slightly from the 2000 fourth quarter level, and had 50.6 million cards issued
at quarter end. First USA continues to be a leader in online card marketing and
customer service with over 2.4 million registered users of its website,
FirstUSA.com.
Noninterest income was $309 million, up $45 million, or 17%, from the prior
year. This increase primarily reflected the difference in securitization
activity between the periods. Noninterest income was virtually unchanged from
the 2000 fourth quarter. The difference in securitization activity was offset by
lower sales of fee-based products and seasonally lower interchange revenue.
The managed provision for credit losses was $950 million, down $19 million
from the year-ago quarter. The managed net charge-off rate increased to 5.81%
from 5.78%, reflecting the increased average age of the portfolio resulting from
recent periods of lower new account growth and average outstandings. Managed net
charge-offs were up from the 2000 fourth quarter, in line with expectations. The
managed 30-day and 90-day delinquency rates were 4.33% and 2.02%, respectively,
up from 4.08% and 1.91%, in the year-ago quarter, but down from 4.51% and equal
to 2.02%, respectively, in the prior quarter, reflecting normal seasonality.
Noninterest expense totaled $514 million, down $201 million, or 28%, from
the prior year, reflecting the positive impact of waste-reduction initiatives,
such as lower headcount, improved operating efficiency and reduced operating
losses. The decline from the year-ago quarter also reflected the sale of the
international operations in the 2000 second quarter, lower operating costs and a
decrease in internally allocated costs related to a mid-year 2000 change in
allocation methodology. Noninterest expense declined $123 million from the 2000
fourth quarter, which included $46 million of special items. The decrease in
noninterest expense reflected lower expenses for purchased and professional
services, as well as reduced fraud and operating losses. None of the noninterest
expense reductions related to marketing expense, which was up from both the
year-ago and 2000 fourth quarter periods. The efficiency ratio for the current
period was 30%, down from 40% in the prior year and 37% from the 2000 fourth
quarter.
Investment Management
The Investment Management Group (IMG) provides investment, insurance, trust
and private banking services to individuals. The Group also provides
investment-related services, including retirement and custody services,
securities lending and corporate trust to institutions.
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
(Dollars in millions)
Net interest income--FTE basis ............ $ 104 $ 100 4%
Non-deposit service charges ............ 164 130 26
Service charges on deposits ............ 4 4 --
Fiduciary and investment management fees 134 139 (4)
Other income ........................... 5 14 (64)
------ ------
Noninterest income ........................ 307 287 7
------ ------
Total revenue ............................. 411 387 6
Provision for credit losses ............... 3 2 50
Salaries and employee benefits ......... 140 144 (3)
Other expense .......................... 137 113 21
------ ------
Noninterest expense ....................... 277 257 8
------ ------
Pretax income - FTE basis ................. 131 128 2
Tax expense and FTE basis adjustment ...... 49 47 4
------ ------
Net income ................................ $ 82 $ 81 1
====== ======
Memo: Insurance revenues .................. $100.6 $ 79.9 26
Net interest income--FTE basis ............ $ 104 $ 100 4%
-12-
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
FINANCIAL PERFORMANCE:
Return on equity......................................................... 34% 36%
Efficiency ratio......................................................... 67 66
Headcount--full-time (1)................................................. 6,522 N/A N/A
ENDING BALANCES (in billions):
Loans.................................................................... $ 6.8 $ 6.4 6
Assets................................................................... 8.0 7.6 5
Demand deposits...................................................... 1.7 3.1 (45)
Savings.............................................................. 2.7 1.9 42
Time................................................................. 3.4 4.2 (19)
Foreign offices...................................................... 0.1 0.2 (50)
-------- --------
Total deposits........................................................... 7.9 9.4 (16)
Common equity............................................................ 1.0 0.9 11
AVERAGE BALANCES (in billions):
Loans.................................................................... $ 6.8 $ 6.4 6
Assets................................................................... 8.0 7.7 4
Demand deposits...................................................... 2.0 2.6 (23)
Savings.............................................................. 2.7 1.9 42
Time................................................................. 3.4 4.0 (15)
Foreign offices...................................................... 0.1 0.2 (50)
------ --------
Total deposits........................................................... 8.2 8.7 (6)
Common equity............................................................ 1.0 0.9 11
CREDIT QUALITY (in millions):
Total net charge-off ratio (0.02) N/A N/A
Nonperforming assets :
Commercial .......................................................... $ 38 N/A N/A
Consumer ............................................................ 4 N/A N/A
-------
Total nonperforming assets .......................................... $ 42 N/A N/A
Allowance for loan losses............................................... $ 25 N/A N/A
Allowance to period end loans........................................... 0.37% N/A
Allowance to nonperforming loans........................................ 60 N/A
Nonperforming assets to related assets.................................. 0.61 N/A
-13-
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
ASSETS UNDER MANAGEMENT
ENDING BALANCES (in billions):
Mutual funds............................................................ $ 71.0 $ 66.9 6
Other................................................................... 60.5 63.7 (5)
------ -------
Total............................................................... $131.5 $ 130.6 1
By type:
Money market............................................................ $ 48.0 $ 39.1 23
Equity.................................................................. 47.4 57.7 (18)
Fixed income............................................................ 36.1 33.8 7
------ -------
Total............................................................... $131.5 $ 130.6 1
By channel:
Private client services................................................. $ 55.4 $ 62.4 (11)
Retail brokerage........................................................ 9.2 9.2 --
Institutional........................................................... 51.2 45.3 13
Commercial cash sweep................................................... 8.4 6.8 24
All other............................................................... 7.3 6.9 6
------ -------
Total................................................................ $131.5 $ 130.6 1
Morningstar Rankings:
Percentage of customer assets in 4 and 5 ranked funds............... 62% N/A
Percentage of customer assets in 3+ ranked funds.................... 95 N/A
TRUST ASSETS
ENDING BALANCES:
Trust assets under administration (in billions)......................... $319.6 N/A N/A
CORPORATE TRUST SECURITIES
ENDING BALANCES:
Corp. trust sec. under administration (in billions)..................... $848.0 N/A N/A
RETAIL BROKERAGE:
Mutual fund sales (in millions)..................................... $ 614 $ 779 (21)
Annuity sales....................................................... 524 414 27
------ -------
Total sales..................................................... 1,138 1,193 (5)
Number of accounts--end of period (in thousands)..................... 390 362 8
Market value customer assets-end of period (in billions)............ $ 22.1 $ 24.0 (8)
Number of registered sales representatives.......................... 697 638 9
Number of licensed retail bankers................................... 2,848 2,459 16
-14-
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
PRIVATE CLIENT SERVICES:
Number of Private Client advisors................................... 714 821 (13)
Number of Private Client offices.................................... 39 39 --
Client Assets:
Assets under management (in billions)................................... $ 55.4 $ 62.4 (11)
Ending Balances (in billions):
Loans................................................................... $ 6.8 $ 6.3 8
Deposits................................................................ 7.0 7.3 (4)
Average Balances (in billions):
Loans................................................................... $ 6.8 $ 6.2 10
Deposits................................................................ 7.0 7.1 (1)
------
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; see Note 5 on page
59 in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded.
Investment Management reported first quarter net income of $82 million, a
slight increase from the year-ago quarter. This reflected a $24 million, or 6%,
increase in revenue, which was partially offset by higher expenses. Compared
with the prior quarter, net income remained flat, reflecting the continued
impact of volatile and difficult market conditions.
Period-end assets under management increased to $131.5 billion, up slightly
from the year-ago and 2000 fourth quarters. One Group(R) mutual fund assets
under management increased to $71.0 billion in the first quarter, a 6% increase
year-over-year and a 1% increase from the prior quarter. Overall, One Group(R)
net fund flows remained positive. In the first quarter, the mix of assets under
management changed. Money market assets increased significantly, fixed income
assets increased modestly and equity assets declined from both the year-ago and
the 2000 fourth quarters.
Compared with the first quarter of 2000, the $7.0 billion decline in assets
under management from the Private Client Services segment was partially offset
by a $5.9 billion increase in assets under management in the Institutional
segment.
During the first quarter, overall One Group(R) fund performance remained
strong. The assets in funds rated 4 and 5 by Morningstar increased from 49% in
the fourth quarter of 2000 to 62% in the first quarter of 2001, with 95% of
assets in funds rated three stars or higher. The One Group(R) Diversified Mid
Cap fund was cited by Mutual Fund Magazine as one of the 20 best
performance-tested funds for 2001, based on its comparison of more than 6,000
diversified stock and balanced funds in the Morningstar database. Also in the
quarter, IMG launched its 50th fund and third sector fund, the One Group(R)
Health Sciences fund.
Net interest income totaled $104 million, up $4 million, or 4%, from the
year-ago period. Higher spread income associated with the 6% increase in average
loans was partially offset by the effect of the 6% decrease in average deposits.
Compared with the prior quarter, net interest income was unchanged.
Noninterest income was $307 million, an increase of $20 million, or 7%,
from the year-ago quarter. Beginning in the 2000 fourth quarter, fees associated
with the in-house administration of the One Group(R) mutual funds were recorded
as revenue, with a corresponding increase in expense. Prior to that, a
third-party administrator incurred such fees and expenses, which totaled $24
million in the first quarter. Excluding the impact of this change, as well as
the sale of the land trust business in the prior-year quarter, noninterest
income increased 4% from a year ago.
Compared to the prior quarter, noninterest income increased $7 million, or
2%. Excluding the effect of the above-mentioned change in the administration of
the One Group(R) funds, noninterest income was essentially flat
-15-
versus the prior quarter, reflecting the previously mentioned shift in the value
and mix of assets under management.
Retail brokerage sales of mutual funds and annuities were $1.1 billion in
the first quarter, down $55 million, or 5%, from the year-ago quarter and up
$199 million, or 21%, from the prior quarter, despite the weaker market
conditions. The mix of product sold reflected a shift by retail investors to
annuities.
Noninterest expense of $277 million increased $20 million, or 8%, from the
year-ago quarter. Excluding the expenses associated with the administration of
the One Group(R) funds, noninterest expense declined slightly from a year ago.
Noninterest expense increased $9 million, or 3%, from the 2000 fourth quarter
due principally to that quarter's lower incentive expense.
Corporate Investments
The Corporate Investments Group engages in proprietary investment
activities for the account of Bank One.
Three Months Ended March 31
-------------------------------------
(Dollars in millions) 2001 2000 % Change
---------- ---------- -------------
Net interest income--FTE basis............................................ $ 26 $ 35 (26)%
Investment securities gains (losses).................................. (97) 155 N/M
Trading gains (losses)................................................ (1) 6 N/M
Other income.......................................................... 11 24 (54)
----- -------
Noninterest income (loss)................................................ (87) 185 N/M
----- -------
Total revenue (loss)..................................................... (61) 220 N/M
Provision for credit losses.............................................. -- 1 N/M
Salaries and employee benefits........................................ 6 8 (25)
Other expense......................................................... 13 31 (58)
----- -------
Noninterest expense...................................................... 19 39 (51)
----- -------
Pretax income (loss) - FTE basis........................................ (80) 180 N/M
Tax expense (benefit) and FTE basis adjustment.......................... (51) 39 N/M
----- -------
Net income (loss)....................................................... $ (29) $ 141 N/M
===== =======
FINANCIAL PERFORMANCE:
Return (loss) on equity.................................................. (10)% 47%
Efficiency ratio......................................................... N/M 18
Headcount--full time (1).................................................. 194 N/A N/A
ENDING BALANCES (in billions):
Loans.................................................................... $ 3.8 $ 3.4 12
Assets................................................................... 9.3 8.3 12
Common equity............................................................ 1.2 1.2 --
AVERAGE BALANCES (in billions):
Loans.................................................................... $ 3.9 $ 3.4 15
Assets................................................................... 9.3 8.0 16
Common equity............................................................ 1.2 1.2 --
-16-
Three Months Ended March 31
-------------------------------------
2001 2000 % Change
---------- ---------- -------------
CREDIT QUALITY (in millions)
Nonperforming assets :
Commercial nonperforming loans.................................... $ 14 N/A N/A
Other, including OREO............................................. 10 N/A N/A
------- -------
Total nonperforming assets............................................. 24 N/A N/A
Allowance for loan losses (in millions)................................. $ 25 N/A N/A
Allowance to period end loans........................................... 0.66% N/A
Allowance to nonperforming loans (in millions).......................... 180 N/A
Nonperforming assets to related assets.................................. 0.63 N/A
______
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; See Note 5 on page
59 in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded.
Corporate Investments reported a first quarter net loss of $29 million,
compared with net income of $141 million in the year-ago quarter and a net loss
of $15 million in the 2000 fourth quarter. First quarter results were negatively
impacted by significant declines in equity valuations, while various leasing
strategies continued to provide stable core performance in the current quarter,
consistent with the year-ago and prior quarters.
Net interest income of $26 million declined $9 million, or 26%, from the
year-ago quarter, due to the funding of investments that does not yield interest
income.
Noninterest income declined $272 million from the year-ago quarter to a net
expense of $87 million, reflecting valuations of marketable equity securities,
mostly held through investments in funds. The Corporation currently holds
approximately $300 million in marketable equity securities.
Noninterest expense of $19 million declined $20 million, or 51%, from the
year-ago quarter reflecting lower incentive-based compensation and stronger
expense control. Noninterest expense increased $12 million from the $7 million
reported in the 2000 fourth quarter, driven primarily by the fourth quarter's
lower incentive compensation.
-17-
Corporate/Unallocated
Corporate/Unallocated includes certain items that are not allocated to the
lines of business.
Three Months Ended March 31
-------------------------------------
(Dollars in millions) 2001 2000 % Change
---------- ---------- -------------
Net interest expense--FTE basis........................................... $ (195) $ (115) (70)%
Non-deposit service charges........................................... (5) N/A N/A
Credit card revenue.................................................. 1 N/A N/A
Service charges on deposits ......................................... 1 N/A N/A
Trading losses....................................................... (9) N/A N/A
Other income ........................................................ 118 N/A N/A
------ ------
Noninterest income....................................................... 106 118 (10)
------ ------
Total revenue (loss)..................................................... (89) 3 N/M
Provision for credit losses.............................................. -- -- N/A
Salaries and employee benefits........................................ 99 N/A N/A
Other expense......................................................... (104) N/A N/A
------ ------
Noninterest expense...................................................... (5) 78 N/M
------ ------
Pretax loss - FTE basis.................................................. (84) (75) (12)
Tax benefit and FTE basis adjustment..................................... (54) (39) (38)
------ ------
Net loss................................................................. $ (30) $ (36) 17
====== ======
FINANCIAL PERFORMANCE:
Headcount - full-time (1)................................................ 9,927 N/A N/A
ENDING BALANCES (in billions):
Loans ................................................................... $ 0.7 $ (2.2) N/M
Assets................................................................... 50.5 43.2 17
Deposits................................................................. 31.5 26.6 18
Common equity............................................................ (2.5) (0.2) N/M
AVERAGE BALANCES (in billions):
Loans ................................................................... $ 0.5 $ (0.2) N/M
Assets................................................................... 40.5 35.3 15
Deposits................................................................. 28.1 24.5 15
Common equity............................................................ (2.6) -- N/A
------
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; see Note 5 on page
59 in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, employees on long-term disability
and employees of unconsolidated subsidiaries are excluded.
Corporate/Unallocated includes Treasury, unallocated Corporate expenses and
any gain or loss from Corporate transactions. Included in first quarter results
were gains of $73 million pre-tax ($43 million after tax) on the sale of the
Corporation's portion of the equity position in EquiServe Limited Partnership
and on the sale of the Corporation's investment in Star Systems, an ATM network.
Excluding these gains, the first quarter recorded a net loss of $73 million.
-18-
CONSOLIDATED RESULTS
Summary of Financial Results
The Corporation reported net income of $679 million, or $0.58 per diluted
share, for the first quarter of 2001, compared to net income of $689 million, or
$0.60 per diluted share, for the first quarter of 2000.
Net Interest Income
Net interest income includes spreads on earning assets as well as items
such as loan fees, cash interest collections on problem loans, dividend income,
interest reversals, and income or expense on derivatives used to manage interest
rate risk. Net interest margin measures how efficiently the Corporation uses its
earning assets and underlying capital.
In order to understand fundamental trends in net interest income, average
earning assets and net interest margins, it is useful to analyze financial
performance on a managed portfolio basis, which adds data on securitized loans
to reported data on loans as presented below:
Three Months Ended March 31
-------------------------------------
(Dollars in millions) 2001 2000 % Change
---------- -------- -----------
Managed:
Net interest income--FTE basis $ 3,308 $ 3,445 (4)%
Average earning assets ................................ 281,921 282,152 -
Net interest margin ................................... 4.76% 4.91%
Reported:
Net interest income--FTE basis $ 2,218 $ 2,228 -
Average earning assets ................................ 242,338 237,313 2%
Net interest margin ................................... 3.71% 3.78%
Lower net interest income and the corresponding decline in the net interest
margin in the 2001 first quarter as compared to the year ago quarter reflected
narrower spreads earned on loans and other investments. This was primarily
driven by a decline in the average yield earned on credit card receivables and
an increase in the average rate paid on deposits.
Noninterest Income
The table below shows the components of noninterest income for the periods
indicated:
Three Months Ended Percent Increase
March 31 (Decrease)
------------------------- -------------------
(Dollars in millions) 2001 2000
---------- ----------
Non-deposit service charges...................... $ 411 $ 389 6%
Credit card revenue (1).......................... 307 271 13
Service charges on deposits...................... 331 324 2
Fiduciary and investment management fees......... 187 195 (4)
Investment securities gains (losses)............. (96) 158 N/M
Trading.......................................... 65 64 2
Other income .................................... 188 113 66
------ -------
Managed noninterest income.................. $1,393 $1,514 (8)%
====== ======
-------
N/M--Not meaningful.
(1) Excludes net credit card revenue due to securitization totaling $214
million in 2001 and $307 million in 2000.
In order to provide more meaningful trend analysis, credit card fee revenue
and total noninterest income in the above table are shown on a managed basis.
Credit card fee revenue excludes the net interest revenue associated with
securitized credit card receivables. Components of noninterest income that are
primarily related to a single business segment are discussed within that
business segment rather than the consolidated section.
-19-
Managed noninterest income decreased 8% from the year-ago period to $1.39
billion, primarily reflecting net losses of $96 million on equity securities in
the current quarter versus gains of $158 million in the first quarter of 2000,
partially offset by higher miscellaneous income. The first quarter 2001 net
losses on equity securities primarily reflected lower valuations of investments
in private equity funds, while the 2000 first quarter net gains reflected
favorable market conditions.
Managed non-deposit service charges increased 6% to $411 million in the
2001 first quarter compared with the year-ago quarter, due to strong
underwriting fees, corporate debt issuance revenues and other loan product fees.
Managed credit card revenue increased 13% to $307 million in the 2001 first
quarter compared with the same period of 2000, reflecting increased
securitization activity in the 2001 period, partially offset by lower service
fee revenue and lower interchange revenue in the 2001 first quarter.
Other activities generated income of $188 million in the first quarter of
2001, compared with $113 million of income in the first quarter of 2000. The 66%
increase in other income primarily reflected gains of $73 million on the sale of
ownership interests in EquiServe and Star Systems.
Noninterest Expense
Noninterest expense for the 2001 first quarter decreased 16% to $2.2
billion compared with the year-ago period.
The table below shows the components of noninterest expense for the periods
indicated:
Three Months Ended March 31
----------------------------- Percent Increase
(Dollars in millions) 2001 2000 (Decrease)
---------- ------------ -------------------
Salaries and employee benefits:
Salaries .................................. $ 837 $ 897 (7)%
Employee benefits ......................... 145 201 (28)
------- ------- -------
Total salaries and employee benefits ... 982 1,098 (11)
Occupancy expense ........................... 167 173 (3)
Equipment expense ........................... 121 155 (22)
Outside service fees and processing ......... 255 408 (38)
Marketing and development ................... 205 226 (9)
Telecommunications .......................... 109 105 4
Other intangible amortization ............... 20 39 (49)
Goodwill amortization ....................... 17 17 --
Other ....................................... 360 459 (22)
------- -------
Total noninterest expense before merger-
related and restructuring charges .... 2,236 2,680 (17)
Merger-related and restructuring charges .... -- (19) N/M
------- -------
Total noninterest expense .............. $ 2,236 $ 2,661 (16)%
======= =======
Employees (1) ............................... 79,157 N/A N/A
======= =======
Efficiency ratio--managed basis ............. 47.6% 53.7%
======= =======
-----------
N/M--Not meaningful.
N/A--Not available due to changes in segment composition; see Note 5 on page 59
in the Corporation's 2000 Annual Report on Form 10-K.
(1) Beginning in the first quarter of 2001, long-term disability employees and
employees of unconsolidated subsidiaries are excluded. Excluding this
change in methodology, headcount declined 328 in the first quarter of 2001.
Components of noninterest expense that are primarily related to a single
business segment are discussed within that business segment rather than the
consolidated section.
Salary and benefit costs, including severance charges, were $982 million in
the first quarter of 2001, down 11% from $1.1 billion in the year-ago period.
The decrease reflected expense savings from reduced headcount, lower incentive
compensation and cost reductions associated with the modification of the
Corporation's 401(k) plan.
-20-
Equipment expense in the first quarter of 2001 decreased $34 million, or
22%, from the year ago period, primarily due to decreased furniture and
equipment rental and lower depreciation expense.
Outside service fees and processing expense decreased by $153 million, or
38%, in the first quarter of 2001 compared to the year-ago period. This
significant decrease reflected reduced consulting expenses, lower costs for
certain purchased services, data processing credits and other benefits from the
Corporation's waste reduction initiatives.
Marketing and development expense decreased 9% in the first quarter 2001 to
$205 million, compared with the 2000 first quarter, as expense reductions in the
Retail line of business more than offset increased expenditures for First USA.
Other intangible amortization expense decreased 49% in the 2001 first
quarter when compared with the year-ago period, due to impairments associated
with purchased credit card relationships recorded in 2000 that reduced the
ongoing level of related amortization expense.
Other operating expense decreased $99 million in the first quarter of 2001,
compared with the year-ago period, primarily attributable to reduced legal
provisions and the Corporation's waste reduction initiatives to lower expenses
for such items as travel and entertainment, recruiting and other miscellaneous
items.
The Corporation achieved its goal of $500 million in annual expense savings
from waste reduction efforts, while at the same time increasing spending in
certain targeted areas such as systems conversions. First quarter 2001 results
reflected expense levels that were $85 million after-tax ($125 million pre-tax)
below the ongoing expense run rate level due to certain one-time benefits,
timing of expense, and planned increases in conversion and marketing expenses.
Applicable Income Taxes
The following table shows the Corporation's income before income taxes, as
well as applicable income tax expense and effective tax rate for each of the
periods indicated:
Three Months Ended
March 31
------------------------
(Dollars in millions) 2001 2000
------------ -----------
Income before income taxes.................................. $ 971 $ 991
Applicable income taxes..................................... 292 302
Effective tax rates......................................... 30.1% 30.5%
Applicable income tax expense for both periods included benefits for
tax-exempt income, tax-advantaged investments and general business tax credits,
offset by the effect of nondeductible expenses, including goodwill.
RISK MANAGEMENT
The Corporation's various business activities generate liquidity, market,
credit and operating risks:
. Liquidity risk is the possibility of being unable to meet all
current and future financial obligations in a timely manner.
. Market risk is the possibility that changes in future market rates or
prices will make the Corporation's positions less valuable.
. Credit risk is the possibility of loss from borrowers and
counterparties failing to perform according to the terms of a
transaction.
. Operating risk, among other things, includes the risk of fraud by
employees or persons outside the Corporation, the execution of
unauthorized transactions by employees, and errors relating to
transaction processing and systems.
-21-
The following discussion of Bank One's risk management processes focuses
primarily on developments since December 31, 2000. The Corporation's risk
management processes for liquidity, market, credit and operating risks are
described in detail in the Corporation's 2000 Annual Report on Form 10-K,
beginning on page 20.
LIQUIDITY RISK MANAGEMENT
Liquidity is managed in order to preserve stable, reliable and
cost-effective sources of cash to meet all current and future financial
obligations in a timely manner. The Corporation considers strong capital ratios,
credit quality and core earnings essential to retaining high credit ratings and,
consequently, cost-effective access to market liquidity. In addition, a
portfolio of liquid assets, consisting of federal funds sold, deposit placements
and selected highly marketable investment securities, is maintained to meet
short-term demands on liquidity.
The Corporation's ability to attract wholesale funds on a regular basis and
at a competitive cost is fostered by strong ratings from the major credit rating
agencies. The Corporation and its principal banks had the following long- and
short-term debt ratings:
Senior
Short-Term Debt Long-Term Debt
------------------------- ----------------------
S & P Moody's S & P Moody's
---------- -------------- ---------- -----------
The Corporation (Parent)................... A-1 P-1 A Aa3
Principal Banks............................ A-1 P-1 A+ Aa2
The Corporation's funding source mix at March 31, 2001 was consistent with
that at December 31, 2000.
MARKET RISK MANAGEMENT
Overview
Market risk refers to potential losses arising from changes in interest
rates, foreign exchange rates, equity prices and commodity prices, as well as
the correlation among these factors and their volatility. The portfolio effect
of engaging in diverse trading activities helps reduce the potential impact of
market risk on earnings. Through its trading activities, the Corporation strives
to take advantage of profit opportunities available in interest and exchange
rate movements. In asset and liability management activities, policies are in
place that are designed to closely manage structural interest rate and foreign
exchange rate risk.
Value-At-Risk - Trading Activities
The Corporation has developed policies and procedures to manage market risk
through a value-at-risk measurement and control system, through a stress testing
process and through dollar trading limits. The objective of this process is to
quantify and manage market risk in order to limit single and aggregate exposures
Value-at-risk is intended to measure the maximum fair value the Corporation
could lose on a trading position, given a specified confidence level and time
horizon. Value-at-risk limits and exposure are monitored on a daily basis for
each significant trading portfolio. Stress testing is similar to value-at-risk
except that the confidence level is geared to capture more extreme, less
frequent market events.
The Corporation's value-at-risk calculation measures potential losses in
fair value using a 99% confidence level and a one-day time horizon. This equates
to 2.33 standard deviations from the mean under a normal distribution. This
means that, on average, daily profits and losses are expected to exceed
value-at-risk one out of every 100 overnight trading days. Value-at-risk is
calculated using various statistical models and techniques for cash and
derivative positions, including options.
-22-
The following table shows the value-at-risk at March 31, 2001, and December
31, 2000 (in millions):
March 31, December 31,
Risk Type 2001 2000
-------------- ---------------
Interest rate.......................................... $ 8 $ 7
Currency exchange rate................................. --- 1
Equity................................................. 1 1
---- ---
Aggregate portfolio market risk........................... $ 9 $ 9
==== ===
The activities covered by the table above reflect trading and other
activities, including certain overseas balance sheet positions that are managed
principally as trading risk. Value-at-risk from commodity price risk was
immaterial.
Interest rate risk was the predominant type of market risk incurred during
the first quarter of 2001. At March 31, 2001, approximately 83% of primary
market risk exposures were related to interest rate risk. Exchange rate, equity
and commodity risks accounted for 17% of primary market risk exposures.
Structural Interest Rate Risk Management
Interest rate risk exposure in the Corporation's "core" business
(non-trading) activities, i.e., asset/liability management ("ALM") position, is
a result of reprice, option and basis risks associated with on- and off-balance
sheet positions. The ALM position is measured and monitored using sophisticated
and detailed risk management tools, including earnings simulation modeling and
economic value of equity sensitivity analysis, to capture both near-term and
longer-term interest rate risk exposures.
Earnings simulation analysis, or earnings-at-risk, measures the sensitivity
of pretax earnings to various interest rate movements. The base-case scenario is
established using the implied forward curve. The comparative scenarios assume an
immediate parallel shock of the forward curve in increments of +/- 100 basis
point rate movements. Numerous other scenarios are analyzed, including more
gradual rising or declining rate changes and non-parallel rate shifts. Estimated
earnings for each scenario are calculated over a 12-month and 24-month horizon.
The interest rate scenarios are used for analytical purposes and do not
necessarily represent Management's view of future market movements. Rather,
these are intended to provide a measure of the degree of volatility interest
rate movements may introduce into the earnings and economic value of the
Corporation.
The table below shows the Corporation's pretax earnings sensitivity profile
as of March 31, 2001 and December 31, 2000:
Immediate Change
in Rates
----------------------------------
(In millions) -100 bp +100 bp
--------------- ---------------
March 31, 2001............................................. $128 $(150)
==== =====
December 31, 2000.......................................... 29 5
==== =====
The increase in earnings sensitivity during the quarter is primarily due to
a longer duration of the Corporation's earning assets.
Modeling the sensitivity of earnings to interest rate risk is highly
dependent on the numerous assumptions embedded in the model. While the earnings
sensitivity analysis incorporates Management's best estimate of interest rate
and balance sheet dynamics under various market rate movements, the actual
behavior and resulting earnings impact will likely differ from that projected.
Foreign Exchange Risk Management
Whenever possible, foreign currency-denominated assets are funded with
liability instruments denominated in the same currency. If a liability
denominated in the same currency is not immediately available or desired, a
forward foreign exchange or cross-currency swap contract is used to fully hedge
the risk due to cross-currency funding.
-23-
To minimize the capital impact of translation gains or losses measured on
an after-tax basis, the Corporation uses forward foreign exchange contracts to
hedge the exposure created by investments in overseas branches and subsidiaries.
CREDIT RISK MANAGEMENT
In conducting its business operations, the Corporation is exposed to the
risk that borrowers or counterparties may default on their obligations to the
Corporation. These transactions create credit exposure that is reported both on
and off the balance sheet. On-balance sheet credit exposure includes such items
as loans. Off-balance sheet credit exposure includes unfunded credit commitments
and other credit-related financial instruments.
In order to meet its credit risk management objectives, the Corporation
maintains a risk profile that is diverse in terms of borrower concentrations,
product type, and industry and geographic concentrations. Additional
diversification of the Corporation's exposure is accomplished through
syndication of credits, participations, loan sales, securitizations and other
risk-reduction measures.
OPERATING RISK MANAGEMENT
In addition to being exposed to liquidity, market and credit risk, the
Corporation is also exposed to numerous types of operating risk. Operating risk
generally refers to the risk of loss resulting from the Corporation's
operations, including, but not limited to, the risk of fraud by employees or
persons outside the Corporation, the execution of unauthorized transactions by
employees, errors relating to transaction processing and systems, and other
breaches of the internal control system and compliance requirements. This risk
of loss also includes the potential legal actions that could arise as a result
of the operational deficiency or as a result of noncompliance with applicable
regulatory standards.
CREDIT PORTFOLIO COMPOSITION
Selected Statistical Information
The significant components of credit risk and the related ratios, presented
on a reported basis, for the periods indicated are as follows:
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2001 2000 2000 2000 2000
------------ ----------- ------------ ----------- ------------
Loans outstanding................................. $171,427 $174,251 $176,419 $172,591 $168,078
Average loans..................................... 173,677 175,588 173,259 170,743 167,423
Nonperforming loans............................... 2,559 2,475 2,026 1,690 1,564
Other, including other real estate owned.......... 106 98 110 94 97
-------- -------- -------- -------- -------
Nonperforming assets.............................. 2,665 2,573 2,136 1,784 1,661
Allowance for credit losses....................... 4,205 4,110 3,090 2,983 2,338
Net charge-offs................................... 489 487 319 319 266
Nonperforming assets/related assets............... 1.55% 1.48% 1.21% 1.03% 0.99%
Allowance for credit losses/loans outstanding..... 2.45 2.36 1.75 1.73 1.39
Allowance for credit losses/nonperforming loans... 164 166 153 177 149
Net charge-offs/average loans..................... 1.13 1.11 0.74 0.75 0.64
Allowance for credit losses/net charge-offs....... 215 211 242 234 220
-24-
Loan Composition
For analytical purposes, the Corporation's loan product portfolio is
divided into commercial, consumer and credit card loan categories as follows for
the periods indicated:
March 31 December 31 September 30 June 30 March 31
2001 2000 2000 2000 2000
------------------- ------------------ ------------------ ------------------- -----------------
(Dollars in millions) Amount % (1) Amount % (1) Amount % (1) Amount % (1) Amount % (1)
---------- ------- ---------- ------- ---------- ------ ---------- ------- ---------- ------
Loan Product
---------------------------
Commercial:
Domestic:
Commercial........... $ 63,071 28 $ 65,270 28% $ 65,446 27% $ 63,552 27% $ 60,253 26%
Real estate:
Construction........ 5,775 3 5,757 2 6,295 3 6,005 3 5,824 3
Other............... 16,710 7 16,778 7 18,220 8 19,119 8 19,500 8
Lease financing...... 5,734 2 5,818 3 5,514 2 5,789 3 5,597 3
Foreign................ 6,689 3 6,837 3 7,344 3 7,348 3 6,925 3
--------- ----- -------- --- -------- --- --------- --- -------- ---
Total commercial.. 97,979 43 100,460 43 102,819 43 101,813 44 98,099 43
Consumer:
Residential real
estate............... 40,561 18 40,596 17 39,299 17 36,589 16 33,999 14
Automotive--loans
/leases........... 19,955 8 20,741 9 21,860 9 22,199 9 23,371 11
Other................ 7,415 3 7,710 3 7,643 3 7,518 3 7,717 3
--------- ----- -------- --- -------- --- --------- --- -------- ---
Total consumer.... 67,931 29 69,047 29 68,802 29 66,306 28 65,087 28
Credit card:
On balance sheet..... 5,517 2 4,744 2 4,798 2 4,472 2 4,892 2
Securitized.......... 58,515 26 62,241 26 61,086 26 61,821 26 61,595 27
--------- ----- -------- --- -------- --- --------- --- -------- ---
Managed credit card.. 64,032 28 66,985 28 65,884 28 66,293 28 66,487 29
--------- ----- -------- --- -------- --- --------- --- -------- ---
Total managed............. $ 229,942 100% $236,492 100% $237,505 100% $ 234,412 100% $229,673 100%
========= ===== ======== === ======== === ========= === ======== ===
Total reported............ $ 171,427 $174,251 $176,419 $ 172,591 $168,078
========= ======== ======== ========= ========
-------
(1) Percentages shown for loan type are determined as a percentage of total
managed loans.
For management purposes, the Corporation's loan portfolio is divided into
Retail, Commercial Banking, First USA and other lines of business as follows for
the periods indicated:
March 31 December 31 September 30 June 30 March 31
2001 2000 2000 2000 2000
------------------- ------------------ ------------------ ------------------- -----------------
(Dollars in millions) Amount % (1) Amount % (1) Amount % (1) Amount % (1) Amount % (1)
---------- ------- ---------- ------- ---------- ------ ---------- ------- ---------- ------
Line of Business
---------------------------
Retail.................... $ 76,102 33 $ 77,301 33 $ 76,798 32 $ 74,000 32 $ 75,495 33
Commercial Banking........ 78,527 34 81,435 34 84,300 36 83,301 35 80,240 35
Other lines of business... 11,281 5 10,771 5 10,523 4 10,818 5 7,451 3
First USA:
On balance sheet..... 5,517 2 4,744 2 4,798 2 4,472 2 4,892 2
Securitized.......... 58,515 26 62,241 26 61,086 26 61,821 26 61,595 27
-------- --- --------- --- --------- --- -------- --- -------- ---
Managed credit card.. 64,032 28 66,985 28 65,884 28 66,293 28 66,487 29
-------- --- --------- --- --------- --- -------- --- -------- ---
Total managed............. $229,942 100% $ 236,492 100% $ 237,505 100% $234,412 100% $229,673 100%
======== === ========= === ========= === ======== === ======== ===
Total reported............ $171,427 $ 174,251 $ 176,419 $172,591 $168,078
======== ========= ========= ======== ========
(1) Percentages shown for line of business are determined as a percentage of
total managed assets.
-25-
Commercial Portfolio Concentrations
The Corporation's commercial loan product portfolio primarily comprises
Corporate Banking (including syndicated credits) and Middle Market Banking loans
within Commercial Banking, and also includes loans originated by Retail.
The following table reflects the more significant borrower industry
concentrations of the commercial loan portfolio as of March 31, 2001, and
December 31, 2000:
March 31, 2001 December 31, 2000
-------------- -----------------
Carrying Carrying
(Dollars in millions) Amount Percent Amount Percent
------- ------- ------ -------
Commercial real estate............................ $22,485 23.0% $22,535 22.4%
Wholesale trade................................... 5,783 5.9 6,080 6.0
Industrial materials ............................. 5,125 5.2 4,775 4.8
Oil and gas....................................... 4,040 4.1 4,207 4.2
Metals and products .............................. 3,841 3.9 4,128 4.1
Consumer staples.................................. 4,308 4.4 3,880 3.9
Other............................................. 52,397 53.5 54,855 54.6
------- ----- -------- -----
Total commercial........................... $97,979 100.0% $100,460 100.0%
======= ===== ======== =====
Commercial Real Estate
The commercial real estate segment of the portfolio is the largest product
category and consists primarily of loans secured by real estate as well as
certain loans that are real estate-related. This exposure includes loans and
commitments that finance both owner-occupied and investment properties/projects.
Commercial real estate lending is conducted in several lines of business,
with the majority of these loans originated by Corporate Banking primarily
through its specialized National Commercial Real Estate Group. This group's
focus is lending to targeted regional and national real estate developers,
homebuilders and REITs/REOCs. As of March 31, 2001, this group's loan
outstandings totaled $9.4 billion, or 42%, of the commercial real estate
portfolio. Middle Market Banking originates primarily owner-occupied real estate
loans located in the various markets served by Middle Market bankers. At March
31, 2001, commercial real estate loans totaled $22.5 billion, or 23.0% of total
commercial loans, compared with $22.5 billion, or 22.4% of commercial loans, at
December 31, 2000.
The table below presents commercial real estate loans for the National
Commercial Real Estate Group by property type as of March 31, 2001, and December
31, 2000:
March 31, 2001 December 31, 2000
-------------- -----------------
PROPERTY-TYPE (National Commercial Real Estate Group only) Carrying Carrying
(Dollars in millions) Amount Percent Amount Percent
------- ------- ------- -------
Retail.......................................................... $ 1,582 16.8% $ 1,608 16.9%
Apartment complexes............................................. 1,520 16.1 1,525 16.1
Office buildings................................................ 1,364 14.5 1,412 14.9
REIT/REOC....................................................... 991 10.5 1,228 12.9
Industrial...................................................... 523 5.6 491 5.2
Lodging......................................................... 375 4.0 402 4.2
Other........................................................... 3,060 32.5 2,823 29.8
------- ----- ------- -----
Total National Commercial Real Estate Group loans........ 9,415 100.0% 9,489 100.0%
===== =====
Other commercial real estate loans (1)................... 13,070 13,046
------- -------
Total commercial real estate loans................... $22,485 $22,535
======= =======
(1) Comprised primarily of Middle Market Banking loans secured by real estate.
-26-
The National Commercial Real Estate Group real estate portfolio is diverse,
with no geographic concentrations greater than 10% of the portfolio at March 31,
2001.
Asset Quality
Nonperforming Assets
The Corporation defines nonperforming loans as commercial loans that are
impaired and/or on nonaccrual status, consumer loans (i.e., non-credit card)
greater than 90 days past due and restructured loans. These loans, along with
assets primarily consisting of foreclosed real estate, represent nonperforming
assets.
The following table shows the Corporation's nonperforming loans by line of
business and total nonperforming assets for the periods indicated:
(Dollars in Millions) March 31 December 31 September 30 June 30 March 31
2001 2000 2000 2000 2000
--------- ----------- ------------ --------- ----------
Nonperforming Loans:
Retail....................................... $ 959 $ 912 $ 695 $ 556 $ 645
Commercial Banking........................... 1,544 1,523 1,243 1,010 888
Other lines of business...................... 56 40 88 124 31
------ ------- ------- ------- -------
Total ..................................... 2,559 2,475 2,026 1,690 1,564
Other, primarily other real estate owned........ 106 98 110 94 97
------ -------- -------- -------- -------
Total nonperforming assets................. $2,665 $ 2,573 $ 2,136 $ 1,784 $ 1,661
====== ======= ======= ======= =======
Nonperforming assets/related assets............. 1.55% 1.48% 1.21% 1.03% 0.99%
====== ======= ======= ======= =======
Loans 90 days or more past due and accruing
interest..................................... $ 70 $ 62 $ 67 $ 60 $ 134
Despite the Corporation's diversified Commercial Banking portfolio, the
Corporation has experienced credit quality deterioration in a number of distinct
market segments. A weakening economy, among other things, had led to an increase
in nonperforming loans. The Corporation has established processes for
identifying potential problem areas of the portfolio, which currently include
exposure to leveraged lending and acquisition finance activities, healthcare,
automotive parts and manufacturing, business finance and leasing, professional
services, miscellaneous transportation services, selected utilities,
telecommunications, and companies engaged in ongoing asbestos litigation. The
Corporation will continue its enhanced focus on identifying and monitoring these
potential exposure areas.
The following table shows the Corporation's net charge-offs by line of
business for the periods indicated:
(Dollars in millions) March 31 December 31 March 31
2001 2000 2000
-------------------------------- -------------------------------- ------------------------------
Net Net Net Net Net Net
charge- Average charge-off charge- Average charge-off charge- Average charge-off
offs Balance Rate offs Balance rate offs balance rate
-------------------------------- -------------------------------- ------------------------------
Retail (1)............. $ 166 $ 76,746 0.87% $ 159 $ 76,654 0.83% $ 98 $ 73,342 0.54%
Commercial
Banking.............. 249 80,628 1.23 259 83,114 1.24 84 80,400 0.42
First USA (2).......... 950 65,443 5.81 887 65,631 5.41 969 67,095 5.78
Other lines of
business............. - 11,065 - 4 10,909 - 25 9,349 1.07
------ -------- ------ -------- ------ --------
Total--Managed......... 1,365 233,882 2.33% 1,309 236,308 2.22% 1,176 230,186 2.04%
==== ==== ====
Securitized............ (876) (60,205) (822) (60,720) (910) (62,763)
------ -------- ------ -------- ------ --------
Total--Reported........ $ 489 $173,677 1.13% $ 487 $175,588 1.11% $ 266 $167,423 0.64%
====== ======== ==== ====== ======== ==== ====== ======== ====
------
(1) First quarter 2001 amounts exclude $40 million of charge-offs relating to
part of a portfolio that has been accounted for as loans held at a
discount, but viewed for management purposes as charge-offs. In
Management's view, the inclusion of these amounts in charge-offs more
accurately reflects the performance of the portfolio. See Retail LOB
discussion on page 3 for further detail.
(2) Reported on a managed basis.
-27-
Allowance for Credit Losses
The allowance for credit losses is maintained at a level that in
Management's judgment is adequate to provide for estimated probable credit
losses inherent in various on- and off-balance sheet financial instruments. This
process includes deriving probable loss estimates that are based on historical
loss rates, portfolio stress testing of probable loss estimates and Management's
judgment. The reserve is based on ranges of estimates and is intended to be
adequate but not excessive. Each quarter, reserves are formally estimated by
each line of business and reviewed by the Corporate Risk Management Department
and Senior Management.
The following table shows the components of, by line of business, the
change in the Corporation's allowance for credit losses for the periods
indicated:
March 31 December 31 September 30 June 30 March 31
(In millions) 2001 2000 2000 2000 2000
------------ -------------- -------------- --------- ------------
Line of Business
----------------
Balance, beginning of period ............... $ 4,110 $ 3,090 $ 2,983 $ 2,338 $ 2,285
Charge-offs:
Retail (1)............................... 216 199 189 169 145
Commercial Banking....................... 287 284 121 125 95
First USA (1)............................ 78 69 59 72 61
Other lines of business ................. 5 6 19 17 37
------- ------- ------- ------- -------
Total charge-offs .................. 586 558 388 383 338
Recoveries:
Retail .................................. 50 40 38 35 47
Commercial Banking....................... 38 25 12 15 11
First USA (1)............................ 4 4 3 5 2
Other lines of business ................. 5 2 16 9 12
------- ------- ------- ------- -------
Total recoveries .................. 97 71 69 64 72
Net charge-offs:
Retail (2) .............................. 166 159 151 134 98
Commercial Banking ...................... 249 259 109 110 84
First USA (1)............................ 74 65 56 67 59
Other lines of business ................. -- 4 3 8 25
------- ------- ------- ------- -------
Total net charge-off ............... 489 487 319 319 266
Provision for credit losses:
Retail .................................. 244 364 207 132 167
Commercial Banking ...................... 264 1,078 225 778 132
First USA ............................... 74 65 56 67 59
Other lines of business ................. 3 -- 28 36 4
------- ------- ------- ------- -------
Total provision for credit losses... 585 1,507 516 1,013 362
Transfers/other (3)......................... (1) -- (90) (49) (43)
------- ------- ------- ------- -------
Balance, end of year ....................... $ 4,205 $ 4,110 $ 3,090 $ 2,983 $ 2,338
======= ======= ======= ======= =======
(1) On a reported basis.
(2) First quarter 2001 amounts exclude $40 million of charge-offs relating to
part of a portfolio that has been accounted for as loans held at a discount,
but viewed for management purposes as charge-offs. In Management's view, the
inclusion of these amounts in charge-offs more accurately reflects the
performance of the portfolio. See Retail LOB discussion on page 3 for
further detail.
(3) Transfers from the allowance for credit losses primarily represent allocable
credit reserves associated with consumer loan sale transactions, including
securitization transactions.
-28-
The Composition of the Corporation's allowance for credit losses by line of
business is as follows:
March 31 December 31
(Dollars in millions) 2001 2000
--------------------- ---------------------
Retail ........................... $ 924 22% $ 846 21%
Commercial Banking ............... 3,034 72 3,020 73
First USA ........................ 197 5 197 5
Other lines of business .......... 50 1 47 1
------- ---- ------- ----
Total ....................... $ 4,205 100% $ 4,110 100%
======= ==== ======= ====
Allowance as a % of total loans:
Retail ........................ 1.21% 1.10%
Commercial Banking ............ 3.86 3.71
First USA ..................... 3.58 4.19
Other lines of business ....... 0.44 0.44
Total ....................... 2.45 2.36
Derivative Financial Instruments
The Corporation uses a variety of derivative financial instruments in its
trading, asset and liability management, and corporate investment activities, as
well as to manage certain currency translation exposures of foreign operations.
These instruments include interest rate, currency, equity and commodity swaps,
forwards, spot, futures, options, caps, floors, forward rate agreements, and
other conditional or exchange contracts, and include both exchange-traded and
over-the-counter contracts.
Accounting for Derivative Financial Instruments
Effective January 1, 2001, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities" as amended. The new standard significantly changed the
accounting treatment for interest rate and foreign exchange derivatives the
Corporation uses in its asset and liability management ("ALM") activities. The
new accounting treatment for ALM derivatives is described below. Cash flows from
derivative financial instruments are reported net as operating activities.
Trading Derivative Instruments
The Corporation's accounting policies for derivatives used in trading
activities have not changed as the result of SFAS No. 133. A detailed discussion
of accounting for trading derivative instruments is presented in the
Corporation's 2000 Annual Report on Form 10-K.
ALM Derivative Instruments
Derivative financial instruments used in ALM activities, principally
interest rate swaps, are classified as fair value hedges or cash flow hedges and
are required to meet specific criteria. Such interest rate swaps are designated
as ALM derivatives, and are linked to and adjust the interest rate sensitivity
of a specific asset, liability, firm commitment, or anticipated transaction or a
specific pool of transactions with similar risk characteristics. Interest rate
swaps that do not meet these and the following criteria are designated as
derivatives used in trading activities and are accounted for at estimated fair
value.
Fair Value Hedge (primarily hedges of fixed rate interest-bearing
instruments) -- The change in fair value of both the hedging derivative and
hedged item is recorded in current earnings. If a hedge is dedesignated prior
to maturity, previous adjustments to the carrying value of the hedged item are
recognized in earnings to match the earnings recognition pattern of the hedged
item (e.g., level yield amortization if hedging an interest-bearing instrument).
Cash Flow Hedge (primarily hedges of variable rate interest-bearing
instruments) -- The effective portion of the change in fair value of the hedging
derivative is recorded in Accumulated Other Adjustments to Stockholders' Equity
("AOASE") and the ineffective portion directly in earnings. These amounts are
reclassified into earnings
-29-
in a manner consistent with the earnings pattern of the underlying hedged item
(generally, reflected in interest expense). The total amount of such
reclassification into earnings is projected to be charges of $82 million after-
tax over the next twelve months. If a hedge is dedesignated prior to maturity,
previous adjustments to AOASE are recognized in earnings to match the earnings
recognition pattern of the hedged item (e.g., level yield amortization if
hedging an interest-bearing instrument) or immediately recognized in current
earnings of the hedged item is sold.
Interest income or expense on most ALM derivatives used to manage interest
rate exposure is recorded on an accrual basis, as an adjustment to the yield of
the linked exposures over the periods covered by the contracts. This matches the
income recognition treatment of that exposure, generally assets or liabilities
carried at historical cost, that are recorded on an accrual basis. If an
interest rate swap is terminated early or dedesignated as an ALM derivative, any
unrecognized gain or loss at that point in time is deferred and amortized as an
adjustment of the yield on the linked interest rate exposure position over the
remaining periods originally covered by the swap. If all or part of a linked
position is terminated, e.g., a linked asset is sold or prepaid, or if the
amount of an anticipated transaction is likely to be less than originally
expected, then the related pro rata portion of any unrecognized gain or loss on
the swap is recognized in earnings at that time, and the related pro rata
portion of the swap is subsequently accounted for at estimated fair value.
Hedges of the Net Investment in Foreign Operations
In order to minimize the capital impact of translation gains or losses
measured on an after-tax basis, the Corporation uses forward foreign exchange
contracts to hedge the exposure relating to the net investment in foreign
operations. The effective portion of the change in fair value of the hedging
derivative is recorded in AOASE as part of the cumulative translation
adjustment. The amount of after-tax gains included in the cumulative translation
adjustment during the three months ended March 31, 2001, related to hedges of
the foreign currency exposures of net investments in foreign operations, totaled
$7 million.
Income Resulting from Derivative Financial Instruments
The Corporation uses interest rate derivative financial instruments to
reduce structural interest rate risk and the volatility of net interest margin.
Net interest margin reflects the effective use of these derivatives. Without
their use, net interest income would have been lower by $7 million in the first
quarter 2001 and lower by $11 million in the first quarter of 2000.
Recognition of hedge ineffectiveness for cash flow and fair value hedges in
the quarter ended March 31, 2001, was insignificant. No component of a hedging
derivative instrument's gain or loss is excluded from the assessment of fair
value and cash flow hedge effectiveness.
Credit Exposure Resulting from Derivative Financial Instruments
Credit exposure from derivative financial instruments arises from the risk
of a counterparty default on the derivative contract. The amount of loss created
by the default is the replacement cost or current fair value of the defaulted
contract. The Corporation utilizes master netting agreements whenever possible
to reduce its credit exposure from customer defaults. These agreements allow the
netting of contracts with unrealized losses against contracts with unrealized
gains to the same counterparty, in the event of a counterparty default.
The table below shows the impact of these master netting agreements:
March 31 December 31
(In millions) 2001 2000
--------------- --------------
Gross replacement cost..................................................... $12,334 $ 9,769
Less: Adjustment due to master netting agreements...................... (8,426) (7,222)
------- -------
Current credit exposure.................................................... 3,908 2,547
Unrecognized net (gains) losses due to nontrading activity (1) ......... - (225)
------- -------
Balance sheet exposure..................................................... $ 3,908 $ 2,322
======= =======
(1) The March 31, 2001, exposure amount is zero due to the January 1, 2001,
adoption of SFAS #133.
-30-
Current credit exposure represents the total loss the Corporation would
have suffered had every counterparty been in default on those dates. These
amounts are adjusted by the unrealized and unrecognized gains and losses on
derivatives used in asset and liability management activities to arrive at the
balance sheet exposure.
Asset and Liability Management Derivatives
Access to the derivatives market is an important element in maintaining the
Corporation's desired interest rate risk position. In general, the assets and
liabilities generated through ordinary business activities do not naturally
create offsetting positions with respect to repricing, basis or maturity
characteristics. Using derivative instruments, principally plain vanilla
interest rate swaps (ALM swaps), the interest rate sensitivity of specific
off-balance sheet transactions, as well as pools of assets, is adjusted to
maintain the desired interest rate risk profile.
At March 31, 2001, the notional value of ALM interest rate swaps tied to
specific assets or liabilities, firm commitments and forecasted transactions
totaled $12.6 billion as follows:
Receive Fixed Pay Fixed Basis
(In millions) Pay Floating Receive Floating Swaps
-----------------------------------------------------
Fair Cash Fair Cash Fair Cash Total
Value Flow Value Flow Value Flow Swaps
-------- ------ ------- ------- ------- ------- -------
Interest rate swaps associated with:
Investment securities....................... $ -- $ -- $ 50 $ -- $ -- $ -- $ 50
Funds borrowed (including long-term debt)... 8,000 -- -- 4,522 -- 50 12,572
----- ----- ----- ----- ----- ---- -- -------
Total................................... $8,000 $ -- $ 50 $4,522 $ -- $ 50 $12,622
====== ==== ==== ====== ==== ===== =======
Interest rate swaps used to adjust the interest rate sensitivity of
securities and funds borrowed will not need to be replaced at maturity, since
the corresponding asset or liability will mature along with the swap. Interest
rate swaps designated as an interest rate related hedge of an existing fixed
rate asset or liability are fair value type hedges. Conversely, interest rate
swaps designated as an interest rate related hedge of an existing variable rate
asset or liability are cash flow type hedges. Management designates interest
rate swaps as hedges of both fixed and variable rate assets and liabilities
interchangeably. The type of hedge for accounting purposes is not a strategic
consideration. The Corporation has an insignificant amount of hedges involving
forecasted transactions and firm commitments, and no non-derivative instruments
are designated as a hedge.
Loan Securitizations
Investors in the beneficial interests of the securitized loans have no
recourse against the Corporation if cash flows generated from the securitized
loans are inadequate to service the obligations of the SPE. To help ensure that
adequate funds are available in the event of a shortfall, the Corporation is
required to deposit funds into cash spread accounts if excess spread falls below
certain minimum levels. Spread accounts are funded from excess spread that would
normally be returned to the Corporation. In addition, various forms of other
credit enhancement are provided to protect more senior investor interests from
loss. Credit enhancements associated with credit card securitizations, such as
cash collateral or spread accounts, totaled $533 million at March 31, 2001, and
are classified on the balance sheet as other assets.
For further discussion of Bank One's loan securitization process and other
related disclosures, see pages 41-42 and pages 63-65 of the Corporation's 2000
Annual Report on Form 10-K.
The following comprised the Corporation's managed credit card loans at
March 31, 2001:
(In millions)
Owned credit card loans - held in portfolio........................................... $ 3,072
Owned credit card loans - held for future securitization.............................. 2,445
Seller's interest in credit card loans (investment securities)........................ 17,762
--------
Total credit card loans reflected on balance sheet.................................... 23,279
Securities sold to investors and removed from balance sheet........................... 40,753
--------
Managed credit card loans............................................................. $ 64,032
========
-31-
At March 31, 2001, the estimated fair value of seller's interest and
interest-only strip from credit card securitizations were as follows:
(In millions)
Seller's interest ............................................................................. $17,644
Interest-only strip ........................................................................... 216
-------
Total interests in credit card securitizations........................................ $17,860
=======
The key weighted average economic assumptions used to estimate the fair
value of the interest-only strip and seller's interest as of March 31, 2001,
were unchanged from December 31, 2000. The asset values of the seller's
interest, interest-only strip and credit enhancements are periodically reviewed
for other-than-temporary impairment.
For analytical purposes only, the following table shows income statement
line items adjusted for the net impact of securitization of credit card
receivables for the periods indicated:
Three Months Ended March 31
-----------------------------------------
Credit Card
(Dollars in millions) Reported Securitizations Managed
---------- ----------------- -----------
2001
-----------------------------------------
Net interest income--tax-equivalent basis................................... $ 2,218 $ 1,090 $ 3,308
Provision for credit losses ................................................ 585 876 1,461
Noninterest income ......................................................... 1,607 (214) 1,393
Noninterest expense ........................................................ 2,236 -- 2,236
Net income ................................................................. 679 -- 679
Total average loans ........................................................ $173,677 $ 60,205 $233,882
Total average earning assets ............................................... 242,338 39,583 281,921
Total average assets ....................................................... 269,514 39,583 309,097
Net interest margin ........................................................ 3.71% 11.17% 4.76%
Delinquency and charge-off rates:
Credit card delinquencies over 30 days as a percentage of ending credit card
loan balances .......................................................... 2.56% 4.50% 4.33%
Credit card delinquencies over 90 days as a percentage of ending credit card
loan balances .......................................................... 1.13% 2.10% 2.02%
Net credit card charge-offs as a percentage of average credit card loan
balances ............................................................... 5.69% 5.82% 5.81%
2000
-----------------------------------------
Net interest income--tax-equivalent basis
$ 2,228 $ 1,217 $ 3,445
Provision for credit losses ................................................ 362 910 1,272
Noninterest income ......................................................... 1,821 (307) 1,514
Noninterest expense ........................................................ 2,661 -- 2,661
Net income ................................................................. 689 -- 689
Total average loans ........................................................ $167,423 $ 62,763 $230,186
Total average earning assets ............................................... 237,313 44,839 282,152
Total average assets ....................................................... 268,718 44,839 313,557
Net interest margin ........................................................ 3.78% 10.92% 4.91%
Delinquency and charge-off rates:
Credit card delinquencies over 30 days as a percentage of ending credit card
loan balances .......................................................... 3.55% 4.36% 4.08%
Credit card delinquencies over 90 days as a percentage of ending credit card
loan balances .......................................................... 1.72% 2.15% 1.91%
Net credit card charge-offs as a percentage of average credit card loan
balances ............................................................... 5.48% 5.80% 5.78%
-32-
CAPITAL MANAGEMENT
Capital represents the stockholders' investment on which the Corporation
strives to generate attractive returns. It is the foundation of a cohesive risk
management framework and links return with risk. Capital supports business
growth and provides protection to depositors and creditors.
In conjunction with the annual financial planning process, a capital plan
is established to ensure that the Corporation and all of its subsidiaries have
capital structures consistent with prudent management principles and regulatory
requirements.
Economic Capital
An important aspect of risk management and performance measurement is the
ability to evaluate the risk and return of a business unit, product or customer
consistently across all lines of business. The Corporation's economic capital
framework facilitates this standard measure of risk and return. Business units
are assigned capital consistent with the underlying risks of their product set,
customer base and delivery channels. For a more detailed discussion of Bank
One's economic capital framework, see page 44 of the Corporation's 2000 Annual
Report on Form 10-K.
Selected Capital Ratios
The Corporation aims to maintain regulatory capital ratios, including those
of the principal banking subsidiaries, in excess of the well-capitalized
guidelines under federal banking regulations. The Corporation has maintained a
well-capitalized regulatory position for the past several years.
The tangible common equity to tangible managed assets ratio is also
monitored. This ratio adds securitized credit card loans to reported total
assets and is calculated net of total intangible assets. The tangible common
equity to tangible managed assets ratio was 5.6% at March 31, 2001, up from 5.5%
at December 31, 2000. Tier 1 and Total Capital ratios were 7.8% and 11.2% and
7.3% and 10.8%, respectively, at March 31, 2001, and December 31, 2000.
The Corporation's capital ratios that adhere to regulatory guidelines
appear in the table below:
Well-
Capitalized
March 31 December 31 September 30 June 30 March 31 Regulatory
2001 2000 2000 2000 2000 Guidelines
----------- ----------- ------------ -------- --------- ---------------
Risk-based capital ratios (1)
Tier 1......................... 7.8% 7.3% 7.5% 7.2% 7.7% 6.0
Total.......................... 11.2 10.8 10.9 10.3 10.6 10.0
Common equity/managed assets........ 6.0 6.0 5.9 5.9 6.3
Tangible common equity/tangible
managed assets.................... 5.6 5.5 5.4 5.4 5.7
Double leverage ratio (1)........... 106 108 109 115 111
Divided payout ratio................ 36 N/M 42 N/M 70
------
N/M--Not meaningful.
(1) Includes trust preferred capital securities.
The components of the Corporation's regulatory risk-based capital and
risk-weighted assets are as follows:
March 31 December 31 September 31 June 30 March 31
(In millions) 2001 2000 2000 2000 2000
------------ ---------- ------------- ------------ --------------
Regulatory risk-based capital:
Tier 1 capital...................... $ 20,727 $ 19,824 $ 20,433 $ 19,121 $ 20,573
Tier 2 capital...................... 9,148 9,316 9,119 8,350 7,899
--------- --------- --------- --------- ---------
Total capital....................... $ 29,875 $ 29,140 $ 29,552 $ 27,471 $ 28,472
========= ========= ========= ========= =========
Total risk-weighted assets............... $ 266,077 $ 270,182 $ 272,095 $ 266,937 $ 268,339
========= ========= ========= ========= =========
-33-
In deriving Tier 1 and total capital, goodwill and other nonqualifying
intangible assets are deducted as indicated:
March 31 December 31 September 31 June 30 March 31
(In millions) 2001 2000 2000 2000 2000
----------- ------------ -------------- ------------- ----------
Goodwill................................. $ 841 $ 858 $ 876 $ 894 $ 916
Other nonqualifying intangibles.......... 299 375 405 436 637
------- ------- ------ ------- -------
Subtotal............................. 1,140 1,233 1,281 1,330 1,553
Qualifying intangibles................... 205 214 235 256 555
------- ------- ------ ------- -------
Total intangibles.................... $ 1,345 $ 1,447 $1,516 $ 1,586 $ 2,108
======= ======= ====== ======= =======
Dividend Policy
The Corporation's common dividend policy reflects its earnings outlook,
desired payout ratios, the need to maintain an adequate capital level and
alternative investment opportunities. The common dividend payout ratio is
targeted in the range of 25% - 30% of earnings over time. On January 16, 2001,
the Corporation declared its quarterly common cash dividend of 21 cents per
share, payable on April 1, 2001. The common stock dividend declared for the
first quarter of 2000 was 42 cents per share. The decrease from the year-ago
period reflects a 50% reduction of the quarterly dividend rate from 42 cents per
share to 21 cents per share in the third quarter of 2000.
Double Leverage
Double leverage is the extent to which the Corporation's resources is used
to finance investments in subsidiaries. Double leverage was 106% at March 31,
2001, and 108% at December 31, 2000. Trust Preferred Capital Securities of
$2.790 billion for the first quarter of 2001 and $1.578 billion in the prior
year quarter were included in capital for purposes of this calculation.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis included herein contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, the Corporation may make or approve
certain statements in future filings with the Securities and Exchange
Commission, in press releases, and in oral and written statements made by or
with the Corporation's approval that are not statements of historical fact and
may constitute forward-looking statements. Forward-looking statements may relate
to, without limitation, the Corporation's financial condition, results of
operations, plans, objectives, future performance or business.
Forward-looking statements can be identified by the fact that they do not
relate strictly to historical or current facts. They often include the words
"believes", "anticipates", "expects", "intends", "plans", "estimates", "targets"
or words of similar meaning or future or conditional verbs such as "will",
"would", "should", "could" or "may".
Forward-looking statements involve risks and uncertainties. Actual
conditions, events or results may differ materially from those contemplated by a
forward-looking statement. Factors that could cause this difference - many of
which are beyond the Corporation's control - include the following, without
limitation:
. Local, regional and international business or economic conditions may
differ from those expected.
. The effects of and changes in trade, monetary and fiscal policies and
laws, including the Federal Reserve Board's interest rate policies may
adversely affect the Corporation's business.
. The timely development and acceptance of new products and services may
be different than anticipated.
. Technological changes instituted by the Corporation and by persons who
may affect the Corporation's business may be more difficult to
accomplish or more expensive than anticipated or may have unforeseen
consequences.
. Acquisitions and integration of acquired businesses may be more
difficult or expensive than expected.
. The ability to increase market share and control expenses may be more
difficult than anticipated.
-34-
. Changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) may adversely
affect the Corporation or its business.
. Changes in accounting policies and practices, as may be adopted by
regulatory agencies and the Financial Accounting Standards Board, may
affect expected financial reporting.
. The costs, effects and outcomes of litigation may adversely affect the
Corporation or its business.
. The Corporation may not manage the risks involved in the foregoing as
well as anticipated.
. Forward-looking statements speak only as of the date they are made. The
Corporation undertakes no obligation to update any forward-looking
statement to reflect subsequent circumstances or events.
-35-
Consolidated Balance Sheets
BANK ONE CORPORATION and Subsidiaries
March 31 December 31 March 31
(Dollars in millions) 2001 2000 2000
------------------------------------------------
Assets
Cash and due from banks...................................................... $ 15,402 $ 17,291 $ 15,267
Interest-bearing due from banks.............................................. 1,971 5,210 8,105
Federal funds sold and securities under resale agreements.................... 11,133 4,737 10,998
Trading assets............................................................... 5,189 2,788 5,587
Derivative product assets.................................................... 3,908 2,322 3,207
Investment securities........................................................ 52,966 50,561 47,459
Loans........................................................................ 171,427 174,251 168,078
Allowance for credit losses................................................ (4,205) (4,110) (2,338)
--------- --------- ---------
Loans, net................................................................. 167,222 170,141 165,740
Premises and equipment, net.................................................. 2,761 2,894 3,266
Customers' acceptance liability.............................................. 287 402 493
Other assets................................................................. 13,513 12,954 12,886
--------- --------- ---------
Total assets............................................... $ 274,352 $ 269,300 $ 273,008
========= ========= =========
Liabilities
Deposits:
Demand................................................................ $ 29,102 $ 30,738 $ 29,923
Savings............................................................... 63,469 63,414 65,292
Time:
Under $100,000...................................................... 24,833 25,302 23,355
$100,000 and over................................................... 21,685 22,656 16,908
Foreign offices....................................................... 24,466 24,967 29,165
--------- --------- ---------
Total deposits............................................. 163,555 167,077 164,643
Federal funds purchased and securities under repurchase agreements........... 14,789 12,120 18,451
Other short-term borrowings.................................................. 16,970 18,003 18,261
Long-term debt............................................................... 39,407 38,428 37,175
Guaranteed preferred beneficial interest in the Corporation's junior
subordinated debt............................................................ 2,790 2,483 1,578
Acceptances outstanding...................................................... 287 402 493
Derivative product liabilities............................................... 3,470 2,212 3,100
Other liabilities............................................................ 14,018 9,940 9,036
--------- --------- ---------
Total liabilities.......................................... 255,286 250,665 252,737
Stockholders' Equity
Preferred stock.............................................................. 190 190 190
Common stock - $0.01 par value............................................... 12 12 12
Number of common shares (in thousands): 3/31/01 12/31/00 3/31/00
--------- ---------- ---------
Authorized................... 2,500,000 2,500,000 2,500,000
Issued....................... 1,181,382 1,181,386 1,181,386
Outstanding.................. 1,165,331 1,159,829 1,152,289
Surplus...................................................................... 10,394 10,487 10,679
Retained earnings............................................................ 9,491 9,060 11,242
Accumulated other adjustments to stockholders' equity........................ (105) (5) (358)
Deferred compensation........................................................ (174) (121) (165)
Treasury stock, at cost, 16,051,793, 21,557,000 and 29,097,000 shares,
respectively................................................................. (742) (988) (1,329)
--------- --------- ---------
Total stockholders' equity................................. 19,066 18,635 20,271
--------- --------- ---------
Total liabilities and stockholders' equity................. $ 274,352 $ 269,300 $ 273,008
========= ========= =========
The accompanying notes are an integral part of this statement.
-36-
Consolidated Income Statements
BANK ONE CORPORATION and Subsidiaries
Three Months Ended
March 31
-----------------------
(In millions, except per share data) 2001 2000
-------- --------
Net Interest Income:
Interest income........................................................................... $4,921 $4,753
Interest expense.......................................................................... 2,736 2,560
------ ------
Total net interest income............................................................ 2,185 2,193
Noninterest Income:
Non-deposit service charges................................................................... 411 389
Credit card revenue........................................................................... 521 578
Service charges on deposits................................................................... 331 324
Fiduciary and investment management fees...................................................... 187 195
Investment securities gains (losses).......................................................... (96) 158
Trading....................................................................................... 65 64
Other income ................................................................................. 188 113
------ ------
Total noninterest income............................................................. 1,607 1,821
------ ------
Total revenue, net of interest expense............................................... 3,792 4,014
Provision for credit losses................................................................... 585 362
Salaries and employee benefits................................................................ 982 1,098
Occupancy expense............................................................................. 167 173
Equipment expense............................................................................. 121 155
Outside service fees and processing........................................................... 255 408
Marketing and development..................................................................... 205 226
Telecommunications............................................................................ 109 105
Other intangible amortization................................................................. 20 39
Goodwill amortization......................................................................... 17 17
Other......................................................................................... 360 459
------ ------
Total noninterest expense before merger and restructuring charges.................... 2,236 2,680
Merger-related and restructuring charges...................................................... -- (19)
------ ------
Total noninterest expense............................................................ 2,236 2,661
Income Before Income Taxes.................................................................... 971 991
Applicable income taxes ...................................................................... 292 302
------ ------
Net Income.................................................................................... $ 679 $ 689
====== ======
Net Income Attributable to Common Stockholders' Equity........................................ $ 676 $ 686
====== ======
Earnings Per Share:
Basic.................................................................................... $ 0.58 $ 0.60
====== ======
Diluted.................................................................................. $ 0.58 $ 0.60
====== ======
The accompanying notes are an integral part of this statement.
-37-
Consolidated Statement of Stockholders' Equity
BANK ONE CORPORATION and Subsidiaries
Accumulated
Other
Adjustments
to Total
Preferred Common Retained Stockholders' Deferred Treasury Stockholders'
(In millions) Stock Stock Surplus Earnings Equity Compensation Stock Equity
--------- -------- --------- ---------- ------------- ------------ -------- ------------
Balance--December 31, 1999............. $190 $12 $10,799 $11,037 $(263) $ (118) $(1,567) $20,090
Net income............................. 689 689
Change in fair value, investment
securities--available for sale,
net of taxes......................... (95) (95)
Translation gain (loss), net
of hedge results and
taxes.................................. -- --
------- ----- -------
Net income and changes in accumulated
other adjustments to stockholders'
equity............................... 689 (95) 594
Cash dividends declared:
Common stock......................... (481) (481)
Preferred stock...................... (3) (3)
Issuance of stock...................... (115) 274 159
Purchase of common stock............... (17) (17)
Cancellation of shares held in
treasury............................... (32) (32)
Awards granted, net of forfeitures
and amortization....................... (79) (79)
Other.................................. 27 32 (19) 40
---- --- ------- ------- ----- -------- ------- -------
Balance--March 31, 2000................ $190 $12 $10,679 $11,242 $(358) $ (165) $(1,329) $20,271
==== === ======= ======= ===== ======== ======= =======
Balance--December 31, 2000............. $190 $12 $10,487 $ 9,060 $ (5) $ (121) $ (988) $18,635
Net income............................. 679 679
Change in fair value, investment
securities--available for sale, net of
taxes................................ 47 47
Change in fair value of cash-flow
type hedge derivative securities
net of taxes......................... (149) (149)
Translation gain, net of hedge
results and taxes...................... 2 2
------- ----- -------
Net income and changes in
accumulated other adjustments to
stockholders' equity................. 679 (100) 579
Cash dividends declared:
Common stock......................... (245) (245)
Preferred stock...................... (3) (3)
Issuance of stock...................... (93) 246 153
Awards granted, net of forfeitures
and amortization....................... (53) (53)
---- --- ------- ------- ----- -------- ------- -------
Balance--March 31, 2001................ $190 $12 $10,394 $ 9,491 $(105) $ (174) $ (742) $19,066
==== === ======= ======= ===== ======== ======= =======
The accompanying notes are an integral part of this statement.
-38-
CONSOLIDATED STATEMENT OF CASH FLOWS
BANK ONE CORPORATION and Subsidiaries
Three Months Ended
March 31
------------------------------
(In millions) 2001 2000
---------- ------------
Cash Flows from Operating Activities
Net income................................................................................. $ 679 $ 689
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 135 162
Provision for credit losses........................................................... 585 362
Investment securities (gains) losses.................................................. 96 (158)
Net increase in net derivative product assets......................................... (140) (67)
Net (increase) decrease in trading assets............................................. (2,401) 2,392
Net increase in other assets.......................................................... (353) (581)
Net increase in other liabilities..................................................... 4,020 858
Merger-related and restructuring charges.............................................. -- (19)
Other operating adjustments........................................................... (99) (245)
--------- --------
Net cash provided by operating activities.................................................. 2,522 3,393
Cash Flows from Investing Activities
Net increase in federal funds sold and securities under resale agreements.................. (6,396) (1,216)
Securities available for sale:
Purchases.............................................................................. (16,967) (7,548)
Maturities............................................................................. 7,585 1,258
Sales.................................................................................. 2,308 4,457
Credit card receivables securitized........................................................ 3,131 --
Net decrease (increase) in loans........................................................... 3,770 (2,092)
Loan recoveries............................................................................ 97 72
Additions to premises and equipment, net................................................... 34 (132)
Net cash and cash equivalents due to mergers, acquisitions and dispositions................ -- --
All other investing activities, net........................................................ (27) (108)
--------- --------
Net cash used in investing activities...................................................... (6,465) (5,309)
Cash Flows from Financing Activities
Net (decrease) increase in deposits........................................................ (3,524) 2,297
Net increase (decrease) in federal funds purchased and securities under
repurchase agreements.................................................................... 2,668 (269)
Net decrease in other short-term borrowings................................................ (1,033) (2,951)
Proceeds from issuance of long-term debt................................................... 3,818 4,452
Repayment of long-term debt................................................................ (3,254) (1,098)
Cash dividends paid........................................................................ (247) (2)
Proceeds from issuance of trust preferred capital securities .............................. 300 --
Proceeds from issuance of common and treasury stock........................................ 80 66
All other financing activities, net........................................................ 4 (13)
--------- --------
Net cash (used in) provided by financing activities........................................ (1,188) 2,482
Effect of Exchange Rate Changes on Cash and Cash Equivalents............................... 3 85
--------- --------
Net (Decrease) Increase in Cash and Cash Equivalents....................................... (5,128) 651
Cash and Cash Equivalents at Beginning of Period........................................... 22,501 22,721
--------- --------
Cash and Cash Equivalents at End of Period................................................. $ 17,373 $ 23,372
========= ========
The accompanying notes are an integral part of this statement.
-39-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANK ONE CORPORATION and Subsidiaries
Note 1--Summary of Significant Accounting Policies
Consolidated financial statements of BANK ONE CORPORATION and Subsidiaries
(the "Corporation" or "Bank One") have been prepared in conformity with
generally accepted accounting principles. Management is required to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes that could differ from actual results. Certain
prior-year financial statement information has been reclassified to conform to
the current year's financial statement presentation.
Although the interim amounts are unaudited, they do reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
results of operations for the interim periods. All such adjustments are of a
normal, recurring nature. Because the results from commercial banking operations
are so closely related and responsive to changes in economic conditions, fiscal
policy and monetary policy, and because the results for the investment security
and trading portfolios are largely market-driven, the results for any interim
period are not necessarily indicative of the results that can be expected for
the entire year.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000.
Note 2--New Accounting Pronouncements
Accounting for Transfers and Servicing of Financial Assets and Liabilities
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Liabilities" SFAS No. 140 revises certain criteria promulgated in previous
accounting literature (SFAS No. 125) regarding the accounting for
securitizations and other transfers of financial assets and collateral, and
requires additional disclosures concerning these activities. The Corporation is
currently evaluating the effects of adopting SFAS No. 140 and its
interpretations and related guidance, on its current accounting policies for
securitizations and other transfers of financial assets. The Corporation
currently does not believe that the impact, if any, of adopting SFAS No. 140
will be significant to its financial position or net income.
Accounting for Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Corporation adopted SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities", as amended. The new standard
significantly changed the accounting treatment for interest rate and foreign
exchange derivatives the Corporation uses in its asset and liability management
activities. The Corporation's accounting for derivatives used in trading
activities has not changed as the result of SFAS No. 133. Hedging derivatives
are now recognized on the balance sheet at fair value as either assets or
liabilities. Hedge ineffectiveness, if any, is calculated and recorded in
current earnings. The accounting for the effective portion of the change in
value of a hedging derivative is based on the nature of the hedge. See
"Derivative Financial Instruments" on page 29 for detailed information on the
Corporation's strategy in using derivative instruments in its asset and
liability management and trading activities, as well as the new accounting
principles and disclosure for derivative instruments pursuant to SFAS No. 133.
Note 3--Earnings per Share
Basic EPS is computed by dividing income available to common stockholders
by the average number of common shares outstanding for the period. Except when
the effect would be antidilutive, the diluted EPS calculation includes shares
that could be issued under outstanding stock options and the employee stock
purchase plans, and common shares that would result from the conversion of
convertible preferred stock and convertible debentures. Interest on convertible
debentures (net of tax) is added to net income, since this interest would not be
paid if the debentures were converted to common stock.
-40-
----------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
(In millions, except per share data) 2001 2000
-----------------------------------------------------------------------------------------------------------------
Basic:
Net income........................................................................ $ 679 $ 689
Preferred stock dividends......................................................... (3) (3)
------ ------
Net income attributable to common stockholders' equity............................ $ 676 $ 686
====== ======
Diluted:
Net income........................................................................ $ 679 $ 689
Interest on convertible debentures, net of tax.................................... -- 2
Preferred stock dividends......................................................... (3) (3)
------ ------
Diluted income available to common stockholders................................... $ 676 $ 688
====== ======
Average shares outstanding............................................................ 1,163 1,149
Dilutive shares:
Stock options..................................................................... 10 3
Convertible debentures............................................................ -- 3
------ ------
Average shares outstanding assuming full dilution..................................... 1,173 1,155
====== ======
Earnings per share:
Basic............................................................................. $ 0.58 $ 0.60
====== ======
Diluted........................................................................... $ 0.58 $ 0.60
====== ======
-----------------------------------------------------------------------------------------------------------------
Note 4--Pending Acquisition
On April 9, 2001, the Corporation entered into a definitive agreement to
purchase the $8 billion credit card business of Wachovia Corporation. The
business includes 2.8 million customer accounts. The transaction also includes a
long-term agreement to market consumer credit cards to Wachovia's retail
customers, with servicing being provided by First USA. The transaction, to be
paid entirely of cash consideration, is expected to close in the 2001 second
quarter, subject to regulatory review.
Note 5--Second Quarter 2000 Restructuring Charge
The Corporation recorded restructuring costs of $233 million in the second
quarter of 2000 related to the restructuring of certain of its retail businesses
as well as exit costs associated with specific decisions made to abandon
identified facilities, equipment and application software. The initial
restructuring charge included personnel-related items consisting primarily of
severance costs related to identified staff reductions totaling 2,200 positions
in the Retail line of business that would be implemented when assets were sold.
Also included in the initial charge were asset writedowns including leasehold
write-offs related to leased properties following the decision to abandon such
facilities, as well as the write-offs of fixed assets and capitalized software,
for which similar decisions were made. In the 2000 fourth quarter, Management
reduced its estimate of staff reductions to 1,257 positions as a result of the
decision not to dispose of the assets previously identified for sale.
The following table summarizes the activity relating to this restructuring
charge reserve during the 2001 first quarter (in millions):
Personnel- Other
Related Costs Obligations Total
------------------------------------------------
December 31, 2000 Reserve Balance................... $17 $77 $94
Amounts Paid/Asset Writedowns................... (6) (4) (10)
---- ---- ----
March 31, 2001 Reserve Balance...................... $11 $73 $84
==== ==== ====
Actions under this restructuring plan are expected to be completed in 2001.
The remaining liabilities, including severance, associated with these actions
will be paid as required over the contract period.
-41-
Note 6--Business Segments
The information presented on page 2 is consistent with the content of
operating segments data provided to the Corporation's management. The
Corporation's management currently does not use product group revenues to assess
consolidated results. Aside from investment management and insurance products,
product offerings are tailored to specific customer segments. As a result, the
aggregation of product revenues and related profit measures across lines of
business is not available.
Aside from the United States, no single country or geographic region
generates a significant portion of the Corporation's revenues or assets. In
addition, there are no single customer concentrations of revenue or
profitability.
Data presented in the line of business tables prior to the caption entitled
"Financial Performance" are included in the "Business Segments" section (see
pages 3 - 18 for details).
Note 7--Interest Income and Interest Expense
Details of interest income and expense are as follows:
Three Months Ended
-------------------------
March 31
--------------------------
(In millions) 2001 2000
----------- -----------
Interest Income
Loans, including fees...................................................................... $3,802 $3,596
Bank balances.............................................................................. 70 102
Federal funds sold and securities under resale agreements.................................. 115 124
Trading assets............................................................................. 83 101
Investment securities...................................................................... 851 830
------ ------
Total............................................................................. 4,921 4,753
Interest Expense
Deposits................................................................................... 1,520 1,389
Federal funds purchased and securities under repurchase agreements......................... 231 266
Other short-term borrowings................................................................ 283 298
Long-term debt............................................................................. 702 607
------ ------
Total............................................................................. 2,736 2,560
------ ------
Net Interest Income...................................................................... 2,185 2,193
Provision for credit losses.............................................................. 585 362
------ ------
Net Interest Income After Provision for Credit Losses.................................... $1,600 $1,831
====== ======
Note 8--Fair Value of Financial Instruments
The carrying values and estimated fair values of financial instruments as
of March 31, 2001, have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 2000.
Note 9--Guaranteed Preferred Beneficial Interest in the Corporation's Junior
Subordinated Debt
The Corporation has sponsored nine trusts with a total aggregate issuance
of $2.790 billion at March 31, 2001 in trust preferred securities. These trust
preferred securities are tax-advantaged issues that qualify for Tier 1 capital
treatment. Distributions on these securities are included in interest expense on
long-term debt. Each of the trusts is a statutory business trust organized for
the sole purpose of issuing trust securities and investing the proceeds thereof
in junior subordinated debentures of the Corporation, the sole asset of each
trust. The preferred trust securities of each trust represent preferred
beneficial interests in the assets of the respective trusts and are subject to
mandatory redemption upon payment of the junior subordinated debentures held by
the trust. The common securities of each trust are wholly owned by the
Corporation. Each trust's ability to pay amounts due on the trust preferred
securities is solely dependent upon the Corporation making payment on the
related junior subordinated debentures. The Corporation's obligations under the
junior subordinated securities and other relevant trust agreements, in
-42-
aggregate, constitute a full and unconditional guarantee by the Corporation of
each respective trust's obligations under the trust securities issued by such
trust.
Trust Preferred Junior Subordinated Debt Owned by Trust
--------------------------------------------- ---------------------------------------------------------
Initial Initial
Liquidation Distribution Principal Redeemable
(Dollars in millions) Issuance Date Value Rate Amount Maturity Beginning
------------------- ----------- ------------- ------------ ------------------- ----------------------
Capital V.............. January 30, 2001 $300 8.00% $309.3 January 30, 2031 January 30, 2006
Capital IV............. August 30, 2000 160 3-mo LIBOR 164.9 September 1, 2030 See (1) below.
plus 1.50%
Capital III............ August 30, 2000 475 8.75% 489.7 September 1, 2030 See (1) below.
Capital II............ August 8, 2000 280 8.50% 288.7 August 15, 2030 August 15, 2005
Capital I............ September 20, 1999 575 8.00% 593 September 15, 2029 September 20,2004
First Chicago
NBD Capital 1....... January 31, 1997 250 3-mo LIBOR
plus 0.55% 258 February 1, 2027 February 1, 2007
First USA
Capital Trust I (2)... December 20, 1996 200 9.33% 206.2 January 15, 2027 January 15, 2007
First Chicago
NBD Institutional
Capital A........... December 3, 1996 500 7.95% 515 December 1, 2026 December 1, 2006
First Chicago
NBD Institutional
Capital B........... December 5, 1996 250 7.75% 258 December 1, 2026 December 1, 2006
________
(1) Redeemable at any time subject to approval by the Federal Reserve Board.
(2) The Corporation paid a premium of $36 million to repurchase $193 million of
these securities in 1997.
Note 10--Supplemental Disclosures for Accumulated Other Adjustments to
Stockholders' Equity
Accumulated other adjustments to stockholders' equity is as follows:
(In millions) March 31, March 31,
2001 2000
----------- -----------
Fair value adjustment on investment securities--available for sale:
Balance, beginning of period.................................................... $ (15) $(271)
Change in fair value, net of taxes of $28 and $38 for the three months ended
March 31, 2001 and 2000, respectively......................................... 48 (82)
Less: reclassification adjustment, net of taxes of $0 and $8 for the three
Months ended March 31, 2001 and 2000, respectively............................ (1) (13)
------ ------
Balance, end of period.......................................................... 32 (366)
Fair value adjustment on derivative instruments--cash flow type hedges:
Balance, beginning of period.................................................... -
Transition adjustment at January 1, 2001, net of taxes of $56................... (98)
Net change in fair value associated with current period hedging activities, net of
taxes of $35 for the three months ended March 31, 2001........................ (62)
Net reclassification into earnings, net of taxes of $6 for the three months ended
March 31, 2001................................................................ 11
------
Balance, end of period.......................................................... (149)
Accumulated translation adjustment:
Balance, beginning of period.................................................... 10 8
Translation gain, net of hedge results and taxes................................ 2 -
------ ------
Balance, end of period.......................................................... 12 8
------ ------
Total accumulated other adjustments to stockholders' equity........................ $ (105) $ (358)
====== ======
-43-
Note 11--Contingent Liabilities
The Corporation and certain of its subsidiaries have been named as
defendants in various legal proceedings, including certain class actions,
arising out of the normal course of business or operations. In certain of these
proceedings, which are based on alleged violations of consumer protection,
securities, banking, insurance and other laws, rules or principles, substantial
money damages are asserted against the Corporation and its subsidiaries. Since
the Corporation and certain of its subsidiaries, which are regulated by one or
more federal and state regulatory authorities, are the subject of numerous
examinations and reviews by such authorities, the Corporation also is and will
be, from time to time, normally engaged in various disagreements with
regulators, related primarily to its financial services businesses. The
Corporation has also received certain tax deficiency assessments. In view of the
inherent difficulty of predicting the outcome of such matters, the Corporation
cannot state what the eventual outcome of pending matters will be; however,
based on current knowledge and after consultation with counsel, Management does
not believe that liabilities arising from these matters, if any, will have a
material adverse effect on the consolidated financial position of the
Corporation.
Note 12--Investment Securities - Available for Sale
The following table is a summary of the available for sale investment
portfolio:
Gross Unrealized Gross Unrealized Fair Value
March 31, 2001 (In millions) Amortized Cost Gains Losses (Book Value)
-------------------------------------------------------------------
U.S. Treasury.................................. $ 1,650 $ 8 $ 17 $ 1,641
U.S. government agencies....................... 22,285 82 26 22,341
States and political subdivisions.............. 1,219 34 3 1,250
Interests in credit card securitized
receivables.................................... 17,978 87 205 17,860
Other debt securities.......................... 5,658 20 53 5,625
Equity securities (1)(2)....................... 4,224 246 221 4,249
------- ----- ----- --------
Total................................. $53,014 $ 477 $ 525 $ 52,966
======= ===== ===== ========
---------
(1) The fair values of certain securities for which market quotations were not
available were estimated. In addition, the fair values of certain securities
reflect liquidity and other market-related factors.
(2) Includes investments accounted for at fair value consistent with specialized
industry practice.
-44-
Selected Statistical Information
BANK ONE CORPORATION and Subsidiaries
Average Balances/Net Interest Margin/Rates
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2001 December 31, 2000
------------------------------------------------------------- ----------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
------------------------------------------------------------- ----------------------------------------------------------------------
Assets
Short-term investments...................................... $ 12,221 185 6.14% $ 16,272 $ 272 6.65%
Trading assets.............................................. 5,703 83 5.90 6,140 101 6.54
Investment securities:
U.S. government and federal agencies.................... 19,327 302 6.34 14,765 228 6.14
States and political subdivisions....................... 1,269 24 7.67 1,283 25 7.75
Other................................................... 30,141 544 7.32 29,485 620 8.37
--------- ------ ----- ---------- ------- -----
Total investment securities.......................... 50,737 870 6.95 45,533 873 7.63
Loans: (1) ................................................. 173,677 3,816 8.91 175,588 3,961 8.97
--------- ------ ---------- -------
Total earning assets (2)............................. 242,338 $4,954 8.29% 243,533 $ 5,207 8.51%
====== ===== ======= =====
Allowance for credit losses................................. (4,216) (3,499)
Other assets................................................ 31,392 33,319
--------- ----------
Total assets......................................... $ 269,514 $ 273,353
========= ==========
Liabilities and Stockholders' Equity
Deposits-interest-bearing:
Savings................................................. $ 15,491 51 1.34% $ 15,543 $ 57 1.46%
Money market............................................ 47,006 384 3.31 47,084 429 3.62
Time.................................................... 47,267 743 6.38 47,480 759 6.36
Foreign offices (3)..................................... 24,081 342 5.76 25,950 397 6.09
--------- ------ ----- ---------- ------- -----
Total deposits-interest-bearing...................... 133,845 1,520 4.61 136,057 1,642 4.80
Federal funds purchased and securities under repurchase
agreements............................................... 17,129 231 5.47 18,564 284 6.09
Other short-term borrowings................................. 18,252 283 6.29 17,833 292 6.51
Long-term debt (4).......................................... 41,781 702 6.81 41,395 742 7.13
--------- ------ ----- ---------- ------ -----
Total interest-bearing liabilities................... 211,007 $2,736 5.26% 213,849 $2,960 5.51%
========= ====== ===== ========== ====== =====
Demand deposits............................................. 26,827 27,194
Other liabilities........................................... 12,675 12,943
Preferred stock............................................. 190 190
Common stockholders' equity................................. 18,815 19,177
--------- ----------
Total liabilities and stockholders' equity........... $ 269,514 $ 273,353
========= ==========
Interest income/earning assets (2).......................... $4,954 8.29% $5,207 8.51%
Interest expense/earning assets............................. 2,736 4.58 2,960 4.84
------ ----- ------ -----
Net interest margin......................................... $2,218 3.71% $2,247 3.67%
====== ===== ====== =====
----------
(1) Nonperforming loans are included in average balances used to determine the
average rate.
(2) Includes tax-equivalent adjustments based on federal income tax rate of 35%.
(3) Includes international banking facilities' deposit balances in domestic
offices and balances of Edge Act and overseas offices.
(4) Includes trust preferred capital securities.
-45-
---------------------------------------------------------------------------------------------------------------------
September 30, 2000 June 30, 2000 March 31, 2000
---------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------------
$ 18,673 $ 306 6.52% $ 17,356 $ 276 6.40% $ 15,451 $ 226 5.88%
8,252 138 6.65 6,442 100 6.24 6,909 100 5.82
12,163 212 6.93 15,074 260 6.94 15,641 258 6.63
1,308 25 7.60 1,398 27 7.77 1,483 28 7.59
28,861 603 8.31 29,813 575 7.76 30,406 564 7.46
--------- ------- ----- --------- ------- ---- --------- ------- -----
42,332 840 7.89 46,285 862 7.49 47,530 850 7.19
173,259 3,935 9.04 170,743 3,764 8.87 167,423 3,612 8.68
--------- ------- --------- ------- --------- -------
242,516 $ 5,219 8.56% 240,826 $5,002 8.35% 237,313 $ 4,788 8.11%
======= ===== ======= ==== ======= =====
(3,036) (2,531) (2,367)
33,534 34,528 33,772
--------- --------- ---------
$ 273,014 $ 272,823 $ 268,718
========= ========= =========
$ 16,287 $ 62 1.51% $ 16,973 $ 60 1.42% $ 16,942 $ 61 1.45%
47,080 419 3.54 48,450 410 3.40 47,606 400 3.38
45,906 728 6.31 41,946 609 5.84 38,818 550 5.70
26,228 410 6.22 28,848 408 5.69 29,443 378 5.16
--------- ------- ----- --------- ------- ---- --------- ------- -----
135,501 1,619 4.75 136,217 1,487 4.39 132,809 1,389 4.21
19,331 311 6.40 18,632 281 6.07 19,316 266 5.54
18,933 319 6.70 19,248 307 6.41 19,912 298 6.02
41,018 728 7.06 38,642 670 6.97 36,484 607 6.69
--------- ------- ----- --------- ------- ---- --------- ------- -----
214,783 $ 2,977 5.51% 212,739 $2,745 5.19% 208,521 $ 2,560 4.94%
========= ======= ===== ========= ======= ==== ========= ======= =====
26,456 27,692 27,921
12,706 12,503 12,305
190 190 190
18,879 19,699 19,781
--------- --------- ---------
$ 273,014 $ 272,823 $ 268,718
========= ========= =========
$5,219 8.56% $5,002 8.35% $ 4,788 8.11%
2,977 4.88 2,745 4.58 2,560 4.33
------- ----- ------- ---- ------- -----
$2,242 3.68% $2,257 3.77% $ 2,228 3.78%
====== ===== ======= ==== ======= =====
-46-
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 001-15323
----------
BANK ONE CORPORATION
----------------------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 31-0738296
----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 BANK ONE PLAZA CHICAGO, ILLINOIS 60670
---------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
312-732-4000
-----------------------------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of April 30, 2001.
Class Number of Shares Outstanding
-------------------------- ----------------------------
Common Stock $0.01 par value 1,166,017,946
-47-
Form 10-Q Cross-Reference Index
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
----------------------------
Page
----
Consolidated Balance Sheets-
March 31, 2001 and 2000, and December 31, 2000 36
Consolidated Income Statements -
Three months ended March 31, 2001 and 2000 37
Consolidated Statements of Stockholders' Equity -
Three months ended March 31, 2001 and 2000 38
Consolidated Statements of Cash Flows -
Three months ended March 31, 2001 and 2000 39
Notes to Consolidated Financial Statements 40
Selected Statistical Information 45
ITEM 2. Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations 2-35
-----------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 49
-------------------------
ITEM 2. Changes in Securities 49
-----------------------------
ITEM 3. Defaults Upon Senior Securities 49
---------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 49
-----------------------------------------------------------
ITEM 5. Other Information 49
-------------------------
ITEM 6. Exhibits and Reports on Form 8-K 49
----------------------------------------
Signatures 50
-48-
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings
-------------------------
None
ITEM 2. Changes in Securities
-----------------------------
None
ITEM 3. Defaults Upon Senior Securities
---------------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
None
ITEM 5. Other Information
-------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibit 12 - Statement re computation of ratio.
(b) The Registrant filed the following Current Reports on Form 8-K
during the quarter ended March 31, 2001.
Date Item Reported
---- -------------
1/17/01 The Registrant's press release announcing 2000 fourth
quarter loss of $512 million.
2/02/01 The Registrant's filing of documents in connection with
the closing of the sale by BANK ONE Capital V of $300
million in aggregate liquidation amount of trust
preferred securities.
2/23/01* Change in the Registrant's certifying principal
accountant for 2001 from Arthur Andersen LLP to KPMG LLP.
* As amended by a Form 8-K/A filed on March 27, 2001.
-49-
SIGNATURES
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.
BANK ONE CORPORATION
--------------------
Date May 14, 2001 /s/ James Dimon
------------------------------- ------------------------------------------
James Dimon
Principal Executive Officer
Date May 14, 2001 /s/ Charles W. Scharf
------------------------------- ------------------------------------------
Charles W. Scharf
Principal Financial Officer
Date May 14, 2001 /s/ William J. Roberts
------------------------------- ------------------------------------------
William J. Roberts
Principal Accounting Officer
-50-
BANK ONE CORPORATION
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
-------------- ----------------------
12 - Statement re computation of ratio.
-51-