<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 13, 1998
-----------------------------
BANK ONE CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 333-60313 31-0738296
- -----------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One First National Plaza, Chicago, IL 60670
- -----------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code 312-732-4000
------------
<PAGE>
Item 7. Financial Statements and Exhibits
The Registrant hereby incorporates by reference the information contained
in the Exhibits hereto listed below in response to this Item 7, in connection
with the merger of First Chicago NBD Corporation, a Delaware corporation, with
and into the Registrant, successor to BANC ONE CORPORATION, an Ohio corporation.
Exhibit Number Description of Exhibits
- -------------- -----------------------
12 Statement regarding computation of ratios
27 Financial Data Schedule
99 Supplemental financial information as of September 30, 1998
and 1997, and for the nine months then ended
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BANK ONE CORPORATION
--------------------
(Registrant)
Date: November 13, 1998 By: /s/ William J. Roberts
----------------- ----------------------
Title: Controller
2
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibits
- -------------- -----------------------
12 Statement regarding computation of ratios
27 Financial Data Schedule
99 Supplemental financial information as of September 30, 1998
and 1997, and for the nine months then ended
3
<PAGE>
Exhibit 12
STATEMENT REGARDING COMPUTATION OF RATIOS
The ratios of earnings to fixed charges for BANK ONE CORPORATION have been
computed on the basis of the total enterprise (as defined by the Securities and
Exchange Commission) by dividing earnings before fixed charges and income taxes
by fixed charges. Fixed charges consist principally of interest expense on all
long-term and short-term borrowings, excluding or including interest on
deposits.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
Form 8-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1997
<CASH> 14,109
<INT-BEARING-DEPOSITS> 4,621
<FED-FUNDS-SOLD> 10,066
<TRADING-ASSETS> 5,770
<INVESTMENTS-HELD-FOR-SALE> 31,986
<INVESTMENTS-CARRYING> 672
<INVESTMENTS-MARKET> 681
<LOANS> 154,057
<ALLOWANCE> 2,751
<TOTAL-ASSETS> 238,658
<DEPOSITS> 148,924
<SHORT-TERM> 33,842
<LIABILITIES-OTHER> 13,133
<LONG-TERM> 22,141<F1>
<COMMON> 0
190
12
<OTHER-SE> 20,416
<TOTAL-LIABILITIES-AND-EQUITY> 238,658<F2>
<INTEREST-LOAN> 10,730
<INTEREST-INVEST> 1,466
<INTEREST-OTHER> 858
<INTEREST-TOTAL> 13,054
<INTEREST-DEPOSIT> 3,742
<INTEREST-EXPENSE> 6,188
<INTEREST-INCOME-NET> 6,866
<LOAN-LOSSES> 1,136
<SECURITIES-GAINS> 123<F3>
<EXPENSE-OTHER> 7,689
<INCOME-PRETAX> 4,188
<INCOME-PRE-EXTRAORDINARY> 2,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,882
<EPS-PRIMARY> 2.46<F4>
<EPS-DILUTED> 2.42
<YIELD-ACTUAL> 4.47
<LOANS-NON> 0<F5>
<LOANS-PAST> 0<F5>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,817
<CHARGE-OFFS> 1,568
<RECOVERIES> 367
<ALLOWANCE-CLOSE> 2,751
<ALLOWANCE-DOMESTIC> 0<F5>
<ALLOWANCE-FOREIGN> 0<F5>
<ALLOWANCE-UNALLOCATED> 0<F5>
<FN>
<F1> Guaranteed preferred beneficial interest in the Corporation's junior
subordinated debt of $1,003 million is included in Long-term debt for
September 30, 1998.
<F2> Treasury stock of $1,909 million is included as a reduction of
stockholders' equity for September 30, 1998.
<F3> Investment securities gains do not include the Corporation's equity
securities gains, which totaled $189 million for the nine months ended
September 30, 1998.
<F4> Primary earnings per share represent Basic earnings per share.
<F5> For purposes of this filing, the Corporation has not disclosed this
information. These items will be disclosed on an annual basis in the
Corporation's Form 10-K.
</FN>
</TABLE>
<PAGE>
Exhibit 99
BANK ONE CORPORATION
Supplemental Quarterly Financial Information
Index to Supplemental Quarterly Financial Information
Page
----
Introduction
1
Supplemental Financial Data
2
Supplemental Consolidated Financial Statements
3
Notes to Supplemental Consolidated Financial Statements
7
Supplemental Selected Statistical Information
11
<PAGE>
INTRODUCTION
Effective October 2, 1998, BANC ONE CORPORATION ("BANC ONE") and First
Chicago NBD Corporation ("First Chicago NBD") were combined into a new
corporation named BANK ONE CORPORATION ("BANK ONE" or "the Corporation"). Each
share of BANC ONE common stock was converted into one share of BANK ONE common
stock. Each share of First Chicago NBD common stock was converted into the right
to receive 1.62 shares of BANK ONE common stock.
BANK ONE estimates that net restructuring and merger-related charges of
approximately $1.25 billion ($837 million after-tax) will be incurred in
connection with the merger. Actions incorporated in the business combination and
restructuring plan are principally targeted for implementation over a 12-18
month period following the merger.
Personnel-related items consist primarily of severance and benefits cost
for separated employees and costs associated with change in control provisions
in certain of the Corporation's stock plans. The benefit package to be made
available to affected employees has been approved by management and communicated
on a corporate-wide basis. Facilities and equipment costs include the net cost
associated with the closing and divestiture of identified banking facilities,
and from the consolidation of headquarters and operational facilities. Other
merger-related transaction costs include investment banking fees, registration
and listing fees, and various accounting, legal and other related transaction
costs.
While there can be no assurances as to the achievement of such business and
financial goals, the Corporation currently expects to achieve approximately $1.2
billion in annual pretax synergies as a result of the merger. It is currently
anticipated that essentially all actions necessary to generate such synergies
will be completed in a two-year timeframe. Of this total, BANK ONE expects to
realize approximately $930 million in annual expense savings and approximately
$275 million in enhanced annual revenues. The expense savings will be derived
principally from cost reductions in the credit card, retail banking, commercial
banking, capital markets and indirect lending businesses, in the operations and
technology budgets and in its general and administrative expenses, as well as
through increased purchasing leverage with certain suppliers to the Corporation.
Increased revenues are expected to come principally in cross-selling
opportunities involving the credit card, retail banking and commercial banking
businesses.
On June 12, 1998, BANC ONE completed its acquisition of First Commerce
Corporation ("First Commerce"), resulting in the issuance of approximately 56
million shares of the Corporation's common stock valued at $3.5 billion for all
the outstanding shares of First Commerce common stock, in a tax-free exchange.
First Commerce was a multi-bank holding company with total assets of
approximately $9.3 billion and stockholders' equity of approximately $805
million at June 12, 1998.
In connection with the First Commerce merger, BANC ONE identified
restructuring and merger integration charges of $182 million ($127 million after
tax), of which $127 million was recorded as a restructuring charge, $44 million
represented integration costs, and $11 million was associated with Year 2000
compliance. The restructuring charge of $127 million associated with the First
Commerce merger consisted of employee benefits and severance costs and other
merger-related costs.
Both transactions have been accounted for as poolings of interests and,
accordingly, the amounts for all current and prior periods reported in this
supplemental filing, except as otherwise noted, are reported on a combined basis
including BANC ONE, First Chicago NBD, and First Commerce.
The major credit rating agencies recently released their credit ratings for
the BANK ONE parent company and its principal banks, as shown in the following
table:
<TABLE>
<CAPTION>
Short-Term Senior
Debt Long-Term Debt
-------------------- ------------------
S & P Moody's S & P Moody's
--------- ------- -------- -------
<S> <C> <C> <C> <C>
BANK ONE (Parent)................. A-1 P-1 A+ Aa3
Principal banks ................. A-1+ P-1 AA- Aa2
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Financial Data
BANK ONE CORPORATION and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(In millions, except per common share amounts) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income and Expense:
Net interest income -- tax-equivalent basis.......... $ 2,339 $ 2,393 $ 6,957 $ 7,187
Provision for credit losses.......................... 345 477 1,136 1,540
Noninterest income................................... 2,062 1,862 6,147 4,928
Merger-related and restructuring charges............. - - 127 337
Operating expense.................................... 2,539 2,458 7,562 6,955
Net income........................................... 1,054 850 2,882 2,070
Per Common Share Data:
Net income, basic.................................... $0.90 $0.72 $2.46 $1.73
Net income, diluted.................................. 0.89 0.70 2.42 1.69
Cash dividends declared.............................. 0.38 0.345 1.14 1.035
Performance Ratios:
Net interest margin:
Managed............................................ 5.46% 5.38% 5.39% 5.44%
Reported........................................... 4.49 4.63 4.47 4.76
Return on assets..................................... 1.77 1.45 1.62 1.21
Return on common equity.............................. 20.7 18.3 19.9 14.7
Operating efficiency:
Managed............................................ 50.8 51.8 50.6 51.1
Reported........................................... 57.7 57.8 57.7 57.4
Balance Sheet:
Loans:
Managed............................................ $203,443 $192,975 $203,443 $192,975
Reported........................................... 154,057 157,351 154,057 157,351
Earning assets....................................... 207,172 204,838 207,172 204,838
Total assets......................................... 238,658 235,629 238,658 235,629
Deposits............................................. 148,924 150,796 148,924 150,796
Long-term debt (1)................................... 22,141 21,667 22,141 21,667
Common equity........................................ 20,428 18,398 20,428 18,398
</TABLE>
(1) Includes trust preferred capital securities.
-2-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Consolidated Balance Sheet
BANK ONE CORPORATION and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------
September 30 December 31 September 30
(Dollars in millions) 1998 1997 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks........................................................... $ 14,109 $ 15,380 $ 14,750
Interest-bearing due from banks................................................... 4,621 6,910 7,722
Federal funds sold and securities under resale agreements......................... 10,066 9,168 8,225
Trading assets.................................................................... 5,770 5,246 5,406
Derivative product assets......................................................... 4,600 4,623 3,838
Investment securities (fair value--$32,667, $26,054, and $26,147, respectively)... 32,658 26,039 26,134
Loans (net of unearned income--$3,399, $3,049, and $2,862, respectively)
Commercial..................................................................... 81,895 79,306 76,607
Consumer....................................................................... 56,379 57,608 58,993
Credit card.................................................................... 15,783 22,665 21,751
Allowance for credit losses....................................................... (2,751) (2,817) (2,836)
-------- -------- --------
Loans, net..................................................................... 151,306 156,762 154,515
Other assets:
Bank premises and equipment, net.................................................. 3,431 3,426 3,341
Customers' acceptance liability................................................... 434 741 741
Other............................................................................. 11,663 11,077 10,957
-------- -------- --------
Total assets................................................................ $238,658 $239,372 $235,629
======== ======== ========
Liabilities
Deposits
Demand......................................................................... $ 34,757 $ 35,954 $ 35,176
Savings........................................................................ 58,813 58,946 57,317
Time........................................................................... 36,694 40,144 41,648
Foreign offices................................................................ 18,660 18,682 16,655
-------- -------- --------
Total deposits.............................................................. 148,924 153,726 150,796
Federal funds purchased and securities under repurchase agreements................ 20,619 20,346 18,409
Other short-term borrowings....................................................... 13,223 12,806 15,174
Long-term debt.................................................................... 21,138 20,543 20,664
Guaranteed preferred beneficial interest in the Corporation's junior
subordinated debt............................................................... 1,003 1,003 1,003
Acceptances outstanding........................................................... 434 741 741
Derivative product liabilities.................................................... 4,749 4,629 3,738
Other liabilities................................................................. 7,950 6,528 6,242
-------- -------- --------
Total liabilities........................................................... 218,040 220,322 216,767
Stockholders' Equity
Preferred stock................................................................... 190 326 464
Common stock--$0.01 par value..................................................... 12 12 12
Sept. 30, 1998 Dec. 31, 1997 Sept. 30, 1997
-------------- ------------- --------------
Number of shares authorized.... 2,500,000,000 2,500,000,000 2,500,000,000
Number of shares issued........ 1,222,989,096 1,218,812,323 1,158,057,182
Number of shares outstanding... 1,175,744,178 1,168,188,895 1,113,834,196
Surplus........................................................................... 12,488 12,584 9,622
Retained earnings................................................................. 9,750 8,063 10,436
Accumulated other adjustments to stockholders' equity............................. 244 209 171
Deferred compensation............................................................. (157) (137) (134)
Treasury stock at cost--47,244,918; 50,623,428; and 44,222,986 shares,
respectively..................................................................... (1,909) (2,007) (1,709)
-------- -------- --------
Total stockholders' equity.................................................. 20,618 19,050 18,862
-------- -------- --------
Total liabilities and stockholders' equity............................ $238,658 $239,372 $235,629
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Supplemental Consolidated Income Statement
BANK ONE CORPORATION and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(In millions, except per-share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees..................................................... $3,532 $3,761 $10,730 $11,001
Bank balances............................................................. 78 120 264 330
Federal funds sold and securities under resale agreements................. 100 87 313 251
Trading assets............................................................ 99 83 281 239
Investment securities--taxable............................................ 510 345 1,353 1,102
Investment securities--tax-exempt......................................... 30 48 113 147
------ ------ ------- -------
Total............................................................. 4,349 4,444 13,054 13,070
Interest Expense
Deposits.................................................................. 1,230 1,276 3,742 3,706
Federal funds purchased and securities under repurchase agreements........ 278 270 830 826
Other short-term borrowings............................................... 181 208 556 590
Long-term debt............................................................ 350 335 1,060 887
------ ------ ------- -------
Total............................................................. 2,039 2,089 6,188 6,009
Net Interest Income....................................................... 2,310 2,355 6,866 7,061
Provision for credit losses............................................... 345 477 1,136 1,540
------ ------ ------- -------
Net Interest Income After Provision for Credit Losses..................... 1,965 1,878 5,730 5,521
Noninterest Income
Trading profits........................................................... 18 42 143 118
Equity securities gains (losses).......................................... (4) 93 189 282
Investment securities gains............................................... 41 44 123 81
------ ------ ------- -------
Market-driven revenue.................................................. 55 179 455 481
Credit card fees.......................................................... 930 751 2,342 1,830
Fiduciary and investment management fees.................................. 207 191 608 556
Service charges and commissions........................................... 639 607 1,965 1,766
------ ------ ------- -------
Fee-based revenue...................................................... 1,776 1,549 4,915 4,152
Other income.............................................................. 231 134 777 295
------ ------ ------- -------
Total............................................................. 2,062 1,862 6,147 4,928
Noninterest Expense
Salaries and employee benefits............................................ 1,080 1,084 3,310 3,128
Net occupancy and equipment expense....................................... 217 192 628 550
Depreciation and amortization............................................. 131 121 381 356
Amortization of intangibles............................................... 36 49 119 156
Outside services and processing........................................... 318 300 939 811
Marketing and development................................................. 264 280 684 667
Communication and transportation.......................................... 192 178 567 515
Other..................................................................... 301 254 934 772
------ ------ ------- -------
Operating expense................................................. 2,539 2,458 7,562 6,955
Merger-related and restructuring charges.................................. - - 127 337
------ ------ ------- -------
Total ............................................................ 2,539 2,458 7,689 7,292
Income Before Income Taxes................................................ 1,488 1,282 4,188 3,157
Applicable income taxes................................................... 434 432 1,306 1,087
------ ------ ------- -------
Net Income................................................................ $1,054 $ 850 $ 2,882 $ 2,070
====== ====== ======= =======
Net Income Attributable to Common Stockholders' Equity.................... $1,051 $ 842 $ 2,871 $ 2,038
====== ====== ======= =======
- -------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Basic.................................................................. $0.90 $0.72 $2.46 $1.73
Diluted................................................................ $0.89 $0.70 $2.42 $1.69
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
Supplemental Consolidated Statement of Stockholders' Equity
BANK ONE CORPORATION and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30
(In millions) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock
Balance, beginning of period............................ $ 326 $ 651
Conversion of preferred stock........................... (136) (187)
------- -------
Balance, end of period.................................. 190 464
------- -------
Common Stock
Balance, beginning of period............................ 12 12
Issuance of stock....................................... -- --
------- -------
Balance, end of period.................................. 12 12
------- -------
Capital Surplus
Balance, beginning of period............................ 12,584 10,030
Issuance of treasury stock.............................. (262) (399)
Conversion of preferred stock........................... 135 (107)
Acquisition of subsidiaries............................. -- 51
Other................................................... 31 47
------- -------
Balance, end of period.................................. 12,488 9,622
------- -------
Retained Earnings
Balance, beginning of period............................ 8,063 9,373
Net income.............................................. 2,882 2,070
Cash dividends declared on common stock................. (780) (561)
Cash dividends declared on preferred stock.............. (2) (10)
Cash dividends declared on common stock by pooled
affiliates............................................ (401) (410)
Cash dividends declared on preferred stock by pooled
affiliates............................................ (9) (23)
Issuance of treasury stock.............................. (3) (3)
------- -------
Balance, end of period.................................. 9,750 10,436
------- -------
Accumulated Other Adjustments to Stockholders' Equity
Fair Value Adjustment on Securities Available for Sale
Balance, beginning of period............................ 203 81
Change in fair value (net of taxes) and other........... 38 84
------- -------
Balance, end of period.................................. 241 165
------- -------
Accumulated Translation Adjustment
Balance, beginning of period............................ 6 7
Translation gain (loss), net of taxes................... (3) (1)
------- -------
Balance, end of period.................................. 3 6
------- -------
Total Accumulated Other Adjustments to Stockholders'
Equity.................................................... 244 171
Deferred Compensation
Balance, beginning of period............................ (137) (94)
Awards granted, net of forfeitures and amortization..... (32) (19)
Other................................................... 12 (21)
------- -------
Balance, end of period.................................. (157) (134)
------- -------
Treasury Stock
Balance, beginning of period............................ (2,007) (553)
Purchase of common stock................................ (375) (2,472)
Conversion of preferred stock........................... -- 293
Acquisitions of subsidiaries............................ 2 487
Issuance of stock....................................... 471 536
------- -------
Balance, end of period.................................. (1,909) (1,709)
------- -------
Total Stockholders' Equity, end of period.................. $20,618 $18,862
======= =======
Total Net Income and Changes in Accumulated Other
Adjustments to Stockholders' Equity...................... $ 2,917 $ 2,153
======= =======
- --------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
Supplemental Consolidated Statement of Cash Flows
BANK ONE CORPORATION and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30
(In millions) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income............................................... $ 2,882 $ 2,070
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 500 512
Provision for credit losses........................... 1,136 1,540
Equity securities gains............................... (189) (282)
Securities gains, available for sale.................. (123) (81)
Net decrease in net derivative product balances....... 143 141
Net (increase) in trading assets...................... (606) (90)
Net (increase) in other assets........................ (526) (1,762)
Net increase (decrease) in other liabilities.......... 1,446 (185)
Gain on sales of banks and branch offices............. (314) (1)
Merger-related and restructuring charges.............. 127 337
Other noncash adjustments............................. (1,227) 604
-------- --------
Net cash provided by operating activities................ 3,249 2,803
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities
Net (increase) in federal funds sold and securities
under resale agreements................................. (898) (3,138)
Securities available for sale:
Purchase.............................................. (21,220) (17,504)
Maturities............................................ 5,024 4,233
Sales................................................. 15,757 15,580
Securities held to maturity:
Purchases............................................. -- (503)
Maturities............................................ 105 645
Credit card receivables securitized...................... 7,001 9,121
Net (increase) in loans.................................. (5,912) (13,449)
Loan recoveries.......................................... 367 377
Additions to bank premises and equipment................. (750) (540)
Net cash and cash equivalents due to mergers,
acquisitions and dispositions........................... (2,316) 242
All other investing activities, net...................... (1,896) (639)
-------- --------
Net cash (used in) investing activities.................. (4,738) (5,575)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in deposits...................... (1,989) 3,316
Net increase (decrease) in federal funds purchased and
securities under repurchase agreements.................. 273 (3,502)
Net increase in other short-term borrowings.............. 342 2,081
Proceeds from issuance of long-term debt................. 15,781 16,445
Repayment of long-term debt.............................. (15,623) (9,868)
Cash dividends paid...................................... (1,059) (1,009)
Proceeds from issuance of common and treasury stock...... 78 --
Purchase of treasury stock............................... (146) (707)
Repurchase of common stock............................... (229) (1,764)
All other financing activities, net...................... 68 56
-------- --------
Net cash provided by (used in )financing activities...... (2,504) 5,048
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents............................................. 433 (73)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents..... (3,560) 2,203
Cash and cash equivalents at beginning of period......... 22,290 20,269
Cash and cash equivalents at end of period............... $ 18,730 $ 22,472
======== ========
- --------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
Notes to Consolidated Financial Statements
Note 1--Basis of Presentation
The consolidated financial statements for the Corporation, including its
subsidiaries, have been prepared in conformity with generally accepted
accounting principles. Such preparation requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
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 security
and trading portfolios are largely market-driven, the results for any interim
period are not necessarily indicative of the results that can be expected for
the entire year.
These financial statements should be read in conjunction with the supplemental
consolidated financial statements for the year ended December 31, 1997. See
Exhibit 99(a) of the Corporation's Form 8-K dated October 6, 1998 (as amended by
Form 8-K/A dated October 16, 1998).
Note 2--Earnings per Share
In December 1997, the Corporation adopted SFAS No. 128 "Earnings Per Share," as
required, and all prior periods presented were restated. Basic EPS is computed
by dividing income available to common stockholders by the average number of
common shares outstanding for the period. The Statement also requires
presentation of EPS assuming full dilution. The diluted EPS calculation includes
net shares that may be issued under the Employee Stock Purchase and Savings
Plan, outstanding stock options, and common shares that would result from the
conversion of convertible preferred stock and convertible debentures. In the
diluted calculation, income available to common stockholders is not reduced by
preferred stock dividend requirements related to convertible preferred stock,
since such dividends would not be paid if the preferred stock were converted to
common stock.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars in millions, except per-share data) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic
Net income.................................................... $1,054 $ 850 $2,882 $2,070
Preferred stock dividends..................................... (3) (8) (11) (32)
------ ------ ------ ------
Net income attributable to common stockholders' equity........ $1,051 $ 842 $2,871 $2,038
====== ====== ====== ======
Diluted
Net income.................................................... $1,054 $ 850 2,882 2,070
Interest on convertible debentures, net of tax................ 2 2 5 5
Preferred stock dividends, excluding convertible Series B,
where applicable............................................. (3) (5) (9) (15)
------ ------ ------ ------
Diluted income available to common stockholders............... $1,053 $ 847 $2,878 $2,060
====== ====== ====== ======
Average shares outstanding...................................... 1,172 1,177 1,169 1,177
Dilutive Shares
Employee Stock Purchase and Savings Plan...................... 2 2 2 1
Stock options................................................. 10 17 12 17
Convertible preferred stock................................... -- 8 2 18
Convertible debentures assumed to be converted................ 4 5 4 5
------ ------ ------ ------
Average shares outstanding assuming full dilution............... 1,188 1,209 1,189 1,218
====== ====== ====== ======
Earnings per share:
Basic......................................................... $ 0.90 $ 0.72 $ 2.46 $ 1.73
====== ====== ====== ======
Diluted....................................................... $ 0.89 $ 0.70 $ 2.42 $ 1.69
====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
Note 3--Acquisitions
- --------------------
On June 12, 1998, the Corporation completed its acquisition of First Commerce
Corporation ("First Commerce") located in New Orleans, Louisiana, resulting in
the issuance of approximately 56 million shares of the Corporation's common
stock valued at $3.5 billion for all the outstanding shares of First Commerce
common stock, in a tax-free exchange. First Commerce was a multi-bank holding
company with total assets of approximately $9.3 billion and stockholders' equity
of approximately $805 million at June 12, 1998. This acquisition was accounted
for as a pooling of interests and, therefore, consolidated financial statements
have been restated for all periods presented to include the results of
operations, financial position and changes in cash flows of First Commerce.
In connection with the First Commerce merger, BANK ONE identified restructuring
and merger integration charges of $182 million ($127 million after tax), of
which $127 million was recorded as a restructuring charge, $44 million
represented integration costs, and $11 million was associated with Year 2000
compliance. The restructuring charge of $127 million associated with the First
Commerce merger consisted of employee benefits and severance costs and other
merger-related costs.
Note 4--New Accounting Pronouncements
- -------------------------------------
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," on
January 1, 1998. The Statement defines comprehensive income as including net
income and certain other items that affect stockholders' equity. The other items
include "fair value adjustment on investment securities available for sale" and
"accumulated translation adjustment," which are reported in stockholders' equity
on the Corporation's Supplemental Consolidated Balance Sheet. The Corporation
has elected to disclose these items in its Consolidated Statement of
Stockholders' Equity. Since the Statement solely relates to display and
disclosure requirements, it has no effect on the Corporation's financial
results.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement requires certain disclosures
about an entity's operating segments in annual and interim financial reports. It
also requires certain related disclosures about products and services,
geographic areas and major customers. The segment and other information
disclosures are required for the year ended December 31, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 supersedes the
disclosure requirements in SFAS No. 87, "Employers' Accounting for Pensions,"
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132
addresses disclosure only. As a result, SFAS No. 132 will have no impact on BANK
ONE's consolidated financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes new accounting
and reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those derivatives at fair value.
The accounting for the gains or losses resulting from changes in the value of
those derivatives will depend on the intended use of the derivative and whether
it qualifies for hedge accounting. This Statement will significantly change the
accounting treatment for derivatives the Corporation uses in its asset and
liability management activities. The Corporation is required to adopt this
Statement on January 1, 2000. The Corporation is in the process of evaluating
the impact of this new Statement.
Note 5--Cash Flow Reporting
- ---------------------------
Loans transferred to other real estate owned were $159 million and $116 million
during the first nine months of 1998 and 1997, respectively.
In connection with the First USA merger, $3.6 billion of mortgage-backed
securities were reclassified from held to maturity to available for sale during
the 1997 second quarter.
-8-
<PAGE>
In addition, noncash investing activities for the nine months ended September
30, 1998, included the following transfers of securitization-related assets:
(1) certificated retained interests in credit card securitizations of $3.2
billion were transferred from loans to securities available for sale and (2) an
interest-only strip of $586 million was transferred from other assets to
securities available for sale.
Note 6--Fair Value of Financial Instruments
- -------------------------------------------
The carrying values and estimated fair values of financial instruments as of
September 30, 1998, have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 1997.
Note 7--Impaired Loans
- ----------------------
A loan is considered impaired when it is probable that all principal and
interest amounts due will not be collected in accordance with its contractual
terms. The following tables summarize impaired loan information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
September 30
------------
(In millions) 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Impaired loans with related allowance.......... $491 $443
Impaired loans with no related allowance (1)... 163 173
---- ----
Total impaired loans......................... $654 $616
==== ====
Allowance on impaired loans.................... $104 $ 94
==== ====
- ------------------------------------------------------------------
</TABLE>
(1) Impaired loans for which the discounted cash flows, collateral value or
market price equals or exceeds the carrying value of the loan does not
require an allowance.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(In millions) September 30 September 30
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average impaired loans................. $624 $599 $618 $531
Interest income recognized on impaired
loans.......... 6 10 19 23
- --------------------------------------------------------------------------------
</TABLE>
Note 8--Derivative Financial Instruments
- ----------------------------------------
Derivative financial instruments used in trading activities are valued at
estimated fair value. Such instruments include swaps, forwards, spot, futures,
options, caps, floors and forward rate agreements and other conditional or
exchange contracts in the interest rate, foreign exchange, equity and commodity
markets. The estimated fair values are based on quoted market prices or pricing
and valuation models on a present value basis using current market information.
Realized and unrealized gains and losses are included in noninterest income as
trading profits. Where appropriate, compensation for credit risk and ongoing
servicing is deferred and recorded as income over the terms of the derivative
financial instruments.
Derivative financial instruments used in asset and liability management
(ALM) activities, principally interest rate swaps, are typically classified as
synthetic alterations or anticipatory hedges and are required to meet specific
criteria. Such interest rate swaps are designated as ALM derivatives, and are
linked to and adjust the interest rate sensitivity of a specific asset,
liability, firm commitment, or anticipated transaction or a specific pool of
transactions with similar risk characteristics. Interest rate swaps that do not
meet these and the following criteria are designated as derivatives used in
trading activities and are accounted for at estimated fair value.
Income or expense on most ALM derivatives used to manage interest rate
exposure is recorded on an accrual basis, as an adjustment to the yield of the
linked exposures over the periods covered by the contracts. This matches the
income recognition treatment of that exposure, generally assets or liabilities
carried at historical cost, which are recorded on an accrual basis. If an
interest rate swap is terminated early or dedesignated as an ALM derivative, any
unrecognized gain or loss at that point in time is deferred and amortized as an
adjustment of the yield on the linked interest rate exposure position over the
remaining periods originally covered by the swap. If all or part of a linked
position is terminated, e.g., a linked asset is sold or prepaid, or if the
amount of an anticipated transaction is likely to be less than originally
expected, the related pro rata portion of any unrecognized gain or loss on the
swap is recognized in earnings at that time, and the related pro rata portion of
the swap is subsequently accounted for at estimated fair value.
-9-
<PAGE>
Purchased option, cap and floor contracts are reported in derivative
product assets, and written option, cap and floor contracts are reported in
derivative product liabilities. For other derivative financial instruments, an
unrealized gain is reported in derivative product assets and an unrealized loss
is reported in derivative product liabilities. However, fair value amounts
recognized for derivative financial instruments executed with the same
counterparty under a legally enforceable master netting arrangement are reported
on a net basis. Cash flows from derivative financial instruments are reported
net as operating activities.
Note 9--Ratio of Earnings to Fixed Charges
- ------------------------------------------
The ratio of earnings to fixed charges for the nine months ended September 30,
1998, excluding interest on deposits, was 2.6x, and including interest on
deposits, was 1.7x. The ratio has been computed on the basis of the total
enterprise (as defined by the Securities and Exchange Commission) by dividing
income before fixed charges and income taxes by fixed charges. Fixed charges
consist of interest expense on all long- and short-term borrowings, excluding or
including interest on deposits.
Note 10--Contingent Liabilities
- -------------------------------
The Corporation and certain of its subsidiaries are defendants in various
lawsuits, including certain class actions, arising out of the normal course of
business, and the Corporation has received certain tax deficiency assessments.
Since the Corporation and certain of its subsidiaries, which are regulated by
one or more federal and state regulatory authorities, also are the subject of
numerous examinations and reviews by such authorities, the Corporation is and
will, from time to time, normally be engaged in various disagreements with
regulators, related primarily to banking matters. In the opinion of management
and the Corporation's general counsel, the ultimate resolution of the matters
referred to in this note will not have a material effect on the consolidated
financial statements.
-10-
<PAGE>
Supplemental Selected Statistical Information
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Investment Securities -- Held-to-Maturity
- --------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized
September 30, 1998 (In millions) (Book Value) Gains Losses Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
States and political
subdivisions.................. $358 $21 $ 6 $373
All other...................... 314 1 7 308
---- --- --- ----
Total..................... $672 $22 $13 $681
==== === === ====
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Investment Securities -- Available-for-Sale
- --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
September 30, 1998 (In millions) Cost Gains Losses (Book Value)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury.................. $ 4,575 $147 $ 36 $ 4,686
U.S. government agencies....... 9,697 198 15 9,880
States and political
subdivisions.................. 1,698 70 - 1,768
Other debt securities.......... 13,525 100 33 13,592
Equity securities (1).......... 2,024 109 73 2,060
------- ---- ---- -------
Total..................... $31,519 $624 $157 $31,986
======= ==== ==== =======
- --------------------------------------------------------------------------------
</TABLE>
(1) Includes investments accounted for at fair value, in keeping with
specialized industry practice. The fair values of certain securities for
which market quotations were not available were estimated. In addition, the
fair values of certain securities reflect liquidity and other market-
related factors.
<TABLE>
<CAPTION>
Analysis of Allowance for Credit Losses
- --------------------------------------------------------------------------------
For the nine months ended September 30 September 30
(In millions) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period........... $2,817 $2,687
Provision for credit losses............ 1,136 1,540
Charge-offs
Commercial........................... 219 150
Consumer............................. 454 465
Credit card.......................... 895 1,182
------ ------
Total charge-offs................. 1,568 1,797
Recoveries
Commercial........................... 77 96
Consumer............................. 145 152
Credit card.......................... 145 129
------ ------
Total recoveries.................. 367 377
Net charge-offs........................ 1,201 1,420
Other.................................. (1) 29
------ ------
Balance, end of period................. $2,751 $2,836
====== ======
</TABLE>
-11-
<PAGE>
Supplemental Selected Statistical Information
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1998 September 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Short-term investments.................................... $ 14,215 $ 577 5.43% $ 14,008 $ 581 5.55%
Trading assets............................................ 6,285 281 5.98 5,545 240 5.79
Investment securities
U.S. government and federal agencies................... 17,338 859 6.62 19,395 969 6.68
States and political subdivisions...................... 2,253 133 7.89 2,705 170 8.40
Other.................................................. 11,202 533 6.36 4,707 204 5.79
-------- ------- ----- -------- ------- -----
Total investment securities.......................... 30,793 1,525 6.62 26,807 1,343 6.70
Loans (1)
Commercial............................................. 81,139 4,749 7.83 76,182 4,548 7.98
Consumer............................................... 57,527 4,076 9.47 56,010 3,966 9.47
Credit card............................................ 18,243 1,937 14.20 23,403 2,518 14.39
-------- ------- ----- -------- ------- -----
Total loans.......................................... 156,909 10,762 9.17 155,595 11,032 9.48
-------- ------- ----- -------- ------- -----
Total earning assets (2)............................. 208,202 13,145 8.44 201,955 13,196 8.74
Allowance for credit losses............................... (2,742) (2,736)
Other assets.............................................. 33,075 29,759
-------- --------
Total assets......................................... $238,535 $228,978
======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................ $ 21,199 $ 365 2.30% $ 22,771 $ 393 2.31%
Money market........................................... 38,458 1,096 3.81 33,896 950 3.75
Time................................................... 38,690 1,570 5.43 42,241 1,746 5.53
Foreign offices (3).................................... 18,029 711 5.27 15,977 617 5.16
-------- ------- ----- -------- ------- -----
Total deposits--interest-bearing..................... 116,376 3,742 4.30 114,885 3,706 4.31
Federal funds purchased and securities under repurchase
agreements.............................................. 21,184 830 5.24 21,077 826 5.24
Other short-term borrowings............................... 13,771 556 5.40 14,353 590 5.50
Long-term debt (4)........................................ 22,049 1,060 6.43 17,999 887 6.59
-------- ------- ----- -------- ------- -----
Total interest-bearing liabilities................... 173,380 6,188 4.77 168,314 6,009 4.77
Demand deposits........................................... 33,770 30,713
Other liabilities......................................... 11,832 10,921
Preferred stock........................................... 234 521
Common stockholders' equity............................... 19,319 18,509
-------- --------
Total liabilities and stockholders' equity........... $238,535 $228,978
======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (2)........................ $13,145 8.44% $13,196 8.74%
Interest expense/earning assets........................... 6,188 3.97 6,009 3.98
------- ----- ------- -----
Net interest margin....................................... $ 6,957 4.47% $ 7,187 4.76%
======= ===== ======= =====
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Nonperforming loans are included in average balances used to determine the
average rate.
(2) Includes tax-equivalent adjustments based on a 35% federal income tax rate.
(3) Includes international banking facilities' deposit balances in domestic
offices and balances of Edge Act and overseas offices.
(4) Includes trust preferred capital securities.
-12-
