UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20987
Grand Premier Financial, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-4077455
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
486 West Liberty, Wauconda, IL 60084
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (847) 487-1818
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by a check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to form 10-K. X
The number of shares of the registrant's Common Stock outstanding on
February 29, 2000 was 22,379,955 shares. The aggregate market value of the
registrant's Common Stock held by nonaffiliates of the registrant as of
February 29, 2000, based upon the closing sales price at this date was
$140,523,174.
DOCUMENTS INCORPORATED BY REFERENCE
None.
No. of Pages Sequentially Numbered: 84
Exhibit Index is on Page 81
PART I
Item 1. Business
Operations of the Company
Grand Premier Financial, Inc. (the "Company") is a registered bank
holding company organized in 1996 under Delaware law. The Company is the
surviving corporation from the merger, effective August 22, 1996, of
Northern Illinois Financial Corporation and Premier Financial
Services, Inc. The operations of the Company and its subsidiaries consist
primarily of those financial activities, including trust and investment
services, common to the commercial banking industry. The Company operates
as a single segment and, unless the context otherwise requires, the term
"Company" as used herein includes Grand Premier Financial, Inc. and its
subsidiaries on a consolidated basis.
The primary function of the Company is to coordinate the policies and
operations of its subsidiaries in order to improve and expand their
services and effect economies in their operations by joint efforts in
certain areas such as auditing, training, marketing, and business
development. The Company also provides operational and data processing
services for its subsidiaries. All services and counsel to subsidiaries
are provided on a fee basis, with fees based upon fair market value.
Proposed Merger of the Company
The Company signed a definitive agreement on September 9, 1999
providing for the merger of the Company into a wholly-owned subsidiary of
Old Kent Financial Corporation ("Old Kent"). The merger is intended to be
structured as a pooling-of-interests for accounting purposes and as a tax-
free exchange of shares. Under the terms of the merger agreement, each
share of the Company's common stock will be converted into 0.4231 shares of
Old Kent common stock, and each share of the Company's preferred stock will
be converted into one share of Old Kent Preferred Stock with substantially
identical terms.
The Company's common stockholders approved the merger at a special
meeting of stockholders on February 22, 2000. Federal Reserve Board
approval was obtained on March 6, 2000. The merger is expected to become
effective early in the second quarter of 2000.
Operations of the Company's Subsidiaries
During the first half of 1997, the Company's then existing banking
subsidiaries, consisting of First Bank North, First Bank South, First
National Bank of Northbrook, First Security Bank of Cary Grove and Grand
National Bank were combined into the single charter of Grand National Bank.
Although chartered as a commercial bank, the offices of Grand National Bank
serve as general sales offices providing a full array of financial services
and products to individuals, businesses, local governmental units and
institutional customers throughout northern Illinois. Banking services
include those generally associated with the commercial banking industry
such as demand, savings and time deposits, loans to commercial,
agricultural and individual customers, cash management, electronic funds
transfers and other services tailored for the client. Grand National Bank
has banking offices located in Cary, Crete, Crystal Lake, DeKalb, Dixon,
Freeport, Gurnee, Island Lake, Mokena, Mundelein, Niles, Northbrook,
Rockford, South Chicago Heights, Sterling, Wauconda, Waukegan and
Woodstock, Illinois.
Grand Premier Trust and Investment, Inc., a wholly owned subsidiary
of Grand National Bank, provides a full line of fiduciary and investment
services throughout the Company's general market area.
GNB Management, LLC, a wholly owned subsidiary of Grand National
Bank, provides management services to its majority owned subsidiary GNB
Realty, LLC, a real estate investment trust.
Grand Premier Insurance Services, Inc., a direct subsidiary of the
Company, is a full line casualty and life insurance agency. Grand Premier
Operating Systems, Inc. ("GPOS"), is also a direct subsidiary of the
Company. GPOS provides data processing and operational services to the
Company and its subsidiaries.
American Suburban Mortgage Corporation ("ASMC"), a direct subsidiary
of the Company, was established to engage in secondary mortgage operations.
ASMC is currently inactive, with secondary mortgage operations performed by
the banking subsidiary.
Competition
Active competition exists in all principal areas where the Company
and its subsidiaries are engaged, not only with commercial banking
organizations, but also with savings and loan associations, finance
companies, mortgage companies, credit unions, brokerage houses and other
providers of financial services. The Company has seen the level of
competition and number of competitors in its markets increase in recent
years and expects a continuation of these aggressively competitive market
conditions.
To gain a competitive market advantage, the Company relies on a
strategic marketing plan that is employed throughout the Company, reaching
every level of its sales force. The marketing plan includes the
identification of target markets and customers so that the Company's
resources, both financial and manpower, can be utilized where the greatest
opportunities for gaining market share exist. The Company seeks to
differentiate itself from its competitors by devoting individualized
attention to the needs of its customers. This focus on fulfilling a
customer's financial needs generally results in long-term customer
relationships.
Banking deposits are well balanced, with a large customer base and no
dominant accounts in any category. The Company's loan portfolio is also
characterized by a large customer base, balanced between loans to
individuals and commercial and agricultural customers, with no dominant
relationships. There is no readily available source of information which
delineates the market for financial services, including services offered by
non-bank competitors, in the company's market area.
Supervision and Regulation
Overview of the Regulation of the Company and its Subsidiaries. Bank
holding companies, banks and financial institutions generally are highly
regulated, with numerous federal and state laws and regulations governing
their activities. The Company is a registered bank holding company under
the Bank Holding Company Act ("BHCA".) As such, the Company is required to
file with the Federal Reserve Board periodic reports and such additional
information as the Federal Reserve Board may require. It also is subject
to the supervision of, and examination by, the Federal Reserve Board.
Grand National Bank is a national bank chartered under the laws of
the United States and is subject to the supervision of, and examination by,
the Office of the Comptroller of the Currency ("OCC"), its primary
regulator. The OCC regularly examines such areas as reserves, loans,
investments, management practices and other aspects of Grand National
Bank's operations. Grand National Bank must also furnish to the OCC
quarterly reports containing full and accurate statements of its affairs.
All national banks are members of the Federal Reserve System and subject to
the applicable provisions of the Federal Reserve Act and to regular
examination by the Federal Reserve Bank of their district, in this case the
Federal Reserve Bank of Chicago.
Grand Premier Trust and Investment, Inc., is a trust company which is
chartered as a national banking association under the laws of the United
States and is subject to the supervision of, and examination by, the Office
of the Comptroller of the Currency.
The deposits of Grand National Bank, subject to FDIC limitations, are
insured by insurance funds maintained by the FDIC. As a result, Grand
National Bank is also subject to the provisions of the Federal Deposit
Insurance Act and to examination by the FDIC. The examinations of the
various regulatory agencies are designed for the protection of bank
depositors and not for stockholders of banks or their holding companies.
The following references to material statutes and regulations
affecting the Company and its subsidiaries are brief summaries thereof and
are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a
material effect on the business of the Company and its subsidiaries.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton
signed into law the Gramm-Leach-Bliley Act (the GLB Act). The GLB Act
significantly changes financial services regulation by expanding
permissible nonbanking activities of bank holding companies and removing
barriers to affiliations among banks, insurance companies, securities firms
and other financial services entities. These new activities can be
conducted through a holding company structure or, subject to certain
limitations, through a financial subsidiary of a bank. The GLB Act also
establishes a system of federal and state regulation based on functional
regulation, meaning that primary regulatory oversight for a particular
activity will generally reside with the federal or state regulator
designated as having the principal responsibility for that activity.
Banking is to be supervised by banking regulators, insurance by state
insurance regulators and securities activities by the SEC and state
securities regulators. The GLB Act also establishes a minimum federal
standard of financial privacy by, among other provisions, requiring banks
to adopt and disclose privacy policies with respect to customer information
and prohibiting the disclosure of certain types of customer information to
third parties not affiliated with the bank unless the customer has been
given an opportunity to block that type of disclosure. The GLB Act also
requires the disclosure of agreements reached with community groups that
relate to the Community Reinvestment Act, and contains various other
provisions designed to improve the delivery of financial services to
consumers while maintaining an appropriate level of safety in the financial
services industry.
The GLB Act repeals the anti-affiliation provisions of the
Glass-Steagall Act and revises the BHCA to permit qualifying holding
companies, called "financial holding companies, " to engage in, or to
affiliate with companies engaged in, a full range of financial activities
including banking, insurance activities (including insurance underwriting
and portfolio investing), securities activities, merchant banking and
additional activities that are "financial in nature," incidental to
financial activities or, in certain circumstances, complementary to
financial activities. A bank holding company's subsidiary banks must be
"well-capitalized" and "well-managed" and have at least a "satisfactory"
Community Reinvestment Act rating for the bank holding company to elect
status as a financial holding company. The Company has not elected to
become a financial holding company.
The Company expects that the new affiliations and activities
permitted financial services organizations will over time change the nature
of its competition. At present, however, it is not possible to predict the
full nature and effect of the changes that may occur.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act"). The Interstate Act permits an adequately
capitalized and adequately managed bank holding company to acquire, with
Federal Reserve Board approval, a bank located in a state other than the
bank holding company's home state, without regard to whether the
transaction is permitted under any state law, except that a host state may
establish by statute the minimum age of its banks (up to a maximum of 5
years) that are subject to acquisition by out-of-state bank holding
companies. The Federal Reserve Board may not approve the acquisition if the
applicant bank holding company, upon consummation, would control more than
10% of total U.S. insured depository institution deposits or more than 30%
of the host state's total insured depository institution deposits, except
in certain cases. The Interstate Act also permits a bank, with the approval
of the appropriate federal bank regulatory agency, to establish a de novo
branch in a state, other than the bank's home state, in which the bank does
not presently maintain a branch if the host state has enacted a law that
applies equally to all banks and expressly permits all out-of-state banks
to branch de novo into the host state. Banks having different home states
may, with approval of the appropriate federal bank regulatory agency, merge
across state lines, unless the home state of a participating bank opted-out
of the Interstate Act prior to June 1, 1997. Two states opted-out prior to
that date: Montana and Texas. In addition, the Interstate Act permits any
bank subsidiary of a bank holding company to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and
other obligations as agent for a bank or certain grandfathered thrift
affiliates, whether such banks and thrifts are located in a different state
or in the same state.
Regulation of the Company under the BHCA. As a bank holding company,
the Company is subject to the BHCA. The BHCA requires prior Federal
Reserve Board approval for, among other things, the acquisition by a bank
holding company of direct or indirect ownership or control of more than
five percent (5%) of the voting shares or substantially all the assets of
any bank, or for a merger or consolidation of a bank holding company with
another bank holding company. With certain exceptions, the BHCA prohibits
a bank holding company from acquiring direct or indirect ownership or
control of voting shares of any company which is not a bank or bank holding
company and from engaging directly or indirectly in any activity other than
banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the
Federal Reserve Board has determined by regulation or order to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereto.
Regulation of Transactions between the Company and its Affiliates.
A bank holding company is a legal entity separate and distinct from its
subsidiary bank or banks. Normally, the major source of a bank holding
company's revenue is the dividends it receives from its subsidiary banks.
The right of a bank holding company to participate as a stockholder in any
distribution of assets of its subsidiary banks upon their liquidation or
reorganization or otherwise is subject to the prior claims of creditors of
such subsidiary banks,including deposit liabilities.
Federal laws limit the transfer of funds by a subsidiary bank to its
holding company and the non-bank subsidiaries of the holding company
("affiliates") in the form of loans or extensions of credit, investments in
stock or other securities of the bank holding company or its other
subsidiaries or advances to any borrower collateralized by such stock or
other securities. Transfers of this kind are limited to 10 percent of a
bank's capital and surplus with respect to each affiliate and to 20 percent
with respect to all affiliates in the aggregate and are also subject to
certain collateral requirements. These transactions, as well as other
transactions between a subsidiary bank and its holding company and other
affiliates, must also be on terms substantially the same as, or at least as
favorable as, those prevailing at the time for comparable transactions with
non-affiliated companies or, in the absence of comparable transactions, on
terms or under circumstances, including credit standards, that would be
offered to, or would apply to, non-affiliated companies.
Regulation of the Company's Subsidiaries. The federal and state laws
and regulations generally applicable to banks regulate, among other things,
the scope of a bank's business, allowable investments, required reserves
against deposits, loans and collateral, establishment of branch offices and
activities performed at such offices. These laws and regulations are
generally designed for the protection of bank depositors and not the
stockholders of the bank.
A national bank, such as Grand National Bank, may not pay a dividend
in any calendar year in excess of its net profits for the current year plus
its adjusted retained profits for the two prior years, unless it obtains
OCC approval. Net profits from which dividends may be paid must be
adjusted for losses and the amount of statutory bad debts in excess of the
balance of the bank's allowance for possible credit losses. "Bad debts"
are generally defined to include the principal amounts of loans which are
in arrears with respect to interest by six months or more unless such loans
are well secured and in the process of collection.
Grand National Bank is also subject to the Community Reinvestment Act
(the "CRA"). The CRA is intended to encourage banks and thrifts to help
meet the credit needs of their entire communities, including low- and
moderate-income neighborhoods, consistent with safe and sound lending
practices. Under the CRA, the federal banking agencies take into account a
financial institution's record of helping to meet the credit needs of its
entire community when evaluating various types of applications, such as
applications for branches, office relocations, mergers, consolidations, and
purchase and assumption transactions, and may deny or condition approval of
an application on the basis of an institution's record. All depository
institutions are reviewed and rated by their primary federal bank
regulator. In reviewing applications by bank holding companies, the Federal
Reserve Board takes into account the record of compliance of a holding
company's subsidiary banking institutions with the CRA.
Capital Regulation. The various federal bank regulators, including
the Federal Reserve Board and the OCC, have adopted risk-based capital
requirements for assessing bank holding company and bank capital adequacy.
The capital standards (including the definitions of Tier 1 Capital and Tier
2 Capital) established by the OCC (for national banks such as Grand
National Bank) are substantially the same as those established by the
Federal Reserve Board (for bank holding companies such as the Company.
These standards significantly revise the definition of capital and
establish minimum capital standards in relation to assets and off-balance
sheet exposures, as adjusted for credit risks. For bank holding companies,
Tier 1 or "core" capital consists of common shareholders' equity, perpetual
preferred stock (subject to certain limitations) and minority interests in
the common equity accounts of consolidated subsidiaries and is reduced by
goodwill and certain investments in other corporations ("Tier 1 Capital").
Tier 2 capital consists of (subject to certain conditions and limitations)
the allowance for possible credit losses, perpetual preferred stock,
"hybrid capital instruments," perpetual debt and mandatory convertible debt
securities, and term subordinated debt and intermediate-term preferred
stock ("Tier 2 Capital").
Under the risk-adjusted capital standards, a minimum total capital to
total risk-weighted assets ratio of eight percent (8%) is required, and
Tier 1 Capital must be at least 50 percent of total capital. The Federal
Reserve Board also has adopted a minimum leverage ratio of Tier 1 Capital
to quarterly average total assets of three percent (3%) for the most
highly-rated institutions, with all other institutions required to maintain
a minimum leverage ratio of four percent (4%). The three percent Tier 1
Capital to total assets ratio constitutes the leverage standard for bank
holding companies and is used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations.
The federal banking agencies have emphasized that the foregoing
standards are supervisory minimums and that an institution would be
permitted to maintain such minimum levels of capital only if it were rated
in the highest category under the regulatory rating systems for bank
holding companies and banks. All other bank holding companies and banks
are required to maintain a minimum leverage ratio of 4 percent. These
rules further provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain capital
positions substantially above the minimum supervisory levels and comparable
to peer group averages, without significant reliance on intangible assets.
The Federal Reserve Board continues to consider a "tangible Tier 1 leverage
ratio" in evaluating proposals for expansion or new activities. The
tangible Tier 1 leverage ratio is the ratio of a banking organization's
Tier 1 Capital, less all intangibles, to total assets, less all
intangibles.
The Company and Grand National Bank exceed the regulatory capital
guidelines as currently defined. For additional information regarding the
capital ratios of the Company and its banking subsidiary, see Note 10 to
the Company's financial statements included in Item 8 of this report.
Federal Deposit Insurance Corporation Improvement Act. The Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") imposed
relatively detailed standards and mandated the development of additional
regulations governing nearly every aspect of the operations, management and
supervision of banks and bank holding companies. It also significantly
enhanced the authority of bank regulators to intervene in the cases of
deterioration of a bank's capital level. FDICIA requires that the banking
regulators take prompt corrective action with respect to depository
institutions that fall below certain capital levels and prohibits any
depository institution from making any capital distribution that would
cause it to be considered undercapitalized. Regulations adopted pursuant
to FDICIA established five capital categories: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized. Institutions that are not adequately
capitalized may be subjected to a broad range of restrictions on their
activities and will be required to submit a capital restoration plan which,
to be accepted by the regulators, must be guaranteed in part by any company
having control of the institution. Only well-capitalized institutions and
adequately capitalized institutions receiving a waiver from the FDIC will
be permitted to accept brokered deposits, and only those institutions
eligible to accept brokered deposits may provide pass-through deposit
insurance for participants in employee benefit plans.
Deposit Insurance Assessments. Deposits of Grand National Bank are
insured by the FDIC primarily under the Bank Insurance Fund ("BIF"). The
FDIC's deposit insurance premiums are assessed using a risk-based system
under which all insured depository institutions are placed into one of nine
categories based upon their level of capital and supervisory evaluation.
Assessment rates range from $0.00 to $0.27 per $100 of deposits. Grand
National Bank, for deposit insurance assessment purposes, is classified in
the highest category and pays the lowest assessment rate for deposit
insurance. The FDIC also maintains another insurance fund, the Savings
Association Insurance Fund (the "SAIF"), which primarily insures savings
association deposits. Grand National Bank holds approximately $9 million
of deposits acquired in connection with the acquisition of a branch of a
savings association. Those deposits are insured by SAIF and will continue
to be subject to the assessment rates due on SAIF-insured deposits
(currently the same as BIF insured deposits). Grand National Bank also pays
Financing Corporation (FICO) debt assessments on its BIF and SAIF insured
deposits. FICO assessment rates are not tied to the FDIC's risk
classifications. FICO rates, which may be adjusted quarterly, were $0.02120
(annualized) per $100 of BIF assessable deposits and SAIF assessable
deposits for the final quarter of 1999.
Monetary Policy and Economic Conditions
The earnings of commercial banks and bank holding companies are
affected not only by general economic conditions, but also by the policies
of various governmental regulatory authorities. In particular, the Federal
Reserve Board influences conditions in the money and capital markets, which
affect interest rates and growth in bank credit and deposits. Federal
Reserve Board monetary policies have had a significant effect on the
operating results of commercial banks in the past and are expected to in
the future. In view of changing conditions in the national economy and in
the money markets, as well as the effect of credit policies by monetary and
fiscal authorities, including the Federal Reserve System, no representation
can be made as to possible future changes in interest rates, deposit levels
and loan demand, or their effect on the business and earnings of the
Company and its subsidiaries.
Employees
As of December 31, 1999 the Company and its subsidiaries had a total
of 515 full-time and 85 part-time employees.
Item 2. Properties
The Company's corporate office is at 486 West Liberty Street,
Wauconda, Illinois in a building owned by GNB. The Company leases
approximately 5,000 square feet from GNB. The Company also conducts
business in Freeport, Illinois. The two story office building in Freeport
consists of approximately 13,000 square feet, and is located at 110 West
Stephenson Street, Freeport, Illinois. The building and underlying land
are owned by the Company.
Grand National Bank, as of February 29, 2000, occupied 24 offices in
18 different communities within northern Illinois, of which 3 are leased
and 21 are owned by GNB.
Grand Premier Operating Systems, Inc. ("GPOS"), conducts the majority
of its operations from a 28,800 square foot, one story office building
located at 588 Lakeview Parkway, Vernon Hills, Illinois. GPOS leases this
building from an unaffiliated party (with an option to purchase) through
September, 2001.
Item 3. Legal Proceedings
There are various legal claims pending against the Company arising in
the normal course of business. Management believes, based upon the opinion
of counsel, that liabilities arising from these proceedings, if any, will
not be material to the Company's financial position as of
December 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
No matters, through the solicitation of proxies or otherwise, have
been submitted to a vote of security holders for the quarter ended
December 31, 1999.
At a special meeting of stockholders held on February 22, 2000, the
Company submitted to its common stockholders a proposal to approve the
Agreement and Plan of Merger, dated as of September 9, 1999, among the
Company, Old Kent, and a wholly-owned subsidiary of Old Kent pursuant to
which Old Kent would acquire the Company. The proposal was approved. The
results of the vote were as follows:
Shares Voted "For" 19,329,123
Shares Voted "Against" 579,125
Abstentions 48,443
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock is traded on The Nasdaq Stock Market under the
symbol GPFI. A two-year record of trade prices by quarter, as well as cash
dividends declared, is as follows:
1999 1998
Quarter High Low Cash Quarter High Low Cash
Dividends Dividends
1st 12.94 10.13 .090 1st 17.50 12.73 .082
2nd 12.50 10.00 .090 2nd 17.61 12.96 .082
3rd 16.00 11.63 .090 3rd 15.00 10.68 .082
4th 17.31 14.06 .090 4th 14.00 10.00 .090
Total .360 Total .336
The approximate number of holders of common stock as of 12/31/99 was as
follows:
Title of Class No. of Record Holders
Common Stock
($.01 Par Value) 1,062
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
(Dollars in thousands except for share data)
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Earnings:
Interest income $113,780 $116,655 $120,621 $114,370 $108,782
Interest expense 50,744 54,295 57,166 56,558 53,541
Net interest income 63,036 62,360 63,455 57,812 55,241
Provision for possible loan losses 4,300 3,600 9,700 2,875 1,435
Earnings before income taxes 30,564 41,964 24,638 18,602 23,185
Net earnings 20,009 27,400 16,970 13,317 17,029
Net earnings available to common
shareholders $ 19,269 $ 26,660 $ 16,230 $ 12,377 $ 15,923
Per common share statistics*:
Basic earnings per share $ .87 $1.21 $ .74 $ .57 $ .73
Diluted earnings per share .86 1.17 .73 .56 .71
Cash dividends declared .36 .34 .30 .25 .17
Book value 8.01 $7.92 $7.42 $6.77 $6.48
Common shares
outstanding - year end* 22,305,531 21,981,739 22,002,819 21,982,047 21,856,805
Return on beginning
stockholders' equity 10.91% 15.88% 10.73% 8.54% 13.39%
Financial position - year end:
Securities available for sale 411,010 $ 516,083 $ 454,400 $ 535,687 $ 598,570
Loans, net 1,123,589 943,757 1,012,468 955,366 865,317
Allowance for possible loan losses 13,474 12,443 15,404 10,116 9,435
Excess cost over fair value of net
assets acquired 13,695 15,281 16,885 18,489 20,227
Non-interest bearing deposits 173,148 199,084 187,943 211,015 196,534
Interest bearing deposits 1,183,178 1,161,936 1,142,588 1,206,379 1,155,123
Total deposits 1,356,326 1,361,020 1,330,531 1,417,394 1,351,657
Short-term borrowings 21,500 - 33,000 - 38,475
Securities sold under agreements
to repurchase 8,982 11,887 14,598 23,486 49,757
Long-term borrowings 65,000 70,000 70,000 30,000 11,588
Stockholders' equity 188,004 183,389 172,509 158,083 155,997
Total assets $1,662,639 $1,648,241 $1,646,380 $1,642,538 $1,624,673
* Share statistics have been adjusted to reflect a 10% stock dividend
distributed to shareholders of record on November 15, 1998.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
INTRODUCTION
The discussion presented below provides an analysis of the Company's
financial condition and results of operations for the past three years, and
is intended to cover significant factors affecting the Company's overall
performance during that time. It is designed to provide shareholders with
a more comprehensive review of the operating results and financial
condition than could be obtained from an examination of the consolidated
financial statements alone, and should be read in conjunction with the
consolidated financial statements, accompanying notes and other financial
information presented elsewhere in this 1999 Annual Report on Form 10-K.
Statements or comments contained in the following discussion and analysis
of financial condition and results of operations that are not historical
facts may contain forward looking information. These "forward looking
statements" fall within the meaning of Section 27 A of the Securities Act
of 1933, as amended, and Section 21 E of the Securities Exchange Act of
1934, as amended, and represent the Company's expectations concerning
future events and involve substantial risks and uncertainties. Such
statements include references to management's "belief," "opinion,"
"anticipation," or "expectations" or words of similar import. The Company
cautions that actual results, performance or achievement could differ
materially from the results, performance or achievements expressed or
implied by these forward looking statements. Important factors that might
cause actual results to differ materially include, but are not limited to:
federal and state legislative and regulatory requirements; changes in
management's estimate of the adequacy of the allowance for loan losses
and/or other significant estimates; changes in the level and direction of
loan delinquencies and charge-offs; interest rate movements and their
impact on customer behavior and the Company's net interest income; the
impact of pricing, re-pricing and competitors' pricing on loans, deposits
and other sources or uses of funds; the Company's ability to adapt
successfully to technological changes to meet customers' needs and
developments in the marketplace; the Company's ability to access cost
effective funding; and general economic and business conditions. The
Company does not undertake, and specifically disclaims, any obligation to
update any forward looking statements to reflect events or circumstances
occurring after the date of such statements.
MERGER
The Company signed a definitive agreement on September 9, 1999 for the
merger of Grand Premier Financial Inc. into a wholly owned subsidiary of
Old Kent Financial Corporation. The merger is intended to be structured as
a pooling-of-interests for accounting purposes and as a tax free exchange
of shares. Under the terms of the merger agreement, each share of Grand
Premier Financial, Inc. common stock will be converted into 0.4231 shares
of Old Kent Financial Corporation common stock and each share of Grand
Premier Financial, Inc. preferred stock will be converted into one share of
Old Kent Financial Corporation preferred stock with substantially identical
terms. The merger was approved at a Special Meeting of Stockholders of
Grand Premier Financial, Inc. on February 22, 2000 and Federal Reserve
Board approval was obtained on March 6, 2000. The merger is expected to
become effective early in the second quarter of 2000. For additional
information concerning the merger agreement, see Exhibit 2.2 in Item 14 of
this report.
RESULTS OF OPERATIONS
Net earnings for 1999 totaled $20.0 million, or $.86 diluted earnings per
share, compared to $27.4 million, or $1.17 diluted earnings per share, in
1998 and $17.0 million, or $.73 diluted earnings per share, in 1997. In
1999, the Company realized nonrecurring income, net of tax, totaling $4.7
million from the sales of four rural branch offices and their associated
deposits. The nonrecurring income was partially offset by non-tax
deductible merger related costs totaling $1.2 million in 1999. The higher
net earnings in 1998 were mainly attributable to the Company's selling of
its portfolio of listed equity securities. In 1998, pre-tax gains on sales
of equity securities contributed $19.8 million to total securities gains of
$20.2 million. By comparison, total securities losses were $113,000 in 1999
and total securities gains were $7.7 million in 1997. Excluding these
nonrecurring items and securities gains or losses, net earnings were
approximately $16.5 million in 1999, $15.2 million in 1998 and $12.3
million in 1997 and diluted earnings per share were $.71, $.66, and $.53
during the respective years.
Other significant factors, which reduced net earnings in 1998 by
approximately $1.1 million, include charges associated with the closing of
two branch offices, a write-off of obsolete computer software, and expenses
associated with the Company's conversion to a new data processing system
early in 1999. Net earnings in 1997 were adversely affected by a provision
for possible loan losses much larger than provisions recorded in 1999 or
1998 mainly due to the indirect loan portfolio. The Company also combined
its five banking subsidiaries into a single charter in 1997, operating as
Grand National Bank. The resulting conversion to a common data processing
system, along with supplies, printing and other associated costs resulted
in increased expenses during that year.
Net Interest Income
Taxable equivalent net interest income totaled $67.8 million for 1999,
$789,000 greater than $67.0 million in 1998 and nearly the same as $67.9
million in 1997. A generally lower interest rate environment, combined with
other factors, contributed to a continued decline in both taxable
equivalent interest income and interest expense. Taxable equivalent
interest income decreased to $118.5 million in 1999 from $121.3 million in
1998 and $125.1 million in 1997. Similarly, interest expense also continued
to decline to $50.7 million in 1999 from $54.3 million in 1998 and $57.2
million in 1997. Overall, the Company's net interest margin improved to
4.54% for 1999 compared to 4.50% in 1998 and 4.53% in 1997.
The improvement in net interest income and net interest margin for 1999 is
largely attributable to strong loan growth. Average loans outstanding were
$1.04 billion during 1999(69.4% of average earning assets)as compared to
$980 million (65.9% of average earning assets) in 1998. Interest income
from loans increased to $87.5 million in 1999 from $87.1 million in 1998
despite a market driven reduction in the average rates earned (8.44% in
1999 versus 8.88% in 1998). The increase in loans outstanding was offset by
a reduction in lower yielding short and long term investments. Average
balances in investment securities decreased $38.3 million in 1999 to $421
million (28.2% of average earning assets in 1999 compared to 30.9% in 1998)
and provided yields of 6.90% and 6.85% in 1999 and 1998, respectively.
Short term investments in federal funds and repurchase agreements that
yielded 5.37% in 1999 and 5.72% in 1998 decreased $11.5 million to $35
million in 1999. The generally lower interest rates, partially offset by a
change in asset mix, produced an average taxable equivalent yield on
interest earning assets of 7.93% in 1999 compared to 8.15% in 1998.
Lower interest income in 1998 versus 1997 was mainly attributable to a $31
million decrease in average loans outstanding, from $1.01 billion (67.5% of
average earning assets) in 1997 to $980 million in 1998 (65.9% of average
earning assets). The net decline in average loans primarily resulted from
the Company's actions directed at reducing its indirect loan portfolio (see
"Provision for Possible Loan Losses"). Average loans yielded 8.88% and
generated $87.1 million interest income in 1998 compared to loans that
yielded 8.92% and generated interest income of $90.3 million in 1997. The
1998 decrease in average loans was offset by an increase in lower yielding
short term investments. Short term investments averaged $46 million during
1998, yielding 5.72%, compared to $12 million in 1997, yielding 5.96%.
Investment securities averaged $460 million in 1998, $12 million less than
in 1997. The yields on investment securities decreased to 6.85% in 1998
from 7.22% 1997.
While average yields on earning assets declined in 1999 compared to 1998
and 1997, rates paid on interest bearing liabilities also decreased; 4.19%
in 1999 compared to 4.39% in 1998 and 4.49% in 1997. The spread between
average rates earned and paid was 3.74% for 1999, 3.76% for 1998 and 3.86%
for 1997. The decrease in average rates paid for 1999, combined with a
$23.7 million reduction in interest bearing liabilities, resulted in a
reduction in total interest expense, to $50.7 million in 1999 compared to
$54.3 million 1998. The 1999 reduction in interest expense followed a $2.9
million reduction in interest expense in 1998 as compared to 1997. The 1998
reduction in interest expense resulted from lower average rates paid
combined with a $36 million reduction in average interest bearing
liabilities. Average rates paid on interest bearing deposits, the largest
component of the Company's cost of funds, were 4.05%, 4.27% and 4.40% in
1999, 1998 and 1997, respectively.
Interest Rate Risk Management
One of the Company's objectives is to manage volatility in net interest
income resulting from changes in interest rates. The Company attempts to
accomplish this by actively managing the re-pricing characteristics of its
interest earning assets and interest bearing liabilities in a dynamic
environment. Grand Premier uses simulation modeling to analyze the effect
of predicted or assumed changes in interest rates on balances and
subsequently net interest income. The model provides for simultaneously
comparing six different interest rate scenarios and their estimated effect
on net interest income over various time horizons. Two "rising" and two
"declining" rate scenarios, driven by short-term interest rates changing
300 basis points up and down over twelve and twenty four month periods,
along with "most likely" and "flat rate" scenarios are used to identify the
potential impact of rapid changes, up or down, from current rates. The
"base" or "flat rate" simulation, (more traditionally known as "gap
measurement") is used as a control to quantify the effect of changes in net
interest income caused solely by re-pricing existing balances at market
rates as they mature. Changes in balances reflecting repayment risk, likely
changes in customer behavior under different interest rate environments and
other "what if" assumptions based on management estimates are also
simulated under each scenario. Interest sensitivity, the Company's
exposure to changes in net interest income, is normally measured over a
rolling 12 month period under the different rate scenarios and compared to
the base case forecast. Generally, Grand Premier's policy is to maximize
net interest income while limiting negative interest sensitivity (i.e., a
decline in net interest income) to no more than 5% of net interest income
under any interest rate scenario. As of December 31, 1999, the simulation
model indicated a change in net interest income of less than 2.7% in either
the rising or declining rate environments described above.
The following table shows the Company's base or flat rate measurement
(i.e., "gap position") as of December 31, 1999:
Volumes Subject to Re-pricing
(in thousands)
within within within over
90 days 1 year 5 years 5 years
Loans (net of unearned
income) $453,023 $ 131,820 $490,274 $ 61,946
Investment securities 22,933 47,001 110,037 231,039
Other earning assets 3,680 - - -
Total earning assets 479,636 178,821 600,311 292,985
Transaction accounts 14,509 14,473 120,636 30,168
Savings accounts 173,997 28,956 164,805 41,192
Time deposit accounts 155,680 311,938 116,192 10,632
Short-term borrowing 28,064 2,418 - -
Long-term borrowing - 5,000 60,000 -
Total interest-bearing
liabilities 372,250 362,785 461,633 81,992
Asset (liability) gap.. $107,386 $(183,964) $138,678 $210,993
Cumulative asset
(liability) gap... $107,386 $ (76,578) $ 62,100 $273,093
In reviewing the table, it should be noted that the balances are shown for
a specific point in time and because interest sensitivity is dynamic, it
can change significantly over time. The balances reflect contractual
principal reductions plus management's estimates of prepayments on loans
and investments. Furthermore, the balances reflect both contractual re-
pricing of deposits and management's re-pricing assumptions on certain
deposits. Approximately 60.6% of core demand deposit accounts and regular
savings accounts have been classified as re-pricing beyond one year. While
these accounts are subject to immediate withdrawal, experience indicates
they are relatively rate insensitive.
Provision for Possible Loan Losses
The Company's provision for possible loan losses is based on periodic (but
no less than quarterly) evaluations by management. In these evaluations,
numerous factors are considered including, but not limited to, current
economic conditions, loan portfolio composition, prior loan loss
experience, and an estimation of potential losses.
Each loan in the portfolio is graded according to specific financial risk
and repayment criteria. The aggregate required reserve balance for the
entire portfolio is maintained through earnings provisions as required.
The provision for loan losses in 1999 totaled $4.3 million as compared to
$3.6 million and $9.7 million in 1998 and 1997, respectively.
The Company experienced strong loan growth during 1999. Outstanding loan
balances increased in excess of 18% from $956 million at year-end 1998 to
$1.137 billion at year-end 1999. The increased loan loss provision made in
1999 is largely in response to this growth. The Company's 1998 provision
was reflective of management's evaluation of the loan portfolio within the
context of the factors outlined above. In 1997, approximately $6.0 million
of the $9.7 million provision was a special, one time provision in response
to deterioration identified by management in the indirect segment of the
loan portfolio which totaled $88.4 million, or 8.60% of the loan portfolio,
at December 31, 1997. Over the first six months of 1997, the Company had
experienced rapid growth in indirect loans originated for the purchase of
automobiles, recreation vehicles and other consumer goods. Management
performed an extensive internal review of the indirect portfolio in the
fourth quarter of 1997 prompted by an increase in the delinquency rate
(i.e. past due 60 days or more), which rose from 1.0% in June, 1997 to 4.0%
at the end of November, 1997. As a result of the review, management
determined that an additional provision was prudent. The Company
discontinued this type of lending concurrent with recording the provision.
The remainder of the Company's 1997 provision ($3.7 million) was
essentially tied to overall portfolio growth and the factors outlined
above. The Company's indirect portfolio totaled $20.6 million at December
31, 1999 with a delinquency rate (loans past due 60 days or more) of 1.40%.
The allowance for possible loan losses totaled $13.4 million (1.18%) of
gross loans at December 31, 1999 compared to $12.4 million (1.30%) and
$15.4 million (1.50%) of gross loans at December 31, 1998 and 1997,
respectively. The 1999 decrease in the allowance as a percent of gross
loans is consistent with an improvement in asset quality when measured as a
percentage of nonperforming loans to total loans. Nonperforming loans
(nonaccrual loans, accruing loans 90 days or more past due, and
renegotiated loans) were .68% ($7.7 million) of gross loans at year end
1999, compared to .78% ($7.5 million) and .78% ($8.0 million) of gross
loans at year-end 1998 and 1997. Net charge-offs improved to .32% of
average loans for 1999 compared to .67% in 1998 and .44% in 1997. This
decrease in net charge-offs for 1999 is the result of improved overall
asset quality. Net charge-offs in 1998 were higher primarily as a result of
charge-offs associated with the indirect loan portfolio.
Although management believes that the allowance for possible loan losses
currently provides adequate risk coverage for the loan portfolio, there can
be no assurance that significant provisions for losses will not be required
in the future based on factors such as portfolio growth, deterioration of
market conditions, major changes in borrowers' financial conditions,
delinquencies and defaults. Future provisions will continue to be
determined in relation to overall asset quality as well as other factors
mentioned previously. Furthermore, recent increases in interest rates and
the indicated Federal Reserve Bank bias towards tightening rates raises
concerns that such rate increases may result in reduced cash flow available
to borrowers for principal repayment, and potentially increase the risk in
the loan portfolio.
Other Income
Other income, including nonrecurring gains totaling $7.9 million from the
sales of four branch offices and their associated deposits, totaled $20.8
million in 1999. Excluding these nonrecurring gains and net losses from
investment securities, other income totaled $13.1 million. By comparison,
other income, excluding net investment securities gains, was $12.9 million
in 1998 and $12.8 million in 1997.
Grand Premier's largest fee-based source of income continues to be service
charges on deposits. This single component contributed $4.9 million to
other income in 1999 and $5.7 million to other income in each of 1998 and
1997. The majority of service charges on deposits are generated from
transaction based accounts. Average balances in transaction based account
were approximately $361.8 million in 1999 compared to $369.1 in 1998 and
$369.7 million 1997. The decrease in service charges on deposits for 1999
is primarily associated with a reduction in the volume of fees from
overdrawn deposit accounts.
Trust fees, the second largest component of other income, totaled $3.8
million in 1999 compared to $3.5 million in 1998 and $3.2 million in 1997.
The year-to-year growth was primarily due to favorable performance of
managed assets and increases in the amount of assets under administration.
Trust fees are based on providing fiduciary, investment management,
custodial and related services to corporate and personal clients. As of
December 31, 1999, the market value of total managed assets was
approximately $903 million compared to $840 million at year-end 1998.
Management anticipates continued growth in relationships and fees in future
years.
The Company realized net investment securities losses of approximately
$113,000 in 1999. In contrast, net investment securities gains totaled
$20.2 million in 1998. Securities gains were the main reason for a 59.6%
increase in total other income from $21.1 million in 1997 to $33.7 million
in 1998. The substantial increase in securities gains was primarily a
result of $19.8 million in gains realized from selling the Company's
portfolio of listed equity securities during the third quarter 1998. Net
investment security gains were $7.7 million in 1997. Securities available
for sale are utilized to manage interest rate risk, to provide liquidity,
and as a contributor to earnings. As conditions change over time, overall
interest rate risk, liquidity demands and return on the investment security
portfolio will vary. The Company will continue to use its securities
available for sale portfolio to manage interest rate risk, meet liquidity
needs and optimize overall investment returns and net interest income.
The total of all other operating income increased to $4.5 million in 1999
from $3.7 million in 1998 and $3.9 in 1997. The year-to-year fluctuations
in this category have generally been attributable to net gains on sales of
assets. Gains from the sales of two bank properties added $388,000 to other
income in 1999. The Company recorded gains from the sale of other real
estate owned totaling $51,000, $164,000 and $142,000 in 1999, 1998 and
1997, respectively. Gains from sales of loans contributed $450,000 in 1999
compared to $656,000 in 1998 and $264,000 in 1997. The fluctuations in
gains from sales of loans is directly attributable to the amount of loans
sold. In 1997, a one-time gain of $132,000 was realized from the sale of a
marginally profitable line of business in the Company's insurance
subsidiary. On the other hand, a decrease in other income in 1998 resulted
from the Company's standardization of its processing of merchant credit
card transactions as well as a change in the Company's method of realizing
income from rentals of safe deposit boxes. Together, these two changes
resulted in a decrease in other income totaling approximately $225,000 in
1998.
Other Expenses
Total other expenses decreased $840,000 (1.7%) to $49.0 million in 1999
from $49.9 million in 1998. Excluding costs totaling $1.2 million
associated with the Company's pending merger with Old Kent, total other
expenses decreased 4.2% to $47.8 million in 1999. The decrease in 1999
followed a minimal increase of $246,000 (.5%) in 1998 from $49.6 million in
1997.
Salaries and benefits, the largest component of other expense, totaled
$24.1 million for 1999, approximately $55,000 greater than 1998 and down
slightly from $24.2 million in 1997. The Company employed approximately 558
full-time equivalent employees at year-end 1999, 583 at year-end 1998 and
635 at December 31, 1997.
Net occupancy expenses in 1999 declined slightly to $4.4 million, from $4.6
million in 1998 and $4.7 million in 1997. The decline is partly due to the
Company's sales of four branch offices during the first quarter 1999.
Furniture and equipment expense was $3.7 million in 1999, $4.0 million in
1998 and $3.8 million in 1997. The year-to-year changes are mainly
attributable to depreciation expense associated with upgrading and
standardizing computer hardware, telephone systems, data communication
lines and signage throughout the Company.
Data processing expenses were $1.3 million in 1999, significantly less than
$2.1 million in 1998 and $1.9 million in 1997. The significant decrease in
data processing expenses for 1999 primarily resulted from the Company's
conversion to a fully integrated, in-house core data processing system
early in the second quarter 1999. The reduction in data processing expenses
was partially offset by an increase of approximately $316,000 relating to
software licensing and maintenance for the in-house system. The 1998
increase over 1997 is mainly attributable to expenses associated with
preparing for the conversion to the in-house system.
The Company paid approximately $902,000 in 1999 to outside professionals
(for investment banking, legal and accounting services) specifically
relating to the anticipated merger with Old Kent Financial Corp. The
Company estimates that additional professional fees relating to the merger
will be approximately $1.4 million during the first half of 2000. Fees paid
to outside professionals that were unrelated to the merger were
approximately $1.7 million in 1999 compared to $2.1 million in 1998 and
$1.6 million in 1997. There were several reasons for the increase from 1997
to 1998; 1) fees paid for training and implementation of a company-wide
sales management program, 2) fees paid for out-sourced internal audit
services in 1998, and 3) fees paid to information technology consultants in
both 1997 and 1998 to assist in standardizing voice and data communications
networks and selecting a core data processing solution.
Other expenses were $11.0 million in 1999, $586,000 less than $11.5 million
in 1998 and $863,000 less than $11.8 million in 1997. While the majority of
other expenses are normal recurring operating expenses, several one-time or
non-recurring expenses are also included in each of the three years. Losses
from check forgeries and other fraudulent customer activities totaled
$800,000 in 1999 compared to $298,000 in 1998 and $456,000 in 1997. One-
time charges in 1998 include 1) write-off of obsolete computer software
($231,000), 2) expenses associated with closing two branch offices
($365,000) and 3) expenses related to the Company's conversion to a new
data processing system in 1999 ($550,000). In addition, loan recovery
expenses increased approximately $703,000 in 1998 compared to 1997 as a
result of the Company's aggressive collection efforts relating to its
indirect loan portfolio. Non-recurring expenses that resulted from
consolidating bank charters and data processing conversions in 1997
approximated $1.3 million. Other expenses in 1997 also included costs
totaling approximately $200,000 associated with closing a branch office in
Homewood, Illinois.
Income Taxes
Income taxes totaled $10.6 million in 1999 compared to $14.6 million in
1998 and $7.7 million in 1997, representing effective tax rates of 34.5% in
1999, 34.7% in 1998 and 31.1% in 1997. The Company's formation of a
separate operating subsidiary during the third quarter 1999 to fund certain
real estate loans resulted in a reduction in state taxable income for 1999,
and is expected to reduce state taxable income in future years. In the
opinion of management, the anticipated reduction in future state taxable
income raises uncertainties as to the realization of deferred state tax
assets. Accordingly, a valuation allowance was established for these
deferred state tax assets. The reduction in state taxable income, partially
offset by non-tax deductible merger related costs that totaled
approximately $1.2 million in 1999, contributed to the decrease in
effective tax rate for 1999. The significant securities gains recorded in
1998 are the main reason for the increase in the effective tax rate from
1997. Changes in the effective tax rates from year to year are also the
result of changes in the amount of interest income exempt from income taxes
as a percentage of income before taxes.
FINANCIAL CONDITION
Average assets totaled $1.60 billion for 1999, $24 million lower than 1998.
The modest decrease is mainly the result of the Company's sales of four of
its rural branch offices along with deposits totaling approximately $85.1
during the first quarter 1999. Even though total assets decreased, average
earning assets increased slightly (.4%) over 1998 to $1.49 billion in 1999.
Average earning assets as a percent of average total assets were 93.4% in
1999; which improved from 91.6% in 1998 as a result of managed reductions
in non-earning assets. Average loans, the Company's highest yielding
earning asset, were 69.4% of total assets in 1999 compared to 65.9% in
1998.
Total average deposits were $1.30 billion in 1999, just below $1.33 billion
in 1998. Average balances in total short and long-term borrowings increased
$6 million to $84 million in 1999. Average shareholders' equity increased
5.2% to $189.2 million in 1999.
Securities
Grand Premier uses its securities available for sale portfolio as an
integral part of its interest rate risk management, earnings and tax
planning strategies. The portfolio largely consists of debt securities, any
of which may be sold in response to changes in interest rates, for
liquidity, or for tax purposes. At December 31, 1999, $411.0 million was
invested in securities available for sale, compared to $516.1 million at
year-end 1998. The decrease is partially due to reinvestment of proceeds
from securities to the Company's loan portfolio. The Company also increased
its short-term investments at year-end 1998 in anticipation of funding
requirements relating to the pending sales of four branch offices and their
associated deposit liabilities in the first quarter of 1999.
At December 31, 1999, approximately 15.3% of the total carrying value of
securities available for sale were U. S. Treasury and U.S. government
agency securities, 36.5% obligations of states and political subdivisions,
44.0% mortgage-backed securities, 1.5% corporate securities, and 2.7%
equity securities. The Company's mortgage-backed securities included
$160.6 million invested in collateralized mortgage obligations ("CMO's")
and $20.1 million in other mortgage-backed securities. The CMO's held by
the Company are primarily shorter-maturity bonds (average lives generally
less than 3 years). At December 31, 1999, all of the mortgage-backed
securities held by the Company were issued or backed by U.S. Government and
U.S. Government-sponsored agencies.
Loans
The Company's lending strategy stresses quality growth, diversified by
product, geography and industry. Loans represent the largest component of
Grand Premier's earning assets. Gross loans outstanding increased $180.9
million (18.9%) from year-end 1998, to $1.137 billion at December 31, 1999.
The Company's 1999 loan growth was predominantly real estate related; loans
secured by commercial properties increased $127.7 million, construction and
land development loans increased $34.4 million, and home equity lines of
credit increased $30.9 million. All other loans secured by 1-4 family
residential properties decreased $17.8 million. The Company also
experienced a $36.0 million increase in commercial loans, while loans to
individuals decreased $22.0 million. As of December 31, 1999, the loan
portfolio consisted of 26.7% commercial loans, 4.1% loans for construction
purposes, 62.4% real estate-mortgages, and 4.1% loans to individuals
compared to 28.8% commercial loans, 4.5% loans for construction purposes,
59.5% real estate-mortgages, and 7.2% loans to individuals at December 31,
1998.
Asset Quality
Non-performing assets, consisting of loans 90 days or more past due, loans
not accruing interest, loans with renegotiated credit terms, and other real
estate owned were .48% of total assets at both year-end 1999 and 1998. Non-
accruing loans increased slightly, from $6.9 million at year-end 1998 to
$7.0 million at December 31, 1999. Loans past due 90 days or more and still
accruing were $686,000 at year-end 1999 compared to $170,000 at year-end
1998. The amount of other real estate owned decreased during 1999 to
$237,000 from $392,000 at December 31, 1998. Renegotiated loans that
totaled $414,000 at December 31, 1998 were charged-off or changed to non-
accruing status during 1999. At December 31, 1999, the allowance for
possible loan losses totaled $13.5 million or 1.18% of gross loans compared
to $12.4 million or 1.30% of gross loans at December 31, 1998.
Sources of Funds
The Company considers core deposits, which include transaction accounts,
savings accounts, and consumer time deposits less than $100,000 as its most
stable sources of funding. These core deposits are supplemented by time
deposits from governmental entities, time deposits greater than $100,000,
brokered time deposits and securities sold under agreements to repurchase.
Other short-term borrowings, long-term borrowings and stockholders' equity
provide the remainder of the Company's funding sources.
Total deposits were essentially unchanged at $1.36 billion at December 31,
1999 and 1998. Total deposits at year-end 1999 included approximately $30.8
million in brokered deposits that partially offset the $85.1 million
reduction in deposits due to the branch sales. The Company did not have any
brokered deposits at December 31, 1998. A modest shift from non-interest
bearing to interest bearing during 1999 resulted in non-interest bearing
deposits being 12.8% of total deposits at year-end 1999 compared to 14.6%
of total deposits at year-end 1998.
Total short-term borrowings, including repurchase agreements, were $30.5
million at December 31, 1999 compared to $11.9 million at December 31,
1998. The increase at year-end 1999 was primarily the result of a $17.0
million short term advance from the Federal Home Loan Bank. Long-term
borrowings, consisting solely of advances from the Federal Home Loan Bank,
were $65.0 million at December 31, 1999 and $70 million at December 31,
1998.
Liquidity
Grand Premier defines liquidity as having funds available to meet cash flow
requirements. Effective management of balance sheet liquidity is necessary
to fund growth in earning assets, to pay liabilities, to satisfy
depositors' withdrawal requirements and to accommodate changes in balance
sheet mix. The Company has three major sources for generating cash other
than through operations: 1) primary and secondary market deposits, 2)
securities available for sale, and 3) federal funds lines of credit from
unaffiliated banks. Liquid assets are compared to the potential needs for
funds on an ongoing basis to determine if the Company has sufficient
coverage for future liquidity needs. Management aims for a primary
liquidity position that provides for a minimum 100% coverage and total
liquidity that provides for a minimum 150% coverage relative to the
anticipated likelihood of potential events taking place. At year-end 1999,
the Company's primary liquidity position substantially exceeded this
minimum and total liquidity provided approximately 132% coverage.
Stockholders' Equity
Stockholders' equity increased $4.6 million during 1999, to $188.0 million
at year end. Net income of $20.0 million less common and preferred
dividends of $8.8 million increased retained earnings by $11.2 million.
Accumulated other comprehensive income from unrealized gains on securities
decreased $9.4 million, to an accumulated loss of $2.5 million, net of tax,
at year-end 1999. The remaining net change in stockholders' equity was the
result of stock options exercised and a slight increase in treasury stock
held in a Rabbi trust under the Company's benefit plans.
The Federal Reserve Board currently specifies three capital measurements
under their risk-based capital guidelines: 1) "tier 1 capital" (i.e.,
stockholders' equity less goodwill to risk-adjusted assets), 2) "total
risk-based capital" (i.e., tier 1 capital plus the lesser of 1.25% of risk-
adjusted assets or the allowance for possible loan losses), and 3) "tier 1
leverage ratio" (i.e., stockholders' equity less goodwill to total assets
less goodwill). Bank holding companies are required to maintain minimum
risk-based capital ratios of 4% for "tier 1 capital", 8% for "total risk-
based capital", and a "tier 1 leverage ratio" of 4% or greater. At December
31, 1999, Grand Premier's "tier 1 capital" ratio was 12.95%, well above the
regulatory minimum. The Company's "total risk-based capital" and "tier 1
leverage" ratios were 13.94% and 11.12% respectively, also considerably
greater than required. The Company's banking subsidiary met the definition
of "well capitalized" under the FDIC's risk related premium system at
December 31, 1999.
CURRENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") in June 1998. SFAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard,
entities are required to carry all derivative instruments in the statement
of financial position at fair value. The accounting change in the fair
value (i.e. gains or losses) of a derivative instrument depends on whether
it has been designated and qualifies as part of a hedging relationship and,
if so, on the reason for holding it. If certain conditions are met,
entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If
the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure,
the effective portion of the gain or loss on the derivative instrument is
reported initially as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any amounts excluded from the assessment of
hedge effectiveness as well as the ineffective portion of the gain or loss
is reported in earnings immediately. Accounting for foreign currency hedges
is similar to the accounting for fair value and cash flow hedges. If the
derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change. The initial effective date
of SFAS 133 was amended, and is now effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted. The adoption of
SFAS 133 is not expected to have a material impact on the Company.
YEAR 2000
The year 2000 ("Y2K") issue was the result of computer programs using two
digits rather than four to define the applicable year. The Company's Y2K
testing and contingency planning efforts were completed in the fourth
quarter of 1999. As a result of these efforts, the Company experienced no
significant Y2K related problems and is not aware of any significant Y2K
issues sustained by borrowers or its significant vendors. The Company
incurred total costs of approximately $300,000 on the Y2K project that were
expensed as incurred in 1999 or earlier.
SUPPLEMENTARY FINANCIAL INFORMATION
Submitted herewith is the following supplementary financial
information of the registrant for each of the last three years (unless
otherwise stated):
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential;
Changes in Interest Margin for each of the last two years;
Investment Portfolio;
Maturities of Investments, December 31, 1999;
Loan Portfolio for each of the last five years;
Loan Maturities and Sensitivity to Changes in Interest Rates,
December 31, 1999;
Risk Elements in the Loan Portfolio for the last five years;
Summary of Loan Loss Experience for the last five years;
Allocation of the Allowance for Loan Losses for the last five years;
Deposits;
Time Certificates and other Time Deposits of $100,000 or more as of
December 31, 1999;
Return on Equity and Assets;
Short Term Borrowings.
<TABLE>
<CAPTION>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differentials
The following table presents the average balances of major categories of interest earning assets and interest bearing liabilities,
the interest earned or paid on such categories, and the average yield on such categories of interest earning assets and the
average rates paid on such categories of interest bearing liabilities during each of the reported periods, (dollars in thousands).
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
Interest earning assets
Interest bearing deposits
in other banks $ 1,376 $ 61 4.43% $ 1,624 $ 99 6.10% $ 2,608 $ 52 1.99%
Investment securities <F1>
Taxable 268,718 15,683 5.84 316,211 18,469 5.84 339,176 21,873 6.45
Tax exempt <F2> 152,831 13,397 8.77 143,332 13,002 9.07 132,549 12,164 9.18
Federal funds sold and securities
purchased under agreements
to resell 34,806 1,869 5.37 46,253 2,646 5.72 12,305 733 5.96
Loans <F2><F3> 1,036,284 87,513 8.44 980,196 87,069 8.88 1,011,646 90,287 8.92
Total interest earning
assets/interest income 1,494,015 118,523 7.93 1,487,616 121,285 8.15 1,498,284 125,109 8.35
Cash and due from banks 39,002 44,558 53,709
Premises and equipment 32,033 35,004 34,185
Other assets 43,963 49,795 49,585
Securities valuation -
available for sale <F1> 4,432 21,196 22,626
Allowance for loan losses (13,124) (13,660) (10,424)
Total $1,600,321 $1,624,509 $1,647,965
Liabilities and
Stockholders' Equity
Interest bearing liabilities
Demand deposits $ 365,618 11,464 3.14 $ 337,177 10,421 3.09 $ 293,879 8,497 2.89
Savings deposits 231,880 6,319 2.73 251,855 7,493 2.98 265,268 7,895 2.98
Other time deposits 529,334 27,904 5.27 558,527 31,132 5.57 627,642 35,874 5.72
Short-term borrowings 15,527 726 4.68 18,338 909 4.96 45,447 2,404 5.29
Long-term borrowings 69,849 4,331 6.20 70,000 4,340 6.20 39,534 2,496 6.31
Total interest bearing liabilities/
interest expense 1,212,208 50,744 4.19 1,235,897 54,295 4.39 1,271,770 57,166 4.49
Noninterest bearing deposits 175,739 182,206 187,019
Other liabilities 23,222 26,539 20,125
Stockholders' equity 189,152 179,867 169,051
Total $1,600,321 $1,624,509 $1,647,965
Net interest income / spread $ 67,779 3.74% $ 66,990 3.76% $ 67,943 3.86%
Net yield on interest earning assets 4.54% 4.50% 4.53%
<FN>
<F1> Average balances and yields exclude the effects of unrealized gains or losses on available for sale securities.
<F2> Interest and yields are on a tax equivalent basis assuming a 35% federal tax rate.
<F3> Average balances include nonaccrual loans.
</FN>
</TABLE>
CHANGES IN INTEREST MARGIN
The following table sets forth the registrant's dollar amount of
change in interest earned on each major category of interest earning assets
and the dollar amount of change in interest paid on each major category of
interest bearing liabilities, as well as the portion of such changes
attributable to changes in rate and changes in volume for each of the last
two years (dollar figures in thousands):
Increase (Decrease)
1999 over 1998 1998 over 1997
Rate Volume Rate Volume
Changes in Interest Earned (1):
Interest bearing deposits $ (24) $ (14) $ 73 $ (26)
Taxable investment securities (14) (2,772) (1,982) (1,422)
Tax-exempt investment
securities (2) (448) 843 (141) 979
Fed funds sold and securities
purchased under agreements
to resell (154) (623) (30) 1,943
Loans (net of unearned income)(2) (4,406) 4,850 (422) (2,796)
Total (2) (5,046) 2,284 (2,502) (1,322)
Changes in Interest Paid (1):
Interest bearing deposits (2,095) (1,264) (262) (2,958)
Short-term borrowings (50) (133) (142) (1,353)
Long-term borrowings - (9) (46) 1,890
Total (2,145) (1,406) (450) (2,421)
Changes in Interest Margin (2) $(2,901) $ 3,690 $(2,052) $ 1,099
(1) Changes attributable to rate/volume, i.e., changes in the interest
margin which occurred because of a combination rate/volume changes, are
apportioned between rate and volume in proportion to the absolute dollar
amount of the change in each category.
(2) Interest is on a tax equivalent basis assuming a 35% federal tax rate.
INVESTMENT PORTFOLIO
The following table sets forth the registrant's book values of
investments in obligations of the U.S. Treasury and other U.S. Government
Agencies and Corporations, State and Political Subdivisions (U.S.), and
Other Securities for each of the last three years (dollar figures in
thousands):
1999 1998 1997
U.S. Treasury and U.S. Agency
Securities $243,593 $311,621 $248,612
Obligations of States and
Political Subdivisions 149,970 167,402 148,742
Other Securities 17,447 37,060 57,046
Total $411,010 $516,083 $454,400
The following table sets forth the registrant's book values of
investments in obligations of the U.S. Treasury and other U.S. Government
Agencies and Corporations, State and Political Subdivisions (U.S.), and
Other Securities as of December 31, 1999 by remaining maturity and also
sets forth the weighted average yield for each range of maturities.
Obligations
U.S. Treasury of States
and and Weighted
U.S. Agency Political Other Average
Book Value: Securities Subdivisions Securities Yield
One Year or Less $ 26,979 $ 5,110 $ 1,522 5.83%
After One Year to Five Years 34,094 15,395 2,725 7.17%
After Five Years to Ten Years 43,709 24,324 2,030 7.28%
Over Ten Years 138,811 105,141 11,170 7.34%
Total $243,593 $149,970 $17,447 7.18%
(1) Weighted Average Yields were calculated as follows:
A. The weighted average yield for each category in the portfolio was
calculated based upon the maturity distribution shown in the table
above.
B. The yields determined in step A were weighted in relation to the
total investments in each maturity range shown in the table above.
(2) Yields on tax exempt securities are full tax equivalent yields
assuming a 35% federal tax rate.
(3) Equity securities totaling $11.2 million are included in Other
Securities due after ten years.
At December 31, 1999 the Company did not own any Obligation of a State or
Political Subdivision or Other Security which was greater than 10% of its
total equity capital.
LOAN PORTFOLIO
The following table sets forth the registrant's Loan Portfolio by
major category for each of the last five years (dollar figures in
thousands):
Year Ended December 31,
1999 1998 1997 1996 1995
Commercial, financial
and agricultural Loans $ 303,892 $275,450 $ 231,707 $229,700 $229,589
Real Estate -
Construction 77,612 43,250 50,186 42,772 45,098
Mortgage 710,676 569,851 631,069 625,364 530,636
Loans to Individuals 46,564 68,602 115,901 68,488 71,010
Total $1,138,744 $957,153 $1,028,863 $966,324 $876,333
The following tables set forth the registrant's loan maturity distribution
for certain major categories of loans as of December 31, 1999 (dollar
figures in thousands).
AMOUNT DUE IN
1 Year or Less 1-5 Years After 5 Years
Commercial, financial and
agricultural loans $132,474 $153,762 $ 17,656
Real Estate - Construction 47,052 25,817 4,743
Total $179,526 $179,579 $ 22,399
As of December 31, 1999 loans totaling $143,571,000, which are due
after one year have predetermined interest rates, while $58,407,000 of
loans due after one year have floating interest rates.
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Company's financial statements are prepared on the accrual basis
of accounting. All of the loans currently accruing interest are accruing at
the rate contractually agreed upon when the loan was negotiated. It is the
Company's policy to discontinue the accrual of interest thereon if payment
in full of both interest and principal is doubtful and any scheduled or
expected reduction of principal or interest is in default for 90 days or
more unless the loan is both well secured and in the process of collection.
At the time a loan is placed in non-accrual status, all interest accrued
but not yet collected is reversed against current interest income.
Troubled debt restructurings (renegotiated loans) are loans on which
interest is being accrued at less than the original contractual rate of
interest because of the inability of the borrower to service the obligation
under the original terms of the agreement. Income is accrued at the
renegotiated rate so long as the borrower is current under the revised
terms and conditions of the agreement. Other Real Estate is real estate,
sales contracts, and other assets acquired because of the inability of the
borrower to serve the obligation of a previous loan collateralized by such
assets.
During 1997, the Company experienced rapid growth in the category of
loans to individuals, primarily in the indirect segment of the portfolio.
At December 31, 1997, the indirect segment of the portfolio totaled
approximately $88.4 million and approximately 4% of the balance was more
than 60 days past due. In December 1997, the Company made a provision for
possible loan losses of approximately $6 million in response to
deterioration in the indirect portfolio and discontinued this type of
lending. As of December 31, 1999, the balance of the indirect portfolio has
been reduced to approximately $20.6 million through normal principal
repayments and a 1998 sale of loans with balances totaling approximately
$8.1 million.
The following table sets forth the registrant's non-accrual, past
due, and renegotiated loans, for each of the last five years (dollar
figures in thousands):
Year Ended December 31,
1999 1998 1997 1996 1995
Non-accrual Loans $ 7,021 $ 6,893 $ 6,223 $ 4,718 $ 6,118
Loans past due 90 days
or more and still
accruing 686 170 1,347 1,946 539
Renegotiated Loans - 413 436 510 551
Total $ 7,707 $ 7,476 $ 8,006 $ 7,174 $ 7,208
The following table sets forth interest information for certain
non-performing loans for the year ended December 31, 1999 (dollar figures
in thousands):
Non-Accrual Loans Renegotiated Loans
Balance December 31, 1999 $ 7,021 $ -
Gross interest income that would
have been recorded if the loans
had been current in accordance
with their original terms 711 -
Amount of interest included in
net earnings. 492 -
SUMMARY OF LOAN LOSS EXPERIENCE
The Company and its subsidiary bank have historically evaluated the
adequacy of the Allowance for Possible Loan Losses on an overall basis, and
the resulting provision charged to expense has similarly been determined in
relation to management's evaluation of the entire loan portfolio. In
determining the adequacy of its Allowance for Possible Loan Losses,
management considers such factors as the size, composition and quality of
the loan portfolio, historical loss experience, current loan losses,
current potential risks, economic conditions, and other risks inherent in
the loan portfolio. In addition to provisions made within the context of
these factors, the Company made an additional provision for possible loan
losses of approximately $6 million in the fourth quarter of 1997 in
response to deterioration identified in the indirect segment of the loan
portfolio (included in the installment loans to individuals category). For
additional information on the determination of provisions, see Provision
for Possible Loan Losses in Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 of this
report.
The following table sets forth the registrant's loan loss experience for
each of the last five years (dollar figures in thousands):
Year Ended December 31,
1999 1998 1997 1996 1995
Balance at beginning of year $12,443 $15,404 $10,116 $ 9,435 $ 9,738
Charge-offs:
Commercial, financial and
agricultural 1,021 1,415 1,431 1,896 1,707
Real estate construction - 19 11 - -
Real estate mortgage 1,446 159 618 91 235
Installment loans to individuals 4,330 9,170 3,267 778 912
6,770 10,763 5,327 2,766 2,854
Recoveries:
Commercial, financial and
agricultural 672 545 522 286 865
Real estate mortgage - 243 36 26 28
Installment loans to individuals 2,829 3,414 357 259 223
3,501 4,202 915 572 1,116
Net charge-offs 3,269 6,561 4,412 2,194 1,738
Operating expense provision 4,300 3,600 9,700 2,875 1,435
Balance at end of year $13,474 $12,443 $15,404 $10,116 $ 9,435
Ratio of net charge-offs during the
year to average loans .32% .67% .44% .24% .21%
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
(dollar figures in thousands)
Year End December 31,
1999 1998 1997 1996 1995
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 4,750 26.7% $ 4,000 28.8% $ 4,000 22.5% $ 3,343 23.8% $2,475 26.2%
Real estate-construction 974 6.8 443 4.5 454 4.9 445 4.4 445 5.1
Real estate-mortgage 6,250 62.4 5,000 59.5 5,500 61.3 5,628 64.7 5,693 60.6
Installment loans
to individuals 1,500 4.1 3,000 7.2 5,450 11.3 700 7.1 822 8.1
$13,474 100.0% $12,443 100.0% $15,404 100.0% $10,116 100.0% $9,435 100.0%
The amount of the additions to the allowance for possible loan losses charged to expense for the periods indicated were based
on a variety of factors, including actual charge-offs during the year, historical loss experience, character of portfolio,
specific loan allocations, industry guidelines and an evaluation of economic conditions in the Bank's market areas. Because the
Company has historically evaluated its Allowance for Loan Losses on an overall basis, the Allowance has not been allocated by
category. The allocation shown in the table above, encompassing the major segments of the loan portfolio judged most informative
by management, represents only an estimate for each category of loans based upon historical loss experience and management's
judgement of amounts deemed reasonable to provide for the possibility of losses being incurred within each category.
</TABLE>
DEPOSITS
The following table sets forth the classification of average deposits
for the indicated periods (dollar figures in thousands):
Year ended December 31,
1999 1998 1997
Noninterest bearing demand deposits $175,739 $182,206 $187,019
Interest bearing demand deposits 365,618 337,177 293,879
Savings deposits 231,880 251,855 265,268
Time deposits 529,334 558,527 627,642
The following table sets forth the average rates paid on deposits for
the indicated periods:
Year Ended December 31,
1999 1998 1997
Interest bearing demand deposits 3.14% 3.09% 2.89%
Savings deposits 2.73 2.98 2.98
Time deposits 5.27 5.57 5.72
The following table sets forth the remaining maturities of time
deposits of $100,000 or more for the period indicated (dollar figures in
thousands):
Year Ended
December 31,
1999
Three months or less $ 62,348
Over three months to six months 59,189
Over six months to twelve months 61,254
Over twelve months 21,583
Total $204,374
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the
Registrant's equity and assets:
Year Ended December 31,
1999 1998 1997
Return on average assets 1.25% 1.69% 1.03%
Return on average equity 10.58 15.23 10.04
Dividend payout ratio 41.38 27.66 40.74
Average total shareholders' equity
to average total assets 11.82 11.07 10.26
SHORT TERM BORROWINGS
The following table sets forth a summary of the registrant's
short-term borrowings for each of the last three years (dollar figures in
thousands):
Year Ended December 31
1999 1998 1997
Balance at End of Period:
Federal funds purchased $ 4,500 $ - $33,000
Securities sold under
repurchase agreements 8,982 11,887 14,598
Other short-term borrowings 17,000 - -
Total $30,482 $11,887 $47,598
Weighted Average Interest
Rate at the end of period:
Federal funds purchased 4.75% -% 7.10%
Securities sold under
repurchase agreements 4.81 4.26 4.42
Other short-term borrowings 6.02 - -
Highest amount outstanding
at any month-end:
Federal funds purchased $18,000 $32,000 $45,200
Securities sold under
repurchase agreements 15,083 17,629 20,859
Other short-term borrowings 17,000 - 40,000
Average outstanding during
the year:
Federal funds purchased $ 1,158 $ 4,819 $ 15,004
Securities sold under
repurchase agreements 6,659 13,519 16,197
Other short-term borrowings 1,444 - 14,247
Weighted average interest
rate during the year:
Federal funds purchased 5.50% 5.89% 5.66%
Securities sold under
repurchase agreements 4.44 4.63 4.55
Other short-term borrowings 6.02 - 5.67
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
Market risk is the risk of loss arising from adverse changes in
market rates and prices, such as interest rates, foreign currency exchange
rates, commodity prices and equity prices. The Company's exposure to market
risk arises primarily from changes in interest rates.
Net interest income is the largest contributor to the earnings of the
Company. The Company's success is largely dependent upon its ability to
manage risk associated with changes in interest rates. Reducing the
volatility of net interest income by managing this risk is one of the
Company's primary objectives. Interest rate risk management is the
responsibility of the Company's Asset/Liability Management Committee
("ALCO") established by the Board of Directors. The committee is composed
of senior management representatives. ALCO actively manages the
characteristics of the Company's interest earning assets and interest
bearing liabilities. ALCO has several strategies available to manage
interest rate risk including: controlling asset mix, defining product
offerings and their maturities, establishing pricing parameters and hedging
identified risks with off-balance sheet interest rate derivative
instruments.
ALCO uses three different measurement methods to analyze and quantify
the effect of hypothetical changes in interest rates on net interest
income. The methods are static gap analysis, income simulation and market
value sensitivity. In gap analysis, the carrying amounts of rate-sensitive
assets and liabilities are grouped by expected maturity dates. The results
are summed to show a cumulative interest sensitivity "gap" between assets
and liabilities. Income simulation attempts to project net interest income
over the following twelve month period under various hypothetical interest
rate scenarios. Under income simulation, maturing and repricing assets and
liabilities are replaced at the new rates in effect at that time. Market
value sensitivity analysis measures the hypothetical effects of possible
changes in market prices of rate-sensitive assets and liabilities under
different interest rate scenarios. The following tables of financial
instruments represents the Company's static gap positions based on
estimated maturities of interest sensitive assets and liabilities, as of
December 31, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1999
Expected Maturity Date
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
Assets:
Debt Securities <F1>:
Fixed Rate $ 69,934 $ 53,333 $ 21,210 $ 14,851 $ 20,643 $235,207 $415,178 $411,010
Average rate 5.78% 6.26% 6.39% 6.47% 6.31% 6.04% 6.07%
Loans:
Fixed Rate $ 176,409 $ 136,094 $ 125,856 $109,981 $114,648 $ 61,451 $724,439 $718,865
Average rate 8.42% 8.51% 8.41% 8.03% 7.86% 8.23% 8.27%
Variable Rate $ 190,539 $ 51,388 $ 33,439 $ 18,369 $ 4,609 $114,280 $412,624 $412,560
Average rate 8.47% 8.46% 8.44% 8.34% 7.98% 8.25% 8.40%
Interest bearing
deposits: $ 1,619 $ 1,619 $ 1,619
Average Rate 4.78% 4.78%
Securities purchased
under agreements
to resell and
federal funds sold $ 2,061 $ 2,061 $ 2,061
Average Rate 6.01% 6.01%
Total interest
sensitive assets $ 440,562 $ 240,815 $ 180,505 $143,201 $139,900 $410,938
Liabilities:
Savings:
Fixed Rate $ 86,889 $ 89,208 $ 89,208 $ 53,512 $ 53,512 $ 71,360 $443,691 $443,691
Average rate 3.03% 2.41% 2.41% 2.41% 2.41% 2.41% 2.53%
Variable Rate $ 55,981 $ 6,482 $ 21,481 $ 21,481 $ 12,894 $ 30,068 $148,387 $148,387
Average rate 5.49% 5.53% 5.46% 5.46% 5.46% 5.46% 5.48%
Time Deposits:
Fixed Rate $ 464,276 $ 78,299 $ 20,072 $ 9,472 $ 8,349 $ 10,632 $591,100 $591,100
Average rate 5.44% 5.51% 5.60% 5.61% 5.70% 6.93% 5.49%
Short-Term Borrowings:
Fixed Rate $ 30,482 $ 30,482 $ 30,476
Average rate 5.48% 5.48%
Long-Term Borrowings:
Fixed Rate $ 5,000 $ 20,000 $ 40,000 $ 65,000 $ 64,581
Average rate 6.54% 6.37% 5.97% 6.14%
Total interest
sensitive liabilities $ 642,628 $ 193,989 $ 170,761 $ 84,465 $ 74,757 $112,060
Asset (liability) gap $(202,066) $ 46,826 $ 9,744 $ 58,736 $ 65,143 $298,878
Cumulative asset
(liability) gap $(202,066) $(155,240) $(145,496) $(86,760) $(21,617) $277,261
<FN>
<F1> Rates are not on a taxable equivalent basis.
</FN>
</TABLE>
<TABLE>
December 31, 1998
Expected Maturity Date
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
Assets:
Debt Securities <F1>:
Fixed Rate $209,151 $ 50,200 $ 54,239 $ 19,756 $ 8,854 $153,911 $496,111 $507,373
Average rate 4.98% 5.73% 6.21% 6.55% 6.72% 5.71% 5.51%
Loans:
Fixed Rate $232,376 $138,130 $ 94,160 $ 52,945 $ 35,103 $ 29,500 $582,214 $591,110
Average rate 8.60% 8.79% 8.95% 8.93% 8.00% 7.93% 8.66%
Variable Rate $178,507 $ 33,029 $ 26,978 $ 56,361 $ 26,906 $ 52,205 $373,986 $375,448
Average rate 7.68% 7.71% 7.67% 7.68% 7.77% 7.48% 7.66%
Interest bearing
deposits: $ 1,718 $ 1,718 $ 1,718
Average Rate 4.68% 4.68%
Securities purchased
under agreements
to resell and
federal funds sold $ 58,195 $ 58,195 $ 58,195
Average Rate 4.88% 4.88%
Total interest
sensitive assets $679,947 $221,359 $175,377 $129,062 $ 70,863 $235,616
Liabilities:
Savings:
Fixed Rate $105,976 $ 97,809 $ 97,809 $ 58,681 $ 58,681 $ 78,182 $497,138 $497,138
Average rate 2.69% 2.35% 2.35% 2.35% 2.35% 2.35% 2.42%
Variable Rate $ 53,839 $ 17,619 $ 16,416 $ 9,801 $ 9,801 $ 13,067 $120,543 $120,543
Average rate 4.53% 4.53% 4.52% 4.52% 4.52% 4.52% 4.53%
Time Deposits:
Fixed Rate $425,429 $ 81,138 $ 24,478 $ 8,094 $ 4,655 $ 461 $544,255 $548,914
Average rate 5.29% 5.87% 5.58% 5.67% 5.38% 5.58% 5.40%
Short-Term Borrowings:
Fixed Rate $ 11,887 $ 11,887 $ 11,834
Average rate 4.19% 4.19%
Long-Term Borrowings:
Fixed Rate $ 5,000 $ 5,000 $ 20,000 $ 40,000 $ 70,000 $ 72,498
Average rate 5.85% 6.54% 6.37% 5.97% 6.13%
Total interest
sensitive liabilities $602,131 $201,566 $158,703 $116,576 $ 73,137 $ 91,710
Asset (liability) gap $ 77,816 $ 19,793 $ 16,674 $ 12,486 $( 2,274) $143,906
Cumulative asset
(liability) gap $ 77,816 $ 97,609 $114,283 $126,769 $124,495 $268,401
<FN>
<F1> Rates are not on a taxable equivalent basis.
</FN>
</TABLE>
Assets maturing within one year by decreased approximately $239.3
million in 1999 when compared to 1998. The decrease is primarily
attributable to decreases in short-term debt securities and federal funds
sold used to fund the sale of four branch offices in the first quarter of
1999, and to fund loan growth. Fixed rate debt securities maturing beyond 5
years also increased by $81.3 million during 1999.
Fixed rate debt securities include collateralized mortgage
obligations ("CMO's"). CMO's were approximately $161.9 million and $159.6
million as of December 31, 1999 and 1998, respectively. Principal cash
flows for CMO's are spread over their projected amortization periods under
the interest rate environment in effect at the time the gap analysis is
performed. The timing of principal payments on CMO's, however, can be
subject to substantial volatility under different interest rate
environments due to prepayment options on the underlying mortgage loans and
their effect on the general structure of the CMO. Generally, the CMO's held
by the Company are shorter-maturity bonds structured to provide more
predictable cash flows by being less sensitive to prepayments during
periods of changing interest rates.
Principal payments on amortizing loans are based on their contractual
schedules. Additional principal prepayments are estimated, generally
between six and ten percent annually, for certain fixed rate loans. The
vast majority of variable rate loans are tied to the U.S. prime rate and
can reprice on a daily basis.
Savings (including N.O.W., money market and regular savings) accounts
have no contractual maturity. The Company considers a substantial portion
of its savings accounts as a stable source of funding (i.e. "core
balances"). Ninety percent of the lowest average monthly balance during the
two most recent years is considered "core" for purposes of estimating
maturities. In 1999, these core balances were allocated as follows: twenty-
five percent within two years, twenty-five percent within three years,
fifteen percent within four years, fifteen percent within 5 years, and
twenty percent in more than five years.
Changes in the maturities of fixed rate liabilities during 1999 were
primarily the result of time deposit growth of approximately $46.8 million
during 1999. An increase of approximately $28 million in variable rate
money market accounts during 1999 was the main reason for the change in
variable rate savings liabilities.
Fair value for debt securities is based on market prices or dealer
quotes for U.S. Treasury and U.S. Government Agency securities and quoted
market prices, if available, for other investment securities. If a quoted
market price is not available for other securities, fair value is estimated
using quoted market prices for similar securities. The fair value of loans
is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. The fair value of savings
accounts is the amount payable on demand at the reporting date. Fair value
of time deposits is estimated using rates currently offered for deposits of
similar remaining maturities but not less than carrying value at the
reporting date. The fair value of short-term and long-term borrowings is
estimated by discounting the future cash flows using the current interest
rates at which similar borrowings could be made for the same maturities.
Income simulation, another measurement tool used by the Company,
estimates net interest income over the next twelve months under different,
hypothetical interest rate scenarios. As of December 31, 1999, the
simulation model indicated a minimal change (less than 2.7 percent) in net
interest income under the different rate scenarios when compared to the
base model. For additional information on income simulation, see the
discussion under the caption "Interest Rate Risk Management" in Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1999 Annual Report to Shareholders.
The Company purchases off-balance sheet derivative instruments to
hedge interest rate exposure. As of December 31, 1999, the Company had
interest rate swap contracts with an aggregate notional value of
$40 million outstanding with an aggregate market value of approximately
$240 thousand. The Company does not believe that market risk associated
with its off-balance sheet derivative instruments as of December 31, 1999
is material to its overall market risk position.
All of the Company's financial instruments are held for other than
trading purposes.
As of December 31, 1999, the Company's equity portfolio totaled
$11.2 million. The portfolio consisted of 1) $10.3 million of Federal
Reserve Bank ("FRB") stock and Federal Home Loan Bank ("FHLB") stock, both
of which are not readily marketable and 2) unlisted equity securities.
FHLB, FRB and other unlisted equity securities are deemed to have a market
value equal to cost.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements:
Page
Independent Auditors' Report 38
Consolidated Balance Sheets 39
Consolidated Statements of Earnings 41
Consolidated Statements of Cash Flows 42
Consolidated Statements of Changes in Stockholders' Equity 44
Notes to Consolidated Financial Statements 45
Independent Auditors' Report
The Board of Directors
Grand Premier Financial, Inc:
We have audited the accompanying consolidated balance sheets of Grand
Premier Financial, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of earnings, cash flows, and
changes in stockholders' equity for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Grand Premier Financial, Inc. and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
January 24, 2000, except for Note 2,
which is as of February 22, 2000
Consolidated Balance Sheets
December 31, 1999 and 1998
(000's omitted except share and per share data)
ASSETS
1999 1998
Cash & non-interest bearing deposits $ 48,013 $ 52,994
Interest bearing deposits 1,619 1,718
Federal funds sold - 48,000
Cash and cash equivalents 49,632 102,712
Securities available for sale, at fair value 411,010 516,083
Securities purchased under agreement to resell 2,061 10,195
Loans 1,138,744 957,153
Less: Unearned income (1,681) (953)
Allowance for possible loan losses (13,474) (12,443)
Net loans 1,123,589 943,757
Bank premises and equipment 30,694 34,099
Excess cost over fair value
of net assets acquired 13,694 15,281
Accrued interest receivable 10,443 11,573
Other assets 21,516 14,541
Total assets $1,662,639 $1,648,241
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
(continued)
December 31, 1999 and 1998
(000's omitted except share and per share data)
LIABILITIES & STOCKHOLDERS' EQUITY
1999 1998
Liabilities
Non-interest bearing deposits $ 173,148 $ 199,084
Interest bearing deposits 1,183,178 1,161,936
Total deposits 1,356,326 1,361,020
Short-term borrowings 30,482 11,887
Long-term borrowings 65,000 70,000
Other liabilities 22,827 21,945
Total liabilities 1,474,635 1,464,852
Stockholders' equity
Preferred stock - $.01 par value, 2,000,000
shares authorized:
Series B convertible, $1,000 stated value
8.00%, 7,250 shares authorized,
issued and outstanding 7,250 7,250
Series C perpetual, $1,000 stated value,
8.00%, 2,000 shares authorized,
issued and outstanding 2,000 2,000
Common stock - $.01 par value
No. of Shares 1999 1998
Authorized 30,000,000 30,000,000
Issued 22,374,824 22,047,672
Outstanding 22,305,531 21,981,739 224 220
Surplus 81,764 79,056
Retained earnings 99,996 88,756
Accumulated other comprehensive income
(loss), net of tax (2,515) 6,794
Treasury stock, at cost (69,293 shares
at 12/31/99 and 65,933 shares at 12/31/98) (715) (687)
Stockholders' equity 188,004 183,389
Total liabilities & stockholders' equity $1,662,639 $1,648,241
See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings
Years ended December 31, 1999, 1998 and 1997
(000's omitted except per share data)
1999 1998 1997
Interest income
Interest & fees on loans $ 87,459 $ 86,990 $ 90,192
Interest & dividends on
investment securities:
Taxable 15,683 18,469 21,873
Exempt from federal income tax 8,708 8,451 7,771
Other interest income 1,930 2,745 785
Interest income 113,780 116,655 120,621
Interest expense
Interest on deposits 45,687 49,046 52,266
Interest on short-term borrowings 726 909 2,404
Interest on long-term borrowings 4,331 4,340 2,496
Interest expense 50,744 54,295 57,166
Net interest income 63,036 62,360 63,455
Provision for possible loan losses 4,300 3,600 9,700
Net interest income after provision
for possible loan losses 58,736 58,760 53,755
Other income
Service charges on deposits 4,875 5,657 5,715
Trust fees 3,748 3,494 3,207
Investment securities gains (losses), net (113) 20,196 7,669
Gains on sales of branches and deposits 7,869 - -
Other operating income 4,452 3,700 3,875
Other income 20,831 33,047 20,466
Other expenses
Salaries 18,379 19,082 20,052
Pension, profit sharing & other
employee benefits 5,683 4,925 4,149
Net occupancy of bank premises 4,417 4,585 4,686
Furniture & equipment 3,689 3,964 3,772
Data processing 1,325 2,045 1,857
Professional services 1,746 2,089 1,637
Amortization of excess cost over
fair value of net assets acquired 1,587 1,604 1,604
Merger related costs 1,214 - -
Other 10,963 11,549 11,826
Other expenses 49,003 49,843 49,583
Earnings before income taxes 30,564 41,964 24,638
Income tax expense 10,555 14,564 7,668
Net earnings $ 20,009 $ 27,400 $ 16,970
Earnings per share
Basic $.87 $1.21 $.74
Diluted $.86 $1.17 $.73
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(000's omitted)
1999 1998 1997
Cash flows from operating activities:
Net earnings $ 20,009 $ 27,400 $ 16,970
Adjustments to reconcile net earnings to
net cash from operating activities:
Amortization net, related to:
Investment securities (430) 752 1,034
Excess cost over fair value of
net assets acquired 1,587 1,604 1,604
Other 966 366 771
Depreciation 3,911 4,070 3,569
Provision for possible loan losses 4,300 3,600 9,700
(Gain) Loss on sales related to:
Branches and deposits (7,869) - -
Investment securities 113 (20,196) (7,669)
Loans sold to secondary market (450) (656) (264)
Other real estate owned (51) (164) (142)
Bank premises and equipment (276) - -
Loans originated for sale (25,251) (74,202) (29,567)
Loans sold to secondary market 25,701 74,858 29,567
Deferred income tax expense (benefit) 1,859 6,431 (4,425)
Change in:
Other assets (1,737) 14,495 (14,307)
Other liabilities 1,749 (3,975) 11,966
Net cash from operating activities 24,131 34,383 18,807
Cash flows from investing activities:
Purchase of securities available for sale (173,317) (413,790) (116,304)
Proceeds from:
Maturities of securities available for sale 221,056 303,840 104,225
Sales of securities available for sale 42,221 55,048 107,833
Sales of other real estate owned 810 2,098 1,201
Sales of bank premises and equipment 1,373 - -
Net (increase) decrease in loans (185,688) 64,605 (67,055)
Purchase of bank premises & equipment (1,618) (3,051) (5,656)
Net (increase) decrease in securities
purchased under resale agreements 8,134 9,727 (15,517)
Net cash from investing activities $(87,029) $ 18,477 $ 8,727
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(continued)
(000's omitted)
1999 1998 1997
Cash flows from financing activities:
Net increase (decrease) in:
Deposits $ 80,429 $ 30,489 $(86,863)
Short-term borrowings 18,595 (35,711) 24,112
Proceeds from long-term borrowings - - 40,000
Repayment of long-term borrowings (5,000) - -
Payments for deposits included
in branch sales (77,254) - -
Cash dividends paid (8,738) (7,947) (7,142)
All other financing activities 1,786 (640) 65
Net cash from financing activities 9,818 (13,809) (29,828)
Increase (decrease) in cash and
cash equivalents (53,080) 39,051 (2,294)
Cash and cash equivalents, beginning of year 102,712 63,661 65,955
Cash and cash equivalents, end of year $ 49,632 $102,712 $ 63,661
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 50,104 $ 55,065 $ 57,367
Income taxes 6,950 4,475 11,911
Non-cash activities:
Loans transferred to other real
estate owned 604 176 986
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
(000's omitted except per share data)
Accumulated
Other
Comprehensive
Preferred Common Retained Income (Loss), Treasury
Stock Stock Surplus Earnings Net of Tax Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 $ 9,250 $220 $78,938 $59,860 $ 9,815 $ 0 $158,083
Net earnings 16,970 16,970
Other comprehensive income,
net of tax:
Unrealized gains on securities,
net of reclassification
adjustment 4,734 4,734
Comprehensive income 21,704
Cash dividends on
common stock ($.30 per share) (6,603) (6,603)
Cash dividends on
preferred stock (740) (740)
Exercised stock options 65 65
Balance December 31, 1997 $ 9,250 $220 $79,003 $69,487 $14,549 $ 0 $172,509
Net earnings 27,400 27,400
Other comprehensive income,
net of tax:
Unrealized losses on securities,
net of reclassification
adjustment (7,755) (7,755)
Comprehensive income 19,645
Cash dividends on
common stock ($.34 per share) (7,391) (7,391)
Cash dividends on
preferred stock (740) (740)
Purchase of treasury stock (687) (687)
Exercised stock options 53 53
Balance December 31, 1998 $ 9,250 $220 $79,056 $88,756 $ 6,794 $(687) $183,389
Net earnings 20,009 20,009
Other comprehensive income,
net of tax:
Unrealized losses on securities,
net of reclassification
adjustment (9,309) (9,309)
Comprehensive income 10,700
Cash dividends on
common stock ($.36 per share) (8,029) (8,029)
Cash dividends on
preferred stock (740) (740)
Purchase of treasury stock (28) (28)
Exercised stock options 4 2,708 2,712
Balance December 31, 1999 $ 9,250 $224 $81,764 $99,996 $(2,515) $(715) $188,004
</TABLE>
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of operations
Grand Premier Financial, Inc. (the "Company") is a registered bank holding
company organized in 1996 under Delaware law. The operations of the Company and
its subsidiaries consist primarily of those financial activities, including
trust and investment services, common to the commercial banking industry. The
Company's markets are throughout northern Illinois.
Principles of presentation
The accompanying consolidated financial statements conform to generally accepted
accounting principles and to general practices within the banking industry. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reporting period. Actual
results could differ from those estimates.
The accompanying consolidated financial statements include the financial
information of the Company and its subsidiaries, all of which are wholly owned.
Significant intercompany balances and transactions have been eliminated.
Securities available for sale
Securities classified as securities available for sale are carried at fair
value. Unrealized gains and losses, net of income taxes, are excluded from
earnings but are included in accumulated other comprehensive income (loss) as a
component of stockholders' equity. Gains or losses on sale of securities are
determined on the basis of specific identification.
Investments held-to-maturity
Investments held-to-maturity are stated at cost adjusted for amortization of
premiums and accretion of discounts using the level yield method over the life
of the security. Management has the positive intent and ability to hold these
investment securities to maturity. The Company has no investments designated as
held-to-maturity at December 31, 1999 and 1998.
Loans
Loans are stated at face value less unearned discounts. Interest income on loans
not discounted is computed on the principal balance outstanding. Interest income
on discounted loans is computed on a basis which results in an approximate level
rate of return over the term of the loan. Accrual of interest is discontinued on
a loan when management believes that the borrower's financial condition is such
that collection of interest is doubtful.
Impaired loans
Impaired loans are loans for which it is probable that the creditor will be
unable to collect all amounts due according to the terms of the loan agreement.
The specific factors that influence management's judgment in determining when a
loan is impaired include evaluation of the financial strength of the borrower
and the fair value of the collateral. A loan is not impaired during a period of
"minimum delay" in payment, regardless of the amount of shortfall, if the
ultimate collectibility of all amounts due is expected. The Company defines
"minimum delay" as past due less than 90 days. Large groups of homogeneous loans
such as real estate-residential and loans to individuals are collectively
evaluated for impairment.
Impaired loans are measured and reported based on the present value of expected
cash flows discounted at the loan's effective interest rate, or at the fair
value of the loan's collateral if the loan is deemed "collateral dependent." A
valuation allowance is required to the extent that the measure of the impaired
loans is less than the recorded investment.
The Company applies the measurement methods described above to loans on a
loan-by-loan basis. The Company's impaired loans are nonaccrual loans, as
generally loans are placed on nonaccrual status on the earlier of the date that
principal or interest amounts are 90 days or more past due or the date that
collection of such amounts is judged uncertain based on evaluation of the
financial strength of the borrower and the fair market value of the collateral.
Restructured loans are impaired loans in the year of restructuring; thereafter,
such loans are subject to management's evaluation of impairment based on the
restructured terms.
An impaired loan, or portion thereof, is charged-off when the impaired loan is
considered uncollectible or when transferred to foreclosed properties and the
collateral value is less than the outstanding loan balance.
Consistent with the Company's method for nonaccrual loans, interest receipts on
impaired loans are recognized as interest income or are applied to principal if
the ultimate collectibility of principal is in doubt.
Allowance for possible loan losses
The allowance for possible loan losses is increased by provisions charged to
expense and recoveries on loans previously charged off, and reduced by loans
charged off in the period. The allowance is based on past loan loss experience,
management's evaluation of the loan portfolio considering current economic
conditions and such other factors, which in management's best judgement, deserve
current recognition in estimating loan losses. Regulatory examiners may require
the Company to recognize additions to the allowance based upon their judgments
about information available to them at the time of their examination.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation expense is computed by the straight line method
for furniture and equipment and both the straight line method and the declining
balance method for buildings based on the estimated useful lives of the assets.
Rates of depreciation are based on the following: buildings 31-40 years and
equipment 3-15 years. Cost of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are reflected as expense when incurred.
Excess cost over fair value of net assets acquired
The excess cost over fair value of net assets acquired is being amortized over
25 years for acquisitions prior to 1985, and over 15 years for acquisitions
subsequent to that date using the straight line method.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company and its subsidiaries will file a
consolidated federal income tax return for 1999, with the exception of
GNB Realty, LLC which will file a separate return as a Real Estate Investment
Trust. The Company and its subsidiaries, excluding GNB Management, LLC which
will file separately, will file a consolidated state income tax return for 1999.
Stock Option Plan
The Company follows SFAS No. 123, "Accounting for Stock-based Compensation"
("SFAS No. 123"). SFAS No. 123 permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Earnings per share
Basic earnings per share is computed by dividing net income less preferred stock
dividends by the average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income less preferred
stock dividends excluding dividends on convertible preferred stock by the
average number of common shares outstanding during the period plus the average
number of shares that would be issued upon exercise of dilutive stock options
using the treasury method plus the average number of shares that would be
issued upon conversion of dilutive convertible preferred stock.
All share and per share amounts have been restated for a 10% stock dividend
distributed December 1, 1998 to shareholders of record on November 15, 1998.
Cash and non-interest bearing deposits
Cash and non-interest bearing deposits include reserve balances that the
Company's subsidiary bank may be required to maintain with the Federal Reserve
Bank of Chicago. These required reserves vary and are based principally on
deposits outstanding and the amount of vault cash on hand. The bank did not have
reserve balance requirements as of December 31, 1999 and 1998.
Statements of Cash Flows
For purposes of Statements of Cash Flows, cash and cash equivalents consists of
cash, due from banks and federal funds sold.
Derivative financial instruments
Derivatives used by the Company consist of off-balance sheet interest rate
contracts. These instruments are used by the Company to assist in asset and
liability management activities which include hedging of specific groups of
on-balance sheet assets. Amounts to be paid or received are recognized as an
adjustment to interest income relating to the specific group of assets hedged.
Premiums paid are amortized over the life of the contract as an adjustment to
interest income relating to the group of assets hedged. Any gain or loss upon
the early termination of a contract would be deferred and amortized as an
adjustment to interest income.
Financial reporting of segments
Operating segments are components of an enterprise for which separate financial
information is available, and is evaluated regularly by management in deciding
how to allocate resources and in assessing performance. SFAS 131 establishes
standards for related disclosures about products, services, geographic areas,
and major customers. The Company operates as a single segment.
Basis of presentation
Certain amounts for 1997 and 1998 have been reclassified to conform to the 1999
presentation.
2. Merger
The Company signed a definitive agreement on September 9, 1999 for the merger of
Grand Premier Financial Inc., into a wholly owned subsidiary of Old Kent
Financial Corporation. The merger is intended to be structured as a pooling-of-
interests for accounting purposes and as a tax free exchange of shares. Under
the terms of the merger agreement, each share of Grand Premier Financial, Inc.
common stock will be converted into 0.4231 shares of Old Kent Financial
Corporation common stock and each share of Grand Premier Financial, Inc.
preferred stock will be converted into one share of Old Kent Financial
Corporation preferred stock with substantially identical terms. The stockholders
of Grand Premier Financial, Inc. approved the merger at a special meeting of
stockholders on February 22, 2000. The merger, which is subject regulatory
approval, is expected to be consummated early in the second quarter of 2000.
3. Securities Available for Sale
The amortized cost and approximate fair value of securities available for sale
at December 31, 1999 are as follows (in thousands):
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury obligations $ 33,327 $ 82 $ (149) $ 33,260
U.S. Government agencies 30,011 - (377) 29,634
Obligations of state &
political subdivisions 151,639 1,701 (3,370) 149,970
Corporate debt securities 6,557 7 (286) 6,278
Mortgage-backed securities 182,475 263 (2,039) 180,699
Equity securities 11,169 - - 11,169
$415,178 $ 2,053 $(6,221) $411,010
The amortized cost and approximate fair value of securities available for sale
at December 31, 1998 are as follows (in thousands):
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury obligations $ 52,018 $ 725 $ - $ 52,743
U.S. Government agencies 72,844 421 (106) 73,159
Obligations of state &
political subdivisions 158,833 8,891 (322) 167,402
Corporate debt securities 25,845 119 (47) 25,917
Mortgage-backed securities 186,571 1,842 (261) 188,152
Equity securities 8,710 - - 8,710
$504,821 $11,998 $ (736) $516,083
The amortized cost and fair value of securities available for sale as of
December 31, 1999 by contractual maturity are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
(In thousands) Approximate
Amortized Fair
Cost Value
Due in one year or less $ 33,534 $ 33,360
Due after one year through five years 51,933 52,059
Due after five years through ten years 28,400 28,582
Due after ten years 107,667 105,141
Mortgage-backed and equity securities 193,644 191,868
$415,178 $411,010
Proceeds from sales of securities available for sale during 1999 were
$42,221,000. Gross gains of $526,000 and gross losses of $639,000 were realized
on those sales. During 1998, proceeds from sales of securities available for
sale were $55,048,000. Gross gains of $20,224,000 and gross losses of $28,000
were realized on those sales. During 1997, proceeds from sales of securities
available for sale were $107,833,000. Gross gains of $8,835,000 and gross losses
of $1,166,000 were realized on those sales.
On December 31, 1999, securities with a carrying value of approximately
$290,517,000 were pledged to secure funds and trust deposits, FHLB advances, and
for other purposes as required or permitted by law.
4. Loans
The following is a summary of loans by major classification as of
December 31, 1999 and 1998 (in thousands):
1999 1998
Commercial, financial and
agricultural loans $303,892 $275,450
Real estate-construction loans 77,612 43,250
Real estate-mortgage loans 710,676 569,851
Loans to individuals 46,564 68,602
$1,138,744 $957,153
The Company services loans for others. The total principal balance outstanding
on serviced loans was $144,148,000 and $139,315,000 as of December 31, 1999
and 1998, respectively. Custodial escrow balances maintained in connection with
the foregoing loan servicing and included in demand deposits were approximately
$575,000 and $502,000 at December 31, 1999 and 1998, respectively.
A summary of changes in the allowance for possible loan losses for the three
years ended December 31 is as follows (in thousands):
1999 1998 1997
Balance beginning of year $12,443 $15,404 $10,116
Provision for possible loan losses 4,300 3,600 9,700
Less: loans charged off (6,770) (10,763) (5,327)
Recoveries 3,501 4,202 915
Balance end of year $13,474 $12,443 $15,404
The recorded investment in impaired loans at December 31, 1999 and 1998 was
$7,021,000 and $6,893,000, respectively. The recorded investment in loans for
which an impairment has been recognized was $637,000 and $1,134,000 and the
related allowance for possible loan losses was $120,000 and $533,000 at
December 31, 1999 and 1998, respectively. The average recorded investment in
impaired loans during 1999, 1998 and 1997 was $5,078,000, $7,394,000 and
$4,085,000, respectively. Interest income recognized on impaired loans during
1999, 1998 and 1997 was approximately $492,000, $481,000 and $355,000,
respectively. Had interest on such loans been accrued, interest and fees on
loans in the accompanying consolidated statements of earnings would have been
greater by approximately $219,000, $294,000 and $240,000 in 1999, 1998 and 1997,
respectively.
The Company's subsidiary bank makes loans to its executive officers, directors,
principal holders of the Company's equity securities and to associates of such
persons. These loans were made in the ordinary course of business on the same
terms and conditions, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other customers and do
not involve more than a normal risk. The following is a summary of activity with
respect to such loans for the latest fiscal year (in thousands):
Balance, January 1, 1999 $ 9,790
New loans 5,622
Less repayments (2,563)
Balance, December 31, 1999 $12,849
5. Bank premises and equipment
Bank premises and equipment are recorded at cost less accumulated depreciation
as follows at December 31, 1999 and 1998 (in thousands):
1999 1998
Land $ 7,140 $ 6,621
Buildings and improvements 35,034 37,299
Furniture, fixtures and equipment 15,834 17,750
58,008 61,670
Less accumulated depreciation 27,314 27,571
$30,694 $34,099
6. Short-term borrowings
The following is a summary of short-term borrowings and securities sold under
agreements to repurchase at December 31, 1999 and 1998 (in thousands):
1999 1998
Federal funds purchased, 4.75% $ 4,500 $ -
FHLB advance, 6.02%, due February 1, 2000 17,000 -
Securities sold under agreements to repurchase 8,982 11,887
$30,482 $11,887
At December 31, 1999 and 1998, there were no material amounts of assets at risk
with any one customer under agreements to repurchase securities sold. At
December 31, 1999 and 1998 securities sold under agreements to repurchase are
summarized as follows (in thousands):
Weighted
Average Collateral Collateral
Repurchase Interest Book Market
Liability Rate Value Value
1999
Demand $ 3,689 4.13% $ 9,244 $ 9,318
Term 5,293 5.29 5,429 5,441
$ 8,982 4.81% $14,673 $14,759
1998
Demand $ 8,091 3.54% $12,341 $12,417
Term 3,796 5.81 4,989 4,950
$11,887 4.26% $17,330 $17,367
7. Long-term borrowings
At December 31, 1999 and 1998, long-term borrowings consisted of the following
(in thousands):
1999 1998
FHLB advances, 5.85%, interest payable
monthly, matured December 20, 1999 $ - $ 5,000
FHLB advances, 6.54%, interest payable
monthly, due August 23, 2000 5,000 5,000
FHLB advances, 6.75%, interest payable
monthly, due July 2, 2001 5,000 5,000
FHLB advances, 6.24%, interest payable
monthly, due November 6, 2001 15,000 15,000
FHLB advances, 5.97%, interest payable
monthly, due October 7, 2002 40,000 40,000
$65,000 $70,000
Advances from the Federal Home Loan Bank (FHLB) are collateralized by a blanket
lien on the Company's loans secured by first liens on 1-4 family residential
properties. At December 31, 1999, debt securities with an approximate carrying
value of $48,323,000 and the Company's FHLB stock with an approximate carrying
value of $7,924,000 are also pledged against advances from the Federal Home Loan
Bank.
8. Employee Benefit Plans
The Company has a savings and stock plan for officers and employees. Company
contributions to the plan are discretionary. The plan includes provisions for
employee contributions which are considered tax-deferred under Section 401(k) of
the Internal Revenue Code. Total expense was $1,432,000 for 1999, $761,000 for
1998 and $697,000 for 1997.
The Company has stock option plans for key employees and non-employee Directors.
Options are granted at the fair market value of the stock at the grant date.
Options vest at the rate of 20% of granted shares at the end of each year in the
succeeding five year period after the grant date, with the exception of 120,000
options granted in 1996 which vested ratably over a three year period beginning
September 23, 1997. The plan for key employees provides for adjusting the total
number of shares of common stock that may be available for options under the
Plan on January 1, of each calendar year, so that the total number of shares of
common stock that may be issued and sold under the Plan as of January 1 of each
calendar year to be equal to four percent (4%) of the outstanding shares of
common stock of the Company on such date; provided, however, that no such
adjustment will reduce the total number of shares of common stock that may be
issued and sold under the plan below 400,000. A total of 200,000 shares of
common stock were authorized for issuance under the non-employee director stock
option plan.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method contained in SFAS No.123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
1999 1998 1997
Net Income As reported $20,009 $27,400 $16,970
Pro forma $19,864 $27,258 $16,782
Earnings per share
Basic As reported $ .87 $1.21 $ .74
Pro forma $ .86 $1.21 $ .73
Diluted As reported $ .86 $1.17 $ .73
Pro forma $ .85 $1.17 $ .72
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for 1999, 1998
and 1997, respectively; risk-free interest rates of 5.7%, 4.8% and 5.7%;
expected dividend yield of 3.0% and expected life of 10 years; and expected
volatility of 35%, 35% and 28%. The weighted fair value of each of the options
granted in 1999, 1998 and 1997 was $5.18, $4.40 and $4.19, respectively.
A summary of the status of the Company's stock option plans as of and for each
of the years in the three year period ended December 31, 1999 is presented
below.
Number
of options Exercise price
Outstanding at January 1, 1997 595,322 2.03 to 9.77
Granted 95,150 13.07
Exercised (20,772) 2.57 to 5.84
Forfeited (18,685) 5.60 to 9.77
Outstanding at December 31, 1997 651,015 2.03 to 13.07
Granted 112,200 12.13 to 14.66
Exercised (49,824) 2.03 to 5.84
Forfeited (26,721) 9.77 to 13.07
Outstanding at December 31, 1998 686,670 $ 2.23 to $14.66
Granted 95,000 14.06
Exercised (338,169) 2.23 to 14.66
Forfeited (6,550) 12.13 to 13.07
Outstanding at December 31, 1999 436,951 $ 2.23 to $14.66
The following table summarizes information about stock options outstanding at
December 31, 1999.
Number Remaining Number
Exercise Price of Shares Contractual Life Exercisable
2.23 7,825 1 year 7,825
3.70 5,159 2 years 5,159
5.84 6,194 4 years 6,194
5.60 23,547 5 years 10,925
9.77 119,546 7 years 84,345
13.07 74,580 8 years 25,080
14.66 20,900 8 years 3,300
12.13 84,200 9 years 15,080
14.06 95,000 10 years -
436,951 157,908
The Company has a Deferred Compensation Plan for Directors and certain officers
designated by the Board of Directors. Participants may elect to defer up to 50%
of salary, 100% of any bonus or 100% of director fees under the Plan. The
Company makes a 25% matching contribution. Seventy-five thousand shares are
registered for purchase by the Plan (not including shares registered in
connection with and held by a predecessor plan). Company contributions are 100%
vested on the earlier of 1) the end of the sixth full year of employment with
the Company, 2) normal retirement, 3) employment termination due to death or
disability, or 4) a change of control of the Company. Total expense was
approximately $158,000 in 1999, $157,000 in 1998, and $135,000 in 1997.
9. Stockholders' equity
On September 28, 1998, the Company declared a 10% stock dividend to be
distributed on December 1, 1998 to shareholders of record on November 15, 1998.
All share information has been restated to reflect the stock dividend.
The Company's Series B Preferred Stock is convertible into 936,852 shares of
common stock at the option of the holder.
Under the Company's shareholder rights plan, each share of common stock entitles
its holder to one right. Under certain conditions, each right entitles the
holder to purchase one one-hundredth of a share of Junior Preferred Stock at a
price of $24.7727 per share, subject to adjustment. The rights will only be
exercisable if a person or group has acquired, or announced an intention to
acquire 15% or more of the outstanding shares of Company common stock or any
person or group would be the beneficial owner of 30% or more of the voting power
of the Company. Under certain circumstances, including the existence of a 15%
acquiring party, each holder of a right, other than the acquiring party, will be
entitled to purchase at the exercise price Company common stock having a market
value of two times the exercise price. The rights may be redeemed at a price of
$.01 per right prior to the existence of a 15% acquiring party. On September 9,
1999, the Company and Grand Premier Trust and Investment, Inc., N.A., as rights
agent, amended the shareholder rights plan to make the plan inapplicable to the
transactions contemplated by the merger with Old Kent Financial Corporation (see
Note 2 to the consolidated financial statements). The rights will expire on June
30, 2006. The rights do not have voting or dividend rights and until they become
exercisable, have no dilutive effect on the earnings of the Company.
10. Regulatory matters
The Company and its banking subsidiary are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and its banking subsidiary must meet specific capital guidelines
that involve quantitative measures of each entities' assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and its banking subsidiary capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its banking subsidiary to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). As of December 31, 1999 the Company and
its banking subsidiary met all regulatory capital adequacy requirements. As of
December 31, 1999 and 1998, the Company and its banking subsidiary were
categorized as well capitalized under the regulatory framework. There are no
conditions or events since year end that management believes have changed that
categorization.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
($ Amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to risk weighted assets):
Grand Premier Financial, Inc. $189,746 13.94% $108,902 8.00% $136,128 10.00%
Grand National Bank 179,613 13.34 107,681 8.00 134,602 10.00
Tier 1 Capital (to risk weighted assets):
Grand Premier Financial, Inc. 176,272 12.95 54,451 4.00 81,677 6.00
Grand National Bank 166,138 12.34 53,841 4.00 80,761 6.00
Tier 1 Capital (to average assets):
Grand Premier Financial, Inc. 176,272 11.12 63,410 4.00 79,262 5.00
Grand National Bank 166,138 10.58 62,788 4.00 78,484 5.00
As of December 31, 1998:
Total Capital (to risk weighted assets):
Grand Premier Financial, Inc. $173,092 14.82% $93,425 8.00% $116,781 10.00%
Grand National Bank 163,040 14.13 92,295 8.00 115,369 10.00
Tier 1 Capital (to risk weighted assets):
Grand Premier Financial, Inc. 160,649 13.76 46,713 4.00 70,069 6.00
Grand National Bank 150,597 13.05 46,148 4.00 69,221 6.00
Tier 1 Capital (to average assets):
Grand Premier Financial, Inc. 160,649 9.99 64,309 4.00 80,387 5.00
Grand National Bank 150,597 9.48 63,565 4.00 79,456 5.00
</TABLE>
Certain legal and regulatory restrictions exist regarding the payment of
cash dividends from the banking subsidiary to the Company. Although the
Company is not subject to these restrictions, future Company cash
dividends may depend upon dividends from the banking subsidiary.
11. Income taxes
The components of consolidated income tax expense (benefit) for the
years ended December 31, 1999, 1998, and 1997 are as follows (in
thousands):
1999 1998 1997
Current $ 8,696 $ 8,133 $12,093
Deferred 1,859 6,431 (4,425)
Total income tax expense $10,555 $14,564 $ 7,668
The actual tax expense differs from the expected tax expense computed by
applying the Federal Corporate tax rate of 35% to earnings before income
taxes as follows (in thousands):
1999 1998 1997
Federal income tax expense
at statutory rate $10,697 $14,688 $8,623
Tax-exempt income, net of disallowed
interest deduction (2,698) (2,639) (2,503)
State income tax expense, net of
federal income tax benefit 400 1,772 931
Change in valuation allowance 1,108 - -
Goodwill amortization 555 561 561
Nondeductible merger related costs 425 - -
Other, net 68 182 56
Total income tax expense $10,555 $14,564 $7,668
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below (in thousands):
1999 1998
Deferred tax assets
Securities - section 475 adjustments $ 138 $ 1,509
Loans, principally due to allowance for losses 5,345 4,936
Deferred compensation 2,255 2,201
Book depreciation in excess of tax depreciation 193 167
Other 545 511
Total gross deferred tax assets 8,476 9,324
Less: Valuation allowance (913) -
Net deferred tax assets 7,563 9,324
Deferred tax liabilities:
Security accretion 112 90
Difference between tax and book basis of
assets acquired 221 280
Deferred loan fees 180 240
Other 201 6
Total gross deferred tax liabilities 714 616
Net deferred tax asset before unrealized
gain on securities available for sale 6,849 8,708
Unrealized (gains) losses on securities
available for sale 1,654 (4,468)
Less: Valuation allowance (195) -
Net deferred tax asset $ 8,308 $ 4,240
The Company recorded a valuation allowance as of December 31, 1999 of
$913,000 related to the gross deferred tax asset of $8,476,000 and a
valuation allowance of $195,000 related to the deferred tax asset from
unrealized losses on securities available for sale of $1,654,000.
Management believes future state taxable income is not reasonably
assured, accordingly, a valuation allowance has been established on
deferred state tax assets.
12. Financial instruments with off-balance sheet risk and contingencies
The company utilizes various financial instruments with off-balance sheet
risk to meet the financing needs of its customers, to generate profits
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments, many of which are considered "off-balance sheet"
transactions, involve to varying degrees, credit and interest rate risk
in excess of the amount recognized as either an asset or liability in the
consolidated balance sheets.
Credit risk is the possibility that a loss may occur because a party to a
transaction failed to perform according to the terms of the contract.
Interest rate risk is the possibility that future changes in market
interest rates will cause a financial instrument to be less valuable or
more onerous. The Company controls the credit risk arising from these
instruments through its credit approval process and through the use of
risk control limits and monitoring procedures. The Company uses the same
credit policies when entering into financial instruments with off-balance
sheet risk as it does for on-balance sheet instruments. At December
31, 1999 and 1998, such commitments and off-balance sheet financial
instruments are as follows (in thousands).
1999 1998
Letters of credit $ 15,288 $ 18,088
Lines of credit and other loan commitments 392,359 333,906
$407,647 $351,994
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loan facilities to customers.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
The Company uses off-balance sheet derivatives as an end user in
connection with its risk management activities. The derivatives currently
used are interest rate products and are used to manage interest rate risk
relating to specific groups of on-balance sheet assets. The market and
credit risks associated with these products, as well as the operating
risks, are similar to those relating to other types of financial
instruments. Market risk is the exposure created by potential
fluctuations in interest rates and other values, and is a function of the
product type, the volume of transactions, the tenor and terms of the
agreement, and the underlying volatility. Credit risk is the exposure to
loss in the event of nonperformance by the other party to the
transaction. Credit exposure at the reporting date is represented by the
fair value of instruments with a positive fair value at that date.
Balance sheet credit exposure is limited to the amount of any unrealized
gains at the reporting date.
The Company entered into two interest rate swap agreements in 1998 and
1999 as a means of hedging interest rate exposure on fixed rate loans and
certain fixed rate brokered time deposits. Interest rate swaps involve
the exchange of interest rate payments based on differentials between
specified financial indices as applied to a notional principal amount.
Amounts to be paid or received under the interest rate swap agreement are
recognized as interest income in the periods in which they accrue. Any
gain or loss on the early termination of the agreement would be deferred
and amortized as an adjustment to interest income over the remaining term
of the original agreement.
The Company also purchased an interest rate cap in 1998 as a means of
hedging interest rate exposure on collateralized mortgage obligation
securities owned by the Company. Purchased interest rate caps are used to
effectively reduce the risk of rising interest rates. Purchased interest
rate caps are option contracts that require the payment of an up front
fee or premium for the right to receive interest payments on a contract
notional amount when a specified rate index rises above a strike rate
during the life of the contract. Premiums paid are amortized over the
term of the contract as an adjustment to interest income. Amounts
received under the agreement are recorded in interest income as earned.
A summary of off-balance sheet interest rate derivatives outstanding at
December 31, 1999 and 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Notional Credit
Type Amount Maturity Exposure Terms
<S> <C> <C> <C> <C>
December 31, 1999:
Swap $10,000 April 9, 2001 $ 83 Company pays 5.85% and receives 3 Month LIBOR
Swap 10,000 July 29, 2009 133 Company pays 3 Month LIBOR less .125% and receives 7.0%
Cap 20,000 August 5, 2000 24 Company receives 5 Year CMT less 6.5%
December 31, 1998:
Swap $10,000 April 9, 2001 - Company pays 5.85% and receives 3 Month LIBOR
Cap 20,000 August 5, 2000 6 Company receives 5 Year CMT less 6.5%
</TABLE>
There are various claims pending against the Company and its subsidiaries
arising in the normal course of business. Management believes, based
upon the opinion of counsel, that liabilities arising from these
proceedings, if any, will not be material to the Company's financial
position or liquidity.
13. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practical to
estimate that value:
Securities
For U.S. Treasury and U.S. Government Agency securities, fair values are
based on market prices or dealer quotes. For other investment
securities, fair value equals quoted market price if available. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposits
The fair value of demand deposits, savings accounts, NOW and money market
accounts is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities, but
not less than carrying value at the reporting date.
Short-term and Long-term Borrowings
The fair value of short-term and long-term borrowings is estimated by
discounting the future cash flows using the current interest rates at
which similar borrowings could be made for the same maturities.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counter parties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counter
parties at the reporting date. The fair value of these commitments is not
material.
Off-Balance Sheet Derivative Instruments
The fair value of off-balance sheet interest rate contracts is based on
dealer quotes and represents the estimated amount the Company would
receive or pay to terminate the contracts.
The estimated fair value of the Company's financial instruments at
December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Cash $ 48,013 $ 48,013 $ 52,994 $ 52,994
Interest bearing deposits 1,619 1,619 1,718 1,718
Securities available
for sale 411,010 411,010 516,083 516,083
Federal funds sold and
securities purchased
under agreements to
resell 2,061 2,061 58,195 58,195
Loans, gross 1,137,063 1,131,425 956,200 966,558
Financial Liabilities:
Deposits 1,356,326 1,356,326 1,361,020 1,365,679
Short-term borrowings 30,482 30,476 11,887 11,834
Long-term borrowings 65,000 64,581 70,000 72,498
Off-Balance Sheet Items:
Interest rate contracts - 240 - (179)
14. Condensed financial information (Parent Company only)
The following is a summary of condensed financial information for the
Parent Company only (in thousands):
Condensed balance sheets - December 31, 1999 1998
Assets
Investment in subsidiaries $182,965 $179,815
Cash & interest bearing deposits 4,343 5,370
Securities available for sale 912 912
Premises and equipment 286 659
Other assets 10,867 7,022
Total assets $199,373 $193,778
Liabilities and stockholders' equity
Dividend payable $ 2,014 $ 1,984
Other liabilities 9,355 8,405
Total liabilities 11,369 10,389
Stockholders' equity 188,004 183,389
Total liabilities and stockholders' equity $199,373 $193,778
Condensed statements of earnings
For the years ended December 31, 1999 1998 1997
Income:
Dividends from subsidiaries $ 7,000 $ 5,000 $ 9,300
Investment security gains, net - 4,300 -
Other 7,927 12,070 9,270
14,927 21,370 18,570
Expenses:
Salaries 2,493 5,489 6,607
Other 6,326 5,938 3,252
8,819 11,427 9,859
Earnings before income tax
and equity in undistributed
earnings of subsidiaries 6,108 9,943 8,711
Income tax expense (benefit) 477 1,962 (215)
Earnings before equity in
undistributed earnings of
subsidiaries 5,631 7,981 8,926
Equity in undistributed earnings of
subsidiaries 14,378 19,419 8,044
Net earnings $20,009 $27,400 $16,970
Condensed statements of cash flows
For the years ended December 31, 1999 1998 1997
Operating activities:
Net cash provided by operating activities $ 5,637 $ 4,695 $ 13,166
Investing activities:
Sale of securities available for sale - 10,445 3
Purchase of securities available for sale - (22) (572)
(Purchase) disposal of bank premises
and equipment 288 263 (664)
Net advances to subsidiary - (5,700) (1,331)
Net cash provided by (used in)
investing activities 288 4,986 (2,564)
Financing activities:
Purchase of treasury stock (28) (687) -
Dividends paid (8,738) (7,947) (7,142)
Other 1,814 47 65
Net cash used in financing activities (6,952) (8,587) (7,077)
Increase in cash $(1,027) $ 1,094 $ 3,525
Cash paid (received) for:
Interest - $ (124) $ (17)
Income taxes 1,068 $ 2,543 $ (1,443)
15. Quarterly financial information (unaudited)
(in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1999
Interest income $27,068 $27,467 $29,010 $30,235
Interest expense 12,012 11,845 12,834 14,053
Net interest income 15,056 15,622 16,176 16,182
Provision for loan losses 850 450 750 2,250
Other operating income 11,502 3,221 3,149 2,959
Other operating expense 12,101 11,982 12,585 12,335
Income before income taxes 13,607 6,411 5,990 4,556
Provision for income taxes 4,659 1,822 1,739 2,335
Net income $ 8,948 $ 4,589 $ 4,251 $ 2,221
Net income per share - basic $.40 $.20 $.18 $.09
Net income per share - diluted $.38 $.20 $.18 $.09
1998
Interest income $29,202 $29,186 $29,423 $28,844
Interest expense 13,612 13,385 13,800 13,498
Net interest income 15,590 15,801 15,623 15,346
Provision for loan losses 900 900 900 900
Other operating income 3,505 4,623 21,509 3,410
Other operating expense 11,649 12,169 12,969 13,056
Income before income taxes 6,546 7,355 23,263 4,800
Provision for income taxes 2,088 2,394 8,747 1,335
Net income $ 4,458 $ 4,961 $14,516 $ 3,465
Net income per share - basic $.19 $.22 $.65 $.15
Net income per share - diluted $.19 $.21 $.62 $.15
Earnings per share amounts for 1998 have been restated for a 10% stock
dividend declared September 28, 1998.
16. Earnings per share
The following schedule reconciles net earnings to earnings available to
common stockholders and the number of average shares used in the
computation of basic and diluted earnings per share (in thousands except
share and per share data).
Year ended: 1999 1998 1997
Basic:
Net earnings $20,009 $27,400 $16,970
Less: Dividends on
preferred stock (740) (740) (740)
Earnings available to
common stockholders $19,269 $26,660 $16,230
Average common
shares outstanding 22,166,651 21,977,029 22,002,136
Basic earnings per share $ .87 $1.21 $ .74
Diluted:
Net earnings $20,009 $27,400 $16,970
Less: Dividends on
preferred stock (740) (740) (740)
Add: Dividends on convertible
preferred stock 580 580 580
Earnings available to
common stockholders $19,849 $27,240 $16,810
Average common
shares outstanding 22,166,651 21,977,029 22,002,136
Dilutive effect of:
Stock options 72,102 288,966 239,446
Convertible preferred stock 936,852 936,852 936,852
Total average shares and
assumed conversions 23,175,605 23,202,847 23,178,434
Diluted earnings per share $ .86 $1.17 $ .73
17. Comprehensive income
The Company's comprehensive income includes net income and other
comprehensive income comprised entirely of unrealized gains or losses on
securities available for sale, net of tax.
Tax
Before Tax (Expense) Net of Tax
Amount Benefit Amount
December 31, 1999
Net income $30,564 $(10,555) $20,009
Other comprehensive income:
Unrealized holding losses
arising during the period (14,617) 5,806 (8,811)
Less: reclassification adjustment
for gains included in
net income (813) 315 (498)
Net other comprehensive effect (15,430) 6,121 (9,309)
Comprehensive income $15,134 $ (4,434) $10,700
December 31, 1998
Net income $41,964 $(14,564) $27,400
Other comprehensive income:
Unrealized holding gains
arising during the period 4,100 (1,589) 2,511
Less: reclassification adjustment
for gains included in
net income (16,763) 6,497 (10,266)
Net other comprehensive effect (12,663) 4,908 (7,755)
Comprehensive income $29,301 $ (9,656) $19,645
December 31, 1997
Net income $24,638 $ (7,668) $16,970
Other comprehensive income:
Unrealized holding gains
arising during the period 13,068 (5,169) 7,899
Less: reclassification adjustment
for gains included in
net income (5,236) 2,071 (3,165)
Net other comprehensive effect 7,832 (3,098) 4,734
Comprehensive income $32,470 $(10,766) $21,704
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
DIRECTORS Age Principal Occupation and Year First Term
First Elected a Director (1) Expires
<S> <C> <C> <C>
Jean M. Barry 44 Senior Investment Officer of the 2001
Company. - 1996
Frank J. Callero 72 Partner, Callero and Callero, LLP. 2002
(certified public accountants) - 1996
Alan J. Emerick 55 Executive Vice President and Chief 2002
Administrative Officer of the Company.
- 1996
Brenton J. Emerick 75 Retired Chief Executive Officer of 2000
Northern Illinois Financial Corporation.
(bank holding company) - 1996
James Esposito 66 Executive Vice President of Grand 2001
National Bank, a subsidiary of the
Company. - 1996
Thomas D. Flanagan 62 Founding Partner, Flanagan, Bilton & 2000
Branagan. (law firm) - 1996
R. Gerald Fox 63 President and Chief Executive Officer, 2001
F.I.A. Publishing Company. (publisher
of financial books and periodicals)
- 1996
Richard L. Geach 58 Chairman of the Board, President and 2002
Chief Executive Officer of the Company.
- 1996
Noa W. Horner 53 President, The Municipal Insurance 2000
Company of America of Elgin, Illinois.
(insurance company) - 1998
Edward G. Maris 64 Private Investor. - 1996 2002
Howard A. McKee 84 Chairman of the Executive Committee. - 1996 2002
David L. Murray 57 Senior Executive Vice President and 2001
Chief Financial Officer of the Company.
- 1996
H. Barry Musgrove 65 Chairman of the Board and President, 2002
Franz Manufacturing Company. (manufacturer
of anti-friction products) - 1996
Joseph C. Piland 66 Educational Consultant and Retired 2000
President, Highland Community College.
- 1996
Stephen J. Schostok 63 Attorney and Partner, Dimonte Schostok 2001
& Lizak, Attorneys at Law. - 1996
John Simcic 70 Chairman of the Board, Maki & Associates, 2001
Inc. (d/b/a Century 21 United - real
estate sales) - 1997
</TABLE>
(1) Each Director has engaged in the principal occupation indicated for
at least five years, except as follows:
- - Jean M. Barry was Vice President, Northern Illinois Financial
Corporation from 1989 - 1996.
- - Alan J. Emerick was Executive Vice President of Northern Illinois
Financial Corporation from 1994 - 1996, Chief Executive Officer of Grand
National Bank-Niles from 1991 - 1996, and President, Grand National
Bank-Waukegan from 1995 - 1996.
- - Brenton J. Emerick was Chairman of the Board of Northern Illinois
Financial Corporation from 1988 - 1996.
- - James Esposito was Chief Executive Officer of Grand National Bank-Crete
from 1974 - 1996.
- - Richard L. Geach was President and Chief Executive Officer of Premier
Financial Services, Inc. from 1982 - 1996.
- - Edward G. Maris was Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of Northwestern Steel and Wire Company from 1986
- - 1996.
- - David L. Murray was Executive Vice President and Chief Financial
Officer of Premier Financial Services, Inc., and President of Premier
Operating Systems, Inc. from 1970 - 1996.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS Age Position(s) (1) (2)
<S> <C> <C>
Richard L. Geach 58 Chairman of the Board, President & Chief Executive
Officer of the Company and of Grand National Bank, and
a director of all of the Company's subsidiaries.
David L. Murray 57 Senior Executive Vice President, Chief Financial
Officer and a director of the Company, Grand National
Bank and Grand Premier Trust and Investment Inc. N.A.,
and President, Chief Executive Officer and a director
of Grand Premier Operating Systems, Inc.
Alan J. Emerick 55 Executive Vice President, Chief Administrative Officer
and a director of the Company and all of the Company's
subsidiaries.
Scott Dixon 45 Executive Vice President and Senior Sales Leader of
the Company and Grand National Bank.
Larry W. O'Hara 40 Executive Vice President and Senior Service Leader of
the Company and Grand National Bank, and a director of
all of the Company's subsidiaries.
William R. Theobald 50 Executive Vice President and Chief Credit Officer of
the Company and of Grand National Bank, and a director
of Grand National Bank.
Kenneth A. Urban 61 President and Chief Executive Officer and a director
of Grand Premier Trust and Investment, Inc. N.A., and
Grand Premier Insurance, Inc.
Jack R. Croffoot 49 Senior Vice President and Director of Human Resources
of the Company and all of the Company's subsidiaries.
Nanette K. Donton 28 Senior Vice President and Chief Accounting Officer of
the Company and all of the Company's subsidiaries.
Al Lutton 58 Senior Vice President and Chief Information Officer of
the Company and all of the Company's subsidiaries.
James K. Watts 36 Senior Vice President and Chief Operations Officer of
the Company and of Grand National Bank, and a director
of Grand Premier Operating Systems, Inc.
</TABLE>
(1) The Company's subsidiaries are Grand National Bank, Grand Premier
Trust and Investment, Inc. N.A., Grand Premier Insurance, Inc., Grand
Premier Operating Systems, Inc., GNB Realty, LLC, and GNB Management,
LLC.
(2) Each executive officer has held the position or office indicated, or
other comparable responsible position(s) with the Company, or with
Premier Financial Services, Inc. or Northern Illinois Financial, Inc.
which were merged into the Company in August, 1996 for at least five
years except as follows:
- - Nanette K. Donton was Supervising Senior Auditor with KPMG LLP from
1993-1997.
- - James K. Watts was Assistant Vice President/Project Manager for First
National Bank of Chicago from 1993-1995, and Assistant Vice President,
TCF Bank, N.A., from 1995-1996.
Compliance with Section 16(a) of the Exchange Act
Pursuant to Securities and Exchange Commission regulations, the
Company must disclose the names of persons who failed to file or filed
late a report required under Section 16(a) of the Securities Exchange Act
of 1934. Generally, the reporting regulations under Section 16(a)
require directors and executive officers to report changes in ownership
in the Company's equity securities. Based solely on a review of Forms 3,
4, and 5, including amendments thereto, all such forms were filed on a
timely basis by reporting persons.
Item 11. Executive Compensation
<TABLE>
<CAPTION>
Summary compensation table
Annual Compensation Long-Term
Compensation
Awards
Other Annual Securities All
Compensation Underlying Other
Name and Year Salary Bonus (1) Options (2)
Principal Position ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Richard L. Geach 1999 312,306 61,771 -0- -0- 44,844
President & Chief 1998 292,000 -0- 6,000 -0- 19,776
Executive Officer 1997 272,400 -0- 11,975 -0- 17,001
David L. Murray 1999 200,928 29,601 -0- 4,500 33,783
Sr. Executive Vice 1998 186,000 -0- 6,000 3,600 16,975
President & Chief 1997 173,370 -0- 10,600 5,500 16,711
Financial Officer
Alan J. Emerick 1999 182,064 26,573 -0- 3,800 24,855
Executive Vice 1998 168,000 -0- 6,000 3,250 11,687
President & Chief 1997 155,000 -0- 9,709 4,950 11,090
Administrative
Officer
William R. Theobald 1999 138,612 10,069 -0- 2,250 18,548
Executive Vice 1998 128,750 -0- 6,000 2,000 9,429
President & Chief 1997 125,000 -0- 3,275 3,850 13,209
Credit Officer
Kenneth A. Urban 1999 130,500 18,791 -0- 2,500 26,271
President & Chief 1998 120,700 -0- 6,000 2,250 17,324
Executive Officer 1997 116,000 -0- 5,100 3,850 14,708
of Grand Premier
Trust and Investment,
Inc. N.A.
</TABLE>
(1) Other annual compensation consists of a) board attendance fees paid
to Messrs. Geach, Murray, and Emerick (1997 only), and b) a taxable
allowance for use of automobiles owned by the executive officer for
business purposes or taxable compensation for personal use of automobiles
owned by the Company (1997 and 1998). The Company stopped providing
Company owned automobiles and also discontinued the taxable allowance
effective January 1, 1999 via a one-time adjustment of $6,000 to base
salary.
(2) Amounts accrued for the benefit of the individuals under the
Company's Savings and Stock Plan and Deferred Compensation Plan.
<TABLE>
<CAPTION>
STOCK OPTIONS AWARDED IN LAST FISCAL YEAR (1)
Individual Grants
Number of % of Potential Realizable
Securities Total Value at Assumed
Underlying Options Annual Rate of Stock
Options Granted Price Appreciation
Granted to for Option Term
Employees Exercise or
In Fiscal Base Price Expiration
Year ($/Share) Date
(#) (%) (2) (mm/dd/yy) 5% ($) 10% ($)
Name
<S> <C> <C> <C> <C> <C> <C>
Richard L. Geach -0- --- --- --- --- ---
David L. Murray 4,500 6.0 14.0625 12/20/09 39,797 100,854
Alan J. Emerick 3,800 5.1 14.0625 12/20/09 33,607 85,166
William R. Theobald 2,250 3.0 14.0625 12/20/09 19,899 50,428
Kenneth A. Urban 2,500 3.3 14.0625 12/20/09 22,109 56,030
11 Executive 27,800 37.1 14.0625 12/20/09 245,859 623,054
Officers as a
Group
2 Directors who 5,000 6.7 14.0625 12/20/09 44,219 112,061
are not Executive
Officers as a Group
(1) The Company's 1996 Non-Qualified Stock Option Plan provides that the
Board of Directors may grant options to key employees to purchase shares
of Common Stock. Non-employee directors are not eligible to participate
in the Plan. Up to 400,000 shares of Common Stock have been authorized
for issuance pursuant to the Plan. Options may be granted from time-to-
time for any number of shares, and upon such terms and conditions that
the Board of Directors judges desirable, provided that no options may be
granted after August 22, 2006. The number of shares available for grant
is adjusted annually on January 1 to the greater of 4% of the outstanding
shares on that date or 400,000. Each option granted under the Plan is
evidenced by an agreement subject to, among others, the following terms
and conditions; 1) the option price may not be less than the fair market
value of the shares on the date of grant, 2) exercised options must be
paid for in full at the time of exercise in a form as specified in the
Plan, and 3) options granted will expire as specified in the agreement,
but in no case later than 10 years from the date of grant.
(2) The fair market value of the Common Stock of the Company (i.e. the
closing price per share of Common stock) as reported on The Nasdaq Stock
Market on December 20, 1999, the date of grant.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at at Fiscal Year-End
Fiscal Year-End (1)
Shares
Acquired
on Value Not Not
Exercise Realized Exercisable Exercisable Exercisable Exercisable
(#) ($) (#) (#) ($) ($)
Name
<S> <C> <C> <C> <C> <C> <C>
Richard L. Geach 188,137 1,158,588 44,000 3,683 221,760 33,037
David L. Murray 53,243 439,562 5,169 17,886 17,057 64,549
Alan J. Emerick -0- -0- 8,583 13,339 35,202 35,016
William R. Theobald -0- -0- 6,428 9,152 26,380 25,091
Kenneth A. Urban 17,512 209,045 34,988 12,059 322,578 47,619
</TABLE>
(1) Based on the fair market value (i.e. the closing price per share of
Common Stock)on December 31, 1999, as reported on The Nasdaq Stock
Market.
Change in Control and Termination Agreements
The Company has entered into Change in Control and Termination
Agreements ("Agreements") with 11 executive officers, including Messrs.
Geach, Murray, Emerick, Theobald and Urban. In general, these Agreements
provide that if the Company undergoes a change in control and within 24
months of the change in control, either 1) the executive officer's
employment is terminated for any reason other than "good cause", or 2)
the executive officer terminates his or her employment for "good reason",
the executive officer is entitled to a severance payment. The approval by
the common stockholders of the merger between the Company and a wholly-
owned subsidiary of Old Kent Financial Corporation at the February 22,
2000 special meeting of the stockholders of the Company constituted a
"change in control" of the Company, as defined in the Change in Control
and Termination Agreements.
The severance payment is equal to: (1) a lump sum payment equal to
the executive officer's annual base salary for 12, 18 or 24 months (each
a "severance period"), depending on the terms of the particular
Agreement, (2) the continuation of coverage for the executive, his or her
spouse and dependents for the applicable severance period under the
Company's welfare plans in which the executive participated before
termination, except that substantially identical benefits must be
provided for any welfare plan in which participation is no longer
possible, (3) a lump sum payment equal to the amount of a bonus that
would have been paid to the executive under any incentive plan during the
year of termination, pro rated for the number of months actually
employed, plus an amount equal to the average bonus paid to the executive
for the three years preceding termination, (4) any benefits accrued under
any retirement, welfare, or incentive plan in which the executive
participated at date of termination, (5) a lump sum payment equal to the
amount that the Company would have contributed to its Savings and Stock
Plan and Deferred Compensation Plan, for the applicable severance period,
following the executives employment termination, had termination not
occurred and had the executive continued to make contributions and
deferrals at the same level as he or she did during the 12 months
preceding his or her employment termination, (6) immediate and full
vesting of all options so that such options become exercisable on the
date of termination or for 200 days thereafter, or, if such acceleration
is not permissible under a stock plan, a payment equal to the excess, if
any, of the aggregate fair market value of all stock of Grand Premier
subject to options held by the executive, less the aggregate exercise
price of the options to acquire the stock on the date of termination, and
(7) in some cases, outplacement services. All of the Agreements provide
that no payments to an executive may result in excess parachute payment
excise taxes under Internal Revenue Code Section 4999.
Compensation of Directors
For the year ended December 31, 1999, Directors who were not
employees of the Company were paid a) an annual retainer of $ 12,000, b)
$ 750 per meeting attended for board and committee participation, and c)
an annual stipend of $1,000 for directors who serve as committee
chairpersons. Directors who are employees of the Company are not paid
for board or committee participation. Under the Company's Deferred
Compensation Plan, directors may elect to defer receipt of up to 100% of
fees earned. The Company will match 25% of the amount deferred.
The Company's Non-Employee Director's Stock Option Plan provides
that the Board of Directors may grant options to purchase shares of
Common Stock to non-employee directors. Options may be granted from
time-to-time for any number of shares, and upon such terms and conditions
that the Board of Directors judges desirable, provided that no options
may be granted after February 22, 2008. Up to 200,000 shares of Common
Stock have been authorized for issuance under the Plan. Each option
granted under the Plan is evidenced by an agreement subject to, among
others, the following terms and conditions; 1) the option price may not
be less than the fair market value of the shares on the date of grant, 2)
exercised options must be paid for in full at the time of exercise in a
form as specified in the Plan, and 3) options granted will expire as
specified in the agreement, but in no case later than 10 years from the
date of grant.
A total of 20,000 options were granted to 10 Non-Employee
directors, namely Messrs. Callero, Brenton Emerick, Flanagan, Fox,
Horner, Maris, Musgrove, Piland, Schostok and Simcic in 1999. Each
director was granted 2,000 options at an exercise price of $14.0625 per
share, the fair market value of the Company's Common Stock as reported on
the Nasdaq Stock Market on December 20, 1999, the date of grant. The
options expire on 12/20/2009.
Howard A. McKee is retained by the Company pursuant to a consulting
agreement which was to expire December 31, 1999. The Company extended
the agreement under the same terms and conditions to April 15, 2000. Mr.
McKee received the following remuneration under the agreement in 1999; 1)
a consulting fee of $100,200, 2) a salary of $100,000, 3) participation
in the Company's benefit programs and 4) Company contributions on his
behalf under the Company's Savings and Stock Plan and Deferred
Compensation Plan. Such contributions totaled $19,735 for 1999. Mr.
McKee is also furnished with a leased automobile and a driver, and
reported $1,863 in taxable compensation for personal use in 1999.
Two other directors, James Esposito and Jean M. Barry, serve as
officers of the Company. For the year ended December 31, 1999, Mr.
Esposito received $120,000 in salary, contributions made by the Company
on his behalf totaling $8,400 to the Company's Savings and Stock Plan and
Deferred Compensation Plan, and participated in the Company's benefit
programs. For the year ended December 31, 1999, Ms. Barry received
$88,200 in salary, contributions made by the Company on her behalf
totaling $8,429 to the Company's Savings and Stock Plan and Deferred
Compensation Plan, and participated in the Company's benefit programs.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the shares of
Grand Premier Financial, Inc. common stock beneficially owned, by holders
known to the Company to have beneficially owned more than 5% of the
voting securities as of February 29, 2000:
<TABLE>
<CAPTION>
Title of Name and Address of Beneficial Owner Amount & Nature of Percent
Class Beneficial Ownership of Class
<S> <C> <C> <C>
Common Howard A. McKee 6,803,272 (1) 30.40 %
26690 Countryside Lake Drive
Mundelein, Illinois 60060
Grand Premier Trust and Investment, 1,368,536 (2) 6.11 %
Inc., N.A.
101 West Stephenson Street
Freeport, Illinois 61032
Northland Insurance Agency, Inc. 1,206,401 (3) 5.39 %
20 South Clark Street, Suite 2310
Chicago, Illinois 60603
Keeco, Inc. 1,166,360 (3) 5.21 %
20 South Clark Street, Suite 2310
Chicago, Illinois 60603
</TABLE>
(1) Includes 1,206,401 shares held by Northland Insurance Agency, Inc.
and 1,166,360 shares held by Keeco, Inc., as to which Mr. McKee shares
investment power (see Note 3 below). Excludes 555,131 shares held by
corporations that Mr. McKee's family members and/or business interests
control, as to all of which Mr. McKee disclaims beneficial interest.
(2) The shares listed in the table are held in various capacities with
Grand Premier Trust and Investment, Inc.(the "Trust Company"), and
include 536,579 shares held in the Company's Savings and Stock Plan (the
"Savings and Stock Plan") for which the Trust Company serves as trustee.
Of the 1,368,536 shares listed in the table, the Trust Company has sole
investment power with respect to 192,526 shares, shared investment power
with respect to 554,717 shares (including 536,579 shares held in
individual participant accounts in the 401(k) and profit sharing portion
of the Savings and Stock Plan), and no investment power over the
remaining 621,293 shares. The Trust Company has sole voting power with
respect to 470,489 shares, and no voting power with respect to 191,849
shares. Participants are entitled to direct the trustee as to the voting
of shares held in their accounts in either the ESOP (169,619 shares) or
401(k) (536,579 shares) portions of the Savings and Stock Plan. Shares
held in individual participant accounts for which no directions are
received will not be voted by the trustee, unless such failure to vote
would be inconsistent with the trustee's fiduciary responsibilities.
Participants have the right to direct the disposition of shares held in
the 401(k) and profit-sharing portion of the Savings and Stock Plan, but
no right to direct the disposition of shares held in the ESOP portion
until such time as an individual participant has a right to the
distribution of such shares under the terms of the ESOP. The Trust
Company, as trustee, has the right to determine whether or not to tender
any of the shares held in the Savings and Stock Plan.
(3) Mr. McKee owns individually 34.0% of the outstanding Common Stock of
Northland Insurance Agency, Inc., and with his family and associates
controls 100.0%. Mr. McKee also owns individually 49.9% of the
outstanding Common Stock of Keeco, Inc., and with his family and
associates controls 100.0%. The shares shown in the table as
beneficially owned by Northland Insurance Agency, Inc. and Keeco, Inc.
are also included in the shares shown as beneficially owned by Mr. McKee.
The following table sets forth information regarding the shares of
Grand Premier Financial, Inc. common stock beneficially owned by each
director, nominee for director, the named executive officers of the
Company, and all of the Company's directors, nominees and executive
officers as a group, as of February 29, 2000:
<TABLE>
<CAPTION>
Title of Name of Beneficial Owner Amount and Nature of Beneficial Percent
Class Ownership (1) (2) Class
<S> <C> <C> <C>
Common Jean M. Barry 666,432 (3) (4) (5) ( 6) 2.98 %
Frank J. Callero 109,100 (3) (5) ( 7) *
Alan J. Emerick 99,979 (3) (4) (5) ( 8) *
Brenton J. Emerick 722,871 (3) (5) ( 9) 3.23 %
James Esposito 8,480 (3) (5) (10) *
Thomas D. Flanagan 913,396 (3) (5) (11) 3.92 %
R. Gerald Fox 61,948 (3) (5) (12) *
Richard L. Geach 508,104 (3) (4) (5) (13) 2.27 %
Noa W. Horner 559,031 (3) (14) 2.50 %
Edward G. Maris 10,592 (3) (5) *
Howard A. McKee 6,803,272 (3) (15) 30.40 %
David L. Murray 84,805 (3) (4) (5) (16) *
H. Barry Musgrove 43,306 (3) (5) *
Joseph C. Piland 14,863 (3) (5) (17) *
Stephen J. Schostok 29,675 (3) (5) *
John Simcic 319,968 (3) (5) 1.43 %
William R. Theobald 23,700 (4) (5) *
Kenneth A. Urban 101,991 (4) (5) *
All 24 Directors and 10,738,036 (3) (4) (5) (18) [46.64]%
Executive Officers as
a Group
</TABLE>
* Indicates less than 1% of class.
(1) The information shown in this column is based upon information
furnished to Grand Premier Financial, Inc. by the individuals named in
the table. Except as set forth in the following notes, each individual
has sole voting power and investment power with respect to the shares
owned by him or her.
(2) Based upon 22,379,955 shares outstanding plus, with respect to each
beneficial owner and the group, the shares each beneficial owner and the
group has the right to acquire within 60 days of February 29, 2000
pursuant to the exercise of stock options or conversion of Series B
Preferred Stock. Shares shown as beneficially owned by more than one
beneficial owner in the table are included only once in the group to
avoid duplication.
(3) The shares listed do not include 72,576 shares held in the trust
established pursuant to the Deferred Compensation Plan over which Grand
Premier Financial, Inc. shares investment power with the trustee. Each
of the directors of the Company, in his or her capacity as a director,
may be deemed to share the Company's investment power with the other
members of the board of directors with respect to those shares.
(4) Includes shares held in the Savings and Stock Plan over which the
individual executive officer has sole voting power and shared investment
power as follows: Ms. Barry, 1,630 shares; Mr. Alan J. Emerick, 11,671
shares; Mr. Esposito, 162 shares; Mr.Geach, 110,016 shares; Mr. Murray,
6,987 shares; Mr. Theobald, 7,887 shares; Mr. Urban, 6,984 shares; all
executive officers and directors as a group, 229,401 shares. (See Note 2
above).
(5) Includes shares that could be acquired within 60 days of February
29, 2000 pursuant to the exercise of stock options as follows; Ms. Barry,
14,625 shares; Mr. Callero, 6,650 shares; Mr. Alan J. Emerick, 21,922
shares; Mr. Brenton J. Emerick, 5,170 shares; Mr. Esposito, 6,650 shares;
Mr. Flanagan, 6,100 shares; Mr. Fox, 5,890 shares; Mr. Geach, 47,683
shares; Mr. Horner, 3,900 shares; Mr. Maris, 6,650 shares; Mr. Murray,
23,045 shares; Mr. Musgrove, 6,650 shares; Mr. Piland, 5,890 shares; Mr.
Schostok, 6,650 shares; Mr. Simcic, 5,720 shares; Mr. Theobald, 15,580
shares; Mr. Urban, 47,047 shares; all executive officers and directors
as a group, 294,845 shares.
(6) Includes 8,553 shares held by Ms. Barry as custodian for minor
children. Includes 530,317 shares held by Municipal Insurance Company
and 24,814 shares held by Public Service Investment & Management
Corporation in which Ms. Barry shares investment power. Excludes 909
shares owned by Ms. Barry's spouse and 50,980 shares held in the Howard
A. McKee Descendant's Trust for which Ms. Barry's spouse serves as
trustee, as to all of which Ms. Barry disclaims beneficial ownership.
Ms. Barry is Mr. McKee's daughter.
(7) Excludes 12,568 shares held by Mr. Callero's spouse, as to all of
which Mr. Callero disclaims beneficial ownership.
(8) Excludes 24,340 shares held by Mr. Emerick's spouse, as to all of
which Mr. Emerick disclaims beneficial ownership. Alan J. Emerick is
Brenton J. Emerick's son.
(9) Excludes 159,837 shares held by Mr. Emerick's spouse, as to all of
which Mr. Emerick disclaims beneficial ownership.
(10) Excludes 45,741 shares held by Mr. Esposito's spouse, as to all of
which Mr. Esposito disclaims beneficial ownership.
(11) Includes 904,546 shares of Grand Premier Financial, Inc. Common
Stock issuable within 60 days upon conversion of $7,000,000 in stated
value of the Grand Premier Financial, Inc. Series B Preferred Stock,
which is convertible into Common Stock at $7.7387 per share. Mr.
Flanagan has full investment power over the Series B Preferred Stock.
Includes 2,750 shares held by Mr. Flanagan for the benefit of minor
children.
(12) Excludes 5,524 shares held by Mr. Fox's spouse, as to all of which
Mr. Fox disclaims beneficial ownership.
(13) Excludes 221,496 shares held by Mr. Geach's spouse, as to all of
which Mr. Geach disclaims beneficial ownership.
(14) Includes 530,317 shares held by Municipal Insurance Company and
24,814 shares held by Public Service Investment & Management Company in
which Mr. Horner shares investment power.
(15) Includes 1,206,401 shares held by Northland Insurance Agency, Inc.
and 1,166,360 shares held by Keeco, Inc., as to which Mr. McKee shares
investment power. Excludes 555,131 shares held by corporations that Mr.
McKee's family members and/or business interests control, as to all of
which Mr. McKee disclaims beneficial interest.
(16) Excludes 34,295 shares held by Mr. Murray's spouse, as to all of
which Mr. Murray disclaims beneficial ownership.
(17) Excludes 935 shares held by Mr. Piland's spouse, as to all of which
Mr. Piland disclaims beneficial ownership.
(18) Excludes 559,556 shares held by or for the benefit of spouses of
directors, nominees or executive officers, as to all of which directors,
nominees and executive officers disclaim beneficial ownership. Includes
294,845 shares which directors or executive officers could acquire within
60 days of February 29, 2000 pursuant to the exercise of stock options
(see note 5 above), and 904,546 shares issuable within 60 days of
February 29, 2000 pursuant to conversion of Grand Premier Financial, Inc.
Series B Preferred Stock (see note 11 above).
Item 13. Certain Relationships and Related Transactions
Directors and executive officers of the Company and their
associates were customers of, and have had transactions with, the Company
and in particular its subsidiary banks from time to time in the ordinary
course of business. Additional transactions may be expected to take
place in the ordinary course of business in the future. All loans and
loan commitments included in such transactions were made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and
did not involve more than normal risk of collection or present other
unfavorable features.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. The following documents are filed as a part of this report:
A. Consolidated Financial Statements included in Item 8 of this report
as follows:
1. Independent Auditors' Report.
2. Consolidated Balance Sheets, December 31, 1999 and 1998.
3. Consolidated Statements of Earnings, for the three years ended
December 31, 1999.
4. Consolidated Statements of Cash Flows, for the three years
ended December 31, 1999.
5. Consolidated Statements of Changes in Stockholders' Equity, for
the three years ended December 31, 1999.
6. Notes to the Consolidated Financial Statements.
B. Financial Statement Schedules as follows:
1. Not applicable as all required information is shown in the
financial statements or notes thereto.
C. Exhibits as follows:
The following exhibits are filed with, or incorporated by reference
in, this report. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report has been
marked with an asterisk.
2.1 Agreement and Plan of Merger, dated September 9, 1999, among
Grand Premier Financial, Inc., Old Kent Financial Corporation,
and OK Merger Corporation (incorporated by reference to Exhibit
2.1 of the Company's Current Report of Form 8-K filed September
15, 1999, Commission File No. 0-20987).
2.2 Agreement and Plan of Merger, dated January 22, 1996, among
Northern Illinois Financial Corporation, Premier Financial
Services, Inc and the Company (incorporated by referenced to
Exhibit 2.1 to the Company's Registration Statement on Form
S-4, as amended, File No. 333-03327), as amended by the First
Amendment thereto, dated March 18, 1996 (incorporated by
reference to Exhibit 2.2 to the Company's Registration
Statement on Form S-4, as amended, File No. 333-03327), and the
Second Amendment thereto, (incorporated by reference to Exhibit
2.3 to the Company's Current Report on Form 8-K, dated August
22, 1996, Commission File No. 0-20987).
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Appendix F to the final
proxy statement prospectus included in the Company's
Registration Statement on Form S-4, as amended, File No. 333-03327).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.4 to the Company's Registration Statement on Form S-4, as
amended, File No. 333-03327).
4.1 Rights Agreement, dated as of July 8, 1996, between Grand
Premier Financial, Inc. and Premier Trust Services, Inc.
(incorporated by reference to the Company's Registration
Statement on Form S-4, as amended, File No. 333-03327).
4.2 Amendment No. 1, dated September 9, 1999, to the Rights
Agreement, dated as of July 8, 1996, between Grand Premier
Financial, Inc. and Grand Premier Trust and Investment, Inc.,
as successor to Premier Trust Services, Inc. (incorporated by
reference to Exhibit 4.1 to the Company's Form 8-A/A filed with
the Securities and Exchange Commission on September 15, 1999).
4.3 Stock Option Agreement, dated September 9, 1999, between the
Company and Old Kent Financial Corporation (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed September 15, 1999, Commission File
No. 0-20987).
10.1* Form of Change in Control Agreement, dated October (2)/(8),
1996, entered into between the Company and each of Richard L.
Geach and Kenneth A. Urban (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
dated September 30, 1996, Commission file No. 0-20987).
10.2* Form of Change in Control Agreement, entered into in July or
August 1999, between the Company and each of Jack Croffoot,
Nanette K. Donton, Al Lutton, William Theobald, and James Watts
in the same form as the Change in Control Agreement dated
October (2)/(8), 1996 (incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1996, Commission file No. 0-20987).
10.3* Grand Premier Financial, Inc. 1996 Non-Qualified Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.3 of
the Company's Annual Report on Form 10-K dated December 31,
1997, Commission file No. 0-20987).
10.4* Premier Financial Services, Inc. 1995 Non-Qualified Stock
Option Plan, as amended (incorporated by reference to Exhibit
10.4 of the Company's Annual Report on Form 10-K dated December
31, 1997, Commission file No. 0-20987).
10.5* Grand Premier Financial, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 to the Company's
Form 10-K dated December 31, 1996 Commission file No. 0-20987).
10.6* Employment and Consulting Agreement, dated May 1, 1997, between
Grand Premier Financial, Inc., and Howard A. McKee
(incorporated by reference to Exhibit 10.10 to the Company's
Form 10-Q dated June 30, 1997 Commission file No. 0-20987).
10.7* Grand Premier Financial, Inc. Non-Employee Directors Stock
Option Plan (incorporated by reference to Appendix A of the
Company's Definitive Proxy Statement dated April 13, 1998).
10.8* Form of Change in Control Agreement, dated July 22 and August
29, 1999, respectively, entered into between the Company and
each of Scott Dixon and Larry O'Hara (incorporated by reference
to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q
dated September 30, 1999 Commission file No. 0-20987).
10.9* Form of Change in Control Agreement, dated August 30, 1999,
entered into between the Company and each of Alan Emerick and
David Murray (incorporated by reference to Exhibit 10.9 of the
Company's Quarterly Report on Form 10-Q dated September 30,
1999 Commission file No. 0-20987).
11. Statement re computation of per share earnings (see Notes 1 and
16 to the audited financial statements included in Item 8 of
this report).
21. Subsidiaries of the Registrant
23. Consent of KPMG LLP
27. Article 9 Financial Data Schedule for the Fiscal Year Ended
December 31, 1999
2. Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter
ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Grand Premier Financial, Inc.
By:/s/ Richard L. Geach
Richard L. Geach, Chief Executive Officer
Date: March 20, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Richard L. Geach /s/ David L. Murray
By: Richard L. Geach, Chief By: David L. Murray, Senior
Executive Officer, President Executive Vice President,
and Director Chief Financial Officer and
Date: March 20, 2000 Director
Date: March 20, 2000
/s/ Nanette K. Donton /s/ Jean M. Barry
By: Nanette K. Donton, Chief By: Jean M. Barry, Director
Accounting Officer Date: March 20, 2000
Date: March 20, 2000
/s/ Frank J. Callero /s/ Alan J. Emerick
By: Frank J. Callero, Director By: Alan J. Emerick, Director
Date: March 20, 2000 Date: March 20, 2000
/s/ James Esposito /s/ Thomas D. Flanagan
By: James Esposito, Director By: Thomas D. Flanagan, Director
Date: March 20, 2000 Date: March 20, 2000
/s/ R. Gerald Fox /s/ Noa W. Horner
By: R. Gerald Fox, Director By: Noa W. Horner, Director
Date: March 20, 2000 Date: March 20, 2000
/s/ Howard A. McKee /s/ Joseph C. Piland
By: Howard A. McKee, Director By: Joseph C. Piland, Director
Date: March 20, 2000 Date: March 20, 2000
/s/ Stephen J. Schostok /s/ John Simcic
By: Stephen J. Schostok, Director By: John Simcic, Director
Date: March 20, 2000 Date: March 20, 2000
EXHIBIT INDEX TO FORM 10-K
The following exhibits are filed herewith or incorporated herein by
reference. All documents incorporated by reference to prior filings have
been filed under Commission File No. 0-20987. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit to
this report has been marked with an asterisk.
Exhibit Description
No.
2.1 Agreement and Plan of Merger, dated September 9, 1999, among
Grand Premier Financial, Inc., Old Kent Financial Corporation,
and OK Merger Corporation (incorporated by reference to Exhibit
2.1 of the Company's Current Report of Form 8-K filed September
15, 1999, Commission File No. 0-20987).
2.2 Agreement and Plan of Merger, dated January 22, 1996, among
Northern Illinois Financial Corporation, Premier Financial
Services, Inc and the Company (incorporated by referenced to
Exhibit 2.1 to the Company's Registration Statement on Form S-4,
as amended, File No. 333-03327), as amended by the First
Amendment thereto, dated March 18, 1996 (incorporated by
reference to Exhibit 2.2 to the Company's Registration Statement
on Form S-4, as amended, File No. 333-03327), and the Second
Amendment thereto, (incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K, dated August 22, 1996,
Commission File No. 0-20987).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Appendix F to the final proxy
statement prospectus included in the Company's Registration
Statement on Form S-4, as amended, File No. 333-03327).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-4, as amended,
File No. 333-03327).
4.1 Rights Agreement, dated as of July 8, 1996, between Grand Premier
Financial, Inc. and Premier Trust Services, Inc. (incorporated by
reference to the Company's Registration Statement on Form S-4, as
amended, File No. 333-03327).
4.2 Amendment No. 1, dated September 9, 1999, to the Rights
Agreement, dated as of July 8, 1996, between Grand Premier
Financial, Inc. and Grand Premier Trust and Investment, Inc., as
successor to Premier Trust Services, Inc. (incorporated by
reference to Exhibit 4.1 to the Company's Form 8-A/A filed with
the Securities and Exchange Commission on September 15, 1999).
4.3 Stock Option Agreement, dated September 9, 1999, between the
Company and Old Kent Financial Corporation (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed September 15, 1999, Commission File No. 0-20987).
10.1* Form of Change in Control Agreement, dated October (2)/(8), 1996,
entered into between the Company and each of Richard L. Geach and
Kenneth A. Urban (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q dated September 30,
1996, Commission file No. 0-20987).
10.2* Form of Change in Control Agreement, entered into in July or
August 1999, between the Company and each of Jack Croffoot,
Nanette K. Donton, Al Lutton, William Theobald, and James Watts
in the same form as the Change in Control Agreement dated October
(2)/(8), 1996 (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q dated September 30, 1996,
Commission file No. 0-20987).
10.3* Grand Premier Financial, Inc. 1996 Non-Qualified Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.3 of
the Company's Annual Report on Form 10-K dated December 31, 1997,
Commission file No. 0-20987).
10.4* Premier Financial Services, Inc. 1995 Non-Qualified Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.4 of
the Company's Annual Report on Form 10-K dated December 31, 1997,
Commission file No. 0-20987).
10.5* Grand Premier Financial, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 to the Company's Form
10-K dated December 31, 1996 Commission file No. 0-20987).
10.6* Employment and Consulting Agreement, dated May 1, 1997, between
Grand Premier Financial, Inc., and Howard A. McKee (incorporated
by reference to Exhibit 10.10 to the Company's Form 10-Q dated
June 30, 1997 Commission file No. 0-20987).
10.7* Grand Premier Financial, Inc. Non-Employee Directors Stock Option
Plan (incorporated by reference to Appendix A of the Company's
Definitive Proxy Statement dated April 13, 1998).
10.8* Form of Change in Control Agreement, dated July 22 and August 29,
1999, respectively, entered into between the Company and each of
Scott Dixon and Larry O'Hara (incorporated by reference to
Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1999 Commission file No. 0-20987).
10.9* Form of Change in Control Agreement, dated August 30, 1999,
entered into between the Company and each of Alan Emerick and
David Murray (incorporated by reference to Exhibit 10.9 of the
Company's Quarterly Report on Form 10-Q dated September 30, 1999
Commission file No. 0-20987).
11. Statement re computation of per share earnings (see Notes 1 and
16 to the audited financial statements included in Item 8 of this
report).
21. Subsidiaries of the Registrant
23. Consent of KPMG LLP
27. Article 9 Financial Data Schedule for the Fiscal Year Ended
December 31, 1999
EXHIBIT 21
Subsidiaries of the Registrant
The following subsidiaries are 100% owned, directly or indirectly, by
Grand Premier Financial, Inc. unless otherwise indicated.
Grand National Bank
Grand Premier Trust and Investment Services, Inc.
Grand Premier Operating Systems, Inc.
Grand Premier Insurance Services, Inc.
American Suburban Mortgage Corporation (inactive)
GNB Management, LLC
GNB Realty, LLC (1)
(1) Grand Premier Financial, Inc. indirectly owns 100% of the common
interests and approximately 90% of the preferred interests. Approximately
10% of the preferred interests were issued to employees under an employee
bonus plan.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Grand Premier Financial, Inc.:
We consent to incorporation by reference in the Registration Statement
No. 333-03327 on Form S-4 and Nos. 333-11635, 333-11645, 333-11663,
333-65455 and 333-65453 on Form S-8 of Grand Premier Financial, Inc. of
our report dated January 24, 2000, except for Note 2, which is as of
February 22, 2000 relating to the consolidated balance sheets of Grand
Premier Financial, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of earnings, cash flows and
changes in stockholders' equity for each of the years in the three-year
period ended December 31, 1999, which report appears in the
December 31, 1999 annual report on Form 10-K of Grand Premier
Financial, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 20, 2000
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