SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997, or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to ___________
Commission File Number 0-12216
OLD KENT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-1986608
(State of Incorporation) (I.R.S. Employer Identification Number)
111 Lyon Street NW
Grand Rapids, Michigan 49503
(Address of principal executive (Zip Code)
Registrant's telephone number, including a(616) 771-5000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's Common stock, par value
$1, as of April 30, 1997 was 45,288,515 shares.
<PAGE>
INDEX
OLD KENT FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in securities
Item 4. Submission of matters to a vote of securities holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)_______________________________________________________________________
<CAPTION>
March 31, December 31,
(dollars in thousands) 1997 1996
<S>
ASSETS: <C> <C>
Cash and due from banks...................................................... $ 527,514 $ 530,444
Federal funds sold and resale agreements..................................... 26,622 107,353
Total cash and cash equivalents.............................................. 554,136 637,797
Interest-earning deposits.................................................... 394 803
Trading account securities................................................... 57,748 19,009
Mortgages held-for-sale...................................................... 652,543 589,245
Securities available-for-sale:
Collateralized mortgage obligations and other mortgage-backed
securities............................................................ 1,068,097 673,722
Other securities.......................................................... 1,016,011 1,221,476
Total securities available-for-sale (amortized cost of
$2,120,048, and $1,910,367, respectively)............................... 2,084,108 1,895,198
Securities held-to-maturity:
Collateralized mortgage obligations and other mortgage-backed
securities............................................................ 703,818 746,355
Other securities.......................................................... 160,881 162,975
Total securities held-to-maturity (market values of
$865,575 and $911,592, respectively).................................... 864,699 909,330
Loans ...................................................................... 8,400,878 8,097,056
Allowance for credit losses.................................................. (168,323) (165,928)
Net loans.................................................................... 8,232,555 7,931,128
Premises and equipment....................................................... 181,075 173,916
Other assets................................................................. 559,198 490,402
Total Assets................................................................. $13,186,456 $12,646,828
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Non-interest bearing...................................................... $ 1,600,884 $ 1,580,960
Interest-bearing.......................................................... 8,668,321 8,474,754
Foreign deposits -- interest-bearing...................................... 23,559 24,433
Total deposits.......................................................... 10,292,764 10,080,147
Other borrowed funds......................................................... 1,397,608 1,235,867
Other liabilities............................................................ 294,306 237,057
Subordinated debt............................................................ 100,000 100,000
Guaranteed preferred beneficial interests in the Corporation's
junior subordinated debentures.......................................... 100,000 --
Total Liabilities............................................................ 12,184,678 11,653,071
Shareholders' Equity:
Preferred stock: 25,000,000 shares authorized and unissued................... -- --
Common stock, $1 par value: 150,000,000 shares authorized;
45,346,066 and 44,944,321 shares issued and outstanding ................... 45,346 44,944
Capital surplus.............................................................. 170,642 175,842
Retained earnings............................................................ 808,316 782,830
Valuation adjustment of securities available-for-sale........................ (22,526) (9,859)
Total Shareholders' Equity................................................... 1,001,778 993,757
Total Liabilities and Shareholders' Equity.................................. $13,186,456 $12,646,828
</TABLE>
<PAGE>
<TABLE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)____________________________________________________
<CAPTION>
For the Three Months
Ended March 31,
(in thousands, except per share data) 1997 1996
<S>
Interest Income: <C> <C>
Interest and fees on loans........................................... $187,572 $169,791
Interest on mortgages held-for-sale.................................. 10,100 5,998
Interest on securities available-for-sale............................ 29,236 35,842
Interest on securities held-to-maturity:
Taxable............................................................ 13,121 13,976
Tax-exempt......................................................... 2,190 2,560
Interest on deposits................................................. 49 256
Interest on federal funds sold and resale agreements................. 2,152 640
Interest on trading account securities............................... 688 88
Total interest income................................................ 245,108 229,151
Interest Expense:
Interest on domestic deposits........................................ 97,089 91,324
Interest on foreign deposits......................................... 409 1,240
Interest on other borrowed funds..................................... 15,935 16,735
Interest on subordinated debt........................................ 2,785 1,686
Total interest expense............................................... 116,218 110,985
Net Interest Income.................................................... 128,890 118,166
Provision for credit losses............................................ 10,221 6,252
Net interest income after provision
for credit losses.................................................. 118,669 111,914
Other Income:
Mortgage banking revenue (net)....................................... 18,810 10,820
Trust income......................................................... 12,852 11,068
Service charges on deposit accounts.................................. 11,431 10,724
Insurance sales commissions.......................................... 3,494 3,164
ATM fees............................................................. 965 682
Brokerage commissions................................................ 811 366
Credit card transaction revenue - net................................ 662 1,767
Securities gains/(losses)............................................ (637) 854
Nonrecurring and other real estate owned income...................... 2,587 2,497
Other................................................................ 9,013 7,103
Total other income................................................... 59,988 49,045
Other Expenses:
Salaries and employee benefits....................................... 61,524 51,194
Occupancy expense.................................................... 8,617 7,460
Equipment expense.................................................... 6,617 5,747
Advertising and promotion............................................ 2,027 4,248
Amortization of goodwill and intangibles............................. 3,370 2,460
FDIC Insurance....................................................... 241 181
Nonrecurring and other real estate owned expense..................... 227 291
Other expenses....................................................... 34,390 29,765
Total other expenses................................................. 117,013 101,346
Income Before Income Taxes............................................. 61,644 59,613
Income taxes......................................................... 20,640 20,379
Net Income............................................................. $ 41,004 $ 39,234
Per Common Share:
Net income........................................................... $ 0.89 $ 0.82
Dividends............................................................ $ 0.340 $ 0.305
Number of Common Shares Used to Calculate
Net Income Per Share (in thousands).................................. 46,111 47,912
</TABLE>
<PAGE>
<TABLE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Three months ended March 31, 1997 (dollars in thousands) 1997 1996
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net income...................................................................... $ 41,004 $ 39,234
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for credit losses............................................. 10,221 6,252
Depreciation, amortization and accretion................................ 18,061 14,175
Net gains on sales of assets............................................ (13,500) (9,170)
Net change in trading account securities................................ 3,584 4,025
Originations and acquisitions of mortgages held-for-sale................ (503,293) (768,376)
Proceeds from sales and prepayments of mortgages held-for-sale.......... 451,010 665,137
Net change in other assets.............................................. (35,730) 8,916
Net change in other liabilities......................................... 55,872 19,400
Net cash (used for) provided by operating activities............................ 27,229 (20,407)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and prepayments of securities available-for-sale....... 26,886 123,770
Proceeds from sales of securities available-for-sale............................ 875,815 961,062
Purchases of securities available-for-sale...................................... (1,043,527) (1,172,878)
Proceeds from maturities and prepayments of securities held-to-maturity......... 46,510 9,699
Proceeds from sales of securities held-to-maturity.............................. - 860
Purchases of securities held-to-maturity........................................ (2,736) (128,398)
Net change in interest-earning deposits......................................... 408 173,207
Net increase in loans........................................................... (103,783) (233,724)
Purchases of leasehold improvements, premises and equipment, net............. (6,135) (3,706)
Cash acquired in business acquisition........................................... 14,284 -
Sale of business units (net of cash sold)....................................... 1,234 7,123
Net cash used for investing activities.......................................... (191,044) (262,985)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in time deposits......................................................... (47,527) 467,050
Change in demand and savings deposits........................................... (41,662) (47,663)
Change in other borrowed funds.................................................. 161,739 (185,046)
Proceeds of guaranteed preferred beneficial interests in the
Corporation's junior subordinated debentures............................... 100,000 -
Repurchases of common stock..................................................... (79,865) (23,164)
Proceeds from common stock issuances............................................ 2,988 2,342
Dividends paid to shareholders.................................................. (15,519) (14,563)
Net cash provided by financing activities....................................... 80,154 198,956
Net change in cash and cash equivalents......................................... (83,661) (84,436)
Cash and cash equivalents at beginning of year.................................. 637,797 577,056
Cash and cash equivalents at March 31........................................... $ 554,136 $ 492,620
Supplemental disclosures of cash flow information:
Interest paid on deposits, other borrowed funds and
subordinate debt............................................................ $ 125,691 $ 110,756
Federal income taxes paid..................................................... 1,500 475
Significant non-cash transactions:
Stock issued to acquire business.............................................. 71,767 8,431
</TABLE>
<PAGE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1997
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Corporation's annual report on Form 10-K for the year ended December 31, 1996.
Certain reclassifications have been made to prior periods' financial statements
to place them on a basis comparable with the current periods' financial
statements.
NOTE B: LOANS AND NONPERFORMING ASSETS
The following summarizes loans and nonperforming assets at the
dates indicated (dollars in thousands):
<TABLE>
March 31, December 31,
Loans: 1997 1996
<S> <C> <C>
Commercial........................................................... $2,347,281 $2,205,837
Real estate - Commercial............................................ 1,744,939 1,719,699
Real estate - Construction.......................................... 448,087 428,001
Real estate - Residential mortgages................................. 967,458 859,318
Real estate - Consumer home equity ................................. 779,574 728,530
Consumer............................................................. 1,634,184 1,636,719
Credit card loans.................................................... 282,332 317,554
Lease financing...................................................... 197,023 201,398
Total Loans.......................................................... $8,400,878 $8,097,056
March 31, December 31,
Nonperforming assets: 1997 1996
Nonaccrual loans .................................................... $ 42,560 $ 39,950
Restructured loans................................................... 3,644 2,832
Impaired loans..................................................... 46,204 42,782
Other real estate owned.............................................. 6,027 7,097
Total nonperforming assets........................................... $ 52,231 $ 49,879
Loans past due 90 days or more....................................... $ 30,825 $ 36,817
</TABLE>
Additionally, at March 31, 1997, the Corporation's management has identified
loans totalling approximately $10 million as potential problem loans. These
loans are not included as nonperforming assets in the table above. While these
loans were in compliance with repayment terms at March 31, 1997, other
circumstances caused management to seriously doubt the ability of the borrowers
to continue to remain in compliance with existing loan repayment terms.
<PAGE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued (Unaudited)
March 31, 1997
NOTE C: ALLOWANCE FOR CREDIT LOSSES AND NET CHARGE-OFFS
The following summarizes the changes in the allowance for credit losses, and
net charge-offs (in thousands of dollars):
<TABLE>
For the Three Months
ended March 31
Allowance for Credit Losses 1997 1996
<S> <C> <C>
Balance at January 1,................................................ $165,928 $174,248
Changes in allowance due to acquisitions and (sold) loans............ 3,184 (1,179)
Provision for credit losses.......................................... 10,221 6,252
Gross loans charged-off.............................................. (15,229) (8,095)
Gross recoveries of loans previously charged-off..................... 4,219 2,236
Balance at end of period,............................................ $168,323 $173,462
For the Three Months
ended March 31
Net Loan Charge-Offs 1997 1996
Commercial Loans & Commercial Real Estate............................ ($1,515) ($995)
Consumer............................................................. 5,475 2,273
Credit Card.......................................................... 6,311 2,521
Residential Mortgages................................................ 1 -
Leases............................................................... 738 2,060
Total Net Charge-Offs................................................ $ 11,010 $ 5,859
</TABLE>
NOTE D: SECURITIES AVAILABLE-FOR-SALE
The following summarizes amortized costs and estimated market values of
securities available-for-sale at the dates indicated (in thousands of dollars):
<TABLE>
<CAPTION>
Carrying
Gross Gross Value
Amortized Unrealized Unrealized at Market
March 31, 1997: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and federal agency securities........... $ 968,025 $ 24 $24,028 $ 944,021
Collateralized mortgage obligations:
U.S. Government issued........................... 760,822 1,113 6,819 755,116
Privately issued................................. 228,320 26 4,346 224,000
Mortgage-backed pass-through securities............... 91,059 121 2,199 88,981
Other securities...................................... 71,822 440 272 71,990
Total securities available-for-sale................... $2,120,048 $1,724 $37,664 $2,084,108
December 31, 1996:
U.S. Treasury and federal agency securities........... $1,167,775 $ 298 $ 7,891 $1,160,182
Collateralized mortgage obligations:
U.S. Government issued........................... 419,499 433 3,064 416,868
Privately issued................................. 189,347 465 4,277 185,535
Mortgage-backed pass-through securities............... 72,452 46 1,179 71,319
Other securities...................................... 61,294 61,294
Total securities available-for-sale................... $1,910,367 $1,242 $16,411 $1,895,198
</TABLE>
<PAGE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued (Unaudited)
March 31, 1997
<TABLE>
<CAPTION>
NOTE E: SECURITIES HELD-TO-MATURITY
The following summarizes amortized costs and estimated market values of securities
held-to-maturity at the dates indicated (in thousands of dollars):
Gross Gross
Amortized Unrealized Unrealized Market
March 31, 1997 Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and federal agency securities........... $ 6,144 $ 1 $ 17 $ 6,128
Collateralized mortgage obligations:
U.S. Government issued........................... 431,065 1,324 4,858 427,531
Privately issued................................. 156,513 152 196 156,469
Mortgage-backed pass-through securities............... 116,240 1,310 884 116,666
State and political subdivisions...................... 154,737 5,156 1,112 158,781
Total securities held-to-maturity..................... $864,699 $7,943 $7,067 $865,575
December 31, 1996:
U.S. Treasury and federal agency securities........... $ 6,116 $ 9 $ 1 $ 6,124
Collateralized mortgage obligations:
U.S. Government issued........................... 462,778 1,878 3,444 461,212
Privately issued................................. 160,699 1,885 158,814
Mortgage-backed pass-through securities............... 122,878 2,320 247 124,951
Other Securities...................................... 156,859 4,730 1,098 160,491
Total securities held-to-maturity..................... $909,330 $8,937 $6,675 $911,592
</TABLE>
NOTE F: BUSINESS COMBINATIONS
On January 1, 1997, Old Kent acquired Seaway Financial Corporation ("Seaway"),
a bank holding company, and its subsidiaries, The Commercial and Savings Bank
of St. Clair County and The Algonac Savings Bank. The acquisition was effected
by a merger of Seaway with and into Old Kent. This transaction was accounted
for as a purchase for accounting purposes. At the effective date, Seaway had,
on a consolidated basis, assets totaling approximately $345 million and
deposits of approximately $302 million. Seaway stockholders received
approximately 1.9 million shares of common stock of Old Kent. The principal
market for the financial services offered by Seaway was St. Clair County,
Michigan, and the communities within St. Clair County.
<PAGE>
OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued (Unaudited)
March 31, 1997
NOTE G: CAPITAL INCOME SECURITIES
On January 31, 1997, Old Kent Capital Trust I, a Delaware business trust
controlled by the Corporation, issued $100 million of Floating Rate
Subordinated Capital Income Securities ("preferred securities".) The
Corporation unconditionally guarantees all of the obligations of Old Kent
Capital Trust I. The holders of the preferred securities are entitled to
receive cumulative cash distributions accruing from the date of original
issuance and payable quarterly in arrears on the 1st day of February, May,
August and November of each year commencing May 1, 1997, at a variable rate
equal to the three month LIBOR (London Interbank Offering Rate) plus .80%,
determined quarterly for the ensuing period two London business days prior to
the commencement of each period. In determining the amount of each quarterly
distribution, the previously described distribution rate is applied to the
liquidation amount of each preferred security computed on a basis of the
actual number of days elapsed in a year of twelve 30-day months. The stated
maturity of the preferred securities is February 1, 2027, but the securities
may be redeemed, in whole or in part, beginning on February 1, 2007 (or
earlier due to the occurrence of a Special Event as provided for in the
instruments.)
The proceeds of the preferred security issuance were entirely invested by Old
Kent Capital Trust I in a similarly featured Junior Subordinated Debenture
issued by Old Kent Financial Corporation. The proceeds of the debenture
issuance by the Corporation will be used for general corporate purposes, which
may include the repurchase of its common shares.
The preferred securities qualify as Tier 1 capital, subject to certain
limitations, for regulatory capital purposes. The issuance of these securities
had the effect of increasing the Corporation's regulatory capital at March 31,
1997.
NOTE H: SHAREHOLDERS' EQUITY
In June, 1996, the Board of Directors authorized the repurchase of up to 4.5
million shares of Old Kent Common Stock which would be reserved for later
reissue in connection with business acquisitions, future stock dividends,
employee benefit plans and other corporate purposes. As of March 31, 1997,
approximately 4.2 million shares of Old Kent Common Stock had been purchased
under this authorization. In January 1997, approximately 1.9 million of these
shares were issued to acquire Seaway Financial Corporation as described in
Note F.
NOTE I: MORTGAGE BANKING REVENUE (NET)
The following summarizes net mortgage banking revenues:
<TABLE>
<CAPTION>
For the Three Months
Net mortgage banking revenue: ended March 31
1997 1996
<S> <C> <C>
Gross mortgage servicing revenue......................................... $10,870 $ 6,920
Less: amortization of mortgage servicing rights & direct costs......... (6,516) (5,382)
Net mortgage servicing revenue........................................... 4,354 1,538
Mortgage banking gains (net)............................................. 11,014 6,271
Mortgage originations and processing fees (net).......................... 3,442 3,011
Total net mortgage banking revenue..................................... $18,810 $10,820
</TABLE>
NOTE J: RESTRUCTURING RESERVES
The Corporation maintains reserves related to a restructuring program
undertaken during 1995. The primary components of the reserves consisted of
estimated severance costs and costs related to the abandonment of physical
facilities. The table below summarizes activity in these reserve accounts
since December 31, 1996.
<TABLE>
<CAPTION>
Reserve For:
Employee Facilities
(Dollars in thousands) Severance Abandonment
<S> <C> <C>
Balance, December 31, 1996............................................... $1,426 $4,237
Amounts charged to the reserve pursuant to
the restructuring plans for the three months ended
March 31, 1997......................................................... (721) (202)
Balance, March 31, 1997.................................................. $ 705 $4,035
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued (Unaudited)
March 31, 1997
NOTE K: EARNINGS PER SHARE
During February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). Old Kent is required to adopt the provisions of this statement
for the annual period ending December 31, 1997. SFAS 128 specifies
computational methods for determining basic and diluted earnings per share
which, for Old Kent, will cause a different, but immaterial, results from
earnings per share as currently calculated.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. It requires the restatement of all prior period earnings per share
data presented. The table below compares net income per common share, as
currently reported, with proforma basic amounts as calculated under the
provisions of SFAS 128.
For the Three Months
ended March 31
Net Income Per Common Share: 1997 1996
As Reported..................................... $0.89 0.82
Proforma, basic, as calculated under SFAS 128... 0.90 0.83
NOTE L: SUBSEQUENT EVENTS
On April 30, 1997, Old Kent signed an agreement to form a credit card alliance
with First National Bank of Omaha. The transaction includes the sale of
approximately $280 million in Old Kent credit card outstandings to First
National. The transaction is subject to regulatory conditions and is expected
to be completed during the second quarter of 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected Old Kent's financial condition and results of
operations during the periods included in the consolidated financial statements
included in this filing.
RESULTS OF OPERATIONS
Old Kent's net income was $41.0 million for the first quarter of 1997 compared
to $39.2 million for the same period in 1996. First quarter earnings per share
was $.89, an 8.5% increase over last year's $.82.
Total assets were $13.2 billion at quarter-end compared to $12.6 billion at
December 31, 1996. Return on average equity for the first quarter of 1997 was
16.14% compared to 15.35% for the first quarter of 1996. Return on assets was
1.28% for the first quarter of 1997 compared to 1.31% for the first quarter of
1996.
Old Kent's net interest income for the first quarter of 1997 was $128.9
million, a 9.1% increase over the $118.2 million recorded in the same period
of 1996. The increase in net interest income was due to the January 1,
acquisition of Seaway Financial Corporation ("Seaway") and a shift in the
earning asset mix from lower yielding securities to higher yielding loans.
For the first quarter of 1997, the net interest margin was 4.44% compared to
4.34% a year ago. The increase in the net interest margin is primarily due
to reduced funding costs and a more favorable earning asset mix.
The provision for credit losses was $10.2 million in the first quarter of 1997
and $6.3 million in the first quarter of 1996. The increase in the provision
reflected a decline in consumer credit quality. Net credit losses were $11.0
million or .53% of average loans for the first quarter of 1997 compared to $5.9
million or .31% of average loans for the same period a year ago. The allowance
for credit losses as a percent of loans and leases outstanding was 2.00% at
March 31, 1997 and 2.05% at December 31, 1996. Impaired loans as a percent of
total loans was .55% at March 31, 1997 and .53% at December 31, 1996.
Total other operating income, excluding securities transactions and other
nonrecurring income, increased 27% or $12.3 million during the first quarter of
1996 over the same period a year ago. The aforementioned Seaway acquisition
accounted for approximately $1.3 million of this increase and another $8.0
million was attributable to our mortgage banking business, primarily a result
of growth and expansion of Old Kent Mortgage Company. Trust income increased
16.1% or $1.8 million and service charges on deposits increased 6.6% or $.7
million. All other service charges and fees increased $3.0 million over the
same period a year ago.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Nonrecurring and other real-estate owned income totalled $2.6 million for the
quarter ended March 31, 1997. This included $1.0 million related to the sale
of Old Kent's subsidiary, Hartger & Willard Mortgage Associates, Inc, $.9
million from the sale of certain insurance agency business activities and $.7
million of gains on sales of other real-estate owned.
Old Kent sold approximately $1.1 billion of residential mortgage loans during
the quarter. Old Kent's residential third party mortgage servicing portfolio
increased 51% to $11.0 billion at March 31, 1997, from $7.2 billion at
March 31, 1996, primarily due to acquisitions. The residential third party
mortgage servicing portfolio was $9.9 billion at December 31, 1996.
Total net securities gains (losses) for the first quarter of 1996 were
($637,000), compared to gains of $854,000 for the same period of 1996.
Total operating expenses for the first quarter of 1997 increased $15.7 million,
or 15.5%, over the same period in 1996. Approximately $3.5 million of this
increase relates to the Seaway Acquisition. Salaries, wages and employee
benefits increased $10.3 million or 20.2% for the first quarter of 1997 over
the first quarter of 1996. The number of full-time equivalent employees
increased by 597 over a year ago, to 5,976 at March 31, 1997, which includes
the acquisition of 232 Seaway employees and 348 National Pacific Mortgage Co.
employees. The following table shows the change in employees:
March 31,
1997 1996 Change
Full-time equivalent staff:
Banking units 4,539 4,481 58
Mortgage banking 1,222 712 510
Insurance, leasing & brokerage 215 186 29
Total 5,976 5,379 597
During the first quarter of 1996 compared to the same period a year ago,
occupancy expenses increased 15.5%, and equipment expenses increased 15.1%.
Advertising and promotion decreased 52.3% or $2.2 million from the prior year
quarter, largely attributable to the discontinuance of Old Kent's credit card
"CardMiles" promotional program, which was canceled in late 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Old Kent maintains a reserve associated with its CardMiles program which is
included in other liabilities in the consolidated balance sheets. Old Kent's
process for recording the allowance for redemption reserve is based on
estimates. Factors affecting these estimates include, among others, current
and cumulative redemption experience, rates for air travel, and economic
conditions. The Corporation determines its allowance for redemption reserve
using a historical "lag" analysis based upon monthly certificate redemptions,
correlated with the months in which the certificates were actually earned by
eligible cardholders. The allowance for redemption reserve is summarized below:
Three Months Ended
(Dollars in thousands) March 31,
CardMiles allowance for redemption reserve 1997
Allowance at beginning of period $10,823
Redemptions during period (2,599)
Allowance at end of period $ 8,224
Amortization of goodwill and intangibles increased 37% or $.9 million. Other
operating expenses increased by 15.5% or $4.6 million over the prior year
quarter, which includes the impact of recent acquisitions of National Pacific
Mortgage Corporation in August 1996, and Seaway Financial Corporation in
January 1997.
BALANCE SHEET CHANGES
Total interest-earning assets (at amortized cost), excluding the Seaway
acquisition increased 1.1% or $128 million from December 31, 1996. For the
three months ended March 31, 1997, excluding the Seaway acquisition, total
loans grew at an annualized rate of 4.5% or $92 million, and commercial loans
grew at an annualized rate of 9.9% or $113 million. The growth in commercial
loans is primarily a result of increased efforts in the Registrant's eastern
Michigan, and Illinois markets. Excluding the Seaway acquisition, total
securities (at amortized cost) increased $68 million since year-end 1996.
Mortgages held-for-sale increased 10.7% or $63 million. Other interest
earning assets decreased 33.3% or $42 million, since year end 1996.
Total deposits, exluding the Seaway acquisition, decreased $127 million or 1.3%
from year-end 1996: noninterest bearing deposits decreased 1.1% or $17 million
and interest-bearing deposits decreased 1.3% or $109 million. Short-term
borrowed funds increased $162 million or 13.1% from December 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available to meet customers' loan demand and deposit
withdrawals. The banking subsidiaries' liquidity sources consist of securities
available-for-sale, maturing loans and securities held-to-maturity, and other
short-term investments. Liquidity has also been obtained through liabilities
such as customer-related core deposits, funds borrowed, certificates of deposit
and public funds deposits.
At March 31, 1997, shareholders' equity was $1,002 million compared to $1,020
million at March 31, 1996. In June, 1996, the Corporation was authorized to
repurchase up to 4.5 million shares of Old Kent Common Stock. As described in
the notes to the consolidated financial statements, through March 31, 1997,
approximately 4.2 million shares had been repurchased and approximately 1.9
million shares were issued to acquire Seaway.
The following table lists the number of shares repurchased and reserved at
March 31, 1997 with the intent of future reissuance under the authorized
programs.
Old Kent Common Stock repurchased and reserved for Number of shares
future reissuance at March 31, 1997: (In thousands)
Reserved for possible future stock dividends and other
corporate purposes 1,960
Reserved for future reissuance for dividend reinvestment
and employee stock plans 460
Total 2,420
Shares reserved, as shown above, include approximately 1,657 thousand shares
which were acquired by the Corporation during the quarter ended March 31,
1997. The repurchase of these shares had a beneficial effect on earnings per
common share and return on average equity for that period.
Total equity at March 31, 1997, was reduced by an after-tax unrealized loss of
$23 million on securities available-for-sale. Shareholders' equity as a
percentage of total assets as of March 31, 1997, was 7.60%.
The following table represents the Registrant's consolidated regulatory capital
position as of March 31, 1997:
Regulatory capital at March 31, 1997
(in millions) Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Capital
Actual capital $997.0 $997.0 $1,219.0
Required regulatory minimum capital 382.1 388.5 777.1
Capital in excess of requirements $614.9 $608.5 $ 441.9
Actual ratio 7.83% 10.26% 12.55%
Regulatory Minimum Ratio 3.00% 4.00% 8.00%
Ratio considered "well capitalized"
by regulatory agencies 5.00% 6.00% 10.00%
As described in note G, in January, 1997, the Corporation issued $100 million
of capital income securities. These "Trust Preferred Capital Securities" are
eligible for Tier 1 capital treatment.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The changes in total shareholders' equity and book value per common share are
summarized in the tables below.
Total Share-
holders' Equity Book Value Per
(in millions) Common Share
Balance, December 31, 1996 $ 993.8 $22.11
Net income for the three months ended
March 31, 1997 41.0 .89
Cash dividends paid (15.5) (.34)
Net change in valuation adjustment of securities
available-for-sale (12.7) (.28)
Stock repurchases (net of stock issued,
excluding shares issued to acquire Seaway) (76.6) (1.69)
Acquisition of Seaway 71.8 1.40
Balance, March 31, 1997 $1,001.8 $22.09
<PAGE>
PART II OTHER INFORMATION
Item 2. Changes in Securities.
On January 20, 1997, the board of directors of Old Kent Financial
Corporation (the "Corporation") declared a dividend distribution of
one Series C Preferred Stock Purchase Right (a "Right") for each
outstanding share of the Corporation's common stock to shareholders
of record at the close of business on February 14, 1997. Each Right
entitled the registered holder to purchase from the Corporation, a
unit consisting of 1/100th of a share of Series C Preferred Stock,
no par value, at a price of $160 per unit, subject to adjustment.
Series C Preferred Stock purchase rights initially will attach to
all common stock certificates representing shares of the
Corporation's common stock then outstanding and will not be
separately traded. The terms of the Rights are set forth in a
Rights Agreement between the Corporation and Old Kent Bank as
rights agent. Series B Preferred Stock Purchase Rights, which
were previously outstanding were redeemed by the Corporation on
March 14, 1997.
On January 31, 1997, the Corporation and Old Kent Capital Trust I, a
Delaware statutory business trust controlled by Old Kent Financial
Corporation (the "Trust"), sold $100 million aggregate liquidation
amount of Floating Rate Subordinated Capital Income Securities (the
"Capital Securities"). The sale of securities was exempt from the
registration requirements of the Securities Act of 1933 under Rule
144A. The Capital Securities were sold to Lehman Brothers for
$98,872,300, and resold by Lehman Brothers to investors who
represented that they were "qualified institutional buyers" within
the meaning of Rule 144A of the Securities Act of 1933. The
Corporation paid Lehman Brothers an aggregate sales commission of
$1 million in connection with the sale.
The Capital Securities, when considered in the aggregate with the
purchasers' interests in certain Floating Rate Junior Subordinated
Debentures purchased by the Trust from the Corporation and the
Corporation's related guarantee, have the financial characteristics
of debt securities. Although the sale of such securities is
reported here in order to provide complete information, the
Corporation does not admit by reporting such sale that the Capital
Securities are "equity securities," a sale of which is reportable
under Item 2 of Part II of Form 10-Q.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders. The
registrant's annual meeting of shareholders was held on April 21,
1997. The election of directors and procedural matters were voted
upon. All nominees for director were elected by the following votes:
Election of Directors Votes Cast
For Withheld
Mr. Richard L. Antonini 40,440,089 170,680
Mr. William P. Crawford 40,502,872 107,897
Mr. William G. Gonzalez 40,442,644 168,125
Mr. James P. Hackett 40,455,514 155,255
Ms. Erina Hanka 40,495,920 114,849
Mr. Earl D. Holton 40,494,080 116,689
Mr. Robert L. Hooker 40,490,143 120,626
Mr. Michael J. Jandernoa 39,093,159 1,517,610
Mr. Fred P. Keller 40,496,239 114,530
Mr. Hendrik G. Meijer 40,500,919 109,850
Mr. Patrick M. Quinn 40,487,560 123,209
Ms. Marilyn J. Schlack 40,495,908 114,861
Mr. B.P. Sherwood III 40,490,532 120,237
Ms. Margaret S. Walker 40,444,900 165,869
The terms of the office of the following directors continued after
the meeting:
Mr. John M. Bissell Mr. Percy A. Pierre
Mr. John D. Boyles Mr. Robert L. Sadler
Mr. Dick DeVos Mr. Peter F. Secchia
Mr. John Keller Mr. David J. Wagner
Mr. William U. Parfet
The proposals below were approved by the following votes:
For Against Abstain
Proposal to approve the
Executive Incentive Bonus Plan 34,969,534 2,162,426 3,479,273
Proposal to approve the
Executive Stock Incentive Plan 33,106,038 4,102,204 3,402,991
<PAGE>
PART II OTHER INFORMATION
Item 6. a.) The following exhibits are filed as part of this report:
Exhibit
4.1 Rights Agreement. Previously filed as an exhibit to Old
Kent's Form 8-A Registration Statement filed January 21,
1997. Here incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights of
Series C Preferred Stock. Previously filed as Exhibit 4.3
to Old Kent's Form 8-K filed March 5, 1997. Here
incorporated by reference.
4.3 Form of Old Kent Capital Trust I Floating Rate Subordinated
Capital Income Securities (Liquidation Amount of $1,000 per
Capital Security). Previously filed as Exhibit 4.4 to Old
Kent's Form 8-K filed March 5, 1997. Here incorporated by
reference.
4.4 Form of Old Kent Financial Corporation Floating Rate Junior
Subordinated Debenture due 2027. Previously filed as
Exhibit 4.5 to Old Kent's Form 8-K filed
4.5 Amended and Restated Declaration of Trust, dated as of
January 31, 1997, among Old Kent; Albert T. Potas, Thomas E.
Powell, and Mary E. Tuuk, as "Regular Trustees" (as defined
therein); Bankers Trust Company; and Bankers Trust
(Delaware). Previously filed as Exhibit 4.6 to Old Kent's
Form 8-K filed March 5, 1997. Here incorporated by
reference.
4.6 Guarantee Agreement, dated as of January 31, 1997, between
Old Kent and Bankers Trust Company. Previously filed as
Exhibit 4.7 to Old Kent's Form 8-K filed March 5, 1997.
Here incorporated by reference.
4.7 Indenture, dated as of January 31, 1997, between Old Kent
and Bankers Trust Company. Previously filed as Exhibit 4.8
to Old Kent's Form 8-K filed March 5, 1997. Here
incorporated by reference.
4.8 Registration Rights Agreement, dated as of January 31,
1997, among Old Kent Capital Trust I, Old Kent Financial
Corporation, and Lehman Brothers Inc. Previously filed as
Exhibit 4.9 to Old Kent's Form 8-K filed March 5, 1997.
Here incorporated by reference.
11 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedules
b.) The following reports on Form 8-K were filed during the quarter:
Date of event Item Financial Statements
reported Reported Filed
January 20, 1997 5
March 5, 1997 7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD KENT FINANCIAL CORPORATION
Date: May 15, 1997 David J. Wagner
Chairman of the Board, President and
Chief Executive Officer
Date: May 15, 1997 B. P. Sherwood, III
Vice-Chairman and Treasurer
<PAGE>
EXHIBIT INDEX
4.1 Rights Agreement. Previously filed as an exhibit to Old Kent's Form 8-A
Registration Statement filed January 21, 1997. Here incorporated by
reference.
4.2 Certificate of Designation, Preferences and Rights of Series C Preferred
Stock. Previously filed as Exhibit 4.3 to Old Kent's Form 8-K filed
March 5, 1997. Here incorporated by reference.
4.3 Form of Old Kent Capital Trust I Floating Rate Subordinated Capital
Income Securities (Liquidation Amount of $1,000 per Capital Security).
Previously filed as Exhibit 4.4 to Old Kent's Form 8-K filed March 5,
1997. Here incorporated by reference.
4.4 Form of Old Kent Financial Corporation Floating Rate Junior
Subordinated Debenture due 2027. Previously filed as Exhibit 4.5 to Old
Kent's Form 8-K filed March 5, 1997. Here incorporated by reference.
4.5 Amended and Restated Declaration of Trust, dated as of January 31,
1997, among Old Kent; Albert T. Potas, Thomas E. Powell, and Mary E.
Tuuk, as "Regular Trustees" (as defined therein); Bankers Trust
Company; and Bankers Trust (Delaware). Previously filed as Exhibit 4.6
to Old Kent's Form 8-K filed March 5, 1997. Here incorporated by
reference.
4.6 Guarantee Agreement, dated as of January 31, 1997, between Old Kent
and Bankers Trust Company. Previously filed as Exhibit 4.7 to Old Kent's
Form 8-K filed March 5, 1997. Here incorporated by reference.
4.7 Indenture, dated as of January 31, 1997, between Old Kent and Bankers
Trust Company. Previously filed as Exhibit 4.8 to Old Kent's Form 8-K
filed March 5, 1997. Here incorporated by reference.
4.8 Registration Rights Agreement, dated as of January 31, 1997, among Old
Kent Capital Trust I, Old Kent Financial Corporation, and Lehman
Brothers Inc. Previously filed as Exhibit 4.9 to Old Kent's Form 8-K
filed March 5, 1997. Here incorporated by reference.
11 Statement of Earnings per Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 11 -- PROFORMA COMPARISON
OLD KENT FINANCIAL CORPORATION
EARNINGS PER SHARE CALCULATIONS - PRIMARY AND FULLY DILUTED
Three Months Ended March 31
1 9 9 7 1 9 9 6
P R I M A R Y
NET INCOME..................................... $41,004,000 $39,234,000
Deduct dividends on preferred stock............ - 0 - - 0 -
INCOME FOR PRIMARY E.P.S. CALCULATION.......... $41,004,000 $39,234,000
Average common shares outstanding.............. 45,802,768 47,546,303
Common stock equivalents....................... 308,134 365,873
SHARES FOR PRIMARY E.P.S. CALCULATION.......... 46,110,902 47,912,175
PRIMARY E.P.S.................................. $0.89 $0.82
<PAGE>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-END> MAR-31-97
<FISCAL-YEAR-END> DEC-31-97
<CASH> 527,514
<INT-BEARING-DEPOSITS> 394
<FED-FUNDS-SOLD> 26,622
<TRADING-ASSETS> 57,748
<INVESTMENTS-HELD-FOR-SALE> 2,084,108
<INVESTMENTS-CARRYING> 864,699
<INVESTMENTS-MARKET> 866,045
<LOANS> 9,053,421
<ALLOWANCE> 168,323
<TOTAL-ASSETS> 13,186,456
<DEPOSITS> 10,292,764
<SHORT-TERM> 1,397,608
<LIABILITIES-OTHER> 294,306
<LONG-TERM> 200,000
<COMMON> 45,346
0
0
<OTHER-SE> 956,432
<TOTAL-LIABILITIES-AND-EQUITY> 13,186,456
<INTEREST-LOAN> 197,672
<INTEREST-INVEST> 44,547
<INTEREST-OTHER> 2,889
<INTEREST-TOTAL> 245,108
<INTEREST-DEPOSIT> 97,498
<INTEREST-EXPENSE> 116,218
<INTEREST-INCOME-NET> 128,890
<LOAN-LOSSES> 10,221
<SECURITIES-GAINS> (637)
<EXPENSE-OTHER> 117,013
<INCOME-PRETAX> 61,644
<INCOME-PRE-EXTRAORDINARY> 61,644
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,004
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 4.44
<LOANS-NON> 42,560
<LOANS-PAST> 30,825
<LOANS-TROUBLED> 3,644
<LOANS-PROBLEM> 77,029
<ALLOWANCE-OPEN> 165,928
<CHARGE-OFFS> 15,229
<RECOVERIES> 4,219
<ALLOWANCE-CLOSE> 168,323
<ALLOWANCE-DOMESTIC> 168,323
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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