UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the quarter ended September 30, 1997 Commission File Number 0-13030
------------------ --------
TRANS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1048868
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 East Main Street, Bowling Green, Kentucky 42101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)793-7717
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
The number of shares outstanding of the issuer's class of common stock
on November 14, 1997: 11,454,315 shares.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
Consolidated Balance Sheets
(Unaudited)
In thousands, except share data
<CAPTION>
September 30 December 31 September 30
1997 1996 1996
Assets
<S> <C> <C> <C>
Cash and due from banks ................... $ 72,419 $ 75,054 $ 75,506
Interest-bearing deposits with banks ...... 99 98 98
Mortgage loans held for sale .............. 103,229 67,999 46,853
Securities available for sale (amortized
cost of $248,283; $285,264, and $290,274
respectively) .......................... 248,593 285,155 288,538
Loans, net of unearned income ............. 1,490,510 1,450,999 1,407,464
Less allowance for loan losses ............ 21,839 18,065 17,166
----------- ----------- -----------
Net loans .............................. 1,468,671 1,432,934 1,390,298
Premises and equipment, net ............... 36,307 37,377 36,799
Mortgage servicing rights ................. 44,196 41,866 41,347
Other assets .............................. 58,632 63,469 47,436
=========== =========== ===========
Total assets ........................... $ 2,032,146 $ 2,003,952 $ 1,926,875
=========== =========== ===========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing ................... $ 241,458 $ 231,717 $ 226,031
Interest bearing ....................... 1,321,876 1,347,500 1,292,952
----------- ----------- -----------
Total deposits ......................... 1,563,334 1,579,217 1,518,983
Federal funds purchased and
repurchase agreements .................. 46,476 71,879 62,621
Other short-term borrowings ............... 105,000 55,000 55,000
Long-term debt ............................ 140,460 140,903 141,053
Other liabilities ......................... 32,067 25,637 23,174
----------- ----------- -----------
Total liabilities ...................... 1,887,337 1,872,636 1,800,831
Shareholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; issued and
outstanding 11,446,677; 11,372,532;
and 11,318,770 shares, respectively . 21,463 21,324 21,222
Additional paid-in capital ............. 45,716 44,745 44,209
Retained earnings ...................... 79,514 67,790 64,293
Unrealized net gain (loss) on
securities available for sale,
net of tax .......................... 130 (92) (1,129)
Employee Stock Ownership Plan shares
purchased with debt ................. (2,014) (2,451) (2,551)
----------- ----------- -----------
Total shareholders' equity ............. 144,809 131,316 126,044
----------- ----------- -----------
Total liabilities
and shareholders' equity ............. $ 2,032,146 $ 2,003,952 $ 1,926,875
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
(Unaudited)
In thousands, except per share data
For the periods ended September 30
<CAPTION>
Three Months Nine Months
1997 1996 1997 1996
Interest income
<S> <C> <C> <C> <C>
Loans, including fees ............... $ 35,289 $32,761 $ 103,234 $ 93,667
Securities available for sale ....... 3,681 4,176 11,098 12,346
Mortgage loans held for sale ........ 1,910 954 4,707 2,863
Other ............................... 4 5 8 64
--------- -------- --------- --------
Total interest income ............... 40,884 37,896 119,047 108,940
Interest expense
Deposits ............................ 16,275 15,148 47,815 44,159
Federal funds purchased
and repurchase agreements ......... 969 364 2,259 1,384
Short-term debt ..................... 908 754 2,591 2,419
Long-term debt ...................... 2,389 2,360 7,025 5,889
--------- -------- --------- -------
Total interest expense .............. 20,541 18,626 59,690 53,851
--------- -------- --------- --------
Net interest income ................... 20,343 19,270 59,357 55,089
Provision for loan losses ........... 2,650 1,621 7,500 11,263
--------- -------- --------- -------
Net interest income after
provision for loan losses ........... 17,693 17,649 51,857 43,826
Non-interest income
Service charges on deposit accounts . 2,576 2,435 7,653 7,090
Mortgage banking income ............. 2,918 2,626 8,287 7,610
Gains (losses) on sales of securities
available for sale, net ........... (489) 26 (356) 20
Gain on sale of mortgage servicing .. 889 -- 889 --
Trust services ...................... 701 508 1,939 1,410
Brokerage income .................... 880 455 2,298 1,783
Other ............................... 1,555 1,344 5,414 4,020
--------- -------- --------- -------
Total non-interest income .......... 9,030 7,394 26,124 21,933
Non-interest expenses
Compensation and benefits ........... 8,779 9,034 25,964 29,177
Net occupancy expense ............... 1,189 1,119 3,495 4,057
Furniture and equipment expense ..... 1,808 1,509 4,989 5,348
Deposit insurance ................... 102 2,941 311 3,452
Professional fees ................... 570 576 1,948 2,492
Postage, printing & supplies ........ 845 970 2,692 3,100
Communications ...................... 716 689 2,086 1,873
Other ............................... 3,458 3,634 10,177 13,857
--------- -------- --------- -------
Total non-interest expenses ......... 17,467 20,472 51,662 63,356
--------- -------- --------- -------
Income before income taxes ............ 9,256 4,571 26,319 2,403
Income tax expense .................... 3,113 1,557 8,766 836
--------- -------- --------- -------
Net income ............................ $ 6,143 $ 3,014 $ 17,553 $ 1,567
========= ======== ========= ========
Primary earnings per share ............ $ 0.52 $ 0.26 $ 1.50 $ 0.14
========= ======== ========= ========
Fully-diluted earnings per share ...... $ 0.52 $ 0.26 $ 1.49 $ 0.14
========= ======== ========= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
In thousands
For the nine months ended September 30
1997 1996
Balance January 1 $131,316 $129,767
Net income .................................. 17,553 1,567
Issuance of common stock .................... 1,109 384
Cash dividends declared on common stock ..... (5,828) (5,426)
Change in unrealized gain (loss) on
securities available for sale, net of taxes 222 (726)
ESOP debt reduction ......................... 437 478
========= =========
Balance at end of period ...................... $ 144,809 $ 126,044
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(Unaudited)
In thousands
For the nine months ended September 30
<CAPTION>
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income ....................................................... $ 17,553 $ 1,567
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses .................................... 7,500 11,263
Deferred tax expense ......................................... (472) (281)
Loss (gain) on sale of securities available for sale ......... 356 (20)
Gain on sale of mortgage loans held for sale ................. (3,106) (1,797)
Writedown of premises and equipment .......................... -- 593
Gain on sale of premises and equipment ....................... (7) (105)
Gain on sale of Tennessee offices ............................ (1,241) --
Gain on sale of mortgage servicing rights .................... (889) --
Depreciation and amortization of fixed assets ................ 4,557 4,702
Amortization of intangible assets ............................ 970 687
Amortization of premium on securities and loans, net ......... 585 797
Amortization of mortgage servicing rights .................... 4,539 3,834
Increase in accrued interest receivable .......................... (444) (844)
Decrease in other assets ......................................... 5,295 11,918
Increase in accrued interest payable ............................. 3,534 326
Increase in other liabilities .................................... 2,650 6,445
Sale of mortgage loans held for sale ............................. 688,369 266,242
Originations of mortgage loans held for sale ..................... (720,493) (265,547)
--------- ---------
Net cash provided by operating activities ...................... 9,256 39,780
Cash flows from investing activities:
Net decrease(increase) in interest-bearing deposits with banks ... (1) 99
Proceeds from sale of securities available for sale .............. 25,722 8,898
Proceeds from prepayment and call of securities available for sale 11,360 35,520
Proceeds from maturities of securities available for sale ........ 76,295 45,377
Purchase of securities available for sale ........................ (77,295) (81,964)
Net increase in loans ............................................ (44,921) (159,135)
Net cash outflow from sale of Tennessee offices .................. (13,789) --
Proceeds from sale of mortgage servicing rights .................. 4,951 --
Purchase and origination of mortgage servicing rights ............ (10,931) (14,330)
Proceeds from sale of foreclosed assets .......................... 963 1,326
Purchases of premises and equipment .............................. (4,588) (6,684)
Proceeds from disposal of premises and equipment ................. 349 3,519
--------- ---------
Net cash used in investing activities .......................... (31,885) (167,374)
Cash flows from financing activities:
Net increase in deposits ......................................... 122 74,500
Net decrease in federal funds purchased
and repurchase agreements ...................................... (25,403) (12,973)
Net increase in other short-term borrowings ...................... 50,000 9,986
Proceeds from issuance of long-term debt ......................... -- 55,000
Repayment of long-term debt ...................................... (6) (74)
Proceeds from issuance of common stock ........................... 1,109 384
Dividends paid ................................................... (5,828) (5,426)
--------- ---------
Net cash provided by financing activities ..................... 19,994 121,397
--------- ---------
Net decrease in cash and cash equivalents ........................ (2,635) (6,197)
Cash and cash equivalents at beginning of year ................... 75,054 81,703
--------- ---------
Cash and cash equivalents at end of period ....................... $ 72,419 $ 75,506
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Trans Financial, Inc. and its
subsidiaries (the "company") conform to generally accepted accounting principles
and general practices within the banking industry. The consolidated financial
statements include the accounts of Trans Financial, Inc. and its wholly-owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. A description of other significant accounting
policies is presented in the 1996 annual report on Form 10-K.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
reflected in the accompanying unaudited financial statements. Results of interim
periods are not necessarily indicative of results to be expected for the full
year.
(2) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses follows:
<TABLE>
In thousands
For the periods ended September 30
<CAPTION>
Three Months Nine Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Balance beginning of period ................ $ 21,016 $ 16,344 $ 18,065 $ 15,779
Provision for loan losses ................ 2,650 1,621 7,500 11,263
Loans charged off ........................ (2,098) (961) (4,371) (10,480)
Recoveries of loans previously charged off 271 162 645 604
------- -------- -------- --------
Net charge-offs .......................... (1,827) (799) (3,726) (9,876)
------- -------- -------- --------
Balance at end of period ................... $ 21,839 $ 17,166 $ 21,839 $ 17,166
======== ======== ======== ========
</TABLE>
(3) Impaired Loans
The company's recorded investment in loans considered impaired in
accordance with Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan ("SFAS 114"), was $18,684,000 at September
30, 1997. Of that amount, $16,234,000 represents loans for which an allowance
for loan losses, in the amount of $3,390,000 has been established under SFAS
114. Impaired loans totaled $6,663,000 at September 30, 1996, including
$3,226,000 of loans for which an allowance was established totaling $1,404,000.
The average recorded investment of impaired loans was $11,689,000 and
$6,580,000 for the three months ended September 30, 1997 and 1996, respectively,
and $6,867,000 and $9,608,000 for the nine months ended September 30, 1997 and
1996, respectively. Interest income recognized on impaired loans totaled
$469,000 for the three months ended September 30, 1997, and $512,000 for the
nine-month period ended September 30, 1997. For the comparable periods in 1996,
interest income on impaired loans totaled $32,000 and $84,000, respectively.
(4) New Accounting and Disclosure Standards
Earnings per Share
During the first quarter of 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"), which established new standards for the calculation and
presentation of earnings per share ("EPS") in financial statements. SFAS 128,
which will become effective in the fourth quarter of 1997 and may not be adopted
earlier, replaces primary EPS with basic EPS, and fully-diluted EPS with diluted
EPS. Basic EPS for the company will be slightly higher than primary EPS because
common stock equivalents will not be considered in basic EPS; diluted EPS for
the company will be essentially the same as fully-diluted EPS. When adopted in
the fourth quarter of 1997, all prior periods will be restated to conform to the
SFAS 128 presentation.
Under SFAS 128, basic earnings per share would have been $0.54 and $0.27
for the quarters ended September 30, 1997 and 1996, respectively. Diluted
earnings per share would have been $0.52 and $0.26, respectively, for those same
periods. For the nine months ended September 30, 1997 and 1996, basic earnings
per share would have been $1.54 and $0.14, respectively, and diluted earnings
per share would have been $1.49 and $0.14, respectively.
Derivatives and Certain Other Financial Instruments
Also during the first quarter of 1997, the Securities and Exchange
Commission in Release #33-7386 clarified and expanded existing disclosure
requirements for derivatives and other financial instruments sensitive to market
risk. This release mandates additional detail regarding accounting policies
followed with respect to derivatives, and expanded qualitative and quantitative
information regarding the market risk inherent in derivatives and other
financial instruments.
The company will provide the market risk information in its Annual Report
on Form 10-K for the year ended December 31, 1997. Accounting policies with
respect to derivatives are as follows:
The company uses interest rate contracts (swaps and floors) to manage
its sensitivity to interest rate risk. These off-balance-sheet transactions
are employed to hedge the inherent interest rate risk of specific
on-balance-sheet assets or liabilities, rather than for speculative trading
activity. These instruments are designated as hedges on the trade date and
would not be entered into unless highly correlated with the financial
instruments being hedged. Generally, a high correlation exists when the
contract and the hedged instrument have the same maturity and similar rate
characteristics. Interest income and expense for each contract is accrued
over the term of the agreement as an adjustment to the yield of the related
asset or liability. Similarly, transaction fees are deferred and amortized
through interest income and expense over the lives of the agreements. The
fair market value of these instruments is not included in the financial
statements.
Interest rate floor contracts are currently being utilized by the
company to mitigate the market risk of the mortgage servicing rights
portfolio due to prepayments associated with a decline in interest rates.
Under these contracts the company would receive interest on the notional
amount to the extent that a specified market rate for U.S. Treasury
securities falls below the designated "floor" rate. The cost of these
contracts is included in other assets in the consolidated balance sheet and
is amortized against mortgage banking income on a straight-line basis over
the lives of the contracts.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Trans Financial, Inc. ("the company") is a bank holding company registered
under the Bank Holding Company Act of 1956. The company has two commercial bank
subsidiaries--Trans Financial Bank, National Association ("TFB-KY"), consisting
of all of the company's banking activities in Kentucky, and Trans Financial Bank
Tennessee, National Association ("TFB-TN"), consisting of all
of the company's Tennessee banking activity. (On July 26, 1997, the company's
former thrift subsidiary--Trans Financial Bank, F.S.B.--was merged into TFB-KY,
and its Tennessee operations were sold to TFB-TN. These transactions
consolidated the company's banking operations into its current two national bank
charters.)
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.
During April 1997, the company sold substantially all of the deposits,
premises and equipment, and certain other assets of its Lebanon and Sparta,
Tennessee offices. These two offices represented $17 million of the company's
total deposits as of March 31, 1997.
On August 29, 1997, the Trans Adviser family of mutual funds ("the Funds")
was transferred to the Countrywide Family of Funds. TFB-KY had acted
as investment adviser to the Funds, which had total assets of $159 million as of
June 30, 1997; however, as a result of this transfer, TFB-KY will no longer ac
as investment adviser to the Funds. The transfer did not have a significant
impact on the company's financial condition or results of operations.
The discussion that follows is intended to provide additional insight into
the company's financial condition and results of operations. This discussion
should be read in conjunction with the consolidated financial statements and
accompanying notes presented in Item 1 of Part I of this report.
Results of Operations
Overview
For the three months ended September 30, 1997, the company earned $6.1
million, or $0.52 per share, compared to $3.0 million, or $0.26 per share, for
the third quarter of 1996. The 1996 quarter was negatively impacted by a pre-tax
charge of $2.7 million related to an assessment for the recapitalization of the
Savings Association Insurance Fund ("SAIF"). Results for the third quarter of
1997 produced an annualized return on average assets of 1.22% and a return on
average shareholders' equity of 17.09%, compared with 0.64% and 9.52%,
respectively, for the third quarter of 1996.
For the first nine months of 1997, the company recorded net income of $17.6
million, or $1.50 per share, compared to $1.6 million, or $0.14 per share, in
the same period of 1996. In addition to the SAIF assessment, the first nine
months of 1996 reflects 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. The company
also recorded an $8.4 million provision for loan losses in the second quarter of
1996, after taking partial charge-offs totaling $7.0 million on three
non-performing loans. Return on average assets for the first nine months of 1997
was 1.20%(annualized) and the return on average equity was 17.00%, compared with
0.11% and 1.62%, respectively, for the first nine months of 1996.
Net Interest Income
Net interest income on a tax-equivalent basis totaled $20.7 million in the
third quarter of 1997, compared with $19.7 million in the comparable 1996
period--a 5% increase. For the third quarter of 1997, the net interest margin
(net interest income as a percentage of average interest-earning assets) on a
tax-equivalent basis decreased seven basis points, from 4.55% to 4.48%, compared
to the same period in 1996. For the first nine months of 1997, the net interest
margin decreased three basis points, from 4.51% to 4.48%, as compared to the
first nine months of 1996.
Approximately $650 million of the company's loans are tied to the prime
rate. The prime rate increased to 8.25% in February 1996, and remained constant
through the remainder of 1996 and through most of the first quarter of 1997.
During this time, 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 average yield on interest-earning assets and the
average rate paid on interest-bearing liabilities) decreased, negatively
impacting the net interest margin. This negative impact was partially offset
during 1996 by increased interest income due to loan growth. As loan growth has
slowed during 1997, the net interest-rate spread dropped nine basis points as
compared to the first nine months of 1996. The prime rate increased twenty-five
basis points to 8.50% near the end of the first quarter of 1997, which has had a
slight positive impact on net interest income in the second and third quarters
of 1997.
The following tables show, for the nine- and three-month periods ended
September 30, 1997 and 1996, the relationship between interest income and
expense and the levels of average interest-earning assets and average
interest-bearing liabilities. The tables also reflect the general increase in
interest rates on total interest-bearing liabilities over the past year, and
increased volumes of commercial loans, certificates of deposit (primarily
brokered certificates of deposit), and borrowed funds. 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 company, and is
the primary reason for the change in average balances shown in the tables for
these two types of interest-bearing accounts.
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the nine months ended September 30
Dollars in thousands
<CAPTION>
1997 1996
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income ... $1,460,440 $ 103,464* 9.47% 1,320,882 94,012 * 9.52%
Securities ...................... 261,966 11,907* 6.08% 294,210 13,259 * 6.03%
Mortgage loans held for sale .... 81,755 4,707 7.70% 52,446 2,863 7.30%
Federal funds sold
and other interest income ..... 120 8 8.91% 1,324 64 6.46%
--------- ------- ---------- ---------
Total interest-earning assets /
interest income ................. 1,804,281 120,086 8.90% 1,668,862 110,198 8.83%
------- -------
Non-interest-earning assets:
Cash and due from banks ......... 53,880 59,451
Premises and equipment .......... 37,104 40,871
Other assets .................... 66,507 64,059
----------- -----------
Total assets ...................... $1,961,772 $1,833,243
========== ==========
Liabilities and Shareholders'
Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) . $ 37,228 $ 877 3.15% 133,840 2,878 2.87%
Savings deposits .............. 101,897 2,094 2.75% 115,334 2,303 2.67%
Money market accounts ......... 269,579 6,600 3.27% 152,042 3,503 3.08%
Certificates of deposit ....... 833,855 34,804 5.58% 770,385 31,863 5.53%
Other time deposits ........... 82,087 3,440 5.60% 86,399 3,612 5.59%
--------- ------- ---------- ------
Total interest-bearing deposits 1,324,646 47,815 4.83% 1,258,000 44,159 4.69%
Federal funds purchased
and repurchase agreements ....... 58,042 2,259 5.20% 40,293 1,384 4.59%
Other short-term borrowings ....... 61,703 2,591 5.61% 56,707 2,418 5.70%
Long-term debt .................... 140,768 7,025 6.67% 121,925 5,890 6.46%
--------- ------- ---------- -----
Total borrowed funds ............ 260,513 11,875 6.09% 218,925 9,692 5.92%
--------- ------- ---------- -----
Total interest-bearing liabilities
interest expense ................ 1,585,159 59,690 5.03% 1,476,925 53,851 4.87%
-------- ------
Non-interest-bearing liabilities:
Non-interest-bearing deposits ... 214,628 207,120
Other liabilities ............... 23,950 19,620
---------- -------
Total liabilities ............... 1,823,737 1,703,665
Shareholders' equity .............. 138,035 129,578
---------- ---------
Total liabilities
and shareholders' equity ........ $1,961,772 $1,833,243
========== ==========
Net interest-rate spread .......... 3.87% 3.96%
Impact of non-interest bearing
sources and other changes in
balance sheet composition ....... 0.61% 0.55%
--------- -----
Net interest income /
margin on interest-earning assets $ 60,396 4.48% $ 56,347 4.51%
========= ======= ========== ====
<FN>
*Includes tax-equivalent adjustment
Net interest margin is net interest income divided by average interest-earning
assets. For computational purposes, non-accrual loans are included in
interest-earning assets. Net interest 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. Average balances are based
on daily balances and average rates are based on a 365-day year.
</FN>
</TABLE>
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the three months ended September 30
Dollars in thousands
<CAPTION>
1997 1996
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $1,474,951 $35,363 9.51% 1,377,739 32,898* 9.47%
*
Securities 260,717 3,946 6.00% 294,744 4,470* 6.02%
*
Mortgage loans held for sale 96,530 1,910 7.85% 48,808 954 7.75%
Federal funds sold
and other interest income 98 4 16.19% 250 5 7.93%
----------- -------- --------- ------
Total interest-earning assets /
interest income 1,832,296 41,223 8.93% 1,721,541 38,327 8.83%
-------- ------
Non-interest-earning assets:
Cash and due from banks 59,521 53,633
Premises and equipment 36,705 37,269
Other assets 67,251 71,614
========== ==========
Total assets $1,995,773 $1,884,057
========== ===========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) $42,646 $336 3.13% $31,819 $243 3.03%
Savings deposits 99,324 685 2.74% 110,669 751 2.69%
Money market accounts 267,655 2,224 3.30% 257,185 2,022 3.12%
Certificates of deposit 836,369 11,891 5.64% 798,551 10,954 5.44%
Other time deposits 80,641 1,139 5.60% 85,358 1,178 5.48%
--------- ------- --------- -------
Total interest-bearing deposits 1,326,635 16,275 4.87% 1,283,582 15,148 4.68%
Federal funds purchased
and repurchase agreements 72,443 969 5.31% 33,978 364 4.25%
Other short-term borrowings 63,423 908 5.68% 54,022 753 5.53%
Long-term debt 140,626 2,389 6.74% 141,168 2,361 6.64%
-------- -------- --------- -----
Total borrowed funds 276,492 4,266 6.12% 229,168 3,478 6.02%
-------- -------- --------- -----
Total interest-bearing liabilities /
interest expense 1,603,127 20,541 5.08% 1,512,750 18,626 4.88%
-------- ------
Non-interest-bearing liabilities:
Non-interest-bearing deposits 225,986 224,493
Other liabilities 24,058 20,907
---------- ---------
Total liabilities 1,853,171 1,758,150
Shareholders' equity 142,602 125,907
---------- ---------
Total liabilities
and shareholders' equity $1,995,773 $1,884,057
=========== ===========
Net interest-rate spread 3.85% 3.95%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.63% 0.60%
------- -----
Net interest income /
margin on interest-earning assets $20,682 4.48% $19,701 4.55%
======= ====== ======= =====
<FN>
*Includes tax-equivalent adjustment
Net interest margin is net interest income divided by average interest-earning
assets. For computational purposes, non-accrual loans are included in
interest-earning assets. Net interest 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. Average balances are based
on daily balances and average rates are based on a 365-day year.
</FN>
</TABLE>
<PAGE>
Analysis of Changes in Net Interest Income
Shown in the following tables are changes in interest income and interest
expense resulting from changes in volumes (average balances) and changes in
interest rates for the nine- and three-month periods ended September 30, 1997,
as compared to the same periods in 1996.
Nine Months 1997 vs. 1996 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 9,889 $ (437) $ 9,452
Securities ....................... (1,465) 113 (1,352)
Mortgage loans held for sale ..... 1,680 164 1,844
Federal funds sold
and other interest income ...... (74) 18 (56)
-------- ------- -------
Total interest-earning assets .... 10,030 (142) 9,888
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... (2,253) 252 (2,001)
Savings deposits ................. (275) 66 (209)
Money market accounts ............ 2,865 232 3,097
Certificates of deposit .......... 2,647 294 2,941
Other time deposits .............. (181) 9 (172)
-------- ------- -------
Total interest-bearing deposits 2,803 853 3,656
Federal funds purchased
and repurchase agreements ...... 672 203 875
Other short-term borrowings ...... 210 (37) 173
Long-term debt ................... 935 200 1,135
-------- ------- -------
Total borrowed funds ........... 1,817 366 2,183
-------- ------- -------
Total interest-bearing liabilities 4,620 1,219 5,839
-------- ------- -------
Increase (decrease)
in net interest income ......... $ 5,410 $(1,361) $ 4,049
======== ======= =======
The change in interest due to both rate and volume has been allocated to
changes in average volume and changes in average rates in proportion to the
absolute dollar amounts of the change in each.
<PAGE>
Third Quarter 1997 vs. 1996 Increase (decrease)
in interest income and expense
In thousands due to changes in:
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 2,330 $ 135 $ 2,465
Securities ....................... (515) (9) (524)
Mortgage loans held for sale ..... 944 12 956
Federal funds sold ............... `
and other interest income ...... (4) 3 (1)
------- ----- -------
Total interest-earning assets .... 2,755 141 2,896
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... 85 8 93
Savings deposits ................. (78) 12 (66)
Money market accounts ............ 84 118 202
Certificates of deposit .......... 529 408 937
Other time deposits .............. (66) 27 (39)
------- ----- -------
Total interest-bearing deposits 554 573 1,127
Federal funds purchased
and repurchase agreements ...... 496 109 605
Other short-term borrowings ...... 134 21 155
Long-term debt ................... (9) 37 28
------- ----- -------
Total borrowed funds ........... 621 167 788
------- ----- -------
Total interest-bearing liabilities 1,175 740 1,915
------- ----- -------
Increase (decrease)
in net interest income ......... $ 1,580 $(599) $ 981
======= ===== =======
The change in interest due to both rate and volume has been allocated to
changes in average volume and changes in average rates in proportion to the
absolute dollar amounts of the change in each.
Provision for Loan Losses
The provision for loan losses was $2.7 million (0.71% of average loans on
an annualized basis, excluding mortgage loans held for sale) for the third
quarter of 1997, compared with $1.6 million (0.47% of average loans) for the
comparable period of 1996. Net loan charge-offs were $1.8 million (0.49% of
average loans) for the third quarter of 1997, compared with $799 thousand (0.23%
of average loans) for the third quarter of 1996.
For the first nine months of 1997, the provision for loan losses was $7.5
million (0.69% of average loans), compared with $11.3 million (1.14% of average
loans) for the comparable period of 1996. Net loan charge-offs were $3.7 million
(0.34% of average loans) for the first nine months of 1997, compared with $9.9
million (1.00% of average loans) for the first nine months of 1996.
The provision for loan losses and the level of the allowance for loan
losses reflect the quality of the loan portfolio and result from management's
evaluation of the risks in the loan portfolio. The increases from 1996 to 1997
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.
For the first nine months of 1996, the $11.3 million loan loss provision
was due to several factors:
1) The charge-off of $7.0 million on three problem loans during the second
quarter. 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 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. 4) Continued strong
growth in the loan portfolio, particularly in large commercial
relationships (over $5 million).
Further discussion on loan quality and the allowance for loan losses is
included in the Asset Quality discussion later in this report.
Non-Interest Income
Non-interest income for the third quarter of 1997 increased $1.6 million
over the third quarter of 1996. This increase includes a $889 thousand pre-tax
gain from the sale of $256 million of mortgage servicing. The sale allowed the
company to take advantage of attractive market prices, while reducing exposure
to future prepayment risk. The company also experienced increases in trust and
brokerage income ($608 thousand), service charges on deposit accounts ($141
thousand) and, even with the third quarter sale, growth in the mortgage
servicing portfolio during the past year resulted in a $331 thousand increase in
mortgage banking, transfer and underwriting fees for the quarter. Partially
offsetting these favorable variances was a total of $489 thousand in security
losses taken to reposition the investment portfolio into higher-yielding
securities.
For the nine-month periods, non-interest income increased $4.2 million from
1996 to 1997. This increase reflects a $1.2 million gain on the sales of the two
Tennessee offices which were sold during the second quarter, as well as the
third quarter mortgage servicing gain and securities losses. Excluding these
transactions and securities gains and losses from both nine-month periods,
non-interest income increased $2.4 million. Significant improvements were
achieved in trust ($529 thousand), brokerage ($515 thousand), mortgage banking,
transfer and underwriting fees ($580 thousand) and service charges on deposit
accounts ($564 thousand).
Non-Interest Expenses
Non-interest expenses decreased $320 thousand, or 2%, in the third quarter
of 1997, compared to the third quarter of 1996 (excluding the $2.7 million SAIF
assessment). For the nine-month periods, non-interest expenses decreased $3.2
million, or 6%, in 1997 as compared to the first nine months of 1996 (excluding
the SAIF assessment and the $5.8 million of charges related to the refocus
initiative).
The decreased expenses in 1997 are due to the company's refocus initiative
which began at the end of the second quarter of 1996. Based on a comparison of
non-interest expenses for the third quarter of 1997 to the second quarter of
1996 (excluding the $5.8 million of charges related to the refocus initiative),
total operating expenses have been reduced by approximately $6 million on an
annualized pre-tax basis. As a result of higher revenues and lower operating
expenses, the efficiency ratio (a measure of operating expenses per dollar of
income) decreased to 60.3% in the third quarter of 1997 (excluding the mortgage
servicing gain and securities losses)--a substantial improvement over the 66.7%
efficiency ratio in third quarter 1996 (excluding the $2.7 million SAIF
assessment).
Income Taxes
Income tax expense totaled $3.1 million for the third quarter of 1997,
compared with $1.6 million in the comparable 1996 period. These represent
effective tax rates of 33.6% and 34.1%, respectively. For the nine months ended
September 30, 1997, the company's effective tax rate was 33.3%, compared to
34.8% in the first nine months of 1996.
Balance Sheet Review
Overview
Assets at September 30, 1997 totaled $2.03 billion, compared with $2.00
billion at December 31, 1996, and $1.93 billion a year ago. Average total assets
for the third quarter increased $112 million (6%) over the past year to $2.00
billion. Average interest-earning assets increased $111 million to $1.83
billion.
Loans
The company experienced annualized loan growth of 5% during the third
quarter of 1997. Total loans, net of unearned income, averaged $1.48 billion in
the third quarter of 1997, excluding mortgage loans held for sale of $97
million. For the comparable period in 1996, loans averaged $1.38 billion,
excluding the $49 million of mortgage loans held for sale.
At September 30, 1997, loans net of unearned income (excluding mortgage
loans held for sale) totaled $1.49 billion, compared with $1.45 billion at
December 31, 1996, and $1.41 billion a year ago. The company has experienced
slower loan growth during 1997 than in previous years, due to the payoff of
several of the company's larger commercial relationships. These payoffs were the
result of permanent refinancings of real estate loans and the sale of one
borrower to a publicly-held company. The company currently anticipates
mid-single-digit loan growth to continue through the remainder of 1997.
As of September 30, 1997, the company's 43 largest credit relationships
consisted of loans and loan commitments ranging from $5 million to $16.7
million, one of which was classified as a restructured loan (see the Asset
Quality discussion below). The aggregate amount of these credit relationships
was $435 million. These large credit relationships have been underwritten and
structured to minimize the company's exposure to loss. However, a significant
deterioration in the financial condition of one or more of these borrowers could
result in an increase in the company's loan charge-offs. In addition, the
prepayment of one or more of these credits or their refinancing at another
financial institution may have a negative impact on the company's future loan
growth.
Asset Quality
Non-performing loans, which include non-accrual loans, accruing loans past
due 90 days or more and restructured loans, totaled $24.3 million as of
September 30, 1997, up $13.7 million from December 31, 1996, and $12.7 million
from the end of the third quarter of 1996. The increase is primarily
attributable to an $11.5 million loan to a coal mining operation. The terms of
this loan were modified during the quarter to defer principal payments through
December 31, 1997. Accordingly, the loan has been classified as restructured.
The interest rate on this loan remains the same, and the loan continues to
accrue interest. The company is closely monitoring its $27 million exposure to
the coal industry consisting of the restructured loan mentioned above as well
as an additional 124 relationships, with the next largest single credit
exposure totalling $3 million.
The ratio of non-performing loans to total loans (net of unearned income)
was 1.63% at September 30, 1997, compared with 0.73% at the end of 1996 and
0.82% a year ago. Non-performing assets, which include non-performing loans,
foreclosed real estate and other foreclosed property, totaled $25.3 million as
of September 30, 1997, as compared to $15.0 million at September 30, 1996. The
ratio of non-performing assets to total assets increased to 1.24% at September
30, 1997, from 0.78% a year ago.
The following table presents information concerning non-performing assets,
including non-accrual and restructured loans. 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
modified due to a deterioration in the financial condition of the borrower.
<TABLE>
Non-performing Assets
Dollars in thousands
<CAPTION>
September 30 June 30 December 31 September 30
1997 1997 1996 1996
<S> <C> <C> <C> <C>
Non-accrual loans ............................................... $ 8,269 $ 6,186 $ 4,717 $ 6,718
Accruing loans which are contractually
past due 90 days or more ...................................... 3,919 2,611 5,863 4,881
Restructured loans .............................................. 12,134 679 4 5
------- ------- ------- -------
Total non-performing and restructured loans ................... 24,322 9,476 10,584 11,604
Foreclosed real estate .......................................... 736 872 1,608 3,108
Other foreclosed property ....................................... 232 354 184 241
------- ------- ------- -------
Total non-performing and restructured loans and
foreclosed property ......................................... $25,290 $10,702 $12,376 $14,953
======= ======= ======= =======
Non-performing and restructured loans
as a percentage of loans, net of unearned income .............. 1.63% 0.64% 0.73% 0.82%
Total non-performing and restructured loans and
foreclosed property as a percentage of total assets ........... 1.24% 0.54% 0.62% 0.78%
</TABLE>
Five commercial credit relationships account for $5.4 million, or 65%, of
the company's non-accrual loans at September 30, 1997. An allowance for loan
losses in the amount of $1.3 million has been established for these credits in
accordance with Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for the Impairment of a Loan. Management believes the remaining
balance of these five credits is adequately secured. The other 35% of the
non-accrual loan balance consists of various commercial and consumer loans, with
no single borrower representing more than $450,000.
Foreclosed real estate consists of several properties, the largest of which
is recorded at $209,000. Based upon appraisals of the properties and previous
sales experience, management does not anticipate any significant loss to be
incurred on disposition of these properties.
As of September 30, 1997, the company had loans to 4 borrowers totaling
$5.2 million 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 at this time 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 represents an amount which, in management's judgment, will be
adequate to absorb probable losses on existing loans. The adequacy of the
allowance for loan losses 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 September 30, 1997, the allowance was $21.8
million, up from $18.1 million at December 31, 1996, and $17.2 million at
September 30, 1996. The ratio of the allowance for loan losses to total loans
(excluding mortgage loans held for sale) at September 30, 1997, was 1.47%,
compared with 1.25% at December 31, 1996, and 1.22% at September 30, 1996. These
increases from September 30, 1996 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 decreased to 90% at September 30, 1997, from 171% at
year-end 1996 and 148% at September 30, 1996, due to the $11.5 million loan
classified as restructured at September 30, 1997.
Management believes that the allowance for loan losses at September 30,
1997, is adequate to absorb losses inherent in the loan portfolio as of that
date. That determination is based on the best information available to
management, but necessarily involves uncertainties and matters of judgment and,
therefore, cannot be determined with precision and could be susceptible to
significant change in the future.
Securities Available for Sale
Securities (all classified as available for sale) decreased from $289
million at September 30, 1996 to $285 million at year-end 1996, and then to $249
million at September 30, 1997. Funds provided by the reduction in securities
were utilized to fund growth in the loan portfolio.
Deposits and Borrowed Funds
Total deposits averaged $1.55 billion in the third quarter of 1997, an
increase of $44.6 million, or 2%, from the comparable 1996 period. Average
interest-bearing accounts increased $43.1 million in the third quarter of 1997,
compared to the same period in 1996, while average non-interest-bearing accounts
increased $1.5 million. The increase in interest-bearing accounts represents
brokered certificates of deposit issued to fund loan growth. As of September 30,
1997 and 1996, brokered certificates of deposit comprised $130 million and $85
million, respectively, of the company's deposits. These brokered deposits have
various maturities ranging from three months to five years.
For the nine-month periods, average total deposits increased $74 million,
or 5%, from $1.47 billion in 1996 to $1.54 billion in 1997. This increase is
primarily attributable to brokered certificates of deposit.
Long-term debt totaled $140 million at September 30, 1997 and $141 million
at September 30, 1996. In order to support growth in the loan portfolio, TFB-KY
has outstanding $75 million of notes (included in the long-term debt totals),
under a $250 million senior bank note program. Bank notes issued to date bear
interest at fixed rates of 6.32%, 6.48%, and 7.13%, respectively. Certain of
these notes have been effectively converted to floating rate instruments through
the use of interest rate swap transactions. Under these swap agreements, TFB-KY
pays interest at the prime rate, and receives a fixed rate of 8.60%. An
additional $175 million of bank notes may be issued from time to time under this
book-entry program in maturities varying from 30 days to 30 years.
Capital Resources and Liquidity
The company's capital ratios at September 30, 1997, December 31, 1996, and
September 30, 1996 (calculated in accordance with regulatory guidelines) were as
follows:
September 30, December 31, September 30,
1997 1996 1996
Tier 1 risk based ..... 8.47% 7.68% 7.55%
Regulatory minimum 4.00 4.00 4.00
Total risk based ...... 11.74 10.87 10.77
Regulatory minimum 8.00 8.00 8.00
Leverage .............. 6.88 6.12 6.12
Regulatory minimum 3.00 3.00 3.00
The increase in these capital ratios in 1997 is due to the company's
increased earnings. Capital ratios of all of the company's subsidiaries are in
excess of applicable minimum regulatory capital ratio requirements at September
30, 1997.
To maintain a desired level of liquidity, the company has several sources
of funds available. The company's primary investing activities include purchases
of securities and loan originations, offset by maturities, prepayments and sales
of securities, and loan payments. 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 these 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. When compared to retail deposits
attracted through a branch network, wholesale funding sources are generally more
sensitive to changes in interest rates and the inherent volatility of the
capital markets. In addition, brokered deposits may be more sensitive to
significant changes in the financial condition of the company. As a result of
the company's use of wholesale funding sources, significant changes in the
prevailing interest rate environment, or in the availability of alternative
investments for individual and institutional investors, or in the company's
financial condition, among other factors, could affect the company's liquidity
and results of operations.
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 1) rate-of-change
differentials, such as federal funds rates versus savings account rates; 2)
maturity effects, such as calls on securities; 3) rate barrier effects, such as
caps or floors on loans; 4) changes in balance sheet levels; 5) floating-rate
financial instruments 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; 6) leads and lags that occur as rates move away from current levels; and
7) 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. Several rate index
and yield curve assumptions are used in the model. As an example, the company's
most likely rate environment as of September 30, 1997, assumed the 3-month
Treasury rate at 5.20%, rising to 5.53% by January 1998, then falling back to
5.35% in July of 1998.
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 measured based on numerous interest
rate path valuations using statistical rate simulation techniques.
The following illustrates the effects of an immediate shift in market
interest rates on net interest income and fair values of assets and liabilities
as compared to the most likely rate assumptions used in the company's model:
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Basis-point change +200 bp +100 bp -100 bp -200 bp
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net interest income 3.57% 1.89% (.69)% (1.22)%
Balance sheet effects:
Increase (decrease) in fair value of assets (2.61)% (1.36)% 1.47% 3.06%
Increase (decrease) in fair value of liabilities 1.53% .77% (.78)% (1.58)%
</TABLE>
As of September 30, 1997, 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.
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. Interest rate
swap transactions as of September 30, 1997, are as follows:
<TABLE>
Interest Rate Swaps
As of September 30, 1997
Dollars in thousands
<CAPTION>
Notional Fixed Rate Floating Rate
Amount (Receiving) (Paying) Maturity
--------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
20,000 8.60% 8.50% (Prime) October, 1997
30,000 8.23% 8.50% (Prime) March, 1998
70,000 8.50% 8.50% (Prime) June, 1998
30,000 8.60% 8.50% (Prime) October, 1998
25,000 8.74% 8.50% (Prime) December, 1999
50,000 9.52% 8.50% (Prime) April, 2000
50,000 8.87% 8.50% (Prime) August, 2000
---------------
Total / weighted average $275,000 8.76% 8.50% April 1999
===============
</TABLE>
As shown in the table, $120 million of these interest rate swaps will
mature within twelve months. As these interest rate swaps mature, management
will evaluate whether new interest rate swap transactions are appropriate, given
the company's interest rate sensitivity position at that time. The company
requires all off-balance-sheet transactions be employed solely with respect to
asset/liability management or for hedging specific transactions or positions,
rather than for speculative trading activity.
Year 2000 Compliance
The company is exposed to potential future losses due to business
interruption or errors which could result if any of its computer systems are not
modified to ensure that dates beginning in January, 2000 are not misinterpreted
by the system as January, 1900. This eventuality is commonly referred to as the
Year 2000 Problem ("Y2K"). A number of computer systems which are affected by
Y2K are utilized by the company to operate its day-to-day business. Most of
these systems use software developed by and licensed from third party software
vendors, some of which have been customized by the company, while others have
been developed internally.
Management has established a task force to identify all instances where the
company is not currently Y2K compliant, and to ensure that those systems are
brought into compliance well before the end of 1999. The assessment phase of
this project has been completed whereby all systems have been identified that
need modification, and the corrective phase of the project has begun. Total cost
to the company of the corrective phase is projected to be approximately $500
thousand. The company is actively managing all of its third party software
vendors to ensure all software corrections and warranty commitments are
obtained. The company is acting upon the belief and understanding that all
federal agencies are actively managing the Y2K problems which are inherent in
the global banking and payments systems.
- --------------------------------------------------------------------------------
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and
uncertainties. Although the company believes that the forward-looking
statements are based upon reasonable assumptions, there can
be no assurance that the forward-looking statements will prove to be accurate
Factors that could cause actual results to differ from the results anticipated
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;
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. The company undertakes no
obligation to republish forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
- --------------------------------------------------------------------------------
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index on page 20 of this Form 10-Q are
filed as a part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Trans Financial, Inc.
(Registrant)
Principal Executive Officer:
Date: November 14, 1997 /s/ Vince A. Berta
------------------
Vince A. Berta
President and
Chief Executive Officer
Principal Financial Officer:
Date: November 14, 1997 /s/ Edward R. Matthews
----------------------
Edward R. Matthews
Chief Financial Officer
<PAGE>
Exhibits
Sequentially
Numbered Pages
10(a) Amendment to 1995 Executive Stock Option Plan*.................21
10(b) Agreement dated September 30, 1997 between registrant and executive
officer*.......................................................22-28
11 Statement of Computation of Per Share Earnings.................29
27 Financial Data Schedule (for SEC use only)
* Denotes a management contract or compensatory plan or arrangement of the
registrant required to be filed as an exhibit pursuant to Item
601(10)(iii) of Regulation S-K.
EXHIBIT 10(a)
AMENDMENT TO 1995 EXECUTIVE STOCK OPTION PLAN
This is an Amendment, dated as of October 20, 1997, to the Trans
Financial, Inc. 1995 ExecutiveStock Option Plan (the "Plan").
WHEREAS, Trans Financial, Inc. (the "Company") has adopted and
maintains the Plan to promote the interests of the Company;
WHEREAS, the Company has reserved the right to amend the Plan in
Section 11 thereof, which right is reserved to the Board of Directors; and
WHEREAS, management of the Company has recommended one change to the
Plan with respect to the transferability of stock options granted under the
Plan;
NOW, THEREFORE, pursuant to the right to amend the Plan as set forth in
Section 11 thereof, Section 8.J. of the Plan is amended to read in its entirety
as follows:
J. Transferability of Options. Options granted hereunder shall not be
transferable by the Optionee otherwise than by bequest or the laws of
descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee. Notwithstanding the
foregoing, an Optionee may, subject to any restrictions under Section
16(b) of the Exchange Act and the option agreement governing an option
between the Optionee and the Company, transfer such option to (i) the
Optionee's spouse or lineal descendants ("Immediate Family Members"),
(ii) trusts for the exclusive benefit of the Optionee and/or his or her
Immediate Family Members, or (iii) a partnership or limited liability
company in which the Optionee and/or his or her Immediate Family
Members are the only partners or members, as applicable; provided that
(a) there may be no consideration for any such transfer, and (b)
subsequent transfers of any transferred option shall be prohibited
other than by bequest or the laws of descent and distribution.
Following transfer, an option shall continue to be subject to the same
terms and conditions as were applicable immediately before the
transfer; provided that (i) for purposes of Section 7.C.[1], the
Optionee's Representative shall be deemed to refer to (a) the
transferee, (b) the personal representative of the transferee's estate,
or (c) after final settlement of the transferee's estate, the successor
or successors entitled thereto by law; (ii) for purposes of Section
7.C.[3], the transferee may exercise the option to the extent that it
was exercisable on the date of the Optionee's termination of
employment, at any time, and from time to time, but not later than the
expiration of the date specified in Section 7.A. or three months
following termination of the Optionee's employment, whichever date is
earlier; and (iii) for purposes of Section 7.F., 7.G., 7.I. and 7.K.,
the term "Optionee" shall be deemed to refer to the transferee.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on th
date set forth below.
TRANS FINANCIAL, INC.
By: /s/ Vince A. Berta
Vince A. Berta
President and Chief Executive Officer
October 20, 1997
AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of the 30th day
of September, 1997, is made by and between Trans Financial, Inc., on its own
behalf and on behalf of its subsidiaries (collectively, "Trans Financial"), and
Ronald Szejner ("Szejner").
RECITALS
A. Szejner is employed by Trans Financial as Executive Vice
President and Chief Trust Officer, and as President of Trans Financial
Investment Services, Inc. ("TFIS"). Szejner also serves as a director of TFIS.
B. The parties hereto have reached an agreement on the terms of
separation of Szejner's employment with Trans Financial and desire to set forth
the terms of that agreement in a written instrument.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein, the parties hereby agree as follows:
1. Continued Employment and Resignation.
A. Szejner hereby tenders his resignation from his employment
with Trans Financial, effective March 31, 1998 (the "Termination Date"). Szejner
will resign as Chief Trust Officer of Trans Financial, Inc. and of Trans
Financial Bank, N.A., as a Trust Officer of Trans Financial Bank, N.A., and as
an officer and director of TFIS, as requested by Trans Financial, but in no
event later than the Termination Date, or may be removed from or replaced in any
one or more of such positions at any time in the discretion of Trans Financial.
B. Szejner shall be employed as Executive Vice President
of Trans Financial, Inc. through the Termination Date and shall perform such
duties for Trans Financial between the date of this Agreement and the
Termination Date as he may be assigned from time to time by Trans Financial.
2. Termination of Employment. Notwithstanding the provisions of Section
1 above, Szejner's employment with Trans Financial may be terminated completely
by the Board of Directors of Trans Financial, Inc. at any time prior to March
31, 1998 if the Board determines, by a unanimous vote of the directors present
and voting at a duly and properly called meeting at which a quorum is present,
that any of the following causes for terminating his employment exists:
A. Szejner has appropriated Trans Financial's funds,
rights or property to Szejner's personal use, or has appropriated the funds,
rights or property of any of Trans Financial's customers to Szejner's personal
use;
B. Szejner has engaged in any other act of substantial
dishonesty in the performance of his duties and responsibilities;
C. Szejner has substantially failed to perform or discharge
those duties or responsibilities reasonably assigned to him hereunder and fails
or refuses to correct such failings within 30 days of receipt of written notice
to Szejner of such failings, which notice shall specifically describe such
failings and the steps necessary to remedy them;
D. Szejner is guilty of gross professional misconduct
of such a serious nature as would render his service unacceptable to
reasonable persons in the position of the Board of Directors of Trans
Financial, Inc.; or
E. Szejner has breached any of his obligations,
covenants or promises set forth in this Agreement.
If the Board determines that any one or more of such causes exists, then Trans
Financial may, without prior written notice, terminate Szejner's employment
hereunder. In the event of termination of Szejner's employment prior to March
31, 1998 pursuant to the terms of this Section 2, the "Termination Date" shall
be deemed, for all purposes under this Agreement, to be the actual date of such
termination, and Trans Financial shall not be required thereafter to make any of
the payments or provide any of the benefits provided for in Sections 3, 4, or 5
below.
3. Compensation. Trans Financial shall pay Szejner at the rate of
$150,000 per year (subject to all applicable withholdings) and will receive all
fringe benefits generally available to the employees of Trans Financial through
and including the Termination Date, in accordance with Trans Financial's
policies and typical pay schedule and methods. Prior to the Termination Date,
Szejner shall take all vacation days to which he is entitled as of the
Termination Date, and Trans Financial shall not be required to pay for any
earned but unused vacation days as of the Termination Date. No vacation days
shall accrue or be earned after the Termination Date.
4. Bonus. Szejner shall be paid a bonus for 1997 under the
1997 Trans Financial Leadership Incentive Plan (the "Bonus Plan") as follows:
A. Szejner shall receive $26,145.84 (equal to 5/6ths of
the maximum potential award) for the "Individual Goals" component under
the Bonus Plan, regardless of the actual performance of trust and
investment services for 1997; and
B. Szejner shall receive the amount to which he otherwise
would have been entitled under the "Corporate Goals" component under the Bonus,
had he remained in his current position through December 31, 1997.
The amount provided for in A. above shall be paid on the next reasonably
practicable payday of Trans Financial. The amount provided for in B. above will
be paid in 1998 at the time of the payment of bonuses by Trans Financial to
executive officer participants in its bonus plans.
5. Severance Pay.
A. In consideration for the release from any claims against
Trans Financial by Szejner set forth in this Agreement, Trans Financial shall
pay Szejner a lump sum amount of $15,000 (subject to all applicable
withholdings) which shall be payable on the next regularly scheduled pay day
after the Termination Date. This amount shall be paid on the next reasonably
practicable payday of Trans Financial.
B. Trans Financial shall also pay Szejner three months
severance pay at the rate of $150,000 per year (subject to all applicable
withholdings) for the period beginning April 1, 1998 and ending June 30, 1998
(the "Severance Period"), in accordance with Trans Financial's typical pay
schedule and methods.
C. Except as otherwise provided herein, Trans Financial shall
continue Szejner's coverage under Trans Financial's group health insurance plan
through the Severance Period, subject to the continuation of Szejner's payroll
deductions for such plan. Szejner will be responsible for any increase that may
occur in his share of the premiums under such plan. Except as otherwise provided
herein, Szejner's election period for continuance coverage (commonly referred to
as COBRA coverage) shall commence on June 30, 1998. In the event Szejner obtains
other employment during the Severance Period, Szejner shall notify Trans
Financial immediately, and Szejner's participation in Trans Financial's group
health insurance plans shall cease on the date Szejner becomes eligible to
participate in his new employer's health insurance plan (but in no event later
than June 30, 1998), and Szejner's election period for COBRA coverage shall
commence on that date.
D. Szejner shall receive any pension or retirement benefits to
which he is entitled under the terms of any such pension or retirement plans as
of the Termination Date. Szejner acknowledges and agrees that no further
contributions will be made to such pension or retirement plans after the
Termination Date.
6. Loans. Trans Financial has extended to Szejner and his spouse (i) an
unsecured line of credit in the face amount of $70,000, evidenced by the
Commercial Note in the face amount of $70,000 and the Loan Agreement executed by
the Szejners, both dated February 20, 1996 (the "Unsecured Line"), and (ii) a
home equity line of credit in the amount of $100,000, evidenced by the Equiline
executed by the Szejners, dated June 19, 1995 (the "Home Equity Line"). The
parties hereby agree that Szejner shall not be entitled to receive, and Trans
Financial shall not be required to make, any advances under the lines of credit
after March 31, 1998. Szejner shall make a reasonable reduction in the principal
balance on the lines of credit out of any proceeds he receives upon the exercise
of options for the common stock of Trans Financial. All reductions in principal
(in excess of payments required pursuant to the terms of the lines of credit)
may, at the discretion of Trans Financial, be applied first to reduce the
principal balance of the Unsecured Line, to the extent thereof, and then to
reduce the principal balance of the Home Equity Line. The parties hereto shall
execute or cause to be executed such note amendments or other documents as Trans
Financial deems necessary to document the modifications to the Unsecured Line
and the Home Equity Line contemplated by this Section.
7. Non-competition.
A. During the period from the date of this Agreement through
March 31, 1998, Szejner shall not, directly or indirectly through any
affiliates, (i) conduct any business, that is in direct competition with any
business conducted by Trans Financial, within the state of Kentucky or within a
radius of 50 miles of the location of any Trans Financial Office or operation;
(ii) assist any other individual in conducting any business, that is in direct
competition with any business conducted by Trans Financial, within the state of
Kentucky or within a radius of 50 miles of the location of any Trans Financial
Office or operation; or (iii) own, manage, operate, control or participate in
the ownership, management, operation or control of, or be connected as an
officer, employee, partner, director or otherwise with, or have any financial
interest in (other than the ownership of less than 1% of the outstanding capital
stock of any company publicly traded on a national exchange or market), or aid
or assist any entity in the conduct of any business, that is in direct
competition with any business conducted by Trans Financial, within the state of
Kentucky or within a radius of 50 miles of the location of any Trans Financial
Office or operation.
B. Trans Financial acknowledges that from the date hereof
through March 31, 1998, Szejner may perform services as a consultant, for a fee,
for other entities or individuals, and Szejner agrees that such services shall
not violate the provisions of this Section, nor interfere with Szejner's
performance of the duties and responsibilities as an employee of Trans Financial
as may be assigned to him as provided in Section 1 above. Szejner's rendering of
such consulting services shall not be deemed to violate the provisions of this
Section 7 to the extent that Szejner provides consulting services to:
(i) any existing customer of Trans Financial who
initiates contact with Szejner with respect to providing consulting
services, so long as such consulting services consist of providing
general investment advice that is not intended to induce such
customer(s) to terminate any existing transaction or relationship with
Trans Financial;
(ii) any open-end investment company;
(iii) any vendor who provides goods or services to
Trans Financial (other than a vendor of the type described in (iv) or
(v) below who has an office in Kentucky or Tennessee);
(iv) any registered broker-dealer, money manager,
trust company, bank, savings bank, savings and loan association or
other depository institution, that has no office in Kentucky or
Tennessee;
(v) any bank holding company or savings and loan
holding company, or any of their direct or indirect subsidiaries, so
long as the holding company and its direct and indirect subsidiaries
have no office(s) in Kentucky or Tennessee.
8. Non-solicitation. From the date of this Agreement through September
30, 1998, Szejner shall not (i) solicit or accept business from any Customer (as
defined below) of Trans Financial; (ii) recruit or hire, or attempt to recruit
or hire any Employee (as defined below) of Trans Financial; or (iii) assist any
other individual or any entity in doing any of the foregoing. For purposes of
this section, "Customer" shall mean any individual or entity that was a customer
of Trans Financial at any time from the date hereof through the Termination
Date, and any individual or entity that, to the knowledge of Szejner, was a
prospective customer of Trans Financial as of the Termination Date; and
"Employee" shall mean any individual who is employed by Trans Financial as of
the date of this Agreement or who becomes an employee of Trans Financial prior
to June 30, 1998. Szejner shall not be in violation of this section in the event
that Szejner or any individual or entity with whom Szejner is employed after the
Termination Date (i) accepts business from any Customer who initiates contact
with Szejner or his employer, or (ii) employs any Employee who initiates contact
with Szejner or his employer.
9. Confidentiality and Non-disclosure . Szejner acknowledges that
during the course of his employment with Trans Financial, Szejner was and will
be exposed to confidential and proprietary information of Trans Financial.
Szejner shall not without the prior written consent of the Board of Directors or
the Chief Executive Officer of Trans Financial (i) disclose to any third party,
including future employers, any Confidential Information (as defined below) the
disclosure of which would damage Trans Financial or be beneficial to any entity,
person or group of persons in competition with or adverse to Trans Financial, or
(ii) use any Confidential Information for his own benefit or the benefit of
others. Szejner shall return to Trans Financial on or before the Termination
Date any and all documents containing any confidential or proprietary
information, including all interoffice correspondence from or to Szejner as an
employee, or officer of Trans Financial. Nothing in this section shall prevent
Szejner from disclosing Confidential Information as may be required by law. For
purposes of this section, "Confidential Information" shall mean any and all
confidential or proprietary information of Trans Financial obtained by Szejner
as a result of his employment with Trans Financial, including without limitation
information with respect to Trans Financial's financial status, business,
products, services, customers, customer lists, prospective customers, vendors,
vendor relationships, trade secrets, marketing plans, business plans, proposals,
policies or strategies.
10. Communications.
A. Szejner shall not make any written or oral statements to or
participate in discussions with any other person (including without limitation
the media; actual or potential customers of Trans Financial; potential
directors, officers or employees of Trans Financial; actual or potential
competitors of Trans Financial; or regulatory officials) which are critical,
disparaging or injurious to the reputation or business of Trans Financial or any
of its directors, officers or employees, which cast Trans Financial or any of
its directors, officers or employees in an unfavorable light, or which would
negatively influence any party in the transaction of business with Trans
Financial. Szejner shall not be in violation of this subsection A. to the extent
that he (i) communicates his opinions regarding the strategic direction of trust
and investments, the reorganization of the corporation and the reassignment of
Szejner's duties to any of the directors of Trans Financial, Inc., or (ii)
informs any prospective employer or client that he resigned from Trans Financial
as a result of a disagreement with the CEO of Trans Financial over the strategic
direction of trust and investments, the reorganization of the corporation and
the reassignment of Szejner's duties
B. Trans Financial shall instruct its directors, executive
officers and senior officers within the Trust Department to not make any written
or oral statements to or participate in discussions with any other person
(including without limitation the media; actual or potential employers or
clients of Szejner; or regulatory officials) which are critical, disparaging or
injurious to the reputation of Szejner, which cast Szejner in an unfavorable
light, or which would negatively influence any party in the transaction of
business with Szejner. Trans Financial shall not be in violation of this section
B (i) as a result of any discussions among the directors and counsel for Trans
Financial with respect to the strategic direction of trust and investments, the
reorganization of the corporation and the reassignment of Szejner's duties, or
(ii) as a result of communications made by Trans Financial in compliance with
Section 12 below.
11. Breach of Confidentiality, Non-solicitation, Non-competition
or Communication Provisions.
A. In the event of any breach by Szejner of any of the
provisions contained in Sections 7, 8, 9 or 10.A. of this Agreement, Trans
Financial shall have the right to discontinue any payments under this Agreement,
as well as to seek any and all legal and equitable remedies available to it,
including the recovery of any amounts already paid to Szejner under this
Agreement, and injunctive relief against any further violations of this
Agreement.
B. In the event of any breach by Trans Financial of any of the
provisions contained in Sections 9 or 10.B. of this Agreement, Szejner shall
have the right to seek any and all legal and equitable remedies available to
him, including injunctive relief against any further violations of this
Agreement.
12. References. In response to any inquiry from any prospective
employer or client of Szejner, Trans Financial shall provide a reference, and
shall provide as the explanation (if one is requested) for the separation of
Szejner's employment that he resigned as a result of a disagreement with the CEO
of Trans Financial over the strategic direction of trust and investments, the
reorganization of the corporation and the reassignment of Szejner's duties.
13. Release of Claims. In consideration for the payment of severance by
Trans Financial and other commitments as set forth in this Agreement, Szejner,
for himself and his heirs, personal representatives, successors and assigns,
hereby releases and forever discharges, and agrees to hold harmless forever,
Trans Financial, its subsidiaries, business units, affiliates, parent companies,
past and present, predecessors and successors, and their respective officers,
directors, employees, agents, stockholders, successors and assigns
(collectively, the "Released Parties") from any and all known claims, demands
and causes of action that he may have against any or all of the Released Parties
arising from, or in connection with the terms, conditions and separation of, his
employment, including without limitation, any and all claims under any federal,
state or local discrimination law or regulation, including specifically, but not
limited to, the Age Discrimination in Employment Act, as amended, or any claim
under federal or state laws alleging actual or constructive termination in
violation of any public policy, and any actual or alleged breach of contract,
breach of any covenant of good faith and fair dealing, or wrongful discharge
under state law. Szejner further waives any rights he may have under the
Retention Agreement dated December 16, 1996. Should Szejner pursue any claim
which he releases herein, because of invalidity or nonenforceability of this
Agreement or for any other reason, Szejner agrees that, as a prerequisite, he
shall return all moneys paid under Sections 5.A. and 5.B. of this Agreement,
with interest at 10% per annum.
14. Representations. Szejner hereby warrants and represents that:
A. he has carefully read and fully understands the
comprehensive terms and conditions of this Agreement and the release of claims
set forth herein;
B. he is executing this Agreement knowingly and
voluntarily, without any duress, coercion or undue influence by Trans
Financial, its representative or any other person;
C. he had ample opportunity to consult with legal
counsel of his own choice before executing this Agreement, and, in fact,
has done so;
D. he has filed no charge, claim, complaint or any
document with any federal or state agency or any court complaining of unlawful,
harassing or discriminatory treatment by Trans Financial;
E. he is fully satisfied with the terms and
conditions of this Agreement, including without limitation the consideration
paid him by Trans Financial as part of this comprehensive settlement and the
consideration stated herein is the only consideration offered or accepted by him
as consideration for his release of claims;
F. he is entitled to 21 days to consider the terms of
this Agreement but has agreed to waive this time period and sign the Agreement
immediately;
G. he has the right to revoke this Agreement within
seven calendar days after he signs it;
H. he understands that if he revokes this Agreement
during the seven day period, it becomes null and void in its entirety; and
I. he is receiving payment and other consideration
under this Agreement from Trans Financial to which he would not otherwise be
entitled.
15. Confidentiality of Agreement. Trans Financial and Szejner, and
their respective agents and representatives, shall keep the fact and terms and
conditions of this Agreement in strict confidence, and without the prior written
consent of the other party, shall not disclose this Agreement, its contents or
subject matter to any person other than their spouse (in the case of Szejner),
attorneys, income tax preparers, or accountants. Any violation of this covenant
of confidentiality may be specifically enforced by a court of law or equity. The
parties hereto acknowledge and agree that this Agreement does not constitute and
shall not be construed as an admission by either party of any violation of law
or of any right of any party hereto.
16. Payments in Event of Death. In the event of the death of Szejner on
or before June 30, 1998, then Trans Financial's obligations to make payments or
provide health insurance benefits hereunder shall terminate as of the date of
death, except as provided in this section. In the event of such death, Trans
Financial shall pay to Szejner's spouse, estate or other party as designated by
Szejner (or if not so designated then to Szejner's spouse, if any, or to
Szejner's estate if there is no spouse) those payments that would otherwise be
payable under Section 5 above absent such death.
17. Status of Prior Agreements. This Agreement supersedes in its
entirety any prior agreement, written or oral, concerning Szejner's employment
with Trans Financial; provided, however, that this Agreement shall not supersede
any stock option agreement between Szejner and Trans Financial, or Trans
Financial's savings incentive plan or employee stock ownership plan, each of
which shall be applied and enforced according with their respective terms.
Szejner acknowledges that his employment with Trans Financial terminates, for
all purposes, as of the close of business on the Termination Date.
18. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties as to the subject matter
hereof, and the terms of this Agreement may not be waived, modified or
supplemented except in writing signed by both parties hereto.
19. Severability. If any provision of Agreement is
determined to be invalid or otherwise unenforceable (in whole or in part),
such invalidity or unenforceability shall not effect any other provision of
this Agreement, which shall continue in full force and effect.
20. Choice of Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Kentucky. Any action brought by
either party to enforce any provision of this Agreement shall be brought in
Bowling Green, Kentucky. By entering into this Agreement, Szejner agrees to
accept service of process in any action brought by Trans Financial in Warren
County, Kentucky, or in the United States District Court for the Southern
District of Kentucky based on any alleged breach of any term or provision of
this Agreement.
21. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
representatives and assigns.
EXECUTED as of the date first set forth above.
/s/ Ron Szejner
RON SZEJNER
Date:9/30/97
TRANS FINANCIAL, INC.
By: /s/ Roger Lundin
Date:9/30/97
Exhibit 11.
<TABLE>
Statement Regarding Computation of Per Share Earnings
In thousands, except per share amounts
<CAPTION>
3rd Quarter Nine Months
For the periods ended September 30 1997 1996 1997 1996
Primary earnings per common share:
<S> <C> <C> <C> <C>
Average common shares outstanding ..... 11,441 11,314 11,424 11,305
Common stock equivalents .............. 349 148 286 117
------- ------- ------- -------
Average shares and share equivalents 11,790 11,462 11,710 11,422
Net income (loss) ....................... $ 6,143 $ 3,014 $17,553 $ 1,567
Primary net income (loss) per share ..... $ 0.52 $ 0.26 $ 1.50 $ 0.14
Fully-diluted earnings per common share:
Average common shares outstanding ..... 11,441 11,314 11,424 11,305
Common stock equivalents .............. 390 200 390 200
------- ------- ------- -------
Average shares and share equivalents 11,832 11,514 11,814 11,505
Net income (loss) ....................... $ 6,143 $ 3,014 $17,553 $ 1,567
Fully-diluted net income (loss) per share $ 0.52 $ 0.26 $ 1.49 $ 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> Dec-31-1997 Dec-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 72,419 72,419
<INT-BEARING-DEPOSITS> 99 99
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 248,593 248,593
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 1,593,739 1,593,739
<ALLOWANCE> 21,839 21,839
<TOTAL-ASSETS> 2,032,146 2,032,146
<DEPOSITS> 1,563,334 1,563,334
<SHORT-TERM> 151,476 151,476
<LIABILITIES-OTHER> 32,067 32,067
<LONG-TERM> 140,460 140,460
0 0
0 0
<COMMON> 21,463 21,463
<OTHER-SE> 123,346 123,346
<TOTAL-LIABILITIES-AND-EQUITY> 2,032,146 2,032,146
<INTEREST-LOAN> 37,199 107,941
<INTEREST-INVEST> 3,681 11,098
<INTEREST-OTHER> 4 8
<INTEREST-TOTAL> 40,884 119,047
<INTEREST-DEPOSIT> 16,275 47,815
<INTEREST-EXPENSE> 20,541 59,690
<INTEREST-INCOME-NET> 20,343 59,357
<LOAN-LOSSES> 2,650 7,500
<SECURITIES-GAINS> (489) (356)
<EXPENSE-OTHER> 17,467 51,662
<INCOME-PRETAX> 9,256 26,319
<INCOME-PRE-EXTRAORDINARY> 6,143 17,553
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,143 17,553
<EPS-PRIMARY> .52 1.50
<EPS-DILUTED> .52 1.49
<YIELD-ACTUAL> 4.48 4.48
<LOANS-NON> 8,269 8,269
<LOANS-PAST> 3,919 3,919
<LOANS-TROUBLED> 12,134 12,134
<LOANS-PROBLEM> 5,200 5,200
<ALLOWANCE-OPEN> 21,016 18,065
<CHARGE-OFFS> 2,098 4,371
<RECOVERIES> 271 645
<ALLOWANCE-CLOSE> 21,839 21,839
<ALLOWANCE-DOMESTIC> 21,839 21,839
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
