___________________________________________________________________________
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, 1994
___ 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 38-1986608
(State of Incorporation) (I.R.S. Employer Identification No.)
One Vandenberg Center
Grand Rapids, Michigan 49503
(Address of Principal Executive Offices) (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. [ X ]
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 28, 1995: $1,221,800,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common stock outstanding at February 28, 1995: 42,984,257 shares
Documents Incorporated By Reference
Portions of the registrant's annual report to shareholders for the year
ended December 31, 1994, are incorporated by reference in Part II.
Portions of the registrant's proxy statement for its April 17, 1995, annual
meeting of shareholders are incorporated by reference in Part III.
___________________________________________________________________________
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PART I
Item 1. Business.
Old Kent Financial Corporation ("Old Kent") is a bank holding
company with its headquarters in Grand Rapids, Michigan. As of
December 31, 1994, Old Kent owned directly and indirectly all of the stock
of 17 commercial banks and 6 operating nonbank subsidiaries that had their
principal offices in various cities in Michigan and Illinois. As of
December 31, 1994, Old Kent Bank and Trust Company ("OKB-MI"), which is
headquartered in Grand Rapids, Michigan, was Old Kent's largest subsidiary.
On January 1, 1995, Old Kent consolidated 15 of its bank subsidiaries, all
of which were Michigan banks, into a single bank that operates under the
name "Old Kent Bank."
Old Kent's business is concentrated in a single industry
segment--commercial banking. Old Kent's subsidiaries offer a wide range of
commercial banking 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 services, credit life insurance and other banking
services.
The principal markets for these financial services are the
Michigan and Illinois communities in which Old Kent subsidiaries are
located and the areas immediately surrounding those communities. As of
December 31, 1994, Old Kent and its subsidiaries served these markets
through 207 full service banking offices located in and around those
communities.
As of December 31, 1994, OKB-MI accounted for 41% of total
deposits and 42% of total loans of Old Kent and its subsidiaries on a
consolidated basis. At December 31, 1994, OKB-MI had assets of
$4.6 billion, representing 42% of Old Kent's consolidated assets. Old
Kent's 16 other subsidiary banks ranged in size from $78 million to
$1.9 billion in total assets as of December 31, 1994. On a pro forma basis
giving effect to the consolidation of the Michigan banks, at December 31,
1994, OKB-MI would have accounted for 81% of total deposits and 83% of
total loans of Old Kent and its subsidiaries on a consolidated basis, with
assets of $8.7 billion.
The principal source of revenues for Old Kent is interest and
fees on loans, which accounted for 54.5% of total revenues in 1994, 49.7%
in 1993, and 53.5% in 1992. Interest on securities is also a significant
source of revenue, accounting for 25.8% of total revenues in 1994, 28.9% in
1993, and 29.7% in 1992.
Old Kent has had no foreign loans at any time during the last
five years. The foreign activities of Old Kent primarily involve time
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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.
OKB-MI's subsidiary, Old Kent Mortgage Company, originates
residential mortgages through its offices located in Grand Rapids, suburban
Chicago, Illinois, Central and Southern Florida, Minnesota, Ohio and Texas.
On March 1, 1994, this subsidiary acquired Princeton Financial Corp.
headquartered in Orlando with 12 other Florida offices. The acquisition
was treated as a purchase for accounting purposes and, accordingly, results
of operations of Princeton Financial Corp. subsidiaries are included from
the date of purchase. At December 31, 1993, Princeton had assets of $65.6
million and stockholders' equity of $5.4 million. Old Kent Mortgage
Company 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 OKB-MI's subsidiary, Old Kent
Mortgage Services, Inc.
Effective May 2, 1994, Old Kent acquired EdgeMark Financial
Corporation ("EdgeMark"), a bank holding company located in Chicago,
Illinois. The acquisition was effected by a merger of EdgeMark with and
into Old Kent - Illinois, Inc., a wholly owned subsidiary of Old Kent. The
acquisition was treated as a purchase for accounting purposes and,
accordingly, results of operations of EdgeMark subsidiaries are included
from the date of purchase. At the effective date, EdgeMark had, on a
consolidated basis, assets totaling approximately $522 million and deposits
of approximately $456 million. EdgeMark stockholders received
1,917,566 shares of common stock of Old Kent. EdgeMark owned all the stock
of five commercial banks located in Chicago, Countryside, Lombard,
Lockport, and Rosemont, Illinois, that operated eight banking offices in
six Illinois communities. The principal market for the financial services
offered by EdgeMark and its subsidiaries was downtown Chicago and the
surrounding metropolitan area. As described below, EdgeMark's subsidiary
banks in Chicago, Lombard and Rosemont were consolidated with Old Kent Bank
(Illinois) in October, 1994.
On October 14, 1994, Old Kent consolidated four of its six
Illinois bank subsidiaries into a single bank, Old Kent Bank ("OKB-IL"),
under the name "Old Kent Bank." OKB-IL has 26 branches primarily serving
Cook, DuPage and Kane Counties. At December 31, 1994, the consolidated
bank had assets of $1.9 billion, deposits of $1.5 billion and a total loan
portfolio of $0.9 billion.
Effective February 1, 1995, Old Kent acquired First National Bank
Corp. ("FNBC"), a bank holding company located in Clinton Township,
Michigan. The acquisition was effected by a merger of FNBC with and into
Old Kent. This transaction will be accounted for as a "pooling-of-
interests." At December 31, 1994, FNBC had, on a consolidated basis,
assets totaling approximately $531 million and deposits of approximately
-3-
$472 million. FNBC stockholders received approximately 2,636,817 shares of
common stock of Old Kent. FNBC owned all the stock of First National Bank
in Macomb County, a national banking association ("First National"), that
operates 15 banking offices in Macomb County, Michigan. The principal
market for the financial services offered by FNBC and First National was
Macomb County, Michigan, and the communities within Macomb County.
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.
Other than First National, Old Kent's subsidiary banks are chartered under
state law and are supervised and regulated by the Federal Deposit Insurance
Corporation ("FDIC") and either the Financial Institutions Bureau of the
State of Michigan or the Commissioner of Banks and Trust Companies of the
State of Illinois. First National is a national banking association
chartered under federal law and is supervised, examined and regulated by
the United States Office of the Comptroller of the Currency. Some of the
banks are members of the Federal Reserve System and are supervised,
examined and regulated by the Federal Reserve System. Deposits of all of
the banks are insured by the FDIC to the extent provided by law.
Federal and state laws which 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 which could
result in insured depository institutions owned by Old Kent being assessed
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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.
Recently the FDIC has proposed a substantial reduction in
assessment rates on deposits covered by the BIF. The amount and timing of
that reduction is uncertain, but a reduction is not, in any event, expected
to occur before the fourth quarter of 1995. If the proposal is adopted and
implemented as announced, the lowering of assessment rates on Old Kent's
subsidiary bank deposits covered by the BIF 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 does not presently propose
to reduce assessment rates on SAIF insured deposits.
Banks are subject to a number of federal and state laws and
regulations which 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.
Currently, Old Kent is authorized to acquire subsidiary banks in
any state in which state laws permit such acquisitions. Out-of-state bank
holding companies in any state are permitted to acquire banks located in
Michigan and Illinois if the laws of the state in which the out-of-state
bank holding company is located authorize a bank holding company located in
Michigan or Illinois to acquire ownership of banks in that state on a
reciprocal basis. Under the recent Riegle-Neal Interstate Banking and
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Branching Efficiency Act of 1994 ("IBBEA"), a bank holding company may,
after September 29, 1995, make certain interstate acquisitions even if
state law would otherwise prohibit it. Starting June 1, 1997, IBBEA
permits a bank in one state to acquire an out-of-state bank unless one of
the states has enacted legislation prohibiting interstate bank
acquisitions. 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 establish de novo branches in that state.
In the aggregate, Old Kent and its subsidiaries had 4,998
employees (on a full time equivalent basis) at December 31, 1994. 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
Management's Discussion and Analysis of Financial Condition and Results of
Operations incorporated by reference in Item 7 and the Selected Financial
Data incorporated by reference in Item 6.
-6-
Investment Portfolio
The following table shows, by class of maturities as of December 31,
1994, the amounts and weighted average yields of securities held-to-maturity and
securities available-for-sale on the basis of amortized cost:
<TABLE>
<CAPTION>
MATURING
After One but After Five but
Within One Year Within Five Years Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $279,836 8.07% $1,338,588 6.81% $166,251 7.27% $ 1,632 8.45%
States and other political
subdivisions(3) 35,165 9.52 83,978 9.32 37,101 8.95 21,243 10.89
Other Securities -- -- -- -- -- -- 21,404 --
Total $315,001 8.23% $1,422,566 6.96% $203,352 7.58% $44,279 5.54%
<FN>
(1) The effective yields are weighted for the scheduled maturity of each security.
(2) Collateralized mortgage obligations and mortgage-backed securities of $1,487,622, having a
weighted average yield of 6.35% at December 31, 1994, 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:
Tax-Exempt Rate of Taxable
Rate Adjustment Equivalents Basis
<S> <C> <C> <C> <C>
Under 1 Year 6.19% 3.33% 9.52%
1 to 5 Years 6.06 3.26 9.32
5 to 10 Years 5.82 3.13 8.95
Over 10 Years 7.08 3.81 10.89
Total 6.16% 3.32% 9.48%
(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.
</TABLE>
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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, 1994. 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 $ 977,679 $ 548,183 $ 82,586
Real estate-construction 133,618 53,997 6,902
Real estate-non-residential 294,030 797,595 93,910
Total $1,405,327 $1,399,775 $183,398
Loans due after one year:
With fixed rates $ 586,888 $ 93,335
With floating rates 812,887 90,063
Total $1,399,775 $183,398
</TABLE>
-8-
Loan Portfolio (continued)
Foreign Outstandings: A summary of significant foreign outstandings
for the three years ended December 31, 1994, 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> <C>
At December 31, 1994
All Countries(2) $ 5,000 $ 5,000 .05%
At December 31, 1993
All Countries(2) $21,992 $21,992 .22%
At December 31, 1992
All Countries(2) $56,427 $56,427 .65%
<FN>
(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.
</TABLE>
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Deposits
The daily average amounts of deposits and rates paid on such deposits
for the periods indicated are:
<TABLE>
<CAPTION> Years Ended December 31,
1994 1993 1992
Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
In Domestic Offices:
Non-interest-bearing demand deposits $1,157,910 $1,024,964 $ 905,941
Savings deposits 3,213,531 2.33% 3,030,380 2.58% 2,761,215 3.32%
Time deposits 3,723,547 4.49 3,377,374 4.34 3,396,894 5.22
In Foreign Office:
Time deposits 245,109 4.25 210,916 3.25 222,605 3.74
Total $8,340,097 $7,643,634 $7,286,655
</TABLE>
The time remaining until maturity of time deposits (all of which are time
certificates of deposit) of $100,000 or more at December 31, 1994, is as
follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposit
(Dollars in Thousands)
<S> <C> <C>
3 months or less $ 904,288
Over 3 through 6 months 211,339
Over 6 through 12 months 232,364
Over 12 months 367,933
Total $1,715,924
</TABLE>
Time deposits in the foreign office are all in amounts of $100,000 or more.
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Short-Term Borrowed Funds
Short-term borrowed funds consist of federal funds purchased and
securities sold under agreements to repurchase, bank notes, and treasury tax and
loan demand notes. The following amounts and rates applied during the last
three years:
<TABLE>
<CAPTION>
Federal Funds Purchased and Securities Aggregate
Sold Under Agreements to Repurchase: Bank Notes Short-Term Borrowings
1994 1993 1992 1994 1993 1992 (1) 1994 1993 1992
(Dollars in Thousands) (Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts outstanding
at year-end $434,291 $484,658 $481,339 $400,000 $235,000 $ 998,150 $958,295 $627,161
Average amount
outstanding
during year $413,163 $452,296 $565,072 $358,342 $134,589 $ 929,623 $725,134 $680,789
Maximum amount
outstanding at
any month-end $577,988 $529,327 $693,227 $440,000 $235,000 $1,072,903 $958,295 $800,179
Weighted average
interest rate
at year-end(2) 4.78% 2.77% 2.88% 5.80% 3.58% 5.29% 2.96% 2.85%
Weighted average
interest rate
during year(2) 3.73% 2.83% 3.27% 4.65% 3.42% 4.12% 2.97% 3.32%
<FN>
(1) There were no Bank Notes outstanding during 1992.
(2) The weighted average interest rates are derived by dividing the interest expense for the period
by the daily average balance during the period.
</TABLE>
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Item 2. Properties.
The executive offices of Old Kent and the main office of OKB-MI
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 65% of the 281,000 square feet of space in
the complex is occupied by Old Kent and OKB-MI. 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 OKB-MI.
Old Kent's subsidiary banks conducted business from a total of
207 full service banking offices as of December 31, 1994. Of the full
service banking offices, 157 are owned by the banks or their subsidiaries,
and 50 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, OKB-MI, 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, OKB-MI, and
National Bank of Detroit ("NBD"; now NBD Bank), with which OKB-MI
participated in the financing arrangement that is in part the subject of
the case.
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 Court where a
complaint was filed on March 1, 1995.
In 1988, OKB-MI 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 OKB-MI
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
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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 who are not directors or
nominated for election to the board of directors is presented below:
Martin J. Allen, Jr. (age 58) 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 42) has been an executive vice president
of OKB-MI 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 and a director of Old Kent
Financial Life Insurance Company, an Old Kent subsidiary.
E. Philip Farley (age 55) has been an executive vice
president of OKB-MI 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 58) has been an executive vice
president-senior credit officer of Old Kent since 1989. He was
an executive vice president of OKB-MI 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 55) has been a senior vice president
and general auditor of Old Kent since 1986.
Charles W. Jennings, Jr. (age 55) has been a senior vice
president of human resources of Old Kent since 1984. Prior to
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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 38) has been an executive vice president
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, senior vice president and manager of
corporate operations from 1990 until 1993, and a vice president
and director of human resources of OKB-MI 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 51) became an executive vice
president, retail banking, of Old Kent and OKB-MI in 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.
Leigh I. Sherman (age 46) has been a senior vice president
and marketing director of Old Kent since 1989. He was formerly a
senior vice president and marketing director of American Security
Bank, a bank, for over 5 years. Mr. Sherman is also a member of
Old Kent's Management Committee.
Robert H. Warrington (age 47) has been president of Old Kent
Mortgage Company, an indirect subsidiary of Old Kent, since 1993.
He was a senior vice president of OKB-MI 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, president and a director of Old Kent Mortgage
Services, Inc., and a member of Old Kent's Management Committee.
Thomas D. Wisnom (age 56) 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 42) has been an 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
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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.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The information under the caption "Cash Dividends" on pages 37
and 38 and under the captions "Old Kent Common Stock" and "Two-Year Range
of Common Stock Prices" on page 71 of Old Kent's annual report to
shareholders for the year ended December 31, 1994, is here incorporated by
reference.
Item 6. Selected Financial Data.
The information under the caption "Five Year Summary of Selected
Financial Data" on page 20 of Old Kent's annual report to shareholders for
the year ended December 31, 1994, 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 21
through 47 of Old Kent's annual report to shareholders for the year ended
December 31, 1994, 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 51 through 70 of Old Kent's annual report to
shareholders for the year ended December 31, 1994, are here incorporated by
reference.
The information under the caption "Quarterly Financial Data" on
page 48 of Old Kent's annual report to shareholders for the year ended
December 31, 1994, is here incorporated by reference.
-15-
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
definitive Proxy Statement for its April 17, 1995, annual meeting of
shareholders 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 definitive Proxy Statement for
its April 17, 1995, annual meeting of shareholders 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 definitive Proxy Statement for its April 17, 1995, annual
meeting of shareholders 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 definitive Proxy
Statement for its April 17, 1995, annual meeting of shareholders is here
incorporated by reference.
-16-
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 16,
1995
Consolidated Balance Sheets--December 31, 1994 and 1993
Consolidated Statements of Income for each of the three
years in the period ended December 31, 1994
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1994
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1994
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> <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) Restated Bylaws. Previously filed as Exhibit 3(b) to
the registrant's Form 10-K Annual Report for its fiscal
year ended December 31, 1993. Here incorporated by
reference.
4 (a) Certificate of Designation, Preferences, and Rights of
Series B Preferred Stock; 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) 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
-17-
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.*
(e) Executive Stock Option Plan of 1986.* Previously filed
as Exhibit 10(d) to the registrant's Form 10-K Annual
Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
(f) Restricted Stock Plan of 1987.* Previously filed as
part of the registrant's Definitive Proxy Statement
dated March 6, 1992. 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.*
(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.*
(k) Executive Severance Agreements for Messrs. Canepa,
Sherwood, Sadler, Wagner and Wisnom.*
(l) Stock Option Incentive Plan of 1992.* Previously filed
as part of the registrant's Definitive Proxy Statement
dated March 6, 1992. Here incorporated by reference.
-18-
(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.*
(o) Amended and Restated Old Kent Directors' Deferred
Compensation Plan.* Previously filed as the Appendix
to the registrant's Definitive Proxy Statement dated
March 12, 1993. 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 of Old Kent Financial
Corporation for the year ended December 31, 1994.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Old Kent Thrift Plan Performance Table.
______________________
<FN>
* These agreements are management contracts or compensation plans
or arrangements required to be filed as exhibits to this Form 10-
K.
</TABLE>
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 no Current Reports on Form 8-K during the last
quarter of the period covered by this report.
-19-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
OLD KENT FINANCIAL CORPORATION
(Registrant)
Date: March 29, 1995 By /s/ Richard W. Wroten
Richard W. Wroten
Executive Vice President and
Chief Financial Officer
(Duly authorized signatory for the
Registrant and Principal Financial
and Accounting Officer)
-20-
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.
March 29, 1995 /s/ John M. Bissell*
John M. Bissell
Director
March 29, 1995 /s/ John D. Boyles*
John D. Boyles
Director
March 29, 1995 /s/ John C. Canepa*
John C. Canepa
Chairman of the Board and Director
March __, 1995 __________________________________
Richard M. DeVos, Jr.
Director
March 29, 1995 /s/ Earl D. Holton*
Earl D. Holton
Director
March 29, 1995 /s/ Michael J. Jandernoa*
Michael J. Jandernoa
Director
March 29, 1995 /s/ John P. Keller*
John P. Keller
Director
March 29, 1995 /s/ Jerry K. Myers*
Jerry K. Myers
Director
March 29, 1995 /s/ William U. Parfet*
William U. Parfet
Director
March 29, 1995 /s/ Percy A. Pierre*
Percy A. Pierre
Director
-21-
March 29, 1995 /s/ Robert L. Sadler*
Robert L. Sadler
Vice Chairman of the Board and
Director
March 29, 1995 /s/ Peter F. Secchia*
Peter F. Secchia
Director
March 29, 1995 /s/ B. P. Sherwood, III*
B. P. Sherwood, III
Vice Chairman of the Board, Treasurer, and
Director
March 29, 1995 /s/ David J. Wagner*
David J. Wagner
President and Chief Executive Officer, and
Director (Principal Executive Officer)
*By /s/ Richard W. Wroten
Richard W. Wroten
Attorney-in-Fact
-22-
<TABLE>
EXHIBIT INDEX
<CAPTION>
Number Exhibit
<S> <C> <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) Restated Bylaws. Previously filed as Exhibit 3(b) to
the registrant's Form 10-K Annual Report for its fiscal
year ended December 31, 1993. Here incorporated by
reference.
4(a) Certificate of Designation, Preferences, and Rights of
Series B Preferred Stock; 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) 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.*
(e) Executive Stock Option Plan of 1986.* Previously filed
as Exhibit 10(d) to the registrant's Form 10-K Annual
Report for its fiscal year ended December 31, 1991.
Here incorporated by reference.
(f) Restricted Stock Plan of 1987.* Previously filed as
part of the registrant's Definitive Proxy Statement
dated March 6, 1992. 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.*
(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.*
(k) Executive Severance Agreements for Messrs. Canepa,
Sherwood, Sadler, Wagner and Wisnom.*
(l) Stock Option Incentive Plan of 1992.* Previously filed
as part of the registrant's Definitive Proxy Statement
dated March 6, 1992. 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.*
(o) Amended and Restated Old Kent Directors' Deferred
Compensation Plan.* Previously filed as the Appendix
to the registrant's Definitive Proxy Statement dated
March 12, 1993. 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 of Old Kent Financial
Corporation for the year ended December 31, 1994.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Old Kent Thrift Plan Performance Table.
______________________
<FN>
* These agreements are management contracts or compensation plans
or arrangements required to be filed as exhibits to this Form 10-
K.
</TABLE>
EXHIBIT 10(d)
1993-1 AMENDMENT
TO
OLD KENT
EXECUTIVE RETIREMENT INCOME PLAN
This is an amendment, effective August 16, 1993, by Old Kent Financial
Corporation ("OKFC").
W I T N E S S E T H:
WHEREAS, OKFC amended and restated the Old Kent Executive
Retirement Income Plan ("plan") effective January 1, 1989;
NOW, THEREFORE, the Employer amends Section 6.2(d) of the plan as
follows:
(d) Lump Sum Election. If the Participant elects a lump-sum payment,
the Participant's benefit shall be distributed in a single payment. The
amount of the lump sum shall be the actuarially equivalent present value of
the Participant's benefit payable at Normal Retirement Date. The lump sum
benefit shall be determined in the manner provided under the Old Kent
Retirement Income Plan as in effect on the date the Participant's
employment terminates. The Participant may elect or waive a prior election
of the lump-sum payment on a form supplied for that purpose, provided,
however, only one election or waiver may be made during a Plan Year. If
employment terminates for any reason before the second anniversary of the
date of an election or waiver, the election or waiver shall be void and the
form of payment in effect immediately prior to the election or waiver shall
apply. The preceding sentence shall not apply to an election that is made
by the Participant at the time of initial participation in this plan. The
election of a lump-sum payment also shall be void if the Participant dies
before the first day of the first month following the date the
Participant's employment terminates. If the Participant fails to make a
valid lump-sum election, the Participant's benefit shall be paid as
specified in (a), (b), (c) or (e).
IN WITNESS WHEREOF, this amendment is executed this 16th day of
August, 1993.
OLD KENT FINANCIAL CORPORATION
By /S/ Martin J. Allen, Jr.
Martin J. Allen, Jr.
Its Secretary
EXHIBIT 10(h)
1994-1 AMENDMENT
TO
OLD KENT
EXECUTIVE THRIFT PLAN
This is an amendment, effective January 1, 1994, by Old Kent Financial
Corporation ("OKFC").
W I T N E S S E T H:
WHEREAS, OKFC amended and restated the Old Kent Executive Thrift
Plan ("plan") effective January 1, 1990;
NOW, THEREFORE, the Employer amends Section 4.1(d) of the plan as
follows:
(d) Compensation. "Compensation" means an Employee's W-2 wages as
provided in Regulations under Code Section 415 plus elective deferrals
under this plan and any other plan of deferred compensation that are
excluded from gross income under Code Sections 125 (cafeteria plans) and
402(a)(8) (Thrift Plus Contributions), and Old Kent Deferred Compensation
Plan contributions; but excluding, whether or not includible in income,
reimbursements or other expense allowances, cash and noncash fringe
benefits, moving expenses, deferred compensation actually paid after a
period of deferral, restricted stock values, payments from the Short-Term
Annual Incentive Plan, and welfare benefits.
IN WITNESS WHEREOF, this amendment is executed this 27th day of
January, 1994.
OLD KENT FINANCIAL CORPORATION
By /S/ Martin J. Allen, Jr.
Martin J. Allen, Jr.
Its Senior V.P. & Secretary
EXHIBIT 10(j)
DEFERRED STOCK COMPENSATION PLAN
OF
OLD KENT FINANCIAL CORPORATION
Warner, Norcross & Judd
900 Old Kent Building
111 Lyon, N.W.
Grand Rapids, Michigan 49503-2489
DEFERRED STOCK COMPENSATION PLAN
OF
OLD KENT FINANCIAL CORPORATION
TABLE OF CONTENTS
Page
SECTION 1 - Establishment and Purpose of Plan. . . . . . . . . . . . . . . . 1
SECTION 2 - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3 - Administration . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4 - Phantom Shares . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5 - Terms of Award . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6 - Changes in Capital Structure of Corporation. . . . . . . . . . . 5
SECTION 7 - General Provisions . . . . . . . . . . . . . . . . . . . . . . . 6
EXHIBIT A
-i-
DEFERRED STOCK COMPENSATION PLAN
OF
OLD KENT FINANCIAL CORPORATION
SECTION 1
Establishment and Purpose of Plan
1.1 The purpose of this Plan, hereby amended and restated, is to
provide an opportunity for a select group of management personnel of Old
Kent Financial Corporation ("Corporation") to participate in the long-term
growth of the Corporation and thereby to provide an additional incentive to
contribute to the prosperity of the Corporation and its shareholders and to
assist the Corporation in attracting and retaining key executive personnel.
1.2 This restated Plan shall be effective upon the issuance of a
favorable ruling by the Internal Revenue Service concerning the Plan and
any related grantor trust.
SECTION 2
Definitions
The following terms are defined for use herein unless a different
meaning is plainly required by the context:
2.1 "Award" means the crediting of Phantom Shares to a Participant
under the Plan, pursuant to a Memorandum of Award.
2.2 "Board" means the Board of Directors of the Corporation.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Personnel Committee of the Board or such
other committee as the Board shall designate for the purpose of
administration of the Plan.
2.5 "Corporation" means Old Kent Financial Corporation, a Michigan
corporation.
2.6 "Deferral Period" means a period of 5 years following the date of
the Award.
2.7 "Employee" means any regular, salaried employee, including any
officer, in the service of the Corporation, except any person who serves
only as a director. An individual's status as a regular, salaried employee
shall not be affected by a leave of absence without pay.
2.8 "Memorandum of Award" means a notice to the Participant, in the
form attached as Exhibit A, evidencing an Award under the Plan.
2.9 "Participant" means an Employee to whom an Award has been made.
2.10 "Phantom Share" means a hypothetical share of Stock, at all times
deemed to correspond and be equal in value to an actual share of Stock, but
without voting or dividend rights or any other attributes of an actual
share of Stock.
2.11 "Phantom Share Account" means an accounting record established
for each Participant with respect to each Award.
2.12 "Plan" means this Deferred Stock Compensation Plan as in effect
from time to time.
2.13 "Stock" means the Common Stock (par value $1 per share) of the
Corporation.
2.14 "Trust" means the Old Kent Financial Corporation Deferred Stock
Compensation Trust. The Trust shall conform to the terms of the model
trust described in Revenue Procedure 92-64 issued by the Internal Revenue
Service.
SECTION 3
Administration
3.1 The Committee shall administer the Plan. The Committee may award
Phantom Shares under the Plan to any Employee; provided, however, that the
Committee may not award Phantom Shares to any member of the Committee. All
decisions and selections made by the Committee shall be final. No member
of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or Phantom Shares awarded under it.
-2-
3.2 The awarding of Phantom Shares pursuant to the Plan shall be
entirely within the discretion of the Committee and nothing herein
contained shall be construed to give any Employee any right to participate
in the Plan or to receive an Award at any time.
SECTION 4
Phantom Shares
4.1 The total number of Phantom Shares that may be awarded under this
Plan shall be 200,000 Phantom Shares.
4.2 The total number of Phantom Shares that may be awarded under this
Plan shall be adjusted from time to time as specified in Section 6.
SECTION 5
Terms of Award
An Award under the Plan shall be subject to the following terms and
conditions:
5.1 An Award shall be evidenced by a Memorandum of Award specifying
the number of Phantom Shares awarded and containing the terms and
conditions of the Award, as described in this Section 5, and such other
provisions as the Committee may deem appropriate.
5.2 Pursuant to each Award, a Phantom Share Account shall be
established for the Participant. The Phantom Share Account shall be a
bookkeeping record of the number of the Phantom Shares credited to the
Participant, with respect to the Award, during the Deferral Period,
consisting of:
(a) the number of Phantom Shares designated by the
Committee in the Memorandum of Award, adjusted from time to time
as specified in Section 6 below; plus,
(b) as of each dividend payment date, the Phantom Share
Account shall be credited with the number of Phantom Shares,
including fractional shares, that would be purchased if the
Phantom Shares in the Phantom Share Account on that date were
actual shares of Stock and the dividends paid on such actual
shares were applied to purchase additional shares at the closing
price of the actual shares on the dividend payment date.
-3-
5.3 Upon expiration of the Deferral Period, the Participant shall be
paid the value of the Phantom Shares credited to the Participant's Phantom
Share Account. The amount of the payment shall be determined by equating
the value of the Phantom Shares in the Phantom Share Account to the closing
value of actual shares of Stock on the last business day in the Deferral
Period.
5.4 Payments shall be paid in Stock, in cash, or both, directly by
the Corporation or indirectly through the Trust, to the Participant or the
Participant's beneficiary. The Corporation shall determine the method and
source of payment, provided that a fractional share shall be paid in cash.
The Corporation shall not be relieved of its obligation and liability to
pay the benefits of this Plan, except to the extent payments are actually
made from the Trust. A Participant shall be an unsecured general creditor
of the Employer as to the payment of any benefit under the Plan. The right
of any Participant or beneficiary to be paid the amount promised in the
Plan shall be no greater than the right of any other general, unsecured
creditor of the Corporation.
5.5 As a condition to receiving a distribution in Stock at the end of
the Deferral Period, the Participant shall represent and warrant in writing
that the Participant is acquiring the Stock for the Participant's own
account and investment and without any intention to resell or distribute
the Stock. The Participant shall agree not to resell or distribute the
Stock except upon such conditions as the Corporation reasonably may specify
to insure compliance with federal and state securities laws. Certificates
representing Stock distributed to the Participant shall bear a restrictive
legend to this effect.
5.6 A Participant's rights and benefits under an Award may not be
assigned, except that if a Participant dies before the end of the Deferral
Period, payment shall be made at the end of the Deferral Period to the
beneficiary designated by the Participant in a written designation on file
with the Corporation at the time of death or, if there is no such
designation, to the Participant's estate. The estate or beneficiary shall
receive any payment in Stock subject to the terms and conditions imposed
herein.
5.7 Notwithstanding any other provision in the Plan or the Trust, the
Corporation may withhold or direct the trustee to withhold any benefits
payable to a beneficiary as a result of the death of a Participant or any
other beneficiary until it can be determined whether a generation-skipping
transfer tax, as defined in Chapter 13 of the Code, or any substitute
provision therefor, is payable by the Corporation or trustee and the amount
of generation-skipping transfer tax, including interest, that is due. If
such tax is payable, the benefits otherwise payable hereunder shall be
reduced by an amount equal to the generation-skipping transfer tax and
-4-
interest. Any benefits withheld shall be payable as soon as there is a
final determination of the applicable generation-skipping transfer tax and
interest. No interest shall be payable to any beneficiary for the period
from the date of death to the time when the amount of benefits payable to a
beneficiary can be fully determined pursuant to this paragraph.
5.8 The Corporation shall make or direct the trustee of the Trust to
make such provisions as it shall deem appropriate for the withholding of
taxes required to be withheld in connection with payments hereunder. As a
condition to the delivery of shares of Stock, a Participant must authorize
the Corporation to withhold in accordance with applicable law, from any
regular cash compensation, taxes required to be withheld under federal,
state, or local law. Alternatively, the delivery of shares of Stock may,
in the discretion of the Corporation, be conditioned upon payment to the
Corporation of any withholding tax liability or upon withholding of shares
of Stock equivalent in value to the withholding obligation.
SECTION 6
Changes in Capital Structure of Corporation
6.1 The existence of outstanding Awards shall not affect in any way
the right or power of the Corporation or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations, or
other changes in the Corporation's capital structure or its business, or
any merger or consolidation of the Corporation, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Stock or the rights thereof, or the dissolution or liquidation of the
Corporation, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
6.2 If the Corporation shall effect a subdivision or consolidation of
shares or other capital readjustment, the payment of a stock dividend, the
distribution of a stock split, or other increase or reduction of the number
of shares of the Stock outstanding, without receiving compensation therefor
in money, services, or property, then both the Phantom Shares subject to
outstanding Awards and the number of Phantom Shares then authorized and
reserved for issuance under the Plan shall be appropriately adjusted as if
such shares had been actual shares of Stock on the date of the event.
6.3 After a merger of one or more corporations into the Corporation,
or after a consolidation of the Corporation and one or more corporations,
in which the Corporation shall be the surviving corporation, each
outstanding Award shall be modified to consist of the number and class of
Phantom Shares, or other property to which the holder of the awarded shares
would have been entitled pursuant to the terms of the agreement of merger
-5-
or consolidation if, immediately prior to the merger or consolidation, the
Phantom Shares had been actual shares of Stock. This entitlement shall be
at no additional cost to the Participant. Modifications under this
subsection 6.3 may be subject to required action by shareholders. The
Phantom Shares or other property to which the Participant is entitled under
this subsection 6.3 shall be in lieu of the number of Phantom Shares to
which the Participant would have been entitled under the Award in the
absence of the merger or consolidation.
6.4 If the Corporation is merged into or consolidated with another
corporation under circumstances in which the Corporation is not the
surviving corporation, or if the Corporation is liquidated or sells or
otherwise disposes of substantially all its assets to another corporation,
while Awards remain outstanding under the Plan after the effective date of
such merger, consolidation, or sale, as the case may be, each outstanding
Award shall be modified to provide, in lieu of awarded Phantom Shares,
Phantom Shares or other property to which the holder of the awarded Phantom
Shares would have been entitled pursuant to the terms of the merger,
consolidation, or sale if, immediately prior to the merger, consolidation,
or sale, the Phantom Shares had been actual shares of Stock.
6.5 Except as expressly provided herein, the issue by the Corporation
of shares of stock of any class, or securities convertible into shares of
stock of any class, for cash or property, or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Corporation
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of
Phantom Shares then subject to outstanding Awards or authorized and
reserved for issuance under the Plan.
SECTION 7
General Provisions
7.1 This shall be an unfunded plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended. Benefits provided
herein constitute only an unsecured contractual promise to pay in
accordance with the terms of the Plan by the Corporation.
7.2 The Board reserves the right to amend this Plan prospectively or
retroactively, or to terminate this Plan, provided that an amendment or
termination may not modify, revoke or affect any Award made prior to the
date the amendment is approved by the Board or the date the Board acts to
terminate the Plan.
-6-
7.3 Nothing in the Plan shall be construed as creating a contract of
employment between the Corporation and any Participant or otherwise
conferring upon any Participant or other person a legal right to
continuation of employment or any rights other than those specified herein.
The Plan shall not limit or affect the right of the Corporation to
discharge or retire a Participant.
7.4 Except for designation of a beneficiary, amounts promised
hereunder shall not be subject to assignment, conveyance, transfer,
anticipation, pledge, alienation, sale, encumbrance, or charge, whether
voluntary or involuntary, by the Participant or any beneficiary of the
Participant, even if directed under a qualified domestic relations order or
other divorce order. An interest in an amount promised shall not provide
collateral or security for a debt of a Participant or beneficiary or be
subject to garnishment, execution, assignment, levy, or to another form of
judicial or administrative process or to the claim of a creditor of a
Participant or beneficiary, through legal process or otherwise. Any
attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber,
charge, or to otherwise dispose of benefits payable, before actual receipt
of the benefits, or a right to receive benefits, shall be void and shall
not be recognized.
7.5 Nothing contained in the Plan shall be deemed to create a trust
or fiduciary relationship of any kind for the benefit of any Participant or
beneficiary.
7.6 The singular includes the plural, and the plural includes the
singular, unless the context clearly indicates the contrary. Capitalized
terms (except those at the beginning of a sentence or part of a heading)
have the meaning specified in the Plan. If a capitalized term is not
defined in the Plan, the term shall have the general, accepted meaning.
IN WITNESS WHEREOF, this Plan is executed by an authorized
officer this 11th day of October, 1994.
OLD KENT FINANCIAL
CORPORATION
By /S/ Martin J. Allen, Jr.
Martin J. Allen, Jr.
Its Senior Vice President
"Corporation"
-7-
EXHIBIT A
MEMORANDUM OF AWARD
UNDER
OLD KENT FINANCIAL CORPORATION
DEFERRED STOCK COMPENSATION PLAN
Old Kent Financial Corporation (the "Corporation") hereby grants
____________________________ (the "Participant") an Award of Phantom Shares
under the Old Kent Financial Corporation Deferred Stock Compensation Plan
(the "Plan"). Other capitalized terms used in this Memorandum shall have
the meanings ascribed to them in the Plan.
The Participant is hereby awarded ______________________ Phantom
Shares.
The date of this Award is ______________________, _______. The
Deferral Period is five years; the last day of the Deferral Period will be
_______________________, _________.
The obligations of the Corporation with respect to this Award
shall be as specified in Section 5 of the Plan. Payment from the Trust to
the Participant will be applied to satisfy the Corporation's obligations
under this Award, to the extent of such payment. The Corporation shall
remain obligated under the Plan to make up any deficiency in the payment of
cash or delivery of shares of Stock to the Participant from the Trust.
As a condition to any delivery of Stock during and at the end of
the Deferral Period, the Participant shall represent and warrant in writing
that the Participant is acquiring the Stock for the Participant's own
account and investment and without any intention to resell or distribute
the Stock. The Participant shall agree not to resell or distribute the
Stock except upon such conditions as the Corporation may reasonably specify
to ensure compliance with applicable federal and state securities laws.
Certificates representing Stock distributed to the Participant shall bear a
restrictive legend to this effect.
Delivery of Stock is subject to the income tax withholding and
generation-skipping transfer tax provisions of the Plan and applicable law.
This award is nontransferable and nonassignable as provided in
Section 7.4 of the Plan, except that if Participant dies before shares of
Stock comprising the Award are delivered to Participant, such shares shall
instead be delivered at the end of the Deferral Period to the Participant's
beneficiary or estate, as provided in the Plan, subject to the terms and
conditions imposed by this Award.
OLD KENT FINANCIAL
CORPORATION
By _________________________________________
Its ___________________________________
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OLD KENT FINANCIAL CORPORATION
DEFERRED STOCK COMPENSATION TRUST
Warner, Norcross & Judd
900 Old Kent Building
111 Lyon, N.W.
Grand Rapids, Michigan 49503-2489
OLD KENT FINANCIAL CORPORATION
DEFERRED STOCK COMPENSATION TRUST
TABLE OF CONTENTS
Page
Section 1 - Establishment Of Trust . . . . . . . . . . . . . . . . . . . . 1
Section 2 - Payments to Plan Participants and Their Beneficiaries . . . . . 2
Section 3 - Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent . . . . . . . . . . . . 3
Section 4 - Payments to Company . . . . . . . . . . . . . . . . . . . . . . 4
Section 5 - Investment Authority. . . . . . . . . . . . . . . . . . . . . . 4
Section 6 - Disposition of Income . . . . . . . . . . . . . . . . . . . . . 5
Section 7 - Accounting by Trustee . . . . . . . . . . . . . . . . . . . . . 5
Section 8 - Responsibility of Trustee . . . . . . . . . . . . . . . . . . . 6
Section 9 - Compensation and Expenses of Trustee. . . . . . . . . . . . . . 8
Section 10 - Resignation and Removal of Trustee. . . . . . . . . . . . . . . 8
Section 11 - Appointment of Successor. . . . . . . . . . . . . . . . . . . . 8
Section 12 - Amendment or Termination. . . . . . . . . . . . . . . . . . . . 9
Section 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 14 - Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . 10
OLD KENT FINANCIAL CORPORATION
DEFERRED STOCK COMPENSATION TRUST
This Agreement is made this 11th day of October, 1994, by and
between Old Kent Financial Corporation, a Michigan corporation ("Company"),
and Old Kent Bank and Trust Company ("Trustee").
WHEREAS, Company has adopted the Old Kent Financial Corporation
Deferred Stock Compensation Plan (the "Plan") for the benefit of selected
management and highly-compensated employees.
WHEREAS, Company has incurred or expects to incur liability under
the terms of the Plan with respect to the individuals participating in the
Plan;
WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to
the Trust to provide a source of funds to assist in meeting its liabilities
under the Plan;
NOW, THEREFORE, the parties hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust.
(a) Company hereby deposits with Trustee in trust One
Thousand Dollars, which shall be the initial principal of the
Trust to be held, administered and disposed of by Trustee as
provided in this Trust Agreement.
(b) The Trust shall become irrevocable upon the issuance of
a favorable private letter ruling regarding the Trust from the
Internal Revenue Service.
(c) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Internal Revenue Code
of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of Company and
shall be used exclusively for the uses and purposes of Plan
participants and general creditors as herein set forth. Plan
participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plan and this Trust
Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against Company. Any assets
held by the Trust will be subject to the claims of Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash or other
property in trust with Trustee to augment the principal to be
held, administered and disposed of by Trustee as provided in this
Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional
deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) Company shall from time to time, deliver to Trustee
schedules (the "Payment Schedules") that indicate the amounts
payable in respect of each Plan participant (and his or her
beneficiaries), or a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which
such amount is to be paid (as provided for or available under the
Plan), and the time of commencement for payment of such amounts.
Except as otherwise provided herein, Trustee shall make payments
to the Plan participants and their beneficiaries in accordance
with the Payment Schedules. The Trustee shall make provision
for the reporting and withholding of any federal, state or local
taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Plan and shall
pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid
by Company.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan shall be determined by
Company or such party as it shall designate under the Plan, and
any claim for such benefits shall be considered and reviewed
under the procedures set out in the Plan.
-2-
(c) Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the
terms of the Plan. Company shall notify Trustee of its decision
to make payment of benefits directly prior to the time amounts
are payable to participants or their beneficiaries. In addition,
if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the
terms of the Plan, Company shall make the balance of each such
payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan
participants and their beneficiaries if the Company is Insolvent.
Company shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) Company is unable to pay its debts as they
become due, or (ii) Company is subject to a pending proceeding as
a debtor under the United States Bankruptcy Code, or
(iii) Company is determined to be insolvent by any federal or
state financial institution regulatory agency that has
jurisdiction over such determination with respect to the Company.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the
Trust shall be subject to claims of general creditors of Company
under federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer
of Company shall have the duty to inform Trustee in writing of
Company's Insolvency. If a person claiming to be a creditor of
Company alleges in writing to Trustee that Company has become
Insolvent, Trustee shall determine whether Company is Insolvent
and, pending such determination, Trustee shall discontinue
payment of benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person
claiming to be a creditor alleging that Company is Insolvent,
Trustee shall have no duty to inquire whether Company is
Insolvent. Trustee may in all events rely on such evidence
concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a
determination concerning Company's solvency.
-3-
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold the assets of
the Trust for the benefit of Company's general creditors, except
that the Trustee shall make payments out of the Trust fund in
only one or more of the following ways: (i) To general creditors
in accordance with instructions from a court, or a person
appointed by a court, having jurisdiction over the Company's
condition of insolvency; (ii) To Plan participants and
beneficiaries in accordance with such instructions; and (iii) In
payment of its own fees or expenses. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan
participants or their beneficiaries to pursue their rights as
general creditors of Company with respect to benefits due under
the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2
of this Trust Agreement only after Trustee has determined that
Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to
Section 3(b) hereof and subsequently resumes such payments, the
first payment following such discontinuance shall include the
aggregate amount of all payments due to Plan participants or
their beneficiaries under the terms of the Plan for the period of
such discontinuance, less the aggregate amount of any payments
made to Plan participants or their beneficiaries by Company in
lieu of the payments provided for hereunder during any such
period of discontinuance.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has
become irrevocable, Company shall have no right or power to direct Trustee
to return to Company or to divert to others any of the Trust assets before
all benefits have been paid in full to Plan participants and their
beneficiaries pursuant to the terms of the Plan.
Section 5. Investment Authority.
(a) When directed by the Company, Trustee may invest in or
retain securities (including stock or rights to acquire stock) or
obligations issued by Company. The Company expressly waives any
diversification of investments that might otherwise be necessary,
appropriate, or required under the laws of the State of Michigan,
State of Illinois, or any other applicable state or federal law.
All rights associated with assets of the Trust shall be exercised
-4-
by Trustee or the person designated by Trustee, and shall in no
event be exercisable by or rest with Plan participants.
(b) The Trustee may invest and reinvest the assets of the
Trust as the Trustee, in its sole discretion, may deem
appropriate, including, without limitation, improved and
unimproved real property (whether or not income producing); other
common and preferred stocks; shares or certificates of
participation issued by investment companies; investment trusts
and mutual funds; common or pooled investment funds; bonds;
debentures; mortgages; deeds of trust; insurance and annuity
contracts; notes secured by real or personal property; leases;
ground leases; limited partnership interests; real or personal
property interests owned, developed, or managed by joint ventures
or limited partnerships; obligations of governmental bodies, both
domestic and foreign; notes, commercial paper, certificates of
deposit, and other securities or evidences of indebtedness,
secured or unsecured, including variable amount notes,
convertible securities of all types and kinds, interest-bearing
savings or deposit accounts with any federally insured bank
(including the Trustee) or any federally insured savings and loan
association; and any other property permitted as trust
investments under applicable law. Such investments may also
include shares of investment companies to which Trustee or an
affiliate of Trustee serves as investment advisor, dealer,
transfer agent, custodian or has other business or contractual
relationship. The Trustee is authorized to invest in any common
or pooled investment fund or mutual fund now or hereafter
maintained or advised by the Trustee and any interest-bearing
savings or deposit accounts with the banking department of the
Trustee.
(c) Company shall have the right at anytime, and from time
to time in its sole discretion, to substitute assets of equal
fair market value for any asset held by the Trust. This right is
exercisable by Company in a nonfiduciary capacity without the
approval or consent of any person in a fiduciary capacity.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the
Trust, including all interest revenue and dividends, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by Trustee.
(a) Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be
agreed upon in writing between Company and Trustee. As soon as
-5-
reasonably practicable following the close of each calendar year
or after the removal or resignation of Trustee, Trustee shall
deliver to Company a written account of its administration of the
Trust during such year or during the period from the close of the
last preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all
securities and investments purchased and sold with the cost or
net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash,
securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as
the case may be.
(b) Company may object to an accounting within 180 days
after it is furnished and require that it be settled by audit by
a qualified, independent certified public accountant. The
auditor shall be chosen by the Trustee from a list of at least
three such accountants furnished by Company at the time the audit
is requested. Either Company or the Trustee may require that the
account be settled by a court of competent jurisdiction, in lieu
of or in conjunction with the audit. All expenses of any audit
or court proceedings, including reasonable attorney fees, shall
be allowed as administrative expenses of the Trust.
(c) If Company does not object to an accounting within the
time provided, the account shall be settled for the period
covered by it. When an account is settled, it shall be final and
binding on all parties, including all participants and persons
claiming through them.
(d) The Trustee shall maintain a separate account for each
Plan participant who is covered by this Trust, to which it shall
credit deferrals and accumulated earnings in accordance with the
Plan, for that participant. The account shall be a bookkeeping
account only, and shall reflect an undivided contingent interest
in assets of the Trust fund and shall not require any segregation
of particular assets.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and
with like aims, provided, however, that Trustee shall incur no
liability to any person for any action taken pursuant to a
-6-
direction, request or approval given by Company which is
contemplated by, and in conformity with, the terms of the Plan or
this Trust and is given in writing by Company. In the event of a
dispute between Company and a party, Trustee may apply to a court
of competent jurisdiction to resolve the dispute.
(b) Subject to such limitations as may be imposed by
applicable law, Company shall indemnify and hold harmless the
Trustee from any claims, loss, liability, or expense arising from
any action or inaction in administration of this Trust based on
direction or information from either Company, or any expert,
absent willful misconduct or bad faith. The Trustee need not
give any bond or other security for performance of its duties
under this Trust. If Trustee undertakes or defends any
litigation arising in connection with this Trust, Company agrees
to indemnify Trustee against Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such
payments. If Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties
or obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals
to assist it in performing any of its duties or obligations
hereunder.
(e) Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly
provided otherwise herein, provided, however, that if an
insurance policy is held as an asset of the Trust, Trustee shall
have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or
to loan to any person the proceeds of any borrowing against such
policy.
(f) However, notwithstanding the provisions of Section
8(e) above, Trustee may loan to Company the proceeds of any
borrowing against an insurance policy held as an asset of the
Trust.
(g) Notwithstanding any powers granted to Trustee pursuant
to this Trust Agreement or to applicable law, Trustee shall not
have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom, within
the meaning of section 301.7701-2 of the Procedure and
-7-
Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
Section 9. Compensation and Expenses of Trustee.
Company shall pay all reasonable administrative and Trustee's
fees and expenses. If not so paid, the fees and expenses shall be paid
from the Trust.
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 60 days after receipt of such
notice unless Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on 60 days notice or
upon shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment
of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within 60 days after receipt of notice of resignation,
removal or transfer, unless Company extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective
date of resignation or removal under paragraphs (a) or (b) of
this section. If no such appointment has been made, Trustee may
apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative
expenses of the Trust.
(e) A Trustee who resigns or is removed shall submit a
final accounting to Company as soon as practicable. The
accounting shall be received and settled as provided in Section 7
hereof.
(f) No resignation or removal of the Trustee or change in
identity of the Trustee for any reason shall cause a termination
of this Trust.
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, Company may appoint any third party,
such as a bank trust department or other party that may be
granted corporate trustee powers under state law, as a successor
to replace Trustee upon resignation or removal. The appointment
-8-
shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The
former Trustee shall execute any instrument necessary or
reasonably requested by Company or the successor Trustee to
evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing
Trust assets, subject to Sections 7 and 8 hereof. The successor
Trustee shall not be responsible for and Company shall indemnify
and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the time
it becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the
Plan or shall make the Trust revocable after it has become
irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which
Plan participants and their beneficiaries are no longer entitled
to benefits pursuant to the terms of the Plan unless sooner
revoked in accordance with Section 1(b) hereof. Upon termination
of the Trust any assets remaining in the Trust shall be returned
to Company.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed
in accordance with the laws of the State of Michigan, except as
preempted by ERISA.
-9-
(d) This Trust Agreement shall be binding upon the heirs,
personal representatives, successors and assigns of the Company
and the Trustee.
(e) Any notice or direction under this Trust shall be in
writing and shall be effective when actually delivered, or if
mailed, when deposited postpaid as first-class mail. Mail to a
party shall be directed to the address stated below or to such
other address as either party may specify by notice to the other
party. Until notice is given to the contrary, notices to Company
and the Trustee shall be addressed as follows:
If to Company:
Old Kent Financial Corporation
One Vandenberg Center
Grand Rapids, Michigan 49503
Attention: Director of Human Resources
If to the Trustee:
Old Kent Bank and Trust Company
200 Monroe, N.W., Suite 430
Grand Rapids, Michigan 49503
Attention: Corporate Trust Services
Section 14. Effective Date.
The effective date of this Trust Agreement shall be February 1,
1994.
IN WITNESS WHEREOF, Company and the Trustee have caused this
Agreement to be executed by their respective duly authorized officers on
the date first written above.
OLD KENT FINANCIAL CORPORATION
By /S/ Martin J. Allen, Jr.
Martin J. Allen, Jr.
Its Senior Vice President
"Company"
]
-10-
OLD KENT BANK AND TRUST COMPANY
By /S/ John D. Linabury
John D. Linabury
Its Vice President Corporate Trust Services
"Trustee"
-11-
EXHIBIT 10(k)
Form of Executive Severance Agreement
The following individuals have entered into an Executive
Severance Agreement in the following form, all of which are identical except
for the name and address of the individual employee:
John C. Canepa
Robert L. Sadler
B.P. Sherwood, III
David J. Wagner
Thomas D. Wisnom
EXECUTIVE SEVERANCE AGREEMENT
THIS IS AN AGREEMENT between OLD KENT FINANCIAL CORPORATION (the
"Corporation"), whose principal offices are located at One Vandenberg
Center, Grand Rapids, Michigan 49503, and ______________ (the "Employee"),
who resides at _________________________________________________________,
dated August 21, 1989.
1. Term of Agreement. This Agreement will begin on the date entered
above (the "Commencement Date") and will continue in effect through the
third anniversary of the Commencement Date. However, on the first
anniversary of the Commencement Date, and on each such anniversary date
thereafter, the term of this Agreement will be extended automatically for
1 additional year (to a total of 3 years) unless, not later than 6 months
prior to such anniversary date, the Corporation gives written notice to the
Employee that it has elected not to extend this Agreement. In addition, if
a Change of Control occurs during the term of this Agreement, this
Agreement will continue in effect for at least 36 months beyond the end of
the month in which any Change of Control occurs.
2. Definitions. The following defined terms shall have the
meanings set forth below, for purposes of this Agreement.
(a) Change of Control. "Change of Control" means an
occurrence of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Without limiting the inclusiveness of the
definition in the preceding sentence, a Change of Control of the
Corporation shall be deemed to have occurred if:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing twenty-five percent (25%) or more
of the combined voting power of the Corporation's then-
outstanding securities; or
(ii) At any time a majority of the Board of Directors
of the Corporation is comprised of other than Continuing
Directors (for purposes of this paragraph, the term
Continuing Director means a director who was either
(A) first elected or appointed as a Director prior to the
date of this Agreement; or (B) subsequently elected or
appointed as a director if such director was nominated or
appointed by at least a majority of the then-Continuing
Directors); or
(iii) Any of the following occur:
(A) any merger or consolidation of the
Corporation, other than a merger or consolidation in
which the voting securities of the Corporation
immediately prior to the merger or consolidation
continue to represent (either by remaining outstanding
or being converted into securities of the surviving
entity) fifty-one percent (51%) or more of the combined
voting power of the Corporation or surviving entity
immediately after the merger or consolidation with
another entity;
(B) any sale, exchange, lease, mortgage, pledge,
transfer, or other disposition (in a single transaction
or a series of related transactions) of all or
substantially all of the assets of the Corporation
which shall include, without limitation, the sale of
assets or earning power aggregating more than fifty
percent (50%) of the assets or earning power of the
Corporation on a consolidated basis;
(C) any liquidation or dissolution of the
Corporation;
(D) any reorganization, reverse stock split, or
recapitalization of the Corporation which would result
in a Change of Control; or
(E) any transaction or series of related
transactions having, directly or indirectly, the same
effect as any of the foregoing; or any agreement,
contract, or other arrangement providing for any of the
foregoing.
(b) Disability. "Disability" means that, as a result of
Employee's incapacity due to physical or mental illness, the
Employee shall have been absent from the full-time performance of
his duties with the Corporation for 12 consecutive months and,
within 30 calendar days after written notice of suspension due to
Disability is given, the Employee shall not have returned to the
full-time performance of his duties.
(c) Cause. "Cause" means (i) Employee's willful and
continued failure to substantially perform Employee's duties with
the Corporation under this Agreement (other than any such failure
resulting from Disability or occurring after issuance by Employee
of a Notice of Termination for Good Reason), after a written
demand for substantial performance is delivered to the Employee
that specifically identifies the manner in which the Corporation
believes that the Employee has willfully failed to substantially
-2-
perform his duties, and after the Employee has failed to resume
substantial performance of his duties on a continuous basis
within 14 calendar days of receiving such demand; (ii) the
Employee willfully engaging in conduct (other than conduct
covered under (i) above), which is demonstrably and materially
injurious to the Corporation, monetarily or otherwise; or
(iii) the Employee's having been convicted of a felony which
impairs his ability substantially to perform his duties with the
Corporation. For purposes of this subparagraph, no act, or
failure to act, on the Employee's part shall be deemed "willful"
unless done, or omitted to be done, by the Employee not in good
faith and without reasonable belief that the action or omission
was in the best interest of the Corporation.
(d) Good Reason. For purposes of this Agreement, "Good
Reason" means the occurrence of any one or more of the following
without the Employee's express written consent:
(i) The assignment to Employee of duties inconsistent
with the duties, responsibilities, and status of Employee's
position as of the day prior to the Change of Control of the
Corporation;
(ii) A reduction by the Corporation in Employee's base
salary as of the day prior to the Change of Control, or
reduction of Employee's most recent target incentive award
opportunity prior to the Change of Control under the
Corporation's Annual Incentive Plan, or any successor plan;
(iii) The Corporation's requiring Employee to be
based at a location in excess of 50 miles from the location
where Employee is currently based;
(iv) The failure of the Corporation to obtain a
satisfactory agreement from any successor to the Corporation
to assume and agree to perform this Agreement, as
contemplated in Paragraph 7 hereof;
(v) Any termination by the Corporation of Employee's
employment that is not effected pursuant to a Notice of
Termination; and
(vi) Any termination of Employee's employment,
reduction in Employee's compensation or benefits, or adverse
change in Employee's location or duties, if such
termination, reduction or adverse change occurs within 12
months before a Change of Control, is in contemplation of
such Change in Control, and is taken to avoid the effect of
this Agreement should such action occur after such Change in
Control.
-3-
The existence of Good Reason shall not be affected by
Employee's incapacity due to physical or mental illness.
Employee's continued employment shall not constitute a waiver of
Employee's rights with respect to any circumstance constituting
Good Reason hereunder.
(e) Notice of Termination. "Notice of Termination" means a
written notice indicating the specific termination provision in
this Agreement relied upon and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the employment under the provision so indicated.
(f) Potential Change of Control. "Potential Change of
Control" means: (i) the Corporations entering into or the Board
of Directors authorizing an agreement, the consummation of which
would result in the occurrence of a Change of Control; or
(ii) adoption by the Board of Directors of a resolution to the
effect that, for purposes of this Agreement, a Potential Change
of Control has occurred.
(g) Trust. "Trust" means the trust to be created pursuant
to Paragraph 6 of this Agreement in the event of a Change of
Control or Potential Change of Control.
(h) Trust Agreement. "Trust Agreement" means the Trust
Agreement attached as Exhibit A to this Agreement.
(i) Trustee. "Trustee" means the Trustee of the Trust.
3. Eligibility for Severance Benefits. Subject to Paragraph 5, the
Employee shall receive the Severance Benefits described in Paragraph 4 if
the Employee's employment is terminated during the term of this Agreement,
and
(a) the termination occurs within 36 months after a Change
of Control, unless the termination is (i) because of Employee's
death or Disability, (ii) by the Corporation for Cause, or
(iii) by the Employee other than for Good Reason; or
(b) the Corporation terminates the employment within 12
months before a Change of Control, in contemplation of such
Change of Control, and to avoid the effect of this Agreement
should such action occur after such Change of Control.
4. Severance Benefits. Subject to Paragraph 5, the Employee shall
receive the following Severance Benefits (in addition to accrued
compensation and vested benefits) if eligible under Paragraph 3:
-4-
(a) Employee's annual base salary at the rate in effect
immediately prior to the Change of Control or, if greater, at the
rate in effect at the time Notice of Termination is given (or on
the date the employment is terminated if no Notice of Termination
is required), multiplied by 3;
(b) One hundred percent of Employee's annual target bonus
under the Corporation's Annual Incentive Plan in effect at the
time Notice of Termination is given (or on the date the
employment is terminated if no Notice of Termination is required)
or, if greater, the average bonus paid to Employee over the
preceding 3-year period, multiplied by 3; and
(c) For a 3-year period after the date the employment is
terminated, the Corporation will arrange to provide to Employee
at the Corporation's expense, with:
(i) the same health care coverage Employee had prior
to the termination (or, if more favorable to Employee, that
furnished generally to salaried employees of the
Corporation) including, but not limited to, hospital,
surgical, medical, dental, and dependent coverages. Health
care benefits otherwise receivable by Employee pursuant to
this Paragraph 4(c) shall be reduced to the extent
comparable benefits are actually received by Employee from a
subsequent employer during the 3-year period following the
date the employment is terminated and any such benefits
actually received by Employee shall be reported to the
Corporation;
(ii) life and accidental death and dismemberment
insurance coverage (including supplemental coverage purchase
opportunity and double indemnity for accidental death) equal
(including policy terms) to that in effect at the time
Notice of Termination is given or, if more favorable to
Employee, equal to that in effect at the date the Change of
Control occurs; and
(iii) disability insurance coverage (including
policy terms) equal to that in effect at the time Notice of
Termination is given or, if more favorable to Employee,
equal to that in effect immediately prior to the Change of
Control; provided, however, that no income replacement
benefits will be payable under such disability policy with
regard to the 3-year period following a termination of
employment provided that the payments payable under
subparagraphs 4(a) and (b) above have been made.
(d) In computing and determining Severance Benefits under
subparagraphs 4(a), (b), and (c) above, a decrease in Employee's
-5-
salary, target bonus, or insurance benefits shall be disregarded
if such decrease occurs within 12 months before a Change of
Control, is in contemplation of such Change of Control, and is
taken to avoid the effect of this Agreement should such action be
taken after such Change of Control; in such event, the salary,
target bonus, and/or insurance benefits used to determine
Severance Benefits shall be that in effect immediately before the
decrease that is disregarded pursuant to this subparagraph 4(d).
(e) Employee shall not be required to mitigate the amount
of any payment provided for in this paragraph 4 by seeking other
employment or otherwise, nor shall the amount of any payment
provided for in this paragraph be reduced by any compensation
earned by Employee as the result of employment by another
employer after the date the employment is terminated, or
otherwise, with the exception of a reduction in health insurance
coverage as provided in subparagraph 4(c) (i).
The payments provided in subparagraphs 4(a) and (b) above shall
be made not later than 10 business days following the date the employment
terminates.
Any termination by the Corporation for Cause or due to Employee's
Disability, or by Employee for Good Reason shall be communicated by Notice
of Termination to the other party.
5. Maximum Payments. Notwithstanding any provision in this
Agreement to the contrary, if part or all of any amount to be paid to
Employee by the Corporation under this Agreement or otherwise constitute a
"parachute payment" (or payments) under Section 280G or any other similar
provision of the Internal Revenue Code of 1986, as amended (the "Code"),
the following limitation shall apply:
If the aggregate present value of such parachute payments
(the "Parachute Amount") exceeds 2.99 times Employee's "base
amount" as defined in Section 280G of the Code, and if as a
result the amounts otherwise payable to or for the benefit of the
Employee subsequent to the termination of his employment, and
taken into account in calculating the Parachute Amount (the
"termination payments"), shall be reduced and/or delayed, as
further described below, to the extent necessary so that the
Parachute Amount is equal to 2.99 times the Employee's "base
amount."
Any determination or calculation described in this Paragraph 5
shall be made by the Corporation's independent accountants. Such
determination, and any proposed reduction and/or delay in termination
payments shall be furnished in writing promptly by the accountants to the
Employee. The Employee may then elect, in his sole discretion, which and
how much of any particular termination payment shall be reduced and/or
-6-
delayed and shall advise the Corporation in writing of his election, within
30 days of the accountant's determination, of the reduction or delay in
termination payments. If no such election is made by the Employee within
such 30-day period, the Corporation may elect which and how much of any
termination payment shall be reduced and/or delayed and shall notify the
Employee promptly of such election. As promptly as practicable following
such determination and the elections hereunder, the Corporation shall pay
to or distribute to or for the benefit of the Employee such amounts as are
then due to the Employee.
Any disagreement regarding a reduction or delay in termination
payments will be subject to arbitration under Paragraph 16 of this
Agreement. Neither the Employee's designation of specific payments to be
reduced or delayed, nor the Employee's acceptance of reduced or delayed
payments, shall waive the Employee's right to contest such reduction or
delay.
6. Establishment of Trust. In the event of a Change of Control or a
Potential Change of Control, the Corporation shall create a Trust for the
benefit of Employee and shall fund such Trust in an amount equal to the
aggregate severance payments which may become due to Employee under
subparagraphs 4(a) and (b) of this Agreement. The Trust Agreement shall
provide that upon a Change of Control (i) the Trust shall not be revoked or
the principal thereof invaded, without the written consent of Employee;
(ii) the Trustee shall pay all amounts properly payable to Employee under
subparagraphs 4(a) and (b) of this Agreement when and as the same become
due and payable pursuant to the Agreement; and (iii) all unexpended funds
in such Trust shall revert to the Corporation upon such payment. The
trustee shall be a national or state bank (including an affiliate of the
Corporation) having a combined capital and surplus of not less than
$50,000,000, selected by the Corporation. Nothing in this paragraph shall
relieve the Corporation of any of its obligations under this Agreement,
except that actual disbursements from the Trust to an Employee in
satisfaction of payments under this Agreement will be applied to reduce the
Corporation's obligations under this Agreement, to the extent of such
disbursement. Any funds, including interest or investment earnings
thereon, remaining in the trust fund shall revert and be paid to the
Corporation if (i) a Change of Control has not occurred; and (ii) a court
of competent jurisdiction determines that the circumstances giving rise to
that particular funding of the Trust no longer exist. A copy of the Trust
Agreement is attached as Exhibit A to this Agreement and is incorporated by
reference herein.
Amounts placed in trust pursuant to this Paragraph 6 shall not be
subject to withdrawal by Employee and shall be paid to Employee only in
accordance with the terms of this Agreement. No amount placed in trust
pursuant to this Paragraph 6 shall be subject to assignment, transfer,
sale, pledge, encumbrance, alienation or charge by Employee or any
beneficiary. Any attempt to assign, transfer, sell, pledge, encumber,
alienate or charge any amount placed in trust hereunder shall be without
-7-
effect. Neither Employee, nor any beneficiary, nor any other person shall
be deemed to have, pursuant to this Agreement, any property interest, legal
or equitable, in any specific asset of the Corporation. Employee shall be
a general unsecured creditor with respect to the promises of the
Corporation made herein.
Notwithstanding any other provision of this Paragraph 6 to the
contrary, the Trust Agreement shall provide that the Board of Directors and
the Chief Executive Officer of the Corporation shall have the duty to
inform the Trustee of the Corporation's insolvency, which shall be deemed
to occur if the Corporation is unable to pay its debts as they come due or
if the Corporation becomes subject to a proceeding as a debtor under the
Federal Bankruptcy Code (or any successor federal statute). If the Trustee
receives notice of insolvency from the Corporation or receives from any
other person claiming to be a creditor of the Corporation a written
allegation that the Corporation is insolvent, the Trustee shall proceed as
provided in the Trust Agreement to independently determine whether such
insolvency exists, and shall suspend all benefit payments to Employees if
called for by the Trust Agreement. The Trustee shall have no obligation to
investigate the financial condition of the Corporation prior to receiving a
notice or allegation of insolvency. If the Trustee determines that the
Corporation is insolvent, the Trustee shall make available the amounts
placed in trust pursuant to this Paragraph 6 to satisfy claims of the
Corporation's general creditors, as provided in the Trust Agreement.
Employees shall have no greater rights than other general creditors of the
Corporation with respect to any funds held in trust pursuant to this
Paragraph 6. Following a determination of insolvency, the Trustee shall
resume payments to Employee (and shall pay any suspended benefits) upon
termination of Insolvency Administration, as provided in the Trust
Agreement, if and when it determines that the Corporation is again solvent.
7. Successors; Binding Agreements. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. Employees rights and benefits under
this Agreement may not be assigned, except that if Employee dies while any
amount would still be payable to Employee hereunder if Employee had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement, to the
beneficiaries designated by the Employee to receive benefits under this
Agreement in a writing on file with the Corporation at the time of the
Employee's death or, if there is no such beneficiary, to Employee's estate.
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all
of the business and/or assets of the Corporation (or of any division or
subsidiary thereof employing Employee) to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
-8-
Agreement and shall entitle Employee to compensation from the Corporation
in the same amount and on the same terms to which Employee would be
entitled hereunder if Employee terminated the employment for Good Reason
following a Change of Control.
8. Withholding of Taxes. The Corporation may withhold from any
amounts payable under this Agreement all federal, state, city, or other
taxes as required by law.
9. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt required, postage prepaid, addressed to the
respective addressees set forth on the first page of this Agreement, or at
such other addresses as the parties may designate in writing.
10. Miscellaneous. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is
agreed to in writing and signed by Employee and such officer as may be
specifically designated by the Board of Directors of the Corporation. The
validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of Michigan.
11. Employment Rights. This Agreement shall not confer upon Employee
any right to continue in the employ of the Corporation or its subsidiaries
and shall not in any way affect the right of the Corporation or its
subsidiaries to dismiss or otherwise terminate Employee's employment at any
time with or without cause.
12. No Vested Interest. Neither Employee nor Employee's beneficiary
shall have any right, title, or interest in any benefit under this
Agreement prior to the occurrence of the right to the payment thereof, or
in any property of the Corporation or its subsidiaries or affiliates.
13. Prior Agreements. This Agreement contains the understanding
between the parties hereto with respect to severance benefits in connection
with a Change of Control of the Corporation and supersedes any such prior
agreement between the Corporation (or any predecessor of the Corporation)
and Employee. If there is any discrepancy or conflict between this
Agreement and any plan, policy, or program of the Corporation regarding any
term or condition of severance benefits in connection with a Change of
Control of the Corporation, the language of this Agreement shall govern.
-9-
14. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
16. Arbitration. The sole and exclusive method for resolving any
dispute arising out of this Agreement shall be arbitration in accordance
with this paragraph. Except as provided otherwise in this paragraph,
arbitration pursuant to this paragraph shall be governed by the Commercial
Arbitration Rules of the American Arbitration Association. A party wishing
to obtain arbitration of an issue shall deliver written notice to the other
party, including a description of the issue to be arbitrated. Within 15
days after either party demands arbitration, the Corporation and the
Employee shall each appoint an arbitrator. Within 15 additional days,
these two arbitrators shall appoint the third arbitrator by mutual
agreement; if they fail to agree within said 15-day period, then the third
arbitrator shall be selected promptly pursuant to the rules of the American
Arbitration Association for Commercial Arbitration. The arbitration panel
shall hold a hearing in Kent County, Michigan, within 90 days after the
appointment of the third arbitrator. The fees and expenses of the
arbitrator, and any American Arbitration Association fees, shall be paid by
the Corporation. Both the Corporation and the Employee may be represented
by counsel and may present testimony and other evidence at the hearing.
Within 90 days after commencement of the hearing, the arbitration panel
will issue a written decision; the majority vote of two of the three
arbitrators shall control. The majority decision of the arbitrators shall
be final and binding on the parties, and shall be enforceable in accordance
with law. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The Employee shall be entitled to seek specific
performances of his rights under this Agreement during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
The Corporation will reimburse Employee for all reasonable attorney fees
incurred by Employee as the result of any arbitration with regard to any
issue under this Agreement (or any judicial proceeding to compel or to
enforce such arbitration): (i) which is initiated by Employee if the
Corporation is found in such proceeding to have violated this Agreement
substantially as alleged by Employee; or (ii) which is initiated by the
Corporation, unless Employee is found in such proceeding to have violated
this Agreement substantially as alleged by the Corporation.
-10-
IN WITNESS WHEREOF, the parties have signed this Agreement as of
the day and year written above.
OLD KENT FINANCIAL
CORPORATION
By __________________________________________
Its Executive Vice President
"Corporation"
_____________________________________________
"Employee"
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EXHIBIT 10(n)
OLD KENT DIRECTORS'
DEFERRED COMPENSATION PLAN
Warner, Norcross & Judd
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2489
OLD KENT
DIRECTORS' DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Page
ARTICLE 1 - Establishment of Plan. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Establishment of Plan. . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Establishment of Trust . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Application to Former Participants . . . . . . . . . . . . . . . . 1
ARTICLE 2 - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Agent for Service of Process . . . . . . . . . . . . . . . . . . . 3
2.4 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Community Bank Director. . . . . . . . . . . . . . . . . . . . . . 3
2.6 Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Director's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Old Kent Thrift Plan . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Surviving Spouse . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Valuation Period . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 - Participation. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Designation as Participant . . . . . . . . . . . . . . . . . . . . 5
3.2 Termination of Participation . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 - Director's Deferrals . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Deferral of Director's Fees. . . . . . . . . . . . . . . . . . . . 6
4.2 Prior Irrevocable Election . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 - Accounting; Earnings Credits . . . . . . . . . . . . . . . . . . 6
5.1 Accounting Records . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Timing of Deferrals. . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Earnings Credits and Debits. . . . . . . . . . . . . . . . . . . . 7
5.4 Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-i-
ARTICLE 6 - Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 7 - Payments to Participants . . . . . . . . . . . . . . . . . . . . 9
7.1 Event of Distribution. . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Form of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Amount of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Manner of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 10
7.5 Time of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.6 Death. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 8 - General Provisions . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . 11
8.2 Rights Not Assignable. . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Unsecured Creditor Status. . . . . . . . . . . . . . . . . . . . . 12
8.4 No Trust or Fiduciary Relationship . . . . . . . . . . . . . . . . 12
8.5 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7 Unfunded Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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OLD KENT
DIRECTORS' DEFERRED COMPENSATION PLAN
ARTICLE 1
Establishment of Plan
1.1 Establishment of Plan.
Old Kent Financial Corporation ("OKFC") hereby amends and restates the
Old Kent Directors' Deferred Compensation Plan, a supplemental nonqualified
deferred compensation plan for the nonemployee directors of OKFC and any
subsidiary of OKFC and related Community Bank Directors as defined herein.
This plan shall be an unfunded plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
1.2 Establishment of Trust.
Simultaneously with restatement of the Old Kent Directors' Deferred
Compensation Plan, OKFC is amending and restating the Old Kent Financial
Corporation Directors' Deferred Compensation Trust ("Trust"). As restated,
the Trust will conform to the terms of the model trust described in Revenue
Procedure 92-64.
1.3 Effective Date.
The "Effective Date" of this restatement is January 19, 1993. The
provisions of Section 5.4, pursuant to which Directors of OKFC may elect
earnings credits based on the Old Kent Common Stock Fund, shall be
effective on the issuance by the Internal Revenue Service of a new or
supplemental private letter ruling containing the tax rulings requested by
OKFC with respect to the restated plan and the Trust. Each plan provision
applies until the effective date of an amendment of that provision.
1.4 Application to Former Participants.
Except to the extent it amends a provision of the plan that applies to
former Participants or expressly states that it is applicable to former
Participants, an amendment to this plan (including changes included in any
restatement of the plan) shall not apply to a former Participant.
ARTICLE 2
Definitions
2.1 Defined Terms.
Defined terms are found at the following locations:
<TABLE>
<CAPTION>
Term Location
<S> <C> <C>
Administrator 2.2
Agent for Service of Process 2.3
Beneficiary 2.4
Community Bank Director 2.5
Director 2.6
Director's Fees 2.7
Effective Date 1.3
Employer 2.8
ERISA 1.1
OKFC 1.1
Old Kent Thrift Plan 2.9
Participant 3.1
Plan Year 2.10
Spouse 2.11
Surviving Spouse 2.12
Trust 1.2
Valuation Date 2.13
Valuation Period 2.14
</TABLE>
2.2 Administrator.
"Administrator" means OKFC.
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2.3 Agent for Service of Process.
"Agent for Service of Process" means the Administrator or the
individual designated by the Administrator.
2.4 Beneficiary.
"Beneficiary" means the individual, trust or other entity designated
by the Participant to receive any benefits payable under this plan after
the Participant's death. A Participant may designate or change a
Beneficiary by filing a signed designation with the Administrator in a form
approved by the Administrator. The Participant's Will is not effective for
this purpose.
If a designation has not been properly completed and filed with the
Administrator or is ineffective for any other reason, the Beneficiary shall
be the Participant's Surviving Spouse. If there is no effective
designation and the Participant does not have a Surviving Spouse, the
remaining benefits, if any, shall be paid to the Participant's estate.
2.5 Community Bank Director.
"Community Bank Director" means any individual who serves as a member
of a Community Bank Board of OKFC or any subsidiary of OKFC and who is not
an employee of the Employer. "Community Bank Board" means a board or panel
of persons who are appointed or elected to serve a branch bank or separate
banking location in an advisory and community liaison capacity.
2.6 Director.
"Director" means any individual who serves as a member of the Board of
Directors of OKFC or any subsidiary of OKFC and who is not an employee of
the Employer.
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2.7 Director's Fees.
"Director's Fees" means the amount of the income payable to a
Participant for service as a Director or a Community Bank Director
including, without limitation, annual retainers and payments for meetings
of the Board of Directors or the Community Bank Board and meetings of
committees of the Board of Directors or the Community Bank Board.
2.8 Employer.
"Employer" means OKFC and any subsidiary of OKFC, collectively or
individually as the context infers.
2.9 Old Kent Thrift Plan.
"Old Kent Thrift Plan" means the qualified, tax-exempt defined
contribution plan established and maintained by OKFC under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended.
2.10 Plan Year.
"Plan Year" means the 12-month period beginning each January 1.
2.11 Spouse.
"Spouse" means the husband or wife to whom the Participant is married
on the date the benefit is scheduled to be paid, or payment is scheduled to
begin. The legal existence of the spousal relationship shall be governed
by the law of the state or other jurisdiction of domicile of the
Participant.
2.12 Surviving Spouse.
"Surviving Spouse" means the Spouse of the Participant at the time of
the Participant's death who survives the Participant. If the Participant
and Spouse die under circumstances which prevent ascertainment of the order
of their deaths, it shall be presumed for this plan that the Participant
survived the Spouse.
2.13 Valuation Date.
"Valuation Date" means the last day of March, June, September and
December.
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2.14 Valuation Period.
"Valuation Period" means any quarterly period of three months ending
with the specified Valuation Date.
ARTICLE 3
Participation
3.1 Designation as Participant.
A Director or a Community Bank Director shall be eligible to become a
Participant ("Participant") on the first day of the individual's term as a
Director or as a Community Bank Director. However, a Director or a
Community Bank Director shall be an eligible Participant only if (1) the
Director or Community Bank Director is a resident of Illinois, Michigan, or
any other state designated by OKFC for this purpose and (2) the Director's
or Community Bank Director's Employer has adopted this plan. Adoption of
this plan by another employer shall be effective as of the date approved
and specified in resolutions by OKFC and by the adopting employer.
Adoption of this plan by an employer other than OKFC shall not create a
separate plan. Each new Participant must complete the deferral and
election requirements specified in Articles 4 and 7.
3.2 Termination of Participation.
A Participant's status as a Participant shall continue until the
Participant (1) ceases to be a Director or a Community Bank Director for
any reason or (2) is suspended or terminated from participation in the
plan. Participation in the plan may be suspended or terminated at any time
by action of the Personnel Committee of OKFC taken with or without a
meeting. If participation in the plan is suspended or terminated, deferral
credits shall cease but earnings credits shall continue to accrue until all
amounts due hereunder have been paid in full pursuant to Article 7.
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ARTICLE 4
Director's Deferrals
4.1 Deferral of Director's Fees.
A Participant may elect to defer payment of all or any portion of
Director's Fees for a Plan Year. For each amount deferred, the Participant
shall be credited with a corresponding dollar amount to be paid under this
plan as deferred compensation for the Participant.
4.2 Prior Irrevocable Election.
The election to defer Director's Fees shall be made by the Participant
on a form provided for that purpose prior to the beginning of a Plan Year
and shall become irrevocable for each Plan Year thereafter as of the
beginning of each Plan Year. The deferral election shall continue in
effect for each Plan Year until revoked or modified for a subsequent Plan
Year by the Participant. The deferral shall be applicable to Director's
Fees earned in each Plan Year. A new Participant may make an initial
irrevocable election to defer Director's Fees during the first 30 days of
eligibility to participate and such election shall apply only to Director's
Fees earned following the date of the election. If a new Participant does
not make an election during this 30 day period, the Participant may not
make an election effective earlier than the beginning of the next Plan
Year. The Participant shall have no claim or right to payment of the
amounts deferred and shall be limited solely to the rights and benefits
conferred under the terms of this plan. In no event shall an election to
defer Director's Fees become effective sooner than the date of the written,
irrevocable election.
ARTICLE 5
Accounting; Earnings Credits
5.1 Accounting Records.
The Administrator shall maintain separate accounting records for each
Participant. An accounting record shall be maintained for and credited
with the Participant's deferrals plus the earnings credits on the deferrals
described below.
The Administrator shall provide each Participant with a written
accounting reflecting the valuation of the Participant's account, at least
annually. If the Participant does not object to the account within 60 days
-6-
after receipt, the account shall be deemed final and binding on all
parties.
5.2 Timing of Deferrals.
Deferrals shall be credited to the Participant's account as of the
beginning of the Valuation Period in which the Director's Fees would have
been payable to the Participant if the Participant had not made a deferral
election.
5.3 Earnings Credits and Debits.
The amount credited to a Participant's account (including prior
earnings credits) as of the beginning of each Valuation Period also shall
be credited with an earnings credit or debit for such Valuation Period.
The amount of the earnings credit shall be an adjustment on the Valuation
Date equal to the increase or decrease which would have occurred if the
value of the account as of the beginning of the Valuation Period, reduced
by the amount of any distribution during the Valuation Period, had been
invested in the fund or funds chosen by the Participant under Section 5.4
to be the investment reference for that Valuation Period. Values with
respect to each individual fund designated under Section 5.4 shall be
determined in the manner specified in or otherwise utilized for that
particular fund.
Earnings credits shall continue to accrue after a Participant's term
has expired and until all amounts due hereunder have been paid in full.
Earnings credits shall not apply to amounts paid during a Valuation Period.
5.4 Funds.
Earnings credits shall be measured and determined, as provided in
Section 5.3, under the following rules:
(a) Choices. Each Participant may direct that the Participant's
account be treated as if invested at the beginning of each Valuation
Period, to the extent directed by the Participant, in one or more specific
funds among those designated by OKFC as available investment references for
this purpose. The available funds shall be chosen by OKFC from actual
mutual funds and investment funds maintained under the Old Kent Thrift Plan
or similar funds. The Old Kent Common Stock Fund maintained under the Old
Kent Thrift Plan shall be one of the funds designated by OKFC as an
available investment reference for Directors of OKFC, as long as the Old
Kent Common Stock Fund exists. The Old Kent Common Stock Fund shall not be
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an available investment reference for a Director or a Community Bank
Director of a subsidiary of OKFC. OKFC may, in its sole discretion, change
the other designated funds as of the beginning of any Plan Year or at any
other time. OKFC at all times shall designate at least three funds as
available investment references. The fund or funds designated by each
Participant from the choices made available by OKFC shall constitute
hypothetical investments only, by which earnings credits shall be measured
as specified in Section 5.3, and shall not require actual investments by
OKFC or the Trust to any extent whatsoever.
(b) Frequency. A Participant may change a direction with respect to
existing account balances and with respect to future deferrals as of the
first day of any Valuation Period. Any change in the investment reference
by the Participant shall be effective not earlier than the first day of the
next Valuation Period following the date on which the change is made.
(c) Written Direction. The direction shall be made by the
Participant on a form provided for that purpose at least 30 days prior to
the first day of the Valuation Period for which it is to be effective. A
direction shall be effective on the first day of the next Valuation Period
only when signed by the Participant and filed with the Administrator, and
the direction shall continue to be in effect until it is revoked or
modified in the same manner. A Participant who is an OKFC Director and who
is subject to section 16(b) of the Securities Exchange Act of 1934 must make a
written irrevocable direction or change of direction at least six months in
advance of the effective date of any increase or decrease in the extent to
which such Participant's earnings credits will be measured by the Old Kent
Common Stock Fund.
(d) No Written Direction. In the absence of written direction by a
Participant, the Savings Fund under the Old Kent Thrift Plan shall be used
as the investment reference for the Participant's account under this plan.
(e) Additional Terms and Conditions. The Administrator may formulate
additional terms and conditions for direction by the Participant as
necessary or appropriate.
ARTICLE 6
Vesting
The right to be paid an amount equal to the deferrals in the
Participant's account, including earnings credits in the account, shall not
be subject to forfeiture for any reason.
-8-
ARTICLE 7
Payments to Participants
7.1 Event of Distribution.
If the Participant ceases to be a Director or a Community Bank
Director for any reason, all amounts credited to the Participant shall be
distributed at the time and in the manner specified herein.
7.2 Form of Payment.
At the time of the initial irrevocable election to defer Director's
Fees under this plan, each Participant shall irrevocably elect a form of
payment. The following forms of payment may be elected by a Participant:
(a) Lump Sum. A single lump-sum payment of the entire amount
promised under this plan, or
(b) Installments. Payment of the entire amount promised under this
plan in not more than 10 annual installments.
If the total amount to be distributed does not exceed $3,500, the
Participant shall be paid a lump-sum payment under (a) above.
If the Participant fails to make an election of a form of payment in
the initial election, the Participant shall be paid a lump-sum payment.
7.3 Amount of Payment.
The Participant shall be paid an amount which is the sum of the
deferrals in the Participant's account plus the earnings credits in the
Participant's account. The amount to be distributed shall be determined as
follows:
(a) Lump Sum. For a lump sum distribution, the total amount to be
distributed shall be determined as of the Valuation Date preceding the date
of payment.
(b) Installments. If payment is in installments, the initial amount
to be distributed shall be the total amount due as of the most recent
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Valuation Date preceding the initial payment divided by the number of
installment payments elected. Future installments shall be determined by
dividing the total amount remaining unpaid as of the most recent Valuation
Date preceding the date of payment by the remaining number of annual
installment payments.
With respect to a lump-sum payment or each installment payment, there
shall be no earnings credit or other adjustment, for the period from the
Valuation Date preceding the date of payment to the date of payment.
7.4 Manner of Payment.
Payments shall be paid to the Participant or Beneficiary wholly in
cash directly by the Employer or from the Trust. Payments for a Director
of OKFC may be paid wholly in cash or OKFC common stock or any combination
thereof, as determined by OKFC. The Employer shall not be relieved of its
obligation and liability to pay the benefits of this plan except to the
extent payments are actually made from the Trust.
7.5 Time of Payment.
A lump-sum payment or an initial installment payment shall be made on
March 1 following the end of the calendar year in which the Participant
ceases to be a Director or a Community Bank Director. Later installment
payments shall be made on March 1 following the end of each subsequent
calendar year until the total amount to be distributed under this plan is
distributed.
7.6 Death.
(a) Payment to Beneficiary. If the Participant dies prior to payment
of all amounts due under this plan, payment of all remaining amounts shall
be made to the Participant's Beneficiary. Payments to a Beneficiary
following a Participant's death shall be in the form elected by the
Participant and shall be made or shall begin on the date specified in
Section 7.5. At the time of the initial irrevocable election to defer
Director's Fees, the Participant may designate a form of payment following
the Participant's death which is different from the form of payment during
the Participant's lifetime.
(b) Payment to Estate. If payment is to be made to the estate of a
Participant, payment shall be made in a lump sum 90 days after the date of
the Participant's death.
-10-
(c) Generation-Skipping Transfer Tax. Notwithstanding any other
provision in this plan or any related trust agreement, the Employer may
withhold or direct the trustee to withhold any benefits payable to a
Beneficiary as a result of the death of a Participant or any other
Beneficiary until it can be determined whether a generation-skipping
transfer tax, as defined in Chapter 13 of the Code, or any substitute
provision therefor, is payable by the Employer or the trustee and the
amount of generation-skipping transfer tax, including interest, that is
due. If such tax is payable, the benefits otherwise payable hereunder
shall be reduced by an amount equal to the generation-skipping transfer tax
and interest. Any benefits withheld shall be payable as soon as there is a
final determination of the applicable generation-skipping transfer tax and
interest. No interest shall be payable to any Beneficiary for the period
from the date of death to the time when the amount of benefits payable to a
Beneficiary can be fully determined pursuant to this paragraph.
ARTICLE 8
General Provisions
8.1 Amendment; Termination.
OKFC reserves the right to amend this plan prospectively or
retroactively, or to terminate this plan, provided that an amendment or
termination may not reduce or revoke the accrued amounts promised to be
paid to Participants as of the later of the date of adoption of the
amendment or the effective date of the amendment or termination.
Upon termination of this plan, the accounts of affected Participants
shall be administered and distributed in accordance with the provisions of
this plan.
8.2 Rights Not Assignable.
Except for designation of a Beneficiary, amounts promised hereunder
shall not be subject to assignment, conveyance, transfer, anticipation,
pledge, alienation, sale, encumbrance, or charge, whether voluntary or
involuntary, by the Participant or any Beneficiary of the Participant, even
if directed under a qualified domestic relations order or other divorce
order. An interest in an amount promised shall not provide collateral or
security for a debt of a Participant or Beneficiary or be subject to
garnishment, execution, assignment, levy, or to another form of judicial or
administrative process or to the claim of a creditor of a Participant or
Beneficiary, through legal process or otherwise. Any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or
-11-
to otherwise dispose of benefits payable, before actual receipt of the
benefits, or a right to receive benefits, shall be void and shall not be
recognized.
8.3 Unsecured Creditor Status.
A Participant shall be an unsecured general creditor of the Employer
as to the payment of any benefit under this plan. The right of any
Participant or Beneficiary to be paid the amount promised in this plan
shall be no greater than the right of any other general, unsecured creditor
of the Employer.
8.4 No Trust or Fiduciary Relationship.
Nothing contained in this plan shall be deemed to create a trust or
fiduciary relationship of any kind for the benefit of any Participant or
Beneficiary.
8.5 Construction.
The singular includes the plural, and the plural includes the
singular, unless the context clearly indicates the contrary. Capitalized
terms (except those at the beginning of a sentence or part of a heading)
have the meaning specified in this plan. If a capitalized term is not
defined in this plan, the term shall have the general, accepted meaning of
the term.
8.6 Disputes.
In the event that a dispute arises regarding the eligibility to
participate in the plan or any other matter relating to plan participation,
such dispute shall be made to the plan Administrator. The determination by
the plan Administrator with respect to such disputes shall be final and
binding on all parties.
In the event that a dispute arises regarding the amount of any benefit
payment under this plan that is not related to Participant eligibility
disputes, the Personnel Committee of OKFC may appoint a qualified
independent certified public accountant to determine the amount of payment
and such determination shall be final and binding on all parties.
-12-
8.7 Unfunded Plan.
This shall be an unfunded plan within the meaning of ERISA. Benefits
provided herein constitute only an unsecured contractual promise to pay in
accordance with the terms of this plan by the Employer.
-13-
OLD KENT FINANCIAL CORPORATION
DIRECTORS' DEFERRED COMPENSATION TRUST
Warner, Norcross & Judd
900 Old Kent Building
111 Lyon, N.W.
Grand Rapids, Michigan 49503-2478
OLD KENT FINANCIAL CORPORATION
DIRECTORS' DEFERRED COMPENSATION TRUST
TABLE OF CONTENTS
Page
Section 1 - Establishment Of Trust. . . . . . . . . . . . . . . . . . . . . 1
Section 2 - Payments to Plan Participants and Their Beneficiaries . . . . . 2
Section 3 - Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent . . . . . . . . . . . . 3
Section 4 - Payments to Company . . . . . . . . . . . . . . . . . . . . . . 5
Section 5 - Investment Authority. . . . . . . . . . . . . . . . . . . . . . 5
Section 6 - Disposition of Income . . . . . . . . . . . . . . . . . . . . . 6
Section 7 - Accounting by Trustee . . . . . . . . . . . . . . . . . . . . . 6
Section 8 - Responsibility of Trustee . . . . . . . . . . . . . . . . . . . 7
Section 9 - Compensation and Expenses of Trustee. . . . . . . . . . . . . . 8
Section 10 - Resignation and Removal of Trustee. . . . . . . . . . . . . . . 8
Section 11 - Appointment of Successor. . . . . . . . . . . . . . . . . . . . 9
Section 12 - Amendment or Termination. . . . . . . . . . . . . . . . . . . . 9
Section 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 14 - Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . 11
OLD KENT FINANCIAL CORPORATION
DIRECTORS' DEFERRED COMPENSATION TRUST
This Agreement is made this 11th day of October, 1994,
between Old Kent Financial Corporation, a Michigan corporation ("Company"),
and Old Kent Bank and Trust Company ("Trustee").
WHEREAS, Company adopted the Old Kent Directors' Deferred
Compensation Trust, effective as of February 15, 1991 ("Trust"), pursuant
to the Old Kent Directors' Deferred Compensation Plan ("Plan") for the
benefit of nonemployee directors of the Company and its subsidiaries;
WHEREAS, Company has incurred or expects to incur liability under
the terms of the Plan with respect to the individuals participating in the
Plan;
WHEREAS, Company wishes to amend and restate the Trust to permit
investment in shares of common stock of the Company for the nonemployee
directors of the Company, and to continue to provide that Trust assets
shall be held therein, subject to the claims of creditors of a
Participating Employer in the event of Insolvency, as herein defined, until
paid to Plan participants and their beneficiaries in such manner and at
such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for eligible members of the board of directors of the Company
and its subsidiaries for purposes of Title I of the Employee Retirement
Income Security Act of 1974;
WHEREAS, it is the intention of each Participating Employer to
make contributions to the Trust to provide a source of funds to assist in
meeting its liabilities under the Plan;
NOW, THEREFORE, the Company hereby amends and restates the Trust
for the purposes of (i) creating separate subtrusts for each Participating
Employer; (ii) providing the Trustee with authority to invest assets of the
subtrust for the Company in Company stock; and (iii) conforming the Trust
to the model trust provisions of Revenue Procedure 92-64 issued by the
Internal Revenue Service. The parties agree that the Trust shall be
comprised, held and disposed of as follows:
Section 1. Establishment Of Trust.
(a) Assets previously deposited with Trustee for the
benefit of Plan participants shall continue to be held,
administered and disposed of by Trustee as provided in this Trust
Agreement.
(b) The Trust became irrevocable upon the issuance of a
favorable private letter ruling dated January 25, 1991, regarding
the Trust from the Internal Revenue Service.
(c) The Trust is intended to be a multiple grantor trust,
of which Company and any subsidiary of Company that has adopted
the Plan and joined in the Trust ("Participating Employers") are
the grantors, within the meaning of subpart E, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly. A subsidiary of
Company shall become a grantor as of the date approved and
specified in resolutions by Company and by the subsidiary.
(d) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of the
Participating Employers and shall be used exclusively for the
uses and purposes of Plan participants and general creditors as
herein set forth. Plan participants and their beneficiaries
shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under
the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries
against the Participating Employers. Any assets held by the
Trust will be subject to the claims of general creditors of any
Participating Employer under federal and state law in the event
of Insolvency, as defined in Section 3(a) herein.
(e) The Participating Employers, in their sole discretion,
may at any time, or from time to time, make additional deposits
of cash or other property in trust with Trustee to augment the
principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan
participant or beneficiary shall have any right to compel such
additional deposits.
(f) A separate subtrust shall be established for each
Participating Employer. Assets of the Trust shall be allocated
among the subtrusts in proportion to the account balances
maintained for the Plan participants of each Participating
Employer or as contributed by or with respect to each
Participating Employer. Each subtrust shall reflect an undivided
interest in assets of the Trust and shall not require any actual
segregation or separate investment of particular assets.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) Company shall, from time to time, deliver to Trustee
schedules (the "Payment Schedules") that indicate the amounts
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payable in respect of each Plan participant (and his or her
beneficiaries), or a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which
such amount is to be paid (as provided for or available under the
Plan), and the time of commencement for payment of such amounts.
Except as otherwise provided herein, Trustee shall make payments
to the Plan participants and their beneficiaries in accordance
with the Payment Schedules. The Trustee shall make provision for
the reporting and withholding of any federal, state or local
taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Plan and shall
pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid
by a Participating Employer.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan shall be determined by
Company or such party as it shall designate under the Plan, and
any claim for such benefits shall be considered and reviewed
under the procedures set out in the Plan.
(c) Payments to a Plan participant from the Trust shall be
charged to and made from the subtrust established for the
Participating Employer of the participant. Assets allocated to a
subtrust for a Participating Employer may not be utilized to
provide benefits for participants of any other Participating
Employer.
(d) A Participating Employer may make payment of benefits
directly to Plan participants or their beneficiaries as they
become due under the terms of the Plan. The Participating
Employer shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to
participants or their beneficiaries. In addition, if the
principal of the applicable subtrust, and any earnings thereon,
are not sufficient to make payments of benefits in accordance
with the terms of the Plan, the Participating Employer shall make
the balance of each such payment as it falls due. Trustee shall
notify Company where principal and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan partici-
pants and their beneficiaries if a Participating Employer is Insol-
vent. A Participating Employer shall be considered "Insolvent" for
purposes of this Trust Agreement if the Participating Employer is (i)
unable to pay its debts as they become due, or (ii) subject to a
pending proceeding as a debtor under the United States Bankruptcy Code,
or (iii) determined to be insolvent by any federal or state financial
institution regulatory agency that has jurisdiction over such
determination with respect to the Participating Employer.
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(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the
Trust shall be subject to claims of general creditors of any
Participating Employer under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer
of Company and the Board of Directors and the Chief Executive
Officer of the Participating Employer shall have the duty to
inform Trustee in writing of the Participating Employer's
Insolvency. If a person claiming to be a creditor of a
Participating Employer alleges in writing to Trustee that the
Participating Employer has become Insolvent, Trustee shall
determine whether the Participating Employer is Insolvent and,
pending such determination, Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of a Participating
Employer's Insolvency, or has received notice from a
Participating Employer or a person claiming to be a creditor
alleging that the Participating Employer is Insolvent, Trustee
shall have no duty to inquire whether the Participating Employer
is Insolvent. Trustee may in all events rely on such evidence
concerning the Participating Employer's solvency as may be
furnished to Trustee and that provides Trustee with a reasonable
basis for making a determination concerning the Participating
Employer's solvency.
(3) If at any time Trustee has determined that a
Participating Employer is Insolvent, Trustee shall discontinue
payments to Plan participants or their beneficiaries of that
Participating Employer and shall hold the assets of the subtrust
for the benefit of the Participating Employer's general
creditors, except that the Trustee shall make payments out of the
Trust fund in only one or more of the following ways: (i) To
general creditors in accordance with instructions from a court,
or a person appointed by a court, having jurisdiction over the
Participating Employer's condition of Insolvency; (ii) To Plan
participants and beneficiaries in accordance with such
instructions; and (iii) In payment of its own fees or expenses.
Payments to general creditors or of fees and expenses of Trustee
shall be charged against the affected subtrust. Nothing in this
Trust Agreement shall in any way diminish any rights of Plan
participants or their beneficiaries to pursue their rights as
general creditors of the Participating Employers with respect to
benefits due under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2
of this Trust Agreement only after Trustee has determined that
the Participating Employer is not Insolvent (or is no longer
Insolvent).
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(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the subtrust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include the
aggregate amount of all payments due to Plan participants or
their beneficiaries under the terms of the Plan for the period of
such discontinuance, less the aggregate amount of any payments
made to Plan participants or their beneficiaries by a
Participating Employer in lieu of the payments provided for
hereunder during any such period of discontinuance.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has
become irrevocable, the Participating Employers shall have no right or
power to direct Trustee to return to any Participating Employer or to
divert to others any of the Trust assets before all benefits have been paid
in full to Plan participants and their beneficiaries pursuant to the terms
of the Plan.
Section 5. Investment Authority.
(a) When directed by the Company, Trustee may invest the
subtrust for the Company in or retain securities (including stock
or rights to acquire stock) or obligations issued by Company.
The Company expressly waives any diversification of investments
that might otherwise be necessary, appropriate, or required under
the laws of the State of Michigan or any other applicable state
or federal law. All rights associated with assets of the Trust
shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with
Plan participants.
(b) Except as provided in (a), the Trustee may commingle
the assets of each subtrust for investment and may invest and
reinvest the assets of the Trust, as the Trustee, in its sole
discretion, may deem appropriate, including, without limitation,
improved and unimproved real property (whether or not income
producing); other common and preferred stocks; shares or
certificates of participation issued by investment companies;
investment trusts and mutual funds; common or pooled investment
funds; bonds; debentures; mortgages; deeds of trust; insurance
and annuity contracts; notes secured by real or personal
property; leases; ground leases; limited partnership interests;
real or personal property interests owned, developed, or managed
by joint ventures or limited partnerships; obligations of
governmental bodies, both domestic and foreign; notes, commercial
paper, certificates of deposit, and other securities or evidences
of indebtedness, secured or unsecured, including variable amount
notes, convertible securities of all types and kinds, interest-
bearing savings or deposit accounts with any federally insured
bank (including the Trustee) or any federally insured savings and
-5-
loan association; and any other property permitted as trust
investments under applicable law. Such investments may also
include shares of investment companies to which Trustee or an
affiliate of Trustee serves as investment adviser, dealer,
transfer agent, custodian or has other business or contractual
relationship. The Trustee is authorized to invest in any common
or pooled investment fund or mutual fund now or hereafter
maintained or advised by the Trustee and any interest-bearing
savings or deposit accounts with the banking department of the
Trustee.
(c) Company shall have the right at any time, and from time
to time in its sole discretion, to substitute assets of equal
fair market value for any asset held by the subtrust for the
Company. This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in a
fiduciary capacity.
Section 6. Disposition of Income.
(a) During the term of this Trust, all income received by
the Trust, including all interest revenue and dividends, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by Trustee.
(a) Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be
agreed upon in writing between Company and Trustee with respect
to the Trust and each subtrust. As soon as reasonably
practicable following the close of each calendar year or after
the removal or resignation of Trustee, Trustee shall deliver to
each Participating Employer a written account of its
administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such
removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued
interest paid or receivable being shown separately), and showing
all cash, securities and other property held in the Trust, and
the proportionate share of each subtrust, at the end of such year
or as of the date of such removal or resignation, as the case may
be.
(b) A Participating Employer may object to an accounting
within 180 days after it is furnished and require that it be
settled by audit by a qualified, independent certified public
accountant. The auditor shall be chosen by the Trustee from a
list of at least three such accountants furnished by the
Participating Employer at the time the audit is requested.
-6-
Either the Participating Employer or the Trustee may require that
the account be settled by a court of competent jurisdiction, in
lieu of or in conjunction with the audit. All expenses of any
audit or court proceedings, including reasonable attorney fees,
shall be allowed as administrative expenses of the Trust.
(c) If a Participating Employer does not object to an
accounting within the time provided, the account shall be settled
for the period covered by it. When an account is settled, it
shall be final and binding on all parties.
(d) Based on information provided by the Participating
Employers, Trustee shall maintain a separate account for each
Plan participant to which it shall credit deferrals and
accumulated earnings in accordance with the Plan for that
participant. The account shall be a recordkeeping account only
and shall reflect an undivided contingent interest in assets of
the subtrust and shall not require any actual segregation or
separate investment of particular assets.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and
with like aims, provided, however, that Trustee shall incur no
liability to any person for any action taken pursuant to a
direction, request or approval given by Company which is
contemplated by, and in conformity with, the terms of the Plan or
this Trust and is given in writing by Company. In the event of a
dispute between Company and a party, Trustee may apply to a court
of competent jurisdiction to resolve the dispute.
(b) Subject to such limitations as may be imposed by
applicable law, Company shall indemnify and hold harmless the
Trustee from any claims, loss, liability, or expense arising from
any action or inaction in administration of this Trust based on
direction or information from either Company, or any expert,
absent willful misconduct or bad faith. The Trustee need not
give any bond or other security for performance of its duties
under this Trust. If Trustee undertakes or defends any litiga-
tion arising in connection with this Trust, Company agrees to
indemnify Trustee against Trustee's costs, expenses and liabilities
including, without limitation, attorneys' fees and expenses) relating
thereto and to be primarily liable for such payments. If Company does
not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties
or obligations hereunder.
-7-
(d) Trustee may hire agents, accountants, actuaries,
investment advisers, financial consultants or other professionals
to assist it in performing any of its duties or obligations
hereunder.
(e) Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly
provided otherwise herein, provided, however, that if an
insurance policy is held as an asset of the Trust, Trustee shall
have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or
to loan to any person the proceeds of any borrowing against such
policy.
(f) However, notwithstanding the provisions of Section 8(e)
above, Trustee may loan to Company the proceeds of any borrowing
against an insurance policy held as an asset of the Trust.
(g) Notwithstanding any powers granted to Trustee pursuant
to this Trust Agreement or to applicable law, Trustee shall not
have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom, within
the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
Section 9. Compensation and Expenses of Trustee.
Company shall pay all reasonable administrative and Trustee's
fees and expenses. If not so paid, the fees and expenses shall be paid
from the Trust and shall be charged proportionately against all subtrusts.
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 60 days after receipt of such
notice unless Company and Trustee agree otherwise.
(b) Trustee may be removed by Company on 60 days notice or
upon shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment
of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within 60 days after receipt of notice of resignation,
removal or transfer, unless Company extends the time limit.
-8-
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective
date of resignation or removal under paragraphs (a) or (b) of
this section. If no such appointment has been made, Trustee may
apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative
expenses of the Trust.
(e) A Trustee who resigns or is removed shall submit a
final accounting to Company as soon as practicable. The
accounting shall be received and settled as provided in Section 7
hereof.
(f) No resignation or removal of the Trustee or change in
identity of the Trustee for any reason shall cause a termination
of this Trust.
Section 11. Appointment of Successor.
(a) If Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, Company may appoint any third party,
such as a bank trust department or other party that may be
granted corporate trustee powers under state law, as a successor
to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The
former Trustee shall execute any instrument necessary or
reasonably requested by Company or the successor Trustee to
evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing
Trust assets, subject to Sections 7 and 8 hereof. The successor
Trustee shall not be responsible for and Company shall indemnify
and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the time
it becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the
Plan or shall make the Trust revocable after it has become
irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which
Plan participants and their beneficiaries are no longer entitled
-9-
to benefits pursuant to the terms of the Plan and in accordance
with Section 1(b) hereof. Upon termination of the Trust any
assets remaining in the Trust shall be returned to the
Participating Employers.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed
in accordance with the laws of the State of Michigan, except as
preempted by ERISA.
(d) This Trust Agreement shall be binding upon the heirs,
personal representatives, successors and assigns of the
Participating Employers and the Trustee.
(e) Any notice or direction under this Trust shall be in
writing and shall be effective when actually delivered, or if
mailed, when deposited postpaid as first-class mail. Mail to a
party shall be directed to the address stated below or to such
other address as either party may specify by notice to the other
party. Until notice is given to the contrary, notices to Company
and the Trustee shall be addressed as follows:
If to Company:
Old Kent Financial Corporation
One Vandenberg Center
Grand Rapids, Michigan 49503
Attention: Director of Human Resources
If to the Trustee:
Old Kent Bank and Trust Company
200 Monroe, N.W., Suite 430
Grand Rapids, Michigan 49503
Attention: Corporate Trust Services
-10-
Section 14. Effective Date.
The effective date of this amendment and restatement to this
Trust Agreement shall be February 1, 1994.
IN WITNESS WHEREOF, Company and the Trustee have caused this
Agreement to be executed by their respective duly authorized officers on
the date first written above.
OLD KENT FINANCIAL CORPORATION
By: /s/ Martin J. Allen, Jr.
Martin J. Allen, Jr.
Its Senior Vice President
"Company"
OLD KENT BANK AND TRUST COMPANY
By: /s/ John D. Linabury
John D. Linabury
Its Vice President
Corporate Trust Services
"Trustee"
-11-
EXHIBIT 11
<TABLE>
EARNINGS PER SHARE CALCULATIONS -- PRIMARY AND FULLY DILUTED
<CAPTION>
(Restated for stock splits) YEAR ENDED DECEMBER 31
1994 1993 1992
<S> <C> <C> <C>
PRIMARY
NET INCOME $136,107,000 $127,902,000 $111,091,000
Deduct dividends on preferred stock -0- -0- -0-
INCOME FOR PRIMARY
E.P.S. CALCULATION $136,107,000 $127,902,000 $111,091,000
Average common shares outstanding 40,383,515 40,500,375 40,063,456
Common stock equivalents 245,841 247,941 293,335
SHARES FOR PRIMARY
E.P.S. CALCULATION 40,629,356 40,748,316 40,356,791
PRIMARY E.P.S. $ 3.35 $ 3.14 $ 2.75
FULLY DILUTED
NET INCOME $136,107,000 $127,902,000 $111,091,000
Add back interest on convertible
debt (net of income tax) -0- -0- 101,000
INCOME FOR FULLY DILUTED
E.P.S. CALCULATION $136,107,000 $127,902,000 $111,192,000
Average common shares outstanding 40,383,515 40,500,375 40,063,456
Common stock equivalents 245,841 247,941 349,025
Additional common shares issuable
to preferred shareholders and
debt holders -0- -0- 685,089
SHARES FOR FULLY DILUTED
E.P.S. CALCULATION 40,629,356 40,748,316 41,097,570
FULLY DILUTED E.P.S. $ 3.35 $ 3.14 $ 2.71
</TABLE>
EXHIBIT 12
<TABLE>
STATEMENT OF COMPUTATION OF OTHER RATIOS
<CAPTION>
(Dollars in thousands, except per share data)
For the year ended December 31: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net income $ 136,107 $ 127,902 $ 111,091 $ 92,981 $ 87,476
Less: preferred stock dividends -- -- -- -- (636)
Net income available to common
shareholders 136,107 127,902 111,091 92,981 86,840
Average common equity* 848,563 768,161 683,830 638,106 580,430
Average total equity* 848,563 768,161 683,830 638,106 585,997
Average common equity 845,518 768,161 683,830 638,106 580,430
Average total equity 845,518 768,161 683,830 638,106 585,997
Average assets 10,247,217 9,253,633 8,761,913 8,347,108 7,975,849
Fully diluted net income per
common share* $ 3.35 $ 3.14 $ 2.71 $ 2.21 $ 2.08
Dividends per common share** $ 1.18 $ 1.07 $ .90 1/3 $ .78 2/3 $ .72 1/3
Ratios:
Return on average common equity* 16.04% 16.65% 16.25% 14.57% 14.96%
(net income available to common
shareholders divided by average
common equity)
Return on average total equity* 16.04% 16.65% 16.25% 14.57% 14.93%
(net income divided by average
total equity)
Return on average assets 1.33% 1.38% 1.27% 1.11% 1.10%
(net income divided by
average assets)
Average total equity to average assets* 8.28% 8.30% 7.80% 7.64% 7.35%
Average total equity to average assets 8.25% 8.30% 7.80% 7.64% 7.35%
Dividend payout ratio 35.2% 34.1% 33.3% 35.6% 34.8%
(dividends per common share divided
by fully diluted net income per
common share)
_____________________
<FN>
*1994 excludes effect of unrealized gains/(losses) on securities available-for-sale.
**Per share amounts are shown adjusted for a 3-for-2 stock split paid September 1992.
</TABLE>
EXHIBIT 13
Annual Report 1994
Old Kent
Financial
Corporation
"Old Kent is well positioned for its challenge to continue its timely
migration from a traditional bank to a financial services company
providing cost-effective delivery of a wide variety of financial
products and services. We have qualified leadership in place to take
advantage of the opportunities in the market and skilled, service-
oriented employees, committed to building productive, long-term customer
relationships."
From the Corporation's
1994 Annual Report
[LOGO] OLD KENT
[TABLE OF CONTENTS]
Old Kent Financial Corporation 1994 Annual Report
Contents
Description of Old Kent and Financial Highlights . . . . . . . . . . . 1
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 2
Leveraging Old Kent's Strengths. . . . . . . . . . . . . . . . . . . . 7
Philosophy of Old Kent Financial Corporation
Old Kent Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Five Year Summary of Selected Financial Data . . . . . . . . . . . . . 20
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Average Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . 44
Management's Responsibility for Financial Reporting. . . . . . . . . . 50
Report of Independent Public Accountants . . . . . . . . . . . . . . . 51
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . 52
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 56
Shareholder Information. . . . . . . . . . . . . . . . . . . . . . . . 71
Board of Directors and Senior Management . . . . . . . . . . . . . . . 72
Description of Old Kent
Old Kent Financial Corporation is a bank holding company headquartered in
Grand Rapids, Michigan, with total assets of $10.9 billion. Old Kent is in
the business of commercial banking and related services through its 16
regional offices and six non-banking subsidiaries.
Old Kent's principal markets for financial services are communities within
Michigan and Illinois, where its 207 full-service banking offices are
located.
At December 31, 1994, Old Kent had 4,998 employees (on a full-time
equivalent basis).
Old Kent is an equal opportunity employer and its affirmative action
programs comply with applicable federal laws and executive orders.
<TABLE>
<CAPTION>
Financial Highlights 1994 1993 Increase
<S> <C> <C> <C>
For The Year:
Net income (in thousands) $136,107 $127,902 6.4%
Return on average assets 1.33% 1.38%
Return on average equity 16.04% 16.65%
Per Common Share:
Primary net income $ 3.35 $ 3.14 6.7%
Cash dividends 1.18 1.07 10.3
Book value at year-end 21.20 20.05 5.7
Year-End Balance Sheet (in millions):
Assets $ 10,946 $ 9,856 11.1%
Deposits 8,958 7,971 12.4
Loans 6,498 5,017 29.5
Shareholders' equity 859 813 5.7
</TABLE>
To Our Shareholders
For the twenty-second year since the holding company was formed in 1972,
Old Kent achieved record earnings and dividends. This consistent
performance can be attributed to long-standing strengths that include:
- A disciplined approach to our corporate philosophy, mission and
culture
- The strength of our markets
- The successful implementation of sound banking principles and
strategies
- The quality of our people
- Our flexibility in managing change
-1-
Financial Highlights
The financial highlights of Old Kent's 1994 record year are listed below.
- Net income was $136.1 million, a record high which represented a
6.4% increase over the $127.9 million of net income reported for
1993. Net income per common share was $3.35, a 6.7% improvement
over the $3.14 of per share net income for 1993.
- In the fourth quarter of 1994, Old Kent increased its annualized
per share cash dividend rate by 6.9% to $1.24. This marked the
89th consecutive quarter that Old Kent paid a dividend in our
twenty-two year history of increased annual dividends.
- Returns on average equity and average assets for 1994 were 16.04%
and 1.33%, respectively. These compare to 1993 returns of 16.65%
on average equity and 1.38% on average assets.
- Loans totalled $6.5 billion at December 31, 1994. This represents
a 29.5% increase over the year-ago level.
[Earnings and Dividends Per Share Graph]
- Improvements in asset quality are reflected in our record
performance. Net credit losses were $9.3 million in 1994, or .16%
of average total loans, compared to net credit losses of $16.2
million, or .33% of average loans, last year. Also, the provision
for net credit losses was $21.2 million for 1994, nearly a 38%
reduction from the 1993 provision of $34.0 million.
- Trust Department revenue reached a record high in 1994,
increasing to $41.8 million compared to $40.3 million in 1993.
- Expansion efforts resulted in a 35% increase in mortgage
servicing revenues to $12.7 million in 1994, and almost $1.5
billion of growth in our third-party mortgage servicing
portfolio. At year-end 1994, Old Kent Mortgage Company was
servicing $4.6 billion of residential mortgages for third-party
investors, a 46% increase over the total one year earlier.
Financial results for 1994 include the effects of the acquisitions of
Princeton Financial Corp., an Orlando, Florida based mortgage company, and
EdgeMark Financial Corporation, a Chicago, Illinois bank holding company.
These acquisitions, along with a more detailed analysis of the factors that
contributed to Old Kent's record performance, are discussed in the
Financial Review beginning on page 21 of this report.
Balance Sheet Integrity
While maintaining our record of profitable growth in 1994, Old Kent also
strengthened its balance sheet.
Asset quality continues to be the overriding priority in our growth
initiatives. In 1994, we experienced lower nonperforming assets, an
-2-
improvement in our delinquency ratios and a low level of charge-offs. Even
though we achieved a significant improvement in asset quality, we continued
to build our reserve for credit losses to help safeguard our strong capital
position.
[Picture of David J. Wagner and John C. Canepa]
Our strong capital base provides support for our internal asset growth and
allows us to pursue acquisition opportunities. During the first half of the
year, we repurchased 1.9 million shares of our common stock to finance the
acquisition of EdgeMark Financial Corporation, headquartered in Chicago,
Illinois.
Markets Served and Developed
Old Kent serves more than 100 communities in Michigan and Illinois with
over 200 banking offices. We are located in markets which have a highly
diversified industrial base supported by a strong work ethic and an
appealing quality of life. Approximately 70% of assets are located in
western Michigan which gives us a dominant share of that market. The
balance of our assets are located in eastern Michigan and northeastern
Illinois which provides opportunities for growth through increased market
penetration.
- On May 2, 1994, we completed the acquisition of EdgeMark
Financial Corporation whose offices expanded our presence in the
growing suburban and downtown Chicago market.
- On February 1, 1995, we completed our acquisition of First
National Bank Corp., whose offices are in Macomb County which is
located in the northeastern suburban area of the Detroit market.
Another dimension of our market development strategy is taking our existing
strengths in profitable lines of business beyond our traditional Midwest
markets. In February, we leveraged our efficiency in mortgage banking with
the acquisition of Princeton Financial Corporation, a mortgage originator
headquartered in Orlando, Florida. We also opened mortgage offices in San
Antonio, Texas, and Columbus, Ohio.
Diversified Revenue Growth
Lending continues to be Old Kent's primary source of earnings despite
higher interest rates and competitive pressures which have had an adverse
impact on our margins. Last year we achieved significant growth in retail
and commercial loans as a result of our presence in strong markets,
favorable economic conditions, product differentiation, better utilization
of targeted markets and sales techniques.
In order to reduce pressure on our traditional primary earnings sources, we
continue to seek ways to diversify our revenue growth by relying less on
spread income and generating more of our earnings from fee-based
activities. To achieve this diversification, we have allocated more
resources to market mutual funds, annuities, insurance products and credit
cards, and to upgrade retail and commercial trust products.
-3-
To fund our growing commercial and retail earning assets, we have
introduced a variety of new deposit products, further building our core
deposit base.
Balanced Efficiency
Although Old Kent's efficiency rating is acceptable by industry standards,
we see major opportunities and the need for improvement. Low cost and high
quality are not mutually exclusive. It is paramount that we be a low-cost
producer of quality products and services if we are to gain and maintain a
competitive advantage.
There are a variety of productive initiatives under way.
- The centralization of our consumer loan processing, financial
accounting, purchasing and commercial loan processing are
internal changes that reduce excessive costs of our operations.
- Consolidation of our Michigan banks under a single charter will
reduce reporting requirements and eliminate redundant
administrative tasks.
- Standardization of our products and procedures have reduced cost
and improved the clarity of our communication to customers.
- Re-engineering is taking place throughout the organization
including an upgrade of our customer data base which has improved
customer service and provides new cross-selling opportunities.
The savings generated from elimination of non-productive practices enhances
earnings and provides resources to invest in new technology. This
technology, such as improved delivery systems, not only lowers our cost of
distribution but also improves our ability and capacity to fulfill
customers' financial needs.
The Challenges of Change
Old Kent's consistent history of profitable growth is a result of our
ability to anticipate change and capitalize on opportunities.
We experienced a robust economy in the Great Lakes region in 1994. Although
economists predict a growth rate for this area above the national average,
it will be more moderate and unstable than what we have experienced
recently. This moderate growth rate and cyclical trends reinforce our need
to diversify our lines of business in order to generate new revenue
opportunities to complement our traditional sources.
There is evidence of positive changes in the legislative and regulatory
banking environment at both the state and national level.
- Michigan passed legislation that allows banks to sell insurance,
providing an opportunity for new revenue sources.
- The new federal interstate banking legislation provides new
expansion and efficiency opportunities.
-4-
- The proposed reduction in the Federal Deposit Insurance
Corporation premiums could provide us a substantial cost savings.
Although there are further signs of regulatory relief we continue to manage
our regulatory obligations, such as the Community Reinvestment Act (CRA),
with the same sense of responsibility as we do other disciplines of our
business.
The overcapacity of the financial industry will continue to put pressure on
Old Kent's margins. Both retail and commercial customers have more options
available to fulfill their financial needs. A proliferation of non-bank
competitors, who are not burdened with the banking industry's high cost
structure and are not subject to the same regulations, continue to permeate
profitable lines of business where banks were traditionally sole providers.
There are new and existing challenges facing the banking industry that will
widen the gap between high-performing and mediocre banks. Recognizing that
tomorrow's financial services will be different from today's, we anticipate
and are prepared for new and more dramatic changes. In order to continue
our consistent profitable growth, we have added new disciplines to our
foundation of strength:
- The development of a sales culture
- A more efficient delivery system
- A sense of urgency in new technology and product development
- A reward system based on performance measurements
Future Commitment
Old Kent Financial Corporation has established an enviable history of
profitable growth through uninterrupted earnings and dividend increases.
The changes impacting the traditional role of the banking industry continue
at an unprecedented rate and magnitude.
[Stock Performance Graph]
Old Kent is well positioned for its challenge to continue its timely
migration from a traditional bank to a financial services company providing
cost-effective delivery of a wide variety of financial products and
services. We have qualified leadership in place to take advantage of the
opportunities in the market and skilled, service-oriented employees,
committed to building productive, long-term customer relationships.
We are aware of what we need to do for our customers and are committed to
translate that awareness into a more dynamic, proactive organization. As we
move forward and take the necessary actions to manage change, we will pay
close attention to the fundamentals which have established Old Kent
Financial Corporation's record of high performance.
Initiatives for the future are highlighted by members of our management
committee in the narrative section immediately following this letter.
-5-
Board of Directors Changes
Mrs. Martha L. Thornton retired from the Board of Directors effective April
1, 1994. We thank Martha for her years of outstanding leadership and
dedicated service to Old Kent. She served as a director of Old Kent
Financial Corporation since 1990.
We welcome Dick DeVos, President of Amway Corporation, headquartered in
Ada, Michigan, as a new member of your Board of Directors. Dick served on
the Board of Directors of Old Kent Bank and Trust Company from 1987 until
his election to the Old Kent Financial Corporation board effective August
1, 1994.
Annual Shareholders' Meeting
We thank our shareholders for their continued support, our customers for
their loyalty and our employees for their strong commitment to customer
satisfaction which ultimately translates to increased shareholder value.
We hope you will be able to join us at our annual shareholders' meeting on
April 17, 1995.
The meeting will be held in the Pantlind Ballroom of the Amway Grand Plaza
Hotel in Grand Rapids.
Sincerely,
s/ John C. Canepa
John C. Canepa
Chairman
s/ David J. Wagner
David J. Wagner
President
On March 1, 1995, with my enthusiastic support, David Wagner succeeded me
as Chief Executive Officer of Old Kent. I will continue to serve as
Chairman until August of 1997. David's selection is a part of a carefully
developed succession plan and is in recognition of his outstanding
qualifications - which include over 18 years experience with Old Kent
involving virtually every area of our banking organization.
I am extremely delighted that David was chosen to assume these new
responsibilities and am confident that under his leadership your
Corporation will continue to grow and prosper.
s/ JCC
J.C.C.
-6-
Leveraging Old Kent's Strengths
The hallmarks of Old Kent's success have been consistency and disciplined
execution of strategies resulting in twenty-two consecutive years of record
earnings and dividends since the Corporation was formed in 1972.
Philosophy of Old Kent Financial Corporation
Our corporate mission and culture statements reflect our long-standing
commitment to shareholders, customers, employees and the communities we
serve. Key tenets of the Corporation's business philosophy are - to
maximize the value of shareholders' investment, to meet the needs of
customers with quality products and services, to provide a meaningful and
challenging work environment for our employees, and to serve communities as
a good citizen.
Corporate Mission
Increase shareholder value as a high performing independent financial
services company serving select communities with quality products and
services.
Corporate Culture
The management of Old Kent has the ultimate responsibility for achieving
profit levels which assure the quality of the balance sheet and the
continuation of the Corporation, for the benefit of our shareholders,
communities we serve and our employees.
Old Kent's purpose is to understand and fulfill the needs of our customer
groups resulting in long-term, multiple-service client relationships. This
customer-driven purpose requires that we earn and retain the respect,
confidence and loyalty of our customers by serving them so that they will
benefit from their association with us.
As we look to the future we do so from a position of strength - a
well-capitalized corporation with a commitment to sound banking practices
and a team of dedicated and competent people. Our new initiatives are
undertaken within the framework of our corporate culture and are consistent
with Old Kent's benchmark for success - increasing shareholder value.
Profitable Market Development
Old Kent's market development strategy is to expand the scope of the
Corporation's franchise through acquisition and to increase penetration in
existing service areas. In addition, we have extended lines of business
that significantly increase non-interest income beyond our traditional
geographic boundaries.
"Prior to its formation as a holding company in 1972, Old Kent was a single
bank located in Grand Rapids with $700 million in assets and 37 branch
-7-
offices. Our acquisition strategy was instrumental in our growth to an $11
billion regional financial services company with more than 200 banking and
mortgage offices in five states.
Old Kent will continue to build its banking franchise by establishing
meaningful presence in targeted Midwest markets that offer the potential to
improve our franchise and increase shareholder value over the long term.
Our strong capital resources and acquisition experience provide a
foundation for continuing Old Kent's successful expansion strategy.
Two recent examples of this strategy are our acquisitions of EdgeMark
Financial Corporation, a $522 million bank holding company acquired during
1994, and First National Bank Corp., a $531 million bank holding company
acquired during the first quarter of 1995. EdgeMark's branches complemented
Old Kent's presence in the western suburbs of Chicago and provided Old Kent
with two additional banking offices in downtown Chicago. The First National
Bank acquisition is particularly important to Old Kent's long-term strategy
to increase our suburban Detroit presence. We see this acquisition as a
valuable opportunity to take advantage of the growth currently taking place
in Macomb County, where First National has 15 offices."
B.P. Sherwood, III - Vice Chairman
"As a result of our market development strategy, Old Kent serves highly
diversified markets through a network of banks and full-service branch
offices in Michigan and Illinois. We serve both community and metropolitan
markets.
Our organizational structure, marketing strategies and business plans are
designed to fit their unique retail and commercial customer needs.
The majority of our banks serve community markets which have a relatively
smaller and less diverse customer base than large metropolitan service
areas. Community bank markets and the expectations of their retail and
commercial customers are best suited to building customer relationships as
full-service, person-to-person organizations. This traditional approach to
community bank markets has made a significant contribution to the financial
success of Old Kent.
[Picture of B.P. Sherwood, III, Thomas D. Wisnom and Robert H. Warrington]
By contrast, our metropolitan markets are comprised of a large and diverse
customer base which requires a more targeted market approach to create high
potential customer relationships. This strategy includes a balanced
distribution system of branches and electronic delivery which will result
in increased efficiency and effectiveness. Metropolitan markets also lend
themselves to a line of business structure that provides a more direct line
of communication to and from customers."
-8-
Thomas D. Wisnom - Executive Vice President, Community Bank Administration
"To maximize some of Old Kent's most profitable lines of business, we have
expanded beyond our current banking service area. For example, we have
leveraged our mortgage servicing capacity through the expansion of Old Kent
Mortgage Company, which now services loans in 49 states. We recognize the
need to increase our loan origination capabilities in order to compete
effectively and efficiently in the mortgage banking industry by growing
from a regional to a national operation.
We opened several new offices in Florida and Texas, and increased our
presence in the Midwest by placing account executives in Indianapolis,
Detroit, Minneapolis and St. Louis during 1994. As we continue our
expansion strategy, a team of Old Kent people are rethinking the loan
origination process in an attempt to reduce costs and shorten the time it
takes to close a loan. In support of this goal, Old Kent Mortgage Company
has recently entered into an agreement with the Federal Home Loan Mortgage
Corporation (Freddie Mac) to utilize its recently developed automated
underwriting system.
Old Kent's mortgage banking strategy can be summed up in one word: balance.
We believe that by keeping a balance between retail and wholesale loan
originations, and by maintaining a balance between the size of our
servicing portfolio and our ability to originate loans, we will reduce the
risk associated with market volatility in the mortgage industry."
Robert H. Warrington - President, Old Kent Mortgage Company
Generation of Earning Assets
Generating quality earning assets provides the foundation for consistent,
profitable growth which protects Old Kent's strong capital base. Managing
risk is the fundamental discipline of our credit culture.
"Old Kent's history of success is primarily a result of our orientation
toward the mid-size business market. To achieve future growth of earning
assets and fees will require a more balanced mix of diverse segments of the
commercial market and consumer lending.
We are building new relationships with small businesses through a variety
of loan and non-credit services that support their growth. We have recently
improved our cash management services by offering an electronic banking
package that allows our commercial customers the convenience to access us
at any time. We are also offering international trade services to customers
involved in the Midwest's expanding import/export industry.
In addition to our commercial loan growth, we experienced a substantial
increase in our consumer loan portfolio in 1994, and we expect that trend
to continue. Part of this can be attributed to our increased market
penetration resulting from Old Kent's recent bank acquisitions. We also
-9-
reintroduced a more competitive credit card which is being well received by
our customers and continued to effectively market our consumer loans
through our extensive branch system."
David A. Dams - Executive Vice President, Corporate Banking, Old Kent Bank
[Picture of David A. Dams and Ralph W. Garlick]
"Asset quality is the overriding priority in Old Kent's loan growth
strategy. Staying close to our customers is critical to maintaining both
high service standards and asset quality. Our strong credit culture
incorporates the fundamental disciplines of sound underwriting standards, a
successful credit risk management program, a diversified customer base and
knowledgeable, experienced loan officers.
The loan review process is a key element of Old Kent's loan quality program
- early identification of marginal loans, followed by a thorough evaluation
and implementation of appropriate actions in a timely manner.
We are implementing an aggressive plan to expand our lending in the
metropolitan Chicago and Southeastern Michigan markets. We know these
markets, understand their competitive environment and believe they present
significant growth opportunities. Old Kent's disciplined underwriting will
provide the basics needed to continue our history of quality loan
generation. Our commitment to asset quality is non-negotiable."
Ralph W. Garlick - Executive Vice President and Senior Credit Officer
Diversified Revenue Growth
Focusing on new revenue opportunities is a result of changing customer
needs and increased competition. The reallocation of resources toward our
most profitable markets and lines of business will have a positive impact
on Old Kent's earning opportunities. These revenue streams must complement
traditional revenue sources and place emphasis on generating new fee
income.
"Much of the change associated with banking is attributed to increased
competition and advances in technology. The most dynamic aspect of retail
banking is how much and how fast consumer expectations continue to change.
We must anticipate the implications these changes will have on our future
service needs, and be prepared to act quickly to implement new strategies
which provide customers the value they expect.
Old Kent's strategy is to work as a team with our banks and market managers
to deliver a consistent level of service throughout the organization, while
sharing valuable information and local market solutions with each other.
Through this teamwork we were able to completely revamp our credit card
product and, as a result, we doubled the size of that portfolio. We are
also continuing to improve our delivery of services by upgrading our
telephone information center and automated teller machine technology."
-10-
David L. Kerstein - Executive Vice President, Retail Banking
"Old Kent needs to find new ways to attract core deposits to fund the
anticipated growth of earning assets. Our focus is to offer and price our
products in ways that recognize the value of our customers' banking
relationships. This strategy benefits our customers and generates
additional sources of profit for Old Kent.
The banking industry has experienced the loss of traditional consumer
deposits in recent years. At Old Kent, we have taken direct action to
attract funds by addressing consumer concerns about value and flexibility,
especially in our certificate of deposit (CD) product line. We introduced
two new CD products that addressed fluctuation in market rates and
alleviated traditional penalties for early withdrawal. These highly
successful products are examples of satisfying customers' needs and being
rewarded by increased market share."
Leigh I. Sherman - Senior Vice President, Marketing
[Picture of Leigh I. Sherman, David L. Kerstein and E. Philip Farley]
"The Trust Department continues to focus on new revenue opportunities by
adding products to meet the changing needs of individuals and corporations.
In the coming year, two new bond funds of a slightly longer maturity will
be introduced providing our clients with enhanced income opportunity. Our
state of the art 401(k) product was introduced in 1994, increasing our
sales by over 30 percent. Utilizing this experience, we now offer an
investment management plan which was developed for the retail market,
including the growing retirement, inheritance and IRA rollover segments.
As part of Old Kent's sales culture, our commercial loan officers' strong
relationships with their clients enable them to sell our retirement
products, while the branch system will be utilized to sell our retail
investment plan. In addition, the metropolitan Chicago and Detroit markets
have been targeted for increased sales through staff additions in the trust
area. Customer sales and service will continue to be our focus as we
develop strategies to grow our trust and investment management business."
E. Philip Farley - Executive Vice President, Investment and Trust
Management Services Old Kent Bank
Balanced Efficiency
In order to maintain a competitive advantage, Old Kent must continue to be
an efficient low-cost producer of quality services. The major components of
this strategy are cost reduction, re-engineering traditional tasks, and the
utilization of technology. These efficiencies must be achieved while
maintaining Old Kent's overriding corporate culture of meeting the needs of
our customers with quality products and service.
-11-
"To successfully make the transition from traditional banking to a
financial services company requires a progressive organizational structure.
A viable organization must be flexible and maximize the potential of its
human, financial and physical resources without compromising customer
satisfaction and shareholder value.
The recent consolidation of our 15 Michigan charters into one charter
allowed Old Kent to structure its business more efficiently. At the same
time, we began to organize by size of markets and lines of business, rather
than by geographical location. We are creating a retail and mortgage line of
business structure within our major markets which is similar to the way we
have organized our trust and bank card services. This helps us meet the
needs of customers efficiently, regardless of their location, and allows
for high quality automated service. This new structure also provides a
barrier-free channel between the management of these lines of business and
our customer-contact employees."
Robert L. Sadler - Vice Chairman
"As we address future challenges, profitable growth will depend on our
ability to balance expense reduction with investment in high potential
opportunities.
Our competitive environment includes an increasing number of non-bank
financial institutions with low cost structures. If their competitive
advantage continues, it will have a detrimental effect on our ability to
maintain and grow future profitable market share.
[Picture of Kevin T. Kabat, Richard W. Wroten and Robert L. Sadler]
We are involved in a number of efforts to improve our competitive position
by reducing our operating expenses. The centralization of our consumer loan
processing, financial accounting, purchasing and commercial loan processing
have reduced costs by 30 to 40 percent without compromising customer
satisfaction. In addition, our extensive branch network is continually
being analyzed to determine if there are more efficient methods of
distribution. At the same time that we are reducing our operating expenses,
we are also focusing on investments to increase the revenue component of
the earnings equation."
Richard W. Wroten - Executive Vice President and Chief Financial Officer
"We are reviewing in depth all of our operations in order to develop and
implement actions that improve Old Kent's productivity and quality of
service. Through re-engineering and applications of technology, we can
increase efficiency by reducing our costs and improving customer service.
Task forces of people throughout the organization continue to work on
projects including centralization and consolidation activities which
improve efficiency and are transparent to our customers. More apparent to
our customers is the standardization of products and procedures which
improves the clarity and impact of our communication.
-12-
Technology is a strategic resource that is being coupled with
re-engineering to provide a competitive advantage. We continue to invest in
multi-faceted technology which increases multiple product sales through our
upgraded customer data base, improves service quality, and provides more
effective customer communication and product delivery systems."
Kevin T. Kabat - Executive Vice President, Retail Administration and
Corporate Technology
Strategic Vision and Human Resources Development
In order to succeed in a rapidly changing financial services environment,
Old Kent must continue to employ strategic vision and develop the human
resources required in a culture focused on customer satisfaction.
"Old Kent will continue our long-standing commitment to the selection and
development of people that have the ability to manage change by
anticipating customer needs and translating them into profitable growth.
The transition from a traditional bank to a financial services company
requires a strategic investment in our human resources. The process begins
with training our existing staff to acquire the new skills needed for our
emerging lines of business as well as our community and metropolitan banks.
Development of sales skills and service quality will receive our highest
priority. In addition, we will continue to hire people with the leadership
and talent necessary to sustain our successful earnings record.
This investment in human resources will have a positive impact on our
employees who will benefit from broader career opportunities and a reward
system that pays for performance."
Charles W. Jennings, Jr. - Senior Vice President, Human Resources
"Old Kent's strategic planning process is conducted within the framework of
our culture and mission statements. This provides the unified vision needed
to guide us through an array of challenges which focuses our resources on
customer satisfaction and shareholder value.
[Picture of Charles W. Jennings, Jr. and Martin J. Allen, Jr.]
The plan is a compilation of the input of 70 members of management from
throughout the corporation and its board of directors. The process assesses
our current situation, provides future assumptions to reduce risk and
identifies Old Kent's strengths and vulnerabilities. From this situation
analysis we develop our long-term core strategies which we define as the
relatively few things that really matter in order to achieve our mission.
Finally, we establish what we are going to do about our core strategies by
developing measurable strategic actions.
The purpose of our planning process is to provide consistent direction
without impairing the employee empowerment and entrepreneurship needed to
develop and execute meaningful strategies throughout Old Kent's
organization."
-13-
Martin J. Allen, Jr. - Senior Vice President, Corporate Planning and
Development
Old Kent Affiliates
Old Kent Financial Corporation is a bank holding company headquartered in
Grand Rapids, Michigan. As of December 31, 1994, its banks operated 181
full-service offices in Michigan and 26 in Illinois. Old Kent Financial
Corporation, in its broader role as a financial services company, also
operated six non-banking affiliates at December 31, 1994.
[Michigan Map]
Corporate Headquarters
Old Kent Financial Corporation
One Vandenberg Center
Grand Rapids, Michigan 49503
International Office
Old Kent Bank
(Grand Cayman Island, British West Indies)
Banking
Michigan
Old Kent Bank (Michigan)
Robert L. Sadler, President
and Chief Executive Officer
Headquartered in Grand Rapids, MI
Old Kent Bank - Big Rapids
Jerry J. Fouts, President
Old Kent Bank - Cadillac
Jack D. Benson, President
Old Kent Bank - Central (Owosso)
C. William Whitlock, Jr., President
Old Kent Bank - East (Brighton)
James W. Giffin, President
Old Kent Bank - Gaylord
Charles L. Berlin, President
Old Kent Bank - Grand Rapids
Robert L. Sadler, President
Old Kent Bank - Grand Traverse (Traverse City)
John D. Paul, President
-14-
Old Kent Bank - Hillsdale
Wallace L. Tupper, President
Old Kent Bank - Holland
Richard M. Lievense, President
Old Kent Bank - Lansing
William Coultas, President
Old Kent Bank - Ludington
Theresa W. Erickson, President
Old Kent Bank - Metro Detroit (Southfield)
Ralph W. Garlick, President
Old Kent Bank - Petoskey
Randy B. Crim, President
Old Kent Bank - Southeast (Trenton)
James P. Raffenaud, President
Old Kent Bank - Southwest (Kalamazoo)
Theodore F. McCarty, President
Old Kent Bank - St. Johns
Robert E. Thompson, President
Old Kent Bank - West (Grand Haven)
Ted A. Poulton, President
First National Bank in Macomb County*
Harold W. Allmacher, President
and Chief Executive Officer
Headquartered in Mount Clemens, MI
* Acquired February 1, 1995.
Illinois
Old Kent Bank (Illinois)
Michael J. Whalen, President
and Chief Executive Officer
Headquartered in Elmhurst/Chicago, IL
First National Bank of Lockport
Joseph J. Wallace III, President
and Chief Executive Officer
Headquartered in Lockport, IL
-15-
Non-Banking
Hartger & Willard Mortgage Associates, Inc.
William L. Ford, President
Grand Rapids, MI
Bloomfield Hills, MI
Old Kent Brokerage Services, Inc.
David A. Bushen, President
Grand Rapids, MI
Old Kent Financial Life Insurance Company
R. Jay Palmer, President
Grand Rapids, MI
Vanguard Financial Service Corp.
Frank J. Bonfiglio, President
Lombard, IL
Chino Hills, CA
Boston, MA
Grand Rapids, MI
Southfield, MI
Traverse City, MI
Plano, TX
Old Kent Mortgage Company
Old Kent Mortgage Services, Inc.
Robert H. Warrington, President
Grand Rapids, MI
Miami, FL
Orlando, FL
Tampa, FL
Chicago, IL
Indianapolis, IN
Detroit, MI
Minneapolis, MN
St. Louis, MO
Columbus, OH
San Antonio, TX
Austin, TX
<TABLE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
For the Year
Net interest income $ 432,438 $ 406,740 $ 385,608 $ 339,198 $ 311,253
Provision for credit losses 21,165 33,997 57,712 39,812 32,097
Net income 136,107 127,902 111,091 92,981 87,476
Cash dividends 47,992 43,380 36,413 31,492 29,041
-16-
Average for the Year
Assets $10,247,217 $9,253,633 $8,761,913 $8,347,108 $7,975,849
Deposits 8,340,117 7,643,634 7,286,655 7,008,896 6,716,032
Loans 5,721,341 4,889,092 4,966,622 5,173,142 5,186,627
Total interest-earning assets 9,562,257 8,626,939 8,202,828 7,798,733 7,413,607
Long-term debt 1,202 2,994 31,176 77,644 83,313
Common stock, capital surplus
and retained earnings (1) 848,563 768,161 683,830 638,106 585,997
Total shareholders' equity (2) 845,518 768,161 683,830 638,106 585,997
At Year-End
Assets $10,946,446 $9,855,704 $8,698,574 $8,826,139 $8,205,041
Deposits 8,957,551 7,971,152 7,253,540 7,313,979 6,960,865
Loans 6,497,997 5,016,686 4,907,629 5,111,369 5,317,998
Long-term debt 1,119 1,215 16,217 74,734 80,937
Common stock, capital surplus
and retained earnings (1) 898,891 812,767 726,277 672,610 607,636
Total shareholders' equity (2) 859,496 812,767 726,277 672,610 607,636
Per Common Share (in dollars)
Net Income:
Primary $ 3.35 $ 3.14 $ 2.75 $ 2.31 $ 2.19
Fully diluted 3.35 3.14 2.71 2.21 2.08
Cash dividends 1.1800 1.0700 0.9033 0.7867 0.7233
Book value at year-end based on:
Common stock, capital surplus
and retained earnings (1) 22.17 20.05 17.96 16.75 15.22
Total shareholder's equity (2) 21.20 20.05 17.96 16.75 15.22
Dividend payout ratio 35.2% 34.1% 33.3% 35.6% 34.8%
Performance Ratios
Return on average total
equity (1) 16.04% 16.65% 16.25% 14.57% 14.93%
Return on average assets 1.33 1.38 1.27 1.11 1.10
Average total equity to
average assets (2) 8.25 8.30 7.80 7.64 7.35
Yield on average interest-
earning assets 7.64 7.74 8.48 9.73 10.54
Cost of average interest-
bearing liabilities 3.58 3.45 4.25 6.05 7.13
Average net interest spread 4.06 4.29 4.23 3.68 3.41
Average net interest margin 4.60 4.80 4.80 4.47 4.36
Capital Ratios at Year-End
Equity to assets 7.85% 8.25% 8.35% 7.62% 7.41%
Leverage ratio 7.32 7.78 7.83 7.06 6.80
Risk-based capital ratio
- Tier 1 10.90 12.73 12.82 11.11 9.59
Risk-based capital ratio
- Tiers 1 & 2 12.17 13.99 14.13 13.36 12.21
Credit Quality Ratios
Allowance for credit losses
to total loans 2.49% 2.81% 2.46% 1.70% 1.37%
Nonperforming assets to total
loans and other real
estate owned 1.04 1.36 1.76 2.16 1.97
-17-
Nonperforming assets to total
assets 0.62 0.69 0.99 1.25 1.28
Allowance for credit losses to
nonperforming assets 238 206 140 79 70
Net charge-offs to average loans 0.16 0.33 0.48 0.50 0.46
<FN>
The acquisitions of EdgeMark Financial Corporation on May 2, 1994 and Princeton Financial Corp. on
March 1, 1994, were accounted for as purchase transactions. Accordingly, the above financial
information includes these purchases from their dates of acquisition.
(1) excludes unrealized loss on securities available-for-sale
(2) includes unrealized loss on securities available-for-sale
</TABLE>
Financial Review
This financial review presents management's discussion and analysis of
financial condition and results of operations. This discussion should be
read in conjunction with the consolidated financial statements beginning on
page 52 and the five year summary of selected financial data on page 20.
Overview
Net income for 1994 was $136.1 million, the highest in Old Kent's
twenty-two year history as a bank holding company. This represented a 6.4%
increase over net income of $127.9 million for 1993. Fully diluted net
income per share was $3.35 for 1994, up by 6.7% over the $3.14 fully
diluted net income per share for 1993. Old Kent has reported increases in
its annual per share earnings in each of the twenty-two years since the
holding company was formed in 1972. Net income has increased at a compound
annual growth rate of 9.8% over the last five years, and fully diluted net
income per common share has grown at an annual compound rate of 11.7% over
that same period.
[Net Income Graph]
Effective with the fourth quarter of 1994, the quarterly cash dividend rate
on common stock was increased to $.31 per share. The new annualized rate of
$1.24 per share is 6.9% greater than the rate paid in the fourth quarter of
1993. Old Kent has paid increased cash dividends in each of its twenty-two
years. The compound annual growth rate for the Corporation's per share
dividend payment for the last five years is 13.1% and the dividend payout
ratio has averaged 34.6% over that same period of time.
[Net Income Per Common Share Graph]
Old Kent's corporate culture is geared toward maximizing shareholder value.
The accompanying graph compares the performance of Old Kent Common Stock
with the S&P 500 and the KBW 50 indices. The total return as shown in this
graph is measured using both stock price appreciation and the effect of
continuous reinvestment of dividend payments. The S&P 500 index includes
-18-
the performance of 500 individual stocks selected by Standard & Poor's
Corporation to be a representative indicator of a broad base of industries
whose stocks are traded and available to the investing public. The KBW 50
index is based upon the stock performance of 50 large banks selected by
Keefe, Bruyette & Woods, Inc., specialists in the banking and thrift
industries. The total return of the KBW 50 index is calculated in the same
manner as the S&P 500 index. As indicated on the accompanying graph, Old
Kent's stock performance on a total return basis compares favorably with
the total return of the broad based S&P 500 index as well as the banking
industry specific KBW 50 index. The graph indicates that an initial $100.00
investment in Old Kent Common Stock on December 31, 1989, would be worth
$196.40 on December 31, 1994 providing that all quarterly dividends paid
within the intervening five year period were reinvested in Old Kent Common
Stock at the market prices in effect when dividends were paid. This
increase in value is equivalent to a compound annual return of 14.5% over
those five years for such an investment in Old Kent Common Stock compared
to 8.7% for the S&P 500 index and 7.7% for the KBW 50 index.
[Five Year Total Return Graph]
The Corporation's return on average total equity in 1994 was 16.04%,
compared to an equity return of 16.65% for 1993. Old Kent's return on
equity has averaged 15.7% over the past five years. Old Kent's return on
average assets was 1.33% for 1994 compared to 1.38% in 1993, and has
averaged above 1.2% over the last five years.
Steady annual earnings increases have been attributable to balance sheet
growth and to increases in non-interest income. Total average
interest-earning assets increased by $935 million, or 10.8% in 1994 and by
$424 million, or 5.2%, in 1993. Over the last five years, total average
interest-earning assets have increased at a compound annual growth rate of
5.3%. Interest-earning assets primarily consist of securities (defined in
this discussion to include those classified as available-for-sale and those
classified as held-to-maturity) and loans. Average securities increased by
$209 million, or 6.4%, in 1994 and by $214 million, or 7.0%, in 1993. In
1994, total loans averaged $5,721 million, up by $832 million, or 17% more
than 1993. In 1993, average total loans were $4,889 million, a 1.6%
decrease from 1992. The 1994 increases in total average interest-earning
assets and total average loans were the result of acquisitions (as
discussed below) and improved loan demand. The 1993 increase in total
average interest-earning assets was primarily the result of acquisitions.
The modest decrease in total average loans in 1993 was the result of
relatively low levels of loan demand which continued a trend of the
preceding year.
[Return on Average Equity Graph]
Business of the Corporation
Old Kent is a bank holding company. The services offered by Old Kent's
subsidiaries cover a wide range of banking and fiduciary services. These
include commercial, mortgage, and retail loans, business and personal
-19-
checking accounts, savings and individual retirement accounts, time deposit
instruments, automated teller machines and electronically accessed banking
services, credit and debit cards, money transfer services, safe deposit
facilities, cash management, real estate and lease financing, international
banking services, credit life insurance, personal investment and brokerage
services and corporate and personal trust services.
The principal sources of revenues for Old Kent are interest and fees on
loans, which accounted for 54.5% of total revenues in 1994, 49.7% in 1993,
and 53.5% in 1992. Interest on securities is also a significant source of
revenue, accounting for 25.8% of revenues in 1994, 28.9% in 1993, and 29.7%
in 1992. The Corporation's principal markets are in the lower peninsula of
the state of Michigan which represented approximately 80% of total deposits
and approximately 83% of total loans at December 31, 1994. Old Kent has had
no foreign loans at any time during the last five years. The foreign
activities of the Corporation primarily involve time deposits with banks
and placements for domestic customers of the banks. These activities did
not significantly impact the Corporation's financial condition or results
of operations.
[Return on Average Assets Graph]
Mergers and Acquisitions
Much of Old Kent's growth has been a result of acquisitions. The primary
method of expansion into new markets has been through acquisitions of other
financial institutions, or branches. Some restrictions on bank expansion
have been relaxed and further expansion into new markets will likely
continue through acquisitions of other financial institutions. The
following is a summary of Old Kent's significant merger and acquisition
activity during the last three years.
Effective May 2, 1994, Old Kent acquired EdgeMark Financial Corporation
(EdgeMark) (Chicago, Illinois). Old Kent exchanged 1,917,566 shares of its
common stock for all of the outstanding EdgeMark common stock. The
aggregate value of the Old Kent common stock issued was approximately $62.6
million. When acquired, EdgeMark had total assets of $522 million and
deposits of $456 million. This purchase expanded Old Kent's presence in the
Chicago area market by adding six banking offices in the west and southwest
suburbs and two offices in downtown Chicago.
On March 1, 1994, Old Kent purchased Princeton Financial Corp. (Princeton)
which was subsequently merged into Old Kent Mortgage Company, a wholly
owned subsidiary of the Corporation. Princeton, now operating under the Old
Kent name, originates and sells residential mortgages, while retaining a
substantial portion of the servicing rights. When acquired, Princeton had
total assets of approximately $70 million and serviced residential
mortgages of approximately $360 million for third-party investors.
Old Kent acquired all of the outstanding common stock of University
Financial Corporation (Elgin, Illinois) for a purchase price of $12.5
million effective January 1, 1993. University Financial Corporation owned
-20-
First Federal of Elgin, F.S.A. which, upon acquisition, was merged into Old
Kent Bank (Illinois). When acquired, University Financial Corporation had
total assets of approximately $275 million and approximately $198 million
of total deposits. Also acquired were five banking offices located in
Elgin, Dundee, and Hampshire which increased Old Kent's market presence in
the northern half of Kane County, Illinois. In addition, Old Kent acquired
rights to service approximately $827 million of residential mortgage loans
for third-party investors in this transaction.
On September 27, 1992, Old Kent Bank (Michigan), Old Kent's largest
affiliate, acquired five banking offices located in the Lansing, Michigan
area and their related deposits, which totalled approximately $53 million
at the time of acquisition. The acquired offices are located in Lansing,
East Lansing, Okemos and Holt, Michigan. Old Kent purchased the associated
tangible and intangible assets from a federally insured savings bank for a
price of $4.6 million.
Old Kent also had an acquisition pending at December 31, 1994. Effective
February 1, 1995, Old Kent acquired First National Bank Corp. (First
National), based in Mount Clemens, Michigan. As a result of this
pooling-of-interests transaction, Old Kent will have increased its
outstanding common stock by issuing approximately 2.6 million of its shares
in exchange for all of the outstanding shares of First National. At
December 31, 1994, this Macomb County based bank had total assets of $531
million, deposits of $472 million and equity of $37 million. First
National's 15 banking offices are located in the attractive suburban market
northeast of Detroit and will complement Old Kent's existing presence in
eastern Michigan.
Summary of Operating Results
The following is a summary of the major components of the Corporation's
operating results for the last five years:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net interest income $432,438 $406,740 $385,608 $339,198 $311,253
Add: taxable-equivalent adjustment 7,339 7,438 8,168 9,717 11,734
Taxable-equivalent net interest income 439,777 414,178 393,776 348,915 322,987
Provision for credit losses (21,165) (33,997) (57,712) (39,812) (32,097)
Other income 151,501 146,790 128,046 113,467 100,972
Other expenses (357,894) (325,980) (291,985) (279,482) (256,920)
Income taxes, including
taxable-equivalent adjustment (76,112) (73,089) (61,034) (50,107) (47,466)
Net income $136,107 $127,902 $111,091 $ 92,981 $ 87,476
</TABLE>
The following table summarizes the relative contribution to fully diluted
net income per common share of the various components of net income for the
last three years:
-21-
<TABLE>
Contribution to Fully Diluted Net Income Per Common Share
<CAPTION>
Increase(Decrease)
(FTE - Fully taxable equivalent amount 1994 to 1993 to
per share on a fully diluted basis) 1994 1993 1992 1993 1992
<S> <C> <C> <C> <C> <C>
Net interest income - FTE $10.64 $ 9.98 $ 9.38 $ .66 $ .60
Provision for credit losses (.52) (.83) (1.40) .31 .57
Net interest income after
provision for credit losses - FTE 10.12 9.15 7.98 .97 1.17
Trust income 1.03 .99 .93 .04 .06
Service charges on deposit accounts .81 .73 .64 .08 .09
Credit card transaction revenue .55 .40 .33 .15 .07
Mortgage servicing revenue .31 .23 .15 .08 .08
Mortgage banking gains .18 .51 .36 (.33) .15
Security transactions .02 .04 .14 (.02) (.10)
Other .82 .70 .56 .12 .14
Total other income 3.72 3.60 3.11 .12 .49
Adjusted gross income after
provision for credit losses - FTE 13.84 12.75 11.09 1.09 1.66
Salaries and employee benefits (4.01) (3.58) (3.22) (.43) (.36)
Occupancy (.64) (.55) (.48) (.09) (.07)
Equipment (.54) (.46) (.41) (.08) (.05)
FDIC deposit insurance (.45) (.40) (.39) (.05) (.01)
Interbank credit card transaction fees (.39) (.27) (.21) (.12) (.06)
Nonrecurring charges - (.04) (.18) .04 .14
Other (2.77) (2.70) (2.21) (.07) (.49)
Total other expense (8.80) (8.00) (7.10) (.80) (.90)
Income before income taxes - FTE 5.04 4.75 3.99 .29 .76
Applicable income taxes - FTE (1.69) (1.61) (1.28) (.08) (.33)
Fully diluted net income
per common share $ 3.35 $ 3.14 $ 2.71 $ .21 $ .43
Change in fully diluted net income
per common share calculated using
previous year average fully diluted
shares outstanding $ .21 $ .40
Change in average fully diluted shares
outstanding - .03
Change in fully diluted net income
per common share $ .21 $ .43
</TABLE>
Net Interest Income
In the previous summaries, the taxable-equivalent adjustment increases
tax-exempt income to an amount equivalent to interest income subject to
income taxes at statutory rates. The federal income tax rate was 35% for
1994 and 1993, and 34% for the preceding years. The increase of $25.6
million in taxable-equivalent net interest income for 1994 is primarily due
to an increase in total average earning assets. During 1994, total average
-22-
interest-earning assets increased by $935 million, or 10.8%. In that same
period, total average interest-bearing liabilities increased to a lesser
extent, $766 million or 10.4%.
The following table sets forth the changes in interest income and interest
expense as they relate to changes in volume and changes in rate:
<TABLE>
<CAPTION>
1994 Compared to 1993 1993 Compared to 1992
Increase (Decrease)* Increase (Decrease)*
Change in Change in
(Fully taxable-equivalent, Income/ Due to Due to Income/ Due to Due to
in thousands) Expenses Volume Rate Expenses Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans (including mortgages
held- for-sale) $72,340 $64,460 $ 7,880 ($17,677) $17,315 ($34,992)
Taxable securities (8,287) 13,671 (21,958) (7,404) 16,702 (24,106)
Tax-exempt securities 558 1,136 (578) (1,769) (180) (1,589)
Interest-earning deposits (2,971) (2,587) (384) (238) 470 (708)
Federal funds sold and
resale agreements 2,291 1,121 1,170 (410) 68 (478)
Trading account securities (767) (1,263) 496 (406) (17) (389)
Change in Interest Income 63,164 76,538 (13,374) (27,904) 34,358 (62,262)
Interest-Bearing Liabilities:
Savings deposits (3,271) 4,564 (7,835) (13,606) 8,294 (21,900)
Time deposits:
Negotiable 28,449 14,903 13,546 (2,070) 5,670 (7,740)
Foreign 3,545 1,223 2,322 (1,466) (419) (1,047)
Other (7,763) (1,347) (6,416) (28,946) (9,113) (19,833)
Federal funds purchased and
repurchase agreements 2,617 (1,182) 3,799 (5,668) (3,385) (2,283)
Other borrowed funds 14,133 9,880 4,253 4,598 5,068 (470)
Long-term debt (145) (174) 29 (1,148) (1,867) 719
Change in Interest Expense 37,565 27,867 9,698 (48,306) 4,248 (52,554)
Change in Net Interest Income $25,599 $48,671 ($23,072) $20,402 $30,110 ($ 9,708)
<FN>
* The change in interest due to both volume and rate has been allocated between the factors in
proportion to the relationship of the absolute dollar amounts of the change in each.
</TABLE>
[Net Interest Income Margin & Spread Graph]
[Average Earning Assets Graph]
Net interest margin is calculated by dividing taxable-equivalent net
interest income by average interest-earning assets. Interest spread is the
difference between the average yield on earning assets and the average cost
of interest-bearing liabilities. The net interest margin was 4.60% in 1994
compared to 4.80% for 1993. The interest spread was 4.06% for 1994, down
from 4.29% for 1993. The average yield on interest-earning assets decreased
-23-
to 7.64% in 1994 from 7.74% in 1993, a decrease of .10%. In contrast, the
average cost of interest-bearing liabilities increased by .13%. The average
cost of interest-bearing liabilities was 3.58% in 1994 compared to 3.45% in
1993. The reduced asset yield and increased liability cost resulted in a
.20% net interest margin decrease.
The increase of $20.4 million in taxable-equivalent net interest income in
1993 is primarily attributable to increased average earning assets. During
1993, total average interest-earning assets increased by $424 million, or
5.2%. In that same period, total average interest-bearing liabilities
increased to a lesser extent, $254 million or 3.6%. The net interest margin
was 4.80% for both 1993 and 1992. The net interest spread for 1993 was
4.29% compared to 4.23% for 1992. The yield on average interest-earning
assets was 7.74% for 1993 compared to 8.48% for 1992, a decrease of .74%.
The cost of interest-bearing liabilities declined by .80%. The average cost
of interest-bearing liabilities decreased to 3.45% in 1993 from 4.25% in
1992. Hence, the interest spread improved by .06% in 1993 as compared to
1992.
[Average Interest-Bearing Liabilities Graph]
<TABLE>
<CAPTION>
Three month
Prime Interest Rate U.S. Treasury Bill Rate
Percentage Rate 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Simple average during year 7.14% 6.00% 6.25% 4.35% 3.08% 3.41%
At December 31 8.50% 6.00% 6.00% 5.69% 3.05% 3.14%
</TABLE>
As indicated above, interest rates were relatively stable during 1993 and
1992. However, during 1994 interest rates began to rise. The 1994 rate
increases had a greater impact on Old Kent's funding costs than on its
asset yields. The interest rate environment is significantly impacted by
the health of the national economy and the monetary policies of the Federal
Reserve System which, during 1994, largely influenced interest rate
increases as shown above.
There are a number of factors which affect net interest income, including
the mix of interest-earning assets, the mix of interest-bearing
liabilities, and the interest rate sensitivity of the various categories.
As of December 31, 1994, Old Kent's management believes that the
Corporation is essentially neutral to changes in interest rates. This means
that net interest income would not be materially impacted by upward or
downward movements in prevailing interest rates within anticipated ranges.
A discussion of the Corporation's liquidity and interest rate sensitivity
appears on page 39 of this report.
-24-
Analysis of Net Interest Income
The following table allocates net interest income to interest-earning
assets by showing how much was attributable to interest-bearing
liabilities, and how much was attributable to non-interest-bearing
liabilities and equity capital. The interest spread on earning assets
funded by interest-bearing liabilities is simply the difference between the
average yield on earning assets and the average cost of interest-bearing
liabilities. The interest spread on earning assets funded by non-interest
bearing liabilities and equity is the average yield on earning assets.
<TABLE>
(Fully taxable-equivalent,
dollars in millions)
<CAPTION>
1994 1993 1992
Average Net Average Net Average Net
Earning Interest Interest Earning Interest Interest Earning Interest Interest
Assets Spread Income Assets Spread Income Assets Spread Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of Funding:
Interest-bearing
liabilities $8,113.0 4.06% $329.4 $7,346.8 4.29% $315.1 $7,092.7 4.23% $300.0
Non-interest
-bearing
liabilities and
equity capital 1,449.3 7.64% 110.4 1,280.1 7.74% 99.1 1,110.1 8.48% 93.8
Total $9,562.3 $439.8 $8,626.9 $414.2 $8,202.8 $393.8
</TABLE>
The following table shows the relative importance of changes in interest
spread, earning asset volumes and changes in funding sources:
<TABLE>
(Fully taxable-equivalent,
dollars in millions)
<CAPTION>
1994 Over (Under) 1993 1993 Over (Under) 1992 1992 Over (Under)1991)
Average Net Average Net Average Net
Earning Interest Interest Earning Interest Interest Earning Interest Interest
Assets Spread Income Assets Spread Income Assets Spread Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Source of Funding:
Interest-bearing
liabilities $766.2 (.23%) $14.3 $254.1 .06% $15.1 $315.3 .55% $50.5
Non-interest
-bearing
liabilities and
equity capital 169.2 (.10%) 11.3 170.0 (.74%) 5.3 88.8 (1.25%) (5.6)
Total $935.4 $25.6 $424.1 $20.4 $404.1 $44.9
</TABLE>
-25-
Loan Portfolio
As a financial intermediary, the acceptance and management of credit risk
is an integral part of Old Kent's business activities. The Corporation has
established strict credit underwriting standards. These standards include a
policy of granting loans only within Old Kent's defined market areas and
prohibition of foreign loans. Lending standards are codified in a
comprehensive lending policy which is uniform throughout the organization.
Old Kent's lending staff is highly skilled and experienced. The
Corporation's conservative lending philosophy is implemented through strong
administrative and reporting requirements. Old Kent maintains a
centralized, independent loan review function which monitors asset quality
at each of Old Kent's subsidiary banks. The Corporation also employs a
centralized group of specialists which assists the subsidiary banks in
resolving troubled loans. One of Old Kent's strengths is its diversified
loan portfolio. Approximately one-half of Old Kent's loan assets are
comprised of credits granted to consumers in the form of residential
mortgages and a variety of other consumer credit products, such as credit
cards, educational loans, and other open and closed-end consumer
financings. Loans to commercial borrowers represent approximately one-half
of Old Kent's loan portfolio. These loans are grouped by their nature and
industry diversification as non-real estate related and as real estate
related.
At December 31, 1994, Old Kent's commercial loan and lease portfolio,
excluding real estate related loans, approximated $1.7 billion, or about
27% of total loans. Loans to manufacturers represented the largest
component at only 26% of total non-real estate commercial loans. These
loans are diversified among a large number of borrowers who produce a wide
variety of durable and non-durable goods.
[Commercial Loans Graph]
Commercial real estate and construction loans at December 31, 1994,
aggregated approximately $1.4 billion, or 21% of total loans. These loans
have been grouped as owner occupied (borrowers who occupy and utilize the
loan related property in their respective businesses) and as non-owner
occupied (borrowers whose principal purpose of ownership lies in the
production of rental receipts from the related property). As indicated,
loans to the various categories of owner-occupied properties were 38% of
commercial real estate and construction loans and loans for non-owner
occupied properties were 62% of that total. Non-owner occupied loans
totalled $0.8 billion, or 13% of total loans and are distributed over a
diverse base of borrowers. The largest grouping within non-owner occupied
loans was housing related loans at 17% of total commercial real estate and
construction loans.
[Commercial Real Estate and Construction Loans Graph]
-26-
Old Kent has no foreign loans. In addition, Old Kent's policy is to be
extremely restrictive in granting credit to borrowers in businesses which
are highly cyclical, such as agriculture and petroleum production, and the
Corporation is extremely selective in participating in loan syndications.
[Distribution of Loans Graph]
The following table summarizes the components of the Corporation's total
loans at December 31 for each of the last five years:
<TABLE>
<CAPTION>
December 31 (dollars in millions) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural loans $1,608.4 $1,351.7 $1,210.5 $1,227.3 $1,603.0
Real estate loans - commercial 1,185.5 1,168.0 1,155.7 1,217.1 1,185.7
Real estate loans - construction 194.5 136.6 177.4 181.2 141.7
Real estate loans - residential
mortgages (including home
equity loans) 1,621.6 1,180.9 1,401.2 1,510.7 1,391.9
Consumer loans 1,674.8 1,062.0 855.5 864.3 896.3
Credit card loans 102.2 62.4 60.9 69.9 58.4
Lease financing 110.8 55.1 46.6 40.9 40.9
Total loans $6,498.0 $5,016.7 $4,907.6 $5,111.4 $5,318.0
</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.
[Allowance for Credit Losses to Nonperforming Assets Graph]
The following table summarizes the credit loss provisions, net credit
losses and the allowance for credit losses for the last five years:
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Provision for credit losses $ 21,165 $ 33,997 $ 57,712 $39,812 $32,097
Net credit losses 9,253 16,167 23,947 25,867 23,786
Allowance for credit losses
at year-end 161,873 140,725 120,790 87,025 73,080
-27-
Allowance as a percentage of:
Total loans 2.49% 2.81% 2.46% 1.70% 1.37%
Total loans, excluding loans
secured by residential
real estate 3.32% 3.67% 3.44% 2.42% 1.86%
Nonaccrual loans, restructured
loans and other real estate
owned 238% 206% 140% 79% 70%
Ratio of net charge-offs to average
loans outstanding during the year .16% .33% .48% .50% .46%
Credit loss recoveries as a
percentage of prior year
charge-offs 45% 24% 34% 26% 31%
</TABLE>
The provision for credit losses for 1994 was $12.8 million less than that
of 1993 as a result of credit quality improvements. The improved credit
quality was evidenced by a $6.9 million, or 42.8%, reduction in net credit
losses. Total nonperforming assets of $68.0 million were slightly lower
than the $68.2 million in nonperforming assets a year earlier. At December
31, 1994, the allowance for credit losses stood at $161.9 million, having
been increased by $21.1 million. This represented the amount by which the
provision for credit losses exceeded net credit losses charged to the
allowance, and by the $9.2 million allowance acquired with Edgemark
Financial Corporation. At December 31, 1994, the ratio of the allowance to
total nonperforming assets was 238%. Over the past five years, the
Corporation's actual loss experience on residential real estate loans has
been negligible. At December 31, 1994, the ratio of the allowance to total
loans exclusive of residential real estate loans was 3.32%.
The following table summarizes loan balances at the end of each period and
the daily averages; changes in the allowance for credit losses arising from
loans charged-off and recoveries on loans previously charged-off, by loan
classification; and additions to the allowance which have been charged to
expense:
<TABLE>
<CAPTION>
Year ended December 31
(dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans outstanding at end
of year $6,497,997 $5,016,686 $4,907,629 $5,111,369 $5,317,998
Daily average of loans
outstanding for year 5,721,341 4,889,092 4,966,622 5,173,142 5,186,627
Balance of allowance for credit
losses at beginning of year 140,725 120,790 87,025 73,080 64,769
Allowances of acquired entities 9,236 2,105 - - -
Provision for credit losses (1) 21,165 33,997 57,712 39,812 32,097
-28-
Loans charged-off:
Commercial, financial and
agricultural loans 3,479 7,657 15,930 13,953 14,241
Real estate loans - commercial 7,310 7,025 8,425 7,842 6,387
Real estate loans - construction 605 1,198 500 570 -
Real estate loans - residential
mortgages (including home
equity loans) 641 854 1,582 568 445
Consumer loans 5,966 5,548 6,346 7,856 7,446
Credit card loans 1,688 1,544 1,972 2,033 1,133
Lease financing 743 1,007 834 954 1,134
Total charged-off 20,432 24,833 35,589 33,776 30,786
Recoveries of loans
previously charged-off:
Commercial, financial
and agricultural loans 3,141 3,246 5,618 3,844 3,989
Real estate loans - commercial 3,808 1,896 2,276 738 168
Real estate loans - construction 927 76 122 79 5
Real estate loans - residential
mortgages (including home
equity loans) 229 520 301 246 153
Consumer loans 2,242 2,191 2,318 2,240 2,052
Credit card loans 538 530 614 540 541
Lease financing 294 207 393 222 92
Total recovered 11,179 8,666 11,642 7,909 7,000
Balance of allowance for
credit losses at end of year $ 161,873 $ 140,725 $ 120,790 $ 87,025 $ 73,080
<FN>
(1) The provision for credit losses charged to expense is based on credit
loss experience and such other factors as, in management's judgement,
deserve current recognition in maintaining an adequate allowance for credit
losses. These other factors include, but are not limited to, a review of
current economic conditions as they relate to loan collectibility and
reviews of specific loans to evaluate their collectibility. Loan
performance is reviewed regularly by loan review personnel, loan officers
and senior management. The allowance for credit losses is established by
charges to operations based on management's evaluation of loans, economic
conditions and other factors considered necessary to maintain the allowance
at a level adequate to absorb probable losses. The allowance for credit
losses is based on estimates, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in earnings in the periods in which
they become known.
</TABLE>
The following tables summarize net credit losses (total loans charged-off
less total loans recovered) and their relationship to the daily average
balances for each loan type listed for the last five years:
-29-
<TABLE>
<CAPTION>
Net credit losses for the year ended December 31
(dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural loans $ 338 $ 4,411 $10,312 $10,109 $10,252
Real estate loans - commercial 3,502 5,129 6,149 7,104 6,219
Real estate loans - construction (322) 1,122 378 491 (5)
Real estate loans - residential
mortgages (including home
equity loans) 412 334 1,281 322 292
Consumer loans 3,724 3,357 4,028 5,616 5,394
Credit card loans 1,150 1,014 1,358 1,493 592
Lease financing 449 800 441 732 1,042
Total net credit losses $9,253 $16,167 $23,947 $25,867 $23,786
Net credit losses as a percentage
of daily average total loans .16% .33% .48% .50% .46%
</TABLE>
Percent of loans to total loans at December 31
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural 24.8% 26.9% 24.7% 24.0% 30.1%
Real estate - commercial 18.2 23.3 23.6 23.8 22.3
Real estate - construction 3.0 2.7 3.6 3.5 2.7
Real estate - residential 25.0 23.5 28.6 29.6 26.2
Consumer loans 25.7 21.2 17.4 16.9 16.9
Credit card loans 1.6 1.2 1.2 1.4 1.1
Lease financing 1.7 1.1 1.0 .8 .8
Total 100.0% 100.0% 100.0% 100.0% 100.0%
</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>
Allocation of allowance for credit losses at December 31
(dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 50,000 $ 45,000 $ 40,000 $33,000 $28,000
Real estate - commercial 33,000 32,000 17,000 18,000 12,000
Real estate - construction 4,500 3,000 3,000 2,000 1,500
Real estate - residential 3,000 3,000 3,000 3,000 3,000
Consumer loans 33,500 23,000 13,000 9,000 9,000
Credit card loans 5,000 3,000 3,000 3,500 3,000
-30-
Lease financing 1,660 900 860 725 700
Not allocated 31,213 30,825 30,930 17,800 15,880
Total allowance for
credit losses $161,873 $140,725 $110,790 $87,025 $73,080
</TABLE>
Net credit losses as a percent of daily average balance for the year
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural loans .02% .35% .86% .73% .59%
Real estate loans - commercial .30 .44 .52 .60 .66
Real estate loans - construction (.21) .72 .21 .28 -
Real estate loans - residential
mortgages .03 .03 .09 .02 .02
Consumer loans .27 .35 .48 .64 .58
Credit card loans 1.51 1.81 2.16 2.22 1.03
Lease financing .53 1.59 1.02 1.82 2.09
Total .16% .33% .48% .50% .46%
</TABLE>
Nonperforming Assets
The following is a summary of nonperforming assets for the last five years:
<TABLE>
<CAPTION>
December 31 (dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $51,856 $53,330 $75,878 $ 92,647 $ 93,259
Restructured loans 5,838 5,426 2,288 4,226 5,912
Other real estate owned 10,288 9,480 8,163 13,359 5,503
Total nonperforming assets $67,982 $68,236 $86,329 $110,232 $104,674
As a percentage of total loans
and other real estate owned:
Nonaccrual loans .80% .97% 1.54% 1.81% 1.75%
Restructured loans .09 .10 .05 .08 .11
Other real estate owned .15 .17 .17 .26 .10
Total nonperforming assets 1.04% 1.24% 1.76% 2.15% 1.96%
</TABLE>
The following table summarizes the changes in nonperforming assets during 1994:
<TABLE>
<CAPTION>
Total Non- Other Real
Performing Nonaccrual Restructured Estate
(dollars in thousands) Assets Loans Loans Owned
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $68,236 $53,330 $5,426 $ 9,480
Additions 66,303 59,557 1,249 5,497
Payments & Cures (46,125) (33,134) (837) (12,154)
-31-
Charge-offs (gross, exclusive
of recoveries) (20,432) (20,432) - -
Transfers within nonperforming
assets - (7,465) - 7,465
Balance, December 31, 1994 $67,982 $51,856 $5,838 $10,288
</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) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans past due ninety days or more $10,368 $9,038 $9,859 $11,064 $13,145
Loans past due ninety days or more,
as a percentage of total loans .16% .18% .20% .22% .25%
</TABLE>
At December 31, 1994, the Company had approximately $62.6 million in
domestic and commercial and real estate loans for which payments are
presently current, but the borrowers are currently experiencing severe
financial difficulties. Those loans are subject to constant management
attention and their classification is reviewed on a monthly basis.
Additional information with respect to nonaccrual and restructured loans
at December 31, 1994, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Interest income which would have been recorded under original terms $5.2 million
Interest income recorded during the period $2.3 million
</TABLE>
Loan performance is reviewed regularly by loan review personnel, loan
officers and senior management. Loans are placed on nonaccrual status when
principal or interest is past due 90 days or more and the loan is not
well-secured and in the process of collection, or when reasonable doubt
exists concerning collectibility of interest or principal. Any interest
previously accrued but not collected is reversed and charged against
current earnings.
The loan portfolio has been reviewed and analyzed for the purpose of
estimating probable credit losses. The management of Old Kent believes that
the allowance for credit losses at December 31, 1994, is adequate to absorb
probable credit losses inherent in the loan portfolio.
Old Kent's policy dictates that specifically identified credit losses be
recognized immediately by a charge to the allowance for credit losses. This
determination is made for each loan at the time of transfer into
nonperforming status after giving consideration to collateral value and the
borrower's ability to repay loan principal. Since the Corporation
-32-
immediately recognizes losses on its nonperforming assets, it does not
attach to them specific amounts from the allowance for credit losses.
Because the ultimate collection of interest on Old Kent's nonperforming
assets is in doubt, no interest income is recognized on these assets, and
virtually all payments received are recorded as a reduction of principal.
Other Income
Total non-interest income increased $4.7 million, or 3.2% in 1994.
Excluding the impact of gains on securities transactions, mortgage banking
gains and nonrecurring revenue, the increase was $20.7 million, or 16.9%
for the year. The increase in total non-interest income in 1993, excluding
securities transactions, mortgage banking gains and non-recurring revenue,
was $14.6 million, or 13.6%, from 1992.
[Other Income Graph]
Trust activities contribute a significant amount of revenue for Old Kent
and represent the largest category of non-interest income. Trust fees
increased $1.5 million, or 3.7%, in 1994. This compares with an increase of
$1.8 million, or 4.8%, in 1993. First-year fees resulting from new account
relationships were up 6% in 1994 and up by over 9% in 1993. The new
business relationships established in these years will also favorably
influence subsequent periods. Unfavorable conditions in the bond market
during 1994 had the effect of depressing certain trust revenues. It also
influenced a 5.7% decrease in total investments under management.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Trust fee income (as reported) $41,813 $40,305 $38,472 $35,346 $36,000
Less amount attributable to
discontinued segment - - - 1,756 4,312
Trust fee income attributable
to continuing trust activities $41,813 $40,305 $38,472 $33,590 $31,688
</TABLE>
Service charges on deposit accounts increased by nearly $3.0 million in
1994, an increase of 9.9%. This compares to an increase of $3.5 million, or
13.0% in 1993. The increase is partially due to an expanded account base
resulting from Old Kent's acquisitions of financial institutions and branch
banking sites in recent years. It is also due to the Corporation's
continuing focus on improving non-interest revenues.
Net gains on sales of securities are discussed on page 43.
Mortgage banking activities include the origination and acquisition of
residential mortgage loans, a large portion of which are intended to be
sold in the secondary market and to be serviced by Old Kent for the purpose
of generating fee income. Sales of mortgages, and occasionally servicing
rights, frequently result in the recognition of gains.
-33-
The following table summarizes the Corporation's mortgage banking activity
for the last five years:
<TABLE>
<CAPTION>
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Residential mortgage loans
originated and acquired $1,910,739 $2,386,127 $1,343,559 $721,034 $496,700
Residential mortgage
loans sold 1,672,807 1,990,245 1,169,298 538,359 283,620
</TABLE>
The following table summarizes the Corporation's revenue from its mortgage
banking activities:
<TABLE>
<CAPTION>
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Mortgage banking gains $ 7,392 $20,763 $14,651 $6,496 $2,672
Mortgage loan servicing revenues 12,714 9,403 6,287 5,297 3,582
</TABLE>
Mortgage banking gains in 1994 were $7.9 million, down by 61.8% from the
amount realized in the preceding year. The 1993 gains totalled $20.8
million, 41.7% more than the 1992 gains. Mortgage banking gains for 1993
and 1992 were unusually large due to the beneficial effect that lower
interest rates had on refinancing demand. As the Corporation's management
had anticipated, mortgage banking gains for 1994 were less than those of
the preceding year largely due to the effect of higher interest rates.
Mortgage banking gains may significantly vary from period to period, as
impacted by economic cycles. While such gains have been a noteworthy source
of income, the Corporation's management places greater emphasis on its
mortgage servicing activities which generates a more consistent and longer
lived revenue stream.
Revenue from the Corporation's mortgage servicing activities was $12.7
million in 1994, 35.2% better than that of 1993. As shown below, this
increase is due to growth in Old Kent's third-party servicing portfolio
over the past few years. In 1993, mortgage servicing revenue totalled $9.4
million and represented a 49.6% improvement over that of 1992. Old Kent
anticipates that mortgage servicing revenues will be enhanced in 1995 due
to recent growth in its third-party servicing portfolio. During 1994, the
Corporation also entered new mortgage markets in Florida, Indiana, Missouri
and Texas. This expansion will add geographic diversity to what was
primarily a mid-western focus in Michigan, Illinois, Ohio, Minnesota and
Wisconsin.
-34-
Other expenses includes the amortization of purchased mortgage servicing
rights. This expense decreased by $2.0 million to $3.2 million in 1994. The
decrease is primarily the result of a decrease in prepayment speeds on
serviced loans attributable to higher interest rates during 1994. In 1993,
this expense significantly increased to $5.2 million from $0.1 million in
1992. The primary reason for this increase was amortization of servicing
rights acquired with University Financial Corporation on January 1, 1993.
The amortization of this asset was also influenced by the effects of
prepayments. Notes 1 and 9 to the consolidated financial statements contain
further information regarding purchased mortgage servicing rights.
The following table lists the aggregate balances of residential mortgage
loans serviced by Old Kent as of the dates indicated. At December 31, 1994,
mortgages serviced for third-party investors totalled $4.6 billion, an
increase of over $1.4 billion over the total at the preceding year-end.
This increase includes the previously mentioned acquisition of Princeton
Financial Corporation, which serviced nearly $.4 billion of mortgages when
acquired, and the growth generated by Old Kent's expansion into other
states as described above. During 1993, residential mortgage loans serviced
for third parties increased by approximately $1.5 billion. This increase
included the effect of the Corporation's January 1, 1993 purchase of
University Financial Corporation (Elgin, Illinois), which at the time of
acquisition serviced approximately $827 million of residential mortgages
for third parties. In early 1994, Old Kent acquired Princeton Financial
Corporation (Orlando, Florida). At December 31, 1993, Princeton serviced
approximately $340 million of residential mortgage loans for third-party
investors.
<TABLE>
<CAPTION>
December 31 (in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Mortgages serviced for
third parties $4,634,373 $3,177,092 $1,662,832 $1,065,131 $ 713,680
Mortgages held-for-sale 189,989 474,898 - - -
Mortgage loans serviced by
Old Kent for its own portfolio 1,077,652 754,544 1,017,900 1,145,077 1,095,061
Total $5,902,014 $4,406,534 $2,680,732 $2,210,208 $1,808,741
</TABLE>
Merchant discount and fees from credit card transactions totalled $22.2
million in 1994, up by 35.5% from 1993. The primary reasons for this
increase have been growth in the Corporation's merchant customer base and
improved pricing practices. In 1993, these revenues totalled $16.4 million
and represented a 21.1% increase over the 1992 amount.
Transaction processing fees include items such as fees and commissions on
money orders and travelers checks, foreign exchange fees, check cashing and
collection charges. In 1994, these revenues totalled over $8.9 million and
included the effect of acquisitions. These revenues totalled $7.2 million
in 1993, up by $1.0 million or 16.3% from 1992. In 1992, transaction
processing fees amounted to $6.2 million and represented a $1.2 million, or
-35-
22.9% increase over 1991. This included $1.0 million of increase related to
commissions in the initial year (1992) of sales of third party money order
products.
During 1990, Old Kent began leasing space at 175 various banking sites to
an unrelated company which offers annuity and mutual fund products to Old
Kent customers. As a result, this lease revenue has risen over the last
five years.
The following table summarizes the major categories of other income for the
last five years:
<TABLE>
<CAPTION>
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Trust income $ 41,813 $ 40,305 $ 38,472 $ 35,346 $ 36,000
Service charges on
deposit accounts 32,943 29,972 26,516 25,233 23,467
Securities transactions 1,015 1,575 5,676 7,401 1,854
Credit card transaction revenue
(Merchant discount) 22,170 16,358 13,510 12,200 11,247
Mortgage banking gains 7,392 20,763 14,651 6,496 2,672
Mortgage servicing revenues 12,714 9,403 6,287 5,297 3,582
Transaction processing fees 8,948 7,203 6,192 5,038 4,232
Credit life insurance premiums 3,394 2,972 2,529 2,463 2,454
Automated teller machine
network revenues 3,018 2,606 2,109 1,799 1,548
Trading account gains 1,602 1,594 1,908 2,647 4,697
Safe deposit box rental income 1,881 1,765 1,625 1,617 1,590
Lease revenue from financial
products provider 1,628 1,471 1,154 830 80
Brokerage commissions 864 1,141 883 628 459
Gain on sales of other real estate
owned and other assets 3,321 1,155 388 528 659
Letter of credit fees 1,065 834 931 998 1,285
Non-recurring revenue - 2,089 - - -
Other 7,733 5,584 5,215 4,946 5,146
Total Other Income $151,501 $146,790 $128,046 $113,467 $100,972
</TABLE>
Other Expenses
Salaries and employee benefits represent the largest category of
non-interest expense. These personnel costs increased by $17.0 million, or
11.7%, in 1994 largely due to staffing increases associated with
acquisitions during 1994. This compares with an increase of $13.4 million,
or 10.2%, in 1993. The 1993 increase also reflected the impact of
acquisitions. Old Kent measures its staff size in terms of full-time
equivalent ("FTE") employees. Full-time equivalency expresses staff size by
translating the efforts of part-time employees and over-time hours into the
-36-
equivalent efforts of full-time employees. At December 31, 1994, Old Kent
employed 4,998 persons on an "FTE" basis. This compares to 4,745 and 4,570
persons at December 31, 1993 and 1992, respectively.
[Other Expense Graph]
Occupancy expense increased $3.4 million, or 15.2%, in 1994. This compares
with an increase of $2.4 million, or 12.2%, in 1993. The primary factors
for the 1994 increase were Old Kent's previously described acquisitions in
the early part of the year. Key influences to the 1993 increase were: (a)
the effect of the acquisitions which occurred in late 1992 and early 1993;
(b) the mid-1993 expansion of Old Kent's Corporate Service Center (Grand
Rapids, Michigan); and (c) a reduction in sublet rental income.
Equipment expense increased by $3.3 million, or 17.5% in 1994. In 1993,
equipment expense increased by $1.8 million, or 10.9%. The 1994 increase
also includes the effect of acquisitions, along with information technology
enhancements to benefit Old Kent in the future. These included furthering
the branch automation effort and upgrading the Corporation's overall
processing capacity. A portion of the 1993 increase was related to the
previously mentioned acquisitions, the remainder was related to expanded
usage of technological advances to reduce operating costs (e.g. data
storage using optical technology rather than hardcopy imagery) and to
enhance business effectiveness (e.g. branch bank automation). In early
1993, Old Kent recognized a nonrecurring charge of $1.5 million to reflect
a loss on the cancellation of a data processing equipment lease. This
coincided with the installation of more advanced technology intended to
improve efficiency and reduce operational costs.
The following table summarizes the major categories of other expenses for
the last five years:
<TABLE>
<CAPTION>
Year ended December 31
(in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Salaries $135,587 $121,905 $109,245 $109,581 $105,933
Employee benefits 27,350 24,009 23,222 20,091 20,212
Occupancy 25,820 22,415 19,974 20,825 19,121
Equipment 21,828 18,571 16,743 16,873 17,247
FDIC deposit insurance 18,106 16,375 16,134 14,403 7,966
Interbank credit card transaction
fees 15,784 10,950 8,449 7,161 6,741
Taxes other than income taxes 9,490 10,474 9,307 8,259 7,819
Stationery and supplies 8,269 8,250 7,114 7,659 7,149
Postage and courier charges 9,028 8,207 8,057 8,285 7,027
Advertising and public relations 9,401 8,372 6,634 6,762 5,981
Professional services 8,990 9,202 7,023 6,336 5,474
Legal, audit and examination fees 5,474 6,774 6,197 6,214 5,369
Amortization of goodwill and
core deposit intangibles 10,464 6,924 5,784 5,193 4,734
-37-
Amortization of purchased
mortgage servicing rights 3,242 5,190 128 31 24
Telephone 7,157 5,832 5,111 4,782 4,742
Credit, collections, foreclosure
and other real estate expenses 4,842 6,687 4,688 4,878 3,381
Charitable contributions 1,230 1,304 2,503 721 1,258
Mortgage servicing costs 1,174 1,413 239 189 -
Severance benefits 189 956 2,600 3,104 1,600
Cumulative, non-pension
post-retirement benefit charge - - - 1,000 -
Other losses (including certain
nonrecurring charges) 3,111 5,161 6,146 2,803 2,668
Other 31,358 27,009 26,687 24,332 22,474
Total other expenses $357,894 $325,980 $291,985 $279,482 $256,920
</TABLE>
The deposit insurance assessment of the Federal Deposit Insurance
Corporation (FDIC) increased by $1.7 million, or by 10.6% in 1994. Growth
in deposits, mainly due to acquisitions, was the primary factor for the
increase over the preceding year. In 1993, this cost rose negligibly, by
1.5%. In 1993, Old Kent's subsidiary banks were subjected to the same rate
of assessment as they were in 1992. Hence, the modest increase for 1993
related entirely to the amount of deposits on which the assessment is
based. The rate of assessment has remained stable for the last three years,
following substantial increases in 1991 and 1990. The FDIC has proposed a
substantial reduction in deposit insurance assessments on deposits covered
by its bank insurance fund. The amount and timing of any such reduction is
uncertain. In any event, a reduction is not expected to take effect prior
to the fourth quarter of 1995. A reduction in deposit insurance rates would
be expected to have a beneficial effect upon Old Kent's results of
operations beginning in the period that such a reduction became effective.
Nearly all of Old Kent's deposits are insured by the FDIC's Bank Insurance
Fund.
<TABLE>
<CAPTION>
FDIC insurance rate cost per
$100 of insured deposits 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average rate for year $.2300 $.2300 $.2300 $.2125 $.1200
Percentage increase over prior year - - 8.2% 77.1% 44.1%
</TABLE>
Interbank credit card transaction fees increased by approximately $4.8
million, or 44%, during 1994. This increase is attributed to growth in Old
Kent's base of credit card holders. This expanded base also influenced the
increase in total credit card loans.
Income Taxes
The income tax provision was $68.8 million in 1994 compared to $65.7
million in 1993 and $52.9 million in 1992. Income tax expense as a
percentage of income before income taxes was 33.6% in 1994. This compares
-38-
with 33.9% in 1993 and 32.2% in 1992. Effective January 1, 1993, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The statement calls for a
balance sheet approach in determining income tax expense.
Old Kent's financial statements for 1992 and preceding years reflected
income taxes calculated under the deferred method, which was an income
statement approach. The statutory federal income tax rate for Old Kent was
35% for 1994 and 1993, and 34% for 1992. The 1% increase in the federal tax
rate for 1993 caused an increase in income taxes of approximately $1.0
million. The cumulative effect of implementing SFAS No. 109 in 1993 was an
increase in income taxes of $1.9 million. A reconciliation of income taxes
calculated at the statutory rates and income tax expense appears in Note 15
to the consolidated financial statements.
Cash Dividends
The Corporation has paid regular cash dividends every quarter since it was
organized as a bank holding company in 1972. The following table summarizes
the quarterly cash dividends paid to common shareholders over the past five
years, adjusted for a three-for-two stock split paid in September, 1992.
<TABLE>
<CAPTION>
Quarter 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
1st $ .29 $ .26 $.20 2/3 $.19 1/3 $.17 2/3
2nd .29 .26 .20 2/3 .19 1/3 .17 2/3
3rd .29 .26 .23 .19 1/3 .17 2/3
4th .31 .29 .26 .20 2/3 .19 1/3
Total $1.18 $1.07 $.90 1/3 $.78 2/3 $.72 1/3
</TABLE>
[Cash Dividends Per Common Share Graph]
The earnings of Old Kent's subsidiary banks are the principal source of
funds to pay cash dividends. Consequently, cash dividends are dependent
upon the earnings, capital needs, regulatory constraints and other factors
affecting each individual bank. Based on the projected earnings and
liquidity, management expects the Corporation to declare and pay regular
quarterly cash dividends on its common shares in 1995.
Capital
At December 31, 1994, the Corporation's total common stock, capital surplus
and retained earnings was $898.9 million, an increase of 10.6% over the
same total at December 31, 1993. Effective January 1, 1994, Old Kent
adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement requires that the "after-tax" unrealized gain
or loss on securities available-for-sale be carried as a separate component
-39-
of shareholders' equity. At December 31, 1994, this component was a $39.4
million negative balance, corresponding to the $60.6 million of unrealized
loss on securities available-for-sale at that date. Including this new
component, at December 31, 1994, total shareholders' equity was $859.5
million. Market values of securities, particularly those that are of longer
terms, are subject to price volatility depending upon changes in interest
rates. Under SFAS No. 115, total shareholders' equity will be subject to
favorable or unfavorable influences of the financial markets on the fair
values of securities available-for-sale.
[Average Shareholders' Equity Graph]
Under the "risk-based" capital guidelines presently in effect for banks and
bank holding companies, minimum capital levels are based on the perceived
risk in the various asset categories, and certain off-balance-sheet
instruments, such as loan commitments and letters of credit, which require
capital allocations. Bank holding companies are required to maintain
minimum risk-based capital ratios as shown in the following table. Old
Kent's ratios exceed the regulatory guidelines. At December 31, 1994,
regulatory authorities required that, except for any amounts related to
unrealized losses on equity securities available-for-sale, that the SFAS
No. 115 component of shareholders' equity be excluded from regulatory
capital.
[Risk-Based Capital Ratios Graph]
The following table compares Old Kent's capital ratios at December 31,
1994, with regulatory guidelines.
<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, 1994 $798.0 $803.6 $896.6
Required minimum regulatory capital 325.3 294.8 589.6
Old Kent's capital in excess of regulatory minimums $472.7 $508.8 $307.0
Old Kent's regulatory capital ratios at December 31, 1994 7.32% 10.90% 12.17%
Regulatory capital ratios - "well capitalized" definition 5.00% 6.00% 10.00%
Regulatory capital ratios - minimum requirement 3.00% 4.00% 8.00%
</TABLE>
At December 31, 1994, the ratio of total shareholder's equity to total
assets was 7.85% compared to 8.25% one year earlier. Book value per common
share is calculated by dividing total shareholders' equity by the number of
shares outstanding as of a given date. The following is a reconciliation of
book value per share:
-40-
<TABLE>
<CAPTION>
Per share amount
<S> <C>
Book value per common share at December 31, 1993 $20.05
Net income per common share 3.35
Dividends per common share (1.18)
Effect of stock repurchases during 1994 (1.74)
Effect of stock issuances during 1994 1.69
Net change in unrealized loss on securities available-for-sale (.97)
Book value per common share at December 31, 1994 $21.20
</TABLE>
The Corporation has generally financed its growth through the retention of
earnings and the issuance of long-term debt. It is expected that future
growth can be financed through internal earnings retention, additional
long-term debt offerings, or the issuance of additional common or preferred
stock.
Liquidity and Interest Rate Sensitivity
Old Kent manages its liquidity to ensure that funds are available to each
of its banks to satisfy the cash flow requirements of depositors and
borrowers and to ensure that the Corporation's own cash requirements are
met. Old Kent maintains liquidity by availing itself of funds accessible
from a variety of sources.
The most readily available source of liquidity for Old Kent is that which
is already resident on the Corporation's balance sheet. Old Kent's
securities available-for-sale, which totalled $1.4 billion at December 31,
1994, represent a highly accessible source of liquidity. The Corporation's
portfolio of securities held-to-maturity, which totalled $2.0 billion at
December 31, 1994, produces liquidity from maturities and amortization
payments. Residential mortgages held-for-sale also afford liquidity; at
December 31, 1994, these assets totalled $190 million.
Depositors within Old Kent's defined markets are another source of
liquidity, as evidenced by a growing core deposit base. These same markets
offer additional liquidity in the form of large deposit instruments and
other equivalent non-deposit products. The national capital markets also
represent a source of liquidity to Old Kent. The Corporation may make use
of brokers to place large deposit instruments or bank note offerings when
advantageous, or it may access federal funds markets or utilize
collateralized borrowings. A further source of liquidity is available
through debt offerings.
<TABLE>
<CAPTION>
Credit ratings at December 31, 1994 Thomson BankWatch Moody's Standard & Poor's Old
<S> <C> <C> <C>
Kent Financial Corporation:
Issuer rating A/B
Short-term rating TBW-1
-41-
Subordinated debt rating A+ Baa1 A-
Old Kent Bank (Michigan):
Senior debt AA-
Short-term debt TBW-1 P1 A-1
Long-term debt A1 A
Old Kent Bank (Illinois):
Senior Debt AA-
Short-term debt TBW-1 P1 A-1
Long-term debt A2 A
</TABLE>
Old Kent has an effective "shelf" registration with the Securities and
Exchange Commission which registered up to $150 million in debt securities
for future sale. The amounts, terms and timing of offerings would be
determined in the future when and as the Corporation decides to sell
securities under the registration. Old Kent Bank (Michigan) and Old Kent
Bank (Illinois) have implemented note programs which would permit those
banks to place up to $600 million of short-term and $500 million of
medium-term notes. These programs are intended to enhance liquidity by
enabling Old Kent to sell its debt instruments in the public markets in the
future without the delays which would otherwise be incurred. As shown in
Note 10 to the consolidated financial statements, there were $400 million
of bank notes outstanding at December 31, 1994.
Federal and state banking laws place certain restrictions on the amount of
dividends and loans which a bank may make to its parent company. Such
restrictions have not had, and are not expected to have, any material
effect on the Corporation's ability to meet its cash obligations.
The management of interest rate sensitivity includes monitoring the
maturities and repricing opportunities of interest-earning assets and
interest-bearing liabilities. The following table summarizes the interest
rate repricing gaps for selected maturity periods as of December 31, 1994:
<TABLE>
<CAPTION>
0 - 30 31 - 90 91 - 365 Over 1
(in millions) Days Days Days Year Total
<S> <C> <C> <C> <C> <C>
Non-loan interest-earning assets $ 330.3 $126.0 $ 583.7 $2,477.4 $ 3,517.5
Loans and mortgages held-for-sale 2,864.7 336.3 1,257.4 2,229.5 6,688.0
Total interest-earning assets 3,195.0 462.3 1,841.1 4,707.0 10,205.4
Savings and time deposits 1,619.0 687.2 1,549.5 3,357.1 7,212.8
Foreign deposits 248.4 62.2 70.0 - 380.7
Purchased funds and long-term debt 608.2 .2 390.8 - 999.3
Total interest-bearing liabilities 2,475.7 749.6 2,010.3 3,357.1 8,592.7
Interest-earning assets less
interest-bearing liabilities 719.3 (287.3) (169.2) 1,349.9 1,612.7
Impact of interest rate swaps 85.0 (286.7) (15.0) 216.7 -
Asset (liability) gap $ 804.3 ($573.9) ($ 184.2) $1,566.6 $ 1,612.7
Cumulative asset gap $ 804.3 $230.4 $ 46.2 $1,612.7
-42-
Cumulative gap as a percentage
of earning assets 25.2% 49.8% 2.5% 34.3%
</TABLE>
Total interest-earning assets exceeded interest-bearing liabilities by $1.6
billion at December 31, 1994. This difference was funded through
non-interest bearing liabilities and shareholders' equity. The above table
shows that total assets maturing or repricing within one year exceed
liabilities maturing or repricing within one year by $46 million. However,
the repricing of certain categories of assets and liabilities is subject to
competitive and other influences that are beyond the control of Old Kent.
As a result, certain assets and liabilities indicated as maturing or
repricing within a stated period may, in fact, mature or reprice in other
periods or at different volumes. Old Kent recognizes the limitations of
static gap analysis as a tool in managing its interest rate risk, and
relies more heavily on computer-based modeling techniques to project the
potential effects of various interest rate environments on the balance
sheet structure and net interest income. These simulation techniques
involve changes in interest rate relationships, asset and liability mixes,
and prepayment options inherent in financial instruments, as well as
interest rate levels in order to quantify risk potentials. Based on these
analyses, the Corporation's management believes that Old Kent's net
interest income would not be materially impacted throughout a broad range
of possible economic scenarios.
The accompanying table and graph illustrate that during 1994 Old Kent's
quarterly average net interest margin was not dramatically impacted by
changes in interest rates. This result was consistent with management's
goal of limiting the Corporation to moderate levels of interest rate risk.
<TABLE>
<CAPTION>
Percentage Rate for 1994 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Average Prime Rate 6.02% 6.90% 7.50% 8.13%
Average Fed Funds Rate 3.24% 3.95% 4.52% 5.16%
Net Interest Margin 4.54% 4.66% 4.66% 4.53%
</TABLE>
[1994 Quarterly Average Net Interest Graph]
The graph below displays that net interest income for the next twelve
months is projected to be nonvolatile even if over that period market
interest rates such as prime, fed funds and yields on United States
Treasury securities were to gradually increase or decrease in a uniform
manner by as much as 2.0%. These projections, based on Old Kent's balance
sheet as of December 31, 1994, were prepared using the modeling techniques
and assumptions which Old Kent was then using for asset/liability
management purposes. The projection below indicates that if rates were to
increase or decrease as described above, net interest income would be
expected to decrease by .5% or increase by .2% compared to forecasted
results under a flat rate environment. This narrow projected exposure to
-43-
interest rate risk is consistent with management's desire to limit the
sensitivity of net interest income to changes in interest rates in order to
reduce risk to earnings and capital. This model is based solely on gradual,
uniform changes in market rates and does not reflect the levels of interest
rate risk that may arise from other factors such as changes in the spreads
between key market rates or in the shape of the Treasury yield curve.
[Interest Sensitivity Protection Graph]
An important component of Old Kent's management of interest rate risk is
the company's use of interest rate swaps. At December 31, 1994 the total
notional amount (the amount used to calculate interest) of outstanding
interest rate swap agreements was $557 million. The following tables
present information regarding swap activities for 1994, a maturity profile
that illustrates how increasing or decreasing market rates affect notional
maturity, and the effect that the Corporation's swaps had on net interest
income for 1994 and 1993.
<TABLE>
<CAPTION>
Swaps Activities
1/1/94 Matured and Notional New Swap 12/31/94
(In millions) Notional Terminated *Amortization Notional Notional
<S> <C> <C> <C> <C> <C>
Receive fixed/pay floating $340.0 ($125.0) ($ 8.3) $165.0 $371.7
Receive floating/pay fixed 25.0 - - 40.0 65.0
Receive floating/pay floating 120.5 - - - 120.5
Total notional amounts $485.5 ($125.0) $ 8.3) $205.0 $557.2
<FN>
*Note: Certain "Index Amortizing Swaps" have notional amounts for which the maturity date, or
amortization schedule, may vary based on interest rate levels.
</TABLE>
<TABLE>
<CAPTION>
Maturity Profiles of Interest Rate Swaps Under Varying Assumptions
(In millions) 1995 1996 1997 1998 1999+
<S> <C> <C> <C> <C> <C>
Assuming that market rates in
effect at December 31, 1994
remain unchanged:
Receive fixed/pay floating* $65.0 $15.0 $ 19.6 $128.0 $144.1
Receive floating/pay fixed 25.0 40.0 - - -
Receive floating/pay floating 120.5 - - - -
Assuming that market rates
increase 2.0% over the next
year and remain unchanged
thereafter:
Receive fixed/pay floating* $65.0 $15.0 $ .6 $ 94.2 $196.8
-44-
Assuming that market rates
decrease 2.0% over the next
year and remain unchanged
thereafter:
Receive fixed/pay floating* $66.0 $23.2 $158.2 $ 74.4 $ 50.0
*Note: Old Kent's "Index Amortizing Swaps," which totalled $241.7 million at December 31, 1994,
currently are the only swaps that have notional amounts that mature, or amortize, differently
according to interest rate levels, and are all of the Receive Fixed/Pay Floating variety.
Consequently, the maturity profiles under increasing and decreasing rates are only presented for
the Receive Fixed/Pay Floating category.
</TABLE>
<TABLE>
<CAPTION>
Swaps Receive Rate/Pay Rate Profile
At December 31, 1994 At December 31, 1993
Receive Rate Pay Rate Receive Rate Pay Rate
<S> <C> <C> <C> <C>
Receive fixed/pay floating 6.52% 6.38% 6.65% 3.87%
Receive floating/pay fixed 5.66% 4.25% 3.44% 4.18%
Receive floating/pay floating 12.03% 10.73% 10.27% 13.15%
</TABLE>
For 1994 and 1993, Old Kent's interest rate swaps increased net interest
income by approximately $3.8 million and $10.8 million respectively. This
improved the Corporation's net interest margin by .04% in 1994, and by .13%
in 1993.
Securities Held-to-Maturity
Securities held-to-maturity are purchased with the intent and ability to
hold for long-term investment for the purpose of generating interest income
over the lives of the investments. Thus they are carried on the books at
cost, adjusted for amortization of premium and accretion of discount.
Decisions to purchase securities are based upon current assessments of
economic and financial conditions, including the interest rate environment.
Securities Available-for-Sale
Old Kent's investment strategy is dynamic. As conditions change over time,
the Corporation's overall interest rate risk, liquidity risk, and potential
return on the investment portfolio will change. Old Kent regularly
re-evaluates the marketable securities in its portfolio based on
circumstances as they evolve. In consideration of these factors,
management's objective is to optimize the ongoing total return of its
securities portfolios.
During 1994, the principal reason for sales of securities
available-for-sale was to provide liquidity for loan growth. The average
maturity of securities available-for-sale and securities held-to-maturity
-45-
was 3.1 years at December 31, 1994, compared to 2.4 years at the preceding
year-end. During 1993, the principal reason for sales of securities
available-for-sale was Old Kent's desire to manage the average maturity of
the combined securities portfolios.
In 1994, net gains on the sale of securities were $1.0 million. This
compares to net gains of $1.6 million in 1993 and $5.7 million in 1992.
Effective January 1, 1994, the Corporation adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This statement
specifies that securities available-for-sale are to be carried at fair
value with a corresponding (after-tax) offset in shareholders' equity.
Under this statement, fluctuations in market value are not reflected in net
income unless they are realized. When adopted by Old Kent, this statement
had no effect on net income or liquidity. Its future impact on the
Corporation's balance sheet is not estimable.
Sources and Uses of Funds Trends
As shown on the accompanying consolidated balance sheets, total assets at
December 31, 1994, were $10.9 billion, up by $1.1 billion, or 11.1%, from
the preceding year-end. This increase in total assets includes the effect
of Old Kent's acquisition of EdgeMark Financial Corporation, which had
assets of $522 million when acquired. Total deposits at December 31, 1994,
were nearly $9 billion. This represents and increase of $1 billion, or
12%. Approximately one-half of this increase represents the deposits of
EdgeMark. During 1994, total loans increased by almost 30% to $6.5 billion
at year-end. This increase was the combined result of healthy loan demand
and acquisitions. Securities totalled approximately $3.4 billion at
December 31, 1994, down from nearly $3.6 billion at December 31, 1993,
reflecting their use as a source of funds for loan growth. The consolidated
statements of cash flows contains further details concerning sources and
uses of cash.
<TABLE>
AVERAGE CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Income and rates on
fully taxable-equiva- 1994 1993 1992
lent basis, dollars AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
in thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Loans(1) 5,721,341 478,261 8.36% 4,889,092 402,861 8.24% 4,966,622 438,379 8.83%
Taxable invest-
ment securities 3,266,513 214,391 6.56 3,070,845 222,678 7.25 2,854,410 230,082 8.06
Tax-exempt invest-
ment securities(2) 201,970 16,498 8.17 188,218 15,940 8.47 190,162 17,709 9.31
Mortgage held-for-
sale 224,481 14,781 6.58 277,841 17,840 6.42 -- -- --
-46-
Interest - earning
deposits:
Domestic 1,991 97 4.87 10,590 575 5.43 11,918 813 6.82
Foreign 18,077 894 4.95 61,027 3,387 5.55 51,825 3,387 6.54
Federal funds sold
and resale
agreements 101,870 4,540 4.46 72,188 2,249 3.12 70,339 2,659 3.78
Trading account
securities(2) 26,014 1,160 4.46 57,138 1,927 3.37 57,552 2,333 4.05
Total earning
assets 9,562,257 730,622 7.64 8,626,939 667,458 7.74 8,202,827 695,362 8.48
Unrealized loss
on securities
available-for-sale (4,690) -- --
Allowance for loan
losses (154,944) (131,474) (101,790)
Cash and due from
banks 389,474 377,850 350,906
Other Assets 455,120 380,318 309,968
Total Assets 10,247,217 9,253,633 8,761,913
Average Liabilities
and Shareholders'
Equity:
Savings Deposits 3,213,531 74,792 2.33% 3,030,380 78,063 2.58% 2,761,215 91,669 3.32%
Time Deposits:
Negotiable 1,434,014 64,311 4.48 1,059,313 35,862 3.39 909,757 37,932 4.17
Foreign 245,109 10,407 4.25 210,916 6,862 3.25 222,605 8,328 3.74
Other time 2,289,553 102,941 4.50 2,318,061 110,704 4.78 2,487,137 139,650 5.61
Total interest-
bearing deposits 7,182,207 252,451 3.51 6,618,670 231,491 3.50 6,380,714 277,579 4.35
Federal funds
purchased and re-
purchase agreements 413,163 15,413 3.73 452,296 12,796 2.83 565,072 18,464 3.27
Other borrowed funds 516,460 22,862 4.43 272,838 8,729 3.20 115,717 4,131 3.57
Long - term debt 1,202 119 9.90 2,994 264 8.82 31,176 1,412 4.53
Total interest -
bearing funds 8,113,032 290,845 3.58 7,346,798 253,280 3.45 7,092,679 301,586 4.25
Demand deposits 1,157,910 1,024,964 905,941
Other liabilities 130,757 113,710 79,463
Shareholders'
equity:
Common stock,
capital surplus
and retained
earnings 848,563 768,161 683,830
Unrealized losses
on securities
available-for-sale (3,045) -- --
Total Liabilities
and Shareholders'
Equity 10,247,217 9,253,633 8,761,913
-47-
Fully Taxable -
Equivalent Net
Interest Income 439,777 4.06% 414,178 4.29% 393,776 4.23%
Net Interest Income
as a Percentage of
Average Earning
Assets 4.60% 4.80% 4.80%
Percentage of
Total Assets:
Foreign Assets 0.18% 0.66% 0.59%
Foreign
Liabilities 2.39% 2.28% 2.54%
<FN>
(1) Loan fees are included in interest income and are used to calculate average rates earned.
Non-accrual loans are included in the average loan balances.
(2) Yields are computed on a fully taxable-equivalent basis using a federal tax rate of 35% in 1994
and 1993, and 34% in prior years.
</TABLE>
<TABLE>
<CAPTION>
1991 1990
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Loans(1) 5,173,142 533,522 10.31% 5,186,627 582,180 11.22%
Taxable invest-
ment securities 2,165,169 188,657 8.71 1,623,823 144,854 8.92
Tax-exempt invest-
ment securities(2) 210,379 19,586 9.31 228,616 21,177 9.26
Mortgage held-for-
sale -- -- -- -- -- --
Interest - earning
deposits:
Domestic 10,269 801 7.80 45,490 4,083 8.98
Foreign 100,804 8,224 8.16 230,864 20,797 9.01
Federal funds sold
and resale
agreements 90,710 5,045 5.56 70,103 5,619 8.02
Trading account
securities(2) 48,260 2,889 5.99 28,084 2,381 8.48
Total earning
assets 7,798,733 758,724 9.73 7,413,607 781,091 10.54
Unrealized loss
on securities
available-for-sale -- --
Allowance for loan
losses (78,095) (69,183)
Cash and due from
banks 333,622 341,599
Other Assets 292,848 289,826
Total Assets 8,347,108 7,975,849
-48-
Average Liabilities
and Shareholders'
Equity:
Savings Deposits 2,387,584 115,757 4.85% 2,188,826 118,307 5.41%
Time Deposits:
Negotiable 917,813 59,169 6.45 1,026,650 85,358 8.31
Foreign 101,322 6,015 5.94 95,052 7,689 8.09
Other time 2,743,162 193,712 7.06 2,532,093 202,414 7.99
Total interest-
bearing deposits 6,149,881 374,653 6.09 5,842,621 413,768 7.08
Federal funds
purchased and re-
purchase agreements 425,843 22,418 5.26 369,802 28,062 7.59
Other borrowed funds 124,075 6,739 5.43 128,825 9,892 7.68
Long - term debt 77,644 5,999 7.73 83,313 6,382 7.66
Total interest -
bearing funds 6,777,443 409,809 6.05 6,424,561 458,104 7.13
Demand deposits 859,015 873,411
Other liabilities 72,544 91,880
Shareholders'
equity:
Common stock,
capital surplus
and retained
earnings 638,106 585,997
Unrealized losses
on securities
available-for-sale -- --
Total Liabilities
and Shareholders'
Equity 8,347,108 7,975,849
Fully Taxable -
Equivalent Net
Interest Income 348,915 3.68% 322,987 3.41%
Net Interest Income
as a Percentage of
Average Earning
Assets 4.47% 4.36%
Percentage of
Total Assets:
Foreign Assets 1.21% 2.89%
Foreign
Liabilities 1.21% 1.19%
<FN>
(1) Loan fees are included in interest income and are used to calculate average rates earned.
Non-accrual loans are included in the average loan balances.
(2) Yields are computed on a fully taxable-equivalent basis using a federal tax rate of 35% in 1994
and 1993, and 34% in prior years.
</TABLE>
-49-
The following table of average balances summarizes the trends in sources
and uses of funds:
<TABLE>
<CAPTION>
1994 1993
Average Increase (Decrease) Average Increase (Decrease)
(dollars in millions) Balance Amount Percent Balance Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Funding Uses:
Loans $5,721.3 $832.2 17.0% $4,889.1 ($ 77.5) (1.6)%
Mortgages held-for-sale 224.5 (53.4) (19.2) 277.8 277.8 100.0
Taxable securities 3,266.5 195.7 6.4 3,070.8 216.4 7.6
Tax-exempt securities 202.0 13.8 7.3 188.2 (1.9) (1.0)
Interest-earning deposits 20.1 (51.5) (71.9) 71.6 7.9 12.4
Federal funds sold
and resale agreements 101.9 29.7 41.1 72.2 1.8 2.6
Trading account securities 26.0 (31.1) (54.5) 57.1 (.4) (.7)
Total Uses $9,562.3 $935.4 10.8% $8,626.9 $424.1 5.2%
Funding Sources:
Demand deposits $1,157.9 $132.9 13.0% $1,025.0 $119.0 13.1%
Savings deposits 3,213.5 183.2 6.0 3,030.4 269.2 9.7
Time deposits:
Negotiable 1,434.0 374.7 35.4 1,059.3 149.6 16.4
Foreign 245.1 34.2 16.2 210.9 (11.7) (5.3)
Consumer 2,289.6 (28.5) (1.2) 2,318.1 (169.1) (6.8)
Federal funds purchased
and repurchase agreements 413.2 (39.1) (8.7) 452.3 (112.8) (20.0)
Other borrowed funds 516.5 243.7 89.3 272.8 157.1 135.8
Long-term debt 1.2 (1.8) (59.9) 3.0 (28.2) (90.4)
Other 291.3 36.1 14.2 255.2 51.0 25.0
Total Sources $9,562.3 $935.4 10.8% $8,626.9 $424.1 5.2%
</TABLE>
During 1994, average total loans increased by $832 million, or 17.0%. This
compares to a 1.6% decrease in 1993 of $78 million. Average deposits
increased by $696 million, or 9.1%, in 1994. This compares to a 1993
increase of $357 million, or 4.0%. This growth includes the assets and
deposits of acquired businesses as previously discussed in this financial
review.
Prior to 1994, lower interest rates over the preceding years had an effect
on the relative mix in Old Kent's core deposits. During the period of lower
rates, savings deposits became a greater proportion of total core deposits.
Management believes that this trend indicated a greater preference for
liquidity on the part of consumers. However, during the latter part of 1994
interest rates rose. This had the effect of altering this past trend and
savings deposits became proportionately less of the total by the end of the
year. This change in trend influenced an increase in the Corporation's
interest expense for 1994. Old Kent's management believes that, subject to
the influences of market interest rates, this changed trend will continue
to greater or lesser degrees during 1995.
[Relative Core Deposit Mix Graph]
-50-
<TABLE>
<CAPTION>
At Year-end Based on annual averages
Relative core deposit mix 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Demand deposits 19.3% 17.4% 16.1% 14.7% 14.3% 15.6%
Savings deposits 43.1% 48.2% 47.5% 44.9% 39.9% 39.1%
Other time deposits 37.6% 34.4% 36.4% 40.4% 45.8% 45.3%
Total core deposits 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
Disclosures About Fair Values
Pursuant to the requirements of Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial Instruments ("SFAS No.
107"), Note 17 to the consolidated financial statements sets forth the
estimated fair value of each significant class of financial instrument.
These values were determined using available market information, current
pricing information applicable to the Corporation and various valuation
methodologies. Where market quotations were not available, considerable
judgment was exercised by Old Kent's management in the determination of
estimated fair values. Hence, the estimated fair values of financial
instruments presented may not be representative of amounts at which they
could be exchanged. Due to the inherent uncertainties of expected cash
flows of financial instruments, the use of other valid, alternate valuation
assumptions and methods could result in estimated fair values which may
differ significantly from those presented in the December 31, 1994,
consolidated financial statements. Additionally, these estimated fair
values represent an estimate at a given point in time. Factors, including
but not limited to, changes in the general levels of interest rates, may
have significant favorable or unfavorable effects on estimated market
values in periods subsequent to December 31, 1994. Therefore, the estimated
fair values presented by Old Kent are subject to the possibility of
significant change after December 31, 1994.
Old Kent has disclosed in its consolidated financial statements the
estimated fair value of its significant classes of financial instruments at
December 31, 1994 and 1993. Beyond financial instruments, the Corporation
has assets, both tangible and intangible in nature, which Old Kent's
management believes to have significant estimated fair value in excess of
carrying value at December 31, 1994. Such assets include, but are not
limited to, "core deposit intangible" assets, premises whose appreciated
value significantly exceeds carrying value based upon historical cost and
depreciation, and residential mortgage servicing rights. Old Kent's
management believes that its "core deposit intangible" asset had the most
significant estimated fair value in excess of carrying value at December
31, 1994.
Core deposits generally include demand and savings deposits as well as
consumer time deposits. Old Kent's core deposits totalled over $7.0 billion
at December 31, 1994 and included approximately $4.4 billion of demand and
savings deposits. Old Kent's management believes that these deposits have
-51-
significant fair value which is not reflected in the estimated fair values
in Note 17 to the consolidated financial statements at December 31, 1994.
Prices involved in sales, mergers and acquisitions of financial
institutions or their banking offices and related deposits are usually
influenced by the value of core deposit intangible assets. Such assets
typically have value based on measurements which estimate the cost of
procuring an equivalent base of deposit customers with similar life
expectancies for the deposit account relationships. Also,
non-interest-bearing deposits and interest-bearing deposits having no fixed
maturity dates usually have a value associated with their nature as lower
cost funding sources which tend to have duration behavior characteristics
similar to time deposits. At December 31, 1994, the carrying value of
unamortized core deposit intangible assets acquired through various
purchase transactions, was $26.8 million, only .3% of the Corporation's
total core deposits at that date.
Quarterly Financial Data
The following is a summary of selected quarterly results of operations for the
years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Three Months Ended 1994
(in thousands, except per share data) March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest Income $163,763 $175,561 $186,262 $197,697
Net Interest Income 101,499 108,472 111,019 111,448
Provision for Credit Losses 4,514 6,271 5,095 5,285
Income Before Income Taxes 47,595 53,284 54,027 49,974
Net Income 31,709 35,482 35,504 33,412
Net Income Per Common Share $ .79 $ .87 $ .87 $ .82
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended 1993
(in thousands, except per share data) March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest Income $163,658 $167,937 $162,902 $165,523
Net Interest Income 99,766 104,119 99,448 103,407
Provision for Credit Losses 9,449 10,399 6,581 7,568
Income Before Income Taxes 47,366 49,755 50,760 45,672
Net Income 30,104 33,421 33,893 30,484
Net Income Per Common Share $.74 $.82 $.83 $.75
</TABLE>
Net income for the fourth quarter of 1994 was less than that of the two
preceding calendar quarters. The primary reason for the decrease was lower
levels of non-interest income. Trust income decreased due to the effects of
unfavorable conditions in the bond markets and mortgage banking gains were
sharply curtailed due to the effects of rising interest rates. Also, total
interest income for the fourth quarter of 1994 was approximately $11
-52-
million greater than that of the preceding quarter. This, however, did not
result in a significant increase in net interest income due to a comparable
increase in total interest expense.
Net income for the fourth quarter of 1993 was less than that of the two
preceding calendar quarters. The primary reason for the change in trend was
a significantly lower level of gains on sales of residential mortgage loans.
Such gains amounted to $2.9 million for the fourth quarter of 1993. This
compares to gains of nearly $7.0 million for each of the two preceding three
month periods. Also, increased net interest income attributable to growth in
interest-earning assets during the fourth quarter of 1993 tended to
offset a similar level of increase in non-interest expenses during that same
quarter.
Annual Report 1994
Consolidated Financial Statements
[LOGO] Old Kent
Management's Responsibility for Financial Reporting
The management of Old Kent Financial Corporation is responsible for the
preparation of the financial statements and other related financial
information included in the annual report. The financial statements have
been prepared in accordance with generally accepted accounting principles
and include amounts based on management's estimates and judgements where
applicable. Financial information appearing throughout this annual report
is consistent with the financial statements.
The Corporation maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and that transactions are
executed in accordance with management's authorization and are recorded
properly to permit the preparation of financial statements in accordance
with generally accepted accounting principles. Management continually
monitors the internal control structure for compliance with established
policies and procedures. As an integral part of the internal control
system, the Corporation maintains a professional staff of internal auditors
who monitor compliance with internal controls and coordinate audit coverage
with the independent public accountants.
The Audit Committee of the Board of Directors, composed entirely of outside
Directors, oversees the Corporation's financial reporting process and has
responsibility for recommending the independent public accountants who are
appointed by the Board of Directors to audit the Corporations annual
financial statements.
The financial statements in this annual report have been audited by Arthur
Andersen LLP and their report appears on page 51.
The Audit Committee of the Board of Directors meets regularly with
management, internal auditors, independent public accountants and
regulatory examiners to review matters relating to financial reporting and
-53-
internal controls. The internal auditors, independent public accountants
and regulatory examiners have direct access to the Audit Committee.
The Corporation assesses its internal control structure over financial
reporting in relation to the criteria described in the "Internal Control -
Integrated Framework" issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, Management of the
Corporation believes that as of December 31, 1994, in all material
respects, the Corporation maintained an effective internal control
structure over financial reporting.
s/ J.C. Canepa
John C. Canepa,
Chairman
s/ David J. Wagner
David J. Wagner,
President
s/ B.P. Sherwood, III
B.P. Sherwood, III,
Vice Chairman and Treasurer
s/ Richard W. Wroten
Richard W. Wroten,
Executive Vice President and Chief Financial Officer
January 16, 1995
Report of Independent Public Accountants
To the Shareholders and the Board of Directors of Old Kent Financial
Corporation:
We have audited the accompanying consolidated balance sheets of Old Kent
Financial Corporation (a Michigan corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
income, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
-54-
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Old Kent Financial
Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois,
January 16, 1995
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Consolidated Balance Sheets
December 31 (dollars in thousands) 1994 1993
<S> <C> <C>
Assets:
Cash and due from banks $ 461,146 $ 371,789
Federal funds sold and
resale agreements 28,727 93,200
Total cash and
cash equivalents 489,873 464,989
Interest-earning deposits 5,255 32,596
Mortgages held-for-sale 189,989 474,898
Trading account securities 10,651 38,558
Securities available-for-sale:
Collateralized mortgage
obligations and other
mortgage-backed securities 404,885 394,251
Other securities 1,043,897 988,373
Total securities
available-for-sale
(amortized cost of
approximately $1,509,366
in 1994 and market value of
$1,433,744 in 1993) 1,448,782 1,382,624
Securities held-to-maturity:
Collateralized mortgage
obligations and other
mortgage-backed securities 1,049,419 990,759
Other securities 914,035 1,193,949
Total securities
held-to-maturity (market
values of $1,886,533
and $2,240,798 in 1994 and
1993, respectively) 1,963,454 2,184,708
-55-
Loans 6,497,997 5,016,686
Less allowance for credit
losses 161,873 140,725
Net loans 6,336,124 4,875,961
Leasehold improvements,
premises and equipment 156,877 133,888
Other assets 345,441 267,482
Total Assets $10,946,446 $9,855,704
Liabilities and
Shareholders' Equity:
Liabilities:
Deposits:
Non-interest-bearing $ 1,364,121 $1,144,700
Interest-bearing 7,212,771 6,478,800
Foreign-interest bearing 380,659 347,652
Total deposits 8,957,551 7,971,152
Short-term borrowed funds 998,150 958,295
Other liabilities 130,130 112,275
Long-term debt 1,119 1,215
Total Liabilities 10,086,950 9,042,937
Shareholders' Equity:
Preferred stock: 25,000,000
shares authorized
and unissued -- --
Common stock, par value $1:
150,000,000 shares
authorized; 40,540,669
and 40,538,910 shares
issued and outstanding
in 1994 and 1993,
respectively 40,541 40,539
Capital surplus 118,116 120,109
Retained earnings 740,234 652,119
Total common stock,
capital surplus and
retained earnings 898,891 812,767
Unrealized losses on
securities available-
for-sale (39,395) --
Total Shareholders' Equity 859,496 812,767
Total Liabilities and
Shareholders' Equity $10,946,446 $9,855,704
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-56-
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year ended December 31
(dollars in thousands,
except per share data) 1994 1993 1992
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 476,437 $ 400,719 $ 435,922
Interest on mortgages
held-for-sale 14,781 17,844 --
Interest on securities
available-for-sale 83,953 79,001 --
Interest on securities
held-to-maturity 141,516 154,375 242,168
Interest on deposits 991 3,962 4,200
Interest on federal funds
sold and resale agreements 4,540 2,249 2,659
Interest on trading
account securities 1,065 1,870 2,245
Total interest income 723,283 660,020 687,194
Interest Expense:
Interest on
domestic deposits 242,044 224,629 269,251
Interest on
foreign deposits 10,407 6,862 8,328
Interest on short-term
borrowed funds 38,275 21,525 22,595
Interest on
long-term debt 119 264 1,412
Total interest expense 290,845 253,280 301,586
Net Interest Income 432,438 406,740 385,608
Provision for Credit Losses 21,165 33,997 57,712
Net Interest Income after
Provision for Credit Losses 411,273 372,743 327,896
Other Income:
Trust Income 41,813 40,305 38,472
Service charges on
deposit accounts 32,943 29,972 26,516
Credit card transaction
revenue 22,170 16,358 13,510
Mortgage servicing revenue 12,714 9,403 6,287
Mortgage banking gains 7,392 20,763 14,651
Securities transactions 1,015 1,575 5,676
Other 33,454 28,414 22,934
Total other income 151,501 146,790 128,046
Other Expenses:
Salaries and
employee benefits 162,937 145,914 132,467
Occupancy 25,820 22,415 19,974
Equipment 21,828 18,571 16,743
FDIC deposit insurance 18,106 16,375 16,134
-57-
Interbank credit card
transaction fees 15,784 10,950 8,449
Other 113,419 111,755 98,218
Total other expenses 357,894 325,980 291,985
Income before Income Taxes 204,880 193,553 163,957
Income taxes 68,773 65,651 52,866
Net Income $136,107 $127,902 $111,091
Average number of shares
used to compute:
Primary net income
per common share 40,629,356 40,748,316 40,356,791
Fully diluted net
income per common
share 40,629,356 40,748,316 41,097,570
Net income per
common share:
Primary $3.35 $3.14 $2.75
Fully diluted $3.35 $3.14 $2.71
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $136,107 $127,902 $111,091
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for credit losses 21,165 33,997 57,712
Depreciation, amortization and
accretion 37,574 27,174 16,885
Deferred income taxes (6,802) (6,524) (13,727)
Net gains on sales of assets (12,425) (24,628) (22,034)
Net decrease in trading account
securities 29,272 25,247 550
Originations and acquisitions of
mortgages held-for-sale (1,835,901) (2,319,737) (1,264,836)
Sales and prepayments of
mortgages held-for-sale 2,180,165 2,049,106 1,262,298
Net (increase) decrease in
other assets (23,832) 1,248 (1,829)
Net decrease in other
liabilities (18,614) (7,210) (19,816)
Net cash provided by
(used for) operating
activities 506,709 (93,425) 126,294
-58-
Cash flows from investing activities:
Maturities and prepayments of
securities available-for-sale 146,401 145,469 --
Proceeds from sales of securities
available-for-sale 2,133,275 753,992 --
Purchases of securities
available-for-sale (2,336,955) (1,215,439) --
Maturities and prepayments of
securities held-to-maturity 598,108 902,009 513,090
Proceeds from sales of securities
held-to-maturity 646 -- 983,945
Purchases of securities
held-to-maturity (354,782) (1,110,706) (1,807,325)
Net decrease in
interest-earning deposits 29,971 35,379 55,122
Net (increase) decrease in loans (1,130,174) (80,786) 200,096
Purchases of leasehold
improvements, premises and
equipment, net (27,341) (30,477) (18,175)
Acquisition of subsidiaries (net
of cash acquired) 23,763 (7,522) --
Net cash used for investing
activities (917,088) (608,081) (73,247)
Cash flows from financing activities:
Increase (decrease)
in time deposits 683,932 364,814 (503,001)
(Decrease) increase in demand
and savings deposits (165,297) 154,844 442,562
Increase (decrease) in short-term
borrowed funds 29,995 274,709 (68,244)
Payments of long-term
debt obligations (96) (15,002) (12,677)
Repurchases of common stock (70,720) (2,770) (71,604)
Proceeds from common stock
issuances 5,441 3,902 4,771
Dividends paid to shareholders (47,992) (43,380) (36,413)
Net cash provided by (used for)
financing activities 435,263 737,117 (244,606)
Net increase (decrease) in cash
and cash equivalents 24,884 35,611 (191,559)
Cash and cash equivalents at
beginning of year 464,989 429,378 620,937
Cash and cash equivalents
at end of period $489,873 $464,989 $429,378
Supplemental disclosures of cash flow
information:
Interest paid on deposits,
short-term borrowings and
long-term debt $276,835 $244,482 $316,613
-59-
Federal income taxes paid 77,472 71,755 66,461
Significant non-cash transactions:
Convertible debentures retired in
exchange for common stock issuances -- -- 45,870
Stock issued to acquire subsidiary 62,551 -- --
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Unrealized
Loss on Total
Securities Share-
(dollars in thousands, Common Capital Retained Available- holders'
except per share data) Stock Surplus Earnings For-Sale Equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $26,770 $139,393 $506,447 $672,610
Net income for the year 111,091 111,091
Cash dividends:
$ .90 1/3 per common share (36,413) (36,413)
Common stock repurchased (1,781) (68,213) (69,994)
Common stock issued for
conversion of debentures,
and under employee stock
plans 1,987 46,689 48,676
Common stock purchased for
dividend reinvestment plan (47) (1,563) (1,610)
Common stock issued under
dividend reinvestment plan 47 1,563 1,610
Common stock issued in payment
of 3-for-2 stock split
(cash paid in lieu of frac-
tional shares - $62) 13,466 (13,528) (62)
Tax benefit relating to
employee stock plan 369 369
Balance at December 31, 1992 40,442 118,238 567,597 726,277
Net income for the year 127,902 127,902
Cash dividends:
$1.07 per common share (43,380) (43,380)
Common stock issued under
employee stock plans 97 1,269 1,366
Common stock purchased for
dividend reinvestment plan (85) (2,685) (2,770)
Common stock issued under
dividend reinvestment plan 85 2,685 2,770
Tax benefit relating to
employee stock plans 602 602
Balance at December 31, 1993 40,539 120,109 652,119 812,767
Net income for the year 136,107 136,107
Cash dividends:
$1.18 per common share (47,992) (47,992)
-60-
Common stock purchased
for EdgeMark Financial
Corporation acquisition -
1,917,566 shares (1,918) (60,673) (62,591)
Common stock issued for
EdgeMark Financial
Corporation acquisition -
1,917,566 shares 1,918 60,633 62,551
Common stock purchased for
dividend reinvestment plan
and employee stock plans -
253,780 shares (254) (7,875) (8,129)
Common stock issued under
dividend reinvestment plan
and employee stock plans,
and other - 255,539 shares 256 5,584 5,840
Tax benefit relating to
employee stock plans 338 338
Unrealized loss on
securities
available-for-sale (39,395) (39,395)
Balance at December 31, 1994 $40,541 $118,116 $740,234 ($39,395) $859,496
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed
for the banking industry. A description of significant accounting policies
follows:
Basis of Presentation
The consolidated financial statements for Old Kent (The Corporation)
include the accounts of Old Kent Financial Corporation (Parent Company)
and its wholly owned subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.
Cash Equivalents
Old Kent has defined cash and cash equivalents as those amounts included in
the consolidated balance sheets as "cash and due from banks, federal funds
sold and resale agreements."
-61-
Trading Account Securities
Trading account securities, which primarily consist of debt securities, are
carried at market value. Gains and losses on trading activities are
included in other income in the consolidated statements of income.
Securities Available-for-Sale
Securities available-for-sale include those securities which might be sold
as part of Old Kent's management of interest rate risk, in response to
changes in interest rates, prepayment or credit risk or due to a desire to
increase capital or liquidity. While Old Kent has no current intention to
sell these securities, they may not be held for long-term investment.
Effective January 1, 1994, Old Kent adopted, without a material impact, the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under
the provisions of this statement, these assets are carried on the balance
sheet at their estimated fair values, with corresponding (after-tax)
valuation adjustments included as a component of shareholders' equity.
Prior to January 1, 1994, securities available-for-sale were carried at the
lower of aggregate market or cost adjusted for amortization of premium and
accretion of discount computed on the interest method over the terms of the
securities. Gains and losses realized on sales of such securities are
determined using the specific identification method and are classified as
other income in the consolidated statements of income.
Securities Held-to-Maturity
Securities held-to-maturity are stated at amortized cost. Designation as
such a security is made at the time of acquisition and is based on the
intent and ability to hold the security to its maturity. Prior to 1994,
such treatment was based on an intent to hold for long-term.
Interest Rate Swaps
The Corporation enters into interest rate swaps on existing assets and
liabilities. Income and expenses associated with interest rate swap
transactions are accrued over the life of the contracts and are classified
with the income and expense of the specific assets and liabilities which
are being hedged. Gains and losses on early terminations are included in
the carrying amount of the hedged asset or liability and amortized as yield
adjustments over the remaining term of the hedged asset or liability.
Mortgage Banking Activities
The Corporation routinely sells to investors its originated residential
mortgage loans, as well as those acquired from third parties. The
Corporation typically retains the servicing rights related to the mortgages
sold. Gains on sales of mortgages are recorded to the extent proceeds
exceed the carrying value of the loans after allowing for the recognition
of a normal servicing fee over the estimated lives of the net servicing
income. Mortgage loans held-for-sale are carried at the lower of cost or
-62-
market, which is determined under the aggregate method. The carrying value
of such loans is adjusted by gains and losses associated with the
corresponding financial instruments used to hedge against increases in
interest rates.
Old Kent capitalizes the cost of servicing rights acquired from independent
sources. Amortization of purchased mortgage servicing rights is recorded
over the estimated lives of the related loans. The Corporation evaluates
the realizability of each year's purchased mortgage servicing rights
separately considering such factors as estimated prepayment rates, current
economic conditions and other portfolio characteristics and, if necessary,
adjusts the carrying value to reflect net realizable value. Such
adjustments were not material in 1994, 1993 and 1992.
Loans
Loans are stated at their principal amount outstanding, net of unearned
income. Loan performance is reviewed regularly by loan review personnel,
loan officers and senior management. A loan is placed on nonaccrual status
when principal or interest is past due 90 days or more, and the loan is not
well secured and in the process of collection, or when, in the opinion of
management, there is sufficient reason to doubt collectibility. Interest
previously accrued, but not collected, is reversed and charged against
interest income at the time the loan is placed on nonaccrual status.
Payments received on nonaccrual loans are recorded as principal reductions
if principal repayment is doubtful. Loans are returned to accrual status
when principal and interest payments are brought current and collectibility
is no longer in doubt. Interest income on restructured loans is recognized
according to the terms of the restructure, subject to the above described
nonaccrual policy.
Certain commitment and loan origination fees are deferred and amortized as
an adjustment of the related loan's yield over its contractual life using
the interest method, or other methods which approximate the interest
method. All remaining commitment and loan origination fees and all direct
costs associated with originating or acquiring loans are recognized
currently, which is not materially different than the prescribed method.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level that, in
management's judgment, is adequate to absorb probable credit losses. The
amount is based on management's specific review and analysis of the loan
portfolio, as well as evaluation of the effects of current economic
conditions on the loan portfolio.
This process is based on estimates, and ultimate losses may vary from
current estimates. As changes in estimates occur, adjustments to the level
of the allowance are recorded in the provision for credit losses in the
period in which they become known.
-63-
Leasehold Improvements, Premises and Equipment
Leasehold improvements, premises and equipment are stated at original
costs, less accumulated depreciation and amortization computed on the
straight-line method over the estimated useful lives of the assets or terms
of the leases, whichever period is shorter. For income tax purposes,
minimum lives and accelerated methods are used.
Other Real Estate Owned
Other real estate owned consists of properties acquired in partial or total
satisfaction of debt. Other real estate owned is stated at the lower of the
related loan value or fair value. Losses arising at acquisition are charged
against the allowance for credit losses. Reductions in fair value
subsequent to acquisition are recorded in other expense in the consolidated
statements of income, while any gains realized on the disposition of such
properties are included in other income.
Intangible Assets
Goodwill, representing the cost of investments in subsidiaries in excess of
the fair value of the net assets at acquisition, is amortized over periods
ranging from 10 to 20 years. Other acquired intangible assets, such as
those associated with acquired core deposits, are amortized over periods
not exceeding 15 years.
Trust Assets
Property, other than cash deposits, held in a fiduciary or agency capacity
is not included in the consolidated balance sheets, since such assets are
not owned by Old Kent.
Pension Benefits
A defined benefit pension plan covers substantially all employees. The plan
provides for normal and early retirement, deferred benefits for vested
employees and, under certain circumstances, survivor benefits in the event
of death. Benefits are based on the employees' years of service and their
five highest consecutive years of compensation over the last ten years of
service, subject to certain limits. The proportion of average compensation
paid as a pension is determined by age and length of service as defined in
the plan. Contributions to the plan satisfy or exceed the minimum funding
requirement of the Employee Retirement Income Security Act (ERISA). Assets
held by the plan consist primarily of investments in several of Old Kent's
proprietary mutual funds.
Old Kent also maintains a noncontributory, nonqualified pension plan for
certain participants whose retirement benefit payments under the qualified
plan are expected to exceed the limits imposed by ERISA. Old Kent maintains
nonqualified trusts, referred to as "rabbi" trusts, primarily to fund and
secure the benefits in excess of those permitted in certain of the Old Kent
qualified pension plans.
-64-
Note 1. Summary of Significant Accounting Policies (continued)
These arrangements offer certain officers and directors of the Corporation
a degree of assurance for ultimate payment of benefits. The assets remain
subject to the claims of creditors of Old Kent and are not the property of
the employees. Hence, they are accounted for as assets of the Corporation
in the consolidated balance sheets.
Retirement Savings Plans
Old Kent maintains a defined contribution retirement savings plan covering
substantially all employees. The Corporation's contribution is equal to 50%
of the amount contributed by the participating employees. Old Kent's
contribution is limited to a maximum of 3% of base wages as described under
the terms of the plans. The estimated contribution by Old Kent is charged
to expense during the year in which the employee contribution is received
and is included in employee benefits in the consolidated statements of
income.
Income Taxes
Effective January 1, 1993, the Corporation adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." SFAS No. 109 required a change from the deferral method
of accounting for income taxes of Accounting Principles Board Opinion No.
11 to the asset and liability method of accounting for income taxes. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using the enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be reversed. Old Kent and its subsidiaries file a consolidated
federal income tax return.
Income per Common Share
Primary earnings per common share are computed by dividing net income by
the weighted average number of common shares outstanding and common share
equivalents with a dilutive effect. Common share equivalents are shares
which may be issuable to employees upon exercise of outstanding stock
options.
Fully diluted earnings per common share are determined on the assumption
that the weighted average number of common shares and common share
equivalents outstanding is further increased by conversion of the
convertible debentures. Net income is increased by the after tax interest
expense related to convertible debentures.
-65-
Reclassification
Certain reclassifications have been made to prior periods' financial
statements to place them on a basis comparable with the current period's
financial statements.
Note 2. Acquisitions
Effective May 2, 1994, Old Kent acquired EdgeMark Financial Corporation
(EdgeMark) (Chicago, Illinois). Old Kent exchanged 1,917,566 shares of its
common stock for all of the outstanding EdgeMark common stock. The
aggregate value of the Old Kent common stock issued was approximately $62.6
million. When acquired, EdgeMark had total assets of $522 million and
deposits of $456 million. This acquisition was accounted for as a purchase.
If this purchase had been effective January 1, 1993, there would have been
no material effect on the consolidated results of operations or financial
condition.
On March 1, 1994, Old Kent purchased Princeton Financial Corp. (Princeton)
(Orlando, Florida) in a cash transaction. Princeton is a mortgage company
which originates and sells residential mortgages, while retaining a
substantial portion of the related servicing rights. At the date of
acquisition, Princeton had assets of approximately $70 million and serviced
residential mortgages of approximately $360 million for third-party
investors. This acquisition was accounted for as a purchase. If it had been
effective January 1, 1993, there would have been no material effect on the
consolidated results of operations or financial condition.
Effective January 1, 1993, Old Kent acquired all of the outstanding common
stock of University Financial Corporation (Elgin, Illinois) for
approximately $12.5 million in cash. University Financial Corporation owned
First Federal of Elgin, F.S.A. which, upon acquisition, was merged into Old
Kent's Illinois banking subsidiary. When acquired, University Financial
Corporation had assets of approximately $275 million and deposits of
approximately $198 million and serviced approximately $827 million of
mortgages for third party investors. This acquisition was accounted for as
a purchase.
Pending at December 31, 1994, is the Corporation's acquisition of First
National Bank Corp. (Mount Clemens, Michigan). During the first quarter of
1995, Old Kent expects to exchange approximately 2.8 million shares of its
common stock for all of the outstanding shares of First National Bank Corp.
(First National). At December 31, 1994, First National had total assets of
$531 million, deposits of $472 million and equity of $37 million. This
acquisition will be accounted for as a pooling-of-interests and is not
expected to have a material effect on Old Kent's future results of
operations or financial condition. Proforma, restated summary operating
results of this pending acquisition, as if it had been effective January 1,
1992, are shown in the following table:
Proforma, restated summary operating results for acquisition pending at
December 31, 1994, for the year ended:
-66-
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Proforma net income of combined
entities (in thousands) $137,084 $131,324 $114,445
Proforma fully diluted net
income per common share of
combined entities $ 3.17 $ 3.04 $ 2.64
</TABLE>
Note 3. Pledged and Restricted Assets
The Federal Reserve requires the banking subsidiaries to maintain certain
average reserve balances. These average reserves approximated $65 million
during 1994 and $56 million during 1993.
At December 31, 1994, securities having an aggregate amortized cost of
approximately $1 billion were pledged to secure public and trust deposits
and for other purposes as required by law. These pledged assets primarily
consisted of securities available-for-sale and securities held-to-maturity.
Note 4. Securities Available-for-Sale
The following summarizes amortized cost and market values of securities
available-for-sale at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury and federal
agency securities $1,049,759 $ 1,396 $30,048 $1,021,107
Collateralized mortgage
obligations and other
mortgage-backed securities 438,203 78 33,396 404,885
Other securities 21,404 1,386 -- 22,790
Total $1,509,366 $ 2,860 $63,444 $1,448,782
December 31, 1993
(in thousands)
U.S. Treasury and federal
agency securities $ 976,097 $50,615 $ 958 $1,025,754
Collateralized mortgage
obligations and other
mortgage-backed securities 394,251 1,765 4,642 391,374
Other securities 12,276 4,340 -- 16,616
Total $1,382,624 $56,720 $ 5,600 $1,433,744
</TABLE>
-67-
The amortized cost and market values of securities available-for-sale
at December 31, 1994, are shown below by their contractual maturity.
Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay the obligation with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
December 31, 1994 (in thousands) Cost Value
<S> <C> <C>
U.S. Treasury and federal
agency securities:
Due in one year or less $ 191,233 $ 191,891
Due after one year through five years 692,275 671,425
Due after five years through ten years 166,251 157,791
Total U.S. Treasury and federal
agency securities 1,049,759 1,021,107
Collateralized mortgage obligations
and other mortgage-backed securities 438,203 404,885
Other securities 21,404 22,790
Total $1,509,366 $1,448,782
</TABLE>
Note 5. Securities Held-to-Maturity
The following summarizes amortized cost and market values of securities
held-to-maturity at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury and federal
agency securities $ 736,678 $ 2,409 $10,973 $ 728,114
Collateralized mortgage
obligations and
other mortgage-backed
securities 1,049,419 1,558 70,006 980,971
State and political
subdivision securities 177,357 3,063 2,972 177,448
Total $1,963,454 $ 7,030 $83,951 $1,886,533
December 31, 1993
(in thousands)
U.S. Treasury and federal
agency securities $ 986,151 $ 40,103 $ 1,059 $1,025,195
-68-
Collateralized mortgage
obligations and other
mortgage-backed
securities 990,759 16,894 8,441 999,212
State and political
subdivision securities 204,685 9,019 896 212,808
Other securities 3,113 471 1 3,583
Total $2,184,708 $66,487 $10,397 $2,240,798
</TABLE>
The amortized cost and market values of securities held-to-maturity at
December 31, 1994, are shown below by their contractual maturity. Expected
maturities may differ from contractual maturities because issuers may have
the right to call or prepay the obligation with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
December 31, 1994 (in thousands) Cost Value
<S> <C> <C>
U.S. Treasury, federal
agency, state and political
subdivision securities:
Due in one year or less $ 123,768 $ 123,797
Due after one year through five 730,291 722,795
Due after five years through ten years 37,101 36,606
Due after ten years 22,875 22,364
Total U.S. Treasury, federal agency,
state and political subdivision securities 914,035 905,562
Collateralized mortgage obligations and
other mortgage-backed securities 1,049,419 980,971
Total $1,963,454 $1,886,533
</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.
Note 6. Loans and Nonperforming Assets
The following summarizes loans:
<TABLE>
<CAPTION>
December 31 (in thousands) 1994 1993
<S> <C> <C>
Commercial $1,608,448 $1,351,693
Real estate - Commercial 1,185,535 1,167,979
Real estate - Construction 194,517 136,565
-69-
Real estate - Residential mortgages 1,077,652 754,544
Real estate - Consumer home equity 543,992 426,382
Consumer 1,674,839 1,062,019
Credit card loans 102,249 62,396
Lease financing 110,765 55,108
Total Loans $6,497,997 $5,016,686
</TABLE>
Loans made by Old Kent to its directors and executive officers, including
their family members and associated entities, aggregated $195 million and
$174 million at December 31, 1994 and 1993, respectively. During 1994, new
loans and other additions amounted to $235 million and repayments were $214
million. These loans were made in the ordinary course of business under
normal credit terms, including interest rate and collateralization and do
not represent more than a normal risk of collection.
The table below summarizes nonperforming assets:
<TABLE>
<CAPTION>
December 31 (in thousands) 1994 1993
<S> <C> <C>
Nonaccrual loans $51,856 $53,330
Restructured loans 5,838 5,426
Other real estate owned 10,288 9,480
Total nonperforming assets $67,982 $68,236
</TABLE>
Loans past due 90 days or more, but for which interest income continues to
be recognized, totalled $10.4 million and $9.0 million at December 31, 1994
and 1993, respectively. Gross interest income that would have been recorded
in 1994 for nonaccrual and restructured loans as of December 31, 1994,
assuming interest had been accrued throughout the year in accordance with
original terms, was $5.2 million. The comparable total for 1993 was $5.4
million. The amount of interest included in income on these loans was $2.3
million and $1.1 million in 1994 and 1993, respectively.
Although Old Kent has a diversified loan portfolio, a substantial natural
geographic concentration of credit risk exists within the Corporation's
defined customer market areas. These geographic market areas are the state
of Michigan, the greater Grand Rapids, Michigan area, and the Chicago,
Illinois metropolitan and suburban markets. There are no significant
concentrations of credit where customers' ability to honor loan terms is
dependent upon a single economic sector.
-70-
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) 1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $140,725 $120,790 $ 87,025
Additions:
Provision charged to operations 21,165 33,997 57,712
161,890 154,787 144,737
Deductions:
Credit losses 20,432 24,833 35,589
Less recoveries 11,179 8,666 11,642
Net credit losses 9,253 16,167 23,947
Allowance of acquired businesses 9,236 2,105 --
Balance at end of year $161,873 $140,725 $120,790
</TABLE>
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118. Old Kent is required
to adopt these statements after December 31, 1994. These statements require
that the recorded investment in certain impaired loans (as defined by the
statements) be adjusted by means of a valuation allowance to reflect a net
carrying value determined by one of the following methods: (1) the present
value of expected future cash flows discounted at the loan's effective
interest rate, (2) the loan's observable market price, or (3) at the fair
value of the collateral, if the loan is collateral dependent. It is
anticipated that, when adopted, effective January 1, 1995, the provisions
of SFAS Nos. 114 and 118 will not have a material effect on the
Corporation's financial condition and results of operations.
Note 8. Leasehold Improvements, Premises and Equipment
The following summarizes leasehold improvements, premises and equipment:
<TABLE>
<CAPTION>
December 31 (in thousands) 1994 1993
<S> <C> <C>
Land $ 23,761 $ 22,560
Land improvements 6,026 6,088
Buildings and improvements 141,650 125,536
Leasehold improvements 25,416 19,536
Furniture and equipment 107,338 86,748
Total 304,191 260,468
Less accumulated depreciation and amortization 147,314 126,580
Net leasehold improvements, premises and equipment $156,877 $133,888
</TABLE>
-71-
Note 9. Intangible 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) 1994 1993
<S> <C> <C>
Goodwill $ 77,040 $35,095
Core deposit intangibles 26,761 14,519
Total $103,801 $49,614
</TABLE>
Other assets, as shown on the consolidated balance sheets also includes
unamortized purchased mortgage servicing rights purchased by the
Corporation. At December 31, 1994 and 1993, these assets totalled
$15,677,000 and $4,609,000, respectively.
Note 10. Short-Term Borrowed Funds
The following summarizes short-term borrowed funds:
<TABLE>
<CAPTION>
December 31 (in thousands) 1994 1993
<S> <C> <C>
Bank notes $400,000 $235,000
Securities sold under agreements to repurchase 269,967 233,573
Federal funds purchased 164,324 251,085
Treasury tax and loan demand notes 95,563 164,140
Other borrowed funds 68,296 74,497
Total short-term borrowed funds $998,150 $958,295
</TABLE>
At December 31, 1994, short-term borrowed funds included bank notes
totalling $400 million which had original maturities of one year or less
and are scheduled to mature at various dates in 1995. The rates of interest
on these notes range from 3.70% to 6.13%.
Note 11. Capital Stock
At the Annual Meeting of Shareholders held on April 19, 1993, shareholders
approved a proposal to amend the Articles of Incorporation to increase the
number of authorized shares of common stock from 50 million to 150 million
shares.
At December 31, 1994 and 1993, there were 25,000,000 shares of preferred
stock authorized but not issued, of which 3,000,000 are designated Series A
Preferred Stock and 300,000 are designated Series B Preferred Stock.
On December 31, 1994, the Corporation had outstanding 27,027,113 Series B
Preferred Stock Purchase Rights ("Rights"). The Rights were originally
issued in January 1989 as a dividend to holders of the Corporation's common
-72-
stock at the rate of one Right for each share of common stock outstanding.
As a result of the three-for-two split of the Corporation's stock which
occurred in 1992, each share of the Corporation's common stock presently
represents 2/3rds of a Right. Each full Right entitles the holder thereof,
until January 10, 1999, to buy one one-hundredth (1/100) of a share of
Series B Preferred Stock at an exercise price of $80.00. The exercise price
and the number of shares of Series B Preferred Stock issuable upon the
exercise of the Rights are subject to adjustment in certain cases to
prevent dilution. The Rights are evidenced by common stock certificates and
are not exercisable or transferable apart from the common stock until the
occurrence of certain events set forth in a Rights Agreement under which
the Rights were issued. The Rights do not have any voting rights and are
redeemable, at the option of the Corporation, at a price of $0.01 per Right
prior to any person acquiring beneficial ownership of at least 20% of the
common stock. The Rights expire on January 10, 1999. So long as the Rights
are not separately transferable, the Corporation will issue 2/3rds of a
Right (subject to possible future adjustment) with each new share of common
stock issued.
Note 12. Long-Term Stock Incentive Plans
Old Kent has stock option plans under which options may be granted to
certain officers and employees at not less than the market price of Old
Kent's common stock on the date of grant. The options granted are
exercisable immediately and expire within ten years of the date of grant,
subject to certain cancellation provisions relating to employment. At
December 31, 1994, a total of 1,876,933 shares were reserved for stock
options, consisting of 774,321 shares for options granted at prices from
$14.25 to $34.38, and 1,102,612 shares available for future option grants
under incentive plans.
The following table summarizes stock option transactions for the last three
years:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price Range
<S> <C> <C>
Options outstanding January 1, 1992 826,154 $ 4.59 - $18.42
Granted 140,598 $26.92
Exercised (273,640) $ 4.59 - $26.92
Options outstanding December 31, 1992 693,112 $ 7.85 - $26.92
Granted 133,118 $31.63
Exercised (105,800) $ 7.85 - $26.92
Options outstanding December 31, 1993 720,430 $ 7.85 - $31.63
Granted 185,475 $ 33.88 - $34.38
Issued as a result of business acquisition 154,529 $ 10.51 - $19.82
Exercised (140,861) $ 7.85 - $31.63
Cancelled (3,839) $31.63
Options outstanding December 31, 1994 915,734 $ 10.51 - $34.38
</TABLE>
-73-
(Amounts shown above have been adjusted to reflect the effect of stock
splits subsequent to grant dates)
Old Kent also has restricted stock plans under which certain officers and
employees may be awarded restricted stock. The plans provide for the
issuance of a maximum of 1,080,844 authorized but previously unissued
shares of Old Kent's common stock, subject to certain antidilution
adjustments, as defined in the plans. Shares issued pursuant to the plans
are restricted as to sale or transfer for a period of up to five years and
are forfeitable (subject to certain exceptions) upon termination of
employment, but provide the recipients with all other rights and benefits
of ownership. During 1994, 1993, and 1992, Old Kent issued 37,130 shares,
23,170 shares and 30,996 shares of its common stock with total market
values of $1,252,000, $733,000 and $887,000, respectively, which are being
amortized ratably to expense over the period of restriction. At December
31, 1994, there were 216,257 shares reserved for future restricted stock
plan awards.
Old Kent also has a deferred stock compensation plan under which key
employees may be awarded shares of stock as deferred compensation to be
received at a specified later date, which may be up to five years after the
date of the award. The plan provides for the issuance of a maximum of
300,000 authorized but previously unissued shares of Old Kent's common
stock. Shares awarded under the plan would not be issued until the end of
the deferral period, unless there is a change of control of the
Corporation, in which case the shares would be issued to a trust where they
are to be held and distributed at the end of the deferral period. Employees
who receive awards under this plan are entitled to additional shares, to be
similarly deferred, equivalent in value to the dividends which would have
been paid on the shares awarded if they were outstanding during deferral
period. During 1994, 1993 and 1992, Old Kent awarded 21,825 shares, 20,835
shares and 22,925 shares of its common stock valued at $737,000, $659,000
and $629,000, respectively at their award dates, as deferred compensation
which are ratably charged to expense from the date of award to the end of
the deferral period based on current market value. At December 31, 1994,
there were 234,415 shares reserved for future deferred stock compensation
plan awards.
Note 13. Other Income and Other Expense
Other income, as shown on the consolidated statements of income, includes
the following:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Transaction processing fees $11,966 $ 9,809 $ 8,301
Credit life insurance premiums 3,394 2,972 2,529
Safe deposit box rental income 1,881 1,765 1,625
Trading account gains 1,602 1,594 1,908
-74-
Gains on sales of other real estate
owned and other assets 3,321 1,155 387
Non-recurring revenue -- 2,089 --
Other revenues 11,290 9,030 8,184
Total other income $33,454 $28,414 $22,934
</TABLE>
Note 13. Other Income and Other Expense (continued)
Other expense, as shown on the consolidated statements of income, includes
the following:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Taxes other than income taxes $ 9,490 $ 10,474 $ 9,307
Advertising and public relations 9,401 8,372 6,634
Postage and courier charges 9,028 8,207 8,057
Professional services 8,990 9,202 7,023
Stationery and supplies 8,269 8,250 7,114
Amortization of goodwill 4,703 2,966 3,609
Amortization of core deposit intangibles 5,761 3,958 2,175
Amortization of purchased mortgage
servicing rights 3,241 5,190 128
Other expenses 54,536 55,136 54,171
Total other expenses $113,419 $111,755 $98,218
</TABLE>
Securities transactions for available-for-sale and held-to-maturity
securities, as shown on the statements of income, includes gross gains
and gross losses as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Gross gains on sales of securities $10,205 $1,889 $6,571
Gross losses on sales of securities (9,190) (314) (895)
Securities transactions $ 1,015 $1,575 $5,676
Income tax expense applicable to
securities transactions $ 240 $ 551 $1,930
</TABLE>
Note 14. Employee Benefits
The Corporation provides pension benefits to substantially all of its
employees under the terms of the "Old Kent Retirement Income Plan." Old
Kent also provides its key executives with pension benefits under the
provisions of the "Old Kent Executive Retirement Income Plan." The
following table sets forth the funded status of the pension plans and the
amounts included in Old Kent's consolidated balance sheets.
-75-
<TABLE>
<CAPTION>
December 31 (in thousands) 1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $63,807 and $59,326 $ 64,867 $ 60,338
Projected benefit obligation for service
rendered to date ($112,268) ($85,270)
Plan assets at fair value 97,150 107,547
Plan assets (less than) in excess
of projected benefit obligation (15,118) 22,277
Unrecognized net actuarial loss 39,988 5,937
Unrecognized prior service cost being
recognized over 19 years 4,644 5,580
Unrecognized net transition assets
being recognized over 15 to 19 years (18,522) (20,363)
Prepaid pension cost included in other assets $ 10,992 $ 13,431
</TABLE>
Net pension expense (income) included the following components:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 5,730 $4,219 $ 3,785
Interest cost on projected benefit obligation 7,091 6,812 6,076
Actual loss (return) on plan assets 800 (8,500) (6,945)
Net amortization and deferral (11,285) (3,113) (4,075)
Net periodic pension expense (income) $ 2,336 ($ 582) ($1,159)
</TABLE>
The following assumptions were used in determining the actuarial present
value of the projected benefit obligations as of December 31 for each of
the following years:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate 8.00% 7.75% 9.00%
Rate of increase in future compensation levels 4.90% 4.75% 6.00%
Expected long-term rate of return on plan assets 9.00% 9.00% 10.00%
</TABLE>
Old Kent has adopted amended assumptions, as shown above, for use in the
actuarial determination of its projected benefit obligations at December 31,
1994. The amended assumptions reflect a change in outlook based on
management's assessment of expected economic conditions for the foreseeable
future.
-76-
During 1994, plan assets decreased primarily due to payments to retirees.
These payments included a significant amount of 'lump sum' payment
elections for new retirees. In addition, actual return on plan assets was
less than expected primarily due to the volatility of plan investments as a
result of changes in market conditions during 1994.
Eligible employees may elect to participate in Old Kent's retirement
savings plans whereby the Company contributes a 50% matching contribution
for each amount contributed by participating employees, within limits as
defined in the plans. The cost of these retirement savings plans was
$2,179,000, $2,194,000, and $1,949,000 for 1994, 1993 and 1992,
respectively.
The Corporation provides post-retirement benefits other than pensions for a
small group of employees who were entitled to such benefits under plans of
predecessor banking organizations acquired by Old Kent. These benefits
primarily consist of health care and life insurance. The costs of these
benefits are not material and are recognized in the financial statements
during the employees' years of service.
Note 15. Taxes on Income
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Current $75,575 $72,175 $66,593
Deferred benefit (6,802) (6,524) (13,727)
Total provision $68,773 $65,651 $52,866
</TABLE>
Income tax expense differs from that computed at the federal statutory rate
as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Tax at 35% statutory rate (34% for 1992) $71,708 $67,743 $55,745
Tax effect of:
Tax-exempt interest (4,757) (4,986) (5,484)
Amortization of goodwill 1,766 1,038 1,096
Cumulative effect of adopting
SFAS No. 109 -- 1,900 --
Impact of statutory rate increase
on deferred balances -- (1,044) --
Other, net 56 1,000 1,509
Income tax expense $68,773 $65,651 $52,866
Effective tax rate 33.6% 33.9% 32.2%
</TABLE>
-77-
Components of the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $57,296 $48,884
Deferred compensation 7,413 6,344
Unrealized loss on securities available-for-sale 21,189 -
Other 7,325 5,210
Total deferred tax assets $93,223 $60,438
Valuation allowance - -
Deferred tax assets $93,223 $60,438
Deferred tax liabilities:
Business acquisitions 6,672 2,104
Prepaid pension 5,649 5,844
Depreciation 3,254 3,289
Other 7,893 5,189
Deferred tax liabilities $23,468 $16,426
Net deferred tax assets $69,755 $44,012
</TABLE>
Note 15. Taxes on Income (continued)
Components of the deferred tax benefit for 1992 is as follows:
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1992
<S> <C>
Provision for credit losses ($11,705)
Other (2,022)
Total deferred benefit ($13,727)
</TABLE>
16. Commitments and Contingencies
Certain facilities and equipment are leased under noncancelable operating
lease agreements which expire at various dates through the year 2013. The
aggregate minimum rental commitments are as follows:
<TABLE>
<CAPTION>
Year ending December 31 (in thousands) Premises Equipment Total
<S> <C> <C> <C>
1995 $ 4,759 $5,071 $ 9,830
1996 4,059 912 4,971
1997 3,608 365 3,973
1998 2,855 101 2,956
1999 2,581 42 2,623
Thereafter 6,580 11 6,591
Total minimal payments $24,442 $6,502 $30,944
</TABLE>
-78-
Rental expense charged to operations in 1994, 1993, and 1992, amounted to
approximately $10,426,000, $8,584,000, and $8,866,000, respectively,
including amounts paid under short-term cancelable leases. Certain leases
contain provisions for renewal and purchase options, and require payment of
property taxes, insurance and related expenses.
Included as a reduction of Old Kent's occupancy expense is building rental
income of approximately $4,076,000, $4,032,000, and $4,350,000, for 1994,
1993, and 1992, respectively.
At December 31, 1994, Old Kent and its subsidiaries were parties, both as
plaintiff and as defendant, to a number of lawsuits which arose in the
ordinary course of business. In the opinion of management, after
consultation with the Corporation's counsel, the ultimate resolution of
these matters will not have a material effect on the Corporation's
consolidated financial position and results of operations.
Note 17. Financial Instruments with Off-Balance-Sheet Risk
Old Kent utilizes various derivative financial instruments in the normal
course of business both as part of its risk management strategy and as a
means to meet customer needs. The activities which currently employ
financial derivatives are interest rate risk management, mortgage banking,
and foreign exchange operations. Old Kent also enters into commitments to
extend credit and letters of credit in connection with its lending
activities.
Interest Rate Risk Management
The Corporation's asset/liability management focuses on limiting the
volatility of both earnings and the value of capital that can result from
changes in market interest rates. Interest rate risk exists to the extent
that interest-earning assets and interest-bearing liabilities have
different maturity or repricing characteristics. The Corporation's
traditional banking operations tend to result in an asset-sensitive
position, where assets reprice more rapidly than liabilities. This
asset-sensitive profile has been moderated through the strategic use of the
investment portfolio. Interest rate swap contracts are also used as a means
to manage interest rate risk.
Interest rate swap contracts involve the exchange of interest payments at
specified intervals between two parties without the exchange of any
underlying principal. Notional amounts are used in such contracts to
calculate interest payments due to each counterparty and do not represent
credit exposure. Old Kent pays a floating rate and receives a fixed rate
for the majority of its swaps, which are hedges related to Prime rate-based
loans and certain fixed rate liabilities. Old Kent pays a fixed rate and
receives a floating rate on swaps that hedge certain floating rate
liabilities. The Corporation is also a party to swaps in which Old Kent
pays a floating rate and receives a floating rate. These swaps were
executed to limit the variability of the yields on certain agency
structured notes, which are included in the available-for-sale category in
the consolidated balance sheets.
-79-
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>
1994 1993
Notional Credit Notional Credit
December 31 (in thousands) Amount Exposure Amount Exposure
<S> <C> <C> <C> <C>
Swap Categories:
Receive fixed/pay floating $371,685 $ 142 $340,000 $10,833
Receive floating/pay fixed 65,000 2,190 25,000 19
Receive floating/pay floating 120,500 5,215 120,500 --
$557,185 $7,547 $485,500 $10,852
</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, 1994 and 1993 were not significant.
<TABLE>
<CAPTION>
1994 1993
Contractual Contractual
December 31 (in thousands) Amount Amount
<S> <C> <C>
Mortgage forward sales $134,769 $510,350
Mortgage & treasury put options 9,800 24,000
</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
-80-
contracts are used to assist customers with international transactions
based upon foreign denominated currencies. The Corporation manages its
exposure to foreign currency fluctuations by entering into offsetting
contracts with authorized counterparties, usually foreign banks. The credit
risk inherent in these transactions relates to the possibility of failure
by a counterparty to fulfill its purchase or delivery responsibility,
whereby Old Kent would execute the transaction with another counterparty at
the prevailing currency valuation, which may be different than the value in
the original contract. The credit exposure of Old Kent's foreign exchange
contracts represents the aggregate value of contracts with a positive fair
value. The extension of foreign exchange credit facilities to
counterparties follows the same approval process as other credit
facilities. The majority of Old Kent's foreign exchange contracts relate to
major currencies such as Canadian Dollars, Pounds Sterling, Deutschemarks,
Japanese Yen, Italian Lira, and French Francs.
<TABLE>
<CAPTION>
1994 1993
Contractual Credit Contractual Credit
December 31 (in thousands) Amount Exposure Amount Exposure
<S> <C> <C> <C> <C>
Foreign exchange forward
contracts $38,024 $274 $8,186 $117
</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.
Note 17. Financial Instruments with Off-Balance-Sheet Risk (continued)
The amount of collateral obtained, if deemed necessary by Old Kent, upon
extension of credit is based upon management's credit evaluation of the
counterparty. Standby and commercial letters of credit are Old Kent's
conditional commitments to guarantee the performance of a customer to
another party. The Corporation's exposure to credit loss in the event of
nonperformance by the other party is represented by the contractual amount
of those instruments. Old Kent uses the same credit underwriting policies
in making commitments and issuing letters of credit as it does for its
other lending activities.
-81-
<TABLE>
<CAPTION>
Contractual Amount at December 31,
(in millions) 1994 1993
<S> <C> <C>
Commitments to extend credit $2,888 $2,229
Standby and commercial letters of credit 331 275
</TABLE>
Note 18. Estimated Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"),
the following methods and assumptions were used to estimate the fair value
of each significant class of financial instrument, as defined by SFAS No.
107, for which it is practicable to estimate that value.
The estimated fair values of financial instruments, as shown below, are not
intended to reflect the estimated liquidation or market value of the
Corporation taken as a whole. The disclosed fair value estimates are
limited to Old Kent's significant financial instruments. These include
financial instruments recognized as assets and liabilities on and off the
consolidated balance sheet. The estimated fair values shown below do not
include any value for assets and liabilities which are not financial
instruments as defined by SFAS No. 107, such as the value of real property,
the value of "core deposit intangibles," the value of mortgage servicing
rights, nor the value of anticipated future business.
The estimated fair value amounts were determined using available market
information, current pricing information applicable to Old Kent and various
valuation methodologies. Where market quotations were not available for
financial instruments, considerable management judgment was involved in the
determination of estimated fair values. Therefore, the estimated fair value
of financial instruments shown below may not be representative of the
amounts at which they could be exchanged in a current or future
transaction. Due to the inherent uncertainties of expected cash flows of
financial instruments, the use of alternate valuation assumptions and
methods could have a significant effect on the derived estimated fair value
amounts.
Cash and cash equivalents, interest receivable and interest payable
For these short-term instruments, the carrying amount was deemed to be a
reasonable estimate of fair value.
Interest-earning deposits
The estimated fair value of these holdings was calculated by discounting
the expected future cash flows using rates applicable to similar
instruments with the same remaining maturity.
Trading account securities, securities available-for-sale and securities
held-to-maturity
-82-
The estimated fair values were based upon quoted market or dealer prices.
Net loans and mortgages held-for-sale
Generally, the fair value of loans was estimated by discounting the
expected future cash flows using current interest rates at which similar
loans would be made to borrowers with similar credit ratings and remaining
maturities. The fair value for credit card loans, student loans and certain
"open-end" consumer loans was based upon available market prices for
similar loans, adjusted for differences in loan characteristics. The fair
value of loans on nonaccrual status was estimated at a discount of their
carrying amounts. For certain variable rate loans that reprice frequently,
the estimated fair value is equal to the carrying value. The estimated fair
value of mortgages held-for-sale approximates their carrying value.
Deposit liabilities
The fair value of fixed-maturity time deposits was estimated using the
rates currently offered for deposits of similar remaining maturities. The
fair value of demand and savings deposits is the amount payable on demand
at the reporting date.
Short-term borrowed funds
For all instruments except bank notes, the carrying amount was deemed to be
a reasonable estimate of fair value. The estimated fair value of bank notes
was calculated by discounting the expected future cash flows using rates
applicable to similar instruments of comparable maturity.
Long-term debt obligations
The fair value of long-term debt obligations at December 31, 1994 and 1993,
approximated the carrying value.
Off-balance-sheet financial instruments
The carrying value of Old Kent's interest rate swaps represents accrued
interest as reflected in the consolidated balance sheets. The estimated
fair value of interest rate swap agreements was based upon dealer
quotations for the amount which might be realized from a transfer, sale or
termination of such agreements. The fair value of Old Kent's commitments to
extend credit, its outstanding letters of credit, foreign exchange
contracts and put options are insignificant.
The following summarizes the carrying value and estimated fair value of
financial instruments.
-83-
<TABLE>
<CAPTION>
1994 1993
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 $ 489,873 $ 489,873 $ 464,989 $ 464,989
Interest-earning deposits 5,255 5,258 32,596 32,700
Trading account securities 10,651 10,651 38,558 38,558
Securities available-
for-sale 1,448,782 1,448,782 1,382,624 1,433,744
Securities held-to-maturity 1,963,454 1,886,533 2,184,708 2,240,798
Mortgages held-for-sale 189,989 189,989 474,898 474,898
Net loans 6,336,124 6,429,736 4,875,961 5,078,718
Interest receivable 84,132 84,132 79,239 79,239
Financial Liabilities:
Non-interest-bearing
deposits $1,364,121 $1,364,121 $1,144,700 $1,144,700
Interest-bearing deposits -
no maturities 3,047,597 3,047,597 3,104,353 3,104,353
Interest-bearing deposits -
fixed maturities 4,545,833 4,534,637 3,722,099 3,754,789
Short-term borrowed funds 998,150 996,800 958,295 958,295
Interest payable 52,541 52,541 38,531 38,531
Long-term debt 1,119 1,119 1,215 1,215
Interest Rate Swaps
Relating To:
Assets 379 (10,792) 1,971 5,280
Liabilities 171 1,396 318 646
</TABLE>
Note 19. Condensed Financial Information of the Parent Company
The condensed financial information of the parent company, Old Kent
Financial Corporation, is summarized as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31 (in thousands) 1994 1993
<S> <C> <C>
Assets:
Cash and cash equivalents $ 8,183 $ 3,691
Interest-earning deposits and other securities 52,576 106,952
Leasehold improvements, premises and equipment 7,002 7,455
Investment in and advances to subsidiaries 786,211 671,013
Other assets 42,355 49,761
Total Assets $896,327 $838,872
-84-
Liabilities and Shareholders' Equity:
Long-term debt $ 241 $ 293
Accrued expenses and other liabilities 36,590 25,812
Total liabilities 36,831 26,105
Shareholders' equity 859,496 812,767
Total Liabilities and Shareholders' Equity $896,327 $838,872
</TABLE>
Note 19. Condensed Financial Information of the Parent Company (continued)
Condensed Statements of Income
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 85,200 $106,350 $ 94,200
Service fees from subsidiaries 50,707 45,286 41,980
Interest and other 4,904 3,986 2,239
Securities transactions 325 -- 216
Total income 141,136 155,622 138,635
Expenses:
Interest 279 366 808
Salaries and benefits 33,340 31,112 28,228
Occupancy 4,093 3,738 3,438
Equipment 9,263 8,008 7,812
Other 23,351 23,056 21,435
Total expenses 70,326 66,280 61,721
Income before income taxes and equity
in undistributed net income of subsidiaries 70,810 89,342 76,914
Income tax benefit 4,672 3,557 3,707
Income before equity in undistributed net
income of subsidiaries 75,482 92,899 80,621
Equity in undistributed net income of
subsidiaries 60,625 35,003 30,470
Net Income $136,107 $127,902 $111,091
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year ended December 31 (in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $136,107 $127,902 $111,091
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed net
income of subsidiaries (60,625) (35,003) (30,470)
Depreciation, amortization and accretion 8,891 10,514 8,181
Net (gains) losses on sales of assets (342) 9 (153)
-85-
Decrease (increase) in other assets 1,400 (1,636) (1,621)
Increase in other liabilities 9,850 4,670 90
Net cash provided by operating activities 95,281 106,456 87,118
Cash flows from investing activities:
Decrease (increase) in
interest-earning assets 54,901 (53,256) 35,014
Increase in investment in and
advances to subsidiaries (30,711) (14,479) (4,174)
Purchases of leasehold improvements,
premises and equipment, net (1,656) (2,922) (1,748)
Net cash provided by (used for)
investing activities 22,534 (70,657) 29,092
Cash flows from financing activities:
Proceeds from common stock issuances 5,441 3,902 4,771
Repurchases of common stock (70,720) (2,770) (71,604)
Dividends paid to shareholders (47,992) (43,380) (36,413)
Payments of long-term debt obligations (52) (47) (5,838)
Net cash used for financing activities (113,323) (42,295) (109,084)
Net increase (decrease) in cash and
cash equivalents 4,492 (6,496) 7,126
Cash and cash equivalents at
beginning of year 3,691 10,187 3,061
Cash and cash equivalents at end of year $ 8,183 $ 3,691 $ 10,187
</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.
In 1995, the subsidiary banks may distribute to the parent company, in
addition to their 1995 net income, approximately $68 million in dividends
without written approval from bank regulatory agencies. The remaining net
assets of subsidiary banks, approximating $739 million at December 31,
1994, are unavailable for transfer to the parent company.
Shareholder Information
The Corporation's Form 10-K Annual Report to the Securities and Exchange
Commission will be provided without cost to shareholders upon request.
Send requests to Mr. Martin J. Allen, Jr., Senior Vice President and
Secretary, Old Kent Financial Corporation, One Vandenberg Center, Grand
Rapids, Michigan 49503.
Annual Meeting
The annual meeting of shareholders of Old Kent Financial Corporation will
be held on April 17, at 10:00 am. in the Pantlind Ballroom at the Amway
Grand Plaza Hotel, 187 Monroe NW, directly southwest of the Old Kent Bank
Building in Grand Rapids, Michigan.
-86-
Transfer Agent/Shareholder Inquiries
Old Kent Bank serves as the transfer agent for the Corporation. Inquiries
relating to shareholder records, stock transfers, changes of ownership,
lost or stolen stock certificates, changes of address and dividend payments
should be addressed to:
Old Kent Bank
Shareholder Services
111 Lyon Street NW
Grand Rapids, Michigan 49503
Telephone (616) 771-5482, or (800) 652-2657 (Ext. 5482)
Dividend Reinvestment Plan
Old Kent offers a dividend reinvestment plan which permits participating
shareholders of record to reinvest dividends in Old Kent Common Stock
without paying brokerage commissions or service charges. Participating
shareholders may also invest up to $1,000 in additional funds each quarter
for the purchase of additional shares. A copy of the dividend reinvestment
plan prospectus and application may be requested from the transfer agent at
the address above.
Dividends
Anticipated dividend payable dates are the 15th of March, June, September
and December. Shareholders may have their dividends deposited directly to
their Old Kent savings, checking or Money Market investment account. A copy
of the Automatic Dividend Deposit Service Plan and an authorization form
may be requested from Shareholder Services at the address shown above.
Old Kent Common Stock
Old Kent Common Stock is traded in the over-the-counter National Market
System and is quoted by NASDAQ under the symbol OKEN. The following table
sets forth the range of bid prices for Old Kent Common Stock for the
periods indicated. These quotations reflect inter-dealer prices, without
retail mark-up, mark-downs or commission and may not necessarily represent
actual transactions.
<TABLE>
Two-Year Range of Common Stock Prices
<CAPTION>
Period 1994 1993
Low High Low High
<S> <C> <C> <C> <C>
First Quarter $29.13 $32.38 $32.63 $37.38
Second Quarter 29.50 35.75 30.38 37.50
Third Quarter 31.50 35.75 32.25 35.38
Fourth Quarter 29.75 34.25 29.75 35.63
</TABLE>
-87-
As of January 31, 1995, there were 40,551,035 shares of Old Kent Financial
Corporation Common Stock issued and outstanding, and there were
approximately 13,170 holders of record.
Board of Directors and Senior Management
Board of Directors
John M. Bissell
Chairman and Chief Executive Officer, BISSELL Inc.
(manufacturer of homecare, healthcare and graphics products)
John D. Boyles
Attorney-at-Law
Verspoor, Waalkes, Lalley & Slotsema, P. C.
John C. Canepa
Chairman of the Corporation
Dick DeVos
President, Amway Corporation
(manufacturer of home and personal care products)
Earl D. Holton
President, Meijer Inc.
(food and general merchandise retailer)
Michael J. Jandernoa
Chairman and Chief Executive Officer,
Perrigo Company
(manufacturer of store-brand health and beauty aids)
John P. Keller
President, Keller Group, Inc.
(a diversified manufacturer)
Jerry K. Myers
Former President and Chief Executive Officer, Steelcase, Inc.
(manufacturer of office systems)
William U. Parfet
President and Chief Executive Officer,
Richard-Allan Medical Industries, Inc.
(manufacturer of surgical instruments and medical supplies)
Percy A. Pierre, Ph.D.
Vice President for Research
and Graduate Studies,
Michigan State University
-88-
Robert L. Sadler
Vice Chairman of the Corporation
and
President and Chief Executive Officer of Old Kent Bank
Peter F. Secchia
Chairman, Universal Forest Products, Inc.
(manufacturer and distributor of building supplies)
B. P. Sherwood, III
Vice Chairman and
Treasurer of the Corporation
David J. Wagner
President and Chief Executive Officer of the Corporation
and
Chairman of Old Kent Bank
Corporate Officers
John C. Canepa
Chairman
David J. Wagner
President and
Chief Executive Officer
Robert L. Sadler
Vice Chairman
B. P. Sherwood, III
Vice Chairman and Treasurer
Ralph W. Garlick
Executive Vice President,
Senior Credit Officer
Kevin T. Kabat
Executive Vice President,
Retail Administration and Corporate Technology
David L. Kerstein
Executive Vice President,
Retail Banking
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration
Richard W. Wroten
Executive Vice President,
Chief Financial Officer
-89-
Martin J. Allen, Jr.
Senior Vice President and
Secretary,
Corporate Planning and Development
Richard L. Haug
Senior Vice President,
General Auditor
Charles W. Jennings, Jr.
Senior Vice President,
Human Resources
Leigh I. Sherman
Senior Vice President,
Marketing
Management Committee
David J. Wagner
President and Chief Executive Officer,
Old Kent Financial Corporation;
Chairman,
Old Kent Bank
Robert L. Sadler
Vice Chairman,
Old Kent Financial Corporation;
President and Chief Executive Officer,
Old Kent Bank
B. P. Sherwood, III
Vice Chairman and Treasurer,
Old Kent Financial Corporation
Martin J. Allen, Jr.
Senior Vice President and Secretary,
Corporate Planning and Development,
Old Kent Financial Corporation
David A. Dams
Executive Vice President,
Corporate Banking,
Old Kent Bank
E. Philip Farley
Executive Vice President,
Investment and Trust Management Services,
Old Kent Bank
-90-
Ralph W. Garlick
Executive Vice President,
Senior Credit Officer,
Old Kent Financial Corporation;
President,
Old Kent Bank - Metro Detroit
Charles W. Jennings, Jr.
Senior Vice President,
Human Resources,
Old Kent Financial Corporation
Kevin T. Kabat
Executive Vice President,
Retail Administration and
Corporate Technology,
Old Kent Financial Corporation
David L. Kerstein
Executive Vice President,
Retail Banking,
Old Kent Financial Corporation
Leigh I. Sherman
Senior Vice President,
Marketing,
Old Kent Financial Corporation
Robert H. Warrington
President,
Old Kent Mortgage Company
Thomas D. Wisnom
Executive Vice President,
Community Bank Administration,
Old Kent Financial Corporation
Richard W. Wroten
Executive Vice President,
Chief Financial Officer,
Old Kent Financial Corporation
This report is printed on recycled paper.
-91-
[LOGO] Old Kent
Old Kent Financial Corporation
One Vandenberg Center
Grand Rapids, Michigan 49503
Telephone (616) 771-5000
-92-
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 16, 1995, included in this
Form 10-K, into the Corporation's previously filed registration statements,
as amended, for Old Kent Financial Corporation's offering of senior and
subordinated debt (Registration No. 33-46205), Incentive Stock Option Plan
of 1982 (Registration No. 2-78222), Old Kent Thrift Plan (Registration
No. 33-17309), 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), the offering of common stock
(Registration No. 33-51997), 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), Stock Option Plan for Nonemployee
Director Optionholders of First National Bank Corp. (Registration
No. 33-57529), and the offering of common stock (Registration No. 33-
56393).
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois,
March 29, 1995
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
as of December 31, 1994
1. Old Kent Bank and Trust Company
Jurisdiction of Incorporation: Michigan
2. Old Kent-Illinois, Inc.
Jurisdiction of Incorporation: Delaware
3. Old Kent Bank
Jurisdiction of Incorporation: Illinois
4. Old Kent Bank-Central
Jurisdiction of Incorporation: Michigan
5. Old Kent Bank-Grand Traverse
Jurisdiction of Incorporation: Michigan
6. Old Kent Bank-Southwest
Jurisdiction of Incorporation: Michigan
7. Old Kent Bank of Grand Haven
Jurisdiction of Incorporation: Michigan
8. Old Kent Bank of Holland
Jurisdiction of Incorporation: Michigan
9. Old Kent Bank-Southeast
Jurisdiction of Incorporation: Michigan
10. Old Kent Bank-East
Jurisdiction of Incorporation: Michigan
11. Old Kent Bank of Gaylord
Jurisdiction of Incorporation: Michigan
12. Old Kent Bank of Petoskey
Jurisdiction of Incorporation: Michigan
13. Old Kent Bank of Big Rapids
Jurisdiction of Incorporation: Michigan
14. Old Kent Bank of Cadillac
Jurisdiction of Incorporation: Michigan
15. Old Kent Bank of Hillsdale
Jurisdiction of Incorporation: Michigan
16. Old Kent Bank of St. Johns
Jurisdiction of Incorporation: Michigan
17. Old Kent Bank of Ludington
Jurisdiction of Incorporation: Michigan
18. Hartger & Willard Mortgage Associates, Inc.
Jurisdiction of Incorporation: Michigan
19. Old Kent Brokerage Services, Inc.
Jurisdiction of Incorporation: Michigan
20. Old Kent Financial Life Insurance Company
Jurisdiction of Incorporation: Arizona
21. Vanguard Financial Service Corp.
Jurisdiction of Incorporation: Illinois
22. Old Kent Mortgage Services, Inc.
Jurisdiction of Incorporation: Michigan
23. Old Kent Mortgage Company
Jurisdiction of Incorporation: Michigan
24. First National Bank of Lockport
Jurisdiction of Incorporation: United States of America
25. Edgewood Bank
Jurisdiction of Incorporation: Illinois
-2-
<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, 1994, 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> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 461,146
<INT-BEARING-DEPOSITS> 5,255
<FED-FUNDS-SOLD> 28,727
<TRADING-ASSETS> 10,651
<INVESTMENTS-HELD-FOR-SALE> 1,448,782
<INVESTMENTS-CARRYING> 1,963,454
<INVESTMENTS-MARKET> 1,886,533
<LOANS> 6,687,986
<ALLOWANCE> 161,873
<TOTAL-ASSETS> 10,946,446
<DEPOSITS> 8,957,551
<SHORT-TERM> 998,150
<LIABILITIES-OTHER> 130,130
<LONG-TERM> 1,119
<COMMON> 40,541
0
0
<OTHER-SE> 818,955
<TOTAL-LIABILITIES-AND-EQUITY> 10,946,446
<INTEREST-LOAN> 491,218
<INTEREST-INVEST> 225,469
<INTEREST-OTHER> 6,596
<INTEREST-TOTAL> 723,283
<INTEREST-DEPOSIT> 252,451
<INTEREST-EXPENSE> 290,845
<INTEREST-INCOME-NET> 432,438
<LOAN-LOSSES> 21,165
<SECURITIES-GAINS> 1,015
<EXPENSE-OTHER> 357,894
<INCOME-PRETAX> 204,880
<INCOME-PRE-EXTRAORDINARY> 136,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,107
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.35
<YIELD-ACTUAL> 4.60
<LOANS-NON> 51,856
<LOANS-PAST> 10,368
<LOANS-TROUBLED> 5,838
<LOANS-PROBLEM> 62,555
<ALLOWANCE-OPEN> 140,725
<CHARGE-OFFS> 20,432
<RECOVERIES> 11,179
<ALLOWANCE-CLOSE> 161,873
<ALLOWANCE-DOMESTIC> 161,873
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 24, 1995 /s/ John M. Bissell
John M. Bissell
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 21, 1995 /s/ John D. Boyles
John D. Boyles
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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, 1995 /s/ John C. Canepa
John C. Canepa
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 23, 1995 /s/ Earl D. Holton
Earl D. Holton
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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, 1995 /s/ Michael J. Jandernoa
Michael J. Jandernoa
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 7, 1995 /s/ John P. Keller
John P. Keller
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 24, 1995 /s/ Jerry K. Myers
Jerry K. Myers
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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, 1995 /s/ William U. Parfet
William U. Parfet
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 20, 1995 /s/ Percy A. Pierre
Percy A. Pierre
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 14, 1995 /s/ Robert L. Sadler
Robert L. Sadler
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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 20, 1995 /s/ Peter F. Secchia
Peter F. Secchia
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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, 1995 /s/ B. P. Sherwood, III
B. P. Sherwood, III
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.; JOHN C. CANEPA; ROBERT L. SADLER;
B. P. SHERWOOD, III; DAVID J. WAGNER; 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, 1994, 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, 1995 /s/ David J. Wagner
David J. Wagner
EXHIBIT 99
OLD KENT THRIFT PLAN
PERFORMANCE TABLE
The following table illustrates the comparative investment
performance of the five investment options offered under the Old Kent Thrift
Plan. The performance of some or all of these options also serves as a measure
for determining benefits under the Executive Thrift Plan and the Deferred
Compensation Plan. The table shows the value of a hypothetical initial
investment of $1,000 invested on December 31, 1991 and its value as of
December 31 of each subsequent year shown below:
<TABLE>
<CAPTION>
Initial
Investment 12/31/92 12/31/93 12/31/94
Fund on 12/31/91 Value Value Value
<S> <C> <C> <C> <C>
Savings Fund $1,000 $1,038 $1,071 $1,115
Diversified Equity $1,000 $1,072 $1,212 $1,237
Fund
Old Kent Common $1,000 $1,513 $1,378 $1,449
Stock Fund
Short Term Bond $1,000 $1,051 $1,098 $1,114
Fund
Balanced Fund $1,000 $1,077 $1,221 $1,219
</TABLE>
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.
