<PAGE> 1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-8552
BANC ONE CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0738296
- ------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer I.D. Number)
incorporation or organization)
100 East Broad Street, Columbus, Ohio 43271
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 248-5944
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's common stock, no par value,
$5 stated value, was 586,955,310 at October 31, 1997.
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FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet........................................... 3
Consolidated Statement of Income..................................... 4
Consolidated Condensed Statement of Cash Flows....................... 5
Consolidated Statement of Changes in Stockholders' Equity............ 6
Notes to the Consolidated Financial Statements....................... 7
Consolidated Quarterly Financial Data................................10
Average Balance, Income and Expense, Yields and Rates................12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Acquisitions.........................................................14
Restructuring Charges and Merger-Related Costs.......................14
"Reported" vs "Managed" Analysis.....................................14
Results of Operations................................................15
Overview...........................................................15
Net Interest Income/Net Interest Margin............................15
Noninterest Income.................................................18
Noninterest Expense................................................19
Income Taxes ......................................................20
Balance Sheet Analysis...............................................20
Securities ........................................................20
Loans and Leases...................................................21
Other Assets.......................................................21
Deposits...........................................................21
Borrowings.........................................................22
Capital............................................................22
Credit Quality ......................................................22
Performance Analysis - Managed Portfolio ............................24
Interest Rate Risk Management........................................26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................28
Item 2. Changes in Securities..........................................................28
Item 3. Defaults upon Senior Securities................................................28
Item 4. Submission of Matters to a Vote of Security Holders............................28
Item 5. Other Information..............................................................28
Item 6. Exhibits and Reports on Form 8-K...............................................28
SIGNATURES.............................................................................29
</TABLE>
2
<PAGE> 3
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
$(MILLIONS, EXCEPT SHARE AMOUNTS) (UNAUDITED) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks ............................................................... $6,474.6 $6,524.4
Short-term investments ................................................................ 673.0 680.7
Loans held for sale ................................................................... 466.0 1,473.8
Securities:
Securities held to maturity ....................................................... 723.1 4,397.9
Securities available for sale ..................................................... 14,704.2 14,733.8
-------- --------
Total securities (fair value approximates $15,441.4 and $19,163.2 at September 30,
1997 and December 31, 1996, respectively) .................................... 15,427.3 19,131.7
Loans and leases ...................................................................... 82,741.0 79,389.7
Allowance for credit losses ........................................................... (1,343.6) (1,197.7)
-------- --------
Net loans and leases .......................................................... 81,397.4 78,192.0
Other assets:
Bank premises and equipment, net .................................................. 1,832.0 1,799.2
Interest earned, not collected .................................................... 902.5 782.1
Excess of cost over net assets of affiliates purchased ............................ 751.4 508.4
Other ............................................................................. 5,202.8 3,061.2
------- -------
Total other assets ............................................................ 8,688.7 6,150.9
------- -------
Total assets .................................................................. $113,127.0 $112,153.5
========== ==========
LIABILITIES:
Deposits:
Noninterest-bearing ............................................................... $17,287.1 $16,340.6
Interest-bearing .................................................................. 58,495.1 57,882.4
-------- --------
Total deposits ................................................................ 75,782.2 74,223.0
Federal funds purchased and repurchase agreements ..................................... 8,220.0 12,858.5
Other short-term borrowings ........................................................... 4,437.3 5,466.9
Long-term borrowings .................................................................. 11,370.9 6,827.8
Accrued interest payable .............................................................. 503.2 468.6
Other liabilities ..................................................................... 2,723.9 2,440.7
------- -------
Total liabilities ............................................................. 103,037.5 102,285.5
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock:
Series C convertible, 35,000,000 shares authorized, no par value, 3,470,155
and 4,140,314 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively ............................................... 173.5 207.0
Preferred stock of pooled affiliate, 5,750,000 shares authorized, issued and
outstanding at December 31, 1996 .............................................. -- 0.1
Common stock, no par value, $5 stated value, 950,000,000 and 600,000,000 shares
authorized at September 30, 1997 and December 31, 1996, respectively,
585,520,503 and 576,517,822 shares issued at September 30, 1997 and
December 31, 1996, respectively ................................................... 2,927.6 2,882.6
Capital in excess of aggregate stated value of common stock ........................... 4,052.5 4,346.4
Retained earnings ..................................................................... 2,879.9 2,625.1
Net unrealized holding gains on securities available for sale, net of tax ............. 94.1 19.9
Treasury stock (679,065 and 5,829,915 shares at September 30, 1997 and December 31,
1996 respectively), at cost ...................................................... (38.1) (213.1)
----- ------
Total stockholders' equity .................................................... 10,089.5 9,868.0
-------- -------
Total liabilities and stockholders' equity .................................... $113,127.0 $112,153.5
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------------------------
$(MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans and leases .................................. $2,120.5 $1,862.3 $6,075.2 $5,451.4
Securities:
Taxable ........................................ 228.3 276.2 770.2 856.2
Tax-exempt ..................................... 19.9 23.1 62.3 72.3
Loans held for sale ............................... 7.9 9.0 130.4 33.2
Other ............................................. 10.5 8.4 32.9 26.2
---- --- ---- ----
Total interest income .......................... 2,387.1 2,179.0 7,071.0 6,439.3
INTEREST EXPENSE:
Deposits:
Demand, savings and money market deposits ...... 289.0 254.9 825.6 747.0
Time deposits .................................. 359.0 368.2 1,081.0 1,078.7
Borrowings ........................................ 375.8 279.5 1,090.9 820.7
----- ----- ------- -----
Total interest expense ......................... 1,023.8 902.6 2,997.5 2,646.4
------- ----- ------- -------
Net interest income ................................. 1,363.3 1,276.4 4,073.5 3,792.9
Provision for credit losses ......................... 270.8 240.3 938.5 623.1
------- ------- ------- -------
Net interest income after provision for credit losses 1,092.5 1,036.1 3,135.0 3,169.8
NONINTEREST INCOME:
Investment management and advisory activities ..... 82.8 71.8 233.2 202.1
Service charges on deposit accounts ............... 177.3 165.8 518.1 483.8
Loan processing and servicing income .............. 540.6 373.4 1,232.1 1,090.9
Securities gains, net ............................. 10.8 1.6 43.1 7.2
Other ............................................. 291.4 225.2 714.1 582.5
----- ----- ----- -----
Total noninterest income ....................... 1,102.9 837.8 2,740.6 2,366.5
NONINTEREST EXPENSE:
Salaries and related costs ........................ 618.2 541.0 1,751.5 1,632.0
Net occupancy expense, exclusive of depreciation .. 53.4 48.0 153.5 148.0
Depreciation and amortization ..................... 114.1 103.7 333.5 329.2
Outside services and processing ................... 225.0 165.1 609.2 484.6
Marketing and development ......................... 244.6 101.4 574.9 296.5
Communication and transportation .................. 109.6 96.4 308.7 278.1
Restructuring charges ............................. -- -- 337.3 --
Other ............................................. 170.4 201.4 499.9 518.6
----- ----- ----- -----
Total noninterest expense ...................... 1,535.3 1,257.0 4,568.5 3,687.0
------- ------- ------- -------
INCOME BEFORE INCOME TAXES .......................... 660.1 616.9 1,307.1 1,849.3
PROVISION FOR INCOME TAXES .......................... 226.9 204.1 476.2 618.5
----- ----- ----- -----
NET INCOME .......................................... $433.2 $412.8 $830.9 $1,230.8
====== ====== ====== ========
NET INCOME PER COMMON SHARE.......................... $0.73 $0.69 $1.40 $2.04
===== ===== ===== =====
Weighted average common shares outstanding .......... 592.3 592.8 585.7 596.2
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
$(MILLIONS) (UNAUDITED) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income ........................................................ $830.9 $1,230.8
Depreciation expense ............................................ 240.4 220.6
Amortization of other intangibles ............................... 93.1 108.6
Other cash (used in) provided by operating activities ........... (1,109.6) 79.3
-------- ----
Net cash provided by operating activities ................... 54.8 1,639.3
---- -------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of securities available for sale ...................... (6,853.9) (3,882.1)
Purchases of securities held to maturity ........................ (502.5) (1,198.7)
Maturities of securities available for sale ..................... 2,520.4 2,873.6
Maturities of securities held to maturity ....................... 644.6 815.7
Sales of securities available for sale .......................... 8,322.7 2,781.8
Net increase in loans, excluding sales and purchases ............ (11,074.2) (10,395.5)
Sales of loans .................................................. 10,582.2 5,414.9
Purchases of loans and related premiums ......................... (801.0) (209.3)
Net decrease (increase) in short-term investments ............... 178.9 (230.1)
Additions to bank premises and equipment ........................ (266.5) (305.4)
Sale of banks and branch offices ................................ (22.3) (186.8)
Net cash acquired in acquisitions ............................... 240.7 315.7
All other investing activities, net ............................. 132.1 (96.4)
----- ------
Net cash provided by (used in) investing activities .......... 3,101.2 (4,302.6)
------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net increase in demand deposit, money market and savings accounts 1,116.4 212.0
Net decrease in time deposits ................................... (1,856.6) (331.1)
Net (decrease) increase in short-term borrowings ................ (5,969.5) 3,764.7
Issuance of long-term borrowings, net ........................... 5,445.4 1,472.4
Repayment of long-term borrowings ............................... (719.5) (1,490.7)
Cash dividends paid ............................................. (575.9) (475.8)
Purchase of treasury stock ...................................... (707.3) (957.9)
Other, net increase ............................................. 61.2 159.2
---- -----
Net cash (used in) provided by financing activities .......... (3,205.8) 2,352.8
-------- -------
Decrease in cash and cash equivalents ........................... (49.8) (310.5)
Cash and cash equivalents at January 1 .......................... 6,524.4 5,712.3
------- -------
Cash and cash equivalents at September 30 ....................... $6,474.6 $5,401.8
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
BANC ONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
$(MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD ................................................................. $9,868.0 $9,051.4
Net income ................................................................................... 830.9 1,230.8
Exercise of stock options, net of shares purchased ........................................... (7.8) (5.2)
Shares issued in acquisitions ................................................................ 538.4 710.5
Sales of stock to employee benefit plans and other ........................................... 69.0 120.2
Cash dividends
Common ($1.14 and $1.02 per share for the nine months ended September 30, 1997 and 1996,
respectively) ........................................................................... (545.7) (441.9)
Series C Preferred ($2.63 per share for the nine months ended September 30, 1997 and 1996,
respectively) ........................................................................... (9.6) (12.7)
Preferred stock of pooled affiliate ...................................................... (20.6) (21.2)
Change in unrealized holding gains (losses) on securities available for sale, net of tax ..... 74.2 (104.7)
Purchase of treasury stock ................................................................... (707.3) (957.9)
------ ------
BALANCE, END OF PERIOD ....................................................................... $10,089.5 $9,569.3
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited. However, in
the opinion of management, they contain the adjustments, all of which are normal
and recurring in nature, necessary to present fairly the consolidated financial
position, results of operations and changes in cash flow. The notes to the
consolidated financial statements contained in the Annual Report on Form 10-K
for the year ended December 31, 1996, the Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, and the restated historical
consolidated financial statements contained in the Current Report on Form 8-K
filed on August 29, 1997 (as amended by Form 8-K/A filed September 2, 1997)
should be read in conjunction with these consolidated financial statements. The
"Corporation" is defined as the Parent Company only. "BANC ONE" is defined as
the Corporation and all significant majority-owned subsidiaries. Certain prior
period amounts have been reclassified to be consistent with current
presentation.
2. ACQUISITIONS
On June 27, 1997, the Corporation completed its acquisition of First USA, Inc.
("First USA") located in Dallas, Texas, resulting in the issuance of
approximately 163 million shares of the Corporation's common stock valued at
$7.9 billion for all the outstanding shares of First USA common stock, in a
tax-free exchange. First USA was a financial services company specializing in
the credit card business with $24.6 billion in managed credit card receivables
and 17.8 million cardholders at June 27, 1997. First USA had total assets of
$10.9 billion and stockholders' equity of $1.2 billion at June 27, 1997. The
acquisition was accounted for as a pooling of interests and therefore, the
consolidated financial statements for prior periods have been restated to
include the results of operations, financial position and changes in cash flows
of First USA. Revenue for First USA for the three and nine months ended
September 30, 1996 was $441.7 million and $1.3 billion, respectively. Net income
for First USA for the three and nine months ended September 30, 1996 was $56.8
million and $174.0 million, respectively. 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.
On June 1, 1997, in a tax-free exchange, the Corporation acquired all of the
outstanding shares of Liberty Bancorp, Inc. ("Liberty"), a multi-bank holding
company headquartered in Oklahoma City, Oklahoma, resulting in the issuance of
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 recorded in the second quarter of 1997 and will
be amortized over 25 years using the straight-line method. Liberty had total
assets of approximately $2.9 billion at May 31, 1997, 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.
3. RESTRUCTURING CHARGES AND MERGER-RELATED COSTS
During the second quarter of 1997, 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.
7
<PAGE> 8
The restructuring charge associated with the First USA merger totaled $240.9
million and consisted of: employee benefits, severance and stock option vesting
costs; professional services costs; premiums to redeem preferred securities of a
subsidiary trust; asset-related write-downs and other merger-related costs.
The remaining $96.4 million restructuring charge was 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.
4. COMMON AND TREASURY STOCK ACTIVITY
Effective June 26, 1997, the Corporation's Articles of Incorporation were
amended to increase the number of authorized shares of the Corporation's common
stock from 600 million to 950 million. In May 1997, the Corporation's Board of
Directors terminated the authorization to make further purchases of the
Corporation's common stock pursuant to the January 1997 and April 1996
authorizations to purchase up to 12 million and 10 million shares, respectively.
During second quarter 1997, 11.9 million shares of treasury stock were issued in
connection with the acquisition of Liberty. In addition, 8.8 million shares of
treasury stock were retired. During the quarter ended September 30, 1997,
approximately 700 thousand shares of treasury stock were acquired as a result of
employee stock option and stock award transactions.
5. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Supplemental disclosure for the consolidated condensed statement of cash flows
are as follows: common stock issued and treasury stock reissued in purchase
acquisitions was $538.4 million and $710.5 million for the nine months ended
September 30, 1997 and 1996, respectively; and security trades not settled
decreased $381.3 million and $373.2 million for the nine months ended September
30, 1997 and 1996, respectively. In connection with the First USA merger, $3.6
billion of mortgage-backed securities were reclassified from held to maturity to
available for sale during the 1997 second quarter.
6. 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. Under SFAS 125, all securitization
of loans made after January 1, 1997, (including revolving sales in credit card
securitizations) are based on the financial components approach. Under that
approach, all financial and servicing assets BANC ONE controls and liabilities
incurred are recognized and all financial assets are derecognized when control
has been surrendered in a transfer of financial assets. Servicing assets and
other retained interests in the transferred assets are measured by allocating
the previous carrying amount between the assets sold and those retained based on
the relative fair values at the date of transfer. Gains or losses result from
the difference between the cost allocated to the assets sold and the proceeds
from the assets sold. BANC ONE's primary retained asset relative to securitized
loans is an "interest only" strip, representing the difference between the
finance charges and certain fees on loans transferred less the coupon paid to
securities holders, contractual servicing fees and charge-offs. Certain
estimates are inherent in determining the fair value of the "interest only"
strip, including interest rates, charge-offs, and receivable lives. These
estimates and assumptions are subject to change in the future.
8
<PAGE> 9
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 Financial Accounting Standards Board (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 June 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.
7. SUBSEQUENT EVENTS
On October 20, 1997, the Corporation entered into an agreement providing for the
acquisition of First Commerce Corporation, a multi-bank holding company
headquartered in New Orleans with approximately $9.3 billion in assets. Terms of
the agreement call for First Commerce Corporation shareholders to receive 1.28
shares of the Corporation's common stock for each share of First Commerce
Corporation common stock. The value of the transaction is approximately $3
billion based on the Corporation's closing share price on October 17, 1997. The
transaction, subject to regulatory and First Commerce Corporation shareholder
approval, is expected to be completed at the end of the first quarter of 1998
and will be accounted for as a pooling of interests.
9
<PAGE> 10
CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS
---------------------------------------------------------------------
1997 1996
--------------------------------------- ------------------------
$(millions) (unaudited) Third Second First Fourth Third
- ------------------------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
PERIOD END BALANCES
Loans and leases (net of unearned income) $82,741.0 $84,200.1 $79,051.0 $79,389.7 $76,584.3
Managed loans and leases (2) 112,980.3 109,822.0 104,844.5 103,434.5 99,264.0
Earning assets 99,307.3 100,760.7 100,544.2 100,675.9 96,700.7
Managed earning assets 129,080.6 125,989.7 123,968.7 123,246.9 118,908.7
Allowance for loan and lease losses 1,343.6 1,362.2 1,222.4 1,197.7 1,131.5
Total assets 113,127.0 115,491.6 111,837.0 112,153.5 107,262.8
Total deposits 75,782.2 76,963.9 73,942.8 74,223.0 73,170.0
Long-term borrowings 11,370.9 9,972.2 7,571.0 6,827.8 5,080.2
Total stockholders' equity 10,089.5 9,849.5 9,634.3 9,868.0 9,569.3
CONDENSED INCOME STATEMENT
Net interest income (1) 1,376.2 1,366.2 1,371.6 1,360.9 1,292.2
Provision for credit losses 270.8 395.8 271.9 319.6 240.3
----- ----- ----- ----- -----
Net funds function (1) 1,105.4 970.4 1,099.7 1,041.3 1,051.9
Noninterest income
Investment management and advisory activities 82.8 76.2 74.2 77.1 71.8
Service charges on deposit accounts 177.3 174.8 166.0 170.3 165.8
Loan processing and servicing income 540.6 376.4 315.1 362.4 373.4
Securities gains 10.8 17.1 15.2 9.5 1.6
Other 291.4 186.0 236.7 377.2 225.2
----- ----- ----- ----- -----
Total noninterest income 1,102.9 830.5 807.2 996.5 837.8
Noninterest expense
Salaries and related costs 618.2 565.6 567.7 572.6 541.0
Other 917.1 1,158.6 741.3 802.4 716.0
----- ------- ----- ----- -----
Total noninterest expense 1,535.3 1,724.2 1,309.0 1,375.0 1,257.0
Taxable equivalent adjustment 12.9 13.8 13.8 15.2 15.8
---- ---- ---- ---- ----
Income before income taxes 660.1 62.9 584.1 647.6 616.9
Provision for income taxes 226.9 47.1 202.2 205.5 204.1
----- ---- ----- ----- -----
Net income 433.2 15.8 381.9 442.1 412.8
Preferred dividends 3.0 3.2 3.4 3.6 4.2
--- --- --- --- ---
Net income available to common stockholders $430.2 $12.6 $378.5 $438.5 $408.6
====== ===== ====== ====== ======
</TABLE>
(1) Fully taxable equivalent basis.
(2) Includes loans held for sale.
10
<PAGE> 11
CONSOLIDATED QUARTERLY FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
QUARTERS
----------------------------------------------------------------
1997 1996
------------------------------------ ----------------------
$(MILLIONS, EXCEPT PER SHARE AMOUNTS)(UNAUDITED) THIRD SECOND FIRST FOURTH THIRD
- ------------------------------------------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
KEY RATIOS
Return on average assets (1) 1.51% .06% 1.40% 1.63% 1.58%
Return on average common equity (1) 17.66 .51 16.30 18.49 17.49
Average common equity to assets 8.52 8.73 8.50 8.72 8.92
Tier I capital ratio 8.42 8.19 9.43 9.98 9.63
Total risk adjusted capital ratio 13.07 12.82 13.45 14.07 13.32
Leverage ratio 7.61 7.61 8.27 8.88 8.52
MARGIN ANALYSIS (1) (2) (3)
Net interest margin 5.37 5.41 5.53 5.52 5.43
Provision for credit losses (1.06) (1.57) (1.10) (1.30) (1.01)
----- ----- ----- ----- -----
Net funds function 4.31 3.84 4.43 4.22 4.42
CREDIT ANALYSIS
Net charge-offs to average loans and leases (1) (6) 1.34 1.42 1.24 1.31 1.10
Ending allowance to loans and leases 1.62% 1.62% 1.55% 1.51% 1.48%
Nonperforming assets: (5)
Total $485.0 $450.1 $433.8 $435.4 $478.2
Percent of total loans and leases (6) .58% .53% .53% .54% .62%
Loans delinquent 90 days or more: (4)
Total $640.8 $494.2 $516.3 $483.9 $404.6
Percent of total loans and leases (6) .77% .58% .63% .60% .53%
Allowance to nonperforming loans 314.00% 343.64% 326.68% 313.17% 271.70%
PER SHARE DATA
Net income $.73 $.02 $.65 $.74 $.69
Cash dividends declared .38 .38 .38 .34 .34
Book value 16.96 16.62 16.74 16.93 16.42
Common stock price
High 57.31 50.13 49.25 47.88 41.38
Low 47.56 39.13 39.38 40.38 31.25
Close 56.00 48.44 39.75 43.00 41.00
Preferred Series C stock price:
High 108.75 96.50 94.50 91.25 80.00
Low 91.50 75.75 76.50 77.75 60.75
Close $106.75 $93.00 $77.88 $83.00 $79.13
SHARES TRADED
Common 102.8 125.6 133.4 54.3 60.7
Preferred Series C .6 .5 .6 .9 2.1
</TABLE>
(1) Ratios presented on an annualized basis.
(2) Fully taxable equivalent basis.
(3) As a percent of average earning assets.
(4) Excludes nonperforming loans.
(5) Excludes certain smaller balance loans collectively evaluated for
impairment.
(6) Includes loans held for sale.
11
<PAGE> 12
AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------------------------- ---------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
$(MILLIONS) (UNAUDITED) BALANCES EXPENSE RATE BALANCES EXPENSE RATE
- ---------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Short-term investments $757.5 $10.6 5.55% $618.2 $8.5 5.47%
Loans held for sale 419.8 7.9 7.47 457.2 9.0 7.83
SECURITIES: (3)
Taxable 13,868.9 228.9 6.55 16,952.6 276.3 6.48
Tax-exempt 1,436.5 28.8 7.95 1,651.2 34.2 8.24
------- ---- ------- ----
Total securities 15,305.4 257.7 6.68 18,603.8 310.5 6.64
LOANS AND LEASES: (2)
Commercial, financial and agricultural 21,704.1 458.2 8.38 19,293.7 403.9 8.33
Real estate:
Commercial 5,914.1 134.6 9.03 6,238.5 140.7 8.97
Construction 4,037.3 98.9 9.72 3,321.3 80.7 9.67
Residential 16,044.5 383.9 9.49 11,609.9 269.0 9.22
Consumer, net 20,659.0 492.1 9.45 20,300.7 469.0 9.19
Credit card 14,281.7 508.1 14.11 12,131.7 463.4 15.20
Leases, net 2,540.7 48.1 7.51 2,142.0 40.1 7.45
------- ---- ------- ----
Total loans and leases 85,181.4 2,123.9 9.89 75,037.8 1,866.8 9.90
-------- ------- -------- -------
Total earning assets 101,664.1 2,400.1 9.37 94,717.0 2,194.8 9.22
Allowance for credit losses (1,361.0) (1,115.0)
Other assets 13,182.6 10,528.8
-------- --------
TOTAL ASSETS $113,485.7 $104,130.8
========== ==========
LIABILITIES:
DEPOSITS:
Noninterest-bearing demand $15,934.0 $13,991.8
Interest-bearing demand 1,515.7 6.6 1.73 2,131.1 9.7 1.81
Savings and money market 31,765.8 282.4 3.53 29,342.6 245.1 3.32
Time deposits:
CDs less than $100,000 18,006.7 246.9 5.44 18,597.5 258.6 5.53
CDs $100,000 and over:
Domestic 5,726.2 78.6 5.45 5,175.8 70.2 5.40
Foreign 2,482.7 33.6 5.37 2,915.6 39.5 5.39
------- ---- ------- ----
Total deposits 75,431.1 648.1 3.41 72,154.4 623.1 3.44
BORROWED FUNDS
Short-term 15,105.0 211.5 5.56 14,963.0 197.5 5.25
Long-term 10,156.1 164.3 6.42 4,933.8 82.0 6.61
-------- ----- ------- ----
Total borrowed funds 25,261.1 375.8 5.90 19,896.8 279.5 5.59
-------- ----- -------- -----
Total interest-bearing liabilities 84,758.2 1,023.9 4.79 78,059.4 902.6 4.60
Other liabilities 2,951.0 2,548.7
------- -------
TOTAL LIABILITIES 103,643.2 94,599.9
Preferred stock 176.2 240.5
Common stockholders' equity 9,666.3 9,290.4
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $113,485.7 $104,130.8
========== ==========
INTEREST RATE SPREAD 4.58 4.62
NET INTEREST INCOME AND NET INTEREST 1,376.2 5.37 1,292.2 5.43
MARGIN
Provision for credit losses (270.8) (1.06) (240.3) (1.01)
------ ----- ------ -----
NET FUNDS FUNCTION $1,105.4 4.31% $1,051.9 4.42%
======== ==== ======== ====
</TABLE>
(1) Fully taxable equivalent basis.
(2) Nonaccrual loans are included in loan balances. Interest income
includes related fee income.
(3) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value which are included in
other assets.
12
<PAGE> 13
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------------------------------- -----------------------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCES EXPENSE RATE BALANCES EXPENSE RATE
---------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$797.8 $33.0 5.53% $618.3 $26.3 5.68%
1,382.4 130.4 12.61 581.8 33.2 7.62
15,737.9 770.9 6.55 17,622.2 857.2 6.50
1,491.7 91.0 8.16 1,704.5 106.4 8.34
------- ---- ------- -----
17,229.6 861.9 6.69 19,326.7 963.6 6.66
21,018.3 1,317.6 8.38 19,182.0 1,187.1 8.27
6,038.0 407.6 9.03 6,108.9 410.0 8.97
3,901.2 282.8 9.69 3,112.6 229.2 9.84
14,971.6 1,065.4 9.51 11,306.8 782.3 9.24
20,572.7 1,473.2 9.57 20,167.7 1,425.0 9.44
12,836.6 1,405.7 14.64 12,071.6 1,321.2 14.62
2,425.9 134.0 7.39 1,964.0 109.4 7.44
------- ----- ------- -----
81,764.3 6,086.3 9.95 73,913.6 5,464.2 9.87
-------- ------- -------- -------
101,174.1 7,111.6 9.40 94,440.4 6,487.3 9.18
(1,259.8) (1,091.9)
12,345.4 10,512.5
-------- --------
$112,259.7 $103,861.0
========== ==========
$15,293.1 $14,069.2
1,702.9 21.1 1.66 2,494.2 34.1 1.83
30,895.4 804.6 3.48 28,866.3 712.9 3.30
18,091.4 743.5 5.49 19,142.2 795.7 5.55
5,854.4 240.1 5.48 5,389.1 194.5 4.82
2,407.2 97.4 5.41 2,209.9 88.5 5.35
------- ---- ------- ----
74,244.4 1,906.7 3.43 72,170.9 1,825.7 3.38
16,715.5 676.5 5.41 14,906.6 587.0 5.26
8,653.8 414.4 6.40 4,781.7 233.7 6.53
------- ----- ------- -----
25,369.3 1,090.9 5.75 19,688.3 820.7 5.57
-------- ------- -------- -----
84,320.6 2,997.6 4.75 77,790.0 2,646.4 4.54
2,823.1 2,516.1
------- -------
102,436.8 94,375.3
188.6 243.7
9,634.3 9,242.0
------- -------
$112,259.7 $103,861.0
========== ==========
4.65 4.64
4,114.0 5.44 3,840.9 5.43
(938.5) (1.24) (623.1) (.88)
------ ----- ------ ----
$3,175.5 4.20% $3,217.8 4.55%
======== ==== ======== ====
</TABLE>
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report and in the BANC
ONE CORPORATION Annual Report on Form 10-K for the year ended December 31, 1996
(the "1996 Form 10-K"), the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997, and the restated historical consolidated
financial statements contained in the Current Report on Form 8-K filed on August
29, 1997 (as amended by Form 8-K/A filed September 2, 1997). For purposes of
this report, the term "the Corporation" is defined as the Parent Company only
and "BANC ONE" or the "Company" is defined as the Corporation and all
significant majority-owned subsidiaries.
Management's discussion and analysis may contain forward-looking statements that
are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties, which
may cause actual results to differ materially from those in such statements. For
a discussion of certain factors that may cause such forward-looking statements
to differ materially from actual results, see the 1996 Form 10-K.
ACQUISITIONS
On June 27, 1997, the Corporation completed its acquisition of First USA,
located in Dallas, Texas. 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.
On June 1, 1997, the Corporation completed its acquisition of Liberty Bancorp,
Inc. (Liberty), a multi-bank holding company headquartered in Oklahoma City,
Oklahoma. The transaction was accounted for using the purchase method of
accounting. The resulting excess cost over net assets will be amortized over the
next 25 years using the straight-line method.
RESTRUCTURING CHARGES AND MERGER-RELATED COSTS
In connection with the First USA merger and other strategic initiatives, BANC
ONE identified 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 an additional provision for credit losses.
"REPORTED" VS "MANAGED" ANALYSIS
For funding and risk management purposes, BANC ONE periodically securitizes
loans and leases, primarily in support of credit card activities. When
securitized, the loans are removed from the balance sheet with the related net
revenue derived from these loans moving from net interest income and provision
for credit losses to the noninterest income loan processing and servicing line
item. This complicates the understanding of underlying trends in net interest
income, net interest margin, noninterest income, as well as the underlying
growth rates of reported loans and leases.
For a better understanding of underlying trends, it is helpful to review
selected results on a "Managed" basis which adds data on securitized loans to
"As Reported" data on loans and leases and loans held for sale. The following
analysis of "As Reported" results of operations should be read in conjunction
with the analysis of "Managed" performance beginning on page 24.
14
<PAGE> 15
RESULTS OF OPERATIONS
OVERVIEW
Net income for the third quarter of 1997 was $433.2 million, or $.73 per common
share, compared with $412.8 million, or $.69 per common share for the same
quarter last year. The 5% increase in net income of $20.4 million reflects
increases in net interest income of $86.9 million and noninterest income of
$265.1 million, partially offset by an increase of $278.3 million in noninterest
expense. For the nine-month periods ended September 30, 1997 and 1996,
respectively, net income was $830.9 million or $1.40 per common share and $1.2
billion or $2.04 per common share. The 1997 year-to-date results include a
one-time after-tax restructuring and merger-related charge of $328.8 million
taken in the second quarter.
The annualized return on average common equity (ROE) increased to 17.66% for the
third quarter of 1997, compared with 17.49% for the same quarter last year. For
the nine months ended September 30, 1997 and 1996, ROE was 11.40% and 17.61%,
respectively. The annualized return on average assets (ROA) was 1.51% and 1.58%
for the three months ended September 30, 1997 and 1996, respectively. For the
nine months ended September 30, 1997 and 1996, ROA was .99% and 1.58%,
respectively. Excluding the 1997 second quarter restructuring and merger-related
charges, ROE and ROA for the nine-months ended September 30, 1997 would have
been 15.96% and 1.38%, respectively.
NET INTEREST INCOME/NET INTEREST MARGIN
Net interest income on a fully taxable equivalent (FTE) basis increased 7% in
the third quarter of 1997 to $1.4 billion from $1.3 billion in the same quarter
of 1996, due primarily to an increase of $6.9 billion or 7% in average earning
assets. Average loans and leases increased $10.1 billion, or 14%, which was
partially offset by a decrease of $3.3 billion in average securities.
Average commercial loans increased $2.4 billion, or 12%, from the third quarter
of 1996 mainly due to the strong economic environment which has fueled
commercial loan growth throughout the industry, as well as the positive impact
of more focused sales efforts reflecting the shift to line of business
management. Average residential real estate loans increased $4.4 billion, or
38%, primarily due to higher home equity loan volumes as a result of marketing
efforts. Average credit card loans also increased $2.2 billion, or 18%, as a
result of stepped-up business development activities.
The higher average loan and lease portfolio and generally higher yields,
excluding credit card loans, increased interest income by $431.5 million. This
increase was partially offset by a decline in the average yield on the credit
card portfolio to 14.1% from 15.2%, which negatively impacted interest income,
by $174.4 million. This decrease resulted from the securitization of high yield
credit card loans, as well as growth in credit card balances at low introductory
rates late in the 1997 second quarter and throughout the 1997 third quarter.
The $257.1 million increase in interest income on loans and leases was partially
offset by a reduction in securities income of $52.8 million due to decreased
securities volumes. The reduction in average securities reflects the planned
objective of reducing lower margin securities to fund loan growth, while also
increasing the overall yield on earning assets.
Funding for average earning asset growth came from increases in both average
borrowings and deposits. Average long-term borrowings increased $5.2 billion,
which accounted for $82.3 million of the $121.3 million increase in interest
expense.
15
<PAGE> 16
Reflecting these factors, the net interest margin was 5.37% and 5.43% for the
three months ended September 30, 1997 and 1996, respectively. For the nine
months ended September 30, 1997 and 1996, the net interest margin was 5.44% and
5.43%, respectively.
Net interest income on an FTE basis also increased 7% for the nine months ended
September 30, 1997 compared with the nine months ended September 30, 1996,
primarily due to the factors noted above.
For further information on the changes in average balances and the impact of
rates and volume on net interest income, please see Table 1: Rate/Volume
Analysis which follows.
16
<PAGE> 17
TABLE 1: RATE/VOLUME ANALYSIS (1) (2)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 VS SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 VS SEPTEMBER 30, 1996
---------------------------------------- ----------------------------------------
CHANGE CHANGE CHANGE CHANGE
IN IN IN IN
AVERAGE INCOME/ RATE VOLUME AVERAGE INCOME/ RATE VOLUME
$(MILLIONS) (UNAUDITED) BALANCE EXPENSE EFFECT EFFECT BALANCE EXPENSE EFFECT EFFECT
- ------------------------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Short-term investments $139.3 $2.1 $0.1 $2.0 $179.5 $6.7 ($1.2) $7.9
Loans held for sale (37.4) (1.1) (0.4) (0.7) 800.6 97.2 31.3 65.9
SECURITIES: (4)
Taxable (3,083.7) (47.4) 18.2 (65.6) (1,884.3) (86.3) 10.9 (97.2)
Tax-exempt (214.7) (5.4) (1.1) (4.3) (212.8) (15.4) (2.3) (13.1)
------- ----- ----- ----- ------- ------ ----- ------
Total securities (3,298.4) (52.8) 17.1 (69.9) (2,097.1) (101.7) 8.6 (110.3)
--------- ------ ---- ------ --------- ------- --- -------
LOANS AND LEASES: (3)
Commercial, financial and
agricultural 2,410.4 54.3 2.4 51.9 1,836.3 130.5 16.5 114.0
Real estate:
Commercial (324.4) (6.1) 5.7 (11.8) (70.9) (2.4) 3.8 (6.2)
Construction 716.0 18.2 0.4 17.8 788.6 53.6 (5.6) 59.2
Residential 4,434.6 114.9 7.7 107.2 3,664.8 283.1 20.9 262.2
Consumer, net 358.3 23.1 14.2 8.9 405.0 48.2 20.1 28.1
Credit card 2,150.0 44.7 (174.4) 219.1 765.0 84.5 1.9 82.6
Leases, net 398.7 8.0 0.3 7.7 461.9 24.6 (1.4) 26.0
----- --- --- --- ----- ---- ----- ----
Total loans and leases 10,143.6 257.1 (143.7) 400.8 7,850.7 622.1 56.2 565.9
-------- ----- ------- ----- ------- ----- ---- -----
Total earning assets 6,947.1 205.3 (126.9) 332.2 6,773.7 624.3 94.9 529.4
INTEREST-BEARING LIABILITIES:
DEPOSITS:
Interest-bearing demand (615.4) (3.1) (0.4) (2.7) (791.3) (13.0) (2.9) (10.1)
Savings and money market 2,423.2 37.3 15.9 21.4 2,029.1 91.7 40.4 51.3
Time deposits:
CDs less than $100,000 (590.8) (11.7) (4.0) (7.7) (1,050.8) (52.2) (8.3) (43.9)
CDs $100,000 and over:
Domestic 550.4 8.4 0.7 7.7 465.3 45.6 28.0 17.6
Foreign (432.9) (5.9) (0.1) (5.8) 197.3 8.9 1.0 7.9
------- ----- ----- ----- ----- --- --- ---
Total interest-bearing deposits 1,334.5 25.0 12.1 12.9 849.6 81.0 58.2 22.8
------- ---- ---- ---- ----- ---- ---- ----
BORROWED FUNDS
Short-term 142.0 14.0 12.0 2.0 1,808.9 89.5 17.1 72.4
Long-term 5,222.3 82.3 (16.4) 98.7 3,872.1 180.7 (7.6) 188.3
------- ---- ------ ---- ------- ----- ----- -----
Total borrowed funds 5,364.3 96.3 (4.4) 100.7 5,681.0 270.2 9.5 260.7
------- ---- ----- ----- ------- ----- --- -----
Total interest-bearing liabilities $6,698.8 121.3 7.7 113.6 $6,530.6 351.2 67.7 283.5
-------- ----- --- ----- -------- ----- ---- -----
NET INTEREST INCOME (3) $84.0 ($134.6) $218.6 $273.1 $27.2 $245.9
===== ======== ====== ====== ===== ======
</TABLE>
(1) Fully taxable equivalent basis.
(2) The change not solely due to volume or rate has been prorated into rate and
volume components.
(3) Nonaccrual loans are included in loan balances. Interest income includes
related fee income.
(4) Average securities balances are based on amortized cost, excluding SFAS 115
adjustments to fair value which are included in other assets.
17
<PAGE> 18
NONINTEREST INCOME
TABLE 2: NONINTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------- -------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, INCREASE SEPTEMBER 30, SEPTEMBER 30, INCREASE
$(MILLIONS) 1997 1996 (DECREASE) 1997 1996 (DECREASE)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment management and advisory
activities $82.8 $71.8 $11.0 $233.2 $202.1 $31.1
Service charges on deposit accounts 177.3 165.8 11.5 518.1 483.8 34.3
Loan processing and servicing income:
Mortgage banking 18.0 20.5 (2.5) 57.7 66.4 (8.7)
Credit card and merchant
processing fees 44.7 72.5 (27.8) 127.2 206.7 (79.5)
Credit card servicing income 468.0 273.0 195.0 1,024.3 799.2 225.1
Other servicing income 9.9 7.4 2.5 22.9 18.6 4.3
--- --- --- ---- ---- ---
Total loan processing and servicing
income 540.6 373.4 167.2 1,232.1 1,090.9 141.2
Securities gains 10.8 1.6 9.2 43.1 7.2 35.9
Other 291.4 225.2 66.2 714.1 582.5 131.6
----- ----- ---- ----- ----- -----
TOTAL NONINTEREST INCOME $1,102.9 $837.8 $265.1 $2,740.6 $2,366.5 $374.1
======== ====== ====== ======== ======== ======
</TABLE>
Income from investment management and advisory activities increased 15% for both
the three and nine months ended September 30, 1997, respectively, compared with
the same 1996 periods. The increase was primarily due to growth of 30% in
investment assets managed for customers, to $51.6 billion at September 30, 1997
from $39.6 billion a year ago.
Income from service charges on deposit accounts increased 7% in both the three
and nine months ended September 30, 1997 from the same periods in 1996, due
primarily to rising account volumes, overdraft fees, and analysis charges on
commercial customer accounts.
Credit card and merchant processing fees declined for both the three and nine
months ended September 30, 1997 due to the sale by First USA in December 1996 of
a significant portion of its investment in a merchant processing subsidiary. As
a result of the sale, net income from this subsidiary is now recorded using the
equity method of accounting and is classified as other income. This change
resulted in a decrease in fee income of $27.7 million and $73.2 million for the
three and nine months ended September 30, 1997, respectively.
Credit card servicing income increased $195.0 million and $225.1 million for the
quarter and year-to-date periods ending September 30, 1997, respectively,
compared with the same 1996 periods. Both of these increases in 1997 reflected
growth in average securitized loans of 19% compared with the same periods last
year, as well as SFAS 125 gains. This high level of securitizations during the
1997 third quarter does not represent a change in securitization philosophy but
rather an acceleration of issuance from the 1997 fourth quarter into the third
quarter to take advantage of narrow funding spreads in the asset-backed
securities markets.
Higher securities gains for both the quarter and year-to-date periods ending
September 30, 1997 were due primarily to increased sales of lower-margin
government and mortgage-backed securities. Gains on sales of government and
mortgage-backed securities were $11.1 million and $2.2 million for the quarters
ended September 30, 1997 and 1996, respectively. For the nine-month periods
ended September 30, 1997 and 1996, these gains totaled $39.5 million and $4.2
million, respectively.
Other noninterest income increased $66.2 million and $131.6 million for the
three and nine months ended September 30, 1997, respectively, compared with the
same 1996 periods, primarily as a result of higher venture capital gains, which
increased $31.2 million and $74.8 million for the three and nine months ended
September 30, 1997, respectively, from the same periods in 1996. Favorable
market conditions and sales volumes of mutual funds and annuities also
contributed $8.0 million and $11.7 million to the increase for the three and
nine months ended September 30, 1997, respectively, compared with the same 1996
periods. Other categories posting increases over 1996 third quarter levels
included insurance ($7.2 million), investment banking fees ($4.9 million), and
securities brokerage fees ($2.7 million), which were partially offset by
declines in mortgage banking income ($2.5 million).
18
<PAGE> 19
NONINTEREST EXPENSE
TABLE 3: NONINTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------- ----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, INCREASE SEPTEMBER 30, SEPTEMBER 30, INCREASE
$(MILLIONS) 1997 1996 (DECREASE) 1997 1996 (DECREASE)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and related costs $618.2 $541.0 $77.2 $1,751.5 $1,632.0 $119.5
Net occupancy expense, exclusive of
depreciation 53.4 48.0 5.4 153.5 148.0 5.5
Equipment expense 36.3 31.9 4.4 95.3 92.9 2.4
Taxes other than income and payroll 24.9 19.7 5.2 73.4 69.5 3.9
Depreciation and amortization 114.1 103.7 10.4 333.5 329.2 4.3
Outside services and processing 225.0 165.1 59.9 609.2 484.6 124.6
Marketing and development 244.6 101.4 143.2 574.9 296.5 278.4
Communication and transportation 109.6 96.4 13.2 308.7 278.1 30.6
Restructuring 0.0 0.0 0.0 337.3 0.0 337.3
Other 109.2 149.8 (40.6) 331.2 356.2 (25.0)
----- ----- ------ ----- ----- ------
Total noninterest expense $1,535.3 $1,257.0 $278.3 $4,568.5 $3,687.0 $881.5
======== ======== ====== ======== ======== ======
</TABLE>
Total noninterest expense increased $278.3 million and $881.5 million for the
three and nine months ended September 30, 1997, respectively, compared with the
same 1996 periods. The year-to-date increase reflects a one-time $337.3 million
restructuring and merger-related charge in second quarter 1997. For the third
quarter of 1997, increases in noninterest expense were partially offset by lower
Project One implementation costs which decreased $8.8 million to $29.5 million
from $38.3 million in the same quarter last year.
Salaries and related expenses increased 14% and 7% for the three and nine months
ended September 30, 1997, respectively, compared with the same 1996 periods. The
increase was due to a number of factors including business growth throughout the
company as reflected in an increase in full-time equivalent staff as well as
commissions related to business development activities including the 1997 third
quarter's strong venture capital results.
Outside services and processing costs increased $59.9 million and $124.6 million
for the quarter and year-to-date periods ended September 30, 1997, respectively.
The higher costs were primarily the result of increased data processing costs in
support of the business development discussed above, credit investigation fees,
and increased contract labor. Other increases included consulting fees resulting
from deposit system implementation activities.
Marketing and development costs increased $143.2 million and $278.4 million for
the three and nine months ended September 30, 1997, respectively, compared with
the same 1996 periods. These increases were primarily due to continued,
stepped-up marketing activities primarily associated with credit card business
development activities which resulted in a record 2.3 million new accounts
opened during the third quarter of 1997 and 5.7 million new accounts
year-to-date.
Other noninterest expense decreased predominantly due to a one-time 1996 SAIF
special assessment on deposits which totaled $32.3 million for the quarter ended
September 30, 1996.
19
<PAGE> 20
Included in noninterest expense categories are charges related to the
Corporation's activities to prepare its systems for the Year 2000. Such
activities and related charges incurred in connection with the Year 2000 project
are expected to continue through the next several periods. During the current
quarter, these costs were not material. In addition, a substantial portion of
these costs are not incremental costs, but instead represent a reallocation of
internal resources.
INCOME TAXES
The provision for income taxes was 36.4% of pretax income for the nine months
ended September 30, 1997 compared with 33.4% for the same period in 1996. The
increase in the effective tax rate was primarily the result of an income tax
provision charge related to certain nondeductible one-time restructuring charges
and merger-related costs, which were expensed in second quarter 1997.
BALANCE SHEET ANALYSIS
Securities
Total securities at September 30, 1997 were $15.4 billion, a decrease of $3.7
billion from December 31, 1996. This decrease primarily reflected the sale of
$8.3 billion of lower margin securities available for sale partially offset by
purchases of $6.3 billion of securities with longer durations. The held to
maturity portfolio decreased $3.7 billion primarily due to a reclassification in
connection with the First USA merger of $3.6 billion of mortgage-backed
securities from held to maturity to available for sale.
TABLE 4: SECURITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
--------------------------- --------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
$(MILLIONS) COST FAIR VALUE COST FAIR VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
United States treasury and agencies $152.8 $153.5 $133.5 $135.1
Mortgage and asset-backed securities 49.1 41.2 3,555.2 3,556.5
Tax exempt 497.8 519.1 685.4 714.1
Other 23.4 23.4 23.8 23.7
---- ---- ---- ----
Total securities held to maturity $723.1 $737.2 $4,397.9 $4,429.4
====== ====== ======== ========
SECURITIES AVAILABLE FOR SALE:
United States treasury and agencies $4,317.3 $4,333.1 $4,334.7 $4,312.8
Mortgage and asset-backed securities:
Government 6,482.8 6,557.5 6,729.9 6,791.4
Other 1,825.5 1,812.1 2,074.4 2,056.3
Tax exempt 910.4 920.8 973.5 980.5
Other 1,077.7 1,080.7 591.3 592.8
------- ------- ----- -----
Total securities available for sale $14,613.7 $14,704.2 $14,703.8 $14,733.8
========= ========= ========= =========
</TABLE>
20
<PAGE> 21
Loans and Leases
At September 30, 1997, total loans and leases were $82.7 billion, a $3.4 billion
increase from December 31, 1996. Including loans held for sale, total loans and
leases increased $2.3 billion, or 4%, on an annualized basis from December 31,
1996 levels. A summary of the components of loans and leases at September 30,
1997 and December 31, 1996 is as follows:
TABLE 5: LOANS AND LEASES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
$(MILLIONS) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $21,894.9 $20,232.2
Real estate:
Commercial 5,779.6 6,429.4
Construction 4,110.2 3,602.0
Residential 16,335.3 13,917.0
Consumer, net 20,604.7 19,459.1
Credit card 11,448.7 13,423.5
Leases, net 2,567.6 2,326.5
------- -------
Total loans and leases, net $82,741.0 $79,389.7
========= =========
</TABLE>
Other Assets
During the 1997 third quarter, BANC ONE contracted with an independent third
party to originate some credit card accounts. BANC ONE has no equity interest in
this entity. As a result of this agreement, and reflecting the benefit of
increased specialization and economies of scale, both an increase in the number
of accounts originated and a decrease in the origination costs is anticipated,
with desired credit quality standards being retained. During the 1997 third
quarter, purchase of accounts from this vehicle totaled $52 million.
Deposits
TABLE 6: DEPOSITS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(MILLIONS) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Demand deposits:
Noninterest-bearing $17,287.1 $16,340.6
Interest-bearing 1,712.0 2,243.2
Money market and savings 31,620.1 29,434.6
Time deposits:
CDs less than $100,000 17,750.6 18,245.2
CDs $100,000 and over:
Domestic 5,552.0 5,169.7
Foreign 1,860.4 2,789.7
------- -------
Total deposits $75,782.2 $74,223.0
========= =========
</TABLE>
21
<PAGE> 22
Borrowings
Long-term borrowings increased $4.5 billion from December 31, 1996 to $11.4
billion at September 30, 1997. During the first quarter of 1997 the Corporation
established a medium-term note facility and issued $750 million of medium-term
notes due between 2000 and 2002. In April 1997, the Corporation issued $500
million of subordinated debentures due 2027 and $400 million of subordinated
notes due 2007. During the third quarter of 1997, the Corporation issued $1.2
billion of medium-term notes due between 1999 and 2002. In addition, fixed and
variable rate bank notes of $1.6 billion were issued during the 1997 third
quarter.
As of October 30, 1997, the Corporation had the authority to issue approximately
$4.0 billion of debt securities, warrants and preferred and common stock under
its existing shelf registration statement.
Capital
Total equity to total assets at September 30, 1997 increased slightly to 8.92%
from 8.80% at December 31, 1996. The tangible common equity to net assets ratio
was 7.92% and 7.98% at September 30, 1997 and December 31, 1996, respectively.
BANC ONE's objective is to maintain, at a minimum, a capital position that meets
the federal regulators' "well capitalized" classification. Regulatory defined
Tier 1 and total risk-adjusted capital ratios were 8.50% and 13.75%,
respectively, at September 30, 1997, 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 570.7 million shares at December 31,
1996 to 584.8 million shares at September 30, 1997 primarily due to the issuance
of stock related to acquisitions as well as the exercise of stock options
partially offset by the retirement of treasury shares.
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 used to predict future
losses are used to analyze the appropriate level of allowance for credit losses
for the loan 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.
Annualized total net charge-offs for the third quarter of 1997 decreased to
1.34% of average loans from 1.42% in the second quarter of 1997, due primarily
to lower credit card charge-offs. Net charge-offs for credit cards declined to
5.70% at September 30, 1997 from 6.36% at June 30, 1997.
Loans delinquent 90 days or more as a percentage of ending loans and leases were
.77% and .58% at September 30 and June 30, 1997, respectively. Commercial loans
accounted for most of this increase and reflected a number of credits in the
process of being renewed where interest was current. Credit card loans
delinquent 90 days or more increased to 2.27% at September 30, 1997 from 2.05%
at June 30, 1997.
Table 7 summarizes information regarding net charge-off and loans delinquent 90
days or more. Delinquency and net charge-off trends over time are a reflection
of a number of factors including credit quality of the loan portfolio,
22
<PAGE> 23
general economic conditions and the successful results of portfolio management
techniques including collection strategies.
TABLE 7: NET CHARGE-OFFS AND DELINQUENCIES
<TABLE>
<CAPTION>
LOANS DELINQUENT
NET CHARGE-OFFS(1)(4) 90 DAYS OR MORE (2) (4)
-------------------------------------------- --------------------------------------------
THREE MONTHS ENDED
--------------------------------------------
$(MILLIONS) SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wholesale (3) $5.4 .07% ($0.6) (.01)% $177.8 .56% $55.6 .18%
Real estate, residential 10.1 .24 4.7 .15 80.1 .48 34.8 .24
Consumer, net 67.7 1.30 62.4 1.22 113.4 .55 95.2 .49
Credit card 205.2 5.70 142.4 4.67 260.3 2.27 296.6 2.06
Leases, net 1.0 .16 .6 .11 9.2 .36 1.7 .07
--- -- --- ---
Total loans and leases $289.4 1.34% $209.5 1.10% $640.8 .77% $483.9 .60%
====== ====== ====== ======
</TABLE>
(1) Ratios are presented on an annualized basis 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.
Allowance for Credit Losses
Table 8 summarizes activity in the allowance for credit losses:
TABLE 8: ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
$(MILLIONS) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF PERIOD $1,197.7 $1,008.0
Allowance associated with acquisitions and other 37.9 60.1
Provision for credit losses 938.5 623.1
Total charge-offs (1,061.2) (742.1)
Recoveries 230.7 182.4
----- -----
Net charge-offs (830.5) (559.7)
------ ------
BALANCE, END OF PERIOD $1,343.6 $1,131.5
======== ========
</TABLE>
The allowance for credit losses at September 30, 1997 totaled $1.3 billion and
represented 1.62% of ending loans and leases, compared with 1.51% at December
31, 1996. As previously discussed, a $130.1 million additional provision for
credit losses was taken during the 1997 second quarter as a result of the
reclassification of credit card loans and to align the credit card charge-off
policy of BANC ONE and First USA. The allowance for credit losses expressed as a
percentage of nonperforming loans is another measure of the adequacy of the
allowance for credit losses. The September 30, 1997 allowance for credit losses
represented 314% of nonperforming loans, up from 313% at December 31, 1996. It
is management's view that the allowance for credit losses at September 30, 1997
was adequate and consistent with the composition of the portfolio and credit
quality trends.
23
<PAGE> 24
PERFORMANCE ANALYSIS - MANAGED PORTFOLIO
For funding and risk management purposes, BANC ONE periodically securitizes
loans and leases, primarily in support of credit card activities. When
securitized, the loans are removed from the balance sheet with the related net
revenue derived from these loans moving from net interest income and provision
for credit losses to the noninterest income loan processing and servicing
category. This complicates the understanding of underlying trends in net
interest income, net interest margins, and noninterest income. As a result,
it is helpful to analyze financial performance on a "Managed" portfolio basis,
in addition to analyzing information "As Reported."
Table 9 depicts key financial data on a "Managed" basis, reflecting the impact
of securitizing credit card loans for the three months ended September 30, 1997
and September 30, 1996. Although other loan portfolios are securitized, the vast
majority of BANC ONE's securitizations are credit card securitizations. "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. "Managed" information includes loans sold in
credit card securitization transactions and the on-balance sheet portfolio,
including loans held for sale. Except where noted, the "Managed" information
gives effect to the credit card securitizations and shows the impact on certain
consolidated statement of income line items.
In Table 9, the increase in net interest income on a "Managed" basis reflects
the impact on the net interest margin had the credit card loans not been
securitized. The change represents the interest income on securitized loans less
the coupon rate on the securitizations. The increase in the provision for credit
losses represents the net charge-offs on securitized loans. The decrease in
"Managed" loan processing and servicing income reflects these reclassifications
of net interest income and charge-offs, with the remaining amount relating
primarily to fee-based interchange income and the SFAS 125 gains recognized on
securitized loans. The slight increase in non-interest expense relates to fraud
losses on securitized loans which were netted in loan processing and servicing
income on the "As Reported" basis.
24
<PAGE> 25
TABLE 9: KEY STATISTICS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------
1997 1996
----------------------------------------------------------------
$(MILLIONS) AS REPORTED MANAGED AS REPORTED MANAGED
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT STATISTICS:
Net interest income - fully taxable equivalent $1,376.2 $2,020.2 $1,292.2 $1,778.3
Provision for credit losses 270.8 613.8 240.3 516.3
Noninterest income:
Loan processing and servicing income 540.6 241.9 373.4 166.8
Other 562.3 562.3 464.4 464.4
----- ----- ----- -----
Total noninterest income 1,102.9 804.2 837.8 631.2
Noninterest expense 1,535.3 1,537.6 1,257.0 1,260.5
Taxable equivalent adjustment 12.9 12.9 15.8 15.8
---- ---- ---- ----
Income before tax $660.1 $660.1 $616.9 $616.9
====== ====== ====== ======
BALANCE SHEET AND OTHER STATISTICS: (1)
Total average loans (2) $85,601.2 $111,347.0 $75,495.0 $97,405.4
Total average earning assets $101,664.1 $127,409.9 $94,717.0 $116,627.4
Earning asset yield 9.37% 10.73% 9.22% 10.33%
Cost of interest-bearing liabilities 4.79% 5.04% 4.60% 4.90%
Net interest margin 5.37% 6.35% 5.43% 6.13%
Net funds function 4.31% 4.43% 4.42% 4.35%
CREDIT CARD STATISTICS:
Average credit card loans $14,281.7 $37,603.6 $12,131.7 $31,687.8
End of period credit card loans $11,448.7 $38,915.9 $12,624.4 $32,590.7
Credit card delinquencies over 30 days as a
percentage of ending credit card balances 5.41% 4.85% 4.33% 4.84%
Net credit card charge-offs as a percentage of
average credit card balances 5.70% 5.78% 4.67% 5.25%
</TABLE>
(1) Total average loans and other statistical ratios include the impact of all
loan securitizations.
(2) Includes loans held for sale.
The managed net interest margin in the third quarter of 1997 increased to 6.35%
from 6.13% in the third quarter of 1996. Also the managed net funds function
improved to 4.43% from 4.35% in the 1996 third quarter. These improvements
reflected the positive impact of the generation and repricing of higher-margin
managed credit card and consumer loans, as well as a declining level of
lower-margin investment securities.
The average managed loan portfolio increased 14% to $111.3 billion for the
quarter ended September 30, 1997 from $97.4 billion for the same quarter last
year. This increase is primarily related to the 19% growth in average credit
card loans and the 15% growth in average other consumer loans primarily due to
growth in targeted portfolios such as home equity loans, secured consumer
finance loans, and auto leases.
On a managed portfolio basis, credit card charge-offs increased to 5.78% for the
quarter ended September 30, 1997, up from 5.25% for the same quarter last year,
but down from 6.22% in the second quarter of 1997. Also on a managed portfolio
basis, credit card loans delinquent 90 days or more as a percentage of ending
loans and leases were 2.02%, 2.11% and 1.98% for the quarters ended September 30
and June 30, 1997, and September 30, 1996, respectively.
The generation of new credit card business during 1997 third quarter remained
very strong reflecting a decision to continue stepped-up marketing and business
development activities begun in the second quarter. First USA continued to
refine and strengthen its strategic emphasis on segmentation. In the
partnership area, a number of premier names were signed including Arizona State
University, Yale University, University of Florida, University of Kentucky,
AAU, Holiday Inn, and New York Life. This activity contributed to a record 2.3
million new credit card accounts opened during the quarter, of which 2.0
million represented VISA/MasterCard accounts, exceeding the previous record of
2.2 million new accounts set last quarter, of which 1.9 million were
VISA/MasterCard relationships. At the end of the 1997 third quarter cardmembers
totaled 40.4 million, up 2.6 million from the end of the 1997 second quarter.
25
<PAGE> 26
INTEREST RATE RISK MANAGEMENT
BANC ONE employs two methodologies to measure interest rate risk sensitivity:
(1) the Earnings at Risk (EAR) method is used to measure the change in
forecasted after tax net income; and (2) the Value at Risk (VAR) method is used
to measure the change in market value of equity (defined as the present value of
all future expected cash flows of currently held assets, liabilities and
off-balance sheet items). BANC ONE applies various rate and yield curve
scenarios (including historical market volatility) to both measurements to
estimate the interest rate sensitivity.
As of September 30, 1997, based on an immediate and parallel 100 basis point
shock in rates, forecasted earnings for the next 12 months are modeled to
decrease 0.7% in the up rate scenario while earnings are modeled to increase
1.3% in the down rate scenario. Given the same assumption of an immediate and
parallel 100 basis point shock in rates, the market value of equity would
decline 0.9% in the up rate scenario while market value would increase 0.1% in
the down rate scenario.
In addition, forecasted earnings impact is also modeled assuming a gradual 100
basis point change in interest rates over the coming 12-month period (25 basis
points each quarter). On this basis, at September 30, 1997, earnings over the
next 12-month period were estimated to decrease 1.0% if rates rose and increase
0.6% if rates declined.
TRADING RISK
Trading risk is measured according to the maximum adverse change in value of all
trading positions within a 10 day period based on three standard deviations of
historical market volatility. As of September 30, 1997, the Trading Value at
Risk was $9.6 million.
LIQUIDITY RISK
Due to BANC ONE's capital, size and high credit quality ratings, the Corporation
has access to substantial and diverse sources of liquidity. Core deposits,
representing approximately 48% of total managed assets, remain the 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, 21% of funding
is generated by asset securitizations, which is viewed as a growing source of
reliable and efficient funding.
CREDIT RISK FOR CAPITAL MARKETS ACTIVITIES
There were no past due amounts or reserves for possible credit losses at
September 30, 1997, related to off-balance sheet investment product
transactions, nor were there any charge-offs during the three months ended
September 30, 1997. Customer cap and swap agreements are created to accommodate
the needs of 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 $2.2 billion at
September 30, 1997.
26
<PAGE> 27
Off-balance sheet investment products are used to manage interest rate risk and
the impact on net interest income reflects the cost or benefit as a result of
these products. The net impact of off-balance sheet investment products was an
increase in net interest income of $13.3 million and $16.2 million for the three
and nine months ended September 30, 1997 compared with a reduction of $8.7
million and $35.8 million for the three and nine months ended September 30,
1996. However, these amounts alone are not an indication of the effectiveness of
such instruments, as the on-balance sheet instruments hedged move in the
opposite direction. In addition, 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.
Table 10 presents the estimated maturities and weighted average fixed rates of
off-balance sheet investment products by type. A key assumption in the maturity
information below is that future variable rates move as indicated by the forward
interest rate curve in existence at September 30, 1997. To the extent that
interest rates move in a fashion other than indicated in the forward interest
rate curve at September 30, 1997, the maturity information will change.
TABLE 10: MATURITIES OF OFF-BALANCE SHEET INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
MATURITIES OF OFF-BALANCE SHEET INVESTMENT
PRODUCTS AT SEPTEMBER 30, 1997 (1) (2) ENDING BALANCE AT
------------------------------------------------------------------- ----------------------------
2002- SEPTEMBER 30, DECEMBER 31,
$(MILLIONS) 1997 1998 1999 2000 2001 2006 2007+ 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional value $1,102 $2,323 $3,375 $1,960 $1,190 $2,579 $1,700 $14,229 $12,727
Weighted-average receive
rate 5.66% 5.97% 6.47% 6.32% 6.10% 6.74% 7.18% 6.41% 5.90%
Receive fixed amortizing
swaps:
Notional value $ 315 $ 426 $ 76 $ 150 $ 967 $ 2,056
Weighted-average receive
rate 4.92% 5.32% 7.26% 5.54% 5.38% 5.35%
Pay fixed swaps:
Notional value $ (50) $(1,322) $(1,063) $ (508) $ (1) $ (218) $(3,162) $(2,108)
Weighted-average pay rate 10.18% 6.13% 6.23% 6.54% 6.75% 6.49% 6.32% 6.36%
Net receive fixed position $1,367 $1,427 $2,388 $1,602 $1,189 $2,361 $1,700 $12,034 $12,675
Notional value of basis swaps 1,640 754 444 50 120 101 3,109 4,729
Notional value of purchased
caps 440 $1,004 $ 1 $ 1 3 9 1,458 1,973
Notional value-other (3) $2,345 $310 $600 $3,255 $2,056
</TABLE>
(1) Maturities are based on estimated future interest rates from the forward
interest curve at September 30, 1997.
(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, floors, options and futures. Customer transactions of $2.2
billion and $1.6 billion at September 30, 1997 and December 31, 1996,
respectively, have been excluded.
TABLE 11: NET UNREALIZED GAINS (LOSSES) ON OFF-BALANCE SHEET INVESTMENT
PRODUCTS
<TABLE>
<CAPTION>
NET UNREALIZED GAIN (LOSS)
-------------------------------------
SEPTEMBER 30 DECEMBER 31,
$(MILLIONS) 1997, 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Receive fixed swaps $122 ($28)
Receive fixed amortizing swaps (1) (6)
Pay fixed swaps (8) (13)
Purchased caps (5) (8)
Basis swaps (1) (6)
Other 6 10
-- --
Total $113 ($51)
==== =====
</TABLE>
The 1996 Form 10-K provided certain fair value information based on interest
rates at December 31, 1996. While the net unrealized value of the off-balance
sheet investment product portfolio has increased, due to a decrease in long-term
market interest rates, the fair value of fixed-rate liabilities has decreased.
27
<PAGE> 28
BANC ONE CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGE IN SECURITIES
Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
Exhibit 11 Statement Regarding Computation of Earnings per
Common Share
Exhibit 12 Statement Regarding Computation of Ratio of
Earnings to Fixed Charges
Exhibit 27 Financial Data Schedules
b. Reports on Form 8-K
The following reports on Form 8-K were filed by BANC ONE during
the quarter ended September 30, 1997:
Current Report on Form 8-K filed July 14, 1997, as amended by
Form 8-K/A filed August 13, 1997 (Items 2, 5 and 7).
Current Report on Form 8-K filed July 15, 1997 (Items 5 and 7).
Current Report on Form 8-K filed August 29, 1997, as amended by
Form 8-K/A filed September 2, 1997 (Items 5 and 7).
Current Report on Form 8-K filed September 25, 1997 (Items 5
and 7).
There are no agreements with respect to long-term debt of the Registrant to
authorize securities in an amount which exceeds 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The Registrant agrees
to furnish a copy of any agreement with respect to long-term debt of the
Registrant to the Securities and Exchange Commission upon request.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANC ONE CORPORATION
November 11, 1997 /s/ Bobby L. Doxey
- ----------------------- ---------------------------------
Date Bobby L. Doxey
Chief Accounting Officer
29
<PAGE> 1
EXHIBIT 11
BANC ONE CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER COMMON SHARE
$(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings:
Net income $433.2 $412.8 $830.9 $1,230.8
Deduct: Dividends on series C preferred shares 3.0 4.2 9.6 12.7
--- --- --- ----
Net income available to common shareholders $430.2 $408.6 $821.3 $1,218.1
====== ====== ====== ========
Shares:
Weighted average common shares outstanding 583.0 573.4 571.1 576.7
Add: Dilutive effect of outstanding options, as
determined by the application of the treasury stock
method 9.3 19.4 14.6 19.5
--- ---- ---- ----
Weighted average common shares outstanding, as adjusted
592.3 592.8 585.7 596.2
===== ===== ===== =====
PRIMARY EARNINGS PER COMMON SHARE
FULLY DILUTED: $0.73 $0.69 $1.40 $2.04
===== ===== ===== =====
Earnings:
Net income $433.2 $412.8 $830.9 $1,230.8
====== ====== ====== ========
Shares:
Weighted average common shares outstanding 583.0 573.4 571.1 576.7
Add: Dilutive effect of outstanding options, as
determined by the application of the treasury stock
method 9.9 20.4 20.8 20.1
Add: Conversion of preferred stock 6.8 9.3 7.3 9.4
--- --- --- ---
Weighted average common shares outstanding, as adjusted 599.7 603.1 599.2 606.2
===== ===== ===== =====
FULLY DILUTED EARNINGS PER COMMON SHARE $0.72 $0.69 $1.39 $2.03
===== ===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 12
BANC ONE CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
$(MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CALCULATION INCLUDING INTEREST ON DEPOSITS:
EARNINGS:
Income before income taxes and change
in accounting principle $1,307.1 $1,849.3 $2,496.9 $2,173.5 $1,806.2 $1,914.7 $1,381.0
Fixed charges 1,141.0 868.4 1,202.3 968.7 727.0 397.0 385.5
Less: Capitalized interest (2.0) (1.1) (4.9) (1.7) (1.0) (0.7) (1.2)
----- ----- ----- ----- ----- ----- -----
Earnings $2,446.1 $2,716.6 $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 $1,093.0 $821.8 $1,142.3 $912.4 $666.8 $345.4 $340.5
Portion of rental payments under
operating leases deemed to be interest 48.0 46.6 60.0 56.3 60.2 51.6 45.0
---- ---- ---- ---- ---- ---- ----
Fixed charges $1,141.0 $868.4 $1,202.3 $968.7 $727.0 $397.0 $385.5
======== ====== ======== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 2.14x 3.13x 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 $1,307.1 $1,849.3 $2,496.9 $2,173.5 $1,806.2 $1,914.7 $1,381.0
Fixed Charges 3,047.6 2,694.1 3,662.5 3,395.0 2,560.2 2,001.9 2,474.8
Less: Capitalized interest (2.0) (1.1) (4.9) (1.7) (1.0) (0.7) (1.2)
----- ----- ----- ----- ----- ----- -----
Earnings $4,352.7 $4,542.3 $6,154.5 $5,566.8 $4,365.4 $3,915.9 $3,854.6
======== ======== ======== ======== ======== ======== ========
FIXED CHARGES:
As detailed above $1,141.0 $868.4 $1,202.3 $968.6 $727.0 $397.0 $385.5
Interest on deposits 1,906.6 1,825.7 2,460.2 2,426.4 1,833.2 1,604.9 2,089.3
------- ------- ------- ------- ------- ------- -------
Fixed charges $3,047.6 $2,694.1 $3,662.5 $3,395.0 $2,560.2 $2,001.9 $2,474.8
======== ======== ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.43x 1.69x 1.68x 1.64x 1.71x 1.96x 1.56x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,475
<INT-BEARING-DEPOSITS> 8
<FED-FUNDS-SOLD> 517
<TRADING-ASSETS> 874
<INVESTMENTS-HELD-FOR-SALE> 13,948
<INVESTMENTS-CARRYING> 723
<INVESTMENTS-MARKET> 737
<LOANS> 82,741
<ALLOWANCE> 1,344
<TOTAL-ASSETS> 113,127
<DEPOSITS> 75,782
<SHORT-TERM> 12,657
<LIABILITIES-OTHER> 3,227
<LONG-TERM> 11,371
2,928
0
<COMMON> 174
<OTHER-SE> 6,988
<TOTAL-LIABILITIES-AND-EQUITY> 113,127
<INTEREST-LOAN> 6,075
<INTEREST-INVEST> 833
<INTEREST-OTHER> 163
<INTEREST-TOTAL> 7,071
<INTEREST-DEPOSIT> 1,907
<INTEREST-EXPENSE> 2,998
<INTEREST-INCOME-NET> 4,074
<LOAN-LOSSES> 939
<SECURITIES-GAINS> 43
<EXPENSE-OTHER> 4,569
<INCOME-PRETAX> 1,307
<INCOME-PRE-EXTRAORDINARY> 831
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 5.44
<LOANS-NON> 428
<LOANS-PAST> 641
<LOANS-TROUBLED> 1
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,198
<CHARGE-OFFS> 1,061
<RECOVERIES> 231
<ALLOWANCE-CLOSE> 1,344
<ALLOWANCE-DOMESTIC> 1,344
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
