-----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, ArC9I1Ctko99T5oH/C6rK4uWc7iI+5ardA8ccob1Ofbl1Cpn4+0urb5lSgKHDVXf wPExDDSx/Un8RJIjzxFjcg== 0000950152-98-002756.txt : 19980417 0000950152-98-002756.hdr.sgml : 19980417 ACCESSION NUMBER: 0000950152-98-002756 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: CSE SROS: CSX SROS: NASD SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANC ONE CORP /OH/ CENTRAL INDEX KEY: 0000036090 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 310738296 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08552 FILM NUMBER: 98578923 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-K 1 BANC ONE CORPORATION FORM 10-K 1 ================================================================================ FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 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 ------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 31-0738296 ------------------------------------------------------ (I.R.S. Employer Identification Number) 100 East Broad Street, Columbus, Ohio ------------------------------------------------------ (Address of principal executive offices) 43271 ------------------------------------------------------ (Zip Code) Registrant's telephone number, including area code (614) 248-5944 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS ------------------- Common Stock without par value NAME OF EACH EXCHANGE ON WHICH REGISTERED ----------------------------------------- New York Stock Exchange Cincinnati Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Series C Convertible Preferred Stock with no par value ------------------------------------------------------ (Title of Class) 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__ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 27, 1998 the aggregate market value of the voting stock held by non-affiliates of the Registrant calculated by reference to the quoted price of the Registrant's common stock as reported on the New York Stock Exchange on February 27, 1998 was $36,300,277,918. As of February 27, 1998 there were outstanding 642,482,795 shares of the Registrant's common stock, no par value, which stock is the only class of Registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1997 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV. Portions of the Registrant's Proxy Statement relating to the Registrant's 1998 Annual Meeting of Shareholders are incorporated by reference into Part III. ================================================================================ 2 BANC ONE CORPORATION 1997 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1 Business............................................................................... 1 Item 2 Properties............................................................................. 6 Item 3 Legal Proceedings...................................................................... 6 Item 4 Submission of Matters to a Vote of Security Holders.................................... 7 Executive Officers of the Registrant................................................... 7 PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters............... 8 Item 6 Selected Financial Data................................................................ 8 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................... 8 Item 7A Quantitative and Qualitative Disclosures About Market Risk............................. 8 Item 8 Financial Statements and Supplementary Data............................................ 8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 9 PART III Item 10 Directors and Executive Officers of the Registrant..................................... 10 Item 11 Executive Compensation................................................................. 10 Item 12 Security Ownership of Certain Beneficial Owners and Management......................... 10 Item 13 Certain Relationships and Related Transactions......................................... 10 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K -- Index to Financial Statements and Schedules............................................................. 11
3 PART I ITEM 1 BUSINESS BANC ONE CORPORATION ("BANC ONE") is a bank holding company which provides a full range of consumer and commercial banking and related financial services. At December 31, 1997, BANC ONE operated approximately 1,300 banking offices in Arizona, Colorado, Illinois, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. BANC ONE also owns nonbank subsidiaries that engage in credit card and merchant processing, consumer and education finance, mortgage banking, insurance, venture capital, investment and merchant banking, trust, brokerage, investment management, equipment leasing and data processing. BANC ONE is incorporated in Ohio and has functioned as a multi-bank holding company since 1968. ACQUISITIONS Since its formation in 1968, BANC ONE has acquired over 100 banking institutions. In addition to the pending acquisition described below, BANC ONE continues to explore opportunities to acquire banks and nonbank companies permitted by the Bank Holding Company Act of 1956, as amended (the "BHCA"). Discussions are continually being carried on relating to such acquisitions. It is not presently known whether, or on what terms, such discussions will result in further acquisitions. For information regarding recent and pending acquisitions, see the following portion of the 1997 Annual Report to Shareholders which are expressly incorporated herein by reference: - "Note 2, Acquisitions" of the Notes to Consolidated Financial Statements on pages 62 and 63. STRATEGIC INITIATIVES In 1995, BANC ONE launched a series of strategic initiatives (collectively referred to as "Project One") designed to enhance the effectiveness and efficiency of certain operations. Through Project One, BANC ONE has decreased the number of legal entities, combined operations and systems, and centralized many staff and line functions. As a result of Project One, BANC ONE has substantially reduced the number of its banking charters. As of September 1994, BANC ONE operated 88 separately chartered banks. By December 31, 1997, banking operations were consolidated under single charters in each of the states of Arizona, Colorado, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, and Wisconsin, and under two charters in each of the states of Illinois and West Virginia. As part of management's strategy to streamline the retail center delivery structure there is an initiative to sell certain centers during 1998. During the first quarter of 1998, 37 branches were sold at an overall gain. Additional sales are anticipated to occur in future quarters. LINES OF BUSINESS For information regarding BANC ONE's lines of business, see the following section of the 1997 Annual Report to Shareholders which is expressly incorporated herein by reference: - "Lines of Business" in Management's Discussion and Analysis on pages 25 and 26. STATISTICAL INFORMATION BY BANK HOLDING COMPANIES The following information set forth in BANC ONE's 1997 Annual Report to Shareholders is expressly incorporated herein by reference: - "Five Year Summary -- Average Balances, Income and Expense, Yields and Rates" table on pages 30 and 31 for average balance sheet amounts, related taxable-equivalent interest earned or paid, related average yields earned and rates paid, and net interest margin. 1 4 - "Rate Volume Analysis" table on page 32 for changes in the taxable-equivalent interest income and expense for each major category of interest-earning assets and interest-bearing liabilities. - "Note 4, Securities and Off-Balance Sheet Activities" of the Notes to Consolidated Financial Statements on page 64 for information on book values, market values, maturities and weighted average yields of securities by category. - "Note 5, Loans and Leases" of the Notes to Consolidated Financial Statements on pages 65 and 66 for the distribution of the loans of the Registrant, along with the "Loans and Leases" section of Management's Discussion and Analysis on pages 35 and 36. - The "Credit Quality" section of Management's Discussion and Analysis on pages 38 through 40 and "Note 1, Summary of Significant Accounting Policies -- Loans and Leases" of the Notes to Consolidated Financial Statements on page 58 for information on nonaccrual, past due and restructured loans and the Registrant's policy for placing loans on nonaccrual status. - "Note 6, Allowance for Credit Losses" of the Notes to Consolidated Financial Statements on page 66, along with the "Allowance for Credit Losses" section of Management's Discussion and Analysis on pages 40 through 42 for analysis of loss experience, the allocation of the reserve for credit losses, and factors used by management to determine the adequacy of the allowance. - "Deposit Analysis" section of Management's Discussion and Analysis on page 37 for the narrative comments on deposits. - The "Key Operating Ratios" section of the "Consolidated Quarterly Financial Data", on page 52. - "Note 8, Short-Term Borrowings" of the Notes to Consolidated Financial Statements on page 67. COMPETITION Active competition exists in all principal areas in which BANC ONE and its subsidiaries are presently engaged, not only with respect to commercial banks, but also with savings and loan associations, credit unions, finance companies, mortgage companies, leasing companies, insurance companies, mutual funds and brokerage houses, together with other domestic and foreign financial and nonfinancial institutions. EMPLOYEES As of December 31, 1997 BANC ONE and its consolidated subsidiaries had approximately 56,600 full-time equivalent employees. REGULATORY MATTERS The following discussion sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to BANC ONE. This regulatory framework is intended primarily for the protection of depositors and the federal deposit insurance funds and not for the protection of security holders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to BANC ONE or its subsidiaries may have a material effect on the business of BANC ONE. General. As a bank holding company, BANC ONE is subject to regulation under the BHCA, and to inspection, examination and supervision by the Federal Reserve. Under the BHCA, bank holding companies generally may not acquire the ownership or control of more than 5% of the voting shares or substantially all the assets of any company, including a bank, without the Federal Reserve's prior approval. In addition, bank holding companies generally may engage, directly or indirectly, only in banking and such other activities as are determined by the Federal Reserve to be closely related to banking. Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, limit borrowings by BANC ONE and its nonbank subsidiaries from BANC ONE's affiliate banks, and also limit 2 5 various other transactions between BANC ONE and its nonbank subsidiaries, on the one hand, and BANC ONE's affiliate banks, on the other. For example, Section 23A limits to no more than 10% of its total capital the aggregate outstanding amount of any bank's loans and other "covered transactions" with any particular nonbank affiliate; and limits to no more than 20% of its total capital the aggregate outstanding amount of any bank's covered transactions with all of its nonbank affiliates. Section 23A also generally requires that a bank's loans to its nonbank affiliates be secured, and Section 23B generally requires that a bank's transactions with its nonbank affiliates be on arm's-length terms. Most of BANC ONE's affiliate banks are national banking associations and, as such, are subject to regulation primarily by the Office of the Comptroller of the Currency ("OCC") and, secondarily, by the Federal Deposit Insurance Corporation ("FDIC") and the Federal Reserve. BANC ONE's state-chartered banks also are subject to regulation by the FDIC and the Federal Reserve and, in addition, by their respective state banking departments. Liability for Bank Subsidiaries. The Federal Reserve has a policy to the effect that a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to maintain resources adequate to support each such subsidiary bank. This support may be required at times when BANC ONE may not have the resources to provide it. In addition, Section 55 of the National Bank Act permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital has become impaired. If a shareholder fails within three months to pay such an assessment, the OCC can order the sale of the shareholder's stock to cover the deficiency. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to priority of payment. Any depository institution insured by the FDIC can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Also, in the event that such a default occurred with respect to a bank, any loans to the bank from its parent holding company would be subordinate in right of payment to payment of the bank's depositors and certain of its other obligations. Capital Requirements. BANC ONE is subject to capital ratios, requirements and guidelines imposed by the Federal Reserve, which are substantially similar to the ratios, requirements and guidelines imposed by the Federal Reserve, the OCC and the FDIC on the banks within their respective jurisdictions. These capital requirements establish higher capital standards for banks and bank holding companies that assume greater credit risks. For this purpose, a depository institution's or holding company's assets and certain specified off- balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to such assets or commitments. A depository institution's or holding company's capital, in turn, is divided into two tiers: core ("Tier 1") capital, which includes common equity, noncumulative perpetual preferred stock and related surplus (excluding auction rate issues), and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain identifiable intangible assets and certain other assets; and supplementary ("Tier 2") capital, which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition, mandatory convertible securities, subordinated debt and allowances for loan and lease losses, subject to certain limitations, less certain required deductions. BANC ONE, like other bank holding companies, currently is required to maintain Tier 1 and total capital (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8% of its total risk-weighted assets, respectively. At December 31, 1997, BANC ONE met both requirements, with Tier 1 and total capital equal to 8.50% and 13.11% of its total risk-weighted assets, respectively. The Federal Reserve also requires bank holding companies to maintain a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 3%, if the holding company has the highest regulatory rating and meets certain other requirements, or of 3% plus an additional cushion of at least 100 to 200 basis points if the 3 6 holding company does not meet these requirements. At December 31, 1997, BANC ONE's leverage ratio was 7.91%. The Federal Reserve may set capital requirements higher than the minimums noted above for holding companies whose circumstances warrant it. For example, holding companies experiencing or anticipating significant growth may be expected to maintain capital ratios including tangible capital positions well above the minimum levels. The Federal Reserve has not, however, imposed any such special capital requirement on BANC ONE. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective Federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital-raising requirements. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became "undercapitalized" or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards. The Federal Reserve, the FDIC and the OCC have adopted rules to incorporate market and interest rate risk components into their risk-based capital standards. For further information on capital requirements, see Note 11, "Dividend and Capital Restrictions," of the Notes to Consolidated Financial Statements on pages 69 and 70 of the 1997 Annual Report to Shareholders which is expressly incorporated herein by reference. Dividend Restrictions. Various federal and state statutory provisions limit the amount of dividends BANC ONE's affiliate banks can pay to BANC ONE without regulatory approval. The approval of the appropriate bank regulator is required for any dividend by a national bank or by a state-chartered bank that is a member of the Federal Reserve System (a "state member bank") if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits, as defined by regulatory agencies, for such year combined with its retained net profits for the preceding two years. In addition, a national bank or a state member bank may not pay a dividend in an amount greater than its net profits then on hand. At December 31, 1997, $.6 billion of the total stockholders' equity of the affiliate banks was available for payment of dividends to BANC ONE without approval by the applicable regulatory authority. In addition, federal bank regulatory authorities have authority to prohibit BANC ONE's affiliate banks from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending upon the financial condition of the bank in question, could be deemed to constitute such an unsafe or unsound practice. The ability of BANC ONE's affiliate banks to pay dividends in the future is presently, and could be further, influenced by bank regulatory policies and capital guidelines. For further information on dividend restrictions, see Note 11, "Dividend and Capital Restrictions," of the Notes to Consolidated Financial Statements on pages 69 and 70 of the 1997 Annual Report to Shareholders which is expressly incorporated herein by reference. Deposit Insurance Assessments. The deposits of each of BANC ONE's affiliate banks are insured up to regulatory limits by the FDIC and, accordingly, are subject to deposit insurance assessments to maintain the Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF") administered by the FDIC. The FDIC has adopted regulations establishing a permanent risk-related deposit insurance assessment 4 7 system. Under this system, the FDIC places each insured bank in one of nine risk categories based on (a) the bank's capitalization and (b) supervisory evaluations provided to the FDIC by the institution's primary federal regulator. Each insured bank's insurance assessment rate is then determined by the risk category in which it is classified by the FDIC. Effective January 1, 1997, the annual insurance premiums on bank deposits insured by the BIF and SAIF vary between $0.00 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $0.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. The Deposit Insurance Funds Act of 1996 ("DIFA") provides for assessments to be imposed on insured depository institutions with respect to deposits insured by the BIF and the SAIF (in addition to assessments currently imposed on depository institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost of Financing Corporation ("FICO") funding. The FDIC established the FICO assessment rates effective January 1, 1997 at $0.013 per $100 annually for BIF-assessable deposits and $0.0648 per $100 annually for SAIF-assessable deposits. The FICO assessments do not vary depending upon a depository institution's capitalization or supervisory evaluations. BANC ONE's affiliate banks held approximately $6.6 billion of SAIF-assessable deposits as of January 1, 1998. Depositor Preference Statute. Federal legislation has been enacted providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such institution, including federal funds and letters of credit, in the "liquidation or other resolution" of the institution by any receiver. Brokered Deposits. Under FDIC regulations, no FDIC-insured depository institution can accept brokered deposits unless it (a) is well capitalized, or (b) is adequately capitalized and receives a waiver from the FDIC. In addition, these regulations prohibit any depository institution that is not well capitalized from (i) paying an interest rate on deposits in excess of 75 basis points over certain prevailing market rates or (ii) offering "pass through" deposit insurance on certain employee benefit plan accounts unless it provides certain notice to affected depositors. Interstate Banking. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal"), subject to certain concentration limits: (a) bank holding companies such as BANC ONE are permitted, beginning September 29, 1995, to acquire banks and bank holding companies located in any state; (b) any bank that is a subsidiary of a bank holding company is permitted, again beginning September 29, 1995, to receive deposits, renew time deposits, close loans, service loans and receive loan payments as an agent for any other bank subsidiary of that holding company; and (c) banks are permitted, beginning June 1, 1997, to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states, provided that, in the case of any such purchase or opening of individual branches, the host state has adopted legislation "opting in" to those provisions of Riegle-Neal; and provided that, in the case of a merger with a bank located in another state, the host state has not adopted legislation "opting out" of that provision of Riegle-Neal. BANC ONE might use Riegle-Neal to acquire banks in additional states and to consolidate its affiliate banks under a smaller number of separate charters. FORWARD LOOKING STATEMENTS Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the "Act"), including, without limitation, the statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by BANC ONE with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of BANC ONE which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items, (ii) statements of plans and objectives of BANC ONE or its management or Board 5 8 of Directors, including those relating to products or services, (iii) statements of future economic performance and (iv) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. In particular, this Annual Report on Form 10-K contains forward-looking statements which include but are not limited to: the sale of retail centers in connection with BANC ONE's strategic initiative to streamline its retail center delivery structure; the adequacy of the allowance for credit losses; interest rate risk management; Year 2000 data systems compliance issues; and the effect of legal proceedings on BANC ONE's consolidated financial position, liquidity or results of operations. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of the U.S. economy in general and the strength of the local economies in which operations are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; (iii) inflation, interest rate, market and monetary fluctuations; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by users; (v) changes in consumer spending, borrowing and saving habits; (vi) technological changes (including Year 2000 data systems compliance issues); (vii) acquisitions and integration of acquired businesses; (viii) the ability to increase market share and control expenses; (ix) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which BANC ONE and its subsidiaries must comply; (x) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board; (xi) changes in BANC ONE's organization, compensation and benefit plans; (xii) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and (xiii) the success of BANC ONE at managing the risks involved in the foregoing. Such forward-looking statements speak only as of the date on which such statements are made, and BANC ONE undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. ITEM 2 PROPERTIES BANC ONE leases its principal offices in Columbus, Ohio under several long-term leases. In an initiative to reduce the amount of leased facilities used by BANC ONE, an 807,000 square foot facility ("Banc One Corporate Center") was built in Columbus, Ohio to house administrative offices. Employees began moving to this building during the fourth quarter of 1996. Banc One Corporate Center is located at 1111 Polaris Parkway, Columbus, Ohio 43240. BANC ONE's executive offices which are leased, are located at 100 East Broad Street, Columbus, Ohio 43271. As of December 31, 1997 BANC ONE's affiliate banks had approximately 1,300 banking offices located in Arizona, Colorado, Illinois, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. BANC ONE and its subsidiaries own or lease various office space, computer centers and warehouses. For additional information see the following portions of the 1997 Annual Report to Shareholders, which are expressly incorporated herein by reference: - "Note 7, Bank Premises, Equipment and Leases" of the Notes to Consolidated Financial Statements on page 67. ITEM 3 LEGAL PROCEEDINGS Neither BANC ONE nor any of its subsidiaries is involved in any material pending legal proceedings other than ordinary routine litigation incident to the business. Similarly, no property owned by any of said entities is the subject of any material pending legal proceedings other than ordinary routine litigation incident to the business. 6 9 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1997 no matters were submitted to a vote of security holders. EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers as of January 1, 1998 are set forth below. Unless otherwise designated, they are officers of BANC ONE CORPORATION. Others hold the positions indicated in wholly owned subsidiaries. All of these executive officers, with the exception of Messrs. Atwater, Lehmann, Stevens, Vague and Winkler, have been employed by BANC ONE in various capacities during the past five years.
YEAR JOINED NAME AGE TITLE BANC ONE ---- --- ----- ----------- Peter W. Atwater 36 Treasurer 1997 Steven A. Bennett 45 Senior Vice President, General Counsel and Secretary 1989 William P. Boardman 56 Senior Executive Vice President 1984 A. William Crowley 52 Chief Credit Officer 1991 Bobby L. Doxey 50 Senior Vice President 1992 Thomas E. Hoaglin 48 Chairman/CEO -- Banc One Services Corporation 1973 David J. Kundert 55 Chairman/CEO -- Bank One Investment Management Group; President/CEO -- Banc One Investment Advisors Corporation 1971 Richard J. Lehmann 53 President/COO 1993 William C. Leiter 58 Senior Vice President and Controller 1981 Richard D. Lodge 50 Senior Vice President and Chief Investment Officer 1973 John B. McCoy 54 Chairman/CEO 1967 Michael J. McMennamin 52 Executive Vice President and Chief Financial Officer 1990 Ronald G. Steinhart 57 Chairman/CEO -- Banc One Commercial Banking Group 1992 Kenneth T. Stevens 45 Chairman/CEO -- Banc One Retail Group 1996 Richard W. Vague 41 Chairman/CEO -- First USA Bank 1997 Donald A. Winkler 49 Chairman/CEO -- Finance One Group 1993
Mr. Atwater has served as Treasurer of BANC ONE since July 1997. From June 1996 until the acquisition of First USA, Inc. by BANC ONE in June 1997, Mr. Atwater served as Executive Vice President and Treasurer of First USA, Inc. From August 1983 through June 1996, Mr. Atwater was employed by J.P. Morgan and Co. in various capacities, most recently as Managing Director and head of the asset finance group. Mr. Stevens has served as Chairman and Chief Executive Officer of BANC ONE's Retail Group since May 1996. Prior to joining BANC ONE, Mr. Stevens served as President and Chief Operating Officer (1994 -- 1996) and Executive Vice President (1993 -- 1994) of Taco Bell Corp. Prior to that time, Mr. Stevens served as Senior Vice President and Treasurer (1992 -- 1993) and Senior Vice President, Strategic Planning, of Pepsico, Inc. Richard W. Vague has been Chairman of the Board and Chief Executive Officer of First USA Bank since October 1995 and was a Director from May 1985 through October 1995. Mr. Vague also served as President and Chief Executive Officer of First USA Bank from 1987 through October 1995. Mr. Vague was a co-founder of First USA, Inc. and served as President of First USA, Inc. from June 1990 to July 1997 and served as a Director of First USA, Inc. from August 1989 to July 1997. Mr. Winkler has served as Chairman and Chief Executive Officer of Finance One Corporation since April 1993. From January 1992 to April 1993, Mr. Winkler served as Senior Vice President and Business Manager (Banking) of Citicorp. Information regarding Mr. Lehmann's business experience during the past five years is set forth under the caption "Election of Directors" in the Proxy Statement relating to BANC ONE's 1998 Annual Meeting of Shareholders (the "Proxy Statement"), which information is expressly incorporated herein by reference. 7 10 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS As of February 27, 1998, there were 105,505 holders of record of BANC ONE common stock. See the following portions of the 1997 Annual Report to Shareholders which are expressly incorporated herein by reference: - Stock Listing: Common New York Stock Exchange: BancOne Ticker Symbol: ONE - "Consolidated Quarterly Financial Data" table on page 52 for the high and low sales prices and the amount of cash dividends declared on common stock for each quarterly period within the two most recent fiscal years. - Notes 10, 11, and 17 to the Consolidated Financial Statements on pages 69 and 70 and pages 77 through 79 for discussion regarding dividend restrictions. ITEM 6 SELECTED FINANCIAL DATA See the following portions of the 1997 Annual Report to Shareholders which are expressly incorporated herein by reference: - "Five Year Performance Summary" on page 24 for net operating revenues, income from continuing operations, income from continuing operations per common share, total assets and total long term debt. - Note 2 to the Consolidated Financial Statements on pages 62 through 63. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the following portions of the 1997 Annual Report to Shareholders which are expressly incorporated herein by reference: - "Management's Discussion and Analysis" on pages 25 through 51. - "Consolidated Quarterly Financial Data" on page 52. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the following portions of the 1997 Annual Report to Shareholders which are expressly incorporated herein by reference: - "Risk Management" section of Management's Discussion and Analysis on pages 45 through 48. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the following portions of the 1997 Annual Report to Shareholders which are expressly incorporated herein by reference: - "Consolidated Quarterly Financial Data" on page 52. - "Consolidated Balance Sheet" on page 53. - "Consolidated Statement of Income" on page 54. - "Consolidated Statement of Changes in Stockholders' Equity" on page 55. - "Consolidated Statement of Cash Flows" on page 56. 8 11 - "Notes to Consolidated Financial Statements" on pages 57 through 83. - "Report of Independent Accountants" on page 84. In February 1998, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. SFAS No. 132 supersedes the disclosure requirements in SFAS No. 87, "Employers' Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses disclosure only. As a result, SFAS No. 132 will have no impact on BANC ONE's consolidated financial position or results of operations. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for fiscal years beginning after December 15, 1998. BANC ONE is in the process of estimating the impact of SOP 98-1 on its consolidated statement of position and results of operations. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Registrant has had no disagreement on accounting and financial disclosure matters and has not changed accountants during the two year period ending December 31, 1997. 9 12 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Election of Directors" and "Certain Reports" in the Proxy Statement is expressly incorporated herein by reference. Refer to Part I of the Form 10-K for information as to the executive officers of BANC ONE. ITEM 11 EXECUTIVE COMPENSATION The information set forth under the captions "Directors Fees and Compensation" and "Executive Compensation" (excluding the information set forth under the caption "Executive Compensation -- Comparison of Five Year Cumulative Total Return") and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is expressly incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning the beneficial ownership of BANC ONE Common Stock as of January 1, 1998 by (i) each person who is known by the Registrant to own beneficially more than 5% of BANC ONE Common Stock, (ii) all BANC ONE directors and executive officers (27 individuals) as a group as of January 1, 1998 and (iii) by the executive officers of BANC ONE named in the Summary Compensation Table (except with respect to Messrs. John B. McCoy and Lehmann whose share ownership is reported in the information on nominees for election as directors under "Election of Directors" in the Proxy Statement) is set forth under the caption "Ownership of Shares" in the Proxy Statement, which information is expressly incorporated herein by reference. Information concerning the beneficial ownership of BANC ONE Common Stock as of January 1, 1998 by each current director and each nominee for director is set forth under the caption "Election of Directors" in the Proxy Statement, which information is expressly incorporated herein by reference. No shares of BANC ONE Preferred Stock are beneficially owned by any BANC ONE director or executive officer, except for 600 shares of BANC ONE Preferred Stock owned by one executive officer and constituting less than 1% of the outstanding shares of BANC ONE Preferred Stock. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Transactions with Management and Others" in the Proxy Statement is expressly incorporated herein by reference. 10 13 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS AND SCHEDULES BANC ONE CORPORATION AND SUBSIDIARIES
ANNUAL REPORT TO SHAREHOLDERS PAGE ----------------- Data incorporated by reference from the 1997 Annual Report to Shareholders: Additional financial information.......................... 24 and 85 Consolidated Balance Sheet, December 31, 1997 and 1996.... 53 Consolidated Statement of Income for the years ended December 31, 1997, 1996 and 1995....................... 54 Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995... 55 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995....................... 56 Notes to Consolidated Financial Statements................ 57-83 Report of Independent Accountants......................... 84
(a)(2) FINANCIAL STATEMENT SCHEDULES No financial statement schedules are included because they are not required, not applicable, or the required information is contained elsewhere. (a)(3) MANAGEMENT CONTRACTS OR COMPENSATORY PLAN ARRANGEMENTS See exhibits marked with an asterisk in Item 14(c) below. (b) REPORTS ON FORM 8-K The following Current Reports on Form 8-K were filed by BANC ONE during the quarter ended December 31, 1997: Current Report on Form 8-K filed October 29, 1997 (Items 5 and 7). (c) EXHIBITS 11 14 INDEX TO EXHIBITS
EXHIBIT NUMBER - - --------- 3.1 Amended Articles of Incorporation of BANC ONE CORPORATION. (8) 3.2 Code of Regulations of BANC ONE CORPORATION. (1) 10.1 BANC ONE CORPORATION Amended 1994 Key Executive Management Incentive Compensation Plan. (4) 10.2(a) BANC ONE CORPORATION 1994 Dividend Equivalent Unit Plan. (3) 10.2(b) First Amendment to the BANC ONE CORPORATION 1994 Dividend Equivalent Unit Plan. (6) 10.3(a) BANC ONE CORPORATION 1995 Dividend Equivalent Unit Plan. (3) 10.3(b) First Amendment to the BANC ONE CORPORATION 1995 Dividend Equivalent Unit Plan. (6) 10.4 BANC ONE CORPORATION Management Performance Improvement Plan. 10.5 BANC ONE CORPORATION Compensation Deferral Plan. (6) 10.6 BANC ONE CORPORATION Executive Life Insurance Plan. (3) 10.7 BANC ONE CORPORATION Directors Deferred Compensation Plan. 10.8 Revised and Restated BANC ONE CORPORATION 1989 Stock Incentive Plan. 10.9(a) BANC ONE Supplemental Executive Security Savings Plan. (2) 10.9(b) First Amendment to the BANC ONE Supplemental Executive Security Savings Plan. (6) 10.10(a) BANC ONE CORPORATION Supplemental Employees Retirement Plan. (6) 10.10(b) First Amendment to the BANC ONE CORPORATION Supplemental Employees Retirement Plan. 10.11 The Valley National Bank of Arizona Supplemental Excess Benefit Retirement Plan. (2) 10.12 American Fletcher Corporation Deferred Compensation Plan. (2) 10.13 Valley National Corporation 401(+)(TM) Executive Deferred Compensation Plan. (2) 10.14 Revised and Restated BANC ONE CORPORATION 1995 Stock Incentive Plan. 10.15 Agreement dated October 2, 1995 between BANC ONE CORPORATION and Richard J. Lehmann. (5) 10.16 Description of BANC ONE CORPORATION 1997 "Special Recognition Awards" Program. 10.17 First USA Deferred Compensation Plan. (9) 10.18(a) First USA Savings Restoration Plan. (10) 10.18(b) Amendment No. 1 to the First USA Savings Restoration Plan. (10) 10.19 Management Security Plan of First USA Financial, Inc. and Subsidiary and Affiliated Companies. (11) 10.20 First USA Supplemental Executive Retirement Plan. (11) 10.21 First USA Retirement Savings Plan. (12) 10.22 First USA, Inc. Employee Stock Option Plan. (11) 10.23(a) First USA, Inc. 1991 Stock Option Plan. (11) 10.23(b) First Amendment to the First USA, Inc. 1991 Stock Option Plan. (13) 10.23(c) Second Amendment to the First USA, Inc. 1991 Stock Option Plan. (13) 10.23(d) Third Amendment to the First USA, Inc. 1991 Stock Option Plan. (14) 10.23(e) Fourth Amendment to the First USA, Inc. 1991 Stock Option Plan. (15) 10.24 First USA, Inc. Management Investors Stock Option Plan. (11) 10.25 First USA, Inc. Management Investors Performance Stock Option Plan. (11) 10.26 First USA, Inc. 1995 Incentive Bonus Plan. (14) 11 Statement regarding computation of earnings per common share. (16) 12 Statement regarding computation of ratio of earnings to fixed charges. 13a Portions of BANC ONE CORPORATION's Annual Report to Shareholders for the calendar year ended December 31, 1997.
12 15
EXHIBIT NUMBER - - --------- 21 Subsidiaries of BANC ONE CORPORATION. 23 Consent of Coopers & Lybrand L.L.P. 27 Financial Data Schedules.
There are no agreements with respect to long-term debt of the Registrant to authorize securities in an amount which exceeds 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of any agreement with respect to long-term debt of the Registrant to the Securities and Exchange Commission upon request. - - ------------------------ (1) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (2) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (3) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (4) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (5) Incorporated by reference from the Registrant's Quarterly Report on Form 10-K for the year ended December 31, 1995. (6) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (7) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (8) Incorporated by reference from the Registrant's Current Report on Form 8-K filed July 14, 1997. (9) Incorporated by reference from the First USA, Inc. Registration Statement on Form S-8 (No. 333-07025). (10) Incorporated by reference from the First USA, Inc. Annual Report on Form 10-K for the fiscal year ended June 30, 1994 (SEC File No. 1-11030). (11) Incorporated by reference from the First USA, Inc. Registration Statement on Form S-1 (SEC File No. 33-45110). (12) Incorporated by reference from the First USA, Inc. Registration Statement on Form S-8 (SEC File No. 333-11265). (13) Incorporated by reference from the First USA, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994 (SEC File No. 1-11030). (14) Incorporated by reference from the First USA, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1995 (SEC File No. 1-11030). (15) Incorporated by reference from the First USA, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 (SEC File No. 1-11030). (16) Incorporated by reference from the 1997 Annual Report to Shareholders, "Note 19, Supplemental Disclosures for Earnings per Share" of the Notes to the Consolidated Financial Statements. 13 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) By: /s/ JOHN B. MCCOY March 30, 1998 ---------------------------------------------- ------------------- John B. McCoy Date Chairman and Chief Executive Officer By: /s/ MICHAEL J. MCMENNAMIN March 30, 1998 ---------------------------------------------- ------------------- Michael J. McMennamin Date Executive Vice President and Chief Financial Officer By: /s/ WILLIAM C. LEITER March 30, 1998 ---------------------------------------------- ------------------- William C. Leiter Date Senior Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ BENNETT DORRANCE March 30, 1998 ---------------------------------------------- ------------------- Bennett Dorrance, Director Date By: /s/ CHARLES E. EXLEY, JR. March 30, 1998 ---------------------------------------------- ------------------- Charles E. Exley, Jr., Director Date By: /s/ E. GORDON GEE March 30, 1998 ---------------------------------------------- ------------------- E. Gordon Gee, Director Date By: /s/ JOHN R. HALL March 30, 1998 ---------------------------------------------- ------------------- John R. Hall, Director Date By: /s/ LABAN P. JACKSON, JR. March 30, 1998 ---------------------------------------------- ------------------- Laban P. Jackson, Jr., Director Date By: /s/ JOHN W. KESSLER March 30, 1998 ---------------------------------------------- ------------------- John W. Kessler, Director Date By: /s/ RICHARD J. LEHMANN March 30, 1998 ---------------------------------------------- ------------------- Richard J. Lehmann, Director Date By: /s/ JOHN B. MCCOY March 30, 1998 ---------------------------------------------- ------------------- John B. McCoy, Director Date
14 17 By: /s/ JOHN G. MCCOY March 30, 1998 ---------------------------------------------- ------------------- John G. McCoy, Director Date By: /s/ THEKLA R. SHACKELFORD March 30, 1998 ---------------------------------------------- ------------------- Thekla R. Shackelford, Director Date By: /s/ ALEX SHUMATE March 30, 1998 ---------------------------------------------- ------------------- Alex Shumate, Director Date By: /s/ FREDERICK P. STRATTON, JR. March 30, 1998 ---------------------------------------------- ------------------- Frederick P. Stratton, Jr., Director Date By: /s/ JOHN C. TOLLESON March 30, 1998 ---------------------------------------------- ------------------- John C. Tolleson, Director Date By: /s/ ROBERT D. WALTER March 30, 1998 ---------------------------------------------- ------------------- Robert D. Walter, Director Date
15 EX-10.4 2 EXHIBIT 10.4 1 Exhibit 10.4 January 1997 1997 BANC ONE PERFORMANCE IMPROVEMENT PLAN Participant Overview - - -------------------------------------------------------------------------------- MANAGEMENT REWARD PROGRAMS - - -------------------------------------------------------------------------------- [BANK1ONE LOGO] 2 BANC ONE CORPORATE VISION WE WILL SETTLE FOR NOTHING LESS THAN TO BE A NATIONAL LEADER IN PROVIDING FINANCIAL SERVICES TO THE PEOPLE AND BUSINESSES OF AMERICA. WE ARE COMMITTED TO THE RELENTLESS PURSUIT OF IDEAS THAT ENABLE THOSE WE SERVE TO PROSPER AND ACHIEVE THEIR GOALS. DELIGHTING CUSTOMERS . . . CREATING VALUE . . . REWARDING OUTCOMES . . . BANC ONE has established the BANC ONE PERFORMANCE IMPROVEMENT PLAN (PIP) as a key component of our total reward program for select management employees of the Corporation, its Lines of Business, and its related companies. The purpose of the Plan is to enable the successful achievement of our Corporate Vision by providing a management system to: - communicate business objectives, - focus and align efforts, - promote collaboration and our high-performance imperative, - strengthen the sense of ownership in business outcomes, and - share the rewards for performance results. The Plan is constructed for flexibility, in order to ensure an appropriate and tailored design aligned with the specific business requirements of each National Line-of-Business or functional organization: [BANC ONE PIP CHART] - 1 - 3 PARTICIPATION Participation in the PIP includes those management employees who, by the nature and scope of their positions, are materially responsible for the management, growth, and success of BANC ONE's businesses. Participation is approved by the Corporate Management Committee members of BANC ONE CORPORATION. TARGET INCENTIVE AWARD Target Award percentages, commensurate with the participant's role and accountabilities, are determined at the beginning of each plan year. The Target Award amount is calculated as the aggregate of base salary earned times the target award percentage. The award of a PIP participant whose incentive category level, or base salary, is changed during the plan year will be prorated between the respective base pay and target award percentages of each assignment. PERFORMANCE MEASURES Earnings performance measures are established and provided for BANC ONE and each appropriate Line-of-Business or Market. Each participant's objectives reflect a combination of those appropriate earnings goals, other specific team and individual goals, and discretionary factors. a) OVERALL CORPORATE EARNINGS THRESHOLD As a prerequisite to any awards being paid under the Plan, BANC ONE CORPORATION must achieve an overall earnings threshold of performance for 1998. Unless this overall threshold is met, no awards are paid to anyone in the PIP for any plan component. This figure appears on your Participant Performance Scorecard. b) BANC ONE EPS GOAL Given the nature and scope of an individual's role, some participants may have, as a component within their PIP Scorecard, BANC ONE EPS. Where applicable, your Scorecard provides the relationship - 2 - 4 between BANC ONE's required EPS performance, and the percentage of the target award which may be paid for this component. The payout for minimum threshold EPS performance equates to 25% of the target award amount for this Component. If this performance threshold is not achieved, awards can still be paid for other earnings and individual components of the Plan subject only to the Overall Corporate Threshold mentioned above. c) BUSINESS SPECIFIC EARNINGS Each Line-of-Business or Market will have an earnings performance target. Associated with the earnings target will be a minimum threshold of performance. If a business-specific earnings threshold is not met, no participant earns an award within the respective Market or Line-of-Business for that earnings component. However, awards can be earned for other earnings and individual goals. Business-Specific earnings performance also impacts the funding of the bonus pool for the Other Goals/Discretionary component at the Market or Line-of-Business level. See item "d" below. An appropriate earnings performance/reward scale is used for each Earnings component, along with a defined performance measure weighting percentage, to determine the component score for each individual participant. Please reference your PIP Performance Measures graph, to be distributed, and your Performance Scorecard for details on earnings and other performance measures. d) OTHER GOALS/DISCRETIONARY COMPONENT The Other Goals component recognizes performance achievement in such quantifiable performance measures as NIE, new business generation, credit quality, market penetration, and key project completion. Generally, specific strategic goals are separately listed and described for each participant in the Other Goals section of the PIP Performance Scorecard. The Discretionary component recognizes performance achievement and contributions that are less quantifiable, such as innovation, collaboration, leadership, or performance in a newly created Line-of-Business which lacks complete financial information. The Discretionary component can also be used to recognize contributions to projects that were unanticipated at the beginning of the plan year. - 3 - 5 e) FUNDING POOL FOR THE OTHER GOALS/DISCRETIONARY COMPONENT A funding pool is established for the Other Goals/Discretionary component at the appropriate Line-of-Business or Market level. For the purpose of determining the awards for this component, all participants are assigned to the funding pool which most closely represents their primary area of responsibility. Funding pool assignments normally will correspond with the Line-of-Business or Market that has the largest weight of the earnings goal components. The target funding pool for Other Goals/Discretionary is calculated as the aggregation of all such target amounts for the participants within that organizational team. The actual pool amount generated will be determined contingent upon the degree to which the applicable Market or Line-of-Business has achieved its earnings commitment, as follows: [ ] less than the performance threshold, then the funding pool is set at 50% of target; [ ] between the performance threshold and the performance target, then the funding pool is set at 100% of target; [ ] greater than the performance target, then the funding pool set equal to the percent of the target award for that financial component, with a maximum of 150% of target. f) EARNINGS ADJUSTMENTS Earnings performance goals and performance scoring may be modified at any time by the Chairman and/or President of BANC ONE. These modifications are generally used to adjust earnings measures for significant unanticipated or nonrecurring gains or losses in income which do not directly result from the efforts of management. AWARD CALCULATION The award percentage is determined by aggregating the weighted performance scores for all plan performance components. Award dollars are then calculated by multiplying the total performance achievement percent by the target award for each participant. - 4 - 6 Below is an example of the year-end calculation process for a typical performance achievement matrix. The circled scores represent year-end performance achievement levels. As the example shows, the calculated PIP award is $22,000. BANC ONE CORPORATION 1997 MPIP PERFORMANCE/RESULTS MATRIX - - -------------------------------------------------------------------------------- III. PERFORMANCE MEASURES/RESULTS
Incentive as a % of Target* ------------------------------------------------------------------ Percent Weight 25% 50% 100% 150% 200%** Calculations Earned ------ ------ ------- ------- ------- -------- ------------ -------- BANC ONE EPS 20% $ 3.363 $ 3.425 $ 3.55 $ 3.675 $ 3.8 (0.2 x 1.0) 20% ------- LINE-OF-BUSINESS 20% N/A $412.9 $471.9 $530.9 $589.9 (0.2 x 0.5) 10% ------ BUSINESS UNIT 20% N/A $ 46.6 $ 53.3 $ 59.9 $ 66.6 (0.2 x 1.0) 20% ------ INDIVIDUAL GOALS 20% $ 4.3 $ 4.7 $ 5.3 $ 6.0 $ 6.7 (0.2 x 1.5) 30% ------ DISCRETIONARY 20% Determined subjectively, within funding limits 30% ------- Weighted %: 110.0% Target Award: $20,000 -------- Earned Award: $22,000
** All components are uncapped based on a straight line projection from the last two points. Total awards in excess of 200% of target are subject to the approval of the Chairman and President of BANC ONE CORPORATION. - - -------------------------------------------------------------------------------- WINDFALL PROVISION It is the intent of this plan to generally recognize outstanding contributions with uncapped incentive rewards. However, there may be instances when the award calculated by the predetermined plan formula produces an award that is out-of-balance with contribution. Therefore, the Chairman and President explicitly reserve the right to adjust the amount of any award in excess of 200% of target regardless of the predetermined formula calculation. FINAL AWARD DETERMINATION The Chairman and President approve final awards, based on the calculated award, considering recommendations of senior management and other considerations. PAYMENT OF AWARDS At the end of each Plan Year, awards are computed for each participant. Payment of awards are made as a payroll deposit, subject to applicable withholding, as soon as practicable after year-end results are reviewed and individual awards are approved. Participants must be employed by BANC ONE at the date of payment to be eligible to receive their award. - 5 - 7 TERMINATION OF EMPLOYMENT In the event a participant's employment is terminated during the Plan Year due to death or total and permanent disability (as determined by the Corporate Compensation Committee), the participant's award is prorated to reflect the partial year of participation. This proration is determined by multiplying the award by a fraction, the numerator of which is the months of participation through the date of termination rounded up to whole months and the denominator of which is twelve (12). The participant's award is paid as soon as practicable following the end of the Plan Year, to the Participant or pursuant to the Beneficiary Designation. In the event of a participant's termination due to normal retirement on December 31, the employee will receive his full earned award. In the event a participant's employment is terminated for reasons other than death, disability, or December 31 normal retirement, all rights to an award for the Plan Year will be generally forfeited. GENERAL PROVISIONS A. The Plan may be modified, amended, or terminated at any time by the Board of Directors. The existence of this Plan does not obligate or bind BANC ONE CORPORATION or its related companies to pay an award to any participant (or beneficiary) nor does any participant (or beneficiary) attain any vested, nonforfeitable right to an award until the award has been finalized and approved for payment by the Board of Directors. B. Any and all payments made under the Plan shall be subject to applicable federal, state, FICA, or local taxes required by the law to be withheld. C. Amounts paid under this Plan will not be considered compensation for purposes of the BANC ONE qualified or non-Qualified benefit plans unless specifically provided for such plans. D. If a participant has been designated to participate in the BANC ONE Compensation Deferral Plan, an award or portion thereof granted under the Plan may be deferred pursuant to the terms of that plan provided a timely deferral election is made by the participant. E. Except as specifically provided herein, or as may otherwise be required by law, no undistributed bonus amount payable to the participant on the Plan may be sold, transferred, assigned, or encumbered in whole or in part, by a participant, and any attempt to do so alienate or subject any such amount shall be null and void. - 6 - EX-10.7 3 EXHIBIT 10.7 1 Exhibit 10.7 BANC ONE CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN PURPOSE The purpose of the BANC ONE CORPORATION Directors Deferred Compensation Plan (the "Plan") is to provide a means by which a member of the Board of Directors of either BANC ONE CORPORATION or a Related Company may defer the payment of all (but not less than all) of the Fees payable to the Director for services rendered by the Director. Effective Date This Plan was originally effective as of January 1, 1984 and was last restated effective January 1, 1994. This amended and restated version of the Plan is effective October 1, 1997 unless otherwise specifically herein indicated. ARTICLE I DEFINITIONS When used herein, the following terms shall have the meaning stated herein, unless the context clearly indicates otherwise. Section 1.1 - Appeals Committee A committee consisting of three (3) or more officers of the Company who shall be appointed by the Chief Executive Officer of the Company to hear appeals of denied Director or Beneficiary benefit claims under the Plan, provided that with respect to denied claims of a Director who has been identified by the Company as an Insider, such Appeals Committee shall be the Personnel and Compensation Committee of the Board. Section 1.2 - Insider Any person who is required to file reports of his beneficial ownership of Shares with the Securities Exchange Commission pursuant to Section 16(a) of the Exchange Act. Section 1.3 - Beneficiary A person or persons designated by a Participant in accordance with provisions of Section 3.8, to receive any death benefit which may be payable under this Plan upon the death of said Participant. Section 1.4 - Board The Board of Directors of the Company. - 1 - 2 Section 1.5 - Change of Control (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding Shares or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or a Related Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of Subsection (c) of this Section 1.5; or (b) Individuals who, as of October 1, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in which case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding Shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the - 2 - 3 Company. Section 1.6 - Committee The Personnel and Compensation Committee of the Board which is comprised of two or more non-employee Directors and which shall have the authority of said Board with respect to this Plan. Section 1.7 - Company BANC ONE CORPORATION. Section 1.8 - Director A statutory director, an emeritus director, an advisory board member, or an honorary director of the Company or a participating Related Company who is not an officer or employee of the Company or a Related Company and who receives Fees for services rendered. Section 1.9 - Exchange Act The Securities Exchange Act of 1934, as amended. Section 1.10 - Fees Amounts payable by the Company or a Related Company to a Director for services rendered by the Director to the Company or Related Company, including retainer, meeting, and committee fees. Section 1.11 - Participant (a) Any Director who satisfies the eligibility and participation requirements of this Plan and who elects or has previously elected to defer Fees under this Plan, or (b) A participant under any Prior Plan from and after the effective date of merger of said Prior Plan with and into the Plan. Section 1.12 - Plan Administrator BANC ONE CORPORATION. Section 1.13 - Prior Plan Any director deferred fee plan of the Company, a Related Company, or a predecessor or successor thereof, which has been merged with and into this Plan as set forth from time to time on the attached Schedule A which is made a part hereof. Section 1.14 - Related Company - 3 - 4 A subsidiary or any entity which is a member of a common controlled group with BANC ONE CORPORATION pursuant to Internal Revenue Code Section 1563(a)(1). Section 1.15 - Share(s) Common shares of BANC ONE CORPORATION, or any successor thereto. ARTICLE II PARTICIPATION Section 2.1 - Eligibility Any Director who receives Fees is eligible to become a participant in this Plan. Any participant in a Prior Plan shall become a Participant in the Plan as of the effective date of merger of said Prior Plan into the Plan. Section 2.2 - Conditions of Participation A Director shall not become a Participant hereunder until he or she furnishes within a reasonable time limit established by the Plan Administrator such completed and executed elections, Beneficiary designations, consents and other documents and information prescribed by the Plan Administrator. Each Director upon becoming a Participant shall be deemed conclusively, for all purposes, to have assented to the terms and provisions of this Plan and shall be bound thereby. Section 2.3 - Election To Defer (a) Current Directors. A Director may elect, on or before December 31 of any year, to defer payment of all (but not less than all) of the Fees earned during the calendar year following such election and all succeeding calendar years. Any such elections shall remain in effect until the earlier of the following events: (i) the Director terminates his election pursuant to Subsection 2.3(d) of this Plan, or (ii) the participant ceases to be a Director. (b) Newly Eligible Directors. Any person who becomes a Director during any calendar year, and who was not a Director on the preceding December 31, may elect, before such Director attends a meeting, to defer payment of all (but not less than all) of the Fees earned by the Director for the remainder of such calendar year and all succeeding calendar years, pursuant to Section 2.3(a) of this Plan. (c) Timeliness of Elections. Any such elections shall be made in such format (including but not limited to approved forms or electronic data response) and in the manner provided by the Plan Administrator. If a Director who is eligible to participate in this Plan fails to file (or fails to timely file) the form(s) or take any action required by the Plan Administrator to participate in the Plan, such Director will not be permitted to participate in the Plan until the next open enrollment period applicable for the following calendar year. (d) Termination of Election. A Director may terminate the election to defer payment of Fees under the - 4 - 5 Plan by written notice delivered to the Plan Administrator. Such election shall become effective as of the end of the calendar year in which said notice is given with respect to Fees payable as a Director for subsequent calendar years. Amounts credited to the Participant's account prior to the effective date of deferral cessation shall not be affected thereby and shall be distributed pursuant to Section 3.1 of the Plan. Section 2.4 - Participant Accounts Fees deferred at the election of a Participant shall be held in the general funds of the Company and shall be credited to an account established by the Company in the Participant's name to which deferrals made in accordance with this Plan are credited. The Fees deposited in the Participant's deferred account shall be invested under the Interest Program or the Stock Program, or both, as elected by the Participant. All deferred fees not specifically designated by a Participant to be credited to the Interest Program shall be credited to the Stock Program. Effective with the first day of any next succeeding quarter, any Participant may prospectively change his or her election to participate in the Interest Program and/or the Stock Program by delivering a new election form to the Plan Administrator. Such designation shall affect the deferral of future Fees and shall have no affect on former Fees which shall remain in the Interest Program or the Stock Program as previously designated unless an election is made pursuant to Section 2.7 of this Plan. Section 2.5 - Interest Program (a) If the Participant elects to participate in the Interest Program, the Participant's deferred account shall be invested in units of The One Group Prime Money Market Fund, or any successor thereto, and cash or cash equivalent securities as determined by the Plan Administrator or its agent from time to time. (b) Interest which is paid on the units in the Interest Program shall be automatically reinvested in additional units of the Interest Program within a reasonable time following the crediting of said interest. Section 2.6 - Stock Program (a) If the Participant elects to participate in the Stock Program, the Participant's deferred account shall be invested in Shares of the Company and cash or cash equivalent securities as determined by the Plan Administrator or its agent from time to time. (b) The cash dividends which are paid on the Shares in the Stock Program shall be automatically reinvested in additional Shares of the Company within a reasonable time following payment of such dividends. Section 2.7 - Transfers of Prior Deferrals During the annual election period, any Participant who is not an Insider may elect to transfer prior deferral amounts from one investment program to the other, such transfer to be effective December 31st of the year in which the election is made. The election to transfer prior deferral amounts must be received by the Plan Administrator by the last business day prior to December 31st, in order to be effective on said date. Any such transfer will be valued as of the last business day prior to January 1st. No prior deferral amounts may be transferred into or out of the Stock Program by an Insider without - 5 - 6 the express approval of the Plan Administrator or the person(s) designated to approve such Insider transactions. Such approval will be allowed when, in the judgment of the Plan Administrator or such appointed person(s), such transfer of previously allocated funds will not (i) as a result of Discretionary Transactions elected by the Insider (as that term is used in Rule 16b-3 of the Exchange Act) under the Plan and all other employee benefit plans of the Company and Related Companies, subject such person to potential liability under Section 16b of the Exchange Act; or (ii) jeopardize or make less likely the ability to properly account for a transaction in which the Company is participating and which the Company wishes to account for as a pooling of interests as a "pooling of interests". Section 2.8 - Funding The Plan shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Company or a Related Company for payment of any benefit hereunder. No Participant, Participant's spouse or any other person shall have any interest in any particular assets of the Company or any Related Company by reason of the right to receive a benefit under the Plan, and any such Participant, Participant's spouse, or other person shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan. Nothing contained in the Plan shall constitute a guaranty by the Company or other entity or person that the assets of the Company will be sufficient to pay any benefit hereunder. Section 2.9 - Statement of Accounts At least once annually, the Plan Administrator shall furnish each Participant with a written statement of his account setting forth the net income or loss of the account; any administrative expenses charged to the account; all payments and distributions made from the account; and such further information as the Plan Administrator deems appropriate. ARTICLE III DISTRIBUTIONS Section 3.1 - Timing of Distributions Amounts credited to a Participant under the Plan shall be distributed as soon as administratively feasible as follows: (a) On or after January 1st on or following the date the Plan Administrator is notified that the Participant is neither a Director nor an employee of the Company or a Related Company; (b) Upon the death of the Participant, in accordance with Section 3.4; or (c) After an acceleration of benefits under Section 3.6; or (d) Upon the receipt by the Plan Administrator of the Participant's written request to receive all or a portion of his account in the event of a Change of Control; (e) After termination of this Plan in accordance with Section 5.1; - 6 - 7 provided, further, however, that no distribution or payment shall be allowed hereunder unless, in the judgment of the Plan Administrator or its appointees, such distribution or payment will not constitute a Discretionary Transaction under Securities and Exchange Commission Rule 16b-3 which will subject the Participant to potential liability under Section 16(b) of the Exchange Act or jeopardize or make less likely the ability to properly account for a transaction in which the Company is participating and which the Company wishes to account for as a "pooling of interests". - 7 - 8 Section 3.2 - Form of Distribution (a) Amounts credited to a Participant under the Plan shall be distributed in a lump sum payment or in annual installments over a five or ten-year period as the Participant has elected on the form(s) and in the manner provided by the Plan Administrator. Any such election shall continue until the Participant elects a different form of payment. All such elections must be made at least one year prior to the date of distribution. If a Participant fails to make such an election, the amounts credited to a Participant under the Plan shall be paid in annual installments of cash over a five-year period. All distributions under this Plan shall be calculated on the basis of the value of the Participant's account balance as of the last business day of the calendar quarter preceding the commencement date described above, or in the case of an installment payment, the account balance as of the last business day of the calendar quarter preceding the installment payment. The first installment (or the lump sum payment if the Participant so elects) shall be paid on the commencement date described above and subsequent installments shall be paid within sixty days after the first business day of each succeeding calendar year until the entire amount credited to the Participant's deferred account shall have been paid. During such time as amounts credited to a Participant under the Plan continue to be held for the Participant or the Participant's Beneficiary, such amounts shall continue to share in appreciation and/or depreciation in accordance with the Participant's investment elections and may be charged administrative expenses as provided in Section 4.2. (b) The form and frequency of distribution being made from a Prior Plan at the effective date of Plan merger will continue in effect provided that such distribution is administratively feasible under the Plan and further provided that the payment amount is determined in a manner approved by the Plan Administrator pursuant to Section 3.3 of this Plan. Section 3.3 - Cash Payments; Determination of Amount All distributions to Participants shall be made in the form of cash. Subject to Section 3.2, the amount to be distributed shall be determined based on the fair market value of the balance credited to the Participant's account as of the close of business on the last day of the calendar month immediately preceding distribution or such later valuation date immediately preceding the date of distribution if the accounts are valued more frequently than monthly (i.e., daily), or in such other manner as is approved by the Plan Administrator for Prior Plan payments. Section 3.4 - Payments in the Event of a Participant's Death In the event a Participant dies before payments from the Participant's account have commenced or after such payments have commenced but before the entire amount credited to the Participant's account has been paid, all amounts credited to the Participant's account at the time of the Participant's death, together with accumulated earnings thereon net of charges for administrative expenses, shall be paid to the Beneficiary or Beneficiaries described in Section 3.8, below, in a lump sum payment as soon as administratively feasible after the Plan Administrator is notified of the Participant's death unless the Participant has indicated on any Beneficiary designation forms an alternate manner of payment which is permitted by the Plan Administrator. Section 3.5 - Vesting - 8 - 9 Each Participant is immediately one hundred percent (100%) vested in all amounts credited to his or her account and any earnings thereon. Section 3.6 - Acceleration of Benefits for Unforseen Emergencies The Plan Administrator, with the approval of the Chief Executive Officer of the Company, may accelerate the payment of any amounts held in any Participant's account in the case of unforseeable emergencies. An "unforseeable emergency" is a severe financial hardship to the Participant or Beneficiary resulting from a sudden and unexpected illness or accident of the Participant or dependent of the Participant, loss of Participant's property due to casualty, or other similar extraordinary and unforseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances which will constitute an "unforseeable emergency" will depend upon the facts of each case, but in any case, payment will not be made to the extent that such hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardships; or (iii) by cessation of deferrals under the Plan. "Unforseeable emergency" will not include the need to send the Participant's child to college or the desire to purchase a home. Any early distributions made under this Section 3.6 will only be permitted to the extent reasonably needed to satisfy the emergency needs. No distribution or payment shall be allowed hereunder unless, in the judgment of the Plan Administrator or its appointees, such distribution or payment will not constitute a Discretionary Transaction under Securities and Exchange Commission Rule 16b-3 which will subject the Participant to potential liability under Section 16(b) of the Exchange Act or jeopardize or make less likely the ability to properly account for a transaction in which the Company is participating and which the Company wishes to account for as a "pooling of interests". Section 3.7 - Withholding and Deductions All benefit payments made under the Plan to any Participant or Beneficiary shall be subject to such withholding and other deductions as shall at the time of such payment be required under any income tax or other law, whether of the United States or any other jurisdiction, and delivery to the Plan Administrator of all necessary documents. To the extent that the Company is required to withhold any current taxes at the time of deferral of Director's Fees, the deferral amount shall be reduced by the required taxes. Determination by the Plan Administrator as to withholding shall be binding on the Participant and applicable Beneficiary(ies). Section 3.8 - Beneficiary Designation Each Participant who has a deferred account hereunder may from time to time designate a Beneficiary(ies) to receive the amounts credited to the Participant's account in the event of the Participant's death prior to the time the account is distributed to the Participant. Such designation shall be made pursuant to the procedures established by the Plan Administrator and in a form satisfactory to the Plan Administrator. Each proper designation of a Beneficiary shall revoke all previous Beneficiary designations. The revocation of a Beneficiary designation, no matter how effected, shall not require the consent of or notice to any designated Beneficiary. - 9 - 10 If any Participant fails to designate a Beneficiary in the manner provided above, or if any Participant is not survived by such Beneficiary(ies), the Participant's account shall be paid, pursuant to Section 3.4, to the Participant's estate. Section 3.9 - Rights to Benefits Nothing contained in this Plan is intended to give or shall give any spouse, former spouse or Beneficiary of a Participant or any other person any right to benefits under this Plan by virtue of Internal Revenue Code Sections 401(a)(11) and 417 (relating to qualified pre-retirement survivor annuities and qualified joint and survivor annuities) or Internal Revenue Code Sections 401(a)(13)(B) and 414(p) (relating to qualified domestic relations orders) as amended. ARTICLE IV ADMINISTRATION Section 4.1 - Administrative Powers and Duties The Plan Administrator shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. The Chief Executive Officer of the Company may, in his discretion, appoint an employee or employees or an administrative committee in writing to administer the provisions of this Plan. The decision of the Plan Administrator with respect to any questions arising as to the administration or interpretation of this Plan, including the discontinuance of any or all of the provisions thereof, shall be final, conclusive, and binding. If the Plan is administered by a committee, such committee may act by a majority of its members by a vote at a meeting, or in writing, without a meeting, signed by all the members of the committee. Section 4.2 - Expenses Any cost or expense of administering the Plan shall be paid by the Company and/or participating Related Companies. Notwithstanding the above, the Plan Administrator may charge each Participant's account with the amount of reasonable administrative expenses it determines, in its sole discretion, for the cost of administering the Plan. Any such charges shall reduce the earnings credited to the Participant's account and shall be applied in a uniform and non-discriminatory manner. Section 4.3 - Records The Plan Administrator shall keep such records of such information, as shall be proper, necessary or desirable to effectuate the purposes of the Plan, including without in any manner limiting the generality of the foregoing, records and information with respect to deferral elections, Participant accounts, dates of employment and termination and determinations made hereunder. To the extent that the Plan Administrator shall prescribe forms for use by the Participants and their Beneficiaries in communicating with the Plan Administrator and shall establish periods during which communications may be received, the Plan Administrator shall be protected in disregarding any notice or communication for which a form shall so have been prescribed and which shall not be made in such form and any notice or communication for the receipt of which a period shall so have been established and which shall not be - 10 - 11 received during such period. The Company, the Plan Administrator and the Appeals Committee shall respectively also be protected in acting upon any notice or other communication purporting to be signed by any person and reasonably believed to be genuine and accurate, including the Participant's current mailing address. Section 4.4 - Determinations All determinations hereunder made by the Plan Administrator or the Appeals Committee shall be made in the sole and absolute discretion of the Plan Administrator or Appeals Committee, as the case may be. Section 4.5 - Claims Procedures The Plan Administrator shall have discretion regarding benefit determinations. If required by the Plan Administrator, any person entitled to benefits hereunder must file a claim with the Plan Administrator upon forms furnished by the Plan Administrator. Notwithstanding any other provision of this Plan, payment of benefits need not be made until receipt of the claim and the expiration of the time periods specified in this Section 4.5 for rendering a decision on the claim. In the event a claim is denied, benefits need not be made or commence until a final decision is reached by the Appeals Committee subject to the provisions of Section 4.6. The Plan Administrator shall notify the claimant of its decision within ninety (90) days after receipt of the claim. However, if special circumstances require, the Plan Administrator may defer action on a claim for benefits for an additional period not to exceed ninety (90) days, and in that case it shall notify the claimant of the special circumstances involved and the time by which it expects to render a decision. If the Plan Administrator determines that any benefits claimed should be denied, it shall give notice to the claimant setting forth the specific reason or reasons for the denial and provide a specific reference to the Plan provisions on which the denial is based. The Plan Administrator shall also describe any additional information necessary for the claimant to perfect the claim and explain why the information is necessary. Such claimant shall be entitled to full and fair review by the Appeals Committee of the denial. Section 4.6 - Appeal and Review Procedure If a claim has been denied by the Plan Administrator, the claimant shall have sixty (60) days after receipt of the denial in which to file a notice of appeal with the Plan Administrator. A final determination by the Appeals Committee shall be rendered within sixty (60) days after the receipt of the claimant's notice of appeal. Under special circumstances such determination may be delayed for an additional period not to exceed sixty (60) days, in which case the claimant shall be notified of the delay prior to the close of the initial sixty (60) day period. The Appeals Committee's final decision shall set forth the reasons and the references to the Plan provisions on which it is based. Section 4.7 - Facility of Payment Whenever a person entitled under the Plan to receive any payment of a benefit, or installment thereof, - 11 - 12 is under a legal disability or incapacity or is in any way unable to manage his financial affairs, the Plan Administrator may, in its discretion, direct payments on behalf of such person to be made to the incapacitated person's legal representative, custodian, relative, or other such individual(s) as is (are) known by the Plan Administrator to be assisting such person. Such decision by the Plan Administrator shall be made after consultation with those persons, if any, which may include legal counsel and/or medical personnel, which the Plan Administrator in its sole discretion determines are necessary in order to make such decision. Any payment of a benefit or installment thereof in accordance with the provision of this Section 4.7 shall be a complete discharge of any liability relating to the making of or entitlement to such payment under the provisions of the Plan. Section 4.8 - Action by the Company Any action by the Company under this Plan may be by resolution of its Board, or alternatively, by the Committee, or by any person or persons, duly authorized by resolution of said Board to take such action. Section 4.9 - Exemption from Liability/Indemnification The members of the Appeals Committee and the persons acting on behalf of the Plan Administrator, shall be free from all liability, joint or several, for their acts, omissions, and conduct, for the acts, omissions and conduct of their duly appointed agents, in the administration of the Plan, except for those acts or omissions and conduct resulting from willful misconduct or lack of good faith. The Company shall indemnify each member of the Appeals Committee, the persons acting on behalf of the Plan Administrator and any other employee, officer or director of the Company or Related Company against any claims, loss, damage, expense and liability, by insurance or otherwise, reasonably incurred by the individual in connection with any action or failure to act by reason of membership on the Appeals Committee or performance of an authorized duty or responsibility for or on behalf of the Company pursuant to the Plan unless the same is judicially determined to be the result of the individual's gross negligence or willful misconduct. Such indemnification by the Company shall be made only to the extent such expense or liability is not payable to or on behalf of such person under any liability insurance coverage. The foregoing right to indemnification shall be in addition to any other rights to which such person may be entitled as a matter of law. Section 4.10 - Nonassignability No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, assign, sell, pledge, encumber or charge the same shall be void. The Plan shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. ARTICLE V AMENDMENT OR TERMINATION Section 5.1 - Amendment or Termination - 12 - 13 The Company, through action of the Board, or alternatively, the Committee, may amend or terminate this Plan at any time. In the event of a termination, the Company in its sole discretion may accelerate payment of Plan benefits to those Participants participating in the Plan on the date of such termination, to the extent such benefits would otherwise be payable as defined in Section 3.1 determined on the basis that each Participant's presumed termination date was the date the Plan was terminated. Section 5.2 - Change of Control The Plan shall not be automatically terminated upon a Change of Control if, following the Change of Control, the Company, its successor or purchaser is obligated to pay, or continue to pay, Plan benefits to those Participants participating in the Plan on the date of such Change of Control, to the extent such benefits would be otherwise payable as defined in Section 3.1. ARTICLE VI GENERAL PROVISIONS Section 6.1 - Offset to Benefits Notwithstanding any provisions of the Plan to the contrary, the Company may, at the time of distribution in its sole and absolute discretion, enforce the right to offset against any amounts to be paid to a Participant under the Plan against any debt of the Participant which has been reduced to judgment in favor of the Company. Section 6.2 - Construction In the construction of the Plan, the masculine shall include the feminine and the singular the plural where such meanings would be appropriate. Section 6.3 - Controlling Law The laws of the State of Ohio shall be controlling in all matters relating to the Plan and shall be the controlling state law in all matters relating to the Plan and shall apply to the extent that it is not preempted by the laws of the United States of America. Section 6.4 - Effect of Invalid Provisions If any provision of this Plan is held invalid or unenforceable for any reason, such invalidity or unenforceability shall not effect any provision hereof, and the remaining provisions of this Plan shall be construed and enforced as if such provisions had not been included. IN WITNESS WHEREOF, the Company has caused this Plan to be adopted and effective as first set forth above. - 13 - 14 Date: BANC ONE CORPORATION ----------------- Attest: By: --------------- -------------------------------- Steven A. Bennett Senior Vice President and Secretary - 14 - 15 SCHEDULE A BANC ONE CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN SPECIAL PROVISIONS RELATING TO PRIOR PLAN MERGERS
MERGER DATE PLAN NAME/SPONSOR SPECIAL PROVISIONS - - ----------- ----------------- ------------------ November 1, 1997 Deferred Compensation Plan - Board Of Directors None The Metropolitan Bank of Lima, Ohio
- 15 - EX-10.8 4 EXHIBIT 10.8 1 Exhibit 10.8 REVISED AND RESTATED BANC ONE CORPORATION 1989 STOCK INCENTIVE PLAN SECTION 1. Establishment, Purpose, and Effective Date of Plan 1.1 Establishment. BANC ONE CORPORATION, a Delaware corporation, (the "Corporation") hereby establishes the "1989 STOCK INCENTIVE PLAN" (the "Plan") for key employees of the Corporation and its subsidiaries and for directors of the Corporation who are not employees of the Corporation or any of its subsidiaries. The Plan permits the grant of Director Stock Options to such directors and the grant of Stock-Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Shares, and Performance Awards to such employees. 1.2 Purpose. The purpose of the Plan is to advance the interests of the Corporation by encouraging and providing for the acquisition of an equity interest in the Corporation by directors of the Corporation and key employees of the Corporation and its subsidiaries and by enabling the Corporation to attract and retain the services of such directors and key employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent. 1.3 Effective Date. The Plan shall become effective as of January 18, 1989, the date of its adoption by the Board of Directors of the Corporation, subject to ratification by the shareholders of the Corporation within twelve months of the adoption date. SECTION 2. Definitions 2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "Award" means any Option, Stock Appreciation Right, Restricted Stock Awards, Performance Share, or Performance Award. (b) "Board" means the Board of Directors of the Corporation. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the Committee of the Corporation's Board of Directors which shall consist of two or more non-employee directors, within the meaning set forth in Rule 16b-3 of the Securities Exchange Act of 1934, appointed by the Board. (e) "Corporation" means BANC ONE CORPORATION, a bank holding company under the Bank Holding Company Act of 1956 headquartered in Columbus, Ohio. (f) "Disability" means disability as determined by the Committee. (g) "Director Stock Option" means an Option granted to an Eligible Director. Each Director Stock Option shall be a nonqualified stock option whose grant is not intended to fall under the provisions of Section 422A of the Code. (h) "Eligible Director" means any statutory director of the Corporation who is not an employee of the Corporation or any of its subsidiaries. I-1 2 (i) "Fair Market Value" means the closing price of the Stock as reported by the New York Stock Exchange on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. (j) "Option" means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan an Option, other than a Director Stock Option, may be either (i) an incentive stock option within the meaning of Section 422A of the Code or (ii) a nonqualified stock option whose grant is intended not to fall under the provisions of Section 422A. (k) "Option Agreement" means an agreement entered into between the Corporation and an employee or an Eligible Director in the form prescribed by the Committee. (l) "Option Price" means the price at which each share of Stock subject to an Option may be purchased, determined in accordance with Section 8.4 herein. (m) "Participant" means any individual, other than an Eligible Director, designated by the Committee to participate in the Plan pursuant to Section 3.1 herein. (n) "Period of Restriction" means the period during which the transfer of shares of Restricted Stock and/or Performance Shares is restricted pursuant to Section 10 and/or Section 11 of the Plan. (o) "Performance Awards" means awards of cash granted to a Participant pursuant to Section 12 of the Plan. (p) "Performance Objective" shall mean the performance measure(s) and the achievement goals of the Corporation or one or more of its subsidiaries set by the Committee. (q) "Performance Period" shall mean two or more successive fiscal years of the Corporation with respect to which a Performance Share or Performance Award may be earned pursuant to this Plan. Performance Periods shall begin with the first day of the fiscal year in which a Performance Share or Performance Award is granted. The length of a Performance Period shall be at the discretion of the Committee. For each Performance Share and Performance Award, no more than one Performance Period shall begin in any one fiscal year of the Corporation. (r) "Performance Shares" means Stock granted to a Participant pursuant to Section 11 of the Plan. Each Performance Share shall be the equivalent of one share of Stock. (s) "Restricted Stock" means Stock granted to a Participant pursuant to Section 10 of the Plan. (t) "Restricted Stock Agreement" means an agreement entered into between the Corporation and the Employee in the form prescribed by the Committee. (u) "Retirement," "Normal Retirement," and "Early Retirement" means termination of employment as defined in the BANC ONE CORPORATION Retirement Plan. (v) "Stock" means the common stock of the Corporation, without par value. (w) "Stock Appreciation Right" and "SAR" means the right to receive a cash payment from the Corporation equal to the excess of the Fair Market Value of a share of Stock at the date of exercise over a specified price fixed by the Committee which shall not be less than 100% of the Fair Market Value of the Stock on the date of grant. In the case of a Stock Appreciation Right which is granted in conjunction with an Option, the specified price shall be the Option exercise price. I-2 3 2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. SECTION 3. Eligibility and Participation 3.1 Eligibility and Participation. Participants in the Plan shall be selected by the Committee from among those employees of the Corporation and its subsidiaries who are recommended for participation by the Chief Executive Officer of the Corporation and who, in the opinion of the Committee, are in a position to contribute materially to the Corporation's continued growth, development, and long-term financial success. Persons serving on the Committee shall not be eligible to be a Participant. 3.2 Eligible Directors. Eligible Directors are entitled to participate in the Plan solely with respect to the grant of Director Stock Options and may not receive any other Award under the Plan. The selection of Eligible Directors is not subject to the discretion of the Committee. Persons serving on the Committee who are Eligible Directors may receive grants of Director Stock Options. SECTION 4. Administration 4.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Corporation, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the explicit provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever. SECTION 5. Stock Subject to Plan 5.1 Number. The total number of shares of Stock subject to issuance under the Plan may not exceed six million three hundred thousand (6,300,000) subject to adjustment upon occurrence of any of the events indicated in Subsection 5.3. Of this total number, up to six million (6,000,000) shares of Stock may be granted in Restricted Stock or in common stock as a payout medium to Participants under the Plan and up to three hundred thousand (300,000) shares may be issued pursuant to the exercise of Director Stock Options. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or issued stock reacquired and held as treasury Stock not reserved for any other purpose. 5.2 Unused Stock. In the event any shares of Stock that are subject to an Option which, for any reason, expires or is terminated unexercised as to such shares, or any shares of Stock subject to a Restricted Stock or Performance Share grant made under the Plan are reacquired by the Corporation pursuant to the Plan, such shares again shall become available for issuance under the Plan except as provided in Section 9.4. 5.3 Adjustment in Capitalization. In the event that subsequent to the date of adoption of the Plan by the Board the shares of Stock should as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change, be increased or decreased or changed into or exchanged for a different number or kind of shares of Stock or other securities of the Corporation or of another corporation, then (a) there shall automatically be substituted for each share of Stock subject to an unexercised Option (in whole or in part) granted under the Plan and each share of Stock available for additional grants of Options under the Plan the number and kind of shares of Stock or other securities into which each outstanding share of Stock shall be changed or for which each such shares shall be exchanged, (b) the Option Price shall I-3 4 be increased or decreased proportionately so that the aggregate purchase price for the securities subject to the Option shall remain the same as immediately prior to such event and (c) the Board shall make such other adjustments to the securities subject to Options and the provisions of the Plan and Option Agreements as may be appropriate and equitable. Any such adjustment may provide for the elimination of fractional shares. In such event, the Committee also shall have discretion to make appropriate adjustments in the number and type of shares subject to Restricted and Performance Share grants then outstanding under the Plan pursuant to the terms of such grants or otherwise. SECTION 6. Stock Appreciation Rights Subject to Plan 6.1 Unexercised Rights. In the event any Stock Appreciation Rights expire unexercised, such Stock Appreciation Rights again shall become available for issuance under the Plan. 6.2 Adjustment in Capitalization. In the event of any change in the outstanding shares of Stock that occurs after ratification of the Plan by the shareholders of the Corporation by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares, or other similar corporate change, the Committee shall make appropriate adjustments in the number of outstanding Stock Appreciation Rights and the related grant values. SECTION 7. Duration of Plan The Plan shall remain in effect, subject to the Board's right to earlier terminate the Plan pursuant to Section 16 hereof, until all Stock subject to it shall have been purchased or acquired pursuant to the provisions hereof. Notwithstanding the foregoing, no Option, Stock Appreciation Right, Restricted Stock, Performance Share or Performance Award may be granted under the Plan on or after the tenth (10th) anniversary of the Plan's effective date. SECTION 8. Stock Options 8.1 Grant of Options Other than Director Stock Options. Subject to the provisions of Sections 5 and 7, Options other than Director Stock Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Options granted to each Participant. The Committee also shall determine, whether an Option is to be an incentive stock option within the meaning of Code Section 422A, or a nonqualified stock option whose grant is intended not to fall within the provisions of Section 422A. However, in no event shall the aggregate Fair Market Value (determined at the date of grant) of the stock for which incentive stock options are first exercisable in a particular calendar year exceed $100,000, computed in accordance with Section 422A(b)(7) of the Code. An incentive stock option shall not be granted to any person who owns, directly or indirectly, Stock possessing more than 10% of the total combined voting power of all classes of Stock of the Corporation. Nothing in this Section 8 shall be deemed to prevent the grant of nonqualified stock options in excess of the maximum established by Section 422A of the Code. 8.2 Grant of Director Stock Options. Subject to the provisions of Sections 5 and 7, Director Stock Options shall be granted to Eligible Directors as provided in this Section 8.2 and the Committee shall have no discretion with respect to any matters set forth in this Section 8.2. (a) Vesting. Each Director Stock Option shall become exercisable on and after the first anniversary of the date of the grant. (b) Number of Shares. Director Stock Options shall be granted as follows: (i) Each Eligible Director on the effective date of the Plan shall automatically be granted a Director Stock Option for 3,000 shares of Stock. I-4 5 (ii) Each other person who is elected or appointed to serve as a director of the Corporation after the effective date of the Plan and who is an Eligible Director shall, upon his initial appointment or election as an Eligible Director, automatically be granted a Director Stock Option for 3,000 shares of Stock; (iii) Commencing immediately after the adjournment of the Corporation's annual meeting of shareholders (an "Annual Meeting") in 1990 and immediately after the adjournment of the Annual Meeting each year thereafter, each Eligible Director who was an Eligible Director immediately preceding such Annual Meeting and who has been elected as a director at such Annual Meeting shall automatically be granted a Director Stock Option for 1,000 shares of Stock if, but only if, the return on common equity of the Corporation as set forth in the Corporation's annual report to shareholders for the immediately preceding fiscal year is equal to or greater than 10%. 8.3 Option Agreement. Each Option shall be evidenced by an Option Agreement that shall specify the type of Option granted, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains, and such other provisions as the Committee shall determine. 8.4 Option Price. No Option granted pursuant to the Plan shall have an Option Price that is less than the Fair Market Value of the Stock on the date the Option is granted. 8.5 Duration of Options. Each Option, other than Director Stock Options, shall expire at such time as the Committee shall determine at the time it is granted; provided, however, that no Option, other than incentive stock options within the meaning of Section 422A of the Code, shall be exercisable later than twenty years and one day from the date of its grant and no such incentive stock option shall be exercisable more than ten years and one day from the date of grant. No Director Stock Option may be exercisable later than twenty years and one day from the date of its grant. 8.6 Exercise of Options. Options granted under the Plan other than Director Stock Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for all Participants. 8.7 Payment. The Option Price upon exercise of any Option shall be payable to the Corporation in full either (i) in cash or its equivalent, or (ii) by tendering shares of previously acquired Stock having a Fair Market Value at the time of exercise equal to the total Option Price, or (iii) by a combination of (i) and (ii). The proceeds from such a payment shall be added to the general funds of the Corporation and shall be used for general corporate purposes. As soon as practicable after receipt of full payment (including the necessary tax withholding), the Corporation shall deliver to the Participant or the Eligible Director, as the case may be, Stock certificates in an appropriate amount based upon the number of Options exercised, issued in the name of the Participant or the Eligible Director, as the case may be. 8.8 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable Federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares. 8.9 Termination of Employment. If the employment of a Participant terminates, other than pursuant to paragraphs (a) through (d) of this Section, all non-vested awards shall be canceled immediately, unless the Award Agreement provides otherwise. Vested awards shall remain subject to the terms of the Award Agreement, except to the extent modified by the provisions of paragraphs (a) through (d) of this Section. (a) Retirement Under the Retirement Plan. When a Participant's employment terminates as a result of Retirement with management approval in accordance with the terms of the BANC ONE CORPORATION Retirement Plan, the Committee (in the form of an amended Award Agreement or otherwise) may permit awards to continue in effect beyond the date of Retirement in accordance with the applicable Award Agreement and the exercisability and vesting of any award may be accelerated. I-5 6 (b) Resignation in the Best Interest of the Corporation. When a Participant resigns from the Corporation and, in the judgment of the chief executive officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding awards would be in the best interest of the Corporation, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of awards granted prior to such termination, and (ii) permit the exercise, vesting and payment of such awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancellation pursuant to Section 8.10 or at such time as the Committee shall deem the continuation of all or any of the Participant's awards to be not in the Corporation's best interest. (c) Death or Disability of a Participant. (i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period specified in the Award Agreement within which to receive or exercise any outstanding award held by the Participant under such terms as may be specified in the applicable Award Agreement. (ii) In the event a participant is deemed by the Corporation to be disabled and eligible for benefits pursuant to the terms of the Corporation's Long-Term Disability Plan, any successor plan, or any predecessor plan, awards and rights to any such awards may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability. (iii) After the death or disability of a Participant, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative - notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the awards may ultimately have become payable to other beneficiaries. (iv) In the event of uncertainty as to interpretation of or controversies concerning this paragraph (c) of this Section 8.9, the Committee's determination shall be binding and conclusive. (d) Sale of a Subsidiary. In the event of the sale of a subsidiary, or any portion thereof, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of accelerated payments in a lump sum to affected Participants. 8.10 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred awards at any time if the Participant is in violation of or not in compliance with all other applicable provisions of the Plan, or the applicable Award Agreement. 8.11 Termination of Eligible Director Shares. In the event that an Eligible Director ceases to be an Eligible Director for any reason, the rights under any then outstanding Director Stock Option granted pursuant to the Plan which are exercisable as of the date he ceases to be an Eligible Director shall terminate upon the date determined as provided in Section 8.5, above, or three months after such cessation date, whichever first occurs; provided, however, that if he ceases to be an Eligible Director by reason of death, the three-month period shall be extended to the sooner of twelve (12) months and five (5) days or the expiration date of the Director Stock Option. 8.12 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. All Options granted to a Participant or an Eligible Director under the Plan shall be exercisable during his lifetime only by such Participant or Eligible Director. SECTION 9. Stock Appreciation Rights I-6 7 9.1 Grant of Stock Appreciation Rights. Subject to the provisions of Sections 6 and 7, Stock Appreciation Rights may be granted to Participants at any time and from time to time as shall be determined by the Committee. An SAR may be granted, in the discretion of the Committee, in any of the following forms: (a) In lieu of Options, (b) In addition to Options, (c) Upon lapse of Options, or (d) Independent of Options. 9.2 Exercise of SARs in Lieu of Options. SARs granted in lieu of Options may be exercised for all or part of the shares of Stock subject to the related Option upon the surrender of the right to exercise an equivalent number of Options. The SAR may be exercised only with respect to the shares of Stock for which its related Option is then exercisable. SARs granted in lieu of Options will lapse in the event and to the extent that the related Option is exercised. 9.3 Exercise of SARs in Addition to Options. SARs granted in addition to Options shall be deemed to be exercised upon the exercise of the related Options. 9.4 Exercise of SARs Upon Lapse of Options. SARs granted upon lapse of Options shall be deemed to have been exercised upon the lapse of the related Options as to the number of shares of Stock subject to the Options. 9.5 Exercise of SARs Independent of Options. SARs granted independent of Options may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon the SARs. 9.6 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be entitled to receive payment of an amount (subject to Section 9.8 below) determined by multiplying: (a) The difference between the Fair Market Value of a share of Stock at the date of exercise over the price fixed by the Committee at the date of grant, by (b) The number of shares with respect to which the SAR is exercised. 9.7 Form and Timing of Payment. At the discretion of the Committee, payment for SARs may be made in cash or stock, or in a combination thereof. If payment is made in Stock, the value of such Stock shall be the Fair Market Value determined as of the date of exercise. 9.8 Limit on Appreciation. At the time of grant, the Committee may establish, in its sole discretion, a maximum amount per share which will be payable upon exercise of an SAR. 9.9 Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on exercise of an SAR (including, without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Rule 16b-3 (or any successor rule), under the Securities Exchange Act of 1934. 9.10 Term of SAR. The term of an SAR granted under the Plan shall not exceed ten years and one day. 9.11 Termination of Employment. In the event the employment of a Participant is terminated by reason of Death, Disability, Retirement, or any other reason, any SARs outstanding shall terminate in the same manner as specified for Options under Sections 8.9 and 8.10 herein. I-7 8 9.12 Nontransferability of SARs. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. SECTION 10. Restricted Stock Awards. 10.1 Grant of Restricted Stock. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may award shares of Restricted Stock under the Plan to such Participants and in such amounts as it shall determine. Each Restricted Stock Award shall be evidenced by a Restricted Stock Agreement that shall specify the Period or Periods of Restriction, the number of Restricted Stock shares awarded, and such other provisions as the Committee shall determine. 10.2 Transferability. Except as provided in this Section 10, the shares of Restricted Stock awarded hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated for such period of time as shall be determined by the Committee and shall be specified in the Restricted Stock Agreement, or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. 10.3 Other Restrictions. The Committee shall impose such other restrictions on any shares of Restricted Stock awarded pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable federal or state securities or tax laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. 10.4 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 10.3 hereof, each certificate representing shares of Restricted Stock granted pursuant to the Plan shall bear a legend which is comparable to the following: "The sale or other transfer of this certificate or the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer and other terms and conditions set forth in the BANC ONE CORPORATION 1989 Stock Incentive Plan and a Restricted Stock Agreement dated , 19 . A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio 43271-0261." 10.5 Removal of Restrictions. Except as otherwise provided in this Section 10, shares of Restricted Stock covered by each Restricted Stock Award made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the shares are released from the restrictions, the Participant shall be entitled to have the legend required by Section 10.4 removed from his Stock certificates. 10.6 Voting Rights. During the Period of Restriction, Participants holding shares of Restricted Stock awarded hereunder may exercise full voting rights with respect to those shares. 10.7 Dividends and Other Distributions. During the Period of Restriction, Participants holding shares of Restricted Stock awarded hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares while they are so held. If any such dividends or distributions are paid in shares of Stock, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. 10.8 Termination of Employment. If the employment of a Participant terminates other than pursuant to paragraphs (a) through (d) of this Section, all non-vested awards shall be canceled immediately, unless the Award Agreement provides otherwise. Vested awards shall remain subject to the terms of the Award Agreement, except to the extent modified by the provisions of paragraphs (a) through (d) of this Section. I-8 9 (a) Retirement Under the Retirement Plan. When a participant's employment terminates as a result of Retirement with management approval in accordance with the terms of the BANC ONE CORPORATION Retirement Plan, the Committee (in the form of an amended Award Agreement or otherwise) may permit awards to continue in effect beyond the date of Retirement in accordance with the applicable Award Agreement and the exercisability and vesting of any Award may be accelerated. (b) Resignation in the Best Interest of the Corporation. When a Participant resigns from the Corporation and, in the judgment of the chief executive officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding awards would be in the best interest of the Corporation, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of awards granted prior to such termination, and (ii) permit the exercise, vesting and payment of such awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancelation pursuant to Section 10.9 or at such time as the Committee shall deem the continuation of all or any of the Participant's awards to be not in the Corporation's best interest. (c) Death or Disability of a Participant. (i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period specified in the Award Agreement within which to receive or exercise any outstanding award held by the Participant under such terms as may be specified in the applicable Award Agreement. (ii) In the event a participant is deemed by the Corporation to be disabled and eligible for benefits pursuant to the terms of the Corporation's Long-Term Disability Plan, any successor plan, or any predecessor plan, awards and rights to any such awards may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability. (iii) After the death or disability of a Participant, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative - notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the awards may ultimately have become payable to other beneficiaries. (iv) In the event of uncertainty as to interpretation of or controversies concerning this paragraph (c) of this Section 10.8, the Committee's determination shall be binding and conclusive. (d) Sale of a Subsidiary. In the event of the sale of a subsidiary, or any portion thereof, the Committee may in its sole discretion at any time (1) terminate restrictions in Award Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Corporation to pay the total of accelerated payments in a lump sum to affected Participants. 10.9 Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred awards at any time if the Participant is in violation of or not in compliance with all other applicable provisions of the Plan, or the applicable Award Agreement. SECTION 11. Performance Shares 11.1 Grant of Performance Shares. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may grant Performance Shares to such Participants and in such amounts as it shall determine. Each grant of Performance Shares shall be in writing. I-9 10 11.2 Performance Period. The period over which Performance Shares may be earned shall begin on the first day of the fiscal year in which a grant occurs. The length of the Performance Period for each grant shall be determined by the Committee, in its sole discretion, but shall not be less than two years. 11.3 Performance Measurement. At the beginning of each Performance Period, Performance Objectives shall be established by the Chief Executive Officer of the Corporation subject to Committee approval. The degree of attainment of such Performance Objectives shall determine the number of the Performance Shares payable at the end of the Performance Period, in accordance with a schedule established by the Chief Executive Officer and approved by the Committee at the beginning of the Performance Period. The Committee may adjust the Performance Objectives during the Performance Period if it is determined that changes in business conditions have materially and unduly influenced the Corporation's ability to meet the Performance Objectives. 11.4 Payment of Awards. All payments pursuant to Performance Share grants shall be made as soon as practicable following the end of the applicable Performance Period based upon the degree of attainment of the Performance Objectives. Payments shall be made in Stock. The Committee shall review all calculations of actual Performance Objective accomplishments and shall make any adjustments in the computations to recognize material extraordinary or nonrecurring items if, in the judgment of the Committee, the effect of such adjustments is equitable and in conformity with the purposes of the Plan. 11.5 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Corporation because of Normal Retirement during the Performance Period, the Participant shall be entitled to a prorated award of Performance Shares as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Shares determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination. In the event that a Participant terminates his employment with the Corporation because of Early Retirement, any Performance Shares outstanding at the date of such Early Retirement automatically shall be forfeited; provided, however, that the Committee may, in its sole discretion, determine a prorated value for the Participant's then outstanding Performance Shares as it deems appropriate. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination. 11.6 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Corporation because of Death or Disability during the Performance Period, the Participant shall be entitled to a prorated award of Performance Shares as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Shares determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Shares in this case shall be made as soon as practicable following the end of the fiscal year of termination. 11.7 Termination of Employment for Reasons Other Than Death, Disability or Retirement. In the event that a Participant terminates his employment with the Corporation for any reason other than those set forth in Sections 1 1.5 and 11.6 hereof during the Performance Period, then any Performance Shares still outstanding at the date of such termination automatically shall be forfeited; provided, however, that, in the event of an involuntary termination of the employment of a Participant by the Corporation the Committee may, in its sole discretion, waive the automatic forfeiture of any or all such Performance Shares as it deems appropriate, and pay a prorated award. 11.8 Nontransferability of Performance Shares. No Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent I-10 11 and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Shares granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. SECTION 12. Performance Awards 12.1 Grant of Performance Awards. Subject to the provisions of Sections 5 and 7, the Committee, at any time and from time to time, may grant Performance Awards under the Plan to Such Participants and in such amounts as it shall determine. Each grant of Performance Awards shall be in writing. 12.2 Performance Period. The period over which Performance Awards may be earned shall begin on the first day of the fiscal year in which a grant occurs. The length of the Performance Period for each grant shall be determined by the Committee in its sole discretion but shall not be less than two years. 12.3 Performance Measurement. At the beginning of each Performance Period, Performance Objectives shall be established by the Chief Executive Officer of the Corporation subject to Committee approval. The degree of attainment of such Performance Objectives shall determine the value of the Performance Awards at the end of the Performance Period, in accordance with a schedule established by the Chief Executive Officer and approved by the Committee at the beginning of the Performance Period. The Committee may adjust the Performance Objectives during the Performance Period if it is determined that changes in business conditions have materially and unduly influenced the Corporation's ability to meet the Performance Objectives. 12.4 Payment of Awards. All payments pursuant to Performance Award grants shall be made as soon as practicable following the end of the applicable Performance Period based upon the degree of attainment of the Performance Objectives. Payments shall be made in cash. The Committee shall review all calculations of actual Performance Objective accomplishments and shall make any adjustments in the computations to recognize material extraordinary or nonrecurring items if, in the judgment of the Committee, the effect of such adjustments is equitable and in conformity with the purposes of the Plan. 12.5 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Corporation because of Normal Retirement during the Performance Period, the Participant shall be entitled to a prorated award of Performance Awards as of the most recently completed full fiscal year of the Performance Period. Payment of Performance Awards determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination. In the event that a Participant terminates his employment with the Corporation because of Early Retirement, the Committee may, in its sole discretion, determine a prorated value for the Participant's then outstanding Performance Awards as it deems appropriate. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination. 12.6 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Corporation because of Death or Disability during the Performance Period, the Participant shall be entitled to a prorated award of Performance Awards as of the most recently completed full fiscal year of the Performance Period. Payments of Performance Awards determined in this manner shall be multiplied by a fraction, the numerator of which is the number of full months which have elapsed since the commencement of the Performance Period, and the denominator of which is the number of full months in the particular Performance Period. Payment of Performance Awards in this case shall be made as soon as practicable following the end of the fiscal year of termination. I-11 12 12.7 Termination of Employment for Reasons Other Than Death, Disability, or Retirement. In the event that a Participant terminates his employment with the Corporation for any reason other than those set forth in Sections 12.5 and 12.6 hereof during the Performance Period, then any Performance Awards still outstanding at the date of such termination automatically shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of a Participant by the Corporation the Committee may, in its sole discretion, waive the automatic forfeiture of any or all such Performance Awards as it deems appropriate and pay a prorated award. 12.8 Nontransferability of Performance Awards. No Performance Awards granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Performance Period. All rights with respect to Performance Awards granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. SECTION 13. Beneficiary Designation Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to his estate. SECTION 14. Rights of Employees 14.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Corporation to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation. 14.2 Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. SECTION 15. Change in Control 15.1 In General. In the event that (a) the Corporation is a party to a merger or consolidation agreement, (b) the Corporation is a party to an agreement to sell substantially all of its assets, or (c) there is a change in control of the Corporation as defined in Section 15.3 below, the Committee may, in its sole discretion, provide that all outstanding Awards shall become 100% vested, that all outstanding Options and SARs shall become immediately exercisable and that any Period of Restriction shall immediately lapse. Performance Share and Performance Award values shall be computed as if the most recently completed full fiscal year was the end of the Performance Period, except that no Performance Share or Performance Award payable under this Section, except as limited by Section 15.2 hereof, may be less than would have been paid had the Corporation achieved 100% of its Performance Objectives. 15.2 Limitation on Payments. If the receipt of any payment under this Section by any Participant shall, in the opinion of independent tax counsel of recognized standing selected by the Corporation, result in the payment by such Participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax. 15.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the following events: I-12 13 (i) The acquisition of "beneficial ownership", as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), of twenty percent (20%) or more of the total voting capital Stock of the Corporation then issued and outstanding, by any person, or "group", as defined in Section 13(d)(3) of the Exchange Act, or (ii) Individuals who were members of the Board of the Corporation immediately prior to a meeting of the shareholders of the Corporation involving a contest for the election of directors do not constitute a majority of the Board immediately following such election, unless the election of such new directors was recommended to the shareholders by management of the Corporation. The Board has final authority to determine the exact date on which a change in control has been deemed to have occurred under (i) and (ii) above. SECTION 16. Amendment, Modification, and Termination of Plan The Board may at any time terminate and, from time to time, may amend or modify the Plan, provided, however, that no such action of the Board, without approval of the shareholders, may: (a) Increase the total amount of Stock which may be issued under the Plan, except as provided in Subsections 5.1 and 5.3 of the Plan. (b) Change the provisions of the Plan regarding the Option Price except as permitted by Subsection 5.3. (c) Materially increase the cost of the Plan or materially increase the benefits to Participants. (d) Extend the period during which Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or Performance Awards may be granted. (e) Extend the maximum period after the date of grant during which Options may be exercised. No amendment, modification, or termination of the Plan shall in any manner adversely affect any Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or Performance Awards theretofore granted under the Plan, without the consent of the Participant or the Eligible Director, as the case may be. SECTION 17. Tax Withholding (a) The Corporation shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant or an Eligible Director, as the case may be, is required to pay to the Corporation an amount required to be withheld under applicable income tax laws In connection with a distribution of common stock or upon exercise of an Option or SAR, the Participant or an Eligible Director, as the case may be, may satisfy this obligation in whole or in part by electing (the "Election") to have the Corporation withhold from the distribution shares of common stock having a value equal to the amount required to be withheld. The value of the shares to be withheld shall be based on the Fair Market Value of the common stock on the date that the amount of tax to be withheld shall be determined ("Tax Date"). (b) Each Election must be made prior to the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any grant that the right to make Elections shall not apply to such Grant. An Election is irrevocable. I-13 14 SECTION 18. Indemnification Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, Suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the plan and against and from any and all amounts paid by him in settlement thereof, with the Corporation's approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of Indemnification, shall not be exclusive of any other rights of Indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless. SECTION 19. Requirements of Law 19.1 Requirements of Law. The granting of Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, or performance Awards, and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 19.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and be governed by the laws of the State of Ohio. Amended: Oct., 1996 - Section 2 - Definition of Committee Sections 8.9, 8.10 & 10.8 - Matters re: Termination of Employment Section 17(c) Deleted Apr., 1992 - Section 5.1 Stock Subject to Plan Increased I-14 EX-10.10.B 5 EXHIBIT 10.10B 1 Exhibit 10.10(b) FIRST AMENDMENT TO THE BANC ONE CORPORATION SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN The following amendment is hereby made to the BANC ONE CORPORATION Supplemental Employees Retirement Plan effective January 1, 1997: 1. The following paragraph shall be placed after Section 2.3(b) of the Plan. "A Participant may elect to retire and receive an unreduced pension if, at the time of retirement, the sum of his or her age plus years of service total "85 points" or more. The "85 points" provision applies only to the Participants who are employed at BANC ONE on January 1997 with base compensation of $250,000 or more." BANC ONE CORPORATION --------------------------- Title --------------------- EX-10.14 6 EXHIBIT 10.14 1 Exhibit 10.14 REVISED AND RESTATED BANC ONE CORPORATION 1995 STOCK INCENTIVE PLAN 1. PURPOSE The purpose of the BANC ONE CORPORATION 1995 Stock Incentive Plan is to provide incentives and rewards for Employees and Eligible Directors of the Corporation and its Subsidiaries (i) to support the execution of the Corporation's business and human resource strategies and the achievement of its goals and (ii) to associate the interests of Employees and Eligible Directors with those of the Corporation's shareholders. 2. DEFINITIONS "Award" includes, without limitation, stock options (including incentive stock options under Section 422 of the Code and Director Stock Options), stock appreciation rights, restricted and performance shares, restricted and performance share units, Performance Stock Awards, dividend or equivalent rights, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand alone, combination or tandem basis, as described in or granted under this Plan. "Award Agreement" means a written agreement entered into between the Corporation and a Participant setting forth the terms and conditions of an Award made to such Participant under this Plan, in the form prescribed by the Committee. "Board" means the Board of Directors of the Corporation. "Change of Control" shall have the meaning specified in Section 12(b). "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Committee appointed by the Board, each member of which shall be a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act and shall be an "outside director" within the meaning of Section 162(m) of the Code. The Committee shall be composed of no fewer than the minimum number of disinterested persons as may be required by Rule 16b-3. "Common Stock" means the common stock of the Corporation, without par value. "Corporation" means BANC ONE CORPORATION, a bank holding company under the Bank Holding Company Act of 1956 headquartered in Columbus, Ohio. "Director Stock Option" means the right, granted to an Eligible Director, to purchase Common Stock at a stated price for a specified period of time. Each Director Stock Option shall be a nonqualified stock option whose grant is not intended to comply with the requirements of Section 422 of the Code or any successor Section as it may be amended from time to time. "Eligible Director" means any statutory director of the Corporation who is not an employee of the Corporation or any Subsidiary. "Employee" means an employee of the Corporation or a Subsidiary. -1- 2 "Employee Award" means an Award (other than a Director Stock Option) to an Employee under this Plan. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means the closing price of the Common Stock as reported on the New York Stock Exchange Composite Transactions Tape on the relevant valuation date or, if there were no Common Stock transactions on the valuation date, on the next preceding date on which there were Common Stock transactions; provided, however, that the Committee may specify some other definition of Fair Market Value with respect to any particular Employee Award. "Negative Discretion" means other factors to be applied by the Committee in reducing the number of restricted shares to be issued pursuant to a Performance Stock Award if the Performance Goals have been met or exceeded if, in the Committee's sole judgment, such application is appropriate in order to act in the best interest of the Corporation and its shareholders. The Negative Discretion factors include, but are not limited to, the achievement of measurable individual performance objectives established by the Committee and communicated to the Employee in advance of the Performance Period, and competitive pay practices. "Participant" means an Employee or an Eligible Director who has been granted an Award under this Plan. "Performance Goals" means, with respect to any Performance Period, performance goals based on any of the following criteria and established by the Committee prior to the beginning of such Performance Period or performance goals based on any of the following criteria and established by the Committee after the beginning of such Performance Period that meet the requirements to be considered pre-established performance goals under Section 162(m) of the Code: earnings or earnings growth; return on equity, assets or investment; revenues; expenses; stock price; market share; charge-offs; or reductions in non-performing assets. Such Performance Goals may be particular to an Employee or the division, department, branch, line of business, Subsidiary or other Unit in which the Employee works, or may be based on the performance of the Corporation generally. "Performance Period" means the period of time designated by the Committee applicable to a Performance Stock Award during which the Performance Goals shall be measured. "Performance Stock Award" shall have the meaning specified in Section 6(g). "Plan" means this BANC ONE CORPORATION 1995 Stock Incentive Plan. "Plan Year" means a twelve-month period beginning with January 1 of each year. "Reporting Person" means an officer or director of the Corporation subject to the reporting requirements of Section 16 of the Exchange Act. "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. -2- 3 3. ELIGIBILITY (a) Any Employee selected by the Committee is eligible to receive an Employee Award. (b) Eligible Directors are entitled to participate in this Plan solely with respect to the grant of Director Stock Options and may not receive any other Awards under this Plan. The selection of Eligible Directors is not subject to the discretion of the Committee. Persons serving on the Committee who are Eligible Directors may receive grants of Director Stock Options. 4. PLAN ADMINISTRATION (a) This Plan shall be administered by the Committee. The Committee shall periodically make determinations with respect to the participation of Employees in this Plan and, except as otherwise required by law or this Plan, the grant terms of Awards including vesting schedules, price, performance standards (including Performance Goals), length of relevant performance, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Committee deems appropriate. Except as otherwise required by this Plan, the Committee shall have authority to interpret and construe the provisions of this Plan and the Award Agreements and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. (b) The Committee may designate persons other than its members to carry out its responsibilities under such conditions or limitations as it may set, other than its authority with regard to Awards granted to Reporting Persons. 5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) The stock subject to the provisions of this Plan shall either be shares of authorized but unissued Common Stock, shares of Common Stock held as treasury stock or previously issued shares of Common Stock reacquired by the Corporation, including shares purchased on the open market. Subject to adjustment in accordance with the provisions of Section 11, and subject to Section 5(d), (i) the total number of shares of Common Stock available for grants of Awards (including, without limitation, Awards of restricted and performance shares) in any Plan Year shall not exceed one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year and (ii) the total number of shares of Common Stock available for grants of restricted and performance shares (including restricted shares to be issued pursuant to Performance Stock Awards) in any Plan Year shall not exceed one fourth of one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on form 10-K for the fiscal year ending immediately prior to such Plan Year. (b) Subject to adjustment in accordance with Section 11, and subject to Section 5(a), (i) the total number of shares of Common Stock available for grants of Awards in any Plan Year to any Participant shall not exceed one half of one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on Form 10-K for the fiscal year ending immediately prior to such Plan Year and (ii) the total number of shares of Common Stock available for grants of restricted shares to be issued pursuant to Performance Stock Awards in any Plan Year to any Employee shall not exceed one eighth of one percent of the outstanding Common Stock as reported in the Corporation's Annual Report on form 10-K for the fiscal year ending immediately prior to such Plan Year. -3- 4 (c) For purposes of calculating the total number of shares of Common Stock available for grants of Awards, (i) the grant of a performance or restricted share unit Award shall be deemed to be equal to the maximum number of shares of Common Stock which may be issued under the Award and (ii) where the value of an Award is variable on the date it is granted, the value shall be deemed to be the maximum limitation of the Award. Awards payable solely in cash will not reduce the number of shares of Common Stock available for Awards granted under this Plan. (d) There shall be carried forward and be available for Awards under this Plan in each succeeding Plan Year, in addition to shares of Common Stock available for grant under paragraph (a) of this Section 5, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section 5 for the two immediately preceding Plan Years; (ii) shares of Common Stock represented by Awards which have been canceled, forfeited, surrendered, terminated or expire unexercised during that Plan Year or the two immediately preceding Plan Years; (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations; (iv) authorized shares of Common Stock as to which stock options, stock appreciation rights, restricted stock awards, performance shares or performance awards were not granted under the BANC ONE CORPORATION 1989 Stock Incentive Plan; and (v) shares of Common Stock under the BANC ONE CORPORATION 1989 Stock Incentive Plan subject to stock options, stock appreciation rights, restricted stock awards, performance shares or performance awards which have been canceled, forfeited, surrendered, terminated or expire unexercised during that Plan Year or the two immediately preceding Plan Years. 6. EMPLOYEE AWARDS UNDER THIS PLAN As the Committee may determine, the following types of Employee Awards may be granted under this Plan to Employees on a stand alone, combination or tandem basis: (a) Stock Option. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of the Award. (b) Incentive Stock Option. An award in the form of a stock option which shall comply with the requirements of Section 422 of the Code or any successor Section as it may be amended from time to time. (c) Stock Appreciation Right. A right to receive the excess of the Fair Market Value of a share of Common Stock on the date the stock appreciation right is exercised over the Fair Market Value of a share of Common Stock on the date the stock appreciation right was granted. (d) Restricted and Performance Shares. A transfer of shares of Common Stock to a Participant, subject to such restrictions on transfer or other incidents of ownership, or subject to specified performance standards, for such periods of time as the Committee may determine. (e) Restricted and Performance Share Unit. A fixed or variable share or dollar denominated unit subject to conditions of vesting, performance and time of payment as the Committee may determine, which may be paid in shares of Common Stock, cash or a combination of both. (f) Dividend or Equivalent Right. A right to receive dividends or their equivalent in value in shares of Common Stock, cash or in a combination of both with respect to any new or previously existing Employee Award. -4- 5 (g) Performance Stock Awards. A right, granted to an Employee, to receive restricted shares (as defined in Section 6(d) hereof) that are not to be issued to the Employee until after the end of the related Performance Period, subject to satisfaction of the Performance Goals for such Performance Period. (h) Other Common Stock-Based Awards. Other Common Stock-based Awards which are related to or serve a similar function to those Employee Awards set forth in this Section 6. In addition to granting Employee Awards for purposes of incentive compensation, Employee Awards may also be made in tandem with or in lieu of current or deferred Employee compensation. 7. PERFORMANCE STOCK AWARDS. (a) Administration. Performance Stock Awards may be granted to Employees either alone or in addition to other Employee Awards granted under this Plan. The Committee shall determine the Employees to whom Performance Stock Awards shall be awarded for any Performance Period, the duration of the applicable Performance Period, the number of restricted shares to be awarded at the end of a Performance Period to Employees if the Performance Goals are met or exceeded and the terms and conditions of the Performance Stock Award in addition to those contained in this Section 7. (b) Payment of Award. After the end of a Performance Period, the financial performance of the Corporation during such Performance Period shall be measured against the Performance Goals. If the Performance Goals are not met, no restricted shares shall be issued pursuant to the Performance Stock Award. If the Performance Goals are met or exceeded, the Committee shall certify that fact in writing in the Committee minutes or elsewhere and certify the number of restricted shares to be issued under each Performance Stock Award in accordance with the related Award Agreement. The Committee may, in its sole discretion, apply Negative Discretion to reduce the number of restricted shares to be issued under a Performance Stock Award. (c) Requirement of Employment. To be entitled to receive a Performance Stock Award, an Employee must remain in the employment of the Corporation through the end of the Performance Period, except that the Committee may provide for partial or complete exceptions to this requirement as it deems equitable in its sole discretion. 8. DIRECTOR STOCK OPTIONS Subject to the provisions of Section 5, Director Stock Options shall be granted to Eligible Directors as provided in this Section 8 and the Committee shall have no discretion with respect to any matters set forth in this Section 8. (a) Vesting. Each Director Stock Option shall become exercisable on and after the first anniversary of the date of the grant. (b) Number of Shares. Director Stock Options shall be granted as follows: (i) Each person who is first elected or appointed to serve as a director of the Corporation after the effective date of this Plan and who is an Eligible Director shall, upon such person's initial appointment or election as an Eligible Director, automatically be granted Director Stock Options for that number of shares of Common Stock having a Fair Market Value of $100,000 on the date the Director Stock Options are granted; and (ii) Commencing immediately after the adjournment of the Corporation's annual meeting of shareholders (an "Annual Meeting") in 1995 and immediately after the adjournment of the Annual -5- 6 Meeting each year thereafter, each Eligible Director who was an Eligible Director immediately preceding such Annual Meeting and who has been elected as a director at such Annual Meeting shall automatically be granted Director Stock Options for that number of shares of Common Stock having a Fair Market Value of $60,000 on the date the Director Stock Options are granted if, but only if, the return on common equity of the Corporation as set forth in the Corporation's annual report to shareholders for the immediately preceding fiscal year is equal to or greater than 10%. (c) Option Price. Each Director Stock Option shall have an option price ("Option Price") that is equal to the Fair Market Value of the Common Stock on the date the Director Stock Option is granted. (d) Duration of Options. No Director Stock Option may be exercisable later than twenty years and one day from the date of its grant. (e) Payment. The Option Price upon exercise of any Director Stock Option shall be payable to the Corporation in full either (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits, (ii) through the delivery or deemed delivery based on attestation of ownership of shares of Common Stock with a Fair Market Value at the time of exercise equal to the total Option Price or (iii) by a combination of the methods described in items (i) and (ii) above. (f) Termination of Director Stock Options. If an Eligible Director ceases to be an Eligible Director for any reason, the rights under any then outstanding Director Stock Option granted pursuant to this Plan which are exercisable as of the date such person ceases to be an Eligible Director shall terminate upon the date determined as provided in Section 8(d), above, or three years after such cessation date, whichever first occurs. Any then outstanding Director Stock Option granted to such Eligible Director which is not exercisable as of the date such person ceases to be an Eligible Director shall terminate on and as of such date. 9. OTHER TERMS AND CONDITIONS (a) Assignability. Except to the extent, if any, as may be permitted by the Code and rules promulgated under Section 16 of the Exchange Act, (i) no Award shall be assignable or transferable except by will, by the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Code and as determined or established by the Committee, and (ii) during the lifetime of a Participant, an Award shall be exercisable only by such Participant, such Participant's guardian, legal representative or assignee pursuant to a qualified domestic relations order or as determined or established by the Committee. An Award shall not otherwise be assignable. (b) Award Agreement. Each Award under this Plan shall be evidenced by an Award Agreement. (c) Rights As A Shareholder. Except as otherwise provided herein or in any Award Agreement, a Participant shall have no rights as a shareholder with respect to shares of Common Stock covered by an Award until the date the Participant or his nominee (which, for purposes of this Plan, shall include any third party agent selected by the Committee to hold such shares on behalf of a Participant), guardian or legal representative is the holder of record of such shares. (d) No Obligation to Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) Payments by Participants. The Committee may determine that Employee Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) by a combination of the methods described in (i) and (ii) above; or (iv) by such other methods as the Committee may deem appropriate. -6- 7 (f) Tax Withholding. The Corporation shall have the right to withhold from any payments made under this Plan, or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant is required to pay to the Corporation an amount required to be withheld under applicable income tax laws in connection with a distribution of shares of Common Stock pursuant to this Plan, the Participant may satisfy this obligation in whole or in part by electing to have the Corporation withhold from such distribution shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares of Common Stock to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (the "Tax Date"). Any such election is subject to the following restrictions: (i) the election must be made on or prior to the Tax Date and (ii) the election must be subject to the disapproval of the Committee. (g) Restrictions On Sale and Exercise. With respect to Reporting Persons, and if required to comply with rules promulgated under Section 16 of the Exchange Act, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of shares of Common Stock by the Participant for at least six months from the date of grant, and (ii) shares of Common Stock acquired pursuant to this Plan (other than shares of Common Stock acquired as a result of the granting of a "derivative security") may not be sold or otherwise disposed of for at least six months after acquisition. (h) Requirements of Law. The granting of Awards and the issuance of shares of Common Stock upon the exercise of Awards shall be subject to all applicable requirements imposed by federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed. As a condition precedent to the issuer of shares of Common Stock pursuant to the grant or exercise of an Award, the Corporation may require the Participant to take any reasonable action to meet such requirements. 10. AMENDMENTS (a) Except as otherwise provided in this Plan, the Board may at any time terminate and, from time to time, may amend or modify this Plan. Any such action of the Board may be taken without the approval of the Corporation's shareholders, but only to the extent that such shareholder approval is not required by applicable law or regulation, including specifically Rule 16b-3 under the Exchange Act. (b) No amendment, modification or termination of this Plan shall in any manner adversely affect any Awards theretofore granted to a Participant under this Plan without the consent of such Participant. 11. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or other such change. Any such adjustment may provide for the elimination of fractional shares. 12. NO RIGHT TO EMPLOYMENT No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Corporation or a Subsidiary. Nothing in this Plan shall interfere with or limit in any way the right of the Corporation or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation or any Subsidiary. -7- 8 13. CHANGE OF CONTROL (a) Subject to the provisions of Section 13(c) below, notwithstanding anything contained in this Plan, the provisions of Section 13(a)(iii) below or any Award Agreement to the contrary, in the event of a Change of Control, as defined below, the following (x) may, in the sole discretion of the Committee, occur with respect to any and all Employee Awards outstanding as of such Change of Control and (y) shall occur with respect to any and all Director Stock Options outstanding as of such Change of Control: (i) automatic maximization of performance standards, lapse of all restrictions and acceleration of any time periods relating to the exercise, realization or vesting of such Awards so that such Awards may be immediately exercised, realized or vested in full on or before the relevant date fixed in the Award Agreement; (ii) performance shares or performance units shall be paid entirely in cash; (iii) upon exercise of a stock option or an incentive stock option (collectively, an "Option") during the 60-day period from and after the date of a Change of Control, the Participant exercising the Option may in lieu of the receipt of Common Stock upon the exercise of the Option, elect by written notice to the Corporation to receive an amount in cash equal to the excess of the aggregate Value (as defined below) of the shares of Common Stock covered by the Option or portion thereof surrendered determined on the date the Option is exercised, over the aggregate exercise price of the Option (such excess is referred to herein as the "Aggregate Spread"); provided, however, and notwithstanding any other provision of this Plan, if the end of such 60-day period from and after the date of a Change of Control is within six months of the date of grant of an Option held by a Participant who is a Reporting Person, such Option shall be canceled in exchange for a cash payment to the Participant equal to the Aggregate Spread on the day which is six months and one day after the date of grant of such Option. As used in this Section 13(a)(iii) the term "Value" means the higher of (i) the highest Fair Market Value during the 60-day period from and after the date of a Change of Control and (ii) if the Change of Control is the result of a transaction or series of transactions described in paragraphs (i) or (iii) of the definition of Change of Control, the highest price per share of the Common Stock paid in such transaction or series of transactions (which in the case of paragraph (i) shall be the highest price per share of the Common Stock as reflected in a Schedule 13D filed by the person having made the acquisition); (iv) if a Participant's employment terminates for any reason other than retirement or death following a Change of Control, any Options held by such Participant may be exercised by such Participant until the earlier of three months after the termination of employment or the expiration date of such Options; and (v) all Awards become non-cancelable. (b) A "Change of Control" of the Corporation shall be deemed to have occurred upon the happening of any of the following events: (i) the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership of 20% or more of either the then outstanding shares of Common Stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; provided, however, that any acquisition by the Corporation or any of its Subsidiaries, or any employee benefit plan (or related trust) of the Corporation or its Subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Stock and voting securities of the Corporation immediately prior to such acquisition in substantially the same proportion as their ownership, immediately -8- 9 prior to such acquisition, of the then outstanding shares of Common Stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, as the case may be, shall not constitute a Change of Control; (ii) individuals who, as of January 1, 1995, constitute the Board as of the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to such date whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) approval by the shareholders of the Corporation of a reorganization, merger or consolidation of the Corporation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the Common Stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of Common Stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of the Corporation or of the sale or other disposition of all or substantially all of the assets of the Corporation. (c) If any right granted pursuant to Section 13(a) would make a Change of Control transaction ineligible for pooling of interests accounting that but for Section 13(a) would otherwise be eligible for such accounting treatment, the Committee shall have the ability to substitute the cash payable pursuant to Section 13(a) with Common Stock with a Fair Market Value equal to the cash that would otherwise be payable thereunder. 14. GOVERNING LAW To the extent that federal laws do not otherwise control, this Plan shall be construed in accordance with and governed by the law of the State of Ohio. 15. INDEMNIFICATION Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Corporation against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by him in settlement thereof, with the Corporation's approval, or paid by him in satisfaction of any judgment in any such action, suit or proceeding against him, provided he shall give the Corporation an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Corporation's Articles of Incorporation or Code of Regulations, as a matter of law, or otherwise, or any power that the Corporation may have to indemnify them or hold them harmless. -9- 10 16. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable law and regulation, including, with respect to those Employees who are Reporting Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by laws, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to Participants who are Reporting Persons without so restricting, limiting or conditioning this Plan with respect to other Participants. 17. EFFECTIVE DATE AND TERM The effective date of this Plan is April 17, 1995 subject to its approval by the Corporation's shareholders at their next annual meeting or at any adjournment thereof, within twelve months following the date of its adoption by the Board. This Plan shall remain in effect until terminated by the Board. Amended: Oct. 1996 - Section 2 - Definition of Committee Section 9(f) - Tax Withholding Jan. 1997 - Section 9(a) - Assignability Jan. 1998 - Section 10 - Amendments - former Section 10(b) deleted Section 13(a) - Change of Control Section 13(c) - Change of Control added Revised 5/30/97 Revised 6/2/97 (tab spacing change only) Revised 2/27/98 Revised 3/10/98 (correct two typos) -10- EX-10.16 7 EXHIBIT 10.16 1 Exhibit 10.16 DESCRIPTION OF BANC ONE CORPORATION "SPECIAL RECOGNITION AWARDS" PROGRAM GRANTED OCTOBER 22, 1997 On October 22, 1997, BANC ONE CORPORATION ("BANC ONE") made "Special Recognition Awards" ("Awards") to 11 executive officers to recognize the role and contribution of BANC ONE's line-of-business CEOs and to reward extraordinary contributions made to BANC ONE's restructuring efforts. The amount of each Award was determined in accordance with criteria approved by BANC ONE's Board of Directors. The Awards, based upon initial cash amounts, were made in the form of BANC ONE stock units and are held in the recipient's account in the BANC ONE CORPORATION Compensation Deferral Plan (the "Plan"). The value of the stock units will reflect both changes in the price of BANC ONE common stock and accrued dividends thereon. The Awards generally vest on the earlier of October 22, 2000 or the death or disability of the participant (assuming, in each case, that the participant is employed by BANC ONE on such date). In the case of an Award made to one participant, such Award was fully vested at the date of grant. Upon vesting, a participant may exchange his BANC ONE stock units into any of the other investment options available to such participant within the Plan. A participant will be entitled to a distribution of the cash value of a vested Award upon the terms set forth in the Plan. EX-12 8 EXHIBIT 12 1 EXHIBIT 12 BANC ONE CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 $(MILLIONS) -------- -------- -------- -------- -------- CALCULATION EXCLUDING INTEREST ON DEPOSITS: EARNINGS: Income before income taxes and change in accounting principle........... $1,968.3 $2,496.8 $2,173.5 $1,806.2 $1,914.7 Fixed charges........................ 1,511.9 1,202.3 968.7 727.0 397.0 Less: Capitalized interest........... (1.9) (4.9) (1.7) (1.0) (0.7) -------- -------- -------- -------- -------- Earnings............................. $3,478.3 $3,694.2 $3,140.5 $2,532.2 $2,311.0 ======== ======== ======== ======== ======== FIXED CHARGES: Interest expense, including interest factor of capitalized leases and amortization of deferred debt expense........................... $1,448.1 $1,142.3 $ 912.4 $ 666.8 $ 345.4 Portion of rental payments under operating leases deemed to be interest.......................... 63.8 60.0 56.3 60.2 51.6 -------- -------- -------- -------- -------- Fixed charges........................ $1,511.9 $1,202.3 $ 968.7 $ 727.0 $ 397.0 ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS....... 2.30x 3.07x 3.24x 3.48x 5.82x CALCULATION INCLUDING INTEREST ON DEPOSITS: EARNINGS: Income before income taxes and change in accounting principle........... $1,968.3 $2,496.8 $2,173.5 $1,806.2 $1,914.7 Fixed charges........................ 4,057.0 3,662.5 3,395.1 2,560.2 2,001.9 Less: Capitalized interest........... (1.9) (4.9) (1.7) (1.0) (0.7) -------- -------- -------- -------- -------- Earnings............................. $6,023.4 $6,154.4 $5,566.9 $4,365.4 $3,915.9 ======== ======== ======== ======== ======== FIXED CHARGES: As detailed above.................... $1,511.9 $1,202.3 $ 968.7 $ 727.0 $ 397.0 Interest on deposits................. 2,545.1 2,460.2 2,426.4 1,833.2 1,604.9 -------- -------- -------- -------- -------- Fixed charges........................ $4,057.0 $3,662.5 $3,395.1 $2,560.2 $2,001.9 ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES INCLUDING INTEREST ON DEPOSITS....... 1.48x 1.68x 1.64x 1.71x 1.96x
EX-13.A 9 EXHIBIT 13A 1 Exhibit 13a
FIVE YEAR PERFORMANCE SUMMARY (1) (UNAUDITED) ANNUAL COMP. GROWTH GROWTH $(MILLIONS, EXCEPT RATIOS AND PER SHARE DATA) 1997 1996 1995 1994 1993 1997/96 5 YEARS - - ------------------------------------------------------------------------------------------------------------------------------- INCOME AND EXPENSE: Total gross revenue $ 13,219.1 $ 12,099.1 $10,363.3 $ 8,761.5 $ 8,194.1 9.26% 10.05% Net interest income (2) 5,446.0 5,201.8 4,330.6 4,499.0 4,560.1 4.69 5.23 Noninterest income 3,835.9 3,362.9 2,775.4 1,851.9 1,788.7 14.07 18.52 Noninterest expense 6,048.8 5,062.0 4,326.9 4,164.3 3,894.9 19.49 10.43 Net income $ 1,305.7 $ 1,672.8 $ 1,445.2 $ 1,188.1 $ 1,272.0 (21.95)% 6.60% PER COMMON SHARE DATA: Net income, basic $ 2.04 $ 2.60 $ 2.26 $ 1.82 $ 2.05 (21.54)% 5.24% Net income, diluted 1.99 2.52 2.20 1.80 2.04 (21.03) 4.99 Cash dividends declared 1.38 1.24 1.13 1.03 .88 11.29 13.27 Book value $ 15.89 $ 16.93 $ 15.54 $ 15.01 $ 13.90 (6.14)% .25% BALANCE SHEET: Loans and leases $ 82,052.8 $ 79,389.7 $68,417.9 $65,483.5 $59,102.0 3.35% 9.17% Managed loans and leases 115,548.8 103,434.5 88,003.6 76,901.0 63,610.5 11.71 16.07 Deposits 77,414.3 74,223.0 69,273.4 70,836.8 68,236.0 4.30 2.90 Long-term borrowings 11,066.4 6,827.8 4,330.5 2,938.6 2,292.2 62.08 42.72 Total assets $115,901.3 $112,153.5 $97,888.8 $95,283.4 $89,496.9 3.34% 6.63% OPERATING RATIOS: Return on average assets 1.16% 1.59% 1.54% 1.28% 1.53% Net interest margin (2),(3) 5.41 5.45 5.08 5.33 6.11 Noninterest income to expense (4) 62.47 66.10 64.19 50.87 45.62 Efficiency ratio (5) 65.57% 59.22% 60.87% 62.93% 61.46% EQUITY RATIOS: Return on average common equity 13.33% 17.83% 17.26% 14.73% 18.17% Average common equity to average assets 8.64 8.85 8.81 8.56 8.31 Long-term borrowings to common equity 108.06% 70.67% 49.20% 36.72% 30.57% CREDIT QUALITY: Net charge-offs to average loans and leases (6) 1.35% 1.08% .71% .57% .79% Ending allowance to loans and leases 1.62 1.51 1.47 1.47 1.74 Nonperforming assets to total loans and leases (6) .56 .54 .62 .71 1.06 Loans delinquent 90 days or more to total loans and leases (6) .66% .60% .44% .30% .39% COMMON STOCK DATA: Average shares outstanding, basic 632.4 632.5 626.2 639.9 610.8 Average shares outstanding, diluted 655.7 664.3 657.1 658.8 624.0 Common shares traded, as originally reported 475.1 227.8 179.0 242.7 163.3 Stock price, year-end $ 49.37 $ 39.09 $ 31.10 $ 20.97 $ 29.40 26.30% 9.10% Stock splits and dividends -- 10% -- 10% 5:4 Dividend payout ratio 61.35% 37.96% 39.59% 44.46% 34.17% (1) All share and per share amounts have been restated to reflect common stock dividends. (2) Fully taxable equivalent basis (FTE). (3) As a percent of average earning assets. (4) Excluding securities transactions. (5) Noninterest expense divided by net interest income (FTE) plus noninterest income excluding securities transactions. (6) Includes loans held for sale.
BANC ONE CORPORATION and Subsidiaries 24 2 MANAGEMENT'S DISCUSSION AND ANALYSIS I INTRODUCTION This discussion should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report. Throughout the following sections, the "Corporation" is defined as parent company only, while "BANC ONE" refers to the Corporation and all significant majority-owned subsidiaries. Management's discussion and analysis may contain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties which may cause actual results to differ materially from those expressed in forward-looking statements. For a discussion of these risks and uncertainties, see BANC ONE's Annual Report on Form 10-K for the year ended December 31, 1997. For funding and risk management purposes, BANC ONE periodically securitizes loans and leases, primarily in support of credit card activities. The accounting for securitizations complicates the understanding of underlying trends in net interest income, net interest margin and noninterest income, as well as the underlying growth rates of reported loans and leases. For a more complete understanding, these trends are also reviewed on a "Managed" basis, which adds data on securitized loans to "Reported" data for loans and leases and loans held for sale. The analysis of "Reported" results of operations should be read in conjunction with the analysis of "Managed" performance beginning on Page 42. BANC ONE adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which modified the calculation of previously reported earnings per share and is effective for all financial statements issued for periods ending after December 15, 1997. In accordance with SFAS No. 128, all prior period amounts have been restated. Unless specified otherwise, all earnings per share amounts are presented under the new diluted basis in accordance with SFAS No. 128. All per share and average share information has been restated for the 10% common stock dividend payable February 26, 1998 to shareholders of record as of February 12, 1998. LINES OF BUSINESS BANC ONE's business activities are conducted through its national lines of business. These national lines of business are segmented based upon specific market characteristics and are referred to as: the Banc One Commercial Banking Group, the Banc One Retail Group, First USA, the Finance One Group, and the Banc One Capital Holdings Group. BANC ONE COMMERCIAL BANKING GROUP -- Banc One Commercial Banking Group, which includes both bank and nonbank subsidiaries, provides a broad range of loan, deposit and alternative financing products to real estate developers, business and private banking customers. Services provided include treasury management, trade financing, interest rate risk management, loan syndications and private placements, foreign exchange, leasing, investment management and custody accounts, as well as traditional bank financing. Capital market services are provided through the Banc One Capital Holdings Group. The Banc One Commercial Banking Group has a managed loan portfolio of $22 billion. BANC ONE RETAIL GROUP -- Banc One Retail Group provides depository and related bank and financial services products to BANC ONE CORPORATION and Subsidiaries 25 3 retail and small business customers in 12 states through one of the nation's largest banking center distribution networks. The Retail Delivery Division operates approximately 1,300 branches, providing sales and service for a wide range of consumer loan, deposit and other credit-related products. In addition, service is extended through a convenient network of full-service ATM machines and a 24-hour Telephone Banking operation. Rapid Cash ATMs, the BANC ONE network of nonbranch ATMs, provide further convenient access to cash at several thousand locations throughout the United States. The Business Banking Division, one of the largest providers of small-business lending in the nation, provides a wide range of credit, deposit and cash management services to small business. The Consumer Lending Division supports the delivery of consumer loan products, including home equity loans and lines, through the retail delivery channels, including "Loan by Phone." The Interactive Delivery Division has recently implemented an internet-based banking service. The Banc One Retail Group has $21 billion of managed loans and $54 billion in deposits. FIRST USA -- First USA is responsible for nationwide credit card operations. BANC ONE is a member of both the Visa(R) and MasterCard(R) associations. At December 31, 1997, First USA had approximately 40.5 million cardmembers and $40.8 billion in managed credit card receivables and was the third-largest issuer of bank credit cards in the United States. FINANCE ONE GROUP -- Finance One Group includes both consumer and commercial financial services and provides indirect auto loans and leases, commercial loans and leases and alternative borrowing options for customers. With offices in 34 states, Finance One oversees three divisions: the Consumer Financial Services Division, the Indirect Financial Services Division, and the Commercial Financial Services Division. The Consumer Financial Services Division primarily offers consumer credit in the form of real estate-collateralized consumer loans, as well as tax-related products such as refund anticipation loans. The Consumer Financial Services Division also manages education finance (student loans) operations. The Indirect Financial Services Division provides services to motor vehicle, boat and other dealers, including loans and leases to their customers and inventory financing. The Commercial Financial Services Division is principally involved in the equipment leasing business and provides leasing to middle-market customers as well as to large corporations and municipalities. Finance One Group has a managed loan portfolio of $28 billion. BANC ONE CAPITAL HOLDINGS GROUP -- Banc One Capital Holdings Group is responsible for trust and investment management, securities brokerage, investment and merchant banking, and insurance services. The Banc One Capital Holdings Group, through its investment management affiliate, Banc One Investment Advisors Corporation, manages The One Group family of mutual funds. The Banc One Capital Holdings Group has $52 billion in funds under management, including $22 billion in The One Group assets. During 1997, the Banc One Capital Holdings Group combined the resources of various BANC ONE subsidiaries, including those of Banc One Capital Holdings Corporation, to create a unified national distribution capability for all investment and investment-related services. The Banc One Capital Holdings Group also provides capital market services to customers of the Banc One Commercial Banking Group, including specialized alternative funding sources for corporate customers.
MANAGED LOAN PORTFOLIO DIVERSIFICATION December 31, 1997 Finance One Group 25% Commercial Banking Group 20% Retail Group 19% First USA 36%
BANC ONE CORPORATION and Subsidiaries 26 4 II OVERVIEW OF OPERATIONS Net income for 1997 was $1,305.7 million, or $1.99 per share, down $367.1 million from $1,672.8 million, or $2.52 per share, in 1996. Lower net income in 1997 was primarily the result of $328.8 million in after-tax restructuring and merger-related charges, discussed below, recorded in connection with the acquisition of First USA, Inc. ("First USA") and other strategic initiatives. Return on average assets and return on average common equity for 1997 were 1.16% and 13.33%, respectively, compared with 1.59% and 17.83%, respectively, for 1996. Excluding the impact of the restructuring and merger-related charges, return on average assets and return on average common equity for 1997 remained strong at 1.46% and 16.72%, respectively. Key highlights for 1997, compared with 1996, include the following: - - - Gross revenue grew 9.3%, reflecting both strong loan growth and increased loan processing and servicing income resulting primarily from the impact of credit card activities. - - - Managed assets grew 9.1%, reflecting a 17.2% growth in average managed credit card loans. - - - The managed net interest margin increased to 6.26% from 6.06%. - - - Capital levels remained strong, with ending equity to total assets of 8.95%, compared with 8.80% a year ago.
NET INCOME Years ended December 31, $(billions) 93 94 95 96 97 $1.3 $1.2 $1.4 $1.7 $1.3
ACQUISITIONS FIRST USA, INC. -- On June 27, 1997, the Corporation completed its acquisition of First USA located in Dallas, Texas. The Corporation issued 163 million shares of the Corporation's common stock for all the outstanding common stock of First USA in a tax-free exchange. First USA, a financial services company specializing in the credit card business, had $24.6 billion in managed credit card receivables and 17.8 million cardholders at June 27, 1997. First USA had total reported assets of $10.9 billion and stockholders' equity of $1.2 billion at June 27, 1997. The acquisition was accounted for as a pooling of interests and, therefore, the consolidated financial statements have been restated for all prior periods to include the results of operations, financial position and changes in cash flows of First USA. The acquisition of First USA resulted in BANC ONE becoming the third-largest issuer of credit cards in the country. LIBERTY BANCORP, INC. -- On June 1, 1997, in a tax-free exchange, the Corporation acquired all of the outstanding shares of Liberty Bancorp, Inc. ("Liberty"), a multi-bank holding company headquartered in Oklahoma City, Oklahoma, by issuing 11.9 million shares of the Corporation's common stock valued at $483.2 million. Liberty had total assets of $2.9 billion at May 31, 1997, and 29 banking offices located primarily in Oklahoma City and Tulsa. The acquisition was accounted for as a purchase. No effects of this acquisition are included in the financial statements prior to the date of purchase. PREMIER BANCORP, INC. -- BANC ONE's financial position and results of operations for periods prior to 1996 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. PENDING ACQUISITION FIRST COMMERCE CORPORATION -- On October 20, 1997, the Corporation entered into an agreement providing for the BANC ONE CORPORATION and Subsidiaries 27 5 acquisition of First Commerce Corporation ("First Commerce"), a multi-bank holding company headquartered in New Orleans, Louisiana, with approximately $9.5 billion in assets. Terms of the agreement call for First Commerce shareholders to receive 1.408 shares of the Corporation's common stock, reflecting the 10% common stock dividend, for each share of First Commerce common stock. The value of the transaction is approximately $2.7 billion based on the Corporation's closing share price on December 31, 1997. The transaction, subject to regulatory and First Commerce shareholder approval, is expected to be completed during the second quarter of 1998 and will be accounted for as a pooling of interests. RESTRUCTURING AND MERGER-RELATED CHARGES In connection with the First USA merger and other strategic initiatives, in the 1997 second quarter BANC ONE recognized one-time restructuring charges and merger-related costs of $467.4 million ($328.8 million after tax), of which $337.3 million was recorded as a restructuring charge and $130.1 million was recorded as additional provision for credit losses. The restructuring charge associated with the First USA merger totaled $240.9 million and consisted of: employee benefits, severance and stock option vesting costs; professional services costs; premiums to redeem preferred securities of a subsidiary trust; asset-related write-downs and other merger-related costs. The remaining $96.4 million charge related to costs associated with strategic initiatives to streamline the retail center delivery structure by consolidating approximately 200 banking centers over the next 12 months and the termination of the development of the Strategic Banking System, a retail banking system. The $130.1 million additional provision for credit losses primarily reflects the reclassification of $2.0 billion of credit card loans previously classified as held for sale to the loan and lease portfolio in connection with the effort to consolidate the BANC ONE and First USA credit card master trusts, as well as an additional provision to align the credit card charge-off policies of First USA and BANC ONE. STRATEGIC INITIATIVE As part of management's strategy to streamline the retail center delivery structure and in addition to the consolidation of retail centers discussed above, there is an initiative to sell certain centers during 1998. During the first quarter of 1998, 37 branches were sold at an overall gain. Additional sales are anticipated to occur in future quarters at an overall gain. BANC ONE CORPORATION and Subsidiaries 28 6 III NET INTEREST INCOME For 1997, net interest income on a fully taxable equivalent basis (FTE) was $5.4 billion, up $244.2 million, or 4.7%, from $5.2 billion in 1996, primarily reflecting a 5.5% growth in average earning assets, as the net interest margin remained essentially unchanged at 5.41% in 1997 compared with 5.45% in 1996. The 9.4% growth in average loans and leases, especially in commercial loans, home equity loans and auto leases, resulted primarily from stepped-up business development activities as well as increased marketing efforts. The 13.5% planned decline in average investment securities reflects the objective of shrinking the portfolio of these lower margin assets to fund loan growth, while also improving the overall yield on earning assets. Earning asset growth is funded by traditional sources, primarily retail deposits, securitizations and the issuance of short- and long-term debt. Average borrowings, primarily long-term, grew by 22.0% while average deposits increased by 3.0%, resulting in an increase of $393.4 million, or 10.9%, in total interest expense. Both short- and long-term funding needs increased in 1997, primarily due to the faster rate of growth in the loan portfolio. For additional information on the changes in average balances and the impact of rates and volume levels on net interest income, see Table 2: Rate/ Volume Analysis on Page 32, as well as the Balance Sheet Analysis section beginning on Page 35. For further information on the impact of securitizations on net interest income and the net interest margin, see "Performance Analysis -- Managed Portfolio" on Page 42. Interest rate risk is managed using a variety of off-balance sheet financial instruments. (See "Risk Management" -- Section VIII). As a result of using such off-balance sheet financial instruments, net interest income increased by $27.0 million in 1997 and decreased by $46.3 million in 1996.
NET INTEREST INCOME Years ended December 31, $(billions) 93 94 95 96 97 $4.6 $4.5 $4.3 $5.2 $5.4
BANC ONE CORPORATION and Subsidiaries 29 7 TABLE 1: FIVE YEAR SUMMARY -- AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES (1)
1997 1996 ------------------------------- ----------------------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ $(millions) BALANCE EXPENSE RATE BALANCE EXPENSE RATE - - ------------------------------------------------------------------------------------------------ ASSETS: Short-term investments $ 886.9 $ 49.1 5.54% $ 662.2 $ 36.8 5.56% Loans held for sale 1,149.9 139.2 12.11 549.4 39.5 7.19 Securities: (3) Taxable 15,036.4 987.7 6.57 17,378.7 1,128.4 6.49 Tax-exempt 1,453.6 117.2 8.06 1,694.2 139.4 8.23 ---------- --------- ---------- ------- Total securities 16,490.0 1,104.9 6.70 19,072.9 1,267.8 6.65 Loans and leases: (2) Commercial: Commercial 21,252.0 1,775.5 8.35 19,368.9 1,600.3 8.26 Commercial real estate 5,948.1 537.3 9.03 6,162.6 553.1 8.98 Construction real estate 3,910.0 379.0 9.69 3,214.4 316.4 9.84 Lease financing 2,465.4 178.3 7.23 2,025.9 150.5 7.43 Consumer: Residential real estate 7,019.9 652.0 9.29 5,931.2 522.3 8.81 Home equity 8,341.0 809.5 9.71 5,966.8 581.9 9.75 Indirect 8,730.5 814.4 9.33 9,802.8 876.6 8.94 Auto lease 5,813.2 506.3 8.71 3,435.9 286.9 8.35 Student 1,946.8 146.0 7.50 1,733.4 135.5 7.82 Other 4,114.5 499.9 12.15 4,971.4 582.1 11.71 Credit card 12,583.2 1,845.5 14.67 12,471.3 1,849.7 14.83 ---------- --------- ---------- ------- Total loans and leases 82,124.6 8,143.7 9.92 75,084.6 7,455.3 9.93 ---------- --------- ---------- ------- Total earning assets 100,651.4 9,436.9 9.38 95,369.1 8,799.4 9.23 Allowance for credit losses (1,272.5) (1,103.4) Other assets 12,941.3 10,678.6 ---------- ---------- TOTAL ASSETS $112,320.2 $104,944.3 ========== ========== LIABILITIES: Deposits: Noninterest-bearing $ 15,620.6 $ 14,203.1 Interest-bearing demand 1,654.1 26.7 1.61 2,391.5 42.9 1.79 Savings and money market 31,284.1 1,097.7 3.51 29,008.1 963.3 3.32 Time deposits: CDs less than $100,000 17,935.8 981.1 5.47 18,928.8 1,053.2 5.56 CDs $100,000 and over: Domestic 5,646.2 309.8 5.49 5,432.2 270.8 4.99 Foreign 2,396.2 129.8 5.42 2,428.9 130.0 5.35 ---------- --------- ---------- ------- Total deposits 74,537.0 2,545.1 3.41 72,392.6 2,460.2 3.40 Borrowed funds: Short-term 15,626.8 858.9 5.50 15,372.4 803.4 5.23 Long-term 9,329.6 586.9 6.29 5,083.4 334.0 6.57 ---------- --------- ---------- ------- Total borrowed funds 24,956.4 1,445.8 5.79 20,455.8 1,137.4 5.56 ---------- --------- ---------- ------- Total interest-bearing liabilities 83,872.8 3,990.9 4.76 78,645.3 3,597.6 4.57 Other liabilities 2,948.2 2,569.9 ---------- ---------- TOTAL LIABILITIES 102,441.6 95,418.3 Preferred stock 177.0 236.1 Common stockholders' equity 9,701.6 9,289.9 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,320.2 $104,944.3 ========== ========== Net interest rate spread 4.62 4.66 NET INTEREST INCOME AND NET INTEREST MARGIN 5,446.0 5.41 5,201.8 5.45 Provision for credit losses (1,211.1) (1.20) (942.7) (.98) --------- ----- ------- ----- NET FUNDS FUNCTION $ 4,234.9 4.21% $4,259.1 4.47% ========= ===== ======= ===== (1) Income amounts are presented on a fully taxable equivalent (FTE) basis. The federal statutory rate was 35% for all periods presented. (2) Nonaccrual loan balances are included in loan balances. Interest income includes related fee income. (3) Average securities balances are based on amortized historical cost, excluding SFAS No. 115 adjustments to fair value which are included in other assets.
BANC ONE CORPORATION and Subsidiaries 30 8
COMPOUND GROWTH 1995 1994 1993 GROWTH 1992-1997 ---------------------------- ---------------------------- ---------------------------- ----------------- AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE -------------------------------------------------------------------------------------------------------------- $ 1,188.5 $ 75.6 6.36% $ 1,353.8 $ 63.3 4.68% $ 1,771.2 $ 60.4 3.41% (23.36)% (17.97)% 418.6 32.9 7.86 562.1 40.8 7.26 839.6 58.1 6.92 21.89 32.80 14,899.9 974.6 6.54 17,323.5 949.5 5.48 15,521.8 878.3 5.66 (.44) (1.38) 1,964.5 171.6 8.74 2,331.8 202.1 8.67 2,042.8 194.4 9.52 (6.78) (11.51) --------- ------- --------- ------- --------- ------- 16,864.4 1,146.2 6.80 19,655.3 1,151.6 5.86 17,564.6 1,072.7 6.11 (1.11) (2.82) 17,439.2 1,426.1 8.18 15,533.3 1,174.4 7.56 14,598.4 1,176.1 8.06 6.45 6.97 5,589.7 501.6 8.97 5,228.1 442.3 8.46 4,728.1 404.6 8.56 6.52 6.44 2,441.8 250.1 10.24 1,960.2 184.1 9.39 1,625.1 138.1 8.50 20.03 23.41 1,479.7 107.1 7.24 1,174.1 88.6 7.55 1,020.0 83.9 8.23 19.99 15.25 6,784.8 532.2 7.84 6,302.3 528.5 8.39 6,039.9 584.6 9.68 1.13 (.09) 4,706.5 479.6 10.19 4,033.6 342.8 8.50 3,539.6 286.9 8.11 29.83 32.66 10,067.6 880.2 8.74 11,228.9 905.1 8.06 9,408.9 830.5 8.83 3.81 1.93 2,205.2 186.4 8.45 1,892.5 129.1 6.82 1,160.5 93.9 8.09 39.60 41.58 1,590.6 133.7 8.41 1,552.1 143.2 9.23 1,894.5 127.2 6.71 4.66 4.64 4,346.2 510.1 11.74 4,094.9 436.7 10.66 3,193.3 427.5 13.39 4.43 1.29 10,057.7 1,405.6 13.98 9,804.1 1,367.3 13.95 7,297.4 1,150.4 15.76 15.21 11.70 --------- ------- --------- ------- --------- ------- 66,709.0 6,412.7 9.61 62,804.1 5,742.1 9.14 54,505.7 5,303.7 9.73 10.11 9.35 --------- ------- --------- ------- --------- ------- 85,180.5 7,667.4 9.00 84,375.3 6,997.8 8.29 74,681.1 6,494.9 8.70 6.94 7.25 (966.7) (1,024.4) (1,017.7) 4.91 9,751.2 9,441.5 9,382.6 8.34 --------- --------- --------- $93,965.0 $92,792.4 $83,046.0 7.12 ========= ========= ========= $13,138.0 $13,552.0 $12,814.5 6.01 8,263.1 175.7 2.13 9,277.5 168.9 1.82 8,757.3 141.1 1.61 (27.30) (31.99) 20,095.4 746.6 3.72 20,011.1 551.6 2.76 19,385.6 502.0 2.59 11.37 12.67 19,181.4 1,089.8 5.68 17,718.1 753.6 4.25 17,826.4 676.1 3.79 (2.12) (.26) 5,855.4 326.7 5.58 6,668.2 303.4 4.55 5,854.4 247.5 4.23 (.40) 1.67 1,531.4 87.6 5.72 1,299.0 55.7 4.29 694.6 23.5 3.38 33.71 42.10 --------- ------- --------- ------- --------- ------- 68,064.7 2,426.4 3.56 68,525.9 1,833.2 2.68 65,332.8 1,590.2 2.43 2.98 4.03 11,566.3 658.0 5.69 11,596.8 479.6 4.14 7,027.4 214.4 3.05 21.22 32.39 3,663.3 252.4 6.89 2,825.3 186.0 6.58 2,000.5 130.2 6.51 42.56 35.69 --------- ------- --------- ------- --------- ------- 15,229.6 910.4 5.98 14,422.1 665.6 4.62 9,027.9 344.6 3.82 27.00 33.67 --------- ------- --------- ------- --------- ------- 70,156.3 3,336.8 4.76 69,396.0 2,498.8 3.60 61,546.2 1,934.8 3.14 6.84 10.45 2,146.7 1,649.9 1,528.3 17.12 --------- --------- --------- 85,441.0 84,597.9 75,889.0 6.94 249.9 249.9 253.4 (8.91) 8,274.1 7,944.6 6,903.6 9.76 --------- --------- --------- $93,965.0 $92,792.4 $83,046.0 7.12% ========= ========= ========= 4.24 4.69 5.56 4,330.6 5.08 4,499.0 5.33 4,560.1 6.11 5.23 (526.1) (.61) (292.2) (.34) (449.7) (.61) 11.75 ------- ------ ------- ------ ------- ------ $3,804.5 4.47% $4,206.8 4.99% $4,110.4 5.50% 3.73% ======= ====== ======= ====== ======= ======
BANC ONE CORPORATION and Subsidiaries 31 9 TABLE 2: RATE/VOLUME ANALYSIS (1)
1997-96 1996-95 ----------------------------- ------------------------------ CHANGE IN CHANGE IN INCOME/ RATE VOLUME INCOME/ RATE VOLUME $(millions) EXPENSE EFFECT EFFECT EXPENSE EFFECT EFFECT - - ----------------------------------------------------------------------------------------------------- EARNING ASSETS: Short-term investments $ 12.3 $ (.1) $ 12.4 $ (38.8) $ (8.6) $ (30.2) Loans held for sale 99.7 38.4 61.3 6.6 (3.0) 9.6 Securities: Taxable (140.7) 13.0 (153.7) 153.8 (7.2) 161.0 Tax-exempt (22.2) (2.8) (19.4) (32.2) (9.6) (22.6) --------- ------- ------- --------- ------- -------- Total securities (162.9) 10.2 (173.1) 121.6 (16.8) 138.4 Loans and leases: (2) Commercial 249.8 10.2 239.6 335.4 10.0 325.4 Consumer 442.8 50.4 392.4 263.1 63.5 199.6 Credit card (4.2) (20.7) 16.5 444.1 90.3 353.8 --------- ------- ------- --------- ------- -------- Total loans and leases 688.4 39.9 648.5 1,042.6 163.8 878.8 --------- ------- ------- --------- ------- -------- TOTAL EARNING ASSETS 637.5 88.4 549.1 1,132.0 135.4 996.6 --------- ------- ------- --------- ------- -------- INTEREST-BEARING LIABILITIES: Deposits: Interest-bearing demand (16.2) (4.0) (12.2) (132.8) (24.0) (108.8) Savings and money market 134.4 56.3 78.1 216.7 (86.0) 302.7 Time deposits (33.3) 11.0 (44.3) (50.1) (62.6) 12.5 --------- ------- ------- --------- ------- -------- Total deposits 84.9 63.3 21.6 33.8 (172.6) 206.4 Borrowed funds: Short-term 55.5 42.0 13.5 145.4 (57.0) 202.4 Long-term 252.9 (14.8) 267.7 81.6 (12.2) 93.8 --------- ------- ------- --------- ------- -------- Total borrowed funds 308.4 27.2 281.2 227.0 (69.2) 296.2 --------- ------- ------- --------- ------- -------- TOTAL INTEREST-BEARING LIABILITIES 393.3 90.5 302.8 260.8 (241.8) 502.6 --------- ------- ------- --------- ------- -------- NET INTEREST INCOME $ 244.2 $ (2.1) $246.3 $ 871.2 $377.2 $ 494.0 ========= ======= ======= ========= ======= ======== (1) The change not solely due to volume or rate has been prorated into rate and volume components. (2) Interest income on loans and leases includes $317 million, $224 million and $154 million of credit card fees in 1997, 1996 and 1995, respectively. Other fees included in interest income are not material.
IV NONINTEREST INCOME AND NONINTEREST EXPENSE TABLE 3: NONINTEREST INCOME INCREASE (DECREASE) -------------------- PERCENTAGE $(millions) 1997 1996 AMOUNT CHANGE - - ----------------------------------------------------------------------------------------------- Investment management and advisory activities $ 315.5 $ 279.1 $ 36.4 13.0% Service charges on deposit accounts 702.4 654.1 48.3 7.4 Loan processing and servicing income: Mortgage banking 76.0 88.7 (12.7) (14.3) Credit card and merchant processing fees 150.9 280.7 (129.8) (46.2) Credit card securitization-related income 1,558.2 1,059.2 499.0 47.1 Other loan income 17.1 24.7 (7.6) (30.8) -------- -------- ------- Total loan processing and servicing income 1,802.2 1,453.3 348.9 24.0 Securities gain (losses), net 57.0 16.7 40.3 241.3 Other noninterest income 958.8 959.7 (.9) (.1) -------- -------- ------- TOTAL NONINTEREST INCOME $3,835.9 $3,362.9 $473.0 14.1% ======== ======== =======
BANC ONE CORPORATION and Subsidiaries 32 10
NONINTEREST INCOME Years ended December 31, $(billions) 93 94 95 96 97 Other $ .5 $ .3 $ .7 $1.0 $1.0 Service Charges on Deposit Accounts .5 .5 .6 .6 .7 Loan Processing and Servicing Income .6 .8 1.3 1.5 1.8 Investment Mgmt. and Advisory Activities .2 .3 .2 .3 .3 ---- ---- ---- ---- ---- $1.8 $1.9 $2.8 $3.4 $3.8 ==== ==== ==== ==== ====
Total noninterest income was $3.8 billion for 1997, up 14.1%, or $473.0 million, from 1996. Fee activities, including investment management and advisory activities, service charges on deposit accounts and credit card securitization-related income, partially offset by a decline in credit card and merchant processing fees, were the major factors influencing the increase in noninterest income. The details driving these increases, along with the other components of noninterest income, are discussed below. Investment management and advisory activities income increased $36.4 million, or 13.0%, compared with 1996. This income is largely dependent upon the growth of investment assets managed for customers. In 1997, funds under management increased by $12.2 billion, or 30.8%, to $51.8 billion at December 31, 1997 from $39.6 billion at December 31, 1996. Service charges on deposit accounts for 1997 increased 7.4% from 1996, reflecting escalating account volumes, account analysis fees for commercial customers and an increase in fees charged on overdrafts. Credit card and merchant processing income decreased primarily as a result of the securitization of credit card loans which transferred interchange income to credit card securitization-related income. Credit card and merchant processing fees also decreased in 1997 as a result of the December 1996 sale of a portion of First USA's investment in a merchant-processing subsidiary. Net income from the subsidiary is now recorded using the equity method of accounting and has been included in other income. This change accounted for $92.6 million of the decline in 1997. Credit card securitization-related income in 1997 was $1.6 billion, or 47.1% higher than in 1996, and was favorably impacted by the securitization of $11.1 billion in credit card receivables during the year. As a result of these securitizations, average securitized loans grew to $23.4 billion, an increase of 24.1%. Also contributing to the increased income were gains recorded on the securitization of credit card receivables. These gains were recorded at the time of securitization. Finally, credit card securitization-related income increased as a result of the above-mentioned movement of interchange income to credit card securitization-related income on newly securitized credit card loans. For further information regarding the impact of securitizations on income, see "Performance Analysis -- Managed Portfolio" on Page 42. Higher securities gains in 1997 resulted primarily from planned sales of lower-margin government and mortgage-backed securities. Total gains on sales of investment securities were $57.0 million for 1997, compared with $16.7 million last year. TABLE 4: NONINTEREST EXPENSE
INCREASE PERCENTAGE $(millions) 1997 1996 (DECREASE) CHANGE - - ----------------------------------------------------------------------------------------------- Salary and related costs $2,367.5 $2,204.6 $162.9 7.4% Net occupancy expense, exclusive of depreciation 209.9 192.1 17.8 9.3 Equipment expense 133.7 125.2 8.5 6.8 Taxes other than income and payroll 96.6 90.0 6.6 7.3 Depreciation and amortization 458.3 447.5 10.8 2.4 Outside services and processing 859.1 674.2 184.9 27.4 Marketing and development 712.9 445.9 267.0 59.9 Communication and transportation 427.6 378.4 49.2 13.0 Other 445.9 504.1 (58.2) (11.6) -------- -------- ------ 5,711.5 5,062.0 649.5 12.8 Restructuring 337.3 337.3 -- -------- -------- ------ TOTAL NONINTEREST EXPENSE $6,048.8 $5,062.0 $986.8 19.5% ======== ======== ======
Included in noninterest expense are implementation costs related to Project One, the series of strategic initiatives launched in 1995 to enhance the effectiveness and efficiency of certain operations. Through Project One, BANC ONE has decreased the number of legal entities, combined operations and systems, and centralized many staff and line functions. Project One implementation BANC ONE CORPORATION and Subsidiaries 33 11 expenses totaled $154.4 million in 1997, compared with $149.7 million in 1996. Project One costs have declined steadily throughout 1997, from $55.1 million in the first quarter to $26.9 million in the fourth quarter. December 1997 essentially marked the conclusion of the Project One reengineering effort.
NONINTEREST EXPENSE Years ended December 31, $(billions) 93 94 95 96 97 Restructuring $ .0 $ .0 $ .0 $ .0 $ .3 Other .9 .9 .8 .9 .9 Communication and Transportation .3 .3 .3 .4 .4 Marketing and Development .2 .3 .4 .4 .7 Outside Servicing and Processing .5 .5 .5 .7 .9 Depreciation and Amortization .3 .4 .4 .5 .4 Salaries 1.7 1.8 1.9 2.2 2.4 ---- ---- ---- ---- ---- $3.9 $4.2 $4.3 $5.1 $6.0 ==== ==== ==== ==== ====
Total noninterest expense was $6.0 billion in 1997 compared with $5.1 billion in 1996. Excluding the impact of the previously discussed $337.3 million restructuring and merger-related charges in the 1997 second quarter, noninterest expense totaled $5.7 billion in 1997, increasing $649.5 million, or 12.8%, from last year. The increase was attributable primarily to higher salary and related costs, increased outside services and processing fees, and significantly higher marketing and business development charges. These costs are discussed in greater detail below. Salary and related costs rose 7.4% in 1997, as a result of a 4.0% increase in full-time equivalent staff which expanded with business growth throughout BANC ONE. Also, additional commissions for business development activities, such as strong venture capital results, caused salary and related costs to increase. Outside services and processing fees increased $184.9 million in 1997, mostly attributable to expenses incurred from increased credit card and business development data processing and credit bureau investigation fees. Consulting fees were also higher, primarily related to activities associated with the implementation of retail banking systems. Marketing and development charges increased $267.0 million from 1996, reflecting the decision to increase marketing activities mainly associated with credit card business development activities. Credit card account originations were a record 8.1 million in 1997, compared with 6.2 million in 1996. Other noninterest expense declined $58.2 million from last year. The decrease was primarily due to the one-time 1996 Savings Association Insurance Fund (SAIF) special assessment on deposits which totaled $34 million. YEAR 2000 Many computer programs process transactions based on using two digits for the year of the transaction rather than a full four digits (e.g., "98" for 1998). Systems that process Year 2000 transactions with the year "00" may encounter significant processing inaccuracies or inoperability. Management has determined that, like most other companies, it will be required to modify or replace significant portions of its software so that its information systems will be able to properly utilize dates subsequent to December 31, 1999. The Year 2000 issue will be addressed through either the modification to existing software or conversion to new software. However, if such modifications are not made or completed on a timely basis, the Year 2000 issue could have a material impact on the operations of BANC ONE. A plan has been developed and is being followed to ensure that the modifications and conversions are implemented and thoroughly tested on a timely basis. Based on progress made to date, management anticipates that software for the primary information systems will be Year 2000-compliant by the end of 1998. Other less essential software applications will be modified and/or replaced during 1999 which would enable all internal software applications to become Year 2000-compliant prior to the year 2000. BANC ONE utilizes software provided by outside suppliers which must also become Year 2000-compliant. Approximately 30% of all software applications used by BANC ONE are provided by outside suppliers. Formal discussions have been initiated with outside suppliers and commitment letters from such suppliers that they will take the necessary actions to become Year 2000-compliant on a timely basis have been required. Management is actively monitoring the progress of outside suppliers in their efforts to become Year 2000-compliant and actions deemed necessary will be taken in order to mitigate the exposure to the Year 2000 issue. However, there is no guarantee that the software of other suppliers for which BANC ONE's information systems rely will be converted on a timely basis, or that failure to convert BANC ONE CORPORATION and Subsidiaries 34 12 would not have a material adverse effect on BANC ONE's operations. Both internal and external resources will be utilized to modify, replace or test the software for Year 2000 modifications. During 1997, $16.7 million of costs were incurred as part of this project. The total costs of the year 2000 project are expected to be at least $100 million. Year 2000 costs and the date on which the Year 2000 modifications are expected to be completed are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the availability of certain resources, third party modifications and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. V BALANCE SHEET ANALYSIS SECURITIES Total securities at December 31, 1997 were $15.3 billion, a decrease of $3.9 billion from December 31, 1996. This decrease reflected the planned sales of lower margin securities in order to fund higher-yielding loan growth. The held-to-maturity portfolio decreased $3.6 billion, due to a $3.6 billion reclassification of mortgage-backed securities to the available-for-sale portfolio in connection with the First USA merger. TABLE 5: SECURITIES
DECEMBER 31, 1997 DECEMBER 31, 1996 ---------------------- ---------------------- AMORTIZED AMORTIZED $(MILLIONS) COST FAIR VALUE COST FAIR VALUE - - ----------------------------------------------------------------------------------------------- SECURITIES HELD TO MATURITY: Tax-exempt $ 449.4 $ 470.1 $ 685.4 $ 714.1 All other 335.9 330.0 3,712.5 3,715.3 --------- --------- --------- --------- Total securities held to maturity 785.3 800.1 4,397.9 4,429.4 --------- --------- --------- --------- SECURITIES AVAILABLE FOR SALE: United States Treasury and federal agencies 3,910.6 3,958.3 4,334.9 4,312.4 Mortgage and asset-backed securities: Government 6,527.8 6,609.4 6,729.9 6,791.8 Other 1,756.5 1,746.3 2,074.4 2,056.3 Tax-exempt and other 2,135.1 2,153.9 1,563.8 1,573.3 --------- --------- --------- --------- Total securities available for sale 14,330.0 14,467.9 14,703.0 14,733.8 --------- --------- --------- --------- TOTAL SECURITIES $15,115.3 $15,268.0 $19,100.9 $19,163.2 ========= ========= ========= =========
LOANS AND LEASES Ending loans and leases, excluding loans held for sale, increased $2.7 billion, or 3.4%, from December 31, 1996 to December 31,1997. This increase reflected loan growth primarily in commercial loans, home equity loans and auto leases, partially offset by the decrease in credit card loans which resulted from increased securitizations in 1997. Managed loans, which include all reported loans and lease balances, as well as previously securitized loans, increased $12.1 billion, or 11.7%, from December 31, 1996 to December 31, 1997, which reflected the factors in the reported loan portfolio as well as the growth in credit card loans securitized. For additional information on managed loans, see "Performance Analysis -- Managed Portfolio" on Page 42. Loans held for sale at December 31, 1997 increased to $2.4 billion from $1.5 billion at December 31, 1996. Included in loans BANC ONE CORPORATION and Subsidiaries 35 13 held for sale were credit card loans of $1.8 and $1.0 billion at December 31, 1997 and 1996, respectively. These loans are held primarily in anticipation of future securitizations. TABLE 6: LOAN PORTFOLIO COMPOSITION
DECEMBER 31, --------------------------------------------------------- $(millions) 1997 1996 1995 1994 1993 - - ---------------------------------------------------------------------------------------------- COMMERCIAL: Commercial $22,446.0 $20,232.2 $17,903.7 $16,619.2 $15,208.4 Real estate: Construction 3,808.1 3,602.0 2,692.6 2,195.0 1,708.9 Other 5,601.4 6,429.4 5,667.8 5,571.3 4,886.4 Lease financing 2,767.3 2,326.5 1,732.2 1,339.1 1,107.2 --------- --------- --------- --------- --------- Total commercial loans 34,622.8 32,590.1 27,996.3 25,724.6 22,910.9 CONSUMER: Residential real estate 7,189.4 6,500.9 5,513.6 6,657.0 6,278.5 Home equity 9,488.0 7,416.1 5,242.6 4,260.6 3,679.5 Indirect 7,683.4 9,224.7 9,750.2 11,409.5 10,403.0 Auto lease 6,748.6 4,317.3 2,640.2 1,922.9 1,283.1 Student 1,831.8 1,919.4 1,487.6 1,577.2 2,094.7 Other 3,984.8 3,997.7 4,529.6 4,160.7 3,530.7 --------- --------- --------- --------- --------- Total consumer loans 36,926.0 33,376.1 29,163.8 29,987.9 27,269.5 CREDIT CARD 10,504.0 13,423.5 11,257.8 9,771.0 8,921.6 --------- --------- --------- --------- --------- Total loans and leases 82,052.8 79,389.7 68,417.9 65,483.5 59,102.0 Less: Allowance for credit losses 1,325.9 1,197.7 1,008.0 963.2 1,030.3 --------- --------- --------- --------- --------- TOTAL LOANS AND LEASES, NET $80,726.9 $78,192.0 $67,409.9 $64,520.3 $58,071.7 ========= ========= ========= ========= =========
Significant loan origination activity is not fully reflected in ending loan balances, due to securitizations and sales of $13.4 billion and $9.1 billion in loans during 1997 and 1996, respectively. In addition, loans held for sale are excluded from ending loan balances. For further information regarding securitizations, see "Performance Analysis -- Managed Portfolio" on Page 42. The following table depicts the maturities of certain loans at December 31, 1997. Demand loans having no stated maturity are classified as due within one year. Loans that have adjustable rates are shown in their maturity category by their scheduled principal repayment dates rather than the dates at which they are repriced. The repricing characteristics of certain of the loans included below have been synthetically altered by the use of off-balance sheet investment products; however, classifications below are based on the contractual terms of the loans. TABLE 7: LOAN MATURITIES
CONSTRUCTION COMMERCIAL REAL ESTATE ------------------------- ----------------------- $(millions) FIXED VARIABLE FIXED VARIABLE - - --------------------------------------------------------------------------------------------------------- 1998 $1,477.9 $8,290.0 $119.6 $2,006.2 1999 through 2002 2,332.3 7,991.2 225.3 1,271.0 After 2002 724.5 1,630.1 58.6 127.4
OTHER ASSETS Other assets increased $2.8 billion, primarily as a result of higher receivables related to securitization activities, an increase in excess cost over net assets purchased related to the acquisition of Liberty and higher levels of company-owned life insurance. Additionally, BANC ONE contracted with an independent third party beginning in 1997 to originate a portion of its credit card portfolio. As a result of this agreement, and reflecting the benefit of increased specialization and economies of scale, both an increase in the number of accounts originated and a decrease in the BANC ONE CORPORATION and Subsidiaries 36 14 origination costs is anticipated, with desired credit quality standards being retained. At December 31, 1997, $218 million in credit card relationships purchased from this third party were included in other assets. DEPOSIT ANALYSIS Total deposits at December 31, 1997 increased $3.2 billion, or 4.3%, when compared with December 31, 1996, due primarily to the acquisition of Liberty. The retail deposit mix continued to change, reflecting strong growth in money market products as customers shifted funds from savings and certificate of deposit accounts. Deposit growth was also impacted by the planned disintermediation through the marketing and sales of alternative annuity and mutual fund products to deposit customers. The repricing characteristics of certain of the deposits included in the following table have been synthetically altered with the use of off-balance sheet financial instruments; however, classifications shown are based on the contractual terms of the deposits.
DEPOSIT GROWTH Average for years ended December 31, $(billions) 93 94 95 96 97 Interest Bearing Demand $ 8.7 $ 9.3 $ 8.3 $ 2.4 $ 1.6 Non-interest Bearing 12.8 13.5 13.1 14.2 15.6 Savings and Money Market 19.4 20.0 20.1 29.0 31.3 Time Deposits 24.4 25.7 26.6 26.8 26.0 ----- ----- ----- ----- ----- $65.3 $68.5 $68.1 $72.4 $74.5 ===== ===== ===== ===== =====
Table 8 represents the contractual time remaining until maturity of time deposits (including all foreign deposits) greater than $100,000: TABLE 8: MATURITY OF TIME DEPOSITS GREATER THAN $100,000
DECEMBER 31, ------------------- $(millions) 1997 1996 - - ----------------------------------------------- 0-3 months $3,540.6 $3,786.4 4-6 months 551.7 907.9 7-12 months 815.5 1,095.7 Over 1 year 2,349.9 2,169.5 -------- -------- Total $7,257.7 $7,959.5 ======== ========
SHORT- AND LONG-TERM BORROWINGS Total borrowings outstanding remained relatively unchanged at $24.9 billion at December 31, 1997 compared to $25.2 billion at December 31, 1996. There was a change in the distribution between short- and long-term borrowings, reflecting management's desire to lengthen the maturities of wholesale liabilities during 1997. Further discussion of wholesale liabilities is found in "Liquidity Risk Management" on Page 46. Short-term borrowings decreased $4.5 billion and long-term borrowings increased $4.2 billion from December 31, 1996 to December 31, 1997. In December 1996, $200 million of 9.33% redeemable preferred securities of a subsidiary trust holding solely subordinated debentures of the Corporation due in 2027 were issued. All but $7 million of the preferred securities were redeemed as of December 31, 1997. During 1997, the Corporation issued $1.95 billion of senior medium-term notes due between 1999 and 2002, $500 million of subordinated debentures due 2027 and $400 million of subordinated notes due 2007. In addition, long-term fixed and variable rate bank notes increased $1.3 billion to $5.0 billion at December 31, 1997 from $3.7 billion at December 31, 1996. TABLE 9: SHORT- AND LONG-TERM BORROWINGS
DECEMBER 31, --------------------- $(millions) 1997 1996 - - ---------------------------------------------- Federal funds purchased and repurchase agreements: BANC ONE affiliates $10,708.2 $12,858.5 --------- --------- Other short-term borrowings: Parent company 438.6 1,616.3 BANC ONE affiliates 2,657.1 3,850.6 --------- --------- 3,095.7 5,466.9 --------- --------- Long-term debt: Parent company 4,867.5 2,204.2 BANC ONE affiliates 6,198.9 4,623.6 --------- --------- 11,066.4 6,827.8 --------- --------- Total borrowings $24,870.3 $25,153.2 ========= =========
As of December 31, 1997, the Corporation had the authority to issue approximately $4.0 billion of debt securities, warrants and preferred and common stock under its existing shelf registration statement. Any issuance under this shelf registration statement will be used for general corporate purposes. BANC ONE CORPORATION and Subsidiaries 37 15 VI CREDIT QUALITY Inherent in its lending activities, BANC ONE accepts a level of credit risk, that is, the risk of loss from default by a borrower. The Chief Credit Officer manages credit risk through the establishment of a corporate-wide monitoring process. Each of BANC ONE's lines of business has a process in place to measure the credit risk inherent in its individual portfolios. The process begins with criteria established in the loan underwriting policy, including established exposure limits, evaluation of the creditworthiness of individual borrowers, and avoidance of specific industry or geographic concentrations. After origination, this process is monitored through appraisals, assessment of the financial condition of borrowers, and specific loan grading criteria. In addition, as new markets are entered, these standardized loan monitoring systems and credit policies, including the underwriting standards, are implemented. BANC ONE's process for monitoring its level of credit risk and, accordingly, its required level of allowance for credit losses is administered by each of the lines of business, under the direction of the Chief Credit Officer. Subsequent to origination, the process used to measure the level of credit risk is dependent upon the type of loan. For commercial loan products, specific loan reviews, which assign loan grades, are performed by both the line of business and credit review personnel. In addition, a migration analysis of loss factors in the individual portfolios is performed. The consumer loan products, which include the credit card portfolio, are evaluated utilizing historically-based migration methodologies used to predict future losses. Further, each loan and lease portfolio is reviewed to determine if an additional subjective allowance is necessary. This subjective review is systematic for each portfolio, with consideration given to the current trends in the portfolio, projection of future results, changes in underwriting of the product, and results of recent loan review or internal audit examinations. The aggregate loan and lease portfolio is also monitored on a quarterly basis to identify portfolio trends, specific industry conditions, the level of business and personal bankruptcies and other relevant economic information used to assess the overall level of credit risk. BANC ONE's primary goal in managing credit risk is to minimize the impact of default by an individual borrower or group of borrowers. As a result, BANC ONE strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and geographic concentrations. Foreign loans totaled less than 1% of total loans at both December 31, 1997 and 1996. As of December 31, 1997 and 1996, there were no significant loan concentrations with any single borrower, industry or area of the country. The following discussions review trends in nonperforming assets, past due loans, net charge-offs and the allowance for credit losses. Also review the related "Performance Analysis -- Managed Portfolio" on Page 42. NONPERFORMING ASSETS AND PAST DUE LOANS While nonperforming assets increased $40.8 million to $476.2 million at December 31, 1997, the ratio of nonperforming assets as a percentage of total loans and OREO increased only slightly to .56% at December 31, 1997 from .54% a year ago and remained below historical performance. Table 10 shows certain information about nonperforming assets and past due loans. BANC ONE CORPORATION and Subsidiaries 38 16 TABLE 10: NONPERFORMING ASSETS AND PAST DUE LOANS $(millions) 1997 1996 1995 1994 1993 - - ------------------------------------------------------------------------------------------- Nonaccrual loans $408.8 $374.2 $349.1 $377.4 $482.3 Renegotiated loans .8 8.2 5.2 3.9 7.6 ------ ------ ------ ------ ------ Total nonperforming loans 409.6 382.4 354.3 381.3 489.9 Other Real Estate Owned (OREO) 66.6 53.0 75.5 84.4 153.3 ------ ------ ------ ------ ------ Total nonperforming assets $476.2 $435.4 $429.8 $465.7 $643.2 ====== ====== ====== ====== ====== Nonperforming loans as a percent of total loans (1) .49% .47% .51% .58% .81% Nonperforming assets as a percent of total loans and OREO (1) .56% .54% .62% .71% 1.06% Allowance for credit losses as a percent of nonperforming loans 323.71% 313.21% 284.50% 252.61% 210.31% Allowance for credit losses as a percent of nonperforming assets 278.43% 275.08% 234.53% 206.83% 160.18% Loans delinquent 90 days or more and accruing interest $559.2 $483.9 $300.6 $200.3 $234.6 Loans delinquent 90 days or more and accruing interest to total loans (1) .66% .60% .44% .30% .39% Interest foregone on nonperforming loans (after tax) (2) $ 21.4 $ 18.1 $ 27.5 $ 18.6 $ 26.7 (1) Includes loans held for sale. (2) The amount of gross interest on nonperforming loans that would have been recorded during 1997 if the loans had been current throughout the year totaled $47.5 million. Of this amount, $14.5 million of interest was actually recorded on nonperforming loans during 1997.
Delinquency and net charge-off trends over time are a reflection of a number of factors, including credit quality of the loan portfolio, average seasoning of the accounts, general economic conditions and the results of portfolio management techniques, including collection strategies. As anticipated in the prior year, the unfavorable conditions experienced during 1996 in the consumer loan portfolios, specifically the credit card portfolio, which resulted from increased competition for loans, the maturation of loans in the portfolios, and a general increase in personal bankruptcy filings, continued well into the first half of 1997. To mitigate these trends, during 1996 BANC ONE began tightening and refining the consumer credit underwriting criteria and enhanced collection, resulting in earlier contact with delinquent customers. As a result, although net charge-offs as a percentage of average loans and leases increased from 1.08% to 1.35% for the years ending December 31, 1996 and 1997, respectively, the trend from second quarter to fourth quarter 1997 improved. Net charge-offs as a percentage of average loans and leases were 1.38% in the fourth quarter of 1997 compared to 1.42% in the second quarter of 1997, primarily as a result of improvement in the credit card portfolio which declined to 5.80% in the fourth quarter of 1997 from a high of 6.36% in the second quarter.
NONPERFORMING LOANS TO TOTAL LOANS AND LEASES December 31, (Percent) 93 94 95 96 97 0.81% 0.58% 0.51% 0.47% 0.49% Nonperforming Loans as a Percent of Total Loans
BANC ONE CORPORATION and Subsidiaries 39 17 TABLE 11: NET CHARGE-OFFS AND DELINQUENT LOANS BY LOAN TYPE
LOANS DELINQUENT NET CHARGE-OFFS (1)(3) 90 DAYS OR MORE (2)(3) DECEMBER 31, DECEMBER 31, ---------------------- ---------------------- (percent) 1997 1996 1997 1996 - - --------------------------------------------------------------------------------------------- COMMERCIAL: Commercial .20% .10% .28% .21% Real estate: Construction .01 (.11) .16 .14 Other (.03) (.04) .26 .14 Lease financing .18 .27 .02 .07 Total commercial .14 .06 .24 .18 CONSUMER: Residential real estate .19 .05 .84 .28 Home equity .32 .28 .24 .20 Indirect 1.49 1.07 .45 .32 Auto lease .47 .48 .18 .14 Student .03 .03 1.73 1.71 Other 3.19 2.02 .99 .67 Total consumer .91 .75 .55 .38 CREDIT CARD 5.60 4.48 2.17 2.06 TOTAL 1.35% 1.08% .66% .60% (1) Ratios presented are expressed as a percent of average balances. (2) Ratios presented exclude nonperforming loans and are expressed as a percent of ending balances. (3) Ratios include loans held for sale.
ALLOWANCE FOR CREDIT LOSSES
NET CHARGE-OFFS AND PROVISION Years ended December 31, $(billions) 93 94 95 96 97 Net Charge-offs $.44 $.36 $.48 $.82 $1.12 Provision $.45 $.29 $.53 $.94 $1.21
The allowance for credit losses at December 31, 1997 totaled $1.3 billion and represented 1.62% of total loans and leases outstanding at December 31, 1997 compared with $1.2 billion, or 1.51%, at December 31, 1996. As previously discussed, a $130.1 million additional provision for credit losses was taken during 1997 as a result of the reclassification of credit card loans and to align the credit card charge-off policies of BANC ONE and First USA. The allowance for credit losses as a percentage of ending loans and leases represents one measure of adequacy. The allowance for credit losses expressed as a percentage of nonperforming loans is another. On this basis, the December 31, 1997 allowance for credit losses represented 323.7% of nonperforming loans, up from 313.2% at December 31, 1996. It is management's view that the allowance for credit losses at year-end 1997 was adequate and consistent with the composition of the portfolio and credit quality trends. Refer to the following two tables for more detail. TOTAL ALLOWANCE FOR CREDIT LOSSES AS A PERCENT OF LOANS AND LEASES AND NPLs December 31, Percent Allowance Percent Allowance to Loans and Leases to NPLs 93 94 95 96 97 Total Allowance as a Percent of Loans and Leases 1.74% 1.47% 1.47% 1.51% 1.62% Total Allowance as a Percent of Nonperforming Loans (NPLs) 210.3 % 252.6 % 284.5 % 313.2 % 323.7 %
BANC ONE CORPORATION and Subsidiaries 40 18 TABLE 12: SUMMARY OF ALLOWANCE FOR CREDIT LOSSES AND SELECTED STATISTICS
$(millions) 1997 1996 1995 1994 1993 - - ------------------------------------------------------------------------------------------------ ALLOWANCE FOR CREDIT LOSSES, BEGINNING OF YEAR $ 1,197.7 $ 1,008.0 $ 963.2 $1,030.3 $1,004.2 CHARGE-OFFS: Commercial: Commercial (74.1) (57.6) (50.3) (49.5) (95.1) Real estate: Construction (2.0) (2.0) (1.6) (1.6) (8.2) Other (10.4) (8.8) (21.1) (15.0) (44.7) Lease financing (6.9) (8.5) (11.3) (5.7) (11.9) --------- --------- -------- -------- -------- Total commercial loans (93.4) (76.9) (84.3) (71.8) (159.9) Consumer: Residential real estate (15.9) (5.2) (5.3) (6.5) (7.1) Home equity (31.7) (19.9) (8.0) (6.3) (5.0) Indirect (225.8) (187.9) (135.1) (108.1) (103.9) Auto lease (42.1) (21.6) (8.3) (4.7) (5.0) Student (.7) (.8) (.9) (2.4) (1.2) Other (162.3) (130.6) (74.5) (60.8) (57.0) --------- --------- -------- -------- -------- Total consumer loans (478.5) (366.0) (232.1) (188.8) (179.2) Credit card (850.7) (623.1) (361.5) (318.1) (312.6) --------- --------- -------- -------- -------- Total charge-offs (1,422.6) (1,066.0) (677.9) (578.7) (651.7) --------- --------- -------- -------- -------- RECOVERIES OF LOANS PREVIOUSLY CHARGED OFF: Commercial: Commercial 31.2 38.0 41.1 60.1 70.9 Real estate: Construction 1.7 5.6 2.2 2.6 2.2 Other 12.1 11.5 9.4 11.6 6.8 Lease financing 2.5 3.1 3.5 3.4 5.0 --------- --------- -------- -------- -------- Total commercial 47.5 58.2 56.2 77.7 84.9 Consumer: Residential real estate 2.0 2.1 2.5 3.3 2.8 Home equity 5.0 3.3 2.6 2.3 1.6 Indirect 95.9 82.9 59.8 55.7 49.0 Auto lease 14.7 5.0 2.6 2.2 2.6 Student .1 .4 .7 .5 .2 Other 31.9 30.1 20.4 22.2 25.5 --------- --------- -------- -------- -------- Total consumer 149.6 123.8 88.6 86.2 81.7 Credit card 104.7 64.4 55.7 51.0 45.2 --------- --------- -------- -------- -------- Total recoveries of loans previously charged-off 301.8 246.4 200.5 214.9 211.8 --------- --------- -------- -------- -------- NET CHARGE-OFFS (1,120.8) (819.6) (477.4) (363.8) (439.9) --------- --------- -------- -------- -------- PROVISION FOR CREDIT LOSSES 1,211.1 942.7 526.1 292.2 449.7 ALLOWANCE FOR ASSETS ACQUIRED/OTHER 37.9 66.6 (3.9) 4.5 16.3 --------- --------- -------- -------- -------- ALLOWANCE FOR CREDIT LOSSES, END OF YEAR $ 1,325.9 $ 1,197.7 $1,008.0 $ 963.2 $1,030.3 ========= ========= ======== ======== ======== ALLOWANCE AND LOSS RATIOS: Net charge-offs to average total loans 1.35% 1.08% .71% .57% .79% Ending allowance to ending loans 1.62% 1.51% 1.47% 1.47% 1.74%
BANC ONE CORPORATION and Subsidiaries 41 19 TABLE 13: ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES (1)
1997 1996 1995 1994 ---------------------- ---------------------- ---------------------- ---------------------- PERCENT OF PERCENT OF PERCENT OF PERCENT OF LOANS TO LOANS TO LOANS TO LOANS TO ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL ALLOWANCE TOTAL $(millions) AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS - - ----------------------------------------------------------------------------------------------------------------------------- Commercial: Commercial $ 259.7 27.3% $ 196.3 25.5% $ 213.9 26.2% $ 246.6 25.4% Real estate 50.6 11.5 78.1 12.7 110.7 12.2 146.2 11.9 Lease financing 32.9 3.4 22.8 2.9 16.2 2.5 17.0 2.0 --------- ---------- --------- --------- --------- --------- --------- ---------- Total commercial 343.2 42.2 297.2 41.1 340.8 40.9 409.8 39.3 Consumer: Residential real estate 6.8 8.8 5.7 8.2 14.5 8.0 20.4 10.2 Home equity 38.7 11.6 19.9 9.4 7.9 7.7 5.7 6.5 Indirect 147.0 9.4 113.4 11.6 102.1 14.2 77.7 17.4 Auto lease 48.8 8.2 26.3 5.4 15.7 3.9 9.6 2.9 Student 2.4 2.2 2.4 2.4 2.2 2.2 2.4 2.4 Other 210.1 4.8 131.8 5.0 91.8 6.6 119.9 6.4 --------- ---------- --------- --------- --------- --------- --------- ---------- Total consumer 453.8 45.0 299.5 42.0 234.2 42.6 235.7 45.8 Credit card 528.9 12.8 601.0 16.9 433.0 16.5 317.7 14.9 --------- ---------- --------- --------- --------- --------- --------- ---------- Total allowance for credit losses $ 1,325.9 100.0% $ 1,197.7 100.0% $ 1,008.0 100.0% $ 963.2 100.0% ========= ========== ========= ========= ========= ========= ========= ========== 1993 ---------------------- PERCENT OF LOANS TO ALLOWANCE TOTAL $(millions) AMOUNT LOANS - - -------------------------------------------------- Commercial: Commercial $ 285.0 25.7% Real estate 181.7 11.2 Lease financing 16.5 1.9 --------- ---------- Total commercial 483.2 38.8 Consumer: Residential real estate 19.3 10.6 Home equity 4.0 6.2 Indirect 62.1 17.6 Auto lease 7.6 2.2 Student 2.7 3.5 Other 143.3 6.0 --------- ---------- Total consumer 239.0 46.1 Credit card 308.1 15.1 --------- ---------- Total allowance for credit losses $ 1,030.3 100.0% ========= ========== (1) Allowance for potential losses not specifically identified is allocated on a pro rata basis to all loan and lease categories.
VII PERFORMANCE ANALYSIS -- MANAGED PORTFOLIO For funding and risk management purposes, loans and leases are periodically securitized, primarily in support of credit card activities. Since BANC ONE continues to service the securitized loans and leases, its role becomes one of loan servicer rather than lender. When loans and leases are securitized, an initial gain on the sale of the receivables is recorded, the loans and leases and the related allowance for credit losses are removed from the balance sheet, and amounts that would have previously been reported as net interest income and provision for credit losses are instead netted and reported as noninterest income in loan processing and servicing income. Gains recorded when loans are securitized will vary based on the volume of securitization and other factors. As a result, gains recorded in any given period are not indicative of future results. When such a gain is recorded, a corresponding asset is established in the form of an interest-only strip. As a result, some credit risk is retained. However, this risk is limited to servicing income, certain receivables which provide credit enhancement and the interest-only strip. This accounting for securitizations complicates the understanding of underlying trends in net interest income, net interest margins and noninterest income, as well as growth in loans. As a result, it is helpful to analyze financial performance on a "Managed" portfolio basis, in addition to analyzing information as "Reported." "Reported" information is derived from consolidated financial statements which have been prepared in conformity with generally accepted accounting principles and includes loans held for sale. "Managed" information treats loans sold in credit card securitization transactions as if they had not been sold. As such, "Managed" information in the following table includes both these securitized loans and the on-balance sheet portfolio, including loans held for sale. Table 14 presents a reconciliation of the loan portfolio between "Reported" and "Managed" at December 31, 1997 and 1996. BANC ONE CORPORATION and Subsidiaries 42 20 TABLE 14: MANAGED LOAN PORTFOLIO (END OF PERIOD)
DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------------------------------------- ----------------------------------------------- HELD HELD $(millions) REPORTED FOR SALE SECURITIZED MANAGED REPORTED FOR SALE SECURITIZED MANAGED - - --------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL: Commercial $22,446.0 $ 22,446.0 $20,232.2 $ 20,232.2 Real estate: Construction 3,808.1 3,808.1 3,602.0 3,602.0 Other 5,601.4 5,601.4 6,429.4 6,429.4 Lease financing 2,767.3 2,767.3 2,326.5 2,326.5 --------- -------- --------- ---------- --------- -------- --------- ---------- Total commercial loans 34,622.8 34,622.8 32,590.1 32,590.1 CONSUMER: Residential real estate 7,189.4 $ 540.0 7,729.4 6,500.9 $ 473.8 6,974.7 Home equity 9,488.0 $ 168.4 9,656.4 7,416.1 $ 215.2 7,631.3 Indirect 7,683.4 1,646.4 9,329.8 9,224.7 925.4 10,150.1 Auto lease 6,748.6 6,748.6 4,317.3 4,317.3 Student 1,831.8 745.5 2,577.3 1,919.4 882.0 2,801.4 Other 3,984.8 106.4 4,091.2 3,997.7 133.9 4,131.6 --------- -------- --------- ---------- --------- -------- --------- ---------- Total consumer loans 36,926.0 540.0 2,666.7 40,132.7 33,376.1 473.8 2,156.5 36,006.4 CREDIT CARD 10,504.0 1,822.0 28,467.3 40,793.3 13,423.5 1,000.0 20,414.5 34,838.0 --------- -------- --------- ---------- --------- -------- --------- ---------- TOTAL LOANS AND LEASES $82,052.8 $2,362.0 $31,134.0 $115,548.8 $79,389.7 $1,473.8 $22,571.0 $103,434.5 ========= ======== ========= ========== ========= ======== ========= ==========
MANAGED LOAN PORTFOLIO December 31, $(billions) 95 96 97 Securitized $19.1 $22.5 $31.1 Reported (Including held for sale) 68.9 80.9 84.4 ----- ------ ------ $88.0 $103.4 $115.5 ===== ====== ======
Table 15 depicts key financial data on a "Managed" basis, reflecting the impact of securitizing loans for the years ended December 31, 1997 and 1996. In Table 15, the increase in net interest income on a "Managed" basis reflects the impact on the net interest margin had the loans not been securitized. The change represents the interest income on securitized loans less the coupon rate on the securitizations. The increase in the provision for credit losses on a managed basis is equal to the net charge-offs on securitized loans. The decrease in "Managed" loan processing and servicing income reflects these reclassifications, with the remaining amounts relating primarily to fee-based interchange income and gains recognized on securitized loans.
MANAGED LOAN PORTFOLIO DIVERSIFICATION December 31, 1997 Total Commercial 30.0% RE Residential 6.7% Home Equity 8.4% Indirect 8.1% Auto Lease 5.8% Other 5.7% Credit Card 35.3%
BANC ONE CORPORATION and Subsidiaries 43 21 TABLE 15: KEY STATISTICS
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 -------------------------------------- ---------------------------------------- SECURITIZATION SECURITIZATION $(millions) AS REPORTED ADJUSTMENTS MANAGED AS REPORTED ADJUSTMENTS MANAGED - - ------------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT STATISTICS: Net interest income -- fully taxable equivalent $ 5,446.0 $ 2,532.2 $ 7,978.2 $ 5,201.8 $ 1,894.6 $ 7,096.4 Provision for credit losses 1,211.1 1,380.7 2,591.8 942.7 1,023.4 1,966.1 ---------- ------------ ---------- ----------- ----------- ---------- Net interest income after provision for credit losses 4,234.9 1,151.5 5,386.4 4,259.1 871.2 5,130.3 Noninterest income: Loan processing and servicing income 1,802.2 (1,144.2) 658.0 1,453.3 (858.8) 594.5 Other 2,033.7 2,033.7 1,909.6 1,909.6 ---------- ------------ ---------- ----------- ----------- ---------- Total noninterest income 3,835.9 (1,144.2) 2,691.7 3,362.9 (858.8) 2,504.1 Noninterest expense 6,048.8 7.3 6,056.1 5,062.0 12.4 5,074.4 Taxable equivalent adjustment 53.7 53.7 63.2 63.2 ---------- ------------ ---------- ----------- ----------- ---------- Income before income taxes $ 1,968.3 $ $ 1,968.3 $ 2,496.8 $ $ 2,496.8 ========== ============ ========== =========== =========== ========== BALANCE SHEET AND OTHER STATISTICS: Total average loans (1) $ 83,274.5 $ 25,594.4 $108,868.9 $ 75,634.0 $ 20,951.9 $ 96,585.9 Total average earning assets 100,651.4 26,807.9 127,459.3 95,369.1 21,685.9 117,055.0 Earning asset yield 9.38% 15.29% 10.62% 9.23% 14.65% 10.23% Cost of interest-bearing liabilities 4.76 5.85 5.02 4.57 5.91 4.86 Net interest margin 5.41 9.45 6.26 5.45 8.74 6.06 Net funds function 4.21 4.30 4.23 4.47 4.02 4.38 Net charge-offs to average total loans 1.35% 5.39% 2.30% 1.08% 4.88% 1.91% CREDIT CARD STATISTICS: Average credit card loans (1) $ 13,312.0 $ 23,401.0 $ 36,713.0 $ 12,471.3 $ 18,860.4 $ 31,331.7 End of period credit card loans (1) 12,326.0 28,467.3 40,793.3 14,423.5 20,414.5 34,838.0 Credit card delinquencies over 30 days as a percentage of ending credit card balances 4.99% 5.23% 5.16% 4.84% 5.48% 5.22% Net credit card charge-offs as a percentage of average credit card balances 5.60 5.82 5.74 4.48 5.35 5.00 (1) Includes loans held for sale.
The managed net interest margin for 1997 increased to 6.26% from 6.06% in 1996, reflecting the positive impact of the generation and repricing of higher-margin credit card and consumer loans, as well as a declining level of lower-margin investment securities. The average managed loan portfolio increased 12.7% to $108.9 billion for the year ended December 31, 1997 from $96.6 billion in 1996, primarily as a result of a 17.2% growth in average managed credit card loans and a 11.9% growth in average managed consumer loans. Increased consumer loans were primarily due to growth in targeted portfolios such as home equity loans, secured consumer finance loans and auto leases. The generation of new credit card business during 1997 remained very strong, reflecting a decision in the second quarter to step up marketing and business development activities. First USA continued to refine and strengthen its strategic emphasis on segmentation. In the partnership area, a number of premier names were signed including New York Life, Countrywide(R) Home Loans, PGA Tour, American Medical Association and the Los Angeles Dodgers. This activity contributed to a record 8.1 million new credit card accounts opened during the year, exceeding the previous record of 6.2 million new accounts set last year. At the end of 1997, card-members totaled 40.5 million, up 11.9% from the end of 1996. On a managed portfolio basis, reflecting the same conditions in the reported loan portfolio, credit card charge-offs were 5.74% for the year ended December 31, 1997, compared with 5.00% in 1996. Also on a managed portfolio basis, however, credit card loans delinquent 30 days or more as a percentage of ending loans and leases decreased slightly to 5.16% at December 31, 1997 from 5.22% at December 31, 1996. BANC ONE CORPORATION and Subsidiaries 44 22 VIII RISK MANAGEMENT RISK MANAGEMENT The Asset Liability Committee (ALCO) has the responsibility for the management of capital market risk at BANC ONE. Operating within risk tolerance levels approved by the Corporation's Board of Directors, ALCO establishes policies and limits, monitoring and reporting requirements for these risks. Capital market risk is defined as interest rate risk, liquidity risk, trading risk, and credit risk for capital market activities, each of which are discussed below. For BANC ONE, the primary capital market risk is interest rate risk. INTEREST RATE RISK MANAGEMENT BANC ONE continuously offers its retail and commercial customers a variety of loan and deposit products, with fixed and variable interest rates, maturities, and other terms. A natural outcome of the decisions that customers make regarding their loan and deposit choices is the creation of interest rate risk. For example, if customer preference were for variable rate loans and fixed rate deposits, an asset-sensitive position would result, i.e., where earnings are exposed to future declines in interest rates. The objective of interest rate risk management is to minimize the impact of future interest rate movements on earnings, both in the short- and long-term. The components of interest rate risk include repricing, basis, option and yield-curve risk. Repricing risk occurs when interest-earning assets and interest-bearing liabilities reprice at different times as interest rates change. Basis risk arises from a shift in the relationship of the rates on different financial instruments. Option risk is due to "embedded options," often present in customer products. Lastly, yield-curve risk is attributable to variations in the movement of interest rates across the maturity spectrum. A variety of on- and off-balance sheet financial instruments are used to manage interest rate risk, including interest rate swaps, options (both caps and floors), purchases and sales of investment securities, fixed and variable rate deposits, borrowings, and securitizations. For more information regarding off-balance sheet items, see Note 13, "Off-Balance Sheet Activities," to the consolidated financial statements, as well as "Net Interest Income" -- Section III. Interest rate risk is measured over both short- and long-term time frames. Interest rate risk measures incorporate the impact of rate movements on all on- and off-balance sheet financial assets and liabilities. Two methodologies are used to measure interest rate sensitivity: - - - EARNINGS AT RISK (EAR) measures the impact of interest rate changes on forecasted earnings over the next two years (i.e., short-term). - - - VALUE AT RISK (VAR) measures the impact of interest rate changes on the market value of equity, i.e., the present value of future cash flows from current assets, liabilities and off-balance sheet instruments (i.e., long-term). Thus, changes in VAR represent the total changes in future earnings streams associated with current assets and liabilities discounted back to today's present value. EAR and VAR are measured based on the more restrictive of two interest rate scenarios: (1) +/- 100 basis point immediate and parallel shift of the yield curve or (2) the 99% statistically probable maximum interest rate move based on the preceding two years of rate volatility. In addition to the two interest rate scenarios described above, EAR and VAR are subjected to other interest rate scenarios, including a yield-curve shift and a gradual +/- 100 basis point change in interest rates over the next 12-month period, i.e., +/- 25 basis points per quarter. Recent financial market developments have flattened the yield-curve significantly. BANC ONE's exposure to a yield-curve BANC ONE CORPORATION and Subsidiaries 45 23 inversion of 60 basis points in the five-year and less maturity range, i.e., the part of the yield-curve that most of BANC ONE's assets and liabilities are priced, is 1% over the next 12-month period. The current EAR and VAR values relating to financial assets and liabilities as of December 31, 1997, shown in Table 16, are within ALCO's current risk limits. TABLE 16: EARNINGS AT RISK AND VALUE AT RISK
DECEMBER 31, 1997 ----------------------------- EARNINGS AT RISK Interest Rate Change ------------------ VALUE AT In Basis Points 1998 1999 RISK - - ---------------------------------------------------- +100 Shock (1.6)% .6% (1.3)% - - -100 Shock 1.4 (1.2) .8 +100 Gradual (1.2) .1 n/a(1) - - -100 Gradual 1.2 (.5) n/a(1) - - -60 Yield-Curve Inversion (1.0) n/a(1) n/a(1) (1) Not applicable.
The most significant assumptions used in these simulation models relate to optionality, primarily the runoff rate of demand and other nonmaturity deposits and loan prepayment rates. Deposit runoff rate assumptions are based upon historical trends and internal projections. Loan prepayment rates are based upon market consensus estimates for similar securities and internal analysis. These assumptions are constantly reviewed, refined and approved by ALCO. Given that interest rate movements can be sudden or unanticipated in an ever-increasing global capital markets environment, no assurances can be made that interest rate movements outside the parameters being modeled will not occur with a result that modeled EAR and VAR could be exceeded. LIQUIDITY RISK MANAGEMENT Liquidity is managed in order to preserve stable, reliable and cost effective sources of cash to fund loan growth as well as meet expected and/or unexpected outflows of deposits and other liabilities. The Corporation believes liquidity is best managed through: 1) Maintaining above average capital ratios (see "Capital" -- Section IX on Page 48); 2) Ensuring underwriting conformity of loans originated so as to facilitate use of securitizations; 3) Maintaining above average Corporation and major bank subsidiary credit ratings which allows for a cost-effective means to attract wholesale funds; 4) Maintaining access to capital markets through utilization of a balance of short- and long-term instruments; 5) Ensuring an adequate level of liquid investment securities exists to meet short-term demands on liquidity; and 6) Diversifying liabilities among markets, instruments, maturities and customers. In addition, a liquidity crisis contingency plan has been developed. This is designed to provide early detection of potential liquidity problems and outlines specific steps to address liquidity risk at a variety of severity levels. During 1997, management's strategy has been to lengthen maturities on wholesale liabilities. This was accomplished to better match-fund certain assets and to take advantage of favorable market conditions, as well as to reduce dependency upon the parent company's short-term borrowings. Parent company cash flow and liquidity were enhanced as a result of a 1997 initiative to more efficiently distribute capital between the Corporation's banking affiliates and the parent company. The impact of this initiative was to reduce parent company borrowings and improve the Corporation's double leverage ratio, a measure of the parent company's financing of its investment in subsidiaries, from 1.11 at December 31, 1996 to .97 at December 31, 1997. At December 31, 1997, BANC ONE had an unused borrowing capacity of $2.0 billion through a long-term credit facility. At year-end 1997, of the largest 25 bank holding companies in the United States, only three had equivalent or higher senior debt ratings than the Corporation. The following table summarizes credit ratings at December 31, 1997. BANC ONE CORPORATION and Subsidiaries 46 24 TABLE 17: CREDIT RATINGS
SENIOR SUBORDINATED SHORT-TERM LONG-TERM LONG-TERM ------------------- ------------------- ------------------- S&P MOODY'S S&P MOODY'S S&P MOODY'S - - ------------------------------------------------------------------------------------------------ The Corporation A-1+ P-1 AA- Aa3 A+ A1 Major bank subsidiaries A-1+ P-1 AA Aa2 AA- Aa3
As part of its liquidity risk management, the Corporation monitors its mix of retail and wholesale liabilities and seeks to maintain a diversified mix of liabilities by maturity and market. As part of its overall strategy, management made a decision to lengthen the maturity of its borrowings during 1997. Table 18 summarizes the Corporation's funding sources by product type. TABLE 18: FUNDING SOURCES
DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------------- ----------------------- PERCENT OF PERCENT OF TOTAL TOTAL $(millions) AMOUNT FUNDING AMOUNT FUNDING - - ----------------------------------------------------------------------------------------------- PRODUCT TYPE RETAIL: Demand deposits $ 20,324.5 15% $ 18,583.8 15% Savings and money market 32,558.7 25 29,434.6 24 Time deposits 21,654.2 16 23,414.9 19 WHOLESALE: SHORT-TERM: Federal funds purchased and repurchase agreements 10,708.2 8 12,858.5 10 Commercial paper and bank notes 2,360.0 2 4,467.7 4 Eurodollar certificates of deposit 2,876.9 2 2,789.7 2 Other 735.7 1 999.2 1 LONG-TERM: Long-term borrowings 4,109.1 3 3,120.2 3 Medium-term notes and bank notes 6,957.3 5 3,707.6 3 Securitizations 31,134.0 23 22,571.0 19 ---------- ---------- ---------- ---------- Total $133,418.6 100% $121,947.2 100% ========== ========== ========== ==========
Core deposits, representing approximately 56% of total funding, remain the primary source of liquidity and are generated by a geographically diverse retail network of affiliate banks in 12 states. In addition to retail deposits, approximately 21% of funding is supported through a variety of wholesale markets. Asset securitizations generated 23% of funding. TRADING RISK MANAGEMENT Trading risk represents the potential for financial loss resulting from changes in the market value of positions held for proprietary trading or for market-making purposes. The Corporation's Board-approved policies limit the exposure in trading positions, as measured by historical market volatility and an expected time to liquidate positions. As of December 31, 1997, using these measurements, Value at Risk was only $2.4 million. The primary purpose of BANC ONE's trading portfolios, which consist mainly of debt securities and interest rate swaps, is either to provide an inventory for purposes of customer dealings or to capitalize on perceived market opportunities. BANC ONE is primarily engaged in the former activity through its Banc One Capital Holdings Group. Customer swap contracts with notional amounts of $2.7 billion and $1.6 billion at December 31, 1997 and 1996, respectively, were substantially offset by transactions with third parties. BANC ONE CORPORATION and Subsidiaries 47 25 CREDIT RISK MANAGEMENT FOR CAPITAL MARKETS ACTIVITIES As an inherent part of its business, BANC ONE holds or trades various financial instruments (e.g., securities and derivatives) for its customers or for its own purposes. These dealings in the capital markets create credit risk with transaction counterparties and securities issuers to the degree they may not fulfill their obligations. On- and off-balance sheet credit risk is managed by limiting the amount of exposure to any one counter-party based on an analysis of their current financial condition and reputation, by diversifying exposures and by cost-effectively using available risk mitigation tools (e.g., collateralizations, netting agreements and credit enhancements). At December 31, 1997, there were no past due amounts or required reserves for possible credit losses related to off-balance sheet investment product transactions, nor were there any charge-offs during the three years ended December 31, 1997 related to such activities. IX CAPITAL Capital levels are determined based on many factors, including regulatory requirements, costs of alternative sources of capital, prevailing interest rates, perceived credit risks and liquidity needs. Improving shareholder value continues to be a primary goal for BANC ONE. Shareholder value is created when economic returns exceed the cost of capital. During 1998, BANC ONE intends to begin measuring the shareholder value created by each line of business. Profitability for each line of business will be calculated after allocation of all direct costs, capital, funding and corporate costs. Under our risk-based capital allocation process, capital is allocated to individual assets and liabilities (including off-balance sheet items) based on their specific credit and operational risks. Interest rate risk is managed centrally and capital for that risk is housed in the treasury group. This process will allow BANC ONE to better manage the profitability (or shareholder value added) of individual transactions, products, customers, and lines of business. Total equity to total assets at December 31, 1997 was 8.95% compared with 8.80% at December 31, 1996, while the tangible common equity to net assets ratio was 7.84% and 7.98% at December 31, 1997 and 1996, respectively. The ratio of tangible common equity to managed tangible assets at December 31, 1997 was 6.16% compared with 6.64% at the end of 1996. BANC ONE's objective is to maintain a capital position at or above the "well capitalized" classification under federal banking regulations. BANC ONE's total risk-adjusted capital ratio, Tier 1 capital ratio, and Tier 1 leverage ratio were 13.11%, 8.50% and 7.91%, respectively, at December 31, 1997. All the affiliate banks meet the regulatory definition of well-capitalized banks.
BANC ONE CAPITAL LEVELS TO REGULATORY LIMITS December 31, 1997 (Percent) TIER 1 TOTAL RISK ADJUSTED TIER 1 CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO BANC ONE 8.5% 13.11% 7.91% Well-Capitalized 6.0% 10.0% 5.0% Regulatory Minimum 4.0% 8.0 % 4.0 %
Common shares outstanding, net of treasury shares, increased from 570.7 million at December 31, 1996 to 644.5 million at December 31, 1997. The increase primarily reflects an additional 59 million common shares as a result of the 10% common stock dividend declared on January 20, 1998, as well as the issuance of stock related to the Liberty acquisition. The common stock dividend BANC ONE CORPORATION and Subsidiaries 48 26 payout ratio was 61%, 38% and 40% in 1997, 1996 and 1995, respectively. The common stock dividend payout ratio in 1997 is significantly higher than prior years primarily due to the restructuring and merger-related charge previously discussed. The Corporation's Board of Directors has elected to redeem all of the shares of BANC ONE's Series C Convertible Preferred Stock on April 16, 1998, at the redemption price of $51.05 per share plus the amounts of any dividends accrued and unpaid. X FOURTH QUARTER REVIEW OVERVIEW OF OPERATIONS -- Net income for the fourth quarter 1997 was $474.8 million, or $.72 per common share, compared with the 1996 fourth quarter results of $442.1 million, or $.67 per common share. NET INTEREST INCOME -- Interest income (FTE) remained essentially unchanged at $2.3 billion and interest expense increased 4.4% to $1.0 billion from fourth quarter 1997 to 1996, resulting in a slight decrease in net interest income. Net interest margin decreased to 5.33% in 1997 from 5.52% in 1996. This was due primarily to the increased cost of funding and the securitization of higher-yielding credit card loans. MANAGED NET INTEREST INCOME -- Managed interest income increased 12.6% to $3.5 billion and managed interest expense increased 15.3% to $1.5 billion from fourth quarter 1997 to 1996, resulting in a $200.9 million increase in managed net interest income. Managed net interest margin increased to 6.27% in 1997 from 6.11% in 1996. This was due primarily to the impact of new credit card and auto loans. Managed average earning assets increased to $130.2 billion in fourth quarter 1997 from $120.7 billion in 1996. The managed average balance of loans and leases grew 12.3% in 1997 and the overall yield on loans and leases increased from 11.0% in 1996 to 11.3% in 1997. Managed average earning assets includes the securitization spread account of $1.4 billion in 1997 compared to $.7 billion in 1996. NONINTEREST INCOME AND NONINTEREST EXPENSE -- Total noninterest income increased $98.8 million from $996.5 million in the fourth quarter of 1996 compared with $1,095.3 million in the same quarter of 1997. Service charges on deposit accounts increased $14.0 million due to an increase in fees on overdrafts, an overall increase in fees per transaction and improved service fee collection. Loan servicing income increased $207.7 million during the fourth quarter 1997 due to an increase in credit card securitization-related income. This was partially offset by a $132.5 million decrease in other noninterest income, primarily due to a $106.9 million gain on the sale of a portion of an investment in a subsidiary in the fourth quarter of 1996. Total noninterest expense increased $105.3 million from $1.4 billion in the fourth quarter of 1996 to $1.5 billion in the same quarter of 1997. Salary and related costs increased $43.4 million in fourth quarter 1997 compared with the same period in 1996 as a result of increased staffing, merit and other pay increases, commissions related to venture transactions, and a continued shift to incentive compensation. Outside servicing and processing increased $60.3 million due to increased external consulting and processing services. Communication and transportation costs increased $18.6 million due to an increase in telephone charges and metered postage in the fourth quarter of 1997. BANC ONE CORPORATION and Subsidiaries 49 27 XI COMPARISON OF 1996 VERSUS 1995 OVERVIEW OF OPERATIONS -- Net income for 1996 was $1.7 billion, or $2.52 per common share, up 15.7% and 14.5%, respectively, from $1.4 billion, or $2.20 per common share, in 1995. This reflected a 20.9% increase in net interest income and a 21.2% increase in noninterest income, partially offset by a 17.0% increase in non-interest expense and a higher provision for credit losses. Higher interest income in 1996 was primarily due to a 12.0% increase in average earning assets, which resulted from exceptionally strong loan growth. Loan growth was significantly impacted by the acquisition of Premier on January 2, 1996. Key performance measures also showed strong growth. Return on average assets increased to 1.59% in 1996 from 1.54% in 1995, while return on average common equity was 17.83% in 1996 compared with 17.26% in 1995. The ratio of average common equity to average assets increased to 8.85% in 1996 from 8.81% in 1995. Net interest margin rose to 5.45% in 1996 from 5.08% in 1995. NET INTEREST INCOME -- Net interest income on a fully taxable equivalent basis (FTE), was $5.2 billion in 1996, up $871.2 million, or 20.1%, from 1995 reflecting the growth in average earning assets and favorable yield trends. The net interest margin increased to 5.45% in 1996 from 5.08% in 1995. For 1996, average earning assets totaled $95.4 billion, up $10.2 billion from 1995, reflecting the $5.0 billion average positive impact of the Premier acquisition, complemented by strong underlying loan growth. Average loans and leases, excluding loans held for sale, totaled $75.1 billion, up $8.4 billion, or 12.6%, over 1995. Contributing to this growth was a $3.4 billion increase resulting from the Premier acquisition, $2.4 billion increase in credit card loans, and $1.3 billion increase in commercial loans and leases. These increases are net of loan sales and securitizations. Average investment securities increased to $19.1 billion, up $2.2 billion, or 13.1%, from 1995, primarily due to the acquisition of Premier. The lack of growth in investment securities, excluding the Premier acquisition, resulted from the decision to reduce the level of lower yielding securities, primarily through maturity runoff, and to use the proceeds to fund higher yielding loans. This strategy improved the overall earning asset yield and net interest margin due to the typically higher yields on loans when compared to the yields on investment securities. The growth in earning assets is funded by traditional bank sources, primarily retail deposits, securitizations and the issuance of short- and long-term debt. During 1996, average total deposits increased $4.3 billion, or 6.4%, to $72.4 billion, primarily due to the acquisition of Premier. Average short-term borrowed funds in 1996 totaled $15.4 billion, up $3.8 billion, or 32.9%, from the prior year. Average long-term borrowed funds totaled $5.1 billion, up $1.4 billion, or 38.8%, from 1995. Both short- and long-term funding increased in 1996 primarily due to the faster rate of growth in the loan portfolio compared with the growth rate of core deposits. NONINTEREST INCOME AND NONINTEREST EXPENSE -- Noninterest income in 1996 totaled $3.4 billion, an increase of $587.5 million, or 21.2%, from 1995. Excluding the impact of the Premier acquisition, noninterest income increased $490.8 million, or 17.7%. The $96.7 million increase related to Premier BANC ONE CORPORATION and Subsidiaries 50 28 includes $53.9 million in service charges on deposit accounts, $16.3 million in other noninterest income, and $11.2 million in investment management and advisory activities. The following discussion of individual noninterest income categories excludes the impact of Premier. Investment management and advisory activities income for 1996 increased $28.5 million, or 11.9%, reflecting an increase in investment management fees resulting from continued growth in funds under management and an increase in fees per account. Funds under management were $39.6 billion, up 12.8% during 1996. Service charges on deposit accounts increased $55.5 million, or 10.2%, in 1996 reflecting a $35.9 million increase in fees on overdrafts, personal savings and checking accounts, as well as an overall increase in demand deposit account volume. The $19.7 million increase in credit card and merchant processing fees was due to increased payment processing volume. The $6.0 million decrease in credit card securitization-related income relates to both the reduction in excess yield on securitizations as a result of $541.9 million increase in net charge-offs, excluding the Premier acquisition, and a decrease in securitization gains, mostly offset by higher volumes of serviced loans. Insurance income and income from securities activities increased $28.4 million and $17.8 million, respectively, reflecting higher commissions related to increased sales volumes resulting from 1996 national sales programs. Gains on sale of assets increased $109.1 million in 1996 primarily reflecting a gain of $106.9 million from the December 1996 sale of a portion of an investment in a subsidiary. The 1996 increase in other income was primarily due to the recognition of a $52.8 million increase in the fair value of the venture capital portfolio in 1996. Noninterest expense in 1996 totaled $5.1 billion, up $735.1 million, or 17.0%, from 1995. The Premier acquisition added $226.6 million and Project One expenses for the period totaled $149.7 million. Additional increases were reflected in salary and related costs due to staffing and incentives resulting from growth in securities and investment banking activities. Depreciation and amortization increased $36.0 million primarily due to a write-off during the second quarter of 1996 of $11.9 million for software and goodwill related to a nonbank subsidiary. Outside services and processing expenses and marketing and development costs increased $49.1 million and $20.9 million, respectively, due to increased credit card volumes and associated marketing and solicitation costs in 1996. Other noninterest expense increased approximately 17.5%, due primarily to $12.1 million in additional expenses related to servicing deposit accounts, a $8.9 million interest charge from the settlement of an IRS audit, a $4.6 million loss on the sale of a subsidiary and a $4.4 million prepayment related to the early extinguishment of long-term debt. LOAN QUALITY -- The allowance for credit losses at December 31, 1996 totaled $1.2 billion, or 1.51%, of total loans and leases, compared with $1.0 billion, or 1.47%, at December 31, 1995. Total ending loans and leases were $79.4 billion, an increase of $11.0 billion, or 16.0%, from 1995. To maintain an adequate level of allowance for credit losses and allow for loan growth and increased charge-offs, the provision for credit losses continued to exceed net charge-offs. In 1996, the provision was $942.7 million, $123.1 million higher than net charge-offs, compared with the 1995 provision of $526.1 million, $48.7 million higher than net charge-offs. BANC ONE CORPORATION and Subsidiaries 51 29 CONSOLIDATED QUARTERLY FINANCIAL DATA (1) (UNAUDITED)
1997 ------------------------------------------------- $(millions, except per share data) FOURTH THIRD SECOND FIRST - - -------------------------------------------------------------------------------------------- CONDENSED INCOME STATEMENT: Total interest income (2) $ 2,325.3 $ 2,400.1 $ 2,373.6 $ 2,337.9 Total interest expense 993.3 1,023.9 1,007.4 966.3 ---------- ---------- ---------- ---------- Net interest income (2) 1,332.0 1,376.2 1,366.2 1,371.6 Provision for credit losses 272.6 270.8 395.8 271.9 Noninterest income 1,095.3 1,102.9 830.5 807.2 Noninterest expense 1,480.3 1,535.3 1,724.2 1,309.0 Taxable equivalent adjustment 13.2 12.9 13.8 13.8 ---------- ---------- ---------- ---------- Income before income taxes 661.2 660.1 62.9 584.1 Income tax provision 186.4 226.9 47.1 202.2 ---------- ---------- ---------- ---------- Net income $ 474.8 $ 433.2 $ 15.8 $ 381.9 ========== ========== ========== ========== Net income available to common stockholders $ 472.4 $ 430.2 $ 12.6 $ 378.5 ========== ========== ========== ========== KEY AVERAGE BALANCES: Total securities (3) $ 14,295.3 $ 15,305.4 $ 17,603.2 $ 18,818.7 Total loans and leases 83,193.8 85,181.4 80,528.1 79,521.1 Total assets 112,499.8 113,485.7 112,501.4 110,762.0 Total deposits 75,405.0 75,431.1 73,939.7 73,339.3 Total borrowed funds 23,731.3 25,261.1 25,819.6 25,024.6 Common stockholders' equity $ 9,901.0 $ 9,666.3 $ 9,818.1 $ 9,415.8 MARGIN ANALYSIS: (2)(4)(5) Net interest income 5.33% 5.37% 5.41% 5.53% Net funds function 4.24% 4.31% 3.84% 4.43% KEY OPERATING RATIOS: Return on average assets (5) 1.67% 1.51% .06% 1.40% Return on average common equity (5) 18.93 17.66 .51 16.30 Return on average total equity (5) 18.76 17.46 .63 16.11 Average common equity to average assets 8.80 8.52 8.73 8.50 Average total equity to average assets 8.93 8.67 8.90 8.68 Tier I capital ratio 8.50 8.42 8.19 9.43 Total risk adjusted capital ratio 13.11 13.07 12.82 13.45 Tier I leverage ratio 7.91% 7.61% 7.61% 8.27% CREDIT ANALYSIS: Net charge-offs to average loans and leases (5) 1.38% 1.34% 1.42% 1.24% Ending allowance to loans and leases 1.62 1.62 1.62 1.55 Nonperforming assets to loans and leases (6)(7) .56 .58 .53 .53 Loans delinquent 90 or more days to loans and leases (7)(8) .66 .77 .58 .63 Allowance to nonperforming loans 323.71% 314.00% 343.64% 326.68% MANAGED DATA: Total average loans and leases $113,306.6 $111,359.9 $106,720.1 $103,972.0 Net interest margin 6.27% 6.30% 6.19% 6.26% Net funds function 4.33 4.40 4.27 4.29 Credit card net charge-offs to average credit card loans 5.37 5.78 6.22 5.63 Credit card loans delinquent 90 or more days to credit card loans 2.29% 2.02% 2.11% 2.39% COMMON STOCK: Per common share data Net income, basic $ .74 $ .67 $ .03 $ .60 Net income, diluted .72 .66 .03 .58 Cash dividends declared .345 .345 .345 .345 Book value $ 15.89 $ 16.96 $ 16.62 $ 16.74 Average shares outstanding, basic 644.5 641.3 620.6 622.6 Average shares outstanding, diluted 658.6 659.0 649.6 655.6 Shares traded, as originally reported 113.3 102.8 125.6 133.4 Stock price: High $ 54.37 $ 52.10 $ 45.57 $ 44.77 Low 43.01 43.24 35.57 35.80 Close $ 49.37 $ 50.91 $ 44.04 $ 36.14 1996 ---------------------------------------------- $(millions, except per share data) FOURTH THIRD SECOND FIRST - - ---------------------------------------------------------------------------------------- CONDENSED INCOME STATEMENT: Total interest income (2) $ 2,312.1 $ 2,194.8 $ 2,122.5 $ 2,170.0 Total interest expense 951.2 902.6 850.1 893.7 ---------- --------- --------- --------- Net interest income (2) 1,360.9 1,292.2 1,272.4 1,276.3 Provision for credit losses 319.6 240.3 194.7 188.1 Noninterest income 996.5 837.8 772.2 756.4 Noninterest expense 1,375.0 1,257.0 1,238.0 1,192.0 Taxable equivalent adjustment 15.2 15.8 16.2 16.0 ---------- --------- --------- --------- Income before income taxes 647.6 616.9 595.7 636.6 Income tax provision 205.5 204.2 200.5 213.8 ---------- --------- --------- --------- Net income $ 442.1 $ 412.7 $ 395.2 $ 422.8 ========== ========= ========= ========= Net income available to common stockholders $ 438.5 $ 408.5 $ 391.0 $ 418.4 ========== ========= ========= ========= KEY AVERAGE BALANCES: Total securities (3) $ 18,316.8 $18,603.8 $19,594.7 $19,789.7 Total loans and leases 78,571.9 75,037.8 73,227.9 73,462.8 Total assets 108,170.6 104,130.8 103,424.9 104,024.2 Total deposits 73,052.9 72,154.4 72,232.1 72,126.4 Total borrowed funds 22,741.8 19,896.8 19,318.6 19,847.1 Common stockholders' equity $ 9,432.4 $ 9,290.4 $ 9,159.6 $ 9,275.5 MARGIN ANALYSIS: (2)(4)(5) Net interest income 5.52% 5.43% 5.43% 5.44% Net funds function 4.22% 4.42% 4.60% 4.63% KEY OPERATING RATIOS: Return on average assets (5) 1.63% 1.58% 1.54% 1.63% Return on average common equity (5) 18.49 17.49 17.17 18.15 Return on average total equity (5) 18.23 17.23 16.90 17.86 Average common equity to average assets 8.72 8.92 8.86 8.92 Average total equity to average assets 8.92 9.15 9.09 9.15 Tier I capital ratio 9.98 9.63 10.11 10.10 Total risk adjusted capital ratio 14.07 13.32 13.86 14.03 Tier I leverage ratio 8.88% 8.52% 8.72% 8.44% CREDIT ANALYSIS: Net charge-offs to average loans and leases (5) 1.31% 1.10% .94% .97% Ending allowance to loans and leases 1.51 1.48 1.49 1.50 Nonperforming assets to loans and leases (6)(7) .54 .62 .62 .67 Loans delinquent 90 or more days to loans and leases (7)(8) .60 .53 .45 .40 Allowance to nonperforming loans 313.17% 271.70% 283.82% 263.08% MANAGED DATA: Total average loans and leases $100,890.7 $97,405.7 $95,155.0 $92,827.8 Net interest margin 6.11% 6.10% 6.07% 5.97% Net funds function 4.08 4.32 4.52 4.61 Credit card net charge-offs to average credit card loans 5.61 5.25 4.83 4.22 Credit card loans delinquent 90 or more days to credit card loans 2.23% 2.00% 1.74% 1.64% COMMON STOCK: Per common share data Net income, basic $ .70 $ .64 $ .61 $ .65 Net income, diluted .67 .63 .59 .63 Cash dividends declared .31 .31 .31 .31 Book value $ 16.93 $ 16.42 $ 16.26 $ 15.99 Average shares outstanding, basic 626.9 630.7 633.2 639.4 Average shares outstanding, diluted 658.8 662.3 665.5 671.9 Shares traded, as originally reported 54.3 60.7 50.7 62.1 Stock price: High $ 43.53 $ 37.62 $ 34.32 $ 35.00 Low 36.71 28.41 29.89 29.04 Close $ 39.09 $ 37.27 $ 30.91 $ 32.39 (1) All share and per share amounts have been restated to reflect common stock dividends. (2) Fully taxable equivalent basis. The Federal statutory rate used was 35% for all periods presented. (3) Average balances are based on amortized historical cost excluding SFAS No. 115 adjustments to fair value which are included in other assets. (4) As a percent of average earning assets. (5) Ratios presented on an annualized basis. (6) Excludes certain smaller balance loans collectively evaluated for impairment. (7) Includes loans held for sale. (8) Excluding nonperforming loans.
BANC ONE CORPORATION and Subsidiaries 52 30 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND 1996
DECEMBER 31, DECEMBER 31, $(millions, except share amounts) 1997 1996 - - -------------------------------------------------------------------------------------------- ASSETS: Cash and due from banks $ 7,727.4 $ 6,524.4 Short-term investments 838.3 680.7 Loans held for sale 2,362.0 1,473.8 Securities: Securities held to maturity 785.3 4,397.9 Securities available for sale 14,467.9 14,733.8 ------------ ------------ Total securities (fair value approximates $15,268.0 and $19,163.2 at December 31, 1997 and 1996, respectively) 15,253.2 19,131.7 Loans and leases (net of unearned income of $2,013.7 and $1,383.3 and allowance for credit losses of $1,325.9 and $1,197.7 at December 31, 1997 and 1996, respectively) 80,726.9 78,192.0 Other assets: Bank premises and equipment, net 1,882.2 1,799.2 Interest earned, not collected 821.3 782.1 Other real estate owned 66.6 53.0 Excess of cost over net assets of affiliates purchased 741.8 508.4 Other 5,481.6 3,008.2 ------------ ------------ Total other assets 8,993.5 6,150.9 ------------ ------------ TOTAL ASSETS $ 115,901.3 $ 112,153.5 ============ ============ LIABILITIES: Deposits: Noninterest-bearing $ 18,444.2 $ 16,340.6 Interest-bearing 58,970.1 57,882.4 ------------ ------------ Total deposits 77,414.3 74,223.0 Federal funds purchased and repurchase agreements 10,708.2 12,858.5 Other short-term borrowings 3,095.7 5,466.9 Long-term debt 11,066.4 6,827.8 Accrued interest payable 489.7 468.6 Other liabilities 2,751.0 2,440.7 ------------ ------------ TOTAL LIABILITIES 105,525.3 102,285.5 ------------ ------------ Commitments and contingencies (Notes 5, 7, and 15) STOCKHOLDERS' EQUITY: Preferred stock, 35,000,000 shares authorized: Series C convertible, no par value, 2,707,917 and 4,140,314 shares issued and outstanding at December 31, 1997 and 1996, respectively 135.4 207.0 Convertible preferred stock of pooled affiliate, 5,750,000 shares issued and outstanding at December 31, 1996 .1 Common stock, no par value, $5 stated value, 950,000,000 shares and 600,000,000 shares authorized at December 31, 1997 and 1996, respectively; 645,956,436 and 576,517,822 shares issued at December 31, 1997 and 1996, respectively (December 31, 1997 shares reflect the 10% stock dividend payable -- Note 10.) 3,229.8 2,882.6 Capital in excess of aggregate stated value 6,718.7 4,346.4 Retained earnings 239.8 2,625.1 Net unrealized holding gains on securities available for sale, net of tax 121.0 19.9 Treasury stock (1,421,331 and 5,829,915 shares, at December 31, 1997 and 1996, respectively), at cost (68.7) (213.1) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 10,376.0 9,868.0 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 115,901.3 $ 112,153.5 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. BANC ONE CORPORATION and Subsidiaries 53 31 CONSOLIDATED STATEMENT OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 1997
$(millions, except per share amounts) 1997 1996 1995 - - --------------------------------------------------------------------------------------------- INTEREST INCOME: Loans and leases $8,128.7 $7,437.9 $6,393.0 Securities: Taxable 986.0 1,127.2 973.4 Tax-exempt 80.2 94.9 116.7 Loans held for sale 139.2 39.5 32.9 Other 49.1 36.7 71.9 -------- -------- -------- TOTAL INTEREST INCOME 9,383.2 8,736.2 7,587.9 INTEREST EXPENSE: Deposits: Demand, savings and money market deposits 1,124.4 1,006.2 922.3 Time deposits 1,420.7 1,454.0 1,504.1 Borrowings 1,445.8 1,137.4 910.4 -------- -------- -------- TOTAL INTEREST EXPENSE 3,990.9 3,597.6 3,336.8 -------- -------- -------- NET INTEREST INCOME 5,392.3 5,138.6 4,251.1 Provision for credit losses 1,211.1 942.7 526.1 -------- -------- -------- Net interest income after provision for credit losses 4,181.2 4,195.9 3,725.0 NONINTEREST INCOME: Investment management and advisory activities 315.5 279.1 239.4 Service charges on deposit accounts 702.4 654.1 544.7 Loan processing and servicing income 1,802.2 1,453.3 1,425.6 Securities gains (losses) 57.0 16.7 (2.0) Other 958.8 959.7 567.7 -------- -------- -------- TOTAL NONINTEREST INCOME 3,835.9 3,362.9 2,775.4 NONINTEREST EXPENSE: Salary and related costs 2,367.5 2,204.6 1,875.6 Net occupancy expense, exclusive of depreciation 209.9 192.1 175.1 Equipment expense 133.7 125.2 110.5 Depreciation and amortization 458.3 447.5 367.4 Outside services and processing 859.1 674.2 528.3 Marketing and development 712.9 445.9 424.9 Communication and transportation 427.6 378.4 324.7 Other 542.5 594.1 520.4 Restructuring charges 337.3 -------- -------- -------- TOTAL NONINTEREST EXPENSE 6,048.8 5,062.0 4,326.9 -------- -------- -------- Income before income taxes 1,968.3 2,496.8 2,173.5 Provision for income taxes 662.6 824.0 728.3 -------- -------- -------- NET INCOME $1,305.7 $1,672.8 $1,445.2 ======== ======== ======== NET INCOME PER COMMON SHARE (amounts reflect the 10% common stock dividend -- Note 10): NET INCOME PER COMMON SHARE, BASIC $ 2.04 $ 2.60 $ 2.26 ======== ======== ======== NET INCOME PER COMMON SHARE, DILUTED $ 1.99 $ 2.52 $ 2.20 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. BANC ONE CORPORATION and Subsidiaries 54 32 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1997
NET UNREALIZED CAPITAL IN HOLDING GAINS EXCESS OF (LOSSES) ON AGGREGATE SECURITIES TREASURY TOTAL PREFERRED COMMON STATED RETAINED AVAILABLE STOCK AT STOCKHOLDERS' $(millions, except per share amounts) STOCK STOCK VALUE EARNINGS FOR SALE COST EQUITY - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1994 $ 249.9 $2,726.1 $ 3,552.0 $2,172.1 $(111.5) $ (336.5) $ 8,252.1 Net income 1,445.2 1,445.2 Cash dividends: Common ($1.13 per share)(1) (532.8) (532.8) Series C Preferred ($3.50 per share) (17.5) (17.5) Pooled affiliates (21.8) (21.8) Shares issued in acquisitions 5.7 13.1 (3.1) 15.7 Conversion of preferred into common (.2) .2 Exercise of stock options, net of shares purchased 8.9 (2.5) 6.4 Sales of stock to employee benefit plans and other 7.0 18.1 25.1 Purchase of treasury stock (324.3) (324.3) Change in unrealized holding gains (losses) on securities available for sale, net of tax 203.3 203.3 10% common stock dividend at fair market value 205.4 1,340.0 (1,545.4) --------- -------- --------- -------- ------- -------- ----------- BALANCE, DECEMBER 31, 1995 249.7 2,953.1 4,920.9 1,496.7 91.8 (660.8) 9,051.4 Net income 1,672.8 1,672.8 Cash dividends: Common ($1.24 per share)(1) (587.2) (587.2) Series C Preferred ($3.50 per share) (16.4) (16.4) Pooled affiliates (31.4) (31.4) Shares issued in acquisitions 53.4 657.1 710.5 Issuance of subsidiary common stock 79.5 79.5 Conversion of preferred into common (42.6) 8.2 34.4 Exercise of stock options, net of shares purchased 14.1 2.7 16.8 Sales of stock to employee benefit plans and other 9.2 (56.5) 90.6 3.7 47.0 Purchase of treasury stock (1,003.1) (1,003.1) Retirement of treasury stock (102.0) (688.0) 790.0 Change in unrealized holding gains (losses) on securities available for sale, net of tax (71.9) (71.9) --------- -------- --------- -------- ------- -------- ----------- BALANCE, DECEMBER 31, 1996 207.1 2,882.6 4,346.4 2,625.1 19.9 (213.1) 9,868.0 Net income 1,305.7 1,305.7 Cash dividends: Common ($1.38 per share)(1) (768.6) (768.6) Series C Preferred ($3.50 per share) (12.0) (12.0) Pooled affiliates (20.6) (20.6) Shares issued in acquisitions 51.4 487.0 538.4 Issuance of subsidiary common stock 5.8 5.8 Conversion of preferred into common (71.7) 13.9 57.8 Exercise of stock options, net of shares purchased 26.3 34.5 (34.1) 26.7 Sales of stock to employee benefit plans and other 57.2 11.7 (30.1) 38.8 Purchase of treasury stock (707.3) (707.3) Retirement of treasury stock (43.8) (385.1) 428.9 Change in unrealized holding gains (losses) on securities available for sale, net of tax 101.1 101.1 10% common stock dividend at fair market value 293.6 2,596.2 (2,889.8) --------- -------- --------- -------- ------- -------- ----------- BALANCE, DECEMBER 31, 1997 $ 135.4 $3,229.8 $ 6,718.7 $ 239.8 $ 121.0 $ (68.7) $ 10,376.0 ========= ======== ========= ======== ======= ======== =========== (1) Amounts reflect the effect of the 10% common stock dividend. See Note 10.
The accompanying notes are an integral part of the consolidated financial statements. BANC ONE CORPORATION and Subsidiaries 55 33 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
$(millions) 1997 1996 1995 - - ---------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income $ 1,305.7 $ 1,672.8 $ 1,445.2 Adjustments: Provision for credit losses 1,211.1 942.7 526.1 Depreciation 338.7 300.8 255.9 Amortization of other intangibles 119.6 146.7 111.5 Amortization (accretion) of securities premium and discounts, net 37.6 40.9 (50.7) Amortization of mortgage servicing rights 16.3 19.7 12.9 Net increase in trading account (486.1) (305.4) (30.2) Net increase in loans held for sale (888.2) (970.4) (187.7) Net (increase) decrease in deferred loan fees and costs (5.2) 34.3 (4.2) Securities (gains) losses (57.0) (16.7) 1.9 Gain on the sale of banks and branch offices (.8) (19.4) (68.3) Gain on sale of loans and other assets (238.8) (325.3) (122.9) Net increase in other assets (1,134.1) (279.6) (226.9) Net increase (decrease) in other liabilities 605.3 (42.1) 251.3 Net increase in deferred income taxes 520.7 263.6 179.4 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,344.8 1,462.6 2,093.3 ---------- ---------- ---------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: Purchases of securities available for sale (9,422.6) (5,581.5) (8,110.5) Purchases of securities held to maturity (502.6) (1,789.6) (1,978.1) Maturities of securities available for sale 3,014.9 4,169.2 6,712.9 Maturities of securities held to maturity 582.3 1,040.8 1,904.8 Sales of securities available for sale 10,996.2 3,231.5 2,544.3 Net increase in loans, excluding sales and purchases (14,443.3) (15,750.6) (16,261.8) Sales of loans and other assets 13,596.9 8,218.2 10,818.0 Credit card securitization activities (985.2) (53.9) (61.9) Purchases of loans and related premiums (1,275.5) (519.8) (668.9) Net decrease in short-term investments 13.6 118.3 3,022.7 Additions to bank premises and equipment (418.7) (432.2) (400.6) Sale of banks and branch offices (22.3) (186.8) (236.0) Net cash acquired in acquisitions 240.7 315.7 42.4 All other investing activities, net 195.0 (58.9) 191.8 ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,569.4 (7,279.6) (2,480.9) ---------- ---------- ---------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net increase in demand, savings and money market deposits 3,380.4 1,533.8 1,608.9 Net decrease in time deposits (2,488.5) (592.3) (2,235.6) Net (decrease) increase in short-term borrowings (4,822.9) 5,414.8 1,229.3 Issuance of long-term borrowings, net 5,571.0 3,486.2 1,742.1 Repayment of long-term borrowings (1,914.0) (1,755.4) (344.7) Cash dividends paid (801.1) (635.0) (696.1) Purchase of treasury stock (707.3) (1,003.1) (324.3) All other financing activities, net 71.2 180.2 (16.2) ---------- ---------- ---------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,711.2) 6,629.2 963.4 ---------- ---------- ---------- Increase in cash and cash equivalents 1,203.0 812.2 575.8 Cash and cash equivalents at January 1 6,524.4 5,712.2 5,136.4 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 7,727.4 $ 6,524.4 $ 5,712.2 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. BANC ONE CORPORATION and Subsidiaries 56 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BANC ONE is a bank holding company offering a full range of financial services through banking offices in Arizona, Colorado, Illinois, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. BANC ONE also engages in credit card and merchant processing, consumer and education finance, mortgage banking, insurance, trust and investment management, brokerage, venture capital, investment and merchant banking, equipment leasing and data processing activities. "The Corporation" is defined as the parent company only. "BANC ONE" is defined as the Corporation and all significant majority-owned subsidiaries. The consolidated financial statements include the accounts of the Corporation and all significant majority-owned subsidiaries (affiliates). See Note 2 for information relative to acquisitions. Significant intercompany transactions have been eliminated. For purposes of comparability, certain prior period amounts have been reclassified to conform with current year presentation. The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. LOANS HELD FOR SALE Certain loan receivables are classified as held for sale because management does not intend to hold such loans until maturity or sales of the loans are pending. Such loans are carried at the lower of aggregate cost or fair value by type of loan. Losses, if any, are recorded in noninterest income, based on the difference between the fair value (estimated sales proceeds) and aggregate cost. SECURITIES Securities that management has both the positive intent and ability to hold to maturity are classified as securities held to maturity and are carried at cost, adjusted for amortization of premium or accretion of discount using the interest method. Securities that may be sold prior to maturity for asset/liability management purposes, or that may be sold in response to changes in interest rates, changes in prepayment risk, to increase regulatory capital or other similar factors, are classified as securities available for sale and carried at fair value with any adjustments to fair value, after tax, reported as a separate component of stockholders' equity. Securities purchased for trading purposes are held in the trading portfolio at market value, with market adjustments included in noninterest income. Venture capital investments held by qualifying investment companies are carried at fair value with changes in fair value recognized in noninterest income. The fair value of publicly traded investments takes into account their quoted market prices with adjustments made for market liquidity or sale restrictions. For BANC ONE CORPORATION and Subsidiaries 57 35 securities that are not publicly traded, estimates of fair value are further adjusted based upon review of the investee's financial results, condition and prospects. Interest and dividends on securities, including the amortization of premiums and the accretion of discounts, are reported using the interest method. Gains and losses on sales of securities are recorded on the trade date and are calculated based on the security with the highest cost unless specific securities are identified. LOANS Loans are reported at the principal amount outstanding, net of unearned income. Income earned is recognized principally on the accrual method of accounting. Unearned income, which includes deferred fees, net of deferred direct incremental loan origination costs, is amortized to interest income over the contractual life of the loan using the interest method or the straight-line method if not materially different. Loan origination fees and costs on demand loans are deferred and amortized into interest income on a straight-line basis over a period which is consistent with the understanding between BANC ONE and the borrower or, if no understanding exists, over the estimated loan term. Loan origination fees and costs on credit card and other revolving loans are deferred and amortized into interest income using a straight-line method over one year. Commercial loans are placed on nonaccrual at the time the loan is 90 days delinquent unless the credit is well collateralized and in process of collection. Residential real estate loans are placed on nonaccrual at the time the loan is 120 days delinquent. Credit card loans, other uncollateralized personal credit lines and consumer loans are charged off no later than 180 days delinquent. All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are reasonably assured of repayment within a reasonable time frame and when the borrower has demonstrated payment performance. LEASES The leasing operations consist of the leasing of automobiles (carried in consumer loans) and various types of equipment under leases principally classified as direct financing leases. Interest, net of initial direct costs, is deferred and reported as income in decreasing amounts over the term of the lease so as to provide a constant yield on the outstanding principal balance. Leases are charged-off at the earlier of 180 days delinquent for consumer leases and 120 days delinquent for equipment leases or when collection of principal or interest is in doubt. PROVISION FOR CREDIT LOSSES The provision for credit losses charged to expense is based upon management assessment of current and historical loss experience, loan portfolio trends, prevailing economic and business conditions, specific loan review and other relevant factors. In management's opinion, the provision is sufficient to maintain the allowance for credit losses at a level that adequately provides for potential losses. LOAN SECURITIZATIONS BANC ONE actively packages and sells loans receivables, primarily credit card receivables, as securities to investors. From these securitizations, BANC ONE receives (1) a fee for servicing the loans and (2) net interest revenues generated by the loans which are in excess of the interest due investors and net credit losses. Fees which are received in excess of the contractual servicing rate as well as the excess net interest revenue are considered financial assets, effectively interest-only strips. BANC ONE CORPORATION and Subsidiaries 58 36 Certain estimates are inherent in determining the fair value of the interest-only strip, including interest rates, charge-offs and receivable lives. These estimates and assumptions are subject to change in the future. When loans are securitized, the interest-only strip described above and a corresponding initial gain on the sale of the receivables are recorded, the loans are removed from the balance sheet, and amounts that would have previously been reported as net interest income and provision for credit losses are instead reported as noninterest income in loan processing and servicing income. MORTGAGE BANKING ACTIVITIES Mortgage servicing assets are recognized as separate assets when servicing rights are acquired through purchase or retained in a sale or securitization of the assets being serviced. Capitalized mortgage servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans. Capitalized mortgage servicing rights are evaluated for impairment based on the fair value of those rights. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is recorded primarily using the straight-line method over the estimated useful lives of the assets. Upon the sale or other disposal of assets, the cost and related accumulated depreciation are written off and the resulting gain or loss is recognized. Maintenance and repairs are charged to expense as incurred, while renewals and betterments are capitalized. Software costs for internally developed systems are expensed as incurred. Software costs related to externally developed systems are capitalized and include systems intended for internal and external use. OTHER REAL ESTATE OWNED Other real estate owned primarily represents properties acquired by the Corporation's affiliates through customer loan default and owned properties no longer used in the banking business. The real estate acquired through foreclosure is stated at an amount equal to the lesser of the loan balance prior to foreclosure, plus certain costs incurred for improvements to the property, or fair value less estimated selling costs of the property. PURCHASE METHOD OF ACCOUNTING Net assets of organizations acquired in purchase transactions are recorded at fair value at date of acquisition. The excess of cost over net assets of affiliates purchased (goodwill) is amortized using the straight-line and accelerated methods over the estimated periods benefited with terms generally ranging from five to 40 years. Core deposits and other identifiable intangible assets are typically amortized on an accelerated basis over the period of benefit. Intangible assets are periodically reviewed for possible impairment. OFF-BALANCE SHEET ACTIVITIES BANC ONE uses a variety of off-balance sheet financial instruments as part of its interest rate risk management strategy and in its customer service and trading activities. The most frequently used off-balance sheet financial instruments are various types of interest rate swaps. However, interest rate floors, options, swap options, caps, forward rate agreements and currency swaps are also utilized. Off-balance sheet financial instruments are typically classified as synthetic alterations or anticipatory hedges. The criteria that must be satisfied for each of these methods is as follows: Synthetic Alteration -- (1) the asset or liability to be converted creates exposure to interest rate risk; (2) the off-balance sheet financial instrument is designated and effective as a synthetic alteration of the balance sheet item; (3) the start date of the BANC ONE CORPORATION and Subsidiaries 59 37 off-balance sheet financial instrument does not extend beyond that point in time at which it is believed that modeling systems produce reliable interest rate sensitivity information; and (4) the related balance sheet item, from trade date to final maturity, has sufficient balances for alteration. If the initial assignment is changed, or should sufficient balances not be available, the excess portion of the off-balance sheet financial instrument must be recorded at fair value. Anticipatory Hedge -- (1) the transaction to be hedged creates exposure to interest rate risk; (2) the off-balance sheet financial instrument acts to reduce the interest rate risk by moving closer to being insensitive to interest rate changes; (3) the off-balance sheet financial instrument is designated and effective as a hedge of the transaction; (4) the significant characteristics and expected terms of the anticipated transaction are identified; and (5) it is probable that the anticipated transaction will occur. Accrual accounting is applied for off-balance sheet financial instruments classified as described above and income and expense are recorded in the same category as that of the related balance sheet item. The related balance sheet item is generally a pool of similar products. Fees related to these off-balance sheet financial instruments are amortized on the straight-line method over the life of the related balance sheet item. If the balance of the related balance sheet item falls below that of the related off-balance sheet financial instrument, the excess portion of the off-balance sheet financial instrument is recorded at fair value and the resulting gain or loss included in income as applicable. If an off-balance sheet financial instrument is terminated, the gain or loss is deferred and amortized over the remaining life of the off-balance sheet financial instrument. If an off-balance sheet financial instrument is terminated due to the sale or liquidation of the related balance sheet item, the gain or loss is recognized to noninterest income in the period in which the off-balance sheet financial instrument is terminated. Off-balance sheet financial instruments that do not satisfy the criteria above, including those used in trading activities and anticipatory hedges where the anticipated transaction is no longer likely to occur, are carried at fair value. Any changes in fair value are recognized in noninterest income. INVESTMENT IN MAJORITY-OWNED AFFILIATES (Parent Company Only) The Corporation's investment in affiliates represents the total equity of majority-owned consolidated subsidiaries, using the equity method of accounting. INCOME TAXES Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks. STOCK-BASED COMPENSATION BANC ONE applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related interpretations in accounting for its stock-based compensation plans. In 1995, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" which is effective for fiscal years beginning after December 15, 1995. Under SFAS No. 123, companies may elect to recognize stock-based compensation expense based on the fair value of the awards or continue to account for stock-based compensation under APB No. 25. BANC ONE has elected to continue to apply the provisions of APB No. 25. BANC ONE CORPORATION and Subsidiaries 60 38 STOCK DIVIDEND All per share and average share information has been restated for the 10% common stock dividend payable February 26, 1998 to shareholders of record on February 12, 1998. NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 1997, BANC ONE adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No. 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 consolidated financial position and results of operations was not material. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 127 deferred the effective date of SFAS No. 125 related to transfers of financial assets occurring after December 31, 1997, specifically, such transfers involving repurchase agreements, dollar-rolls, securities lending and similar transactions. BANC ONE will adopt SFAS No. 127 as required. The adoption of SFAS No. 127 is not expected to have a material impact on BANC ONE's consolidated statement of position or results of operations. Effective December 31, 1997, BANC ONE adopted SFAS No. 128, "Earnings Per Share". The Statement specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock. All reported prior period earnings per share information has been restated in accordance with SFAS No. 128. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". This Statement establishes standards for reporting and display of comprehensive income in a full set of general-purpose financial statements. BANC ONE will be required to adopt this Statement as of January 1, 1998. If BANC ONE had adopted this Statement as of January 1, 1996, comprehensive income for the years ended December 31, 1997 and 1996 would have been $1.4 billion and $1.6 billion, respectively. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement requires certain disclosures about an entity's operating segments in annual and interim financial reports. It also requires certain related disclosures about products and services, geographic areas and major customers. The segment and other information disclosures are required for the year ended December 31, 1998. BANC ONE expects to report the following lines of business in its segment disclosures once SFAS No. 131 is adopted: the Banc One Commercial Banking Group, the Banc One Retail Banking Group, First USA, the Finance One Group and the Banc One Capital Holdings Group. BANC ONE CORPORATION and Subsidiaries 61 39 NOTE 2 ACQUISITIONS COMPLETED ACQUISITIONS On June 27, 1997, the Corporation completed its acquisition of First USA, Inc. ("First USA"), located in Dallas, Texas. The Corporation issued 163 million shares of the Corporation's common stock for all the outstanding common stock of First USA in a tax-free exchange. First USA, a financial service company specializing in the credit card business, had $24.6 billion in managed credit card receivables and 17.8 million cardholders at June 27, 1997, compared with $22.2 billion in managed credit card receivables and 15.9 million card holders at December 31, 1996. First USA had total assets of $10.9 billion and $10.3 billion at June 27, 1997 and December 31, 1996, respectively, and stockholders' equity of $1.2 billion at both June 27, 1997 and December 31, 1996. The acquisition was accounted for as a pooling of interests and therefore, these consolidated financial statements have been restated for all periods presented to include the results of operations, financial position and changes in cash flows of First USA. First USA had a June 30 fiscal year-end and, therefore, adjustments have been made to conform First USA's year-end to BANC ONE's calendar year-end. These adjustments did not have a material impact on the consolidated financial statements. The following tables set forth the separate results of operations for BANC ONE and First USA for the periods indicated:
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ------------------------------ $(millions) JUNE 30, 1997 1996 1995 - - ----------------------------------------------------------------------------------------------------------- Revenue: BANC ONE $5,428.0 $10,272.4 $ 8,970.9 First USA 893.6 1,826.7 1,392.4 -------- --------- --------- $6,321.6 $12,099.1 $10,363.3 ======== ========= ========= Net income: BANC ONE $ 526.7 $ 1,426.5 $ 1,277.9 First USA (129.0) 246.3 167.3 -------- --------- --------- $ 397.7 $ 1,672.8 $ 1,445.2 ======== ========= =========
On June 1, 1997, the Corporation acquired all of the outstanding shares of Liberty Bancorp, Inc. (Liberty), a multi-bank holding company headquartered in Oklahoma City, Oklahoma, in exchange for 11.9 million shares of the Corporation's common stock valued at $483.2 million. The acquisition was accounted for as a purchase. Excess cost over net assets purchased of $266.7 million was recognized during 1997 and is being amortized over 25 years using the straight-line method. Liberty had $2.9 billion in assets at May 31, 1997, and 29 banking offices located primarily in Oklahoma City and Tulsa. No effects of this acquisition are included in the financial statements prior to the date of purchase and the pro forma effect on prior periods results of operations is not significant. BANC ONE CORPORATION and Subsidiaries 62 40 On January 2, 1996, the Corporation acquired all of the outstanding shares of Premier Bancorp, Inc. ("Premier") of Baton Rouge, Louisiana, in exchange for 24 million shares of the Corporation's common stock valued at $711 million. The acquisition was accounted for as a purchase. Goodwill of $263 million was recognized and is being amortized over 25 years using the straight-line method. Premier had assets of $6.3 billion at December 31, 1995. No effects of this acquisition are included in the financial statements prior to the date of purchase. The pro forma effect on results of operations is not significant. PENDING ACQUISITION On October 20, 1997, the Corporation entered into an agreement providing for the acquisition of First Commerce Corporation ("First Commerce"), a multi-bank holding company headquartered in New Orleans, Louisiana, with approximately $9.5 billion in assets at December 31, 1997. Terms of the agreement call for First Commerce shareholders to receive 1.408 shares (adjusted for the 10% common stock dividend) of the Corporation's common stock for each share of First Commerce common stock. The value of the transaction is approximately $2.7 billion based on the Corporation's closing share price on December 31, 1997. The transaction, subject to regulatory and First Commerce shareholder approval, is expected to be completed during the second quarter of 1998 and will be accounted for as a pooling of interests. The pro forma effect on results of operations is not significant. NOTE 3 RESTRUCTURING CHARGES AND MERGER-RELATED COSTS In connection with the First USA merger and other strategic initiatives, BANC ONE identified one-time restructuring charges and merger-related costs of $467.4 million ($328.8 million after tax), of which $337.3 million was recorded as a restructuring charge and $130.1 million was recorded as additional provision for credit losses. The restructuring charge associated with the First USA merger totaled $240.9 million and consisted of: employee benefits, severance and stock option vesting costs; professional services costs; premiums to redeem preferred securities of subsidiary trust; asset-related write-downs and other merger-related costs. The remaining $96.4 million restructuring charge related to costs associated with strategic initiatives to streamline the retail center delivery structure by consolidating approximately 200 banking centers over the next 12 months and the termination of the development of the Strategic Banking System, a retail banking system. The $130.1 million additional provision for credit losses primarily reflects the reclassification of $2.0 billion of credit card loans previously classified as held for sale to the loan and lease portfolio in connection with the effort to consolidate the BANC ONE and First USA credit card master trusts, as well as an additional provision to align the credit card charge-off policies of BANC ONE and First USA. At December 31, 1997, the remaining restructuring reserve was not significant. BANC ONE CORPORATION and Subsidiaries 63 41 NOTE 4 SECURITIES The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities and the related unrealized holding gains and losses were as follows:
1997 ----------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR $(millions) December 31, COST GAINS LOSSES VALUE - - -------------------------------------------------------------------------------------------- SECURITIES HELD TO MATURITY Tax-exempt $ 449.4 $ 26.3 $ 5.6 $ 470.1 All other 335.9 3.3 9.2 330.0 --------- ---------- ---------- --------- Total securities held to maturity $ 785.3 $ 29.6 $ 14.8 $ 800.1 ========= ========== ========== ========= SECURITIES AVAILABLE FOR SALE (1) United States Treasury and federal agencies $ 3,910.6 $ 60.8 $ 13.1 $ 3,958.3 Mortgage and asset-backed securities: Government 6,527.8 112.0 30.4 6,609.4 Other 1,756.5 8.7 18.9 1,746.3 Tax-exempt and other 2,135.1 19.4 .6 2,153.9 --------- ---------- ---------- --------- Total securities available for sale $14,330.0 $ 200.9 $ 63.0 $14,467.9 ========= ========== ========== ========= 1996 ----------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR $(millions) December 31, COST GAINS LOSSES VALUE - - --------------------------------------------------------------------------------------------- SECURITIES HELD TO MATURITY Tax-exempt $ 685.4 $ 34.4 $ 5.7 $ 714.1 All other 3,712.5 12.3 9.5 3,715.3 --------- ---------- ---------- --------- Total securities held to maturity $4,397.9 $ 46.7 $ 15.2 $ 4,429.4 ========= ========== ========== ========= SECURITIES AVAILABLE FOR SALE (1) United States Treasury and federal agencies $4,334.9 $ 7.8 $ 30.3 $ 4,312.4 Mortgage and asset-backed securities: Government 6,729.9 83.4 21.5 6,791.8 Other 2,074.4 11.1 29.2 2,056.3 Tax-exempt and other 1,563.8 13.5 4.0 1,573.3 --------- ---------- ---------- --------- Total securities available for sale $14,703.0 $ 115.8 $ 85.0 $14,733.8 ========= ========== ========== ========= (1) Includes trading securities carried at fair value of $1.0 billion and $549 million at December 31, 1997 and 1996, respectively.
The amortized cost, estimated fair value, and average yield at December 31, 1997 of the Corporation's available-for-sale and held-to-maturity securities by contractual maturity dates are presented in the following table:
SECURITIES AVAILABLE FOR SALE(1)(2)(3) SECURITIES HELD TO MATURITY(1)(2)(3) --------------------------------------- ------------------------------------ $(millions) AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE DECEMBER 31, COST VALUE YIELD COST VALUE YIELD - - ---------------------------------------------------------------------------------------------------------- Due in one year or less $ 2,182.6 $ 2,178.0 5.59% $295.9 $298.2 6.77% Due after one year through five years 2,407.0 2,424.9 5.78 314.8 330.5 6.64 Due after five years through ten years 2,491.7 2,545.2 6.25 74.6 72.2 6.88 Due after ten years 7,248.7 7,319.8 7.03 100.0 99.2 7.41 --------- --------- ------- ------ ------ ------- Total securities $14,330.0 $14,467.9 6.46% $785.3 $800.1 6.81% ========= ========= ======= ====== ====== ======= (1) Reflects estimated maturity. (2) Weighted average yields for both held-to-maturity and available-for-sale securities are based on amortized historical cost. (3) Securities not due at a single maturity date are allocated based on weighted average lives.
The proceeds, gross realized gains and gross realized losses from sales of available-for-sale securities were as follows:
GROSS GROSS $(millions) REALIZED REALIZED December 31, PROCEEDS GAINS LOSSES - - ------------------------------------------------------ 1997 $11,013.4 $ 102.5 $ 46.0 1996 3,446.6 119.5 26.7 1995 $ 2,566.0 $ 44.0 $ 21.0
In connection with the First USA merger, due to the asset-liability characteristics of the combined entity, $3.6 billion of securities were reclassified from the held-to-maturity portfolio to the available-for-sale portfolio. The net unrealized gain associated with this transfer totaled $.6 million. BANC ONE CORPORATION and Subsidiaries 64 42 NOTE 5 LOANS AND LEASES The composition of the loan and lease portfolio at December 31, 1997 and 1996 is summarized as follows: $(millions) 1997 1996 - - ----------------------------------------------- COMMERCIAL: Commercial $22,446.0 $20,232.2 Real estate: Construction 3,808.1 3,602.0 Other 5,601.4 6,429.4 Lease financing (1) 2,767.3 2,326.5 --------- --------- Total commercial loans 34,622.8 32,590.1 CONSUMER: Residential real estate 7,189.4 6,500.9 Home equity 9,488.0 7,416.1 Indirect 7,683.4 9,224.7 Auto lease 6,748.6 4,317.3 Student 1,831.8 1,919.4 Other 3,984.8 3,997.7 --------- --------- Total consumer loans (2) 36,926.0 33,376.1 CREDIT CARD 10,504.0 13,423.5 --------- --------- Total loans and leases 82,052.8 79,389.7 LESS: ALLOWANCE FOR CREDIT LOSSES 1,325.9 1,197.7 --------- --------- TOTAL LOANS AND LEASES, NET $80,726.9 $78,192.0 ========= ========= (1) Net of unearned income of $872.5 and $657.8 at December 31, 1997 and 1996, respectively (2) Net of unearned income of $1,141.2 and $725.5 at December 31, 1997 and 1996, respectively
In the normal course of business, BANC ONE issues commitments to extend credit, standby letters of credit, and commercial and other letters of credit to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The following table summarizes BANC ONE's commitments at December 31, 1997 and 1996:
$(billions) 1997 1996 - - -------------------------------------------- Commitments to extend credit $169.9 $147.8 Standby and other letters of credit 4.6 3.3
Commitments to extend credit are agreements to lend to a customer provided there is not a violation of any condition established in the contract. Non-credit card commitments generally have fixed expiration dates, may require payment of a fee and contain termination and other clauses that provide for relief from funding in the event that there is a significant deterioration in the credit quality of the customer. Since many of the commitments are expected to or typically expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The exposure to credit loss in the event of nonperformance by the other party to these commitments is represented by the contractual amount. The same credit policies are applied in making commitments for on-balance sheet instruments, mainly by evaluating each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the borrower. The collateral varies, but may include residential real estate, accounts receivable, inventories, investments, property, plant and equipment and income-producing commercial properties. Letters of credit are conditional commitments guaranteeing payment on drafts drawn in accordance with the terms of the documents. Commercial letters of credit are used to facilitate trade or commerce with the drafts being drawn when the underlying transaction is consummated. Standby letters of credit guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in making loan commitments to customers. BANC ONE uses the same credit policies in providing these conditional obligations as it does for on-balance sheet instruments. Collateral for those commitments, when deemed necessary, varies but may include accounts receivable, inventories, investments and real estate. BANC ONE has entered into several loan securitizations. The risk associated with these transactions is limited to certain on-balance sheet receivables related to credit enhancements (approximately BANC ONE CORPORATION and Subsidiaries 65 43 $768.4 million at December 31, 1997). The remaining market and credit risks are transferred to the investors and the third-party institutions providing credit enhancement. Mortgage loans serviced for others approximated $16.3 billion and $22.5 billion at December 31, 1997 and 1996, respectively. NOTE 6 ALLOWANCE FOR CREDIT LOSSES The following summarizes activity in the allowance for credit losses for the years ended December 31, 1997, 1996 and 1995.
$(millions) 1997 1996 1995 - - ------------------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF PERIOD $1,197.7 $1,008.0 $ 963.2 Allowances associated with acquisitions and other 37.9 66.6 (3.9) Provision for credit losses 1,211.1 942.7 526.1 Total charge-offs and recoveries: Total charge-offs (1,422.6) (1,066.0) (677.9) Recoveries 301.8 246.4 200.5 -------- -------- -------- Net charge-offs (1,120.8) (819.6) (477.4) -------- -------- -------- BALANCE, END OF PERIOD $1,325.9 $1,197.7 $1,008.0 ======== ======== ========
The provision for credit losses charged to expense is based upon credit loss experience and an evaluation of potential losses in the current loan and lease portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and 118 (collectively, SFAS No. 114), "Accounting by Creditors for Impairment of a Loan" and "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures". All nonaccrual loans on which a specific reserve calculation is required and significant troubled debt restructurings are considered impaired. Impairment is primarily measured based on the fair value of the loan's collateral. Impairment losses are included in the provision for credit losses. Loans collectively evaluated for impairment include certain smaller balance commercial loans, consumer loans, residential real estate loans and credit card loans. SFAS No. 114 does not apply to these large groups of smaller balance homogeneous loans that are collectively evaluated for impairment. The following tables summarize impaired loan information at December 31, 1997 and 1996.
$(millions) 1997 1996 - - ----------------------------------------------- Impaired loans with related allowance $108.3 $109.8 Impaired loans with no related allowance(1) 123.9 79.2 ------ ------ Total impaired loans $232.2 $189.0 ====== ====== Allowance on impaired loans $ 34.8 $ 33.1 (1) Impaired loans for which the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan do not require an allowance under SFAS No. 114.
$(millions) 1997 1996 1995 - - ------------------------------------------------ Average impaired loans $215.9 $210.1 $190.8 Interest income recognized on impaired loans 4.3 5.2 3.9 Cash basis interest income recognized on impaired loans 4.3 5.1 3.4
Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is fully assured, in which case interest is recognized on the cash basis. Interest may be recognized on the accrual basis for certain troubled debt restructurings which are included in the impaired loan data above. BANC ONE CORPORATION and Subsidiaries 66 44 NOTE 7 BANK PREMISES, EQUIPMENT AND LEASES The major categories of bank premises and equipment and accumulated depreciation at December 31, 1997 and 1996, are summarized as follows:
$(millions) 1997 1996 - - ------------------------------------------------ Land $ 229.8 $ 220.2 Building 1,366.7 1,252.8 Equipment 2,143.0 1,873.7 Leasehold improvements 352.2 328.7 -------- -------- 4,091.7 3,675.4 Less accumulated depreciation and amortization 2,209.5 1,876.2 -------- -------- Bank premises and equipment, net $1,882.2 $1,799.2 ======== ========
As of December 31, 1997, the future minimum rental payments required under noncancelable operating leases with initial terms in excess of one year are $170.9 million, $145.5 million, $111.3 million, $93.0 million and $74.5 million for each of the years 1998 through 2002, respectively, and $368.4 million thereafter. Rental expense under operating leases approximated $193.4 million in 1997, $182.9 million in 1996 and $170.2 million in 1995. NOTE 8 SHORT-TERM BORROWINGS Information pertaining to short-term borrowings for 1997, 1996 and 1995, is summarized as follows:
FEDERAL FUNDS REPURCHASE COMMERCIAL BANK $(millions) PURCHASED(1) AGREEMENTS(1) PAPER(2) NOTES(3) OTHER(4) - - ------------------------------------------------------------------------------------------------------- 1997: Balance end of year $5,729.2 $4,979.0 $ 417.3 $1,942.8 $ 735.6 Highest month-end balance 6,725.3 5,927.5 1,935.3 3,719.2 1,803.5 Average daily balance 5,514.7 4,886.6 1,409.1 2,944.9 871.5 Weighted average interest rate: As of year-end 6.35% 4.89% 6.08% 5.75% 5.60% Paid during year 5.63 4.98 5.60 5.97 5.79 1996: Balance end of year $7,009.2 $5,849.3 $1,683.8 $2,783.9 $ 999.2 Highest month-end balance 7,134.5 5,849.3 1,754.1 3,487.8 1,660.6 Average daily balance 6,182.5 4,615.4 1,281.4 2,711.7 581.4 Weighted average interest rate: As of year-end 6.00% 5.01% 5.40% 5.45% 5.13% Paid during year 5.48 4.75 5.32 5.43 5.22 1995: Balance end of year $5,528.3 $3,031.1 $ 652.8 $2,762.6 $ 503.7 Highest month-end balance 6,067.6 4,458.3 1,469.5 2,978.6 1,488.6 Average daily balance 4,406.0 3,154.1 1,278.6 2,144.4 583.2 Weighted average interest rate: As of year-end 5.69% 4.91% 5.72% 5.92% 5.37% Paid during year 5.98 4.98 6.16 5.89 5.56 (1) Federal funds purchased and repurchase agreements represent primarily overnight borrowings. (2) The commercial paper of the Corporation and certain affiliates is supported by a $2 billion line of credit to the Corporation maturing in the year 2000 with unaffiliated banks carrying an annual commitment fee of .08%. (3) Bank notes have both fixed and variable interest rates with maturities of approximately one year. (4) Other includes demand notes payable -- U.S. Treasury and other notes.
BANC ONE CORPORATION and Subsidiaries 67 45 NOTE 9 LONG-TERM BORROWINGS Long-term borrowings are as follows:
DECEMBER 31, MATURITY STATED EFFECTIVE -------------------- $(millions) DATE RATE RATE (1) 1997 1996 - - ---------------------------------------------------------------------------------------------------- Corporation: Subordinated notes (2) 2002 7.25% 6.95% $ 347.0 $ 348.5 Subordinated notes (2) 2003 8.74 8.13 169.9 170.0 Subordinated notes (2) 2005 7.00 6.21 296.7 298.4 Subordinated notes (2) 2007 7.60 6.22 397.3 Subordinated notes (2) 2009 9.88 10.11 195.3 196.5 Subordinated notes (2) 2010 10.00 10.25 197.5 197.7 Subordinated notes (2) 2025 7.75 6.54 294.3 297.1 Subordinated notes (2) 2026 7.63 6.72 491.4 496.0 Subordinated notes (2) 2027 8.00 6.54 489.6 Medium term notes 1999-2000 5.85-6.85 5.46-6.12 1,363.4 Medium term notes 2001-2002 5.97-7.00 5.78-6.20 618.1 Redeemable preferred securities (3) 2027 9.33 9.33 7.0 200.0 Affiliates: Subordinated notes 2002 7.38 5.78 148.7 149.3 Subordinated notes 2003 6.63-7.65 6.03-7.52 451.4 453.8 Subordinated notes 2005 6.00 6.51 148.3 149.0 Bank notes 1997 n/a(4) n/a(4) 1,035.0 Bank notes 1998 5.49-8.20 5.49-8.21 2,804.4 1,420.0 Bank notes 1999 5.70-6.58 5.70-6.61 1,493.4 684.0 Bank notes 2000 6.07-6.13 6.07-6.13 89.8 Bank notes 2001 5.82-7.24 5.93-7.24 518.4 518.7 Bank notes 2004 6.04 6.04 19.9 Bank notes 2006 6.50 5.90 49.9 49.9 Capital leases and other Various Various Various 474.7 163.9 --------- -------- Total $11,066.4 $6,827.8 ========= ======== (1) The effective rate includes amortization of premium or discount. Interest rate swap agreements have been entered into that have altered the stated interest rate for certain of the borrowings to variable interest rates. The effective rates include the impact of these swap agreements at December 31, 1997. The terms to maturity of the swaps are shorter than or equal to the altered borrowings. (2) The notes are not subject to redemption and impose certain limitations relating to funded debt, liens and the sale or issuance of capital stock of significant bank subsidiaries. (3) These notes are redeemable preferred securities of a subsidiary trust holding solely subordinated debentures of the Corporation. In June 1997, the Corporation paid a premium of $36 million to redeem $193 million of these securities. (4) Not applicable
Aggregate annual repayments of long-term debt at December 31, 1997, were as follows:
$(millions) CORPORATION BANC ONE(1) TOTAL - - ------------------------------------------------------------------------------------------- 1998 $3,036.4 $ 3,036.4 1999 $ 715.0 1,409.3 2,124.3 2000 648.4 215.6 864.0 2001 344.1 537.2 881.3 2002 621.0 161.8 782.8 Thereafter 2,539.0 838.6 3,377.6 -------- -------- --------- $4,867.5 $6,198.9 $11,066.4 ======== ======== ========= (1) BANC ONE affiliates, excluding the Corporation.
BANC ONE CORPORATION and Subsidiaries 68 46 NOTE 10 STOCK DIVIDENDS AND CONVERTIBLE PREFERRED STOCK On January 20, 1998 and January 23, 1996, the Corporation declared 10% common stock dividends to shareholders of record on February 12, 1998 and February 21, 1996, respectively. Accordingly, all common stock share data have been adjusted to include the effect of the stock dividends. On January 20, 1998, the Corporation elected to redeem all of the shares of BANC ONE's Series C Convertible Preferred stock on April 16, 1998 at the redemption price of $51.05 per share plus the amount of any dividends accrued and unpaid. Each of the Series C preferred shares can be converted into 2.121880 shares of the Corporation's common stock and provides for cumulative quarterly dividends at an annual rate of $3.50 per share. The Series C preferred shares have a stated liquidation value of $50 per share plus an amount per share equal to all dividends cumulating or accrued and unpaid thereon to the date of such liquidation. The Series C preferred shares were redeemable by BANC ONE beginning April 15, 1995 at an initial call price of $52.10 per share, declining to $50.00 per share on and after March 31, 2001. The redemption price was $51.40 for 1997. First USA had 5.75 million shares of 6 1/4% mandatory convertible preferred stock, $.01 par value, at December 31, 1996. Dividends at an annual rate of $1.99 per share on the preferred stock were cumulative and payable quarterly in arrears. The preferred stock had a liquidation value of $31.875 per share and was convertible into .833 shares of First USA common stock. First USA's preferred stock was redeemed by First USA on and as of May 2, 1997. All shares of First USA stock were converted into BANC ONE common stock in connection with the acquisition on June 27, 1997. NOTE 11 DIVIDEND AND CAPITAL RESTRICTIONS Payment of dividends by bank affiliates and certain other nonbank affiliates is subject to various federal and/or state regulatory restrictions. The amount of dividends available from nonbank affiliates that are subject to dividend restrictions is regulated by the governing agency to which they report. At December 31, 1997, $609.5 million of the total stockholders' equity of banking affiliates was available for payment of dividends without approval by the applicable regulatory authority. BANC ONE and its affiliated banks are subject to various regulatory capital requirements administered by the federal banking agencies. Pursuant to federal holding company and bank regulations, BANC ONE and each bank affiliate is assigned to a capital category. The assigned capital category is largely determined by the three ratios that are calculated in accordance with specific instructions included in the regulations: total risk adjusted capital, Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. To be categorized as well-capitalized, each entity must maintain total risk adjusted capital, Tier 1 capital, and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively. However, the capital category assigned to an entity can also be affected by qualitative judgments made by such entity's primary regulatory agency about the risks inherent in that entity's activities that are not reflected in the calculated ratios. There are five capital categories defined in the regulations: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Classification of an BANC ONE CORPORATION and Subsidiaries 69 47 affiliate bank in any of the under-capitalized categories can result in certain mandatory and possibly additional discretionary actions by regulators that could have a material effect on a bank's operations. As of December 31, 1997, BANC ONE and each of its affiliate banks were categorized as well-capitalized and met all capital adequacy requirements to which each respective entity is subject. There are no conditions or events since December 31, 1997 that management believes have changed any entity's capital category. The actual and required capital amounts and ratios for BANC ONE and certain significant banking affiliates are presented in the tables below:
TO BE CATEGORIZED ADEQUATELY ACTUAL CAPITALIZED ------------------- ------------------ As of December 31, 1997 CAPITAL CAPITAL CAPITAL CAPITAL $(millions) AMOUNT RATIO AMOUNT RATIO - - ----------------------------------------------------------------------------------------- TOTAL RISK ADJUSTED CAPITAL (TO RISK WEIGHTED ASSETS): BANC ONE CORPORATION (consolidated) $13,409.3 13.11% $8,184.8 8.00% Bank One, NA 2,688.2 10.62 2,025.5 8.00 Bank One, Arizona, NA 1,408.7 10.78 1,045.0 8.00 Bank One, Texas, NA 2,347.5 11.41 1,646.2 8.00 First USA Bank 1,382.3 13.11 843.6 8.00 TIER I CAPITAL (TO RISK WEIGHTED ASSETS): BANC ONE CORPORATION (consolidated) 8,700.5 8.50 4,092.4 4.00 Bank One, NA 1,695.3 6.70 1,012.7 4.00 Bank One, Arizona, NA 883.2 6.76 522.5 4.00 Bank One, Texas, NA 1,507.2 7.32 823.1 4.00 First USA Bank 1,106.3 10.49 421.8 4.00 TIER I LEVERAGE (TO AVERAGE ASSETS): BANC ONE CORPORATION (consolidated) 8,700.5 7.91 4,401.9 4.00 Bank One, NA 1,695.3 6.90 982.5 4.00 Bank One, Arizona, NA 883.2 6.10 579.2 4.00 Bank One, Texas, NA 1,507.2 6.80 886.9 4.00 First USA Bank $ 1,106.3 12.88% $ 343.6 4.00% TO BE CATEGORIZED ADEQUATELY ACTUAL CAPITALIZED ------------------- ------------------ As of December 31, 1996 CAPITAL CAPITAL CAPITAL CAPITAL $(millions) AMOUNT RATIO AMOUNT RATIO - - ----------------------------------------------------------------------------------------- TOTAL RISK ADJUSTED CAPITAL (TO RISK WEIGHTED ASSETS): BANC ONE CORPORATION (consolidated) $13,482.2 14.07% $7,663.1 8.00% Bank One, Arizona, NA 1,297.1 10.76 964.8 8.00 Bank One, Texas, NA 1,645.9 10.46 1,259.2 8.00 First USA Bank 1,394.2 23.73 470.1 8.00 TIER I CAPITAL (TO RISK WEIGHTED ASSETS): BANC ONE CORPORATION (consolidated) 9,556.9 9.98 3,831.5 4.00 Bank One, Arizona, NA 999.7 8.29 482.4 4.00 Bank One, Texas, NA 1,502.0 9.54 629.6 4.00 First USA Bank 1,170.2 19.91 235.0 4.00 TIER I LEVERAGE (TO AVERAGE ASSETS): BANC ONE CORPORATION (consolidated) 9,556.9 8.88 4,303.3 4.00 Bank One, Arizona, NA 999.7 7.25 551.6 4.00 Bank One, Texas, NA 1,502.0 7.37 815.2 4.00 First USA Bank $ 1,170.2 13.35% $ 350.5 4.00%
BANC ONE CORPORATION and Subsidiaries 70 48 NOTE 12 INCOME TAXES The Corporation and its affiliates file a consolidated federal income tax return and income tax expense is apportioned among all affiliates based upon their taxable income or loss and tax credits. The effective income tax rate is below the statutory rate due to the following:
$(millions) 1997 1996 1995 - - ---------------------------------------------------------------------------------------------------- Statutory tax rate $688.9 35.0% $873.9 35.0% $760.7 35.0% Increase (reduction) in tax rate resulting from: State income taxes, net of federal income tax benefit 41.6 2.1 34.0 1.4 56.4 2.6 Tax exempt interest (53.8) (2.7) (54.6) (2.2) (50.9) (2.3) Issuance of IRS regulations relating to acquisition of troubled financial institutions (22.3) (1.0) Tax credits (12.3) (.6) (14.3) (.6) (8.1) (.4) Other, net (1.8) (.1) (15.0) (.6) (7.5) (.4) ------ ---- ------ ---- ------ ---- Actual tax rate $662.6 33.7% $824.0 33.0% $728.3 33.5% ====== ==== ====== ==== ====== ==== Components of provision for income taxes follow: $(millions) 1997 1996 1995 - - -------------------------------------------------------------------------------------------------- Deferred federal tax $414.6 $180.1 $155.5 Federal amount currently payable 184.0 591.6 486.1 Deferred state tax 49.7 9.2 17.6 State amount currently payable 14.3 43.1 69.1 ------ ------ ------ Total provision $662.6 $824.0 $728.3 ====== ====== ======
Deferred tax assets and liabilities at December 31, 1997 and 1996 consisted of the following:
$(millions) 1997 1996 - - ------------------------------------------------ DEFERRED TAX ASSETS: Allowance for credit losses $ 481.5 $ 446.3 Accrued liabilities 134.4 86.0 Other 159.3 81.7 -------- -------- 775.2 614.0 -------- -------- DEFERRED TAX LIABILITIES: Leased assets and depreciation 1,335.1 959.2 Unrealized holding gain on securities available for sale 73.3 10.1 Securitization income 147.7 77.8 Other 291.1 111.4 -------- -------- 1,847.2 1,158.5 -------- -------- Net deferred tax liability $1,072.0 $ 544.5 ======== ========
Deferred income taxes are determined separately for each taxable entity of BANC ONE in each tax jurisdiction. For each separate tax paying component, all deferred tax assets and liabilities are netted and presented in a single amount, which is included in other assets or other liabilities on the balance sheet, as follows:
$(millions) 1997 1996 - - --------------------------------------------- Other liabilities: Federal deferred tax liabilities $ 956.1 $482.1 State deferred tax liabilities 115.9 62.4 -------- ------ Net deferred tax liability $1,072.0 $544.5 ======== ======
Tax benefits of $100.4 million associated with the exercise of employee stock options were allocated to equity in 1997. Amounts allocated to equity in prior years were immaterial. BANC ONE CORPORATION and Subsidiaries 71 49 NOTE 13 OFF-BALANCE SHEET ACTIVITIES The off-balance sheet financial instruments BANC ONE utilizes are primarily interest rate swaps. Interest rate swap agreements generally involve the exchange of fixed and floating rate interest payments without exchange of the underlying notional amount on which interest payments are calculated. Interest rate swap agreements that synthetically alter assets and liabilities are entered into as part of a program to manage the impact of fluctuating interest rates. The notional amounts of generic swaps do not change during the life of the swap contract. The notional amounts and lives of amortizing swaps change based on certain interest rate indices. Generally, as rates fall, the notional amounts of received fixed amortizing swaps decline more rapidly and, as rates increase, notional amounts decline more slowly. A key assumption in the maturity information in the following table is that future variable rates move as indicated by the forward interest rate curve in existence at December 31, 1997. To the extent that rates move in a fashion other than indicated by the forward interest rate curve, the maturity information will change. Basis swaps are contracts under which amounts are generally received based on LIBOR, typically subject to certain caps and paid based on prime. Accrual of interest on forward starting swaps commences at predetermined future dates. Purchased caps require the payment of a fee for the right to receive interest payments on the contract notional amount when a floating rate (typically LIBOR) rises above a strike rate. The impact on net interest income is the excess of the floating rate over the strike rate less the periodic amortization of the premium paid. The notional amounts shown in the following table represent agreed upon amounts on which calculations of interest payments to be exchanged are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated pay and receive amounts on each transaction, which is generally netted and paid or received quarterly, and the ability of the counterparty to perform its payment obligation under the agreement. BANC ONE has very stringent policies governing off-balance sheet financial instrument activities and collateral is typically exchanged with the counterparties to further minimize credit risk. The methods used to determine counterparty and credit lines are formally reviewed and approved annually. There were $6.8 million and $4.2 million of net deferred items primarily representing premiums and other deferred items paid at December 31, 1997 and 1996, respectively. There were no past due payments, nor were there any reserves for credit losses on off-balance sheet financial instruments, as of these dates. Trading and dealer activities are not material and thus not separately disclosed. The following table reflects the estimated maturities and weighted average fixed and variable rates of off-balance sheet financial instruments by type at December 31, 1997. BANC ONE CORPORATION and Subsidiaries 72 50
MATURITIES OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AT DECEMBER 31, 1997(1)(2)(3) ----------------------------------------------------------------------------------------- 2003- $(millions) 1998 1999 2000 2001 2002 2007 2008+ - - ------------------------------------------------------------------------------------------------------------------- Receive fixed swaps: Notional value $ 2,322.5 $ 3,375.0 $2,160.0 $2,290.0 $1,975.0 $ 3,554.5 $1,300.0 Weighted average fixed rate received 5.97% 6.47% 6.29% 6.21% 6.78% 6.50% 7.15% Weighted average variable rate paid 5.87% 5.93% 5.83% 5.87% 5.81% 5.86% 5.82% Receive fixed amortizing swaps: Notional value $ 423.1 $ 19.0 $ 150.1 $ .1 Weighted average fixed rate received 5.59% 7.26% 5.54% 8.11% Weighted average variable rate paid 5.82% 6.18% 5.98% 5.77% Pay fixed swaps: Notional value $(1,321.9) $(1,097.2) $ (607.7) $ (359.2) $ (345.3) $(1,603.1) $ (8.7) Weighted average fixed rate paid 6.13% 6.18% 6.45% 6.12% 6.13% 6.34% 6.47% Weighted average variable rate received 5.83% 5.87% 5.77% 5.85% 5.88% 5.85% 5.84% Net receive fixed position $ 1,423.7 $ 2,296.8 $1,702.4 $1,930.9 $1,629.7 $ 1,951.4 $1,291.3 Purchased caps Notional value $ 1,004.3 $ .7 $ .7 $ 3.1 $ .6 $ 8.3 Basis swaps Notional value $ 953.1 $ 439.4 $ 50.0 $ 211.0 Other (4) Notional value $ 1,589.0 $ 310.0 $ 400.0 $ 200.0 DECEMBER 31, ----------------------- $(millions) 1997 1996 - - -------------------------------------------------- Receive fixed swaps: Notional value $16,977.0 $12,727.3 Weighted average fixed rate received 6.44% 5.90% Weighted average variable rate paid 5.86% 5.57% Receive fixed amortizing swaps: Notional value $ 592.3 $ 2,056.0 Weighted average fixed rate received 5.63% 5.35% Weighted average variable rate paid 5.87% 5.58% Pay fixed swaps: Notional value $(5,343.1) $(2,107.6) Weighted average fixed rate paid 6.24% 6.36% Weighted average variable rate received 5.84% 5.61% Net receive fixed position $12,226.2 $12,675.7 Purchased caps Notional value $ 1,017.7 $ 4,729.1 Basis swaps Notional value $ 1,653.5 $ 1,972.6 Other (4) Notional value $ 2,499.0 $ 2,055.6 (1) Maturities are based on estimated future interest rates from the forward interest rate curve at December 31, 1997. (2) Variable receive and pay interest rates are based primarily on three month LIBOR or prime. (3) Includes trading off-balance sheet financial instruments; however, customer transactions with notional amounts of $2.7 billion and $1.6 billion at December 31, 1997 and 1996, respectively, have been excluded. (4) Other off-balance sheet financial instruments include forward-starting contracts ($900 million and $1.0 billion at December 31, 1997 and 1996, respectively), futures, forwards and options.
Unrealized gains and losses on off-balance sheet financial instruments at December 31, 1997 and 1996 are summarized as follows:
NET UNREALIZED GAIN (LOSS) AS OF DECEMBER 31, -------------------------- $(millions) 1997 1996 - - ---------------------------------------------------------------------------------------- Receive fixed swaps $280.7 $(27.8) Receive fixed amortizing swaps (.3) (6.2) Pay fixed swaps (31.6) (12.8) Purchased caps (3.4) (8.0) Basis swaps (2.8) (5.6) Forward starting and other 11.8 9.6 ------ ------ Total $254.4 $(50.8) ====== ======
BANC ONE CORPORATION and Subsidiaries 73 51 NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarizes the estimated fair value of financial instruments at December 31, 1997 and 1996.
1997 1996 ----------------------- ----------------------- CARRYING ESTIMATED CARRYING ESTIMATED $(millions) AMOUNT FAIR VALUE AMOUNT FAIR VALUE - - --------------------------------------------------------------------------------------------- FINANCIAL ASSETS: Cash and short-term investments $ 8,565.7 $ 8,565.7 $ 7,205.1 $ 7,205.1 Securities held to maturity 785.3 800.1 4,397.9 4,429.4 Securities available for sale (1) 14,476.1 14,476.1 14,741.5 14,741.5 Loans, net (2) 72,550.4 77,717.4 73,056.0 74,379.0 Securitization-related assets 520.7 520.7 339.7 339.7 FINANCIAL LIABILITIES: Deposits 77,414.3 77,473.8 74,223.0 74,107.0 Short-term borrowings 13,803.9 13,803.9 18,325.4 18,325.4 Long-term borrowings 11,066.4 11,474.7 6,827.8 6,889.0 Off-balance sheet financial instruments 6.1 260.5 6.0 (44.8) (1) The carrying amount and fair value of securities available for sale do not include the related fair value of off-balance sheet investment products, an $8.2 million loss and a $7.7 million loss at December 31, 1997 and 1996, respectively. (2) Excludes net leases with a carrying amount of $10.5 billion and $6.6 billion at December 31, 1997 and 1996, respectively, and includes loans held for sale.
SFAS No. 107 requires BANC ONE to disclose the estimated fair value of certain financial instruments such as securities, loans, deposits, swaps and other instruments as prescribed. The estimated fair values disclosed do not reflect the value of assets and liabilities that are not considered financial instruments. In addition, the value of long-term relationships with depositors (core deposit intangibles) and other customers (e.g. credit card intangibles), and leases are not included in the scope of SFAS No. 107 and are therefore not reflected. The value of these items is significant. Fair value amounts represent estimates of value at a point in time. Significant assumptions regarding economic conditions, loss experience, risk characteristics associated with particular financial instruments and other factors were used for the purposes of this disclosure. These assumptions are subjective and involve matters of judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could have a material impact on the amounts estimated. While these estimated fair value amounts are designed to represent estimates of the amounts at which these instruments could be exchanged in a current transaction between willing parties (excluding the value of customer relationships), many of BANC ONE's financial instruments lack an available trading market as characterized by willing parties engaged in an exchange transaction. In addition, it is BANC ONE's intent to hold most of its financial instruments to maturity; therefore, it is not probable that the fair values shown will be realized in a current transaction. Because of the wide range of valuation techniques and the numerous estimates which must be made, it may be difficult to make reasonable comparisons of BANC ONE's fair value information to that of other financial institutions. It is important that the many uncertainties discussed above be considered when using the estimated fair value disclosures and to realize that because of these uncertainties, the aggregate fair value amount should in no way be construed as representative of the underlying value of BANC ONE. The following describes the methodology and assumptions used to estimate fair value of financial instruments. CASH AND SHORT-TERM INVESTMENTS-- Cash and short-term investments are by definition short-term and do not present any unanticipated market risk. Therefore, the carrying amount is a reasonable estimate of fair value. BANC ONE CORPORATION and Subsidiaries 74 52 SECURITIES -- The estimated fair values of securities by type are provided in Note 4 to the financial statements. These are based on quoted market prices, when available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS -- The loan portfolio was segmented based on loan type, credit quality and repricing characteristics. For certain variable rate loans with no significant credit concerns and frequent repricing, estimated fair values are based on the carrying values. The fair values of other loans are estimated using discounted cash flow analyses. The discount rates used in these analyses are generally based on BANC ONE's funding cost plus a spread. The spread incorporates the impact of credit quality, servicing costs and the cost of embedded options such as prepayments and caps. Maturity estimates are based on historical experience with prepayments and current economic and lending conditions. The estimated fair value of credit card receivables is based on the present value of cash flows arising from receivables outstanding and does not include the value associated with the relationships BANC ONE has with its credit card customers. DEPOSITS -- Under SFAS No. 107, the fair value of deposits with no stated maturity is equal to the amount payable on demand. The estimated fair value of fixed rate time deposits is based on discounted cash flow. The discount rates used in these analyses are based on market rates of alternative funding sources currently available for similar remaining maturities, adjusted for servicing and deposit insurance costs. SHORT-TERM BORROWINGS -- Short-term borrowings reprice frequently; therefore, the carrying amount is a reasonable estimate of fair value. LONG-TERM BORROWINGS -- For publicly traded debt, estimated fair values are based on quoted market prices. Where such prices are not available, fair value is estimated using quoted market prices for similar instruments or by discounted cash flow analysis. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- Carrying values for off-balance sheet financial instruments represent deferred amounts arising from these financial instruments. Where possible, the fair values are based upon quoted market prices. COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND LETTERS OF CREDIT -- The carrying amounts are reasonable estimates of the fair value of these financial instruments. Carrying amounts which are comprised of the unamortized fee income and, where necessary, reserves for any expected credit losses from these financial instruments, are immaterial. NOTE 15 PLEDGED SECURITIES AND CONTINGENT LIABILITIES As of December 31, 1997 and 1996, securities having a book value of $9.5 billion and $9.8 billion, respectively, were pledged as collateral for repurchase agreements, off-balance sheet investment products and as collateral for governmental and trust department deposits in accordance with federal and state requirements. The Corporation's bank affiliates are required to maintain average balances with the Federal Reserve Bank. The average required reserve balances were $.5 billion for both 1997 and 1996. The Corporation and certain of its affiliates have been named as defendants in various legal proceedings. Management believes that liabilities arising from these proceedings, if any, will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of BANC ONE. BANC ONE CORPORATION and Subsidiaries 75 53 NOTE 16 EMPLOYEE BENEFIT PLANS BANC ONE has various non-contributory pension plans covering substantially all employees. Through December 31, 1997, retirement benefits were based on length of service and the employee's highest five years of compensation during the last 10 years of service. During 1997, the Board of Directors approved a change to a cash balance plan that provides benefits to employees based on length of service, level of compensation, and a specified interest rate. The change to a cash balance plan will be effective January 1, 1998. BANC ONE's funding policy is to contribute amounts necessary to meet the funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company determines to be appropriate. The following table sets forth the plans' funded status.
$(millions) 1997 1996 - - ------------------------------------------------------ Accumulated benefit obligation, including vested benefits of $643.9 and $546.5 in 1997 and 1996, respectively $ 651.1 $ 567.3 ------- ------- Projected benefit obligation for service rendered to date 665.8 736.9 Plan assets at fair value 1,001.0 841.8 ------- ------- Excess of plan assets over projected benefit obligation 335.2 104.9 Unrecognized net gain from past experience difference from that assumed and effects of changes in assumptions (116.8) (67.6) Unrecognized prior service cost (159.3) (4.8) Unrecognized net transition asset (9.1) (12.0) ------- ------- Prepaid pension cost $ 50.0 $ 20.5 ======= =======
The plan assets primarily consist of U.S. Treasury and Federal Agency securities and mutual funds. Plan assets include 1.0 million shares of the Corporation's common stock at both December 31, 1997 and 1996, as adjusted for the 10% common stock dividend. The fair value of the Corporation's common stock held as plan assets was $50 million and $40 million at December 31, 1997 and 1996, respectively. Dividends received by the plans on the Corporation's common stock totaled $1 million in 1997 and 1996. Net periodic pension cost for 1997, 1996 and 1995 included the following:
$(millions) 1997 1996 1995 - - ----------------------------------------------------- Service cost -- benefits earned during the period $ 40.2 $ 52.1 $ 38.1 Interest cost on projected benefit obligation 47.9 52.6 44.0 Actual (return) loss on plan assets (166.1) (106.0) (102.1) Net amortization and deferral 81.9 35.7 42.6 ------- -------- -------- Net periodic pension cost $ 3.9 $ 34.4 $ 22.6 ======= ======== ======== Actuarial assumptions: Weighted average discount rate for projected benefit 7.50% obligation 7.00% 7.50% to 8.50% Weighted average rate of compensation 5.00% increase 5.00% 5.00% to 6.00% Expected long-term rate of return on 8.50% 8.50% plan assets 9.25% to 9.00% to 9.00%
Accrued pension cost for BANC ONE's nonqualified, unfunded supplemental pension plans was $37 million and $33 million, respectively, at December 31, 1997 and 1996. The accumulated benefit obligation for nonqualified plans was $35 million, $16 million and $14 million for the years ended December 31, 1997, 1996 and 1995, respectively. Such plans have no assets. The assumed rates used in the actuarial computations were the same as those used in the qualified plan computations. BANC ONE CORPORATION and Subsidiaries 76 54 POSTRETIREMENT BENEFITS OTHER THAN PENSION BANC ONE currently sponsors a defined benefit postretirement plan that covers salaried employees. The plan provides medical, dental and life insurance benefits. Benefits are available to retired employees with more than 10 years of service who retire under the normal or early retirement provisions of the BANC ONE Retirement Plan. The medical and dental benefits are contributory, while the life insurance is noncontributory. BANC ONE funds retiree medical benefits to the extent such benefits are deductible for federal income tax purposes; however, these assets are not restricted as to use for such benefits and, therefore, do not meet the definition of plan assets. The following table sets forth the status of BANC ONE's postretirement benefit obligation at December 31, 1997 and 1996.
$(millions) 1997 1996 - - ------------------------------------------------------ Accumulated postretirement benefit obligation: Retirees $ (98.5) $ (87.4) Fully eligible active plan participants (15.5) (29.0) Other active plan participants (43.0) (38.9) ------- ------- Accumulated postretirement benefit obligation in excess of plan assets (157.0) (155.3) Unrecognized net loss 4.7 5.4 Unrecognized transition obligation 84.4 90.0 ------- ------- Accrued postretirement benefit cost $ (67.9) $ (59.9) ======= =======
Net periodic cost for postretirement health care and life insurance benefits during 1997, 1996 and 1995 include the following:
$(millions) 1997 1996 1995 - - ------------------------------------------------------- Service cost -- benefits earned during the period $ 4.1 $ 3.7 $ 3.0 Interest cost on accumulated postretirement benefit obligation 11.2 8.5 8.6 Amortization of unrecognized transition obligation 5.6 5.6 5.6 Amortization of unrecognized net loss (.4) (1.1) ----- ----- ----- Net periodic postretirement benefit cost $20.9 $17.4 $16.1 ===== ===== =====
The weighted average discount rates used in determining the accumulated postretirement benefit obligation at December 31, 1997, 1996 and 1995 were 7.00%, 7.50% and 7.50%, respectively. For measurement purposes, a 8.0% annual rate of increase in the cost of covered health care benefits was assumed for 1998; the rate was assumed to decrease gradually to 5.0% in the year 2000 and thereafter. A one-percentage point increase in the health care cost trend rate in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $17.1 million, or 10.9%, and would increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for 1997 by $1.4 million or 9.0%. BANC ONE sponsors various 401(k) plans which include substantially all of its employees. BANC ONE is required to make contributions to the plans in varying amounts. For 1997, 1996 and 1995, the expense related to these plans was $26 million, $19 million and $8 million, respectively. NOTE 17 STOCK-BASED COMPENSATION PLANS BANC ONE applies APB No. 25 and related interpretations in accounting for its stock-based compensation plans. In accordance with SFAS No. 123, BANC ONE elected to continue to apply the provisions of APB No. 25. However, pro forma disclosures as if BANC ONE adopted the cost recognition provisions of SFAS No. 123 in 1995 are required and are presented below along with a summary of the plans and awards. The Corporation's stock option plans provide for the granting of options to purchase common shares to certain employees. Generally, the stock option plans provide for the granting of incentive and nonqualified stock options and stock awards for up to an aggregate of 1% of the outstanding common stock of the Corporation as reported in the Corporation's Annual Report on Form 10-K for the year ending immediately prior to such years plus carry over of certain shares not granted in prior years as defined by the BANC ONE CORPORATION and Subsidiaries 77 55 plans. Further, the total number of shares available for grants of stock awards in any year shall not exceed one fourth of 1% of the Corporation's outstanding common stock as so reported. Based on December 31, 1996 outstanding shares, approximately 7.9 million shares of the Corporation's common stock were available for grant in 1997. In 1997, .7 million shares were granted as stock awards. The plans generally provide that the exercise price of any stock option may not be less than the fair market value of the common stock on the date of grant. No balance sheet recognition is made of options until such options are exercised and no amounts applicable thereto are reflected in net income. Under the plans, the awards vest over a period of years and expense is recognized over the vesting period. Options are not exercisable for at least one year from the date of grant and are thereafter exercisable for such periods as the Board of Directors, or a committee thereof, specify (which may not exceed 10 years for incentive stock options or 20 years for nonqualified stock options), provided that the optionee has remained in the employment of the Corporation or its affiliates. The Board or the committee may accelerate the exercise period for an option upon the optionee's disability, retirement or death. All options expire at the end of the exercise period. Options of acquired entities are converted to BANC ONE options at the time of acquisition. The following summarizes the Corporation's stock options as of December 31, 1997, 1996 and 1995, and the changes for the years then ended:
1997 -------------------------- NUMBER OF WGTD. AVG. (shares in thousands) SHARES EXERCISE PRICE - - ------------------------------------------------- Outstanding at the beginning of the year 22,398.8 $18.47 Granted 6,878.6 43.00 Exercised 8,696.4 12.21 Forfeited 734.4 33.55 Expired 51.0 25.21 --------- Outstanding at the end of the year 19,795.6 29.16 --------- Exercisable at the end of the year 6,552.1 $17.65 --------- 1996 -------------------------- NUMBER OF WGTD. AVG. (shares in thousands) SHARES EXERCISE PRICE - - -------------------------------------------------- Outstanding at the beginning of the year 20,988.5 $14.81 Granted 6,480.6 24.23 Exercised 3,929.7 7.43 Forfeited 1,135.4 22.97 Expired 5.2 8.91 -------- Outstanding at the end of the year 22,398.8 18.41 ======== Exercisable at the end of the year 8,734.4 $10.36 ======== 1995 -------------------------- NUMBER OF WGTD. AVG. (shares in thousands) SHARES EXERCISE PRICE - - -------------------------------------------------- Outstanding at the beginning of the year 18,647.4 $12.22 Granted 5,951.8 20.34 Exercised 2,813.6 7.49 Forfeited 789.7 22.35 Expired 7.4 30.49 -------- Outstanding at the end of the year 20,988.5 14.77 ======== Exercisable at the end of the year 9,221.4 $ 7.32 ========
BANC ONE CORPORATION and Subsidiaries 78 56 The following summarizes information about the Corporation's stock options outstanding at December 31, 1997.
SHARES SUBJECT TO OUTSTANDING OPTIONS EXERCISABLE ----------------------------- --------------------------- OPTIONS WGTD. AVG. SHARES REMAINING WGTD. AVG. NUMBER WGTD. AVG. RANGE OF OUTSTANDING CONTRACTURAL EXERCISE EXERCISABLE EXERCISE EXERCISE PRICE (in thousands) LIFE Price (IN THOUSANDS) PRICE - - ---------------------------------------------------------------------------------------------- Less than $2.16 702.6 4.30 $ 1.80 702.6 $ 1.80 $2.16 -- $5.13 4.0 3.13 5.13 4.0 5.13 $7.74 -- $11.29 671.0 4.86 8.74 655.6 8.75 $11.77 -- $17.25 2,007.4 6.49 15.49 1,724.6 15.24 $17.50 -- $25.85 5,019.1 9.51 22.23 2,891.3 20.70 Greater than $25.99 11,391.5 14.45 $37.53 547.0 $39.18
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model, which was developed to estimate the fair value of traded options and which requires the use of highly subjective assumptions. Since BANC ONE's stock options have different characteristics than traded options and since changes in the assumptions used can materially impact the fair value estimate, the Black-Scholes model may not necessarily be a reliable measure of the fair market value of BANC ONE's stock options. The following assumptions were used for grants in 1997, 1996 and 1995: (1) expected dividend yields ranged from .33% to 5.55%; (2) risk-free interest rates ranged from 5.48% to 7.92%; (3) expected volatility ranged from 20.21% to 32.95%; and (4) expected life of options ranged from five to nine years. The weighted average fair value at date of grant for options granted during 1997 and 1996 and 1995 was $11.51, $6.54 and $4.34 per option, respectively. Had the compensation cost for the Corporation's stock-based compensation plans been determined in accordance with the fair value based accounting method provided by SFAS No. 123, the net income and net income per common share for the years ended December 31, 1997, 1996 and 1995 would have been as follows:
1997 1996 1995 $(millions, except per share --------------------------- --------------------------- --------------------------- amounts) PRO FORMA (1) AS REPORTED PRO FORMA (1) AS REPORTED PRO FORMA (1) AS REPORTED - - --------------------------------------------------------------------------------------------------------------------- Net income $1,288.1 $1,305.7 $1,664.9 $1,672.8 $1,443.0 $1,445.2 Net income per common share, basic 2.01 2.04 2.58 2.60 2.26 2.26 Net income per common share, diluted $ 1.97 $ 1.99 $ 2.50 $ 2.52 $ 2.20 $ 2.20 (1) The above pro forma information may not be representative of the pro forma impact in future years.
NOTE 18 RELATED PARTY TRANSACTIONS Certain executive officers, directors and their related interests are loan customers of the Corporation's affiliates. The Securities and Exchange Commission ("SEC") has determined that, with respect to the Corporation and significant subsidiaries (as defined by the SEC), disclosure of borrowings by directors and executive officers and certain of their related interests should be made if the loans are greater than 5% of stockholders' equity, in the aggregate. These loans in aggregate were not greater than 5% of stockholders' equity at December 31, 1997 or 1996. BANC ONE CORPORATION and Subsidiaries 79 57 NOTE 19 SUPPLEMENTAL DISCLOSURES FOR EARNINGS PER SHARE
$(millions, except for per share amounts) 1997 1996 1995 - - ---------------------------------------------------------------------------------------------- BASIC: EARNINGS: Net income $1,305.7 $1,672.8 $1,445.2 Deduct: Dividends on preferred shares (17.8) (27.8) (28.9) -------- -------- -------- $1,287.9 $1,645.0 $1,416.3 ======== ======== ======== SHARES: Weighted average common shares outstanding, reflecting the 10% common stock dividend-See Note 10 632.4 632.5 626.2 ======== ======== ======== NET INCOME PER COMMON SHARE, BASIC $ 2.04 $ 2.60 $ 2.26 ======== ======== ======== DILUTED: EARNINGS: Net income $1,305.7 $1,672.8 $1,445.2 ======== ======== ======== SHARES: Weighted average common shares outstanding 632.4 632.5 626.2 Add: Dilutive effect of outstanding options 10.6 9.5 8.1 Add: Conversion of preferred stock 12.7 22.3 22.8 -------- -------- -------- Weighted average common shares outstanding, as adjusted, reflecting the 10% common stock dividend-See Note 10 655.7 664.3 657.1 ======== ======== ======== NET INCOME PER COMMON SHARE, DILUTED $ 1.99 $ 2.52 $ 2.20 ======== ======== ========
NOTE 20 SUPPLEMENTAL DISCLOSURES FOR STATEMENT OF CASH FLOWS
$(millions) 1997 1996 1995 - - ---------------------------------------------------------------------------------------------- Common stock issued in purchase acquisitions $ 538.4 $ 710.5 $ 15.7 ======== ======== ======== Transfer from loans to Other Real Estate Owned (OREO) $ 161.7 $ 82.0 $ 91.2 ======== ======== ======== Securitized mortgage loans $1,426.8 ======== Reclassification of private placements from loans to securities $ 533.1 ======== Reclassification of held-to-maturity securities to available-for-sale securities at amortized cost (fair value of $3,589.9 and $2,934.5 for 1997 and 1995, respectively) $3,589.3 $2,883.7 ======== ======== Net increase in securities trades not settled $ (355.2) $ (140.4) $ 185.0 ======== ======== ======== Loans issued to facilitate the sale of OREO properties $ 3.7 $ 2.5 $ 7.2 ======== ======== ======== Additional disclosures: Interest paid $3,979.9 $3,632.7 $3,256.1 ======== ======== ======== Income taxes paid $ 196.7 $ 580.7 $ 453.6 ======== ======== ========
BANC ONE CORPORATION and Subsidiaries 80 58 NOTE 21 PARENT COMPANY FINANCIAL STATEMENTS The condensed financial statements of the Corporation, prepared on a parent company unconsolidated basis, are presented as follows: BALANCE SHEET (PARENT ONLY)
AT DECEMBER 31, ------------------------ $(millions) 1997 1996 - - -------------------------------------------------------------------------------------- ASSETS: Investment in majority-owned affiliates: Banking $ 7,770.4 $10,369.3 Nonbanking 2,335.9 549.8 Advances due from affiliates: Banking 1,980.0 125.0 Nonbanking 3,386.9 2,254.1 Other assets 464.2 591.5 --------- --------- TOTAL ASSETS $15,937.4 $13,889.7 ========= ========= LIABILITIES: Commercial paper and other short-term borrowings $ 438.6 $ 1,616.3 Notes payable to nonbanking affiliates 55.2 58.5 Long-term borrowings 4,867.5 2,204.2 Other liabilities 200.1 142.7 --------- --------- TOTAL LIABILITIES 5,561.4 4,021.7 --------- --------- TOTAL STOCKHOLDERS' EQUITY 10,376.0 9,868.0 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,937.4 $13,889.7 ========= =========
BANC ONE CORPORATION and Subsidiaries 81 59 STATEMENT OF INCOME (PARENT ONLY)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ $(millions) 1997 1996 1995 - - ---------------------------------------------------------------------------------------------- INCOME: Dividends from affiliates: Banking $3,299.8 $1,108.1 $1,129.4 Nonbanking 115.5 65.1 Management and other fees from affiliates 588.6 180.7 116.6 Interest 196.6 137.6 128.4 Other 17.7 5.5 8.9 -------- -------- -------- TOTAL INCOME 4,218.2 1,497.0 1,383.3 -------- -------- -------- EXPENSE: Interest 341.1 207.7 183.5 Other 677.7 396.1 214.7 -------- -------- -------- TOTAL EXPENSE 1,018.8 603.8 398.2 -------- -------- -------- Income before income taxes and equity in undistributed earnings of consolidated affiliates 3,199.4 893.2 985.1 Income tax benefit .8 132.6 55.0 -------- -------- -------- Income before equity in undistributed earnings of consolidated affiliates 3,200.2 1,025.8 1,040.1 Equity in undistributed earnings of consolidated affiliates (1,894.5) 647.0 405.1 -------- -------- -------- NET INCOME $1,305.7 $1,672.8 $1,445.2 -------- -------- -------- NET INCOME PER COMMON SHARE, BASIC (amounts reflect the 10% common stock dividend-Note 10) $ 2.04 $ 2.60 $ 2.26 -------- -------- -------- NET INCOME PER COMMON SHARE, DILUTED (amounts reflect the 10% common stock dividend-Note 10) $ 1.99 $ 2.52 $ 2.20 ======== ======== ========
BANC ONE CORPORATION and Subsidiaries 82 60 STATEMENT OF CASH FLOWS (PARENT ONLY)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ $(millions) 1997 1996 1995 - - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,305.7 $1,672.8 $1,445.2 Adjustments: Equity in undistributed earnings of consolidated affiliates 1,894.5 (647.0) (405.1) Noncash dividends received (115.5) (62.6) (54.6) Other (47.3) (48.1) (23.4) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,037.4 915.1 962.1 -------- -------- -------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Net (increase) decrease in short-term investments (31.3) (12.0) 464.3 Net increase in loans (2,987.9) (672.8) (498.4) Net increase in investment in majority-owned affiliates (115.2) (406.8) 3.7 All other investing activities, net (55.2) (71.5) (82.7) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (3,189.6) (1,163.1) (113.1) -------- -------- -------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net (decrease) increase in commercial paper (1,177.7) 1,055.9 (623.4) Net increase (decrease) in short-term borrowings (3.3) 9.1 52.5 Proceeds from the issuance of long-term borrowings 2,840.6 696.0 590.2 Cash dividends paid (801.1) (635.0) (572.1) Purchase of treasury shares (707.3) (1,003.1) (324.3) Exercise of stock options, net of shares purchased 26.6 16.8 6.5 All other financing activities, net (60.0) 126.1 37.0 -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 117.8 265.8 (833.6) -------- -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS (34.4) 17.8 15.4 CASH AND CASH EQUIVALENTS AT JANUARY 1, 43.2 25.4 10.0 -------- -------- -------- CASH AND CASH EQUIVALENTS AT DECEMBER 31, $ 8.8 $ 43.2 $ 25.4 ======== ======== ========
BANC ONE CORPORATION and Subsidiaries 83 61 REPORT OF INDEPENDENT ACCOUNTANTS ON CONSOLIDATED FINANCIAL STATEMENTS To the Stockholders and the Board of Directors BANC ONE CORPORATION We have audited the accompanying consolidated balance sheets of BANC ONE CORPORATION and Subsidiaries as of December 31, 1997 and 1996, and the related statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BANC ONE CORPORATION and Subsidiaries at December 31, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand, L.L.P Columbus, Ohio February 12, 1998 BANC ONE CORPORATION and Subsidiaries 84 62 TEN YEAR PERFORMANCE SUMMARY (UNAUDITED) (AS ORIGINALLY REPORTED)(1)
- - -------------------------------------------------------------------------------------------------------- BALANCE SHEET MANAGED (END OF PERIOD): LOANS LOANS LONG-TERM TOTAL $(millions, except per share data) AND LEASES(2) AND LEASES DEPOSITS BORROWINGS ASSETS - - -------------------------------------------------------------------------------------------------------- 1997 $115,549 $ 82,053 $ 77,414 $ 11,066 $115,901 1996 81,030 74,194 72,373 4,190 101,848 1995 70,549 64,825 67,320 2,720 90,454 1994 64,317 61,637 68,090 1,866 88,923 1993 53,298 52,618 60,943 1,702 79,919 1992 39,116 38,208 48,465 1,198 61,417 1991 30,763 29,923 37,057 703 46,293 1990 21,538 20,363 22,316 581 30,336 1989 19,174 17,909 20,952 372 26,552 1988 18,290 17,325 19,502 379 25,274 1987 12,934 12,934 14,478 266 18,730 Annual Growth 1997/96 42.60% 10.59% 6.97% 164.11% 13.80% Compound Growth 5 Years 24.19 16.52 9.82 55.99 13.54 10 Years 24.48 20.29 18.25 45.18 19.99 - - ------------------------------------------------------------------------------------------------------------ NET INCOME AND NET INCOME RETURN ON RETURN ON AVERAGE TOTAL RETURN PERFORMANCE RATIOS NET INCOME PER SHARE(3) AVERAGE ASSETS COMMON EQUITY TO INVESTORS - - ------------------------------------------------------------------------------------------------------------ 1997 $ 1,305.7 $ 1.99 1.16% 13.33% 30.3 1996 1,426.5 2.94 1.48 17.11 30.3 1995 1,277.9 2.65 1.47 16.77 54.4 1994 1,005.1 2.00 1.15 13.35 (25.7) 1993 1,140.0 2.46 1.53 17.81 (5.4) 1992 781.3 1.96 1.34 16.26 13.9 1991 529.5 1.75 1.56 16.58 95.0 1990 423.4 1.51 1.53 16.24 (2.0) 1989 362.9 1.37 1.42 16.79 50.5 1988 340.2 1.29 1.45 17.69 5.8 1987 208.9 .98 1.19 15.12 8.6 Annual Growth 1997/96 (8.47)% (32.31)% Compound Growth 5 Years 10.82% .30 12.9% 10 Years 20.11% 7.34 20.2% - - ------------------------------------------------------------------------------------------------------------ CASH COMMON DIVIDENDS STOCK SPLITS DIVIDEND COMMON STOCK DATA: SHAREHOLDERS DECLARED BOOK VALUE STOCK PRICE AND DIVIDENDS PAYOUT RATIO - - ------------------------------------------------------------------------------------------------------------ 1997 105,631 $ 1.38 $ 15.89 $ 49.37 -- 61% 1996 97,074 1.24 17.95 39.09 10% 42 1995 87,632 1.13 16.89 31.10 -- 43 1994 82,253 1.03 15.23 20.97 10 51 1993 71,384 .88 14.73 29.40 5:4 36 1992 58,114 .74 12.84 31.94 10 37 1991 43,935 .63 11.54 28.76 -- 36 1990 44,572 .57 9.89 15.16 10 38 1989 43,347 .52 8.55 16.08 -- 37 1988 43,892 .45 7.75 11.05 10 35 1987 37,693 .41 6.84 10.85 -- 42 Annual Growth 1997/96 11.29% (11.48)% 26.30% Compound Growth 5 Years 13.27 4.35 9.10 10 Years 12.90 8.79 16.36 (1) Not restated for acquisitions. (2) Includes loans held for sale. (3) For 1997, net income per share is reported on a diluted basis. For all prior years, net income per share represents primary earnings per share as originally reported, restated only for common stock dividends.
BANC ONE CORPORATION and subsidiaries 85 EX-21 10 EXHIBIT 21 1 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BANC ONE ABS CORPORATION Columbus, OH Ohio Corporation SAME A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE ADS, INC. Columbus, OH Ohio Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE ARIZONA CORPORATION Phoenix, AZ Arizona Corporation " " A BANC ONE ARIZONA INVESTMENT CORPORATION Phoenix, AZ Arizona Corporation " " A BANK ONE, ARIZONA, NATIONAL ASSOCIATION Phoenix, AZ National Bank " " A ARIZONA TRUST DEED CORPORATION Phoenix, AZ (Unknown) " " A AZ IHC, INC. Phoenix, AZ Nevada Corp. " " A AZ REIT, INC. Phoenix, AZ Nevada Corp. " " A BANC ONE ARIZONA LEASING CORPORATION Phoenix, AZ Arizona Corporation " " A BANC ONE OPERATIONS SERVICES CORPORATION Phoenix, AZ Arizona Corporation " " A SUN COUNTRY LEASING CORPORATION Phoenix, AZ Arizona Corporation " " A VALLEY BANK BUILDING, INC. Phoenix, AZ Arizona Corporation " " A VALLEY NATIONAL FINANCIAL SERVICES COMPANY Phoenix, AZ Arizona Corporation " " A VALLEY NATIONAL INVESTORS, INC. Phoenix, AZ Arizona Corporation " " A WASHINGTON STREET FOODS, INC. Phoenix, AZ Arizona Corporation " " A BANK ONE, UTAH, NATIONAL ASSOCIATION Salt Lake City, UT National Bank " " A 50 WEST BROADWAY ASSOCIATES (50%) Salt Lake City, UT Utah Partnership " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE BUILDING MANAGEMENT CORPORATION Milwaukee, WI Wisconsin Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE CAPITAL HOLDINGS CORPORATION Columbus, OH Ohio Corporation " " A AFFILIATED BANKSHARES INSURANCE AGENCY, INC. Denver, CO Colorado Corporation " " A AMERICAN INSURANCE AGENCY, INC. Phoenix, AZ Arizona Corporation " " A
Page 1, prepared 3/13/98 2 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BANC ONE CAPITAL CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE CAPITAL SERVICES CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE LIFE INSURANCE COMPANY Milwaukee, WI Arizona Corporation " " A BANC ONE SECURITIES CORPORATION Columbus, Ohio Ohio Corporation " " A BOCP HOLDINGS CORPORATION Columbus, OH Ohio Corporation " " A BOME INVESTORS, INC. BOCP II LIMITED LIABILITY COMPANY Columbus, OH Ohio L.L.C. " " A BANC ONE VENTURE CORPORATION (SBIC) BANC ONE CAPITAL PARTNERS HOLDINGS, LTD. Columbus, OH Ohio L.P. " " A BANC ONE CAPITAL PARTNERS II, LLC BANC ONE CAPITAL PARTNERS, LLC (SBIC) BANC ONE CAPITAL PARTNERS III, LTD. Columbus, OH Ohio L.L.C. " " A BANC ONE CAPITAL PARTNERS IV, LTD. Columbus, OH Ohio L.L.C. " " A BANC ONE CAPITAL PARTNERS V, LTD. Columbus, OH Ohio L.L.C. " " A BANC ONE CAPITAL PARTNERS VI, LTD. Columbus, OH Ohio Partnership " " A BANC ONE CAPITAL PARTNERS VII, LTD. Columbus, OH Ohio L.L.C. " " A BANC ONE CAPITAL PARTNERS VIII, LTD. BANC ONE CAPITAL PARTNERS X, LTD. BANC ONE CAPITAL FUNDING CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE MORTGAGE CAPITAL MARKETS, LLC (49%) BANC ONE COMMERCIAL LOAN ORIGINATION CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE MANAGEMENT AND CONSULTING CORPORATION Dallas, TX Ohio Corporation " " A BANC ONE BETA ASSET MANAGEMENT CORPORATION Columbus, OH Ohio Corporation " " I BANC ONE NEW HAMPSHIRE ASSET MANAGEMENT CORPORATION Columbus, OH Ohio Corporation " " A BONNET RESOURCES CORPORATION Dallas, TX Ohio Corporation " " A SUBSIDIARY CONSULTANTS, INC. Dallas, TX Texas Corporation " " A
Page 2, prepared 3/13/98 3 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BANC ONE KENTUCKY INSURANCE COMPANY Louisville, KY Kentucky Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE CARD SERVICES CORPORATION Wilmington, DE Texas Corporation " " I - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE COLORADO CORPORATION Denver, CO Colorado Corporation " " A AFFILIATED BANKS BUILDING COMPANY Denver, CO Colorado Corporation " " A BANK ONE, COLORADO, NATIONAL ASSOCIATION Denver, CO National Bank " " A BANC ONE BOULDER LEASING SERVICES CORPORATION Boulder, CO Colorado Corporation " " A BANC ONE COLORADO SPRINGS LEASING SERVICES CORPORATION Colorado Springs, CO Colorado Corporation " " A BANC ONE DENVER LEASING SERVICES CORPORATION Denver, CO Colorado Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE COMMUNITY DEVELOPMENT CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE COMMUNITY DEVELOPMENT/WISCONSIN CORPORATION Columbus, OH Ohio Corporation " " A OHIO MEZZANINE FUND, LIMITED (24.27%) Washington, DC Ohio L.L.C. " " A BANC ONE TAX CREDIT FUND IV, LTD. - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE ILLINOIS CORPORATION Springfield, IL Illinois Corporation " " A BANK ONE, ILLINOIS, NATIONAL ASSOCIATION Springfield, IL National Bank " " A FIRST ROCKFORD COMMUNITY DEVELOPMENT CORPORATION Evanston, IL National Bank " " A NORTHERN ILLINOIS DEVELOPMENT CORPORATION (30%) Rockford, IL Illinois Corporation " " A LAZARUS PROPERTIES, INC. Evanston, IL Illinois Corporation " " A BANK ONE, QUAD CITIES, NATIONAL ASSOCIATION Moline, IL National Bank " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE INDIANA CORPORATION Indianapolis, IN Indiana Corporation " " A AMERICAN FLETCHER REALTY CORPORATION Indianapolis, IN Indiana Corporation " " A
Page 3, prepared 3/13/98 4 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BOI LEASING CORPORATION Indianapolis, IN Indiana Corporation " " A BANK ONE, INDIANA, NATIONAL ASSOCIATION Indianapolis, IN National Bank " " A BANC ONE EQUIPMENT FINANCE, INC. Indianapolis, IN Indiana Corporation " " A BANC ONE INDIANAPOLIS AUTO LEASE, INC. Indianapolis, IN Indiana Corporation " " A BANK SERVICE CORPORATION OF INDIANA (33-1/3%) Indianapolis, IN Indiana Corporation " " A BIL INTERNATIONAL HOLDINGS, INC. Indianapolis, IN Indiana Corporation " " A BO-UA FSC, INC. St. Thomas, VI of US Indiana Corporation " " A BO-FE FSC, INC. St. Thomas, VI of US Indiana Corporation " " A BO-LKEUA, INC. St. Thomas, VI of US Virgin Islands Corporation " " A INDIANA LLC 1* Indianapolis, IN Indiana L.L.C. " " A
- - ----------------------- * Owned 99% by parent bank and 1.0% by Banc One Indiana Corporation - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE INTERNATIONAL SERVICES CORPORATION St. Thomas, VI of US Wisconsin Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE KENTUCKY CORPORATION Louisville, KY Kentucky Corporation " " A BANK ONE, KENTUCKY, NATIONAL ASSOCIATION Louisville, KY National Bank " " A BOK PROPERTIES, INC. Louisville, KY Kentucky Corporation " " A BANC ONE KENTUCKY LEASING COMPANY Louisville, KY Kentucky Corporation " " A LIBERTY PAYMENT SERVICES, INC. Louisville, KY Kentucky Corporation " " A LIBERTY PROPERTIES INCORPORATED Louisville, KY Kentucky Corporation " " A BANC ONE KENTUCKY VEHICLE LEASING COMPANY Louisville, KY Kentucky Corporation " " A FIRST PROPERTY DEVELOPMENT COMPANY Winchester, KY Kentucky Corporation " " I
Page 4, prepared 3/13/98 5 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== SECURITY PROPERTY DEVELOPMENT COMPANY Richmond, KY Kentucky Corporation " " I FIRST B.C. REALTY CORPORATION Charleston, IN Indiana Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE LOUISIANA CORPORATION Baton Rouge, LA Ohio Corporation " " A TERRE AGENCY, INCORPORATION Baton Rouge, LA Louisiana Corporation " " I BANK ONE, LOUISIANA, NATIONAL ASSOCIATION Baton Rouge, LA National Bank " " A ASSET ONE, LOUISIANA, INC. Baton Rouge, LA Louisiana Corporation " " A BANK ONE EQUITY INVESTORS, INC. Baton Rouge, LA Louisiana Corporation " " A BANC ONE LOUISIANA LEASING CORPORATION Baton Rouge, LA Louisiana Corporation " " A KSS, INC. Baton Rouge, LA Louisiana Corporation " " A LOUISIANA CREDIT LIFE AGENCY, INC. Baton Rouge, LA Louisiana Corporation " " A LOUISIANA CREDIT LIFE INSURANCE, CO., INC. Baton Rouge, LA Arizona Corporation " " A PREMIER INVESTMENT ADVISORS, L.L.C. * Baton Rouge, LA Louisiana L.L.C. " " A PREMIER LLC, INC. Baton Rouge, LA Louisiana Corporation " " A TRI-STATE MINERALS, INC. Baton Rouge, LA Louisiana Corporation " " A
- - ----------------------- *99.99% owned by Bank One, Louisiana, N.A. and 0.01% owned by Premier LLC, Inc. - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE MORTGAGE CORPORATION Indianapolis, IN Delaware Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE OHIO CORPORATION Columbus, OH Ohio Corporation " " A BANK ONE, NATIONAL ASSOCIATION Columbus, OH National Bank " " A BANC ONE ACCEPTANCE CORPORATION Columbus, OH Ohio Corporation " " A BOX LEASING CORPORATION Columbus, OH Ohio Corporation " " A
Page 5, prepared 3/13/98 6 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BANC ONE COMPENSATION SERVICES CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE INVESTMENT ADVISORS CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE VEHICLE FINANCE CORPORATION Hilliard, OH Ohio Corporation " " A BOC REALTY, INC. Columbus, OH Ohio Corporation " " A BOC AFFILIATES, INC. Columbus, OH Ohio Corporation " " A BOC FLORIDA, INC. Columbus, OH Ohio Corporation " " A BOC MIDWEST, INC. Columbus, OH Ohio Corporation " " A BOC SOUTHERN, INC. Columbus, OH Ohio Corporation " " A BOC TOLEDO, INC. Columbus, OH Ohio Corporation " " A GULF SHORES CONDOMINIUMS, INC. Columbus, OH Ohio Corporation " " A ICF INVESTMENT CORPORATION Columbus, OH Ohio Corporation " " I MARIETTA HOTEL COMPANY Columbus, OH Ohio Corporation " " A MAUMEE RIVER HOTEL CORPORATION Columbus, OH Ohio Corporation " " A 29160 CENTER RIDGE COMPANY, INC. Columbus, OH Ohio Corporation " " A OHIO IHC, INC. Columbus, OH Nevada Corporation " " A OHIO REIT, INC. Columbus, OH Nevada Corporation " " A BANC ONE INTERACTIVE DELIVERY CORPORATION Columbus, OH Ohio Corporation " " A INTEGRION FINANCIAL NETWORK, L.L.C. (5.88%) Atlanta, GA Delaware L.L.C. " " A BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION Columbus, OH National Bank " " A WITRUST INVESTMENT HOLDING COMPANY - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE OKLAHOMA CORPORATION Oklahoma City, OK Oklahoma Corporation " " A BANC ONE, OKLAHOMA, N.A. Oklahoma City, OK Oklahoma Bank " " A LIBERTY PROPERTY MANAGEMENT COMPANY Oklahoma City, OK Oklahoma Corporation " " A LEXCO PETROLEUM, INC. Oklahoma City, OK Oklahoma Corporation " " A LIBERTY REAL ESTATE COMPANY Oklahoma City, OK Oklahoma Corporation " " A
Page 6, prepared 3/13/98 7 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== MID-AMERICA CREDIT LIFT ASSURANCE COMPANY Oklahoma City, OK Oklahoma Corporation " " A MID-AMERICA INSURANCE AGENCY, INC. Oklahoma City, OK Oklahoma Corporation " " A LIBERTY TRUST COMPANY Oklahoma City, OK Oklahoma Trust Co. " " A LIBERTY FINANCIAL CORPORATION Oklahoma City, OK Oklahoma Corporation " " I - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE POS SERVICES CORPORATION* Columbus, OH Ohio Corporation " " A BANC ONE PAYMENT SERVICES, L.L.C. (50%) Melville, NY Delaware L.L.C. " " A
- - ----------------------- * This bank service corporation is 100% owned by BANC ONE subsidiary banks with Bank One, Arizona, N.A. owning 20.49%; Bank One, Louisiana, N.A. 5.41%; Bank One, N.A. 32.639%; Bank One, Kentucky, N.A. 8.526%; Bank One, Texas, N.A. 7.27%; Bank One Wisconsin 7.33% and Bank One, Indiana, N.A. 8.179%. All other BANC ONE banks own less than 5%. - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE REALTY COLUMBUS CORPORATION Columbus, OH Ohio Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE SERVICES CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE FINANCIAL CARD SERVICES CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE SERVICES FSC-I, INC. St. Thomas, VI of US Virgin Islands Corporation " " A ELECTRONIC PAYMENT SERVICES, INC. (20%) Wilmington, DE Delaware Corporation " " A BUYPASS CORPORATION Atlanta, GA Georgia Corporation " " A BUYPASS INCO CORPORATION Wilmington, DE Georgia Corporation " " A MONEY ACCESS SERVICE, INC. Wilmington, DE Delaware Corporation " " A MAS INCO CORPORATION Wilmington, DE Delaware Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE STUDENT LOAN FUNDING CORPORATION Columbus, OH Ohio Corporation " " A
Page 7, prepared 3/13/98 8 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE TEXAS CORPORATION Columbus, OH Ohio Corporation " " A BANK ONE, TEXAS, NATIONAL ASSOCIATION Dallas, TX National Bank " " A BANC ONE TEXAS LEASING CORPORATION Dallas, Texas Texas Corporation " " A BANC ONE LEASING CORPORATION Columbus, Ohio Ohio Corporation " " A FM LEASING CORPORATION Denver, Colorado Ohio Corporation " " I BANC ONE FLORIDA CORPORATION Jupiter, Florida Ohio Corporation " " I BANC ONE LEASING COMPANY OF FLORIDA Jupiter, Florida Ohio Corporation " " I FREER PROPERTIES, INC. Fort Worth, TX Texas Corporation " " I GP HOLDER, INC. Dallas, TX Texas Corporation " " A TEAM LIFE INSURANCE COMPANY Fort Worth, TX Texas Corporation " " A TEXAS ASSET ACQUISITION CORPORATION Dallas, TX Nevada Corporation " " A TEXAS INVESTMENT HOLDING CORPORATION Henderson, NV Nevada Corporation " " A TX REIT, INC. Dallas, TX Nevada Corporation " " A TEXAS LYRIC CORPORATION Fort Worth, TX Texas Corporation " " I BANC ONE INTERNATIONAL CORPORATION Dallas, TX Federal Law " " A - - ---------------------------------------------------------------------------------------------------------------------------------- BANC ONE WEST VIRGINIA CORPORATION Charleston, WV West Virginia Corporation " " A BANK ONE, WEST VIRGINIA, NATIONAL ASSOCIATION Charleston, WV National Bank " " A CHARLESTON NATIONAL PLAZA COMPANY Charleston, WV West Virginia Corporation " " A WV IHC, INC. Charleston, WV Nevada Corporation " " A WV REIT, INC. Charleston, WV Nevada Corporation " " A BANK ONE WHEELING-STEUBENVILLE, NATIONAL ASSOCIATION Wheeling, WV National Bank " " A BANC ONE LOAN SERVICES CORPORATION Steubenville, OH Pennsylvania Corporation " " A - - ----------------------------------------------------------------------------------------------------------------------------------
Page 8, prepared 3/13/98 9 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BANK ONE, WISCONSIN Milwaukee, WI National Bank " " A BANC ONE WISCONSIN BANKCARD CORPORATION Milwaukee, WI Wisconsin Corporation " " A BANC ONE WISCONSIN INVESTMENT SERVICES CORPORATION Milwaukee, WI Wisconsin Corporation " " A BANC ONE WISCONSIN LEASING CORPORATION Milwaukee, WI Wisconsin Corporation " " A WI IHC, INC. Milwaukee, WI Nevada Corporation " " A WI REIT, INC. Milwaukee, WI Nevada Corporation " " A BANC ONE INSURANCE SERVICES CORPORATION Milwaukee, WI Wisconsin Corporation " " A SUCCESSION PLANNING INTERNATIONAL, INC. (19.9%) Milwaukee, WI Wisconsin Corporation " " A HIGHWAY "P" MOTEL, INC. West Bend, WI Wisconsin Corporation " " A MILWAUKEE INVESTMENT HOLDING COMPANY Milwaukee, WI Nevada Corporation " " A - - ---------------------------------------------------------------------------------------------------------------------------------- FIRST USA FINANCIAL, INC. Wilmington, Delaware Delaware Corporation " " A FIRST USA CAPITAL CORPORATION Wilmington, Delaware Delaware Corporation " " A FIRST USA SECURITIZATION CORPORATION Wilmington, Delaware Delaware Corporation " " A FIRST USA FEDERAL SAVINGS BANK Wilmington, Delaware Federal Thrift " " A FIRST USA THRIFT SERVICES, INC. Wilmington, Delaware Delaware Corporation " " A FIRST USA DIRECT, INC. Dallas, Texas Delaware Corporation " " A FIRST USA MANAGEMENT, INC. Dallas, Texas Delaware Corporation " " A FIRST USA GENERAL AGENCY, INC. Dallas, Texas Delaware Corporation " " I FIRST USA CAPITAL MARKETS, INC. Dallas, Texas Michigan Corporation " " A FIRST USA BANK Wilmington, Delaware Delaware Corporation " " A FIRST USA SERVICES, INC. Wilmington, Delaware Delaware Corporation " " A FIRST USA MANAGEMENT SERVICES, INC. Dallas, Texas Delaware Corporation " " A PAYMENTECH, INC. (57%) Dallas, Texas Delaware Corporation " " A PAYMENTECH MANAGEMENT RESOURCES, INC. Wilmington, Delaware Delaware Corporation " " A
Page 9, prepared 3/13/98 10 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== MA GROUP, INC. Tucson, Arizona Arizona Corporation " " I PAYMENTECH NEW HAMPSHIRE, INC. Salem, NH Delaware Corporation " " A PAYMENTECH DATA SERVICES, INC. Dallas, Texas Delaware Corporation " " A GENSAR HOLDINGS, INC. Dallas, Texas Delaware Corporation " " A PAYMENTECH NETWORK SERVICES, INC. Tampa, Florida Delaware Corporation " " A GENSAR MERCHANT PROCESSING, INC. Wilmington, Delaware Delaware Corporation " " I PAYMENTECH FLEET SERVICES, INC.* Salt Lake City, Utah Delaware Corporation " " A FIRST USA FINANCIAL SERVICES, INC. Salt Lake City, Utah Utah Industrial Bank " " A PAYMENTECH ICS, INC. Dallas, Texas Delaware Corporation " " I PAYMENTECH MERCHANT SERVICES, INC. Dallas, Texas Nevada Corporation " " A NATIONAL CARD PROCESSING SYSTEMS, INC. Englewood, NJ Delaware Corporation " " I FIRST USA TECHNOLOGY, INC. Tigard, Oregon Delaware Corporation " " A MERCHANT LINK, INC. Bethesda, Maryland Delaware Corporation " " A FIRST VIRTUAL HOLDINGS CORPORATION (26%) San Diego, CA _________ Corporation " " A FIRST USA DIRECT MARKETING, INC. Salem, NH Delaware Corporation " " I - - ----------------------------------------------------------------------------------------------------------------------------------
* Owned 66% by Paymentech Management Resources, Inc. and 34% by First USA Financial Services, Inc. FIRST USA CAPITAL TRUST I Wilmington, Delaware Delaware Business " " A Trust - - ---------------------------------------------------------------------------------------------------------------------------------- FINANCE ONE CORPORATION Columbus, OH Ohio Corporation " " A BANC ONE FINANCIAL SERVICES, INC. Indianapolis, IN Indiana Corporation " " A BANC ONE CONSUMER DISCOUNT COMPANY, A NON-BANKING AFFILIATE OF BANC ONE CORPORATION Harrisburg, PA Indiana Corporation " " A BANC ONE FINANCIAL SERVICES OF MINNESOTA, INC. Egan, MN Minnesota Corporation " " A
Page 10, prepared 3/13/98 11 SUBSIDIARIES OF BANC ONE CORPORATION AS OF 12/31/97* Exhibit 21 (100% OWNERSHIP UNLESS OTHERWISE INDICATED)
- - ------------------------------------------------------------------------------------------------------------------------------------ JURISDICTION NAME IN ACTIVE (A) OF WHICH OR PRINCIPAL OFFICE INCORPORATION BUSINESS INACTIVE (I) NAME OF SUBSIDIARY CITY, STATE OR ORGANIZATION IS CONDUCTED SUBSIDIARY ==================================================================================================================================== BANC ONE FINANCIAL SERVICES OF TENNESSEE, INC. Nashville, TN Tennessee Corporation " " A BANC ONE FINANCIAL SERVICES OF WEST VIRGINIA, INC. Charleston, WV West Virginia Corporation " " A BANC ONE FINANCIAL SERVICES OF NEW YORK, INC. Indianapolis, IN New York Corporation " " A GUARDIAN AGENCY, INC. Marion, IN Indiana Corporation " " I BENEFICIAL INSURANCE AGENCY, INC. Marion, IN Indiana Corporation " " I GUARDIAN AGENCY OF BLOOMINGTON, INC. Bloomington, IN Indiana Corporation " " I GUARDIAN AGENCY OF DELPHI, INC. Marion, IN Indiana Corporation " " I GUARDIAN AGENCY OF FORT WAYNE, INC. Fort Wayne, IN Indiana Corporation " " I GUARDIAN AGENCY OF GREENCASTLE, INC. Greencastle, IN Indiana Corporation " " I GUARDIAN AGENCY OF LEBANON, INC. Lebanon, IN Indiana Corporation " " I GUARDIAN AGENCY OF RUSHVILLE, INC. Rushville, IN Indiana Corporation " " I GUARDIAN AGENCY OF VALPARAISO, INC. Valparaiso, IN Indiana Corporation " " I - - ---------------------------------------------------------------------------------------------------------------------------------- STERLING ASSURANCE COMPANY Burlington, VT Ohio Corporation " " A - - ----------------------------------------------------------------------------------------------------------------------------------
Page 11, prepared 3/13/9 EX-23 11 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements listed below of BANC ONE CORPORATION of our report dated February 12, 1998 on our audits of the consolidated financial statements of BANC ONE CORPORATION and Subsidiaries, as of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996, and 1995, included in BANC ONE CORPORATION's Annual Report on Form 10-K for the year ended December 31, 1997. REGISTRATION STATEMENTS ON FORM S-8 REGISTRATION NUMBERS: ..33-03470 ..33-61760 ..33-14475 ..33-61758 ..33-10822 ..33-60424 ..33-18277 ..33-50117 ..33-27849 ..33-55149 ..33-34294 ..33-55315 ..33-37400 ..33-58923 ..33-20890 ..333-00445 ..33-20990 ..333-26929 ..33-40041 ..333-27631 ..33-45473 ..333-28281 ..33-46189 ..333-29395 ..33-53752 ..333-30419 ..33-55172 ..333-30421 ..33-55174 ..333-30425 ..33-54100 ..333-30429 ..333-32053
REGISTRATION STATEMENTS ON FORM S-3 REGISTRATION NUMBERS: ..333-38387 COOPERS & LYBRAND L.L.P. Columbus, Ohio March 30, 1998 EX-27.1 12 EXHIBIT 27.1
9 1000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 7,727,405 12,063 637,830 1,191,762 13,276,154 785,286 800,165 82,052,842 1,325,906 115,901,266 77,414,303 13,803,885 3,240,698 11,066,352 0 135,396 3,229,782 7,010,850 115,901,266 8,128,687 1,066,147 188,332 9,383,165 2,545,087 3,990,872 5,392,293 1,211,111 56,958 6,048,731 1,968,289 1,305,725 0 0 1,305,725 2.04 1.99 5.41 408,783 559,193 870 0 1,197,679 1,422,593 301,768 1,325,906 1,325,906 0 0
EX-27.2 13 EXHIBIT 27.2
9 1000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 6,524,428 2,455 659,409 548,078 14,185,699 4,398,030 4,429,462 79,389,795 1,197,679 112,153,518 74,222,988 18,325,399 2,909,221 6,827,823 0 207,074 2,882,590 6,778,423 112,153,518 7,437,911 1,222,035 76,282 8,736,228 2,460,225 3,597,602 5,138,626 942,715 16,673 5,062,004 2,496,875 1,672,850 0 0 1,672,850 2.60 2.52 5.45 374,245 483,942 8,199 0 1,008,023 1,065,996 246,351 1,197,679 1,197,679 0 0
EX-27.3 14 EXHIBIT 27.3
9 1000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 5,712,256 1,603 694,098 243,400 14,376,934 3,630,141 3,678,900 68,417,903 1,008,023 97,888,816 69,273,373 12,478,575 2,754,923 4,330,501 0 249,693 2,953,124 5,848,627 97,888,816 8,392,962 1,090,185 104,782 7,587,929 2,426,356 3,336,754 4,251,175 526,138 (1,947) 4,326,948 2,173,537 1,445,211 0 0 1,445,211 2.26 2.20 5.08 349,084 300,620 5,211 0 963,180 677,908 200,501 1,008,023 1,008,023 0 0
EX-27.4 15 EXHIBIT 27.4
9 1000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 5,435,081 6,515 583,515 502,334 13,595,657 4,407,717 4,422,400 79,051,075 1,222,363 111,837,042 73,942,845 17,994,698 2,694,216 7,570,959 0 195,652 2,888,006 6,550,666 111,837,042 1,969,836 298,888 52,363 2,324,087 623,101 966,317 1,357,770 271,938 15,235 1,309,011 584,049 381,907 0 0 381,907 0.60 0.58 5.53 371,915 516,284 2,271 0 1,197,679 332,593 85,332 1,222,363 1,222,363 0 0
EX-27.5 16 EXHIBIT 27.5
9 1000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 6,364,736 31,516 866,609 767,882 13,637,596 760,155 773,900 84,200,050 1,362,154 115,491,608 76,963,796 15,925,636 2,780,396 9,972,162 0 184,181 2,907,615 6,757,823 115,491,608 3,954,775 584,355 144,796 4,683,926 1,258,638 1,973,706 2,710,220 667,710 32,312 3,033,159 647,030 397,741 0 0 397,741 0.63 0.61 5.47 395,400 494,200 1,021 0 1,197,679 697,820 156,761 1,362,154 1,362,154 0 0
EX-27.6 17 EXHIBIT 27.6
9 1000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 6,474,586 7,564 517,206 873,696 13,830,502 723,124 737,200 82,740,988 1,343,640 113,126,990 75,782,093 12,657,374 3,227,100 11,370,943 0 173,508 2,927,603 6,988,370 113,126,990 6,075,214 832,533 163,347 7,071,094 1,906,705 2,997,563 4,073,531 938,518 43,147 4,568,585 1,307,041 830,858 0 0 830,858 1.30 1.27 5.44 427,036 640,828 887 0 1,197,679 1,061,219 230,721 1,343,640 1,343,640 0 0
EX-27.7 18 EXHIBIT 27.7
9 1000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 5,242,944 2,108 603,896 195,668 16,094,258 3,908,116 3,928,800 71,902,109 1,077,881 103,448,556 71,985,066 14,299,001 3,019,921 4,699,970 0 245,506 2,876,134 6,322,958 103,448,556 1,815,491 319,599 18,977 2,154,067 618,514 893,680 1,260,387 188,126 1,039 1,191,983 636,704 422,862 0 0 422,862 0.65 0.63 5.44 407,605 294,148 2,126 0 1,008,024 237,953 59,621 1,077,881 1,077,881 0 0
EX-27.8 19 EXHIBIT 27.8
9 1000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 5,199,970 12,114 1,062,241 317,158 14,971,141 3,808,511 3,812,200 73,684,246 1,100,481 104,791,683 72,540,386 14,989,386 2,825,893 4,847,838 0 240,621 2,883,389 6,464,170 104,791,683 3,589,173 629,270 41,958 4,260,401 1,202,635 1,743,810 2,516,591 382,826 5,557 2,429,958 1,232,403 818,039 0 0 818,039 1.26 1.22 5.44 385,572 330,788 2,124 0 1,008,024 474,346 123,914 1,100,481 1,100,481 0 0
EX-27.9 20 EXHIBIT 27.9
9 1000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,401,828 4,496 893,597 641,338 13,926,629 4,407,772 4,050,100 76,584,279 1,131,496 107,262,822 73,170,006 16,675,311 2,767,951 5,080,216 0 240,135 2,869,164 6,665,937 107,262,822 5,451,442 928,473 59,441 6,439,356 1,825,747 2,646,409 3,792,947 623,109 7,175 3,686,953 1,849,318 1,230,758 0 0 1,230,758 1.90 1.85 5.43 415,226 404,642 1,228 0 1,008,023 742,118 182,418 1,131,497 1,131,497 0 0
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