<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 21, 1998
------------------------------
First Chicago NBD Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-7127 38-1984850
- ----------------------------- ---------------- ----------------------
(Name or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One First National Plaza, Chicago, IL 60670
- -------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code 312-732-4000
-----------------------------
<PAGE>
Item 7. Financial Statements and Exhibits
- ------
c) Exhibits
--------
Attached hereto or incorporated herein are the following Exhibits relating to
the previously announced merger of First Chicago NBD Corporation, a Delaware
corporation (the "Corporation"), and Banc One Corporation, an Ohio corporation
("ONE"):
<TABLE>
<CAPTION>
Exhibit Description of
Number Exhibit
- --------- --------------
<S> <C>
2 Agreement and Plan of Reorganization dated as of April 10, 1998,
by and among the Corporation, ONE and Hornet Reorganization
Corporation (incorporated by reference to Exhibit 2.1 to the
Corporation's Current Report on Form 8-K dated April 10, 1998, as
filed with the Securities and Exchange Commission on April 14,
1998).
23 Consent of Coopers & Lybrand LLP
99(a) Pro forma financial information.
99(b) Certain ONE historical financial information for the three years
ended December 31, 1997.
</TABLE>
<PAGE>
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.
First Chicago NBD Corporation
----------------------------------------
(Registrant)
Date: April 21, 1998 By: William J. Roberts
----------------------------------------
Title: Senior Vice President and Comptroller
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
listed below of First Chicago NBD Corporation of our report dated February 12,
1998, on our audits of the consolidated financial statements of BANC ONE
CORPORATION and Subsidiaries, as of December 31, 1997 and 1996, and for the
years ended December 31, 1997, 1996 and 1995, which report is included in the
BANC ONE CORPORATION's Annual Report on Form 10-K for the year ended December
31, 1997, and is incorporated by reference in this Current Report on Form 8-K of
First Chicago NBD Corporation.
Registration Statements on Form S-8
Registration Numbers:
..33-62713 ..333-03175
..33-21036 ..333-05349
..33-48773 ..333-05347
..33-46906 ..333-05375
..33-50300 ..333-16369
..33-53928
..33-17494
Registration Statements on Form S-3
Registration Numbers:
..33-64755 ..333-15649
..33-60788 ..333-36587
..333-08903
Registration Statements on Form S-4
Registration Numbers:
..333-47029
/s/ COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 21, 1998
<PAGE>
Exhibit 99(a)
BANC ONE CORPORATION
PRO FORMA FINANCIAL INFORMATION
On April 10, 1998, First Chicago NBD Corporation (the "Corporation" or "FCNBD")
and Banc One Corporation ("ONE") entered into an Agreement and Plan of
Reorganization (the "Agreement"), pursuant to which, subject to the conditions
and upon the terms stated therein, the Corporation and ONE will each merge into
a new company ("Newco") organized to effect the merger (such mergers,
collectively, the "Merger"). Newco will be renamed Banc One Corporation ("Banc
One").
In accordance with the Agreement, each share of the common stock, without par
value, of ONE ("ONE Common Stock") outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will at the Effective Time
be converted into one share of the common stock, without par value, of Newco
("Newco Common Stock"), and each share of the common stock, par value $1.00 per
share, of the Corporation ("FCN Common Stock") outstanding immediately prior to
the Effective Time will at the Effective Time be converted into the right to
receive 1.62 shares of Newco Common Stock. In addition, each share of the
Corporation's Preferred Stock with Cumulative and Adjustable Dividends, Series
B, and Preferred Stock with Cumulative and Adjustable Dividends, Series C, in
each case outstanding immediately prior to the Effective Time, will be converted
into the right to receive one share of a series of corresponding preferred stock
of Newco with substantially the same terms.
Consummation of the transactions contemplated by the Agreement is subject to the
terms and conditions contained in the Agreement, including among other things,
the receipt of approval of the Merger by the respective shareholders of the
Corporation and ONE at
-1-
<PAGE>
meetings of the shareholders of the Corporation and ONE that are expected to
take place in the third quarter of 1998.
It is anticipated that the Merger will be accounted for as a pooling-of-
interests. The Corporation's stock repurchase program has been rescinded. The
following pro forma financial information giving effect to the Merger, accounted
for as a pooling-of-interests, includes: (i) the unaudited pro forma condensed
combined balance sheet as of December 31, 1997, and (ii) the unaudited pro forma
condensed combined statements of income for each of the three years in the
period ended December 31, 1997. The pro forma condensed combined financial
statements should be read in conjunction with the historical consolidated
financial statements and notes thereto of the Corporation and ONE.
The pro forma financial information does not give effect to ONE's pending
acquisition of First Commerce Corporation, a multibank holding company
headquartered in New Orleans, Louisiana, as the acquisition is not material to
ONE.
The pro forma financial statements and the notes thereto included in this
Current Report on Form 8-K, and the exhibits hereto, contain certain estimates
and projections regarding the Corporation, ONE and the combined company
following the Merger, including without limitation estimates and projections
relating to the pro forma business and assets of the combined company, the cost
savings, revenue increases, and restructuring charges expected as a result of
the Merger and the expected impact of the transaction on earnings per share of
the constituent corporations. These estimates and projections constitute
forward-looking statements (within the meaning of the Private Securities
Litigation Reform Act of 1995). Forward-looking statements involve risks and
uncertainties which may cause actual results to differ materially from those in
such statements.
Factors that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to, risks and
uncertainties related to the consummation and execution of the contemplated
transaction (including integration
-2-
<PAGE>
activities), as well as: (i) the strength of the U.S. economy in general and the
strength of the local economies in which operations are conducted; (ii) the
effects of and changes in trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System; (iii) inflation, interest rate, market and monetary
fluctuations; (iv) the timely development of and acceptance of new products and
services and perceived overall value of these products and services by users;
(v) changes in consumer spending, borrowing and saving habits; (vi)
technological changes (including "Year 2000" data systems compliance issues);
(vii) acquisitions and integration of acquired businesses; (viii) the ability to
increase market share and control expenses; (ix) the effect of changes in laws
and regulations (including laws and regulations concerning taxes, banking,
securities and insurance) with which the Corporation, ONE and the combined
company after the Merger, and their respective subsidiaries and competitors,
must comply; (x) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as the Financial Accounting
Standards Board; (xi) changes in the organization, compensation and benefit
plans of the Corporation, ONE and the combined company after the Merger, and
their respective subsidiaries; (xii) the costs and effects of litigation and of
unexpected or adverse outcomes in such litigation; and (xiii) the success of the
Corporation, ONE and the combined company after the Merger at managing the risks
involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and the Corporation undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
-3-
<PAGE>
BANC ONE CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
The following pro forma condensed combined balance sheet as of December 31,
1997, is presented to show the impact on the Corporation's historical financial
condition of the merger with ONE. The Merger has been reflected under the
pooling-of-interests method of accounting.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BANC ONE CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(in millions) Corporation ONE Pro forma Pro forma
(as reported) (as reported) adjustments Banc One
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks-noninterest bearing............. $ 7,223 $ 7,727 $ $ 14,950
Short-term investments.................................. 15,405 838 16,243
Trading account assets.................................. 4,198 1,035 5,233
Investment securities................................... 9,330 14,218 23,548
Loans, net of allowance for credit losses............... 67,316 83,089 150,405
Other assets............................................ 10,624 8,994 19,618
- ---------------------------------------------------------------------------------------------------------------
Total assets............................................ 114,096 115,901 229,997
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest bearing................................... 19,070 18,444 37,514
Interest bearing...................................... 49,419 58,970 108,389
- ---------------------------------------------------------------------------------------------------------------
Total deposits.......................................... 68,489 77,414 145,903
Short term borrowings................................... 18,981 13,804 32,785
Long term debt.......................................... 10,088 11,066 21,154
Other liabilities....................................... 8,578 3,241 837 12,656
- ---------------------------------------------------------------------------------------------------------------
Total liabilities....................................... 106,136 105,525 837 212,498
Stockholders' Equity
Preferred stock......................................... 190 135 325
Common stock............................................ 320 3,230 (320) 5,572
2,342
Surplus................................................. 1,966 6,719 (1,966) 4,725
(1,994)
Retained earnings....................................... 7,446 240 (837) 6,849
Other................................................... (24) 121 - 97
Less: Treasury stock.................................... (1,938) (69) 1,938 (69)
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity............................... 7,960 10,376 (837) 17,499
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity......... $114,096 $115,901 $ - $229,997
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to pro forma financial information.
-4-
<PAGE>
BANC ONE CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
The following unaudited pro forma condensed combined statements of income are
presented to show the impact on the Corporation's historical results of
operations of the proposed merger with ONE. Such statements assume that the
companies had been combined for each period presented.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
BANC ONE CORPORATION
Pro Forma Condensed Combined Statements of Income
(in millions, except per share data)
For Year Ended December 31,
---------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest Income
Loans (including fees).................................. $ 14,117 $ 13,222 $ 11,686
Securities, including trading........................... 1,809 2,073 2,378
Other................................................... 804 1,010 1,614
----------------- ----------------- -----------------
Total................................................... 16,730 16,305 15,678
Interest Expense
Deposits................................................ 4,723 4,635 5,008
Borrowings.............................................. 3,043 2,911 3,211
----------------- ----------------- -----------------
Total................................................... 7,766 7,546 8,219
Net Interest Income..................................... 8,964 8,759 7,459
Provision for credit losses............................. 1,936 1,678 1,036
----------------- ----------------- -----------------
Net Interest Income After Provision
for Credit Losses..................................... 7,028 7,081 6,423
Noninterest Income
Credit card fee revenue................................. 2,613 2,254 2,228
Deposit fees............................................ 1,162 1,068 927
Other................................................... 2,812 2,589 2,211
----------------- ----------------- -----------------
Total................................................... 6,587 5,911 5,366
Noninterest Expense
Salaries and employee benefits.......................... 4,116 3,912 3,568
Other operating expense................................. 4,928 4,421 4,027
Merger- and restructure-related charges................. 337 - 267
----------------- ----------------- -----------------
Total................................................... 9,381 8,333 7,862
Income Before Income Taxes.............................. 4,234 4,659 3,927
Applicable income taxes................................. 1,403 1,550 1,332
----------------- ----------------- -----------------
Net Income.............................................. $ 2,831 $ 3,109 $ 2,595
----------------- ----------------- -----------------
Common Share Data
Net income
Basic................................................... $ 2.49 $ 2.66 $ 2.21
Diluted................................................. 2.44 2.59 2.16
Weighted Average Shares
Basic................................................... 1,120.7 1,145.7 1,144.7
Diluted................................................. 1,153.0 1,193.6 1,191.0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to pro forma financial information.
-5-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
BANC ONE CORPORATION
Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 1997
(in millions, except per share data)
UNAUDITED Corporation ONE Pro Forma
(as reported) (as reported) Banc One
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans (including fees).............................. $5,849 $8,268 $ 14,117
Securities, including trading....................... 743 1,066 1,809
Other............................................... 755 49 804
---------------- ---------------- ----------------
Total............................................... 7,347 9,383 16,730
Interest Expense
Deposits............................................ 2,178 2,545 4,723
Borrowings.......................................... 1,597 1,446 3,043
---------------- ---------------- ----------------
Total............................................... 3,775 3,991 7,766
Net Interest Income................................. 3,572 5,392 8,964
Provision for credit losses......................... 725 1,211 1,936
---------------- ---------------- ----------------
Net Interest Income After
Provision for Credit Losses........................ 2,847 4,181 7,028
Noninterest Income
Credit card fee revenue............................. 904 1,709 2,613
Deposit fees........................................ 460 702 1,162
Other............................................... 1,387 1,425 2,812
---------------- ---------------- ----------------
Total............................................... 2,751 3,836 6,587
Noninterest Expense
Salaries and employee benefits...................... 1,748 2,368 4,116
Other operating expense............................. 1,584 3,344 4,928
Merger- and restructure-related charges............. - 337 337
---------------- ---------------- ----------------
Total............................................... 3,332 6,049 9,381
Income Before Income Taxes.......................... 2,266 1,968 4,234
Applicable income taxes............................. 741 662 1,403
---------------- ---------------- ----------------
Net Income.......................................... $1,525 $1,306 $ 2,831
---------------- ---------------- ----------------
Common Share Data
Net income
Basic............................................... $ 4.99 $ 2.04 $ 2.49
Diluted............................................. 4.90 1.99 2.44
Weighted Average Shares
Basic............................................... 301.4 632.4 1,120.7
Diluted............................................. 307.0 655.7 1,153.0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to pro forma financial information.
-6-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BANC ONE CORPORATION
Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 1996
(in millions, except per share data)
UNAUDITED Corporation ONE Pro Forma
(as reported) (as reported) Banc One
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans (including fees).............................. $5,745 $7,477 $13,222
Securities, includes trading........................ 851 1,222 2,073
Other............................................... 973 37 1,010
---------------- ---------------- ----------------
Total............................................... 7,569 8,736 16,305
Interest Expense
Deposits............................................ 2,175 2,460 4,635
Borrowings.......................................... 1,774 1,137 2,911
---------------- ---------------- ----------------
Total............................................... 3,949 3,597 7,546
Net Interest Income................................. 3,620 5,139 8,759
Provision for credit losses......................... 735 943 1,678
---------------- ---------------- ----------------
Net Interest Income After
Provision for Credit Losses........................ 2,885 4,196 7,081
Noninterest Income
Credit card fee revenue............................. 914 1,340 2,254
Deposit fees........................................ 414 654 1,068
Other............................................... 1,220 1,369 2,589
---------------- ---------------- ----------------
Total............................................... 2,548 3,363 5,911
Noninterest Expense
Salaries and employee benefits...................... 1,707 2,205 3,912
Other operating expense............................. 1,564 2,857 4,421
---------------- ---------------- ----------------
Total............................................... 3,271 5,062 8,333
Income Before Income Taxes.......................... 2,162 2,497 4,659
Applicable income taxes............................. 726 824 1,550
---------------- ---------------- ----------------
Net Income.......................................... $1,436 $1,673 $ 3,109
---------------- ---------------- ----------------
Common Share Data
Net income
Basic............................................... $ 4.44 $ 2.60 $ 2.66
Diluted............................................. 4.33 2.52 2.59
Weighted Average Shares
Basic............................................... 316.8 632.5 1,145.7
Diluted............................................. 326.7 664.3 1,193.6
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to pro forma financial information.
-7-
<PAGE>
<TABLE>
<CAPTION>
BANC ONE CORPORATION
Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 1995
(in millions, except per share data)
UNAUDITED Corporation ONE Pro Forma
(as reported) (as reported) Banc One
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans (including fees).............................. $5,260 $6,426 $ 11,686
Securities, including trading....................... 1,288 1,090 2,378
Other............................................... 1,542 72 1,614
---------------- ---------------- ----------------
Total............................................... 8,090 7,588 15,678
Interest Expense
Deposits............................................ 2,581 2,427 5,008
Borrowings.......................................... 2,301 910 3,211
---------------- ---------------- ----------------
Total............................................... 4,882 3,337 8,219
Net Interest Income................................. 3,208 4,251 7,459
Provision for credit losses......................... 510 526 1,036
---------------- ---------------- ----------------
Net Interest Income After
Provision for Credit Losses........................ 2,698 3,725 6,423
Noninterest Income
Credit card fee revenue............................. 901 1,327 2,228
Deposit fees........................................ 382 545 927
Other............................................... 1,308 903 2,211
---------------- ---------------- ----------------
Total............................................... 2,591 2,775 5,366
Noninterest Expense
Salaries and employee benefits...................... 1,692 1,876 3,568
Other operating expense............................. 1,576 2,451 4,027
Merger- and restructure-related charges............. 267 - 267
---------------- ---------------- ----------------
Total............................................... 3,535 4,327 7,862
Income Before Income Taxes.......................... 1,754 2,173 3,927
Applicable income taxes............................. 604 728 1,332
---------------- ---------------- ----------------
Net Income.......................................... $1,150 $1,445 $ 2,595
---------------- ---------------- ----------------
Common Share Data
Net income
Basic............................................... $ 3.48 $ 2.26 $ 2.21
Diluted............................................. 3.41 2.20 2.16
Weighted Average Shares
Basic............................................... 320.0 626.2 1,144.7
Diluted............................................. 329.6 657.1 1,191.0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to pro forma financial information.
-8-
<PAGE>
BANC ONE CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The pro forma information presented is not necessarily indicative of the results
of operations or the combined financial position that would have resulted had
the Merger been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of the results of operations in future periods or the
future financial position of the combined entities. It is anticipated that the
Merger will be consummated in the fourth quarter of 1998. Certain
reclassifications have been included in the unaudited pro forma condensed
combined balance sheet and statements of income to conform statement
presentations.
Note 2. Accounting Policies
The Corporation is still in the process of reviewing its accounting policies in
light of those employed by ONE. As a result of this review, certain conforming
accounting adjustments may be necessary. The nature and extent of such
adjustments have not been determined but are not expected to be significant.
Note 3. Merger-Related Effects
Management estimates that the restructuring charge for costs related to or
resulting from the Merger will be approximately $1.25 billion. The pro forma
condensed combined income statement does not reflect the impact of this charge
due to its nonrecurring nature.
The pro forma condensed combined financial statements do not reflect any
benefits from potential cost savings and revenue enhancements in connection with
the Merger.
-9-
<PAGE>
Note 4. Pro Forma Adjustments
Pro forma adjustments to common shares and surplus at December 31, 1997, reflect
the Merger accounted for as a pooling-of-interests, through the exchange of
468.4 million shares of Banc One common stock (using the common exchange ratio
of 1.62) for the 289.1 million outstanding common shares of the Corporation.
The pro forma entry is displayed below (in millions):
<TABLE>
<S> <C> <C>
Dr. Stock (FCNBD) $ 320
Dr. Surplus (FCNBD) 1,966
Cr. Treasury Stock (FCNBD) $1,938
Cr. Common Stock (ONE) 2,342
Dr. Surplus (ONE) 1,994
</TABLE>
Based on management's current estimate of merger- and restructure-related
charges, the following adjustment was made to the pro forma condensed combined
balance sheet as of December 31, 1997.
<TABLE>
<S> <C> <C>
Dr. Retained Earnings $837
Dr. Other Liabilities-Taxes Payable 413
Cr. Other Liabilities-Merger Reserve $1,250
</TABLE>
Note 5. Additional Transaction
The pro forma financial statements do not give effect to ONE's pending
acquisition of First Commerce Corporation as the acquisition is not material to
ONE.
-10-
<PAGE>
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
$(millions, except share amounts) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 7,727.4 $ 6,524.4
Short-term investments 838.3 680.7
Loans held for sale 2,362.0 1,473.8
Securities:
Securities held to maturity 785.3 4,397.9
Securities available for sale 14,467.9 14,733.8
------------ ------------
Total securities (fair value approximates $15,268.0
and $19,163.2 at December 31, 1997 and 1996,
respectively) 15,253.2 19,131.7
Loans and leases (net of unearned income of $2,013.7 and
$1,383.3 and allowance for credit losses of $1,325.9
and $1,197.7 at December 31, 1997 and 1996,
respectively) 80,726.9 78,192.0
Other assets:
Bank premises and equipment, net 1,882.2 1,799.2
Interest earned, not collected 821.3 782.1
Other real estate owned 66.6 53.0
Excess of cost over net assets of affiliates purchased 741.8 508.4
Other 5,481.6 3,008.2
------------ ------------
Total other assets 8,993.5 6,150.9
------------ ------------
TOTAL ASSETS $ 115,901.3 $ 112,153.5
============ ============
LIABILITIES:
Deposits:
Noninterest-bearing $ 18,444.2 $ 16,340.6
Interest-bearing 58,970.1 57,882.4
------------ ------------
Total deposits 77,414.3 74,223.0
Federal funds purchased and repurchase agreements 10,708.2 12,858.5
Other short-term borrowings 3,095.7 5,466.9
Long-term debt 11,066.4 6,827.8
Accrued interest payable 489.7 468.6
Other liabilities 2,751.0 2,440.7
------------ ------------
TOTAL LIABILITIES 105,525.3 102,285.5
------------ ------------
Commitments and contingencies (Notes 5, 7, and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, 35,000,000 shares authorized:
Series C convertible, no par value, 2,707,917 and
4,140,314 shares issued and outstanding at December
31, 1997 and 1996, respectively 135.4 207.0
Convertible preferred stock of pooled affiliate,
5,750,000 shares issued and outstanding at December
31, 1996 .1
Common stock, no par value, $5 stated value, 950,000,000
shares and 600,000,000 shares authorized at December
31, 1997 and 1996, respectively; 645,956,436 and
576,517,822 shares issued at December 31, 1997 and
1996, respectively (December 31, 1997 shares reflect
the 10% stock dividend payable -- Note 10.) 3,229.8 2,882.6
Capital in excess of aggregate stated value 6,718.7 4,346.4
Retained earnings 239.8 2,625.1
Net unrealized holding gains on securities available for
sale, net of tax 121.0 19.9
Treasury stock (1,421,331 and 5,829,915 shares, at
December 31, 1997 and 1996, respectively), at cost (68.7) (213.1)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,376.0 9,868.0
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 115,901.3 $ 112,153.5
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
BANC ONE CORPORATION and Subsidiaries
1
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
$(millions, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and leases $8,128.7 $7,437.9 $6,393.0
Securities:
Taxable 986.0 1,127.2 973.4
Tax-exempt 80.2 94.9 116.7
Loans held for sale 139.2 39.5 32.9
Other 49.1 36.7 71.9
-------- -------- --------
TOTAL INTEREST INCOME 9,383.2 8,736.2 7,587.9
INTEREST EXPENSE:
Deposits:
Demand, savings and money market deposits 1,124.4 1,006.2 922.3
Time deposits 1,420.7 1,454.0 1,504.1
Borrowings 1,445.8 1,137.4 910.4
-------- -------- --------
TOTAL INTEREST EXPENSE 3,990.9 3,597.6 3,336.8
-------- -------- --------
NET INTEREST INCOME 5,392.3 5,138.6 4,251.1
Provision for credit losses 1,211.1 942.7 526.1
-------- -------- --------
Net interest income after provision for
credit losses 4,181.2 4,195.9 3,725.0
NONINTEREST INCOME:
Investment management and advisory activities 315.5 279.1 239.4
Service charges on deposit accounts 702.4 654.1 544.7
Loan processing and servicing income 1,802.2 1,453.3 1,425.6
Securities gains (losses) 57.0 16.7 (2.0)
Other 958.8 959.7 567.7
-------- -------- --------
TOTAL NONINTEREST INCOME 3,835.9 3,362.9 2,775.4
NONINTEREST EXPENSE:
Salary and related costs 2,367.5 2,204.6 1,875.6
Net occupancy expense, exclusive of
depreciation 209.9 192.1 175.1
Equipment expense 133.7 125.2 110.5
Depreciation and amortization 458.3 447.5 367.4
Outside services and processing 859.1 674.2 528.3
Marketing and development 712.9 445.9 424.9
Communication and transportation 427.6 378.4 324.7
Other 542.5 594.1 520.4
Restructuring charges 337.3
-------- -------- --------
TOTAL NONINTEREST EXPENSE 6,048.8 5,062.0 4,326.9
-------- -------- --------
Income before income taxes 1,968.3 2,496.8 2,173.5
Provision for income taxes 662.6 824.0 728.3
-------- -------- --------
NET INCOME $1,305.7 $1,672.8 $1,445.2
======== ======== ========
NET INCOME PER COMMON SHARE (amounts reflect the
10% common stock dividend -- Note 10):
NET INCOME PER COMMON SHARE, BASIC $ 2.04 $ 2.60 $ 2.26
======== ======== ========
NET INCOME PER COMMON SHARE, DILUTED $ 1.99 $ 2.52 $ 2.20
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
BANC ONE CORPORATION and Subsidiaries
2
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL IN HOLDING GAINS
EXCESS OF (LOSSES) ON
AGGREGATE SECURITIES TREASURY TOTAL
PREFERRED COMMON STATED RETAINED AVAILABLE STOCK AT STOCKHOLDERS'
$(millions, except per share amounts) STOCK STOCK VALUE EARNINGS FOR SALE COST EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 249.9 $2,726.1 $ 3,552.0 $2,172.1 $(111.5) $ (336.5) $ 8,252.1
Net income 1,445.2 1,445.2
Cash dividends:
Common ($1.13 per share)(1) (532.8) (532.8)
Series C Preferred ($3.50 per share) (17.5) (17.5)
Pooled affiliates (21.8) (21.8)
Shares issued in acquisitions 5.7 13.1 (3.1) 15.7
Conversion of preferred into common (.2) .2
Exercise of stock options, net of shares
purchased 8.9 (2.5) 6.4
Sales of stock to employee benefit plans and
other 7.0 18.1 25.1
Purchase of treasury stock (324.3) (324.3)
Change in unrealized holding gains (losses) on
securities available for sale, net of tax 203.3 203.3
10% common stock dividend at fair market value 205.4 1,340.0 (1,545.4)
--------- -------- --------- -------- ------- -------- -----------
BALANCE, DECEMBER 31, 1995 249.7 2,953.1 4,920.9 1,496.7 91.8 (660.8) 9,051.4
Net income 1,672.8 1,672.8
Cash dividends:
Common ($1.24 per share)(1) (587.2) (587.2)
Series C Preferred ($3.50 per share) (16.4) (16.4)
Pooled affiliates (31.4) (31.4)
Shares issued in acquisitions 53.4 657.1 710.5
Issuance of subsidiary common stock 79.5 79.5
Conversion of preferred into common (42.6) 8.2 34.4
Exercise of stock options, net of shares
purchased 14.1 2.7 16.8
Sales of stock to employee benefit plans and
other 9.2 (56.5) 90.6 3.7 47.0
Purchase of treasury stock (1,003.1) (1,003.1)
Retirement of treasury stock (102.0) (688.0) 790.0
Change in unrealized holding gains (losses) on
securities available for sale, net of tax (71.9) (71.9)
--------- -------- --------- -------- ------- -------- -----------
BALANCE, DECEMBER 31, 1996 207.1 2,882.6 4,346.4 2,625.1 19.9 (213.1) 9,868.0
Net income 1,305.7 1,305.7
Cash dividends:
Common ($1.38 per share)(1) (768.6) (768.6)
Series C Preferred ($3.50 per share) (12.0) (12.0)
Pooled affiliates (20.6) (20.6)
Shares issued in acquisitions 51.4 487.0 538.4
Issuance of subsidiary common stock 5.8 5.8
Conversion of preferred into common (71.7) 13.9 57.8
Exercise of stock options, net of shares
purchased 26.3 34.5 (34.1) 26.7
Sales of stock to employee benefit plans and
other 57.2 11.7 (30.1) 38.8
Purchase of treasury stock (707.3) (707.3)
Retirement of treasury stock (43.8) (385.1) 428.9
Change in unrealized holding gains (losses) on
securities available for sale, net of tax 101.1 101.1
10% common stock dividend at fair market value 293.6 2,596.2 (2,889.8)
--------- -------- --------- -------- ------- -------- -----------
BALANCE, DECEMBER 31, 1997 $ 135.4 $3,229.8 $ 6,718.7 $ 239.8 $ 121.0 $ (68.7) $ 10,376.0
========= ======== ========= ======== ======= ======== ===========
<FN>
(1) Amounts reflect the effect of the 10% common stock dividend. See Note 10.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
BANC ONE CORPORATION and Subsidiaries
3
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
$(millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net income $ 1,305.7 $ 1,672.8 $ 1,445.2
Adjustments:
Provision for credit losses 1,211.1 942.7 526.1
Depreciation 338.7 300.8 255.9
Amortization of other intangibles 119.6 146.7 111.5
Amortization (accretion) of securities
premium and discounts, net 37.6 40.9 (50.7)
Amortization of mortgage servicing rights 16.3 19.7 12.9
Net increase in trading account (486.1) (305.4) (30.2)
Net increase in loans held for sale (888.2) (970.4) (187.7)
Net (increase) decrease in deferred loan fees
and costs (5.2) 34.3 (4.2)
Securities (gains) losses (57.0) (16.7) 1.9
Gain on the sale of banks and branch offices (.8) (19.4) (68.3)
Gain on sale of loans and other assets (238.8) (325.3) (122.9)
Net increase in other assets (1,134.1) (279.6) (226.9)
Net increase (decrease) in other liabilities 605.3 (42.1) 251.3
Net increase in deferred income taxes 520.7 263.6 179.4
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,344.8 1,462.6 2,093.3
---------- ---------- ----------
CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Purchases of securities available for sale (9,422.6) (5,581.5) (8,110.5)
Purchases of securities held to maturity (502.6) (1,789.6) (1,978.1)
Maturities of securities available for sale 3,014.9 4,169.2 6,712.9
Maturities of securities held to maturity 582.3 1,040.8 1,904.8
Sales of securities available for sale 10,996.2 3,231.5 2,544.3
Net increase in loans, excluding sales and
purchases (14,443.3) (15,750.6) (16,261.8)
Sales of loans and other assets 13,596.9 8,218.2 10,818.0
Credit card securitization activities (985.2) (53.9) (61.9)
Purchases of loans and related premiums (1,275.5) (519.8) (668.9)
Net decrease in short-term investments 13.6 118.3 3,022.7
Additions to bank premises and equipment (418.7) (432.2) (400.6)
Sale of banks and branch offices (22.3) (186.8) (236.0)
Net cash acquired in acquisitions 240.7 315.7 42.4
All other investing activities, net 195.0 (58.9) 191.8
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,569.4 (7,279.6) (2,480.9)
---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Net increase in demand, savings and money
market deposits 3,380.4 1,533.8 1,608.9
Net decrease in time deposits (2,488.5) (592.3) (2,235.6)
Net (decrease) increase in short-term
borrowings (4,822.9) 5,414.8 1,229.3
Issuance of long-term borrowings, net 5,571.0 3,486.2 1,742.1
Repayment of long-term borrowings (1,914.0) (1,755.4) (344.7)
Cash dividends paid (801.1) (635.0) (696.1)
Purchase of treasury stock (707.3) (1,003.1) (324.3)
All other financing activities, net 71.2 180.2 (16.2)
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,711.2) 6,629.2 963.4
---------- ---------- ----------
Increase in cash and cash equivalents 1,203.0 812.2 575.8
Cash and cash equivalents at January 1 6,524.4 5,712.2 5,136.4
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 7,727.4 $ 6,524.4 $ 5,712.2
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
BANC ONE CORPORATION and Subsidiaries
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BANC ONE is a bank holding company offering a full range of financial services
through banking offices in Arizona, Colorado, Illinois, Indiana, Kentucky,
Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. BANC ONE
also engages in credit card and merchant processing, consumer and education
finance, mortgage banking, insurance, trust and investment management,
brokerage, venture capital, investment and merchant banking, equipment leasing
and data processing activities.
"The Corporation" is defined as the parent company only. "BANC ONE" is defined
as the Corporation and all significant majority-owned subsidiaries. The
consolidated financial statements include the accounts of the Corporation and
all significant majority-owned subsidiaries (affiliates). See Note 2 for
information relative to acquisitions. Significant intercompany transactions have
been eliminated.
For purposes of comparability, certain prior period amounts have been
reclassified to conform with current year presentation. The following is a
summary of significant accounting policies followed in the preparation of the
consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
LOANS HELD FOR SALE
Certain loan receivables are classified as held for sale because management does
not intend to hold such loans until maturity or sales of the loans are pending.
Such loans are carried at the lower of aggregate cost or fair value by type of
loan. Losses, if any, are recorded in noninterest income, based on the
difference between the fair value (estimated sales proceeds) and aggregate cost.
SECURITIES
Securities that management has both the positive intent and ability to hold to
maturity are classified as securities held to maturity and are carried at cost,
adjusted for amortization of premium or accretion of discount using the interest
method. Securities that may be sold prior to maturity for asset/liability
management purposes, or that may be sold in response to changes in interest
rates, changes in prepayment risk, to increase regulatory capital or other
similar factors, are classified as securities available for sale and carried at
fair value with any adjustments to fair value, after tax, reported as a separate
component of stockholders' equity. Securities purchased for trading purposes are
held in the trading portfolio at market value, with market adjustments included
in noninterest income.
Venture capital investments held by qualifying investment companies are carried
at fair value with changes in fair value recognized in noninterest income. The
fair value of publicly traded investments takes into account their quoted market
prices with adjustments made for market liquidity or sale restrictions. For
BANC ONE CORPORATION and Subsidiaries
5
<PAGE>
securities that are not publicly traded, estimates of fair value are further
adjusted based upon review of the investee's financial results, condition and
prospects.
Interest and dividends on securities, including the amortization of premiums and
the accretion of discounts, are reported using the interest method. Gains and
losses on sales of securities are recorded on the trade date and are calculated
based on the security with the highest cost unless specific securities are
identified.
LOANS
Loans are reported at the principal amount outstanding, net of unearned income.
Income earned is recognized principally on the accrual method of accounting.
Unearned income, which includes deferred fees, net of deferred direct
incremental loan origination costs, is amortized to interest income over the
contractual life of the loan using the interest method or the straight-line
method if not materially different. Loan origination fees and costs on demand
loans are deferred and amortized into interest income on a straight-line basis
over a period which is consistent with the understanding between BANC ONE and
the borrower or, if no understanding exists, over the estimated loan term. Loan
origination fees and costs on credit card and other revolving loans are deferred
and amortized into interest income using a straight-line method over one year.
Commercial loans are placed on nonaccrual at the time the loan is 90 days
delinquent unless the credit is well collateralized and in process of
collection. Residential real estate loans are placed on nonaccrual at the time
the loan is 120 days delinquent. Credit card loans, other uncollateralized
personal credit lines and consumer loans are charged off no later than 180 days
delinquent.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged-off is reversed against interest income. The interest on these loans
is accounted for on the cash basis or cost recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are reasonably assured of repayment
within a reasonable time frame and when the borrower has demonstrated payment
performance.
LEASES
The leasing operations consist of the leasing of automobiles (carried in
consumer loans) and various types of equipment under leases principally
classified as direct financing leases. Interest, net of initial direct costs, is
deferred and reported as income in decreasing amounts over the term of the lease
so as to provide a constant yield on the outstanding principal balance. Leases
are charged-off at the earlier of 180 days delinquent for consumer leases and
120 days delinquent for equipment leases or when collection of principal or
interest is in doubt.
PROVISION FOR CREDIT LOSSES
The provision for credit losses charged to expense is based upon management
assessment of current and historical loss experience, loan portfolio trends,
prevailing economic and business conditions, specific loan review and other
relevant factors. In management's opinion, the provision is sufficient to
maintain the allowance for credit losses at a level that adequately provides for
potential losses.
LOAN SECURITIZATIONS
BANC ONE actively packages and sells loans receivables, primarily credit card
receivables, as securities to investors. From these securitizations, BANC ONE
receives (1) a fee for servicing the loans and (2) net interest revenues
generated by the loans which are in excess of the interest due investors and net
credit losses. Fees which are received in excess of the contractual servicing
rate as well as the excess net interest revenue are considered financial assets,
effectively interest-only strips.
BANC ONE CORPORATION and Subsidiaries
6
<PAGE>
Certain estimates are inherent in determining the fair value of the interest-
only strip, including interest rates, charge-offs and receivable lives. These
estimates and assumptions are subject to change in the future.
When loans are securitized, the interest-only strip described above and a
corresponding initial gain on the sale of the receivables are recorded, the
loans are removed from the balance sheet, and amounts that would have previously
been reported as net interest income and provision for credit losses are instead
reported as noninterest income in loan processing and servicing income.
MORTGAGE BANKING ACTIVITIES
Mortgage servicing assets are recognized as separate assets when servicing
rights are acquired through purchase or retained in a sale or securitization of
the assets being serviced. Capitalized mortgage servicing rights are reported in
other assets and are amortized into noninterest income in proportion to, and
over the period of, the estimated future net servicing income of the underlying
mortgage loans. Capitalized mortgage servicing rights are evaluated for
impairment based on the fair value of those rights.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded primarily using the straight-line method over the
estimated useful lives of the assets. Upon the sale or other disposal of assets,
the cost and related accumulated depreciation are written off and the resulting
gain or loss is recognized. Maintenance and repairs are charged to expense as
incurred, while renewals and betterments are capitalized. Software costs for
internally developed systems are expensed as incurred. Software costs related to
externally developed systems are capitalized and include systems intended for
internal and external use.
OTHER REAL ESTATE OWNED
Other real estate owned primarily represents properties acquired by the
Corporation's affiliates through customer loan default and owned properties no
longer used in the banking business. The real estate acquired through
foreclosure is stated at an amount equal to the lesser of the loan balance prior
to foreclosure, plus certain costs incurred for improvements to the property, or
fair value less estimated selling costs of the property.
PURCHASE METHOD OF ACCOUNTING
Net assets of organizations acquired in purchase transactions are recorded at
fair value at date of acquisition. The excess of cost over net assets of
affiliates purchased (goodwill) is amortized using the straight-line and
accelerated methods over the estimated periods benefited with terms generally
ranging from five to 40 years. Core deposits and other identifiable intangible
assets are typically amortized on an accelerated basis over the period of
benefit. Intangible assets are periodically reviewed for possible impairment.
OFF-BALANCE SHEET ACTIVITIES
BANC ONE uses a variety of off-balance sheet financial instruments as part of
its interest rate risk management strategy and in its customer service and
trading activities. The most frequently used off-balance sheet financial
instruments are various types of interest rate swaps. However, interest rate
floors, options, swap options, caps, forward rate agreements and currency swaps
are also utilized. Off-balance sheet financial instruments are typically
classified as synthetic alterations or anticipatory hedges. The criteria that
must be satisfied for each of these methods is as follows:
Synthetic Alteration -- (1) the asset or liability to be converted creates
exposure to interest rate risk; (2) the off-balance sheet financial instrument
is designated and effective as a synthetic alteration of the balance sheet item;
(3) the start date of the
BANC ONE CORPORATION and Subsidiaries
7
<PAGE>
off-balance sheet financial instrument does not extend beyond that point in time
at which it is believed that modeling systems produce reliable interest rate
sensitivity information; and (4) the related balance sheet item, from trade date
to final maturity, has sufficient balances for alteration. If the initial
assignment is changed, or should sufficient balances not be available, the
excess portion of the off-balance sheet financial instrument must be recorded at
fair value.
Anticipatory Hedge -- (1) the transaction to be hedged creates exposure to
interest rate risk; (2) the off-balance sheet financial instrument acts to
reduce the interest rate risk by moving closer to being insensitive to interest
rate changes; (3) the off-balance sheet financial instrument is designated and
effective as a hedge of the transaction; (4) the significant characteristics and
expected terms of the anticipated transaction are identified; and (5) it is
probable that the anticipated transaction will occur.
Accrual accounting is applied for off-balance sheet financial instruments
classified as described above and income and expense are recorded in the same
category as that of the related balance sheet item. The related balance sheet
item is generally a pool of similar products. Fees related to these off-balance
sheet financial instruments are amortized on the straight-line method over the
life of the related balance sheet item. If the balance of the related balance
sheet item falls below that of the related off-balance sheet financial
instrument, the excess portion of the off-balance sheet financial instrument is
recorded at fair value and the resulting gain or loss included in income as
applicable. If an off-balance sheet financial instrument is terminated, the gain
or loss is deferred and amortized over the remaining life of the off-balance
sheet financial instrument. If an off-balance sheet financial instrument is
terminated due to the sale or liquidation of the related balance sheet item, the
gain or loss is recognized to noninterest income in the period in which the off-
balance sheet financial instrument is terminated.
Off-balance sheet financial instruments that do not satisfy the criteria above,
including those used in trading activities and anticipatory hedges where the
anticipated transaction is no longer likely to occur, are carried at fair value.
Any changes in fair value are recognized in noninterest income.
INVESTMENT IN MAJORITY-OWNED AFFILIATES
(Parent Company Only)
The Corporation's investment in affiliates represents the total equity of
majority-owned consolidated subsidiaries, using the equity method of accounting.
INCOME TAXES
Deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized as income or expense in
the period that includes the enactment date.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks.
STOCK-BASED COMPENSATION
BANC ONE applies APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25) and related interpretations in accounting for its stock-based
compensation plans. In 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" which is
effective for fiscal years beginning after December 15, 1995. Under SFAS No.
123, companies may elect to recognize stock-based compensation expense based on
the fair value of the awards or continue to account for stock-based compensation
under APB No. 25. BANC ONE has elected to continue to apply the provisions of
APB No. 25.
BANC ONE CORPORATION and Subsidiaries
8
<PAGE>
STOCK DIVIDEND
All per share and average share information has been restated for the 10% common
stock dividend payable February 26, 1998 to shareholders of record on February
12, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997, BANC ONE adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities".
SFAS No. 125 requires that after a transfer of financial assets, an entity must
recognize the financial and servicing assets controlled and liabilities incurred
and derecognize financial assets and liabilities in which control is surrendered
or when debt is extinguished. The impact on BANC ONE's consolidated financial
position and results of operations was not material.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125." SFAS No. 127 deferred the
effective date of SFAS No. 125 related to transfers of financial assets
occurring after December 31, 1997, specifically, such transfers involving
repurchase agreements, dollar-rolls, securities lending and similar
transactions. BANC ONE will adopt SFAS No. 127 as required. The adoption of SFAS
No. 127 is not expected to have a material impact on BANC ONE's consolidated
statement of position or results of operations.
Effective December 31, 1997, BANC ONE adopted SFAS No. 128, "Earnings Per
Share". The Statement specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common
stock. All reported prior period earnings per share information has been
restated in accordance with SFAS No. 128.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This Statement establishes standards for reporting and display of comprehensive
income in a full set of general-purpose financial statements. BANC ONE will be
required to adopt this Statement as of January 1, 1998. If BANC ONE had adopted
this Statement as of January 1, 1996, comprehensive income for the years ended
December 31, 1997 and 1996 would have been $1.4 billion and $1.6 billion,
respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement requires certain disclosures
about an entity's operating segments in annual and interim financial reports. It
also requires certain related disclosures about products and services,
geographic areas and major customers. The segment and other information
disclosures are required for the year ended December 31, 1998. BANC ONE expects
to report the following lines of business in its segment disclosures once SFAS
No. 131 is adopted: the Banc One Commercial Banking Group, the Banc One Retail
Banking Group, First USA, the Finance One Group and the Banc One Capital
Holdings Group.
BANC ONE CORPORATION and Subsidiaries
9
<PAGE>
NOTE 2 ACQUISITIONS
COMPLETED ACQUISITIONS
On June 27, 1997, the Corporation completed its acquisition of First USA, Inc.
("First USA"), located in Dallas, Texas. The Corporation issued 163 million
shares of the Corporation's common stock for all the outstanding common stock of
First USA in a tax-free exchange. First USA, a financial service company
specializing in the credit card business, had $24.6 billion in managed credit
card receivables and 17.8 million cardholders at June 27, 1997, compared with
$22.2 billion in managed credit card receivables and 15.9 million card holders
at December 31, 1996. First USA had total assets of $10.9 billion and $10.3
billion at June 27, 1997 and December 31, 1996, respectively, and stockholders'
equity of $1.2 billion at both June 27, 1997 and December 31, 1996. The
acquisition was accounted for as a pooling of interests and therefore, these
consolidated financial statements have been restated for all periods presented
to include the results of operations, financial position and changes in cash
flows of First USA. First USA had a June 30 fiscal year-end and, therefore,
adjustments have been made to conform First USA's year-end to BANC ONE's
calendar year-end. These adjustments did not have a material impact on the
consolidated financial statements.
The following tables set forth the separate results of operations for BANC ONE
and First USA for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------------
$(millions) JUNE 30, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
BANC ONE $5,428.0 $10,272.4 $ 8,970.9
First USA 893.6 1,826.7 1,392.4
-------- --------- ---------
$6,321.6 $12,099.1 $10,363.3
======== ========= =========
Net income:
BANC ONE $ 526.7 $ 1,426.5 $ 1,277.9
First USA (129.0) 246.3 167.3
-------- --------- ---------
$ 397.7 $ 1,672.8 $ 1,445.2
======== ========= =========
</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 during 1997 and is being amortized over 25 years using
the straight-line method. Liberty had $2.9 billion in assets at May 31, 1997,
and 29 banking offices located primarily in Oklahoma City and Tulsa. No effects
of this acquisition are included in the financial statements prior to the date
of purchase and the pro forma effect on prior periods results of operations is
not significant.
BANC ONE CORPORATION and Subsidiaries
10
<PAGE>
On January 2, 1996, the Corporation acquired all of the outstanding shares of
Premier Bancorp, Inc. ("Premier") of Baton Rouge, Louisiana, in exchange for 24
million shares of the Corporation's common stock valued at $711 million. The
acquisition was accounted for as a purchase. Goodwill of $263 million was
recognized and is being amortized over 25 years using the straight-line method.
Premier had assets of $6.3 billion at December 31, 1995. No effects of this
acquisition are included in the financial statements prior to the date of
purchase. The pro forma effect on results of operations is not significant.
PENDING ACQUISITION
On October 20, 1997, the Corporation entered into an agreement providing for the
acquisition of First Commerce Corporation ("First Commerce"), a multi-bank
holding company headquartered in New Orleans, Louisiana, with approximately $9.5
billion in assets at December 31, 1997. Terms of the agreement call for First
Commerce shareholders to receive 1.408 shares (adjusted for the 10% common stock
dividend) of the Corporation's common stock for each share of First Commerce
common stock. The value of the transaction is approximately $2.7 billion based
on the Corporation's closing share price on December 31, 1997. The transaction,
subject to regulatory and First Commerce shareholder approval, is expected to be
completed during the second quarter of 1998 and will be accounted for as a
pooling of interests. The pro forma effect on results of operations is not
significant.
NOTE 3 RESTRUCTURING CHARGES AND MERGER-RELATED COSTS
In connection with the First USA merger and other strategic initiatives, BANC
ONE identified one-time restructuring charges and merger-related costs of $467.4
million ($328.8 million after tax), of which $337.3 million was recorded as a
restructuring charge and $130.1 million was recorded as additional provision for
credit losses.
The restructuring charge associated with the First USA merger totaled $240.9
million and consisted of: employee benefits, severance and stock option vesting
costs; professional services costs; premiums to redeem preferred securities of
subsidiary trust; asset-related write-downs and other merger-related costs.
The remaining $96.4 million restructuring charge related to costs associated
with strategic initiatives to streamline the retail center delivery structure by
consolidating approximately 200 banking centers over the next 12 months and the
termination of the development of the Strategic Banking System, a retail banking
system.
The $130.1 million additional provision for credit losses primarily reflects the
reclassification of $2.0 billion of credit card loans previously classified as
held for sale to the loan and lease portfolio in connection with the effort to
consolidate the BANC ONE and First USA credit card master trusts, as well as an
additional provision to align the credit card charge-off policies of BANC ONE
and First USA.
At December 31, 1997, the remaining restructuring reserve was not significant.
BANC ONE CORPORATION and Subsidiaries
11
<PAGE>
NOTE 4 SECURITIES
The amortized cost and estimated fair value of available-for-sale and
held-to-maturity securities and the related unrealized holding gains and losses
were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
$(millions) December 31, COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
Tax-exempt $ 449.4 $ 26.3 $ 5.6 $ 470.1
All other 335.9 3.3 9.2 330.0
--------- ---------- ---------- ---------
Total securities held to maturity $ 785.3 $ 29.6 $ 14.8 $ 800.1
========= ========== ========== =========
SECURITIES AVAILABLE FOR SALE (1)
United States Treasury and federal agencies $ 3,910.6 $ 60.8 $ 13.1 $ 3,958.3
Mortgage and asset-backed securities:
Government 6,527.8 112.0 30.4 6,609.4
Other 1,756.5 8.7 18.9 1,746.3
Tax-exempt and other 2,135.1 19.4 .6 2,153.9
--------- ---------- ---------- ---------
Total securities available for sale $14,330.0 $ 200.9 $ 63.0 $14,467.9
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
$(millions) December 31, COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY
Tax-exempt $ 685.4 $ 34.4 $ 5.7 $ 714.1
All other 3,712.5 12.3 9.5 3,715.3
--------- ---------- ---------- ---------
Total securities held to maturity $ 4,397.9 $ 46.7 $ 15.2 $ 4,429.4
========= ========== ========== =========
SECURITIES AVAILABLE FOR SALE (1)
United States Treasury and federal agencies $ 4,334.9 $ 7.8 30.3 $ 4,312.4
Mortgage and asset-backed securities:
Government 6,729.9 83.4 21.5 6,791.8
Other 2,074.4 11.1 29.2 2,056.3
Tax-exempt and other 1,563.8 13.5 4.0 1,573.3
--------- ---------- ---------- ---------
Total securities available for sale $14,703.0 $ 115.8 $ 85.0 $14,733.8
========= ========== ========== =========
</TABLE>
(1) Includes trading securities carried at fair value of $1.0 billion and $549
million at December 31, 1997 and 1996, respectively.
The amortized cost, estimated fair value, and average yield at December 31, 1997
of the Corporation's available-for-sale and held-to-maturity securities by
contractual maturity dates are presented in the following table:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE(1)(2)(3) SECURITIES HELD TO MATURITY(1)(2)(3)
--------------------------------------- ------------------------------------
$(millions) AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
DECEMBER 31, COST VALUE YIELD COST VALUE YIELD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 2,182.6 $ 2,178.0 5.59% $295.9 $298.2 6.77%
Due after one year
through five years 2,407.0 2,424.9 5.78 314.8 330.5 6.64
Due after five years
through ten years 2,491.7 2,545.2 6.25 74.6 72.2 6.88
Due after ten years 7,248.7 7,319.8 7.03 100.0 99.2 7.41
--------- --------- ------- ------ ------ -------
Total securities $14,330.0 $14,467.9 6.46% $785.3 $800.1 6.81%
========= ========= ======= ====== ====== =======
</TABLE>
(1) Reflects estimated maturity.
(2) Weighted average yields for both held-to-maturity and available-for-sale
securities are based on amortized historical cost.
(3) Securities not due at a single maturity date are allocated based on weighted
average lives.
The proceeds, gross realized gains and gross realized losses from sales of
available-for-sale securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
$(millions) REALIZED REALIZED
December 31, PROCEEDS GAINS LOSSES
- ------------------------------------------------------
<S> <C> <C> <C>
1997 $11,013.4 $ 102.5 $ 46.0
1996 3,446.6 119.5 26.7
1995 $ 2,566.0 $ 44.0 $ 21.0
</TABLE>
In connection with the First USA merger, due to the asset-liability
characteristics of the combined entity, $3.6 billion of securities were
reclassified from the held-to-maturity portfolio to the available-for-sale
portfolio. The net unrealized gain associated with this transfer totaled $.6
million.
BANC ONE CORPORATION and Subsidiaries
12
<PAGE>
NOTE 5 LOANS AND LEASES
The composition of the loan and lease portfolio at December 31, 1997 and 1996 is
summarized as follows:
<TABLE>
$(millions) 1997 1996
- -----------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial $22,446.0 $20,232.2
Real estate:
Construction 3,808.1 3,602.0
Other 5,601.4 6,429.4
Lease financing (1) 2,767.3 2,326.5
--------- ---------
Total commercial
loans 34,622.8 32,590.1
CONSUMER:
Residential real
estate 7,189.4 6,500.9
Home equity 9,488.0 7,416.1
Indirect 7,683.4 9,224.7
Auto lease 6,748.6 4,317.3
Student 1,831.8 1,919.4
Other 3,984.8 3,997.7
--------- ---------
Total consumer
loans (2) 36,926.0 33,376.1
CREDIT CARD 10,504.0 13,423.5
--------- ---------
Total loans and leases 82,052.8 79,389.7
LESS: ALLOWANCE FOR
CREDIT LOSSES 1,325.9 1,197.7
--------- ---------
TOTAL LOANS AND LEASES,
NET $80,726.9 $78,192.0
========= =========
</TABLE>
(1) Net of unearned income of $872.5 and $657.8 at December 31, 1997 and 1996,
respectively
(2) Net of unearned income of $1,141.2 and $725.5 at December 31, 1997 and 1996,
respectively
In the normal course of business, BANC ONE issues commitments to extend credit,
standby letters of credit, and commercial and other letters of credit to meet
the financing needs of its customers. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The following table summarizes BANC ONE's
commitments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
$(billions) 1997 1996
- --------------------------------------------
<S> <C> <C>
Commitments to extend
credit $169.9 $147.8
Standby and other
letters of credit 4.6 3.3
</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.
Letters of credit are conditional commitments guaranteeing payment on drafts
drawn in accordance with the terms of the documents. Commercial letters of
credit are used to facilitate trade or commerce with the drafts being drawn when
the underlying transaction is consummated. Standby letters of credit guarantee
the performance of a customer to a third party. These guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in making loan commitments to customers. BANC ONE uses the same credit policies
in providing these conditional obligations as it does for on-balance sheet
instruments. Collateral for those commitments, when deemed necessary, varies but
may include accounts receivable, inventories, investments and real estate.
BANC ONE has entered into several loan securitizations. The risk associated with
these transactions is limited to certain on-balance sheet receivables related to
credit enhancements (approximately
BANC ONE CORPORATION and Subsidiaries
13
<PAGE>
$768.4 million at December 31, 1997). The remaining market and credit risks are
transferred to the investors and the third-party institutions providing credit
enhancement.
Mortgage loans serviced for others approximated $16.3 billion and $22.5 billion
at December 31, 1997 and 1996, respectively.
NOTE 6 ALLOWANCE FOR CREDIT LOSSES
The following summarizes activity in the allowance for credit losses for the
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
$(millions) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $1,197.7 $1,008.0 $ 963.2
Allowances associated with acquisitions and other 37.9 66.6 (3.9)
Provision for credit losses 1,211.1 942.7 526.1
Total charge-offs and recoveries:
Total charge-offs (1,422.6) (1,066.0) (677.9)
Recoveries 301.8 246.4 200.5
-------- -------- --------
Net charge-offs (1,120.8) (819.6) (477.4)
-------- -------- --------
BALANCE, END OF PERIOD $1,325.9 $1,197.7 $1,008.0
======== ======== ========
</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 Nos. 114 and
118 (collectively, SFAS No. 114), "Accounting by Creditors for Impairment of a
Loan" and "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures". All nonaccrual loans on which a specific reserve
calculation is required and significant troubled debt restructurings are
considered impaired. Impairment is primarily measured based on the fair value of
the loan's collateral. Impairment losses are included in the provision for
credit losses. Loans collectively evaluated for impairment include certain
smaller balance commercial loans, consumer loans, residential real estate loans
and credit card loans. SFAS No. 114 does not apply to these large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment.
The following tables summarize impaired loan information at December 31, 1997
and 1996.
<TABLE>
<CAPTION>
$(millions) 1997 1996
- -----------------------------------------------
<S> <C> <C>
Impaired loans with related
allowance $108.3 $109.8
Impaired loans with no related
allowance(1) 123.9 79.2
------ ------
Total impaired loans $232.2 $189.0
====== ======
Allowance on impaired loans $ 34.8 $ 33.1
<FN>
(1) Impaired loans for which the discounted cash flows, collateral value or
market price equals or exceeds the carrying value of the loan do not require
an allowance under SFAS No. 114.
</TABLE>
<TABLE>
<CAPTION>
$(millions) 1997 1996 1995
- ------------------------------------------------
<S> <C> <C> <C>
Average impaired loans $215.9 $210.1 $190.8
Interest income
recognized on
impaired loans 4.3 5.2 3.9
Cash basis interest
income recognized on
impaired loans 4.3 5.1 3.4
</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.
BANC ONE CORPORATION and Subsidiaries
14
<PAGE>
NOTE 7 BANK PREMISES, EQUIPMENT AND LEASES
The major categories of bank premises and equipment and accumulated depreciation
at December 31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
$(millions) 1997 1996
- ------------------------------------------------
<S> <C> <C>
Land $ 229.8 $ 220.2
Building 1,366.7 1,252.8
Equipment 2,143.0 1,873.7
Leasehold improvements 352.2 328.7
-------- --------
4,091.7 3,675.4
Less accumulated
depreciation and
amortization 2,209.5 1,876.2
-------- --------
Bank premises and
equipment, net $1,882.2 $1,799.2
======== ========
</TABLE>
As of December 31, 1997, the future minimum rental payments required under
noncancelable operating leases with initial terms in excess of one year are
$170.9 million, $145.5 million, $111.3 million, $93.0 million and $74.5 million
for each of the years 1998 through 2002, respectively, and $368.4 million
thereafter. Rental expense under operating leases approximated $193.4 million in
1997, $182.9 million in 1996 and $170.2 million in 1995.
NOTE 8 SHORT-TERM BORROWINGS
Information pertaining to short-term borrowings for 1997, 1996 and 1995, is
summarized as follows:
<TABLE>
<CAPTION>
FEDERAL
FUNDS REPURCHASE COMMERCIAL BANK
$(millions) PURCHASED(1) AGREEMENTS(1) PAPER(2) NOTES(3) OTHER(4)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997:
Balance end of year $5,729.2 $4,979.0 $ 417.3 $1,942.8 $ 735.6
Highest month-end balance 6,725.3 5,927.5 1,935.3 3,719.2 1,803.5
Average daily balance 5,514.7 4,886.6 1,409.1 2,944.9 871.5
Weighted average interest rate:
As of year-end 6.35% 4.89% 6.08% 5.75% 5.60%
Paid during year 5.63 4.98 5.60 5.97 5.79
1996:
Balance end of year $7,009.2 $5,849.3 $1,683.8 $2,783.9 $ 999.2
Highest month-end balance 7,134.5 5,849.3 1,754.1 3,487.8 1,660.6
Average daily balance 6,182.5 4,615.4 1,281.4 2,711.7 581.4
Weighted average interest rate:
As of year-end 6.00% 5.01% 5.40% 5.45% 5.13%
Paid during year 5.48 4.75 5.32 5.43 5.22
1995:
Balance end of year $5,528.3 $3,031.1 $ 652.8 $2,762.6 $ 503.7
Highest month-end balance 6,067.6 4,458.3 1,469.5 2,978.6 1,488.6
Average daily balance 4,406.0 3,154.1 1,278.6 2,144.4 583.2
Weighted average interest rate:
As of year-end 5.69% 4.91% 5.72% 5.92% 5.37%
Paid during year 5.98 4.98 6.16 5.89 5.56
</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.
BANC ONE CORPORATION and Subsidiaries
15
<PAGE>
NOTE 9 LONG-TERM BORROWINGS
Long-term borrowings are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MATURITY STATED EFFECTIVE --------------------
$(millions) DATE RATE RATE (1) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporation: Subordinated notes (2) 2002 7.25% 6.95% $ 347.0 $ 348.5
Subordinated notes (2) 2003 8.74 8.13 169.9 170.0
Subordinated notes (2) 2005 7.00 6.21 296.7 298.4
Subordinated notes (2) 2007 7.60 6.22 397.3
Subordinated notes (2) 2009 9.88 10.11 195.3 196.5
Subordinated notes (2) 2010 10.00 10.25 197.5 197.7
Subordinated notes (2) 2025 7.75 6.54 294.3 297.1
Subordinated notes (2) 2026 7.63 6.72 491.4 496.0
Subordinated notes (2) 2027 8.00 6.54 489.6
Medium term notes 1999-2000 5.85-6.85 5.46-6.12 1,363.4
Medium term notes 2001-2002 5.97-7.00 5.78-6.20 618.1
Redeemable preferred
securities (3) 2027 9.33 9.33 7.0 200.0
Affiliates: Subordinated notes 2002 7.38 5.78 148.7 149.3
Subordinated notes 2003 6.63-7.65 6.03-7.52 451.4 453.8
Subordinated notes 2005 6.00 6.51 148.3 149.0
Bank notes 1997 n/a(4) n/a(4) 1,035.0
Bank notes 1998 5.49-8.20 5.49-8.21 2,804.4 1,420.0
Bank notes 1999 5.70-6.58 5.70-6.61 1,493.4 684.0
Bank notes 2000 6.07-6.13 6.07-6.13 89.8
Bank notes 2001 5.82-7.24 5.93-7.24 518.4 518.7
Bank notes 2004 6.04 6.04 19.9
Bank notes 2006 6.50 5.90 49.9 49.9
Capital leases and other Various Various Various 474.7 163.9
--------- --------
Total $11,066.4 $6,827.8
========= ========
</TABLE>
(1) The effective rate includes amortization of premium or discount. Interest
rate swap agreements have been entered into that have altered the stated
interest rate for certain of the borrowings to variable interest rates. The
effective rates include the impact of these swap agreements at December 31,
1997. The terms to maturity of the swaps are shorter than or equal to the
altered borrowings.
(2) The notes are not subject to redemption and impose certain limitations
relating to funded debt, liens and the sale or issuance of capital stock of
significant bank subsidiaries.
(3) These notes are redeemable preferred securities of a subsidiary trust
holding solely subordinated debentures of the Corporation. In June 1997, the
Corporation paid a premium of $36 million to redeem $193 million of these
securities.
(4) Not applicable
Aggregate annual repayments of long-term debt at December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
$(millions) CORPORATION BANC ONE(1) TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1998 $3,036.4 $ 3,036.4
1999 $ 715.0 1,409.3 2,124.3
2000 648.4 215.6 864.0
2001 344.1 537.2 881.3
2002 621.0 161.8 782.8
Thereafter 2,539.0 838.6 3,377.6
-------- -------- ---------
$4,867.5 $6,198.9 $11,066.4
======== ======== =========
</TABLE>
(1) BANC ONE affiliates, excluding the Corporation.
BANC ONE CORPORATION and Subsidiaries
16
<PAGE>
NOTE 10 STOCK DIVIDENDS AND CONVERTIBLE PREFERRED STOCK
On January 20, 1998 and January 23, 1996, the Corporation declared 10% common
stock dividends to shareholders of record on February 12, 1998 and February 21,
1996, respectively. Accordingly, all common stock share data have been adjusted
to include the effect of the stock dividends.
On January 20, 1998, the Corporation elected to redeem all of the shares of BANC
ONE's Series C Convertible Preferred stock on April 16, 1998 at the redemption
price of $51.05 per share plus the amount of any dividends accrued and unpaid.
Each of the Series C preferred shares can be converted into 2.121880 shares of
the Corporation's common stock and provides for cumulative quarterly dividends
at an annual rate of $3.50 per share. The Series C preferred shares have a
stated liquidation value of $50 per share plus an amount per share equal to all
dividends cumulating or accrued and unpaid thereon to the date of such
liquidation. The Series C preferred shares were redeemable by BANC ONE beginning
April 15, 1995 at an initial call price of $52.10 per share, declining to $50.00
per share on and after March 31, 2001. The redemption price was $51.40 for 1997.
First USA had 5.75 million shares of 6 1/4% mandatory convertible preferred
stock, $.01 par value, at December 31, 1996. Dividends at an annual rate of
$1.99 per share on the preferred stock were cumulative and payable quarterly in
arrears. The preferred stock had a liquidation value of $31.875 per share and
was convertible into .833 shares of First USA common stock. First USA's
preferred stock was redeemed by First USA on and as of May 2, 1997. All shares
of First USA stock were converted into BANC ONE common stock in connection with
the acquisition on June 27, 1997.
NOTE 11 DIVIDEND AND CAPITAL RESTRICTIONS
Payment of dividends by bank affiliates and certain other nonbank affiliates is
subject to various federal and/or state regulatory restrictions. The amount of
dividends available from nonbank affiliates that are subject to dividend
restrictions is regulated by the governing agency to which they report. At
December 31, 1997, $609.5 million of the total stockholders' equity of banking
affiliates was available for payment of dividends without approval by the
applicable regulatory authority.
BANC ONE and its affiliated banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Pursuant to federal
holding company and bank regulations, BANC ONE and each bank affiliate is
assigned to a capital category. The assigned capital category is largely
determined by the three ratios that are calculated in accordance with specific
instructions included in the regulations: total risk adjusted capital, Tier 1
capital, and Tier 1 leverage ratios. The ratios are intended to measure capital
relative to assets and credit risk associated with those assets and off-balance
sheet exposures of the entity. To be categorized as well-capitalized, each
entity must maintain total risk adjusted capital, Tier 1 capital, and Tier 1
leverage ratios of 10.0%, 6.0% and 5.0%, respectively. However, the capital
category assigned to an entity can also be affected by qualitative judgments
made by such entity's primary regulatory agency about the risks inherent in that
entity's activities that are not reflected in the calculated ratios.
There are five capital categories defined in the regulations: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. Classification of an
BANC ONE CORPORATION and Subsidiaries
17
<PAGE>
affiliate bank in any of the under-capitalized categories can result in certain
mandatory and possibly additional discretionary actions by regulators that could
have a material effect on a bank's operations. As of December 31, 1997, BANC ONE
and each of its affiliate banks were categorized as well-capitalized and met all
capital adequacy requirements to which each respective entity is subject. There
are no conditions or events since December 31, 1997 that management believes
have changed any entity's capital category.
The actual and required capital amounts and ratios for BANC ONE and certain
significant banking affiliates are presented in the tables below:
<TABLE>
<CAPTION>
TO BE CATEGORIZED
ADEQUATELY
ACTUAL CAPITALIZED
------------------- ------------------
As of December 31, 1997 CAPITAL CAPITAL CAPITAL CAPITAL
$(millions) AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL RISK ADJUSTED CAPITAL (TO RISK WEIGHTED
ASSETS):
BANC ONE CORPORATION (consolidated) $13,409.3 13.11% $8,184.8 8.00%
Bank One, NA 2,688.2 10.62 2,025.5 8.00
Bank One, Arizona, NA 1,408.7 10.78 1,045.0 8.00
Bank One, Texas, NA 2,347.5 11.41 1,646.2 8.00
First USA Bank 1,382.3 13.11 843.6 8.00
TIER I CAPITAL (TO RISK WEIGHTED ASSETS):
BANC ONE CORPORATION (consolidated) 8,700.5 8.50 4,092.4 4.00
Bank One, NA 1,695.3 6.70 1,012.7 4.00
Bank One, Arizona, NA 883.2 6.76 522.5 4.00
Bank One, Texas, NA 1,507.2 7.32 823.1 4.00
First USA Bank 1,106.3 10.49 421.8 4.00
TIER I LEVERAGE (TO AVERAGE ASSETS):
BANC ONE CORPORATION (consolidated) 8,700.5 7.91 4,401.9 4.00
Bank One, NA 1,695.3 6.90 982.5 4.00
Bank One, Arizona, NA 883.2 6.10 579.2 4.00
Bank One, Texas, NA 1,507.2 6.80 886.9 4.00
First USA Bank $ 1,106.3 12.88% $ 343.6 4.00%
<CAPTION>
TO BE CATEGORIZED
ADEQUATELY
ACTUAL CAPITALIZED
------------------- ------------------
As of December 31, 1996 CAPITAL CAPITAL CAPITAL CAPITAL
$(millions) AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL RISK ADJUSTED CAPITAL (TO RISK WEIGHTED
ASSETS):
BANC ONE CORPORATION (consolidated) $13,482.2 14.07% $7,663.1 8.00%
Bank One, Arizona, NA 1,297.1 10.76 964.8 8.00
Bank One, Texas, NA 1,645.9 10.46 1,259.2 8.00
First USA Bank 1,394.2 23.73 470.1 8.00
TIER I CAPITAL (TO RISK WEIGHTED ASSETS):
BANC ONE CORPORATION (consolidated) 9,556.9 9.98 3,831.5 4.00
Bank One, Arizona, NA 999.7 8.29 482.4 4.00
Bank One, Texas, NA 1,502.0 9.54 629.6 4.00
First USA Bank 1,170.2 19.91 235.0 4.00
TIER I LEVERAGE (TO AVERAGE ASSETS):
BANC ONE CORPORATION (consolidated) 9,556.9 8.88 4,303.3 4.00
Bank One, Arizona, NA 999.7 7.25 551.6 4.00
Bank One, Texas, NA 1,502.0 7.37 815.2 4.00
First USA Bank $ 1,170.2 13.35% $ 350.5 4.00%
</TABLE>
BANC ONE CORPORATION and Subsidiaries
18
<PAGE>
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>
$(millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $688.9 35.0% $873.9 35.0% $760.7 35.0%
Increase (reduction) in tax rate
resulting from:
State income taxes, net of federal
income tax benefit 41.6 2.1 34.0 1.4 56.4 2.6
Tax exempt interest (53.8) (2.7) (54.6) (2.2) (50.9) (2.3)
Issuance of IRS regulations relating
to acquisition of troubled
financial institutions (22.3) (1.0)
Tax credits (12.3) (.6) (14.3) (.6) (8.1) (.4)
Other, net (1.8) (.1) (15.0) (.6) (7.5) (.4)
------ ---- ------ ---- ------ ----
Actual tax rate $662.6 33.7% $824.0 33.0% $728.3 33.5%
====== ==== ====== ==== ====== ====
<CAPTION>
Components of provision for income taxes follow:
$(millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred federal tax $414.6 $180.1 $155.5
Federal amount currently payable 184.0 591.6 486.1
Deferred state tax 49.7 9.2 17.6
State amount currently payable 14.3 43.1 69.1
------ ------ ------
Total provision $662.6 $824.0 $728.3
====== ====== ======
</TABLE>
Deferred tax assets and liabilities at December 31, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
$(millions) 1997 1996
- ------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for credit
losses $ 481.5 $ 446.3
Accrued liabilities 134.4 86.0
Other 159.3 81.7
-------- --------
775.2 614.0
-------- --------
DEFERRED TAX LIABILITIES:
Leased assets and
depreciation 1,335.1 959.2
Unrealized holding
gain on securities
available for sale 73.3 10.1
Securitization income 147.7 77.8
Other 291.1 111.4
-------- --------
1,847.2 1,158.5
-------- --------
Net deferred tax liability $1,072.0 $ 544.5
======== ========
</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>
$(millions) 1997 1996
- ---------------------------------------------
<S> <C> <C>
Other liabilities:
Federal deferred tax
liabilities $ 956.1 $482.1
State deferred tax
liabilities 115.9 62.4
-------- ------
Net deferred tax
liability $1,072.0 $544.5
======== ======
</TABLE>
Tax benefits of $100.4 million associated with the exercise of employee stock
options were allocated to equity in 1997. Amounts allocated to equity in prior
years were immaterial.
BANC ONE CORPORATION and Subsidiaries
19
<PAGE>
NOTE 13 OFF-BALANCE SHEET ACTIVITIES
The off-balance sheet financial instruments BANC ONE utilizes are primarily
interest rate swaps. Interest rate swap agreements generally involve the
exchange of fixed and floating rate interest payments without exchange of the
underlying notional amount on which interest payments are calculated. Interest
rate swap agreements that synthetically alter assets and liabilities are entered
into as part of a program to manage the impact of fluctuating interest rates.
The notional amounts of generic swaps do not change during the life of the swap
contract. The notional amounts and lives of amortizing swaps change based on
certain interest rate indices. Generally, as rates fall, the notional amounts of
received fixed amortizing swaps decline more rapidly and, as rates increase,
notional amounts decline more slowly. A key assumption in the maturity
information in the following table is that future variable rates move as
indicated by the forward interest rate curve in existence at December 31, 1997.
To the extent that rates move in a fashion other than indicated by the forward
interest rate curve, the maturity information will change. Basis swaps are
contracts under which amounts are generally received based on LIBOR, typically
subject to certain caps and paid based on prime. Accrual of interest on forward
starting swaps commences at predetermined future dates.
Purchased caps require the payment of a fee for the right to receive interest
payments on the contract notional amount when a floating rate (typically LIBOR)
rises above a strike rate. The impact on net interest income is the excess of
the floating rate over the strike rate less the periodic amortization of the
premium paid.
The notional amounts shown in the following table represent agreed upon amounts
on which calculations of interest payments to be exchanged are based. Notional
amounts do not represent direct credit exposures. Direct credit exposure is
limited to the net difference between the calculated pay and receive amounts on
each transaction, which is generally netted and paid or received quarterly, and
the ability of the counterparty to perform its payment obligation under the
agreement. BANC ONE has very stringent policies governing off-balance sheet
financial instrument activities and collateral is typically exchanged with the
counterparties to further minimize credit risk. The methods used to determine
counterparty and credit lines are formally reviewed and approved annually.
There were $6.8 million and $4.2 million of net deferred items primarily
representing premiums and other deferred items paid at December 31, 1997 and
1996, respectively. There were no past due payments, nor were there any reserves
for credit losses on off-balance sheet financial instruments, as of these dates.
Trading and dealer activities are not material and thus not separately
disclosed. The following table reflects the estimated maturities and weighted
average fixed and variable rates of off-balance sheet financial instruments by
type at December 31, 1997.
BANC ONE CORPORATION and Subsidiaries
20
<PAGE>
<TABLE>
<CAPTION>
MATURITIES OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
AT DECEMBER 31, 1997(1)(2)(3)
-----------------------------------------------------------------------------------------
2003-
$(millions) 1998 1999 2000 2001 2002 2007 2008+
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps:
Notional value $ 2,322.5 $ 3,375.0 $2,160.0 $2,290.0 $1,975.0 $ 3,554.5 $1,300.0
Weighted average
fixed rate received 5.97% 6.47% 6.29% 6.21% 6.78% 6.50% 7.15%
Weighted average
variable rate paid 5.87% 5.93% 5.83% 5.87% 5.81% 5.86% 5.82%
Receive fixed
amortizing swaps:
Notional value $ 423.1 $ 19.0 $ 150.1 $ .1
Weighted average
fixed rate received 5.59% 7.26% 5.54% 8.11%
Weighted average
variable rate paid 5.82% 6.18% 5.98% 5.77%
Pay fixed swaps:
Notional value $(1,321.9) $(1,097.2) $ (607.7) $ (359.2) $ (345.3) $(1,603.1) $ (8.7)
Weighted average
fixed rate paid 6.13% 6.18% 6.45% 6.12% 6.13% 6.34% 6.47%
Weighted average
variable rate
received 5.83% 5.87% 5.77% 5.85% 5.88% 5.85% 5.84%
Net receive fixed
position $ 1,423.7 $ 2,296.8 $1,702.4 $1,930.9 $1,629.7 $ 1,951.4 $1,291.3
Purchased caps
Notional value $ 1,004.3 $ .7 $ .7 $ 3.1 $ .6 $ 8.3
Basis swaps
Notional value $ 953.1 $ 439.4 $ 50.0 $ 211.0
Other (4)
Notional value $ 1,589.0 $ 310.0 $ 400.0 $ 200.0
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
$(millions) 1997 1996
- --------------------------------------------------
<S> <C> <C>
Receive fixed swaps:
Notional value $16,977.0 $12,727.3
Weighted average
fixed rate received 6.44% 5.90%
Weighted average
variable rate paid 5.86% 5.57%
Receive fixed
amortizing swaps:
Notional value $ 592.3 $ 2,056.0
Weighted average
fixed rate received 5.63% 5.35%
Weighted average
variable rate paid 5.87% 5.58%
Pay fixed swaps:
Notional value $(5,343.1) $(2,107.6)
Weighted average
fixed rate paid 6.24% 6.36%
Weighted average
variable rate
received 5.84% 5.61%
Net receive fixed
position $12,226.2 $12,675.7
Purchased caps
Notional value $ 1,017.7 $ 4,729.1
Basis swaps
Notional value $ 1,653.5 $ 1,972.6
Other (4)
Notional value $ 2,499.0 $ 2,055.6
</TABLE>
(1) Maturities are based on estimated future interest rates from the forward
interest rate curve at December 31, 1997.
(2) Variable receive and pay interest rates are based primarily on three month
LIBOR or prime.
(3) Includes trading off-balance sheet financial instruments; however, customer
transactions with notional amounts of $2.7 billion and $1.6 billion at
December 31, 1997 and 1996, respectively, have been excluded.
(4) Other off-balance sheet financial instruments include forward-starting
contracts ($900 million and $1.0 billion at December 31, 1997 and 1996,
respectively), futures, forwards and options.
Unrealized gains and losses on off-balance sheet financial instruments at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED GAIN (LOSS)
AS OF DECEMBER 31,
--------------------------
$(millions) 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Receive fixed swaps $280.7 $(27.8)
Receive fixed amortizing swaps (.3) (6.2)
Pay fixed swaps (31.6) (12.8)
Purchased caps (3.4) (8.0)
Basis swaps (2.8) (5.6)
Forward starting and other 11.8 9.6
------ ------
Total $254.4 $(50.8)
====== ======
</TABLE>
BANC ONE CORPORATION and Subsidiaries
21
<PAGE>
NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the estimated fair value of financial instruments
at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
$(millions) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 8,565.7 $ 8,565.7 $ 7,205.1 $ 7,205.1
Securities held to maturity 785.3 800.1 4,397.9 4,429.4
Securities available for sale (1) 14,476.1 14,476.1 14,741.5 14,741.5
Loans, net (2) 72,550.4 77,717.4 73,056.0 74,379.0
Securitization-related assets 520.7 520.7 339.7 339.7
FINANCIAL LIABILITIES:
Deposits 77,414.3 77,473.8 74,223.0 74,107.0
Short-term borrowings 13,803.9 13,803.9 18,325.4 18,325.4
Long-term borrowings 11,066.4 11,474.7 6,827.8 6,889.0
Off-balance sheet financial instruments 6.1 260.5 6.0 (44.8)
</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, an
$8.2 million loss and a $7.7 million loss at December 31, 1997 and 1996,
respectively.
(2) Excludes net leases with a carrying amount of $10.5 billion and $6.6
billion at December 31, 1997 and 1996, respectively, and includes loans
held for sale.
SFAS No. 107 requires BANC ONE to disclose the estimated fair value of certain
financial instruments such as securities, loans, deposits, swaps and other
instruments as prescribed. The estimated fair values disclosed do not reflect
the value of assets and liabilities that are not considered financial
instruments. In addition, the value of long-term relationships with depositors
(core deposit intangibles) and other customers (e.g. credit card intangibles),
and leases are not included in the scope of SFAS No. 107 and are therefore not
reflected. The value of these items is significant.
Fair value amounts represent estimates of value at a point in time. Significant
assumptions regarding economic conditions, loss experience, risk characteristics
associated with particular financial instruments and other factors were used for
the purposes of this disclosure. These assumptions are subjective and involve
matters of judgment. Therefore, they cannot be determined with precision.
Changes in the assumptions could have a material impact on the amounts
estimated. While these estimated fair value amounts are designed to represent
estimates of the amounts at which these instruments could be exchanged in a
current transaction between willing parties (excluding the value of customer
relationships), many of BANC ONE's financial instruments lack an available
trading market as characterized by willing parties engaged in an exchange
transaction. In addition, it is BANC ONE's intent to hold most of its financial
instruments to maturity; therefore, it is not probable that the fair values
shown will be realized in a current transaction.
Because of the wide range of valuation techniques and the numerous estimates
which must be made, it may be difficult to make reasonable comparisons of BANC
ONE's fair value information to that of other financial institutions. It is
important that the many uncertainties discussed above be considered when using
the estimated fair value disclosures and to realize that because of these
uncertainties, the aggregate fair value amount should in no way be construed as
representative of the underlying value of BANC ONE.
The following describes the methodology and assumptions used to estimate fair
value of financial instruments.
CASH AND SHORT-TERM INVESTMENTS-- Cash and short-term investments are by
definition short-term and do not present any unanticipated market risk.
Therefore, the carrying amount is a reasonable estimate of fair value.
BANC ONE CORPORATION and Subsidiaries
22
<PAGE>
SECURITIES -- The estimated fair values of securities by type are provided in
Note 4 to the financial statements. These are based on quoted market prices,
when available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS -- The loan portfolio was segmented based on loan type, credit quality and
repricing characteristics. For certain variable rate loans with no significant
credit concerns and frequent repricing, estimated fair values are based on the
carrying values. The fair values of other loans are estimated using discounted
cash flow analyses. The discount rates used in these analyses are generally
based on BANC ONE's funding cost plus a spread. The spread incorporates the
impact of credit quality, servicing costs and the cost of embedded options such
as prepayments and caps. Maturity estimates are based on historical experience
with prepayments and current economic and lending conditions. The estimated fair
value of credit card receivables is based on the present value of cash flows
arising from receivables outstanding and does not include the value associated
with the relationships BANC ONE has with its credit card customers.
DEPOSITS -- Under SFAS No. 107, the fair value of deposits with no stated
maturity is equal to the amount payable on demand. The estimated fair value of
fixed rate time deposits is based on discounted cash flow. The discount rates
used in these analyses are based on market rates of alternative funding sources
currently available for similar remaining maturities, adjusted for servicing and
deposit insurance costs.
SHORT-TERM BORROWINGS -- Short-term borrowings reprice frequently; therefore,
the carrying amount is a reasonable estimate of fair value.
LONG-TERM BORROWINGS -- For publicly traded debt, estimated fair values are
based on quoted market prices. Where such prices are not available, fair value
is estimated using quoted market prices for similar instruments or by discounted
cash flow analysis.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- Carrying values for off-balance sheet
financial instruments represent deferred amounts arising from these financial
instruments. Where possible, the fair values are based upon quoted market
prices.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND LETTERS OF CREDIT --
The carrying amounts are reasonable estimates of the fair value of these
financial instruments. Carrying amounts which are comprised of the unamortized
fee income and, where necessary, reserves for any expected credit losses from
these financial instruments, are immaterial.
NOTE 15 PLEDGED SECURITIES AND CONTINGENT LIABILITIES
As of December 31, 1997 and 1996, securities having a book value of $9.5 billion
and $9.8 billion, respectively, were pledged as collateral for repurchase
agreements, off-balance sheet investment products and as collateral for
governmental and trust department deposits in accordance with federal and state
requirements.
The Corporation's bank affiliates are required to maintain average balances with
the Federal Reserve Bank. The average required reserve balances were $.5 billion
for both 1997 and 1996.
The Corporation and certain of its affiliates have been named as defendants in
various legal proceedings. Management believes that liabilities arising from
these proceedings, if any, will not have a material adverse effect on the
consolidated financial position, liquidity or results of operations of BANC ONE.
BANC ONE CORPORATION and Subsidiaries
23
<PAGE>
NOTE 16 EMPLOYEE BENEFIT PLANS
BANC ONE has various non-contributory pension plans covering substantially all
employees. Through December 31, 1997, retirement benefits were based on length
of service and the employee's highest five years of compensation during the last
10 years of service. During 1997, the Board of Directors approved a change to a
cash balance plan that provides benefits to employees based on length of
service, level of compensation, and a specified interest rate. The change to a
cash balance plan will be effective January 1, 1998.
BANC ONE's funding policy is to contribute amounts necessary to meet the funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as the Company determines to be appropriate. The
following table sets forth the plans' funded status.
<TABLE>
<CAPTION>
$(millions) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$643.9 and $546.5 in 1997 and
1996, respectively $ 651.1 $ 567.3
------- -------
Projected benefit obligation for
service rendered to date 665.8 736.9
Plan assets at fair value 1,001.0 841.8
------- -------
Excess of plan assets over
projected benefit obligation 335.2 104.9
Unrecognized net gain from past
experience difference from that
assumed and effects of changes in
assumptions (116.8) (67.6)
Unrecognized prior service cost (159.3) (4.8)
Unrecognized net transition asset (9.1) (12.0)
------- -------
Prepaid pension cost $ 50.0 $ 20.5
======= =======
</TABLE>
The plan assets primarily consist of U.S. Treasury and Federal Agency securities
and mutual funds. Plan assets include 1.0 million shares of the Corporation's
common stock at both December 31, 1997 and 1996, as adjusted for the 10% common
stock dividend. The fair value of the Corporation's common stock held as plan
assets was $50 million and $40 million at December 31, 1997 and 1996,
respectively. Dividends received by the plans on the Corporation's common stock
totaled $1 million in 1997 and 1996.
Net periodic pension cost for 1997, 1996 and 1995 included the following:
<TABLE>
<CAPTION>
$(millions) 1997 1996 1995
- -----------------------------------------------------
<S> <C> <C> <C>
Service
cost -- benefits
earned during the
period $ 40.2 $ 52.1 $ 38.1
Interest cost on
projected benefit
obligation 47.9 52.6 44.0
Actual (return) loss
on plan assets (166.1) (106.0) (102.1)
Net amortization and
deferral 81.9 35.7 42.6
------- -------- --------
Net periodic pension
cost $ 3.9 $ 34.4 $ 22.6
======= ======== ========
Actuarial assumptions:
Weighted average
discount rate for
projected benefit 7.50%
obligation 7.00% 7.50% to 8.50%
Weighted average rate
of compensation 5.00%
increase 5.00% 5.00% to 6.00%
Expected long-term
rate of return on 8.50% 8.50%
plan assets 9.25% to 9.00% to 9.00%
</TABLE>
Accrued pension cost for BANC ONE's nonqualified, unfunded supplemental pension
plans was $37 million and $33 million, respectively, at December 31, 1997 and
1996. The accumulated benefit obligation for nonqualified plans was $35 million,
$16 million and $14 million for the years ended December 31, 1997, 1996 and
1995, respectively. Such plans have no assets. The assumed rates used in the
actuarial computations were the same as those used in the qualified plan
computations.
BANC ONE CORPORATION and Subsidiaries
24
<PAGE>
POSTRETIREMENT BENEFITS OTHER THAN PENSION
BANC ONE currently sponsors a defined benefit postretirement plan that covers
salaried employees. The plan provides medical, dental and life insurance
benefits. Benefits are available to retired employees with more than 10 years of
service who retire under the normal or early retirement provisions of the BANC
ONE Retirement Plan. The medical and dental benefits are contributory, while the
life insurance is noncontributory.
BANC ONE funds retiree medical benefits to the extent such benefits are
deductible for federal income tax purposes; however, these assets are not
restricted as to use for such benefits and, therefore, do not meet the
definition of plan assets.
The following table sets forth the status of BANC ONE's postretirement benefit
obligation at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
$(millions) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ (98.5) $ (87.4)
Fully eligible active plan
participants (15.5) (29.0)
Other active plan participants (43.0) (38.9)
------- -------
Accumulated postretirement benefit
obligation in excess of plan
assets (157.0) (155.3)
Unrecognized net loss 4.7 5.4
Unrecognized transition obligation 84.4 90.0
------- -------
Accrued postretirement benefit cost $ (67.9) $ (59.9)
======= =======
</TABLE>
Net periodic cost for postretirement health care and life insurance benefits
during 1997, 1996 and 1995 include the following:
<TABLE>
<CAPTION>
$(millions) 1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period $ 4.1 $ 3.7 $ 3.0
Interest cost on accumulated
postretirement benefit
obligation 11.2 8.5 8.6
Amortization of unrecognized
transition obligation 5.6 5.6 5.6
Amortization of unrecognized net
loss (.4) (1.1)
----- ----- -----
Net periodic postretirement
benefit cost $20.9 $17.4 $16.1
===== ===== =====
</TABLE>
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation at December 31, 1997, 1996 and 1995 were
7.00%, 7.50% and 7.50%, respectively.
For measurement purposes, a 8.0% annual rate of increase in the cost of covered
health care benefits was assumed for 1998; the rate was assumed to decrease
gradually to 5.0% in the year 2000 and thereafter. A one-percentage point
increase in the health care cost trend rate in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1997 by $17.1
million, or 10.9%, and would increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit cost for 1997 by
$1.4 million or 9.0%.
BANC ONE sponsors various 401(k) plans which include substantially all of its
employees. BANC ONE is required to make contributions to the plans in varying
amounts. For 1997, 1996 and 1995, the expense related to these plans was $26
million, $19 million and $8 million, respectively.
NOTE 17 STOCK-BASED COMPENSATION PLANS
BANC ONE applies APB No. 25 and related interpretations in accounting for its
stock-based compensation plans. In accordance with SFAS No. 123, BANC ONE
elected to continue to apply the provisions of APB No. 25. However, pro forma
disclosures as if BANC ONE adopted the cost recognition provisions of SFAS No.
123 in 1995 are required and are presented below along with a summary of the
plans and awards.
The Corporation's stock option plans provide for the granting of options to
purchase common shares to certain employees. Generally, the stock option plans
provide for the granting of incentive and nonqualified stock options and stock
awards for up to an aggregate of 1% of the outstanding common stock of the
Corporation as reported in the Corporation's Annual Report on Form 10-K for the
year ending immediately prior to such years plus carry over of certain shares
not granted in prior years as defined by the
BANC ONE CORPORATION and Subsidiaries
25
<PAGE>
plans. Further, the total number of shares available for grants of stock awards
in any year shall not exceed one fourth of 1% of the Corporation's outstanding
common stock as so reported. Based on December 31, 1996 outstanding shares,
approximately 7.9 million shares of the Corporation's common stock were
available for grant in 1997. In 1997, .7 million shares were granted as stock
awards.
The plans generally provide that the exercise price of any stock option may not
be less than the fair market value of the common stock on the date of grant. No
balance sheet recognition is made of options until such options are exercised
and no amounts applicable thereto are reflected in net income. Under the plans,
the awards vest over a period of years and expense is recognized over the
vesting period. Options are not exercisable for at least one year from the date
of grant and are thereafter exercisable for such periods as the Board of
Directors, or a committee thereof, specify (which may not exceed 10 years for
incentive stock options or 20 years for nonqualified stock options), provided
that the optionee has remained in the employment of the Corporation or its
affiliates. The Board or the committee may accelerate the exercise period for an
option upon the optionee's disability, retirement or death. All options expire
at the end of the exercise period. Options of acquired entities are converted to
BANC ONE options at the time of acquisition.
The following summarizes the Corporation's stock options as of December 31,
1997, 1996 and 1995, and the changes for the years then ended:
<TABLE>
<CAPTION>
1997
--------------------------
NUMBER OF WGTD. AVG.
(shares in thousands) SHARES EXERCISE PRICE
- -------------------------------------------------
<S> <C> <C>
Outstanding at the
beginning of
the year 22,398.8 $18.47
Granted 6,878.6 43.00
Exercised 8,696.4 12.21
Forfeited 734.4 33.55
Expired 51.0 25.21
---------
Outstanding at the
end of the year 19,795.6 29.16
---------
Exercisable at the
end of the year 6,552.1 $17.65
---------
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------
NUMBER OF WGTD. AVG.
(shares in thousands) SHARES EXERCISE PRICE
- --------------------------------------------------
<S> <C> <C>
Outstanding at the
beginning of
the year 20,988.5 $14.81
Granted 6,480.6 24.23
Exercised 3,929.7 7.43
Forfeited 1,135.4 22.97
Expired 5.2 8.91
--------
Outstanding at the
end of the year 22,398.8 18.41
========
Exercisable at the
end of the year 8,734.4 $10.36
========
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------
NUMBER OF WGTD. AVG.
(shares in thousands) SHARES EXERCISE PRICE
- --------------------------------------------------
<S> <C> <C>
Outstanding at the
beginning of the
year 18,647.4 $12.22
Granted 5,951.8 20.34
Exercised 2,813.6 7.49
Forfeited 789.7 22.35
Expired 7.4 30.49
--------
Outstanding at the
end of the year 20,988.5 14.77
========
Exercisable at the
end of the year 9,221.4 $ 7.32
========
</TABLE>
BANC ONE CORPORATION and Subsidiaries
26
<PAGE>
The following summarizes information about the Corporation's stock options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
SHARES SUBJECT TO
OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ---------------------------
OPTIONS WGTD. AVG.
SHARES REMAINING WGTD. AVG. NUMBER WGTD. AVG.
RANGE OF OUTSTANDING CONTRACTURAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE (in thousands) LIFE Price (IN THOUSANDS) PRICE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than $2.16 702.6 4.30 $ 1.80 702.6 $ 1.80
$2.16 -- $5.13 4.0 3.13 5.13 4.0 5.13
$7.74 -- $11.29 671.0 4.86 8.74 655.6 8.75
$11.77 -- $17.25 2,007.4 6.49 15.49 1,724.6 15.24
$17.50 -- $25.85 5,019.1 9.51 22.23 2,891.3 20.70
Greater than $25.99 11,391.5 14.45 $37.53 547.0 $39.18
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model, which was developed to estimate
the fair value of traded options and which requires the use of highly subjective
assumptions. Since BANC ONE's stock options have different characteristics than
traded options and since changes in the assumptions used can materially impact
the fair value estimate, the Black-Scholes model may not necessarily be a
reliable measure of the fair market value of BANC ONE's stock options.
The following assumptions were used for grants in 1997, 1996 and 1995: (1)
expected dividend yields ranged from .33% to 5.55%; (2) risk-free interest rates
ranged from 5.48% to 7.92%; (3) expected volatility ranged from 20.21% to
32.95%; and (4) expected life of options ranged from five to nine years. The
weighted average fair value at date of grant for options granted during 1997 and
1996 and 1995 was $11.51, $6.54 and $4.34 per option, respectively.
Had the compensation cost for the Corporation's stock-based compensation plans
been determined in accordance with the fair value based accounting method
provided by SFAS No. 123, the net income and net income per common share for the
years ended December 31, 1997, 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$(millions, except per share --------------------------- --------------------------- ---------------------------
amounts) PRO FORMA (1) AS REPORTED PRO FORMA (1) AS REPORTED PRO FORMA (1) AS REPORTED
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $1,288.1 $1,305.7 $1,664.9 $1,672.8 $1,443.0 $1,445.2
Net income per common share,
basic 2.01 2.04 2.58 2.60 2.26 2.26
Net income per common share,
diluted $ 1.97 $ 1.99 $ 2.50 $ 2.52 $ 2.20 $ 2.20
</TABLE>
(1) The above pro forma information may not be representative of the pro forma
impact in future years.
NOTE 18 RELATED PARTY TRANSACTIONS
Certain executive officers, directors and their related interests are loan
customers of the Corporation's affiliates. The Securities and Exchange
Commission ("SEC") has determined that, with respect to the Corporation and
significant subsidiaries (as defined by the SEC), disclosure of borrowings by
directors and executive officers and certain of their related interests should
be made if the loans are greater than 5% of stockholders' equity, in the
aggregate. These loans in aggregate were not greater than 5% of stockholders'
equity at December 31, 1997 or 1996.
BANC ONE CORPORATION and Subsidiaries
27
<PAGE>
NOTE 19 SUPPLEMENTAL DISCLOSURES FOR EARNINGS PER SHARE
<TABLE>
<CAPTION>
$(millions, except for per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC:
EARNINGS:
Net income $1,305.7 $1,672.8 $1,445.2
Deduct: Dividends on preferred shares (17.8) (27.8) (28.9)
-------- -------- --------
$1,287.9 $1,645.0 $1,416.3
======== ======== ========
SHARES:
Weighted average common shares outstanding, reflecting
the 10% common stock dividend-See Note 10 632.4 632.5 626.2
======== ======== ========
NET INCOME PER COMMON SHARE, BASIC $ 2.04 $ 2.60 $ 2.26
======== ======== ========
DILUTED:
EARNINGS:
Net income $1,305.7 $1,672.8 $1,445.2
======== ======== ========
SHARES:
Weighted average common shares outstanding 632.4 632.5 626.2
Add: Dilutive effect of outstanding options 10.6 9.5 8.1
Add: Conversion of preferred stock 12.7 22.3 22.8
-------- -------- --------
Weighted average common shares outstanding, as adjusted,
reflecting the 10% common stock dividend-See Note 10 655.7 664.3 657.1
======== ======== ========
NET INCOME PER COMMON SHARE, DILUTED $ 1.99 $ 2.52 $ 2.20
======== ======== ========
</TABLE>
NOTE 20 SUPPLEMENTAL DISCLOSURES FOR STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
$(millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock issued in purchase acquisitions $ 538.4 $ 710.5 $ 15.7
======== ======== ========
Transfer from loans to Other Real Estate Owned (OREO) $ 161.7 $ 82.0 $ 91.2
======== ======== ========
Securitized mortgage loans $1,426.8
========
Reclassification of private placements from loans to
securities $ 533.1
========
Reclassification of held-to-maturity securities to
available-for-sale securities at amortized cost (fair
value of $3,589.9 and $2,934.5 for 1997 and 1995,
respectively) $3,589.3 $2,883.7
======== ========
Net increase in securities trades not settled $ (355.2) $ (140.4) $ 185.0
======== ======== ========
Loans issued to facilitate the sale of OREO properties $ 3.7 $ 2.5 $ 7.2
======== ======== ========
Additional disclosures:
Interest paid $3,979.9 $3,632.7 $3,256.1
======== ======== ========
Income taxes paid $ 196.7 $ 580.7 $ 453.6
======== ======== ========
</TABLE>
BANC ONE CORPORATION and Subsidiaries
28
<PAGE>
NOTE 21 PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of the Corporation, prepared on a parent
company unconsolidated basis, are presented as follows:
BALANCE SHEET (PARENT ONLY)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
$(millions) 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in majority-owned affiliates:
Banking $ 7,770.4 $10,369.3
Nonbanking 2,335.9 549.8
Advances due from affiliates:
Banking 1,980.0 125.0
Nonbanking 3,386.9 2,254.1
Other assets 464.2 591.5
--------- ---------
TOTAL ASSETS $15,937.4 $13,889.7
========= =========
LIABILITIES:
Commercial paper and other short-term borrowings $ 438.6 $ 1,616.3
Notes payable to nonbanking affiliates 55.2 58.5
Long-term borrowings 4,867.5 2,204.2
Other liabilities 200.1 142.7
--------- ---------
TOTAL LIABILITIES 5,561.4 4,021.7
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 10,376.0 9,868.0
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,937.4 $13,889.7
========= =========
</TABLE>
BANC ONE CORPORATION and Subsidiaries
29
<PAGE>
STATEMENT OF INCOME (PARENT ONLY)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
$(millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Dividends from affiliates:
Banking $3,299.8 $1,108.1 $1,129.4
Nonbanking 115.5 65.1
Management and other fees from affiliates 588.6 180.7 116.6
Interest 196.6 137.6 128.4
Other 17.7 5.5 8.9
-------- -------- --------
TOTAL INCOME 4,218.2 1,497.0 1,383.3
-------- -------- --------
EXPENSE:
Interest 341.1 207.7 183.5
Other 677.7 396.1 214.7
-------- -------- --------
TOTAL EXPENSE 1,018.8 603.8 398.2
-------- -------- --------
Income before income taxes and equity in
undistributed earnings of consolidated affiliates 3,199.4 893.2 985.1
Income tax benefit .8 132.6 55.0
-------- -------- --------
Income before equity in undistributed earnings of
consolidated affiliates 3,200.2 1,025.8 1,040.1
Equity in undistributed earnings of consolidated
affiliates (1,894.5) 647.0 405.1
-------- -------- --------
NET INCOME $1,305.7 $1,672.8 $1,445.2
-------- -------- --------
NET INCOME PER COMMON SHARE, BASIC
(amounts reflect the 10% common stock
dividend-Note 10) $ 2.04 $ 2.60 $ 2.26
-------- -------- --------
NET INCOME PER COMMON SHARE, DILUTED
(amounts reflect the 10% common stock
dividend-Note 10) $ 1.99 $ 2.52 $ 2.20
======== ======== ========
</TABLE>
BANC ONE CORPORATION and Subsidiaries
30
<PAGE>
STATEMENT OF CASH FLOWS (PARENT ONLY)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
$(millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,305.7 $1,672.8 $1,445.2
Adjustments:
Equity in undistributed earnings of consolidated
affiliates 1,894.5 (647.0) (405.1)
Noncash dividends received (115.5) (62.6) (54.6)
Other (47.3) (48.1) (23.4)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,037.4 915.1 962.1
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Net (increase) decrease in short-term investments (31.3) (12.0) 464.3
Net increase in loans (2,987.9) (672.8) (498.4)
Net increase in investment in majority-owned affiliates (115.2) (406.8) 3.7
All other investing activities, net (55.2) (71.5) (82.7)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,189.6) (1,163.1) (113.1)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net (decrease) increase in commercial paper (1,177.7) 1,055.9 (623.4)
Net increase (decrease) in short-term borrowings (3.3) 9.1 52.5
Proceeds from the issuance of long-term borrowings 2,840.6 696.0 590.2
Cash dividends paid (801.1) (635.0) (572.1)
Purchase of treasury shares (707.3) (1,003.1) (324.3)
Exercise of stock options, net of shares purchased 26.6 16.8 6.5
All other financing activities, net (60.0) 126.1 37.0
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 117.8 265.8 (833.6)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS (34.4) 17.8 15.4
CASH AND CASH EQUIVALENTS AT JANUARY 1, 43.2 25.4 10.0
-------- -------- --------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, $ 8.8 $ 43.2 $ 25.4
======== ======== ========
</TABLE>
BANC ONE CORPORATION and Subsidiaries
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON CONSOLIDATED FINANCIAL STATEMENTS
To the Stockholders and the Board of Directors
BANC ONE CORPORATION
We have audited the accompanying consolidated balance sheets of BANC ONE
CORPORATION and Subsidiaries as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BANC ONE
CORPORATION and Subsidiaries at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand, L.L.P
Columbus, Ohio
February 12, 1998
BANC ONE CORPORATION and Subsidiaries
32
