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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of l934
Date of Report (Date of earliest event reported)________________________________
November 3, 1998
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FCC National Bank on behalf of First Chicago Master Trust II
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(Exact name of registrant as specified in its charters)
United States of America 0-16337 51-0269396
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Gateway Center, 300 King Street, Wilmington, Delaware 19801
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 302-656-5020
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Item 5. Other Events.
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On November 2, 1998, the Registrant made available to prospective
investors a series term sheet setting forth a description of the
collateral pool and the proposed structure of Class A Floating Rate Asset
Backed Certificates, Series 1998-V of the First Chicago Master Trust II.
The series term sheet is attached hereto as Exhibit 99.01.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits
Exhibit Number Description of Exhibit
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99.01 Series Term Sheet dated November 2, 1998, with respect to
the proposed issuance of the Class A Floating Rate Asset
Backed Certificates, Series 1998-V of the First Chicago
Master Trust II.
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 hereunto duly authorized.
FCC NATIONAL BANK
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(Registrant)
Date: November 3, 1998 By /s/ Sharon A. Renchof
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Title: Assistant Secretary
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INDEX TO EXHIBITS
Exhibit Description of Sequential Page
Number Exhibit Number
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99.01 Series Term Sheet dated November
2, 1998, with respect to the
proposed issuance of the Class A
Floating Rate Asset Backed
Certificates, Series 1998-V of
the First Chicago Master Trust II.
<PAGE>
EXHIBIT 99.01
SUBJECT TO REVISION
SERIES TERM SHEET DATED NOVEMBER 2, 1998
FIRST CHICAGO MASTER TRUST II
ISSUER
FCC NATIONAL BANK
SELLER AND SERVICER
FLOATING RATE ASSET BACKED CERTIFICATES SERIES 1998-V
THE CLASS A CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF FCC NATIONAL BANK OR ANY
AFFILIATE. NONE OF THE CLASS A CERTIFICATES, THE UNDERLYING ACCOUNTS OR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THIS SERIES TERM SHEET CONTAINS STRUCTURAL AND COLLATERAL INFORMATION ABOUT
THE CLASS A CERTIFICATES; HOWEVER, THIS SERIES TERM SHEET DOES NOT CONTAIN
COMPLETE INFORMATION ABOUT THE CLASS A CERTIFICATES. THE INFORMATION PROVIDED
HEREIN IS PRELIMINARY, LIMITED IN NATURE AND SUBJECT TO COMPLETION OR
AMENDMENT AND WILL BE SUPERSEDED BY THE INFORMATION CONTAINED IN THE
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. ADDITIONAL INFORMATION WILL BE
CONTAINED IN THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. PURCHASERS ARE
URGED TO READ BOTH THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THIS SERIES TERM SHEET SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE. SALES OF THE CLASS A CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THE PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION.
MORGAN STANLEY DEAN WITTER
FIRST CHICAGO CAPITAL MARKETS, INC.
CREDIT SUISSE FIRST BOSTON
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This Series Term Sheet will be superseded in its entirety by the information
appearing in the Prospectus Supplement, the Prospectus and the Series 1998-V
Supplement to the Pooling and Servicing Agreement, as amended (the
"Agreement",) between FCC National Bank (the "Bank"), as seller (in such
capacity, the "Seller") and servicer (in such capacity, the "Servicer"), and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The
information below addresses only certain limited aspects of the Class A
Certificates and their investment characteristics and does not purport to
provide a complete description of such Class A Certificates.
SUMMARY OF SERIES TERMS
Issuer.................... First Chicago Master Trust II.
Title of Security......... Floating Rate Asset Backed Certificates
Series 1998-V (the "Class A Certificates").
Initial Invested Amount... $571,428,572
Class A Initial Invested
Amount................... $500,000,000
Collateral Initial
Invested Amount.......... $71,428,572
Class A Certificate
Rate..................... LIBOR plus 0. % per annum.
Distribution Dates........ The fifteenth day of each month (or, if that
day is not a business day, the next business
day); the first Distribution Date is
December 15, 1998.
Class A Scheduled Payment
Date..................... The October 2001 Distribution Date.
Controlled Accumulation
Amount.................. For each Distribution Date with respect to
the Accumulation Period, $41,666,667.
However, if the commencement of the
Accumulation Period is delayed, the
Controlled Accumulation Amount may be
higher. The Bank currently believes it is
likely that the commencement of the
Accumulation Period will be delayed.
Series Closing Date....... .
Series Termination Date... The October 2003 distribution Date.
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SUMMARY OF SERIES PROVISIONS
OFFERED SECURITIES
The Trust is offering the Class A Certificates as part of Series 1998-V. The
Class A Certificates represent an interest in the assets of the Trust. The
initial aggregate principal amount of the Class A Certificates is $500,000,000.
INTEREST PAYMENTS
The Class A Certificates will accrue interest for each Interest Period at the
Class A Certificate Rate set on the related LIBOR Determination Date.
Interest accrued during each Interest Period will be due on each Distribution
Date. Any interest due but not paid on a Distribution Date will be payable on
the next Distribution Date together with additional interest at the Class A
Certificate Rate plus 2% per annum.
. Each "Interest Period" begins on and includes a Distribution Date and ends on
and excludes the next Distribution Date. However, the first Interest Period
will begin on and include , 1998 (the "Series Closing Date") and end on
and exclude December 15, 1998, the first Distribution Date.
. LIBOR is the rate for deposits in U.S. dollars for a one-month period which
appears on the Dow Jones Telerate Page 3750 (or similar replacement page) as
of 11:00 a.m., London time, on the related LIBOR Determination Date.
. "LIBOR Determination Dates" are:
. , 1998, for the period beginning on and including the Series Closing
Date and ending on and excluding November 16, 1998;
. November 12, 1998 for the period beginning on and including November 16,
1998 and ending on and excluding December 15, 1998; and
. the second London business day prior to the first day of each Interest
Period, for each Interest Period following the first Interest Period.
PRINCIPAL PAYMENTS
You are expected to receive payment of principal in full on the "Class A
Scheduled Payment Date" which is October 15, 2001, or, if that date is not a
business day, the next business day. However, certain circumstances could cause
principal to be paid earlier or later, or in reduced amounts.
The final payment of principal and interest on the Class A Certificates will be
made no later than October 15, 2003 or, if that date is not a business day, the
next business day, called the "Series Termination Date."
THE COLLATERAL INTEREST
The Trust is also issuing an interest in the assets of the Trust that is
subordinated to the Certificates called the "Collateral Interest." The initial
size of the Collateral Interest is $71,428,572, representing 12.5% of the
initial aggregate principal amount of the Certificates and the Collateral
Interest. As a subordinated interest, the Collateral Interest is a form of
Enhancement for the Class A Certificates. The Collateral Interest Holder will
have voting and certain other rights as if the Collateral Interest were a
subordinated class of certificates.
ENHANCEMENT
Enhancement for your Series is for your Series's benefit only, and you are not
entitled to the benefits of any credit enhancement available to other Series.
Subordination of the Collateral Interest provides Enhancement for the Class A
Certificates. The Collateral Interest must be reduced to zero before the Class
A Invested Amount will suffer any loss of principal. Any funds on deposit in
the Cash Collateral Account will also provide Enhancement for the Class A
Certificates. Initially the Cash Collateral Account will hold $5,714,286. The
Cash Collateral Account must be reduced to zero before the Class A Invested
Amount will suffer any loss of principal or interest.
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OTHER INTERESTS IN THE TRUST
OTHER SERIES OF CERTIFICATES
The Trust has issued other Series of certificates and expects to issue
additional Series of certificates. When issued by the Trust, the certificates
of each of those Series also represent an interest in the assets of the Trust.
The Trust may issue additional Series with terms that may be different from any
other Series without prior review or consent by any Certificateholders.
THE SELLER CERTIFICATE
FCC National Bank initially will own the "Exchangeable Seller's Certificate,"
which represents the remaining interest in the assets of the Trust not
represented by the Class A Certificates, the Collateral Interest and the other
interests issued by the Trust. The Seller's interest does not provide credit
enhancement for your Series or any other Series.
INFORMATION ABOUT THE RECEIVABLES
The Trust assets include Receivables in certain MasterCard(R) and VISA(R)*
revolving credit card accounts selected from the Seller's credit card account
portfolio.
The Receivables consist of both Principal Receivables and Finance Charge
Receivables.
"Principal Receivables" are, generally, (a) amounts charged by cardholders for
goods and services and (b) cash advances.
"Finance Charge Receivables" are (a) the related periodic charges, annual fees,
late charges, over-limit fees and all other fees billed to cardholders and (b)
for your Series, certain amounts of fees, called Interchange, collected through
MasterCard and VISA.
Recoveries on previously charged-off Receivables will also be included as
Finance Charge Receivables for your Series.
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* MasterCard(R) and VISA(R) are registered trademarks of MasterCard
International Inc. and VISA U.S.A., Inc., respectively.
COLLECTIONS BY THE SERVICER
The Servicer, which is the Bank, initially, will collect payments on the
Receivables and will deposit those collections in a trust account. The Servicer
will keep track of those collections that are Finance Charge Receivables and
those collections that are Principal Receivables.
ALLOCATIONS AND PAYMENTS TO YOU AND YOUR SERIES
Each month, the Servicer will allocate collections and the amount of
Receivables that are not collected and are written off as uncollectible, called
the Investor Default Amount, among:
. your Series, based on the size of the Invested Amount (initially
$571,428,572);
. other outstanding Series, based on the size of their respective interests in
the Trust; and
. the holder of the Exchangeable Seller's Certificate, based on the size of the
First Chicago Interest.
The Trust assets allocated to your Series will be allocated to the following,
based on varying percentages:
. holders of the Class A Certificates, based on the Class A Invested Amount
(initially $500,000,000); and
. the holder of the Collateral Interest, based on the Collateral Invested
Amount (initially $71,428,572).
You are entitled to receive payments of interest and principal based upon
allocations to your Series. The "Invested Amount," which is the basis for
allocations to your Series, is the sum of (a) the Class A Invested Amount and
(b) the Collateral Invested Amount. The "Class A Invested Amount" and the
"Collateral Invested Amount" will initially equal the outstanding principal
amount of the Class A Certificates and the Collateral Interest. The Invested
Amount will decline as a result of principal payments and may decline due to
the charging off of Receivables or other reasons. If the Invested Amount
declines, amounts allocated and available for payment to your Series and to you
will be reduced.
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ALLOCATIONS OF COLLECTIONS OF FINANCE CHARGE RECEIVABLES
Collections of Finance Charge Receivables are allocated and applied to your
Series in the following manner:
Step 1: Collections of Finance Charge Receivables for your Series are
allocated, based on varying percentages, among the Class A Invested Amount and
the Collateral Invested Amount.
Step 2: Collections of Finance Charge Receivables allocated to the Class A
Certificates are applied to cover the interest payment due to the Class A
Certificates, the monthly servicing fee due to the Servicer and the Class A
Certificates' portion of the Investor Default Amount.
Collections of Finance Charge Receivables allocated to the Collateral Interest
are treated as Excess Spread and are applied in Step 3. This occurs because of
the Collateral Interest's subordinated status.
Step 3: Collections of Finance Charge Receivables allocated to your Series and
not used in Step 2 are treated as Excess Spread and applied, in the following
priority, to cover:
. the interest payment due to the Class A Certificates, the monthly servicing
fee due to a successor Servicer and the Class A Certificates' portion of the
Investor Default Amount, each to the extent not covered in Step 2; and
. reimbursement of certain prior reductions of the Class A Invested Amount.
Remaining Excess Spread is then applied, in the following priority, to cover,
among other things:
. the interest payment due to the Collateral Interest;
. the Collateral Interest's portion of the Investor Default Amount;
. reimbursement of reductions of the Collateral Interest if it is below its
minimum required amount;
. funding, if necessary, of the Cash Collateral Account if it is below its
minimum required amount;
. the monthly servicing fee, plus any servicing fee previously due but still
unpaid, to the extent not previously covered;
. funding, if necessary, of a reserve account maintained to cover certain
interest payment shortfalls, if any; and
. other amounts owing to the Collateral Interest.
ALLOCATIONS OF COLLECTIONS OF PRINCIPAL RECEIVABLES
Collections of Principal Receivables are allocated and applied to your Series
in the following manner:
Step 1: Collections of Principal Receivables for your Series are allocated,
based on varying percentages, among the Class A Invested Amount and the
Collateral Interest.
Step 2: Collections of Principal Receivables allocated to the Collateral
Interest may be reallocated and made available to pay amounts due to the Class
A Invested Amount that have not been paid by either the Class A Certificates'
share of collections of Finance Charge Receivables or Excess Spread. Certain
such collections which are reallocated for the Class A Certificates will not
be made part of Class A Available Principal Collections.
Step 3: Collections of Principal Receivables allocated to your Series and not
used in Step 2 above are combined with shared principal collections from other
Series, to the extent necessary and available, and treated as Class A
Available Principal Collections as described in the following paragraph.
Class A Available Principal Collections may be paid, or accumulated and then
paid, to you as payments of principal. Alternatively, the Class A Available
Principal Collections may be paid to the Seller, the Collateral Interest or to
other Series. The amount, priority and timing of your principal payments, if
any, depend on whether your Series is in the Revolving Period, the Controlled
Accumulation Period or the Rapid Amortization Period, as described below.
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As Class A Principal Collections are accumulated for the Class A Certificates,
the minimum required credit enhancement (i.e. the Collateral Interest) will
decrease, and Class A Available Principal Collections will be paid to the
holder of the Collateral Interest to the extent of this decrease.
Step 4: Collections of Principal Receivables allocated to your Series and not
used in Steps 2 and 3 above may be paid to other Series, to the extent
necessary, or to the Seller.
REVOLVING PERIOD: The Certificates will have a period of time, called the
"Revolving Period," when the Trust will not pay, or accumulate, principal for
Certificateholders. In general, during the Revolving Period, the Trust will pay
available principal to other Series or the holder of the Exchangeable Seller's
Certificate.
The Revolving Period starts on the Series Closing Date and ends on the
earlier to begin of:
. the Accumulation Period; or
. the Rapid Amortization Period.
ACCUMULATION PERIOD: During the period called the "Accumulation Period," each
month the Servicer will deposit a specified amount in the Principal Funding
Account to be used to pay the Class A Certificates on the Class A Scheduled
Payment Date.
Each month, the Trust will pay principal not required to be deposited in the
Principal Funding Account to other Series or the holder of the Exchangeable
Seller's Certificate. Each month, if the amount actually deposited in the
Principal Funding Account is less than the required deposit, the amount of this
deficiency will be carried forward as a shortfall and included in the next
month's required deposit.
On the Class A Scheduled Payment Date, the Trust will use the money on deposit
in the Principal Funding Account to pay the Class A Invested Amount.
You should be aware that there may not be sufficient amounts available to pay
principal of the Class A Invested Amount in full on the Class A Scheduled
Payment Date. In addition, if the money on deposit in the Principal Funding
Account is insufficient to pay these amounts on the Class A Scheduled Payment
Date or if a Liquidation Event occurs, the Rapid Amortization Period will begin,
and the timing of your principal payments could change.
The Accumulation Period is scheduled to begin on first day of the Due Period
related to the November 2000 Distribution Date but in some cases may be delayed
to no later than first day of the Due Period related to the October 2001
Distribution Date.
The Accumulation Period will end when any one of the following occurs:
. the Invested Amount is paid in full; or
. a Rapid Amortization Period begins.
RAPID AMORTIZATION PERIOD: If a period called the "Rapid Amortization Period"
begins, the Trust will use any available principal collections allocated to
your Series to pay (a) the Class A Invested Amount and (b) if the Class A
Invested Amount is paid in full, the Collateral Invested Amount. These payments
will begin on the first Distribution Date for the Rapid Amortization Period.
The Rapid Amortization Period will begin if a Liquidation Event occurs and will
end when any one of the following occurs:
. the Invested Amount is paid in full; or
. the Series Termination Date.
LIQUIDATION EVENTS: Certain adverse events called Liquidation Events might lead
to the start of a Rapid Amortization Period and the end of either the Revolving
Period or the Accumulation Period.
ERISA CONSIDERATIONS
Subject to important considerations described in the Prospectus Supplement and
Prospectus, the Class A Certificates are eligible for purchase by persons
investing assets of employee benefit plans or individual retirement accounts.
CERTIFICATE RATINGS
The Class A Certificates are required to be rated in the highest rating
category by at least one nationally recognized rating organization.
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RECENT DEVELOPMENTS
MERGER OF PARENT CORPORATION
Effective October 2, 1998, First Chicago NBD Corporation, the parent
corporation of FCC National Bank (the "Bank" or the "Seller"), merged with and
into BANK ONE CORPORATION, a Delaware corporation ("ONE"). Immediately prior
to such merger, BANC ONE CORPORATION, an Ohio corporation ("BANC ONE"), also
merged with and into ONE, which had been a subsidiary of BANC ONE prior to
such merger. ONE is a bank holding company headquartered in Chicago, Illinois
and registered under the Bank Holding Company Act of 1956, as amended.
Through its banking subsidiaries, ONE provides domestic retail banking,
worldwide corporate and institutional banking, and trust and investment
management services. At October 2, 1998, ONE operated banking offices in
Arizona, Colorado, Florida, Illinois, Indiana, Kentucky, Louisiana, Michigan,
Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. ONE also owns
nonbank subsidiaries that engage in businesses related to banking and finance,
including credit card and merchant processing, consumer and education finance,
mortgage lending and servicing, insurance, venture capital, investment and
merchant banking, trust, brokerage, investment management, leasing, community
development and data processing.
ONE's executive offices are located at One First National Plaza, Chicago,
Illinois 60670, and its telephone number is (312) 732-4000.
INDUSTRY LITIGATION
In October 1998, the United States Department of Justice (the "DOJ") filed
an antitrust lawsuit in federal court in Manhattan against VISA U.S.A., Inc.
("VISA") and MasterCard International Incorporated ("MasterCard
International") alleging that the two credit card associations restrain
competition and limit consumer choice. The DOJ in such lawsuit challenges,
among other things, the control of both VISA and MasterCard International by
the same set of banks as well as the rules adopted by the two associations
prohibiting members from offering credit cards of competitors. In public
statements, both VISA and MasterCard International have contested the DOJ's
allegations. The Bank is unable to predict what the effect of such lawsuit may
ultimately be on the Bank's credit card business. A final adverse decision
against VISA and MasterCard International, or a similar settlement with the
DOJ by the two associations, could result in changes in the current
associations and may result in adverse consequences for members of the two
associations such as the Bank.
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THE BANK'S CREDIT CARD PORTFOLIO
GENERAL
The interests in receivables (the "Receivables") conveyed or to be conveyed
to the Trust by FCC National Bank (the "Bank" or the "Seller") pursuant to the
Pooling and Servicing Agreement dated as of June 1, 1990 (as amended and
supplement from time to time, the "Agreement"), between the Bank, as seller
and servicer, and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee"), have been or will be generated from transactions made by
holders of certain Classic VISA, VISA Gold and Platinum VISA credit card
accounts and certain Standard MasterCard, Gold MasterCard and Platinum
MasterCard credit card accounts. These accounts were generated under the VISA
or MasterCard International programs and were either originated by the Bank or
FNBC, or purchased by the Bank or FNBC from other credit card issuers (the
"Accounts"). Effective as of July 1, 1987, FNBC transferred its credit card
operation and all its credit card accounts to the Bank, although FNBC retained
ownership of all receivables comprising the existing balances in such
accounts. Subsequently, such receivables also were transferred to the Bank.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shown for
substantially all VISA and MasterCard consumer revolving credit card accounts
owned at the dates indicated by the Bank (excluding certain accounts not
originated by the Bank or FNBC) (the "Bank's Portfolio") during the periods
shown. As of the end of the July 1998 Due Period, the Receivables in the
Accounts represented substantially all receivables in the Bank's Portfolio.
There can be no assurance, however, that the loss and delinquency experience
for the Receivables in the future will be similar to the historical experience
set forth below for the Bank's Portfolio. In particular, the addition of new
receivables may reduce loss and delinquency rates. Receivables in newly
originated accounts generally have lower delinquency and loss rates for some
initial period (generally during the first 24 months) than receivables in more
seasoned accounts. After such initial period, delinquency and loss rates
generally peak and begin to stablize. There can be no assurance that the
addition of receivables in newly originated accounts will reduce delinquency
or loss rates or that such receivables will follow the delinquency and loss
pattern described above. The addition of these receivables in newly originated
accounts to the Bank's Portfolio increases the outstanding receivables balance
for such portfolio which is the denominator used to calculate the percentages
in certain of the following tables.
LOSS EXPERIENCE FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
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1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)......... $16,007,940 $15,838,485 $15,921,105 $15,817,914 $12,625,398
Gross Charge-offs(2).... 695,269 729,219 1,422,367 1,134,427 645,417
Gross Charge-offs as a
Percentage of Average
Receivables
Outstanding............ 8.69%(3) 9.21%(3) 8.93% 7.17% 5.11%
</TABLE>
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(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Gross Charge-offs are charge-offs before recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud,
returned goods or customer disputes.
(3) On an annualized basis.
Charge-offs for the Bank's Portfolio measured as a percentage of average
receivables outstanding increased during the yearly periods shown above due,
in part, to certain strategies employed by the Bank to increase the cardholder
base which the Bank believes, in turn, will result in the increase of overall
revenues for the Bank's Portfolio in the future. In addition, during such
periods, consumer debt service burden and defaults increased as a result of
the growing consumer debt levels coupled with stagnant real wage growth. In
the near term, losses are expected to remain at elevated levels throughout the
industry as consumer debt service burdens remain high, competition for
creditworthy customers remains intense and national bankruptcy filings
continue to climb. The
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Bank continues to review credit limits, to close high-risk unprofitable
accounts, to tighten new account solicitation criteria, and to review policies
and procedures for delinquency management and collections. The timing of the
peak level of charge-offs is uncertain at this time. Losses are also affected
by other factors including competitive behavior and social conditions. The
loss rates for the Bank's Portfolio could increase in the future if economic
conditions were to worsen and could continue to increase for several months
even after such conditions begin to improve. The loss rates set forth above do
not reflect the reversal of unpaid fees and finance charges at the time a
charge-off occurs.
Commencing in November 1998, the Seller expects to modify its charge-off
policies with respect to accounts of cardholders who notify the seller that
such cardholder has filed for bankruptcy to align such policies with those of
other affiliates of ONE. Currently, the Seller charges off the receivables in
such an account within a few days of the notification of such a bankruptcy
filing. Under its new policy, the Seller will charge off the receivables in an
account of such a cardholder on the first day of the month following the third
billing date of such account after the notification of such bankruptcy filing,
unless the receivables would charge off earlier due to the Seller's usual
delinquency charge-off policies. It is expected that this change will decrease
charged-off receivables reported for the Bank's Portfolio for the first four
Due Periods after the implementation of this change since the recognition of
losses for Accounts held by cardholders filing for bankruptcy will be delayed
by approximately four months. The Seller anticipates that such a decrease in
charged-off receivables will be reflected in the reported information for the
December 1998 through March 1999 Distribution Dates.
Effective for the June 1998 Due Period, the Seller has begun transferring on
a monthly basis amounts collected or otherwise realized on recoveries of
charged off Accounts to the Trust. Any recoveries so transferred during a Due
Period are generally treated as collections of Finance Charge Receivables for
the related Distribution Date. These recoveries are generated only from
collections received on Defaulted Receivables which were charged off while
included in the assets of the Trust. Had gross recovery amounts attributable
to Accounts whose Receivables were charged off while included in the Bank's
Portfolio been transferred to the Trust for the year ended December 31, 1997,
the Seller estimates that the "Gross Charge-Offs as a Percentage of Average
Receivables Outstanding" for the Trust for such period as set forth above
would have been reduced by approximately 0.45% to 0.60% (computed on an
annualized basis). There can be no assurance, however, that the recovery
experience for Defaulted Receivables in the future will be similar to such
historical experience or that the Seller will be able to begin to transfer
recoveries to the Trust within the anticipated time frame.
The Bank has policies to allow delinquent accounts whose cardholders are
making good faith efforts to repay overdue amounts to be deemed current
("reaged") provided certain conditions are satisfied. If an account is 90 days
delinquent or greater, it qualifies for reaging treatment if the sum of the
payments received during the preceding five months (or in certain
circumstances the lesser of (a) five months or (b) the number of months since
the account was last current) is generally equal to the sum of the three
oldest minimum payments. The reaging process permits only one reaging of an
account from 90 days delinquent or greater categories in a 12-month period.
Accounts that are 30 to 89 days delinquent generally are reaged if the sum of
the payments received in the previous four months is equal to the sum of the
two oldest minimum payments. An account can be reaged so long as these
criteria are met. Upon reaging the account is deemed current and is no longer
included as a delinquent account. A reaged account which subsequently becomes
delinquent would not be charged off until the 180th day of delinquency after
such reaging. The entire process is executed by the Bank's operating system
based on the preset criteria allowing for no manual intervention in the
process. In addition to automatic reaging, account closure and usage
restrictions are also system controlled and are not subject to manual
intervention. When an account is 30 days delinquent, charge privileges are
suspended. Account closure occurs automatically when an account is 60 days
delinquent. Reinstatement of closed accounts requires a full credit review;
only a minimal number of closed accounts qualify for reinstatement. The Bank
may terminate, alter or modify its reaging process at any time. There is no
limit on the number of accounts which the Bank may reage. Currently, the Bank
is evaluating various collection strategies which, if implemented, would alter
the reaging process for certain accounts. The delinquency information in the
following tables reflects the application of the Bank's current reaging
process. The Bank's reaging process does not have a material impact on the
delinquency and loss information presented on the Bank's Portfolio.
-9-
<PAGE>
AVERAGE DELINQUENCIES FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
AVERAGE OF SIX MONTHS
ENDED JUNE 30, AVERAGE OF TWELVE MONTHS ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------------------
1998 1997 1996 1995
------------------------ ------------------------ ------------------------ ------------------------
DELINQUENT DELINQUENT DELINQUENT DELINQUENT
PAYMENT STATUS AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1)
- -------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days delin-
quent............... $241,840 1.51% $277,903 1.75% $269,088 1.70% $189,476 1.50%
60-89 days delin-
quent............... 143,774 0.90 153,659 0.96 131,223 0.83 83,191 0.66
90 days delinquent
or more............. 273,440 1.71 294,796 1.85 251,258 1.59 148,808 1.18
-------- ---- -------- ---- -------- ---- -------- ----
Total.............. $659,054 4.12% $726,358 4.56% $651,569 4.12% $421,475 3.34%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- --------
(1) The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the applicable period.
Delinquencies as a percentage of average receivables outstanding reflect a
pattern similar to loss rates as a result of the same factors discussed with
respect to the table set forth above for Loss Experience for the Bank's
Portfolio.
SUMMARY OF MONTHLY PAYMENT RATES
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Bank's Portfolio during any month in the period shown
and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening
monthly account balances during the periods shown. Payments shown in the table
include amounts which would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts but do not include
Interchange.
CARDHOLDER MONTHLY PAYMENT RATES FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------- -------------------------
<S> <C> <C> <C> <C>
1998 1997 1996 1995
----- ------- ------- -------
Lowest.................................... 20.93% 19.31% 19.92% 21.08%
Highest................................... 25.07 23.07 21.86 25.01
Monthly Average........................... 23.62 21.93 20.99 22.58
</TABLE>
The amount of collections on Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of
Principal Receivables with respect to the Accounts, and thus the rate at which
Class A Certificateholders can expect principal to be allocated to the Class A
Certificates, will be similar to the historical experience set forth above.
REVENUE EXPERIENCE
The gross revenues from monthly periodic charges and fees billed to
cardholders on the Bank's Portfolio for each of the three years in the period
ended December 31, 1997, and the six months ended June 30, 1998 and 1997,
respectively, are set forth in the following table.
The historic gross revenue figures in the table are calculated on an as-
billed basis and represent amounts billed to cardholders in each billing cycle
before deduction of charge-offs, reductions due to fraud, returned goods and
customer disputes or other expenses. Cash collections on receivables may not
reflect the historical experience in the table. During periods of increasing
delinquencies, billings of periodic charges and fees may exceed cash as
-10-
<PAGE>
amounts collected on credit card receivables lag behind amounts billed to
cardholders. Conversely, as delinquencies decrease, cash may exceed billings
of periodic charges and fees as amounts collected in a current period may
include amounts billed during prior periods. However, the Bank believes that,
during the periods shown, revenues on a billed basis closely approximated
revenues on a cash basis. Revenues from periodic charges and fees on both a
billed and a cash basis will be affected by numerous factors, including the
periodic charges on principal receivables, the amount of the annual membership
fees, the amount of other fees paid by cardholders, the percentage of
cardholders who pay off their balances in full each month and do not incur
periodic charges on purchases, fees and finance charges and changes in the
delinquency rate on the Receivables.
REVENUE EXPERIENCE FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)......... $16,007,940 $15,838,485 $15,921,105 $15,817,914 $12,625,398
Finance Charges and Fees
Billed................. 1,371,133 1,392,344 2,765,923 2,610,937 2,066,872
Average Finance Charges
and Fees Billed(2)..... 17.13%(3) 17.58%(3) 17.37% 16.51% 16.37%
</TABLE>
- --------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Average Finance Charges and Fees Billed is the result of dividing Finance
Charges and Fees Billed by Average Receivables Outstanding and does not
include revenue attributable to Interchange.
(3) On an annualized basis.
The revenues for the Bank's Portfolio shown in the Revenue Experience table
are related to periodic charges and other fees billed to cardholders but do
not include revenue attributable to Interchange. The revenues related to
periodic charges and fees depend in part upon the collective preference of
cardholders to use their credit cards as revolving debt instruments for
purchases and cash advances and paying off account balances over several
months as opposed to convenience use, where the cardholders prefer instead to
pay off their entire balance each month, thereby avoiding periodic charges on
purchases, fees and finance charges. Revenues related to periodic charges and
fees also depend on the types of charges and fees assessed by the Bank on the
accounts. The Bank introduced a variable rate card in 1987. From 1989 through
1994, the Bank emphasized the origination of variable rate accounts and
substantially all new accounts originated during that time were variable rate
accounts. Depending upon fluctuations in interest rates, the variable rate
periodic charge (which is based on the prime rate) assessed on variable rate
accounts may change from month to month and could be less than the fixed
charge applicable to most standard fixed rate accounts.
Commencing in 1994, the Bank began offering certain new non-affinity
accounts, for purchase transactions, a fixed rate periodic charge for an
initial period (ranging from 6 to 15 months) which then converts into a
variable rate. The initial fixed rate offered on such accounts is generally
5.9% or 6.9% per annum, a rate which is substantially lower than that
currently assessed on the variable rate accounts or the standard fixed rate
accounts. The total yield on such accounts during the initial fixed rate
period is therefore lower than that of a variable rate account or standard
fixed rate account. As of the end of the July 1998 Due Period, Receivables
assessed a variable periodic charge constituted approximately 95.83% of the
total Receivables balance of Accounts in the Trust. Fluctuations in the prime
interest rate and/or the continued use of the initial fixed/variable rate
pricing for certain new accounts, may affect future revenue experience.
Throughout the periods shown above, the Bank made certain changes in the
charges and fees assessed on the accounts. The Bank is currently waiving
annual fees and offering a lower variable interest rate on certain selected
accounts. Commencing in mid-1996, the Bank introduced certain other changes
including performance-based pricing whereby certain delinquent accounts are
assessed a higher variable periodic rate. In mid-1998, the Bank made other
pricing changes including increasing certain fees payable on accounts. The
Bank has no basis to predict how these changes and any future changes in the
terms of accounts may affect the revenue for the Bank's Portfolio.
-11-
<PAGE>
THE ACCOUNTS
The Receivables arising from the Accounts as of the end of the July 1998 Due
Period totaled $15,571,080,662 and included $15,161,240,483 of Principal
Receivables. The Accounts had an average Principal Receivables balance of
$1,296 and an average credit limit of $7,781. The aggregate total Receivables
balance as a percentage of the aggregate total credit limit was 17.11%.
The Receivables arising from the Accounts as of the end of the August 1998
Due Period totaled $15,648,121,615 and included $15,224,559,054 of Principal
Receivables.
The following tables summarize the Accounts by various criteria as of the
end of the July 1998 Due Period. Approximately 540,307 cardholder accounts
included in the Accounts as of the end of the July 1998 Due Period are
accounts with respect to which the cardholder has been upgraded to a gold or
platinum account. The upgraded accounts may have certain additional features,
including higher credit limits, which are not generally included in the
original accounts. For some period of time (not exceeding three years), both
the original and upgraded accounts are active for a particular cardholder
although the original account is eventually closed. Upon any cardholder
upgrade, the receivables balance in the original account is transferred to the
upgraded account (which account is considered to have the same account opening
date as the original account) and any new receivables created on the original
account are immediately transferred to the upgraded account. In addition,
pursuant to the ordinary operating procedures of the Bank, accounts which
expire and have no outstanding balance are not removed immediately from the
Bank's Portfolio, but rather are removed periodically from the Bank's
Portfolio and therefore may still be included as an Account for some period of
time after expiration. As of the end of the July 1998 Due Period,
approximately 1,080,428 expired accounts with a credit balance or no balance
were included in the Accounts. Because the composition of the Accounts may
change in the future, these tables are not necessarily indicative of the
characteristics of the Trust at any time after the end of the July 1998 Due
Period.
COMPOSITION OF ACCOUNTS BY ACCOUNT BALANCES
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT BALANCE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
--------------- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Credit Balance(1)............ 140,172 1.20% $ (27,222,443) (0.17)%
No Balance(2)................ 4,866,548 41.60 0 0.00
$0.01 to $1,499.99........... 3,504,915 29.96 1,529,246,238 9.82
$1,500.00 to $2,999.99....... 1,054,909 9.02 2,338,690,457 15.02
$3,000.00 to $4,499.99....... 792,336 6.77 2,966,386,577 19.05
$4,500.00 to $9,999.99....... 1,266,100 10.83 7,880,224,876 50.61
$10,000 or more.............. 72,734 0.62 883,754,957 5.67
---------- ------ --------------- ------
Total...................... 11,697,714 100.00% $15,571,080,662 100.00 %
========== ====== =============== ======
</TABLE>
- --------
(1) Credit Balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently with
a credit balance are included, as Receivables may be generated with
respect thereto in the future.
(2) Accounts currently with no balance are included, as Receivables may be
generated with respect thereto in the future.
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
------------ ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
$0.01 to $1,499.99........... 373,486 3.19% $ 96,001,121 0.62%
$1,500.00 to $2,999.99....... 225,199 1.93 303,558,223 1.95
$3,000.00 to $4,499.99....... 536,802 4.59 779,369,222 5.00
$4,500.00 to $9,999.99....... 6,929,024 59.23 8,668,881,223 55.67
$10,000 or more(1)........... 3,633,203 31.06 5,723,270,873 36.76
---------- ------ --------------- ------
Total........................ 11,697,714 100.00% $15,571,080,662 100.00%
========== ====== =============== ======
</TABLE>
- --------
(1) Maximum current credit limit on an Account is $65,000.
-12-
<PAGE>
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
PAYMENT STATUS ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
-------------- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Current(1)................... 11,524,317 98.52% $14,836,612,266 95.28%
30-59 days delinquent........ 87,402 0.75 335,962,343 2.16
60-89 days delinquent........ 34,589 0.29 154,228,595 0.99
90 days delinquent or more... 51,406 0.44 244,277,458 1.57
---------- ------ --------------- ------
Total........................ 11,697,714 100.00% $15,571,080,662 100.00%
========== ====== =============== ======
</TABLE>
- --------
(1) Includes Accounts on which the minimum payment has not yet been received
prior to the second billing date following the issuance of the related
bill.
COMPOSITION OF ACCOUNTS BY AGE
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
AGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
--- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Not more than 6 months.. 483,441 4.13% $ 532,640,783 3.42%
Over 6 months to
12 months............. 711,503 6.08 898,069,674 5.77
Over 12 months to
24 months............. 979,757 8.38 1,204,281,503 7.73
Over 24 months to
48 months............. 3,571,600 30.53 5,221,088,824 33.53
Over 48 months.......... 5,951,413 50.88 7,714,999,878 49.55
---------- ------ --------------- ------
Total................... 11,697,714 100.00% $15,571,080,662 100.00%
========== ====== =============== ======
</TABLE>
-13-
<PAGE>
GEOGRAPHIC COMPOSITION OF THE ACCOUNTS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF RECEIVABLES
STATE ACCOUNTS OUTSTANDING
- ----- ---------- -----------
<S> <C> <C>
California............................................... 14.15% 17.52%
Illinois................................................. 7.84 8.71
New York................................................. 7.34 6.75
Texas.................................................... 5.67 5.92
Florida.................................................. 5.81 5.21
Colorado................................................. 2.71 3.54
New Jersey............................................... 3.84 3.39
Pennsylvania............................................. 4.20 3.28
Michigan................................................. 3.37 3.01
Ohio..................................................... 3.36 2.93
Washington............................................... 2.05 2.29
Virginia................................................. 2.16 2.22
Massachusetts............................................ 2.51 2.06
Indiana.................................................. 2.20 1.99
Georgia.................................................. 1.94 1.98
Maryland................................................. 1.96 1.91
Tennessee................................................ 1.75 1.69
Missouri................................................. 1.93 1.69
North Carolina........................................... 1.78 1.68
Oregon................................................... 1.50 1.68
Minnesota................................................ 2.33 1.66
Arizona.................................................. 1.51 1.61
Connecticut.............................................. 1.30 1.18
Hawaii................................................... 0.77 1.15
Alabama.................................................. 1.03 1.05
Louisiana................................................ 1.08 1.05
Iowa..................................................... 1.26 1.03
All Other(1)............................................. 12.65 11.82
------ ------
Total................................................. 100.00% 100.00%
====== ======
</TABLE>
- --------
(1) States, United States territories and possessions and foreign countries with
less than 1.00% of Total Receivables Outstanding.
Since the largest number of cardholders (based on billing address) whose
accounts historically have been included in the Trust are in California,
Illinois, New York, Texas and Florida, adverse changes in economic conditions
in those ares could have a direct impact on the timing and amount of payment on
the certificates.
-14-
