EXHIBIT 13
Annual Report 1994
Old Kent
Financial
Corporation
"Old Kent is well positioned for its challenge to continue its timely
migration from a traditional bank to a financial services company
providing cost-effective delivery of a wide variety of financial
products and services. We have qualified leadership in place to take
advantage of the opportunities in the market and skilled, service-
oriented employees, committed to building productive, long-term customer
relationships."
From the Corporation's
1994 Annual Report
[LOGO] OLD KENT
[TABLE OF CONTENTS]
Old Kent Financial Corporation 1994 Annual Report
Contents
Description of Old Kent and Financial Highlights . . . . . . . . . . . 1
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 2
Leveraging Old Kent's Strengths. . . . . . . . . . . . . . . . . . . . 7
Philosophy of Old Kent Financial Corporation
Old Kent Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Five Year Summary of Selected Financial Data . . . . . . . . . . . . . 20
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Average Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . 44
Management's Responsibility for Financial Reporting. . . . . . . . . . 50
Report of Independent Public Accountants . . . . . . . . . . . . . . . 51
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 52
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 56
Shareholder Information. . . . . . . . . . . . . . . . . . . . . . . . 71
Board of Directors and Senior Management . . . . . . . . . . . . . . . 72
Description of Old Kent
Old Kent Financial Corporation is a bank holding company headquartered in
Grand Rapids, Michigan, with total assets of $10.9 billion. Old Kent is in
the business of commercial banking and related services through its 16
regional offices and six non-banking subsidiaries.
Old Kent's principal markets for financial services are communities within
Michigan and Illinois, where its 207 full-service banking offices are
located.
At December 31, 1994, Old Kent had 4,998 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 1994 1993 Increase
For The Year:
Net income (in thousands) $136,107 $127,902 6.4%
Return on average assets 1.33% 1.38%
Return on average equity 16.04% 16.65%
Per Common Share:
Primary net income $ 3.35 $ 3.14 6.7%
Cash dividends 1.18 1.07 10.3
Book value at year-end 21.20 20.05 5.7
Year-End Balance Sheet (in millions):
Assets $ 10,946 $ 9,856 11.1%
Deposits 8,958 7,971 12.4
Loans 6,498 5,017 29.5
Shareholders' equity 859 813 5.7
To Our Shareholders
For the twenty-second year since the holding company was formed in 1972,
Old Kent achieved record earnings and dividends. This consistent
performance can be attributed to long-standing strengths that include:
- A disciplined approach to our corporate philosophy, mission and
culture
- The strength of our markets
- The successful implementation of sound banking principles and
strategies
- The quality of our people
- Our flexibility in managing change
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Financial Highlights
The financial highlights of Old Kent's 1994 record year are listed below.
- Net income was $136.1 million, a record high which represented a
6.4% increase over the $127.9 million of net income reported for
1993. Net income per common share was $3.35, a 6.7% improvement
over the $3.14 of per share net income for 1993.
- In the fourth quarter of 1994, Old Kent increased its annualized
per share cash dividend rate by 6.9% to $1.24. This marked the
89th consecutive quarter that Old Kent paid a dividend in our
twenty-two year history of increased annual dividends.
- Returns on average equity and average assets for 1994 were 16.04%
and 1.33%, respectively. These compare to 1993 returns of 16.65%
on average equity and 1.38% on average assets.
- Loans totalled $6.5 billion at December 31, 1994. This represents
a 29.5% increase over the year-ago level.
[Earnings and Dividends Per Share Graph]
- Improvements in asset quality are reflected in our record
performance. Net credit losses were $9.3 million in 1994, or .16%
of average total loans, compared to net credit losses of $16.2
million, or .33% of average loans, last year. Also, the provision
for net credit losses was $21.2 million for 1994, nearly a 38%
reduction from the 1993 provision of $34.0 million.
- Trust Department revenue reached a record high in 1994,
increasing to $41.8 million compared to $40.3 million in 1993.
- Expansion efforts resulted in a 35% increase in mortgage
servicing revenues to $12.7 million in 1994, and almost $1.5
billion of growth in our third-party mortgage servicing
portfolio. At year-end 1994, Old Kent Mortgage Company was
servicing $4.6 billion of residential mortgages for third-party
investors, a 46% increase over the total one year earlier.
Financial results for 1994 include the effects of the acquisitions of
Princeton Financial Corp., an Orlando, Florida based mortgage company, and
EdgeMark Financial Corporation, a Chicago, Illinois bank holding company.
These acquisitions, along with a more detailed analysis of the factors that
contributed to Old Kent's record performance, are discussed in the
Financial Review beginning on page 21 of this report.
Balance Sheet Integrity
While maintaining our record of profitable growth in 1994, Old Kent also
strengthened its balance sheet.
Asset quality continues to be the overriding priority in our growth
initiatives. In 1994, we experienced lower nonperforming assets, an
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improvement in our delinquency ratios and a low level of charge-offs. Even
though we achieved a significant improvement in asset quality, we continued
to build our reserve for credit losses to help safeguard our strong capital
position.
[Picture of David J. Wagner and John C. Canepa]
Our strong capital base provides support for our internal asset growth and
allows us to pursue acquisition opportunities. During the first half of the
year, we repurchased 1.9 million shares of our common stock to finance the
acquisition of EdgeMark Financial Corporation, headquartered in Chicago,
Illinois.
Markets Served and Developed
Old Kent serves more than 100 communities in Michigan and Illinois with
over 200 banking offices. We are located in markets which have a highly
diversified industrial base supported by a strong work ethic and an
appealing quality of life. Approximately 70% of assets are located in
western Michigan which gives us a dominant share of that market. The
balance of our assets are located in eastern Michigan and northeastern
Illinois which provides opportunities for growth through increased market
penetration.
- On May 2, 1994, we completed the acquisition of EdgeMark
Financial Corporation whose offices expanded our presence in the
growing suburban and downtown Chicago market.
- On February 1, 1995, we completed our acquisition of First
National Bank Corp., whose offices are in Macomb County which is
located in the northeastern suburban area of the Detroit market.
Another dimension of our market development strategy is taking our existing
strengths in profitable lines of business beyond our traditional Midwest
markets. In February, we leveraged our efficiency in mortgage banking with
the acquisition of Princeton Financial Corporation, a mortgage originator
headquartered in Orlando, Florida. We also opened mortgage offices in San
Antonio, Texas, and Columbus, Ohio.
Diversified Revenue Growth
Lending continues to be Old Kent's primary source of earnings despite
higher interest rates and competitive pressures which have had an adverse
impact on our margins. Last year we achieved significant growth in retail
and commercial loans as a result of our presence in strong markets,
favorable economic conditions, product differentiation, better utilization
of targeted markets and sales techniques.
In order to reduce pressure on our traditional primary earnings sources, we
continue to seek ways to diversify our revenue growth by relying less on
spread income and generating more of our earnings from fee-based
activities. To achieve this diversification, we have allocated more
resources to market mutual funds, annuities, insurance products and credit
cards, and to upgrade retail and commercial trust products.
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To fund our growing commercial and retail earning assets, we have
introduced a variety of new deposit products, further building our core
deposit base.
Balanced Efficiency
Although Old Kent's efficiency rating is acceptable by industry standards,
we see major opportunities and the need for improvement. Low cost and high
quality are not mutually exclusive. It is paramount that we be a low-cost
producer of quality products and services if we are to gain and maintain a
competitive advantage.
There are a variety of productive initiatives under way.
- The centralization of our consumer loan processing, financial
accounting, purchasing and commercial loan processing are
internal changes that reduce excessive costs of our operations.
- Consolidation of our Michigan banks under a single charter will
reduce reporting requirements and eliminate redundant
administrative tasks.
- Standardization of our products and procedures have reduced cost
and improved the clarity of our communication to customers.
- Re-engineering is taking place throughout the organization
including an upgrade of our customer data base which has improved
customer service and provides new cross-selling opportunities.
The savings generated from elimination of non-productive practices enhances
earnings and provides resources to invest in new technology. This
technology, such as improved delivery systems, not only lowers our cost of
distribution but also improves our ability and capacity to fulfill
customers' financial needs.
The Challenges of Change
Old Kent's consistent history of profitable growth is a result of our
ability to anticipate change and capitalize on opportunities.
We experienced a robust economy in the Great Lakes region in 1994. Although
economists predict a growth rate for this area above the national average,
it will be more moderate and unstable than what we have experienced
recently. This moderate growth rate and cyclical trends reinforce our need
to diversify our lines of business in order to generate new revenue
opportunities to complement our traditional sources.
There is evidence of positive changes in the legislative and regulatory
banking environment at both the state and national level.
- Michigan passed legislation that allows banks to sell insurance,
providing an opportunity for new revenue sources.
- The new federal interstate banking legislation provides new
expansion and efficiency opportunities.
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- The proposed reduction in the Federal Deposit Insurance
Corporation premiums could provide us a substantial cost savings.
Although there are further signs of regulatory relief we continue to manage
our regulatory obligations, such as the Community Reinvestment Act (CRA),
with the same sense of responsibility as we do other disciplines of our
business.
The overcapacity of the financial industry will continue to put pressure on
Old Kent's margins. Both retail and commercial customers have more options
available to fulfill their financial needs. A proliferation of non-bank
competitors, who are not burdened with the banking industry's high cost
structure and are not subject to the same regulations, continue to permeate
profitable lines of business where banks were traditionally sole providers.
There are new and existing challenges facing the banking industry that will
widen the gap between high-performing and mediocre banks. Recognizing that
tomorrow's financial services will be different from today's, we anticipate
and are prepared for new and more dramatic changes. In order to continue
our consistent profitable growth, we have added new disciplines to our
foundation of strength:
- The development of a sales culture
- A more efficient delivery system
- A sense of urgency in new technology and product development
- A reward system based on performance measurements
Future Commitment
Old Kent Financial Corporation has established an enviable history of
profitable growth through uninterrupted earnings and dividend increases.
The changes impacting the traditional role of the banking industry continue
at an unprecedented rate and magnitude.
[Stock Performance Graph]
Old Kent is well positioned for its challenge to continue its timely
migration from a traditional bank to a financial services company providing
cost-effective delivery of a wide variety of financial products and
services. We have qualified leadership in place to take advantage of the
opportunities in the market and skilled, service-oriented employees,
committed to building productive, long-term customer relationships.
We are aware of what we need to do for our customers and are committed to
translate that awareness into a more dynamic, proactive organization. As we
move forward and take the necessary actions to manage change, we will pay
close attention to the fundamentals which have established Old Kent
Financial Corporation's record of high performance.
Initiatives for the future are highlighted by members of our management
committee in the narrative section immediately following this letter.
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Board of Directors Changes
Mrs. Martha L. Thornton retired from the Board of Directors effective April
1, 1994. We thank Martha for her years of outstanding leadership and
dedicated service to Old Kent. She served as a director of Old Kent
Financial Corporation since 1990.
We welcome Dick DeVos, President of Amway Corporation, headquartered in
Ada, Michigan, as a new member of your Board of Directors. Dick served on
the Board of Directors of Old Kent Bank and Trust Company from 1987 until
his election to the Old Kent Financial Corporation board effective August
1, 1994.
Annual Shareholders' Meeting
We thank our shareholders for their continued support, our customers for
their loyalty and our employees for their strong commitment to customer
satisfaction which ultimately translates to increased shareholder value.
We hope you will be able to join us at our annual shareholders' meeting on
April 17, 1995.
The meeting will be held in the Pantlind Ballroom of the Amway Grand Plaza
Hotel in Grand Rapids.
Sincerely,
s/ John C. Canepa
John C. Canepa
Chairman
s/ David J. Wagner
David J. Wagner
President
On March 1, 1995, with my enthusiastic support, David Wagner succeeded me
as Chief Executive Officer of Old Kent. I will continue to serve as
Chairman until August of 1997. David's selection is a part of a carefully
developed succession plan and is in recognition of his outstanding
qualifications - which include over 18 years experience with Old Kent
involving virtually every area of our banking organization.
I am extremely delighted that David was chosen to assume these new
responsibilities and am confident that under his leadership your
Corporation will continue to grow and prosper.
s/ JCC
J.C.C.
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Leveraging Old Kent's Strengths
The hallmarks of Old Kent's success have been consistency and disciplined
execution of strategies resulting in twenty-two consecutive years of record
earnings and dividends since the Corporation was formed in 1972.
Philosophy of 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' investment, 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 communities as
a good citizen.
Corporate Mission
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
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 understand and fulfill the needs of our customer
groups resulting in long-term, multiple-service client relationships. This
customer-driven purpose requires that we earn and retain the respect,
confidence and loyalty of our customers by serving them so that they will
benefit from their association with us.
As we look to the future we do so from a position of strength - a
well-capitalized corporation with a commitment to sound banking practices
and a team of dedicated and competent people. Our new initiatives are
undertaken within the framework of our corporate culture and are consistent
with Old Kent's benchmark for success - increasing shareholder value.
Profitable Market Development
Old Kent's market development strategy is to expand the scope of the
Corporation's franchise through acquisition and to increase penetration in
existing service areas. In addition, we have extended lines of business
that significantly increase non-interest income beyond our traditional
geographic boundaries.
"Prior to its formation as a holding company in 1972, Old Kent was a single
bank located in Grand Rapids with $700 million in assets and 37 branch
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offices. Our acquisition strategy was instrumental in our growth to an $11
billion regional financial services company with more than 200 banking and
mortgage offices in five states.
Old Kent will continue to build its banking franchise by establishing
meaningful presence in targeted Midwest markets that offer the potential to
improve our franchise and increase shareholder value over the long term.
Our strong capital resources and acquisition experience provide a
foundation for continuing Old Kent's successful expansion strategy.
Two recent examples of this strategy are our acquisitions of EdgeMark
Financial Corporation, a $522 million bank holding company acquired during
1994, and First National Bank Corp., a $531 million bank holding company
acquired during the first quarter of 1995. EdgeMark's branches complemented
Old Kent's presence in the western suburbs of Chicago and provided Old Kent
with two additional banking offices in downtown Chicago. The First National
Bank acquisition is particularly important to Old Kent's long-term strategy
to increase our suburban Detroit presence. We see this acquisition as a
valuable opportunity to take advantage of the growth currently taking place
in Macomb County, where First National has 15 offices."
B.P. Sherwood, III - Vice Chairman
"As a result of our market development strategy, Old Kent serves highly
diversified markets through a network of banks and full-service branch
offices in Michigan and Illinois. We serve both community and metropolitan
markets.
Our organizational structure, marketing strategies and business plans are
designed to fit their unique retail and commercial customer needs.
The majority of our banks serve community markets which have a relatively
smaller and less diverse customer base than large metropolitan service
areas. Community bank markets and the expectations of their retail and
commercial customers are best suited to building customer relationships as
full-service, person-to-person organizations. This traditional approach to
community bank markets has made a significant contribution to the financial
success of Old Kent.
[Picture of B.P. Sherwood, III, Thomas D. Wisnom and Robert H. Warrington]
By contrast, our metropolitan markets are comprised of a large and diverse
customer base which requires a more targeted market approach to create high
potential customer relationships. This strategy includes a balanced
distribution system of branches and electronic delivery which will result
in increased efficiency and effectiveness. Metropolitan markets also lend
themselves to a line of business structure that provides a more direct line
of communication to and from customers."
-8-
Thomas D. Wisnom - Executive Vice President, Community Bank Administration
"To maximize some of Old Kent's most profitable lines of business, we have
expanded beyond our current banking service area. For example, we have
leveraged our mortgage servicing capacity through the expansion of Old Kent
Mortgage Company, which now services loans in 49 states. We recognize the
need to increase our loan origination capabilities in order to compete
effectively and efficiently in the mortgage banking industry by growing
from a regional to a national operation.
We opened several new offices in Florida and Texas, and increased our
presence in the Midwest by placing account executives in Indianapolis,
Detroit, Minneapolis and St. Louis during 1994. As we continue our
expansion strategy, a team of Old Kent people are rethinking the loan
origination process in an attempt to reduce costs and shorten the time it
takes to close a loan. In support of this goal, Old Kent Mortgage Company
has recently entered into an agreement with the Federal Home Loan Mortgage
Corporation (Freddie Mac) to utilize its recently developed automated
underwriting system.
Old Kent's mortgage banking strategy can be summed up in one word: balance.
We believe that by keeping a balance between retail and wholesale loan
originations, and by maintaining a balance between the size of our
servicing portfolio and our ability to originate loans, we will reduce the
risk associated with market volatility in the mortgage industry."
Robert H. Warrington - President, Old Kent Mortgage Company
Generation of Earning Assets
Generating quality earning assets provides the foundation for consistent,
profitable growth which protects Old Kent's strong capital base. Managing
risk is the fundamental discipline of our credit culture.
"Old Kent's history of success is primarily a result of our orientation
toward the mid-size business market. To achieve future growth of earning
assets and fees will require a more balanced mix of diverse segments of the
commercial market and consumer lending.
We are building new relationships with small businesses through a variety
of loan and non-credit services that support their growth. We have recently
improved our cash management services by offering an electronic banking
package that allows our commercial customers the convenience to access us
at any time. We are also offering international trade services to customers
involved in the Midwest's expanding import/export industry.
In addition to our commercial loan growth, we experienced a substantial
increase in our consumer loan portfolio in 1994, and we expect that trend
to continue. Part of this can be attributed to our increased market
penetration resulting from Old Kent's recent bank acquisitions. We also
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reintroduced a more competitive credit card which is being well received by
our customers and continued to effectively market our consumer loans
through our extensive branch system."
David A. Dams - Executive Vice President, Corporate Banking, Old Kent Bank
[Picture of David A. Dams and Ralph W. Garlick]
"Asset quality is the overriding priority in Old Kent's loan growth
strategy. Staying close to our customers is critical to maintaining both
high service standards and asset quality. Our strong credit culture
incorporates the fundamental disciplines of sound underwriting standards, a
successful credit risk management program, a diversified customer base and
knowledgeable, experienced loan officers.
The loan review process is a key element of Old Kent's loan quality program
- early identification of marginal loans, followed by a thorough evaluation
and implementation of appropriate actions in a timely manner.
We are implementing an aggressive plan to expand our lending in the
metropolitan Chicago and Southeastern Michigan markets. We know these
markets, understand their competitive environment and believe they present
significant growth opportunities. Old Kent's disciplined underwriting will
provide the basics needed to continue our history of quality loan
generation. Our commitment to asset quality is non-negotiable."
Ralph W. Garlick - Executive Vice President and Senior Credit Officer
Diversified Revenue Growth
Focusing on new revenue opportunities is a result of changing customer
needs and increased competition. The reallocation of resources toward our
most profitable markets and lines of business will have a positive impact
on Old Kent's earning opportunities. These revenue streams must complement
traditional revenue sources and place emphasis on generating new fee
income.
"Much of the change associated with banking is attributed to increased
competition and advances in technology. The most dynamic aspect of retail
banking is how much and how fast consumer expectations continue to change.
We must anticipate the implications these changes will have on our future
service needs, and be prepared to act quickly to implement new strategies
which provide customers the value they expect.
Old Kent's strategy is to work as a team with our banks and market managers
to deliver a consistent level of service throughout the organization, while
sharing valuable information and local market solutions with each other.
Through this teamwork we were able to completely revamp our credit card
product and, as a result, we doubled the size of that portfolio. We are
also continuing to improve our delivery of services by upgrading our
telephone information center and automated teller machine technology."
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David L. Kerstein - Executive Vice President, Retail Banking
"Old Kent needs to find new ways to attract core deposits to fund the
anticipated growth of earning assets. Our focus is to offer and price our
products in ways that recognize the value of our customers' banking
relationships. This strategy benefits our customers and generates
additional sources of profit for Old Kent.
The banking industry has experienced the loss of traditional consumer
deposits in recent years. At Old Kent, we have taken direct action to
attract funds by addressing consumer concerns about value and flexibility,
especially in our certificate of deposit (CD) product line. We introduced
two new CD products that addressed fluctuation in market rates and
alleviated traditional penalties for early withdrawal. These highly
successful products are examples of satisfying customers' needs and being
rewarded by increased market share."
Leigh I. Sherman - Senior Vice President, Marketing
[Picture of Leigh I. Sherman, David L. Kerstein and E. Philip Farley]
"The Trust Department continues to focus on new revenue opportunities by
adding products to meet the changing needs of individuals and corporations.
In the coming year, two new bond funds of a slightly longer maturity will
be introduced providing our clients with enhanced income opportunity. Our
state of the art 401(k) product was introduced in 1994, increasing our
sales by over 30 percent. Utilizing this experience, we now offer an
investment management plan which was developed for the retail market,
including the growing retirement, inheritance and IRA rollover segments.
As part of Old Kent's sales culture, our commercial loan officers' strong
relationships with their clients enable them to sell our retirement
products, while the branch system will be utilized to sell our retail
investment plan. In addition, the metropolitan Chicago and Detroit markets
have been targeted for increased sales through staff additions in the trust
area. Customer sales and service will continue to be our focus as we
develop strategies to grow our trust and investment management business."
E. Philip Farley - Executive Vice President, Investment and Trust
Management Services Old Kent Bank
Balanced Efficiency
In order to maintain a competitive advantage, Old Kent must continue to be
an efficient low-cost producer of quality services. The major components of
this strategy are cost reduction, re-engineering traditional tasks, and the
utilization of technology. These efficiencies must be achieved while
maintaining Old Kent's overriding corporate culture of meeting the needs of
our customers with quality products and service.
-11-
"To successfully make the transition from traditional banking to a
financial services company requires a progressive organizational structure.
A viable organization must be flexible and maximize the potential of its
human, financial and physical resources without compromising customer
satisfaction and shareholder value.
The recent consolidation of our 15 Michigan charters into one charter
allowed Old Kent to structure its business more efficiently. At the same
time, we began to organize by size of markets and lines of business, rather
than by geographical location. We are creating a retail and mortgage line of
business structure within our major markets which is similar to the way we
have organized our trust and bank card services. This helps us meet the
needs of customers efficiently, regardless of their location, and allows
for high quality automated service. This new structure also provides a
barrier-free channel between the management of these lines of business and
our customer-contact employees."
Robert L. Sadler - Vice Chairman
"As we address future challenges, profitable growth will depend on our
ability to balance expense reduction with investment in high potential
opportunities.
Our competitive environment includes an increasing number of non-bank
financial institutions with low cost structures. If their competitive
advantage continues, it will have a detrimental effect on our ability to
maintain and grow future profitable market share.
[Picture of Kevin T. Kabat, Richard W. Wroten and Robert L. Sadler]
We are involved in a number of efforts to improve our competitive position
by reducing our operating expenses. The centralization of our consumer loan
processing, financial accounting, purchasing and commercial loan processing
have reduced costs by 30 to 40 percent without compromising customer
satisfaction. In addition, our extensive branch network is continually
being analyzed to determine if there are more efficient methods of
distribution. At the same time that we are reducing our operating expenses,
we are also focusing on investments to increase the revenue component of
the earnings equation."
Richard W. Wroten - Executive Vice President and Chief Financial Officer
"We are reviewing in depth all of our operations in order to develop and
implement actions that improve Old Kent's productivity and quality of
service. Through re-engineering and applications of technology, we can
increase efficiency by reducing our costs and improving customer service.
Task forces of people throughout the organization continue to work on
projects including centralization and consolidation activities which
improve efficiency and are transparent to our customers. More apparent to
our customers is the standardization of products and procedures which
improves the clarity and impact of our communication.
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Technology is a strategic resource that is being coupled with
re-engineering to provide a competitive advantage. We continue to invest in
multi-faceted technology which increases multiple product sales through our
upgraded customer data base, improves service quality, and provides more
effective customer communication and product delivery systems."
Kevin T. Kabat - Executive Vice President, Retail Administration and
Corporate Technology
Strategic Vision and Human Resources Development
In order to succeed in a rapidly changing financial services environment,
Old Kent must continue to employ strategic vision and develop the human
resources required in a culture focused on customer satisfaction.
"Old Kent will continue our long-standing commitment to the selection and
development of people that have the ability to manage change by
anticipating customer needs and translating them into profitable growth.
The transition from a traditional bank to a financial services company
requires a strategic investment in our human resources. The process begins
with training our existing staff to acquire the new skills needed for our
emerging lines of business as well as our community and metropolitan banks.
Development of sales skills and service quality will receive our highest
priority. In addition, we will continue to hire people with the leadership
and talent necessary to sustain our successful earnings record.
This investment in human resources will have a positive impact on our
employees who will benefit from broader career opportunities and a reward
system that pays for performance."
Charles W. Jennings, Jr. - Senior Vice President, Human Resources
"Old Kent's strategic planning process is conducted within the framework of
our culture and mission statements. This provides the unified vision needed
to guide us through an array of challenges which focuses our resources on
customer satisfaction and shareholder value.
[Picture of Charles W. Jennings, Jr. and Martin J. Allen, Jr.]
The plan is a compilation of the input of 70 members of management from
throughout the corporation and its board of directors. The process assesses
our current situation, provides future assumptions to reduce risk and
identifies Old Kent's strengths and vulnerabilities. From this situation
analysis we develop our long-term core strategies which we define as the
relatively few things that really matter in order to achieve our mission.
Finally, we establish what we are going to do about our core strategies by
developing measurable strategic actions.
The purpose of our planning process is to provide consistent direction
without impairing the employee empowerment and entrepreneurship needed to
develop and execute meaningful strategies throughout Old Kent's
organization."
-13-
Martin J. Allen, Jr. - Senior Vice President, Corporate Planning and
Development
Old Kent Affiliates
Old Kent Financial Corporation is a bank holding company headquartered in
Grand Rapids, Michigan. As of December 31, 1994, its banks operated 181
full-service offices in Michigan and 26 in Illinois. Old Kent Financial
Corporation, in its broader role as a financial services company, also
operated six non-banking affiliates at December 31, 1994.
[Michigan Map]
Corporate Headquarters
Old Kent Financial Corporation
One Vandenberg Center
Grand Rapids, Michigan 49503
International Office
Old Kent Bank
(Grand Cayman Island, British West Indies)
Banking
Michigan
Old Kent Bank (Michigan)
Robert L. Sadler, President
and Chief Executive Officer
Headquartered in Grand Rapids, MI
Old Kent Bank - Big Rapids
Jerry J. Fouts, President
Old Kent Bank - Cadillac
Jack D. Benson, President
Old Kent Bank - Central (Owosso)
C. William Whitlock, Jr., President
Old Kent Bank - East (Brighton)
James W. Giffin, President
Old Kent Bank - Gaylord
Charles L. Berlin, President
Old Kent Bank - Grand Rapids
Robert L. Sadler, President
Old Kent Bank - Grand Traverse (Traverse City)
John D. Paul, President
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Old Kent Bank - Hillsdale
Wallace L. Tupper, President
Old Kent Bank - Holland
Richard M. Lievense, President
Old Kent Bank - Lansing
William Coultas, President
Old Kent Bank - Ludington
Theresa W. Erickson, President
Old Kent Bank - Metro Detroit (Southfield)
Ralph W. Garlick, President
Old Kent Bank - Petoskey
Randy B. Crim, President
Old Kent Bank - Southeast (Trenton)
James P. Raffenaud, President
Old Kent Bank - Southwest (Kalamazoo)
Theodore F. McCarty, President
Old Kent Bank - St. Johns
Robert E. Thompson, President
Old Kent Bank - West (Grand Haven)
Ted A. Poulton, President
First National Bank in Macomb County*
Harold W. Allmacher, President
and Chief Executive Officer
Headquartered in Mount Clemens, MI
* Acquired February 1, 1995.
Illinois
Old Kent Bank (Illinois)
Michael J. Whalen, President
and Chief Executive Officer
Headquartered in Elmhurst/Chicago, IL
First National Bank of Lockport
Joseph J. Wallace III, President
and Chief Executive Officer
Headquartered in Lockport, IL
-15-
Non-Banking
Hartger & Willard Mortgage Associates, Inc.
William L. Ford, President
Grand Rapids, MI
Bloomfield Hills, MI
Old Kent Brokerage Services, Inc.
David A. Bushen, President
Grand Rapids, MI
Old Kent Financial Life Insurance Company
R. Jay Palmer, President
Grand Rapids, MI
Vanguard Financial Service Corp.
Frank J. Bonfiglio, President
Lombard, IL
Chino Hills, CA
Boston, MA
Grand Rapids, MI
Southfield, MI
Traverse City, MI
Plano, TX
Old Kent Mortgage Company
Old Kent Mortgage Services, Inc.
Robert H. Warrington, President
Grand Rapids, MI
Miami, FL
Orlando, FL
Tampa, FL
Chicago, IL
Indianapolis, IN
Detroit, MI
Minneapolis, MN
St. Louis, MO
Columbus, OH
San Antonio, TX
Austin, TX
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
1994 1993 1992 1991 1990
For the Year
Net interest income $ 432,438 $ 406,740 $ 385,608 $ 339,198 $ 311,253
Provision for credit losses 21,165 33,997 57,712 39,812 32,097
Net income 136,107 127,902 111,091 92,981 87,476
Cash dividends 47,992 43,380 36,413 31,492 29,041
-16-
Average for the Year
Assets $10,247,217 $9,253,633 $8,761,913 $8,347,108 $7,975,849
Deposits 8,340,117 7,643,634 7,286,655 7,008,896 6,716,032
Loans 5,721,341 4,889,092 4,966,622 5,173,142 5,186,627
Total interest-earning assets 9,562,257 8,626,939 8,202,828 7,798,733 7,413,607
Long-term debt 1,202 2,994 31,176 77,644 83,313
Common stock, capital surplus
and retained earnings (1) 848,563 768,161 683,830 638,106 585,997
Total shareholders' equity (2) 845,518 768,161 683,830 638,106 585,997
At Year-End
Assets $10,946,446 $9,855,704 $8,698,574 $8,826,139 $8,205,041
Deposits 8,957,551 7,971,152 7,253,540 7,313,979 6,960,865
Loans 6,497,997 5,016,686 4,907,629 5,111,369 5,317,998
Long-term debt 1,119 1,215 16,217 74,734 80,937
Common stock, capital surplus
and retained earnings (1) 898,891 812,767 726,277 672,610 607,636
Total shareholders' equity (2) 859,496 812,767 726,277 672,610 607,636
Per Common Share (in dollars)
Net Income:
Primary $ 3.35 $ 3.14 $ 2.75 $ 2.31 $ 2.19
Fully diluted 3.35 3.14 2.71 2.21 2.08
Cash dividends 1.1800 1.0700 0.9033 0.7867 0.7233
Book value at year-end based on:
Common stock, capital surplus
and retained earnings (1) 22.17 20.05 17.96 16.75 15.22
Total shareholder's equity (2) 21.20 20.05 17.96 16.75 15.22
Dividend payout ratio 35.2% 34.1% 33.3% 35.6% 34.8%
Performance Ratios
Return on average total
equity (1) 16.04% 16.65% 16.25% 14.57% 14.93%
Return on average assets 1.33 1.38 1.27 1.11 1.10
Average total equity to
average assets (2) 8.25 8.30 7.80 7.64 7.35
Yield on average interest-
earning assets 7.64 7.74 8.48 9.73 10.54
Cost of average interest-
bearing liabilities 3.58 3.45 4.25 6.05 7.13
Average net interest spread 4.06 4.29 4.23 3.68 3.41
Average net interest margin 4.60 4.80 4.80 4.47 4.36
Capital Ratios at Year-End
Equity to assets 7.85% 8.25% 8.35% 7.62% 7.41%
Leverage ratio 7.32 7.78 7.83 7.06 6.80
Risk-based capital ratio
- Tier 1 10.90 12.73 12.82 11.11 9.59
Risk-based capital ratio
- Tiers 1 & 2 12.17 13.99 14.13 13.36 12.21
Credit Quality Ratios
Allowance for credit losses
to total loans 2.49% 2.81% 2.46% 1.70% 1.37%
Nonperforming assets to total
loans and other real
estate owned 1.04 1.36 1.76 2.16 1.97
-17-
Nonperforming assets to total
assets 0.62 0.69 0.99 1.25 1.28
Allowance for credit losses to
nonperforming assets 238 206 140 79 70
Net charge-offs to average loans 0.16 0.33 0.48 0.50 0.46
<FN>
The acquisitions of EdgeMark Financial Corporation on May 2, 1994 and Princeton Financial Corp. on
March 1, 1994, were accounted for as purchase transactions. Accordingly, the above financial
information includes these purchases from their dates of acquisition.
(1) excludes unrealized loss on securities available-for-sale
(2) includes unrealized loss on securities available-for-sale
Financial Review
This financial review presents management's discussion and analysis of
financial condition and results of operations. This discussion should be
read in conjunction with the consolidated financial statements beginning on
page 52 and the five year summary of selected financial data on page 20.
Overview
Net income for 1994 was $136.1 million, the highest in Old Kent's
twenty-two year history as a bank holding company. This represented a 6.4%
increase over net income of $127.9 million for 1993. Fully diluted net
income per share was $3.35 for 1994, up by 6.7% over the $3.14 fully
diluted net income per share for 1993. Old Kent has reported increases in
its annual per share earnings in each of the twenty-two years since the
holding company was formed in 1972. Net income has increased at a compound
annual growth rate of 9.8% over the last five years, and fully diluted net
income per common share has grown at an annual compound rate of 11.7% over
that same period.
[Net Income Graph]
Effective with the fourth quarter of 1994, the quarterly cash dividend rate
on common stock was increased to $.31 per share. The new annualized rate of
$1.24 per share is 6.9% greater than the rate paid in the fourth quarter of
1993. Old Kent has paid increased cash dividends in each of its twenty-two
years. The compound annual growth rate for the Corporation's per share
dividend payment for the last five years is 13.1% and the dividend payout
ratio has averaged 34.6% over that same period of time.
[Net Income Per Common Share Graph]
Old Kent's corporate culture is geared toward maximizing shareholder value.
The accompanying graph compares the performance of Old Kent Common Stock
with the S&P 500 and the KBW 50 indices. The total return as shown in this
graph is measured using both stock price appreciation and the effect of
continuous reinvestment of dividend payments. The S&P 500 index includes
-18-
the performance of 500 individual stocks selected by Standard & Poor's
Corporation to be a representative indicator of a broad base of industries
whose stocks are traded and available to the investing public. The KBW 50
index is based upon the stock performance of 50 large banks selected by
Keefe, Bruyette & Woods, Inc., specialists in the banking and thrift
industries. The total return of the KBW 50 index is calculated in the same
manner as the S&P 500 index. As indicated on the accompanying graph, Old
Kent's stock performance on a total return basis compares favorably with
the total return of the broad based S&P 500 index as well as the banking
industry specific KBW 50 index. The graph indicates that an initial $100.00
investment in Old Kent Common Stock on December 31, 1989, would be worth
$196.40 on December 31, 1994 providing that all quarterly dividends paid
within the intervening five year period were reinvested in Old Kent Common
Stock at the market prices in effect when dividends were paid. This
increase in value is equivalent to a compound annual return of 14.5% over
those five years for such an investment in Old Kent Common Stock compared
to 8.7% for the S&P 500 index and 7.7% for the KBW 50 index.
[Five Year Total Return Graph]
The Corporation's return on average total equity in 1994 was 16.04%,
compared to an equity return of 16.65% for 1993. Old Kent's return on
equity has averaged 15.7% over the past five years. Old Kent's return on
average assets was 1.33% for 1994 compared to 1.38% in 1993, and has
averaged above 1.2% over the last five years.
Steady annual earnings increases have been attributable to balance sheet
growth and to increases in non-interest income. Total average
interest-earning assets increased by $935 million, or 10.8% in 1994 and by
$424 million, or 5.2%, in 1993. Over the last five years, total average
interest-earning assets have increased at a compound annual growth rate of
5.3%. Interest-earning assets primarily consist of securities (defined in
this discussion to include those classified as available-for-sale and those
classified as held-to-maturity) and loans. Average securities increased by
$209 million, or 6.4%, in 1994 and by $214 million, or 7.0%, in 1993. In
1994, total loans averaged $5,721 million, up by $832 million, or 17% more
than 1993. In 1993, average total loans were $4,889 million, a 1.6%
decrease from 1992. The 1994 increases in total average interest-earning
assets and total average loans were the result of acquisitions (as
discussed below) and improved loan demand. The 1993 increase in total
average interest-earning assets was primarily the result of acquisitions.
The modest decrease in total average loans in 1993 was the result of
relatively low levels of loan demand which continued a trend of the
preceding year.
[Return on Average Equity Graph]
Business of the Corporation
Old Kent is a bank holding company. The services offered by Old Kent's
subsidiaries cover a wide range of banking and fiduciary services. These
include commercial, mortgage, and retail loans, business and personal
-19-
checking accounts, savings and individual retirement accounts, time deposit
instruments, automated teller machines and electronically accessed banking
services, credit and debit cards, money transfer services, safe deposit
facilities, cash management, real estate and lease financing, international
banking services, credit life insurance, personal investment and brokerage
services and corporate and personal trust services.
The principal sources of revenues for Old Kent are interest and fees on
loans, which accounted for 54.5% of total revenues in 1994, 49.7% in 1993,
and 53.5% in 1992. Interest on securities is also a significant source of
revenue, accounting for 25.8% of revenues in 1994, 28.9% in 1993, and 29.7%
in 1992. The Corporation's principal markets are in the lower peninsula of
the state of Michigan which represented approximately 80% of total deposits
and approximately 83% of total loans at December 31, 1994. Old Kent has had
no foreign loans at any time during the last five years. The foreign
activities of the Corporation primarily involve time deposits with banks
and placements for domestic customers of the banks. These activities did
not significantly impact the Corporation's financial condition or results
of operations.
[Return on Average Assets Graph]
Mergers and Acquisitions
Much of Old Kent's growth has been a result of acquisitions. The primary
method of expansion into new markets has been through acquisitions of other
financial institutions, or branches. Some restrictions on bank expansion
have been relaxed and further expansion into new markets will likely
continue through acquisitions of other financial institutions. The
following is a summary of Old Kent's significant merger and acquisition
activity during the last three years.
Effective May 2, 1994, Old Kent acquired EdgeMark Financial Corporation
(EdgeMark) (Chicago, Illinois). Old Kent exchanged 1,917,566 shares of its
common stock for all of the outstanding EdgeMark common stock. The
aggregate value of the Old Kent common stock issued was approximately $62.6
million. When acquired, EdgeMark had total assets of $522 million and
deposits of $456 million. This purchase expanded Old Kent's presence in the
Chicago area market by adding six banking offices in the west and southwest
suburbs and two offices in downtown Chicago.
On March 1, 1994, Old Kent purchased Princeton Financial Corp. (Princeton)
which was subsequently merged into Old Kent Mortgage Company, a wholly
owned subsidiary of the Corporation. Princeton, now operating under the Old
Kent name, originates and sells residential mortgages, while retaining a
substantial portion of the servicing rights. When acquired, Princeton had
total assets of approximately $70 million and serviced residential
mortgages of approximately $360 million for third-party investors.
Old Kent acquired all of the outstanding common stock of University
Financial Corporation (Elgin, Illinois) for a purchase price of $12.5
million effective January 1, 1993. University Financial Corporation owned
-20-
First Federal of Elgin, F.S.A. which, upon acquisition, was merged into Old
Kent Bank (Illinois). When acquired, University Financial Corporation had
total assets of approximately $275 million and approximately $198 million
of total deposits. Also acquired were five banking offices located in
Elgin, Dundee, and Hampshire which increased Old Kent's market presence in
the northern half of Kane County, Illinois. In addition, Old Kent acquired
rights to service approximately $827 million of residential mortgage loans
for third-party investors in this transaction.
On September 27, 1992, Old Kent Bank (Michigan), Old Kent's largest
affiliate, acquired five banking offices located in the Lansing, Michigan
area and their related deposits, which totalled approximately $53 million
at the time of acquisition. The acquired offices are located in Lansing,
East Lansing, Okemos and Holt, Michigan. Old Kent purchased the associated
tangible and intangible assets from a federally insured savings bank for a
price of $4.6 million.
Old Kent also had an acquisition pending at December 31, 1994. Effective
February 1, 1995, Old Kent acquired First National Bank Corp. (First
National), based in Mount Clemens, Michigan. As a result of this
pooling-of-interests transaction, Old Kent will have increased its
outstanding common stock by issuing approximately 2.6 million of its shares
in exchange for all of the outstanding shares of First National. At
December 31, 1994, this Macomb County based bank had total assets of $531
million, deposits of $472 million and equity of $37 million. First
National's 15 banking offices are located in the attractive suburban market
northeast of Detroit and will complement Old Kent's existing presence in
eastern Michigan.
Summary of Operating Results
The following is a summary of the major components of the Corporation's
operating results for the last five years:
Year ended December 31 (in thousands) 1994 1993 1992 1991 1990
Net interest income $432,438 $406,740 $385,608 $339,198 $311,253
Add: taxable-equivalent adjustment 7,339 7,438 8,168 9,717 11,734
Taxable-equivalent net interest income 439,777 414,178 393,776 348,915 322,987
Provision for credit losses (21,165) (33,997) (57,712) (39,812) (32,097)
Other income 151,501 146,790 128,046 113,467 100,972
Other expenses (357,894) (325,980) (291,985) (279,482) (256,920)
Income taxes, including
taxable-equivalent adjustment (76,112) (73,089) (61,034) (50,107) (47,466)
Net income $136,107 $127,902 $111,091 $ 92,981 $ 87,476
The following table summarizes the relative contribution to fully diluted
net income per common share of the various components of net income for the
last three years:
-21-
Contribution to Fully Diluted Net Income Per Common Share
Increase(Decrease)
(FTE - Fully taxable equivalent amount 1994 to 1993 to
per share on a fully diluted basis) 1994 1993 1992 1993 1992
Net interest income - FTE $10.64 $ 9.98 $ 9.38 $ .66 $ .60
Provision for credit losses (.52) (.83) (1.40) .31 .57
Net interest income after
provision for credit losses - FTE 10.12 9.15 7.98 .97 1.17
Trust income 1.03 .99 .93 .04 .06
Service charges on deposit accounts .81 .73 .64 .08 .09
Credit card transaction revenue .55 .40 .33 .15 .07
Mortgage servicing revenue .31 .23 .15 .08 .08
Mortgage banking gains .18 .51 .36 (.33) .15
Security transactions .02 .04 .14 (.02) (.10)
Other .82 .70 .56 .12 .14
Total other income 3.72 3.60 3.11 .12 .49
Adjusted gross income after
provision for credit losses - FTE 13.84 12.75 11.09 1.09 1.66
Salaries and employee benefits (4.01) (3.58) (3.22) (.43) (.36)
Occupancy (.64) (.55) (.48) (.09) (.07)
Equipment (.54) (.46) (.41) (.08) (.05)
FDIC deposit insurance (.45) (.40) (.39) (.05) (.01)
Interbank credit card transaction fees (.39) (.27) (.21) (.12) (.06)
Nonrecurring charges - (.04) (.18) .04 .14
Other (2.77) (2.70) (2.21) (.07) (.49)
Total other expense (8.80) (8.00) (7.10) (.80) (.90)
Income before income taxes - FTE 5.04 4.75 3.99 .29 .76
Applicable income taxes - FTE (1.69) (1.61) (1.28) (.08) (.33)
Fully diluted net income
per common share $ 3.35 $ 3.14 $ 2.71 $ .21 $ .43
Change in fully diluted net income
per common share calculated using
previous year average fully diluted
shares outstanding $ .21 $ .40
Change in average fully diluted shares
outstanding - .03
Change in fully diluted net income
per common share $ .21 $ .43
Net Interest Income
In the previous summaries, the taxable-equivalent adjustment increases
tax-exempt income to an amount equivalent to interest income subject to
income taxes at statutory rates. The federal income tax rate was 35% for
1994 and 1993, and 34% for the preceding years. The increase of $25.6
million in taxable-equivalent net interest income for 1994 is primarily due
to an increase in total average earning assets. During 1994, total average
-22-
interest-earning assets increased by $935 million, or 10.8%. In that same
period, total average interest-bearing liabilities increased to a lesser
extent, $766 million or 10.4%.
The following table sets forth the changes in interest income and interest
expense as they relate to changes in volume and changes in rate:
1994 Compared to 1993 1993 Compared to 1992
Increase (Decrease)* Increase (Decrease)*
Change in Change in
(Fully taxable-equivalent, Income/ Due to Due to Income/ Due to Due to
in thousands) Expenses Volume Rate Expenses Volume Rate
Interest-Earning Assets:
Loans (including mortgages
held- for-sale) $72,340 $64,460 $ 7,880 ($17,677) $17,315 ($34,992)
Taxable securities (8,287) 13,671 (21,958) (7,404) 16,702 (24,106)
Tax-exempt securities 558 1,136 (578) (1,769) (180) (1,589)
Interest-earning deposits (2,971) (2,587) (384) (238) 470 (708)
Federal funds sold and
resale agreements 2,291 1,121 1,170 (410) 68 (478)
Trading account securities (767) (1,263) 496 (406) (17) (389)
Change in Interest Income 63,164 76,538 (13,374) (27,904) 34,358 (62,262)
Interest-Bearing Liabilities:
Savings deposits (3,271) 4,564 (7,835) (13,606) 8,294 (21,900)
Time deposits:
Negotiable 28,449 14,903 13,546 (2,070) 5,670 (7,740)
Foreign 3,545 1,223 2,322 (1,466) (419) (1,047)
Other (7,763) (1,347) (6,416) (28,946) (9,113) (19,833)
Federal funds purchased and
repurchase agreements 2,617 (1,182) 3,799 (5,668) (3,385) (2,283)
Other borrowed funds 14,133 9,880 4,253 4,598 5,068 (470)
Long-term debt (145) (174) 29 (1,148) (1,867) 719
Change in Interest Expense 37,565 27,867 9,698 (48,306) 4,248 (52,554)
Change in Net Interest Income $25,599 $48,671 ($23,072) $20,402 $30,110 ($ 9,708)
<FN>
* The change in interest due to both volume and rate has been allocated between the factors in
proportion to the relationship of the absolute dollar amounts of the change in each.
[Net Interest Income Margin & Spread Graph]
[Average Earning Assets Graph]
Net interest margin is calculated by dividing taxable-equivalent net
interest income by average interest-earning assets. Interest spread is the
difference between the average yield on earning assets and the average cost
of interest-bearing liabilities. The net interest margin was 4.60% in 1994
compared to 4.80% for 1993. The interest spread was 4.06% for 1994, down
from 4.29% for 1993. The average yield on interest-earning assets decreased
-23-
to 7.64% in 1994 from 7.74% in 1993, a decrease of .10%. In contrast, the
average cost of interest-bearing liabilities increased by .13%. The average
cost of interest-bearing liabilities was 3.58% in 1994 compared to 3.45% in
1993. The reduced asset yield and increased liability cost resulted in a
.20% net interest margin decrease.
The increase of $20.4 million in taxable-equivalent net interest income in
1993 is primarily attributable to increased average earning assets. During
1993, total average interest-earning assets increased by $424 million, or
5.2%. In that same period, total average interest-bearing liabilities
increased to a lesser extent, $254 million or 3.6%. The net interest margin
was 4.80% for both 1993 and 1992. The net interest spread for 1993 was
4.29% compared to 4.23% for 1992. The yield on average interest-earning
assets was 7.74% for 1993 compared to 8.48% for 1992, a decrease of .74%.
The cost of interest-bearing liabilities declined by .80%. The average cost
of interest-bearing liabilities decreased to 3.45% in 1993 from 4.25% in
1992. Hence, the interest spread improved by .06% in 1993 as compared to
1992.
[Average Interest-Bearing Liabilities Graph]
Three month
Prime Interest Rate U.S. Treasury Bill Rate
Percentage Rate 1994 1993 1992 1994 1993 1992
Simple average during year 7.14% 6.00% 6.25% 4.35% 3.08% 3.41%
At December 31 8.50% 6.00% 6.00% 5.69% 3.05% 3.14%
As indicated above, interest rates were relatively stable during 1993 and
1992. However, during 1994 interest rates began to rise. The 1994 rate
increases had a greater impact on Old Kent's funding costs than on its
asset yields. The interest rate environment is significantly impacted by
the health of the national economy and the monetary policies of the Federal
Reserve System which, during 1994, largely influenced interest rate
increases as shown above.
There are a number of factors which affect net interest income, including
the mix of interest-earning assets, the mix of interest-bearing
liabilities, and the interest rate sensitivity of the various categories.
As of December 31, 1994, Old Kent's management believes that the
Corporation is essentially neutral to changes in interest rates. This means
that net interest income would not be materially impacted by upward or
downward movements in prevailing interest rates within anticipated ranges.
A discussion of the Corporation's liquidity and interest rate sensitivity
appears on page 39 of this report.
-24-
Analysis of Net Interest Income
The following table allocates net interest income to interest-earning
assets by showing how much was attributable to interest-bearing
liabilities, and how much was attributable to non-interest-bearing
liabilities and equity capital. The interest spread on earning assets
funded by interest-bearing liabilities is simply the difference between the
average yield on earning assets and the average cost of interest-bearing
liabilities. The interest spread on earning assets funded by non-interest
bearing liabilities and equity is the average yield on earning assets.
(Fully taxable-equivalent,
dollars in millions)
1994 1993 1992
Average Net Average Net Average Net
Earning Interest Interest Earning Interest Interest Earning Interest Interest
Assets Spread Income Assets Spread Income Assets Spread Income
Source of Funding:
Interest-bearing
liabilities $8,113.0 4.06% $329.4 $7,346.8 4.29% $315.1 $7,092.7 4.23% $300.0
Non-interest
-bearing
liabilities and
equity capital 1,449.3 7.64% 110.4 1,280.1 7.74% 99.1 1,110.1 8.48% 93.8
Total $9,562.3 $439.8 $8,626.9 $414.2 $8,202.8 $393.8
The following table shows the relative importance of changes in interest
spread, earning asset volumes and changes in funding sources:
(Fully taxable-equivalent,
dollars in millions)
1994 Over (Under) 1993 1993 Over (Under) 1992 1992 Over (Under)1991)
Average Net Average Net Average Net
Earning Interest Interest Earning Interest Interest Earning Interest Interest
Assets Spread Income Assets Spread Income Assets Spread Income
Source of Funding:
Interest-bearing
liabilities $766.2 (.23%) $14.3 $254.1 .06% $15.1 $315.3 .55% $50.5
Non-interest
-bearing
liabilities and
equity capital 169.2 (.10%) 11.3 170.0 (.74%) 5.3 88.8 (1.25%) (5.6)
Total $935.4 $25.6 $424.1 $20.4 $404.1 $44.9
-25-
Loan Portfolio
As a financial intermediary, the acceptance and management of credit risk
is an integral part of Old Kent's business activities. The Corporation has
established strict credit underwriting standards. These standards include a
policy of granting loans only within Old Kent's defined market areas and
prohibition of foreign loans. Lending standards are codified in a
comprehensive lending policy which is uniform throughout the organization.
Old Kent's lending staff is highly skilled and experienced. The
Corporation's conservative lending philosophy is implemented through strong
administrative and reporting requirements. Old Kent maintains a
centralized, independent loan review function which monitors asset quality
at each of Old Kent's subsidiary banks. The Corporation also employs a
centralized group of specialists which assists the subsidiary banks in
resolving troubled loans. One of Old Kent's strengths is its diversified
loan portfolio. Approximately one-half 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 credit
cards, educational loans, and other open and closed-end consumer
financings. Loans to commercial borrowers represent approximately one-half
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, 1994, Old Kent's commercial loan and lease portfolio,
excluding real estate related loans, approximated $1.7 billion, or about
27% of total loans. Loans to manufacturers represented the largest
component at only 26% 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 Loans Graph]
Commercial real estate and construction loans at December 31, 1994,
aggregated approximately $1.4 billion, or 21% of total loans. These loans
have been grouped as owner occupied (borrowers who occupy and utilize the
loan related property in their respective businesses) and as non-owner
occupied (borrowers whose principal purpose of ownership lies in the
production of rental receipts from the related property). As indicated,
loans to the various categories of owner-occupied properties were 38% of
commercial real estate and construction loans and loans for non-owner
occupied properties were 62% of that total. Non-owner occupied loans
totalled $0.8 billion, or 13% of total loans and are distributed over a
diverse base of borrowers. The largest grouping within non-owner occupied
loans was housing related loans at 17% of total commercial real estate and
construction loans.
[Commercial Real Estate and Construction Loans Graph]
-26-
Old Kent has no foreign loans. In addition, Old Kent's policy is to be
extremely restrictive in granting credit to borrowers in businesses which
are highly cyclical, such as agriculture and petroleum production, and the
Corporation is extremely selective in participating in loan syndications.
[Distribution of Loans Graph]
The following table summarizes the components of the Corporation's total
loans at December 31 for each of the last five years:
December 31 (dollars in millions) 1994 1993 1992 1991 1990
Commercial, financial and
agricultural loans $1,608.4 $1,351.7 $1,210.5 $1,227.3 $1,603.0
Real estate loans - commercial 1,185.5 1,168.0 1,155.7 1,217.1 1,185.7
Real estate loans - construction 194.5 136.6 177.4 181.2 141.7
Real estate loans - residential
mortgages (including home
equity loans) 1,621.6 1,180.9 1,401.2 1,510.7 1,391.9
Consumer loans 1,674.8 1,062.0 855.5 864.3 896.3
Credit card loans 102.2 62.4 60.9 69.9 58.4
Lease financing 110.8 55.1 46.6 40.9 40.9
Total loans $6,498.0 $5,016.7 $4,907.6 $5,111.4 $5,318.0
Provision for Credit Losses
The provision for credit losses is the amount added to the allowance for
credit losses to absorb probable credit losses. The amount of the credit
loss provision is determined by management after reviewing the risk
characteristics of the loan portfolio, historical credit loss experience
and economic conditions. These determinations are reviewed by Old Kent's
centralized, independent loan review function which monitors the credit
quality of the Corporation's loan portfolio through its uniform procedures,
credit grading and reporting systems.
[Allowance for Credit Losses to Nonperforming Assets Graph]
The following table summarizes the credit loss provisions, net credit
losses and the allowance for credit losses for the last five years:
Year ended December 31
(dollars in thousands) 1994 1993 1992 1991 1990
Provision for credit losses $ 21,165 $ 33,997 $ 57,712 $39,812 $32,097
Net credit losses 9,253 16,167 23,947 25,867 23,786
Allowance for credit losses
at year-end 161,873 140,725 120,790 87,025 73,080
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Allowance as a percentage of:
Total loans 2.49% 2.81% 2.46% 1.70% 1.37%
Total loans, excluding loans
secured by residential
real estate 3.32% 3.67% 3.44% 2.42% 1.86%
Nonaccrual loans, restructured
loans and other real estate
owned 238% 206% 140% 79% 70%
Ratio of net charge-offs to average
loans outstanding during the year .16% .33% .48% .50% .46%
Credit loss recoveries as a
percentage of prior year
charge-offs 45% 24% 34% 26% 31%
The provision for credit losses for 1994 was $12.8 million less than that
of 1993 as a result of credit quality improvements. The improved credit
quality was evidenced by a $6.9 million, or 42.8%, reduction in net credit
losses. Total nonperforming assets of $68.0 million were slightly lower
than the $68.2 million in nonperforming assets a year earlier. At December
31, 1994, the allowance for credit losses stood at $161.9 million, having
been increased by $21.1 million. This represented the amount by which the
provision for credit losses exceeded net credit losses charged to the
allowance, and by the $9.2 million allowance acquired with Edgemark
Financial Corporation. At December 31, 1994, the ratio of the allowance to
total nonperforming assets was 238%. Over the past five years, the
Corporation's actual loss experience on residential real estate loans has
been negligible. At December 31, 1994, the ratio of the allowance to total
loans exclusive of residential real estate loans was 3.32%.
The following table summarizes loan balances at the end of each period and
the daily averages; changes in the allowance for credit losses arising from
loans charged-off and recoveries on loans previously charged-off, by loan
classification; and additions to the allowance which have been charged to
expense:
Year ended December 31
(dollars in thousands) 1994 1993 1992 1991 1990
Loans outstanding at end
of year $6,497,997 $5,016,686 $4,907,629 $5,111,369 $5,317,998
Daily average of loans
outstanding for year 5,721,341 4,889,092 4,966,622 5,173,142 5,186,627
Balance of allowance for credit
losses at beginning of year 140,725 120,790 87,025 73,080 64,769
Allowances of acquired entities 9,236 2,105 - - -
Provision for credit losses (1) 21,165 33,997 57,712 39,812 32,097
-28-
Loans charged-off:
Commercial, financial and
agricultural loans 3,479 7,657 15,930 13,953 14,241
Real estate loans - commercial 7,310 7,025 8,425 7,842 6,387
Real estate loans - construction 605 1,198 500 570 -
Real estate loans - residential
mortgages (including home
equity loans) 641 854 1,582 568 445
Consumer loans 5,966 5,548 6,346 7,856 7,446
Credit card loans 1,688 1,544 1,972 2,033 1,133
Lease financing 743 1,007 834 954 1,134
Total charged-off 20,432 24,833 35,589 33,776 30,786
Recoveries of loans
previously charged-off:
Commercial, financial
and agricultural loans 3,141 3,246 5,618 3,844 3,989
Real estate loans - commercial 3,808 1,896 2,276 738 168
Real estate loans - construction 927 76 122 79 5
Real estate loans - residential
mortgages (including home
equity loans) 229 520 301 246 153
Consumer loans 2,242 2,191 2,318 2,240 2,052
Credit card loans 538 530 614 540 541
Lease financing 294 207 393 222 92
Total recovered 11,179 8,666 11,642 7,909 7,000
Balance of allowance for
credit losses at end of year $ 161,873 $ 140,725 $ 120,790 $ 87,025 $ 73,080
<FN>
(1) The provision for credit losses charged to expense is based on credit
loss experience and such other factors as, in management's judgement,
deserve current recognition in maintaining an adequate allowance for credit
losses. These other factors include, but are not limited to, a review of
current economic conditions as they relate to loan collectibility and
reviews of specific loans to evaluate their collectibility. Loan
performance is reviewed regularly by loan review personnel, loan officers
and senior management. The allowance for credit losses is established by
charges to operations based on management's evaluation of loans, economic
conditions and other factors considered necessary to maintain the allowance
at a level adequate to absorb probable losses. The allowance for credit
losses is based on estimates, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in earnings in the periods in which
they become known.
The following tables summarize net credit losses (total loans charged-off
less total loans recovered) and their relationship to the daily average
balances for each loan type listed for the last five years:
-29-
Net credit losses for the year ended December 31
(dollars in thousands) 1994 1993 1992 1991 1990
Commercial, financial
and agricultural loans $ 338 $ 4,411 $10,312 $10,109 $10,252
Real estate loans - commercial 3,502 5,129 6,149 7,104 6,219
Real estate loans - construction (322) 1,122 378 491 (5)
Real estate loans - residential
mortgages (including home
equity loans) 412 334 1,281 322 292
Consumer loans 3,724 3,357 4,028 5,616 5,394
Credit card loans 1,150 1,014 1,358 1,493 592
Lease financing 449 800 441 732 1,042
Total net credit losses $9,253 $16,167 $23,947 $25,867 $23,786
Net credit losses as a percentage
of daily average total loans .16% .33% .48% .50% .46%
Percent of loans to total loans at December 31
1994 1993 1992 1991 1990
Commercial, financial
and agricultural 24.8% 26.9% 24.7% 24.0% 30.1%
Real estate - commercial 18.2 23.3 23.6 23.8 22.3
Real estate - construction 3.0 2.7 3.6 3.5 2.7
Real estate - residential 25.0 23.5 28.6 29.6 26.2
Consumer loans 25.7 21.2 17.4 16.9 16.9
Credit card loans 1.6 1.2 1.2 1.4 1.1
Lease financing 1.7 1.1 1.0 .8 .8
Total 100.0% 100.0% 100.0% 100.0% 100.0%
The allowance for credit losses has been allocated according to the amount
deemed reasonably necessary to provide for the probable losses inherent
within each of the following categories at the dates indicated:
Allocation of allowance for credit losses at December 31
(dollars in thousands) 1994 1993 1992 1991 1990
Commercial, financial
and agricultural $ 50,000 $ 45,000 $ 40,000 $33,000 $28,000
Real estate - commercial 33,000 32,000 17,000 18,000 12,000
Real estate - construction 4,500 3,000 3,000 2,000 1,500
Real estate - residential 3,000 3,000 3,000 3,000 3,000
Consumer loans 33,500 23,000 13,000 9,000 9,000
Credit card loans 5,000 3,000 3,000 3,500 3,000
-30-
Lease financing 1,660 900 860 725 700
Not allocated 31,213 30,825 30,930 17,800 15,880
Total allowance for
credit losses $161,873 $140,725 $110,790 $87,025 $73,080
Net credit losses as a percent of daily average balance for the year
1994 1993 1992 1991 1990
Commercial, financial
and agricultural loans .02% .35% .86% .73% .59%
Real estate loans - commercial .30 .44 .52 .60 .66
Real estate loans - construction (.21) .72 .21 .28 -
Real estate loans - residential
mortgages .03 .03 .09 .02 .02
Consumer loans .27 .35 .48 .64 .58
Credit card loans 1.51 1.81 2.16 2.22 1.03
Lease financing .53 1.59 1.02 1.82 2.09
Total .16% .33% .48% .50% .46%
Nonperforming Assets
The following is a summary of nonperforming assets for the last five years:
December 31 (dollars in thousands) 1994 1993 1992 1991 1990
Nonaccrual loans $51,856 $53,330 $75,878 $ 92,647 $ 93,259
Restructured loans 5,838 5,426 2,288 4,226 5,912
Other real estate owned 10,288 9,480 8,163 13,359 5,503
Total nonperforming assets $67,982 $68,236 $86,329 $110,232 $104,674
As a percentage of total loans
and other real estate owned:
Nonaccrual loans .80% .97% 1.54% 1.81% 1.75%
Restructured loans .09 .10 .05 .08 .11
Other real estate owned .15 .17 .17 .26 .10
Total nonperforming assets 1.04% 1.24% 1.76% 2.15% 1.96%
The following table summarizes the changes in nonperforming assets during 1994:
Total Non- Other Real
Performing Nonaccrual Restructured Estate
(dollars in thousands) Assets Loans Loans Owned
Balance, January 1, 1994 $68,236 $53,330 $5,426 $ 9,480
Additions 66,303 59,557 1,249 5,497
Payments & Cures (46,125) (33,134) (837) (12,154)
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Charge-offs (gross, exclusive
of recoveries) (20,432) (20,432) - -
Transfers within nonperforming
assets - (7,465) - 7,465
Balance, December 31, 1994 $67,982 $51,856 $5,838 $10,288
Loans past due 90 days or more, but for which interest income continues to
be recognized, are not included in the Corporation's nonperforming assets.
The following table summarizes such loans for the last five years.
December 31 (dollars in thousands) 1994 1993 1992 1991 1990
Loans past due ninety days or more $10,368 $9,038 $9,859 $11,064 $13,145
Loans past due ninety days or more,
as a percentage of total loans .16% .18% .20% .22% .25%
At December 31, 1994, the Company had approximately $62.6 million in
domestic and commercial and real estate loans for which payments are
presently current, but the borrowers are currently experiencing severe
financial difficulties. Those loans are subject to constant management
attention and their classification is reviewed on a monthly basis.
Additional information with respect to nonaccrual and restructured loans
at December 31, 1994, is as follows:
Interest income which would have been recorded under original terms $5.2 million
Interest income recorded during the period $2.3 million
Loan performance is reviewed regularly by loan review personnel, loan
officers and senior management. Loans are placed on nonaccrual status when
principal or interest is past due 90 days or more and the loan is not
well-secured and in the process of collection, or when reasonable doubt
exists concerning collectibility of interest or principal. Any interest
previously accrued but not collected is reversed and charged against
current earnings.
The loan portfolio has been reviewed and analyzed for the purpose of
estimating probable credit losses. The management of Old Kent believes that
the allowance for credit losses at December 31, 1994, is adequate to absorb
probable credit losses inherent in the loan portfolio.
Old Kent's policy dictates that specifically identified credit losses be
recognized immediately by a charge to the allowance for credit losses. This
determination is made for each loan at the time of transfer into
nonperforming status after giving consideration to collateral value and the
borrower's ability to repay loan principal. Since the Corporation
-32-
immediately recognizes losses on its nonperforming assets, it does not
attach to them specific amounts from the allowance for credit losses.
Because the ultimate collection of interest on Old Kent's nonperforming
assets is in doubt, no interest income is recognized on these assets, and
virtually all payments received are recorded as a reduction of principal.
Other Income
Total non-interest income increased $4.7 million, or 3.2% in 1994.
Excluding the impact of gains on securities transactions, mortgage banking
gains and nonrecurring revenue, the increase was $20.7 million, or 16.9%
for the year. The increase in total non-interest income in 1993, excluding
securities transactions, mortgage banking gains and non-recurring revenue,
was $14.6 million, or 13.6%, from 1992.
[Other Income Graph]
Trust activities contribute a significant amount of revenue for Old Kent
and represent the largest category of non-interest income. Trust fees
increased $1.5 million, or 3.7%, in 1994. This compares with an increase of
$1.8 million, or 4.8%, in 1993. First-year fees resulting from new account
relationships were up 6% in 1994 and up by over 9% in 1993. The new
business relationships established in these years will also favorably
influence subsequent periods. Unfavorable conditions in the bond market
during 1994 had the effect of depressing certain trust revenues. It also
influenced a 5.7% decrease in total investments under management.
(dollars in thousands) 1994 1993 1992 1991 1990
Trust fee income (as reported) $41,813 $40,305 $38,472 $35,346 $36,000
Less amount attributable to
discontinued segment - - - 1,756 4,312
Trust fee income attributable
to continuing trust activities $41,813 $40,305 $38,472 $33,590 $31,688
Service charges on deposit accounts increased by nearly $3.0 million in
1994, an increase of 9.9%. This compares to an increase of $3.5 million, or
13.0% in 1993. The increase is partially due to an expanded account base
resulting from Old Kent's acquisitions of financial institutions and branch
banking sites in recent years. It is also due to the Corporation's
continuing focus on improving non-interest revenues.
Net gains on sales of securities are discussed on page 43.
Mortgage banking activities include the origination and acquisition of
residential mortgage loans, a large portion of which are intended to be
sold in the secondary market and to be serviced by Old Kent for the purpose
of generating fee income. Sales of mortgages, and occasionally servicing
rights, frequently result in the recognition of gains.
-33-
The following table summarizes the Corporation's mortgage banking activity
for the last five years:
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
Residential mortgage loans
originated and acquired $1,910,739 $2,386,127 $1,343,559 $721,034 $496,700
Residential mortgage
loans sold 1,672,807 1,990,245 1,169,298 538,359 283,620
The following table summarizes the Corporation's revenue from its mortgage
banking activities:
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
Mortgage banking gains $ 7,392 $20,763 $14,651 $6,496 $2,672
Mortgage loan servicing revenues 12,714 9,403 6,287 5,297 3,582
Mortgage banking gains in 1994 were $7.9 million, down by 61.8% from the
amount realized in the preceding year. The 1993 gains totalled $20.8
million, 41.7% more than the 1992 gains. Mortgage banking gains for 1993
and 1992 were unusually large due to the beneficial effect that lower
interest rates had on refinancing demand. As the Corporation's management
had anticipated, mortgage banking gains for 1994 were less than those of
the preceding year largely due to the effect of higher interest rates.
Mortgage banking gains may significantly vary from period to period, as
impacted by economic cycles. While such gains have been a noteworthy source
of income, the Corporation's management places greater emphasis on its
mortgage servicing activities which generates a more consistent and longer
lived revenue stream.
Revenue from the Corporation's mortgage servicing activities was $12.7
million in 1994, 35.2% better than that of 1993. As shown below, this
increase is due to growth in Old Kent's third-party servicing portfolio
over the past few years. In 1993, mortgage servicing revenue totalled $9.4
million and represented a 49.6% improvement over that of 1992. Old Kent
anticipates that mortgage servicing revenues will be enhanced in 1995 due
to recent growth in its third-party servicing portfolio. During 1994, the
Corporation also entered new mortgage markets in Florida, Indiana, Missouri
and Texas. This expansion will add geographic diversity to what was
primarily a mid-western focus in Michigan, Illinois, Ohio, Minnesota and
Wisconsin.
-34-
Other expenses includes the amortization of purchased mortgage servicing
rights. This expense decreased by $2.0 million to $3.2 million in 1994. The
decrease is primarily the result of a decrease in prepayment speeds on
serviced loans attributable to higher interest rates during 1994. In 1993,
this expense significantly increased to $5.2 million from $0.1 million in
1992. The primary reason for this increase was amortization of servicing
rights acquired with University Financial Corporation on January 1, 1993.
The amortization of this asset was also influenced by the effects of
prepayments. Notes 1 and 9 to the consolidated financial statements contain
further information regarding purchased mortgage servicing rights.
The following table lists the aggregate balances of residential mortgage
loans serviced by Old Kent as of the dates indicated. At December 31, 1994,
mortgages serviced for third-party investors totalled $4.6 billion, an
increase of over $1.4 billion over the total at the preceding year-end.
This increase includes the previously mentioned acquisition of Princeton
Financial Corporation, which serviced nearly $.4 billion of mortgages when
acquired, and the growth generated by Old Kent's expansion into other
states as described above. During 1993, residential mortgage loans serviced
for third parties increased by approximately $1.5 billion. This increase
included the effect of the Corporation's January 1, 1993 purchase of
University Financial Corporation (Elgin, Illinois), which at the time of
acquisition serviced approximately $827 million of residential mortgages
for third parties. In early 1994, Old Kent acquired Princeton Financial
Corporation (Orlando, Florida). At December 31, 1993, Princeton serviced
approximately $340 million of residential mortgage loans for third-party
investors.
December 31 (in thousands) 1994 1993 1992 1991 1990
Mortgages serviced for
third parties $4,634,373 $3,177,092 $1,662,832 $1,065,131 $ 713,680
Mortgages held-for-sale 189,989 474,898 - - -
Mortgage loans serviced by
Old Kent for its own portfolio 1,077,652 754,544 1,017,900 1,145,077 1,095,061
Total $5,902,014 $4,406,534 $2,680,732 $2,210,208 $1,808,741
Merchant discount and fees from credit card transactions totalled $22.2
million in 1994, up by 35.5% from 1993. The primary reasons for this
increase have been growth in the Corporation's merchant customer base and
improved pricing practices. In 1993, these revenues totalled $16.4 million
and represented a 21.1% increase over the 1992 amount.
Transaction processing fees include items such as fees and commissions on
money orders and travelers checks, foreign exchange fees, check cashing and
collection charges. In 1994, these revenues totalled over $8.9 million and
included the effect of acquisitions. These revenues totalled $7.2 million
in 1993, up by $1.0 million or 16.3% from 1992. In 1992, transaction
processing fees amounted to $6.2 million and represented a $1.2 million, or
-35-
22.9% increase over 1991. This included $1.0 million of increase related to
commissions in the initial year (1992) of sales of third party money order
products.
During 1990, Old Kent began leasing space at 175 various banking sites to
an unrelated company which offers annuity and mutual fund products to Old
Kent customers. As a result, this lease revenue has risen over the last
five years.
The following table summarizes the major categories of other income for the
last five years:
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
Trust income $ 41,813 $ 40,305 $ 38,472 $ 35,346 $ 36,000
Service charges on
deposit accounts 32,943 29,972 26,516 25,233 23,467
Securities transactions 1,015 1,575 5,676 7,401 1,854
Credit card transaction revenue
(Merchant discount) 22,170 16,358 13,510 12,200 11,247
Mortgage banking gains 7,392 20,763 14,651 6,496 2,672
Mortgage servicing revenues 12,714 9,403 6,287 5,297 3,582
Transaction processing fees 8,948 7,203 6,192 5,038 4,232
Credit life insurance premiums 3,394 2,972 2,529 2,463 2,454
Automated teller machine
network revenues 3,018 2,606 2,109 1,799 1,548
Trading account gains 1,602 1,594 1,908 2,647 4,697
Safe deposit box rental income 1,881 1,765 1,625 1,617 1,590
Lease revenue from financial
products provider 1,628 1,471 1,154 830 80
Brokerage commissions 864 1,141 883 628 459
Gain on sales of other real estate
owned and other assets 3,321 1,155 388 528 659
Letter of credit fees 1,065 834 931 998 1,285
Non-recurring revenue - 2,089 - - -
Other 7,733 5,584 5,215 4,946 5,146
Total Other Income $151,501 $146,790 $128,046 $113,467 $100,972
Other Expenses
Salaries and employee benefits represent the largest category of
non-interest expense. These personnel costs increased by $17.0 million, or
11.7%, in 1994 largely due to staffing increases associated with
acquisitions during 1994. This compares with an increase of $13.4 million,
or 10.2%, in 1993. The 1993 increase also reflected the impact of
acquisitions. Old Kent measures its staff size in terms of full-time
equivalent ("FTE") employees. Full-time equivalency expresses staff size by
translating the efforts of part-time employees and over-time hours into the
-36-
equivalent efforts of full-time employees. At December 31, 1994, Old Kent
employed 4,998 persons on an "FTE" basis. This compares to 4,745 and 4,570
persons at December 31, 1993 and 1992, respectively.
[Other Expense Graph]
Occupancy expense increased $3.4 million, or 15.2%, in 1994. This compares
with an increase of $2.4 million, or 12.2%, in 1993. The primary factors
for the 1994 increase were Old Kent's previously described acquisitions in
the early part of the year. Key influences to the 1993 increase were: (a)
the effect of the acquisitions which occurred in late 1992 and early 1993;
(b) the mid-1993 expansion of Old Kent's Corporate Service Center (Grand
Rapids, Michigan); and (c) a reduction in sublet rental income.
Equipment expense increased by $3.3 million, or 17.5% in 1994. In 1993,
equipment expense increased by $1.8 million, or 10.9%. The 1994 increase
also includes the effect of acquisitions, along with information technology
enhancements to benefit Old Kent in the future. These included furthering
the branch automation effort and upgrading the Corporation's overall
processing capacity. A portion of the 1993 increase was related to the
previously mentioned acquisitions, the remainder was related to expanded
usage of technological advances to reduce operating costs (e.g. data
storage using optical technology rather than hardcopy imagery) and to
enhance business effectiveness (e.g. branch bank automation). In early
1993, Old Kent recognized a nonrecurring charge of $1.5 million to reflect
a loss on the cancellation of a data processing equipment lease. This
coincided with the installation of more advanced technology intended to
improve efficiency and reduce operational costs.
The following table summarizes the major categories of other expenses for
the last five years:
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
Salaries $135,587 $121,905 $109,245 $109,581 $105,933
Employee benefits 27,350 24,009 23,222 20,091 20,212
Occupancy 25,820 22,415 19,974 20,825 19,121
Equipment 21,828 18,571 16,743 16,873 17,247
FDIC deposit insurance 18,106 16,375 16,134 14,403 7,966
Interbank credit card transaction
fees 15,784 10,950 8,449 7,161 6,741
Taxes other than income taxes 9,490 10,474 9,307 8,259 7,819
Stationery and supplies 8,269 8,250 7,114 7,659 7,149
Postage and courier charges 9,028 8,207 8,057 8,285 7,027
Advertising and public relations 9,401 8,372 6,634 6,762 5,981
Professional services 8,990 9,202 7,023 6,336 5,474
Legal, audit and examination fees 5,474 6,774 6,197 6,214 5,369
Amortization of goodwill and
core deposit intangibles 10,464 6,924 5,784 5,193 4,734
-37-
Amortization of purchased
mortgage servicing rights 3,242 5,190 128 31 24
Telephone 7,157 5,832 5,111 4,782 4,742
Credit, collections, foreclosure
and other real estate expenses 4,842 6,687 4,688 4,878 3,381
Charitable contributions 1,230 1,304 2,503 721 1,258
Mortgage servicing costs 1,174 1,413 239 189 -
Severance benefits 189 956 2,600 3,104 1,600
Cumulative, non-pension
post-retirement benefit charge - - - 1,000 -
Other losses (including certain
nonrecurring charges) 3,111 5,161 6,146 2,803 2,668
Other 31,358 27,009 26,687 24,332 22,474
Total other expenses $357,894 $325,980 $291,985 $279,482 $256,920
The deposit insurance assessment of the Federal Deposit Insurance
Corporation (FDIC) increased by $1.7 million, or by 10.6% in 1994. Growth
in deposits, mainly due to acquisitions, was the primary factor for the
increase over the preceding year. In 1993, this cost rose negligibly, by
1.5%. In 1993, Old Kent's subsidiary banks were subjected to the same rate
of assessment as they were in 1992. Hence, the modest increase for 1993
related entirely to the amount of deposits on which the assessment is
based. The rate of assessment has remained stable for the last three years,
following substantial increases in 1991 and 1990. The FDIC has proposed a
substantial reduction in deposit insurance assessments on deposits covered
by its bank insurance fund. The amount and timing of any such reduction is
uncertain. In any event, a reduction is not expected to take effect prior
to the fourth quarter of 1995. A reduction in deposit insurance rates would
be expected to have a beneficial effect upon Old Kent's results of
operations beginning in the period that such a reduction became effective.
Nearly all of Old Kent's deposits are insured by the FDIC's Bank Insurance
Fund.
FDIC insurance rate cost per
$100 of insured deposits 1994 1993 1992 1991 1990
Average rate for year $.2300 $.2300 $.2300 $.2125 $.1200
Percentage increase over prior year - - 8.2% 77.1% 44.1%
Interbank credit card transaction fees increased by approximately $4.8
million, or 44%, during 1994. This increase is attributed to growth in Old
Kent's base of credit card holders. This expanded base also influenced the
increase in total credit card loans.
Income Taxes
The income tax provision was $68.8 million in 1994 compared to $65.7
million in 1993 and $52.9 million in 1992. Income tax expense as a
percentage of income before income taxes was 33.6% in 1994. This compares
-38-
with 33.9% in 1993 and 32.2% in 1992. Effective January 1, 1993, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The statement calls for a
balance sheet approach in determining income tax expense.
Old Kent's financial statements for 1992 and preceding years reflected
income taxes calculated under the deferred method, which was an income
statement approach. The statutory federal income tax rate for Old Kent was
35% for 1994 and 1993, and 34% for 1992. The 1% increase in the federal tax
rate for 1993 caused an increase in income taxes of approximately $1.0
million. The cumulative effect of implementing SFAS No. 109 in 1993 was an
increase in income taxes of $1.9 million. A reconciliation of income taxes
calculated at the statutory rates and income tax expense appears in Note 15
to the consolidated financial statements.
Cash Dividends
The Corporation has paid regular cash dividends every quarter since it was
organized as a bank holding company in 1972. The following table summarizes
the quarterly cash dividends paid to common shareholders over the past five
years, adjusted for a three-for-two stock split paid in September, 1992.
Quarter 1994 1993 1992 1991 1990
1st $ .29 $ .26 $.20 2/3 $.19 1/3 $.17 2/3
2nd .29 .26 .20 2/3 .19 1/3 .17 2/3
3rd .29 .26 .23 .19 1/3 .17 2/3
4th .31 .29 .26 .20 2/3 .19 1/3
Total $1.18 $1.07 $.90 1/3 $.78 2/3 $.72 1/3
[Cash Dividends Per Common Share Graph]
The earnings of Old Kent's subsidiary banks are the principal source of
funds to pay cash dividends. Consequently, cash dividends are dependent
upon the earnings, capital needs, regulatory constraints and other factors
affecting each individual bank. Based on the projected earnings and
liquidity, management expects the Corporation to declare and pay regular
quarterly cash dividends on its common shares in 1995.
Capital
At December 31, 1994, the Corporation's total common stock, capital surplus
and retained earnings was $898.9 million, an increase of 10.6% over the
same total at December 31, 1993. Effective January 1, 1994, Old Kent
adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement requires that the "after-tax" unrealized gain
or loss on securities available-for-sale be carried as a separate component
-39-
of shareholders' equity. At December 31, 1994, this component was a $39.4
million negative balance, corresponding to the $60.6 million of unrealized
loss on securities available-for-sale at that date. Including this new
component, at December 31, 1994, total shareholders' equity was $859.5
million. Market values of securities, particularly those that are of longer
terms, are subject to price volatility depending upon changes in interest
rates. Under SFAS No. 115, total shareholders' equity will be subject to
favorable or unfavorable influences of the financial markets on the fair
values of securities available-for-sale.
[Average Shareholders' Equity Graph]
Under the "risk-based" capital guidelines presently in effect for banks and
bank holding companies, minimum capital levels are based on the perceived
risk in the various asset categories, and certain off-balance-sheet
instruments, such as loan commitments and letters of credit, which require
capital allocations. Bank holding companies are required to maintain
minimum risk-based capital ratios as shown in the following table. Old
Kent's ratios exceed the regulatory guidelines. At December 31, 1994,
regulatory authorities required that, except for any amounts related to
unrealized losses on equity securities available-for-sale, that the SFAS
No. 115 component of shareholders' equity be excluded from regulatory
capital.
[Risk-Based Capital Ratios Graph]
The following table compares Old Kent's capital ratios at December 31,
1994, with regulatory guidelines.
Risk-based Capital
(dollars in millions) Leverage Tier 1 Total
Old Kent's regulatory capital amounts at December 31, 1994 $798.0 $803.6 $896.6
Required minimum regulatory capital 325.3 294.8 589.6
Old Kent's capital in excess of regulatory minimums $472.7 $508.8 $307.0
Old Kent's regulatory capital ratios at December 31, 1994 7.32% 10.90% 12.17%
Regulatory capital ratios - "well capitalized" definition 5.00% 6.00% 10.00%
Regulatory capital ratios - minimum requirement 3.00% 4.00% 8.00%
At December 31, 1994, the ratio of total shareholder's equity to total
assets was 7.85% compared to 8.25% one year earlier. Book value per common
share is calculated by dividing total shareholders' equity by the number of
shares outstanding as of a given date. The following is a reconciliation of
book value per share:
-40-
Per share amount
Book value per common share at December 31, 1993 $20.05
Net income per common share 3.35
Dividends per common share (1.18)
Effect of stock repurchases during 1994 (1.74)
Effect of stock issuances during 1994 1.69
Net change in unrealized loss on securities available-for-sale (.97)
Book value per common share at December 31, 1994 $21.20
The Corporation has generally financed its growth through the retention of
earnings and the issuance of long-term debt. It is expected that future
growth can be financed through internal earnings retention, additional
long-term debt offerings, or the issuance of additional common or preferred
stock.
Liquidity and Interest Rate Sensitivity
Old Kent manages its liquidity to ensure that funds are available to each
of its banks to satisfy the cash flow requirements of depositors and
borrowers and to ensure that the Corporation's own cash requirements are
met. Old Kent maintains liquidity by availing itself of funds accessible
from a variety of sources.
The most readily available source of liquidity for Old Kent is that which
is already resident on the Corporation's balance sheet. Old Kent's
securities available-for-sale, which totalled $1.4 billion at December 31,
1994, represent a highly accessible source of liquidity. The Corporation's
portfolio of securities held-to-maturity, which totalled $2.0 billion at
December 31, 1994, produces liquidity from maturities and amortization
payments. Residential mortgages held-for-sale also afford liquidity; at
December 31, 1994, these assets totalled $190 million.
Depositors within Old Kent's defined markets are another source of
liquidity, as evidenced by a growing core deposit base. These same markets
offer additional liquidity in the form of large deposit instruments and
other equivalent non-deposit products. The national capital markets also
represent a source of liquidity to Old Kent. The Corporation may make use
of brokers to place large deposit instruments or bank note offerings when
advantageous, or it may access federal funds markets or utilize
collateralized borrowings. A further source of liquidity is available
through debt offerings.
Credit ratings at December 31, 1994 Thomson BankWatch Moody's Standard & Poor's Old
Kent Financial Corporation:
Issuer rating A/B
Short-term rating TBW-1
-41-
Subordinated debt rating A+ Baa1 A-
Old Kent Bank (Michigan):
Senior debt AA-
Short-term debt TBW-1 P1 A-1
Long-term debt A1 A
Old Kent Bank (Illinois):
Senior Debt AA-
Short-term debt TBW-1 P1 A-1
Long-term debt A2 A
Old Kent has an effective "shelf" registration with the Securities and
Exchange Commission which registered up to $150 million in debt securities
for future sale. The amounts, terms and timing of offerings would be
determined in the future when and as the Corporation decides to sell
securities under the registration. Old Kent Bank (Michigan) and Old Kent
Bank (Illinois) have implemented note programs which would permit those
banks to place up to $600 million of short-term and $500 million of
medium-term notes. These programs are intended to enhance liquidity by
enabling Old Kent to sell its debt instruments in the public markets in the
future without the delays which would otherwise be incurred. As shown in
Note 10 to the consolidated financial statements, there were $400 million
of bank notes outstanding at December 31, 1994.
Federal and state banking laws place certain restrictions on the amount of
dividends and loans which a bank may make to its parent company. Such
restrictions have not had, and are not expected to have, any material
effect on the Corporation's ability to meet its cash obligations.
The management of interest rate sensitivity includes monitoring the
maturities and repricing opportunities of interest-earning assets and
interest-bearing liabilities. The following table summarizes the interest
rate repricing gaps for selected maturity periods as of December 31, 1994:
0 - 30 31 - 90 91 - 365 Over 1
(in millions) Days Days Days Year Total
Non-loan interest-earning assets $ 330.3 $126.0 $ 583.7 $2,477.4 $ 3,517.5
Loans and mortgages held-for-sale 2,864.7 336.3 1,257.4 2,229.5 6,688.0
Total interest-earning assets 3,195.0 462.3 1,841.1 4,707.0 10,205.4
Savings and time deposits 1,619.0 687.2 1,549.5 3,357.1 7,212.8
Foreign deposits 248.4 62.2 70.0 - 380.7
Purchased funds and long-term debt 608.2 .2 390.8 - 999.3
Total interest-bearing liabilities 2,475.7 749.6 2,010.3 3,357.1 8,592.7
Interest-earning assets less
interest-bearing liabilities 719.3 (287.3) (169.2) 1,349.9 1,612.7
Impact of interest rate swaps 85.0 (286.7) (15.0) 216.7 -
Asset (liability) gap $ 804.3 ($573.9) ($ 184.2) $1,566.6 $ 1,612.7
Cumulative asset gap $ 804.3 $230.4 $ 46.2 $1,612.7
-42-
Cumulative gap as a percentage
of earning assets 25.2% 49.8% 2.5% 34.3%
Total interest-earning assets exceeded interest-bearing liabilities by $1.6
billion at December 31, 1994. This difference was funded through
non-interest bearing liabilities and shareholders' equity. The above table
shows that total assets maturing or repricing within one year exceed
liabilities maturing or repricing within one year by $46 million. However,
the repricing of certain categories of assets and liabilities is subject to
competitive and other influences that are beyond the control of Old Kent.
As a result, certain assets and liabilities indicated as maturing or
repricing within a stated period may, in fact, mature or reprice in other
periods or at different volumes. Old Kent recognizes the limitations of
static gap analysis as a tool in managing its interest rate risk, and
relies more heavily on computer-based modeling techniques to project the
potential effects of various interest rate environments on the balance
sheet structure and net interest income. These simulation techniques
involve changes in interest rate relationships, asset and liability mixes,
and prepayment options inherent in financial instruments, as well as
interest rate levels in order to quantify risk potentials. Based on these
analyses, the Corporation's management believes that Old Kent's net
interest income would not be materially impacted throughout a broad range
of possible economic scenarios.
The accompanying table and graph illustrate that during 1994 Old Kent's
quarterly average net interest margin was not dramatically impacted by
changes in interest rates. This result was consistent with management's
goal of limiting the Corporation to moderate levels of interest rate risk.
Percentage Rate for 1994 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Average Prime Rate 6.02% 6.90% 7.50% 8.13%
Average Fed Funds Rate 3.24% 3.95% 4.52% 5.16%
Net Interest Margin 4.54% 4.66% 4.66% 4.53%
[1994 Quarterly Average Net Interest Graph]
The graph below displays that net interest income for the next twelve
months is projected to be nonvolatile even if over that period market
interest rates such as prime, fed funds and yields on United States
Treasury securities were to gradually increase or decrease in a uniform
manner by as much as 2.0%. These projections, based on Old Kent's balance
sheet as of December 31, 1994, were prepared using the modeling techniques
and assumptions which Old Kent was then using for asset/liability
management purposes. The projection below indicates that if rates were to
increase or decrease as described above, net interest income would be
expected to decrease by .5% or increase by .2% compared to forecasted
results under a flat rate environment. This narrow projected exposure to
-43-
interest rate risk is consistent with management's desire to limit the
sensitivity of net interest income to changes in interest rates in order to
reduce risk to earnings and capital. This model is based solely on gradual,
uniform changes in market rates and does not reflect the levels of interest
rate risk that may arise from other factors such as changes in the spreads
between key market rates or in the shape of the Treasury yield curve.
[Interest Sensitivity Protection Graph]
An important component of Old Kent's management of interest rate risk is
the company's use of interest rate swaps. At December 31, 1994 the total
notional amount (the amount used to calculate interest) of outstanding
interest rate swap agreements was $557 million. The following tables
present information regarding swap activities for 1994, a maturity profile
that illustrates how increasing or decreasing market rates affect notional
maturity, and the effect that the Corporation's swaps had on net interest
income for 1994 and 1993.
Swaps Activities
1/1/94 Matured and Notional New Swap 12/31/94
(In millions) Notional Terminated *Amortization Notional Notional
Receive fixed/pay floating $340.0 ($125.0) ($ 8.3) $165.0 $371.7
Receive floating/pay fixed 25.0 - - 40.0 65.0
Receive floating/pay floating 120.5 - - - 120.5
Total notional amounts $485.5 ($125.0) $ 8.3) $205.0 $557.2
<FN>
*Note: Certain "Index Amortizing Swaps" have notional amounts for which the maturity date, or
amortization schedule, may vary based on interest rate levels.
Maturity Profiles of Interest Rate Swaps Under Varying Assumptions
(In millions) 1995 1996 1997 1998 1999+
Assuming that market rates in
effect at December 31, 1994
remain unchanged:
Receive fixed/pay floating* $65.0 $15.0 $ 19.6 $128.0 $144.1
Receive floating/pay fixed 25.0 40.0 - - -
Receive floating/pay floating 120.5 - - - -
Assuming that market rates
increase 2.0% over the next
year and remain unchanged
thereafter:
Receive fixed/pay floating* $65.0 $15.0 $ .6 $ 94.2 $196.8
-44-
Assuming that market rates
decrease 2.0% over the next
year and remain unchanged
thereafter:
Receive fixed/pay floating* $66.0 $23.2 $158.2 $ 74.4 $ 50.0
*Note: Old Kent's "Index Amortizing Swaps," which totalled $241.7 million at December 31, 1994,
currently are the only swaps that have notional amounts that mature, or amortize, differently
according to interest rate levels, and are all of the Receive Fixed/Pay Floating variety.
Consequently, the maturity profiles under increasing and decreasing rates are only presented for
the Receive Fixed/Pay Floating category.
Swaps Receive Rate/Pay Rate Profile
At December 31, 1994 At December 31, 1993
Receive Rate Pay Rate Receive Rate Pay Rate
Receive fixed/pay floating 6.52% 6.38% 6.65% 3.87%
Receive floating/pay fixed 5.66% 4.25% 3.44% 4.18%
Receive floating/pay floating 12.03% 10.73% 10.27% 13.15%
For 1994 and 1993, Old Kent's interest rate swaps increased net interest
income by approximately $3.8 million and $10.8 million respectively. This
improved the Corporation's net interest margin by .04% in 1994, and by .13%
in 1993.
Securities Held-to-Maturity
Securities held-to-maturity are purchased with the intent and ability to
hold for long-term investment for the purpose of generating interest income
over the lives of the investments. Thus they are carried on the books at
cost, adjusted for amortization of premium and accretion of discount.
Decisions to purchase securities are based upon current assessments of
economic and financial conditions, including the interest rate environment.
Securities Available-for-Sale
Old Kent's investment strategy is dynamic. As conditions change over time,
the Corporation's overall interest rate risk, liquidity risk, and potential
return on the investment portfolio will change. Old Kent regularly
re-evaluates the marketable securities in its portfolio based on
circumstances as they evolve. In consideration of these factors,
management's objective is to optimize the ongoing total return of its
securities portfolios.
During 1994, the principal reason for sales of securities
available-for-sale was to provide liquidity for loan growth. The average
maturity of securities available-for-sale and securities held-to-maturity
-45-
was 3.1 years at December 31, 1994, compared to 2.4 years at the preceding
year-end. During 1993, the principal reason for sales of securities
available-for-sale was Old Kent's desire to manage the average maturity of
the combined securities portfolios.
In 1994, net gains on the sale of securities were $1.0 million. This
compares to net gains of $1.6 million in 1993 and $5.7 million in 1992.
Effective January 1, 1994, the Corporation adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This statement
specifies that securities available-for-sale are to be carried at fair
value with a corresponding (after-tax) offset in shareholders' equity.
Under this statement, fluctuations in market value are not reflected in net
income unless they are realized. When adopted by Old Kent, this statement
had no effect on net income or liquidity. Its future impact on the
Corporation's balance sheet is not estimable.
Sources and Uses of Funds Trends
As shown on the accompanying consolidated balance sheets, total assets at
December 31, 1994, were $10.9 billion, up by $1.1 billion, or 11.1%, from
the preceding year-end. This increase in total assets includes the effect
of Old Kent's acquisition of EdgeMark Financial Corporation, which had
assets of $522 million when acquired. Total deposits at December 31, 1994,
were nearly $9 billion. This represents and increase of $1 billion, or
12%. Approximately one-half of this increase represents the deposits of
EdgeMark. During 1994, total loans increased by almost 30% to $6.5 billion
at year-end. This increase was the combined result of healthy loan demand
and acquisitions. Securities totalled approximately $3.4 billion at
December 31, 1994, down from nearly $3.6 billion at December 31, 1993,
reflecting their use as a source of funds for loan growth. The consolidated
statements of cash flows contains further details concerning sources and
uses of cash.
AVERAGE CONSOLIDATED BALANCE SHEETS
(Income and rates on
fully taxable-equiva- 1994 1993 1992
lent basis, dollars AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
in thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
Average Assets:
Loans(1) 5,721,341 478,261 8.36% 4,889,092 402,861 8.24% 4,966,622 438,379 8.83%
Taxable invest-
ment securities 3,266,513 214,391 6.56 3,070,845 222,678 7.25 2,854,410 230,082 8.06
Tax-exempt invest-
ment securities(2) 201,970 16,498 8.17 188,218 15,940 8.47 190,162 17,709 9.31
Mortgage held-for-
sale 224,481 14,781 6.58 277,841 17,840 6.42 -- -- --
-46-
Interest - earning
deposits:
Domestic 1,991 97 4.87 10,590 575 5.43 11,918 813 6.82
Foreign 18,077 894 4.95 61,027 3,387 5.55 51,825 3,387 6.54
Federal funds sold
and resale
agreements 101,870 4,540 4.46 72,188 2,249 3.12 70,339 2,659 3.78
Trading account
securities(2) 26,014 1,160 4.46 57,138 1,927 3.37 57,552 2,333 4.05
Total earning
assets 9,562,257 730,622 7.64 8,626,939 667,458 7.74 8,202,827 695,362 8.48
Unrealized loss
on securities
available-for-sale (4,690) -- --
Allowance for loan
losses (154,944) (131,474) (101,790)
Cash and due from
banks 389,474 377,850 350,906
Other Assets 455,120 380,318 309,968
Total Assets 10,247,217 9,253,633 8,761,913
Average Liabilities
and Shareholders'
Equity:
Savings Deposits 3,213,531 74,792 2.33% 3,030,380 78,063 2.58% 2,761,215 91,669 3.32%
Time Deposits:
Negotiable 1,434,014 64,311 4.48 1,059,313 35,862 3.39 909,757 37,932 4.17
Foreign 245,109 10,407 4.25 210,916 6,862 3.25 222,605 8,328 3.74
Other time 2,289,553 102,941 4.50 2,318,061 110,704 4.78 2,487,137 139,650 5.61
Total interest-
bearing deposits 7,182,207 252,451 3.51 6,618,670 231,491 3.50 6,380,714 277,579 4.35
Federal funds
purchased and re-
purchase agreements 413,163 15,413 3.73 452,296 12,796 2.83 565,072 18,464 3.27
Other borrowed funds 516,460 22,862 4.43 272,838 8,729 3.20 115,717 4,131 3.57
Long - term debt 1,202 119 9.90 2,994 264 8.82 31,176 1,412 4.53
Total interest -
bearing funds 8,113,032 290,845 3.58 7,346,798 253,280 3.45 7,092,679 301,586 4.25
Demand deposits 1,157,910 1,024,964 905,941
Other liabilities 130,757 113,710 79,463
Shareholders'
equity:
Common stock,
capital surplus
and retained
earnings 848,563 768,161 683,830
Unrealized losses
on securities
available-for-sale (3,045) -- --
Total Liabilities
and Shareholders'
Equity 10,247,217 9,253,633 8,761,913
-47-
Fully Taxable -
Equivalent Net
Interest Income 439,777 4.06% 414,178 4.29% 393,776 4.23%
Net Interest Income
as a Percentage of
Average Earning
Assets 4.60% 4.80% 4.80%
Percentage of
Total Assets:
Foreign Assets 0.18% 0.66% 0.59%
Foreign
Liabilities 2.39% 2.28% 2.54%
<FN>
(1) Loan fees are included in interest income and are used to calculate average rates earned.
Non-accrual loans are included in the average loan balances.
(2) Yields are computed on a fully taxable-equivalent basis using a federal tax rate of 35% in 1994
and 1993, and 34% in prior years.
1991 1990
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
Average Assets:
Loans(1) 5,173,142 533,522 10.31% 5,186,627 582,180 11.22%
Taxable invest-
ment securities 2,165,169 188,657 8.71 1,623,823 144,854 8.92
Tax-exempt invest-
ment securities(2) 210,379 19,586 9.31 228,616 21,177 9.26
Mortgage held-for-
sale -- -- -- -- -- --
Interest - earning
deposits:
Domestic 10,269 801 7.80 45,490 4,083 8.98
Foreign 100,804 8,224 8.16 230,864 20,797 9.01
Federal funds sold
and resale
agreements 90,710 5,045 5.56 70,103 5,619 8.02
Trading account
securities(2) 48,260 2,889 5.99 28,084 2,381 8.48
Total earning
assets 7,798,733 758,724 9.73 7,413,607 781,091 10.54
Unrealized loss
on securities
available-for-sale -- --
Allowance for loan
losses (78,095) (69,183)
Cash and due from
banks 333,622 341,599
Other Assets 292,848 289,826
Total Assets 8,347,108 7,975,849
-48-
Average Liabilities
and Shareholders'
Equity:
Savings Deposits 2,387,584 115,757 4.85% 2,188,826 118,307 5.41%
Time Deposits:
Negotiable 917,813 59,169 6.45 1,026,650 85,358 8.31
Foreign 101,322 6,015 5.94 95,052 7,689 8.09
Other time 2,743,162 193,712 7.06 2,532,093 202,414 7.99
Total interest-
bearing deposits 6,149,881 374,653 6.09 5,842,621 413,768 7.08
Federal funds
purchased and re-
purchase agreements 425,843 22,418 5.26 369,802 28,062 7.59
Other borrowed funds 124,075 6,739 5.43 128,825 9,892 7.68
Long - term debt 77,644 5,999 7.73 83,313 6,382 7.66
Total interest -
bearing funds 6,777,443 409,809 6.05 6,424,561 458,104 7.13
Demand deposits 859,015 873,411
Other liabilities 72,544 91,880
Shareholders'
equity:
Common stock,
capital surplus
and retained
earnings 638,106 585,997
Unrealized losses
on securities
available-for-sale -- --
Total Liabilities
and Shareholders'
Equity 8,347,108 7,975,849
Fully Taxable -
Equivalent Net
Interest Income 348,915 3.68% 322,987 3.41%
Net Interest Income
as a Percentage of
Average Earning
Assets 4.47% 4.36%
Percentage of
Total Assets:
Foreign Assets 1.21% 2.89%
Foreign
Liabilities 1.21% 1.19%
<FN>
(1) Loan fees are included in interest income and are used to calculate average rates earned.
Non-accrual loans are included in the average loan balances.
(2) Yields are computed on a fully taxable-equivalent basis using a federal tax rate of 35% in 1994
and 1993, and 34% in prior years.
-49-
The following table of average balances summarizes the trends in sources
and uses of funds:
1994 1993
Average Increase (Decrease) Average Increase (Decrease)
(dollars in millions) Balance Amount Percent Balance Amount Percent
Funding Uses:
Loans $5,721.3 $832.2 17.0% $4,889.1 ($ 77.5) (1.6)%
Mortgages held-for-sale 224.5 (53.4) (19.2) 277.8 277.8 100.0
Taxable securities 3,266.5 195.7 6.4 3,070.8 216.4 7.6
Tax-exempt securities 202.0 13.8 7.3 188.2 (1.9) (1.0)
Interest-earning deposits 20.1 (51.5) (71.9) 71.6 7.9 12.4
Federal funds sold
and resale agreements 101.9 29.7 41.1 72.2 1.8 2.6
Trading account securities 26.0 (31.1) (54.5) 57.1 (.4) (.7)
Total Uses $9,562.3 $935.4 10.8% $8,626.9 $424.1 5.2%
Funding Sources:
Demand deposits $1,157.9 $132.9 13.0% $1,025.0 $119.0 13.1%
Savings deposits 3,213.5 183.2 6.0 3,030.4 269.2 9.7
Time deposits:
Negotiable 1,434.0 374.7 35.4 1,059.3 149.6 16.4
Foreign 245.1 34.2 16.2 210.9 (11.7) (5.3)
Consumer 2,289.6 (28.5) (1.2) 2,318.1 (169.1) (6.8)
Federal funds purchased
and repurchase agreements 413.2 (39.1) (8.7) 452.3 (112.8) (20.0)
Other borrowed funds 516.5 243.7 89.3 272.8 157.1 135.8
Long-term debt 1.2 (1.8) (59.9) 3.0 (28.2) (90.4)
Other 291.3 36.1 14.2 255.2 51.0 25.0
Total Sources $9,562.3 $935.4 10.8% $8,626.9 $424.1 5.2%
During 1994, average total loans increased by $832 million, or 17.0%. This
compares to a 1.6% decrease in 1993 of $78 million. Average deposits
increased by $696 million, or 9.1%, in 1994. This compares to a 1993
increase of $357 million, or 4.0%. This growth includes the assets and
deposits of acquired businesses as previously discussed in this financial
review.
Prior to 1994, lower interest rates over the preceding years had an effect
on the relative mix in Old Kent's core deposits. During the period of lower
rates, savings deposits became a greater proportion of total core deposits.
Management believes that this trend indicated a greater preference for
liquidity on the part of consumers. However, during the latter part of 1994
interest rates rose. This had the effect of altering this past trend and
savings deposits became proportionately less of the total by the end of the
year. This change in trend influenced an increase in the Corporation's
interest expense for 1994. Old Kent's management believes that, subject to
the influences of market interest rates, this changed trend will continue
to greater or lesser degrees during 1995.
[Relative Core Deposit Mix Graph]
-50-
At Year-end Based on annual averages
Relative core deposit mix 1994 1994 1993 1992 1991 1990
Demand deposits 19.3% 17.4% 16.1% 14.7% 14.3% 15.6%
Savings deposits 43.1% 48.2% 47.5% 44.9% 39.9% 39.1%
Other time deposits 37.6% 34.4% 36.4% 40.4% 45.8% 45.3%
Total core deposits 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Disclosures About Fair Values
Pursuant to the requirements of Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial Instruments ("SFAS No.
107"), Note 17 to the consolidated financial statements sets forth the
estimated fair value of each significant class of financial instrument.
These values were determined using available market information, current
pricing information applicable to the Corporation and various valuation
methodologies. Where market quotations were not available, considerable
judgment was exercised by Old Kent's management in the determination of
estimated fair values. Hence, the estimated fair values of financial
instruments presented may not be representative of amounts at which they
could be exchanged. Due to the inherent uncertainties of expected cash
flows of financial instruments, the use of other valid, alternate valuation
assumptions and methods could result in estimated fair values which may
differ significantly from those presented in the December 31, 1994,
consolidated financial statements. Additionally, these estimated fair
values represent an estimate at a given point in time. Factors, including
but not limited to, changes in the general levels of interest rates, may
have significant favorable or unfavorable effects on estimated market
values in periods subsequent to December 31, 1994. Therefore, the estimated
fair values presented by Old Kent are subject to the possibility of
significant change after December 31, 1994.
Old Kent has disclosed in its consolidated financial statements the
estimated fair value of its significant classes of financial instruments at
December 31, 1994 and 1993. Beyond financial instruments, the Corporation
has assets, both tangible and intangible in nature, which Old Kent's
management believes to have significant estimated fair value in excess of
carrying value at December 31, 1994. Such assets include, but are not
limited to, "core deposit intangible" assets, premises whose appreciated
value significantly exceeds carrying value based upon historical cost and
depreciation, and residential mortgage servicing rights. Old Kent's
management believes that its "core deposit intangible" asset had the most
significant estimated fair value in excess of carrying value at December
31, 1994.
Core deposits generally include demand and savings deposits as well as
consumer time deposits. Old Kent's core deposits totalled over $7.0 billion
at December 31, 1994 and included approximately $4.4 billion of demand and
savings deposits. Old Kent's management believes that these deposits have
-51-
significant fair value which is not reflected in the estimated fair values
in Note 17 to the consolidated financial statements at December 31, 1994.
Prices involved in sales, mergers and acquisitions of financial
institutions or their banking offices and related deposits are usually
influenced by the value of core deposit intangible assets. Such assets
typically have value based on measurements which estimate the cost of
procuring an equivalent base of deposit customers with similar life
expectancies for the deposit account relationships. Also,
non-interest-bearing deposits and interest-bearing deposits having no fixed
maturity dates usually have a value associated with their nature as lower
cost funding sources which tend to have duration behavior characteristics
similar to time deposits. At December 31, 1994, the carrying value of
unamortized core deposit intangible assets acquired through various
purchase transactions, was $26.8 million, only .3% of the Corporation's
total core deposits at that date.
Quarterly Financial Data
The following is a summary of selected quarterly results of operations for the
years ended December 31, 1994 and 1993:
Three Months Ended 1994
(in thousands, except per share data) March 31 June 30 Sept. 30 Dec. 31
Interest Income $163,763 $175,561 $186,262 $197,697
Net Interest Income 101,499 108,472 111,019 111,448
Provision for Credit Losses 4,514 6,271 5,095 5,285
Income Before Income Taxes 47,595 53,284 54,027 49,974
Net Income 31,709 35,482 35,504 33,412
Net Income Per Common Share $ .79 $ .87 $ .87 $ .82
Three Months Ended 1993
(in thousands, except per share data) March 31 June 30 Sept. 30 Dec. 31
Interest Income $163,658 $167,937 $162,902 $165,523
Net Interest Income 99,766 104,119 99,448 103,407
Provision for Credit Losses 9,449 10,399 6,581 7,568
Income Before Income Taxes 47,366 49,755 50,760 45,672
Net Income 30,104 33,421 33,893 30,484
Net Income Per Common Share $.74 $.82 $.83 $.75
Net income for the fourth quarter of 1994 was less than that of the two
preceding calendar quarters. The primary reason for the decrease was lower
levels of non-interest income. Trust income decreased due to the effects of
unfavorable conditions in the bond markets and mortgage banking gains were
sharply curtailed due to the effects of rising interest rates. Also, total
interest income for the fourth quarter of 1994 was approximately $11
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million greater than that of the preceding quarter. This, however, did not
result in a significant increase in net interest income due to a comparable
increase in total interest expense.
Net income for the fourth quarter of 1993 was less than that of the two
preceding calendar quarters. The primary reason for the change in trend was
a significantly lower level of gains on sales of residential mortgage loans.
Such gains amounted to $2.9 million for the fourth quarter of 1993. This
compares to gains of nearly $7.0 million for each of the two preceding three
month periods. Also, increased net interest income attributable to growth in
interest-earning assets during the fourth quarter of 1993 tended to
offset a similar level of increase in non-interest expenses during that same
quarter.
Annual Report 1994
Consolidated Financial Statements
[LOGO] Old Kent
Management's Responsibility for Financial Reporting
The management of Old Kent Financial Corporation is responsible for the
preparation of the financial statements and other related financial
information included in the annual report. The financial statements have
been prepared in accordance with generally accepted accounting principles
and include amounts based on management's estimates and judgements where
applicable. Financial information appearing throughout this annual report
is consistent with the financial statements.
The Corporation maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and that transactions are
executed in accordance with management's authorization and are recorded
properly to permit the preparation of financial statements in accordance
with generally accepted accounting principles. Management continually
monitors the internal control structure for compliance with established
policies and procedures. As an integral part of the internal control
system, the Corporation maintains a professional staff of internal auditors
who monitor compliance with internal controls and coordinate audit coverage
with the independent public accountants.
The Audit Committee of the Board of Directors, composed entirely of outside
Directors, oversees the Corporation's financial reporting process and has
responsibility for recommending the independent public accountants who are
appointed by the Board of Directors to audit the Corporations annual
financial statements.
The financial statements in this annual report have been audited by Arthur
Andersen LLP and their report appears on page 51.
The Audit Committee of the Board of Directors meets regularly with
management, internal auditors, independent public accountants and
regulatory examiners to review matters relating to financial reporting and
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internal controls. The internal auditors, independent public accountants
and regulatory examiners have direct access to the Audit Committee.
The Corporation assesses its internal control structure over financial
reporting in relation to the criteria described in the "Internal Control -
Integrated Framework" issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, Management of the
Corporation believes that as of December 31, 1994, in all material
respects, the Corporation maintained an effective internal control
structure over financial reporting.
s/ J.C. Canepa
John C. Canepa,
Chairman
s/ David J. Wagner
David J. Wagner,
President
s/ B.P. Sherwood, III
B.P. Sherwood, III,
Vice Chairman and Treasurer
s/ Richard W. Wroten
Richard W. Wroten,
Executive Vice President and Chief Financial Officer
January 16, 1995
Report of Independent Public Accountants
To the Shareholders and the Board of Directors of Old Kent Financial
Corporation:
We have audited the accompanying consolidated balance sheets of Old Kent
Financial Corporation (a Michigan corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
income, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
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overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Old Kent Financial
Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois,
January 16, 1995
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
December 31 (dollars in thousands) 1994 1993
Assets:
Cash and due from banks $ 461,146 $ 371,789
Federal funds sold and
resale agreements 28,727 93,200
Total cash and
cash equivalents 489,873 464,989
Interest-earning deposits 5,255 32,596
Mortgages held-for-sale 189,989 474,898
Trading account securities 10,651 38,558
Securities available-for-sale:
Collateralized mortgage
obligations and other
mortgage-backed securities 404,885 394,251
Other securities 1,043,897 988,373
Total securities
available-for-sale
(amortized cost of
approximately $1,509,366
in 1994 and market value of
$1,433,744 in 1993) 1,448,782 1,382,624
Securities held-to-maturity:
Collateralized mortgage
obligations and other
mortgage-backed securities 1,049,419 990,759
Other securities 914,035 1,193,949
Total securities
held-to-maturity (market
values of $1,886,533
and $2,240,798 in 1994 and
1993, respectively) 1,963,454 2,184,708
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Loans 6,497,997 5,016,686
Less allowance for credit
losses 161,873 140,725
Net loans 6,336,124 4,875,961
Leasehold improvements,
premises and equipment 156,877 133,888
Other assets 345,441 267,482
Total Assets $10,946,446 $9,855,704
Liabilities and
Shareholders' Equity:
Liabilities:
Deposits:
Non-interest-bearing $ 1,364,121 $1,144,700
Interest-bearing 7,212,771 6,478,800
Foreign-interest bearing 380,659 347,652
Total deposits 8,957,551 7,971,152
Short-term borrowed funds 998,150 958,295
Other liabilities 130,130 112,275
Long-term debt 1,119 1,215
Total Liabilities 10,086,950 9,042,937
Shareholders' Equity:
Preferred stock: 25,000,000
shares authorized
and unissued -- --
Common stock, par value $1:
150,000,000 shares
authorized; 40,540,669
and 40,538,910 shares
issued and outstanding
in 1994 and 1993,
respectively 40,541 40,539
Capital surplus 118,116 120,109
Retained earnings 740,234 652,119
Total common stock,
capital surplus and
retained earnings 898,891 812,767
Unrealized losses on
securities available-
for-sale (39,395) --
Total Shareholders' Equity 859,496 812,767
Total Liabilities and
Shareholders' Equity $10,946,446 $9,855,704
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31
(dollars in thousands,
except per share data) 1994 1993 1992
Interest Income:
Interest and fees on loans $ 476,437 $ 400,719 $ 435,922
Interest on mortgages
held-for-sale 14,781 17,844 --
Interest on securities
available-for-sale 83,953 79,001 --
Interest on securities
held-to-maturity 141,516 154,375 242,168
Interest on deposits 991 3,962 4,200
Interest on federal funds
sold and resale agreements 4,540 2,249 2,659
Interest on trading
account securities 1,065 1,870 2,245
Total interest income 723,283 660,020 687,194
Interest Expense:
Interest on
domestic deposits 242,044 224,629 269,251
Interest on
foreign deposits 10,407 6,862 8,328
Interest on short-term
borrowed funds 38,275 21,525 22,595
Interest on
long-term debt 119 264 1,412
Total interest expense 290,845 253,280 301,586
Net Interest Income 432,438 406,740 385,608
Provision for Credit Losses 21,165 33,997 57,712
Net Interest Income after
Provision for Credit Losses 411,273 372,743 327,896
Other Income:
Trust Income 41,813 40,305 38,472
Service charges on
deposit accounts 32,943 29,972 26,516
Credit card transaction
revenue 22,170 16,358 13,510
Mortgage servicing revenue 12,714 9,403 6,287
Mortgage banking gains 7,392 20,763 14,651
Securities transactions 1,015 1,575 5,676
Other 33,454 28,414 22,934
Total other income 151,501 146,790 128,046
Other Expenses:
Salaries and
employee benefits 162,937 145,914 132,467
Occupancy 25,820 22,415 19,974
Equipment 21,828 18,571 16,743
FDIC deposit insurance 18,106 16,375 16,134
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Interbank credit card
transaction fees 15,784 10,950 8,449
Other 113,419 111,755 98,218
Total other expenses 357,894 325,980 291,985
Income before Income Taxes 204,880 193,553 163,957
Income taxes 68,773 65,651 52,866
Net Income $136,107 $127,902 $111,091
Average number of shares
used to compute:
Primary net income
per common share 40,629,356 40,748,316 40,356,791
Fully diluted net
income per common
share 40,629,356 40,748,316 41,097,570
Net income per
common share:
Primary $3.35 $3.14 $2.75
Fully diluted $3.35 $3.14 $2.71
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (in thousands) 1994 1993 1992
Cash flows from operating activities:
Net income $136,107 $127,902 $111,091
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for credit losses 21,165 33,997 57,712
Depreciation, amortization and
accretion 37,574 27,174 16,885
Deferred income taxes (6,802) (6,524) (13,727)
Net gains on sales of assets (12,425) (24,628) (22,034)
Net decrease in trading account
securities 29,272 25,247 550
Originations and acquisitions of
mortgages held-for-sale (1,835,901) (2,319,737) (1,264,836)
Sales and prepayments of
mortgages held-for-sale 2,180,165 2,049,106 1,262,298
Net (increase) decrease in
other assets (23,832) 1,248 (1,829)
Net decrease in other
liabilities (18,614) (7,210) (19,816)
Net cash provided by
(used for) operating
activities 506,709 (93,425) 126,294
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Cash flows from investing activities:
Maturities and prepayments of
securities available-for-sale 146,401 145,469 --
Proceeds from sales of securities
available-for-sale 2,133,275 753,992 --
Purchases of securities
available-for-sale (2,336,955) (1,215,439) --
Maturities and prepayments of
securities held-to-maturity 598,108 902,009 513,090
Proceeds from sales of securities
held-to-maturity 646 -- 983,945
Purchases of securities
held-to-maturity (354,782) (1,110,706) (1,807,325)
Net decrease in
interest-earning deposits 29,971 35,379 55,122
Net (increase) decrease in loans (1,130,174) (80,786) 200,096
Purchases of leasehold
improvements, premises and
equipment, net (27,341) (30,477) (18,175)
Acquisition of subsidiaries (net
of cash acquired) 23,763 (7,522) --
Net cash used for investing
activities (917,088) (608,081) (73,247)
Cash flows from financing activities:
Increase (decrease)
in time deposits 683,932 364,814 (503,001)
(Decrease) increase in demand
and savings deposits (165,297) 154,844 442,562
Increase (decrease) in short-term
borrowed funds 29,995 274,709 (68,244)
Payments of long-term
debt obligations (96) (15,002) (12,677)
Repurchases of common stock (70,720) (2,770) (71,604)
Proceeds from common stock
issuances 5,441 3,902 4,771
Dividends paid to shareholders (47,992) (43,380) (36,413)
Net cash provided by (used for)
financing activities 435,263 737,117 (244,606)
Net increase (decrease) in cash
and cash equivalents 24,884 35,611 (191,559)
Cash and cash equivalents at
beginning of year 464,989 429,378 620,937
Cash and cash equivalents
at end of period $489,873 $464,989 $429,378
Supplemental disclosures of cash flow
information:
Interest paid on deposits,
short-term borrowings and
long-term debt $276,835 $244,482 $316,613
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Federal income taxes paid 77,472 71,755 66,461
Significant non-cash transactions:
Convertible debentures retired in
exchange for common stock issuances -- -- 45,870
Stock issued to acquire subsidiary 62,551 -- --
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Loss on Total
Securities Share-
(dollars in thousands, Common Capital Retained Available- holders'
except per share data) Stock Surplus Earnings For-Sale Equity
Balance at January 1, 1992 $26,770 $139,393 $506,447 $672,610
Net income for the year 111,091 111,091
Cash dividends:
$ .90 1/3 per common share (36,413) (36,413)
Common stock repurchased (1,781) (68,213) (69,994)
Common stock issued for
conversion of debentures,
and under employee stock
plans 1,987 46,689 48,676
Common stock purchased for
dividend reinvestment plan (47) (1,563) (1,610)
Common stock issued under
dividend reinvestment plan 47 1,563 1,610
Common stock issued in payment
of 3-for-2 stock split
(cash paid in lieu of frac-
tional shares - $62) 13,466 (13,528) (62)
Tax benefit relating to
employee stock plan 369 369
Balance at December 31, 1992 40,442 118,238 567,597 726,277
Net income for the year 127,902 127,902
Cash dividends:
$1.07 per common share (43,380) (43,380)
Common stock issued under
employee stock plans 97 1,269 1,366
Common stock purchased for
dividend reinvestment plan (85) (2,685) (2,770)
Common stock issued under
dividend reinvestment plan 85 2,685 2,770
Tax benefit relating to
employee stock plans 602 602
Balance at December 31, 1993 40,539 120,109 652,119 812,767
Net income for the year 136,107 136,107
Cash dividends:
$1.18 per common share (47,992) (47,992)
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Common stock purchased
for EdgeMark Financial
Corporation acquisition -
1,917,566 shares (1,918) (60,673) (62,591)
Common stock issued for
EdgeMark Financial
Corporation acquisition -
1,917,566 shares 1,918 60,633 62,551
Common stock purchased for
dividend reinvestment plan
and employee stock plans -
253,780 shares (254) (7,875) (8,129)
Common stock issued under
dividend reinvestment plan
and employee stock plans,
and other - 255,539 shares 256 5,584 5,840
Tax benefit relating to
employee stock plans 338 338
Unrealized loss on
securities
available-for-sale (39,395) (39,395)
Balance at December 31, 1994 $40,541 $118,116 $740,234 ($39,395) $859,496
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed
for the banking industry. A description of significant accounting policies
follows:
Basis of Presentation
The consolidated financial statements for Old Kent (The Corporation)
include the accounts of Old Kent Financial Corporation (Parent Company)
and its wholly owned subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
Old Kent has defined cash and cash equivalents as those amounts included in
the consolidated balance sheets as "cash and due from banks, federal funds
sold and resale agreements."
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Trading Account Securities
Trading account securities, which primarily consist of debt securities, are
carried at market value. Gains and losses on trading activities are
included in other income in the consolidated statements of income.
Securities Available-for-Sale
Securities available-for-sale include those securities which might be sold
as part of Old Kent's management of interest rate risk, in response to
changes in interest rates, prepayment or credit risk or due to a desire to
increase capital or liquidity. While Old Kent has no current intention to
sell these securities, they may not be held for long-term investment.
Effective January 1, 1994, Old Kent adopted, without a material impact, the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under
the provisions of this statement, these assets are carried on the balance
sheet at their estimated fair values, with corresponding (after-tax)
valuation adjustments included as a component of shareholders' equity.
Prior to January 1, 1994, securities available-for-sale were carried at the
lower of aggregate market or cost adjusted for amortization of premium and
accretion of discount computed on the interest method over the terms of the
securities. Gains and losses realized on sales of such securities are
determined using the specific identification method and are classified as
other income in the consolidated statements of income.
Securities Held-to-Maturity
Securities held-to-maturity are stated at amortized cost. Designation as
such a security is made at the time of acquisition and is based on the
intent and ability to hold the security to its maturity. Prior to 1994,
such treatment was based on an intent to hold for long-term.
Interest Rate Swaps
The Corporation enters into interest rate swaps on existing assets and
liabilities. Income and expenses associated with interest rate swap
transactions are accrued over the life of the contracts and are classified
with the income and expense of the specific assets and liabilities which
are being hedged. Gains and losses on early terminations are included in
the carrying amount of the hedged asset or liability and amortized as yield
adjustments over the remaining term of the hedged asset or liability.
Mortgage Banking Activities
The Corporation routinely sells to investors its originated residential
mortgage loans, as well as those acquired from third parties. The
Corporation typically retains the servicing rights related to the mortgages
sold. Gains on sales of mortgages are recorded to the extent proceeds
exceed the carrying value of the loans after allowing for the recognition
of a normal servicing fee over the estimated lives of the net servicing
income. Mortgage loans held-for-sale are carried at the lower of cost or
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market, which is determined under the aggregate method. The carrying value
of such loans is adjusted by gains and losses associated with the
corresponding financial instruments used to hedge against increases in
interest rates.
Old Kent capitalizes the cost of servicing rights acquired from independent
sources. Amortization of purchased mortgage servicing rights is recorded
over the estimated lives of the related loans. The Corporation evaluates
the realizability of each year's purchased mortgage servicing rights
separately considering such factors as estimated prepayment rates, current
economic conditions and other portfolio characteristics and, if necessary,
adjusts the carrying value to reflect net realizable value. Such
adjustments were not material in 1994, 1993 and 1992.
Loans
Loans are stated at their principal amount outstanding, net of unearned
income. Loan performance is reviewed regularly by loan review personnel,
loan officers and senior management. A loan is placed on nonaccrual status
when principal or interest is past due 90 days or more, and the loan is not
well secured and in the process of collection, or when, in the opinion of
management, there is sufficient reason to doubt collectibility. Interest
previously accrued, but not collected, is reversed and charged against
interest income at the time the loan is placed on nonaccrual status.
Payments received on nonaccrual loans are recorded as principal reductions
if principal repayment is doubtful. Loans are returned to accrual status
when principal and interest payments are brought current and collectibility
is no longer in doubt. Interest income on restructured loans is recognized
according to the terms of the restructure, subject to the above described
nonaccrual policy.
Certain commitment and loan origination fees are deferred and amortized as
an adjustment of the related loan's yield over its contractual life using
the interest method, or other methods which approximate the interest
method. All remaining commitment and loan origination fees and all direct
costs associated with originating or acquiring loans are recognized
currently, which is not materially different than the prescribed method.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level that, in
management's judgment, is adequate to absorb probable credit losses. The
amount is based on management's specific review and analysis of the loan
portfolio, as well as evaluation of the effects of current economic
conditions on the loan portfolio.
This process is based on estimates, and ultimate losses may vary from
current estimates. As changes in estimates occur, adjustments to the level
of the allowance are recorded in the provision for credit losses in the
period in which they become known.
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Leasehold Improvements, Premises and Equipment
Leasehold improvements, premises and equipment are stated at original
costs, less accumulated depreciation and amortization computed on the
straight-line method over the estimated useful lives of the assets or terms
of the leases, whichever period is shorter. For income tax purposes,
minimum lives and accelerated methods are used.
Other Real Estate Owned
Other real estate owned consists of properties acquired in partial or total
satisfaction of debt. Other real estate owned is stated at the lower of the
related loan value or fair value. Losses arising at acquisition are charged
against the allowance for credit losses. Reductions in fair value
subsequent to acquisition are recorded in other expense in the consolidated
statements of income, while any gains realized on the disposition of such
properties are included in other income.
Intangible Assets
Goodwill, representing the cost of investments in subsidiaries in excess of
the fair value of the net assets at acquisition, is amortized over periods
ranging from 10 to 20 years. Other acquired intangible assets, such as
those associated with acquired core deposits, are amortized over periods
not exceeding 15 years.
Trust Assets
Property, other than cash deposits, held in a fiduciary or agency capacity
is not included in the consolidated balance sheets, since such assets are
not owned by Old Kent.
Pension Benefits
A defined benefit pension plan covers substantially all employees. The plan
provides for normal and early retirement, deferred benefits for vested
employees and, under certain circumstances, survivor benefits in the event
of death. Benefits are based on the employees' years of service and their
five highest consecutive years of compensation over the last ten years of
service, subject to certain limits. The proportion of average compensation
paid as a pension is determined by age and length of service as defined in
the plan. Contributions to the plan satisfy or exceed the minimum funding
requirement of the Employee Retirement Income Security Act (ERISA). Assets
held by the plan consist primarily of investments in several of Old Kent's
proprietary mutual funds.
Old Kent also maintains a noncontributory, nonqualified pension plan for
certain participants whose retirement benefit payments under the qualified
plan are expected to exceed the limits imposed by ERISA. Old Kent maintains
nonqualified trusts, referred to as "rabbi" trusts, primarily to fund and
secure the benefits in excess of those permitted in certain of the Old Kent
qualified pension plans.
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Note 1. Summary of Significant Accounting Policies (continued)
These arrangements offer certain officers and directors of the Corporation
a degree of assurance for ultimate payment of benefits. The assets remain
subject to the claims of creditors of Old Kent and are not the property of
the employees. Hence, they are accounted for as assets of the Corporation
in the consolidated balance sheets.
Retirement Savings Plans
Old Kent maintains a defined contribution retirement savings plan covering
substantially all employees. The Corporation's contribution is equal to 50%
of the amount contributed by the participating employees. Old Kent's
contribution is limited to a maximum of 3% of base wages as described under
the terms of the plans. The estimated contribution by Old Kent is charged
to expense during the year in which the employee contribution is received
and is included in employee benefits in the consolidated statements of
income.
Income Taxes
Effective January 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." SFAS No. 109 required a change from the deferral method
of accounting for income taxes of Accounting Principles Board Opinion No.
11 to the asset and liability method of accounting for income taxes. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using the enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be reversed. Old Kent and its subsidiaries file a consolidated
federal income tax return.
Income per Common Share
Primary earnings per common share are computed by dividing net income by
the weighted average number of common shares outstanding and common share
equivalents with a dilutive effect. Common share equivalents are shares
which may be issuable to employees upon exercise of outstanding stock
options.
Fully diluted earnings per common share are determined on the assumption
that the weighted average number of common shares and common share
equivalents outstanding is further increased by conversion of the
convertible debentures. Net income is increased by the after tax interest
expense related to convertible debentures.
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Reclassification
Certain reclassifications have been made to prior periods' financial
statements to place them on a basis comparable with the current period's
financial statements.
Note 2. Acquisitions
Effective May 2, 1994, Old Kent acquired EdgeMark Financial Corporation
(EdgeMark) (Chicago, Illinois). Old Kent exchanged 1,917,566 shares of its
common stock for all of the outstanding EdgeMark common stock. The
aggregate value of the Old Kent common stock issued was approximately $62.6
million. When acquired, EdgeMark had total assets of $522 million and
deposits of $456 million. This acquisition was accounted for as a purchase.
If this purchase had been effective January 1, 1993, there would have been
no material effect on the consolidated results of operations or financial
condition.
On March 1, 1994, Old Kent purchased Princeton Financial Corp. (Princeton)
(Orlando, Florida) in a cash transaction. Princeton is a mortgage company
which originates and sells residential mortgages, while retaining a
substantial portion of the related servicing rights. At the date of
acquisition, Princeton had assets of approximately $70 million and serviced
residential mortgages of approximately $360 million for third-party
investors. This acquisition was accounted for as a purchase. If it had been
effective January 1, 1993, there would have been no material effect on the
consolidated results of operations or financial condition.
Effective January 1, 1993, Old Kent acquired all of the outstanding common
stock of University Financial Corporation (Elgin, Illinois) for
approximately $12.5 million in cash. University Financial Corporation owned
First Federal of Elgin, F.S.A. which, upon acquisition, was merged into Old
Kent's Illinois banking subsidiary. When acquired, University Financial
Corporation had assets of approximately $275 million and deposits of
approximately $198 million and serviced approximately $827 million of
mortgages for third party investors. This acquisition was accounted for as
a purchase.
Pending at December 31, 1994, is the Corporation's acquisition of First
National Bank Corp. (Mount Clemens, Michigan). During the first quarter of
1995, Old Kent expects to exchange approximately 2.8 million shares of its
common stock for all of the outstanding shares of First National Bank Corp.
(First National). At December 31, 1994, First National had total assets of
$531 million, deposits of $472 million and equity of $37 million. This
acquisition will be accounted for as a pooling-of-interests and is not
expected to have a material effect on Old Kent's future results of
operations or financial condition. Proforma, restated summary operating
results of this pending acquisition, as if it had been effective January 1,
1992, are shown in the following table:
Proforma, restated summary operating results for acquisition pending at
December 31, 1994, for the year ended:
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1994 1993 1992
Proforma net income of combined
entities (in thousands) $137,084 $131,324 $114,445
Proforma fully diluted net
income per common share of
combined entities $ 3.17 $ 3.04 $ 2.64
Note 3. Pledged and Restricted Assets
The Federal Reserve requires the banking subsidiaries to maintain certain
average reserve balances. These average reserves approximated $65 million
during 1994 and $56 million during 1993.
At December 31, 1994, securities having an aggregate amortized cost of
approximately $1 billion were pledged to secure public and trust deposits
and for other purposes as required by law. These pledged assets primarily
consisted of securities available-for-sale and securities held-to-maturity.
Note 4. Securities Available-for-Sale
The following summarizes amortized cost and market values of securities
available-for-sale at December 31, 1994 and 1993:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
(in thousands)
U.S. Treasury and federal
agency securities $1,049,759 $ 1,396 $30,048 $1,021,107
Collateralized mortgage
obligations and other
mortgage-backed securities 438,203 78 33,396 404,885
Other securities 21,404 1,386 -- 22,790
Total $1,509,366 $ 2,860 $63,444 $1,448,782
December 31, 1993
(in thousands)
U.S. Treasury and federal
agency securities $ 976,097 $50,615 $ 958 $1,025,754
Collateralized mortgage
obligations and other
mortgage-backed securities 394,251 1,765 4,642 391,374
Other securities 12,276 4,340 -- 16,616
Total $1,382,624 $56,720 $ 5,600 $1,433,744
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The amortized cost and market values of securities available-for-sale
at December 31, 1994, are shown below by their contractual maturity.
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay the obligation with or without
call or prepayment penalties.
Estimated
Amortized Market
December 31, 1994 (in thousands) Cost Value
U.S. Treasury and federal
agency securities:
Due in one year or less $ 191,233 $ 191,891
Due after one year through five years 692,275 671,425
Due after five years through ten years 166,251 157,791
Total U.S. Treasury and federal
agency securities 1,049,759 1,021,107
Collateralized mortgage obligations
and other mortgage-backed securities 438,203 404,885
Other securities 21,404 22,790
Total $1,509,366 $1,448,782
Note 5. Securities Held-to-Maturity
The following summarizes amortized cost and market values of securities
held-to-maturity at December 31, 1994 and 1993:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
(in thousands)
U.S. Treasury and federal
agency securities $ 736,678 $ 2,409 $10,973 $ 728,114
Collateralized mortgage
obligations and
other mortgage-backed
securities 1,049,419 1,558 70,006 980,971
State and political
subdivision securities 177,357 3,063 2,972 177,448
Total $1,963,454 $ 7,030 $83,951 $1,886,533
December 31, 1993
(in thousands)
U.S. Treasury and federal
agency securities $ 986,151 $ 40,103 $ 1,059 $1,025,195
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Collateralized mortgage
obligations and other
mortgage-backed
securities 990,759 16,894 8,441 999,212
State and political
subdivision securities 204,685 9,019 896 212,808
Other securities 3,113 471 1 3,583
Total $2,184,708 $66,487 $10,397 $2,240,798
The amortized cost and market values of securities held-to-maturity at
December 31, 1994, are shown below by their contractual maturity. Expected
maturities may differ from contractual maturities because issuers may have
the right to call or prepay the obligation with or without call or
prepayment penalties.
Estimated
Amortized Market
December 31, 1994 (in thousands) Cost Value
U.S. Treasury, federal
agency, state and political
subdivision securities:
Due in one year or less $ 123,768 $ 123,797
Due after one year through five 730,291 722,795
Due after five years through ten years 37,101 36,606
Due after ten years 22,875 22,364
Total U.S. Treasury, federal agency,
state and political subdivision securities 914,035 905,562
Collateralized mortgage obligations and
other mortgage-backed securities 1,049,419 980,971
Total $1,963,454 $1,886,533
As reflected in the consolidated statements of cash flows, during 1994, the
Corporation sold $0.6 million of securities held-to-maturity. The decision
to sell these securities was based on deterioration in the creditworthiness
of the issuers.
Note 6. Loans and Nonperforming Assets
The following summarizes loans:
December 31 (in thousands) 1994 1993
Commercial $1,608,448 $1,351,693
Real estate - Commercial 1,185,535 1,167,979
Real estate - Construction 194,517 136,565
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Real estate - Residential mortgages 1,077,652 754,544
Real estate - Consumer home equity 543,992 426,382
Consumer 1,674,839 1,062,019
Credit card loans 102,249 62,396
Lease financing 110,765 55,108
Total Loans $6,497,997 $5,016,686
Loans made by Old Kent to its directors and executive officers, including
their family members and associated entities, aggregated $195 million and
$174 million at December 31, 1994 and 1993, respectively. During 1994, new
loans and other additions amounted to $235 million and repayments were $214
million. These loans were made in the ordinary course of business under
normal credit terms, including interest rate and collateralization and do
not represent more than a normal risk of collection.
The table below summarizes nonperforming assets:
December 31 (in thousands) 1994 1993
Nonaccrual loans $51,856 $53,330
Restructured loans 5,838 5,426
Other real estate owned 10,288 9,480
Total nonperforming assets $67,982 $68,236
Loans past due 90 days or more, but for which interest income continues to
be recognized, totalled $10.4 million and $9.0 million at December 31, 1994
and 1993, respectively. Gross interest income that would have been recorded
in 1994 for nonaccrual and restructured loans as of December 31, 1994,
assuming interest had been accrued throughout the year in accordance with
original terms, was $5.2 million. The comparable total for 1993 was $5.4
million. The amount of interest included in income on these loans was $2.3
million and $1.1 million in 1994 and 1993, respectively.
Although Old Kent has a diversified loan portfolio, a substantial natural
geographic concentration of credit risk exists within the Corporation's
defined customer market areas. These geographic market areas are the state
of Michigan, the greater Grand Rapids, Michigan area, and the Chicago,
Illinois metropolitan and suburban markets. There are no significant
concentrations of credit where customers' ability to honor loan terms is
dependent upon a single economic sector.
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Note 7. Allowance for Credit Losses
The following summarizes the changes in the allowance for credit losses:
Year ended December 31 (in thousands) 1994 1993 1992
Balance at beginning of year $140,725 $120,790 $ 87,025
Additions:
Provision charged to operations 21,165 33,997 57,712
161,890 154,787 144,737
Deductions:
Credit losses 20,432 24,833 35,589
Less recoveries 11,179 8,666 11,642
Net credit losses 9,253 16,167 23,947
Allowance of acquired businesses 9,236 2,105 --
Balance at end of year $161,873 $140,725 $120,790
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118. Old Kent is required
to adopt these statements after December 31, 1994. These statements require
that the recorded investment in certain impaired loans (as defined by the
statements) be adjusted by means of a valuation allowance to reflect a net
carrying value determined by one of the following methods: (1) the present
value of expected future cash flows discounted at the loan's effective
interest rate, (2) the loan's observable market price, or (3) at the fair
value of the collateral, if the loan is collateral dependent. It is
anticipated that, when adopted, effective January 1, 1995, the provisions
of SFAS Nos. 114 and 118 will not have a material effect on the
Corporation's financial condition and results of operations.
Note 8. Leasehold Improvements, Premises and Equipment
The following summarizes leasehold improvements, premises and equipment:
December 31 (in thousands) 1994 1993
Land $ 23,761 $ 22,560
Land improvements 6,026 6,088
Buildings and improvements 141,650 125,536
Leasehold improvements 25,416 19,536
Furniture and equipment 107,338 86,748
Total 304,191 260,468
Less accumulated depreciation and amortization 147,314 126,580
Net leasehold improvements, premises and equipment $156,877 $133,888
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Note 9. Intangible Assets
Other assets, as shown on the consolidated balance sheets, includes the
following intangible assets (net of accumulated amortization):
December 31 (in thousands) 1994 1993
Goodwill $ 77,040 $35,095
Core deposit intangibles 26,761 14,519
Total $103,801 $49,614
Other assets, as shown on the consolidated balance sheets also includes
unamortized purchased mortgage servicing rights purchased by the
Corporation. At December 31, 1994 and 1993, these assets totalled
$15,677,000 and $4,609,000, respectively.
Note 10. Short-Term Borrowed Funds
The following summarizes short-term borrowed funds:
December 31 (in thousands) 1994 1993
Bank notes $400,000 $235,000
Securities sold under agreements to repurchase 269,967 233,573
Federal funds purchased 164,324 251,085
Treasury tax and loan demand notes 95,563 164,140
Other borrowed funds 68,296 74,497
Total short-term borrowed funds $998,150 $958,295
At December 31, 1994, short-term borrowed funds included bank notes
totalling $400 million which had original maturities of one year or less
and are scheduled to mature at various dates in 1995. The rates of interest
on these notes range from 3.70% to 6.13%.
Note 11. Capital Stock
At the Annual Meeting of Shareholders held on April 19, 1993, shareholders
approved a proposal to amend the Articles of Incorporation to increase the
number of authorized shares of common stock from 50 million to 150 million
shares.
At December 31, 1994 and 1993, there were 25,000,000 shares of preferred
stock authorized but not issued, of which 3,000,000 are designated Series A
Preferred Stock and 300,000 are designated Series B Preferred Stock.
On December 31, 1994, the Corporation had outstanding 27,027,113 Series B
Preferred Stock Purchase Rights ("Rights"). The Rights were originally
issued in January 1989 as a dividend to holders of the Corporation's common
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stock at the rate of one Right for each share of common stock outstanding.
As a result of the three-for-two split of the Corporation's stock which
occurred in 1992, each share of the Corporation's common stock presently
represents 2/3rds of a Right. Each full Right entitles the holder thereof,
until January 10, 1999, to buy one one-hundredth (1/100) of a share of
Series B Preferred Stock at an exercise price of $80.00. The exercise price
and the number of shares of Series B Preferred Stock issuable upon the
exercise of the Rights are subject to adjustment in certain cases to
prevent dilution. The Rights are evidenced by common stock certificates and
are not exercisable or transferable apart from the common stock until the
occurrence of certain events set forth in a Rights Agreement under which
the Rights were issued. The Rights do not have any voting rights and are
redeemable, at the option of the Corporation, at a price of $0.01 per Right
prior to any person acquiring beneficial ownership of at least 20% of the
common stock. The Rights expire on January 10, 1999. So long as the Rights
are not separately transferable, the Corporation will issue 2/3rds of a
Right (subject to possible future adjustment) with each new share of common
stock issued.
Note 12. Long-Term Stock Incentive Plans
Old Kent has stock option plans under which options may be granted to
certain officers and employees at not less than the market price of Old
Kent's common stock on the date of grant. The options granted are
exercisable immediately and expire within ten years of the date of grant,
subject to certain cancellation provisions relating to employment. At
December 31, 1994, a total of 1,876,933 shares were reserved for stock
options, consisting of 774,321 shares for options granted at prices from
$14.25 to $34.38, and 1,102,612 shares available for future option grants
under incentive plans.
The following table summarizes stock option transactions for the last three
years:
Number of Exercise
Shares Price Range
Options outstanding January 1, 1992 826,154 $ 4.59 - $18.42
Granted 140,598 $26.92
Exercised (273,640) $ 4.59 - $26.92
Options outstanding December 31, 1992 693,112 $ 7.85 - $26.92
Granted 133,118 $31.63
Exercised (105,800) $ 7.85 - $26.92
Options outstanding December 31, 1993 720,430 $ 7.85 - $31.63
Granted 185,475 $ 33.88 - $34.38
Issued as a result of business acquisition 154,529 $ 10.51 - $19.82
Exercised (140,861) $ 7.85 - $31.63
Cancelled (3,839) $31.63
Options outstanding December 31, 1994 915,734 $ 10.51 - $34.38
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(Amounts shown above have been adjusted to reflect the effect of stock
splits subsequent to grant dates)
Old Kent also has restricted stock plans under which certain officers and
employees may be awarded restricted stock. The plans provide for the
issuance of a maximum of 1,080,844 authorized but previously unissued
shares of Old Kent's common stock, subject to certain antidilution
adjustments, as defined in the plans. Shares issued pursuant to the plans
are restricted as to sale or transfer for a period of up to five years and
are forfeitable (subject to certain exceptions) upon termination of
employment, but provide the recipients with all other rights and benefits
of ownership. During 1994, 1993, and 1992, Old Kent issued 37,130 shares,
23,170 shares and 30,996 shares of its common stock with total market
values of $1,252,000, $733,000 and $887,000, respectively, which are being
amortized ratably to expense over the period of restriction. At December
31, 1994, there were 216,257 shares reserved for future restricted stock
plan awards.
Old Kent also has a deferred stock compensation plan under which key
employees may be awarded shares of stock as deferred compensation to be
received at a specified later date, which may be up to five years after the
date of the award. The plan provides for the issuance of a maximum of
300,000 authorized but previously unissued shares of Old Kent's common
stock. Shares awarded under the plan would not be issued until the end of
the deferral period, unless there is a change of control of the
Corporation, in which case the shares would be issued to a trust where they
are to be held and distributed at the end of the deferral period. Employees
who receive awards under this plan are entitled to additional shares, to be
similarly deferred, equivalent in value to the dividends which would have
been paid on the shares awarded if they were outstanding during deferral
period. During 1994, 1993 and 1992, Old Kent awarded 21,825 shares, 20,835
shares and 22,925 shares of its common stock valued at $737,000, $659,000
and $629,000, respectively at their award dates, as deferred compensation
which are ratably charged to expense from the date of award to the end of
the deferral period based on current market value. At December 31, 1994,
there were 234,415 shares reserved for future deferred stock compensation
plan awards.
Note 13. Other Income and Other Expense
Other income, as shown on the consolidated statements of income, includes
the following:
Year ended December 31 (in thousands) 1994 1993 1992
Transaction processing fees $11,966 $ 9,809 $ 8,301
Credit life insurance premiums 3,394 2,972 2,529
Safe deposit box rental income 1,881 1,765 1,625
Trading account gains 1,602 1,594 1,908
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Gains on sales of other real estate
owned and other assets 3,321 1,155 387
Non-recurring revenue -- 2,089 --
Other revenues 11,290 9,030 8,184
Total other income $33,454 $28,414 $22,934
Note 13. Other Income and Other Expense (continued)
Other expense, as shown on the consolidated statements of income, includes
the following:
Year ended December 31 (in thousands) 1994 1993 1992
Taxes other than income taxes $ 9,490 $ 10,474 $ 9,307
Advertising and public relations 9,401 8,372 6,634
Postage and courier charges 9,028 8,207 8,057
Professional services 8,990 9,202 7,023
Stationery and supplies 8,269 8,250 7,114
Amortization of goodwill 4,703 2,966 3,609
Amortization of core deposit intangibles 5,761 3,958 2,175
Amortization of purchased mortgage
servicing rights 3,241 5,190 128
Other expenses 54,536 55,136 54,171
Total other expenses $113,419 $111,755 $98,218
Securities transactions for available-for-sale and held-to-maturity
securities, as shown on the statements of income, includes gross gains
and gross losses as follows:
Year ended December 31 (in thousands) 1994 1993 1992
Gross gains on sales of securities $10,205 $1,889 $6,571
Gross losses on sales of securities (9,190) (314) (895)
Securities transactions $ 1,015 $1,575 $5,676
Income tax expense applicable to
securities transactions $ 240 $ 551 $1,930
Note 14. Employee Benefits
The Corporation provides pension benefits to substantially all of its
employees under the terms of the "Old Kent Retirement Income Plan." Old
Kent also provides its key executives with pension benefits under the
provisions of the "Old Kent Executive Retirement Income Plan." The
following table sets forth the funded status of the pension plans and the
amounts included in Old Kent's consolidated balance sheets.
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December 31 (in thousands) 1994 1993
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $63,807 and $59,326 $ 64,867 $ 60,338
Projected benefit obligation for service
rendered to date ($112,268) ($85,270)
Plan assets at fair value 97,150 107,547
Plan assets (less than) in excess
of projected benefit obligation (15,118) 22,277
Unrecognized net actuarial loss 39,988 5,937
Unrecognized prior service cost being
recognized over 19 years 4,644 5,580
Unrecognized net transition assets
being recognized over 15 to 19 years (18,522) (20,363)
Prepaid pension cost included in other assets $ 10,992 $ 13,431
Net pension expense (income) included the following components:
Year ended December 31 (in thousands) 1994 1993 1992
Service cost (benefits earned during the year) $ 5,730 $4,219 $ 3,785
Interest cost on projected benefit obligation 7,091 6,812 6,076
Actual loss (return) on plan assets 800 (8,500) (6,945)
Net amortization and deferral (11,285) (3,113) (4,075)
Net periodic pension expense (income) $ 2,336 ($ 582) ($1,159)
The following assumptions were used in determining the actuarial present
value of the projected benefit obligations as of December 31 for each of
the following years:
1994 1993 1992
Discount rate 8.00% 7.75% 9.00%
Rate of increase in future compensation levels 4.90% 4.75% 6.00%
Expected long-term rate of return on plan assets 9.00% 9.00% 10.00%
Old Kent has adopted amended assumptions, as shown above, for use in the
actuarial determination of its projected benefit obligations at December 31,
1994. The amended assumptions reflect a change in outlook based on
management's assessment of expected economic conditions for the foreseeable
future.
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During 1994, plan assets decreased primarily due to payments to retirees.
These payments included a significant amount of 'lump sum' payment
elections for new retirees. In addition, actual return on plan assets was
less than expected primarily due to the volatility of plan investments as a
result of changes in market conditions during 1994.
Eligible employees may elect to participate in Old Kent's retirement
savings plans whereby the Company contributes a 50% matching contribution
for each amount contributed by participating employees, within limits as
defined in the plans. The cost of these retirement savings plans was
$2,179,000, $2,194,000, and $1,949,000 for 1994, 1993 and 1992,
respectively.
The Corporation provides post-retirement benefits other than pensions for a
small group of employees who were entitled to such benefits under plans of
predecessor banking organizations acquired by Old Kent. These benefits
primarily consist of health care and life insurance. The costs of these
benefits are not material and are recognized in the financial statements
during the employees' years of service.
Note 15. Taxes on Income
Components of the provision for income taxes are as follows:
Year ended December 31 (in thousands) 1994 1993 1992
Current $75,575 $72,175 $66,593
Deferred benefit (6,802) (6,524) (13,727)
Total provision $68,773 $65,651 $52,866
Income tax expense differs from that computed at the federal statutory rate
as follows:
Year ended December 31 (in thousands) 1994 1993 1992
Tax at 35% statutory rate (34% for 1992) $71,708 $67,743 $55,745
Tax effect of:
Tax-exempt interest (4,757) (4,986) (5,484)
Amortization of goodwill 1,766 1,038 1,096
Cumulative effect of adopting
SFAS No. 109 -- 1,900 --
Impact of statutory rate increase
on deferred balances -- (1,044) --
Other, net 56 1,000 1,509
Income tax expense $68,773 $65,651 $52,866
Effective tax rate 33.6% 33.9% 32.2%
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Components of the deferred tax assets and liabilities were as follows:
Year ended December 31 (in thousands) 1994 1993
Deferred tax assets:
Allowance for credit losses $57,296 $48,884
Deferred compensation 7,413 6,344
Unrealized loss on securities available-for-sale 21,189 -
Other 7,325 5,210
Total deferred tax assets $93,223 $60,438
Valuation allowance - -
Deferred tax assets $93,223 $60,438
Deferred tax liabilities:
Business acquisitions 6,672 2,104
Prepaid pension 5,649 5,844
Depreciation 3,254 3,289
Other 7,893 5,189
Deferred tax liabilities $23,468 $16,426
Net deferred tax assets $69,755 $44,012
Note 15. Taxes on Income (continued)
Components of the deferred tax benefit for 1992 is as follows:
Year ended December 31 (in thousands) 1992
Provision for credit losses ($11,705)
Other (2,022)
Total deferred benefit ($13,727)
16. Commitments and Contingencies
Certain facilities and equipment are leased under noncancelable operating
lease agreements which expire at various dates through the year 2013. The
aggregate minimum rental commitments are as follows:
Year ending December 31 (in thousands) Premises Equipment Total
1995 $ 4,759 $5,071 $ 9,830
1996 4,059 912 4,971
1997 3,608 365 3,973
1998 2,855 101 2,956
1999 2,581 42 2,623
Thereafter 6,580 11 6,591
Total minimal payments $24,442 $6,502 $30,944
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Rental expense charged to operations in 1994, 1993, and 1992, amounted to
approximately $10,426,000, $8,584,000, and $8,866,000, respectively,
including amounts paid under short-term cancelable leases. Certain leases
contain provisions for renewal and purchase options, and require payment of
property taxes, insurance and related expenses.
Included as a reduction of Old Kent's occupancy expense is building rental
income of approximately $4,076,000, $4,032,000, and $4,350,000, for 1994,
1993, and 1992, respectively.
At December 31, 1994, Old Kent and its subsidiaries were parties, both as
plaintiff and as defendant, to a number of lawsuits which arose in the
ordinary course of business. In the opinion of management, after
consultation with the Corporation's counsel, the ultimate resolution of
these matters will not have a material effect on the Corporation's
consolidated financial position and results of operations.
Note 17. Financial Instruments with Off-Balance-Sheet Risk
Old Kent utilizes various derivative financial instruments in the normal
course of business both as part of its risk management strategy and as a
means to meet customer needs. The activities which currently employ
financial derivatives are interest rate risk management, mortgage banking,
and foreign exchange operations. Old Kent also enters into commitments to
extend credit and letters of credit in connection with its lending
activities.
Interest Rate Risk Management
The Corporation's asset/liability management focuses on limiting the
volatility of both earnings and the value of capital that can result from
changes in market interest rates. Interest rate risk exists to the extent
that interest-earning assets and interest-bearing liabilities have
different maturity or repricing characteristics. The Corporation's
traditional banking operations tend to result in an asset-sensitive
position, where assets reprice more rapidly than liabilities. This
asset-sensitive profile has been moderated through the strategic use of the
investment portfolio. Interest rate swap contracts are also used as a means
to manage interest rate risk.
Interest rate swap contracts involve the exchange of interest payments at
specified intervals between two parties without the exchange of any
underlying principal. Notional amounts are used in such contracts to
calculate interest payments due to each counterparty and do not represent
credit exposure. Old Kent pays a floating rate and receives a fixed rate
for the majority of its swaps, which are hedges related to Prime rate-based
loans and certain fixed rate liabilities. Old Kent pays a fixed rate and
receives a floating rate on swaps that hedge certain floating rate
liabilities. The Corporation is also a party to swaps in which Old Kent
pays a floating rate and receives a floating rate. These swaps were
executed to limit the variability of the yields on certain agency
structured notes, which are included in the available-for-sale category in
the consolidated balance sheets.
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Old Kent's credit risk in these contracts relates to the failure of a
counterparty to pay according to the contractual terms of the swap
agreement. The Corporation controls the credit risk of its interest rate
swap agreements through credit approvals, risk control limits and ongoing
monitoring procedures. Credit exposure is represented by the fair value of
interest rate swaps with a positive fair value, adjusted for accrued
interest.
1994 1993
Notional Credit Notional Credit
December 31 (in thousands) Amount Exposure Amount Exposure
Swap Categories:
Receive fixed/pay floating $371,685 $ 142 $340,000 $10,833
Receive floating/pay fixed 65,000 2,190 25,000 19
Receive floating/pay floating 120,500 5,215 120,500 --
$557,185 $7,547 $485,500 $10,852
Mortgage Banking
The Corporation uses both forward sales and option contracts to protect the
value of residential mortgage loans that are being underwritten for future
sale to investors in the secondary market. Adverse market interest rate
changes, between the time that a customer receives a rate-lock commitment
and when the fully-funded mortgage loan is sold to an investor, can erode
the value of that mortgage. Therefore, Old Kent enters into forward sales
contracts and purchases exchange-traded option contracts to mitigate the
interest rate risk associated with the origination and sale of mortgage
loans. Old Kent accepts credit risk in forward sales contracts to the
extent of nonperformance by a counterparty, in which case Old Kent would be
compelled to sell the mortgages to another party at the current market
price. The credit exposure of forward sales contracts represents the
aggregate value of contracts with a positive fair value. These credit
exposures at both December 31, 1994 and 1993 were not significant.
1994 1993
Contractual Contractual
December 31 (in thousands) Amount Amount
Mortgage forward sales $134,769 $510,350
Mortgage & treasury put options 9,800 24,000
Foreign Exchange Contracts
Old Kent enters into foreign exchange forward contracts to purchase or sell
foreign currencies at a future date at a predetermined exchange rate. These
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contracts are used to assist customers with international transactions
based upon foreign denominated currencies. The Corporation manages its
exposure to foreign currency fluctuations by entering into offsetting
contracts with authorized counterparties, usually foreign banks. The credit
risk inherent in these transactions relates to the possibility of failure
by a counterparty to fulfill its purchase or delivery responsibility,
whereby Old Kent would execute the transaction with another counterparty at
the prevailing currency valuation, which may be different than the value in
the original contract. The credit exposure of Old Kent's foreign exchange
contracts represents the aggregate value of contracts with a positive fair
value. The extension of foreign exchange credit facilities to
counterparties follows the same approval process as other credit
facilities. The majority of Old Kent's foreign exchange contracts relate to
major currencies such as Canadian Dollars, Pounds Sterling, Deutschemarks,
Japanese Yen, Italian Lira, and French Francs.
1994 1993
Contractual Credit Contractual Credit
December 31 (in thousands) Amount Exposure Amount Exposure
Foreign exchange forward
contracts $38,024 $274 $8,186 $117
Commitments
Commitments to extend credit are agreements to lend cash to a customer as
long as there is no breach of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. The majority of Old Kent's
loan commitments have maturities that are less than one year and reflect
the prevailing market rates at the time of the commitment. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Note 17. Financial Instruments with Off-Balance-Sheet Risk (continued)
The amount of collateral obtained, if deemed necessary by Old Kent, upon
extension of credit is based upon management's credit evaluation of the
counterparty. Standby and commercial letters of credit are Old Kent's
conditional commitments to guarantee the performance of a customer to
another party. The Corporation's exposure to credit loss in the event of
nonperformance by the other party is represented by the contractual amount
of those instruments. Old Kent uses the same credit underwriting policies
in making commitments and issuing letters of credit as it does for its
other lending activities.
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Contractual Amount at December 31,
(in millions) 1994 1993
Commitments to extend credit $2,888 $2,229
Standby and commercial letters of credit 331 275
Note 18. Estimated Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"),
the following methods and assumptions were used to estimate the fair value
of each significant class of financial instrument, as defined by SFAS No.
107, for which it is practicable to estimate that value.
The estimated fair values of financial instruments, as shown below, are not
intended to reflect the estimated liquidation or market value of the
Corporation taken as a whole. The disclosed fair value estimates are
limited to Old Kent's significant financial instruments. These include
financial instruments recognized as assets and liabilities on and off the
consolidated balance sheet. The estimated fair values shown below do not
include any value for assets and liabilities which are not financial
instruments as defined by SFAS No. 107, such as the value of real property,
the value of "core deposit intangibles," the value of mortgage servicing
rights, nor the value of anticipated future business.
The estimated fair value amounts were determined using available market
information, current pricing information applicable to Old Kent and various
valuation methodologies. Where market quotations were not available for
financial instruments, considerable management judgment was involved in the
determination of estimated fair values. Therefore, the estimated fair value
of financial instruments shown below may not be representative of the
amounts at which they could be exchanged in a current or future
transaction. Due to the inherent uncertainties of expected cash flows of
financial instruments, the use of alternate valuation assumptions and
methods could have a significant effect on the derived estimated fair value
amounts.
Cash and cash equivalents, interest receivable and interest payable
For these short-term instruments, the carrying amount was deemed to be a
reasonable estimate of fair value.
Interest-earning deposits
The estimated fair value of these holdings was calculated by discounting
the expected future cash flows using rates applicable to similar
instruments with the same remaining maturity.
Trading account securities, securities available-for-sale and securities
held-to-maturity
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The estimated fair values were based upon quoted market or dealer prices.
Net loans and mortgages held-for-sale
Generally, the fair value of loans was estimated by discounting the
expected future cash flows using current interest rates at which similar
loans would be made to borrowers with similar credit ratings and remaining
maturities. The fair value for credit card loans, student loans and certain
"open-end" consumer loans was based upon available market prices for
similar loans, adjusted for differences in loan characteristics. The fair
value of loans on nonaccrual status was estimated at a discount of their
carrying amounts. For certain variable rate loans that reprice frequently,
the estimated fair value is equal to the carrying value. The estimated fair
value of mortgages held-for-sale approximates their carrying value.
Deposit liabilities
The fair value of fixed-maturity time deposits was estimated using the
rates currently offered for deposits of similar remaining maturities. The
fair value of demand and savings deposits is the amount payable on demand
at the reporting date.
Short-term borrowed funds
For all instruments except bank notes, the carrying amount was deemed to be
a reasonable estimate of fair value. The estimated fair value of bank notes
was calculated by discounting the expected future cash flows using rates
applicable to similar instruments of comparable maturity.
Long-term debt obligations
The fair value of long-term debt obligations at December 31, 1994 and 1993,
approximated the carrying value.
Off-balance-sheet financial instruments
The carrying value of Old Kent's interest rate swaps represents accrued
interest as reflected in the consolidated balance sheets. The estimated
fair value of interest rate swap agreements was based upon dealer
quotations for the amount which might be realized from a transfer, sale or
termination of such agreements. The fair value of Old Kent's commitments to
extend credit, its outstanding letters of credit, foreign exchange
contracts and put options are insignificant.
The following summarizes the carrying value and estimated fair value of
financial instruments.
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1994 1993
Carrying Estimated Carrying Estimated
December 31 (in thousands) Value Fair Value Value Fair Value
Financial Assets:
Cash and cash equivalents $ 489,873 $ 489,873 $ 464,989 $ 464,989
Interest-earning deposits 5,255 5,258 32,596 32,700
Trading account securities 10,651 10,651 38,558 38,558
Securities available-
for-sale 1,448,782 1,448,782 1,382,624 1,433,744
Securities held-to-maturity 1,963,454 1,886,533 2,184,708 2,240,798
Mortgages held-for-sale 189,989 189,989 474,898 474,898
Net loans 6,336,124 6,429,736 4,875,961 5,078,718
Interest receivable 84,132 84,132 79,239 79,239
Financial Liabilities:
Non-interest-bearing
deposits $1,364,121 $1,364,121 $1,144,700 $1,144,700
Interest-bearing deposits -
no maturities 3,047,597 3,047,597 3,104,353 3,104,353
Interest-bearing deposits -
fixed maturities 4,545,833 4,534,637 3,722,099 3,754,789
Short-term borrowed funds 998,150 996,800 958,295 958,295
Interest payable 52,541 52,541 38,531 38,531
Long-term debt 1,119 1,119 1,215 1,215
Interest Rate Swaps
Relating To:
Assets 379 (10,792) 1,971 5,280
Liabilities 171 1,396 318 646
Note 19. Condensed Financial Information of the Parent Company
The condensed financial information of the parent company, Old Kent
Financial Corporation, is summarized as follows:
Condensed Balance Sheets
December 31 (in thousands) 1994 1993
Assets:
Cash and cash equivalents $ 8,183 $ 3,691
Interest-earning deposits and other securities 52,576 106,952
Leasehold improvements, premises and equipment 7,002 7,455
Investment in and advances to subsidiaries 786,211 671,013
Other assets 42,355 49,761
Total Assets $896,327 $838,872
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Liabilities and Shareholders' Equity:
Long-term debt $ 241 $ 293
Accrued expenses and other liabilities 36,590 25,812
Total liabilities 36,831 26,105
Shareholders' equity 859,496 812,767
Total Liabilities and Shareholders' Equity $896,327 $838,872
Note 19. Condensed Financial Information of the Parent Company (continued)
Condensed Statements of Income
Year ended December 31 (in thousands) 1994 1993 1992
Income:
Dividends from subsidiaries $ 85,200 $106,350 $ 94,200
Service fees from subsidiaries 50,707 45,286 41,980
Interest and other 4,904 3,986 2,239
Securities transactions 325 -- 216
Total income 141,136 155,622 138,635
Expenses:
Interest 279 366 808
Salaries and benefits 33,340 31,112 28,228
Occupancy 4,093 3,738 3,438
Equipment 9,263 8,008 7,812
Other 23,351 23,056 21,435
Total expenses 70,326 66,280 61,721
Income before income taxes and equity
in undistributed net income of subsidiaries 70,810 89,342 76,914
Income tax benefit 4,672 3,557 3,707
Income before equity in undistributed net
income of subsidiaries 75,482 92,899 80,621
Equity in undistributed net income of
subsidiaries 60,625 35,003 30,470
Net Income $136,107 $127,902 $111,091
Condensed Statements of Cash Flows
Year ended December 31 (in thousands) 1994 1993 1992
Cash flows from operating activities:
Net income $136,107 $127,902 $111,091
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed net
income of subsidiaries (60,625) (35,003) (30,470)
Depreciation, amortization and accretion 8,891 10,514 8,181
Net (gains) losses on sales of assets (342) 9 (153)
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Decrease (increase) in other assets 1,400 (1,636) (1,621)
Increase in other liabilities 9,850 4,670 90
Net cash provided by operating activities 95,281 106,456 87,118
Cash flows from investing activities:
Decrease (increase) in
interest-earning assets 54,901 (53,256) 35,014
Increase in investment in and
advances to subsidiaries (30,711) (14,479) (4,174)
Purchases of leasehold improvements,
premises and equipment, net (1,656) (2,922) (1,748)
Net cash provided by (used for)
investing activities 22,534 (70,657) 29,092
Cash flows from financing activities:
Proceeds from common stock issuances 5,441 3,902 4,771
Repurchases of common stock (70,720) (2,770) (71,604)
Dividends paid to shareholders (47,992) (43,380) (36,413)
Payments of long-term debt obligations (52) (47) (5,838)
Net cash used for financing activities (113,323) (42,295) (109,084)
Net increase (decrease) in cash and
cash equivalents 4,492 (6,496) 7,126
Cash and cash equivalents at
beginning of year 3,691 10,187 3,061
Cash and cash equivalents at end of year $ 8,183 $ 3,691 $ 10,187
Federal and state banking laws and regulations place certain restrictions
on the amount of dividends and loans a bank may make to its parent company.
In 1995, the subsidiary banks may distribute to the parent company, in
addition to their 1995 net income, approximately $68 million in dividends
without written approval from bank regulatory agencies. The remaining net
assets of subsidiary banks, approximating $739 million at December 31,
1994, are unavailable for transfer to the parent company.
Shareholder 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 Mr. Martin J. Allen, Jr., Senior Vice President and
Secretary, Old Kent Financial Corporation, One Vandenberg Center, Grand
Rapids, Michigan 49503.
Annual Meeting
The annual meeting of shareholders of Old Kent Financial Corporation will
be held on April 17, at 10:00 am. 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.
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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
111 Lyon Street NW
Grand Rapids, Michigan 49503
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 $1,000 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 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-downs or commission and may not necessarily represent
actual transactions.
Two-Year Range of Common Stock Prices
Period 1994 1993
Low High Low High
First Quarter $29.13 $32.38 $32.63 $37.38
Second Quarter 29.50 35.75 30.38 37.50
Third Quarter 31.50 35.75 32.25 35.38
Fourth Quarter 29.75 34.25 29.75 35.63
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As of January 31, 1995, there were 40,551,035 shares of Old Kent Financial
Corporation Common Stock issued and outstanding, and there were
approximately 13,170 holders of record.
Board of Directors and Senior Management
Board of Directors
John M. Bissell
Chairman and Chief Executive Officer, BISSELL Inc.
(manufacturer of homecare, healthcare and graphics products)
John D. Boyles
Attorney-at-Law
Verspoor, Waalkes, Lalley & Slotsema, P. C.
John C. Canepa
Chairman of the Corporation
Dick DeVos
President, Amway Corporation
(manufacturer of home and personal care products)
Earl D. Holton
President, Meijer Inc.
(food and general merchandise retailer)
Michael J. Jandernoa
Chairman and Chief Executive Officer,
Perrigo Company
(manufacturer of store-brand health and beauty aids)
John P. Keller
President, Keller Group, Inc.
(a diversified manufacturer)
Jerry K. Myers
Former President and Chief Executive Officer, Steelcase, Inc.
(manufacturer of office systems)
William U. Parfet
President and Chief Executive Officer,
Richard-Allan Medical Industries, Inc.
(manufacturer of surgical instruments and medical supplies)
Percy A. Pierre, Ph.D.
Vice President for Research
and Graduate Studies,
Michigan State University
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Robert L. Sadler
Vice Chairman of the Corporation
and
President and Chief Executive Officer of Old Kent Bank
Peter F. Secchia
Chairman, Universal Forest Products, Inc.
(manufacturer and distributor of building supplies)
B. P. Sherwood, III
Vice Chairman and
Treasurer of the Corporation
David J. Wagner
President and Chief Executive Officer of the Corporation
and
Chairman of Old Kent Bank
Corporate Officers
John C. Canepa
Chairman
David J. Wagner
President and
Chief Executive Officer
Robert L. Sadler
Vice Chairman
B. P. Sherwood, III
Vice Chairman and Treasurer
Ralph W. Garlick
Executive Vice President,
Senior Credit Officer
Kevin T. Kabat
Executive Vice President,
Retail Administration and Corporate Technology
David L. Kerstein
Executive Vice President,
Retail Banking
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration
Richard W. Wroten
Executive Vice President,
Chief Financial Officer
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Martin J. Allen, Jr.
Senior Vice President and
Secretary,
Corporate Planning and Development
Richard L. Haug
Senior Vice President,
General Auditor
Charles W. Jennings, Jr.
Senior Vice President,
Human Resources
Leigh I. Sherman
Senior Vice President,
Marketing
Management Committee
David J. Wagner
President and Chief Executive Officer,
Old Kent Financial Corporation;
Chairman,
Old Kent Bank
Robert L. Sadler
Vice Chairman,
Old Kent Financial Corporation;
President and Chief Executive Officer,
Old Kent Bank
B. P. Sherwood, III
Vice Chairman and Treasurer,
Old Kent Financial Corporation
Martin J. Allen, Jr.
Senior Vice President and Secretary,
Corporate Planning and Development,
Old Kent Financial Corporation
David A. Dams
Executive Vice President,
Corporate Banking,
Old Kent Bank
E. Philip Farley
Executive Vice President,
Investment and Trust Management Services,
Old Kent Bank
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Ralph W. Garlick
Executive Vice President,
Senior Credit Officer,
Old Kent Financial Corporation;
President,
Old Kent Bank - Metro Detroit
Charles W. Jennings, Jr.
Senior Vice President,
Human Resources,
Old Kent Financial Corporation
Kevin T. Kabat
Executive Vice President,
Retail Administration and
Corporate Technology,
Old Kent Financial Corporation
David L. Kerstein
Executive Vice President,
Retail Banking,
Old Kent Financial Corporation
Leigh I. Sherman
Senior Vice President,
Marketing,
Old Kent Financial Corporation
Robert H. Warrington
President,
Old Kent Mortgage Company
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration,
Old Kent Financial Corporation
Richard W. Wroten
Executive Vice President,
Chief Financial Officer,
Old Kent Financial Corporation
This report is printed on recycled paper.
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[LOGO] Old Kent
Old Kent Financial Corporation
One Vandenberg Center
Grand Rapids, Michigan 49503
Telephone (616) 771-5000
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