<PAGE>
[FRONT COVER]
[PICTURE OF MEN AND WOMEN CLAPPING HANDS]
OLD KENT
OLD KENT FINANCIAL CORPORATION 1998 Report to Shareholders
<PAGE>
TABLE OF CONTENTS
Corporate Information 1
Earnings and Dividends Per Share 2
Financial Highlights 3
Chairman's Letter to Shareholders 4
A Few Words From Our Vice Chairmen 8
Retail Banking 10
Corporate Banking 12
Community Banking 14
Investment and Insurance Services 16
Mortgage Banking 18
Old Kent Affiliates 20
Five Year Condensed Summary 22
Condensed Financial Review 24
Report of Independent Public Accountants 31
Board of Directors and Senior Management 32
Shareholder Information 34
<PAGE>
DESCRIPTION OF OLD KENT Old Kent Financial Corporation is a financial
services company with total assets of $16.6 billion as of December 31,
1998.
With headquarters in Grand Rapids, Michigan, Old Kent is in the business of
providing financial services through five major lines of business and its
banking and non-banking subsidiaries. Old Kent's principal markets for
financial services are the communities within Michigan, Illinois and
Indiana where its 236 full-service banking offices are located. It also
operates 143 mortgage lending offices in 32 states across the country.
As of December 31, 1998, Old Kent had 7,457 employees (on a full-time
equivalent basis). Old Kent is an equal opportunity employer, and its
affirmative action programs comply with applicable federal laws and
executive orders.
CORPORATE MISSION Old Kent's mission is to increase shareholder value as a
high performing independent financial services company providing diverse
customer groups easy access to an extensive array of quality financial
products and services.
PHILOSOPHY OF THE CORPORATION Our corporate mission and culture statements
reflect our long-standing commitment to the shareholders, customers,
employees and communities we serve. Key tenets of the Corporation's
business philosophy are to maximize the value of shareholders' investments,
to meet the changing needs of customers with quality products and services,
to provide a meaningful and challenging work environment for our employees,
<PAGE>
and to serve our communities as a good citizen.
CORPORATE CULTURE The management of Old Kent has the ultimate
responsibility for achieving industry-leading performance with profit
levels which assure the quality of the balance sheet and the continuation
of the Corporation for the benefit of our shareholders, our employees and
the communities we serve.
Old Kent's purpose is to ensure customer satisfaction by understanding and
fulfilling the needs of our customer groups resulting in long-term,
multiple-service client relationships. This customer-driven purpose
requires that we become the best provider of consumer and business
financial services by earning and retaining the respect, confidence and
loyalty of its customers and by serving them so that they will benefit from
their association with Old Kent.
1
<PAGE>
[EARNINGS AND DIVIDENDS PER SHARE GRAPH]
(1958-1998)
In 1998, Old Kent achieved record earnings and increased dividends for the
40th consecutive year. Earnings increased 15.4% over 1997 to $2.02<F**>
per share, representing an 18.7% return on equity (excluding one-time
charges related to Old Kent's merger with First Evergreen Corporation).
Shareholders also enjoyed a 25.6% total return on their investment.
<F*> Adjusted for stock dividends and stock splits. Results prior to 1972
are Old Kent Bank and Trust Company.
<F**> Proforma results for 1998 "excluding merger charges" have been
adjusted to exclude the effects of $19.7 million of one time
after-tax, merger charges related to the October 1, 1998
acquisition of First Evergreen Corporation. This acquisition was
accounted for as a pooling-of-interests. Actual earnings per
share including these charges were $1.84 for 1998.
2
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<F**> PROFORMA
1998 EXCLUDING PERCENT
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1998 MERGER CHARGES 1996 CHANGE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $198.8 $218.5 $198.4 10.1%
PER COMMON SHARE:<F*>
Basic earnings $1.86 $2.04 $1.76 15.9
Diluted earnings 1.84 2.02 1.75 15.4
Cash dividends .722 .641 12.6
Book value at year-end 10.86 11.12 (2.3)
Market price at year-end 46.50 37.74 23.2
Shares outstanding at year-end (in thousands) 104,499 110,244 (5.2)
- -------------------------------------------------------------------------------------------------------------
AT YEAR END:
Total assets $16,589 $15,707 5.6%
Loans 8,884 9,145 (2.9)
Interest-earning assets 15,080 14,483 4.1
Core deposits 11,487 11,082 3.7
Total deposits 12,939 11,929 8.5
Shareholders' equity 1,135 1,226 (7.4)
Full-time equivalent staff 7,457 6,926 7.6
- -------------------------------------------------------------------------------------------------------------
<PAGE>
RATIOS:
Return on average assets 1.26% 1.38% 1.30%
Return on average equity 17.08 18.70 16.30
Net interest margin 4.11 4.22
Equity assets at year-end 6.84 7.80
<FN>
<F*> Per share data is shown adjusted for stock dividends and a stock
split.
<F**> Proforma results for 1998 "excluding merger charges" have been
adjusted to exclude the effects of $19.7 million of one time
after-tax, merger charges related to the October 1, 1998
acquisition of First Evergreen Corporation. This acquisition was
accounted for as a pooling-of-interests. "Percent change" is a
comparison of 1997 to 1998 excluding merger charges, for those
items in italics.
</FN>
</TABLE>
3
<PAGE>
TO OUR SHAREHOLDERS
Old Kent enjoyed another very successful year in 1998, including the
completion of its 40th consecutive year of increased earnings and
dividends. This is a record surpassed by only three other publicly
traded companies in the country. Earnings increased 15.4% over the
prior year to $2.02 per share, representing an 18.7% return on equity
on an operating basis (excluding one-time charges related to Old
Kent's merger with First Evergreen Corporation). Most importantly, our
shareholders enjoyed an excellent 25.6% total return on their
investment in 1998, compared to an average total return of 8.3% in our
industry.<F*>
On December 2, I was especially proud to ring the opening bell of the
New York Stock Exchange (NYSE) as Old Kent switched from The Nasdaq
Stock Market to the NYSE. This move was designed to improve the
visibility and liquidity of our stock and to ensure our shareholders
the best possible price, whether they are buying or selling Old Kent
shares.
Our absolute commitment to delivering superior shareholder value
drives a disciplined and focused approach to our business. In an
industry of ongoing consolidation, rapidly evolving customer needs,
and shrinking margins, Old Kent has consistently improved operating
results. New strategic alliances, customer service enhancements, and
our intense commitment to build a sales and performance-based culture
<PAGE>
are all designed to position Old Kent as a leader in the financial
services industry.
<F*>Average total return KBW 50 - Keefe, Bruyette & Woods, Inc.'s
index of 50 large bank holding companies.
4
<PAGE>
[PICTURE OF DAVID J. WAGNER IN FRONT OF THE NEW YORK STOCK EXCHANGE]
In the following pages, you'll hear from our leadership team and learn
how our line of business structure is driving improved results through
greater accountability and a strong performance-oriented culture,
including an expanded pay for performance incentive compensation plan
across the Corporation.
In a strategic move designed to broaden our market share and leverage
our existing Chicago franchise, we acquired First Evergreen
Corporation on October 1, 1998. First Evergreen was an Illinois bank
holding company with eight banking offices in Cook County, Illinois
and assets of $1.9 billion. With this acquisition, we doubled our
market share in the Chicago region and became the eighth largest bank
in that area. Old Kent Mortgage Company also continued to grow
rapidly, adding 39 new retail offices during 1998. With 143 offices
located throughout the United States, Old Kent Mortgage Company is now
ranked among the country's top 20 largest mortgage loan originators.
The continued growth of fee income and our consistent focus on
maintaining quality assets contributed to an excellent return on
shareholders' equity that averaged 18.7% on an operating basis during
1998. In 1999, Old Kent intends to continue to utilize balance sheet
management strategies to improve operating leverage, margins and
earnings.
<PAGE>
We've rapidly expanded our ATM distribution network and have
introduced new electronic banking services for both retail and
corporate customers. We're also expanding our Internet and telephone
banking services to make banking even easier.
5
<PAGE>
[PICTURE OF BUILDING WITH BANNERS OF OLD KENT LISTING ON NYSE]
We depend on technology to enhance products and services and to help
contain delivery costs. Therefore, we have paid considerable attention
to the challenges surrounding the Year 2000 (Y2K) issue. We are
prepared for a smooth transition into the next millennium because
we've aggressively addressed system conversions and developed thorough
testing and contingency plans.
Old Kent continues to be recognized for its commitment to improving
the business climate and quality of life in the communities it serves.
We continue to be an SBA Preferred Lender in both Michigan and
Illinois, and exceeded last year's dollar volume of SBA loans by
nearly 17%. In addition, home loans through the Federal Housing
Administration (FHA) and Veterans Administration (VA) allowed us to
help 27,180 home owners.
In 1998, Old Kent was again recognized within the industry for
outstanding performance and achievement. For the second consecutive
year, we received an A+ rating by THE DETROIT NEWS in their Michigan
Corporate Report Card which rates companies on their commitment to
shareholders. Likewise, the strength and stability of the markets we
serve is reflected by Grand Rapids being named in the top ten of
1998's Best Cities for Business by FORTUNE magazine.
Images used with permission of NYSE.
6
<PAGE>
- - Old Kent's total return to shareholders (price appreciation
inclusive of dividend reinvestment) was 25.6% in 1998, compared to
8.3% for the KBW 50.
- - During 1998, Old Kent shareholders were paid 12.6% more in per
share cash dividends than in 1997.
- - Old Kent received an A+ rating for the second year in a row on THE
DETROIT NEWS' Michigan Corporate Report Card and was also named to
its honor roll of Michigan's top seven publicly traded firms.
- - With the acquisition of First Evergreen Corporation in October,
Old Kent doubled its deposit market share in the Chicago area and
became the eighth largest bank in that market.
- - In July, Old Kent Financial Corporation paid a 5% stock dividend
to shareholders of record on June 26, 1998.
- - On December 2, 1998, Old Kent began trading its common stock on
the New York Stock Exchange under the symbol "OK". [OK LISTED
NYSE SYMBOL]
It is always difficult to say good-bye to colleagues who have
contributed so much to Old Kent's success. Earl D. Holton announced
his retirement from the Board of Directors effective in early 1999. I
would like to take this opportunity to thank him for his leadership
and loyalty. I would also like to thank E. Philip Farley and Ralph W.
Garlick, Executive Vice Presidents, who announced their retirements in
<PAGE>
1998, for their years of dedicated service. We wish them the best in
their retirements.
We also thank our shareholders for their continued support and our
customers for their loyalty. In addition, we extend our appreciation
to all Old Kent employees throughout the Corporation for their
commitment and service.
I look forward to seeing you at our annual shareholders meeting to be
held on Monday, April 19, 1999, at 10:00 a.m. in the Ambassador
Ballroom at the Amway Grand Plaza Hotel, 187 Monroe NW, directly
southwest of the Old Kent Bank building in Grand Rapids, Michigan.
Sincerely,
/s/ David J. Wagner
David J. Wagner
Chairman
7
<PAGE>
A FEW WORDS FROM OUR VICE CHAIRMEN
MANAGING TO CREATE VALUE Old Kent utilizes a line of business
reporting structure to manage its extensive array of products and
services. Each line of business manager embraces these basic business
principles: RUN IT LIKE YOU OWN IT; KNOW THE NUMBERS; KNOW YOUR
CUSTOMERS; DEVELOP GOOD PEOPLE; AND CONTROL EXPENSES. These guiding
precepts allow for the entrepreneurial flexibility necessary to run a
company in today's dynamic environment. Our major lines of business
include Retail Banking, Corporate Banking, Community Banking,
Investment and Insurance Services, and Mortgage Banking.
The increased accountability inherent in this dynamic organizational
structure enables us to be more responsive to customer needs through
focused product development and process improvements. This further
improves our ability to attract and retain the most profitable
customers, resulting in superior performance. In the next section of
this report, you'll learn more about the key initiatives and revenue
contribution of each of the lines of business.
In addition to the profitable growth of our business lines, Old Kent
will continue to pursue strategic acquisitions. Just as with our 70
previous acquisitions, the objective will be to enhance shareholder
value in the first year following an acquisition.
<PAGE>
[PICTURE OF ROBERT H. WARRINGTON]
"In everything we do, our focus is on profitability and this is far
more important than size. Whether we are discussing line of business
reporting or growth through acquisitions, it is all done for one
reason: TO INCREASE SHAREHOLDER VALUE."
Robert H. Warrington,
Vice Chairman and
Chief Financial Officer
of the Corporation
8
<PAGE>
POSITIONING FOR THE FUTURE We continue to look for ways to
differentiate Old Kent from our competitors and to enhance the value
our customers receive from their banking relationships with us.
Increasingly, customers are seeking greater convenience, simplicity
and access to services. Frankly, customers want banking to be easier.
As a result, Old Kent is increasing its focus on providing customers
with greater convenience.
We're continuing to maximize profitability while enhancing service.
During 1998, we installed over 160 new ATMs, including locations in
shopping centers, convenience stores and gas stations. In addition,
Old Kent now has 16 supermarket banking locations. The expansion of
our state-of-the-art telephone banking system makes banking with Old
Kent more accessible than in the past. These alternative delivery
channels are more convenient for customers and more cost efficient for
Old Kent. Through these and other initiatives like our leading edge
cash management product, Old Kent is making banking easier for both
retail and business customers.
To demonstrate to our customers that we are committed to their
satisfaction, we're introducing new PERFORMANCE GUARANTEES in 1999.
These guarantees will establish performance standards in each line of
business and guarantee accuracy, availability and fast response - or
we'll pay the customer for the inconvenience.
In addition to our PERFORMANCE GUARANTEES, we're investing in our
employees through additional training and development programs that
<PAGE>
are designed to provide them with the necessary skills to bring
greater value to our customers.
[PICTURE OF KEVIN T. KABAT]
"Our entire Corporation is committed to becoming the financial
services company that's consistently making it easier for customers."
Kevin T. Kabat,
Vice Chairman of the
Corporation and President,
Old Kent Bank
9
<PAGE>
RETAIL BANKING
[PICTURE OF BANK TELLER HELPING MAN]
Retail Banking accounted for 32% of the Corporation's revenues
and contributed $62.1 million to its net income in 1998.
<PAGE>
[CONTRIBUTION TO CORPORATION'S NET INCOME PIE CHART = 28%]
Old Kent Retail Banking serves over 800,000 customer households and
businesses through its retail deposit, retail delivery and small
business banking lines. Retail Banking provides a broad array of
products including deposits, loans and investment services. Key
strengths include the diversity of Old Kent's customer base and its
comprehensive distribution system, including over 220 branches, as
well as ATMs, telephone, on line and supermarket banking. From high
net worth business owners to families of modest means, Old Kent
provides the right solution to fit our customers' unique needs.
In 1999, key areas of focus include utilizing information technology
to enhance sales productivity and continued expansion of our product
line and delivery channels.
KEY HIGHLIGHTS
- - In 1998, cross-selling initiatives resulted in a 15% increase in
the average number of retail services per household.
- - A strategic focus on sales management resulted in greater
productivity, including a 43% increase in branch sales per
full-time employee.
- - In 1998, enhanced on line and telephone banking services, 131 new
ATMs and five new supermarket branches were added in metro markets
to make banking with Old Kent even easier.
<PAGE>
- - A new loan by phone program is now generating more than 1,000
loans per month, nearly 15% of total volume.
- - The number of customers using an Old Kent home banking product
increased by 87% over the prior year.
- - The average size of branch-originated loans increased by 39% in
1998. This was a direct result of enhanced products and service,
and an increased focus on home equity lending.
- - Old Kent ranked in the top 2% of all Small Business Administration
(SBA) lenders in the U.S. and maintained its 100% SBA loan
approval rating in Michigan and Illinois.
- - Priority Banking, which delivers a higher service level to our
most profitable retail customers, was successfully introduced in
the Grand Rapids area and will be expanded throughout the system
in 1999.
- - Consumer credit losses were reduced by 35% and loan delinquency by
17% in 1998. These improvements were largely due to new loan
origination techniques and an increased emphasis on recovery.
<PAGE>
[PICTURE OF DAVID SCHNEIDER]
"In today's fast-paced environment, we have to provide both a
traditional branch network and alternative delivery channels such as
the telephone, supermarkets, and home banking. Not only are these
channels more economical for Old Kent, they're more convenient for
many customers."
David Schneider,
Executive Vice President,
Retail Administration
11
<PAGE>
CORPORATE BANKING
[PICTURE OF TWO MEN TALKING ON A CURVED STAIRCASE]
Corporate Banking accounted for 16% of the Corporation's revenues and
contributed $56.0 million to its net income in 1998.
<PAGE>
[CONTRIBUTION TO CORPORATION'S NET INCOME PIE CHART = 26%]
Corporate Banking provides a full array of credit, cash management and
international services to corporate clients. The majority of our
corporate clients are owner-operated, middle market companies with
$5-150 million in annual sales. Our client base is spread across
industries, including manufacturing, wholesaling, distributing,
financial services and retailing, with a focus in real estate. Our
primary goals for 1999 and beyond are to attract, grow and retain
profitable relationships and to continue to improve asset quality.
KEY HIGHLIGHTS
- - Asset quality was strengthened through an enhanced risk rating and
underwriting process.
- - Old Kent ConnectDirect<Trademark>, our new state-of-the-art
electronic banking product, was introduced, giving commercial
clients 24-hour-a-day access to manage their cash. An expanded
client support team makes it easier for clients to fully leverage
this new service.
- - The roll-out of our POSITIVE PAY service helped protect clients
against check fraud. In 1999, we will add new on line features to
this product and begin an aggressive marketing campaign.
- - New strategic alliances with mezzanine lenders and equity
providers now allow Old Kent to target clients who are highly
<PAGE>
leveraged or those that require additional sources of credit to
sustain their growth.
- - An aggressive pay for performance system was implemented to reward
superior performance. This system also ensures that our
historically strong asset quality is maintained and that our
commitment to outstanding client service is never compromised.
- - We restructured the Corporate Banking area in Chicago and
recruited a number of new bankers with local market knowledge and
experience.
- - A new courier service introduced in Detroit makes it easier for
our clients to conduct business with Old Kent. Similar courier
services will be introduced in the Chicago market in 1999.
[PICTURE OF JIM HUBBARD]
"In 1998, we restructured our line of business and launched a
client-focused strategy that will make Old Kent Corporate Banking a
better business partner. We'll achieve that by migrating from being a
single need provider to building a trusted financial advisor
relationship with our clients."
Jim Hubbard,
Senior Executive Vice President,
Corporate Banking
13
<PAGE>
COMMUNITY BANKING
[PICTURE OF WOMAN AND MAN WORKING TOGETHER]
Community Banking accounted for 21% of the Corporation's revenues and
contributed $53.8 million to its net income in 1998.
<PAGE>
[CONTRIBUTION TO CORPORATION'S NET INCOME PIE CHART = 25%]
Community Banking provides the local delivery of a complete range of
financial products and services to customers in smaller communities.
By focusing on the specific needs of their local market, Community
Banks maximize customer satisfaction, market penetration and
profitability. At the end of 1998, Community Banking included 85
branches and 145 ATMs in 13 markets.
In 1999, we will increase market penetration and accelerate revenue
growth through enhanced sales training and new sales management
systems.
KEY HIGHLIGHTS
- - Overall branch productivity improved 41% from 1997 and expenses
were reduced by $1.8 million through the implementation of a new
branch staffing model.
- - 31 off-site ATMs were added in Community Bank markets, a 25%
increase in the number of locations. This reflects our commitment
to making it easier for our customers while improving cost
efficiency for the Corporation.
- - Centralized underwriting for consumer lending improved the quality
of the lending portfolio, reduced application response times, and
resulted in greater efficiency.
<PAGE>
- - Direct (telephone) banking support was introduced throughout the
Community Banks, providing customers 24 hour access to their
accounts.
- - Implementation of a regionalized management system which
incorporates Old Kent's line of business structure resulted in a
more effective mechanism for measuring and improving performance.
[PICTURE OF MICHELLE VAN DYKE]
"In Community Banking, we provide the best of both worlds - a very
accessible delivery system and quality products combined with
experienced, knowledgeable local staff. That creates value and an
added dimension of service for our customers."
Michelle Van Dyke,
Executive Vice President,
Community Banking
15
<PAGE>
INVESTMENT AND INSURANCE SERVICES
[PICTURE OF 2 WOMEN AND A MAN TALKING, WITH ANOTHER WOMAN IN THE
BACKGROUND LISTENING AND ANOTHER MAN WORKING]
Investment management and trust revenue increased nearly 20% over
1997. Total assets under management exceeded $11 billion at year end.
<PAGE>
[CONTRIBUTION TO CORPORATION'S NET INCOME PIE CHART = 9%]
Old Kent Investment and Insurance Services delivers investment and
insurance products through a network which includes traditional trust,
private banking and related subsidiaries.
This network brings customers a broad array of financial products,
including asset management, employee benefits programs, mutual funds,
trust services, private banking, brokerage services and insurance. Our
integrated approach allows for the seamless delivery of these services
and has resulted in increased revenue and client satisfaction.
In 1999, Investment and Insurance Services will emphasize retail
sales, institutional money management and the expansion of customer
direct insurance.
KEY HIGHLIGHTS
- - An aggressive variable compensation program introduced in 1997
continued to provide momentum for 1998 business development. A new
trust administration system increased productivity by 18% and
improved customer response time in 1998.
- - The Kent Funds assets exceeded $6 billion, an increase of over 19%
from 1997. In 1999, The Kent Funds will add two new funds (a large
company growth equity fund and a money market fund for
institutional investors) in order to provide a broader array of
options to specific investment groups.
<PAGE>
- - Lyon Street Asset Management Company expanded its role to include
that of advisor to MoneyWise[REGISTERED], our proprietary asset
allocation product. MoneyWise sales generated nearly $30 million
in new assets during 1998. Within Lyon Street, an institutional
management group was formed to attract corporate, pension,
foundation and government assets.
- - Investment performance remained consistently strong relative to
our peer groups and performance benchmarks for both equity and
fixed income investments. Our investment managers gained increased
exposure through national and regional financial publications and
were widely quoted throughout the year.
- - Institutional trust assets increased by nearly 17% in 1998. We
continue our focus on serving 401(k) and other employee benefit
plans through enhanced communications and investment choices.
- - To support our needs-based consultative sales process, a
comprehensive customer profiling system will be introduced
throughout our line of business during the 2nd quarter of 1999.
- - Old Kent Insurance Group, Inc.'s sales grew 8.4% in 1998 and it
emerged as the fifth largest bank-owned insurance agency as
reported by BUSINESS INSURANCE (7/20/98). Old Kent is also ranked
72nd among national insurance brokers.
- - In 1998, Old Kent Brokerage Services, Inc. was restructured to
expand distribution through Retail and Community Banking.
<PAGE>
- - Revenue from private banking grew 22% in 1998
[PICTURE OF KEN KREI]
"By further penetrating our existing customer base with investment and
insurance products, we are growing revenue substantially while
enhancing customer loyalty and satisfaction. Our strong client
orientation, disciplined investment philosophy and integrated service
delivery bring real value to our clients."
Ken Krei,
Executive Vice President,
Investment and Insurance Services
17
<PAGE>
MORTGAGE BANKING
[PICTURE OF TWO MEN AND ONE WOMAN WORKING AT A DESK WITH A COMPUTER]
Mortgage banking net revenue increased 56% to $147 million during
1998.
<PAGE>
[CONTRIBUTION TO CORPORATION'S NET INCOME PIE CHART = 8%]
Old Kent Mortgage Company provides a wide array of residential
mortgage loan products to borrowers throughout the United States.
During recent years, Old Kent Mortgage Company has grown its retail
and wholesale branch network to 143 offices in 32 states through
corporate acquisitions and opportunistic branch additions. The
nationwide branch network is distributed among four regions which
disperses business and credit risk geographically and empowers
regional management to better meet customer needs.
KEY HIGHLIGHTS
- - Mortgage loan originations increased 97% during 1998 to $13.5
billion and Old Kent Mortgage Company ranked among the top 20
mortgage lenders nationally.
- - Old Kent Mortgage Company continued to expand its nationwide loan
origination network by opening 39 new retail branches in 18
states.
- - Old Kent Mortgage Company currently services a portfolio for
third-party investors of $14 billion, including loans in all 50
states.
- - 1998 was a record year in the mortgage industry for refinancing.
Old Kent Mortgage Company's strong loan replenishment capabilities
positioned the company to recapture 39% of loans which paid off
<PAGE>
from the mortgage servicing portfolio during 1998. New loan
originations were more than three times loan runoff.
- - Automated underwriting was successfully piloted during 1998 and is
currently being installed throughout our loan origination network.
- - During 1998, Old Kent Mortgage Company significantly expanded its
origination capabilities and loan volumes for specialty, second
mortgage and alternative documentation mortgage products.
- - Old Kent Mortgage Company continued to manage its efficiency
levels and earnings using benchmark metrics which link incentive
compensation to business unit profitability.
[PICTURE OF DON BRITTON]
"Increasingly, our growth has been in the areas of retail and
direct-to-consumer business. This has been a key area of emphasis in
1998 and will continue to be an important aspect of our business in
the future. We want to touch customers directly and help them with
their dreams of home ownership."
Don Britton,
President,
Old Kent Mortgage Company
19
<PAGE>
OLD KENT AFFILIATES
[MAP OF MICHIGAN AND PARTS OF ILLINOIS AND INDIANA WITH ALL OF THE OLD
KENT BANKING AFFILIATES]
[MAP OF THE UNITED STATES WITH THE STATES HAVING OLD KENT MORTGAGE
OFFICES SHADED]
As of December 31, 1998, Old Kent Financial Corporation operated 202
full-service banking offices in Michigan, 33 in Illinois and one in
Indiana. Old Kent Mortgage Company originates mortgages nationwide
through 143 mortgage lending offices in 32 states across the country.
To better serve our customers in its broader role as a financial
services company, Old Kent also operated seven non-banking affiliates.
Working together, this financial service network has helped Old Kent
achieve another record-setting year for shareholders.
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BANKING AFFILIATES
OLD KENT BANK Old Kent Bank, N.A. - JONESVILLE (Hillsdale)
Kevin T. Kabat, President Charles W. Maurer, President
Headquartered in Grand Rapids, Michigan
Old Kent Bank - LANSING
MICHIGAN William H. Coultas, President
Old Kent Bank - BIG RAPIDS
John P. Buckley, Jr., President Old Kent Bank - LUDINGTON
John E. Pelizzari, President
Old Kent Bank - CADILLAC
John P. Buckley, Jr., President Old Kent Bank - PETOSKEY
Randy B. Crim, President
Old Kent Bank - CENTRAL (Owosso)
Charles A. Robertson, President Old Kent Bank - ST. JOHNS
Thomas W. Schroeder, President
Old Kent Bank - EAST (Southfield)
Daniel W. Terpsma, President Old Kent Bank - SEAWAY (St. Clair)
Jerry J. Fouts, President
Old Kent Bank - GAYLORD
M. Scot Zimmerman, President Old Kent Bank - SOUTHWEST (Kalamazoo)
John D. Paul, President
Old Kent Bank - GRAND TRAVERSE
(Traverse City) Old Kent Bank - WEST (Grand Haven)
John E. Pelizzari, President Christopher M. McKinney, President
Old Kent Bank - HOLLAND ILLINOIS
Larry L. Koops, President Old Kent Bank - ILLINOIS (Chicago/Elmhurst)
William K. McGowan, President
<PAGE>
NON-BANKING AFFILIATES
Lyon Street Asset Management Company Vanguard Financial Service Corp.
Joseph T. Keating, President Hunter R. Judson, President
Grand Rapids, Michigan Lombard, Illinois
Old Kent Brokerage Services, Inc. CORPORATE HEADQUARTERS
Mark S. Crouch, President
Grand Rapids, Michigan Old Kent Financial Corporation
111 Lyon Street NW
Old Kent Financial Life Insurance Company Grand Rapids, Michigan 49503
William C. Anderson, President
Grand Rapids, Michigan INTERNATIONAL OFFICE
Old Kent Insurance Group, Inc. Old Kent Bank
William C. Anderson, President Grand Cayman Island,
Grand Rapids, Michigan British West Indies
Old Kent Investment Corporation
Patrick C. Dorn, President
Las Vegas, Nevada
Old Kent Mortgage Company
Old Kent Mortgage Services, Inc.
Donald R. Britton, President
Grand Rapids, Michigan
</TABLE>
21
<PAGE>
<TABLE>
FIVE YEAR CONDENSED SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
<F**> PROFORMA
December 31 (DOLLARS IN THOUSANDS, 1998 EXCLUDING
EXCEPT PER SHARE DATA) 1998 MERGER CHARGES 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 587,882 $ 582,708 $ 551,873 $ 536,390 $ 518,505
Provision for credit losses 46,828 $ 43,328 46,977 35,636 21,666 22,465
Net income 198,798 218,476 198,418 179,393 162,044 157,499
Cash dividends 84,983 70,887 65,163 60,594 55,155
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE FOR THE YEAR
Assets $15,833,614 $15,217,901 $14,119,056 $13,518,294 $12,625,208
Deposits 12,161,611 11,966,595 11,428,815 10,975,188 10,507,336
Loans 8,900,637 9,062,384 8,375,277 7,729,041 6,512,549
Total interest-earning assets 14,577,321 14,094,481 13,119,283 12,615,383 11,786,756
Long term debt 200,000 191,787 100,000 12,603 -
Total shareholders' equity 1,163,708 1,217,038 1,179,562 1,125,103 1,033,616
- -------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END
Assets $16,588,858 $15,706,615 $14,556,841 $13,891,172 $13,349,745
Deposits 12,939,418 11,928,907 11,775,994 11,019,312 11,123,954
Loans 8,883,716 9,144,497 8,715,751 7,961,051 7,333,613
Long term debt 200,000 200,000 100,000 100,000 -
Total shareholders' equity 1,135,110 1,225,595 1,180,197 1,189,754 1,053,461
- -------------------------------------------------------------------------------------------------------------------------------
<PAGE>
PER COMMON SHARE (IN DOLLARS)<F*>
Basic earnings per share $1.86 $2.04 $1.76 $1.55 $1.38 $1.34
Diluted earnings per share 1.84 2.02 1.75 1.54 1.37 1.33
Cash dividends .722 .641 .576 .528 .485
Book value at year-end 10.86 11.12 10.54 10.08 8.93
Dividend payout ratio 39.3% 35.8% 36.7% 37.4% 38.5% 36.5%
<FN>
<F*> Share data has been adjusted for stock dividends and splits.
<F**> Proforma results for 1998 "excluding merger charges" have been
adjusted to exclude the effects of $19.7 million of one time after-
tax, merger charges related to the October 1, 1998 acquisition of
First Evergreen Corporation. This acquisition was accounted for as
a pooling-of-interests.
</FN>
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<F**> PROFORMA
December 31 (DOLLARS IN THOUSANDS, 1998 EXCLUDING
EXCEPT PER SHARE DATA) 1998 MERGER CHARGES 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS
Return on average total equity 17.08% 18.70% 16.30% 15.21% 14.40% 15.24%
Return on average assets 1.26 1.38 1.30 1.27 1.20 1.25
Average equity to average assets 7.35 8.00 8.35 8.32 8.19
Yield on average interest-earning assets 8.01 8.22 8.25 8.29 7.55
Cost of average interest-bearing liabilities 4.53 4.68 4.66 4.64 3.56
Average net interest spread 3.48 3.54 3.59 3.65 3.99
Average net interest margin 4.11 4.22 4.29 4.35 4.51
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AT YEAR-END
Equity to assets 6.84% 7.80% 8.11% 8.56% 7.89%
Leverage ratio 6.89 7.72 7.63 8.05 7.44
Risk-based capital ratio - Tier 1 9.30 10.60 10.53 11.68 12.02
Risk-based capital ratio - Tiers 1 & 2 11.40 12.68 12.69 13.97 13.24
- -------------------------------------------------------------------------------------------------------------------------------
CREDIT QUALITY RATIOS
Allowance for credit losses to total loans 1.89% 1.76% 1.94% 2.24% 2.33%
Impaired loans to total loans .67 .62 .50 .56 .83
Non-performing assets to total assets .40 .41 .35 .41 .56
Allowance to impaired loans 280 282 389 397 281
Net charge-offs to average loans .45 .42% .55 .52 .17 .15
<PAGE>
<FN>
<F**> Proforma results for 1998 "excluding merger charges" have been
adjusted to exclude the effects of $19.7 million of one time after-
tax, merger charges related to the October 1, 1998 acquisition of
First Evergreen Corporation. This acquisition was accounted for as
a pooling-of-interests.
</FN>
</TABLE>
23
<PAGE>
[NET INCOME (MILLIONS) GRAPH]
[ONE, FIVE AND TEN YEAR TOTAL RETURNS GRAPH]
CONDENSED FINANCIAL REVIEW
BASIS OF PRESENTATION
Condensed financial statements included in this report do not conform
to financial statement standards under generally accepted accounting
principles, primarily due to the high degree of summarization employed
in their preparation. Audited financial statements, prepared in
conformity with generally accepted accounting principles, appear in
the 1998 Annual Report included with our proxy statement for our 1999
annual meeting.
OVERVIEW
In 1998, Old Kent achieved its fortieth consecutive year of earnings
and dividend growth while also completing the largest acquisition in
its history. First Evergreen Corporation, a $1.9 billion Chicago-based
holding company was acquired October 1, 1998 in a pooling-of-interests
transaction. Prior periods have been restated to reflect the inclusion
of First Evergreen on a comparable basis.
<PAGE>
Diluted operating earnings per share was $2.02<F*> for 1998, or 15.4%
ahead of the $1.75 of diluted per share earnings for 1997. For the
year ended December 31, 1998, operating net income was $218.5<F*>
million, 10% more than net income of $198.4 million for 1997.
Excluding a large one-time gain on sale of the Corporation's credit
card portfolio included in the 1997 results, the 1998 diluted
operating earnings per share of $2.02<F*> represents a 22.4% increase.
The Corporation's operating return on average total equity was
18.7%<F*> in 1998, up from an equity return of 16.3% for 1997. Old
Kent's return on equity has averaged 16.0%<F*> over the past five
years. Old Kent's operating return on average assets was 1.38%<F*> for
1998 compared to 1.30% in 1997, and has averaged 1.28%<F*> for the
last five years.
Old Kent's corporate culture is focused on maximizing shareholder
value. The accompanying graphs compare the performance of Old Kent
Common Stock with the broad-based S&P 500 index and the KBW 50, an
index comprised of 50 large bank holding companies. The total return
as shown on these graphs is measured using both stock price
appreciation and the effect of continuous reinvestment of dividends.
The graph displays the December 31, 1998 value of an initial $100
investment in Old Kent Common Stock made one, five and ten years prior
to the year end 1998 date. The graphs indicate that the total return
on an investment in Old Kent Common Stock surpassed that of the KBW 50
<PAGE>
in all three periods, was essentially the same as that of the S&P 500
in the one year measure, and exceeded the S&P 500 in the five and ten
year period.
<F*> For the purpose of this overview, earnings are computed on an
operating basis and disregard merger related charges. These
earnings are believed to be more comparable with prior years.
During the fourth quarter of 1998, Old Kent recognized $19.7
million of after-tax, merger related charges which had the effect
of reducing diluted earnings per share by $.18. Including the
merger charges: net income for 1998 was $198.8 million; diluted
earnings per share was $1.84; return on average total equity was
17.08%; and return on average assets was 1.26%.
24
<PAGE>
[NON-INTEREST INCOME (MILLIONS) GRAPH]
[NON-INTEREST EXPENSE (MILLIONS) GRAPH]
NET INCOME ANALYSIS
Net interest income increased by $5.2 million, or 1%, to $587.9
million in 1998. The increase is primarily attributable to changes in
the mix of earning assets as discussed below. The net interest margin
for 1998 was 4.11% compared to 4.22% for 1997. The decrease in the net
interest margin was largely related to changes in the mix of earning
assets. During 1998, loans and mortgage loans held-for-sale averaged
61.1% and 12%, respectively, of total interest-earning assets compared
to 64.3% and 6.2% in 1997.
Excluding a special merger related credit loss provision to conform
First Evergreen's credit review process and reserves with those of Old
Kent, the provision for credit losses was $43.3 million in 1998, down
from a provision of $47.0 million in 1997. During 1998, the
Corporation took measures to reduce credit risk by exiting certain
marginal commercial relationships and reducing certain consumer loan
portfolio components having higher credit risk, which management
believed would have had a negative impact on the Corporation's future
profitability absent these actions.
Non-interest income increased by $78.2 million, or 30% over 1997.
Non-interest income represented 36.1% of total revenue in 1998
compared to 30.5% in 1997. Higher revenue from Mortgage Banking and
<PAGE>
Investment and Insurance Services lines of business generated most of
the improvement in non-interest income and reflects management's
continued commitment to the diversification of Old Kent's revenue
sources. During 1998, Old Kent Mortgage Company ("OKMC"), Old Kent's
mortgage banking subsidiary, produced record levels of loan
originations. A favorable interest rate environment and expansion of
the retail loan origination network allowed mortgage production levels
to top $13.5 billion in 1998 compared to $6.9 billion in 1997. At
year-end 1998, OKMC operated over 140 lending offices in 32 states and
serviced $14 billion of residential mortgages for third parties. Old
Kent's Investment and Insurance Services business line also
contributed to the improvement by producing a 16.8% year-over-year
revenue increase as a result of aggressive new business development
efforts coupled with favorable market conditions. ATM fees increased
22.6% to $7.4 million, a direct result of expansion in points of
electronic access; Old Kent installed 162 new ATMs in its markets
during 1998. In addition, deposit account revenues increased 14.2%
from 1997.
Excluding the one-time merger charges, non-interest expenses increased
$51.2 million, or 10.1%, from 1997 to 1998. This increase is primarily
attributable to business growth, particularly the geographic expansion
and business volume of OKMC, as well as aggressive business
development in the Corporation's Investment and Insurance Services
line of business.
25
<PAGE>
[RELATIVE CORE DEPOSIT MIX GRAPH]
BALANCE SHEET ANALYSIS
Total loans decreased 2.9% from 1997 to 1998. Commercial loans and
leases (including commercial real estate loans) were $5.5 billion at
the end of 1998, or 3.4% more than last year. Consumer loans were $2.4
billion at December 31, 1998, a decrease of 10.5% from the preceding
year-end total and the result of specific actions aimed at improving
the credit risk profile and profitability of this loan portfolio.
Residential mortgages decreased 13.7% to $1.0 billion at December 31,
1998 due to amortization and prepayments. Old Kent's strategy is to
sell newly originated residential mortgage loans.
At December 31, 1998, loans represented 59.0 % of total
interest-earning assets, down from 63.1% a year earlier. Held-for-sale
residential mortgage loans totaled nearly $2.3 billion, or 15.0% of
total interest-earning assets at December 31, 1998, nearly double the
preceding year-end total due to OKMC's large production volume.
Securities, which generally earn lower interest rates than loans,
became a proportionally smaller component of total interest-earning
assets. At December 31, 1998, securities and other (non-loan)
interest-earning assets were 25.9% of the total compared to 28.1% one
year earlier. Overall, interest-earning assets averaged $14.6 billion
during 1998, or 3.4% more than 1997.
<PAGE>
Total interest-paying liabilities increased to $13.1 billion at
December 31, 1998. This represented a 6.0% increase since the prior
year-end date. Total core deposits, which consist of demand deposits,
savings and consumer time deposits, grew 3.7% to over $11 billion at
December 31, 1998. Balances in savings deposits grew 19.6% from one
year ago totaling $4.5 billion at December 31, 1998. Demand deposits,
the Corporation's lowest cost funding source, increased to $ 2.1
billion, or 12.9%, from year-end 1997 to year-end 1998.
At December 31, 1998, total shareholders' equity was $1.1 billion
versus $1.2 billion at December 31, 1997. As shown in the accompanying
Condensed Consolidated Statement of Shareholders' Equity, the
Corporation repurchased nearly 6.4 million shares of its common stock
in 1998. Old Kent completed the stock repurchase program authorized in
June 1997 and initiated another such program pursuant to a June 1998
authorization. Shares repurchased under these programs are acquired
ratably on a quarterly basis and are intended for future reissuance
for such purposes as stock dividends, dividend reinvestment and
employee stock plans, business acquisitions and other permissible
corporate purposes. The repurchase of these shares had a beneficial
impact on earnings per share and return on equity for 1998. At
December 31, 1998, Old Kent had remaining authorization to repurchase
approximately 2.6 million shares of its common stock over the ensuing
seven months.
<PAGE>
At December 31, 1998, Old Kent's capital not only surpassed regulatory
minimums, but also exceeded the levels considered to be "well
capitalized" by bank regulatory authorities. The equity to assets
ratio was 6.84% at December 31, 1998 and the aggregate market value of
Old Kent's common stock was $4.9 billion on that same date.
26
<PAGE>
[LOAN DISTRIBUTION PIE CHART -- December 31, 1998 Total - $8.8
Billion]
<TABLE>
<CAPTION>
<S> <C> <C>
1. Commercial 30%
2. Real Estate, Commercial 22%
3. Consumer 15%
4. Real Estate, Consumer Home Equity 12%
5. Real Estate, Residential Mortgages 11%
6. Real Estate, Construction 8%
7. Lease Financing 2%
----
100%
====
</TABLE>
[COMMERCIAL LOANS PIE CHART -- December 31, 1998 Total - $2.8 Billion]
<TABLE>
<CAPTION>
<S> <C> <C>
1. Manufacturing 25%
2. Services 17%
3. Retail 13%
4. Wholesale 12%
5. Contractors & Property Managers 12%
6. Other 7%
7. Leasing 6%
8. Finance 4%
9. Transportation 2%
10. Agriculture 2%
----
100%
====
</TABLE>
CREDIT RISK
One of Old Kent's strengths is its diversified loan portfolio.
Approximately 38% 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,
<PAGE>
home equity loans, and other open and closed end consumer credits.
Loans to commercial borrowers represent approximately 62% 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.
At December 31, 1998, Old Kent's commercial loan and lease portfolio,
excluding real estate related loans, approximated $2.9 billion, or
about 33% 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, 1998 totaled
approximately $2.6 billion, or 29% of total loans. These loans are
classified 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).
As indicated, loans to the various categories of owner-occupied
properties were 47% of commercial real estate and construction loans
and loans for non-owner-occupied properties were 53% of that total.
Non-owner-occupied loans totaled $1.4 billion, or 15% of total loans,
and are distributed over a diverse base of borrowers. The largest
segment within non-owner-occupied loans was multifamily housing
related loans totaling 18% of total commercial real estate and
construction loans.
<PAGE>
At December 31, 1998, Old Kent's allowance for credit losses
represented 1.89% of total loans and was nearly three times greater
than total impaired loans at that date. Management believes that this
allowance is adequate to absorb credit losses inherent in the loan
portfolios and also believes that the Corporation's allowance is among
the strongest in the banking industry based on these ratios.
INTEREST RATE RISK
The acceptance of interest rate risk and its management are challenges
common to financial institutions. Old Kent's Board of Directors and
executive management have adopted various policies intended to measure
and control the volatility of net interest income which may result
from changes in the interest rate environment. Based on modeling
techniques regularly employed to monitor and measure interest rate
risk, Old Kent's management believes that the Corporation's net
interest income would not be materially impacted by upward or downward
movements in prevailing interest rates within anticipated ranges. Old
Kent actively manages prepayment risks associated with mortgage
servicing rights through its significant loan origination and
replenishment capacity, customer retention initiatives, recurring bulk
sales of mortgage servicing rights, and use of financial hedges.
27
<PAGE>
[COMMERCIAL REAL ESTATE AND CONSTRUCTION LOANS PIE CHART -- December
31, 1998 Total - $2.6 Billion]
<TABLE>
<CAPTION>
<S> <C> <C>
1. Owner-Other 19%
2. Housing 18%
3. Owner-Manufacturing 11%
4. Retail Sites 10%
5. Offices 9%
6. Owner-Office Facilities 9%
7. Owner-Retail Sites 8%
8. Other 6%
9. Manufacturing 6%
10. Hotels, Motels, etc. 4%
----
100%
====
</TABLE>
YEAR 2000 READINESS DISCLOSURE
On December 31, 1998, Old Kent's primary computer systems were Year
2000 ready. All remaining systems were 75% ready and are on target for
completion by mid-1999. Management also plans to continue detailed
testing of all systems and to enhance existing contingency plans
throughout the year.
LOOKING AHEAD
Old Kent is progressing toward its goal of becoming a more diversified
financial services organization, utilizing a line of business
management structure. During 1999, Old Kent will further differentiate
itself from competitors and enhance the value of its relationship with
customers and shareholders. The commitment and experience of Old
Kent's management and staff, the strength of its balance sheet, and
<PAGE>
its disciplined philosophy position the Corporation well to meet the
future challenges of the industry.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are based on
management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and
Old Kent itself. Words such as "anticipates," "believes," "estimates,"
"expects," "intends," "is likely," "plans," and similar expressions
are intended to identify such forward-looking statements. Assessments
that Old Kent is Year 2000 "ready" are necessarily statements of
belief, as to the outcome of future events based in part on
information provided by vendors and others, which Old Kent has not
independently verified. These statements are not guarantees of future
performance and involve certain uncertainties and assumptions. Actual
results and outcomes may materially differ from what may be expressed
in such forward-looking statements. Factors that could cause a
difference between an actual outcome and a forward-looking statement
include changes in interest rates; demand; the degree of competition;
changes in laws, regulations, or policy; the outcome of litigation and
contingencies; trends in customer behavior and creditworthiness; the
ability of other companies on which Old Kent relies to make their
computer systems year 2000 compliant; the ability to locate and
convert all relevant computer codes and data; and the vicissitudes of
<PAGE>
the economy. Old Kent undertakes no obligation to update
forward-looking statements as a result of new information.
28
<PAGE>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31 (DOLLARS IN MILLIONS) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 615.9 $ 547.3
Federal funds sold and other short term investments 14.3 129.5
Mortgages held-for-sale 2,262.7 1,271.8
Securities 3,919.5 3,937.3
LOANS:
Commercial loans and leases 5,505.5 5,326.8
Consumer 2,365.7 2,644.5
Residential real estate mortgages 1,012.5 1,173.2
- ----------------------------------------------------------------------------------------------
Total loans 8,883.7 9,144.5
Less allowance for credit losses 167.7 161.0
- ----------------------------------------------------------------------------------------------
Net loans 8,716.0 8,983.5
Premises and equipment, net 221.0 220.6
Other assets 839.5 616.6
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $16,588.9 $15,706.6
- ----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Demand deposits (non-interest-bearing) $ 2,098.4 $ 1,859.0
Consumer time and savings deposits 9,388.7 9,223.3
- ----------------------------------------------------------------------------------------------
<PAGE>
Total core deposits 11,487.1 11,082.3
Negotiable and foreign deposits 1,452.3 846.6
- ----------------------------------------------------------------------------------------------
Total Deposits 12,939.4 11,928.9
Other borrowed funds 2,061.2 2,090.1
Long term debt 200.0 200.0
Other liabilities 253.2 262.0
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 15,453.8 14,481.0
SHAREHOLDERS' EQUITY 1,135.1 1,225.6
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $16,588.9 $15,706.6
- ----------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA<F*>) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $1,156.4 $1,146.5 $1,070.4
Interest expense (568.5) (563.8) (518.6)
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 587.9 582.7 551.8
Provision for credit losses (46.8) (47.0) (35.6)
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 541.1 535.7 516.2
Non-interest income 347.9 276.5 215.6
Non-interest expense (584.2) (507.9) (461.8)
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 304.8 304.3 270.0
Income taxes (106.0) (105.9) (90.6)
- ---------------------------------------------------------------------------------------------------------------------
Net income $198.8 $198.4 $179.4
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings per share $1.86 $1.76 $1.55
Diluted earnings per share 1.84 1.75 1.54
- ---------------------------------------------------------------------------------------------------------------------
<FN>
<F*> Share data has been adjusted for stock dividends and a stock split.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
ACCUMULATED TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
(DOLLARS IN MILLIONS) STOCK SURPLUS EARNINGS INCOME EQUITY
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $105.6 $198.8 $919.9 $ 1.3 $1,225.6
Net income for the year 198.8 198.8
Unrealized gains on securities 19.1 19.1
Cash dividends paid (85.0) (85.0)
Issuances of stock:
Dividend reinvestment and employee stock plans .8 21.3 22.1
Five percent stock dividend paid July 17, 1998 4.5 158.5 (163.2) (0.2)
Common stock repurchased (6.4) (242.4) (248.8)
Other changes 3.5 3.5
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $104.5 $139.7 $870.5 $20.4 $1,135.1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of Old Kent Financial
Corporation (a Michigan corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related statements of income, cash
flows and shareholders' equity for each of the three years in the
period ended December 31, 1998 appearing in the 1998 Annual Report
included with the proxy statement for the annual meeting of the
shareholders, not appearing herein. In our report dated January 14,
1999, also appearing in the 1998 Annual Report, we expressed an
unqualified opinion on those consolidated statements.
In our opinion, the information set forth in the condensed
consolidated financial statements on pages 29 and 30 is fairly stated,
in all material respects, in relation to the consolidated financial
statements from which it has been derived.
/s/ Arthur Andersen LLP
Chicago, Illinois
January 14, 1999
31
<PAGE>
BOARD OF DIRECTORS
RICHARD L. ANTONINI
Chairman, President and Chief Executive Officer,
Foremost Corporation of America
(a specialty property and casualty insurer)
JOHN D. BOYLES
Attorney-at-Law,
Verspoor, Waalkes, Lalley, Slotsema & Talen, P.C.
WILLIAM P. CRAWFORD
President and Chief Executive Officer,
Steelcase Design Partnership
(manufacturer of office systems)
DICK DEVOS
President,
Amway Corporation
(manufacturer of home and personal care products)
WILLIAM G. GONZALEZ
President and Chief Executive Officer,
Spectrum Health
(integrated healthcare network)
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
Vice Chairman,
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)
KEVIN T. KABAT
Vice Chairman of the Corporation,
and President of Old Kent Bank
<PAGE>
FRED P. KELLER
Chairman and Chief Executive Officer,
Cascade Engineering, Inc.
(manufacturer of plastic injection molded
automotive, seating and container products)
JOHN P. KELLER
President,
Keller Group, Inc.
(a diversified manufacturer)
HENDRIK G. MEIJER
Co-Chairman,
Meijer, Inc.
(food and general merchandise retailer)
PERCY A. PIERRE, PH.D.
Professor of Electrical Engineering,
Michigan State University
MARILYN J. SCHLACK
President,
Kalamazoo Valley Community College
PETER F. SECCHIA
Chairman,
Universal Forest Products, Inc.
(manufacturer and distributor of building supplies)
DAVID J. WAGNER
Chairman, President and Chief Executive Officer
of the Corporation, and Chairman and Chief
Executive Officer of Old Kent Bank
MARGARET SELLERS WALKER
Professor of Public Administration,
School of Public and Nonprofit Administration,
Grand Valley State University
ROBERT H. WARRINGTON
Vice Chairman and Chief Financial Officer
of the Corporation, and Chairman and Chief Executive
Officer of Old Kent Mortgage Company
32
<PAGE>
SENIOR MANAGEMENT
SENIOR POLICY COMMITTEE
MARK F. FURLONG<F*>
Executive Vice President,
Old Kent Financial Corporation;
Chief Financial Officer,
Old Kent Bank
JAMES A. HUBBARD<F*>
Senior Executive Vice President,
Corporate Banking,
Old Kent Financial Corporation
KEVIN T. KABAT<F*>
Vice Chairman,
Old Kent Financial Corporation;
President,
Old Kent Bank
KENNETH C. KREI<F*>
Executive Vice President,
Investment and Insurance Services,
Old Kent Bank
DAVID C. SCHNEIDER<F*>
Executive Vice President,
Retail Administration,
Old Kent Financial Corporation
MICHELLE L. VAN DYKE<F*>
Executive Vice President,
Community Banking,
Old Kent Financial Corporation
DAVID J. WAGNER<F*>
Chairman, President and Chief Executive Officer,
Old Kent Financial Corporation;
Chairman and Chief Executive Officer,
Old Kent Bank
ROBERT H. WARRINGTON<F*>
Vice Chairman and Chief Financial Officer,
Old Kent Financial Corporation;
Chairman and Chief Executive Officer,
Old Kent Mortgage Company
<PAGE>
OTHER SENIOR OFFICERS
GARY S. BERNARD<F*>
Senior Vice President,
Consumer Lending,
Old Kent Bank
DONALD R. BRITTON<F*>
President and Chief Operating Officer,
Old Kent Mortgage Company
STEVEN D. CRANDALL<F*>
Senior Vice President,
Human Resources,
Old Kent Financial Corporation
DAVID A. DAMS<F*>
Executive Vice President,
Corporate Banking,
Old Kent Bank
GREGORY K. DANIELS<F*>
Senior Vice President,
Chief Information Officer,
Old Kent Financial Corporation
STANLEE P. GREENE, JR.<F*>
Senior Vice President,
Sales and Marketing,
Old Kent Financial Corporation
RICHARD L. HAUG
Senior Vice President,
General Auditor,
Old Kent Financial Corporation
JOSEPH T. KEATING<F*>
Senior Vice President,
Old Kent Bank;
President,
Lyon Street Asset
Management Company
LARRY S. MAGNESEN<F*>
Senior Vice President,
Business Banking,
Old Kent Bank
<PAGE>
WILLIAM K. MCGOWAN<F*>
Executive Vice President,
Old Kent Bank;
President,
Old Kent Bank - ILLINOIS
RONALD C. MISHLER<F*>
Senior Vice President and Treasurer,
Old Kent Financial Corporation
JANET S. NISBETT
Senior Vice President and Controller,
Old Kent Financial Corporation;
Senior Vice President and Controller,
Old Kent Bank
ALBERT T. POTAS
Senior Vice President,
Investor Relations and Strategic Planning,
Old Kent Financial Corporation
DANIEL W. TERPSMA<F*>
Executive Vice President,
Old Kent Bank;
President,
Old Kent Bank - EAST
MARY E. TUUK
Senior Vice President and Secretary,
Legal Coordinator,
Old Kent Financial Corporation
MICHAEL J. WHALEN<F*>
Senior Vice President,
Senior Credit Officer,
Old Kent Financial Corporation
<F*> Member of Management Group
33
<PAGE>
SHAREHOLDER INFORMATION This report presents information concerning
the business and financial results of Old Kent Financial Corporation
in a format that we believe most of our shareholders will find useful
and informative. The 1998 Annual Report included with our Proxy
Statement for our annual meeting contains audited financial
statements, detailed financial review and other information. The
Corporation's Form 10-K Annual Report to the Securities and Exchange
Commission will be provided without cost to shareholders upon request.
Send requests to Shareholder Services at the address shown below.
ANNUAL MEETING The annual meeting of shareholders of Old Kent
Financial Corporation will be held on April 19, 1999, at 10:00 a.m. in
the Ambassador Ballroom at the Amway Grand Plaza Hotel, 187 Monroe NW,
directly southwest of the Old Kent Bank Building, in Grand Rapids,
Michigan.
INTERNET ACCESS Old Kent's Report to Shareholders will be available
on our Internet website at www.oldkent.com.
TRANSFER AGENT/SHAREHOLDER INQUIRIES Old Kent Bank serves as the
transfer agent for the Corporation. Inquiries relating to shareholder
records, stock transfers, changes of ownership, lost or stolen stock
certificates, changes of address and dividend payments should be
addressed to:
<PAGE>
Old Kent Bank
Shareholder Services
4420 44th Street SE, Suite A
Grand Rapids, Michigan 49512-4011
Telephone (616) 771-5482 or (800) 652-2657 (Ext. 771-5482)
DIVIDEND REINVESTMENT PLAN Old Kent offers a dividend reinvestment
plan which permits participating shareholders of record to reinvest
dividends in Old Kent Common Stock without paying brokerage
commissions or service charges. Participating shareholders may also
invest up to $5,000 in additional funds each quarter for the purchase
of additional shares. A copy of the dividend reinvestment plan
prospectus and application may be requested from the transfer agent at
the address above.
DIVIDENDS Anticipated dividend payable dates are the 15th of March,
June, September and December. Shareholders may have their dividends
deposited directly to their savings, checking or Money Market
investment account. A copy of the Automatic Dividend Deposit Service
Plan and an authorization form may be requested from Shareholder
Services at the address shown above.
INVESTOR RELATIONS Questions regarding corporate earnings releases,
financial analyst information and other investor data should be
addressed to:
<PAGE>
Old Kent Financial Corporation
Investor Relations - 4th Floor
111 Lyon Street NW
Grand Rapids, Michigan 49503
Telephone (616) 771-1034 or (800) 652-2657 (Ext. 771-5663)
OLD KENT COMMON STOCK Old Kent Common Stock is traded on the New York
Stock Exchange under the symbol OK. The following table sets forth the
range of prices for Old Kent Common Stock for the periods indicated,
adjusted for stock dividends and a stock split. (Prices for periods
prior to December 2, 1998, represent bid quotations on The NASDAQ
Stock Market; these quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.)
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------
HIGH LOW HIGH LOW
----------------------- -----------------------
<S> <C> <C> <C> <C>
First Quarter $39.05 $34.29 $23.70 $21.37
Second Quarter 39.46 35.65 26.36 21.09
Third Quarter 39.75 28.88 32.62 25.53
Fourth Quarter 46.50 29.13 40.12 29.34
</TABLE>
As of January 31, 1999, there were 104,028,504 shares of Old Kent
Financial Corporation Common Stock issued and outstanding, and there
were approximately 16,054 holders of record.
34
<PAGE>
[BACK COVER]
[OLD KENT LOGO]
Old Kent Financial Corporation 111 Lyon Street NW
Grand Rapids, Michigan 49503
