<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
September 2, 1997
BANC ONE CORPORATION
(Exact Name of Registrant as Specified in Charter)
Ohio
(State or Other Jurisdiction of Incorporation)
1-8552 31-0738296
(Commission File Number) (IRS Employer Identification No.)
100 East Broad Street, Columbus, Ohio 43271
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (614) 248-5944
N/A
(Former Name or Former Address, If Changed Since Last Report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
As previously reported by BANC ONE CORPORATION ("BANC ONE") on its
Current Report on Form 8-K filed July 14, 1997 (as amended by Form 8-K/A filed
August 13, 1997), on June 27, 1997, subject to the terms and conditions of the
Agreement and Plan of Merger (the "Merger Agreement") dated as of January 19,
1997 and amended as of April 23, 1997, between First USA, Inc., a Delaware
corporation ("FUSA") and BANC ONE, First USA was merged with and into BANC ONE,
with BANC ONE as the surviving corporation (the "Merger"). In accordance with
the Merger Agreement, each share of the common stock, par value $0.01 per share,
of FUSA outstanding immediately prior to the effective time of the Merger (the
"Effective Time") was at the Effective Time converted into the right to receive
1.1659 shares of the common stock, no par value, of BANC ONE. The Merger was
accounted for as a "pooling of interests" under generally accepted accounting
principles.
The following supplemental consolidated financial statements of BANC
ONE restating BANC ONE's historical consolidated financial statements as of and
for the three years ended December 31, 1996 to reflect the Merger are
incorporated herein by reference to Exhibit 99.1 filed herewith:
1. Management's Discussion and Analysis.
2. Consolidated Balance Sheet as of December 31, 1996 and 1995.
3. Consolidated Statement of Income for the three years ended December
31, 1996.
4. Consolidated Statement of Changes in Stockholders' Equity for the
three years ended December 31, 1996.
5. Consolidated Statement of Cash Flows for the three years ended
December 31, 1996.
6. Notes to the Consolidated Financial Statements.
The report of Coopers & Lybrand L.L.P., independent accountants, on the
supplemental consolidated financial statements of BANC ONE as of December 31,
1996 and 1995 and for the three years ended December 31, 1996 is filed herewith
as part of Exhibit 99.1 and the related consent is filed herewith as Exhibit 23.
Both the opinion and the consent are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
Not applicable.
2
<PAGE> 3
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 hereunto duly authorized.
BANC ONE CORPORATION
(Registrant)
Date: August 29, 1997 By: /s/ Bobby L. Doxey
---------------------------
Bobby L. Doxey
Senior Vice President
3
<PAGE> 4
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit 11 Statement Regarding Computation of Earnings Per
Common Share.
Exhibit 12 Statement Regarding Computation of Ratio of Earnings
to Fixed Charges.
Exhibit 23 Consent of Coopers & Lybrand L.L.P.
Exhibit 27 Financial Data Schedules.
Exhibit 99.1 Supplemental Consolidated Financial Statements of
BANC ONE CORPORATION and Report of Coopers & Lybrand
L.L.P.
4
<PAGE> 1
EXHIBIT 11
BANC ONE CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
$(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY:
Earnings:
Net income $ 1,672.8 $ 1,445.2
Deduct: Dividends on series C preferred shares 16.3 17.5
--------- ---------
Net income available to common shareholders 1,656.5 1,427.7
========= =========
Shares:
Weighted average common shares outstanding 575.0 569.3
Add: Dilutive effect of outstanding options, as
determined by the application of the treasury stock
method 19.9 18.5
--------- ---------
Weighted average common shares outstanding, as
adjusted 594.9 587.8
========= =========
PRIMARY EARNINGS PER COMMON SHARE $ 2.78 $ 2.43
========= =========
FULLY DILUTED:
Earnings:
Net income $ 1,672.8 $ 1,445.2
========= =========
Shares:
Weighted average common shares outstanding 575.0 569.3
Add: Dilutive effect of outstanding options, as
determined by the application of the treasury stock
method 21.0 19.5
Add: Conversion of preferred stock 9.1 9.6
--------- ---------
Weighted average common shares outstanding, as
adjusted 605.1 598.4
========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE $ 2.76 $ 2.42
========= =========
</TABLE>
<PAGE> 1
EXHIBIT 12
BANC ONE CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
$(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Calculation excluding interest on deposits
Earnings
Income before income taxes and change in
accounting principle $2,496.9 $2,173.5 $1,806.2 $1,914.7 $1,381.0
Fixed charges 1,202.3 968.7 727.0 397.0 385.5
Less: Capitalized interest (4.9) (1.7) (1.0) (.7) (1.2)
-------- -------- -------- -------- --------
Earnings $3,694.3 $3,140.5 $2,532.2 $2,311.0 $1,765.3
======== ======== ======== ======== ========
Fixed Charges:
Interest expense, including interest factor
of capitalized leases and amortization of
deferred debt expense $1,142.3 $ 912.4 $ 666.8 $ 345.4 $ 340.5
Portion of rental payments under
operating leases deemed to be interest 60.0 56.3 60.2 51.6 45.0
-------- -------- -------- -------- --------
Fixed charges $1,202.3 $ 968.7 $ 727.0 $ 397.0 $ 385.5
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
excluding interest on deposits 3.07x 3.24x 3.48x 5.82x 4.58x
Calculation including interest on deposits:
Earnings:
Income before income taxes and change in
accounting principle $2,496.9 $2,173.5 $1,806.2 $1,914.7 $1,381.0
Fixed Charges 3,662.5 3,395.1 2,560.2 1,987.2 2,474.9
Less: Capitalized interest (4.9) (1.7) (1.0) (.7) (1.2)
-------- -------- -------- -------- --------
Earnings $6,154.5 $5,566.9 $4,365.4 $3,901.2 $3,854.7
======== ======== ======== ======== ========
Fixed charges:
As detailed above $1,202.3 $ 968.7 $ 727.0 $ 397.0 $ 385.5
Interest on deposits 2,460.2 2,426.4 1,833.2 1,590.2 2,089.4
-------- -------- -------- -------- --------
Fixed charges $3,662.5 $3,395.1 $2,560.2 $1,987.2 $2,474.9
======== ======== ======== ======== ========
Ratio of earnings to fixed charges
including interest on deposits 1.68x 1.64x 1.71x 1.96x 1.56x
</TABLE>
<PAGE> 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 August 28, 1997, on
our audits of the supplemental consolidated financial statements of BANC ONE
CORPORATION and Subsidiaries, as of December 31, 1996 and 1995 and for the
years ended December 31, 1996, 1995 and 1994 included in BANC ONE CORPORATION's
Annual Report on Form 8-K dated August 29, 1997.
Registration Statements on Form S-8
Registration Numbers:
33-14475 33-54100
33-27849 33-37400
33-18277 33-55149
33-61760 33-55315
33-34294 33-58923
33-20890 333-00445
33-20990 333-21981
33-40041 333-26929
33-45473 333-27631
33-46189 333-28281
33-53752 333-29395
33-55172 333-30419
33-10822 333-30421
33-55174 333-30425
33-60424 333-30429
33-50117 333-32053
33-61758
Registration Statements on Form S-3
Registration Numbers:
33-64195 333-22413
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
August 28,1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1995
<CASH> 6,524
<INT-BEARING-DEPOSITS> 2
<FED-FUNDS-SOLD> 659
<TRADING-ASSETS> 549
<INVESTMENTS-HELD-FOR-SALE> 14,185
<INVESTMENTS-CARRYING> 4,398
<INVESTMENTS-MARKET> 4,429
<LOANS> 79,390
<ALLOWANCE> 1,198
<TOTAL-ASSETS> 112,154
<DEPOSITS> 74,223
<SHORT-TERM> 18,325
<LIABILITIES-OTHER> 2,909
<LONG-TERM> 6,828
0
207
<COMMON> 2,883
<OTHER-SE> 6,779
<TOTAL-LIABILITIES-AND-EQUITY> 112,154
<INTEREST-LOAN> 7,438
<INTEREST-INVEST> 1,222
<INTEREST-OTHER> 76
<INTEREST-TOTAL> 8,736
<INTEREST-DEPOSIT> 2,460
<INTEREST-EXPENSE> 3,598
<INTEREST-INCOME-NET> 5,139
<LOAN-LOSSES> 943
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 5,062
<INCOME-PRETAX> 2,497
<INCOME-PRE-EXTRAORDINARY> 1,673
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,673
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.76
<YIELD-ACTUAL> 5.45
<LOANS-NON> 374
<LOANS-PAST> 484
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 1,008
<CHARGE-OFFS> 1,066
<RECOVERIES> 246
<ALLOWANCE-CLOSE> 1,198
<ALLOWANCE-DOMESTIC> 1,198
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Only problem loans to disclose would be consumer loans as they do not get
placed on nonaccrual. If a problem loan and >90 days past due and still
accruing, we report above as "loan past". If nonaccrual, we report above as
"loans non". What remains is <90 days and accruing loans that are problem
loans-immaterial.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
I. INTRODUCTION
This discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report. "The
Corporation" is defined as parent company only. "BANC ONE" is defined as the
Corporation and all significant majority-owned subsidiaries. Management's
discussion and analysis contains 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 in such statements. For a
discussion of certain factors that may cause such forward-looking statements to
differ materially from BANC ONE's actual results see BANC ONE's Annual Report on
Form 10-K for the year ended December 31, 1996.
On June 27, 1997, BANC ONE completed its acquisition of First USA, Inc. (First
USA). The acquisition was accounted for as a pooling of interests and,
accordingly, the information included in this report presents the combined
results of BANC ONE and First USA as if the two companies had operated as a
combined entity for all periods presented.
ACQUISITIONS
First USA, Inc. - First USA was acquired in a tax-free exchange of stock,
whereby the Corporation exchanged 1.1659 shares of its common stock for each
outstanding share of First USA common stock. 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
to $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, respectively. First USA has traditionally produced high growth in
earnings. However, management estimates that this transaction will be dilutive
to BANC ONE's earnings per common share in 1997, neutral in 1998 and accretive
to earnings per common share thereafter.
Liberty Bancorp, Inc. - On June 1, 1997, the Corporation completed its
acquisition of Liberty Bancorp, Inc. (Liberty), a multi-bank holding company
headquartered in Oklahoma City, Oklahoma. Liberty had approximately $2.9 billion
in assets at December 31, 1996, and 29 banking offices primarily in Oklahoma
City and Tulsa. Under the terms of the agreement, the Corporation issued 1.175
shares of its common stock (11.9 million shares in total) for each outstanding
share of Liberty common stock. The transaction was accounted for using the
purchase method of accounting.
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. The acquisition of BOLC significantly impacts performance
comparisons between 1996 and prior periods. Throughout the following discussion,
the impact of BOLC will be addressed.
RESTRUCTURING CHARGES AND MERGER RELATED COSTS
In connection with the merger of First USA and other strategic initiatives, BANC
ONE identified and recorded in the second quarter of 1997 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 stock; asset
related write-downs and other merger related costs.
1
<PAGE> 2
The remaining $96.4 million charge related to costs associated with the
strategic initiatives to streamline the retail branch delivery structure by
consolidating approximately 200 banking center over the next 18 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.
In 1995, BANC ONE launched a series of strategic initiatives collectively
referred to as Project One. These efforts are designed to enhance the
effectiveness and efficiency of certain operations by, among other things,
decreasing the number of legal entities, combining operations and systems and
centralizing many staff and line functions. During 1996, BANC ONE incurred
Project One expenses of $150 million. Project One initiatives resulted in higher
expense levels during the first half of 1997.
II OVERVIEW OF OPERATIONS
Net income for 1996 was a record $1.7 billion, or $2.78 per common share, up
15.8% and 14.4%, respectively, from $1.4 billion, or $2.43 per common share in
1995. This reflected a 20.9% increase in net interest income and a 21.2%
increase in non-interest income, partially offset by a 17.0% increase in
non-interest expense and a higher provision for credit losses.
Contributing to the 1996 increase in income was a 12.0% increase in average
earning assets, which is a reflection of strong loan growth. The higher
provision for credit losses reflected both loan growth and higher levels of net
charge-offs, particularly in credit card and consumer loans. Key performance
measures continued to be strong during 1996.
FIVE YEAR PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
$(millions, except for per share data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $1,673 $1,445 $1,188 $1,272 $949
Total revenue 12,099 10,363 8,761 8,194 8,188
Net income per common share 2.78 2.43 1.99 2.25 1.72
Cash dividends declared per common
share (as originally reported) $1.36 $1.24 $1.13 $.97 $.81
Return on average assets 1.59% 1.54% 1.28% 1.53% 1.19%
Return on average common equity 17.83 17.26 14.73 18.17 15.27
Return on average total equity 17.56 16.95 14.50 17.77 14.89
Average common equity to average
assets 8.85 8.81 8.56 8.31 7.65
Average total equity to average assets 9.08% 9.07% 8.83% 8.62% 8.00%
At year end:
Total assets $112,154 $97,889 $95,283 $89,497 $84,065
Long-term borrowings $6,828 $4,331 $2,939 $2,292 $1,869
</TABLE>
2
<PAGE> 3
III NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis (FTE), was $5.2 billion
in 1996, up $871 million, or 20.1% from the prior year reflecting an increase in
average earning assets and net interest margin. For 1996, average earning assets
totaled $95.4 billion, up $10.2 billion or 12.0% from 1995. This increase
primarily reflected a $5.0 billion average positive impact from the BOLC
acquisition complemented by strong underlying loan growth, as average securities
and other earning assets increased only slightly.
Average loans and leases, excluding loans held for sale, totaled $75.1 billion,
a $8.4 billion or 12.6% increase over 1995 levels. Excluding the impact of the
BOLC acquisition, average loans increased $5.0 billion or 7.5%. Contributing to
this increase was a $2.4 billion increase in credit card loans, and a $1.3
billion increase in commercial loans and leases. These increases are net of loan
sales and securitizations.
Average investment securities totaled $19.1 billion in 1996, up $2.2 billion, or
13.1% from 1995, primarily attributable to the acquisition of BOLC. The lack of
growth in investment securities reflected a decision to reduce the amount of
lower yielding securities, primarily through maturity run-off and to use the
proceeds to fund higher yielding loans. This strategy improved the overall
earning asset yield and net interest margin given the investment securities'
typically lower yield as compared to loans.
Earning asset growth is funded by traditional bank funding 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 inclusion of BOLC. Average short-term borrowed
funds in 1996 totaled $15.4 billion, up $3.8 billion from the prior year.
Average long-term borrowed funds totaled $5.1 billion, up $1.4 billion from
1995.
It is management's practice to analyze its financial performance on a "managed"
portfolio basis, in addition to analyzing information as reported under
generally accepted accounting principles. The income effect of securitizing
loans results in removing these loans from the balance sheet and recording a
gain based upon the present value of net interest income and fees less estimated
credit losses and servicing fees on the securitized loans.
The managed credit card statistics provided in the following table, include
loans sold in credit card securitization transactions and the Company's on
balance sheet portfolio. For the "Managed" information, the Company's
consolidated statements of income and balance sheets are adjusted to eliminate
the effect of securitizing credit card loans. "As 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. Accordingly, the following table depicts the Company's key financial
data as a result of securitizing credit card loans.
3
<PAGE> 4
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------------------- --------------------------
As Reported Managed As Reported Managed
- -------------------------------------------------------------------------------------------------------------
$(millions)
<S> <C> <C> <C> <C>
INCOME STATEMENT STATISTICS:
Net interest income - fully taxable equivalent $ 5,202 $ 7,029 $ 4,331 $ 5,550
Provision for credit losses 943 1,952 526 993
Non-interest income:
Credit card servicing income 1,059 0 1,066 0
Other loan servicing income 25 25 21 21
Interchange and processing income 281 507 261 478
Other 1,998 1,998 1,427 1,427
-------- -------- -------- --------
Total non-interest income 3,363 2,530 2,775 1,926
Non-interest expense 5,062 5,051 4,327 4,333
Taxable equivalent adjustment 63 63 79 79
-------- -------- -------- --------
Income before tax (1) $ 2,497 $ 2,493 $ 2,174 $ 2,071
======== ======== ======== ========
CREDIT CARD STATISTICS:
Average credit card loans $ 12,471 $ 31,332 $ 10,058 $ 22,949
End of period credit card loans 14,424 34,838 11,258 28,560
Credit card delinquencies over 30 days as a
percentage of ending credit card balances 4.84% 5.22% 3.91% 3.80%
Net credit card charge offs as a percentage of
average credit card balances 4.48% 5.00% 3.04% 3.37%
BALANCE SHEET AND OTHER STATISTICS:
Total loans $ 80,864 $103,434 $ 68,921 $ 87,356
Earning asset yield 9.23% 10.31% 9.00% 9.91%
Cost of interest bearing liabilities 4.57 4.87 4.76 5.03
Net interest margin 5.45 7.16 5.08 6.51
(1) The difference in income before tax on a reported and managed basis
reflects the effect of the gain recognized on excess servicing when credit
card loans are securitized and the subsequent amortization of this asset in
future periods.
</TABLE>
In 1996, off-balance sheet investment products decreased interest income by $49
million and decreased deposit and other borrowing costs by $3 million. This
compares with a reduction in 1995 interest income of $145 million and increased
deposit and other borrowing costs of $60 million. Off-balance sheet investment
product impact on net interest income reflects the cost or benefit of the use of
these products to manage interest rate risk. The dollar amounts stated above are
not an indication of the effectiveness of the use of these instruments as the on
balance sheet instruments hedged move in the opposite direction. The cost or
benefit from hedging transactions is significantly impacted by customer
preferences, the historical interest rate environment in which the instruments
were acquired and current market rates.
4
<PAGE> 5
FIVE YEAR SUMMARY -- AVERAGE BALANCES, INCOME AND
EXPENSE, YIELDS AND RATES(1,4)
<TABLE>
<CAPTION>
1996 1995
----------------------------- --------------------------------------
Average Income / Yield / Average Income / Yield/
$(thousands) Balances Expense Rate Balances Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Short-term investments $ 662,262 $ 36,771 5.55% $ 1,188,518 $ 75,588 6.36%
Loans held for sale 549,370 39,544 7.20 418,540 32,925 7.87
SECURITIES: (3)
Taxable 17,378,663 1,128,362 6.49 14,899,874 974,541 6.54
Tax-exempt 1,694,224 139,391 8.23 1,964,544 171,626 8.74
--------- ------- --------- -------
TOTAL SECURITIES 19,072,887 1,267,753 6.65 16,864,418 1,146,167 6.80
LOANS AND LEASES: (2)
Commercial, financial and agricultural 19,368,875 1,600,332 8.26 17,439,240 1,426,070 8.18
Real estate:
Commercial 6,162,566 553,122 8.98 5,589,638 501,614 8.97
Construction 3,214,428 316,406 9.84 2,441,833 250,116 10.24
Residential 11,898,026 1,104,160 9.28 11,491,299 1,011,832 8.81
Consumer, net 19,943,499 1,881,053 9.43 18,209,617 1,710,328 9.39
Credit card 12,471,309 1,849,694 14.83 10,057,688 1,405,578 13.98
Leases, net 2,025,861 150,547 7.43 1,479,726 107,143 7.24
--------- ------- --------- -------
TOTAL LOANS AND LEASES 75,084,564 7,455,314 9.93 66,709,041 6,412,681 9.61
---------- --------- ---------- ---------
Total earning assets 95,369,083 8,799,382 9.23 85,180,517 7,667,361 9.00
ALLOWANCE FOR CREDIT LOSSES (1,103,377) (966,734)
Other assets 10,678,556 9,751,175
---------- ---------
TOTAL ASSETS $ 104,944,262 $ 93,964,958
============= =============
LIABILITIES:
DEPOSITS:
Non-interest bearing demand $ 14,203,145 $ 13,137,978
Interest bearing demand 2,391,466 42,883 1.79 8,263,124 175,734 2.13
Savings and money market 29,008,134 963,311 3.32 20,095,413 746,564 3.72
Time deposits:
CDs less than $100,000 18,928,796 1,053,236 5.56 19,181,386 1,089,761 5.68
CDs $100,000 and over:
Domestic 5,432,193 270,762 4.98 5,855,409 326,715 5.58
Foreign 2,428,889 130,033 5.35 1,531,360 87,582 5.72
--------- ------- --------- ------
TOTAL DEPOSITS 72,392,623 2,460,225 3.40 68,064,670 2,426,356 3.56
BORROWED FUNDS
Short-term 15,372,420 803,390 5.23 11,566,327 657,955 5.69
Long-term 5,083,394 333,987 6.57 3,663,272 252,443 6.89
---------- --------- ---------- -------
Total borrowed funds 20,455,814 1,137,377 5.56 15,229,599 910,398 5.98
---------- --------- ---------- -------
TOTAL INTEREST BEARING LIABILITIES 78,645,292 3,597,602 4.57 70,156,291 3,336,754 4.76
Other liabilities 2,569,850 2,146,725
--------- ---------
TOTAL LIABILITIES 95,418,287 85,440,994
Preferred stock 236,102 249,913
Common stockholders' equity 9,289,873 8,274,051
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 104,944,262 $ 93,964,958
============= =============
NET INTEREST INCOME 5,201,780 5.45 4,330,607 5.08
Provision for credit losses (942,714) (.98) (526,138) (.62)
-------- ---- -------- ----
NET FUNDS FUNCTION $ 4,259,066 4.47% $ 3,804,469 4.47%
============= ==== ============= ====
</TABLE>
(1) Income amounts are presented on a fully taxable equivalent basis (FTE),
which is defined as income on earning assets that is subject to either
a reduced rate or zero rate of income tax, adjusted to give effect to
the appropriate incremental federal income tax rate and adjusted for
non-deductible carrying costs, where applicable. Where appropriate,
yield calculations include these adjustments. The federal statutory tax
rate was 35% for 1996, 1995, 1994 and 1993 and 34% for 1992.
(2) Non-accrual 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.
(4) All average balances are calculated on the basis of daily averages.
5
<PAGE> 6
<TABLE>
<CAPTION>
Compound Annual
1994 1993 1992 Growth 1991-1996
- ---------------------------------- -------------------------------- -------------------------------- -------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/
Balances Expense Rate Balances Expense Rate Balances Expense Rate Balance Expense
- ------------------------------------------------------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,353,781 $ 63,296 4.68% $ 1,771,185 $ 60,393 3.41% $ 3,354,370 $ 132,480 3.95% (27.92)% (29.12)%
562,168 40,822 7.26 839,611 58,128 6.92 427,462 33,684 7.88 26.29 20.42
17,323,493 949,495 5.48 15,521,842 878,256 5.66 15,371,187 1,058,785 6.89 9.24 3.79
2,331,794 202,042 8.66 2,042,759 194,441 9.52 2,065,168 216,009 10.46 (6.02) (11.41)
- ----------- ---------- ----------- ---------- ----------- ----------
19,655,287 1,151,537 5.86 17,564,601 1,072,697 6.11 17,436,355 1,274,794 7.31 7.19 1.23
15,533,301 1,174,391 7.56 14,598,413 1,176,101 8.06 15,545,313 1,267,719 8.15 5.49 2.24
5,228,036 442,323 8.46 4,728,069 404,625 8.56 4,337,654 393,168 9.06 10.98 8.63
1,960,218 184,118 9.39 1,625,081 138,124 8.50 1,569,215 132,386 8.44 12.26 13.68
10,335,934 871,283 8.43 9,579,529 871,444 9.10 8,896,087 851,766 9.57 12.31 9.34
18,768,362 1,614,093 8.60 15,657,193 1,479,106 9.45 13,201,395 1,414,312 10.71 15.35 10.01
9,804,094 1,367,342 13.95 7,297,439 1,150,433 15.76 6,198,294 1,061,098 17.12 21.83 16.82
1,174,142 88,549 7.54 1,020,028 83,882 8.22 991,395 87,740 8.85 17.19 8.94
- ----------- ---------- ----------- ---------- ----------- ----------
62,804,087 5,742,099 9.14 54,505,752 5,303,715 9.73 50,739,353 5,208,189 10.26 12.17 9.26
- ----------- ---------- ----------- ---------- ----------- ----------
84,375,323 6,997,754 8.29 74,681,149 6,494,933 8.70 71,957,540 6,649,147 9.24 9.88 7.19
(1,024,377) (1,017,730) (1,001,207) 6.13
9,441,436 9,382,596 8,670,185 7.38
- ----------- ----------- -----------
$92,792,382 $83,046,015 $79,626,518 9.65
=========== =========== ===========
$13,551,945 $12,814,476 $11,665,109 11.02
9,277,460 168,959 1.82 8,757,283 141,064 1.61 8,145,956 183,521 2.25 (15.78) (29.02)
20,011,114 551,567 2.76 19,385,667 501,974 2.59 18,261,233 604,514 3.31 15.71 6.58
17,718,121 753,590 4.25 17,826,413 676,142 3.79 19,968,163 993,774 4.98 .55 (3.64)
6,668,240 303,385 4.55 5,854,385 247,479 4.23 5,760,855 285,213 4.95 (1.60) (7.59)
1,298,988 55,683 4.29 694,585 23,509 3.38 560,578 22,348 3.99 41.83 39.41
- ----------- ---------- ----------- ---------- ----------- ----------
68,525,868 1,833,184 2.68 65,332,809 1,590,168 2.43 64,361,894 2,089,370 3.25 6.52 (1.35)
11,596,801 479,643 4.14 7,027,418 214,376 3.05 5,970,219 211,177 3.54 23.09 20.79
2,825,282 185,956 6.58 2,000,478 130,247 6.51 1,584,600 127,651 8.06 28.55 19.06
- ----------- ---------- ----------- ---------- ----------- ----------
14,422,083 665,599 4.62 9,027,896 344,623 3.82 7,554,819 338,828 4.48 24.32 20.27
- ----------- ---------- ----------- ---------- ----------- ----------
69,396,006 2,498,783 3.60 61,546,229 1,934,791 3.14 60,251,604 2,428,198 4.03 8.94 3.12
1,649,925 1,528,295 1,338,020 18.46
- ----------- ----------- -----------
84,597,876 75,889,000 73,254,733 9.44
249,946 253,385 282,308 1.07
7,944,562 6,903,631 6,089,477 12.25
- ----------- ----------- -----------
$92,792,384 $83,046,016 $79,626,518 9.65%
=========== =========== ===========
4,498,971 5.33 4,560,142 6.11 4,220,949 5.87 10.66
(292,222) (.34) (449,694) (.61) (694,969) (.97) 7.22
---------- ----- ---------- ----- ---------- -----
$4,206,749 4.99% $4,110,448 5.50% $3,525,980 4.90% 11.51%
========== ===== ========== ===== ========== =====
</TABLE>
6
<PAGE> 7
RATE - VOLUME ANALYSIS (1,2)
<TABLE>
<CAPTION>
1996-95 1995-94
--------------------------------------- ----------------------------------------
Change in Change in
Income/ Rate Volume Income / Rate Volume
$(thousands) Expense Effect Effect Expense Effect Effect
- ----------------------------------------------------------------------------------------------------------------------
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ (38,817) $ (8,650) $ (30,167) $ 12,292 $ 20,723 $ (8,431)
Loans held for sale 6,619 (2,985) 9,604 (7,897) 3,188 (11,085)
Securities: (5)
Taxable 153,821 (7,172) 160,993 25,046 168,666 (143,620)
Tax exempt (32,235) (9,586) (22,649) (30,416) 1,655 (32,071)
----------- ----------- ----------- ----------- ----------- -----------
Total securities 121,586 (16,758) 138,344 (5,370) 170,321 (175,691)
Loans and leases: (3) (4)
Commercial, financial and
agricultural 174,262 14,969 159,293 251,679 100,519 151,160
Real estate:
Commercial 51,508 85 51,423 59,291 27,708 31,583
Construction 66,290 (10,098) 76,388 65,998 17,769 48,229
Residential 92,328 55,749 36,579 140,549 40,053 100,496
Consumer, net 170,725 7,216 163,509 96,235 145,369 (49,134)
Credit Card 444,116 90,342 353,774 38,236 2,801 35,435
Leases, net 43,404 2,889 40,515 18,594 (3,655) 22,249
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LOANS AND LEASES 1,042,633 161,152 881,481 670,582 330,564 340,018
TOTAL EARNING ASSETS 1,132,021 132,759 999,262 669,607 524,796 144,811
Interest bearing liabilities:
Interest bearing demand (132,851) (24,021) (108,830) 6,775 26,471 (19,696)
Savings and money market 216,747 (86,014) 302,761 194,997 192,664 2,333
Time deposits:
CD's less than $100,00 (36,525) (22,290) (14,235) 336,171 269,810 66,361
CD's $100,000 and over:
Domestic (55,953) (33,355) (22,597) 23,330 63,242 (39,912)
Foreign 42,451 (5,922) 48,373 31,899 20,777 11,122
----------- ----------- ----------- ----------- ----------- -----------
Total deposits 33,869 (171,602) 205,472 593,172 572,964 20,208
Borrowed funds:
Short-term 145,435 (56,964) 202,399 178,312 179,576 (1,264)
Long-term 81,544 (12,249) 93,793 66,487 9,094 57,393
----------- ----------- ----------- ----------- ----------- -----------
Total borrowed funds 226,979 (69,213) 296,192 244,799 188,670 56,129
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INTEREST BEARING LIABILITIES 260,848 (240,815) 501,664 837,971 761,634 76,337
----------- ----------- ----------- ----------- ----------- -----------
NET INTEREST INCOME $ 871,173 $ 373,574 $ 497,598 $ (168,364) $ (236,838) $ 68,474
=========== =========== =========== =========== =========== ===========
(1) Fully taxable equivalent basis using the federal statutory rate of 35%
for all years presented.
(2) The change not solely due to volume or rate has been prorated into rate
and volume components.
(3) Interest income on loans and leases includes $224 million, $154 million
and $191 million of credit card fees in 1996, 1995 and 1994,
respectively. Other fees included in interest income are not material.
(4) Non-accrual loans and related income are included in their respective
loan categories.
(5) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value, which are included in
other assets.
</TABLE>
7
<PAGE> 8
IV NON-INTEREST INCOME AND NON-INTEREST EXPENSE
NON-INTEREST INCOME
<TABLE>
<CAPTION>
Increase
$(MILLIONS) 1996 1995 (Decrease)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management and advisory activities $ 279 $ 239 $ 40
Service charges on deposit accounts 654 545 109
Loan processing and servicing income:
Mortgage banking 89 78 11
Interchange and merchant processing fees 281 261 20
Credit card servicing income 1,059 1,066 (7)
Other loan servicing income 25 21 4
------- ------- -------
Total loan processing and servicing income 1,454 1,426 28
Other income:
Insurance 118 85 33
Securities activities 71 51 20
Investment banking 39 31 8
Gain on sale of assets 257 49 208
Other 474 351 123
------- ------- -------
Total other income 959 567 392
------- ------- -------
Non-interest income before securities transactions 3,346 2,777 569
Securities gain (losses), net 17 (2) 19
------- ------- -------
TOTAL NON-INTEREST INCOME $ 3,363 $ 2,775 $ 588
======= ======= =======
</TABLE>
Non-interest income in 1996 totaled $3.4 billion, an increase of $588 million,
or 21.2% from 1995. Excluding the impact of the BOLC acquisition, non-interest
income increased $491 million, or 17.7%. The $97 million increase related to
BOLC includes $54 million in service charges on deposit accounts, $16 million in
other-other non-interest income and $11 million in investment management and
advisory activities. The following discussion of individual non-interest income
categories excludes the impact of BOLC.
Investment management and advisory activities income for 1996 increased $29
million, or 12.1%, primarily 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 at year-end 1996 were $40 billion,
up 12.8% from December 31, 1995.
Service charges on deposit accounts increased $55 million or 10.1% in 1996
primarily reflecting a $36 million increase in fees on overdrafts, personal
savings and checking accounts, as well as an overall increase in demand deposit
account volume.
The increase in credit card and merchant processing fees was due to increased
credit card payment processing volume which is partially offset by a
reclassification of income due to a joint venture arrangement entered into with
a third party in 1996. Through this arrangement, merchant processing fees of $49
million and salary and other expense of $27 million were included in net
earnings from the joint venture and classified as other income. The decrease in
credit card servicing income compared with 1995 is due to both the reduction in
the excess yield on securitizations as a result of a $542 million increase in
net charge offs and a decrease in securitization gains of $100 million, mostly
offset by higher volumes of serviced loans.
8
<PAGE> 9
Insurance income and income from securities activities increased $28 million and
$18 million, respectively, reflecting higher commissions related to increased
sales volumes resulting from 1996 national sales programs.
Gains on sale of assets increased $109 million in 1996 primarily reflecting a
gain of $107 million from the December 1996 sale of a portion of an investment
in a subsidiary. As a result of this sale, ownership in this subsidiary was
reduced from 77% to 57%. In December 1996, BANC ONE sold $734 million, or
approximately 61%, of an affinity credit card portfolio, with servicing
released, which resulted in a pretax gain of $97 million which was offset by a
reduced gains in 1996 on the sale of other credit card loans.
The 1996 increase in other income was primarily due to the recognition of a $52
million increase in the fair value of the venture capital portfolio in 1996.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
Increase
$(MILLIONS) 1996 1995 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and related costs $2,205 $1,876 $ 329
Net occupancy expense, exclusive of 192 175 17
depreciation
Equipment expense 125 111 14
Taxes other than income and payroll 90 91 (1)
Depreciation and amortization 448 367 81
Outside services and processing 674 528 146
Marketing and development 446 425 21
Communication and transportation 378 325 53
Other 504 429 75
------ ------ ------
Total non-interest expense $5,062 $4,327 $ 735
====== ====== ======
</TABLE>
Non-interest expense in 1996 totaled $5.1 billion, up $735 million or 17.0% from
the prior year. As mentioned previously, the BOLC acquisition and the ongoing
Project One expenses significantly impacted 1996 expense levels. BOLC added $227
million in non-interest expenses during 1996 of which $99 million were in
salaries and related costs, $44 million in depreciation and amortization, $27
million in outside services and processing, $11 million in communication and
transportation and $16 million in other non-interest expense. Project One
expenses totaled $150 million primarily related to $56 million in salaries and
related costs, $70 million in outside services and processing and $10 million in
communication and transportation expense. The net benefits from this initiative
are expected to begin to be realized in the second half of 1997. Excluding the
$227 million in BOLC expenses and $150 million in Project One expenses, 1996
non-interest expense totaled $4.7 billion, up $358 million or 8.3% from the
prior year. The following discussion of individual non-interest expense
categories excludes both BOLC and Project One.
The increase in salaries and related costs was due primarily to increased
staffing, increased bonuses and incentive pay resulting from the growth in
securities and investment banking activities and credit card operations, as well
as annual salary increases.
Depreciation and amortization increased $37 million, or 10.1% primarily due to
the second quarter 1996 write-off of $12 million in software and goodwill
related to a non-bank subsidiary.
The $49 million or 9.3% increase in outside services and processing expenses is
primarily related to the increase in credit card accounts, transaction volumes
and balances.
Marketing and development costs increased $21 million, or 4.9% as a result of
the increase in credit card marketing and solicitations in 1996.
9
<PAGE> 10
Communication and transportation expense increased $32 million, or 9.8%
reflecting an increase in the number of employees in bank-related businesses and
$6 million related to communication systems.
The $36 million decline in deposit insurance expense reflected lower deposit
insurance premium rates, which provided a $70 million reduction in 1996 expense,
offset in part by a one-time $34 million special assessment in 1996 on Savings
Association Insurance Fund (SAIF) deposits.
Other non-interest expense increased approximately 17.5% primarily due to 1996
amounts related to: (1) $12 million in additional expenses related to servicing
deposit accounts; (2) a $9 million interest charge due to settlement of an IRS
audit; (3) a $5 million loss on the sale of a subsidiary; and, (4) a $4 million
prepayment penalty related to the early extinguishment of long-term debt. These
increases were partially offset by a $9 million decrease in litigation expenses.
The comparison between 1996 and 1995 also includes reductions in 1995 expenses
due to a $10 million benefit from the reversal of an interest charge as a result
of a favorable IRS ruling.
Income Taxes
The provision for income taxes was 33.0% of pretax income for 1996 as compared
with 33.5% for 1995. The decrease in the effective tax rate is a result of state
tax strategies. In addition, the federal effective rate is lower due to the
resolution of certain open issues with taxing authorities. A similar reduction
in the effective tax rates is not expected to occur in 1997.
V BALANCE SHEET ANALYSIS
Loans and Leases
Ending loans and leases, excluding loans held for sale, increased $11.0 billion,
or 16.0%, from December 31, 1995 to December 31,1996. The increase reflected
loan growth in substantially all categories as well as $3.3 billion related to
BOLC. Loans held for sale at December 31, 1996 increased to $1.5 billion as
compared to $.5 billion at December 31, 1995. This increase reflected $1 billion
of credit card loans classified as held for sale in December, 1996. BANC ONE had
$.5 billion of mortgage loans held for sale at both December 31, 1996 and 1995.
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------
$(millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
Ending loans and leases:
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $20,232 $17,904 $16,619 $15,208 $15,086
Real estate:
Commercial 6,429 5,668 5,571 4,886 4,746
Construction 3,602 2,692 2,195 1,709 1,516
Residential 13,917 10,756 10,918 9,958 9,559
Consumer, net 19,459 18,408 19,070 17,312 14,063
Credit card 13,424 11,258 9,772 8,922 6,946
Leases, net 2,327 1,732 1,339 1,107 1,000
------- ------- ------- ------- -------
TOTAL LOANS AND LEASES $79,390 $68,418 $65,484 $59,102 $52,916
======= ======= ======= ======= =======
</TABLE>
Significant loan origination activity is not fully reflected in ending loan
balances due to securitizations and sales of $9.1 billion and $12.8 billion in
loans during 1996 and 1995, respectively. In addition, loans held for sale are
excluded.
10
<PAGE> 11
The following table depicts the maturities of certain loans at December 31,
1996. 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>
<CAPTION>
Commercial,
Financial Real Estate,
and Agricultural Construction
--------------------- ----------------------
$(millions) Fixed Variable Fixed Variable
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $ 1,532 $ 8,955 $ 137 $ 1,913
1998 through 2001 2,162 5,483 182 1,212
After 2001 719 1,381 66 92
------- ------- ------- -------
$ 4,413 $15,819 $ 385 $ 3,217
======= ======= ======= =======
</TABLE>
Credit Quality
The 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 and avoidance of loan concentrations. In addition to
these factors, historically-based migration methodologies are used to analyze
the appropriate level of the allowance for credit losses for the loans and lease
portfolio. Further, each portfolio is reviewed to determine if additional
subjective reserves are 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. Management
believes that its methodology of determining the allowance for credit losses and
projection of future economic and business trends is reflected in the current
level of the overall allowance.
As new markets are entered, a standardized loan-monitoring system and credit
policies, including underwriting standards, are implemented immediately.
Centralized management of problem assets with active programs for resolution and
disposition of foreclosed properties, as well as implementation of internal loan
monitoring systems at newly acquired affiliates, have aided in the reduction of
the level of nonperforming assets. Excluding the impact of BOLC, non-accrual
loans decreased $16 million from December 31, 1995. At year end 1996, other real
estate owned (OREO) decreased $23 million from December 31, 1995.
The loan portfolio continued to reflect the policy of minimizing concentrations
in any one industry. There was no significant loan concentration with any single
borrower or area of the country. The commercial loan portfolio consists
primarily of numerous small balance loans in diverse businesses located
throughout the markets served. The largest concentration of lending was to real
estate operators managers and developers and construction contractors which
represented 9.70% and 9.06% of total loans and leases at December 31, 1996 and
1995, respectively. At year end 1996, credit card loans totaled $14.4 billion of
on-books and $34.8 billion of managed receivables. Foreign loans totaled less
than 1% of total loans at December 31, 1996 and 1995.
11
<PAGE> 12
NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $374,245 $349,084 $377,409 $482,331 $680,408
Renegotiated loans 8,199 5,211 3,910 7,567 28,361
-------- -------- -------- -------- --------
Total nonperforming loans 382,444 354,295 381,319 489,898 708,769
Other Real Estate Owned (OREO) 52,970 75,483 84,355 153,260 191,665
-------- -------- -------- -------- --------
Total nonperforming assets $435,414 $429,778 $465,674 $643,158 $900,434
======== ======== ======== ======== ========
Nonperforming loans as a percent
of total loans (1) .47% .51% .58% .81% 1.33%
Nonperforming loans as a percent
of total loans and OREO (1) .54% .62% .71% 1.06% 1.68%
Allowance for credit losses as a percent of
nonperforming loans 313.17% 284.52% 252.59% 210.30% 141.68%
Allowance for credit losses as a percent of
nonperforming assets 275.07% 234.55% 206.84% 160.19% 111.52%
Loans delinquent 90 days or more
and accruing interest $483,942 $300,620 $200,268 $234,610 $242,777
Loans delinquent 90 days or more
and accruing interest to total loans (1) .60% .44% .30% .39% .45%
Interest foregone on nonperforming
loans (after tax) (2) $ 18,148 $ 27,540 $ 18,584 $ 26,727 $ 35,483
(1) Includes loans held for sale.
(2) The amount of gross interest on nonperforming loans that would have
been recorded during 1996 if the loans had been current throughout the
year totaled $42 million. Of this amount, $14 million of interest was
actually recorded on nonperforming loans during 1996.
</TABLE>
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 successful results of portfolio
management techniques including collection strategies. The unfavorable
conditions experienced during 1996 in the consumer portfolios, specifically the
credit card portfolio, have been a result of increased competition for loans,
the maturation of loans in the portfolios and a general increase in personal
bankruptcy filings. These trends are expected to continue and the level of net
charge-offs are anticipated to grow through the first half of 1997. To mitigate
these trends, BANC ONE has tightened and refined the consumer credit
underwriting criteria. In addition, BANC ONE's overall portfolio management
strategy has included enhancing the collection efforts resulting in earlier
contact with delinquent customers which has an impact on managing future
delinquencies and net charge-offs. For the remaining non-consumer loan
portfolio, management expects to experience a gradual increase in nonperforming
assets, delinquencies and net charge-offs to more normal historical levels.
12
<PAGE> 13
The following shows net charge-offs and delinquent loans by loan type:
<TABLE>
<CAPTION>
Loans Delinquent 90
Net Charge-offs (1) (4) days or More (2) (4)
December 31, December 31,
------------------------- -----------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wholesale (3) .05% .08% .18% .16%
Real estate, residential .16 .07 .24 .25
Consumer 1.12 .74 .49 .34
Credit card 4.48 3.04 2.06 1.52
Leases .27 .53 .07 .03
Total loans and leases 1.08 .71 .60 .44
(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) Wholesale loans include commercial, financial, agricultural, commercial
real estate and construction real estate loans.
(4) Includes loans held for sale.
</TABLE>
The increase in the net charge-off ratio for total loans and leases reflected
deteriorating consumer credit quality, primarily in credit cards for the reasons
noted above. Personal bankruptcies accounted for 44% of managed credit card net
charge-offs in 1996, up from 41% in 1995. The net charge-off ratio for other
consumer loans reflects the overall trend in consumer credit quality
deterioration experienced by the financial services industry.
Allowance for Credit Losses
The allowance for credit losses at December 31, 1996 totaled $1.2 billion and
represented 1.51% of total loans and leases outstanding at December 31, 1996
compared with $1.0 billion, or 1.47%, at December 31, 1995. To maintain an
adequate level of allowance for credit losses and allow for loan growth and
increased charge-offs, the loan loss provision continued to exceed net
charge-offs. In 1996, the provision for credit losses totaled $943 million, $123
million higher than related net charge-offs. This compares with 1995 experience
where the total provision for credit losses totaled $526 million, $49 million
higher than related net charge-offs.
13
<PAGE> 14
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,
1996 allowance for credit losses represented 313% of nonperforming loans, up
from 285% at December 31, 1995. It is management's view that the allowance for
credit losses at year end 1996 was adequate and consistent with the composition
of the portfolio and credit quality trends. Refer to the following two tables
for more detail.
SUMMARY OF ALLOWANCE FOR CREDIT LOSSES AND SELECTED STATISTICS
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCES FOR CREDIT LOSSES, BEGINNING OF YEAR $ 1,008,023 $ 963,180 $ 1,030,254 $ 1,004,174 $ 956,403
Charge-offs
Commercial, financial and agriculture (57,605) (50,335) (49,504) (95,136) (187,375)
Real Estate (35,875) (36,016) (29,373) (64,956) (97,098)
Consumer (340,880) (218,763) (176,045) (167,096) (219,552)
Credit cards (623,118) (361,460) (318,068) (312,636) (311,545)
Leases (8,518) (11,334) (5,737) (11,878) (15,007)
----------- ----------- ----------- ----------- -----------
Total charge-offs (1,065,996) (677,908) (578,727) (651,702) (830,577)
=========== =========== =========== =========== ===========
Recoveries of loans previously charged off
Commercial financial and agriculture 37,994 41,057 60,088 70,917 51,015
Real Estate 22,494 16,696 19,806 13,454 12,424
Consumer 118,363 83,580 80,662 77,252 68,995
Credit cards 64,382 55,669 50,991 45,206 37,951
Leases 3,118 3,499 3,358 4,970 6,175
----------- ----------- ----------- ----------- -----------
Total recoveries of loans previously charged off 246,351 200,501 214,905 211,799 176,560
----------- ----------- ----------- ----------- -----------
Net charge-offs (819,645) (477,407) (363,822) (439,903) (654,017)
Provision for credit losses 942,714 526,138 292,222 449,694 694,969
Allowance for assets acquired/other 66,587 (3,888) 4,526 16,289 6,819
----------- ----------- ----------- ----------- -----------
ALLOWANCE FOR CREDIT LOSSES, END OF YEAR $ 1,197,679 $ 1,008,023 $ 963,180 $ 1,030,254 $ 1,004,174
=========== =========== =========== =========== ===========
ALLOWANCE AND LOSS RATIOS:
Net charge-offs to average total loans 1.08% .71% .57% .79% 1.28%
Ending allowance to ending loans 1.51% 1.47% 1.47% 1.74% 1.90%
</TABLE>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES (1)
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
$(thousands Amount Total Loans Amount Total Loans Amount Total Loans
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture $ 196,281 25% $ 213,911 26% $ 246,561 25%
Real Estate 103,743 30 133,035 28 172,411 29
Consumer, net 273,907 25 211,874 27 209,554 29
Credit card 600,977 17 432,979 16 317,641 15
Leases, net 22,771 3 16,224 3 17,013 2
---------- ---------- ---------- ---------- ---------- ----------
Total Allowance for credit
losses $1,197,679 100% $1,008,023 100% $ 963,180 100%
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993 1992
-----------------------------------------------------------------
Percent of Percent of
Loans to Loans to
$(thousands Amount Total Loans Amount Total Loans
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and
agriculture $ 284,994 26% $ 360,165 28%
Real Estate 204,864 28 157,956 30
Consumer, net 215,742 29 210,234 27
Credit card 308,125 15 256,806 13
Leases, net 16,529 2 19,013 2
---------- ---------- ---------- ----------
Total Allowance for credit
losses $1,030,254 100% $1,004,174 100%
========== ========== ========== ==========
</TABLE>
(1) Allowance for potential losses not specifically identified is allocated
between the commercial and leases loan categories.
14
<PAGE> 15
Deposit Analysis
Total deposits at December 31, 1996 increased $4.9 billion, or 7.1%, when
compared to December 31, 1995. The increase was primarily due to the inclusion
of BOLC, which had deposits of $4 billion at December 31, 1996. The retail
deposit mix continues to change as consumers shifted funds out of lower rate
savings and demand accounts into higher yielding market rate accounts, primarily
money market savings and time deposits. The repricing characteristics of certain
of the deposits included in the following table have been synthetically altered
with the use of off-balance sheet investment products, however, classifications
shown are based on the contractual terms of the deposits.
The following represents the contractual time remaining until maturity of time
deposits (including all foreign deposits) greater than $100,000:
<TABLE>
<CAPTION>
December 31, December 31,
$(MILLIONS) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
0-3 months $3,786 $3,181
4-6 months 908 854
7-12 months 1,096 1,061
Over 1 year 2,170 1,221
------ ------
Total $7,960 $6,317
====== ======
</TABLE>
Short and Long-Term Borrowings
Short-term borrowings increased $5.8 billion to $18.3 billion at December 31,
1996 from $12.5 billion at December 31, 1995. Long-term borrowings increased
$2.5 billion, to $6.8 billion at December 31, 1996 from $4.3 billion at December
31, 1995. Both short-term and long-term funding needs increased in 1996
primarily due to the faster rate of growth in the loan portfolio compared with
the growth rate of core deposits. In October 1996, $500 million of 7.625%
subordinated debentures due in 2026 were issued. 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 in June 1997. In addition,
during 1996, long-term fixed and variable rate bank notes increased $1.8 billion
at December 31, 1996 from $1.9 billion at December 31, 1995.
During the first half of 1997, the Corporation established a medium term note
facility and issued $750 million of medium term notes due between 2000 and 2002
and issued $500 million of subordinated debentures due 2027 and $400 million of
subordinated notes due 2007.
VI RISK MANAGEMENT
The responsibility for measuring, monitoring and reporting certain risks related
to capital markets activities is performed by a centralized risk management
function. This function oversees the establishment of measurement principles,
limits, monitoring and reporting requirements for all capital markets risks,
which include: interest rate risk, liquidity risk, trading risks, and credit
risks. These policies and risk positions are regularly reviewed by the
Corporation's Asset Liability Committee (ALCO) and approved by the Corporation's
Board of Directors.
Market Risk Management
Market risk is the risk of loss arising from adverse changes in market prices
and rates. BANC ONE's market risk is comprised primarily of interest rate risk
created by its core banking activities of lending and deposit taking.
Additionally, and to a much less significant extent, interest rate and foreign
exchange risks are generated from certain trading activities. Management
continually develops and applies cost effective strategies to mitigate these
risks. Market risk limits are established based on the Corporation's tolerance
for risk.
15
<PAGE> 16
Interest Rate Risk Management--BANC ONE's primary purpose in managing interest
rate risk is to effectively invest the Corporation's capital and to manage and
preserve the value created by its core banking businesses. BANC ONE utilizes an
investment portfolio as well as off-balance sheet instruments to manage the
interest rate risk naturally created through its business activities. The
components of interest rate risk which are actively measured and managed
include: repricing risk, basis risk, option risk, and the risk of non-parallel
shifts in the yield curve.
Interest rate risk is measured in two ways to capture both near-term and
long-term effects of rate volatility: (1) Earnings At Risk (EAR), a measure of
forecasted earnings volatility over each of the next five years, and; (2) Value
At Risk (VAR), which is a measure of the volatility of market value of equity.
Market value of equity is defined as the present value of all future expected
cash flows of currently held assets, liabilities, and off-balance sheet items.
To measure these risks, BANC ONE incorporates historical movements (volatility)
of market rates to calculate 99% of statistically probable future rate movements
over the next 90 days. As a result, the probability of the measured risk
positions being realized or exceeded should be less than 1%.
The Corporation's EAR and VAR, as of December 31, 1996, are summarized in the
table below. As of December 31, 1996, historical volatilities suggest rates
could move up by no more than 85 basis points or down by 74 basis points over
the next 90 days. Given these potential rate movements, the first line in the
table indicates BANC ONE's projected earnings next year would decline by 4.5% in
the up rate scenario, and increase by 4.4% in the down rate scenario. The last
line of the table indicates the Corporation's market value of equity would
decline by 1.9% in the up rate scenario.
<TABLE>
<CAPTION>
Risk Due to an Risk Due to an
Increase in Rates Decrease in Rates
of 85 Basis Points of 74 Basis Points
- -----------------------------------------------------------------------------------
Earnings at Risk (EAR)
<S> <C> <C>
1997 (4.5)% 4.4%
1998 (1.0) (1.8)
1999 3.2 (3.4)
2000 5.7 (5.7)
2001 9.0 (6.5)
Value at Risk (VAR) (1.9)% 1.0%
</TABLE>
Trading Risk Management-- Trading risk is the potential for financial loss as
the result of changes in the market value of positions held for proprietary
trading or for market making purposes. The primary purpose of maintaining
trading portfolios 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. In order to manage trading risk, policies limit
the degree to which the value of aggregate trading assets can be adversely
affected by probable changes in the marketplace (interest rates, currencies,
etc.). Using historical market volatilities for each asset and the expected time
needed to liquidate the position (generally 10 trading days), the maximum
adverse value change (using three standard deviations of historical volatility)
is calculated. As of December 31, 1996, the value at risk of all trading assets
was $4 million.
16
<PAGE> 17
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 expected and unexpected outflows
of deposits and other liabilities. In addition, liquidity management seeks to
avoid over-concentrations on a limited number of liability sources and to
minimize reliance on potentially volatile wholesale funds and large liabilities.
BANC ONE's funding profile at December 31, 1996 is summarized in the table
below:
<TABLE>
<CAPTION>
Percent of
On-Balance Percent of
PRODUCT TYPE Sheet Funding Total Funding
- --------------------------------------------------------------------------------------------------------
Retail:
<S> <C> <C>
Transaction deposits 50% 40%
Time deposits 23 19
WHOLESALE:
Short-term:
Federal funds purchased and repurchase agreements 12 9
Commercial paper and bank notes 4 4
Eurodollar certificates of deposit 3 2
Other 1 1
Long-term:
Long-term borrowings 3 3
Bank notes 4 3
Securitizations 0 19
--- ---
Total 100% 100%
=== ===
</TABLE>
Due to BANC ONE's capital, size and high credit quality ratings, the Corporation
has access to substantial sources of diverse liquidity. Core deposits,
representing approximately 59% of the Corporation's funding, remain BANC ONE's
primary source of liquidity, and are generated by a geographically diverse
retail network of affiliate banks in 12 states. Approximately 22% of funding is
supported through a variety of wholesale markets. Additionally, 19% of funding
is generated by asset securitizations, which BANC ONE views as a growing source
of reliable and efficient funding.
Credit Risk Management for Capital Markets Activities
As an inherent part of its business, BANC ONE holds and trades various financial
instruments (e.g., securities and derivatives) for itself and for customers.
These dealings in the capital markets create credit risk with transaction
counterparties and securities issuers. On- and off-balance sheet credit risk is
managed by limiting the amount of exposure to a counterparty based on its
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).
There were no past due amounts or reserves for possible credit losses at
December 31, 1996, related to off-balance sheet investment product transactions,
nor were there any charge-offs during the three years ended December 31, 1996.
Customer cap and swap agreements are created to accommodate the needs of BANC
ONE's commercial loan customers. BANC ONE enters into offsetting transactions
with third parties and has prudent controls on transaction size, term and
customer disclosure guidelines. Customer contracts outstanding, excluding
offsetting transactions, had notional amounts of $1.6 billion at December 31,
1996.
17
<PAGE> 18
VII 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.
BANC ONE is continuing the implementation of the economic value added (EVAtm)
concept, which measures the individual return on capital for each line of
business. Under this concept, capital is deployed to each of the lines of
business, based on risks incurred, in order to measure the economic value added
or residual income provided to shareholders. Residual income or economic value
added is the return over and above the required return on capital. The
objectives of introducing this concept are to ensure lines of business are
continually improving the return on existing capital, making investments which
will create value for the shareholder, and maintaining optimal capital levels.
Total equity to total assets at December 31, 1996 was 8.80% compared with 9.25%
at December 31, 1995. Further, BANC ONE's tangible common equity to net assets
ratio was 7.98% and 8.35% at December 31, 1996 and 1995, respectively. This
change has been achieved by increasing loans outstanding and purchasing stock.
This decrease in tangible capital is in line with the Corporation's stated
objective to gradually reduce this ratio to a level which would continue to
ensure adequate capital levels while increasing the returns to shareholders.
Additionally, BANC ONE's objective is to maintain, at a minimum, a capital
position that meets the federal regulators "well capitalized" classification.
Regulatory defined Tier I and total risk adjusted capital ratios were 9.98% and
14.07% respectively at December 31, 1996, both significantly above regulatory
capital requirements of 4% and 8%, respectively. All the Corporation's banks
meet the regulatory definition of well capitalized banks.
Common shares outstanding increased from 566.5 million at December 31, 1995 to
570.7 million at December 31, 1996. This change reflected the issuance of stock
related to acquisitions, partially offset by the purchase of treasury stock. The
common stock dividend payout ratio was 38%, 40% and 41% in 1996, 1995 and 1994,
respectively.
VIII FOURTH QUARTER REVIEW
Net income for the fourth quarter of 1996 was $442 million, or $.74 per common
share, compared with the 1995 fourth quarter results of $397 million, or $.67
per common share. This $45 million increase primarily resulted from the
improvement in the net interest margin, as well as the following significant
pre-tax items affecting non-interest income and expense:
- - The inclusion of BOLC in 1996 operations affected the comparability of
non-interest income and expense by $27 million and $55 million,
respectively.
- - A $97 million gain on the sale of a $734 million affinity credit card
portfolio was included in 1996.
- - Project One expenses of $61 million were included in various
non-interest expense categories for 1996.
- - A $49 million increase in salaries and related costs was included in
1996.
- - Settlement of IRS examinations affected both 1996 and 1995 through a $9
million interest charge in 1996 and a reversal of a $10 million
interest charge in 1995.
- - A $107 million gain on the sale of a portion of an investment in a
subsidiary was included in 1996.
18
<PAGE> 19
IX COMPARISON OF 1995 VERSUS 1994
Overview of Operations--Net income for 1995 was $1.4 billion or $2.43 per common
share, increasing from $1.2 billion or $1.99 per common share in 1994. Results
for 1994 were significantly impacted by securities losses, merger and litigation
expense and operations consolidation charges (a total of $271 million after
tax). Results for 1995 were favorably impacted by significant earning asset
generation in 1995 and 1994.
Return on average assets increased to 1.54% in 1995 from 1.28% in 1994. Return
on average common equity increased to 17.26% in 1995 from 14.73% in 1994. The
ending ratio of average common equity to average assets increased to 8.81% in
1995 from 8.56% in 1994.
Net Interest Income--Interest income increased 9.8% to $7.6 billion and interest
expense increased 33.5% to $3.3 billion from 1994 to 1995, resulting in a slight
decline in net interest income. Net interest margin decreased to 5.08% in 1995
from 5.33% in 1994. This was due primarily to the impact of credit card sales
with servicing retained. Net income was essentially unaffected by these loan
sales; however, classifications within the income statement changed with net
interest income and provision for credit losses decreasing while non-interest
income (loan servicing income) increased.
Average earning asset increased to $85.2 billion in 1995 from $84.4 billion in
1994. The increase in interest income was primarily due to a significant change
in asset mix and the higher level of market interest rates. Interest income on
loans and leases (FTE) increased by $671 million in 1995 over 1994. The average
balance of loans and leases grew 6.22% in 1995 and the overall yield on loans
and leases increased from 9.14% in 1994 to 9.61% in 1995. Margins in some loan
portfolios and product lines were negatively impacted by competitive pricing
pressure and marketing efforts which utilized introductory pricing to achieve
growth in balances.
Deposits and Borrowed Funds--Total average interest-bearing liabilities
increased to $70.2 billion in 1995 from $69.4 billion in 1994. The average rate
paid on these liabilities increased from 3.60% in 1994 to 4.76% in 1995. The
increase in the rate paid was attributable to higher market interest rates and a
shift in the retail funding base from relatively low-cost deposit products to
higher yielding deposit products in order to compete effectively against
non-bank providers of retail money market investment products.
Various capital market transactions were executed in both 1995 and 1994 to help
minimize the sensitivity of earnings to changes in market interest rates. As a
result, the significant changes in market interest rates which occurred in 1995
did not significantly impact net interest income.
Off-Balance Sheet Investment Products--The use of off-balance sheet investment
products, primarily interest rate swaps, decreased interest income by $145
million in 1995 compared with increasing interest income by $22 million in 1994.
The use of these investment products increased deposit and other borrowing costs
by $60 million in 1995 and decreased such costs by $95 million in 1994.
Non-Interest Income and Non-Interest Expense--Total non-interest income
increased $924 million in 1995 compared to 1994 and total non-interest expense
increased $163 million in 1995 from 1994. Service charges on deposit accounts
increased $61 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 during 1995 due to an increase in servicing fee
income related to sales of loans with servicing retained. Securities losses in
1995 were $2 million compared to losses of $267 million in 1994. The change was
due to the sale of U.S. Treasury and Agency securities during 1994 to reduce
liability sensitivity which resulted in an aggregate pretax loss of $285
million.
19
<PAGE> 20
Salaries and related costs increased $41 million in 1995 as a result increased
staffing, merit and other pay increases and a continued shift to incentive
compensation in 1995, offset by a decrease due to the recognition of $36 million
in severance costs in 1994 related to operations consolidation. Net occupancy
expense, equipment expense and depreciation and amortization decreased $15
million, $14 million and $53 million, respectively, in 1995. These decreases
were primarily due to expenses recognized during 1994 related to operations
consolidation. Taxes other than income and payroll increased $33 million as a
result of the resolution of franchise and intangible tax matters which resulted
in a refund in 1994. Marketing and development costs increased $145 million as a
result of an increase in credit card marketing and solicitations in 1995. FDIC
insurance expense decreased $65 million during 1995 due to the FDIC's decision
to lower deposit insurance premiums from $.23 to $.04 per $100 in Bank Insurance
Fund deposits for "well capitalized" and "well managed" banks.
Loan Quality--The allowance for credit losses increased to $1.0 billion at
December 31, 1995 from $963 million at December 31, 1994. This increase was due
to an increase in the consumer loan and credit card provisions due to the growth
in these portfolios and the cyclical deterioration in consumer credit quality
offsetting improvement in wholesale credit quality. The allowance for credit
losses as a percentage of ending loans remained essentially constant from 1994
to 1995.
20
<PAGE> 21
CONSOLIDATED QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Quarters
----------------------------------------------------------------------
1996 1995
----------------------------------- ---------------------------------
$(millions except per share data) Fourth Third Second First Fourth Third Second First
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected average balances
Loans held for sale $453 $457 $699 $590 $513 $518 $344 $295
Taxable securities (1) 16,653 16,953 17,865 18,057 14,931 14,461 15,391 14,820
Tax exempt securities (1) 1,664 1,651 1,730 1,733 1,769 1,906 2,043 2,145
------- ------- ------- ------- ----- ----- ----- -----
Total securities 18,317 18,604 19,595 19,790 16,700 16,367 17,434 16,965
Commercial financial and agricultural 19,926 19,294 19,387 18,864 17,913 17,686 17,570 16,570
Real estate:
Commercial 6,322 6,238 6,098 5,989 5,611 5,609 5,602 5,536
Construction 3,518 3,321 3,094 2,920 2,657 2,450 2,376 2,281
Residential 13,659 11,610 11,206 11,101 11,670 11,849 11,375 11,060
Consumer, net 19,275 20,301 20,173 20,028 18,387 17,904 17,645 18,912
Credit card 13,662 12,132 11,298 12,785 11,427 9,915 9,274 9,595
Leases, net 2,210 2,142 1,972 1,776 1,636 1,507 1,419 1,354
------- ------- ------- ------- ----- ----- ----- -----
Net loans and leases 78,572 75,038 73,228 73,463 69,301 66,920 65,261 65,308
Other earning assets 793 618 646 591 659 879 1,047 2,190
Total earning assets 98,135 94,717 94,168 94,434 87,173 84,684 84,086 84,758
Allowance for credit losses (1,137) (1,115) (1,082) (1,079) (986) (960) (957) (963)
------- ------- ------- ------- ----- ----- ----- -----
Total assets 108,171 104,131 103,425 104,024 96,212 93,645 92,817 93,155
Demand deposits:
Non-interest bearing 14,602 13,992 14,074 14,143 13,509 13,166 12,800 13,071
Interest bearing 2,086 2,131 2,240 3,115 7,050 8,417 8,677 8,928
Savings and money market deposits 29,430 29,342 29,198 28,053 21,875 19,994 19,202 19,284
Time deposits 26,935 26,689 26,720 26,815 25,417 26,214 27,388 27,278
------- ------- ------- ------- ----- ----- ----- -----
Total deposits 73,053 72,154 72,232 72,126 67,851 67,791 68,067 68,561
Borrowed funds:
Short-term 16,760 14,963 14,593 15,164 12,948 11,296 10,819 11,186
Long-term 5,982 4,934 4,726 4,683 4,217 3,821 3,357 3,245
------- ------- ------- ------- ----- ----- ----- -----
Total borrowed funds 22,742 19,897 19,319 19,847 17,165 15,117 14,176 14,431
Total interest bearing liabilities 81,193 78,059 77,477 77,830 71,507 69,742 69,443 69,921
Preferred stock 214 241 243 248 250 250 250 250
Common stockholders' equity $9,432 $9,290 $9,160 $9,275 $8,572 $8,347 $8,181 $7,988
Margin analysis (2)(5)(6)
Net interest income 5.52% 5.43% 5.43% 5.44% 5.14% 5.09% 5.01% 5.10%
Net funds function 4.22% 4.42% 4.60% 4.63% 4.29% 4.37% 4.50% 4.72%
Key operating ratios
Return on average assets (5) 1.63% 1.58% 1.54% 1.63% 1.64% 1.58% 1.40% 1.52%
Return on average common equity (5) 18.49 17.49 17.17 18.15 18.18 17.56 15.65 17.57
Return on average total equity (5) 18.23 17.23 16.90 17.86 17.87 17.25 15.40 17.25
Average common equity to average assets 8.72 8.92 8.86 8.92 8.91 8.91 8.81 8.58
Average total equity to average assets 8.92 9.15 9.09 9.15 9.17 9.18 9.08 8.84
Tier I capital ratio 9.98 9.63 10.11 10.10 10.35 10.36 10.61 10.43
Total risk adjusted capital ratio 14.07 13.32 13.86 14.03 14.39 14.49 14.12 13.93
Tier I leverage ratio 8.88% 8.52% 8.72% 8.44% 8.87% 8.90% 8.78% 8.60%
Credit analysis:
Net charge-offs to average loans and leases (5) 1.31% 1.10% .94% .97% .91% .75% .62% .54%
Ending allowance to loans and leases 1.51 1.48 1.49 1.50 1.47 1.44 1.45 1.45
Nonperforming assets (3):
Total $435 $478 $458 $486 $430 $445 $431 $449
Percent of total loans and leases(7) .54% .62% .62% .67% .62% .65% .65% .68%
Loans delinquent 90 or more days (4):
Total $484 $405 $331 $294 $301 $251 $228 $209
Percent of total loans and .60% .53% .45% .40% .44% .37% .34% .32%
leases (7)
Allowance to nonperforming loans 313% 272% 284% 263% 285% 272% 268% 259%
Common stock:
Average shares outstanding (000) 590,675 592,779 595,651 600,409 587,155 587,663 588,404 589,356
Shares traded (000) 54,261 60,724 50,688 62,091 37,100 39,873 53,708 48,353
Per common share data
Net income $.74 $.69 $.66 $.69 $.67 $.63 $.54 $.59
Cash dividends declared .34 .34 .34 .34 .31 .31 .31 .31
Book value 16.93 16.42 16.26 15.99 15.54 16.13 15.75 15.41
Stock price:
High 47.88 41.38 37.75 38.50 36.48 33.41 31.94 27.39
Low 40.38 31.25 32.88 31.94 30.35 27.95 26.03 22.85
Close $43.00 $41.00 $34.00 $35.63 $34.21 $33.18 $29.32 $25.91
Preferred stock, Series C:
Shares traded (000) 926 2,056 880 1,222 1,678 990 1,316 1,233
Stock price:
High $91.25 $80.00 $72.63 $73.88 $70.75 $64.00 $61.75 $54.25
Low 77.75 60.75 63.88 62.00 59.38 55.58 52.25 49.63
Close $83.00 $79.13 $66.75 $69.13 $65.63 $63.75 $58.25 $51.75
</TABLE>
21
<PAGE> 22
CONSOLIDATED QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Quarters
---------------------------------------------------------------------------
1996 1995
----------------------------------- -------------------------------------
$(millions) Fourth Third Second First Fourth Third Second First
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Condensed income statement:
Interest income (2)
Loan held for sale $6 $9 $13 $11 $10 $10 $7 $6
Taxable securities 271 276 286 295 247 240 254 233
Tax-exempt securities 33 34 36 36 38 42 45 47
----- ----- ----- ----- ----- ----- ----- -----
Total interest on securities 304 310 322 331 285 282 299 280
Commercial financial and agricultural 413 404 400 384 369 365 361 331
Real estate:
Commercial 143 141 135 134 128 126 126 122
Construction 87 81 77 72 68 63 60 59
Residential 322 269 258 255 258 265 251 238
Consumer, net 456 469 468 488 439 423 410 438
Credit card 529 463 403 455 396 350 330 330
Leases, net 41 40 37 32 30 26 25 26
----- ----- ----- ----- ----- ----- ----- -----
Total interest on loans and leases 1,991 1,867 1,778 1,820 1,688 1,618 1,563 1,544
Total interest on other earning assets 11 9 9 8 10 14 17 35
Total interest income 2,312 2,195 2,122 2,170 1,993 1,924 1,886 1,865
Interest expense:
Demand deposits 9 10 10 15 35 43 48 50
Savings and money market deposits 250 245 236 232 206 191 180 170
Time deposits:
CDs under $100,000 257 258 261 276 275 280 278 257
CDs $100,000 and over 118 110 77 96 91 97 116 110
----- ----- ----- ----- ----- ----- ----- -----
Total interest on deposits 634 623 584 619 607 611 622 587
Borrowed funds:
Short-term 217 198 189 200 184 161 156 157
Long-term 100 82 77 75 73 67 57 55
----- ----- ----- ----- ----- ----- ----- -----
Total interest on borrowed funds 317 280 266 275 257 228 213 212
----- ----- ----- ----- ----- ----- ----- -----
Total interest expense 951 903 850 894 864 839 835 799
----- ----- ----- ----- ----- ----- ----- -----
Net interest income (2) 1,361 1,292 1,272 1,276 1,129 1,085 1,051 1,066
Provision for credit losses 320 240 194 188 186 153 108 79
----- ----- ----- ----- ----- ----- ----- -----
Net funds function (2) 1,041 1,052 1,078 1,088 943 932 943 987
Non-interest income:
Income from fiduciary activities 77 72 68 63 62 60 59 59
Service charges on deposit accounts 170 166 161 157 145 141 132 127
Loan processing and servicing income 362 371 369 348 372 355 314 282
Securities gains 10 1 4 1 6 1 2 (11)
Other 378 228 170 188 177 164 137 192
----- ----- ----- ----- ----- ----- ----- -----
Total non-interest income 997 838 772 757 762 721 644 649
Non-interest expense:
Salaries and related costs 573 541 547 544 484 462 458 470
Other 802 716 691 648 632 605 619 595
----- ----- ----- ----- ----- ----- ----- -----
Total non-interest expense 1,375 1,257 1,238 1,192 1,116 1,067 1,077 1,065
Taxable equivalent adjustment 15 16 16 16 17 19 21 21
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 648 617 596 637 572 567 489 546
Income tax (provision) benefit (206) (204) (201) (214) (175) (193) (165) (196)
----- ----- ----- ----- ----- ----- ----- -----
Net income $442 $413 $395 $423 $397 $374 $324 $350
===== ===== ===== ===== ===== ===== ===== =====
Net income available to common stockholders $439 $409 $391 $419 $393 $370 $320 $346
===== ===== ===== ===== ===== ===== ===== =====
Net income per common share $.74 $.69 $.66 $.69 $.67 $.63 $.54 $.59
===== ===== ===== ===== ===== ===== ===== =====
1) Average balances are based on amortized historical cost excluding SFAS 115
adjustments to fair value which are included in other assets.
2) Fully taxable equivalent basis. The Federal statutory rate used was 35% for
all periods presented.
3) Excludes certain smaller balance loans collectively evaluated for impairment.
4) Excluding nonperforming loans.
5) Ratios presented on an annualized basis.
6) As a percent of average earning assets.
7) Includes loans held for sale.
</TABLE>
22
<PAGE> 23
CONSOLIDATED BALANCE SHEET
at December 31, 1996 and 1995
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $6,524,428 $5,712,256
Short-term investments 680,629 728,018
Loans held for sale 1,473,756 503,326
Securities:
Securities held to maturity 4,398,031 3,630,141
Securities available for sale 14,733,777 14,620,334
------------ -----------
Total securities (fair value approximates $19,163,000 and $18,299,000,
at December 31, 1996 and 1995, respectively) 19,131,808 18,250,475
Loans and leases (net of unearned income of $1,383,000 and $979,000 at
December 31, 1996 and 1995, respectively) 79,389,795 68,417,903
Allowance for credit losses 1,197,679 1,008,023
------------ -----------
Net loans and leases
78,192,116 67,409,880
OTHER ASSETS:
Bank premises and equipment, net 1,799,150 1,652,067
Interest earned, not collected 782,069 720,016
Other real estate owned 52,970 75,483
Excess of cost over net assets of affiliates purchased 508,346 344,368
Other 3,008,246 2,492,927
------------ -----------
Total other assets 6,150,781 5,284,861
------------ -----------
TOTAL ASSETS $112,153,518 $97,888,816
============ ===========
LIABILITIES:
Deposits:
Non-interest bearing $16,340,635 $14,937,100
Interest bearing 57,882,353 54,336,273
------------ -----------
Total deposits 74,222,988 69,273,373
Federal funds purchased and repurchase agreements 12,858,505 8,559,384
Other short-term borrowings 5,466,894 3,919,191
Long-term debt 6,827,823 4,330,501
Accrued interest payable 468,579 472,851
Other liabilities 2,440,642 2,282,072
------------ -----------
TOTAL LIABILITIES 102,285,431 88,837,372
------------ -----------
Commitments and contingencies (notes 4,6, and 13)
STOCKHOLDERS' EQUITY:
Preferred stock, 35,000,000 shares authorized:
Series C convertible, no par value, 4,140,314 and 4,992,694 shares
issued and outstanding, respectively 207,016 249,635
Convertible preferred stock of pooled affiliate, 5,750,000 and 5,750,000
shares issued and outstanding, respectively 58 58
Common stock, no par value, $5 stated value, 600,000,000 shares
authorized, 576,517,822 and 590,624,927 shares issued, respectively 2,882,590 2,953,124
Capital in excess of aggregate stated value 4,346,428 4,920,930
Retained earnings 2,625,138 1,496,667
Net unrealized holding gains on securities available for sale, net of tax 19,925 91,804
Treasury stock (5,829,915 and 24,090,000 shares, respectively), at cost (213,068) (660,774)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 9,868,087 9,051,444
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,153,518 $97,888,816
============ ===========
</TABLE>
23
<PAGE> 24
CONSOLIDATED STATEMENT OF INCOME
for the three years ended December 31, 1996
<TABLE>
<CAPTION>
$(THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and leases $7,437,911 $6,392,962 $5,723,494
Loans held for sale 39,544 32,925 40,822
Securities:
Taxable 1,127,155 973,448 948,921
Tax-exempt 94,879 116,737 136,841
Other 36,738 71,857 59,498
---------- ---------- ----------
Total interest income 8,736,227 7,587,929 6,909,576
INTEREST EXPENSE:
Deposits
Demand, savings and money market deposits 1,006,194 922,298 720,526
Time deposits 1,454,032 1,504,058 1,112,658
Interest on borrowings 1,137,377 910,398 665,599
---------- ---------- ----------
Total interest expense 3,597,603 3,336,754 2,498,783
---------- ---------- ----------
NET INTEREST INCOME 5,138,624 4,251,175 4,410,793
Provision for credit losses 942,714 526,138 292,222
---------- ---------- ----------
Net interest income after provision for credit losses 4,195,910 3,725,037 4,118,571
NON-INTEREST INCOME:
Investment management and advisory activities 279,153 239,411 232,700
Service charges on deposit accounts 654,140 544,697 483,884
Loan processing and servicing income 1,449,715 1,323,499 822,747
Securities gains (losses) 16,672 (1,947) (266,617)
Other 963,285 669,788 579,181
---------- ---------- ----------
Total non-interest income 3,362,965 2,775,448 1,851,895
NON-INTEREST EXPENSE:
Salaries and related costs 2,204,602 1,875,614 1,834,902
Net occupancy expense, exclusive of depreciation 192,057 175,054 189,602
Equipment expense 125,196 110,547 124,429
Taxes other than income and payroll 90,021 91,126 57,936
Depreciation and amortization 447,503 367,392 420,059
Outside services and processing 674,183 528,257 495,486
Marketing and development 445,937 424,945 280,064
Communication and transportation 378,382 324,743 276,205
Other 504,123 429,270 485,598
---------- ---------- ----------
Total non-interest expense 5,062,004 4,326,948 4,164,281
---------- ---------- ----------
Income before income taxes 2,496,871 2,173,537 1,806,185
Provision for income taxes 824,026 728,326 618,117
---------- ---------- ----------
NET INCOME $1,672,845 $1,445,211 $1,188,068
========== ========== ==========
NET INCOME PER COMMON SHARE $2.78 $2.43 $1.99
========== ========== ==========
Weighted average common shares outstanding (000) 594,853 587,789 589,316
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 25
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the three years ended December 31, 1996
<TABLE>
<CAPTION>
Net
Unrealized
Capital in Holding Total
Excess of Gains Treasury Stock-
$(thousands, except per Preferred Common Aggregate Retained (Losses) on Stock, holders'
share amounts) Stock Stock Stated Earnings Securities at Cost Equity
Value Available
for Sale
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 249,900 2,698,068 3,399,387 1,400,989 7,748,344
Accounting change adjustment for
unrealized gains on securities
available for sale at
January 1, 1994 84,105 84,105
Net income 1,188,068 1,188,068
Cash dividends:
Common ($1.13 per share) (487,218) (487,218)
Series C Preferred
($3.50 per share) (17,492) (17,492)
Pooled affiliates (23,518) (23,518)
Issuance of preferred stock 58 177,344 177,402
Shares issued in acquisitions 15,231 26,957 14,316 (316) 56,188
Exercise of stock options, net of 1,506 (5,186) (3,680)
shares purchased
Pooled affiliate stock issuance,
sales of stock to employee 11,325 (46,477) 96,912 61,760
benefit plans and other
Purchase of treasury stock (336,453) (336,453)
Change in unrealized holding gains
(losses) on securities available
for sale, net of tax (195,306) (195,306)
-------- ---------- ---------- ---------- ------- ---------- ----------
Balance, December 31, 1994 249,958 2,726,130 3,552,025 2,172,057 (111,517) (336,453) 8,252,200
Net income 1,445,211 1,445,211
Cash dividends:
Common ($1.24 per share) (532,807) (532,807)
Series C Preferred
($3.50 per share) (17,487) (17,487)
Pooled affiliates (21,827) (21,827)
Shares issued in acquisitions 5,680 13,086 (3,115) 15,651
Conversion of preferred into common (265) 46 219
Exercise of stock options, net of 8,955 (2,479) 6,476
shares purchased
Sales of stock to employee benefit 6,976 18,051 25,027
plans and other
Purchase of treasury stock (324,321) (324,321)
Change in unrealized holding gains
(losses on securities available for 203,321 203,321
sale, net tax
10% common stock dividend at fair 205,337 1,340,028 (1,545,365)
market value
-------- ---------- ---------- ---------- ------- ---------- ----------
Balance, December 31, 1995 249,693 2,953,124 4,920,930 1,496,667 91,804 (660,774) 9,051,444
Net income 1,672,845 1,672,845
Cash dividends:
Common ($1.36 per share) (587,184) (587,184)
Series C Preferred
($3.50 per share) (16,363) (16,363)
Pooled affiliates (31,443) (31,443)
Shares issued in acquisitions 53,415 657,100 710,515
Issuance of subsidiary common stock 79,523 79,523
Conversion of preferred into common (42,619) 8,221 34,398
Exercise of stock options, net of 14,050 2,725 16,775
shares purchased
Sales of stock to employee benefit 9,195 (56,556) 90,616 3,674 46,929
plans and other
Purchase of treasury stock (1,003,075) (1,003,075)
Retirement of treasury stock (102,000) (688,007) 790,007
Change in unrealized holding gains
(losses) on securities available
for sale, net of tax (71,879) (71,879)
-------- ---------- ---------- ---------- ------- ---------- ----------
Balance, December 31, 1996 $207,074 $2,882,590 $4,346,428 $2,625,138 $19,925 $(213,068) $9,868,087
======== ========== ========== ========== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 26
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three years ended December 31, 1996
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
NET INCOME $1,672,845 $1,445,211 $1,188,068
Adjustments:
Provision for credit losses 942,714 526,138 292,222
Depreciation 300,770 255,875 281,663
Amortization of other intangibles 146,733 111,517 138,396
Amortization (accretion) of securities premium and 40,951 (50,760) 102,728
discounts, net
Amortization of mortgage servicing rights 19,657 12,939 10,948
Net (increase) decrease in trading account (305,407) (30,199) 92,549
Net (increase) decrease in loans held for sale (970,430) (187,758) 869,482
Net decrease (increase) in deferred loan fees and costs 34,343 (4,178) (13,416)
Securities (gains) losses (16,672) 1,947 266,617
Gain on the sale of banks and branch offices (19,399) (68,297) (390)
Gain on sale of loans and other assets (325,336) (122,878) (147,334)
Net (increase) in other assets (333,543) (288,837) (121,602)
Net (decrease) increase in other liabilities (42,123) 251,316 58,095
Net increase in deferred income taxes 263,581 179,398 173,090
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,408,684 2,031,434 3,191,116
----------- ----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of securities available for sale (5,581,561) (8,110,473) (11,739,005)
Purchases of securities held to maturity (1,789,650) (1,978,071) (2,258,514)
Maturities of securities available for sale 4,169,201 6,712,867 2,142,467
Maturities of securities held to maturity 1,040,806 1,904,768 2,767,183
Sales of securities available for sale 3,231,502 2,544,358 10,900,079
Net increase in loans, excluding sales and purchases (15,750,623) (16,261,798) (13,772,643)
Sales of loans and other assets 8,218,233 10,818,004 7,941,602
Purchases of loans and related premiums (519,834) (668,879) (666,283)
Net decrease (increase) in short-term investments 118,327 3,022,699 (1,980,798)
Additions to bank premises and equipment (432,214) (400,646) (355,979)
Sale of banks and branch offices (186,773) (236,041) (26,643)
Net cash acquired in acquisitions 315,715 42,413 1,180,497
All other investing activities, net (58,877) 191,828 71,515
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,225,748) (2,418,971) (5,796,522)
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings and money market 1,533,765 1,608,888 (1,385,486)
deposits
Net increase (decrease) in time deposits (592,314) (2,235,625) 2,477,024
Net increase in short-term borrowings 5,414,840 1,229,306 1,709,338
Issuance of long-term borrowings, net 3,486,176 1,742,111 898,662
Repayment of long-term borrowings (1,755,425) (344,729) (251,535)
Cash dividends paid (634,990) (696,046) (510,184)
Purchase of treasury stocks (1,003,075) (324,321) (336,453)
All other financing activities, net 180,259 (16,235) 93,157
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,629,236 963,349 2,694,523
----------- ----------- -----------
Increase in cash and cash equivalents 812,172 575,812 89,117
Cash and cash equivalents at January 1 5,712,256 5,136,444 5,047,327
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $6,524,428 $5,712,256 $5,136,444
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 27
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 operating offices in Arizona, Colorado, Delaware, 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 market value by type of
loan. Losses, if any, are recorded in non-interest income, based on the
difference between the market 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 non-interest income.
Venture capital investments held by qualifying investment companies are carried
at fair value with changes in fair value recognized in non-interest income or
expense. The fair value of publicly traded investments takes into account their
quoted market prices with adjustments made for market liquidity or sale
restrictions. For 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 in interest and dividends on securities
using the interest method. Gains and losses on securities are recorded on the
trade date and are calculated based on the security with the highest cost unless
specific securities are identified.
27
<PAGE> 28
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 non-accrual at the time the loan is 90 days
delinquent unless the credit is well secured and in process of collection.
Residential real estate loans are placed on non-accrual at the time the loan is
120 days delinquent. Credit card loans, other unsecured personal credit lines
and certain consumer finance loans are charged-off no later than 180 days
delinquent. Other consumer loans are charged-off at 120 days delinquent. In all
cases, loans must be placed on non-accrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-accrual
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 of cash or cash equivalents for a minimum of six months.
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 120 days delinquent 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 loan receivables as securities to
investors. In such transactions BANC ONE receives a fee for servicing the loans,
and receives net interest revenues generated by the loans removed from the
balance sheet which are in excess of the interest due investors and net credit
losses. The excess interest revenues are recognized as servicing income.
Mortgage Banking Activities
Mortgage servicing assets are recognized as separate assets when servicing
rights are acquired through purchase or loan originations, when there is a
definitive plan to sell the underlying loan. Capitalized mortgage servicing
rights are reported in other assets and are amortized into non-interest 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.
28
<PAGE> 29
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided principally 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 retired 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.
On January 1, 1996, BANC ONE adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The impact on the consolidated financial statements for the year ended December
31, 1996, was not material.
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 ranging from
five to 40 years. Core deposits and other identifiable intangible assets are
typically amortized on an accelerated basis.
Off-Balance Sheet Activities
BANC ONE uses a variety of off-balance sheet investment products as part of its
interest rate risk management strategy and in its customer service and trading
activities. The most frequently used off-balance sheet investment products 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 investment products are typically classified as
synthetic alterations, anticipatory hedges or matched book agreements. 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, and (2) the off-balance sheet investment product
is designated and effective as a synthetic alteration of the balance sheet item.
Anticipatory Hedge--(1) the transaction to be hedged creates exposure to
interest rate risk; (2) the off-balance sheet investment product acts to reduce
the interest rate risk by moving closer to being insensitive to interest rate
changes; (3) the off-balance sheet investment product 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. Matched Book--there must
be separate agreements that have offsetting payment streams with the same
maturity, repricing dates and notional amounts.
In order for off-balance sheet investment products with forward-start
dates to be accounted for as a synthetic alteration, they must satisfy the
appropriate criteria above as well as the following additional criteria: (1) the
start date of the off-balance sheet investment product does not extend beyond
that point in time at which it is believed that modeling systems produce
reliable interest rate sensitivity information; and (2) 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 investment product
must be marked to market.
29
<PAGE> 30
Accrual accounting is applied for off-balance sheet investment products
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. For matched book transactions,
income and expense are recorded in non-interest income. Fees related to these
off-balance sheet investment products are amortized on the interest method over
the life of the off-balance sheet investment products. If the balance of the
related balance sheet item falls below that of the related off-balance sheet
investment product, the excess portion of the off-balance sheet investment
product is marked to market and the resulting gain or loss included in income,
as applicable. If an off-balance sheet investment product is terminated, the
gain or loss is deferred and amortized over the remaining life of the
off-balance sheet investment product.
Off-balance sheet investment products that do not satisfy the criteria above,
including those used in trading activities, are carried at market value. Any
changes in market value are recognized in non-interest income.
In June 1996, the Financial Accounting Standard Board (FASB) issued an Exposure
Draft, "Accounting for Derivative and Similar Financial Instruments and for
Hedging Activities" (the Exposure Draft), which, if adopted as issued, would
significantly change the accounting for derivative and hedging activities. The
Exposure Draft would require that all derivative financial instruments be
recognized and recorded at fair value. However, key aspects of the exposure
draft continue to be discussed and are subject to change; accordingly the
impact, if any, to BANC ONE is not presently known. The date for issuance of the
final statement has not yet been determined.
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.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks.
Net Income Per Common Share
Net income per common share is calculated by dividing net income available to
common stockholders (net income less preferred dividends) by the average number
of common shares outstanding (total shares issued less treasury stock) and any
dilutive common stock equivalents for the period.
Stock-Based Compensation
BANC ONE applies APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related interpretations in accounting for its stock-based
compensation plans. In 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) which is effective for fiscal years
beginning after December 15, 1995. Under SFAS 123, the Corporation 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 25. The
Corporation has elected to continue to apply the provisions of APB 25.
New Accounting Pronouncements
BANC ONE adopted Statement of Financial Accounting Standards (SFAS) No. 125.
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," effective 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 consolidated financial position and
results of operations is not expected to be material.
30
<PAGE> 31
SFAS 128 "Earnings Per Share" was issued in February 1997 and is effective for
financial statements issued for periods ending after December 15, 1997. The
statement specifies the computation, presentation and disclosure requirements
for earnings per share for entities with publicly held common stock. The impact
of the statement on BANC ONE's earnings per share is not expected to be
material.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income".
This Statement, which is effective for the year ended December 31, 1998,
requires the reporting of comprehensive income and its components in an
additional full set of general-purpose financial statements. BANC ONE is
reviewing the components of comprehensive income as outlined by the Statement
and plans to disclose the information as required.
In second quarter 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." This Statement provides guidance for
the way public enterprises report information about operating segments in annual
financial statements and requires selected information about operating segments
in 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.
31
<PAGE> 32
NOTE 2 ACQUISITIONS AND DISPOSITIONS
On June 27, 1997, the Corporation completed its acquisition of First USA, Inc.
("First USA"), located in Dallas, Texas. The Corporation issued approximately
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
to $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 30, 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 separate results of operations for BANC ONE and First USA were as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
BANC ONE $10,272,356 $ 8,970,888 $ 7,777,941
First USA 1,826,836 1,392,489 983,530
----------- ----------- -----------
12,099,192 10,363,377 8,761,471
=========== =========== ===========
NET INCOME:
BANC ONE 1,426,533 1,277,863 1,005,109
First USA 246,312 167,348 182,959
----------- ----------- -----------
$ 1,672,845 $ 1,445,211 $ 1,188,068
=========== =========== ===========
</TABLE>
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 in the second quarter of 1997 and will be amortized over
25 years using the straight-line method. Liberty had $2.9 billion in assets at
December 31, 1996, and 29 banking offices 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 was not material.
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 will be 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. To reflect the purchase of Premier as if the acquisition occurred on
January 1, 1995, BANC ONE's consolidated pro forma total revenue, net income and
net income per common share would have been $10.9 billion, $1.5 billion and
$2.43, respectively.
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.
32
<PAGE> 33
The restructuring charge associated with the First USA merger totaled $240.9
million and consisted of: employee benefits, severance and stock options 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 charge related to costs associated with the
strategic initiatives to streamline the retail branch delivery structure by
consolidating approximately 200 banking centers over the next 18 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.
NOTE 4 SECURITIES AND OFF-BALANCE SHEET ACTIVITIES
Following are the estimated maturities, fair value, amortized cost and weighted
average yields of securities by type:
<TABLE>
<CAPTION>
MATURITIES OF SECURITIES AT DECEMBER 31, 1996 (1) DECEMBER 31,
------------------------------------------------------------------ ----------------
2002-
$(MILLIONS) 1997 1998 1999 2000 2001 2006 2007+ 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY(2)(3)
Tax-exempt
Amortized cost $ 213 $ 123 $ 76 $ 87 $ 59 $ 89 $ 38 $ 685 $ 909
Fair Value 216 127 81 91 63 95 41 714 953
Weighted average yield 6.86% 6.82% 6.54% 7.08% 6.65% 6.50% 5.58% 6.71% 6.63%
All other
Amortized cost 510 432 373 313 274 981 830 3,713 2,721
Fair Value 512 432 373 312 274 981 831 3,715 2,726
Weighted average yield 6.38% 6.43% 6.44% 6.41% 6.42% 6.51% 6.37% 6.58% 6.81%
Total amortized cost $ 723 $ 555 $ 449 $ 400 $ 333 $ 1,070 $ 868 $ 4,398 $ 3,630
======= ======= ======= ======= ======= ======= ======= ======= =======
Total Fair value $ 728 $ 559 $ 454 $ 403 $ 337 $ 1,076 $ 872 $ 4,429 $ 3,679
======= ======= ======= ======= ======= ======= ======= ======= =======
SECURITIES AVAILABLE FOR SALE(2)(3)(4)
United States treasury and agencies
Amortized cost $ 882 $ 1,245 $ 351 $ 392 $ 551 $ 911 $ 3 $ 4,335 $ 3,029
Fair Value 883 1,246 349 392 536 904 3 4,313 3,060
Weighted average yield 5.94% 5.89% 5.73% 6.24% 5.53% 6.33% 7.47% 5.97% 6.06%
Mortgage and asset-backed
securities:
Government
Amortized cost 543 441 955 1,905 959 1,763 164 6,730 6,553
Fair Value 548 449 967 1,934 972 1,757 165 6,792 6,660
Weighted average yield 5.66% 7.40% 6.66% 6.92% 7.19% 6.95% 7.66% 6.88% 7.05%
Other
Amortized cost 341 551 328 457 260 110 27 2,074 3,595
Fair Value 340 555 326 453 245 110 27 2,056 3,587
Weighted average yield 5.53% 6.58% 6.12% 6.42% 6.07% 6.61% 11.85% 6.30% 6.43%
Tax-exempt
Amortized cost 236 103 97 119 119 294 5 973 813
Fair Value 237 104 98 120 120 296 5 980 825
Weighted average yield 4.53% 4.75% 4.78% 4.75% 4.81% 4.91% 7.54% 4.77% 5.02%
Other
Amortized cost 264 37 9 121 11 57 92 591 486
Fair Value 264 37 10 121 11 57 93 593 488
Weighted average yield 5.92% 6.20% 6.47% 6.06% 8.03% 7.48% 6.67% 6.28% 7.93%
Total amortized cost $ 2,266 $ 2,377 $ 1,740 $ 2,994 $ 1,900 $ 3,135 $ 291 $14,703 $14,476
======= ======= ======= ======= ======= ======= ======= ======= =======
Total fair value $ 2,272 $ 2,391 $ 1,750 $ 3,020 $ 1,884 $ 3,124 $ 293 $14,734 $14,620
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Reflects estimated maturity.
(2) Weighted average yields on tax-exempt securities are not reflected on a tax
equivalent basis.
(3) Weighted average yields for both held to maturity and available-for-sale
securities are based on amortized historical cost.
(4) Includes trading securities carried at fair value of $549 million and $243
million at December 31, 1996 and 1995, respectively.
33
<PAGE> 34
The following are net realized gains and losses on securities sold or called and
unrealized gains and losses on securities held:
<TABLE>
<CAPTION>
UNREALIZED GAIN (LOSS) AS OF
REALIZED GAIN (LOSS) DURING 1996 DECEMBER 31, 1996
------------------------------------------------------ ----------------------------------
NET NET
REALIZED UNREALIZED
AMORTIZED REALIZED REALIZED GAIN UNREALIZED UNREALIZED GAIN
$(MILLIONS) COST PROCEEDS GAINS LOSSES (LOSS) GAINS LOSSES (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
Tax-exempt $ 38 $ 40 $ 2 $ 2 $ 35 $ (6) $ 29
All other 13 (9) 4
Securities available for sale:
United States treasury 556 558 2 2 8 (30) (22)
and federal agencies
Mortgage and asset-backed securities:
Government 1,728 1,737 21 $ (12) 9 83 (21) 62
Other 903 907 7 (3) 4 11 (29) (18)
Tax-exempt and other 166 244 89 (11) 78 13 (5) 8
------- ------- ------- ------- ------- ------- ------- -------
Total $ 3,391 $ 3,486 $ 121 (26) $ 95 $ 163 $ (100) $ 63
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
UNREALIZED GAIN (LOSS) AS OF
REALIZED GAIN (LOSS) DURING 1995 DECEMBER 31, 1995
------------------------------------------------------ ----------------------------------
NET NET
REALIZED UNREALIZED
AMORTIZED REALIZED REALIZED GAIN UNREALIZED UNREALIZED GAIN
$(MILLIONS) COST PROCEEDS GAINS LOSSES (LOSS) GAINS LOSSES (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
Tax-exempt $ 95 $ 96 $ 1 $ 1 $ 51 $ (7) $ 44
All other 24 28 6 $ (2) 4 18 (13) 5
Securities available for sale:
United States treasury 635 636 7 (6) 1 33 (2) 31
and federal agencies
Mortgage and asset-backed securities:
Government 591 585 1 (7) (6) 117 (10) 107
Other 1,209 1,204 3 (8) (5) 25 (33) (8)
Tax-exempt and other 108 141 33 33 19 (5) 14
------ ------ ------ ------ ------ ------ ------ ------
Total $2,662 $2,690 $ 51 $ (23) $ 28 $ 263 $ (70) $ 193
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
UNREALIZED GAIN (LOSS) AS OF
REALIZED GAIN (LOSS) DURING 1994 DECEMBER 31, 1994
------------------------------------------------------ ----------------------------------
NET NET
REALIZED UNREALIZED
AMORTIZED REALIZED REALIZED GAIN UNREALIZED UNREALIZED GAIN
$(MILLIONS) COST PROCEEDS GAINS LOSSES (LOSS) GAINS LOSSES (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
Tax-exempt $ 55 $ 56 $ 2 $ (1) $ 1 $ 51 $ (66) $ (15)
All other 355 354 4 (5) (1) 31 (111) (80)
Securities available for sale:
United States treasury 10,556 10,271 140 (425) (285) 5 (12) (7)
and federal agencies
Mortgage and asset-backed securities:
Government 104 103 (1) (1) (106) (106)
Other 563 562 1 (2) (1) 26 (98) (72)
Tax-exempt and other 64 88 27 (3) 24 8 (1) 7
------- ------- ------- ------- ------- ------- ------- -------
Total $11,697 $11,434 $ 174 $ (437) $ (263) $ 121 $ (394) $ (273)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Off-Balance Sheet Activities
The off-balance sheet investment products BANC ONE utilizes are primarily
interest rate swaps. Interest rate swap agreements generally involve the
exchange of fixed and floating rate interest payments without the 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.
34
<PAGE> 35
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
receive 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, 1996.
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 defined 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
investment product 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 $4 million and $23 million of net deferred items primarily
representing premiums paid at December 31, 1996 and 1995, respectively. There
were no past due payments, nor were there any reserves for credit losses on
off-balance-sheet investment products, 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 rates of
off-balance-sheet investment products by type at December 31, 1996.
<TABLE>
<CAPTION>
MATURITIES OF OFF-BALANCE SHEET INVESTMENT DECEMBER 31,
PRODUCTS AT DECEMBER 31, 1996 (1)(2)
--------------------------------------------------------------------------- -----------------
2002-
$(MILLIONS) 1997 1998 1999 2000 2001 2006 2007+ 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RECEIVED FIXED SWAP
Notional value $ 4,778 $ 2,198 $ 1,025 $ 1,310 $ 1,050 $ 1,566 $ 800 $12,727 $11,712
Weighted average receive rate 5.37% 5.97% 5.84% 6.27% 6.08% 6.51% 6.97% 5.90% 5.87%
Received fixed amortizing swaps
Notional value $ 1,453 $ 434 $ 19 $ 150 $ 2,056 $ 7,946
Weighted average receive rate 5.23% 5.58% 7.27% 5.54% 5.35% 5.29%
Pay fixed swaps
Notional value $ (95) $(1,500) $ (6) $ (507) $(2,108) $(2,673)
Weighted average receive rate 8.54% 6.16% 8.68% 6.54% 6.36% 5.76%
Net receive fixed position $ 6,136 $ 1,132 $ 1,038 $ 953 $ 1,050 $ 1,566 $ 800 $12,675 $16,985
Purchased caps
Notional value 941 1,004 16 1 2 9 1,973 5,253
Basis swaps
Notional value 3,730 754 58 50 137 4,729 8,304
Other (3)
Notional value $ 1,040 $ 1,000 $ 16 $ 2,056 $ 4,052
</TABLE>
(1) Maturities are based on estimated future interest rates from the forward
interest rate curve at December 31, 1996.
(2) Variable receive and pay interest rates, which are based primarily on three
month LIBOR or prime, are not included in the table.
(3) Other off-balance sheet investment products include forward-starting
contracts ($1.0 billion and $1.4 billion at December 31, 1996 and 1995,
respectively), floors, futures, options, swap options and forward rate
agreements. Customer transactions of $1.6 billion and $1.2 billion at
December 31, 1996 and December 31, 1995, respectively, have been excluded.
Unrealized gains and losses in off-balance sheet investments products at
December 31, 1996 and 1995 are summarized as follows:
35
<PAGE> 36
<TABLE>
<CAPTION>
NET UNREALIZED GAIN
(LOSS) AS OF DECEMBER 31,
----------------------------
$(MILLIONS) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receive fixed swaps $ (28) $ 165
Received fixed amortizing swaps (6) (13)
Pay fixed swaps (13) (13)
Purchased caps (8) (18)
Basis swaps (6) (37)
Forward starting and other 10 (8)
------------ ------------
Total $ (51) $ 76
============ ============
</TABLE>
NOTE 5 LOANS AND LEASES
The composition of the loan and lease portfolio at December 31, 1996 and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 20,232,193 $ 17,903,692
Real estate:
Commercial 6,429,434 5,667,826
Construction 3,601,958 2,692,587
Residential 13,917,037 10,756,169
Consumer (net of unearned income of $725,476 and $487,147 at December
31, 1996 and 1995, respectively) 19,459,148 18,407,595
Credit card 13,423,517 11,257,838
Leases (net of unearned income of $657, 835 and $491,684 at
December 31,1996 and 1995, respectively) 2,326,508 1,732,196
------------ ------------
Total loans and leases $ 79,389,795 $ 68,417,903
============ ============
</TABLE>
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 contract amounts of these instruments are shown below
<TABLE>
<CAPTION>
$(MILLIONS) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $ 147,754 $ 117,641
Standby letters of credit 3,140 3,493
Commercial and other letters of credit 163 278
</TABLE>
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.
36
<PAGE> 37
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. The same credit policies are used 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
(approximately $374 million at December 31, 1996). The remaining market and
credit risks are transferred to the investors and the third-party institutions
providing credit enhancement.
At December 31, 1996 and 1995, respectively, there were $7.7 billion and $6.2
billion of loans to real estate operators, managers and developers and
construction contractors which represented 9.70% and 9.06% of total loans and
leases. There were no other significant concentrations. Real estate loans and
loan commitments are primarily for properties located throughout the Midwest and
Southwest. Repayment of these loans is dependent in part upon the economic
conditions in those regions. Each customer's creditworthiness is evaluated on an
individual basis. Collateral is required on real estate loans consisting
primarily of residential and income-producing properties.
Credit card loans, consumer loans and related loan commitments are located
throughout the United States. Repayment of these loans is dependent in part upon
regional and national economic factors. Collateral is not required on credit
card loans because of the low average balance of each loan.
Mortgage loans serviced for others approximated $22.5 billion and $19.9 billion
at December 31, 1996 and 1995, respectively.
NOTE 6 ALLOWANCE FOR CREDIT LOSSES
The following summarizes activity in the allowance for credit losses for 1996,
1995 and 1994.
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $ 1,008,023 $ 963,180 $ 1,030,254
Allowances associated with acquisitions and other 66,587 (3,888) 4,526
Provision for credit losses 942,714 526,138 292,222
Total charge-offs (1,065,996) (677,908) (578,727)
Recoveries 246,351 200,501 214,905
----------- ----------- -----------
Net losses charged to the allowance (819,645) (477,407) (363,822)
----------- ----------- -----------
BALANCE, END OF PERIOD $ 1,197,679 $ 1,008,023 $ 963,180
=========== =========== ===========
</TABLE>
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 No.'s 114 and
118 (collectively, SFAS 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 114 does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for those
37
<PAGE> 38
loans restructured under a troubled debt restructuring. A loan is considered
restructured when certain concessions are made to a financially troubled debtor
that are not normally considered.
The following table summarizes impaired loan information at December 31, 1996
and 1995.
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with related allowance $109,781 $141,467
Impaired loans with no related allowance 161,579 75,694
-------- --------
Total impaired loans $271,360 $217,161
======== ========
Allowance on impaired loans $ 33,101 $ 41,119
======== ========
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
$(THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Average impaired loans $274,545 $219,962
Interest income recognized on impaired loans 7,764 6,706
Cash basis interest income recognized on impaired loans 2,737 3,698
</TABLE>
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.
38
<PAGE> 39
NOTE 7 BANK PREMISES, EQUIPMENT AND LEASES
The major categories of bank premises and equipment and accumulated depreciation
at December 31, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 220,211 $ 208,164
Building 1,252,757 1,040,104
Equipment 1,873,738 1,601,004
Leasehold improvements 328,740 305,411
---------- ----------
3,675,446 3,154,683
Less accumulated depreciation and amortization 1,876,296 1,502,616
---------- ----------
Bank premises and equipment, net $1,799,150 $1,652,067
========== ==========
</TABLE>
As of December 31, 1996, the future minimum rental payments required under
noncancelable operating leases with initial terms in excess of one year are $129
million, $118 million, $100 million, $81 million, and $70 million for each of
the years 1997 through 2001, respectively, and $409 million thereafter. Rental
expense under operating leases approximated $182 million in 1996, $170 million
in 1995 and $182 million in 1994.
39
<PAGE> 40
NOTE 8 SHORT-TERM BORROWINGS
Information pertaining to short-term borrowings for 1996, 1995 and 1994, is
summarized below:
<TABLE>
<CAPTION>
FEDERAL FUNDS REPURCHASE COMMERCIAL BANK
$(THOUSANDS) PURCHASED(1) AGREEMENTS(1) PAPER(2) NOTES(3) OTHER (4)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996:
Balance end of year $7,009,176 $5,849,329 $1,683,790 $2,783,914 $ 999,190
Highest month-end balance 7,134,536 5,849,329 1,754,113 3,487,832 1,660,603
Average daily balance 6,175,854 4,618,439 1,281,410 2,711,661 581,414
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 $5,528,313 $3,031,071 $ 652,801 $2,762,642 $ 503,748
Highest month-end balance 6,067,603 4,458,311 1,469,476 2,978,642 1,488,626
Average daily balance 4,405,978 3,154,123 1,278,631 2,144,360 583,234
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
1994:
Balance end of year $2,955,250 $3,247,512 $1,272,660 $3,028,821 $ 752,761
Highest month-end balance 4,363,361 6,737,075 1,272,660 3,117,925 1,563,387
Average daily balance 3,358,740 4,450,598 1,047,795 2,077,603 662,064
Weighted average interest rate:
As of year-end 5.56% 4.63% 5.61% 5.00% 5.40%
Paid during year 4.46 3.57 4.61 4.62 4.03
</TABLE>
(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.
40
<PAGE> 41
NOTE 9 LONG-TERM BORROWINGS
Long-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
STATED EFFECTIVE
$(THOUSANDS) MATURITY RATE RATE(1) DECEMBER 31,
-------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporation: Subordinated notes (2) 2002 7.25% 6.66% $ 348,454 $ 346,337
Subordinated notes (2) 2003 8.74 7.80 170,000 169,881
Subordinated notes (2) 2005 7.00 6.26 298,370 296,155
Subordinated notes (2) 2009 9.88 10.11 196,471 196,012
Subordinated notes (2) 2010 10.00 10.25 197,668 197,369
Subordinated notes (2) 2025 7.75 6.59 297,122 294,272
Subordinated notes (2) 2026 7.63 6.40 495,977
Affiliates: Subordinated notes (3) Various Various Various 752,179 748,580
Bank notes (4) Various Various Various 3,707,648 1,928,134
Redeemable preferred securities (5) 2027 9.33 200,000
Unsecured revolving loans (6) 2000 54,000
Capital leases and other Various Various Various 163,934 99,761
------- ------
Total $6,827,823 $4,330,501
========== ==========
(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,
1996. The terms to maturity of the swaps are shorter than or equal to the
altered borrowings.
(2) These 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 have stated rates ranging from 6.0% to 7.65%. The effective
rates range from 5.19% to 7.10%. The notes mature between 2002 and 2005, and
are not subject to early redemption.
(4) Notes have stated or variable rates ranging from 5.26% to 6.54%, effective
rates ranging from 5.33% to 6.37% ,and mature between 1997 and 2006.
(5) These notes are redeemable preferred securities of a subsidiary trust
holding solely subordinated debentures of the Corporation. In June, 1997
the company paid a premium of $36 million to redeem $193 million of these
securities.
(6) The total revolving credit facility is $300 million payable to a bank
syndicate. The facility bears interest base on LIBOR plus 0.25% to 0.65% and
commitment fees range from 0.125% to 0.25% on the unused portion. This
facility was terminated in June, 1997.
</TABLE>
At December 31, 1996, the aggregate annual repayments of long-term borrowings
for BANC ONE affiliates (excluding the Corporation) are $1,069 million, $1,449
million, $707 million, $18 million and $530 million for each of the years 1997
through 2001, respectively and $1,050 million thereafter. All long-term
borrowings of the Corporation are due after the year 2001.
NOTE 10 STOCK DIVIDENDS AND CONVERTIBLE PREFERRED STOCK
On January 23, 1996 and January 25, 1994, the Corporation declared 10% common
stock dividends to stockholders of record on February 21, 1996 and February 10,
1994, respectively. Accordingly, certain common stock share data have been
adjusted to include the effect of the stock dividends.
Each of the Series C preferred shares can be converted into 1.928982 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
41
<PAGE> 42
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 $51.95 for 1996.
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 are cumulative and payable quarterly in
average. 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 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 non-bank affiliates is
subject to various national and/or state regulatory restrictions. The amount of
dividends available from non-bank affiliates that are subject to dividend
restrictions is regulated by the governing agency to which they report. At
December 31, 1996, $1.3 billion 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 affiliate bank in any of the
undercapitalized 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, 1996, BANC ONE and each of its
affiliate banks are 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, 1996 that management believes have changed any
entity's category.
The actual and required capital amounts and ratios for BANC ONE and certain
significant banking affiliates are presented in the table as follows:
42
<PAGE> 43
<TABLE>
<CAPTION>
TO BE CATEGORIZED
ACTUAL ADEQUATELY CAPITALIZED
----------------------- ----------------------
AS OF DECEMBER 31, 1996 CAPITAL CAPITAL CAPITAL CAPITAL
$(THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL RISK ADJUSTED CAPITAL (TO RISK WEIGHTED ASSETS):
BANC ONE CORPORATION (consolidated) $13,482,174 14.07% $ 7,663,080 8.00%
Bank One Arizona, N.A 1,297,110 10.76 964,750 8.00
Bank One, Texas, N.A 1,645,923 10.46 1,259,213 8.00
TIER I CAPITAL (TO RISK WEIGHTED ASSETS):
BANC ONE CORPORATION (consolidated) 9,556,913 9.98 3,831,540 4.00
Bank One Arizona, N.A 999,699 8.29 482,375 4.00
Bank One, Texas, N.A 1,502,008 9.54 629,606 4.00
TIER I LEVERAGE (TO AVERAGE ASSETS):
BANC ONE CORPORATION (consolidated) 9,556,913 8.88 4,303,283 4.00
Bank One Arizona, N.A 999,699 7.25 551,578 4.00
Bank One, Texas, N.A $ 1,502,008 7.37% $ 815,231 4.00%
</TABLE>
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:
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $ 873,905 35.0% $ 760,738 35.0% $ 632,164 35.0%
Increase (reduction) in tax rate resulting from:
State income taxes, net of federal income tax
benefit 33,991 1.4 56,375 2.6 53,134 2.9
Tax exempt interest (54,620) (2.2) (50,853) (2.3) (59,273) (3.3)
Issuance of IRS regulations relating to
acquisition of troubled financial Institutions 0 0.0 (22,265) (1.0) 0 0.0
Tax credits (14,296) (0.6) (8,154) (0.4) (7,151) (0.4)
Other, net (14,954) (0.6) (7,515) (0.2) (757) (0.0)
--------- --------- --------- --------- --------- ---------
Actual tax rate $ 824,026 33.0% $ 728,326 33.5% $ 618,117 34.2%
========= ========= ========= ========= ========= =========
<CAPTION>
Components of provision for income taxes follows:
$(THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred federal tax $180,113 $155,521 $178,391
Federal amount currently payable 591,620 486,074 356,871
Deferred state fax 9,237 17,625 26,803
State amount currently payable 43,056 69,106 56,052
-------- -------- --------
Total provision $824,026 $728,326 $618,117
======== ======== ========
</TABLE>
Deferred tax assets and liabilities at December 31, 1996 and 1995 consisted of
the following:
43
<PAGE> 44
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for credit losses $ 446,306 $ 380,451
Accrued liabilities 86,039 97,525
Other 81,640 63,797
----------- -----------
613,985 541,773
=========== ===========
Deferred tax liabilities:
Leased assets and depreciation (959,236) (649,949)
Unrealized holding gain on securities available for sale (10,039) (52,289)
Securitization income (77,751) (76,651)
Other (111,422) (160,246)
----------- -----------
(1,158,448) (939,135)
----------- -----------
Net deferred tax liability $ (544,462) $ (397,362)
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Other liabilities
Federal deferred tax liabilities $(482,108) $(340,669)
State deferred tax liabilities (62,354) (56,693)
--------- ---------
Net deferred tax liability $(544,462) $(397,362)
========= =========
</TABLE>
NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS
The table below summarizes the estimated fair value of financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
$(MILLIONS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 7,205 $ 7,205 $ 6,440 $ 6,440
Securities - held to maturity 4,398 4,429 3,630 3,679
Securities - available for sale (1) 14,742 14,742 14,622 14,622
Loans, net (2) 73,056 74,379 63,547 65,976
Financial liabilities:
Deposits 74,223 74,107 69,273 69,114
Short-term borrowings 18,325 18,326 12,479 12,478
Long-term borrowings 6,828 6,889 4,331 4,621
Off-balance sheet investment products 6 (19) 35 53
</TABLE>
(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, a
$8 million loss and a $2 million loss at December 31, 1996 and 1995,
respectively.
(2) Excludes net leases with a carrying amount of $6,610 million and $4,366
million at December 31, 1996 and 1995, respectively and includes loans held
for sale.
44
<PAGE> 45
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. 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) are not reflected. The value of these items is
significant.
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.
SECURITIES. The estimated fair values of securities by type are provided in Note
3 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 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 are 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.
45
<PAGE> 46
OFF-BALANCE SHEET INVESTMENT PRODUCTS. Carrying values for off-balance sheet
investment products represent deferred amounts arising from these financial
instruments. Where possible, the fair values are based upon quoted market
prices. Where such prices do not exist, these values are based on dealer quotes.
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 14 PLEDGED SECURITIES AND CONTINGENT LIABILITIES
As of December 31, 1996, securities having a book value of $9.8 billion 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
and $.8 billion for 1996 and 1995, respectively.
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.
NOTE 15 EMPLOYEE BENEFIT PLANS
BANC ONE has various non-contributory pension plans covering substantially all
employees. The retirement benefits are based on length of service and the
employee's highest five years of compensation during the last 10 years of
service. 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. The following table sets forth the plans' funded status. Accrued
pension cost at December 31, 1996 and 1995 includes $33 million and $23 million,
respectively, for BANC ONE's non-qualified, unfunded supplemental pension plans.
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$553,750 and $472,738 in 1996 and 1995, respectively $ 583,664 $ 496,104
--------- ---------
Projected benefit obligation for service rendered to date $ 768,029 $ 716,809
Plan assets at fair value 841,841 682,269
--------- ---------
Excess / (shortfall) of plan assets over projected benefit obligation 73,812 (34,540)
Unrecognized net loss / (gain) from past experience difference from
that assumed and effects of changes in assumptions (85,295) 25,829
Unrecognized prior service cost 10,865 11,369
Unrecognized net transition asset (11,289) (13,969)
--------- ---------
Accrued pension cost $ (11,907) $ (11,311)
========= =========
</TABLE>
The plan assets primarily consist of U.S. Treasury and Federal Agency
securities, and mutual funds. Plan assets include 927,401 shares of the
Corporation's common stock at December 31, 1996 and 927,836 shares at December
31, 1995 as adjusted for the 10% common stock dividend payable March 6, 1996.
The fair value of the Corporation's common stock held as plan assets was $40
million and $32 million at December 31, 1996 and 1995, respectively. Dividends
received by the plans on the Corporation's common stock totaled $1 million in
1996 and 1995.
46
<PAGE> 47
Net periodic pension cost for 1996, 1995 and 1994 included the following:
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 55,600 $ 42,508 $ 46,498
Interest cost on projected benefit obligation 55,144 46,648 43,503
Actual (return) / loss on plan assets (106,034) (102,068) 28,872
Net amortization and deferral 36,824 43,846 (82,877)
--------- --------- ---------
Net periodic pension cost $ 41,534 $ 30,934 $ 35,996
========= ========= =========
Actuarial assumptions:
Weighted average discount rate for projected benefit
obligation 7.50% 7.50% to 8.50% 7.90% to 8.50%
Weighted average rate of compensation increase
5.00% 5.00% to 6.00% 4.50% to 6.25%
Expected long-term rate of return on plan assets
8.50% to 9.00% 8.50% to 9.00% 8.50% to 9.75%
</TABLE>
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 non-contributory.
Prior to 1993, BANC ONE accounted for postretirement benefits other than
pensions on the cash basis. BANC ONE is amortizing the unrecognized transition
obligation existing at January 1, 1993, when the accrual method of accounting
for these benefits was adopted over a 20-year period. 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, 1996 and 1995.
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (87,413) $ (64,149)
Fully eligible active plan participants (29,008) (19,323)
Other active plan participants (38,929) (33,900)
--------- ---------
Accumulated postretirement benefit obligation in excess of plan (155,350) (117,372)
assets
Unrecognized net (gain) / loss 5,375 (20,137)
Unrecognized transition obligation 90,053 95,681
--------- ---------
Accrued postretirement benefit cost $ (59,922) $ (41,828)
========= =========
</TABLE>
Net periodic cost for postretirement health care and life insurance benefits
during 1996, 1995 and 1994 include the following:
47
<PAGE> 48
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 3,678 $ 2,954 $ 3,591
Interest cost on accumulated postretirement benefit
obligation 8,486 8,595 8,602
Amortization of unrecognized transition obligation 5,628 5,628 5,629
Amortization of unrecognized net gain (420) (1,097) 0
-------- -------- --------
Net periodic postretirement benefit cost $ 17,372 $ 16,080 $ 17,822
======== ======== ========
</TABLE>
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at December 31, 1996, 1995 and 1994 were
7.50%, 7.50% and 8.75%, respectively.
For measurement purposes, a 8.0% annual rate of increase in the cost of covered
health care benefits was assumed for 1997; 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, 1996 by $16.0
million, or 10.3%, and would increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit cost for 1996 by
$1.1 million or 9.2%.
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 1996, 1995 and 1994, the expense related to these plans was $19
million, $8 million and $12 million, respectively.
NOTE 16 STOCK-BASED COMPENSATION PLANS
BANC ONE applies APB 25 and related interpretations in accounting for its
stock-based compensation plans. In accordance with SFAS 123, BANC ONE elected to
continue to apply the provisions of APB 25. However, pro forma disclosures as if
BANC ONE adopted the cost recognition provisions of SFAS 123 in 1995 are
required and are presented below along with a summary of the plans and awards.
BANC ONE's stock option plans provide for the granting of options to purchase
common shares to certain key employees. Generally, the stock option plans
provide for the granting of incentive and non-qualified stock options and stock
awards for up to an aggregate of one percent of the outstanding common stock of
the Corporation as reported in BANC ONE'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 plans. Further, the total number of
shares available for grants of stock awards in any year shall not exceed one
fourth of one percent of the Corporation's outstanding common stock as so
reported. Based on December 31, 1995 outstanding shares, approximately 18.9
million shares of the Corporation's common stock were available for grant in
1996. In 1996, 617,001 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 non-qualified 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.
48
<PAGE> 49
The following summarizes the Corporation's stock options as of December 31, 1996
and 1995, and the changes for the years then ended:
<TABLE>
<CAPTION>
1996
---------------------------------
NUMBER OF WGTD. AVG.
SHARES EXERCISE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of the year 19,080,448 $16.29
Granted 5,891,496 26.65
Exercised 3,572,471 8.17
Forfeited 1,032,220 25.27
Expired 4,695 9.80
Outstanding at the end of the year ----------
20,362,558 20.25
==========
Exercisable at the end of the year 7,940,319 11.40
==========
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------------
NUMBER OF WGTD. AVG.
SHARES EXERCISE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of the year 16,952,224 $13.44
Granted 5,410,704 22.37
Exercised 2,557,851 8.23
Forfeited 717,890 24.58
Expired 6,739 33.54
Outstanding at the end of the year ----------
19,080,448 16.24
==========
Exercisable at the end of the year 8,383,110 8.05
==========
</TABLE>
The following summarizes information about the Corporation's stock
options outstanding at December 31, 1996.
<TABLE>
<CAPTION>
SHARES SUBJECT TO OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------- -----------------------------
OPTIONS WGTD. AVG.
RANGE OF SHARES REMAINING WGTD. AVG. NUMBER WGTD. AVG.
EXERCISE PRICE OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than 2.38 2,645,280 4.35 $ 1.68 2,645,280 $ 1.68
$ 2.38 to 5.65 55,963 5.24 2.84 46,636 2.37
$ 5.65 - 8.51 73,584 6.18 7.33 64,257 7.27
$ 8.51 - $12.42 1,750,025 5.55 9.53 1,388,125 9.64
$12.95 - $18.44 3,598,398 7.49 16.81 2,007,348 16.49
$19.25 - $28.43 7,596,705 10.12 23.45 1,743,092 21.61
Greater than $28.59 4,642,602 12.53 33.02 45,581 33.26
</TABLE>
49
<PAGE> 50
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for grants in 1996 and 1995: 1) expected dividend yields ranged from
0.33% 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 1996 and 1995 was $7.20 and $4.78 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 123, the net income and net income per common
share for the years ended December 31, 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
$(MILLIONS, EXCEPT PER SHARE AMOUNTS) PRO FORMA(1) AS REPORTED
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 Net income $1,665 $1,673
1996 Net income per common share 2.76 2.78
1995 Net income 1,443 1,445
1995 Net income per common share 2.43 2.43
</TABLE>
(1) Due to the inclusion of only 1996 and 1995 option grants, the effect of
applying SFAS 123 in 1996 and 1995 may not be representative of the pro
forma impact in future years.
NOTE 17 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 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,
1996 or 1995.
NOTE 18 SUPPLEMENTAL DISCLOSURES FOR STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock issued in purchase acquisitions $ 710,515 $ 3,647 $ 33,508
=========== =========== ===========
Transfer from loans to Other Real Estate Owned (OREO) $ 82,028 $ 91,163 $ 68,806
=========== =========== ===========
Securitized mortgage loans $ 1,426,766
===========
Reclassification of private placements from loans to
securities $ 533,057
===========
Reclassification of held to maturity securities to available
for sale at amortized cost (fair value $2,934,526) $ 2,883,654
===========
Net increase in securities trades not settled $ (140,382) $ 185,009 $ 139,346
=========== =========== ===========
Loans issued to facilitate the sale of OREO properties $ 2,453 $ 7,220 $ 26,287
=========== =========== ===========
Additional Disclosures:
Interest paid $ 3,632,703 $ 3,256,137 $ 2,379,073
=========== =========== ===========
Income taxes paid $ 580,659 $ 453,569 $ 502,701
=========== =========== ===========
Dividends declared but not paid at year end $ 123,925
===========
</TABLE>
50
<PAGE> 51
NOTE 19 PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of the Corporation, prepared on a parent
company unconsolidated basis, are presented as follows:
BALANCE SHEET
at December 31, 1996 and 1995
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in majority-owned affiliates:
Banking $10,369,283 $ 8,622,077
Non-banking 549,820 483,615
Advances due from affiliates:
Banking 125,000
Non-banking 2,254,062 1,689,104
Other assets 591,560 489,825
----------- -----------
Total assets $13,889,725 $11,284,621
=========== ===========
LIABILITIES:
Commercial paper and other short-term borrowings $ 1,616,294 $ 560,360
Notes payable to non-banking affiliates 58,477 53,896
Long-term borrowings 2,204,062 1,500,026
Other liabilities 142,805 118,895
----------- -----------
Total liabilities 4,021,638 2,233,177
----------- -----------
Total stockholders' equity 9,868,087 9,051,444
----------- -----------
Total liabilities and stockholders' equity $13,889,725 $11,284,621
=========== ===========
</TABLE>
51
<PAGE> 52
STATEMENT OF INCOME
for the three years ended December 31,
$(thousands, except per share amounts)
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Dividends from affiliates
Banking $1,108,122 $1,129,400 $ 614,617
Non-banking 65,050 0 12,086
Management and other fees from affiliates 180,733 116,623 118,577
Interest 137,569 128,323 100,572
Other 5,518 8,917 28,285
---------- ---------- ----------
Total income 1,496,992 1,383,263 874,137
---------- ---------- ----------
EXPENSE:
Interest 207,686 183,452 129,302
Other 396,029 214,727 189,145
---------- ---------- ----------
Total expense 603,715 398,179 318,447
---------- ---------- ----------
Income before income taxes and equity in undistributed
earnings of consolidated affiliates 893,277 985,084 555,690
Income tax benefit 132,550 55,022 31,629
---------- ---------- ----------
Income before equity in undistributed earnings of
consolidated affiliates 1,025,827 1,040,106 587,319
Equity in undistributed earnings of consolidated affiliates 647,018 405,105 600,749
---------- ---------- ----------
NET INCOME $1,672,845 $1,445,211 $1,188,068
========== ========== ==========
NET INCOME PER COMMON SHARE $ 2.78 $ 2.43 $ 1.99
========== ========== ==========
Weighted average shares outstanding (000) 594,853 587,789 589,316
========== ========== ==========
</TABLE>
52
<PAGE> 53
STATEMENT OF CASH FLOWS
for the three years ended December 31,
<TABLE>
<CAPTION>
$(THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,672,845 $ 1,445,211 $ 1,188,068
Adjustments:
Equity in undistributed earnings of consolidated
affiliates (647,018) (405,105) (600,749)
Noncash dividends received (62,645) (54,649) (10,160)
Other (48,108) (23,355) (61,167)
----------- ----------- -----------
Net cash provided by operating activities 915,074 962,102 515,992
----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Net (increase) decrease in short-term investments (11,941) 464,320 (203,404)
Net (increase) decrease in loans (672,743) (498,366) 768,948
Net increase in investment in majority-owned affiliates (406,838) 3,718 (205,654)
All other investing activities, net (71,539) (82,747) 14,882
----------- ----------- -----------
Net cash provided by (used in) investing activities (1,163,061) (113,075) 374,772
----------- ----------- -----------
Cash flows provided by (used in ) financing activities:
Net (decrease) increase in commercial paper 1,055,934 (623,432) 151,722
Net increase (decrease) in short term borrowings 9,105 52,545 (437,681)
Proceeds from the issuance of long-term borrowings 695,955 590,179 0
Cash dividends paid (634,990) (572,121) (518,186)
Purchase of treasury shares (1,003,075) (324,321) (336,453)
Exercise of stock options, net of shares purchased 16,775 6,476 (3,680)
All other financing activities, net 126,091 37,031 261,333
----------- ----------- -----------
Net cash provided by (used in) financing activities 265,795 (833,643) (882,945)
----------- ----------- -----------
Increase in cash and cash equivalents 17,808 15,384 7,819
Cash and cash equivalents at January 1, 25,350 9,966 2,147
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, $ 43,158 $ 25,350 $ 9,966
=========== =========== ===========
</TABLE>
53
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and the Board of Directors
BANC ONE CORPORATION
We have audited the accompanying supplemental consolidated balance sheets of
BANC ONE CORPORATION and Subsidiaries as of December 31, 1996 and 1995, and the
related supplemental statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
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.
The supplemental financial statements give retroactive effect to the merger of
BANC ONE CORPORATION and First USA, Inc. on June 27, 1997, which has been
accounted for as a pooling of interests as described in Note 2 to the
supplemental consolidated financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that
do not include the date of consummation. These financial statements do not
extend through the date of consummation, however, they will become the
historical consolidated financial statements of BANC ONE CORPORATION and
Subsidiaries after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, the supplemental financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BANC
ONE CORPORATION and Subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles applicable after financial statements are issued
for a period which includes the date of consummation of the business
combination.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
August 28, 1997
54
