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 March 31, 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 to file 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 May 8, 1996: 11,305,045 shares.
The Exhibit Index is on page 19. This filing contains 25 pages (including this
facing sheet).
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<PAGE>
<TABLE>
Consolidated Balance Sheets
(Unaudited)
In thousands, except share data .........
<CAPTION>
March 31 December 31 March 31
1996 1995 1995
Assets
<S> <C> <C> <C>
Cash and due from banks ................. $ 61,128 $ 81,703 $ 75,476
Interest-bearing deposits with banks .... 98 197 197
Federal funds sold and
resale agreements .................... -- -- 29,175
Mortgage loans held for sale ............ 43,564 45,751 7,680
Securities available for sale (amortized
cost of $294,380 as of March 31, 1996;
$298,798 as of December 31, 1995;
and $232,046 as of March 31, 1995) ... 292,762 298,222 224,522
Securities held to maturity (market
value of $84,541 as of March 31, 1995) -- -- 85,725
Loans, net of unearned income ........... 1,310,999 1,259,071 1,153,935
Less allowance for loan losses .......... 16,051 15,779 12,880
----------- ----------- -----------
Net loans ............................ 1,294,948 1,243,292 1,141,055
Premises and equipment, net ............. 42,685 41,458 37,401
Mortgage servicing rights ............... 41,004 28,284 9,221
Other assets ............................ 39,876 56,742 44,050
=========== =========== ===========
Total assets ......................... $ 1,816,065 $ 1,795,649 $ 1,654,502
=========== =========== ===========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing ................. $ 201,080 $ 206,725 $ 175,583
Interest bearing ..................... 1,231,095 1,237,758 1,240,162
----------- ----------- -----------
Total deposits ....................... 1,432,175 1,444,483 1,415,745
Federal funds purchased and
repurchase agreements ................ 44,542 75,594 33,409
Other short-term borrowings ............. 70,003 45,014 37,798
Long-term debt .......................... 116,379 86,605 37,172
Other liabilities ....................... 21,472 14,186 13,201
----------- ----------- -----------
Total liabilities .................... 1,684,571 1,665,882 1,537,325
Shareholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; issued and
outstanding 11,304,811; 11,293,291;
and 11,212,969 shares, respectively 21,197 21,175 21,024
Additional paid-in capital ........... 43,990 43,872 42,935
Retained earnings .................... 70,081 68,152 61,702
Unrealized net loss on
securities available for sale,
net of tax ........................ (936) (403) (4,923)
Employee Stock Ownership Plan shares
purchased with debt ............... (2,838) (3,029) (3,561)
----------- ----------- -----------
Total shareholders' equity ........... 131,494 129,767 117,177
----------- ----------- -----------
Total liabilities
and shareholders' equity ........... $ 1,816,065 $ 1,795,649 $ 1,654,502
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Income
(Unaudited)
In thousands, except per share data ........................
For the three months ended March 31 ........................ 1996 1995
Interest income
Loans, including fees .................................... $30,001 $26,681
Federal funds sold and resale
agreements ............................................. 2 241
Securities available for sale ............................ 4,041 3,305
Securities held to maturity .............................. -- 1,285
Mortgage loans held for sale ............................. 781 157
Interest-bearing deposits with banks ..................... 4 4
------- -------
Total interest income .................................... 34,829 31,673
Interest expense
Deposits ................................................. 14,343 12,653
Federal funds purchased
and repurchase agreements .............................. 592 465
Long-term debt and other
borrowings ............................................. 2,350 1,512
------- -------
Total interest expense ................................... 17,285 14,630
------- -------
Net interest income ........................................ 17,544 17,043
Provision for loan losses ................................ 1,221 520
------- -------
Net interest income after
provision for loan losses ................................ 16,323 16,523
Non-interest income
Service charges on deposit accounts ...................... 2,236 1,891
Mortgage banking income .................................. 2,653 862
Gains on sales of securities
available for sale, net ................................ 15 --
Trust services ........................................... 461 318
Brokerage income ......................................... 661 466
Other .................................................... 1,209 1,123
------- -------
Total non-interest income ................................ 7,235 4,660
Non-interest expenses
Compensation and benefits ................................ 9,233 7,223
Net occupancy expense .................................... 1,204 1,088
Furniture and equipment expense .......................... 1,667 1,483
Deposit insurance ........................................ 244 762
Professional fees ........................................ 696 930
Postage, printing & supplies ............................. 977 830
Communications ........................................... 569 373
Other .................................................... 3,529 2,874
------- -------
Total non-interest expenses .............................. 18,119 15,563
------- -------
Income before income taxes ................................. 5,439 5,620
Income tax expense ......................................... 1,703 1,825
======= =======
Net income available
for common stock ......................................... 3,736 $ 3,795
======= =======
Primary earnings per share ................................. $ 0.33 $ 0.34
======= =======
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
In thousands
<CAPTION>
For the three months ended March 31 ........................ 1996 1995
<S> <C> <C>
Balance January 1 .......................................... $ 129,767 $ 111,632
Net income ............................................... 3,736 3,795
Issuance of common stock ................................. 140 144
Cash dividends declared:
Common stock ........................................... (1,807) (1,681)
Change in unrealized gain (loss) on
securities available for sale,
net of taxes ........................................... (533) 3,150
ESOP debt reduction ...................................... 191 137
========= =========
Balance March 31 ........................................... $ 131,494 $ 117,177
========= =========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(Unaudited)
In thousands
<CAPTION>
For the three months ended March 31 ........................ 1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net income ................................................. $ 3,736 $ 3,795
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses .............................. 1,221 520
Deferred tax expense ................................... (281) (141)
Gain on sale of securities available for sale .......... (15) --
Loss (gain) on sale of mortgage loans held for sale .... (1,888) 62
(Gain) on sale of premises and equipment ............... -- (163)
Depreciation and amortization of fixed assets .......... 1,516 1,346
Amortization of intangible assets ...................... 343 295
Amortization of premium on securities
and loans, net ....................................... 300 362
Amortization of mortgage servicing rights .............. 1,012 459
Decrease in accrued interest receivable .................... 615 1,021
Decrease (increase) in other assets ........................ 15,301 (2,668)
Increase (decrease) in accrued interest payable ............ (410) 1,680
(Decrease) in other liabilities ............................ (598) (1,301)
Sale of mortgage loans held for sale ....................... 64,594 13,378
Originations of mortgage loans held for sale ............... (60,519) (14,579)
-------- --------
Net cash provided by operating activities ................ 24,927 4,066
Cash flows from investing activities:
Net decrease in interest-bearing deposits
with banks ............................................... 99 --
Net decrease in federal funds sold
and resale agreements .................................... -- (29,175)
Proceeds from sale of securities:
Available for sale ....................................... 16 1
Proceeds from prepayment and call of securities:
Available for sale ....................................... 24,314 2,164
Held to maturity ......................................... -- 1,398
Proceeds from maturities of securities:
Available for sale ....................................... 8,015 8,100
Held to maturity ......................................... -- 530
Purchase of securities:
Available for sale ....................................... (28,128) (536)
Held to maturity ......................................... -- (3,000)
Net increase in loans ...................................... (53,315) (10,100)
Purchase and origination of mortgage servicing rights ...... (5,013) (514)
Proceeds from sale of foreclosed assets .................... 1,326 87
Purchases of premises and equipment ........................ (2,794) (1,813)
Proceeds from disposal of premises and equipment ........... 51 207
Net cash and cash equivalents inflow
from acquisitions ........................................ -- 37,045
-------- --------
Net cash provided by (used in) investing
activities ............................................... (55,429) 4,394
Cash flows from financing activities:
Net increase (decrease) in deposits ........................ (12,308) 39,130
Net (decrease) in federal funds purchased
and repurchase agreements ................................ (31,052) (41,144)
Net increase (decrease) in other short-term borrowings ..... 24,989 (10,236)
Proceeds from issuance of long-term debt ................... 30,000 --
Repayment of long-term debt ................................ (35) (25)
Proceeds from issuance of common stock ..................... 140 144
Dividends paid ............................................. (1,807) (1,681)
-------- --------
Net cash provided by financing activities ................ 9,927 (13,812)
-------- --------
Net increase in cash and cash equivalents .................. (20,575) (5,352)
Cash and cash equivalents at beginning of year ............. 81,703 80,828
-------- --------
Cash and cash equivalents at end of year ................... $ 61,128 $ 75,476
======== ========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) 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.
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 to shareholders.
(2) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses follows:
In thousands ...............................
For the three months ended March 31 ........ 1996 1995
Balance beginning of period ................ $ 15,779 $ 12,529
Provision for loan losses ................ 1,221 520
Loans charged off ........................ (1,121) (319)
Recoveries of loans previously charged off 172 150
-------- --------
Net charge-offs .......................... (949) (169)
-------- --------
Balance March 31 ........................... $ 16,051 $ 12,880
======== ========
(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 $12,754,000 at March 31,
1996. Of that amount, $11,505,000 represents loans for which an allowance for
loan losses, in the amount of $5,100,000, has been established under SFAS 114.
The average recorded investment of impaired loans was $12,599,000 and $5,158,000
for the three months ended March 31, 1996 and 1995, respectively. Interest
income recognized on impaired loans totaled $14,000 for the three months ended
March 31, 1996, and $36,000 for the first quarter of 1995.
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 three
operating subsidiaries: Trans Financial Investment Services, Inc., a securities
broker/dealer; Trans Financial Mortgage Company, a mortgage banking company; and
Trans Travel, Inc., a travel agency.
The company had total consolidated assets of $1.816 billion on March 31,
1996. Loans totaled $1.311 billion on that date, deposits were $1.432 billion
and shareholders' equity was $131 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 three months ended March 31, 1996, the company's net income
decreased 2%, from $3.8 million, or $0.34 per common share, to $3.7 million, or
$0.33 per share, as compared to the first quarter of 1995. Results for the first
quarter of 1996 produced an annualized return on average assets of 0.85% and a
return on average common equity of 11.49%, compared with returns of 0.95% and
13.54%, respectively, for the comparable period of 1995.
Net Interest Income
Net interest income totaled $17.5 million in the first three months of
1996, compared with $17.0 million in the comparable 1995 period - a 3% increase.
For the first quarter of 1996, net interest margin (net interest income as a
percentage of average interest-earning assets) decreased 30 basis points, from
4.68% to 4.38%.
Approximately $500 million of the company's commercial and consumer loans
are tied to the prime rate. Consequently, decreases in the prime lending rate,
which began in the third quarter of 1995, had a negative impact on net interest
margin, partially mitigated by off-balance sheet interest rate swaps. While
rates on earning assets rose during the first half of 1995, increases in the
company's funding costs did not keep pace with the increase in loan yields.
As the prime rate continued to decline in the first quarter of 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 table shows, for the three months ended March 31, 1996 and
1995, the relationships between interest income and expense and the levels of
average interest-earning assets and average interest-bearing liabilities.
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the Three Months Ended March 31
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 .... $1,276,598 $ 30,001 9.53% $1,140,559 $26,681 9.49%
Securities ....................... 293,206 4,041 5.59% 313,309 4,590 5.94%
Mortgage loans held for sale ..... 39,431 781 8.03% 6,898 157 9.23%
Federal funds sold
and other interest income ...... 283 6 8.60% 17,410 245 5.71%
---------- ---------- ---------- -------
Total interest-earning assets /
interest income .................. 1,609,518 34,829 8.78% 1,478,176 31,673 8.69%
---------- -------
Non-interest-earning assets:
Cash and due from banks .......... 66,046 70,111
Premises and equipment ........... 42,169 36,972
Other assets ..................... 56,373 35,366
---------- ----------
Total assets ....................... $1,774,106 $1,620,625
========== ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) .. $ 246,292 $ 1,713 2.82% $ 231,449 $ 1,491 2.61%
Savings deposits ............... 120,550 791 2.66% 136,083 988 2.94%
Money market accounts .......... 40,853 315 3.13% 49,150 370 3.05%
Certificates of deposit ........ 737,470 10,299 5.66% 693,837 8,748 5.11%
Other time deposits ............ 87,349 1,225 5.69% 87,075 1,053 4.90%
---------- ---------- --------- ------
Total interest-bearing deposits 1,232,514 14,343 4.72% 1,197,594 12,650 4.28%
Federal funds purchased
and repurchase agreements ........ 49,886 592 4.81% 46,633 465 4.04%
Long-term debt and
and other borrowings ............. 153,004 2,350 6.23% 88,946 1,512 6.89%
---------- ---------- ---------- -------
Total borrowed funds ............. 202,890 2,942 5.88% 135,579 1,977 5.91%
---------- ---------- ---------- -------
Total interest-bearing liabilities /
interest expense ................. 1,435,404 17,285 4.88% 1,333,173 14,627 4.45%
-------
Non-interest-bearing liabilities:
Non-interest-bearing deposits .... 190,993 161,844
Other liabilities ................ 16,902 11,967
--------- ---------
Total liabilities ................ 1,643,299 1,506,984
Shareholders' equity ............... 130,807 113,641
-------- ---------
Total liabilities
and shareholders' equity ......... $1,774,106 $1,620,625
========== ==========
Net interest-rate spread ........... 3.90% 4.24%
Impact of non-interest bearing
sources and other changes in
balance sheet composition ........ .48% 0.44%
------- -------
Net interest income /
margin on interest-earning assets $ 17,544 4.38% $17,046 4.68%
========== ======= ======= =======
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.
</TABLE>
<PAGE>
Analysis of Changes in Net Interest Income
Shown in the following table are changes in interest income and interest
expense resulting from changes in volumes (average balances) and changes in
interest rates for the three months ended March 31, 1996, as compared to the
same period in 1995.
First Quarter 1996 vs. 1995 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 3,196 $ 124 $ 3,320
Securities ....................... (285) (264) (549)
Mortgage loans held for sale ..... 647 (23) 624
Federal funds sold
and other interest income ...... (322) 83 (239)
------- ------- -------
Total interest-earning assets .... 3,236 (80) 3,156
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... 99 123 222
Savings deposits ................. (107) (90) (197)
Money market accounts ............ (64) 9 (55)
Certificates of deposit .......... 572 979 1,551
Other time deposits .............. 3 169 172
------- ------- -------
Total interest-bearing deposits 503 1,190 1,693
Federal funds purchased
and repurchase agreements ...... 34 93 127
Long-term debt and
and other borrowings ........... 996 (158) 838
------- ------- -------
Total borrowed funds ........... 1,030 (65) 965
------- ------- -------
Total interest-bearing liabilities 1,533 1,125 2,658
------- ------- -------
Increase (decrease)
in net interest income ......... $ 1,703 $(1,205) $ 498
======= ======= =======
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.
The preceding table reflects the general increase in interest rates over
the past year. The tables also reflect increased volumes of loans, certificates
of deposit, and borrowed funds while nearly all other categories of interest-
bearing assets and liabilities have decreased.
Provision for Loan Losses
The provision for loan losses was $1,221 thousand (0.38% of average loans,
on an annualized basis, excluding mortgage loans held for sale) in the first
three months of 1996, compared with $520 thousand (0.18% of average loans) in
the comparable period of 1995. Net loan charge-offs were $948 thousand (0.30%
of average loans) for the first three months of 1996, compared with $319
thousand(0.11% of average loans) for the first three months of 1995.
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 provides
for overall growth in the loan portfolio and additional risk associated with an
increase of $8.4 million in nonperforming loans from a year ago. 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 three months of 1996 increased $2.6
million over the first three months of 1995. This reflects an increase in
service charges on deposit accounts of $345 thousand, due in part to the
company's repricing of checking and savings products which took effect in April
of 1995. The strong growth in the mortgage servicing portfolio during the past
year resulted in an increase of $1.8 million of mortgage banking income. An
increase in trust and investment services income of $338 thousand, reflecting
the company's expanding trust and brokerage services, accounts for most of the
remaining improvement in non-interest income.
Non-Interest Expenses
Non-interest expenses increased $2.6 million for the first three months of
1996, compared to the first three months of 1995. This reflects increased
expenses associated with mortgage banking operations($1.1 million), trust and
investment services($.6 million) and travel agency services($.2 million). It
also reflects an additional $716 thousand for the addition of new distribution
channels, which include the Customer Care Center (a state-of-the-art telephone
call center which is open twenty-four hours a day, seven days a week and will
be the basis for distributing the company's growing array of products) and
offices in Louisville, Kentucky and Nashville, Tennessee, and $212 thousand for
expanded sales training. These expenses were partially offset by lower
deposit insurance premiums and professional fees of $752 thousand. These
increases in non-interest expenses reflect the company's continued investment
in new technology, product lines, distribution channels and people,
to provide enhanced customer service and support future growth.
The efficiency ratio (non-interest expenses as a percentage of net
interest income before provision for loan losses plus non-interest
income) for the first quarter of 1996 was 73.1%, versus 71.7% for the same
period in 1995.
Income Taxes
Income tax expense totaled $1.7 million in the first three months of 1996,
compared with $1.8 million in the comparable 1995 period.
These represent effective tax rates of 31.3% and 32.5%, respectively.
Balance Sheet Review
Overview
Assets at March 31, 1996 totaled $1.816 billion, compared with $1.796
billion at December 31, 1995, and $1.655 billion a year ago. Average total
assets for the first quarter increased $153 million (9%) over the past year to
$1.774 billion. Average interest-earning assets increased $131.3 million to
$1.610 billion.
Loans
Total loans, net of unearned income, averaged $1.277 billion in the first
quarter of 1996, excluding mortgage loans held for sale of $39.4 million. For
the comparable period in 1995, loans averaged $1.141 million, excluding the $6.9
million of mortgage loans held for sale.
The company continues to experience strong loan growth. At March 31, 1996,
loans net of unearned income (excluding mortgage loans held for sale) totaled
$1.311 billion, compared with $1.259 billion at December 31, 1995, and $1.154
billion a year ago. Loans increased at an annualized rate of 16.5% from year-end
1995 to March 31, 1996.
Asset Quality
With respect to asset quality, management considers three categories of
assets to warrant constant scrutiny. These categories include (a) loans which
are currently nonperforming, (b) foreclosed real estate, and (c) loans which are
currently performing but which management believes require special attention.
Nonperforming loans, which include nonaccrual loans, accruing loans past
due 90 days or more and restructured loans, totaled $16.0 million at March 31,
1996, down $1.3 million from December 31, 1995, and up $8.5 million from the end
of the first quarter of 1995. The ratio of nonperforming loans to total loans
(net of unearned income) was 1.22% at March 31, 1996, compared with 1.38% at the
end of 1995 and 0.65% a year ago. Nonperforming assets, which include
nonperforming loans, foreclosed real estate and other foreclosed property,
totaled $20.1 million at March 31,1996 as compared to $12.8 million at
March 31, 1995. The ratio of nonperforming assets to total assets increased
to 1.11% at March 31, 1996, from 0.77% 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. However, restructured loans that
demonstrate performance under restructured terms and that yield a market rate of
interest may be removed from restructured status in the year following the
restructure.
<TABLE>
Nonperforming Assets
Dollars in thousands
<CAPTION>
March 31 December 31 March 31
1996 1995 1995
<S> <C> <C> <C>
Nonaccrual loans .................................................. $12,394 $12,708 $ 5,393
Accruing loans which are contractually
past due 90 days or more ........................................ 3,548 4,617 2,103
Restructured loans ................................................ 10 14 26
------- ------- -------
Total nonperforming and restructured loans ...................... 15,952 17,339 7,522
Foreclosed real estate ............................................ 3,328 4,329 4,951
Other foreclosed property ......................................... 847 677 305
------- ------- -------
Total nonperforming and restructured loans and
foreclosed property ............................................ $20,127 $22,345 $12,778
======= ======= =======
Nonperforming and restructured loans
as a percentage of net loans, net of unearned
income. ......................................................... 1.22% 1.38% 0.65%
Total nonperforming and restructured loans and
foreclosed property as a percentage of total assets ............. 1.11% 1.24% 0.77%
</TABLE>
Three commercial credit relationships account for $11.2 million, or 90%, of
the company's nonaccrual loans at March 31, 1996, and 70% of total nonperforming
and restructured loans. The largest of these credits is to a manufacturer of
metal products used primarily in the automotive industry. Another of these
credits is to a specialty apparel manufacturer, and the third is to a company in
the coal mining industry. An allowance for loan losses in the amount of $4.8
million 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 $750,000. The
change in accruing loans past due 90 days or more is principally residential
real estate loans.
Foreclosed real estate at December 31, 1995, includes two properties with
an aggregate book value of $1.9 million, or 58% 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 $500,000.
As of March 31, 1996, the company had $7.2 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 March 31, 1996, the allowance was $16.1 million, up from $15.8 million
at December 31, 1995, and $12.9 million at March 31, 1995. The allowance as a
percentage of nonperforming loans increased to 101% at March 31, 1996, from 91%
at year-end 1995 and 98% at March 31, 1995. The ratio of the allowance for loan
losses to total loans (excluding mortgage loans held for sale) at March 31,
1996, was 1.22%, compared with 1.25% at December 31, 1995, and 1.12% at the end
of 1995's first quarter.
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. These potential loss situations are
identified by account officers' evaluation of their own portfolios as well as by
an independent loan review function. Management believes that the allowance for
loan losses at March 31, 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, decreased from $310 million at March 31, 1995, to $298 million at
year-end 1995, and $293 million at March 31, 1996 - the result of maturities,
prepayments and calls. Funds provided by the reduction in securities were
utilized to fund growth in the loan portfolio.
Deposits and Borrowed Funds
Total deposits averaged $1.424 billion in the first quarter of 1996, an
increase of 5% from the comparable 1995 period. Average interest-bearing
accounts increased $34.9 million in the first quarter of 1996, compared
to the same period in 1995, while average non-interest-bearing accounts
increased $29.2 million.
During the first quarter of 1995, the Company issued $30 million of
24-month brokered certificates of deposit, and purchased $41 million of deposits
from Fifth Third Bank of Kentucky, Inc. Excluding these transactions from both
periods, average deposits would have grown approximately $37 million from the
first quarter of 1995 to the same period in 1996.
Long-term debt averaged $94.8 million in the first quarter of 1996, an
increase of $57.5 million from the first quarter of 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 under a $250 million senior bank note program. The notes issued to date
bear interest at fixed rates of 6.32% and 6.48%, respectively, and 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 $200 million of
bank notes may be issued from time to time under this book-entry program in
maturities of from 30 days to 30 years. The remainder of the increase in
long-term debt can be attributed to a new long-term Federal Home Loan Bank
advance obtained by TFB-KY to assist in funding of loan growth. This advance
matures in March 1998 and bears an interest rate of 5.50%.
Capital Resources and Liquidity
The company's capital ratios at March 31, 1996, December 31, 1995, and
March 31, 1995 (calculated in accordance with regulatory guidelines) were as
follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
Tier 1 risk based ........................................ 8.51% 8.64% 9.11%
Regulatory minimum ....................................... 4.00 4.00 4.00
Total risk based ......................................... 11.93 12.15 12.84
Regulatory minimum ....................................... 8.00 8.00 8.00
Leverage ............................................ 6.72 6.70 6.79
Regulatory minimum ....................................... 3.00 3.00 3.00
</TABLE>
The decrease in these capital ratios over the past year 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 March 31, 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 purchase of securites and loan
originations, offset by maturities, prepayments and sales of securities, and
loan payments.
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 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.
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 at least 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 of those rates,
with a probability assigned to potential future events which might affect those
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.
The following illustrates the effects on net interest income of multiple
rate environments compared to the rate environment of March 1996 (the "flat"
scenario). For example, in the scenario considered "most likely" the company
assumed that the federal funds rate and prime rate would be 4.75% and 7.75%,
respectively, at the end of March 1997, and would be slightly higher for six of
the twelve months from March 31, 1996 to March 31, 1997.
<TABLE>
<CAPTION>
Flat Most Likely Rising Declining
Assumptions:
<S> <C> <C> <C> <C>
Prime rate ....................................... 8.25% 7.75% 11.25% 5.50%
Federal funds rate ............................... 5.25% 4.75% 8.20% 3.00%
Increase (decrease) in
net interest income .............................. -% (.30)% 1.64% (2.52)%
</TABLE>
As of March 31, 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.
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.
The company pays a variable interest rate on each swap and receives a fixed
rate. Interest income and expense is accrued over the terms of the agreements.
Interest rate swap transactions as of March 31, 1996, are shown below:
<PAGE>
<TABLE>
Dollars in thousands
<CAPTION>
Notional Fixed Rate Floating Rate
Amount (Receiving) (Paying) Maturity
<S> <C> <C> <C> <C>
$20,000 4.38% 5.33% (LIBOR) May, 1996
50,000 9.58% 8.25% (Prime) August, 1996
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
30,000 8.23% 8.25% (Prime) March, 1998
20,000 8.60% 8.25% (Prime) October, 1997
30,000 8.60% 8.25% (Prime) October, 1998
-------- ------- -----
Total/weighted average $330,000 8.67% 8.07%
========= ====== =====
</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.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of operations, the company and its subsidiaries are
defendants in various legal proceedings. In the opinion of management, there is
no proceeding pending or, to the knowledge of management, threatened in which an
adverse decision could result in a material adverse change in the business or
consolidated financial position of the company.
Item 2 and 3.
No information is required to be filed for these items.
Item 4. Submission of Matters to a Vote of Security Holders
The registrant's 1996 Annual Meeting of Shareholders was held April 22,
1996. Proxies were solicited by the registrant's board of directors pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the board's nominees as listed in the proxy
statement, and all of the nominees were elected by vote of the shareholders.
Voting results for each nominee were as follows:
Votes For Votes Withheld
Wayne Gaunce ........ 9,052,302 29,235
Charles A. Hardcastle 9,052,312 29,225
Douglas M. Lester ... 9,051,810 29,727
William B. Van Meter 9,052,312 29,225
A proposal (Proposal II) to approve the Trans Financial, Inc. Directors
Stock Compensation Plan was approved by a majority of the outstanding shares of
the registrant's common stock. A total of 8,396,570 shares were voted in favor
of the proposal; 553,208 shares were voted against; and 54,228 shares abstained
(including broker non-votes).
The total number of shares of common stock outstanding as of March 1, 1996,
the record date of the Annual Meeting of Shareholders, was 11,293,948.
Item 5. Other Information
No information is required to be filed for this item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index on page 19 of this Form 10-Q are
filed as a part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Trans Financial, Inc.
(Registrant)
Principal Executive Officer:
Date: May 14, 1996 /s/ Douglas M. Lester
------------ ---------------------
Douglas M. Lester
Chairman of the Board, President
and Chief Executive Officer
Principal Financial Officer:
May 14, 1996 /s/ Edward R. Matthews
------------ ----------------------
Edward R. Matthews
Chief Financial Officer
<PAGE>
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).
10(a) Trans Financial, Inc. 1987 Stock Option Plan is incorporated
by reference to Exhibit 4(a) of Registration Statement on
Form S-8 of the registrant (File No. 33-43046).*
10(b) Trans Financial, Inc. 1990 Stock Option Plan is incorporated by
reference to Exhibit 10(d) of the registrant's Report on Form 10-K
for the year ended December 31, 1990.*
10(c) Trans Financial, Inc. 1992 Stock Option Plan is incorporated
by reference to Exhibit 28 of the registrant's Report on Form 10-Q
for the quarter ended March 31, 1992.*
10(d) Trans Financial, Inc. 1994 Stock Option Plan is incorporated by
reference to the registrant's Proxy Statement dated March 18, 1994,
for the April 25, 1994 Annual Meeting of Shareholders.*
10(e) Employment Agreement between Douglas M. Lester and Trans
Financial, Inc. is incorporated by reference to Exhibit
10(e) of the registrant's Report on Form 10-K for the year ended
December 31, 1995.*
10(f) Description of the registrant's Performance Incentive Plan is
incorporated by reference to Exhibit 10(g) of the regristrant's
Report on Form 10-K for the year ended December 31, 1994.*
10(g) Form of Deferred Compensation Agreement between registrant and
certain officers of the registrant is incorporated by reference to
Exhibit 10(g) of the registrant's Report on Form 10-K for the year
ended December 31, 1992.*
10(h) Trans Financial, Inc.. Dividend Reinvestment and Stock Purchase
Plan is incorporated by reference to Registration Statement on Form
S-3 of the registrant dated May 15, 1991 (File No. 33-40606).
10(i) Warrant dated as of February 13, 1992 between Morgan Keegan &
Company, Inc. and Trans Financial, Inc. incorporated by reference
to Exhibit 10(m) of Registration Statement on Form S-2 of the
registrant (File No. 33-45483).
10(j) Loan Agreement dated as of July 6, 1993 between First Tennessee
Bank National Association and Trans Financial, Inc. is
incorporated by reference to Exhibit 10(p) to the Registration
Statement on Form S-2 of the registrant (File No. 33-67686).
10(k) Distribution Agreement dated September 28, 1995 between the
registrant, Trans Financial Bank, N.A. and Donaldson, Lufkin &
Jenrette Securities Corporation is incorporated by reference to
Exhibit 10(a) of the registrant's report on Form 10-Q for the nine
months ended September 30, 1995.
10(l) Fiscal and Paying Agency Agreement dated September 28, 1995 between
Trans Financial Bank, N.A. and First Fidelity Bank, N.A. is
incorporated by reference to Exhibit 10(b) of the registrant's
report on Form 10-Q for the nine months ended September 30, 1995.
10(m) 1995 Executive Stock Option Plan is incorporated by reference to
the registrant's Proxy Statement dated March 9, 1995, for the
April 24, 1995, Annual Meeting of Shareholders.*
10(n) 1996 Directors Stock Compensation Plan dated April 22, 1996*....22-25
11 Statement Regarding Computation of Per Share Earnings..............21
27 Financial Data Schedule(for SEC use only)..........................--
* Denotes a management contract or compensatory plan or arrangement of the
registrant required to be filed as an exhibit pursuant to Item 601 (10) (iii)
of Regulation S-K.
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
In thousands, except per share amounts
For the periods ended March 31 1996 1995
Primary earnings per common share:
Average common shares outstanding .... 11,295 11,205
Common stock equivalents ............. 128 93
------- -------
Average shares and share equivalents 11,423 11,298
Net income ............................. $ 3,736 $ 3,795
Primary net income per share ........... $ 0.33 $ 0.34
Fully-diluted earnings per common share:
Average common shares outstanding .... 11,295 11,205
Common stock equivalents ............. 128 93
------- -------
Average shares and share equivalents 11,423 11,298
Net income ............................. $ 3,736 $ 3,795
Fully-diluted net income per share ..... $ 0.33 $ 0.34
Exhibit 10(n)
Directors Stock Compensation Plan
Section 1. Purpose.
The purpose of the Directors Stock Compensation Plan (the "Plan") is to
promote the long-term continuing success of Trans Financial, Inc. (the
"Corporation") and its shareholders by attracting and retaining non-employee
directors and advisory directors capable of furthering the future success of the
Corporation and by aligning their economic interests more closely with those of
the Corporation's shareholders.
Section 2. Administration.
The Plan shall be administered the Compensation Committee of the Board
of Directors of the Corporation (the "Committee"). The decision of a majority of
the members of the Committee shall constitute the decision of the Committee, and
the Committee may act either at a meeting, including a telephonic meeting, at
which a majority of its members are present or by a written consent signed by
all of its members. The Committee may appoint individuals to act on its behalf
in the administration of the Plan; provided, however, that except as otherwise
provided by the Plan, the Committee shall have the sole, final and conclusive
authority to administer, construe and interpret the Plan. Notwithstanding
anything contained in this section to the contrary, no member of the Committee
may vote or act with respect to any administrative decision or interpretation
which directly or indirectly affects his or her, but not all directors',
interests under the Plan.
Section 3. Participants.
Participation in the Plan is limited to directors of the Corporation
and directors and advisory directors of its subsidiaries, and such other
advisory or honorary directors of the Corporation or of its subsidiaries as the
Committee shall determine from time to time. No person who is also an employee
of the Corporation or of any subsidiary, within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, shall be eligible to
participate in the Plan. Eligible individuals who are participating under the
Plan, as provided herein, shall be referred to herein as "Directors."
Section 4. Effective Date.
The Plan shall become effective on January 1, 1996, subject to the
approval of the affirmative vote of the holders of a majority of the shares of
the Corporation's common stock present or represented and entitled to vote at
the annual meeting of the Corporation's shareholders to be held on April 22,
1996, or at any adjournment thereof. Notwithstanding the foregoing, this Plan
shall become effective, subject to shareholder approval as hereinafter provided,
as to directors and advisory or honorary directors of the Corporation and each
of its subsidiaries at such time or times as the board of directors of the
Corporation or of such subsidiary, as the case may be, shall establish by
resolution.
Section 5. Shares Subject to Plan.
The total number of shares that may be granted under the Plan may not
exceed 300,000 shares of the Corporation's Common Stock ("Shares"), subject to
adjustment as provided in Section 8 hereof. Shares shall consist of authorized
but unissued Shares not reserved for any other purpose.
Section 6. Grant of Shares.
A. Each Director shall be granted, without any further action or
authorization, Shares as his or her only compensation for regular services
performed as a director or advisory or honorary director from the effective date
of the Plan with respect to such Director (or from the date he or she became a
Director, if he or she is elected after such effective date), to the expiration
of his or her term of office; provided, however, that any Director who receives
remuneration from a subsidiary of the Corporation pursuant to a binding deferred
compensation agreement between the subsidiary and such Director shall not
receive Shares pursuant to this Plan for that portion of his or her remuneration
that is subject to such agreement, so long as such agreement remains in effect.
B. Shares shall be issued as of the first business day of each
year with respect to remuneration payable with respect to services performed
during the preceding year.
C. The number of Shares to be issued to each Director shall be
determined by dividing (i) the amount of remuneration earned by the Director in
the immediately preceding year (including retainer fees, if applicable) from the
Corporation and its subsidiaries for services as a director or advisory or
honorary director in such year, by (ii) the "average fair market value per
share". "Average fair market value per share" shall mean the average of the
closing prices per share of Common Stock for each of the trading days during the
preceding year, as reported by NASDAQ; provided, however, that with respect to
Shares issuable in 1997 to any Director for services rendered in 1996, "average
fair market value per share" shall mean the average of the closing prices per
share of Common Stock for each trading day during 1996 on and after the
effective date of the Plan with respect to such Director. If the above quotient
produces a fractional Share, the Director shall receive the cash value of such
fractional Share, based on the average fair market value per share, instead of
receiving such fractional Share.
D. In the event of the death of a Director prior to his or her
grant of Shares for any calendar year, any Shares otherwise payable to such
Director shall be issued to the Director's estate.
Section 7. Obligation to Deliver Shares.
The Corporation's obligation to deliver Shares shall be subject to all
applicable laws, rules and regulations, and to such approvals by governmental
agencies as may be deemed necessary or appropriate by the Corporation,
including, among others, such steps as counsel for the Corporation shall deem
necessary or appropriate to comply with the requirements of relevant securities
laws. This obligation shall also be subject to the condition that any Shares
reserved for issuance under the Plan shall have been duly listed on the NASDAQ
Stock Market or any national securities exchange which then constitutes the
principal trading market for the Shares.
Section 8. Adjustments.
The number and kind of Shares which shall be automatically granted to
each Director shall be automatically adjusted to prevent dilution or enlargement
of the rights of Directors in the event of any changes in the number or kind of
outstanding Shares resulting from a merger, recapitalization, stock exchange,
stock split, stock dividend, other extraordinary dividend or distribution,
corporation division or other changes in the Corporation's corporate or capital
structure.
Section 9. No Forfeiture.
None of the Shares granted under this Plan shall be subject to
forfeiture upon the termination of a Director's service prior to completion of
his or her term.
Section 10. Compliance with Securities Laws.
Upon the issuance of Shares under this Plan at a time when there is not
in effect a registration statement under the Securities Act of 1933 and any
applicable state securities laws (the "Securities Laws") relating to the Shares,
the Shares may be issued only if the Director represents and warrants to the
Corporation that the Shares are being acquired for investment and not with a
view to the distribution thereof. The Shares shall contain such legends or other
restrictive endorsements as counsel for the Corporation shall deem necessary or
proper.
Section 11. Withholding Taxes.
The Corporation shall have the right to make such provisions as it
deems necessary or appropriate to satisfy any obligations it may have to
withhold federal , state or local income or other taxes incurred by reason of
the issuance of Shares under this Plan, including requiring a Director to
reimburse the Corporation for any taxes required to be withheld or otherwise
deducted and paid by the Corporation in respect of the issuance of Shares or
withholding Shares equal to the taxes, if any, then required by applicable
federal, state and local law to be withheld or otherwise deducted.
Section 12. Amendment and Termination.
The Board of Directors of the Corporation may at any time amend,
suspend or discontinue the Plan, provided that, if shareholder approval of such
action is necessary in order to ensure compliance with Rule 16b-3, such action
shall be subject to approval by the holders of the shares of the Corporation'
Common Stock by the vote and in the manner required by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3'). In no event may the
Board of Directors amend any provision of the Plan that constitutes a "Plan
provision" referred to in Rule 16b-3 (c) (2) (ii) (B) more frequently than once
every six months (other than to comport with any changes in the Internal Revenue
Code of 1986, as amended).
Section 13. Compliance with Rule 16b-3.
The Corporation intends that the Plan and all transactions hereunder
meet all of the requirements of Rule 16b-3, and that any Director shall not, as
a result of any grant hereunder, lose his or her status as a "disinterested
person" as defined in Rule 16b-3. Accordingly, if any provision of the Plan does
not meet a requirement of Rule 16b-3 as then applicable to any such transaction,
or would cause a Director not to be a "disinterested person," such provision
shall be construed or deemed amended to the extent necessary to meet such
requirement and to preserve such status.
Section 14. General.
A. This Plan shall not impose any obligations on the Corporation or any
subsidiary to retain any Director as a director or advisory or honorary
director, nor shall it impose any obligation on the part of any Director to
remain as a director or advisory or honorary director of the Corporation or of
any subsidiary.
B. Nothing contained in this Plan and no action taken pursuant to this
Plan shall create or be construed to create a trust of any kind or any fiduciary
relationship between the Corporation and any Director, the executor,
administrator or other personal representative of such Director, or any other
persons. To the extent that any Director or his or her executor, administrator,
or other personal representative, as the case may be, acquires a right to
receive any payment from the Corporation pursuant to this Plan, such right shall
be no greater than the right of an unsecured general creditor of the
Corporation.
C. The Plan shall be applied and construed in accordance with
and governed by the law of the Commonwealth of Kentucky and applicable Federal
law.
D. The Plan shall be binding upon the successors and assigns
of the Corporation and of each subsidiary of the Corporation which adopts the
provisions hereof.
E. No right to receive Shares under this Plan shall be
assignable or transferable by a Director other than by will or the laws of
descent and distribution.
Dated this 1st day of May, 1996, but effective as of
January 1, 1996.
TRANS FINANCIAL, INC.
By: /s/ Douglas M. Lester
Douglas M. Lester, Chairman of the
Board, President and Chief Executive
Officer
ATTEST:
By: /s/ Jay B. Simmons
Jay B. Simmons, Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 61128
<INT-BEARING-DEPOSITS> 98
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 292762
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1354563
<ALLOWANCE> 16051
<TOTAL-ASSETS> 1816065
<DEPOSITS> 1432175
<SHORT-TERM> 114545
<LIABILITIES-OTHER> 21472
<LONG-TERM> 116379
0
0
<COMMON> 21197
<OTHER-SE> 110297
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