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, 1995
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 7, 1995, there were 2,342,600 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 except per share data)
September 30, December 31,
Assets 1995 1994
Cash and cash equivalents:
Cash and due from banks $85,683 $81,084
Federal funds sold and securities purchased
under agreements to resell 83,465 33,805
Total cash and cash equivalents 169,148 114,889
Investment securities (market value, $298,891
for 1995 and $280,759 for 1994) 294,884 276,779
Loans 1,039,569 1,058,085
Less: Unearned discount 391 255
Allowance for loan losses 26,967 19,886
Net loans 1,012,211 1,037,944
Land, buildings and equipment 30,893 31,994
Other assets 64,585 57,511
Total assets $1,571,721 $1,519,117
Liabilities and Stockholders' Equity
Liabilities:
Deposits $1,289,547 $1,276,076
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 85,705 56,987
Other 9,632 10,806
Total short-term borrowings 95,337 67,793
Accounts payable and accrued liabilities 20,705 12,708
Notes payable 20,310 22,950
Convertible subordinated capital notes 11,854 12,000
Total liabilities 1,437,753 1,391,527
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 112,858 105,366
Less: Treasury stock, at cost (57,400 shares in
1995 and 37,780 shares in 1994) 2,890 1,776
Total stockholders' equity 133,968 127,590
Total liabilities and stockholders' equity $1,571,721 $1,519,117
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,
1995 1994 1995 1994
Interest income:
Interest on loans $26,857 $23,590 $77,956 $67,245
Interest on investment securities 4,570 3,860 13,470 12,141
Interest on Federal funds sold and
securities purchased under
agreements to resell 1,461 557 3,655 1,879
Other interest income 1 0 2 0
Total interest income 32,889 28,007 95,083 81,265
Interest expense:
Interest on deposits 11,619 8,335 33,549 24,310
Interest on Federal funds purchased
and securities sold under
agreement to repurchase 1,421 557 3,496 1,339
Interest on capital notes 269 270 809 810
Interest on other borrowings 522 523 1,676 1,426
Total interest expense 13,831 9,685 39,530 27,885
Net interest income 19,058 18,322 55,553 53,380
Provision for loan losses 7,330 602 13,791 742
Net interest income after
provision for loan losses 11,728 17,720 41,762 52,638
Other income:
Service charges on deposit accounts 2,216 2,266 6,813 6,744
Trust department fees 1,379 1,409 4,176 4,197
Credit card fees 2,206 1,185 7,137 3,617
Securities gains and losses 0 0 0 0
Other service charges, fees and income 1,540 1,720 5,363 5,221
Total other income 7,341 6,580 23,489 19,779
Other expenses:
Salaries and employee benefits 7,368 7,068 22,075 21,464
Net occupancy and equipment expense 2,179 1,999 6,287 5,895
Advertising and promotional activities 606 1,134 2,231 3,724
Data processing expense 1,375 1,068 3,596 3,176
Deposit insurance assessment (116) 699 1,305 2,135
Goodwill amortization 399 356 1,197 1,067
Other 4,547 3,816 14,322 10,922
Total other expenses 16,358 16,140 51,013 48,383
Income before income taxes 2,711 8,160 14,238 24,034
Provision for income taxes 642 2,871 4,984 8,629
Net income $2,069 $5,289 $9,254 $15,405
Per share data:
Net income - assuming no dilution $0.88 $2.24 $3.94 $6.49
Net income - assuming full dilution $0.82 $1.98 $3.57 $5.74
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,
1995 1994
Cash provided (absorbed) by operating activities:
Net Income $9,254 $15,405
Adjustments to reconcile net income to net
cash flows from operations:
Provision for loan losses 13,791 742
Provision for depreciation and amortization 5,224 4,511
Amortization of premium and discount on
investment securities 684 1,708
Changes in assets and liabilities:
Prepaid expenses and other assets (3,670) (1,427)
Income taxes (2,583) 266
Interest receivable (1,429) 1,001
Interest payable 6,670 3,741
Other liabilities 581 370
Other (86) (119)
Net cash provided by operating activities 28,436 26,198
Cash provided (absorbed) by investing activities:
Purchase of investment securities (127,641) (34,299)
Investment securities matured or called 108,852 92,613
Net (increase) decrease in loans 9,300 (50,428)
Purchases of land, buildings and equipment (2,355) (2,931)
Proceeds from sales of equipment 43 92
Proceeds from sales of other real estate and
repossessions 2,601 2,631
Other (330) (150)
Net cash provided by investing activities (9,530) 7,528
Cash provided (absorbed) by financing activities:
Net increase (decrease) in deposits 13,471 (50,928)
Net increase (decrease) in short-term borrowings 27,544 (6,685)
Payments on notes payable (2,640) (2,630)
Retirement of capital notes (146) 0
Cash dividends (1,762) (1,781)
Purchase of treasury stock (1,114) (994)
Net cash provided (absorbed) by financing activities 35,353 (63,018)
Increase (Decrease) in cash and cash equivalents 54,259 (29,292)
Cash and cash equivalents at beginning of period 114,889 146,447
Cash and cash equivalents at end of period $169,148 $117,155
Supplemental disclosures
Interest paid $32,860 $24,144
Income tax paid $7,567 $8,363
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 1994 INTRUST Financial Corporation Annual
Report on Form 10-K. Reference is made to the "Notes to
Consolidated Financial Statements" under Item 8 of the 1994 Form
10-K for additional disclosure.
2. LOANS
As of November 7, 1995, Paul Seymour, Jr., a director of the
Company was indebted to INTRUST Bank, N.A. in the principal
amount of $4,300,868 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 personal
loans of Mr. Seymour are not included in nonperforming loans
since payments are current and the loans are fully
collateralized. The business loans are included in the
nonperforming loans total since interest payments are past due
and collection of interest remains an issue for determination by
the bankruptcy court.
3. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the allowance for loan losses for
the nine months ended September 30, 1995 and 1994 (in thousands):
1995 1994
Balance, January 1 $19,886 $21,793
Additions:
Provision for loan losses 13,791 742
33,677 22,535
Deductions:
Loans charged off 9,454 4,966
Less recoveries on loans
previously charged off 2,744 1,635
Net loan losses 6,710 3,331
Balance, September 30 $26,967 $19,204
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118 "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," as of January
1, 1995. SFAS No. 114 requires that certain impaired loans be
measured based on the present value of expected future cash
flows discounted at the loan's original effective interest rate.
As a practical expedient, impairment may be measured based on
the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. When the
measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a
valuation allowance.
The Company had previously measured the allowance for loan
losses using methods similar to those prescribed in SFAS No.
114. As a result of adopting these statements, no additional
allowance for loan losses was required as of January 1, 1995.
Less than 1% of the Company's total loan portfolio meet the
criteria defined in SFAS Nos. 114 and 118 for classification as
an impaired loan. The Company maintained a valuation allowance
of $1,759,000 at September 30, 1995 related to loans considered
impaired. Interest income on this classification of loans has
been recorded by the Company in a manner consistent with its
income recognition policies on other loans. Such amount of
interest income is not material to the Company's financial
statements.
4. INVESTMENT SECURITIES
Investment securities consisted of the following at September
30, 1995 and December 31, 1994 (in thousands):
1995 1994
U.S. Government and Federal Agencies $248,774 $216,387
Obligations of state and political
subdivisions 40,855 54,973
Other 5,255 5,419
$294,884 $276,779
5. 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, 1995
and 1994 were 2,342,683 and 2,362,220 respectively. The
weighted average number of shares outstanding for the nine
months ended September 30, 1995 and 1994 were 2,346,181 and
2,374,463 respectively.
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, 1995 was
$9,254,000, a 39.9% decline from the corresponding period of the
prior year. As discussed more fully below, the Company's
comparative results have been significantly impacted by the loan
loss provisions recorded in both 1994 and 1995.
NET INTEREST INCOME. Third quarter net interest income amounts
have increased $736,000, or 4.0% over the comparable 1994
period. Year-to-date, the Company's net interest income has
increased 4.1% over 1994 levels. Average interest-earning
assets in the third quarter increased 7% over the comparable
period of 1994, with The First Bank - Moore accounting for
approximately 2.5% of this total increase. Year-to-date average
interest-earning assets and interest-bearing liabilities have
increased nominally from 1994 levels, 4.2% and 2.4%,
respectively.
The Company's interest spread during the third quarter of 1995
decreased slightly from second quarter levels, as total yields
remained flat but some increase in funding costs was
experienced. Third quarter interest income increased 1.8% over
that realized in the second quarter, but the increase was
attributable to a 2.4% increase in average interest-earning
assets. Third quarter interest expense of $13,831,000
represents an increase of 42.8% over the comparable 1994 quarter
and an increase of 3.8% over second quarter amounts. 1995
year-to-date interest expense has increased 41.8% over 1994
levels. In addition to the factors described above, the
percentage of total 1995 deposits comprised of
noninterest-bearing demand deposits fell 70 basis points from
comparable 1994 amounts.
Loans, as a percentage of deposits, were 80.6% at September 30,
1995, compared to 82.9% at December 31, 1994 . The percentage
of total interest-earning assets comprised of loans totaled
72.3% in the third quarter, compared to 74.0% during the second
quarter.
PROVISION FOR LOAN LOSSES. The provision for loan losses for
the three month period ended September 30, 1995 was $7,330,000
compared to a provision of $602,000 for the corresponding period
of the preceding year. As noted in previous filings, the
Company's 1994 provision was less than historical averages, and
it was anticipated that its 1995 provision for loan losses would
return to more traditional levels, causing some reduction in the
Company's net interest income after provision for loan losses.
During the five year period ended December 31, 1993, the
Company's provision for loan losses averaged 1.2% of average
loans outstanding. On an annualized basis, the provision for
loan losses recognized by the Company through the first nine
months of 1995 would equal 1.77% of average loans outstanding.
In late 1993 and during 1994, the Company elected to undertake
certain credit card marketing efforts. These efforts allowed
the Company to increase its credit card outstandings by
approximately $100 million. However, charge-offs and losses on
this new business have been greater than originally projected by
the Company. The relatively high level of consumer
indebtedness, along with other factors, has resulted in 1995
credit card charge-offs substantially higher than experienced
previously. The following table summarizes the Company's loan
loss experience. Net charge-offs in 1995 have increased
approximately 100% from 1994 levels. The Company anticipates
that charge-off levels will remain higher than historical
averages for the remainder of 1995 and into 1996.
Summary of Loan Loss Experience
September 30,
1995 1994
Amount of loans at period-end $1,039,569 $1,021,006
YTD Average loans outstanding $1,039,178 $988,520
Beginning balance of allowance for loan losses $19,886 $21,793
Loans charged-off
Commercial, Financial and Agricultural 217 395
Real Estate-Mortgage 141 147
Credit Card 8,456 3,941
Installment 640 483
Total loans charged off 9,454 4,966
Recoveries on charge-offs
Commercial, Financial and Agricultural 1,493 704
Real Estate-Mortgage 28 69
Credit Card 899 654
Installment 324 208
Total recoveries 2,744 1,635
Net loans charged off 6,710 3,331
Provision charged to expense 13,791 742
Ending balance of allowance for loan losses $26,967 $19,204
Net charge-offs/average loans 0.65% 0.34%
Allowance for loan losses/loans at period-end 2.59% 1.88%
The accompanying table summarizes, by type, the Company's
outstanding loans. Installment loans are principally comprised
of credit card loans and loans secured by automobiles. The
reduction in installment lending in 1995 in the table reflects
the securitization of $50 million in credit card receivables in
January, 1995.
September 30, 1995 December 31, 1994
Percent Percent
Amount of Total Amount of Total
Commercial, Financial
and Agricultural $406,483 39.1% $377,553 35.7%
Real Estate-Construction 24,246 2.3% 21,415 2.0%
Real Estate-Mortgage 175,446 16.9% 185,105 17.5%
Installment 433,394 41.7% 474,012 44.8%
Total $1,039,569 100.0% $1,058,085 100.0%
Loans considered risk elements, as presented in the following
table, totaled .78% of total loans at September 30, 1995,
compared to .59% at December 31, 1994. The Company has
substantially increased its allowance for loan losses as it
anticipates that its charge-offs will continue to exceed its
historical averages into the following year. Also, the impact
of a prolonged strike by employees of a major Wichita employer
introduces additional uncertainty about the overall credit
climate of the Company's principal lending market. The
allowance for loan losses at September 30, 1995 was 2.6% of
total loans (net of unearned discount) compared with 1.88% at
December 31, 1994. Management will continue to actively review
the activity in its loan portfolio to ensure that the provision
for loan losses and resultant allowance for loan losses remain
adequate to appropriately address the credit risk existing in
the portfolio.
September 30, December 31,
1995 1994
Loan Categories
Nonaccrual Loans $4,112 $2,843
Past Due 90 days or more 4,013 3,074
Restructured Loans 0 336
Total $8,125 $6,253
LIQUIDITY AND CAPITAL RESOURCES. Consolidated liquidity
remained strong at September 30, 1995. The average maturity of
United States government and agency securities in the investment
portfolio was 1 year and 10 months, and the average maturity of
municipal securities was 4 years.
The Company has thoroughly reviewed its investment security
portfolio and has determined that at September 30, 1995, 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, such as the
securitization of credit card receivables, 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, 1995,
the Company's total capital to risk-weighted assets ratio was
11.1% and its Tier 1 capital to risk-weighted assets ratio was
9.06%.
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. Third quarter other income
increased $761,000 or 11.6% over prior year levels. For the
first nine months of the year, this income category has
increased $3,710,000, or 18.8% over comparable prior year
amounts. The majority of this increase is attributable to the
securitization of credit card receivables that occurred in the
fourth quarter of 1994 and the first quarter of 1995. The
Company continues to service the $100,000,000 in credit card
receivables that it has securitized and sold. However, it no
longer recognizes net interest income and certain fee revenue,
nor does it provide for loan losses on the securitized
portfolio. Instead, servicing fee income is received by the
Company.
Service charges on deposit accounts recognized during the
quarter ended September 30, 1995 have not changed appreciably
from the same period of 1994, as there have not been significant
year-over-year changes in the volumes of those accounts that
typically carry a service charge. Trust fees are flat when
compared to 1994, and bankcard fees have been impacted by the
securitization mentioned above, as well as general competitive
pressures, as no annual fee credit cards are becoming more
common.
Other expenses have increased 1.4%, or $218,000 over the
comparable third quarter prior year period. On a year-to-date
basis, 1995 other expenses have increased 5.4% over 1994
amounts. The Company would have experienced a larger increase
in other expenses had it not been for two factors. During the
third quarter, the Company's subsidiary banks received deposit
insurance assessment refunds resulting in net deposit insurance
assessments for the quarter ended September 30, 1995 of
($116,000). During the same period last year, deposit insurance
assessment costs were $699,000. Also, the Company's suspension
of significant credit card marketing efforts has resulted in
reduced advertising and promotional expenditures.
Third quarter employment expenses increased $300,000 over those
of the comparable period in 1994. Year-to-date employment costs
have increased by 2.8%, as the consolidation of the Company's
Kansas banks in February, 1995 has resulted in staffing
efficiencies. At September 30, 1995 the Company had 875
full-time equivalent employees, compared to 892 at December 31,
1994.
Occupancy and equipment expenses for the quarter ended September
30, 1995 increased 9% or $180,000, over 1994 levels. During the
first nine months of 1995, these costs have increased $392,000
or 6.6%, when compared to the same period of the preceding year.
Much of this increase is due to depreciation on technology
investments the Company has made within the past twelve months.
Certain of these technology investments were made to support the
Company's conversion to another data processor, which was
completed in the third quarter. Data processing expenses in the
third quarter included certain one-time conversion costs. The
Company anticipates that reductions in these costs will begin to
be realized during the fourth quarter.
Other expenses have increased 31.1% in the first nine months of
1995 over the comparable prior year period. Much of this
increase has come about because promotions generated in 1994
resulted in increased volumes in the credit card area, and these
additional volumes have resulted in increased credit card
operational costs and increased fraud losses.
NEW ACCOUNTING STANDARDS. Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" is effective
for fiscal years beginning after December 15, 1995. This
Statement establishes accounting standards for the impairment of
long-lived assets. The Company is presently assessing the
impact the Statement may have on its financial statements and
the period in which the Statement will be adopted.
Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights" amends Statement of Financial
Accounting Standards No. 65, "Accounting for Certain Mortgage
Banking Activities" to eliminate the accounting distinction
between purchased mortgage servicing rights and originated
mortgage servicing rights. The provisions of Statement No. 122
are effective for fiscal years beginning after December 15,
1995. Because the Company is not actively engaged in the
origination of mortgage servicing rights, it does not anticipate
that the adoption of Statement No. 122 will have a material
impact on its financial statements.
PART 2. OTHER INFORMATION
Item 6(b). Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the
quarter for which this report is filed.
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 13, 1995 By: /s/ C.Q. Chandler IV
C. Q. Chandler IV
President
(Principal Executive Officer)
Date: November 13, 1995 By: /s/ Jay L. Smith
Jay L. Smith
Chief Financial Officer
(Principal Accounting Officer)
EXHIBIT INDEX
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 85,683
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 83,465
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 294,884
<INVESTMENTS-MARKET> 298,891
<LOANS> 1,012,211
<ALLOWANCE> 26,967
<TOTAL-ASSETS> 1,571,721
<DEPOSITS> 1,289,547
<SHORT-TERM> 95,337
<LIABILITIES-OTHER> 20,705
<LONG-TERM> 32,164
<COMMON> 12,000
0
0
<OTHER-SE> 121,968
<TOTAL-LIABILITIES-AND-EQUITY> 1,571,721
<INTEREST-LOAN> 77,956
<INTEREST-INVEST> 13,470
<INTEREST-OTHER> 3,657
<INTEREST-TOTAL> 95,083
<INTEREST-DEPOSIT> 33,549
<INTEREST-EXPENSE> 39,530
<INTEREST-INCOME-NET> 55,553
<LOAN-LOSSES> 13,791
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 51,013
<INCOME-PRETAX> 14,238
<INCOME-PRE-EXTRAORDINARY> 9,254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,254
<EPS-PRIMARY> 3.94
<EPS-DILUTED> 3.57
<YIELD-ACTUAL> 0
<LOANS-NON> 4,112
<LOANS-PAST> 4,013
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,886
<CHARGE-OFFS> 9,454
<RECOVERIES> 2,744
<ALLOWANCE-CLOSE> 26,967
<ALLOWANCE-DOMESTIC> 26,967
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
