Trans Financial Bowls Over Local Rivals

Banking consolidation is creating new regional powerhouses, yet a number of large community banks may be gaining the competitive edge.

Trans Financial Bancorp, in Bowling Green, Ky., is a case in point.

What analysts like about Trans Financial, and other conservative community banks, is their ability to tap into local economic growth.

"It is priced at a discount to large banks, but it probably has better prospects," said Peter W. Tuz, analyst for Morgan Keegan & Co.

During periods of consolidation, the better small banks have traditionally picked up market share as their competitors were swallowed by distant companies. They've managed to thrive - at least until the big companies began to pass their economies of scale to customers.

Smaller Banks

"Across the country, I think you'll find that smaller banks are doing better attracting new business" than the superregionals, said Lisa Todaro of SNL Securities, Charlottesville, Va.

It helps that Trans Financial is based in a community with plenty of growth.

A General Motors Corvette plant, Fruit of the Loom world headquarters, divisions of Eaton, Thermodyne, and Sumitomo Electric Wiring Co., and most recently a new Motor Wheel plant from Canada are among the businesses that have located in Bowling Green, prompting the bank to build up its corporate lending speciality.

The bank's strength lies in the vital local economy, which affords the opportunity to make business loans and some real estate projects built to suit corporate clients, Mr. Tuz said. It dominates a two-country primary market, holding about one third of the deposits.

Trans Financial now does 55% of the corporate lending in its home markets, and Wednesday announced it would lead a group of about five banks in a $30 million loan for the construction of a convention center in Bowling Green.

The competition includes an outpost of National City Bank, an Ohio company that joined the merger frenzy yesterday, announcing a marriage with Merchants National of Indiana.

In September, investors leaped at a 920,000 share offering by Trans Financial, including a 120,000 share overallotment option that the underwriter, Morgan Keegan, exercised.

The sale raised $13.8 million, much of it earmarked for future acquisitions that are projected to increase the company's asset size to $1 billion by the middle of next year.

The issue was priced at a discount to market price. Part of the idea was to raise money for an acquisition strategy, but the issue also created liquidity in the stock that enabled it to move further up in value. Spurred by record earnings of $910,000 for the third quarter, the stock price has climbed steadily, to $18.50 on Wednesday.

A recent transaction with the Resolution Trust Corp. added $80 million in assets, drawing Trans Financial closer to the $1 billion assets mark it hopes to reach by mid-1992.

Estimated Loan Growth

Trans Financial's acquisitions of branches and smaller companies in its own market make year-to-year comparisons of loans hazy, but the company has estimated "core" loan growth of 7% to 8%.

"We've had strong loan demand. In the last five years we've maintained an 80% to 90% loan-to-deposit ratio," said Douglas W. Lester, the chairman and chief executive.

He said the company's non-performing asset ratio - at 1% of assets - is less than one third the industry norm. And he said its acquisitions to date have enabled it to bring net noninterest expenses to below 2%.

The only limitation is the shrinking opportunity for deposit growth, Mr. Tuz said. But the company is addressing that problem with plans for further acquisitions.

Deposits grew by 39% in the year ending Sept. 30, to $503 million.

PHOTO : Kentucky Bank Races Uphill Sources: DB Technology Inc., Reuters

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