<PAGE>
FIVE-QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
(Dollars in millions, except ratios and per share amounts) 2000 1999 1999 1999 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income and Expense:
Net interest income--tax-equivalent basis .......... $2,228 $2,221 $2,271 $2,341 $2,309
Provision for credit losses ........................ 362 416 277 275 281
Noninterest income ................................. 1,821 1,782 2,098 2,222 2,590
Noninterest expense ................................ 2,661 3,030 2,713 2,806 2,941
Net income ......................................... 689 411 925 992 1,151
Per Common Share Data:
Net income, basic .................................. $ 0.60 $0.36 $0.79 $0.84 $0.97
Net income, diluted ................................ 0.60 0.36 0.79 0.83 0.96
Cash dividends declared ............................ 0.42 0.42 0.42 0.42 0.42
Book value ......................................... 17.43 17.34 17.32 17.73 17.68
Balance Sheet:
Loans:
Managed ....................................... $229,673 $229,196 $222,117 $218,795 $213,814
Reported ...................................... 168,078 163,877 158,143 157,464 154,850
Deposits ........................................... 164,643 162,278 156,900 156,454 153,699
Long-term debt (1) ................................. 38,753 35,435 34,735 27,728 24,988
Total assets ....................................... 273,008 269,425 264,135 256,033 250,402
Common stockholders' equity ........................ 20,081 19,900 19,860 20,860 20,870
Total stockholders' equity ......................... 20,271 20,090 20,050 21,050 21,060
Performance Ratios:
Return on assets ................................... 1.03% 0.62% 1.44% 1.57% 1.85%
Return on common equity ............................ 13.9 8.2 18.2 19.1 22.9
Net interest margin:
Managed ....................................... 4.91 4.98 5.32 5.55 5.66
Reported ..................................... 3.78 3.79 4.04 4.26 4.30
Efficiency Ratio:
Managed ....................................... 53.7% 62.1% 52.1% 52.3% 52.1%
Reported ..................................... 65.7 75.7 62.1 61.5 60.0
Equity Ratios:
Regulatory leverage ratio .......................... 7.7% 7.7% 7.9% 8.1% 8.0%
Risk-based capital:
Tier 1 ratio .................................. 7.7 7.7 7.7 8.1 8.2
Total capital ratio ........................... 10.6 10.7 10.8 11.4 11.7
Common Stock Data:
Average shares outstanding, basic .................. 1,149 1,147 1,167 1,180 1,178
Average shares outstanding, diluted ................ 1,155 1,154 1,177 1,195 1,193
Stock price, quarter-end ........................... $ 34.38 $32.00 $34.81 $59.56 $55.06
</TABLE>
- ----------------
(1) Includes trust preferred capital securities.
NOTE: Throughout this report, "the Corporation" and "Bank One" refer to BANK
ONE CORPORATION.
-1-
<PAGE>
BUSINESS SEGMENTS
Highlights
<TABLE>
<CAPTION>
Average Average
Net Income Managed Assets Common Equity
(In millions) Return on Equity (In billions) (In billions)
--------------------- ---------------------- --------------------- -------------------
Three Months Ended March 31 2000 1999 2000 1999 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Banking ....................... $464 $ 315 24% 18% $125.6 $116.2 $7.8 $7.1
Credit Card .............................. 70 303 4 20 73.0 75.2 6.4 6.2
Retail ................................... 274 250 20 22 79.7 70.7 5.4 4.7
Other Activities and Corporate/
Unallocated ........................... (119) 177 N/M N/M 35.3 35.2 0.2 2.4
------- -------- ------ ------- -------- ------- ------ ------
Total Managed Business segment
results .......................... 689 1,046 14 21 313.6 297.3 19.8 20.4
Merger-related and other items ........... -- 105 -- N/M -- -- -- --
------- -------- ------ ------- -------- ------- ------ ------
Total Corporation ..................... $689 $1,151 14% 23% $313.6 $297.3 $19.8 $20.4
======= ======== ====== ======= ======== ======= ====== ======
Investment Management
(included above) ....................... $123 $ 87
======= =======
</TABLE>
- -------------
N/M -- Not meaningful.
Business Segment Management
BANK ONE CORPORATION manages its lines of business based on risk, return
and growth parameters. The risk component is differentiated through the capital
allocation process. Merger-related charges and certain other items that are not
considered core, run-rate items were not attributed to the line of business
results. Management believes that the results presented are more indicative of
underlying performance of the business segments.
Description of Methodology
Key elements of the management reporting process that determines the line of
business results include:
. Funds Transfer Pricing - To derive net interest income for the business
units, a detailed process of charging/crediting for assets/liabilities is
employed. This system is designed to be consistent with the Corporation's
asset and liability management principles.
. Standard Credit Costs - Provision for credit losses in the lines of
business is determined through specific methodologies that measure expected
loss over a certain period of time (i.e., a complete economic cycle). Any
difference between the aggregate provision of the lines of business and the
Corporation's total provision is shown in Corporate/Unallocated. Over a
complete economic cycle, the differences should not be significant.
. Cost Allocation - Costs of support units are fully allocated to the
business lines as indirect expenses and overhead costs.
. Capital Attribution - Common equity is assigned to the business units based
on the underlying risk of their activities. Four forms of risk are
measured: credit, market, operational and lease residual. The risk
tolerance used in this framework is consistent with that required for a AA
debt rating.
To the extent practicable, results for prior periods have been restated to
reflect organizational changes and material refinements in management reporting
policies.
-2-
<PAGE>
Other key principles underlying the line of business results are noted below.
. The presentation of the business units depicts the management organization
of the Corporation for the period ending March 31, 2000.
. The merger-related charges and the effect of certain identified
transactions were not attributed to any line of business. For analytical
purposes these items are not considered part of the core business
activities.
. All disclosures are on a managed basis; securitized credit card receivables
and related income statement line items are presented as if they were
on-balance sheet loans.
Line of Business Financial Results
Commercial Banking Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 % Change
------------------------------------------------------------------------------
Net interest income (FTE) .............. $792 $722 10%
Provision for credit losses ............ 103 105 (2)
Noninterest income ..................... 721 582 24
Noninterest expense .................... 754 754 --
Net income ............................. 464 315 47
Return on equity ....................... 24% 18%
Efficiency ratio ....................... 50 58
(Dollars in billions)
Average loans .......................... $ 89.7 $ 80.0 12%
Average assets ......................... 125.6 116.2 8
Average deposits ....................... 47.9 46.1 4
Average common equity .................. 7.8 7.1 10
- ------------
FTE--Fully taxable equivalent.
Commercial Banking was the Corporation's largest earnings contributor. It
serves business customers ranging in size from middle market companies to large
corporations, governments and institutions. Commercial Banking's product
offerings include traditional credit products, corporate finance, treasury
services, investment management and capital markets products. This business
line's earnings also include the results of high net worth customers, leveraged
and equipment leasing, proprietary investing and venture capital activities.
Net income of $464 million for the first quarter was up 47% from that of a
year ago, and return on equity increased to 24%. Net interest income was up 10%,
although margins continued to be compressed. The 24% improvement in noninterest
income was principally due to higher market driven revenue in Corporate
Investments and higher revenue from treasury management products. The provision
for credit losses, which is determined using the standard credit cost
methodology, was down slightly from a year ago. Nevertheless, the provision of
$103 million exceeded net charge-offs of $81 million. Noninterest expense was
flat year-to-year, partially due to staff reductions.
The $7.8 billion of average common equity attributed to Commercial Banking
is predicated on the assessment of inherent business risks. It represents about
9% of total average loans.
-3-
<PAGE>
Credit Card Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 % Change
- --------------------------------------------------------------------------------
Net interest income (FTE)......... $1,529 $1,801 (15)%
Provision for credit losses....... 969 840 15
Noninterest income................ 321 417 (23)
Noninterest expense............... 776 927 (16)
Net income........................ 70 303 (77)
Return on managed receivables..... 0.6% 2.6%
Return on equity.................. 4 20
Efficiency ratio.................. 42 42
Managed net charge-off ratio...... 5.78 4.89
(Dollars in billions)
Average loans..................... $67.1 $69.1 (3)%
Average assets.................... 73.0 75.2 (3)
Average common equity............. 6.4 6.2 3
- ----------------
FTE--Fully taxable equivalent.
As expected, credit card earnings continued to be under significant
pressure due to several factors, including margin compression, receivable
attrition, lower securitization activity and higher credit costs.
Credit card net income declined $233 million to $70 million, while the
pretax return on outstandings decreased to 0.6%. Revenue in the first quarter
declined 17% from the year-ago quarter, and noninterest expense was 16% lower.
Managed credit card receivables averaged $67.1 billion for the first three
months of 2000, a $2.0 billion, or 3%, decrease compared with the same period in
1999. Receivables attrition declined from about 17% at year-end to 16% at the
end of the first quarter.
Significant margin compression and, to a lesser degree, lower receivables
were the principal causes of the 15% decline in net interest income from 1999's
first quarter. The 23% decrease in noninterest income was related to a $47
million decline in credit card securitization income, as well as higher revenue
sharing with marketing partners and lower service fee income. The noninterest
expense decline was due to reduced marketing and transaction volumes, staff
reductions and expense initiatives. An additional impairment charge related to
the interest-only strip was included in Corporate/Unallocated results.
The provision for credit losses increased to $969 million in the current
quarter from $840 million in the 1999 first quarter. The managed net charge-off
ratio was 5.78% for the first quarter, compared with a normalized rate of 5.32%
a year ago. The managed delinquency ratio was 4.08%, down from 4.57% at December
31, 1999.
At quarter end, Credit Card had 56.4 million cardmembers. The decrease of
7.8 million cardmembers from year-end 1999 reflected a purge of approximately
seven million inactive accounts following a year of significant portfolio
conversions. About one million new accounts were opened during the first
quarter.
-4-
<PAGE>
Retail Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 Change
- --------------------------------------------------------------------
Net interest income (FTE).......... $1,221 $1,083 13%
Provision for credit losses........ 166 133 25
Noninterest income................. 364 456 (20)
Noninterest expense................ 1,010 1,034 (2)
Net income......................... 274 250 10
Return on equity................... 20% 22%
Efficiency ratio................... 64 67
(Dollars in billions)
Average loans...................... $ 73.3 $ 64.0 15%
Average assets..................... 79.7 70.7 13
Average deposits................... 88.3 90.9 (3)
Average common equity.............. 5.4 4.7 15
- -------------
FTE--Fully taxable equivalent.
Retail includes a network of 1,800 banking centers, 7,000 ATMs, online
banking and other distribution channels, as well as small business, indirect
auto lending and other consumer lending. Net income was $274 million, up 10%
from the same period in 1999. A 13% increase in net interest income related to
improved deposit margins and continued consumer loan growth.
The $166 million of provision exceeded net charge-offs by $40 million,
reflecting growth in consumer loans.
Noninterest income was down 20% versus one year ago, reflecting an
increase in realized auto lease residual losses, lower gains on loan and
servicing sales, and the absence of securitization gains in the current quarter.
Excluding these items, as well as the run-rate effect of banking centers sold in
1999, total revenue increased 10% compared with the 1999 first quarter.
Auto lease residual values continue to be a risk that is monitored closely.
Refer to the discussion of "Other Income" on page 11 for additional information.
Noninterest expense declined 2%, reflecting ongoing productivity gains, as
well as the run-rate effect of banking centers sold last year. The efficiency
ratio improved to 64%.
<TABLE>
<CAPTION>
Investment Management Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 % Change
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue.................................... $ 442 $ 439 1%
Provision........................................ 2 - N/M
Noninterest expense.............................. 257 308 (17)
Net income....................................... 123 87 41
(Dollars in billions)
Assets under management.......................... $126.0 $124.8 1%
(Dollars in millions)
Net income attribution:
Commercial....................................... $ 86 $ 59
Credit Card...................................... 20 15
Retail........................................... 17 13
</TABLE>
N/M - Not meaningful.
-5-
<PAGE>
Investment Management provides investment advisory, insurance, trust and
investment-related services to individual and institutional clients. The One
Group(R) mutual funds, the Corporation's proprietary fund family, is managed in
this line of business.
Net income increased 41% to $123 million, reflecting revenue growth in the
proprietary insurance, annuity and mutual fund products as well as commissions
on sales of other securities products. These revenues are attributed to the
other business lines.
Year-over-year comparisons for Investment Management were affected by two
items. The first was the sale of Roney & Company in May 1999, and the second was
the change to the equity method of accounting for the investment in EquiServe
Limited Partnership. Excluding these two items, revenues increased 10% and
expenses were essentially unchanged.
Other Activities Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 % Change
- -----------------------------------------------------------------------------
Total revenue..................... $55 $161 (66)%
Provision......................... 1 - N/M
Noninterest expense............... 37 32 16
Net income........................ 11 96 (89)
(Dollars in billions)
Average assets.................... $35.3 $35.2 --%
Average common equity............. 0.6 0.8 (25)
- ----------------
N/M - Not meaningful.
Other Activities principally include the Corporation's investment
portfolio and WingspanBank.com. The 1999 first quarter also included certain
equity investment activities that were targeted for exit in 2000; the residual
activity is part of Commercial Banking. The $85 million decline in net income
from the 1999 first quarter reflected this organizational change, as well as
lower realized investment securities gains as interest rates have risen.
Additionally, the 2000 first quarter includes the operating loss of
WingspanBank.com, which had not begun operations in the 1999 period.
Corporate/Unallocated Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 % Change
- ------------------------------------------------------------------------------
Net interest income................ $ (92) $ 32 N/M
Provision for credit losses........ 32 (49) N/M
Noninterest income................. 48 32 50%
Noninterest expense................ 84 (9) N/M
Net income......................... (130) 81 N/M
(Dollars in billions)
Average common equity.............. $(0.4) $ 1.5 N/M
- -------------
N/M - Not meaningful.
Since the first quarter of 1999, the Corporation has followed a set of
allocation methodologies to develop line of business financial information. The
guiding principle is to closely reflect the core business performance and trends
through the use of standard allocations for items such as credit costs, funds
transfer pricing, economic capital, and indirect charges from corporate support
organizations. Unusual or significant transactions are typically excluded from
the line of business results, with material items identified and quantified.
-6-
<PAGE>
The results for Corporate/Unallocated in the 2000 first quarter were driven by
the following:
. Net interest income declined $124 million from the 1999 first quarter to a
net expense of $92 million. Net interest income reflected $44 million of
interest rate risk not allocated to the lines of business and $47 million
for the cost to carry unallocated net assets.
. The provision of $32 million was related to credit costs not reflected in
standard credit costs allocated to the lines of business.
. Noninterest income of $48 million included a $107 million pretax net gain
from the sale and committed disposition of assets related to the
Corporation's program announced in January 2000 to reduce non-strategic and
underperforming assets. This reflected a $157 million pretax gain from the
sale of $2.2 billion of consumer finance loans. The gain was partially
offset by a net loss of $50 million related to the committed sale of $1.7
billion of assets consisting of consumer and commercial real estate loans,
and investment securities. Additionally, noninterest income included a $78
million impairment charge relating to the interest-only strip held by the
Corporation resulting from credit card securitizations. The interest-only
strip reduction was the result of projected shortfalls of cash flows to the
Corporation in the securitization master trusts. Refer to the discussion of
"Other Income" on page 11 for additional information.
. Noninterest expense increased to $84 million due to the $35 million
addition to the legal reserve and the timing of unallocated expenses.
See Note 5--Operating Segments for additional disclosure regarding the
Corporation's business segments.
Merger-Related and Other Items
The Corporation's results for the first quarter of 1999 included items
that management believes were not indicative of ongoing business segment results
nor representative of a core run rate of any segment's performance.
These include merger-related restructuring costs and specific business
restructurings, as well as other items. The following table summarizes these
items on a pretax basis and should be evaluated in conjunction with reported
results.
Three Months Ended March 31, 1999
After-tax
(In millions) Pretax After-tax diluted EPS
------ --------- -----------
Merger and restructuring costs....... $(204) $(138) $(0.12)
Gain on sale of Concord/EPS.......... 111 75 0.06
Gain on Indiana divestiture.......... 249 168 0.14
--- --- ----
Total................................ $ 156 $ 105 $ 0.08
===== ===== ======
Strategic Review
The Corporation announced in January that projected earnings for the year
would be in the range of $2.80 - $3.00 per share, with the projected decline in
credit card earnings as the primary reason for the shortfall from 1999 managed
business segment results.
The new management team of the Corporation is conducting a thorough
review of all business operations and is considering a number of strategic,
financial and operational actions that may have a material effect on its
financial results.
-7-
<PAGE>
EARNINGS ANALYSIS
Basis of Presentation
Management's discussion and analysis may contain forward-looking
statements that are provided to assist in the understanding of anticipated
future financial performance. However, such performance involves risks and
uncertainties that may cause actual results to differ materially from those
expressed in forward-looking statements. See pages 36-37 of the Corporation's
1999 Annual Report on Form 10-K, as amended, for a full discussion of such
factors.
For funding and risk management purposes, the Corporation periodically
securitizes loans, primarily in support of credit card activities. The
accounting for securitizations complicates the understanding of underlying
trends in net interest income, net interest margin and noninterest income, as
well as of the underlying growth rates of reported loans. For clarification,
these trends are also reviewed on a "managed" basis, which adds data on
securitized credit card loans to reported data on loans. Results on a managed
basis, where presented, should be read in conjunction with reported results. See
page 38 for a reconciliation of reported to managed results.
Summary of Financial Results
The Corporation reported net income of $689 million, or $0.60 per share,
for the first quarter of 2000, down 40% from net income of $1.151 billion, or
$0.96 per share, for the first quarter of 1999.
The following table summarizes key financial lines and ratios on a
reported basis for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in millions, except per share data) 2000 1999 % Change
- --------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Net interest income--tax-equivalent basis.... $2,228 $2,309 (4)%
Provision for credit losses.................. 362 281 29
Noninterest income........................... 1,821 2,590 (30)
Noninterest expense.......................... 2,661 2,941 (10)
Net income................................... 689 1,151 (40)
Earnings per share
Basic................................... 0.60 0.97 (38)
Diluted................................. 0.60 0.96 (38)
Return on assets............................. 1.03% 1.85%
Return on common equity...................... 13.9 22.9
Net interest margin.......................... 3.78 4.30
Efficiency ratio............................. 65.7 60.0
</TABLE>
First-quarter 2000 results included the following key elements:
. Net interest income was down $81 million or 4% from a year ago. This
decline was primarily driven by compressed margins in the credit card
business, partially offset by the effect of receivables growth in the
commercial and retail loan portfolios.
. The provision for credit losses exceeded net charge-offs by $96 million,
reflecting loan growth in the commercial and retail loan portfolios as well
as deterioration in the commercial loan portfolio. The net increase in the
allowance for credit losses was $53 million, as $43 million in reserves
were released in the quarter related to the sale of consumer loans.
. Market-driven revenue and fee-based revenue, aside from credit card fees,
were above year-ago levels.
. Operating expense, excluding significant items and merger-related costs,
was essentially unchanged from last quarter and 3% below year-ago levels.
. And finally, the Corporation made progress toward disposing of non-
strategic and underperforming assets with the sale or planned disposition
of $3.9 billion of such assets.
-8-
<PAGE>
Also included in first-quarter 2000 results were the following
transactional items:
. The sale or committed disposition of $3.9 billion in non-strategic and
underperforming assets generated a pretax net gain of $107 million, or 6
cents per share.
. The Corporation recorded a pretax impairment charge of $78 million, or 4
cents per share, reducing the carrying value of the credit card
securitization interest-only strip held by the Corporation. This charge
resulted from projected reductions in cash flows to the Corporation in the
credit card securitization master trusts. Higher credit costs and reduced
interest margins, driven largely by higher interest rates, are expected to
reduce cash flows that are payable to the Corporation. Further reductions
to the carrying value of the interest-only strip due to increased credit
costs and reduced interest margins are likely and represent a significant
ongoing earnings exposure.
. The Corporation's quarterly assessment of exposures relating to corporate
litigation matters resulted in a $35 million increase in the legal reserve
- approximately 2 cents per share.
. First-quarter 2000 results included $67 million in auto lease residual
losses, reflecting a weak used-car resale market. Deterioration in used-car
prices is continuing and will likely result in additional charges reducing
the carrying value of the Corporation's auto lease portfolio.
Net Interest Income
Net interest income includes spreads on earning assets as well as such
items as loan fees, cash interest collections on problem loans, dividend income,
interest reversals, and income or expense on derivatives used to manage interest
rate risk. Net interest margin measures how efficiently the Corporation uses its
earning assets and underlying capital.
In order to understand fundamental trends in net interest income, average
earning assets and net interest margins, it is useful to analyze financial
performance on a managed portfolio basis, which adds data on securitized loans
to reported data on loans.
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------------------------------
(Dollars in millions) 2000 1999 % Change
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed
Net interest income--tax-equivalent basis..... $ 3,445 $ 3,661 (6)%
Average earning assets........................ 282,152 262,283 8
Net interest margin........................... 4.91% 5.66%
Reported
Net interest income--tax-equivalent basis..... $ 2,228 $ 2,309 (4)
Average earning assets........................ 237,313 217,909 9
Net interest margin........................... 3.78% 4.30%
</TABLE>
Managed net interest income decreased 6% from the first quarter of 1999.
Managed net interest margin was 4.91% for the first quarter, down 75 basis
points from 5.66% a year ago.
The decline in both managed net interest income and the related net
interest margin was primarily driven by compressed spreads in the credit card
business. Partially offsetting the decline in net interest income was growth in
both the commercial and retail loan portfolios. Improved pricing of the
Corporation's deposit products also generated a positive impact on net interest
margin.
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------------------------------------------------------
(Dollars in millions) 2000 Percent 1999 Percent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average managed loans
Credit card.............. $ 67,095 29% $ 69,144 32%
Commercial............... 97,973 43 87,058 41
Other consumer........... 65,118 28 57,177 27
-------- ---- -------- ----
Total................. $230,186 100% $213,379 100%
======== ==== ======== ====
</TABLE>
Average managed credit card loans were down 3% to $67.1 billion in the
first quarter of 2000. The Corporation anticipates that average credit card
loans will continue to be flat to down slightly throughout 2000.
-9-
<PAGE>
Average commercial loan outstandings increased 13% to $98.0 billion in the
first quarter, reflecting underlying growth concentrated in the middle market
and Midwest mid-corporate customer base.
Average consumer loans, excluding credit card loans, increased 14% from
the year-ago volume to $65.1 billion. This growth reflects a significant
increase in the origination of home equity loan products.
Noninterest Income
In order to provide more meaningful trend analysis, credit card fee
revenue and total noninterest income in the following table are shown on a
managed basis. Credit card fee revenue excludes the net interest revenue
associated with securitized credit card receivables. Managed noninterest income
decreased 24% from the first quarter of 1999.
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in millions) 2000 1999 % Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity securities gains.................... $ 143 $ 96 49%
Trading profits............................ 64 67 (4)
Investment securities gains................ 15 52 (71)
------ ------- -----
Market-driven revenue................ 222 215 3
Credit card revenue........................ 271 324 (16)
Fiduciary and investment management fees... 195 179 9
Service charges on deposits................ 324 307 6
Other service charges and commissions...... 389 383 2
------ ------- -----
Managed fee-based revenue............ 1,179 1,193 (1)
Other 113 217 (48)
Gain on Indiana divestitures............... -- 249 N/M
Gain on sale of Concord/EPS................ -- 111 N/M
------ ------- -----
Managed noninterest income........... $1,514 $1,985 (24)%
====== ======= =====
- --------------------------------------------------------------------------------------------
</TABLE>
N/M-Not meaningful.
Market-Driven Revenue
Market-driven revenue generated gains of $222 million for the first
quarter of 2000, up 3% from the strong year-ago results. Equity securities gains
totaled $143 million for the first quarter of 2000, compared with $96 million in
the year-ago quarter. Favorable equity markets in 2000 produced higher market
valuations and increased transaction volume. Investment securities gains totaled
$15 million in the first quarter of 2000, compared with $52 million in the first
quarter of 1999, reflecting a rising interest rate environment. Included in the
net gains was a loss of approximately $10 million related to the transfer of
securities from available for sale to trading, reflecting the Corporation's
intent to sell these assets in the short term.
-10-
<PAGE>
Managed Fee-Based Revenue
Managed fee-based revenue decreased slightly for the first quarter of
2000, compared with the year-ago quarter. The anticipated decline in credit card
revenue was offset by higher service charges and investment management fees.
Credit card fee revenue decreased 16% to $271 million for the first
quarter of 2000, from $323 million for the first quarter of 1999. Receivables
attrition and decreased transaction volume contributed to the decline in fee
revenue.
Fiduciary and investment management fees increased 9% for the first
quarter of 2000, compared with a year ago. These fees include revenue generated
by traditional trust products and services and investment management activities.
The fee increase reflected an increase in proprietary, insurance, annuity and
mutual fund products.
Other service charges on deposits, which includes deficient balance fees,
increased 6% in the first quarter compared with a year ago. This increase
primarily reflected an improvement in the cross-selling of treasury management
products across the commercial customer base, leveraged by more traditional
credit product offerings.
Other Income
Other income was $113 million in the 2000 first quarter, down $105 million
or 48% from the year-ago period. This decline primarily resulted from the
decrease in credit card-related items and an increase in auto lease residual
writedowns, which were partially offset by a net gain on the sale or planned
disposition of non-strategic and underperforming loans.
Credit card-related income declined $125 million from the year-ago
quarter, reflecting two items. First, the current period included a $78 million
impairment charge to the credit card securitization interest-only strip held by
the Corporation, reflecting projected shortfalls in the cash flows to the
Corporation in the credit card securitization master trusts as higher credit
costs and reduced margins, driven largely by higher interest rates, are expected
to reduce such cash flows. Further reductions to the carrying value of the
interest-only strip due to increased credit costs and reduced interest margins
are likely and represent a significant ongoing earnings exposure.
The second credit card-related item was a $47 million decline in credit
card securitization income from the year-ago quarter. The 2000 first quarter
contained net scheduled reductions of $24 million compared with securitization
gains of $23 million in the 1999 first quarter. The current quarter's decline
represented the normally scheduled reductions as investors were repaid their
principal; no new net securitization gains occurred as securitized credit card
receivables declined.
Auto leasing residual losses increased $50 million from a year ago,
reflecting the ongoing deterioration in the used-car resale market.
Deterioration in used-car prices is continuing and will likely result in
additional charges reducing the carrying value of the Corporation's auto lease
residual portfolio.
These negative impacts were partially offset by a $117 million net gain in
the 2000 first quarter from the sale of identified non-strategic and
underperforming loans. A $157 million gain was recognized on the sale of $2.2
billion in consumer finance loans. This gain was partially offset by a $40
million mark-to-market writedown associated with the committed disposition of
$1.7 billion in consumer and commercial real estate loans.
-11-
<PAGE>
Noninterest Expense
Noninterest expense in the first quarter of 2000 decreased 10% compared
with first-quarter 1999 levels. Excluding merger-related and restructuring
charges, noninterest expense in the first three months of 2000 decreased 3% from
the 1999 first quarter.
<TABLE>
<CAPTION>
Three Months Ended March 31
--------------------------------------------------
(Dollars in millions) 2000 1999 % Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits
Salaries..................................... $ 897 $ 961 (7)%
Employee benefits............................ 201 186 8
------- ------- -----
Total salaries and employee benefits.. 1,098 1,147 (4)
Net occupancy and equipment expense............. 222 227 (2)
Depreciation and amortization................... 163 175 (7)
Outside service fees and processing............. 408 406 --
Marketing and development....................... 226 315 (28)
Communication and transportation................ 212 200 6
Merger-related and restructuring charges........ (19) 164 N/M
Other........................................... 351 307 14
------- ------- ------
Noninterest expense............................. $2,661 $2,941 (10)%
====== ====== ======
N/M - Not meaningful
</TABLE>
Salaries and benefit costs were $1.098 billion in the first quarter of
2000, down 4% from $1.147 billion in 1999. The lower costs were primarily the
result of staff reductions, partially offset by increases in benefit costs
largely associated with the Corporation's newly integrated 401(k) savings
incentive plan.
Marketing and development costs decreased $89 million, or 28%, in the
first quarter of 2000. This decline reflected a targeted reduction in certain
credit card marketing programs.
The increase in other expense in the first quarter was primarily related
to an increase of $35 million in the legal reserve, reflecting a current
assessment of corporate litigation matters.
A reversal of previously established restructuring reserves produced a $19
million reduction in noninterest expense in the first quarter of 2000. The
fourth-quarter 1999 restructuring reserve included costs associated with planned
severance and lease obligations related to the shutdown of the Corporation's
consumer finance branch network. The actual transaction included the sale of a
95-branch network in addition to $2.2 billion in consumer loans and included a
provision for the purchaser to provide job opportunities for employees and to
assume remaining lease obligations for such branches.
Applicable Income Taxes
Three Months Ended March 31
-------------------------------------------------
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
Income before income taxes..... $991 $1,648
Applicable income taxes........ 302 497
Effective tax rates............ 30.5% 30.2%
Tax expense for both periods included benefits for tax-exempt income,
tax-advantaged investments and general business tax credits offset by the effect
of nondeductible expenses including goodwill.
-12-
<PAGE>
RISK MANAGEMENT
The Corporation's various business activities generate liquidity, market
and credit risks.
. Liquidity risk is the possibility of being unable to meet all current
and future financial obligations in a timely manner.
. Market risk is the possibility that changes in future market rates or
prices will make the Corporation's positions less valuable.
. Credit risk is the possibility of loss from a customer's failure to
perform according to the terms of a transaction.
Compensation for assuming these risks is reflected in interest income,
trading profits and fee income. In addition, these risks are factored into the
allocation of capital to support various business activities, as discussed in
the "Capital Management" section, beginning on page 26.
The Corporation is a party to transactions involving financial instruments
that create risks that may or may not be reflected on a traditional balance
sheet. These financial instruments can be subdivided into three categories:
. Cash financial instruments, which are generally characterized as on-
balance sheet transactions and include loans, bonds, stocks and
deposits.
. Credit-related financial instruments, which include such instruments as
commitments to extend credit and standby letters of credit.
. Derivative financial instruments, which include such instruments as
interest rate, foreign exchange, equity price and commodity price
contracts, including forwards, swaps and options.
The Corporation's risk management policies are intended to identify,
monitor and limit exposure to liquidity, market and credit risks that arise from
each of these financial instruments.
-13-
<PAGE>
LIQUIDITY RISK MANAGEMENT
Liquidity is managed in order to preserve stable, reliable and
cost-effective sources of cash to meet all current and future financial
obligations in a timely manner. The Corporation considers strong capital ratios,
credit quality and core earnings as essential to retaining high credit ratings
and, consequently, cost-effective access to market liquidity. In addition, a
portfolio of liquid assets, consisting of federal funds sold, deposit placements
and selected highly marketable investment securities, is maintained to meet
short-term demands on liquidity.
The Consolidated Statement of Cash Flows, on page 32, presents data on
cash and cash equivalents provided and used in operating, investing and
financing activities.
The Corporation's ability to attract wholesale funds on a regular basis
and at a competitive cost is fostered by strong ratings from the major credit
rating agencies. As of March 31, 2000, the Corporation and its principal banks
had the following long- and short-term debt ratings.
<TABLE>
<CAPTION>
Credit Ratings
Senior
March 31, 2000 Short-Term Debt Long-Term Debt
--------------------------------- -----------------------------
S & P Moody's S & P Moody's
------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
The Corporation (Parent)...... A-1 P-1 A Aa3
Principal Banks............... A-1 P-1 A+ Aa2
</TABLE>
The Treasury Department is responsible for identifying, measuring and
monitoring the Corporation's liquidity profile. The position is evaluated
monthly by analyzing the composition of the liquid asset portfolio, performing
various measures to determine the sources and stability of the wholesale
purchased funds market, tracking the exposure to off-balance sheet draws on
liquidity, and monitoring the timing differences in short-term cash flow
obligations.
Access to a variety of funding markets and customers in the retail and
wholesale sectors is vital both to liquidity management and to cost
minimization. A large retail customer deposit base is one of the significant
strengths of the Corporation's liquidity position. In addition, a diversified
mix of short- and long-term funding sources from the wholesale markets is
maintained through active participation in global capital markets and by
securitizing and selling assets such as credit card receivables.
-14-
<PAGE>
The following table shows the total funding source mix for the periods
indicated.
<TABLE>
<CAPTION>
Deposits and Other Purchased Funds
March 31 December 31 September 30 June 30 March 31
(In millions) 2000 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand ....................................... $29,923 $31,194 $29,979 $33,881 $35,110
Savings ...................................... 65,292 64,435 65,906 64,511 63,378
Time
Under $100,000 ............................ 23,355 22,825 22,911 22,470 23,197
$100,000 and over ......................... 16,908 14,052 12,225 11,143 11,647
Foreign offices .................................... 29,165 29,772 25,879 24,449 20,367
-------- -------- -------- -------- --------
Total deposits ........................ 164,643 162,278 156,900 156,454 153,699
Federal funds purchased and securities
under repurchase agreements ...................... 18,451 18,720 20,493 19,710 20,111
Commercial paper ................................... 2,765 3,184 3,009 2,926 3,595
Other short-term borrowings ........................ 15,496 18,027 16,396 13,723 13,185
Long-term debt (1) ................................. 38,753 35,435 34,735 27,728 24,988
-------- -------- -------- -------- --------
Total other purchased funds ............ 75,465 75,366 74,633 64,087 61,879
-------- -------- -------- -------- --------
Total .................................. $240,108 $237,644 $231,533 $220,541 $215,578
======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) Includes trust preferred capital securities.
MARKET RISK MANAGEMENT
Overview
Market risk refers to potential losses arising from changes in interest
rates, foreign exchange rates, equity prices and commodity prices, as well as
the correlation among these factors and their volatility. The portfolio effect
of engaging in diverse trading activities helps reduce the potential impact of
market risk on earnings. Through its trading activities, the Corporation strives
to take advantage of profit opportunities available in interest and exchange
rate movements. In asset and liability management activities, policies are in
place that are designed to closely manage structural interest rate and foreign
exchange rate risk.
Trading Activities
The Corporation's trading activities are primarily customer-oriented. Cash
instruments are sold to satisfy customers' investment needs. Derivative
contracts are initially entered into to meet the risk management needs of
customers. In general, the Corporation then enters into offsetting positions to
reduce market risk. In order to accommodate customers, an inventory of capital
markets instruments is carried, and access to market liquidity is maintained by
making bid-offer prices to other market makers. The Corporation may also take
proprietary trading positions in various capital markets cash instruments and
derivatives, and these positions are designed to profit from anticipated changes
in market factors.
Many trading positions are kept open for brief periods of time, often less
than one day. Other positions may be held for longer periods. Trading positions
are valued at estimated fair value. Realized and unrealized gains and losses on
these positions are included in noninterest income as trading profits.
The Corporation manages its market risk through a value-at-risk
measurement and control system, through stress testing and through dollar limits
imposed on trading desks and individual traders. The Risk Management Committee
of the Board of Directors approves the overall market risk that any line of
business can assume. The primary oversight unit for market risk arising from
trading and trading related activity is the Market Risk Policy and Review
Department, which develops policy to monitor and limit market risk and oversees
the Corporation's process for managing risk. Value-at-risk is intended to
measure the maximum fair value the Corporation could lose on a trading position,
given a specified confidence level and time horizon. Value-at-risk limits and
exposures are monitored on a daily basis for each significant trading portfolio.
Stress testing is similar to value-at-risk except that the confidence level is
geared to capture more extreme, less frequent market events.
-15-
<PAGE>
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 losses are expected to exceed value-at-risk one
out of every 100 overnight trading days. Value-at-risk is calculated using
various statistical models and techniques for cash and derivative positions,
including options. Because of market relationships, the Corporation is able to
recognize risk-reducing diversifications benefits across certain trading
portfolios. However, the reported value-at-risk remains somewhat overstated
because not all offsets and correlations are fully considered in the
calculation.
The following table shows the value-at-risk at March 31, 2000. There are
no significant changes from December 31, 1999. The activities covered by the
table include trading activities and other activities, including certain
overseas balance sheet positions that are managed principally as trading risk.
Value-At-Risk
(In millions) March 31, 2000
--------------
Risk Type
Interest rate..................................... $15
Exchange rate..................................... 1
Equity............................................ 1
Commodity......................................... --
Diversification benefit........................... (1)
---
Aggregate portfolio market risk...................... $16
===
Structural Interest Rate Risk Management
Interest rate risk exposure in the Corporation's non-trading activities
(i.e., asset liability management ("ALM") position) is created from repricing,
option and basis risks that exist in on- and off-balance sheet positions.
Repricing risk occurs when interest-rate-sensitive financial asset or liability
positions reprice at different times as interest rates change. Basis risk arises
from a shift in the relationship of the rates on different financial
instruments. Option risk is due to "embedded options" often present in customer
products including interest rate, prepayment and early withdrawal options;
administered interest rate products; deposit products with no contractual
maturity structure; and certain off-balance sheet sensitivities. These embedded
option positions are complex risk positions that are difficult to offset
completely and, thus, represent the primary risk of loss to the Corporation.
The Corporation's policies strictly limit which business units are
permitted to assume interest rate risk. The level of interest rate risk that can
be taken is closely monitored and managed by a comprehensive risk control
process. The Market and Investment Risk Management Committee (the "Committee"),
consisting of senior executives of the finance group, credit and market risk
oversight units, and line of business units, are responsible for establishing
the market risk parameters acceptable for the Corporation's ALM position.
Through these parameters, the Committee balances the return potential of the ALM
position against the desire to limit volatility in earnings and/or economic
value. The ALM position is measured and monitored using sophisticated and
detailed risk management tools, including earnings simulation modeling and
economic value of equity sensitivity analysis, to capture both near-term and
longer-term interest rate risk exposures. The Committee establishes the risk
measures, risk limits, policy guidelines and internal control mechanisms
(collectively referred to as the Interest Rate Risk Policy) for managing the
overall ALM exposure. The Interest Rate Risk Policy is reviewed and approved by
a committee of the Board of Directors.
Earnings simulation analysis, or earnings-at-risk, measures the
sensitivity of pretax earnings to various interest rate movements. The base-case
scenario is established using the forward yield curve. The comparative scenarios
assume an immediate parallel shock of the forward curve in increments of plus or
minus 100 basis point rate movements. Additional scenarios are analyzed,
including more gradual rising or falling rate changes and non-parallel rate
shifts. The interest rate scenarios are used for analytical purposes and do not
necessarily represent management's view of future market movements. This
sensitivity analysis was revised in the first quarter to include the volatility
inherent in the Corporation's credit card securitization interest-only strip. As
a result of this methodology change, the December 31, 1999, sensitivity
percentages have been revised. Estimated earnings for each scenario are
calculated over a forward-looking 12-month horizon, and the risk is quoted as a
percentage of projected 2000 earnings.
-16-
<PAGE>
Immediate Change
in Rates
Pretax earnings change -100 bp +100 bp
----------------------------------
March 31, 2000.................... 3.0% (4.2)%
=== =====
December 31, 1999 (revised)....... 3.7% (5.1)%
=== =====
Assumptions are made in modeling the sensitivity of earnings to interest
rate changes. For residential mortgage whole loans, mortgage-backed securities,
home equity loans and collateralized mortgage obligations, the earnings
simulation model captures the expected prepayment behavior under changing
interest rate environments. Additionally, the model measures the impact of
interest rate caps and floors on adjustable-rate products. Assumptions and
methodologies regarding the interest rate or balance behavior of indeterminate
maturity products (savings, money market, NOW and demand deposits) reflect
management's best estimate of expected future behavior and are continually being
reviewed. Sensitivity of service fee income to market interest rate levels, such
as those related to cash management products, is included as well.
The Corporation has risk exposure at time periods beyond the 12 months
captured in earnings sensitivity analysis. Management uses an economic value of
equity sensitivity technique to capture the risk in both short and long-term
positions. This analysis involves calculating future cash flows over the full
life of all current assets, liabilities and off-balance sheet positions under
different rate scenarios. The discounted present value of all cash flows
represents the Corporation's economic value of equity. The sensitivity of this
value to shifts in the yield curve allows management to measure longer-term
repricing and option risk in the portfolio. Interest rate risk in trading
activities and other activities, including certain overseas balance sheet
positions, is managed principally as trading risk.
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 off-balance sheet instruments, principally plain vanilla
interest rate swaps (ALM swaps), the interest rate sensitivity of specific
on-balance sheet transactions, as well as pools of assets, is adjusted to
maintain the desired interest rate risk profile. At March 31, 2000, the notional
value of ALM interest rate swaps totaled $19.2 billion, including $17.5 billion
against specific transactions and $1.7 billion against specific pools of assets.
Asset and Liability Management Derivatives - Notional Principal
<TABLE>
<CAPTION>
Receive Fixed Pay Fixed Basis
Pay Floating Receive Floating Swaps
(In millions) ------------ ---------------- ----- Total
March 31, 2000 Specific Pool Specific Pool Specific Pool Swaps
-------- ---- -------- ---- -------- ---- -----
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Swaps associated with:
Loans........................................ $ -- $680 $ 288 $ 926 $ -- $ -- $ 1,894
Investment securities........................ -- -- -- 121 -- -- 121
Deposits..................................... 675 -- -- -- -- -- 675
Funds borrowed (including long-term debt).... 9,318 -- 7,207 -- 60 -- 16,585
------- ---- ------ ------ ---- --- --------
Total.................................. $ 9,993 $680 $7,495 $1,047 $ 60 $ -- $ 19,275
======= ==== ====== ====== ==== ==== ========
Other ALM contracts (1).......................... $ 1,551
========
</TABLE>
- ---------------
(1) Primarily reflects the use of interest rate futures contracts to hedge
investment securities.
Swaps used to adjust the interest rate sensitivity of specific
transactions will not need to be replaced at maturity, since the corresponding
asset or liability will mature along with the swap. However, swaps against the
asset and liability pools will have an impact on the overall risk position as
they mature and may need to be reissued to maintain the same interest rate risk
profile. These swaps could create modest earnings sensitivity to changes in
interest rates.
The notional amounts, expected maturity, and weighted-average pay and
receive rates for the ALM swap position at March 31, 2000, are summarized in the
following table. For generic swaps, the maturities are contractual. In the
table, the variable interest rates--which generally are the prime rate, federal
funds rate or the one-month, three-month and six-month London interbank offered
rates ("LIBOR") in effect on the date of repricing--are assumed to remain
constant. However, interest rates will change and consequently will affect the
related weighted-average information presented in the table.
-17-
<PAGE>
<TABLE>
<CAPTION>
Asset and Liability Management Swaps--Maturities and Rates
March 31, 2000
(Dollars in millions) 2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating swaps
Notional amount ...................... $7,829 $1,019 $ -- $ 25 $ -- $1,800 $10,673
Weighted average
Receive rate ....................... 5.97% 6.38% --% 7.61% --% 6.83% 6.16%
Pay rate ........................... 6.20% 6.16% --% 6.19% --% 6.18% 6.20%
Pay fixed/receive floating swaps
Notional amount ...................... $ 526 $ 44 $2,850 $1,337 $2,801 $ 984 $ 8,542
Weighted average
Receive rate ....................... 6.21% 6.20% 6.22% 6.25% 6.16% 6.19% 6.20%
Pay rate ........................... 5.99% 7.18% 6.86% 7.11% 6.74% 6.77% 6.80%
Basis swaps
Notional amount ....................... $ -- $ 50 $ -- $ -- $ 10 $ -- $ 60
------ ------ ------ ------ ------ ------ -------
Total notional amount ..................... $8,355 $1,113 $2,850 $1,362 $2,811 $2,784 $19,275
====== ====== ====== ====== ====== ====== =======
</TABLE>
Foreign Exchange Risk Management
Whenever possible, foreign currency-denominated assets are funded with
liability instruments denominated in the same currency. If a liability
denominated in the same currency is not immediately available or desired, a
forward foreign exchange on cross-currency swap contract is used to fully hedge
the risk due to cross-currency funding.
To minimize the earnings and capital impact of translation gains or losses
measured on an after-tax basis, the Corporation uses forward foreign exchange
contracts to hedge the exposure created by investments in overseas branches and
subsidiaries.
CREDIT RISK MANAGEMENT
The Corporation has developed policies and procedures to manage the level
and composition of risk in its credit portfolio. The objective of this credit
risk management process is to quantify and manage credit risk on a portfolio
basis as well as to reduce the risk of a loss resulting from a customer's
failure to perform according to the terms of a transaction.
Customer transactions create credit exposure that is reported both on and
off the balance sheet. On-balance sheet credit exposure includes such items as
loans. Off-balance sheet credit exposure includes unfunded credit commitments
and other credit-related financial instruments. Credit exposures resulting from
derivative financial instruments are reported both on and off the balance sheet;
see pages 24-25 for more details.
Selected Statistical Information
<TABLE>
<CAPTION>
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2000 1999 1999 1999 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At period-end
Loans outstanding................................. $168,078 $163,877 $158,143 $157,464 $154,850
Nonperforming loans............................... 1,093 1,053 1,027 1,032 1,031
Other, including other real estate owned.......... 97 106 113 105 117
Nonperforming assets.............................. 1,190 1,159 1,140 1,137 1,148
Allowance for credit losses....................... 2,338 2,285 2,252 2,250 2,270
Nonperforming assets/related assets............... 0.71% 0.71% 0.72% 0.72% 0.74%
Allowance for credit losses/loans outstandings.... 1.39 1.39 1.42 1.43 1.47
Allowance for credit losses/nonperforming loans... 214 217 219 218 220
For the three months ended
Average loans..................................... $167,423 $160,594 $157,967 $155,496 $153,271
Net charge-offs................................... 266 383 267 275 281
Net charge-offs/average loans..................... 0.64% 0.95% 0.68% 0.71% 0.73%
</TABLE>
-18-
<PAGE>
For analytical purposes, the Corporation's portfolio is divided into
commercial, consumer and credit card segments.
<TABLE>
<CAPTION>
Loan Composition
March 31 December 31 September 30 June 30 March 31
(In millions) 2000 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial
Domestic
Commercial........................................ $ 60,253 $ 59,070 $ 56,789 $ 54,741 $ 53,005
Real estate
Construction................................... 5,824 5,836 5,694 5,441 5,172
Other.......................................... 19,500 18,817 18,566 18,114 17,927
Lease financing................................... 5,597 5,562 5,630 5,547 5,304
Foreign............................................... 6,925 7,067 6,504 5,880 6,173
-------- -------- -------- -------- --------
Total commercial............................. 98,099 96,352 93,183 89,723 87,581
Consumer
Residential real estate (1)....................... 33,999 32,313 29,211 27,217 25,943
Automotive (2).................................... 23,371 23,567 20,990 21,820 20,942
Other............................................. 7,717 7,608 8,743 10,576 10,984
-------- -------- -------- -------- --------
Total consumer.............................. 65,087 63,488 58,944 59,613 57,869
Credit card................................................ 4,892 4,037 6,016 8,128 9,400
-------- -------- -------- -------- --------
Total....................................... $168,078 $163,877 $158,143 $157,464 $154,850
======== ======== ======== ======== ========
</TABLE>
- ------------------
(1) Includes first mortgages and home equity loans.
(2) Includes auto lease receivables.
Nonperforming Assets
At March 31, 2000, nonperforming assets totaled $1.190 billion, compared
with $1.159 billion in December 31, 1999. Nonperforming assets at March 31,
2000, included $1.093 billion of nonperforming loans and $97 million of other
nonperforming assets, including other real estate owned. Nonperforming assets
remain below 1% of total loans and other nonperforming assets.
<TABLE>
<CAPTION>
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2000 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans....................... $1,093 $1,053 $1,027 $1,032 $1,031
Other, including other real estate owned.. 97 106 113 105 117
------ ------ ------ ------ ------
Total nonperforming assets.... $1,190 $1,159 $1,140 $1,137 $1,148
====== ====== ====== ====== ======
Nonperforming assets/related assets....... 0.71% 0.71% 0.72% 0.72% 0.74%
====== ====== ====== ====== ======
</TABLE>
Consumer Risk Management
Consumer risk management uses advanced risk assessment tools across each
of the consumer lines of business, including credit cards, loans secured by real
estate, automobile loans and leases, and other unsecured loans. With these
tools, product and price offerings are targeted to best match the consumer risk
profile.
Management continues to proactively manage the risk/reward relationship of
each consumer product loan portfolio segment, such that profitability targets
and required rates of return on investments are achieved.
Consumer and Credit Card Loans
Consumer loans consist of credit card receivables as well as loans secured
by residential real estate, automobile financing, and other forms of secured and
unsecured consumer installment credit. Excluding securitized receivables, the
consumer and credit card loan portfolio totaled $70.0 billion at March 31, 2000,
an increase of 4% compared to both December 31, 1999 and a year ago. Including
securitized credit card receivables, the consumer portfolio declined slightly
from year-end 1999.
-19-
<PAGE>
<TABLE>
<CAPTION>
March 31 December 31 September 30 June 30 March 31
(In millions) 2000 1999 1999 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card................... $ 4,892 $ 4,037 $ 6,016 $ 8,128 $ 9,400
Residential real estate (1)... 33,999 32,313 29,211 27,217 25,943
Automotive (2)................ 23,371 23,567 20,990 21,820 20,942
Other consumer ............... 7,717 7,608 8,743 10,576 10,984
-------- -------- -------- -------- --------
Total owned............. 69,979 67,525 64,960 67,741 67,269
Securitized credit card....... 61,595 65,319 63,974 61,331 58,964
-------- -------- -------- -------- --------
Total managed........... $131,574 $132,844 $128,934 $129,072 $126,233
======== ======== ======== ======== ========
Managed credit card........... $66,487 $69,356 $69,990 $69,459 $68,364
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes first mortgages and home equity loans.
(2) Includes auto lease receivables.
<TABLE>
<CAPTION>
Managed Credit Card Receivables Three Months Ended
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2000 1999 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balances
Credit card loans.......................... $ 4,332 $ 4,526 $ 6,905 $ 8,520 $ 9,036
Securitized credit card receivables........ 62,763 64,152 62,248 60,427 60,108
------- ------- ------- ------- -------
Total average credit card receivables... $67,095 $68,678 $69,153 $68,947 $69,144
======= ======= ======= ======= =======
Total net charge-offs (including
securitizations)........................... $969 $1,119 $921 $905 $845
==== ====== ==== ==== ====
Net charge-offs/average total receivables..... 5.78% 6.52% (1) 5.33% 5.25% 4.89%
Credit card delinquency rate at period end
30 or more days............................ 4.08 4.57 4.74 4.30 4.51
90 or more days............................ 1.91 2.13 2.07 1.96 2.06
</TABLE>
- ------------------
(1) Ratio includes $183 million of securitized charge-offs taken in the fourth
quarter of 1999, related to the early adoption of certain of the FFIEC's new
consumer charge-off guidelines.
Managed credit card receivables (i.e., those held in the portfolio and
those sold to investors through securitization) were $66.5 billion at March 31,
2000, down modestly from both year-end 1999 and a year ago.
The managed credit card net charge-off rate for the first quarter of 2000
decreased to 5.78% from 6.52% in the fourth quarter of 1999. In the 1999 fourth
quarter, the Corporation conformed its credit card charge-off policy with the
adoption of specific guidelines of the Federal Financial Institutions
Examination Council ("FFIEC") for charge-off recognition policies-namely
recognizing bankruptcy and deceased charge-offs within 60 days of notification.
Without conforming such practices, the fourth quarter 1999 ratio would have been
5.45%. The 30- and 90-day delinquency rates at March 31, 2000, decreased from
those experienced in the prior quarter and the year-ago period.
-20-
<PAGE>
Account attrition and the seasoning of the 1998 loan portfolio vintages
were primarily responsible for the increase in the charge-off rate in the first
quarter of 2000 from the normalized fourth quarter of 1999 rate. While overall
credit quality is projected to remain reasonably stable in 2000, reported net
charge-off rates are anticipated to increase over the remainder of the year,
reflecting in part the impact of the adoption of the remaining FFIEC charge-off
quidelines and the seasoning of the portfolio. Consumer debt service burdens are
likely to increase in the coming months in response to rising interest rates.
However, a strong employment environment, coupled with real wage gains, has
contributed to generally strong consumer cash flows to date. Personal
bankruptcies are modestly lower than year-ago levels, but bankruptcy filings
remain at historically high levels. Competition for new creditworthy customers
remains intense. Management continues to review credit limits, close high-risk
unprofitable accounts, monitor authorization criteria, and review policies and
procedures for delinquency management and related collection activities.
<TABLE>
<CAPTION>
Other Consumer Loans Three Months Ended
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2000 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balances.................... $65,118 $62,577 $59,876 $58,065 $57,177
Total net charge-offs............... 123 256 93 89 120
Net charge-offs/average balances.... 0.76% 1.64% (1) 0.62% 0.61% 0.84%
</TABLE>
- -------------
(1) Ratio includes $143 million of consumer charge-offs taken in the fourth
quarter of 1999, related to the early adoption of certain of the FFIEC's
new consumer charge-off guidelines.
Other consumer loans, primarily loans secured by real estate as well as
auto loans and leases, continued to exhibit acceptable credit quality. The net
charge-off rate for the first quarter of 2000 was 0.76%, down from 1.64% in the
fourth quarter of 1999. During the fourth quarter of 1999, $143 million in
charge-offs were recorded associated with the adoption of FFIEC charge-off
recognition policies for secured lending products. Absent this one-time impact,
the net charge-off rate for the fourth quarter of 1999 would have been 0.72%.
During the first quarter of 2000, the Corporation sold $2.2 billion in higher
risk profile real estate secured loans, consistent with the Corporation's
objective to focus on its core business franchise of higher credit quality
borrowers. The remaining composition of the consumer loan portfolio provides
broad diversification of risk from both a product and geographic perspective.
Credit quality is expected to remain stable in 2000, with net charge-off rates
generally in line with the averages experienced over the last several quarters,
excluding the $143 million impact related to the adoption of FFIEC charge-off
guidelines in the fourth quarter of 1999. The absolute level of charge-off
dollars is likely to increase as the portfolio matures, but charge-off rate
increases should remain modest.
Commercial Risk Management
The commercial credit portfolio includes all domestic and foreign
commercial credit exposure. Credit exposure includes the credit risks associated
with both on- and off-balance sheet financial instruments.
In the commercial portfolio, borrowers/transactions are assigned specific
risk ratings based upon an established underwriting and approval process. Risk
ratings are reviewed periodically and revised, if needed, to reflect, the
borrower's/transaction's current risk profile. The lower categories of credit
risk are equivalent to the four bank regulatory classifications: Special
Mention, Substandard, Doubtful and Loss.
Commercial loans increased to $98.1 billion at March 31, 2000, from $96.4
billion at December 31, 1999. Commercial net charge-offs increased to $84
million, or 0.34% of average loans, in the first quarter of 2000, compared with
$71 million, or 0.30%, in the fourth quarter of 1999. Nonperforming commercial
loans increased $40 million to $1.093 billion at March 31, 2000, from 1.053
billion at December 31, 1999. The Corporation anticipates an increase in
nonperforming commercial loans in the near term.
The Corporation also conducts an asset-by-asset review of significant
lower-rated credit or country exposure each quarter. Potential losses are
identified during this review, and reserves are adjusted accordingly.
-21-
<PAGE>
Commercial Real Estate
Commercial real estate is the largest product category in the commercial
portfolio and consists primarily of loans secured by real estate as well as
certain loans that are real estate-related. A loan is categorized as real
estate-related when 80% or more of the borrower's revenues are derived from real
estate activities and the loan is not collateralized by cash or marketable
securities. This segment is geographically diversified primarily in the states
in which the Corporation operates.
At March 31, 2000, commercial real estate loans totaled $25.3 billion, or
26% of commercial loans, compared with $24.7 billion or 26% of commercial loans
at year-end 1999.
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. The
allowance is a general reserve available to all lines of business. Reserves are
based on an estimate of potential inherent loss at a point in time and for
discrete periods of time. The estimate is derived using a combination of
empirically driven tests and management judgment. Each quarter, reserves are
formally estimated by each line of business and reviewed and modified by
Corporate Risk Management.
<TABLE>
<CAPTION>
Analysis of Allowance for Credit Losses
March 31 December 31 September 30 June 30 March 31
(In millions) 2000 1999 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period...... $2,285 $2,252 $2,250 $2,270 $2,271
Provision for credit losses....... 362 416 277 275 281
Charge-offs
Commercial................... 106 109 112 106 83
Consumer..................... 171 291 138 134 172
Credit card.................. 61 68 92 114 112
--------- -------- --------- --------- ---------
Total charge-offs..... 338 468 342 354 367
Recoveries
Commercial................... 22 38 21 25 20
Consumer..................... 48 35 45 45 52
Credit card.................. 2 12 9 9 14
--------- -------- ----------- ----------- ---------
Total recoveries...... 72 85 75 79 86
Net charge-offs................... 266 383 267 275 281
Other............................. (43) -- (8) (20) (1)
--------- ------- --------- ---------- ---------
Balance, end of period............ $2,338 $2,285 $2,252 $2,250 $2,270
====== ====== ====== ====== ======
</TABLE>
Other reductions in the allowance for credit losses primarily represent
the allocable credit reserves associated with completed consumer loan sales,
including securitization transactions. Substantially all of the other $43
million reserve reduction in the 2000 first quarter related to the Corporation's
sale of $2.2 billion in consumer finance loans.
Line of business reserve tests are based on empirical analysis of
historical delinquency and loss experience for on- and off-balance sheet loan
exposure. They are also based on application of approved charge-off policies,
recovery policies, actual quarter end balances/exposures and current portfolio
performance trends. A corporate unallocated (subjective) reserve based on
management's judgment and supported, in part, by portfolio stress testing is
also maintained. Securitized or held-for-sale loans, including credit card
receivables, are not subject to the reserve process.
The allowance for credit losses is intended to be an estimate of inherent
losses in an existing portfolio at a point in time. Management bases its
assessment of inherent losses on the expected default rate in the portfolio over
a defined future time horizon and the expected loss rate in the event of
default, considering the existence of collateral where appropriate.
It is Corporate Risk Management's responsibility to recommend a reserve
and provision that result in adequate coverage of inherent losses within the
Corporation's credit portfolios. Corporate Risk Management's assessment is based
on:
-22-
<PAGE>
. Review and acceptance, or modification, of line of business reserve tests
that estimate probable losses inherent in various portfolio segments using
empirical methodologies.
. Determination of subjective or unallocated reserves based on management's
judgment of factors not fully captured in line of business reserve tests.
Allocated Reserves
The Corporation employs several different methodologies for estimating
allocated reserves. Methodologies are determined based upon a number of factors,
including type of asset (consumer installment versus commercial loan), risk
measurement parameters (delinquency status and bureau score versus commercial
risk rating), and risk management and collection process (retail collection
center versus centrally managed work out units). Reserving methodologies
generally fall into one of the following categories:
. Empirically driven calculated reserves based on probable loss.
. Asset-specific reserves based, in part, on loan-specific analysis of
collateral coverage.
For each of the consumer portfolios, including the credit card portfolio,
reserves are established based on a statistical analysis of inherent loss over
discrete periods of time. The analysis reviews historical losses, vintage
performance, delinquencies and other risk characteristics of the various
consumer products to estimate expected losses. These factors and analysis are
updated on a quarterly basis.
During the 1999 fourth quarter, the Corporation refined its measurement
process for estimating probable losses for its consumer product portfolio
segments. To refine the process, the Corporation evaluated a variety of factors
including recent loss experience in the consumer portfolios, changes in
origination sources, portfolio seasoning and underlying credit practices,
including charge-off policies. As a part of this refinement process, the
Corporation adopted certain of the FFIEC's new consumer charge-off guidelines,
some of which require charge-offs to be recorded sooner than they would be under
the Corporation's previous standards. The adoption of these guidelines resulted
in net charge-offs of $143 million during the fourth quarter of 1999. As a
result of these policy changes and the assessment of the other relevant factors,
management determined that an increased provision of $176 million was required
in the fourth quarter of 1999 to maintain the reserve at an adequate level to
absorb inherent losses. The Corporation does not anticipate that this one-time
recalibration is indicative of ongoing credit provisions or net charge-offs in
these consumer product portfolio segments. The Corporation continues to make
periodic assessments of its probable loss measurement process, and based on
current facts and economic conditions, does not believe significant near-term
increases to the provision will be required.
For the commercial portfolio, the Corporation conducts a two-part test.
First, significant credits that have a risk rating equivalent to the bank
regulatory classifications of substandard, doubtful and loss are formally
reviewed each quarter and asset-specific reserves are established as
appropriate. Second, inherent losses for the remaining commercial portfolio are
estimated by assigning a specific reserve factor to each risk category of the
portfolio based on a statistical analysis of historical loss experience over a
discrete period of time. As the Corporation continues to gather more refined
historical loss statistics for the merged Corporation, it will continue to
refine its process to estimate inherent losses in the commercial portfolio.
Unallocated Reserves
Unallocated reserves are established based on management's judgment in
order to appropriately reflect the presence of indicators of inherent losses
that are not fully reflected in the historical loss information and analysis
used in the development of allocated reserves. The factors considered in
establishing the unallocated reserve include: nonperforming, charge-off,
delinquency and portfolio growth and concentration trends, portfolio stress
testing and the likely impact of known changes in the economy or other events
that may affect loss performance.
Portfolio stress testing has been conducted on the commercial portfolio
since the first quarter of 1999. These tests are conducted to estimate a range
of expected loss resulting from observed deterioration in certain industry
sectors of the economy and/or the Corporation's downside macroeconomic forecast.
Corporate Risk Management also uses third party information and analysis
to validate internal measures of credit quality and reserve adequacy. The line
of business reserve tests, portfolio stress testing, and third party information
and analysis all contribute to the establishment of reference points used in
evaluating the adequacy of the total reserve.
-23-
<PAGE>
Composition of Allowance for Credit Losses
While the allowance for credit losses is available to absorb credit losses
in the entire portfolio, the tables below present an estimate of the allowance
for credit losses allocated by loan type and the percentage of loans in each
category to total loans.
<TABLE>
<CAPTION>
March 31 December 31 September 30 June 30 March 31
(Dollars in millions) 2000 1999 1999 1999 1999
------------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial................ $ 987 42% $ 972 43% $ 894 40% $ 919 41% $ 934 41%
Consumer.................. 514 22 486 21 394 17 419 19 428 19
Credit card............... 148 6 148 6 184 8 201 9 200 9
Unallocated 689 30 679 30 780 35 711 31 708 31
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total......... $ 2,338 100% $ 2,285 100% $ 2,252 100% $ 2,250 100% $ 2,270 100%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Percentage of loans
to total loans
Commercial............ 58% 59% 59% 57% 57%
Consumer.............. 39 39 37 38 37
Credit card........... 3 2 4 5 6
---- ---- ---- ---- ----
Total......... 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
The increase in the allowance for credit losses in the first quarter of
2000 related to growth in the commercial and consumer portfolios as well as
deterioration in the commercial portfolio. The Corporation anticipates a
continuing deterioration in the commercial portfolio segment.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses a variety of derivative financial instruments in its
trading, asset and liability management, and corporate investment activities.
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.
Income Resulting from Derivative Financial Instruments
The Corporation uses interest rate derivative financial instruments to
reduce structural interest rate risk and the volatility of net interest margin.
Net interest margin reflects the effective use of these derivatives. Without
their use, net interest income would have been lower by $11 million in the first
quarter of 2000 and lower by $64 million in the first quarter of 1999.
Deferred gains, net of deferred losses, on interest rate swaps terminated
early or dedesignated as ALM derivatives totaled $105 million as of March 31,
2000. This amount will be amortized as an adjustment to interest income or
expense on the linked interest rate exposure position. The net adjustment will
be $51 million in 2000, $47 million in 2001, $24 million in 2002 and $(17)
million thereafter.
Credit Exposure Resulting from Derivative Financial Instruments
The Corporation maintains risk management policies that monitor and limit
exposure to credit risks. For a further discussion of credit risks, see the
"Credit Risk Management" section, beginning on page 18.
Credit exposure from derivative financial instruments arises from the risk
of a customer default on the derivative contract. The amount of loss created by
the default is the replacement cost or current fair value of the defaulted
contract. The Corporation utilizes master netting agreements whenever possible
to reduce its credit exposure from customer default. These agreements allow the
netting of contracts with unrealized losses against contracts with unrealized
gains to the same customer, in the event of a customer default. The table below
shows the impact of these master netting agreements.
-24-
<PAGE>
<TABLE>
<CAPTION>
March 31 December 31
(In millions) 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross replacement cost........................................ $11,068 $12,254
Less: Adjustment due to master netting agreements.......... (7,812) (8,895)
-------- --------
Current credit exposure....................................... 3,256 3,359
Unrecognized net (gains) losses due to nontrading activity.... (49) 13
-------- --------
Balance sheet exposure........................................ $ 3,207 $ 3,372
======== ========
</TABLE>
Current credit exposure represents the total loss that the Corporation
would have suffered had every counterparty been in default on those dates. These
amounts are reduced by the unrealized and unrecognized gains and losses on
derivatives used in asset and liability management activities to arrive at the
balance sheet exposure.
LOAN SECURITIZATIONS
The Corporation transforms loans into securities, which are sold to
investors, a process referred to as securitization. The Corporation primarily
securitizes credit card receivables, but also securitizes home equity loans and
other consumer assets. In a credit card securitization, a designated pool of
credit card receivables is removed from the balance sheet and a security is sold
to investors entitling them to receive specified cash flows during the life of
the security. The Corporation receives (1) fees for servicing the receivables,
and (2) net interest revenue, which includes the contractual interest and
yield-related fees on the receivables less the interest paid to the investors,
net credit losses and servicing fees.
The Corporation maintains an undivided, pro rata interest in the credit
card securitized assets, referred to as seller's interest, which is generally
equal to the pool of assets included in the securitization less the investors'
portion of those assets. As the amount of the loans in the securitized pool
fluctuates due to customer payments, purchases, cash advances, and credit
losses, the amount of the seller's interest will vary. This seller's interest is
classified on the balance sheet as investment securities--available for sale.
The following represents the balance sheet impact of the Corporation's
credit card securitizations at March 31, 2000 (in millions):
Owned credit card loans.......................................... $ 4,892
Seller's interest in credit card loans (investment securities)... 17,427
-------
Total credit card loans reflected on balance sheet............... 22,319
Securities sold to investors and removed from balance sheet...... 44,168
-------
Managed credit card loans........................................ $66,487
=======
At the time the Corporation enters into a securitization, an interest-only
strip asset is recognized and the resulting gain or loss on sale is recorded in
noninterest income as other income. The interest-only strip represents the
present value of the net interest revenue related to the securitized loans and
is also classified as investment securities--available for sale. During the
revolving period of a credit card securitization, an additional gain is
recognized each month over the life of the transaction as additional receivables
are sold. The interest-only strip is reduced as the securities sold to investors
are repaid.
Certain estimates are used in determining the fair value of the
interest-only strip, including net interest revenues, receivable lives and the
discount rate. The components of net interest revenues, which are estimated,
include finance charge and fee revenue (excluding interchange income) generated
by the securitized loans in excess of interest paid to investors, related net
credit losses and servicing fees. The resulting expected cash flows over the
lives of the receivables are discounted to determine the fair value. Such
estimates and assumptions are subject to change and, accordingly, the
Corporation may not recover all of the recorded investment of the interest-only
strips. See the discussion on page 11 for additional details. The receivables in
each trust have unique attributes; thus the interest-only strip related to each
trust is evaluated separately. The weighted-average assumptions used to estimate
the fair value of interest-only strip related to credit card securitizations as
of March 31, 2000, were as follows:
-25-
<PAGE>
Net interest revenue (including net credit losses of 6.47% per annum). 2.75%
Receivables lives..................................................... 6 months
Discount rate......................................................... 10.00%
Seller's interest resulting from credit card securitizations is recorded at
fair value using a present value approach; the assumptions are consistent with
the valuation of the interest-only strip. At March 31, 2000, the estimated fair
value of seller's interest and interest-only strip from credit card
securitizations were as follows:
(In millions)
Seller's interest...................................................... $17,452
Interest-only strips................................................... 593
Credit enhancements associated with credit card securitizations, such as
cash collateral or spread accounts, total $275 million at March 31, 2000, and
are classified on the balance sheet as other assets. A servicing asset or
liability is not generally recognized in a credit card securitization since the
Corporation receives adequate compensation relative to current market servicing
prices to service the receivables sold. Transaction costs in credit card
securitizations are typically deferred and amortized over the life of the
security as a reduction of noninterest income. Other securitization transaction
costs are included in the gain or loss on sale.
The asset values of seller's interest, interest-only strip and credit
enhancements are periodically reviewed for other-than-temporary impairment.
YEAR 2000 READINESS DISCLOSURE
The Corporation incurred total Year 2000 readiness costs of approximately
$344 million over the life of the project.
The Corporation had an uneventful transition to the Year 2000. The
Corporation's systems, equipment and facilities continued and continue to
function normally through the transition and into Year 2000. Normal products and
services of the Corporation have been available to customers throughout such
time, and the Corporation experienced no significant impact from the Year 2000
readiness status of external entities.
On an ongoing basis, the Corporation will continue to monitor its systems,
equipment and facilities throughout 2000 and beyond.
CAPITAL MANAGEMENT
Capital represents the stockholders' investment on which the Corporation
strives to generate attractive returns. It is the foundation of a cohesive risk
management framework and links return with risk. Capital supports business
growth and provides protection to depositors and creditors.
Key capital management objectives are to:
. generate attractive returns to enhance shareholder value;
. maintain a capital base commensurate with overall risk profile;
. maintain strong capital ratios relative to peers; and
. meet or exceed all regulatory guidelines.
In conjunction with the annual financial planning process, a capital plan
is established to ensure that the Corporation and all of its subsidiaries have
capital structures consistent with prudent management principles and regulatory
requirements.
-26-
<PAGE>
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. The following principles are inherent in
the capital attribution employed:
. An equal amount of capital is assigned for each measured unit of risk.
. Risk is defined in terms of "unexpected" losses over the life of the
exposure, measured at a confidence interval consistent with that level of
capitalization necessary to achieve a targeted AA debt rating. Unexpected
losses are in excess of those normally incurred and for which reserves are
maintained.
. Business units are assessed a uniform charge against allotted capital,
representing a target hurdle rate on equity investments. Returns on capital
in excess of the hurdle rate contribute to increases in shareholder value.
Four forms of risk are measured--credit, market, operational and lease
residual. Credit risk capital is determined through an analysis of both
historical loss experience and market expectations. Market risk capital is set
consistent with exposure limits established by the Corporation's risk oversight
committees. Operational risk capital incorporates event and technology risks, as
well as the general business risks arising from operating leverage. The
operating risk evaluation process involves an examination of various risk
factors that contribute to a greater likelihood of loss due to business failure,
fraud or processing error. Finally, lease residual risk capital covers the
potential for losses arising from the disposition of assets returned at the end
of lease contracts. This price risk is analyzed based upon historical loss
experiences and market factors, as well as by reviewing event-specific
scenarios.
The capital attributions in the "Business Segments" section, beginning on
page 2, were developed through this process.
Selected Capital Ratio Review
The Corporation aims to maintain regulatory capital ratios, including
those of its principal banking subsidiaries, in excess of the well-capitalized
guidelines under federal banking regulations. The Corporation has maintained a
well-capitalized regulatory position over the past five quarters.
The tangible common equity to managed assets ratio is also monitored, with
a current target range of 5-7%. This ratio adds securitized credit card loans to
reported total assets and is calculated net of total intangible assets.
<TABLE>
<CAPTION>
Well-
Selected Capital Ratios Capitalized
March 31 December 31 September 30 June 30 March 31 Corporate Regulatory
2000 1999 1999 1999 1999 Targets Guidelines
- ------------------------------------------------------------------------------------------------------------------------------------
Risk-based capital ratios (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Tier 1............................... 7.7% 7.7% 7.7% 8.1% 8.2% - 6.0%
Total................................ 10.6 10.7 10.8 11.4 11.7 - 10.0
Leverage ratio (1)(2)....................... 7.7 7.7 7.9 8.1 8.0 - 3.0
Tangible common equity/
tangible managed assets.................. 5.7 5.7 5.7 6.2 6.3 5-7% -
Double leverage ratio (1)................... 111 112 110 107 107 less than or -
equal to 120%
Dividend payout ratio....................... 70 117 53 51 44 35-40% -
Common equity/total assets ................. 7.4 7.4 7.5 8.1 8.3 - -
Stockholders' equity/total assets........... 7.4 7.5 7.6 8.2 8.4 - -
</TABLE>
- --------
(1) Includes trust preferred capital securities.
(2) Minimum regulatory guideline is 3.0%.
-27-
<PAGE>
The components of the Corporation's regulatory risk-based capital and
risk-weighted assets are shown below:
<TABLE>
<CAPTION>
March 31 December 31 March 31
(In millions) 2000 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Regulatory risk-based capital
Tier 1 capital....................................... $ 20,573 $ 20,247 $ 20,148
Tier 2 capital....................................... 7,899 7,967 8,563
--------- --------- ---------
Total capital................................... $ 28,472 $ 28,214 $ 28,711
========= ========= =========
Total risk-weighted assets........................... $ 268,339 $ 263,169 $ 246,097
========= ========= =========
</TABLE>
In deriving Tier 1 and total capital, goodwill and other nonqualifying
intangible assets are deducted as shown below.
Intangible Assets
<TABLE>
<CAPTION>
March 31 December 31 March 31
(In millions) 2000 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill.......................................................... $ 916 $ 934 $ 1,048
Other nonqualifying intangibles................................... 637 669 691
-------- -------- --------
Subtotal..................................................... 1,553 1,603 1,739
Qualifying intangibles............................................ 555 583 716
-------- -------- --------
Total intangibles............................................ $ 2,108 $ 2,186 $ 2,455
======== ======== ========
</TABLE>
Dividends
The Corporation's common dividend policy reflects its earnings outlook,
desired payout ratios, the need to maintain an adequate capital level and
alternative investment opportunities. The common dividend payout ratio is
targeted in the range of 35% to 40% of earnings over time; however, the
Corporation expects its near-term payout ratio to be in the 40%-60% range. On
April 18, 2000, the Corporation declared its quarterly common cash dividend of
$0.42 per share, payable July 1, 2000.
Double Leverage
Double leverage is the extent to which the Corporation's debt is used to
finance investments in subsidiaries. Currently, double leverage is targeted at
no more than 120% at any time. Double leverage was 111% at March 31, 2000, and
112% at December 31, 1999. Trust Preferred Capital Securities of $1.578 billion,
at March 31, 2000, and December 31, 1999, were included in capital for purposes
of this calculation.
Stock Repurchase Program and Other Capital Activities
On May 18, 1999, the Corporation's Board of Directors authorized the
purchase of up to 65 million shares of the Corporation's common stock. As of
March 31, 2000, the Corporation had purchased 36.6 million shares of common
stock at an average price of $44.95 per share. During the quarter, no shares
were repurchased under the authorized plan.
-28-
<PAGE>
CONSOLIDATED BALANCE SHEET
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
March 31 December 31 March 31
(Dollars in millions) 2000 1999 1999
------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks................................................................... $ 15,267 $ 16,076 $ 13,854
Interest-bearing due from banks........................................................... 8,105 6,645 4,130
Federal funds sold and securities under resale agreements................................. 10,998 9,782 9,209
Trading assets............................................................................ 5,587 7,952 5,660
Derivative product assets................................................................. 3,207 3,372 4,510
Investment securities..................................................................... 47,459 47,912 44,565
Loans (net of unearned income-$3,302, $4,075, $3,826, respectively)
Commercial....................................................................... 98,099 96,352 87,581
Consumer......................................................................... 65,087 63,488 57,869
Credit card...................................................................... 4,892 4,037 9,400
Allowance for credit losses............................................................... (2,338) (2,285) (2,270)
---------- ---------- ----------
Loans, net....................................................................... 165,740 161,592 152,580
Bank premises and equipment, net.......................................................... 3,266 3,317 3,235
Customers' acceptance liability........................................................... 493 366 354
Other assets.............................................................................. 12,886 12,411 12,305
---------- ---------- ----------
Total assets...................................................... $ 273,008 $ 269,425 $ 250,402
========== ========== ==========
Liabilities
Deposits
Demand........................................................................... $ 29,923 $ 31,194 $ 35,110
Savings.......................................................................... 65,292 64,435 63,378
Time............................................................................. 40,263 36,877 34,844
Foreign offices.................................................................. 29,165 29,772 20,367
---------- ---------- ----------
Total deposits.................................................... 164,643 162,278 153,699
Federal funds purchased and securities under repurchase agreements........................ 18,451 18,720 20,111
Other short-term borrowings............................................................... 18,261 21,211 16,780
Long-term debt............................................................................ 37,175 33,857 23,985
Guaranteed preferred beneficial interest in the Corporation's junior subordinated debt.... 1,578 1,578 1,003
Acceptances outstanding................................................................... 493 366 354
Derivative product liabilities............................................................ 3,100 3,332 4,772
Other liabilities......................................................................... 9,036 7,993 8,638
---------- ---------- ----------
Total liabilities................................................. 252,737 249,335 229,342
Stockholders' Equity
Preferred stock........................................................................... 190 190 190
Common stock - $0.01 par value............................................................ 12 12 12
Number of common shares (in thousands): 3/31/00 12/31/99 3/31/99
------------- ------------- -----------
Authorized.............................. 2,500,000 2,500,000 2,500,000
Issued............................... 1,181,386 1,182,121 1,180,473
Outstanding.......................... 1,152,289 1,147,343 1,180,473
Surplus................................................................................... 10,679 10,799 10,734
Retained earnings......................................................................... 11,242 11,037 10,179
Accumulated other adjustments to stockholders' equity..................................... (358) (263) 96
Deferred compensation..................................................................... (165) (118) (151)
Treasury stock at cost, 29,097,000, 34,778,000 and -0- shares, respectively............... (1,329) (1,567) --
---------- ---------- ----------
Total stockholders' equity........................................ 20,271 20,090 21,060
---------- ---------- ----------
Total liabilities and stockholders' equity........................$ 273,008 $ 269,425 $ 250,402
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-29-
<PAGE>
CONSOLIDATED INCOME STATEMENT
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In millions, except per share data) 2000 1999
---------------------------------------
Interest Income
<S> <C> <C>
Loans, including fees................................................ $3,596 $3,192
Bank balances........................................................ 102 57
Federal funds sold and securities under resale agreements............ 124 106
Trading assets....................................................... 127 96
Investment securities--taxable....................................... 699 699
Investment securities--tax-exempt.................................... 105 46
------- --------
Total.................................................... 4,753 4,196
Interest Expense
Deposits............................................................. 1,389 1,122
Federal funds purchased and securities under repurchase agreements... 266 246
Other short-term borrowings.......................................... 298 198
Long-term debt....................................................... 607 350
------- -------
Total.................................................... 2,560 1,916
Net Interest Income.................................................. 2,193 2,280
Provision for credit losses.......................................... 362 281
------- -------
Net Interest Income after Provision for Credit Losses................ 1,831 1,999
Noninterest Income
Trading profits...................................................... 64 67
Equity securities gains.............................................. 143 96
Investment securities gains.......................................... 15 52
------- -------
Market-driven revenue.......................................... 222 215
Credit card revenue.................................................. 578 929
Fiduciary and investment management fees............................. 195 179
Service charges and commissions...................................... 713 690
------ ------
Fee-based revenue.............................................. 1,486 1,798
Other income......................................................... 113 577
------- -------
Total.................................................... 1,821 2,590
Noninterest Expense
Salaries and employee benefits....................................... 1,098 1,147
Net occupancy and equipment expense.................................. 222 227
Depreciation and amortization........................................ 163 175
Outside service fees and processing.................................. 408 406
Marketing and development............................................ 226 315
Communication and transportation..................................... 212 200
Merger-related and restructuring charges............................. (19) 164
Other................................................................ 351 307
------ ------
Total.................................................... 2,661 2,941
Income Before Income Taxes........................................... 991 1,648
Applicable taxes..................................................... 302 497
------ ------
Net Income........................................................... $ 689 $1,151
====== ======
Net Income Attributable to Common Stockholders' Equity............... $ 686 $1,148
====== ======
Earnings Per Share
Basic.......................................................... $ 0.60 $ 0.97
Diluted........................................................ $ 0.60 $ 0.96
</TABLE>
The accompanying notes are an integral part of this statement.
-30-
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
Preferred Common Retained
(In millions) Stock Stock Surplus Earnings
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance - December 31, 1998 $190 $12 $10,769 $9,528
Net income 1,151
Change in fair value, investment securities--
available for sale, net of taxes.......................
Translation gain(loss), net of taxes......................
------
Net income and changes in accumulated other
adjustments to stockholders' equity..................... 1,151
Cash dividends declared
On common stock......................................... (497)
On preferred stock...................................... (3)
Issuance of stock......................................... 9
Awards granted, net of forfeitures and amortization.......
Other..................................................... (44)
---- --- ------- -------
Balance - March 31, 1999.................................. $190 $12 $10,734 $10,179
==== === ======= =======
Balance - December 31, 1999 $190 $12 $10,799 $11,037
Net income................................................ 689
Change in fair value, investment securities--
available-for-sale, net of taxes.......................
Translation gain(loss), net of taxes......................
-------
Net income and changes in accumulated other
adjustments to stockholders' equity.................... 689
Cash dividends declared
On common stock......................................... (481)
On preferred stock...................................... (3)
Issuance of stock......................................... (115)
Purchase of common stock..................................
Cancellation of shares held in treasury................... (32)
Awards granted, net of forfeitures and amortization.......
Other..................................................... 27
---- --- ------ ------
Balance - March 31, 2000.................................. $190 $12 $10,679 $11,242
==== === ======= =======
<CAPTION>
Accumulated
Other
Adjustments to Total
Stockholders' Deferred Treasury Stockholders'
(In millions) Equity Compensation Stock Equity
------------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance - December 31, 1998 $239 $(94) $(84) $20,560
Net income 1,151
Change in fair value, investment securities--
available for sale, net of taxes....................... (127) (127)
Translation gain(loss), net of taxes...................... (16) (16)
-------- --------
Net income and changes in accumulated other
adjustments to stockholders' equity..................... (143) 1,008
Cash dividends declared
On common stock......................................... (497)
On preferred stock...................................... (3)
Issuance of stock......................................... 84 93
Awards granted, net of forfeitures and amortization....... (57) (57)
Other..................................................... (44)
---- ---- ------ -------
Balance - March 31, 1999.................................. $ 96 $(151) $ -- $21,060
===== ====== ======= =======
Balance - December 31, 1999 $(263) $(118) $(1,567) $20,090
Net income................................................ 689
Change in fair value, investment securities--
available-for-sale, net of taxes....................... (95) (95)
Translation gain(loss), net of taxes...................... --
------ ------
Net income and changes in accumulated other
adjustments to stockholders' equity.................... (95) 594
Cash dividends declared
On common stock......................................... (481)
On preferred stock...................................... (3)
Issuance of stock......................................... 274 159
Purchase of common stock.................................. (17) (17)
Cancellation of shares held in treasury................... (32)
Awards granted, net of forfeitures and amortization....... (79) (79)
Other..................................................... 32 (19) 40
----- ----- ------ ------
Balance - March 31, 2000.................................. $(358) $(165) $(1,329) $20,271
====== ====== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
-31-
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
BANK ONE CORPORATION and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In millions) 2000 1999
----------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income............................................................................ $ 689 $ 1,151
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 162 175
Provision for credit losses.................................................... 362 281
Equity securities gains........................................................ (143) (96)
Investment securities gains.................................................... (15) (52)
Net (increase) decrease in net derivative product assets....................... (67) 69
Net (increase) decrease in trading assets...................................... 2,392 (322)
Net (increase) decrease in other assets........................................ (581) 769
Net increase (decrease) in other liabilities................................... 858 (821)
Gains on sale of banking centers............................................... -- (249)
Merger-related and restructuring charges....................................... (19) --
Other operating adjustments.................................................... (245) (521)
-------- --------
Net cash provided by operating activities............................................. 3,393 384
Cash Flows from Investing Activities
Net (increase) decrease in federal funds sold and securities under resale agreements.. (1,216) 653
Securities available for sale:
Purchases........................................................................ (7,548) (19,751)
Maturities....................................................................... 1,258 4,977
Sales............................................................................ 4,457 14,418
Credit card receivables securitized................................................... -- 2,664
Net (increase) in loans .............................................................. (2,092) (1,149)
Loan recoveries....................................................................... 72 86
Additions to bank premises and equipment.............................................. (132) (127)
Net cash and cash equivalents due to mergers, acquisitions and dispositions........... -- (986)
All other investing activities, net................................................... (108) (1,091)
-------- --------
Net cash used in investing activities................................................. (5,309) (306)
Cash Flows from Financing Activities
Net increase (decrease) in deposits................................................... 2,297 (5,576)
Net decrease in federal funds purchased and securities under repurchase agreements.... (269) (3,053)
Net decrease in other short-term borrowings........................................... (2,951) (156)
Proceeds from issuance of long-term debt.............................................. 4,452 7,372
Repayment of long-term debt........................................................... (1,098) (4,699)
Cash dividends paid................................................................... (2) (451)
Proceeds from issuance of common and treasury stock................................... 66 --
All other financing activities, net................................................... (13) 29
-------- --------
Net cash provided by (used in) financing activities................................... 2,482 (6,534)
Effect of Exchange Rate Changes on Cash and Cash Equivalents.......................... 85 (80)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents.................................. 651 (6,536)
Cash and Cash Equivalents at Beginning of Period...................................... 22,721 24,520
-------- --------
Cash and Cash Equivalents at End of Period............................................ $ 23,372 $ 17,984
======== ========
</TABLE>
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANK ONE CORPORATION and Subsidiaries
Note 1--Summary of Significant Accounting Policies
Consolidated financial statements of the Corporation have been prepared in
conformity with generally accepted accounting principles. Management is required
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes that could differ from actual
results. Certain prior year financial statement information has been
reclassified to conform with the current year's financial statement
presentation. Consolidated financial statements for all periods presented have
been restated to include the results of operations, financial position and
changes in cash flows for each acquisition accounted for as a pooling of
interests. Adjustments have been made to conform accounting policies upon
integration of each acquired entity.
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
Corporation's financial statements for the year ended December 31, 1999.
Note 2--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. The diluted
EPS calculation includes shares that could be issued under outstanding stock
options and the employee stock purchase plans, and common shares that would
result from the conversion of convertible debentures. Interest on convertible
debentures (net of tax) is added to net income, since this interest would not be
paid if the debentures were converted to common stock.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
(In millions, except per share data) 2000 1999
- --------------------------------------------------------------------------------------------------------
Basic
<S> <C> <C>
Net income......................................................... $ 689 $1,151
Preferred stock dividends.......................................... (3) (3)
------- ------
Net income attributable to common stockholders' equity............. $ 686 $1,148
======= ======
Diluted
Net income......................................................... $ 689 $1,151
Interest on convertible debentures, net of tax..................... 2 1
Preferred stock dividends.......................................... (3) (3)
------- ------
Diluted income available to common stockholders.................... $ 688 $1,149
======= ======
Average shares outstanding.............................................. 1,149 1,178
Dilutive shares
Stock options...................................................... 3 11
Convertible debentures............................................. 3 4
------ ------
Average shares outstanding assuming full dilution....................... 1,155 1,193
====== ======
Earnings per share:
Basic.............................................................. $0.60 $0.97
===== =====
Diluted............................................................ $0.60 $0.96
===== =====
- --------------------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE>
Note 3--New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("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 on 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 interest
rate and foreign exchange derivatives the Corporation uses in its asset and
liability management activities. The transition adjustments resulting from
adopting this Statement will be reported in net income or accumulated other
adjustments to stockholders' equity, as appropriate, as the effect of a change
in accounting principle and presented in a manner similar to the cumulative
effect of a change in accounting principle. The Corporation was originally to
adopt this Statement on January 1, 2000. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133." SFAS No. 137 is an amendment of
SFAS No. 133 that delays the effective date of this Statement to fiscal years
beginning after June 15, 2000 (calendar year 2001 for the Corporation). The
Corporation and a large number of other derivative users had requested such a
delay primarily due to a number of key interpretative issues that have not been
resolved, as well as Year 2000 systems considerations. Although considerable
progress has been made in preparing for this Statement, interpretative guidance
continues to be issued by the FASB that significantly affects certain hedging
activities. In March 2000, the FASB issued an Exposure Draft entitled,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133." As a result, the Corporation is
developing and implementing strategies to adopt the Statement for those hedging
activities for which no further FASB interpretative guidance is expected. For
all other hedging activities, contingency plans are being developed, and FASB
actions are being closely monitored for indications of final rulings. At this
point, the Corporation is in the process of estimating the effect, if any, that
the adoption of this new standard will have on the Corporation's financial
position or results of operations.
Note 4--Merger-Related and Restructuring Charges
a) Fourth-Quarter 1999 Restructuring Charge
Restructuring costs recorded in the fourth quarter of 1999 totaled $207
million ($141 million after-tax), or 12 cents per share. The following table
provides details on restructuring charges.
<TABLE>
<CAPTION>
Reserve Balance Reserve Balance
--------------- ---------------
12/31/99 Amount Paid Amount Released 3/31/00
-------- ----------- --------------- -------
<S> <C> <C> <C> <C>
Personnel-related costs ................... $143 $ (5) $ (4) $134
Fixed asset write-offs .................... 24 (20) ---- 4
Contractual obligations ................... 40 (5) (8) 27
---- ----- ---- ----
$207 $(30) $(12) $165
==== ===== ==== ====
</TABLE>
Personnel-related items consist primarily of severance and benefits costs
for separated employees and executives due to delayering and management
realignment. The net reduction in full-time-equivalent positions is anticipated
to approximate 5,100 personnel. Other charges include identified asset write-
offs and the termination costs associated with lease and other vendor contracts.
The Corporation's restructuring plan included severance and other exit costs
related to the closure of the Corporation's consumer finance branch network. The
restructuring plan was modified in February 2000 as the branch network was
packaged for sale with $2.2 billion in consumer loans. The final transaction
included a provision to provide job opportunities for employees and for the
assumption of remaining lease obligations.
An additional restructuring charge of $4 million was taken in the first
quarter of 2000 to reflect further planned integration efforts in the consumer
lending function, primarily associated with staff reductions.
Actions under this restructuring plan should be completed by year-end 2000.
Certain payments associated with such actions, as required, could extend beyond
year-end 2000.
-34-
<PAGE>
b) Banc One/FCN Merger
In connection with the Banc One/FCN merger, the Corporation recorded a
restructuring charge of $636 million. Personnel-related items consisted
primarily of severance and benefits costs for separated employees, and costs
associated with the "change in control" provisions included in certain of the
Corporation's stock plans. Facilities and equipment costs include the net cost
associated with the closing and divestiture of identified banking facilities,
and the consolidation of headquarters and operational facilities. Other merger-
related transaction costs included investment banking fees, registration and
listing fees, and various accounting legal and other related transaction costs.
In the first quarter of 2000, $5 million of personnel related reserves
were reversed due to higher than anticipated staff attrition in certain business
units.
The following table provides details on restructuring charges recorded in
connection with this merger.
<TABLE>
<CAPTION>
Reserve 2000 2000 Reserve
Restructuring Initial Balance Amount Amount Balance
(In millions) Charges Reserve 12/31/99 Paid Released 3/31/00
------- ------- -------- ---- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Personnel-related............ $421 $421 $73 $(17) $(5) $51
Facilities and equipment..... 135 135 14 -- (2) 12
Other transaction costs...... 80 -- -- -- -- --
---- ---- --- ---- --- ---
Total............. $636 $556 $87 $(17) $(7) $63
==== ==== === ==== ==== ===
</TABLE>
Actions under this restructuring plan should be completed in the second
quarter of 2000, with the remaining reserve balances being paid out over the
required timelines.
Note 5--Operating Segments
The information presented on page 2 is consistent with the content of
operating segments data provided to the Corporation's executive management. The
Corporation's executive management currently does not use product group revenues
to assess consolidated results. Aside from investment management and insurance
products, product offerings are tailored to specific customer segments. As a
result, the aggregation of product revenues and related profit measures across
lines of business is not available.
Aside from the United States, no single country or geographic region
generates a significant portion of the Corporation's revenues or assets. In
addition, there are no single customer concentrations of revenue or
profitability.
-35-
<PAGE>
See the following "Business Segments" sections for additional disclosure
regarding the Corporation's operating segments.
. Highlights on page 2.
. Business Segment Management on page 2.
. Tables included in the "Business Segments" section beginning with
"Commercial Banking" through "Corporate/Unallocated" on pages 3
through 6.
Note 6--Fair Value of Financial Instruments
The carrying values and estimated fair values of financial instruments as
of March 31, 2000, have not materially changed on a relative basis from the
carrying values and estimated fair values of financial instruments disclosed as
of December 31, 1999.
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.
- --------------------------------------------------------------------------------
March 31
(In millions) 2000 1999
- --------------------------------------------------------------------------------
Impaired loans with related allowance.................. $1,066 $1,031
Impaired loans with no related allowance (1)........... 27 --
------ ------
Total impaired loans................................ $1,093 $1,031
====== ======
Allowance on impaired loans (2)........................ $ 241 $ 265
====== ======
- --------------------------------------------------------------------------------
(1) Impaired loans for which the discounted cash flows, collateral value or
market price equals or exceeds the carrying value of the loan do not
require an allowance under SFAS No. 114.
(2) The allowance for impaired loans is included in the Corporation's overall
allowance for credit losses.
Three Months Ended March 31
(In millions) 2000 1999
- --------------------------------------------------------------------------------
Average impaired loans........................... $1,081 $791
Interest income recognized on impaired loans..... 12 6
- --------------------------------------------------------------------------------
Note 8--Accounting for 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 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.
Synthetic Alteration - (1) the asset or liability to be converted creates
exposure to interest rate risk; (2) the swap is effective as a synthetic
alteration of the balance sheet item; (3) the start date of the swap does not
extend beyond that point in time at which it is believed that modeling systems
produce reliable interest rate sensitivity information; and (4) the related
balance sheet item, from trade date to final maturity, has sufficient balances
for alteration.
-36-
<PAGE>
Anticipatory Hedge - (1) the transaction to be hedged creates exposure to
interest rate risk; (2) the swap acts to reduce inherent rate risk by moving
closer to being insensitive to interest rate changes; (3) the swap is effective
as a hedge of the transaction; (4) the significant characteristics and expected
terms of the anticipated transaction are identified; and (5) it is probable that
the anticipated transaction will occur.
Income or expense on most ALM derivatives used to manage interest rate
exposure is recorded on an accrual basis, as an adjustment to the yield of the
linked exposures over the periods covered by the contracts. This matches the
income recognition treatment of that exposure, generally assets or liabilities,
carried at historical cost, that are recorded on an accrual basis. If an
interest rate swap is terminated early or dedesignated as an ALM derivative, any
unrecognized gain or loss at that point in time is deferred and amortized as an
adjustment of the yield on the linked interest rate exposure position over the
remaining periods originally covered by the swap. If all or part of a linked
position is terminated, e.g., a linked asset is sold or prepaid, or if the
amount of an anticipated transaction is likely to be less than originally
expected, 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.
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 three months ended March
31, 2000, excluding interest on deposits, was 1.8x and, including interest on
deposits, was 1.4x. 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 have been named as
defendants in various legal proceedings, including certain class actions,
arising out of the normal course of their business or operations. In certain of
these proceedings, which are based on alleged violations of consumer protection,
securities, banking and other laws, 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 is and will be, from time to time, normally
engaged in various disagreements with regulators, related primarily to banking
matters. The Corporation also has received certain tax deficiency assessments.
Management does not believe that liabilities arising from these matters, if any,
will have a material adverse effect on the consolidated financial position,
liquidity or results of operations of the Corporation.
-37-
<PAGE>
SELECTED STATISTICAL INFORMATION
BANK ONE CORPORATION and Subsidiaries
Investment Securities - Available for Sale
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Fair Value
March 31, 2000 (In millions) Amortized Cost Gains Losses (Book Value)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury..................................... $ 3,428 $ 1 $ (81) $ 3,348
U.S. government agencies.......................... 14,084 3 (453) 13,634
States and political subdivisions................. 1,477 18 (33) 1,462
Retained interest in securitized receivables...... 18,159 203 (178) 18,184
Other debt securities............................. 7,262 2 (149) 7,115
Equity securities (1)(2).......................... 3,420 370 (74) 3,716
------- ---- ----- -------
Total................................. $47,830 $597 $(968) $47,459
======= ==== ====== =======
</TABLE>
- ---------
(1) The fair values of certain securities for which market quotations were not
available were estimated. In addition, the fair values of certain
securities reflect liquidity and other market-related factors.
(2) Includes investments accounted for at fair value, in keeping with
specialized industry practice.
Securitization of Credit Card Receivables
The Corporation continues to service credit card accounts even after
receivables are securitized. Net interest income and certain fee revenue on the
securitized portfolio are not recognized; however, these are offset by servicing
fees as well as by lower provisions for credit losses.
For analytical purposes only, the following table shows income statement
line items adjusted for the net impact of securitization of credit card
receivables.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000
Credit Card
(Dollars in millions) Reported Securitizations Managed
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income-tax-equivalent basis............ $2,228 $1,217 $ 3,445
Provision for credit losses......................... 362 910 1,272
Noninterest income.................................. 1,821 (307) 1,514
Noninterest expense................................. 2,661 -- 2,661
Net income.......................................... 689 -- 689
Total average loans................................. $167,423 $ 62,763 $230,186
Total average earning assets........................ 237,313 44,839 282,152
Total average assets................................ 268,718 44,839 313,557
Net interest margin................................. 3.78% 10.92% 4.91%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1999
---------------------------------
Credit Card
(Dollars in millions) Reported Securitizations Managed
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income-tax-equivalent basis............ $2,309 $1,352 $ 3,661
Provision for credit losses......................... 281 747 1,028
Noninterest income.................................. 2,590 (605) 1,985
Noninterest expense................................. 2,941 -- 2,941
Net income.......................................... 1,151 -- 1,151
Total average loans................................. $153,271 $ 60,108 $213,379
Total average earning assets........................ 217,909 44,374 262,283
Total average assets................................ 252,922 44,374 297,296
Net interest margin................................. 4.30% 12.36% 5.66%
- -------------------------------------------------------------------------------------------------------
</TABLE>
-38-
<PAGE>
Average Balances/Net Interest Margin/Rates
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000 December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
(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................................ $ 15,451 $ 226 5.88% $ 15,985 $ 215 5.34%
Trading assets........................................ 6,909 127 7.39 6,614 125 7.50
Investment securities
U.S. government and federal agencies............. 15,641 258 6.63 15,046 257 6.78
States and political subdivisions................ 1,483 28 7.59 1,646 30 7.23
Other............................................ 30,406 537 7.10 32,495 574 7.01
--------- ------- ----- -------- ------- -----
Total investment securities................. 47,530 823 6.96 49,187 861 6.94
Loans (1)
Commercial....................................... 97,973 1,941 7.97 93,491 1,862 7.90
Consumer......................................... 65,118 1,493 9.22 62,577 1,334 8.46
Credit card...................................... 4,332 178 16.53 4,526 184 16.13
--------- ------- ----- -------- ------- -----
Total loans................................. 167,423 3,612 8.68 160,594 3,380 8.35
--------- ------ ----- -------- ------ ------
Total earning assets (2).................... 237,313 4,788 8.11 232,380 4,581 7.82
Allowance for credit losses........................... (2,367) (2,294)
Other assets.......................................... 33,772 34,939
--------- --------
Total assets................................ $268,718 $265,025
======== ========
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits-interest-bearing
Savings.......................................... $ 16,942 $ 61 1.45% $ 18,955 $ 70 1.47%
Money market..................................... 47,606 400 3.38 46,066 379 3.26
Time............................................. 38,818 550 5.70 36,083 481 5.29
Foreign offices (3).............................. 29,443 378 5.16 27,292 338 4.91
--------- ------- ----- -------- ------- -----
Total deposits-interest-bearing............. 132,809 1,389 4.21 128,396 1,268 3.92
Federal funds purchased and securities under
repurchase agreements............................. 19,316 266 5.54 19,126 245 5.08
Other short-term borrowings........................... 19,912 298 6.02 19,550 297 6.03
Long-term debt (4).................................... 36,484 607 6.69 35,672 550 6.12
--------- ------- ----- -------- ------- -----
Total interest-bearing liabilities.......... 208,521 2,560 4.94 202,744 2,360 4.62
Demand deposits....................................... 27,921 29,223
Other liabilities..................................... 12,305 13,051
Preferred stock....................................... 190 190
Common stockholders' equity........................... 19,781 19,817
--------- --------
Total liabilities and stockholders' equity.. $268,718 $265,025
======== ========
- ---------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (2).................... $ 4,788 8.11% $ 4,581 7.82%
Interest expense/earning assets....................... 2,560 4.33 2,360 4.03
------- ---- ------- ----
Net interest margin................................... $ 2,228 3.78% $ 2,221 3.79%
======= ==== ======= ====
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Nonperforming loans are included in average balances used to determine the
average rate.
(2) Includes tax-equivalent adjustments based on federal income tax rate of
35%.
(3) Includes international banking facilities' deposit balances in domestic
offices and balances of Edge Act and overseas offices.
(4) Includes trust preferred capital securities.
-39-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
(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................................ $ 13,164 $ 159 4.79% $ 12,602 $ 142 4.52%
Trading assets........................................ 6,185 110 7.06 6,046 98 6.50
Investment securities
U.S. government and federal agencies............. 15,111 247 6.48 15,395 259 6.75
States and political subdivisions................ 1,765 32 7.19 1,909 34 7.14
Other............................................ 29,013 515 7.04 29,057 500 6.90
--------- ------- ------ -------- ------- ------
Total investment securities................. 45,889 794 6.86 46,361 793 6.86
Loans (1)
Commercial....................................... 91,186 1,719 7.48 88,911 1,649 7.44
Consumer......................................... 59,876 1,285 8.51 58,065 1,240 8.57
Credit card...................................... 6,905 276 15.86 8,520 344 16.19
--------- ------- ------ -------- ------- ------
Total loans................................. 157,967 3,280 8.24 155,496 3,233 8.34
--------- ------- ------ -------- ------- ------
Total earning assets (2).................... 223,205 4,343 7.72 220,505 4,266 7.76
Allowance for credit losses........................... (2,283) (2,260)
Other assets.......................................... 33,721 35,021
---------- --------
Total assets................................ $ 254,643 $253,266
========= ========
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits-interest-bearing
Savings.......................................... $ 19,705 $ 74 1.49% $ 20,843 $ 83 1.60%
Money market..................................... 46,526 367 3.13 42,903 343 3.21
Time............................................. 34,842 425 4.84 34,097 428 5.03
Foreign offices (3).............................. 25,350 296 4.63 22,548 245 4.36
--------- ------- ------ -------- ------- ------
Total deposits-interest-bearing............. 126,423 1,162 3.65 120,391 1,099 3.66
Federal funds purchased and securities under
repurchase agreements............................. 17,557 213 4.81 20,354 231 4.55
Other short-term borrowings........................... 17,337 237 5.42 17,655 210 4.77
Long-term debt (4).................................... 31,326 460 5.83 26,417 385 5.85
--------- ------- ------ -------- ------- ------
Total interest-bearing liabilities.......... 192,643 2,072 4.27 184,817 1,925 4.18
Demand deposits....................................... 29,189 32,924
Other liabilities..................................... 12,479 14,591
Preferred stock....................................... 190 190
Common stockholders' equity........................... 20,142 20,744
--------- --------
Total liabilities and stockholders' equity.. $254,643 $253,266
======== ========
- ---------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (2).................... $ 4,343 7.72% $ 4,266 7.76%
Interest expense/earning assets....................... 2,072 3.68 1,925 3.50
------- ------ ------- ------
Net interest margin................................... $ 2,271 4.04% $2,341 4.26%
======= ====== ======= ======
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Ended March 31, 1999
- ---------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average
(Dollars in millions) Balance Interest Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Short-term investments................................ $ 14,141 $ 162 4.65%
Trading assets........................................ 5,655 96 6.88
Investment securities
U.S. government and federal agencies............. 15,365 245 6.47
States and political subdivisions................ 2,023 39 7.82
Other............................................ 27,454 483 7.13
-------- ------- -----
Total investment securities................. 44,842 767 6.94
Loans (1)
Commercial....................................... 87,058 1,582 7.37
Consumer......................................... 57,177 1,282 9.09
Credit card...................................... 9,036 336 15.08
-------- ------- -----
Total loans................................. 153,271 3,200 8.47
-------- ------- -----
Total earning assets (2).................... 217,909 4,225 7.86
Allowance for credit losses........................... (2,324)
Other assets.......................................... 37,337
--------
Total assets................................ $252,922
========
- ---------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits-interest-bearing
Savings.......................................... $ 19,975 $ 83 1.69%
Money market..................................... 43,377 356 3.33
Time............................................. 35,786 450 5.10
Foreign offices (3).............................. 21,357 233 4.42
-------- ------- -----
Total deposits-interest-bearing............. 120,495 1,122 3.78
Federal funds purchased and securities under
repurchase agreements............................. 21,862 246 4.56
Other short-term borrowings........................... 16,861 198 4.76
Long-term debt (4).................................... 23,903 350 5.94
-------- ------- -----
Total interest-bearing liabilities.......... 183,121 1,916 4.24
Demand deposits....................................... 33,653
Other liabilities..................................... 15,597
Preferred stock....................................... 190
Common stockholders' equity........................... 20,361
--------
Total liabilities and stockholders' equity.. $252,922
========
- ---------------------------------------------------------------------------------------------
Interest income/earning assets (2).................... $ 4,225 7.86%
Interest expense/earning assets....................... 1,916 3.56
------- -----
Net interest margin................................... $ 2,309 4.30%
======= =====
- ---------------------------------------------------------------------------------------------
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Five-Quarter Consolidated Income Statement
BANK ONE CORPORATION and Subsidiaries Three Months Ended
March 31 December 31 September 30 June 30 March 31
(In millions, except per share data) 2000 1999 1999 1999 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income
Loans, including fees............................... $ 3,596 $ 3,366 $ 3,270 $ 3,223 $ 3,192
Bank balances....................................... 102 78 56 42 57
Federal funds sold and securities
under resale agreements....................... 124 137 103 99 106
Trading assets...................................... 127 125 110 97 96
Investment securities--taxable...................... 699 745 671 681 699
Investment securities--tax-exempt................... 105 97 104 94 46
-------- ------- ------- ------- -------
Total................................... 4,753 4,548 4,314 4,236 4,196
Interest Expense
Deposits............................................ 1,389 1,269 1,162 1,098 1,122
Federal funds purchased and securities
under repurchase agreements................... 266 245 213 231 246
Other short-term borrowings......................... 298 296 237 211 198
Long-term debt...................................... 607 550 460 385 350
------- ------- ------- ------- -------
Total................................... 2,560 2,360 2,072 1,925 1,916
Net Interest Income................................. 2,193 2,188 2,242 2,311 2,280
Provision for credit losses......................... 362 416 277 275 281
------- ------- ------- ------- -------
Net Interest Income After Provision for
Credit Losses................................. 1,831 1,772 1,965 2,036 1,999
Noninterest Income
Trading profits..................................... 64 17 30 33 67
Equity securities gains............................. 143 100 86 133 96
Investment securities gains......................... 15 2 6 34 52
------- ------- ------- ------- -------
Market-driven revenue......................... 222 119 122 200 215
Credit card revenue................................. 578 714 897 873 929
Fiduciary and investment management fees............ 195 216 201 197 179
Service charges and commissions..................... 713 701 671 723 690
------- ------- ------- ------- -------
Fee-based revenue............................. 1,486 1,631 1,769 1,793 1,798
Other income........................................ 113 32 207 229 577
------- ------- ------- ------- -------
Total noninterest income................ 1,821 1,782 2,098 2,222 2,590
Noninterest Expense
Salaries and employee benefits...................... 1,098 1,081 970 1,073 1,147
Net occupancy and equipment expense................. 222 244 220 219 227
Depreciation and amortization....................... 163 186 167 169 175
Outside service fees and processing................. 408 459 458 420 406
Marketing and development........................... 226 230 341 302 315
Communication and transportation.................... 212 216 205 208 200
Merger-related and restructuring charges............ (19) 189 56 145 164
Other expense....................................... 351 425 296 270 307
------- ------- ------- ------- -------
Total noninterest expense............... 2,661 3,030 2,713 2,806 2,941
Income Before Income Taxes.......................... 991 524 1,350 1,452 1,648
Applicable income taxes............................. 302 113 425 460 497
------- ------- ------- ------- -------
Net Income.......................................... $ 689 $ 411 $ 925 $ 992 $ 1,151
======= ======= ======= ======= =======
Net Income Attributable to Common
Stockholders' Equity.......................... $ 686 $ 408 $ 922 $ 989 $1,148
======= ======= ======= ======= ======
Earnings Per Share
Basic......................................... $0.60 $ 0.36 $ 0.79 $ 0.84 $0.97
Diluted....................................... $0.60 $ 0.36 $ 0.79 $ 0.83 $0.96
</TABLE>
-41-
<PAGE>
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, 2000
--------------
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, 2000.
Class Number of Shares Outstanding
- ---------------------------- ----------------------------
Common Stock $0.01 par value 1,152,663,926
-42-
<PAGE>
Form 10-Q Cross-Reference Index
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
- ----------------------------
Page
----
Consolidated Balance Sheet -
March 31, 2000 and 1999, and December 31, 1999 29
Consolidated Income Statement -
Three Months Ended March 31, 2000 and 1999 30
Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 2000 and 1999 31
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2000 and 1999 32
Notes to Consolidated Financial Statements 33-37
Selected Statistical Information 1, 18-25,
38-41
ITEM 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations 2-28
-----------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 44
- --------------------------
ITEM 2. Changes in Securities 44
- ------------------------------
ITEM 3. Defaults Upon Senior Securities 44
- ----------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 44
- ------------------------------------------------------------
ITEM 5. Other Information 44
- --------------------------
ITEM 6. Exhibits and Reports on Form 8-K 45
- -----------------------------------------
Signatures 46
-43-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings
- --------------------------
None
ITEM 2. Changes in Securities
- ------------------------------
None
ITEM 3. Defaults Upon Senior Securities
- ----------------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
ITEM 5. Other Information
- --------------------------
None
-44-
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit 10(a) - Employment Agreement dated March 27, 2000, between
Registrant and James Dimon.
Exhibit 12 - Statement re computation of ratio.
Exhibit 27 - Financial Data Schedule.
(b) The Registrant filed the following Current Reports on Form 8-K
during the quarter ended March 31, 2000.
Date Item Reported
---- -------------
01/11/00 Press release announcing fourth-quarter and full-
year 1999 earnings expectations, and earnings
outlook for 2000.
01/18/00 Press release announcing fourth-quarter 1999
earnings.
03/20/00 Announcement of release of certain supplemental
line of business information.
03/27/00 The Registrant's March 27, 2000, press release
regarding selection of the Corporation's new CEO.
-45-
<PAGE>
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, 2000 James Dimon
---------------------- ---------------------------------------
James Dimon
Principal Executive Officer
Date May 15, 2000 James A. Peers
---------------------- ---------------------------------------
James A. Peers
Principal Accounting Officer
-46-
<PAGE>
BANK ONE CORPORATION
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
- -------------- ----------------------
10(a) - Employment Agreement dated March 27, 2000, between Registrant and
James Dimon.
12 - Statement re computation of ratio.
27 - Financial Data Schedule.
-47-
<PAGE>
EXHIBIT 10(a)
EXECUTION COPY
--------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of March 27, 2000 (the "Effective
Date"), by and between James Dimon (the "Executive") and Bank One Corporation, a
Delaware Corporation (the "Company"),
WITNESSETH THAT:
----------------
WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive and the Company
as follows:
1. Employment. Subject to the terms of this Agreement, the Company hereby
agrees to employ the Executive as its Chairman and Chief Executive Officer
during the Agreement Term (as defined below), with such authority, power,
responsibilities and duties customarily exercised by a person holding such
positions in a company of the size and nature of the Company. Executive shall
become a member of the Board of Directors of the Company (the "Board") effective
as of March 27, 2000. The "Agreement Term" shall be the period beginning on the
Effective Date and ending on the fifth anniversary of the Effective Date;
provided, however, the Agreement Term will be automatically extended by twelve
months on the fourth anniversary of the Effective Date and on each anniversary
thereof, unless one party to this Agreement provides written notice of non-
renewal to the other party prior to the date of such automatic extension.
2. Performance of Duties. The Executive agrees that during his employment
with the Company, he shall devote his full business time, energies and talents
to serving as its Chairman and Chief Executive Officer and that he shall perform
his duties faithfully and efficiently subject to the directions of the Board.
Notwithstanding the foregoing provisions of this Section 2, the Executive may
(i) serve as a director, trustee or officer or otherwise participate in non-for-
profit educational, welfare, social, religious and civic organizations; (ii)
serve as a director of any for-profit business listed on Exhibit A hereto or,
with the prior consent of the Organization, Compensation and Nominating
Committee of the Board, serve as a director of any for-profit business which
does not compete with the Company or any of its subsidiaries or affiliates, and
(iii) acquire passive investment interests in one or more entities, to the
extent that such other activities do not inhibit or interfere with the
performance of the Executive's duties under this Agreement, or to the knowledge
of the Executive conflict in any material way with the business or policies of
the Company or any subsidiary or affiliate thereof.
<PAGE>
3. Compensation. Subject to the terms of this Agreement, during the
Agreement Term, while the Executive is employed by the Company, the Company
shall compensate him for his services as follows:
(a) Base Salary. The Executive shall receive an annual base salary of not less
than $1,000,000 payable in monthly or more frequent installments in
accordance with the Company's payroll policies (such annual base salary as
adjusted pursuant to this Section 3(a) shall hereinafter be referred to as
"Base Salary"). The Executive's Base Salary shall be reviewed, and may be
increased but not decreased, annually, by the Board pursuant to its normal
performance review policies for senior executives, with the first such
review occurring in February, 2001.
(b) Restricted Stock Award. The Company shall make an award to the Executive
as of the Effective Date of 35,242 restricted shares of the Company's
common stock under and subject to the terms and conditions of the Bank One
Corporation Stock Performance Plan (the "Stock Plan"). The Executive shall
vest in 20% of such shares on each of the first five anniversaries of the
Effective Date. All unvested shares shall vest on the earlier of the date
of a Change of Control (which for purposes of this Agreement, shall have
the meaning as set forth in the Stock Plan, as presently in effect, a copy
of which definition is attached hereto as Exhibit B) or the Executive's
termination of employment by reason of death, Disability (as defined in
Section 5(b) below), termination by the Company without Cause (as defined
in Section 5(c) below) or Constructive Discharge (as defined in Section
5(e) below). The foregoing award of restricted stock shall be evidenced by
a restricted stock award agreement in substantially the form attached
hereto as Exhibit C.
(c) Initial Option Award. The Company shall make an award to the Executive
under the Stock Plan on the Effective Date of ten-year options, with
restorative stock option rights, to purchase an aggregate of 3,240,000
shares of the Company's common stock at $28.375 per share (the "Initial
Options"), subject to the following:
(i) Options to acquire 1,240,000 shares shall vest and become exercisable
at the rate of 20% per year on each of the first five anniversaries
of the Effective Date.
(ii) Options to acquire 1,000,000 shares shall vest and become exercisable
at the rate of 20% per year on each of the first five anniversaries
of the Effective Date, provided, however, all such Options shall vest
and become immediately exercisable on the date on which the closing
price of the Company's common stock as reported on the New York Stock
Exchange Composite Transactions Tape is at or above $50 per share
(adjusted in accordance with Section 10 of the Stock Plan to reflect
changes in the Company's corporate or capital structure), provided
further that, subject to clause (iv) below, no such options
2
<PAGE>
shall become exercisable prior to the sixth-month anniversary of the
Effective Date.
(iii) Options to acquire 1,000,000 shares shall vest and become
exercisable at the rate of 20% per year on each of the first five
anniversaries of the Effective Date, provided, however, all such
Options shall vest and become immediately exercisable on the date on
which the closing price of the Company's common stock as reported on
the New York Stock Exchange Composite Transactions Tape is at or
above $60 per share (adjusted in accordance with Section 10 of the
Stock Plan to reflect changes in the Company's corporate or capital
structure), provided further that, subject to clause (iv) below, no
such options shall become exercisable prior to the sixth-month
anniversary of the Effective Date.
(iv) To the extent not previously vested, all such options shall become
fully vested and exercisable on the earlier of a Change of Control or
the Executive's termination of employment by reason of death,
Disability, termination by the Company without Cause, or Constructive
Discharge. To the extent not previously vested, all such options
shall be immediately forfeited in the event of a termination of the
Executive's employment for Cause or upon the Executive's resignation
from the employ of the Company other than pursuant to a Constructive
Discharge.
(v) To the extent exercisable on the date of the Executive's termination
of employment, such options shall continue to be exercisable by the
Executive or, in the event of his death, by his estate for the
following periods (but not beyond the original ten-year term of the
options): (A) until the fifth anniversary of such termination of
employment by reason of death, Disability, termination by the Company
without Cause or Constructive Discharge, (B) subject to the following
provisions of this clause (v), until 30 days after termination of
employment by the Company for Cause. Except as provided in the
following sentence, all options shall cease to be exercisable
immediately upon the Executive's resignation from the employ of the
Company other than pursuant to a Constructive Discharge. In the event
of a Change of Control prior to the first anniversary of the
Effective Date, any termination of the Executive's employment by the
Company after the date of such Change of Control and on or before the
close of business on the first business day following the first
anniversary of the Effective Date shall be treated for purposes of
this clause (v) as if it were a termination by the Company without
Cause.
(vi) The foregoing award of Initial Options shall be evidenced by a stock
option agreement in substantially the form attached hereto as Exhibit
D.
(d) Subsequent Equity Awards. Commencing in 2002, the Executive shall be
entitled to receive no less than $7,000,000 per year in annual equity grant
value under the Stock Plan or a successor thereto, such award to be made by
the Board (or the appropriate
3
<PAGE>
committee thereof) within the first calendar quarter of each year. Such
value shall be determined by the Company in good faith in accordance with
such methodology or methodologies as may be used by it to determine the
equity grants to be made to its senior executives. The terms of such grants
shall be determined by the Company in accordance with the terms of the
Stock Plan or successor thereto on a basis consistent with awards granted
to other senior executives; provided, however, that the Company shall have
sole discretion to determine whether to make such awards in the form of
stock options, restricted stock or other equity-based awards.
(e) Annual Incentive Payments. The Executive shall be eligible to receive an
annual incentive payment (the "Incentive Payment") in accordance with the
Company's Executive Management Annual Incentive Plan or any successor
thereto (the "Incentive Plan"). The Executive shall be eligible to receive
an Incentive Payment for each year of between 0% and 400% of Base Salary.
The Executive's target Incentive Payment for each year shall be no less
than 250% of his Base Salary for such year. The minimum Incentive Payment
payable to the Executive for the period commencing on the Effective Date
and ending on December 31, 2000 shall be $2,500,000.
(f) Supplemental Pension Benefits. The Executive shall be entitled to a
pension benefit to be determined in accordance with the Bank One
Corporation Supplemental Executive Retirement Plan as presently in effect
(subject to any future enhancements) (the "SERP"), subject to the
provisions of this Section 3(f). The Executive shall receive credit for two
years of benefit service for purposes of the SERP for each year that he is
employed by the Company, up to a maximum of fifteen years of employment,
provided, however, that if his employment is terminated prior to the fifth
anniversary of the Effective Date he shall be deemed to have ten years of
benefit service for purposes of the SERP. Executive shall be deemed to have
satisfied all requirements for the receipt of a SERP benefit, including but
not limited to, requirements concerning age at the time of termination of
employment from the Company and eligibility to receive benefits. Executive
may elect, consistent with tax rules regarding deferral of compensation,
that the actuarial equivalent (as reasonably determined by the Company
based upon the Executive's actual age on the date of payment) of any
benefit to which he is entitled under the SERP be distributed to him
immediately upon his termination of employment with the Company. In the
event that the Executive dies, the Executive's surviving spouse shall be
eligible to receive a supplemental surviving spouse benefit in accordance
with the terms of the SERP. The Executive understands and agrees that he
shall forfeit any amounts to which he would otherwise be entitled under
this Section 3(f) and the SERP if his employment with the Company is
terminated prior to the fifth anniversary of the Effective Date by the
Company for Cause (other than during the three-year period following a
Change of Control) or by reason of the Executive's resignation other than
pursuant to a Constructive Discharge.
(g) Employee Benefits, Fringe Benefits and Perquisites. The Executive shall be
provided with employee benefits, fringe benefits and perquisites on a basis
no less favorable than such benefits and perquisites are provided by the
Company from time to time to
4
<PAGE>
the Company's other senior executives, or the Company's former chief
executive officer during his employment by the Company. The Company agrees
to waive any waiting periods for the Executive and the Executive's
dependents with respect to group coverage under its welfare benefit plans.
(h) Relocation Benefits. Executive understands that, as a condition of his
employment by the Company, he is required to relocate his residence to the
Chicago area. In connection with such relocation, he shall be entitled to
reimbursement for reasonable expenses incurred in moving his principal
residence to Chicago, Illinois, in accordance with the Company's relocation
policy for senior executives. Executive will receive a tax gross-up payment
in an amount that after all Federal, state and local income taxes thereon
shall equal the aggregate amount of additional Federal, state and local
income taxes payable by Executive from time to time by reason of the
receipt of such reimbursement under this Section 3(h).
(i) Expense Reimbursement. The Company will reimburse the Executive for all
reasonable expenses incurred by him (i) in connection with the negotiation
and preparation of this Agreement and (ii) in the performance of his duties
in accordance with the Company's policies applicable to senior executives.
(j) Additional Payments. In the event that any amount or benefit
(collectively, the "Covered Payments") paid or distributed to the Executive
by the Company or any affiliate incurs an excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") or any similar
tax that may hereafter be imposed ("Excise Tax"), the Company shall pay to
Executive at the time specified below, the Tax Reimbursement Payment. The
Tax Reimbursement Payment is defined as an amount which, after imposition
of all income, employment and excise taxes thereon, is equal to the Excise
Tax on the Covered Payments. The determination of whether Covered Payments
are subject to Excise Tax and, if so, the amount of the Tax Reimbursement
Payment to be paid to the Executive shall be made by an independent auditor
(the "Auditor") jointly selected by the Company and the Executive and paid
by the Company. The Auditor shall be a nationally recognized United States
public accounting firm which has not, during the two years preceding the
date of its selection, acted in any way on behalf of the Company. If the
Executive and the Company cannot agree on the firm to serve as the Auditor,
then Executive and the Company shall each select an accounting firm and
those two firms shall jointly select the accounting firm to serve as the
Auditor. The portion of the Tax Reimbursement Payment attributable to a
Covered Payment shall be paid to the Executive by the Company prior to the
date that the corresponding Excise Tax payment is due to be paid by the
Executive (through withholding or otherwise). The Executive covenants that
he will use the Tax Reimbursement Payment under this Section 3(j) for the
sole purpose of paying the Excise Tax.
5
<PAGE>
4. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is threatened
to be made a party, to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
is or was a director, officer or employee of the Company or is or was serving at
the request of the Company as a director, officer, member, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Executive's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Executive shall be indemnified and held harmless by the Company to the fullest
extent legally permitted or authorized by the Company's certificate of
incorporation or bylaws or resolutions of the Company's Board of Directors or,
if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorneys' fees, judgments,
fines, ERISA excise taxes or other liabilities or penalties and amounts paid or
to be paid in settlement) reasonably incurred or suffered by the Executive in
connection therewith, and such indemnification shall continue as to the
Executive even if he has ceased to be a director, member, employee or agent of
the Company or other entity, with respect to acts or omissions which occurred
prior to his cessation of employment with the Company, and shall inure to the
benefit of the Executive's heirs, executors and administrators. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 calendar days after receipt by the
Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) Neither the failure of the Company (including its board of directors,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any proceeding concerning payment of amounts claimed by the
Executive under Section 4(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including its board of directors, independent
legal counsel or stockholders) that the Executive has not met such applicable
standard of conduct, shall create a presumption that the Executive has not met
the applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors' and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
5. Termination of Employment. Upon termination of the Executive's
employment for any reason, the Executive or, in the event of death, the
Executive's estate shall be entitled to the Executive's Base Salary pro rated
through the date of termination. Any annual Incentive Payment earned by the
Executive for a prior award period, but not yet paid to the Executive, and any
employee benefits to which the Executive is entitled by reason of his employment
shall be paid to the Executive or his estate at such time as is provided by the
terms of the applicable Company
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plan or policy. If the Executive's employment is terminated during the Agreement
Term, the Executive's right to additional payments and benefits under this
Agreement for periods after his date of termination shall be determined in
accordance with the following provisions of this Section 5.
(a) Death. If Executive's employment is terminated by reason of his death, the
Executive's estate shall be entitled to a prompt cash payment of a prorated
Incentive Payment for the year in which such death occurs, based on the
target Incentive Payment for such year. The Executive's spouse and eligible
dependents, shall be eligible for continued participation in all medical,
dental, vision and hospitalization insurance plans in which they were
participating at the time of the Executive's death until the third
anniversary of the Executive's date of death.
(b) Disability. If the Executive's employment is terminated by the Company by
reason of the Executive's Disability, the Executive shall be entitled to a
prompt cash payment of a prorated Incentive Payment for the year in which
such termination occurs, based on the target Incentive Payment for such
year. Executive and his eligible dependents shall be entitled to continued
participation so long as he is disabled and is not eligible for coverage
under a successor employer's plans through the month in which the Executive
attains age 65 in all medical, dental, vision and hospitalization insurance
coverage, and in all other employee welfare benefit plans, programs and
arrangements in which he was participating on the date of termination of
his employment on terms and conditions that are no less favorable than
those applicable, from time to time, to senior executives of the Company,
For purposes of this Agreement, "Disability" means the Executive's
inability, due to physical or mental incapacity, to substantially perform
his duties and responsibilities contemplated by this Agreement. In the
event of a dispute as to whether the Executive is disabled, the
determination shall be made by a licensed medical doctor selected by the
Company and agreed to by the Executive. If the parties cannot agree on a
medical doctor, each party shall select a medical doctor and the two
doctors shall select a third who shall be the approved medical doctor for
this purpose. The Executive agrees to submit to such tests and examinations
as such medical doctor shall deem appropriate.
(c) Termination for Cause or Voluntary Resignation. If the Executive's
employment is terminated by the Company for Cause (other than during the
three-year period following a Change of Control) or if the Executive
voluntarily resigns from the employ of the Company, other than pursuant to
a Constructive Discharge, all payments and benefits to which the Executive
would otherwise be entitled under this Agreement shall immediately cease,
except as otherwise specifically provided above in this Section 5 with
respect to his pro rated Base Salary through the date of termination, his
annual Incentive Payment, if any, earned for a prior award period and his
previously earned employee benefits. For purposes of this Agreement, the
term "Cause" shall mean:
(i) the Executive is convicted of a felony or any crime involving moral
turpitude; or
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(ii) a reasonable determination by a vote of directors comprising two-
thirds of the entire Board, after giving the Executive notice and an
opportunity to be heard, that, in carrying out his duties, the
Executive has engaged in willful gross neglect or willful gross
misconduct, resulting in material economic harm to the Company or
resulting in reputational harm causing quantifiable material injury
to the Company, unless the Executive had a good faith belief that
such conduct was in, or not opposed to, the best interests of the
Company.
(d) Termination Without Cause. If the Company terminates the Executive without
Cause:
(i) The Executive shall be entitled to a prompt cash payment of a
prorated Incentive Payment for the year in which such termination
occurs based on the target Incentive Payment for such year;
(ii) The Executive shall be entitled to a prompt cash payment of 2.5 times
the sum of (A) his Base Salary in effect on the date of his
termination of employment, plus (B) $2,500,000, if such termination
occurs in 2000 or, in the case of a subsequent termination, the
average of the actual Incentive Payments earned by the Executive for
the three prior years or, if less, for the number of his prior years
of employment by the Company (including the portion of a year
commencing on the Effective Date and ending on December 31, 2000);
(iii) The Executive and his eligible dependents shall be entitled to
continued participation in all medical, dental, vision and
hospitalization insurance coverage, until the earlier of 36 months
following termination of employment or the date, or dates, on which
he receives equivalent coverage and benefits from a subsequent
employer; and
(iv) The Executive shall be credited with two and one-half years of
additional service (five years of additional service if such
termination occurs after a Change of Control) for purposes of the
SERP if the Company terminates the Executive subsequent to the fifth
anniversary of the Effective Date.
(e) Constructive Discharge. A Constructive Discharge by the Company shall be
treated for all purposes of this Agreement as a terminates by the Company
without Cause. If (x) the Executive provides written notice to the Company
of the occurrence of Good Reason (as defined below) within a reasonable
time after the Executive has knowledge of the circumstances constituting
Good Reason, which notice shall specifically identify the circumstances
which the Executive believes constitute Good Reason; (y) the Company fails
to correct the circumstances within 15 days after such notice; and (z) the
Executive resigns within ninety days after the date of delivery of the
notice referred to in clause (x) above, then the Executive shall be
considered to have been subject to a Constructive Discharge by the Company.
For purposes of this Agreement, "Good Reason" shall mean, without the
Executive's express written consent (and except in consequence of a prior
8
<PAGE>
termination of the Executive's employment), the occurrence of any of the
following circumstances:
(i) A reduction by the Company in the Executive's Base Salary to an
amount that is less than required under Section 3(a) or a reduction
in his target Incentive Payment as a percentage of Base Salary,
without his consent.
(ii) The failure of the Executive to be elected or reelected to any of the
positions described in Section 1 or his removal from any such
position.
(iii) A material diminution in the Executive's duties or the assignment to
him of any duties inconsistent with the Executive's position and
status as Chairman and Chief Executive Officer of the Company.
(iv) A change in the Executive's reporting relationship such that the
Executive no longer reports directly to the Board.
(v) A breach by the company of any of its material obligations to the
Executive under this Agreement.
(vi) The failure of the Company to obtain a satisfactory agreement from
any successor to all or substantially all of the assets or business
of the Company to assume and agree to perform this Agreement within
15 days after a merger, consolidation, sale or similar transaction.
In the event of a Change of Control, the mere fact that the Company ceases to be
publicly traded or is a subsidiary of another corporation shall not constitute
Good Reason under clause (iii) above. Notwithstanding any other provision of
this Agreement, each of the following shall be deemed to be a Constructive
Discharge: (i) a resignation by the Executive for any reason (including a
resignation after receipt of a notice pursuant to Section 5(c)(ii) and prior to
a determination by the Board pursuant to such Section) after the later of a
Change of Control or the first anniversary of the Effective Date and prior to
the third anniversary of a Change of Control or (ii) a termination of the
Executive by the Company for Cause after a Change of Control and on or before
the close of business on the first business day following the first anniversary
of the Effective Date.
(f) No Mitigation; No Offset. In the event of any termination of employment
under this Section 5, the Executive shall be under no obligation to seek
other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable
to any subsequent employment that he may obtain.
(g) Nature of Payments. Any amounts due under this Section 5 are in the nature
of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
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<PAGE>
(h) Effect of Termination on Other Positions. If, on the date of his
termination of employment with the Company, the Executive is a member of
the Board of Directors of the Company or any of the subsidiaries, or holds
any other position with the Company and the subsidiaries, the Executive
shall be deemed to have resigned from all such positions as of the date of
his termination of employment with the Company. Executive agrees to execute
such documents and take such other actions as the Company may request to
reflect such resignation.
(i) Benefit Plans. If, for any period during which the Executive is entitled
to continued benefits under this Agreement, the Company reasonably
determines that the Executive cannot participate in any benefit plan
because he is not actively performing services for the Company, then, in
lieu of providing benefits under any such plan, the Company shall provide
comparable benefits or the cash equivalent of the cost thereof (after
taking into account all tax consequences thereof to the Executive and the
Executive's dependents as the case may be) to the Executive and, if
applicable, the Executive's dependents through other arrangements.
(j) Other Severance Arrangements. Except as may be otherwise specifically
provided in an amendment of this Section 5(j) adopted in accordance with
Section 12, the Executive's rights under this Section 5 shall be in lieu of
any benefits that may be otherwise payable to or on behalf of the Executive
pursuant to the terms of any severance pay arrangement of the Company or
any subsidiary or any other similar arrangement of the Company or any
subsidiary providing benefits upon involuntary termination of employment
(including, without limitation, the Executive Management Separation Plan).
(k) Return of Company Property. Upon his termination of employment with the
Company for any reason, the Executive shall promptly return to the Company
any keys, credit cards, passes, confidential documents or material, or
other property belonging to the Company, and to return all writings, files,
records, correspondence, notebooks, notes and other documents and things
(including any copies thereof) containing confidential information or
relating to the business or proposed business of the Company or its
subsidiaries or affiliates or containing any trade secrets relating to the
Company or its subsidiaries or affiliates except any personal diaries,
calendars, rolodexes or personal notes or correspondence. For purposes of
the preceding sentence, the term "trade secrets" shall have the meaning
ascribed to it under the Illinois Trade Secrets Act or, if such act is
repealed, the Uniform Trade Secrets Act (on which the Illinois Trade
Secrets Act is based). The Executive agrees to represent in writing to the
Company upon termination of employment that he has complied with the
foregoing provisions of this Section 5(k).
(l) Adverse Actions. Executive agrees that following his termination of
employment with the Company for any reason until the second anniversary of
such termination of employment without the prior written consent of-the
Company the Executive shall not, in any manner, solicit, request, advise or
assist any other person or entity to (a)
10
<PAGE>
undertake any action that would be reasonably likely to, or is intended to,
result in a Change in Control, or (b) seek to control in any material
manner the Board.
(m) Mutual Nondisparagement. Each party agrees that, following the Executive's
termination of employment, such party will not make any public statements
which materially disparage the other party. Notwithstanding the foregoing,
nothing in this Section 5(m) shall prohibit any person from making truthful
statements when required by order of a court or other body having
jurisdiction.
6. Confidential Information. The Executive agrees that, during his
employment by the Company and at all times thereafter, he shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
subsidiaries or affiliates, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the Company
or during his consultation with the Company after his termination of employment,
and which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
Except in the good faith performance of his duties for the Company, the
Executive shall not, without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
7. Nonsolicitation. For the twelve-month period following his termination
of employment with the Company, the Executive shall not solicit any individual
who is employed by the Company or its subsidiaries or affiliates (or was so
employed within 180 days prior to the Executive's action) to terminate or
refrain from renewing or extending such employment or to become employed by or
become a consultant to any other individual or entity other than the Company or
its subsidiaries or affiliates, and the Executive shall not initiate discussion
with any such employee for any such purpose or authorize or knowingly cooperate
with the taking of any such actions by any other individual or entity on behalf
of the Executive's employer.
8. Noncompetition. The Executive agrees that he will not engage in
Competition (as defined below) while he is employed by the Company, and if he
voluntarily resigns from the employ of the Company other than pursuant to a
Constructive Discharge prior to the first anniversary of the Effective Date, for
a period of twelve months after such termination of employment. In the event
that the Executive engages in Competition within the twelve-month period
immediately following the termination of his employment with the Company for any
reason (including any termination prior to the first anniversary of the
Effective Date), (i) his Initial Options shall be immediately forfeited to the
extent not previously exercised and (ii) he shall forfeit (or, in the case of
prior payment to the Executive, shall repay together with interest at the
Applicable Federal Rate, determined in accordance with Section 1274(d) of the
Internal Revenue Code or any successor provision thereto) a pro rata portion of
the severance benefits provided for in Section 5(d)(i) and/or Section 5(d)(ii).
Such pro rata portion shall be based upon (x) the number of days remaining
between the first day on which the Executive engages in
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Competition and the first anniversary of his last day of employment by the
Company, divided by (y) 365. Except as otherwise provided with respect to
Competition following a voluntary resignation prior to the first anniversary of
the Effective Date, the Company's sole remedy for the breach of this Section
shall be as set forth in the preceding two sentences. The Executive shall be
deemed to be engaging in "Competition" if he directly or indirectly, owns,
manages, operates, controls or participates in the ownership, management,
operation or control of or is connected as an officer, employee, partner,
director, consultant or otherwise with, or has any financial interest in, any
business engaged in the financial services business in the states in which the
Company or its subsidiaries or affiliates operate a commercial banking or other
material financial services business which is a material part of such business
and is in material competition with the business conducted by the Company at the
time of the termination of his employment with the Company or its subsidiaries
or affiliates. Ownership for personal investment purposes only of less than 2%
of the voting stock of any publicly held corporation shall not constitute a
violation hereof.
9. Equitable Remedies. The Executive acknowledges that the Company would
be irreparably injured by a violation of Section 5(l), 6 or 7 or the first
sentence of Section 8 and he agrees that the Company, in addition to any other
remedies available to it for such breach or threatened breach, shall be entitled
to a preliminary injunction, temporary restraining order, or other equivalent
relief, restraining the Executive from any actual or threatened breach of
Section 5(l), 6 or 7 or the first sentence of Section 8. If a bond is required
to be posted in order for the Company to secure an injunction or other equitable
remedy, the parties agree that said bond need not be more than a nominal sum.
10. Assistance with Claims. Executive agrees that, consistent with the
Executive's business and personal affairs, during and after his employment by
the Company, he will assist the Company and its subsidiaries and affiliates in
the defense of any claims, or potential claims that may be made or threatened to
be made against any of them in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), and will assist the
Company and its affiliates in the prosecution of any claims that may be made by
the Company or any subsidiary or affiliate in any Proceeding, to the extent that
such claims may relate to the Executive's employment or the period of
Executive's employment by the Company. Executive agrees, unless precluded by
law, to promptly inform the Company if Executive is asked to participate (or
otherwise become involved) in any Proceeding involving such claims or potential
claims. Executive also agrees, unless precluded by law, to promptly inform the
Company if Executive is asked to assist in any investigation (whether
governmental or private) of the Company or any subsidiary or affiliate (or their
actions), regardless of whether a lawsuit has then been filed against the
Company or any subsidiary or affiliate with respect to such investigation. The
Company agrees to reimburse Executive for all of Executive's reasonable out-of-
pocket expenses associated with such assistance, including travel expenses and
any attorneys' fees and shall pay a reasonable per diem fee for Executive's
services.
11. Assignability, Binding Nature. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors, heirs
(in the case of the Executive) and assigns. No rights or obligations of the
Company under this Agreement may be assigned or
12
<PAGE>
transferred by the Company except that such rights or obligations may be
assigned or transferred pursuant to a merger or consolidation in which the
Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee assumes the liabilities, obligations and
duties of the Company, as contained in this Agreement, either contractually or
as a matter of law. The Company further agrees that, in the event of a sale of
assets or liquidation as described in the preceding sentence, it shall take
whatever action it legally can in order to cause such assignee or transferee to
expressly assume the liabilities, obligations and duties of the Company
hereunder. No rights or obligations of the Executive under this Agreement may be
assigned or transferred by the Executive other than his rights to compensation
and benefits, which may be transferred only by will or operation of law.
12. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter hereof
except that in the event of the Executive's Disability so as to render him
incapable of such action, his legal representative may be substituted for
purposes of such amendment.
13. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the internal laws of the State of Delaware, without regard to
the conflict of law provisions of any state.
14. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
15. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party of any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.
16. Compliance with Law. Notwithstanding any provision contained in this
Agreement to the contrary, in the event the FDIC, Office of the Comptroller of
the Currency or the Federal Reserve Board commences an appropriate proceeding,
action or order challenging the payment to Executive of any benefit hereunder,
or in the event any such payment hereunder is otherwise prohibited by law, such
benefit payment shall be suspended until such time as the challenge is fully and
finally resolved and the applicable regulatory authority does not object to the
payments or until such payments are otherwise permitted by law. In the event
that any challenge to the payments required by this Agreement is initiated by a
regulatory authority or other person, the
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Company shall notify Executive of such challenge and shall promptly proceed in
good faith to attempt to resolve such challenge in a manner that enables the
Company to make to Executive all payments required hereunder.
17. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or
prepaid overnight courier to the parties at the addresses set forth below (or
such other addresses as shall be specified by the parties by like notice):
to the Company:
Bank One Corporation
1 Bank One Plaza
Chicago, IL 60670
Attention: General Counsel
or to the Executive:
Mr. James Dimon
c/o Bank One Corporation
1 Bank One Plaza
Chicago, IL 60670
with a copy to:
Joseph E. Bachelder
Law Offices of Joseph E. Bachelder
780 Third Avenue
New York, New York 10017
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt. Such notices, demands, claims and other
communications shall be deemed given in the case of delivery by overnight
service with guaranteed next day delivery, the next day or the day designated
for delivery; or in the case of certified or registered U.S. mail, five days
after deposit in the U.S. mail; provided, however, that in no event shall any
such communications be deemed to be given later than the date they are actually
received.
18. Arbitration of Disputes and Reimbursement of Legal Costs. Except as
otherwise provided by Section 9, any controversy or claim arising out of or
relating to this Agreement (or the breach thereof) shall be settled by final,
binding and non-appealable arbitration in Chicago, Illinois by three
arbitrators. Subject to the following provisions, the arbitration shall be
conducted in accordance with the rules of the American Arbitration Association
(the "Association") then in effect. One of the arbitrators shall be appointed by
the Company, one shall be appointed by the Executive, and the third shall be
appointed by the first two arbitrators. If the first two arbitrators
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<PAGE>
cannot agree on the third arbitrator within 30 days of the appointment of the
second arbitrator, then the third arbitrator shall be appointed by the
Association. Any award entered by the arbitrators shall be final, binding and
nonappealable and judgment may be entered thereon by either party in accordance
with applicable law in any court of competent jurisdiction. This arbitration
provision shall be specifically enforceable. The arbitrators shall have no
authority to modify any provision of this Agreement or to award a remedy for a
dispute involving this Agreement other than a benefit specifically provided
under or by virtue of the Agreement. If the Executive prevails on any material
issue which is the subject of such arbitration or lawsuit, the Company shall be
responsible for all of the fees of the American Arbitration Association and the
arbitrators and any expenses relating to the conduct of the arbitration
(including the Company's and the Executive's reasonable attorneys' fees and
expenses). Otherwise, each party shall be responsible for its own expenses
relating to the conduct of the arbitration (including reasonable attorneys' fees
and expenses) and shall share the fees of the American Arbitration Association
equally. Pending the resolution of the arbitration, all payments and benefits
otherwise due to Executive hereunder shall continue; provided, however, that any
severance benefits provided for in Section 5(d)(i) and/or Section 5(d)(ii) shall
be paid to the Executive during such period at the rate of 1/30th thereof per
month; and provided, further, that upon final resolution (i) the Company shall
immediately pay to the Executive the remaining amount, if any, to which he is
entitled together with interest from the date such payment was otherwise due at
the Applicable Federal Rate and (ii) the Executive shall promptly repay to the
Company the amount, if any, paid to him pending such resolution to which he was
not entitled together with interest at the Applicable Federal Rate; provided,
however, that except in the case of a repayment due by reason of the Executive
having engaged in Competition, such repayment shall be net of any taxes paid by
the Executive with respect to the receipt of such severance benefits, after
taking into account the deductibility of such repayment.
19. Executive's Representations. Executive hereby represents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound; (ii) except to the
extent previously disclosed to the Company in writing, Executive is not a party
to or bound by an employment agreement, noncompete agreement or confidentiality
agreement with any other person or entity which would interfere in any material
respect with the performance of his duties hereunder; and (iii) Executive shall
not use any confidential information or trade secrets in connection with the
performance of his duties hereunder.
20. Company's Representations. The Company represents and warrants that
it is fully authorized and empowered to enter into this Agreement, that the
Agreement has been duly authorized by all necessary corporate action, that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization or any
applicable law or regulation and that this Agreement is enforceable in
accordance with its terms.
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21. Survivorship. Upon the expiration or other termination of this
Agreement, the respective rights and obligations of the parties hereto shall
survive such expiration or other termination to the extent necessary to carry
out the intentions of the parties under this Agreement.
22. Entire Agreement. Except as otherwise noted herein, this Agreement
constitutes the entire agreement between the parties concerning the subject
matter hereof and supersedes all prior and contemporaneous agreements, if any,
between the parties relating to the subject matter hereof.
23. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
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IN WITNESS THEREOF, the Executive has hereunto set his hand, and the Company
has caused these presents to be executed in its name and on its behalf, and its
corporate seal to be hereunto affixed, all as of the day and year first above
written.
/s/ James Dimon
--------------------------
Executive
BANK ONE CORPORATION
By /s/ John R. Hall
-----------------------
Its Chairman
[Seal]
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EXHIBIT A
Board of Directors
For-Profit Businesses
---------------------
Tricon Global Restaurants, Inc.
<PAGE>
EXHIBIT B
Definition of
Change of Control
-----------------
A "Change of Control" of the Corporation shall be deemed to have occurred
upon the happening of any of the following events:
(I) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then outstanding shares of Common Stock of the
Corporation (the "Outstanding Corporation Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"), provided, however, that for purposes of this
subsection (I), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Corporation, (B) any acquisition
by the Corporation, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation controlled
by the Corporation or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection (III) of
this Section 12(b); or
(II) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(III) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Corporation
(a "Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities, as the case may be,
(B) no Person (excluding any corporation resulting from
<PAGE>
such Business Combination or any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% of more of, the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(IV) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
<PAGE>
EXHIBIT C
RESTRICTED STOCK AWARD AGREEMENT
--------------------------------
THIS AGREEMENT (the "Agreement"), dated March 27, 2000, is between
Bank One Corporation, a Delaware corporation (hereinafter called the "Company"),
and Mr. James Dimon (hereinafter called the "Participant").
WHEREAS, the Company has adopted the Bank One Corporation Stock
Performance Plan (the "Plan"), which Plan as it may be amended from time to time
is incorporated herein by reference and made a part of this Agreement;
WHEREAS, the Organization, Compensation and Nominating Committee of
this Board of Directors has determined that it would be in the best interests of
the Company and its stockholders to grant the restricted stock award provided
for herein (the "Restricted Stock Award") to the Participant pursuant to the
Plan and the terms set forth herein;
WHEREAS, the Company and the Participant have entered into an
Employment Agreement dated March 27, 2000 (the "Employment Agreement"); and
WHEREAS, the Employment Agreement provides for the grant of Restricted
Shares to the Participant.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Grant of the Restricted Shares. Subject to the terms and
conditions of the Plan, the Employment Agreement and the additional terms and
conditions set forth in this Agreement, the Company hereby grants to the
Participant a Restricted Stock Award consisting of 35,242 shares of Common Stock
(hereinafter called the "Restricted Shares"). The Restricted Shares shall vest
(and thus become non-forfeitable) in accordance with Section 2 hereof. Any
capitalized terms set forth herein to the extent not defined herein shall have
the meanings set forth in the Employment Agreement or the Plan.
2. Vesting.
(a) Subject to the Participant's continued employment with the Company
and the terms of this Agreement and the Employment Agreement, the Restricted
Shares shall vest and become non-forfeitable, as follows: 7,048 of the
Restricted Shares on each of the first four anniversaries of the date of this
Agreement and the remainder on the fifth anniversary of such date.
Notwithstanding the foregoing, in the event the above vesting schedule results
in the vesting of any fractional Shares, such fractional Shares shall not be
deemed vested hereunder but shall vest and become nonforfeitable when such
fractional Shares aggregate whole Shares.
<PAGE>
(b) (i) If the Participant's employment with the Company is
terminated as a result of the Participant's death or
Disability, termination by the Company without Cause or
Constructive Discharge (all as defined or described in the
Employment Agreement), or if a Change of Control (as defined
or described in the Employment Agreement) occurs, the
Restricted Shares shall, to the extent not then vested and
not previously forfeited, immediately become fully vested.
(ii) If the Participant's employment with the Company is
terminated by the Company for Cause (other than during the
three-year period following a Change of Control) or if the
Participant voluntarily resigns from the employ of the
Company, other than pursuant to a Constructive Discharge,
the Restricted Shares shall, to the extent not then vested,
be forfeited by the Participant; provided, however, that in
such event the Participant shall not have any obligation to
reimburse the Company for any amount in respect of any cash
dividends theretofore received by the Participant with
respect to Restricted Shares.
3. Certificates. The Restricted Shares shall be issued by the
Company and shall be registered in the Participant's name on the stock transfer
books of the Company as of the date hereof. At the request of the Participant,
at any time on or after the vesting of such shares, certificates for such shares
shall be issued in the Participant's name. No certificates shall be issued for
fractional Shares.
4. Rights as a Stockholder. The Participant shall be the record
owner of the Restricted Shares until or unless such Shares are forfeited
pursuant to Section 2 hereof and as record owner shall be entitled to all rights
of a common stockholder of the Company, including, without limitation, voting
rights and dividends with respect to the Restricted Shares; provided that (i)
any in-kind dividends paid with respect to the Restricted Shares which have not
previously vested shall be withheld by the Company and shall be paid to the
Participant only when, and to the extent such Restricted Shares shall become
fully vested pursuant to Section 2 and (ii) the Restricted Shares shall be
subject to the limitations on transfer and encumbrance set forth in Section 6.
As soon as practicable following the vesting of any Restricted Shares pursuant
to Section 2, certificates for the Restricted Shares which shall have vested
shall be delivered to the Participant or to the Participant's legal guardian or
representative along with the stock powers relating thereto.
5. Transferability. The Restricted Shares may not, at any time prior
to becoming vested pursuant to Section 2, be transferred, sold, assigned,
pledged, hypothecated or otherwise disposed of unless such transfer, sale,
assignment, pledge, hypothecation or other disposition complies with the
provisions of the Plan.
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7. Participant's Employment by the Company. Subject to the terms of
the Employment Agreement, nothing contained in this Agreement (i) obligates the
Company or any subsidiary of the Company to employ the Participant in any
capacity whatsoever or (ii) prohibits or restricts the Company (or any such
subsidiary) from terminating the employment, if any, of the Participant at any
time or for any reason whatsoever, with or without Cause, and the Participant
hereby acknowledges and agrees that, except as otherwise provided in the
Employment Agreement neither the Company nor any other person has made any
representations or promises whatsoever to the Participant concerning the
Participant's employment or continued employment by the Company or any
subsidiary of the Company.
8. Change in Capitalization. If, prior to the time the restrictions
imposed by Section 2 on the Restricted Shares lapse, the Company shall be
reorganized, or consolidated or merged with another corporation, any stock,
securities or other property exchangeable for such Restricted Shares pursuant to
such reorganization, consolidation or merger shall be deposited with the Company
and shall become subject to the terms of this Agreement to the same extent as if
it had been the original property granted hereby.
9. Withholding.
(a) It shall be a condition of the obligation of the Company to
deliver to the Participant Restricted Shares that have vested that the
Participant pay to the Company such amount as may be requested by the Company
for the purpose of satisfying any liability for any Federal, state or local
income or other taxes required by law to be withheld with respect to such
Restricted Shares. Any such liability may be satisfied, in whole or in part, by
the Participant's authorizing the Company to withhold from the Restricted Shares
that would otherwise be delivered Restricted Shares whose Fair Market Value
equals the liability. The Company shall be authorized to take such action as may
be necessary in the opinion of the Company's counsel (including, without
limitation, withholding vested Restricted Shares otherwise deliverable to
Participant hereunder and/or withholding amounts from any compensation or other
amount owing from the Company to the Participant) to satisfy all obligations for
the payment of any such taxes.
(b) Cash dividends paid with respect to the Restricted Shares will be
treated as compensation taxable to the Participant and will be subjected to
applicable withholding, through payroll reductions, when paid for the purpose of
satisfying any liability for any Federal, state or local income or other taxes
required by law to be withheld with respect to such dividends.
(c) The Participant is hereby advised to seek his own tax counsel
regarding the taxation of the grant of Restricted Shares made hereunder.
10. Securities Laws. The Company represents that the Restricted
Shares are registered without restriction under the Securities Act of 1933, and
under any and all applicable state securities laws, and that the Shares shall
remain registered after vesting. Upon the vesting of any Restricted Shares, the
Company may require the Participant to make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in
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<PAGE>
order to comply with applicable securities laws or with this Agreement and
appropriate legends may be placed on the certificates. The granting of the
Restricted Shares hereunder shall be subject to all applicable laws, rules and
regulations and to such approvals of any governmental agencies as may be
required and appropriate legends may be placed on the certificates.
11. Notices. Any notice to be given under the terms of this Agreement
to the Company shall be addressed to the Company in care of its General Counsel,
and any notice to be given to the Participant shall be addressed to him at the
address given beneath his signature hereto. By a notice given pursuant to
Section 11, either party may hereafter designate a different address for notices
to be given to him. Any notice which is required to be given to the Participant
shall, if the Participant is then deceased, be given to the Participant's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 11. Any
notice shall have been deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in
a post office or branch post office regularly maintained by the United States
Postal Service.
12. Governing Law. The laws of the State of Delaware (or if the
Company reincorporates in another state, the laws of that state) shall govern
the interpretation, validity and performance of the terms of this Agreement
regardless of the law that might be applied under principles of conflicts of
laws.
14. Restricted Stock Award Subject to the Employment Agreement and
Plan. This Restricted Stock Award shall be subject to the terms and provisions
of the Employment Agreement and of the Plan as modified by the Employment
Agreement. In the event of any conflict among this Agreement, the Plan or the
Employment Agreement, the terms of the Employment Agreement shall control.
15. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
16. Resolution of Disputes. Any disputes under the Agreement shall be
resolved in accordance with Section 18 of the Employment Agreement, which shall
be deemed incorporated herein in full.
17. The Company's Representations. The Company represents and
warrants that (a) it is fully authorized by action of the Board and the
Committee (and of any other person or body whose action is required) to enter
into this Agreement and to perform its obligations hereunder; (b) the execution,
delivery and performance of this Agreement by the Company does not violate any
applicable law, regulation, order, judgment or decree or any agreement, plan or
corporate governance document of the Company; (c) the Plan is consistent with
the terms of this Agreement; and (d) upon the execution and delivery of this
Agreement by the Company and the Participant, this Agreement shall be the valid
and binding obligation of the Company, enforceable in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
BANK ONE CORPORATION
By: /s/ John R. Hall
-------------------
Its: Chairman
/s/ James Dimon
- ----------------------
Participant
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<PAGE>
EXHIBIT D
STOCK OPTION AGREEMENT
----------------------
THIS AGREEMENT (the "Agreement"), dated as of March 27, 2000 is made
by and between Bank One Corporation (the "Company"), a Delaware corporation, and
Mr. James Dimon (the "Optionee"), an employee of the Company.
RECITALS
--------
WHEREAS, the Optionee and the Company have entered into an employment
agreement which provides for the grant of stock options to the Optionee; and
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase 3,240,000 shares of the Company's common stock, $.01 par value per
share (the "Common Stock"); and
WHEREAS, the Company wishes to award an option to purchase shares of
Common Stock under the Bank One Corporation Stock Performance Plan as amended as
of the date of grant, (the "Plan"), the terms of which are hereby incorporated
by reference and made a part of this Agreement; and
WHEREAS, the Company's Organization, Compensation and Nominating
Committee (the "Committee"), appointed to administer the Plan, has determined
that it would be to the advantage and in the best interest of the Company and
its stockholders to grant to the Optionee a Stock Option to purchase Common
Stock as an incentive for increased efforts during the Optionee's term of office
with the Company and has advised the Company thereof and instructed it to issue
such Option.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS
-----------
"Cause" shall have the meaning set forth in Section 5(c) of the
Employment Agreement.
"Change of Control" shall have the meaning set forth in Exhibit C to
the Employment Agreement.
<PAGE>
"Constructive Discharge" shall have the meaning set forth in Section
5(e) of the Employment Agreement.
"Disability" shall have meaning set forth in Section 5(b) of the
Employment Agreement.
"Employment Agreement" shall mean the Employment Agreement executed
March 27, 2000 between the Optionee and the Company.
"Fair Market Value" shall have the meaning set forth in the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Grant Date" shall mean March 27, 2000.
"Term" shall mean 10 years from the Grant Date.
"Termination for Cause" shall have the meaning set forth in Section
5(c) of the Employment Agreement but shall not include any termination
that constitutes a Constructive Discharge.
"Termination without Cause" shall have the meaning set forth in
Section 5(d) of the Employment Agreement.
"Vest" shall mean to become exercisable as well as to become vested,
subject to the terms of this Agreement.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
On and as of the Grant Date, the Company irrevocably grants to the
Optionee a Stock Option to purchase all or any part of 3,240,000 shares of
Common Stock (any such shares, the "Shares") upon the terms and conditions set
forth herein (the "Option").
Section 2.2 - Exercise Price
The exercise price shall be $28.375 per Share without commission or
other charge.
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Section 2.3 - Consideration to the Company; No Right to Employment
In consideration of the Option grant, the Optionee agrees to render
faithful and efficient service to the Company with such duties and
responsibilities as the Company shall from time to time prescribe, all in
accordance with the terms of the Employment Agreement. Nothing in this Agreement
or in the Plan shall confer upon the Optionee any right to continue in the
employ of the Company or shall interfere with or restrict in any way the rights
of the Company, which rights hereby are expressly reserved, to terminate the
Optionee's employment at any time for any reason whatsoever, with or without
cause, subject to the terms of the Employment Agreement.
Section 2.4 - Adjustments in Option
(a) General. In the event of a stock split, stock dividend,
combination of shares or similar event or in the event that the outstanding
shares of Common Stock subject to the Option are, from time to time, changed
into or exchanged for a different number or kind of shares of common stock or
other securities of the Company by reason of a merger, consolidation,
recapitalization, reclassification, or otherwise, the Committee shall make an
appropriate and equitable adjustment in the number and kind of shares or other
consideration as to which the Option, or portions thereof then unexercised,
shall be exercisable and/or in the exercise price and/or other terms and
conditions of this Option (including the prices per share of Common Stock set
forth in Section 3.1 hereof), and/or shall promptly make appropriate
provision(s) for supplemental payments of cash, securities, and/or other
property, so as to avoid dilution or enlargement of the rights of the Optionee
and of the economic opportunity and value represented by the Option. Any such
adjustment made by the Committee shall be final and binding, subject, however,
to the provisions of Section 14 of the Employment Agreement which is
incorporated herein by reference as provided in the Recitals hereto and in
Section 5.5 below.
(b) Roll-over Provisions. In the event of any merger, consolidation or
other transaction (i) in which the Company is not the surviving entity or the
Company becomes (directly or indirectly) a subsidiary of another entity and (ii)
following which the surviving entity or any entity of which it is a subsidiary,
or, if the Company survives as a subsidiary of another entity, then such other
entity or any entity of which such other entity is a subsidiary, has publicly-
traded equity securities issued and outstanding, the Company shall take such
steps as are necessary to assure that the Optionee shall (at his election) be
provided a replacement option that (x) is exercisable for publicly-traded equity
securities of the surviving entity, or of an entity of which the Company or the
surviving entity is a subsidiary, as the case may be, and (y) provides terms,
conditions and economic opportunity (including, without limitation, an aggregate
spread value) no less favorable to the Optionee than did the Option prior to
such transaction.
(c) Change of Control. In the event that holders of Common Stock
receive cash, securities or other property in respect of their Common Stock in
connection with a Change of Control transaction, the Company shall use its best
efforts to enable the Optionee (if he so elects) to exercise the Option at a
time and in a fashion that will entitle him to receive in
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<PAGE>
exchange for any Common Stock thus acquired the same consideration as is
received in such Change of Control transaction by other holders of Common Stock.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Vesting, and Commencement of Exercisability
Subject to the provisions of Section 3.2, the Option shall become
exercisable as follows:
a. As to 1,240,000 shares the Option shall vest and become
exercisable at the rate of 20% per year on each of the first five
anniversaries of the Grant Date.
b. As to another 1,000,000 shares, the Option shall vest and become
exercisable the rate of 20% per year on each of the first five
anniversaries of the Grant Date, provided that subject to Section
3.1(d) below the Option shall vest and become immediately
exercisable with respect to such shares on the date on which the
closing price of the Common Stock as reported on the New York
Stock Exchange Composite Transactions Tape is at or above $50 per
share.
c. As to another 1,000,000 shares, the Option shall vest and become
exercisable the rate of 20% per year on each of the first five
anniversaries of the Grant Date, provided that subject to Section
3.1(d) below the Option shall vest and become immediately
exercisable with respect to such shares on the date on which the
closing price of the Common Stock as reported on the New York
Stock Exchange Composite Transactions Tape is at or above $60 per
share.
d. Subject to Section 3.2(a) below, neither tranche of the Option,
as described in Section b. or c. above, shall become exercisable
prior to the sixth-month anniversary of the Grant Date.
Section 3.2 - Acceleration of Exercisability
(a) To the extent not previously vested the Option shall become fully
vested and exercisable on the earlier of a Change of Control or the Optionee's
termination of employment by reason of death, Disability, termination by the
Company without Cause, or Constructive Discharge. To the extent not previously
vested, the Option shall be immediately forfeited in the event of a termination
of the Optionee's employment for Cause or upon the Optionee's resignation from
the employ of the Company other than pursuant to a Constructive Discharge.
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<PAGE>
(b) To the extent exercisable on the date of the Optionee's
termination of employment, the Option shall continue to be exercisable by the
Optionee or, in the event of his death, by his estate for the following periods
(but not beyond the original ten-year term of the Options): (A) until the fifth
anniversary of such termination of employment by reason of death, Disability,
termination by the Company without Cause or Constructive Discharge or (B)
subject to the following provisions of this clause (b), until 30 days after
termination of employment by the Company for Cause. Except as provided in the
following sentence, this Option shall cease to be exercisable immediately upon
the Optionee's resignation from the employ of the Company other than pursuant to
a Constructive Discharge. In the event of a Change of Control prior to the first
anniversary of the Grant Date, any termination of the Executive's employment by
the Company after the date of such Change of Control and on or before the close
of business on the first business day following the first anniversary of the
Grant Date shall be treated for purposes of this clause (b) as if it were a
termination by the Company without Cause. The Option shall cease to be
exercisable immediately upon the Optionee's voluntary resignation from the
employ of the Company other than pursuant to a Constructive Discharge. In the
event that the Optionee engages in Competition (within the meaning of Section 8
of the Employment Agreement) within the twelve-month period immediately
following the termination of his employment with the Company for any reason
(including any termination prior to the first anniversary of the Grant Date),
this Option shall be immediately forfeited to the extent not previously
exercised.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
During the Optionee's lifetime, subject to Section 5.1 hereof, only
the Optionee may exercise the Option or any exercisable portion thereof.
Subject to the preceding sentence, after the death of the Optionee and prior to
the close of business on the Expiration Date, the Option or any exercisable
portion thereof may be exercised by the Optionee's personal representative, or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution. The party entitled to exercise the
Option shall be referred to herein as the "Exercising Party."
Section 4.2 - Partial Exercise
Any exercisable portion of the Option may be exercised in whole or in
part at any time prior to the close of business on the Expiration Date;
provided, however, that any exercise shall be for whole shares only.
Section 4.3 - Manner of Exercise
(a) Notice in writing, signed by the Exercising Party, shall be
delivered to the Company, stating the number of Shares with respect to which the
Option is being exercised.
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<PAGE>
(b) Full payment of the purchase price and resulting tax withholding
liability shall be paid to the Company, which payment can be made in any
combination of the following:
(i) Cash, wire transfer of immediately available funds or check
payable to the Company, within five business days of exercise. This alternative
can be used for either or both the purchase price and tax withholding liability;
(ii) "Exchange" of Common Stock owned for at least six months
prior to exercise with a total market value equal to or greater than the
purchase price. This alternative can also be used for either or both the
purchase price and resulting tax withholding liability;
(iii) Simultaneous exercise and sale through either FCT/Equiserve
or Bank One Securities Corporation;
(iv) Tendering Option Shares (reducing the number of Shares
actually delivered through the exercise of the Option). This alternative can
only be used to satisfy the resulting minimum tax withholding.
If withholding is not fully paid by one of the tax payment options described
above, tax will be withheld from a paycheck following an option exercise.
(c) In the event that the Exercising Party is not the Optionee,
appropriate proof, in the sole judgment of the Company, of the right of such
person to exercise the Option shall be delivered to the Company.
Section 4.4 - Restorative Stock Option
A Restorative Stock Option will be granted to the Optionee upon
exercise during employment of all or a portion of the Option where the option
exercise price is paid by an "exchange" of shares of Common Stock owned for at
least six months prior to exercise with a total Fair Market Value equal to or
greater than the purchase price. The exercise price per share of the Restorative
Stock Option shall be the Fair Market Value of a share of Common Stock on the
date the Restorative Stock Option is granted. The number of shares for each
Restorative Stock Option grant will be equal to the number of shares exchanged
to pay the option exercise price. Restorative Stock Options (i) may be granted
on previously granted Restorative Stock Options that are exercised in a calendar
year subsequent to the year of grant, (ii) may be granted once per calendar year
with respect to this Option, (iii) derived from this Option are only exercisable
through the term of the Option and (iv) shall be exercisable six months after
grant; provided, however, that a Restorative Stock Option exercised in the same
calendar year as granted shall not be eligible for a new Restorative Stock
Option grant.
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Section 4.5 - Shares to be Issued
The Shares deliverable upon the exercise of the Option, or any portion
thereof, may be either previously authorized but unissued shares of Common Stock
or issued shares that have been reacquired subsequently by the Company. When
delivered to Optionee, such shares shall be fully paid and nonassessable.
Section 4.6 - No Rights as Stockholder
Neither the Optionee nor any Exercising Party shall be a stockholder
of the Company or have any of the rights or privileges thereof in respect of any
shares covered by the Option unless and until certificates representing such
shares shall have been issued by the Company to such Optionee or other
Exercising Party or such shares have been registered in the name of the Optionee
or other Exercising Party on the Company's books.
Section 4.7 - Securities Registration, Securities Law Compliance
The Company represents that the shares to be issued upon exercise of
the Option are registered without restriction under the Securities Act of 1933
and under any and all applicable state securities laws, and shall remain
registered after the Option is exercised. Upon issuance of any share hereunder,
the Optionee shall, if requested by the Company, make such representations and
furnish such information as may reasonably be necessary to permit the Company to
issue or transfer such share in compliance with the provisions of applicable
Federal and/or state securities laws.
Section 4.8 - Deferral of Option Gains
To the extent that such rights are provided to any other senior
executive of the Company, the Optionee shall have the right to elect to defer
any gains realized upon or in connection with the exercise of the Option.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1 - Transferability of Option
This Agreement and the Optionee's rights hereunder shall be
transferable or assignable by the Optionee (i) by will or by the laws of descent
and distribution, (ii) during his lifetime, by gratuitous transfers to immediate
family members or to trusts for their benefit or (iii) pursuant to a Qualified
Domestic Relations Order (as defined under the Code or Title I of the Employee
Retirement Security Act of 1974, as amended or the rules thereunder). The Option
may be exercised only by the Optionee or his guardian or legal representative
(including any person empowered to do so under the Optionee's will or under the
then applicable laws of descent and distribution) or by a transferee to whom a
transfer is made in accordance with the
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preceding sentence (a "Permitted Transferee"). For purposes of this Section 5, a
"Permitted Transferee" shall be deemed to include a transferee from a Permitted
Transferee under circumstances described in clause (i) and (ii) above. Any
Permitted Transferee shall have the same rights and obligations as the Optionee
except that the rights with respect to transfers or assignments under this
Section 5 shall be limited to Permitted Transferees referred to in clauses (i)
and (ii) above.
Section 5.2 - Shares to be Reserved
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of Common Stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.3 - Notices
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company as follows: Bank One Corporation, 1
Bank One Plaza, Chicago, IL 60670, Attention: General Counsel. Any notice to be
given to the Optionee shall be sent to the address given beneath his signature
to this Agreement. By a notice given pursuant to this Section 5.3, either party
may hereafter designate a different address for notices. Any notice that is
required to be given to the Optionee shall, if the Optionee is then deceased, be
given to the Optionee's personal representative if such representative has
previously informed the Company of his or her status and address by written
notice under this Section 5.3. All notices and other communications under this
Agreement shall be in writing and shall have been deemed duly given when
delivered personally, mailed by registered mail, return receipt requested or
sent by documented overnight delivery service.
Section 5.4 - Titles
Titles are provided herein for convenience of reference only and are
not to serve as a basis for interpretation or construction of this Agreement.
Section 5.5 - Applicability of Plan, Employment Agreement
This Agreement, the Option and any Shares issued hereunder shall be
subject to all of the terms and provisions of the Employment Agreement and of
the Plan, as modified by the Employment Agreement. In the event of any conflict
among this Agreement, the Plan or the Employment Agreement, the terms of the
Employment Agreement shall control.
Section 5.6 - Amendment; Waiver
No provision of this Agreement may be amended or modified except by an
instrument or instruments in writing signed by the parties hereto. Any party may
waive compliance by another with any of the provisions of this Agreement,
provided that (a) no waiver of any provision hereof shall be construed as a
waiver of any other provision or subsequent
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breach and (b) any such waiver shall be in writing signed by the party waiving
such compliance. The failure of any party hereto to enforce at any time any
provision hereof shall not be construed to be a waiver of such provision, nor in
any way to affect the validity hereof, or any part hereof, or the right of any
party thereafter to enforce each and every such provision.
Section 5.7 - Governing Law
To the extent not governed by the laws of the United States, including
the Code, this Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware (without regard to conflicts
of law principles for such state).
Section 5.8 - Jurisdiction
Subject to Section 5.9 hereof, the Company and the Optionee hereby
irrevocably submit to the jurisdiction of any Illinois or Delaware state court,
or any Federal court in the Northern District of Illinois or in Delaware in any
action or proceeding arising out of or relating to this Agreement, and the
parties hereto irrevocably agree that all claims in respect of such action or
proceeding shall be heard and determined only in such courts. The Company and
the Optionee hereby consent to and grant to any such court jurisdiction over the
persons of such parties and over the subject matter of any such dispute and
agree that delivery or mailing of any process or other papers in the manner
provided in Section 5.3 hereof, or in such other manner as may be permitted by
law, shall be valid and sufficient service thereof.
Section 5.9 - Resolution of Disputes
Any disputes under this Agreement shall be resolved in accordance with
Section 18 of the Employment Agreement, which shall be deemed incorporated
herein in full.
Section 5.10 - Representations
The Company represents and warrants that (a) it is fully authorized by
action of its Board and the Committee (and of any other person or body whose
action is required) to enter into this Agreement and to perform its obligations
under it, (b) the execution, delivery and performance of this Agreement by the
Company does not violate any applicable law, regulation, order, judgment or
decree or any agreement, plan or corporate governance document of the Company,
(c) the Plan is consistent with the terms of this Agreement and (d) upon the
execution and delivery of this Agreement by the Company and the Optionee, this
Agreement shall be the valid and binding obligation of the Company, enforceable
in accordance with its terms.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto on the date first set forth above.
BANK ONE CORPORATION
By: /s/ John R. Hall
-------------------------------
AGREED AND ACCEPTED BY:
/s/ James Dimon
- -----------------------------------
Optionee
10
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
The computation of the ratio of income to fixed charges is set forth in
Note 9 of Notes to Consolidated Financial Statements on page 37 of the Form
10-Q.
-48-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,267
<INT-BEARING-DEPOSITS> 8,105
<FED-FUNDS-SOLD> 10,998
<TRADING-ASSETS> 5,587
<INVESTMENTS-HELD-FOR-SALE> 47,459
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 168,078
<ALLOWANCE> 2,338
<TOTAL-ASSETS> 273,008
<DEPOSITS> 164,643
<SHORT-TERM> 36,712
<LIABILITIES-OTHER> 12,629
<LONG-TERM> 38,753<F1>
0
190
<COMMON> 12
<OTHER-SE> 20,069<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 273,008
<INTEREST-LOAN> 3,596
<INTEREST-INVEST> 804
<INTEREST-OTHER> 353
<INTEREST-TOTAL> 4,753
<INTEREST-DEPOSIT> 1,389
<INTEREST-EXPENSE> 2,560
<INTEREST-INCOME-NET> 2,193
<LOAN-LOSSES> 362
<SECURITIES-GAINS> 15<F3>
<EXPENSE-OTHER> 2,661
<INCOME-PRETAX> 991
<INCOME-PRE-EXTRAORDINARY> 689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689
<EPS-BASIC> .60
<EPS-DILUTED> .60
<YIELD-ACTUAL> 3.78
<LOANS-NON> 1,093
<LOANS-PAST> 0<F4>
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,285
<CHARGE-OFFS> 338
<RECOVERIES> 72
<ALLOWANCE-CLOSE> 2,338
<ALLOWANCE-DOMESTIC> 1,649<F5>
<ALLOWANCE-FOREIGN> 0<F5>
<ALLOWANCE-UNALLOCATED> 689<F5>
<FN>
<F1>Guaranteed Preferred Beneficial Interest in the Corporation's Junior
Subordinated Debt of $1,578 million is included in long-term debt for the
period ended March 31, 2000.
<F2>Treasury stock of $1,329 million for the period ended march 31, 2000 is
included as a reduction of stockholders' equity.
<F3>Investment securities gains do not include the Corporation's equity gains,
which totaled $143 million for the period ended March 31, 2000.
<F4>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.
<F5>The Corporation is not required to present separate data related to foreign
activities. Foreign data is included in domestic as of March 31, 2000.
</FN>
</TABLE>
