BANK ONE CORPORATION
INDEX TO FINANCIAL REVIEW
1 Five Quarter Summary of Selected Financial Information
2 Five Quarter Summary of Other Financial Data
3 Business Segment Results and Other Data
15 Consolidated Results
17 Risk Management
18 Market Risk Management
19 Credit Portfolio Composition
22 Asset Quality
26 Derivative Financial Instruments
27 Loan Securitizations and Off-Balance Sheet Activities
29 Capital Management
31 Forward-Looking Statements
32 Consolidated Financial Statements
36 Notes to Consolidated Financial Statements
41 Selected Statistical Information
43 Form 10-Q
FIVE QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION
BANK ONE CORPORATION AND SUBSIDIARIES
Three Months Ended
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March 31 December 31 September 30 June 30 March 31
(In millions, except ratios and per share data) 2002/(3)/ 2001 2001 2001 2001
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INCOME STATEMENT DATA
Total revenue, net of interest expense $ 4,152 $ 4,207 $ 4,016 $ 3,846 $ 3,792
Net interest income-
fully taxable-equivalent ("FTE") basis 2,235 2,273 2,193 2,085 2,218
Noninterest income 1,952 1,972 1,853 1,791 1,607
Provision for credit losses 665 765 620 540 585
Noninterest expense 2,345 2,706 2,303 2,306 2,236
Income before cumulative effect of change
in accounting principle 787 541 754 708 679
Net income 787 541 754 664 679
PER COMMON SHARE DATA
Income before cumulative effect of change
in accounting principle:
Basic $ 0.67 $ 0.46 $ 0.64 $ 0.60 $ 0.58
Diluted 0.67 0.46 0.64 0.60 0.58
Net income:
Basic $ 0.67 $ 0.46 $ 0.64 $ 0.57 $ 0.58
Diluted 0.67 0.46 0.64 0.56 0.58
Cash dividends declared 0.21 0.21 0.21 0.21 0.21
Book value 17.81 17.33 17.30 16.49 16.20
BALANCE SHEET DATA-ENDING BALANCES
Loans:
Managed $ 209,519 $ 218,102 $ 222,604 $ 223,390 $ 229,942
Reported 152,126 156,733 164,251 166,576 171,427
Deposits 158,803 167,530 162,385 164,299 163,555
Long-term debt/(1)/ 44,194 43,418 44,361 41,693 42,197
Total assets:
Managed 297,998 306,304 310,207 312,244 315,104
Reported 262,947 268,954 270,252 272,412 274,352
Common stockholders' equity 20,913 20,226 20,192 19,261 18,876
Total stockholders' equity 20,913 20,226 20,382 19,451 19,066
CREDIT QUALITY RATIOS
Net charge-offs to average loans-managed/(2)/ 2.82% 2.84% 2.58% 2.50% 2.40%
Allowance for credit losses to period end loans 2.97 2.89 2.73 2.54 2.45
Nonperforming assets to related assets 2.58 2.35 1.96 1.77 1.55
FINANCIAL PERFORMANCE:
Return on average assets 1.21% 0.80% 1.13% 0.99% 1.02%
Return on average common equity 15.3 10.5 15.0 13.9 14.6
Net interest margin:
Managed 5.35 5.20 4.95 4.65 4.76
Reported 3.91 3.84 3.70 3.50 3.71
Efficiency ratio:
Managed 46.6 53.5 46.9 48.5 47.6
Reported 56.0 63.7 56.9 59.5 58.5
Employees 73,864/(4)/ 73,519 75,801 78,491 79,157
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1
FIVE QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION-CONTINUED
BANK ONE CORPORATION AND SUBSIDIARIES
Three Months Ended
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March 31 December 31 September 30 June 30 March 31
(In millions, except ratios and per share data) 2002/(3)/ 2001 2001 2001 2001
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CAPITAL RATIOS
Risk-based capital:
Tier 1 9.0% 8.6% 8.4% 8.2% 7.8%
Total 12.7 12.2 11.7 11.6 11.2
Tangible common equity/tangible managed assets 6.2 5.9 5.8 5.8 5.6
COMMON STOCK DATA
Average shares outstanding:
Basic 1,170 1,166 1,168 1,166 1,163
Diluted 1,179 1,174 1,176 1,176 1,173
Stock price, quarter-end $ 41.78 $ 39.05 $ 31.47 $ 35.80 $ 36.18
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/(1)/ Includes trust preferred capital securities.
/(2)/ Quarterly results include $1 million, $14 million, $14 million, $24
million, and $40 million, respectively, of charge-offs which are not so
classified in the Corporation's GAAP financials because they are part of
a portfolio which has been accounted for as loans held at a discount. The
inclusion of these amounts in charge-offs more accurately reflects the
performance of the portfolio. In the Corporation's financial statements,
these items result in a higher provision in excess of net charge-offs.
/(3)/ Results include the effects of the consolidation of Paymentech, Inc. and
Anexsys, LLC.
/(4)/ Includes the addition of 1,627 employees due to the consolidation of
Paymentech and Anexsys.
FIVE QUARTER SUMMARY OF OTHER FINANCIAL DATA
The Corporation's consolidated operating financial results and ratios are
as follows:
Three Months Ended/(2)/
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March 31 December 31 September 30 June 30 March 31
(In millions, except ratios and per share data) 2002/(1)/ 2001 2001 2001 2001
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Operating income $ 787 $ 765 $ 754 $ 706 $ 679
Operating earnings per share-diluted $ 0.67 $ 0.65 $ 0.64 $ 0.60 $ 0.58
Return on average assets 1.21% 1.14% 1.13% 1.06% 1.02%
Return on average common equity 15.3 14.9 15.0 14.8 14.6
Net interest margin:
Managed 5.35 5.20 4.95 4.65 4.76
Reported 3.91 3.84 3.70 3.50 3.71
Efficiency ratio:
Managed 46.6 46.5 46.9 48.6 47.6
Reported 56.0 55.4 56.9 59.6 58.5
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/(1)/ Results include the effects of the consolidation of Paymentech and
Anexsys.
/(2)/ These results and ratios exclude restructuring-related charges for all
periods and June 30, 2001 excludes the cumulative effect of change in
accounting principle.
2
BUSINESS SEGMENT RESULTS AND OTHER DATA
BANK ONE CORPORATION and its subsidiaries ("Bank One" or the
"Corporation") are managed on a line of business basis. The business segments'
financial results presented reflects the current organization of the
Corporation. For a detailed discussion of the various business activities of
Bank One's business segments, see pages 27-40 of the Corporation's 2001 Annual
Report.
The following table summarizes certain financial information by line of business
for the periods indicated:
Operating Income (Loss) Average Managed Assets
(In millions) (In billions)
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Three Months Ended March 31 2002 2001 2002 2001
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Retail $ 343 $ 341 $ 73 $ 78
Commercial Banking 143 196 99 110
Credit Card 239 148 71 68
Investment Management 114 82 8 8
Corporate (52) (88) 48 45
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Total business segment operating income, net of tax $ 787 $ 679 $ 300 $ 309
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The information provided in the line of business tables beginning with
the caption entitled "Financial Performance" are included herein for analytical
purposes only and are based on management information systems, assumptions and
methodologies that are under continual review.
RETAIL
Retail provides a broad range of financial products and services,
including deposits, investments, loans, insurance, and interactive banking to
consumers and small business customers.
Change
---------------------------
Three Months Ended March 31/(1)/ 2002 2001 Amount Percent
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(Dollars in millions)
Net Interest income-FTE $ 1,255 $ 1,299 $ (44) (3)%
Banking fees and commissions/(2)/ 118 122 (4) (3)
Credit card revenue/(3)/ 40 36 4 11
Service charges on deposits/(4)/ 201 185 16 9
Trading/(5)/ (1) - (1) -
Other income 4 16 (12) (75)
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Noninterest income 362 359 3 1
--------------------------------------------------------------------------------
Total revenue 1,617 1,658 (41) (2)
Provision for credit losses 267 244 23 9
Salaries and employee benefits 364 363 1 -
Other expense 458 517 (59) (11)
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Noninterest expense 822 880 (58) (7)
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Pretax operating income-FTE 528 534 (6) (1)
Tax expense and FTE adjustment 185 193 (8) (4)
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Operating income $ 343 $ 341 $ 2 1
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3
RETAIL-CONTINUED
Change
---------------------------
Three Months Ended March 31/(1)/ 2002 2001 Amount Percent
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FINANCIAL PERFORMANCE:
Return on equity/(6)/ 22% 23% (1)%
Efficiency ratio/(6)/ 51 53 (2)%
Headcount-full-time 32,746 35,114 (2,368) (7)%
ENDING BALANCES (in billions):
Small business commercial $ 10.0 $ 9.3 $ 0.7 8
Home equity 29.9 30.8 (0.9) (3)
Vehicles:
Loans 13.7 14.2 (0.5) (4)
Leases 5.4 8.0 (2.6) (33)
Other personal 8.6 11.1 (2.5) (23)
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Total loans 67.6 73.4 (5.8) (8)
Assets 71.3 76.9 (5.6) (7)
Demand deposits 26.0 24.2 1.8 7
Savings 37.9 33.3 4.6 14
Time 24.9 31.2 (6.3) (20)
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Total deposits 88.8 88.7 0.1 -
Equity 6.2 6.0 0.2 3
AVERAGE BALANCES (in billions):
Small business commercial $ 10.0 $ 9.2 $ 0.8 9
Home equity 30.1 31.1 (1.0) (3)
Vehicles:
Loans 13.5 14.2 (0.7) (5)
Leases 5.7 8.2 (2.5) (30)
Other personal 9.9 11.3 (1.4) (12)
--------------------------------------------------------------------------------
Total loans 69.2 74.0 (4.8) (6)
Assets 72.9 78.2 (5.3) (7)
Demand deposits 25.1 23.8 1.3 5
Savings 37.1 32.5 4.6 14
Time 25.4 31.9 (6.5) (20)
--------------------------------------------------------------------------------
Total deposits 87.6 88.2 (0.6) (1)
Equity 6.2 5.9 0.3 5
CREDIT QUALITY (in millions):
Net charge-offs:
Small business commercial $ 14 $ 10 $ 4 40
Home equity 130 73 57 78
Vehicles:
Loans/(7)/ 66 61 5 9
Leases 30 28 2 6
Other personal 26 34 (8) (24)
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Total consumer/(7)/ 252 196 56 29
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Total net charge-offs/(7)/ 266 206 60 29
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4
RETAIL-CONTINUED
Change
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Three Months Ended March 31/(1)/ 2002 2001 Amount Percent
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CREDIT QUALITY-continued (in millions):
Net charge-off ratios:
Small business commercial 0.56% 0.43% 0.13%
Home equity 1.73 0.94 0.79
Vehicles:
Loans/(7)/ 1.96 1.71 0.25
Leases 2.11 1.38 0.73
Other personal 1.05 1.20 (0.15)
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Total consumer/(7)/ 1.70 1.21 0.49
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Total net charge-offs/(7)/ 1.54 1.11 0.43
Nonperforming assets:
Small business commercial $ 318 $ 231 $ 87 38%
Consumer/(8)/ 1,084 728 356 49
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Total nonperforming loans 1,402 959 443 46
Other, including Other Real Estate Owned ("OREO") 159 77 82 N/M
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Total nonperforming assets 1,561 1,036 525 51
Allowance for credit losses $ 1,028 $ 914 $ 114 12
Allowance to period-end loans 1.52% 1.25% 0.27%
Allowance to nonperforming loans 73% 95% (22)
Nonperforming assets to related assets 2.30% 1.41% 0.89
DISTRIBUTION:
Banking centers 1,776 1,811 (35) (2)
ATMs 5,109 5,762 (653) (11)
# On-line customers (in thousands) 1,248 931 317 34
# Households (in thousands) 7,159 7,586 (427) (6)
# Business customers (in thousands) 494 513 (19) (4)
# Debit cards issued (in thousands) 4,404 4,293 111 3
INVESTMENTS:
Investment sales volume (in millions) $ 1,377 $ 1,138 $ 239 21
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N/M-Not meaningful
/(1)/ During the first quarter of 2002 the Dealer Commercial Services business
was transferred from Retail to Commercial Banking. All results for prior
periods conform to the current line of business organization.
/(2)/ Banking fees and commissions include insurance fees, documentary fees,
loan servicing fees, commitment fees, mutual fund commissions, syndicated
management fees, leasing fees, safe deposit fees, official checks fees,
ATM interchange and miscellaneous other fee revenue.
/(3)/ Credit card revenue includes credit card fees, merchant fees and
interchange fees.
/(4)/ Service charges on deposits include service charges on deposits,
deficient balance fees, non-sufficient funds/overdraft fees and waived
fees.
/(5)/ Trading includes trading and foreign exchange.
/(6)/ Ratios are based on operating income.
/(7)/ First quarter 2002 and 2001 results include $1 million and $40 million,
respectively, of charge-offs which are not so classified in the
Corporation's GAAP financials because they are part of a portfolio which
has been accounted for as loans held at a discount. The inclusion of
these amounts in charge-offs more accurately reflects the credit
performance of the portfolio. In the Corporation's financial statements,
these items results in a higher provision in excess of net charge-offs.
/(8)/ Includes consumer balances that are placed on nonaccrual status when the
collection of contractual principal or interest becomes 90 days past due
Retail reported first quarter operating income of $343 million, up 1%
from the year-ago quarter. Lower operating expenses were offset by a decline in
net interest income, driven by intentional reductions in certain lending
portfolios, and an increase in the provision. Operating income increased 19%
from the previous quarter, reflecting the seasonal impact of tax refund
anticipation lending.
Net interest income decreased 3% from the first quarter of 2001,
primarily due to the intentional reductions of the auto lease and brokered home
equity portfolios. Noninterest income rose 1% from the year-ago quarter, with
higher deposit fees and investment commissions in part offset by lower loan
fees.
5
Noninterest expense was $822 million, a 7% decline from last year's first
quarter, driven by improved efficiencies in operations and technology, the
absence of goodwill amortization, and reductions in operating losses and
headcount.
The provision for credit losses was $267 million, up $23 million from the
year-ago quarter, reflecting increased net charge-offs in the home equity
portfolio, partially offset by the absence of reserve build. Compared to the
fourth quarter of 2001, the provision decreased $49 million due to the absence
of reserve build and lower net charge-offs in the small business and auto
lending portfolios.
Nonperforming assets were $1.561 billion, up $525 million from the first
quarter of 2001 and $113 million from the fourth quarter, with both increases
primarily driven by brokered home equity loans.
COMMERCIAL BANKING
Commercial Banking offers a broad array of products, including global
cash management, capital markets, commercial cards, investment management, and
lending, to Corporate Banking and Middle Market Banking customers.
Change
------------------------
Three Months Ended March 31/(1)/ 2002/(9)/ 2001 Amount Percent
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(Dollars in millions)
Net interest income-FTE $ 655 $ 715 $ (60) (8)%
Banking fees and commissions 175 163 12 7
Credit card revenue 14 22 (8) (36)
Service charges on deposits 184 132 52 39
Fiduciary and investment management fees/(10)/ (1) (1) - -
Trading 26 77 (51) (66)
Other income (loss) (27) (6) (21) N/M
----------------------------------------------------------------------------------------------------------------
Noninterest income 371 387 (16) (4)
----------------------------------------------------------------------------------------------------------------
Total revenue 1,026 1,102 (76) (7)
Provision for credit losses 281 264 17 6
Salaries and employee benefits 269 274 (5) (2)
Other expense 291 291 - -
----------------------------------------------------------------------------------------------------------------
Noninterest expense 560 565 (5) (1)
----------------------------------------------------------------------------------------------------------------
Pretax operating income-FTE 185 273 (88) (32)
Tax expense and FTE adjustment 42 77 (35) (45)
----------------------------------------------------------------------------------------------------------------
Operating income $ 143 $ 196 $ (53) (27)
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Memo: Revenue by activity/(11)/
Lending-related revenue 412 539 (127) (24)
Global Treasury Services 429 383 46 12
Capital markets/(12)/ 168 164 4 2
Other 17 16 1 6
FINANCIAL PERFORMANCE:
Return on equity/(6)/ 8% 11% (3)%
Efficiency ratio/(6)/ 55 51 4
Headcount-full-time/(13)/
Corporate Banking (including Capital Markets) 2,306 2,921 (615) (21)
Middle Market 3,064 3,492 (428) (12)
Global Treasury Services 4,731 4,457 274 6
Operations, Technology, and other Admin 2,203 2,167 36 2
----------------------------------------------------------------------------------------------------------------
Total headcount-full-time 12,304 13,037 (733) (6)
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6
COMMERCIAL BANKING - CONTINUED
Change
-----------------------
Three Months Ended March 31/(1)/ 2002/(9)/ 2001 Amount Percent
--------------------------------------------------------------------------------------------------------------------------------
ENDING BALANCES (in billions):
Loans $ 69.0 $ 84.9 $ (15.9) (19)%
Assets 96.3 108.5 (12.2) (11)
Demand deposits 22.4 20.3 2.1 10
Savings 2.9 2.6 0.3 12
Time 11.1 6.0 5.1 85
Foreign offices 7.0 6.6 0.4 6
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Total deposits 43.4 35.5 7.9 22
Equity 7.4 7.2 0.2 3
AVERAGE BALANCES (in billions):
Loans $ 71.1 $ 87.0 $ (15.9) (18)
Assets 99.3 110.1 (10.8) (10)
Demand deposits 22.7 20.6 2.1 10
Savings 3.0 2.6 0.4 15
Time 17.2 5.9 11.3 N/M
Foreign offices 8.2 7.1 1.1 15
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Total deposits 51.1 36.2 14.9 41
Equity 7.4 7.2 0.2 3
CREDIT QUALITY (in millions):
Net Commercial Banking charge-offs $ 281 $ 249 $ 32 13
Net Commercial Banking charge-off ratio 1.58% 1.14% 0.44%
Nonperforming assets:
Commercial Banking nonperforming loans $ 2,257 $ 1,544 $ 713 46
Other, including OREO 33 19 14 74
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Total nonperforming assets 2,290 1,563 727 47
Allowance for credit losses $ 3,071 $ 3,068 $ 3 -
Allowance to period-end loans 4.45% 3.61% 0.84%
Allowance to nonperforming loans 136 199 (63)
Nonperforming assets to related assets 3.32 1.84 1.48
CORPORATE BANKING (in billions):
Loans-ending balance $ 34.7 $ 47.8 $ (13.1) (27)
-average balance 36.0 49.9 (13.9) (28)
Deposits-ending balance $ 21.5 $ 17.4 $ 4.1 24
-average balance 29.1 18.0 11.1 62
Credit Quality (in millions):
Net charge-offs $ 163 $ 186 $ (23) (12)
Net charge-off ratio 1.81% 1.49% 0.32%
Nonperforming loans $ 1,170 $ 952 $ 218 23
Nonperforming loans to total loans 3.37% 1.99% 1.38%
SYNDICATIONS:
Lead Arranger Deals:
Volume (in billions) $ 14.9 $ 14.5 $ 0.4 3
Number of transactions 45 49 (4) (8)
League table standing-rank 4 4 - -
League table standing-market share 9% 6% 3%
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7
COMMERCIAL BANKING - CONTINUED
Change
-----------------------
Three Months Ended March 31/(1)/ 2002/(9)/ 2001 Amount Percent
--------------------------------------------------------------------------------------------------------------------------------
MIDDLE MARKET BANKING (in billions):
Loans-ending balance $ 34.3 $ 37.1 $ (2.8) (8)%
-average balance 35.1 37.1 (2.0) (5)
Deposits-ending balance 21.9 18.1 3.8 21
-average balance 22.0 18.2 3.8 21
Credit Quality (in millions):
Net charge-offs $ 118 $ 63 $ 55 87
Net charge-off ratio 1.34% 0.68% 0.66%
Nonperforming loans $ 1,087 $ 592 $ 495 84
Nonperforming loans to total loans 3.17% 1.60% 1.57%
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For additional footnote detail see page 5.
/(9)/ Results include the effect of consolidating Anexsys, which had an
immaterial impact on revenue and expense and no impact on operating
income. Headcount increased by 276.
/(10)/ Fiduciary and investment management fees include asset management fees,
personal trust fees, other trust fees and advisory fees.
/(11)/ Prior periods have been adjusted to conform to the current organization.
/(12)/ Capital markets includes trading revenues and underwriting, syndicated
lending and advisory fees.
/(13)/ Prior period headcount data has been adjusted for the transfer of the
Cash Vault Services business from Commercial to Corporate.
Commercial Banking reported first quarter operating income of $143
million, down $53 million from the year-ago quarter, primarily due to lower net
interest income driven by the intentional reduction of Corporate Banking credit
exposure. Operating income declined 3% from the previous quarter, reflecting
lower revenue, partially offset by lower provision and noninterest expense.
Net interest income of $655 million declined 8% from the year-ago
quarter, driven by a reduction of $15.9 billion, or 18% in average loans.
Partially offsetting this decline, net interest income benefited from higher
average deposit levels.
Noninterest income was $371 million, down 4% from the first quarter of
2001. Banking fees and commissions increased 7%, primarily due to growth in the
asset backed finance and investment grade bond underwriting businesses. Service
charges on deposits increased 39%, reflecting improvement in Global-Treasury
Services ("GTS") volumes and pricing as well as a shift in the payment of
services to fees from net interest income due to the lower value of customers'
compensating deposit balances. Trading revenue decreased 66%, reflecting a
decline in the fair value of credit derivatives used to manage credit risk as
well as lower foreign exchange and fixed income revenue.
Noninterest expense was $560 million, down 1% from the year-ago quarter.
Corporate Banking net charge-offs were $163 million, or 1.81% of average
loans, up from 1.49% a year ago and 1.72% in the fourth quarter. First quarter
charge-offs included $63 million of loans sold and held for sale, compared to
$89 million in the year-ago quarter and $26 million in the fourth quarter.
Middle Market net charge-offs were $118 million, or 1.34% of average loans, up
from 0.68% in the year-ago quarter and down from 1.75% in the fourth quarter.
The allowance for credit losses at March 31, 2002, was $3.071 billion,
essentially unchanged from the fourth quarter and first quarter 2001, and
represented 4.45% of period-end loans. Nonperforming loans at March 31, 2002,
were $2.257 billion, up 6% from the fourth quarter, driven primarily by a 12%
increase in Middle Market nonperforming loans.
8
CREDIT CARD
Credit Card is the third largest credit card provider in the United
States and the largest VISA(R) credit card issuer in the world with $65 billion
in managed credit card receivables.
Change
-----------------------
Three Months Ended March 31 2002/(14)/ 2001 Amount Percent
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions-managed basis)
Net interest income-FTE $ 1,555 $ 1,391 $ 164 12%
Banking fees and commissions 25 25 - -
Credit card revenue 395 247 148 60
Other income (loss) (18) 37 (55) N/M
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Noninterest income 402 309 93 30
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Total revenue 1,957 1,700 257 15
Provision for credit losses 943 950 (7) (1)
Salaries and employee benefits 146 129 17 13
Other expense 475 385 90 23
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Noninterest expense 621 514 107 21
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Pretax operating income-FTE 393 236 157 67
Tax expense and FTE adjustment 154 88 66 75
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Operating income $ 239 $ 148 $ 91 61
--------------------------------------------------------------------------------------------------------------------------------
Memo: Net securitization gains (amortization) (31) (1) (30) N/M
FINANCIAL PERFORMANCE:
% of average outstandings:
Net interest income-FTE 9.51% 8.63% 0.88%
Provision for credit losses 5.77 5.89 (0.12)
Noninterest income 2.46 1.92 0.54
Risk adjusted margin 6.20 4.66 1.54
Noninterest expense 3.80 3.19 0.61
Pretax income-FTE 2.40 1.46 0.94
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Operating income 1.46 0.92 0.54
Return on equity/(6)/ 15 10 5
Efficiency ratio/(6)/ 32 30 2
Headcount-full-time 10,718 11,122 (404) (4)
ENDING BALANCES (in billions):
Owned $ 7.4 $ 5.5 $ 1.9 35
Seller's interest 22.3 17.8 4.5 25
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Loans on balance sheet 29.7 23.3 6.4 27
Securitized 35.1 40.7 (5.6) (14)
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Loans 64.8 64.0 0.8 1
Assets 70.0 67.1 2.9 4
Equity 6.4 6.2 0.2 3
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9
CREDIT CARD - CONTINUED
Change
-----------------------
Three Months Ended March 31 2002/(14)/ 2001 Amount Percent
----------------------------------------------------------------------------------------------------
(Managed basis)
AVERAGE BALANCES (in billions):
Owned $ 7.2 $ 5.2 $ 2.0 38%
Seller's interest 22.5 20.6 1.9 9
----------------------------------------------------------------------------------------
Loans on balance sheet 29.7 25.8 3.9 15
Securitized 36.6 39.6 (3.0) (8)
----------------------------------------------------------------------------------------
Loans 66.3 65.4 0.9 1
Assets 71.4 68.2 3.2 5
Equity 6.4 6.2 0.2 3
CREDIT QUALITY (in millions):
Net charge-offs:
Credit card-managed $ 943 $ 950 $ (7) (1)
Net charge-off ratios:
Credit card-managed 5.69% 5.81% (0.12)%
12-month lagged/(15)/ 5.77 5.66 0.11
Delinquency ratio:
30+ days 4.27 4.33 (0.06)
90+ days 1.96 2.02 (0.06)
Allowance for credit losses $ 396 $ 197 $ 199 N/M
Allowance to period-end owned loans 5.35% 3.58% 1.77%
OTHER DATA:
Charge volume (in billions) $ 34.0 $ 32.5 $ 1.5 5
New accounts opened (in thousands) 941 775 166 21
Cards issued (in thousands) 53,965 50,644 3,321 7
Number of FirstUSA.com customers (in millions) 2.3 2.4 (0.1) (4)
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For additional footnote detail see page 5.
/(14)/ Results include the effect of consolidating Paymentech. Headcount
increased by 1,351.
/(15)/ 1Q02 ratios include Wachovia net charge-offs but exclude Wachovia 1Q01
loans.
Credit Card reported first quarter operating income of $239 million, up
$91 million from the year-ago quarter, reflecting higher net interest income.
Operating income decreased $87 million from the fourth quarter due to
seasonality, lower volume-related revenue, higher losses and increased
marketing expense. First quarter results reflect the consolidation of the
Corporation's interest in Paymentech, a leading merchant processor, which was
previously recorded under the equity method of accounting. The new consolidated
basis increased certain balance sheet categories, net interest income by $3
million, noninterest income by $77 million, and noninterest expense by $70
million, but had no impact on operating income.
Managed loans were $64.8 billion at March 31, 2002, up $800 million from
the year-ago period, including the addition of the Wachovia portfolio. Managed
loans declined $3.4 billion from December 31, 2001. Credit Card opened 941,000
new accounts during the quarter, a 21% increase from the first quarter of 2001.
Total revenue was $1.957 billion for the quarter, a 15% improvement from
one year ago, driven by the addition of the Wachovia portfolio, the benefit of
lower interest rates and the consolidation of Paymentech, partially offset by
lower volume-related revenue and no new securitization activity.
Noninterest expense totaled $621 million, up 21% from the year-ago
quarter, reflecting the Paymentech consolidation, the addition of the Wachovia
portfolio and higher marketing expense, partially offset by lower processing
costs.
The managed provision for credit losses was $943 million, a 1% decrease
from the year-ago quarter, reflecting lower losses, partially offset by the
Wachovia portfolio. The managed charge-off rate was 5.69%, compared to 5.81% in
the year-ago quarter and 5.59% in the fourth quarter. The managed 30-day
delinquency rate was 4.27%, down from 4.33% in the year-ago quarter and 4.46%
in the fourth quarter.
In 2001, the Corporation acquired the Wachovia credit card business,
including an agent bank portfolio, which was subsequently sold back to Wachovia
and the final settlement was completed in the second quarter 2002.
10
INVESTMENT MANAGEMENT
The Investment Management Group (IMG) provides investment, insurance,
trust and private banking services to individuals. IMG also provides investment
and investment related services, including retirement and custody services,
securities lending and corporate trust to institutions.
Change
------------------------
Three Months Ended March 31 2002 2001 Amount Percent
------------------------------------------------------------------------------------------------
(Dollars in millions)
Net interest income-FTE $ 115 $ 104 $ 11 11%
Banking fees and commissions 132 110 22 20
Service charges on deposits 5 4 1 25
Fiduciary and investment management fees 190 188 2 1
Other income 2 5 (3) (60)
------------------------------------------------------------------------------------
Noninterest income 329 307 22 7
------------------------------------------------------------------------------------
Total revenue 444 411 33 8
Provision for credit losses 5 3 2 67
Salaries and employee benefits 142 145 (3) (2)
Other expense 115 132 (17) (13)
------------------------------------------------------------------------------------
Noninterest expense 257 277 (20) (7)
------------------------------------------------------------------------------------
Pretax operating income-FTE 182 131 51 39
Tax expense and FTE adjustment 68 49 19 39
------------------------------------------------------------------------------------
Operating income $ 114 $ 82 $ 32 39
------------------------------------------------------------------------------------------------
Memo: Insurance revenues $ 123 $ 101 $ 22 22
FINANCIAL PERFORMANCE:
Return on equity/(6)/ 42% 33% 9%
Efficiency ratio/(6)/ 58 67 (9)
Headcount-full-time 5,993 6,522 (529) (8)
ENDING BALANCES (in billions):
Loans $ 7.2 $ 6.8 $ 0.4 6
Assets 8.6 8.0 0.6 8
Demand deposits 3.0 1.7 1.3 76
Savings 3.9 2.7 1.2 44
Time 3.5 3.4 0.1 3
Foreign offices 0.2 0.1 0.1 N/M
------------------------------------------------------------------------------------
Total deposits 10.6 7.9 2.7 34
Equity 1.1 1.0 0.1 10
AVERAGE BALANCES (in billions):
Loans $ 7.0 $ 6.8 $ 0.2 3
Assets 8.4 8.0 0.4 5
Demand deposits 2.1 2.0 0.1 5
Savings 3.7 2.7 1.0 37
Time 3.2 3.4 (0.2) (6)
Foreign offices 0.2 0.1 0.1 N/M
------------------------------------------------------------------------------------
Total deposits 9.2 8.2 1.0 12
Equity 1.1 1.0 0.1 10
------------------------------------------------------------------------------------------------
11
INVESTMENT MANAGEMENT - CONTINUED
Change
------------------------
Three Months Ended March 31 2002 2001 Amount Percent
----------------------------------------------------------------------------------------------------------------
CREDIT QUALITY (in millions):
Net charge-offs:
Commercial $ 2 $ - $ 2 N/M
Consumer 3 - 3 N/M
----------------------------------------------------------------------------------------------------
Total net charge-offs 5 - 5 N/M
Net charge-off ratios:
Commercial 0.27% 0.10% 0.17%
Consumer 0.29 (0.04) 0.33
----------------------------------------------------------------------------------------------------
Total net charge-off ratio 0.29 - 0.29
Nonperforming assets:
Commercial $ 30 $ 38 $ (8) (21)%
Consumer 7 4 3 75
----------------------------------------------------------------------------------------------------
Total nonperforming loans 37 42 (5) (12)
Other, including OREO - - - -
----------------------------------------------------------------------------------------------------
Total nonperforming assets 37 42 (5) (12)
Allowance for credit losses $ 25 $ 25 $ - -
Allowance to period-end loans 0.35% 0.37% (0.02)%
Allowance to nonperforming loans 68 60 8
Nonperforming assets to related assets 0.51 0.62 (0.11)
ASSETS UNDER MANAGEMENT ENDING BALANCES (in billions):
Mutual funds $ 89.9 $ 71.0 $ 18.9 27
Other 58.4 60.5 (2.1) (3)
----------------------------------------------------------------------------------------------------
Total 148.3 131.5 16.8 13
By type:
Money market $ 62.7 $ 48.0 $ 14.7 31
Equity 47.9 47.4 0.5 1
Fixed income 37.7 36.1 1.6 4
----------------------------------------------------------------------------------------------------
Total 148.3 131.5 16.8 13
By channel:
Private client services $ 48.0 $ 55.4 $ (7.4) (13)
Retail brokerage 9.8 9.2 0.6 7
Institutional 64.4 51.2 13.2 26
Commercial cash sweep 10.1 8.4 1.7 20
All other 16.0 7.3 8.7 N/M
----------------------------------------------------------------------------------------------------
Total 148.3 131.5 16.8 13
Morningstar Rankings:
Percentage of customer assets in 4 and 5 ranked funds 55% 62% (7)%
Percentage of customer assets in 3+ ranked funds 89 95 (6)
TRUST ASSETS ENDING BALANCES:
Trust assets under administration (in billions) $ 347.6 $ 319.6 $ 28.0 9
CORPORATE TRUST SECURITIES ENDING BALANCES:
Corporate trust securities under administration (in billions) $ 1,044.1 $ 848.0 $ 196.1 23
----------------------------------------------------------------------------------------------------------------
12
INVESTMENT MANAGEMENT - CONTINUED
Change
------------------------
Three Months Ended March 31 2002 2001 Amount Percent
----------------------------------------------------------------------------------------------------------------
RETAIL BROKERAGE:
Mutual fund sales (in million) $ 580 $ 614 $ (34) (6)%
Annuity sales 797 524 273 52
----------------------------------------------------------------------------------------------------
Total sales 1,377 1,138 239 21
Number of accounts-end of period (in thousands) 390 390 - -
Market value customer assets-end of period (in billion) $ 24.2 $ 22.1 $ 2.1 10
Number of registered sales representatives 737 697 40 6
Number of licensed retail bankers 3,112 2,848 264 9
Annuity account value (in billions) $ 9.6 $ 7.0 $ 2.6 37
PRIVATE CLIENT SERVICES:
Number of Private Client advisors 660 714 (54) (8)
Number of Private Client offices 105 104 1 1
Client Assets:
Assets under management (in billions) $ 48.0 $ 55.4 $ (7.4) (13)
Ending Balances (in billions):
Loans $ 6.9 $ 6.8 $ 0.1 1
Deposits 8.2 7.0 1.2 17
Average Balances (in billions):
Loans $ 6.9 $ 6.8 $ 0.1 1
Deposits 8.1 7.0 1.1 16
----------------------------------------------------------------------------------------------------------------
For additional footnote detail see page 5.
Investment Management reported first quarter operating income of $114
million, up 39% from the year-ago quarter, driven by higher revenue and
continued cost control. Compared to the fourth quarter, operating income
increased 6%, reflecting higher revenue and lower provision.
Assets under management at quarter-end improved to $148.3 billion, up 13%
from a year ago. One Group(R) mutual fund assets increased to $89.9 billion in
the first quarter, up 27% year-over-year. The increase was attributed to
significant growth in money market assets.
One Group funds performance remained strong during the first quarter. The
percent of client assets in funds rated 4 and 5 by Morningstar at March 31,
2002, was 55%, down from 57% in the fourth quarter, and 89% of assets were in
funds rated three stars or higher, up from 88% in the fourth quarter.
Revenue increased 8% year-over-year, contributing to improved operating
leverage. Net interest income totaled $115 million, up 11% from the year-ago
period, reflecting a 12% increase in average deposits and wider deposit
spreads. Noninterest income was $329 million, up $22 million from the year-ago
quarter, primarily driven by a 21% increase in the sale of mutual funds and
annuities.
Noninterest expense was $257 million, down 7% from a year ago, driven
principally by lower support-related headcount.
13
CORPORATE
Corporate includes Treasury, fixed income and principal investment
portfolios, unallocated corporate expenses, and any gains or losses from
corporate transactions.
Change
------------------------
Three Months Ended March 31 2002 2001 Amount Percent
------------------------------------------------------------------------------------------------
(Dollars in millions)
Net interest income (expense)-FTE/(16)/ $ (41) $ (201) $ 160 80%
Banking fees and commissions (5) (7) 2 29
Credit card revenue (1) 1 (2) N/M
Service charges on deposits 3 1 2 N/M
Investment securities losses (18) (97) 79 81
Trading (9) (10) 1 10
Other income 60 143 (83) (58)
------------------------------------------------------------------------------------
Noninterest income/(17)/ 30 31 (1) (3)
------------------------------------------------------------------------------------
Total revenue (loss) (11) (170) 159 94
Provision for credit losses 15 - 15 N/M
Salaries and employee benefits 175 109 66 61
Other expense (90) (109) 19 17
------------------------------------------------------------------------------------
Noninterest expense/(18)/ 85 - 85 N/M
------------------------------------------------------------------------------------
Pretax operating loss-FTE (111) (170) 59 35
Tax expense (benefit) and FTE adjustment (59) (82) 23 28
------------------------------------------------------------------------------------
Operating income (loss) $ (52) $ (88) $ 36 41
------------------------------------------------------------------------------------------------
FINANCIAL PERFORMANCE:
Headcount-full-time/(13)/ 12,103 13,362 (1,259) (9)
ENDING BALANCES (in billions):
Loans $ 0.9 $ 0.8 $ 0.1 13
Assets 51.8 54.6 (2.8) (5)
Deposits 16.0 31.5 (15.5) (49)
Equity (0.2) (1.5) 1.3 87
AVERAGE BALANCES (in billions):
Loans $ 0.4 $ 0.7 $ (0.3) (43)
Assets 47.9 44.6 3.3 7
Deposits 15.8 28.1 (12.3) (44)
Equity (0.2) (1.5) 1.3 87
------------------------------------------------------------------------------------------------
For additional footnote detail see page 5.
/(16)/ Net interest income primarily includes Treasury results and interest
spread on investment related activities.
/(17)/ Noninterest income primarily includes the gains and losses from
investment activities and other corporate transactions.
/(18)/ Noninterest expense primarily includes corporate expense not allocated
to the lines of business.
Corporate reported a net loss of $52 million in the first quarter,
compared with a net loss of $88 million in the 2001 first quarter and a $106
million operating loss in the fourth quarter.
Net interest expense decreased to $41 million in the first quarter,
compared to $201 million in the year-ago quarter, driven by lower interest
rates that positively impacted the Corporation's funding costs.
Noninterest income was relatively flat from the year-ago quarter.
Investment securities losses, which include the corporate fixed income and
equity, venture capital and private equity portfolios, were $18 million, an
improvement of $79 million from the 2001 first quarter. This was mainly due to
lower venture fund investment write-downs and higher gains in other corporate
investments. The year-over-year variance in other income was driven by the
inclusion of $73 million in gains in the 2001 first quarter from the sale of
the Corporation's portion of the controlling equity position in EquiServe
Limited Partnership and from the sale of the Corporation's investment in Star
Systems, an ATM network.
Unallocated corporate expenses were $85 million compared to zero in the
year-ago quarter.
14
Provision was $15 million, reflecting charge-offs against other loan
assets.
CONSOLIDATED RESULTS
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.
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:
Change
-------------------------
Three Months Ended March 31 2002 2001 Amount Percent
-------------------------------------------------------------------------------------------------------
(Dollars in millions)
Managed:
Net interest income-FTE basis $ 3,539 $ 3,308 $ 231 7%
Average earning assets 268,405 281,921 (13,516) (5)
Net interest margin 5.35% 4.76% 0.59%
Reported:
Net interest income-FTE basis $ 2,235 $ 2,218 $ 17 1%
Average earning assets 231,815 242,338 (10,523) (4)
Net interest margin 3.91% 3.71% 0.20%
-------------------------------------------------------------------------------------------------------
The year-over-year improvement in net interest income and the margin was
due to lower interest rates and improved balance sheet profitability. This
reflected a reduction in lower margin commercial credits, more disciplined
pricing in the consumer loan sector and an increase in the percentage of
funding provided by core Retail deposits and net free funds.
NONINTEREST INCOME
The components of managed noninterest income for the periods indicated
are:
Change
-------------------------
Three Months Ended March 31 2002 2001 Amount Percent
-------------------------------------------------------------------------------------------------------
(Dollars in millions)
Banking fees and commissions $ 445 $ 411 $ 34 8%
Credit card revenue 448 307 141 46
Service charges on deposits 393 331 62 19
Fiduciary and investment management fees 189 187 2 1
Investment securities losses (18) (96) 78 81
Trading 16 65 (49) (75)
Other income 21 188 (167) (89)
-------------------------------------------------------------------------------------------------------
Managed noninterest income $ 1,494 $ 1,393 $ 101 7%
-------------------------------------------------------------------------------------------------------
In order to provide more meaningful trend analysis, credit card revenue
and total noninterest income in the above table are shown on a managed basis.
Credit card 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.
Banking fees and commissions increased from the year-ago quarter by $34
million, or 8%, due primarily to increased sales of annuities and mutual funds,
as well as from the growth in the asset backed finance and investment grade bond
underwriting businesses.
15
Managed credit card revenue in the first quarter of 2002 increased $141
million, or 46%, over the prior year period primarily due to the addition of the
Wachovia portfolio and the consolidation of Paymentech.
Service charges on deposits increased $62 million for the first quarter
of 2002 compared to the year-ago period. This 19% increase primarily reflected
improvement in GTS volumes and pricing and a shift in the payment of services
to fees from net interest income due to the lower value of customers'
compensating deposit balances.
Investment securities losses were $18 million for the first quarter of
2002, compared to a loss of $96 million in the first quarter of 2001, and were
primarily due to lower venture fund investment write-downs and higher gains in
other corporate investments.
Trading produced gains of $16 million compared to $65 million in the
first quarter of 2001. The 75% decrease in trading revenue reflected a decline
in the fair value of credit derivatives used to manage credit risk as well as
lower foreign exchange and fixed income revenue.
Other income for the first quarter decreased $167 million, or 89%,
compared to the previous year. This decrease was primarily the result of gains
in the first quarter of 2001 due to the sale of ownership interests in
EquiServe Limited Partnership and Star Systems, and no new securitizations,
offset by the first quarter 2002 effects of the consolidation of Paymentech.
NONINTEREST EXPENSE
The components of noninterest expense for the periods indicated are:
Change
-------------------------
Three Months Ended March 31 2002 2001 Amount Percent
-------------------------------------------------------------------------------------------------------
(Dollars in millions)
Salaries and employee benefits:
Salaries $ 920 $ 875 $ 45 5%
Employee benefits 176 145 31 21
-------------------------------------------------------------------------------------------------------
Total salaries and employee benefits 1,096 1,020 76 7
Occupancy 158 167 (9) (5)
Equipment 103 121 (18) (15)
Outside service fees and processing 300 256 44 17
Marketing and development 258 212 46 22
Telecommunication 101 109 (8) (7)
Other intangible amortization 33 20 13 65
Goodwill amortization - 17 (17) N/M
Other 296 314 (18) (6)
-------------------------------------------------------------------------------------------------------
Total noninterest expense 2,345 2,236 109 5
-------------------------------------------------------------------------------------------------------
Employees/(1)/ 73,864 79,157 (5,293) (7)
Efficiency ratio-managed basis 46.6% 47.6% (1.0)%
-------------------------------------------------------------------------------------------------------
/(1)/ First quarter 2002 includes the addition of 1,627 employees due to the
consolidation of Paymentech and Anexsys.
Components of noninterest expense that are primarily related to a single
business segment are discussed within that business segment rather than the
consolidated section.
Salaries and employee benefits in the first quarter of 2002 increased 7%
from the year-ago period due to increased incentive compensation and the
consolidation of Paymentech and Anexsys, partially offset by savings from
reduced headcount.
Outside service fees and processing expense increased $44 million, or
17%, in the first quarter of 2002 compared to the year-ago period, primarily
due to data processing credits in the first quarter 2001.
Marketing and development expense increased $46 million, or 22%, in the
first quarter of 2002 compared to the prior year quarter primarily due to
increased marketing expense for Credit Card and Retail.
16
Other intangible amortization increased $13 million in the first quarter
of 2002 compared to the prior year quarter primarily due to the amortization of
purchased credit card relationships associated with addition of the Wachovia
business. Additionally, the Corporation no longer amortizes goodwill in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 142") and thus did not incur any goodwill amortization expense in the
first quarter of 2002.
Other operating expense in the first quarter of 2002 decreased $18
million from the year-ago period primarily due to the continuation of the
Corporation's waste-reduction initiatives to lower expenses, which was
partially offset by system conversion costs. The Corporation is working to
complete the Michigan/Florida conversion by around the end of the second
quarter of 2002 and to complete the Illinois conversion by around year-end 2002.
APPLICABLE INCOME TAXES
The Corporation's income before income taxes and applicable income tax
expense and effective tax rate for each of the periods indicated are:
Three Months Ended March 31 2002 2001
------------------------------------------------------------------------------------------------
(Dollars in millions)
Income before income taxes $ 1,142 $ 971
Applicable income taxes 355 292
Effective tax rate 31.1% 30.1%
------------------------------------------------------------------------------------------------
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.
RISK MANAGEMENT
The Corporation's business activities generate liquidity, market, credit
and operational risks:
.. Liquidity risk is the risk that the Corporation is unable to meet all
current and future financial obligations in a timely manner.
.. Market risk is the risk that changes in future market rates or prices
will make the Corporation's positions less valuable
.. Credit risk is the risk of loss from borrowers' and counterparties'
failure to perform according to the terms of a transaction.
.. Operational risk, among other things, includes the risk of loss due to
errors in product and service delivery, failure of internal controls over
information systems and accounting records, and internal and external
fraud.
The following discussion of the Corporation's risk management processes
focuses primarily on developments since December 31, 2001. The Corporation's
risk management processes for liquidity, market, credit and operational risks
have not substantially changed from year-end and are described in detail in the
Corporation's 2001 Annual Report, beginning on page 47.
At March 31, 2002, 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
-------------------------------------------------------------------------------
17
MARKET RISK MANAGEMENT
OVERVIEW
Market risk refers to potential losses arising from changes in interest
rates, foreign exchange rates, equity prices and commodity prices. The
portfolio effect of diverse trading activities helps reduce market risk.
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 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 in its trading activities through a value-at-risk measurement and control
system, a stress testing process and dollar trading limits. The objective of
this process is to quantify and manage market risk in order to limit single and
aggregate exposures.
For trading portfolios, value-at-risk measures 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 daily
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 a statistical model applicable to cash and derivative
positions, including options.
The value-at-risk in the Corporation's trading portfolio for the three
months ended March 31, 2002 was as follows:
(In millions) At March 31, First Quarter 2002 At December 31,
---------------------------------
2002 Average High Low 2001
-------------------------------------------------------------------------------------------------------
Risk Type
Interest Rate $ 12 $ 12 $ 13 $ 10 $ 11
Currency Exchange Rate 1 - 2 - -
Equity 1 1 2 1 1
Diversification benefit (1) - N/A N/A -
-------------------------------------------------------------------------------------------------------
Aggregate portfolio market risk $ 13 $ 13 $ 15 $ 12 $ 12
-------------------------------------------------------------------------------------------------------
Interest rate risk was the predominant type of market risk incurred
during the first quarter of 2002. At March 31, 2002, approximately 86% of
primary market risk exposures were related to interest rate risk. Exchange
rate, equity and commodity risks accounted for 14% of primary market risk
exposures.
STRUCTURAL INTEREST RATE RISK MANAGEMENT
Interest rate risk exposure in the Corporation's core non-trading
business 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 using sophisticated risk
management tools, including earnings simulation modeling and economic value of
equity sensitivity analysis, to capture 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 current interest rates. The comparative
scenarios assume an immediate parallel shock in increments of [plusmn] 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 multiple years. 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.
18
The Corporation's 12-month pre-tax earnings sensitivity profile as of
March 31, 2002 and December 31, 2001 is as follows:
Immediate Change in
Rates
------------------------------------------------------------------------------------
(In millions) -100 bp +100 bp
------------------------------------------------------------------------------------
March 31, 2002 $ 1 $ (152)
------------------------------------------------------------------------------------
December 31, 2001 $ 174 $ (341)
------------------------------------------------------------------------------------
Management regularly reviews alternative strategies to manage the
Corporation's exposure to interest rate movements under a wide range of market
based outcomes, balancing the risks and returns against the cost of incremental
strategies. During the quarter, the Corporation reduced its sensitivity to
rising interest rates by more than 50%. Although increasing rates would still
negatively impact the Corporation's net interest margin, management believes the
position is prudent given current interest rate levels. For additional
discussion on the Corporation's derivative activities see the section
"Derivative Financial Instruments" beginning on page 26.
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.
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) 2002 2001 2001 2001 2001
------------------------------------------------------------------------------------------------------------------
Loans outstanding $ 152,126 $ 156,733 $ 164,251 $ 166,576 $ 171,427
Average loans 154,942 160,150 165,416 169,140 173,677
Nonperforming loans 3,737 3,551 3,112 2,854 2,559
Other, including other real estate owned 197 137 116 97 106
------------------------------------------------------------------------------------------------------------------
Nonperforming assets 3,934 3,688 3,228 2,951 2,665
Allowance for credit losses 4,520 4,528 4,479 4,229 4,205
Net charge-offs 663 717 566 516 489
Nonperforming assets to related assets 2.58% 2.35% 1.96% 1.77% 1.55%
Allowance for credit losses/loans outstanding 2.97 2.89 2.73 2.54 2.45
Allowance for credit losses/nonperforming loans 121 128 144 148 164
Net charge-offs/average loans 1.71 1.79 1.37 1.22 1.13
Allowance for credit losses/net charge-offs 170 158 198 205 215
------------------------------------------------------------------------------------------------------------------
19
LOAN COMPOSITION
The Corporation's loan portfolios for the periods indicated are as
follows:
March 31, 2002 December 31, 2001 September 30, 2001 June 30, 2001 March 31, 2001
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Amount %/(1)/ Amount %/(1)/ Amount %/(1)/ Amount %/(1)/ Amount %/(1)/
-----------------------------------------------------------------------------------------------------------------------------------
Retail:
Small business commercial $ 9,992 5% $ 9,947 5% $ 9,966 4% $ 9,799 4% $ 9,321 4%
Home equity 29,891 14 30,268 14 30,712 14 30,312 14 30,789 13
Vehicles:
Loans 13,644 7 13,481 6 13,497 6 14,057 6 14,219 6
Leases 5,431 3 6,155 3 6,855 3 7,389 3 8,018 4
Other personal 8,604 4 9,779 4 9,941 5 10,906 5 11,055 5
-----------------------------------------------------------------------------------------------------------------------------------
Total Retail 67,562 33 69,630 32 70,971 32 72,463 32 73,402 32
Commercial Banking:
Corporate Banking:
Commercial and industrial 20,226 10 22,268 10 25,287 11 28,249 13 32,859 14
Commercial real estate 8,731 4 8,975 4 9,391 4 9,417 4 9,644 4
Lease financing 4,774 2 4,669 2 4,536 2 4,704 2 4,843 2
Other 975 - 731 - 1,279 - 974 - 440 -
----------------------------------------------------------------------------------------------------------------------------------
Total Corporate
Banking 34,706 16 36,643 16 40,493 17 43,344 19 47,786 20
Middle Market:
Commercial and industrial 29,515 14 31,076 14 32,325 15 32,799 15 32,925 15
Commercial real estate 3,516 2 3,472 2 3,233 1 2,905 1 2,946 1
Lease financing 1,156 1 1,053 1 1,049 1 930 - 917 -
Other 141 - 294 - 300 - 224 - 359 -
-----------------------------------------------------------------------------------------------------------------------------------
Total Middle Market 34,328 17 35,895 17 36,907 17 36,858 16 37,147 16
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial
Banking 69,034 33 72,538 33 77,400 34 80,202 35 84,933 36
IMG and Corporate 8,134 4 7,779 4 7,480 3 7,710 4 7,575 3
Credit Card:
On balance sheet 7,396 4 6,786 3 8,400 4 6,201 3 5,517 2
Securitized 57,393 26 61,369 28 58,353 27 56,814 26 58,515 27
-----------------------------------------------------------------------------------------------------------------------------------
Managed credit card/(2)/ 64,789 30 68,155 31 66,753 31 63,015 29 64,032 29
-----------------------------------------------------------------------------------------------------------------------------------
Total managed $ 209,519 100% $ 218,102 100% $ 222,604 100% $ 223,390 100% $ 229,942 100%
-----------------------------------------------------------------------------------------------------------------------------------
Total reported $ 152,126 $ 156,733 $ 164,251 $ 166,576 $ 171,427
-----------------------------------------------------------------------------------------------------------------------------------
/(1)/ Percentages are determined as a percentage of total managed loans.
/(2)/ See page 28 for the detailed components of managed credit card loans.
Loans held for sale, which are carried at lower of cost or fair value,
totaled $4.5 billion and $4.2 billion at March 31, 2002 and December 31, 2001,
respectively. At March 31, 2002, loans held for sale included Commercial Banking
loans of $165 million, of which approximately $66 million are included in
nonperforming loans, and Credit Card and other Consumer loans of $4.3 billion.
Commercial and Industrial Loans
Commercial and industrial loans represent commercial loans other than
commercial real estate. At March 31, 2002, commercial and industrial loans
totaled $49.7 billion, which represents 72% of the Commercial Banking portfolio.
20
The more significant borrower industry concentrations of the Commercial
Banking commercial and industrial portfolio for the periods indicated are as
follows:
March 31, 2002 December 31, 2001
-------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Outstanding %/(1)/ Outstanding %/(1)/
-------------------------------------------------------------------------------------------------------------------
Wholesale trade $ 4,066 8.2% $ 4,409 8.7%
Oil and gas 3,474 7.0 3,219 6.3
Industrial materials 3,140 6.3 3,355 6.6
Consumer staples 2,851 5.7 3,008 5.9
Metals and products 2,609 5.2 2,749 5.4
-------------------------------------------------------------------------------------------------------------------
/(1)/ Total outsanding by industry concentration as a percentage of total
commercial and industrial loans.
Commercial Real Estate
Commercial real estate loans represent credit extended for real estate
related purposes to borrowers or counterparties who are primarily in the real
estate development or investment business and for which the ultimate repayment
of the loan is dependent on the sale, lease, rental or refinancing of the
property. At March 31, 2002, commercial real estate loans totaled $12.2
billion, which represents 18% of the Commercial Banking portfolio.
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.
The commercial real estate loan portfolio by both collateral location and
property type for the periods indicated are as follows:
(Dollars in millions) March 31, 2002 December 31, 2001
-------------------------------------------------------------------------------------------------------------------
By Collateral Location: Amount % of Portfolio Amount % of Portfolio
-------------------------------------------------------------------------------------------------------------------
Illinois $ 1,668 14% $ 1,682 14%
Michigan 1,361 11 1,348 11
Texas 1,048 8 1,004 8
California 985 8 960 8
Arizona 937 8 958 8
Ohio 835 7 839 7
Indiana 496 4 504 4
Louisiana 439 4 487 4
Kentucky 352 3 326 3
Colorado 322 3 356 3
Other areas 1,877 15 1,806 13
Unsecured 1,397 11 1,670 13
Secured by other than real estate 530 4 507 4
-------------------------------------------------------------------------------------------------------------------
Total $ 12,247 100% $ 12,447 100%
-------------------------------------------------------------------------------------------------------------------
By Property Type:
Retail $ 1,862 15% $ 1,913 15%
Apartment 1,825 15 1,770 14
Office 1,730 14 1,804 15
REIT/diversified 1,312 11 1,297 10
Single family residential development 1,299 11 1,273 10
Industrial/warehouse 1,230 10 1,230 10
Hotels 486 4 625 5
Residential lots 420 3 472 4
Miscellancous commercial income producing 1,918 16 1,864 15
Miscellaneous residential developments 165 1 199 2
-------------------------------------------------------------------------------------------------------------------
Total $ 12,247 100% $ 12,447 100%
-------------------------------------------------------------------------------------------------------------------
21
ASSET QUALITY
NONPERFORMING ASSETS
The Corporation places loans on nonaccrual status as follows:
. Retail consumer loans are placed on nonaccrual status when the
collection of contractual principal or interest becomes 90 days
past due.
. Commercial Banking and Retail small business commercial loans are
placed on nonaccrual status when the collection of contractual
principal or interest is decmed doubtful, or it becomes 90 days or
more past due and is not both well-secured and in the process of
collection.
. Credit card receivables are charged-off rather than placed on
nonaccrual status.
The Corporation's nonperforming assets for the periods indicated are as
follows:
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2002 2001 2001 2001 2001
-----------------------------------------------------------------------------------------------------------------------
Nonperforming Loans:
Retail $ 1,402 $ 1,344 $ 1,155 $ 1,049 $ 959
Commercial Banking:
Corporate Banking 1,170 1,154 1,051 1,050 952
Middle Market Banking 1,087 973 853 703 592
-----------------------------------------------------------------------------------------------------------------------
Total Commercial Banking/(1)/ 2,257 2,127 1,904 1,753 1,544
IMG and Corporate 78 80 53 52 56
-----------------------------------------------------------------------------------------------------------------------
Total 3,737 3,551 3,112 2,854 2,559
Other, primarily other real estate owned 197 137 116 97 106
-----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 3,934 $ 3,688 $ 3,228 $ 2,951 $ 2,665
-----------------------------------------------------------------------------------------------------------------------
Nonperforming assets/related assets: 2.58% 2.35% 1.96% 1.77% 1.55%
Loans 90-days or more past due and
accruing interest:
Credit Card $ 100 $ 96 $ 114 $ 59 $ 63
Other 2 1 9 9 7
-----------------------------------------------------------------------------------------------------------------------
Total $ 102 $ 97 $ 123 $ 68 $ 70
-----------------------------------------------------------------------------------------------------------------------
/(1)/ Commercial Banking nonperforming loans at March 31, 2002 include $66
million of Loans Held for Sale.
The Corporation has experienced credit quality deterioration in a number
of distinct Commercial Banking market segments, and although this deterioration
has slowed in the first quarter of 2002 it is not expected to improve credit
costs in the near term. 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, telecommunications and
selected utilities. The Corporation will continue to monitor and manage these
potential risks.
Nonperforming loans within Retail at March 31, 2002 were $1.402 billion,
an increase of $58 million from fourth quarter 2001. This increase was
primarily driven by brokered home equity loans. Home equity loans are written
down to net realizable value once a loan reaches 120 days delinquency. However,
due to the nature of the timeline necessary to complete foreclosure and gain
title, real estate loans remain in nonperforming status for an extended period.
22
CHARGE-OFFS
The Corporation records charge-offs as follows:
. Commercial loans are charged-off in the reporting period in which
either an event occurs that confirms the existence of a loss or it
is determined that a loan or a portion of a loan is uncollectible.
. A credit card loan is charged-off in the month it becomes
contractually 180 days past due and remains unpaid at the end of
that month, or 60 days after receipt of bankruptcy notification.
. Retail loans are generally charged-off following a delinquency
period of 120 days, or within 60 days after receipt of notification
in case of bankruptcy. Closed-end consumer loans, such as auto
loans and leases and home mortgage loans, are typically written
down to the extent of loss after considering the net realizable
value of the collateral.
The timing and amount of the charge-off on consumer loans will depend on
the type of loan, giving consideration to available collateral, as well as the
circumstances giving rise to the delinquency. The Corporation adheres to
uniform guidelines published by the FFIEC in charging off consumer loans.
The Corporation's net charge-offs by line of business for the periods
indicated are as follows:
March 31, 2002 December 31, 2001 September 30, 2001
----------------------------------------------------------------------------------------------------------------------------------
Net Net Net
charge- Average Net charge- charge- Average Net charge- charge- Average Net charge-
(Dollars in millions) offs balance off rate offs balance off rate offs balance off rate
----------------------------------------------------------------------------------------------------------------------------------
Retail/(1)/ $ 265 $ 69,228 1.53% $ 268 $ 70,049 1.53% $ 209 $ 71,682 1.17%
Commercial Banking:
Corporate Banking 163 36,040 1.81 164 38,065 1.72 131 41,410 1.27
Middle Market Banking 118 35,075 1.34 158 36,185 1.75 99 36,657 1.08
----------------------------------------------------------------------------------------------------------------------------------
Total Commercial
Banking 281 71,115 1.58 322 74,250 1.73 230 78,067 1.18
Credit Card 943 66,324 5.69 930 66,505 5.59 981 66,641 5.89
IMG and Corporate 20 7,382 - 14 7,493 - 9 7,732 -
----------------------------------------------------------------------------------------------------------------------------------
Total-Managed 1,509 214,049 2.82% 1,534 218,297 2.81% 1,429 224,122 2.55%
----------------------------------------------------------------------------------------------------------------------------------
Securitized (846) (59,107) (817) (58,147) (863) (58,706)
----------------------------------------------------------------------------------------------------------------------------------
Total-Reported $ 663 $ 154,942 1.71% $ 717 $ 160,150 1.79% $ 566 $ 165,416 1.37%
----------------------------------------------------------------------------------------------------------------------------------
June 30, 2001 March 30, 2001
----------------------------------------------------------------------------------------------------------------------------------
Net Net
charge Average Net charge- charge- Average Net charge-
-offs balance off rate offs balance off rate
----------------------------------------------------------------------------------------------------------------------------------
Retail/(1)/ $ 177 $ 72,679 0.97% $ 166 $ 74,046 0,90%
Commercial Banking:
Corporate Banking 155 45,736 1.36 186 49,886 1.49
Middle Market Banking 84 36,995 0.91 63 37,149 0.68
----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banking 239 82,731 1.16 249 87,035 1.14
Credit Card 962 63,179 6.09 950 65,443 5.81
IMG and Corporate 13 7,763 - - 7,358 -
----------------------------------------------------------------------------------------------------------------------------------
Total-Managed 1,391 226,352 2.46% 1,365 233,882 2.33%
----------------------------------------------------------------------------------------------------------------------------------
Securitized (875) (57,212) (876) (60,205)
----------------------------------------------------------------------------------------------------------------------------------
Total-Reported $ 516 $ 169,140 1.22% $ 489 $ 173,677 1.13%
----------------------------------------------------------------------------------------------------------------------------------
/(1)/ Quarter results exclude $1 million. $14 million, $14 million, $24
million and $40 million, respectively, of charge-offs which are not so
classified in the Corporation's 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 the portfolio. In the Corporation's financial statements,
these items result in a higher provision in excess of net charge-offs.
Managed net charge-offs decreased 2% during the first quarter of 2002
to $1.509 billion from the fourth quarter 2001, primarily reflecting lower
charge-offs in the Commercial Banking portfolios, however, the managed net
charge-off rate remained essentially unchanged.
23
LOAN SALES
A summary of the Corporation's Commercial Banking loan sales for the
periods indicated are as follows:
March 31 December 31 September 30 June 30 March 31
(In millions) 2002 2001 2001 2001 2001
-----------------------------------------------------------------------------------------------------------------------
Loans Sold and Loans Transferred
to Loans Held For Sale:/(1)/
Nonperforming loans $ 99 $ 18 $ 42 $ 147 $ 375
Other credit related loans 160 93 86 84 224
Other loans 343 179 438 351 180
-----------------------------------------------------------------------------------------------------------------------
Total $ 602 $ 290 $ 566 $ 582 $ 779
-----------------------------------------------------------------------------------------------------------------------
Losses on Sale:
Charge-offs:/(2)/
Nonperforming loans $ 48 $ 8 $ 11 $ 47 $ 58
Other credit related loans 19 18 22 21 31
-----------------------------------------------------------------------------------------------------------------------
Total charge-offs $ 67 $ 26 $ 33 $ 68 $ 89
Losses on other loans sold 4 12 18 12 1
-----------------------------------------------------------------------------------------------------------------------
Total $ 71 $ 38 $ 51 $ 80 $ 90
-----------------------------------------------------------------------------------------------------------------------
/(1)/ Includs loans transferred to Loans Held For Sale of approximately $66
million, $36 million and $20 million in nonperforming, other credit
related loans and other loans, respectively.
/(2)/ Charge-offs on loans held for sale of approximately $17 million and $6
million are included in nonperforming and other credit related loans,
respectively.
The Corporation sells Commercial Banking loans in the normal course of
its business activities. These loans are subject to the Corporation's overall
risk management practices and are one alternative the Corporation uses to
manage credit risk. When a loan is sold, the gain or loss is evaluated to
determine whether it resulted from credit deterioration or other conditions.
Based upon this evaluation, the losses on other loans sold were deemed to be
caused by other than credit deterioration. The sale of nonperforming and other
credit related loans were primarily recorded as charge-offs as the losses on
sale were attributable to credit deterioration.
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 ratios, portfolio stress testing and Management's judgment. The
allowance is based on ranges of probable loss estimates and is intended to be
adequate but not excessive.
24
The change in the Corporation's allowance for credit losses for the
periods indicated are as follows:
March 31 December 31 September 30 June 30 March 31
(in million) 2002 2001 2001 2001 2001
---------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 4,528 $ 4,479 $ 4,229 $ 4,205 $ 4,110
Charge-offs:
Retail:
Small business commercial 18 29 24 21 17
Home equity 138 131 91 101 78
Vehicles:
Loans 82 75 61 46 38
Leases 34 33 31 28 35
Other personal 41 39 39 26 48
---------------------------------------------------------------------------------------------------------------------
Total Retail 313 307 246 222 216
Commercial Banking:
Corporate Banking:
Commercial and industrial 182 158 147 169 211
Commercial real estate 2 8 1 3 3
Lease financing 2 17 - - -
---------------------------------------------------------------------------------------------------------------------
Total Corporate Banking 186 183 148 172 214
Middle Market:
Commercial and industrial 126 165 96 87 67
Commercial real estate 4 4 1 2 1
Lease financing 5 19 11 5 5
---------------------------------------------------------------------------------------------------------------------
Total Middle Market 135 188 108 94 73
---------------------------------------------------------------------------------------------------------------------
Total Commercial Banking 321 371 256 266 287
Credit Card 111 120 123 94 78
IMG and Corporate 22 14 11 14 5
---------------------------------------------------------------------------------------------------------------------
Total charge-offs $ 767 $ 812 $ 636 $ 596 $ 586
---------------------------------------------------------------------------------------------------------------------
Recoveries:
Retail:
Small business commercial $ 4 $ 6 $ 4 $ 4 $ 7
Home equity 8 6 7 8 5
Vehicles:
Loans 17 15 16 18 17
Leases 4 7 6 8 7
Other personal 15 5 4 7 14
---------------------------------------------------------------------------------------------------------------------
Total Retail 48 39 37 45 50
Commercial Banking:
Corporate Banking:
Commercial and industrial 21 17 14 15 27
Commercial real estate 2 2 3 2 1
Lease financing - - - - -
---------------------------------------------------------------------------------------------------------------------
Total Corporate Banking 23 19 17 17 28
Middle Market:
Commercial and industrial 14 24 8 9 9
Commercial real estate 2 - - - -
Lease financing 1 6 1 1 1
---------------------------------------------------------------------------------------------------------------------
Total Middle Market 17 30 9 10 10
---------------------------------------------------------------------------------------------------------------------
Total Commercial Banking 40 49 26 27 38
Credit Card 14 7 5 7 4
IMG and Corporate 2 - 2 1 5
Total recoveries $ 104 $ 95 $ 70 $ 80 $ 97
---------------------------------------------------------------------------------------------------------------------
Net charge-offs:
Retail $ 265 $ 268 $ 209 $ 177 $ 166
Commercial Banking 281 322 230 239 249
Credit Card 97 113 118 87 74
IMG and Corporate 20 14 9 13 -
---------------------------------------------------------------------------------------------------------------------
Total net charge-off $ 663 $ 717 $ 566 $ 516 $ 489
---------------------------------------------------------------------------------------------------------------------
Provision for credit losses 665 765 620 540 585
Transfers (10) 1 196 - (1)
---------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 4,520 $ 4,528 $ 4,479 $ 4,229 $ 4,205
---------------------------------------------------------------------------------------------------------------------
25
Composition of Allowance for Credit Losses
While the allowance for credit losses is available to absorb credit
losses in the entire portfolio, allocations of the allowance for credit losses
by line of business for the periods indicated are as follows:
March 31 December 31 September 30 June 30 March 31
2002 2001 2001 2001 2001
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Amount % Amount % Amount % Amount % Amount %
---------------------------------------------------------------------------------------------------------------------------------
Retail $ 1,028 23% $ 1,027 23% $ 979 22% $ 938 22% $ 914 22%
Commercial Banking:
Corporate Banking 1,706 38 1,714 38 1,714 38 1,706 40 1,707 40
Middle Market 1,365 30 1,365 30 1,364 30 1,361 32 1,361 32
---------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banking 3,071 68 3,079 68 3,078 68 3,067 72 3,068 72
Credit Card 396 9 396 8 397 9 197 5 197 5
IMG and Corporate 25 - 26 1 25 1 27 1 26 1
---------------------------------------------------------------------------------------------------------------------------------
Total $ 4,520 100% $ 4,528 100% $ 4,479 100% $ 4,229 100% $ 4,205 100%
---------------------------------------------------------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses a variety of derivative financial instruments in its
trading activity, asset and liability management, and mortgage operations, as
well as to manage certain currency translation exposures of foreign entities.
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. A detailed discussion of accounting policies for
trading and hedging derivative instruments is presented in the Corporation's
2001 Annual Report beginning on page 61.
INCOME RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses interest rate derivative financial instruments in
asset and liability management activities to reduce structural interest rate
risk, and the volatility of pre-tax income (see Structural Interest Rate Risk
Management section on page 18). Pre-tax income reflects the effective use of
these derivatives. Without their use, pre-tax income for the three months ended
March 31, 2002 and 2001, would have been lower by $5 million and $7 million,
respectively.
For cash flow hedges, the effective portion of the change in fair value
of the hedging derivative is recorded in Accumulated Other Adjustments to
Stockholders Equity ("AOASE"), which is reclassified into earnings in a manner
consistent with the earnings pattern of the underlying hedged instrument or
transaction. At March 31, 2002, the total amount of such reclassification into
earnings is projected to be a decrease in income of $193 million after-tax ($294
million pre-tax) over the next twelve months. These projections involve the use
of currently forecasted interest rates over the next twelve months. These rates,
and the resulting reclassifications into earnings, are subject to change.
The maximum length of time exposure to the variability of future cash
flows for forecasted transactions hedged is 36 months. There were no events in
2002 with an effect on earnings from the discontinuance of cash flow hedges due
to the determination that a forecasted transaction is no longer likely to occur.
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 counterparty 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.
26
The impact of these master netting agreements for the periods indicated
are as follows:
(In millions) March 31, 2002 December 31, 2001
--------------------------------------------------------------------------------------------------------
Gross replacement cost $ 10,736 $ 12,262
Less: Adjustment due to master netting agreements 8,072 9,037
--------------------------------------------------------------------------------------------------------
Balance sheet credit exposure $ 2,664 $ 3,225
--------------------------------------------------------------------------------------------------------
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), interest rate sensitivity is adjusted to
maintain the desired interest rate risk profile.
At March 31, 2002, the notional value of ALM interest rate swaps linked
to specific assets, liabilities or forecasted transactions was as follows:
Receive Fixed Pay Fixed
Pay Floating Receive Floating
----------------------------------------------------------------------------------------------------------------
Fair Value Fair Value Cash Flow Total Swaps
(In millions) Hedge Hedge Hedge
Interest rate swaps associated with:
Interest-bearing assets $ - $ 50 $ 3,000 $ 3,050
Interest-bearing liabilities 5,739 - 15,992 21,731
----------------------------------------------------------------------------------------------------------------
Total $ 5,739 $ 50 $ 18,992 $ 24,781
----------------------------------------------------------------------------------------------------------------
Interest rate swaps used to adjust the interest rate sensitivity of
certain interest-bearing assets and liabilities will not need to be replaced at
maturity, since the corresponding asset or liability will mature along with the
interest rate swap. The notional amount of such swaps totaled $17.8 billion at
March 31, 2002.
No non-derivative instruments are designated as a hedge.
LOAN SECURITIZATIONS AND OFF-BALANCE SHEET ACTIVITIES
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 special purpose entity.
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 enhancements 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 $141
million and $533 million at March 31, 2002 and 2001, respectively, 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 64-65 and 81-82 of the Corporation's 2001
Annual Report.
The Corporation's managed credit card loans are comprised of the
following:
(In millions) March 31, 2002 March 31, 2001
-----------------------------------------------------------------------------------------------------------------
Owned credit card loans-held in portfolio $ 4,777 $ 3,072
Owned credit card loans-held for future securitization 2,619 2,445
Seller's interest in credit card loans (investment securities) 22,343 17,762
-----------------------------------------------------------------------------------------------------------------
Total credit card loans and seller's interest reflected on balance sheet 29,739 23,279
Securities sold to investors and removed from balance sheet 35,050 40,753
-----------------------------------------------------------------------------------------------------------------
Managed credit card loans $ 64,789 $ 64,032
-----------------------------------------------------------------------------------------------------------------
27
At March 31, 2002, the estimated fair values of seller's interest and
interest-only strip from credit card securitizations were $22.2 billion and $184
million, respectively.
For analytical purposes only, income statement line items adjusted for
the net impact of securitization of credit card receivables for the periods
indicated are as follows:
Three Months Ended March 31, 2002 Three Months Ended March 31, 2001
-----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Reported Credit Card Managed Reported Credit Card Managed
Securitizations Securitizations
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income-FTE basis $ 2,235 $ 1,304 $ 3,539 $ 2,218 $ 1,090 $ 3,308
Provision for credit losses 665 846 1,511 585 876 1,461
Noninterest income 1,952 (458) 1,494 1,607 (214) 1,393
Noninterest expense 2,345 - 2,345 2,236 - 2,236
Net income 787 - 787 679 - 679
Total average loans $ 154,942 $ 59,107 $ 214,049 $ 173,677 $ 60,205 $ 233,882
Total average earning assets 231,815 36,590 268,405 242,338 39,583 281,921
Total average assets 263,354 36,590 299,944 269,514 39,583 309,097
Net interest margin 3.91% 14.45% 5.35% 3.71% 11.17% 4.76%
Credit Card delinquency ratios:
30+ days 2.99% 4.43% 4.27% 2.56% 4.50% 4.33%
90+ days 1.36 2.04 1.96 1.13 2.11 2.02
Net credit card charge-off ratio 5.38 5.73 5.69 5.65 5.82 5.81
-----------------------------------------------------------------------------------------------------------------------------------
OTHER OFF-BALANCE SHEET ACTIVITIES
In the normal course of business, the Corporation is a party to a number
of activities that contain credit, market and operational risk that are not
reflected in whole or in part in the Corporation's consolidated financial
statements. Such activities include: traditional off-balance sheet
credit-related financial instruments; commitments under capital and operating
leases and long-term debt; credit enhancement associated with asset-backed
securities business; and joint venture activities.
The Corporation provides customers with off-balance sheet credit support
through loan commitments, standby letters of credit and guarantees, as well as
commercial letters of credit. Summarized credit-related financial instruments at
March 31, 2002 are as follows:
Amount of Commitment Expiration Per Period
--------------------------------------------------------------------------------------------------------------------------
Less Than 1 1-3 3-5 Over 5
(In billions) Total Year Years Years Years
--------------------------------------------------------------------------------------------------------------------------
Unused credit card lines $ 309.4 $ 309.4 $ - $ - $ -
Unused loan commitments 136.0 100.2 21.9 13.3 0.6
Standby letters of credit and foreign office guarantees 19.4 10.9 5.8 2.2 0.5
Commercial letters of credit 0.6 0.6 - - -
--------------------------------------------------------------------------------------------------------------------------
Since many of the unused commitments are expected to expire unused or be
only partially used, the total amount of unused commitments in the preceding
table does not necessarily represent future cash requirements.
28
In addition to owned banking facilities, the Corporation has entered into
a number of long-term leasing arrangements to support the ongoing activities of
the Corporation. The required payments under such commitments and long-term debt
at March 31, 2002 are as follows:
2007
(In millions) 2002 2003 2004 2005 2006 and After Total
-----------------------------------------------------------------------------------------------------------------------------
Operating leases $ 183 $ 240 $ 208 $ 169 $ 152 $ 888 $ 1,840
Trust preferred capital securities - - - - - 3,315 3,315
Long-term debt, including capital leases 6,447 7,684 6,006 5,135 6,927 8,687 40,886
-----------------------------------------------------------------------------------------------------------------------------
Total $ 6,630 $ 7,924 $ 6,214 $ 5,304 $ 7,079 $ 12,890 $ 46,041
-----------------------------------------------------------------------------------------------------------------------------
The Corporation assists its customers in obtaining sources of liquidity,
by structuring financing transactions to sell customer's trade receivables or
other financial assets to specialized financing entities that issue commercial
paper. The Corporation provides liquidity facilities and subordinated loans to
the specialized financing entity, which totaled $37.9 billion and $1.1 billion,
respectively, at March 31, 2002.
In addition to customer financing transactions, these specialized
financing entities fund, through the issuance of asset-backed commercial paper,
other selected portfolios of marketable investments that are not reflected on
the Corporation's balance sheet. Off-balance sheet liquidity lines provided by
the Corporation associated with these transactions were $2.9 billion at March
31, 2002.
The Corporation also provides liquidity lines to commercial paper issuing
specialized financing entities not sponsored by Bank One, which approximated
$1.8 billion at March 31, 2002.
The Corporation is a participant in several operating joint venture
initiatives where the Corporation has a majority equity interest in the entity;
however, based on the terms of the joint venture arrangement, the ventures are
jointly controlled and managed. The Corporation consolidated two joint ventures
beginning the first quarter of 2002 as Management has exerted additional
influence over these joint ventures. These consolidations did not have a net
impact to the Corporation's consolidated net income. The Corporation's
investment in the remaining joint ventures totaled $263 million at March 31,
2002.
CAPITAL MANAGEMENT
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 67 of the Corporation's 2001 Annual
Report.
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 maintains a
well-capitalized regulatory position. 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.
29
The Corporation's capital ratios follow:
Well-Capitalized
March 31 December 31 September 30 June 30 March 31 Regulatory
2002 2001 2001 2001 2001 Guidelines
-----------------------------------------------------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 9.0% 8.6% 8.4% 8.2% 7.8% 6.0%
Total 12.7 12.2 11.7 11.6 11.2 10.0
Common equity/managed assets 7.0 6.6 6.5 6.2 6.0 -
Tangible common equity/tangible managed assets 6.2 5.9 5.8 5.8 5.6 -
Double leverage ratio 103 103 102 105 106 -
Dividend payout ratio 31 38 35 37 36 -
-----------------------------------------------------------------------------------------------------------------------------------
The components of the Corporation's regulatory risk-based capital and
risk-weighted assets are as follows:
March 31 December 31 September 30 June 30 March 31
(In millions) 2002 2001 2001 2001 2001
-----------------------------------------------------------------------------------------------------------------------------------
Regulatory risk-based capital:
Tier 1 capital $ 22,513 $ 21,749 $ 21,330 $ 21,243 $ 20,727
Tier 2 capital 9,115 9,091 8,547 8,930 9,148
-----------------------------------------------------------------------------------------------------------------------------------
Total capital 31,628 30,840 29,877 30,173 29,875
-----------------------------------------------------------------------------------------------------------------------------------
Total risk weighted assets $ 249,128 $ 253,330 $ 254,943 $ 259,372 $ 266,077
-----------------------------------------------------------------------------------------------------------------------------------
In deriving Tier 1 and total capital, goodwill and other nonqualifying
intangible assets are deducted for the periods indicated:
March 31 December 31 September 30 June 30 March 31
(In millions) 2002 2001 2001 2001 2001
-----------------------------------------------------------------------------------------------------------------------------------
Goodwill $ 1,840 $ 1,560 $ 1,577 $ 824 $ 841
Other nonqualifying intangibles 251 207 289 273 299
-----------------------------------------------------------------------------------------------------------------------------------
Subtotal 2,091 1,767 1,866 1,097 1,140
Qualifying intangibles 422 414 442 205 205
-----------------------------------------------------------------------------------------------------------------------------------
Total intangibles $ 2,513 $ 2,181 $ 2,308 $ 1,302 $ 1,345
-----------------------------------------------------------------------------------------------------------------------------------
Goodwill and other intangibles increased in the first quarter 2002
primarily due to the consolidation of Paymentech.
In November 2001, the U.S. banking regulators revised the risk based
capital rules for the treatment of recourse arrangements, direct credit
substitutes, asset and mortgage backed securities, and residual interest in
securization structures. Certain provisions of these rules became effective in
the first quarter 2002, and the March 31, 2002 ratio includes the impact of
these changes. The Corporation will implement the remaining provisions of these
rules beginning December 31, 2002, when they become effective, and does not
anticipate that the remaining new rules will have a material impact on the
Corporation's risk based capital ratios.
In the second quarter of 2002, the Corporation will implement the U.S.
banking regulators risk based capital rules related to the treatment of certain
equity investments made in nonfinancial companies, which were issued in January
2002. Additionally, in April 2002, the U.S. banking regulators revised the risk
based capital rules to reduce the risk-weight applied to certain claims on, or
guarantees by, qualifying securities firms from 100% to 20%. This rule is
effective in the third quarter of 2002 with early adoption permissible. The
Corporation plans to adopt these rules in the second quarter of 2002. It is
anticipated the implementation of these rules will not have a material impact on
the Corporation's risk based capital ratios.
DIVIDEND POLICY
The Corporation's common stock dividend policy reflects its earnings
outlooks, desired payout ratios, the need to maintain an adequate capital level
and alternative investment opportunities. The common stock dividend payout
ratio is targeted in the range of 25%-30% of earnings over time. On January 15,
2002, the Corporation declared its quarterly common cash dividend of 21 cents
per share, payable on April 1, 2002.
30
DOUBLE LEVERAGE
Double leverage is the extent to which the Corporation's resources are
used to finance investments in subsidiaries. Double leverage was 103% at March
31, 2002 and December 31, 2001. Trust Preferred Capital Securities of $3.315
billion at March 31,2002 and December 31, 2001 were included in capital for
purposes of this calculation.
STOCK REPURCHASE PROGRAM
On September 17, 2001, the Corporation's Board of Directors approved the
repurchase of up to $500 million of the Corporation's common stock. This buyback
is part of the remaining 28.4 million share buyback program authorized in May
1999. The timing of the purchases and the exact number of shares to be
repurchased will depend on market conditions. The share repurchase program does
not include specific price targets or timetables and may be suspended at any
time. The Corporation did not repurchase any shares under this program in the
first quarter of 2002.
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, Bank One 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 Bank One's
approval that are not statements of historical fact and may constitute
forward-looking statements. Forward-looking statements may relate to, without
limitation, Bank One's financial condition, results of operations, plans,
objectives, future performance or business.
Words such as "believes", "anticipates", "expects", "intends",
"plans", "estimates", "targeted" and similar expressions are intended to
identify forward-looking statements but are not the only means to identify these
statements.
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 Bank One'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 Bank One's business.
.. The timely development and acceptance of new products and services may be
different than anticipated.
.. Technological changes instituted by Bank One and by persons who may
affect Bank One'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.
.. Competitive pressures among financial services companies may increase
significantly.
.. Changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) may adversely affect
Bank One 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 Bank
One or its business.
.. Bank One 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. Bank
One undertakes no obligation to update any forward-looking statement to reflect
subsequent circumstances or events.
31
CONSOLIDATED BALANCE SHEETS
BANK ONE CORPORATION AND SUBSIDIARIES
March 31 December 31 March 31
(Dollars in millions) 2002 2001 2001
--------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 12,683 $ 17,383 $ 15,402
Interest-bearing due from banks 1,532 1,030 1,971
Federal funds sold and securities under resale agreements 9,211 9,347 11,133
Trading assets 6,974 6,167 5,189
Derivative product assets 2,664 3,225 3,908
Investment securities 58,657 60,883 52,966
Loans 152,126 156,733 171,427
Allowance for credit losses (4,520) (4,528) (4,205)
--------------------------------------------------------------------------------------------------------
Loans, net 147,606 152,205 167,222
Other assets 23,620 18,714 16,561
--------------------------------------------------------------------------------------------------------
Total assets $ 262,947 $ 268,954 $ 274,352
--------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Demand $ 29,098 $ 32,179 $ 29,102
Savings 80,149 80,599 63,469
Time:
Under $ 100,000 19,766 20,106 24,833
$100,000 and over 16,462 18,071 21,685
Foreign offices 13,328 16,575 24,466
--------------------------------------------------------------------------------------------------------
Total deposits 158,803 167,530 163,555
Federal funds purchased and securities sold under
repurchase agreements 15,154 13,728 14,789
Other short-term borrowings 5,503 10,255 16,970
Long-term debt 40,879 40,103 39,407
Guaranteed preferred beneficial interest in the
Corporation's junior subordinated debt 3,315 3,315 2,790
Derivative product liabilities 2,071 2,574 3,470
Other liabilities 16,309 11,223 14,305
--------------------------------------------------------------------------------------------------------
Total liabilities 242,034 248,728 255,286
Stockholders' Equity
Preferred stock - - 190
Common stock ($0.01 par value; authorized 4,000,000,000 at
3/31/02 and 12/31/01 and 2,500,000,000 at 3/31/01;
issued 1,181,382,304) 12 12 12
Surplus 10,239 10,311 10,394
Retained earnings 11,250 10,707 9,491
Accumulated other adjustments to stockholders' equity (46) (65) (105)
Deferred compensation (217) (121) (174)
Treasury stock, at cost (7,624,025, 14,415,873, and
16,051,793 shares, respectively) (325) (618) (742)
--------------------------------------------------------------------------------------------------------
Total stockholders' equity 20,913 20,226 19,066
--------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 262,947 $ 268,954 $ 274,352
--------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement
32
CONSOLIDATED INCOME STATEMENTS
BANK ONE CORPORATION AND SUBSIDIARIES
Three Months Ended March 31 2002 2001
-----------------------------------------------------------------------------------------------------
(In millions, except per share data)
Net Interest Income:
Interest income $ 3,540 $ 4,921
Interest expense 1,340 2,736
-----------------------------------------------------------------------------------------------------
Total net interest income 2,200 2,185
Noninterest Income:
Banking fees and commissions 445 411
Credit card revenue 906 521
Service charges on deposits 393 331
Fiduciary and investment management fees 189 187
Investment securities losses (18) (96)
Trading 16 65
Other income 21 188
-----------------------------------------------------------------------------------------------------
Total noninterest income 1,952 1,607
-----------------------------------------------------------------------------------------------------
Total revenue, net of interest expense 4,152 3,792
Provision for credit losses 665 585
Noninterest Expense:
Salaries and employee benefits 1,096 1,020
Occupancy 158 167
Equipment 103 121
Outside service fees and processing 300 256
Marketing and development 258 212
Telecommunication 101 109
Other intangible amortization 33 20
Goodwill amortization - 17
Other expense 296 314
-----------------------------------------------------------------------------------------------------
Total noninterest expense 2,345 2,236
-----------------------------------------------------------------------------------------------------
Income before income taxes 1,142 971
Applicable income taxes 355 292
-----------------------------------------------------------------------------------------------------
Net income $ 787 $ 679
-----------------------------------------------------------------------------------------------------
Net income attributable to common stockholders' equity $ 787 $ 676
-----------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.67 $ 0.58
Dilluted $ 0.67 $ 0.58
-----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
33
CONSOLIDATED STATEMENTS 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, 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
hedge derivative securities,
net of taxes (149) (149)
Translation loss,
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 common 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
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Balance-December 31, 2001 $ - $ 12 $ 10,311 $ 10,707 $ (65) $ (121) $ (618) $ 20,226
------------------------------------------------------------------------------------------------------------------------------------
Net income 787 787
Change in fair value, investment
securities-available for sale,
net of taxes (118) (118)
Change in fair value of cash-flow
hedge derivative securities,
net of taxes 137 137
------------------------- ------------
Net income and changes in
accumulated other adjustments
to stockholders' equity 787 19 806
Cash dividends declared on
Common stock (244) (244)
Issuance of common stock (88) 293 205
Awards granted, net of
forfeitures and amortization (96) (96)
Other 16 16
------------------------------------------------------------------------------------------------------------------------------------
Balance-March 31, 2002 $ - $ 12 $ 10,239 $ 11,250 $ (46) $ (217) $ (325) $ 20,913
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
34
Consolidated Statements of Cash Flows
Bank One Corporation and Subsidiaries
Three Months Ended March 31 2002 2001
-------------------------------------------------------------------------------
(In millions)
Cash Flows from Operating Activities:
Net Income $ 787 $ 679
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 129 135
Provision for credit losses 665 585
Investment securities losses, net 18 96
Net increase in net derivative product assets (14) (140)
Net increase in trading assets (805) (2,401)
Net increase in other assets (4,111) (353)
Net increase in other liabilities 4,349 4,020
Other operating adjustments 114 (99)
-------------------------------------------------------------------------------
Net cash provided by operating activities 1,132 2,522
Cash Flows from Investing Activities:
Net (increase) decrease in federal funds sold and
securities under resale agreements 135 (6,396)
Securities available for sale:
Purchases (10,486) (16,967)
Maturities 1,486 7,585
Sales 10,253 2,308
Credit card receivables securitized - 3,131
Net decrease in loans 5,536 3,770
Loan recoveries 104 97
Additions to premises and equipment (93) -
Proceeds from sales of premises and equipment 16 -
All other investing activities, net (993) 7
-------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 5,958 (6,465)
Cash Flows from Financing Activities:
Net decrease in deposits (8,723) (3,524)
Net increase in federal funds purchased and securities
under repurchase agreements 1,426 2,668
Net decrease in other short-term borrowings (4,745) (1,033)
Proceeds from issuance of long-term debt 3,227 3,818
Repayment of long-term debt (2,354) (3,254)
Cash dividends paid (245) (247)
Proceeds from issuance of trust preferred capital
securities - 300
Proceeds from issuance of common and treasury stock 97 80
All other financing activities, net 14 4
-------------------------------------------------------------------------------
Net cash used in financing activities (11,303) (1,188)
Effect of exchange rate changes on cash and
cash equivalents 15 3
-------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (4,198) (5,128)
Cash and Cash Equivalents at Beginning of Period 18,413 22,501
-------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 14,215 $ 17,373
-------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
35
Notes to Consolidated Financial Statements
Bank One Corporation and Subsidiaries
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated financial statements of Bank One have been prepared in
conformity with generally accepted accounting principles, and certain
prior-quarter financial statement information has been reclassified to conform
to the current quarter presentation. The preparation of the consolidated
financial statements require Management to make estimates and assumptions that
affect the amounts reported and disclosures of contingent assets and
liabilities. Actual results could differ from those estimates.
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 securities 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 2001 Annual Report.
NOTE 2-NEW AND PENDING ACCOUNTING PRONOUNCEMENTS
Business Combinations and Goodwill and Other Intangible Assets
Effective January 1, 2002, the Corporation adopted SFAS No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142") resulting in no goodwill
impairment. In accordance with the new standard, goodwill and intangible assets
with indefinite lives are no longer amortized, but are subject to impairment
tests at least annually. Intangible assets with finite lives continue to be
amortized over the period the Corporation expects to benefit from such assets
and are periodically reviewed for other than temporary impairment.
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 plan, and common shares that would result from the conversion of
convertible preferred stock.
Three Months Ended March 31 2002 2001
-------------------------------------------------------------------------------
(In millions except per share data)
Net income $ 787 $ 679
Preferred stock dividends - (3)
-------------------------------------------------------------------------------
Net income available to common stockholders for basic and
diluted EPS $ 787 $ 676
-------------------------------------------------------------------------------
Average shares outstanding 1,170 1,163
Stock options 9 10
-------------------------------------------------------------------------------
Average shares outstanding assuming full dilution 1,179 1,173
-------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.67 $ 0.58
Diluted $ 0.67 $ 0.58
-------------------------------------------------------------------------------
36
NOTE 4-RESTRUCTURING-RELATED CHARGES
a) Fourth Quarter 2001 Restructuring-Related Charges
The Corporation recorded restructuring-related charges in the fourth
quarter of 2001 for additional real estate and severance costs to accomplish
more rapid expense reductions, accelerated systems conversions and other
consolidations. Summarized below are the details of these
restructuring-related charges:
Personnel- Contractual
Related Costs Obligations
and Asset
(in millions) Writedowns Total
--------------------------------------------------------------------------------
December 31, 2001 Reserve Balance $ 76 $ 278 $ 354
--------------------------------------------------------------------------------
Amounts utilized (2) (134) (136)
--------------------------------------------------------------------------------
March 31, 2002 Reserve Balance $ 74 $ 144 $ 218
--------------------------------------------------------------------------------
Personnel-related costs consisted primarily of severance costs related to
identified staff reductions in the lines of business totaling approximately
6,900 positions. Contractual obligations included the estimated costs
associated with the lease and other contract termination costs incorporated in
the business restructuring plans. Asset writedowns included leasehold
write-offs related to leased properties following the decision to abandon such
facilities, as well as in the case of fixed assets and capitalized software for
which similar decisions were made. Actions under this overall restructuring
plan are expected to be completed by December 31, 2002. Certain contractual
payments associated with these actions, as required, will extend beyond this
time frame.
b) Second Quarter 2000 Restructuring-Related Charges
Actions under this restructuring plan have been completed, with only
payments of identified obligations remaining, which consist primarily of lease
obligations. Unpaid amounts totaled $53 million as of March 31, 2002 and will
be paid as required over the remaining contractual period.
NOTE 5-BUSINESS SEGMENTS
The information presented on page 3 is consistent with the content of
business segment data provided to the Corporation's management, which 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.
For additional disclosures regarding the Corporation's operating segments
see the "Business Segment Results and Other Data" section beginning on page
3. The data presented in tables beginning with the section entitled
"Financial Performance" in the "Retail" through "Corporate" segments on
page 3-15 are included for analytical purposes only.
37
NOTE 6-INTEREST INCOME AND INTEREST EXPENSE
Details of interest income and expense are as follows:
Three Months Ended March 31 2002 2001
--------------------------------------------------------------------------------
(In millions)
Interest Income
Loans, including fees $ 2,569 $ 3,802
Bank balances 15 70
Federal funds sold and securities under resale agreements 43 115
Trading assets 60 83
Investment securities 853 851
--------------------------------------------------------------------------------
Total 3,540 4,921
Interest Expense
Deposits 724 1,520
Federal funds purchased and securities sold under
repurchase agreements 62 231
Other short-term borrowings 40 283
Long-term debt 514 702
--------------------------------------------------------------------------------
Total 1,340 2,736
--------------------------------------------------------------------------------
Net Interest Income 2,200 2,185
Provision for credit losses 665 585
--------------------------------------------------------------------------------
Net Interest Income After Provision for Credit Losses $ 1,535 $ 1,600
--------------------------------------------------------------------------------
Note 7-Fair Value of Financial Instruments
The carrying values and estimated fair values of financial instruments as
of March 31, 2002 have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 2001.
Note 8-Guaranteed Preferred Beneficial Interest in the Corporation's Junior
Subordinated Debt
At March 31, 2002 the Corporation sponsored ten trusts with a total
aggregate issuance of $3.315 billion in trust preferred securities as follows:
Trust Preferred
-----------------------------------------------------------------------------------------------
Initial
Liquidation
(Dollars in millions) Issuance Date Value Distribution Rate
-----------------------------------------------------------------------------------------------
Capital VI September 28, 2001 $ 525 7.20%
Capital V January 30, 2001 300 8.00%
Capital IV August 30, 2000 160 3-mo LIBOR
plus 1.50%
Capital III August 30, 2000 475 8.75%
Capital II August 8, 2000 280 8.50%
Capital I September 20, 1999 575 8.00%
First Chicago NBD Capital I January 31, 1997 250 3-mo LIBOR
plus 0.55%
First USA
Capital Trust I/(2)/ December 20, 1996 200 9.33%
First Chicago
NBD Institutional
Capital A December 3, 1996 500 7.95%
First Chicago
NBD Institutional
Capital B December 5, 1996 250 7.75%
-----------------------------------------------------------------------------------------------
Junior Subordinated Debt Owned by Trust
-----------------------------------------------------
Initial
Principal
Amount Maturity Redeemable Beginning
-------------------------------------------------------
$ 541.2 October 12, 2031 October 15, 2006
309.3 January 30, 2031 January 30, 2006
164.9 September 1, 2030 September 1, 2005
489.7 September 1, 2030 See/(1)/ below
288.7 August 15, 2030 August 15, 2005
593.0 September 12, 2029 September 20, 2004
258.0 February 1, 2027 February 1, 2007
206.2 January 15, 2027 January 15, 2007
515.0 December 1, 2026 December 1, 2006
258.0 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.
38
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 aggregate, constitute a full and unconditional guarantee by the
Corporation of each respective trust's obligations under the trust securities
issued by such trust
Note 9-Supplemental Disclosures for Accumulated Other Adjustments to
Stockholders' Equity
Accumulated other adjustments to stockholders' equity are
as follows:
Three Months Ended March 31 2002 2001
--------------------------------------------------------------------------------
(In millions)
Fair value adjustment on investment securities-available
for sale
Balance, beginning of period $ 78 $ (15)
Change in fair value, net of taxes of $(55) and $28
for the three months ended March 31, 2002 and
2001, respectively (95) 48
Reclassification adjustment, net of taxes of $(13) and
$0, for the three months ended March 31, 2002 and
2001, respectively (23) (1)
--------------------------------------------------------------------------------
Balance, end-of-period (40) 32
Fair value adjustment on derivative instruments-cash
flow type hedges:
Balance, beginning of period (146) -
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 $49 and $(35) for
the three months ended March 31, 2002 and 2001,
respectively 82 (62)
Net reclassification into earnings, net of taxes of $29
and $6 for the three months ended March 31, 2002 and
2001, respectively 55 11
--------------------------------------------------------------------------------
Balance, end-of-period (9) (149)
Accumulated translation adjustment:
Balance, beginning of period 3 10
Translation gain, net of hedge results and taxes - 2
--------------------------------------------------------------------------------
Balance end-of-period 3 12
Total accumulated other adjustments to stockholders'
equity $ (46) $ (105)
--------------------------------------------------------------------------------
Note 10-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.
39
Note 11-Investment Securities
The summary of the Corporation's investment portfolio follows:
Gross Unrealized Gross Unrealized Fair Value
March 31, 2002 Amortized Cost Gains Losses (Book Value)
---------------------------------------------------------------------------------------------------------------------
(In millions)
U.S. Treasury $ 1,561 $ 18 $ 6 $ 1,573
U.S. government agecies 24,609 41 209 24,441
States and political subdivisions 1,205 25 8 1,222
Interests in credit card securitized receivables 22,297 96 - 22,393
Other debt securities 3,421 19 19 3,421
Equity securities/(1)/ 4,068 5 19 4,054
---------------------------------------------------------------------------------------------------------------------
Total available for sale securities $ 57,161 $ 204 $ 261 57,104
---------------------------------------------------------------------------------------------------------------------
Principal and other investments/(2)/ 1,553
-------------
Total investment securities $ 58,657
---------------------------------------------------------------------------------------------------------------------
/(1)/ The fair values of certain securities for which market quotations were
not available were estimated.
/(2)/ The fair values of certain securities reflect liquidity and other
market-related factors, and includes investments accounted for at fair
value consistent with specialized industry practice.
For the three months ended March 31, 2002, gross recognized gains and
losses on the sale of investment securities were $150 million and $167 million,
respectively. For the three months ended March 31, 2001, gross recognized gains
and losses on the sale of investment securities were $126 million and $222
million, respectively.
40
SELECTED STATISTICAL INFORMATION
BANK ONE CORPORATION AND SUBSIDIARIES
Average Balances/Net Interest Margin/Rates
March 31, 2002 December 31, 2001
---------------------------------------------------------------------------------------------------------------
Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------
Assets
Short-term investments $ 12,560 $ 58 1.87% $ 14,442 $ 89 2.44%
Trading assets/(1)/ 6,239 60 3.90 6,487 63 3.85
Investment securities:/(1)/
U.S. government and federal agency 25,883 352 5.52 23,317 332 5.65
States and political subdivisions 1,287 23 7.25 1,327 25 7.47
Other 30,904 501 6.57 29,201 507 6.89
---------------------------------------------------------------------------------------------------------------
Total investment securities 58,074 876 6.12 53,845 864 6.37
Loans/(1)/ 154,942 2,581 6.76 160,150 2,841 7.04
---------------------------------------------------------------------------------------------------------------
Total earning assets/(2)/ 231,815 3,575 6.25 234,924 3,857 6.51
Allowance for credit losses (4,563) (4,516)
Other assets-nonearning 36,102 36,348
---------------------------------------------------------------------------------------------------------------
Total assets $ 263,354 $ 266,756
Liabilities and Stockholders' Equity
Deposits - interest-bearing:
Savings $ 12,731 $ 43 1.37% $ 15,509 $ 30 0.77%
Money market 70,387 168 0.97 60,333 235 1.55
Time 37,387 445 4.83 39,456 521 5.24
Foreign offices/(3)/ 14,064 68 1.96 17,979 114 2.52
---------------------------------------------------------------------------------------------------------------
Total deposits-interest-bearing 134,569 724 2.18 133,277 900 2.68
Federal funds purchased and securities
under repurchase agreements 14,531 62 1.73 15,611 80 2.03
Other short-term borrowings 7,376 40 2.20 9,657 65 2.67
Long-term debt/(4)/ 43,022 514 4.85 44,282 539 4.83
---------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 199,498 1,340 2.72 202,827 1,584 3.10
Demand deposits 29,165 29,983
Other liabilities 13,828 13,443
Preferred stock - 64
Common stockholders' equity 20,863 20,439
---------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 263,354 $ 266.756
Interest income/earning assets $ 3,575 6.25% $ 3,857 6.51%
Interest expense/earning assets 1,340 2.34 1,584 2.67
---------------------------------------------------------------------------------------------------------------
Net interest income/margin $ 2,235 3.91% $ 2,273 3.84%
---------------------------------------------------------------------------------------------------------------
/(1)/ Includes tax-equivalent adjustments based on federal income tax rate of
35%.
/(2)/ Nonperforming loans are included in average balances used to determine
average rate.
/(3)/ Includes international banking facilities' deposit balances in domestic
offices and balances of Edge Act and oversees offices.
/(4)/ Includes trust preferred capital securities.
41
September 30, 2001 June 30, 2001 March 31, 2001
----------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Average Rates Balance Interest Average Rate Balance Interest Average Rate
----------------------------------------------------------------------------------------------------------------
$ 12,704 $ 117 3.65% $ 15,050 $ 172 4.58% $ 12,221 $ 185 6.14%
6,982 78 4.43 7,276 85 4.69 5,703 83 5.90
21,655 312 5.72 20,013 282 5.65 19,327 274 5.75
1,303 25 7.61 1,265 23 7.29 1,269 24 7.67
27,292 473 6.88 26,227 445 6.81 30.141 572 7.70
----------------------------------------------------------------------------------------------------------------
50,250 810 6.40 47,505 750 6.33 50,737 870 6.95
165,416 3,204 7.68 169,140 3,408 8.08 173,677 3,816 8.91
----------------------------------------------------------------------------------------------------------------
235,352 4,209 7.10 238,971 4,415 7.41 242,338 4,954 8.29
(4,499) (4,255) (4,216)
34,993 33,543 31,392
----------------------------------------------------------------------------------------------------------------
$ 265,846 $ 268,259 $ 269,514
$ 14,969 $ 42 1.11% $ 15,888 $ 45 1.14% $ 15,491 $ 51 1.34%
53,189 305 2.28 48,914 330 2.71 47,006 384 3.31
42,891 621 5.74 45,649 688 6.05 47,267 743 6.38
21,817 195 3.55 22,782 249 4.38 24,081 342 5,76
----------------------------------------------------------------------------------------------------------------
132,866 1,163 3.47 133,233 1,312 3.95 133,845 1,520 4.61
17,038 145 3.38 16,890 177 4.20 17,129 231 5.47
11,217 113 4.00 15,024 198 5.29 18,252 283 6.29
42,862 595 5.51 42,191 643 6.11 41,781 702 6.81
----------------------------------------------------------------------------------------------------------------
203,983 2,016 3.92 207,338 2,330 4.51 211,007 2,736 5.26
----------------------------------------------------------------------------------------------------------------
28,576 28,575 26,827
13,203 13,039 12,675
190 190 190
19,894 19,117 18,815
----------------------------------------------------------------------------------------------------------------
$ 265,846 $ 268,259 $ 269,514
$ 4,209 7.10% $ 4,415 7.41% $ 4,954 8.29%
2,016 3.40 2,330 3.91 2,736 4.58
----------------------------------------------------------------------------------------------------------------
$ 2,193 3.70% $ 2,085 3.50% $ 2,218 3.71%
----------------------------------------------------------------------------------------------------------------
42
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, 2002
--------
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, 2002.
Class Number of Shares Outstanding
---------------------------- ----------------------------
Common Stock $0.01 par value 1,174,761,865
43
Form 10-Q Cross-Reference Index
PART I-FINANCIAL INFORMATION
----------------------------
ITEM 1. Financial Statements
-----------------------------
Page
----
Consolidated Balance Sheets-
March 31, 2002 and 2001, and December 31, 2001 32
Consolidated Income Statements-
Three months ended March 31, 2002 and 2001 33
Consolidated Statements of Stockholders' Equity-
Three months ended March 31, 2002 and 2001 34
Consolidated Statements of Cash Flows-
Three months ended March 31, 2002 and 2001 35
Notes to Consolidated Financial Statements 36
Selected Statistical Information 41
ITEM 2. Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations 3-31
-----------------------------------
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 18-19
-------------------------------------------------------------------
PART II-OTHER INFORMATION
-------------------------
ITEM 1. Legal Proceedings 45
--------------------------
ITEM 2. Changes in Securities and Use of Proceeds 45
--------------------------------------------------
ITEM 3. Defaults Upon Senior Securities 45
----------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 45
------------------------------------------------------------
ITEM 5. Other Information 45
--------------------------
ITEM 6. Exhibits and Reports on Form 8-K 45
-----------------------------------------
Signatures 46
44
PART II-OTHER INFORMATION
-------------------------
ITEM 1. Legal Proceedings
-------------------------
None
ITEM 2. Changes in Securities and Use of Proceeds
-------------------------------------------------
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 ratios.
(b) The Registrant filed the following Current Reports on Form 8-K
during the quarter ended March 31, 2002.
Date Item Reported
---- -------------
January 16, 2002 Registrant's January 16, 2002 news release announcing its
2001 fourth quarter earnings.
45
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 15, 2002 /s/ James Dimon
------------------------ --------------------------------
James Dimon
Principal Executive Officer
Date May 15, 2002 /s/ Charles W. Scharf
------------------------ --------------------------------
Charles W. Scharf
Principal Financial Officer
Date May 15, 2002 /s/ Melissa J. Moore
------------------------ --------------------------------
Melissa J. Moore
Principal Accounting Officer
46
BANK ONE CORPORATION
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
-------------- ----------------------
12 -Statement re computation of ratios.
47