BANK ONE CORP - 10-K Annual Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2001

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 including zip code)

Registrant’s telephone number, including area code: (312) 732-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on which Registered
Common Stock, $0.01 par value		New York Stock Exchange
		Chicago Stock Exchange
7 1/4% Subordinated Debentures Due 2004		New York Stock Exchange
8.10% Subordinated Notes Due 2002		New York Stock Exchange
Guarantee of 8.00% Preferred Securities of BANK ONE Capital I		New York Stock Exchange
Guarantee of 8.50% Preferred Securities of BANK ONE Capital II		New York Stock Exchange
Guarantee of 8.00% Preferred Securities of BANK ONE Capital V		New York Stock Exchange
Guarantee of 7.20% Preferred Securities of BANK ONE Capital VI		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

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, and (2) has been subject to such filing requirements for the past 90 days.
Yes [ü] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by nonaffiliates of the Corporation at December 31, 2001, was approximately $39 billion (based on the average price of such stock on February 21, 2002). At December 31, 2001, the Corporation had 1,166,966,431 shares of its Common Stock, $0.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s 2001 Annual Report to Stockholders are incorporated by reference into Parts I, II and IV. Portions of the registrant’s Proxy Statement relating to the registrant’s 2002 Annual Meeting of Stockholders are incorporated by reference into Part III.

BANK ONE CORPORATION

2001 ANNUAL REPORT ON FORM 10-K

Cross Reference		Page
Cross Reference		Annual Report*	Form 10-K
PART I
Item 1.	Business
	Description of Business	25	1
	Business Segments	26-42
	Employees		1
	Competition		1
	Risk Management	47
	Monetary Policy and Economic Controls		1
	Supervision and Regulation		2-4
	Forward Looking Statements	69	4-5
	Financial Review	23-101
Item 2.	Properties		4
Item 3.	Legal Proceedings	95
Item 4.	Submission of Matters to a Vote of Security Holders	None

Executive Officers of the Registrant			10

PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	98-99, 101
Item 6.	Selected Financial Data	24, 101
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-69
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	48-50
Item 8.	Financial Statements and Supplementary Data	70-101	6-8
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	(1)

PART III
Item 10.	Directors and Executive Officers of the Registrant	(2)
Item 11.	Executive Compensation	(2)
Item 12.	Security Ownership of Certain Beneficial Owners and Management	(2)
Item 13.	Certain Relationships and Related Transactions	(2)

PART IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	70-73	11-13

The 2001 Annual Report to Stockholders, portions of which are incorporated by reference into this Form 10-K (the portions so incorporated being indicated by the pages referred to in this table).

(1)

The consolidated balance sheet for the year ended December 31, 2001 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended were audited by KPMG LLP, whose report is included in the 2001 Annual Report to Stockholders. The consolidated balance sheet as of December 31, 2000 and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2000 were audited by Arthur Andersen LLP, whose report is included on page 9 of this Form 10-K. The change in accountants was previously disclosed in Bank One’s Annual Report on Form 10-K for the year ended December 31, 2000.

(2)		The information required by Items 10, 11, 12 and 13, respectively, is contained under the following headings in Bank One’s definitive proxy statement dated March 1, 2002 and is expressly incorporated herein by reference:
		Item 10—“Proposal 1—Election of Directors—Directors and Nominees’’ and ‘‘Section 16(a) Beneficial Ownership Reporting Compliance.’’
		Item 11—‘‘Compensation of Executive Officers,’’ ‘‘Director Meeting Attendance and Fee Arrangements,’’ and ‘‘Transactions with Directors, Executive Officers, Stockholders and Associates—Organization, Compensation and Nominating Committee Interlocks and Insider Participation.’’
		Item 12—‘‘Beneficial Ownership of Bank One’s Common Stock.’’
		Item 13— ‘‘Transactions with Directors, Executive Officers, Stockholders and Associates.’’

DESCRIPTION OF BUSINESS

BANK ONE CORPORATION (“Bank One” or the “Corporation”) is a multibank bank holding company registered under the Bank Holding Company Act of 1956 (the “BHC Act”), and is headquartered in Chicago, Illinois. Bank One became a financial holding company (“FHC”) under the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) in August 2001. Bank One was incorporated in Delaware on April 9, 1998, to effect the merger (the “Merger”) of Banc One Corporation and First Chicago NBD Corporation. The Merger became effective on October 2, 1998.

Bank One provides domestic retail banking, finance and credit card services; worldwide commercial banking services; and trust and investment management services. Bank One operates banking offices in Arizona, Colorado, Florida, Illinois, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin and in certain international markets. Bank One also engages in other businesses related to banking and finance, including credit card and merchant processing, consumer and education finance, real estate-secured lending and servicing, insurance, venture capital, investment and merchant banking, trust, brokerage, investment management, leasing, community development and data processing. These activities are conducted through bank subsidiaries (collectively, the “Banks”) and nonbank subsidiaries. Prior to 2001, the Banks were operated under separate national or state charters in the 14 states in which the banking offices are located. In 2001, the Arizona, Florida, Louisiana, Utah and Texas Banks were consolidated into Bank One, National Association, headquartered in Chicago, Illinois. Further consolidations are contemplated for 2002.

EMPLOYEES

As of December 31, 2001, Bank One and its subsidiaries had 73,519 full time and part time employees with benefits. This figure does not include employees on long-term disability or employees of unconsolidated subsidiaries.

COMPETITION

Bank One and its subsidiaries face active competition in all of their principal activities, not only from other financial holding companies and commercial banks, but also from savings and loan associations, credit unions, finance companies, mortgage companies, leasing companies, insurance companies, mutual funds, securities brokers and dealers, other domestic and foreign financial institutions, and various nonfinancial institutions.

MONETARY POLICY AND ECONOMIC CONTROLS

The earnings of the Banks, and therefore the earnings of Bank One, are affected by the policies of regulatory authorities, including the Board of Governors of the Federal Reserve System (the ‘‘Federal Reserve Board’’). An important function of the Federal Reserve Board is to promote orderly economic growth by influencing interest rates and the supply of money and credit. Among the methods that have been used to achieve this objective are open market operations in United States government securities, changes in the discount rate for member bank borrowings and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, interest rates on loans and securities, and rates paid for deposits.

The effects of the various Federal Reserve Board policies on the future business and earnings of Bank One cannot be predicted. Other economic controls also have affected Bank One’s operations in the past. Bank One cannot predict the nature or extent of any effects that possible future governmental controls or legislation might have on its business and earnings.

SUPERVISION AND REGULATION

GENERAL

As a bank holding company, Bank One is regulated under the BHC Act, and is subject to inspection, examination and supervision by the Federal Reserve Board.

The GLB Act eliminated many of the restrictions placed on the activities of bank holding companies that become FHCs. Bank One became a FHC in August 2001. Among other things, the GLB Act repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the BHC Act to permit bank holding companies that are FHCs to engage in activities, and acquire companies engaged in activities, that are: financial in nature (including insurance underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities); incidental to financial activities; or complementary to financial activities if the Federal Reserve Board determines that they pose no substantial risk to the safety or soundness of depository institutions or the financial system in general. The GLB Act also permits national banks, under certain circumstances, to engage through special financial subsidiaries in the financial and other incidental activities authorized for FHCs.

LIABILITY FOR BANK SUBSIDIARIES

The Federal Reserve Board requires that a bank holding company act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each subsidiary bank. In addition, the National Bank Act permits the Office of the Comptroller of the Currency (“OCC”) to order the pro rata assessment of shareholders of a national bank whose capital has become impaired. If a shareholder fails to pay such an assessment, the OCC can order the sale of the shareholder’s stock to cover the deficiency. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment.

Under the Federal Deposit Insurance Act, the Federal Deposit Insurance Corporation (“FDIC”) can hold any FDIC-insured depository institution liable for any loss the FDIC incurs, or reasonably expects to incur, in connection with (1) the default of any commonly controlled FDIC-insured depository institution or (2) any assistance provided by the FDIC to any commonly controlled depository institution that is in danger of default. ‘‘Default’’ is defined generally as the appointment of a conservator or receiver and ‘‘in danger of default’’ is defined generally as the existence of certain conditions indicating that a ‘‘default’’ is likely to occur absent regulatory assistance. All of the Banks are FDIC-insured depository institutions.

CAPITAL REQUIREMENTS

Bank One is subject to capital requirements and guidelines imposed on bank holding companies by the Federal Reserve Board. The OCC, the FDIC and the Federal Reserve Board impose similar requirements on the Banks within their respective jurisdictions. These capital requirements establish higher capital standards for banks and bank holding companies that assume greater risks. For this purpose, a bank holding company’s or bank’s assets and certain off-balance sheet commitments are assigned to four risk categories, each weighted differently based on credit risk. Total capital, in turn, is divided into three tiers:

core (“Tier 1”) capital, which includes common equity, certain qualifying cumulative and noncumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of consolidated subsidiaries;

supplementary (“Tier 2”) capital, which includes perpetual preferred stock and related surplus not meeting the Tier 1 definition, hybrid capital instruments, perpetual debt and mandatory convertible securities, subordinated debt, intermediate-term preferred stock, and allowances for loan and lease losses; and

market risk (“Tier 3”) capital, which includes qualifying unsecured subordinated debt.

Goodwill, certain intangible assets, and certain other assets must be deducted in calculating the sum of the core capital elements.

Bank One, like other bank holding companies, is required to maintain Tier 1 and total capital equal to at least 4% and 8%, respectively, of its total risk-weighted assets. At December 31, 2001, Bank One met both requirements, with Tier 1 and total capital equal to 8.6% and 12.2%, respectively, of its total risk-weighted assets. Each of the Banks was in compliance with its applicable minimum capital requirement at December 31, 2001.

The Federal Reserve Board, the FDIC and the OCC have incorporated market and interest rate risk components into their risk-based capital standards. Under these market risk requirements, capital is allocated to support the amount of market risk related to a financial institution’s ongoing trading activities.

The Federal Reserve Board also requires a minimum “leverage ratio” (Tier 1 capital to adjusted average assets) of 3% for bank holding companies that have the highest regulatory rating or have implemented the risk-based capital measures for market risk, or 4% for holding companies that do not meet either of these requirements. Each of the Banks is subject to similar requirements adopted by the applicable federal regulatory agency. At December 31, 2001, Bank One’s leverage ratio was 8.2%, and each of the Banks was in compliance with its applicable leverage ratio requirement.

While the federal banking regulators may set capital requirements higher than the minimums noted above if circumstances warrant it, no federal banking regulator has imposed any such special capital requirement on Bank One or the Banks.

Failure to meet capital requirements could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business, which are described below.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, identifies five capital categories (from “well capitalized” to “critically undercapitalized”) for insured depository institutions, and requires the respective federal bank regulatory agencies to take “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements within these categories.

Failure to meet the capital guidelines could subject a depository institution to capital-raising requirements. An “undercapitalized” depository institution must develop a capital restoration plan, and its parent holding company must guarantee the bank’s compliance with the plan. In the event of the bankruptcy of the parent holding company, this guarantee would take priority over the parent’s general unsecured creditors. In addition, FDICIA requires the federal bank regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation, and it permits regulatory action against a financial institution that does not meet these standards.

As of December 31, 2001, each Bank was “well capitalized”. It should be noted, however, that a Bank’s capital category is determined solely for the purpose of applying the federal banking agencies’ “prompt corrective action” regulations; the capital category may not constitute an accurate representation of a Bank’s overall financial condition or prospects.

THE BANKS

Most of the Banks are national banking associations and, as such, are subject to regulation primarily by the OCC and, secondarily, by the FDIC and the Federal Reserve Board. Bank One’s state-chartered Banks are subject to regulation by the Federal Reserve Board, the FDIC and their respective state banking departments. The Banks’ operations in other countries are subject to various restrictions imposed by the laws of those countries.

Various federal and state laws limit the amount of dividends the Banks can pay to Bank One without regulatory approval. In addition, federal bank regulatory agencies have authority to prohibit the Banks from engaging in unsafe or unsound practices in conducting their business. The payment of dividends, depending upon the financial condition of the bank in question, could be deemed to constitute an unsafe or unsound practice.

DEPOSITOR PREFERENCE STATUTE

Federal law provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against such institution, including federal funds and letters of credit, in the liquidation or other resolution of the institution by any receiver.

OTHER

Bank One’s nonbank subsidiaries and banking-related business units are subject to regulation by various state and federal regulatory agencies and self-regulatory organizations. Activities subject to such regulation include investment management, investment advisory services, commodities and securities brokerage, insurance services and products, and securities dealing.

PROPERTIES

Bank One’s headquarters are in Chicago, Illinois. The 60-story building, located in the center of the Chicago ‘‘Loop’’ business district, is master-leased and has 1,750,000 square feet of space, of which Bank One occupies approximately 57%; the balance is subleased to other tenants. Bank One and its subsidiaries occupy more than 2,800 owned or leased domestic properties, including banking centers, operations facilities and commercial banking offices. In addition, Bank One has foreign offices in major cities in Canada, Mexico, Europe, Asia and Australia. These offices all are located in leased premises.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, Bank One may make or approve certain statements in future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with Bank One’s approval that are not statements of historical fact and may constitute forward-looking statements. Forward-looking statements may relate to, without limitation, Bank One’s financial condition, results of operations, plans, objectives, future performance or business.

Words such as “believes”, “anticipates”, “expects”, “intends”, “plans”, “estimates”, “targeted” and similar expressions are intended to identify forward-looking statements but are not the only means to identify these statements.

Forward-looking statements involve risks and uncertainties. Actual conditions, events or results may differ materially from those contemplated by a forward-looking statement. Factors that could cause this difference – many of which are beyond Bank One’s control – include the following, without limitation:

Local, regional and international business, political or economic conditions may differ from those expected.

The effects of and changes in trade, monetary and fiscal policies and laws, including the Federal Reserve Board’s interest rate policies, may adversely affect Bank One’s business.

The timely development and acceptance of new products and services may be different than anticipated.

Technological changes instituted by Bank One and by persons who may affect Bank One’s business may be more difficult to accomplish or more expensive than anticipated or may have unforeseen consequences.

Acquisitions and integration of acquired businesses may be more difficult or expensive than expected.

The ability to increase market share and control expenses may be more difficult than anticipated.

Competitive pressures among financial services companies may increase significantly.

Changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) may adversely affect Bank One or its business.

Changes in accounting policies and practices, as may be adopted by regulatory agencies and the Financial Accounting Standards Board, may affect expected financial reporting.

The costs, effects and outcomes of litigation may adversely affect Bank One or its business.

Bank One may not manage the risks involved in the foregoing as well as anticipated.

Forward-looking statements speak only as of the date they are made. Bank One undertakes no obligation to update any forward-looking statement to reflect subsequent circumstances or events.

Average Balances/Net Interest Margin/Rates

BANK ONE CORPORATION and Subsidiaries

	Year Ended December 31
	2001							2000
(Income and rates on tax-equivalent basis)	Average Balance			Interest		Average Rate		Average Balance			Interest		Average Rate
(Dollars in millions)
Assets
Short-term investments	$	13,608		$	563	4.14	%	$	16,941		$	1,080	6.38	%
Trading assets		6,615			309	4.67			6,937			439	6.33
Investment securities: (1)
U.S. government and federal agencies		21,091			1,200	5.69			14,406			958	6.65
States and political subdivisions		1,291			97	7.51			1,367			105	7.68
Other (2)		28,210			1,997	7.08			29,639			2,362	7.97

Total investment securities		50,592			3,294	6.51			45,412			3,425	7.54
Loans (3)		167,054			13,269	7.94			171,768			15,272	8.89

Total earning assets (4)		237,869		$	17,435	7.33	%		241,058		$	20,216	8.39	%

Allowance for credit losses		(4,373	)						(2,860	)
Other assets		34,085							33,786

Total assets	$	267,581						$	271,984

Liabilities and Stockholders’ Equity
Deposits—interest-bearing:
Savings	$	15,463		$	168	1.09	%	$	16,433		$	240	1.46	%
Money market		52,399			1,254	2.39			47,552			1,658	3.49
Time		43,792			2,573	5.88			43,555			2,646	6.08
Foreign offices (5)		21,648			900	4.16			27,609			1,593	5.77

Total deposits—interest-bearing		133,302			4,895	3.67			135,149			6,137	4.54
Federal funds purchased and securities under repurchase agreements		16,664			633	3.80			18,961			1,142	6.02
Other short-term borrowings		13,508			659	4.88			18,978			1,216	6.41
Long-term debt (6)		42,786			2,479	5.79			39,395			2,747	6.97

Total interest-bearing liabilities		206,260		$	8,666	4.20	%		212,483		$	11,242	5.29