[OLD KENT LOGO]
OLD KENT FINANCIAL CORPORATION
--------------------------------------------------
1996 Report to Shareholders
"Our new corporate identity projects a progressive image and
consistent look as we transition from a commercial bank to a full-
service financial services organization."
- ----------------------------------------David J. Wagner, Chairman
Old Kent Financial Corporation
1996 Report to Shareholders
Contents
Financial Highlights and Description of Old Kent . . . .1
Philosophy of Old Kent Financial Corporation . . . . . .2
Letter to Shareholders . . . . . . . . . . . . . . . . .3
Old Kent Affiliates. . . . . . . . . . . . . . . . . . .8
Five Year Summary of Selected Financial Data . . . . . 10
Condensed Financial Review . . . . . . . . . . . . . . 11
Condensed Financial Statements . . . . . . . . . . . . 16
Report of Independent Public Accountants . . . . . . . 17
Board of Directors and Senior Management . . . . . . . 18
Shareholder Information. . . . . . . . . . . . . . . . 20
FOUNDATION FOR SUCCESS
DESCRIPTION OF OLD KENT
Old Kent Financial Corporation is a bank holding company with
headquarters in Grand Rapids, Michigan, and total assets of $13 billion as
of January 1, 1997.
Old Kent is in the business of providing financial services through
its 17 regional offices and five non-banking subsidiaries.
Old Kent's principal markets for financial services are communities
within Michigan and Illinois, where its 229 full-service banking offices
are located.
At January 1, 1997, Old Kent had 5,877 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.
FINANCIAL HIGHLIGHTS
(DOLLARS IN MILLIONS, PERCENT
EXCEPT PER SHARE DATA) 1996 1995 CHANGE
- -----------------------------------------------------------------------------
Net income $ 158.7 $ 141.8 11.9%
PER COMMON SHARE<F*>:
Net income $ 3.39 $ 2.96 14.5
Cash dividends 1.27 1.16 9.3
Book value at year-end 22.11 21.32 3.7
Market price at year-end 47.75 39.17 21.9
Shares outstanding at
year-end (IN THOUSANDS)<F*> 44,944 47,652 (5.7)
At Year End:
Total assets $ 12,647 $ 12,003 5.4%
Loans 8,097 7,431 9.0
Interest-earning assets 11,633 11,049 5.1
Core deposits 9,178 8,297 10.6
Total deposits 10,080 9,357 7.7
Shareholders' equity 994 1,016 (2.2)
Ratios:
Return on average assets 1.30% 1.21%
Return on average equity 15.86 14.76
-1-
Net interest margin 4.41 4.46
Equity to assets at year-end 7.86 8.46
<FN>
<F*>SHARE DATA IS SHOWN ADJUSTED FOR 5% STOCK DIVIDEND PAID ON JULY 25,
1996.
</FN>
-2-
OLD KENT FINANCIAL CORPORATION
Our corporate mission and culture statements reflect our long-standing
commitment to shareholders, customers, employees and the communities we
serve. Key tenets of the Corporation's business philosophy are to maximize
the value of shareholders' investments, to meet the needs of customers with
quality products and services, to provide a meaningful and challenging work
environment for our employees, and to serve our communities as a good
citizen.
PHILOSOPHY OF THE CORPORATION
- -----------------
CORPORATE MISSION
Old Kent's mission is to increase shareholder value as a high
performing independent financial services company serving select
communities with quality products and services.
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, communities we serve and our employees.
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 Old Kent becomes the best provider of consumer and business
financial services by earning and retaining the respect, confidence and
loyalty of our customers and by serving them so that they will benefit from
their association with us.
-3-
TO OUR SHAREHOLDERS
Old Kent achieved record earnings and increased dividends for the
twenty-fourth consecutive year since the holding company was formed in
1972. This record of success is consistent with our corporate mission to
increase shareholder value as a high performing independent financial
services company.
It is important to note that this twenty-fourth year of achievement
was realized in the midst of transition. Increasing our focus on fee
income growth, we implemented a series of market development and
acquisition strategies that increased earnings and positioned us to reach
our long-term goals.
SIGNS OF PROGRESS
FINANCIAL HIGHLIGHTS
The financial highlights of 1996 illustrate another year of growth for
Old Kent.
[Earnings and Dividends per Share Graph]
- Net income was a record high $158.7 million, 11.9% more than the
$141.8 million earned in 1995. Net income was $3.39 per share
for 1996, a 14.5% increase over 1995 earnings of $2.96 per share.
- The return on average equity for 1996 was 15.86% compared to
14.76% for the previous year. The return on average total assets
was 1.30% for 1996 versus 1.21% for 1995.
- At year-end, our annualized quarterly dividend rate was $1.36.
This is an 11.5% increase in the dividend rate since last year-end.
The increased dividend rate includes the effect of a five
percent stock dividend paid July 25, 1996.
- Our common stock repurchase programs had a beneficial impact on
earnings per share and return on equity. Since June, 1996, the
Corporation repurchased approximately 2.5 million shares of Old
Kent Common Stock.
- Total loans increased by 9% to nearly $8.1 billion at December
31, 1996.
- Core deposits (which consist of demand, savings, and consumer
time deposits) totaled $9.2 billion at December 31, 1996,
representing a 10.6% increase in the past twelve months.
- Due in large part to continued geographic expansion, net mortgage
banking revenues increased 78% to $19.3 million for 1996.
-4-
Residential mortgages serviced for third-party owners totaled
nearly $10 billion at the close of 1996, an increase of 44%
during the past year.
- Our reengineering program, begun in 1995, reduced costs in 1996
and enabled us to invest our human resources in more profitable
sales opportunities. During the past two years, the staff
assigned to traditional banking activities has been reduced by
more than 300. Staffing and occupancy savings amounted to $15
million in 1996 and should exceed $25 million beginning in 1997.
In turn, staff dedicated to fee-based revenue businesses, such as
mortgage banking and insurance sales, increased by over 800.
- We are taking prompt and aggressive action to resolve the
difficulties experienced by our BankCard unit during 1996 which
were created, in part, from high national bankruptcy levels
combined with a costly "CardMiles <Service Mark>" promotional program.
CORPORATE HIGHLIGHTS - A SERIES OF PRODUCTIVE INITIATIVES
Throughout 1996, we continued to expand our fee-based financial
services and extend our business into new geographic areas.
[Stock Performance Graph]
- In January, Old Kent Mortgage Company completed the acquisition
of Republic Mortgage Corp., headquartered in Salt Lake City,
Utah. Republic is the leader in many of its markets, and
originates mortgages through 19 retail offices in the high growth
states of Utah, Idaho, and Nevada.
- In February, we completed the sale of First National Bank of
Lockport (Illinois). This helped us focus more specifically on
targeted Chicago suburbs which provided steady growth in both
loans and deposits.
- In August, Old Kent Mortgage Company completed the acquisition of
National Pacific Mortgage Corporation headquartered in Anaheim,
California. National Pacific originates mortgages through 17
retail and wholesale branch offices throughout California, Oregon
and Arizona. When acquired, National Pacific had a residential
servicing portfolio of $1.8 billion.
- In December, Guyot, Hicks, Anderson & Associates, Inc. (GHA), a
subsidiary of 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,
-5-
Michigan. The agency will operate as a division of GHA under the
name of Old Kent Insurance Group.
- In January, 1997, we completed the acquisition of Seaway
Financial Corporation, a bank holding company headquartered in
St. Clair, Michigan, which had approximately $345 million in
assets at December 31, 1996. Old Kent continues to make
significant progress in the southeastern part of Michigan, both
as a business lender and in retail banking.
A FOCUSED TRANSITION
The past year continued to be one of transition as Old Kent progressed
toward our goal of becoming a more diversified and fee-based financial
services organization. With a management team committed to excellence, Old
Kent succeeded in meeting strategic goals by focusing on five specific
lines of business: investment management and trust services, retail
banking, corporate banking, mortgage banking, and community banking.
By increasing the penetration of existing markets, developing new
products and markets, building customer relationships and extending our
geographic boundaries to build profitable lines of business, we achieved
most of our objectives.
A PROFILE OF PROFITABLE GROWTH
Throughout 1996, Old Kent continued to increase shareholder value by
developing additional sources of fee income.
- Through acquisitions and alliances, we enhanced an already strong
market position in mortgage banking, investment management and
trust services, and insurance services.
- Our corporate banking business increased revenues by expanding
commercial lending, deposit services and cash management
products.
- We reorganized our investment management and trust services
business to focus on the life cycle wealth management needs of
our customers. We invested in people who have substantial
experience in each of these market segments and in new systems to
support these people. We also entered into alliances with
service providers who have the special skills necessary to
provide the full range of services which these customers will
find valuable. While this segment of our business is already one
of our largest sources of fee income, we expect it to grow
substantially as a significant number of our customers move
through their peak earning years and into their wealth
preservation and retirement years.
-6-
- Our acquisition of Seaway Financial Corporation, in St. Clair,
Michigan, reflects our belief that community banking continues to
be the best way to build customer relationships as a full-service,
person-to-person organization outside metropolitan markets.
Community banks yielded increased revenues in 1996 and
continue to provide growth opportunities for traditional bank
services in these markets. Community bank customers also
represent opportunities for us to sell new fee-based services
such as investment and insurance products.
- We selectively reconfigured branches and improved electronic
delivery systems in high density, metropolitan markets. We
created a line of business structure within these metropolitan
banks for retail, corporate and mortgage functions, and showed
significant revenue growth, particularly in the southeast
Michigan area.
- Active capital management, such as the stock repurchase programs
and investment in technology, also created added value for our
shareholders.
ENHANCED EFFICIENCY
Throughout the year, enhanced management and sophisticated technology
were critical to improving operational and service delivery efficiency.
- We developed a more effective, efficient and responsive
organizational structure, streamlined corporate purchasing, and
reduced other non-interest expenses.
- Reinvesting cost savings in new products and better technologies
translates into improved customer service and a better value at
Old Kent.
- In retail areas, the adoption of peak-time staffing programs and
the installation of more ATMs in supermarkets and malls increased
activity levels while decreasing delivery costs.
- Enhanced electronic services included an on-line home banking
service that provides customer access to account information from
a phone or PC in order to pay bills, check balances, transfer
money between accounts, and perform a variety of other service
functions 24 hours a day.
OUR GREATEST CHALLENGE . . . AND OPPORTUNITY
In addition to specific initiatives which enabled us to achieve record
earnings in 1996, Old Kent focused on cultivating an organization-wide
performance orientation. We took a close look at our standards and
-7-
practices, and focused on managing for results. This performance
orientation represents a cultural shift at Old Kent which reinforces our
reengineered delivery systems and is already yielding positive results.
Achieving our potential in this regard is our greatest opportunity.
AN EVOLVING CULTURE
During 1996, the sales culture which is so much a part of our mortgage
and insurance operations began to spread throughout our organization.
An essential component of any sales company is the consistent delivery
of high quality service. We recognize that the best prospects for new
services are customers who are pleased with the quality and value of our
existing products. We intensified our efforts to measure performance from
the customer's point of view including a broader customer satisfaction
survey of our retail base, as well as in-depth interviews initiated with
our most valuable corporate customers. Managers throughout all lines of
business are held accountable for implementing process improvements to
address areas of weakness.
While we grow and implement these strategies, it is essential to
emphasize that we did not and will not lose sight of our fundamental
values. An important part of our corporate culture has always been
responsible citizenship. This did not change in 1996. For example, by
participating in government loan programs, we increased our emphasis on
lending activities in low-to-moderate income areas for consumers and small
businesses. Our new Opportunity Loan program provides increased
flexibility in loan approvals for customers with minimal credit history.
This activity is consistent with overall corporate goals, and is beneficial
to our customers, our community and our shareholders.
FORWARD MOMENTUM
As we move into 1997, Old Kent will continue to focus on increasing
profitable revenues and enhancing shareholder value.
- We plan to broaden our revenue base through the growth of our
mortgage company and insurance businesses.
- We will continue a segment-based marketing approach to investment
management and trust services, investing in new alliances to
supply a broader range of products and generate new revenue
streams.
- The recent acquisition of Seaway Financial Corporation will
provide an important opportunity to profitably expand our
community banking line of business.
-8-
- We will extend the marketing and sales concepts which have worked
so well for us in the Detroit metropolitan markets into our other
metropolitan markets to further enhance our profitability and
effectiveness in those areas.
- Major technology initiatives are planned to speed up our
nationwide delivery of mortgage products, including a new
front-end origination system designed to improve the sales
process for our customers, reduce costs, and improve risk
management.
In 1996 we demonstrated for the twenty-fourth consecutive year our
ability to achieve ambitious goals. Those achievements have been
financially rewarding for our shareholders and provide us with the
experience and confidence to sustain this high performance in the future.
ANNUAL SHAREHOLDERS MEETING
Recent changes in interstate banking law will enable Old Kent to
merge its Old Kent Bank (Illinois) subsidiary into its Old Kent Bank
(Michigan) subsidiary. Since our structure after the merger will
essentially mirror that of a one-bank holding company, we will be able to
operate with increased efficiency. To this end, we plan to consolidate the
Old Kent Bank (Michigan) board of directors with the Old Kent Financial
Corporation board of directors prior to the merger. It is therefore
proposed that the Old Kent Financial Corporation board will include the
nine new directors listed below.
[David J. Wagner Photo]
Richard L. Antonini, Hendrik G. Meijer,
Chairman, President and CEO Co-Chairman
Foremost Corporation of America Meijer, Inc.
William P. Crawford, Patrick M. Quinn,
President and CEO Chief Executive Officer
Steelcase Design Partnership Spartan Stores, Inc.
William G. Gonzalez, Marilyn J. Schlack,
President and CEO President
Butterworth Health Corporation Kalamazoo Valley Community College
Robert L. Hooker, Margaret Sellers Walker,
Vice Chairman and CEO Professor of Public Administration
Mazda Great Lakes Grand Valley State University
Fred P. Keller,
Chairman and CEO
Cascade Engineering, Inc.
-9-
We look forward to seeing you at our annual shareholders meeting to be
held on April 21, 1997, at 10:00 a.m. in the Pantlind Ballroom at the Amway
Grand Plaza Hotel, 187 Monroe NW, directly southwest of the Old Kent Bank
Building in Grand Rapids, Michigan.
On behalf of the Corporation, I wish to thank our shareholders for
their continued support.
Sincerely,
/s/ David J. Wagner
David J. Wagner
Chairman
-10-
OLD KENT AFFILIATES
As of January 1, 1997, Old Kent Financial Corporation operated 202
full-service banking offices in Michigan and 27 in Illinois. To better
serve customers in its broader role as a financial services company, Old
Kent also operated five non-banking affiliates. Working together, this
network of financial service providers has brought Old Kent through another
record-setting year for shareholders. A measure of this success is our
ability to grow profitably in new and existing markets.
GROWTH IN QUALITY MARKETS
[Old Kent Banking Affiliates
Michigan map]
[Old Kent's Regional Mortgage Offices Map]
-11-
BANKING AFFILIATES
AS OF FEBRUARY 1, 1997.
Michigan Illinois
Old Kent Bank (Michigan) Old Kent Bank (Illinois)
Robert L. Sadler, President James A. Hubbard, President
and Chief Executive Officer and Chief Executive Officer
HEADQUARTERED IN GRAND RAPIDS, HEADQUARTERED IN ELMHURST/CHICAGO,
MICHIGAN ILLINOIS
Old Kent Bank - BIG RAPIDS
Jerry J. Fouts, President NON-BANKING AFFILIATES
AS OF FEBRUARY 1, 1997.
Old Kent Bank - CADILLAC
Jack D. Benson, President Guyot, Hicks, Anderson & Associates, Inc.
William C. Anderson, President
Old Kent Bank - CENTRAL (Owosso) TRAVERSE CITY, MICHIGAN
Charles A. Robertson, President
Old Kent Brokerage Services, Inc.
Old Kent Bank - EAST (Southfield) Mark S. Crouch, President
Ralph W. Garlick, President GRAND RAPIDS, MICHIGAN
Old Kent Bank - GAYLORD Old Kent Financial Life Insurance Company
Charles L. Berlin, President R. Jay Palmer, President
GRAND RAPIDS, MICHIGAN
Old Kent Bank - GRAND TRAVERSE
(Traverse City) Vanguard Financial Service Corp.
John D. Paul, President Michael J. Whalen, President
LOMBARD, ILLINOIS
Old Kent Bank - HILLSDALE
Wallace L. Tupper, President Old Kent Mortgage Company
Old Kent Mortgage Services, Inc.
Old Kent Bank - HOLLAND Robert H. Warrington, President
C. William Whitlock, Jr., President GRAND RAPIDS, MICHIGAN
Old Kent Bank - LANSING CORPORATE HEADQUARTERS
William H. Coultas, President
Old Kent Financial Corporation
Old Kent Bank - LUDINGTON 111 Lyon Street NW
Theresa W. Erickson, President Grand Rapids, Michigan 49503
Old Kent Bank - PETOSKEY INTERNATIONAL OFFICE
Randy B. Crim, President Old Kent Bank
GRAND CAYMAN ISLAND, BRITISH WEST INDIES
Old Kent Bank - SOUTHWEST (Kalamazoo)
John G. Kimball, President
-12-
Old Kent Bank - ST. JOHNS
Robert E. Thompson, President
Old Kent Bank - WEST (Grand Haven)
Ted. A. Poulton, President
The Commercial and Savings Bank of St. Clair
County and The Algonac Savings Bank
James W. Giffin, President
-13-
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
DECEMBER 31 (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
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 .97 .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
-14-
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 .53 .58 .88 1.12 1.54
Nonperforming assets to total
assets .39 .45 .63 .70 1.01
Allowance to impaired loans 388 403 277 243 156
Net charge-offs to average loans .54 .19 .16 .33 .47
-15-
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 1996 Annual Report included with our proxy
statement for our 1997 annual meeting.
CONDENSED FINANCIAL REVIEW
- ----------------------------------------------------------------------
OVERVIEW
1996 represented Old Kent's twenty-fourth consecutive year of
earnings growth since its formation as a holding company in 1972. Net
income per share was $3.39 for 1996, and represented a 14.5% increase
over per share earnings of $2.96 for 1995. For the year ended
December 31, 1996, net income was $158.7 million, an increase of 11.9%
over the $141.8 million of net income for 1995. Net income per common
share has increased at a compound annual growth rate of 11.5% over the
last five years.
[Net Income Chart]
The Corporation's return on average total equity in 1996 was
15.86%, up from an equity return of 14.76% for 1995. Old Kent's
return on equity has averaged 15.7% over the past five years. Old
Kent's return on average assets was 1.30% for 1996 compared to 1.21%
in 1995, and has averaged 1.27% over the last five years.
Old Kent's corporate culture is geared toward maximizing
shareholder value. The accompanying graph compares the performance of
Old Kent Common Stock with the broad-based S&P 500 index and the KBW
50, an index comprised of fifty large bank holding companies. The
total return as shown on this graph is measured using both stock price
appreciation and the effect of continuous reinvestment of dividends.
The graph indicates that an initial $100 investment in Old Kent Common
Stock on December 31, 1991, would be worth $269 on December 31, 1996.
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.
[5 Year Total Return Chart]
-16-
NET INCOME ANALYSIS
Net interest income increased by $17.6 million, or 3.7%, to
$494.3 million in 1996. The increase was primarily attributable to
loan growth. The net interest margin for 1996 was 4.41% compared to
4.46% for 1995. The decrease in the net interest margin was mainly
due to increased funding costs, which included the effect of a shift
in the mix of core deposits. Higher cost consumer time deposits rose
by $978 million on average in 1996, while lower cost savings deposits
decreased by $113 million.
The provision for credit losses was $35.2 million in 1996, up
from a provision of $21.7 million in 1995. The primary reason for the
increase was a general deterioration in consumer credit quality. This
deterioration is reflected both in published reports of industry
trends and in our own experience.
Non-interest income increased by $50.4 million, an increase of
31.2% over 1995. Much of this growth is the result of recent business
acquisitions. Mortgage banking revenues increased to $57.6 million, a
77.9% increase over that of 1995. This increase includes the effects
of two purchases, Republic Mortgage Corp. in January, 1996, and
National Pacific Mortgage Corporation in August, 1996. As a result of
these business acquisitions and internally generated growth,
residential mortgages serviced for third parties increased to nearly
$10 billion at December 31, 1996, from approximately $7 billion one
year earlier. Also, commission revenue on sales of insurance
increased to $12.4 million in 1996 from $4.6 million last year. This
increase is largely due to inclusion of a full year's operating
results of Guyot, Hicks, Anderson & Associates, Inc. (GHA). GHA, an
insurance agency, was acquired by Old Kent in December, 1995.
[Non-interest Income Chart]
Non-interest expenses for 1996 were $432.5 million, up 7.6% from
1995. Excluding the $18.2 million of restructuring costs charged to
1995 operations, this increase in total non-interest expense would
have been 12.6%. This increase includes the effects of the business
acquisitions cited above. It also includes a $17.1 million charge
associated with a special promotional program referred to as
"CardMiles <Service Mark>". Old Kent terminated the program because
it had become too costly and could no longer be offered to customers
at a competitive price.
[Non-interest Expense Chart]
-17-
BALANCE SHEET ANALYSIS
Total loans increased to $8.1 billion at December 31, 1996, up by
9% from the year-ago level. Commercial loans and leases (including
commercial real estate loans) were $4.6 billion at year-end 1996, or
11% more than last year. This growth includes particularly successful
efforts in our eastern Michigan and metropolitan Chicago markets.
Consumer and credit card loans increased to $2.7 billion at
December 31, 1996, an increase of 7.5% over the prior year-end total.
At December 31, 1996, loans represented 69.6% of total interest-earning
assets compared to 67.3% a year earlier. This change in Old
Kent's mix of interest-earning assets had a favorable impact on
interest income. Securities have become a proportionally smaller
component of total interest-earning assets. At the close of 1996,
securities available-for-sale and held-to-maturity totaled $2.8
billion compared to $3.1 billion on December 31, 1995. This decrease
resulted from sales and maturities of these assets, and provided
partial funding for the increase in loans.
[Relative Core Deposit Mix Chart]
Total interest-paying liabilities increased to $9.8 billion at
December 31, 1996. This represented a 6.2% increase since the prior
year-end date. Total core deposits, savings and consumer time
deposits, grew 10.6% to $9.2 billion at December 31, 1996. Growth in
consumer deposits, one of the most durable sources of funding, was
sizable during 1996. At year-end 1996, consumer time deposits totaled
over $4.6 billion, representing an increase of 25% from last year-end.
[Risk-based Capital Ratios Chart]
On December 31, 1996, total shareholders' equity was $1 billion,
roughly the same as last year. During 1996, Old Kent reacquired
approximately 2.5 million of its common shares under stock repurchase
programs authorized in June, 1996. The shares repurchased are
reserved for possible future reissuances for such purposes as stock
dividends, business acquisitions (including the Seaway Financial
Corporation acquisition, which was completed subsequent to the date of
these financial statements) and other corporate purposes. The
repurchase of these shares had a beneficial impact on net income per
common share and return on equity for 1996. As shown on the
accompanying graph, Old Kent's regulatory capital far surpassed
regulatory minimums, and also exceeded the levels considered to be
"well capitalized" by bank regulatory authorities. Old Kent's equity
to assets ratio was 7.86% at December 31, 1996.
[Distribution of Loans Chart]
-18-
CREDIT RISK
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 card, educational loans and other open and
closed-end consumer credits. Loans to commercial borrowers represent
approximately 56% of Old Kent's loan portfolio.
[Commercial Loans Chart]
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 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).
Loans on various categories of owner-occupied properties were 44% of
commercial real estate and construction loans and loans on non-owner
occupied properties were 56% of that total. Loans on non-owner
occupied properties 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 multi-family housing related
loans, totaling 16% of total commercial real estate and construction
loans.
[Commercial Real Estate & Construction Loans Chart]
At December 31, 1996, Old Kent's allowance for credit losses
represented 2.05% of total loans, nearly three times greater than
total impaired loans at that date. Management believes that this
allowance is adequate to absorb possible credit losses inherent in the
loan portfolios, and based on these ratios, Old Kent's allowance
compares very favorably to those prevailing in the banking industry.
INTEREST RATE RISK
The acceptance of interest rate risk and its management are
challenges common to financial institutions. Old Kent has adopted
various policies, which have been approved by its board of directors
and executive management, intended to measure and control volatility
of net interest income which could result from changes in the interest
-19-
rate environment. Based on modeling techniques regularly employed by
Old Kent to monitor and measure its interest rate risk, 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.
LOOKING AHEAD
As described in the preceding Letter to Shareholders, Old Kent is
progressing toward its goal of becoming a more diversified financial
services organization. During 1997, we intend to continue to
implement action plans aimed at that goal. We will face the
challenges brought on by economic cycles. Though these cycles may
test the ability of borrowers to repay debt and may pressure interest
margins, we are well positioned to accept these challenges by virtue
of the talent and commitment of our management and staff, the strength
of our balance sheet, our technological resources, and a conservative
philosophy that has served us so well in the past.
-20-
CONDENSED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31 (DOLLARS IN MILLIONS) 1996 1995
- ---------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 530.4 $ 527.6
Federal funds sold and other short term investments 108.2 224.9
Mortgages held-for-sale 578.2 270.1
Securities:
Trading account 19.0 11.7
Available-for-sale 1,895.2 2,245.7
Held-to-maturity 909.3 870.9
Loans:
Commercial loans and leases 4,554.9 4,099.3
Consumer 2,365.3 2,175.5
Credit card 317.6 323.6
Residential real estate mortgages 859.3 832.2
- ---------------------------------------------------------------------------------
Total loans 8,097.1 7,430.6
Less allowance for credit losses (165.9) (174.2)
- ---------------------------------------------------------------------------------
Net loans 7,931.2 7,256.4
Premises and equipment, net 173.9 173.9
Other assets 490.4 421.9
- ---------------------------------------------------------------------------------
TOTAL ASSETS $ 12,646.8 $ 12,003.1
- ---------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Demand deposits (non-interest-bearing) $ 1,581.0 $ 1,506.1
Consumer time and savings deposits 7,597.2 6,790.6
- ---------------------------------------------------------------------------------
Total core deposits 9,178.2 8,296.7
Negotiable and foreign deposits 902.0 1,060.7
- ---------------------------------------------------------------------------------
Total deposits 10,080.2 9,357.4
Other borrowed funds 1,235.9 1,307.6
Subordinated debt 100.0 100.0
Other liabilities 237.0 222.2
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES 11,653.1 10,987.2
SHAREHOLDERS' EQUITY 993.7 1,015.9
- ---------------------------------------------------------------------------------
-21-
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,646.8 $ 12,003.1
- ---------------------------------------------------------------------------------
-22-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 (DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
Interest income $947.3 $909.8 $759.2
Interest expense (453.0) (433.1) (303.5)
- -----------------------------------------------------------------------------------------------
Net interest income 494.3 476.7 455.7
Provision for credit losses (35.2) (21.7) (22.5)
- -----------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 459.1 455.0 433.2
Non-interest income 212.1 161.7 136.0
Non-interest expense (432.5) (402.1) (363.5)
- -----------------------------------------------------------------------------------------------
Income before income taxes 238.7 214.6 205.7
Income taxes (80.0) (72.8) (68.6)
- -----------------------------------------------------------------------------------------------
Net income $158.7 $141.8 $137.1
- -----------------------------------------------------------------------------------------------
Net income per common share $3.39 $2.96 $2.88
- -----------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
MARKET VALUE TOTAL
COMMON CAPITAL RETAINED ADJUSTMENT ON SHAREHOLDERS'
(DOLLARS IN MILLIONS) STOCK SURPLUS EARNINGS SECURITIES EQUITY
- -----------------------------------------------------------------------------------------------------
Balance at January 1, 1996 $45.4 $200.1 $767.0 $3.4 $1,015.9
Net income for the year 158.7 158.7
Cash dividends declared
(1.27 PER COMMON SHARE) (59.1) (59.1)
Issuances of stock:
Acquisition of mortgage company 0.2 8.2 8.4
Dividend reinvestment and
employee stock plans 0.4 13.5 13.9
Five percent stock dividend paid
July 25, 1996 2.2 81.4 (83.8) (0.2)
Common stock repurchases for
dividend reinvestment and
employee stock plans (3.3) (132.5) (135.8)
Other changes 5.1 (13.2) (8.1)
- ----------------------------------------------------------------------------------------------------
-23-
Balance at December 31, 1996 $44.9 $175.8 $782.8 ($9.8) $993.7
- ----------------------------------------------------------------------------------------------------
-24-
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, 1996 and 1995, and the related statements of income, cash flows
and shareholders' equity for each of the three years in the period
ended December 31, 1996 appearing in the 1996 Annual Report included
with the proxy statement for the annual meeting of the shareholders,
not appearing herein. In our report dated January 20, 1997, also
appearing in the 1996 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 16 and 17 is fairly stated,
in all material respects, in relation to the consolidated financial
statements from which it has been derived.
Chicago, Illinois,
January 20, 1997 /s/ Arthur Andersen LLP
-25-
BOARD OF DIRECTORS
John M. Bissell Earl D. Holton Robert L. Sadler
Chairman of the Board,BISSELL President, Meijer, Inc. Vice Chairman of the
Inc. (MANUFACTURER OF HOME- (FOOD AND GENERAL MERCHANDISE Corporation and President
CARE, HEALTHCARE AND GRAPHICS RETAILER) and Chief Executive Officer
PRODUCTS) of Old Kent Bank (Michigan)
Michael J. Jandernoa
John D. Boyles Chairman and Chief Executive Peter F. Secchia
Attorney-at-Law Officer, Perrigo Company Chairman, Universal Forest
Verspoor, Waalkes, Lalley, (MANUFACTURER OF STORE-BRAND Products, Inc.
Slotsema & Talen, P.C. HEALTH AND PERSONAL CARE (MANUFACTURER AND DISTRIBUTOR
PRODUCTS) OF BUILDING SUPPLIES)
Dick DeVos
President, Amway Corporation John P. Keller B.P. Sherwood, III
(MANUFACTURER OF HOME AND President, Keller Group, Inc. Vice Chairman and Treasurer of
PERSONAL CARE PRODUCTS) (A DIVERSIFIED MANUFACTURER) the Corporation and Chairman
of Old Kent Bank (Illinois)
James P. Hackett William U. Parfet
President and Chief Executive Co-Chairman, MPI Research David J. Wagner
Officer, Steelcase Inc. (RESEARCH LABORATORY CONDUCT- Chairman, President and Chief
(MANUFACTURER OF OFFICE ING RISK ASSESSMENT TOXICOLOGY Executive Officer of the
SYSTEMS) STUDIES) Corporation and Chairman of
Old Kent Bank (Michigan)
Erina Hanka Percy A. Pierre, Ph.D.
President, Suspa Inc. Professor of Electrical
(MANUFACTURER OF GAS Engineering, Michigan State
CYLINDERS FOR INDUSTRY) University
CORPORATE OFFICERS
David J. Wagner Ralph W. Garlick Steven D. Crandall
Chairman, President and Executive Vice President Senior Vice President,
Chief Executive Officer Human Resources
James A. Hubbard
Robert L. Sadler Executive Vice President Richard L. Haug
Vice Chairman Senior Vice President,
David L. Kerstein General Auditor
B.P. Sherwood, III Executive Vice President,
Vice Chairman and Treasurer Retail Banking and Marketing Michael J. Whalen
Senior Vice President,
Kevin T. Kabat Thomas D. Wisnom Senior Credit Officer
Senior Executive Vice Executive Vice President,
President Community Bank Administration Mary E. Tuuk
Vice President and Secretary,
-26-
Robert H. Warrington Legal Coordinator
Senior Executive Vice
President
-27-
MANAGEMENT COMMITTEE
David J. Wagner Robert H. Warrington David L. Kerstein
Chairman, President and Senior Executive Vice Executive Vice President,
Chief Executive Officer, President, Old Kent Retail Banking and Marketing,
Old Kent Financial Corporation; Financial Corporation; Old Kent Financial Corporation
Chairman, President,
Old Kent Bank (Michigan) Old Kent Mortgage Company Thomas D. Wisnom
Executive Vice President,
Robert L. Sadler David A. Dams Community Bank Administration,
Vice Chairman, Executive Vice President, Old Kent Financial Corporation
Old Kent Financial Corporation; Corporate Banking,
President and Chief Executive Old Kent Bank (Michigan) Steven D. Crandall
Officer, Senior Vice President,
Old Kent Bank (Michigan) E. Philip Farley Human Resources,
Executive Vice President, Old Kent Financial Corporation
B.P. Sherwood, III Investment Management and
Vice Chairman and Treasurer, Trust Services, Larry S. Magnesen
Old Kent Financial Corporation; Old Kent Bank (Michigan) & Senior Vice President,
Chairman, (Illinois) Retail Administration,
Old Kent Bank (Illinois) Old Kent Bank (Michigan)
Ralph W. Garlick
Kevin T. Kabat Executive Vice President, Michael J. Whalen
Senior Executive Vice Old Kent Financial Corporation; Senior Vice President,
President, Old Kent President, Senior Credit Officer,
Financial Corporation; Old Kent Bank - EAST Old Kent Financial Corporation
Chief Operating Officer,
Old Kent Bank (Michigan) James A. Hubbard
Executive Vice President,
Old Kent Financial Corporation;
President and Chief Executive
Officer,
Old Kent Bank (Illinois) -------------------------------
-28-
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 1996 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 21, 1997, at 10:00 a.m. in the
Pantlind Ballroom at the Amway Grand Plaza Hotel, 187 Monroe NW,
directly southwest of the Old Kent Bank Building, in Grand Rapids,
Michigan.
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:
Old Kent Bank
Shareholder Services
4420 44th Street SE Suite A
Kentwood, Michigan 49512-4011
Telephone (616) 771-5482, or (800) 652-2657 (Ext. 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 Old Kent savings, checking or Money Market
investment account. A copy of the Automatic Dividend Deposit Service
-29-
Plan and an authorization form may be requested from Shareholder
Services at the address shown above.
OLD KENT COMMON STOCK
Old Kent Common Stock is traded in the over-the-counter National
Market System and is quoted by NASDAQ 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.
1996 1995
High Low High Low
- --------------------------------------------------------------------
First Quarter $ 39.29 $ 35.71 $ 29.48 $ 27.21
Second Quarter 39.50 35.60 31.86 27.78
Third Quarter 42.63 36.50 37.74 30.61
Fourth Quarter 48.88 42.38 39.64 35.83
As of January 31, 1997, there were 46,086,425 shares of Old Kent
Financial Corporation Common Stock issued and outstanding, and there
were approximately 15,057 holders of record.
-30-
[Recycle logo]
This report is printed on recycled paper.
-31-
[Old Kent Logo]
Old Kent Financial Corporation
111 Lyon Street NW
Grand Rapids, Michigan 49503
-32-