<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended September 30, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-8552
BANC ONE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Ohio 31-0738296
------------------------------------------ ------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR
ORGANIZATION)
</TABLE>
100 East Broad Street, Columbus, Ohio 43271-0251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(614) 248-5944
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's common stock, no par value,
$5 stated value, was 427,375,484 at October 31, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
BANC ONE CORPORATION
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See the following portions of the BANC ONE CORPORATION consolidated
financial statements and analysis for the quarter ended September 30,
1996 (filed as Exhibit 20 to this Form 10-Q), which are expressly
incorporated herein by reference:
Consolidated Balance Sheet on page 2
Consolidated Statement of Income on page 3
Consolidated Condensed Statement of Cash Flows on page 4
Consolidated Statement of Changes in Stockholders' Equity on page 5
Notes to the Consolidated Financial Statements on page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the following portions of the BANC ONE CORPORATION consolidated
financial statements and analysis for the quarter ended September 30,
1996 (filed as Exhibit 20 to this Form 10-Q) which are expressly
incorporated herein by reference:
Management's Discussion and Analysis on pages 11 through 19
1
<PAGE> 3
BANC ONE CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable
ITEM 2. CHANGE IN SECURITIES
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
Exhibit 11 Statement Regarding Computation of Earnings per Common Share
Exhibit 12 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
Exhibit 20 BANC ONE CORPORATION consolidated financial statements and
analysis for the quarter ended September 30, 1996
Exhibit 27 Financial Data Schedules
b. Reports on Form 8-K
Inapplicable
2
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
BANC ONE CORPORATION
<S> <C>
November 14, 1996 /s/ BOBBY L. OOXEY
- ------------------------------ ---------------------------------------------
Date Bobby L. Ooxey
Chief Accounting Officer
</TABLE>
3
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<C> <S>
11 Statement Regarding Computation of Earnings per Common Share
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
20 BANC ONE CORPORATION consolidated financial statements and analysis for the
quarter ended September 30, 1996
27 Financial Data Schedules
</TABLE>
4
<PAGE> 1
EXHIBIT 11
BANC ONE CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1996 1995 1996 1995
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings:
Net income............................... $355,927 $331,017 $1,056,736 $941,017
Deduct: Dividends on preferred shares.... 4,202 4,372 12,741 13,118
-------- -------- ---------- --------
Net income available to common
shareholders........................... $351,725 $326,645 $1,043,995 $927,899
======== ======== ========== ========
Shares:
Weighted average common shares
outstanding............................ 431,723 431,370 436,261 432,901
Add: Dilutive effect of outstanding
options, as determined by the
application of the treasury stock
method.............................. 3,050 1,521 2,797 1,125
-------- -------- ---------- --------
Weighted average common shares
outstanding, as adjusted............... 434,773 432,891 439,058 434,026
======== ======== ========== ========
PRIMARY EARNINGS PER COMMON SHARE............. $.81 $.76 $2.38 $2.14
======== ======== ========== ========
FULLY DILUTED:
Earnings:
Net income............................... $355,927 $331,017 $1,056,736 $941,017
======== ======== ========== ========
Shares:
Weighted average common shares
outstanding............................ 431,723 431,370 436,261 432,901
Add: Dilutive effect of outstanding
options, as determined by the
application of the treasury stock
method.............................. 3,758 2,069 3,615 1,880
Add: Conversion of preferred stock....... 9,277 9,639 9,398 9,640
-------- -------- ---------- --------
Weighted average common shares outstanding
as adjusted.............................. 444,758 443,078 449,274 444,421
======== ======== ========== ========
FULLY DILUTED EARNINGS PER COMMON SHARE....... $.80 $.75 $2.35 $2.12
======== ======== ========== ========
</TABLE>
<PAGE> 1
EXHIBIT 12
BANC ONE CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
$(THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Calculation excluding interest on
deposit:
Earnings
Income before income taxes and
change in accounting principle
and equity in earnings of Bank
One, Texas, NA(1).............. $1,575,395 $1,432,493 $1,910,282 $1,518,852 $1,770,712 $1,341,249 $ 928,947
Fixed charges.................... 641,302 537,287 736,249 633,569 348,327 321,402 419,274
Less: Capitalized interest....... (1,058) (1,183) (1,671) (1,000) (652) (1,199) (1,732)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings......................... $2,215,639 $1,968,597 $2,644,860 $2,151,421 $2,118,387 $1,661,452 $1,346,489
========== ========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest expense, including
interest factor of capitalized
leases and amortization of
deferred debt expenses......... $ 598,370 $ 497,983 $ 683,372 $ 575,734 $ 298,857 $ 278,615 $ 379,708
Portion of rental payments under
operating leases deemed to be
interest....................... 42,932 39,304 52,877 57,835 49,470 42,787 39,566
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed charges.................... $ 641,302 $ 537,287 $ 736,249 $ 633,569 $ 348,327 $ 321,402 $ 419,274
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to fixed charges
excluding interest on
deposits:........................ 3.45X 3.66x 3.59x 3.40x 6.08x 5.17x 3.21x
Calculation including interest on
deposits:
Earnings:
Income before income taxes and
change in accounting principle
and equity in earnings of Bank
One, Texas, NA (1)............. $1,575,395 $1,432,493 $1,910,282 $1,518,852 $1,770,712 $1,341,249 $ 928,947
Fixed charges.................... 2,397,492 2,252,036 3,026,343 2,307,832 1,826,018 2,318,274 2,955,918
Less: Capitalized interest....... (1,058) (1,183) (1,671) (1,000) (652) (1,199) (1,732)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings......................... $3,971,829 $3,683,346 $4,934,954 $3,825,684 $3,596,078 $3,658,324 $3,883,133
========== ========== ========== ========== ========== ========== ==========
Fixed charges:
As detailed above................ $ 641,302 $ 537,287 $ 736,249 $ 633,569 $ 348,327 $ 321,402 $ 419,274
Interest on deposits............. 1,756,190 1,714,749 2,290,094 1,674,263 1,477,691 1,996,872 2,536,644
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed charges.................... $2,397,492 $2,252,036 $3,026,343 $2,307,832 $1,826,018 $2,318,274 $2,955,918
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to fixed charges
including interest on deposits... 1.66X 1.64x 1.63x 1.66x 1.97x 1.58x 1.31x
</TABLE>
- ---------------
(1) Results of Bank One, Texas, NA are consolidated beginning October 1, 1991.
<PAGE> 1
EXHIBIT 20
BANC ONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AND ANALYSIS
FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
<PAGE> 2
INDEX
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheet................................................. 2
Consolidated Statement of Income........................................... 3
Consolidated Condensed Statement of Cash Flows............................. 4
Consolidated Statement of Changes in Stockholders' Equity.................. 5
Notes to the Consolidated Financial Statements............................. 6
Consolidated Quarterly Financial Data...................................... 7
Average Balances, Income and Expense, Yields and Rates..................... 9
MANAGEMENT'S DISCUSSION AND ANALYSIS................................................. 11
Net Interest Income/Net Interest Margin.................................... 11
Non-Interest Income........................................................ 13
Non-Interest Expense....................................................... 14
Income Taxes............................................................... 15
Loans and Leases........................................................... 15
Liquidity and Capital...................................................... 17
Asset/Liability Management................................................. 17
</TABLE>
i
<PAGE> 3
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks....................................................... $ 5,274,364 $ 5,501,266
Short-term investments........................................................ 765,746 454,718
Loans held for sale........................................................... 471,593 503,326
SECURITIES:
Securities held to maturity................................................. 925,167 1,087,654
Securities available for sale............................................... 14,492,635 14,620,334
----------- -----------
Total securities (fair value approximates $15,446,000 and $15,756,000 at
September 30, 1996 and December 31, 1995, respectively)................... 15,417,802 15,707,988
Loans and leases.............................................................. 72,680,815 64,825,339
Allowance for credit losses................................................. 1,054,880 938,008
----------- -----------
Net loans and leases................................................. 71,625,935 63,887,331
OTHER ASSETS:
Bank premises and equipment, net............................................ 1,651,515 1,558,676
Interest earned, not collected.............................................. 658,969 669,709
Other real estate owned..................................................... 61,770 75,483
Excess of cost over net assets of affiliates purchased...................... 455,554 242,817
Other....................................................................... 2,178,752 1,852,649
----------- -----------
Total other assets................................................... 5,006,560 4,399,334
----------- -----------
Total assets......................................................... $98,562,000 $90,453,963
=========== ===========
LIABILITIES
DEPOSITS:
Non-interest bearing........................................................ $15,171,495 $14,767,497
Interest bearing............................................................ 56,356,124 52,552,653
----------- -----------
Total deposits....................................................... 71,527,619 67,320,150
Federal funds purchased and repurchase agreements............................. 7,522,868 6,261,009
Other short-term borrowings................................................... 5,871,443 3,516,191
Long-term borrowings.......................................................... 3,022,835 2,720,373
Accrued interest payable...................................................... 355,778 410,946
Other liabilities............................................................. 1,822,066 2,027,816
----------- -----------
Total liabilities.................................................... 90,122,609 82,256,485
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, 35,000,000 shares authorized:
Series C convertible, no par value, 4,801,546 and 4,992,694 shares issued
and outstanding, respectively............................................. 240,077 249,635
Common stock, no par value, $5 stated value, 600,000,000 shares authorized,
431,805,662 and 451,741,054 shares issued, respectively (December 31, 1995
shares reflect the 10% stock dividend paid March 6, 1996 to shareholders of
record on February 21, 1996)................................................ 2,159,028 2,258,705
Capital in excess of aggregate stated value of common stock................... 4,465,890 5,157,763
Retained earnings............................................................. 1,793,048 1,100,345
Net unrealized holding gains (losses) on securities available for sale, net of
tax......................................................................... (12,754) 91,804
Treasury stock (5,622,100 and 24,090,000 shares at September 30, 1996 and
December 31, 1995, respectively), at cost................................... (205,898) (660,774 )
----------- -----------
Total stockholders' equity........................................... 8,439,391 8,197,478
----------- -----------
Total liabilities and stockholders' equity........................... $98,562,000 $90,453,963
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------------------------------
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases.................... $1,741,388 $1,537,351 $5,108,989 $4,469,639
Interest and dividends on:
Taxable securities................................... 227,232 200,623 715,452 629,764
Tax exempt securities................................ 23,068 28,335 72,280 90,647
Interest income on loans held for sale................... 8,968 10,030 33,150 23,111
Other interest income.................................... 5,091 9,619 15,659 49,778
---------- ---------- ---------- ----------
Total interest income................................ 2,005,747 1,785,958 5,945,530 5,262,939
INTEREST EXPENSE:
Interest on deposits:
Demand, savings and money market deposits............ 254,831 234,674 746,998 681,044
Time deposits........................................ 347,525 343,855 1,009,192 1,033,705
Interest on borrowings................................... 204,315 169,010 597,312 496,715
---------- ---------- ---------- ----------
Total interest expense............................... 806,671 747,539 2,353,502 2,211,464
---------- ---------- ---------- ----------
Net interest income.................................. 1,199,076 1,038,419 3,592,028 3,051,475
Provision for credit losses................................ 210,657 132,526 544,232 291,608
---------- ---------- ---------- ----------
Net interest income after provision for credit losses.... 988,419 905,893 3,047,796 2,759,867
NON-INTEREST INCOME:
Income from fiduciary activities......................... 71,787 60,052 202,038 177,180
Service charges on deposit accounts...................... 165,806 140,811 483,843 400,384
Loan processing and servicing income..................... 114,246 142,586 345,953 385,277
Securities gains......................................... 56,165 7,294 79,533 19,865
Other.................................................... 161,305 122,127 493,831 396,056
---------- ---------- ---------- ----------
Total non-interest income............................ 569,309 472,870 1,605,198 1,378,762
NON-INTEREST EXPENSE:
Salaries and related costs............................... 490,625 430,135 1,494,989 1,302,164
Net occupancy expense, exclusive of depreciation......... 43,586 40,965 135,954 121,157
Equipment expense........................................ 29,322 26,372 86,298 78,946
Taxes other than income and payroll...................... 19,450 23,571 67,974 68,637
Depreciation and amortization............................ 79,777 71,635 262,455 215,325
Outside services and processing.......................... 126,604 101,144 380,391 309,637
Marketing and development................................ 38,787 37,210 120,366 129,789
Communication and transportation......................... 81,889 66,955 235,158 200,898
Other.................................................... 120,101 82,224 294,014 279,583
---------- ---------- ---------- ----------
Total non-interest expense........................... 1,030,141 880,211 3,077,599 2,706,136
---------- ---------- ---------- ----------
Income before income taxes................................. 527,587 498,552 1,575,395 1,432,493
INCOME TAX PROVISION:
Income excluding securities transactions................. (151,469) (165,006) (489,742) (484,180)
Securities transactions.................................. (20,191) (2,529) (28,917) (7,296)
---------- ---------- ---------- ----------
Provision for income taxes........................... (171,660) (167,535) (518,659) (491,476)
---------- ---------- ---------- ----------
Net income................................................. $ 355,927 $ 331,017 $1,056,736 $ 941,017
========== ========== ========== ==========
Net income per common share (amounts reflect the 10% common
stock dividend paid March 6, 1996 to shareholders of
record on February 21, 1996)............................. $ .81 $ .76 $ 2.38 $ 2.14
========== ========== ========== ==========
Weighted average common shares outstanding (000)........... 434,773 432,891 439,058 434,026
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
<TABLE>
<CAPTION>
$(THOUSANDS) (UNAUDITED) 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income................................................................ $ 1,056,736 $ 941,017
Depreciation expense...................................................... 197,362 172,541
Amortization of other intangibles......................................... 65,093 42,784
Other cash provided by operating activities............................... 12,699 21,654
----------- -----------
Net cash provided by operating activities............................. 1,331,890 1,177,996
----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of securities available for sale................................ (3,707,101) (7,491,156)
Purchases of securities held to maturity.................................. (101,320) (599,468)
Maturities of securities available for sale............................... 2,873,632 5,840,766
Maturities of securities held to maturity................................. 305,781 1,103,133
Sales of securities available for sale.................................... 2,682,279 2,179,671
Net increase in loans, excluding sales and purchases...................... (7,492,081) (5,972,529)
Sales of loans and other assets........................................... 3,002,603 2,520,452
Purchases of loans and related premiums................................... (209,285) (577,828)
Net (increase) decrease in short-term investments......................... (240,090) 3,114,687
Additions to bank premises and equipment.................................. (225,231) (227,351)
Sale of banks and branch offices.......................................... (186,773) (118,282)
Net cash acquired in acquisitions......................................... 315,715 42,413
Other, net increase (decrease)............................................ 8,803 (37,899)
----------- -----------
Net cash used in investing activities................................. (2,973,068) (223,391)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net increase (decrease) in demand deposit, money market and savings
accounts................................................................ 168,754 (629,424)
Net increase (decrease) in time deposits.................................. 22,917 (391,074)
Net increase (decrease) in short-term borrowings.......................... 3,185,127 (35,205)
Issuance of long-term borrowings, net..................................... 604,724 954,025
Repayment of long-term borrowings......................................... (1,146,246) (141,876)
Cash dividends paid....................................................... (454,633) (537,584)
Purchase of treasury stock................................................ (957,891) (225,326)
Other, net (decrease) increase............................................ (8,476) 16,982
----------- -----------
Net cash provided by (used in) financing activities................... 1,414,276 (989,482)
----------- -----------
Decrease in cash and cash equivalents....................................... (226,902) (34,877)
Cash and cash equivalents at January 1...................................... 5,501,266 5,073,417
----------- -----------
Cash and cash equivalents at September 30................................... $ 5,274,364 $ 5,038,540
=========== ===========
</TABLE>
Common Stock issued and treasury stock reissued in purchase acquisitions were
$711 million and $4 million for the nine months ended September 30, 1996 and
1995, respectively. The net decrease in securities trades not settled were $373
million and $294 million for the nine months ended September 30, 1996 and 1995,
respectively.
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30,
<TABLE>
<CAPTION>
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD........................................ $8,197,478 $7,564,860
Net income.......................................................... 1,056,736 941,017
Exercise of stock options, net of shares purchased.................. (12,399) (4,164)
Shares issued in acquisitions....................................... 710,515 3,647
Sales of stock to employee benefit plans and other.................. 4,143 21,146
Cash dividends:
Common ($1.02 and $.93 per share for the nine months ended
September 30, 1996 and 1995, respectively).................... (441,892) (400,541)
Series C Preferred ($2.63 per share for the nine months ended
September 30, 1996 and 1995, respectively).................... (12,741) (13,118)
Change in unrealized holding gains (losses) on securities available
for sale, net of tax.............................................. (104,558) 114,632
Purchase of treasury stock.......................................... (957,891) (225,326)
---------- ----------
BALANCE, END OF PERIOD.............................................. $8,439,391 $8,002,153
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements are unaudited. However, in
the opinion of management, they contain the adjustments (all of which are
normal and recurring in nature) necessary to present fairly the financial
position and the results of operations. The notes to the consolidated
financial statements contained in the Annual Report on Form 10-K for the year
ended December 31, 1995 and the quarterly reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996 should be read in conjunction
with these financial statements. "The Corporation" is defined as the parent
company only. "BANC ONE" is defined as the Corporation and all significant
majority-owned subsidiaries. Certain prior period amounts have been
reclassified to compare with current presentation.
2. The provision for income taxes for the nine months ended September 30, 1996
and 1995 is at a rate which management believes approximates the effective
rate for the year.
3. On January 2, 1996, the Corporation acquired all of the outstanding shares of
Banc One Louisiana Corporation (BOLC), formerly known as Premier Bancorp,
Inc. of Baton Rouge, Louisiana, in exchange for 24 million shares of the
Corporation's treasury stock (adjusted for the 10% common stock dividend)
valued at $711 million. The acquisition was accounted for as a purchase, and
therefore, prior period financial statements have not been restated to
include BOLC. BOLC had assets of $6.3 billion at December 31, 1995.
4. On February 13, 1996, the Corporation repurchased 15 million shares of common
stock (16.5 million shares after the 10% stock dividend). The shares were
retired and subsequently reissued to pay the 10% stock dividend. On April 16,
1996, the Board of Directors approved the repurchase of up to 10 million
shares of the Corporation's common stock to be used for general corporate
purposes. As of September 30, 1996, the Corporation had acquired 9.5 million
shares pursuant to this authorization, of which 3.9 million shares have been
retired.
5. BANC ONE will adopt Financial Accounting Standard No. 125 (SFAS 125 ),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," as of January 1, 1997. SFAS 125 requires that
after a transfer of financial assets, an entity must recognize the financial
and servicing assets controlled and liabilities incurred and derecognize
financial assets and liabilities in which control is surrendered or when debt
is extinguished. The impact on BANC ONE's financial position and results of
operations is not expected to be material.
6
<PAGE> 8
CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS
-------------------------------------------------------
1996 1995
------------------------------- -------------------
$(MILLIONS) (UNAUDITED) THIRD SECOND FIRST FOURTH THIRD
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERIOD END BALANCES
Loans and leases....................... $72,681 $70,120 $68,460 $64,825 $64,876
Earning assets......................... 88,281 86,740 85,860 80,553 79,021
Total assets........................... 98,562 97,051 95,708 90,454 88,353
Total deposits......................... 71,528 70,954 70,217 67,320 66,292
Long-term borrowings................... 3,023 3,021 3,010 2,720 2,677
Allowance for credit losses............ 1,055 1,026 1,006 938 915
Total stockholders' equity............. 8,439 8,517 8,430 8,197 8,002
CONDENSED INCOME STATEMENT
Net interest income (1)................ 1,215 1,214 1,211 1,095 1,058
Provision for credit losses............ 211 171 163 166 133
------- ------- ------- ------- -------
Net funds function (1)................. 1,004 1,043 1,048 929 925
NON-INTEREST INCOME
Income from fiduciary activities.... 72 68 63 62 60
Service charges on deposit
accounts.......................... 166 161 157 144 141
Loan processing and servicing
income............................ 114 114 117 136 143
Securities gains.................... 56 18 6 8 7
Other............................... 161 172 160 141 122
------- ------- ------- ------- -------
Total non-interest income......... 569 533 503 491 473
NON-INTEREST EXPENSE
Salaries and related costs.......... 491 501 503 448 430
Other............................... 539 527 516 477 450
------- ------- ------- ------- -------
Total non-interest expense........ 1,030 1,028 1,019 925 880
Taxable equivalent adjustment.......... 15 16 16 17 19
------- ------- ------- ------- -------
Income before income taxes............. 528 532 516 478 499
Provision for income taxes............. 172 177 170 141 168
------- ------- ------- ------- -------
Net income............................. $ 356 $ 355 $ 346 $ 337 $ 331
======= ======= ======= ======= =======
Net income available to common
stockholders........................ $ 351 $ 351 $ 342 $ 332 $ 327
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Fully taxable equivalent basis. The Federal statutory rate used was 35% for
all periods presented.
7
<PAGE> 9
CONSOLIDATED QUARTERLY FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
QUARTERS
-------------------------------------------------------
1996 1995
$(MILLIONS, EXCEPT PER SHARE DATA) ------------------------------- -------------------
(UNAUDITED) THIRD SECOND FIRST FOURTH THIRD
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
KEY RATIOS
Return on average assets (1)......... 1.48% 1.50% 1.45% 1.51% 1.51%
Return on average common equity(1)... 17.07 17.37 16.38 17.00 17.09
Average common equity to average
assets............................ 8.54 8.51 8.77 8.80 8.74
Tier I capital ratio................. 9.18 9.52 9.57 10.05 10.11
Total risk adjusted capital ratio.... 12.83 13.23 13.44 14.05 14.17
Leverage ratio....................... 8.31 8.43 8.24 8.87 8.88
MARGIN ANALYSIS (1)(2)(3)
Interest income...................... 9.28 9.19 9.34 9.26 9.19
Interest expense..................... 3.71 3.53 3.69 3.79 3.80
------- ------- ------- ------- -------
Net interest income.................. 5.57 5.66 5.65 5.47 5.39
Provision for credit losses.......... .96 .80 .76 .83 .68
------- ------- ------- ------- -------
Net funds function................... 4.61 4.86 4.89 4.64 4.71
CREDIT ANALYSIS
Net charge-offs to average loans and
leases (1)........................ 1.02 .87 .90 .87 .68
Ending allowance to loans and
leases............................ 1.45% 1.46% 1.47% 1.45% 1.41%
Nonperforming assets: (6)
Total............................. $ 478 $ 458 $ 486 $ 430 $ 445
Percent of total loans and
leases.......................... .66% .65% .71% .66% .69%
Loans delinquent 90 days or more: (4)
Total............................. $ 345 $ 280 $ 250 $ 254 $ 212
Percent of total loans and
leases.......................... .48% .40% .37% .39% .33%
Allowance to nonperforming
loans........................... 253.3% 264.7% 245.5% 264.8% 253.3%
PER SHARE DATA (5)
Net income........................... $ .81 $ .80 $ .77 $ .77 $ .76
Cash dividends declared.............. .34 .34 .34 .31 .31
Book value........................... 19.24 19.07 18.80 18.58 18.02
Common stock price:
High.............................. 41.38 37.75 38.50 36.48 33.41
Low............................... 31.25 32.88 31.94 30.35 27.95
Close............................. 41.00 34.00 35.63 34.21 33.18
Preferred Series C stock price:
High.............................. 80.00 72.63 73.88 70.75 64.00
Low............................... 60.75 63.88 62.00 59.38 55.58
Close............................. $ 79.13 $ 66.75 $ 69.13 $ 65.63 $ 63.75
SHARES TRADED (000)
Common............................... 60,724 50,688 62,091 37,100 39,873
Preferred Series C................... 2,056 880 1,222 1,678 990
</TABLE>
- ---------------
(1) Ratios presented on an annualized basis.
(2) Fully taxable equivalent basis. The Federal statutory rate used was 35% for
all periods presented.
(3) As a percent of average earning assets.
(4) Excluding nonperforming loans.
(5) Applicable amounts per common share have been restated for the 10% common
stock dividend paid March 6, 1996 to shareholders of record on February 21,
1996.
(6) Excludes certain smaller balance loans collectively evaluated for
impairment.
8
<PAGE> 10
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------------------------- ---------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
$(THOUSANDS)(UNAUDITED) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Short-term investments....... $ 386,884 $ 5,091 5.23 % $ 672,794 $ 10,542 6.22%
Loans held for sale.......... 457,243 8,968 7.80 518,332 10,030 7.68
SECURITIES: (3)
Taxable.................... 13,990,110 227,397 6.47 12,153,543 200,865 6.56
Tax-exempt................. 1,651,198 34,179 8.23 1,905,319 41,841 8.71
----------- ---------- ----------- ----------
Total securities........ 15,641,308 261,576 6.65 14,058,862 242,706 6.85
LOANS AND LEASES: (2)
Commercial................. 19,293,756 403,912 8.33 17,685,598 364,821 8.18
Real estate:
Commercial.............. 6,238,464 140,682 8.97 5,608,790 126,475 8.95
Construction............ 3,321,263 80,747 9.67 2,449,870 63,171 10.23
Residential............. 11,609,921 268,997 9.22 11,848,812 264,744 8.86
Consumer, net.............. 20,250,790 467,401 9.18 17,904,488 422,874 9.37
Credit card................ 8,397,805 344,063 16.30 6,542,512 273,369 16.58
Leases, net................ 2,141,961 40,129 7.45 1,506,962 26,471 6.97
Allowance for credit
losses.................. (1,040,458) (894,091)
----------- ---------- ----------- ----------
Net loans and leases......... 70,213,502 1,745,931 9.89 62,652,941 1,541,925 9.76
----------- ---------- ----------- ----------
Total earning assets......... 86,698,937 2,021,566 9.28 77,902,929 1,805,203 9.19
Other assets (3)............. 9,227,274 8,877,451
----------- -----------
Total assets................. $95,926,211 $86,780,380
========== ==========
LIABILITIES:
DEPOSITS:
Non-interest bearing
demand.................. $13,820,819 $12,977,594
Interest bearing demand.... 2,131,119 9,710 1.81 8,416,543 43,245 2.04
Savings and money market... 29,342,620 245,121 3.32 19,993,662 191,429 3.80
Time deposits:
CDs less than
$100,000.............. 18,597,493 258,640 5.53 19,295,119 280,284 5.76
CDs $100,000 and over:
Domestic.............. 3,758,928 49,438 5.23 3,626,943 44,589 4.88
Foreign............... 2,915,574 39,447 5.38 1,307,358 18,982 5.76
----------- ---------- ----------- ----------
Total deposits..... 70,566,553 602,356 3.40 65,617,219 578,529 3.50
BORROWED FUNDS:
Short-term................. 11,791,789 152,761 5.15 8,917,697 124,718 5.55
Long-term.................. 3,019,504 51,554 6.79 2,523,602 44,292 6.96
----------- ---------- ----------- ----------
Total borrowed funds....... 14,811,293 204,315 5.49 11,441,299 169,010 5.86
----------- ---------- ----------- ----------
Total interest bearing
liabilities................ 71,557,027 806,671 4.48 64,080,924 747,539 4.63
Other liabilities............ 2,112,267 1,890,147
----------- -----------
Total liabilities............ 87,490,113 78,948,665
Preferred stock.............. 240,459 249,859
Common stockholders'
equity..................... 8,195,639 7,581,856
----------- -----------
Total liabilities and
stockholders' equity....... $95,926,211 $86,780,380
========== ==========
Net interest income.......... 1,214,895 5.57 1,057,664 5.39
Provision for credit
losses..................... (210,657) (0.96) (132,526) (0.68)
---------- ------ ---------- -----
Net funds function........... $1,004,238 4.61 % $ 925,138 4.71%
========= ====== ========= =====
</TABLE>
- ---------------
(1) Fully taxable equivalent basis. The Federal statutory rate used was 35% for
all periods presented.
(2) Nonaccrual loans are included in loan balances. Interest income includes
related fee income.
(3) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value which are included in other
assets.
9
<PAGE> 11
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------------------------- ---------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
$(THOUSANDS)(UNAUDITED) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Short-term investments....... $ 392,970 $ 15,692 5.33 % $ 1,117,674 $ 53,356 6.38%
Loans held for sale.......... 581,763 33,150 7.61 386,777 23,111 7.99
SECURITIES: (3)
Taxable.................... 14,822,848 716,481 6.46 12,911,743 630,718 6.53
Tax-exempt................. 1,704,507 106,391 8.34 2,030,379 133,819 8.81
----------- ---------- ----------- ----------
Total securities........ 16,527,355 822,872 6.65 14,942,122 764,537 6.84
LOANS AND LEASES: (2)
Commercial................. 19,182,028 1,187,060 8.27 17,279,432 1,057,292 8.18
Real estate:
Commercial.............. 6,108,921 409,991 8.96 5,582,481 373,442 8.94
Construction............ 3,112,584 229,252 9.84 2,369,463 182,331 10.29
Residential............. 11,306,735 782,253 9.24 11,430,901 753,253 8.81
Consumer, net.............. 20,150,986 1,423,421 9.44 18,149,937 1,271,535 9.37
Credit card................ 8,056,477 980,351 16.25 6,148,266 770,167 16.75
Leases, net................ 1,964,005 109,445 7.44 1,427,164 76,776 7.19
Allowance for credit
losses.................. (1,019,461) (894,065)
----------- ---------- ----------- ----------
Net loans and leases......... 68,862,275 5,121,773 9.94 61,493,579 4,484,796 9.75
----------- ---------- ----------- ----------
Total earning assets......... 86,364,363 5,993,487 9.27 77,940,152 5,325,800 9.14
Other assets (3)............. 9,308,785 8,712,056
----------- -----------
Total assets................. $95,673,148 $86,652,208
========== ==========
LIABILITIES:
DEPOSITS:
Non-interest bearing
demand.................. $13,902,960 $12,863,222
Interest bearing demand.... 2,494,151 34,120 1.83 8,672,072 140,382 2.16
Savings and money market... 28,866,316 712,878 3.30 19,495,595 540,662 3.71
Time deposits:
CDs less than
$100,000.............. 19,142,225 795,682 5.55 19,303,042 814,514 5.64
CDs $100,000 and over:
Domestic.............. 3,848,337 124,989 4.34 3,839,184 148,811 5.18
Foreign............... 2,209,852 88,521 5.35 1,629,862 70,380 5.77
----------- ---------- ----------- ----------
Total deposits..... 70,463,841 1,756,190 3.33 65,802,977 1,714,749 3.48
BORROWED FUNDS:
Short-term................. 11,580,748 448,029 5.17 9,110,440 381,042 5.59
Long-term.................. 3,006,415 149,283 6.63 2,225,556 115,673 6.95
----------- ---------- ----------- ----------
Total borrowed funds....... 14,587,163 597,312 5.47 11,335,996 496,715 5.86
----------- ---------- ----------- ----------
Total interest bearing
liabilities................ 71,148,044 2,353,502 4.42 64,275,751 2,211,464 4.60
Other liabilities............ 2,145,269 1,827,644
----------- -----------
Total liabilities............ 87,196,273 78,966,617
Preferred stock.............. 243,607 249,880
Common stockholders'
equity..................... 8,233,268 7,435,711
----------- -----------
Total liabilities and
stockholders' equity....... $95,673,148 $86,652,208
========== ==========
Net interest income.......... 3,639,985 5.63 3,114,336 5.34
Provision for credit
losses..................... (544,232) (0.84) (291,608) (0.50)
---------- ------ ---------- ------
Net funds function........... $3,095,753 4.79 % $2,822,728 4.84%
========= ====== ========= ======
</TABLE>
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion should be read in conjunction with the consolidated
financial statements, notes and tables included elsewhere in this report, in the
1995 BANC ONE CORPORATION annual report on Form 10-K and quarterly reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. BANC ONE's
financial position and results of operations have not been restated to include
Banc One Louisiana Corporation (BOLC), formerly known as Premier Bancorp, Inc.,
which was acquired on January 2, 1996, as this acquisition was accounted for
using the purchase method of accounting. BANC ONE cautions that any forward
looking statements contained in this report, in a report incorporated by
reference to this report or made by management of BANC ONE involve risks and
uncertainties and are subject to change based on various factors. Actual results
could differ materially from those expressed or implied.
NET INTEREST INCOME/NET INTEREST MARGIN
BANC ONE's interest income, on a fully taxable equivalent (FTE) basis, was
$2.0 billion and $6.0 billion for the three and nine months ended September 30,
1996, compared with $1.8 billion and $5.3 billion for the same periods in 1995.
The net interest margin was 5.57% and 5.63% for the three and nine months ended
September 30, 1996, compared with 5.39% and 5.34% for the same periods in 1995.
The increase in interest income was due primarily to earning asset growth
and the acquisition of BOLC. Average earning asset balances increased to $86.7
and $86.4 billion for the three and nine months ended September 30, 1996 as
compared to $77.9 billion for the same periods in 1995. BOLC's September 30,
1996 quarter-to-date and year-to-date average earning assets of $5.0 billion
contributed to the increase.
Average loans and leases grew to $71.2 billion for the three months ended
September 30, 1996, compared to $63.5 billion for the same period in 1995. The
increase of $7.7 billion for the three months ended September 30, 1996 as
compared to the same period in 1995 was due to $3.7 billion related to the
inclusion of BOLC and loan growth of $1.2 billion in credit card loans, $1.1
billion in consumer loans and $1.2 billion in commercial loans and leases. These
increases are net of loan sales and the mortgage reclassification discussed
below.
Average loans and leases grew to $69.9 billion for the nine months ended
September 30, 1996, compared to $62.4 billion for the same period in 1995. The
increase of $7.5 billion for the nine months ended September 30, 1996 as
compared to the same period in 1995 was due to $3.7 billion related to the
inclusion of BOLC and loan growth of $1.3 billion in credit card loans and $1.4
billion in commercial loans and leases. These increases are net of loan sales
and the mortgage reclassification discussed below.
Average investment securities increased $1.6 billion for both the three and
nine months ended September 30, 1996 as compared to the same periods in 1995.
Net investing activities (purchases, sales and maturities) resulted in a
decrease in the investment portfolio of $1.1 billion for the same periods, which
was more than offset by an increase of $1.9 billion in securities as a result of
the inclusion of BOLC in 1996 and an increase of $1.4 billion in securities
related to the securitization of mortgage loans and the resulting
reclassification to investment securities from mortgage loans during the fourth
quarter of 1995.
BANC ONE relies on both traditional bank funding sources, including retail
deposit gathering and issuance of short and long-term debt, as well as sales of
loans with servicing retained to fund the origination of earning assets. The net
interest margin is impacted by the sale of such loans. For example, credit card
loan sales did not significantly affect net income, however, classifications
within the income statement have changed. Amounts that would previously have
been reported as interest income, interest expense, and provision for loan
losses are no longer recorded; however, the net amount is included in
non-interest income as servicing income. Servicing income represents revenue
earned on loans in excess of net charge-offs and interest paid to investors.
Because credit card losses are charged against servicing income over the life of
these transactions such income may vary depending upon the credit performance of
the loans sold. However, exposure to credit losses on the loans sold is limited
to future servicing income and certain on-balance sheet
11
<PAGE> 13
receivables. The following table presents the impact of credit card loan sales
with servicing retained on income statement line items and certain other
information pertaining to the total credit card portfolio.
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------------- --------------------------------------
EFFECT OF EFFECT OF
CREDIT CARD CREDIT CARD
SECURITIZATIONS PRO-FORMA SECURITIZATIONS PRO-FORMA
$(MILLIONS) REPORTED AND SALES ADJUSTED REPORTED AND SALES ADJUSTED
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income statement:
Net interest income -- fully
taxable equivalent.......... $1,215 $ 108 $ 1,323 $1,058 $ 81 $ 1,139
Provision for credit losses... 211 77 288 133 34 167
Non-interest income........... 569 (27) 542 473 (46) 427
Non-interest expense.......... 1,030 4 1,034 880 1 881
Net income.................... 356 0 356 331 0 331
Net interest margin........... 5.57% 10.23% 5.79% 5.39% 10.33% 5.58%
Other credit card data:
Ending balances............... $8,858 $ 3,940 $12,798 $6,809 $ 3,440 $10,249
Average balances.............. 8,398 4,198 12,596 6,543 3,110 9,653
Net charge-offs as a
percentage of average loan
balances.................... 5.46% 7.30% 6.06% 3.73% 4.34% 3.90%
Delinquencies over 90 days as
a percentage of ending loan
balances.................... 1.97% 2.36% 2.04% 1.35% 1.57% 1.42%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
As securities issued in connection with credit card loan sales amortize,
newly originated credit card loans are recorded and funded on BANC ONE's balance
sheet. Approximately $600 million of securities issued in connection with credit
card loan sales are scheduled to amortize during the remainder of 1996, with a
resulting increase in BANC ONE's credit card loans outstanding.
Interest expense increased slightly to $.8 billion from $.7 billion for the
three months ended September 30, 1996 and 1995 and to $2.4 billion from $2.2
billion for the nine months ended September 30, 1996 and 1995. In 1996, the
inclusion of BOLC increased interest expense $38 million and $114 million for
the three and nine month periods.
BANC ONE's retail funding base increased $5 billion for the three and nine
months ended September 30, 1996 primarily related to the inclusion of BOLC. The
retail funding base continued to shift away from relatively low-cost deposit
products (including interest-bearing demand and savings accounts) into deposit
products offering higher yields.
The off-balance sheet investment product impact on net interest income is
meaningful only when considered with total interest income and expense from BANC
ONE's interest earning assets and interest bearing liabilities. Off-balance
sheet investment products decreased interest income by $8 million and $39
million for the three and nine months ended September 30, 1996, and decreased
interest income by $37 million and $112 million for the three and nine months
ended September 30, 1995. Off-balance sheet investment products increased
deposit and other borrowing costs by $3 million and $4 million for the three and
nine months ended September 30, 1996, as compared to $13 million and $50 million
for the same periods in 1995.
12
<PAGE> 14
NON-INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------ ------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, INCREASE SEPTEMBER 30, SEPTEMBER 30, INCREASE
$(THOUSANDS) 1996 1995 (DECREASE) 1996 1995 (DECREASE)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from fiduciary
activities.............. $ 71,787 $ 60,052 $ 11,735 $ 202,038 $ 177,180 $ 24,858
Service charges on deposit
accounts................ 165,806 140,811 24,995 483,843 400,384 83,459
Loan processing and
servicing income:
Mortgage banking........ 20,460 18,998 1,462 66,396 52,607 13,789
Credit card and merchant
processing fees...... 38,152 52,394 (14,242) 113,693 146,460 (32,767)
Loan servicing income... 55,634 71,194 (15,560) 165,864 186,210 (20,346)
-------- -------- ------- ---------- ---------- --------
Total loan processing and
servicing income........ 114,246 142,586 (28,340) 345,953 385,277 (39,324)
Other income:
Insurance............... 25,795 21,525 4,270 83,855 62,137 21,718
Securities related
activities........... 16,987 11,755 5,232 54,339 34,724 19,615
Investment banking...... 6,551 6,829 (278) 26,217 21,471 4,746
Other................... 111,972 82,018 29,954 329,420 277,724 51,696
-------- -------- ------- ---------- ---------- --------
Total other income........ 161,305 122,127 39,178 493,831 396,056 97,775
-------- -------- ------- ---------- ---------- --------
Non-interest income before
securities gains........ 513,144 465,576 47,568 1,525,665 1,358,897 166,768
-------- -------- ------- ---------- ---------- --------
Securities gains.......... 56,165 7,294 48,871 79,533 19,865 59,668
-------- -------- ------- ---------- ---------- --------
Total non-interest
income.................. $ 569,309 $ 472,870 $ 96,439 $ 1,605,198 $ 1,378,762 $226,436
======== ======== ======= ========== ========== ========
</TABLE>
Of the $96 million and $226 million increases in total non-interest income
for the three and nine months ended September 30, 1996 compared to the same
periods in 1995, $23 million and $70 million are due to the inclusion of BOLC.
The following discussion excludes amounts related to BOLC.
The increase in income from fiduciary activities for the three and nine
months ended September 30, 1996 compared to the same periods in 1995 is due
mainly to an increase in investment management fees resulting from the continued
growth in funds under management and an increase in fees per account. Funds
under management increased approximately 6% from September 30, 1995 to September
30, 1996.
The increase in service charges on deposit accounts is primarily due to
increased fees for overdrafts, personal checking and savings accounts of $7
million for the three months and $31 million for the nine months ended September
30, 1996 as compared to the same periods in 1995.
The increase in mortgage banking income for the nine months ended September
30, 1996 is due to gains of $12 million on the sales of mortgage loans offset by
amortization of servicing rights of $7 million. In addition, due to increases in
the servicing portfolio and higher closing volumes, late fees, origination fees
and servicing fees have increased $8 million. For the three months ended
September 30, 1996, gains on the sale of mortgage loans increased $5 million,
offset by increased amortization of $2 million and a decrease of $2 million
related to lower origination fees due to lower closing volumes.
The decrease in credit card and merchant processing fees for the three and
nine months ended September 30, 1996 compared to the same periods in 1995 is
primarily due to BANC ONE entering into a joint venture arrangement with a third
party. Through this arrangement merchant processing fees of $13 million and $36
million and salary and other expense of $6 million and $20 million are
classified as other-other income.
13
<PAGE> 15
The decrease in loan servicing income is primarily due to increased net
charge-offs of $43 million and $113 million partially offset by an increase in
serviced portfolios resulting in increased servicing income of $24 million and
$80 million for the three and nine months ended September 30, 1996. This
decrease is further offset by a $2 million and $5 million increase in servicing
fees related to loan sales other than credit card loans for the three and nine
months ended September 30, 1996.
The increase in both insurance and securities income is due to commissions
on increased sales volume resulting from national sales programs. The increase
in other-other income for the three months ended September 30, 1996 is due to a
gain of $9 million on the sale of a credit card loan portfolio with servicing
released in September 1996 and a $4 million gain related to the sale of mortgage
servicing rights. In addition to these increases, other-other income increased
for the nine months ended September 30, 1996 due to an $8 million increase
related to corporate owned life insurance, $6 million in increased gains on the
sales of bank branches and a gain of $8 million on the sale of residential real
estate (home equity) loans in June 1996. The following transactions in 1995 also
affected the increase: a $52 million loss in the first quarter of 1995 related
to the sale of low yielding consumer loans, a $47 million gain in February 1995
on the sale of four Michigan banks, a $17 million gain in March 1995 on the
sale of a credit card processing software license and a $13 million gain on the
sale of mortgage servicing rights. The increase in securities gains is primarily
due to the recognition of a $52 million increase in the fair value of the
venture capital portfolio in the third quarter of 1996.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------- ----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, INCREASE SEPTEMBER 30, SEPTEMBER 30, INCREASE
$(THOUSANDS) 1996 1995 (DECREASE) 1996 1995 (DECREASE)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and related
costs.................... $ 490,625 $ 430,135 $ 60,490 $ 1,494,989 $ 1,302,164 $192,825
Net occupancy expense,
exclusive of
depreciation............. 43,586 40,965 2,621 135,954 121,157 14,797
Equipment expense.......... 29,322 26,372 2,950 86,298 78,946 7,352
Taxes other than income
and payroll.............. 19,450 23,571 (4,121) 67,974 68,637 (663)
Depreciation and
amortization............. 79,777 71,635 8,142 262,455 215,325 47,130
Outside services and
processing............... 126,604 101,144 25,460 380,391 309,637 70,754
Marketing and
development.............. 38,787 37,210 1,577 120,366 129,789 (9,423)
Communication and
transportation........... 81,889 66,955 14,934 235,158 200,898 34,260
SAIF assessment............ 34,320 0 34,320 34,320 0 34,320
Other...................... 85,781 82,224 3,557 259,694 279,583 (19,889)
---------- -------- -------- ---------- ---------- --------
Total non-interest
expense.................. $ 1,030,141 $ 880,211 $149,930 $ 3,077,599 $ 2,706,136 $371,463
========== ======== ======== ========== ========== ========
</TABLE>
As expected, BANC ONE's ongoing consolidation and standardization
initiatives (Project One) have resulted in certain costs being higher than in
1995. These costs approximated $38 million and $89 million for the three and
nine months ended September 30, 1996, primarily in salaries, occupancy, outside
services and processing, communication and transportation expense. The net
benefits from this initiative are expected to begin to be realized in 1997. In
addition, the inclusion of BOLC has increased total non-interest expense $57
million and $171 million for the three and nine months ended September 30, 1996.
In addition to the items noted above, the increase in salaries and related
costs for the three and nine months ended September 30, 1996 is due to increases
of $10 million and $53 million in bonuses and incentive pay primarily related to
growth in securities and investment banking activities and increases of $12
million and
14
<PAGE> 16
$39 million due to increased full time employees related to growth in non-bank
business and data processing support personnel.
Depreciation and amortization expense for the three and nine months ended
September 30, 1996 increased primarily due to the second quarter 1996 write-off
of $12 million in software and goodwill related to a non-bank subsidiary and an
increase in goodwill and intangible amortization related to the acquisition of
BOLC of $7 million and $22 million.
Outside services and processing expense increased for the three and nine
months ended September 30, 1996 due to increased consulting expense related to
national programs and a $3 million and $8 million increase in appraisal fees
related to increased loan originations. Marketing and development expense
decreased for the nine month period due to a reduction in sales promotions
primarily related to retail and express banking and credit card programs.
On September 30, 1996, legislation providing for the capitalization of the
Savings Association Insurance Fund (SAIF) by requiring a one-time special
assessment on SAIF-insured deposits as of March 31, 1995 was enacted. BANC ONE's
special assessment totalled $34 million. In addition, the legislation provided
that banks and thrifts will service the debt on bonds issued by the Financing
Corporation (FICO). As a result, it is estimated that from 1997 through 1999
BANC ONE will pay deposit insurance premiums of 6.44 basis points on SAIF
deposits and 1.29 basis points on Banking Insurance Fund (BIF) deposits, and
from January 1, 2000 through 2017 will pay 2.43 basis points on all deposits.
Other non-interest expense decreased for the nine month period ending
September 30, 1996 in part due to the Federal Deposit Insurance Corporation's
decision in September 1995 to lower deposit insurance premiums on BIF deposits
held by well capitalized and well managed banks from $.23 per $100 to a $2,000
per bank assessment. The FDIC also decided to refund a portion of the BIF in
excess of 1.25% of insured deposits. The FDIC's decision resulted in a $35
million refund in September 1995. This decrease in other non-interest expense
was partially offset by a $4 million prepayment charge on the early retirement
of long-term debt during the second quarter of 1996 and a $16 million increase
in expenses related to savings and checking accounts and automated teller
machines.
INCOME TAXES
The provision for income taxes was 32.9% of pretax income for the nine
months ended September 30, 1996 as compared to 34.3% of pretax income for the
same period in 1995. The effective tax rate for the nine months ended September
30, 1996 approximates the anticipated effective tax rate for the year. The
decrease in the effective rate is a result of BANC ONE's state tax strategies,
which resulted in a reduction of state income taxes for 1996. In addition, the
effective rate is lower due to the resolution of certain open issues with taxing
authorities. A similar reduction is not expected to occur in 1997.
LOANS AND LEASES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
$(THOUSANDS) (AS OF END OF PERIOD) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural............................. $ 19,586,701 $17,903,692
Real estate:
Commercial....................................................... 6,300,257 5,667,826
Construction..................................................... 3,505,265 2,692,587
Residential...................................................... 11,992,200 10,756,169
Consumer, net...................................................... 20,271,776 18,407,595
Credit card........................................................ 8,857,992 7,665,274
Leases, net........................................................ 2,166,624 1,732,196
----------- -----------
Total loans and leases............................................. $ 72,680,815 $64,825,339
=========== ===========
</TABLE>
15
<PAGE> 17
The $7.9 billion increase in ending loans and leases from December 31, 1995
is due to $3.3 billion related to the inclusion of BOLC and continued loan
growth in substantially all categories. Significant loan origination activity is
not fully reflected in ending loan balances due to the sale of $2.9 billion in
loans during 1996.
BANC ONE's process for monitoring loan quality includes detailed, monthly
analysis of delinquencies, nonperforming assets and potential problem loans.
Management extensively monitors credit through appraisals, assessment of the
financial condition of borrowers, restrictions on out-of-area lending and
avoidance of loan concentrations. The following tables summarize net charge-offs
as percentages of average loans and leases for the periods indicated and loans
delinquent 90 days or more as a percentage of loans at the dates indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------
NET CHARGE-OFFS (1) 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural......................................... .05% .14%
Real estate.................................................................... .03 .06
Consumer, net.................................................................. 1.22 .76
Credit card.................................................................... 5.46 3.73
Leases, net.................................................................... .11 .98
Total loans and leases......................................................... 1.02% .68%
</TABLE>
- ---------------
(1) Ratios are presented on an annualized basis.
Annualized net charge-offs for the third quarter of 1996 increased to 1.02%
of average loans from .68% in the third quarter of 1995. While 27 basis points
of the increase in charge-offs since the third quarter of 1995 is explained by
deteriorating consumer credit trends, 7 basis points or 21% of the increase is
explained by mix changes. Therefore, if the loan portfolio mix had remained
unchanged from the third quarter 1995, charge-offs would have increased to .95%
instead of 1.02%. The increase in net charge-offs since September 30, 1995 has
resulted from the deterioration of consumer credit experienced by BANC ONE and
paralleling that experienced by the financial services industry. On a managed
basis approximately half of BANC ONE's net credit card charge-offs are the
result of bankruptcies, including amounts that were charged-off directly from
accounts that were current.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
LOANS DELINQUENT 90 DAYS OR MORE (1) 1996 1995 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wholesale(2)....................................... .20% .15% .15%
Real estate, residential........................... .29 .26 .17
Consumer, net...................................... .40 .34 .30
Credit card........................................ 1.97 1.54 1.35
Leases, net........................................ .05 .03 .06
Total loans and leases............................. .48% .39% .33%
</TABLE>
- ---------------
(1) Ratios presented are expressed as a percent of ending balances.
Delinquencies exclude nonperforming loans.
(2) Includes commercial, financial, agricultural, commercial real estate and
construction real estate loans.
Total nonperforming assets at September 30, 1996 have increased to $478
million from $430 million at December 31, 1995 primarily due to the inclusion of
BOLC.
16
<PAGE> 18
The following summarizes activity in the allowance for credit losses.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
$(THOUSANDS) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD........... $1,026,318 $891,546 $ 938,008 $897,180
Allowance associated with acquisitions
and other............................ 34 60,065 (3,888)
Provision for credit losses............ 210,657 132,526 544,232 291,608
Losses charged to the allowance........ (238,655) (151,973) (664,748) (410,445)
Recoveries............................. 56,560 43,320 177,323 140,998
---------- -------- ---------- --------
Net losses charged to the allowance.... (182,095) (108,653) (487,425) (269,447)
---------- -------- ---------- --------
BALANCE, END OF PERIOD................. $1,054,880 $915,453 $1,054,880 $915,453
========== ======== ========== ========
</TABLE>
LIQUIDITY AND CAPITAL
At September 30, 1996, large liability dependence was 22.10%, an increase
from 17.30% at December 31, 1995. Competition from non-bank investment providers
continues to impact BANC ONE's deposit gathering and retention efforts. While
the deposit runoff was minimal during the third quarter of 1996, the deposit mix
continued to shift to more costly market priced products. This mix change is
expected to continue for the foreseeable future. BANC ONE continues to pursue a
diversified approach to funding sources including various forms of national
market liabilities as well as loan sales and securitizations. BANC ONE's large
liability dependence increased due to an increase in short-term borrowings and
Eurodollar deposits which were used to fund loan growth. Loan sales are expected
to continue to generate funding for earning asset growth and to balance BANC
ONE's funding sources. In October 1996, BANC ONE issued $500 million of 7 5/8%
subordinated debentures due 2026. The proceeds were used to retire commercial
paper.
At September 30, 1996, risk based tier I capital, total risk adjusted
capital and leverage ratios were 9.18%, 12.83% and 8.31%, respectively. All of
these ratios are significantly above regulatory minimum capital requirements.
ASSET/LIABILITY MANAGEMENT
Assets and liabilities are created at BANC ONE as responses to customer
preferences for credit and deposit products. As such, maturity mismatches of
loans and deposits require management in order to minimize the adverse effect of
interest rate movements on BANC ONE's earnings (the short run effect) and BANC
ONE's economic value (the long run effect). BANC ONE's goal in managing these
risks is to generate high quality earnings from the core business units over
short and long periods of time without the speculative element inherent in
maturity mismatches of assets and liabilities.
BANC ONE uses both on-and off-balance sheet investment products, primarily
interest rate swaps, to manage interest rate risk. Interest rate swap agreements
involve the exchange of interest payments without the exchange of the underlying
notional amount on which the interest payments are calculated. BANC ONE has
entered into interest rate swap agreements that synthetically alter the maturity
of assets and liabilities as part of its asset/liability process to manage the
impact of fluctuating interest rates on BANC ONE's net income and market value.
Earnings at Risk (EAR), defined as the forecasted after-tax change in net
income from the current book of assets and liabilities over the next twelve
months, and Value at Risk (VAR), defined as the change in the total value of
market equity, have prescribed limits in dollar value and are based upon an
historical approach to volatility of interest rates. Because value at risk can
be thought of as the present value of all of the future annual earnings at risk,
BANC ONE attempts to align maturities of assets and liabilities that are present
not only in the current year, but outlying years as well.
17
<PAGE> 19
The historical approach to volatility of interest rates allows BANC ONE to
apply statistical measures to interest rate movements and base its earnings and
value thresholds upon the notion that changes in interest rates are "unlikely"
to surpass three standard deviations of historical volatility. At current rate
levels, three standard deviations translates into interest rate movements of 162
basis points over three months when rates are increasing and 126 basis points
over three months when rates are decreasing. The following table, as of
September 30, 1996 reflects EAR and VAR in dollars for three standard
deviations:
<TABLE>
<CAPTION>
($ IN MILLIONS)
RATE CHANGE IN ----------------------
BASIS POINTS EAR VAR
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase 162......................................................... $(70.9) $(479.1)
Decrease 126......................................................... $68.7 $88.9
</TABLE>
Major assumptions used in measuring interest rate risk include the behavior
of loan and deposit repricings and volumes, prepayments on various fixed rate
assets, and spread and volume elasticity of interest and non-interest bearing
deposit accounts which may not have contractually defined maturities.
Following are the estimated fair value and amortized cost of securities by
type and the estimated maturities and weighted average fixed rates of
off-balance sheet investment products by type. A key assumption in the maturity
information below is that future variable rates move as indicated by the forward
interest rate curve in existence at September 30, 1996. To the extent that the
interest rates move in a fashion other than indicated in the forward interest
rate curve the maturity information will change.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
$(MILLIONS) COST FAIR VALUE COST FAIR VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
United States treasury and agencies.................. $ 118 $ 119 $ 91 $ 91
Mortgage and asset-backed securities................. 46 45 64 68
Tax exempt........................................... 738 766 909 953
Other................................................ 23 23 24 24
------- ------- ------- -------
Total securities held to maturity...................... 925 953 1,088 1,136
------- ------- ------- -------
SECURITIES AVAILABLE FOR SALE:
United States treasury and agencies.................. 3,713 3,683 3,029 3,060
Mortgage and asset-backed securities:
Government........................................ 6,665 6,694 6,553 6,660
Other............................................. 2,644 2,617 3,595 3,587
Tax exempt........................................... 916 916 813 825
Other................................................ 577 583 486 488
------- ------- ------- -------
Total securities available for sale.................... 14,515 14,493 14,476 14,620
------- ------- ------- -------
TOTAL SECURITIES....................................... $15,440 $ 15,446 $15,564 $ 15,756
======= ======= ======= =======
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
MATURITIES OF OFF-BALANCE SHEET INVESTMENT
PRODUCTS AT SEPTEMBER 30, 1996 (1)(2) ENDING BALANCES AT
---------------------------------------------------------- ----------------------------
2001- SEPTEMBER 30, DECEMBER 31,
$(MILLIONS) 1996 1997 1998 1999 2000 2005 2006+ 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional value.......... $ 950 $3,753 $1,800 $ 545 $1,160 $1,596 $300 $10,104 $ 9,789
Weighted average receive
rate.................. 6.33% 5.22% 5.94% 6.20% 6.29% 6.43% 7.23% 5.88% 5.85%
Receive fixed amortizing
swaps:
Notional value.......... $1,994 $1,356 $ 700 $ 19 $ 150 $ 4,219 $ 7,946
Weighted average receive
rate.................. 5.05% 5.21% 5.45% 7.27% 5.54% 5.19% 5.29%
Pay fixed swaps:
Notional value.......... $ 276 $ 95 $ 945 $ 6 $ 7 $ 18 $ 1,347 $ 2,673
Weighted average pay
rate.................. 8.07% 8.54% 6.32% 8.68% 8.18% 7.39% 6.87% 5.76%
------ ------ ------ ------ ------ ------ ---- ------------- ------------
Net receive fixed
position................ $2,668 $5,014 $1,555 $ 558 $1,303 $1,596 $282 $12,976 $ 15,062
Notional value of basis
swaps................... 275 3,730 755 63 50 143 5,016 8,304
Notional value of
purchased caps.......... 501 503 7 19 4 27 1,061 5,253
Other notional value
(3)..................... $1,539 $ 790 $1,000 $1,000 $ 9 $ 4,338 $ 4,052
</TABLE>
- ---------------
(1) Maturities are based on estimated future interest rates from the forward
interest curve at September 30, 1996.
(2) Variable receive and pay interest rates, which are based primarily on three
month LIBOR or prime, are not included in the table above.
(3) Other off-balance sheet investment products include forward starting
contracts ($2.4 billion at September 30, 1996), floors, options, swaptions,
forward rate agreements, and anticipatory hedges. Customer transactions of
$1.5 billion and $1.2 billion at September 30, 1996 and December 31, 1995,
respectively, have been excluded.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1996 1995
--------------------------------------------------------- --------------
TOTAL NOTIONAL UNREALIZED UNREALIZED NET UNREALIZED NET UNREALIZED
$(MILLIONS) AMOUNT GAINS LOSSES LOSS GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Receive fixed swaps................. $ 10,104 $ 12 $ (86) $ (74) $136
Receive fixed amortizing swaps...... 4,219 3 (21) (18) (13)
Pay fixed swaps..................... 1,347 1 (8) (7) (13)
Purchased caps...................... 1,061 0 (2) (2) (18)
Basis swaps......................... 5,016 0 (14) (14) (37)
Other............................... 4,338 4 (8) (4) (8)
------- --- ----- ----- ---
Total............................... $ 26,085 $ 20 $ (139) $ (119) $ 47
======= === ===== ===== ===
</TABLE>
BANC ONE CORPORATION's 1995 annual report on Form 10-K provided certain
fair value information based on interest rates at December 31, 1995. While the
net unrealized value of the off-balance sheet investment product portfolio has
decreased, due to an increase in long-term market interest rates, the fair value
of fixed rate liabilities has increased.
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING
DISCLOSURE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,274,364
<INT-BEARING-DEPOSITS> 2,696
<FED-FUNDS-SOLD> 734,597
<TRADING-ASSETS> 629,735
<INVESTMENTS-HELD-FOR-SALE> 13,862,900
<INVESTMENTS-CARRYING> 925,167
<INVESTMENTS-MARKET> 953,357
<LOANS> 72,680,815
<ALLOWANCE> 1,054,880
<TOTAL-ASSETS> 98,562,000
<DEPOSITS> 71,527,619
<SHORT-TERM> 13,394,311
<LIABILITIES-OTHER> 2,177,844
<LONG-TERM> 3,022,835
<COMMON> 2,159,028
0
240,077
<OTHER-SE> 6,040,286
<TOTAL-LIABILITIES-AND-EQUITY> 98,562,000
<INTEREST-LOAN> 5,108,989
<INTEREST-INVEST> 787,732
<INTEREST-OTHER> 48,809
<INTEREST-TOTAL> 5,945,530
<INTEREST-DEPOSIT> 1,756,190
<INTEREST-EXPENSE> 2,353,502
<INTEREST-INCOME-NET> 3,592,028
<LOAN-LOSSES> 544,232
<SECURITIES-GAINS> 79,533
<EXPENSE-OTHER> 3,077,599
<INCOME-PRETAX> 1,575,395
<INCOME-PRE-EXTRAORDINARY> 1,056,736
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,056,736
<EPS-PRIMARY> 2.38
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 5.63
<LOANS-NON> 415,226
<LOANS-PAST> 345,294
<LOANS-TROUBLED> 1,228
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 938,008
<CHARGE-OFFS> 664,748
<RECOVERIES> 177,323
<ALLOWANCE-CLOSE> 1,054,880
<ALLOWANCE-DOMESTIC> 930,313
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 124,567
</TABLE>
