<PAGE> 1
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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, 1996
[ ] 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
(State of Incorporation)
111 LYON ST., N.W.
GRAND RAPIDS, MICHIGAN
(Address of Principal Executive Offices)
38-1986608
(I.R.S. Employer Identification No.)
49503
(Zip Code)
Registrant's Telephone Number, Including Area Code: (616) 771-5000
Securities Registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 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 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
---- ----
Indicate by 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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the filing.
Aggregate Market Value as of February 21, 1997: $2,095,513,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common stock outstanding at February 21, 1997: 45,644,664 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the year
ended December 31, 1996, are incorporated by reference in Part I and Part II.
Portions of the registrant's proxy statement for its April 21, 1997, annual
meeting of shareholders are incorporated by reference in Part II and Part III.
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
Old Kent Financial Corporation ("Old Kent") is a bank holding company and
Michigan business corporation, with its main office in Grand Rapids, Michigan.
Its principal banking subsidiaries, Old Kent Bank (Michigan) and Old Kent Bank
(Illinois), serve their communities with 188 banking offices in Michigan and 27
banking offices in Illinois. These banks engage in commercial and retail banking
and provide investment management, trust and other financial services.
Approximately 80% of Old Kent's assets are associated with banking offices
serving the lower peninsula of Michigan. The balance of banking assets are
associated with offices serving northeastern Illinois and 79 Old Kent Mortgage
Company offices located in 17 states.
Old Kent's business is concentrated in a single industry segment --
commercial banking. Old Kent's subsidiaries offer a wide range of banking,
financial, and fiduciary services. These include accepting deposits, commercial
lending, consumer financing, real estate and lease financing, equipment leasing,
bank credit cards, debit cards, safe deposit facilities, automated transaction
machine services, cash management, electronic banking services, money transfer
services, international banking services, corporate and personal trust services,
personal investment and securities brokerage, credit life insurance, insurance
agency services, and other banking services.
Old Kent Mortgage Company originates residential mortgages and conducts a
traditional retail and wholesale mortgage banking business in one- to
four-family residential mortgage loans. Substantially all mortgage production is
sold into the secondary market with servicing retained. Mortgage servicing for
all of Old Kent's subsidiaries and independent investors is performed by Old
Kent Mortgage Services, Inc.
The principal source of revenues for Old Kent is interest and fees on
loans, which accounted for 62% of total revenues in 1996, 62% in 1995, and 56%
in 1994. Interest on securities is also a significant source of revenue,
accounting for 17% of total revenues in 1996, 19% in 1995, and 26% in 1994.
Old Kent has had no foreign loans at any time during the last 5 years. The
foreign activities of Old Kent primarily involve time deposits with banks and
placements for domestic customers of the banks. These activities did not
significantly impact Old Kent's financial condition or results of operations.
More detailed information concerning these foreign activities is contained in
the statistical information that appears below.
As of December 31, 1996, Old Kent conducted the business of banking through
the following bank subsidiaries:
<TABLE>
<CAPTION>
BANK MAIN OFFICE ASSETS DEPOSITS LOANS
---- ----------- ------ -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Old Kent Bank Grand Rapids, MI $10,457,094 $8,499,782 $7,533,032
Old Kent Bank Elmhurst, IL 2,185,525 1,749,026 1,162,893
</TABLE>
<PAGE> 3
Old Kent also conducted business activities closely related to the business
of banking through the following direct and indirect nonbank subsidiaries as of
December 31, 1996:
<TABLE>
<CAPTION>
Subsidiary Business Activity States Where Offices Are Located
---------- ----------------- --------------------------------
<S> <C> <C>
Guyot, Hicks, Anderson &
Associates, Inc. Insurance agency Michigan
Hartger & Willard Mortgage
Associates, Inc.* Commercial mortgage company Michigan
Old Kent Brokerage Services,
Inc. Full service brokerage services Michigan
Old Kent Financial Life
Insurance Company Credit life and disability Michigan
insurance
Old Kent Mortgage Company Mortgage company Offices in 17 states
Old Kent Mortgage Services,
Inc. Mortgage servicing Michigan
Vanguard Financial Service
Corp. Leasing California, Illinois, Massachusetts
Michigan, Texas
</TABLE>
- -------------------------
* Sold January 14, 1997
Effective January 22, 1996, Old Kent acquired Republic Mortgage Corp.
("Republic"), headquartered in Salt Lake City, Utah, with 19 other offices. The
acquisition was treated as a purchase for accounting purposes and, accordingly,
results of operations of Republic were included in Old Kent's consolidated
results of operations from the date of acquisition. At December 31, 1995,
Republic had assets of $39 million and serviced $127 million of residential
mortgages for third parties.
On February 2, 1996, Old Kent sold its wholly owned subsidiary First
National Bank of Lockport to Heritage Financial Services, Inc. At the time of
the sale, the bank had total assets of $102 million, total deposits of $81
million, and operated from one office in Lockport, Illinois. First National Bank
of Lockport was among a group of banks acquired by Old Kent in its 1994
acquisition of EdgeMark Financial Corporation. The sale was consistent with Old
Kent's strategic focus on business development and retail banking in the
metropolitan Chicago area.
On August 1, 1996, Old Kent Mortgage Company acquired all of the
outstanding capital stock of National Pacific Mortgage Corporation ("NPMC"),
headquartered in Anaheim, California. The acquisition was treated as a purchase
for accounting purposes and, accordingly, results of operations of NPMC were
included in Old Kent's consolidated results of operations from the date of the
acquisition. At August 1, 1996, NPMC had assets of approximately $150 million
and a servicing portfolio of approximately $1.8 billion.
On October 1, 1996, pursuant to an Asset Purchase, Sponsorship and Services
Agreement dated August 27, 1996 with First Data Merchant Services Corporation
("FDMS"), Old Kent Bank (Michigan) and Old Kent Bank (Illinois) conveyed their
business of providing services to authorize, data capture, process, settle and
reconcile transactions effected by merchants with holders of Visa and MasterCard
credit and debit cards to FDMS.
On December 4, 1996, Guyot, Hicks, Anderson & Associates, Inc. ("GHA"), a
subsidiary of Old Kent Bank (Michigan), purchased, for $1.8 million, the assets
of Insurance Resource Group, L.L.C., Poggi & Associates, L.L.C. and Insurance
Consultants, L.L.C., each of which provide commercial insurance products and
services through an office in Grand Rapids, Michigan. The agency will operate as
a division of GHA under the name of Old Kent Insurance Group.
2
<PAGE> 4
Effective January 1, 1997, Old Kent Bank (Michigan) sold for cash all of
its shares of Hartger & Willard Mortgage Associates, Inc., its commercial
mortgage company.
Effective 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.
On December 24, 1996, Old Kent received preliminary approval from the
Office of the Comptroller of the Currency ("OCC") to organize a new national
bank subsidiary, Old Kent Bank, National Association ("Old Kent Bank, N.A.").
The Federal Deposit Insurance Corporation ("FDIC") approved deposit insurance
for the new national bank on January 8, 1997. Old Kent Bank, N.A., will be
headquartered in Jonesville, Michigan. As a part of its organization, the new
bank will purchase the assets and assume the liabilities of two existing
branches of Old Kent Bank (Michigan), in Hillsdale and Jonesville, Michigan. The
Federal Reserve System approved Old Kent's acquisition and ownership of Old Kent
Bank, N.A. on January 30, 1997. Old Kent Bank, N.A. established an operating
subsidiary, "GHA National Agency, Inc.," to engage in insurance agency
activities from Jonesville, Michigan. The new bank and its operating subsidiary
commenced business on March 1, 1997.
On January 31, 1997, Old Kent Capital Trust I (the "Trust"), a newly formed
Delaware business trust controlled by Old Kent, issued $100,000,000 of floating
rate subordinated capital income securities. The securities, which mature
February 1, 2027, were sold in a private placement transaction. When issued,
they were structured to yield at 90 basis points over the three month LIBOR rate
and are callable at par after ten years or other certain events.
As set forth below in the "Investment Portfolio" table, Old Kent derives a
significant amount of income from its investment security portfolio, which is
composed of 5 general categories of securities: (i) U.S. Treasury and federal
agency securities; (ii) collateralized mortgage obligations ("CMOs"); (iii)
mortgage-backed pass-through securities ("MBSs"); (iv) municipal bonds; and (v)
other securities.
U.S. Treasury and federal agency securities are securities backed by the
full faith and credit of the federal government. Most of these securities pay a
fixed rate of interest. Some federal agency securities pay a floating rate of
interest determined periodically according to a predefined index. Principal is
returned at par at a fixed maturity date for most of these securities and
reported yields remain relatively constant. Some federal agency securities are
"callable" and may be prepaid prior to the stated maturity date by the issuer
according to the terms of the obligation. These prepayments could affect the
reported yields if the recognition of purchase premium or discount must be
accelerated to match the timing of the prepaid principal.
CMOs are securities that are collateralized by either whole loan mortgages
or mortgage pass-through securities. CMOs are issued by federal agencies as well
as private entities. The return on these investments is realized through regular
receipt of interest on the outstanding principal amount at a predetermined rate,
combined with any accretion of discount or amortization of premium. Principal is
returned according to a predetermined payout sequence for the various pieces, or
"tranches", of the CMO according to the terms of the obligation, as regular
payments and prepayments are made on the underlying mortgages. The timing and
regularity of these principal receipts may vary over the term of the security.
The variability of these principal payments may affect reported yields as the
recognition of purchase premium or discount must be adjusted to match the timing
of the prepaid principal.
MBSs represent an undivided interest in an underlying pool of whole loans.
Old Kent currently only holds MBSs that are guaranteed by one of the federal
agencies. Regular monthly principal and interest payments on the underlying
mortgages are "passed through" to the security holders. Principal payments may
vary as some mortgages are prepaid due to refinancing, payoff, or additional
payment towards the balances of
3
<PAGE> 5
loans that make up the pool. The variability of these principal payments may
affect reported yields as the recognition of purchase premium or discount must
be adjusted to match the timing of the prepaid principal.
Municipal bonds represent obligations of state and political subdivisions
as well as their created "authorities." Municipal bonds are issued in various
forms. They may have fixed or floating rates, a fixed maturity or a "callable"
prepayment provision, and interest paid regularly or at maturity. Interest is
generally exempt from federal income tax. The reported yield may be affected by
the prepayment of principal on a callable security.
Other securities represent Federal Reserve Bank stock, Federal Home Loan
Bank stock, and Federal National Mortgage Association stock. Old Kent receives
regular dividend payments from each of these issuers.
As of December 31, 1996, Old Kent had not identified any securities as
being "high risk" as defined by the FFIEC Supervisory Policy Statement on
Securities Activities.
Old Kent is engaged in an ongoing review of the utility and economy of its
branch network. During 1996, Old Kent's bank subsidiaries sold, closed, or
eliminated through consolidation, a total of 10 bank branches.
The business of banking is highly competitive. In addition to competition
from other commercial banks, banks face significant competition from nonbank
financial institutions. Savings associations compete aggressively with
commercial banks for deposits and loans. Credit unions and finance companies are
significant factors in the consumer loan market. Insurance companies, investment
firms, and retailers are significant competitors for some types of business.
Banks compete for deposits with a broad spectrum of other types of investments
such as mutual funds, debt securities of corporations, and debt securities of
the federal government, state governments and their respective agencies. The
principal methods of competition for financial services are price (interest
rates paid on deposits, interest rates charged on borrowings, and fees charged
for services) and service (convenience and quality of services rendered to
customers).
Banks and bank holding companies are extensively regulated. Old Kent Bank
(Michigan) and Old Kent Bank (Illinois) are chartered under state law and are
members of the Federal Reserve System. They are supervised, examined, and
regulated by the Federal Reserve System and the FDIC and, respectively, the
Financial Institutions Bureau of the State of Michigan and the Commissioner of
Banks and Trust Companies of the State of Illinois. First National Bank of
Lockport was, and Old Kent Bank, N.A. is, a national banking association
chartered under federal law and supervised, examined, and regulated by the OCC.
Deposits of all of the banks are insured by the FDIC to the extent provided by
law.
Federal and state laws that govern banks significantly limit their business
activities in a number of respects. Prior approval of the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"), and in some cases various
other governing agencies, is required for Old Kent to acquire control of any
additional banks. The business activities of Old Kent and its subsidiaries are
limited to banking and other activities closely related to banking.
Old Kent is a legal entity separate and distinct from its subsidiary banks
and its other subsidiaries. Transactions between Old Kent's subsidiary banks are
significantly restricted. There are legal limitations on the extent to which Old
Kent's subsidiary banks can lend or otherwise supply funds to Old Kent or
certain of its affiliates. In addition, payment of dividends to Old Kent by
subsidiary banks is subject to various state and federal regulatory limitations.
Federal law contains a "cross-guarantee" provision that could result in
insured depository institutions owned by Old Kent being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other insured depository institution owned by Old Kent. Under Federal
Reserve Board policy, Old Kent is expected to act as a source of financial
strength to each subsidiary bank and to commit resources to support each
subsidiary bank. Under federal law, the FDIC also has authority to impose
special assessments on insured depository institutions to repay FDIC borrowings
from the United States Treasury or other sources and to establish semiannual
assessment rates on Bank Insurance Fund ("BIF") and Savings
4
<PAGE> 6
Association Insurance Fund ("SAIF") deposits to maintain the BIF and SAIF at the
designated reserve ratio required by law.
Banks are subject to a number of federal and state laws and regulations
that have a material impact on their business. These include, among others,
state usury laws, state laws relating to fiduciaries, the Truth In Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Expedited
Funds Availability Act, the Community Reinvestment Act, electronic funds
transfer laws, redlining laws, antitrust laws, environmental laws, and privacy
laws. The instruments of monetary policy of authorities such as the Federal
Reserve Board may influence the growth and distribution of bank loans,
investments, and deposits, and may also affect interest rates on loans and
deposits. These policies may have a significant effect on the operating results
of banks.
The nature of the business of Old Kent's subsidiaries is such that they
hold title, on a temporary or permanent basis, to a number of parcels of real
property. These include property owned for branch offices and other business
purposes as well as properties taken in or in lieu of foreclosure to satisfy
loans in default. Under current state and federal laws, present and past owners
of real property may be exposed to liability for the cost of clean up of
contamination on or originating from those properties. These liabilities can be
material and can exceed the value of the contaminated property.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") substantially changed the geographic constraints
applicable to the banking industry. Effective September 29, 1995, the
Riegle-Neal Act allows bank holding companies to acquire banks located in any
state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law. Effective June 1, 1997 (or
earlier if expressly authorized by applicable state law), the Riegle-Neal Act
also allows banks to establish interstate branch networks through acquisitions
of other banks. The establishment of de novo interstate branches or the
acquisition of individual branches of a bank in another state (rather than the
acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The legislation
allows individual states to "opt-out" of certain provisions of the Riegle-Neal
Act by enacting appropriate legislation prior to June 1, 1997.
Michigan exercised its right to opt-in early to the Riegle-Neal Act, and
now permits both U.S. and non-U.S. banks to establish branch offices in
Michigan. Effective November 29, 1995, the Michigan Banking Code permits, in
appropriate circumstances and with the approval of the Commissioner, (i)
acquisition of Michigan banks by FDIC-insured banks, savings banks or savings
and loan associations located in other states, (ii) sale by a Michigan bank of
branches to an FDIC-insured bank, savings bank or savings and loan association
located in a state in which a Michigan bank could purchase branches of the
purchasing entity, (iii) consolidation of Michigan banks and FDIC-insured banks,
savings banks or savings and loan associations located in other states having
laws permitting such consolidation, (iv) establishment of branches in Michigan
by FDIC-insured banks located in other states, the District of Columbia or U.S.
territories or protectorates having laws permitting a Michigan bank to establish
a branch in such jurisdiction, and (v) establishment by foreign banks of
branches located in Michigan. The State of Illinois has also exercised its right
to opt-in, effective June 1, 1997, permitting Old Kent to consolidate its
Michigan and Illinois banks. Such a consolidation is proposed in 1997.
In the aggregate, Old Kent and its subsidiaries had 5,649 employees (on a
full time equivalent basis) at December 31, 1996. Old Kent and its subsidiaries
are equal opportunity employers whose affirmative action programs comply with
applicable federal laws and executive orders.
The statistical information on the following pages further describes
certain aspects of the business of Old Kent. Additional statistical information
describing the business of Old Kent appears in the following sections of
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in Item 7 ("MD&A"), the Selected Financial
Data incorporated by reference in Item 6
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<PAGE> 7
("Selected Financial Data"), and the financial statements and notes incorporated
by reference in Item 8 ("Financial Statements"):
MD&A
Average Consolidated Balance Sheets
Net Interest Income
Loan Portfolio
Provision for Credit Losses
SELECTED FINANCIAL DATA
Dividend payout ratio
Return on average total equity
Return on average total assets
Average equity to average assets
FINANCIAL STATEMENTS
Note 6. Loans and Nonperforming Assets
6
<PAGE> 8
INVESTMENT PORTFOLIO
The following table shows, by class of maturities as of December 31, 1996,
the amounts and weighted average yields of securities held-to-maturity and
securities available-for-sale on the basis of amortized cost:
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
---------------- ------------------ ------------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $355,865 5.47% $530,225 5.71% $287,801 6.07% $ -- --%
States and other political
subdivisions(3) 21,979 10.08 76,802 9.43 35,662 8.65 22,416 9.32
Other Securities -- -- -- -- -- -- 61,294 6.00
-------- ----- -------- ---- -------- ---- ------- ----
Total $377,844 5.74% $607,027 6.18% $323,463 6.35% $83,710 6.89%
======== ===== ======== ==== ======== ==== ======= ====
</TABLE>
- -------------------------
(1) The effective yields are weighted for the scheduled maturity of each
security.
(2) Collateralized mortgage obligations and mortgage-backed securities of
$1,427,653, having a weighted average yield of 6.44% at December 31, 1996,
are not included in the table shown above.
(3) Weighted average interest rates have been computed on a fully taxable
equivalent basis. The rates shown on securities issued by states and
political subdivisions have been restated, assuming a 35% tax rate. The
amount of the adjustment, due to restating the rates, is as follows:
<TABLE>
<CAPTION>
Tax-Exempt Rate of Taxable
Rate Adjustment Equivalents Basis
---------- ---------- -----------------
<S> <C> <C> <C>
Under 1 Year 6.55% 3.53% 10.08%
1 to 5 Years 6.13 3.30 9.43
5 to 10 Years 5.62 3.03 8.65
Over 10 Years 6.06 3.26 9.32
---- ---- -------
Total 6.06% 3.27% 9.33%
==== ==== =======
</TABLE>
(4) The aggregate book value of securities of no single issuer except the U.S.
Government exceeds 10 percent of Old Kent's consolidated shareholders'
equity.
7
<PAGE> 9
INVESTMENT PORTFOLIO -- CONTINUED
The following table summarizes Old Kent's securities classified as
available-for-sale at December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
--------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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 $1,910,367 $ 1,242 $16,411 $1,895,198
========== ======= ======= ==========
December 31, 1995
U.S. Treasury and federal agency securities $1,304,855 $10,503 $ 2,930 $1,312,428
Collateralized mortgage obligations:
U.S. Government issued 710,255 5,252 9,678 705,829
Privately issued 4,539 29 40 4,528
Mortgage-backed pass-through securities 162,494 1,709 269 163,934
Other securities 58,374 606 -- 58,980
---------- ------- ------- ----------
Total $2,240,517 $18,099 $12,917 $2,245,699
========== ======= ======= ==========
December 31, 1994
U.S. Treasury and federal agency securities $1,054,962 $ 1,396 $30,178 $1,026,180
Collateralized mortgage obligations and other
Mortgage-backed securities 439,904 78 33,560 406,422
Other securities 23,342 1,386 -- 24,728
---------- ------- ------- ----------
Total $1,518,208 $ 2,860 $63,738 $1,457,330
========== ======= ======= ==========
</TABLE>
8
<PAGE> 10
INVESTMENT PORTFOLIO -- CONTINUED
The following table summarizes Old Kent's securities classified as
held-to-maturity at December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
--------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
State and political subdivision securities 156,859 4,730 1,098 160,491
---------- ------- ------- ----------
Total $ 909,330 $ 8,937 $ 6,675 $ 911,592
========== ======= ======= ==========
December 31, 1995
Collateralized mortgage obligations:
U.S. Government issued $ 456,758 $ 2,963 $ 5,306 $ 454,415
Privately issued 95,843 227 390 95,680
Mortgage-backed pass-through securities 127,729 2,939 236 130,432
State and political subdivision securities 190,612 6,031 879 195,764
---------- ------- ------- ----------
Total $ 870,942 $12,160 $ 6,811 $ 876,291
========== ======= ======= ==========
December 31, 1994
U.S. Treasury and federal agency securities $ 769,576 $ 2,409 $11,752 $ 760,233
Collateralized mortgage obligations and other
Mortgage-backed securities 1,092,797 1,590 72,355 1,022,032
State and political subdivision securities 221,119 3,645 4,226 220,538
---------- ------- ------- ----------
Total $2,083,492 $ 7,644 $88,333 $2,002,803
========== ======= ======= ==========
</TABLE>
9
<PAGE> 11
INVESTMENT PORTFOLIO -- CONTINUED
The table below identifies the critical characteristics of Old Kent's three
classes of mortgage-backed related securities for December 31, 1996 and 1995.
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
AMORTIZED AVERAGE AVERAGE
COST YIELD LIFE
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1996
Collateralized mortgage obligations:
U.S. Government issued $ 882,277 6.35% 2.9
Privately issued 350,046 6.46 3.1
Mortgage-backed pass-through securities 195,330 6.83 3.5
---------- ---- ---
Total mortgage-backed related securities $1,427,653 6.44% 3.0
========== ==== ===
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
AMORTIZED AVERAGE AVERAGE
COST YIELD LIFE
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1995
Collateralized mortgage obligations:
U.S. Government issued $1,167,013 6.33% 3.1
Privately issued 100,382 6.45 3.7
Mortgage-backed pass-through securities 290,223 6.90 5.0
---------- ---- ---
Total mortgage-backed related securities $1,557,618 6.45% 3.5
========== ==== ===
</TABLE>
At December 31, 1994, collateralized mortgage obligations and other
mortgage-backed securities had a total amortized cost of $1,532,701,000, a
weighted average yield of 6.36%, and an estimated average life of 3.1 years.
10
<PAGE> 12
LOAN PORTFOLIO
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences, consumer loans, credit card loans, and lease
financing) outstanding at December 31, 1996. Also provided are the amounts due
after one year classified according to their sensitivity to changes in interest
rates.
<TABLE>
<CAPTION>
DUE IN ONE DUE IN ONE DUE AFTER
YEAR OR LESS TO FIVE YEARS FIVE YEARS
------------ ------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial, financial and agricultural $1,321,974 $ 733,028 $150,835
Real estate-commercial(1) 348,704 1,268,762 102,233
Real estate-construction 244,784 164,499 18,718
---------- ---------- --------
Total $1,915,462 $2,166,289 $271,786
========== ========== ========
Loans due after one year:
With fixed rates $1,127,123 $171,116
With floating rates 1,039,166 100,670
---------- --------
Total $2,166,289 $271,786
========== ========
</TABLE>
- -------------------------
(1) Includes real estate commercial loans secured by 1-4 family residences.
Foreign Outstandings: A summary of significant foreign outstandings for
the three years ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
OUTSTANDINGS TO FOREIGN
-------------------------------------------
BANKS AND PERCENT
OTHER FINANCIAL OF TOTAL
INSTITUTIONS(1) TOTAL ASSETS
--------------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1996
All Countries(2) $ 0 $ 0 0
======== ======== ====
At December 31, 1995
All Countries(2) $150,000 $150,000 1.25%
======== ======== ====
At December 31, 1994
All Countries(2) $ 5,000 $ 5,000 .05%
======== ======== ====
</TABLE>
- -------------------------
(1) All foreign outstandings at the dates indicated were to banks and other
financial institutions. These consist primarily of interest-earning deposits
with foreign banks and foreign branches of U.S. banks.
(2) Outstandings in each country were less than 1% of Old Kent's total assets.
11
<PAGE> 13
DEPOSITS
The daily average amounts of deposits and rates paid on such deposits for
the periods indicated are:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
In Domestic Offices:
Non-interest-bearing demand
deposits $1,407,706 $1,329,787 $1,239,373
Savings deposits 2,981,349 2.65% 3,094,220 2.67% 3,424,799 2.32%
Time deposits 5,326,798 5.65 4,667,457 5.70 3,895,774 4.50
In Foreign Office:
Time deposits 46,841 5.73 225,964 6.26 245,109 4.25
---------- ---------- ----------
Total $9,762,694 $9,317,428 $8,805,055
========== ========== ==========
</TABLE>
The time remaining until maturity of time deposits of $100,000 or more
issued by domestic offices (all of which are time certificates of deposit) at
December 31, 1996, is as follows:
<TABLE>
<CAPTION>
TIME CERTIFICATES
OF DEPOSIT
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
3 months or less $ 736,427
Over 3 through 6 months 267,616
Over 6 through 12 months 236,589
Over 12 months 134,615
----------
Total $1,375,247
==========
</TABLE>
Time deposits in the foreign office are all in amounts of $100,000 or more.
12
<PAGE> 14
OTHER BORROWED FUNDS
Other borrowed funds consist of federal funds purchased, securities sold
under agreements to repurchase, bank notes, and treasury tax, loan and demand
notes. The following amounts and rates applied during the last three years:
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED AND
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE: BANK NOTES AGGREGATE OTHER BORROWED FUNDS
------------------------------ ------------------------------ ------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts outstanding at
year-end $482,499 $536,686 $437,191 $445,000 $575,000 $400,000 $1,235,867 $1,307,617 $1,010,769
Average amount
outstanding during
year $519,579 $429,881 $414,589 $415,410 $591,507 $358,342 $1,155,504 $1,185,629 $ 933,458
Maximum amount
outstanding any month-
end $610,636 $536,686 $577,988 $495,000 $800,000 $440,000 $1,327,547 $1,329,425 $1,071,988
Weighted average
interest rate at
year-end(1) 5.28% 5.86% 4.81% 6.22% 6.35% 5.80% 5.47% 5.95% 5.29%
Weighted average
interest rate during
year(1) 4.67% 5.13% 3.74% 6.36% 6.33% 4.65% 5.50% 5.88% 4.12%
</TABLE>
- -------------------------
(1) The weighted average interest rates are derived by dividing the interest
expense for the period by the daily average balance during the period.
ITEM 2. PROPERTIES.
The executive offices of Old Kent and the main office of Old Kent Bank
(Michigan) are located in an office complex in downtown Grand Rapids, Michigan.
This complex consists of two interconnected buildings, including a 10-story
office building. Approximately 63.2% of the 305,633 square feet of space in the
complex is occupied by Old Kent and Old Kent Bank (Michigan). The balance is
leased to others for terms of varying lengths.
Old Kent's operations center is housed in two buildings located near Grand
Rapids. The two buildings, which have a total of 310,000 square feet, are owned
by Old Kent Bank (Michigan).
Old Kent's subsidiary banks conducted business from a total of 215 full
service banking offices as of December 31, 1996. Of the full service banking
offices, 160 are owned by the banks or their subsidiaries, and 55 are leased
from various independent parties for various lease terms.
ITEM 3. LEGAL PROCEEDINGS.
Old Kent's subsidiaries are parties, as plaintiff or defendant, to a number
of legal proceedings. Except as described below, all of these proceedings are
considered to be ordinary routine litigation incidental to their business, and
none is considered to be a material pending legal proceeding.
Old Kent Bank (Michigan) is named, among other defendants, in a lawsuit
filed by Grow Group, Inc. ("Grow") presently pending in the United States
District Court for the Western District of Michigan. Principal defendants in
this case include Perrigo Company ("Perrigo"), Michael J. Jandernoa (Chairman of
the Board and Chief Executive Officer of Perrigo, and presently a director of
Old Kent), certain other persons who are believed to have been directors and
officers of Perrigo, Old Kent, Old Kent Bank (Michigan), and National Bank of
Detroit ("NBD"; now NBD Bank), with which Old Kent Bank participated in the
financing arrangement that is in part the subject of the case. Old Kent
Financial Corporation was a named defendant, but has been dismissed from the
case.
In 1988, Old Kent Bank (Michigan) participated in a credit facility that
partially financed the purchase of all of the stock of Perrigo from Grow by
individual and corporate defendants in the case. Grow now alleges that NBD and
Old Kent Bank (Michigan) conspired with and aided and abetted the individual
defendants in
13
<PAGE> 15
certain breaches of duties, fraud, and usurpation of corporate opportunity;
misappropriated and used confidential and proprietary information for their own
benefit; and breached a relationship of trust and confidence with Grow. Grow
demands judgment against the defendants, jointly and severally, for damages in
an unspecified but apparently material amount, profits and benefits accruing to
the defendants as a result of the alleged wrongful acts, punitive damages,
interest, and costs. The case was initiated in April 1994 in the Supreme Court,
State of New York, County of New York and was then removed by the defendants to
federal court in New York. The New York federal court transferred the case to
the Western District of Michigan. Further proceedings in the case will take
place before federal district judge Robert Holmes Bell in Grand Rapids.
Discovery proceedings in this case are in the early stages. Based on the
limited information presently available, Old Kent has no reason to believe that
there is a basis for a meritorious claim against Old Kent Bank (Michigan) in
this case and intends to oppose the action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Old Kent's executive officers are appointed annually by, and serve at the
pleasure of, the Old Kent board of directors. Biographical information
concerning executive officers as of February 17, 1997, who are not directors or
nominated for election to the board of directors is presented below:
Steven D. Crandall (age 44) is Senior Vice President (Human Resources) of
Old Kent. He has been a senior vice president of Old Kent since 1983. Prior to
that, he served Old Kent in various other executive capacities. Mr. Crandall is
also a member of Old Kent's Management Committee.
David A. Dams (age 44) is Executive Vice President (Corporate Banking) of
Old Kent Bank (Michigan). He has been an executive vice president of Old Kent
Bank (Michigan) since 1986. Prior to that, he served Old Kent in various other
executive capacities. Mr. Dams is a director of Vanguard Financial Service Corp.
and GHA and is also a member of Old Kent's Management Committee.
E. Philip Farley (age 57) is Executive Vice President (Investment
Management and Trust Services) of Old Kent Bank (Michigan). He has been an
executive vice president of Old Kent Bank (Michigan) since 1987. Prior to that,
he served Old Kent in various other executive capacities. Mr. Farley is a
director of Old Kent Brokerage Services, Inc. and is also a member of Old Kent's
Management Committee.
Ralph W. Garlick (age 60) has been Executive Vice President of Old Kent
since 1989. Prior to that, he served Old Kent in various other executive
capacities. Mr. Garlick is also President of Old Kent Bank-East (since 1995) and
a member of Old Kent's Management Committee.
Richard L. Haug (age 57) has been Senior Vice President and General Auditor
of Old Kent since 1986.
James A. Hubbard (age 42) has been Executive Vice President of Old Kent and
President and Chief Executive Officer of Old Kent Bank (Illinois) since 1997.
Mr. Hubbard is a director of Old Kent Bank (Illinois) and a member of Old Kent's
Management Committee. Previously, Mr. Hubbard held various positions with
American National Bank in Chicago, Illinois.
Kevin T. Kabat (age 40) is Senior Executive Vice President of Old Kent and
Senior Executive Vice President and Chief Operating Officer of Old Kent Bank
(Michigan). He was Executive Vice President of Old Kent from 1995 to 1997,
Senior Vice President and Manager of Corporate Operations and Technology of Old
Kent from 1993 until 1995, and a senior vice president and manager of corporate
operations from 1990 until 1993. Prior to that, he served Old Kent in various
other executive capacities. Mr. Kabat is a director of Old Kent Brokerage
Services, Inc. and a member of Old Kent's Management Committee.
David L. Kerstein (age 52) has been Executive Vice President (Retail
Banking and Marketing) of Old Kent since 1997. He was Executive Vice President
(Retail Banking) of Old Kent from 1992 to 1997. Prior to
14
<PAGE> 16
that, he was a senior vice president of Bank One (Texas), a bank. Mr. Kerstein
is a director of GHA and Old Kent Financial Life Insurance Company and a member
of Old Kent's Management Committee.
Larry S. Magnesen (age 39) has been Senior Vice President (Retail
Administration) of Old Kent Bank (Michigan) since 1997. He was a senior vice
president of Old Kent from 1996 to 1997. Prior to that, he was a vice president
of Banc One Corporation and Banc One Ohio Corporation, bank holding companies.
Mr. Magnesen is also a member of Old Kent's Management Committee.
Mary E. Tuuk (age 32) has been Secretary and Vice President (Legal
Coordinator) of Old Kent since 1996. Previously, Ms. Tuuk was an attorney with
the law firm Chapman and Cutler in Chicago, Illinois. Ms. Tuuk is a regular
trustee of the Old Kent Capital Trust I, an Old Kent subsidiary.
Robert H. Warrington (age 49) is Senior Executive Vice President of Old
Kent and President of Old Kent Mortgage Services, Inc. and Old Kent Mortgage
Company. He was an executive vice president of Old Kent from 1995 to 1997 and
has been President of Old Kent Mortgage Services, Inc. and Old Kent Mortgage
Company since 1993. He was a senior vice president of Old Kent Bank (Michigan)
from 1988 until 1993. Prior to that, he served Old Kent in various other
executive capacities. Mr. Warrington is a director of Old Kent Brokerage
Services, Inc., Old Kent Mortgage Company, Old Kent Mortgage Services, Inc.,
NPMC, Republic, Old Kent Financial Life Insurance Company, and GHA, Chairman of
the Board of NPMC and Republic, and a member of Old Kent's Management Committee.
Michael J. Whalen (age 48) has been Senior Vice President and Senior Credit
Officer of Old Kent since 1997. Previously, he was President and Chief Executive
Officer of Old Kent Bank (Illinois) and served Old Kent in various other
executive capacities. He is a director of Vanguard Financial Service Corp. and a
member of Old Kent's Management Committee.
Thomas D. Wisnom (age 58) is Executive Vice President (Community Bank
Administration) of Old Kent. He has been an executive vice president of Old Kent
since 1985. Prior to that, he served Old Kent in various other executive
capacities. Mr. Wisnom is a director of Old Kent Financial Life Insurance
Company and a member of Old Kent's Management Committee.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information under the caption "Cash Dividends" and "Old Kent Common
Stock" on pages S-24 of Old Kent's Annual Report to Shareholders for the year
ended December 31, 1996 (the "1996 Annual Report"), is here incorporated by
reference. Old Kent's 1996 Annual Report is printed and distributed with its
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
April 21, 1997 (the "1997 Proxy Statement").
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Five Year Summary of Selected Financial
Data" on page S-3 of Old Kent's 1996 Annual Report is here incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information under the caption "Financial Review" on pages S-4 through
S-31 of Old Kent's 1996 Annual Report is here incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, notes and the report of independent public
accountants on pages S-33 through S-64 of Old Kent's 1996 Annual Report is here
incorporated by reference.
The information under the caption "Quarterly Financial Data" on page S-31
of Old Kent's 1996 Annual Report is here incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Board of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the 1997 Proxy
Statement is here incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Compensation of Executive
Officers and Directors," "Executive Severance Agreements," and "Compensation of
Directors" in the 1997 Proxy Statement is here incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Voting Securities" in the 1997
Proxy Statement is here incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Relationships and
Related Transactions" in the 1997 Proxy Statement is here incorporated by
reference.
16
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements. The following financial statements and report of
independent public accountants of Old Kent Financial Corporation and its
subsidiaries are filed as part of this report:
Report of Independent Public Accountants dated January 20, 1997
Consolidated Balance Sheets -- December 31, 1995 and 1996
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1996
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended December 31, 1996
Notes to Consolidated Financial Statements
The financial statements, the notes to financial statements, and the report
of independent public accountants listed above are incorporated by reference in
Item 8 of this report.
(2) Financial Statement Schedules. Not applicable.
(3) Exhibits. The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<C> <S>
3.1 Restated Articles of Incorporation. Previously filed as
Exhibit 3(a) to Old Kent's Form 10-Q Quarterly Report for
the quarter ended March 31, 1993. Here incorporated by
reference.
3.2 Bylaws. Previously filed as Exhibit 3(b) to Old Kent's Form
8-K filed February 23, 1996. Here incorporated by reference.
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 B Preferred Stock. Previously filed as Exhibit 4(b)
to Old Kent's Form 8-K filed February 23, 1996. Here
incorporated by reference.
4.3 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.
4.4 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.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<C> <S>
4.9 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.
4.10 Long-term Debt. Old Kent has outstanding long-term debt
which at the time of this report does not exceed 10% of Old
Kent's total consolidated assets. Old Kent agrees to furnish
copies of the agreements defining the rights of holders of
such long-term indebtedness to the Securities and Exchange
Commission upon request.
10.1 Incentive Stock Option Plan of 1982.* Previously filed as
Exhibit 10(a) to Old Kent's Form 10-K Annual Report for its
fiscal year ended December 31, 1991. Here incorporated by
reference.
10.2 Amendment to Incentive Stock Option Plan of 1982.*
Previously filed as Exhibit 10(b) to Old Kent's Form 10-K
Annual Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
10.3 Old Kent Executive Retirement Income Plan and Related
Trust.* Previously filed as Exhibit 10(c) to Old Kent's Form
10-K Annual Report for its fiscal year ended December 31,
1991. Here incorporated by reference.
10.4 Amendment to Executive Retirement Income Plan.* Previously
filed as Exhibit 10(d) to Old Kent's Form 10-K Annual Report
for its fiscal year ended December 31, 1994. Here
incorporated by reference.
10.5 Executive Stock Option Plan of 1986.* Previously filed as
Exhibit 10 to Old Kent's Form 10-Q Quarterly Report for its
fiscal quarter ended September 30, 1995. Here incorporated
by reference.
10.6 Amendment to Restricted Stock Plan of 1987.* Previously
filed as Exhibit 10(f) to Old Kent's Form 8-K filed February
23, 1996. Here incorporated by reference.
10.7 Old Kent Executive Thrift Plan and Related Trust.*
Previously filed as Exhibit 10(f) to Old Kent's Form 10-K
Annual Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
10.8 Amendment to Executive Thrift Plan.* Previously filed as
Exhibit 10(h) to Old Kent's Form 10-K Annual Report for its
fiscal year ended December 31, 1994. Here incorporated by
reference.
10.9 Rights Agreement. Previously filed as an exhibit to Old
Kent's Form 8-A Registration Statement filed January 22,
1997. Here incorporated by reference.
10.10 Deferred Stock Compensation Plan and Related Trust.*
Previously filed as Exhibit 10(j) to Old Kent's Form 10-K
Annual Report for its fiscal year ended December 31, 1994.
Here incorporated by reference.
10.11 Stock Option Incentive Plan of 1992.* Previously filed as
Exhibit 10(b) to Old Kent's Form 10-Q Quarterly Report for
its fiscal quarter ended June 30, 1995. Here incorporated by
reference.
10.12 Old Kent Deferred Compensation Plan and Related Trust.*
Previously filed as Exhibit 10(m) to Old Kent's Form 10-K
Annual Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
10.13 Old Kent Directors' Deferred Compensation Plan and Related
Trust.* Previously filed as Exhibit 10(n) to Old Kent's Form
10-K Annual Report for its fiscal year ended December 31,
1994. Here incorporated by reference.
10.14 Restricted Stock Agreement for Mr. Warrington.* Previously
filed as Exhibit 10(p) to Old Kent's Form 8-K filed February
23, 1996. Here incorporated by reference.
10.15 Restricted Stock Agreement for Mr. Warrington.* Previously
filed as Exhibit 10(q) to Old Kent's Form 8-K filed February
23, 1996. Here incorporated by reference.
10.16 Pooling and Service Agreement. Previously filed as Exhibit
10(r) to Old Kent's Form 8-K filed February 23, 1996. Here
incorporated by reference.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<C> <S>
10.17 Executive Severance Agreements for Messrs. Wagner, Sadler,
Sherwood, Wisnom, Kabat, and Warrington.* Previously filed
as Exhibit 10.17 to Old Kent's Form 8-K filed March 5, 1997.
Here incorporated by reference.
10.18 Executive Severance Agreements for Messrs. Dams, Farley,
Garlick, Jennings, Kerstein, Crandall, Whalen, and
Magnesen.* Previously filed as Exhibit 10.18 to Old Kent's
Form 8-K filed March 5, 1997. Here incorporated by
reference.
10.19 Amendment to Executive Stock Option Plan of 1986.*
Previously filed as Exhibit 10.19 to Old Kent's Form 8-K
filed March 5, 1997. Here incorporated by reference.
10.20 Amendment to Stock Option Incentive Plan of 1992.*
Previously filed as Exhibit 10.20 to Old Kent's Form 8-K
filed March 5, 1997. Here incorporated by reference.
10.21 Restricted Stock Plan of 1987.* Previously filed as part of
Old Kent's Definitive Proxy Statement dated March 6, 1992.
Here incorporated by reference.
11 Statement Re Computation of Earnings per Common Share.
12 Statement Re Computation of Other Ratios.
13 Annual Report to Shareholders. This exhibit, except for
those portions expressly incorporated by reference in this
filing, is furnished for the information of the Commission
and is not deemed "filed" as part of this filing.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Old Kent Thrift Plan Performance Table.
</TABLE>
- -------------------------
* These agreements are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-K.
Old Kent will furnish a copy of any exhibit listed above to any Old Kent
shareholder without charge upon written request to Ms. Mary E. Tuuk, Secretary,
Old Kent Financial Corporation, 111 Lyon St., N.W., Grand Rapids, Michigan
49503.
(b) Reports on Form 8-K. Old Kent did not file any reports on Form 8-K
during the fourth quarter of 1996.
19
<PAGE> 21
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.
Old Kent Financial Corporation
(Registrant)
Date: March 7, 1997 By /s/ MARY E. TUUK
--------------------------------------
Mary E. Tuuk
Secretary and Vice President
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 indicated.
<TABLE>
<S> <C>
March 7, 1997 /s/ JOHN M. BISSELL*
------------------------------------------------------------
John M. Bissell
Director
March 7, 1997 /s/ JOHN D. BOYLES*
------------------------------------------------------------
John D. Boyles
Director
March 7, 1997 /s/ RICHARD M. DEVOS, JR.*
------------------------------------------------------------
Richard M. DeVos, Jr.
Director
March 7, 1997 /s/ JAMES P. HACKETT*
------------------------------------------------------------
James P. Hackett
Director
March 7, 1997 /s/ ERINA HANKA*
------------------------------------------------------------
Erina Hanka
Director
March 7, 1997 /s/ EARL D. HOLTON*
------------------------------------------------------------
Earl D. Holton
Director
March 7, 1997 /s/ MICHAEL J. JANDERNOA*
------------------------------------------------------------
Michael J. Jandernoa
Director
March 7, 1997 /s/ JOHN P. KELLER*
------------------------------------------------------------
John P. Keller
Director
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
March 7, 1997 /s/ WILLIAM U. PARFET*
------------------------------------------------------------
William U. Parfet
Director
March 7, 1997 /s/ PERCY A. PIERRE*
------------------------------------------------------------
Percy A. Pierre
Director
March 7, 1997 /s/ ROBERT L. SADLER*
------------------------------------------------------------
Robert L. Sadler
Vice Chairman of the Board and
Director
March 7, 1997 /s/ PETER F. SECCHIA*
------------------------------------------------------------
Peter F. Secchia
Director
March 7, 1997 /s/ B. P. SHERWOOD, III
------------------------------------------------------------
B. P. Sherwood, III
Vice Chairman of the Board, Treasurer, and
Director (Principal Financial and Accounting Officer)
March 7, 1997 /s/ DAVID J. WAGNER*
------------------------------------------------------------
David J. Wagner
Chairman, President, Chief Executive Officer, and
Director (Principal Executive Officer)
*By /s/ MARY E. TUUK
--------------------------------------------------------
Mary E. Tuuk
Attorney-in-Fact
</TABLE>
21
<PAGE> 1
EXHIBIT 11
EARNINGS PER SHARE CALCULATIONS -- PRIMARY AND FULLY DILUTED
<TABLE>
<CAPTION>
(Restated for stock splits)
YEAR ENDED DECEMBER 31
1996 1995 1994
PRIMARY
- -------
<S> <C> <C> <C>
NET INCOME $158,701,000 $141,814,000 $137,084,000
Deduct dividends on preferred stock -0- -0- -0-
------------ ------------ ------------
INCOME FOR PRIMARY
E.P.S. CALCULATION 158,701,000 $141,814,000 $137,084,000
============ ============ ============
Average common shares outstanding 46,491,234 47,525,990 47,310,806
Common stock equivalents 335,892 359,547 369,012
------------ ------------ ------------
SHARES FOR PRIMARY
E.P.S. CALCULATION 46,827,126 47,885,537 47,679,818
============ ============ ============
PRIMARY E.P.S. $ 3.39 $ 2.96 $ 2.88
============ ============ ============
FULLY DILUTED E.P.S. $ 3.39 $ 2.96 $ 2.88
============ ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 12
STATEMENT OF COMPUTATION OF OTHER RATIOS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
For the year ended December 31: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income 158,701 $ 141,814 $ 137,084 $ 131,324 $ 114,445
Less: preferred stock dividends -- -- -- -- --
-- -- -- -- --
----------- ----------- ----------- ---------- ----------
Net income available to common shareholders $ 158,701 $ 141,814 $ 137,084 $ 131,324 $ 114,445
Average common equity 1,013,370 972,665 887,541 802,016 712,624
Average total equity 1,000,841 960,858 884,415 802,016 712,624
Average assets 12,251,860 11,674,214 10,761,022 9,718,875 9,200,850
Primary net income per common share* $ 3.39 $ 2.96 $ 2.88 $ 2.76 $ 2.45
Dividends per common share* $ 1.27 $ 1.16 $ 1.07 $ .97 $ 0.82
Ratios:
Return on average common equity 15.66% 14.58% 15.45% 16.37% 16.06%
(net income available to common shareholders
divided by average common equity)
Return on average total equity 15.86% 14.76% 15.50% 16.37% 16.06%
(net income divided by average total equity)
Return on average assets 1.30% 1.21% 1.27% 1.35% 1.24%
(net income divided by average assets)
Average total equity to average assets 8.17% 8.23% 8.22% 8.25% 7.75%
Dividend payout ratio 37.5% 39.2% 37.2% 35.1% 33.5%
(dividends per common share divided by
net income per common share)
</TABLE>
- -----------------------------------
* Per share amounts are shown adjusted for a 5% stock dividend paid on August
15, 1995, and July 25, 1996, and a 3-for-2 stock split paid September 1992.
<PAGE> 1
EXHIBIT 13
OLD KENT FINANCIAL
CORPORATION
1996
ANNUAL REPORT
OLD KENT LOGO
<PAGE> 2
OLD KENT FINANCIAL CORPORATION
1996 Annual Report
<TABLE>
<CAPTION>
Contents Page
- --------------------------------------------------------------------
<S> <C>
Old Kent Financial Corporation S-2
A Message to our Shareholders S-2
Five-Year Summary of Selected Financial Data S-3
Financial Review S-4
Management's Responsibility for Financial Reporting S-32
Report of Independent Public Accountants S-33
Consolidated Financial Statements S-34
Notes to Consolidated Financial Statements S-38
Board of Directors and Senior Management
</TABLE>
S-1
<PAGE> 3
OLD KENT FINANCIAL CORPORATION
Old Kent Financial Corporation is a bank holding company. Its principal banking
subsidiaries, Old Kent Bank (Grand Rapids, Michigan) and Old Kent Bank
(Elmhurst, Illinois), serve more than 100 communities in Michigan and Illinois
with over 200 banking offices. These banks engage in commercial and retail
banking and provide trust and other financial services. Approximately 83% of the
Corporation's deposits and 83% of the Corporation's loans are associated with
banking offices serving the lower peninsula of Michigan. The balance of banking
assets are associated with offices serving northeastern Illinois. Old Kent
mortgage companies operate 79 offices located in 17 states.
A MESSAGE TO OUR SHAREHOLDERS
This 1996 Annual Report contains our audited financial statements, detailed
financial review and contains all of the information that regulations of the
Securities and Exchange Commission (the "SEC") require to be presented in annual
reports to shareholders. For legal purposes, this is Old Kent Financial
Corporation's 1996 annual report to shareholders. Although attached to our proxy
statement, this report is not part of our proxy statement, is not deemed to be
soliciting material, and is not deemed to be filed with the SEC except to the
extent that it is expressly incorporated by reference in a document filed with
the SEC.
We invite our shareholders to also consider our 1996 Report to Shareholders,
which accompanies this proxy statement. That report presents information
concerning the business and financial results of our company in a format and
level of detail that we believe most of our shareholders will find useful and
informative. Shareholders who would like to receive even more detailed
information than that contained in the following 1996 Annual Report are invited
to request our Annual Report on Form 10-K.
OUR ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SEC, WILL BE PROVIDED TO ANY
SHAREHOLDER, WITHOUT CHARGE, UPON WRITTEN REQUEST TO OLD KENT FINANCIAL
CORPORATION, ATTN. CORPORATE SECRETARY, 111 LYON STREET N.W., GRAND RAPIDS,
MICHIGAN 49503.
S-2
<PAGE> 4
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
DECEMBER 31
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 494,288 $ 476,693 $ 455,635 $ 427,587 $ 403,821
Provision for credit losses 35,236 21,666 22,465 34,822 58,987
Net income 158,701 141,814 137,084 131,324 114,445
Cash dividends 59,122 55,334 49,869 44,984 37,665
AVERAGE FOR THE YEAR
Assets $12,251,860 $11,674,214 $10,761,022 $ 9,718,875 $9,200,850
Deposits 9,762,694 9,317,428 8,805,055 8,064,628 7,681,885
Loans 7,795,771 7,230,657 6,060,822 5,216,229 5,262,114
Total interest-earning assets 11,352,830 10,875,345 10,029,250 9,046,820 8,595,646
Subordinated debt 100,000 12,603 - 5,028 26,270
Stock, capital surplus and
retained earnings 1,013,370 972,665 887,541 802,016 712,624
Total shareholders' equity 1,000,841 960,858 884,415 802,016 712,624
AT YEAR-END
Assets $12,646,828 $12,003,084 $11,477,723 $10,340,037 $9,152,196
Deposits 10,080,147 9,357,366 9,429,337 8,411,203 7,664,476
Loans 8,097,056 7,430,552 6,854,849 5,344,712 5,224,845
Subordinated debt 100,000 100,000 - - 24,565
Stock, capital surplus and
retained earnings 1,003,616 1,012,569 935,588 850,040 755,686
Total shareholders' equity 993,757 1,015,936 895,997 850,040 755,686
PER COMMON SHARE (IN DOLLARS)
Net Income $ 3.39 $ 2.96 $ 2.88 $ 2.76 $ 2.39
Cash dividends 1.27 1.16 1.07 0.97 0.82
Book value at year-end 22.11 21.32 18.82 17.86 16.13
Dividend payout ratio 37.5% 39.2% 37.2% 35.1% 33.5%
PERFORMANCE RATIOS
Return on average total equity 15.86% 14.76% 15.50% 16.37% 16.06%
Return on average total assets 1.30 1.21 1.27 1.35 1.24
Average equity to average
assets 8.17 8.23 8.22 8.25 7.75
Yield on average
interest-earning assets 8.40 8.44 7.66 7.75 8.48
Cost of average
interest-bearing liabilities 4.71 4.71 3.57 3.44 4.25
Average net interest spread 3.69 3.73 4.09 4.31 4.23
Average net interest margin 4.41 4.46 4.63 4.82 4.81
CAPITAL RATIOS AT YEAR-END
Equity to assets 7.86% 8.46% 7.81% 8.22% 8.26
Leverage ratio 7.31 7.88 7.30 7.78 7.76
Risk-based capital ratio - Tier
1 9.45 10.59 10.84 12.61 12.57
Risk-based capital ratio -
Total 11.75 13.01 12.11 13.87 14.03
CREDIT QUALITY RATIOS
Allowance for credit losses to
total loans 2.05% 2.35% 2.44% 2.72% 2.40%
Impaired loans to total loans 0.53 0.58 0.88 1.12 1.54
Nonperforming assets to total
assets 0.39 0.45 0.63 0.70 1.01
Allowance to impaired loans 388 403 277 243 156
Net charge-offs to average
loans 0.54 0.19 0.16 0.33 0.47
</TABLE>
S-3
<PAGE> 5
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of financial
condition and results of operations. This discussion should be read in
conjunction with the consolidated financial statements beginning on page S-34
and the five year summary of selected financial data on page S-3.
Forward-Looking Statements
This discussion and analysis of financial condition and results of operations,
and other sections of our Annual Report, contain forward-looking statements that
are based on management's beliefs, assumptions, current expectations, estimates
and projections about the financial services industry, the economy, and about
the Corporation itself. Words such as "anticipates", "believes", "estimates",
"expects", "forecasts", "intends", "is likely", "plans", "product", "projects",
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed or forecasted in such
forward-looking statements. Furthermore, Old Kent undertakes no obligation to
update, amend or clarify forward-looking statements, whether as a result of new
information, future events, or otherwise.
Future Factors include changes in interest rates and interest rate
relationships; demand for products and services; the degree of competition by
traditional and non-traditional competitors; changes in banking regulations;
changes in tax laws; changes in prices, levies, and assessments; the impact of
technological advances; governmental and regulatory policy changes; the outcomes
of pending and future litigation and contingencies; trends in customer behavior
as well as their ability to repay loans; and the vicissitudes of the national
economy. These are representative of the Future Factors that could cause a
difference between an ultimate actual outcome and a preceding forward-looking
statement.
Overview
Net income was $158.7 million for 1996, the twenty-fourth year of increased
earnings in Old Kent's history as a bank holding company. This represented an
11.9% increase over net income of $141.8 million for 1995. Net income per share
was $3.39 for 1996, up by 14.5% over the $2.96 of net income per share for 1995.
Net income per common share has increased at an annual compound rate of 11.5%
over the past five years.
Effective with the fourth quarter of 1996, the quarterly cash distribution rate
on common stock was increased to $.34 per share. The new annualized rate of
$1.36 per share is 11.5% greater than the rate paid in the fourth quarter of
1995 and includes the effect of a five percent stock dividend paid on July 25,
1996. Old Kent has paid increased cash dividends in each year since its
formation as a holding company in 1972. The compound annual growth rate for the
Corporation's per share dividend payment for the last five years is 12.2% and
the dividend payout ratio has averaged 36.5% over that same time period.
Old Kent's corporate culture is geared toward maximizing shareholder value. The
information appearing on page 16 of the accompanying proxy statement compares
the performance of Old Kent Common Stock with the S&P 500 and the KBW 50
indices. The total return, as shown, is measured using both stock price
appreciation and the effect of quarterly reinvestment of dividend payments. The
S&P 500 index includes the performance of five hundred individual stocks
selected by Standard & Poor's
S-4
<PAGE> 6
Corporation to be a representative indicator of a broad base of industries whose
stocks are traded and available to the investing public. The KBW 50 index is
based upon the stock performance of 50 large banks selected by Keefe, Bruyette,
and Woods, Inc., specialists in the banking and thrift industries. The total
return of the KBW 50 index is calculated in the same manner as the S&P 500
index. As indicated on the graph, Old Kent's stock performance on a total return
basis compares favorably with the total return of the broad based S&P 500 index
as well as the banking industry specific KBW 50 index. The graph indicates that
an initial $100.00 investment in Old Kent Common Stock on December 31, 1991,
would be worth $269 on December 31, 1996 providing that all quarterly dividends
paid within the intervening five year period were reinvested in Old Kent Common
Stock at the market prices in effect when dividends were paid. This increase in
value is equivalent to a compound annual return of 21.9% over those five years
for such an investment in Old Kent Common Stock compared to 15.2% for the S&P
500 index and 23.7% for the KBW 50 index.
The Corporation's return on average total equity in 1996 was 15.86%, compared to
an equity return of 14.76% for 1995. Old Kent's return on equity has averaged
15.71% over the past five years. Old Kent's return on average assets was 1.30%
for 1996 compared to 1.21% for 1995, and has averaged 1.27% over the last five
years.
Steady annual earnings increases have been attributable to balance sheet growth
and to increases in non-interest income. Total average interest-earning assets
increased by $477 million, or 4.4% in 1996 and by $846 million, or 8.4%, in
1995. Over the last five years, total average interest-earning assets have
increased at a compound annual growth rate of 6.8%. Interest-earning assets
primarily consist of securities (defined herein to include those classified as
available-for-sale and those classified as held-to-maturity) and loans. Average
securities decreased slightly, by $7.5 million or .24%, in 1996. This decrease
was primarily the result of Old Kent's liquidity requirements to accommodate
loan growth. In 1996, total loans averaged $7,796 million, an increase of $565
million, or 7.8% more than the average for 1995. This growth in total loans was
largely the result of good loan demand and increased loan generation efforts. In
1995, total loans averaged $7,231 million and represented an increase of $1,170
million, or 19.3%, over the average for 1994.
Business of the Corporation
Old Kent is a bank holding company. The services offered by Old Kent's
subsidiaries cover a wide range of banking , fiduciary and other financial
services. These include commercial, mortgage, and retail loans, business and
personal checking accounts, savings and individual retirement accounts, time
deposit instruments, automated teller machines and electronically accessed
banking services, credit and debit cards, money transfer services, safe deposit
facilities, cash management, real estate and lease financing, international
banking services, access to insurance products, personal investment and
brokerage services and corporate and personal trust services.
The principal sources of revenues for Old Kent are interest and fees on loans,
which accounted for 62% of total revenues in 1996, 62% in 1995, and 56% in 1994.
Interest on securities is also a significant source of revenue, accounting for
17% in 1996, 19% in 1995 and 26% in 1994. Approximately 83% of total deposits
and approximately 83% of total loans at December 31, 1996 were associated with
banking offices serving the lower peninsula of the State of Michigan.
Old Kent has had no foreign loans at any time during the last five years. The
foreign activities of the Corporation primarily involve time deposits with banks
and placements for domestic customers of the banks. These activities did not
significantly impact the Corporation's financial condition or results of
operations.
S-5
<PAGE> 7
Mergers and Acquisitions
Much of Old Kent's growth has been through acquisitions. The primary method of
expansion into new markets has been through acquisitions of other financial
institutions, or branches. Further expansion into new markets will likely
continue in a similar fashion. The following is a summary of Old Kent's
significant merger and acquisition activity during the last three years.
Effective January 1, 1997, subsequent to the balance sheet date, Old Kent
acquired Seaway Financial Corporation ("Seaway"), a bank holding company
headquartered in St. Clair, Michigan. Seaway is the parent of The Commercial and
Savings Bank of St. Clair County (St. Clair, Michigan) and The Algonac Savings
Bank (Algonac, Michigan). At December 31, 1996, Seaway had total assets and
total deposits of approximately $345 million and $302 million, respectively. In
1997, the Corporation issued approximately 1.9 million shares of Old Kent Common
Stock in exchange for all of the outstanding common stock of Seaway.
On December 4, 1996, Guyot, Hicks, Anderson & Associates, Inc. ("GHA"), a
subsidiary of Old Kent, purchased, for $1.8 million, the assets of Insurance
Resource Group, L.L.C., Poggi & Associates, L.L.C. and Insurance Consultants,
L.L.C., each of which provide commercial insurance products and services through
an office in Grand Rapids, Michigan. The agency will operate as a division of
GHA under the name of Old Kent Insurance Group.
On August 1, 1996, Old Kent acquired National Pacific Mortgage Corporation
("NPMC"), a mortgage company headquartered in Anaheim, California, with 17
branch offices in California and Oregon. When acquired, NPMC had assets of
approximately $150 million and a mortgage servicing portfolio of approximately
$1.8 billion.
Effective January 22, 1996, Old Kent acquired Republic Mortgage Corp. ("RMC"),
headquartered in Salt Lake City, Utah. At December 31, 1995, RMC had total
assets of approximately $39 million and serviced residential mortgages totaling
approximately $127 million. RMC has regional offices in Boise, Idaho and Las
Vegas, Nevada.
On December 1, 1995, the Corporation acquired GHA, a Traverse City, Michigan
based insurance agency which had total assets of approximately $5 million on
that date. GHA offers a variety of corporate and personal insurance products.
On February 1, 1995, Old Kent acquired First National Bank Corp. ("FNB"), a bank
holding company headquartered in Mount Clemens, Michigan. The merger was
effected through the exchange of approximately 2.6 million shares of Old Kent
Common Stock for all outstanding shares of FNB common stock. The merger was
accounted for as a "pooling-of-interests." When acquired, FNB had total assets
of approximately $531 million and deposits of $472 million. FNB's sixteen
banking offices, which are now branches of Old Kent Bank (Michigan), are located
in the attractive suburban market northeast of Detroit, and have enhanced Old
Kent's existing presence in eastern Michigan.
Effective May 2, 1994, Old Kent acquired EdgeMark Financial Corporation
("EdgeMark") (Chicago, Illinois). Old Kent exchanged 1,917,566 shares of its
common stock for all of the outstanding EdgeMark common stock. The aggregate
value of the Old Kent common stock issued was approximately $62.6 million. When
acquired, EdgeMark had total assets of $522 million and deposits of $456
million. This purchase expanded Old Kent's presence in the Chicago area market
by adding six banking offices in the west and southwest suburbs and two offices
in downtown Chicago.
S-6
<PAGE> 8
On March 1, 1994, Old Kent purchased Princeton Financial Corp. ("Princeton")
which afforded entry into attractive mortgage markets located in Florida. At the
time of acquisition, Princeton had assets of approximately $70 million and
serviced residential mortgages of approximately $360 million.
Summary of Operating Results
The following is a summary of the major components of the Corporation's
operating results for the last five years:
<TABLE>
<CAPTION>
Year ended December 31
(in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 494,288 $ 476,693 $ 455,635 $ 427,587 $ 403,821
Add: taxable-equivalent
adjustment 6,243 7,814 8,704 8,786 9,473
--------- --------- --------- --------- ---------
Taxable-equivalent net interest
income 500,531 484,507 464,339 436,373 413,294
Provision for credit losses (35,236) (21,666) (22,465) (34,822) (58,987)
Non-interest income 212,164 161,718 136,010 134,531 123,163
Non-interest expense (432,494) (402,132) (363,478) (328,998) (300,615)
Income taxes, including taxable-
equivalent adjustment (86,264) (80,613) (77,322) (75,760) (62,410)
--------- --------- --------- --------- ---------
Net income $ 158,701 $ 141,814 $ 137,084 $ 131,324 $ 114,445
========= ========= ========= ========= =========
</TABLE>
Net Interest Income
In the summaries above, the taxable-equivalent adjustment increases tax-exempt
income to an amount equivalent to interest income subject to income taxes at
statutory rates. The federal income tax rate was 35% for 1996, 1995, 1994 and
1993, and 34% for the preceding year. During 1996, total average
interest-earning assets increased by $477 million, or 4.4%. In that same period,
interest-bearing liabilities increased to a lesser extent, $424 million or 4.6%.
S-7
<PAGE> 9
The following table sets forth the changes in interest income and interest
expense as they relate to changes in volume and changes in rate:
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease)* Increase (Decrease)*
------------------------------- -------------------------------
Change in Change in
(Fully taxable-equivalent, Income/ Due to Due to Income/ Due to Due to
in thousands) Expense Volume Rate Expense Volume Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans (including
mortgages-held-for-sale) $ 58,570 $ 62,343 $ (3,773) $165,686 $105,921 $ 59,765
Taxable securities (5,345) 2,794 (8,139) (26,226) (32,099) 5,873
Tax-exempt securities (4,836) (4,141) (695) (1,755) (2,528) 773
Interest-earning deposits (2,339) (2,219) (120) 1,843 1,623 220
Federal funds sold and
resale agreements (9,537) (8,254) (1,283) 10,158 7,893 2,265
Trading account securities (596) (606) 10 37 (269) 306
-------- -------- -------- -------- -------- --------
Change in Interest Income 35,917 49,917 (14,000) 149,743 80,541 69,202
-------- -------- -------- -------- -------- --------
Interest-Bearing
Liabilities:
Savings deposits (3,622) (3,005) (617) 3,214 (8,100) 11,314
Time deposits:
Negotiable (21,371) (18,962) (2,409) 22,064 (1,796) 23,860
Foreign (11,452) (10,347) (1,105) 3,730 (868) 4,598
Other 56,542 54,588 1,954 68,531 41,355 27,176
Federal funds purchased
and repurchase agreements 2,207 4,310 (2,103) 6,562 592 5,970
Other borrowed funds (8,287) (7,538) (749) 24,641 12,803 11,838
Subordinated and other
long-term debt 5,876 5,904 (28) 833 878 (45)
-------- -------- -------- -------- -------- --------
Change in Interest Expense 19,893 24,950 (5,057) 129,575 44,864 84,711
-------- -------- -------- -------- -------- --------
Change in Net Interest
Income $ 16,024 $ 24,967 $ (8,943) $ 20,168 $ 35,677 $(15,509)
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------------------
* The change in interest due to both volume and rate has been allocated between
the factors in proportion to the relationship of the absolute amounts of the
change in each.
Net interest margin is calculated by dividing taxable-equivalent net interest
income by average interest-earning assets. Interest spread is the difference
between the average yield on earning assets and the average cost of
interest-bearing liabilities. The net interest margin was 4.41% in 1996 compared
to 4.46% for 1995. The interest spread was 3.69% for 1996 and 3.73% for 1995.
The average yield on interest-earning assets also decreased to 8.40% in 1996
from 8.44% in 1995. The primary factor underlying the slight decreases in net
interest margin, interest spread, and yield on total interest-earning assets was
a decline in yield on taxable securities to 6.43% in 1996 from 6.71% in 1995.
The average cost of interest-bearing liabilities was 4.71% in both 1996 and
1995. Therefore, the modest decline in net interest margin related entirely to
the change in asset yields.
In comparing 1995 to 1994, the net interest margin decreased to 4.46% from 4.63%
and the interest spread decreased to 3.73% from 4.09%. Both the yield on
interest-earning assets and cost of interest-bearing liabilities increased in
1995 relative to 1994, the asset yield up to 8.44% from 7.66% and the
S-8
<PAGE> 10
liability cost to 4.71% from 3.57%. Because liability costs increased more than
asset yields, the net interest margin decreased by .17% in comparing 1995 to
1994. Hence, the increase in taxable-equivalent net interest income of $20.2
million for 1995 is entirely attributable to the increase in the average balance
(volume) of total interest-earning assets of $846 million.
<TABLE>
<CAPTION>
Three month
Prime interest rate U.S. Treasury Bill rate
---------------------------- ---------------------------
Percentage 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Simple average during year 8.27% 8.83% 7.14% 5.14% 5.63% 4.35%
At December 31 8.25% 8.50% 8.50% 5.17% 5.07% 5.69%
</TABLE>
As indicated above, interest rates over the past two years declined. This
correlates to the $8.9 million decrease in net interest income due to rate as
shown in a preceding table. The 1996 increase in net interest income was
attributable to changes in volume, particularly the increase in loans. The
interest rate environment is significantly impacted by the health of the
national economy and the monetary policies of the Federal Reserve, which notably
influenced 1995 results as compared to those of 1994, as depicted by the rate
increases shown above.
There are a number of factors which affect net interest income, including the
mix of interest-earning assets, the mix of interest-bearing liabilities, and the
interest rate sensitivity of the various categories. As of December 31, 1996,
Old Kent's management believes that the Corporation is essentially neutral to
changes in interest rates. This means that net interest income is not expected
to be materially impacted by upward or downward movements in prevailing interest
rates within anticipated ranges, as discussed later in this report.
Analysis of Net Interest Income
The following table allocates net interest income to interest-earning assets to
show how much was attributable to interest-bearing liabilities, and how much was
attributable to non-interest-bearing liabilities and equity capital. The
interest spread on earning assets funded by interest-bearing liabilities is
simply the difference between the average yield on earning assets and the
average cost of interest-bearing liabilities. The interest spread on earning
assets funded by non-interest-bearing liabilities and equity is the average
yield on earning assets.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ------------------------------- -------------------------------
Average Net Average Net Average Net
(Fully taxable-equivalent, Earning Interest Interest Earning Interest Interest Earning Interest Interest
dollars in millions) Assets Spread Income Assets Spread Income Assets Spread Income
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of Funding:
Interest-bearing
liabilities $ 9,610.5 3.69% $354.6 $ 9,186.9 3.73% $342.7 $ 8,500.3 4.09% $347.7
Non-interest-bearing
liabilities and equity 1,742.3 8.40% 145.9 1,688.4 8.44% 141.8 1,528.9 7.66% 116.6
--------- ------ --------- ------ --------- ------
Total $11,352.8 $500.5 $10,875.3 $484.5 $10,029.2 $464.3
========= ====== ========= ====== ========= ======
</TABLE>
S-9
<PAGE> 11
The following table shows the relative importance of changes in interest spread,
earning asset volumes and changes in funding sources:
<TABLE>
<CAPTION>
1996 Over (Under) 1995 1995 Over (Under) 1994 1994 Over (Under) 1993
----------------------------- ----------------------------- -----------------------------
Average Net Average Net Average Net
(Fully taxable-equivalent, Earning Interest Interest Earning Interest Interest Earning Interest Interest
dollars in millions) Assets Spread Income Assets Spread Income Assets Spread Income
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of Funding:
Interest-bearing liabilities $423.6 (.04)% $12.0 $686.6 (.36)% $(5.0) $800.3 (.22)% $15.8
Non-interest-bearing
liabilities and equity 53.9 (.04)% 4.1 159.5 .78% 25.2 182.1 (.09)% 12.1
------ ----- ------ ----- ------ -----
Total $477.5 $16.0 $846.1 $20.2 $982.4 $27.9
====== ===== ====== ===== ====== =====
</TABLE>
S-10
<PAGE> 12
AVERAGE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
(INCOME AND RATES ON FULLY TAXABLE-EQUIVALENT BASIS, DOLLARS AVERAGE AVERAGE AVERAGE AVERAGE
IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
LOANS(1)................................................... 7,795,771 718,071 9.21% 7,230,657 668,735 9.25%
Taxable investment securities.............................. 2,909,593 187,136 6.43 2,867,365 192,481 6.71
Tax-exempt investment securities(2)........................ 162,076 13,419 8.28 211,830 18,255 8.62
Mortgages held-for-sale.................................... 366,380 28,374 7.74 247,659 19,140 7.73
Interest-earning deposits:
Domestic................................................. 1,919 105 5.47 5,635 319 5.66
Foreign.................................................. 6,885 390 5.66 42,599 2,515 5.90
Federal funds sold and resale agreements................... 99,926 5,454 5.46 248,957 14,991 6.02
Trading account securities(2).............................. 10,280 601 5.85 20,643 1,197 5.80
---------- ------- ---------- -------
Total earning assets..................................... 11,352,830 953,550 8.40 10,875,345 917,633 6.44
---------- ------- ---------- -------
Unrealized loss on securities available-for-sale........... (19,275) (18,157)
Allowance for loan losses.................................. (173,055) (173,939)
Cash and due from banks.................................... 501,810 448,945
Other Assets............................................... 589,550 542,020
---------- ----------
TOTAL ASSETS................................................ 12,251,860 11,674,214
========== ==========
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits........................................... 2,981,349 78,920 2.65% 3,094,220 82,542 2.67%
Time Deposits:
Negotiable............................................... 1,135,116 67,453 5.94 1,453,454 88,824 6.11
Foreign.................................................. 46,841 2,685 5.73 225,964 14,137 6.26
Other time............................................... 4,191,682 233,524 5.57 3,214,003 176,982 5.51
---------- ------- ---------- -------
Total interest-bearing deposits........................ 8,354,988 382,582 4.58 7,987,641 362,485 4.54
Federal funds purchased and repurchase agreements.......... 519,580 24,259 4.67 429,881 22,052 5.13
Other borrowed funds....................................... 634,953 39,350 6.20 755,748 47,637 6.30
Subordinated and other long-term debt...................... 100,972 6,828 6.76 13,670 952 6.96
---------- ------- ---------- -------
Total interest-bearing funds............................. 9,610,493 453,019 4.71 9,186,940 433,126 4.71
------- -------
Demand deposits............................................ 1,407,706 1,329,787
Other liabilities.......................................... 232,820 196,629
Shareholders' equity:
Common stock, capital surplus and retained earnings...... 1,013,370 972,665
Unrealized losses on securities available-for-sale....... (12,529) (11,807)
---------- ----------
Total Liabilities and Shareholders' Equity.................. 12,251,860 11,674,214
========== ==========
Fully Taxable -- Equivalent Net Interest Income............. 500,531 3.69% 484,507 3.73%
------- -------
Net Interest Income as a Percentage of Average Earning
Assets..................................................... 4.41% 4.46%
PERCENTAGE OF TOTAL ASSETS:
Foreign Assets............................................. 0.06% 0.36%
Foreign Liabilities........................................ 0.38% 1.94%
<CAPTION>
1994 1993
------------------------------- ------------------------------
(INCOME AND RATES ON FULLY TAXABLE-EQUIVALENT BASIS, DOLLARS AVERAGE AVERAGE AVERAGE AVERAGE
IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------------------------ ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
LOANS(1)................................................... 6,060,822 507,408 8.37% 5,216,229 430,115 8.25%
Taxable investment securities.............................. 3,346,879 218,707 6.53 3,122,184 225,561 7.22
Tax-exempt investment securities(2)........................ 241,431 20,010 8.29 221,467 19,035 8.59
Mortgages held-for-sale.................................... 224,481 14,781 6.58 277,841 17,844 6.42
Interest-earning deposits:
Domestic................................................. 1,991 97 4.87 10,590 575 5.43
Foreign.................................................. 18,077 894 4.95 61,027 3,387 5.55
Federal funds sold and resale agreements................... 109,555 4,833 4.41 80,344 2,493 3.10
Trading account securities(2).............................. 26,014 1,160 4.46 57,138 1,927 3.37
---------- ------- --------- -------
Total earning assets..................................... 10,029,250 767,890 7.66 9,046,820 700,937 7.75
---------- ------- --------- -------
Unrealized loss on securities available-for-sale........... (4,835) 0
Allowance for loan losses.................................. (159,719) (136,149)
Cash and due from banks.................................... 415,999 403,051
Other Assets............................................... 480,327 405,153
---------- ---------
TOTAL ASSETS................................................ 10,761,022 9,718,875
========== =========
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits........................................... 3,424,799 79,328 2.32% 3,233,037 83,090 2.57%
Time Deposits:
Negotiable............................................... 1,492,631 66,760 4.47 1,126,356 38,123 3.38
Foreign.................................................. 245,109 10,407 4.25 210,916 6,862 3.25
Other time............................................... 2,403,143 108,451 4.51 2,396,837 114,393 4.77
---------- ------- --------- -------
Total interest-bearing deposits........................ 7,565,682 264,946 3.50 6,967,146 242,468 3.48
Federal funds purchased and repurchase agreements.......... 414,589 15,490 3.74 452,736 12,810 2.83
Other borrowed funds....................................... 518,869 22,996 4.43 273,892 8,771 3.20
Subordinated and other long-term debt...................... 1,202 119 9.90 6,296 515 6.18
---------- ------- --------- -------
Total interest-bearing funds............................. 8,500,342 303,551 6.57 7,700,070 264,564 3.44
------- -------
Demand deposits............................................ 1,239,373 1,097,482
Other liabilities.......................................... 136,892 119,307
Shareholders' equity:
Common stock, capital surplus and retained earnings...... 887,541 802,016
Unrealized losses on securities available-for-sale....... (3,126) 0
---------- ---------
Total Liabilities and Shareholders' Equity.................. 10,761,022 9,718,875
========== =========
Fully Taxable -- Equivalent Net Interest Income............. 464,339 4.09% 436,373 4.31%
------- -------
Net Interest Income as a Percentage of Average Earning
Assets..................................................... 4.63% 4.82%
PERCENTAGE OF TOTAL ASSETS:
Foreign Assets............................................. 0.17% 0.63%
Foreign Liabilities........................................ 2.28% 2.17%
<CAPTION>
1992
------------------------------
(INCOME AND RATES ON FULLY TAXABLE-EQUIVALENT BASIS, DOLLARS AVERAGE AVERAGE
IN THOUSANDS) BALANCE INTEREST RATE
- ------------------------------------------------------------ ------------------------------
<S> <C> <C> <C>
AVERAGE ASSETS:
LOANS(1)................................................... 5,262,114 464,541 8.83%
Taxable investment securities.............................. 2,905,667 233,436 8.03
Tax-exempt investment securities(2)........................ 233,463 21,672 9.28
Mortgages held-for-sale.................................... 0 0 0
Interest-earning deposits:
Domestic................................................. 11,918 813 6.82
Foreign.................................................. 51,825 3,387 6.54
Federal funds sold and resale agreements................... 73,107 2,757 3.77
Trading account securities(2).............................. 57,552 2,333 4.05
--------- -------
Total earning assets..................................... 8,595,646 728,939 8.48
--------- -------
Unrealized loss on securities available-for-sale........... 0
Allowance for loan losses.................................. (106,148)
Cash and due from banks.................................... 376,570
Other Assets............................................... 334,782
---------
TOTAL ASSETS................................................ 9,200,850
=========
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits........................................... 2,949,471 97,685 3.31%
Time Deposits:
Negotiable............................................... 964,532 40,209 4.17
Foreign.................................................. 222,605 8,328 3.74
Other time............................................... 2,573,553 144,530 5.62
--------- -------
Total interest-bearing deposits........................ 6,710,161 290,752 4.33
Federal funds purchased and repurchase agreements.......... 566,078 18,496 3.27
Other borrowed funds....................................... 116,825 4,183 3.58
Subordinated and other long-term debt...................... 40,077 2,212 5.52
--------- -------
Total interest-bearing funds............................. 7,433,141 315,645 4.25
-------
Demand deposits............................................ 971,724
Other liabilities.......................................... 83,361
Shareholders' equity:
Common stock, capital surplus and retained earnings...... 712,624
Unrealized losses on securities available-for-sale....... 0
---------
Total Liabilities and Shareholders' Equity.................. 9,200,850
=========
Fully Taxable -- Equivalent Net Interest Income............. 413,294 4.23%
-------
Net Interest Income as a Percentage of Average Earning
Assets..................................................... 4.81%
PERCENTAGE OF TOTAL ASSETS:
Foreign Assets............................................. 0.56%
Foreign Liabilities........................................ 2.42%
</TABLE>
- ------------------------------
(1) Loan fees are included in interest income and are used to calculate average
rates earned. Non-accrual loans are included in the average loan balances.
(2) Yields are computed on a fully taxable-equivalent basis using a federal tax
rate of 35% in 1996, 1995, 1994 and 1993, and 3.4% in 1992.
S-11
<PAGE> 13
LOAN PORTFOLIO
As a financial intermediary, the acceptance and management of credit risk is an
integral part of Old Kent's business activities. The Corporation has established
strict credit underwriting standards. Except for credit card and certain other
loans, these standards include a policy of granting loans only within Old Kent's
defined market areas and prohibition of foreign loans. Lending standards are
codified in a comprehensive lending policy which is uniform throughout the
organization. Old Kent's lending staff is highly skilled and experienced. The
Corporation's conservative lending philosophy is implemented through strong
administrative and reporting requirements. Old Kent maintains a centralized,
independent loan review function which monitors asset quality at each of Old
Kent's subsidiary banks. The Corporation also employs a centralized group of
specialists which assists the subsidiary banks in resolving troubled loans.
<TABLE>
<CAPTION>
Percent of
Composition of total loans at December 31, 1996: total
- ------------------------------------------------------------------------------
<S> <C>
Commercial, financial, agricultural loan and leases 30%
Real estate loans - commercial and construction 26%
-------
Total commercial 56%
Real estate loans - residential mortgages 11%
Consumer home equity loans 9%
Consumer loans (primarily automobile loans) 20%
Credit card loans 4%
-------
Total 100%
=======
</TABLE>
One of Old Kent's strengths is its diversified loan portfolio. Approximately 44%
of Old Kent's loan assets are comprised of credits granted to consumers in the
form of residential mortgages and a variety of other consumer credit products,
such as automobile loans, home equity loans, credit cards, educational loans and
other consumer financings.
Loans to commercial borrowers represent approximately 56% of Old Kent's loan
portfolio. These loans are grouped by their nature and industry diversification
as non-real estate related and as real estate related.
Commercial loan mix at December 31, 1996:
<TABLE>
<CAPTION>
Real Estate Related
------------------------
Owner Non-owner Non-Real Estate
(dollars in millions) Total Occupied Occupied Related
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contractors & Property Managers $1,467.2 $368.9 $ 825.7 $ 272.6
Services 806.5 239.2 172.2 395.1
Manufacturing 672.8 53.6 13.6 605.6
Retail 453.3 84.2 23.6 345.5
Wholesale 292.0 28.6 7.9 255.5
Finance 226.3 69.0 77.6 79.7
Transportation 119.3 21.7 10.2 87.4
Agriculture 59.0 16.4 5.0 37.6
Other 257.1 73.6 56.7 126.8
Leasing 201.4 0.0 0.0 201.4
-------- ------ -------- --------
Total $4,554.9 $955.2 $1,192.5 $2,407.2
======== ====== ======== ========
</TABLE>
S-12
<PAGE> 14
At December 31, 1996, Old Kent's commercial loan and lease portfolio, excluding
real estate related loans, approximated $2.4 billion, or about 30% of total
loans. Loans to manufacturers represented the largest component at 25% of total
non-real estate commercial loans. These loans are diversified among a large
number of borrowers who produce a wide variety of durable and non-durable goods.
Commercial real estate and construction loans at December 31, 1996 aggregated
approximately $2.1 billion, or 26% of total loans. These loans have been grouped
as owner occupied (borrowers who occupy and utilize the loan related property in
their respective businesses) and as non-owner occupied (borrowers whose
principal purpose of ownership lies in the production of rental receipts from
the related property). Loans to the various categories of owner-occupied
properties were 44% of commercial real estate and construction loans and loans
for non-owner occupied properties were 56% of that total. Non-owner occupied
loans totaled $1.2 billion, or 15% of total loans and are distributed over a
diverse base of borrowers. The largest segment within non-owner occupied loans
was housing related loans at 16% of total commercial real estate and
construction loans.
Old Kent has no foreign loans. In addition, Old Kent's policy is to be highly
restrictive in granting credit to borrowers in businesses which are highly
cyclical, such as agriculture and petroleum production, and the Corporation is
extremely selective in participating in loan syndications.
The following table summarizes the components of the Corporation's total loans
at December 31 for each of the last five years:
<TABLE>
<CAPTION>
December 31 (dollars in millions) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural
loans $2,205.8 $2,008.6 $1,655.8 $1,390.8 $1,249.4
Real estate loans - commercial 1,719.7 1,627.1 1,326.0 1,297.9 1,279.7
Real estate loans - construction 428.0 267.4 397.4 166.1 200.1
Real estate loans - residential
mortgages 859.3 832.2 1,028.0 665.1 829.2
Consumer home equity loans 728.6 623.7 562.0 608.8 668.3
Consumer loans - other 1,636.7 1,551.8 1,672.2 1,098.5 890.4
Credit card loans 317.6 323.6 102.2 62.4 61.0
Lease financing 201.4 196.2 111.2 55.1 46.7
-------- -------- -------- -------- --------
Total loans $8,097.1 $7,430.5 $6,854.8 $5,344.7 $5,224.8
======== ======== ======== ======== ========
</TABLE>
S-13
<PAGE> 15
PROVISION FOR CREDIT LOSSES
The provision for credit losses is the amount added to the allowance for credit
losses to absorb probable credit losses. The amount of the credit loss provision
is determined by management after reviewing the risk characteristics of the loan
portfolio, historical credit loss experience and economic conditions. These
determinations are reviewed by Old Kent's centralized, independent loan review
function which monitors the credit quality of the Corporation's loan portfolio
through its uniform procedures, credit grading and reporting systems.
The following table summarizes the credit loss provisions, net credit losses and
the allowance for credit losses for the last five years:
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for credit losses $ 35,236 $ 21,666 $ 22,465 $ 34,822 $ 58,987
Net credit losses 42,417 13,409 9,771 16,979 24,675
Allowance for credit losses at
year-end 165,928 174,248 167,253 145,323 125,375
Allowance as a percentage of:
Year-end loans 2.05% 2.35% 2.44% 2.72% 2.40%
Year-end loans, excluding loans
secured by residential mortgages 2.29% 2.64% 2.87% 3.21% 3.03%
Impaired loans 388% 403% 277% 243% 156%
Ratio of net charge-offs to average
loans outstanding during the year .54% .19% .16% .33% .47%
Credit loss recoveries as a
percentage of prior year
charge-offs 54% 60% 44% 25% 34%
</TABLE>
The provision for credit losses for 1996 was $13.6 million more than that of
1995. This increase is primarily related to a general deterioration in consumer
credit quality. This deterioration was evidenced by increased net loan
charge-offs, as shown in a following table, in the consumer and credit card loan
portfolios. Impaired loans at December 31, 1996 totaled $42.8 million,
comparable to $43.2 million at year-end 1995. At December 31, 1996, the ratio of
the allowance to impaired loans was 388%. Over the past five years, the
Corporation's actual loss experience on residential real estate loans has been
negligible. At December 31, 1996, the ratio of the allowance to total loans
exclusive of residential mortgages was 2.29%.
S-14
<PAGE> 16
The following table summarizes loan balances at the end of each period and the
daily averages; changes in the allowance for credit losses arising from loans
charged-off and recoveries on loans previously charged-off, by loan
classification; and additions to the allowance which have been charged to
expense:
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of
year $8,097,056 $7,430,552 $6,854,849 $5,344,712 $5,224,845
========== ========== ========== ========== ==========
Daily average of loans
outstanding for year $7,795,771 $7,230,657 $6,060,822 $5,216,229 $5,262,114
========== ========== ========== ========== ==========
Balance of allowance for
credit losses at beginning of
year $ 174,248 $ 167,253 $ 145,323 $ 125,375 $ 91,063
Net change in allowance due to
loans (sold) and purchased (1,139) (1,262) 9,236 2,105 -
Provision for credit losses 35,236 21,666 22,465 34,822 58,987
Loans charged-off:
Commercial, financial and
agricultural loans 3,798 5,241 3,632 7,916 16,025
Real estate loans --
commercial 3,451 2,805 7,460 7,694 8,781
Real estate loans --
construction 67 29 605 1,198 500
Real estate loans --
residential mortgages 10 232 641 854 1,582
Consumer loans (including home
equity loans) 18,664 11,006 6,422 5,756 6,740
Credit card loans 20,855 5,626 1,718 1,568 2,051
Lease financing 9,621 1,148 743 1,007 879
---------- ---------- ---------- ---------- ----------
Total charged-off 56,466 26,087 21,221 25,993 36,558
---------- ---------- ---------- ---------- ----------
Recoveries of loans previously
charged-off:
Commercial, financial and
agricultural loans 3,199 2,721 3,167 3,275 5,657
Real estate loans --
commercial 4,703 5,779 3,915 2,060 2,329
Real estate loans --
construction 1,359 469 927 76 122
Real estate loans --
residential mortgages 35 47 229 520 301
Consumer loans (including home
equity loans) 3,015 2,875 2,362 2,326 2,442
Credit card loans 929 600 556 550 639
Lease financing 809 187 294 207 393
---------- ---------- ---------- ---------- ----------
Total recovered 14,049 12,678 11,450 9,014 11,883
---------- ---------- ---------- ---------- ----------
Balance of allowance for
credit losses at end of year $ 165,928 $ 174,248 $ 167,253 $ 145,323 $ 125,375
========== ========== ========== ========== ==========
</TABLE>
S-15
<PAGE> 17
The following tables summarize net credit losses (total loans charged-off less
total loans recovered) and their relationship to the daily average balances for
each loan type listed for the last five years:
<TABLE>
<CAPTION>
Net credit losses (recoveries) for the year ended
December 31 (in thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural loans $ 599 $ 2,520 $ 465 $ 4,641 $10,368
Real estate loans -- commercial (1,252) (2,974) 3,545 5,634 6,452
Real estate loans -- construction (1,292) (440) (322) 1,122 378
Real estate loans -- residential mortgages (25) 185 412 334 1,281
Consumer loans (including home equity loans) 15,649 8,130 4,060 3,430 4,298
Credit card loans 19,926 5,026 1,162 1,018 1,412
Lease financing 8,812 961 449 800 486
------- ------- ------ ------- -------
Total net credit losses $42,417 $13,408 $9,771 $16,979 $24,675
======= ======= ====== ======= =======
Net credit losses as a percentage of daily average
total loans 0.54% 0.19% 0.16% 0.33% 0.47%
</TABLE>
The allowance for credit losses has been allocated according to the amount
deemed reasonably necessary to provide for the probable losses inherent within
each of the following categories at the dates indicated:
<TABLE>
<CAPTION>
1996 1995 1994 1993
Allocation of allowance ----------------------- ----------------------- ----------------------- -----------------------
for credit losses at Percent of Percent of Percent of Percent of
December 31 loans to loans to loans to loans to
(dollars in thousands) Allowance total loans Allowance total loans Allowance total loans Allowance total loans
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 55,000 27.2% $ 60,000 27.0% $ 52,000 24.2% $ 46,000 26.0%
Real estate --
commercial 26,000 21.2 36,000 21.9 34,000 19.3 33,000 24.3
Real estate --
construction 3,000 5.3 3,000 3.6 5,000 5.8 3,000 3.1
Real estate --
residential 1,300 10.6 2,000 11.2 3,000 15.0 3,000 12.5
Consumer loans
(including home equity
loans) 40,000 29.3 35,000 29.3 35,000 32.6 24,000 31.9
Credit card loans 16,000 3.9 8,300 4.4 5,000 1.5 3,000 1.2
Lease financing 11,300 2.5 3,100 2.6 1,660 1.6 900 1.0
Not allocated 13,328 26,848 31,593 32,423
-------- ----- -------- ----- -------- ----- -------- -----
Total allowance for
credit losses $165,928 100.0% $174,248 100.0% $167,253 100.0% $145,323 100.0%
======== ===== ======== ===== ======== ===== ======== =====
<CAPTION>
1992
Allocation of allowan -----------------------
for credit losses at Percent of
December 31 loans to
(dollars in thousands Allowance total loans
- ---------------------
<S> <C> <C>
Commercial, financial
and agricultural $ 45,000 23.9%
Real estate --
commercial 19,000 24.5
Real estate --
construction 3,000 3.8
Real estate --
residential 3,000 15.9
Consumer loans
(including home equi
loans) 15,000 29.8
Credit card loans 3,000 1.2
Lease financing 860 0.9
Not allocated 36,515
-------- -----
Total allowance for
credit losses $125,375 100.0%
======== =====
</TABLE>
<TABLE>
<CAPTION>
Net credit losses as a percent of daily average
balance for the year 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural loans 0.03% 0.14% 0.03% 0.35% 0.84%
Real estate loans -- commercial (0.08) (0.19) 0.27 0.43 0.51
Real estate loans -- construction (0.37) (0.19) (0.18) 0.61 0.19
Real estate loans -- residential mortgages 0.00 0.02 0.03 0.02 0.08
Consumer loans (including home equity loans) 0.69 0.37 0.27 0.35 0.49
Credit card loans 5.85 2.32 1.51 1.81 2.25
Lease financing 4.34 0.57 0.53 1.58 1.12
------ ------ ------ ----- -----
Total 0.54% 0.19% 0.16% 0.33% 0.47%
====== ====== ====== ===== =====
</TABLE>
As shown above, in 1996, net loans charged-off for both consumer loans and
credit card loans increased to levels above the trend of the preceding years.
This change from the prior trend reflects a general deterioration in consumer
credit quality and included a sharp increase in losses due to consumer
S-16
<PAGE> 18
bankruptcies. In response, Old Kent amended its underwriting standards and
certain solicitation practices during 1996. Old Kent's management cannot predict
whether consumer credit quality will improve or further deteriorate in the
near-term future.
During 1996, Old Kent's leasing subsidiary experienced a large increase in net
credit losses as compared to its experience in preceding years. Old Kent's
management believes this change in trend is associated with the substantial
growth in lease financing receivables which occurred during the prior year,
1995. In 1996, Old Kent took remedial action and believes the causative
conditions were isolated and are not expected to recur.
Nonperforming Assets
The following is a summary of nonperforming assets for the last five years:
<TABLE>
<CAPTION>
December 31 (Dollars in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Impaired loans:
Nonaccrual loans $39,950 $40,173 $54,576 $54,291 $78,272
Restructured loans 2,832 3,075 5,838 5,426 2,288
------- ------- ------- ------- -------
Total impaired loans 42,782 43,248 60,414 59,717 80,560
Other real estate owned 7,097 11,287 12,366 12,770 11,604
------- ------- ------- ------- -------
Total nonperforming assets $49,879 $54,535 $72,780 $72,487 $92,164
======= ======= ======= ======= =======
Impaired loans as a percentage of total
loans .53% .58% .88% 1.12% 1.54%
</TABLE>
Loans past due 90 days or more, but for which interest income continues to be
recognized, are not included in the Corporation's nonperforming assets. The
following table summarizes such loans for the last five years.
<TABLE>
<CAPTION>
December 31 (Dollars in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans past due ninety days or more $36,817 $29,080 $11,677 $11,664 $12,130
Loans past due ninety days or more, as a
percentage of total loans .45% .39% .17% .22% .23%
</TABLE>
The loan portfolio has been reviewed and analyzed for the purpose of estimating
probable credit losses. The management of Old Kent believes that the allowance
for credit losses at December 31, 1996 is adequate to absorb probable credit
losses inherent in the loan portfolio. The Corporation's policy dictates that
specifically identified credit losses be recognized immediately by a charge to
the allowance for credit losses. This determination is made for each loan at the
time of transfer into impaired status after giving consideration to collateral
value and the borrowers' ability to repay loan principal. Since Old Kent
immediately recognizes losses on its impaired loans, it has not become necessary
to separately record a valuation allowance on these assets. Because the ultimate
collection of interest on impaired loans is in doubt, any interest income
recognized on these assets is generally limited to cash collections of interest.
Other Income
Total non-interest income increased $50.4 million, or 31.2% in 1996 compared to
$25.7 million, or 18.9% in 1995. The increases in both years include the effect
of acquisitions of mortgage banking businesses as previously detailed.
S-17
<PAGE> 19
The following summarizes the mortgage banking activity and revenue for the past
three years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Originations and acquisitions of mortgages
held-for-sale $ 3,409,276 $2,060,201 $1,835,901
=========== ========== ==========
Proceeds from sales & prepayments of mortgages
held-for-sale 3,236,859 1,993,642 2,180,165
=========== ========== ==========
Mortgage banking revenue (net), consisted of:
Mortgage banking gains 33,746 18,397 7,392
Mortgage origination fees (net of direct
costs) 14,060 7,301 2,587
Mortgage loan servicing revenues (net of
direct costs) 9,768 6,665 9,165
----------- ---------- ----------
Total mortgage banking revenue -- net $ 57,574 $ 32,363 $ 19,144
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgages serviced for third parties $ 9,862,767 $6,859,160 $4,634,373
Mortgages held-for-sale 589,245 270,126 189,989
Mortgage loans serviced by Old Kent for its
own portfolio 859,318 832,214 1,028,005
----------- ---------- ----------
Total $11,311,330 $7,961,500 $5,852,367
=========== ========== ==========
</TABLE>
Mortgage banking activities include the origination and acquisition of
residential mortgage loans, a large portion of which are intended to be sold in
the secondary market and to be serviced by Old Kent for the purpose of
generating fee income. Sales of mortgages, and occasionally servicing rights,
frequently result in the recognition of gains. In 1996, mortgage banking gains
were $15.3 million more than in 1995. This increase is largely attributable to
the acquisitions of the NPMC and RMC mortgage banking businesses as previously
described, as well as a lower interest rate environment which favorably
influenced origination volumes.
In 1995, mortgage banking gains were $11.0 million greater than in 1994. This
increase is largely due to the adoption of a new accounting standard, Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights"("SFAS 122"). This statement requires that, when a mortgage is originated
with an existing plan to sell the loan, the fair value of the servicing right
created upon its origination be recognized as an asset.
As shown above, net mortgage origination revenues also increased in 1996 and
1995. These increases were largely due to the described acquisitions and
geographic expansion of Old Kent Mortgage Company ("OKMC") which, as of December
31, 1996, conducted its business from 79 offices in seventeen states.
Mortgage banking gains and net origination revenue can be significantly
influenced by interest rate cycles and market place demographics. As a result,
these revenues may vary significantly from period to period. Mortgage servicing
generally represents a more consistent, and longer lived revenue stream.
S-18
<PAGE> 20
For the past three years, net mortgage servicing revenue was comprised of:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing revenues 28,223 14,718 12,715
Amortization of mortgage servicing rights and other
direct costs (18,455) (8,053) (3,550)
------- ------ ------
Mortgage loan servicing revenues (net of direct costs) 9,768 6,665 9,165
======= ====== ======
</TABLE>
Net revenue from the Corporation's mortgage servicing activities for 1996 was
$3.1 million more than that of 1995. This increase is the result of growth in
OKMC's third party mortgage servicing portfolio which totaled nearly $10 billion
at December 31, 1996, an increase of $3 billion since the prior year-end.
Net mortgage servicing revenue in 1995 was $6.7 million, or $2.5 million less
than that of 1994. This decrease was entirely the result of the Corporation's
adoption of SFAS 122 in 1995. The adoption favorably influenced mortgage banking
gains, while having a negative initial year of adoption impact on amortization
expense associated with newly capitalized servicing rights.
The results of operations of OKMC represented approximately 4.5%, 3.0% and 0.8%
of the Corporation's net income for the years 1996, 1995, and 1994,
respectively.
Investment Management & Trust activities also generate a significant amount of
revenue for Old Kent. Trust fees increased to $46.0 million in 1996, up $2.7
million, or 6.3%, over 1995. This compares to a $1.5 million increase, or 3.5%,
in 1995. These increases were the result of ongoing business development
efforts. In 1996, these efforts resulted in a 5.8% increase in assets under
investment administration. Such assets totaled $5.6 billion at December 31, 1996
compared to $5.3 billion one year prior.
Service charges on deposit accounts increased by nearly $5.1 million in 1996, an
increase of 12.6%. This compares to an increase of $4.6 million, or 12.9% in
1995. These increases were due both to an increase in the deposit base and to
the Corporation's continuing focus on improving non-interest revenues.
Credit card transaction revenue (net) totaled $7.8 million in 1996, $9.7 million
in 1995, and $6.5 million in 1994. The increase during 1995 was related to both
an increase in credit card transactions and growth in the number of merchant
depository accounts. The decrease to $7.8 million in 1996 was the result of a
change in Old Kent's approach toward this particular business activity. During
the fourth quarter of 1996, the Corporation transferred ownership of its
merchant depository account relationships to a third party and simultaneously
entered into an alliance with that party regarding future business activities.
As a result of this transaction, Old Kent recognized an operating gain of
approximately $4 million in 1996 and expects that the ongoing business alliance
will result in a continued revenue stream, lesser than past amounts but
unburdened by the operating costs that were necessary to support transaction
processing. Management expects that the transfer of these account relationships
will enhance the future profitability of the Corporation.
Transaction processing fees include items such as fees and commissions on money
orders and travelers' checks, foreign exchange fees, debit card interchange
income, check cashing and collection charges. These revenues totaled $16.1
million in both 1996 and 1995. The $3.8 million increase in comparing 1995 to
1994 was mainly due to increased money order commissions and debit card
interchange income.
S-19
<PAGE> 21
The increase in retail insurance commissions to $7.8 million in 1996 is entirely
due to the acquisition of GHA in December, 1995.
The following table summarizes the major categories of other income for the last
three years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage banking revenues -- net $ 57,574 $ 32,363 $ 19,144
Trust income 46,027 43,281 41,813
Service charges on deposit accounts 45,352 40,266 35,672
Transaction processing fees 16,078 16,127 12,318
Credit card transaction revenue (net) 7,847 9,709 6,505
Retail insurance commissions 7,832 456 -
Credit life insurance premiums 4,565 4,137 3,404
Non-recurring revenue and gains on "other real
estate owned" 4,158 2,202 3,321
Gain on transfer of credit card merchant depository
relationships 3,978 - -
Servicing revenue -- consumer loans owned by third
parties 2,651 1,166 -
Trading account gains 2,253 2,222 1,602
Safe deposit box rental income 2,031 1,774 1,998
Brokerage commissions 1,543 1,024 871
Gains on sales of other assets 1,108 542 1,113
Securities transactions 128 421 1,013
Other 9,039 6,028 7,236
-------- -------- --------
Total other income $212,164 $161,718 $136,010
======== ======== ========
</TABLE>
S-20
<PAGE> 22
Other Expenses
Salaries and employee benefits represent the largest category of non-interest
expense. These personnel costs increased by $27.0 million, or 14.6% in 1996
primarily due to the growth and business acquisitions of OKMC. In 1995, salaries
and benefits increased by $13.2 million, or 7.7%, largely due to staffing
increases at OKMC early in the year as well as greater use of incentive pay. Old
Kent measures its staff size in terms of full-time equivalent ("FTE") employees.
Full-time equivalency expresses staff size by translating the efforts of
part-time employees and overtime hours into the equivalent efforts of full-time
employees. At December 31, 1996, Old Kent employed 5,649 persons on an "FTE"
basis, as shown below.
The following summarizes FTE staff sizes as of the dates indicated, including
September 30, 1995, the quarter-end date immediately preceding the Corporation's
announcement of its reengineering plans in late 1995.
<TABLE>
<CAPTION>
FTE change
Dec. 31, 1996
Full-time Equivalent Staff vs. Sept. 30, 1995 12/31/96 9/30/96 12/31/95 9/30/95
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Banking units (321) 4,278 4,348 4,450 4,599
Mortgage banking 743 1,159 1,130 426 416
Insurance, leasing and
brokerage units 121 212 215 191 91
---- ----- ----- ----- -----
Total FTE 543 5,649 5,693 5,067 5,106
==== ===== ===== ===== =====
</TABLE>
The table above reflects a 321 person decrease in staff assigned to banking
units. This decrease is primarily the result of Old Kent's implementation of its
reengineering initiatives. Had this decrease not occurred, management estimates
that salaries and benefits expense for 1996 would have been as much as $15
million more than the $212 million of such expense reported for the year.
Management anticipates that the value of these reengineering benefits will
increase in 1997 due to a full year of realization (versus part-year in 1996)
and due to continued efforts aimed at improving efficiencies.
Occupancy expense increased by $1.8 million, or 6.1%, in 1996 due to the effect
of business acquisitions. This compares to a slight increase of $0.2 million in
1995. The table below summarizes the change in occupancy expense for 1996. The
$0.9 million decrease shown for occupancy expense of the banking units resulted
from reengineering initiatives involving closure of certain banking facilities
and offering alternate service delivery systems, such as automated teller
machines.
<TABLE>
<CAPTION>
Occupancy expense for the year (Dollars in thousands) Change 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Banking units $ (908) $25,920 $26,828
Mortgage banking 2,284 3,757 1,473
Insurance, leasing and brokerage units 377 711 334
------- ------- -------
Total occupancy expense $ 1,739 $30,388 $28,635
======= ======= =======
</TABLE>
Equipment expense decreased slightly in 1996, by $0.1 million or 0.4%. This
compares to an increase of $1.6 million, or 7.0% in 1995 which related to
technology enhancements intended to upgrade the Corporation's overall processing
capacity and enable greater levels of automation in Old Kent's customer contact
and service functions.
Advertising and promotion expense increased substantially in 1996 to $24.9
million. In 1995, these costs totaled $9.9 million. The sole reason for this
increase was a promotional program known as
S-21
<PAGE> 23
"CardMiles", for which $17.1 million of expense was recognized in 1996. This
program, a credit card product enhancement, began in early 1995 and offered
cardholders one CardMile for each dollar charged to their card. After
accumulating specified levels of CardMiles, the cardholder was eligible to
redeem certificates issued under the program for airfare and/or airline tickets.
The Corporation accounts for its CardMile program obligations via a charge to
earnings as a promotional expense and the maintenance of an "allowance for
redemption reserve" 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. Because the program was a new program, Old Kent
did not have direct experience on which to base usage estimates in 1995. In
1996, after more than a year of redemption experience, the Corporation reviewed
its actual costs, adjusted its usage and redemption estimates, and supplemented
its allowance for redemption reserve as summarized in the table below.
<TABLE>
<CAPTION>
CardMiles allowance for redemption reserve (Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Balance of allowance for redemption reserve, January 1 $ 320 $ 0
Certificate redemptions during year (6,597) (480)
Program expense recognized during year 17,100 800
------- -----
Balance of allowance for redemption reserve, December 31 $10,823 $ 320
======= =====
</TABLE>
Having notified its customers which participated in the CardMiles program, Old
Kent terminated the CardMiles program during the final quarter of 1996 because
it could no longer be offered at a competitive price. Management expects the
discontinuation of this program will favorably influence the Corporation's
operating results beginning in 1997.
Amortization of goodwill and core deposit intangibles totaled $10.1 million,
$11.9 million, and $10.5 million in 1996, 1995 and 1994, respectively. These
represent non-cash charges to operations. The table below illustrates the pro
forma effect on net income per share as if the effect of these charges were
excluded from net income, sometimes referred to as "cash earnings per share" in
the banking and financial services industry.
<TABLE>
<CAPTION>
Year ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per share (as reported) $3.39 $2.96 $2.88
Pro forma -- "Cash earnings per share" 3.58 3.16 3.05
</TABLE>
As shown in the consolidated statements of income, FDIC deposit insurance has
steadily declined in the last three years. This decline is entirely due to
reductions in assessment rates charged by the Federal Deposit Insurance
Corporation ("FDIC") as shown in the following table, which reflects the lowest
possible rate assessable to financial institutions meeting the eligibility
criteria as determined by the FDIC.
<TABLE>
<CAPTION>
FDIC insurance rate cost per $100 of insured deposits 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Average rate for year $0.00 $0.12 $0.23
===== ===== =====
</TABLE>
Included in the $2.5 million of FDIC insurance expense for 1996 is a $1.7
million special assessment levied by the FDIC, which was intended to
recapitalize its "Savings Association Insurance Fund" ("SAIF"). This special
assessment was levied industry-wide, with a one-time special assessment of
S-22
<PAGE> 24
$.526 per $100 of insured SAIF deposits within banks. Old Kent's special
assessment was based on approximately $320 million of its deposits being insured
under SAIF.
Additionally, for the semiannual assessment period beginning January 1, 1997,
the FDIC will assess an insurance rate of zero for banks meeting the eligibility
requirements, and an additional assessment of $.01296 per $100 of insured
deposits. This new rate is intended to finance the interest obligations of the
Financing Corporation ("FICO") resultant from the Deposit Insurance Act of 1996.
This new assessment is not expected to have a material impact on Old Kent's
operating results for 1997.
The following table summarizes the major categories of other expenses for the
last three years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $174,429 $153,476 $142,247
Employee benefits 37,770 31,682 29,738
Occupancy 30,388 28,635 28,423
Equipment 24,647 24,746 23,130
Advertising and promotion 24,867 9,918 6,681
Professional services 13,430 10,607 9,122
Postage and courier charges 12,305 10,495 9,498
Taxes other than income taxes 11,795 10,655 9,960
Telephone and telecommunication 11,431 9,183 7,480
Amortization of goodwill and core deposit intangibles 10,109 11,862 10,464
Stationery and supplies 7,600 8,605 8,828
Legal, audit and examination fees 4,741 5,600 6,090
FDIC insurance (including $1.7 million special SAIF
assessment in 1996) 2,458 11,123 19,102
Nonrecurring and other real estate owned expenses 988 2,801 4,580
Restructuring charges - 18,204 -
Other 65,536 54,540 48,135
-------- -------- --------
Total other expenses $432,494 $402,132 $363,478
======== ======== ========
</TABLE>
Restructuring -- 1996 Benefits and 1995 Charges
Restructuring charges aggregating $18.2 million were included in total other
expense for 1995. These charges are discussed in Note 14 to the Consolidated
Financial Statements and relate to initiatives aimed at creating more efficient
operations in the future. From these initiatives, the Corporation derived
part-year benefits of approximately $15 million on a pre-tax basis during 1996
and expects to begin realizing greater (full-year) benefits in 1997. The
benefits primarily resulted from reduced staff size in the organization's
banking units and reduced occupancy expense as previously discussed.
Income Taxes
The income tax provision was $80.0 million in 1996 compared to $72.8 million in
1995 and $68.6 million in 1994. Income tax expense as a percentage of pre-tax
income was 33.5% in 1996. This compares with 33.9% in 1995 and 33.4% in 1994.
S-23
<PAGE> 25
Old Kent Common Stock
Old Kent Common Stock is traded in The NASDAQ Stock Market under the symbol
OKEN. The following table sets forth the range of bid prices for Old Kent Common
Stock for the periods indicated. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. Prices have been adjusted to reflect 5% stock
dividends distributed in both 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
Quarter Low High Low High
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st $35.71 $39.29 $27.21 $29.48
2nd 35.60 39.50 27.78 31.86
3rd 36.50 42.63 30.61 37.74
4th 42.38 48.88 35.83 39.64
</TABLE>
As of February 21, 1997 there were 45,644,664 shares of Old Kent Financial
Corporation Common Stock issued and outstanding, held by approximately 15,003
holders of record.
Cash Dividends
The Corporation has paid regular cash dividends every quarter since it was
organized as a bank holding company in 1972. The following table summarizes the
quarterly cash dividends paid to common shareholders over the past five years,
adjusted for five percent stock dividends paid in July, 1996 and August, 1995,
and for a three-for-two stock split paid in September, 1992.
<TABLE>
<CAPTION>
Quarter 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st $0.305 $0.281 $0.263 $0.236 $0.188
2nd 0.305 0.281 0.263 0.236 0.188
3rd 0.320 0.295 0.263 0.236 0.209
4th 0.340 0.305 0.281 0.263 0.236
------ ------ ------ ------ ------
Total $1.270 $1.162 $1.070 $0.971 $0.821
====== ====== ====== ====== ======
</TABLE>
The earnings of Old Kent's subsidiary banks are the principal source of funds to
pay cash dividends. Consequently, cash dividends are dependent upon the
earnings, capital needs, regulatory constraints and other factors affecting each
individual bank. Based on projected earnings and liquidity, management expects
the Corporation to declare and pay regular quarterly cash dividends on its
common shares in 1997.
Capital
At December 31, 1996, the Corporation's total common stock, capital surplus and
retained earnings was $994 million, a decrease of 2.2% over the same total at
December 31, 1995. As shown in the accompanying consolidated financial
statements and described in Note 12 to the consolidated financial statements,
this decrease is due entirely to the repurchase of common stock during 1996.
These stock repurchases had a favorable influence on net income per common share
and return on average equity for 1996. Furthermore, the Corporation expects to
continue to repurchase its common stock in 1997 under the June, 1996
authorizations cited in Note 12 to the Consolidated Financial Statements.
S-24
<PAGE> 26
Effective January 1, 1997, Old Kent issued approximately 1.9 million of its
common shares to acquire Seaway Financial Corporation, as discussed in Notes 2
and 12 to the consolidated financial statements.
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") requires that the
"after-tax" unrealized gain or loss on securities available-for-sale be carried
as a separate component of shareholders' equity. At December 31, 1996 this
component was a $9.9 million negative balance compared to a positive balance of
$3.4 million on December 31, 1995. Market values of securities, particularly
those that are of longer terms, are subject to price volatility depending upon
changes in interest rates. Under SFAS 115, total shareholders' equity will be
subject to favorable or unfavorable influences of the financial markets on the
fair values of securities available-for-sale.
Under the "risk-based" capital regulations presently in effect for banks and
bank holding companies, minimum capital levels are based on the perceived risk
of various asset categories, and certain off-balance-sheet instruments, such as
loan commitments and letters of credit, and require capital allocations. Banks
and bank holding companies are required to maintain certain minimum ratios. At
December 31, 1996, ratios of Old Kent and its subsidiary banks exceeded the
regulatory guidelines as shown in Note 21 to the Consolidated Financial
Statements.
At December 31, 1996, the ratio of total shareholder's equity to total assets
was 7.86% compared to 8.46% one year earlier. Book value per common share is
calculated by dividing total shareholders' equity by the number of shares
outstanding as of a given date. The following is a reconciliation of book value
per share:
<TABLE>
<CAPTION>
Per share amount
- ------------------------------------------------------------------------------
<S> <C>
Book value per common share at December 31, 1995 $21.32
For the year ended December 31, 1996:
Net income per common share 3.39
Dividends per common share (1.27)
Effect of stock repurchases (1.64)
Effect of stock issuances 0.49
Change in unrealized loss on securities
available-for-sale, and other (0.18)
--------
Book value per common share at December 31, 1996 $22.11
========
</TABLE>
The Corporation has generally financed its growth through the retention of
earnings and the issuance of long-term debt. It is expected that future growth
can be financed through internal earnings retention, additional long-term debt
offerings, or the issuance of additional common or preferred stock.
Liquidity and Interest Rate Sensitivity
Old Kent manages its liquidity to ensure that funds are available to each of its
banks to satisfy the cash flow requirements of depositors and borrowers and to
ensure that the Corporation's own cash requirements are met. Old Kent maintains
liquidity by obtaining funds from several sources.
Old Kent's most readily available source of liquidity is its investment
portfolio. Old Kent's securities available-for-sale, which totalled $1.9 billion
at December 31, 1996, represent a highly accessible source of liquidity. The
Corporation's portfolio of securities held-to-maturity, which totalled $909
million at December 31, 1996, provides liquidity from maturities and
amortization payments.
Depositors within Old Kent's defined markets are another source of liquidity.
Core deposits (demand, savings, money market, and consumer time) totalled $9.2
billion at December 31, 1996, up from
S-25
<PAGE> 27
$8.3 billion at December 31, 1995. These same markets offer additional liquidity
in the form of large deposit instruments and other equivalent non-deposit
products. The national capital markets represent a further source of liquidity
to Old Kent. The Corporation may make use of brokers to place large deposit
instruments or bank note offerings when advantageous, or it may access federal
funds markets or utilize collateralized borrowings. Additional liquidity is
available through debt offerings.
<TABLE>
<CAPTION>
Credit ratings at December 31, 1996 Thomson BankWatch Moody's Standard & Poor's
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Old Kent Financial Corporation:
Issuer rating A/B
Short-term rating TBW-1
Subordinated debt rating A+ Baa1 A-
Old Kent Bank (Michigan)
Senior debt AA+
Short-term debt TBW-1 P1 A-1
Long-term debt A1 A
Old Kent Bank (Illinois)
Senior Debt AA+
Short-term debt TBW-1 P1 A-1
Long-term debt A2 A
</TABLE>
During 1992, Old Kent filed, and had ordered effective, a shelf registration
with the Securities and Exchange Commission which registered up to $150 million
in debt securities for future sale. In 1995, Old Kent issued $100 million in
subordinated debt paying semi-annual coupon interest at 6 5/8% and maturing on
November 15, 2005.
Old Kent Bank (Michigan) and Old Kent Bank (Illinois) have implemented note
programs which would permit those banks to place up to $1.5 billion of
short-term and medium-term notes. These programs are intended to enhance
liquidity by enabling Old Kent to sell its debt instruments in the public
markets in the future without the delays which would otherwise be incurred. As
shown in Note 10 to the consolidated financial statements, there were $445
million of bank notes outstanding at December 31, 1996.
On January 31, 1997, Old Kent Capital Trust I, a Delaware business trust
controlled by Old Kent Financial Corporation, issued $100 million of Floating
Rate Subordinated Capital Income Securities. These securities were issued in a
private placement transaction, mature February 1, 2027 and are callable after
ten years or upon the occurrence of certain defined events. When issued, the
securities were structured to yield 90 basis points over LIBOR ("London Inter
Bank Offering Rate"). Management expects the issuance of these securities will
enhance the Corporation's liquidity and regulatory capital.
Federal and state banking laws place certain restrictions on the amount of
dividends and loans which a bank may make to its parent company. Such
restrictions have not had, and are not expected to have, any material effect on
the Corporation's ability to meet its cash obligations.
S-26
<PAGE> 28
The management of interest rate sensitivity includes monitoring the maturities
and repricing opportunities of interest-earning assets and interest-bearing
liabilities. The following table summarizes the interest rate repricing gaps for
selected maturity periods as of December 31, 1996:
<TABLE>
<CAPTION>
0 - 30 31 - 90 91 - 180 181 - 365 1 - 5 Over 5
(In millions) Days Days Days Days Years Years Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-loan
interest-earning
assets $ 174.9 $ 41.8 $ 256.5 $ 312.4 $1,186.5 $ 974.7 $2,946.8
Loans 4,273.3 349.0 401.0 813.6 2,596.5 252.9 8,686.3
-------- --------- -------- -------- -------- --------- --------
Total interest-earning
assets 4,448.2 390.8 657.5 1,126.0 3,783.0 1,227.6 11,633.1
-------- --------- -------- -------- -------- --------- --------
Savings & money market
accounts* 440.3 2,495.2 2,935.5
Domestic time deposits 688.3 1,259.2 1,432.9 970.9 1,166.2 21.8 5,539.3
Foreign time deposits 24.4 24.4
Purchased funds and
long-term debt 965.0 100.0 10.0 50.0 110.4 100.4 1,335.8
-------- --------- -------- -------- -------- --------- --------
Total interest-bearing
liabilities 2,118.0 1,359.2 1,442.9 1,020.9 1,276.6 2,617.4 9,835.0
Interest-earning assets
less interest-bearing
liabilities 2,330.2 (968.4) (785.4) 105.1 2,506.4 (1,389.8) 1,798.1
Impact of interest rate
swaps (80.0) (258.0) 23.3 103.4 211.3 -- --
-------- --------- -------- -------- -------- --------- --------
Asset (liability) gap $2,250.2 $(1,226.4) $ (762.1) $ 208.5 $2,717.7 $(1,389.8) $1,798.1
Cumulative asset gap $2,250.2 $ 1,023.8 $ 261.8 $ 470.3 $3,188.1 $ 1,798.1
Cumulative gap as a
percentage of
cumulative earning
assets 50.6% 21.2% 4.8% 7.1% 30.6% 15.5%
</TABLE>
- ------------------------------
*(The placement of indeterminate maturity deposits on the gap analysis
represents an allocation of 15% of the balances to the 0 - 30 Days period and
85% to the Over 5 Years period. This allocation is an estimate based on
historical analyses of the amount by which the rates paid on these deposits
changed as alternative market rates changed, and on the estimated sensitivity of
balances to changes in such alternative market rates.)
Total interest-earning assets exceeded interest-bearing liabilities by $1.8
billion at December 31, 1996. This difference was funded through non-interest
bearing liabilities and shareholders' equity. The above table shows that total
assets maturing or repricing within one year exceed liabilities maturing or
repricing within one year by $470.3 million. However, the repricing and
cash-flows of certain categories of assets and liabilities are subject to
competitive and other influences that are beyond the control of Old Kent. As a
result, certain assets and liabilities indicated as maturing or repricing within
a stated period may, in fact, mature or reprice in other periods or at different
volumes.
Old Kent recognizes the limitations of static gap analysis as a tool for
managing its interest rate risk. Old Kent also uses computer-based simulation to
estimate the effects of various interest rate environments on the balance sheet
structure and net interest income. These simulation techniques involve changes
in interest rate relationships, asset and liability mixes, and prepayment
options inherent in financial instruments, as well as interest rate levels in
order to quantify risk potentials. Based on these analyses, Old Kent's
management believes that future net interest income would not be materially
impacted throughout a broad range of reasonably forseeable interest rate
scenarios.
S-27
<PAGE> 29
The table below illustrates the projected change in Old Kent's net interest
income during the next twelve months if all market rates were to uniformly and
gradually increase or decrease by as much as 2.0% compared to results under a
flat rate environment. These projections, based on Old Kent's balance sheet as
of December 31, 1996, were prepared using the modeling techniques and
assumptions which Old Kent was then using for asset/liability management
purposes. The table indicates that if rates were to gradually and uniformly
increase or decrease by 2.0%, net interest income would be expected to increase
by .9% or decrease by 1.3% compared to results forecasted under a flat rate
environment. This narrow projected exposure to interest rate risk is consistent
with management's desire to limit the sensitivity of net interest income to
changes in interest rates in order to reduce risk to earnings and capital. This
model is based solely on gradual, uniform changes in market rates and does not
reflect the levels of interest rate risk that may arise from other factors such
as changes in the spreads between key market rates or in the shape of the
Treasury yield curve.
<TABLE>
<S> <C> <C> <C> <C> <C>
Change in interest rates from current level (2.00%) (1.00%) 0.00% 1.00% 2.00%
Change in net interest income versus flat
rates (1.3%) (0.6%) 0.0% 0.5% 0.9%
</TABLE>
An important component of Old Kent's management of interest rate risk is the
company's use of interest rate swaps. At December 31, 1996 the total notional
amount (the amount used to calculate interest) of outstanding interest rate swap
agreements was $461.3 million. The following tables present information
regarding swap activity for 1996 along with maturity and rate profiles at
December 31, 1996.
Swap Activity
<TABLE>
<CAPTION>
12/31/95 Matured and Notional New Swap 12/31/96
(in millions) Notional Terminated Amortization* Notional Notional
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating $410.5 $(15.0) $(9.2) - $386.3
Receive Floating/Pay Fixed 115.0 (40.0) - - 75.0
------ ------ ----- ---- ------
$525.5 $(55.0) $(9.2) $0.0 $461.3
====== ====== ===== ==== ======
</TABLE>
*Note: Certain "Index Amortizing Swaps" have notional amounts for which the
maturity date, or amortization schedule, may vary based on interest rate levels.
Old Kent had swaps of this type totalling $150.0 million at December 31, 1996.
Swaps Maturity Profile
Notional amounts of swaps are anticipated to mature as follows, assuming that
market rates in effect at December 31, 1996 remain unchanged:
<TABLE>
<CAPTION>
(in millions) 1997 1998 1999 2000 2001+ Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating $150.0 $ 86.3 $50.0 $100.0 - $386.3
Receive Floating/Pay Fixed 50.0 25.0 - - - 75.0
------ ------ ----- ------ ---- ------
$200.0 $111.3 $50.0 $100.0 $0.0 $461.3
====== ====== ===== ====== ==== ======
</TABLE>
S-28
<PAGE> 30
SWAPS RECEIVE RATE/PAY RATE PROFILE
Interest rates of swaps are summarized as follows:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
--------------------------- ---------------------------
Receive Rate Pay Rate Receive Rate Pay Rate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive Fixed/Pay Floating 6.61% 5.64% 6.76% 6.00%
Receive Floating/Pay Fixed 5.75 7.22 5.94 6.20
</TABLE>
For 1996 and 1995, Old Kent's interest rate swaps increased net interest income
by approximately $2.4 million and $5.9 million respectively. This improved the
Corporation's net interest margin by .02% in 1996 and by .05% in 1995.
Securities Held-to-maturity
Securities held-to-maturity are purchased with the intent and ability to hold
for long-term investment for the purpose of generating interest income over the
lives of the investments. Thus they are carried on the books at cost, adjusted
for amortization of premium and accretion of discount. Decisions to purchase
securities are based upon current assessments of economic and financial
conditions, including the interest rate environment.
Securities Available-for-sale
Old Kent's investment strategy is dynamic. As conditions change over time, the
Corporation's overall interest rate risk, liquidity risk, and potential return
on the investment portfolio will change. Old Kent regularly re-evaluates the
marketable securities in its portfolio based on circumstances as they evolve. In
consideration of these factors, management's objective is to optimize the
ongoing total return of its securities portfolios.
During 1996 and 1995, the principal reason for sales of securities
available-for-sale was to provide liquidity for loan growth. In 1996, net gains
on the sale of securities were $0.1 million. This compares to net gains of $.4
million in 1995 and $1.0 million in 1994.
Sources and Uses of Funds Trends
As shown on the accompanying consolidated balance sheets, total assets at
December 31, 1996 were $12.6 billion, up by $0.6 billion, or 5.4%, from the
preceding year-end. In general, Old Kent's management relies more on the use of
daily average balances, rather than on balances at a period end, to analyze
trends. Old Kent's average consolidated balance sheets for the last five years
appears on
S-29
<PAGE> 31
page S-11 of this report. Information contained in that statement was the basis
for the summarized trends in sources and uses of funds appearing below.
<TABLE>
<CAPTION>
1996 1995
----------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
Average -------------------- Average ---------------------
(Dollars in millions) Balance Amount Percent Balance Amount Percent
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Funding Uses:
Loans $ 7,795.8 $ 565.1 7.8% $ 7,230.7 $1,169.9 19.3%
Mortgages
held-for-sale 366.4 118.7 47.9 247.7 23.2 10.3
Taxable securities 2,909.6 42.2 1.5 2,867.4 (479.5) (14.3)
Tax-exempt securities 162.0 (49.7) (23.5) 211.8 (29.6) (12.3)
Interest-earning
deposits 8.8 (39.4) (81.7) 48.2 28.1 139.8
Federal funds sold and
resale agreements 99.9 (149.1) (59.9) 249.0 139.4 127.2
Trading account
securities 10.3 (10.3) (50.1) 20.6 (5.4) (20.8)
--------- -------- ----- --------- -------- -------
Total Uses $11,352.8 $ 477.4 4.4% $10,875.4 $ 846.1 8.4%
========= ======== ===== ========= ======== =======
Funding Sources:
Demand deposits $ 1,407.7 $ 77.9 5.9% $ 1,329.8 $ 90.4 7.3%
Savings deposits 2,981.3 (112.9) (3.6) 3,094.2 (330.6) (9.7)
Time deposits:
Negotiable 1,135.1 (318.4) (21.9) 1,453.5 (39.1) (2.6)
Foreign 46.8 (179.2) (79.3) 226.0 (19.1) (7.8)
Consumer 4,191.7 977.7 30.4 3,214.0 810.9 33.7
Federal funds
purchased and
repurchase agreement 519.6 89.7 20.9 429.9 15.3 3.7
Other borrowed funds 635.0 (120.7) (16.0) 755.7 236.8 45.6
Long-term debt 101.0 87.3 637.2 13.7 12.5 1,041.7
Other 334.6 (24.0) (6.7) 358.6 69.0 23.8
--------- -------- ----- --------- -------- -------
Total Sources $11,352.8 $ 477.4 4.4% $10,875.4 $ 846.1 8.4%
========= ======== ===== ========= ======== =======
</TABLE>
Growth in average total loans for 1996 amounted to nearly $.6 billion, or about
7.8%, and growth in total interest-earning assets increased 4.4%. This growth
was primarily funded through growth in average total deposits, particularly
consumer time deposits. Over the past two years, mortgages held-for sale have
increased due to the previously mentioned growth of OKMC. Mortgages
held-for-sale generally consist of recently originated and acquired residential
mortgage loans intended to be sold in the near future into the secondary
markets. During 1995, total average loans increased by $1.2 billion or 19.3% and
total interest-earning assets increased by nearly $.8 billion, or 8.4%. As an
additional measure to accommodate loan demand, Old Kent securitized and sold
approximately $250 million of consumer automobile loans during the third quarter
of 1995.
Lower interest rates over the years preceding 1994 had an effect on the relative
mix in Old Kent's core deposits. During the periods of lower rates, savings
deposits became a greater proportion of total core deposits. Management believes
that this trend indicated a greater preference for liquidity on the part of
consumers. However, during the latter part of 1994 interest rates rose. This had
the effect of altering this past trend and savings deposits became
proportionately less of the total by December 31, 1994 and
S-30
<PAGE> 32
continued during 1995 and 1996. This change in trend influenced an increase in
the Corporation's interest expense for 1995 and 1996.
<TABLE>
<CAPTION>
Based on annual averages
December 31, -----------------------------------------
Relative core deposit mix 1996 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits 17.2% 16.4% 17.4% 17.5% 16.3% 15.0%
Savings deposits 32.0 34.7 40.5 48.5 48.1 45.4
Consumer time deposits 50.8 48.9 42.1 34.0 35.6 39.6
----- ----- ----- ----- ----- -----
Total core deposits 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
Quarterly Financial Data
The following is a summary of selected quarterly results of operations for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended
- -------------------------------------------------------------------------------------------
1996 March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $229,151 $235,645 $240,467 $242,044
Net Interest Income 118,166 124,977 125,969 125,176
Provision for Credit Losses 6,252 9,723 9,168 10,093
Income Before Income Taxes 59,613 56,299 60,398 62,412
Net Income 39,234 37,561 40,297 41,609
Net Income Per Common Share $.82 $.79 $.87 $.91
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended
- -------------------------------------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $218,915 $229,263 $230,908 $230,733
Net Interest Income 117,814 118,949 120,380 119,550
Provision for Credit Losses 4,567 5,991 6,073 5,035
Income Before Income Taxes 51,713 56,625 57,780 48,495
Net Income 34,703 37,393 38,316 31,402
Net Income Per Common Share $.72 $.78 $.80 $.66
</TABLE>
Net income for the last quarter of 1996 was more than any of the three preceding
calendar quarters. The primary reason for the increase was an increase in
mortgage banking revenues which included the effect of NPMC acquired on August
1, 1996.
Net income for the fourth quarter of 1995 was less than that of the three
preceding calendar quarters. The primary reason for the decrease was
restructuring charges of approximately $12 million which were recognized during
the fourth quarter of 1995. These charges reduced net income per common share
for that period by approximately $.17.
S-31
<PAGE> 33
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Old Kent Financial Corporation is responsible for the
preparation of the financial statements and other related financial information
included in the annual report. The financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgments where applicable. Financial
information appearing throughout this annual report is consistent with the
financial statements.
The Corporation maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and that transactions are executed in
accordance with management's authorization and are recorded properly to permit
the preparation of financial statements in accordance with generally accepted
accounting principles. Management continually monitors the internal control
structure for compliance with established policies and procedures. As an
integral part of the internal control system, the Corporation maintains a
professional staff of internal auditors who monitor compliance with internal
controls and coordinate audit coverage with the independent public accountants.
The Audit Committee of the board of directors, composed entirely of outside
directors, oversees the Corporation's financial reporting process and has
responsibility for recommending the independent public accountants who are
appointed by the board of directors to audit the Corporation's annual financial
statements.
The financial statements in this annual report have been audited by Arthur
Andersen LLP and their report appears on page S-33.
The Audit Committee of the board of directors meets regularly with management,
internal auditors, independent public accountants and regulatory examiners to
review matters relating to financial reporting and internal controls. The
internal auditors, independent public accountants and regulatory examiners have
direct access to the Audit Committee.
The Corporation assesses its internal control structure over financial reporting
in relation to the criteria described in the "Internal Control -- Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management of the Corporation believes
that as of December 31, 1996, in all material respects, the Corporation
maintained an effective internal control structure over financial reporting.
/s/ DAVID J. WAGNER
- -----------------------
David J. Wagner
Chairman, President and
Chief Executive Officer
/s/ B. P. SHERWOOD, III
- -----------------------
B. P. Sherwood, III
Vice Chairman and Treasurer
/s/ ALBERT T. POTAS
- -----------------------
Albert T. Potas
Senior Vice President and Controller
January 20, 1997
S-32
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Old Kent Financial
Corporation:
We have audited the accompanying consolidated balance sheets of Old Kent
Financial Corporation (a Michigan corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Old Kent Financial Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois,
January 20, 1997
S-33
<PAGE> 35
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31 (dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 530,444 $ 527,611
Federal funds sold and resale agreements 107,353 49,445
----------- -----------
Total cash and cash equivalents 637,797 577,056
Interest-earning deposits 803 175,413
Mortgages held-for-sale 589,245 270,126
Trading account securities 19,009 11,699
Securities available-for-sale:
Collateralized mortgage obligations and other
mortgage-backed securities 673,722 874,291
Other securities 1,221,476 1,371,408
----------- -----------
Total securities available-for-sale (amortized cost of
$1,910,367 and $2,240,517 in 1996 and 1995, respectively) 1,895,198 2,245,699
Securities held-to-maturity:
Collateralized mortgage obligations and other
mortgage-backed securities 746,355 680,330
Other securities 162,975 190,612
----------- -----------
Total securities held-to-maturity (market values of
$911,592 and $876,291 in 1996 and 1995, respectively) 909,330 870,942
Loans 8,097,056 7,430,552
Less allowance for credit losses 165,928 174,248
----------- -----------
Net loans 7,931,128 7,256,304
Leasehold improvements, premises and equipment 173,916 173,903
Other assets 490,402 421,942
----------- -----------
TOTAL ASSETS $12,646,828 $12,003,084
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Non-interest-bearing $ 1,580,960 $ 1,506,149
Interest-bearing 8,474,754 7,769,672
Foreign-interest bearing 24,433 81,545
----------- -----------
Total deposits 10,080,147 9,357,366
Other borrowed funds 1,235,867 1,307,617
Subordinated debt: 6 5/8% due November 15, 2005 100,000 100,000
Other liabilities 237,057 222,165
----------- -----------
TOTAL LIABILITIES 11,653,071 10,987,148
----------- -----------
Shareholders' Equity:
Preferred stock: 25,000,000 shares authorized and unissued - -
Common stock, par value $1: 150,000,000 shares authorized;
44,944,321 and 45,383,122 shares issued and outstanding
in 1996 and 1995, respectively 44,944 45,383
Capital surplus 175,842 200,101
Retained earnings 782,830 767,085
----------- -----------
Total common stock, capital surplus and retained earnings 1,003,616 1,012,569
Unrealized (losses) gains on securities available-for-sale (9,859) 3,367
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 993,757 1,015,936
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,646,828 $12,003,084
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-34
<PAGE> 36
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands, except per share data) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $715,982 $666,790 $505,445
Interest on mortgages held-for-sale 28,374 19,140 14,781
Interest on securities available-for-sale 130,793 77,139 84,414
Interest on securities held-to-maturity 65,683 127,728 147,657
Interest on deposits 495 2,834 991
Interest on federal funds sold and resale
agreements 5,453 14,991 4,833
Interest on trading account securities 527 1,197 1,065
---------- ---------- ----------
Total interest income 947,307 909,819 759,186
---------- ---------- ----------
INTEREST EXPENSE:
Interest on domestic deposits 379,898 348,348 254,539
Interest on foreign deposits 2,685 14,137 10,407
Interest on other borrowed funds 63,710 69,798 38,605
Interest on subordinated debt 6,726 843 -
---------- ---------- ----------
Total interest expense 453,019 433,126 303,551
---------- ---------- ----------
NET INTEREST INCOME 494,288 476,693 455,635
PROVISION FOR CREDIT LOSSES 35,236 21,666 22,465
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES 459,052 455,027 433,170
---------- ---------- ----------
OTHER INCOME:
Mortgage banking revenue -- net 57,574 32,363 19,144
Trust income 46,027 43,281 41,813
Service charges on deposit accounts 45,352 40,266 35,672
Credit card transaction revenue -- net 7,847 9,709 6,505
Securities transactions 128 421 1,013
Nonrecurring and other real estate owned income 4,158 2,202 3,321
Other 51,078 33,476 28,542
---------- ---------- ----------
Total other income 212,164 161,718 136,010
---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 212,199 185,158 171,985
Occupancy 30,388 28,635 28,423
Equipment 24,647 24,746 23,130
Advertising and promotion 24,867 9,918 6,681
Amortization of goodwill and intangibles 10,109 11,864 10,465
FDIC deposit insurance 2,458 11,123 19,102
Restructuring charges - 18,204 -
Nonrecurring and other real estate owned expenses 988 2,801 4,580
Other 126,838 109,683 99,112
---------- ---------- ----------
Total other expenses 432,494 402,132 363,478
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 238,722 214,613 205,702
Income taxes 80,021 72,799 68,618
---------- ---------- ----------
NET INCOME $158,701 $141,814 $137,084
========== ========== ==========
Average number of shares used to compute net
income per common share 46,827,126 47,885,537 47,679,817
Net income per common share $3.39 $2.96 $2.88
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-35
<PAGE> 37
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 158,701 $ 141,814 $ 137,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 35,236 21,666 22,465
Depreciation, amortization and accretion 59,361 49,528 40,329
Deferred income taxes (1,913) (7,224) (5,673)
Net gains on sales of assets (45,896) (16,370) (12,344)
Net change in trading account securities (5,058) 1,174 29,272
Originations and acquisitions of mortgages
held-for-sale (3,409,276) (2,060,201) (1,835,901)
Proceeds from sales and prepayments of mortgages
held-for-sale 3,236,859 1,993,642 2,180,165
Net change in other assets (54,421) (72,107) (26,420)
Net change in other liabilities 14,720 51,683 (12,884)
----------- ----------- -----------
Net cash (used for) provided by operating
activities (11,687) 103,605 516,093
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and prepayments of securities
available-for-sale 342,487 459,051 150,143
Proceeds from sales of securities
available-for-sale 4,004,625 1,323,828 2,133,275
Purchases of securities available-for-sale (4,068,631) (1,297,725) (2,340,293)
Proceeds from maturities and prepayments of
securities held-to-maturity 168,642 373,903 622,463
Proceeds from sales of securities
held-to-maturity 860 - 646
Purchases of securities held-to-maturity (212,505) (373,491) (422,470)
Net change in interest-earning deposits 174,611 (170,158) 29,971
Net proceeds from sale of loans - 242,127 -
Net increase in loans (744,263) (830,799) (1,159,517)
Purchases of leasehold improvements, premises and
equipment, net (19,813) (25,142) (27,900)
Acquisition of businesses (net of cash acquired) (23,598) - 23,763
Sale of subsidiary (net of cash sold) 7,123 - -
----------- ----------- -----------
Net cash used for investing activities (370,462) (298,406) (989,919)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in time deposits 817,300 44,955 715,491
Decrease in demand and savings deposits (11,818) (116,925) (165,112)
Change in other borrowed funds (178,099) 296,848 40,299
Issuance of Subordinated Debt - 100,000 -
Repurchases of common stock (135,792) (20,805) (70,720)
Proceeds from common stock issuances 10,421 8,110 5,473
Dividends paid to shareholders (59,122) (55,334) (49,869)
----------- ----------- -----------
Net cash provided by financing activities 442,890 256,849 475,562
----------- ----------- -----------
Net change in cash and cash equivalents 60,741 62,048 1,736
Cash and cash equivalents at beginning of year 577,056 515,008 513,272
----------- ----------- -----------
Cash and cash equivalents at December 31 $ 637,797 $ 577,056 $ 515,008
=========== =========== ===========
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid on deposits, other borrowed funds
and subordinate debt $ 453,413 $ 420,246 $ 289,174
Federal income taxes paid 78,709 71,250 78,907
Significant non-cash transactions:
Stock dividends issued 83,596 71,651 -
Stock issued to acquire business 8,431 - 62,551
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-36
<PAGE> 38
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Valuation
Adjustment Total
Securities Share-
Common Capital Retained Available- holders'
(dollars in thousands, except per share data) Stock Surplus Earnings For-Sale Equity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 $43,043 $140,501 $666,496 $ 850,040
Net income for the year 137,084 137,084
Cash dividends:
$1.07 per common share (47,992) (47,992)
Cash dividends paid by FNB prior to merger (1,877) (1,877)
Common stock repurchased related to acquisition of
EdgeMark Financial Corporation - 1,917,566 shares (1,918) (60,673) (62,591)
Common stock issued for EdgeMark Financial
Corporation acquisition - 1,917,566 shares 1,918 60,633 62,551
Common stock repurchased for dividend reinvestment
plan and employee stock plans - 253,780 shares (254) (7,875) (8,129)
Common stock issued under dividend reinvestment plan,
employee stock plans, and other - 388,391 shares 388 8,201 8,589
Tax benefit relating to employee stock plans 338 338
All other activity of FNB 122 (2,547) (2,425)
Valuation adjustment on securities available-for-sale (39,591) (39,591)
------- -------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1994 43,177 141,247 751,164 (39,591) 895,997
Net income for the year 141,814 141,814
Cash dividends:
$1.16 per common share (55,334) (55,334)
Common stock issued in payment of 5% stock dividend -
2,157,241 shares (cash in lieu of fractionals -
$187,000) 2,157 69,494 (71,838) (187)
Common stock issued for Guyot, Hicks, Anderson &
Associates, Inc. acquisition - 198,803 shares 199 (30) 169
Common stock repurchased for dividend reinvestment
plan and employee stock plans - 588,742 shares (589) (20,216) (20,805)
Common stock issued under dividend reinvestment plan,
employee stock plans, and other - 438,930 shares 439 9,368 9,807
Tax benefit relating to employee stock plans 238 238
All other activity of FNB 1,279 1,279
Valuation adjustment on securities available-for-sale 42,958 42,958
------- -------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1995 45,383 200,101 767,085 3,367 1,015,936
Net income for the year 158,701 158,701
Cash dividends:
$1.27 per common share (59,122) (59,122)
Common stock issued in payment of 5% stock dividend -
2,229,606 shares (cash in lieu of fractionals -
$238,000) 2,230 81,366 (83,834) (238)
Common stock issued for Republic Mortgage Corporation
acquisition - 216,160 shares 216 8,215 8,431
Common stock repurchased for dividend reinvestment
plans, employee stock plans, acquisitions, stock
dividends and other purposes - 3,341,520 shares (3,342) (132,450) (135,792)
Common stock issued under dividend reinvestment plan,
employee stock plans, and other - 456,953 shares 457 13,464 13,921
Tax benefit relating to employee stock plans 5,146 5,146
Valuation adjustment on securities available-for-sale (13,226) (13,226)
------- -------- -------- -------- ----------
BALANCE AT DECEMBER 31, 1996 $44,944 $175,842 $782,830 $ (9,859) $ 993,757
======= ======== ======== ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry. A description of significant accounting policies follows:
Basis of Presentation
The consolidated financial statements for the Corporation include the accounts
of Old Kent Financial Corporation (Parent Company) and its wholly owned
subsidiaries (collectively, the "Corporation"). Significant intercompany
balances and transactions have been eliminated in consolidation.
Nature of Operations
The Corporation operates two commercial banks with 202 full service offices
throughout Michigan and 27 such offices in the metropolitan markets in and
around Chicago, Illinois. It also operates a mortgage banking company with
seventy-nine offices located in seventeen states. Other business activities
include investment management and trust services, as well as brokerage and
insurance services. Old Kent's revenue is mainly derived by providing financial
services to commercial and retail customers located within those markets. The
financial services primarily consist of the extension of credit and acceptance
of deposits.
Use of Estimates
Conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Trading Account Securities
Trading account securities are carried at market value. Gains and losses on
trading activities are included in other income in the consolidated statements
of income.
Securities Available-for-Sale
Securities available-for-sale include those securities which might be sold as
part of Old Kent's management of interest rate risk, in response to changes in
interest rates, prepayment or credit risk or due to a desire to increase capital
or liquidity. These assets are carried on the balance sheet at their estimated
fair values, with corresponding (after-tax) valuation adjustments included as a
component of shareholders' equity. Gains and losses realized on sales of such
securities are determined using the specific identification method and are
classified as other income in the consolidated statements of income.
Premiums and discounts on securities available-for-sale, as well as securities
held-to-maturity, are amortized over the estimated lives of the related
securities. This amortization, as well as adjustments stemming from changes in
estimates, is included in interest income on the accompanying consolidated
statements of income.
S-38
<PAGE> 40
Securities Held-to-Maturity
Securities held-to-maturity are stated at amortized cost. Designation as such a
security is made at the time of acquisition and is based on intent and ability
to hold the security to maturity.
Interest Rate Swaps
The Corporation enters into interest rate swaps to hedge existing assets and
liabilities. Income and expense associated with interest rate swap contracts are
accrued over the life of the contracts and are classified with the income and
expense of the specific assets and liabilities which are being hedged. Gains and
losses on early terminations are included in the carrying amount of the hedged
asset or liability and amortized as yield adjustments over the remaining term of
the hedged asset or liability.
Mortgage Banking Activities
The Corporation routinely sells to investors its originated residential mortgage
loans, as well as those acquired from third parties. The Corporation typically
retains the servicing rights related to the mortgages sold. Gains on sales of
mortgages are recorded to the extent proceeds exceed the carrying value of the
loans. Mortgage loans held-for-sale are carried at the lower of cost or market,
which is determined under the aggregate method. In determining the lower of cost
or market, the gains and losses associated with the corresponding financial
instruments, used to hedge against increases in interest rates, are considered.
In May, 1995 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of FASB Statement No. 65." This Statement
requires recognizing as separate assets the rights to service mortgage loans for
others, however those rights are acquired. It requires that when a definitive
plan exists to sell the loan and retain the servicing, the cost of the mortgage
loan be allocated between the loans and the related mortgage servicing right
based on their relative fair values at the date of origination or purchase;
otherwise the date of sale shall be used. The Statement also requires assessing
the capitalized mortgage servicing rights for impairment based on the fair value
of those rights. The Corporation prospectively adopted the provisions of SFAS
No. 122, effective January 1, 1995. The adoption did not have a material impact
on the Corporation's financial position or results of operations.
The fair value of the Corporation's mortgage servicing rights is determined
based on quoted market prices for comparable transactions, if available, or a
valuation model that calculates the present value of expected future cash flows.
Mortgage servicing rights are amortized ratably in relation to the associated
servicing revenue over the estimated lives of the serviced loans. In accordance
with SFAS No. 122, the Corporation evaluates and measures impairment of its
capitalized servicing rights using stratifications based on the risk
characteristics of the underlying loans. Management has determined those risk
characteristics to include loan type (conventional and governmental) and
interest rate. Impairment is recognized through a valuation allowance.
The Corporation utilizes financial instruments which are intended to minimize
the effects of interest rate declines on the value of its capitalized mortgage
servicing rights. These instruments are carried at fair value.
S-39
<PAGE> 41
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans
Effective January 1, 1995, the Corporation adopted the provisions of Statements
of Financial Accounting Standards Nos. 114 and 118, "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures", respectively. These statements require that
the recorded investment in certain impaired loans be adjusted by means of a
valuation allowance to reflect a net carrying value determined under one of the
following methods: (1) the present value of expected future cash flows
discounted at the loan's effective rate of interest, (2) the loan's observable
market price, or (3) the fair value of the collateral, if the loan is collateral
dependent. Old Kent's policy is to review impaired loans under the
aforementioned standards to determine the need for a valuation allowance. Large
groups of smaller balance homogenous loans with common risk characteristics are
aggregated and collectively evaluated for impairment using methods available
under these statements. These large groups of smaller balance homogenous loans
include residential mortgages, consumer and credit card loans as well as certain
commercial loans, such as those to small businesses. Adoption of these
statements had no effect upon Old Kent's total allowance for credit losses or
net income.
Loans are stated at their principal amount outstanding, net of unearned income.
Loan performance is reviewed regularly by loan review personnel, loan officers
and senior management. A loan is placed on nonaccrual status and evaluated for
impairment when principal or interest is past due 90 days or more, and the loan
is not well secured and in the process of collection, or when, in the opinion of
management, there is sufficient reason to doubt collectibility of principal or
interest. Interest previously accrued, but not collected, is reversed and
charged against interest income at the time the loan is placed on nonaccrual
status. Generally, the terms of loans that resulted from troubled debt
restructurings are at interest rates considered below current market rates for
comparable loans and are evaluated for impairment. The Corporation considers
loans which are on nonaccrual or restructured status as impaired.
Interest received on nonaccrual loans are recorded as principal reductions if
principal repayment is doubtful. Loans are no longer classified as impaired when
principal and interest payments are brought current and collectibility is no
longer in doubt. Interest income on restructured loans is recognized according
to the terms of the restructure, subject to the nonaccrual policy described
above.
Certain commitment and loan origination fees are deferred and amortized as an
adjustment of the related loan's yield over its contractual life using the
interest method, or other methods which approximate the interest method. All
remaining commitment and loan origination fees and all direct costs associated
with originating or acquiring loans are recognized currently, which is not
materially different than the prescribed method.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level that, in management's
judgment, is adequate to absorb probable losses in the loan portfolio. The
amount is based on management's specific review and analysis of the loan
portfolio, as well as evaluation of the effects of current economic conditions
on the loan portfolio. This process is based on estimates, and ultimate losses
may materially differ in the near term from the current estimates. As changes in
estimates occur, adjustments to the level of the allowance are recorded in the
provision for credit losses in the period in which they become known.
S-40
<PAGE> 42
Leasehold Improvements, Premises and Equipment
Leasehold improvements, premises and equipment are stated at original costs,
less accumulated depreciation and amortization computed on the straight-line
method over the estimated useful lives of the assets or terms of the leases,
whichever period is shorter. For income tax purposes, minimum lives and
accelerated methods are used.
Other Real Estate Owned
Other real estate owned consists of properties acquired in partial or total
satisfaction of debt. Other real estate owned is stated at fair value. Losses
arising at acquisition are charged against the allowance for credit losses.
Reductions in fair value subsequent to acquisition are recorded in other expense
in the consolidated statements of income, while any gains realized on the
disposition of such properties are included in other income.
Intangible and Other Long-lived Assets
Goodwill, representing the cost of investments in subsidiaries in excess of the
fair value of the net assets at acquisition, is amortized over periods ranging
from ten to twenty years. Other acquired intangible assets, such as those
associated with acquired core deposits, are amortized over periods not exceeding
fifteen years.
Effective January 1, 1996, Old Kent adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of." As provided by this
statement, when factors indicate that a long-lived asset or identifiable
intangible asset should be evaluated for impairment, the Corporation estimates
the undiscounted future cash flows over the remaining life of the asset in
assessing whether impairment should be recognized. Adoption of this statement
did not materially impact Old Kent's financial statements.
Trust Assets
Property, other than cash deposits, held in a fiduciary or agency capacity is
not included in the consolidated balance sheets, since such assets are not owned
by Old Kent.
Pension Benefits
The defined benefit pension plan covers substantially all employees. The plan
provides for normal and early retirement, deferred benefits for vested employees
and, under certain circumstances, survivor benefits in the event of death.
Benefits are based on the employees' years of service and their five highest
consecutive years of compensation over the last ten years of service, subject to
certain limits. The proportion of average compensation paid as a pension is
determined by age and length of service as defined in the plan. Contributions to
the plan satisfy or exceed the minimum funding requirement of the Employee
Retirement Income Security Act. Assets held by the plan consist primarily of
investments in several of Old Kent's proprietary mutual funds.
Old Kent also maintains a noncontributory, nonqualified pension plan for certain
participants whose retirement benefit payments under the qualified plan are
expected to exceed the limits imposed by the Internal Revenue code. Old Kent
maintains nonqualified trusts, referred to as "rabbi" trusts, primarily to fund
and secure the benefits in excess of those permitted in certain of the Old Kent
qualified pension plans. These arrangements offer certain officers and directors
of the Corporation a degree of assurance for ultimate payment of benefits. The
assets remain subject to the claims of creditors of Old Kent and
S-41
<PAGE> 43
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are not the property of the employees. Hence, they are accounted for as assets
of the Corporation in the consolidated balance sheets.
Retirement Savings Plans
Old Kent maintains a defined contribution retirement savings plan covering
substantially all employees. The Corporation's contribution is equal to 50% of
the amount contributed by the participating employees. Old Kent's contribution
is limited to a maximum of 3% of compensation as described under the terms of
the plans. The estimated contribution by Old Kent is charged to expense during
the year in which the employee contribution is received and is included in
employee benefits in the consolidated statements of income.
Income Taxes
Deferred tax assets and liabilities are recognized for 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 the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be reversed. Old Kent and its subsidiaries file a consolidated
federal income tax return.
Income per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding and common share equivalents with a
dilutive effect. Common share equivalents are shares which may be issuable upon
the exercise of outstanding stock options.
Reclassification
Certain reclassifications have been made to prior periods' financial statements
to place them on a basis comparable with the current period's financial
statements.
Recent Pronouncements
In June, 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
In December, 1996, FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." These statements provide
consistent standards for distinguishing transfers of financial assets which are
sales from those which represent secured borrowings. Old Kent is required to
adopt the provisions of these statements effective January 1, 1997 or 1998, as
applicable. Adoption of these statements is not expected to have a material
impact on Old Kent's future results of operations or financial condition.
NOTE 2. BUSINESS ACQUISITIONS AND DISPOSITIONS
Effective January 1, 1997, Old Kent acquired Seaway Financial Corporation
("Seaway"), a bank holding company headquartered in St. Clair, Michigan. Seaway
is the parent of The Commercial and Savings Bank of St. Clair County (St. Clair,
Michigan) and The Algonac Savings Bank (Algonac, Michigan). At December 31,
1996, Seaway had total assets and total deposits of approximately
S-42
<PAGE> 44
$345 million and $302 million, respectively. In 1997, the Corporation will issue
approximately 1.9 million shares of Old Kent Common Stock in exchange for all of
the outstanding common stock of Seaway. This acquisition will be accounted for
as a purchase, and is not expected to have a material effect on Old Kent's
future results of operations or financial condition.
During January, 1997, Old Kent sold its commercial mortgage banking subsidiary,
Hartger & Willard Mortgage Associates, Inc. for cash of approximately $1
million. This sale will not materially affect the Corporation's future results
of operations or financial condition.
On December 4, 1996, Old Kent purchased the assets of Insurance Resource Group,
L.L.C., Poggi & Associates, L.L.C., and Insurance Consultants, L.L.C., each of
which provide commercial insurance products and services through an office in
Grand Rapids, Michigan, for $1.8 million in cash. The agency will operate as a
division of Guyot, Hicks, Anderson & Associates, Inc. ("GHA") under the name of
Old Kent Insurance Group. The acquisition was accounted for as a purchase.
Accordingly, results of its operations are included in Old Kent's consolidated
results of operation from the date of acquisition. If this purchase had been
effective January 1, 1995, there would have been no material effect on the
consolidated results of operations or financial condition.
On August 1, 1996, Old Kent acquired National Pacific Mortgage Corporation
("NPMC"), a mortgage company headquartered in Anaheim, California, with 17
branch offices in California and Oregon, for approximately $29 million in cash
and other consideration. When acquired, NPMC had assets of approximately $150
million and a servicing portfolio of approximately $1.8 billion. The acquisition
was accounted for as a purchase. Accordingly, results of operations of NPMC are
included in Old Kent's consolidated results of operations from the date of
acquisition. If this purchase had been effective January 1, 1995, there would
have been no material effect on the consolidated results of operations or
financial condition.
On February 2, 1996, Old Kent sold its wholly owned subsidiary First National
Bank of Lockport to Heritage Financial Services, Inc. The cash sale price was
approximately $17 million. At the time of the sale, the bank had total assets of
$102 million, total deposits of $81 million, and operated from one office in
Lockport, Illinois. First National Bank of Lockport was among a group of banks
acquired by Old Kent in its 1994 acquisition of EdgeMark Financial Corporation.
The sale was consistent with Old Kent's strategic focus on business development
and retail banking in the metropolitan Chicago area.
On January 22, 1996, Old Kent acquired Republic Mortgage Corp. ("Republic"),
headquartered in Salt Lake City, Utah, with 19 other offices. The acquisition
was treated as a purchase for accounting purposes and, accordingly, results of
operations of Republic are included in Old Kent's consolidated results of
operations from the date of acquisition. Republic's shareholders were issued
approximately 216,000 shares of Old Kent common stock in exchange for all of the
outstanding shares of Republic. At December 31, 1995, Republic had assets of $39
million and serviced approximately $127 million of residential mortgages for
third parties. If this purchase had been effective effective January 1, 1995,
there would have been no material effect on the consolidated results of
operations or financial condition.
On December 1, 1995, Old Kent acquired Guyot, Hicks, Anderson & Associates, Inc.
("GHA"), an insurance agency headquartered in Traverse City, Michigan. The
merger was effected through the issuance of nearly 199,000 shares of Old Kent
Common Stock in exchange for all of the outstanding shares of GHA common stock.
The merger was treated as a "pooling-of-interests". Since the acquisition did
not have a material effect on the consolidated financial statements, they have
not been restated. When acquired, GHA had total assets of approximately $5
million.
On February 1, 1995, Old Kent merged with First National Bank Corp. ("FNB"), a
bank holding company headquartered in Mount Clemens, Michigan. The merger was
effected through the exchange
S-43
<PAGE> 45
NOTE 2. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
of 1.0813 shares of Old Kent Common Stock, (approximately 2.6 million shares in
all) for each outstanding share of FNB common stock. The merger was accounted
for as a "pooling-of-interests." The accompanying consolidated financial
statements have been restated to include the financial position and results of
operations of FNB prior to the merger.
NOTE 3. PLEDGED AND RESTRICTED ASSETS
The Federal Reserve requires the banking subsidiaries to maintain certain
average non-interest bearing cash balances in accordance with stated reserve
requirements. These average reserves approximated $100 million during 1996 and
$73 million during 1995.
At December 31, 1996, securities having an aggregate amortized cost of
approximately $1.2 billion were pledged to secure public and trust deposits and
for other purposes as required by law. These pledged assets primarily consisted
of securities available-for-sale and securities held-to-maturity.
The average Securities Sold Under Agreements to Repurchase was $441 million in
1996, and $347 million in 1995. The maximum amount of outstanding agreements at
any month-end during 1996 was $592 million. The average Securities Purchased
Under Agreements to Resell was $5 million in 1996, and $8 million in 1995. The
maximum amount of outstanding agreements at any month-end during 1996 was $20
million. It is Old Kent's policy to take possession of securities purchased
under agreements to resell.
NOTE 4. SECURITIES AVAILABLE-FOR-SALE
The following summarizes amortized cost and market values of securities
available-for-sale at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 (in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 $1,910,367 $ 1,242 $16,411 $1,895,198
========== ======= ======= ==========
December 31, 1995 (in thousands)
- -----------------------------------------
U.S. Treasury and federal agency
securities $1,304,855 $10,503 $ 2,930 $1,312,428
Collateralized mortgage obligations:
U.S. Government issued 710,255 5,252 9,678 705,829
Privately issued 4,539 29 40 4,528
Mortgage-backed pass-through securities 162,494 1,709 269 163,934
Other securities 58,374 606 - 58,980
---------- ------- ------- ----------
Total $2,240,517 $18,099 $12,917 $2,245,699
========== ======= ======= ==========
</TABLE>
S-44
<PAGE> 46
In accordance with the Financial Accounting Standards Board's Special Report "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities," on December 1, 1995 the Corporation transferred
certain securities classified as "held-to-maturity" to its "available-for-sale"
portfolio and certain securities classified as "available-for-sale" to its
"held-to-maturity" portfolio. At the date of transfer, the securities
transferred to "available-for-sale" had an aggregate amortized cost of $1.2
billion and an aggregate unrealized gain of approximately $1.1 million. The
securities transferred to "held-to-maturity" had an aggregate amortized cost of
$44.8 million and an aggregate unrealized loss of $.6 million. The decision to
make this transfer was based on a one-time reassessment of the appropriateness
of the classification of all securities held at the date of transfer.
The amortized cost and market values of securities available-for-sale at
December 31, 1996, are shown below by their contractual maturity. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay the obligation with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
December 31, 1996 (in thousands) Cost Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury and federal agency securities:
Due in one year or less $ 353,752 $ 353,201
Due after one year through five years 526,222 526,067
Due after five years through ten years 287,801 280,914
Due after ten years - -
---------- ----------
Total U.S. Treasury and federal agency securities 1,167,775 1,160,182
Collateralized mortgage obligations and other
mortgage-backed securities 681,298 673,722
Other securities 61,294 61,294
---------- ----------
Total $1,910,367 $1,895,198
========== ==========
</TABLE>
S-45
<PAGE> 47
NOTE 5. SECURITIES HELD-TO-MATURITY
The following summarizes amortized cost and market values of securities
held-to-maturity at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 (in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
State and political subdivision securities 156,859 4,730 1,098 160,491
-------- ------- ------ --------
Total $909,330 $ 8,937 $6,675 $911,592
======== ======= ====== ========
December 31, 1995 (in thousands)
- -------------------------------------------
Collateralized mortgage obligations:
U.S. Government issued $456,758 $ 2,963 $5,306 $454,415
Privately issued 95,843 227 390 95,680
Mortgage-backed pass-through securities 127,729 2,939 236 130,432
State and political subdivision securities 190,612 6,031 879 195,764
-------- ------- ------ --------
Total $870,942 $12,160 $6,811 $876,291
======== ======= ====== ========
</TABLE>
As reflected in the consolidated statements of cash flows, during the first
quarter of 1996, the Corporation sold $860 thousand of securities
held-to-maturity. These securities were acquired in a business combination and
sold due to a post-combination determination that they did not conform to Old
Kent's investment policy.
The amortized cost and market values of securities held-to-maturity at December
31, 1996, are shown below by their contractual maturity. Expected maturities may
differ from contractual maturities because issuers may have the right to call or
prepay the obligation with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
December 31, 1996 (in thousands) Cost Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury and federal agency securities:
Due in one year or less $ 2,113 $ 2,112
Due after one year through five years 4,003 4,012
-------- --------
Total U.S. Treasury and federal agency securities 6,116 6,124
-------- --------
State and Political subdivision securities:
Due in one year or less 21,979 22,373
Due after one year through five years 76,802 78,886
Due after five years through ten years 35,662 36,380
Due after ten years 22,416 22,852
-------- --------
Total state and political subdivision securities 156,859 160,491
Collateralized mortgage obligations and other
mortgage-backed securities 746,355 744,977
-------- --------
Total $909,330 $911,592
======== ========
</TABLE>
S-46
<PAGE> 48
NOTE 6. LOANS AND NONPERFORMING ASSETS
The following summarizes loans:
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $2,205,837 $2,008,582
Real estate -- Commercial 1,719,699 1,627,154
Real estate -- Construction 428,001 267,363
Real estate -- Residential mortgages 859,318 832,214
Real estate -- Consumer home equity 728,530 623,659
Consumer 1,636,719 1,551,828
Credit card loans 317,554 323,592
Lease financing 201,398 196,160
---------- ----------
Total Loans $8,097,056 $7,430,552
========== ==========
</TABLE>
Loans made by Old Kent to its directors and executive officers, including their
family members and associated entities, aggregated $62 million and $108 million
at December 31, 1996 and 1995, respectively. During 1996, new loans and other
additions amounted to $89 million and repayments and other reductions were $135
million. These loans were made in the ordinary course of business under normal
credit terms, including interest rate and collateralization and do not represent
more than a normal risk of collection.
The table below summarizes impaired loans and other nonperforming assets:
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans:
Nonaccrual loans $39,950 $40,173
Restructured loans 2,832 3,075
------- -------
Total impaired loans 42,782 43,248
Other real estate owned 7,097 11,287
------- -------
Total nonperforming assets $49,879 $54,535
======= =======
</TABLE>
Loans past due 90 days or more, for which interest income continues to be
recognized, totalled $36.8 million and $29.0 million at December 31, 1996 and
1995, respectively. Gross interest income that would have been recorded in 1996
for nonaccrual and restructured loans as of December 31, 1996, assuming interest
had been accrued throughout the year in accordance with original terms, was $3.3
million. The comparable total for 1995 was $4.0 million. The amount of interest
included in income on these loans was $.9 million and $2.0 million in 1996 and
1995, respectively. During the years 1996 and 1995, impaired loans averaged
$44.4 million and $47.6 million, respectively. At December 31, 1996, there was
no specific valuation allowance associated with impaired loans.
Additionally, at December 31, 1996, the Corporation's management has identified
loans totalling approximately $12 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 December 31, 1996, other
circumstances caused management to seriously doubt the ability of the borrowers
to continue to remain in compliance with existing loan repayment terms.
Although Old Kent has a diversified loan portfolio, a substantial natural
geographic concentration of credit risk exists within the Corporation's defined
customer market areas. These geographic market
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<PAGE> 49
NOTE 6. LOANS AND NONPERFORMING ASSETS (CONTINUED)
areas are the State of Michigan, the greater Grand Rapids, Michigan area, and
the Chicago, Illinois metropolitan and suburban markets. There are no
significant concentrations of credit where customers' ability to honor loan
terms is dependent upon a single economic sector.
NOTE 7. ALLOWANCE FOR CREDIT LOSSES
The following summarizes the changes in the allowance for credit losses:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $174,248 $167,253 $145,323
Additions:
Provision charged to operations 35,236 21,666 22,465
Business acquisitions and loan purchases 41 438 9,236
-------- -------- --------
Total additions 35,277 22,104 31,701
-------- -------- --------
Deductions:
Credit losses (56,466) (26,087) (21,221)
Less recoveries 14,049 12,678 11,450
-------- -------- --------
Net credit losses (42,417) (13,409) (9,771)
Loan sales (1,180) (1,700) -
-------- -------- --------
Total deductions (43,597) (15,109) (9,771)
-------- -------- --------
Balance at end of year $165,928 $174,248 $167,253
======== ======== ========
</TABLE>
NOTE 8. LEASEHOLD IMPROVEMENTS, PREMISES AND EQUIPMENT
The following summarizes leasehold improvements, premises and equipment:
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 28,477 $ 28,970
Land improvements 6,570 6,157
Buildings and improvements 167,906 165,963
Leasehold improvements 18,439 24,688
Furniture and equipment 135,083 119,060
-------- --------
356,475 344,838
Less accumulated depreciation and amortization 182,559 170,935
-------- --------
Net leasehold improvements, premises and equipment $173,916 $173,903
======== ========
</TABLE>
NOTE 9. OTHER ASSETS
Other assets, as shown on the consolidated balance sheets, includes the
following intangible assets (net of accumulated amortization):
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $84,318 $73,951
Core deposit intangibles 14,557 20,830
------- -------
Total $98,875 $94,781
======= =======
</TABLE>
S-48
<PAGE> 50
The Corporation's capitalized mortgage servicing rights were $96.1 million (net
of valuation allowance of $4.5 million) and $53.1 million (net of valuation
allowance of $4.8 million) as of December 31, 1996 and 1995, respectively. At
December 31, 1996, the fair value of capitalized mortgage servicing rights
accounted for under SFAS No. 122 was $114.4 million, and was $62.9 million at
December 31, 1995.
NOTE 10. OTHER BORROWED FUNDS
The following summarizes other borrowed funds:
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Bank notes $ 445,000 $ 575,000
Securities sold under agreements to repurchase 441,734 381,925
Treasury tax and loan demand notes 111,123 83,163
Federal funds purchased 40,765 154,761
Other borrowed funds 197,245 112,768
---------- ----------
Total other borrowed funds $1,235,867 $1,307,617
========== ==========
</TABLE>
Of the $445 million bank notes outstanding at December 31, 1996, $335 million
mature during 1997 at interest rates ranging from 5.12% to 7.5%; $110 million
mature during 1998 at interest rates ranging from 6.875% to 7.15%.
NOTE 11. PREFERRED STOCK
At December 31, 1996 and 1995, there were 25,000,000 shares of preferred stock
authorized but not issued. At December 31, 1996 and 1995, 3,000,000 of these
shares were designated Series A Preferred Stock and 500,000 were designated
Series B Preferred Stock. On January 20, 1997, 1,000,000 shares were designated
Series C Preferred Stock.
On December 31, 1996, the Corporation had outstanding 27,177,837 Series B
Preferred Stock Purchase Rights ("Series B Rights"). Series B Rights were
originally issued in 1989 as a dividend to holders of the Corporation's common
stock at the rate of one right for each share of common stock outstanding. As a
result of a three-for-two stock split and two 5% stock dividends, each share of
the Corporation's common stock carried .6047 of a Series B Right at December 31,
1996. Each full Series B Right entitled the holder to buy 1/100 of a share of
Series B Preferred Stock at an exercise price of $80.00. On January 20, 1997,
subsequent to the date of these financial statements, the Board of Directors of
Old Kent authorized the redemption of Series B Rights at $.01 per right
($.006047 per share of common stock) as of February 14, 1997. Series B Rights
were replaced by a distribution of one Series C Preferred Stock Purchase Right
("Series C Rights") for each share of common stock, to shareholders of record on
February 14, 1997, under a Series C Preferred Stock Purchase Rights Plan adopted
by the Board on January 20, 1997. Under this plan, each Series C Right entitles
the holder to buy 1/100 of a share of Series C Preferred Stock at an exercise
price of $160.00. The exercise price and the number of shares of Series C
Preferred Stock issuable upon the exercise of the Rights are subject to
adjustment in certain cases to prevent dilution. Series C Rights are attached to
and evidenced by common stock certificates and are not transferable apart from
the common stock until the occurrence of certain events set forth in a Rights
Agreement under which Series C Rights are issued. Series C Rights do not have
any voting rights. Series C Rights are redeemable at the option of the
Corporation, at a price of $.01 per Series C Right, prior to the time any person
or group acquires beneficial ownership of 15% or more of the then outstanding
common stock, commences a tender offer for 15% or more of the then outstanding
common stock, or is declared by the board of directors to be an "adverse person"
under the
S-49
<PAGE> 51
NOTE 11. PREFERRED STOCK (CONTINUED)
plan. Series C Rights expire on February 13, 2007. So long as the Rights are not
separately transferable, the Corporation will issue one Right (subject to
possible future adjustment) with each new share of common stock issued. If the
Series C Preferred Stock Purchase Rights Plan had been in effect at December 31,
1996, and the Series B Rights had then been redeemed, there would have been
44,944,321 Series C Rights outstanding at that date, and there would have been
no Series B Rights outstanding at that date.
NOTE 12. COMMON STOCK
During the years 1996 and 1995, the Corporation has issued shares in payment of
stock dividends as follows:
<TABLE>
<CAPTION>
Amount of Number of Payment Record Declaration
Year Stock Dividend Shares Issued Date Date Date
- -------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1996 5 percent 2,229,606 July 25 June 25 June 17
1995 5 percent 2,157,241 August 15 July 19 June 19
</TABLE>
All per share amounts included in this report have been retroactively adjusted
to reflect the effects of the stock dividends.
On June 17, 1996, the Board of Directors of the Corporation authorized the
repurchase of up to 2.5 million shares of Old Kent Common Stock which would be
reserved for later reissue in connection with future stock dividends, employee
benefit plans and other corporate purposes. The directors also authorized the
repurchase of Old Kent Common Stock intended for use in the acquisition of
Seaway Financial Corporation. The following table lists the number of shares
repurchased and reserved with the intent of future reissuance at December 31,
1996.
<TABLE>
<CAPTION>
Old Kent Common Stock repurchased and reserved for future reissuance at December 31, Number of
1996 (in thousands) shares
- -------------------------------------------------------------------------------------------------
<S> <C>
Reserved for possible future stock dividends and other corporate purposes 1,370
Reserved for use in connection with acquisition of Seaway Financial Corporation 1,002
Reserved for future reissuance for dividend reinvestment and employee stock plans 450
-----
Total 2,822
=====
</TABLE>
Shares reserved, as shown above, include approximately 2.5 million shares
repurchased by the Corporation since authorization of the programs in June,
1996.
NOTE 13. STOCK-BASED COMPENSATION
Old Kent has stock option plans under which options may be granted to certain
officers and employees at not less than the market price of Old Kent's common
stock on the date of grant. The options granted are exercisable immediately and
expire within ten years of the date of grant, subject to certain cancellation
provisions relating to employment. At December 31, 1996, a total of 1,665,832
shares were reserved for options, including 548,837 shares available for future
option grants under incentive plans.
S-50
<PAGE> 52
The following table summarizes stock option transactions for the last three
years.
<TABLE>
<CAPTION>
(adjusted for stock splits and dividends)
-------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ---------
Weighted Weighted
No. of Average No. of Average No. of
Shares Exer. Price Shares Exer. Price Shares
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year 1,084,973 $ 21.69 1,204,589 $ 21.26 957,645
Options granted 146,449 37.14 228,303 28.78 259,312
Pre-acquisition options issued by
FNB - - - - 170,368
Options exercised (219,198) (15.23) (337,335) (24.69) (178,503)
Options forfeited (31,599) (16.13) (10,584) (30.02) (4,233)
--------- --------- --------- --------- ---------
Options outstanding at end of year 980,625 $ 25.62 1,084,973 $ 21.69 1,204,589
========= ========= ========= ========= =========
Weighted average estimated fair
value of options granted $ 7.32 $ 5.29
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted average assumptions
were used to estimate the fair value of options granted in 1996 and 1995: a
dividend yield of 3.3% for each year; an expected average life of five years for
each year; expected volatility of 17.6% for each year; and risk-free interest
rates of 6.6% for 1996 and 5.9% for 1995.
Options outstanding were all exercisable at December 31, 1996 as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Remaining
Exercise price Lowest Highest Number of Exercise Contractual
per share: Price Price Options Price Life (years)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $25 $12.23 $24.40 428,870 $ 17.30 3.7
Over $25 $28.68 $37.14 551,755 $ 32.08 8.1
-------
All options $12.23 $37.14 980,625 $ 25.62 6.2
</TABLE>
The Corporation accounts for it option plans under the provision of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), under which no compensation cost has been recognized in the accompanying
consolidated statements of income. The table below displays pro forma amounts
for net income and net income per common share which reflects the effects of
additional compensation cost for 1996 and 1995 option grants as if they had been
recognized under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123).
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Net Net Income Net
Income per Share Income Net Income
(in millions) (in millions) per Share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As Reported $158.7 $3.39 $141.8 $2.96
Pro forma $158.0 $3.37 $141.0 $2.94
</TABLE>
Old Kent also has restricted stock plans under which certain officers and
employees may be awarded restricted stock. The plans provide for the issuance of
a maximum of 1,230,701 authorized but
S-51
<PAGE> 53
NOTE 13. STOCK-BASED COMPENSATION (CONTINUED)
previously unissued shares of Old Kent's common stock, subject to certain
antidilution adjustments, as defined in the plans. Shares issued pursuant to the
plans are restricted as to sale or transfer for a period of up to five years and
are forfeitable (subject to certain exceptions) upon termination of employment,
but provide the recipients with all other rights and benefits of ownership.
During 1996, 1995, and 1994, Old Kent issued 71,326 shares, 54,684 shares and
40,936 shares of its common stock with total market values of $2,656,000,
$1,705,000 and $1,252,000, respectively, which are being amortized ratably to
expense over the period of restriction. At December 31, 1996, there were 150,912
shares reserved for future restricted stock plan awards.
Old Kent also has a deferred stock compensation plan under which key employees
may be awarded shares of stock as deferred compensation to be received at a
specified later date, which may be up to five years after the date of the award.
The plan provides for the issuance of a maximum of 331,000 authorized but
previously unissued shares of Old Kent's common stock. Shares awarded under the
plan would not be issued until the end of the deferral period, unless there is a
change of control of the Corporation, in which case the shares would be issued
to a trust where they are to be held and distributed at the end of the deferral
period. Employees who receive awards under this plan will receive additional
compensation equal to the dividends which would have been paid on the shares
awarded if they were outstanding during the deferral period. During 1996, 1995
and 1994, Old Kent awarded 18,138 shares, 20,171 shares and 24,062 shares of its
common stock valued at $674,000, $629,000 and $737,000 respectively at their
award dates, as deferred compensation which are ratably charged to expense from
the date of award to the end of the deferral period based on current market
value. At December 31, 1996, there were 220,134 shares reserved for future
deferred stock compensation plan awards.
NOTE 14. OTHER INCOME AND OTHER EXPENSE
Other income, as shown on the consolidated statements of income, includes the
following:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transaction processing fees $16,078 $16,127 $12,318
Retail insurance premiums 7,832 456 -
Credit life insurance premiums 4,565 4,137 3,404
Safe deposit box rental income 2,031 1,774 1,998
Trading account gains 2,253 2,222 1,602
Gains on sales of assets 5,086 542 1,113
Other revenues 13,233 8,218 8,107
------- ------- -------
Total other income $51,078 $33,476 $28,542
======= ======= =======
</TABLE>
S-52
<PAGE> 54
Other expense, as shown on the consolidated statements of income, includes the
following:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Professional services $ 13,430 $ 10,607 $ 9,122
Postage and courier charges 12,305 10,495 9,498
Taxes other than income taxes 11,795 10,655 9,960
Telephone and telecommunication 11,431 9,183 7,480
Stationery and supplies 7,600 8,605 8,828
Other expenses 70,277 60,140 54,225
-------- -------- -------
Total other expenses $126,838 $109,685 $99,113
======== ======== =======
</TABLE>
Operating results for 1995 includes restructuring charges totalling $18.2
million. The charges primarily consisted of employee severance costs for
approximately 350 employees, and various charges related to abandonments of
physical facilities. Recognition of these charges had the effect of reducing net
income per common share by approximately $.25 for 1995. At December 31, 1996,
unexpended reserves for these restructuring costs totalled $5.7 million. The
table below summarizes activity in these reserve accounts since December 31,
1995.
<TABLE>
<CAPTION>
Reserve For:
---------------------------------------
Employee Facilities Other
(Dollars in thousands) Severance Abandonment Costs
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 6,094 $4,572 $ 586
Amounts charged to the reserve pursuant to the
restructuring plans for the year ended
December 31, 1996 (4,668) (335) (586)
------- ------ -----
Balance, December 31, 1996 $ 1,426 $4,237 $ 0
======= ====== =====
</TABLE>
Securities transactions for available-for-sale and held-to-maturity securities,
as shown on the consolidated statements of income, includes gross gains and
gross losses as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross gains on sales of securities $ 11,151 $ 12,245 $10,206
Gross losses on sales of securities (11,023) (11,824) (9,193)
-------- -------- -------
Securities transactions $ 128 $ 421 $ 1,013
======== ======== =======
Income tax expense applicable to securities
transactions $ (45) $ (131) $ (240)
======== ======== =======
</TABLE>
NOTE 15. EMPLOYEE BENEFITS
The Corporation provides pension benefits to substantially all of its employees
under the terms of the "Old Kent Retirement Income Plan." Old Kent also provides
its key executives with pension benefits under the provisions of the "Old Kent
Executive Retirement Income Plan." The following table sets
S-53
<PAGE> 55
NOTE 15. EMPLOYEE BENEFITS (CONTINUED)
forth the funded status of the pension plans and the amounts included in Old
Kent's consolidated balance sheets.
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $74,923 and $70,315 $ 76,460 $ 71,523
========= =========
Projected benefit obligation for service rendered to date (131,246) (119,070)
Plan assets at fair value 102,376 102,395
--------- ---------
Plan assets less than projected benefit obligation (28,870) (16,675)
Unrecognized net actuarial loss 32,514 31,426
Unrecognized prior service cost
being recognized over 19 years 4,929 4,183
Unrecognized net transition assets being recognized over 15
to 19 years (14,023) (15,762)
--------- ---------
(Accrued) prepaid pension cost $ (5,450) $ 3,172
========= =========
</TABLE>
Net pension expense included the following components:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 7,850 $ 7,371 $ 5,730
Interest cost on projected benefit obligation 9,565 9,509 7,091
Actual (return) loss on plan assets (10,243) (19,793) 800
Net amortization and deferral 1,853 10,547 (11,285)
Loss from curtailment and settlement - 621 -
-------- -------- -------
Net periodic pension expense $ 9,025 $ 8,255 $ 2,336
======== ======== =======
</TABLE>
The following assumptions were used in determining the actuarial present value
of the projected benefit obligations as of December 31 for each of the following
years:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.75% 8.00%
Rate of increase in future compensation levels 4.70% 4.70% 4.90%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
</TABLE>
During 1995, the Corporation recorded a loss from curtailment and settlement of
pension obligations which resulted from the Corporation's reengineering
activities. This loss was classified as a restructuring charge in the
accompanying consolidated income statement.
Eligible employees may elect to participate in Old Kent's retirement savings
plans whereby the Company contributes a 50% matching contribution for each
amount contributed by participating employees, within limits as defined in the
plans. The cost of these retirement savings plans was $3,637,000, $2,975,000 and
$2,903,000 for 1996, 1995 and 1994, respectively.
S-54
<PAGE> 56
The Corporation provides post-retirement benefits other than pensions for a
small group of employees who were entitled to such benefits under plans of
predecessor banking organizations acquired by Old Kent. These benefits primarily
consist of health care and life insurance. The costs of these benefits are not
material and are recognized in the financial statements during the employees'
years of service.
NOTE 16. TAXES ON INCOME
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $81,934 $77,482 $77,061
Deferred benefit (1,913) (4,683) (8,443)
------- ------- -------
Total provision $80,021 $72,799 $68,618
======= ======= =======
</TABLE>
The preceding table excludes tax expense (benefit) of ($7.1 million) and $23.1
million, for 1996 and 1995, respectively, related to the market value
adjustments on investment securities available-for-sale, which is recorded
directly in shareholders' equity.
Income tax expense differs from that computed at the federal statutory rate as
follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at 35% statutory rate $83,553 $75,114 $71,996
Tax effect of:
Tax-exempt interest (4,009) (5,019) (5,551)
Amortization of goodwill 2,225 2,640 1,766
Impact of statutory rate increase on deferred balances - (124) -
Other, net (1,748) 188 407
------- ------- -------
Income tax expense $80,021 $72,799 $68,618
======= ======= =======
Effective tax rate 33.5% 33.9% 33.4%
======= ======= =======
</TABLE>
S-55
<PAGE> 57
NOTE 16. TAXES ON INCOME (CONTINUED)
Components of the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $59,951 $60,763
Deferred compensation 12,236 11,191
Accrued expenses 7,694 7,730
Unrealized loss on securities available-for-sale 5,309 -
Other 8,402 5,390
------- -------
Total deferred tax assets 93,592 85,074
Valuation allowance - -
------- -------
Deferred tax assets 93,592 85,074
------- -------
Deferred tax liabilities:
Mortgage servicing rights 16,375 8,856
Business combinations 2,347 4,518
Prepaid pension 1,739 3,713
Depreciation 1,595 2,427
Accretion 1,454 3,488
Unrealized gain on securities available-for-sale - 1,815
Other 3,511 2,723
------- -------
Deferred tax liabilities 27,021 27,540
------- -------
Net deferred tax assets $66,571 $57,534
======= =======
</TABLE>
NOTE 17. COMMITMENTS AND CONTINGENCIES
Certain facilities and equipment are leased under noncancelable operating lease
agreements which expire at various dates through the year 2014. The aggregate
minimum rental commitments are as follows:
<TABLE>
<CAPTION>
Year ending December 31 (in thousands) Premises Equipment Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997................................................ $ 7,138 $3,036 $10,174
1998................................................ 6,252 2,212 8,464
1999................................................ 5,249 482 5,731
2000................................................ 3,058 242 3,300
2001................................................ 1,822 - 1,822
Thereafter.......................................... 5,430 - 5,430
------- ------ -------
Total minimal payments.............................. $28,949 $5,972 $34,921
======= ====== =======
</TABLE>
Rental expense charged to operations in 1996, 1995, and 1994, amounted to
approximately $11,706,000, $11,835,000, and $11,037,000, respectively, including
amounts paid under short-term cancelable leases. Certain leases contain
provisions for renewal and purchase options, and require payment of property
taxes, insurance and related expenses.
Included as a reduction of Old Kent's occupancy expense is building rental
income of approximately $3,222,000, $3,761,000, and $4,076,000, for 1996, 1995,
and 1994, respectively.
S-56
<PAGE> 58
At December 31, 1996, Old Kent and its subsidiaries were parties, both as
plaintiff and as defendant, to a number of lawsuits which arose in the ordinary
course of business. In the opinion of management, after consultation with the
Corporation's counsel, the ultimate resolution of these matters will not have a
material effect on the Corporation's consolidated financial position and results
of operations.
NOTE 18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Old Kent utilizes various derivative financial instruments in the normal course
of business both as part of its risk management strategy and as a means to meet
customer needs. The activities which currently employ financial derivatives are
interest rate risk management, corporate banking, mortgage banking, and foreign
exchange operations. Old Kent also enters into commitments to extend credit and
letters of credit in connection with its lending activities.
Interest Rate Risk Management
The Corporation's asset/liability management focuses on limiting the volatility
of both earnings and the value of capital that can result from changes in market
interest rates. Interest rate risk exists to the extent that interest-earning
assets and interest-bearing liabilities have different maturity or repricing
characteristics. The Corporation's traditional banking operations result in an
asset-sensitive position, where assets reprice more rapidly than liabilities.
This asset-sensitive profile has been moderated through the strategic use of the
investment portfolio. Interest rate swap contracts are also used as a means to
manage interest rate risk.
Interest rate swap contracts involve the exchange of interest payments at
specified intervals between two parties without the exchange of any underlying
principal. Notional amounts are used in such contracts to calculate interest
payments due to each counterparty and do not represent credit exposure. Old Kent
pays a floating rate and receives a fixed rate for the majority of its swaps,
which are hedges related to Prime rate-based loans and certain fixed rate
liabilities. Old Kent pays a fixed rate and receives a floating rate on swaps
that hedge certain floating rate liabilities.
Old Kent's credit risk in these contracts relates to the failure of a
counterparty to pay according to the contractual terms of the swap agreement.
The Corporation controls the credit risk of its interest rate swap agreements
through credit approvals, risk control limits and ongoing monitoring procedures.
Credit exposure is represented by the fair value of interest rate swaps with a
positive fair value, adjusted for accrued interest.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Notional Credit Notional Credit
December 31 (in thousands) Amount Exposure Amount Exposure
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap Categories:
Receive fixed/pay floating $386,314 $4,156 $410,524 $10,591
Receive floating/pay fixed 75,000 - 115,000 -
-------- ------ -------- -------
$461,314 $4,156 $525,524 $10,591
======== ====== ======== =======
</TABLE>
Corporate Banking
Old Kent entered into interest rate cap and floor agreements during 1995 with a
corporate client to assist them in managing their business risks. The
Corporation mitigated its exposure to risk in this contract by entering into
offsetting positions with an authorized counterparty. The credit risk from such
S-57
<PAGE> 59
NOTE 18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
agreements represents the possibility of a counterparty not paying according to
the terms of the contract. This credit risk is controlled through credit
approvals, risk control limits, and ongoing monitoring procedures. Credit
exposure is represented by the fair value of interest rate caps and floors with
a positive fair value.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Notional Credit Notional Credit
December 31 (in thousands) Amount Exposure Amount Exposure
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate caps sold $20,000 $27 $20,000 $ 42
Interest rate caps bought 20,000 - 20,000 -
Interest rate floors sold 20,000 77 20,000 330
Interest rate floors bought 20,000 - 20,000 -
</TABLE>
Mortgage Banking
The Corporation uses both forward sales and option contracts to protect the
value of residential mortgage loans that are being underwritten for future sale
to investors in the secondary market. Adverse market interest rate changes,
between the time that a customer receives a rate-lock commitment and when the
fully-funded mortgage loan is sold to an investor, can erode the value of that
mortgage. Therefore, Old Kent enters into forward sales contracts and purchases
exchange-traded option contracts to mitigate the interest rate risk associated
with the origination and sale of mortgage loans. Old Kent accepts credit risk in
forward sales contracts to the extent of nonperformance by a counterparty, in
which case Old Kent would be compelled to sell the mortgages to another party at
the current market price. The credit exposure of forward sales contracts and
options represents the aggregate value of contracts with a positive fair value.
<TABLE>
<CAPTION>
1996 1995
----------------------- --------------------------
Contractual Credit Contractual Credit
December 31 (in thousands) Amount Exposure Amount Exposure
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage forward sales $598,000 $2,316 $236,385 $ 7
Mortgage & treasury options 110,500 13 68,100 11
</TABLE>
Old Kent began utilizing interest rate floors in 1995 to hedge the Corporation's
risk to decreases in the value of its mortgage servicing rights that could
result from falling mortgage rates and increased mortgage prepayments. The
credit risk inherent in these transactions relates to the possibility of a
counterparty not paying according to the terms of the contract. The Corporation
controls the credit risk of its interest rate floor agreements through credit
approvals, risk control limits and ongoing monitoring procedures. The credit
exposure is represented by the aggregate value of interest rate floors with a
positive fair value.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Notional Credit Notional Credit
December 31 (in thousands) Amount Exposure Amount Exposure
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate floors $168,000 $423 $143,000 $2,309
</TABLE>
S-58
<PAGE> 60
Foreign Exchange Contracts
Old Kent enters into foreign exchange forward contracts to purchase or sell
foreign currencies at a future date at a predetermined exchange rate. These
contracts are used to assist customers with international transactions based
upon foreign denominated currencies. The Corporation manages its exposure to
foreign currency fluctuations by entering into offsetting contracts with
authorized counterparties, usually foreign banks. The credit risk inherent in
these transactions relates to the possibility of failure by a counterparty to
fulfill its purchase or delivery responsibility, whereby Old Kent would execute
the transaction with another counterparty at the prevailing currency valuation,
which may be different than the value in the original contract. The credit
exposure of Old Kent's foreign exchange contracts represents the aggregate value
of contracts with a positive fair value. The extension of foreign exchange
credit facilities to counterparties follows the same approval process as other
credit facilities. The majority of Old Kent's foreign exchange contracts relate
to major currencies such as Canadian Dollars, Pounds Sterling, Deutschemarks,
Japanese Yen, Italian Lira, and French Francs.
<TABLE>
<CAPTION>
1996 1995
----------------------- --------------------------
Contractual Credit Contractual Credit
December 31 (in thousands) Amount Exposure Amount Exposure
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange forward contracts $29,975 $490 $34,072 $386
</TABLE>
Commitments
Commitments to extend credit are agreements to lend cash to a customer as long
as there is no breach of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. The majority of Old Kent's loan commitments have
maturities that are less than one year and reflect the prevailing market rates
at the time of the commitment. 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 amount of collateral obtained, if deemed
necessary by Old Kent, upon extension of credit is based upon management's
credit evaluation of the counterparty. Standby and commercial letters of credit
are Old Kent's conditional commitments to guarantee the performance of a
customer to another party. The Corporation's exposure to credit loss in the
event of nonperformance by the other party is represented by the contractual
amount of those instruments. Old Kent uses the same credit underwriting policies
in making commitments and issuing letters of credit as it does for its other
lending activities.
<TABLE>
<CAPTION>
Contractual Amount at December 31 (in millions) 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $3,875 $3,556
Standby and commercial letters of credit 427 401
</TABLE>
NOTE 19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), the
following methods and assumptions were used to estimate the fair value of each
significant class of financial instrument, as defined by SFAS No. 107, for which
it is practicable to estimate that value.
The estimated fair values of financial instruments, as shown below, are not
intended to reflect the estimated liquidation or market value of the Corporation
taken as a whole. The disclosed fair value estimates are limited to Old Kent's
significant financial instruments. These include financial instruments
recognized as assets and liabilities on and off the consolidated balance sheet.
The estimated
S-59
<PAGE> 61
NOTE 19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
fair values shown below do not include any value for assets and liabilities
which are not financial instruments as defined by SFAS No. 107, such as the
value of real property, the value of "core deposit intangibles", the value of
mortgage servicing rights, nor the value of anticipated future business.
The estimated fair value amounts were determined using available market
information, current pricing information applicable to Old Kent and various
valuation methodologies. Where market quotations were not available for
financial instruments, considerable management judgment was involved in the
determination of estimated fair values. Therefore, the estimated fair value of
financial instruments shown below may not be representative of the amounts at
which they could be exchanged in a current or future transaction. Due to the
inherent uncertainties of expected cash flows of financial instruments, the use
of alternate valuation assumptions and methods could have a significant effect
on the derived estimated fair value amounts.
Cash and cash equivalents, interest receivable and interest payable
For these short-term instruments, the carrying amount was deemed to be a
reasonable estimate of fair value.
Interest-earning deposits
The estimated fair value of these holdings was calculated by discounting the
expected future cash flows using rates applicable to similar instruments with
the same remaining maturity.
Trading account securities, securities available-for-sale and securities
held-to-maturity
The estimated fair values were based upon quoted market or dealer prices.
Net loans and mortgages held-for-sale
Generally, the fair value of loans was estimated by discounting the expected
future cash flows using current interest rates at which similar loans would be
made to borrowers with similar credit ratings and remaining maturities. For
certain variable rate loans that reprice frequently and loans held-for-sale, the
estimated fair value is equal to the carrying value.
Deposit liabilities
The fair value of fixed-maturity time deposits was estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
of demand and savings deposits is the amount payable on demand at the reporting
date.
Other borrowed funds
For all instruments except bank notes, the carrying amount was deemed to be a
reasonable estimate of fair value. The estimated fair value of bank notes was
calculated by discounting the expected future cash flows using rates applicable
to similar instruments of comparable maturity.
S-60
<PAGE> 62
Subordinated Debt
The fair value of subordinated debt was based on quoted market prices.
Off-balance-sheet financial instruments
The carrying value of Old Kent's interest rate contracts represents accrued
interest as reflected in the consolidated balance sheets. The estimated fair
value of interest rate contracts was based upon dealer or third-party quotations
for the amount which might be realized from a transfer, sale or termination of
such agreements. The fair value of Old Kent's commitments to extend credit, its
outstanding letters of credit, foreign exchange contracts and option contracts
are insignificant.
The following summarizes the carrying value and estimated fair value of
financial instruments.
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
Carrying Estimated Carrying Estimated
December 31 (in thousands) Value Fair Value Value Fair Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 637,797 $ 637,797 $ 577,056 $ 577,056
Interest-earning deposits 803 802 175,413 175,479
Trading account securities 19,009 19,009 11,699 11,699
Securities available-for-sale 1,895,198 1,895,198 2,245,699 2,245,699
Securities held-to-maturity 909,330 911,592 870,942 876,291
Mortgages held-for-sale 589,245 589,245 270,126 270,126
Net loans 7,931,128 8,164,247 7,256,304 7,539,353
Interest receivable 87,328 87,328 92,384 92,384
Financial Liabilities:
Non-interest-bearing deposits $1,580,960 $1,580,960 $1,506,149 $1,506,149
Interest-bearing deposits -- no
maturities 2,935,632 2,935,632 3,074,771 3,074,771
Interest-bearing deposits -- fixed
maturities 5,563,555 5,596,868 4,776,446 4,825,195
Other borrowed funds 1,235,867 1,238,288 1,307,617 1,314,058
Interest payable 66,376 66,376 66,770 66,770
Subordinated debt 100,000 96,920 100,000 101,920
Interest Rate Contracts Relating To:
Assets 752 4,843 300 8,645
Liabilities (341) (469) (175) 794
</TABLE>
S-61
<PAGE> 63
NOTE 20. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The condensed financial information of the parent company, Old Kent Financial
Corporation, is summarized as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 8,149 $ 8,603
Interest-earning deposits and other securities 115,462 191,741
Leasehold improvements, premises and equipment 7,667 6,513
Investment in and advances to subsidiaries 992,236 929,958
Other assets 41,167 42,429
---------- ----------
Total Assets $1,164,681 $1,179,244
========== ==========
Liabilities and Shareholders' Equity:
Subordinated debt $ 100,000 $ 100,000
Accrued expenses and other liabilities 70,924 63,308
---------- ----------
Total liabilities 170,924 163,308
Shareholders' equity 993,757 1,015,936
---------- ----------
Total Liabilities and Shareholders' Equity $1,164,681 $1,179,244
========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 89,925 $106,300 $ 98,119
Service fees from subsidiaries 56,032 54,982 50,707
Interest and other 10,705 9,833 5,693
-------- -------- --------
Total income 156,662 171,115 154,519
-------- -------- --------
Expenses:
Interest 8,634 2,570 279
Salaries and benefits 43,102 37,350 33,340
Occupancy 4,551 4,467 4,093
Equipment 6,838 9,244 9,263
Other 28,058 42,458 24,653
-------- -------- --------
Total expenses 91,183 96,089 71,628
-------- -------- --------
Income before income taxes and equity in undistributed
net income of subsidiaries 65,479 75,026 82,891
Income tax benefit 10,044 9,141 4,673
-------- -------- --------
Income before equity in undistributed net income of
subsidiaries 75,523 84,167 87,564
Equity in undistributed net income of subsidiaries 83,178 57,647 49,520
-------- -------- --------
Net Income $158,701 $141,814 $137,084
======== ======== ========
</TABLE>
S-62
<PAGE> 64
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 158,701 $ 141,814 $ 137,084
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income of
subsidiaries (83,178) (57,647) (49,520)
Depreciation, amortization and accretion 9,193 11,301 8,891
Net gains on sales of assets (199) (1,420) (342)
Net change in other assets (2,376) (1,505) 604
Net change in other liabilities 12,413 15,083 12,044
--------- --------- ---------
Net cash provided by operating activities 94,554 107,626 108,761
--------- --------- ---------
Cash flows from investing activities:
Net change in interest-earning assets 76,249 (138,473) 56,276
Net change in investment in and
advances to subsidiaries 16,658 (4,208) (41,711)
Purchases of leasehold improvements,
premises & equipment, net (3,361) (1,834) (1,656)
--------- --------- ---------
Net cash provided by (used for) investing
activities 89,546 (144,515) 12,909
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt obligations (61) (57) (52)
Issuance of subordinated debt - 100,000 -
Proceeds from common stock issuances 10,421 8,110 5,473
Repurchases of common stock (135,792) (20,805) (70,720)
Dividends paid to shareholders (59,122) (55,334) (49,869)
--------- --------- ---------
Net cash (used for) provided by financing
activities (184,554) 31,914 (115,168)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents (454) (4,975) 6,502
Cash and cash equivalents at beginning of year 8,603 13,578 7,076
--------- --------- ---------
Cash and cash equivalents at end of year $ 8,149 $ 8,603 $ 13,578
========= ========= =========
</TABLE>
Federal and state banking laws and regulations place certain restrictions on the
amount of dividends and loans a bank may make to its parent company. As of
January 1997, the subsidiary banks may distribute to the parent company, in
addition to their 1997 net income, approximately $142 million in dividends
without written approval from bank regulatory agencies. The remaining net assets
of subsidiary banks, approximating $827 million at December 31, 1996, are
unavailable for transfer to the parent company.
NOTE 21. RISK-BASED CAPITAL
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by federal and other 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 material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and its subsidiary banks must meet specific
capital guidelines that involve quantitative measures of the Corporation and its
subsidiary banks assets, liabilities, and certain off-balance-sheet-items as
calculated under regulatory accounting practices. The Corporation's capital
amounts and
S-63
<PAGE> 65
NOTE 21. RISK BASED CAPITAL (CONTINUED)
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 Corporation to maintain minimum amounts and ratios of Core (Tier 1)
capital, Total capital and Leverage ratios. Management believes, as of December
31, 1996, that the Corporation and its subsidiary banks meet all capital
adequacy requirements to which it is subject.
As of March 31, 1996, the most recent notification from the Federal Reserve
Board of Chicago categorized the Corporation and its subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Corporation and its subsidiary banks must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Corporation's or its
subsidiary banks' categories.
The following summarizes the Corporation's, and its subsidiary banks' regulatory
capital ratios at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
To Be "Well
Capitalized"
Under
For Capital Prompt
Adequacy Corrective
Actual Purposes Action Provisions
--------------- --------------- -----------------
(dollars in millions) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated $1,127 11.75% $768 8.00% $959 10.00%
Old Kent Bank (Michigan) 841 10.53 639 8.00 799 10.00
Old Kent Bank (Illinois) 183 13.18 111 8.00 139 10.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated 907 9.45 384 4.00 576 6.00
Old Kent Bank (Michigan) 741 9.28 319 4.00 479 6.00
Old Kent Bank (Illinois) 166 11.92 56 4.00 83 6.00
Leverage Ratio (to Average Assets)
Consolidated 908 7.31 372 3.00 620 5.00
Old Kent Bank (Michigan) 741 7.19 412 4.00 515 5.00
Old Kent Bank (Illinois) 166 7.89 84 4.00 105 5.00
As of December 31, 1995:
Total Capital (to Risk Weighted Assets)
Consolidated $1,122 13.01% $690 8.00% $863 10.00%
Old Kent Bank (Michigan) 760 10.51 579 8.00 724 10.00
Old Kent Bank (Illinois) 173 13.90 99 8.00 124 10.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated 914 10.59 345 4.00 518 6.00
Old Kent Bank (Michigan) 669 9.25 289 4.00 434 6.00
Old Kent Bank (Illinois) 157 12.64 50 4.00 75 6.00
Leverage Ratio (to Average Assets)
Consolidated 923 7.88 351 3.00 585 5.00
Old Kent Bank (Michigan) 669 7.00 382 4.00 478 5.00
Old Kent Bank (Illinois) 157 7.69 82 4.00 102 5.00
</TABLE>
S-64
<PAGE> 66
Board of Directors and Senior Management
BOARD OF DIRECTORS
John M. Bissell
Chairman of the Board, BISSELL Inc.
(manufacturer of homecare, healthcare
and graphics products)
John D. Boyles
Attorney-at-Law,
Verspoor, Waalkes, Lalley, Slotsema &
Talen, P.C.
Dick DeVos
President, Amway Corporation
(manufacturer of home and personal care
products)
James P. Hackett
President and Chief Executive Officer,
Steelcase Inc.
(manufacturer of office systems)
Erina Hanka
President, Suspa Inc.
(manufacturer of gas cylinders for industry)
Earl D. Holton
President, Meijer, Inc.
(food and general merchandise retailer)
Michael J. Jandernoa
Chairman and Chief Executive Officer,
Perrigo Company
(manufacturer of store-brand health
and personal care products)
John P. Keller
President, Keller Group, Inc.
(a diversified manufacturer)
William U. Parfet
Co-Chairman, MPI Research
(research laboratory conducting risk
assessment toxicology studies)
Percy A. Pierre, Ph.D.
Professor of Electrical Engineering,
Michigan State University
Robert L. Sadler
Vice Chairman of the Corporation and
President and Chief Executive Officer
of Old Kent Bank (Michigan)
Peter F. Secchia
Chairman, Universal Forest
Products, Inc.
(manufacturer and distributor of
building supplies)
B.P. Sherwood, III
Vice Chairman and Treasurer of the
Corporation and Chairman of
Old Kent Bank (Illinois)
David J. Wagner
Chairman, President and Chief
Executive Officer of the Corporation
and Chairman of Old Kent Bank
(Michigan)
CORPORATE EXECUTIVE OFFICERS
David J. Wagner
Chairman, President and Chief
Executive Officer
Robert L. Sadler
Vice Chairman
B.P. Sherwood, III
Vice Chairman and Treasurer
Kevin T. Kabat
Senior Executive Vice President
Robert H. Warrington
Senior Executive Vice President
Ralph W. Garlick
Executive Vice President
James A. Hubbard
Executive Vice President
David L. Kerstein
Executive Vice President,
Retail Banking and Marketing
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration
Steven D. Crandall
Senior Vice President,
Human Resources
Richard L. Haug
Senior Vice President,
General Auditor
Michael J. Whalen
Senior Vice President,
Senior Credit Officer
Mary E. Tuuk
Vice President and Secretary,
Legal Coordinator
MANAGEMENT COMMITTEE
David J. Wagner
Chairman, President and
Chief Executive Officer,
Old Kent Financial Corporation;
Chairman,
Old Kent Bank (Michigan)
Robert L. Sadler
Vice Chairman,
Old Kent Financial Corporation;
President and Chief Executive
Officer,
Old Kent Bank (Michigan)
B.P. Sherwood, III
Vice Chairman and Treasurer,
Old Kent Financial Corporation;
Chairman,
Old Kent Bank (Illinois)
Kevin T. Kabat
Senior Executive Vice President,
Old Kent Financial Corporation;
Chief Operating Officer,
Old Kent Bank (Michigan)
Robert H. Warrington
Senior Executive Vice President,
Old Kent Financial Corporation;
President,
Old Kent Mortgage Company
David A. Dams
Executive Vice President,
Corporate Banking,
Old Kent Bank (Michigan)
E. Philip Farley
Executive Vice President,
Investment Management and Trust
Services,
Old Kent Bank (Michigan) &
(Illinois)
Ralph W. Garlick
Executive Vice President,
Old Kent Financial Corporation;
President,
Old Kent Bank -- East
James A. Hubbard
Executive Vice President,
Old Kent Financial Corporation;
President and Chief Executive
Officer,
Old Kent Bank (Illinois)
David L. Kerstein
Executive Vice President,
Retail Banking and Marketing,
Old Kent Financial Corporation
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration,
Old Kent Financial Corporation
Steven D. Crandall
Senior Vice President,
Human Resources,
Old Kent Financial Corporation
Larry S. Magnesen
Senior Vice President,
Retail Administration,
Old Kent Bank (Michigan)
Michael J. Whalen
Senior Vice President,
Senior Credit Officer,
Old Kent Financial Corporation
<PAGE> 67
(LOGO)
Printed on Recycled Paper
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
as of December 31, 1996
(excluding inactive subsidiaries and low income housing investments)
1. Old Kent Bank
Jurisdiction of Incorporation: Michigan
2. Old Kent Bank
Jurisdiction of Incorporation: Illinois
3. Hartger & Willard Mortgage Associates, Inc.
Jurisdiction of Incorporation: Michigan
4. Vanguard Financial Service Corp.
Jurisdiction of Incorporation: Illinois
5. Old Kent Brokerage Services, Inc.
Jurisdiction of Incorporation: Michigan
6. Old Kent Mortgage Services, Inc.
Jurisdiction of Incorporation: Michigan
7. Old Kent Mortgage Company
Jurisdiction of Incorporation: Michigan
8. Guyot-Hicks-Anderson & Associates, Inc.
Jurisdiction of Incorporation: Michigan
9. Old Kent Financial Life Insurance Company
Jurisdiction of Incorporation: Arizona
10. National Pacific Mortgage Company
Jurisdiction of Incorporation: California
11. Republic Mortgage Corp.
Jurisdiction of Incorporation: Utah
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated January 20, 1997, included in this Form 10-K,
into the Corporation's previously filed registration statements, as amended,
for Old Kent Financial Corporation's offering of senior and subordinated debt
(Registration No. 33-46205), Incentive Stock Option Plan of 1982 (Registration
No. 2-78222), Old Kent Thrift Plan (Registration No. 33-17309, No. 33-39740 and
No. 333-03461), Executive Stock Option Plan of 1986 (Registration No. 33-4723),
Stock Option Incentive Plan of 1992 (Registration No. 33-49896), Employee Stock
Purchase Plan (Registration No. 33-57334), Dividend Reinvestment Plan
(Registration No. 33-33058), Executive Thrift Plan (Registration No. 33-52883
and No. 333-20383), Deferred Compensation Plan (Registration No. 33-52885 and
No. 333-20381), 1994 Stock Option Plan for EdgeMark Optionholders
(Registration No. 33-53391), Directors' Deferred Compensation Plan
(Registration No. 33-56519), Incentive Stock Option Plan for Employee
Optionholders of First National Bank Corp. (Registration No. 33-57527), and
Stock Option Plan for Nonemployee Director Optionholders of First National Bank
Corp. (Registration No. 33-57529), common stock to shareholders of Seaway
Financial Corporation (Registration No. 333-12969), and Old Kent Bank's
offering of asset-backed securities (Registration No. 33-94578).
/s/ Arthur Andersen LLP
Chicago, Illinois
March 7, 1997
<PAGE> 1
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 23, 1997 /s/ John M. Bissell
------------------------
John M. Bissell
<PAGE> 2
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 24, 1997 /s/ John D. Boyles
----------------------
John D. Boyles
<PAGE> 3
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 22, 1997 /s/ Richard M. DeVos, Jr.
--------------------------
Richard M. DeVos, Jr.
<PAGE> 4
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 20, 1997 /s/ James P. Hackett
-------------------------
James P. Hackett
<PAGE> 5
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 22, 1997 /s/ Erina Hanka
----------------------
Erina Hanka
<PAGE> 6
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 22, 1997 /s/ Earl D. Holton
------------------------
Earl D. Holton
<PAGE> 7
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 12, 1997 /s/ Michael J. Jandernoa
--------------------------
Michael J. Jandernoa
<PAGE> 8
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 22, 1997 /s/ John P. Keller
----------------------
John P. Keller
<PAGE> 9
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 22, 1997 /s/ William U. Parfet
--------------------------
William U. Parfet
<PAGE> 10
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 27, 1997 /s/ Perry A. Pierre
-----------------------
Perry A. Pierre, Ph.D.
<PAGE> 11
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: February 3, 1997 /s/ Robert L. Sadler
------------------------
Robert L. Sadler
<PAGE> 12
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 20, 1997 /s/ Peter F. Secchia
-----------------------
Peter F. Secchia
<PAGE> 13
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 29, 1997 /s/ B.P. Sherwood, III
-------------------------
B.P. Sherwood, III
<PAGE> 14
EXHIBIT 24
LIMITED POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint DAVID J. WAGNER; ALBERT T. POTAS; B. P. SHERWOOD, III; and MARY
E. TUUK, or any of them, his or her attorneys or attorney to execute in his or
her name an Annual Report of Old Kent Financial Corporation on Form 10-K for
its fiscal year ended December 31, 1996, and any amendments to that report, and
to file it with the Securities and Exchange Commission. Each attorney shall
have power and authority to do and perform in the name and on behalf of the
undersigned, in any and all capacities, every act to be done in the premises as
fully and to all intents and purposes as the undersigned could do in person,
and the undersigned hereby ratifies and approves the acts of such attorneys.
Dated: January 29, 1997 /s/ David J. Wagner
-----------------------
David J. Wagner
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES AS
OF DECEMBER 31, 1996, AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE
YEAR THEN ENDED, AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 530,444
<INT-BEARING-DEPOSITS> 803
<FED-FUNDS-SOLD> 107,353
<TRADING-ASSETS> 19,009
<INVESTMENTS-HELD-FOR-SALE> 1,895,198
<INVESTMENTS-CARRYING> 909,330
<INVESTMENTS-MARKET> 911,592
<LOANS> 8,686,301
<ALLOWANCE> 165,928
<TOTAL-ASSETS> 12,646,828
<DEPOSITS> 10,080,147
<SHORT-TERM> 1,124,948
<LIABILITIES-OTHER> 237,057
<LONG-TERM> 210,919
0
0
<COMMON> 44,944
<OTHER-SE> 948,813
<TOTAL-LIABILITIES-AND-EQUITY> 12,646,828
<INTEREST-LOAN> 744,356
<INTEREST-INVEST> 196,476
<INTEREST-OTHER> 6,475
<INTEREST-TOTAL> 947,307
<INTEREST-DEPOSIT> 382,583
<INTEREST-EXPENSE> 453,019
<INTEREST-INCOME-NET> 494,288
<LOAN-LOSSES> 35,236
<SECURITIES-GAINS> 128
<EXPENSE-OTHER> 432,494
<INCOME-PRETAX> 238,722
<INCOME-PRE-EXTRAORDINARY> 238,722
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,701
<EPS-PRIMARY> 3.39
<EPS-DILUTED> 3.39
<YIELD-ACTUAL> 4.41
<LOANS-NON> 39,950
<LOANS-PAST> 36,817
<LOANS-TROUBLED> 2,832
<LOANS-PROBLEM> 79,599
<ALLOWANCE-OPEN> 174,248
<CHARGE-OFFS> 56,466
<RECOVERIES> 14,049
<ALLOWANCE-CLOSE> 165,928
<ALLOWANCE-DOMESTIC> 165,928
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
OLD KENT THRIFT PLAN
PERFORMANCE TABLE
The following table illustrates the comparative investment
performance of the five investment options offered under the Old Kent Thrift
Plan. The performance of some or all of these options also serves as a measure
for determining benefits under the Executive Thrift Plan and the Deferred
Compensation Plan. The table shows the value of a hypothetical initial
investment of $1,000 invested on December 31, 1993, and its value as of
December 31 of each subsequent year shown below:
<TABLE>
<CAPTION>
Initial
Investment 12/31/94 12/31/95 12/31/96
on 12/31/93 Value Value Value
<S> <C> <C> <C> <C>
Savings Fund $1,000 $1,041 $1,102 $1,163
Diversified Equity $1,000 $1,020 $1,306 $1,533
Fund
Short Term Bond $1,000 $1,014 $1,126 $1,178
Fund
Old Kent Common $1,000 $1,051 $1,555 $1,958
Stock Fund
Balanced Fund $1,000 $ 998 $1,205 $1,324
</TABLE>
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.
