-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JLyyDhEFmhxE21xnXESc6qJVohy1BiTExY3U7WQROZEKFo3b9ici9Vp5lPsbyEj3 8J3liGt54XEtWHnpkpk3Vw== 0000950152-96-004135.txt : 19960816 0000950152-96-004135.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950152-96-004135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANC ONE CORP /OH/ CENTRAL INDEX KEY: 0000036090 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 310738296 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08552 FILM NUMBER: 96612534 BUSINESS ADDRESS: STREET 1: 100 E BROAD ST CITY: COLUMBUS STATE: OH ZIP: 43271 BUSINESS PHONE: 6142485944 MAIL ADDRESS: STREET 1: 100 EAST BROAD STREET STREET 2: 18TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43271-0251 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANC GROUP OF OHIO INC /OH/ DATE OF NAME CHANGE: 19800301 10-Q 1 BANC ONE CORPORATION 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 1996. OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-8552 BANC ONE CORPORATION -------------------- (Exact name of registrant as specified in its charter) Ohio 31-0738296 ---- ---------- (State or other jurisdiction of incorporation or (IRS Employer I.D. Number) organization) 100 East Broad Street, Columbus, Ohio 43271-0251 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (614) 248-5944 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's common stock, no par value, $5 stated value, was 432,865,470 at July 31, 1996. 2 FORM 10-Q TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ------- -------------------- Page ---- Consolidated Balance Sheet............................................................................................3 Consolidated Statement of Income......................................................................................4 Consolidated Statement of Cash Flows..................................................................................5 Supplemental Disclosures for Statement of Cash Flows..................................................................6 Consolidated Statement of Changes in Stockholders' Equity.............................................................6 Notes to the Consolidated Financial Statements........................................................................7 Consolidated Quarterly Financial Data.................................................................................8 Average Balances, Income and Expense, Yields and Rates...............................................................10 Item 2. Management's Discussion and Analysis Results of Operations................................................................................................12 Net Interest Income/Net Interest Margin.....................................................................12 Non-Interest Income.........................................................................................14 Non-Interest Expense........................................................................................15 Income Taxes................................................................................................15 Balance Sheet Analysis...............................................................................................16 Loans and Leases............................................................................................16 Liquidity and Capital.......................................................................................18 Asset Liability Management..................................................................................18 PART II - OTHER INFORMATION Item 1. Legal Proceedings....................................................................................................21 Item 4. Submission of Matters to a Vote of Security Holders..................................................................21 Item 6. Exhibits and Reports on Form 8-K.....................................................................................22 SIGNATURES....................................................................................................................23
1 3 BANC ONE CORPORATION AND SUBSIDIARIES PART I FINANCIAL INFORMATION 2 4 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31, $(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 - --------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 4,945,403 $ 5,501,266 Short-term investments 944,914 454,718 SECURITIES: Securities held to maturity 1,004,629 1,087,654 Securities available for sale 15,188,502 14,620,334 ------------ ------------ Total securities (fair value approximates $16,225,000 and $15,756,000 at June 30,1996 and December 31, 1995, respectively) 16,193,131 15,707,988 Loans and leases 70,627,848 65,328,665 Allowance for credit losses 1,026,318 938,008 ------------ ------------ Net loans and leases 69,601,530 64,390,657 OTHER ASSETS: Bank premises and equipment, net 1,644,464 1,558,676 Interest earned, not collected 678,899 669,709 Other real estate owned 70,507 75,483 Excess of cost over net assets of affiliates purchased 460,071 242,817 Other 2,512,141 1,852,649 ------------ ------------ Total other assets 5,366,082 4,399,334 ------------ ------------ Total assets $ 97,051,060 $ 90,453,963 ============ ============ LIABILITIES DEPOSITS: Non-interest bearing $ 14,460,575 $ 14,767,497 Interest bearing 56,493,515 52,552,653 ------------ ------------ Total deposits 70,954,090 67,320,150 Federal funds purchased and repurchase agreements 7,106,107 6,261,009 Other short-term borrowings 5,045,350 3,516,191 Long-term borrowings 3,020,801 2,720,373 Accrued interest payable 388,736 410,946 Other liabilities 2,018,544 2,027,816 ------------ ------------ Total liabilities 88,533,628 82,256,485 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, 35,000,000 shares authorized: Series C convertible, no par value, 4,811,251 and 4,992,694 shares issued and outstanding, respectively 240,563 249,635 Common stock, no par value, $5 stated value, 600,000,000 shares authorized, 435,651,470 and 451,741,054 shares issued, respectively (December 31, 1995 shares reflect the 10% stock dividend paid March 6, 1996 to shareholders of record on February 21, 1996) 2,178,257 2,258,705 Capital in excess of aggregate stated value of common stock 4,612,559 5,157,763 Retained earnings 1,587,614 1,100,345 Net unrealized holding gains (losses) on securities available for sale, net of tax (39,909) 91,804 Treasury stock (1,685,000 and 24,090,000 shares at June 30, 1996 and December 31, 1995, respectively), at cost (61,652) (660,774) ------------ ------------ Total stockholders' equity 8,517,432 8,197,478 ------------ ------------ Total liabilities and stockholders' equity $ 97,051,060 $ 90,453,963 ============ ============
The accompanying notes are an integral part of the financial statements. 3 5 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
For the Three Months For the Six Months Ended June 30, Ended June 30, -------------------------------------------------------- $(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ --------- INTEREST INCOME: Interest and fees on loans and leases $ 1,687,142 $ 1,490,413 $ 3,391,783 $ 2,945,369 Interest and dividends on: Taxable securities 238,265 220,974 488,220 429,141 Tax exempt securities 24,215 30,698 49,212 62,312 Other interest income 5,179 11,602 10,568 40,159 ----------- ----------- ----------- ----------- Total interest income 1,954,801 1,753,687 3,939,783 3,476,981 INTEREST EXPENSE: Interest on deposits: Demand, savings and money market deposits 245,337 227,518 492,167 446,370 Time deposits 316,280 358,772 661,667 689,850 Interest on borrowings 195,211 163,929 392,997 327,705 ----------- ----------- ----------- ----------- Total interest expense 756,828 750,219 1,546,831 1,463,925 ----------- ----------- ----------- ----------- Net interest income 1,197,973 1,003,468 2,392,952 2,013,056 Provision for credit losses 171,154 92,565 333,575 159,082 ----------- ----------- ----------- ----------- Net interest income after provision for credit losses 1,026,819 910,903 2,059,377 1,853,974 NON-INTEREST INCOME: Income from fiduciary activities 67,740 58,546 130,251 117,128 Service charges on deposit accounts 161,221 132,462 318,037 259,573 Loan processing and servicing income 114,462 130,248 231,707 242,691 Securities gains 17,533 2,785 23,368 12,571 Other 172,358 130,097 332,526 273,929 ----------- ----------- ----------- ----------- Total non-interest income 533,314 454,138 1,035,889 905,892 NON-INTEREST EXPENSE: Salaries and related costs 501,552 429,079 1,004,364 872,029 Net occupancy expense, exclusive of depreciation 47,695 40,616 92,368 80,192 Equipment expense 28,877 25,667 56,976 52,574 Taxes other than income and payroll 24,462 23,094 48,524 45,066 Depreciation and amortization 96,462 68,960 182,678 143,690 Outside services and processing 128,550 104,991 253,787 208,493 Marketing and development 33,465 48,343 81,579 92,579 Communication and transportation 78,098 67,880 153,269 133,943 Other 89,219 93,698 173,913 197,359 ----------- ----------- ----------- ----------- Total non-interest expense 1,028,380 902,328 2,047,458 1,825,925 ----------- ----------- ----------- ----------- Income before income taxes 531,753 462,713 1,047,808 933,941 INCOME TAX PROVISION: Income excluding securities transactions (170,158) (154,158) (338,273) (319,174) Securities transactions (6,667) (1,073) (8,726) (4,767) ----------- ----------- ----------- ----------- Provision for income taxes (176,825) (155,231) (346,999) (323,941) ----------- ----------- ----------- ----------- Net income $ 354,928 $ 307,482 $ 700,809 $ 610,000 =========== =========== =========== =========== Netincome per common share (amounts reflect the 10% common stock dividend paid March 6, 1996 to shareholders of record on February 21, 1996) $ .80 $ .70 $ 1.57 $ 1.38 =========== =========== =========== =========== Weighted average common shares outstanding (000) 438,039 434,214 441,432 434,935 =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 4 6 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
$(THOUSANDS) (UNAUDITED) 1996 1995 - ------------------------------------------------------------------------------------------------------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income $ 700,809 $ 610,000 ADJUSTMENTS: Provision for credit losses 333,575 159,082 Depreciation expense 136,565 114,446 Amortization of mortgage servicing rights 10,877 4,823 Amortization of other intangibles 46,113 29,244 Amortization (accretion) of securities premiums and discounts, net 17,696 (53,740) Net (increase) decrease in trading account (73,758) 32,152 Net increase in loans held for sale (6,104) (82,106) Net increase (decrease) in deferred loan fees 3,115 (1,407) Securities gains (23,368) (12,571) Gain on sales of banks and branch offices (19,059) (47,247) (Gain) loss on sales of loans and other assets (32,804) 24,721 Net increase in other assets (74,870) (263,220) Net (decrease) increase in other liabilities (122,648) 82,068 Net increase in deferred income taxes 100,365 78,852 ----------- ----------- Net cash provided by operating activities 996,504 675,097 ----------- ----------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: Purchases of securities available for sale (2,852,739) (5,029,390) Purchases of securities held to maturity (52,403) (542,264) Maturities of securities available for sale 2,576,815 4,418,807 Maturities of securities held to maturity 179,058 692,353 Sales of securities available for sale 936,798 1,564,442 Net increase in loans, excluding sales and purchases (4,451,184) (3,402,981) Sales of loans and other assets 2,647,535 1,968,285 Purchases of loans and related premiums (163,710) (501,516) Net (increase) decrease in short-term investments (419,258) 2,665,610 Additions to bank premises and equipment (151,915) (150,941) Sale of banks and branch offices (165,742) 30,581 Net cash acquired in acquisitions 315,715 42,413 Net (increase) decrease in purchased mortgage servicing rights 7,765 (36,061) All other investing activities, net 101 ----------- ----------- Net cash provided by (used in) investing activities (1,593,265) 1,719,439 ----------- ----------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net decrease in demand deposit, money market and savings accounts (491,529) (665,743) Net increase (decrease) in time deposits 84,622 (1,206,259) Net increase (decrease) in short-term borrowings 1,942,273 (61,555) Issuance of long-term borrowings, net 604,349 359,202 Repayment of long-term borrowings (1,138,940) (137,508) Cash dividends paid (304,139) (400,101) Purchase of treasury stock (654,602) (178,583) Other, net (decrease) increase (1,136) 15,154 ----------- ----------- Net cash provided by (used in) financing activities 40,898 (2,275,393) ----------- ----------- (Decrease) increase in cash and cash equivalents (555,863) 119,143 Cash and cash equivalents at January 1 5,501,266 5,073,417 ----------- ----------- Cash and cash equivalents at June 30 $ 4,945,403 $ 5,192,560 =========== ===========
The accompanying notes are an integral part of the financial statements. 5 7 BANC ONE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL DISCLOSURES FOR STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
$(THOUSANDS) (UNAUDITED) 1996 1995 - ----------------------------------------------------------------------------------------------------- Common stock issued and treasury stock reissued in purchase acquisitions $ 710,515 $ 3,647 =========== =========== Transfer from loans to other real estate owned (OREO) $ 42,258 $ 38,967 =========== =========== Net decrease in securities trades not settled $ (459,214) $ (309,287) =========== =========== Loans issued to facilitate the sale of OREO properties $ 954 $ 3,397 =========== =========== Additional Disclosures: Interest paid $ 1,599,871 $ 1,437,395 =========== =========== Income taxes paid $ 295,504 $ 181,946 =========== ===========
The accompanying notes are an integral part of the financial statements. BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, ------------------- $(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 - ----------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF PERIOD $ 8,197,478 $ 7,564,860 Net income 700,809 610,000 Exercise of stock options, net of shares purchased (5,032) (2,802) Shares issued in acquisitions 710,515 3,647 Sales of stock to employee benefit plans and other 4,116 17,956 Cash dividends: Corporation: Common ($.68 and $.62 per share for the six months ended June 30, 1996 and 1995, respectively) (295,600) (267,430) Series C Preferred ($1.75 per share for the six months ended June 30, 1996 and 1995, respectively) (8,539) (8,746) Change in unrealized holding gains (losses) on securities available for sale, net of tax (131,713) 100,169 Purchase of treasury stock (654,602) (178,583) ----------- ----------- BALANCE, END OF PERIOD $ 8,517,432 $ 7,839,071 =========== ===========
The accompanying notes are an integral part of the financial statements. 6 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying consolidated financial statements are unaudited. However, in the opinion of management, they contain the adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position and the results of operations. The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 1995 and the quarterly report on Form 10-Q for the quarter ended March 31, 1996 should be read in conjunction with these financial statements. "The Corporation" is defined as parent company only. "BANC ONE" is defined as the Corporation and all significant majority-owned subsidiaries. Certain prior period amounts have been reclassified to compare with current presentation. 2. The provision for income taxes is at a rate which management believes will approximate the effective rate for the year. 3. On January 2, 1996, the Corporation acquired all of the outstanding shares of Banc One Louisiana Corporation (BOLC) formerly known as Premier Bancorp, Inc. of Baton Rouge, Louisiana in exchange for 24 million shares of the Corporation's treasury stock (adjusted for the 10% common stock dividend) valued at $711 million. The acquisition was accounted for as a purchase, and therefore, prior period financial statements have not been restated to include BOLC. BOLC had assets of $6.3 billion at December 31, 1995. 4. On February 13, 1996, the Corporation repurchased 15 million shares of common stock (16.5 million shares after the 10% stock dividend). The shares were retired and subsequently reissued to pay the 10% stock dividend. On April 16, 1996, the Board of Directors approved the repurchase of up to 10 million shares of the Corporation's common stock to be used for general corporate purposes. As of June 30, 1996, the Corporation had acquired 1.7 million shares. 5. Residential loans held for sale were $508 million and $503 million at June 30, 1996 and December 31, 1995, respectively. Such loans are carried at the lower of cost or market determined on an aggregate basis. 6. BANC ONE will adopt Financial Accounting Standard No. 125 (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", as of January 1, 1997. SFAS 125 requires that after a transfer of financial assets, an entity must recognize the financial and servicing assets controlled and liabilities incurred and derecognize financial assets and liabilities in which control is surrendered or when debt is extinguished. The impact on BANC ONE's financial position and results of operations will not be material. 7 9 CONSOLIDATED QUARTERLY FINANCIAL DATA
QUARTERS ---------------------------------------------------------------- 1996 1995 ------------------------- ------------------------------------ $(MILLIONS) (UNAUDITED) SECOND FIRST FOURTH THIRD SECOND - ----------------------------------------------------------------------------------------------------------------------- PERIOD END BALANCES Loans and leases (net of unearned income) $ 70,627.8 $ 69,207.2 $ 65,328.7 $ 65,412.7 $ 63,335.0 Earning assets 86,739.6 85,860.1 80,553.4 79,020.9 77,272.1 Total assets 97,051.1 95,708.2 90,454.0 88,353.3 86,783.3 Total deposits 70,954.1 70,217.0 67,320.2 66,291.7 65,612.9 Long-term borrowings 3,020.8 3,010.1 2,720.4 2,677.2 2,088.0 Allowance for credit losses 1,026.3 1,005.8 938.0 915.5 891.5 Total stockholders' equity 8,517.4 8,430.1 8,197.5 8,002.2 7,839.1 CONDENSED INCOME STATEMENT Net interest income (1) 1,214.22 1,210.87 1,094.55 1,057.66 1,024.36 Provision for credit losses 171.15 162.42 165.90 132.52 92.56 ------------- ------------- ------------- ------------- ------------- Net funds function (1) 1,043.07 1,048.45 928.65 925.14 931.80 NON-INTEREST INCOME Income from fiduciary activities 67.74 62.51 62.23 60.05 58.54 Service charges on deposit accounts 161.22 156.82 144.31 140.81 132.46 Loan processing and servicing income 114.46 117.24 135.53 142.59 130.24 Securities gains 17.53 5.83 7.98 7.29 2.79 Other 172.36 160.17 141.16 122.13 130.10 ------------- ------------- ------------- ------------- ------------- Total non-interest income 533.31 502.57 491.21 472.87 454.13 NON-INTEREST EXPENSE Salaries and related costs 501.55 502.81 448.35 430.14 429.08 Other 526.83 516.27 477.15 450.07 473.25 ------------- ------------- ------------- ------------- ------------- Total non-interest expense 1,028.38 1,019.08 925.50 880.21 902.33 Taxable equivalent adjustment 16.25 15.89 16.57 19.25 20.89 ------------- ------------- ------------- ------------- ------------- Income before income taxes 531.75 516.05 477.79 498.55 462.71 Provision for income taxes 176.82 170.17 140.94 167.53 155.23 ------------- ------------- ------------- ------------- ------------- Net income $ 354.93 $ 345.88 $ 336.85 $ 331.02 $ 307.48 ============= ============= ============= ============= ============= Net income available to common shareholders $ 350.68 $ 341.59 $ 332.48 $ 326.65 $ 303.11 ============= ============= ============= ============= ============= 1) Fully taxable equivalent basis. The Federal statutory rate used was 35% for all periods presented.
8 10 CONSOLIDATED QUARTERLY FINANCIAL DATA (CONTINUED)
QUARTERS ------------------------------------------------------- 1996 1995 ----------------------- ------------------------------- $(MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED) SECOND FIRST FOURTH THIRD SECOND - --------------------------------------------------------------------------------------------------------------------- KEY RATIOS Return on average assets (1) 1.50% 1.45% 1.51% 1.51% 1.43% Return on average common equity (1) 17.37 16.38 17.00 17.09 16.34 Average common equity to assets 8.51 8.77 8.80 8.74 8.60 Tier I capital ratio 9.52 9.57 10.05 10.11 10.36 Total risk adjusted capital ratio 13.23 13.44 14.05 14.17 13.76 Leverage ratio 8.43 8.24 8.87 8.88 8.72 MARGIN ANALYSIS (1)(2)(3) Interest income 9.19 9.34 9.26 9.19 9.15 Interest expense 3.53 3.69 3.79 3.80 3.86 ---- ---- ---- ---- ---- Net interest income 5.66 5.65 5.47 5.39 5.29 Provision for credit losses .80 .76 .83 .68 .48 ---- ---- ---- ---- ---- Net funds function 4.86 4.89 4.64 4.71 4.81 CREDIT ANALYSIS Net charge-offs to average loans and leases (1) .86 .89 .87 .67 .56 Ending allowance to loans and leases 1.45% 1.45% 1.44% 1.40% 1.41% Nonperforming assets(6): Total $ 458.2 $ 486.3 $ 429.8 $ 444.7 $ 430.8 Percent of total loans and leases .65% .70% .66% .68% .68% Loans delinquent 90 days or more (4): Total $ 280.3 $ 250.2 $ 254.4 $ 212.3 $ 186.7 Percent of total loans and leases .40% .36% .39% .32% .29% Allowance to nonperforming loans 264.7% 245.5% 264.8% 253.3% 249.1% PER SHARE DATA (5) Net income $ .80 $ .77 $ .77 $ .76 $ .70 Cash dividends declared .34 .34 .31 .31 .31 Book value 19.07 18.80 18.58 18.02 17.59 Common stock price: High 37.75 38.50 36.48 34.41 31.94 Low 32.88 31.94 30.35 27.95 26.03 Close 34.00 35.63 34.21 33.18 29.32 Preferred Series C stock price: High 72.63 73.88 70.75 64.00 61.75 Low 63.88 62.00 59.38 55.58 52.25 Close $ 66.75 $ 69.13 $ 65.63 $ 63.75 $ 58.25 SHARES TRADED (000) Common 50,688 62,091 37,100 39,873 53,708 Preferred Series C 880 1,222 1,678 990 1,316 (1) Ratios presented on an annualized basis. (2) Fully taxable equivalent basis. The Federal statutory rate used was 35% for all periods presented. (3) As a percent of average earning assets. (4) Excluding nonperforming loans. (5) Applicable amounts per common share have been restated for the 10% common stock dividend paid March 6, 1996 to shareholders of record on February 21, 1996. (6) Excludes certain smaller balance loans collectively evaluated for impairment.
9 11 AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES (1)
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1996 JUNE 30, 1995 --------------------------------------- -------------------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ $(THOUSANDS)(UNAUDITED) BALANCE EXPENSE RATE BALANCE EXPENSE RATE - ------------------------------------------------------------------------------------- -------------------------------------- ASSETS: Short-term investments $ 400,036 $ 5,179 5.21% $ 795,482 $ 12,520 6.31% SECURITIES: (3) Taxable 15,012,806 238,988 6.40 13,399,586 221,118 6.62 Tax-exempt 1,729,708 35,640 8.29 2,043,265 45,232 8.88 ------------ ------------ ------------ ------------ Total securities 16,742,514 274,628 6.60 15,442,851 266,350 6.92 LOANS AND LEASES: (2) Commercial 19,386,935 399,549 8.29 17,570,318 360,794 8.24 Real estate: Commercial 6,098,237 135,033 8.91 5,601,954 126,371 9.05 Construction 3,093,874 76,717 9.97 2,375,418 59,690 10.08 Residential 11,905,609 271,616 9.18 11,719,446 257,632 8.82 Consumer, net 20,173,124 468,445 9.34 17,645,086 409,886 9.32 Credit card 7,478,519 303,014 16.30 6,087,609 255,762 16.85 Leases, net 1,972,030 36,865 7.52 1,418,744 25,574 7.23 Allowance for credit losses (1,009,481) (890,911) ------------ ------------ ------------ ------------ Net loans and leases 69,098,847 1,691,239 9.84 61,527,664 1,495,709 9.75 ------------ ------------ ------------ ------------ Total earning assets 86,241,397 1,971,046 9.19 77,765,997 1,774,579 9.15 Other assets (3) 9,176,532 8,762,773 ------------ ------------ Total assets $ 95,417,929 $ 86,528,770 ============ ============ LIABILITIES: DEPOSITS: Non-interest bearing demand $ 13,937,335 $ 12,689,263 Interest bearing demand 2,240,299 9,563 1.72 8,677,213 47,519 2.20 Savings 5,321,492 33,386 2.52 6,259,868 47,236 3.03 Money market savings 23,876,379 202,388 3.41 12,941,740 132,763 4.11 Time deposits: CDs less than $100,000 19,040,715 261,011 5.51 19,427,161 278,119 5.74 CDs $100,000 and over: Domestic 3,871,201 25,342 2.63 4,122,398 56,740 5.52 Foreign 2,272,890 29,927 5.30 1,630,137 23,913 5.88 ------------ ----------- ------------- ----------- Total deposits 70,560,311 561,617 3.20 65,747,780 586,290 3.58 BORROWED FUNDS: Short-term 11,416,898 145,695 5.13 9,107,053 128,996 5.68 Long-term 2,980,892 49,516 6.68 2,091,910 34,933 6.70 ------------ ----------- ------------- ----------- Total borrowed funds 14,397,790 195,211 5.45 11,198,963 163,929 5.87 ------------ ----------- ------------- ----------- Total interest bearing liabilities 71,020,766 756,828 4.29 64,257,480 750,219 4.68 Other liabilities 2,098,015 1,890,402 ------------ ------------ Total liabilities 87,056,116 78,837,145 Preferred stock 242,956 249,882 Common stockholders' equity 8,118,857 7,441,743 ------------ ------------ Total liabilities and stockholders' equity $ 95,417,929 $ 86,528,770 ============ ============ Net interest income 1,214,218 5.66 1,024,360 5.29 Provision for credit losses (171,154) (0.80) (92,565) (0.48) ----------- ---- ----------- ---- Net funds function $ 1,043,064 4.86% $ 931,795 4.81% =========== ==== =========== ==== (1)Fully taxable equivalent basis. The Federal statutory rate used was 35% for all periods presented. (2)Nonaccrual loans are included in loan balances. Interest income includes related fee income. (3)Average securities balances are based on amortized historical cost, excluding SFAS 115 adjustments to air value which are included in other assets.
10 12
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1995 ---------------------------------------- ------------------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ---------------------------------------- ------------------------------------- $ 396,047 $ 10,601 5.38% $ 1,343,801 $ 42,814 6.42% 15,243,793 489,084 6.45 13,297,126 429,853 6.52 1,731,455 72,212 8.39 2,093,945 91,978 8.86 ------------ ------------ ------------ ----------- 16,975,248 561,296 6.65 15,391,071 521,831 6.84 19,125,551 783,148 8.23 17,072,984 692,471 8.18 6,043,437 269,309 8.96 5,569,108 246,967 8.94 3,007,099 148,505 9.93 2,328,593 119,160 10.32 11,798,184 537,438 9.16 11,538,391 501,590 8.77 20,100,536 956,020 9.56 18,274,695 848,661 9.36 7,883,937 636,288 16.23 5,947,876 496,798 16.84 1,874,050 69,316 7.44 1,386,603 50,305 7.32 (1,008,848) (894,052) ------------ ------------ ------------ ----------- 68,823,946 3,400,024 9.93 61,224,198 2,955,952 9.74 ------------ ------------ ------------ ----------- 86,195,241 3,971,921 9.27 77,959,070 3,520,597 9.11 9,349,989 8,627,988 ------------ ------------ $ 95,545,230 $ 86,587,058 ============ ============ $ 13,944,480 $ 12,805,089 2,677,662 24,410 1.83 8,801,954 97,137 2.23 5,446,407 70,378 2.60 6,496,472 97,978 3.04 23,179,141 397,379 3.45 12,745,961 251,255 3.98 19,417,585 537,042 5.56 19,307,069 534,230 5.58 3,893,534 75,551 3.90 3,947,063 104,222 5.32 1,853,114 49,074 5.33 1,793,787 51,398 5.78 ------------ ------------ -------------- ----------- 70,411,923 1,153,834 3.30 65,897,395 1,136,220 3.48 11,474,068 295,268 5.17 9,208,408 256,324 5.61 2,999,799 97,729 6.55 2,074,063 71,381 6.94 ------------ ------------ -------------- ----------- 14,473,867 392,997 5.46 11,282,471 327,705 5.86 ------------ ------------ -------------- ----------- 70,941,310 1,546,831 4.38 64,374,777 1,463,925 4.59 2,161,952 1,795,874 ------------ -------------- 87,047,742 78,975,740 245,199 249,891 8,252,289 7,361,427 ------------ -------------- $ 95,545,230 $ 86,587,058 ============ ============== 2,425,090 5.66 2,056,672 5.32 (333,575) (0.78) (159,082) (0.41) ============ ==== =========== ==== $ 2,091,515 4.88% $ 1,897,590 4.91% ============ ==== =========== ====
11 13 MANAGEMENT'S DISCUSSION AND ANALYSIS This discussion should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report, the 1995 BANC ONE CORPORATION Annual Report on Form 10-K and quarterly report on Form 10-Q for the quarter ended March 31, 1996. BANC ONE's financial position and results of operations have not been restated to include Banc One Louisiana Corporation, (BOLC) formerly known as Premier Bancorp, Inc., which was acquired on January 2, 1996, as this acquisition was accounted for using the purchase method of accounting. BANC ONE cautions that any forward looking statements contained in this report, in a report incorporated by reference to this report or made by management of BANC ONE involve risks and uncertainties and are subject to change based on various factors. Actual results could differ materially from those expressed or implied. RESULTS OF OPERATIONS NET INTEREST INCOME/NET INTEREST MARGIN BANC ONE's interest income, on a fully taxable equivalent (FTE) basis, was $2.0 billion and $4.0 billion for the three and six months ended June 30, 1996, compared with $1.8 billion and $3.5 billion for the same periods in 1995. The net interest margin was 5.66% for the three and six months ended June 30, 1996, compared with 5.29% and 5.32% for the same periods in 1995. The increase in interest income was due primarily to earning asset growth and the acquisition of BOLC. Average earning asset balances increased to $86.2 billion for the three and six months ended June 30, 1996 as compared to $77.8 and $78.0 billion for the for the same periods in 1995. BOLC's June 30, 1996 quarter-to-date and year-to-date average earning assets of $5.0 billion contributed to the increase. Average loans and leases grew to $70.1 billion for the three months ended June 30, 1996, compared to $62.4 billion for the same period in 1995. The growth of $7.7 billion for the three months ended June 30, 1996 as compared to the same period for 1995 was due to an increase of $1.3 billion in credit card loans, $1.2 billion in consumer loans and $1.2 billion in wholesale loans (primarily commercial loans and leases) net of loan sales and the mortgage reclassification discussed below. The inclusion of BOLC in second quarter 1996 contributed $3.3 billion in average loan growth. Average loans and leases grew to $69.8 billion for the six months ended June 30, 1996, compared to $62.1 billion for the same period in 1995. The growth of $7.7 billion for the six months ended June 30, 1996 as compared to the same period in 1995 was due to an increase of $1.7 billion in credit card loans and $1.4 billion in wholesale loans, net of loan sales and the mortgage reclassification discussed below. The inclusion of BOLC in 1996 contributed $3.4 billion in average loan growth. Average investment securities increased $1.3 billion and $1.6 billion for both the three and six months ended June 30, 1996 as compared to the same periods in 1995. Net investing activities (purchases, sales and maturities) resulted in a decrease in the investment portfolio of $1.6 billion and $1.3 billion for the same periods which was more than offset by an increase of $1.5 billion in securities as a result of the inclusion of BOLC in 1996 and an increase of $1.4 billion in securities related to the securitization of mortgage loans and the resulting reclassification of investment securities from mortgage loans during the fourth quarter of 1995. BANC ONE relies on both traditional bank funding sources, including retail deposit gathering and issuance of short and long term debt, as well as securitizations and sales of loans to fund the origination of earning assets. Most of the loan securitizations and sales during 1996 and 1995 include arrangements whereby BANC ONE continues to service the loans. The servicing income represents revenue earned on loans in excess of net charge-offs and interest paid to investors. BANC ONE's net income was not significantly affected by these loan securitizations and sales; however, classifications within the income statement have changed. Amounts that would previously have been reported as interest income, interest expense, and provision for loan losses are instead included in non-interest income as servicing income. Because credit losses are charged against servicing income over the life of these transactions such income may vary depending upon the credit performance of the loans securitized and sold. However, exposure to credit losses on the securitized and sold loans is limited to future servicing income and certain on-balance sheet receivables. While these loan securitizations and sales have included both consumer loans and credit card receivables and may in the future include other types of loans, the most significant impact on BANC ONE's income statement classifications results from credit card activity. The following table presents the impact of credit card securitizations and sales on income statement line items and certain other information pertaining to the total credit card portfolio. 12 14
QUARTER ENDED JUNE 30, 1996 QUARTER ENDED JUNE 30, 1995 ------------------------------------------------------------------------------------- EFFECT OF EFFECT OF CREDIT CARD PRO-FORMA CREDIT CARD PRO-FORMA $(MILLIONS) REPORTED SECURITIZATIONS ADJUSTED REPORTED SECURITIZATIONS ADJUSTED AND SALES AND SALES - --------------------------------------------------------------------------------------------------------------------------------- Income statement: Net interest income - fully taxable equivalent $1,214 $ 107 $ 1,321 $1,024 $ 71 $1,095 Provision for credit losses 171 77 248 93 32 125 Non-interest income 533 (26) 507 454 (38) 416 Non-interest expense 1,028 4 1,032 902 1 903 Net income $ 355 $ 0 $ 355 $ 307 $ 0 $ 307 Net interest margin 5.66% 9.69% 5.86% 5.29% 10.46% 5.46% Other Data: Ending credit card balances $7,832 $4,440 $12,272 $6,228 $3,060 $9,288 Average credit card balances $7,479 $4,440 $11,919 $6,088 $2,722 $8,810 Net credit card charge-offs as a percentage of average credit card balances 5.20% 6.98% 5.86% 3.69% 4.72% 4.01% Credit card delinquencies over 90 days as a percentage of ending credit card balances 1.76% 1.93% 1.82% 1.28% 1.54% 1.36% - ---------------------------------------------------------------------------------------------------------------------------------
As the revolving period ends for certain credit card securitizations, new credit card receivables are recorded and funded on BANC ONE's balance sheet and become available for securitization. Approximately $1.1 billion of credit card securitizations are scheduled to be funded during the remainder of 1996. Interest expense remained constant at $.8 billion and $1.5 billion for the three and six months ended June 30, 1996 and 1995. In 1996, the inclusion of BOLC increased interest expense $37 million and $77 million for the respective periods. Further, a $24 million reduction of interest on deposits in the second quarter of 1996 resulted from the reversal of premiums on depository balances (domestic CD's over $100,000) acquired in previous years. BANC ONE's retail funding base increased $5 billion for the three and six months ended June 30, 1996 primarily related to the inclusion of BOLC. The retail funding base continued to shift away from relatively low-cost deposit products (including interest-bearing demand and savings accounts) into deposit products offering higher yields. This enabled BANC ONE to avoid runoff of its retail funding base and provided continued access to retail funds at rates which remained below large liability funding cost. BANC ONE's policy is to manage interest rate risk to a level which places limits on the sensitivity of its earnings to changes in market interest rates. An explanation of the asset/liability management process is found beginning on page 18 and in the Annual Report on Form 10-K for the year ended December 31, 1995 beginning on page 34. Interest rate risk management at BANC ONE is executed primarily by the use of on and off-balance sheet investment products. The income statement impact of off-balance sheet investment products is primarily in the net interest margin. Off-balance sheet investment products decreased interest income by $12 million and $32 million for the three and six months ended June 30, 1996, and decreased interest income by $42 million and $75 million for the three and six months ended June 30, 1995. Off-balance sheet investment products increased deposit and other borrowing costs by $.5 million and $1.0 million for the three and six months ended June 30, 1996, as compared to $17.3 million and $37.7 million for the same periods in 1995. The interest rate swap impact in isolation on the net interest margin bears no relationship to the effectiveness of the use of these instruments. The above amounts are simply the interest payments received or paid on interest rate swap agreements without consideration of the impact of interest from assets and liabilities associated with such agreements. 13 15 NON-INTEREST INCOME
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------------------------------------------- JUNE 30, JUNE 30, INCREASE JUNE 30, JUNE 30, INCREASE $(THOUSANDS) 1996 1995 (DECREASE) 1996 1995 (DECREASE) - ---------------------------------------------------------------- ---------------------------------------------------- Income from fiduciary activities $67,740 $58,546 $9,194 $130,251 $117,128 $13,123 Service charges on deposit accounts 161,221 132,462 28,759 318,037 259,573 58,464 Loan processing and servicing income: Mortgage banking 26,073 17,893 8,180 45,935 33,609 12,326 Credit card and merchant processing fees 35,803 52,323 (16,520) 75,541 94,066 (18,525) Loan servicing income 52,586 60,032 (7,446) 110,231 115,016 (4,785) ------ ------ ------- ------- ------- ------- TOTAL LOAN PROCESSING AND SERVICING INCOME 114,462 130,248 (15,786) 231,707 242,691 (10,984) Other income: Insurance 31,844 21,940 9,904 58,059 40,612 17,447 Securities related activities 19,766 11,507 8,259 37,353 22,969 14,384 Investment banking 11,280 10,072 1,208 19,667 14,642 5,025 Other 109,468 86,578 22,890 217,447 195,706 21,741 ------- ------ ------ ------- ------- ------ Total other income 172,358 130,097 42,261 332,526 273,929 58,597 ------- ------- ------ ------- ------- ------ Non-interest income before securities gains 515,781 451,353 64,428 1,012,521 893,321 119,200 ------- ------- ------ --------- ------- ------- Securities gains 17,533 2,785 14,748 23,368 12,571 10,797 ------ ----- ------ ------ ------ ------ TOTAL NON-INTEREST INCOME $533,314 $454,138 $79,176 $1,035,889 $905,892 $129,997 ======== ======== ======= ========== ======== ========
Of the $79 million and $130 million increases in total non-interest income for the three and six months ended June 30, 1996 compared to the same periods in 1995, $23 million and $47 million are due to the inclusion of BOLC. The following discussion excludes amounts related to BOLC. The increase in income from fiduciary activities for the three and six months ended June 30, 1996 compared to the same periods in 1995 is due mainly to the continued increase in investment management fees resulting from growth in funds under management. Funds under management increased 8% from June 30, 1995 to June 30, 1996. The increase in service charges on deposit accounts is due to an increase in overdraft and personal checking and savings account fees of $9 million for the three months and $21 million for the six months ended June 30, 1996 as compared to June 30, 1995. The increase in mortgage banking income is the result of gains of $8 million and $12 million on sales of mortgage loans for the three and six months ended June 30, 1996 and an increase in the fair value of servicing rights resulting in reversals of valuation reserves of $3 million. The decrease in credit card and merchant processing fees for the three and six months ended June 30, 1996 compared to the same periods in 1995 is primarily due to BANC ONE entering into a joint venture arrangement with a third party. Through this arrangement merchant processing fees of $12 million and $23 million and salary and other expense of $7 million and $13 million are classified as other-other income. The decrease in loan servicing income is due to increased charge-offs of $10 million and $15 million related to credit card loan sales for the three and six months ended June 30, 1996. This decrease is partially offset by the continued increase in the credit card servicing portfolio. The increase in both insurance and securities income is due to commissions on increased sales volume resulting from national sales programs. The increase in other-other income for the three months ended June 30, 1996 is due to a gain of $8 million on the sale of $230 million in residential real estate (home equity) loans in June of 1996 and an $8 million increase related to corporate owned life insurance . In addition to these increases, other-other income increased for the six months ended June 30, 1996 due to a $14 million gain on the sale of bank branches. The following transactions in 1995 also affected the increase: a $52 million loss in the first quarter of 1995 related to the sale of $1.2 billion of low yielding consumer loans, a $47 million gain in February 1995 on the sale of four Michigan banks and $17 million in income from March 1995 on the sale of credit card processing software license. The increase in securities gains is primarily due to $10 million in gains related to the sale of venture capital securities. 14 16 NON-INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------------------------------------------------- JUNE 30, JUNE 30, INCREASE JUNE 30, JUNE 30, INCREASE $(THOUSANDS) 1996 1995 (DECREASE) 1996 1995 (DECREASE) - ------------------------------------------------------ ------------------------ ------------------------ ------------------------ As expected, BANC ONE's ongoing consolidation and standardization initiatives have resulted in certain costs being higher than 1995 levels. These costs increased by $23 million and $30 million for the three and six months ended June 30, 1996, primarily in salaries, occupancy and outside services and processing. It is anticipated that expenses related to this initiative will continue to be incurred before the benefits of additional increased revenues and decreased expense are realized. In addition, the inclusion of BOLC has increased total non-interest expense $55 million and $115 million for the three and six months ended June 30, 1996. In addition to the items noted above, the increase in salaries and related costs is due to $14 million and $43 million increase in bonuses and incentive pay and $11 million and $14 million primarily due to anticipated higher company matching of 401k contributions based on expected higher earnings and increased pension costs due to higher interest rates for the three and six months ended June 30, 1996. Depreciation and amortization for the three and six months ended June 30, 1996 increased primarily due to the second quarter 1996 write-off of $12 million in software and goodwill related to a non-bank subsidiary and an increase in goodwill and intangible amortization related to the acquisition of BOLC of $7 million and $14 million. Outside services and processing increased for the three and six months ended June 30, 1996 due to increased consulting related to national programs and a $3 million and $4 million increase in appraisal fees related to an increase in loan originations. Marketing and development expense decreased for the three and six month periods ended June 30, 1996 due to a reduction in credit card solicitations. FDIC insurance decreased for the three and six months ended June 30, 1996 due to the Federal Deposit Insurance Corporation's decision to lower deposit insurance premiums. Congress is considering legislation that would result in a one time assessment on deposits insured by Savings Association Insurance Fund (SAIF). At June 30, 1996, BANC ONE's affiliate banks held approximately $6 billion of deposits subject to premiums insured by the SAIF. Other non-interest expense increased for the three and six month periods ending June 30,1996 due to a $4 million prepayment charge on the early retirement of $79.5 million in long term debt during the second quarter of 1996 and a $10 million and $13 million increase in expenses related to savings and checking accounts and automated teller machines. INCOME TAXES The provision for income taxes was 33.1% of pretax income for the six months ended June 30, 1996 as compared to 34.7% of pretax income for the same period in 1995. The effective tax rate for the six months ended June 30, 1996 approximates the anticipated effective tax rate for the year. The decrease in the effective rate from second quarter 1995 is a result of BANC ONE's state tax management which results in a reduction of state income taxes for 1996 and a reduction in federal income tax reserves relating to agreements reached with the Internal Revenue Service in 1996. 15 17 BALANCE SHEET ANALYSIS LOANS AND LEASES
JUNE 30, DECEMBER 31, $(THOUSANDS)(AS OF END OF PERIOD) 1996 1995 - -------------------------------------------------------------------------------------------- Commercial, financial and agricultural $19,445,903 $17,903,692 Real Estate: Commercial 6,183,933 5,667,826 Construction 3,166,697 2,692,587 Residential 11,819,657 11,259,495 Consumer, net 20,133,524 18,407,595 Credit card 7,831,639 7,665,274 Leases, net 2,046,495 1,732,196 --------- --------- Total loans and leases $70,627,848 $65,328,665 =========== ===========
The $5.3 billion increase in ending loans and leases from December 31, 1995 is due to $3.3 billion related to the inclusion of BOLC and continued loan growth in all categories. Significant loan origination activity is not fully reflected in ending loan balances due to the following sales of loans during the first half of 1996: - - Consumer loan sales of $.5 billion in March 1996 - - Credit card loan sales of $1 billion in March 1996 - - Consumer loan sales of $.3 billion in June 1996 - - Residential real estate (home equity) loan sales of $.2 billion in June 1996 For an additional analysis of loans refer to the Average Balances, Income and Expense, Yields and Rates found on page 10. Also, refer to the table on page 13 which provides certain information on managed credit card loans. BANC ONE's process for monitoring loan quality includes detailed, monthly analysis of delinquencies, nonperforming assets and potential problem loans from each affiliate bank. Management extensively monitors credit through appraisals, assessment of the financial condition of borrowers, restrictions on out-of-area lending and avoidance of loan concentrations. The following summarizes the activity in nonaccrual loans and other real estate owned (OREO).
THREE MONTHS ENDED SIX MONTHS ENDED $(THOUSANDS) JUNE 30, 1996 JUNE 30, 1996 - ----------------------------------------------------------------------------------------------------------- NONACCRUAL LOANS: Balance, beginning of period $407,605 $349,084 BOLC acquisition 30,516 Nonaccrual additions 87,085 210,705 Loans returned to accrual and payments received (63,829) (128,304) Reductions due to transfers to OREO (10,289) (18,630) Charge-offs (26,156) (49,150) Other, net (8,844) (8,649) ------- ------- Balance, end of period $385,572 $385,572 ======== ======== OREO: Balance, beginning of period $76,584 $75,483 BOLC acquisition 3,982 Additions 23,102 42,258 Write-downs (6,231) (12,797) Sales (20,901) (34,685) Customer Payments and other (2,045) (3,732) ------- ------- Balance, end of period $70,509 $70,509 ======= =======
16 18 The following tables summarize net charge-offs as percentages of average loans and leases for the periods indicated and loans delinquent 90 days or more as a percentage of loans at the dates indicated.
FOR THE THREE MONTHS ENDED NET CHARGE-OFFS (RECOVERIES) (1) JUNE 30, - ------------------------------------------------------------------------------------------------------------------------- 1996 1995 ------------------ ------------------ Commercial, financial and agricultural .07% (.08)% Real estate .05 .13 Consumer, net .96 .59 Credit card 5.20 3.69 Leases, net (.04) .41 TOTAL LOANS AND LEASES .86% .56% (1) Ratios are presented on an annualized basis.
JUNE 30, DECEMBER 31, JUNE 30, LOANS DELINQUENT 90 DAYS OR MORE (1) 1996 1995 1995 - ------------------------------------------------------------------------------------------------------------------------------ Wholesale (2) .11% .15% .15% Real estate, residential .24 .25 .13 Consumer, net .36 .34 .28 Credit card 1.76 1.54 1.28 Leases, net .04 .03 .02 TOTAL LOANS AND LEASES .40% .39% .29% (1) Ratios presented are expressed as a percent of ending balances. Delinquencies exclude nonperforming loans. (2) Includes commercial, financial, agricultural, commercial real estate and construction real estate loans.
Total nonperforming assets at June 30, 1996 have increased to $458 million from $430 million at December 31, 1995 primarily due to the inclusion of BOLC. Annualized net charge-offs for the second quarter of 1996 increased to .86 percent of average loans from .56 percent in the second quarter of 1995. The increase in net charge-offs and loans delinquent 90 days or more since June 30, 1995 has been driven by the deterioration of consumer credit experienced by BANC ONE and parallelling that experienced by the banking industry. The following summarizes activity in the allowance for credit losses. The increase in the provision for credit losses is primarily due to loan growth.
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------------------------- ----------------------------------- $(THOUSANDS) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, BEGINNING OF PERIOD $1,005,808 $885,292 $938,008 $897,180 Allowance associated with acquisitions and other 130 60,065 (3,922) Provision for credit losses 171,154 92,565 333,575 159,082 Losses charged to the allowance (213,721) (134,456) (426,093) (258,472) Recoveries 63,077 48,015 120,763 97,678 ------ ------ ------- ------ Net losses charged to the allowance (150,644) (86,441) (305,330) (160,794) --------- -------- --------- --------- BALANCE, END OF PERIOD $1,026,318 $891,546 $1,026,318 $891,546 ========== ======== ========== ========
17 19 LIQUIDITY AND CAPITAL
JUNE 30, DECEMBER 31, JUNE 30, $(MILLIONS) (AS OF END OF PERIOD) 1996 1995 1995 - ------------------------------------------------------------------------------------------------------------------------- Earning assets, net of short term investments $85,795 $80,099 $76,340 Large liabilities: Net national market liabilities $2,292 $3,209 $2,565 As a percent of net earning assets 2.67% 4.01% 3.36% Total net large liabilities $17,551 $13,857 $12,863 As a percent of net earning assets 20.46% 17.30% 16.85%
At June 30, 1996, large liability dependence was 20.46%, an increase from 17.30% at December 31, 1995. Competition from non-bank investment providers continues to impact BANC ONE's deposit gathering and retention efforts. During the second quarter of 1996, deposit runoff was minimal, but the deposit mix continued to shift to more costly market priced products. This mix change is expected to continue for the foreseeable future. The competitive environment for retail and commercial bank deposits continues to cause BANC ONE to look to non-traditional bank sources to fund its earning asset growth. BANC ONE's large liability dependence increased due to an increase in short term borrowings and Eurodollar deposits which were used to fund loan growth. During the second quarter of 1996, $300 million of consumer loans and $230 million of residential real estate (home equity) loans were sold. Loan sales such as these are expected to continue to generate funding for earning asset growth and to mitigate the need to increase large liabilities. At June 30, 1996, risk based tier I capital, total risk adjusted capital and leverage ratios were 9.52%, 13.23% and 8.43%, respectively. All of these ratios are significantly above regulatory minimum capital requirements. ASSET/LIABILITY MANAGEMENT BANC ONE uses a unified approach to the management of liquidity, capital and interest rate risk through its Asset and Liability Management (ALM) process. The key elements of the ALM process are discussed in further detail on pages 34 through 39 of BANC ONE CORPORATION's 1995 Annual Report on Form 10-K. The management of interest rate risk in the ALM process can be broken down into three components; earnings sensitivity risk (ESR), basis risk and economic value at risk (EVAR). ESR is defined as the percentage change in forecasted earnings over a 12 month period for a specified gradual change in forecasted interest rates. BANC ONE measures ESR by determining how earnings from existing assets and liabilities would change if interest rates changed. The following table reflects ESR at June 30, 1996 for gradual rate changes (i.e. .25% per quarter for a 1% annual rate movement).
Gradual Rate Change ESR - ---------------------------------------- --- +3% (5.9)% +2% (3.5)% +1% (1.4)% -1% ( .3)% -2% (1.3)%
Basis risk is the risk of changing spreads between certain categories of indexed assets and liabilities. The primary risk faced by BANC ONE is the risk that the spread between Prime loan rates and short-term funding rates will narrow. An immediate decline of 10 basis points in the spread between Prime and Fed Funds and Prime and LIBOR, lasting a full year would cause projected earnings to decline by .7%. EVAR is defined as the percentage change in economic value of future earnings for a specified immediate change in rates. EVAR is an indicator of the sensitivity of longer term earnings to interest rates. BANC ONE measures EVAR by determining a baseline gauge of the economic value of future earnings to be derived from the current balance sheet and then calculates the percentage change in that value for given changes in rates. The following table reflects EVAR at June 30, 1996 for 1% and 2% immediate changes in rates. 18 20
Immediate Rate Change EVAR - --------------------- ---- +2% (2.2)% +1% (1.3)% -1% (1.8)% -2% (5.9)%
Major assumptions used in measuring interest rate risk include the behavior of loan and deposit repricings and volumes, prepayments on various fixed rate assets, and spread and volume elasticity of interest and non-interest bearing deposit accounts which may not have contractually defined maturities. A significant portion of consumer deposits do not reprice or mature on a contractual basis. BANC ONE uses both on-balance and off-balance sheet investment products, primarily interest rate swaps, to manage interest rate risk. Interest rate swap agreements involve the exchange of interest payments without the exchange of the underlying notional amount on which the interest payments are calculated. BANC ONE has entered into interest rate swap agreements that synthetically alter the maturity of assets and liabilities as part of its ALM process to manage the impact of fluctuating interest rates on the Corporation's net income. Following are the estimated fair value and amortized cost of securities by type and the estimated maturities and weighted average fixed rates of off-balance sheet investment products by type. A key assumption in the maturity information below is that future variable rates move as indicated by the forward interest rate curve in existence at June 30, 1996. To the extent that the interest rates move in a fashion other than indicated in the forward interest rate curve the maturity information will change.
JUNE 30, 1996 DECEMBER 31, 1995 ---------------------------- --------------------------- Amortized Estimated Amortized Estimated $ (MILLIONS) Cost Fair Value Cost Fair Value - -------------------------------------------------------------------------------------------------------- SECURITIES HELD TO MATURITY: United States treasury and agencies $122 $123 $91 $91 Mortgage and asset-backed securities: Government 47 46 58 62 Other 1 1 6 6 Tax exempt 789 818 909 953 Other 46 49 24 24 -- -- -- -- Total securities held to maturity 1,005 1,037 1,088 1,136 ----- ----- ----- ----- SECURITIES AVAILABLE FOR SALE: United States treasury and agencies 3,662 3,627 3,029 3,060 Mortgage and asset-backed securities: Government 6,964 6,980 6,553 6,660 Other 3,144 3,104 3,595 3,587 Tax exempt 922 917 813 825 Other 560 560 486 488 --- --- --- --- Total securities available for sale 15,252 15,188 14,476 14,620 ------ ------ ------ ------ TOTAL SECURITIES $16,257 $16,225 $15,564 $15,756 ======= ======= ======= =======
19 21
MATURITIES OF OFF-BALANCE SHEET INVESTMENT PRODUCTS AT JUNE 30, 1996(1)(2) ENDING BALANCES AT -------------------------------------------------------------------- ------------------------ 2001 - June 30, December 31, $(MILLIONS) 1996 1997 1998 1999 2000 2005 2006+ 1996 1995 - ------------------------------------------------------------------------------------------------------ ------------------------ Receive fixed swaps: Notional value $ 1,200 $ 3,753 $ 1,800 $ 545 $ 1,160 $ 1,596 $ 300 $10,354 $ 9,789 Weighted average receive rate 6.27% 5.22% 5.94% 6.20% 6.29% 6.43% 7.23% 5.88% 5.85% Receive fixed amortizing swaps: Notional value $ 2,786 $ 1,390 $ 645 $ 19 $ 150 $4,990 $ 7,946 Weighted average receive rate 5.20% 5.22% 5.47% 7.26% 5.54% 5.26% 5.29% Pay fixed swaps: Notional value $ 277 $ 95 $ 356 $ 6 $ 6 $ 740 $ 2,673 Weighted average pay rate 8.06% 8.54% 6.41% 8.69% 8.17% 7.33% 5.76% Purchased caps: Notional value $ 2,501 $ 503 $ 7 $ 19 $ 4 $ 27 $ 3,061 $ 5,253 ------- ------- ------- ------- ------- ------- ------- ------- Net receive fixed position $ 1,208 $ 4,545 $ 2,082 $ 539 $ 1,300 $ 1,569 $ 300 $11,543 $ 9,809 Basis swaps: Notional value 275 3,730 405 68 50 150 4,678 8,304 Other(3) Notional value $ 1,945 $ 790 $ 1,000 $ 1,000 $ 4,735 $ 4,052 (1)Maturities are based on estimated future interest rates from the forward interest curve at June 30, 1996. (2)Variable receive and pay interest rates, which are based primarily on three month LIBOR or prime, are not included in the table above. (3)Other off-balance sheet investment products include forward starting contracts ($2.4 billion at June 30, 1996), floors, options, swaptions, forward rate agreements, currency swaps, and anticipatory hedges. Customer transactions of $1.3 billion and $1.2 billion at June 30, 1996 and December 31, 1995, respectively, have been excluded.
DECEMBER 31, JUNE 30, 1996 1995 --------------------------------------------------------------------- ----------------- TOTAL NET NET $(MILLIONS) NOTIONAL UNREALIZED UNREALIZED UNREALIZED UNREALIZED AMOUNT GAINS LOSSES LOSS GAIN (LOSS) - ---------------------------------------------------------------- ---------------------------------------- ----------------- Receive fixed swaps $10,354 $12 ($100) ($88) $136 Receive fixed amortizing swaps 4,990 5 (33) (28) (13) Pay fixed swaps 740 1 (8) (7) (13) Purchased caps 3,061 0 (4) (4) (18) Basis swaps 4,678 0 (28) (28) (37) Other 4,735 2 (7) (5) (8) ---------------------------- ---------------------------------------- ----------------- Total $28,558 $20 ($180) ($160) $47 ============================ ======================================== =================
BANC ONE CORPORATION's 1995 Annual Report on Form 10K provided certain fair value information based on interest rates at December 31, 1995. While the net unrelated value of the off-balance sheet investment product portfolio has decreased, due to an increase in long-term market interest rates, the fair value of the fixed rate liabilities has increased. 20 22 BANC ONE CORPORATION AND SUBSIDIARIES PART II OTHER INFORMATION Item 1. Legal Proceedings. In 1992, Bank One, Columbus, N.A. ("Columbus") was named a defendant in a purported class action lawsuit in Pennsylvania challenging whether Columbus can impose various types of fees, allowed by the state of Ohio, on credit cardholders residing in Pennsylvania (the "Suit"). The Suit sought unquantified compensatory and triple damages and other equitable relief. The Suit was one of many similar class action lawsuits brought against credit card issuing banks throughout the United States. The dismissal of the Suit by the Court of Common Pleas of Philadelphia County, Pennsylvania, which had been upheld by a panel of the Pennsylvania Superior Court, was reversed by the entire Pennsylvania Superior Court in December 1994. Columbus appealed the decision to the Pennsylvania Supreme Court, which on July 29, 1996 entered an order reversing the judgment of the entire Pennsylvania Superior Court and upholding the trial court's dismissal of the Suit, pursuant to the decision of the United States Supreme Court in Smiley v. Citibank (South Dakota), N.A. Item 2 - Inapplicable Item 3 - Inapplicable Item 4. Submission of Matters to a Vote of Security Holders a. The matters discussed in paragraph (c) below were submitted to a vote of security holders at the Annual Meeting of Shareholders of the Registrant held on April 16, 1996. b. Inapplicable. c. Election of Directors:
Shares Voted --------------------------------------------------- Against/ Name For Withheld ---- --- -------- Charles E. Exley, Jr. 322,966,872 1,665,657 E. Gordon Gee 322,900,868 1,761,661 John R. Hall 323,118,775 1,543,754 Laban P. Jackson, Jr. 322,991,671 1,670,858 John W. Kessler 322,920,253 1,742,276 Richard J. Lehmann 323,156,848 1,505,681 John B. McCoy 323,072,516 1,590,013 John G. McCoy 322,991,341 1,671,188 Richard L. Scott 322,745,065 1,917,464 Thekla R. Shackelford 323,140,831 1,521,898 Alex Shumate 322,971,098 1,691,431 Frederick P. Stratton, Jr. 323,140,633 1,521,896 Robert D. Walter 323,140,589 1,521,940
d. Inapplicable. Item 5 - Inapplicable 21 23 Item 6 - EXHIBITS AND REPORTS ON FORM 8-K a. In compliance with Part I Financial Information the following exhibits are incorporated by reference: Exhibit 11 Statement Regarding Computation of Earnings per Common Share Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges Exhibit 27 Financial Data Schedules 22 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BANC ONE CORPORATION 8/14/96 /s/ William C. Leiter ---------------------- ------------------------------- William C. Leiter Date Chief Accounting Officer 23 25 INDEX TO EXHIBITS Exhibit Number - -------------- 11 Statement Regarding Computation of Earnings per Common Share 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedules 24 EX-11 2 EXHIBIT 11 1 BANC ONE CORPORATION and Subsidiaries EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE $(thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ---------------------------- 1996 1995 1996 1995 ------------------------------- ---------------------------- PRIMARY: Earnings: Net income $354,928 $307,482 $700,809 $610,000 Deduct: Dividends on preferred shares 4,244 4,373 8,539 8,746 ----- ----- ----- ----- Net income available to common shareholders $350,684 $303,109 $692,270 $601,254 ======== ======== ======== ======== Shares: Weighted average common shares outstanding 435,115 432,737 438,555 433,678 Add: Dilutive effect of outstanding options, as determined by the application of the treasury stock method 2,924 1,477 2,877 1,257 ----- ----- ----- ----- Weighted average common shares outstanding, as adjusted 438,039 434,214 441,432 434,935 ======= ======= ======= ======= PRIMARY EARNINGS PER COMMON SHARE $.80 $.70 $1.57 $1.38 ==== ==== ===== ===== FULLY DILUTED: Earnings: Net income $354,928 $307,482 $700,809 $610,000 ======== ======== ======== ======== Shares: Weighted average common shares outstanding 435,115 432,737 438,555 433,678 Add: Dilutive effect of outstanding options, as determined by the application of the treasury stock method 2,924 1,517 2,877 1,458 Add: Conversion of preferred stock 9,373 9,640 9,460 9,640 ----- ----- ----- ----- Weighted average common shares outstanding, as adjusted 447,412 443,894 450,892 444,776 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER COMMON SHARE $.79 $.69 $1.55 $1.37 ==== ==== ===== =====
25 EX-12 3 EXHIBIT 12 1 BANC ONE CORPORATION and Subsidiaries EXHIBIT 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges $(thousands)
Six Months Ended Years Ended June 30, December 31, ---------------------------------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------------ ------------------------------------- ------------------------------------- Calculation excluding interest on deposits: Earnings Income before income taxes and change in accounting principle and equity in earnings of Bank One, Texas, NA (1) $1,047,808 $ 933,941 $1,910,282 $1,518,852 $1,770,712 $1,341,249 $ 928,947 Fixed charges 423,081 355,022 736,249 633,569 348,327 321,402 419,274 Less: Capitalized interest (668) (726) (1,671) (1,000) (652) (1,199) (1,732) ----- ----- ------- ------- ----- ------- ------- Earnings $1,470,221 $1,288,237 $2,644,860 $2,151,421 $2,118,387 $1,661,452 $1,346,489 ========== ========== ========== ========== ========== ========== ========== Fixed Charges: Interest expense, including interest factor of capitalized leases and amortization of deferred debt expenses $ 393,665 $ 328,497 $ 683,372 $ 575,734 $ 298,857 $ 278,615 $ 379,708 Portion of rental payments under operating leases deemed to be interest 29,416 26,525 52,877 57,835 49,470 42,787 39,566 ------ ------ ------ ------ ------ ------ ------ Fixed charges $ 423,081 $ 355,022 $ 736,249 $ 633,569 $ 348,327 $ 321,402 $ 419,274 ========== ========== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges excluding interest on deposits: 3.48X 3.63x 3.59x 3.40x 6.08x 5.17x 3.21x Calculation including interest on deposits: Earnings: Income before income taxes and change in accounting principle and equity in earnings of Bank One, Texas, NA (1) $1,047,808 $ 933,941 $1,910,282 $1,518,852 $1,770,712 $1,341,249 $ 928,947 Fixed charges 1,576,915 1,491,242 3,026,343 2,307,832 1,826,018 2,318,274 2,955,918 Less: Capitalized interest (668) (726) (1,671) (1,000) (652) (1,199) (1,732) ----- ----- ------- ------- ----- ------- ------- Earnings $2,624,055 $2,424,457 $4,934,954 $3,825,684 $3,596,078 $3,658,324 $3,883,133 ========== ========== ========== ========== ========== ========== ========== Fixed charges: As detailed above $ 423,081 $ 355,022 $ 736,249 $ 633,569 $ 348,327 $ 321,402 $ 419,274 Interest on deposits 1,153,834 1,136,220 2,290,094 1,674,263 1,477,691 1,996,872 2,536,644 --------- --------- --------- --------- ---------- ---------- --------- Fixed charges $1,576,915 $1,491,242 $3,026,343 $2,307,832 $1,826,018 $2,318,274 $2,955,918 ========== ========== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges including interest on deposits 1.66X 1.63x 1.63x 1.66x 1.97x 1.58x 1.31x (1) Results of Bank One, Texas, NA are consolidated beginning October 1, 1991.
26 EX-27 4 EXHIBIT 27
9 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 4,945,403 2,015 934,740 317,158 14,871,344 1,004,629 1,036,650 70,627,848 1,026,318 97,051,060 70,954,090 12,151,457 2,407,280 3,020,801 2,178,257 0 240,563 6,098,612 97,051,060 3,391,783 537,432 10,568 3,939,783 1,153,834 1,546,831 2,392,952 333,575 23,368 2,047,458 1,047,808 700,809 0 0 700,809 1.57 1.55 5.66 385,572 280,291 2,171 0 938,008 426,093 120,763 1,026,318 809,491 0 216,827
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