UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended September 30, 1996 Commission File Number 0-13030
----------------- -------
TRANS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1048868
(State or other jurisdiction of (IRS Employer 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
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 tofile such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
The number of shares outstanding of the issuer's class of common stock
on November 14, 1996: 11,366,015 shares.
The Exhibit Index is on page 20. This filing contains 21 pages (including this
facing sheet).
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
In thousands, except share data September 30 December 31 September 30
1996 1995 1995
Assets
<S> <C> <C> <C>
Cash and due from banks ...................... $ 75,506 $ 81,703 $ 68,751
Interest-bearing deposits with banks ......... 98 197 197
Federal funds sold and
resale agreements ......................... -- -- 575
Mortgage loans held for sale ................. 46,853 46,311 30,993
Securities available for sale (amortized
cost of $290,274 as of September 30, 1996;
$298,798 as of December 31, 1995;
and $212,236 as of September 30, 1995) .. 288,538 298,222 209,357
Securities held to maturity (market
value of $80,116 as of September 30, 1995) -- -- 78,478
Loans, net of unearned income ................ 1,407,464 1,258,511 1,236,676
Less allowance for loan losses ............... 17,166 15,779 13,659
----------- ----------- -----------
Net loans ................................. 1,390,298 1,242,732 1,223,017
Premises and equipment, net .................. 36,799 41,458 38,600
Mortgage servicing rights .................... 41,347 28,284 28,143
Other assets ................................. 47,436 56,742 37,039
=========== =========== ===========
Total assets .............................. $ 1,926,875 $ 1,795,649 $ 1,715,150
=========== =========== ===========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing ...................... $ 226,031 $ 206,725 $ 171,788
Interest bearing .......................... 1,292,952 1,237,758 1,240,421
----------- ----------- -----------
Total deposits ............................ 1,518,983 1,444,483 1,412,209
Federal funds purchased and
repurchase agreements ..................... 62,621 75,594 76,429
Other short-term borrowings .................. 55,000 45,014 38,019
Long-term debt ............................... 141,053 86,605 36,891
Other liabilities ............................ 23,174 14,186 24,873
----------- ----------- -----------
Total liabilities ......................... 1,800,831 1,665,882 1,588,421
Shareholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; issued and
outstanding 11,318,770; 11,293,291;
and 11,284,604 shares, respectively .... 21,222 21,175 21,154
Additional paid-in capital ................ 44,209 43,872 43,754
Retained earnings ......................... 64,293 68,152 66,988
Unrealized net loss on
securities available for sale,
net of tax ............................. (1,129) (403) (1,887)
Employee Stock Ownership Plan shares
purchased with debt .................... (2,551) (3,029) (3,280)
----------- ----------- -----------
Total shareholders' equity ................ 126,044 129,767 126,729
----------- ----------- -----------
Total liabilities
and shareholders' equity ................ $ 1,926,875 $ 1,795,649 $ 1,715,150
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Income
(Unaudited)
In thousands, except per share data Three Months Nine Months
For the periods ended September 30 1996 1995 1996 1995
Interest income
Loans, including fees ............... $32,761 $ 29,197 $ 93,667 $ 84,026
Federal funds sold and resale
agreements ........................ 2 177 52 730
Securities available for sale ....... 4,176 3,083 12,346 9,581
Securities held to maturity ......... -- 1,234 -- 3,812
Mortgage loans held for sale ........ 954 527 2,863 969
Interest-bearing deposits with banks 3 4 12 13
------- -------- -------- --------
Total interest income ............... 37,896 34,222 108,940 99,131
Interest expense
Deposits ............................ 15,148 14,839 44,159 41,809
Federal funds purchased
and repurchase agreements ......... 364 522 1,384 1,379
Long-term debt and other
borrowings ........................ 3,114 1,325 8,308 4,167
------- -------- -------- --------
Total interest expense .............. 18,626 16,686 53,851 47,355
------- -------- -------- --------
Net interest income ................... 19,270 17,536 55,089 51,776
Provision for loan losses ........... 1,621 780 11,263 2,080
------- -------- -------- --------
Net interest income after
provision for loan losses ........... 17,649 16,756 43,826 49,696
Non-interest income
Service charges on deposit accounts . 2,435 2,127 7,090 6,272
Mortgage banking income ............. 2,626 1,658 7,610 3,691
Gains (losses) on sales of securities
available for sale, net ........... 26 (21) 20 (21)
Gain on sale of mortgage servicing .. -- -- -- 1,687
Trust services ...................... 508 329 1,410 979
Brokerage income .................... 455 438 1,783 1,316
Other ............................... 1,344 1,233 4,020 3,425
------- -------- -------- --------
Total non-interest income ........... 7,394 5,764 21,933 17,349
Non-interest expenses
Compensation and benefits ........... 9,034 7,891 29,177 22,584
Net occupancy expense ............... 1,119 1,266 4,057 3,554
Furniture and equipment expense ..... 1,509 1,529 5,348 4,535
Deposit insurance ................... 2,941 215 3,452 1,754
Professional fees ................... 576 685 2,492 2,404
Postage, printing & supplies ........ 970 826 3,100 2,659
Communications ...................... 689 365 1,873 1,155
Other ............................... 3,634 3,024 13,857 9,904
------- -------- -------- --------
Total non-interest expenses ......... 20,472 15,801 63,356 48,549
------- -------- -------- --------
Income before income taxes ............ 4,571 6,719 2,403 18,496
Income tax expense .................... 1,557 2,175 836 6,038
-------- -------- -------- --------
Net income ............................ $ 3,014 $ 4,544 $ 1,567 $ 12,458
======= ======== ======== ========
Primary earnings per share ............ $ 0.26 $ 0.40 $ 0.14 $ 1.10
======= ======== ======== ========
Fully-diluted earnings per share ...... $ 0.26 $ 0.40 $ 0.14 $ 1.09
======= ======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
In thousands
For the nine months ended September 30 1996 1995
Balance January 1 ................... $ 129,767 $ 111,632
Net income ........................ 1,567 12,458
Issuance of common stock .......... 384 1,093
Cash dividends declared
on common stock ................. (5,426) (5,059)
Change in unrealized gain (loss) on
securities available for sale,
net of taxes .................... (726) 6,186
ESOP debt reduction ............... 478 419
========= =========
Balance September 30 ................ $ 126,044 $ 126,729
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
(Unaudited)
In thousands
For the nine months ended September 30 1996 1995
Cash flows from operating activities:
Net income/(loss) ...................................... $ 1,567 $ 12,458
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses .......................... 11,263 2,080
Deferred tax expense ............................... (281) (1,447)
Loss (gain) on sale of securities available for sale (20) 21
Loss (gain) on sale of mortgage loans held for sale (1,797) (935)
(Gain) on sale of premises and equipment ........... (105) (174)
Writedown of premises and equipment ............... 593 --
Gain on sale of mortgage servicing rights .......... -- (1,687)
Depreciation and amortization of fixed assets ...... 4,702 4,061
Amortization of intangible assets .................. 687 1,009
Amortization of premium on securities
and loans, net ................................... 797 1,004
Amortization of mortgage servicing rights .......... 3,834 1,679
(Increase) in accrued interest receivable .............. (844) (1,209)
Decrease in other assets .............................. 11,918 6,480
Increase in accrued interest payable .................. 326 2,328
Increase (decrease) in other liabilities ............... 6,445 8,065
Sale of mortgage loans held for sale ................... 266,242 76,694
Originations of mortgage loans held for sale ........... (265,547) (99,849)
--------- --------
Net cash provided by (used in) operating activities .. 39,780 10,578
Cash flows from investing activities:
Net decrease in interest-bearing deposits
with banks ........................................... 99 --
Net decrease in federal funds sold
and resale agreements ................................ -- (575)
Proceeds from sale of securities:
Available for sale ................................... 8,898 17,524
Held to maturity ..................................... -- 2,568
Proceeds from prepayment and call of securities:
Available for sale ................................... 35,520 10,359
Held to maturity ..................................... -- 3,798
Proceeds from maturities of securities:
Available for sale ................................... 45,377 23,757
Held to maturity ..................................... -- 2,585
Purchase of securities:
Available for sale ................................... (81,964) (22,493)
Held to maturity ..................................... -- (3,000)
Net increase in loans .................................. (159,135) (94,109)
Purchase and origination of mortgage servicing rights .. (14,330) (21,107)
Proceeds from sale of mortgage servicing rights ........ -- 2,180
Proceeds from sale of foreclosed assets ................ 1,326 422
Purchases of premises and equipment .................... (6,684) (6,153)
Proceeds from disposal of premises and equipment ....... 3,519 644
Net cash and cash equivalents inflow
from acquisitions .................................... -- 37,479
--------- --------
Net cash used in investing activities ................ (167,374) (46,121)
Cash flows from financing activities:
Net increase in deposits ............................... 74,500 35,595
Net (decrease) in federal funds purchased
and repurchase agreements ............................ (12,973) 1,876
Net increase(decrease) in other short-term borrowings . 9,986 (10,014)
Proceeds from issuance of long-term debt ............... 55,000 --
Repayment of long-term debt ............................ (74) (25)
Proceeds from issuance of common stock ................. 384 1,093
Dividends paid ......................................... (5,426) (5,059)
--------- --------
Net cash provided by financing activities ............ 121,397 23,466
--------- --------
Net decrease in cash and cash equivalents .............. (6,197) (12,077)
Cash and cash equivalents at beginning of year ......... 81,703 80,828
--------- --------
Cash and cash equivalents at end of year ............... $ 75,506 $ 68,751
========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Trans Financial, Inc. and its
subsidiaries (the "company") conform to generally accepted accounting principles
and general practices within the banking industry. The consolidated financial
statements include the accounts of Trans Financial, Inc. and its wholly-owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. A description of other significant accounting
policies is presented in the 1995 annual report on Form 10-K.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals except those listed in Note 4 below) considered necessary for
a fair presentation have been reflected in the accompanying unaudited financial
statements. Results of interim periods are not necessarily indicative of results
to be expected for the full year.
(2) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
In thousands Three Months Nine Months
For the periods ended September 30 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Balance beginning of period ................ $ 16,344 $ 13,429 $ 15,779 $ 12,529
Provision for loan losses ................ 1,621 780 11,263 2,080
Loans charged off ........................ (961) (681) (10,480) (1,313)
Recoveries of loans previously charged off 162 131 604 363
-------- -------- -------- --------
Net charge-offs .......................... (799) (550) (9,876) (950)
-------- -------- -------- --------
Balance September 30 ....................... $ 17,166 $ 13,659 $ 17,166 $ 13,659
====== ====== ====== ======
</TABLE>
(3) Impaired Loans
The company's recorded investment in loans considered impaired in
accordance with Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan ("SFAS 114"), was $6,663,000 at September
30, 1996. Of that amount, $3,226,000 represents loans for which an allowance for
loan losses, in the amount of $1,404,000, has been established under SFAS 114.
The average recorded investment of impaired loans was $6,580,000 and $8,518,000
for the three months ended September 30, 1996 and 1995, respectively, and
$9,608,000 and $6,713,000 for the nine months ended September 30, 1996 and 1995,
respectively. Interest income recognized on impaired loans totaled $32,000 for
the three months ended September 30, 1996, and $84,000 for the nine-month period
ended September 30, 1996.
(4) Second Quarter Initiatives
In conjunction with a change in senior management during the second quarter
of 1996, the company began implementing a plan under which certain corporate
activities are being discontinued. The plan calls for the company to exit the
venture capital, human resources consulting and travel businesses; to sell the
corporate aircraft; to close the company's Louisville, Kentucky office; to close
the mortgage loan production offices in Chattanooga, Jackson and Knoxville,
Tennessee; and to realize additional cost savings in the company's retail
delivery system. In addition, the plan calls for the company to consolidate
office space in Nashville, Tennessee and Bowling Green, Kentucky.
Costs recognized in the second quarter of 1996 which are associated with
this plan include severance and related payroll taxes and benefits, writedowns
of fixed assets expected to be sold or abandoned, legal and accounting fees
associated with discontinuing certain activities and various other costs
associated with the disposition of assets. The classification of these costs in
the consolidated statement of income is shown below (in thousands):
Compensation and benefits $1,798
Net occupancy expense 475
Furniture and equipment expense 325
Professional fees 340
Other 2,869
-----
Total costs associated with the plan
(recognized in the second quarter of 1996) $5,807
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Incorporated in 1981, Trans Financial, Inc. (the "company") is a bank and
savings and loan holding company registered under the Bank Holding Company Act
of 1956 and the Home Owners' Loan Act. The company's principal subsidiaries are:
Trans Financial Bank, National Association, headquartered in Bowling Green,
Kentucky; and Trans Financial Bank Tennessee, National Association, and Trans
Financial Bank, F.S.B., both headquartered in Nashville, Tennessee.
Collectively, these three subsidiaries are referred to in this report as the
"banks." In addition, Trans Financial Bank, National Association has two
operating subsidiaries: Trans Financial Investment Services, Inc., a securities
broker/dealer; and Trans Financial Mortgage Company, a mortgage banking company.
The company had total consolidated assets of $1.927 billion on September
30, 1996. Loans totaled $1.407 billion on that date, deposits were $1.519
billion and shareholders' equity was $126 million.
The discussion that follows is intended to provide additional insight into
the company's financial condition and results of operations. This discussion
should be read in conjunction with the consolidated financial statements and
accompanying notes presented in Item 1 of Part I of this report.
Results of Operations
Overview
For the nine months ended September 30, 1996, the company recorded net
income of $1.6 million, or $0.14 per common share, compared to net income of
$12.5 million, or $1.10 per common share, in the same period of 1995. Results
for the first nine months of 1996 reflect pre-tax charges totaling $5.8 million
related to the company's commitment to refocus on its core financial services
business, reduce expenses and exit from less profitable business lines, taken in
the second quarter of 1996, and a pre-tax charge of $2.7 million resulting from
recently enacted legislation designed to recapitalize the Savings Association
Insurance Fund (SAIF), taken during the third quarter of 1996. The company also
increased its year-to-date 1996 provision for loan losses by $9.2 million
compared to the same period in 1995, after taking partial charge-offs totaling
$7.0 million on three non-performing loans in the second quarter of 1996.
Results for the first nine months of 1996 produced an annualized return on
average assets of 0.11% and a return on average common equity of 1.62%, compared
with returns of 1.01% and 13.95%, respectively, for the comparable period of
1995.
For the third quarter of 1996, net income decreased to $3.0 million, or
$0.26 per common share, from $4.5 million, or $0.40 per common share, as
compared to the third quarter of 1995. Excluding the special SAIF assessment of
$2.7 million from the third quarter of 1996, and the previously reported refund
of $585 thousand associated with the over-capitalization of the Bank Insurance
Fund (BIF) in the third quarter of 1995, earnings would have increased $623
thousand, or $0.06 per common share, in the third quarter of 1996 compared to
the third quarter of 1995. Return on average assets for the third quarter of
1996 was 0.64% and the return on average common equity was 9.52%, compared with
returns of 1.07% and 14.58%, respectively, for the third quarter of 1995.
Excluding the special SAIF assessment and the BIF refund from each period,
return on average assets would have increased from 0.98% to 1.01%, and the
return on average common equity from 13.33% to 15.10%, for the third quarters of
1995 and 1996, respectively.
Net Interest Income
Net interest income on a tax-equivalent basis totaled $56.3 million in the
first nine months of 1996, compared with $53.1 million in the comparable 1995
period - a 6.0% increase. For the first nine months of 1996, net interest margin
(net interest income as a percentage of average interest-earning assets) on a
tax-equivalent basis decreased 19 basis points, from 4.70% to 4.51%.
Approximately $550 million of the company's commercial and consumer loans
are tied to the prime rate. Decreases in the prime lending rate, which began in
the third quarter of 1995, had a negative impact on net interest margin during
the first nine months of 1996, compared to the same period in 1995. As the
prime rate stabilized in February 1996, increases in the company's funding
costs, which had lagged behind the increases in loan yields, continued to rise.
As a result, the company's net interest spread (the difference between the gross
yield on interest-earning assets and the rate paid on interest-bearing
liabilities) decreased, negatively impacting the net interest margin. This
negative impact was partially offset by increased net interest income due to
loan growth.
The following tables show, for the nine- and three-month periods ended
September 30, 1996 and 1995, the relationship between interest income and
expense and the levels of average interest-earning assets and average
interest-bearing liabilities. They also reflect the general increase in
interest rates on total interest-bearing liabilities over the past year, and
increased volumes of loans, certificates of deposit, and
borrowed funds.
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the nine months ended September 30
Dollars in thousands
<CAPTION>
1996 1995
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income .... $1,320,882 $ 94,012* 9.51% $1,172,796 $ 84,488* 9.63%
Securities ....................... 294,210 13,259* 6.02% 306,209 14,293* 6.24%
Mortgage loans held for sale ..... 52,446 2,863 7.29% 14,564 969 8.90%
Federal funds sold
and other interest income ...... 1,324 64 6.46% 16,803 743 5.91%
------------ ---------- ---------- ----------
Total interest-earning assets /
interest income .................. 1,668,862 110,198 8.82% 1,510,372 100,493 8.90%
-------- -------
Non-interest-earning assets:
Cash and due from banks .......... 59,451 63,874
Premises and equipment ........... 40,871 37,659
Other assets ..................... 64,059 38,614
------------ -----------
Total assets ....................... $1,833,243 $1,650,519
============ ===========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) .. $ 133,840 2,878 2.87% $231,383 4,626 2.67%
Savings deposits ............... 115,334 2,303 2.67% 133,800 2,917 2.91%
Money market accounts .......... 152,042 3,503 3.08% 47,292 1,124 3.18%
Certificates of deposit ........ 770,385 31,863 5.52% 725,912 29,620 5.46%
Other time deposits ............ 86,399 3,612 5.58% 88,653 3,522 5.31%
------------ ---------- --------- -------
Total interest-bearing deposits 1,258,000 44,159 4.69% 1,227,040 41,809 4.56%
Federal funds purchased
and repurchase agreements ........ 40,293 1,384 4.59% 44,465 1,379 4.15%
Long-term debt and
and other borrowings ............. 178,632 8,308 6.21% 79,664 4,167 6.99%
------------- -------- -------- ------
Total borrowed funds ............. 218,925 9,692 5.91% 124,129 5,546 5.97%
------------- -------- -------- ------
Total interest-bearing liabilities /
interest expense ................. 1,476,925 53,851 4.87% 1,351,169 47,355 4.69%
------------- ------
Non-interest-bearing liabilities:
Non-interest-bearing deposits .... 207,120 165,522
Other liabilities ................ 19,620 14,435
-------- ---------
Total liabilities ................ 1,703,665 1,531,126
Shareholders' equity ............... 129,578 119,393
--------- ----------
Total liabilities
and shareholders' equity ......... $1,833,243 $1,650,519
========== ==========
Net interest-rate spread ........... 3.95% 4.21%
Impact of non-interest bearing
sources and other changes in
balance sheet composition ........ 0.56% 0.49%
-------- ----
Net interest income /
margin on interest-earning assets $ 56,347 4.51% $ 53,138 4.70%
============= ======= ========== ====
<FN>
*Includes tax-equivalent interest
Net interest margin is net interest income divided by average interest-earning assets. For
computational purposes, non-accrual loans are included in interest-earning assets. Net
interest spread is the difference between the average rate of interest earned on interest-earning
assets and the average rate of interest expensed on interest-bearing liabilities. Average
balances are based on daily balances.
</FN>
</TABLE>
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the three months ended September 30
Dollars in thousands
<CAPTION>
1996 1995
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $1,377,739 $32,907 * 9.50% $1,203,501 $29,343 * 9.70%
Securities 294,744 4,488 * 6.06% 298,359 4,629 * 6.17%
Mortgage loans held for sale 48,808 954 7.78% 24,411 527 8.59%
Federal funds sold
and other interest income 250 5 7.96% 12,302 181 5.85%
-------------- ------------ -------------- ---------------
Total interest-earning assets /
interest income 1,721,541 38,354 8.86% 1,538,573 34,680 8.97%
------------ ---------------
Non-interest-earning assets:
Cash and due from banks 53,633 60,091
Premises and equipment 37,269 38,253
Other assets 71,614 42,379
============== ==============
Total assets $1,884,057 $1,679,296
============== ==============
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) $31,819 243 3.04% $232,321 1,590 2.72%
Savings deposits 110,669 751 2.70% 131,183 954 2.89%
Money market accounts 257,185 2,022 3.13% 46,611 382 3.26%
Certificates of deposit 798,551 10,954 5.46% 745,842 10,658 5.68%
Other time deposits 85,358 1,178 5.49% 89,292 1,255 5.59%
-------------- ------------ -------------- ---------------
Total interest-bearing deposits 1,283,582 15,148 4.69% 1,245,249 14,839 4.74%
Federal funds purchased
and repurchase agreements 33,978 364 4.26% 49,234 522 4.22%
Long-term debt and
and other borrowings 195,190 3,114 6.35% 75,007 1,325 7.03%
-------------- ------------ -------------- ---------------
Total borrowed funds 229,168 3,478 6.04% 124,241 1,847 5.91%
-------------- ------------ -------------- ---------------
Total interest-bearing liabilities /
interest expense 1,512,750 18,626 4.90% 1,369,490 16,686 4.85%
------------ ---------------
Non-interest-bearing liabilities:
Non-interest-bearing deposits 224,493 167,794
Other liabilities 20,907 18,330
-------------- --------------
Total liabilities 1,758,150 1,555,614
Shareholders' equity 125,907 123,682
-------------- --------------
Total liabilities
and shareholders' equity $1,884,057 $1,679,296
============== ==============
Net interest-rate spread 3.96% 4.12%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.60% 0.53%
--------- -----------
Net interest income /
margin on interest-earning assets $19,728 4.56% $17,994 4.65%
============ ========= =============== ===========
<FN>
*Includes tax-equivalent interest
Net interest margin is net interest income divided by average interest-earning assets. For
computational purposes, non-accrual loans are included in interest-earning assets. Net
interest spread is the difference between the average rate of interest earned on interest-earning
assets and the average rate of interest expensed on interest-bearing liabilities. Average
balances are based on daily balances.
</FN>
</TABLE>
<PAGE>
Analysis of Changes in Net Interest Income
Shown in the following tables are changes in interest income and interest
expense resulting from changes in volumes (average balances) and changes in
interest rates for the nine- and three-month periods ended September 30, 1996,
as compared to the same periods in 1995.
Nine Months 1996 vs. 1995 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 10,551 $(1,027) $ 9,524
Securities ....................... (550) (484) (1,034)
Mortgage loans held for sale ..... 2,097 (203) 1,894
Federal funds sold
and other interest income ...... (742) 63 (679)
-------- ------- -------
Total interest-earning assets .... 11,356 (1,651) 9,705
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... (2,075) 327 (1,748)
Savings deposits ................. (382) (232) (614)
Money market accounts ............ 2,414 (35) 2,379
Certificates of deposit .......... 1,835 408 2,243
Other time deposits .............. (91) 181 90
-------- ------- -------
Total interest-bearing deposits 1,701 649 2,350
Federal funds purchased
and repurchase agreements ...... (136) 141 5
Long-term debt and
and other borrowings ........... 4,650 (509) 4,141
-------- ------- -------
Total borrowed funds ........... 4,514 (368) 4,146
-------- ------- -------
Total interest-bearing liabilities 6,215 281 6,496
-------- ------- -------
Increase (decrease)
in net interest income ......... $ 5,141 $(1,932) $ 3,209
======== ======= =======
The change in interest due to both rate and volume has been allocated to
changes in average volume and changes in average rates in proportion to the
relationship of absolute dollar amounts of the change in each.
<PAGE>
Third Quarter 1996 vs. 1995 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 4,172 $(608) $ 3,565
Securities ....................... (56) (85) (141)
Mortgage loans held for sale ..... 481 (54) 427
Federal funds sold
and other interest income ...... (224) 48 (176)
------- ----- -------
Total interest-earning assets .... 4,373 (699) 3,675
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... (1,512) 165 (1,347)
Savings deposits ................. (142) (61) (203)
Money market accounts ............ 1,656 (16) 1,640
Certificates of deposit .......... 734 (438) 296
Other time deposits .............. (55) (22) (77)
------- ----- -------
Total interest-bearing deposits 681 (372) 309
Federal funds purchased
and repurchase agreements ...... (163) 5 (158)
Long-term debt and
and other borrowings ........... 1,930 (140) 1,790
------- ----- -------
Total borrowed funds ........... 1,767 (135) 1,632
------- ----- -------
Total interest-bearing liabilities 2,448 (507) 1,941
------- ----- -------
Increase (decrease)
in net interest income ......... $ 1,925 $(192) $ 1,734
======= ===== =======
The change in interest due to both rate and volume has been allocated to
changes in average volume and changes in average rates in proportion to the
relationship of absolute dollar amounts of the change in each.
Provision for Loan Losses
The provision for loan losses was $11.3 million (1.14% of average loans, on
an annualized basis, excluding mortgage loans held for sale) for the first nine
months of 1996, compared with $2.1 million (0.4% of average loans) for the
comparable period of 1995. Net loan charge-offs were $9,876 thousand (1.00% of
average loans) for the first nine months of 1996, compared with $950 thousand
(0.11% of average loans) for the first nine months of 1995.
For the third quarter of 1996, the provision for loan losses was $1,621
thousand (0.47% of average loans, on an annualized basis, excluding mortgage
loans held for sale), compared with $780 thousand (0.26% of average loans) in
the comparable period of 1995. Net loan charge-offs were $799 thousand (0.23% of
average loans) for the third quarter of 1996, compared to $550 thousand (0.18%
of average loans) for the third quarter of 1995.
The company increased its year-to-date 1996 provision for loan losses by
$9.2 million compared to year-to-date 1995, after taking partial charge-offs
totaling $7.0 million on three non-performing loans during the second quarter of
1996. The provision for loan losses and the level of the allowance for loan
losses reflect the quality of the loan portfolio and result from management's
evaluation of the risks in the loan portfolio. The increased provision also
provides for overall growth in the loan portfolio. Further discussion on loan
quality and the allowance for loan losses is included in the Asset Quality
discussion later in this report.
<PAGE>
Non-Interest Income
Non-interest income for the first nine months of 1996 increased $4.6
million over the first nine months of 1995. The second quarter of 1995, however,
included a $1.7 million pre-tax gain from the sale of mortgage servicing rights.
Excluding this gain from the first nine months of 1995, non-interest income
increased $6.3 million. This reflects an increase in service charges on deposit
accounts of $818 thousand, due in part to the introduction of new transaction
account products in April of 1996. The strong growth in the mortgage servicing
portfolio during the past year resulted in an increase of $3.9 million of
mortgage banking income. An increase in trust and investment services income of
$901 thousand, reflecting the company's expanding trust and brokerage services,
accounts for most of the remaining improvement in non-interest income.
Comparing the third quarter of 1996 to the comparable period of 1995,
non-interest income increased $1.6 million. This reflects a $968 thousand
improvement in mortgage banking income, a $308 thousand increase in service
charges on deposit accounts and a $196 thousand increase in trust and investment
services income.
Non-Interest Expenses
Non-interest expenses increased $14.8 million for the first nine months of
1996, compared to the first nine months of 1995. Excluding the previously noted
pre-tax charges totaling $5.8 million related to the company's commitment to
refocus on its core financial services, the pre-tax charge of $2.7 million
associated with the SAIF recapitalization, and the previously reported refund of
$585 thousand associated with the over-capitalization of the BIF, non-interest
expenses would have increased $5.7 million. Increased expenses during the first
half of 1996 on activities which have been discontinued under the company's
refocus on core financial services account for $1.1 million of this $5.7 million
increase. The expanding mortgage banking business accounted for $1.9 million,
and expenses related to the customer care center (which became operational in
the fourth quarter of 1995) accounted for $1.5 million of the increased expenses
in the first nine months of 1996.
The efficiency ratio (non-interest expenses as a percentage of net interest
income plus non-interest income) for the third quarter of 1996 was 76.8%, versus
67.8% for the same period in 1995. Excluding the previously noted charge of $2.7
million associated with the SAIF recapitalization from the third quarter of 1996
and the BIF refund of $585 from the third quarter of 1995, the efficiency ratio
would have improved from 70.3% to 66.7%.
Income Taxes
Income tax expense totaled $836 thousand for the first nine months of 1996,
compared with $6.0 million in the comparable 1995 period. These represent
effective tax rates of 34.8% and 32.6%, respectively. For the third quarter of
1996, income tax expense was $1.6 million, versus expense of $2.2 million in the
second quarter of 1995, reflecting effective tax rates of 34.1% and 32.4%,
respectively.
Balance Sheet Review
Overview
Assets at September 30, 1996 totaled $1.927 billion, compared with $1.796
billion at December 31, 1995, and $1.715 billion a year ago. Average total
assets for the third quarter increased $205 million (12%) over the past year to
$1.884 billion. Average interest-earning assets increased $183 million to $1.722
billion.
Loans
The company continues to experience strong loan growth. Total loans, net of
unearned income, averaged $1.378 billion in the third quarter of 1996, excluding
mortgage loans held for sale of $48.8 million. For the comparable period in
1995, loans averaged $1.204 billion, excluding the $24.4 million of mortgage
loans held for sale.
At September 30, 1996, loans net of unearned income (excluding mortgage
loans held for sale) totaled $1.407 billion, compared with $1.259 billion at
December 31, 1995, and $1.237 billion a year ago. Loans increased at an
annualized rate of 15.8% from year-end 1995 to September 30, 1996.
Asset Quality
Nonperforming loans, which include nonaccrual loans, accruing loans past
due 90 days or more and restructured loans, totaled $11.6 million at September
30, 1996, down $5.7 million from December 31, 1995, and down $1.5 million from
the end of the third quarter of 1995. The decline from December 31, 1995, was
primarily due to the partial charge-off of three loans which had been placed on
nonaccrual status during 1995. The ratio of nonperforming loans to total loans
(net of unearned income) was 0.82% at September 30, 1996, compared with 1.38% at
the end of 1995 and 1.06% a year ago. Nonperforming assets, which include
nonperforming loans, foreclosed real estate and other foreclosed property,
totaled $15.0 million at September 30,1996 as compared to $17.8 million at
September 30, 1995. The ratio of nonperforming assets to total assets decreased
to 0.78% at September 30, 1996, from 1.04% a year ago.
The following table presents information concerning nonperforming assets,
including nonaccrual and restructured loans. Management classifies a loan as
nonaccrual when principal or interest is past due 90 days or more and the loan
is not adequately collateralized and in the process of collection, or when, in
the opinion of management, principal or interest is not likely to be paid in
accordance with the terms of the obligation. Consumer installment loans are
charged off after 120 days of delinquency unless adequately secured and in the
process of collection. Loans are not reclassified as accruing until principal
and interest payments are brought current and future payments appear reasonably
certain. Loans are categorized as restructured if the original interest rate,
repayment terms, or both were restructured due to a deterioration in the
financial condition of the borrower.
<TABLE>
Nonperforming Assets
Dollars in thousands
<CAPTION>
September 30 June 30 December 31 September 30
1996 1996 1995 1995
<S> <C> <C> <C> <C>
Nonaccrual loans ................................. $ 6,718 $ 5,570 $12,708 $ 9,497
Accruing loans which are contractually
past due 90 days or more ....................... 4,881 5,517 4,617 3,625
Restructured loans ............................... 5 6 14 17
------- ------- ------- -------
Total nonperforming and restructured loans ..... 11,604 11,093 17,339 13,139
Foreclosed real estate ........................... 3,108 3,342 4,329 4,115
Other foreclosed property ........................ 241 303 677 569
------- ------- ------- -------
Total nonperforming and restructured loans and
foreclosed property .............................. $14,953 $14,738 $22,345 $17,823
======= ======= ======= =======
Nonperforming and restructured loans
as a percentage of loans, net of unearned income 0.82% 0.82% 1.38% 1.06%
Total nonperforming and restructured loans and
foreclosed property as a percentage of total ... 0.78% 0.79% 1.24% 1.04%
assets
</TABLE>
Three commercial credit relationships account for $3.7 million, or 54%, of
the company's nonaccrual loans at September 30, 1996, and 32% of total
nonperforming and restructured loans. An allowance for loan losses in the amount
of $539 thousand has been established for these credits in accordance with
Statement of Financial Accounting Standards No. 114, Accounting by Creditors for
the Impairment of a Loan. The remaining nonaccrual balance consists of various
commercial and consumer loans, with no single loan exceeding $500,000. The
increase in accruing loans past due 90 days or more from September 30, 1995 to
September 30, 1996, is principally residential real estate loans.
Foreclosed real estate at September 30, 1996, includes two properties with
an aggregate book value of $1.5 million, or 47% of the outstanding balance. The
first property was acquired through foreclosure in 1986, with an unsatisfied
loan balance at the time of $1.8 million. In order to facilitate the disposal of
the property, the company entered into a joint venture with a real estate
developer and developed the land for industrial and other commercial use.
Subsequently, the company dissolved the joint venture and retained title to the
property. Several parcels have been sold to date. Based on an appraisal of the
property and previous sales experience, management does not anticipate any
significant loss to be incurred on disposition. The second property included in
foreclosed real estate is a manufacturing facility which was acquired in the
fourth quarter of 1995. The property is listed for sale and management does not
anticipate any significant loss on the sale of the property. The remaining
balance of foreclosed real estate consists of several properties, with no single
property exceeding $250,000.
As of September 30, 1996, the company had $6.5 million of loans which were
not included in the past due, nonaccrual or restructured categories, but for
which known information about possible credit problems caused management to have
serious doubts as to the ability of the borrowers to comply with the present
loan repayment terms. Based on management's evaluation, including current market
conditions, cash flow generated and recent appraisals, no significant losses are
anticipated in connection with these loans. These loans are subject to
continuing management attention and are considered in determining the level of
the allowance for loan losses.
The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans. At September 30, 1996, the allowance was $17.2 million, up from $15.8
million at December 31, 1995, and $13.7 million at September 30, 1995. The
allowance as a percentage of nonperforming loans increased to 148% at September
30, 1996, from 91% at year-end 1995 and 104% at September 30, 1995. The ratio of
the allowance for loan losses to total loans (excluding mortgage loans held for
sale) at September 30, 1996, was 1.22%, compared with 1.25% at December 31,
1995, and 1.10% at September 30, 1995.
The adequacy of the allowance for loan losses is determined on an ongoing
basis through analysis of the overall quality of the loan portfolio, historical
loan loss experience, loan delinquency trends and current and projected economic
conditions. Additional allocations of the allowance are based on specifically
identified potential loss situations and the size of the loan portfolio. The
potential loss situations are identified by account officers' evaluations of
their own portfolios as well as by an independent loan review function.
Management believes that the allowance for loan losses at September 30, 1996, is
adequate to absorb losses inherent in the loan portfolio as of that date. That
determination is based on the best information available to management, but
necessarily involves uncertainties and matters of judgment and, therefore,
cannot be determined with precision and could be susceptible to significant
change in the future.
Securities, Federal Funds Sold and Resale Agreements
Securities, including those classified as held to maturity and available
for sale, increased from $288 million at September 30, 1995 to $298 million at
year-end 1995, and then decreased to $289 million at September 30, 1996. Funds
provided by the reduction in securities from December 31, 1995 to September 30,
1996 were utilized to fund growth in the loan portfolio.
Deposits and Borrowed Funds
Total deposits averaged $1.508 billion in the third quarter of 1996, an
increase of $95 million, or 7%, from the comparable 1995 period. Average
interest-bearing accounts increased $38.3 million in the third quarter of 1996,
compared to the same period in 1995, while average non-interest-bearing accounts
increased $56.7 million.
Long-term debt totaled $141 million at September 30, 1996, an increase of
$104 million from September 30, 1995. In order to support internally-generated
growth in the loan portfolio, TFB-KY issued in the fourth quarter of 1995 $20
million of two-year notes and $30 million of three-year notes, and in the second
quarter of 1996 $25 million of four-year notes, under a $250 million senior bank
note program. The notes issued to date bear interest at fixed rates of 6.32%,
6.48%, and 7.13%, respectively. The first two issues have been effectively
converted to floating rate instruments through the use of interest rate swap
transactions. Under these swap agreements, TFB-KY pays interest at the prime
rate, and receives a fixed rate of 8.60%. An additional $175 million of bank
notes may be issued from time to time under this book-entry program in
maturities varying from 30 days to 30 years. The remainder of the increase in
long-term debt can be attributed to a long-term Federal Home Loan Bank advance
obtained by TFB-KY in the first quarter of 1996 to assist in funding of loan
growth. This $30 million advance matures in March 1998 and bears an interest
rate of 5.50%.
Capital Resources and Liquidity
The company's capital ratios at September 30, 1996, December 31, 1995, and
September 30, 1995 (calculated in accordance with regulatory guidelines) were as
follows:
September 30, December 31, September 30,
1996 1995 1995
Tier 1 risk based ..................... 7.55% 8.64% 8.95%
Regulatory minimum ............... 4.00 4.00 4.00
Total risk based ...................... 10.77 12.15 12.47
Regulatory minimum ............... 8.00 8.00 8.00
Leverage .............................. 6.12 6.70 6.94
Regulatory minimum ............... 3.00 3.00 3.00
The decrease in these capital ratios during the first nine months of 1996
is primarily due to the loss associated with the $5.8 million in charges and the
increased loan loss provision, both taken during the second quarter of 1996, and
the $2.7 million charge associated with the SAIF recapitalization, taken during
the third quarter of 1996. The decrease prior to the second quarter of 1996 is
primarily due to growth in the balance sheet, particularly commercial and
commercial real estate loans. Capital ratios of all of the company's
subsidiaries are in excess of applicable minimum regulatory capital ratio
requirements at September 30, 1996.
Generally speaking, the company relies upon net inflows of cash from
financing activities, supplemented by net inflows of cash from operating
activities, to provide cash used in its investing activities. As is typical of
most banking companies, significant financing activities include issuance of
common stock and long-term debt, deposit gathering, and the use of short term
borrowing facilities, such as federal funds purchased, repurchase agreements,
advances from the Federal Home Loan Bank and lines of credit. The company's
primary investing activities include the purchase of securities and loan
originations, offset by maturities, prepayments and sales of securities, and
loan payments.
<PAGE>
Asset/Liability Management
Managing interest rate risk is fundamental to the financial services
industry. The company manages the inherently different maturity and repricing
characteristics of the lending and deposit-acquisition lines of business to
achieve a desired interest-sensitivity position and to limit exposure to
interest rate risk. The maturity and repricing characteristics of the company's
lending and deposit activities create a naturally asset-sensitive structure. By
using a combination of on- and off-balance-sheet financial instruments, the
company manages interest rate sensitivity within established policy guidelines.
The company's Asset/Liability Committee (ALCO) approves policy guidelines,
provides oversight to the asset/liability management process, and monitors and
adjusts exposure to interest rates in response to loan and deposit flows. ALCO's
overall objective is to optimize net interest income within the constraints of
prudent capital adequacy, liquidity needs, the interest rate and economic
outlook, market opportunities and customer requirements. Asset/liability
activity is reviewed monthly by the company's board of directors.
An earnings simulation model is used to monitor and evaluate the exposure
and impact of changing interest rates on earnings. The simulation model used by
the company reflects the dynamics of all interest-earning assets,
interest-bearing liabilities and off-balance-sheet financial instruments. It
combines the various factors affecting rate sensitivity into a two-year earnings
outlook that incorporates management's view of the most likely interest rate
environment. The model is updated monthly for multiple interest rate scenarios,
projected changes in balance sheet categories and other relevant assumptions. In
developing multiple rate scenarios, an econometric model is employed to forecast
key rates, based on the cyclical nature and historic volatility of those rates.
A stochastic, or random, view of net interest income can be obtained once
probabilities have been assigned to those key rates.
Among the factors the model utilizes are rate-of-change differentials, such
as federal funds rates versus savings account rates; maturity effects, such as
calls on securities; and rate barrier effects, such as caps or floors on loans.
It also captures changing balance sheet levels, such as loans and investment
securities, and floating-rate loans that may be tied or related to prime,
treasury notes, CD rates or other rate indices, which do not necessarily move
identically as rates change. In addition, it captures leads and lags that occur
as rates move away from current levels, and the effects of prepayments on
various assets, such as residential mortgages, mortgage-backed securities and
consumer loans. These and certain other effects are evaluated to develop
multiple scenarios from which the sensitivity of earnings to changes in interest
rates is determined.
By forecasting a most likely rate environment the effects on net interest
income of adjusting those rates up or down can reveal the company's approximate
interest rate risk exposure level. As of September 30, 1996, the company's most
likely rate environment assumed the federal funds rate and prime lending rate at
5.25% and 8.25%, respectively, rising to 6.00% and 9.00%, respectively, by
September of 1997. The following illustrates the effects on net interest income
of an immediate shift in market interest rates compared to the most likely rate
assumptions used at September 1996:
Basis point change +200 bp +100 bp -100 bp -200 bp
Increase (decrease)
in net interest income 4.37% 2.31% (1.17)% (1.09)%
As of September 30, 1996, management believes the company's balance sheet
was in an asset sensitive position, as the repricing characteristics of the
asset and liability portfolios were such that an increase in interest rates
would have a positive effect on earnings and a decrease in interest rates would
have a negative effect on earnings. It should be noted that the results of the
simulation model do not take into account any future actions which could be
undertaken to reduce an adverse impact if there were a change in interest rate
expectations or in the actual level of interest rates.
A second interest rate sensitivity tool is the quantification of market
value changes for all assets and liabilities, given an increase or decrease in
interest rates. This approach provides a longer term view of interest rate risk,
capturing predominantly all expected future cash flows. Assets and liabilities
with option characteristics are valued based on numerous interest rate path
valuations using Monte Carlo rate simulation techniques. The company utilizes
this tool as another component of interest rate risk management to supplement
the results achieved through net interest income simulations.
To assist in achieving a desired level of interest rate sensitivity the
company has entered into off-balance-sheet interest rate swap transactions,
which effectively convert the bank notes and certain certificates of deposit
from fixed interest rates to floating rates and certain commercial loans from
floating rates to fixed rates. The result is that the asset-sensitive position
which is inherent in the balance sheet is largely neutralized.
<PAGE>
<TABLE>
Interest Rate Swaps
Dollars in thousands
<CAPTION>
Notional Fixed Rate Floating Rate
Amount (Receiving) (Paying) Maturity
--------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
50,000 9.25% 8.25% (Prime) November, 1996
30,000 10.40% 8.25% (Prime) January, 1997
50,000 8.33% 8.25% (Prime) June, 1997
50,000 8.50% 8.25% (Prime) July, 1997
20,000 8.60% 8.25% (Prime) October, 1997
30,000 8.23% 8.25% (Prime) March, 1998
30,000 8.60% 8.25% (Prime) October, 1998
---------------
Total / weighted average $260,000 8.82% 8.25% July, 1997
===============
</TABLE>
In a higher interest rate environment, the increased contribution to net
interest income from on-balance-sheet assets will substantially offset any
negative impact on net interest income from these swap transactions. Conversely,
if interest rates decline, these swaps will mitigate the company's exposure to
reduced net interest income.
The company requires all off-balance-sheet transactions be employed solely
with respect to asset/liability management or for hedging specific transactions
or positions, rather than for speculative trading activity.
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included herein will prove to be accurate. Factors that could cause actual
results to differ from the results discussed in the forward-looking statements
include, but are not limited to: economic conditions (both generally and more
specifically in the markets in which the company and its banks operate);
competition for the company's customers from other providers of financial
services; government legislation and regulation (which changes from time to time
and over which the company has no control); changes in interest rates; material
unforeseen changes in the liquidity, results of operations, or financial
condition of the company's customers; delays in, customer reactions to, and
other unforeseen complications with respect to, the implementation of the cost
containment measures; and other risks detailed in the company's filings with the
Securities and Exchange Commission, all of which are difficult to predict and
many of which are beyond the control of the company.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
On August 12, 1996, Douglas M. Lester, the company's former chairman,
president and chief executive officer, filed suit individually and purportedly
on behalf of the shareholders of the company in Warren Circuit Court, Bowling
Green, Kentucky against the company and four of its directors, Frank
Mastrapasqua, C. Cecil Martin, James D. Scott, and William B. Van Meter. Mr.
Lester claims that the company wrongfully terminated him on June 4, 1996. Mr.
Lester claims that the four named directors breached their fiduciary duties to
the company and also alleges fraud, breach of contract, interference with
contractual relations and invasion of privacy. Mr. Lester seeks, among other
things, $1,000,000 in compensatory damages, the value of certain stock options,
and punitive damages. Management believes that the litigation will not have a
material adverse effect upon the consolidated financial position of the company
and intends to vigorously defend the action.
Items 2 through 5.
No information is required to be filed for these items.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index on pages 20 and 21 of this Form
10-Q are filed as a part of this report.
(b) Reports on Form 8-K
During the quarter ended September 30, 1996, the registrant filed a
Current Report on Form 8-K dated July 16, 1996. This Current Report on
Form 8-K reported the registrant's financial results for the quarter
ended June 30, 1996. No financial statements were filed under Item 7 of
the report.
<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, thereunto duly authorized.
Trans Financial, Inc.
(Registrant)
Principal Executive Officer:
Date: November 14, 1996 /s/ Vince A. Berta
------------------ ------------------
Vince A. Berta
Acting President and
Chief Executive Officer
Principal Financial Officer:
Date: November 14, 1996 /s/ Edward R. Matthews
----------------- ----------------------
Edward R. Matthews
Chief Financial Officer
<PAGE>
21
Exhibits
Sequentially
Numbered Pages
4(a) Restated Articles of Incorporation of the registrant are incorporated
by reference to Exhibit 4(a) of the registrant's report on Form 10-Q
for the quarter ended March 31, 1995.
4(b) Articles of Amendment to the Restated Articles of Incorporation of
the registrant are incorporated by reference to Exhibit 4(b) of the
registrant's report on Form 10-Q for the quarter ended March 31,
1995.
4(c) Restated Bylaws of the registrant are incorporated by reference to
Exhibit 4(b) of the registrant's report on Form 10-K for the year
ended December 31, 1993.
4(d) Rights Agreement dated January 20, 1992 between Manufacturers Hanover
Trust Company (subsequently assigned to First Union National Bank of
North Carolina) and the registrant is incorporated by reference to
Exhibit 1 to the registrant's report on Form 8-K dated January 24,
1992.
4(e) Form of Indenture (including Form of Subordinated Note) dated as of
September 1, 1993, between the registrant and First Tennessee Bank
National Association as Trustee, relating to the issuance of 7.25%
Subordinated Notes due 2003, is incorporated by reference to Exhibit
4 of the Registration Statement on Form S-2 of the registrant (File
No. 33-67686).
4(f) Subordinated Note dated as of September 16, 1993, by Trans
Financial, Inc. is incorporated by reference to Exhibit 1 to
Registration Statement on Form S-2 of the
registrant (File No. 33-67686).
11 Statement Regarding Computation of Per Share Earnings..............21
27 Financial Data Schedule(for SEC use only)..........................--
<PAGE>
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
In thousands, except per share amounts
Nine months Three months
For the periods ended September 30 1996 1995 1996 1995
Primary earnings per common share:
Average common shares outstanding .... 11,305 11,233 11,314 11,259
Common stock equivalents ............. 117 100 148 126
------- ------- ------- ------
Average shares and share equivalents 11,422 11,333 11,462 11,385
Net income ............................. $ 1,567 $12,458 $3,014 $4,544
Primary net income per share ........... $ 0.14 $ 1.10 $.26 $.40
Fully-diluted earnings per common share:
Average common shares outstanding .... 11,305 11,233 11,314 11,259
Common stock equivalents ............. 200 157 200 157
------- ------- ------- ------
Average shares and share equivalents 11,505 11,390 11,514 11,416
Net income ............................. $ 1,567 $12,458 $3,014 $4,544
Fully-diluted net income per share ..... $ 0.14 $ 1.09 $.26 $.40
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-mos 9-mos
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1996
<PERIOD-START> Jul-01-1996 Jan-01-1996
<PERIOD-END> Sep-30-1996 Sep-30-1996
<CASH> 75,506 75,506
<INT-BEARING-DEPOSITS> 98 98
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 288,538 288,538
<INVESTMENTS-MARKET> 288,538 288,538
<LOANS> 1,454,317 1,454,317
<ALLOWANCE> 17,166 17,166
<TOTAL-ASSETS> 1,926,875 1,926,875
<DEPOSITS> 1,518,983 1,518,983
<SHORT-TERM> 117,621 117,621
<LIABILITIES-OTHER> 23,174 23,174
<LONG-TERM> 141,053 141,053
0 0
0 0
<COMMON> 21,222 21,222
<OTHER-SE> 104,822 104,822
<TOTAL-LIABILITIES-AND-EQUITY> 1,926,875 1,926,875
<INTEREST-LOAN> 33,715 96,530
<INTEREST-INVEST> 4,176 12,346
<INTEREST-OTHER> 5 64
<INTEREST-TOTAL> 37,896 108,940
<INTEREST-DEPOSIT> 15,148 44,159
<INTEREST-EXPENSE> 18,626 53,851
<INTEREST-INCOME-NET> 19,270 55,089
<LOAN-LOSSES> 1,621 11,263
<SECURITIES-GAINS> 26 20
<EXPENSE-OTHER> 20,472 63,356
<INCOME-PRETAX> 4,571 2,403
<INCOME-PRE-EXTRAORDINARY> 3,014 1,567
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,014 1,567
<EPS-PRIMARY> .26 .14
<EPS-DILUTED> .26 .14
<YIELD-ACTUAL> 4.56 4.51
<LOANS-NON> 6,718 6,718
<LOANS-PAST> 4,881 4,881
<LOANS-TROUBLED> 5 5
<LOANS-PROBLEM> 6,480 6,480
<ALLOWANCE-OPEN> 16,344 15,779
<CHARGE-OFFS> 961 10,480
<RECOVERIES> 162 604
<ALLOWANCE-CLOSE> 17,166 17,166
<ALLOWANCE-DOMESTIC> 17,166 17,166
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
