UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
to
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 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 (I.R.S. 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
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of Class)
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _
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 aggregate market value of the voting stock held by nonaffiliates of the
registrant on February 18, 1997: $240,138,000.
The number of shares outstanding of the issuer's class of common stock on
February 18, 1997: 11,399,494 shares.
Document Incorporated By Reference
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 28, 1997 are incorporated by reference into
Part III of this report.
The registrant's Annual Report on Form 10-K is hereby amended to include the
following:
(1) Item 1. Business is amended to provide a description of the
general demographics of the area in which the company operates;
(2) Item 7. Management's Discussion and Analysis is revised to provide
additional details regarding the provision and allowance for loan
losses; and
(3) Form 11-K of the Trans Financial, Inc., Savings Investment Plan, which
was not available at the time of the initial filing of the registrant's Form
10-K.
<PAGE>
Item 1. Business
The Company and the Banks
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, which has two commercial bank subsidiaries--Trans
Financial Bank, National Association ("TFB-KY") and Trans Financial Bank
Tennessee, National Association ("TFB-TN")--and one thrift subsidiary--Trans
Financial Bank, F.S.B. ("TFB-FSB"). In addition, the company operates as
subsidiaries of TFB-KY a full-service securities broker/dealer--Trans Financial
Investment Services, Inc. ("TFIS")--and a mortgage banking company--Trans
Financial Mortgage Company ("TFMC").
During 1995, three commercial bank subsidiaries were merged to form TFB-KY
and two thrift subsidiaries were merged to form TFB-FSB. Collectively, TFB-KY,
TFB-TN and TFB-FSB are referred to in this report as "the banks."
On December 31, 1996, the company had total consolidated assets of $2.0
billion, total loans of $1.5 billion, total deposits of $1.6 billion and
shareholders' equity of $131 million.
The portion of Management's Discussion and Analysis of Financial Condition
and Results of Operations entitled Mergers and Acquisitions included in Item 7
is incorporated herein by reference.
The banks provide a full range of corporate and retail banking services,
including checking, savings and time deposit accounts; secured and unsecured
loans to corporations, individuals and others; letters of credit; rental of safe
deposit boxes; financial counseling for individuals and institutions; and trust
and brokerage services. Interest on domestic commercial, consumer and mortgage
loans constitutes the largest contribution to the operating revenues of the
company and the banks.
TFB-KY provides a wide variety of personal and corporate trust and
trust-related services, including serving as executor of estates; as trustee
under testamentary and inter-vivos trusts; as guardian of the estates of minors
and incompetents; as escrow agent under various agreements; and as financial
advisor to and custodian for individuals, corporations and others. Corporate
trust services include serving as registrar, transfer agent, and paying agent
for corporate securities and as corporate trustee under corporate trust
indentures. At December 31, 1996, approximately $421 million in assets were
managed by the trust department of TFB-KY.
TFMC originates and purchases mortgage loans for the purpose of
constructing, financing or refinancing one- to four-family dwellings. TFMC also
services mortgage loans for the banks and for others. Generally, residential
mortgage loans originated or purchased are then sold in the secondary market.
When sold, servicing may be retained by TFMC or released to the purchaser. The
portfolio of mortgage loans serviced for others totaled $3.3 billion at December
31, 1996.
TFIS offers to customers of the banks and to others a wide range of
investment products and services, including financial planning, mutual funds,
annuities, and individual stocks and bonds. In October of 1995, TFB-KY
introduced its own family of proprietary mutual funds, the Trans Adviser Funds,
which added depth to its lineup of investment products.
TFB-KY has twenty-seven offices in Kentucky: six located in Bowling Green;
three located in Pikeville; two located in each of Glasgow, Scottsville,
Morehead and Maysville; and one located in each of Augusta, Cave City, Dawson
Springs, Tompkinsville, Elkhorn City, Meta, Belfry, Virgie, Martin, and
Prestonsburg. TFB-FSB has twelve offices: two in Columbia, Tennessee; and one
each in the Tennessee communities of Tullahoma, Mt. Pleasant, Manchester,
Rockwood, Kingston, Shelbyville, and Winchester; and one each in the Kentucky
communities of Franklin, Russellville and Auburn. TFMC has a mortgage operations
center in Tullahoma, Tennessee, and a loan production office in Greensboro,
North Carolina. TFB-TN has ten offices in Tennessee: two located in Cookeville;
and one located in each of Nashville, Clarksville, Crossville, Franklin,
Lebanon, McMinnville, Murfreesboro, and Sparta. Subsequent to December 31, 1996,
the company entered into a contract to sell the Lebanon and Sparta offices,
subject to regulatory approval.
Demographics
As of December 31, 1996, the company operated 52 banking offices in 37
communities in Kentucky and Tennessee. These communities are predominantly
non-urban markets under 100,000 in population.
Population
Statewide, Tennessee's population is projected by the U.S. Census Bureau to
grow approximately 4% per year through 2000, while Kentucky's annual growth is
projected at 2%. Nearly all of the company's primary markets should participate
in this growth, with South Central and Northeastern Kentucky experiencing growth
rates in the 1.3% to 2.0% range, and most Tennessee markets experiencing 1.5% to
4.5% growth rates. Eastern Kentucky's population growth, however, is expected to
be slower--under 0.5% per year.
Employment and Income
The 5.0% unemployment rate for Tennessee at the end of 1996 was slightly
below the national average of 5.3%, while Kentucky's 5.5% unemployment rate was
slightly above the national average. Per capita income in 1994 was $19,450 and
$17,721, respectively, for Tennessee and Kentucky--below the national average of
$21,696. The company estimates per capita income levels in the company's markets
to be as follows (1994 data):
South Central Kentucky $17,542
Northeastern Kentucky 14,094
Eastern Kentucky 14,707
Western Kentucky 16,248
Northern Tennessee 15,430
Middle Tennessee 19,732
South Central Tennessee 17,733
Industry Trends
The local economies in the company's markets are diversified, as discussed
below.
In South Central and Northeastern Kentucky, the largest industries are
durable and non-durable goods manufacturing. Most of the recent growth in South
Central Kentucky has occurred in durable goods, while services and non-durable
goods manufacturing have been the fastest-growing industries in Northeastern
Kentucky. Agriculture has been in decline in both areas in recent years. In the
Bowling Green area, where the company has its largest presence, services
represent the largest, but slowest-growing industry segment.
Mining--primarily coal mining--is the largest industry in the company's
Eastern Kentucky market, but has been declining over the past several years.
Services and wholesale trade, however, have provided strong growth.
In the company's Western Kentucky market area, durable goods manufacturing
and services are the primary industries, with durable goods providing the most
growth. Non-durable goods manufacturing has shown slow growth in recent years,
while mining has declined in importance in this area.
In the company's Tennessee markets, services and durable goods
manufacturing are the largest industry segments. Construction, wholesale trade
and state and local government represent the primary growth industries, while
non-durable goods manufacturing provides the least growth to this market area,
and has declined in certain communities.
Competition
The deregulation of the banking industry and the enactment in Kentucky and
other states of legislation permitting multi-bank holding companies, as well as
interstate banking, has created a highly competitive environment for banking in
the company's market area. The following table displays each of the communities
where the company is currently located and the respective percentage of market
share of deposits the company has in each of these communities. The table also
shows the ranking by deposit size of each of the TFB locations in their local
markets.
Share of Local Market
Banks, savings & loans and credit unions
Rank in
Market Local Subsidiary
Share Market Bank
South Central Kentucky:
Bowling Green 35% 1 TFB-KY
Glasgow/Cave City 40% 1 TFB-KY
Scottsville 35% 2 TFB-KY
Tompkinsville 18% 3 TFB-KY
Franklin * NM TFB-KY
Northeastern Kentucky:
Maysville 37% 1 TFB-KY
Morehead 33% 1 TFB-KY
Augusta 30% 2 TFB-KY
Eastern Kentucky:
Pike County 19% 3 TFB-KY
Floyd County 27% 3 TFB-KY
Western Kentucky:
Dawson Springs 6% 5 TFB-KY
Russellville/Auburn 16% 3 TFB-FSB
Northern Tennessee:
Clarksville 4% 8 TFB-TN
Middle Tennessee:
Cookeville 6% 5 TFB-TN
Murfreesboro 1% 10 TFB-TN
Nashville * NM TFB-TN
Rockwood/Kingston 14% 4 TFB-FSB
McMinnville 7% 4 TFB-TN
Sparta 3% 4 TFB-TN
Franklin * NM TFB-TN
Lebanon 1% 10 TFB-TN
Crossville 3% 5 TFB-TN
South Central Tennessee:
Tullahoma 13% 2 TFB-FSB
Shelbyville 6% 6 TFB-TN
Manchester 13% 2 TFB-FSB
Winchester 13% 4 TFB-FSB
Columbia/Mt. Pleasant 7% 5 TFB-FSB
NM = not meaningful
* = less than 1%
The company actively competes in its markets with other commercial banks
and financial institutions for all types of deposits, loans, trust accounts, and
other services. The company also competes generally with insurance companies,
savings and loan associations, credit unions, brokerage firms, other financial
institutions, and institutions which have expanded into the financial market.
Many of these competitors have resources substantially in excess of those of the
company, have broader geographic markets and higher lending limits than the
banks and, therefore, are able to make larger loans, sell a broader product
line, and make more effective use of advertising than can the company or the
banks.
Supervision and Regulation
Bank holding companies, commercial banks and savings banks are extensively
regulated under both federal and state law. Any change in applicable law or
regulation may have a material effect on the business and prospects of the
company and the banks.
The company, as a registered bank holding company, is subject to the
supervision of and regulation by the Federal Reserve Board under the Bank
Holding Company Act of 1956. Also, as a registered savings and loan holding
company, the company is subject to the supervision of and regulation by the
Office of Thrift Supervision ("OTS").
TFB-KY and TFB-TN are subject to the supervision of, and regular
examination by, the Office of the Comptroller of the Currency. TFB-FSB is
subject to the supervision of, and regular examination by, the OTS. The Federal
Deposit Insurance Corporation insures the deposits of the banks to the current
maximum of $100,000 per depositor.
In addition, the company is subject to the provisions of Kentucky's and
Tennessee's banking laws regulating bank acquisitions and certain activities of
controlling bank shareholders.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Act"), when fully phased in, will remove state law barriers to interstate
bank acquisitions and will permit the consolidation of interstate banking
operations. Under the Act, effective September 29, 1995, adequately capitalized
and managed bank holding companies may acquire banks in any state, subject to
(i) Community Reinvestment Act compliance, (ii) federal and state antitrust laws
and deposit concentration limits, and (iii) state laws restricting the
acquisition of a bank that has been in existence for less than a minimum period
of time (up to five years). The Act's interstate consolidation and branching
provisions will become operative on June 1, 1997, although any state can, prior
to that time, adopt legislation to accelerate interstate branching or prohibit
it completely. The Act's interstate consolidation and branching provisions will
permit banks to merge across state lines and, if state laws permit de novo
branching, to establish a new branch as its initial entry into a state.
Statistical Information
Certain statistical information is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations included in Item 7 on
pages 5 through 26 of this Form 10-K/A and in note 7 to the consolidated
financial statements included in the initially filed Form 10-K. Those pages are
incorporated herein by reference.
Description of Statistical Information Page(s)
Average Consolidated Balance Sheets and Net Interest Analysis..........9-10
Analysis of Year-to-Year Changes in Net Interest Income..................11
Loans Outstanding........................................................14
Loan Maturities and Interest Rate Sensitivity............................16
Non-performing Assets (Including Potential Problem Loans)................16
Summary of Loan Loss Experience..........................................19
Allocation of Allowance for Loan Losses..................................19
Allocation of Year-End Allowance for Loan Losses
and Percentage of Each Type of Loan to Total Loans.....................19
Carrying Value of Securities.............................................19
Maturity Distribution of Securities Available for Sale...................20
Maturity of Time Deposits of $100,000 or More............................21
Short-Term Borrowings....................................................22
Consolidated Statistical Information.....................................26
Impact of Non-accrual Loans on Interest Income (note 7, paragraph 3)
............................................page 40 of initially filed 10-K
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Overview
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, which has two commercial bank subsidiaries--Trans
Financial Bank, National Association ("TFB-KY") and Trans Financial Bank
Tennessee, National Association ("TFB-TN")--and one thrift subsidiary--Trans
Financial Bank, F.S.B. ("TFB-FSB"). Collectively, these three institutions are
referred to in this report as "the banks."
In addition, the company operates as subsidiaries of TFB-KY a full-service
securities broker/dealer--Trans Financial Investment Services, Inc.--and a
mortgage banking company--Trans Financial Mortgage Company ("TFMC"). The company
sold its travel agency, Trans Travel, Inc., during the fourth quarter of 1996.
At December 31, 1996, the company had total consolidated assets of $2.0
billion, total loans of $1.5 billion, total deposits of $1.6 billion and
shareholders' equity of $131 million. The company's net income decreased 55% in
1996, to $6.9 million, from $15.3 million in 1995, and earnings per share
decreased 56% to $0.60 per common share, from $1.35 in 1995.
Results for 1996 reflect pre-tax charges totaling $5.8 million related to
the company's mid-year commitment to refocus on core financial services, reduce
operating expenses and exit from less-profitable initiatives. Also included in
the 1996 results is a pre-tax charge of $2.6 million resulting from
congressional legislation enacted during the third quarter designed to
re-capitalize the Savings Association Insurance Fund ("SAIF"). In addition, the
provision for loan losses was increased in 1996 by $8.6 million compared to
1995.
The discussion that follows is intended to provide additional insight into
the company's financial condition and results of operations. It should be read
in conjunction with the consolidated financial statements and accompanying
notes, which follow this discussion.
Mergers and Acquisitions
Over the past several years, the company has expanded through mergers and
acquisitions, which are summarized below.
<TABLE>
<CAPTION>
Asset
Date Size
Acquisition Location Consummated (millions)
<S> <C> <C> <C>
Mergers (pooling-of-interests accounting):
Dawson Springs Bancorp, Inc. ........................ South Central & Western Kentucky December-92 $ 70
Kentucky Community Bancorp, Inc. .................... Northeastern Kentucky February-94 175
Peoples Financial Services, Inc. .................... Middle & Eastern Tennessee April-94 123
FGC Holding Company ................................. Eastern Kentucky August-94 127
Acquisitions (purchase accounting):
First Federal Savings and Loan Assoc. of Russellville Southwestern Kentucky November-9 41
Future Federal Savings Bank branches (from RTC) ..... South Central Kentucky August-91 75
First Federal Savings Bank of Tennessee ............. South Central Tennessee March-92 224
Maury Federal Savings Bank .......................... Middle Tennessee March-92 55
Heritage Federal Bank for Savings branches .......... Middle Tennessee August-92 55
Trans Kentucky Bancorp, Inc. ........................ Eastern Kentucky July-93 189
Fifth Third Bank of Kentucky, Inc. branches ......... South Central Kentucky February-95 41
AirLanse Travel (sold November-96) .................. Louisville, Kentucky September-95 1
Correspondents Mortgage Company, L.P. ............... Greensboro, North Carolina November-95 1
</TABLE>
The mergers shown in the above table were accounted for using the
pooling-of-interests method of accounting and, accordingly, financial statements
for all periods were restated to reflect the results of operations of these
companies on a combined basis from the earliest period presented, except for
dividends per share. The acquisitions were accounted for using the purchase
method of accounting. Accordingly, the results of operations of those acquired
entities prior to the acquisition dates have not been included in the results of
operations. Therefore, ratios or analyses for periods before and after these
purchase acquisitions may not be comparable.
Three banks were acquired in the Kentucky Community Bancorp, Inc. merger.
These three banks were consolidated into the operations of TFB-KY on March 31,
1994. The Peoples Financial Services, Inc. merger included one commercial bank
and one thrift institution. The commercial bank became TFB-TN and the thrift was
consolidated into the operations of TFB-FSB on July 31, 1994. The commercial
bank acquired in the FGC Holding Company ("FGC") merger was consolidated into
the operations of TFB-KY on March 24, 1995. In connection with these 1994
mergers, the company issued a total of 3,727,216 shares of common stock and the
shares of FGC preferred stock were retired.
In connection with the February 1995 branch acquisition from Fifth Third
Bank of Kentucky, Inc., the two Fifth Third offices located in Bowling Green,
Kentucky, were consolidated into existing Trans Financial locations; the
company's existing location in Scottsville, Kentucky was consolidated into the
other purchased location. AirLanse Travel was consolidated into the operations
of Trans Travel, Inc. and Correspondents Mortgage Company was consolidated into
the operations of TFMC. (As a part of the company's commitment to refocus on
core financial services, Trans Travel, Inc. was sold during the fourth quarter
of 1996.) In addition to the deposits assumed, the company received net cash of
$36.8 million and issued 25,000 shares of common stock in connection with these
1995 acquisitions.
See note 4 to the consolidated financial statements for additional
information regarding business combinations.
Income Statement Review
Net income was $6.9 million in 1996, compared with $15.3 million in 1995,
and $14.4 million in 1994. On a per share basis,net income was $0.60, $1.35
and $1.28, respectively.
As mentioned previously, non-interest expenses for 1996 reflect pre-tax
charges totaling $5.8 million related to an initiative to refocus the company's
resources on its core financial services, reduce operating expenses and exit
from less-profitable initiatives. This initiative was undertaken in the second
quarter of 1996, when the Board of Directors made a change in executive
management, with the expressed purpose of changing the company's strategic
direction. As of December 31, 1996, the company has accomplished the following
goals of the initiative:
-exited the venture capital and human resources consulting initiatives,
-closed the Louisville, Kentucky office, closed mortgage loan
production offices in Chattanooga, Jackson and Knoxville, Tennessee,
-sold the corporate aircraft, sold the travel agency,
-sold a newly-constructed building intended to house the company's
corporate headquarters and consolidated office space in Bowling Green,
Kentucky, and
-realized additional cost savings in the company's retail delivery
system of approximately $2.5 million on an annualized pre-tax basis,
primarily through the reduction of administrative personnel.
Based on a comparison of non-interest expenses for the fourth quarter of
1996 to the second quarter (excluding the $5.8 million of charges to implement
the plan), total operating expenses have been reduced by more than $6 million on
an annualized pre-tax basis.
In addition to the charges associated with the refocus initiative, the
company increased its 1996 provision for loan losses by $8.6 million compared
with 1995 and recorded a pre-tax charge of $2.6 million imposed by congressional
legislation enacted during 1996 designed to re-capitalize the Savings
Association Insurance Fund ("SAIF"). All banks with SAIF-insured deposits and
all savings and loans were subject to the SAIF assessment. The increased
provision for loan losses in 1996 was primarily due to a deterioration in the
quality of certain commercial credits in the second quarter of the year.
With the major components of the refocus initiative in place by year-end
1996, management believes the results of the third and fourth quarters of 1996
are more representative of the company's ongoing profitability. Excluding the
SAIF assessment, annualized net income for those periods would have been $20.2
million, which would have resulted in a return on assets of 1.06 percent and a
15.85 percent return on equity.
Following is a summary of the components of income and expense and the
changes in those components over the past three years.
<TABLE>
Condensed Consolidated Statements of Income
For the years ended December 31
Dollars in thousands, except per share data
<CAPTION>
Change Change
1996 Amount % 1995 Amount % 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income ........... $147,935 $ 13,707 10.2 % $134,228 $ 20,246 17.8 % $113,982
Interest expense .......... 73,066 8,467 13.1 64,599 17,224 36.4 47,375
-------- -------- ------- -------- -------- ------- --------
Net interest income ....... 74,869 5,240 7.5 69,629 3,022 4.5 66,607
Provision for loan losses . 13,914 8,654 164.5 5,260 3,048 137.8 2,212
-------- -------- ------- -------- -------- ------- --------
Net interest income after
provision for loan losses 60,955 (3,414) (5.3) 64,369 (26) (0.0) 64,395
Non-interest income ....... 29,689 5,278 21.6 24,411 7,241 42.2 17,170
Non-interest expenses ..... 80,642 14,593 22.1 66,049 5,979 10.0 60,070
-------- -------- ------- -------- -------- ------- --------
Income before income taxes 10,002 (12,729) (56.0) 22,731 1,236 5.8 21,495
Income tax expense ........ 3,120 (4,296) (57.9) 7,416 341 4.8 7,075
-------- -------- ------- -------- -------- ------- --------
Net income ................ $ 6,882 $ (8,433) (55.1) $ 15,315 $ 895 6.2 $14,420
======= ======== ======== ======= ======== ======== ========
Primary earnings
per common share ........ $ 0.60 $ (0.75) (55.6)% $ 1.35 $ 0.07 5.5 % $ 1.28
======= ======== ======== ======= ======== ========= =======
</TABLE>
Each of these components of income and expense is discussed separately in
the sections that follow.
Net Interest Income
Net interest income totaled $74.9 million in 1996, a 7.5% increase over the
$69.6 million recorded in 1995. In 1995 net interest income was up 4.5% over
1994's $66.6 million. On a fully-taxable equivalent basis, net interest income
was $76.5 million in 1996, compared with $71.3 million in 1995 and $68.2 million
in 1994. The increase in net interest income in 1996 and 1995 was due to a
higher level of interest-earning assets, primarily commercial loans.
The following table summarizes the changes in the company's net interest
margin (on a fully-taxable equivalent basis) over the past three years. Net
interest margin is net interest income divided by the average balance of
interest-earning assets for the year.
<TABLE>
Net Interest Analysis Summary (F1)
For the years ended December 31
<CAPTION>
Basis Point Basis Point
1996 Change 1995 Change 1994
<S> <C> <C> <C> <C> <C>
Average yield on interest-earning assets 8.84% (5) 8.89% 97 7.92%
Average rate on interest-bearing liabilities 4.89 15 4.74 109 3.65
---- ----- ----- ------ -----
Net interest-rate spread 3.95 (20) 4.15 (12) 4.27
Impact of non-interest-bearing sources and other
changes in balance sheet composition 0.57 5 0.52 12 0.40
---- ----- ------ ------ -----
Net interest margin 4.52% (15) 4.67% - 4.67%
==== === ==== ===== ====
<FN>
(F1)Refer to the tables on pages 13 and 14 for additional data regarding the net
interest analysis.
</FN>
</TABLE>
The table on pages 13 and 14 show, for the past three years, the
relationship between interest income and expense and the levels of average
interest-earning assets and average interest-bearing liabilities. It also
reflects the general increase in interest rates on total interest-bearing
liabilities over the past year, and increased volumes of loans, certificates of
deposit, and borrowed funds.
Approximately $625 million of the company's commercial and consumer loans
are tied to the prime rate. Decreases in the prime lending rate, which began in
the third quarter of 1995, had a negative impact on net interest margin during
1996 as compared to 1995. Although the prime rate leveled off in February 1996,
the company's funding costs continued to rise, as the company placed greater
reliance on wholesale funding sources, such as brokered deposits and other
borrowed funds. As a result, the company's net interest-rate 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.
Although the net interest-rate spread fell by 12 basis points in 1995 as
compared with 1994, the net interest margin was flat, due to a change in the
composition of the balance sheet. In 1994, loans accounted for 74% of average
earning assets, while securities represented 24%. In 1995, as the company
utilized maturing securities to fund growth in the loan portfolio, those ratios
had changed to 78% and 20%, respectively. This trend continued in 1996, with the
ratio of loans to total earning assets increasing to 80% and securities dropping
to 17%. The increased proportion of assets invested in relatively higher-earning
loans served to mitigate in 1996--and fully offset in 1995--the decline in the
interest-rate spread from the previous year.
On November 30, 1995, the company reclassified all securities to available
for sale, as permitted by the Financial Accounting Standards Board in a special
one-time reassessment.
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the years ended December 31
Fully-taxable equivalent basis
Dollars in thousands
<CAPTION>
1996 1995 1994
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(F1) (F2) (F1) (F2) (F1) (F2)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities held to maturity:
U.S. Treasury, federal agencies,
and mortgage-backed securities $ - $ - 0.00% $ 24,257 $ 1,686 6.95% $ 69,766 $ 3,967 5.69%
State and municipal obligations - - 0.00 46,674 3,622 7.76 50,111 3,972 7.93
Other securities - - 0.00 4,816 355 7.37 5,723 396 6.92
--------- ------- ---------- -------- ---------- -------
Total securities held to maturity - - 0.00 75,747 5,663 7.48 125,600 8,335 6.64
Securities available for sale:
U.S. Treasury, federal agencies,
and mortgage-backed securities 204,549 11,450 5.60 209,756 11,847 5.65 214,749 11,477 5.34
State and municipal obligations 53,844 4,023 7.47 5,442 445 8.18 - - 0.00
Other securities 33,460 2,133 6.37 13,727 901 6.56 13,526 708 5.23
---------- ------ ---------- -------- ----------- -------
Total securities available
for sale 291,853 17,606 6.03 228,925 13,193 5.76 228,275 12,185 5.34
---------- ------- ---------- -------- ---------- -------
Total securities 291,853 17,606 6.03 304,672 18,856 6.19 353,875 20,520 5.80
Federal funds sold 898 52 5.79 13,652 804 5.89 13,424 540 4.02
Interest-bearing deposits
with banks 117 14 NM 197 17 NM 235 104 NM
Mortgage loans held for sale 53,392 3,938 7.38 19,436 1,644 8.46 17,913 1,152 6.43
Loans, net of unearned income (F3) 1,346,754 127,983 9.50 1,190,101 114,572 9.63 1,073,580 93,263 8.69
---------- ------- ---------- ------- ---------- -------
Total interest-earning assets /
interest income 1,693,014 149,593 8.84% 1,528,058 135,893 8.89% 1,459,027 115,579 7.92%
Less allowance for loan losses 16,563 13,239 12,742
---------- ---------- ----------
1,676,451 1,514,819 1,446,285
Non-interest-earning assets:
Cash and due from banks 58,443 63,726 65,788
Premises and equipment 39,891 38,307 35,275
Other assets 82,543 56,080 40,712
---------- ---------- ----------
Total assets $1,857,328 $1,672,932 $1,588,060
========== ========== ==========
<PAGE>
Liablilities and
Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 108,325 3,128 2.89% $ 231,224 6,147 2.66% $ 243,827 5,896 2.42
Savings deposits 113,078 3,027 2.68 131,614 3,778 2.87 155,819 4,351 2.79
Money market accounts 178,566 5,571 3.12 47,288 1,514 3.20 55,636 1,485 2.67
Certificates of deposit 783,386 43,276 5.52 729,269 40,240 5.52 633,608 26,040 4.11
Individual Retirement Accounts 86,097 4,793 5.57 88,547 4,786 5.41 92,122 3,952 4.29
---------- ------- ---------- ------- ---------- -------
Total interest-bearing deposits 1,269,452 59,795 4.71 1,227,942 56,465 4.60 1,181,012 41,724 3.53
Federal funds purchased
and repurchase agreements 42,010 1,949 4.64 47,219 2,013 4.26 40,303 1,253 3.11
Other short-term borrowings 56,136 3,117 5.55 40,652 2,983 7.34 36,669 1,715 4.68
Long-term debt 125,593 8,205 6.53 46,840 3,137 6.70 40,756 2,683 6.58
---------- ------- ---------- ------- ---------- -------
Total borrowed funds 223,739 13,271 5.93 134,711 8,133 6.04 117,728 5,651 4.80
---------- ------- ---------- ------- ---------- -------
Total interest-bearing
liabilities/ interest expense 1,493,191 73,066 4.89 1,362,653 64,598 4.74 1,298,740 47,375 3.65
------- ------- -------
Non-interest-bearing liabilities:
Non-interest-bearing deposits 213,332 172,748 168,746
Other liabilities 21,405 15,485 8,687
---------- ---------- ----------
Total liabilities 1,727,928 1,550,886 1,476,173
Shareholders' equity 129,400 122,046 111,887
---------- ---------- ----------
Total liabilities
and shareholders' equity $1,857,328 $1,672,932 $1,588,060
========== ========== ==========
Net interest-rate spread (F4) 3.95 4.15 4.27
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.57 0.52 0.40
Net interest income /
margin on interest-earning
assets (F5) $76,527 4.52 % $71,295 4.67 % $68,204 4.67 %
======= ==== ======= ==== ======= ====
NM = not meaningful
<FN>
(F1)Average balances are based on daily balances.
(F2)Interest income on tax-exempt securities and loans has been increased 47.5%
in this analysis to reflect fully-taxable-equivalent interest.
(F3)For computational purposes, non-accrual loans are included in loans.
(F4)Net interest-rate 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.
(F5)Net interest margin is net interest income divided by average interest-
earning assets.
</FN>
</TABLE>
<PAGE>
Analysis of Year-to-Year Changes in Net Interest Income
The following table shows changes in interest income and interest expense
resulting from changes in volume (average balances) and interest rates for the
years ended December 31, 1996 and 1995, as compared to the previous year. The
change in interest income and expense due to both rate and volume has been
allocated to changes in volume and rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (decrease) Increase (decrease)
Fully-taxable equivalent basis in interest income and expense in interest income and expense
In thousands due to changes in: due to changes in:
Rate Volume Total Rate Volume Total
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities held to maturity:
U.S. Treasury, federal agencies, and
mortgage-backed securities $ - $(1,686) $(1,686) $ 736 $(3,017) $(2,281)
State and municipal obligations - (3,622) (3,622) (82) (268) (350)
Other securities - (355) (355) 25 (66) (41)
------ ------- ------- ------ ------- -------
Total securities held to maturity - (5,663) (5,663) 679 (3,351) (2,672)
Securities available for sale:
U.S. Treasury, federal agencies, and
mortgage-backed securities (105) (292) (397) 641 (271) 370
State and municipal obligations (42) 3,620 3,578 - 445 445
Other securities (27) 1,259 1,232 182 11 193
------ -------- ------- ------ ------- -------
Total securities available for sale (174) 4,587 4,413 823 185 1,008
------ -------- ------- ------ ------- -------
Total securities (174) (1,076) (1,250) 1,502 (3,166) (1,664)
Federal funds sold (13) (739) (752) 255 9 264
Interest-bearing deposits with banks 5 (8) (3) (72) (15) (87)
Mortgage loans held for sale (236) 2,530 2,294 387 105 492
Loans, net of unearned income (1,493) 14,904 13,411 10,638 10,671 21,309
------ ------- ------- ------ ------- -------
Total interest-earning assets (1,911) 15,611 13,700 12,710 7,604 20,314
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand 491 (3,510) (3,019) 566 (315) 251
Savings deposits (243) (508) (751) 119 (692) (573)
Money market accounts (40) 4,097 4,057 271 (242) 29
Certificates of deposit 47 2,989 3,036 9,857 4,343 14,200
Individual Retirement Accounts 141 (134) 7 993 (159) 834
------ ------- ------- ------ ------- -------
Total interest-bearing deposits 396 2,934 3,330 11,806 2,935 14,741
Federal funds purchased
and repurchase agreements 169 (233) (64) 520 240 760
Other short-term borrowings (834) 968 134 1,065 203 1,268
Long-term debt (79) 5,147 5,068 47 407 454
------ ------- ------- ------ ------- -------
Total borrowed funds (744) 5,882 5,138 1,632 850 2,482
------ ------- ------- ------ ------- -------
Total interest-bearing liabilities (348) 8,816 8,468 13,438 3,785 17,223
------ ------- ------- ------ ------- -------
Increase (decrease) in net interest income $(1,563) $ 6,795 $ 5,232 $ (728) $ 3,819 $ 3,091
======= ======= ======= ====== ======= =======
</TABLE>
Provision for Loan Losses
The provision for loan losses in 1996 was $13.9 million, or 1.03% of
average loans, an increase of $8.6 million from the $5.3 million, or 0.44% of
average loans, in 1995. In 1994, the company recorded a provision of $2.2
million, or 0.21% of average loans.
Net loan charge-offs were $11.6 million in 1996, compared with $2.0 million
in 1995 and $2.2 million in 1994. In 1996 the company charged off $7.0 million
on three non-performing loans which had been placed in non-accrual status during
1995. As a percentage of average loans, net charge-offs were 0.86% in 1996, up
from 0.17% in 1995 and 0.20% in 1994. For the five year period from 1992 through
1996, net charge-offs averaged 0.38%.
The provision for loan losses and the level of the allowance for loan
losses result from management's evaluation of the risk in the loan portfolio.
The increased provision in 1996 and 1995 provides for overall growth in the loan
portfolio as well as a higher level of non-performing loans than in the previous
three years. Further discussion on loan quality and the allowance for loan
losses is included later in this review in the Asset Quality section.
Non-interest Income
Non-interest income for 1996 increased 22% over 1995, after increasing 42%
from 1994 to 1995. The increases in non-interest income were due to:
<TABLE>
<CAPTION>
Increase (Decrease) in
Non-Interest Income
In thousands 1996 vs. 1995 1995 vs. 1994
-----------------------------------
<S> <C> <C>
Increase in service charges on deposit accounts .............. $ 1,069 $ 1,088
Decrease in gains on sale of securities ...................... (180) (57)
Increase (decrease) in mortgage banking income due to:
Recognition of MSR's under SFAS 122 .................... 174 1,243
Increase in gain on sale of mortgage loans held for sale 1,580 845
Increased mortgage servicing fees ...................... 2,618 1,169
Gain on sale of mortgage servicing rights in 1995 ...... (1,687) 1,687
Increase in trust service fees ............................... 563 145
Increase in brokerage income ................................. 473 423
Increase in travel agency fees ............................... 335 203
Increase (decrease) in credit life insurance fees ............ 252 (15)
Increase in all other non-interest income .................... 81 510
------- -------
Total increase in non-interest income .................. $ 5,278 $ 7,241
======= =======
</TABLE>
The increases in non-interest income reflect the company's expanding
mortgage banking business and continued increases in trust and investment
services revenues. As previously mentioned, the company sold its travel business
during the fourth quarter of 1996.
TFMC purchased a $1.0 billion mortgage loan servicing portfolio in 1996 and
a $1.2 billion servicing portfolio in 1995, increasing the size of the servicing
portfolio from $1.3 billion at the end of 1994 to $3.3 billion at year-end 1996.
The significant increase in mortgage servicing fees in 1996 and 1995 was due to
this growth in the servicing portfolio. In the fourth quarter of 1995, TFMC
acquired Correspondents Mortgage Company of Greensboro, North Carolina, doubling
TFMC's wholesale mortgage lending capacity. The Greensboro office accounts for
$2.1 million of the $4.4 million increase in mortgage banking income from 1995
to 1996, and $0.3 million of the increase from 1994 to 1995. Also in 1995, the
company sold a $168 million mortgage loan servicing portfolio, resulting in a
$1.7 million gain on the sale of mortgage servicing rights.
Effective January 1, 1995, the company adopted on a prospective basis
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights ("SFAS 122"). SFAS 122 requires that rights to service mortgage
loans for others be recognized as assets, without regard to whether those assets
were acquired in purchase transactions or were acquired through loan
originations. In years prior to 1995, only purchased mortgage servicing rights
("MSR's") were recognized as assets. SFAS 122 also eliminates the previous
requirement that gains on the sale of mortgage loans be offset against the
related servicing right asset. As a result of SFAS 122, the company recognized
$1.2 million in non-interest income, before amortization, in 1995 and $1.4
million in 1996.
During 1994, the company engaged an outside consulting firm to review its
banking products and services. As an outcome of this review, the company
implemented a new product and fee structure in April 1995, which resulted in
additional service charges on deposit accounts.
<PAGE>
Non-interest Expenses
Non-interest expenses for 1996 increased 22% over 1995, after increasing
10% from 1994 to 1995. The increases in non-interest expense were due to:
<TABLE>
<CAPTION>
Increase (Decrease) in
Non-Interest Expenses
In thousands 1996 vs. 1995 1995 vs. 1994
------------ -------------
<S> <C> <C>
Second quarter initiatives .................................................... $ 5,807 $ --
Increase in compensation and employee benefits ................................ 5,541 4,258
Increase in occupancy and equipment expense ................................... 449 1,106
Increase in communications expense ............................................ 909 476
Deposit insurance:
1996 SAIF assessment, net of fourth quarter refund ...................... 2,563 --
Decrease in deposit insurance premiums .................................. (1,073) (1,088)
Increase (decrease) in advertising and public relations expense ............... (410) 724
Decrease in professional fees ................................................. (594) (318)
Increase in postage, printing and supplies .................................... 482 127
Increase (decrease) in educational expense .................................... (280) 424
Increase (decrease) in foreclosed asset expense ............................... (495) 315
Increase in processing fees ................................................... 931 312
Increase (decrease) in all other non-interest expenses ........................ 763 (357)
-------- -------
$ 14,593 $ 5,979
======== =======
</TABLE>
Costs recognized in the second quarter of 1996 which are associated with
the initiative to refocus the company's resources on core financial services
include severance and related payroll taxes and benefits, write-downs of fixed
assets to be sold or abandoned, legal and accounting fees associated with
discontinuing certain activities and various other costs associated with the
disposition of assets. These charges provide for the cost of exiting several
initiatives which the company entered in recent years, such as 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 Bowling Green, Kentucky. Severance expense was
also recognized related to changes designed to reduce costs in the retail
delivery system and in investment management. The company sold its corporate
jet, with the cost of its disposition included in second quarter expenses. The
classification of these costs in the consolidated statement of income is as
follows: In thousands
Compensation and employee benefits $1,798
Net occupancy expense 475
Furniture and equipment expense 325
Professional fees 340
Writedowns and losses on sale of fixed assets 1,698
Other expenses 1,171
-------
Total costs associated with the initiative $5,807
======
The increases in non-interest expenses over the past two years also reflect
the company's commitment to invest in new technology, product lines,
distribution channels and people, to provide enhanced customer service and to
support future growth.
Compensation and benefits increased $5.5 million in 1996 (excluding the
refocus initiative charges) as compared to 1995, and increased $4.3 million in
1995 versus 1994--the result of an expansion of the professional staff in 1994
and 1995. Of the increase in compensation and benefits in 1996 and 1995, $1.4
million and $0.8 million, respectively, represent increased payments associated
with the company's implementation of an incentive-based compensation system.
Advertising and public relations expense decreased $0.4 million in 1996,
after increasing $0.7 million in 1995. During 1995, the company expanded its
promotion of the new products and services added during the year, and an
intensified sales training program resulted in a $0.4 million increase in
educational expense that year.
In general, the remaining increases in both 1996 and 1995 were related to
an ongoing effort to build the company's infrastructure to accommodate future
growth, requiring investments in staff as well as in buildings, equipment and
information systems. Occupancy, furniture and equipment and communications costs
increased $1.4 million in 1996 and $1.6 million in 1995. In addition, external
data processing costs, primarily for mortgage loan servicing and electronic
delivery of financial services, increased $0.9 million and $0.3 million in 1996
and 1995, respectively.
As mentioned previously, the company recorded in the third quarter of 1996
a pre-tax charge of $2.7 million resulting from legislation enacted during 1996
designed to re-capitalize the SAIF. The $1.1 million decreases in deposit
insurance premiums in both 1996 and 1995 were due to a reduction from $0.23 to
$0.04 per $100 of deposits insured through the Federal Deposit Insurance
Corporation's ("FDIC") Bank Insurance Fund ("BIF"), effective June 1, 1995,
and to zero effective January 1, 1996. Approximately 69% of the company's
deposits are insured through the BIF. The remaining 31% of the company's
deposits are insured through the SAIF. Insurance premiums on the SAIF deposits
remained at $0.23 through 1996, however a refund of $122 thousand was received
from the SAIF in the fourth quarter of 1996. For 1997, the company expects to
recognize deposit insuranceexpense of approximately $0.065 per $100 of SAIF-
insured deposits and $0.013 per $100 of BIF-insured deposits.
Income Taxes
The company had income tax expense of $3.1 million in 1996, compared with
$7.4 million in 1995 and $7.1 million in 1994. These represent effective tax
rates of 31.2%, 32.6% and 32.9%, respectively. Further information on the
company's income taxes can be found in note 12 to the consolidated financial
statements.
Balance Sheet Review
Assets at year-end 1996 totaled $2.0 billion, compared with $1.8 billion at
December 31, 1995. Average total assets for 1996 increased $184 million from
1995, after increasing $85 million from 1994 to 1995. Average interest-earning
assets increased $165 million from 1995 to 1996, and increased $69 million from
1994 to 1995.
Loans
Total loans, net of unearned income, averaged $1.3 billion in 1996,
compared with $1.2 billion in 1995 and $1.1 billion in 1994. At year-end 1996,
loans totaled $1.5 billion, compared with $1.3 billion at December 31, 1995, and
$1.1 billion at the end of 1994.
The company has experienced strong loan growth throughout its markets over
the past five years, with particular strength in middle market commercial and
commercial real estate lending products. The following table presents a summary
of the loan portfolio by category over that period.
<TABLE>
Loans Outstanding
December 31
In thousands
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial .................... $ 466,365 $ 372,822 $ 318,970 $ 320,952 $ 235,922
Commercial real estate ........ 470,235 397,741 334,567 234,308 140,554
Residential real estate ....... 385,894 357,697 339,605 303,283 292,847
Consumer ...................... 130,444 132,401 153,754 150,202 114,820
----------- ----------- ----------- ----------- ---------
Total loans ................ 1,452,938 1,260,661 1,146,896 1,008,745 784,143
Less unearned income .......... (1,939) (2,150) (3,063) (3,656) (3,843)
----------- ----------- ----------- ----------- ---------
Loans net of unearned income $ 1,450,999 $ 1,258,511 $ 1,143,833 $ 1,005,089 $ 780,300
=========== =========== =========== =========== =========
</TABLE>
Loan Concentrations
Much of the increase in commercial and commercial real estate loans is
financing the operations of the company's commercial customers. Although many of
these loans are structured as mortgages, the company relies on the borrower's
cash flow to service the loan, rather than on the sale of the underlying
collateral. Commercial real estate loans include financing for industrial parks,
residential developments, retail shopping centers, multi-family apartment
complexes, industrial buildings, fast food and mid-scale restaurants, and hotels
and motels. The primary source of repayment cannot be traced to any specific
industry group.
The percentage distribution of the company's loans, by industry, is shown
in the following table.
Loans by Industry
December 31, 1996
As a percentage of total loans
Agriculture 2.9%
Apartment buildings 2.6
Construction and land development 8.4
Finance and insurance 1.9
Manufacturing:
Durable goods 7.1
Non-durable goods 3.9
Mining 3.1
Services:
Health 2.7
Hotels and motels 4.1
Other than health and hotels 4.6
Wholesale trade 3.1
Retail trade:
Restaurants 4.9
Food stores 2.3
Automotive 1.6
Other 2.2
Other commercial real estate 7.2
All other commercial loans 1.9
-------
Total commercial and commercial real estate loans 64.5
Residential real estate loans 26.6
Consumer loans 8.9
-------
Total loans, net of unearned income 100.0%
=====
Substantially all of the company's loans are to customers located in
Kentucky and Tennessee, in the immediate market areas of the banks. However, the
company has one $6.3 million commercial loan to a Mexican affiliate of a U.S.
corporation. The loan represents financing for an essential part of the
operations of an established customer located in the company's primary market
area.
On December 31, 1996, the company's 49 largest credit relationships
consisted of loans and loan commitments ranging from $5 million to $20 million,
none of which was classified as non-performing. The aggregate amount of these
credit relationships was $472 million.
The following table sets forth the maturity distribution and interest rate
sensitivity of commercial and commercial real estate loans as of December 31,
1996. Maturities are based upon contractual terms. The company's policy is to
specifically review and approve all loans renewed; loans are not automatically
rolled over.
<TABLE>
Loan Maturities and Rate Sensitivity
December 31, 1996
In thousands
<CAPTION>
One Year One Through Over Total
or Less Five Years Five Years Loans
By maturity date:
<S> <C> <C> <C> <C>
Commercial ............................................... $184,900 $121,031 $160,434 $466,365
Commercial real estate ................................... 100,581 61,855 307,799 470,235
-------- -------- -------- --------
Total .................................................. $285,481 $182,886 $468,233 $936,600
======== ======== ======== ========
Fixed rate loans ......................................... $ 54,482 $ 73,759 $ 60,079 $188,320
Floating rate loans ...................................... 230,999 109,127 408,154 748,280
-------- -------- -------- --------
Total .................................................. $285,481 $182,886 $468,233 $936,600
======== ======== ======== ========
By next repricing opportunity:
Commercial ............................................... $401,117 $ 48,912 $ 16,336 $466,365
Commercial real estate ................................... 386,956 38,719 44,560 470,235
-------- -------- -------- --------
Total .................................................. $788,073 $ 87,631 $ 60,896 $936,600
======== ======== ======== ========
Fixed rate loans ......................................... $ 54,482 $ 73,759 $ 60,079 $188,320
Floating rate loans ...................................... 733,591 13,872 817 748,280
-------- -------- -------- --------
Total .................................................. $788,073 $ 87,631 $ 60,896 $936,600
======== ======== ======== ========
</TABLE>
Asset Quality
Non-performing loans, which include non-accrual loans, accruing loans past
due over 90 days and restructured loans, totaled $10.6 million at the end of
1996, a decrease of $6.7 million from December 31, 1995. The ratio of
non-performing loans to year-end loans was 0.73%, compared with 1.38% at
year-end 1995 and 0.69% at December 31, 1994. Non-performing loans increased
$4.2 million in the fourth quarter of 1995, primarily due to placing one
commercial loan in non-accrual status. Non-performing assets, which include
non-performing loans, foreclosed real estate and other foreclosed property,
totaled $12.4 million at year-end 1996, and the ratio of total non-performing
assets to total assets decreased to 0.62% at year-end 1996, from 1.24% at
December 31, 1995.
The following table presents information concerning non-performing assets,
including non-accrual and restructured loans:
<TABLE>
Non-performing Assets
December 31
Dollars in thousands
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Non-accrual loans ............................... $ 4,717 $12,708 $ 4,375 $ 5,926 $ 3,986
Accruing loans which are contractually
past due 90 days or more ...................... 5,863 4,617 3,514 2,377 4,262
Restructured loans .............................. 4 14 30 1,591 718
------- ------- ------- ------- -------
Total non-performing and restructured loans ... 10,584 17,339 7,919 9,894 8,966
Foreclosed real estate .......................... 1,608 4,329 4,998 5,869 9,036
Other foreclosed property ....................... 184 677 199 113 --
------- ------- ------- ------- -------
Total non-performing and restructured loans
and foreclosed property ..................... $12,376 $22,345 $13,116 $15,876 $18,002
======= ======= ======= ======= =======
Non-performing and restructured loans
as a percentage of loans net of unearned income 0.73% 1.38% 0.69% 0.98% 1.15%
Non-performing and restructured loans and other
real estate as a percentage of total assets ... 0.62% 1.24% 0.81% 0.99% 1.30%
</TABLE>
Management classifies commercial and commercial real estate loans as
non-accrual 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 loans are charged off
after 120 days of delinquency unless adequately secured and in the process of
collection. Non-accrual 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 the restructured terms and that yield a market
rate of interest may be removed from restructured status in the year following
the restructure.
Two commercial credit relationships account for $2.1 million, or 45%, of
the company's non-accrual loans at December 31, 1996, and 20% of total
non-performing and restructured loans. The larger of these credits is to a
specialty apparel manufacturer and the other is to a company in the coal mining
industry. An allowance for loan losses in the amount of $164 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 non-accrual balance consists of various commercial and
consumer loans, with no single loan exceeding $350,000.
The increase over the past two years in accruing loans past due 90 days or
more is principally related to residential real estate loans. Personal
bankruptcies, particularly Chapter 13 filings, have been rising in Tennessee and
Kentucky over the past two years. This form of bankruptcy forestalls foreclosure
on a wage earner's residence as long as monthly payments are resumed and a small
additional payment is made to the lender to be applied to the delinquent
mortgage payments. Such a payment plan may stretch out to several years the
period required to bring payments current. Although these loans may be well
secured and in the process of collection, most are reported as more than 90 days
past due and accruing interest.
Foreclosed real estate at December 31, 1996, includes one property with a
book value of $340 thousand, or 21% of the outstanding balance. This 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 a loss to be incurred
on disposition of the remaining parcels. A second property which was included in
foreclosed real estate on December 31, 1995, is a manufacturing facility which
was acquired in the fourth quarter of 1995. The property was sold in the fourth
quarter of 1996. The remaining balance of foreclosed real estate consists of
several properties, with no single property exceeding $250,000.
As of December 31, 1996, the company had $8.4 million of loans which were
not included in the past due, non-accrual 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 represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans. The
adequacy of the allowance is determined on an ongoing basis through analysis of
the overall size and 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. The potential loss situations are
identified by account officers' evaluations of their own portfolios, as well as
by an independent loan review function.
The allowance for loan losses is established through a provision for loan
losses charged to expense. At December 31, 1996, the allowance was $18.1
million, compared with $15.8 million at December 31, 1995, and $12.5 million at
December 31, 1994. The ratio of the allowance for loan losses to total loans
(excluding mortgage loans held for sale) at December 31, 1996, was 1.25%,
compared with 1.25% at December 31, 1995, and 1.10% at December 31, 1994. These
increases from December 31, 1994 reflect in part management's review of the
growth in the loan portfolio, the continuing concentrations of credit among the
company's largest credit relationships, and anticipated general economic
conditions in the company's markets. The allowance as a percentage of
non-performing loans was 171% at December 31, 1996, as compared to 91% at
year-end 1995, and 158% at December 31, 1994. The changes in the allowance as a
percentage of non-performing loans from December 31, 1994 to December 31, 1996
are in part the result of the company's placement of one significant loan into
non-performing loans at year-end 1995, thus reducing the ratio of the allowance
to non-performing loans. That borrower's financial condition, along with the
financial condition of two other significant credits, deteriorated in the second
quarter of 1996, resulting in partial charge-offs totaling $7.0 million of these
loans in 1996. As a result of net loan charge-offs of $11.6 million and a
provision for loan losses of $13.9 million during 1996, the ratio of the
allowance for loan losses to non-performing loans has increased to 171% at
December 31, 1996
Following is a summary of the changes in the allowance for loan losses for
each of the past five years.
<TABLE>
Summary of Loan Loss Experience
For the years ended December 31
Dollars in thousands
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ................. $ 15,779 $ 12,529 $ 12,505 $ 9,596 $ 7,700
Provision for loan losses .................... 13,914 5,260 2,212 2,794 2,618
Balance of allowance for loan losses
of acquired subsidiaries at acquisition date -- -- -- 2,433 1,016
Amounts charged off:
Commercial and commercial real estate ...... 10,012 993 1,873 2,195 1,623
Residential real estate .................... 372 106 80 315 138
Consumer ................................... 2,083 1,426 838 936 738
---------- ---------- ---------- ---------- --------
Total loans charged off .................... 12,467 2,525 2,791 3,446 2,499
Recoveries of amounts previously charged off:
Commercial and commercial real estate ...... 390 228 232 615 323
Residential real estate .................... 38 8 41 115 106
Consumer ................................... 411 279 330 398 332
---------- ---------- ---------- ---------- --------
Total recoveries ........................... 839 515 603 1,128 761
---------- ---------- ---------- ---------- --------
Net charge-offs ............................ 11,628 2,010 2,188 2,318 1,738
---------- ---------- ---------- ---------- --------
Balance at end of year ....................... $ 18,065 $ 15,779 $ 12,529 $ 12,505 $ 9,596
========== ========== ========== ========== ========
Total loans, net of unearned income:
Average .................................... $1,346,754 $1,190,101 $1,073,580 $ 898,834 $719,184
At December 31 ............................. 1,450,999 1,258,511 1,143,833 1,006,796 780,846
As a percentage of average loans:
Net charge-offs ............................ 0.86 % 0.17 % 0.20 % 0.26 % 0.24 %
Provision for loan losses .................. 1.03 0.44 0.21 0.31 0.36
Allowance as a percentage of year-end loans .. 1.25 1.25 1.10 1.24 1.23
Allowance as a percentage of non-performing
and restructured loans ..................... 170.7 91.0 158.2 126.4 107.0
</TABLE>
Management believes that the allowance for loan losses at December 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. In addition, bank and thrift regulatory
authorities, as a part of their periodic examinations of the banks, may reach
different conclusions regarding the quality of the loan portfolio and the level
of the allowance, which could result in additional provisions being made in
future periods.
The tables below present an allocation of the allowance for loan losses by
category of loan and a percentage distribution of the allowance allocation. In
making the allocation, consideration was given to such factors as management's
evaluation of risk in each category, current economic conditions and charge-off
experience. An allocation of the allowance for loan losses is an estimate of the
portion of the allowance which will be used to cover future charge-offs in each
loan category, but it does not preclude any portion of the allowance allocated
to one type of loan from being used to absorb losses of another loan type.
Allocation of Allowance for Loan Losses
December 31
In thousands 1996 1995 1994 1993 1992
Commercial ............ $ 9,080 $ 9,133 $ 7,529 $ 6,870 $4,813
Commercial real estate 5,375 4,089 1,883 1,718 1,203
Residential real estate 1,010 640 977 1,358 1,720
Consumer .............. 2,600 1,917 2,140 2,559 1,860
------- ------- ------- ------- ------
Total .............. $18,065 $15,779 $12,529 $12,505 $9,596
======= ======= ======= ======= ======
<TABLE>
Allocation of Year-End Allowance for Loan Losses
and Percentage of Each Type of Loan to Total Loans
December 31
<CAPTION>
1996 1995 1994 1993 1992
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial ............ 50.2% 32.0% 57.9% 29.5% 60.1% 27.8% 54.9% 31.7% 50.2% 30.1%
Commercial real estate 29.8 32.4 25.9 31.6 15.0 29.2 13.7 23.2 12.5 17.9
Residential real estate 5.6 26.6 4.1 28.4 7.8 29.6 10.9 30.2 17.9 37.4
Consumer .............. 14.4 9.0 12.1 10.5 17.1 13.4 20.5 14.9 19.4 14.6
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total .............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
==== ===== ===== ===== ===== ====== ===== ===== ===== =====
</TABLE>
Securities, Federal Funds Sold and Resale Agreements
Securities, including those classified as held to maturity and available
for sale, averaged $292 million in 1996, compared with $305 million in 1995 and
$354 million in 1994. The decline in the securities portfolio throughout this
period was substantially the result of maturities, prepayments and calls. Funds
provided by the reduction in securities were utilized to fund growth in the loan
portfolio.
The company reclassified all securities to available for sale on November
30, 1995, as permitted by the Financial Accounting Standards Board in a special
one-time reassessment.
The tables below present the carrying value of securities for each of the
past three years and the maturities and yield characteristics of securities as
of December 31,1996.
Carrying Value of Securities
December 31
In thousands 1996 1995 1994
U.S. Treasury and federal agencies:
Available for sale .................. $128,296 $142,199 $146,484
Held to maturity .................... -- -- 3,081
Collateralized mortgage obligations and
mortgage-backed securities:
Available for sale .................. 67,626 81,900 70,895
Held to maturity .................... -- -- 26,372
State and municipal obligations:
Available for sale .................. 51,311 55,552 --
Held to maturity .................... -- -- 49,752
Other securities:
Available for sale .................. 37,922 18,571 12,264
Held to maturity .................... -- -- 5,553
-------- -------- --------
Total securities:
Available for sale .................. 285,155 298,222 229,643
Held to maturity .................... -- -- 84,758
-------- -------- --------
Total securities ................... $285,155 $298,222 $314,401
======== ======== ========
<TABLE>
Maturity Distribution of Securities
December 31, 1996
Dollars in thousands
<CAPTION>
Over Over
One Year Five Years
One Year Through Through Over Equity Total Market
or Less Five Years Ten Years Ten Years Securities Maturities Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and federal agencies .. $72,883 $38,779 $17,668 $ $ $129,330 $128,296
Collateralized mortgage obligations
and mortgage-backed securities:(F1) 839 6,154 18,109 42,950 -- 68,052 67,626
State and municipal obligations ..... 2,808 13,758 21,911 11,460 -- 49,937 51,311
Other securities .................... 11,217 2,063 1,147 103 23,415 37,945 37,922
------- ------- ------- ------- --------- -------- --------
Total securities available for sale $87,747 $60,754 $58,835 $54,513 $ 23,415 $285,264 $285,155
======= ======= ======= ======= ========= ======== ========
Percent of total .................... 30.76 % 21.30 % 20.62 % 19.11 % 8.21 % 100.00 %
Weighted average yield(F2) ........... 5.41 % 5.03 % 5.49 % 5.92 % 6.51 % 5.53 %
<FN>
(F1) Collateralized mortgage obligations and mortgage-backed securities are
grouped into average lives based on December 1996 prepayment projections.
(F2) The weighted average yields are based on amortized cost.
</FN>
</TABLE>
Mortgage Servicing Rights
The company adopted on a prospective basis effective January 1, 1995,
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights ("SFAS 122"). SFAS 122 requires that rights to service mortgage
loans for others be recognized as assets, without regard to whether those assets
were acquired in purchase transactions or were acquired through loan
originations. In prior years, only purchased mortgage servicing rights ("MSR's")
were recognized as assets. MSR's totaled $41.9 million at December 31, 1996,
compared with $28.3 million at December 31, 1995, and $9.2 million at year-end
1994. During 1996 and 1995, the company purchased servicing portfolios with
mortgage loan principal balances of $1.0 billion and $1.2 billion, respectively.
The company recognized MSR's of $12.5 million and $21.1 million, respectively,
on these purchased portfolios.
The carrying value of MSR's and the related amortization are evaluated
quarterly in relation to their fair values. The company evaluates the carrying
value of the MSR's by estimating the present value of the future net servicing
income of the rights, using a discounted valuation method and based on
management's best estimate of remaining loan lives. Serviced loans are
stratified into four interest rate tranches and two loan types. Impairment and
subsequent adjustments in each stratum, if any, are recognized by a valuation
allowance and a charge against servicing income.
Prepayments of mortgage loans can have a considerable impact on the value
of the MSR portfolio. Prepayments result from a variety of factors, but a
declining mortgage loan interest rate environment is generally considered to be
the most significant of these. As of December 31, 1996, approximately 48% of the
MSR recognized on the balance sheet was related to loans which have contractual
interest rates from 7% to 7.99%, with a weighted average rate of 7.48%. Loans
with contractual rates from 8% to 8.99%, with a weighted average rate of 8.31%,
account for another 36% of the MSR balance. If mortgage rates should decline
substantially from current levels, the carrying value of the MSR's could become
impaired in future periods.
To mitigate this risk, in 1996 the company purchased a $75 million
(notional amount) interest rate "floor" contract in which the company will
receive interest on the notional amount to the extent that the interest rate on
ten-year constant maturity U.S. Treasury Notes falls below 5.50%. The cost of
this contract was $548,000 and its fair value as of December 31, 1996, was
$479,000. The cost, which is included in other assets in the consolidated
balance sheet, is being amortized on a straight-line basis over the five-year
life of the contract. In January 1997, the company purchased a second five-year
floor contract, with a $100 million notional amount and a 5.25% floor rate. The
cost of this contract was $455,000. Management believes that the increase in
market value of these two floor contracts which would result from a 100
basis-point drop in the interest rate on ten-year Treasuries would substantially
offset the impairment in the MSR likely to occur with such a decline in interest
rates. Although management believes it is unlikely that ten-year Treasury rates
will drop below 5.25% in the foreseeable future, and may take additional action
to limit the company's exposure if rates begin to decline significantly, the
company is currently exposed to potential impairment of the MSR asset if rates
should drop by more than 100 basis points.
Deposits
Total deposits averaged $1.5 billion in 1996, an $82 million, or 6%,
increase over 1995. Approximately 48% of the increase in average deposits was
due to brokered certificates of deposit issued during 1996--$55 million in the
second quarter and $50 million in the fourth quarter--in order to fund loan
growth. Average deposits for 1995 were $1.4 billion, a 4% increase over 1994.
The company issued in the first quarter of 1995 $30 million of brokered
certificates of deposit and purchased $41 million of deposits from an
unaffiliated bank. Excluding these transactions, average deposits would have
grown approximately $10 million from 1994 to 1995.
During 1996 the company implemented a program that sweeps excess funds from
targeted interest-bearing demand accounts into money market accounts. This
program has significantly reduced the Federal Reserve Bank reserve requirements
for the banks.
Time deposits of $100,000 or more totaled $336.1 million at December 31,
1996, compared with $206.9 million at December 31, 1995. Interest expense on
time deposits of $100,000 or more was $16.5 million in 1996, $11.8 million in
1995 and $6.3 million in 1994. The following table shows the maturities of time
deposits of $100,000 or more, including brokered certificates of deposit, as of
December 31, 1996.
Maturity of Time Deposits of $100,000 or More
December 31, 1996
In thousands
Three months or less $104,351
Over three through six months 29,473
Over six through twelve months 62,399
Over one year through two years 37,165
Over two years through five years 101,966
Over five years 723
------------
Total $336,077
Brokered certificates of deposit, which are included in the above maturity
schedule, mature as follows:
Maturity of Brokered Certificates of Deposit
December 31, 1996
In thousands
Three months or less $ 30,000
Over three through six months -
Over six through twelve months 25,000
Over one year through two years 20,000
Over two years through five years 60,000
----------
Total $135,000
Other information regarding time deposits is contained in note 19 to
the consolidated financial statements.
Liquidity, Short-term Borrowings and Capital Resources Information regarding
short-term borrowings is presented below.
<TABLE>
Short-term Borrowings
Dollars in thousands
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Federal funds purchased and repurchase agreements:
Balance at year end ............................ $ 71,879 $ 75,594 $ 74,553
Weighted average rate at year end .............. 6.26 % 4.83 % 3.50 %
Average balance during the year ................ 42,010 47,219 40,303
Weighted average rate during the year .......... 4.64 % 4.27 % 3.11 %
Maximum month-end balance ...................... 89,640 82,607 74,553
Other short-term borrowings:
Balance at year end ............................ 55,000 45,014 48,033
Weighted average rate at year end .............. 5.42 % 6.67 % 6.36 %
Average balance during the year ................ 56,136 40,652 36,669
Weighted average rate during the year .......... 5.55 % 7.34 % 4.68 %
Maximum month-end balance ...................... 70,005 61,831 48,840
Total short-term borrowings:
Balance at year end ............................ 126,879 120,608 122,586
Weighted average rate at year end .............. 5.90 % 5.52 % 4.62 %
Average balance during the year ................ 98,146 87,871 76,972
Weighted average rate during the year .......... 5.16 % 5.69 % 3.86 %
Maximum month-end balance ...................... 159,645 120,608 122,586
</TABLE>
Substantially all federal funds purchased and repurchase agreements mature
in one business day. Due to an unusually high demand in the market for overnight
funds on December 31, 1996, the rate the company paid for federal funds,
excluding repurchase agreements, on that date was also unusually high (7.12%).
The weighted average rate on the company's federal funds purchased was 5.61% on
December 30, 1996, and was 6.02% on the first business day after year end. Other
short-term borrowings principally represent Federal Home Loan Bank ("FHLB")
advances to TFB-FSB and TFB-KY (with varying maturity dates), which are funding
residential mortgage and commercial loans.
Long-term debt averaged $125.6 million in 1996, compared with $46.8 million
in 1995 and $40.8 million in 1994. The increase in 1996 is due to the issuance
by TFB-KY in the fourth quarter of 1995 of $20 million of two-year notes and $30
million of three-year notes under a $250 million senior bank note program; in
the second quarter of 1996 another $25 million of four-year bank notes were
issued. These notes were issued to support growth in the loan portfolio. Notes
issued to date bear interest at fixed rates of 6.32%, 6.48% and 7.13%,
respectively. The notes issued in 1995 have been effectively converted to
floating rate instruments through the use of interest rate swap transactions.
Interest rate swaps are discussed more fully in the Asset/Liability Management
section which follows and in note 14 to the consolidated financial statements.
In addition, TFB-KY borrowed on a long-term basis $30 million from the FHLB
in the first quarter of 1996 to fund residential mortgage and commercial loans.
Long-term debt also includes financing from an unaffiliated commercial bank for
the company's leveraged ESOP. Total ESOP debt was $2.5 million at December 31,
1996, and $3.0 million at December 31, 1995.
The company has a $5 million unsecured operating line of credit with an
unaffiliated commercial bank that is used from time to time to supplement the
company's cash requirements. The line was not in use at December 31, 1996 or
1995. Also, under the book-entry senior bank note program, TFB-KY may issue up
to an additional $175 million of bank notes from time to time in maturities from
30 days to 30 years.
See note 9 to the consolidated financial statements for a further
description of the terms of these borrowings. The company's capital ratios
at December 31, 1996 and 1995 (calculated in accordance with regulatory
guidelines) were as follows:
December 31 1996 1995
Tier 1 risk based 7.68% 8.64%
Regulatory minimum 4.00 4.00
Total risk based 10.87 12.15
Regulatory minimum 8.00 8.00
Leverage 6.12 6.70
Regulatory minimum 3.00 3.00
- ------------------------------------------------------------------
Capital ratios of all of the company's subsidiaries are in excess of
applicable minimum regulatory capital ratio requirements at December 31, 1996.
The decrease in these ratios over the past year is due to asset
growth--particularly commercial and commercial real estate loans--combined with
minimal growth in shareholders' equity as a result of the decline in net income
in 1996. Notwithstanding the 1996 decline in net income, primarily due to the
loss incurred in the second quarter, the Board of Directors chose to maintain
the quarterly dividend at $0.16. As a result, the company paid dividends
slightly in excess of earnings for 1996. Although there can be no assurance,
management expects the company will pay dividends in 1997 of approximately 30%
to 40% of net income.
Approximately half of the $18.1 million increase in equity capital during
1995 was provided by retained earnings. Most of the remaining portion was due
to a $7.7 million decline in the net unrealized loss on securities available for
sale.
To maintain a desired level of liquidity, the company has several sources
of funds available. The company primarily 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,
FHLB advances and lines of credit. The company's primary investing activities
include purchases of securities and loan originations, offset
by maturities, prepayments and sales of securities, and loan payments. At
December 31, 1996, the retained earnings of the banks totaled $69.7 million, of
which $24.0 million was available for the payment of dividends to the parent
company.
Asset/Liability Management
Managing interest rate risk is fundamental to the financial services
industry. The company's policies are designed to manage 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 while
optimizing net interest income within the constraints of prudent capital
adequacy, liquidity needs, the interest rate and economic outlook, market
opportunities and customer requirements.
The company uses an earnings simulation model to monitor and evaluate the
impact of changing interest rates on earnings. The simulation model used by the
company is designed to reflect the dynamics of all interest-earning assets,
interest-bearing liabilities and off-balance-sheet financial instruments,
combining the various factors affecting rate sensitivity into a two-year
earnings outlook. 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 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.
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 view of net interest income is derived once probabilities have been
assigned to those key rates.
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 December 31, 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
December of 1997. The following illustrates the effects on net interest income
of an immediate shift in market interest rates compared to the most likely rate
assumptions used in the company's model:
- -------------------------------------------------------------------------------
Basis-point change +200 bp +100 bp -100 bp -200 bp
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Increase (decrease) in net interest income 3.3% 1.9% - 0 -% (0.2)%
- -------------------------------------------------------------------------------
As of December 31, 1996, management believes the company's balance sheet
was in an asset-sensitive position, as the repricing characteristics of the
balance sheet 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 some of the assumptions made in the use of
the simulation model will inevitably not materialize and unanticipated events
and circumstances will occur; in addition, the simulation model does 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 utilized by the company 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 all expected future cash flows. Assets and
liabilities with option characteristics are valued based on numerous interest
rate path valuations using statistical rate simulation techniques.
To assist in achieving a desired level of interest rate sensitivity the
company has entered into off-balance-sheet interest rate swap transactions which
partially neutralize the asset sensitive position which is inherent in the
balance sheet. The company pays a variable interest rate on each swap and
receives a fixed rate. 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 interest
rate swap transactions. Conversely, if interest rates decline, the swaps will
mitigate the company's exposure to reduced net interest income.
See also the Mortgage Servicing Rights section of this discussion regarding
the use of interest rate floor contracts to hedge against the potential
impairment of the MSR asset resulting from a significant decline in interest
rates. Interest rate swap transactions are described more fully in note 14 to
the consolidated financial statements.
Quarterly Results
Following is a summary of quarterly operating results for 1996 and
1995:
<TABLE>
Quarterly Results of Operations
In thousands, except per share data
<CAPTION>
1996 1995
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $38,995 $37,896 $36,215 $34,829 $35,097 $34,222 $33,236 $31,673
Interest expense 19,215 18,626 17,940 17,285 17,244 16,686 16,039 14,630
------- -------- ------- ------- ------- ------- ------- -------
Net interest income 19,780 19,270 18,275 17,544 17,853 17,536 17,197 17,043
Provision for loan losses 2,651 1,621 8,421 1,221 3,180 780 780 520
------- -------- ------- ------- ------- ------- ------- -------
Net interest income after
provision 17,129 17,649 9,854 16,323 14,673 16,756 16,417 16,523
Non-interest income 7,756 7,394 7,304 7,235 7,062 5,764 6,925 4,660
Non-interest expenses 17,286 20,472 24,765 18,119 17,500 15,801 17,185 15,563
------- -------- ------- ------- ------- ------- ------- -------
Income before income taxes 7,599 4,571 (7,607) 5,439 4,235 6,719 6,157 5,620
Income tax expense 2,284 1,557 (2,424) 1,703 1,378 2,175 2,038 1,825
------- -------- ------- ------- ------- ------- ------- -------
Net income $ 5,315 $ 3,014 $(5,183) $ 3,736 $ 2,857 $ 4,544 $ 4,119 $ 3,795
======= ======= ======= ======= ======= ======= ======= =======
Earnings per common share $ 0.46 $ 0.26 $ (0.45) $ 0.33 $ 0.25 $ 0.40 $ 0.36 $ 0.34
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Significant factors affecting the comparability of quarterly results for
1996 include the second quarter pretax charge of $5.8 million related to the
commitment to refocus on core financial services, reduce operating expenses and
exit from less-profitable initiatives, and a $7.2 million increase in the
quarterly loan loss provision in the second quarter as compared to the first
quarter. These second quarter charges resulted in a net loss for the first half
of 1996. The $8.4 million loan loss provision in the second quarter of 1996 was
due to several factors:
1) The charge-off of $7.0 million on three problem loans. Prior to the
second quarter of 1996, management expected two of these three borrowers to
be sold as going concerns and the loans to be repaid from the sales
proceeds. As a result, the company had previously allocated $4.2 million in
the allowance for loan losses for these three loans. Due to the rapid
deterioration in the financial condition of those borrowers in the second
quarter of 1996 and the resulting loss of interest by several potential
buyers, sale prospects became unlikely. As the possibility of sales as going
concerns grew less likely, management concluded that the collateral securing
the loans would likely have to be liquidated, resulting in larger than
anticipated losses on the loans. 2) Recent adverse loss trends for consumer
loans resulting from unprecedented levels of bankruptcies, particularly
personal bankruptcies in Kentucky and Tennessee. 3) Three additional loans
over $1 million (totaling $6.6 million) for which information became known
to the company during the quarter which caused management to have serious
doubts as to the ability of the borrowers to comply with the loan repayment
terms, but which were not included in non-performing loans at June 30, 1996.
4) Continued strong growth in the loan portfolio, particularly in large
commercial relationships (over $5 million).
Deposit insurance expense for the third quarter of 1996 was impacted by the $2.7
million (pretax) SAIF assessment. Due to a decline in deposit insurance premiums
following the re-capitalization of the SAIF, the company received in the fourth
quarter of 1996 a $122 thousand refund of deposit insurance premiums.
Non-interest income in the second quarter of 1995 included a $1.7 million
pre-tax gain from the sale of mortgage servicing rights. For the third quarter
of 1995, deposit insurance expense was reduced by a $585 thousand refund of FDIC
premiums paid in the second quarter. The refund was associated with an
over-capitalization of the Bank Insurance Fund.
================================================================================
This discussion contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included herein will prove to be accurate. Factors that could cause actual
results to differ from the results discussed in the forward-looking statements
include, but are not limited to: economic conditions (both generally and more
specifically in the markets in which the company and its banks operate);
competition for the company's customers from other providers of financial
services; government legislation and regulation (which changes from time to time
and over which the company has no control); changes in interest rates; material
unforeseen changes in the liquidity, results of operations, or financial
condition of the company's customers; delays in, customer reactions to, and
other unforeseen complications with respect to, the implementation of the cost
containment measures; and other risks detailed in the company's filings with the
Securities and Exchange Commission, all of which are difficult to predict and
many of which are beyond the control of the company.
================================================================================
<TABLE>
Consolidated Statistical Information (F1)(F2)
For the years ended December 31
Dollars in thousands, except per share data
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Interest income $147,935 $134,228 $113,982 $102,819 $95,343
Interest expense 73,066 64,599 47,375 44,250 46,763
-------- -------- -------- ------- -------
Net interest income 74,869 69,629 66,607 58,569 48,580
Provision for loan losses 13,914 5,260 2,212 2,794 2,618
-------- -------- -------- ------- -------
Net interest income after provision for loan losses 60,955 64,369 64,395 55,775 45,962
Non-interest income 29,689 24,411 17,170 17,032 13,793
Non-interest expenses 80,642 66,049 60,070 52,830 39,890
-------- -------- -------- ------- -------
Income before income taxes and cumulative
effect of change in accounting principle 10,002 22,731 21,495 19,977 19,865
Income tax expense 3,120 7,416 7,075 6,223 6,400
-------- -------- -------- ------- -------
Income before cumulative effect
of change in accounting principle 6,882 15,315 14,420 13,754 13,465
Cumulative effect of change in accounting principle - - - 296 -
-------- -------- -------- -------- -------
Net income $ 6,882 $ 15,315 $ 14,420 $ 14,050 $13,465
======== ======== ======== ======== =======
Net income applicable to common stock $ 6,882 $ 15,315 $ 14,366 $ 13,969 $13,328
======== ======== ======== ======== =======
Per common share:
Primary earnings per share $ 0.60 $ 1.35 $ 1.28 $ 1.24 $ 1.25
Fully-diluted earnings per share 0.59 1.34 1.28 1.24 1.25
Common shareholders' equity at year end 11.55 11.49 9.96 9.96 9.01
Cash dividends declared 0.64 0.60 0.56 0.51 0.44
Year-end common stock price 23.00 17.88 1 3.00 16.50 15.19
At year end:
Total assets $2,003,952 $1,795,649 $1,617,835 $1,597,453 $1,380,626
Total loans, net of unearned income 1,450,999 1,258,511 1,143,833 1,005,089 780,300
Total deposits 1,579,217 1,444,483 1,335,509 1,376,227 1,222,050
Long-term debt 140,903 86,605 37,334 54,217 21,957
Total shareholders' equity 131,316 129,767 111,632 112,036 99,406
Common shareholders' equity 131,316 129,767 111,632 111,026 98,396
Allowance for loan losses 18,065 15,779 12,529 12,505 9,596
Selected ratios:
Return on average assets 0.37% 0.92% 0.91% 0.96% 1.10%
Return on average shareholders' equity 5.32 12.55 12.89 13.24 14.56
Return on average common shareholders' equity 5.32 12.55 12.92 13.29 14.57
Average shareholders' equity to average
total assets 6.97 7.30 7.05 7.25 7.58
Leverage ratio 6.12 6.70 6.95 6.47 6.57
Tier 1 risk-based capital ratio 7.68 8.64 9.47 9.36 11.05
Total risk-based capital ratio 10.87 12.15 13.31 13.50 12.51
Common dividend payout ratio 106.52 44.49 43.88 41.05 35.10
Allowance for loan losses as a percentage
of year-end loans 1.25 1.25 1.10 1.24 1.23
Allowance for loan losses as a percentage
of non-performing loans 170.68 91.00 158.21 126.39 107.03
Non-performing loans as a percentage
of year-end loans 0.73 1.38 0.69 0.98 1.15
Net charge-offs as a percentage of
average loans 0.86 0.17 0.20 0.26 0.24
Net interest margin 4.42 4.56 4.57 4.32 4.31
Other data:
Number of full-time-equivalent employees at
year end 881 932 836 829 672
Number of common shareholders of record at
year end (F2) 1,706 1,810 1,907 1,273 1,031
Common share trading volume 9,275,700 4,520,000 3,404,400 4,992,300 5,598,900
<FN>
(F1) During 1995, 1993 and 1992, the company acquired one commercial bank, three
thrift institutions and certain branches of another thrift institution in
transactions accounted for using the purchase method of accounting. Financial
information pertaining to the acquired entities since the acquisition dates has
been included in the consolidated financial statements. See note 4 to the
consolidated financial statements.
(F2) In 1994 and 1992, the company merged with four bank holding companies in
transactions accounted for using the pooling-of-interests method of
accounting. Accordingly, all financial data has been restated as if the
entities were combined for all periods presented. See note 4 to the
consolidated financial statements. Shareholders of record for 1993
and 1992 have not been restated to reflect holders of shares issued in
connection with these business combinations.
</FN>
</TABLE>
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial statements filed
The list of consolidated financial statements together with the
report thereon of KPMG Peat Marwick LLP, as set forth in Part II,
Item 8 of this report is incorporated herein by reference.
(2) Financial statement schedules
Schedules to the consolidated financial statements are omitted, as
the required information is not applicable.
(3) List of exhibits
The list of exhibits listed on the Exhibit Index on pages 27 and 28
of this Form 10-K/A is incorporated herein by reference.
The management contracts and compensatory plans or arrangements
required to be filed as exhibits to this Form 10-K/A pursuant to Item
14(c) are noted by asterisk (*) in the Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
(c) Exhibits
The exhibits listed on the Exhibit Index on pages 27 and 28 of this Form
10-K/A are filed as a part of this report.
(d) Financial statement schedules
No financial statement schedules are required to be filed as a part of
this report.
<PAGE>
SIGNATURE
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)
By: /s/ Edward R. Matthews
Edward R. Matthews
Chief Financial Officer
Date: June 25, 1997
<PAGE>
Exhibits
3(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.
3(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.
3(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(a) Rights Agreement dated January 20, 1992 between Manufacturers
Hanover Trust Company and Trans Financial, Inc. is incorporated by
reference to Exhibit 1 to the registrant's report on Form 8-K dated
January 24, 1992.
4(b) 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 Registration Statement on Form S-2 of the registrant (File No.
33-67686).
4(c) 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.*
10(g) Form of Deferred Compensation Agreement between registrant and Vince
A. Berta, Barry D. Bray, James G. Campbell, Tommy W. Cole, Roger E.
Lundin, Michael L. Norris, Jay B. Simmons and certain other 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 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 quarter 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 quarter 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) Investment and Financial Advisory Services Agreement between Trans
Financial Bank, National Association, and Mastrapasqua & Associates,
Inc.* **
10(o) Form of Retention Agreements between Registrant and Vince A. Berta,
James G. Campbell, Tommy W. Cole, Ronald Szejner, and certain other
officers.* **
10(p) 1996 Directors Stock Compensation Plan is incorporated by reference to
Exhiibt 10(n) of the registrant's report on Form 10-Q for the quarter
ended March 31, 1996.*
11 Statement of Computation of Per Share Earnings**
21 List of Subsidiaries of the Registrant**
23 Consent of Independent Auditors**
23(a) Consent of Independent Auditors
27 Financial Data Schedule (for SEC use only)**
99 Annual Report on Form 11-K for the Trans Financial, Inc. Savings
Investment Plan
* 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.
**Previously filed.
Exhibit 23(a)
Consent of Independent Auditors
The Board of Directors
Trans Financial, Inc.:
We consent to incorporation by reference in the Registration Statement No.
33-53960 on Form S-8 of our report dated June 9, 1997, relating to the
statements of net assets available for benefits of the Trans Financial, Inc.
Savings Investment Plan as of December 31, 1996 and 1995 and the related
statements of changes in net assets available for benefits for the years then
ended, which report appears in the December 31, 1996 Annual Report on Form 11-K
of the Trans Financial, Inc. Savings Investment Plan.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Louisville, Kentucky
June 25, 1997
Trans Financial, Inc.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1996
Exhibit 99
Annual Report on Form 11-K for the Trans Financial, Inc. Savings Investment Plan
<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
Washington, D.C. 20549
Form 11-K
Annual Report Pursuant to Section 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File Number 0-13030
----------------- ------
TRANS FINANCIAL, INC., SAVINGS INVESTMENT PLAN
(Exact name of plan)
Trans Financial, Inc.
(Exact name of issuer of securities)
500 East Main Street
Bowling Green, KY 42101
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
Trans Financial, Inc. Savings Investment Plan
(Name of Plan)
Trans Financial Inc., Trustee
By: /s/ Roger E. Lundin
Roger E. Lundin
Senior Vice President
and Plan Administrator
Date: June 25, 1997
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Financial Statements and Schedules
December 31, 1996 and 1995
With Independent Auditors' Report Thereon
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAVINGS INVESTMENT PLAN
Index to Financial Statements
and Schedules
Page(s)
Independent Auditors' Report 5
Statements of Net Assets Available for Benefits With Fund Information
as of December 31, 1996 and 1995 7 - 10
Statements of Changes in Net Assets Available for Benefits With Fund
Information for the years ended December 31, 1996 and 1995 11 - 14
Notes to Financial Statements 15 - 22
Schedule(s)
Item 27a - Schedule of Assets Held for Investment Purposes -
December 31, 1996 A
Item 27d - Schedule of Reportable Transactions - Year ended
December 31, 1996 D
Other schedules as required by Items 27(b), (c),(e) and (f) of Form 5500 have
been omitted because they are not applicable.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Plan Committee
Trans Financial, Inc.
Savings Investment Plan:
We have audited the accompanying statements of net assets available for benefits
of the Trans Financial, Inc. Savings Investment Plan (Plan) as of December 31,
1996 and 1995, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1996 and 1995, and the changes in net assets available for benefits
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets Held
for Investment Purposes and Reportable Transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The fund information in the
statement of net assets available for benefits and the statement of changes in
net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits and
changes in net assets available for plan benefits of each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Louisville, Kentucky
June 9, 1997
<PAGE>
(This page intended to be blank)
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Net Assets Available for Benefits With Fund Information
December 31, 1996
<CAPTION>
Non-Participant
Directed Participant Directed
Employer Employer Money Growth
Assets Stock Stock Market Bond Managed Value
------ ----- ----- ------ ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value:
Trans Financial, Inc.
Common Stock $ 4,419,400 4,168,570 - - - -
Mutual funds - - - 287,895 944,448 1,915,780
Pooled separate accounts - - - - - -
General account - - - - - -
Cash equivalents 103,249 69,452 436,680 7 105,704 99
---------- ----------- ---------- ----------- ----------- -----------
4,522,649 4,238,022 436,680 287,902 1,050,152 1,915,879
Accrued investment income 234 158 1,873 1,519 2,970 58
Payable to employer (43,666) - - - - -
Interfund receivable (payable) - 21,953 (4,128) 273 (36,574) 12,063
Other assets - - - - - -
---------- ----------- ---------- ----------- ----------- ----------
Net assets available for
benefits $ 4,479,217 4,260,133 434,425 289,694 1,016,548 1,928,000
========== =========== ========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Net Assets Available for Benefits With Fund Information
(Continued)
December 31, 1996
<CAPTION>
Participant Directed
Aggressive
Growth I Clearing Aetna Total
<S> <C> <C> <C> <C>
Investments, at fair value:
Trans Financial, Inc.
Common stock .............. -- -- -- 8,587,970
Mutual funds .............. 1,574,418 -- -- 4,722,541
Pooled separate funds ..... -- -- 526,037 526,037
General account ........... -- -- 1,009,141 1,009,141
Cash equivalents .......... 74 102,128 -- 817,393
---------- --------- ---------- -----------
1,574,492 102,128 1,535,178 15,663,082
Accrued investment income . 84 528 -- 7,424
Payable to employer ....... -- -- -- (43,666)
Interfund receivable(payable) 3,439 2,974 -- --
Other assets .............. -- 2,035 -- 2,035
--------- --------- ---------- -----------
Net assets
available for benefits............ 1,578,015 107,665 1,535,178 15,628,875
========= ========= ========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Net Assets Available for Benefits With Fund Information
December 31, 1995
<CAPTION>
Non-Participant
Directed Participant Directed
Employer Employer Income
Assets Stock Stock Income Growth Balanced Growth
------ ----- ----- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value:
Trans Financial, Inc.
Common Stock $ 3,103,777 3,361,325 - - - -
Mutual funds - - 47,385 219,867 1,268,127 785,552
Pooled separate accounts - - - - - -
General account - - - - - -
Cash equivalents 1,699 1,841 1,040 45,026 48,596 133,540
---------- ----------- ---------- ----------- ----------- ---------
3,105,476 3,363,166 48,425 264,893 1,316,723 919,092
Accrued investment income 63 69 249 2,596 14,919 12,383
Contribution receivable from
employees - 26,544 434 1,947 17,610 17,823
Contribution receivable from
employer 22,971 - - - - -
Interfund receivable (payable) - - - - - 39,913
Other assets - - - - - -
---------- ----------- ---------- ----------- ----------- --------
Net assets available for
benefits $ 3,128,510 3,389,779 49,108 269,436 1,349,252 989,211
========== =========== ========== =========== =========== =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Net Assets Available for Benefits With Fund Information
(Continued)
December 31, 1995
<CAPTION>
Participant Directed
Aggressive
Growth II Clearing Aetna Total
<S> <C> <C> <C> <C>
Investments, at fair value:
Trans Financial, Inc.
Common Stock ............. -- -- -- 6,465,102
Mutual funds .............. 645,391 -- -- 2,966,322
Pooled separate accounts ... -- -- 667,202 667,202
General account ............ -- -- 1,462,687 1,462,687
Cash equivalents ........... 116,440 52,017 -- 400,199
------- ---------- ---------- ----------
761,831 52,017 2,129,889 11,961,512
Accrued investment income .... 9,785 234 -- 40,298
Contribution receivable from
employees ................... 18,961 -- -- 83,319
Contribution receivable from
employer .................... -- -- -- 22,971
Interfund receivable (payable) -- (39,913) --
Other assets .................. -- 2,834 -- 2,834
------- ---------- -------- ----------
Net assets available for
benefits .................... 790,577 15,172 2,129,889 12,110,934
======= ========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Changes in Net Assets Available for Benefits With Fund Information
Year ended December 31, 1996
<CAPTION>
Non-Participant
Directed Participant Directed
Employer Employer Income
Stock Stock Income Growth Balanced Growth
<S> <C> <C> <C> <C> <C> <C>
Additions:
Dividends of Trans
Financial, Inc.
Common Stock ....... 121,711 114,804 -- -- -- --
Interest and other
dividends .......... 2,735 1,839 258 1,098 4,314 1,892
Net realized and
unrealized
appreciation
(depreciation)
in fair value ...... 993,474 916,581 192 1,485 19,815 15,837
Net gain from pooled
separate accounts .. -- -- -- -- -- --
Contributions from
employer ........... 717,615 -- -- -- -- --
Contributions from
employees .......... -- 474,826 -- -- -- --
---------- ---------- --------- -------- ---------- --------
1,835,535 1,508,050 450 2,583 24,129 17,729
Deductions:
Benefits paid to
participants ....... 484,828 666,003 -- -- 337 404
--------- --------- -------- -------- ---------- ----------
Net increase
(decrease) prior to
interfund transfers 1,350,707 842,047 450 2,583 23,792 17,325
Interfund transfers -- 28,307 (49,558) (272,019) (1,373,044) (1,006,536)
---------- --------- --------- -------- ---------- ----------
Net increase
(decrease) ......... 1,350,707 870,354 (49,108) (269,436) (1,349,252) (989,211)
Net assets available
for benefits
at beginning of year 3,128,510 3,389,779 49,108 269,436 1,349,252 989,211
---------- ---------- -------- -------- ---------- --------
Net assets available
for benefits
at end of year ..... 4,479,217 4,260,133 -- -- -- --
========= ========= ========= ======== ========== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Changes in Net Assets Available for Benefits With Fund Information
(Continued)
Year ended December 31, 1996
<CAPTION>
Participant Directed
Aggressive Money Growth Aggressive
Growth II Market Bond Managed Value Growth I Clearing Aetna Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions:
Dividends of Trans
Financial, Inc. ....
Common Stock ....... -- -- -- -- -- -- -- -- 236,515
Interest and other
dividends .......... 1,061 14,844 14,053 29,430 675 584 22,677 66,760 162,220
Net realized and
unrealized
appreciation
(depreciation)
in fair value ...... 15,730 12 (2,648) 54,713 200,194 240,598 -- -- 2,455,983
Net gain from pooled
separate accounts. -- -- -- -- -- -- -- 88,521 88,521
Contributions from
employer ........... -- -- -- -- -- -- -- -- 717,615
Contributions from
employees .......... -- 40,991 64,297 185,748 440,841 417,181 -- -- 1,623,884
---------- ---------- -------- ---------- ---------- --------- ------- ---------- ----------
16,791 55,847 75,702 269,891 641,710 658,363 22,677 155,281 5,284,738
Deductions:
Benefits paid to
participants ....... 25 71,565 14,679 55,593 93,720 129,588 123,233 126,822 1,766,797
---------- ---------- -------- ---------- ---------- -------- -------- ---------- ----------
Net increase
(decrease) prior to
interfund transfers 16,766 (15,718) 61,023 214,298 547,990 528,775 (100,556) 28,459 3,517,941
Interfund transfers (807,343) 450,143 228,671 802,250 1,380,010 1,049,240 193,049 (623,170) --
---------- ---------- -------- ---------- ---------- --------- -------- ---------- ----------
Net increase
(decrease) ......... (790,577) 434,425 289,694 1,016,548 1,928,000 1,578,015 92,493 (594,711) 3,517,941
Net assets available
for benefits
at beginning of year 790,577 -- -- -- -- -- 15,172 2,129,889 12,110,934
---------- ---------- -------- ---------- ---------- --------- -------- ---------- ----------
Net assets available
for benefits
at end of year ..... -- 434,425 289,694 1,016,548 1,928,000 1,578,015 107,665 1,535,178 15,628,875
========== ========== ======== ========== ========== ========= ======== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Changes in Net Assets Available for Benefits With Fund Information
Year ended December 31, 1995
<CAPTION>
Non-Participant
Directed Participant Directed
Employer Employer Income
Stock Stock Income Growth Balanced Growth
Additions:
<S> <C> <C> <C> <C> <C> <C>
Dividends of Trans
Financial, Inc.
Common Stock ........................................ 93,803 101,585 -- -- -- --
Interest and other
dividends ........................................... 3,087 3,345 3,067 12,162 72,590 41,156
Net realized and
unrealized appreciation
(depreciation) in fair
value ............................................... 686,548 743,518 2,504 23,872 145,257 110,863
Net gain from pooled
separate accounts ................................... -- -- -- -- -- --
Contributions from
employer ............................................ 666,730 -- -- -- -- --
Contributions from
employees ........................................... -- 703,028 6,604 32,634 247,218 281,636
---------- ---------- ---------- ---------- --------- ---------
1,450,168 1,551,476 12,175 68,668 465,065 433,655
Deductions:
Benefits paid to participants .......................... 151,661 349,091 825 5,391 100,394 72,091
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease) prior to
interfund transfers ...................................... 1,298,507 1,202,385 11,350 63,277 364,671 361,564
Interfund transfers ......................................... -- (37,344) (6,100) 24,032 9,761 11,804
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease) ..................................... 1,298,507 1,165,041 5,250 87,309 374,432 373,368
Net assets available for benefits
at beginning of year ..................................... 1,830,003 2,224,738 43,858 182,127 974,820 615,843
---------- ---------- ---------- ---------- --------- ---------
Net assets available for benefits
at end of year ........................................... 3,128,510 3,389,779 49,108 269,436 1,349,252 989,211
========== ========== ========== ========== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Statement of Changes in Net Assets Available for Benefits With Fund Information
Year ended December 31, 1995
<CAPTION>
Participant Directed
Aggressive
Growth II Clearing Aetna Total
<S> <C> <C> <C> <C>
Additions:
Dividends of Trans
Financial, Inc.
Common Stock ........................................ -- -- -- 195,388
Interest and other
dividends ........................................... 32,285 2,550 84,218 254,460
Net realized and
unrealized appreciation
(depreciation) in fair
value .................................................. 90,826 -- -- 1,803,388
Net gain from pooled
separate accounts ...................................... -- -- 131,256 131,256
Contributions from
employer ............................................... -- -- -- 666,730
Contributions from
employees ............................................. 297,542 -- -- 1,568,662
---------- ------- --------- ---------
420,653 2,550 215,474 4,619,884
Deductions:
Benefits paid to participants .......................... 43,140 15,283 48,377 786,253
---------- ---------- --------- ---------
Net increase(decrease)
prior to interfund
transfers ................................................... 377,513 (12,733) 167,097 3,833,631
Interfund transfers ......................................... (1,096) (1,057) -- --
---------- ---------- --------- ---------
Net increase (decrease) ..................................... 376,417 (13,790) 167,097 3,833,631
Net assets available for
benefits at beginning
of year ..................................................... 414,160 28,962 1,962,792 8,277,303
-------- ---------- --------- ---------
Net assets available for
benefits at end of year ..................................... 790,577 15,172 2,129,889 12,110,934
======== ========== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
Years Ended December 31, 1996 and 1995
1. Description of the Plan
a. General
The Trans Financial, Inc. Savings Investment Plan (Plan) is a
contributory defined contribution plan which covers substantially
all employees of Trans Financial, Inc. (the Company) and its
subsidiaries whose compensation is not determined by collective
bargaining.
The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
The Company has the right under the Plan to discontinue all
contributions at any time and terminate the Plan. In the event
that the Plan is terminated, the net assets of the Plan will be
distributed to participants in the amounts of the participants'
account balances valued as of the termination date.
b. Contributions
The Plan is funded through employee contributions. During 1995,
participants could elect to contribute from 1% to 10% of their
compensation up to a maximum, as prescribed by the Internal
Revenue Code, for any calendar year. The maximum contribution
percentage was increased to 15% effective January 1, 1996. During
1995, participants could elect to invest in any of six available
options in increments of 25%. Effective January 1, 1996, the
investment options in mutual funds were changed to the Trans
Adviser mutual funds. Participants may elect to invest in any of
the five Trans Adviser funds in increments of 10%. Contributions
made by participants are intended to qualify as cash or deferred
arrangements under Section 401(k) of the Internal Revenue Code.
The Company matches employee contributions up to 4% of the employee's
salary. Employer contributions are invested, to the extent possible,
in the Stock Fund.
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
1. Description of the Plan - Continued
c. Participant Accounts
Eachparticipant's account is credited with employee contributions and
employer contributions and an allocation of plan earnings and
forfeitures of terminated participants' nonvested accounts.
Allocations are based on participant earnings or account balances,
as defined. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested
account.
d. Vesting and Benefit Payments
All participants are fully vested in employee contributions and
related earnings. Employees have a vested interest in the employer
matching contribution and related earnings in accordance with the
following schedule:
Years Vested
of service percentage
---------- ----------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
Upontermination of service, a participant may elect to receive the
value of his or her account in a lump-sum distribution or periodic
payments over a period not to exceed the life expectancy of the
participant or his or her beneficiary.
The foregoing description of the Plan provides only general
information. Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions. Copies are
available from the Company.
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
2. Summary of Significant Accounting Policies
a. Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method of accounting. Certain prior year accounts have been
reclassified to conform with 1996 classifications.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c. Investment Valuation and Income Recognition
The Plan's investments are stated at fair value using quoted market
prices and other data.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend.
d. Payments of Benefits
Benefits are recorded when paid.
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
3. Investments
The fair value of individual investments at December 31, 1996 and 1995
are summarized as follows:
December 31
----------------------
1996 1995
---- ----
Investments at fair value as determined by quoted market price:
Trans Financial, Inc. Common Stock $ 8,587,970 (A) 6,465,102 (A)
Trans Adviser Money Market ....... 817,393 (A) --
Trans Adviser Intermediate Bond .. 761,809 --
Trans Adviser Growth Value ....... 2,386,314 (A) --
Trans Adviser Aggressive Growth .. 1,574,418 (A) --
Federated High Yield ............. -- 264,107
Fidelity Investment Grade Bond ... -- 284,619
Fidelity Equity Growth ........... -- 510,875
Fidelity Growth & Income ......... -- 293,029
Fidelity Blue Chip Growth ........ -- 420,524
Federated GNMA ................... -- 128,673
Fidelity Overseas ................ -- 114,781
U.S. Govt. Sec. Fund 1-3 yrs ..... -- 226,513
U.S. Govt. Sec. Fund 2-5 yrs ..... -- 271,825
Fidelity Cap. Trust Capital
Appreciation .................. -- 451,376
Aetna Fixed Account .............. 1,009,141 (A) 1,462,687 (A)
Aetna Variable Fund .............. 305,033 357,990
Aetna Variable Encore Fund ....... 17,584 24,218
Aetna Income Shares Fund ......... 43,245 67,786
Aetna Investments Advisers Fund .. 155,709 196,806
TCI Growth Fund .................. 4,466 20,402
Cash equivalents ................. -- 400,199
----------- -------------
$15,663,082 11,961,512
=========== =============
(A) This investment individually represents 5% or more of net assets at
year-end.
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
4. Pooled and General Accounts
The pooled separate accounts maintained with Aetna Life Insurance and
Annuity Company (Aetna) are valued at net asset value per share as
determined by each fund. Net appreciation of the fair value of each
account is reflected in the net asset value per share and included in
investment income in the statements of changes in net assets available
for benefits. The fixed account is a guaranteed interest account and is
part of Aetna's general account. This account is stated at fair value.
These accounts are maintained separately from other existing plan assets.
Participants may make election changes among these accounts, but are not
permitted to make any contributions to these accounts or transfers from
these accounts to other plan assets. However, the trustee has the
authority to transfer plan assets, in an amount determined at the
trustee's discretion, from these accounts to other plan assets. Any
amount transferred is then allocated to other plan assets based upon
participant elections. During 1996 and 1995, the trustee transferred
$623,170 and $0, respectively, from these accounts to other plan assets.
The fund information for the pooled and general accounts maintained b
Aetna as of and for the years ended December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
Participant Directed
Variable Income Investment TCI
Fixed Variable Encore Shares Advisors Growth Total
December 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Pooled separate
account ............................. $ -- 305,033 17,584 43,245 155,709 4,466 526,037
General account ..................... 1,009,141 -- -- -- -- -- 1,009,141
---------- ------- ------- ------- --------- --------- ---------
$1,009,141 305,033 17,584 43,245 155,709 4,466 1,535,178
========== ======= ======= ======= ========= ========= =========
Units ............................... -- 10,807 1,270 2,424 7,901 365
December 31, 1995
Pooled separate
account .......................... $ -- 357,990 24,218 67,786 196,806 20,402 667,202
General account ..................... 1,462,687 -- -- -- -- -- 1,462,687
---------- ------- ------- ------- --------- --------- ---------
$1,462,687 357,990 24,218 67,786 196,806 20,402 2,129,889
========== ======= ======= ======= ========= ========= =========
Units ............................... -- 15,518 1,812 3,870 11,306 1,568
</TABLE>
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
4. Pooled and General Accounts - Continued
<TABLE>
<CAPTION>
Participant Directed
Variable Income Investment TCI
Fixed Variable Encore Shares Advisors Growth Total
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1996
Net gain from pooled
separate accounts $ -- 65,332 715 247 21,810 417 88,521
Interest on general
account ........... 66,760 -- -- -- -- -- 66,760
Benefits paid to
participants ...... (98,071) (7,994) -- (5,909) (692) (14,156) (126,822)
Interfund transfers .. (422,235) (110,295) (7,349) (18,879) (62,215) (2,197) (623,170)
Net assets at
beginning of year . 1,462,687 357,990 24,218 67,786 196,806 20,402 2,129,889
----------- -------- ------- ------- -------- ------- ----------
Net assets at end
of year ........... $ 1,009,141 305,033 17,584 43,245 155,709 4,466 1,535,178
=========== ======== ======= ======= ======== ======= ==========
Year ended
December 31, 1995
Net gain from pooled
separate accounts $ -- 83,393 872 9,074 38,449 (532) 131,256
Interest on general
account ........... 84,218 -- -- -- -- -- 84,218
Benefits paid to
participants ...... (42,383) (2,333) -- -- (3,661) -- (48,377)
Interfund transfers .. (31,330) (6,126) 3,448 3,448 9,626 20,934 --
Net assets at
beginning of year . 1,452,182 283,056 19,898 55,264 152,392 -- 1,962,792
----------- -------- ------- ------- -------- ------- ----------
Net assets at end
of year ........... $ 1,462,687 357,990 24,218 67,786 196,806 20,402 2,129,889
=========== ======== ======= ======= ======== ======= ==========
</TABLE>
<PAGE>
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
5. Income Tax Status
The Internal Revenue Service has determined and informed the Company by a
letter dated November 30, 1995, that the Plan and related trust are
designed in accordance with applicable sections of the Internal Revenue
Code (IRC). The Plan has been amended since receiving the determination
letter. However, the Plan administrator and the Plan's tax counsel
believe that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the IRC.
6. Reconciliation of Financial Statements to Form 5500
The Department of Labor requires that amounts allocated to accounts of
persons who have elected to withdraw from the plan but have not yet been
paid be reported as a liability on Form 5500. Under generally accepted
accounting principles, these amounts are not accrued as a liability and
are not included in distributions paid.
The following is a reconciliation of net assets available for benefits per
the financial statements to the Form 5500:
December 31,
1996 1995
Net assets available for benefits per the financial
statements ..................................... $ 15,628,875 12,110,934
Amounts allocated to
withdrawing participants ...................... (373,448) (425,876)
------------ -----------
Net assets available for benefits
per the Form 5500 .............................. $ 15,255,427 11,685,058
============ ===========
The following is a reconciliation of benefits
paid to participants per the
financial statements to the Form 5500:
Year ended
December 31, 1996
Benefits paid to participants per
the financial statements ................................ $ 1,766,797
Add: Amounts allocated to
withdrawing participants
at December 31, 1996 .......................... ... 373,448
Less: Amounts allocated to
withdrawing participants
at December 31, 1995 ................................ 425,876
---------
Benefits paid to participants per the Form 5500 ...... $ 1,714,369
=========
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Notes to the Financial Statements
7. Related Party Transactions
Plan investments include shares of the Company's stock. The Company's trust
department is the trustee as defined by the Plan and therefore, this
transaction qualifies as party-in-interest. Also, administrative
services and related expenses were provided at no charge by the Company.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 27a - Schedule of Assets Held for Investment Purposes
Employer Identification Number: 61-0156617
Plan Year Ending: December 31, 1996
Plan Number: 001
Schedule A
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
Number of Current
shares or units Cost value
Trans Financial, Inc. - Common Stock 373,390 $ 5,094,912 $ 8,587,970
Trans Adviser Money Market Fund .... 817,393 817,393 817,393
Trans Adviser Intermediate Bond Fund 76,795 770,717 761,809
Trans Adviser Growth Value Fund .... 188,492 2,139,888 2,386,314
Trans Adviser Aggressive Growth Fund 127,794 1,342,394 1,574,418
Aetna Fixed Account ................ -- 1,009,141 1,009,141
Aetna Variable Fund ................ 10,807 185,883 305,033
Aetna Variable Encore Fund ......... 1,270 16,892 17,584
Aetna Income Shares Fund ........... 2,424 34,520 43,245
Aetna Investments Advisers Fund .... 7,901 108,399 155,709
TCI Growth Fund .................... 365 4,876 4,466
----------- -----------
$11,525,015 $15,663,082
=========== ===========
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 27d - Schedule of Reportable Transactions
Employer Identification Number: 61-0156617
Plan Year Ending: December 31, 1996
Plan Number: 001
Schedule D
TRANS FINANCIAL, INC.
SAVINGS INVESTMENT PLAN
The following single transactions within the plan year were in excess of 5% of
the fair value of plan assets as of the beginning of the year.
Description Purchase Selling Cost of Current Net Gain
of Asset Price Price Asset Value or (Loss)
Trans Adviser Money
Market Fund ........... $2,890,592 -- 2,890,592 2,890,592 --
Trans Adviser Money Market
Market Fund ........... 623,175 -- 623,175 623,175 --
Trans Adviser Money Market
Market Fund ........... -- 2,333,648 2,333,648 2,333,648 --
Trans Adviser Money Market
Market Fund ........... -- 618,319 618,319 618,319 --
The following series of transactions within the plan year were in excess of 5%
of the fair value of plan assets as of the beginning of the year.
<TABLE>
<CAPTION>
Description Number of Purchase Selling Current Net Gain
of Asset Transactions Price Price Cost of Asset Value or (Loss)
<S> <C> <C> <C> <C> <C> <C>
Trans Financial, Inc. 19 $ 999,671 - 999,671 999,671 -
Common Stock 4 - 189,438 149,377 189,438 40,061
Trans Adviser Money 405 11,111,570 - 11,111,570 11,111,570 -
Market Fund 246 - 10,208,747 10,208,747 10,208,747 -
Trans Adviser Inter- 40 827,254 - 827,254 827,254 -
mediate Bond Fund 18 - 107,346 98,727 107,346 8,619
Trans Adviser Growth 33 2,226,550 - 2,226,550 2,226,550 -
Value Fund 10 - 44,646 44,471 44,646 175
Trans Adviser Aggressive 19 1,393,958 - 1,393,958 1,393,958 -
Growth Fund 4 - 56,892 51,564 56,892 5,328
Federated Government 16 110,102 - 110,102 110,102 -
Trust Fund #125 7 - 590,966 590,966 590,966 -
</TABLE>
