QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_____________
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _____to _____
____________
Commission file number 2-78658
INTRUST Financial Corporation
(Exact name of registrant as specified in its charter)
Kansas 48-0937376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
105 North Main Street 67201
Box One (Zip Code)
Wichita, Kansas
(Address of principal (316) 383-1111
executive offices) (Registrant's telephone number)
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. X Yes No
At November 4, 1994, there were 2,362,220 shares of the registrant's common
stock, par value $5 per share, outstanding.
Part 1. Financial Information
INTRUST Financial Corporation
Consolidated Condensed Balance Sheets
(Unaudited)
(in thousands of dollars)
September 30, December 31,
ASSETS 1994 1993
Cash and due from banks $77,720 $74,722
Investment securities (market value, $280,759
for 1994 and $347,980 for 1993) 281,538 341,561
Federal funds sold and securities purchased
under agreements to resell 39,435 71,725
Loans 1,021,006 974,901
Less: Unearned discount 236 299
Allowance for loan losses 19,204 21,793
Net loans 1,001,566 952,809
Land, buildings and equipment 29,816 30,032
Other assets 49,315 53,019
$1,479,390 $1,523,868
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,232,356 $1,283,284
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 58,092 64,315
Other 11,277 11,739
Total short-term borrowings 69,369 76,054
Accounts payable and accrued liabilities 14,555 11,421
Notes payable 22,950 25,580
Convertible subordinated capital notes 12,000 12,000
Total liabilities 1,351,230 1,408,339
Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,400,000 shares issued 12,000 12,000
Capital surplus 12,000 12,000
Retained earnings 105,936 92,312
129,936 116,312
Less: Treasury stock, at cost; 37,780 shares in 1994 and
18,640 shares in 1993 (1,776) (783)
Total stockholders' equity 128,160 115,529
$1,479,390 1,523,868
See accompanying notes to consolidated financial statements.
INTRUST Financial Corporation
Consolidated Condensed Statements of Income
(Unaudited - In Thousands of Dollars Except per Share Data)
Three Months Nine Months
Ended September 30, Ended September 30,
Interest income: 1994 1993 1994 1993
Interest on loans $23,590 $21,080 $67,245 $56,079
Interest on investment securities 3,860 4,770 12,141 14,377
Interest on Federal funds sold and securities
purchased under agreements to resell 557 778 1,879 1,620
Other interest income 0 4 0 19
Total interest income 28,007 26,632 81,265 72,095
Interest expense:
Interest on deposits 8,335 8,471 24,310 22,652
Interest on Federal funds
purchased and securities sold
under agreement to repurchase 557 364 1,339 852
Interest on capital notes 270 270 810 810
Interest on other borrowings 523 402 1,426 554
Total interest expense 9,685 9,507 27,885 24,868
Net interest income 18,322 17,125 53,380 47,227
Provision for loan losses 602 643 742 5,484
Net interest income after
provision for loan losses 17,720 16,482 52,638 41,743
Other income:
Service charges on deposit accounts 2,266 2,382 6,744 6,334
Trust department fees 1,409 1,381 4,197 3,878
Bankcard fees 1,185 980 3,617 2,771
Securities gains and losses 0 3 0 60
Other service charges, fees and income 1,720 1,753 5,221 4,713
Total other income 6,580 6,499 19,779 17,756
Other expenses:
Salaries and employee benefits 7,068 6,827 21,464 19,044
Net occupancy and equipment expense 1,999 1,925 5,895 4,707
Advertising and promotional activities 1,134 739 3,724 2,670
Data processing expense 1,068 1,199 3,176 3,409
Deposit insurance assessment 699 729 2,135 1,909
Goodwill amortization 356 430 1,067 634
Other 3,816 3,652 10,922 9,665
Total other expenses 16,140 15,501 48,383 42,038
Income before income taxes 8,160 7,480 24,034 17,461
Provision for income taxes 2,871 2,212 8,629 5,125
Net income $5,289 $5,268 $15,405 $12,336
Per share data:
Net income - assuming no dilution $2.24 $2.21 $6.49 $5.18
Net income - assuming full dilution $1.98 $1.96 $5.74 $4.62
Cash Dividends $0.25 $0.25 $0.75 $0.75
See accompanying notes to consolidated financial statements.
INTRUST Financial Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of dollars)
Nine Months Ended
September 30,
1994 1993
Operating activities:
Net Income $15,405 $12,336
Adjustments to reconcile net income to net
cash flows from operations:
Provision for loan losses 742 5,484
Provision for depreciation and amortization 4,511 3,261
Amortization of premium and discount on
investment securities 1,708 1,827
Changes in assets and liabilities, net of effect
from purchase of acquired entity:
Prepaid expenses and other assets (1,427) (375)
Income taxes 266 (3,337)
Interest receivable 1,001 2,198
Interest payable 3,741 3,176
Other liabilities 370 1,768
Other (119) (153)
Net cash provided by operating activities 26,198 26,185
Investing activities:
Purchase of bank, net of cash and cash
equivalents acquired 0 (3,642)
Purchase of investment securities (34,299) (70,908)
Investment securities matured or called 92,613 139,614
Proceeds from sale of investment securites 0 177
Net (increase) decrease in loans (50,428) (4,973)
Purchases of land, buildings and equipment (2,931) (5,515)
Proceeds from sales of equipment 92 61
Proceeds from sales of other real estate and
repossessions 2,631 2,339
Other (150) (226)
Net cash provided by investing activities 7,528 56,927
Financing activities:
Net decrease in deposits (50,928) (72,693)
Net decrease in short-term borrowings (6,685) (4,402)
Payments on notes payable (2,630) 0
Proceeds from notes payable 0 25,000
Cash dividends (1,781) (1,787)
Net increase in treasury stock (994) (139)
Net cash used by financing activities (63,018) (54,021)
Increase (Decrease) in cash and cash equivalents (29,292) 29,091
Cash and cash equivalents at beginning of period 146,447 142,267
Cash and cash equivalents at end of period $117,155 $171,358
See accompanying notes to consolidated financial statements.
INTRUST Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts of
INTRUST Financial Corporation and subsidiaries. All significant intercompany
accounts and transactions have been eliminated. In the opinion of management
the consolidated financial statements reflect all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for the periods presented.
The significant accounting policies followed in the preparation of the
quarterly financial statements are the same as those disclosed in the 1993
INTRUST Financial Corporation Annual Report to Stockholders. Reference is
made to the 1993 Annual Report for additional disclosure.
2. Proposed Acquisition
An application was filed by INTRUST Financial Corporation with the Federal
Reserve on July 12, 1994 to acquire First Moore Bancshares for a purchase
price of $6.1 million. It is anticipated the transaction will be consummated
in the fourth quarter of 1994.
3. Loans
As of October 28, 1994, Paul Seymour, Jr., a director of the Company was
indebted to INTRUST Bank, N.A. in the principal amount of $2,117,952 and
$254,197 for personal and business loans, respectively. Mr Seymour has filed
for relief under Chapter 11 of the United States Bankruptcy Code. The case
is still pending.
4. Allowance for Loan Losses
The following is a summary of the allowance for loan losses for the nine
months ended September 30, 1994 and 1993 (in thousands):
1994 1993
Balance, January 1 $21,793 $16,099
Additions:
Allowance acquired as a result of KSB&T merger transaction 3,579
Provision for loan losses 742 5,484
22,535 25,162
Deductions:
Loans charged off 4,966 4,200
Less recoveries on loans
previously charged off 1,635 1,425
Net loan losses 3,331 2,775
Balance, September 30 $19,204 $22,387
5. Investment Securities
Investment securities consisted of the following at September 30, 1994 and
December 31, 1993 (in thousands):
Sept. 30 Dec. 31
1994 1993
U.S. Government and Federal Agencies $221,668 $269,842
Obligations of state and political
subdivisions 53,120 63,971
Other 6,750 7,748
$281,538 $341,561
6. Earnings Per Share Calculations
Net income per share, assuming no dilution, is computed based upon the
weighted average number of shares outstanding. Net income per share,
assuming full dilution, is computed based upon the assumption that the
9% convertible subordinated capital notes had been converted into
common stock as of the beginning of each respective period presented with
related adjustments to interest and income tax expense. The weighted
average number of shares outstanding for the three months ended September
30, 1994 and 1993 were 2,262,220 and 2,381,360 respectively, and for the
nine months ended September 30, 1994 and 1993 were 2,374,463 and 2,382,027.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unaudited consolidated net income of INTRUST Financial Corporation for the
nine months ended September 30, 1994 was $15,405,000, a 24.9% increase over
the corresponding period of the prior year. Net income for the third quarter
was essentially unchanged from that realized in the corresponding quarter of
1993. Year-to-date 1994 results were favorably impacted by the volume
increases associated with the Kansas State Bank & Trust Company merger that
was consummated in the third quarter of 1993, as well as a reduction in the
Company's provision for loan losses.
Net Interest Income. Third quarter net interest income amounts have
increased $1,197,000, or 7.0% over the comparable 1993 period, and
year-to-date amounts have increased $6,153,000 over those of the prior
period. This increase is attributable to volume increases, as year-to-date
average interest-earning assets in 1994 exceeded those of the same period in
1993 by approximately $179,000,000. The increase in average interest-bearing
liabilities for the same period was $133,000,000. These increases are
principally attributable to assets acquired and liabilities assumed in the
KSB&T merger.
While the volume increases referred to above did positively impact net
interest income, they were offset by modest compression in the Company's
interest margin. The Company's interest spread has declined 12 basis points
from the levels of a year ago, but did increase from second quarter levels by
10 basis points. A portion of the increase in the interest spread is
attributable to the Company being able to reprice certain of its
interest-earning assets upward more rapidly than its interest-bearing
liabilities. In addition, the Company's average investment in credit card
loans, which earns a relatively higher rate of interest than other
interest-earning assets, increased by approximately $14 million in the third
quarter.
The shift out of interest-bearing time deposits to more liquid deposit
instruments experienced during much of 1993 has continued to moderate.
Transaction accounts aggregated 35.6% of total deposits at September 30,
1994, as compared to 35.9% at December 31, 1993.
Loans, as a percentage of deposits, were 82.8% and 76.0% at September 30,
1994 and December 31, 1993, respectively. Total deposits of the Company
have declined $50.9 million from December 31, 1993 levels. September 30,
1994 deposit levels are approximately $2.2 million less than June 30, 1994
levels. As noted in previous quarterly filings, seasonality plays a role in
the Company's deposit generation. In addition, the in-market acquistion of
KSB&T resulted in some deposit run-off. While the Company typically sees an
increase in deposits during the fourth quarter, the present interest rate
environment may not prove conducive to similar activity in the fourth quarter
of 1994. The Company has funded its new loan growth during 1994 principally
through funds that have been generated by the normal contractual maturities
of securities in its investment portfolio. Loans comprised 75.2% of average
interest-earning assets during the third quarter of 1994, compared to a
level of 68.9% for the year ended December 31, 1993.
Provision for Loan Losses. The Provision for Loan Losses for the nine month
period ended September 30, 1994 was $742,000, compared to a provision of
$5,484,000 for the corresponding period of the preceding year. Net
charge-offs during the third quarter of 1994 were $1,243,000. Net
charge-offs for the first and second quarters of 1994 were $1,037,000 and
$1,051,000, respectively. While the majority of net charge-offs experienced
by the Company have occurred in the credit card loan portfolio, the Company
believes that its loss ratio in this lending area compares favorably to that
experienced nationwide. At September 30, 1994, nonaccrual, past due and
restructured loans totaled $6,220,000 compared to $5,179,000 at December 31,
1993.
The Allowance for Loan Losses at September 30, 1994 was 1.88% of total loans
(net of unearned discount) compared with 2.24% at December 31, 1993.
Management is not aware of issues that would significantly impact the
overall credit quality of the loan portfolio during the remainder of 1994.
As both the local and national economies strengthen, the Company believes
that the loan loss provision during the remainder of 1994 will continue to
reflect the general improvement in the credit quality of its loan portfolio.
Liquidity and Capital Resources. Consolidated liquidity remained strong at
September 30, 1994. The average maturity of United States government and
agency securities in the investment portfolio was 1 year, 6 months, and the
average maturity of municipal securities was 3 years, 10 months.
The Company has thoroughly reviewed its investment security portfolio and
has determined that at September 30, 1994, it has the ability and intent to
hold all securities in the portfolio until maturity. The Company believes
the regularly scheduled maturities of those securities presently held in its
investment portfolio, along with other funding alternatives, provide
sufficient liquidity to meet depositors' needs and make available lendable
funds within its service area.
The Company's capital position substantially exceeds regulatory capital
requirements. The Company must maintain a minimum ratio of total capital to
risk-weighted assets of 8%, of which at least 4% must qualify as Tier 1
capital. At September 30, 1994, the Company's total capital to risk-weighted
assets ratio was 12.29% and its Tier 1 capital to risk-weighted assets ratio
was 9.95%.
In addition to the aforementioned regulatory requirements, each of the
Company's subsidiary banks met all capital ratios required at the individual
bank level.
Other Income and Other Expense. Other income increased $2,023,000 or 11.4%
from prior year levels. The acquisition of KSB&T has resulted in increased
account volumes, which has served to increase both trust fees and service
charge income for the first nine months of the year. However, third quarter
1994 service charge income has declined from prior year levels for the
similar period. The decline is directly attributable to the run-off in
deposits that has been experienced with the in-market merger.
As noted in the Company's 1993 annual report, certain programs were put into
place in the last quarter of 1993 that were designed to increase credit card
loan outstandings. These programs have resulted in a number of new accounts
and additional fee income. The bankcard fee line item was the only component
of other income to increase appreciably when comparing third quarter 1994
results to those experienced in the corresponding period of the preceding
year.
Other expenses have increased 15.1%, or $6,345,000 over the comparable prior
year period. 1994 employment expenses have increased $2,420,000, or 12.7%,
over 1993 levels. This increase is attributable to increased staffing levels
arising from the KSB&T acquisition. These increased staffing levels did not
occur until the third quarter of 1993. When comparing third quarter 1994
employment expense to similar expense in the third quarter of 1993, the rate
of increase was 3.5%.
Occupancy expenses have increased 25.2% or $1,188,000, over 1993 levels.
Again, much of the increase is due to the timing of the KSB&T merger.
During the first six months of 1993, the Company was operating with fewer
facilities than it now has. Comparing third quarter occupancy costs in
1994 and 1993 shows an increase in expense of $74,000, or 3.8%.
Goodwill amortization incurred during the first nine months of 1994 has
increased substantially over 1993, as the Company's 1994 financial statements
reflect the amortization of the excess of cost over net assets acquired in
the KSB&T acquisition. 1994 FDIC assessment expenses have increased over
1993 levels by 11.8%, as increased account volumes realized with the KSB&T
acquisition have resulted in additional costs. Previously mentioned
promotional activities in the bankcard area and new marketing campaigns
undertaken by the Company in 1994 account for the increase in advertising and
promotional costs. Other expenses in 1994 have increased $1,257,000 over the
comparable period of the preceding year, as increased volumes have resulted
in increases in item processing and postage costs. The Company has also
experienced increases in credit investigation and bankcard fraud costs as
new bankcard accounts have been added to the loan portfolio.
New Accounting Standards. Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" is effective for
fiscal years beginning after December 15, 1994. This Statement specifies how
the allowance for credit losses related to certain loans should be
determined. The Statement does not apply to large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment. In the
Company's case, approximately 44% of the loan portfolio would not be subject
to the provisions of this Statement. While there may be certain procedural
issues to be addressed by the Company relative to the recognition and
measurement of impairment so as to comply with the provisions of the
Statement, the relative quality of the loan portfolio and the loss coverage
presently existing in the allowance for loan losses appear, in the Company's
opinion, to indicate that adoption of Statement 114 will not have a material
effect on its financial statements.
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) A Form 8-K current report was filed on September 23, 1994 under item 4,
changes in registrant's certifying accountant.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTRUST Financial Corporation
Date: November 11, 1994 By: /s/ C.Q. Chandler IV
C. Q. Chandler IV
President
(Principal Executive Officer)
Date: November 11, 1994 By: /s/ Jay L. Smith
Jay L. Smith
Chief Financial Officer
(Principal Accounting Officer)
EXHIBIT INDEX
Number Description
27 Financial Data Schedule
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<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 77720
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39435
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 281538
<INVESTMENTS-MARKET> 292137
<LOANS> 1021006
<ALLOWANCE> 19204
<TOTAL-ASSETS> 1479390
<DEPOSITS> 1232356
<SHORT-TERM> 69369
<LIABILITIES-OTHER> 14555
<LONG-TERM> 34950
<COMMON> 12000
0
0
<OTHER-SE> 117936
<TOTAL-LIABILITIES-AND-EQUITY> 1479390
<INTEREST-LOAN> 67245
<INTEREST-INVEST> 12141
<INTEREST-OTHER> 1879
<INTEREST-TOTAL> 81265
<INTEREST-DEPOSIT> 24310
<INTEREST-EXPENSE> 27885
<INTEREST-INCOME-NET> 53380
<LOAN-LOSSES> 742
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 48383
<INCOME-PRETAX> 24034
<INCOME-PRE-EXTRAORDINARY> 15405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15405
<EPS-PRIMARY> 6.49
<EPS-DILUTED> 5.74
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21793
<CHARGE-OFFS> 4966
<RECOVERIES> 1635
<ALLOWANCE-CLOSE> 19204
<ALLOWANCE-DOMESTIC> 19204
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
