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 June 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 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 August 7, 1996: 11,312,855 shares.
The Exhibit Index is on page 20. This filing contains 22 pages (including this
facing sheet).
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
Consolidated Balance Sheets
(Unaudited)
In thousands, except share data .........
<CAPTION>
June 30 December 31 June 30
1996 1995 1995
Assets
<S> <C> <C> <C>
Cash and due from banks ................. $ 56,902 $ 81,703 $ 66,446
Interest-bearing deposits with banks .... 98 197 197
Federal funds sold and
resale agreements .................... -- -- 11,775
Mortgage loans held for sale ............ 42,001 45,751 21,824
Securities available for sale (amortized
cost of $290,696 as of June 30, 1996;
$298,798 as of December 31, 1995;
and $232,088 as of June 30, 1995) .... 287,481 298,222 227,435
Securities held to maturity (market
value of $83,503 as of June 30, 1995) -- -- 83,359
Loans, net of unearned income ........... 1,363,137 1,259,071 1,193,338
Less allowance for loan losses .......... 16,344 15,779 13,429
----------- ----------- -----------
Net loans ............................ 1,346,793 1,243,292 1,179,909
Premises and equipment, net ............. 39,795 41,458 37,622
Mortgage servicing rights ............... 41,425 28,284 9,140
Other assets ............................ 52,201 56,742 41,754
=========== =========== ===========
Total assets ......................... $ 1,866,696 $ 1,795,649 $ 1,679,461
=========== =========== ===========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing ................. $ 226,807 $ 206,725 $ 183,940
Interest bearing ..................... 1,280,526 1,237,758 1,235,939
----------- ----------- -----------
Total deposits ....................... 1,507,333 1,444,483 1,419,879
Federal funds purchased and
repurchase agreements ................ 29,530 75,594 49,382
Other short-term borrowings ............. 45,000 45,014 38,024
Long-term debt .......................... 141,179 86,605 36,991
Other liabilities ....................... 19,971 14,186 13,141
----------- ----------- -----------
Total liabilities .................... 1,743,013 1,665,882 1,557,417
Shareholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; issued and
outstanding 11,312,500; 11,293,291;
and 11,244,793 shares, respectively 21,211 21,175 21,084
Additional paid-in capital ........... 44,108 43,872 43,227
Retained earnings .................... 63,089 68,152 64,136
Unrealized net loss on
securities available for sale,
net of tax ........................ (2,073) (403) (3,023)
Employee Stock Ownership Plan shares
purchased with debt ............... (2,652) (3,029) (3,380)
----------- ----------- -----------
Total shareholders' equity ........... 123,683 129,767 122,044
----------- ----------- -----------
Total liabilities
and shareholders' equity ........... $ 1,866,696 $ 1,795,649 $ 1,679,461
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
(Unaudited)
In thousands, except per share data
<CAPTION>
Three Months Six Months
For the periods ended June 30 1996 1995 1996 1995
Interest income
<S> <C> <C> <C> <C>
Loans, including fees ............... $ 30,905 $28,148 $ 60,906 $54,829
Federal funds sold and resale
agreements ........................ 48 312 50 553
Securities available for sale ....... 4,129 3,193 8,170 6,498
Securities held to maturity ......... -- 1,293 -- 2,578
Mortgage loans held for sale ........ 1,128 285 1,909 442
Interest-bearing deposits with banks 5 5 9 9
-------- ------- -------- -------
Total interest income ............... 36,215 33,236 71,044 64,909
Interest expense
Deposits ............................ 14,668 14,317 29,011 26,970
Federal funds purchased
and repurchase agreements ......... 428 392 1,020 857
Long-term debt and other
borrowings ........................ 2,844 1,330 5,194 2,842
-------- ------- -------- -------
Total interest expense .............. 17,940 16,039 35,225 30,669
-------- ------- -------- -------
Net interest income ................... 18,275 17,197 35,819 34,240
Provision for loan losses ........... 8,421 780 9,642 1,300
-------- ------- -------- -------
Net interest income after
provision for loan losses ........... 9,854 16,417 26,177 32,940
Non-interest income
Service charges on deposit accounts . 2,419 2,254 4,655 4,145
Mortgage banking income ............. 2,331 1,171 4,984 2,033
Losses on sales of securities
available for sale, net ........... (21) -- (6) --
Gain on sale of mortgage servicing .. -- 1,687 -- 1,687
Trust services ...................... 441 332 902 650
Brokerage income .................... 667 412 1,328 878
Other ............................... 1,467 1,069 2,676 2,192
-------- ------- -------- -------
Total non-interest income ........... 7,304 6,925 14,539 11,585
Non-interest expenses
Compensation and benefits ........... 10,910 7,470 20,143 14,693
Net occupancy expense ............... 1,734 1,200 2,938 2,288
Furniture and equipment expense ..... 2,172 1,523 3,839 3,006
Deposit insurance ................... 267 777 511 1,539
Professional fees ................... 1,219 789 1,915 1,719
Postage, printing & supplies ........ 1,153 1,003 2,130 1,833
Communications ...................... 615 417 1,184 790
Other ............................... 6,695 4,006 10,224 6,880
-------- ------- -------- -------
Total non-interest expenses ......... 24,765 17,185 42,884 32,748
-------- ------- -------- -------
Income (loss) before income taxes ..... (7,607) 6,157 (2,168) 11,777
Income tax expense (benefit) ........... (2,424) 2,038 (721) 3,863
-------- -------
======== ======= ======== =======
Net income (loss) ..................... $ (5,183) $ 4,119 $ (1,447) $ 7,914
======== ======= ======== =======
Primary earnings (loss) per share ..... $ (0.45) $ 0.36 $ (0.13) $ 0.70
======== ======= ======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
In thousands
For the six months ended June 30 1996 1995
Balance January 1 ................... $ 129,767 $ 111,632
Net income(loss) .................. (1,447) 7,914
Issuance of common stock .......... 272 496
Cash dividends declared
on common stock ................. (3,616) (3,366)
Change in unrealized gain (loss) on
securities available for sale,
net of taxes .................... (1,670) 5,050
ESOP debt reduction ............... 377 318
========= =========
Balance June 30 ..................... $ 123,683 $ 122,044
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
(Unaudited)
In thousands
For the six months ended June 30 1996 1995
Cash flows from operating activities:
Net income(loss) ..................................... $ (1,447) $ 7,914
Adjustments to reconcile net income or loss to cash
provided by operating activities:
Provision for loan losses ......................... 9,642 1,300
Deferred tax expense .............................. (281) (722)
Loss on sale of securities available for sale ..... 6 --
Loss (gain) on sale of mortgage loans held for sale (1,797) 21
Gain on sale of premises and equipment .......... (60) (174)
Writedown of premises and equipment ............... 593 --
Gain on sale of mortgage servicing rights ......... -- (1,687)
Depreciation and amortization of fixed assets ..... 3,447 2,689
Amortization of intangible assets ................. 687 649
Amortization of premium on securities
and loans, net .................................. 586 679
Amortization of mortgage servicing rights ......... 2,407 941
Increase in accrued interest receivable ............. (844) (434)
Decrease in other assets ............................. 7,153 2,651
Increase in accrued interest payable ................. 326 2,528
Increase (decrease) in other liabilities .............. 3,777 (3,228)
Sale of mortgage loans held for sale .................. 171,529 28,553
Originations of mortgage loans held for sale .......... (165,982) (43,857)
-------- --------
Net cash provided by (used in) operating activities . 29,742 (2,177)
Cash flows from investing activities:
Net decrease in interest-bearing deposits
with banks .......................................... 99 --
Net decrease in federal funds sold
and resale agreements ............................... -- (11,775)
Proceeds from sale of securities:
Available for sale .................................. 5,118 --
Proceeds from prepayment and call of securities:
Available for sale .................................. 28,028 4,935
Held to maturity .................................... -- 2,479
Proceeds from maturities of securities:
Available for sale .................................. 12,195 16,800
Held to maturity .................................... -- 1,745
Purchase of securities:
Available for sale .................................. (37,747) (12,249)
Held to maturity .................................... -- (3,000)
Net increase in loans ................................. (114,009) (49,848)
Purchase and origination of mortgage servicing rights . (12,981) (1,078)
Proceeds from sale of foreclosed assets ............... 1,326 276
Purchases of premises and equipment ................... (5,296) (3,803)
Proceeds from disposal of premises and equipment ...... 345 644
Net cash and cash equivalents inflow
from acquisitions ................................... -- 37,479
-------- --------
Net cash used in investing activities ............... (122,922) (17,395)
Cash flows from financing activities:
Net increase in deposits .............................. 62,850 43,265
Net decrease in federal funds purchased
and repurchase agreements ........................... (46,064) (25,171)
Net decrease in other short-term borrowings ......... (14) (10,009)
Proceeds from issuance of long-term debt .............. 55,000 --
Repayment of long-term debt ........................... (49) (25)
Proceeds from issuance of common stock ................ 272 496
Dividends paid ........................................ (3,616) (3,366)
-------- --------
Net cash provided by financing activities ........... 68,379 5,190
-------- --------
Net increase in cash and cash equivalents ............. (24,801) (14,382)
Cash and cash equivalents at beginning of year ........ 81,703 80,828
-------- --------
Cash and cash equivalents at end of year .............. $ 56,902 $ 66,446
========= ========
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 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>
In thousands
For the periods ended June 30
<CAPTION>
Three Months Six Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Balance beginning of period ................ $ 16,051 $ 12,880 $ 15,779 $ 12,529
Provision for loan losses ................ 8,421 780 9,642 1,300
Loans charged off ........................ (8,398) (313) (9,519) (632)
Recoveries of loans previously charged off 270 82 442 232
-------- -------- -------- --------
Net charge-offs .......................... (8,128) (231) (9,077) (400)
-------- -------- -------- --------
Balance June 30 ............................ $ 16,344 $ 13,429 $ 16,344 $ 13,429
======== ======== ======== ========
</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 $6,534,000 at June 30,
1996. Of that amount, $2,101,000 represents loans for which an allowance for
loan losses, in the amount of $759,000, has been established under SFAS 114. The
average recorded investment of impaired loans was $9,644,000 and $6,986,000 for
the three months ended June 30, 1996 and 1995, respectively, and $11,122,000 and
$5,810,000 for the six months ended June 30, 1996 and 1995, respectively.
Interest income recognized on impaired loans totaled $1,000 for the three months
ended June 30, 1996, and $15,000 for the six-month period ended June 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 and human resources consulting 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; to consolidate office space in Nashville, Tennessee and Bowling
Green, Kentucky; and to realize additional cost savings in the company's retail
delivery system. The plan is scheduled to be fully implemented by the beginning
of the fourth quarter of 1996.
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 $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 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 $1.867 billion on June 30,
1996. Loans totaled $1.363 billion on that date, deposits were $1.507 billion
and shareholders' equity was $124 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 six months ended June 30, 1996, the company recorded a loss of $1.4
million, or $0.13 per common share, compared to net income of $7.9 million, or
$0.70 per common share, in the same period of 1995. The loss reflects 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. The company also increased its provision for loan
losses by $7.2 million over the first quarter, after taking partial charge-offs
totaling $7.0 million on three non-performing loans. Results for the first six
months of 1996 produced an annualized return on average assets of (0.16)% and a
return on average common equity of (2.21)%, compared with returns of 0.98% and
13.62%, respectively, for the comparable period of 1995.
The company recorded a net loss of $5.2 million, or $0.45 per common share,
for the second quarter of 1996, including the impact of the previously-mentioned
charges and the increase in the provision for loan losses. The company recorded
net income of $4.1 million, or $0.36 per common share, for the second quarter of
1995. Return on average assets for the second quarter of 1996 was (1.13)%
and the return on average common equity was (15.78)%, compared with returns
of 1.00% and 13.68%, respectively, for the second quarter of 1995.
Net Interest Income
Net interest income totaled $35.8 million in the first six months of 1996,
compared with $34.2 million in the comparable 1995 period - a 4.7% increase. For
the first six months of 1996, net interest margin (net interest income as a
percentage of average interest-earning assets) decreased 23 basis points, from
4.62% to 4.39%.
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 during the first six months of 1996, partially mitigated by off-balance
sheet interest rate swaps. During the comparable period of 1995, rates on
earning assets rose, and increases in the company's funding costs did not keep
pace with the increase in loan yields.
As the decline in the prime rate stabilized in the first six months 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 tables show, for the six- and three-month periods ended June
30, 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 six months ended June 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 .... $1,302,625 $ 60,906 9.40% $1,156,785 $54,829 9.53%
Securities ....................... 293,940 8,170 5.59% 310,199 9,076 5.88%
Mortgage loans held for sale ..... 43,801 1,909 8.76% 9,963 442 8.92%
Federal funds sold
and other interest income ...... 1,867 59 6.36% 19,091 562 5.92%
--------- ---------- --------- ------- -------
Total interest-earning assets /
interest income .................. 1,642,233 71,044 8.70% 1,496,038 64,909 8.73%
------ ------
Non-interest-earning assets:
Cash and due from banks .......... 62,392 65,797
Premises and equipment ........... 42,692 37,357
Other assets ..................... 60,240 36,701
--------- ---------
Total assets ....................... $1,807,557 $1,635,893
===========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) .. $ 185,411 $ 2,635 2.86% $ 230,906 $ 3,036 2.64%
Savings deposits ............... 117,692 1,552 2.65% 135,130 1,963 2.92%
Money market accounts .......... 98,893 1,481 3.01% 47,638 742 3.13%
Certificates of deposit ........ 756,147 20,909 5.56% 715,782 18,962 5.33%
Other time deposits ............ 86,925 2,434 5.63% 88,328 2,267 5.16%
-------- ---------- --------- ------
Total interest-bearing deposits 1,245,068 29,011 4.69 1,217,784 26,970 4.45%
Federal funds purchased
and repurchase agreements ........ 43,485 1,020 4.72% 42,041 857 4.10%
Long-term debt and
and other borrowings ............. 170,262 5,194 6.13% 82,031 2,842 6.97%
-------- ------
Total borrowed funds ............. 213,747 6,214 5.85% 124,072 3,699 6.00%
-------- --------- --------- ------
Total interest-bearing liabilities /
interest expense ................. 1,458,815 35,225 4.86% 1,341,856 30,669 4.60%
------- ------
Non-interest-bearing liabilities:
Non-interest-bearing deposits .... 198,338 164,367
Other liabilities ................ 18,969 12,457
------- ---------
Total liabilities ................ 1,676,122 1,518,680
Shareholders' equity ............... 131,435 117,213
--------- ---------
Total liabilities
and shareholders' equity ......... $1,807,557 $1,635,893
========= =========
Net interest-rate spread ........... 3.84% 4.13%
Impact of non-interest bearing
sources and other changes in
balance sheet composition ........ 0.55% 0.47%
------ ----
Net interest income /
margin on interest-earning assets $ 35,819 4.39% $34,240 4.60%
====== ====== ======= ====
<FN>
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 June 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 .... $1,328,652 $ 30,905 9.36% $1,172,831 $28,148 9.65%
Securities ....................... 294,674 4,129 5.64% 307,123 4,486 5.87%
Mortgage loans held for sale ..... 48,171 1,128 9.42% 12,994 285 8.82%
Federal funds sold
and other interest income ...... 3,451 53 6.18% 20,754 317 6.14%
--------- ---------- -------- -------
Total interest-earning assets /
interest income .................. 1,674,948 36,215 8.70% 1,513,702 33,236 8.83%
------- ------
Non-interest-earning assets:
Cash and due from banks .......... 58,738 61,530
Premises and equipment ........... 43,215 37,738
Other assets ..................... 64,107 38,021
--------- --------
Total assets ....................... $1,841,008 $1,650,991
========= =========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) .. $ 124,530 $ 922 2.98% $ 230,369 $ 1,542 2.69%
Savings deposits ............... 114,834 761 2.67% 134,187 975 2.92%
Money market accounts .......... 156,933 1,166 2.99% 46,143 372 3.24%
Certificates of deposit ........ 774,824 10,610 5.51% 737,486 10,214 5.57%
Other time deposits ............ 86,501 1,209 5.62% 89,567 1,214 5.45%
--------- ---------- --------- ------
Total interest-bearing deposits 1,257,622 14,668 4.69% 1,237,752 14,317 4.65%
Federal funds purchased
and repurchase agreements ........ 37,084 428 4.64% 37,499 392 4.20%
Long-term debt and
and other borrowings ............. 187,520 2,844 6.10% 75,192 1,330 7.11%
-------- ----- ---------- ------
Total borrowed funds ............. 224,604 3,272 5.86% 112,691 1,722 6.15%
-------- ---------- ------- ------
Total interest-bearing liabilities /
interest expense ................. 1,482,226 17,940 4.87% 1,350,443 16,039 4.78%
------- ------
Non-interest-bearing liabilities:
Non-interest-bearing deposits .... 205,683 166,862
Other liabilities ................ 21,036 12,930
------- -------
Total liabilities ................ 1,708,945 1,530,235
Shareholders' equity ............... 132,063 120,756
--------- ----------
Total liabilities
and shareholders' equity ......... $1,841,008 $1,650,991
========= =========
Net interest-rate spread ........... 3.83% 4.05%
Impact of non-interest bearing
sources and other changes in
balance sheet composition ........ 0.56% 0.52%
------- -----
Net interest income /
margin on interest-earning assets $ 18,275 4.39% $17,197 4.57%
======= ====== ======= ====
<FN>
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 six- and three-month periods ended June 30, 1996, as
compared to the same periods in 1995.
Six Months 1996 vs. 1995 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 6,828 $ (751) $ 6,077
Securities ....................... (464) (442) (906)
Mortgage loans held for sale ..... 1,475 (8) 1,467
Federal funds sold
and other interest income ...... (541) 38 (503)
------- ------- -------
Total interest-earning assets .... 7,298 (1,163) 6,135
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... (632) 231 (401)
Savings deposits ................. (240) (171) (411)
Money market accounts ............ 769 (30) 739
Certificates of deposit .......... 1,096 851 1,947
Other time deposits .............. (36) 203 167
------- ------- -------
Total interest-bearing deposits 957 1,084 2,041
Federal funds purchased
and repurchase agreements ...... 30 133 163
Long-term debt and
and other borrowings ........... 2,728 (376) 2,352
------- ------- -------
Total borrowed funds ........... 2,758 (243) 2,515
------- ------- -------
Total interest-bearing liabilities 3,715 841 4,556
------- ------- -------
Increase (decrease)
in net interest income ......... $ 3,583 $(2,004) $ 1,579
======= ======= =======
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>
Second Quarter 1996 vs. 1995 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 3,646 $ (889) $ 2,757
Securities ....................... (178) (179) (357)
Mortgage loans held for sale ..... 822 21 843
Federal funds sold
and other interest income ...... (266) 2 (264)
------- ------- -------
Total interest-earning assets .... 4,024 (1,045) 2,979
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... (770) 150 (620)
Savings deposits ................. (133) (81) (214)
Money market accounts ............ 825 (31) 794
Certificates of deposit .......... 512 (116) 396
Other time deposits .............. (42) 37 (5)
------- ------- -------
Total interest-bearing deposits 392 (41) 351
Federal funds purchased
and repurchase agreements ...... (4) 40 36
Long-term debt and
and other borrowings ........... 1,728 (214) 1,514
------- ------- -------
Total borrowed funds ........... 1,724 (174) 1,550
------- ------- -------
Total interest-bearing liabilities 2,116 (215) 1,901
------- ------- -------
Increase (decrease)
in net interest income ......... $ 1,908 $ (830) $ 1,078
======= ======= =======
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 tables reflect the general increase in interest rates on
deposit liabilities over the past year. The tables also reflect increased
volumes of loans, certificates of deposit, and borrowed funds.
Provision for Loan Losses
The provision for loan losses was $9,642 thousand (1.49% of average loans,
on an annualized basis, excluding mortgage loans held for sale) for the first
six months of 1996, compared with $1,300 thousand (0.23% of average loans) for
the comparable period of 1995. Net loan charge-offs were $9,077 thousand (1.40%
of average loans) for the first six months of 1996, compared with $400 thousand
(0.07% of average loans) for the first six months of 1995.
For the second quarter of 1996, the provision for loan losses was $8,421
thousand (2.55% of average loans, on an annualized basis, excluding mortgage
loans held for sale), compared with $780 thousand (0.27% of average loans) in
the comparable period of 1995. Net loan charge-offs were $8,128 thousand (2.46%
of average loans) for the second quarter of 1996, compared to $231 thousand
(0.08% of average loans) for the second quarter of 1995. The company increased
its provision for loan losses by $7.2 million over the first quarter of 1996,
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 six months of 1996 increased $3.0 million
over the first six 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 six months of 1995, non-interest income
increased $4.7 million. This reflects an increase in service charges on deposit
accounts of $510 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
$1.4 million of mortgage banking income. An increase in trust and investment
services income of $702 thousand, reflecting the company's expanding trust and
brokerage services, accounts for most of the remaining improvement in
non-interest income.
Comparing the second quarter of 1996 to the comparable period of 1995,
non-interest income increased $380 thousand. Excluding the aforementioned gain
from the second quarter of 1995, however, non-interest income increased $2.1
million. This reflects a $1.2 million improvement in mortgage banking income and
a $364 thousand increase in trust and investment income.
Non-Interest Expenses
Non-interest expenses increased $10.1 million for the first six months of
1996, compared to the first six months of 1995, and includes $5.8 million of the
previously noted charges. These charges represent $1.8 million of severance
expense, $500 thousand of occupancy expense and $325 thousand of furniture and
equipment expense associated with closing offices, $340 thousand of professional
fees for services associated with discontinuing certain activities, $1.0 million
associated with consolidating operational offices, $600 thousand from the sale
of the corporate jet, and approximately $1.2 million in other associated costs
and the disposition of related assets. These charges taken during the second
quarter of 1996 provide for the cost of exiting several initiatives entered in
recent years which were outside the company's core financial services or which
have generated disappointing financial results. These initiatives include human
resources consulting and venture capital. Also included in the charges are
expenses associated with closing the Louisville, Kentucky office; mortgage loan
production offices in Chattanooga, Jackson and Knoxville, Tennessee; and
consolidation of operations in Nashville, Tennessee and Bowling Green, Kentucky.
Severance expense was also recognized related to changes designed to reduce
costs in the retail delivery system and investment management. The company sold
its corporate jet, with the cost of its disposition included in second quarter
expenses.
The efficiency ratio (non-interest expenses as a percentage of net interest
income before provision for loan losses plus non-interest income) for the second
quarter of 1996 was 96.8%, versus 71.2% for the same period in 1995. Excluding
the previously noted charges of $5.8 million, the efficiency ratio for the
second quarter of 1996 would have been 74.2%.
Income Taxes
Income tax benefits totaled $721 thousand for the first six months of 1996,
compared with expense of $3.9 million in the comparable 1995 period. These
represent effective tax rates of 33.3% and 32.8%, respectively. For the second
quarter of 1996, income tax credits totaled $2.4 million, versus expense of $2.0
million in the second quarter of 1995, reflecting effective tax rates of 31.9%
and 33.1%, respectively.
Balance Sheet Review
Overview
Assets at June 30, 1996 totaled $1.867 billion, compared with $1.796
billion at December 31, 1995, and $1.679 billion a year ago. Average total
assets for the second quarter increased $190 million (12%) over the past year to
$1.841 billion. Average interest-earning assets increased $161.2 million to
$1.675 billion.
Loans
The company continues to experience strong loan growth. Total loans, net of
unearned income, averaged $1.329 billion in the second quarter of 1996,
excluding mortgage loans held for sale of $48.2 million. For the comparable
period in 1995, loans averaged $1.173 billion, excluding the $13.0 million of
mortgage loans held for sale.
At June 30, 1996, loans net of unearned income (excluding mortgage loans
held for sale) totaled $1.363 billion, compared with $1.259 billion at December
31, 1995, and $1.193 billion a year ago. Loans increased at an annualized rate
of 16.6% from year-end 1995 to June 30, 1996.
Asset Quality
Nonperforming loans, which include nonaccrual loans, accruing loans past
due 90 days or more and restructured loans, totaled $11.1 million at June 30,
1996, down $6.2 million from December 31, 1995, and down $1.6 million from the
end of the second 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 0.81% at June 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 $14.7 million at June 30,1996 as compared to $17.3 million at June 30,
1995. The ratio of nonperforming assets to total assets decreased to 0.79% at
June 30, 1996, from 1.03% 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>
June 30 March 31 December 31 June 30
1996 1996 1995 1995
<S> <C> <C> <C> <C>
Nonaccrual loans ..................................... $ 5,570 $12,394 $12,708 $10,032
Accruing loans which are contractually
past due 90 days or more ........................... 5,517 3,548 4,617 2,609
Restructured loans ................................... 6 10 14 22
------- ------- ------- -------
Total nonperforming and restructured loans ......... 11,093 15,952 17,339 12,663
Foreclosed real estate ............................... 3,342 3,328 4,329 4,367
Other foreclosed property ............................ 303 847 677 307
------- ------- ------- -------
Total nonperforming and restructured loans and
foreclosed property .................................. $14,738 $20,127 $22,345 $17,337
======= ======= ======= =======
Nonperforming and restructured loans
as a percentage of net loans, net of unearned income 0.81% 1.22% 1.38% 1.06%
Total nonperforming and restructured loans and
foreclosed property as a percentage of total assets . 0.79% 1.11% 1.24% 1.03%
</TABLE>
Three commercial credit relationships account for $4.1 million, or 73%, of
the company's nonaccrual loans at June 30, 1996, and 37% of total nonperforming
and restructured loans. An allowance for loan losses in the amount of $584
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 $400,000. The
change in accruing loans past due 90 days or more is principally residential
real estate loans.
Foreclosed real estate at June 30, 1996, includes two properties with an
aggregate book value of $1.8 million, or 53% 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 June 30, 1996, the company had $9.0 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 June 30, 1996, the allowance was $16.3 million, up from $15.8 million
at December 31, 1995, and $13.4 million at June 30, 1995. The allowance as a
percentage of nonperforming loans increased to 147% at June 30, 1996, from 91%
at year-end 1995 and 106% at June 30, 1995. The ratio of the allowance for loan
losses to total loans (excluding mortgage loans held for sale) at June 30, 1996,
was 1.20%, compared with 1.25% at December 31, 1995, and 1.13% at the end of
1995's second 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 and the size of the loan portfolio. The
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 June 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, decreased from $311 million at June 30, 1995, to $298 million at
year-end 1995, and $287 million at June 30, 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 $1.463 billion in the second quarter of 1996, an
increase of $59 million, or 4%, from the comparable 1995 period. Average
interest-bearing accounts increased $19.9 million in the second quarter of 1996,
compared to the same period in 1995, while average non-interest-bearing accounts
increased $38.8 million.
During the second quarter of 1996, the company issued $20 million of
two-year, $25 million of three-year, and $10 million of four-year brokered
certificates of deposit. Excluding these transactions, average interest-bearing
accounts would have decreased approximately $13 million from the second quarter
of 1995 to the same period in 1996.
Long-term debt totaled $141 million at June 30, 1996, an increase of $104
million from June 30, 1995. In order to support internally-generated growth in
the loan portfolio, TFB-KY issued in the end of 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 June 30, 1996, December 31, 1995, and June
30, 1995 (calculated in accordance with regulatory guidelines) were as follows:
June 30, December 31, June 30,
1996 1995 1995
Tier 1 risk based ..... 7.72% 8.64% 9.05%
Regulatory minimum 4.00 4.00 4.00
Total risk based ...... 10.99 12.15 12.70
Regulatory minimum 8.00 8.00 8.00
Leverage ......... 6.24 6.70 6.87
Regulatory minimum 3.00 3.00 3.00
The decrease in these capital ratios during the first six 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
discussed earlier. 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 June 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 purchase of securities 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 (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 June 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 5.75% and 8.75%, respectively, by April
of 1997. The company's most recent projection of pre-tax earnings at risk, as a
percentage of the next twelve months projected net interest income under this
most likely interest rate scenario, is approximately +1.5% for a high rate
scenario, and -0.6% for a lower interest rate scenario. As of June 30, 1996,
management believes the company's balance sheet was in an asset sensitive
position, as the repricing characteristics of the assets 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.
<TABLE>
Dollars in thousands
<CAPTION>
Notional Fixed Rate Floating Rate
Amount (Receiving) (Paying) Maturity
--------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ 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 $310,000 8.94% 8.25% May, 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;
unforeseen material adverse 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 June 30, 1996, the registrant filed a Current
Report on Form 8-K dated June 4, 1996. This Current Report on Form 8-K
included Item 5. Other Events which reported certain executive management
changes. No financial statements were filed as a part of the 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: August 14, 1996 /s/ Vince A. Berta
--------------- ------------------
Vince A. Berta
Acting President and
Chief Executive Officer
Principal Financial Officer:
Date: August 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 registrant'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 June 14, 1996 (File No. 333-06089).
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* is incorporated by reference
to Exhibit 10(n) to the registrant's report on Form 10-Q for the
three months ended March 31, 1996.
11 Statement Regarding Computation of Per Share Earnings.............22
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.
<PAGE>
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
In thousands, except per share amounts
For the periods ended June 30 1996 1995
Primary earnings per common share:
Average common shares outstanding ..... 11,301 11,220
Common stock equivalents .............. 120 91
-------- -------
Average shares and share equivalents 11,421 11,311
Net income (loss) ....................... $ (1,447) $ 7,914
Primary net income (loss) per share ..... $ (0.13) $ 0.70
Fully-diluted earnings per common share:
Average common shares outstanding ..... 11,301 11,220
Common stock equivalents .............. 146 107
-------- -------
Average shares and share equivalents 11,447 11,327
Net income (loss) ....................... $ (1,447) $ 7,914
Fully-diluted net income (loss) per share $ (0.13) $ 0.70
<TABLE> <S> <C>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 Jun-30-1996
<CASH> 56,902 56,902
<INT-BEARING-DEPOSITS> 98 98
<FED-FUNDS-SOLD> 0 0
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<ALLOWANCE> 16,344 16,344
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<SHORT-TERM> 45,000 45,000
<LIABILITIES-OTHER> 19,971 19,971
<LONG-TERM> 141,179 141,179
0 0
0 0
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<INTEREST-EXPENSE> 17,940 35,225
<INTEREST-INCOME-NET> 18,275 35,819
<LOAN-LOSSES> 8,421 9,642
<SECURITIES-GAINS> (21) (6)
<EXPENSE-OTHER> 24,765 42,884
<INCOME-PRETAX> (7,607) (2,168)
<INCOME-PRE-EXTRAORDINARY> (5,183) (1,447)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,183) (1,447)
<EPS-PRIMARY> (.45) (.13)
<EPS-DILUTED> (.45) (.13)
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</TABLE>