UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934
Date of Report (date of earliest event reported) August 31, 1994
Trans Financial Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Kentucky 0-13030 61-1048868
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation
or organization)
500 East Main Street, Bowling Green, Kentucky 42101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)781-5000
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
Effective August 31, 1994, FGC Holding Company ("FGC") merged with and into
Trans Financial Bancorp, Inc. ("Trans Financial") and each of the outstanding
shares of common stock of FGC was converted into 419.832 shares of Trans
Financial for an aggregate issuance of 1,050,000 shares of Trans Financial
common stock. The transaction was effected pursuant to an Agreement and Plan of
Reorganization and related Plan of Merger (collectively, the "Merger
Agreement") dated January 28, 1994, among Trans Financial, FGC, and certain
shareholders of FGC, and was approved by the shareholders of FGC on August 31,
1994. FGC was a one-bank holding company, headquartered in the eastern Kentucky
community of Martin, which owned 100% of the outstanding capital stock of First
Guaranty National Bank. At June 30, 1994, FGC had consolidated assets of
approximately $126 million. The consideration given by Trans Financial for the
acquisition of FGC was determined in accordance with the Merger Agreement.
There are not any material relationships between FGC or its shareholders and
Trans Financial or any of its affiliates, any director or officer of Trans
Financial, or any associate of any such director or officer.
The assets acquired by Trans Financial in the transaction consisted of FGC's
subsidiary bank, First Guaranty National Bank. It is anticipated that the
physical assets of that bank will continue to be used by it for general banking
purposes.
Item 7. Financial Statements and Exhibits.
A. Financial statements
The following consolidated financial statements of FGC, notes related
thereto and independent auditors' report thereon are filed as a part of
this report:
1. Independent Auditors' Report;
2. Consolidated Balance Sheets as of December 31, 1993 and 1992;
3. Consolidated Statements of Income for the years ended December 31,
1993 and 1992;
4. Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1993 and 1992;
5. Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1992; and
6. Notes to Consolidated Financial Statements.
The following unaudited consolidated financial statements of FGC are
filed as a part of this report:
1. Consolidated Balance Sheet as of June 30, 1994 (unaudited); and
2. Consolidated Statement of Income for the six months ended June 30,
1994 (unaudited).
The unaudited Consolidated Statement of Cash Flows for FGC for the six
months ended June 30, 1994 is not included as a part of this report
because it is impracticable to provide it at the time this report is
required to be filed. Trans Financial will file the required
Consolidated Statement of Cash Flows as soon as it is available,
and estimates that it will be filed by September 30, 1994 and in no
event later than November 14, 1994.
The following unaudited pro forma consolidated financial statements
of Trans Financial Bancorp, Inc. and notes related thereto are filed as
a part of this report:
1. Pro Forma Balance Sheet as of June 30, 1994 (unaudited);
2. Pro Forma Income Statement for the six months ended June 30, 1994
(unaudited);
3. Pro Forma Income Statement for the year ended December 31, 1993
(unaudited);
4. Pro Forma Income Statement for the year ended December 31, 1992
(unaudited);
5. Pro Forma Income Statement for the year ended December 31, 1991
(unaudited); and
6. Notes to Pro Forma Financial Statements (unaudited).
B. Exhibits
The following exhibits are filed as a part of this report:
2. Agreement and Plan of Reorganization and Plan of Merger dated
January 28, 1994 between Trans Financial Bancorp, Inc.
and FGC Holding Company is incorporated by reference to Exhibits 2(a)
and 2(b) of the registrant's Report on Form 8-K dated February 18, 1994.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
MARTIN, KENTUCKY
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FGC Holding Company
Martin, Kentucky
We have audited the accompanying consolidated balance sheets of FGC
Holding Company and its wholly-owned subsidiary, First Guaranty National Bank,
Martin, Kentucky as of December 31, 1993 and 1992, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company'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 audits to
obtain reasonable, but not absolute, assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FGC Holding
Company and Subsidiary at December 31, 1993 and 1992 and the results of their
operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
March 22, 1994 /s/ Eskew & Gresham, PSC
Lexington, Kentucky
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FGC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31
1993 1992
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 5,255,887 $ 4,389,380
Federal funds sold 6,000,000 2,750,000
Total cash and cash equivalents $ 11,255,887 $ 7,139,380
Investment securities (fair value of
$49,490,000 and $46,117,000,
respectively) (Note 2) 48,307,333 44,771,677
Loans, net of allowance for loan losses
of $1,379,894 and $1,156,634, respectively
(Notes 3, 4 and 10) 63,502,334 65,240,407
Bank premises and equipment (Note 5) 1,815,162 2,021,711
Interest receivable 1,083,459 1,145,615
Income taxes refundable 69,214 104,803
Deferred income taxes (Notes 4 and 8) 200,848 79,775
Other real estate owned 270,400 310,000
Excess cost over net assets acquired (net
of accumulated amortization of $449,440
and $373,372, respectively) 1,451,635 1,527,703
Other assets 94,305 102,576
TOTAL ASSETS $128,050,577 $122,443,647
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - non-interest bearing $ 14,979,112 $ 13,841,207
Demand - interest bearing 25,030,639 22,456,927
Savings 15,541,971 13,491,549
Time, $100,000 and over 21,620,138 21,877,263
Other time 35,351,334 37,031,270
Total deposits $112,523,194 $108,698,216
Dividends payable 20,200 20,366
Interest payable 361,155 455,136
Debentures payable (Note 6) 3,790,000 3,790,000
Notes payable to stockholders (Note 7) 705,900 705,900
Other liabilities 43,771 9,229
Total liabilities $117,444,220 $113,678,847
COMMITMENTS AND CONTINGENCIES (Notes 9 and 13)
STOCKHOLDERS' EQUITY (Notes 6, 11 and 12):
Preferred stock, Class A non-voting,
$1,000 par value, 8% cumulative,
850 shares authorized;
836 shares issued and outstanding $ 836,000 $ 836,000
Preferred stock, Class B non-voting,
$1,000 par value, 8% non-cumulative,
200 shares authorized;
174 shares issued and outstanding 174,000 174,000
Common stock, voting, no par value,
3,000 shares authorized; 2,501 shares
issued and outstanding 1,500,000 1,500,000
Retained earnings 8,096,357 6,254,800
Total stockholders' equity $ 10,606,357 $ 8,764,800
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $128,050,577 $122,443,647
See notes to consolidated financial statements.
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FGC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1993 1992
INTEREST INCOME:
Interest and fees on loans $ 6,267,502 $ 6,455,585
Interest on investments -
U. S. Treasury securities 473,325 590,497
Obligations of U. S.
government agencies 1,262,906 1,513,723
Obligations of states and
political subdivisions 896,453 952,921
Other securities 90,960 135,177
Interest on federal funds sold 108,715 114,041
$ 9,099,861 $ 9,761,944
INTEREST EXPENSE:
Deposits $ 3,310,087 $ 4,135,729
Debentures and notes payable 276,498 405,740
$ 3,586,585 $ 4,541,469
Net interest income $ 5,513,276 $ 5,220,475
Provision for loan losses (Note 3) 450,000 300,000
Net interest income after
provision for loan losses $ 5,063,276 $ 4,920,475
OTHER INCOME:
Service charges on deposit accounts $ 253,155 $ 227,476
Insurance commissions 157,340 195,040
Securities gains, net (Note 2) 33,882 48,040
Other 26,424 24,248
$ 470,801 $ 494,804
OTHER EXPENSES:
Salaries and employee benefits $ 1,310,612 $ 1,279,419
Occupancy expenses 137,118 202,071
Equipment expenses 294,042 176,996
Taxes, other than income and payroll 160,449 152,848
FDIC assessment 244,073 239,584
Stationery, printing and supplies 188,711 229,521
Loss on leveraged leases (Note 4) 40,411 155,081
Other operating expenses 627,953 602,672
$ 3,003,369 $ 3,038,192
Income before income taxes $ 2,530,708 $ 2,377,087
Provision for income taxes (Note 8) 608,351 549,827
NET INCOME $ 1,922,357 $ 1,827,260
See notes to consolidated financial statements.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1992
Preferred Common Retained
Stock Stock Earnings Total
Balances, January 1, 1992 $1,010,000 $1,500,000 $4,508,561 $ 7,018,561
Net income - - 1,827,260 1,827,260
Dividends declared - - (81,021) (81,021)
Balances, December 31, 1992$1,010,000 $1,500,000 $6,254,800 $ 8,764,800
Net income - - 1,922,357 1,922,357
Dividends declared - - (80,800) (80,800)
BALANCES, DECEMBER 31, 1993$1,010,000 $1,500,000 $8,096,357 $10,606,357
See notes to consolidated financial statements.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,922,357 $ 1,827,260
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 318,063 268,572
Provision for loan losses 450,000 300,000
Securities gains, net (33,882) (48,040)
Loss on leveraged leases 40,411 155,081
Deferred income taxes (121,073) (190,655)
Amortization of investment
securities, net 140,773 34,369
Changes in:
Interest receivable 62,156 131,098
Income taxes refundable 35,589 (104,803)
Other assets 8,271 (74,296)
Interest payable (93,981) (259,950)
Income taxes payable - (330,279)
Other liabilities 34,542 (149,890)
Net cash provided by
operating activities $ 2,763,226 $ 1,558,467
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity
of investment securities $ 16,632,282 $ 17,704,917
Purchase of investment securities (20,274,829) (16,553,981)
Net change in loans 1,247,662 (7,321,478)
Purchases of premises and equipment (35,446) (449,852)
Proceeds received on
other real estate owned 39,600 93,200
Net cash used in
investing activities $ (2,390,731) $ (6,527,194)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits $ 3,824,978 $ 1,238,200
Dividends paid (80,966) (81,021)
Net cash provided by
financing activities $ 3,744,012 $ 1,157,179
Net increase (decrease) in cash
and cash equivalents $ 4,116,507 $ (3,811,548)
Cash and cash equivalents
at beginning of year 7,139,380 10,950,928
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 11,255,887 $ 7,139,380
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $ 3,680,566 $ 4,801,419
Income taxes $ 693,835 $ 1,175,564
See notes to consolidated financial statements.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - These financial statements include the
accounts of FGC Holding Company (the Company) and its wholly-owned subsidiary,
First Guaranty National Bank (the Bank). All material intercompany accounts
and transactions have been eliminated.
B. Investment Securities - Investment securities are carried at cost,
adjusted for amortization of premium and accretion of discount on a constant
yield basis. Gains or losses on dispositions are computed using the specific
identification method.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". The Statement requires the classification of
investment securities into trading securities, securities available for sale
and securities held to maturity, no later than 1994, with early adoption
available as of December 31, 1993. The Company will adopt the Statement in
1994. The effect on stockholders' equity for the recording of unrealized gains
and losses for investments available for sale has not been determined by the
Company but is not expected to materially affect the Company's financial
position.
C. Loans - Loans are stated at the amount of unpaid principal, reduced
by unearned interest and an allowance for loan losses. Interest income from
certain installment loans is recognized as income using a method which
approximates the interest method. Income from all other loans is recorded on
the accrual basis, except for those loans on a nonaccruing income status.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrowers' financial condition is such that collection of interest is doubtful.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that may
become uncollectible, based on valuations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely.
D. Bank Premises and Equipment - Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is provided over
the estimated useful lives of the respective assets using straight-line methods
for buildings and both straight-line and accelerated methods for furniture and
equipment.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Other Real Estate Owned - Real estate acquired through foreclosure
is carried at the lower of the recorded investment in the property or its fair
value. The value of the underlying loan is written down to the fair value of
the real estate to be acquired by a charge to the allowance for loan losses.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition, are included in other expenses.
F. Income Taxes - The Company and the Bank file a consolidated federal
income tax return. Income taxes are allocated on a separate return basis.
Deferred income taxes are provided for using the liability method.
Under the liability method, deferred income taxes are based on the change from
the beginning of the year in the deferred tax liability or asset established
for the expected future consequences of differences in the financial reporting
and tax bases of assets and liabilities. The differences relate principally to
investment securities, the allowance for loan losses and premises and
equipment.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes". The Statement requires the use of the liability method for computing
deferred income taxes no later than 1993, with earlier adoption encouraged.
Under the liability method, deferred income taxes are based on the
change from the beginning of the year in the deferred tax liability or asset
established for the expected future tax consequences of differences in the
financial reporting and tax bases of assets and liabilities. The Company
adopted the Statement in 1993. Adoption of the Statement had no effect on the
Company's financial position or results of operations.
G. Leveraged Leases - The Bank has entered into leveraged leases which
are financing arrangements whereby the major portion of the cost of the
equipment leased is financed with nonrecourse debt from another investor. The
financial statements reflect the Bank's investment, net of unearned income and
nonrecourse debt. The investment is reduced by cash flows arising from the
transaction, after providing necessary amounts for deferred income taxes in the
period in which the benefits arise. Income is recorded under a method which
relates return to investment.
H. Purchase Method of Accounting - The net assets of First Guaranty
National Bank acquired in a purchase transaction are recorded at the fair value
at the date of acquisition. The excess cost over net assets acquired
(goodwill) is being amortized by the straight-line method over 25 years.
I. Reclassifications - Certain reclassifications have been made in the
1992 financial statements to conform to the classifications used in 1993.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 2 - INVESTMENT SECURITIES
Amortized cost and fair value of investment securities at December 31,
1993 are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Treasury securities $ 9,065,399 $ 50,334 $ (1,733) $ 9,114,000
Obligations of U. S.
government agencies 18,812,992 113,466 (49,458) 18,877,000
Obligations of states and
political subdivisions 13,362,216 1,038,303 (7,519) 14,393,000
Asset-backed securities 6,722,826 65,375 (26,201) 6,762,000
Other securities 343,900 100 - 344,000
$48,307,333 $1,267,578 $ (84,911) $49,490,000
Amortized cost and fair value of investment securities at December 31,
1992 are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Treasury securities $ 8,078,220 $ 159,780 $ - $ 8,238,000
Obligations of U. S.
government agencies 14,129,526 190,834 (21,360) 14,299,000
Obligations of states and
political subdivisions 14,602,222 818,611 (37,833) 15,383,000
Asset-backed securities 7,617,809 264,622 (29,431) 7,853,000
Other securities 343,900 100 - 344,000
$44,771,677 $1,433,947 $(88,624) $46,117,000
The amortized cost and fair value of investment securities at December
31, 1993 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $ 8,978,093 $ 9,108,000
Due after 1 year through 5 years 24,216,287 24,539,000
Due after 5 years through 10 years 6,062,641 6,473,000
Due after 10 years 2,198,586 2,479,000
$41,455,607 $42,599,000
Asset-backed securities 6,722,826 6,762,000
Equity securities 128,900 129,000
$48,307,333 $49,490,000
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Investment securities with an approximate carrying value of $12,816,000
and $13,796,000 at December 31, 1993 and 1992, respectively, were pledged to
secure public deposits and for other purposes as required or permitted by law.
Proceeds from sales and calls of investment securities during 1993 and
1992 were approximately $1,721,000 and $2,472,000, respectively, resulting in
gross gains of $36,042 and $48,040 and gross losses of $2,160 and $0,
respectively.
NOTE 3 - LOANS
Major classifications of loans at December 31, 1993 and 1992 are
summarized as follows:
1993 1992
Commercial and mortgage loans $56,529,591 $58,199,101
Installment loans 9,374,148 9,095,121
Equipment lease financing - 114,321
$65,903,739 $67,408,543
Unearned interest (1,021,511) (1,011,502)
Allowance for loan losses (1,379,894) (1,156,634)
$63,502,334 $65,240,407
The amount of loans on nonaccrual status at December 31, 1993 and 1992
was approximately $407,000 and $292,000, respectively. Interest income on
these loans that would have been earned had they not been placed on nonaccrual
status approximated $29,000 and $25,000 for 1993 and 1992, respectively.
Certain directors and executive officers of the Bank, including their
immediate families and companies in which they are principal owners, are loan
customers of the Bank. Total loans to these persons at December 31, 1993 and
1992 approximated $377,000 and $378,000, respectively. Such loans were made in
the ordinary course of business at the Bank's normal credit terms and interest
rates.
Activity in the allowance for loan losses for the years ended December
31, 1993 and 1992 is as follows:
1993 1992
Beginning of year $ 1,156,634 $ 880,871
Provision for loan losses 450,000 300,000
Net charge-offs (226,740) (24,237)
End of year $ 1,379,894 $ 1,156,634
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 4 - INVESTMENT IN LEVERAGED LEASES
The Bank's investment in leveraged leases amounted to $114,321 at
December 31, 1992. Deferred income tax credits applicable to such leases,
amounting to $38,869 at December 31, 1992 are included in deferred income taxes
on the accompanying balance sheet. Outstanding nonrecourse debt on these
leases amounted to $0 at December 31, 1992. During 1993 and 1992, the Bank
recorded losses of $40,411 and $155,081 to write-down the residual amount of
their investment in leveraged leases down to fair value.
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1993 and 1992 are
summarized as follows:
1993 1992
Land and buildings $ 1,601,962 $ 1,601,962
Furniture and equipment 1,704,245 1,668,799
$ 3,306,207 $ 3,270,761
Less accumulated depreciation (1,491,045) (1,249,050)
$ 1,815,162 $ 2,021,711
Depreciation expense was $241,996 and $187,513 for 1993 and 1992,
respectively.
NOTE 6 - DEBENTURES PAYABLE
Debentures payable at December 31, 1993 and 1992 consists of four
identical debentures dated January 20, 1988 payable to the four individuals who
previously owned the Bank. Principal payments commenced on January 1, 1989 and
are due annually on January 1 of each year through 2000. The debentures bear
interest for the first five years at a rate of 9%, payable quarterly. After
the first five years, the interest rate is equal to the prime rate as quoted in
the "Wall Street Journal." The debentures are collateralized by 100% of the
issued and outstanding common stock of First Guaranty National Bank.
The debentures require the maintenance of certain capital and
operational ratios for the Bank, all of which have been complied with at
December 31, 1993, however, the Company has failed to fully comply with certain
affirmative and negative covenants contained in the debentures. Management
believes that any adverse impact resulting from these failures will not have a
material effect on the Company's financial condition.
The Company may, at its option, repay the debentures, with certain
restrictions, in whole or in part at any time. Principal payments due on the
debentures during the five years subsequent to December 31, 1993 are as
follows: 1994 - $0; 1995 - $500,000; 1996 - $700,000; 1997 - $750,000; and
1998 - $800,000.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 7 - NOTES PAYABLE TO STOCKHOLDERS
Notes payable at December 31, 1993 and 1992 consists of two identical
unsecured notes dated January 20, 1988, payable to two of the stockholders of
the Company. Principal is due on demand. The notes bear interest for the
first five years at a rate of 9%, payable quarterly. After the first five
years, the interest rate is equal to the prime rate as quoted in the "Wall
Street Journal."
NOTE 8 - INCOME TAXES
The provision for income taxes for the years ended December 31, 1993
and 1992 is summarized as follows:
1993 1992
Currently payable $ 729,424 $ 740,482
Deferred (121,073) (190,655)
$ 608,351 $ 549,827
The income tax provision is less than that obtained by using the
statutory Federal corporate income tax rate, principally due to tax-exempt
interest income of approximately $892,000 and $926,000 for 1993 and 1992,
respectively.
The Company's deferred tax assets and deferred tax liabilities at
December 31, 1993 are as follows. No valuation allowance for the realization
of deferred tax assets is considered necessary.
Deferred tax assets $ 393,093
Deferred tax liability (192,245)
Net deferred tax asset $ 200,848
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form of
unused lines of credit. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
At December 31, 1993 and 1992, the Bank had commitments to extend
credit of approximately $2,743,000 and $657,000, respectively, whose contract
amounts represent credit risk.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit-
worthiness on a case-by-case basis. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Collateral held varies, but
primarily includes real estate.
NOTE 10 - CONCENTRATION OF CREDIT RISK
The Bank grants residential, commercial and consumer loans to customers
primarily located in Floyd and Knott Counties in Kentucky. Although the Bank
has a diverse loan portfolio, a substantial portion of its debtors' ability to
perform on their contracts is influenced by the coal industry which has a
significant impact on the local economy.
NOTE 11 - DIVIDEND LIMITATION
The Company's principal source of funds is dividends received from the
Bank. Banking regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agency. Under these
regulations, the amount of dividends that may be paid in any calendar year is
limited to the current year's net profits, as defined, combined with the
retained net profits of the preceding two years. During 1994, the Bank could,
without prior approval, declare dividends of approximately $3,747,000 plus any
1994 net profits retained to the date of the dividend declaration.
NOTE 12 - PREFERRED STOCK
The Company has authorized, issued and outstanding two classes of
preferred stock, Class A and Class B. Both classes of preferred stock and all
dividends to which it is entitled shall have a preference as to all other
shareholders on all of the assets of the corporation. Each share of preferred
stock is subject to redemption and may, at the option of the Company, on any
dividend payment date, at any time after January 20, 1993, be called and
retired at the cash price per share equal to its par value.
At December 31, 1993 and 1992, there were no dividends in arrears on
the preferred stock.
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 13 - CONTINGENT LIABILITIES
The Bank and certain officers and directors are named defendants in
legal actions arising from the purchase of the Bank by the Company. This
litigation has been settled by the parties agreeing to a dismissal of all
claims, subject to court approval, therefore, the ultimate liability, if any,
resulting from these actions is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
NOTE 14 - SUBSEQUENT EVENT
On January 28, 1994, the Company entered into a merger agreement with
Trans Financial Bancorp, Inc. of Bowling Green, Kentucky, whereby Trans
Financial will exchange 1,050,000 shares of its common stock for 100% of the
common stock of FGC Holding Company. The merger is contingent upon regulatory
approval.
NOTE 15 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31
1993 1992
ASSETS
Cash in bank $ 126,058 $ 125,625
Investment in subsidiary 13,633,083 11,657,079
Excess cost over net assets acquired, net 1,451,635 1,527,703
Other assets 11,120 79,648
Total assets $15,221,896 $13,390,055
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 20,200 $ 20,366
Interest payable 67,439 101,989
Other liabilities 32,000 7,000
Long-term debt 4,495,900 4,495,900
Total liabilities $ 4,615,539 $ 4,625,255
Stockholders' equity:
Preferred stock $ 1,010,000 $ 1,010,000
Common stock 1,500,000 1,500,000
Retained earnings 8,096,357 6,254,800
Total stockholders' equity $10,606,357 $ 8,764,800
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $15,221,896 $13,390,055
<PAGE>
FGC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
(CONTINUED)
NOTE 15 - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
Condensed Statements of Income
Year Ended December 31
1993 1992
Income:
Dividends received from subsidiary $ 235,000 $ 447,000
Equity in undistributed earnings
of subsidiary 1,976,004 1,771,458
$ 2,211,004 $ 2,218,458
Expenses:
Interest on long-term debt $ 276,498 $ 405,740
Amortization 76,068 81,058
Other 52,553 60,658
$ 405,119 $ 547,456
Income before income tax benefit $ 1,805,885 $ 1,671,002
Income tax benefit 116,472 156,258
Net income $ 1,922,357 $ 1,827,260
Condensed Statements of Cash Flows
Year Ended December 31
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,922,357 $ 1,827,260
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiary(1,976,004) (1,771,458)
Amortization of intangible assets 76,068 81,058
Changes in:
Other assets 68,528 (67,934)
Interest payable (34,550) -
Other liabilities 25,000 -
Net cash provided by
operating activities $ 81,399 $ 68,926
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid $ (80,966) $ (81,021)
Net increase (decrease) in cash $ 433 $ (12,095)
Cash at beginning of year 125,625 137,720
CASH AT END OF YEAR $ 126,058 $ 125,625
<PAGE>
FGC Holding Company
Consolidated Balance Sheet
June 30, 1994
(Unaudited)
(In thousands)
Assets
Cash and due from banks $4,066
Interest bearing deposits with banks -
Federal funds sold and resale agreements 3,500
Mortgage loans held for sale -
Securities available for sale 514
Securities held to maturity 49,015
Loans, net of unearned income 65,224
Less allowance for loan losses 1,254
Net loans 63,970
Premises and equipment 1,694
Other assets 2,795
Total assets $125,554
Liabilities and Stockholders' Equity
Deposits $107,912
Federal funds purchased and resale -
agreements
Other short-term borrowings 1,351
Long term debt 4,496
Other liabilities 275
Total liabilities 114,034
Preferred stock 1,010
Common stock 1,500
Additional paid-in capital -
Retained earnings 9,010
Unrealized net gain (loss) on securities
available for sale, net of tax -
Employee Stock Ownership Plan shares
purchased with debt -
Total stockholders' equity 11,520
Total liabilities and shareholders' equity $125,554
<PAGE>
FGC Holding Company
Consolidated Statement of Income
(Unaudited)
(In thousands, except per share data)
Six Months
Ended
June 30, 1994
Interest income:
Loans $2,944
Securities 1,273
Other 123
Total interest income 4,340
Interest expense:
Deposits 1,601
Short-term borrowings -
Long-term debt and other borrowings 167
Total interest expense 1,768
Net interest income 2,572
Provision for loan losses -
Net interest income after
provision for loan losses 2,572
Non-interest income 239
Non-interest expenses 1,538
Income before income taxes 1,273
Income tax expense 318
Net income $955
Income applicable to common stock $915
<PAGE>
<TABLE>
TRANS FINANCIAL BANCORP, INC.
Pro Forma Balance Sheet
June 30, 1994
(Unaudited)
(In thousands)
<CAPTION>
Trans FGC Pro Forma
Financial Holding Including
Assets Bancorp (1) Company (1) Adjustments FGC
<S> <C> <C> <C> <C> <C>
Cash and due from banks $68,843 $4,066 $(4,800) (4) $68,109
Interest bearing
deposits with banks 196 - - 196
Federal funds sold and
resale agreements 56,991 3,500 - 60,491
Mortgage loans held for sale 11,896 - - 11,896
Securities available for sale 221,488 514 - 222,002
Securities held to maturity 77,066 49,015 - 126,081
Loans, net of unearned income 990,011 65,224 - 1,055,235
Less allowance for loan losses 11,582 1,254 - 12,836
Net loans 978,429 63,970 - 1,042,399
Premises and equipment 34,346 1,694 - 36,040
Other assets 36,506 2,795 - 39,301
Total assets $1,485,761 $125,554 $(4,800) $1,606,515
Liabilities and Stockholders' Equity
Deposits $1,259,907 $107,912 $- $1,367,819
Federal funds purchased and
resale agreements 39,800 - - 39,800
Other short-term borrowings 43,047 1,351 - 44,398
Long term debt 36,973 4,496 (3,790) (4) 37,679
Other liabilities 6,438 275 - 6,713
Total liabilities 1,386,165 114,034 (3,790) 1,496,409
Preferred stock - 1,010 (1,010) (4) -
Common stock 18,981 1,500 468 (3) 20,949
Additional paid-in capital 42,959 - (468) (3) 42,491
Retained earnings 45,869 9,010 - 54,879
Unrealized net gain (loss) on
securities available for
sale, net of tax (4,240) - - (4,240)
Employee Stock Ownership Plan
shares purchased with debt (3,973) - - (3,973)
Total stockholders' equity 99,596 11,520 (1,010) 110,106
Total liabilities and $1,485,761 $125,554 $(4,800) $1,606,515
shareholders' equity
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
TRANS FINANCIAL BANCORP, INC.
Pro Forma Statement of Income
(Unaudited)
(In thousands, except per share data)
Six Months Ended June 30, 1994
Trans FGC Pro Forma
Financial Holding Including
Bancorp (1) Company (1) FGC (2)
Interest income:
Loans $40,735 $2,944 $43,679
Securities 9,399 1,273 10,672
Other 211 123 334
Total interest income 50,345 4,340 54,685
Interest expense:
Deposits 18,584 1,601 20,185
Short-term borrowings 452 - 452
Long-term debt 1,896 167 2,063
Total interest expense 20,932 1,768 22,700
Net interest income 29,413 2,572 31,985
Provision for loan losses 1,012 - 1,012
Net interest income after
provision for loan losses 28,401 2,572 30,973
Non-interest income 7,793 239 8,032
Non-interest expenses 27,663 1,538 29,201
Income before income taxes 8,531 1,273 9,804
Income tax expense 2,924 318 3,242
Income before cumulative effect
of accounting change $5,607 $955 $6,562
Income applicable to common stock $5,607 $915 $6,522
Weighted average shares outstanding:
Primary 10,196 1,050 11,246
Fully diluted 10,196 1,050 11,246
Earnings per common share:
Primary $0.55 $0.58
Fully diluted $0.55 $0.58
See accompanying notes to pro forma financial information.
<PAGE>
<TABLE>
TRANS FINANCIAL BANCORP, INC.
Pro Forma Statement of Income
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Year Ended December 31, 1993
Trans Kentucky Peoples Pro Forma FGC Pro Forma
Financial Community Financial Excluding Holding Including
Bancorp Bancorp (1) Services (1) FGC (2) Co. (1) FGC (2)
(1)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $57,210 $8,609 $6,725 $72,544 $6,267 $78,811
Securities 14,853 2,990 2,214 20,057 2,724 22,781
Other 554 374 190 1,118 109 1,227
Total interest
income 72,617 11,973 9,129 93,719 9,100 102,819
Interest expense:
Deposits 29,810 4,466 3,899 38,175 3,310 41,485
Short-term debt 911 - - 911 - 911
Long-term debt 1,310 267 - 1,577 277 1,854
Total interest
expense 32,031 4,733 3,899 40,663 3,587 44,250
Net interest
Net interest income 40,586 7,240 5,230 53,056 5,513 58,569
Provision for loan losses 1,662 441 241 2,344 450 2,794
Net interest income
after provision for
loan losses 38,924 6,799 4,989 50,712 5,063 55,775
Non-interest income 13,759 1,652 1,149 16,560 471 17,031
Non-interest expenses 39,027 7,139 3,660 49,826 3,003 52,829
Income before
income taxes 13,656 1,312 2,478 17,446 2,531 19,977
Income tax expense 4,249 429 937 5,615 608 6,223
Income before cumulative
effect of accounting
change $9,407 $883 $1,541 $11,831 $1,923 $13,754
Income applicable to
common stock $9,407 $883 $1,541 $11,831 $1,842 $13,673
Weighted average shares outstanding:
Primary 7,521 1,375 1,316 10,212 1,050 11,262
Fully diluted 7,521 1,375 1,316 10,212 1,050 11,262
Earnings per common share:
Primary $1.25 $1.16 $1.21
Fully diluted $1.25 $1.16 $1.21
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
<TABLE>
TRANS FINANCIAL BANCORP, INC.
Pro Forma Statement of Income
(Unaudited)
(In thousands, except per share data)
Year Ended December 31, 1992
Trans Kentucky Peoples Pro Forma FGC Pro Forma
Financial Community Financial Excluding Holding Including
Bancorp (1) Bancorp (1) Services (1) FGC (2) Co. (1) FGC (2)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $46,099 $9,369 $6,759 $62,227 $6,456 $68,683
Securities 16,694 3,137 2,343 22,174 3,192 25,366
Other 614 417 149 1,180 114 1,294
Total interest income 63,407 12,923 9,251 85,581 9,762 95,343
Interest expense:
Deposits 30,822 5,361 4,426 40,609 4,136 44,745
Short-term borrowings 902 17 - 919 - 919
Long-term debt 287 343 64 694 406 1,100
Total interest expense 32,011 5,721 4,490 42,222 4,542 46,764
Net interest income 31,396 7,202 4,761 43,359 5,220 48,579
Provision for loan losses 1,216 838 263 2,317 300 2,617
Net interest income after
provision for loan
losses 30,180 6,364 4,498 41,042 4,920 45,962
Non-interest income 11,064 1,514 720 13,298 495 13,793
Non-interest expenses 27,498 6,157 3,198 36,853 3,038 39,891
Income before
income taxes 13,746 1,721 2,020 17,487 2,377 19,864
Income tax expense 4,686 372 792 5,850 550 6,400
Income before cumulative
effect of accounting
change $9,060 $1,349 $1,228 $11,637 $1,827 $13,464
Income applicable to
common stock $9,004 $1,349 $1,228 $11,581 $1,746 $13,327
Weighted average shares outstanding:
Primary 6,906 1,375 1,316 9,597 1,050 10,647
Fully diluted 6,906 1,375 1,316 9,597 1,050 10,647
Earnings per common share:
Primary $1.30 $1.21 $1.25
Fully diluted $1.30 $1.21 $1.25
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
<TABLE>
TRANS FINANCIAL BANCORP, INC.
Pro Forma Statement of Income
(Unaudited)
(In thousands, except per share data)
Year Ended December 31, 1991
Trans Kentucky Peoples Pro Forma FGC Pro Forma
Financial Community Financial Excluding Holding Including
Bancorp (1) Bancorp (1) Services (1) FGC (2) Co. (1) FGC (2)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $35,858 $10,365 $6,463 $52,686 $6,360 $59,046
Securities 9,582 3,435 2,311 15,328 3,524 18,852
Other 523 796 243 1,562 268 1,830
Total interest income 45,963 14,596 9,017 69,576 10,152 79,728
Interest expense:
Deposits 25,561 7,606 5,352 38,519 5,401 43,920
Short-term borrowings 466 56 - 522 100 622
Long-term debt 1,203 452 198 1,853 424 2,277
Total interest expense 27,230 8,114 5,550 40,894 5,925 46,819
Net interest income 18,733 6,482 3,467 28,682 4,227 32,909
Provision for loan losses 750 772 470 1,992 250 2,242
Net interest income after
provision for loan
losses 17,983 5,710 2,997 26,690 3,977 30,667
Non-interest income 6,542 1,396 830 8,768 471 9,239
Non-interest expenses 17,957 5,748 2,815 26,520 2,708 29,228
Income before income
taxes 6,568 1,358 1,012 8,938 1,740 10,678
Income tax expense 2,028 293 435 2,756 327 3,083
Income before cumulative
effect of accounting
change $4,540 $1,065 $577 $6,182 $1,413 $7,595
Income applicable to
common stock $4,227 $1,065 $577 $5,869 $1,332 $7,201
Weighted average shares outstanding:
Primary 3,277 1,375 1,316 5,968 1,050 7,018
Fully diluted 3,921 1,375 1,316 6,612 1,050 7,662
Earnings per common share:
Primary $1.29 $0.98 $1.03
Fully diluted $1.17 $0.94 $0.99
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
TRANS FINANCIAL BANCORP, INC.
Notes to Pro Forma Financial Information
(1) Represents historical balance sheet or income statement of respective
entities.
(2) No adjustments to the historical statements of income are necessary in
the circumstances under the pooling of interests method of accounting.
(3) Adjustment to increase the value of Trans Financial Common Stock to
reflect the adjusted number of shares outstanding after the Merger, with an
offsetting reduction in additional paid-in capital.
(4) Adjustments to reflect the redemption of FGC preferred stock and certain
FGC debentures.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Trans Financial Bancorp, Inc.
(Registrant)
Date: September 15, 1994 By:/s/ Vince A. Berta
Vince A. Berta
Executive Vice President
and Chief Financial Officer
