Wednesday July 19, 7:56 am Eastern Time
Company Press Release
SOURCE: Bank One Corporation
Bank One Reports:
-- $1.3 Billion Second Quarter Loss Including Significant Items -- Strong Period-End Capital Position -- 50% Reduction In
Common Stock Dividend To $0.21 Per Share Payable October 1, 2000 -- $500 Million Expense Cut Target
CHICAGO, July 19 /PRNewswire/ -- BANK ONE CORPORATION (NYSE: ONE - news) today announced a 2000 second quarter net loss of $1.269 billion,
or $1.11 per diluted share. This compares with net income in the 1999 second quarter of $992 million, or $0.83 per share. For the first half of 2000, the net loss
totaled $580 million, or $0.51 per share, compared with net income of $2.143 billion, or $1.79 per share, for the first six months of last year.
``Our top priority is to quickly position Bank One to compete more effectively and enter 2001 in the strongest financial position possible,'' said James Dimon,
chairman and chief executive officer. ``Decisions made this quarter move us decisively forward. We are taking strong medicine to build a healthier future.''
Key actions in the quarter included:
Charges totaling $1.913 billion after tax strengthen the integrity of the balance sheet.
After the charges, the company maintains a strong capital position, including a tangible common equity to managed assets of 5.4% at June 30, 2000.
A 50% reduction in the common stock dividend payable October 1, 2000.
A rededication to customer service with increased empowerment of front line employees to serve customer needs and make decisions. This includes the
roll-out of new banking center computer platforms that will improve customer service and employee responsiveness.
Decisions to collapse the 20 domestic bank charters to three, and convert the seven demand deposit systems into one.
The implementation of an aggressive waste-reduction program that will reduce annualized noninterest expense $500 million pretax, after the above systems
conversion costs and infrastructure investments. A key focus will be to drive down non-headcount-related expenses, though headcount will decline primarily
through attrition. We began the year with 86,600 employees, have reduced that to 82,500 today and expect to stay at this level, even with business growth.
No expense cuts will impact customer service, technology investments or other investment spending.
A significant strengthening of the management team with the hiring of a new chief financial officer, chief legal officer and head of strategic planning, along with
the appointment of new business heads for Middle Market Banking and Commercial Banking.
During the second quarter, management began a detailed review of all of the businesses. This review revealed much strength within the company, including a strong
mix of businesses with the potential for increased synergies and franchises with significant market shares positioned for growth.
``Having a strong balance sheet and financial structure, a great management team, and building first-class infrastructure and execution capabilities are the foundation
for building a great company. We are committed to making Bank One a top performing company,'' Dimon said.
``I am very proud of the dedication and effort of all our employees who are working to re-establish Bank One as a financial services powerhouse with top flight
products and customer service,'' Dimon said. ``But we are just getting started. Behind all the noise, Bank One's quarterly net earnings power today is roughly $650
million, or about $0.55 per share. We must do better if we are to properly reward our customers, employees and shareholders. We are confident that we can
substantially improve the earnings power of the company in the future.''
Significant Items in the Quarter
Reflecting the above detailed review, decisions were made that resulted in charges totaling $2.940 billion pretax ($1.913 billion after tax, $1.66 per share).
In Retail, $518 million pretax of charges were made primarily consisting of:
A $307 million pretax addition to the auto lease residual reserve caused by continuing deterioration in used-vehicle prices, and
A $167 million pretax write down primarily in vehicle-related assets associated with the planned disposition of certain pools of underperforming or
non-strategic indirect vehicle loans and business restructuring.
Commercial Banking was impacted by $673 million of significant items, primarily a $647 million addition to the allowance for credit losses. This addition reflected
significant deterioration during the quarter in the commercial lending portfolio, continued refinements in the methodology to assess inherent losses, and an assessment
of the current economic environment.
In First USA, $777 million pretax in asset impairment write downs were taken caused by continuing reductions in the cash flows associated with certain assets,
driven by compressed interest margins, reduced fee revenue and higher credit costs. These asset write downs include:
$354 million pretax related to the value of the interest-only strip of securitized receivables,
$275 million pretax related to purchased credit card relationship intangibles, and
$121 million pretax related to marketing partnership agreements.
In Corporate/Unallocated, $963 million pretax of charges consisting mainly
of:
-- $415 million pretax of investment securities losses of which
$365 million related to the decision to reposition the portfolio, as
well as $50 million of realized losses,
-- A $190 million pretax increase in the legal accruals to cover increased
corporate and business litigation exposure,
-- $141 million pretax of charges for abandoned facilities by the lines of
business, and
-- $100 million pretax of charges for correcting operational errors.
In addition to the above items, the current quarter included $68 million in net gains on the previously announced sale of the First USA credit card operations in
Canada and the U. K. for $46 million and from the sale of unsecured loans by Retail for $22 million.
After these actions, the Company's June 30 capital ratios continue to be strong. Tier 1 and total capital ratios at June 30 were 7.1% and 10.2%, respectively,
compared with 7.7% and 10.6% at March 31, 2000.
The 1999 second quarter included $179 million pretax ($120 million after tax, $0.10 per share) of merger-related costs and other items.
Common Stock Dividend Declared
The Board of Directors today declared a cash dividend of 21 cents per share on outstanding common stock, payable October 1, 2000, to shareholders of record on
September 15, 2000. This dividend represents a 50% reduction from the previous quarterly dividend of 42 cents per share.
``Reducing the dividend is a difficult decision but is absolutely the right thing to do,'' Dimon said. ``To win, we have to quickly place Bank One in a position of strong
competitive advantage. This reduction improves capital management flexibility and expands the choices for building long-term value for our shareholders, something
we are absolutely committed to. We now will have more capacity to invest in our businesses, grow earnings and create the capacity to buyback stock when
appropriate. We believe these actions, and others we are taking, will ultimately create more wealth for our shareholders.''
LINE OF BUSINESS DISCUSSION
Highlights -- Net Income (Loss) by Line of Business
($ millions) % change vs.
2Q99 1Q00 2Q00 2Q99 1Q00
Retail $290 $236 $(81) (128)% (134)%
Commercial
banking 203 200 (213) NM NM
First USA 339 67 (379) NM NM
Investment
management 91 81 73 (20) (10)
Corporate
investments 90 141 61 (32) (57)
Corporate/
unallocated 99 (36) (730) NM NM
Total business
segment
results $1,112 $689 $(1,269) NM NM
Merger-related
items and
significant
items (120) 0 0 NM NM
Total
Corporation $992 $689 $(1,269) NM NM
Note: Amounts may not add due to rounding
NM = not meaningful
Retail
Income Statement ($ millions)
Balance Sheet ($ billions)
% change vs. Adjusted
2Q99 1Q00 2Q00 2Q99 1Q00 2Q00
Net interest
income (A) $1,082 $1,236 $1,196 11% (3)% $1,205
Provision 83 167 132 59 (21) 121
Noninterest income 408 306 (95) (123) (131) 330
Noninterest expense 962 1,002 1,097 14 9 1,024
Net income (loss) 290 236 (81) (128) (134) 247
Return on equity 25% 18% (6)% 17%
Efficiency ratio 65 65 100 67
Loans -- average $64.9 $73.1 $73.6 13 1 $73.6
Assets -- average 71.4 79.6 77.9 9 (2) 77.9
Deposits -- average 89.2 88.3 89.4 -- 1 89.4
Common equity --
average 4.6 5.3 5.9 28 11 5.9
Note: Amounts may not add due to rounding
NM = not meaningful
(A) Fully taxable equivalent basis
Retail reported a net loss of $81 million, a decrease of $371 million from the year-ago quarter. Earnings for the second quarter were affected by $518 million pretax
of significant items as previously discussed. Excluding the impact of these items, on an adjusted basis Retail earnings were $247 million.
Net interest income of $1.196 billion increased $114 million, or 11%, from the prior year, primarily driven by wider deposit spreads and a 13% increase in loan
volume. Loan growth has occurred mainly in home equity loans, up 39% from a year ago. The $40 million decline in net interest income from the first quarter
reflected the first quarter loan sale to Household International, Inc., and the impact of normal tax-related lending seasonality.
Provision expense was $132 million for the quarter, an increase of $49 million from the year-ago quarter and a decline of $35 million from the first quarter. The
year-over-year increase can be attributed to loan growth and the impact of adopting the FFIEC's revised consumer loan charge-off guidelines. The decline from the
first quarter reflected loan sales and the impact of first quarter tax-related lending.
Noninterest income declined $503 million from the year-ago quarter reflecting the impact of $425 million of significant items. Excluding these items, noninterest
income decreased due to higher auto lease residual losses realized and lower loan sale gains. On the same basis, noninterest income increased from the prior quarter
due to higher loan and deposit fees, increased student loan fees and higher interchange fees.
Noninterest expense of $1.097 billion increased $135 million from the year-ago quarter and $95 million from the first quarter. Excluding $73 million of pretax
significant items, WingspanBank, which was launched late in the year-ago quarter, was the primary driver of the year-over-year increase. On the same basis, the
increase from the prior quarter reflected seasonal marketing expense.
COMMERCIAL BANKING
Income Statement ($ millions)
Balance Sheet ($ billions)
% change vs. Adjusted
2Q99 1Q00 2Q00 2Q99 1Q00 2Q00
Net interest
income (A) $628 $664 $694 11% 5% $694
Provision 108 132 778 NM NM 150
Noninterest income 329 354 312 (5) (12) 356
Noninterest expense 538 570 564 5 (1) 563
Net income (loss) 203 200 (213) NM NM 214
Return on equity 14% 13% (13)% 13%
Efficiency ratio 56 56 56 54
Loans -- average $73.0 $80.4 $82.1 12 2 $82.1
Assets -- average 104.4 110.2 110.2 6 -- 110.2
Deposits -- average 37.4 39.2 40.9 9 4 40.9
Common equity --
average 5.8 6.2 6.7 16 8 6.7
Note: Amounts may not add due to rounding
NM = not meaningful
(A) Fully taxable equivalent basis
Commercial Banking reported a net loss of $213 million in the second quarter, driven primarily by a significant increase in credit losses as reflected in higher credit
provisions. Excluding the impact of this quarter's significant items, Commercial Banking's adjusted earnings were $214 million.
Net interest income of $694 million increased $66 million, or 11%, from the year-ago quarter, reflecting 12% average loan growth. Large Corporate and Middle
Market loans grew 19% and 12%, respectively. This benefit was partially offset by a slight decline in the net interest margin, reflecting competitive pricing pressures
in both the Middle Market and Large Corporate markets as well as higher interest rates.
The provision for credit losses was $778 million, up $670 million year- over-year, attributable to the loan loss provisions taken this quarter for the significant
deterioration in the commercial portfolio spread across several industries, including leveraged acquisition finance transactions.
Noninterest income of $312 million declined $17 million, or 5%, year-over- year, primarily reflecting weakness in market driven revenue. Poor trading results in the
high yield and corporate portfolios resulted in a decline in market-driven revenue of $47 million year-over-year and also accounted for the decline from the first
quarter. Partially offsetting this weakness was solid growth in treasury management-related revenues, which were up 12% from the year-ago quarter. Fee income
was also strong in the quarter in syndicated lending, where volume increased significantly over the first quarter due to increased market activity, improved share and
business mix. Excluding the impact of the significant items, noninterest income increased 8% year-over- year.
Noninterest expense was $564 million, up $26 million, or 5%, from the year-ago quarter. This reflected modest increases in several expense categories. Expenses
were down 1% from the first quarter, reflecting efficiency gains as staffing levels have been managed flat to down since the end of last year.
FIRST USA
Income Statement ($ millions)
Balance Sheet ($ billions)
% change vs. Adjusted
2Q99 1Q00 2Q00 2Q99 1Q00 2Q00
Net interest
income (A) $1,781 $1,525 $1,451 (19)% (5)% $1,451
Provision 898 969 935 4 (4) 900
Noninterest income 455 264 (153) (134) (158) 307
Noninterest expense 818 715 961 17 34 679
Net income (loss) 339 67 (379) NM NM 113
Return on
outstandings
(pretax) 3.0% 0.6% (3.6)% 1.1%
Return on equity 23 4 (25) 7
Efficiency ratio 37 40 74 39
Managed net
charge-off ratio 5.25 5.78 5.44 5.44
Loans -- average $68.9 $67.1 $66.1 (4) (1) $66.1
Assets -- average 75.0 72.8 70.6 (6) (3) 70.6
Common equity --
average 6.0 6.2 6.1 2 (2) 6.1
Note: Amounts may not add due to rounding
NM = not meaningful
(A) Fully taxable equivalent basis
First USA reported a net loss of $379 million, a decrease of $718 million from the year-ago quarter. Earnings for the second quarter were affected by several items,
primarily impairment-related asset write-downs totaling $777 million pretax. Excluding these items, adjusted earnings were $113 million after tax with a pretax return
on outstandings of 1.1% for the quarter, up from 0.6% in the prior quarter.
Net interest income of $1.451 billion decreased $330 million, or 19%, from the year-ago quarter due to margin compression resulting from the attrition of higher
priced accounts, reduced margins and lower outstandings.
The provision declined $34 million from the first quarter reflecting continued improvement in delinquency trends and a reduction in managed charge- offs. Compared
with the first quarter, the managed delinquency rates for 30 and 90 days declined from 4.08% to 3.83% and from 1.91% to 1.69%, respectively. The managed
charge-off rate declined to 5.44% from 5.78% in the prior quarter.
Noninterest income declined $608 million from the prior year primarily related to the impairment write downs on the interest-only strip and affinity partnership
agreements, which totaled $460 million pretax, net of a $46 million gain on the sales of the Canadian and U.K. credit card operations. The prior year quarter
included net securitization gains of $50 million compared with net securitization amortization of $30 million in the current quarter. Noninterest income increased from
the first quarter due to the seasonal benefit of higher interchange income.
Excluding this quarter's $275 million pretax write down of purchased credit card intangible assets and other adjustments, noninterest expense declined $139 million,
or 17%, from the prior year. Expense saving initiatives including staff reductions, lower processing costs and reduced marketing expense drove this improvement.
Compared to the year-ago period, average outstandings decreased approximately 4%. At quarter-end, First USA had 54.6 million cards issued. About 826,000
new accounts were opened during the quarter. Overall attrition levels continue to improve and are performing better than expected.
INVESTMENT MANAGEMENT
Income Statement ($ millions)
Balance Sheet ($ billions)
% change vs. Adjusted
2Q99 1Q00 2Q00 2Q99 1Q00 2Q00
Net interest
income (A) $99 $100 $101 2% 1% $101
Provision 0 2 2 NM -- 2
Noninterest income 295 287 288 (2) -- 288
Noninterest expense 255 257 272 7 6 263
Net income 91 81 73 (20) (10) 79
Return on equity 41% 36% 33% 35%
Efficiency ratio 65 66 70 68
Loans -- average $5.7 $6.4 $6.5 14 2 $6.5
Assets -- average 7.1 7.7 7.5 6 (3) 7.5
Deposits -- average 8.7 8.7 8.6 (1) (1) 8.6
Common equity --
average 0.9 0.9 0.9 -- -- 0.9
Assets under
management --
average 124.7 126.9 129.4 4 2 129.4
Note:Amounts may not add due to rounding
NM = not meaningful
(A) Fully taxable equivalent basis
Investment Management net income declined $18 million, or 20%, from the year-ago period. Results for the year-ago quarter included $26 million pretax of
nonrecurring gains.
Net interest income of $101 million increased 2% from the year-ago period. Higher spread income associated with the 14% increase in average loans was partially
offset by a 1% decrease in average deposits.
Noninterest income of $288 million decreased $7 million, or 2%, year-over- year. Excluding the impact of the sale of a subsidiary in the year-ago period, noninterest
income increased $18 million, or 7%, primarily driven by increased revenue from private banking, investment products and institutional sales.
Noninterest expense of $272 million increased $17 million, or 7%, year- over-year. Excluding the impact of the sale of a subsidiary in the year-ago period,
noninterest expense increased 3% reflecting increased commissions and processing expense related to the higher sales volumes.
Assets under management increased to $129.4 billion, or 4%, from the year- ago period. One Group® mutual fund assets under management increased 15% to
$66.9 billion in the second quarter of 2000. This increase was partially a result of assets shifting from individually managed assets to mutual funds. One Group® fund
performance continues to remain strong, with 90% of funds rated three stars or better by Morningstar.
CORPORATE INVESTMENTS
Income Statement ($ millions)
Balance Sheet ($ billions)
% change vs. Adjusted
2Q99 1Q00 2Q00 2Q99 1Q00 2Q00
Net interest
income (A) $48 $35 $30 (38)% (14)% $30
Provision 0 1 1 NM -- 1
Noninterest income 97 185 52 (46) (72) 52
Noninterest expense 34 39 31 (9) (21) 31
Net income 90 141 61 (32) (57) 61
Return on equity 36% 47% 20% 20%
Efficiency ratio 23 18 38 38
Loans -- average $3.4 $3.4 $3.5 3 3 $3.5
Assets -- average 7.5 8.0 8.4 12 5 8.4
Common equity --
average 1.0 1.2 1.2 20 -- 1.2
Note: Amounts may not add due to rounding
NM = not meaningful
(A) Fully taxable equivalent basis
Corporate Investments net income of $61 million declined $29 million year- over-year, as the year-ago quarter's performance was strong.
Net interest income of $30 million declined $18 million from the year-ago quarter, largely a result of growth in non-interest bearing investments in addition to higher
funding costs. Lease spread income has declined modestly reflecting a net increase in outstandings at lower yields.
Noninterest income was $52 million in the second quarter, down $45 million from the year-ago quarter. Market-driven revenue, derived primarily from venture
capital and private equity investments, declined $18 million from the year-ago quarter and $103 million from the particularly strong first quarter. Weakness in the
second quarter results reflects lower valuations on investments. Other returns were similarly affected by market conditions.
Noninterest expense of $31 million declined 9% from the year-ago quarter and 21% from the prior quarter, reflecting continued expense discipline. Lower incentives
and other market-related expenditures, a function of the slower market activity, contributed to the expense decrease.
CORPORATE / UNALLOCATED
Income Statement ($ millions)
Balance Sheet ($ billions)
% change vs. Adjusted
2Q99 1Q00 2Q00 2Q99 1Q00 2Q00
Net interest
income (A) $37 $(115) $(75) NM% 35% $(75)
Provision (14) 0 0 100 NM 0
Noninterest income 105 118 (422) NM NM 10
Noninterest expense 18 78 582 NM NM 51
Net income (loss) 99 (36) (730) NM NM (70)
Assets -- average $32.8 $35.3 $42.0 28 19 $42.0
Deposits -- average 17.0 22.1 20.5 21 (7) 20.5
Common equity --
average 2.5 0.0 (0.9) (136) NM (0.9)
Note: Amounts may not add due to rounding
NM = not meaningful
(A) Fully taxable equivalent basis
Corporate/Unallocated reported a net loss of $730 million, a decrease of $829 million from the year-ago quarter and $694 million from the first quarter. Earnings for
the second quarter were impacted by $963 million pretax of significant items, primarily losses on the restructuring of the investment securities portfolio, increased
legal accruals and charges for abandoned facilities and correcting operational errors.
Net interest income in the current quarter represented a net expense of $75 million. Net interest income for this line of business represents the earnings on the
corporate investment securities portfolio, as well as the impact of interest rate risk not allocated to the lines of business and the cost to carry unallocated net assets.
This net amount will vary from period to period as the rate risk of the Corporation fluctuates and as the unallocated net asset position changes.
There was no provision expense for the current quarter as this was fully reflected in the appropriate lines of business. This should generally be the case as
Corporate/Unallocated seldom contains any loans or other assets that would require a loss provision.
Noninterest income declined $527 million from the year-ago quarter and $540 million from the first quarter reflecting the impact of the $415 million securities
portfolio write down and other items in the second quarter. Excluding these items, noninterest income was down versus a year ago due to nonrecurring transactions
in the 1999 quarter.
The increase in noninterest expense reflected the $531 million impact of significant second quarter items. Excluding these impacts, the remaining noninterest expense
represents unallocated support costs that vary from quarter to quarter.
Credit Quality
Nonperforming assets were $1.784 billion at the end of the second quarter, up $123 million from $1.661 billion at March 31, 2000. Nonperforming assets include
nonperforming commercial loans, other real estate owned and consumer loans 90-days past due. The nonperforming asset ratio was 1.03% at June 30, 2000, and
the allowance for credit losses was 1.73% of loans, compared with 0.99% and 1.39%, respectively, at March 31, 2000.
Total managed net charge-offs in the second quarter were $1.152 billion, or 1.99% of total average managed loans, down slightly from $1.176 billion, or 2.04% in
the 2000 first quarter and comparable to the $1.075 billion, or 1.99%, in the year-ago quarter. The managed loan loss provision of $1.846 billion in the second
quarter exceeded managed net charge-offs by $694 million, primarily reflecting the $668 million increase to the allowance for credit losses included in this quarter's
significant items. This increase related to significant deterioration during the quarter in the commercial lending portfolio, continued refinements in the methodology to
assess inherent losses, and an assessment of the current economic environment.
Credit card managed net charge-offs were 5.44% in the second quarter compared with 5.25% in the year-ago quarter, but down from 5.78% in the prior quarter.
Consumer loan net charge-offs of 0.82% were up from 0.61% in the year-ago quarter and from 0.76% in the prior quarter. Commercial net charge- offs in the 2000
second quarter were 0.47%, up from 0.36% in year-ago quarter and 0.34% in the first quarter reflecting the credit quality deterioration in the commercial loan
portfolio.
Capital Management
The common equity to managed assets ratio was 5.9% at June 30, 2000, down from 6.3% as of March 31, 2000. Tier 1 and total capital ratios were 7.1% and
10.2%, respectively, down from 7.7% and 10.6%, respectively, as of March 31, 2000. The decline in the capital ratios reflected the second quarter loss. Despite
the decline, these capital ratios remained very strong and exceed well-capitalized regulatory guidelines.
BANK ONE CORPORATION is the nation's fifth largest bank holding company, with assets of more than $270 billion. Bank One offers a full range of financial
services to commercial and business customers and consumers. It is the world's second largest VISA/MasterCard issuer, the third largest bank lender to small
businesses, a leading national automotive lender, and one of the top 25 managers of mutual funds. A leader in the retail market, Bank One operates more than 1,800
banking centers and a nationwide network of ATMs. In addition, it is a major commercial bank in the United States and in select international markets.
Forward-looking Statement
The following appears in accordance with the Private Securities Litigation Reform Act of 1995: This discussion of financial results contains forward- looking
statements about the Company, including descriptions of |
