-----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, HJyl4Gb7QZ7V7tkGNWvT+IToiFEICnR7Wiexibi6FjWetjCYqljUCRFf3K9gXSmk gvt+S1wPJ6mnZkht36I8eQ== 0000950152-96-006123.txt : 19961118 0000950152-96-006123.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950152-96-006123 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE 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: 96664412 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 BANK ONE 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 September 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 (I.R.S. EMPLOYER IDENTIFICATION NO.) OR 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 427,375,484 at October 31, 1996. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 BANC ONE CORPORATION PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. See the following portions of the BANC ONE CORPORATION consolidated financial statements and analysis for the quarter ended September 30, 1996 (filed as Exhibit 20 to this Form 10-Q), which are expressly incorporated herein by reference: Consolidated Balance Sheet on page 2 Consolidated Statement of Income on page 3 Consolidated Condensed Statement of Cash Flows on page 4 Consolidated Statement of Changes in Stockholders' Equity on page 5 Notes to the Consolidated Financial Statements on page 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See the following portions of the BANC ONE CORPORATION consolidated financial statements and analysis for the quarter ended September 30, 1996 (filed as Exhibit 20 to this Form 10-Q) which are expressly incorporated herein by reference: Management's Discussion and Analysis on pages 11 through 19 1 3 BANC ONE CORPORATION AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Inapplicable ITEM 2. CHANGE IN SECURITIES Inapplicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Inapplicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Inapplicable ITEM 5. OTHER INFORMATION Inapplicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits. Exhibit 11 Statement Regarding Computation of Earnings per Common Share Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges Exhibit 20 BANC ONE CORPORATION consolidated financial statements and analysis for the quarter ended September 30, 1996 Exhibit 27 Financial Data Schedules b. Reports on Form 8-K Inapplicable 2 4 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 November 14, 1996 /s/ BOBBY L. OOXEY - ------------------------------ --------------------------------------------- Date Bobby L. Ooxey Chief Accounting Officer
3 5 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 20 BANC ONE CORPORATION consolidated financial statements and analysis for the quarter ended September 30, 1996 27 Financial Data Schedules
4 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 BANC ONE CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE $(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ----------------------- 1996 1995 1996 1995 -------- -------- ---------- -------- PRIMARY: Earnings: Net income............................... $355,927 $331,017 $1,056,736 $941,017 Deduct: Dividends on preferred shares.... 4,202 4,372 12,741 13,118 -------- -------- ---------- -------- Net income available to common shareholders........................... $351,725 $326,645 $1,043,995 $927,899 ======== ======== ========== ======== Shares: Weighted average common shares outstanding............................ 431,723 431,370 436,261 432,901 Add: Dilutive effect of outstanding options, as determined by the application of the treasury stock method.............................. 3,050 1,521 2,797 1,125 -------- -------- ---------- -------- Weighted average common shares outstanding, as adjusted............... 434,773 432,891 439,058 434,026 ======== ======== ========== ======== PRIMARY EARNINGS PER COMMON SHARE............. $.81 $.76 $2.38 $2.14 ======== ======== ========== ======== FULLY DILUTED: Earnings: Net income............................... $355,927 $331,017 $1,056,736 $941,017 ======== ======== ========== ======== Shares: Weighted average common shares outstanding............................ 431,723 431,370 436,261 432,901 Add: Dilutive effect of outstanding options, as determined by the application of the treasury stock method.............................. 3,758 2,069 3,615 1,880 Add: Conversion of preferred stock....... 9,277 9,639 9,398 9,640 -------- -------- ---------- -------- Weighted average common shares outstanding as adjusted.............................. 444,758 443,078 449,274 444,421 ======== ======== ========== ======== FULLY DILUTED EARNINGS PER COMMON SHARE....... $.80 $.75 $2.35 $2.12 ======== ======== ========== ========
EX-12 3 EXHIBIT 12 1 EXHIBIT 12 BANC ONE CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES $(THOUSANDS)
NINE MONTHS ENDED YEARS ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Calculation excluding interest on deposit: Earnings Income before income taxes and change in accounting principle and equity in earnings of Bank One, Texas, NA(1).............. $1,575,395 $1,432,493 $1,910,282 $1,518,852 $1,770,712 $1,341,249 $ 928,947 Fixed charges.................... 641,302 537,287 736,249 633,569 348,327 321,402 419,274 Less: Capitalized interest....... (1,058) (1,183) (1,671) (1,000) (652) (1,199) (1,732) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings......................... $2,215,639 $1,968,597 $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......... $ 598,370 $ 497,983 $ 683,372 $ 575,734 $ 298,857 $ 278,615 $ 379,708 Portion of rental payments under operating leases deemed to be interest....................... 42,932 39,304 52,877 57,835 49,470 42,787 39,566 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fixed charges.................... $ 641,302 $ 537,287 $ 736,249 $ 633,569 $ 348,327 $ 321,402 $ 419,274 ========== ========== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges excluding interest on deposits:........................ 3.45X 3.66x 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)............. $1,575,395 $1,432,493 $1,910,282 $1,518,852 $1,770,712 $1,341,249 $ 928,947 Fixed charges.................... 2,397,492 2,252,036 3,026,343 2,307,832 1,826,018 2,318,274 2,955,918 Less: Capitalized interest....... (1,058) (1,183) (1,671) (1,000) (652) (1,199) (1,732) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings......................... $3,971,829 $3,683,346 $4,934,954 $3,825,684 $3,596,078 $3,658,324 $3,883,133 ========== ========== ========== ========== ========== ========== ========== Fixed charges: As detailed above................ $ 641,302 $ 537,287 $ 736,249 $ 633,569 $ 348,327 $ 321,402 $ 419,274 Interest on deposits............. 1,756,190 1,714,749 2,290,094 1,674,263 1,477,691 1,996,872 2,536,644 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fixed charges.................... $2,397,492 $2,252,036 $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 1.64x 1.63x 1.66x 1.97x 1.58x 1.31x
- --------------- (1) Results of Bank One, Texas, NA are consolidated beginning October 1, 1991. EX-20 4 EXHIBIT 20 1 EXHIBIT 20 BANC ONE CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND ANALYSIS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 2 INDEX FINANCIAL STATEMENTS Consolidated Balance Sheet................................................. 2 Consolidated Statement of Income........................................... 3 Consolidated Condensed Statement of Cash Flows............................. 4 Consolidated Statement of Changes in Stockholders' Equity.................. 5 Notes to the Consolidated Financial Statements............................. 6 Consolidated Quarterly Financial Data...................................... 7 Average Balances, Income and Expense, Yields and Rates..................... 9 MANAGEMENT'S DISCUSSION AND ANALYSIS................................................. 11 Net Interest Income/Net Interest Margin.................................... 11 Non-Interest Income........................................................ 13 Non-Interest Expense....................................................... 14 Income Taxes............................................................... 15 Loans and Leases........................................................... 15 Liquidity and Capital...................................................... 17 Asset/Liability Management................................................. 17
i 3 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31, $(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 - ----------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks....................................................... $ 5,274,364 $ 5,501,266 Short-term investments........................................................ 765,746 454,718 Loans held for sale........................................................... 471,593 503,326 SECURITIES: Securities held to maturity................................................. 925,167 1,087,654 Securities available for sale............................................... 14,492,635 14,620,334 ----------- ----------- Total securities (fair value approximates $15,446,000 and $15,756,000 at September 30, 1996 and December 31, 1995, respectively)................... 15,417,802 15,707,988 Loans and leases.............................................................. 72,680,815 64,825,339 Allowance for credit losses................................................. 1,054,880 938,008 ----------- ----------- Net loans and leases................................................. 71,625,935 63,887,331 OTHER ASSETS: Bank premises and equipment, net............................................ 1,651,515 1,558,676 Interest earned, not collected.............................................. 658,969 669,709 Other real estate owned..................................................... 61,770 75,483 Excess of cost over net assets of affiliates purchased...................... 455,554 242,817 Other....................................................................... 2,178,752 1,852,649 ----------- ----------- Total other assets................................................... 5,006,560 4,399,334 ----------- ----------- Total assets......................................................... $98,562,000 $90,453,963 =========== =========== LIABILITIES DEPOSITS: Non-interest bearing........................................................ $15,171,495 $14,767,497 Interest bearing............................................................ 56,356,124 52,552,653 ----------- ----------- Total deposits....................................................... 71,527,619 67,320,150 Federal funds purchased and repurchase agreements............................. 7,522,868 6,261,009 Other short-term borrowings................................................... 5,871,443 3,516,191 Long-term borrowings.......................................................... 3,022,835 2,720,373 Accrued interest payable...................................................... 355,778 410,946 Other liabilities............................................................. 1,822,066 2,027,816 ----------- ----------- Total liabilities.................................................... 90,122,609 82,256,485 ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, 35,000,000 shares authorized: Series C convertible, no par value, 4,801,546 and 4,992,694 shares issued and outstanding, respectively............................................. 240,077 249,635 Common stock, no par value, $5 stated value, 600,000,000 shares authorized, 431,805,662 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)................................................ 2,159,028 2,258,705 Capital in excess of aggregate stated value of common stock................... 4,465,890 5,157,763 Retained earnings............................................................. 1,793,048 1,100,345 Net unrealized holding gains (losses) on securities available for sale, net of tax......................................................................... (12,754) 91,804 Treasury stock (5,622,100 and 24,090,000 shares at September 30, 1996 and December 31, 1995, respectively), at cost................................... (205,898) (660,774 ) ----------- ----------- Total stockholders' equity........................................... 8,439,391 8,197,478 ----------- ----------- Total liabilities and stockholders' equity........................... $98,562,000 $90,453,963 =========== ===========
The accompanying notes are an integral part of the financial statements. 2 4 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------------------------------- $(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans and leases.................... $1,741,388 $1,537,351 $5,108,989 $4,469,639 Interest and dividends on: Taxable securities................................... 227,232 200,623 715,452 629,764 Tax exempt securities................................ 23,068 28,335 72,280 90,647 Interest income on loans held for sale................... 8,968 10,030 33,150 23,111 Other interest income.................................... 5,091 9,619 15,659 49,778 ---------- ---------- ---------- ---------- Total interest income................................ 2,005,747 1,785,958 5,945,530 5,262,939 INTEREST EXPENSE: Interest on deposits: Demand, savings and money market deposits............ 254,831 234,674 746,998 681,044 Time deposits........................................ 347,525 343,855 1,009,192 1,033,705 Interest on borrowings................................... 204,315 169,010 597,312 496,715 ---------- ---------- ---------- ---------- Total interest expense............................... 806,671 747,539 2,353,502 2,211,464 ---------- ---------- ---------- ---------- Net interest income.................................. 1,199,076 1,038,419 3,592,028 3,051,475 Provision for credit losses................................ 210,657 132,526 544,232 291,608 ---------- ---------- ---------- ---------- Net interest income after provision for credit losses.... 988,419 905,893 3,047,796 2,759,867 NON-INTEREST INCOME: Income from fiduciary activities......................... 71,787 60,052 202,038 177,180 Service charges on deposit accounts...................... 165,806 140,811 483,843 400,384 Loan processing and servicing income..................... 114,246 142,586 345,953 385,277 Securities gains......................................... 56,165 7,294 79,533 19,865 Other.................................................... 161,305 122,127 493,831 396,056 ---------- ---------- ---------- ---------- Total non-interest income............................ 569,309 472,870 1,605,198 1,378,762 NON-INTEREST EXPENSE: Salaries and related costs............................... 490,625 430,135 1,494,989 1,302,164 Net occupancy expense, exclusive of depreciation......... 43,586 40,965 135,954 121,157 Equipment expense........................................ 29,322 26,372 86,298 78,946 Taxes other than income and payroll...................... 19,450 23,571 67,974 68,637 Depreciation and amortization............................ 79,777 71,635 262,455 215,325 Outside services and processing.......................... 126,604 101,144 380,391 309,637 Marketing and development................................ 38,787 37,210 120,366 129,789 Communication and transportation......................... 81,889 66,955 235,158 200,898 Other.................................................... 120,101 82,224 294,014 279,583 ---------- ---------- ---------- ---------- Total non-interest expense........................... 1,030,141 880,211 3,077,599 2,706,136 ---------- ---------- ---------- ---------- Income before income taxes................................. 527,587 498,552 1,575,395 1,432,493 INCOME TAX PROVISION: Income excluding securities transactions................. (151,469) (165,006) (489,742) (484,180) Securities transactions.................................. (20,191) (2,529) (28,917) (7,296) ---------- ---------- ---------- ---------- Provision for income taxes........................... (171,660) (167,535) (518,659) (491,476) ---------- ---------- ---------- ---------- Net income................................................. $ 355,927 $ 331,017 $1,056,736 $ 941,017 ========== ========== ========== ========== Net income per common share (amounts reflect the 10% common stock dividend paid March 6, 1996 to shareholders of record on February 21, 1996)............................. $ .81 $ .76 $ 2.38 $ 2.14 ========== ========== ========== ========== Weighted average common shares outstanding (000)........... 434,773 432,891 439,058 434,026 ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements. 3 5 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS Nine Months Ended September 30,
$(THOUSANDS) (UNAUDITED) 1996 1995 - --------------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES: Net income................................................................ $ 1,056,736 $ 941,017 Depreciation expense...................................................... 197,362 172,541 Amortization of other intangibles......................................... 65,093 42,784 Other cash provided by operating activities............................... 12,699 21,654 ----------- ----------- Net cash provided by operating activities............................. 1,331,890 1,177,996 ----------- ----------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: Purchases of securities available for sale................................ (3,707,101) (7,491,156) Purchases of securities held to maturity.................................. (101,320) (599,468) Maturities of securities available for sale............................... 2,873,632 5,840,766 Maturities of securities held to maturity................................. 305,781 1,103,133 Sales of securities available for sale.................................... 2,682,279 2,179,671 Net increase in loans, excluding sales and purchases...................... (7,492,081) (5,972,529) Sales of loans and other assets........................................... 3,002,603 2,520,452 Purchases of loans and related premiums................................... (209,285) (577,828) Net (increase) decrease in short-term investments......................... (240,090) 3,114,687 Additions to bank premises and equipment.................................. (225,231) (227,351) Sale of banks and branch offices.......................................... (186,773) (118,282) Net cash acquired in acquisitions......................................... 315,715 42,413 Other, net increase (decrease)............................................ 8,803 (37,899) ----------- ----------- Net cash used in investing activities................................. (2,973,068) (223,391) ----------- ----------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net increase (decrease) in demand deposit, money market and savings accounts................................................................ 168,754 (629,424) Net increase (decrease) in time deposits.................................. 22,917 (391,074) Net increase (decrease) in short-term borrowings.......................... 3,185,127 (35,205) Issuance of long-term borrowings, net..................................... 604,724 954,025 Repayment of long-term borrowings......................................... (1,146,246) (141,876) Cash dividends paid....................................................... (454,633) (537,584) Purchase of treasury stock................................................ (957,891) (225,326) Other, net (decrease) increase............................................ (8,476) 16,982 ----------- ----------- Net cash provided by (used in) financing activities................... 1,414,276 (989,482) ----------- ----------- Decrease in cash and cash equivalents....................................... (226,902) (34,877) Cash and cash equivalents at January 1...................................... 5,501,266 5,073,417 ----------- ----------- Cash and cash equivalents at September 30................................... $ 5,274,364 $ 5,038,540 =========== ===========
Common Stock issued and treasury stock reissued in purchase acquisitions were $711 million and $4 million for the nine months ended September 30, 1996 and 1995, respectively. The net decrease in securities trades not settled were $373 million and $294 million for the nine months ended September 30, 1996 and 1995, respectively. The accompanying notes are an integral part of the financial statements. 4 6 BANC ONE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Nine Months Ended September 30,
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 - ----------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF PERIOD........................................ $8,197,478 $7,564,860 Net income.......................................................... 1,056,736 941,017 Exercise of stock options, net of shares purchased.................. (12,399) (4,164) Shares issued in acquisitions....................................... 710,515 3,647 Sales of stock to employee benefit plans and other.................. 4,143 21,146 Cash dividends: Common ($1.02 and $.93 per share for the nine months ended September 30, 1996 and 1995, respectively).................... (441,892) (400,541) Series C Preferred ($2.63 per share for the nine months ended September 30, 1996 and 1995, respectively).................... (12,741) (13,118) Change in unrealized holding gains (losses) on securities available for sale, net of tax.............................................. (104,558) 114,632 Purchase of treasury stock.......................................... (957,891) (225,326) ---------- ---------- BALANCE, END OF PERIOD.............................................. $8,439,391 $8,002,153 ========== ==========
The accompanying notes are an integral part of the financial statements. 5 7 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 reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 should be read in conjunction with these financial statements. "The Corporation" is defined as the 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 for the nine months ended September 30, 1996 and 1995 is at a rate which management believes approximates 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 September 30, 1996, the Corporation had acquired 9.5 million shares pursuant to this authorization, of which 3.9 million shares have been retired. 5. 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 is not expected to be material. 6 8 CONSOLIDATED QUARTERLY FINANCIAL DATA
QUARTERS ------------------------------------------------------- 1996 1995 ------------------------------- ------------------- $(MILLIONS) (UNAUDITED) THIRD SECOND FIRST FOURTH THIRD - -------------------------------------------------------------------------------------------------- PERIOD END BALANCES Loans and leases....................... $72,681 $70,120 $68,460 $64,825 $64,876 Earning assets......................... 88,281 86,740 85,860 80,553 79,021 Total assets........................... 98,562 97,051 95,708 90,454 88,353 Total deposits......................... 71,528 70,954 70,217 67,320 66,292 Long-term borrowings................... 3,023 3,021 3,010 2,720 2,677 Allowance for credit losses............ 1,055 1,026 1,006 938 915 Total stockholders' equity............. 8,439 8,517 8,430 8,197 8,002 CONDENSED INCOME STATEMENT Net interest income (1)................ 1,215 1,214 1,211 1,095 1,058 Provision for credit losses............ 211 171 163 166 133 ------- ------- ------- ------- ------- Net funds function (1)................. 1,004 1,043 1,048 929 925 NON-INTEREST INCOME Income from fiduciary activities.... 72 68 63 62 60 Service charges on deposit accounts.......................... 166 161 157 144 141 Loan processing and servicing income............................ 114 114 117 136 143 Securities gains.................... 56 18 6 8 7 Other............................... 161 172 160 141 122 ------- ------- ------- ------- ------- Total non-interest income......... 569 533 503 491 473 NON-INTEREST EXPENSE Salaries and related costs.......... 491 501 503 448 430 Other............................... 539 527 516 477 450 ------- ------- ------- ------- ------- Total non-interest expense........ 1,030 1,028 1,019 925 880 Taxable equivalent adjustment.......... 15 16 16 17 19 ------- ------- ------- ------- ------- Income before income taxes............. 528 532 516 478 499 Provision for income taxes............. 172 177 170 141 168 ------- ------- ------- ------- ------- Net income............................. $ 356 $ 355 $ 346 $ 337 $ 331 ======= ======= ======= ======= ======= Net income available to common stockholders........................ $ 351 $ 351 $ 342 $ 332 $ 327 ======= ======= ======= ======= =======
- --------------- (1) Fully taxable equivalent basis. The Federal statutory rate used was 35% for all periods presented. 7 9 CONSOLIDATED QUARTERLY FINANCIAL DATA (CONTINUED)
QUARTERS ------------------------------------------------------- 1996 1995 $(MILLIONS, EXCEPT PER SHARE DATA) ------------------------------- ------------------- (UNAUDITED) THIRD SECOND FIRST FOURTH THIRD - ------------------------------------------------------------------------------------------------ KEY RATIOS Return on average assets (1)......... 1.48% 1.50% 1.45% 1.51% 1.51% Return on average common equity(1)... 17.07 17.37 16.38 17.00 17.09 Average common equity to average assets............................ 8.54 8.51 8.77 8.80 8.74 Tier I capital ratio................. 9.18 9.52 9.57 10.05 10.11 Total risk adjusted capital ratio.... 12.83 13.23 13.44 14.05 14.17 Leverage ratio....................... 8.31 8.43 8.24 8.87 8.88 MARGIN ANALYSIS (1)(2)(3) Interest income...................... 9.28 9.19 9.34 9.26 9.19 Interest expense..................... 3.71 3.53 3.69 3.79 3.80 ------- ------- ------- ------- ------- Net interest income.................. 5.57 5.66 5.65 5.47 5.39 Provision for credit losses.......... .96 .80 .76 .83 .68 ------- ------- ------- ------- ------- Net funds function................... 4.61 4.86 4.89 4.64 4.71 CREDIT ANALYSIS Net charge-offs to average loans and leases (1)........................ 1.02 .87 .90 .87 .68 Ending allowance to loans and leases............................ 1.45% 1.46% 1.47% 1.45% 1.41% Nonperforming assets: (6) Total............................. $ 478 $ 458 $ 486 $ 430 $ 445 Percent of total loans and leases.......................... .66% .65% .71% .66% .69% Loans delinquent 90 days or more: (4) Total............................. $ 345 $ 280 $ 250 $ 254 $ 212 Percent of total loans and leases.......................... .48% .40% .37% .39% .33% Allowance to nonperforming loans........................... 253.3% 264.7% 245.5% 264.8% 253.3% PER SHARE DATA (5) Net income........................... $ .81 $ .80 $ .77 $ .77 $ .76 Cash dividends declared.............. .34 .34 .34 .31 .31 Book value........................... 19.24 19.07 18.80 18.58 18.02 Common stock price: High.............................. 41.38 37.75 38.50 36.48 33.41 Low............................... 31.25 32.88 31.94 30.35 27.95 Close............................. 41.00 34.00 35.63 34.21 33.18 Preferred Series C stock price: High.............................. 80.00 72.63 73.88 70.75 64.00 Low............................... 60.75 63.88 62.00 59.38 55.58 Close............................. $ 79.13 $ 66.75 $ 69.13 $ 65.63 $ 63.75 SHARES TRADED (000) Common............................... 60,724 50,688 62,091 37,100 39,873 Preferred Series C................... 2,056 880 1,222 1,678 990
- --------------- (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. 8 10 AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES (1)
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 --------------------------------- --------------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ $(THOUSANDS)(UNAUDITED) BALANCE EXPENSE RATE BALANCE EXPENSE RATE - ---------------------------------------------------------------------------------------------------- ASSETS: Short-term investments....... $ 386,884 $ 5,091 5.23 % $ 672,794 $ 10,542 6.22% Loans held for sale.......... 457,243 8,968 7.80 518,332 10,030 7.68 SECURITIES: (3) Taxable.................... 13,990,110 227,397 6.47 12,153,543 200,865 6.56 Tax-exempt................. 1,651,198 34,179 8.23 1,905,319 41,841 8.71 ----------- ---------- ----------- ---------- Total securities........ 15,641,308 261,576 6.65 14,058,862 242,706 6.85 LOANS AND LEASES: (2) Commercial................. 19,293,756 403,912 8.33 17,685,598 364,821 8.18 Real estate: Commercial.............. 6,238,464 140,682 8.97 5,608,790 126,475 8.95 Construction............ 3,321,263 80,747 9.67 2,449,870 63,171 10.23 Residential............. 11,609,921 268,997 9.22 11,848,812 264,744 8.86 Consumer, net.............. 20,250,790 467,401 9.18 17,904,488 422,874 9.37 Credit card................ 8,397,805 344,063 16.30 6,542,512 273,369 16.58 Leases, net................ 2,141,961 40,129 7.45 1,506,962 26,471 6.97 Allowance for credit losses.................. (1,040,458) (894,091) ----------- ---------- ----------- ---------- Net loans and leases......... 70,213,502 1,745,931 9.89 62,652,941 1,541,925 9.76 ----------- ---------- ----------- ---------- Total earning assets......... 86,698,937 2,021,566 9.28 77,902,929 1,805,203 9.19 Other assets (3)............. 9,227,274 8,877,451 ----------- ----------- Total assets................. $95,926,211 $86,780,380 ========== ========== LIABILITIES: DEPOSITS: Non-interest bearing demand.................. $13,820,819 $12,977,594 Interest bearing demand.... 2,131,119 9,710 1.81 8,416,543 43,245 2.04 Savings and money market... 29,342,620 245,121 3.32 19,993,662 191,429 3.80 Time deposits: CDs less than $100,000.............. 18,597,493 258,640 5.53 19,295,119 280,284 5.76 CDs $100,000 and over: Domestic.............. 3,758,928 49,438 5.23 3,626,943 44,589 4.88 Foreign............... 2,915,574 39,447 5.38 1,307,358 18,982 5.76 ----------- ---------- ----------- ---------- Total deposits..... 70,566,553 602,356 3.40 65,617,219 578,529 3.50 BORROWED FUNDS: Short-term................. 11,791,789 152,761 5.15 8,917,697 124,718 5.55 Long-term.................. 3,019,504 51,554 6.79 2,523,602 44,292 6.96 ----------- ---------- ----------- ---------- Total borrowed funds....... 14,811,293 204,315 5.49 11,441,299 169,010 5.86 ----------- ---------- ----------- ---------- Total interest bearing liabilities................ 71,557,027 806,671 4.48 64,080,924 747,539 4.63 Other liabilities............ 2,112,267 1,890,147 ----------- ----------- Total liabilities............ 87,490,113 78,948,665 Preferred stock.............. 240,459 249,859 Common stockholders' equity..................... 8,195,639 7,581,856 ----------- ----------- Total liabilities and stockholders' equity....... $95,926,211 $86,780,380 ========== ========== Net interest income.......... 1,214,895 5.57 1,057,664 5.39 Provision for credit losses..................... (210,657) (0.96) (132,526) (0.68) ---------- ------ ---------- ----- Net funds function........... $1,004,238 4.61 % $ 925,138 4.71% ========= ====== ========= =====
- --------------- (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 fair value which are included in other assets. 9 11
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 --------------------------------- --------------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ $(THOUSANDS)(UNAUDITED) BALANCE EXPENSE RATE BALANCE EXPENSE RATE - ---------------------------------------------------------------------------------------------------- ASSETS: Short-term investments....... $ 392,970 $ 15,692 5.33 % $ 1,117,674 $ 53,356 6.38% Loans held for sale.......... 581,763 33,150 7.61 386,777 23,111 7.99 SECURITIES: (3) Taxable.................... 14,822,848 716,481 6.46 12,911,743 630,718 6.53 Tax-exempt................. 1,704,507 106,391 8.34 2,030,379 133,819 8.81 ----------- ---------- ----------- ---------- Total securities........ 16,527,355 822,872 6.65 14,942,122 764,537 6.84 LOANS AND LEASES: (2) Commercial................. 19,182,028 1,187,060 8.27 17,279,432 1,057,292 8.18 Real estate: Commercial.............. 6,108,921 409,991 8.96 5,582,481 373,442 8.94 Construction............ 3,112,584 229,252 9.84 2,369,463 182,331 10.29 Residential............. 11,306,735 782,253 9.24 11,430,901 753,253 8.81 Consumer, net.............. 20,150,986 1,423,421 9.44 18,149,937 1,271,535 9.37 Credit card................ 8,056,477 980,351 16.25 6,148,266 770,167 16.75 Leases, net................ 1,964,005 109,445 7.44 1,427,164 76,776 7.19 Allowance for credit losses.................. (1,019,461) (894,065) ----------- ---------- ----------- ---------- Net loans and leases......... 68,862,275 5,121,773 9.94 61,493,579 4,484,796 9.75 ----------- ---------- ----------- ---------- Total earning assets......... 86,364,363 5,993,487 9.27 77,940,152 5,325,800 9.14 Other assets (3)............. 9,308,785 8,712,056 ----------- ----------- Total assets................. $95,673,148 $86,652,208 ========== ========== LIABILITIES: DEPOSITS: Non-interest bearing demand.................. $13,902,960 $12,863,222 Interest bearing demand.... 2,494,151 34,120 1.83 8,672,072 140,382 2.16 Savings and money market... 28,866,316 712,878 3.30 19,495,595 540,662 3.71 Time deposits: CDs less than $100,000.............. 19,142,225 795,682 5.55 19,303,042 814,514 5.64 CDs $100,000 and over: Domestic.............. 3,848,337 124,989 4.34 3,839,184 148,811 5.18 Foreign............... 2,209,852 88,521 5.35 1,629,862 70,380 5.77 ----------- ---------- ----------- ---------- Total deposits..... 70,463,841 1,756,190 3.33 65,802,977 1,714,749 3.48 BORROWED FUNDS: Short-term................. 11,580,748 448,029 5.17 9,110,440 381,042 5.59 Long-term.................. 3,006,415 149,283 6.63 2,225,556 115,673 6.95 ----------- ---------- ----------- ---------- Total borrowed funds....... 14,587,163 597,312 5.47 11,335,996 496,715 5.86 ----------- ---------- ----------- ---------- Total interest bearing liabilities................ 71,148,044 2,353,502 4.42 64,275,751 2,211,464 4.60 Other liabilities............ 2,145,269 1,827,644 ----------- ----------- Total liabilities............ 87,196,273 78,966,617 Preferred stock.............. 243,607 249,880 Common stockholders' equity..................... 8,233,268 7,435,711 ----------- ----------- Total liabilities and stockholders' equity....... $95,673,148 $86,652,208 ========== ========== Net interest income.......... 3,639,985 5.63 3,114,336 5.34 Provision for credit losses..................... (544,232) (0.84) (291,608) (0.50) ---------- ------ ---------- ------ Net funds function........... $3,095,753 4.79 % $2,822,728 4.84% ========= ====== ========= ======
10 12 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, in the 1995 BANC ONE CORPORATION annual report on Form 10-K and quarterly reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 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. NET INTEREST INCOME/NET INTEREST MARGIN BANC ONE's interest income, on a fully taxable equivalent (FTE) basis, was $2.0 billion and $6.0 billion for the three and nine months ended September 30, 1996, compared with $1.8 billion and $5.3 billion for the same periods in 1995. The net interest margin was 5.57% and 5.63% for the three and nine months ended September 30, 1996, compared with 5.39% and 5.34% 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 $86.7 and $86.4 billion for the three and nine months ended September 30, 1996 as compared to $77.9 billion for the same periods in 1995. BOLC's September 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 $71.2 billion for the three months ended September 30, 1996, compared to $63.5 billion for the same period in 1995. The increase of $7.7 billion for the three months ended September 30, 1996 as compared to the same period in 1995 was due to $3.7 billion related to the inclusion of BOLC and loan growth of $1.2 billion in credit card loans, $1.1 billion in consumer loans and $1.2 billion in commercial loans and leases. These increases are net of loan sales and the mortgage reclassification discussed below. Average loans and leases grew to $69.9 billion for the nine months ended September 30, 1996, compared to $62.4 billion for the same period in 1995. The increase of $7.5 billion for the nine months ended September 30, 1996 as compared to the same period in 1995 was due to $3.7 billion related to the inclusion of BOLC and loan growth of $1.3 billion in credit card loans and $1.4 billion in commercial loans and leases. These increases are net of loan sales and the mortgage reclassification discussed below. Average investment securities increased $1.6 billion for both the three and nine months ended September 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 $1.1 billion for the same periods, which was more than offset by an increase of $1.9 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 to 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 sales of loans with servicing retained to fund the origination of earning assets. The net interest margin is impacted by the sale of such loans. For example, credit card loan sales did not significantly affect net income, 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 no longer recorded; however, the net amount is included in non-interest income as servicing income. Servicing income represents revenue earned on loans in excess of net charge-offs and interest paid to investors. Because credit card losses are charged against servicing income over the life of these transactions such income may vary depending upon the credit performance of the loans sold. However, exposure to credit losses on the loans sold is limited to future servicing income and certain on-balance sheet 11 13 receivables. The following table presents the impact of credit card loan sales with servicing retained on income statement line items and certain other information pertaining to the total credit card portfolio.
QUARTER ENDED QUARTER ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 -------------------------------------- -------------------------------------- EFFECT OF EFFECT OF CREDIT CARD CREDIT CARD SECURITIZATIONS PRO-FORMA SECURITIZATIONS PRO-FORMA $(MILLIONS) REPORTED AND SALES ADJUSTED REPORTED AND SALES ADJUSTED - --------------------------------------------------------------------------------------------------------------- Income statement: Net interest income -- fully taxable equivalent.......... $1,215 $ 108 $ 1,323 $1,058 $ 81 $ 1,139 Provision for credit losses... 211 77 288 133 34 167 Non-interest income........... 569 (27) 542 473 (46) 427 Non-interest expense.......... 1,030 4 1,034 880 1 881 Net income.................... 356 0 356 331 0 331 Net interest margin........... 5.57% 10.23% 5.79% 5.39% 10.33% 5.58% Other credit card data: Ending balances............... $8,858 $ 3,940 $12,798 $6,809 $ 3,440 $10,249 Average balances.............. 8,398 4,198 12,596 6,543 3,110 9,653 Net charge-offs as a percentage of average loan balances.................... 5.46% 7.30% 6.06% 3.73% 4.34% 3.90% Delinquencies over 90 days as a percentage of ending loan balances.................... 1.97% 2.36% 2.04% 1.35% 1.57% 1.42% - ---------------------------------------------------------------------------------------------------------------
As securities issued in connection with credit card loan sales amortize, newly originated credit card loans are recorded and funded on BANC ONE's balance sheet. Approximately $600 million of securities issued in connection with credit card loan sales are scheduled to amortize during the remainder of 1996, with a resulting increase in BANC ONE's credit card loans outstanding. Interest expense increased slightly to $.8 billion from $.7 billion for the three months ended September 30, 1996 and 1995 and to $2.4 billion from $2.2 billion for the nine months ended September 30, 1996 and 1995. In 1996, the inclusion of BOLC increased interest expense $38 million and $114 million for the three and nine month periods. BANC ONE's retail funding base increased $5 billion for the three and nine months ended September 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. The off-balance sheet investment product impact on net interest income is meaningful only when considered with total interest income and expense from BANC ONE's interest earning assets and interest bearing liabilities. Off-balance sheet investment products decreased interest income by $8 million and $39 million for the three and nine months ended September 30, 1996, and decreased interest income by $37 million and $112 million for the three and nine months ended September 30, 1995. Off-balance sheet investment products increased deposit and other borrowing costs by $3 million and $4 million for the three and nine months ended September 30, 1996, as compared to $13 million and $50 million for the same periods in 1995. 12 14 NON-INTEREST INCOME
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------ ------------------------------------------ SEPTEMBER 30, SEPTEMBER 30, INCREASE SEPTEMBER 30, SEPTEMBER 30, INCREASE $(THOUSANDS) 1996 1995 (DECREASE) 1996 1995 (DECREASE) - ------------------------------------------------------------------------------------------------------------------ Income from fiduciary activities.............. $ 71,787 $ 60,052 $ 11,735 $ 202,038 $ 177,180 $ 24,858 Service charges on deposit accounts................ 165,806 140,811 24,995 483,843 400,384 83,459 Loan processing and servicing income: Mortgage banking........ 20,460 18,998 1,462 66,396 52,607 13,789 Credit card and merchant processing fees...... 38,152 52,394 (14,242) 113,693 146,460 (32,767) Loan servicing income... 55,634 71,194 (15,560) 165,864 186,210 (20,346) -------- -------- ------- ---------- ---------- -------- Total loan processing and servicing income........ 114,246 142,586 (28,340) 345,953 385,277 (39,324) Other income: Insurance............... 25,795 21,525 4,270 83,855 62,137 21,718 Securities related activities........... 16,987 11,755 5,232 54,339 34,724 19,615 Investment banking...... 6,551 6,829 (278) 26,217 21,471 4,746 Other................... 111,972 82,018 29,954 329,420 277,724 51,696 -------- -------- ------- ---------- ---------- -------- Total other income........ 161,305 122,127 39,178 493,831 396,056 97,775 -------- -------- ------- ---------- ---------- -------- Non-interest income before securities gains........ 513,144 465,576 47,568 1,525,665 1,358,897 166,768 -------- -------- ------- ---------- ---------- -------- Securities gains.......... 56,165 7,294 48,871 79,533 19,865 59,668 -------- -------- ------- ---------- ---------- -------- Total non-interest income.................. $ 569,309 $ 472,870 $ 96,439 $ 1,605,198 $ 1,378,762 $226,436 ======== ======== ======= ========== ========== ========
Of the $96 million and $226 million increases in total non-interest income for the three and nine months ended September 30, 1996 compared to the same periods in 1995, $23 million and $70 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 nine months ended September 30, 1996 compared to the same periods in 1995 is due mainly to an increase in investment management fees resulting from the continued growth in funds under management and an increase in fees per account. Funds under management increased approximately 6% from September 30, 1995 to September 30, 1996. The increase in service charges on deposit accounts is primarily due to increased fees for overdrafts, personal checking and savings accounts of $7 million for the three months and $31 million for the nine months ended September 30, 1996 as compared to the same periods in 1995. The increase in mortgage banking income for the nine months ended September 30, 1996 is due to gains of $12 million on the sales of mortgage loans offset by amortization of servicing rights of $7 million. In addition, due to increases in the servicing portfolio and higher closing volumes, late fees, origination fees and servicing fees have increased $8 million. For the three months ended September 30, 1996, gains on the sale of mortgage loans increased $5 million, offset by increased amortization of $2 million and a decrease of $2 million related to lower origination fees due to lower closing volumes. The decrease in credit card and merchant processing fees for the three and nine months ended September 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 $13 million and $36 million and salary and other expense of $6 million and $20 million are classified as other-other income. 13 15 The decrease in loan servicing income is primarily due to increased net charge-offs of $43 million and $113 million partially offset by an increase in serviced portfolios resulting in increased servicing income of $24 million and $80 million for the three and nine months ended September 30, 1996. This decrease is further offset by a $2 million and $5 million increase in servicing fees related to loan sales other than credit card loans for the three and nine months ended September 30, 1996. 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 September 30, 1996 is due to a gain of $9 million on the sale of a credit card loan portfolio with servicing released in September 1996 and a $4 million gain related to the sale of mortgage servicing rights. In addition to these increases, other-other income increased for the nine months ended September 30, 1996 due to an $8 million increase related to corporate owned life insurance, $6 million in increased gains on the sales of bank branches and a gain of $8 million on the sale of residential real estate (home equity) loans in June 1996. The following transactions in 1995 also affected the increase: a $52 million loss in the first quarter of 1995 related to the sale of low yielding consumer loans, a $47 million gain in February 1995 on the sale of four Michigan banks, a $17 million gain in March 1995 on the sale of a credit card processing software license and a $13 million gain on the sale of mortgage servicing rights. The increase in securities gains is primarily due to the recognition of a $52 million increase in the fair value of the venture capital portfolio in the third quarter of 1996. NON-INTEREST EXPENSE
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------------- ---------------------------------------- SEPTEMBER 30, SEPTEMBER 30, INCREASE SEPTEMBER 30, SEPTEMBER 30, INCREASE $(THOUSANDS) 1996 1995 (DECREASE) 1996 1995 (DECREASE) - -------------------------------------------------------------------------------------------------------------- Salaries and related costs.................... $ 490,625 $ 430,135 $ 60,490 $ 1,494,989 $ 1,302,164 $192,825 Net occupancy expense, exclusive of depreciation............. 43,586 40,965 2,621 135,954 121,157 14,797 Equipment expense.......... 29,322 26,372 2,950 86,298 78,946 7,352 Taxes other than income and payroll.............. 19,450 23,571 (4,121) 67,974 68,637 (663) Depreciation and amortization............. 79,777 71,635 8,142 262,455 215,325 47,130 Outside services and processing............... 126,604 101,144 25,460 380,391 309,637 70,754 Marketing and development.............. 38,787 37,210 1,577 120,366 129,789 (9,423) Communication and transportation........... 81,889 66,955 14,934 235,158 200,898 34,260 SAIF assessment............ 34,320 0 34,320 34,320 0 34,320 Other...................... 85,781 82,224 3,557 259,694 279,583 (19,889) ---------- -------- -------- ---------- ---------- -------- Total non-interest expense.................. $ 1,030,141 $ 880,211 $149,930 $ 3,077,599 $ 2,706,136 $371,463 ========== ======== ======== ========== ========== ========
As expected, BANC ONE's ongoing consolidation and standardization initiatives (Project One) have resulted in certain costs being higher than in 1995. These costs approximated $38 million and $89 million for the three and nine months ended September 30, 1996, primarily in salaries, occupancy, outside services and processing, communication and transportation expense. The net benefits from this initiative are expected to begin to be realized in 1997. In addition, the inclusion of BOLC has increased total non-interest expense $57 million and $171 million for the three and nine months ended September 30, 1996. In addition to the items noted above, the increase in salaries and related costs for the three and nine months ended September 30, 1996 is due to increases of $10 million and $53 million in bonuses and incentive pay primarily related to growth in securities and investment banking activities and increases of $12 million and 14 16 $39 million due to increased full time employees related to growth in non-bank business and data processing support personnel. Depreciation and amortization expense for the three and nine months ended September 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 $22 million. Outside services and processing expense increased for the three and nine months ended September 30, 1996 due to increased consulting expense related to national programs and a $3 million and $8 million increase in appraisal fees related to increased loan originations. Marketing and development expense decreased for the nine month period due to a reduction in sales promotions primarily related to retail and express banking and credit card programs. On September 30, 1996, legislation providing for the capitalization of the Savings Association Insurance Fund (SAIF) by requiring a one-time special assessment on SAIF-insured deposits as of March 31, 1995 was enacted. BANC ONE's special assessment totalled $34 million. In addition, the legislation provided that banks and thrifts will service the debt on bonds issued by the Financing Corporation (FICO). As a result, it is estimated that from 1997 through 1999 BANC ONE will pay deposit insurance premiums of 6.44 basis points on SAIF deposits and 1.29 basis points on Banking Insurance Fund (BIF) deposits, and from January 1, 2000 through 2017 will pay 2.43 basis points on all deposits. Other non-interest expense decreased for the nine month period ending September 30, 1996 in part due to the Federal Deposit Insurance Corporation's decision in September 1995 to lower deposit insurance premiums on BIF deposits held by well capitalized and well managed banks from $.23 per $100 to a $2,000 per bank assessment. The FDIC also decided to refund a portion of the BIF in excess of 1.25% of insured deposits. The FDIC's decision resulted in a $35 million refund in September 1995. This decrease in other non-interest expense was partially offset by a $4 million prepayment charge on the early retirement of long-term debt during the second quarter of 1996 and a $16 million increase in expenses related to savings and checking accounts and automated teller machines. INCOME TAXES The provision for income taxes was 32.9% of pretax income for the nine months ended September 30, 1996 as compared to 34.3% of pretax income for the same period in 1995. The effective tax rate for the nine months ended September 30, 1996 approximates the anticipated effective tax rate for the year. The decrease in the effective rate is a result of BANC ONE's state tax strategies, which resulted in a reduction of state income taxes for 1996. In addition, the effective rate is lower due to the resolution of certain open issues with taxing authorities. A similar reduction is not expected to occur in 1997. LOANS AND LEASES
SEPTEMBER 30, DECEMBER 31, $(THOUSANDS) (AS OF END OF PERIOD) 1996 1995 - ------------------------------------------------------------------------------------------------- Commercial, financial and agricultural............................. $ 19,586,701 $17,903,692 Real estate: Commercial....................................................... 6,300,257 5,667,826 Construction..................................................... 3,505,265 2,692,587 Residential...................................................... 11,992,200 10,756,169 Consumer, net...................................................... 20,271,776 18,407,595 Credit card........................................................ 8,857,992 7,665,274 Leases, net........................................................ 2,166,624 1,732,196 ----------- ----------- Total loans and leases............................................. $ 72,680,815 $64,825,339 =========== ===========
15 17 The $7.9 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 substantially all categories. Significant loan origination activity is not fully reflected in ending loan balances due to the sale of $2.9 billion in loans during 1996. BANC ONE's process for monitoring loan quality includes detailed, monthly analysis of delinquencies, nonperforming assets and potential problem loans. 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 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.
THREE MONTHS ENDED SEPTEMBER 30, ------------- NET CHARGE-OFFS (1) 1996 1995 - ---------------------------------------------------------------------------------------------- Commercial, financial and agricultural......................................... .05% .14% Real estate.................................................................... .03 .06 Consumer, net.................................................................. 1.22 .76 Credit card.................................................................... 5.46 3.73 Leases, net.................................................................... .11 .98 Total loans and leases......................................................... 1.02% .68%
- --------------- (1) Ratios are presented on an annualized basis. Annualized net charge-offs for the third quarter of 1996 increased to 1.02% of average loans from .68% in the third quarter of 1995. While 27 basis points of the increase in charge-offs since the third quarter of 1995 is explained by deteriorating consumer credit trends, 7 basis points or 21% of the increase is explained by mix changes. Therefore, if the loan portfolio mix had remained unchanged from the third quarter 1995, charge-offs would have increased to .95% instead of 1.02%. The increase in net charge-offs since September 30, 1995 has resulted from the deterioration of consumer credit experienced by BANC ONE and paralleling that experienced by the financial services industry. On a managed basis approximately half of BANC ONE's net credit card charge-offs are the result of bankruptcies, including amounts that were charged-off directly from accounts that were current.
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, LOANS DELINQUENT 90 DAYS OR MORE (1) 1996 1995 1995 - ----------------------------------------------------------------------------------------------------- Wholesale(2)....................................... .20% .15% .15% Real estate, residential........................... .29 .26 .17 Consumer, net...................................... .40 .34 .30 Credit card........................................ 1.97 1.54 1.35 Leases, net........................................ .05 .03 .06 Total loans and leases............................. .48% .39% .33%
- --------------- (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 September 30, 1996 have increased to $478 million from $430 million at December 31, 1995 primarily due to the inclusion of BOLC. 16 18 The following summarizes activity in the allowance for credit losses.
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- $(THOUSANDS) 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF PERIOD........... $1,026,318 $891,546 $ 938,008 $897,180 Allowance associated with acquisitions and other............................ 34 60,065 (3,888) Provision for credit losses............ 210,657 132,526 544,232 291,608 Losses charged to the allowance........ (238,655) (151,973) (664,748) (410,445) Recoveries............................. 56,560 43,320 177,323 140,998 ---------- -------- ---------- -------- Net losses charged to the allowance.... (182,095) (108,653) (487,425) (269,447) ---------- -------- ---------- -------- BALANCE, END OF PERIOD................. $1,054,880 $915,453 $1,054,880 $915,453 ========== ======== ========== ========
LIQUIDITY AND CAPITAL At September 30, 1996, large liability dependence was 22.10%, 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. While the deposit runoff was minimal during the third quarter of 1996, the deposit mix continued to shift to more costly market priced products. This mix change is expected to continue for the foreseeable future. BANC ONE continues to pursue a diversified approach to funding sources including various forms of national market liabilities as well as loan sales and securitizations. 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. Loan sales are expected to continue to generate funding for earning asset growth and to balance BANC ONE's funding sources. In October 1996, BANC ONE issued $500 million of 7 5/8% subordinated debentures due 2026. The proceeds were used to retire commercial paper. At September 30, 1996, risk based tier I capital, total risk adjusted capital and leverage ratios were 9.18%, 12.83% and 8.31%, respectively. All of these ratios are significantly above regulatory minimum capital requirements. ASSET/LIABILITY MANAGEMENT Assets and liabilities are created at BANC ONE as responses to customer preferences for credit and deposit products. As such, maturity mismatches of loans and deposits require management in order to minimize the adverse effect of interest rate movements on BANC ONE's earnings (the short run effect) and BANC ONE's economic value (the long run effect). BANC ONE's goal in managing these risks is to generate high quality earnings from the core business units over short and long periods of time without the speculative element inherent in maturity mismatches of assets and liabilities. BANC ONE uses both on-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 asset/liability process to manage the impact of fluctuating interest rates on BANC ONE's net income and market value. Earnings at Risk (EAR), defined as the forecasted after-tax change in net income from the current book of assets and liabilities over the next twelve months, and Value at Risk (VAR), defined as the change in the total value of market equity, have prescribed limits in dollar value and are based upon an historical approach to volatility of interest rates. Because value at risk can be thought of as the present value of all of the future annual earnings at risk, BANC ONE attempts to align maturities of assets and liabilities that are present not only in the current year, but outlying years as well. 17 19 The historical approach to volatility of interest rates allows BANC ONE to apply statistical measures to interest rate movements and base its earnings and value thresholds upon the notion that changes in interest rates are "unlikely" to surpass three standard deviations of historical volatility. At current rate levels, three standard deviations translates into interest rate movements of 162 basis points over three months when rates are increasing and 126 basis points over three months when rates are decreasing. The following table, as of September 30, 1996 reflects EAR and VAR in dollars for three standard deviations:
($ IN MILLIONS) RATE CHANGE IN ---------------------- BASIS POINTS EAR VAR - ---------------------------------------------------------------------------------------------- Increase 162......................................................... $(70.9) $(479.1) Decrease 126......................................................... $68.7 $88.9
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. 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 September 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.
SEPTEMBER 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.................. $ 118 $ 119 $ 91 $ 91 Mortgage and asset-backed securities................. 46 45 64 68 Tax exempt........................................... 738 766 909 953 Other................................................ 23 23 24 24 ------- ------- ------- ------- Total securities held to maturity...................... 925 953 1,088 1,136 ------- ------- ------- ------- SECURITIES AVAILABLE FOR SALE: United States treasury and agencies.................. 3,713 3,683 3,029 3,060 Mortgage and asset-backed securities: Government........................................ 6,665 6,694 6,553 6,660 Other............................................. 2,644 2,617 3,595 3,587 Tax exempt........................................... 916 916 813 825 Other................................................ 577 583 486 488 ------- ------- ------- ------- Total securities available for sale.................... 14,515 14,493 14,476 14,620 ------- ------- ------- ------- TOTAL SECURITIES....................................... $15,440 $ 15,446 $15,564 $ 15,756 ======= ======= ======= =======
18 20
MATURITIES OF OFF-BALANCE SHEET INVESTMENT PRODUCTS AT SEPTEMBER 30, 1996 (1)(2) ENDING BALANCES AT ---------------------------------------------------------- ---------------------------- 2001- SEPTEMBER 30, DECEMBER 31, $(MILLIONS) 1996 1997 1998 1999 2000 2005 2006+ 1996 1995 ------------------------------------------------------------------------------------------------------------------ Receive fixed swaps: Notional value.......... $ 950 $3,753 $1,800 $ 545 $1,160 $1,596 $300 $10,104 $ 9,789 Weighted average receive rate.................. 6.33% 5.22% 5.94% 6.20% 6.29% 6.43% 7.23% 5.88% 5.85% Receive fixed amortizing swaps: Notional value.......... $1,994 $1,356 $ 700 $ 19 $ 150 $ 4,219 $ 7,946 Weighted average receive rate.................. 5.05% 5.21% 5.45% 7.27% 5.54% 5.19% 5.29% Pay fixed swaps: Notional value.......... $ 276 $ 95 $ 945 $ 6 $ 7 $ 18 $ 1,347 $ 2,673 Weighted average pay rate.................. 8.07% 8.54% 6.32% 8.68% 8.18% 7.39% 6.87% 5.76% ------ ------ ------ ------ ------ ------ ---- ------------- ------------ Net receive fixed position................ $2,668 $5,014 $1,555 $ 558 $1,303 $1,596 $282 $12,976 $ 15,062 Notional value of basis swaps................... 275 3,730 755 63 50 143 5,016 8,304 Notional value of purchased caps.......... 501 503 7 19 4 27 1,061 5,253 Other notional value (3)..................... $1,539 $ 790 $1,000 $1,000 $ 9 $ 4,338 $ 4,052
- --------------- (1) Maturities are based on estimated future interest rates from the forward interest curve at September 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 September 30, 1996), floors, options, swaptions, forward rate agreements, and anticipatory hedges. Customer transactions of $1.5 billion and $1.2 billion at September 30, 1996 and December 31, 1995, respectively, have been excluded.
DECEMBER 31, SEPTEMBER 30, 1996 1995 --------------------------------------------------------- -------------- TOTAL NOTIONAL UNREALIZED UNREALIZED NET UNREALIZED NET UNREALIZED $(MILLIONS) AMOUNT GAINS LOSSES LOSS GAIN (LOSS) - ---------------------------------------------------------------------------------------------------------------- Receive fixed swaps................. $ 10,104 $ 12 $ (86) $ (74) $136 Receive fixed amortizing swaps...... 4,219 3 (21) (18) (13) Pay fixed swaps..................... 1,347 1 (8) (7) (13) Purchased caps...................... 1,061 0 (2) (2) (18) Basis swaps......................... 5,016 0 (14) (14) (37) Other............................... 4,338 4 (8) (4) (8) ------- --- ----- ----- --- Total............................... $ 26,085 $ 20 $ (139) $ (119) $ 47 ======= === ===== ===== ===
BANC ONE CORPORATION's 1995 annual report on Form 10-K provided certain fair value information based on interest rates at December 31, 1995. While the net unrealized 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 fixed rate liabilities has increased. 19 EX-27 5 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURE. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,274,364 2,696 734,597 629,735 13,862,900 925,167 953,357 72,680,815 1,054,880 98,562,000 71,527,619 13,394,311 2,177,844 3,022,835 2,159,028 0 240,077 6,040,286 98,562,000 5,108,989 787,732 48,809 5,945,530 1,756,190 2,353,502 3,592,028 544,232 79,533 3,077,599 1,575,395 1,056,736 0 0 1,056,736 2.38 2.35 5.63 415,226 345,294 1,228 0 938,008 664,748 177,323 1,054,880 930,313 0 124,567
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