<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------- -------------------
COMMISSION FILE NUMBER: 0-12216
OLD KENT FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN
(State of Incorporation)
ONE VANDENBERG CENTER
GRAND RAPIDS, MICHIGAN
(Address of Principal Executive Offices)
38-1986608
(I.R.S. Employer Identification No.)
49503
(Zip Code)
Registrant's Telephone Number, Including Area Code: (616) 771-5000
Securities Registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the filing.
Aggregate Market Value as of February 19, 1996: $1,450,100,677
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common stock outstanding at February 19, 1996: 40,075,597 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's annual report to shareholders for the year
ended December 31, 1995, are incorporated by reference in Part I and Part II.
Portions of the registrant's proxy statement for its April 15, 1996, annual
meeting of shareholders are incorporated by reference in Part II and Part III.
- --------------------------------------------------------------------------------
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
Old Kent Financial Corporation ("Old Kent" or the "Corporation") is a bank
holding company and Michigan business corporation, with its main office in Grand
Rapids, Michigan. Its principal banking subsidiaries, Old Kent Bank (Michigan)
and Old Kent Bank (Illinois), serve their communities with 190 banking offices
in Michigan and 26 banking offices in Illinois. These banks engage in commercial
and retail banking and provide trust and other financial services. Approximately
70% of Old Kent's assets are associated with banking offices serving western
Michigan. The balance of banking assets are associated with offices serving
eastern Michigan and northeastern Illinois. Old Kent mortgage companies also
have regional offices in Florida, Idaho, Illinois, Michigan, Nevada, Ohio,
Texas, and Utah.
Old Kent's business is concentrated in a single industry
segment--commercial banking. Old Kent's subsidiaries offer a wide range of
banking, financial, and fiduciary services. These include accepting deposits,
commercial lending, consumer financing, real estate and lease financing,
equipment leasing, bank credit cards, debit cards, safe deposit facilities,
automated transaction machine services, cash management, electronic banking
services, money transfer services, international banking services, corporate and
personal trust services, personal investment and securities brokerage, credit
life insurance, insurance agency services, and other banking services.
Old Kent Bank's (Michigan) subsidiary, Old Kent Mortgage Company,
originates residential mortgages and conducts a traditional retail and wholesale
mortgage banking business in one- to four-family residential mortgage loans.
Substantially all mortgage production is sold into the secondary market with
servicing retained. Mortgage servicing for all of Old Kent's subsidiaries and
independent investors is performed by Old Kent Bank's (Michigan) subsidiary, Old
Kent Mortgage Services, Inc.
The principal source of revenues for Old Kent is interest and fees on
loans, which accounted for 60.8% of total revenues in 1995, 55.3% in 1994, and
50.7% in 1993. Interest on securities is also a significant source of revenue,
accounting for 18.9% of total revenues in 1995, 25.4% in 1994, and 28.3% in
1993.
Old Kent has had no foreign loans at any time during the last five years.
The foreign activities of Old Kent primarily involve time deposits with banks
and placements for domestic customers of the banks. These activities did not
significantly impact Old Kent's financial condition or results of operations.
More detailed information concerning these foreign activities is contained in
the statistical information that appears below.
As of December 31, 1995, Old Kent conducted the business of banking through
the following bank subsidiaries:
<TABLE>
<CAPTION>
BANK MAIN OFFICE ASSETS DEPOSITS LOANS
- ----------------------------------- ------------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Old Kent Bank Grand Rapids, MI $9,748,228 $7,816,319 $6,621,900
Old Kent Bank Elmhurst, IL 2,104,448 1,679,880 1,029,465
First National Bank of Lockport* Lockport, IL 103,632 82,703 35,343
</TABLE>
- -------------------------
* Sold February 2, 1996
<PAGE> 3
Old Kent also conducted business activities closely related to the business
of banking through the following nonbank subsidiaries as of December 31, 1995:
<TABLE>
<CAPTION>
SUBSIDIARY BUSINESS ACTIVITY STATES WHERE OFFICES ARE LOCATED
- ----------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Guyot-Hicks-Anderson &
Associates, Inc. Insurance agency Michigan
Hartger & Willard Mortgage
Associates, Inc. Commercial mortgage Michigan
company
Old Kent Brokerage Services,
Inc. Full service brokerage Michigan
services
Old Kent Financial Life
Insurance Co. Credit life and Michigan
disability insurance
Old Kent Mortgage Co. Mortgage company Florida, Illinois, Michigan, Ohio,
Texas (regional offices)
Old Kent Mortgage Services,
Inc. Mortgage servicing Michigan
Vanguard Financial Service
Corp. Leasing California, Illinois,
Massachusetts, Michigan, Texas
</TABLE>
On February 1, 1995, Old Kent acquired First National Bank Corp. ("FNBC"),
a bank holding company, and its subsidiary, First National Bank in Macomb County
("First National"). The acquisition was effected by a merger of FNBC with and
into Old Kent. This transaction was accounted for as a pooling-of-interests. At
the effective date, FNBC had, on a consolidated basis, assets totaling
approximately $540 million and deposits of approximately $493 million. FNBC
stockholders received 2,636,221 shares of common stock of Old Kent. The
principal market for the financial services offered by FNBC and First National
was Macomb County, Michigan, and the communities within Macomb County. First
National was merged into Old Kent Bank (Michigan) on July 1, 1995.
In August 1995, Old Kent Bank (Michigan) sold and transferred a pool of
approximately $250,000,000 of its retail installment contracts secured by new
and used automobiles, vans, and light duty trucks (the "Contracts") and certain
related property to Citibank, N.A.("Trustee"), as trustee of the Old Kent Auto
Receivables Trust 1995-A (the "Trust"). The Trust was established under, and the
sale and transfer of the Contracts were made pursuant to, a Pooling and
Servicing Agreement dated as of August 1, 1995, between Old Kent Bank (Michigan)
and the Trustee. On August 31, 1995, Old Kent Bank (Michigan) established the
trust and transferred the Contracts to the Trustee. In exchange for the
Contracts, the Trustee issued to Old Kent Bank (Michigan) $240,650,000 of 6.20%
Asset Backed Certificates, Class A, and $9,376,003.08 of 6.40% Asset Backed
Certificates, Class B (collectively, the "Certificates"). The Certificates
represent beneficial, undivided ownership interests in the Trust. The
Certificates were offered and sold to the public. The Certificates represent
beneficial interests in the Trust only and do not represent obligations of or
interests in Old Kent Bank (Michigan), Old Kent, or any of their respective
affiliates.
In November 1995, Old Kent offered and sold $100,000,000 aggregate
principal amount of its 6 5/8% Subordinated Notes due November 15, 2005 (the
"Notes"). The Notes were publicly offered pursuant to a $150,000,000 shelf
registration statement. The Notes are unsecured and are subordinated to all
present and future senior indebtedness of the Old Kent. The Notes are not
subject to redemption or repayment before maturity and are not subject to any
sinking fund. Payment of
2
<PAGE> 4
principal of the Notes may be accelerated only in the case of certain events of
bankruptcy, insolvency or reorganization of Old Kent or certain of its bank
subsidiaries. Holders of Notes have no right of acceleration upon a default in
the performance of any covenant of Old Kent, including the failure to pay the
principal of or interest on the Notes.
On December 1, 1995, Old Kent acquired Guyot-Hicks-Anderson & Associates,
Inc. ("GHA"), an insurance agency headquartered in Traverse City, Michigan, with
5 other offices located in northern lower Michigan and Grand Rapids, Michigan.
The acquisition was treated as a pooling-of-interests for accounting purposes.
Because the acquisition did not have a material effect on the consolidated
financial statements, they have not been restated. When acquired, GHA had assets
of approximately $5 million. GHA's shareholders received 198,803 shares of
common stock of Old Kent.
Effective January 22, 1996, Old Kent acquired Republic Mortgage Corp.
("Republic"), headquartered in Salt Lake City, Utah, with 19 other offices. The
acquisition was treated as a purchase for accounting purposes and, accordingly,
results of operations of Republic will be included in Old Kent's consolidated
results of operations from the date of acquisition. At December 31, 1995,
Republic had assets of $39 million and serviced $127 million of residential
mortgages for third parties. Republic's shareholders received shares of common
stock of Old Kent.
On February 2, 1996, Old Kent sold its wholly owned subsidiary First
National Bank of Lockport to Heritage Financial Services, Inc. The cash sale
price was $16,750,000. At the time of the sale, the bank had total assets of
$102 million, total deposits of $81 million, and operated from one office in
Lockport, Illinois. First National Bank of Lockport was among a group of banks
acquired by Old Kent in its 1994 acquisition of EdgeMark Financial Corporation.
The sale was consistent with Old Kent's strategic focus on business development
and retail banking in the metropolitan Chicago area.
During 1995, Old Kent engaged in an extensive reengineering program. In
this program, representatives from a broad cross-section of management of Old
Kent and its subsidiaries, facilitated by consultants, thoroughly examined and
recommend changes to many aspects of Old Kent's business operations with a view
to increasing competitiveness, effectiveness, and efficiency. A significant
number of changes resulting from this program were implemented or initiated in
1995. During the 4th quarter of 1995, Old Kent recorded a charge of $11,957,000
for the nonrecurring costs expected to be incurred as a result of this
reengineering program.
Old Kent is engaged in an ongoing review of the utility and economy of its
branch network. During 1995, Old Kent's bank subsidiaries sold, closed, or
eliminated through consolidation, a total of 8 bank branches.
The business of banking is highly competitive. In addition to competition
from other commercial banks, banks face significant competition from nonbank
financial institutions. Savings associations compete aggressively with
commercial banks for deposits and loans. Credit unions and finance companies are
significant factors in the consumer loan market. Insurance companies, investment
firms and retailers are significant competitors for some types of business.
Banks compete for deposits with a broad spectrum of other types of investments
such as mutual funds, debt securities of corporations and debt securities of the
federal government, state governments and their respective agencies. The
principal methods of competition for financial services are price (interest
rates paid on deposits, interest rates charged on borrowings and fees charged
for services) and service (convenience and quality of services rendered to
customers).
Banks and bank holding companies are extensively regulated. Old Kent's two
significant subsidiary banks are chartered under state law, are members of the
Federal Reserve System, and are supervised, examined, and regulated by the
Federal Reserve System and the Federal Deposit Insurance Corporation ("FDIC")
and, respectively, the Financial Institutions Bureau of the State of Michigan or
the Commissioner of Banks and Trust Companies of the State of Illinois. First
National
3
<PAGE> 5
Bank of Lockport was a national banking association chartered under federal law
and supervised, examined, and regulated by the United States Office of the
Comptroller of the Currency. Deposits of all of the banks are insured by the
FDIC to the extent provided by law.
Federal and state laws that govern banks significantly limit their business
activities in a number of respects. Prior approval of the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"), and in some cases various
other governing agencies, is required for Old Kent to acquire control of any
additional banks. The business activities of Old Kent and its subsidiaries are
limited to banking and other activities closely related to banking.
Old Kent is a legal entity separate and distinct from its subsidiary banks
and other subsidiaries. Transactions between Old Kent's subsidiary banks are
significantly restricted. There are legal limitations on the extent to which Old
Kent's subsidiary banks can lend or otherwise supply funds to Old Kent or
certain of its affiliates. In addition, payment of dividends to Old Kent by
subsidiary banks is subject to various state and federal regulatory limitations.
Federal law contains a "cross-guarantee" provision that could result in
insured depository institutions owned by Old Kent being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other insured depository institution owned by Old Kent. Under Federal
Reserve Board policy, Old Kent is expected to act as a source of financial
strength to each subsidiary bank and to commit resources to support each
subsidiary bank. Under federal law, the FDIC also has authority to impose
special assessments on insured depository institutions to repay FDIC borrowings
from the United States Treasury or other sources and to establish semiannual
assessment rates on Bank Insurance Fund ("BIF") member banks to maintain the BIF
at the designated reserve ratio required by law.
During 1995, the FDIC reduced the deposit insurance assessment rate on
BIF-insured deposits held by Old Kent's bank affiliates from $0.23 to $0.04 per
$100 of deposits. This may have a favorable effect on Old Kent's results of
operations. As a result of acquisitions, Old Kent subsidiaries also have some
deposits insured under the FDIC's Savings Association Insurance Fund ("SAIF").
The FDIC did not reduce the assessment rate on SAIF-insured deposits.
Banks are subject to a number of federal and state laws and regulations
that have a material impact on their business. These include, among others,
state usury laws, state laws relating to fiduciaries, the Truth In Lending Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Expedited
Funds Availability Act, the Community Reinvestment Act, electronic funds
transfer laws, redlining laws, antitrust laws, environmental laws and privacy
laws. The instruments of monetary policy of authorities such as the Federal
Reserve Board may influence the growth and distribution of bank loans,
investments and deposits, and may also affect interest rates on loans and
deposits. These policies may have a significant effect on the operating results
of banks.
The nature of the business of Old Kent's subsidiaries is such that they
hold title, on a temporary or permanent basis, to a number of parcels of real
property. These include property owned for branch offices and other business
purposes as well as properties taken in or in lieu of foreclosure to satisfy
loans in default. Under current state and federal laws, present and past owners
of real property are exposed to liability for the cost of clean up of
contamination on or originating from those properties, even if they are wholly
innocent of the actions that caused the contamination. These liabilities can be
material and can exceed the value of the contaminated property.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("IBBEA"), a bank holding company now may make certain interstate
acquisitions even if state law would otherwise prohibit it. Starting June 1,
1997, a bank may make certain interstate acquisitions unless one of the states
has enacted legislation prohibiting interstate bank acquisitions. An interstate
acquisition may occur earlier if the states of the buying and selling banks both
have enacted laws permitting interstate acquisitions by all out-of-state banks.
IBBEA also permits a bank to establish a de novo branch in another state if the
state has a law expressly permitting all out-of-state banks to
4
<PAGE> 6
establish de novo branches in that state. In November 1995, Michigan enacted
legislation permitting a Michigan bank to sell one or more of its branches to an
out-of-state bank if that bank's state law permits a Michigan bank to purchase
branches of banks located into that state. The Michigan legislation also permits
a Michigan bank to purchase one or more branches of an out-of-state bank, but
the Michigan bank must receive the approval of the Financial Institutions Bureau
of the State of Michigan before operating the purchased branch or branches.
In the aggregate, Old Kent and its subsidiaries had 5,027 employees (on a
full time equivalent basis) at December 31, 1995. Old Kent and its subsidiaries
are equal opportunity employers whose affirmative action programs comply with
applicable federal laws and executive orders.
The statistical information on the following pages further describes
certain aspects of the business of Old Kent. Additional statistical information
describing the business of Old Kent appears in the following sections of
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in Item 7 ("MD&A"), the Selected Financial
Data incorporated by reference in Item 6 ("Selected Financial Data"), and the
financial statements and notes incorporated by reference in Item 8 ("Financial
Statements"):
MD&A
Average Consolidated Balance Sheets
Net Interest Income
Loan Portfolio
Provision for Credit Losses
SELECTED FINANCIAL DATA
Dividend Payout Ratio
Return on Average Total Equity
Return on Average Assets
Average Equity to Average Assets
FINANCIAL STATEMENTS
Note 4. Securities Available-for-Sale
Note 5. Securities Held-to-Maturity
Note 6. Loans and Nonperforming Assets
5
<PAGE> 7
INVESTMENT PORTFOLIO
The following table shows, by class of maturities as of December 31, 1995,
the amounts and weighted average yields of securities held-to-maturity and
securities available-for-sale on the basis of amortized cost:
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------------
AFTER ONE BUT
WITHIN FIVE AFTER FIVE BUT
WITHIN ONE YEAR YEARS WITHIN TEN YEARS AFTER TEN YEARS
---------------- ---------------- ---------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- -------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government
agencies and
corporations $466,752 6.98 % $836,336 5.81 % $ 0 -- $ 1,767 8.46 %
States and other
political
subdivisions(3) 40,684 8.25 88,603 8.96 37,750 8.80 23,575 9.12
Other Securities -- -- -- -- -- -- 58,374 6.00
-------- -------- ------- -------
Total $507,436 7.08 % $924,399 6.12 % $37,750 8.80 % $83,716 6.93 %
======== ==== ======== ==== ======= ==== ======= ====
</TABLE>
- -------------------------
(1) The effective yields are weighted for the scheduled maturity of each
security.
(2) Collateralized mortgage obligations and mortgage-backed securities of
$1,557,618, having a weighted average yield of 6.45% at December 31, 1995,
are not included in the table shown above.
(3) Weighted average interest rates have been computed on a fully taxable
equivalent basis. The rates shown on securities issued by states and
political subdivisions have been restated, assuming a 35% tax rate. The
amount of the adjustment, due to restating the rates, is as follows:
<TABLE>
<CAPTION>
TAX-EXEMPT RATE OF TAXABLE
RATE ADJUSTMENT EQUIVALENTS BASIS
---------- ---------- -----------------
<S> <C> <C> <C>
Under 1 Year 5.36% 2.89% 8.25%
1 to 5 Years 5.82 3.14 8.96
5 to 10 Years 5.72 3.08 8.80
Over 10 Years 5.93 3.19 9.12
Total 5.72% 3.08% 8.80%
==== ==== ====
</TABLE>
INVESTMENT PORTFOLIO (CONTINUED)
(4) The aggregate book value of the securities of no single issuer except the
U.S. Government exceeds 10 percent of Old Kent's consolidated shareholders'
equity.
The amortized cost of securities held-to-maturity and securities
available-for-sale as of the dates indicated are summarized as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1993
----------
<S> <C>
U.S. Treasury and federal agency $2,016,101
State and political subdivisions 237,847
Collateralized mortgage obligations and other mortgage-backed securities 1,385,010
Other securities 15,946
----------
Total securities $3,654,904
==========
</TABLE>
6
<PAGE> 8
LOAN PORTFOLIO
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences, consumer loans, credit card loans, and lease
financing) outstanding at December 31, 1995. Also provided are the amounts due
after one year classified according to their sensitivity to changes in interest
rates.
<TABLE>
<CAPTION>
DUE IN ONE DUE IN ONE DUE AFTER
YEAR OR LESS TO FIVE YEARS FIVE YEARS
------------ ------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Commercial, financial and agricultural $ 1,195,664 $ 709,195 $ 103,723
Real estate-construction 171,505 82,103 13,755
Real estate-commercial(1) 386,131 1,097,113 143,910
---------- ---------- --------
Total $ 1,753,300 $ 1,888,411 $ 261,388
========== ========== ========
Loans due after one year:
With fixed rates $ 526,743 $ 104,063
With floating rates 1,361,668 157,325
Total $ 1,888,411 $ 261,388
========== ========
</TABLE>
- -------------------------
(1) Includes real estate commercial loans secured by 1-4 family residences.
LOAN PORTFOLIO (CONTINUED)
Foreign Outstandings: A summary of significant foreign outstandings for the
three years ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
OUTSTANDINGS TO FOREIGN
-----------------------------------------
BANKS AND PERCENT
OTHER FINANCIAL OF TOTAL
INSTITUTIONS(1) TOTAL ASSETS
--------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1995
All Countries(2) $ 150,000 $150,000 1.25%
======== ======== ====
At December 31, 1994
All Countries(2) $ 5,000 $ 5,000 .05%
======== ======== ====
At December 31, 1993
All Countries(2) $ 21,992 $ 21,992 .22%
======== ======== ====
</TABLE>
- -------------------------
(1) All foreign outstandings at the dates indicated were to banks and other
financial institutions. These consist primarily of interest-earning deposits
with foreign banks and foreign branches of U.S. banks.
(2) Outstandings in each country were less than 1% of Old Kent's total assets.
7
<PAGE> 9
DEPOSITS
The daily average amounts of deposits and rates paid on such deposits for
the periods indicated are:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- ---------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
In Domestic Offices:
Non-interest-bearing demand
deposits $1,329,787 $1,239,373 $1,097,482
Savings deposits 3,094,220 2.67% 3,424,799 2.32% 3,233,037 2.57%
Time deposits 4,667,457 5.70 3,895,774 4.50 3,523,193 4.33
In Foreign Office:
Time deposits 225,964 6.26 245,109 4.25 210,916 3.25
--------- --------- ---------
Total $9,317,428 $8,805,055 $8,064,628
========= ========= =========
</TABLE>
The time remaining until maturity of time deposits of $100,000 or more
issued by domestic offices (all of which are time certificates of deposit) at
December 31, 1995, is as follows:
<TABLE>
<CAPTION>
TIME CERTIFICATES
OF DEPOSIT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less $ 525,032
Over 3 through 6 months 344,269
Over 6 through 12 months 126,450
Over 12 months 382,862
Total $1,378,613
=========
</TABLE>
Time deposits in the foreign office are all in amounts of $100,000 or more.
8
<PAGE> 10
OTHER BORROWED FUNDS
Other borrowed funds consist of federal funds purchased, securities sold
under agreements to repurchase, bank notes, treasury tax, loan and demand notes.
The following amounts and rates applied during the last three years:
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED AND
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE: BANK NOTES AGGREGATE OTHER BORROWED FUNDS
------------------------------ ------------------------------ ----------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts outstanding at
year-end $536,686 $437,191 $452,736 $575,000 $400,000 $235,000 $1,307,617 $1,010,769 $960,610
Average amount
outstanding during
year $429,881 $414,589 $450,736 $591,507 $358,342 $134,589 $1,185,629 $ 933,458 $726,628
Maximum amount
outstanding at any
month-end $536,686 $577,988 $529,327 $800,000 $440,000 $235,000 $1,329,425 $1,071,988 $935,442
Weighted average
interest rate at
year-end(1) 5.86% 4.81% 2.77% 6.35% 5.80% 3.58% 5.95% 5.29% 2.96%
Weighted average
interest rate during
year(1) 5.13% 3.74% 2.83% 6.33% 4.65% 3.42% 5.88% 4.12% 2.97%
</TABLE>
- -------------------------
(1) The weighted average interest rates are derived by dividing the interest
expense for the period by the daily average balance during the period.
ITEM 2. PROPERTIES.
The executive offices of Old Kent and the main office of Old Kent Bank
(Michigan) are located in an office complex in downtown Grand Rapids, Michigan.
This complex consists of two interconnected buildings, including a 10-story
office building. Approximately 63.2% of the 305,633 square feet of space in the
complex is occupied by Old Kent and Old Kent Bank (Michigan). The balance is
leased to others for terms of varying lengths.
Old Kent's operations center is housed in two buildings located near Grand
Rapids. The two buildings, which have a total of 340,000 square feet, are owned
by Old Kent Bank (Michigan).
Old Kent's subsidiary banks conducted business from a total of 216 full
service banking offices as of December 31, 1995. Of the full service banking
offices, 159 are owned by the banks or their subsidiaries, and 57 are leased
from various independent parties for various lease terms.
ITEM 3. LEGAL PROCEEDINGS.
Old Kent's subsidiaries are parties, as plaintiff or defendant, to a number
of legal proceedings. Except as described below, all of these proceedings are
considered to be ordinary routine litigation incidental to their business, and
none is considered to be a material pending legal proceeding.
Old Kent and its subsidiary, Old Kent Bank (Michigan), are named, among
other defendants, in a lawsuit filed by Grow Group, Inc. ("Grow"), presently
pending in the United States District Court for the Southern District of New
York. Principal defendants in this case include Perrigo Company ("Perrigo"),
Michael J. Jandernoa (Chairman of the Board and Chief Executive Officer of
Perrigo, and presently a director of Old Kent) and certain other persons who are
believed to have been directors and officers of Perrigo (the "Non-bank
Defendants"), as well as Old Kent, Old Kent Bank (Michigan), and National Bank
of Detroit ("NBD"; now NBD Bank), with which Old Kent Bank (Michigan)
participated in the financing arrangement that is in part the subject of the
case.
9
<PAGE> 11
The case was initiated on April 13, 1994, with the filing of a "Summons
With Notice" in the Supreme Court, State of New York, County of New York.
However, Old Kent was not then served with process or notice of the case. The
case was subsequently removed to Federal District Court for the Southern
District of New York where a complaint was filed on March 1, 1995. On January
26, 1996, venue of the case was changed to the Federal District Court for the
Western District of Michigan. Old Kent has been dismissed from the case, but Old
Kent Bank (Michigan) remains a defendant.
In 1988, Old Kent Bank (Michigan) participated in a credit facility which
partially financed the purchase of all of the stock of Perrigo from Grow by the
Non-bank Defendants in the case. Grow now alleges that NBD and Old Kent Bank
(Michigan) conspired with and aided and abetted the Non-bank Defendants in
certain breaches of duties, fraud, and usurpation of corporate opportunity;
misappropriated and used confidential and proprietary information for their own
benefit; and breached a relationship of trust and confidence with Grow. Grow
demands judgment against the defendants, jointly and severally, for damages in
an unspecified but apparently material amount, profits and benefits accruing to
the defendants as a result of the alleged wrongful acts, punitive damages,
interest and costs.
Discovery proceedings in this case have not yet been commenced.
Accordingly, Old Kent presently has only limited information available to make
an informed assessment of the materiality of the claims. However, based on the
limited information presently available, Old Kent has no reason to believe that
there is a basis for a meritorious claim against it in this case and intends to
oppose the action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Old Kent's executive officers are appointed annually by, and serve at the
pleasure of, the Old Kent board of directors. Biographical information
concerning executive officers as of December 31, 1995, who are not directors or
nominated for election to the board of directors is presented below:
Martin J. Allen, Jr. (age 59) is Senior Vice President (Corporate Planning
and Development) and Secretary of Old Kent. He has been secretary of Old Kent
since 1986 and a senior vice president of Old Kent since 1985. Prior to that, he
served Old Kent in various other executive capacities. Mr. Allen is also a
member of Old Kent's Management Committee.
David A. Dams (age 43) is Executive Vice President (Corporate Banking) of
Old Kent Bank (Michigan). He has been an executive vice president of Old Kent
Bank (Michigan) since 1986. Prior to that, he served Old Kent in various other
executive capacities. Mr. Dams is also a member of Old Kent's Management
Committee, a director of Old Kent Financial Life Insurance Company, an Old Kent
subsidiary, and a director of GHA, an Old Kent Bank (Michigan) subsidiary.
E. Philip Farley (age 56) is Executive Vice President (Investment and Trust
Management Services) of Old Kent Bank (Michigan). He has been an executive vice
president of Old Kent Bank (Michigan) since 1987. Prior to that, he served Old
Kent in various other executive capacities. Mr. Farley is also a member of Old
Kent's Management Committee.
Ralph W. Garlick (age 59) has been Executive Vice President-Senior Credit
Officer of Old Kent since 1989. He was an executive vice president of Old Kent
Bank (Michigan) from 1984 until 1989. Prior to that, he served Old Kent in
various other executive capacities. Mr. Garlick is also President-Metro Detroit
(since February, 1995) and a member of Old Kent's Management Committee.
Richard L. Haug (age 56) has been Senior Vice President and General Auditor
of Old Kent since 1986.
10
<PAGE> 12
Charles W. Jennings, Jr. (age 56) is Senior Vice President (Human
Resources) of Old Kent. He has been a senior vice president of Old Kent since
1984. Prior to that, he served Old Kent in various other executive capacities.
Mr. Jennings is also a member of Old Kent's Management Committee.
Kevin T. Kabat (age 39) has been Executive Vice President (Retail
Administration and Corporate Technology) of Old Kent since February 1995. He was
Senior Vice President and Manager of Corporate Operations and Technology of Old
Kent from 1993 until 1995, a senior vice president and manager of corporate
operations from 1990 until 1993, and a vice president and director of human
resources of Old Kent Bank (Michigan) from 1986 until 1990. Prior to that, he
served Old Kent in various other executive capacities. Mr. Kabat is also a
member of Old Kent's Management Committee.
David L. Kerstein (age 52) has been Executive Vice President (Retail
Banking) of Old Kent and Old Kent Bank (Michigan) since 1992. Prior to that, he
was a senior vice president of Bank One (Texas), a bank, from 1990 until 1992,
and a senior vice president of Citibank FSB (Chicago), a bank, from 1987 until
1990. Mr. Kerstein is also a member of Old Kent's Management Committee and a
director of GHA.
Robert H. Warrington (age 48) is Executive Vice President (Fee-based
Businesses) of Old Kent and President of Old Kent Mortgage Services, Inc. and
Old Kent Mortgage Company. He has been an executive vice president of Old Kent
since 1995, President of Old Kent Mortgage Services, Inc. since 1993, and
president of Old Kent Mortgage Company, since 1993. He was a senior vice
president of Old Kent Bank (Michigan) from 1988 until 1993. Prior to that, he
served Old Kent in various other executive capacities. Mr. Warrington is also a
director of Old Kent Mortgage Company, Old Kent Mortgage Services, Inc., and
GHA, the Chairman of the Board and a director of Republic Mortgage Corp., an Old
Kent subsidiary, and a member of Old Kent's Management Committee.
Michael J. Whalen (age 48) has been President, Chief Executive Officer, and
director of Old Kent Bank (Illinois) since 1990. He is also a member of Old
Kent's Management Committee.
Thomas D. Wisnom (age 57) is Executive Vice President (Community Bank
Administration) of Old Kent. He has been an executive vice president of Old Kent
since 1985. Prior to that, he served Old Kent in various other executive
capacities. Mr. Wisnom is also a member of Old Kent's Management Committee.
Richard W. Wroten (age 43) has been Executive Vice President and Chief
Financial Officer of Old Kent since September 1991. From 1989 until 1991 he was
an executive vice president and chief financial officer of First City
Bancorporation of Texas, Inc., a bank holding company, and chief financial
officer and a director of First City, Texas-Houston N.A., a commercial bank.1
Until 1989, Mr. Wroten was a partner of Arthur Andersen & Co., an accounting
firm. Mr. Wroten is also a member of Old Kent's Management Committee and a
director of Old Kent Financial Life Insurance Company and Old Kent Mortgage
Company, both of which are Old Kent subsidiaries.
- ---------------
1 On October 30, 1992, over a year after Mr. Wroten joined Old Kent, First
City, Texas-Houston N.A. was placed in Federal Deposit Insurance Corporation
receivership by bank regulators, and an involuntary, but uncontested, petition
was filed placing First City Bancorporation of Texas, Inc., into a proceeding
under Chapter 11 of the Federal Bankruptcy Code.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information under the caption "Cash Dividends" and "Old Kent Common
Stock" on pages S-18 and S-19 of Old Kent's Annual Report to Shareholders for
the year ended December 31, 1995 (the "1995 Annual Report"), is here
incorporated by reference. Old Kent's 1995 Annual Report is printed and
distributed as a supplement to its definitive Proxy Statement for its Annual
Meeting of Shareholders to be held April 15, 1996 (the "1996 Proxy Statement").
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Five Year Summary of Selected Financial
Data" on page S-3 of Old Kent's 1995 Annual Report is here incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information under the caption "Financial Review" on pages S-4 through
S-25 of Old Kent's 1995 Annual Report is here incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, notes and the report of independent public
accountants on pages S-27 through S-52 of Old Kent's 1995 Annual Report is here
incorporated by reference.
The information under the caption "Quarterly Financial Data" on page S-25
of Old Kent's 1995 Annual Report is here incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Board of Directors" and
"Compliance with Section 16(a) of the Exchange Act" in Old Kent's 1996 Proxy
Statement is here incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Compensation of Executive
Officers and Directors," "Executive Severance Agreements," and "Compensation of
Directors" in Old Kent's 1996 Proxy Statement is here incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Voting Securities" in Old
Kent's 1996 Proxy Statement is here incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Relationships and
Related Transactions" in Old Kent's 1996 Proxy Statement is here incorporated by
reference.
12
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements. The following financial statements and report of
independent public accountants of Old Kent Financial Corporation and its
subsidiaries are filed as part of this report:
Report of Independent Public Accountants dated January 15, 1996
Consolidated Balance Sheets -- December 31, 1994 and 1995
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1995
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1995
Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended December 31, 1995
Notes to Consolidated Financial Statements
The financial statements, the notes to financial statements, and the report
of independent public accountants listed above are set forth in Item 8 of this
report.
(2) Financial Statement Schedules. Not applicable.
(3) Exhibits. The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---- -------
<S> <C>
3 (a) Restated Articles of Incorporation. Previously filed as Exhibit 3(a) to the
registrant's Form 10-Q Quarterly Report for the quarter ended March 31, 1993. Here
incorporated by reference.
(b) Bylaws. Previously filed as Exhibit 3(b) to the registrant's Form 8-K filed
February 23, 1996. Here incorporated by reference.
4 (a) Rights Agreement. Previously filed as an exhibit to the registrant's Form 8-A
Registration Statement filed December 20, 1988. Here incorporated by reference.
(b) Certificate of Designation, Preferences, and Rights of Series B Preferred
Stock. Previously filed as Exhibit 4(b) to the registrant's Form 8-K filed February
23, 1996. Here incorporated by reference.
(c) Long-term Debt. The registrant has outstanding long-term debt which at the time of
this report does not exceed 10% of the registrant's total consolidated assets. The
registrant agrees to furnish copies of the agreements defining the rights of
holders of such long-term indebtedness to the Securities and Exchange Commission
upon request.
10 (a) Incentive Stock Option Plan of 1982.* Previously filed as Exhibit 10(a) to the
registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
(b) Amendment to Incentive Stock Option Plan of 1982.* Previously filed as Exhibit
10(b) to the registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1991. Here incorporated by reference.
(c) Old Kent Executive Retirement Income Plan and Related Trust.* Previously filed as
Exhibit 10(c) to the registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1991. Here incorporated by reference.
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---- -------
<S> <C>
(d) Amendment to Executive Retirement Income Plan.* Previously filed as Exhibit 10(d)
to the registrant's Form 10-K Annual Report for its fiscal year ended December 31,
1995. Here incorporated by reference.
(e) Executive Stock Option Plan of 1986.* Previously filed as Exhibit 10 to the
registrant's Form 10-Q Quarterly Report for its fiscal quarter ended September 30,
1995. Here incorporated by reference.
(f) Amendment to Restricted Stock Plan of 1987.* Previously filed as Exhibit 10(f) to
the registrant's Form 8-K filed February 23, 1996. Here incorporated by reference.
(g) Old Kent Executive Thrift Plan and Related Trust.* Previously filed as Exhibit
10(f) to the registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1991. Here incorporated by reference.
(h) Amendment to Executive Thrift Plan.* Previously filed as Exhibit 10(h) to the
registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1995.
Here incorporated by reference.
(i) Rights Agreement. Previously filed as an exhibit to the registrant's Form 8-A
Registration Statement filed December 20, 1988. Here incorporated by reference.
(j) Deferred Stock Compensation Plan and Related Trust.* Previously filed as Exhibit
10(j) to the registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1995. Here incorporated by reference.
(k) Executive Severance Agreements for Messrs. Canepa, Sherwood, Sadler, Wagner and
Wisnom.* Previously filed as Exhibit 10(k) to the registrant's Form 10-K Annual
Report for its fiscal year ended December 31, 1995. Here incorporated by reference.
(l) Stock Option Incentive Plan of 1992.* Previously filed as Exhibit 10(b) to the
registrant's Form 10-Q Quarterly Report for its fiscal quarter ended June 30, 1995.
Here incorporated by reference.
(m) Old Kent Deferred Compensation Plan and Related Trust.*Previously filed as Exhibit
10(m) to the registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1991. Here incorporated by reference.
(n) Old Kent Directors' Deferred Compensation Plan and Related Trust.* Previously filed
as Exhibit 10(n) to the registrant's Form 10-K Annual Report for its fiscal year
ended December 31, 1995. Here incorporated by reference.
(o) Executive Severance Agreement for Mr. Warrington.* Previously filed as Exhibit
10(o) to the registrant's Form 8-K filed February 23, 1996. Here incorporated by
reference.
(p) Restricted Stock Agreement for Mr. Warrington.* Previously filed as Exhibit 10(p)
to the registrant's Form 8-K filed February 23, 1996. Here incorporated by
reference.
(q) Restricted Stock Agreement for Mr. Warrington.* Previously filed as Exhibit 10(q)
to the registrant's Form 8-K filed February 23, 1996. Here incorporated by
reference.
(r) Pooling and Service Agreement. Previously filed as Exhibit 10(r) to the
registrant's Form 8-K filed February 23, 1996. Here incorporated by reference.
11 Statement Re Computation of Earnings per Common Share.
12 Statement Re Computation of Other Ratios.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---- -------
<S> <C>
13 Annual Report to Shareholders. This exhibit, except for those portions expressly
incorporated by reference in this filing, is furnished for the information of the
Commission and is not deemed "filed" as part of this filing.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
- -------------------------
* These agreements are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-K.
Old Kent will furnish a copy of any exhibit listed above to any shareholder
of the registrant without charge upon written request to Mr. Martin J. Allen,
Jr., Secretary, Old Kent Financial Corporation, One Vandenberg Center, Grand
Rapids, Michigan 49503.
(b) Reports on Form 8-K. Old Kent filed one Form 8-K reporting events
occurring during the last quarter of the period covered by this report. That
Form 8-K, dated as of December 31, 1995, reported Old Kent's acquisition of
Guyot-Hicks-Anderson & Associates, Inc. It contained Old Kent's Condensed
Consolidated Statement of Income (Unaudited) for the month ended December 31,
1995.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Old Kent Financial Corporation
(Registrant)
Date: February 29, 1996 By /s/ MARTIN J. ALLEN, JR.
--------------------------------------
Martin J. Allen, Jr.
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
<TABLE>
<S> <C>
February 29, 1996 /s/ JOHN M. BISSELL*
--------------------------------------------------------
John M. Bissell
Director
February 29, 1996 /s/ JOHN D. BOYLES*
--------------------------------------------------------
John D. Boyles
Director
February 29, 1996 /s/ JOHN C. CANEPA*
--------------------------------------------------------
John C. Canepa
Director
February --, 1996
--------------------------------------------------------
Richard M. DeVos, Jr.
Director
February 29, 1996 /s/ JAMES P. HACKETT, SR.*
--------------------------------------------------------
James P. Hackett, Sr.
Director
February 29, 1996 /s/ ERINA HANKA*
--------------------------------------------------------
Erina Hanka
Director
February 29, 1996 /s/ EARL D. HOLTON*
--------------------------------------------------------
Earl D. Holton
Director
February 29, 1996 /s/ MICHAEL J. JANDERNOA*
--------------------------------------------------------
Michael J. Jandernoa
Director
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C>
February 29, 1996 /s/ JOHN P. KELLER*
--------------------------------------------------------
John P. Keller
Director
February 29, 1996 /s/ WILLIAM U. PARFET*
--------------------------------------------------------
William U. Parfet
Director
February 29, 1996 /s/ PERCY A. PIERRE*
--------------------------------------------------------
Percy A. Pierre
Director
February 29, 1996 /s/ ROBERT L. SADLER*
--------------------------------------------------------
Robert L. Sadler
Vice Chairman of the Board and Director
February 29, 1996 /s/ PETER F. SECCHIA*
--------------------------------------------------------
Peter F. Secchia
Director
February 29, 1996 /s/ B. P. SHERWOOD, III*
--------------------------------------------------------
B. P. Sherwood, III
Vice Chairman of the Board, Treasurer, and Director
February 29, 1996 /s/ DAVID J. WAGNER*
--------------------------------------------------------
David J. Wagner
Chairman, President, Chief Executive Officer, and
Director
(Principal Executive Officer)
February 29, 1996 /s/ RICHARD W. WROTEN
--------------------------------------------------------
Richard W. Wroten
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
*By /s/ MARTIN J. ALLEN, JR.
----------------------------------------------------
Martin J. Allen, Jr.
Attorney-in-Fact
</TABLE>
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- -------
<S> <C>
3(a) Restated Articles of Incorporation. Previously filed as Exhibit 3(a) to the
registrant's Form 10-Q Quarterly Report for the quarter ended March 31, 1993. Here
incorporated by reference.
(b) Bylaws. Previously filed as Exhibit 3(b) to the registrant's Form 8-K filed February
23, 1996. Here incorporated by reference.
4(a) Rights Agreement. Previously filed as an exhibit to the registrant's Form 8-A
Registration Statement filed December 20, 1988. Here incorporated by reference.
(b) Certificate of Designation, Preferences, and Rights of Series B Preferred Stock.
Previously filed as Exhibit 4(b) to the registrant's Form 8-K filed February 23,
1996. Here incorporated by reference.
(c) Long-term Debt. The registrant has outstanding long-term debt which at the time of
this report does not exceed 10% of the registrant's total consolidated assets. The
registrant agrees to furnish copies of the agreements defining the rights of holders
of such long-term indebtedness to the Securities and Exchange Commission upon
request.
10(a) Incentive Stock Option Plan of 1982.* Previously filed as Exhibit 10(a) to the
registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
(b) Amendment to Incentive Stock Option Plan of 1982.* Previously filed as Exhibit 10(b)
to the registrant's Form 10-K Annual Report for its fiscal year ended December 31,
1991. Here incorporated by reference.
(c) Old Kent Executive Retirement Income Plan and Related Trust.* Previously filed as
Exhibit 10(c) to the registrant's Form 10-K Annual Report for its fiscal year ended
December 31, 1991. Here incorporated by reference.
(d) Amendment to Executive Retirement Income Plan.* Previously filed as Exhibit 10(d) to
the registrant's Form 10-K Annual Report for its fiscal year ended December 31,
1995. Here incorporated by reference.
(e) Executive Stock Option Plan of 1986.* Previously filed as Exhibit 10 to the
registrant's Form 10-Q Quarterly Report for its fiscal quarter ended September 30,
1995. Here incorporated by reference.
(f) Amendment to Restricted Stock Plan of 1987.* Previously filed as Exhibit 10(f) to
the registrant's Form 8-K filed February 23, 1996. Here incorporated by reference.
(g) Old Kent Executive Thrift Plan and Related Trust.* Previously filed as Exhibit 10(f)
to the registrant's Form 10-K Annual Report for its fiscal year ended December 31,
1991. Here incorporated by reference.
(h) Amendment to Executive Thrift Plan.* Previously filed as Exhibit 10(n) to the
registrant's Form 10-K Annual Report for its fiscal year ended December 31, 1995.
Here incorporated by reference.
(i) Rights Agreement. Previously filed as an exhibit to the registrant's Form 8-A
Registration Statement filed December 20, 1988. Here incorporated by reference.
(j) Deferred Stock Compensation Plan and Related Trust.* Previously filed as Exhibit
10(j) to the registrant's Form 10-K Annual Report for its fiscal year ended December
31, 1995. Here incorporated by reference.
(k) Executive Severance Agreements for Messrs. Canepa, Sherwood, Sadler, Wagner and
Wisnom.* Previously filed as Exhibit 10(k) to the registrant's Form 10-K Annual
Report for its fiscal year ended December 31, 1995. Here incorporated by reference.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- -------
<C> <S>
(l) Stock Option Incentive Plan of 1992.* Previously filed as Exhibit 10(b) to the
registrant's Form 10-Q Quarterly Report for its fiscal quarter ended June 30, 1995.
Here incorporated by reference.
(m) Old Kent Deferred Compensation Plan and Related Trust.* Previously filed as Exhibit
10(m) to the registrant's Form 10-K Annual Report for its fiscal year ended December
31, 1991. Here incorporated by reference.
(n) Old Kent Directors' Deferred Compensation Plan and Related Trust.* Previously filed
as Exhibit 10(n) to the registrant's Form 10-K Annual Report for its fiscal year
ended December 31, 1995. Here incorporated by reference.
(o) Executive Severance Agreement for Mr. Warrington.* Previously filed as Exhibit 10(o)
to the registrant's Form 8-K filed February 23, 1996. Here incorporated by
reference.
(p) Restricted Stock Agreement for Mr. Warrington.* Previously filed as Exhibit 10(p) to
the registrant's Form 8-K filed February 23, 1996. Here incorporated by reference.
(q) Restricted Stock Agreement for Mr. Warrington.* Previously filed as Exhibit 10(q) to
the registrant's Form 8-K filed February 23, 1996. Here incorporated by reference.
(r) Pooling and Service Agreement. Previously filed as Exhibit 10(r) to the registrant's
Form 8-K filed February 23, 1996. Here incorporated by reference.
11 Statement Re Computation of Earnings per Common Share.
12 Statement Re Computation of Other Ratios.
13 Annual Report to Shareholders. This exhibit, except for those portions expressly
incorporated by reference in this filing, is furnished for the information of the
Commission and is not deemed "filed" as part of this filing.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
- -------------------------
* These agreements are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-K.
19
<PAGE> 1
EXHIBIT 11
EARNINGS PER SHARE CALCULATIONS -- PRIMARY AND FULLY DILUTED
(Restated for stock splits)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
<S> <C> <C> <C>
PRIMARY
NET INCOME $141,814,000 $137,084,000 $131,324,000
Deduct dividends on preferred stock -0- -0- -0-
------------ ------------ ------------
INCOME FOR PRIMARY
E.P.S. CALCULATION $141,814,000 $137,084,000 $131,324,000
============ ============ ============
Average common shares outstanding 45,262,848 45,057,910 44,968,153
Common stock equivalents 342,426 351,440 260,338
------------ ------------ ------------
SHARES FOR PRIMARY
E.P.S. CALCULATION 45,605,274 45,409,350 45,228,491
============ ============ ============
PRIMARY E.P.S. $ 3.11 $ 3.02 $ 2.90
============ ============ ============
FULLY DILUTED E.P.S. $ 3.11 $ 3.02 $ 2.90
============ ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 12
STATEMENT OF COMPUTATION OF OTHER RATIOS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
For the year ended December 31: 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $ 141,814 $ 137,084 $ 131,324 $ 114,445 $ 95,988
Less: preferred stock dividends -- -- -- -- --
----------- ----------- ---------- ----------- ----------
Net income available to common shareholders $ 141,814 $ 137,084 $ 131,324 $ 114,445 $ 95,988
Average common equity 972,665 887,541 802,016 712,624 664,832
Average total equity 960,858 884,415 802,016 712,624 664,832
Average assets 11,674,214 10,761,022 9,718,875 9,200,850 8,768,778
Primary net income per common share* $ 3.11 $ 3.02 $ 2.90 $ 2.57 $ 2.17
Dividends per common share* $ 1.22 $ 1.12 $ 1.02 $ 0.86 $ 0.75
Ratios:
Return on average common equity 14.58% 15.45% 16.37% 16.06% 14.44%
(net income available to common shareholders
divided by average common equity)
Return on average total equity 14.76% 15.50% 16.37% 16.06% 14.44%
(net income divided by average total equity)
Return on average assets 1.21% 1.27% 1.35% 1.24% 1.09%
(net income divided by average assets)
Average total equity to average assets 8.23% 8.22% 8.25% 7.75% 7.58%
Dividend payout ratio 39.2% 37.1% 35.2% 33.5% 34.6%
(dividends per common share divided by
net income per common share)
</TABLE>
- ---------------
* Per share amounts are shown adjusted for a 5% stock dividend paid on
August 15, 1995 and a 3-for-2 stock split paid September 1992.
<PAGE> 1
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
Pursuant to SEC Rule 14a-3(b)(11), Old Kent's Annual Report to
Shareholders (the "Annual Report") is composed of two parts: (i) the 1995
Report to Shareholders; and (ii) the Annual Report Supplement, which is
appended to Old Kent's 1996 Proxy Statement and contains all of the information
required under SEC Rule 14a-3. Pursuant to Item 601(b)(13)(ii) of Regulation
S-K, only the Annual Report Supplement portion of the Annual Report, which
contains all portions of the Annual Report incorporated by reference in this
filing, is furnished as an exhibit to this filing. Pursuant to Item
601(b)(13)(ii) of Regulation S-K and SEC Rule 14a-3(c), the Annual Report is
not deemed to be "filed" with the Commission except for those portions that are
expressly incorporated by reference in this filing.
<PAGE> 2
OLD KENT FINANCIAL
CORPORATION
1995
ANNUAL REPORT
SUPPLEMENT
OLD KENT LOGO
<PAGE> 3
[This page intentionally left blank]
<PAGE> 4
Old Kent Financial Corporation
1995 Annual Report Supplement
<TABLE>
<CAPTION>
CONTENTS Page
<S> <C>
- ----------------------------------------------------------------------------------------
Old Kent Financial Corporation S-2
A Message to our Shareholders S-2
Five-Year Summary of Selected Financial Data S-3
Financial Review S-4
Management's Responsibility for Financial Reporting S-26
Report of Independent Public Accountants S-27
Consolidated Financial Statements S-28
Notes to Consolidated Financial Statements S-32
Board of Directors and Senior Management
</TABLE>
S-1
<PAGE> 5
Old Kent Financial Corporation
Old Kent Financial Corporation is a bank holding company. Its principal banking
subsidiaries, Old Kent Bank (Grand Rapids, Michigan) and Old Kent Bank
(Elmhurst, Illinois), serve more than 100 communities in Michigan and Illinois
with over 200 banking offices. These banks engage in commercial and retail
banking and provide trust and other financial services. Approximately 84% of the
Corporation's deposits and 85% of the Corporation's loans are associated with
banking offices serving the lower peninsula of Michigan. The balance of banking
assets are associated with offices serving eastern Michigan and northeastern
Illinois. Old Kent mortgage companies also have offices in Florida, Illinois,
Indiana, Missouri, Minnesota, Utah, Nevada, Idaho, Texas, and Ohio.
A Message to Our Shareholders
Providing the following information in this format permits us to provide this
information to our shareholders even earlier than was our previous practice, and
to achieve a considerable cost saving.
This Annual Report Supplement to our Proxy Statement contains our audited
financial statements, detailed financial review and certain other information
previously presented in our annual report to shareholders. This supplement
contains all of the information that regulations of the Securities and Exchange
Commission (the "SEC") require to be presented in annual reports to
shareholders. For legal purposes, this supplement is part of Old Kent Financial
Corporation's annual report to shareholders. Although attached to our proxy
statement, this supplement is not part of our proxy statement, is not deemed to
be soliciting material, and is not deemed to be filed with the SEC except to the
extent that it is expressly incorporated by reference in a document filed with
the SEC.
We invite our shareholders to also consider our 1995 Report to Shareholders,
which accompanies this proxy statement. That report presents information
concerning the business and financial results of our company in a format and
level of detail that we believe most of our shareholders will find useful and
informative. Shareholders who would like to receive even more detailed
information than that contained in the following Annual Report Supplement are
invited to request our Annual Report on Form 10-K.
OUR ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SEC, WILL BE PROVIDED TO ANY
SHAREHOLDER, WITHOUT CHARGE, UPON WRITTEN REQUEST TO OLD KENT FINANCIAL
CORPORATION, ATTN. CORPORATE SECRETARY, ONE VANDENBERG CENTER, GRAND RAPIDS,
MICHIGAN 49503.
S-2
<PAGE> 6
Five Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
December 31
(dollars in thousands, except per share
data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
FOR THE YEAR
Net interest income $ 476,693 $ 455,635 $ 427,587 $ 403,821 $ 356,074
Provision for credit losses 21,666 22,465 34,822 58,987 41,687
Net income 141,814 137,084 131,324 114,445 95,988
Cash dividends 55,334 49,869 44,984 37,665 32,498
AVERAGE FOR THE YEAR
Assets $11,674,214 $10,761,022 $ 9,718,875 $9,200,850 $8,768,778
Deposits 9,317,428 8,805,055 8,064,628 7,681,885 7,387,053
Loans 7,230,657 6,060,822 5,216,229 5,262,114 5,460,530
Total interest-earning assets 10,875,345 10,029,250 9,046,820 8,595,646 8,181,067
Subordinated and other long-term debt 13,670 1,202 6,296 40,077 87,373
Stock, capital surplus and retained
earnings 972,665 887,541 802,016 712,624 664,832
Total shareholders' equity 960,858 884,415 802,016 712,624 664,832
AT YEAR-END
Assets $12,003,084 $11,477,723 $10,340,037 $9,152,196 $9,250,652
Deposits 9,357,366 9,429,337 8,411,203 7,664,476 7,696,052
Loans 7,430,552 6,854,849 5,344,712 5,224,845 5,398,264
Subordinated debt 100,000 -- -- 24,565 84,331
Stock, capital surplus and retained
earnings 1,012,569 935,588 850,040 755,686 700,117
Total shareholders' equity 1,015,936 895,997 850,040 755,686 700,117
PER COMMON SHARE (IN DOLLARS)
Net Income:
Primary $3.11 $3.02 $2.90 $2.57 $2.17
Fully diluted 3.11 3.02 2.90 2.51 2.07
Cash dividends 1.22 1.12 1.02 .86 .75
Book value at year-end 22.39 19.76 18.75 16.94 15.82
Dividend payout ratio 39.2% 37.1% 35.2% 33.5% 34.6%
PERFORMANCE RATIOS
Return on average total equity 14.76% 15.50% 16.37% 16.06% 14.44%
Return on average assets 1.21% 1.27% 1.35% 1.24% 1.09%
Average equity to average assets 8.23% 8.22% 8.25% 7.75% 7.58%
Yield on average interest-earning
assets 8.44% 7.66% 7.75% 8.48% 9.74%
Cost of average interest-bearing
liabilities 4.71% 3.57% 3.44% 4.25% 6.04%
Average net interest spread 3.73% 4.09% 4.31% 4.23% 3.70%
Average net interest margin 4.46% 4.63% 4.82% 4.81% 4.49%
CAPITAL RATIOS AT YEAR-END
Equity to assets 8.46% 7.81% 8.22% 8.26% 7.57%
Leverage ratio 7.74% 7.30% 7.78% 7.76% 7.04%
Risk-based capital ratio -- Tier 1 10.59% 10.84% 12.61% 12.57% 11.21%
Risk-based capital ratio -- Total 13.01% 12.11% 13.87% 14.03% 13.58%
CREDIT QUALITY RATIOS
Allowance for credit losses to total
loans 2.35% 2.44% 2.72% 2.40% 1.69%
Impaired loans to total loans .58% .88% 1.12% 1.54% 1.81%
Nonperforming assets to total assets .45% .63% .70% 1.01% 1.25%
Allowance to impaired loans 403% 277% 243% 156% 93%
Net charge-offs to average loans .19% .16% .33% .47% .50%
</TABLE>
S-3
<PAGE> 7
Financial Review
This financial review presents management's discussion and analysis of financial
condition and results of operations. This discussion should be read in
conjunction with the consolidated financial statements beginning on page S-28
and the five year summary of selected financial data on page S-3. Financial
information for periods prior to 1995 have been restated to include the
financial condition and results of operations of First National Bank Corp.
("FNB"), which was acquired in a pooling-of-interests transaction on February 1,
1995.
OVERVIEW
Net income was $141.8 million for 1995, the twenty-third year of increased
earnings in Old Kent's history as a bank holding company. This represented a
3.5% increase over net income of $137.1 million for 1994. Net income per share
was $3.11 for 1995, up by 3% over the $3.02 of net income per share for 1994.
Net income has increased at a compound annual growth rate of 9.6% over the last
five years, and net income per common share has grown at an annual compound rate
of 10.0% over that same period.
Effective with the fourth quarter of 1995, the quarterly cash dividend rate on
common stock was increased to $.32 per share. The new annualized rate of $1.28
per share is 8.4% greater than the rate paid in the fourth quarter of 1994 and
includes the effect of a five percent stock dividend paid on August 15, 1995.
Old Kent has paid increased cash dividends in each year since its formation as a
holding company in 1972. The compound annual growth rate for the Corporation's
per share dividend payment for the last five years is 12.1% and the dividend
payout ratio has averaged 35.8% over that same time period.
Old Kent's corporate culture is geared toward maximizing shareholder value. The
information appearing on page 11 of the accompanying proxy statement compares
the performance of Old Kent Common Stock with the S&P 500 and the KBW 50
indices. The total return as shown is measured using both stock price
appreciation and the effect of continuous reinvestment of dividend payments. The
S&P 500 index includes the performance of five hundred 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 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 data indicates that an initial $100.00 investment in Old Kent Common
Stock on December 31, 1990, would be worth $334 on December 31, 1995 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 27.3% over those five years for such an investment in Old Kent Common
Stock compared to 16.6% for the S&P 500 index and 26.5% for the KBW 50 index.
The Corporation's return on average total equity in 1995 was 14.76%, compared to
an equity return of 15.50% for 1994. Old Kent's return on equity has averaged
15.4% over the past five years. Old Kent's return on average assets was 1.21%
for 1995 compared to 1.27% in 1994, 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 $846 million, or 8.4% in 1995 and by $982 million, or 10.9%, in
1994. Over the last five years, total average interest-earning assets have
increased at a compound annual growth rate of 7.3%. Interest-earning assets
primarily consist of
S-4
<PAGE> 8
securities (defined herein to include those classified as available-for-sale and
those classified as held-to-maturity) and loans. Average securities decreased by
$509 million, or 14.2% in 1995. This decrease was primarily the result of Old
Kent's liquidity requirements to accommodate loan growth. In 1995, total loans
averaged $7,231 million, an increase of $1,170 million, or 19.3% more than the
average for 1994. This growth in total loans was largely the result of a higher
level of loan demand relative to the prior year. In 1994, total loans average
$6,061 million and represented an increase of $845 million, or 16.2%, over the
average for 1993. The increase in total average interest-earning assets for 1994
was primarily due to acquisitions of businesses.
BUSINESS OF THE CORPORATION
Old Kent is a bank holding company. The services offered by Old Kent's
subsidiaries cover a wide range of banking, fiduciary and other financial
services. These include commercial, mortgage, and retail loans, business and
personal checking accounts, savings and individual retirement accounts, time
deposit instruments, automated teller machines and electronically accessed
banking services, credit and debit cards, money transfer services, safe deposit
facilities, cash management, real estate and lease financing, international
banking services, access to insurance products, personal investment and
brokerage services and corporate and personal trust services.
The principal sources of revenues for Old Kent are interest and fees on loans,
which accounted for 61% of total revenues in 1995, 55% in 1994, and 51% in 1993.
Interest on securities is also a significant source of revenue, accounting for
19% in 1995, 25% in 1994 and 28% in 1993. Approximately 84% of total deposits
and approximately 85% of total loans at December 31, 1995 were associated with
banking offices serving the lower peninsula of the State of Michigan.
Old Kent has had no foreign loans at any time during the last five years. The
foreign activities of the Corporation primarily involve time deposits with banks
and placements for domestic customers of the banks. These activities did not
significantly impact the Corporation's financial condition or results of
operations.
MERGERS AND ACQUISITIONS
Much of Old Kent's growth has been through acquisitions. Because of restrictive
state banking laws, the primary method of expansion into new markets has been
through acquisitions of other financial institutions or branches. Although some
of these restrictions have been relaxed, 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 January 22, 1996, Old Kent acquired Republic Mortgage Corp. ("RMC"),
headquartered in Salt Lake City, Utah. Old Kent issued approximately 221,000
shares of Old Kent Common Stock for all of outstanding stock of RMC. At December
31, 1995, RMC had total assets of approximately $39 million and serviced
residential mortgages totalling approximately $127 million. RMC has regional
offices in Boise, Idaho and Las Vegas, Nevada.
On December 1, 1995, the Corporation acquired Guyot, Hicks, Anderson &
Associates, Inc. ("GHA"), an insurance agency headquartered in Traverse City,
Michigan. The merger was effected through the issuance of 198,803 shares of Old
Kent Common Stock in exchange for all of the outstanding shares of GHA common
stock. The merger was treated as a pooling-of-interests. Since the acquisition
did not have a material effect on the consolidated financial statements, they
have not been restated. When acquired, GHA had total assets of approximately $5
million. GHA offers a variety of corporate and personal insurance products.
On February 1, 1995, Old Kent acquired First National Bank Corp. ("FNB"), a bank
holding company headquartered in Mount Clemens, Michigan. The merger was
effected through the exchange of
S-5
<PAGE> 9
2,636,221 shares of Old Kent Common Stock for all outstanding shares of FNB
common stock. The merger was accounted for as a pooling-of-interests. When
acquired, FNB had total assets of approximately $531 million and deposits of
$472 million. FNB's sixteen banking offices, now branch offices of Old Kent Bank
(Michigan), are located in the attractive suburban market northeast of Detroit,
and have enhanced Old Kent's existing presence in eastern Michigan.
Effective May 2, 1994, Old Kent acquired EdgeMark Financial Corporation
("EdgeMark") (Chicago, Illinois). Old Kent exchanged 1,917,566 shares of its
common stock for all of the outstanding EdgeMark common stock. 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 afforded entry into attractive mortgage markets located in Florida. At the
time of acquisition, Princeton had assets of approximately $70 million and
serviced residential mortgages of approximately $360 million.
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 First Federal of Elgin,
F.S.A. which 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 in this transaction.
SUMMARY OF OPERATING RESULTS
The following is a summary of the major components of the Corporation's
operating results for the last five years:
<TABLE>
<CAPTION>
Year ended December 31 (in
thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Net interest income $ 476,693 $ 455,635 $ 427,587 $ 403,821 $ 356,074
Add: taxable-equivalent adjustment 7,814 8,704 8,786 9,473 10,937
--------- --------- --------- --------- ---------
Taxable-equivalent net interest
income 484,507 464,339 436,373 413,294 367,011
Provision for credit losses (21,666) (22,465) (34,822) (58,987) (41,687)
Non-interest income 186,551 155,544 150,864 131,880 118,036
Non-interest expense (426,965) (383,012) (345,331) (309,332) (295,710)
Income taxes, including taxable-
equivalent adjustment (80,613) (77,322) (75,760) (62,410) (51,662)
--------- --------- --------- --------- ---------
Net income $ 141,814 $ 137,084 $ 131,324 $ 114,445 $ 95,988
========= ========= ========= ========= =========
</TABLE>
NET INTEREST INCOME
In the summary above, the taxable-equivalent adjustment increases tax-exempt
income to an amount equivalent to interest income subject to income taxes at
statutory rates. The federal income tax rate was 35% for 1995, 1994 and 1993,
and 34% for the preceding years. During 1995, total average interest-earning
assets increased by $846 million, or 8.4%. In that same period, interest-bearing
liabilities increased to a lesser extent, $687 million or 8.1%.
S-6
<PAGE> 10
The following table sets forth the changes in interest income and interest
expense as they relate to changes in volume and changes in rate:
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease)* Increase (Decrease)*
--------------------------------- --------------------------------
Change in Change in
(Fully taxable-equivalent, Income/ Due to Due to Income/ Due to Due to
in thousands) Expense Volume Rate Expense Volume Rate
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans (including mortgages-
held-for-sale) $165,686 $105,921 $ 59,765 $74,230 $65,500 $ 8,730
Taxable securities (26,22) (32,099) 5,873 (6,854) 15,564 (22,418)
Tax-exempt securities (1,75) (2,528) 773 975 1,660 (685)
Interest-earning deposits 1,843 1,623 220 (2,971) (2,586) (385)
Federal funds sold and
resale agreements 10,158 7,893 2,265 2,340 1,082 1,258
Trading account securities 37 (269) 306 (767) (1,263) 496
-------- -------- -------- ------- ------- --------
Change in Interest Income 149,743 80,541 69,202 66,953 79,957 (13,004)
-------- -------- -------- ------- ------- --------
Interest-Bearing
Liabilities:
Savings deposits 3,214 (8,100) 11,314 (3,762) 4,698 (8,460)
Time deposits:
Negotiable 22,064 (1,796) 23,860 28,637 14,378 14,259
Foreign 3,730 (868) 4,598 3,545 1,223 2,322
Other 68,531 41,355 27,176 (5,942) 300 (6,242)
Federal funds purchased and
repurchase agreements 6,562 592 5,970 2,680 (1,154) 3,834
Other borrowed funds 24,641 12,803 11,838 14,225 9,949 4,276
Subordinated and other
long-term debt 833 878 (45) (396) (485) 89
-------- -------- -------- ------- ------- --------
Change in Interest Expense 129,575 44,864 84,711 38,987 28,909 10,078
-------- -------- -------- ------- ------- --------
Change in Net Interest
Income $ 20,168 $ 35,677 $(15,509) $27,966 $51,048 $(23,082)
======== ======== ======== ======= ======= ========
</TABLE>
- -------------------------
* The change in interest due to both volume and rate has been allocated between
the factors in proportion to the relationship of the absolute dollar amounts
of the change in each.
Net interest margin is calculated by dividing taxable-equivalent net interest
income by average interest-earning assets. Interest spread is the difference
between the average yield on earning assets and the average cost of
interest-bearing liabilities. The net interest margin was 4.46% in 1995 compared
to 4.63% for 1994. The interest spread was 3.73% for 1994, down from 4.09% for
1993. The average yield on interest-earning assets increased to 8.44% in 1995
from 7.66% in 1994, an increase of .78%. In contrast, the average cost of
interest-bearing liabilities rose to a greater extent, by 1.14%. The average
cost of interest-bearing liabilities was 4.71% in 1995 compared to 3.57% in
1994. Because liability costs increased more than asset yields, the net interest
margin decreased by .17% in comparing 1995 to 1994. Hence, the increase in
taxable-equivalent net interest income of $20.2 million for 1995 is entirely
attributable to the increase in the average balance (volume) of total
interest-earning assets of $846 million.
The increase of $28 million in taxable-equivalent net interest income in 1994 is
also attributable to increased average-earning asset totals. During 1994,
average earning assets increased by $982 million, or 10.9%. In that same period,
total average interest-bearing liabilities increased to a somewhat lesser
extent, about $800 million, or 10.4%. The net interest margin for 1994 was
4.63%, down by .19% from 1993. The yield on earning-assets was 7.66% for 1994,
or .09% less than that of 1993. The cost of
S-7
<PAGE> 11
interest-bearing liabilities increased to 3.57% for 1994, or .13% more than the
1993 average rate. The interest spread for 1994 was 4.09% compared to 4.31% for
1993 due to the combined effect of higher average cost of paying liabilities and
lower average yield on earning assets.
<TABLE>
<CAPTION>
Three month
Prime interest rate U.S. Treasury Bill rate
------------------------ ------------------------
Percentage 1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Simple average during year 8.83% 7.14% 6.00% 5.63% 4.35% 3.08%
At December 31 8.50% 8.50% 6.00% 5.07% 5.69% 3.05%
</TABLE>
As indicated above, interest rates tended to increase over the past two years
and affected the cost of interest-bearing liabilities to a greater extent than
earning assets. 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 1995 and 1994, largely influenced interest rate increases
as depicted 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, 1995,
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 begins on page S-20 of this report.
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.
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- ------------------------------- ------------------------------
Average Net Average Net Average Net
(Fully taxable-equivalent, Earning Interest Interest Earning Interest Interest Earning Interest Interest
dollars in millions) Assets Spread Income Assets Spread Income Assets Spread Income
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of Funding:
Interest-bearing
liabilities $ 9,186.9 3.73% $342.7 $ 8,500.3 4.09% $347.7 $7,700.1 4.31% $331.9
Non-interest-bearing
liabilities and equity 1,688.4 8.44% 141.8 1,528.9 7.66% 116.6 1,346.7 7.75% 104.5
--------- ------ --------- ------ -------- ------
Total $10,875.3 $484.5 $10,029.2 $464.3 $9,046.8 $436.4
========= ====== ========= ====== ======== ======
</TABLE>
The following table shows the relative importance of changes in interest spread,
earning asset volumes and changes in funding sources:
<TABLE>
<CAPTION>
1995 Over (Under) 1994 1994 Over (Under) 1993 1993 Over (Under) 1992
----------------------------- ----------------------------- -----------------------------
Average Net Average Net Average Net
(Fully taxable-equivalent, Earning Interest Interest Earning Interest Interest Earning Interest Interest
dollars in millions) Assets Spread Income Assets Spread Income Assets Spread Income
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of Funding:
Interest-bearing liabilities $686.6 (.36)% $ (5.0) $800.3 (.22)% $ 15.8 $267.0 .08% $ 17.5
Non-interest-bearing
liabilities and equity 159.5 .78% 25.2 182.1 (.09)% 12.1 184.2 (.73)% 5.6
------ ----- ------ ----- ------ -----
Total $846.1 $ 20.2 $982.4 $ 27.9 $451.2 $ 23.1
====== ===== ====== ===== ====== =====
</TABLE>
S-8
<PAGE> 12
Average Consolidated Balance Sheets
<TABLE>
<CAPTION>
1995 1994 1993
(Income and rates on fully taxable-equivalent ------------------------------- ------------------------------- ---------
basis, Average Average Average Average Average
dollars in thousands) Balance Interest Rate Balance Interest Rate Balance
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ASSETS:
Loans(1) 7,230,657 668,735 9.25% 6,060,822 507,408 8.37% 5,216,229
Taxable investment securities 2,867,365 192,481 6.71 3,346,879 218,707 6.53 3,122,184
Tax-exempt investment securities(2) 211,830 18,255 8.62 241,431 20,010 8.29 221,467
Mortgages held-for-sale 247,659 19,140 7.73 224,481 14,781 6.58 277,841
Interest-earning deposits:
Domestic 5,635 319 5.66 1,991 97 4.87 10,590
Foreign 42,599 2,515 5.90 18,077 894 4.95 61,027
Federal funds sold and resale agreements 248,957 14,991 6.02 109,555 4,833 4.41 80,344
Trading account securities(2) 20,643 1,197 5.80 26,014 1,160 4.46 57,138
---------- ------- ---------- ------- ---------
Total interest earning assets 10,875,345 917,633 8.44 10,029,250 767,890 7.66 9,046,820
---------- ------- ---------- ------- ---------
Unrealized loss on securities available-for-sale (18,157) (4,835) 0
Allowance for loan losses (173,939) (159,719) (136,149)
Cash and due from banks 448,945 415,999 403,051
Other Assets 542,020 480,327 405,153
---------- ---------- ---------
TOTAL ASSETS 11,674,214 10,761,022 9,718,875
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits 3,094,220 82,542 2.67% 3,424,799 79,328 2.32% 3,233,037
Time Deposits:
Negotiable 1,453,454 88,824 6.11 1,492,631 66,760 4.47 1,126,356
Foreign 225,964 14,137 6.26 245,109 10,407 4.25 210,916
Other time 3,214,003 176,982 5.51 2,403,143 108,451 4.51 2,396,837
---------- ------- ---------- ------- ---------
Total interest-bearing deposits 7,987,641 362,485 4.54 7,565,682 264,946 3.50 6,967,146
Federal funds purchased and repurchase agreements 429,881 22,052 5.13 414,589 15,490 3.74 452,736
Other borrowed funds 755,748 47,637 6.30 518,869 22,996 4.43 273,892
Subordinated and other long-term debt 13,670 952 6.96 1,202 119 9.90 6,296
---------- ------- ---------- ------- ---------
Total interest-bearing funds 9,186,940 433,126 4.71 8,500,342 303,551 3.57 7,700,070
------- -------
Demand deposits 1,329,787 1,239,373 1,097,482
Other liabilities 196,629 136,892 119,307
Shareholders' equity:
Common stock, capital surplus and retained
earnings 972,665 887,541 802,016
Unrealized losses on securities
available-for-sale (11,807) (3,126) 0
---------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 11,674,214 10,761,022 9,718,875
========== ========== =========
FULLY TAXABLE -- EQUIVALENT NET INTEREST INCOME 484,507 3.73% 464,339 4.09%
------- -------
NET INTEREST INCOME AS A PERCENTAGE OF
AVERAGE EARNING ASSETS 4.46% 4.63%
PERCENTAGE OF TOTAL ASSETS:
Foreign Assets 0.36% 0.17% 0.63%
Foreign Liabilities 1.94% 2.28% 2.17%
<CAPTION>
1992 1991
(Income and rates on fully taxable-equivalent ------------------------------ --------------------
basis, Average Average Average Average
dollars in thousands) Interest Rate Balance Interest Rate Balance Interest
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ASSETS:
Loans(1) 430,115 8.25% 5,262,114 464,541 8.83% 5,460,530 563,250
Taxable investment securities 225,561 7.22 2,905,667 233,436 8.03 2,211,894 192,505
Tax-exempt investment securities(2) 19,035 8.59 233,463 21,672 9.28 255,372 23,639
Mortgages held-for-sale 17,844 6.42 0 0 0 0 0
Interest-earning deposits:
Domestic 575 5.43 11,918 813 6.82 10,269 801
Foreign 3,387 5.55 51,825 3,387 6.54 100,804 8,224
Federal funds sold and resale agreements 2,493 3.10 73,107 2,757 3.77 93,938 5,229
Trading account securities(2) 1,927 3.37 57,552 2,333 4.05 48,260 2,889
------- --------- ------- --------- -------
Total interest earning assets 700,937 7.75 8,595,646 728,939 8.48 8,181,067 796,537
------- --------- ------- --------- -------
Unrealized loss on securities available-for-sale 0 0
Allowance for loan losses (106,148) (81,761)
Cash and due from banks 376,570 355,524
Other Assets 334,782 313,948
--------- ---------
TOTAL ASSETS 9,200,850 8,768,778
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits 83,090 2.57% 2,949,471 97,685 3.31% 2,541,771 123,361
Time Deposits:
Negotiable 38,123 3.38 964,532 40,209 4.17 985,491 63,464
Foreign 6,862 3.25 222,605 8,328 3.74 101,322 6,015
Other time 114,393 4.77 2,573,553 144,530 5.62 2,839,502 200,478
------- --------- ------- --------- -------
Total interest-bearing deposits 242,468 3.48 6,710,161 290,752 4.33 6,468,086 393,318
Federal funds purchased and repurchase agreements 12,810 2.83 566,078 18,498 3.27 427,210 22,497
Other borrowed funds 8,771 3.20 116,825 4,183 3.58 125,144 6,824
Subordinated and other long-term debt 515 8.18 40,077 2,212 5.52 87,373 6,887
------- --------- ------- --------- -------
Total interest-bearing funds 264,564 3.44 7,433,141 315,645 4.25 7,107,813 429,526
------- ------- -------
Demand deposits 971,724 918,967
Other liabilities 83,361 77,166
Shareholders' equity:
Common stock, capital surplus and retained
earnings 712,624 664,832
Unrealized losses on securities
available-for-sale 0 0
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9,200,850 8,768,778
========= =========
FULLY TAXABLE -- EQUIVALENT NET INTEREST INCOME 436,373 4.31% 413,294 4.23% 367,011
------- ------- -------
NET INTEREST INCOME AS A PERCENTAGE OF
AVERAGE EARNING ASSETS 4.82% 4.81%
PERCENTAGE OF TOTAL ASSETS:
Foreign Assets 0.56% 1.15%
Foreign Liabilities 2.42% 1.16%
<CAPTION>
(Income and rates on fully taxable-equivalent
basis, Average
dollars in thousands) Rate
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ASSETS:
Loans(1) 10.31%
Taxable investment securities 8.70
Tax-exempt investment securities(2) 9.26
Mortgages held-for-sale 0
Interest-earning deposits:
Domestic 7.80
Foreign 8.16
Federal funds sold and resale agreements 5.57
Trading account securities(2) 5.99
Total interest earning assets 9.74
Unrealized loss on securities available-for-sale
Allowance for loan losses
Cash and due from banks
Other Assets
TOTAL ASSETS
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings Deposits 4.85%
Time Deposits:
Negotiable 6.44
Foreign 5.94
Other time 7.06
Total interest-bearing deposits 6.08
Federal funds purchased and repurchase agreements 5.27
Other borrowed funds 5.45
Subordinated and other long-term debt 7.88
Total interest-bearing funds 6.04
Demand deposits
Other liabilities
Shareholders' equity:
Common stock, capital surplus and retained
earnings
Unrealized losses on securities
available-for-sale
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
FULLY TAXABLE -- EQUIVALENT NET INTEREST INCOME 3.70%
NET INTEREST INCOME AS A PERCENTAGE OF
AVERAGE EARNING ASSETS 4.49%
PERCENTAGE OF TOTAL ASSETS:
Foreign Assets
Foreign Liabilities
</TABLE>
- -------------------------
(1) Loan fees are included in interest income and are used to calculate average
rates earned. Impaired 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 1995, 1994 and 1993, and 34% in prior years.
S-9
<PAGE> 13
LOAN PORTFOLIO
As a financial intermediary, the acceptance and management of credit risk is an
integral part of Old Kent's business activities. The Corporation has established
strict credit underwriting standards. Except for credit card and certain other
loans, these standards include a policy of granting loans only within Old Kent's
defined market areas and prohibition of foreign loans. Lending standards are
codified in a comprehensive lending policy which is uniform throughout the
organization. Old Kent's lending staff is highly skilled and experienced. The
Corporation's conservative lending philosophy is implemented through strong
administrative and reporting requirements. Old Kent maintains a centralized,
independent loan review function which monitors asset quality at each of Old
Kent's subsidiary banks. The Corporation also employs a centralized group of
specialists which assists the subsidiary banks in resolving troubled loans.
<TABLE>
<CAPTION>
Composition of total loans at December 31, 1995: Percent of Total
- ----------------------------------------------------------------------------------------------
<S> <C>
Commercial, financial, agricultural loans and leases 30%
Real estate loans -- commercial and construction 26%
------
Total commercial 56%
Real estate loans -- residential mortgages 11%
Real estate loans -- consumer home equity loans 8%
Consumer loans (primarily automobile loans) 21%
Credit card loans 4%
------
Total 100%
======
</TABLE>
One of Old Kent's strengths is its diversified loan portfolio. Approximately 44%
of Old Kent's loan assets are comprised of credits granted to consumers in the
form of residential mortgages and a variety of other consumer credit products,
such as automobile loans, home equity loans, credit cards, educational loans and
other consumer financings.
Loans to commercial borrowers represent approximately 56% of Old Kent's loan
portfolio. These loans are grouped by their nature and industry diversification
as non-real estate related and as real estate related. The components of
commercial loans appear in the following table:
<TABLE>
<CAPTION>
Real Estate Related
Commercial loan mix at -----------------------
December 31, 1995: Owner Non-owner Non-Real Estate
(dollars in millions) Total Occupied Occupied Related
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contractors and property managers $1,296.7 $304.9 $ 749.7 $ 242.0
Services 691.9 229.7 154.7 307.5
Manufacturing 638.0 54.9 13.5 569.6
Retail 423.2 76.1 17.9 329.2
Wholesale 308.0 33.1 7.1 267.7
Finance 184.6 52.4 61.5 70.8
Transportation 99.0 20.0 9.0 70.0
Agriculture 54.7 14.5 4.9 35.3
Other 206.9 51.9 38.7 116.4
Leasing 196.2 0 0.0 196.2
-------- ------- -------- ----------
Total $4,099.3 $837.5 $1,057.0 $2,204.7
======== ======= ======== ==========
</TABLE>
At December 31, 1995, Old Kent's commercial loan and lease portfolio, excluding
real estate related loans, approximated $2.2 billion, or about 30% 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.
S-10
<PAGE> 14
Commercial real estate and construction loans at December 31, 1995 aggregated
approximately $1.9 billion, or 25% 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 44% of commercial real estate and construction loans
and loans for non-owner occupied properties were 56% of that total. Non-owner
occupied loans totalled $1.1 billion, or 14% of total loans and are distributed
over a diverse base of borrowers.
Old Kent has no foreign loans. In addition, Old Kent's policy is to be highly
restrictive in granting credit to borrowers in businesses which are highly
cyclical, such as agriculture and petroleum production, and the Corporation is
extremely selective in participating in loan syndications.
The following table summarizes the components of the Corporation's total loans
at December 31 for each of the last five years:
<TABLE>
<CAPTION>
December 31 (dollars in millions) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural loans $2,008.6 $1,655.8 $1,390.8 $1,249.4 $1,262.0
Real estate loans -- commercial 1,627.1 1,326.0 1,297.9 1,279.7 1,319.4
Real estate loans -- construction 267.4 397.4 166.1 200.1 199.0
Real estate loans -- residential
mortgages (including home equity
loans) 1,455.9 1,590.0 1,273.9 1,497.5 1,605.7
Consumer loans 1,551.8 1,672.2 1,098.5 890.4 900.8
Credit card loans 323.6 102.2 62.4 61.0 70.1
Lease financing 196.2 111.2 55.1 46.7 41.3
-------- -------- -------- -------- --------
Total loans $7,430.6 $6,854.8 $5,344.7 $5,224.8 $5,398.3
======== ======== ======== ======== ========
</TABLE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses is the amount added to the allowance for credit
losses to absorb probable credit losses. The amount of the credit loss provision
is determined by management after reviewing the risk characteristics of the loan
portfolio, historical credit loss experience and economic conditions. These
determinations are reviewed by Old Kent's centralized, independent loan review
function, which monitors the credit quality of the Corporation's loan portfolio
through its uniform procedures, credit grading and reporting systems.
The following table summarizes the credit loss provisions, net credit losses and
the allowance for credit losses for the last five years:
<TABLE>
<CAPTION>
Year ended December 31 (dollars in
millions) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for credit losses $ 21,666 $ 22,465 $ 34,822 $ 58,987 $41,687
Net credit losses 13,409 9,771 16,979 24,675 27,249
Allowance for credit losses at year-end 174,248 167,253 145,323 125,375 91,063
Allowance as a percentage of:
Year-end loans 2.35% 2.44% 2.72% 2.40% 1.69%
Year-end loans, excluding loans secured
by residential mortgages 2.64% 2.87% 3.21% 3.03% 2.17%
Impaired loans 403% 277% 243% 156% 93%
Ratio of net charge-offs to average
loans outstanding during the year .19% .16% .33% .47% .50%
Credit loss recoveries as a percentage
of prior year charge-offs 60% 44% 25% 34% 25%
</TABLE>
S-11
<PAGE> 15
The provision for credit losses for 1995 was $0.8 million less than that of
1994, largely due to reduced levels of impaired loans and recoveries of
previously charged-off loans. Impaired loans at December 31, 1995 totalled $43.2
million or $17.2 million less than at year-end 1994. At December 31, 1995, the
ratio of the allowance to impaired loans was 403%. Over the past five years, the
Corporation's actual loss experience on residential real estate loans has been
negligible. At December 31, 1995, the ratio of the allowance to total loans
exclusive of residential mortgages was 2.64%.
The following table summarizes loan balances at the end of each period and the
daily averages; changes in the allowance for credit losses arising from loans
charged-off and recoveries on loans previously charged-off, by loan
classification; and additions to the allowance which have been charged to
expense:
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of
year $7,430,552 $6,854,849 $5,344,712 $5,224,845 $5,398,264
========== ========== ========== ========== ==========
Daily average of loans
outstanding for year $7,230,657 $6,060,822 $5,216,229 $5,262,114 $5,460,530
========== ========== ========== ========== ==========
Balance of allowance for credit
losses at beginning of year $ 167,253 $ 145,323 $ 125,375 $ 91,063 $ 76,625
Net change in allowance due to
loans (sold) and purchased
(net) (1,263) 9,236 2,105 - -
Provision for credit losses 21,666 22,465 34,822 58,987 41,687
LOANS CHARGED-OFF:
Commercial, financial and
agricultural loans 5,241 3,632 7,916 16,025 14,281
Real estate
loans -- commercial 2,805 7,460 7,694 8,781 8,424
Real estate
loans -- construction 29 605 1,198 500 570
Real estate
loans -- residential
mortgages (including home
equity loans) 232 641 854 1,582 568
Consumer loans 11,005 6,422 5,756 6,740 8,348
Credit card loans 5,626 1,718 1,568 2,051 2,213
Lease financing 1,148 743 1,007 879 954
---------- ---------- ---------- ---------- ----------
Total charged-off 26,086 21,221 25,993 36,558 35,358
---------- ---------- ---------- ---------- ----------
RECOVERIES OF LOANS PREVIOUSLY
CHARGED-OFF:
Commercial, financial and
agricultural loans 2,721 3,167 3,275 5,657 3,873
Real estate
loans -- commercial 5,779 3,915 2,060 2,329 738
Real estate
loans -- construction 469 927 76 122 79
Real estate
loans -- residential
mortgages (including home
equity loans) 47 229 520 301 246
Consumer loans 2,875 2,362 2,326 2,442 2,373
Credit card loans 600 556 550 639 578
Lease financing 187 294 207 393 222
---------- ---------- ---------- ---------- ----------
Total recovered 12,678 11,450 9,014 11,883 8,109
---------- ---------- ---------- ---------- ----------
Balance of allowance for
credit losses at end of year $ 174,248 $ 167,253 $ 145,323 $ 125,375 $ 91,063
========== ========== ========== ========== ==========
</TABLE>
S-12
<PAGE> 16
The following tables summarize net credit losses (total loans charged-off less
total loans recovered) and their relationship to the daily average balances for
each loan type listed for the last five years:
<TABLE>
<CAPTION>
Net credit losses (recoveries)
for the year ended December 31
(in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural
loans $ 2,520 $ 465 $ 4,641 $10,368 $10,408
Real estate loans -- commercial (2,974) 3,545 5,634 6,452 7,686
Real estate loans -- construction (440) (322) 1,122 378 491
Real estate loans -- residential
mortgages (including home equity loans) 185 412 334 1,281 322
Consumer loans 8,130 4,060 3,430 4,298 5,975
Credit card loans 5,026 1,162 1,018 1,412 1,635
Lease financing 961 449 800 486 732
------- ------ ------- ------- -------
Total net credit losses $13,408 $9,771 $16,979 $24,675 $27,249
======== ======= ======= ======= =======
Net credit losses as a percentage of
daily average total loans 0.19% 0.16% 0.33% 0.47% 0.50%
======= ====== ======= ======= =======
</TABLE>
The allowance for credit losses has been allocated according to the amount
deemed reasonably necessary to provide for the probable losses inherent within
each of the following categories at the dates indicated:
<TABLE>
<CAPTION>
1995 1994 1993 1992
----------------------- ----------------------- ----------------------- ---------
Allocation of allowance for Percent of Percent of Percent of
credit losses at December 31 Loans to Loans to Loans to
(dollars in thousands) Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural $ 60,000 27.0% $ 52,000 24.2% $ 46,000 26.0% $ 45,000
Real estate -- commercial 36,000 21.9 34,000 19.3 33,000 24.3 19,000
Real estate -- construction 3,000 3.6 5,000 5.8 3,000 3.1 3,000
Real estate -- residential 2,000 19.6 3,000 23.2 3,000 23.8 3,000
Consumer loans 35,000 20.9 35,000 24.4 24,000 20.6 15,000
Credit card loans 8,300 4.4 5,000 1.5 3,000 1.2 3,000
Lease financing 3,100 2.6 1,660 1.6 900 1.0 860
Not allocated 26,848 31,593 32,423 36,515
-------- ------ -------- ------ -------- ------ --------
Total allowance for credit
losses $ 174,248 100.0% $ 167,253 100.0% $ 145,323 100.0% $ 125,375
======== ====== ======== ====== ======== ====== ========
<CAPTION>
1992 1991
----------- -----------------------
Allocation of allowance for Percent of Percent of
credit losses at December 31 Loans to Loans to
(dollars in thousands) Total Loans Allowance Total Loans
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Commercial, financial and
agricultural 23.9% $35,000 23.4%
Real estate -- commercial 24.5 19,000 24.4
Real estate -- construction 3.8 2,000 3.7
Real estate -- residential 28.7 3,000 29.7
Consumer loans 17.0 9,000 16.7
Credit card loans 1.2 4,000 1.3
Lease financing 0.9 725 0.8
Not allocated 18,338
------ ------- ------
Total allowance for credit
losses 100.0% $91,063 100.0%
====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Net credit losses (recoveries) as a percent of
daily average balance for the year 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Commercial, financial and agricultural loans 0.14% 0.03% 0.35% 0.84% 0.72%
Real estate loans -- commercial (0.19) 0.27 0.43 0.51 0.59
Real estate loans -- construction (0.19) (0.18) 0.61 0.19 0.27
Real estate loans -- residential mortgages 0.02 0.03 0.02 0.08 0.02
Consumer loans 0.37 0.27 0.35 0.49 0.65
Credit card loans 2.32 1.51 1.81 2.25 2.54
Lease financing 0.57 0.53 1.58 1.12 1.77
------ ------ ----- ----- -----
Total 0.19% 0.16% 0.33% 0.47% 0.50%
====== ====== ===== ===== =====
</TABLE>
S-13
<PAGE> 17
NONPERFORMING ASSETS
The following is a summary of nonperforming assets for the last five years:
<TABLE>
<CAPTION>
December 31 (dollars in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
IMPAIRED LOANS:
Nonaccrual loans $40,173 $54,576 $54,291 $78,272 $ 93,746
Restructured loans 3,075 5,838 5,426 2,288 4,226
------- ------- ------- ------- --------
Total impaired loans 43,248 60,414 59,717 80,560 97,972
Other real estate owned 11,287 12,366 12,770 11,604 17,714
------- ------- ------- ------- --------
Total nonperforming assets $54,535 $72,780 $72,487 $92,164 $115,686
======= ======= ======= ======= ========
Impaired loans as a percentage of total
loans .58% .88% 1.12% 1.54% 1.81%
</TABLE>
Loans past due 90 days or more, but for which interest income continues to be
recognized, are not included in the Corporation's nonperforming assets. The
following table summarizes such loans for the last five years.
<TABLE>
<CAPTION>
December 31 (dollars in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Loans past due ninety days or more $29,080 $11,677 $11,664 $12,130 $14,216
Loans past due ninety days or more, as a
percentage of total loans .39% .17% .22% .23% .26%
</TABLE>
The loan portfolio has been reviewed and analyzed for the purpose of estimating
probable credit losses. The management of Old Kent has concluded that the
allowance for credit losses at December 31, 1995 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 impaired status after giving consideration to collateral
value and the borrower's ability to repay loan principal. Since the Corporation
immediately recognizes losses on its impaired loans, it has not become necessary
to separately record a valuation allowance on these assets. Because the ultimate
collection of interest on impaired loans is in doubt, any interest income
recognized on these assets is generally limited to cash collections of interest.
OTHER INCOME
Total non-interest income increased $31.0 million, or 19.9% in 1995. Excluding
the impact of gains on securities transactions, mortgage banking gains and
nonrecurring revenue, the increase was $26.5 million, or 18.5% for the year. The
increase in total non-interest income in 1994, excluding securities
transactions, mortgage banking gains and non-recurring revenue, was $17.4
million, or 13.7%.
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 3.5% in 1995. This compares with an increase of $1.5 million, or
3.7% in 1994. First year fees resulting from new account relationships were up
nearly 21% in 1995 and up by over 6% in 1994. The new business relationships
established in these years will also favorably influence subsequent periods. The
1995 increase in trust fees was favorably influenced by better overall market
conditions as compared to 1994, as well as a 9% increase in assets under
investment administration. In 1994, assets under investment administration
decreased by approximately 5.7% primarily due to account closures.
Service charges on deposit accounts increased by nearly $4.6 million in 1995, an
increase of 12.9%. This compares to an increase of $2.9 million, or 8.8% in
1994. The 1995 increase is due both to an increase in the deposit base along
with the Corporation's continuing focus on improving non-interest revenues. The
increase in 1994 was attributable to similar factors.
Net gains on sales of securities are discussed on page S-23.
S-14
<PAGE> 18
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. Effective January 1, 1995, Old
Kent adopted the provisions of Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), as described in
Note 1 to the Consolidated Financial Statements. This statement requires that
when a mortgage is originated with an existing plan to sell the loan, the fair
value of the servicing right created upon its origination be recognized as an
asset. Adoption of this statement was the primary reason for the increase in
mortgage banking gains for 1995.
The following summarizes the mortgage banking activity and revenue of Old Kent
Mortgage Company ("OKMC") for the past three years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Residential mortgage loans originated and acquired $2,019,248 $1,835,901 $2,319,737
Residential mortgage loans sold 1,957,328 1,672,807 1,990,245
Mortgage banking gains 13,578 7,392 20,763
Mortgage loan servicing revenues 18,452 12,714 9,403
</TABLE>
Mortgage banking gains in 1994 were $7.4 million, down 64.4% from the amount
realized in 1993. During 1993, refinancing activity was higher than 1994 due to
relatively lower interest rates, resulting in an unusually high level of
mortgage banking gains. Mortgage banking gains may significantly vary from
period to period, as impacted by economic cycles. Though such gains have been a
noteworthy source of income, the Corporation's management also places emphasis
on its mortgage servicing line of business which generates a consistent, and
longer lived revenue stream.
Revenue from the Corporation's mortgage servicing activities was $18.5 million
in 1995, 45.1% better than that of 1994. As shown below, this increase is due to
growth in Old Kent's third party servicing portfolio which has grown
substantially over the past few years due to business expansion. In 1994,
mortgage servicing revenue totalled $12.7 million, or 35.2% more than the 1993
amount.
The following table summarizes residential mortgages serviced for itself and
others.
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgages serviced for third parties $6,859,160 $4,634,373 $3,177,092
Mortgages held-for-sale 270,126 189,989 474,898
Mortgage loans serviced by Old Kent for its own
portfolio 832,214 1,028,005 823,632
---------- ---------- ----------
Total $7,961,500 $5,852,367 $4,475,622
========== ========== ==========
</TABLE>
The growth in mortgages serviced for third parties is the direct result of the
Corporation's ongoing business expansion strategy for Old Kent Mortgage Company.
As described above and in Note 2 to the Consolidated Financial Statements, the
growth of OKMC over the past few years includes the 1994 acquisition of
Princeton Financial Corp., a mortgage banking company, as well the servicing
portfolios and mortgage markets which accompanied the Corporation's various
acquisitions of banking enterprises. In January, 1996 the Corporation also
acquired Republic Mortgage Corp. OKMC serviced loans in forty-nine states. The
results of operations of OKMC represented approximately 3% of the Corporation's
net income for 1995 compared to approximately 2.8% for 1994.
Other expenses includes amortization of mortgage servicing rights which amounted
to $6.6 million in 1995, approximately double the amount expensed in 1994. The
increase includes the effect of business expansion and the impact of the
adoption of SFAS 122 as discussed above. Amortization of servicing rights for
the years 1994 and 1993 was limited to purchased mortgage servicing rights. This
amortization was less in 1994 than in 1993 due to the effects of a decrease in
prepayment levels. During
S-15
<PAGE> 19
1995 the Corporation purchased the servicing rights associated with mortgages
totalling $1.4 billion, and had sales of servicing rights associated with
mortgages totalling $.4 billion.
Credit card transaction revenue totalled $27.6 million in 1995, about 22.6% more
than the prior year. In 1994, this revenue totalled $22.5 million, representing
an increase of 37.3% over the amount for 1993. These increases primarily reflect
growth in Old Kent's "bankcard" line of business which has aimed at not only
increasing credit card loans and transactions but also at an expanded cardholder
base and a broadened base of relationships with merchants.
Transaction processing fees include items such as fees and commissions on money
orders and traveler checks, foreign exchange fees, debit card interchange
income, check cashing and collection charges. These revenues totalled $16.1
million in 1995, up by $3.8 million, or 30.9% more than in 1994. This increase
was primarily attributable to increased money order commissions and debit card
interchange income. In 1994, transaction processing fees amounted to $12.3
million, or 21.3% more than in 1993. This increase was mainly the result of
business acquisitions which had only a partial year impact on the consolidated
financial statements in 1993.
The following table summarizes the major categories of other income for the last
three years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust income $ 43,281 $ 41,813 $ 40,305
Service charges on deposit accounts 40,266 35,672 32,777
Credit card transaction revenue 27,574 22,490 16,376
Mortgage servicing revenues 18,452 12,714 9,403
Transaction processing fees 16,127 12,318 10,153
Mortgage banking gains 13,578 7,392 20,763
Mortgage origination and processing fees (net) 7,384 2,645 1,261
Credit life insurance premiums 4,593 3,404 2,900
Automated teller machine network revenues 3,588 3,172 2,606
Trading account gains 2,222 1,602 1,594
Non-recurring revenue and gains on "other real estate
owned" 2,202 3,321 2,089
Safe deposit box rental income 1,774 1,998 1,881
Securities transactions 421 1,013 1,574
Other 5,089 5,990 7,182
------- ------- -------
Total other income $186,551 $155,544 $150,864
======= ======= =======
</TABLE>
OTHER EXPENSES
Salaries and employee benefits represent the largest category of non-interest
expense. These personnel costs increased by $13.2 million, or 7.7%, in 1995
largely due to staffing increases at Old Kent Mortgage Company early in the year
as well as greater use of incentive pay. Though the Corporation reduced banking
staff, these reductions occurred relatively late in the year and had only a
modest impact on total salaries and benefits for 1995. The 1995 increase
compares to an increase of $18.4 million, or 12.0%, in 1994 which is mainly due
to business 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
equivalent efforts of full-time employees. At December 31, 1995, Old Kent
employed 5,027 persons on an "FTE" basis. This compares to 5,237 persons at
December 31, 1994. Over the course of 1995, banking staff was reduced by
approximately 325 FTEs primarily due to Old Kent's efforts to become more
efficient. Also, approximately 115 FTE staff was added in 1995; these additions
mainly occurred in Old Kent Mortgage Company in relation to the business
expansion strategy for that line of business.
S-16
<PAGE> 20
Occupancy expense increased modestly, by $0.2 million or 0.8%, in 1995. This
compares to an increase of $4.0 million, or 16.6%, in 1994. The key factors
underlying the 1994 increase included business acquisitions (treated as a
purchase) and the mid-1993 expansion of Old Kent's Corporate Service Center
(Grand Rapids, Michigan).
Equipment expense increased by $1.6 million, or 7.0% in 1995. In 1994, equipment
expense increased by $3.1 million by 15.4%. The 1994 increase also included the
effect of acquisitions, as well as information technology enhancements to
benefit the future. These benefits included furthering the branch automation
effort and upgrading the Corporation's overall processing capacity.
The deposit insurance assessment of the Federal Deposit Insurance Corporation
(FDIC) decreased by 41.8%, or $8.0 million, in 1995. The sole factor for this
decrease was the June 1, 1995 reduction in premium rates as determined by the
FDIC. The FDIC has announced that its Bank Insurance Fund ("BIF") rates for at
least the first six months of 1996 will be less than the rates in effect at
December 31, 1995. In 1994, FDIC deposit insurance expenses was $1.8 million, or
10.4%, more than the 1993 amount. This increase was due to growth in the
Corporation's deposit base.
FDIC premium rates per $100 of insured deposits (for banks eligible for the
lowest possible rate based on regulatory criteria) were: zero on January 1,
1996; $.04 on June 1, 1995; and $.23 on January 1, 1995, 1994 and 1993. At
December 31, 1995, Old Kent had approximately $300 million of deposits
(resulting from past acquisitions) insured by the Savings Association Insurance
Fund. These deposits were subject to a higher rate of assessment by the FDIC
than deposits insured by BIF. The assessment rates on these deposits had not
been reduced as of January 1, 1995, nor January 1, 1996.
<TABLE>
<CAPTION>
FDIC insurance rate cost per $100 of insured deposits 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average rate for year $0.1192 $0.2300 $0.2300
======= ======= =======
Percentage change from prior year (48.2)% 0.0%
</TABLE>
The following table summarizes the major categories of other expenses for the
last three years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $153,476 $142,247 $128,087
Employee benefits 31,682 29,738 25,495
Occupancy 28,635 28,423 24,386
Equipment 24,746 23,130 20,042
Restructuring costs 18,204 - -
Interbank credit card transaction fees 17,865 15,985 11,143
Advertising and public relations 13,351 10,298 9,099
Amortization of goodwill and core deposit intangibles 11,864 10,465 6,927
FDIC deposit insurance 11,123 19,102 17,304
Taxes other than income taxes 10,655 9,960 10,869
Professional services 10,607 9,122 9,307
Postage and courier charges 10,495 9,498 8,582
Telephone 9,183 7,480 6,172
Stationery and supplies 8,605 8,828 8,815
Amortization of mortgage servicing rights 6,597 3,241 5,190
Legal, audit and examination fees 5,600 6,071 7,315
Other losses (including certain nonrecurring charges) 2,801 4,580 7,253
Other 51,476 44,844 39,345
-------- -------- --------
Total other expenses $426,965 $383,012 $345,331
======== ======== ========
</TABLE>
S-17
<PAGE> 21
RESTRUCTURING CHARGES
Restructuring charges aggregating $18.2 million are included in total other
expense for 1995. These charges are discussed in Note 14 to the Consolidated
Financial Statements and relate to initiatives aimed at creating more efficient
operations in the future. From these initiatives, the Corporation expects to
derive part-year benefits of approximately $15 million on a pre-tax basis during
1996 and of at least $25 million beginning in 1997. Coinciding with the
implementation of these efficiency initiatives are the implementation of other
business strategies, such as a fully centralized telephone banking function
servicing Old Kent's entire customer base. New strategies, such as this, will
require new expenditures which may tend to offset the aforementioned
restructuring benefits that are realized over the next few years.
INCOME TAXES
The income tax provision was $72.8 million in 1995 compared to $68.6 million in
1994 and $67.0 million in 1993. Income tax expense as a percentage of pre-tax
income was 33.9% in 1995. This compares with 33.4% in 1994 and 33.8% in 1993.
OLD KENT COMMON STOCK
Old Kent Common Stock is traded in The NASDAQ Stock Market under the symbol
OKEN. The following table sets forth the range of bid prices for Old Kent Common
Stock for the periods indicated. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. Prices have been adjusted to reflect a 5% stock
dividend distributed in 1995.
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
Quarter Low High Low High
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st $28.57 $30.95 $27.74 $30.83
2nd 29.17 33.45 28.10 34.05
3rd 32.14 39.63 30.00 34.05
4th 37.63 41.63 28.33 32.62
</TABLE>
As of February 19, 1996, there were 40,075,597 shares of Old Kent Financial
Corporation Common Stock issued and outstanding, held by approximately 14,450
holders of record.
CASH DIVIDENDS
The Corporation has paid regular cash dividends every quarter since it was
organized as a bank holding company in 1972. The following table summarizes the
quarterly cash dividends paid to common shareholders over the past five years,
adjusted for a five percent stock dividend paid in August, 1995 and for a
three-for-two stock split paid in September, 1992.
<TABLE>
<CAPTION>
Quarter 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st $0.295 $0.276 $0.248 $0.197 $0.184
2nd 0.295 0.276 0.248 0.197 0.184
3rd 0.310 0.276 0.248 0.219 0.184
4th 0.320 0.295 0.276 0.248 0.197
------ ------ ------ ------ ------
Total $1.220 $1.123 $1.020 $0.861 $0.749
====== ====== ====== ====== ======
</TABLE>
The earnings of Old Kent's subsidiary banks are the principal source of funds to
pay cash dividends. Consequently, cash dividends are dependent upon the
earnings, capital needs, regulatory constraints and other factors affecting each
individual bank. Based on the projected earnings and liquidity,
S-18
<PAGE> 22
management expects the Corporation to declare and pay regular quarterly cash
dividends on its common shares in 1996.
CAPITAL
At December 31, 1995, the Corporation's total common stock, capital surplus and
retained earnings was $1,016 million, an increase of 13.4% over the same total
at December 31, 1994. 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 of shareholder's equity. At December 31, 1995
this component was a $3.4 million positive balance compared to a negative
balance of $39.6 million at December 31, 1994. 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.
Under the "risk-based" capital guidelines presently in effect for banks and bank
holding companies, minimum capital levels are based on the perceived risk of
various asset categories and certain off-balance-sheet instruments, such as loan
commitments and letters of credit, and require capital allocations. 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, 1995, regulatory authorities required that, except for the amount
related to unrealized losses on equity securities available-for-sale, the SFAS
No. 115 component of shareholders' equity be excluded from regulatory capital.
The following table compares Old Kent's capital ratios at December 31, 1995 with
regulatory guidelines.
<TABLE>
<CAPTION>
Risk-based
Capital
------------------
(Dollars in millions) Leverage Tier 1 Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Old Kent's regulatory capital amounts at December 31, 1995 $922.5 $913.5 $1,122.2
Required regulatory capital 357.2 345.0 690.1
------ ------ --------
Old Kent's capital in excess of regulatory minimums $565.3 $568.5 $ 432.1
====== ====== ========
Old Kent's regulatory capital ratios at December 31, 1995 7.75% 10.59% 13.01%
Regulatory capital ratios -- "well capitalized" definition 5.00% 6.00% 10.00%
Regulatory capital ratios -- minimum requirement 3.00% 4.00% 8.00%
</TABLE>
At December 31, 1995, the ratio of total shareholders' equity to total assets
was 8.46% compared to 7.81% one year earlier. Book value per common share is
calculated by dividing total shareholders' equity by the number of shares
outstanding as of a given date. The following is a reconciliation of book value
per share:
<TABLE>
<CAPTION>
Per Share Amount
- ----------------------------------------------------------------------------------------
<S> <C>
BOOK VALUE PER COMMON SHARE AT DECEMBER 31, 1994 $19.76
Net income per common share 3.11
Dividends per common share (1.22)
Effect of stock repurchases during 1995 (0.46)
Effect of stock issuances during 1995 0.22
Net change in unrealized loss on securities available-for-sale and
other changes 0.98
------
BOOK VALUE PER COMMON SHARE AT DECEMBER 31, 1995 $22.39
======
</TABLE>
S-19
<PAGE> 23
The Corporation has generally financed its growth through the retention of
earnings and the issuance of subordinated long-term debt. It is expected that
future growth can be financed through internal earnings retention, additional
long-term debt offerings, or the issuance of additional common or preferred
stock.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Old Kent manages its liquidity to ensure that funds are available to each of its
banks to satisfy the cash flow requirements of depositors and borrowers and to
ensure that the Corporation's own cash requirements are met. Old Kent maintains
liquidity by obtaining funds from several sources.
Old Kent's most readily available source of liquidity is its investment
portfolio. Old Kent's securities available-for-sale, which totalled $2.2 billion
at December 31, 1995, represent a highly accessible source of liquidity. The
Corporation's portfolio of securities held-to-maturity, which totalled $871
million at December 31, 1995, provides liquidity from maturities and
amortization payments.
Depositors within Old Kent's defined markets are another source of liquidity.
Core deposits (demand, savings, money market, and consumer time) totalled $8.3
billion at December 31, 1995, up from $7.5 billion at December 31, 1994. These
same markets offer additional liquidity in the form of large deposit instruments
and other equivalent non-deposit products. The national capital markets
represent further sources of liquidity to Old Kent. The Corporation may make use
of brokers to place large deposit instruments or bank note offerings when
advantageous, or it may access federal funds markets or utilize collateralized
borrowings. Additional liquidity is available through debt offerings.
<TABLE>
<CAPTION>
Credit ratings at December 31, 1995: Thomson BankWatch Moody's Standard & Poor's
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OLD KENT FINANCIAL CORPORATION:
Issuer rating A/B
Short-term rating TBW-1
Subordinated debt rating A+ Baa1 A-
OLD KENT BANK (MICHIGAN)
Senior debt AA-
Short-term debt TBW-1 P1 A-1
Long-term debt A1 A
OLD KENT BANK (ILLINOIS)
Senior Debt AA-
Short-term debt TBW-1 P1 A-1
Long-term debt A2 A
</TABLE>
During 1992, Old Kent filed, and had ordered effective, a shelf registration
with the Securities and Exchange Commission which registered up to $150 million
in debt securities for future sale. During 1995, Old Kent issued $100 million in
subordinated debt paying semi-annual coupon interest at 6 5/8% and maturing on
November 15, 2005.
Old Kent Bank (Michigan) and Old Kent Bank (Illinois) have implemented note
programs which would permit those banks to place up to $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 $575 million of bank notes outstanding at December 31, 1995.
Federal and state banking laws place certain restrictions on the amount of
dividends and loans which a bank may make to its parent company. Such
restrictions have not had, and are not expected to have, any material effect on
the Corporation's ability to meet its cash obligations.
S-20
<PAGE> 24
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, 1995:
<TABLE>
<CAPTION>
0-30 31-90 91-180 181-365 1-5 Over 5
(In millions) Days Days Days Days Years Years Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-loan interest-earning
assets $ 362 $ 198 $ 187 $ 440 $1,529 $ 637 $ 3,353
Loans 3,700 406 364 763 2,291 177 7,701
------ ------ ----- ------ ------ ------- -------
Total interest-earning assets 4,062 604 551 1,203 3,820 814 11,054
------ ------ ----- ------ ------ ------- -------
Savings and money market
accounts* 1,054 0 0 0 0 2,021 3,075
Domestic time deposits 528 632 966 1,079 1,439 50 4,694
Foreign time deposits 82 0 0 0 0 0 82
Purchased funds and
long-term debt 988 0 50 50 220 100 1,408
------ ------ ----- ------ ------ ------- -------
Total interest-bearing
liabilities 2,652 632 1,016 1,129 1,659 2,171 9,259
Interest-earning assets less
interest-bearing liabilities 1,410 (28) (46) 74 2,161 (1,357) 1,795
Impact of interest rate swaps (55) (224) 0 (2) 308 0 0
------ ------ ----- ------ ------ ------- -------
Asset (liability) gap $1,355 $ (252) $(465) $ 44 $2,469 $(1,357) $ 1,795
Cumulative asset gap $1,355 $1,103 $ 638 $ 683 $3,152 $ 1,795
Cumulative gap as a percentage
of cumulative earning assets. 33.4% 23.6% 12.2% 10.6% 30.8% 16.2%
</TABLE>
- -------------------------
* (The placement of indeterminate maturity deposits on the gap analysis
represents an allocation of 30% of the balances to the 0-30 Days period and
70% to the Over 5 Years period. This distribution is based on historical
analyses of the amount by which the rates paid on these deposits changed as
alternative market rates changed, and on the sensitivity of balances to
changes in such alternative market rates.)
Total interest-earning assets exceeded interest-bearing liabilities by $1.8
billion at December 31, 1995. 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 $683 million. However, the repricing and cash-flows
of certain categories of assets and liabilities are subject to competitive and
other influences that are beyond the control of Old Kent. As a result, certain
assets and liabilities indicated as maturing or repricing within a stated period
may, in fact, mature or reprice in other periods or at different volumes.
Old Kent recognizes the limitations of static gap analysis as a tool for
managing its interest rate risk. Old Kent also uses computer-based simulation to
estimate the effects of various interest rate environments on the balance sheet
structure and net interest income. These simulation techniques involve changes
in interest rate relationships, asset and liability mixes, and prepayment
options inherent in financial instruments, as well as interest rate levels in
order to quantify risk potentials. Based on these analyses, Old Kent's
management believes that future net interest income would not be materially
impacted throughout a broad range of possible interest rate scenarios.
The accompanying table illustrates that during 1995 and 1994 Old Kent's
quarterly average net interest margin was not significantly altered by changes
in interest rates.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------------------------------- -------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Prime Rate 8.72% 8.77% 9.00% 8.83% 8.13% 7.50% 6.90% 6.02%
Average Fed Funds Rate 5.75 5.82 6.02 5.82 5.16 4.52 3.95 3.24
Net Interest Margin 4.42 4.47 4.43 4.51 4.53 4.66 4.66 4.54
</TABLE>
S-21
<PAGE> 25
The table below illustrates the projected change in Old Kent's net interest
income during the next twelve months if all market rates were to uniformly and
gradually increase or decrease by as much as 2.0% compared to results under a
flat rate environment. These projections, based on Old Kent's balance sheet as
of December 31, 1995, were prepared using the modeling techniques and
assumptions which Old Kent was then using for asset/liability management
purposes. The table indicates that if rates were to gradually and uniformly
increase or decrease by 2.0%, net interest income would be expected to increase
by .7% or decrease by 1.9% compared to results forecasted under a flat rate
environment. This narrow projected exposure to interest rate risk is consistent
with management's desire to limit the sensitivity of net interest income to
changes in interest rates in order to reduce risk to earnings and capital. This
model is based solely on gradual, uniform changes in market rates and does not
reflect the levels of interest rate risk that may arise from other factors such
as changes in the spreads between key market rates or in the shape of the
Treasury yield curve.
<TABLE>
<S> <C> <C> <C> <C> <C>
Change in interest rates from current level (2.00)% (1.00)% 0.00% 1.00% 2.00%
====== ====== ===== ===== =====
Change in net interest income versus flat
rates (1.9)% (0.9)% 0.0% 0.5% 0.7%
</TABLE>
An important component of Old Kent's management of interest rate risk is the
company's use of interest rate swaps. At December 31, 1995 the total notional
amount (the amount used to calculate interest) of outstanding interest rate swap
agreements was $525.5 million. The following tables present information
regarding swap activity for 1995 along with maturity and rate profiles at
December 31, 1995.
SWAP ACTIVITY
<TABLE>
<CAPTION>
1/1/95 Notional New Swap 12/31/95
(In millions) Notional Matured Amortization* Notional Notional
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating $371.7 $ (65.0) $(1.2) $105.0 $410.5
Receive Floating/Pay Fixed 65.0 (25.0) - 75.0 115.0
Receive Floating/Pay Floating 120.5 (120.5) - - -
------ ------- ----- ------ ------
$557.2 $(210.5) $(1.2) $180.0 $525.5
====== ======= ===== ====== ======
</TABLE>
- -------------------------
* Note: Certain "Index Amortizing Swaps" have notional amounts for which the
maturity date, or amortization schedule, may vary based on interest rate
levels. Old Kent had swaps of this type totalling $240.5 million at December
31, 1995.
SWAPS MATURITY PROFILE
Notional amounts of swaps are anticipated to mature as follows, assuming that
market rates in effect at December 31, 1995 remain unchanged:
<TABLE>
<CAPTION>
(In millions) 1996 1997 1998 1999 2000+ Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating $27.8 $ 78.0 $ 85.1 $65.2 $154.4 $410.5
Receive Floating/Pay Fixed 40.0 50.0 25.0 - - $115.0
----- ------ ------ ----- ------ ------
$67.8 $128.0 $110.1 $65.2 $154.4 $525.5
===== ====== ====== ===== ====== ======
</TABLE>
SWAPS RECEIVE RATE/PAY RATE PROFILE
Interest rates of swaps are summarized as follows as of the dates indicated:
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1994
------------------------ ------------------------
Receive Rate Pay Rate Receive Rate Pay Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive Fixed/Pay Floating 6.76% 6.00% 6.52% 6.38%
Receive Floating/Pay Fixed 5.94 6.20 5.66 4.25
Receive Floating/Pay Floating N/A N/A 12.03 10.73
</TABLE>
S-22
<PAGE> 26
For 1995 and 1994, Old Kent's interest rate swaps increased net interest income
by approximately $5.9 million and $3.8 million respectively. This improved the
Corporation's net interest margin by .05% in 1995 and by .04% in 1994.
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.
Effective December 1, 1995, Old Kent transferred securities which originally had
been classified as "held-to-maturity" to the "available-for-sale" portfolio.
When transferred, these securities had an aggregate amortized cost of
approximately $1.2 billion. The decision to make this transfer was based on a
one-time reassessment of the appropriateness of the classification of all
securities held at the date of transfer.
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 1995 and 1994, the principal reason for sales of securities
available-for-sale was to provide liquidity for loan growth. In 1995, net gains
on the sale of securities were $0.4 million. This compares to net gains of $1.0
million in 1994 and $1.6 million in 1993.
SOURCES AND USES OF FUNDS TRENDS
As shown on the accompanying consolidated balance sheets, total assets at
December 31, 1995 were $12.0 billion, up by $0.5 billion, or 4.6%, from the
preceding year-end. In general, Old Kent's management relies more on the use of
daily average balances, rather than on balances at a period end, to analyze
trends. Old Kent's average consolidated balance sheets for the last five years
appears on
S-23
<PAGE> 27
page S-9 of this report. Information contained therein was the basis for the
summarized trends in sources and uses of funds appearing below.
<TABLE>
<CAPTION>
1995 1994
-------------------------------- ------------------------------
Increase Increase
(Decrease) (Decrease)
Average ------------------- Average -----------------
(Dollars in millions) Balance Amount Percent Balance Amount Percent
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Funding Uses:
Loans $ 7,230.7 $1,169.9 19.3% $ 6,060.8 $844.6 16.2%
Mortgages held-for-sale 247.7 23.2 10.3 224.5 (53.3) (19.2)
Taxable securities 2,867.4 (479.5) (14.3) 3,346.9 224.7 7.2
Tax-exempt securities 211.8 (29.6) (12.3) 241.4 19.9 9.0
Interest-earning deposits 48.2 28.1 139.8 20.1 (51.5) (71.9)
Federal funds sold and
resale agreements 249.0 139.4 127.2 109.6 29.3 36.5
Trading account securities 20.6 (5.4) (20.8) 26.0 (31.1) (54.5)
--------- -------- ------- --------- ------ -----
Total Uses $10,875.4 $ 846.1 8.4% $10,029.3 $982.6 10.9%
========= ======== ======= ========= ====== =====
Funding Sources:
Demand deposits $ 1,329.8 $ 90.4 7.3% $ 1,239.4 $141.9 12.9%
Savings deposits 3,094.2 (330.6) (9.7) 3,424.8 191.8 5.9
Time deposits:
Negotiable 1,453.5 (39.1) (2.6) 1,492.6 366.2 32.5
Foreign 226.0 (19.1) (7.8) 245.1 34.2 16.2
Other time 3,214.0 810.9 33.7 2,403.1 6.3 0.3
Federal funds purchased and
repurchase agreements 429.9 15.3 3.7 414.6 (38.1) (8.4)
Other borrowed funds 755.7 236.8 45.6 518.9 245.0 89.4
Subordinated and other
long-term debt 13.7 12.5 1,041.7 1.2 (5.1) (81.0)
Other 358.6 69.0 23.8 289.6 40.4 16.2
--------- -------- ------- --------- ------ ------
Total Sources $10,875.4 $ 846.1 8.4% $10,029.3 $982.6 10.9%
========= ======== ======= ========= ====== ======
</TABLE>
Growth in average total loans for 1995 amounted to nearly $1.2 billion, or about
19.3%. This growth was primarily funded through growth in average total deposits
along with liquidity which became available from the securities portfolios. Also
during 1995, Old Kent, as an additional measure to accommodate loan demand,
securitized and sold approximately $250 million of consumer automobile loans
during the third quarter of 1995.
During 1994, total average loans increased by $0.8 billion or 16.2% and total
interest earning assets increased by nearly $1.0 billion, or 10.9%. These
increases primarily reflect the effect of the Corporation's business
acquisitions during 1993 and early 1994.
Lower interest rates over the years preceding 1994 had an effect on the relative
mix in Old Kent's core deposits. During the periods of lower rates, savings
deposits became a greater proportion of total core deposits. Management believes
that this trend indicated a greater preference for liquidity on the part of
consumers. However, during the latter part of 1994 interest rates rose. This had
the effect of altering this past trend and savings deposits became
proportionately less of the total by December 31, 1994,
S-24
<PAGE> 28
which continued during 1995. This change in trend influenced an increase in the
Corporation's interest expense for 1995 and 1994.
<TABLE>
<CAPTION>
Based on annual averages
At Year-end -------------------------------------------------
Relative core deposit mix 1995 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits 18.1% 17.4% 17.5% 16.3% 15.0% 14.6%
Savings deposits 37.1 40.5 48.5 48.1 45.4 40.3
Other time deposits 44.8 42.1 34.0 35.6 39.6 45.1
----- ----- ----- ----- ----- -----
Total core deposits 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
QUARTERLY FINANCIAL DATA
The following is a summary of selected quarterly results of operations for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
1995 ------------------------------------------------------
(In thousands except per share data) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $218,915 $229,263 $230,908 $ 230,733
Net Interest Income 117,814 118,949 120,380 119,550
Provision for Credit Losses 4,567 5,991 6,073 5,035
Income Before Income Taxes 51,713 56,625 57,780 48,495
Net Income 34,703 37,393 38,316 31,402
Net Income Per Common Share $.76 $.82 $.84 $.69
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
1994 ------------------------------------------------------
(In thousands except per share data) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $171,761 $184,266 $195,581 $ 207,578
Net Interest Income 106,719 114,234 117,094 117,586
Provision for Credit Losses 4,664 6,471 5,245 6,085
Income Before Income Taxes 49,132 55,086 55,929 45,554
Net Income 32,891 36,853 36,955 30,384
Net Income Per Common Share $.73 $.81 $.81 $.67
</TABLE>
Net income for the fourth quarter of 1995 was less than that of the three
preceding calendar quarters. The primary reason for the decrease was
restructuring charges of approximately $12 million which were recognized during
the fourth quarter of 1995. These charges reduced net income per common share
for that period by approximately $.17.
Net income for the fourth quarter of 1994 was less than that of the three
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. Non-interest
expense also included approximately $4.6 million of non-recurring charges
related to First National Bank Corp. which was acquired by Old Kent effective
February 1, 1995 in a "pooling-of-interests" transaction.
S-25
<PAGE> 29
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Old Kent Financial Corporation is responsible for the
preparation of the financial statements and other related financial information
included in the annual report. The financial statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgments where applicable. Financial
information appearing throughout this annual report is consistent with the
financial statements.
The Corporation maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and that transactions are executed in
accordance with management's authorization and are recorded properly to permit
the preparation of financial statements in accordance with generally accepted
accounting principles. Management continually monitors the internal control
structure for compliance with established policies and procedures. As an
integral part of the internal control system, the Corporation maintains a
professional staff of internal auditors who monitor compliance with internal
controls and coordinate audit coverage with the independent public accountants.
The Audit Committee of the Board of Directors, composed entirely of outside
Directors, oversees the Corporation's financial reporting process and has
responsibility for recommending the independent public accountants who are
appointed by the Board of Directors to audit the Corporation's annual financial
statements.
The financial statements in this annual report have been audited by Arthur
Andersen LLP and their report appears on page S-27.
The Audit Committee of the Board of Directors meets regularly with management,
internal auditors, independent public accountants and regulatory examiners to
review matters relating to financial reporting and internal controls. The
internal auditors, independent public accountants and regulatory examiners have
direct access to the Audit Committee.
The Corporation assesses its internal control structure over financial reporting
in relation to the criteria described in the "Internal Control -- Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management of the Corporation believes
that as of December 31, 1995, in all material respects, the Corporation
maintained an effective internal control structure over financial reporting.
David J. Wagner
Chairman, President, and
Chief Executive Officer
B. P. Sherwood, III
Vice Chairman and Treasurer
Richard W. Wroten
Executive Vice President and
Chief Financial Officer
January 15, 1996
S-26
<PAGE> 30
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, 1995 and 1994, and the related consolidated statements of income, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Old Kent Financial Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois,
January 15, 1996
S-27
<PAGE> 31
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31 (dollars in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 527,611 $ 486,281
Federal funds sold and resale agreements 49,445 28,727
----------- -----------
Total cash and cash equivalents 577,056 515,008
Interest-earning deposits 175,413 5,255
Mortgages held-for-sale 270,126 189,989
Trading account securities 11,699 10,651
Securities available-for-sale:
Collateralized mortgage obligations and other
mortgage-backed securities 874,291 406,422
Other securities 1,371,408 1,050,908
----------- -----------
Total securities available-for-sale (amortized cost of
$2,240,517 and $1,518,208 in 1995 and 1994, respectively) 2,245,699 1,457,330
Securities held-to-maturity:
Collateralized mortgage obligations and other
mortgage-backed securities 680,330 1,092,797
Other securities 190,612 990,695
----------- -----------
Total securities held-to-maturity (market values of
$876,291 and $2,002,803 in 1995 and 1994, respectively) 870,942 2,083,492
Loans 7,430,552 6,854,849
Less allowance for credit losses 174,248 167,253
----------- -----------
Net loans 7,256,304 6,687,596
Leasehold improvements, premises and equipment 173,903 171,815
Other assets 421,942 356,587
----------- -----------
TOTAL ASSETS $12,003,084 $11,477,723
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Deposits:
Non-interest-bearing $ 1,506,149 $ 1,449,460
Interest-bearing 7,769,672 7,599,218
Foreign-interest bearing 81,545 380,659
----------- -----------
Total deposits 9,357,366 9,429,337
Other borrowed funds 1,307,617 1,010,769
Subordinated debt 100,000 -
Other liabilities 222,165 141,620
----------- -----------
TOTAL LIABILITIES 10,987,148 10,581,726
----------- -----------
Shareholders' Equity:
Preferred stock: 25,000,000 shares authorized and unissued - -
Common stock, par value $1: 150,000,000 shares authorized;
45,383,122 and 43,177,291 shares issued and outstanding in
1995 and 1994, respectively 45,383 43,177
Capital surplus 200,101 141,247
Retained earnings 767,085 751,164
----------- -----------
Total common stock, capital surplus and retained earnings 1,012,569 935,588
Unrealized gains (losses) on securities available-for-sale 3,367 (39,591)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,015,936 895,997
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,003,084 $11,477,723
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-28
<PAGE> 32
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands, except per share data) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $666,790 $505,445 $427,609
Interest on mortgages held-for-sale 19,140 14,781 17,844
Interest on securities available-for-sale 77,139 84,414 79,371
Interest on securities held-to-maturity 127,728 147,657 159,002
Interest on deposits 2,834 991 3,962
Interest on federal funds sold and resale
agreements 14,991 4,833 2,493
Interest on trading account securities 1,197 1,065 1,870
-------- ------- --------
Total interest income 909,819 759,186 692,151
-------- ------- --------
INTEREST EXPENSE:
Interest on domestic deposits 348,348 254,539 235,606
Interest on foreign deposits 14,137 10,407 6,862
Interest on other borrowed funds 69,798 38,605 22,096
Interest on subordinated debt 843 - -
-------- ------- --------
Total interest expense 433,126 303,551 264,564
-------- ------- --------
NET INTEREST INCOME 476,693 455,635 427,587
PROVISION FOR CREDIT LOSSES 21,666 22,465 34,822
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES 455,027 433,170 392,765
-------- ------- --------
OTHER INCOME:
Trust income 43,281 41,813 40,305
Service charges on deposit accounts 40,266 35,672 32,777
Credit card transaction revenue 27,574 22,490 16,376
Mortgage servicing revenue 18,452 12,714 9,403
Mortgage banking gains 13,578 7,392 20,763
Securities transactions 421 1,013 1,574
Nonrecurring and other real estate owned income 2,202 3,321 2,089
Other 40,777 31,129 27,577
-------- ------- --------
Total other income 186,551 155,544 150,864
-------- ------- --------
OTHER EXPENSES:
Salaries and employee benefits 185,158 171,985 153,582
Occupancy 28,635 28,423 24,386
Equipment 24,746 23,130 20,042
FDIC deposit insurance 11,123 19,102 17,304
Interbank credit card transaction fees 17,865 15,985 11,143
Restructuring charges 18,204 - -
Nonrecurring and other real estate owned expenses 2,801 4,580 7,253
Other 138,433 119,807 111,621
-------- ------- --------
Total other expenses 426,965 383,012 345,331
-------- ------- --------
INCOME BEFORE INCOME TAXES 214,613 205,702 198,298
-------- ------- --------
Income taxes 72,799 68,618 66,974
-------- ------- --------
NET INCOME $141,814 $137,084 $131,324
======== ======= ========
Average number of shares used to compute net
income per common share 45,605,274 45,409,350 45,228,491
Net income per common share $3.11 $3.02 $2.90
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-29
<PAGE> 33
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31 (dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 141,814 $ 137,084 $ 131,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 21,666 22,465 34,822
Depreciation, amortization and accretion 49,528 40,329 29,578
Deferred income taxes (7,224) (5,673) (6,421)
Net gains on sales of assets (16,370) (12,344) (24,662)
Net decrease in trading account securities 1,174 29,272 25,247
Originations and acquisitions of mortgages
held-for-sale (2,060,201) (1,835,901) (2,319,737)
Proceeds from sales and prepayments of
mortgages held-for-sale 1,993,642 2,180,165 2,049,106
Net change in other assets (72,107) (26,420) 373
Net change in other liabilities 51,683 (12,884) (5,718)
----------- ----------- -----------
Net cash provided by (used for) operating
activities 103,605 516,093 (86,088)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and prepayments of securities
available-for-sale 459,051 150,143 147,506
Proceeds from sales of securities
available-for-sale 1,323,828 2,133,275 753,992
Purchases of securities available-for-sale (1,297,725) (2,340,293) (1,220,004)
Maturities and prepayments of securities
held-to-maturity 373,903 622,463 922,537
Purchases of securities held-to-maturity (373,491) (422,470) (1,134,940)
Proceeds from sales of securities
held-to-maturity - 646 -
Net change in interest-earning deposits (170,158) 29,971 35,379
Net increase in loans (588,672) (1,159,517) (91,942)
Purchases of leasehold improvements, premises
and equipment, net (25,142) (27,900) (32,532)
Acquisition of businesses, net of cash acquired - 23,763 (7,522)
----------- ----------- -----------
Net cash used for investing activities (298,406) (989,919) (627,526)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in time deposits 44,955 715,491 384,866
Change in demand and savings deposits (116,925) (165,112) 163,908
Increase in other borrowed funds 296,848 40,299 259,585
Issuance of subordinated debt 100,000 - -
Repurchases of common stock (20,805) (70,720) (4,134)
Proceeds from common stock issuances 8,110 5,473 4,177
Dividends paid to shareholders (55,334) (49,869) (44,984)
----------- ----------- -----------
Net cash provided by financing activities 256,849 475,562 763,418
----------- ----------- -----------
Net change in cash and cash equivalents 62,048 1,736 49,804
Cash and cash equivalents at beginning of year 515,008 513,272 463,468
----------- ----------- -----------
Cash and cash equivalents at end of year $ 577,056 $ 515,008 $ 513,272
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid on deposits, other borrowed funds
and subordinated debt $ 420,246 $ 289,174 $ 256,029
Federal income taxes paid 71,250 78,907 73,024
Significant non-cash transactions:
Stock dividends issued 71,651 - 2,337
Stock issued to acquire business - 62,551 -
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-30
<PAGE> 34
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Valuation
Adjustment Total
Securities Share-
Common Capital Retained Available- holders'
(dollars in thousands, except per share data) Stock Surplus Earnings For-Sale Equity
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1993 as previously reported $40,442 $118,238 $567,597 $ 726,277
Adjustment to record merger of First National Bank
Corp. (FNB) on a pooling-of-interests basis 1,382 13,128 14,899 29,409
------- -------- -------- ------- ----------
Restated balance at January 1, 1993 41,824 131,366 582,496 755,686
Net income for the year 131,324 131,324
Cash dividends:
$1.02 per common share (43,380) (43,380)
Cash dividends paid by FNB (1,604) (1,604)
Stock dividend and split of FNB 700 1,003 (1,724) (21)
Conversion of debentures and exercise of equity
contracts of FNB 469 7,247 7,716
Common stock issued under employee stock plans and
other 104 1,393 (98) 1,399
Common stock repurchased (139) (3,995) (4,134)
Common stock issued under dividend reinvestment plan 85 2,685 2,770
Tax benefit relating to employee stock plans 602 602
Other activity of FNB 200 (518) (318)
------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1993 43,043 140,501 666,496 850,040
Net income for the year 137,084 137,084
Cash dividends:
$1.12 per common share (47,992) (47,992)
Cash dividends paid by FNB (1,877) (1,877)
Common stock repurchased for acquisition of business (1,918) (60,673) (62,591)
Common stock issued for acquisition of business 1,918 60,633 62,551
Common stock repurchased for dividend reinvestment
plan and employee stock plan (254) (7,875) (8,129)
Common stock issued under dividend reinvestment plan,
employee stock plans, and other 388 8,201 8,589
Tax benefit relating to employee stock plans 338 338
Other activity of FNB 122 (2,547) (2,425)
Valuation adjustment on securities available-for-sale (39,591) (39,591)
------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1994 43,177 141,247 751,164 (39,591) 895,997
Net income for the year 141,814 141,814
Cash dividends:
$1.22 per common share (55,334) (55,334)
Common stock issued in payment of 5% stock dividend -
2,157,241 shares (cash in lieu of fractionals -
$187,000) 2,157 69,494 (71,838) (187)
Common stock issued for Guyot, Hicks, Anderson &
Associates, Inc. acquisition - 198,803 shares 199 (30) 169
Common stock repurchased for dividend reinvestment
plan and employee stock plans - 588,742 shares (589) (20,216) (20,805)
Common stock issued under dividend reinvestment plan,
employee stock plans, and other - 438,930 shares 439 9,368 9,807
Tax benefit relating to employee stock plans 238 238
Other activity of FNB 1,279 1,279
Valuation adjustment on securities available-for-sale 42,958 42,958
------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1995 $45,383 $200,101 $767,085 $ 3,367 $1,015,936
======= ======== ======== ======= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
S-31
<PAGE> 35
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 include the accounts of Old Kent Financial
Corporation (Parent Company) and its wholly owned subsidiaries (collectively,
the "Corporation"). Significant intercompany balances and transactions have been
eliminated in consolidation.
Nature of Operations
The Corporation operates two commercial banks with 190 full service offices
throughout Michigan and 26 such offices in the metropolitan markets in and
around Chicago, Illinois. It also operates a mortgage banking company with 21
offices located in five states. Old Kent's revenue is mainly derived by
providing financial services to commercial and retail customers located within
those markets. The financial services primarily consist of the extension of
credit and acceptance of deposits.
Use of Estimates
Conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Trading Account Securities
Trading account securities are carried at market value. Gains and losses on
trading activities are included in other income in the consolidated statements
of income.
Securities Available-for-Sale
Securities available-for-sale include those securities which might be sold as
part of Old Kent's management of interest rate risk, in response to changes in
interest rates, prepayment or credit risk or due to a desire to increase capital
or liquidity. While Old Kent has no current intention to sell these securities,
they may not be held for long-term investment. These assets are carried on the
balance sheet at their estimated fair values, with corresponding (after-tax)
valuation adjustments included as a component of shareholders' equity. Gains and
losses realized on sales of such securities are determined using the specific
identification method and are classified as other income in the consolidated
statements of income.
Premiums and discounts on securities available-for-sale, as well as securities
held-to-maturity, are amortized over the estimated lives of the related
securities. This amortization, as well as adjustments stemming from changes in
estimated lives are included in interest income on the accompanying 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 intent and ability
to hold the security to maturity.
S-32
<PAGE> 36
Interest Rate Swaps
The Corporation enters into interest rate swaps to hedge existing assets and
liabilities. Income and expense associated with interest rate swap contracts are
accrued over the life of the contracts and are classified with the income and
expense of the specific assets and liabilities which are being hedged. Gains and
losses on early terminations are included in the carrying amount of the hedged
asset or liability and amortized as yield adjustments over the remaining term of
the hedged asset or liability.
Mortgage Banking Activities
The Corporation routinely sells to investors its originated residential mortgage
loans, as well as those acquired from third parties. The Corporation typically
retains the servicing rights related to the mortgages sold. Gains on sales of
mortgages are recorded to the extent proceeds exceed the carrying value of the
loans. Mortgage loans held-for-sale are carried at the lower of cost or market,
which is determined under the aggregate method. In determining the lower of cost
or market, the gains and losses associated with the corresponding financial
instruments, used to hedge against increases in interest rates, are considered.
In May, 1995 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights", an Amendment of FASB Statement No. 65. SFAS No. 122 requires
recognizing as separate assets the rights to service mortgage loans for others,
however those rights are acquired. It requires that when a definitive plan
exists to sell the loan and retain the servicing, the cost of the mortgage loan
be allocated between the loan and the related mortgage servicing right based on
their relative fair values at the date of origination or purchase; otherwise the
date of sale shall be used. The Statement also requires assessing the
capitalized mortgage servicing rights for impairment based on the fair value of
those rights. The Corporation prospectively adopted the provision of SFAS No.
122, effective January 1, 1995. The adoption did not have a material impact on
the Corporation's financial position or results of operations.
The fair value of the Corporation's mortgage servicing rights is determined
based on quoted market prices for comparable transactions, if available, or a
valuation model that calculates the present value of expected future cash flows.
Mortgage servicing rights are amortized ratably in relation to the associated
servicing revenue over the estimated lives of the serviced loans. In accordance
with SFAS No. 122, the Corporation evaluated and measured impairment of its
capitalized servicing rights using stratifications based on the risk
characteristics of the underlying loans. Management has determined those risk
characteristics to include loan type (conventional and governmental) and
interest rate. Impairment is recognized through a valuation allowance.
The Corporation utilizes financial instruments which are intended to minimize
the effects of interest rate declines on the value of its capitalized mortgage
servicing rights. These instruments are carried at fair value.
Loans
Effective January 1, 1995, the Corporation adopted the provisions of Statements
of Financial Accounting Standards Nos. 114 and 118, "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosures", respectively. These statements require that
the recorded investment in certain impaired loans be adjusted by means of a
valuation allowance to reflect a fair value determined under one of the
following methods: (1) the present value of expected future cash flows
discounted at the loan's effective rate of interest, (2) the loan's observable
market price, or (3) the fair value of the collateral, if the loan is collateral
dependent. Old Kent's policy is to review impaired loans under the
aforementioned standards to determine the need for a valuation allowance. Any
shortfall in the fair value of an impaired loan compared with the recorded
investment of the loan, is identified as an allocated portion of the
S-33
<PAGE> 37
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowance for credit losses and is one of the factors considered by management
in their overall assessment of reserve adequacy. Large groups of smaller balance
homogeneous loans with common risk characteristics are aggregated and
collectively evaluated for impairment using methods available under these
statements. Adoption of these statements had no effect upon Old Kent's total
allowance for credit losses or net income.
Loans are stated at their principal amount outstanding, net of unearned income.
Loan performance is reviewed regularly by loan review personnel, loan officers
and senior management. A loan is placed on nonaccrual status and evaluated for
impairment when principal or interest is past due 90 days or more, and the loan
is not well secured and in the process of collection, or when, in the opinion of
management, there is sufficient reason to doubt collectibility of principal or
interest. Interest previously accrued, but not collected, is reversed and
charged against interest income at the time the loan is placed on nonaccrual
status. Generally, the terms of loans that result from troubled debt
restructurings are at interest rates considered below current market rates for
comparable loans and are evaluated for impairment.
Interest received on nonaccrual loans is recorded as principal reductions if
principal repayment is doubtful. Loans are no longer classified as impaired when
principal and interest payments are brought current and collectibility is no
longer in doubt. Interest income on restructured loans is recognized according
to the terms of the restructure, subject to the nonaccrual policy described
above.
Certain commitment and loan origination fees are deferred and amortized as an
adjustment of the related loan's yield over its contractual life using the
interest method, or other methods which approximate the interest method. All
remaining commitment and loan origination fees and all direct costs associated
with originating or acquiring loans are recognized currently, which is not
materially different than the prescribed method.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level that, in management's
judgment, is adequate to absorb probable losses in the loan portfolio. The
amount is based on management's specific review and analysis of the loan
portfolio, as well as evaluation of the effects of current economic conditions
on the loan portfolio. This process is based on estimates, and ultimate losses
may materially differ in the near term from the current estimates. As changes in
estimates occur, adjustments to the level of the allowance are recorded in the
provision for credit losses in the period in which they become known.
Leasehold Improvements, Premises and Equipment
Leasehold improvements, premises and equipment are stated at original costs,
less accumulated depreciation and amortization computed on the straight-line
method over the estimated useful lives of the assets or terms of the leases,
whichever period is shorter. For income tax purposes, minimum lives and
accelerated methods are used.
Other Real Estate Owned
Other real estate owned consists of properties acquired in partial or total
satisfaction of debt. Other real estate owned is stated at fair value. Losses
arising at acquisition are charged against the allowance for credit losses.
Reductions in fair value subsequent to acquisition are recorded in other expense
in the consolidated statements of income, while any gains realized on the
disposition of such properties are included in other income.
S-34
<PAGE> 38
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 ten to twenty years. Other acquired intangible assets, such as those
associated with acquired core deposits, are amortized over periods not exceeding
fifteen years. Old Kent continually evaluates whether events and circumstance
have occurred that indicate that the remaining useful life of goodwill and other
intangible assets may warrant revision or that the remaining balance may not be
recoverable. When factors indicate that an intangible asset should be evaluated
for possible impairment, the Corporation estimates the undiscounted future cash
flow of the business segment over the remaining life of the asset in assessing
whether the asset is recoverable. During 1995, 1994 and 1993, adjustments
resulting from application of this policy were not significant.
Long-lived Assets
In March, 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed Of." The Corporation is required to adopt the provisions of this
statement effective in 1996. Based on information available at December 31,
1995, management of the Corporation expects that, when adopted, this statement
will not have a material impact on Old Kent's consolidated results of operations
or financial condition.
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.
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.
S-35
<PAGE> 39
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be reversed. Old Kent and its subsidiaries file a consolidated
federal income tax return.
Income per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding and common share equivalents with a
dilutive effect. Common share equivalents are shares which may be issuable upon
the exercise of outstanding stock options.
Reclassification
Certain reclassifications have been made to prior periods' financial statements
to place them on a basis comparable with the current period's financial
statements.
NOTE 2. ACQUISITIONS
Effective January 22, 1996, Old Kent acquired Republic Mortgage Corp. ("RMC"),
headquartered in Salt Lake City, Utah. Old Kent issued approximately 221,000
shares of Old Kent Common Stock for all of the outstanding common stock of RMC.
This acquisition will be accounted for as a purchase and is not expected to have
material effect on Old Kent's future results of operations or financial
condition. At December 31, 1995, RMC had total assets of approximately $39
million and serviced residential mortgages totalling approximately $127 million.
On December 1, 1995, the Corporation acquired Guyot, Hicks, Anderson &
Associates, Inc. ("GHA"), an insurance agency headquartered in Traverse City,
Michigan. The merger was effected through the issuance of 198,803 shares of Old
Kent Common Stock in exchange for all of the outstanding shares of GHA common
stock. The merger was treated as a "pooling-of-interests". Since the acquisition
did not have a material effect on the consolidated financial statements, they
have not been restated. When acquired, GHA had total assets of approximately $5
million.
On February 1, 1995, Old Kent merged with First National Bank Corp. ("FNB"), a
bank holding company headquartered in Mount Clemens, Michigan. The merger was
effected through the exchange of 1.0813 shares of Old Kent Common Stock,
(2,636,221 shares in all) for each outstanding share of FNB common stock. The
merger was accounted for as a "pooling-of-interests." The accompanying
consolidated financial statements have been restated to include the financial
position and results of operations of FNB prior to the merger.
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 totalling $11.7 million. 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 total assets of approximately $70 million and
serviced residential mortgages
S-36
<PAGE> 40
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.
NOTE 3. PLEDGED AND RESTRICTED ASSETS
The Federal Reserve requires the banking subsidiaries to maintain certain
average non-interest bearing cash balances in accordance with stated reserve
requirements. These average reserves approximated $73 million during 1995 and
$68 million during 1994.
At December 31, 1995, securities having an aggregate amortized cost of
approximately $1.1 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, 1995 and 1994:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1995 (in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and federal agency
securities $1,304,855 $ 10,503 $ 2,930 $1,312,428
Collateralized mortgage obligations and
other mortgage-backed securities 877,288 6,990 9,987 874,291
Other securities 58,374 606 - 58,980
---------- ------- ------- ----------
Total $2,240,517 $ 18,099 $ 12,917 $2,245,699
========== ======= ======= ==========
December 31, 1994 (in thousands)
- ----------------------------------------
U.S. Treasury and federal agency
securities $1,054,962 $ 1,396 $ 30,178 $1,026,180
Collateralized mortgage obligations and
other mortgage-backed securities 439,904 78 33,560 406,422
Other securities 23,342 1,386 - 24,728
---------- ------- ------- ----------
Total $1,518,208 $ 2,860 $ 63,738 $1,457,330
========== ======= ======= ==========
</TABLE>
In accordance with the Financial Accounting Standards Board's Special Report "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities," on December 1, 1995 the Corporation transferred
certain securities between its held-to-maturity and its available-for-sale
portfolio. At the date of transfer, the securities transferred to
available-for-sale had an aggregate amortized cost of $1.2 billion and an
aggregate unrealized gain of approximately $1.1 million. The securities
transferred to held-to-maturity had an aggregate amortized cost of $44.8 million
and an aggregate unrealized loss of $.6 million. The decision to make this
transfer was based on a one-time reassessment of the appropriateness of the
classification of all securities held at the date of transfer.
S-37
<PAGE> 41
NOTE 4. SECURITIES AVAILABLE-FOR-SALE (CONTINUED)
The amortized cost and market values of securities available-for-sale at
December 31, 1995, are shown below by their contractual maturity. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay the obligation with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
December 31, 1995 (in thousands) Cost Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury and federal agency securities:
Due in one year or less $ 466,752 $ 470,610
Due after one year through five years 836,336 839,578
Due after five years through ten years - -
Due after ten years 1,767 2,240
---------- ----------
Total U.S. Treasury and federal agency securities 1,304,855 1,312,428
Collateralized mortgage obligations and other mortgage-backed
securities 877,288 874,291
Other securities 58,374 58,980
---------- ----------
Total $2,240,517 $2,245,699
========== ==========
</TABLE>
NOTE 5. SECURITIES HELD-TO-MATURITY
The following summarizes amortized cost and market values of securities
held-to-maturity at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1995 (in thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Collateralized mortgage obligations and
other mortgage-backed securities $ 680,330 $ 6,129 $ 5,932 $ 680,527
State and political subdivision
securities 190,612 6,031 879 195,764
---------- ------- ------- ----------
Total $ 870,942 $ 12,160 $ 6,811 $ 876,291
========== ======= ======= ==========
December 31, 1994 (in thousands)
- ----------------------------------------
U.S. Treasury and federal agency
securities $ 769,576 $ 2,409 $ 11,752 $ 760,233
Collateralized mortgage obligations and
other mortgage-backed securities 1,092,797 1,590 72,355 1,022,032
State and political subdivision
securities 221,119 3,645 4,226 220,538
---------- ------- ------- ----------
Total $2,083,492 $ 7,644 $ 88,333 $2,002,803
========== ======= ======= ==========
</TABLE>
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.
S-38
<PAGE> 42
The amortized cost and market values of securities held-to-maturity at December
31, 1995, are shown below by their contractual maturity. Expected maturities may
differ from contractual maturities because issuers may have the right to call or
prepay the obligation with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
December 31 1995 (in thousands) Cost Value
<S> <C> <C>
- -------------------------------------------------------------------------------------------
State and Political subdivision securities:
Due in one year or less $ 40,684 $ 40,902
Due after one year through five years 88,603 91,348
Due after five years through ten years 37,750 39,139
Due after ten years 23,575 24,375
-------- --------
Total state and political subdivision securities 190,612 195,764
Collateralized mortgage obligations and other mortgage-backed
securities 680,330 680,527
-------- --------
Total $870,942 $876,291
======== ========
</TABLE>
NOTE 6. LOANS AND NONPERFORMING ASSETS
The following summarizes loans:
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $2,008,582 $1,655,764
Real estate - Commercial 1,627,154 1,326,042
Real estate - Construction 267,363 397,430
Real estate - Residential mortgages 832,214 1,028,005
Real estate - Consumer home equity 623,659 561,978
Consumer 1,551,828 1,672,226
Credit card loans 323,592 102,249
Lease financing 196,160 111,155
---------- ----------
Total Loans $7,430,552 $6,854,849
========== ==========
</TABLE>
Loans made by Old Kent to its directors and executive officers, including their
family members and associated entities, aggregated $108 million and $147 million
at December 31, 1995 and 1994, respectively. During 1995, new loans and other
additions amounted to $153 million and repayments were $192 million. These loans
were made in the ordinary course of business under normal credit terms,
including interest rate and collateralization and do not represent more than a
normal risk of collection.
The table below summarizes impaired loans and other nonperforming assets:
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans:
Nonaccrual loans $40,173 $54,576
Restructured loans 3,075 5,838
------- -------
Total impaired loans 43,248 60,414
Other real estate owned 11,287 12,366
------- -------
Total nonperforming assets $54,535 $72,780
======= =======
</TABLE>
Loans past due 90 days or more, for which interest income continues to be
recognized, totalled $29.0 million and $11.7 million at December 31, 1995 and
1994, respectively. Gross interest income that
S-39
<PAGE> 43
NOTE 6. LOANS AND NONPERFORMING ASSETS (CONTINUED)
would have been recorded in 1995 for nonaccrual and restructured loans as of
December 31, 1995, assuming interest had been accrued throughout the year in
accordance with original terms, was $4.0 million. The comparable total for 1994
was $5.4 million. The amount of interest included in income on these loans was
$2.0 million and $2.4 million in 1995 and 1994, respectively. During the years
1995 and 1994, impaired loans averaged $47.6 million and $55.9 million,
respectively. At December 31, 1995, there was no specific valuation allowance
associated with impaired loans.
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.
NOTE 7. ALLOWANCE FOR CREDIT LOSSES
The following summarizes the changes in the allowance for credit losses:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Balance at beginning of year $167,253 $145,323 $125,375
Additions:
Provision charged to operations 21,666 22,465 34,822
Business acquisitions and loan purchases 438 9,236 2,105
-------- -------- --------
Total additions 22,104 31,701 36,927
-------- -------- --------
Deductions:
Credit losses (26,087) (21,221) (25,993)
Less recoveries 12,678 11,450 9,014
-------- -------- --------
Net credit losses (13,409) (9,771) (16,979)
Loan sales (1,700) - -
-------- -------- --------
Total deductions (15,109) (9,771) (16,979)
-------- -------- --------
Balance at end of year $174,248 $167,253 $145,323
======== ======== ========
</TABLE>
NOTE 8. LEASEHOLD IMPROVEMENTS, PREMISES AND EQUIPMENT
The following summarizes leasehold improvements, premises and equipment:
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Land $ 28,970 $ 26,926
Land improvements 6,157 6,026
Buildings and improvements 165,963 151,283
Leasehold improvements 24,688 26,243
Furniture and equipment 119,060 111,445
-------- --------
344,838 321,923
Less accumulated depreciation and amortization 170,935 150,108
-------- --------
Net leasehold improvements, premises and equipment $173,903 $171,815
======== ========
</TABLE>
S-40
<PAGE> 44
NOTE 9. OTHER ASSETS
Other assets, as shown on the consolidated balance sheets, includes the
following intangible assets (net of accumulated amortization):
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $73,951 $ 77,040
Core deposit intangibles 20,830 26,761
------- --------
Total $94,781 $103,801
======== =========
</TABLE>
Other assets also included capitalized mortgage servicing rights recorded at
$51.5 million (net of valuation allowance of $4.8 million) and $15.5 million as
of December 31, 1995 and 1994, respectively. No valuation allowance was required
as of December 31, 1994. At December 31, 1995, the fair value of capitalized
mortgage servicing rights accounted for under SFAS No. 122, was $62.9 million.
NOTE 10. OTHER BORROWED FUNDS
The following summarizes other borrowed funds:
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Bank notes $ 575,000 $ 400,000
Securities sold under agreements to repurchase 381,925 269,967
Federal funds purchased 154,761 167,224
Treasury tax and loan demand notes 83,163 96,663
Other borrowed funds 112,768 76,915
---------- ----------
Total other borrowed funds $1,307,617 $1,010,769
========== ==========
</TABLE>
Of the $575 million bank notes outstanding at December 31, 1995, $355 million
mature during 1996 at interest rates ranging from 5.53% to 6%; $110 million
mature during 1997 at interest rates ranging from 7.02% to 7.5%; and $110
million mature during 1998 at interest rates ranging from 6.875% to 7.15%.
NOTE 11. SUBORDINATED DEBT
On November 15, 1995, Old Kent Financial Corporation issued $100 million of
subordinated notes with an interest rate of 6.625%, due on November 15, 2005.
NOTE 12. CAPITAL STOCK
At December 31, 1995 and 1994, there were 25,000,000 shares of preferred stock
authorized but not issued. At December 31, 1995, 3,000,000 of these shares were
designated Series A Preferred Stock and 500,000 were designated Series B
Preferred Stock.
On December 31, 1995, the Corporation had outstanding 28,818,282 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 stock at the
rate of one right for each share of common stock outstanding. As a result of the
three-for-two split which occurred in 1992 and a 5% stock dividend in 1995, each
share of the Corporation's common stock presently represents .635 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
S-41
<PAGE> 45
NOTE 12. CAPITAL STOCK (CONTINUED)
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 .635 of a Right
(subject to possible future adjustment) with each new share of common stock
issued.
The Corporation issued 2,157,241 shares of its common stock on August 15, 1995
in payment of a five percent stock dividend declared June 19, 1995 payable to
shareholders of record on July 19, 1995.
NOTE 13. 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, 1995, a total of 1,663,730
shares were reserved for stock options, consisting of 1,033,308 shares for
options granted at prices from $12.85 to $32.74, and 632,123 shares available
for future option grants under incentive plans.
The following table summarizes stock option transactions for the last three
years, separately showing option transactions of First National Bank Corp.,
acquired February 1, 1995, in a "pooling-of-interests" transaction.
<TABLE>
<CAPTION>
(adjusted for stock splits and dividends)
----------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Options outstanding at beginning of year 1,147,228 912,043 833,153
Options granted 217,431 246,964 209,871
Options issued in business acquisition 162,255
Options exercised (321,271) (170,003) (130,981)
Options cancelled or expired (10,080) (4,031)
--------- --------- -------
Options outstanding at end of year 1,033,308 1,147,228 912,043
========= ========= =======
Exercise price for grants during year $32.74 $32.27 - $32.74 $30.12
Exercise price for options outstanding $12.85 - $32.74 $10.01 - $32.74 $7.48 - $30.12
</TABLE>
Old Kent also has restricted stock plans under which certain officers and
employees may be awarded restricted stock. The plans provide for the issuance of
a maximum of 1,134,886 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 1995, 1994, and 1993, Old Kent
issued 52,080 shares, 38,987 shares and 24,328 shares of its common stock with
total market values of $1,705,000, $1,252,000 and $733,000, respectively at
their award dates, which are being amortized ratably to expense over the period
of restriction. At December 31, 1995, there were 196,792 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 315,000 authorized but
previously unissued shares of Old Kent's common stock. Shares awarded under the
plan would not be issued until the end of the deferral period, unless there is a
change of control of the Corporation, in which case the shares would be issued
to a trust where they are to be held and distributed at the end of the deferral
period. Employees who receive awards under this plan will receive
S-42
<PAGE> 46
additional compensation equal to the dividends which would have been paid on the
shares awarded if they were outstanding during the deferral period. During 1995,
1994 and 1993, Old Kent awarded 19,210 shares, 22,916 shares and 21,877 shares
of its common stock valued at $629,000, $737,000 and $659,000, 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, 1995, there were 226,926 shares reserved for future
deferred stock compensation plan awards.
NOTE 14. OTHER INCOME AND OTHER EXPENSE
Other income, as shown on the consolidated statements of income, includes the
following:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Transaction processing fees $16,127 $12,318 $10,153
Credit life insurance premiums 4,593 3,404 2,900
Safe deposit box rental income 1,774 1,998 1,881
Trading account gains 2,222 1,602 1,594
Gains on sales of assets 542 1,113 504
Other revenues 15,519 10,694 10,545
------- ------- -------
Total other income $40,777 $31,129 $27,577
======= ======= =======
</TABLE>
Other expense, as shown on the consolidated statements of income, includes the
following:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Taxes other than income taxes $ 10,655 $ 9,960 $ 10,869
Advertising, promotion and public relations 13,351 10,298 9,099
Postage and courier charges 10,495 9,498 8,582
Professional services 10,607 9,122 9,307
Stationery and supplies 8,605 8,828 8,815
Amortization of goodwill 5,648 4,704 2,966
Amortization of core deposit intangibles 6,216 5,761 3,961
Amortization of mortgage servicing rights 6,597 3,241 5,190
Other expenses 66,259 58,395 52,832
-------- -------- --------
Total other expenses $138,433 $119,807 $111,621
======== ======== ========
</TABLE>
Operating results for 1995 includes restructuring charges totalling $18.2
million. These charges are related to the adoption and implementation of plans
to reduce staff levels and to exit certain business activities. These actions
are expected to be substantially complete by December 31, 1996. The charges
primarily consist of employee severance costs for approximately 350 employees,
and various charges related to abandonments of physical facilities. Recognition
of these charges had the effect of reducing net income per common share by
approximately $.26 for 1995. At December 31, 1995, unexpended reserves for these
restructuring costs totalled approximately $11.2 million.
S-43
<PAGE> 47
NOTE 14. OTHER INCOME AND OTHER EXPENSE (CONTINUED)
Securities transactions for available-for-sale and held-to-maturity securities,
as shown on the consolidated statements of income, includes gross gains and
gross losses as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Gross gains on sales of securities $ 12,245 $10,206 $1,894
Gross losses on sales of securities (11,824) (9,193) (320)
-------- ------- ------
Securities transactions $ 421 $ 1,013 $1,574
======== ======= ======
Income tax expense applicable to securities
transactions $ (131) $ (240) $ (551)
======== ======= ======
</TABLE>
NOTE 15. EMPLOYEE BENEFITS
The Corporation provides pension benefits to substantially all of its employees
under the terms of the "Old Kent Retirement Income Plan." Old Kent also provides
its key executives with pension benefits under the provisions of the "Old Kent
Executive Retirement Income Plan." The following table sets forth the funded
status of the pension plans and the amounts included in Old Kent's consolidated
balance sheets.
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $70,315 and $63,807 $ 71,523 $ 64,867
========= =========
Projected benefit obligation for service rendered to date $(119,070) $(112,268)
Plan assets at fair value 102,395 97,150
--------- ---------
Plan assets less than projected benefit obligation (16,675) (15,118)
Unrecognized net actuarial loss 31,426 39,988
Unrecognized prior service cost
being recognized over 19 years 4,183 4,644
Unrecognized net transition assets being recognized over 15 to 19
years (15,762) (18,522)
--------- ---------
Prepaid pension cost included in other assets $ 3,172 $ 10,992
========= =========
</TABLE>
Net pension expense (income) included the following components:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Service cost (benefits earned during the year) $ 7,371 $ 5,730 $ 4,219
Interest cost on projected benefit obligation 9,509 7,091 6,812
Actual (return) loss on plan assets (19,793) 800 (8,500)
Net amortization and deferral 10,547 (11,285) (3,113)
Loss from curtailment and settlement 621 - -
-------- -------- -------
Net periodic pension expense (income) $ 8,255 $ 2,336 $ (582)
======== ======== =======
</TABLE>
S-44
<PAGE> 48
The following assumptions were used in determining the actuarial present value
of the projected benefit obligations as of December 31 for each of the following
years:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Discount rate 7.75% 8.00% 7.75%
Rate of increase in future compensation levels 4.70% 4.90% 4.75%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
</TABLE>
Old Kent has adopted amended assumptions, as shown above, for use in the
actuarial determination of its projected benefit obligations at December 31,
1995. The amended assumptions reflect a change in outlook based on management's
assessment of expected economic conditions for the foreseeable future.
During 1995, the Corporation recorded a loss from curtailment and settlement of
pension obligations which resulted from the Corporation's reengineering
activities. This loss was classified as a restructuring charge in the
accompanying consolidated income statement.
Eligible employees may elect to participate in Old Kent's retirement savings
plans whereby the Company contributes a 50% matching contribution for each
amount contributed by participating employees, within limits as defined in the
plans. The cost of these retirement savings plans was $2,975,000, $2,903,000,
and $2,362,000 for 1995, 1994 and 1993, 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 16. TAXES ON INCOME
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $77,482 $77,061 $73,395
Deferred benefit (4,683) (8,443) (6,421)
------- ------- -------
Total provision $72,799 $68,618 $66,974
======= ======= =======
</TABLE>
The preceding table excludes tax expense (benefit) of $23.1 million and ($21.3
million), for 1995 and 1994, respectively, related to the market value
adjustments on investment securities available-for-sale, which is recorded
directly in shareholders' equity.
Income tax expense differs from that computed at the federal statutory rate as
follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at 35% statutory rate $75,114 $71,996 $69,404
Tax effect of:
Tax-exempt interest (5,019) (5,551) (5,694)
Amortization of goodwill 2,640 1,766 1,038
Cumulative effect of adopting SFAS No. 109 - - 1,900
Impact of statutory rate increase on deferred balances (124) - (1,044)
Other, net 188 407 1,370
------- ------- -------
Income tax expense $72,799 $68,618 $66,974
======= ======= =======
Effective tax rate 33.9% 33.4% 33.8%
</TABLE>
S-45
<PAGE> 49
NOTE 16. TAXES ON INCOME (CONTINUED)
Components of the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $60,763 $58,691
Deferred compensation 11,191 8,641
Accrued expenses 7,730 4,109
Unrealized loss on securities available-for-sale - 21,287
Other 5,390 4,144
------- -------
Total deferred tax assets 85,074 96,872
Valuation allowance - -
------- -------
Deferred tax assets 85,074 96,872
------- -------
Deferred tax liabilities:
Mortgage servicing rights 8,856 3,188
Business combinations 4,518 6,672
Prepaid pension 3,713 5,430
Accretion 3,488 1,506
Depreciation 2,427 3,371
Unrealized gain on securities available-for-sale 1,815 -
Other 2,723 3,293
------- -------
Deferred tax liabilities 27,540 23,460
------- -------
Net deferred tax assets $57,534 $73,412
======= =======
</TABLE>
NOTE 17. COMMITMENTS AND CONTINGENCIES
Certain facilities and equipment are leased under noncancelable operating lease
agreements which expire at various dates through the year 2013. The aggregate
minimum rental commitments are as follows:
<TABLE>
<CAPTION>
Year ending December 31 (in thousands) Premises Equipment Total
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
1996 $ 5,810 $ 3,504 $ 9,314
1997 5,475 2,194 7,669
1998 4,848 1,636 6,484
1999 4,423 232 4,655
2000 3,172 196 3,368
Thereafter 6,734 0 6,734
------- ------ -------
Total minimal payments $30,462 $ 7,762 $38,224
======= ====== =======
</TABLE>
Rental expense charged to operations in 1995, 1994, and 1993, amounted to
approximately $11,835,000, $11,037,000, and $9,142,000, respectively, including
amounts paid under short-term cancelable leases. Certain leases contain
provisions for renewal and purchase options, and require payment of property
taxes, insurance and related expenses.
Included as a reduction of Old Kent's occupancy expense is building rental
income of approximately $3,761,000, $4,076,000, and $4,032,000, for 1995, 1994,
and 1993, respectively.
At December 31, 1995, 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
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<PAGE> 50
consultation with the Corporation's counsel, the ultimate resolution of these
matters will not have a material effect on the Corporation's consolidated
financial position and results of operations.
NOTE 18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Old Kent utilizes various derivative financial instruments in the normal course
of business both as part of its risk management strategy and as a means to meet
customer needs. The activities which currently employ financial derivatives are
interest rate risk management, corporate banking, mortgage banking, and foreign
exchange operations. Old Kent also enters into commitments to extend credit and
letters of credit in connection with its lending activities.
Interest Rate Risk Management
The Corporation's asset/liability management focuses on limiting the volatility
of both earnings and the value of capital that can result from changes in market
interest rates. Interest rate risk exists to the extent that interest-earning
assets and interest-bearing liabilities have different maturity or repricing
characteristics. The Corporation's traditional banking operations result in an
asset-sensitive position, where assets reprice more rapidly than liabilities.
This asset-sensitive profile has been moderated through the strategic use of the
investment portfolio. Interest rate swap contracts are also used as a means to
manage interest rate risk.
Interest rate swap contracts involve the exchange of interest payments at
specified intervals between two parties without the exchange of any underlying
principal. Notional amounts are used in such contracts to calculate interest
payments due to each counterparty and do not represent credit exposure. Old Kent
pays a floating rate and receives a fixed rate for the majority of its swaps,
which are hedges related to Prime rate-based loans and certain fixed rate
liabilities. Old Kent pays a fixed rate and receives a floating rate on swaps
that hedge certain floating rate liabilities.
Old Kent's credit risk in these contracts relates to the failure of a
counterparty to pay according to the contractual terms of the swap agreement.
The Corporation controls the credit risk of its interest rate swap agreements
through credit approvals, risk control limits and ongoing monitoring procedures.
Credit exposure is represented by the fair value of interest rate swaps with a
positive fair value, adjusted for accrued interest.
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
Notional Credit Notional Credit
December 31 (in thousands) Amount Exposure Amount Exposure
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap Categories:
Receive fixed/pay floating $410,524 $10,591 $371,685 $ 142
Receive floating/pay fixed 115,000 0 65,000 2,190
Receive floating/pay floating 0 0 120,500 5,215
-------- ------- -------- ------
$525,524 $10,591 $557,185 $7,547
======== ======= ======== ======
</TABLE>
Corporate Banking
Old Kent entered interest rate cap and floor agreements during 1995 with a
corporate client to assist them in managing their business risks. The
Corporation mitigated its exposure to risk in this contract by entering into
offsetting positions with an authorized counterparty. The credit risk from such
agreements represents the possibility of a counterparty not paying according to
the terms of the contract. This credit
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<PAGE> 51
NOTE 18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
risk is controlled through credit approvals, risk control limits, and ongoing
monitoring procedures. Credit exposure is represented by the fair value of
interest rate caps and floors with a positive fair value.
<TABLE>
<CAPTION>
1995
--------------------
Notional Credit
December 31 (in thousands) Amount Exposure
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate caps sold $20,000 $ 42
Interest rate caps bought 20,000 -
Interest rate floors sold $20,000 $330
Interest rate floors bought 20,000 -
</TABLE>
Mortgage Banking
The Corporation uses both forward sales and option contracts to protect the
value of residential mortgage loans that are being underwritten for future sale
to investors in the secondary market. Adverse market interest rate changes,
between the time that a customer receives a rate-lock commitment and when the
fully-funded mortgage loan is sold to an investor, can erode the value of that
mortgage. Therefore, Old Kent enters into forward sales contracts and purchases
exchange-traded option contracts to mitigate the interest rate risk associated
with the origination and sale of mortgage loans. Old Kent accepts credit risk in
forward sales contracts to the extent of nonperformance by a counterparty, in
which case Old Kent would be compelled to sell the mortgages to another party at
the current market price. The credit exposure of forward sales contracts
represents the aggregate value of contracts with a positive fair value. These
credit exposures at both December 31, 1995 and 1994 were not significant.
<TABLE>
<CAPTION>
1995 1994
Contractual Contractual
December 31 (in thousands) Amount Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage forward sales $ 236,385 $ 134,769
Mortgage & treasury put options 68,100 9,800
</TABLE>
Old Kent began utilizing interest rate floors in 1995 to hedge the Corporation's
risk to decreases in the value of its mortgage servicing rights that could
result from falling mortgage rates and increased mortgage prepayments. The
credit risk inherent in these transactions relates to the possibility of a
counterparty not paying according to the terms of the contract. The Corporation
controls the credit risk of its interest rate floor agreements through credit
approvals, risk control limits and ongoing monitoring procedures. The credit
exposure is represented by the aggregate value of interest rate floors with a
positive fair value.
<TABLE>
<CAPTION>
1995
--------------------
Notional Credit
December 31 (in thousands) Amount Exposure
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate floors $143,000 $2,309
</TABLE>
Foreign Exchange Contracts
Old Kent enters into foreign exchange forward contracts to purchase or sell
foreign currencies at a future date at a predetermined exchange rate. These
contracts are used to assist customers with international transactions based
upon foreign denominated currencies. The Corporation manages its exposure to
foreign currency fluctuations by entering into offsetting contracts with
authorized counterparties, usually foreign banks. The credit risk inherent in
these transactions relates to the possibility of failure by a counterparty to
fulfill its purchase or delivery responsibility, whereby Old Kent would execute
the
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<PAGE> 52
transaction with another counterparty at the prevailing currency valuation,
which may be different than the value in the original contract. The credit
exposure of Old Kent's foreign exchange contracts represents the aggregate value
of contracts with a positive fair value. The extension of foreign exchange
credit facilities to counterparties follows the same approval process as other
credit facilities. The majority of Old Kent's foreign exchange contracts relate
to major currencies such as Canadian Dollars, Pounds Sterling, Deutschemarks,
Japanese Yen, Italian Lira, and French Francs.
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Contractual Credit Contractual Credit
December 31 (in thousands) Amount Exposure Amount Exposure
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Foreign exchange forward contracts $34,072 $386 $38,024 $274
</TABLE>
Commitments
Commitments to extend credit are agreements to lend cash to a customer as long
as there is no breach of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. The majority of Old Kent's loan commitments have
maturities that are less than one year and reflect the prevailing market rates
at the time of the commitment. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by Old Kent, upon extension of credit is based upon management's
credit evaluation of the counterparty. Standby and commercial letters of credit
are Old Kent's conditional commitments to guarantee the performance of a
customer to another party. The Corporation's exposure to credit loss in the
event of nonperformance by the other party is represented by the contractual
amount of those instruments. Old Kent uses the same credit underwriting policies
in making commitments and issuing letters of credit as it does for its other
lending activities.
<TABLE>
<CAPTION>
Contractual Amount at December 31 (in millions) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Commitments to extend credit $3,556 $2,941
Standby and commercial letters of credit 401 333
</TABLE>
NOTE 19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), the
following methods and assumptions were used to estimate the fair value of each
significant class of financial instrument, as defined by SFAS No. 107, for which
it is practicable to estimate that value.
The estimated fair values of financial instruments, as shown below, are not
intended to reflect the estimated liquidation or market value of the Corporation
taken as a whole. The disclosed fair value estimates are limited to Old Kent's
significant financial instruments. These include financial instruments
recognized as assets and liabilities on and off the consolidated balance sheet.
The estimated 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
S-49
<PAGE> 53
NOTE 19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
use of alternate valuation assumptions and methods could have a significant
effect on the derived estimated fair value amounts.
Cash and cash equivalents, interest receivable and interest payable
For these short-term instruments, the carrying amount was deemed to be a
reasonable estimate of fair value.
Interest-earning deposits
The estimated fair value of these holdings was calculated by discounting the
expected future cash flows using rates applicable to similar instruments with
the same remaining maturity.
Trading account securities, securities available-for-sale and securities
held-to-maturity
The estimated fair values were based upon quoted market or dealer prices.
Net loans and mortgages held-for-sale
Generally, the fair value of loans was estimated by discounting the expected
future cash flows using current interest rates at which similar loans would be
made to borrowers with similar credit ratings and remaining maturities. 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.
Other borrowed funds
For all instruments except bank notes, the carrying amount was deemed to be a
reasonable estimate of fair value. The estimated fair value of bank notes was
calculated by discounting the expected future cash flows using rates applicable
to similar instruments of comparable maturity.
Subordinated Debt
The fair value of subordinated debt at December 31, 1995 was based on quoted
market prices.
Off-balance-sheet financial instruments
The carrying value of Old Kent's interest rate contracts represents accrued
interest as reflected in the consolidated balance sheets. The estimated fair
value of interest rate contracts was based upon dealer or third-party quotations
for the amount which might be realized from a transfer, sale or termination of
such agreements. The fair value of Old Kent's commitments to extend credit, its
outstanding letters of credit, foreign exchange contracts and put options are
insignificant.
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<PAGE> 54
The following summarizes the carrying value and estimated fair value of
financial instruments.
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
Carrying Estimated Carrying Estimated
December 31 (in thousands) Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 577,056 $ 577,056 $ 515,008 $ 515,008
Interest-earning deposits 175,413 175,479 5,255 5,258
Trading account securities 11,699 11,699 10,651 10,651
Securities available-for-sale 2,245,699 2,245,699 1,457,330 1,457,330
Securities held-to-maturity 870,942 876,291 2,083,492 2,002,803
Mortgages held-for-sale 270,126 270,126 189,989 189,989
Net loans 7,256,304 7,539,353 6,687,596 6,779,585
Interest receivable 92,384 92,384 87,773 87,773
Financial Liabilities:
Non-interest-bearing deposits $1,506,149 $1,506,149 $1,449,460 $1,449,460
Interest-bearing deposits - no
maturities 3,074,771 3,074,771 3,248,797 3,248,797
Interest-bearing deposits - fixed
maturities 4,776,446 4,825,195 4,731,080 4,717,612
Other borrowed funds 1,307,617 1,314,058 1,010,769 1,009,419
Interest payable 66,770 66,770 53,890 53,890
Subordinated debt 100,000 101,920 - -
Interest Rate Contracts Relating To:
Assets 300 8,645 379 (10,792)
Liabilities (175) 794 171 1,396
</TABLE>
NOTE 20. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The condensed financial information of the parent company, Old Kent Financial
Corporation, is summarized as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 8,603 $ 13,578
Interest-earning deposits and other securities 191,741 52,576
Leasehold improvements, premises and equipment 6,513 7,002
Investment in and advances to subsidiaries 929,958 818,989
Other assets 42,429 46,854
---------- --------
Total Assets $1,179,244 $938,999
========== ========
Liabilities and Shareholders' Equity:
Subordinated debt and other borrowings $ 100,184 $ 241
Accrued expenses and other liabilities 63,124 42,761
---------- --------
Total liabilities 163,308 43,002
Shareholders' equity 1,015,936 895,997
---------- --------
Total Liabilities and Shareholders' Equity $1,179,244 $938,999
========== ========
</TABLE>
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<PAGE> 55
NOTE 20. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Income:
Dividends from subsidiaries $106,300 $ 98,119 $125,077
Service fees from subsidiaries 54,982 50,707 45,286
Interest and other 9,833 5,693 4,218
-------- -------- --------
Total income 171,115 154,519 174,581
-------- -------- --------
Expenses:
Interest 2,570 279 617
Salaries and benefits 37,350 33,340 31,112
Occupancy 4,467 4,093 3,738
Equipment 9,244 9,263 8,008
Other 42,458 24,653 23,377
-------- -------- --------
Total expenses 96,089 71,628 66,852
-------- -------- --------
Income before income taxes and equity in undistributed net income of
subsidiaries 75,026 82,891 107,729
Income tax benefit 9,141 4,673 3,702
-------- -------- --------
Income before equity in undistributed net income of subsidiaries 84,167 87,564 111,431
Equity in undistributed net income of subsidiaries 57,647 49,520 19,893
-------- -------- --------
Net Income $141,814 $137,084 $131,324
======== ======== ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 141,814 $ 137,084 $131,324
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries (57,647) (49,520) (19,893)
Depreciation, amortization and accretion 11,301 8,891 10,514
Net gains on sales of assets (1,420) (342) (26)
Net change in other assets (1,505) 604 (1,621)
Net change in other liabilities 15,083 12,044 4,425
--------- --------- --------
Net cash provided by operating activities 107,626 108,761 124,723
--------- --------- --------
Cash flows from investing activities:
Net change in interest-earning assets (138,473) 56,276 (54,631)
Net change in investment in and
advances to subsidiaries (4,208) (41,711) (31,594)
Purchases of leasehold improvements,
premises & equipment, net (1,834) (1,656) (2,887)
--------- --------- --------
Net cash (used for) provided by investing activities (144,515) 12,909 (89,112)
--------- --------- --------
Cash flows from financing activities:
Payments on other borrowings (57) (52) (324)
Issuance of subordinated debt 100,000 - -
Proceeds from common stock issuances 8,110 5,473 4,177
Repurchases of common stock (20,805) (70,720) (4,134)
Dividends paid to shareholders (55,334) (49,869) (44,984)
--------- --------- --------
Net cash provided by (used for) financing activities 31,914 (115,168) (45,265)
--------- --------- --------
Net (decrease) increase in cash and cash equivalents (4,975) 6,502 (9,654)
Cash and cash equivalents at beginning of year 13,578 7,076 16,730
--------- --------- --------
Cash and cash equivalents at end of year $ 8,603 $ 13,578 $ 7,076
========= ========= ========
</TABLE>
Federal and state banking laws and regulations place certain restrictions on the
amount of dividends and loans a bank may make to its parent company. As of
January 1996, the subsidiary banks may distribute to the parent company, in
addition to their 1996 net income, approximately $112 million in dividends
without written approval from bank regulatory agencies. The remaining net assets
of subsidiary banks, approximating $791 million at December 31, 1995, are
unavailable for transfer to the parent company.
S-52
<PAGE> 56
Board of Directors and Senior Management
BOARD OF DIRECTORS
John M. Bissell
Chairman and Chief Executive Officer, BISSELL Inc., a manufacturer of homecare,
healthcare and graphics products
John D. Boyles
Attorney, Verspoor, Waalkes, Lalley &
Slotsema, P.C.
John C. Canepa
Consulting Principal, Crowe
Chizek & Co. Certified Public
Accountants and Consultants; formerly
Chairman of the Board and Chief
Executive Officer of the Corporation
Dick DeVos
President, Amway Corporation, a direct
selling company that manufactures and
markets home, personal care, and health
and fitness products
James P. Hackett
President and Chief Executive Officer,
Steelcase Inc., a manufacturer of office
systems
Erina Hanka
President, Suspa Inc., a manufacturer of
gas cylinders for industry
Earl D. Holton
President, Meijer Inc., a food and general
merchandise retailer
Michael J. Jandernoa
Chairman of the Board and Chief
Executive Officer, Perrigo Company, a
manufacturer and marketer of store
brand health and personal care products
John P. Keller
President, Keller Group, Inc., a
diversified manufacturer
William U. Parfet
Co-Chairman, MPI Research, a research
laboratory conducting risk assessment
toxicology studies
Perry A. Pierre, Ph.D.
Professor of Electrical Engineering,
Michigan State University
Robert L. Sadler
Vice Chairman of the Corporation and
President and Chief Executive Officer of
Old Kent Bank
Peter F. Secchia
Chairman of the Board, Universal Forest
Products, Inc., a 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 EXECUTIVE OFFICERS
David J. Wagner
Chairman of the Board, President and
Chief Executive Officer
Robert L. Sadler
Vice Chairman
B.P. Sherwood, III
Vice Chairman and Treasurer
Martin J. Allen, Jr.
Senior Vice President and Secretary,
Corporate Planning and Development
Ralph W. Garlick
Executive Vice President,
Senior Credit Officer
Richard L. Haug
Senior Vice President,
General Auditor
Charles W. Jennings, Jr.
Senior Vice President,
Human Resources
Kevin T. Kabat
Executive Vice President,
Retail Administration and Corporate
Technology
David L. Kerstein
Executive Vice President,
Retail Banking
Robert H. Warrington
Executive Vice President,
Fee-based Businesses
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration
Richard W. Wroten
Executive Vice President and
Chief Financial Officer
MANAGEMENT COMMITTEE
David J. Wagner
Chairman of the Board, President and
Chief Executive Officer,
Old Kent Financial Corporation;
Chairman of the Board, 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
Ralph W. Garlick
Executive Vice President, Senior
Credit Officer, Old Kent Financial
Corporation; President,
Old Kent Bank -- East
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
Robert H. Warrington
Executive Vice President, Fee-based
Businesses, Old Kent Financial
Corporation; President, Old Kent
Mortgage Services, Inc.
Michael J. Whalen
President and Chief Executive Officer, Old Kent Bank (Illinois)
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration,
Old Kent Financial Corporation
Richard W. Wroten
Executive Vice President and
Chief Financial Officer,
Old Kent Financial Corporation
<PAGE> 57
(LOGO)Printed on Recycled Paper
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
as of December 31, 1995
1. Old Kent Bank
Jurisdiction of Incorporation: Michigan
2. Old Kent Bank
Jurisdiction of Incorporation: Illinois
3. Hartger & Willard Mortgage Associates, Inc.
Jurisdiction of Incorporation: Michigan
4. Vanguard Financial Service Corp.
Jurisdiction of Incorporation: Illinois
5. Old Kent Brokerage Services, Inc.
Jurisdiction of Incorporation: Michigan
6. Old Kent Mortgage Services, Inc.
Jurisdiction of Incorporation: Michigan
7. Old Kent Mortgage Company
Jurisdiction of Incorporation: Michigan
8. Guyot-Hicks-Anderson & Associates, Inc.
Jurisdiction of Incorporation: Michigan
9. First National Bank of Lockport
Jurisdiction of Incorporation: United States of America
10. Old Kent Financial Life Insurance Company
Jurisdiction of Incorporation: Arizona
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated January 15, 1996, included in this Form 10-K,
into the Corporation's previously filed registration statements, as amended,
for Old Kent Financial Corporation's offering of senior and unsubordinated debt
(Registration No. 33-46205), Incentive Stock Option Plan of 1982 (Registration
No. 2-78222), Old Kent Thrift Plan (Registration No. 33-17309 and No.
33-39740), Executive Stock Option Plan of 1986 (Registration No. 33-4723),
Stock Option Incentive Plan of 1992 (Registration No. 33-49896), Employee Stock
Purchase Plan (Registration No. 33-57334), Dividend Reinvestment Plan
(Registration No. 33-33058), Executive Thrift Plan (Registration No.
33-52883), Deferred Compensation Plan (Registration No. 33-52885), 1994 Stock
Option Plan for EdgeMark Optionholders (Registration No. 33-53391), Directors'
Deferred Compensation Plan (Registration No. 33-56519), Incentive Stock Option
Plan for Employee Optionholders of First National Bank Corp. (Registration No.
33-57527), and Stock Option Plan for Nonemployee Director Optionholders of
First National Bank Corp. (Registration No. 33-57529), and Old Kent Bank's
offering of asset-backed securities (Registration No. 33-94578).
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
February 29, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 1, 1996 /s/ John M. Bissell
------------------------
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 2, 1996 /s/ John D. Boyles
------------------------
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 16, 1996 /s/ John C. Canepa
------------------------
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 6, 1996 /s/ James P. Hackett
------------------------
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 5, 1996 /s/ Erina Hanka
------------------------
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
January 29, 1996 /s/ Earl D. Holton
------------------------
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 9, 1996 /s/ Michael J. Jandernoa
------------------------
<PAGE> 8
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 9, 1996 /s/ John P. Keller
------------------------
<PAGE> 9
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 19, 1996 /s/ William U. Parfet
------------------------
<PAGE> 10
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
January 31, 1996 /s/ Perry A. Pierre
------------------------
<PAGE> 11
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
January 31, 1996 /s/ Robert L. Sadler
------------------------
<PAGE> 12
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 1, 1996 /s/ Peter F. Secchia
------------------------
<PAGE> 13
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 1, 1996 /s/ B. P. Sherwood, III
------------------------
<PAGE> 14
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, in his or her capacity as a director or
officer, or both, as the case may be, of Old Kent Financial Corporation, does
hereby appoint MARTIN J. ALLEN, JR.; ROBERT L. SADLER; B. P. SHERWOOD, III;
DAVID J. WAGNER; THOMAS D. WISNOM; and RICHARD W. WROTEN, or any of them, his
or her attorneys or attorney to execute in his or her name an Annual Report of
Old Kent Financial Corporation on Form 10-K for its fiscal year ended December
31, 1995, and any amendments to that report, and to file it with the Securities
and Exchange Commission. Each attorney shall have power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act to be done in the premises as fully and to all intents
and purposes as the undersigned could do in person, and the undersigned hereby
ratifies and approves the acts of such attorneys.
Date Signature
February 5, 1996 /s/ David J. Wagner
------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF OLD KENT FINANCIAL CORPORATION AND SUBSIDIARIES AS
OF DECEMBER 31, 1995, AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE
YEAR THEN ENDED, AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 527,611
<INT-BEARING-DEPOSITS> 175,413
<FED-FUNDS-SOLD> 49,445
<TRADING-ASSETS> 11,699
<INVESTMENTS-HELD-FOR-SALE> 2,245,699
<INVESTMENTS-CARRYING> 870,942
<INVESTMENTS-MARKET> 876,291
<LOANS> 7,700,678
<ALLOWANCE> 174,248
<TOTAL-ASSETS> 12,003,084
<DEPOSITS> 9,357,366
<SHORT-TERM> 1,307,617
<LIABILITIES-OTHER> 222,165
<LONG-TERM> 100,000
0
0
<COMMON> 45,383
<OTHER-SE> 970,553
<TOTAL-LIABILITIES-AND-EQUITY> 12,003,084
<INTEREST-LOAN> 685,930
<INTEREST-INVEST> 204,867
<INTEREST-OTHER> 19,022
<INTEREST-TOTAL> 909,819
<INTEREST-DEPOSIT> 362,485
<INTEREST-EXPENSE> 433,126
<INTEREST-INCOME-NET> 476,693
<LOAN-LOSSES> 21,666
<SECURITIES-GAINS> 421
<EXPENSE-OTHER> 426,965
<INCOME-PRETAX> 214,613
<INCOME-PRE-EXTRAORDINARY> 214,613
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,814
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 3.11
<YIELD-ACTUAL> 4.46
<LOANS-NON> 40,173
<LOANS-PAST> 29,080
<LOANS-TROUBLED> 3,075
<LOANS-PROBLEM> 72,328
<ALLOWANCE-OPEN> 167,253
<CHARGE-OFFS> 26,087
<RECOVERIES> 12,678
<ALLOWANCE-CLOSE> 174,248
<ALLOWANCE-DOMESTIC> 174,248
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
