BANK ONE CORPORATION INDEX TO FINANCIAL
REVIEW24

Selected Financial Information25

Other Financial Data25

Description of Business26

Business Segments26

Business Segment Results and Other Data43

Consolidated Results47

Risk Management47

Liquidity Risk Management48

Market Risk Management50

Credit Risk Management51

Operational Risk Management52

Credit Portfolio Composition56

Asset Quality61

Derivative Financial Instruments64

Loan Securitizations and Off-Balance Sheet Activities67

Capital Management69

Forward-Looking Statements70

Consolidated Financial Statements74

Notes to Consolidated Financial Statements100

Report of Management100

Report of Independent Public Accountants101

Selected Statistical Information




BANK ONE CORPORATION 23 2001 ANNUAL REPORT




---




SELECTED FINANCIAL INFORMATION


BANK ONE CORPORATION and Subsidiaries





(In millions, except ratios and per share data)

2001


2000


1999


1998


1997Income Statement Data:Total revenue, net of interest expense

$
15,861


$
13,926


$
17,713


$
17,418


$
16,155Net interest incomefully taxable-equivalent (FTE) basis


8,769



8,974



9,142



9,469



9,619Noninterest income


7,223



5,090



8,692



8,071



6,694Provision for credit losses


2,510



3,398



1,249



1,408



1,988Noninterest expense


9,551



11,608



11,490



11,545



9,740Income (loss) before cumulative effect of change in accounting principle


2,682



(511
)


3,479



3,108



2,960Net income (loss)


2,638



(511
)


3,479



3,108



2,960Per Common Share Data:Income (loss) before cumulative effect of change in accounting principle:Basic

$
2.28


$
(0.45
)

$
2.97


$
2.65


$
2.48Diluted (1)


2.28



(0.45
)


2.95



2.61



2.43Net income (loss):Basic

$
2.25


$
(0.45
)

$
2.97


$
2.65


$
2.48Diluted (1)


2.24



(0.45
)


2.95



2.61



2.43Cash dividends declared


0.84



1.26



1.68



1.52



1.38Book value


17.33



15.90



17.34



17.31



16.03Balance Sheet DataEnding Balances:Loans:Managed

$
218,102


$
236,492


$
229,196


$
216,391


$
196,993Reported


156,733



174,251



163,877



155,398



159,579Deposits


167,530



167,077



162,278



161,542



153,726Long-term debt (2)


43,418



40,911



35,435



22,298



21,546Total assets:Managed


306,304



309,096



315,064



305,781



278,439Reported


268,954



269,300



269,425



261,496



239,372Common stockholders equity


20,226



18,445



19,900



20,370



18,724Total stockholders equity


20,226



18,635



20,090



20,560



19,050Credit Quality Ratios:Net charge-offs to average loansmanaged (3)


2.53
%


2.03
%


2.13
%


2.00
%


2.07
%Allowance for credit losses to period-end loans


2.89



2.36



1.39



1.46



1.77Nonperforming assets to related assets


2.35



1.48



1.02



0.83



0.68Financial Performance Ratios:Return (loss) on average assets


0.98
%


(0.19
)%


1.36
%


1.30
%


1.29
%Return (loss) on average common equity


13.4



(2.7
)


17.1



15.9



15.8Net interest margin:Managed


4.89



4.76



5.37



5.56



5.50Reported


3.69



3.72



4.09



4.52



4.75Efficiency ratio:Managed


49.2



66.7



54.5



57.6



53.2Reported


59.7



82.5



64.4



65.8



59.7Capital Ratios:Risk-based capital:Tier 1


8.6
%


7.3
%


7.7
%


7.9
%


8.2
%Total


12.2



10.8



10.7



11.3



12.3Tangible common equity/tangible managed assets


5.9



5.5



5.7



5.8



6.2Common Stock Data:Average shares outstanding:Basic


1,166



1,154



1,168



1,170



1,176Diluted (1)


1,174



1,154



1,178



1,189



1,213Stock price, year-end

$
39.05


$
36.63


$
32.00


$
51.06


$
49.37Stock dividends














10
%


Employees (4)


73,519



80,778



87,735



92,800



95,900





|(1) |  | Common equivalent shares and related income were excluded from the computation of diluted loss per share for the year-ended December 31, 2000 as the effect was antidilutive.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes trust preferred capital securities.
|--- |  | --------------------------------------------




|(3) |  | The year ended December 31, 2001 includes $92 million of charge-offs which are not classified as such in the Corporations GAAP financial information because they are part
of a portfolio which has been accounted for as loans held at a discount. The inclusion of this amount in charge-offs more accurately reflects the credit performance of the portfolio. In the Corporations financial statements, this item results
in a higher provision in excess of net charge-offs.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Beginning in 2001, employees on long-term disability and employees of unconsolidated subsidiaries are excluded. Prior period data have not been reclassified for this change.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 24 2001 ANNUAL REPORT




---




OTHER FINANCIAL DATA





The Corporations consolidated operating financial results and ratios at December 31 are as follows:





(In millions, except ratios and per share data)

2001


2000


2000 Adjusted


1999Operating income (loss)

$
2,904


$
(409
)

$
1,751


$
4,076Operating earnings per share-diluted

$
2.47


$
(0.35
)

$
1.52


$
3.46Return (loss) on average assets


1.09
%


(0.15
)%


0.63
%


1.49
%Return (loss) on average common equity


14.7



(2.1
)


8.8



18.9Net interest margin:Managed


4.89



4.76



4.76



5.37Reported


3.69



3.72



3.72



4.09Efficiency ratio:Managed


47.4



65.8



54.7



51.8Reported


57.5



81.4



66.4



61.3





These results and ratios exclude merger and restructuring-related charges and,
change in accounting and the 2000 adjusted and 1999 ratios exclude items outlined in the Significant Items table on page 42.





DESCRIPTION OF BUSINESS





BANK ONE CORPORATION and subsidiaries (Bank One or the Corporation) is a diversified
financial holding company that offers a full range of financial services to consumers and commercial customers. Bank One is:





|· |  | A leader in retail and small business banking
|- |  | ---------------------------------------------




|· |  | A premier provider of lending, treasury management, and capital markets products to commercial customers
|- |  | --------------------------------------------------------------------------------------------------------




|· |  | The third largest credit card issuer in the United States
|- |  | ---------------------------------------------------------




|· |  | A leading investment management company
|- |  | ---------------------------------------




Basis of
Presentation





The Corporations financial statements are based on the application of generally accepted accounting principles, which are
described in the notes to the consolidated financial statements starting on page 74. Certain accounting principles involve significant management judgment, including the use of assumptions and estimates. By their nature, changes in the assumptions
and estimates potentially could significantly affect the Corporations financial position and results of operations. The Corporations accounting policies are discussed throughout this Financial Review section.





Managements discussion and analysis may contain forward-looking statements provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially from those expressed in forward-looking statements. See page 69 for a discussion of these factors.





For funding and risk management purposes, the Corporation periodically securitizes loans, primarily in support of credit card activities. The accounting
for securitizations complicates the understanding of underlying trends in net interest income, net interest margin and noninterest income, as well as the underlying growth rates of reported loans. For clarification, these trends are also reviewed on
a managed basis, which adds data on securitized credit card loans to reported data on loans. Results on a managed basis, where presented, should be read in conjunction with reported results. See page 65 for the reconciliation of reported
to managed results.




BANK ONE CORPORATION 25 2001 ANNUAL REPORT




---




BUSINESS SEGMENTS





The Corporation is managed on a line of business basis. The business segments financial results presented reflect the current organization of the Corporation. The following table
summarizes certain financial information by line of business for the periods indicated.





Operating/Net Income (Loss)


Average Managed Assets(In millions)


(In billions)2001(1)


2000(2)


1999


2001

2000

1999Retail

$
1,272


$
414


$
1,041


$
78.9

$
79.0

$
72.5Commercial Banking


721



(115
)


906



104.2


114.5


109.7First USA


946



3



1,135



68.7


70.0


74.9Investment Management


374



322



317



8.1


7.6


7.1Corporate


(409
)


(1,033
)


677



47.5


43.9


38.0Total business segment operating income (loss), net of tax


2,904



(409
)


4,076


$
307.4

$
315.0

$
302.2Accounting change, net of tax


(44
)






Merger and restructuring-related charges, net of tax


(222
)


(102
)


(351
)Other significant items, net of tax










(246
)Total Corporation net income (loss)

$
2,638


$
(511
)

$
3,479


---

|(1) |  | During 2001, the tax-oriented portfolio of Corporate Investments was transferred to Commercial Banking, while the principal investments and fixed income portfolios were
transferred to Corporate. All results for prior periods conform to the current line of business organization.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Beginning in the second quarter of 2000, the provision for credit losses was fully allocated to the appropriate lines of business. Prior to the second quarter of 2000, the
business provision was based upon standard credit costs, with any difference between the aggregate provision of the businesses and the Corporations total reflected in Corporate.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Description of Methodology





The results of the business segments are
intended to reflect each as if it were a stand-alone business. The management reporting process that derives these results allocates income and expenses using market-based methodologies. Funds transfer pricing is used to allocate interest income and
expense to each line of business. A portion of the Corporations interest rate risk position is currently included in Corporate.





Historically, the costs of certain support units were allocated to the lines of business based on factors other than usage, such as headcount and total assets. The methodology was changed in the third quarter of 2000 to better reflect the
actual cost and usage of services provided and was consistently applied to all lines of business. Costs allocated to First USA decreased, while unallocated costs that are included in Corporate increased.





The lines of business are assigned capital that reflects the underlying risk in that business. See the Capital Management section on page 67
for a discussion of the economic capital framework.





For 1999, the effect of certain identified transactions were not attributed
to any business segment since they were not considered a part of core business activities.





BUSINESS SEGMENT RESULTS AND OTHER
DATA





The information provided in the line of business tables beginning with the caption entitled Financial Performance is
included herein for analytical purposes only and is based on management information systems, assumptions and methodologies that are under continual review.





The financial information and supplemental data presented in the tables below for the respective lines of business are reported on an actual basis. However, to assist with the analysis of underlying trends, the
discussion of business segment results excludes merger and restructuring-related charges and the impact of the 2000 and 1999 significant items noted in the Significant Items section on pages 4142.




BANK ONE CORPORATION 26 2001 ANNUAL REPORT




---




Retail





Retail
provides a broad range of financial products and services, including deposits, investments, loans, insurance, and interactive banking to nearly 7.3 million households and 500,000 small business customers, over 1 million of whom are registered online
users.





Products and services are delivered to customers through approximately 33,000 employees, 1,800 branches in 14 states, a
large network of ATMs, bankone.com, and 24-hour telephone banking. THE ONE Card, issued by Retail, is one of the countrys leading debit cards for individuals and small businesses, with 4.4 million cards issued.





Retail originates consumer credit nationwide through its banking centers, relationships with brokers, the Internet, and the telephone. Retail offers
real estate-secured, education, tax refund, consumer installment loans, and auto loans and leases to individuals. Retail is also a leading lender to small businesses.





(Dollars in millions)

2001


2000


1999Net interest income-FTE

$
5,025


$
4,895


$
4,379Banking fees and commissions (1)


458



473



N/ACredit card revenue (2)


164



144



N/AService charges on deposits (3)


795



767



N/AFiduciary and investment management fees (4)






1



N/AOther income (loss)


25



(767
)


N/ANoninterest income


1,442



618



1,541Total revenue


6,467



5,513



5,920Provision for credit losses


1,010



870



415Salaries and employee benefits


1,492



1,552



N/AOther expense


1,985



2,443



N/ANoninterest expense


3,477



3,995



3,933Operating pretax income-FTE


1,980



648



1,572Tax expense and FTE adjustment


708



234



531Operating income


1,272



414



1,041Merger and restructuring-related charges, net of tax


(66
)


(25
)


Net income

$
1,206


$
389


$
1,041FINANCIAL PERFORMANCE:Return on equity (5)


21
%


7
%


23
%Efficiency ratio (5)


54



72



66Headcountfull-time (6)


33,155



35,759



N/AENDING BALANCES (in billions):Small business commercial

$
12.3


$
12.1



N/AHome equity


30.3



31.4



N/AVehicles:Loans


13.5



14.3



N/ALeases


6.1



8.8



N/AOther personal


9.8



10.7



N/ATotal loans


72.0



77.3



N/AAssets


76.2



80.0



N/ADemand deposits


25.8



24.9



N/ASavings


36.1



32.0



N/ATime


25.6



32.2



N/ATotal deposits


87.5



89.1



N/AEquity


6.3



5.9



N/A




BANK ONE CORPORATION 27 2001 ANNUAL REPORT




---




(Dollars in millions)

2001


2000


1999AVERAGE BALANCES (in billions):Small business commercial

$
12.2


$
11.7


$
11.0Home equity


30.8



27.7



20.1Vehicles:Loans


13.9



14.3



13.2Leases


7.3



9.9



10.2Other personal


10.5



11.0



11.6Total loans


74.7



74.6



66.1Assets


78.9



79.0



72.5Demand deposits


24.2



24.6



N/ASavings


34.1



33.4



N/ATime


29.4



30.4



N/ATotal deposits


87.7



88.4



89.1Equity


6.2



5.8



4.6CREDIT QUALITY (in millions):Net charge-offs:Small business commercial

$
71


$
44



N/AHome equity


375



181



N/AVehicles:Loans (7)


246



138



N/ALeases


99



70



N/AOther personal


122



109



N/ATotal consumer (7)


842



498



N/ATotal net charge-offs (7)


913



542



N/ANet charge-off ratios:Small business commercial


0.58
%


0.38
%


N/AHome equity


1.22



0.65



N/AVehicles:Loans (7)


1.77



0.97



N/ALeases


1.36



0.70



N/AOther personal


1.16



1.00



N/ATotal consumer (7)


1.35



0.79



N/ATotal net charge-offs (7)


1.22



0.73



N/ANonperforming assets:Small business commercial

$
329


$
215



N/AConsumer (8)


1,041



697



N/ATotal nonperforming loans


1,370



912



N/AOther, including Other Real Estate Owned (OREO)


104



83



N/ATotal nonperforming assets


1,474



995



N/AAllowance for credit losses

$
1,040


$
846



N/AAllowance to period-end loans


1.44
%


1.09
%


N/AAllowance to nonperforming loans


76



93



N/ANonperforming assets to related assets


2.04



1.29



N/ADISTRIBUTION:Banking centers


1,802



1,810



1,854ATMs


5,141



6,055



6,824# On-line customers (in thousands)


1,083



918



488# Households (in thousands)


7,258



7,679



N/A# Business customers (in thousands


508



519



N/A# Debit cards issued (in thousands)


4,414



4,159



N/AINVESTMENTS:Investment sales volume (in millions)

$
4,867


$
4,272



4,077





N/MNot meaningful.





N/ANot available due to changes in segment composition.





|(1) |  | Banking fees and commissions include insurance fees, documentary fees, loan servicing fees, commitment fees, mutual fund commissions, syndicated management fees, leasing fees,
safe deposit fees, official checks fees, ATM interchange and miscellaneous other fee revenue.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Credit card revenue includes credit card fees, merchant fees and interchange fees.
|--- |  | ----------------------------------------------------------------------------------




|(3) |  | Service charges on deposits include service charges on deposits, deficient balance fees, non-sufficient funds/overdraft fees and waived fees.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Fiduciary and investment management fees include asset management fees, personal trust fees, other trust fees and advisory fees.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------




|(5) |  | Ratios are based on operating income.
|--- |  | -------------------------------------




|(6) |  | Beginning in 2001, employees on long-term disability and employees of unconsolidated subsidiaries are excluded. Prior period data has not been reclassified.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------




|(7) |  | The year ended December 31, 2001 includes $92 million of charge-offs which are not classified as such in the Corporations GAAP financial information because they are part
of a portfolio which has been accounted for as loans held at a discount. The inclusion of this amount in charge-offs more accurately reflects the credit performance of the portfolio. In the Corporations financial statements, this item results
in a higher provision in excess of net charge-offs.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(8) |  | Includes consumer balances that are placed on nonaccrual status when the collection of contractual principal or interest becomes 90 days past due.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 28 2001 ANNUAL REPORT




---




2001 compared to 2000





Retail reported operating income of $1.272 billion in 2001 compared to $870 million in 2000. The prior years operating income reflected an adjustment for significant items totaling $456 million after tax. The
$402 million, or 46%, year-over-year increase on an adjusted basis was principally driven by a $300 million after tax reduction in noninterest expense.





Net interest income was $5.025 billion for the year, up $116 million, or 2%, from the prior year due to lower rates, improved spreads on the indirect auto loan portfolio and 11% growth in average home equity
outstandings. December loan balances were down $5.3 billion from the prior year as Retail managed reductions in certain segments of auto lease and brokered home equity loan portfolios while direct home equity loans grew.





Deposits generated a narrower margin compared to 2000, reflecting the lower rate environment and a decline in average balances. Favorable mix changes
from time to savings helped mitigate the impact of lower rates and balances. More positive trends emerged late in 2001 as demand deposit balances posted 2% growth from the fourth quarter of 2000 to the fourth quarter of 2001. This growth was
accompanied by a 5% increase in new accounts year over year.





Noninterest income was $1.442 billion, up $174 million, or 14%,
compared to 2000. The absence of lease residual losses and higher fee revenue from deposit accounts and investment sales were partially offset by gains from the sale of miscellaneous assets in 2000. Sales of mutual funds and annuities totaled $4.9
billion in the year, up $595 million, or 14%, from the prior year.





The provision for credit losses was $1.010 billion, up $151
million, or 18%, from 2000. Managed net charge-offs were $913 million, up $371 million from the prior year. Charge-offs on brokered home equity loans and auto loans and leases were the primary drivers of Retails year over year increase.





Nonperforming assets were $1.474 billion, up $479 million, or 48%, compared to 2000, driven primarily by an increase in
brokered home equity nonperforming loans. Nonperforming assets were 2.04% of related assets in the year, up from 1.29% the previous year. The allowance for credit losses expressed as a percent of year-end loans increased to 1.44% compared to 1.09% a
year ago.





Noninterest expense was $3.477 billion, down $473 million, or 12%, from the prior year driving an improvement in the
efficiency ratio from 64% in 2000 to 54% in the current year. The consolidation of operating sites in 2000 and 2001 and better overall expense management in Retail, and throughout the Corporation, drove the efficiency improvement. In addition,
staffing levels were down 2,600 year over year leading to a 4% decrease in salary and benefit expense.





2000 compared to 1999





Retail reported operating income of $870 million in 2000, down from $1.041 billion in 1999. The $171 million reduction was driven by lower noninterest income and
higher provision expense partially offset by higher net interest income.





Net interest income increased $530 million, or 12%,
from 1999, reflecting 13% growth in average loans, wider deposit spreads and improved pricing on indirect auto loans, partially offset by a shift in deposit mix toward higher rate certificates of deposit. Loan growth was driven by a 38% increase in
average home equity loans, partially offset by a decline in other personal loans.





Noninterest income declined $273 million, or
18%, from 1999. Lease residual losses were $126 million higher in 2000 than 1999, while gains from the sale of miscellaneous assets were down $83 million.





Provision for credit losses increased $444 million in 2000. This principally reflected the significant growth in home equity loans, higher net charge-offs, and increases in home equity nonperforming loans.





Noninterest expense was $17 million higher in 2000 than 1999, principally related to investments in new internet capabilities,
partially offset by positive impacts from waste reduction initiatives, reduced incentive compensation, and the sale of the consumer finance business.




BANK ONE CORPORATION 29 2001 ANNUAL REPORT




---




Commercial Banking


Commercial Banking offers a broad
array of products, including global cash management, capital markets, commercial cards, investment management, and lending to Corporate Banking and Middle Market customers.





Corporate Banking serves large corporations, financial institutions, municipalities, and not-for-profit entities. In addition to lending, Corporate Banking offers a wide range of
financial products and develops, markets, and delivers cash management, capital markets, global treasury and trade, e-business and other noncredit products and services. Bank Ones Capital Markets business is engaged in the origination,
trading, and distribution of asset-backed securities, investment grade and high yield securities, derivatives, tax-exempt securities, and government bonds. Capital Markets is also actively engaged in loan syndications, market research, advisory
services, and private placements.





Middle Market Banking serves approximately 18,000 customers with annual revenues from about
$10 million up to $500 million. These customers use a wide variety of services, with nearly one third using Bank One exclusively. Since privately held companies comprise the vast majority of the Middle Market customer base, providing credit is
fundamental to the success of this business. The loan portfolio is diversified across a broad range of industries and geographic locations. In addition to credit, this customer segment actively uses Bank Ones cash management, international,
capital markets, and investment management products and services.





(Dollars in millions)

2001


2000


1999Net interest incomeFTE

$
2,702


$
2,825


$
2,655Banking fees and commissions


714



605



N/ACredit card revenue


86



75



N/AService charges on deposits


614



519



N/AFiduciary and investment management fees


3



3



N/AInvestment securities losses


(12
)






N/ATrading


269



183



N/AOther income (loss)


(100
)


(31
)


N/ANoninterest income


1,574



1,354



1,248Total revenue


4,276



4,179



3,903Provision for credit losses


1,070



2,217



436Salaries and employee benefits


1,073



1,044



N/AOther expense


1,147



1,228



N/ANoninterest expense


2,220



2,272



2,208Operating pretax income (loss)FTE


986



(310
)


1,259Tax expense (benefit) and FTE adjustment


265



(195
)


353Operating income (loss)


721



(115
)


906Merger and restructuring-related charges, net of tax


(46
)


1



Net income (loss)

$
675


$
(114
)

$
906Memo: Revenue by activityLending-related revenue


1,965



2,173



N/ATreasury management services (9)


1,132



1,029



N/ACapital markets (10)


681



482



N/AOther


498



495



N/A




BANK ONE CORPORATION 30 2001 ANNUAL REPORT




---




(Dollars in millions)

2001


2000


1999FINANCIAL PERFORMANCE:Return (loss) on equity(5)


10
%


(2
)%


15
%Efficiency ratio(5)


52



54



57Headcountfull-time(6)Corporate Banking (including Capital Markets)


4,341



4,779



N/AMiddle Market


3,911



4,179



N/ATreasury Management Services


4,723



5,016



N/ASupport and Other Administrative(11)


29



279



N/ATotal headcountfull-time


13,004



14,253



N/AENDING BALANCES (in billions):Loans

$
70.1


$
85.1



N/AAssets


98.1



103.7



N/ADemand deposits


25.2



21.2



N/ASavings


3.1



N/A



N/ATime (+ Savings in 2000)


14.0



8.0



N/AForeign offices


8.6



8.5



N/ATotal deposits


50.9



37.7



N/AEquity


7.2



7.0



N/AAVERAGE BALANCES (in billions):Loans

$
77.8


$
85.6


$
77.5Assets


104.2



114.5



109.7Demand deposits


21.1



21.1



N/ASavings


2.7



N/A



N/ATime (+ Savings in 2000)


8.9



8.5



N/AForeign offices


9.0



9.8



N/ATotal deposits


41.6



39.4



37.7Equity


7.2



6.8



5.9CREDIT QUALITY (in millions):Net commercial charge-offs

$
1,041


$
562



N/ANet commercial charge-off ratios


1.34
%


0.66
%


0.39
%Nonperforming assets:Commercial nonperforming loans

$
2,101


$
1,523


$
871Other, including OREO


27



13



N/ATotal nonperforming assets


2,128



1,536



N/AAllowance for credit losses

$
3,066


$
3,044



N/AAllowance to period-end loans


4.37
%


3.58
%


N/AAllowance to nonperforming loans


146



200



N/ANonperforming assets to related assets


3.03



1.80



1.10
%CORPORATE BANKING (in billions):Loansending balance

$
36.6


$
51.7



N/Aaverage balance


43.5



53.4



47.8Depositsending balance

$
28.7


$
19.6



N/Aaverage balance


23.0



21.4



19.1Credit Quality (in millions):Net charge-offs

$
638


$
435



N/ANet charge-off ratio


1.47
%


0.81
%


0.53
%Nonperforming loans

$
1,154


$
1,065


$
578Nonperforming loans to total loans


3.15
%


2.06
%


1.12
%




BANK ONE CORPORATION 31 2001 ANNUAL REPORT




---




(Dollars in millions)

2001


2000


1999SYNDICATIONS:Lead Arranger Deals:Volume (in billions)

$
53.9


$
59.3


$
47.9Number of transactions


227



210



190League table standingrank


4



4



4League table standingmarket share


7
%


6
%


7
%MIDDLE MARKET BANKING (in billions):Loansending balance

$
33.5


$
33.4



N/Aaverage balance


34.3



32.1



29.7Depositsending balance


22.2



18.1



N/Aaverage balance


18.6



18.2



18.6Credit Quality (in millions):Net charge-offs

$
403


$
127



N/ANet charge-off ratio


1.17
%


0.40
%


0.18
%Nonperforming loans

$
947


$
458


$
293Nonperforming loans to total loans


2.83
%


1.37
%


0.93
%





For additional footnote detail see page 28.


|(9) |  | Treasury Management Services includes both fees and fee equivalents from compensating balances.
|--- |  | -----------------------------------------------------------------------------------------------

|(10) |  | Capital Markets includes trading revenues and underwriting, syndicated lending and advisory fees.
|---- |  | -------------------------------------------------------------------------------------------------

|(11) |  | Full-time headcount in 2000 has been reclassified to reflect the movement of Support and Other
|---- |  | ----------------------------------------------------------------------------------------------

Administrative personnel into the respective business units reported.





2001 compared to 2000





Commercial Banking reported operating income of $721 million for 2001, up $836 million from 2000 primarily due to a significantly lower credit
provision. After adjusting for the negative impact of $404 million after tax of significant items in 2000, operating income increased by $432 million, or 149%. The years results reflected strategic efforts to reduce Corporate Banking credit
exposure and improve the cross-sell of Capital Markets and Treasury Management products.





At December 31, 2001, loans were $70.1
billion, down $15.0 billion, or 18%, from the prior year. Corporate Banking loans were $36.6 billion at year-end, down $15.1 billion, or 29%, from a year ago. Middle Market loans were $33.5 billion, essentially flat from last year.





Revenue totaled $4.276 billion, up $53 million, or 1%, from 2000, with a decline in net interest income more than offset by growth in
noninterest income, particularly in Treasury Management and Capital Markets.





Net interest income was $2.702 billion, down $116
million, or 4%, from the prior year reflecting the earnings impact of lower average loan balances resulting from efforts to reduce credit risk exposure.





Noninterest income was $1.574 billion, up $169 million, or 12%, from the prior year. Banking fees and commissions increased $109 million, or 18%, due to growth in the asset-backed and investment grade underwriting
business and higher business sweep fees. Service charges on deposits increased $90 million, or 17%, reflecting improvement in Treasury Management volumes and pricing, as well as a shift in payment for services to fees from net interest income due to
the lower value ascribed to customers compensating deposit balances. Trading revenue increased $42 million, primarily reflecting improvement in fixed income trading activities. Other income decreased by $72 million mainly due to losses on the
sale of loans.





The provision for credit losses was $1.070 billion, down $519 million, or 33%, from 2000. Net charge-offs were
$1.041 billion, up $479 million, or 85%, from the prior year and represented 1.34% of average loans, up from 0.66% in 2000. Corporate Banking net charge-offs were $638 million, or 1.47% of average loans, up from 0.81% in 2000. 2001 charge-offs
included $216 million related to nonperforming and other credit related loan sales. There were no losses on loan sales in 2000. Middle Market net charge-offs were $403 million, or 1.17% of average loans, up from 0.40% of average loans in the prior
year. For additional detail on Commercial Banking net charge-offs see the table on page 57.




BANK ONE CORPORATION 32 2001 ANNUAL REPORT




---




The allowance for credit losses at December 31, 2001 was $3.066 billion, up $22 million, or 1%,
from the prior year. This represented 4.37% of year-end loans and 146% of nonperforming loans compared with 3.58% and 200%, respectively, at December 31, 2000. Nonperforming loans were $2.101 billion, up $578 million, or 38%, from year-end 2000.
Corporate Banking nonperforming loans at year-end were $1.154 billion, up $89 million, or 8%, from the prior year. Before reflecting the sale of nonperforming loans, Corporate Banking nonperforming loans increased $671 million during the year.
Middle Market nonperforming loans were $947 million at December 31, 2001, up $489 million, or 107%, from the prior year. For additional detail on Commercial Banking nonperforming assets and allowance for credit losses see the tables on page 56 and
page 58, respectively.





Noninterest expense was $2.220 billion, down $87 million, or 4%, from 2000 reflecting the impact of
waste-reduction efforts and lower headcount. The 2001 efficiency ratio improved to 52% from 55% in 2000.





2000 compared to 1999





Commercial Banking reported operating income of $289 million for 2000 on an adjusted basis, compared with $906 million in 1999. This $617 million decrease was
primarily driven by an increase in the provision for credit losses of $1.153 billion.





Net interest income increased $163
million, or 6%, from the prior year, driven by 10% average loan growth partially offset by a modest decline in spread due to competitive pricing pressures and higher nonperforming loans.





The provision for credit losses increased $1.153 billion in 2000 from the prior year due to deterioration in the quality of loans and a higher reserve level established for the
commercial loan portfolio. The deterioration in credit quality reflected the slowing of the economy as well as weakness in several industries and leveraged finance transactions.





Noninterest income of $1.405 billion increased $157 million, or 13%, from the prior year primarily due to growth in Treasury Management Service revenue of $71 million, or 12%, lending
related fees of $60 million, or 41%, and Capital Markets revenue of $25 million, or 6%.





Noninterest expense increased $99
million, or 4%, from the prior year, principally related to Treasury Management Services investment spending.





First USA





First USA offers a wide variety of card products, including co-brand, affinity, rewards, business, general purpose, and smart credit cards, as well as stored-value cards. All of
these cards carry the respective Visa ® or MasterCard ® brand names.





With more than
55 million cards in circulation, First USA is the third largest credit card provider in the United States and the largest Visa ® credit card issuer in the world. First USA has $68 billion in managed credit card receivables, which includes a portfolio of approximately $6 billion in card receivables which was acquired from Wachovia Corporation
(Wachovia) in 2001. FirstUSA.com is also a leader in online card marketing and customer service, with more than 1.9 million registered users of its website.





First USA offers credit cards for consumers and businesses under the First USA and Bank One names and on behalf of its 1,900 marketing partners. These partners include some of the
leading corporations, universities, and affinity organizations in the United States.




BANK ONE CORPORATION 33 2001 ANNUAL REPORT




---




(Dollars in millions-managed basis)

2001


2000


1999Net interest incomeFTE

$
6,090


$
5,835


$
6,881Banking fees and commissions


96



112



N/ACredit card revenue


1,146



854



N/AInvestment securities gains






11



N/ATrading






(1
)


N/AOther income (loss)


120



(230
)


N/ANoninterest income


1,362



746



1,632Total revenue


7,452



6,581



8,513Provision for credit losses


3,823



3,637



3,593Salaries and employee benefits


501



517



N/AOther expense


1,618



2,422



N/ANoninterest expense


2,119



2,939



3,204Operating pretax incomeFTE


1,510



5



1,716Tax expense and FTE adjustment


564



2



581Operating income


946



3



1,135Merger and restructuring-related charges, net of tax


(39
)


(4
)


Net income (loss)

$
907


$
(1
)

$
1,135Memo: Net securitization gains (amortization)


(62
)


(116
)


61FINANCIAL PERFORMANCE:% of average outstandings:Net interest incomeFTE


9.31
%


8.81
%


9.97
%Provision for credit losses


5.85



5.49



5.21Noninterest income


2.08



1.13



2.37Risk adjusted revenue


5.54



4.45



7.13Noninterest expense


3.24



4.44



4.64Pretax incomeFTE


2.31



0.01



2.49Operating income


1.45







1.64Net income


1.39







1.64Return on equity(5)


15







19Efficiency ratio(5)


28



45



38Headcountfull-time(6)


9,871



10,901



N/AENDING BALANCES (in billions):Owned

$
6.8


$
4.7


$
4.0Sellers interest


24.0



22.4



19.7Loans on balance sheet


30.8



27.2



23.7Securitized


37.4



39.8



45.7Loans


68.2



67.0



69.4Assets


72.7



70.5



N/AEquity


6.4



6.2



N/AAVERAGE BALANCES (in billions):Owned

$
6.8


$
4.8



N/ASellers interest


18.8



18.5



N/ALoans on balance sheet


25.6



23.2



N/ASecuritized


39.8



43.0



N/ALoans


65.4



66.2



69.0Assets


68.7



70.0



74.9Equity


6.3



6.1



6.0




BANK ONE CORPORATION 34 2001 ANNUAL REPORT




---




(Dollars in millions)

2001


2000


1999CREDIT QUALITY (in millions):Net charge-offs:Credit cardmanaged

$
3,823


$
3,584


$
3,790Net charge-off ratios:Credit cardmanaged


5.84
%


5.42
%


5.49
%12-month lagged (12)


5.77



5.19



N/ADelinquency ratio:30+ days


4.46



4.51



4.5790+ days


1.93



2.02



2.13Allowance for credit losses

$
396


$
197



N/AAllowance to period-end owned loans


5.82
%


4.19
%


N/AOTHER DATA:Charge volume (in billions)

$
140.4


$
142.5


$
142.7New accounts opened (in thousands)


3,925



3,324



8,108Cards issued (in thousands)


55,554



51,693



64,191Number of FirstUSA.com customers (in millions) (13)


1.9



2.1



N/A





|For |  | additional footnote detail see page 28.
|--- |  | ---------------------------------------

|(12)    2001 |  | ratio includes Wachovia net charge-offs but excludes Wachovia loans.
|------------ |  | --------------------------------------------------------------------

|(13)    Approximately |  | 1 million registered users were purged in late 2001 due to inactivity.
|--------------------- |  | ----------------------------------------------------------------------




2001 compared to 2000





First USA reported operating income of $946 million in 2001, up from $3 million in the
prior year. Adjusted for $522 million after tax of significant items, 2000 operating income was $525 million. Increased reported operating income reflected lower expenses, the addition of the Wachovia portfolio and higher revenue, partially offset
by increased credit costs. The Corporation expects the acquisition of the Wachovia portfolio to add approximately $100 million annually to after tax earnings. The pre-tax return on outstandings was 2.3% in 2001, up from 1.3% in 2000.





Net interest income totaled $6.090 billion, up $255 million, or 4%, from the prior year reflecting lower interest rates and the addition of
the Wachovia portfolio, partially offset by lower average outstandings and loan fee income. Average managed outstandings were $65.4 billion, down $800 million, or 1%, from the prior year. End of period managed loans were $68.2 billion, up $1.2
billion from the prior year. First USA opened 3.9 million new accounts during the year, an 18% increase from the prior year. At December 31, 2001, 55.6 million cards were issued.





Noninterest income was $1.362 billion, a $149 million, or 12%, increase from the prior year reflecting the addition of the Wachovia portfolio and increased securitization activity.





The managed provision for credit losses was $3.823 billion, a $221 million, or 6%, increase from the prior year reflecting the
addition of the Wachovia portfolio and increased net charge-offs.





Noninterest expense totaled $2.119 billion, a $499 million,
or 19%, decrease from the prior year, reflecting lower fraud and operational losses, processing costs and a decrease in internally allocated costs related to a mid-year 2000 change in methodology. The decline from last year also reflected the sale
of international operations in the second quarter of 2000. These reductions were partially offset by the addition of the Wachovia portfolio and higher marketing expense.





2000 compared to 1999





First USA reported operating income of $525 million for 2000, down $610 million, or 54%,
from 1999. A decline in revenue was partially offset by lower expenses. The 2000 results represented a 1.3% return on outstandings, down from 2.5% in 1999.





Net interest income was $5.835 billion, down $1.046 billion, or 15%, from 1999, reflecting narrower spread, lower late fee revenue, and lower average outstandings. Average managed outstandings for 2000 were $66.2
billion, down 4% from 1999. End of period managed loans declined to $67.0 billion, or 3%. First USA opened 3.3 million accounts in 2000, down 59% from 1999.





Noninterest income was $1.213 billion, down $419 million, or 26%, from 1999, due to decreased securitization activity and higher revenue sharing payments to partnership and affinity groups reflecting the emphasis on
these growing customer groups. In addition, lower revenue from fee-based products contributed to the decline as well as the prior years inclusion of $126 million of nonrecurring items.





The provision for credit losses was $3.602 billion, relatively flat with 1999. The charge-off rate decreased slightly to 5.42% from 5.49% in 1999. The 1999 charge-offs included $183
million from the early adoption of the Federal Financial Institutions Examination Councils (FFIEC) revised consumer credit guidelines. At year-end, the managed 30-day and 90-day delinquency rates were 4.51% and 2.02%, respectively, down from
4.57% and 2.13% a year earlier.







BANK ONE CORPORATION 35 2001 ANNUAL REPORT




---




Noninterest expense was $2.618 billion, down $586 million, or 18%, from 1999, reflecting a
decline in marketing expenses, improved operating efficiencies, lower processing costs, the sale of the international operations, and a decrease in internally allocated costs related to a mid-year 2000 change in methodology. These positive impacts
were partially offset by increased fraud and operational losses.





Investment Management





The Investment Management Group (IMG) provides investment, insurance, trust and private banking services to individuals. IMG also provides investment and investment related services, including retirement
and custody services, securities lending and corporate trust to institutions.





IMGs registered investment advisory arm,
Banc One Investment Advisors, ranks among the nations top asset managers with more than $142 billion in assets under management. In addition, IMG manages One Group ® Mutual Funds, one of the largest mutual fund complexes with 50 funds and more than $83 billion in assets under management. Performance of the funds continues to remain strong. 88% of the
assets are in funds ranked 3 stars or better and 57% of the assets are in funds ranked 4 stars or better by Morningstar.





Private Client Services (PCS) helps manage and build wealth for high net worth clients. PCS provides integrated financial advice and services such as brokerage, investments and alternative asset management, personal trust, private banking,
insurance and financial planning through over 600 client advisors.





The Retail Investment Services (RIS) business serves Bank
Ones retail customer base by delivering investment products and services through 1,800 banking centers in 14 states. RIS teams have more than 3,000 licensed bankers in Bank One retail banking centers to deliver high quality investment and
insurance products.





The Global Corporate Trust business ranks among the three largest providers in the country for bond trustee
services. These services are provided to governmental and municipal entities, as well as a broad range of middle market and large institutions.





(Dollars in millions)

2001


2000


1999Net interest incomeFTE

$
427


$
409


$
376Banking fees and commissions


480



354



N/AService charges on deposits


17



16



N/AFiduciary and investment management fees


751



780



N/AOther income


11



11



N/ANoninterest income


1,259



1,161



1,179Total revenue


1,686



1,570



1,555Provision for credit losses


38



13



2Salaries and employee benefits


564



554



N/AOther expense


488



495



N/ANoninterest expense


1,052



1,049



1,075Operating pretax incomeFTE


596



508



478Tax expense and FTE adjustment


222



186



161Operating income


374



322



317Merger and restructuring-related charges, net of tax


(12
)






Net income

$
362


$
322


$
317Memo: Insurance revenues


437.2



357.2



N/AFINANCIAL PERFORMANCE:Return on equity (5)


37
%


36
%


35
%Efficiency ratio (5)


62



67



69Headcountfull-time (6)


6,071



6,562



N/AENDING BALANCES (in billions):Loans

$
7.2


$
7.0



N/AAssets


8.6



8.1



N/ADemand deposits


2.8



3.3



N/ASavings


3.3



2.2



N/ATime


3.2



4.0



N/AForeign offices


0.2



0.1



N/ATotal deposits


9.5



9.6



N/AEquity


1.1



1.0



N/A




BANK ONE CORPORATION 36 2001 ANNUAL REPORT




---




(Dollars in millions)

2001


2000


1999AVERAGE BALANCES (in billions):Loans

$
6.9


$
6.6


$
5.7Assets


8.1



7.6



7.1Demand deposits


2.0



2.5



N/ASavings


2.8



1.9



N/ATime


3.3



4.0



N/AForeign offices


0.2



0.2



N/ATotal deposits


8.2



8.5



8.8Equity


1.0



0.9



0.9CREDIT QUALITY (in millions):Net charge-offs:Commercial

$
27



N/A



N/AConsumer


7



N/A



N/ATotal net charge-offs


34



N/A



N/ANet charge-off ratios:Commercial


0.81
%


N/A



N/AConsumer


0.19



N/A



N/ATotal net charge-off ratio


0.49



N/A



N/ANonperforming assets:Commercial

$
38


$
36



N/AConsumer


4



4



N/ATotal nonperforming loans


42



40



N/AOther including OREO


1







N/ATotal nonperforming assets


43



40



N/AAllowance for credit losses

$
25


$
22



N/AAllowance to period-end loans


0.35
%


0.31
%


N/AAllowance to nonperforming loans


60



55



N/ANonperforming assets to related assets


0.60



0.57



N/AASSETS UNDER MANAGEMENT ENDING BALANCES (in billions):Mutual funds

$
83.5


$
70.4


$
64.4Other


59.1



60.8



64.5Total


142.6



131.2



128.9By type:Money market

$
58.5


$
43.1



N/AEquity


47.3



53.5



N/AFixed income


36.8



34.6



N/ATotal


142.6



131.2



128.9By channel:Private client services

$
49.7


$
58.3



N/ARetail brokerage


9.7



9.1



N/AInstitutional


61.2



47.9



N/ACommercial cash sweep


9.8



8.6



N/AAll other


12.2



7.3



N/ATotal


142.6



131.2



128.9Morningstar Rankings:Percentage of customer assets in 4 and 5 ranked funds


57
%


49
%


54
%Percentage of customer assets in 3+ ranked funds


88



99



84TRUST ASSETS ENDING BALANCES:Trust assets under administration(in billions)

$
352.5


$
319.4



N/A




BANK ONE CORPORATION 37 2001 ANNUAL REPORT




---




(Dollars in millions)

2001

2000

1999CORPORATE TRUST SECURITIES ENDING BALANCES:Corporate trust securities under administration(in billions)

$
988.6

$
751.1


N/ARETAIL BROKERAGE:Mutual fund sales (in millions)

$
2,284

$
2,613


N/AAnnuity sales


2,583


1,659


N/ATotal sales


4,867


4,272


4,077Number of accountsend of period (in thousands)


394


384


349Market value customer assetsend of period (in billions)

$
23.4

$
23.1

$
23.4Number of registered sales representatives


724


700


N/ANumber of licensed retail bankers


3,042


2,689


N/AAnnuity account value (in billions)

$
8.7

$
6.8


N/APRIVATE CLIENT SERVICES:Number of Private Client advisors


641


747


N/ANumber of Private Client offices


105


104


N/AClient Assets:Assets under management (in billions)

$
49.7

$
58.3


N/AEnding Balances (in billions):Loans

$
7.0

$
6.7


N/ADeposits


7.6


7.2


N/AAverage Balances (in billions):Loans

$
6.9

$
6.4

$
5.5Deposits


7.0


7.0


7.2





For additional footnote detail see page 28.





2001 compared to 2000





IMG reported operating income of $374 million, up $52 million from the prior
year.





Net interest income increased $18 million, or 4%, from the prior year, reflecting a 5% increase in average loans
partially offset by narrower deposit spreads and a 4% decrease in average deposits.





Provision for credit losses increased $25
million, principally related to higher net charge-offs resulting from a difficult economic climate and loan growth.





Noninterest
income, which is principally fiduciary and investment fees, increased $96 million, or 8%. Beginning in November 2000, fees associated with the administration of the One Group ® mutual funds were recorded as revenue, with a corresponding increase in expense. Prior to that, a third-party administrator incurred such fees and expenses, which totaled $80 million in
2000. Excluding the impact of this change, noninterest income increased $16 million reflecting growth in retail brokerage sales offset by lower investment advisory fees on equity assets because of overall market conditions.





Noninterest expense increased $1 million, principally related to expenses of $80 million associated with the administration of the One Group ® funds, offset by a decrease in expenses related to tighter cost control, lower headcount and reduced operating losses. Excluding
the expenses associated with the administration of the One Group ® funds, noninterest expenses declined 8%.





Assets under management totaled $142.6 billion, up 9% from the end of 2000. One Group ® mutual fund assets under management increased 19% to $83.5 billion. One Group ® fund performance continued to remain strong, with 88% of these funds rated three stars or higher by Morningstar. Average assets under management increased 3% compared with 2000, driven
principally by a 12% increase in One Group ® mutual funds.





2000 compared to 1999





IMG reported operating income of $322 million, up $5 million from the prior
year.





Net interest income increased $33 million, or 9%, from the prior year, reflecting a 16% increase in average loans
partially offset by narrower spreads related to the 3% decrease in average deposits.





Provision for credit losses increased $11
million, principally related to higher net charge-offs and loan growth.





Noninterest income, which is principally fiduciary and
investment fees, decreased $16 million, or 1%, due to the sale of a subsidiary in the 1999 second quarter. Excluding the impact of this sale, noninterest income increased 2%, reflecting growth in retail brokerage and insurance volumes and moderate
growth in assets under management.




BANK ONE CORPORATION 38 2001 ANNUAL REPORT




---




Noninterest expense decreased $24 million, or 2%, also related to the 1999 second quarter sale
of a subsidiary. Excluding the impact of this sale, expenses increased 2%, principally related to volume growth in retail brokerage and insurance activities.





Assets under management totaled $131.2 billion, up 2% from the end of 1999. One Group ® mutual fund assets under management increased 9% to $70.4 billion. One Group ® fund
performance continued to remain strong, with 99% of these funds rated three stars or higher by Morningstar. Average assets under management increased 5% compared with 1999, driven principally by a 14% increase in One Group ® mutual funds.





Corporate





Corporate includes Treasury, fixed income and principal investment portfolios, unallocated corporate expenses, and any gains or losses from
corporate transactions.





(Dollars in millions)

2001


2000


1999Net interest income (expense)FTE (14)

$
(664
)

$
(458
)

$
166Banking fees and commissions


(17
)


N/A



N/ACredit card revenue


(1
)


N/A



N/AService charges on deposits


23



N/A



N/AInvestment securities losses


(54
)


N/A



N/ATrading


(49
)


N/A



N/AOther income


304



N/A



N/ANoninterest income (15)


206



16



873Total revenue (loss)


(458
)


(442
)


1,039Provision for credit losses






(2
)


(108
)Salaries and employee benefits


568



N/A



N/AOther expense


(236
)


N/A



N/ANoninterest expense (16)


332



1,192



198Operating pretax income (loss)FTE


(790
)


(1,632
)


949Tax expense (benefit) and FTE adjustment


(381
)


(599
)


272Operating income (loss)


(409
)


(1,033
)


677Merger and restructuring-related charges, net of tax


(59
)


(74
)


Net income (loss)

$
(468
)

$
(1,107
)

$
677FINANCIAL PERFORMANCE:Headcountfull-time (6)


11,418



13,303



N/AENDING BALANCES (in billions):Loans

$
0.6


$
0.1



N/AAssets


50.7



46.8



N/ADeposits


19.6



30.7



N/AEquity


(0.8
)


(1.6
)


N/AAVERAGE BALANCES (in billions):Loans

$
0.7


$
0.4



N/AAssets


47.5



43.9


$
38.0Deposits


24.3



26.2



18.6Equity


(1.1
)


(0.2
)


2.9





For additional footnote detail see page 28.


|(14) |  | Net interest income primarily includes Treasury results and interest spread on investment related activities.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(15) |  | Noninterest income primarily includes the gains and losses from investment activities and other corporate transactions.
|---- |  | -----------------------------------------------------------------------------------------------------------------------

|(16) |  | Noninterest expense primarily includes corporate expenses not allocated to the lines of business.
|---- |  | -------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 39 2001 ANNUAL REPORT




---




2001 compared to 2000





Corporate reported an operating loss of $409 million for 2001, compared with an operating loss of $1,033 million in 2000. Excluding significant items of $778 million after tax, the operating loss in 2000 was $255 million.





Net interest expense increased to $664 million for 2001 from $464 million in 2000. These results were principally due to changes in the
Treasury investment portfolio and an increase in unallocated equity.





Investments, which includes Treasury, fixed income and
principal investment portfolios, declined $143 million after tax from 2000 due to market conditions. These results are principally reflected in investment securities gains and losses.





Unallocated corporate expenses were $332 million in 2001 versus $473 million in 2000. The $141 million reduction from 2000 was principally due to increased allocations.





2000 compared to 1999





Corporate reported an operating loss of
$255 million in 2000, compared with operating income of $677 million in 1999.





Treasury results worsened in 2000, driven by
declining interest rates and the level of unallocated equity and assets. This change was principally reflected in net interest expense, which was $464 million in 2000, compared to net interest income of $166 million for 1999.





Investments results declined $141 million after tax from 1999 principally due to the weakening market for initial public offerings and
financial restructurings, and lower gains in the Treasury portfolio.





Noninterest expense was $473 million for 2000, compared
with $198 million in 1999. Expenses for 2000 included higher legal expenses, severance-related expenses and other operational losses. Additionally, unallocated corporate expenses increased in 2000 due to the change in allocation methodology.




BANK ONE CORPORATION 40 2001 ANNUAL REPORT




---




Significant Items





Results in 2000 included the negative impact of $2.160 billion after tax ($3.329 billion pre-tax) of significant items. The following summarizes significant items recorded in 2000 by each business segment and income statement line,
excluding merger and restructuringrelated charges:





Business SegmentsTable 1





(In millions)

Retail

Commercial


First USA


Investment Management


Corporate


TotalPretax expense (income)Writedown of auto lease residuals

$
532

















$
532Provision for credit losses




$
628















628Repositioning of investment securities portfolio
















$
415



415Operational and other (1)


2


(18
)

$
56







220



260Writedown of interest-only strip









354











354Occupancy and fixed asset related


9


6



11


$
(4
)


315



337Writedown of purchased credit card relationship intangibles









275











275Writedowns primarily related to planned loansales (2)


167


















167Increase to legal accruals

















190



190Writedown of marketing partnership agreements









121











121Severance related


10


21



6



4



9



50Total

$
720

$
637


$
823


$



$
1,149


$
3,329After tax

$
456

$
404


$
522


$



$
778


$
2,160Income Statement LineTable 2(In millions)

Retail

Commercial


First USA


Investment Management


Corporate


TotalNet interest income

$
14

$
(7
)









$
(6
)

$
1Noninterest income:Banking fees and commissions

















(1
)


(1
)Credit card revenue








$
152











152Service charges on deposits





5















5Investment securities (gains) losses





(1
)










426



425Trading





44















44Other income


650


3



315


$
2



11



981Total noninterest income


650


51



467



2



436



1,606Provision for credit losses


11


628



35











674Noninterest expense:Salaries and employee benefits (1)


12


(42
)


(4
)


(19
)


145



92Occupancy expense


9


6



11







72



98Other intangible amortization









275



9



36



320Other


24


1



39



8



466



538Total noninterest expense


45


(35
)


321



(2
)


719



1,048Pretax expense

$
720

$
637


$
823


$



$
1,149


$
3,329





|(1) |  | Includes $75 million of incentive accruals reversed in the fourth quarter relating to the full year in which existing plans were adjusted to a pay for performance basis.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | At December 31, 2000, Management discontinued its plan to dispose of these loans, and as such, are now considered part of the general portfolio.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------




During 1999, significant items totaling $880 million pretax ($597 million after-tax) were not allocated to specific business segments. These items
included charges of $722 million for merger and restructuring costs, $321 million for asset impairments, valuation adjustments and other charges, and $197 million for provision for credit losses primarily associated with the implementation of the
FFIECs revised consumer credit guidelines. These charges were partially offset by gains of $111 million and $249 million, respectively, from the sale of Concord and the Indiana divestitures.




BANK ONE CORPORATION 41 2001 ANNUAL REPORT




---

Below is a reconciliation of managed 2000 actual results with results adjusted for significant items:





2000 Significant ItemsTable 3Managed Basis





2000(In millions)

2001 Actual


Actual


Adjustments


Adjusted


1999 Actual


2001 Actualvs2000 Adjusted


2000 Adjustedvs1999 ActualConsolidatedNet interest income

$
13,580


$
13,506


$
(1
)

$
13,507


$
14,457


$
73


1
%

$
(950
)

(7
)%Noninterest income


5,843



3,895



(1,606
)


5,501



6,642
(1)


342


6



(1,141
)

(17
)Provision for credit losses


5,941



6,735



674



6,061



4,514
(1)


(120
)

(2
)


1,547


34Noninterest expense


9,200



11,447



1,048



10,399



10,936
(1)


(1,199
)

(12
)


(537
)

(5
)Operating income (loss)


2,904



(409
)


(2,160
)


1,751



3,830
(1)


1,153


66



(2,079
)

(54
)Merger and restructuring- related, net of tax


(222
)


(102
)






(102
)


(351
)


(120
)

N/M



249


71Net income (loss)


2,638
(2)


(511
)


(2,160
)


1,649



3,479



989


60



(1,830
)

(53
)RetailNet interest income


5,025



4,895



(14
)


4,909



4,379



116


2



530


12Noninterest income


1,442



618



(650
)


1,268



1,541



174


14



(273
)

(18
)Provision for credit losses


1,010



870



11



859



415



151


18



444


N/MNoninterest expense


3,477



3,995



45



3,950



3,933



(473
)

(12
)


17


Operating income (loss)


1,272



414



(456
)


870



1,041



402


46



(171
)

(16
)Merger and restructuring-related, net of tax


(66
)


(25
)






(25
)






(41
)

N/M



(25
)

N/MNet income


1,206



389



(456
)


845



1,041



361


43



(196
)

(19
)Commercial BankingNet interest income


2,702



2,825



7



2,818



2,655



(116
)

(4
)


163


6Noninterest income


1,574



1,354



(51
)


1,405



1,248



169


12



157


13Provision for credit losses


1,070



2,217



628



1,589



436



(519
)

(33
)


1,153


N/MNoninterest expense


2,220



2,272



(35
)


2,307



2,208



(87
)

(4
)


99


4Operating income (loss)


721



(115
)


(404
)


289



906



432


N/M



(617
)

(68
)Merger and restructuring- related, net of tax


(46
)


1







1







(47
)

N/M



1


N/MNet income (loss)


675



(114
)


(404
)


290



906



385


N/M



(618
)

(68
)First USANet interest income


6,090



5,835







5,835



6,881



255


4



(1,046
)

(15
)Noninterest income


1,362



746



(467
)


1,213



1,632



149


12



(419
)

(26
)Provision for credit losses


3,823



3,637



35



3,602



3,593



221


6



9


Noninterest expense


2,119



2,939



321



2,618



3,204



(499
)

(19
)


(586
)

(18
)Operating income (loss)


946



3



(522
)


525



1,135



421


80



(610
)

(54
)Merger and restructuring- related, net of tax


(39
)


(4
)






(4
)






(35
)

N/M



(4
)

N/MNet income (loss)


907



(1
)


(522
)


521



1,135



386


74



(614
)

(54
)Investment ManagementNet interest income


427



409







409



376



18


4



33


9Noninterest income


1,259



1,161



(2
)


1,163



1,179



96


8



(16
)

(1
)Provision for credit losses


38



13







13



2



25


N/M



11


N/MNoninterest expense


1,052



1,049



(2
)


1,051



1,075



1






(24
)

(2
)Operating income (loss)


374



322







322



317



52


16



5


2Merger and restructuring- related, net of tax


(12
)


















(12
)

N/M






Net income


362



322







322



317



40


12



5


2CorporateNet interest income (expense)


(664
)


(458
)


6



(464
)


166



(200
)

(43
)


(630
)

N/MNoninterest income


206



16



(436
)


452



873



(246
)

(54
)


(421
)

(48
)Provision for credit losses






(2
)






(2
)


(108
)


2


N/M



106


98Noninterest expense


332



1,192



719



473



198



(141
)

(30
)


275


N/MOperating income (loss)


(409
)


(1,033
)


(778
)


(255
)


677



(154
)

(60
)


(932
)

N/MMerger and restructuring-related, net of tax


(59
)


(74
)






(74
)






15


20



(74
)

N/MNet income (loss)


(468
)


(1,107
)


(778
)


(329
)


677



(139
)

(42
)


(1,006
)

N/M





N/MNot meaningful.


|(1) |  | Consolidated noninterest income, provision for credit losses, and noninterest expense include $(169) million, $176 million, and $319 million, respectively, of significant items
that were not allocated to specific business segments. Excluding these amounts segment operating income was $4,076 million.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Consolidated results for 2001 include $44 million after tax of cumulative effect of change in accounting principle not allocated to specific business segments.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 42 2001 ANNUAL REPORT




---

CONSOLIDATED RESULTS





Net Interest
Income





Net interest income includes spreads on earning assets as well as items such as loan fees, cash interest collections on problem loans,
dividend income, interest reversals, and income or expense on derivatives used to manage interest rate risk.





In order to
understand fundamental trends in net interest income, average earning assets and net interest margins, it is useful to analyze financial performance on a managed portfolio basis, which adds data on securitized loans to reported data on loans as
presented below:





Year Ended December 31

2001


2000


1999(Dollars in millions)Managed:Net interest incomeFTE basis

$
13,580


$
13,506


$
14,457Average earning assets


277,672



284,035



269,237Net interest margin


4.89
%


4.76
%


5.37
%Reported:Net interest incomeFTE basis

$
8,769


$
8,974


$
9,142Average earning assets


237,869



241,058



223,539Net interest margin


3.69
%


3.72
%


4.09
%





2001 compared to 2000





On a managed basis, net interest income increased modestly in 2001 relative to 2000. The earnings benefit derived from falling interest rates was partially offset by lower earning assets. The decline in average
earning assets was largely due to efforts to reduce commercial credit exposure, brokered home equity loan and auto lease outstandings, and also reflected lower credit card receivables. As represented by the year-over-year improvement in net interest
margin, overall balance sheet profitability improved. This reflected the reduction in low margin commercial credits, more disciplined pricing in the consumer loan sector, and increases in the percentage of funding provided by core retail deposits
and net free funds.





On a reported basis, net interest income was slightly below that reported in 2000, largely due to lower
earning assets as mentioned above.





2000 compared to 1999





Lower average credit card outstandings, lower fee revenues and narrower spread on credit card loans were the most significant causes of the decline in both the net interest income and related margin in 2000. Lower average credit card
outstandings and fee revenues reflected customer attrition and reduced new account origination, while narrower spread reflected higher funding costs in 2000. Competitive pricing pressures in Corporate Banking and Middle Market Banking and higher
nonperforming loans reduced margins slightly in the commercial loan portfolio.





During 2000, net interest income declined,
reflecting a lower level of loans and the cost of carrying a higher level of nonperforming assets.





On a reported basis, net
interest margin was 3.72% in 2000, compared with 4.09% in 1999. The decrease in net interest margin in 2000 was related to lower credit card spreads as well as a less favorable earning asset mix.




BANK ONE CORPORATION 43 2001 ANNUAL REPORT




---




Noninterest Income





The components of noninterest income for the periods indicated are:





(Dollars in millions)









% ChangeYear Ended December 31

2001


2000


1999

2001-2000


2000-1999Banking fees and commissions

$
1,731


$
1,537


$
1,502

13
%

2
%Credit card revenue


1,395



1,104



1,363

26


(19
)Service charges on deposits


1,449



1,310



1,283

11


2Fiduciary and investment management fees


754



783



793

(4
)

(1
)Investment securities gains (losses)


(66
)


(235
)


509

72


N/MTrading


220



134



147

64


(9
)Other income (loss)


360



(738
)


685

N/M


N/MGain on Indiana divestitures










249

N/M


N/MGain on sale of Concord










111

N/M


N/MManaged noninterest income

$
5,843


$
3,895


$
6,642

50
%

(41
)%


N/MNot meaningful.





In order to provide more meaningful trend analysis, credit card revenue and total noninterest income in the above table are shown on a managed basis. Credit card fee revenue excludes the
net interest revenue associated with securitized credit card receivables. Components of noninterest income that are primarily related to a single business segment are discussed within that business segment rather than the consolidated section.





2001 compared to 2000





Managed banking fees and
commissions increased by $194 million, or 13%, compared to 2000 levels. This increase was primarily the result of increased annuity sales and fees associated with the in-house administration of the One Group ® mutual funds, which the Corporation began recording as revenue in the 2000 fourth quarter. Additionally, this increase reflects growth in retail
brokerage sales.





Managed credit card revenue increased $291 million, or 26%, in 2001 when compared to 2000. This improvement
was due to the third quarter addition of the Wachovia portfolio and significant items recorded in 2000 (see table 2 on page 41).





Service charges on deposits increased $139 million, or 11%, in 2001 when compared to 2000. A lower rate environment produced a shift to the payment of fees from net interest income due to the lower value ascribed to customers
compensating deposit balances.





Fiduciary and investment management fees declined by $29 million, or 4%, in 2001 compared to
levels maintained in 2000. This reduction was as a result of lower investment advisory fees on equity assets because of overall market conditions.





Investment securities losses were $66 million for 2001 due to principal investment losses and lower market valuations, partially offset by the gains on sale of fixed income securities. This was an improvement from
2000 when investment securities portfolios activity produced a loss of $235 million. This loss occurred when significant items were recorded in the second quarter of 2000 (see table 2 on page 41).





Trading produced gains of $220 million, an increase of $86 million, or 64%, when compared to 2000. This improvement was due to significant items
recorded in 2000 (see table 2 on page 41) and market value gains.





Other income in 2001 was $360 million compared to a $738
million loss in 2000. This improvement over last year was predominately due to significant items recorded in 2000 (see table 2 on page 41).





2000
compared to 1999





Banking fees and commissions increased 2% in 2000, compared with the 1999 levels, as higher loan syndication fees were partially
offset by lower leasing fees for auto loans.





Managed credit card revenue declined 19% to $1.104 billion in 2000 as compared to
1999, reflecting a decline in managed credit card receivables as well as writedowns for certain affinity partnership agreements included in the 2000 significant items (see table 2 on page 41).





Service charges on deposit accounts, which include deficient balance fees, increased 2% reflecting growth in cash management fees, due in part to the
extensive cross selling of product offerings, which was supported by enhanced product features and functionality of the core treasury management services provided to customers on a national basis.





Fiduciary and investment management fees decreased slightly in 2000 as compared to 1999, as fee growth from traditional trust products and services,
investment management activities and shareholder services was offset by the absence of revenues from certain unprofitable account relationships exited in 2000.




BANK ONE CORPORATION 44 2001 ANNUAL REPORT




---




Investment securities portfolio activities produced a loss of $235 million in 2000 as compared
to $509 million of net gains in 1999, primarily as the result of the repositioning of the Corporations investment portfolio in the 2000 second quarter (see table 2 on page 41) and lower principal valuations.





Trading results declined slightly to $134 million in 2000 compared with $147 million in 1999 as improved foreign exchange trading was offset by a
decline in revenue generated from interest rate derivatives.





Other activities generated losses of $738 million in 2000,
compared with $685 million of income in 1999. Net securitization amortization in 2000 totaled $116 million, compared with net gains of $61 million in 1999. Asset impairment writedowns associated with credit card interest-only strip securities were
$432 million for 2000 compared to $40 million for 1999. These writedowns were driven by the narrower margin and increased attrition based on the earnings decline in the credit card business. Auto residual losses totaled $757 million for 2000,
compared with $167 million for 1999. Included in these losses were charges of $552 million ($532 million significant items) and $100 million in 2000 and 1999, respectively, for asset valuation adjustments.





Noninterest Expense





The components of noninterest expense for the periods
indicated are:





(Dollars in millions)










% ChangeYear Ended December 31

2001


2000


1999


2001-2000


2000-1999Salaries and employee benefits:Salaries

$
3,638


$
3,949


$
3,925


(8
)%

1
%Employee benefits


560



653



603


(14
)

8Total salaries and employee benefits


4,198



4,602



4,528


(9
)

2Occupancy expense


686



872



703


(21
)

24Equipment expense


457



593



667


(23
)

(11
)Outside service fees and processing


1,178



1,537



1,771


(23
)

(13
)Marketing and development


862



900



1,235


(4
)

(27
)Telecommunication


407



411



334


(1
)

23Other intangible amortization


97



410



168


(76
)

N/MGoodwill amortization


69



70



69


(1
)

1Other


1,246



2,052



1,461


(39
)

40Total noninterest expense before mergerand restructuring-related charges


9,200



11,447



10,936


(20
)

5Merger and restructuring-related charges


351



161



554


N/M


(71
)Total noninterest expense (1)

$
9,551


$
11,608


$
11,490


(18
)

1Employees


73,519



80,778



87,735


(9
)

(8
)Efficiency ratio-managed basis


49.2
%


66.7
%


54.5
%





N/MNot meaningful.


|(1) |  | Certain expenses have been reclassified from salaries to other expenses in all periods.
|--- |  | ---------------------------------------------------------------------------------------




Components of noninterest expense that are primarily related to a single business segment are discussed within that business segment rather than the consolidated section.




BANK ONE CORPORATION 45 2001 ANNUAL REPORT




---




2001 compared to 2000





Salary and benefit costs were $4.198 billion in 2001, down 9% from $4.602 billion in 2000. This decline was attributed to expense savings from reduced headcount and cost reductions associated with the modification of the Corporations
benefit plans.





Occupancy expense declined in 2001 by $186 million, or 21%, from 2000 levels. The decrease in 2001 was the
result of less occupied space.





Equipment expense in 2001 decreased $136 million compared to the previous year. Reduced
furniture and equipment rental along with lower maintenance and depreciation expense was primarily the reason for the 23% decline.





Outside service fees and processing expense also declined in 2001 compared to a year ago. The majority of the 23% decline was attributed to a reduction in consulting expense and the benefits from contract renegotiations and other
waste-reduction initiatives.





For 2001, marketing and development expense decreased $38 million, or 4%, compared to 2000 as
continued expense reductions in the Retail line of business more than offset increased expenditures for First USA.





Other
intangible amortization expense decreased by $313 million, or 76%, from a year ago, predominately due to significant items recorded in 2000 (see table 2 on page 41).





Other expense was reduced by $806 million, or 39%, when compared to the year 2000. This decrease was primarily due to significant items recorded in 2000 (see table 2 on page 41). This
reduction also reflects the continuation of the Corporations waste-reduction initiatives to lower expenses for such items as travel, entertainment and other miscellaneous items, which was partially offset by system conversion costs. The
Corporation successfully converted the Texas/Louisiana deposit system during the 2001 third quarter and the Arizona/Utah deposit system in the 2001 fourth quarter and is working to complete the remaining system conversions around year-end 2002.





The Corporation recorded a $354 million pre-tax restructuring-related charge in the 2001 fourth quarter for additional real
estate and severance costs to accomplish more rapid expense reductions, accelerated systems conversions and other consolidations.





2000 compared to
1999





Salary and benefit costs were $4.602 billion in 2000, up 2% from $4.528 billion in 1999. The increase was due to higher salary levels,
partially offset by reduced headcount and lower incentive compensation in 2000.





Occupancy expense in 2000 was up $169 million,
or 24%, from 1999 levels. This increase included $98 million of the $337 million significant item (see table 2 on page 41) related to writedowns concerning vacant space and other occupancy-related matters.





Equipment expense decreased 11% in 2000 from 1999, primarily due to reduced furniture and equipment rental and lower maintenance and depreciation
expense.





Outside service fees and processing expense decreased 13% compared to 1999. A portion of the decrease in 2000
reflected consulting and implementation costs incurred to support Year 2000 readiness, as well as other development, technology and reengineering initiatives in various businesses in 1999. The 2000 decrease also included benefits from the
Corporations waste-reduction initiatives.





Marketing and development expense decreased 27% in 2000 from 1999. Credit card
marketing efforts accounted for much of the fluctuations in this period.





Other intangible amortization expense included $288
million and $21 million of additional writedowns in purchased credit card relationships in 2000 and 1999, respectively. In 2000, $275 million of these writedowns is included in table 1 on page 41.





Other expense increased $591 million in 2000 compared with 1999, primarily relating to $538 million of significant items recorded in 2000 (see table 2
on page 41). These charges included $190 million increase to the legal reserve to cover increased corporate and business litigation exposure, approximately $85 million of fixed assets and software write-offs, as well as miscellaneous and operational
errors.





Applicable Income Taxes





The
Corporations income (loss) before income taxes and cumulative effect of change in accounting principle, as well as applicable income tax expense (benefit) and effective tax rate for each of the past three years follows:





(Dollars in millions)

2001


2000


1999Income (loss) before income taxes and the cumulative effect of change in accounting principle

$
3,800


$
(1,080
)

$
4,974Applicable income taxes (benefits)


1,118



(569
)


1,495Effective tax rate


29.4
%


52.7
%


30.1
%





Applicable income tax expense (benefit) for all three years included benefits for
tax-exempt income, tax-advantaged investments and general business tax credits offset by the effect of nondeductible expenses, including goodwill. In the case of a loss before income taxes and the cumulative effect of change in accounting principle,
the effect of the net tax benefits described above is to increase, rather than decrease, the effective rate of tax. This is the primary reason for the difference in effective tax rates between 2000 and the other years presented. More detail on
income taxes can be found in Note 20 to the consolidated financial statements beginning on page 90.




BANK ONE CORPORATION 46 2001 ANNUAL REPORT




---




RISK MANAGEMENT





Risk is an inherent part of the Corporations businesses and activities. The Corporations ability to properly and effectively identify, assess, monitor and manage risk in its business activities is critical
to its soundness and profitability. The diversity of the Corporations lines of business helps reduce the impact that volatility in any particular area has on its operating results as a whole.





The risk management process of the Corporation is dynamic and requires effective communication between lines of business and corporate-level
departments, as well as judgment and knowledge of specialized products and markets. The Corporations risk management activities consider both on- and off-balance sheet exposure. The Corporations Senior Management takes an active role in
the risk management process and has developed policies and procedures that require specific functions to assist in the identification, assessment and control of various risks. In recognition of the nature of Bank Ones business activities, the
Corporations risk management policies, procedures and methodologies are subject to ongoing review and modification.





Overall risk management policies for the Corporation are established by the Corporate Risk and Capital Committee, which reviews the Corporations performance relative to these policies. The Corporate Risk and Capital Committee has
responsibility for various risk committees of the Corporations lines of business and assists the Audit and Risk Management Committee of the Board of Directors in monitoring Bank Ones policies and guidelines for risk management. The Audit
and Risk Management Committee reviews risk management policies and procedures, and receives regular updates regarding the Corporations compliance with these policies and procedures, including credit, market, liquidity, and operational risks.
Individual line of business committees monitor and review their respective line of business compliance with the Corporations risk management practices. These committees manage specific risks, sales practices, pricing, allowance adequacy, legal
enforceability, and operational and systems risks.





Corporate Risk Management, Finance, Law, Compliance and Government Relations
also assist Senior Management and the Corporate Risk and Capital Committee in monitoring and controlling the Corporations risk profile. Corporate Risk Management is responsible for risk policy development and overseeing implementation, risk
analysis, and risk reporting to Senior Management. The Corporate Risk and Capital Committee has responsibility for monitoring aggregate market and credit risk. The Corporations Asset/Liability Committee (ALCO) has direct oversight
responsibility for the Corporations liquidity position and periodically updates the Audit and Risk Management Committee. Corporate Audit periodically examines and evaluates the Corporations operations and control environment. The
Corporation remains committed to employing qualified personnel with appropriate expertise to implement effectively the Corporations risk management and monitoring systems.





The Corporations business activities generate liquidity, market, credit and operational risks:





| |  | Liquidity risk is the risk that the Corporation is unable to meet all current and future financial obligations in a timely manner.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------




| |  | Market risk is the risk that changes in future market rates or prices will make the Corporations positions less valuable.
|- |  | --------------------------------------------------------------------------------------------------------------------------




| |  | Credit risk is the risk of loss from borrowers and counter-parties failure to perform according to the terms of a transaction.
|- |  | -------------------------------------------------------------------------------------------------------------------------------




| |  | Operational risk, among other things, includes the risk of loss due to errors in product and service delivery, failure of internal controls over information systems and
accounting records, and internal and external fraud.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




LIQUIDITY RISK MANAGEMENT





Liquidity is managed to preserve stable, reliable and cost-effective sources of cash to meet all current and future financial obligations. At Bank One, strong liquidity is
provided by a variety of sources including:





| |  | A portfolio of liquid assets, comprised of federal funds sold, deposit placements and marketable securities.
|- |  | ------------------------------------------------------------------------------------------------------------




| |  | A large customer deposit base arising through the Corporations Commercial Banking and Retail business activities.
|- |  | ------------------------------------------------------------------------------------------------------------------




| |  | A diversified mix of short- and long-term funding sources from the wholesale financial markets.
|- |  | -----------------------------------------------------------------------------------------------




| |  | Significant borrowing capacity at the Federal Reserve Discount Window.
|- |  | ----------------------------------------------------------------------




Bank One is an active participant in the global financial markets through which it obtains a significant amount of funding. These markets serve as a cost-effective source of funds and
are a critical component of the Corporations liquidity management. Decisions to access these markets are based upon relative costs, prospective views of balance sheet growth, and a targeted liquidity profile. A disruption in the financial
markets could limit access to liquidity for the Corporation.





The Corporations ability to maintain regular access to
competitively priced wholesale funds is fostered by strong debt ratings from the major credit rating agencies. Management views the following factors as critical to retaining high credit ratings:





| |  | Strong capital ratios and credit quality
|- |  | ----------------------------------------




| |  | A stable, diverse earnings stream
|- |  | ---------------------------------




| |  | Diversity of liquidity sources
|- |  | ------------------------------




| |  | Strong liquidity monitoring procedures
|- |  | --------------------------------------



BANK ONE CORPORATION 47 2001 ANNUAL REPORT




---




At December 31, 2001, the Corporation and its principal banks had the following long- and
short-term debt ratings:





Short-Term Debt

Senior Long-Term DebtS & P

Moodys

S & P

MoodysThe Corporation (Parent)

A-1

P-1

A

Aa3Principal Banks

A-1

P-1

A+

Aa2





Treasury is responsible for measuring and managing the liquidity profile with
oversight from ALCO. A combination of daily, weekly and monthly reports provided to Senior Management detail the following:





    Internal liquidity risk metrics





    Composition and level of
the liquid asset portfolio





    Timing differences in short-term cash flow obligations





    Available pricing and market access to the financial markets for capital, term-debt and securitization
transactions





    Exposure to contingent draws on the Corporations liquidity





The Corporation monitors and manages liquidity considering both on- and off-balance sheet exposures. On-balance sheet liquidity is impacted
by balance sheet growth, level and mix of customer deposits, and access to wholesale funding. In the normal course of business, the Corporation enters into certain forms of off-balance sheet transactions, including credit card securitizations,
unfunded loan commitments and letters of credit. These transactions are managed through the Corporations various risk management processes. Liquidity facilities provided to Bank One administered and third party administered specialized
financing entities might require funding if the Corporations short-term rating were to fall to A-2 or P-2. Credit card securitizations would be subject to early amortization if certain performance measures of the issuing trust are not
maintained. Either event would result in additional funding requirements for the Corporation.





MARKET RISK MANAGEMENT





Overview





Market risk refers to potential losses arising from
changes in interest rates, foreign exchange rates, equity prices and commodity prices. The portfolio effect of diverse trading activities helps reduce market risk. Through its trading activities, the Corporation strives to take advantage of profit
opportunities available in interest and exchange rate movements. In asset and liability management activities, policies are in place to closely manage structural interest rate and foreign exchange rate risk. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be found in Note 23 to the consolidated financial statements beginning on page 93.





Trading Activities





The Corporations trading activities are primarily customer-oriented. Cash instruments are bought and sold to
satisfy customers investment needs. Derivative contracts are initially entered into to meet the risk management needs of customers. The Corporation enters into subsequent transactions to manage the level of risk in accordance with approved
limits. In order to accommodate customers, an inventory of capital markets instruments is carried, and access to market liquidity is maintained by making bid-offer prices to other market makers. The Corporation may also take proprietary trading
positions in various capital markets cash instruments and derivatives, and these positions are designed to profit from anticipated changes in market factors.





Many trading positions are kept open for brief periods of time, often less than one day. Other positions may be held for longer periods. Trading positions are carried at estimated fair value. Realized and unrealized
gains and losses on these positions are included in noninterest income as trading.





Value-At-Risk





The Corporation has developed policies and procedures to manage market risk in its trading activities through a value-at-risk measurement and control system, a stress testing
process and dollar trading limits. The objective of this process is to quantify and manage market risk in order to limit single and aggregate exposures. Dollar trading limits are subject to varying levels of approval by senior line of business
management, with review by Corporate Market Risk Management. Corporate Market Risk Management works with various line of business personnel in refining and monitoring market risk policies and procedures, and is the primary oversight unit for market
risk arising from line of business activities creating market risk for the Corporation.





For trading portfolios, value-at-risk
measures the maximum fair value the Corporation could lose on a trading position, given a specified confidence level and time horizon. Value-at-risk limits and exposures are monitored daily for each significant trading portfolio. Stress testing is
similar to value-at-risk except that the confidence level is geared to capture more extreme, less frequent market events.




BANK ONE CORPORATION 48 2001 ANNUAL REPORT




---

The Corporations value-at-risk calculation measures potential losses in fair value using a 99% confidence level and a one-day
time horizon. This equates to 2.33 standard deviations from the mean under a normal distribution. This means that, on average, daily profits and losses are expected to exceed value-at-risk one out of every 100 overnight trading days. Value-at-risk
is calculated using a statistical model applicable to cash and derivative positions, including options.





Average, high and low
of the value-at-risk measurements for 2001 and 2000, along with value-at-risk amounts at December 31, 2001 and December 31, 2000 are:





2001(In millions)

Average

High

Low

Dec. 31Risk typeInterest rate

$
11

$
15

$
8

$
11Currency exchange rate


1


4





Equity


1


4





1Aggregate trading portfolio market risk










$
122000(In millions)

Average

High

Low

Dec. 31Risk typeInterest rate

$
11

$
15

$
7

$
7Currency exchange rate


1


1





1Equity


1


2


1


1Aggregate trading portfolio market risk










$
9





Interest rate risk was the predominant type of market risk incurred during 2001.
At December 31, 2001, approximately 90% of primary market risk exposures were related to interest rate risk. Currency exchange rate, equity and commodity risks accounted for 3%, 6% and 1%, respectively, of primary market risk exposures.





U.S. Treasury, corporate, asset-backed, municipal, and mortgage-backed securities generated 75% of interest rate risk. Interest
rate derivatives accounted for 22% of interest rate risk, while the remaining 3% was derived primarily from money market and foreign exchange trading activities.





Foreign exchange spot, forward and option trading generated 100% of the currency exchange rate risk. Of the currency exchange rate risk arising from these activities, 55% related to
major currency exposures and 45% to minor currencies.





Equity derivatives trading and off-setting cash positions generated 100%
of equity price risk.





At December 31, 2001, aggregate portfolio market risk exposures were 33% higher than at year-end 2000.
The majority of this increase was due to increased market risk in various trading books.





Structural Interest Rate Risk Management





Interest rate risk exposure in the Corporations core non-trading business activities, i.e., asset/liability management (ALM) position, is a result
of reprice, option, and basis risks associated with on- and off-balance sheet positions. Reprice risk represents timing mismatches in the Corporations ability to alter contractual rates earned on financial assets or paid on liabilities in
response to changes in market interest rates. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of the spread earned on a loan or investment
relative to its cost of funds. Option risk arises from embedded options present in many financial instruments such as interest rate options, loan prepayment options and deposit early withdrawal options. These provide customers and
investors opportunities to take advantage of directional changes in rates, which could have an adverse impact on the Corporations margin performance. Embedded options are complex risk positions that are difficult to predict and offset, and are
a large component of the interest rate risk exposure to the Corporation.





The Corporation has established risk measures, limits,
policy guidelines and internal control mechanisms (collectively referred to as the Interest Rate Risk Policy) for managing the overall ALM position, including both on- and off-balance sheet positions. Responsibility for the management of interest
rate risk resides with Treasury with oversight by the Corporations ALCO. Business


unit management is responsible for understanding their interest rate risk, while the Corporation
controls and monitors this risk centrally.





The ALM position is measured using sophisticated risk management tools, including
earnings simulation modeling and economic value of equity sensitivity analysis, to capture near-term and longer-term interest rate risk exposures. Senior Management is regularly apprised of the risks associated with the ALM position, with exposures
tested under multiple rate and yield curve scenarios. The Corporation balances the return potential of the ALM position against the desire to limit volatility in earnings and/or economic value.




BANK ONE CORPORATION 49 2001 ANNUAL REPORT




---




Earnings simulation analysis, or earnings-at-risk, measures the sensitivity of pretax earnings
to various interest rate movements. The base-case scenario is established using current interest rates. The comparative scenarios assume an immediate parallel shock in increments of ± 100 basis point rate movements. Numerous other scenarios
are analyzed, including more gradual rising or declining rate changes and non-parallel rate shifts. Estimated earnings for each scenario are calculated over multiple years. The interest rate scenarios are used for analytical purposes and do not
necessarily represent Managements view of future market movements. Rather, these are intended to provide a measure of the degree of volatility interest rate movements may introduce into the earnings and economic value of the Corporation.





The Corporations 12-month pretax earnings sensitivity profile as of year-end 2001 and 2000 is as follows:





Immediate Change in Rates(In millions)

-100 bp

+100 bpDecember 31, 2001

$
174

$
(341
)December 31, 2000

$
29

$
5





The increase in earnings sensitivity during the year reflects an increase in the
duration of the Corporations earning assets, in part driven by management actions taken in anticipation of declining short-term interest rates.





Modeling the sensitivity of earnings to interest rate risk is highly dependent on numerous assumptions embedded in the model. While the earnings sensitivity analysis incorporates Managements best estimate of
interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from that projected. For mortgage-related assets, the earnings simulation model captures the expected
prepayment behavior under changing interest rate environments. Additionally, the model measures the impact of interest rate caps and floors on adjustable-rate loan products. Assumptions and methodologies regarding the interest rate or balance
behavior of indeterminate maturity products, e.g., credit card receivables, savings, money market, NOW and demand deposits reflect Managements best estimate of expected future behavior. Sensitivity of service fee income to market interest rate
levels, such as those related to cash management products, is included as well. The earnings sensitivity profile does not reflect potential differences in the timing of income recognition on transactions that were designed to have an offsetting
economic effect. For example, the interest-only strip recorded in conjunction with a credit card securitization may be subsequently subject to the accounting recognition of impairment due to adverse changes in market interest and payment rates while
the income or expense on offsetting asset and liability positions are recorded on an accrual basis.





In addition to the earnings
sensitivity analysis described above, Management uses an economic value of equity sensitivity technique to capture the risk in both short- and long-term positions. This analysis involves calculating future cash flows over the full life of all
current assets, liabilities and off-balance sheet positions under different rate scenarios. The discounted present value of all cash flows represents the Corporations economic value of equity. The sensitivity of this value to shifts in the
yield curve allows Management to measure longer-term repricing and option risk in the portfolio. Interest rate risk in trading activities and other activities, including certain overseas balance sheet positions, is managed principally as trading
risk.





Foreign Exchange Risk Management





Whenever
possible, foreign currency-denominated assets are funded with liability instruments denominated in the same currency. If a liability denominated in the same currency is not immediately available or desired, a forward foreign exchange or
cross-currency swap contract is used to hedge the risk due to cross-currency funding.





To minimize the capital impact of
translation gains or losses measured on an after-tax basis, the Corporation uses forward foreign exchange contracts to hedge the exposure created by non-U.S. dollar investments in overseas branches and subsidiaries.





CREDIT RISK MANAGEMENT





The Corporation is exposed to the
risk that borrowers or counterparties may default on their obligations to the Corporation. These transactions create credit exposure that is reported both on- and off- balance sheet. On-balance sheet credit exposure includes such items as loans.
Off-balance sheet credit exposure includes unfunded credit commitments and other credit-related financial instruments. Credit exposures resulting from derivative financial instruments are discussed in the Derivative Financial Instruments
section beginning on page 61.





The Corporations Risk and Capital Committee has developed policies
to manage the level and composition of risk in its credit portfolio, and reviews the Corporations performance relative to those policies. The objective of this credit risk management process is to quantify and manage credit risk on an
aggregate portfolio basis as well as to reduce the risk of loss resulting from an individual customer default. Corporate Risk Management works with lending officers and line of business personnel involved in credit decision making and is involved in
the implementation, refinement, and monitoring of the Corporations credit policies and procedures. Credit limits are subject to varying levels of approval by senior line of business management and Corporate Risk Management.




BANK ONE CORPORATION 50 2001 ANNUAL REPORT




---




In order to meet its credit risk management objectives, the Corporation maintains a risk
profile that is diverse in terms of borrower concentrations, product-type, and industry and geographic concentrations. Additional diversification of the Corporations exposure is accomplished through syndication of credits, participations, loan
sales, securitizations, credit derivatives and other risk-reduction measures.





Consumer Credit Risk Management (Including Credit Card and Retail)





The Corporations consumer risk management process utilizes sophisticated risk assessment tools, including credit scoring, across the life
cycle of each type of loan product, including credit cards, loans secured by real estate, vehicle loans and leases, and other unsecured loans. These tools are used to target product and price offerings to best match the consumer risk profile to
identify consumers whose risk profile has deteriorated for proactive risk mitigation efforts, and to initiate portfolio-wide risk management strategies to ensure that the portfolios remain within Management-defined risk tolerance levels.





Management of consumer lines of business continues to proactively manage the risk/reward relationship of each consumer loan
portfolio segment such that these businesses are positioned to achieve profitability targets and required rates of return on investment.





Commercial
Credit Risk Management





The Corporations commercial risk management process utilizes enterprise policies focused on origination, portfolio
management and managed asset related activities. This risk management framework establishes approval authorities and related processes, risk rating methodologies, portfolio review parameters and management of problem loans. Line of business Senior
Management and Corporate Risk Management are actively engaged in these activities as well as continuously exploring methods to improve commercial risk management.





Management of the Commercial Banking line of business continues to proactively manage the risk/reward relationship of each commercial relationship and portfolio segment such that these
businesses are positioned to achieve profitability targets and required rates of return.





Within the Commercial Banking
portfolio, borrowers/transactions are assigned specific obligor risk ratings (on a scale from 120, and facility rating 1-8 based upon collateral supporting the transaction) by the originating credit officer based upon an established
underwriting and approval process. Approvals are made based upon the amount of credit exposure inherent in the credit extension and are reviewed by senior line of business management and Corporate Risk Management, as appropriate. Risk ratings are
reviewed periodically by senior line of business personnel and Corporate Risk Management and revised, if needed, to reflect the borrowers/transactions current risk profile. The lower categories of credit risk are equivalent to the four
bank regulatory classifications: Special Mention, Substandard, Doubtful and Loss.





The Corporation occasionally enters into
credit derivatives as one method of credit protection against the deterioration of identified credit risk on loans and loan commitments. At December 31, 2001, credit derivatives were in place to cover approximately $3.3 billion in notional
commercial credit exposure. Realized and unrealized gains and losses on credit derivatures are recorded in noninterest income as trading.





OPERATIONAL RISK MANAGEMENT





The Corporation is exposed to numerous types of operational risk. Operational risk generally refers to the
risk of loss resulting from the Corporations operations, including, but not limited to, the risk of fraud by employees or persons outside the Corporation, the execution of unauthorized transactions by employees, errors relating to transaction
processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance
with applicable regulatory standards.





The Corporation operates in many different businesses in diverse markets and places
reliance on the ability of its employees and systems to process a high number of transactions. In the event of a breakdown in the internal control systems, improper operation of systems or improper employee actions, the Corporation could suffer
financial loss, face regulatory action and suffer damage to its reputation. In order to address this risk, Management maintains a system of internal controls with the objective of providing proper transaction authorization and execution,
safeguarding of assets from misuse or theft, and ensuring the reliability of financial and other data.





The Corporation maintains systems of controls that provide Management with timely and accurate information about the operations of Bank One. These systems have been designed to manage
operational risk at appropriate levels given the Corporations financial strength, the environment in which it operates, and considering factors such as competition and regulation. Bank One has also established procedures that are designed to
ensure that policies relating to conduct, ethics and business practices are followed on a uniform basis. In certain cases, the Corporation has experienced losses from operational risk. Such losses have included the effects of operational errors that
the Corporation has discovered and taken charges in the income statement. While there can be no assurance the Corporation will not suffer such losses in the future, Management continually monitors and improves its internal controls, systems and
corporate-wide processes and procedures. Furthermore, Management believes the plans to streamline the organization through charter consolidations and further systems integration and policies enacted to push down reporting accountabilities further in
the organization, have improved the Corporations ability to identify and limit operational risk.




BANK ONE CORPORATION 51 2001 ANNUAL REPORT




---




CREDIT PORTFOLIO COMPOSITION





Selected Statistical Information





The significant components of credit risk and the related ratios, presented on a
reported basis, for the years indicated are as follows:





December 31,

2001


2000


1999


1998


1997(Dollars in millions)Loans outstanding

$
156,733


$
174,251


$
163,877


$
155,398


$
159,579Average loans


167,054



171,768



156,855



154,952



155,926Nonperforming loans


3,551



2,475



1,559



1,207



1,025Other, including other real estate owned


137



98



106



90



61Nonperforming assets


3,688



2,573



1,665



1,297



1,086Allowance for credit losses


4,528



4,110



2,285



2,271



2,817Net charge-offs


2,288



1,391



1,206
(1)


1,498



1,887Nonperforming assets to related assets


2.35
%


1.48
%


1.02
%


0.83
%


0.68
%Allowance for credit losses/loans outstanding


2.89



2.36



1.39



1.46



1.77Allowance for credit losses/nonperforming loans


128



166



147



188



275Net charge-offs/average loans


1.37



0.81



0.77



0.97



1.21Allowance for credit losses/net charge-offs


198



295



189
(1)


152



149





|(1) |  | Includes $143 million of charges required to bring the consumer portfolio into compliance with FFIEC guidelines. Excluding these incremental charge-offs, the adjusted coverage
ratio would have been 215%.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Loan Composition





In 2001, the Corporation changed its loan composition methodology to a line of business approach, dividing the loan portfolio into Retail, Commercial Banking, First USA, and other lines of business. The Corporation
has presented 2000 information under both the old and new compositions, but has not presented 1999, 1998 and 1997 under the new composition as it would be impractical to reclassify those periods using the new
methodologies.





The Corporations loan portfolio at December 31 are as follows:





2001


2000(Dollars in millions)

Amount

% (1)


Amount

% (1)Retail:Small business commercial

$
12,347

6


$
12,103

5Home equity


30,268

14



31,361

13Vehicles:Loans


13,481

6



14,300

6Leases


6,155

3



8,840

4Other personal


9,779

4



10,697

5Total Retail


72,030

33



77,301

33Commercial Banking:Corporate Banking:Commercial and industrial


22,268

10



N/ACommercial real estate


8,975

4



N/ALease financing


4,669

2



N/AOther


731





N/ATotal Corporate Banking


36,643

16



51,700

22Middle Market:Commercial and industrial


28,676

13



N/ACommercial real estate


3,472

2



N/ALease financing


1,053

1



N/AOther


294





N/ATotal Middle Market


33,495

16



33,400

14Total Commercial Banking


70,138

32



85,100

36Other lines of business


7,779

4



7,106

3First USA:On balance sheet


6,786

3



4,744

2Securitized (2)


61,369

28



62,241

26Managed credit card


68,155

31



66,985

28Total managed

$
218,102

100
%

$
236,492

100
%Total reported

$
156,733




$
174,251





N/ANot available.





|(1) |  | Percentages shown above for loan type are determined as a percentage of total managed loans.
|--- |  | --------------------------------------------------------------------------------------------

|(2) |  | Includes sellers interest in credit card loans and securities sold to investors and removed from the balance sheet.
|--- |  | --------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 52 2001 ANNUAL REPORT




---




Prior to 2001, the Corporations loan portfolio was divided into commercial, consumer and credit card loan
categories as of December 31:





2000


1999


1998


1997(Dollars in millions)

Amount

% (1)


Amount

% (1)


Amount

% (1)


Amount

% (1)Commercial:Domestic:Commercial

$
65,270

28
%

$
59,070

26
%

$
53,362

25
%

$
48,458

25
%Real estate:Construction


5,757

2



5,836

3



5,108

2



4,639

2Other


16,778

7



18,817

8



17,787

8



16,545

8Lease financing


5,818

3



5,562

2



6,236

3



4,537

2Foreign


6,837

3



7,067

3



5,945

3



5,127

3Total commercial


100,460

43



96,352

42



88,438

41



79,306

40Consumer:Residential real estate


40,596

17



32,313

14



25,804

12



28,088

14Automotiveloans/leases


20,741

9



23,567

11



20,634

10



17,998

9Other


7,710

3



7,608

3



11,488

5



11,522

6Total consumer


69,047

29



63,488

28



57,926

27



57,608

29Credit card:On balance sheet


4,744

2



4,037

2



9,034

4



22,665

12Securitized (2)


62,241

26



65,319

28



60,993

28



37,414

19Managed credit card


66,985

28



69,356

30



70,027

32



60,079

31Total managed

$
236,492

100
%

$
229,196

100
%

$
216,391

100
%

$
196,993

100
%Total reported

$
174,251




$
163,877




$
155,398




$
159,579





|(1) |  | Percentages shown above for loan type are determined as a percentage of total managed loans.
|--- |  | --------------------------------------------------------------------------------------------




|(2) |  | Includes sellers interest in credit card loans and securities sold to investors and removed from the balance sheet.
|--- |  | --------------------------------------------------------------------------------------------------------------------




Managed Credit Card Receivables





For analytical purposes, the Corporation
reports credit card receivables on both a reported basis and a managed basis. Reported credit card receivables include those receivables held in the portfolio and reported on the balance sheet. Managed credit card receivables include reported credit
card receivables and those sold to investors through securitization (see page 64 for discussion of Loan Securitizations).





The
following table shows the average managed credit card receivables and the related charge-off and delinquency rates for the years ended:





December 31,

2001


2000


1999(Dollars in millions)Average balances:Credit card loans

$
6,884


$
4,754


$
7,233Securitized credit card receivables


58,563



61,424



61,747Total average managed credit card receivables


65,447



66,178



68,980Total net charge-offs (including securitizations)

$
3,823


$
3,584


$
3,790Net charge-offs/average total receivables (1)


5.84
%


5.42
%


5.49
%Credit card delinquency rate at period-end:30 or more days


4.46
%


4.51
%


4.57
%90 or more days


1.93
%


2.02
%


2.13
%


|(1) |  | Ratios include $143 million of securitized charge-offs taken in the fourth quarter of 1999 related to the early adoption of certain of the FFIECs consumer charge-off
guidelines.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The increase in the managed credit card charge-off rate to 5.84% in 2001 from 5.42% in 2000
reflected the general weakness in the United States economy during 2001. Consumer credit markets generally saw increased levels of delinquency and loss through 2001. Nationally, consumers filed for bankruptcy in 2001 in much higher numbers than in
any prior year. Credit management tools used to manage the level and volatility of losses for credit card accounts have been continually updated and where appropriate these tools were adjusted to reduce credit risk in 2001. Management believes the
quality of new credit card accounts opened in 2001 is superior to the quality of accounts opened in preceding years. Management of risk in the existing accounts also improved in 2001.





The benefit of these actions is seen in a modest level of volatility experienced in losses on credit card accounts despite the weakness in the economy. The Corporation currently expects
that credit losses will increase modestly in 2002. Future charge-offs in the credit card portfolio and credit quality are subject to uncertainties which may cause actual results to differ widely from that forecasted, including the direction and
level of loan delinquencies, changes in consumer behavior, bankruptcy trends, portfolio seasoning, interest rate movements, and portfolio mix, among other things. While current economic and credit data suggests that credit quality will not
significantly deteriorate, material deterioration in the general economy could materially change these expectations.




BANK ONE CORPORATION 53 2001 ANNUAL REPORT




---




Retail





The
retail loan portfolio primarily consists of loans secured by real estate as well as vehicle loans and leases, and provides broad diversification of risk from both a product and geographic perspective. Average receivable balances for 2001 were $74.7
billion. Even though average receivables were flat compared to the prior year, the Corporation continues to effectively enhance the composition of loans in the portfolio by emphasizing high quality prime credit lending reflecting the
organizations desire for profitability. During 2001, the Corporation continued to de-emphasize vehicle leasing and significantly refocused its indirect real estate lending involving loans sourced through brokers. New loans originated in 2001
on average reflect higher credit quality consistent with managements focus on the prime credit market segment. The net charge-off rate for retail loans in 2001 was 1.10%, up 37 basis points from the prior year. The increase from 2000 reflected
the impact of general weakness in economic conditions including higher consumer bankruptcies and higher losses on brokered home equity loans. Given the current state of the economy, Management expects consumer loan losses to rise modestly for the
foreseeable future. Future retail portfolio charge-offs and credit quality are subject to uncertainties which may cause actual results to differ widely from that forecasted, including the direction and level of loan delinquencies, changes in
consumer behavior, bankruptcy trends, portfolio seasoning, interest rate movements and portfolio mix among other things.





The
Corporation continues to proactively manage its retail credit operation to ensure profitability even in difficult economic conditions. Ongoing efforts include continual review and enhancement of credit underwriting criteria, rationalization of the
number and quality of third-party loan originators (i.e., brokers and correspondents) and refinement of pricing and risk management models.





Commercial Banking





Commercial Banking loans decreased by $15.0 billion, or 18%, between December 31, 2000 and December 31, 2001,
primarily due to a planned and managed reduction of the Corporate Banking portfolio. Nonperforming Commercial Banking loans increased by $578 million, or 38%, to $2.1 billion at December 31, 2001, as compared to $1.5 billion at December 31, 2000,
primarily due to continued portfolio deterioration across a number of industry segments. Commercial Bankings net charge-offs in 2001 were $1.041 billion, or 1.34% of average loans, compared with $562 million of net charge-offs, or 0.66% of
average loans, in 2000. Given the current state of the economy, the Corporation expects Middle Market nonperforming loans to increase, with charge-offs rising modestly for the foreseeable future. Future charge-offs and credit quality in the
Commercial Banking portfolio are subject to uncertainties that may cause actual results to differ from that forecasted, including the state of the economy and its impact on individual industries, commercial real estate values, interest rate
movements and portfolio mix, among other things. While credit losses expected for the foreseeable future would be considered higher than normal, a deepening of the recession would cause higher credit losses than currently anticipated.





Commercial and Industrial Loans





Commercial and industrial
loans represent commercial loans other than commercial real estate. At December 31, 2001, commercial and industrial loans totaled $50.9 billion, which represents 73% of the Commercial Banking portfolio.





The more significant borrower industry concentrations of the Commercial Banking commercial and industrial portfolio as of December 31, 2001 are:





(Dollars in millions)

Outstanding

Percent of Total Commercial and Industrial LoansWholesale trade

$
4,409

8.7
%Industrial materials


3,355

6.6Oil and gas


3,219

6.3Consumer staples


3,008

5.9Metals and products


2,749

5.4




BANK ONE CORPORATION 54 2001 ANNUAL REPORT




---

Commercial Real Estate





Commercial real estate loans
represent credit extended for real-estate related purposes to borrowers or counterparties who are primarily in the real estate development or investment business and for which the ultimate repayment of the loan is dependent on the sale, lease,
rental or refinancing of the property.





Commercial real estate lending is conducted in several lines of business with the
majority of these loans originated by Corporate Banking primarily through its specialized National Commercial Real Estate Group. This groups focus is lending to targeted regional and national real estate developers, homebuilders and
REITs/REOCs. As of December 31, 2001, National Commercial Real Estate Groups loan outstandings totaled $8.8 billion or 70% of the commercial real estate portfolio.





At December 31, 2001, commercial real estate loans totaled $12.4 billion, or 18% of Commercial Banking loans. During 2001, net charge-offs in the commercial real estate portfolio segment
were $14 million. Nonperforming commercial real estate assets, including other real estate owned, totaled $199 million, or 1.6% of related assets, at December 31, 2001.





The commercial real estate loan portfolio by both collateral location and property type as of December 31, 2001 are as follows:





(Dollars in millions)

OutstandingBy Collateral Location:

Amount

% of PortfolioIllinois

$
1,682

14
%Michigan


1,348

11Texas


1,004

8California


960

8Arizona


958

8Ohio


839

7Indiana


504

4Louisiana


487

4Colorado


356

3Kentucky


326

3Other areas


1,806

13Unsecured


1,670

13Secured by other than real estate


507

4Total

$
12,447

100
%By Property Type:Retail

$
1,913

15
%Office


1,804

15Apartment


1,770

14REIT/diversified


1,297

10Single family residential development


1,273

10Industrial/warehouse


1,230

10Hotels


625

5Residential lots


472

4Miscellaneous commercial income producing


1,864

15Miscellaneous residential developments


199

2Total

$
12,447

100
%




BANK ONE CORPORATION 55 2001 ANNUAL REPORT




---




ASSET QUALITY





In 2001, the Corporation changed its loan composition methodology to a line of business approach, dividing the loan portfolio into Retail, Commercial Banking, First USA, and other lines of business. The Corporation
has presented 2000 information under both the old and new compositions, but has not presented 1999, 1998 and 1997 under the new composition as it would be impractical to reclassify those periods using the new
methodologies.





Nonperforming Assets





The
Corporation places loans on nonaccrual status as follows:





| |  | Retail consumer loans are placed on nonaccrual status when the collection of contractual principal or interest becomes 90 days past due. Accrued but uncollected interest and
fee income are reversed and charged against interest income when the consumer loan is placed on nonaccrual status. Subsequent cash collections are recognized as interest income unless the consumer loan is subsequently charged-off, in which case cash
collections are recognized as recoveries.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Commercial Banking and Retail small business commercial loans are placed on nonaccrual status when the collection of contractual principal or interest is deemed doubtful, or it
becomes 90 days or more past due and is both not well-secured and in the process of collection. Accrued but uncollected interest and fee income are reversed and charged against interest income when placed on nonaccrual status. Cash interest payments
received are recognized either as interest income or as a reduction of principal when collection of principal is doubtful. The loan is returned to accrual status only when all of the principal and interest amounts contractually due are reasonably
assured within a reasonable time frame and when the borrower has demonstrated payment performance.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Credit card receivables are charged-off rather than placed on nonaccrual status.
|- |  | --------------------------------------------------------------------------------




The Corporations nonperforming loans by line of business and total nonperforming assets for the periods indicated are as follows:





December 31,

2001


2000(Dollars in millions)Nonperforming Loans:Retail

$
1,370


$
912Commercial Banking:Corporate Banking


1,154



1,065Middle Market Banking


947



458Other lines of business


80



40Total (1)


3,551



2,475Other, primarily other real estate owned


137



98Total nonperforming assets

$
3,688


$
2,573Nonperforming assets/related assets


2.35
%


1.48
%Loans 90-days or more past due and accruing interest:Credit Card

$
96


$
57Other


1



5Total

$
97


$
62





|(1) |  | The amount of interest on nonperforming loans that was contractually due in 2001 totaled $202 million. Of this amount, $34 million was actually recorded in 2001.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------




Prior to 2001, the Corporations nonperforming assets as of December 31 are:





(Dollars in millions)

2000


1999


1998


1997Nonperforming Loans:Commercial

$
1,761


$
1,053


$
729


$
609Consumer


714



506



478



416Total


2,475



1,559



1,207



1,025Other, primarily other real estate owned


98



106



90



61Total nonperforming assets

$
2,573


$
1,665


$
1,297


$
1,086Nonperforming assets/related assets


1.48
%


1.02
%


0.83
%


0.68
%Loans 90 days or more past due and accruing interest:Credit Card

$
57


$
76


$
161


$
438Other


5



50



78



140Total

$
62


$
126


$
239


$
578





The Corporation has experienced credit quality deterioration in a number of
distinct Commercial Banking market segments. The Corporation has established processes for identifying potential problem areas of the portfolio, which currently include exposure to leveraged lending and acquisition finance activities, healthcare,
automotive parts and manufacturing, business finance and leasing, professional services, miscellaneous transportation services, telecommunications and selected utilities. The Corporation will continue to monitor and manage these potential risks.





Nonperforming loans within Retail, which includes all consumer balances more than 90-days past due, increased by $458 million
in 2001 to $1.4 billion reflecting deterioration in credit performance consistent with general economic conditions. These increases primarily reflect loans secured by residential real estate




BANK ONE CORPORATION 56 2001 ANNUAL REPORT




---

where the Corporation maintains a loss recognition policy including the writing down of assets to net realizable value at 120-days past due. Retail
nonperforming assets are likely to continue to increase modestly for the foreseeable future and will be influenced in part by the future direction of economic conditions including residential real estate valuation trends.





Charge-off Policies





The Corporation records charge-offs as follows:





| |  |  | Commercial loans are charged-off in the reporting period in which either an event occurs that confirms the existence of a loss or it is determined that a loan or a portion of a
loan is uncollectible.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | A credit card loan is charged-off in the month it becomes contractually 180 days past due and remains unpaid at the end of that month or in the event of bankruptcy
notification, specifically, 60 days after receipt of notification. Interest on credit card loans is accrued until the loan is charged-off. At the time of charge-off, accrued but uncollected finance charges and fee income are reversed and charged
against interest income and credit card revenue, respectively. Subsequent cash collections are recorded as recoveries.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Retail loans are generally charged-off following a delinquency period of 120 days, or within 60 days after receipt of notification in case of bankruptcy. Closed-end consumer
loans, such as auto loans and leases and home mortgage loans, are typically written down to the extent of loss after considering the net realizable value of the collateral.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The timing and amount of the charge-off on consumer loans will depend on the type of loan, giving consideration to available collateral, as well as the circumstances giving rise to
the delinquency. The Corporation adheres to uniform guidelines published by the FFIEC in charging off consumer loans.





The
following table shows the Corporations net charge-offs by line of business for the years ended December 31:





2001


2000(Dollars in millions)

Net charge-offs


Average balance

Net charge-off rate


Net charge-offs


Average balance

Net charge-off rateRetail (1)

$
821


$
74,749

1.10
%

$
542


$
74,632

0.73
%Commercial banking:Corporate Banking


638



43,495

1.47



435



53,343

0.81Middle Market Banking


403



34,310

1.17



127



32,178

0.40First USA


3,823



65,447

5.84



3,584



66,178

5.42Other lines of business


34



7,616





40



6,861TotalManaged (1)


5,719


$
225,617

2.53
%


4,728


$
233,192

2.03
%Securitized


(3,431
)








(3,337
)TotalReported

$
2,288


$
167,054

1.37
%

$
1,391


$
171,768

0.81
%





|(1) |  | 2001 amounts exclude $92 million of charge-offs relating to part of a portfolio that has been accounted for as loans held at a discount, but viewed for management purposes as
charge-offs.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Prior to 2001, net charge-offs by portfolio for the years ended December 31 are:





2000


1999Net charge-offs


Average balance

Net charge-off rate


Net charge-offs


Average balance

Net charge-off rate(Dollars in millions)Commercial

$
597


$
100,202

0.60
%

$
306


$
90,182

0.34
%Consumer (1)


547



66,812

0.82



558



59,440

0.94Credit card (1)


3,584



66,178

5.42



3,790



68,980

5.49TotalManaged (1)


4,728


$
233,192

2.03
%


4,654


$
218,602

2.13
%Securitized


(3,337
)








(3,448
)TotalReported

$
1,391


$
171,768

0.81
%

$
1,206


$
156,855

0.77
%





|(1) |  | Includes $143 million of consumer charge-offs and $183 million of securitized charge-offs taken in the fourth quarter of 1999 related to the early adoption of certain of the
FFIECs new consumer charge-off guidelines.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Charge-offs





Managed net charge-offs increased 21% during 2001 to $5.719 billion, reflecting higher charge-offs in all lines of business. The managed net charge-off rate increased to 2.53% in 2001
versus 2.03% in 2000.





Retail net charge-offs for 2001 totaled $821 million, up from $542 million in 2000. Increases in credit
losses across all consumer portfolios including small business were recorded. Several factors contributing to these increased losses include: increased consumer bankruptcies; increased severity per default involving auto loans and leases tied to
weaker market prices for repossessed vehicles; and overall weakening of consumer economic fundamentals associated with an economy in recession.




BANK ONE CORPORATION 57 2001 ANNUAL REPORT




---




Loan Sales





A
summary of the Corporations Corporate Banking loan sales in 2001 follows:





(In millions)

Loans Sold

Charge- offs

Loss on SalesNonperforming loans

$
582

$
124


Other credit related loans sold


487


92


1Other loans sold


1,148





43Total

$
2,217

$
216

$
44





The Corporation sells Corporate Banking loans in the normal course of its business activities. These loans
are subject to the Corporations overall risk management practices and are one alternative the Corporation uses to manage credit risk. Decisions to sell particular loans are made after taking into account various alternatives to manage credit
exposure. Sales transactions are initiated when Management determines its sales intent. When a loan is sold, the gain or loss is evaluated to determine whether it resulted from credit deterioration or other conditions. Based upon this evaluation,
the losses on other loans sold in 2001 were deemed to be caused by other than credit deterioration. The sale of nonperforming and other credit related loans were primarily recorded as charge-offs as the losses on sale were attributable to credit
deterioration.





Allowance for Credit Losses





The
allowance for credit losses is maintained at a level that in Managements judgment is adequate to provide for estimated probable credit losses inherent in various on- and off-balance sheet financial instruments. This process includes deriving
probable loss estimates that are based on historical loss ratios and portfolio stress testing and Managements judgment. The allowance is based on ranges of estimates and is intended to be adequate but not excessive. Each quarter, an allowance
level is formally estimated by each line of business and reviewed by Corporate Risk and Senior Management. The allowance for credit losses also includes provisions for losses on loans considered impaired and measured pursuant to Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan (see Note 8 to the consolidated financial statements on page 80). Securitized and loans held for sale, including credit card
receivables, are not subject to this process.





Corporate Risk Management recommends an allowance and provision for credit losses
that result in adequate coverage of inherent losses within the Corporations credit portfolios. Corporate Risk Managements assessment is based on line of business tests, portfolio-level econometric modeling and stress testing, as well as
Managements judgment. Corporate Risk Management also utilizes third-party analysis to validate internal measures of inherent loss, credit quality and allowance adequacy.





The change in the Corporations allowance for credit losses for the years ended December 31 are as follows:





(In millions)

2001

2000Balance, beginning of period

$
4,110

$
2,285Charge-offs:Retail:Small business commercial


93


66Home equity


402


196Vehicles:Loans


220


201Leases


127


91Other personal


151


149Total Retail


993


703Commercial Banking:Corporate Banking:Commercial and industrial


689


N/ACommercial real estate


15


N/ALease financing


16


N/ATotal Corporate Banking


720


469Middle Market:Commercial and industrial


417


N/ACommercial real estate


8


N/ALease financing


36


N/ATotal Middle Market


461


157Total Commercial Banking


1,181


626First USA


415


261Other lines of business


41


77Total charge-offs

$
2,630

$
1,667





(In millions)

2001

2000Recoveries:Retail:Small business commercial

$
22

$
22Home equity


27


15Vehicles:Loans


66


63Leases


28


21Other personal


29


40Total Retail


172


161Commercial Banking:Corporate Banking:Commercial and industrial


74


N/ACommercial real estate


8


N/ALease financing





N/ATotal Corporate Banking


82


36Middle Market:Commercial and industrial


49


N/ACommercial real estate


1


N/ALease financing


8


N/ATotal Middle Market


58


28Total Commercial Banking


140


64First USA


23


14Other lines of business


7


37Total recoveries


342


276Net charge-offs:Retail


821


542Commercial Banking


1,041


562First USA


392


247Other lines of business


34


40Total net charge-off


2,288


1,391Provision for credit losses


2,510


3,398Transfers (1)


196


(182
)Balance, end of year

$
4,528

$
4,110





N/A-Not available





|(1) |  | Transfers to the allowance for credit losses as of December 31, 2001 primarily represent the addition of the Wachovia credit card portfolio. All periods reflect transfers of
allocable credit allowances associated with loan sale transactions, including securitization transactions.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 58 2001 ANNUAL REPORT




---

For analytical purposes, summarized below are the changes in the allowance for credit loss for the years ended December 31:





(In millions)

2000


1999


1998


1997Balance, beginning of year

$
2,285


$
2,271


$
2,817


$
2,687Charge-offs:Commercial:Domestic:Commercial


618



325



222



200Real estate:Construction


8



5



3



3Other


11



27



25



19Lease financing


7



12



20



12Foreign


64



41



52



Total commercial


708



410



322



234Consumer:Residential real estate


230



189



74



52Automotive:Loans


215



256



220



260Leases


91



87



61



51Other


162



203



246



256Total consumer


698



735



601



619Credit card


261



386



1,022



1,544Total charge-offs


1,667



1,531



1,945



2,397Recoveries:Commercial:Domestic:Commercial


98



70



68



97Real estate:Construction


1



6



3



6Other


4



25



23



29Lease financing


1



2



5



3Foreign


7



1



1



12Total commercial


111



104



100



147Consumer:Residential real estate


17



12



11



14Automotive:Loans


69



82



92



105Leases


21



23



21



17Other


44



60



64



63Total consumer


151



177



188



199Credit card


14



44



159



164Total recoveries


276



325



447



510Net charge-offs:Commercial


597



306



222



87Consumer


547



558



413



420Credit Card


247



342



863



1,380Total net charge-off


1,391



1,206



1,498



1,887Provision for credit losses


3,398



1,249



1,408



1,988Transfers


(182
)


(29
)


(456
)


29Balance, end of year

$
4,110


$
2,285


$
2,271


$
2,817





Transfers from the allowance for credit losses primarily represent allocable credit allowances associated
with consumer loan sale transactions, including securitization transactions.




BANK ONE CORPORATION 59 2001 ANNUAL REPORT




---

Composition of Allowance for Credit Losses





While the
allowance for credit losses is available to absorb credit losses in the entire portfolio, presented below is an allocation of the allowance for credit losses by line of business as of December 31:





2001


2000(Dollars in millions)

Amount

%


Amount

%Retail

$
1,040

23
%

$
846

20
%Commercial BankingCorporate Banking


1,714

38



1,699

41Middle Market


1,352

30



1,345

33First USA


396

8



197

5Other lines of business


26

1



23

1Total

$
4,528

100
%

$
4,110

100
%





For analytical purposes, an allocation of the allowance for credit losses by loan type as of December 31
follows:





2000


1999


1998


1997(Dollars in millions)

Amount

%


Amount

%


Amount

%


Amount

%Commercial (1)

$
3,199

78
%

$
972

43
%

$
834

37
%

$
660

23
%Consumer


714

17



486

21



440

19



484

17Credit Card


197

5



148

6



199

9



813

29Unallocated








679

30



798

35



860

31Total

$
4,110

100
%

$
2,285

100
%

$
2,271

100
%

$
2,817

100
%





(1) Includes allowance related to Business and Community Banking loans, which are included in the Retail
business segment results.





At December 31, 2001, the allowance for credit losses was 198% of current year net charge-offs (on a
reported basis) as compared to a reserve coverage ratio of 295% at December 31, 2000. This decrease reflects deterioration in certain components of the Commercial Banking and brokered home equity portfolios. The allowance for credit losses at
December 31, 2001, represented 2.89% of period-end loans and 128% of nonperforming loans, compared to 2.36% and 166%, respectively, at December 31, 2000. The allowance for credit losses established for specifically identified off-balance sheet
lending exposures was not material at December 31, 2001.





Reserve Determination





The Corporation determines allowance levels based upon the probable loss in the credit portfolios. The allowance is based on ranges of estimates and is intended to be adequate but not excessive. The estimation process
includes deriving probable loss estimates that are based on historical loss rates, portfolio stress testing of probable loss estimates and Managements judgment.





During 2000, the Corporation reviewed its practice of maintaining unallocated reserves in light of continuing refinement in loss estimation processes, including improvements in portfolio
level stress testing techniques. It was concluded that the use of unallocated reserves would be discontinued. These reserves were aligned with their respective portfolios.




BANK ONE CORPORATION 60 2001 ANNUAL REPORT




---




Probable Loss Estimation





The Corporation employs several methodologies for estimating probable losses. Methodologies are determined based on a number of factors, including type of asset (e.g., consumer installment versus commercial loan), risk measurement
parameters (e.g., delinquency status and bureau score versus commercial risk rating), and risk management and collection processes (e.g., retail collection center versus centrally managed workout units).





For the Retail and Credit Card portfolios, the allowance is based on a statistical analysis of inherent losses over discrete periods of time. The
analysis reviews historical losses, vintage performance, delinquencies and other risk characteristics of the various products to estimate probable losses. Other risk characteristics evaluated may include: recent loss experience in the portfolios,
changes in origination sources, portfolio seasoning and underlying credit practices, including charge-off policies. These factors and analysis are updated on a quarterly basis.





For the Commercial Banking portfolio, the Corporation conducts a two-part test. First, significant credits that have a risk rating equivalent to the bank regulatory classifications of
Substandard, Doubtful and Loss are formally reviewed periodically and at least quarterly and asset-specific reserves are established as appropriate. Second, inherent losses for the remaining Commercial Banking portfolio are estimated by assigning an
expected loss factor to each risk category of the portfolio based on a statistical analysis of historical loss experience over a discrete period of time. During the second quarter of 2001, the Corporation refined its measurement process for
estimating probable losses inherent in the Commercial Banking portfolio. To refine the process, the Corporation analyzed historical credit loss, risk-rating migration and loss given default data and assigned probability of default and loss given
default factors to each exposure in the portfolio.





Portfolio Stress-Testing





Stress testing is performed on all significant portfolios to simulate the effect of economic deterioration on credit performance. Stress testing the portfolios provides Management with a range of loss estimates that
incorporates the Corporations historical loss experience and the reserve impact of events that have occurred, or might possibly occur, but that have not been reflected in either the historical expected loss factors or the currently assigned
risk ratings.





Stress testing of the commercial portfolio is accomplished using a framework developed to test expected default
factors and loss given default estimates and to test the effect of downgrades to exposures in identified high-risk industries. This process includes, establishing a base case scenario using three alternative market probability sets and an estimated
loss given default probability to measure the impact on reserves; determining the effect of applying a higher loss given default probability to the base case to take into consideration the variability of historical loss rates over the business
cycle; and estimating trend-based reserves in high-risk industries that may not be fully reflected in the historically based loss factors, using market-based tools and information as well as sanctioned macroeconomic forecasts.





Stress testing the consumer portfolios, including credit card, is accomplished by applying the results of econometric modeling to each of the
portfolio segments. The purpose of this analysis is to quantify the impact of economic deterioration on existing weaknesses in the portfolios, whose effects are not yet incorporated into the historically based reserve rates. The stress test models
employ a regression methodology that incorporates the latest national trends for each consumer credit product segment. Economic variables used include consumer debt, unemployment rates, consumer debt burdens, consumer confidence, bankruptcies, and
interest rates, among other statistics. Additionally, a series of portfolio specific stress tests are performed to simulate individual economic events. These include such events as declining residential real estate prices, weakening used car prices,
rising interest rates, spikes in personal bankruptcies, and economic recession scenarios. The results of the stress testing are used by Management to support the adequacy of the allowance established.





DERIVATIVE FINANCIAL INSTRUMENTS





The Corporation uses a
variety of derivative financial instruments in its trading, asset and liability management, as well as to manage certain currency translation exposures of foreign operations. These instruments include interest rate, currency, equity and commodity
swaps, forwards, spot, futures, options, caps, floors, forward rate agreements, and other conditional or exchange contracts, and include both exchange-traded and over-the-counter contracts.





Accounting for Derivative Financial Instruments





Effective January 1, 2001, the Corporation adopted
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as amended. The new standard significantly changed the accounting treatment for interest rate and foreign exchange derivatives the
Corporation uses in its derivative activity accounted for as a hedge. The new accounting treatment for derivatives is described below.





Trading
Derivative Instruments





Derivative financial instruments used in trading activities are carried at fair value. Such instruments include swaps,
forwards, spot, futures, options, caps, floors and forward rate agreements and other conditional or exchange contracts in the interest rate, foreign exchange, equity and commodity markets. The estimated fair




BANK ONE CORPORATION 61 2001 ANNUAL REPORT




---

values are based on quoted market prices or pricing and valuation models on a present value basis using current market information. Realized and unrealized
gains and losses, including any interest income or expense, are recorded in noninterest income as trading. Where appropriate, compensation for credit risk and ongoing servicing is deferred and recorded as income over the life of the derivative
financial instruments.





Purchased option, cap and floor contracts are reported in derivative product assets, and written option,
cap and floor contracts are reported in derivative product liabilities. For other derivative financial instruments, unrealized gains are reported in derivative product assets, and unrealized losses are reported in derivative product liabilities.
However, fair value amounts recognized for derivative financial instruments executed with the same counterparty under a legally enforceable master netting arrangement are reported on a net basis. Cash flows from derivative financial instruments are
reported net as operating activities.





Credit derivatives are accounted for as derivative instruments under SFAS No. 133. As a
result, the change in fair value of credit derivative instruments is included in trading results in the Corporations financial statements while any credit assessment change in the identified commercial credit exposure is reflected as a change
in the allocated credit reserves.





Hedging Derivative Instruments





Derivative financial instruments used in hedging activities are designated as fair value hedges, cash flow hedges, or hedges of net investments in foreign operations, and are required to meet specific criteria. The
instruments used in fair value hedges and cash flow hedges are principally interest rate swaps. Such interest rate swaps are linked to and adjust effectively the interest rate sensitivity of specific assets and liabilities. Interest rate swaps not
designated and qualified as a hedge are treated as trading derivative instruments.





Fair Value Hedges (primarily hedges
of fixed rate interest-bearing instruments)The change in fair value of both the hedging derivative and hedged item is recorded in current earnings. If a hedge is dedesignated prior to maturity, previous adjustments to the carrying value of the
hedged item are recognized in earnings to match the earnings recognition pattern of the hedged item (e.g., level yield amortization if hedging an interest-bearing instrument).





Cash Flow Hedges (primarily hedges of variable rate interest-bearing instruments)The effective portion of the change in fair value of the hedging derivative is recorded in
Accumulated Other Adjustments to Stockholders Equity (AOASE) and the ineffective portion directly in earnings. Amounts in AOASE are reclassified into earnings in a manner consistent with the earnings pattern of the underlying
hedged item (generally, reflected in interest expense). The total amount of such reclassification into earnings is projected to be charges of $105 million after tax ($163 million pre-tax) over the next twelve months. The maximum length of time
exposure to the variability of future cash flows for forecasted transactions hedged is 12 months. If a hedge is dedesignated prior to maturity, previous adjustments to AOASE are recognized in earnings to match the earnings recognition pattern of the
hedged item (e.g., level yield amortization if hedging an interest-bearing instrument). The effect on earnings from the discontinuance of cash flow hedges due to the determination that a forecasted transaction is no longer likely to occur was
immaterial.





Interest income or expense on most hedging derivatives used to manage interest rate exposure is recorded on an
accrual basis, as an adjustment to the yield of the linked exposures over the periods covered by the contracts. This matches the income recognition treatment of that exposure, generally assets or liabilities carried at historical cost, with interest
recorded on an accrual basis. If all or part of a linked position is terminated, e.g., a linked asset is sold or prepaid, or if the amount of an anticipated transaction is likely to be less than originally expected, then the related pro rata portion
of any unrecognized gain or loss on the derivative is recognized in earnings at that time, and the related pro rata portion of the derivative is subsequently accounted for as a trading instrument.





Hedges of non-U.S Dollar Net Investment in Foreign OperationsIn order to minimize the capital impact of translation gains or losses
measured on an after-tax basis, the Corporation uses forward foreign exchange contracts to hedge the exposure relating to non-U.S. dollar net investments in foreign operations. The effective portion of the change in fair value of the hedging
derivatives is recorded in AOASE as part of the cumulative translation adjustment. The amount of after-tax gains included in the cumulative translation adjustment during the year ended December 31, 2001, related to hedges of the foreign currency
exposures of net investments in foreign operations, totaled $6 million.





Income Resulting from Derivative Financial Instruments





The Corporation uses interest rate derivative financial instruments to reduce structural interest rate risk and the volatility of net interest margin. Net interest
margin reflects the effective use of these derivatives. Without their use, net interest income would have been lower by $68 million in 2001, $52 million in 2000, and $181 million in 1999.





The amount of hedge ineffectiveness recognized for cash flow and fair value hedges in the year ended December 31, 2001 was insignificant. No component of a hedging derivative
instruments gain or loss is excluded from the assessment of hedge effectiveness.




BANK ONE CORPORATION 62 2001 ANNUAL REPORT




---




Credit Exposure Resulting from Derivative Financial Instruments





The credit risk associated with exchange-traded derivative financial instruments is limited to the relevant clearinghouse. Options written do not expose the Corporation to
credit risk, except to the extent of the underlying risk in a financial instrument that the Corporation may be obligated to acquire under certain written put options. Caps and floors written do not expose the Corporation to credit risk.





Credit exposure from derivative financial instruments arises from the risk of a counterparty default on the derivative
contract. The amount of loss created by the default is the replacement cost or current positive fair value of the defaulted contract. The Corporation utilizes master netting agreements whenever possible to reduce its credit exposure from
counterparty defaults. These agreements allow the netting of contracts with unrealized losses against contracts with unrealized gains to the same counterparty, in the event of a counterparty default.





The impact of these master netting agreements for the year ended December 31 follows:





(In millions)

2001


2000Gross replacement cost

$
12,262


$
9,769Less: Adjustment due to master netting agreements


(9,037
)


(7,222
)Current credit exposure


3,225



2,547Unrecognized net gains due to nontrading activity (1)






(225
)Balance sheet credit exposure

$
3,225


$
2,322





|(1) |  | At December 31, 2001, exposure amount is zero due to the January 1, 2001 adoption of SFAS No. 133.
|--- |  | --------------------------------------------------------------------------------------------------




Asset and Liability Management Derivatives





Access to the derivatives market is an important element in
maintaining the Corporations desired interest rate risk position. In general, the assets and liabilities generated through ordinary business activities do not naturally create offsetting positions with respect to repricing, basis or maturity
characteristics. Using derivative instruments, principally plain vanilla interest rate swaps (ALM swaps), interest rate sensitivity is adjusted to maintain the desired interest rate risk profile.





At December 31, 2001, the notional value of ALM interest rate swaps linked to specific assets or liabilities totaled $12.5 billion as follows:





Receive FixedPay Floating

Pay FixedReceive Floating(In millions)

Fair Value Hedge

Fair Value Hedge

Cash Flow Hedge

Total SwapsInterest rate swaps associated with:Investment securities

$


$
50

$    

$
50Funds borrowed (including long-term debt)


7,939




4,522


12,461Total

$
7,939

$
50

$4,522

$
12,511





Interest rate swaps used to adjust the interest rate sensitivity of securities
and funds borrowed will not need to be replaced at maturity, since the corresponding asset or liability will mature along with the swap. Interest rate swaps designated as an interest rate related hedge of an existing fixed rate asset or liability
are fair value type hedges. Conversely, interest rate swaps designated as an interest rate hedge of an existing variable rate asset or liability are cash flow type hedges. Management designates interest rate swaps as hedges of both fixed and
variable rate assets and liabilities interchangeably. The type of hedge for accounting purposes is not a strategic consideration. The Corporation has an insignificant amount of hedges involving forecasted transactions and no non-derivative
instruments are designated as a hedge.




BANK ONE CORPORATION 63 2001 ANNUAL REPORT




---




Asset and Liability Management SwapsMaturities and Rates





The notional amounts, maturity, and weighted-average pay and receive rates for the ALM swap position at December 31, 2001 are summarized as follows:





(Dollars in millions)

2002


2003


2004


2005


2006


Thereafter


TotalReceive fixed/pay floating swaps:Notional amount

$
1,664


$
25


$



$
2,000


$



$
4,250


$
7,939Weighted average:Receive rate


4.31
%


7.61
%



%


7.12
%



%


6.51
%


6.21
%Pay rate


2.20



2.35







2.26







2.38



2.31Pay fixed/receive floating swaps:Notional amount

$
2,787


$
1,250


$



$
250


$
235


$
50


$
4,572Weighted average:Receive rate


2.22
%


2.13
%



%


2.35
%


2.30
%


2.46
%


2.21
%Pay rate


6.90



7.18







7.67



6.74



7.70



7.02Total notional amount

$
4,451


$
1,275


$



$
2,250


$
235


$
4,300


$
12,511





Variable interest rateswhich generally are the one-month, three-month and six-month London interbank
offered rates (LIBOR) in effect on the date of repricingare assumed to remain constant. However, interest rates will change and consequently will affect the related weighted-average information presented.





LOAN SECURITIZATIONS AND OFF-BALANCE SHEET ACTIVITIES





Loan Securitizations





The Corporation transforms loans into securities, which are sold to investorsa process referred to as
securitization. The Corporation primarily securitizes credit card receivables but also securitizes home equity loans and consumer assets to a limited extent. In a credit card securitization, a designated pool of credit card receivables is removed
from the balance sheet and transferred to a third-party special purpose entity (SPE or Trust), that in turn sells securities to investors entitling them to receive specified cash flows during the life of the security. The
proceeds from the issuance are then distributed by the SPE to the Corporation as consideration for the loans transferred. Following a securitization, the Corporation receives: fees for servicing the receivables and any excess finance charges,
yield-related fees, and interchange revenue on the receivables over and above the interest paid to the investors, net credit losses and servicing fees (termed the excess spread).





The Corporations continuing involvement in the securitized assets includes the process of managing and servicing the transferred receivables, as well as maintaining an undivided,
pro rata interest in all credit card receivables that have been securitized, referred to as sellers interest, which is generally equal to the pool of assets included in the securitization less the investors portion of those assets. The
Corporations sellers interest ranks pari-passu with the investors interests in the Trusts. As the amount of the loans in the securitized pool fluctuates due to customer payments, purchases, cash advances, and credit losses, the
carrying amount of the sellers interest will vary. However, the sellers interest is required to be maintained at a minimum level to ensure receivables are available for allocation to the investor interest. This minimum level is generally
between 4% and 7% of the SPEs principal receivables.





Investors in the beneficial interests of the securitized loans have
no recourse against the Corporation if cash flows generated from the securitized loans are inadequate to service the obligations of the SPE. To help ensure that adequate funds are available in the event of a shortfall, the Corporation is required to
deposit funds into cash spread accounts if excess spread falls below certain minimum levels. Spread accounts are funded from excess spread that would normally be returned to the Corporation. In addition, various forms of other credit enhancements
are provided to protect more senior investor interests from loss. Credit enhancements associated with credit card securitizations, such as cash collateral or spread accounts, totaled $165 million and $311 million at December 31, 2001 and 2000,
respectively, and are classified on the balance sheet as other assets.





The following comprised the Corporations managed
credit card loans at December 31:





(In millions)

2001

2000Owned credit card loansheld in portfolio

$
5,040

$
2,835Owned credit card loansheld for future securitization


1,746


1,909Sellers interest in credit card loans (investment securities)


24,019


22,446Total credit card loans reflected on balance sheet


30,805


27,190Securities sold to investors and removed from balance sheet


37,350


39,795Managed credit card loans

$
68,155

$
66,985




BANK ONE CORPORATION 64 2001 ANNUAL REPORT




---

For analytical purposes only, income statement line items are adjusted for the net impact of securitization of credit card receivables
for the years ended December 31:





2001


2000


1999(Dollars in millions)

Reported


Credit Card Securi- tizations


Managed


Reported


Credit Card Securi- tizations


Managed


Reported


Credit Card Securi- tizations


ManagedNet interest incomeFTE basis

$
8,769


$
4,811


$
13,580


$
8,974


$
4,532


$
13,506


$
9,142


$
5,315


$
14,457Provision for credit losses


2,510



3,431



5,941



3,398



3,337



6,735



1,249



3,265



4,514Noninterest income


7,223



(1,380
)


5,843



5,090



(1,195
)


3,895



8,692



(2,050
)


6,642Noninterest expense


9,551







9,551



11,608







11,608



11,490







11,490Net income (loss)


2,638







2,638



(511
)






(511
)


3,479







3,479Total average loans


167,054



58,563



225,617



171,768



61,424



233,192



156,855



61,747



218,602Total average earning assets


237,869



39,803



277,672



241,058



42,977



284,035



223,539



45,698



269,237Total average assets


267,581



39,803



307,384



271,984



42,977



314,961



256,491



45,698



302,189Net interest margin


3.69
%


12.09
%


4.89
%


3.72
%


10.55
%


4.76
%


4.09
%


11.63
%


5.37
%Credit Card delinquency ratios:30+ days


3.00



4.84



4.46



2.74



4.64



4.51



4.06



4.60



4.5790+ days


1.41



2.08



1.93



1.20



2.08



2.02



1.87



2.15



2.13Net credit card charge-off ratio


5.69



5.86



5.84



5.20



5.43



5.42



4.73



5.58



5.49




BANK ONE CORPORATION 65 2001 ANNUAL REPORT




---




Other Off-Balance Sheet Activities





In the normal course of business, the Corporation is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part in the Corporations consolidated
financial statements. Such activities include: traditional off-balance sheet credit-related financial instruments; commitments under capital and operating leases and long term debt; credit enhancement associated with asset-backed securities
business; and joint venture activities.





The Corporation provides customers with off-balance sheet credit support through loan
commitments, standby letters of credit and guarantees, as well as commercial letters of credit. Summarized credit-related financial instruments, including both commitments to extend credit and letters of credit, at December 31, 2001 are as follows:





Amount of Commitment Expiration Per Period(In billions)

Total

Less Than 1 Year

1-3 Years

3-5 Years

Over 5 YearsUnused credit card lines

$
299.3

$
299.3

$


$


$
Unused loan commitments


148.2


109.0


23.7


14.7


0.8Standby letters of credit and foreign office guarantees


19.4


10.1


6.0


2.7


0.6Commercial letters of credit


0.6


0.6














Since many of the unused commitments are expected to expire unused or be only
partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.





In addition to owned banking facilities, the Corporation has entered into a number of long-term leasing arrangements to support the ongoing activities of the Corporation. The required payments under such commitments and long-term debt at
December 31, 2001 are as follows:





(In millions)

2002

2003

2004

2005

2006

2007 and After

TotalOperating leases

$
264

$
249

$
214

$
169

$
152

$
890

$
1,938Trust preferred capital
securities

















3,315


3,315Long-term debt, including
capital leases


8,512


7,910


5,575


3,932


6,935


7,239


40,103Total

$
8,776

$
8,159

$
5,789

$
4,101

$
7,087

$
11,444

$
45,356





The Corporation is an active participant in the asset-backed securities business
where it helps meet customers financing needs by providing access to commercial paper markets in conjunction with specialized financing entities. Customers benefit from such structured financing transactions as such transactions provide an
ongoing source of asset liquidity and a potentially favorable financing alternative.





The Corporation, in its role as
administrator of these independently rated specialized financing entities, structures financing transactions for customers such that the receivables financed through the specialized financing entities are appropriately diversified and credit
enhanced to support the issuance of asset-backed commercial paper. The Corporation does not service these assets and does not transfer its own receivables into these specialized financing entities. Credit enhancement facilities, in the form of
either loan or asset purchase commitments, support each transaction in the specialized financing entities. At December 31, 2001, credit enhancement facilities for these entities approximated $52.1 billion, of which the Corporation provided $38.3
billion. At December 31, 2000, credit enhancement facilities for these entities approximated $42.0 billion, of which the Corporation provided $29.7 billion. Assets in the trust are principally trade receivables, auto loans and leases, credit card
and a variety of other receivables.





In addition to customer financing transactions, these specialized financing entities fund,
through the issuance of asset-backed commercial paper, other selected portfolios of marketable investment securities that are not reflected on the Corporations balance sheet. Such transactions are structured in a similar fashion to the
customer transactions. Off-balance sheet liquidity lines provided by the Corporation associated with these transactions were $4.0 billion at December 31, 2001 and $3.0 billion at December 31, 2000.





The Corporation also provides credit enhancement facilities to other than Bank One administered specialized


financing entities. These credit enhancements approximated $2.1 billion and $1.5 billion at December 31, 2001 and 2000, respectively.




BANK ONE CORPORATION 66 2001 ANNUAL REPORT




---

The Corporation provides program-wide credit enhancement, in the form of subordinated debt, for certain specialized financing entities
it administers. The Corporation provided $1.1 billion in subordinated debt at December 31, 2001 and $845 million at December 31, 2000.In addition, the Corporation provides to customers transaction specific credit enhancement in the form of
subordinated interests and off-balance sheet purchase commitments. At December 31, 2001 and 2000, the Corporation provided credit enhancements through subordinated interest positions of $59 million and $72 million, respectively, and off-balance
sheet purchase commitments totaling $297 million and $123 million, respectively.





The risk associated with the credit
enhancement provided in these transactions is managed as part of the Corporations risk management practices.





The
Corporation is a participant in several operating joint venture initiatives where the Corporation has a majority equity interest in the entity; however, based on the terms of the joint venture arrangement, the ventures are jointly controlled and
managed. As a result, such investments are currently accounted for under the equity method of accounting rather than being consolidated on a line-by-line basis in the Corporations financial statements. In 2002, Management has exerted
additional influence over two of these joint ventures. As a result, the Corporation consolidated these two joint ventures beginning in the first quarter of 2002. Total assets of these two joint ventures are $1.2 billion as of December 31, 2001 and
this consolidation will have no net impact to the Corporations consolidated net income. The Corporations investment in the remaining joint ventures totaled $302 million at December 31, 2001.





CAPITAL MANAGEMENT





Economic Capital





An important aspect of risk management and performance measurement is the ability to evaluate the risk and return of a business unit, product or customer consistently
across all lines of business. The Corporations economic capital framework facilitates this standard measure of risk and return. Business units are assigned capital consistent with the underlying risks of their product set, customer base and
delivery channels.





The following principles are inherent in the capital allocation methodology employed:





| |  | An equal amount of capital is assigned for each measured unit of risk.
|- |  | ----------------------------------------------------------------------




| |  | Risk is defined in terms of unexpected losses over the life of the exposure, measured at a confidence interval consistent with that level of capitalization
necessary to achieve a targeted AA debt rating. Unexpected losses are in excess of those normally incurred and for which reserves are maintained.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Business units are assessed a uniform charge against allotted capital, representing a target hurdle rate on equity investments. Returns on capital in excess of the hurdle rate
contribute to increases in shareholder value.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Four forms of risk are measuredcredit, market,
operational and lease residual. Credit risk capital is determined through an analysis of both historical loss experience and market expectations. Market risk capital is set consistent with value-at-risk limits established by the Corporations
risk oversight committees. Operational risk capital incorporates event and technology risks. The operational risk evaluation process involves an examination of various risk factors that contribute to a greater likelihood of loss due to such things
as fraud or processing error. Finally, lease residual risk capital covers the potential for losses arising from the disposition of assets returned at the end of lease contracts. This price risk is analyzed based upon historical loss experiences and
market factors, as well as by reviewing event-specific scenarios.





The economic capital process provides a valuable analytical
tool that is critical to the understanding of business segment performance trends. The methodologies employed are subject to ongoing development and review. Over time, the Corporations view of individual risks and associated capital will
likely change given improvements in the Corporations ability to quantify risks inherent in various business activities.





Selected Capital Ratios





The Corporation aims to maintain regulatory capital ratios, including those of the principal banking subsidiaries, in excess of the well-capitalized
guidelines under federal banking regulations. The Corporation maintains a well-capitalized regulatory position.





The tangible
common equity to tangible managed assets ratio is also monitored. This ratio adds securitized credit card loans to reported total assets and is calculated net of total intangible assets.




BANK ONE CORPORATION 67 2001 ANNUAL REPORT




---




The Corporations capital ratios follow:





December 31,

2001


2000


1999


1998


1997


Well-Capitalized Regulatory GuidelinesRegulatory leverage

8.2
%

7.3
%

7.7
%

8.0
%

7.8
%

3.0
%Risk-based capital ratiosTier 1

8.6


7.3


7.7


7.9


8.2


6.0Total

12.2


10.8


10.7


11.3


12.3


10.0Common equity/managed assets

6.6


6.0


6.3


6.7


6.7


Tangible common equity/tangible managed assets

5.9


5.5


5.7


5.8


6.2


Double leverage ratio

103


108


112


108


107


Dividend payout ratio

38


N/M


57


58


61








N/MNot meaningful.





The components of the Corporations regulatory risk-based capital and risk-weighted assets are as follows at December 31:





(In millions)

2001

2000

1999

1998

1997Regulatory risk-based capital:Tier 1 capital

$
21,749

$
19,824

$
20,247

$
19,495

$
17,958Tier 2 capital


9,091


9,316


7,967


8,295


9,000Total capital

$
30,840

$
29,140

$
28,214

$
27,790

$
26,958Total risk-weighted assets

$
253,330

$
270,182

$
263,169

$
244,473

$
219,557





In deriving Tier 1 and total capital, goodwill and other nonqualifying intangible assets are deducted as
indicated for the period ended December 31:





(In millions)

2001

2000

1999

1998

1997Goodwill

$
1,560

$
858

$
934

$
1,075

$
1,120Other nonqualifying intangibles


207


375


669


637


109Subtotal


1,767


1,233


1,603


1,712


1,229Qualifying intangibles


414


214


583


984


473Total intangibles

$
2,181

$
1,447

$
2,186

$
2,696

$
1,702





In November 2001, the U.S. banking regulators revised the risk based capital
rules for the treatment of recourse arrangements, direct credit substitutes, asset and mortgage backed securities, and residual interests in securitization structures. Additionally, in January 2002, the U.S. banking regulators announced changes in
the risk based capital rules, related to the treatment of certain equity investments made in nonfinancial companies. Both of the new rules become effective during 2002, and the risk capital ratios presented above do not reflect these changes. It is
anticipated that the revised rules will not have a material impact on the Corporations risk based capital ratios.





Dividend Policy





The Corporations common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain an adequate capital
level and alternative investment opportunities. The common stock dividend payout ratio is currently targeted in the range of 25%30% of earnings over time. Common stock dividends declared for 2001 were $0.84 per share compared with $1.26 per
share for 2000. This reflects a 50% reduction of the quarterly dividend rate from 42 cents per share to 21 cents per share in the third quarter of 2000. On January 15, 2002, the Corporation declared its quarterly common cash dividend of 21 cents per
share, payable on April 1, 2002.





On January 18, 2000, the Corporation announced the discontinuation of the biannual 10% stock
dividend.





Double Leverage





Double leverage is the
extent to which the Corporations resources are used to finance investments in subsidiaries. Double leverage was 103% at December 31, 2001 and 108% at December 31, 2000. Trust Preferred Capital Securities of $3.315 billion in 2001 and $2.483
billion in 2000 were included in capital for purposes of this calculation.





Stock Repurchase Program and Other Capital Activities





On November 1, 2001, the Corporation redeemed all outstanding preferred stock with cumulative and adjustable dividends, Series B and C, totaling $190 million. The
redemption price for both of the Series B and C preferred stock was $100.00 per share, plus accrued and unpaid dividends totaling $1.00 per share and $1.083 per share, respectively.




BANK ONE CORPORATION 68 2001 ANNUAL REPORT




---




On September 17, 2001, the Corporations Board of Directors approved the repurchase of up
to $500 million of the Corporations common stock. This buyback is part of the remaining 28.4 million share buyback program authorized in May 1999. The timing of the purchases and the exact number of shares to be repurchased will depend on
market conditions. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. In 2001, the Corporation purchased 2.6 million shares of common stock at an average price of $29.62 per share,
leaving 25.8 million shares available for repurchase under the buyback program.





During 2001, the Corporation added to its Tier
1 capital through the sponsorship of two trusts that issued $825 million in aggregate principal amount of trust preferred securities. During 2000, the Corporation added to its Tier 1 capital through the sponsorship of three trusts that issued $915
million in aggregate principal amount of trust preferred securities. These preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment. See Note 13 to the consolidated financial statements on page 85 for more detail.





During 2001 and 2000, the Corporation strengthened its capital position through the issuance of $750 million and $1 billion of
subordinated debt, respectively.





On December 1, 2000, the Corporation converted all outstanding 12-3/4% First Commerce
Convertible Debenture Bonds, Series A and B. The conversion rate was 18.9473. All of the debentures were converted to shares of the Corporations common stock.





FORWARD-LOOKING STATEMENTS





This discussion of financial results contains forward-looking statements about the
Corporation, including descriptions of plans or objectives of its management for future operations, products or services, and forecasts of its revenues, earnings or other measures of economic performance. Forward-looking statements can be identified
by the fact that they do not relate strictly to historical or current facts. They often include the words believe, expect, anticipate, intend, plan, estimate or words of similar
meaning, or future or conditional verbs such as will, would, should, could or may.





Forward-looking statements, by their nature, are subject to risks and uncertainties. A number of factorsmany of which are beyond the Corporations controlcould cause actual conditions, events or
results to differ significantly from those described in the forward-looking statements. Some of these factors include certain credit, market, operational, liquidity and interest rate risks associated with the Corporations business and
operations. Other factors described in the Corporations Form 10-K include changes in business and economic conditions, competition, fiscal and monetary policies and legislation.





Forward-looking statements speak only as of the date they are made. The Corporation does not undertake to update forward-looking statements to reflect circumstances or events that occur
after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events, such as further market deterioration that adversely affects credit quality, auto lease residuals and credit card asset values.




BANK ONE CORPORATION 69 2001 ANNUAL REPORT




---




CONSOLIDATED BALANCE SHEETS


BANK ONE CORPORATION and Subsidiaries





For the year ended December 31,

2001


2000(Dollars in millions)AssetsCash and due from banks

$
17,383


$
17,291Interest-bearing due from banks


1,030



5,210Federal funds sold and securities under resale agreements


9,347



4,737Trading assets


6,167



2,788Derivative product assets


3,225



2,322Investment securities


60,883



50,561Loans


156,733



174,251Allowance for credit losses


(4,528
)


(4,110
)Loans, net


152,205



170,141Premises and equipment, net


2,534



2,894Customers acceptance liability


257



402Other assets


15,923



12,954Total assets

$
268,954


$
269,300LiabilitiesDeposits:Demand

$
32,179


$
30,738Savings


80,599



63,414Time:Under $100,000


20,106



25,302$100,000 and over


18,071



22,656Foreign offices


16,575



24,967Total deposits


167,530



167,077Federal funds purchased and securities sold under repurchase agreements


13,728



12,120Other short-term borrowings


10,255



18,003Long-term debt


40,103



38,428Guaranteed preferred beneficial interest in the Corporations junior subordinated debt


3,315



2,483Acceptances outstanding


257



402Derivative product liabilities


2,574



2,212Other liabilities


10,966



9,940Total liabilities


248,728



250,665Stockholders EquityPreferred stock






190Common stock ($0.01 par value; authorized 4,000,000,000 in 2001 and 2,500,000,000 in 2000; issued 1,181,382,304 in 2001 and
1,181,385,876 in 2000)


12



12Surplus


10,311



10,487Retained earnings


10,707



9,060Accumulated other adjustments to stockholders equity


(65
)


(5
)Deferred compensation


(121
)


(121
)Treasury stock, at cost (14,415,873 shares in 2001 and 21,557,073 shares in 2000)


(618
)


(988
)Total stockholders equity


20,226



18,635Total liabilities and stockholders equity

$
268,954


$
269,300





The accompanying notes are an integral part of this statement.







BANK ONE CORPORATION 70 2001 ANNUAL REPORT




---




CONSOLIDATED INCOME STATEMENTS


BANK ONE CORPORATION and Subsidiaries





For the year ended December 31,

2001


2000


1999(In millions, except per share data)Net Interest Income:Interest income

$
17,304


$
20,078


$
17,294Interest expense


8,666



11,242



8,273Total net interest income


8,638



8,836



9,021Noninterest Income:Banking fees and commissions


1,731



1,537



1,502Credit card revenue


2,775



2,299



3,413Service charges on deposits


1,449



1,310



1,283Fiduciary and investment management fees


754



783



793Investment securities gains (losses)


(66
)


(235
)


509Trading


220



134



147Other income (losses)


360



(738
)


1,045Total noninterest income


7,223



5,090



8,692Total revenue, net of interest expense


15,861



13,926



17,713Provision for credit losses


2,510



3,398



1,249Noninterest Expense:Salaries and employee benefits


4,198



4,602



4,528Occupancy expense


686



872



703Equipment expense


457



593



667Outside service fees and processing


1,178



1,537



1,771Marketing and development


862



900



1,235Telecommunication


407



411



334Other intangible amortization


97



410



168Goodwill amortization


69



70



69Other


1,246



2,052



1,461Total noninterest expense before merger and restructuring-related charges


9,200



11,447



10,936Merger and restructuring-related charges


351



161



554Total noninterest expense


9,551



11,608



11,490Income (loss) before income taxes and cumulative effect of change in accounting principle


3,800



(1,080
)


4,974Applicable income taxes (benefit)


1,118



(569
)


1,495Income (loss) before cumulative effect of change in accounting principle


2,682



(511
)


3,479Cumulative effect of change in accounting principle, net of taxes of $25


(44
)






Net income (loss)

$
2,638


$
(511
)

$
3,479Net income (loss) attributable to common stockholders equity

$
2,628


$
(523
)

$
3,467Earnings (loss) per share before cumulative effect of change in accounting principle:Basic

$
2.28


$
(0.45
)

$
2.97Diluted

$
2.28


$
(0.45
)

$
2.95Earnings (loss) per share:Basic

$
2.25


$
(0.45
)

$
2.97Diluted

$
2.24


$
(0.45
)

$
2.95





The accompanying notes are an integral part of this statement.




BANK ONE CORPORATION 71 2001 ANNUAL REPORT




---

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


BANK ONE
CORPORATION and Subsidiaries





(In millions)

Preferred Stock


Common Stock

Surplus


Retained Earnings


Accumulated Other Adjustments to Stockholders Equity


Deferred Compensation


Treasury Stock


Total Stockholders EquityBalanceDecember 31, 1998

$
190


$
12

$
10,769


$
9,528


$
239


$
(94
)

$
(84
)

$
20,560Net income













3,479















3,479Change in fair value, investment securitiesavailable for sale, net of taxes

















(489
)










(489
)Translation loss, net of hedge results and taxes

















(13
)










(13
)Net income and changes in accumulated other adjustments to stockholders equity





























2,977Cash dividends declared:Common stock













(1,958
)














(1,958
)Preferred stock













(12
)














(12
)Issuance of stock









(14
)














175



161Purchase of common stock

























(1,677
)


(1,677
)Awards granted, net of forfeitures and amortization





















(24
)






(24
)Other









44















19



63BalanceDecember 31, 1999


190



12


10,799



11,037



(263
)


(118
)


(1,567
)


20,090Net loss













(511
)














(511
)Change in fair value, investment securitiesavailable for sale, net of taxes

















256











256Translation gain, net of hedge results and taxes

















2











2Net loss and changes in accumulated other adjustments to stockholders equity





























(253
)Cash dividends declared:Common stock













(1,454
)














(1,454
)Preferred stock













(12
)














(12
)Issuance of stock









(302
)














615



313Purchase of common stock

























(17
)


(17
)Awards granted, net of forfeitures and amortization





















(34
)






(34
)Other









(10
)










31



(19
)


2BalanceDecember 31, 2000


190



12


10,487



9,060



(5
)


(121
)


(988
)


18,635Net income













2,638















2,638Change in fair value, investment securitiesavailable for sale, net of taxes

















93











93Change in fair value of cash-flow type hedge derivative instruments, net of taxes

















(146
)










(146
)Translation loss, net of hedge results and taxes

















(7
)










(7
)Net income and changes in accumulated other adjustments to stockholders equity





























2,578Cash dividends declared:Common stock













(981
)














(981
)Preferred stock













(10
)














(10
)Issuance of stock









(179
)














448



269Redemption of stock


(190
)

























(190
)Purchase of common stock

























(78
)


(78
)Other









3



















3BalanceDecember 31, 2001

$



$
12

$
10,311


$
10,707


$
(65
)

$
(121
)

$
(618
)

$
20,226


The accompanying notes are an integral part of this statement.




BANK ONE CORPORATION 72 2001 ANNUAL REPORT




---

CONSOLIDATED STATEMENTS OF CASH FLOWS


BANK ONE CORPORATION and
Subsidiaries





For the Year Ended December 31,

2001


2000


1999(In millions)Cash Flows from Operating Activities:Net income (loss)

$
2,638


$
(511
)

$
3,479Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


571



934



697Cumulative effect of accounting change


69







Provision for credit losses


2,510



3,398



1,249Investment securities (gains) losses


66



236



(509
)Net decrease in net derivative product assets


(198
)


(71
)


(233
)Net (increase) decrease in trading assets


(3,456
)


11,691



(292
)Net (increase) decrease in other assets


213



(655
)


245Net increase (decrease) in other liabilities


375



1,502



(830
)Gain on sale of banks and branch offices










(348
)Merger and restructuring-related charges


351



161



276Other operating adjustments


(764
)


139



(100
)Net cash provided by operating activities


2,375



16,824



3,634Cash Flows from Investing Activities:Net (increase) decrease in federal funds sold and securities under resale agreements


(4,610
)


5,045



80Securities available for sale:Purchases


(56,088
)


(72,098
)


(56,564
)Maturities


23,579



17,882



16,150Sales


23,393



48,960



38,361Credit card receivables securitized


3,845







7,279Net decrease (increase) in loans


13,425



(14,903
)


(21,377
)Purchase of Wachovia credit card business


(5,776
)






Loan recoveries


342



276



325Net cash and cash equivalents due to mergers, acquisitions and dispositions










(1,669
)Additions to premises and equipment


(169
)


(533
)


(593
)Proceeds from sales of premises and equipment


55







All other investing activities, net


383



(1,194
)


41Net cash used in investing activities


(1,621
)


(16,565
)


(17,967
)Cash Flows from Financing Activities:Net increase in deposits


373



4,681



3,907Net increase (decrease) in federal funds purchased and securities under repurchase agreements


1,607



(6,599
)


(4,444
)Net increase (decrease) in other short-term borrowings


(7,757
)


(3,208
)


4,274Proceeds from issuance of long-term debt


12,466



13,914



28,736Repayment of long-term debt


(11,341
)


(9,237
)


(16,245
)Cash dividends paid


(991
)


(1,222
)


(2,420
)Proceeds from issuance of trust preferred capital securities


825



915



575Proceeds from issuance of common and treasury stock


191



152



61Redemption of preferred stock


(190
)






Purchase of common stock for treasury


(78
)


(3
)


(1,647
)All other financing activities, net


19



(19
)


(238
)Net cash provided by (used in) financing activities


(4,876
)


(626
)


12,559Effect of exchange rate changes on cash and cash equivalents


34



147



(25
)Net Decrease in Cash and Cash Equivalents


(4,088
)


(220
)


(1,799
)Cash and Cash Equivalents at Beginning of Year


22,501



22,721



24,520Cash and Cash Equivalents at End of Year

$
18,413


$
22,501


$
22,721Other Cash Flow Disclosures:Interest paid

$
9,221


$
10,777


$
8,082Income taxes paid


506



371



701





The accompanying notes are an integral part of this statement.




BANK ONE CORPORATION 73 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 1Summary of Significant Accounting Policies





BANK ONE CORPORATION and subsidiaries (Bank One or the
Corporation) is a financial holding company that offers a full range of financial services to commercial and business customers and consumers. The consolidated financial statements have been prepared in conformity with generally accepted
accounting principles, and certain prior-year financial statement information has been reclassified to conform to the current years presentation. The preparation of the consolidated financial statements require Management to make estimates and
assumptions that affect the amounts reported and disclosures of contingent assets and liabilities. Actual results could differ from those estimates.





(a) Principles of Consolidation





The Corporations consolidated financial statements include all
accounts of BANK ONE CORPORATION (the Parent Company) and all significant majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Results of operations of acquired entities are included
from the acquisition date, and assets and liabilities are stated at their estimated fair values at the acquisition date.





(b) Resale and Repurchase Agreements





Securities purchased under resale agreements and securities sold under repurchase agreements
are treated as collateralized financing transactions and carried at the amount at which the securities will be subsequently resold or repurchased, plus accrued interest. Where appropriate, resale and repurchase agreements with the same counterparty
are reported on a net basis.





(c) Trading Activities





Trading assets and liabilities are carried at fair value. Trading profits include realized and unrealized gains and losses from both cash and derivative financial instruments used in trading activities.
Trading activities involve instruments with interest rate, exchange rate, equity price, credit and commodity price market risk.





(d) Investment Securities





Debt and equity investment securities designated as available-for-sale are carried at fair value, with
unrealized gains and losses, net of taxes, included in accumulated other adjustments to stockholders equity. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using a
discounted cash flow approach. Realized gains and losses, including other than temporary impairments, are included in noninterest income as investment securities gains (losses). The specific identification method is used to calculate realized gains
or losses.





Effective April 1, 2001, the Corporation adopted Emerging Issues Task Force (EITF) Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF No. 99-20). Under EITF No. 99-20, impairment on certain securitized financial assets must be
recognized when the assets fair value is below its carrying value and there has been an adverse change in estimated cash flows. Prior to EITF No. 99-20, the Corporation judged declines as other than temporary based on the underlying facts and
circumstances surrounding the investment, such as the length of time the market value had been below cost or based on the creditworthiness of the issuer. Under EITF No. 99-20, the Corporation recognizes interest income based on the amount of the
excess of estimated cash flows over the recorded investment in the securitized financial asset. Changes in estimated cash flows are recognized on a prospective basis. The effect of adopting EITF No. 99-20 was a one-time, non-cash charge to earnings
of $44 million after-tax ($69 million pre-tax) or $0.04 per diluted share. This charge has been presented as a cumulative effect of a change in accounting principle in the consolidated income statement.





Principal investments are carried at fair value, with unrealized and realized gains and losses included in noninterest income as investment securities
gains (losses). The fair value of a publicly traded principal investment is determined using quoted market prices when the investment is unrestricted; otherwise fair value is estimated using quoted market prices adjusted for market liquidity and
sale restrictions. The fair value for principal investments that are not publicly traded is estimated based on the investees financial results, conditions and prospects, values of comparable public companies, market liquidity and sales
restrictions.





(e) Loans, including lease finance receivables





Loans are carried at the principal amount outstanding, net of unearned income and amounts charged off. Unearned income, which includes deferred loan origination fees reduced by
loan origination costs, for loans, excluding credit cards, is amortized to interest income over the life of the related loan using the straight-line method that approximates the effective interest rate method. Fees received for providing loan
commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit that are not expected
to be funded are amortized to noninterest income as banking fees and commissions over the commitment period. Other credit-related fees, including syndication management fees, are recorded to noninterest income as banking fees and commissions when
received or over time to match the earnings process.





The carrying amount of credit card loans also includes unpaid interest and
fees. Loan origination fees and costs on credit card loans are typically deferred and amortized over one year using a straight-line method to noninterest income as credit card revenue.




BANK ONE CORPORATION 74 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





The Corporation typically provides lease financing to its customers through direct financing leases. Leveraged leases, which represent direct financing leases involving nonrecourse debt, also are provided to
customers. Unearned income on a direct financing lease is amortized to income over the lease term so as to yield a constant rate of return on the net investment in the lease. Periodic recognition of lease income on leveraged leases is based on an
analysis of cash flows using the original investment less deferred taxes arising from the difference between the pretax financial accounting income and taxable income. Residual values for leased automobiles are reviewed at least annually with
periodic reviews performed as warranted by the underlying circumstances. Valuations are based upon various assumptions and estimates including the probability of the automobile being returned to the Corporation, estimated costs incurred to reduce
the number of returned automobiles from the customer, estimated collectable fees for mileage and other wear and tear, reconditioning costs, and estimated used car sales prices. Declines in estimated residual value that are other than temporary are
recognized in the period such determination is made in other noninterest income.





(f) Loan Sales





When a commercial loan is sold, the loans carrying value is compared to the net sales proceeds. Any shortfall in value that is presumed
to be credit related is recorded as a charge-off reducing the allowance for credit losses. Any shortfall in value not presumed to be credit related is recorded as a charge to other noninterest income.





With consumer loan portfolio sales, the allocable portion of the allowance for credit losses adjusts the carrying value of the loan portfolio and is
treated as a transfer out of the allowance for credit losses. The difference between the portfolios carrying value adjusted for the allocable credit reserves and the net sales proceeds is recorded as a component of other noninterest income.





(g) Nonperforming Loans





A loan is considered nonperforming when placed on nonaccrual status, or when renegotiated at terms that represent an economic concession to the borrower because of a decline in the borrowers financial condition. For a more detailed
discussion, see the Nonperforming Assets section beginning on page 56. The Corporations charge-off policies are presented on page 57.





(h) Allowance for Credit Losses





Management maintains the allowance for credit losses at a level it
believes is adequate to provide for estimated probable credit losses inherent in on- and off-balance sheet credit exposure. For a more detailed discussion, see the Allowance for Credit Losses section beginning on page 58.





(i) Premises and Equipment





Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful life of the owned asset
and, for leasehold improvements, over the lesser of the remaining term of the leased facility or the estimated economic life of the improvement. For owned and capitalized assets, estimated useful lives range from three to 30 years. Maintenance and
repairs are charged to expense as incurred, while major improvements are capitalized and amortized to operating expense over their identified useful life.





(j) Other Real Estate Owned (OREO)





OREO includes real estate assets that have been received in
satisfaction of debt. OREO is initially recorded and subsequently carried at the lower of cost or fair value less estimated selling costs. Any valuation adjustments required at the date of transfer are charged to the allowance for credit losses.
Subsequently, unrealized losses and realized gains and losses on sale are included in other noninterest income. Operating results from OREO are recorded in other noninterest expense.





(k) Intangible Assets





Intangible assets include goodwill resulting from
acquisitions and identifiable intangible assets, such as customer lists, core deposits and credit card relationships. Goodwill is equal to an acquired companys acquisition cost less the value of net tangible and intangible assets.





Intangible assets are reported in other assets and are amortized into other noninterest expense on an accelerated or
straight-line basis over the period the Corporation expects to benefit from such assets. Goodwill is amortized over estimated periods ranging from five to 40 years. Intangible assets are periodically reviewed for other than temporary impairment with
any such declines in value included in other noninterest expense.





(l) Income Taxes





Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are in effect. The effect on deferred tax assets and liabilities of a change in rates is recognized as income or expense in the period that includes the enactment date.




BANK ONE CORPORATION 75 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(m) Cash Flow Reporting





Cash and cash equivalents consist of cash and due from banks, whether
interest-bearing or not. Net reporting of cash transactions has been used when the balance sheet items consist predominantly of maturities of three months or less, or where otherwise permitted. Other items are reported on a gross basis.





(n) Stock-Based Compensation





The Corporation accounts for stock awards pursuant to the methods prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As stock options are
granted at fair value, there are no charges to earnings associated with stock options granted. Compensation expense related to restricted stock awards is recorded as earned over the restriction period.





(o) New and Pending Accounting Pronouncements





The Corporation adopted in 2001 the following new accounting pronouncements and will adopt in 2002 the following pending accounting pronouncements. In general, the effect of those adopted in 2001 were not significant to the
Corporations consolidated financial statements. Upon adoption of SFAS No. 142. Goodwill and Other Intangible Assets (SFAS No. 142), the Corporation does not currently anticipate significant goodwill impairment based
upon the current analysis of facts and circumstances.





Accounting for Transfers and Servicing of Financial Assets and Liabilities





Effective April 1, 2001, the Corporation adopted SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Liabilities (SFAS No.
140). On July 23, 2001, the Financial Accounting Standards Board (FASB) issued a Technical Bulletin that delayed the effective date of certain provisions of SFAS No. 140 relating to isolation in bankruptcy for banks subject to FDIC
receivership and for certain other financial institutions. For these entities, the isolation provisions are effective for transfers of financial assets occurring after December 31, 2001, except for transfers involving revolving credits such as
credit card securitizations. An additional transition period was granted for securitizations involving revolving credits that ends three months after the earliest date at which sufficient approvals can be obtained to permit the necessary changes to
existing master trusts to meet the isolation provisions, but in no event extend later than June 30, 2006. The Corporation is analyzing the effect of SFAS No. 140 on its current securitization structures. The new standard also provides revised
guidance for an entity to be considered a qualifying special purpose entity and requires additional disclosures concerning securitization activities and collateral.





Accounting for Derivative Instruments and Hedging Activities





Effective January 1, 2001, the Corporation adopted
SFAS No. 133, as amended. The new standard significantly changed the accounting treatment for interest rate and foreign exchange derivatives the Corporation uses in its asset and liability management activities. The Corporations accounting for
derivatives used in trading activities has not changed as the result of SFAS No. 133. Hedging derivatives are now recognized on the balance sheet at fair value as either assets or liabilities. Hedge ineffectiveness, if any, is calculated and
recorded in current earnings. The accounting for the effective portion of the change in value of a hedging derivative is based on the nature of the hedge. See Derivative Financial Instruments beginning on page 61 for detailed information
on the Corporations strategy in using derivative instruments in its asset and liability management and trading activities, as well as the accounting principles and disclosures for these instruments.





Business Combinations and Goodwill and Other Intangible Assets





In July
2001, the FASB issued SFAS No. 141, Business Combinations (SFAS No. 141) and SFAS No. 142. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and
establishes the specific criteria for the recognition of intangible assets separately from goodwill. Under SFAS No. 142, goodwill will no longer be amortized, but will be subject to impairment tests at least annually. SFAS No. 142 will be effective
for the Corporation on January 1, 2002. However, any acquired goodwill or intangible assets recorded in transactions closed subsequent to June 30, 2001 were immediately subject to the amortization provisions of SFAS No. 142. Upon adoption of SFAS
No. 142, the Corporation estimates the elimination of goodwill amortization will positively impact net income by approximately $69 million annually.




BANK ONE CORPORATION 76 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 2Earnings Per Share





Basic EPS is computed by dividing income available to common stockholders by the average number of common
shares outstanding for the period. Except when the effect would be antidilutive, the diluted EPS calculation includes shares that could be issued under outstanding stock options and the employee stock purchase plans, and common shares that would
result from the conversion of convertible preferred stock and convertible debentures. In addition, interest on convertible debentures (net of tax) is added to net income, since this interest would not be paid if the debentures were converted to
common stock.





The computation of basic and diluted earnings per share follows:





Year Ended December 31,

2001


2000


1999(In millions, except per share data)Income (loss) before cumulative effect of accounting change

$
2,682


$
(511
)

$
3,479Cumulative effect of accounting change, net of tax


(44
)






Net income (loss)


2,638



(511
)


3,479Preferred stock dividends


(10
)


(12
)


(12
)Net income (loss) available to common stockholders for basic EPS


2,628



(523
)


3,467Interest on convertible debentures, net of tax (1)










6Diluted income (loss) available to common stockholders (1)

$
2,628


$
(523
)

$
3,473Average shares outstanding


1,166



1,154



1,168Stock options (1)


8







6Convertible debentures (1)










4Average shares outstanding assuming full dilution


1,174



1,154



1,178Earnings (loss) per share before cumulative effect of change in accounting principle:Basic

$
2.28


$
(0.45
)

$
2.97Diluted (1)


2.28



(0.45
)


2.95Earnings (loss) per share:Basic

$
2.25


$
(0.45
)

$
2.97Diluted (1)


2.24



(0.45
)


2.95





|(1) |  | Common equivalent shares and related income have been excluded from the computation of diluted loss per share for the year ended December 31, 2000, as the effect would be
antidilutive.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Note 3Acquisitions





On July 27, 2001, the Corporation completed its acquisition of the Wachovia credit card business, including a credit card portfolio of approximately $7.5 billion consumer credit card receivables. The acquisition was accounted for under the
provisions of SFAS No. 141 and SFAS No. 142. The first component of the transaction was the primary portfolio of $6.2 billion in receivables of credit card holders who are not customers of Wachovias retail bank. The second component was the
agent bank portfolio of $1.3 billion.





On September 7, 2001, the Corporation announced its agreement with Wachovia to end the agent bank relationship and
sell back to Wachovia the approximately $1.3 billion of consumer credit card receivables of customers who also have a Wachovia retail banking relationship. Under the terms of the agreement, Wachovia paid a $350 million termination fee and will
reimburse the Corporation for the premium paid for the repurchased receivables and conversion costs related to the repurchase.




BANK ONE CORPORATION 77 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 4Restructuring-Related Charges





a) Fourth Quarter 2001 Restructuring-Related Charges





The Corporation recorded restructuring-related charges in the fourth quarter of 2001 for additional real estate and severance costs to accomplish
more rapid expense reductions, accelerated systems conversions and other consolidations. Summarized below are the details of these restructuring-related charges:





December 31, 2001

Personnel-Related Costs

Contractual Obligations and Asset Writedowns

Total(In millions)Restructuring-related charges

$
76

$
278

$
354





Personnel-related items consist primarily of severance costs related to identified staff reductions in the
lines of business totaling approximately 6,900 positions. Contractual obligations included the estimated costs associated with lease and other contract termination costs incorporated in the business restructuring plans. Asset writedowns included
leasehold write-offs related to leased properties following the decision to abandon such facilities, as well as in the case of fixed assets and capitalized software for which similar decisions were made. Actions under this overall restructuring plan
are expected to be completed within a 12-month period. Certain contractual payments associated with these actions, as required, will extend beyond this 12-month time-frame.





b) Second Quarter 2000 Restructuring-Related Charges





Actions under this
restructuring plan have been completed, with only payments of identified obligations remaining, which consist primarily of lease obligations. Unpaid amounts totaled $58 million as of December 31, 2001, and will be paid as required over the remaining
contractual periods.





Note 5Business Segments





In the third quarter of 2001, certain organizational changes were made involving Corporate Investments and Commercial Banking business. The tax-oriented portfolio of Corporate Investments was transferred to Commercial Banking, while the
principal investments and fixed income portfolios were transferred to Corporate. Additionally, certain expenses were reclassified from salaries to other expenses. Results for prior periods have been adjusted to reflect these and other insignificant
changes and to conform to the current line of business structure.





The information presented on page 26 is consistent with the
content of business segment data provided to the Corporations management which does not use product group revenues to assess consolidated results. Aside from investment management and insurance products, product offerings are tailored to
specific customer segments. As a result, the aggregation of product revenues and related profit measures across lines of business is not available.





Aside from the United States, no single country or geographic region generates a significant portion of the Corporations revenues or assets. In addition, there are no single customer concentrations of revenue or
profitability.





See the following Business Segments sections for additional disclosure regarding the
Corporations operating segments:





| | · |  | Business Segments on page 26.
| | - |  | -------------------------------




| | · |  | Data presented in tables up until the section entitled Financial Performance included in the Business Segment Results and Other Data section beginning
with Retail through Corporate on pages 2740.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Note 6Interest Income and Interest Expense





Details of interest income and expense are as follows:





For the year ended December 31,

2001

2000

1999(In millions)Interest IncomeLoans, including fees

$
13,213

$
15,214

$
13,051Bank balances


145


503


233Federal funds sold and securities under resale agreements


418


577


445Trading assets


309


440


330Investment securities


3,219


3,344


3,235Total


17,304


20,078


17,294Interest ExpenseDeposits


4,895


6,137


4,651Federal funds purchased and securities sold under repurchase agreements


633


1,142


935Other short-term borrowings


659


1,216


942Long-term debt


2,479


2,747


1,745Total


8,666


11,242


8,273Net Interest Income


8,638


8,836


9,021Provision for credit losses


2,510


3,398


1,249Net Interest Income After Provision for Credit Losses

$
6,128

$
5,438

$
7,772




BANK ONE CORPORATION 78 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 7Investment Securities





A summary of the Corporations investment portfolio follows:





For the year ended December 31, 2001

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value (Book Value)(In millions)U.S. Treasury

$
1,424

$
30

$
4

$
1,450U.S. government agencies


25,265


113


132


25,246States and political subdivisions


1,310


28


8


1,330Interests in credit card securitized receivables


23,998


107





24,105Other debt securities


4,397


24


18


4,403Equity securities (1)


2,775


10


15


2,770Total available for sale securities

$
59,169

$
312

$
177


59,304Principal and other investments (2)











1,579Total investment securities










$
60,883For the year ended December 31, 2000(In millions)U.S. Treasury

$
2,587

$
2

$
34

$
2,555U.S. government agencies


14,415


18


47


14,386States and political subdivisions


1,276


24


8


1,292Interests in credit card securitized receivables


22,447


116





22,563Other debt securities


5,237


18


57


5,198Equity securities (1)


2,730


15


40


2,705Total available for sale securities

$
48,692

$
193

$
186


48,699Principal and other investments (2)











1,862Total investment securities










$
50,561For the year ended December 31, 1999(In millions)U.S. Treasury

$
2,569

$
1

$
101

$
2,469U.S. government agencies


12,919


3


412


12,510States and political subdivisions


1,599


20


38


1,581Interests in credit card securitized receivables


20,176


279





20,455Other debt securities


7,611


5


172


7,444Equity securities (1)


2,002


11


5


2,008Total available for sale securities

$
46,876

$
319

$
728


46,467Principal and other investments (2)











1,445Total investment securities










$
47,912





|(1) |  | The fair values of certain securities for which market quotations were not available were estimated.
|--- |  | ----------------------------------------------------------------------------------------------------




|(2) |  | The fair values of certain securities reflect liquidity and other market-related factors, and includes investments accounted for at fair value consistent with specialized
industry practice.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




For the year ended December 31, 2001, gross recognized gains and losses on the sale of investment securities were
$537 million and $603 million, respectively.





As of December 31, 2001, debt investment securities had the following maturity and yield characteristics:





Due in 1 year or less


Due after 1 year through 5 years


Due after 5 years through 10 years


Due after 10 years


TotalAmortized Cost

Yield


Amortized Cost

Yield


Amortized Cost

Yield


Amortized Cost

Yield


Amortized Cost

Yield(Dollars in millions)U.S. Treasury

$
190

3.36
%

$
1,151

4.28
%

$
59

5.89
%

$
24

7.06
%

$
1,424

4.27
%U.S. government agencies


630

4.89



2,132

4.77



1,010

4.93



21,493

5.86



25,265

5.71States and political subdivisions


169

5.02



387

5.05



338

5.02



416

5.24



1,310

7.78Other debt securities


22,223

7.94



4,385

5.74



1,330

4.96



457

8.46



28,395

7.47Total debt securitiesat amortized cost

$
23,212

7.80
%

$
8,055

5.24
%

$
2,737

4.97
%

$
22,390

5.91
%

$
56,394

6.61
%Total debt securitiesat fair value

$
23,316




$
8,132




$
2,741




$
22,345




$
56,534





The distribution of mortgage-backed securities and collateralized mortgage obligations is based on average
expected maturities. Actual maturities might differ because issuers may have the right to call or prepay obligations.




BANK ONE CORPORATION 79 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 8Loans





Loan composition by line of business is as follows:





For the year ended December 31,

2001

2000(In millions)Retail:Small business commercial

$
12,347

$
12,103Home equity


30,268


31,361Vehicles:Loans


13,481


14,300Leases


6,155


8,840Other personal


9,779


10,697Total Retail


72,030


77,301Commercial Banking:Corporate Banking:Commercial and industrial


22,268


N/ACommercial real estate


8,975


N/ALease financing


4,669


N/AOther


731


N/AMiddle Market:Commercial and industrial


28,676


N/ACommercial real estate


3,472


N/ALease financing


1,053


N/AOther


294


N/ATotal Commercial Banking


70,138


85,100Other lines of business


7,779


7,106First USA


6,786


4,744Total loans


156,733


174,251Less: Allowance for credit losses


4,528


4,110Total loans, net

$
152,205

$
170,141





N/ANot available.





Loans are net of unearned income of $2.749 billion and $3.467 billion as of December 31, 2001 and 2000, respectively. Loans held for sale, which are carried at the lower of cost or fair
value, totaled $3.000 billion and $2.964 billion at December 31, 2001 and 2000, respectively.





The Corporations primary
goal in managing credit risk is to minimize the impact of default by an individual borrower or group of borrowers. As a result, the Corporation strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and
geographic concentrations. As of December 31, 2001 and 2000, there were no significant loan concentrations with any single borrower, industry or geographic segment (see Credit Portfolio Composition on pages 5255).





A loan is considered impaired when it is probable that all principal and interest amounts due will not be collected in accordance with the
loans contractual terms. Certain loans, such as loans carried at the lower of cost or fair value or small-balance homogeneous loans (e.g., credit card, home mortgages and installment credit) are exempt from impairment determinations for
disclosure purposes. Impaired loans, accordingly, exclude consumer loans classified as nonaccrual. Such consumer loans totaled $1.064 billion and $714 million at December 31, 2001 and 2000, respectively.





Impairment is recognized to the extent that the recorded investment of an impaired loan or pool of loans exceeds its value either based on the
loans underlying collateral or the calculated present value of projected cash flows discounted at the contractual interest rate. Loans having a significant recorded investment are measured on an individual basis, while loans not having a
significant recorded investment are grouped and measured on a pool basis.





The Corporations impaired loan information is
as follows:





For the year ended December 31,

2001

2000(In millions)Impaired loans with related allowance

$
2,487

$
1,748Impaired loans with no related allowance(1)





13Total impaired loans

$
2,487

$
1,761Allowance on impaired loans (2)

$
731

$
407


For the year ended December 31,

2001

2000

1999(In millions)Average balance of impaired loans

$
2,047

$
1,335

$
972Interest income recognized on impaired loans


46


31


46





|(1) |  | Impaired loans for which the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan do not require an allowance under SFAS No.
114.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | The allowance for impaired loans is included in the Corporations overall allowance for credit losses.
|--- |  | ------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 80 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Maturity Distribution and Interest Rate Sensitivity of Loans





A distribution of the maturity of loans by line of business and, for those
loans due after one year, a breakdown between those loans that have floating interest rates and those that have predetermined interest rates at December 31, 2001 follows:





(In millions)

One Year or Less

One to Five Years

Over Five Years

TotalRetail:Small business commercial

$
3,290

$
6,159

$
2,898

$
12,347Home equity


628


1,279


28,361


30,268Vehicles:Loans


549


9,784


3,148


13,481Leases


1,655


4,500





6,155Other personal


1,765


807


7,207


9,779Total Retail


7,887


22,529


41,614


72,030Commercial Banking:Corporate Banking:Commercial and industrial


5,953


15,009


1,306


22,268Commercial real estate


4,324


4,319


332


8,975Lease financing


80


588


4,001


4,669Other


731








731Middle Market:Commercial and industrial


12,276


13,554


2,846


28,676Commercial real estate


1,048


1,994


430


3,472Lease financing


72


708


273


1,053Other


294








294Total Commercial Banking (1)


24,778


36,172


9,188


70,138Total reported (1)

$
32,665

$
58,701

$
50,802

$
142,168Loans with floating interest rates




$
27,451

$
13,186

$
40,637Loans with predetermined interest rates





31,250


37,616


68,866Total




$
58,701

$
50,802

$
109,503





|(1) |  | Excludes Commercial Banking lease financing receivables, credit card, and other lines of business.
|--- |  | --------------------------------------------------------------------------------------------------




Foreign Outstandings





Foreign outstandings include loans, balances with banks, acceptances, securities,
equity investments, accrued interest, other monetary assets and current credit exposure on derivative contracts. At year-end 2001 and 2000, there were no countries for which cross-border and net local country claims exceeded 1.0% of total assets. At
December 31, 1999, Germany was the only country with cross-border claims exceeding 1.0% of total assets. The oustandings amounted to $3.118 billion.





At December 31, 2001 and 1999 there were no countries for which cross-border claims totaled between 0.75% and 1.0% of total assets. At December 31, 2000, Germany was the only country for which cross-border and net
local country claims totaled between 0.75% and 1.0% of total assets. These outstandings amounted to $2.512 billion.





Note 9Credit Card
Securitizations





The Corporation transforms credit card receivables into securities, which are sold to investorsa process referred to as
securitization. Gain or loss on the sale of the credit card receivable depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their
relative fair value at the date of transfer. During 2001, the Corporation securitized approximately $3.8 billion in credit card receivables. Maturities of credit card securitizations during 2001 totaled $9.2 billion, with an additional $10.3 billion
scheduled for 2002. During 2001 and 2000, the Corporation recognized $62 million and $116 million, respectively, in net securitization amortization in the consolidated income statement, including amortization of transaction costs, as the gain on
securitization from new transactions was offset by amortization as investors in individual series were repaid.





A servicing
asset or liability is not generally recognized in a credit card securitization (and thus not considered in the gain or loss computation) since the Corporation receives adequate compensation relative to current market servicing prices to service the
receivables sold. Transaction costs in credit card securitizations are typically deferred and amortized over the life of the security as a reduction of noninterest income.




BANK ONE CORPORATION 81 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





At December 31, 2001 and 2000, the estimated fair value of the interest-only strip associated with credit card securitizations was $219 million and $221 million, respectively, while the estimated fair value of the
sellers interest was $23.9 billion and $22.4 billion, respectively. The interest-only strip and sellers interest are both recorded as investment securities.





Certain estimates are used in determining the fair value of the interest-only strip at both the date of securitization and the balance sheet date, including the excess spread, receivable
lives and the discount rate. The components of excess spread, which are estimated, include finance charge and fee revenue (excluding interchange income) generated by the securitized loans in excess of interest paid to investors, related net credit
losses and servicing fees. The resulting expected cash flows over the lives of the receivables are discounted at a rate commensurate with the risk of the cash flows to determine the fair value. Such estimates and assumptions are subject to change,
and accordingly, the Corporation may not recover all of the recorded investment of the interest-only strip (and thus be measured for impairment). The receivables in each trust have unique attributes and therefore the interest-only strip related to
each trust is evaluated separately. The sellers interest resulting from credit card securitizations is recorded at fair value using a present value approach, with assumptions that are consistent with the valuation of the interest-only strip.





The following represents the Corporations key weighted-average assumptions used to estimate the fair value of the
retained interests relating to credit card securitizations at December 31, 2001, and the pretax sensitivity of the fair values to immediate 10 and 20 percent adverse changes in these assumptions are as follows:





(Dollars in millions)

Interest-Only Strip(1)

Sellers Interest(2)

Total Retained InterestsReceivable Lives:







0.5 years10% Adverse Change

$
23.4

$
11.6

35.020% Adverse Change


47.0


23.1

70.1Excess Spread:







1.24
%10% Adverse Change


24.0


11.8

35.820% Adverse Change


48.0


23.7

71.7Expected Net Credit Losses(3):







7.11
%10% Adverse Change


120.4


67.4

187.820% Adverse Change


204.6


116.4

321.0Discount Rate:







10.00
%10% Adverse Change


0.7


0.3

1.020% Adverse Change


1.5


0.7

2.2





|(1) |  | The effect of adverse changes in key assumptions on the fair value of the interest-only strip would be recorded in noninterest income.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | The effect of adverse changes in key assumptions on the value of the sellers interest is recorded in accumulated other adjustments to stockholders equity, unless the
decline in value is deemed to be other than temporary, which would result in a charge to noninterest income upon recognition.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Certain Trust legal documents include finance charge and fee revenue reversals in the definition of net credit losses, resulting in a higher net credit loss rate for Trust
purposes.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The sensitivity analysis illustrates the potential magnitude of significant adverse changes in key assumptions used in
valuing the retained interests, and thus the potential impact to the Corporations financial position and results of operations. However, the sensitivities of the fair values of the retained interests to changes in each key assumption may not
be linear. Furthermore, the sensitivities for each key variable are calculated independently of changes in the other key variables. Therefore, the sensitivity analysis does not purport to present the maximum impairment loss that would result from 10
and 20 percent adverse changes in these assumptions. Actual experience observed may result in changes in multiple key assumptions concurrently, the magnitude of which on the fair value of the retained interests would be dependent on the relative
change and the direction of change. In addition, the sensitivity analysis does not give effect to corrective action that Management could and would take to mitigate the impact of adverse changes in key assumptions. The asset values of the retained
interests are periodically reviewed for other-than-temporary impairment.





The key weighted-average economic assumptions and
ranges of assumptions used to estimate the fair value of retained interests at the date of securitization (including transfer of new balances under revolving structures) for credit card securitizations occurring during 2001 were approximately the
same as the assumptions used to value the retained interests at December 31, 2001.





Cash flows received
from (paid to) credit card securitization master trusts (i.e., SPEs) during the year ended December 31, 2001 and 2000 are as follows:





(In millions)

2001

2000Proceeds from reinvestment in revolving securitizations

$
72,206

$
83,469Proceeds from new securitizations


3,845


Servicing fees received


598


649Cash flows received on retained interests (1)


2,577


2,224Cash released from (used to fund) spread accounts


146


(32
)





|(1) |  | Includes cash flows from interest-only strips as well as interchange fees received from securitized accounts.
|--- |  | -------------------------------------------------------------------------------------------------------------




For a detailed discussion of the Corporations loan securitization process for credit card loans, see the Loan Securitizations section
beginning on page 64.




BANK ONE CORPORATION 82 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 10Allowance for Credit Losses





Changes in the allowance for credit losses for the years ended December 31 were as follows:





(In millions)

2001


2000


1999Balance, beginning of year

$
4,110


$
2,285


$
2,271Additions (deductions):Charge-offs


(2,630
)


(1,667
)


(1,531
)Recoveries


342



276



325Net charge-offs


(2,288
)


(1,391
)


(1,206
)Provision for credit losses


2,510



3,398



1,249Transfers(1)


196



(182
)


(29
)Balance, end of year

$
4,528


$
4,110


$
2,285





|(1) |  | Transfers to the allowance for credit losses in 2001 primarily represent the addition of the Wachovia credit card portfolio. Transfers from the allowance for credit losses for
prior years primarily represent allocable credit allowances associated with consumer loan sale transactions, including securitization transactions.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Note 11Long-Term Debt





Long-term debt consists of borrowings having an original maturity of greater than one
year. Original issue discount and deferred issuance costs are amortized into interest expense over the terms of the related notes. Long-term debt at December 31, 2001 and 2000 was as follows:





(Dollars in millions)

Interest Rate


Maturities

2001

2000Parent CompanySenior debt:Medium-term notes

1.987.63
%

2002-2008

$
14,387

$
14,360Other







8


14Subordinated debt:Notes

5.90-10.00


2002-2027


6,920


6,204Floating rate notes

Various


2003


150


246SubsidiariesBank notes

1.76-7.93


2002-2006


12,933


13,375Subordinated notes

6.00-8.25


2002-2008


1,729


1,695Capital leases

5.50-11.07


2002-2019


66


71Other

1.85-11.14


20022028


3,910


2,463Total long-term debt






$
40,103

$
38,428


Aggregate annual scheduled repayments of long-term debt at December 31, 2001 are as follows:





(In millions)

Total2002

$
8,5122003


7,9102004


5,5752005


3,9322006


6,935Thereafter


7,239Total

$
40,103





Note 12Deposits and Short-Term Borrowings





Deposits





The maturity distribution of domestic
time certificates of deposit of $100,000 and over and deposits in foreign offices, predominantly in amounts in excess of $100,000, at December 31, 2001 is as follows:





(Dollars in millions)

Amount

PercentDomestic Time Certificates of Deposit of $100,000 and Over:Three months or less

$
4,934

28
%Over three months to six months


2,040

11Over six months to twelve months


2,446

14Over twelve months


8,445

47Total

$
17,865

100
%Foreign Offices:Three months or less


16,057

97
%Over three months to six months


278

2Over six months to twelve months


208

1Over twelve months


32

Total

$
16,575

100
%





The Corporation has an aggregate amount of domestic other time deposits of $100,000 and over of $206
million at December 31, 2001, which primarily mature within three months.




BANK ONE CORPORATION 83 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Short-Term Borrowings





Borrowings with original maturities of one year or less are classified as short-term. The following is a summary
of short-term borrowings for each of the three years ended December 31:





At Year-End

For the Year(Dollars in millions)

Outstandings

Weighted-Average rate


Daily Average Outstandings

Weighted-Average Rate


Highest Outstandings at Month End2001:Federal funds purchased

$
3,171

1.62
%

$
5,121

4.32
%

$
6,353Securities sold under repurchase agreements


10,557

1.43



11,543

3.57



13,386Bank notes


4,529

3.07



8,267

5.48



13,047Commercial paper


828

1.58



1,968

4.75



2,634Other short-term borrowings


4,898

1.60



3,273

3.43



4,629Total short-term borrowings

$
23,983

1.83
%

$
30,172

4.28
%2000:Federal funds purchased

$
5,253

5.89
%

$
6,281

6.14
%

$
9,663Securities sold under repurchase agreements


6,867

6.01



12,680

5.96



17,609Bank notes


12,426

6.71



12,298

6.50



13,327Commercial paper


3,048

6.62



3,137

5.94



3,303Other short-term borrowings


2,529

6.22



3,543

6.50



6,861Total short-term borrowings

$
30,123

6.36
%

$
37,939

6.26
%1999:Federal funds purchased

$
5,483

4.54
%

$
7,060

4.96
%

$
8,806Securities sold under repurchase agreements


13,237

4.08



12,651

4.62



16,102Bank notes


12,707

5.60



11,112

5.57



12,947Commercial paper


3,184

6.09



3,006

5.23



3,595Other short-term borrowings


5,320

4.46



3,739

4.98



5,475Total short-term borrowings

$
39,931

4.86
%

$
37,568

5.00
%




BANK ONE CORPORATION 84 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 13Guaranteed Preferred Beneficial Interest in the Corporations Junior Subordinated Debt





The Corporation has sponsored
ten trusts with a total aggregate issuance outstanding of $3.315 billion at December 31, 2001 in trust preferred securities as follows.





Trust Preferred


Junior Subordinated Debt Owned by Trust(Dollars in millions)

Issuance Date

Initial Liquidation Value

Distribution Rate


Initial Principal Amount

Maturity

Redeemable BeginningCapital VI

September 28, 2001

$
525

7.20
%

$
541.2

October 15, 2031

October 15, 2006Capital V

January 30, 2001


300

8.00
%


309.3

January 30, 2031

January 30, 2006Capital IV

August 30, 2000


160

3-mo LIBOR plus 1.50%



164.9

September 1, 2030

September 1, 2005Capital III

August 30, 2000


475

8.75
%


489.7

September 1, 2030

See (1) below.Capital II

August 8, 2000


280

8.50
%


288.7

August 15, 2030

August 15, 2005Capital I

September 20, 1999


575

8.00
%


593.0

September 15, 2029

September 20, 2004First ChicagoNBD Capital 1

January 31, 1997


250

3-mo LIBOR plus 0.55%



258.0

February 1, 2027

February 1, 2007First USA Capital Trust I (2)

December 20, 1996


200

9.33
%


206.2

January 15, 2027

January 15, 2007First Chicago NBD Institutional Capital A

December 3, 1996


500

7.95
%


515.0

December 1, 2026

December 1, 2006First Chicago NBD Institutional Capital B

December 5, 1996


250

7.75
%


258.0

December 1, 2026

December 1, 2006





|(1) |  | Redeemable at any time subject to approval by the Federal Reserve Board.
|--- |  | ------------------------------------------------------------------------




|(2) |  | The Corporation paid a premium of $36 million to repurchase $193 million of these securities in 1997.
|--- |  | -----------------------------------------------------------------------------------------------------




These trust preferred securities are tax-advantaged issues that qualify for Tier 1 capital treatment. Distributions on these securities are included in interest expense on long-term
debt. Each of the trusts is a statutory business trust organized for the sole purpose of issuing trust securities and investing the proceeds thereof in junior subordinated debentures of the Corporation, the sole asset of each trust. The preferred
trust securities of each trust represent preferred beneficial interests in the assets of the respective trusts and are subject to mandatory redemption upon payment of the junior subordinated debentures held by the trust. The common securities of
each trust are wholly-owned by the Corporation. Each trusts ability to pay amounts due on the trust preferred securities is solely dependent upon the Corporation making payment on the related junior subordinated debentures. The
Corporations obligations under the junior subordinated securities and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Corporation of each respective trusts obligations under the trust
securities issued by such trust. See Note 15 to the consolidated financial statements on page 85 for discussion of the restrictions on the ability of the Corporation to obtain funds from its subsidiaries.





Note 14Stock Dividends and Preferred Stock





The Corporation is
authorized to issue 50 million shares of preferred stock with a par value of $0.01 per share. On November 1, 2001 the Corporation redeemed all outstanding preferred stock with cumulative and adjustable dividends, Series B and C, totaling $190
million. The redemption price for both the Series B and C preferred stock was $100 per share, plus accrued and unpaid dividends totaling $1.00 per share and $1.083 per share, respectively. At December 31, 2000 the Corporation had outstanding
1,191,000 and 713,800 shares of Series B and C preferred stock with a stated value of $100 per share and a carrying value of $119 million and $71 million, respectively. The dividend rate on each of the cumulative adjustable rate series was based on
a stated value and adjusted quarterly, based on a formula that considers the interest rates for selected short- and long-term U.S. Treasury securities prevailing at the time the rate is set.





Note 15Dividends and Capital Restrictions





The Corporations national bank subsidiaries are
subject to statutory limitations on their ability to pay dividends. Dividends cannot exceed the level of undivided profits. In addition, a national bank cannot declare a dividend, without regulatory approval, in an amount in excess of its net income
for the current year combined with the combined net profits for the preceding two years. State bank subsidiaries may also be subject to limitations on dividend payments.





Based on these statutory requirements, the bank affiliates could have declared aggregate additional dividends of up to approximately $620 million without regulatory approval at January
1,




BANK ONE CORPORATION 85 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





2002. The payment of dividends by any bank may also be affected by other factors, such as the maintenance of adequate capital.





The bank affiliates are subject to various regulatory capital requirements that require them to maintain minimum ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Failure to meet minimum
capital requirements results in certain regulatory actions that could have a direct material effect on the bank affiliates financial statements. As of December 31, 2001, Management believed that each of the bank affiliates met all applicable
capital adequacy requirements and are correctly categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that categorization that Management believes have
changed the institutions category.





The actual and required capital amounts and ratios for the Corporation and its
principal banking subsidiaries are presented as follows:





Actual


To Be Categorized Adequately Capitalized(Dollars in millions)

Capital Amount

Capital Ratio


Capital Amount

Capital RatioAt December 31, 2001Risk-adjusted capital (to risk-weighted assets):The Corporation (consolidated)

$
30,840

12.2
%

$
20,266

8.0
%Bank One, N.A. (Chicago)


16,112

12.6
%


10,191

8.0Bank One, N.A. (Columbus)


4,594

10.9



3,373

8.0Bank One, Michigan


2,115

11.9



1,420

8.0First USA Bank, N.A.


2,253

16.5



1,092

8.0Tier 1 capital (to risk-weighted assets):The Corporation (consolidated)

$
21,749

8.6
%

$
10,133

4.0
%Bank One, N.A. (Chicago)


10,595

8.3



5,096

4.0Bank One, N.A. (Columbus)


2,915

6.9



1,687

4.0Bank One, Michigan


1,576

8.9



710

4.0First USA Bank, N.A.


2,099

15.4



546

4.0Tier 1 leverage (to average assets):The Corporation (consolidated)

$
21,749

8.2
%

$
7,942

3.0
%Bank One, N.A. (Chicago)


10,595

6.6



6,469

4.0Bank One, N.A. (Columbus)


2,915

6.4



1,811

4.0Bank One, Michigan


1,576

7.3



867

4.0First USA Bank, N.A.


2,099

14.2



589

4.0At December 31, 2000Risk-adjusted capital (to risk-weighted assets):The Corporation (consolidated)

$
29,140

10.8
%

$
21,615

8.0
%Bank One, N.A. (Chicago) (1)


16,007

11.3



11,378

8.0Bank One, N.A. (Columbus)


4,283

12.0



2,862

8.0Bank One, Michigan


2,406

10.9



1,759

8.0First USA Bank, N.A.


2,230

15.8



1,126

8.0Tier 1 capital (to risk-weighted assets):The Corporation (consolidated)

$
19,824

7.3
%

$
10,807

4.0
%Bank One, N.A. (Chicago) (1)


9,689

6.8



5,689

4.0Bank One, N.A. (Columbus)


2,867

8.0



1,431

4.0Bank One, Michigan


1,582

7.2



879

4.0First USA Bank, N.A.


2,110

15.0



563

4.0Tier 1 leverage (to average assets):The Corporation (consolidated)

$
19,824

7.3
%

$
8,167

3.0
%Bank One, N.A. (Chicago) (1)


9,689

6.4



6,078

4.0Bank One, N.A. (Columbus)


2,867

7.8



1,471

4.0Bank One, Michigan


1,582

7.2



878

4.0First USA Bank, N.A.


2,110

11.8



718

4.0





|(1) |  | Reclassified to show the effect of the 2001 mergers with Bank One, Texas, N.A., Bank One, Louisiana, N.A., Bank One, Florida, Bank One, Arizona, N.A., and Bank One, Utah, N.A.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Federal banking law restricts each bank subsidiary from extending credit to the Corporation in excess of 10% of the subsidiarys
capital stock and surplus, as defined. Any such extensions of credit are subject to strict collateral requirements.




BANK ONE CORPORATION 86 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 16Supplemental Disclosures for Statements of Cash Flows





During 2000 and 1999, the Corporation transferred $6.5 billion and
$2.3 billion, respectively, of investment securities available for sale to trading securities. These transfers were for capital management purposes.





Loans transferred to other real estate owned totaled $162 million, $131 million, and $113 million in 2001, 2000, and 1999, respectively.





During 2000 and 1999, the Corporation recognized several non-cash charges to earnings for significant items. Several of these items will not result in future cash outflows while other
items represent future uses of cash. See tables 1 and 2 on page 41 for a detailed listing of significant items.





Note 17Supplemental Disclosures
for Accumulated Other Adjustments to Stockholders Equity





Accumulated other adjustments to stockholders equity are as follows:





(In millions)

2001


2000


1999Fair value adjustment on investment securitiesavailable for sale:Balance, beginning of period

$
(15
)

$
(271
)

$
218Change in fair value, net of taxes of $86 in 2001, $(6) in 2000 and $(180) in 1999


158



(5
)


(391
)Reclassification adjustment, net of taxes of $(38) in 2001, $151 in 2000 and $(56) in 1999


(65
)


261



(98
)Balance, end-of-period


78



(15
)


(271
)Fair value adjustment on derivative instrumentscash flow type hedges:Balance, beginning of period










Transition adjustment at January 1, 2001, net of taxes of $(56) (1)


(98
)






Net change in fair value associated with current period hedging activities net of taxes of $(70) in 2001


(139
)






Net reclassification into earnings, net of taxes of $49 in 2001 (1)


91







Balance, end-of-period


(146
)






Accumulated translation adjustment:Balance, beginning of period


10



8



21Translation gain (loss), net of hedge results and taxes


(7
)


2



(13
)Balance, end of period


3



10



8Total accumulated other adjustments to stockholders equity

$
(65
)

$
(5
)

$
(263
)





|(1) |  | During 2001, $89 million after-tax of the transition adjustment recorded at January 1, 2001 was reclassified into earnings.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------




Note 18Employee Benefits





(a) Pension
Plans





Prior to 2000, the Corporation had various noncontributory defined benefit pension plans covering substantially all salaried employees.
Effective December 31, 1999, all noncontributory defined benefit pension plans were combined into one plan. Effective December 31, 2000, the supplemental executive retirement plan was discontinued.





The Corporations qualified plans change in benefit obligation, change in plan assets and funded status are as follows:





(In millions)

2001


2000Change in benefit obligation:Benefit obligation, January 1

$
2,248


$
2,250Service cost


92



103Interest cost


168



182EGTRRA adjustment (1)


7



Actuarial loss


108



128Benefits paid


(326
)


(415
)Benefit obligation, December 31

$
2,297


$
2,248Change in plan assets:Fair value of plan assets, January 1

$
3,134


$
3,400Actual return (loss) on plan assets


(114
)


146Corporation contribution


53



3Benefits paid


(326
)


(415
)Fair value of plan assets, December 31

$
2,747


$
3,134Funded status

$
450



886Unrecognized net actuarial loss (gain)


156



(357
)Unrecognized prior service cost


24



28Unrecognized net transition assets






(7
)Prepaid pension costs, December 31

$
630


$
550


---

|(1) |  | The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) contained various provisions relating to the operations of qualified pension plans. Increases to the
benefit limits and the limit on pensionable earnings caused a shift in pension obligation from the non-qualified to the qualified plan.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Plan assets include approximately 1.0 million shares of the Corporations common stock with a fair value of approximately $40 million and $37 million at December 31, 2001 and 2000, respectively.





The net periodic pension benefit for 2001, 2000 and 1999 for the Corporations qualified and nonqualified pension plans are as follows:





(In millions)

2001


2000


1999Service costbenefits earnedduring the period

$
96


$
110


$
123Interest cost on benefit obligation


177



194



175Expected return on plan assets


(287
)


(300
)


(293
)Amortization of prior service cost


8



9



(1
)Recognized actuarial (gain)


(1
)


(11
)


(1
)Amortization of transition assets


(7
)


(13
)


(13
)Curtailment gain










(13
)Net periodic pension benefit

$
(14
)

$
(11
)

$
(23
)




BANK ONE CORPORATION 87 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





The accrued pension cost for the Corporations nonqualified supplemental pension plans was $39 million and $77 million at December 31, 2001 and 2000, respectively. Such plans are unfunded.





The assumptions used in determining the Corporations benefit obligation and net periodic pension cost for both qualified and
nonqualified supplemental pension plans are as follows:





For the year ended December 31,

2002


2001


2000


1999Actuarial assumptions:Weighted-average discount rate for benefit obligation

7.00
%(1)

7.00
%

7.50
%

8.00
%Weighted-average rate of compensation increase

4.25
%

4.25
%

4.25
%

5.00
%Expected long-term rate of return on plan assets

8.50
%

9.50
%

9.50
%

9.50
%





|(1) |  | Rate currently expected at December 31, 2002.
|--- |  | ---------------------------------------------




(b) Postretirement Benefits Other Than Pensions





The Corporation sponsors postretirement
life insurance plans and provides health care benefits for certain retirees and grandfathered employees when they retire. The postretirement life insurance benefit is noncontributory, while the health care benefits are contributory.





The Corporations postretirement benefit plans change in benefit obligation and funded status at December 31, 2001 and 2000 are as
follows:





(In millions)

2001


2000Change in benefit obligation:Benefit obligation, January 1

$
195


$
164Service cost






Interest cost


14



13Actuarial loss


48



37Benefits paid


(24
)


(17
)Curtailment






(2
)Benefit obligation, December 31


233



195Change in plan assets:Fair value of plan assets, January 1






Employer contribution


24



17Benefits paid


(24
)


(17
)Fair value of plan assets, December 31






Funded status


(233
)


(195
)Unrecognized net actuarial loss


67



20Unrecognized prior service cost


(25
)


(38
)Accrued postretirement costs, December 31

$
(191
)

$
(213
)





Net periodic cost for postretirement health care and life insurance benefits
during 2001, 2000 and 1999 includes the following:








(In millions)

2001


2000


1999Service costbenefits earned during the period

$



$



$
1Interest cost on accumulated postretirement benefit obligation


14



13



13Amortization of prior service cost


(12
)


(12
)


(12
)Adjustment for acquisitions










2Curtailment






1



Net periodic postretirement cost

$
2


$
2


$
4





The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% at December 31, 2001, and 7.50% at December 31, 2000.





For measurement purposes, an
annual rate of increase of 10.00% was assumed for 2001 in the cost of covered health care benefits; this range was assumed to decrease to 5.00% in the years 2009 and thereafter. These assumptions have a significant effect on the amounts reported.
Accordingly, the effect of a 1.00% change in the assumed health care cost trend rates is as follows:





(In millions)

1% increase

1% decreaseEffect on 2001 service and interest cost components

$
0.9

$
0.8Effect on December 31, 2001, accumulated postretirement benefit obligation

$
14.3

$
12.6





(c) 401(k) Plans





The Corporation sponsored various 401(k) plans that together covered substantially all of its employees. Up until 2000, the Corporation was required to make contributions to the plans in varying amounts.
The expense related to these plans was $95 million in 2001, $137 million in 2000 and $81 million in 1999. Effective December 31, 1999, all new contributions are being made to one Corporation-sponsored 401(k) plan, thereby establishing uniform
contribution requirements for the entire Corporation.





Note 19Stock-Based Compensation





The Corporation utilizes several types of stock-based awards as part of its overall compensation program. In addition, the Corporation provides employees the opportunity to purchase its shares through its
Employee Stock Purchase Plan. The Corporations stock-based compensation plans provide for the granting of awards to purchase or receive common shares and include limits as to the aggregate number of shares available for grants and the total
number of shares available for grants of stock awards in any one year. The compensation cost that has been charged against income for the Corporations stock-based compensation plans was $70 million for




BANK ONE CORPORATION 88 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





2001, $59 million for 2000 and $38 million for 1999. As a result of the 1999 fourth-quarter restructuring plan, $4 million was recorded as a restructuring charge related to the immediate vesting of restricted shares for certain executives.





(a) Restricted Shares





Restricted shares granted to key officers of the Corporation require them to continue employment for a stated number of years from the grant date before restrictions on the shares lapse. The market value of the restricted shares as of the
date of grant is amortized to compensation expense as earned over the restriction period. Holders of restricted stock receive dividends and have the right to vote the shares.





(b) Stock Options





The Corporations stock option plans generally provide that
the exercise price of any stock option may not be less than the closing price of the common stock on the trading day preceding the date of grant of the common stock.





Options granted under the Corporations stock-based compensation program generally vest ratably over a five-year period and have a term of ten years. Certain option grants include
the right to receive additional option grants (reload or restorative options) in an amount equal to the number of common shares used to satisfy the exercise price and applicable withholding taxes. Upon grant, reload options
assume the same remaining term as the related original option and vest six months from the date of grant.





Summarized stock option activity for 2001,
2000 and 1999, respectively, and details of the Corporations stock options outstanding at December 31, 2001 follows:





2001

2000

1999(Shares in thousands)

Shares


Wtd. Avg Exercise Price

Shares


Wtd. Avg. Exercise Price

Shares


Wtd. Avg. Exercise PriceOutstanding at January 1

77,315


$
34.17

44,630


$
40.88

38,247


$
34.34Granted

23,573



37.73

42,659



27.25

15,556



50.35Exercised

(7,262
)


25.09

(2,089
)


19.66

(6,473
)


24.34Forfeited

(3,144
)


36.72

(7,885
)


38.56

(2,700
)


36.56Outstanding at December 31

90,482


$
35.72

77,315


$
34.17

44,630


$
40.88Exercisable at December 31

45,525


$
36.30

25,503


$
36.41

19,847


$
32.86





Options Outstanding

Options Exercisable(Shares in thousands) Range of Exercise Prices

Number Outstanding Dec. 31, 2001

Wtd. Avg. Exercise Price

Wtd. Avg. Remaining Contractual Life

Number Exercisable Dec. 31, 2001

Wtd. Avg. Exercise PriceLess than $20.00

2,084

$
16.21

1.8 years

2,084

$
16.21$20.01-$25.00

3,261


24.47

3.8 years

3,261


24.47$25.01-$30.00

31,640


26.61

14.5 years

16,139


26.46$30.01-$35.00

5,632


32.70

7.2 years

3,137


32.33$35.01-$45.00

27,623


38.04

8.5 years

5,211


38.80$45.01-$55.00

16,166


49.53

10.7 years

12,190


49.34Greater than $55.00

4,076


59.13

6.8 years

3,503


59.09Total

90,482

$
35.72

10.5 years

45,525

$
36.30





(c) Employee Stock Purchase Plan





The Corporation sponsors an Employee Stock Purchase Plan designed to encourage employee stock ownership. This plan generally allows eligible employees to purchase shares of the
Corporations common stock at a 15% discount from the market price at the beginning of an offering or the market price at the end of such offering, whichever is lower. During the current 18-month offering period, an employee is allowed to make
deposits of up to 20% of his/her earnings (up to a designated maximum) on an annual basis to an interest-bearing savings account to purchase the number of shares permissible under the plan. The maximum number of shares each participant may purchase
cannot exceed the contribution limit divided by the applicable purchase price on the offering date. Shares purchased by the participant are subject to a one year holding period and cannot be sold or transferred for one year after the purchase date.
The Corporation does not recognize any compensation expense with respect to this plan.





(d) Pro Forma Costs of Stock-Based
Compensation





The grant date fair values of stock options granted under the Corporations various stock option plans and the Employee Stock
Purchase Plan were estimated using the Black-Scholes option-pricing model. This model was developed to estimate the fair value of traded options, which have different characteristics than employee stock options. In addition, changes to the
subjective input assumptions can result in materially different fair market value estimates. Therefore, the Black-Scholes model may not necessarily provide a reliable single measure of the fair value of employee stock options and purchase rights.




BANK ONE CORPORATION 89 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Summarized stock-based compensation grants and their related weighted-average grant-date fair values for the years ended December 31 follows:





2001

2000

1999(Shares in thousands)

Number of Shares

Wtd. Avg. Grant Date Fair Value

Number of Shares

Wtd. Avg. Grant Date Fair Value

Number of Shares

Wtd. Avg. Grant Date Fair ValueStock option plans

23,573

$
13.34

42,659

$
9.80

15,556

$
12.28Restricted shares

2,065


37.68

4,517


27.85

1,728


51.13Employee Stock Purchase Plan (1)

2,483


9.68

2,122


3.27

2,974


7.28





|(1) |  | Estimated number of shares that employees would purchase under the 2001, 2000 and 1999 plans.
|--- |  | ---------------------------------------------------------------------------------------------




The following assumptions were used to determine the Black-Scholes weighted-average grant date fair value of stock option awards and conversions in 2001, 2000 and 1999: (1) expected
dividend yields ranged from 2.29%- 4.86%, (2) expected volatility ranged from 19.11%- 42.29%, (3) risk-free interest rates ranged from 4.85%- 6.43% and (4) expected lives ranged from 2 to 13 years.





The following assumptions were used to determine the Black-Scholes weighted-average grant-date fair value of employees purchase rights under the
employee stock purchase plans in 2001, 2000 and 1999, respectively: (1) expected dividend yields of 2.30%, 2.58% and 2.86%, (2) expected volatility of 33.80%, 39.63% and 34.68%, (3) risk-free interest rate of 2.61%, 6.22% and 5.07% and (4) expected
lives of 1.5, 0.5 and 1.0 years.





Had the compensation cost for the Corporations stock-based compensation plans been
determined in accordance with the fair-value-based accounting method provided by SFAS No. 123 Accounting for Stock-Based Compensation, the net income and earnings per share implications for the years ended December 31, 2001, 2000 and
1999 would have been as follows:





2001

2000


1999(In millions, except per share data)

Pro Forma(1)

As Reported

Pro Forma(1)


As Reported


Pro Forma(1)

As ReportedNet income (loss)

$
2,452

$
2,638

$
(646
)

$
(511
)

$
3,413

$
3,479Net income (loss) per commonshare, basic


2.09


2.25


(0.57
)


(0.45
)


2.91


2.97Net income (loss) per commonshare, diluted


2.08


2.24


(0.57
)


(0.45
)


2.89


2.95





|(1) |  | The above pro forma information may not be representative of the pro forma impact in future years.
|--- |  | --------------------------------------------------------------------------------------------------




Note 20Income Taxes





The components of total applicable income tax expense (benefit) in the
consolidated income statement for the years ended December 31, 2001, 2000 and 1999 are as follows:





(In millions)

2001


2000


1999Income tax expense:Current:Federal

$
797


$
571


$
735Foreign


11



32



2State


115



26



97Total


923



629



834Deferred:Federal


194



(1,151
)


624Foreign


5



(7
)


State


(4
)


(40
)


37Total


195



(1,198
)


661Applicable income taxes (benefit)

$
1,118


$
(569
)

$
1,495





The tax effects of fair value adjustments on securities available for sale,
derivative instruments in cash flow type hedges, foreign currency translation adjustments and certain tax benefits related to stock options are recorded directly to stockholders equity. The net tax (benefit) charge recorded directly to
stockholders equity amounted to $(47) million in 2001, $107 million in 2000 and $(259) million in 1999.




BANK ONE CORPORATION 90 2001 ANNUAL REPORT




---




A reconciliation of expected income tax expense at the federal statutory rate of 35% to the
Corporations applicable income tax expense and effective tax rate follows:





(Dollars in millions)

2001


2000


1999Statutory tax rate

$
1,330


35.0
%

$
(378
)

35.0
%

$
1,741


35.0
%Increase (decrease) resulting from:State income taxes, net of federal income tax benefit


72


1.9



(4
)

0.3



87


1.8Tax-exempt interest


(56
)

(1.5
)


(57
)

5.3



(66
)

(1.3
)Tax credits


(231
)

(6.1
)


(179
)

16.6



(133
)

(2.7
)Goodwill


23


0.6



25


(2.3
)


23


0.5Cash surrender value of life insurance


(57
)

(1.5
)


(56
)

5.2



(48
)

(1.0
)Other, net


37


1.0



80


(7.4
)


(109
)

(2.2
)Applicable income taxes (benefit)

$
1,118


29.4
%

$
(569
)

52.7
%

$
1,495


30.1
%





A net deferred tax liability is included in other liabilities in the consolidated
balance sheet as a result of temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their related tax bases. The components of the net deferred tax liability as of December 31, 2001
and 2000 are as follows:





(In millions)

2001

2000Deferred tax liabilities:Deferred income on lease financing

$
4,242

$
3,895Prepaid pension costs


216


165Securitizations of credit card receivables


121


155Deferred fee income


333


336Other


77


200Gross deferred tax liabilities


4,989


4,751Deferred tax assets:Allowance for credit losses


1,744


1,667Restructure reserves


177


127Incentive compensation


302


257Other


862


933Gross deferred tax assets


3,085


2,984Net deferred tax liability

$
1,904

$
1,767





The Corporation has an alternative minimum tax (AMT) credit carryforward for tax
purposes of $87 million at December 31, 2001. The Corporation also has carryforwards of foreign tax credits (FTC) in the amounts of $38 million. The FTCs will expire after 2005.





Note 21Lease Commitments





The Corporation has entered into a number of operating lease agreements
for premises and equipment. The minimum annual rental commitments under these leases are shown below:





(In millions)2002

$
2642003


2492004


2142005


1692006


1522007 and thereafter


890Total

$
1,938





Rental income from premises leased to others in the amount of $77 million in
2001, $80 million in 2000, and $87 million in 1999 has reduced occupancy expense. Rental expense under operating leases approximated $332 million in 2001, $384 million in 2000, and $414 million in 1999.




BANK ONE CORPORATION 91 2001 ANNUAL REPORT




---




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 22Financial Instruments with Off-Balance





Sheet Risk





In the normal course of business, the Corporation is a party to financial instruments containing credit and/or market risks that are not required to be reflected in the balance
sheet. These financial instruments are primarily credit-related instruments. The Corporation has risk management policies to identify, monitor and limit exposure to credit, liquidity and market risks.





The following disclosures represent the Corporations credit exposure, assuming that every counterparty to financial instruments with off-balance
sheet credit risk fails to perform completely according to the terms of the contracts, and that the collateral and other security, if any, proves to be of no value to the Corporation.





This note does not address the amount of market losses the Corporation would incur if future changes in market prices make financial instruments with off-balance sheet market risk less
valuable or more onerous. For a more detailed discussion of off-balance sheet activities see the Other Off-Balance Sheet Activities section beginning on page 66.





(a)    Collateral and Other Security Arrangements





The credit
risk of both on- and off-balance sheet financial instruments varies based on many factors, including the value of collateral held and other security arrangements. To mitigate credit risk, the Corporation generally determines the need for specific
covenant, guarantee and collateral requirements on a case-by-case basis, depending on the nature of the financial instrument and the customers creditworthiness. The Corporation may also receive comfort letters and oral assurances. The amount
and type of collateral held to reduce credit risk varies but may include real estate, machinery, equipment, inventory and accounts receivable, as well as cash on deposit, stocks, bonds and other marketable securities that are generally held in the
Corporations possession or at another appropriate custodian or depository. This collateral is valued and inspected on a regular basis to ensure both its existence and adequacy. Additional collateral is requested when appropriate.





(b)    Credit-Related Financial Instruments





Summarized credit-related financial instruments, including both commitments to extend credit and letters of credit are as follows:





For the year ended December 31,

2001

2000(In billions)Unused credit card lines

$
299.3

$
272.7Unused loan commitments


148.2


162.9Standby letters of credit andforeign office guarantees


19.4


19.0Commercial letters of credit


0.6


0.7





Since many of the unused commitments are expected to expire unused or be only
partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.





Credit card lines allow customers to use a credit card to buy goods or services and to obtain cash advances. However, the Corporation has the right to change or terminate any terms or conditions of a customers credit card account,
upon notification to the customer. Loan commitments are agreements to make or acquire a loan or lease as long as the agreed-upon terms (e.g., expiry, covenants or notice) are met. The Corporations commitments to purchase or extend loans help
its customers meet their liquidity needs.





Standby letters of credit and foreign office guarantees are issued in connection with
agreements made by customers to counterparties. If the customer fails to comply with the agreement, the counterparty may enforce the standby letter of credit or foreign office guarantee as a remedy. Credit risk arises from the possibility that the
customer may not be able to repay the Corporation for standby letters of credit or foreign office guarantees. At December 31, 2001 and 2000, standby letters of credit and foreign office guarantees had been issued for the following purposes:





For the year ended December 31,

2001

2000(In millions)Financial

$
15,611

$
15,705Performance


3,786


3,305Total (1)

$
19,397

$
19,010





(1)    Includes $3.4 billion at December 31, 2001, and $2.7 billion at December 31,
2000, participated to other institutions.





Commercial letters of credit are issued or confirmed to ensure payment of
customers payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate
the risk associated with these contracts.




BANK ONE CORPORATION 92 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 23Fair Value of Financial Instruments





The Corporation is required to disclose the estimated fair value of its financial
instruments in accordance with SFAS No. 107, Disclosures about Fair Value of Financial Instruments. These disclosures do not attempt to estimate or represent the Corporations fair value as a whole. The disclosure excludes assets
and liabilities that are not financial instruments as well as the significant unrecognized value associated with core deposits and credit card relationships.





Fair value amounts disclosed represent point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors. Estimated fair value amounts in theory represent the amounts at
which financial instruments could be exchanged or settled in a current transaction between willing parties. In practice, however, this may not be the case due to inherent limitations in the methodologies and assumptions used to estimate fair value.
For example, quoted market prices may not be realized because the financial instrument may be traded in a market that lacks liquidity; or a fair value derived using a discounted cash flow approach may not be the amount realized because of the
subjectivity involved in selecting underlying assumptions, such as projecting cash flows or selecting a discount rate. The fair value amount also may not be realized because it ignores transaction costs and does not include potential tax effects.
The Corporation does not plan to dispose of, either through sale or settlement, the majority of its financial instruments at these estimated fair values.





Summarized carrying values and estimated fair values of financial instruments as of December 31, 2001 and 2000 follows:





2001

2000(In millions )

Carrying Value


Estimated Fair Value

Carrying Value


Estimated Fair ValueFinancial assets:Cash and other short-term financial instruments (a)

$
28,017


$
28,017

$
27,640


$
27,640Trading assets (a)


6,167



6,167


2,788



2,788Investment securities (b)


60,883



60,883


50,561



50,561Loans (c)


156,733



154,619


174,251



171,633Allowance for credit losses


(4,528
)





(4,110
)


Loans, net


152,205



154,619


170,141



171,633Derivative product assets (f)


3,225



3,225


2,322



2,461Financial instruments in other assets (a)


1,459



1,459


2,220



2,220Financial liabilities:Deposits (d)


167,530



168,414


167,077



167,882Securities sold not yet purchased (a)


1,237



1,237


285



285Other short-term financial instruments (a)


23,003



23,003


30,240



30,240Long-term debt (1)(e)


43,418



44,521


40,911



40,867Derivative product liabilities (f)


2,574



2,574


2,212



2,251Financial instruments in other liabilities (a)


1,273



1,273


1,828



1,828





(1)    Includes trust preferred capital securities.




BANK ONE CORPORATION 93 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Estimated fair values are determined as follows:





(a)    Financial Instruments Whose Carrying
Value Approximates Fair Value





A financial instruments carrying value approximates its fair value when the financial instrument has an
immediate or short-term maturity (generally one year or less), or is carried at fair value.





Quoted market prices or dealer
quotes typically are used to estimate fair values of trading securities and securities sold under repurchase agreements.





Commitments to extend credit and letters of credit typically result in loans with a market interest rate when funded. The recorded book value of deferred fee income approximates the fair value.





(b)    Investment Securities





Quoted market prices typically are used to estimate the fair value of debt investment securities. Quoted market prices for similar securities are used to estimate fair value when a quoted market price is not available for a specific debt
investment security. See Note 1(d) to the consolidated financial statements on page 74 for the methodologies used to determine the fair value of equity investment securities.





(c)    Loans





The loan portfolio was segmented based on loan
type, credit quality and repricing characteristics. Carrying values are used to estimate fair values of certain variable rate loans with no significant credit concerns and frequent repricing. A discounted cash flow method was used to estimate the
fair value of other loans. Discounting was based on the contractual cash flows, and discount rates typically are based on the year-end yield curve plus a spread that reflects pricing on loans with similar characteristics. If applicable, prepayment
assumptions are factored into the fair value determination based on historical experience and current economic and lending conditions.





(d)    Deposits





The amount payable on demand at the report date is used to estimate fair value of demand and savings
deposits with no defined maturity. A discounted cash flow method is used to estimate the fair value of fixed-rate time deposits. Discounting was based on the contractual cash flows and the current rates at which similar deposits with similar
remaining maturities would be issued, adjusted for servicing costs. Carrying value typically is used to estimate the fair value of floating-rate time deposits.





(e)    Long-Term Debt





Quoted market prices or the discounted cash flow method was used to
estimate the fair value of the Corporations fixed-rate long-term debt. Discounting was based on the contractual cash flows and the current rates at which debt with similar terms could be issued. Carrying value typically is used to estimate the
fair value of floating-rate long-term debt.





(f)    Derivative Product Assets and Liabilities





For December 2001, the carrying value equals the estimated fair value due to the adoption of SFAS No. 133 during 2001. For the year 2000, quoted
market prices or pricing and valuation models were used to estimate the fair value of derivative product assets and liabilities. Assumptions input into models were based on current market information.





Note 24Related Party Transactions





Certain executive officers,
directors and their related interests are loan customers of the Corporation. These loans in the aggregate were less than 5% of stockholders equity at December 31, 2001 and 2000.




BANK ONE CORPORATION 94 2001 ANNUAL REPORT




---




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 25Pledged Assets





Assets having a book value of $70.3 billion as of December 31, 2001, and
$44.2 billion as of December 31, 2000, were pledged as collateral for repurchase agreements, certain derivative instrument transactions, and governmental and trust department deposits in accordance with federal and state requirements, and for other
purposes required by law. The assets pledged generally were comprised of commercial mortgage loans and investment securities. Of the total collateral pledged as of December 31, 2001, $3.1 billion of collateral, which was comprised of securities
posted as collateral for repurchase agreements, was permitted to be sold or repledged by the secured party. The Corporation does not issue equity puts.





The Corporations bank affiliates are required to maintain average noninterest-bearing cash balances, in accordance with Federal Reserve Board regulations. The average required reserve balances were $2.3 billion
in 2001 and $2.5 billion in 2000.





Note 26Collateral Policy Related to Certain Asset Transfer Activity





It is the Corporations policy to take possession of securities purchased under agreements to resell in order to secure the risk of counterparty nonperformance on the
transaction. The Corporation monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and adjusts the level of collateral as necessary. With respect to securities lent, the Corporation
receives collateral to secure the risk of counterparty nonperformance in the form of cash or other collateral, in an amount generally in excess of the fair value of the lent securities. The Corporation monitors the fair value of the securities lent
on a daily basis, and additional cash or securities are obtained as necessary.





At December 31, 2001 and 2000, the fair value of
collateral accepted by the Corporation in connection with these activities was $6.3 billion and $4.1 billion, respectively, of which, $5.9 billion and $3.8 billion, respectively, had been sold or repledged as of the balance sheet date.





Note 27Contingent Liabilities





The Corporation and
certain of its subsidiaries have been named as defendants in various legal proceedings, including certain class actions, arising out of the normal course of business or operations. In certain of these proceedings, which are based on alleged
violations of consumer protection, securities, banking, insurance and other laws, rules or principles, substantial money damages are asserted against the Corporation and its subsidiaries. Since the Corporation and certain of its subsidiaries, which
are regulated by one or more federal and state regulatory authorities, are the subject of numerous examinations and reviews by such authorities, the Corporation also is and will be, from time to time, normally engaged in various disagreements with
regulators, related primarily to its financial services businesses. The Corporation has also received certain tax deficiency assessments. In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state what
the eventual outcome of pending matters will be; however, based on current knowledge and after consultation with counsel, Management does not believe that liabilities arising from these matters, if any, will have a material adverse effect on the
consolidated financial position of the Corporation.




BANK ONE CORPORATION 95 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 28Parent Company Only Condensed Financial Statements





Condensed Balance Sheets For the Year Ended December 31,

2001

2000(In millions)AssetsCash and due from banks:Bank subsidiaries

$
2

$
14Interest-bearing due from banks:Bank subsidiaries


7,345


7,247Securities under resale agreement


30


Trading assets


5


13Investment securities


17


135Loans and receivablessubsidiaries:Bank subsidiaries


6,171


7,044Nonbank subsidiaries


7,940


6,934Investment in subsidiaries:Bank subsidiaries


22,670


21,166Nonbank subsidiaries


1,630


1,663Other assets


1,179


424Total assets

$
46,989

$
44,640Liabilities and Stockholders EquityShort-term borrowings:Nonbank subsidiaries

$
68

$
73Other


546


1,166Long-term debt:Nonbank subsidiaries


3,419


2,560Other


21,465


20,824Other liabilities


1,265


1,382Total liabilities


26,763


26,005Stockholders equity


20,226


18,635Total liabilities and stockholders equity

$
46,989

$
44,640





Condensed Income Statements For the Year ended December 31,

2001


2000


1999(In millions)Operating IncomeDividends:Bank subsidiaries

$
1,645


$
1,775


$
2,367Nonbank subsidiaries


209



762



373Interest income:Bank subsidiaries


655



822



534Nonbank subsidiaries


381



513



438Other


3



22



11Other income:Bank subsidiaries


5



7



7Other


(2
)


19



190Total


2,896



3,920



3,920Operating ExpenseInterest expense:Nonbank subsidiaries


234



161



93Other


1,308



1,556



1,132Merger and restructuring-related charges


(12
)


140



287Salaries and employee benefits


(1
)


52



9Professional fees and services


2



4



3Other expense


34



255



97Total


1,565



2,168



1,621Income before income taxes and cumulative effect of change in accounting principle and equity in undistributed net income of
subsidiaries


1,331



1,752



2,299Applicable income tax benefit


(202
)


(197
)


(198
)Income before cumulative effect of change in accounting principle and equity in undistributed net income of
subsidiaries


1,533



1,949



2,497Equity in undistributed net income (loss) of subsidiaries:Bank subsidiaries


1,300



(1,835
)


797Nonbank subsidiaries


(151
)


(625
)


185Income (loss) before cumulative effect of change of accounting principle


2,682



(511
)


3,479Cumulative effect of change of accounting principle, net of taxes


(44
)






Net Income (Loss)

$
2,638


$
(511
)

$
3,479




BANK ONE CORPORATION 96 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 28ContinuedParent Company Only Condensed Financial Statements





Condensed Statements of Cash Flows  For the Year Ended December
31,

2001


2000


1999(In millions)Cash Flows from Operating Activities:Net income (loss)

$
2,638


$
(511
)

$
3,479Adjustments to reconcile net income (loss) to net cash provided by operating activities:Equity in net income of subsidiaries


(3,003
)


(77
)


(3,722
)Cumulative effect of accounting change of subsidiaries


69







Dividends received from subsidiaries


1,854



2,537



2,740Other operating adjustments


68



83



417Net cash provided by operating activities


1,626



2,032



2,914Cash Flows from Investing Activities:Net (increase) decrease in loans to subsidiaries


(435
)


2,296



(3,226
)Net increase in capital investments in subsidiaries


(412
)


(668
)


(1,277
)Purchase of investment securitiesavailable for sale


(79
)


(1,095
)


(805
)Proceeds from sales and maturities of investment securitiesavailable for sale


189



1,321



729Other, net


(30
)


29



(29
)Net cash provided by (used in) investing activities


(767
)


1,883



(4,608
)Cash Flows from Financing Activities:Net increase (decrease) in commercial paper and short-term borrowings


(624
)


(181
)


37Proceeds from issuance of long-term debt


6,414



3,964



9,524Redemption and repayment of long-term debt


(5,495
)


(2,216
)


(2,843
)Dividends paid


(991
)


(1,222
)


(2,420
)Proceeds from issuance of common and treasury stock


191



152



61Purchase of treasury stock


(78
)


(3
)


(1,647
)Payment for redemption of preferred stock


(190
)






Net cash provided by (used in) financing activities


(773
)


494



2,712Net Increase in Cash and Cash Equivalents


86



4,409



1,018Cash and Cash Equivalents at Beginning of Year


7,261



2,852



1,834Cash and Cash Equivalents at End of Year

$
7,347


$
7,261


$
2,852Other Cash-Flow DisclosuresInterest paid

$
1,501


$
1,620


$
1,113Income tax receipt


(374
)


(139
)


(335
)





Overnight money market loans, short-term investments and other sources of liquid assets exceeded the
amount of commercial paper issued at December 31, 2001.




BANK ONE CORPORATION 97 2001 ANNUAL REPORT




---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 29Quarterly Financial Data (Unaudited)





2001


2000Fourth


Third


Second


First


Fourth


Third


Second


First(In millions, except ratios and per share data)Income Statement Data:Total revenue, net of interest expense

$
4,207


$
4,016


$
3,846


$
3,792


$
3,461


$
3,942


$
2,509


$
4,014Net interest incomeFTE


2,273



2,193



2,085



2,218



2,247



2,242



2,257



2,228Noninterest income


1,972



1,853



1,791



1,607



1,247



1,734



288



1,821Provision for credit losses


765



620



540



585



1,507



516



1,013



362Noninterest expense


2,706



2,303



2,306



2,236



2,847



2,593



3,507



2,661Income (loss) before cumulative effect of change in accounting principle


541



754



708



679



(512
)


581



(1,269
)


689Net income (loss)


541



754



664



679



(512
)


581



(1,269
)


689Per Common Share Data:Income (loss) before cumulative effect of change in accounting principle:Basic

$
0.46


$
0.64


$
0.60


$
0.58


$
(0.44
)

$
0.50


$
(1.11
)

$
0.60Diluted (1)


0.46



0.64



0.60



0.58



(0.44
)


0.50



(1.11
)


0.60Net income (loss):Basic


0.46



0.64



0.57



0.58



(0.44
)


0.50



(1.11
)


0.60Diluted (1)


0.46



0.64



0.56



0.58



(0.44
)


0.50



(1.11
)


0.60Cash dividends declared


0.21



0.21



0.21



0.21



0.21



0.21



0.42



0.42Book value


17.33



17.30



16.49



16.20



15.90



16.47



16.12



17.43Balance Sheet Data Ending Balances:Loans:Managed

$
218,102


$
222,604


$
223,390


$
229,942


$
236,492


$
237,505


$
234,412


$
229,673Reported


156,733



164,251



166,576



171,427



174,251



176,419



172,591



168,078Deposits


167,530



162,385



164,299



163,555



167,077



164,130



163,169



164,643Long-term debt (2)


43,418



44,361



41,693



42,197



40,911



42,641



39,093



38,753Total assets:Managed


306,304



310,207



312,244



315,104



309,096



324,780



316,011



317,176Reported


268,954



270,252



272,412



274,352



269,300



283,373



272,709



273,008Common stockholders equity


20,226



20,192



19,261



18,876



18,445



19,042



18,630



20,081Total stockholders equity


20,226



20,382



19,451



19,066



18,635



19,232



18,820



20,271Credit Quality Ratios:Net charge-offs to average loans managed (3)


2.84
%


2.58
%


2.50
%


2.40
%


2.22
%


1.86
%


1.99
%


2.04
%Allowance for credit losses to period end loans


2.89



2.73



2.54



2.45



2.36



1.75



1.73



1.39Nonperforming assets to related assets


2.35



1.96



1.77



1.55



1.48



1.21



1.03



0.99Financial Performance Ratios:Return (loss) on average assets


0.80
%


1.13
%


0.99
%


1.02
%


(0.75
)%


0.85



(1.87
)%


1.03
%Return (loss) on average common equity


10.5



15.0



13.9



14.6



(10.7
)


12.2



(26.0
)


13.9Net interest margin:Managed


5.20



4.95



4.65



4.76



4.65



4.66



4.80



4.91Reported


3.84



3.70



3.50



3.71



3.67



3.68



3.77



3.78Efficiency ratio:Managed


53.5



46.9



48.5



47.6



66.0



54.6



103.8



53.7Reported


63.7



56.9



59.5



58.5



81.5



65.2



137.8



65.7




BANK ONE CORPORATION 98 2001 ANNUAL REPORT




---




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 29Quarterly Financial Data (Unaudited)continued





2001


2000Fourth


Third


Second


First


Fourth


Third


Second


First(In millions, except ratios and per share data)Capital Ratios:Risk-based capital:Tier 1


8.6
%


8.4
%


8.2
%


7.8
%


7.3
%


7.5
%


7.2
%


7.7
%Total


12.2



11.7



11.6



11.2



10.8



10.9



10.3



10.6Tangible common equity/tangible managed assets


5.9



5.8



5.8



5.6



5.5



5.4



5.4



5.7Common Stock Data:Average shares outstanding:Basic


1,166



1,168



1,166



1,163



1,158



1,156



1,153



1,149Diluted (1)


1,174



1,176



1,176



1,173



1,158



1,167



1,153



1,155Stock price:High

$
39.85


$
38.95


$
39.60


$
39.85


$
37.69


$
38.81


$
36.88


$
34.75Low


28.00



28.00



33.61



33.49



31.88



28.44



26.56



24.25Close


39.05



31.47



35.80



36.18



36.63



38.06



26.56



34.38Employees (4)


73,519



75,801



78,491



79,157



80,778



81,291



82,443



N/A





N/ANot available.





|(1) |  | Common equivalent shares and related income were excluded from the computation of diluted loss per share for the three months ended December 31, 2000 and June 30, 2000 as the
effect would be antidilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes trust preferred capital securities.
|--- |  | --------------------------------------------




|(3) |  | Fourth quarter, third quarter, second quarter and first quarter 2001 amounts include $14 million, $14 million, $24 million and $40 million, respectively, of charge-offs which
are not classified as such in the Corporations GAAP financial information because they are part of a portfolio which has been accounted for as loans held at a discount. The inclusion of these amounts in charge-offs more accurately reflects the
credit performance of the portfolio. In the Corporations financial statements, these items result in a higher provision in excess of net charge-offs.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Beginning in the first quarter of 2001, employees on long-term disability and employees of unconsolidated subsidiaries are excluded. Prior period data have not been restated
for this change.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 99 2001 ANNUAL REPORT




---




REPORT OF MANAGEMENT





Management of BANK ONE CORPORATION and its subsidiaries (the Corporation) is responsible for the preparation, integrity and fair presentation of its published financial reports. These reports include
consolidated financial statements that have been prepared in accordance with generally accepted accounting principles, using Managements best judgment and all information available.





The consolidated financial statements of the Corporation have been audited by KPMG LLP, independent public accountants. Their accompanying report is based upon an audit conducted in
accordance with generally accepted auditing standards, including the related review of internal accounting controls and financial reporting matters. The Audit and Risk Management Committee of the Board of Directors, which consists solely of outside
directors, meets at least quarterly with the independent auditors, Corporate Audit and representatives of Management to discuss, among other things, accounting and financial reporting matters.





Management of the Corporation is responsible for establishing and maintaining an effective internal control structure over financial reporting, including the safeguarding of assets
against unauthorized acquisition, use or disposition. The Corporation maintains systems of controls that it believes are reasonably designed to provide Management with timely and accurate information about the operations of the Corporation. This
process is supported by an internal audit function along with the ongoing appraisal of internal controls by the Audit and Risk Management Committee. Both the Corporations independent auditors and the internal audit function directly provide
reports on significant matters to the Audit and Risk Management Committee. The Corporations independent auditors, the internal audit function and the Audit and Risk Management Committee have free access to each other. Internal controls,
systems and corporate-wide processes and procedures are continually enhanced.





The Corporation is dedicated to maintaining a
culture that reflects the highest standards of integrity and ethical conduct when engaging in its business activities. Management of the Corporation is responsible for compliance with various federal and state laws and regulations, and the
Corporation has established procedures that are designed to ensure that Managements policies relating to conduct, ethics and business practices are followed on a uniform basis.





BANK ONE CORPORATION





(signature of James Dimon)





James Dimon


Chairman and Chief Executive Officer





(signature of
Charles W. Scharf)





Charles W. Scharf


Executive Vice President and Chief Financial Officer





Chicago, Illinois


January 15, 2002





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





The Board of Directors and Stockholders


BANK ONE CORPORATION





We have audited the accompanying consolidated balance sheet of BANK ONE
CORPORATION and subsidiaries as of December 31, 2001 and the related consolidated statements of income, stockholders equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the
Corporations Management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The accompanying consolidated balance sheet of BANK ONE CORPORATION and subsidiaries 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 other auditors whose report thereon dated January 17, 2001, expressed
an unqualified opinion on those statements.





We conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.





In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of BANK ONE CORPORATION and subsidiaries as of December 31, 2001 and the results of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.





(signature of KPMG LLP)





Chicago, Illinois


January 15, 2002




BANK ONE CORPORATION 100 2001 ANNUAL REPORT




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SELECTED STATISTICAL INFORMATION


BANK ONE CORPORATION and Subsidiaries





Common Stock and Stockholder Data: (1)(2)

2001


2000


1999


1998


1997Market price:High for the year

$
39.85


$
38.81


$
63.13


$
64.78


$
54.37Low for the year


28.00



24.25



29.98



37.58



35.57At year-end


39.05



36.63



32.00



51.06



49.37Book value (at year-end)


17.33



15.90



17.34



17.31



16.03Dividend payout ratio


38
%


N/M



57
%


58
%


61
%Financial Ratios:Net income (loss) as a percentage of:(3)Average stockholders equity


13.5
%


(2.6
)%


17.0
%


15.8
%


15.6
%Average common stockholders equity


13.4



(2.6
)


17.2



15.9



16.0Average total assets


1.0



(0.2
)


1.4



1.3



1.3Average earning assets


1.1



(0.2
)


1.6



1.5



1.5Stockholders equity at year-end as a percentage of:Total assets at year-end


7.5



6.9



7.5



7.9



8.0Total loans at year-end


12.9



10.7



12.3



13.2



11.9Total deposits at year-end


12.1



11.2



12.4



12.7



12.4Average stockholders equity as a percentage of:Average total assets


7.4



7.2



8.0



8.2



8.2Average loans


11.8



11.4



13.0



12.7



12.2Average deposits


12.2



12.0



13.2



13.1



12.9Income to fixed charges:(4)Excluding interest on deposits


2.0x



0.8x



2.3x



2.3x



2.4xIncluding interest on deposits


1.4x



0.9x



1.6x



1.5x



1.5x





N/MNot meaningful.





|(1) |  | There were 108,242 common stockholders of record as of December 31, 2001.
|--- |  | -------------------------------------------------------------------------




|(2) |  | The principal market for the Corporations common stock is the New York Stock Exchange. The Corporations common stock also is listed on the Chicago Stock Exchange.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Does not include deduction for preferred dividends.
|--- |  | ---------------------------------------------------




|(4) |  | Results for the year ended December 31, 2000, were insufficient to cover fixed charges. The coverage deficiency was approximately $1.2 billion.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



BANK ONE CORPORATION 101 2001 ANNUAL REPORT