SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to ________
Commission File Number 2-78658
INTRUST FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Kansas 48-0937376
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
105 North Main Street
Box One
Wichita, Kansas 67202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:(316)383-1111
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ X ]
At February 4, 1997, there were 2,201,110 shares of the registrant's
common stock, par value $5 per share, outstanding. There is no established
public trading market for the registrant's common stock. Registrant is aware
that quotations for its common stock have become available through the National
Quotation Bureau, Inc. As reported by the National Quotation Bureau, Inc. as of
March 5, 1997, the bid price of $63.00 per share would indicate an aggregate
market value of $95,241,069 for shares held by nonaffiliates.
EXHIBIT INDEX: Part IV hereof.
<PAGE>
PART I
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ITEM 1. BUSINESS.
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GENERAL
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INTRUST Financial Corporation, a Kansas corporation (the "Company"), is
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended. The mailing address of the Company is 105 North Main, Box One,
Wichita, Kansas 67202.
On May 1, 1996, INTRUST Investments, Inc. was formed as a wholly-owned
subsidiary of INTRUST Bank, N.A.
INTRUST Mortgage Corporation of Kansas ("IMC"), a wholly-owned
subsidiary of INTRUST Bank, N.A. that was engaged in the business of mortgage
banking, was liquidated as of May 31, 1996. The assets and liabilities of IMC
were transferred to INTRUST Bank, N.A. at historical cost. Income and expenses,
from before and after the combination, are included in the Company's
consolidated income statement for 1996.
INTRUST Community Development Corporation was incorporated, on June 17,
1996, as a wholly-owned subsidiary of the Company.
On September 16, 1996, one of the Company's direct wholly-owned banking
subsidiaries (The First Bank, Moore, Oklahoma) was merged into Will Rogers Bank,
also a wholly-owned banking subsidiary of the Company. The assets and
liabilities transferred in the combination were accounted for at historical
cost. Income and expenses, from before and after the combination, are included
in the Company's consolidated income statement for 1996.
On November 1, 1996, NestEgg Consulting, Inc. was formed as a
wholly-owned subsidiary of the Company.
First Moore Insurance Agency, Inc. ("FMIA"), a wholly-owned subsidiary
of the Company and WRB Insurance Agency ("WRBIA"), a wholly-owned subsidiary of
Will Rogers Bank, were liquidated on December 18, 1996. FMIA and WRBIA were
engaged in the business of selling credit life insurance to customers of Will
Rogers Bank. The assets and liabilities of FMIA and WRBIA were transferred, at
historical cost, to the Company and WRB respectively. Income and expenses, from
before and after the combination, are included in the Company's consolidated
income statement for 1996.
DESCRIPTION OF BUSINESS
-----------------------
As of December 31, 1996, the Company's direct wholly-owned banking
subsidiaries were INTRUST Bank, N.A. ("IB"), Wichita, Kansas, and Will Rogers
Bank ("WRB"), Oklahoma City, Oklahoma (collectively, the "Subsidiary Banks"). IB
is a national banking association organized under the laws of the United
States. WRB a state banking association is organized under the laws of Oklahoma.
The Subsidiary Banks provide a broad range of banking services to customers,
including checking and savings accounts, NOW accounts, money market deposit
accounts, certificates of deposit, Individual Retirement Accounts, personal
loans, real estate and commercial loans, investment services, credit cards,
automated teller machines, and safe deposit facilities. In addition, IB offers
fiduciary and trust services, equipment and automobile leasing, cash management,
data processing, and correspondent bank services to its customers.
The direct and indirect non-banking subsidiaries of the Company are:
NestEgg Consulting, Inc. ("NCI"), INTRUST Community Development Corporation
("ICDC"), KSB Properties, Inc. ("KSBP"), and INTRUST Investments, Inc. ("III")
(collectively, the "Non-Banking Subsidiaries"). NCI and ICDC are wholly-owned
subsidiaries of the Company; KSBP and III are wholly-owned subsidiaries of IB.
NCI is engaged in the business of providing pension plan consulting services.
ICDC is in business to make equity and debt investments to promote community
welfare. KSBP owned partial interests in oil and gas leases that were acquired
through foreclosure, all of which properties were sold in 1994. III performs
portfolio management activities by managing, investing and reinvesting the cash,
U.S. government obligations and other investment securities contributed to it by
INTRUST Bank, N.A.. All of the Non-Banking Subsidiaries are based in Wichita,
Kansas.
The Subsidiary Banks and the Non-Banking Subsidiaries are collectively
referred to as the "Subsidiaries".
At December 31, 1996, IB's trust division managed assets with a market
value of $1,289,000,000 in various fiduciary capacities.
As of December 31, 1996 the Company had 23 full-time employees. The
Subsidiaries collectively had approximately 791 full-time and 152 part-time
employees. None of the employees of the Company or the Subsidiaries are subject
to a collective bargaining agreement. The Company generally considers its
relationships with its employees and the employees of the Subsidiaries to be
good.
The Company and the Subsidiaries do not engage in any other business.
COMPETITION
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The Company offers a wide range of financial services through its
Subsidiary Banks (IB and WRB). The Company and its Subsidiary Banks encounter
intense competition in all of their activities. As lenders, the Subsidiary Banks
compete not only with other banks, but also with savings associations, credit
unions, finance companies, factoring companies, insurance companies and other
non-banking financial institutions. They compete for savings and time deposits
with other banks, savings associations, credit unions, mutual funds, money
market funds, and issuers of commercial paper and other securities. In addition,
large regional and national corporations have in recent years become
increasingly visible in offering a broad range of financial services to all
types of commercial and consumer customers. Many of such competitors have
greater financial resources available for lending and acquisition as well as
higher lending limits than the Subsidiary Banks and may provide services which
the Company or its Subsidiaries may not offer. In addition, non-banking
financial institutions are generally not subject to the same regulatory
restraints applicable to banks.
The Company is predominantly a retail bank committed to serving the
financial needs of customers in the local communities where the Subsidiary Banks
and their branches are located. IB's primary service areas are Sedgwick County
(including Wichita), Johnson County, El Dorado and Ottawa, Kansas; WRB's primary
service areas are Oklahoma City, Moore and Mustang, Oklahoma. The Company
believes that the primary source of competition comes from approximately
fourteen other banks with locations in Sedgwick County, eleven in Johnson
County, three in El Dorado, three in Ottawa, six in Oklahoma City, and five in
Mustang and Moore. However, competition can also come from institutions that do
not have offices located in the Subsidiary Banks' service areas. The Company
believes that the principal competitive factors in its markets for deposits and
loans are, respectively, interest rates paid and interest rates charged.
As discussed more fully below, on September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 was enacted. This
legislation facilitates the interstate expansion and consolidation of banking
organizations by: (i) permitting, one year after the date of enactment, bank
holding companies that are adequately capitalized and managed to acquire banks
located in states outside their home state regardless of whether such
acquisitions are authorized under the law of the host state; (ii) permitting the
interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or to "opt out" of this authority before that
date; (iii) permitting banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state; (iv) permitting foreign banks to establish, with approval of the
regulators in the United States, branches and agencies outside their home state
to the same extent that national or state banks located in the home state would
be authorized to do so; and (v) permitting banks to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and other
obligations as agent for any bank or thrift affiliate, whether the affiliate is
located in the same state or a different state. Overall, this legislation is
likely to have the effect of increasing competition and promoting geographic
diversification in the banking industry. See "Federal Regulation of Bank Holding
Companies" below.
Generally, increased competition in the banking industry has the effect
of requiring banks to accept lower interest rates on loans and to pay interest
on a larger percentage of deposits.
SUPERVISION AND REGULATION
--------------------------
The Company and the Subsidiary Banks are subject to extensive regulation
by federal and state authorities. Such regulation is generally intended to
protect depositors, not shareholders.
FEDERAL REGULATION OF BANK HOLDING COMPANIES
--------------------------------------------
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Act"), and is registered as such
with the Board of Governors of the Federal Reserve System (the "Board of
Governors"). The Board of Governors may make examinations of the Company and its
subsidiaries, and the Company is required to file with the Board of Governors an
annual report and such other additional information as the Board of Governors
may require pursuant to the Act.
The Act requires every bank holding company to obtain the prior approval
of the Board of Governors before (i) acquiring direct or indirect ownership or
control of more than 5% of the outstanding shares of any class of the voting
shares or all or substantially all of the assets of any bank, or (ii) merging or
consolidating with another bank holding company. In determining whether to
approve such a proposed acquisition, merger or consolidation, the Board of
Governors is required to take into account the competitive effects of the
proposed transaction, the convenience and needs of the community to be served,
the Company's performance under the Community Reinvestment Act and the financial
and managerial resources and future prospects of the bank holding companies and
banks concerned. The Act provides that the Board of Governors shall not approve
any acquisition, merger or consolidation which would result in a monopoly, or
which would be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the United States,
or any other proposed acquisition, merger or consolidation, the effect of which
may be substantially to lessen competition or tend to create a monopoly in any
section of the country, or which in any other manner would be in restraint of
trade, unless the anti-competitive effects of the proposed transaction are
clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the community to be served.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorizes interstate acquisitions of banks and bank holding
companies by qualifying bank holding companies without geographic limitation
beginning September 29, 1995. In addition, beginning June 1, 1997, the IBBEA
also authorizes a bank to merge with a bank in another state as long as neither
of the states has opted out of interstate branching between the date of
enactment of the IBBEA and June 1, 1997. The IBBEA further provides that states
may enact laws permitting interstate bank merger transactions prior to June 1,
1997. Such acquisitions and mergers may be subject to such contingencies as
compliance with state age laws and nationwide and statewide concentration
limits. A bank may establish and operate a de novo branch in a state in which
the bank does not maintain a branch if that state expressly permits de novo
branching. Once a bank has established branches in a state through an interstate
merger transaction, the bank may establish and acquire additional branches at
any location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable federal
or state law. A bank that has established a branch in a state through de novo
branching may establish and acquire additional branches in such state in the
same manner and to the same extent as a bank having a branch in such state as a
result of an interstate merger. If a state opts out of interstate branching
within the specified time period, no bank in any other state may establish a
branch in the opting out state.
The Act also prohibits, with certain exceptions, a bank holding company
from engaging in and from acquiring direct or indirect ownership or control of
more than 5% of the outstanding shares of any class of the voting shares of any
company engaged in a business other than banking, managing and controlling
banks, or furnishing services to its affiliated banks. One of the exceptions to
this prohibition provides that a bank holding company may engage in, and may own
shares of companies engaged in, certain businesses that the Board of Governors
has determined to be so closely related to banking as to be a proper incident
thereto. In making such determination, the Board of Governors is required to
weigh the expected benefit to the public, such as greater convenience, increased
competition, or gains in efficiency, against the risks of possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
A bank holding company and its subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with the extension of credit or the
lease or sale of any property or the furnishing of any service. Subsidiary banks
of a bank holding company are also subject to certain restrictions imposed by
the Federal Reserve Act and the Federal Deposit Insurance Act on extensions of
credit to the bank holding company or any of its subsidiaries, investments in
the stock or other securities thereof, the taking of such stocks or securities
as collateral for loans and other transactions with the bank holding company and
its subsidiaries. These restrictions may limit the Company's ability to obtain
funds from the Subsidiary Banks. In addition, the amount of loans or extensions
of credit that the Subsidiary Banks may make to the Company or to third parties
secured by securities or obligations of the Company are substantially limited by
the Federal Reserve Act and the Federal Deposit Insurance Act. The Board of
Governors possesses cease and desist and other administrative sanction powers
over bank holding companies if their actions constitute unsafe or unsound
practices or violations of the law.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") established a cross guarantee provision pursuant to which the Federal
Deposit Insurance Corporation ("FDIC") may recover from a depository institution
losses that the FDIC incurs in providing assistance to or paying off the insured
depositors of any of such depository institution's affiliated insured banks. The
cross guarantee provision thus enables the FDIC to assess a holding company's
healthy insured subsidiaries for the losses of any of the holding company's
failed insured members. Cross guarantee liabilities are generally superior in
priority to obligations of the depository institution to its shareholders due
solely to their status as shareholders and obligations to other affiliates.
The Board of Governors has promulgated "capital adequacy guidelines" for
use in its examination and supervision of bank holding companies. These
guidelines are described in detail below. A holding company's ability to pay
dividends and expand its business through the establishment or acquisition of
new subsidiaries can be restricted if its capital falls below levels established
by these guidelines. In addition, holding companies whose capital falls below
specified levels are required to implement a plan to increase capital.
STATE BANK HOLDING COMPANY REGULATION
-------------------------------------
Kansas statutes prohibit any bank holding company from acquiring and
voting shares of a bank in Kansas if it would cause the aggregate deposits held
by all of the banks in Kansas in which a single bank holding company has an
interest to exceed 15% of the total deposits of banks and savings institutions
in the state. Such limitation does not apply in situations where the Kansas
state banking commissioner, in the case of a state bank, or the Comptroller of
the Currency ("OCC"), in the case of a national bank, determines that an
emergency exists and the acquisition is appropriate in order to protect the
public interest against the failure or probable failure of a bank. Acquisitions
by bank holding companies of control of state banks in Kansas require the
approval of the Kansas state banking commissioner. Kansas statutes authorize
out-of-state bank holding companies located in states contiguous to Kansas and
in Arkansas and Iowa to acquire voting shares of banks or bank holding companies
domiciled in Kansas.
Subject to certain limited exceptions, Oklahoma law prohibits a
multi-bank holding company from acquiring ownership or control of any insured
financial institution located in Oklahoma if such acquisition would result in
the holding company owning or controlling banks located in Oklahoma with total
deposits in excess of 12.25% of the total deposits of insured depository
institutions in Oklahoma as determined by the Oklahoma Bank Commissioner
("OBC"). A bank cannot be acquired by a bank or a multi-bank holding company
until such bank has been in existence and continuous operation for a period of
five years; such restriction does not prevent a bank or a multi-bank holding
company from acquiring a bank whose charter was granted for the purpose of
purchasing the assets and liabilities of a bank located in Oklahoma closed by
regulators due to insolvency or impairment of capital. An out-of-state bank
holding company, upon approval by the Federal Reserve Board, may acquire an
unlimited number of banks and bank holding companies so long as each bank to be
acquired has been in existence and continuous operation for more than five
years.
Under Oklahoma law, each bank holding company that controls 25% or more
of the voting shares of a bank located in Oklahoma must furnish a copy of its
annual report to the Board of Governors to the OBC.
FEDERAL REGULATION OF SUBSIDIARY BANKS
--------------------------------------
IB is a national bank. National banks are subject to regulation,
supervision and examination primarily by the OCC. They are also regulated, in
certain respects, by the Board of Governors and the FDIC. WRB is an Oklahoma
state nonmember (of the Federal Reserve System) bank, subject to regulation and
examination primarily by the Oklahoma Banking Department ("OBD"), and by the
FDIC. Regulation by these agencies is generally designed to protect depositors
rather than stockholders.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDIC Improvement Act") provides for, among other things, the strengthening of
internal control and auditing systems, the enhancement of credit underwriting
and loan documentation standards (particularly with respect to real estate), the
accounting for interest rate exposure and other off-balance sheet items,
restrictions on the compensation of officers and directors, and the adoption of
a risk-based deposit insurance system.
The FDIC Improvement Act also authorizes the regulator of an insured
depository institution to assess all costs and expenses of any regular or
special examination of the insured depository institution.
Under the Federal Reserve Act, extensions of credit by a bank to the
executive officers, directors, or principal shareholders of the bank or its
affiliates or any related interest of such persons must be on substantially the
same terms as, and following credit underwriting procedures that are not less
stringent than, those applicable to comparable transactions with nonaffiliated
persons and must not involve more than the normal risk of repayment or present
other unfavorable features.
The rate of interest a bank may charge on certain classes of loans is
limited by state and federal law. At certain times in the past, these
limitations, in conjunction with national monetary and fiscal policies which
affect the interest rates paid by banks on deposits and borrowings, have
resulted in reductions of net interest margins on certain classes of loans. Such
circumstances may recur in the future, although the trend of recent federal and
state legislation has been to eliminate restrictions on the rates of interest
which may be charged on some types of loans and to allow maximum rates on other
types of loans to be determined by market factors.
In addition to limiting the rate of interest charged by banks on certain
loans, federal law imposes additional restrictions on a national bank's lending
activities. For example, federal law regulates the amount of credit a national
bank may extend to an individual borrower and has in the past subjected real
estate lending activities to rigid statutory requirements. The Garn-St Germain
Depository Institutions Act of 1982 (the "1982 Act") liberalized federal law
with respect to both of these types of lending activities by increasing the
maximum amount of credit a national bank may extend to an individual borrower
and by simplifying the statutory framework pursuant to which national banks may
extend real estate loans.
The 1982 Act also authorizes banks to invest in service corporations
that can offer the same services as the banking related services which bank
holding companies are authorized to provide. However, the approval of the OCC
must be obtained before a national bank may make such an investment or perform
such services.
The Board of Governors has issued Community Reinvestment Act ("CRA")
regulations, pursuant to its authorization to conduct examinations and to
consider applications for the formation and merger of bank holding companies and
member banks, to encourage banks to help meet the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. The OCC has issued virtually
identical regulations with respect to applications of national banks. The FDIC
has issued virtually identical regulations with respect to applications of banks
which are incorporated under state law and are not members of the Federal
Reserve System.
STATE REGULATION OF SUBSIDIARY BANKS
------------------------------------
Kansas law permits a Kansas bank to install remote service units, also
known as automatic teller machines, throughout the state. Remote service units
which are not located at the principal place of business of the bank or at a
branch location of the bank must be available for use by other banks and their
customers on a non-discriminatory basis. Federal law generally allows national
banks to establish branches in locations which do not violate state law.
All limitations and restrictions of the Oklahoma Banking Code applicable
to Oklahoma chartered banks apply to such banks that become subsidiaries of a
foreign bank holding company. In addition, Oklahoma chartered banks that are
subsidiaries of foreign bank holding companies are required to maintain current
reports showing the bank's record of meeting the credit needs of its entire
community with the OBD. Subject to approval of the Oklahoma Banking Board
("OBB") and certain limited exceptions, any Oklahoma bank may maintain and
operate outside attached facilities and two detached branch facilities. Upon
written notice to the OBC, an Oklahoma state bank may also install and operate
consumer banking electronic facilities. An Oklahoma bank offering such services
to a bank which establishes or maintains a consumer banking electronic facility
must make the use thereof available to banks located in Oklahoma on a fair and
equitable basis of non-discriminatory access and rates.
Oklahoma banks are required to maintain reserves against deposits as
prescribed by the Board of Governors. The Oklahoma State Banking Board may
increase the reserve requirements of banks which are not members of the Federal
Reserve System if it is determined that the maintenance of sound banking
practices or the prevention of injurious credit expansion or contraction makes
such action advisable.
Notwithstanding any provision of state law, the FDIC Improvement Act
provides that an insured state chartered bank generally may not make an
investment or engage in an activity that is not permissible for a national bank,
unless the FDIC determines that such investment or activity would not pose a
significant risk to the applicable insurance fund.
CAPITAL REQUIREMENTS
--------------------
The Board of Governors together with the other federal banking
regulatory agencies jointly promulgated guidelines defining regulatory capital
requirements based upon the level of risk associated with holding various
categories of assets (the "Guidelines"). The Guidelines, which are applicable to
all bank holding companies and federally supervised banking organizations, took
effect on March 15, 1989, and were fully phased into the existing supervisory
system as of the end of 1992. Under the Guidelines, balance sheet assets are
assigned to various risk weight categories (i.e., 0, 20, 50, or 100 percent),
and off-balance sheet items are first converted to on-balance sheet "credit
equivalent" amounts that are then assigned to one of the four risk-weight
categories. For risk-based capital purposes, capital is divided into two
categories: core capital ("Tier 1 capital") and supplementary capital ("Tier 2
capital"). Tier 1 capital generally consists of the sum of: common stock,
additional paid-in capital, retained earnings, qualifying perpetual preferred
stock (within certain limitations), minority interest in equity accounts of
consolidated subsidiaries; less intangibles, including goodwill (within certain
limitations). Tier 2 capital generally includes: reserve for possible loan
losses (within certain limitations), perpetual preferred stock not included in
Tier 1 capital, perpetual debt, mandatory convertible instruments, hybrid
capital instruments, and subordinated debt and intermediate-term preferred stock
(within certain limitations). The total amount of Tier 2 capital under the
Guidelines is limited to 100% of Tier 1 capital. The sum of Tier 1 and Tier 2
capital comprises total capital ("Total Capital"). The Guidelines require
minimum ratios of Tier 1 and Total Capital to risk weighted assets, on a
consolidated basis. The minimum ratios required by the Guidelines are shown
below in comparison with the consolidated ratios of the Company and for each of
the Subsidiary Banks at December 31, 1996. Based on this financial data, the
Company's capital ratios exceed the Guidelines on a consolidated basis. All of
the Subsidiary Banks also exceeded the minimum guidelines at the individual bank
level.
Company IB WRB
Guidelines Ratios Ratios Ratios
Tier 1 Ratio 4.0% 7.8% 9.4% 13.8%
Total Capital Ratio 8.0% 8.9% 10.1% 15.1%
In addition to the Guidelines, the Board of Governors requires a minimum
leverage ratio ("leverage ratio") of Tier 1 capital (as described above) to
total assets of 3 percent. For all but the most highly rated bank holding
companies, the leverage ratio is to be 3 percent plus an additional cushion of
at least 100 to 200 basis points. The Company's consolidated leverage ratio at
December 31, 1996 was 6.3%. Similar requirements also apply to the Subsidiary
Banks. At December 31, 1996 the leverage ratio for IB and WRB were 7.6%, and
8.9% respectively.
The FDIC Improvement Act requires all regulators of insured depository
institutions to classify such institutions according to the following "prompt
corrective action" categories: (1) well capitalized, (2) adequately capitalized,
(3 )undercapitalized, (4) significantly undercapitalized or (5) critically
undercapitalized. "Undercapitalized," "significantly undercapitalized" and
"critically undercapitalized" institutions may be required to take or to refrain
from taking certain actions, such as, among other things, requiring a
recapitalization or divestiture of subsidiaries or restricting transactions with
affiliates, interest rates on deposits, asset growth or distributions to parent
bank holding companies, until such institution becomes adequately capitalized.
"Undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" institutions are required to submit a capital restoration plan
to the appropriate federal banking agency. A company controlling an
undercapitalized institution is required to guarantee a bank subsidiary
institution's compliance with the capital restoration plan subject to an
aggregate limitation of the lesser of 5% of the institution's assets at the time
it received FDIC notice that it was "undercapitalized" or the amount of the
capital deficiency when the subsidiary institution first failed to comply with
its capital restoration plan. As of the last classification, all of the
Subsidiary Banks were categorized as "well capitalized".
The minimum capital level for an Oklahoma state bank is based on the
population of the community in which the bank is located. WRB exceeds the
applicable minimum capital requirements for its community.
DIVIDENDS
---------
The National Bank Act restricts the payment of dividends by a national
bank generally as follows: (i) no dividends may be paid which would impair the
bank's capital, (ii) until the surplus fund of a national banking association is
equal to its capital stock, no dividends may be declared unless there has been
carried to the surplus fund not less than one-tenth of the bank's net profits of
the preceding half year in the case of quarterly or semi-annual dividends, or
not less than one-tenth of the net profits of the preceding two consecutive
half-year periods in the case of annual dividends, and (iii) the approval of the
OCC is required if dividends declared by a national banking association in any
year exceed the total of net profits for that year combined with retained net
profits for the preceding two years, less any required transfers to surplus or a
fund for the retirement of any preferred stock.
No Oklahoma bank may permit the withdrawal, in the form of dividends or
otherwise, of any portion of its capital or surplus. If losses equal or exceed a
bank's undivided profits, no dividends shall be made and no dividends shall ever
be made by any Oklahoma bank in an amount greater than its net profits then on
hand less its losses and bad debts. The directors of any Oklahoma bank may
declare dividends of so much of the net profits as they judge expedient, except
that until the surplus fund of a bank equals its common capital, no cash
dividends shall be declared unless there has been carried to the surplus fund
not less than 1/10th of the Bank's net profits of the preceding half year in the
case of quarterly or semi-annual dividends, or not less then 1/10th of its net
profits of the preceding two consecutive half-year periods in the case of annual
dividends. The approval of the OBC is required if the total of all dividends
declared by a bank in any calendar year exceeds the total of its net profits of
that year combined with its retained net profits of the preceding two years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock.
DEPOSIT INSURANCE
Effective January 1, 1993, the FDIC established a risk-based deposit
insurance premium assessment system, with assessment rates ranging from .23% of
domestic deposits (the same rate as under the previous flat-rate assessment
system) for those banks deemed to pose the least risk to the insurance fund to
.31% for those banks deemed to pose greater risk. The assessment rate applicable
to a bank is subject to change with each semi-annual assessment period.
Effective September 15, 1995, in view of the successful recapitalization of the
Bank Insurance Fund ("BIF"), which insures deposits at U.S. banks, the FDIC
lowered the assessment rate schedule for BIF-insured institutions from a range
of 0.23% to 0.31% of domestic deposits to a range of 0.04% to 0.31% of domestic
deposits. This reduction in the assessment rate schedule was made retroactive to
June 1, 1995 because the FDIC determined that the BIF achieved its
statutorily-required reserve ratio of 1.25% on May 31, 1995. On November 14,
1995, the FDIC again lowered the assessment rate schedule for BIF-insured
institutions, effective for the semiannual assessment period beginning January
1, 1996, to a range of .00% to 0.27% of domestic deposits.
The statutory semiannual minimum assessment of $1,000 per insured
institution was eliminated as part of the Economic Growth and Regulatory
Paperwork Reduction Act Of 1996 ("EGRPRA"), which was signed into law on
September 30, 1996. EGRPRA provides for the recapitalization of the Savings
Association Insurance Fund ("SAIF") through a one-time special assessment on
SAIF-insured deposits in order to bring it into parity with the BIF. As of
January 1, 1997, BIF and SAIF premiums are assessed at between 0.00% and 0.27%,
depending on the supervisory rating assigned.
EGRPRA also requires BIF members to pay a portion of the annual interest
on the Financing Corporation ("FICO") bonds issued in 1987 to begin funding the
resolution of the problems of the savings and loan industry. Beginning January
1, 1997, BIF members will pay a FICO premium on BIF deposits equal to 0.0129%.
Beginning January 1, 2000, BIF members will share in the payment of the FICO
assessment with SAIF members on a pro rata basis, with the annual assessment
expected to equal approximately 0.024% until retirement of the FICO bond
obligation in approximately 2017. This assessment is not expected to have a
materially adverse effect on the Subsidiary Banks.
MONETARY POLICY
---------------
The earnings of the Company are affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the U.S. and abroad. In particular, the Federal Reserve Board
regulates the national supply of money and credit in order to influence general
economic conditions, primarily through open market operations in U.S. Government
securities, varying the discount rate on member bank borrowings and setting
reserve requirements against deposits. Federal Reserve monetary policies have
had a significant effect on the operating results of financial institutions in
the past and are expected to continue to do so in the future.
ITEM 2. PROPERTIES.
- - ------- -----------
INTRUST FINANCIAL CORPORATION AND INTRUST BANK, N.A.
----------------------------------------------------
The Company's principal offices and IB's main banking offices are
located at 105 North Main Street and 100 North Main Street, Wichita, Kansas.
Both offices are located in three office buildings owned by IB. These three
buildings together with the adjacent six-story garage and two-story garage owned
by IB, occupy approximately one city block in downtown Wichita. The sixth
through tenth floors of the building at 105 North Main Street and fifth through
tenth floors of the building at 100 North Main are presently leased by IB to
others. The Company rents office space from IB on the third floor of the
building at 100 North Main.
As of December 31, 1996, IB had ten detached branch facilities in
Wichita, Kansas. IB owns the facilities and the land at six offices. With
respect to the four other detached offices, IB owns the facilities and leases
the land on which such offices are located from unaffiliated parties.
IB had two small branch offices which serve residents and staff members
of retirement communities located in Wichita, Kansas.
IB also had offices in ten Dillon supermarkets in Wichita. The office
space at each of these locations is leased from an unaffiliated party.
In addition to the above Wichita locations, IB had offices in the
following communities:
A branch owned and a Dillon supermarket office leased by IB in
El Dorado, Kansas
A branch owned by IB in Haysville, Kansas.
A branch owned by IB in Ottawa, Kansas.
A main banking office, one detached facility and a Dillon supermarket
office in Johnson County, Kansas. IB owns the main office building and leases
the land where the main office building is located as well as the other two
offices.
A branch owned by IB in Valley Center, Kansas.
IB had loan production offices in Oklahoma City, Oklahoma and Tulsa,
Oklahoma. Both offices are leased from unaffiliated parties.
Total square footage of all facilities owned and occupied by IB, as of
December 31, 1996, was approximately 251,700 square feet.
WILL ROGERS BANK
----------------
WRB's main banking office is located at 5100 Northwest Tenth, Oklahoma
City, Oklahoma. Total square footage of the facility, which is owned by WRB, is
approximately 23,550 square feet.
WRB also has offices located in Moore, Oklahoma and in Mustang,
Oklahoma. WRB owns both buildings, the total square footage of which is
approximately 19,000 square feet.
All facilities owned by the Company and the Subsidiary Banks are
maintained in good operating condition and are adequately insured. The Company
considers its properties and those of the Subsidiary Banks to be satisfactory
for their current operations.
ITEM 3. LEGAL PROCEEDINGS.
- - ------- ------------------
There are no legal proceedings pending against the Company. Certain of
the subsidiaries of the Company are parties in a variety of legal proceedings,
none of which is considered to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- - ------- ----------------------------------------------------
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- - ------- ----------------------------------------------------------------------
The common stock of the Company is traded in the local over-the-counter
market on a limited basis. Transactions in the common stock are relatively
infrequent. The following table sets forth the per share high and low bid
quotations for the periods indicated as reported by the National Quotation
Bureau, Incorporated (NQB).
1996 1995
---------- ----------
High Low High Low
1st Quarter $61 $59 $56 $54
2nd Quarter 61 61 58 56
3rd Quarter 61 61 59 58
4th Quarter 63 61 59 59
The quotations in the above table reflect inter-dealer quotations,
without retail mark-up, mark-down, or commission and may not necessarily
represent actual transactions. On February 4, 1997, there were 435 stockholders
of record for the 2,201,110 shares of outstanding common stock. Approximately
73% of the shares are held by Kansas resident individuals, institutions or
trusts, with the remainder held by residents of thirty-two other states, with no
singular concentrations. In 1996, the Company received cash dividends in the
amount of $1,300,000 from one of its subsidiaries, WRB. The Company declared
cash dividends of $3,541,649, or $1.55 per share during 1996 and $3,517,895, or
$1.50 per share during 1995. During 1996, dividend declaration dates were
January 9, April 9, July 9, October 8 and December 10. During 1995, dividend
declaration dates were January 10, April 11, July 11, October 10 and December
12. The payment of dividends by the Company is primarily dependent upon receipt
of cash dividends from the Subsidiary Banks. Regulatory authorities can restrict
the payment of dividends by national and state banks when such payments might,
in their opinion, impair the financial condition of the bank or otherwise
constitute unsafe and unsound practices in the conduct of banking business.
Additional information concerning dividend restrictions may be found in the
"Notes to Consolidated Financial Statements" (note 14) and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
topic titled "Liquidity and Asset/Liability Management". The priorities for use
of cash dividends paid to the Company will be the quarterly interest payments to
holders of $11,219,000 in 9% Convertible Subordinated Capital Notes due 1999,
and the quarterly interest payments and annual principal payment on the variable
rate term loan payable to another financial institution. Additional information
concerning the Capital Notes and the term loan may be found in the "Notes to
Consolidated Financial Statements" (notes 9 and 10). The Company's Board of
Directors will continue to review the cash dividends on the Company's common
stock each quarter with consideration given to the earnings, business
conditions, financial position of the Company and such other factors as may be
relevant at the time.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
- - --------------------------------
<TABLE>
INTRUST Financial Corporation and Subsidiaries
Five Year Summary of Selected Financial Data
Dollars in thousands except per share data
<CAPTION>
Years Ended December 31, 1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C> <C> <C> <C>
Interest income $ 132,463 $ 127,919 $ 110,383 $ 98,825 $ 96,313
Interest expense 56,436 53,460 38,267 34,253 38,368
- - --------------------------------------------------------------------------------------------------------------
Net interest income 76,027 74,459 72,116 64,572 57,945
Provision for loan losses 20,151 18,118 2,962 5,596 8,906
Credit card valuation write-down 17,475 0 0 0 0
- - --------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses and write-down 38,401 56,341 69,154 58,976 49,039
Other income 33,768 33,620 26,888 24,224 20,565
Other expenses 70,438 71,195 66,189 57,420 47,224
- - --------------------------------------------------------------------------------------------------------------
Income before income taxes 1,731 18,766 29,853 25,780 22,380
Provision for income taxes 51 6,379 10,884 8,154 6,546
- - --------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 1,680 12,387 18,969 17,626 15,834
Cumulative effect of accounting change 0 0 0 0 1,679
- - --------------------------------------------------------------------------------------------------------------
Net income $ 1,680 $ 12,387 $ 18,969 $ 17,626 $ 17,513
- - -----------------------------------------------===============================================================
Average shares outstanding 2,285,337 2,344,762 2,371,377 2,381,859 2,395,694
- - -----------------------------------------------===============================================================
Per share data assuming no dilution:
Income before cumulative effect of
accounting change $ 0.74 $ 5.28 $ 8.00 $ 7.40 $ 6.61
Cumulative effect of accounting change 0 0 0 0 0.70
- - --------------------------------------------------------------------------------------------------------------
Net income $ 0.74 $ 5.28 $ 8.00 $ 7.40 $ 7.31
- - -----------------------------------------------===============================================================
Per share data assuming full dilution:
Income before cumulative effect of
accounting change $ 0.74 $ 4.77 $ 7.10 $ 6.59 $ 5.92
Cumulative effect of accounting change 0 0 0 0 0.60
- - --------------------------------------------------------------------------------------------------------------
Net income $ 0.74 $ 4.77 $ 7.10 $ 6.59 $ 6.52
- - -----------------------------------------------===============================================================
Cash dividends per share $ 1.55 $ 1.50 $ 2.50 $ 1.50 $ 2.00
- - -----------------------------------------------===============================================================
Balance sheet data at year-end:
Total assets $1,721,402 $1,666,984 $1,519,117 $1,523,868 $1,251,610
Total deposits 1,428,395 1,367,141 1,276,076 1,283,284 1,066,323
Long-term notes payable 17,660 20,310 22,950 25,580 700
Convertible capital notes 11,219 11,854 12,000 12,000 12,000
Stockholders' equity 122,094 135,163 127,590 115,529 101,616
Book value per share 55.37 57.81 54.01 48.51 42.62
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
FINANCIAL OVERVIEW
------------------
INTRUST Financial Corporation's 1996 net earnings of $1,680,000 declined
$10,707,000 from 1995 levels. During 1996, the Company continued to incur
charge-offs in the national market portion of its credit card loan portfolio
("the national portfolio") which were substantially in excess of its historical
experience with its local and regional credit card loans. In the fourth quarter
of 1996, the Company executed a nonbinding letter of intent to sell the national
portfolio, and wrote-down these loans to estimated market value. This charge to
earnings totaled $17.5 million. The circumstances surrounding the write-down are
more fully discussed in "ASSET QUALITY AND PROVISION FOR LOAN LOSSES".
In addition to the credit quality issues associated with the national
portfolio, the Company recognized a $1 million impairment loss on one of its
properties and made payments totaling $600,000 to terminate certain vendor
relationships during the fourth quarter of 1996. In the aggregate, these charges
resulted in a pre-tax reduction in operating earnings of $19.1 million, with the
estimated after-tax effect totaling approximately $11.5 million.
ASSET QUALITY AND PROVISION FOR LOAN LOSSES
-------------------------------------------
The amount charged to the Company's earnings to provide for an adequate
allowance for loan losses is determined after giving consideration to a number
of factors. These include, but are not limited to, management's assessment of
the quality of existing loans, changes in economic conditions, evaluation of
specific industry risks, the need to support projected loan volumes and a
provision for the timely elimination of uncollectible receivables. A detailed
analysis of the allowance for loan losses is conducted quarterly.
During the second-half of 1993 and throughout 1994, the Company initiated
national marketing campaigns to increase its level of credit card outstandings.
At its peak, these marketing efforts resulted in approximately $115 million in
new, national credit card outstandings. During 1995, and continuing into 1996,
losses arising from the accounts acquired in the national marketing campaigns
significantly exceeded the Company's previous experience. Credit card loans
charged-off in 1996 totaled $18,770,000, an increase of $6.7 million, or 55%
from 1995 levels. 1995 credit card loan charge-offs exceeded 1994 amounts by
$6.3 million. Net credit card charge-offs in 1996 were 11.1% of average credit
card loans, compared to 6.5% in 1995 and 2.7% in 1994. The majority of these
charge-offs in 1996 and 1995 occurred within the Company's national portfolio.
At this loss level, the national portfolio was returning an unacceptable level
of profitability to the Company. After reviewing various options, the Company
made a decision to exit the national credit card market in order to refocus its
efforts in the credit card business in those areas where it has the most
experience and brand loyalty. This decision has resulted in the Company
reclassifying, as loans held-for-sale, all of its credit card accounts that are
not located in the Company's regional trade territory or members of affinity
groups with long-standing relationships with the Company. At December 31, 1996,
approximately $118 million in credit card accounts ($89 million net of
unrealized losses) has been classified as held-for-sale.
Other business lines in the loan portfolio continued to exhibit favorable
credit quality. Net charge-offs in the commercial and installment (including
real estate construction and mortgage) sectors of the loan portfolio in 1996
totaled $1,118,000, compared to $1,398,000 and $91,000 in 1995 and 1994,
respectively. Charge-offs on installment loans did increase approximately
$644,000 in 1996, after increasing $214,000 in 1995. This increase is a function
of both increased volumes, as average installment loans in 1996 exceeded 1995
levels by $40 million, and a slightly higher loss experience - 38 basis points
in 1996, as compared to 21 basis points in 1995.
Nonperforming loans in the Company's credit card operations comprise a higher
percentage of total credit card outstandings than are experienced in the
remainder of the loan portfolio. Nonperforming credit card loans increased from
$2,535,000 at December 31, 1994 to $4,839,000 at December 31, 1995 and to
$5,891,000 at December 31, 1996. The majority of this increase has occurred in
the Company's national portfolio. At December 31, 1996, approximately 71% of the
total nonperforming credit card loans were comprised of accounts from the
Company's national portfolio. Total nonaccrual, past due and restructured loans
at December 31, 1996 increased $1,532,000 from 1995 levels, following a
$3,118,000 increase in 1995. Approximately 69% of the increase in nonperforming
loans in 1996 is attributable to performance within the Company's credit card
portfolio, with the remaining increase generated by loans contained in the
Company's other consumer lending portfolio accounts. Nonperforming loans
represented 1.03% of total year-end loans at December 31, 1996. Comparable
percentages in 1995 and 1994 were .89% and .59%, respectively.
The Company's allowance for loan losses at year-end was equal to 142% of
nonaccrual, past due and restructured loans. The comparable percentages in 1995
and 1994 were 276% and 318%, respectively. Excluding the national portfolio of
credit card outstandings which have been designated as held-for-sale from the
total dollar amount of nonperforming loans, the allowance for loan losses at
December 31, 1996 was equal to 231% of nonaccrual, past due and restructured
loans. The allowance for loan losses equaled 1.47% ,2.45%, and 1.88% of total
loans outstanding at December 31, 1996, 1995 and 1994, respectively. The
reclassification of the national credit card portfolio significantly impacts
these comparisons.
The largest single net charge-off during 1996 was to a commercial enterprise.
No trends were noted during the year that would point to particular exposure
issues with respect to a given industry or segment of the loan portfolio, other
than the increased losses experienced in the credit card accounts acquired in
the national solicitations in 1993 and 1994. Management has responded to the
issues generated by the national credit card portfolio by designating these
loans as held-for-sale and writing this portfolio down to its estimated market
value. Management believes the allowance for loan losses to be adequate at this
time. Please refer to Table 9, Summary of Loan Loss Experience, for additional
information.
Management is not aware of issues that would significantly impact the overall
credit quality of the loan portfolio in 1997. The Company believes that the
actions taken in 1996 with respect to its national credit card portfolio, along
with contemplated actions in 1997, will result in a reduction in the Company's
provision for loan losses in 1997.
NET INTEREST INCOME
-------------------
As noted in previous filings, the Company entered 1996 anticipating a
reasonably stable interest rate environment. In general terms, the Company did
operate in a relatively stable interest rate environment. Competitive factors
did impact the Company's margins in 1996, however, and resulted in an overall
decline in the net yield on interest-earning assets of 23 basis points in 1996.
The Company's funding costs changed very little during the year (seven basis
points), even though average short-term rates in the debt markets declined
approximately 50 basis points. Although there was pressure on the Company's
interest margin, net interest income increased $1,568,000, or 2.1% over the 1995
amount, to $76,027,000. This follows a 3.2% increase in 1995's net interest
income over comparable 1994 amounts. The increase in net interest income was
volume-related, as the Company's average interest-earning assets increased
approximately $94 million in 1996, or 6.7%. This growth rate is approximately
three times greater than that experienced in 1995.
The interest rate environment that was present in 1996 was indicative of an
expectation of modest economic growth and low inflation. It represented a more
traditional interest rate environment than was experienced in 1995. During 1995,
there was a significant flattening of the yield curve, with the spread between
federal funds and the thirty-year Treasury rate equaling 50 basis points at
December 31, 1995. During 1996, the curve steepened to more traditional levels,
with the comparable spread at year-end 1996 equal to approximately 130 basis
points.
Overall loan demand remained strong during 1996. Loans, as a percentage of
deposits and short-term debt averaged 72.7% in 1996, compared to 72.9% in 1995
and 1994. While loan demand was strong, the Company's yield on interest-earning
assets was affected by a change in the overall composition of its loan
portfolio. The Company adopted a less aggressive approach in the marketing of
its credit card product. Marketing efforts in 1996 were regional, rather than
national, in scope and resulted in a net reduction in credit card outstandings
at year-end 1996. Credit card loans, which carry a higher yield than commercial
or other consumer loans, comprised less of the loan portfolio than they have in
prior years. At December 31, 1996, credit card loans, including the gross
balance of those credit card loans held-for-sale, totaled approximately $134
million and represented 11.3% of total loans (including loans held-for-sale).
The comparable 1995 percentage was 16.3%. This factor, along with general
competitive pressures, resulted in a 37 basis point decline in yield on average
net loans. The decline in short-term rates in the debt markets referred to above
resulted in a decline in yield in the Company's federal funds sold. Overall
yields in the investment portfolio in 1996 declined modestly, as higher-yielding
municipal securities purchased a number of years ago matured. The Company
anticipates that yields will also decline in 1997, particularly if a transaction
to sell those credit card loans designated as held-for-sale is consummated.
The Company saw growth in all deposit areas. Average non-interest bearing
demand deposits increased $12.5 million in 1996, after experiencing a $9.3
million decline in 1995. Both savings and interest-bearing demand deposits and
time deposits averaged approximately $542 million in 1996, representing
increases of $44.7 million and $7.4 million, respectively from prior year
levels. The greatest percentage increase in the Company's funding structure
occurred in the short-term debt area, as average balances in this category
increased $36 million, or 36%, from 1995 levels. This follows a similar $36
million increase in 1995. These increases are principally attributable to the
Company's marketing of its cash management products.
Not only was the interest rate environment experienced in 1995 much different
from that experienced in 1996, it was also much different from that experienced
in 1994. The increasing interest rate environment present in 1994 and early 1995
resulted in many of the Company's interest-earning assets carrying higher
average rates during 1995. The largest component change in earning asset yields
occurred in federal funds sold, as short-term yields in 1995 remained high
compared to other maturity ranges. The Company's cost of interest-bearing
liabilities increased 119 basis points over 1994 levels, as customers elected to
invest in somewhat longer-term instruments early in 1995 to take advantage of
relatively high interest rates. As rates began to decline during 1995, many of
the Company's customers elected to invest in short-term repurchase agreements.
This resulted in a $36 million increase in average short-term debt, with the
Company investing these funds in federal funds sold.
The Company currently does not expect significant changes in the interest
rate environment in 1997, although any number of political considerations could
influence interest rates in 1997. However, as noted above, the Company
anticipates that changes in the composition of the loan portfolio, combined with
competitive changes in its principal marketplace are expected to result in
continued pressure on the interest margin, and that those margins will decline
in 1997. Management will continue to place a major emphasis on the maintenance
of net interest margins within the overall framework of sound interest-rate risk
management.
NONINTEREST INCOME
------------------
Noninterest income in 1996 was virtually unchanged from 1995 levels.
Excluding the non-recurring gain on sale of credit card loans of $2,018,000
recorded in 1995, the year-over-year increase would have been 6.9%.
Service charges on deposit accounts increased $154,000, or 1.7%, reflecting
little change in the volume of accounts that typically carry service charges.
This was also the case in 1995, when service charges on deposit accounts
declined modestly from prior year levels.
Trust fees increased 2.7% in 1996, compared to a 2% increase in this source
of revenue in 1995. During 1995, and through the first three quarters of 1996
trust assets under management changed little, resulting in modest increases in
fee revenue. During the fourth quarter of 1996, assets under management
increased approximately 8.5%. It is anticipated that trust fee revenue growth in
1997 will exceed that recognized in 1996 and 1995. Increased assets under
management, along with the establishment in 1997 of proprietary mutual funds,
should result in increased trust fees.
Credit card fees increased $973,000, or 8.9%, over comparable 1995 amounts.
This increase was attributable to growth in the merchant portion of the credit
card business. During 1995, the $5,629,000 increase in this category of
noninterest income was the result of the Company's 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 approximately $96,000,000 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. Servicing fee income recognized by the Company in 1996
totaled $6.6 million, compared to $7.0 million in 1995. The Company anticipates
this source of fee revenue will begin to decline in 1997 as the securitization
programs enter their contractual amortization phase.
Other service charges, fees and income increased $846,000, to $6,779,000
after declining $945,000 in 1995 from 1994 levels. No individual line item was
responsible for the increase in fee income in 1996. Rather, increases were
realized in a number of areas, including data processing revenue, gains on sale
of residential real estate loans originated and sold, and various sundry fees
related to the Company's lending activities.
In October 1995, approximately $10,000,000 in credit card loans were sold,
generating a one-time, nonrecurring gain of $2,018,000. This transaction arose
because the Company ceased to provide services to one of its affinity groups,
and that affinity group elected to repurchase the accounts of its members.
NONINTEREST EXPENSE
-------------------
Noninterest expenses declined $757,000 in 1996 to $70,438,000. Reductions
were realized in the areas of: net occupancy and equipment expense, data
processing expense, supplies, deposit insurance assessment and postage.
Salaries and employee benefits increased $1,359,000, or 4.6% in 1996, to
$30,913,000. This increase is attributable to employees added in conjunction
with the establishment of new lines of business and a full year of operations at
the Company's Ottawa location. Compensation costs associated with these two
activities resulted in additional salaries and employee benefit expense of
$1,454,000 in 1996. At December 31, 1996, the Company had a total staff (on a
full-time equivalent basis) of 890, compared to 877 and 892 at the end of 1995
and 1994, respectively. Salaries and employee benefits increased $1,054,000, or
3.7% in 1995, as the Company made certain enhancements to its employee benefit
plans, resulting in additional expense. Employment levels were lower in 1995
when compared to the prior year due to reductions following the consolidation of
the Company's Kansas banking entities into a single charter, and continuing
efforts to control this area of noninterest expense. Salary end employee benefit
costs in 1996 represented 1.84% of average total assets, as compared to 1.87%
and 1.85% in 1995 and 1994, respectively.
Net occupancy and equipment expense declined $1,549,000 in 1996, a result of
a lesser amount of impairment loss recognized by the Company. During 1995, the
Company adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", which resulted in the recognition of a $2,500,000 impairment loss on an
office building acquired in the 1993 KSB&T merger. Based on changes in the local
marketplace, principally in occupancy assumptions, an additional $1,000,000
impairment loss was recognized in 1996 on this same facility.
Data processing expense decreased $1,102,000, or 23.5%, from 1995 levels. As
noted in previous filings, the Company elected in 1994 to change its data
processing provider. Some efficiencies were recognized in 1995 relative to this
change, but the Company had indicated that it expected 1996 operations to more
fully reflect these increased efficiencies. The 1996 results evidence those
anticipated efficiencies.
During 1996, the Company made a concerted effort to track supplies and
postage costs associated with promotional activities. As a result, approximately
$400,000 in postage costs and $400,000 in supplies costs were reflected in the
income statement category advertising and promotional activities. It was not
possible to categorize and classify all 1995 costs in a similar manner. When
these three categories of expenses are viewed in the aggregate, the total 1996
increase is $309,000, or 3.5%. This increase reflects increased advertising
costs, offset in part by reduced credit card marketing expenditures.
Deposit insurance assessments incurred by the Company's subsidiary banks
declined in 1996 to $1,103,000, after decreasing $1,197,000 in 1995 to
$1,638,000. Beginning in June of 1995, the Company's subsidiary banks received a
reduction in deposit insurance assessments. This reduction continued through
1996. However, one of the Company's subsidiary banks does have certain Savings
Association Insurance Fund insured deposits. With the passage of the Deposit
Institution Funding Act on September 30, 1996, the Company incurred a special
one-time charge of approximately $750,000 to recapitalize the Savings
Association Insurance Fund. The Company expects that its 1997 deposit insurance
assessment expense will be less than that recognized in 1996.
Other noninterest expenses increased $758,000 or 5.4% from 1995 levels. The
majority of this increase is attributable to payments associated with the
cessation of business with three vendors that had multi-year contractual
relationships with the Company. The Company also experienced increases in its
credit card merchant processing costs, as the volume of activity in this area
increased in 1996. These increases were substantially offset by decreases in
fraud losses on the Company's credit card accounts. During 1995, other
noninterest expenses increased $3,720,000, or 36.1% from 1994 levels. Much of
this increase came 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.
Other factors contributing to the increase in other noninterest expenses were
costs associated with the Company's securitization of credit card receivables
and a full year of operational support for an acquired bank following its
acquisition by the Company in December of 1994.
Included in other noninterest expenses are the Company's payments to M&I Data
Services for data processing services and to First Data Resources, Inc. for
credit card processing.
Just as is the increase in noninterest income and the maintenance of net
interest income, the control of noninterest expense is a significant goal of the
Company's management.
CONCENTRATIONS OF CREDIT RISK
-----------------------------
Concentrations of credit risk are monitored on a continuous basis by the
Company. The Company's principal service area has been identified as the Wichita
MSA. Credit risk is therefore dependent on the economic vitality of this region.
Within the region, credit risk is widely diversified and does not rely upon a
particular industry, segment or borrower. A relatively stable economic
environment was present in the region during 1996. The Company believes a
similar climate will be present in 1997. To a lesser extent, the Company is also
actively involved in certain areas of Oklahoma and the Kansas City area through
the operations of its subsidiary locations in Oklahoma City, Oklahoma and
Prairie Village, Kansas.
The Company does not believe there are any significant concentrations of risk
in the commercial, financial and agricultural loan portfolio. Manufacturing
industry customers are the largest single class of borrowers. That risk is
spread among a number of borrowers who are involved in a variety of types of
manufacturing activities. Each loan is analyzed independently based upon the
financial risk in that particular situation.
Consumer credit is comprised of credit card and installment loans, and
represents a large concentration of overall risk in the loan portfolio. In large
part, installment receivables represent loans made to acquire automobiles and
are secured by the automobiles. While losses in this area of the loan portfolio
have increased modestly, the Company believes its loss experience in this
segment of consumer lending generally compares favorably to industry averages.
Credit card receivables are represented by Mastercard(R) and VISA(R) customers,
and are unsecured. As has been discussed elsewhere herein, the Company, after
analyzing the performance of its national credit card portfolio, determined that
it would exit the national credit card business, concentrating instead on
accounts within its trade territory or where other relationship issues provided
a competitive advantage to the Company. As a result of this decision, the
Company has designated $118 million in credit card receivables as held-for-sale
and is pursuing the sale of those accounts. While the Company intends to
aggressively pursue consumer lending opportunities in its trade territory, it
does not foresee embarking on a national marketing campaign of its products in
the future. The volume and risk in all loans is continuously evaluated and
reflected in the allowance for loan losses.
During the past two years, and as a matter of general credit policy, the
Company has not participated in either real estate mortgage loans (either
construction or permanent loans) outside the service area described above or
loans defined as highly leveraged transactions (HLT's).
OFF-BALANCE-SHEET RISK
----------------------
Off-balance-sheet risk of the Company consists principally of the issuance of
commitments to extend credit and the issuance of letters of credit. During the
past two years, the Company has not entered into any financial instruments of a
derivative nature that involve other off-balance-sheet market or credit risks,
such as interest rate swaps, futures, options or similar types of instruments.
However, the Company has entered into two credit card securitization
transactions. The securitization of credit card receivables allows the Company
to free up capital for other uses and to more effectively manage its balance
sheet. One floating rate transaction, in the amount of $50,000,000, was
consummated in December 1994. A second fixed rate transaction, also for
$50,000,000, was concluded in January 1995. Neither the credit card receivables
sold or the securities outstanding are defined as financial instruments of the
Company, but the Company continues to service the related credit card accounts.
The Company 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. The fixed rate transaction will
enter its contractual amortization phase in January, 1997, and it is expected
that amortization of this transaction will conclude in 1997.
At December 31, 1996, the aggregate amount of commitments to extend credit
outstanding was $366,264,000, excluding credit card lines of $944,927,000.
Comparable amounts at December 31, 1995 and 1994 were $320,116,000 and
$230,190,000, respectively. At December 31, 1996, the aggregate amount of
letters of credit outstanding was $33,756,000 compared to $30,846,000 at
December 31, 1995 and $29,573,000 at December 31, 1994.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the counter-party.
Letters of credit consist of two principal types: commercial and standby.
Commercial letters of credit are generally issued to facilitate the flow of
commercial transactions, generally to finance goods in transit. Standby letters
of credit are used to ensure the performance of obligations in some future
period. Letter of credit expirations generally do not run beyond one year from
the date of issuance.
The issuance of letters of credit is governed by the same underwriting
standards as are applicable in any other credit transaction. Some are secured,
others are supported by the general credit standing of the obligor. Liabilities
under letters of credit are evaluated on a continuing basis, as are all other
loans in the credit review process.
INVESTMENT PORTFOLIO RISK
-------------------------
Analysis of the investment portfolio is included in Table 4, Investment
Portfolio, and Table 5, Maturities and Yield Analysis. Except for a small
portion of its portfolio (less than 1%) classified as available-for-sale, the
Company has the ability, and management has the intent, to hold investment
securities to maturity. The Company does not maintain a trading account or
engage in trading activities. On occasion, maturities will be pre-funded.
Pre-funding occurs within a short period prior to the maturity of the maturing
obligations.
Management believes the average maturity of the Company's investment security
portfolio to be shorter than peer group averages and that maintenance of a
portfolio of this duration substantially reduces interest rate risk. The Company
maintains a conservative investment strategy and believes the diversification of
the portfolio results in very little credit risk existing in the portfolio.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
----------------------------------------
The principal functions of asset/liability management are to provide adequate
liquidity, maintaining a reasonable and prudent relationship between rate
sensitive assets and liabilities and to continuously evaluate risks, including
interest-rate risks. Adequate liquidity is described as "the ability of the
Company to provide funds to appropriately meet normal loan extensions, and at
the same time, meet deposit withdrawals." A variety of funding sources are
available to the Company, including core deposit acquisition, federal funds
purchases, acquisition of public funds and the normal run-off of
interest-earning assets.
The day-to-day liquidity needs of the Company are primarily met by the
management of the federal funds position. Adjustments in the Company's net
federal funds position have historically been sufficient to meet liquidity
needs. As previously noted, and as described in Table 5, the Company's
investment portfolio carries a relatively short weighted-average maturity. The
Company has contractual maturities of investment securities, including
mortgage-backed securities, in the next year of $120,647,000. Interest rate
risks are minimized by the maintenance of this relatively short-term investment
position, and the normal run-off of these investment securities provides a
secondary source of liquidity for the Company. In addition, a significant
portion of the loan portfolio is comprised of installment instruments that
provide an additional source of liquidity through their normal run-off. As
previously discussed in this analysis, the Company securitized and sold certain
credit card receivables in December 1994 and January 1995. Proceeds from these
transactions provide additional sources of liquidity.
A major component of the asset/liability management process is the focus on
the control of interest rate exposure. Emphasis is placed on maintenance of
acceptable net interest margins in various interest rate environments, and in
providing the Company the ability to change interest rates should market
circumstances warrant. The following table presents, at December 31, 1996, the
Company's interest rate sensitivity based on contractual maturities. Management
believes the sensitivity and gap ratios reflected in this table result in
acceptable management of interest rate exposure. Loans held-for-sale, net of
write-downs, are included in net loans in the table.
<TABLE>
INTEREST RATE SENSITIVITY
<CAPTION>
December 31, 1996 1 to 90 91 to 180 181 to 365 1 to 2 Over
(Dollars in thousands) Days Days Days Years 2 Years Total
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Net Loans $ 574,877 $ 100,009 $ 157,579 $ 130,971 $ 177,203 $1,140,639
Investment Securities 32,265 29,094 58,404 95,216 80,659 295,638
Federal funds sold 61,726 0 0 0 0 61,726
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 668,868 $ 129,103 $ 215,983 $ 226,187 $ 257,862 $1,498,003
- - --------------------------------------------------------------------------------------------------------------------------==========
Interest-bearing liabilities:
Interest-bearing deposits $ 635,589 $ 124,333 $ 153,061 $ 70,903 $ 127,212 $1,111,098
Federal funds purchased 117,726 0 0 0 0 117,726
Other borrowings 28,649 0 160 0 11,219 40,028
- - ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 781,964 $ 124,333 $ 153,221 $ 70,903 $ 138,431 $1,268,852
- - --------------------------------------------------------------------------------------------------------------------------==========
Interest rate sensitivity ($ 113,096) $ 4,770 $ 62,762 $ 155,284 $ 119,151
Cumulative interest rate sensitivity ($ 113,096) ($ 108,326) ($ 45,564) $ 109,720 $ 229,151
Cumulative interest rate sensitivity gap
as a percentage of total assets (6.57)% (6.29)% (2.65)% 6.37 % 13.31 %
Cumulative ratio of interest-sensitive assets to
interest-sensitive liabilities 85.54 % 88.05 % 95.70 % 109.71 % 118.06 %
</TABLE>
The following information should be read in conjunction with the
consolidated statement of cash flows, which appears under item 8 of this report.
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, Federal funds sold and securities purchased
under agreements to resell. Cash and cash equivalents declined $29,879,000 for
the year ended December 31, 1996, as the net cash used in investing activities
exceeded the net cash provided by operating and financing activities. The
$32,391,000 of net cash provided by operating activities resulted from
$47,064,000 in earnings, adjusted for noncash charges and credits, offset in
part by adjustment of $37,000 for gain on sale of loans and changes in
noninvestment assets and nonfinancing liabilities of $14,636,000. Cash outflows
from investing activities resulted primarily from net investments in loans of
$138,831,000 and purchases of investment securities of $101,770,000 net of
$125,909,000 in securities matured or called. Cash was provided by financing
activities mainly because of increases in deposits of $61,254,000. Increases in
short-term borrowings of $11,062,000 substantially offset repurchases of
treasury stock totaling $11,643,000.
For the year ended December 31, 1995, cash and cash equivalents increased
$100,094,000, as the net cash provided by operating and financing activities
exceeded the net cash used in investing activities. The $24,037,000 of net cash
provided by operating activities resulted from $40,899,000 in earnings, adjusted
for noncash charges and credits, offset in part by adjustment for gain on sale
of loans of $2,018,000 and changes in noninvestment assets and nonfinancing
liabilities of $14,844,000. Cash outflows from investing activities resulted
primarily from purchases of $169,124,000 in investment securities net of
securities matured or called of $146,596,000. Cash was provided by financing
activities mainly because of increases in deposits of $50,725,000 and short-term
borrowings of $50,020,000.
The Company's ability to pay dividends on its common stock and interest on
its capital notes is dependent upon funds provided by dividends from the
Subsidiary Banks and such other funding sources as may be available to the
Company. The payment of dividends by the Subsidiary Banks is restricted only by
regulation. At December 31, 1996, approximately $435,000 was available from the
Subsidiary Banks' retained earnings for distribution as dividends to the Company
in future periods without regulatory approval. The availability of dividends
from the Subsidiary Banks combined with cash balances maintained by the parent
company at December 31, 1996 provide the parent company with sufficient
liquidity to meet its needs.
CAPITAL ADEQUACY
----------------
Capital strength is important to the success of INTRUST Financial
Corporation. Capital strength promotes depositor and investor confidence and
provides a solid foundation for future growth. At December 31, 1996, the
Company's capital position exceeded all regulatory 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 December 31, 1996, the
Company's total capital to risk-weighted assets was 8.9% and its Tier 1 capital
to risk-weighted assets ratio was 7.8%. These ratios were 10.6% and 8.8%,
respectively in 1995. The decline in capital levels is attributable to the
charge to earnings taken in conjunction with the Company's national credit card
portfolio and the reacquisition of 148,391 shares of the Company's common stock
during the year. While the Company does not have a formal stock buyback program,
it will repurchase stock if and when it becomes available.
Capital ratios of the Subsidiary Banks are as follows:
INTRUST Will Rogers
Bank, N.A. Bank
---------- -----------
Leverage Ratio 7.6% 8.9%
Core Capital/Risk Weighted Assets 9.4% 13.8%
Total Capital/Risk Weighted Assets 10.1% 15.1%
Dividends declared in 1996 were $3,541,000 ($1.55 per share). Dividends of
$3,518,000 ($1.50 per share) and $5,915,000 ($2.50 per share) were declared in
1995 and 1994, respectively. The Company, over the last three years, has
retained $20.1 million in net earnings, adding substantially to its capital
position.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
As discussed in the accompanying financial statements, the Company has
disclosed estimated fair values for its financial instruments. As noted in the
financial statements, no ready market exists for a significant portion of the
Company's financial instruments, and a precise determination of the fair value
of these instruments, in the absence of a ready market, cannot be made.
The estimated fair value (as computed) of its financial assets exceeded the
book value of those assets by approximately $12 million. The estimated book
value of financial assets exceeded its fair value by $15.2 million in 1995. The
year-over-year change is due to the maturity of investment securities purchased
in late 1994 and early 1995, when interest rates in the debt markets were at a
peak. As these securities matured, they were replaced with securities earning a
slightly lesser rate of interest, and in a period of relatively stable rates,
the differential between estimated fair value and carrying value is less.
The estimated fair value of financial liabilities at December 31, 1996
exceeded their book value by $18.7 million. This difference was $18.9 million in
1995. The amount that the fair value of time deposits exceeds book value, of
approximately $6.4 million, arises because certain time deposits were obtained
during a period of higher interest rates, and as interest rates have declined,
the scheduled cash flows of these instruments are more than the cash flows that
would be anticipated at current market rates. The difference in the fair value
and book value of the Company's convertible capital notes, of approximately
$12.3 million, reflects the fact that the coupon on the debt is currently above
market interest rates and that the common stock conversion price is
significantly below the current market price of the Company's common stock.
INFLATION AND CHANGING PRICES
-----------------------------
The impact of inflation on financial institutions differs from that exerted
on other types of commercial enterprises. INTRUST Financial Corporation has a
relatively small portion of its resources invested in capital or fixed assets.
The majority of its assets are monetary in nature. For this reason, changes in
interest rates are a primary factor in determining their value. Fluctuations in
interest rates and efforts by the Federal Reserve Board to regulate money and
credit conditions have a greater effect on the Company's profitability than do
the effects of higher costs for goods and services.
NEW ACCOUNTING STANDARDS
------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation", establishes financial accounting and reporting
standards for stock-based employee compensation. The Statement, which was
effective for transactions entered into in fiscal years that begin after
December 15, 1995, defines a fair value based method of accounting for an
employee stock option or similar equity instrument, but it does allow an entity
to continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees". As noted in footnote 14 to the financial
statements, the Company granted options to acquire 55,000 shares of the
Company's common stock. The Company accounts for these stock options using the
intrinsic value based method of accounting. Pro forma disclosures, as if the
fair value based method of accounting as defined in SFAS No. 123 had been
applied, have not been presented since such disclosures would not result in
material differences from the intrinsic value method.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. The Statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Company does not
anticipate that adoption of Statement No. 125 will have a material impact on its
financial statements.
<PAGE>
CONSOLIDATED STATISTICAL INFORMATION
The following tables, charts and comments present selected financial information
relating to INTRUST Financial Corporation in compliance with the statistical
disclosure requirements of the Securities and Exchange Commission for bank
holding companies.
The scope of the Company does not include foreign operations
<TABLE>
Average Balance Sheet (Table 1)
- - ------------------------------------------------------------------------------------------------------------
The daily average amounts by condensed categories for the past three years is presented below
(Dollars in thousands):
<CAPTION>
Year Ended December 31 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------
Average Percent Average Percent Average Percent
Balance of Total Balance of Total Balance of Total
- - -------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and Due from Banks $ 89,060 5.3% $ 80,204 5.1% $ 82,525 5.4%
Taxable Investment Securities 308,299 18.4 249,407 15.8 257,270 16.7
Nontaxable Investment
Securities 27,333 1.6 45,152 2.9 61,427 4.0
Federal Funds Sold 78,083 4.7 95,718 6.1 61,425 4.0
Loans (net of allowance for loan losses) 1,084,774 64.6 1,014,339 64.3 993,521 64.5
Building and Equipment 28,415 1.7 31,390 2.0 31,446 2.0
Other 62,242 3.7 60,395 3.8 52,891 3.4
- - -------------------------------------------------------------------------------------------------------------
Total $1,678,206 100.0% $1,576,605 100.0% $1,540,505 100.0%
- - -------------------------------------------==================================================================
Liabilities and Stockholders' Equity:
Demand Deposits $ 271,355 16.2% $ 258,844 16.4% $ 268,184 17.4%
Savings and Interest-Bearing
Demand Deposits 542,422 32.3 497,746 31.6 542,468 35.2
Time Deposits 542,414 32.3 535,061 33.9 487,759 31.7
Short-Term Debt 135,669 8.1 99,695 6.3 63,631 4.1
Long-Term Debt 30,840 1.8 33,822 2.2 36,495 2.4
Other Liabilities 18,846 1.1 18,866 1.2 14,766 1.0
Stockholders' Equity 136,660 8.2 132,571 8.4 127,202 8.2
- - -------------------------------------------------------------------------------------------------------------
Total $1,678,206 100.0% $1,576,605 100.0% $1,540,505 100.0%
- - -------------------------------------------==================================================================
</TABLE>
<PAGE>
<TABLE>
Net Interest-Earnings Analysis (Table 2)
- - ------------------------------------------------------------------------------------------------------------------------------------
The following table presents an analysis of the average yields on earning assets, average rates paid on interest bearing
liabilities, and the net interest differential for each of the past three years. Loans on nonaccrual basis and overdrafts
are included in the average loan amounts.
The Net Yield on Interest-Earning Assets is net interest income divided by average interest-earning assets.
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
Average Total Yield Average Total Yield Average Total Yield
(Dollars in thousands) Balance Income or Rate Balance Income or Rate Balance Income or Rate
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Investment Securities $ 308,299 $ 19,061 6.18% $ 249,407 $ 14,892 5.97% $ 257,270 $ 11,639 4.52%
Nontaxable Investment Securities* 27,333 1,907 10.38 45,152 3,329 10.98 61,427 4,299 10.52
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities* 335,632 20,968 6.52 294,559 18,221 6.74 318,697 15,938 5.68
Federal Funds Sold 78,083 4,183 5.36 95,718 5,581 5.83 61,425 2,315 3.77
Net Loans 1,084,774 107,312 9.89 1,014,339 104,117 10.26 993,521 92,130 9.27
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets* $1,498,489 $132,463 8.90% $1,404,616 $127,919 9.22% $1,373,643 $110,383 8.19%
- - -------------------------------------===============================================================================================
<FN>
* Yields on tax-exempt securities are shown on a fully taxable equivalent basis assuming a 35 percent tax rate.
</FN>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
Average Total Yield Average Total Yield Average Total Yield
(Dollars in thousands) Balance Expense or Rate Balance Expense or Rate Balance Expense or Rate
- - ------------------------------------------------------------------------------------------------------------------------------------
Savings and Interest-
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bearing Demand Deposits $ 542,422 $15,292 2.82% $ 497,746 $14,347 2.88% $ 542,468 $11,828 2.18%
Other Time Deposits 542,414 32,042 5.91 535,061 30,843 5.76 487,759 21,336 4.37
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 1,084,836 47,334 4.36 1,032,807 45,190 4.38 1,030,227 33,164 3.22
Short-Term Debt 135,669 6,739 4.97 99,695 5,504 5.52 63,631 2,030 3.19
Long-Term Debt 30,840 2,363 7.66 33,822 2,766 8.18 36,495 3,073 8.42
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $1,251,345 $56,436 4.51% $1,166,324 $53,460 4.58% $1,130,353 $38,267 3.39%
- - -------------------------------------===============================================================================================
Net Differential $ 247,144 $76,027 $ 238,292 $74,459 $ 243,290 $72,116
- - -------------------------------------====================------------====================------------====================-----------
Net Yield on Interest-
Earning Assets 5.07% 5.30% 5.25%
- - --------------------------------------------------------------=====---------------------------=====---------------------------======
</TABLE>
<PAGE>
<TABLE>
Change in Interest Income and Interest Expense (Table 3)
- - ----------------------------------------------------------------------------------------------------------------
Further insight into year-to-year changes in net interest income may be gained by segregating the rate and
volume components of the increases in interest income and expense associated with earning assets and
interest-bearing liabilities.
The following table presents this rate/volume analysis comparing changes in net interest income from 1996 to
1995 and from 1995 to 1994.
Net interest income increased in 1996 as a result of positive volume variances . The increase in 1996 due to
volume changes is primarily because of an increase in net loans. Overall decreases in yields on earning
assets, especially loans, exceeded decreases in interest-bearing liabilities. Average interest-earning
assets grew to a greater extent than interest- bearing liabilities, resulting in an increase in net interest
income due to volume changes.
<CAPTION>
1996 vs. 1995 1995 vs. 1994
- - -----------------------------------------------------------------------------------------------------------------
Due to Changes in Due to Changes in
----------------- -----------------
Increase Increase
(Dollars in thousands) (Decrease) Volume Rates (Decrease) Volume Rates
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxable Investment Securities $ 4,169 $ 3,625 $ 544 $ 3,253 $ (366) $ 3,619
Nontaxable Investment Securities (1,422) (1,252) (170) (970) (1,190) 220
- - -----------------------------------------------------------------------------------------------------------------
Total Investment Securities 2,747 2,373 374 2,283 (1,556) 3,839
Federal Funds Sold (1,398) (970) (428) 3,266 1,650 1,616
Net Loans 3,195 7,057 (3,862) 11,987 1,964 10,023
- - -----------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $ 4,544 $ 8,460 $(3,916) $17,536 $ 2,058 $15,478
- - -----------------------------------------------------------------------------------------------------------------
Savings and Interest-Bearing
Demand Deposits 945 1,265 (320) 2,519 (1,039) 3,558
Other Time Deposits 1,199 428 771 9,507 2,223 7,284
- - -----------------------------------------------------------------------------------------------------------------
Total Deposits 2,144 1,693 451 12,026 1,184 10,842
Short-Term Debt 1,235 1,830 (595) 3,474 1,518 1,956
Long-Term Debt (403) (235) (168) (307) (221) (86)
- - -----------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 2,976 3,288 (312) 15,193 2,481 12,712
- - -----------------------------------------------------------------------------------------------------------------
Net Interest Income $ 1,568 $ 5,172 $(3,604) $ 2,343 $ (423) $ 2,766
- - -------------------------------------------======================================================================
</TABLE>
<PAGE>
Investment Portfolio (Table 4)
- - --------------------------------------------------------------------------------
The book value of investment securities at December 31 for the past three years
is presented below (Dollars in thousands):
1996 1995 1994
- - --------------------------------------------------------------------------------
U.S. Treasury Securities $129,701 $151,268 $119,215
U.S. Agency Securities 139,892 132,723 97,172
State, County and Municipal Securities 23,259 33,043 54,973
Other Securities 2,786 3,212 5,419
- - --------------------------------------------------------------------------------
Total $295,638 $320,246 $276,779
- - -----------------------------------------==============================---------
Except for total U.S. Treasury and U.S. Agency obligations, no investment in a
single issuer exceeds 10 percent of stockholders' equity.
<TABLE>
Maturities and Yield Analysis (Table 5)
- - ---------------------------------------------------------------------------------------------------------------------------------
The distribution of maturities and weighted average yields of investment securities at December 31, 1996 is as follows
(Dollars in thousands):
<CAPTION>
Total Within 1 Year 1-5 Years 5-10 Years After 10 Years Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Maturity
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year,
U.S.Treasury Securities $129,701 6.3% $ 74,828 6.6% $ 54,874 5.7% $ 0 0.0% $ 0 0.0% 0.9 mos.
2 years,
U.S. Agencies 139,892 6.3 43,141 6.9 83,185 5.8 13,339 7.0 227 7.2 2.1 mos.
State, County and 4 years,
Municipal Securities* 23,259 10.4 2,678 10.8 11,855 10.5 6,442 10.0 2,284 10.4 8.7 mos.
9 years,
Other Securities 2,786 4.5 0 0.0 50 7.9 0 0.0 2,736 4.5 10.1 mos.
- - ---------------------------------------------------------------------------------------------------------------------------------
1 year,
Total $295,638 6.6% $120,647 6.8% $149,964 6.2% $19,781 7.9% $5,247 7.2% 11.8 mos.
- - ------------------------------===================================================================================================
*Yields on tax-exempt securities are shown on a fully taxable equivalent basis assuming a 35 percent tax rate.
</TABLE>
<TABLE>
Loan Portfolio (Table 6)
- - -----------------------------------------------------------------------------------------------------------------------------------
A breakdown of outstanding loans, by type, at year-end for the past five years is as follows (Dollars in thousands):
1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $ 485,891 46.1% $ 416,428 39.5% $ 377,553 35.7% $389,513 40.0% $295,392 39.1%
Real Estate-Construction 27,130 2.5 25,491 2.4 21,415 2.0 17,725 1.8 10,070 1.3
Real Estate-Mortgage 210,591 20.0 181,894 17.2 184,513 17.4 199,026 20.5 133,250 17.6
Installment, excluding
credit card 286,632 27.2 258,713 24.5 261,706 24.8 200,937 20.6 151,704 20.1
Credit card 43,868 4.2 173,270 16.4 212,051 20.1 166,021 17.1 165,071 21.9
- - -----------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,054,112 100.0% 1,055,796 100.0% 1,057,238 100.0% 973,222 100.0% 755,487 100.0%
Allowance for loan losses (15,536) (25,892) (19,886) (21,793) (16,099)
- - -----------------------------------------------------------------------------------------------------------------------------------
Net Loans $1,038,576 $1,029,904 $1,037,352 $951,429 $739,388
- - ---------------------------========================================================================================================
</TABLE>
<PAGE>
<TABLE>
Maturities and Sensitivity to Interest Rate Changes (Table 7)
- - --------------------------------------------------------------------------------------------------------------------
The maturity distribution of loans outstanding at December 31, 1996 (excluding Real Estate- Mortgage, and
Installment) by type and sensitivity to interest rate changes is as follows (Dollars in thousands):
<CAPTION>
Due Loans Due After One Year
- - ----------------------------------------------------------------- ----------------------------------------------
One Year After 1 Year After Within After
or Less thru 5 Years 5 Years 5 Years 5 Years
- - ----------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, Financial Fixed Rates $ 29,851 $ 1,368
and Agricultural $334,819 $137,090 $13,982
Real Estate- Floating or
Construction 15,433 5,139 6,558 Adjustable Rate 112,378 19,172
- - ----------------------------------------------------------------- ----------------------------------------------
Total $350,252 $142,229 $20,540 Total $142,229 $20,540
- - ------------------------------=================================== -----------------------=======================
<FN>
Note: Demand loans, past due loans and overdrafts are reported in "One Year or Less."
Loans are renewed only after consideration of the borrower's creditworthiness at maturity, except for installment
loans which are written on a fully amortized basis. Loans are not written on the basis of guaranteed renewals.
Those loans which are renewed are generally renewed for similar terms at market interest rates.
</FN>
</TABLE>
Risk Elements (Table 8)
- - --------------------------------------------------------------------------------
Loans considered risk elements include those which are accounted for on a
nonaccrual basis, loans which are contractually past due 90 days or more as to
interest or principal payments, and those renegotiated to provide a reduction of
interest or principal which would not otherwise be considered except in cases of
deterioration in the financial position of the borrower. The following is a
table of nonaccrual, past due and restructured loans at December 31 for each of
the past five years (Dollars in thousands):
1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------
Loan Categories
Nonaccrual Loans $ 5,208 $ 3,988 $ 2,843 $ 2,756 $ 3,001
Past Due Loans 5,695 5,383 3,074 2,053 1,654
Restructured Loans 0 0 336 370 1,589
- - -------------------------------------------------------------------------
Total $10,903 $ 9,371 $ 6,253 $ 5,179 $ 6,244
- - --------------------------===============================================
Gross interest income that would have been recorded in 1996 on nonaccrual and
restructured loans, if the loans had been current in accordance with their
original terms and had been outstanding throughout the period or since
origination if held for part of the period, was $478,000. The amount of interest
on those loans that was actually included in income for the period was $0.
Loans are reported as being in nonaccrual status if: (a) they are maintained on
a cash basis because of deterioration in the financial position of the borrower,
(b) payment in full of interest or principal is not expected, or (c) principal
or interest has been in default for a period of 90 days or more unless the
obligation is both well secured and in the process of collection. Any accrued
but unpaid interest previously recorded on such loans is reversed against
current period interest income.
The classification of a loan as nonaccrual or reduced rate does not necessarily
indicate that the ultimate collection of the loan principal and interest is
doubtful. In fact, the Company's experience suggests that a significant
percentage of both principal and interest on loans so classified, particularly
commercial and real estate loans, is eventually recovered. Interest income on
nonaccrual loans is recognized only in the period when realized. At the same
time, however, management recognizes the lower quality and above normal risk
characteristics of these loans and, therefore, considers the potential risk of
principal loss on loans included in this category in evaluating the adequacy of
the allowance for possible loan losses.
Management has identified additional problem loans in the portfolio which are
not stated in Table 8. These loans are reviewed on a continuous basis. They
comprise less than 0.5 percent of the loan portfolio. The Company has developed
a credit risk rating system in which a high percentage of loans in each bank are
evaluated by Credit Review staff.
<PAGE>
<TABLE>
Summary of Loan Loss Experience (Table 9)
- - -----------------------------------------------------------------------------------------------------------------
The table below presents, in summary form, for the past five years the year-end and average loans outstanding;
the changes in the allowance for loan losses, with loans charged off and recoveries on loans previously charged
off by loan category; the ratio of net charge-offs to average loans; and the ratio of the allowance for losses to
year-end loans outstanding (Dollars in thousands):
1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans at year-end $1,054,112 $1,055,796 $1,057,238 $973,222 $755,487
- - -------------------------------------------------================================================================
Average loans outstanding $1,110,485 $1,037,067 $1,013,831 $834,412 $678,398
- - -------------------------------------------------================================================================
Beginning balance of allowance for loan losses $ 25,892 $ 19,886 $ 21,793 $ 16,099 $ 13,767
Allowance of banks acquired 0 172 164 3,579 685
Loans charged-off:
Commercial, Financial and Agricultural 1,414 2,672 845 211 3,241
Real Estate-Construction 46 0 0 50 50
Real Estate-Mortgage 15 85 248 56 455
Installment 1,584 999 662 680 649
Credit Cards 18,770 12,089 5,779 4,682 5,641
- - -----------------------------------------------------------------------------------------------------------------
Total loans charged off 21,829 15,845 7,534 5,679 10,036
- - -----------------------------------------------------------------------------------------------------------------
Recoveries on charge-offs:
Commercial, Financial and Agricultural 1,579 1,926 1,261 1,031 1,680
Real Estate-Construction 0 0 0 0 0
Real Estate-Mortgage 29 40 134 175 202
Installment 333 392 269 251 158
Credit Cards 1,026 1,203 837 741 737
- - -----------------------------------------------------------------------------------------------------------------
Total recoveries 2,967 3,561 2,501 2,198 2,777
- - -----------------------------------------------------------------------------------------------------------------
Net loans charged off 18,862 12,284 5,033 3,481 7,259
Provision charged to expense 20,151 18,118 2,962 5,596 8,906
Transfer to write down loans held for sale 11,645 0 0 0 0
- - -----------------------------------------------------------------------------------------------------------------
Ending balance of allowance for loan losses $ 15,536 $ 25,892 $ 19,886 $ 21,793 $ 16,099
- - -------------------------------------------------================================================================
Net charge-offs/average loans 1.70% 1.18% 0.50% 0.42% 1.07%
- - -------------------------------------------------================================================================
Allowance for loan losses/loans at year-end 1.47% 2.45% 1.88% 2.24% 2.13%
- - -------------------------------------------------================================================================
</TABLE>
<TABLE>
A breakdown of the allowance for loan losses, at the end of the past five years, is presented
below (Dollars in thousands):
Allocation of the Allowance for Loan Losses
Balance at end of period applicable to:
1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural $ 5,181 $ 7,613 $ 6,694 $ 8,638 $ 4,911
Real Estate-Construction 341 221 339 271 491
Real Estate-Mortgage 1,992 2,621 4,104 4,680 2,973
Installment 1,978 868 1,414 1,624 1,539
Credit Cards 6,044 14,569 7,335 6,580 6,185
- - ----------------------------------------------------------------------------------------------
Ending balance of allowance for loan losses $15,536 $25,892 $19,886 $21,793 $16,099
- - ----------------------------------------------================================================
</TABLE>
<PAGE>
<TABLE>
Percent of loans in each category to total loans 1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural 46.1% 39.5% 35.7% 40.0% 39.1%
Real Estate-Construction 2.5 2.4 2.0 1.8 1.3
Real Estate-Mortgage 20.0 17.2 17.4 20.5 17.6
Installment 27.2 24.5 24.8 20.6 20.1
Credit Cards 4.2 16.4 20.1 17.1 21.9
- - --------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
- - --------------------------------------------------==========================================
</TABLE>
The Company's determinations of the level of the allowance and, correspondingly,
the provision for loan losses rests upon various judgments and assumptions
including, but not necessarily limited to, general economic conditions, loan
portfolio composition and prior loan loss experience. The Company considers the
allowance for loan losses of $15,536,000 adequate to cover losses inherent in
loans outstanding at December 31, 1996. While it is the Company's policy to
write off in the current period those loans or portions of loans on which a loss
is certain or probable, no assurance can be given that the Company will not in
any particular period sustain loan losses that are sizeable in relation to the
amount reserved, or that subsequent evaluations of the loan portfolio, in light
of conditions and factors then prevailing, will not require significant changes
in the allowance for loan losses. Credit card charge-offs constitute a
significant portion of total charge-offs. It is management's opinion that the
loan portfolio is well diversified. There are no concentrations of loans (in
excess of 10 percent of the total loan portfolio) to multiple borrowers engaged
in similar activities. You are encouraged to refer to the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this report, in which the provision for loan losses is discussed
further. Among the factors considered in establishing the provision for loan
losses are historical charge-offs, the level and composition of nonperforming
loans, the condition of industries experiencing particular financial pressures,
the review of specific loans involving more than a normal risk of collectability
and evaluation of underlying collateral for secured lending. Aided by a
specialized loan review process, senior management and the entire lending staff
continually review the entire loan portfolio to identify and manage loans
believed to possess unusually high degrees of risk. A portion of this review
involves the Board of Directors on a regular basis. Also taken into
consideration are classification judgments of bank regulators and the Company's
independent certified public accountants.
<TABLE>
Deposits (Table 10)
- - ------------------------------------------------------------------------------------------------------
A breakdown of average deposits by type for the past three years is as follows ( Dollars in
thousands):
Year Ended December 31 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits $ 271,355 -- $ 258,844 -- $ 268,184 --
Interest-Bearing Demand 467,747 2.93% 421,296 2.98% 455,410 2.30%
Savings Deposits 74,676 2.10 76,450 2.33 87,058 2.17
Time Deposits 542,414 5.91 535,061 5.76 487,759 4.37
- - ------------------------------------------------------------------------------------------------------
Total $1,356,192 $1,291,651 $1,298,411
- - --------------------------==========----------------==========----------------==========--------------
</TABLE>
<PAGE>
Time Deposits (Table 11)
- - --------------------------------------------------------------------------------
The following table sets forth, by remaining time to maturity, time deposits in
amounts of $100,000 or more at year-end (Dollars in thousands):
At December 31 1996
- - --------------------------------------------------------------------------------
Time deposits in amounts of $100,000 or more maturing in:
3 months or less $ 22,754
Over 3 months through 6 months 21,965
Over 6 months through 12 months 44,323
Over 12 months 32,920
- - --------------------------------------------------------------------------------
Total $121,962
- - -------------------------------------------------------------------========-----
Return on Equity and Assets (Table 12)
- - --------------------------------------------------------------------------------
The following table presents a three year history of certain operating ratios:
Year Ended December 31 1996 1995 1994
- - --------------------------------------------------------------------------------
Return on Average Assets 0.10 0.79 1.23
Return on Average Equity 1.23 9.34 14.91
Dividend Payout Ratio 210.81 28.4 31.25
Average Equity to Average Assets Ratio 8.14 8.41 8.26
Short-Term Borrowings (Table 13)
- - --------------------------------------------------------------------------------
Information for each category of short-term borrowings for which the average
balance outstanding for the period was at least 30 percent of stockholders'
equity at the end of the period is presented below (Dollars in thousands):
Year Ended December 31 1996 1995 1994
- - --------------------------------------------------------------------------------
Securities Sold Under Repurchase Agreements
Ending Balance $85,685 $61,230 $39,302
Ending Balance Rate 4.75% 5.22% 4.73%
Largest Month-End Balance $111,221 $62,012 $41,125
Average Balance $91,914 $52,606 $20,411
Average Interest Rate 4.74% 5.34% 4.01%
Securities Sold Under Repurchase Agreements are transactions in which the
Company sells securities and agrees to repurchase the identical securities at a
specified date for a specified price.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INTRUST FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
December 31, 1996 and 1995
Dollars in thousands except per share data 1996 1995
- - --------------------------------------------------------------------------------
Assets
Cash and cash equivalents:
Cash and due from banks $ 123,378 $ 102,963
Federal funds sold and securities purchased
under agreements to resell 61,726 112,020
- - --------------------------------------------------------------------------------
Total cash and cash equivalents 185,104 214,983
- - --------------------------------------------------------------------------------
Investment securities:
Held-to-maturity 291,404 315,430
Available-for-sale 1,498 1,923
Equity, at cost 2,736 2,893
- - --------------------------------------------------------------------------------
Total investment securities 295,638 320,246
- - --------------------------------------------------------------------------------
Loans held-for-sale, net of unrealized losses of
$29,120 in 1996 and $0 in 1995 102,063 7,481
Loans, net of allowance for loan losses of
$15,536 in 1996 and $25,892 in 1995 1,038,576 1,029,904
Land, buildings and equipment, net 28,501 28,684
Accrued interest receivable 11,462 12,548
Other assets 60,058 53,138
- - --------------------------------------------------------------------------------
Total assets $1,721,402 $1,666,984
- - ------------------------------------------------------==========================
Liabilities and Stockholders' Equity
Deposits:
Demand $ 317,297 $ 293,919
Savings and interest-bearing demand 554,505 528,570
Time 556,593 544,652
- - --------------------------------------------------------------------------------
Total deposits 1,428,395 1,367,141
- - --------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 117,726 107,775
Other 11,149 10,038
- - --------------------------------------------------------------------------------
Total short-term borrowings 128,875 117,813
- - --------------------------------------------------------------------------------
Accounts payable and accrued liabilities 13,159 14,703
Notes payable 17,660 20,310
Convertible capital notes 11,219 11,854
- - --------------------------------------------------------------------------------
Total liabilities 1,599,308 1,531,821
- - --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,415,071 shares issued in 1996
and 2,400,000 issued in 1995 12,075 12,000
Capital surplus 12,377 12,000
Retained earnings 112,374 114,235
Treasury stock, at cost (210,161 shares in 1996
and 61,770 shares in 1995) (14,799) (3,156)
Unrealized securities gains, net of tax 67 84
- - --------------------------------------------------------------------------------
Total stockholders' equity 122,094 135,163
- - --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,721,402 $1,666,984
- - ------------------------------------------------------==========================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTRUST FINANCIAL CORPORATION
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
Dollars in thousands except per share data 1996 1995 1994
- - --------------------------------------------------------------------------------
Interest income:
Loans $107,312 $104,117 $ 92,130
Investment securities:
Taxable 19,061 14,892 11,639
Nontaxable 1,907 3,329 4,299
Federal funds sold, securities purchased under
agreements to resell, and other 4,183 5,581 2,315
- - --------------------------------------------------------------------------------
Total interest income 132,463 127,919 110,383
- - --------------------------------------------------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing demand 15,292 14,347 11,828
Time 32,042 30,843 21,336
Federal funds purchased and securities sold
under agreements to repurchase 6,395 5,041 2,030
Convertible capital notes 1,038 1,076 1,080
Other borrowings 1,669 2,153 1,993
- - --------------------------------------------------------------------------------
Total interest expense 56,436 53,460 38,267
- - --------------------------------------------------------------------------------
Net interest income 76,027 74,459 72,116
Provision for write-down of loans held-for-sale 17,475 0 0
Provision for loan losses 20,151 18,118 2,962
- - --------------------------------------------------------------------------------
Net interest income after provision
for loan losses 38,401 56,341 69,154
- - --------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 9,207 9,053 9,137
Trust fees 5,874 5,718 5,604
Credit card fees 11,871 10,898 5,269
Gain on sale of credit card loans 0 2,018 0
Securities gains 37 0 0
Other service charges, fees and income 6,779 5,933 6,878
- - --------------------------------------------------------------------------------
Total noninterest income 33,768 33,620 26,888
- - --------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 30,913 29,554 28,500
Net occupancy and equipment expense 9,307 10,856 7,599
Data processing expense 3,584 4,686 4,965
Supplies 2,113 2,841 2,735
Deposit insurance assessment 1,103 1,638 2,835
Postage and dispatch 2,310 2,387 2,380
Advertising and promotional activities 4,723 3,609 5,430
Goodwill amortization 1,599 1,596 1,437
Other 14,786 14,028 10,308
- - --------------------------------------------------------------------------------
Total noninterest expense 70,438 71,195 66,189
- - --------------------------------------------------------------------------------
Income before provision for income taxes 1,731 18,766 29,853
Provision for income taxes 51 6,379 10,884
- - --------------------------------------------------------------------------------
Net income $ 1,680 $ 12,387 $ 18,969
- - --------------------------------------------------==============================
Per share data:
Net income - assuming no dilution $ 0.74 $ 5.28 $ 8.00
- - --------------------------------------------------==============================
Net income - assuming full dilution $ 0.74 $ 4.77 $ 7.10
- - --------------------------------------------------==============================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
INTRUST FINANCIAL CORPORATION Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
Unrealized Total
Dollars in thousands except Common Capital Retained Treasury Securities Stockholders'
per share data Stock Surplus Earnings Stock Gains Equity
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 $12,000 $12,000 $ 92,312 $ (783) $ 0 $115,529
Net income 0 0 18,969 0 0 18,969
Cash dividends ($2.50 per share) 0 0 (5,915) 0 0 (5,915)
Purchase of treasury stock 0 0 0 (993) 0 (993)
- - -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994 12,000 12,000 105,366 (1,776) 0 127,590
Net income 0 0 12,387 0 0 12,387
Cash dividends ($1.50 per share) 0 0 (3,518) 0 0 (3,518)
Purchase of treasury stock 0 0 0 (1,380) 0 (1,380)
Net change in unrealized gains on
available-for-sale securities 0 0 0 0 84 84
- - -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 12,000 12,000 114,235 (3,156) 84 135,163
Net income 0 0 1,680 0 0 1,680
Cash dividends ($1.55 per share) 0 0 (3,541) 0 0 (3,541)
Capital notes converted to stock 75 377 0 0 0 452
Purchase of treasury stock 0 0 0 (11,643) 0 (11,643)
Net change in unrealized gains on
available-for-sale securities 0 0 0 0 (17) (17)
- - -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 $12,075 $12,377 $112,374 $(14,799) $ 67 $122,094
- - ---------------------------------------==================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTRUST FINANCIAL CORPORATION Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
Dollars in thousands 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------
Cash provided (absorbed) by operating activities:
<S> <C> <C> <C>
Net Income $ 1,680 $ 12,387 $ 18,969
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses and write-downs 37,626 18,118 2,962
Provision for depreciation and amortization 6,679 7,022 6,228
Amortization of premium and accretion of discount on
investment securities 31 788 2,179
Write-down of real estate to estimated market value 1,048 2,584 5
Gain on sale of investment securities (37) 0 0
Gain on sale of loans 0 (2,018) 0
Changes in assets and liabilities, net of effect
from purchase of acquired entity:
Loans held for sale (5,330) (6,889) 788
Other assets (825) (3,679) (3,656)
Income taxes (8,896) (3,888) 218
Interest receivable 1,086 (1,625) 560
Interest payable (38) 809 549
Other liabilities (420) 429 528
Other (213) (1) (76)
- - ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,391 24,037 29,254
- - ----------------------------------------------------------------------------------------------------
Cash provided (absorbed) by investing activities:
Purchase of banks, net of cash and cash equivalents acquired 0 5,783 3,073
Purchase of investment securities (101,770) (169,124) (36,780)
Investment securities matured or called 125,909 146,596 122,787
Proceeds from sale of investment securities 472 0 0
Net increase in loans (138,831) (11,952) (78,426)
Proceeds from sale of loans 0 12,108 0
Purchases of land, buildings and equipment (5,128) (3,485) (4,640)
Proceeds from sale of equipment 43 44 102
Proceeds from sale of other real estate and repossessions 3,657 3,396 3,306
Other (920) (370) (661)
- - ----------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by investing activities (116,568) (17,004) 8,761
- - ----------------------------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Net increase (decrease) in deposits 61,254 50,725 (51,774)
Net increase (decrease) in short-term borrowings 11,062 50,020 (8,261)
Payments on notes payable (2,650) (2,640) (2,630)
Retirement of convertible capital notes (183) (146) 0
Cash dividends (3,542) (3,518) (5,915)
Purchase of treasury stock (11,643) (1,380) (993)
- - ----------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by financing activities 54,298 93,061 (69,573)
- - ----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (29,879) 100,094 (31,558)
Cash and cash equivalents at beginning of year 214,983 114,889 146,447
- - ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 185,104 $ 214,983 $ 114,889
- - ----------------------------------------------------------------====================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
INTRUST FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
Dollars in thousands except per share data
1) Summary of Significant Accounting Policies
INTRUST Financial Corporation (the "Company") is a bank holding company
incorporated under the laws of the state of Kansas and is registered under the
Bank Holding Company Act of 1956, as amended. The Company is the sole
shareholder of INTRUST Bank, N.A., Wichita, Kansas; Will Rogers Bank, Oklahoma
City, Oklahoma (the "Subsidiary Banks") (In 1996, The First Bank, Moore,
Oklahoma was merged into Will Rogers Bank); NestEgg Consulting Inc. and INTRUST
Community Development Corporation (the Subsidiaries). The Company's primary
business is providing customers in Kansas and Oklahoma with personal and
commercial banking services, fiduciary services and real estate and other
mortgage services.
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and general practices within the banking
industry. The following is a description of the more significant policies:
a) Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned Subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions. Those estimates relate principally to the
determination of the allowance for loan losses, income taxes and the fair value
of financial instruments. Actual results could differ from those estimates.
Certain reclassifications have been made to provide consistent financial
statement classifications in the periods presented herein. Such
reclassifications had no effect on net income or total assets.
b) Investment Securities - Debt securities and equity securities which have a
readily determinable market value that may be sold in response to changes in
interest rates or prepayment risk are classified as available-for-sale and are
carried at estimated market value with unrealized gains and losses reported as a
separate component of stockholders' equity, net of income taxes. Debt securities
that management has the ability and intent to hold to maturity are classified as
held-to-maturity and are carried at cost, adjusted for amortization of premiums
and accretion of discounts. Equity securities which do not have a readily
determinable market value are carried at cost. Gains and losses on the sale of
investment securities are included as a component of noninterest income.
Applicable income taxes, if any, are included in income taxes. The basis of the
securities sold is determined by the specific identification of each security.
c) Loans held-for-sale - Loans originated and/or intended for sale are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
d) Loans - Certain loans are made on a discount basis. The unearned discount
applicable to such loans is taken into income on scheduled payment dates by use
of the straight-line method. Income so recognized does not differ materially
from income which would be recognized under the interest method of accounting.
Loans are reported as being in nonaccrual status if: (a) they are maintained
on a cash basis because of deterioration in the financial position of the
borrower, (b) payment in full of interest or principal is not expected, or (c)
principal or interest has been in default for a period of 90 days or more unless
the obligation is both well secured and in the process of collection. Any
accrued but unpaid interest previously recorded on such loans is reversed
against current period interest income.
Loans are charged-off whenever the loan is considered uncollectible. Credit
card loans are charged-off at the earlier of when they are considered
uncollectible or are 210 days past the contractual due date. Other installment
loans are charged-off at the time they are considered uncollectible or are 120
days past due, whichever is earlier.
e) Provision for Loan Losses - The provision for loan losses is the amount
required to maintain the allowance for loan losses at a level adequate to
provide for inherent loan losses. The balance in the allowance for loan losses
is based on management's analysis of the loan portfolio, prior bank experience,
economic conditions and such other factors which, in management's opinion,
require consideration. Management believes that the allowance for loan losses is
adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. The Subsidiary Banks are subject to the regulations of certain
federal agencies and undergo periodic examinations by those regulatory
authorities. As an integral part of those examinations, the various regulatory
agencies periodically review the Subsidiary Banks' allowances for loan losses.
Such agencies may require the Subsidiary Banks to recognize changes to the
allowances based on their judgments about information available to them at the
time of their examination.
Effective January 1, 1995, 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." SFAS No. 114 requires that certain
impaired loans, as defined, 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 adoption of SFAS No. 114 and 118 have had no impact on the
consolidated financial statements.
f) Land, Buildings and Equipment - Land is stated at cost, and buildings and
equipment are stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line or declining balance method depending upon the
type of asset and year of acquisition. The following useful lives have been
established:
Buildings and improvements 15 to 40 years
Furniture, fixtures and equipment 3 to 20 years
g) Other Real Estate Owned - Other real estate owned and repossessed assets
may include assets acquired from loan settlements, foreclosure, or abandonment
of plans to use real estate previously acquired for future expansion of banking
premises. These assets are recorded at the lower of cost or fair market value
and are included in "Other assets" in the consolidated statements of financial
condition. Any initial write-downs on assets acquired from loan settlements and
foreclosures are charged to the allowance for loan losses. Subsequent
write-downs, due to a decline in fair value, are charged to current expense.
Revenues and expenditures related to the operation or maintenance of these
assets are recorded in operating income as incurred.
h) Goodwill - The excess of cost over fair value of net assets acquired is
amortized using the straight-line method over 15 years. Core deposit premiums
are amortized using accelerated methods over the estimated life of the deposit
relationship. These assets are included as a component of other assets and
amounted to $16,587 and $18,030, net of accumulated amortization, at December
31, 1996 and 1995, respectively.
i) Income Taxes - The Company and its Subsidiaries file a consolidated
federal income tax return on an accrual basis.
Deferred tax assets and liabilities are recognized for the future income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
j) Net Income Per Share - Net income per share assuming no dilution is
computed based upon the weighted average number of shares outstanding including
shares issuable upon exercise of stock options (2,285,513 in 1996, 2,344,762 in
1995 and 2,371,377 in 1994). Net income per share, assuming full dilution, is
computed with the added assumption that the 9% convertible subordinated capital
notes (note 10) had been converted into common stock (387,178 shares in 1996,
398,545 shares in 1995 and 400,000 shares in 1994) as of the beginning of each
respective period presented with related adjustments to interest and income tax
expense. For 1996, fully diluted net income per share is considered to be the
same as primary net income per share, since the effect of the convertible
subordinated capital notes would be antidilutive.
k) Statements of Cash Flows - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, federal funds
sold and securities purchased under agreements to resell. Generally, federal
funds are purchased and sold for one-day periods and securities purchased under
agreements to resell mature within 90 days. The following amounts of cash were
paid for interest and income taxes:
1996 1995 1994
- - --------------------------------------------------------------------------------
Interest $56,474 $52,651 $37,719
Income taxes 8,947 10,267 10,666
Noncash investing and financing activities included the following:
1996 1995 1994
- - --------------------------------------------------------------------------------
Acquisitions (note 2):
Assets acquired $ 0 $34,794 $42,619
Liabilities assumed 0 40,577 45,692
- - --------------------------------------------------------------------------------
Assets net of liabilities acquired 0 (5,783) (3,073)
Loans transferred to other assets 3,281 3,512 1,372
Sale of other real estate owned
financed by the Company 0 0 335
Investments transferred from
held-to-maturity at amortized cost 0 (1,630) 0
Investments transferred to available-
for-sale at estimated market value 0 1,714 0
- - --------------------------------------------------------------------------------
l) Trust Fees - Trust fees are recorded on the accrual basis.
2) Acquisitions
The following acquisitions were made during 1996, 1995 and 1994:
Company Acquired Acquisition Date Purchase Price
NestEgg Consulting Inc. November 1, 1996 $ 275
The First National Bank of Ottawa (FNBO) December 1, 1995 3,500
First Moore Bancshares, Inc. (First Moore) November 30, 1994 6,399
The above transactions have been accounted for as purchases, and accordingly,
the acquired assets and liabilities have been recorded at their fair value at
acquisition date and the operating results of these acquisitions are included in
the Company's consolidated income statements from the date of acquisition.
Excess of cost over fair value of the net assets acquired arising from these
transactions is amortized using the straight-line method over a 15-year period.
The effect on results of operations, had the transactions occurred at the
beginning of the respective years of acquisition, was not significant.
3) Investment Securities
The amortized cost and estimated fair values of investment securities are as
follows at December 31:
Gross Gross
1996 Amortized Unrealized Unrealized Fair
---- Cost Gains Losses Value
- - --------------------------------------------------------------------------------
U.S. Treasury Securities:
Held-to-maturity $129,701 $ 476 $ 236 $129,941
Obligations of U.S. Government
Agencies and Corporations:
Held-to-maturity 120,016 244 563 119,697
U.S. Government Agency
mortgage-backed securities:
Held-to-maturity 19,876 824 56 20,644
Obligations of state and
political subdivisions:
Held-to-maturity 21,761 1,021 16 22,766
Available-for-sale 1,431 68 1 1,498
Other Securities:
Held-to-maturity 50 0 0 50
- - --------------------------------------------------------------------------------
Total held-to-maturity $291,404 $ 2,565 $ 871 $293,098
- - ---------------------------------------=========================================
Total available-for-sale $ 1,431 $ 68 $ 1 $ 1,498
- - ---------------------------------------=========================================
Gross Gross
1995 Amortized Unrealized Unrealized Fair
---- Cost Gains Losses Value
- - --------------------------------------------------------------------------------
U.S. Treasury Securities:
Held-to-maturity $151,268 $ 2,030 $ 81 $153,217
Obligations of U.S. Government
Agencies and Corporations:
Held-to-maturity 104,265 1,058 123 105,200
U.S. Government Agency
mortgage-backed securities:
Held-to-maturity 28,458 1,199 91 29,566
Obligations of state and
political subdivisions:
Held-to-maturity 31,329 1,735 18 33,046
Available-for-sale 1,630 86 2 1,714
Equity and other:
Held-to-maturity 110 2 0 112
Available-for-sale 209 0 0 209
- - --------------------------------------------------------------------------------
Total held-to-maturity $315,430 $ 6,024 $ 313 $321,141
- - ---------------------------------------=========================================
Total available-for-sale $ 1,839 $ 86 $ 2 $ 1,923
- - ---------------------------------------=========================================
Proceeds from sales of investment securities during 1996, 1995 and 1994 were
$472, $0 and $0, respectively. Gross realized gains on sales of
available-for-sale securities were $37, $0 and $0 in 1996, 1995 and 1994
respectively.
The amortized cost and estimated fair value of investment securities at
December 31, 1996, by contractual maturity, are shown as follows. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Amortized Fair
Cost Value
- - --------------------------------------------------------------------------------
Due in one year or less:
Held-to-maturity $120,602 $121,258
Available-for-sale 45 45
Due after one year through five years:
Held-to-maturity 149,655 149,949
Available-for-sale 303 309
Due after five years through ten years:
Held-to-maturity 19,781 20,411
Available-for-sale 0 0
Due after ten years:
Held-to-maturity 1,366 1,480
Available-for-sale 1,083 1,144
- - --------------------------------------------------------------------------------
Total held-to-maturity $291,404 $293,098
- - --------------------------------------------------------========================
Total available-for-sale $ 1,431 $ 1,498
- - --------------------------------------------------------========================
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings based
on the weighted-average contractual maturities of underlying collateral. The
mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
Investment securities, which are under the Company's control, with a book
value of $227,297 and $190,323 at December 31, 1996 and 1995, respectively, were
pledged as collateral for public and trust deposits and for other purposes as
required by law.
4) Loans Held-For-Sale
Loans held-for-sale include a portion of the Company's credit card portfolio.
These loans consist of certain designated accounts located outside of the
Company's traditional market area. These loans, which aggregate $118,278, have
been written down to their estimated market value of $89,158. The Company has
executed a nonbinding letter of intent with a third party to sell this
portfolio.
Also included in loans held-for-sale at December 31, 1996 and 1995, were
approximately $12,904 and $7,481, respectively, of mortgage loans accounted for
at cost which approximated estimated market value.
5) Loans
The composition of the loan portfolio at December 31, is as follows:
1996 1995
- - --------------------------------------------------------------------------------
Commercial, financial and agricultural $ 485,891 $ 416,428
Real estate-construction 27,130 25,491
Real estate-mortgage 210,591 181,894
Installment, excluding credit card 286,632 258,713
Credit card 43,868 173,270
- - --------------------------------------------------------------------------------
Subtotal 1,054,112 1,055,796
Allowance for loan losses (15,536) (25,892)
- - --------------------------------------------------------------------------------
Net Loans $1,038,576 $1,029,904
- - -----------------------------------------------------===========================
Certain directors of the Company or related parties of these directors had
loans from the Subsidiary Banks aggregating $37,319 and $42,072 at December 31,
1996 and 1995, respectively. Such loans were made in the ordinary course of
business and on substantially the same terms as those prevailing at the time for
comparable loans to other borrowers.
Transactions involving loans to directors or related parties of these
directors were as follows:
Loans at December 31, 1995 $ 42,072
Additions 183,471
Repayments (188,224)
- - --------------------------------------------------------------------------------
Loans at December 31, 1996 $ 37,319
- - ----------------------------------------------------------------------==========
The following table discloses information about the recorded investment in
loans that the Company has classified as impaired:
(A) (B) (C) (D)
Amount in (A) for Amount in (A) for
Which There Is a Allowance Which There Is No
Total Impaired Related Allowance Associated With Related Allowance
Year End Loans for Credit Losses Amounts in (B) for Credit Losses
- - --------- -------------- ----------------- --------------- -----------------
1996 $3,082 $1,973 $687 $1,109
1995 $6,745 $4,473 $467 $2,272
The average recorded investment in impaired loans for the years ended
December 31, 1996 and 1995, was $3,309 and $9,477, respectively. Interest
payments received on impaired loans are recorded as interest income unless
collection of the remaining recorded investment is doubtful, at which time
payments received are recorded as reductions of principal. The Company
recognized interest income on impaired loans of $163 and $85 for the years ended
December 31, 1996 and 1995.
6) Allowance for Loan Losses
Transactions in the allowance for loan losses were as follows:
1996 1995 1994
- - --------------------------------------------------------------------------------
Balance at beginning of year $ 25,892 $19,886 $21,793
Provision charged to expense 20,151 18,118 2,962
Transfer to write down loans held-for-sale (11,645) 0 0
Allowance of banks acquired 0 172 164
Loans charged off (21,829) (15,845) (7,534)
Recoveries 2,967 3,561 2,501
- - --------------------------------------------------------------------------------
Balance at end of year $ 15,536 $25,892 $19,886
- - ---------------------------------------------===================================
The Company recorded net charge-offs in its credit card portfolio in 1996,
1995 and 1994 of $17,700, $10,900 and $4,900, respectively. The 1996 and 1995
provision for loan losses was increased in recognition of this increased level
of charge-offs.
7) Land, Buildings and Equipment
A summary of land, buildings and equipment is as follows:
December 31,
1996 1995
- - --------------------------------------------------------------------------------
Land $ 5,482 $ 5,376
Buildings and improvements 32,497 31,468
Furniture, fixtures and equipment 25,800 23,040
- - --------------------------------------------------------------------------------
63,779 59,884
Less accumulated depreciation 35,278 31,200
- - --------------------------------------------------------------------------------
Total $28,501 $28,684
- - ---------------------------------------------------------=======================
Depreciation expense for the years 1996, 1995 and 1994 was approximately
$4,269, $4,630 and $4,161, respectively.
8) Time Deposits
Time certificates of deposit and other time deposits of $100 or more included
in total deposit liabilities at December 31, 1996 and 1995 were $121,962 and
$119,401, respectively. Interest expense on this classification of time deposits
for the years ended December 31, 1996, 1995 and 1994 totaled $7,116, $6,736 and
$4,548, respectively.
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
1997 $357,136
1998 70,903
1999 95,459
2000 14,930
2001 and thereafter 18,165
- - --------------------------------------------------------------------------------
Total $556,593
- - ------------------------------------------------------------------------========
9) Short-Term Borrowings and Notes Payable
All short-term borrowings generally mature in less than 30 days. The maximum
amount of these borrowings at any month-end for the years ended December 31,
1996, 1995 and 1994, was $173,645, $126,763 and $75,923, respectively. For the
years ended December 31, 1996, 1995 and 1994, the weighted average interest rate
on these borrowings was 5.0%, 5.5% and 3.2%, respectively, on average balances
outstanding of $135,669, $99,695 and $63,631, respectively.
Notes payable at December 31, 1996 consist of a term loan to another
financial institution with an unpaid principal balance of $17,500 and industrial
revenue bonds with an unpaid principal balance of $160. The term loan carries a
floating rate of interest and is repayable in annual principal installments of
$2,500, with the final payment due in 2003. The floating interest rate reprices
based on a Eurodollar interest period selected by the Company. The rate on the
indebtedness will be computed based on a premium to the lender's Eurodollar Base
Rate. The indebtedness is secured by the outstanding common stock of INTRUST
Bank N.A. At December 31, 1996, the interest rate on the term loan was 6.89%.
The industrial revenue bonds are payable in annual installments through
October 1997 and are guaranteed by a subsidiary of the Company.
The Company has a $10,000 line of credit agreement with the financial
institution that has issued the term loan. Interest rates on the line of credit
are determined in the same manner as the term loan. At December 31, 1996, there
were no outstanding borrowings under this credit facility.
10) Convertible Capital Notes
The convertible subordinated capital notes (the notes) bear interest at 9%.
The notes are convertible, at the note holder's option, into the Company's
common stock at a conversion price of $30 per share. The principal amount of the
notes matures on December 22, 1999, and may be redeemed, at the option of the
Company, at any time at par. At maturity, to the extent that the notes have not
been previously retired through redemption or conversion, the principal amount
of the notes will be repaid either in cash, if the note holder so elects, but
only to the extent the Company has qualified funds (as defined) to do so or by
exchange for the Company's common stock based upon the market value (as defined)
of the Company's common stock at the maturity date of the notes.
At December 31, 1996, 384,929 shares of the Company's unissued common stock
were reserved for conversion of the convertible capital notes. Convertible
capital notes, with a face value of $183 in 1996 and $146 in 1995, were redeemed
for cash, and notes, with a face value of $452, were converted into 15,071
shares of the Company's common stock during 1996.
11) Employees' Retirement Plans
The Company's employee retirement plan covers substantially all full-time
employees who meet eligibility requirements as to age and tenure. The plan
provides retirement benefits which are a function of both the years of service
and the highest level of compensation during any consecutive five-year period
during the ten-year period preceding retirement. The Company's funding policy is
to fund the amount necessary to meet the minimum funding requirements set forth
by the Employee Retirement Income Security Act of 1974, plus such additional
amounts, if any, as the Company may determine to be appropriate from time to
time. Plan assets are invested primarily in U.S. Government and Federal agency
securities, corporate obligations, mutual funds and listed stocks. Pension
expense for 1996, 1995 and 1994 was $357, $601 and $366, respectively.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated financial statements.
December 31,
1996 1995
- - --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $ 6,213 $ 6,041
Non-vested 100 136
- - --------------------------------------------------------------------------------
Total $ 6,313 $ 6,177
- - -------------------------------------------------------------===================
Projected benefit obligation $ 7,838 $ 7,785
Plan assets at fair value (8,572) (8,125)
- - --------------------------------------------------------------------------------
Plan assets greater than projected benefit obligation 734 340
Unrecognized net transition asset being amortized
over 15 years (475) (571)
Unrecognized net loss due from assumptions made 439 729
Unrecognized prior service cost (426) (472)
- - --------------------------------------------------------------------------------
Prepaid pension cost $ 272 $ 26
- - -------------------------------------------------------------===================
Pension expense is comprised of the following:
1996 1995 1994
- - --------------------------------------------------------------------------------
Service cost-benefits earned during the year $ 649 $ 607 $ 524
Interest cost on projected benefit obligation 517 482 460
Return on plan assets (667) (556) (566)
Net amortization and deferral (142) (88) (52)
Net loss from settlement 0 156 0
- - --------------------------------------------------------------------------------
Total $ 357 $ 601 $ 366
- - ------------------------------------------------------==========================
The weighted average discount rate used was 7.00% for each of the past three
years. The expected long-term rate of return on plan assets and increase in
compensation levels used in determining the projected benefit obligation were
8.25% and 4.00%, respectively, for each of the past three years.
During 1995, the Company recognized $156 in pension expense arising from an
early retirement program that was offered to employees that met certain
eligibility requirements as to age. No such program was offered in 1996 or 1994.
The Company has entered into deferred compensation agreements with certain
officers and directors. Under the provisions of these agreements, the officers
and directors will receive monthly payments for specified periods. The
liabilities under these agreements are being accrued over the officers'
remaining periods of employment or the directors' assumed retirement ages so
that, on the date of their retirement, the then-present value of the payments
will have been accrued. The liabilities are being accrued at interest rates that
exceed market rates at the times the plans were adopted with the above market
spread varying between 3% and 9%, depending on individual agreements. At
December 31, 1996 and 1995, $4,012 and $3,716 had been accrued for the liability
under these agreements and is included in accounts payable and accrued
liabilities in the accompanying consolidated statements of financial condition.
Expense recognized in 1996, 1995 and 1994 was $603, $516 and $535, respectively,
and is included in salaries and employee benefits in the accompanying
consolidated statements of income.
12) Income Taxes
The provision for income taxes from operations includes the following
components:
1996 1995 1994
- - --------------------------------------------------------------------------------
Current:
Federal $ 7,174 $ 8,649 $ 7,685
State 686 2,001 2,066
- - --------------------------------------------------------------------------------
7,860 10,650 9,751
- - --------------------------------------------------------------------------------
Deferred:
Federal (6,631) (3,230) 988
State (1,178) (1,041) 145
- - --------------------------------------------------------------------------------
(7,809) (4,271) 1,133
- - --------------------------------------------------------------------------------
Total $ 51 $ 6,379 $ 10,884
- - -----------------------------------------------=================================
The provision for income taxes noted above produced effective income tax
rates of 2.9%, 34.0% and 36.5% for the years ended December 31, 1996, 1995 and
1994, respectively. The reconciliations of these effective income tax rates to
the federal statutory rates are shown below:
1996 1995 1994
- - --------------------------------------------------------------------------------
Total income tax as reported 2.9% 34.0% 36.5%
Tax exempt income 38.1 5.9 4.8
Amortization of excess purchase price over
net assets acquired (19.2) (1.3) (1.6)
State income tax, net of federal income
tax benefit 18.5 (3.4) (4.8)
Other (5.3) (0.2) 0.1
- - --------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
- - -------------------------------------------------------=========================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented as follows:
1996 1995
- - --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 5,973 $ 9,534
Loans held-for-sale 11,312 0
Buildings and equipment 4,477 3,969
Other real estate owned 457 434
Deferred compensation 1,557 1,426
Net operating loss carryforwards 2,155 2,433
Investment securities 538 657
Deposits 2,088 2,075
Other 229 270
- - --------------------------------------------------------------------------------
Total gross deferred tax assets 28,786 20,798
Less valuation allowances 1,973 2,006
- - --------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowances 26,813 18,792
- - --------------------------------------------------------------------------------
Deferred tax liabilities:
Pension (363) (240)
Prepaid deposit insurance (0) (60)
Prepaid loan fees (289) (76)
Core deposit premium (75) (119)
Loans (136) (214)
Other (267) (209)
- - --------------------------------------------------------------------------------
Total gross deferred tax liabilities (1,130) (918)
- - --------------------------------------------------------------------------------
Net deferred tax assets $ 25,683 $ 17,874
- - ----------------------------------------------------------======================
At December 31, 1996 and 1995, current income taxes payable of $267 and
$1,396, respectively, were included in accounts payable and accrued liabilities.
The net deferred tax assets noted above were included in other assets.
At December 31, 1996, the Company had net operating loss deductions available
to carryforward of approximately $27,967 for state purposes which expire in
varying amounts from 1997 through 2006 and $373 for federal purposes which
expire from 2003 through 2009.
The valuation allowance at December 31, 1996 is attributable to certain net
operating loss carryforwards for state and federal tax purposes.
13) Commitments and Contingent Liabilities
At December 31, 1996, the Subsidiary Banks were required to have $13,887 held
as reserves with the Federal Reserve Bank.
At December 31, 1996, the Company was committed to make future payments under
several long-term lease and data processing agreements. The minimum payments
required by these agreements are summarized below:
Minimum
Payments
- - --------------------------------------------------------------------------------
1997 $ 3,028
1998 2,755
1999 2,647
2000 2,654
2001 2,673
Remainder 10,297
- - --------------------------------------------------------------------------------
Total $24,054
- - -----------------------------------------------------------------------=========
Lease rentals included in net occupancy and equipment expense for the years
ended December 31, 1996, 1995 and 1994 amounted to $912, $829 and $634,
respectively.
One of the Company's data processing agreements has a term of eight years
ending in the year 2003. The Company has the option to terminate this data
processing agreement by paying a cancellation fee that is based on the number of
months remaining under the original contract term.
The Company or its Subsidiaries are involved in certain claims and suits
arising in the ordinary course of business. In the opinion of management, based
in part on the advice of legal counsel, potential liabilities arising from these
claims, if any, would not have a significant effect on the Company's
consolidated financial position or results of operations.
14) Stockholders' Equity
Dividend Restriction
The equity in undistributed earnings of the Subsidiaries at December 31, 1996
was $67,642. The Company's ability to pay dividends on its common stock and
interest on its indebtedness is dependent upon funds provided by dividends from
the Subsidiaries and such other funding sources as may be available to the
Company. The payment of dividends by the Subsidiaries is restricted only by
regulatory authority. At December 31, 1996, approximately $435 was available
from the Subsidiaries' retained earnings for distribution as dividends to the
Company without regulatory approval.
Regulatory Capital
The Company and its Subsidiary Banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material affect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Subsidiary Banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined). As
of December 31, 1996, the consolidated ratios of the Company and for each of the
Subsidiary Banks meet all capital adequacy requirements to which they are
subject.
As of the most recent notification, the Subsidiary Banks were categorized as
"well capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well capitalized" the Subsidiary Banks must maintain
minimum ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Subsidiary
Banks' categories.
Actual capital amounts and ratios are also presented in the table.
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Consolidated $119,207 8.9% $106,772 8.0% N/A
INTRUST Bank, N.A $127,206 10.1% $100,481 8.0% $125,602 10.0%
Will Rogers Bank $ 11,233 15.1% $ 5,969 8.0% $ 7,461 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $104,183 7.8% $ 53,386 4.0% N/A
INTRUST Bank, N.A $117,581 9.4% $ 50,241 4.0% $ 75,361 6.0%
Will Rogers Bank $ 10,322 13.8% $ 2,984 4.0% $ 4,477 6.0%
Tier 1 Capital (to Average Assets):
Consolidated $104,183 6.3% $ 67,320 4.0% N/A
INTRUST Bank, N.A $117,581 7.6% $ 62,691 4.0% $ 78,363 5.0%
Will Rogers Bank $ 10,322 8.9% $ 4,785 4.0% $ 5,981 5.0%
</TABLE>
<TABLE>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Consolidated $132,804 10.6% $100,391 8.0% N/A
INTRUST Bank, N.A $123,729 10.4% $ 95,075 8.0% $118,843 10.0%
Will Rogers Bank $ 6,685 15.2% $ 3,526 8.0% $ 4,407 10.0%
The First Bank $ 2,971 13.5% $ 1,765 8.0% $ 2,206 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $109,802 8.8% $ 50,195 4.0% N/A
INTRUST Bank, N.A $108,690 9.2% $ 47,537 4.0% $ 71,306 6.0%
Will Rogers Bank $ 6,201 14.1% $ 1,763 4.0% $ 2,644 6.0%
The First Bank $ 2,674 12.1% $ 883 4.0% $ 1,324 6.0%
Tier 1 Capital (to Average Assets):
Consolidated $109,802 6.7% $ 65,651 4.0% N/A
INTRUST Bank, N.A $108,690 7.1% $ 61,407 4.0% $ 76,758 5.0%
Will Rogers Bank $ 6,201 8.7% $ 2,844 4.0% $ 3,556 5.0%
The First Bank $ 2,674 6.1% $ 1,759 4.0% $ 2,199 5.0%
</TABLE>
Stock Option Plan
- - -----------------
The Board of Directors of the Company on May 9, 1995, adopted, with
subsequent shareholder approval, the INTRUST Financial Corporation 1995
Incentive Plan (the "Plan"). The Plan provides that the Company may grant
Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Performance Shares, Phantom Stock and Restricted Stock to officers and key
employees of the Company, as defined in the Plan. The Plan provides for the
issuance or transfer of a maximum of 240,000 shares of the Company's common
stock. The exercise price of any options granted under the Plan cannot be less
than the fair market value of the Company's common stock at the date of grant.
The maximum term for options or rights cannot exceed ten years from the date
they are granted. All options under the plan vest in 20% annual increments over
a five year period. At December 31, 1996, there were options granted and
unexercised for a total of 55,000 shares. The options outstanding have exercise
prices between $58 and $65, with a weighted average exercise price of $61. Of
the 55,000 shares granted, 6,500 were exercisable at December 31, 1996.
15) Business and Credit Concentrations
The Company provides a wide range of banking services to individual and
corporate customers through its Kansas and Oklahoma subsidiaries. The Company
makes a variety of loans including commercial, agricultural, real estate
construction, real estate mortgage, installment and credit card loans. The
majority of the loans are made to borrowers located in Kansas, although some
loans are made to out-of-state borrowers. Credit risk is therefore dependent
upon economic conditions in Kansas; however, loans granted within the Company's
trade area have been granted to a wide variety of borrowers and management does
not believe that any significant concentrations of credit exist with respect to
individual borrowers or groups of borrowers which are engaged in similar
activities that would be similarly affected by changes in economic or other
conditions. Approximately 31% of the Company's total loan portfolio is comprised
of unsecured credit card loans and installment loans (a large part of which are
collateralized by automobiles). Consequently, the Company's credit risk with
respect to these loans is dependent upon the ability of consumers in general to
repay their indebtedness. The Company considers the composition of the loan
portfolio in establishing the allowance for loan losses as described in note 1.
16) Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statements of financial
condition. The following summarizes those financial instruments, excluding
credit card lines of $944,927, with contract amounts representing credit risk:
Commitments to extend credit $366,264
Commercial and standby letters of credit $ 33,756
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon extension
of credit is based on management's credit evaluation of the counter-party.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In December 1994 and January 1995, the Company securitized and sold a total
of $100,000 of credit card receivables. Neither the credit card receivables sold
or the securities outstanding are defined as financial instruments of the
Company, but the Company continues to service the related credit card accounts
which have an outstanding balance of $96,431 at December 31, 1996. The Company
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. During 1996 and 1995, the Company recognized
$6,595 and $6,972 in servicing fee income, which is included in credit card fees
in the accompanying consolidated statement of income.
17) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires that the Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amounts for cash and cash equivalents are considered reasonable
estimates of fair value.
Investment Securities
The fair values of investment securities are based on quoted market price or
dealer quotations, if available. The fair value of certain state and municipal
obligations is not readily available through market sources. Fair value
estimates for these instruments are based on quoted market prices for similar
instruments, adjusted for differences between the quoted instruments and the
instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar
characteristics. Loans are segregated by type, and then further broken down into
fixed and adjustable rate components, and by performing and non-performing
categories.
The fair value of loans is estimated by discounting scheduled cash flows
through the estimated maturity using the current rates at which similar loans
could be made to borrowers with similar credit ratings and for similar
maturities.
Accrued Interest Receivable and Accrued Interest Payable
The carrying amount for accrued interest receivable and accrued interest
payable are considered reasonable estimates of fair value.
Deposit Liabilities
The fair value of demand deposits, savings and interest-bearing demand
deposits is the amount payable on demand at December 31, 1996 and 1995. The fair
value of time deposits is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates offered for deposits of
similar remaining maturities as of each valuation date.
Short-Term Borrowings
The carrying amount approximates fair value because of the short maturity of
these instruments.
Notes Payable
Interest rates currently available to the Company for debt instruments with
similar terms and remaining maturities are used to estimate the fair value of
notes payable as of each valuation date.
Convertible Capital Notes
The fair value of the convertible capital notes is based on market price
quotations obtained from securities dealers.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreement and the present creditworthiness of the counterparties. The fair value
of letters of credit is based on fees currently charged to enter into similar
agreements. The fees associated with the commitments and letters of credit
currently outstanding reflect a reasonable estimate of fair value. For further
discussion concerning financial instruments with off-balance-sheet risk, refer
to note 16.
<TABLE>
The estimated fair values of the Company's financial instruments are as follows:
December 31, 1996 December 31, 1995
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
- - --------------------------------------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 123,378 $ 123,378 $ 102,963 $ 102,963
Federal funds sold and securities purchased
under agreements to resell 61,726 61,726 112,020 112,020
Investment securities 295,638 297,332 320,246 325,957
Loans held-for-sale 102,063 102,063 7,481 7,481
Loans, net 1,038,576 1,048,883 1,029,904 1,039,431
Accrued interest receivable 11,462 11,462 12,548 12,548
Financial liabilities:
Deposits:
Demand $ 317,297 $ 317,297 $ 293,919 $ 293,919
Savings and interest-bearing demand 554,505 554,505 528,570 528,570
Time 556,593 562,969 544,652 552,120
Short-term borrowings 128,875 128,875 117,813 117,813
Accrued interest payable 4,506 4,506 4,544 4,544
Notes payable 17,660 17,660 20,310 20,310
Convertible capital notes 11,219 23,560 11,854 23,312
</TABLE>
Limitations
No ready market exists for a significant portion of the Company's financial
instruments. It is necessary to estimate the fair value of these financial
instruments based on a number of subjective factors, including expected future
loss experience, risk characteristics and economic performance. Because of the
significant amount of judgment involved in the estimation of the accompanying
fair value information, the amounts disclosed cannot be determined with
precision.
The fair value of a given financial instrument may change substantially over
time as a result of, among other things, changes in scheduled or forecasted cash
flows, movement of current interest rates, and changes in management's estimates
of the related credit risk or operational costs. Consequently, significant
revisions to fair value estimates may occur during future periods. Management
believes it has taken reasonable efforts to ensure that fair value estimates
presented are accurate. However, adjustments to fair value estimates may occur
in the future and actual amounts realized from financial instruments may differ
from the amounts presented herein.
The fair values presented apply only to financial instruments and, as such,
do not include such items as fixed assets, other real estate and assets owned,
other assets and liabilities as well as other intangibles which have resulted
over the course of business. As a result, the aggregation of the fair value
estimates presented herein do not represent, and should not be construed to
represent, the underlying value of the Company.
18) New Accounting Standards
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation", establishes financial accounting and reporting
standards for stock-based employee compensation. The Statement, which is
effective for transactions entered into in fiscal years that begin after
December 15, 1995, defines a fair value based method of accounting for an
employee stock option or similar equity instrument, but it does allow an entity
to continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees". As noted in footnote 14 to the financial
statements, the Company granted options to acquire 55,000 shares of the
Company's common stock. The Company accounts for these stock options using the
intrinsic value based method of accounting. Pro forma disclosures, as if the
fair value based method of accounting as defined in SFAS No. 123 had been
applied, have not been presented since such disclosures would not result in
material differences from the intrinsic value method.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. The Statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. The Company does not
anticipate that adoption of Statement No. 125 will have a material impact on its
financial statements.
<PAGE>
19) Parent Company Only Financial Statements
INTRUST FINANCIAL CORPORATION
(Parent Company Only)
Statements of Financial Condition
December 31, 1996 and 1995
Dollars in thousands except per share data 1996 1995
- - --------------------------------------------------------------------------------
Assets
Cash $ 1,493 $ 21,967
Investment securities, held-to-maturity 576 700
Equipment 744 1,206
Investment in subsidiaries 146,744 142,993
Other 2,582 1,810
- - --------------------------------------------------------------------------------
Total assets $ 152,139 $ 168,676
- - --------------------------------------------------------========================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 755 $ 993
Accrued interest payable 87 332
Current and deferred income taxes 484 334
Notes payable 17,500 20,000
Convertible capital notes payable 11,219 11,854
- - --------------------------------------------------------------------------------
Total liabilities 30,045 33,513
- - --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $5 par value; 10,000,000
shares authorized, 2,415,071 shares issued
in 1996 and 2,400,000 issued in 1995 12,075 12,000
Capital surplus 12,377 12,000
Retained earnings 112,374 114,235
Treasury Stock (14,799) (3,156)
Unrealized securities gains, net of tax 67 84
- - --------------------------------------------------------------------------------
Total stockholders' equity 122,094 135,163
- - --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 152,139 $ 168,676
- - --------------------------------------------------------========================
<PAGE>
19) Parent Company Only Financial Statements (continued)
INTRUST FINANCIAL CORPORATION
(Parent Company Only)
Statements of Income
Years Ended December 31, 1996, 1995 and 1994
Dollars in thousands except per share data 1996 1995 1994
- - --------------------------------------------------------------------------------
Dividends from subsidiaries $ 1,300 $ 25,250 $17,450
Interest income 342 221 245
Fees charged subsidiary banks 1,619 1,574 1,631
- - --------------------------------------------------------------------------------
Total income 3,261 27,045 19,326
- - --------------------------------------------------------------------------------
Operating expenses:
Interest expense 2,339 2,734 2,688
Salaries and employee benefits 1,972 1,546 1,482
Other expense 1,360 1,231 1,237
- - --------------------------------------------------------------------------------
Total operating expenses 5,671 5,511 5,407
- - --------------------------------------------------------------------------------
Income (loss) before income tax benefit
and equity in undistributed net income
of subsidiaries (2,410) 21,534 13,919
Income tax benefit 1,470 1,289 1,187
- - --------------------------------------------------------------------------------
Income (loss) before equity in undistributed
net income of subsidiaries (940) 22,823 15,106
Equity in undistributed net income
of subsidiaries 2,620 (10,436) 3,863
- - --------------------------------------------------------------------------------
Net income $ 1,680 $ 12,387 $18,969
- - --------------------------------------------------==============================
Note: Parent Company Only Statements of Stockholders' Equity are the same as the
Consolidated Statements of Stockholders' Equity.
<PAGE>
19) Parent Company Only Financial Statements (continued)
<TABLE>
INTRUST FINANCIAL CORPORATION
(Parent Company Only)
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
Dollars in thousands 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided (absorbed) by operating activities:
Net income $ 1,680 $ 12,387 $ 18,969
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries (2,620) 10,436 (3,863)
Depreciation 475 474 472
Accretion of discount on investment securities (41) (52) (64)
(Increase) decrease in other assets (772) 12 (252)
Increase (decrease) in accounts payable and accrued liabilities (483) (465) 1,143
Increase (decrease) in current and deferred income taxes 150 (34) (478)
- - ---------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by operating activities (1,611) 22,758 15,927
- - ---------------------------------------------------------------------------------------------------------
Cash provided (absorbed) by investing activities:
Capital expenditures (13) (23) (25)
Proceeds from sale of equipment 0 0 7
Investment securities matured or called 165 163 160
Investment in subsidiaries (1,147) (1,500) (6,377)
- - ---------------------------------------------------------------------------------------------------------
Net cash absorbed by investing activities (995) (1,360) (6,235)
- - ---------------------------------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Payments on notes payable (2,500) (2,500) (2,500)
Retirement of capital notes (183) (146) 0
Dividends paid (3,542) (3,518) (5,915)
Purchase of treasury stock, net (11,643) (1,380) (993)
- - ---------------------------------------------------------------------------------------------------------
Net cash absorbed by financing activities (17,868) (7,544) (9,408)
- - ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (20,474) 13,854 284
Cash at beginning of year 21,967 8,113 7,829
- - ---------------------------------------------------------------------------------------------------------
Cash at end of year $ 1,493 $ 21,967 $ 8,113
- - -----------------------------------------------------------------------==================================
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To INTRUST Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of INTRUST Financial Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of INTRUST Financial Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
February 14, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- -------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
This item is not applicable to the Company.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- - -------- ---------------------------------------------------
Set forth below are the names of the directors, nominees for director,
executive officers as designated by the Board of Directors, and nominees for
executive officer of the Company, together with certain related information. All
of the executive officers of the Company will hold office until the next annual
meeting of directors. The directors of the Company are divided into three
classes; the terms of office of the first class, second class and third class
expire at the 1999, 1997 and 1998 annual meetings of stockholders, respectively.
Directors will be elected for a full three year term to succeed those whose
terms expire. The year in which each director's term expires is indicated after
his name and age. Directors and executive officers will serve as indicated or
until their successors are duly elected and qualified, unless sooner terminated
by death, resignation, removal or otherwise. There are no arrangements or
understandings between any of the directors, executive officers or any other
persons pursuant to which any of the directors or executive officers have been
selected to their respective positions.
RONALD L. BALDWIN, 43, 1999, has been director of the Company and Vice
Chairman of IB since 1996. From 1976 until 1996 Mr. Baldwin was employed by
Fourth Financial Corporation, an $8 billion banking institution headquartered in
Wichita, Kansas. He served Fourth Financial Corporation as executive
vice-president.
C. ROBERT BUFORD, 63, 1997, has been a director of the Company since 1982.
During the past five years, he has been President and owner of Zenith Drilling
Corporation, an oil and gas drilling and exploration firm, managing partner of
Grand Bluffs Development Co., a real estate development firm, and a director of
Barrett Resources Corporation, an oil and gas production and operation firm.
FRANK L. CARNEY, 58, 1998, has been a director of the Company since 1982.
Since 1979 he has been self-employed in a private investment company, Carney
Enterprises. From November 1988 to December 1993, Mr. Carney was Chairman of
Western Sizzlin, Inc. a food service franchise. On October 27, 1992, Western
Sizzlin, Inc. and its related entities filed Petitions under Chapter 11 of the
United States Bankruptcy Code and subsequently emerged from bankruptcy on
December 13, 1993. From January 1994 to December 1994, Mr. Carney was
vice-chairman of Turbochef, Inc.. Since January 1994, Mr. Carney has been with
Houston Pizza Venture L.L.C., as President and Manager. In June 1995, he became
President and Manager of Devlin Partners, L.L.C., a development stage company.
In June 1996, he became President and Manager of P.J. Wichita, L.L.C., a
development stage company.
RICHARD G. CHANCE, 49, 1999, has been a director of the Company since 1990.
During the past five years, he has been President and Chief Executive Officer of
Chance Industries, Inc., producer of amusement rides and manufacturer of transit
coaches, trams, and replica trolleys.
CHARLES Q. CHANDLER, 70, 1998, has been Chairman of the Board and Chief
Executive Officer of the Company since 1982. He was Chairman of the Board and
Chief Executive Officer of IB from 1975 until 1996. Mr. Chandler was employed by
IB since 1950. In 1992, he became a director of Western Resources, Inc., a
Kansas utility company. Mr. Chandler is the father of Charles Q. Chandler IV and
the nephew of George T. Chandler.
CHARLES Q. CHANDLER IV, 43, 1997, has been a director of the Company since
1985. Since April 1990, he has been President of the Company. From January 1988
through March 1990, he was Executive Vice President of the Company. He was
Executive Vice President of IB from January 1988 until July 1993 when he was
elected Vice Chairman. In 1996, he was elected Chairman and President of IB. Mr.
Chandler is the son of Charles Q. Chandler.
GEORGE T. CHANDLER, 75, 1997, has been a director of the Company since 1982.
During the past five years, Mr. Chandler has been Chairman of the Board of First
National Bank, Pratt, Kansas. Mr. Chandler is an uncle of Charles Q. Chandler.
JAMIE B. COULTER, 56, 1998, has been a director of the Company since 1983.
During the past five years, he has been Chairman of the Board, Chief Executive
Officer and President of Coulter Enterprises, Inc., managing various businesses
and personal investments in restaurant management, oil and gas exploration and
real estate. Mr. Coulter owns and operates numerous Pizza Hut restaurants. In
1992, Mr. Coulter became the Chairman of the Board and Chief Executive Officer
of Lone Star Steakhouse & Saloon, Inc.
ROBERT L. DARMON, 72, 1997, has been a director of the Company since 1982. He
was President of the Company from 1982 until April 1990, and Vice Chairman of
the Board of IB until his retirement January 31, 1990. He had been employed by
IB since 1970.
CHARLES W. DIEKER, 61, 1998, has been a director of the Company since 1982.
Mr. Dieker had been Executive Vice President-Marketing of Beech Aircraft
Corporation from 1985 until his retirement January 1, 1992.
W.J. EASTON Jr., 71, 1998, has been a director of the Company since 1982.
During the past five years, Mr. Easton has been President, Chairman of the
Board, and Chief Operating Officer of The Easton Manufacturing Co. Inc., which
manufactures auto parts, and Ferroloy Foundry, Inc.
MARTIN K. EBY Jr., 62, 1997, has been a director of the Company since 1982.
During the past five years, Mr. Eby has been President and Chairman of the Board
of Eby Corporation, which is the parent company of Martin K. Eby Construction
Co. Inc. He is Chairman of the Company's Audit Committee. In 1992, Mr. Eby
became a director of SBC Communications, Inc.
ERIC T. KNORR, 54, 1999, has been a director of the Company since 1990. He
was Chairman of the Board of Dulaney, Johnston & Priest, general insurance
(property and casualty) independent agents, for ten years until January 1996
when he became Chairman Emeritus
CHARLES G. KOCH, 61, 1998, has been a director of the Company since 1982. For
the past five years, Mr. Koch has been Chairman of the Board and Chief Executive
Officer of Koch Industries Inc., an integrated energy company.
J.V. LENTELL, 58, 1999, has been a director of the Company since April 1994.
Mr. Lentell has been Vice Chairman of IB since July 1993. He was Chairman and
Chief Executive Officer of Kansas State Bank and Trust from 1981 to July 1993.
In 1995, he became a director of Renters Choice, Inc.
PAUL A. SEYMOUR Jr., 73, 1999, has been a director of the Company since 1982.
Mr. Seymour was President of Arrowhead Petroleum Inc. A petition under Chapter
11 of the United States Bankruptcy Code was filed in December 1990 in the United
States Bankruptcy Court for the District of Kansas by Arrowhead Petroleum, Inc.
Bankruptcy proceedings by Arrowhead Petroleum, Inc. were dismissed, effective
March 20, 1996. Arrowhead Petroleum, Inc. has been liquidated.
DONALD C. SLAWSON, 63, 1999, has been a director of the Company since 1982.
During the past five years, Mr. Slawson has been the Chairman of the Board and
President of Slawson Companies, Inc., a group of companies involved in the
acquisition of oil and gas properties, exploration and production of oil and
gas, purchasing and reselling of crude oil and natural gas, and real estate
activities.
JOHN T. STEWART III, 61, 1997, has been a director of the Company since 1982.
During the past five years, Mr. Stewart's principal occupation has been Chairman
of the Board and Director of First National Bank, Medford, Oklahoma, Caldwell
State Bank, Caldwell, Kansas and First National Bank, Wellington, Kansas.
PATRICK H. THIESSEN, 68, 1997, has been a director of the Company since 1982.
Mr. Thiessen was Southwestern Regional Manager of Cargill Inc., Flour Milling
Division, a grain merchandising and processing company, for 11 years until his
retirement in 1993.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
- - -------- -----------------------
SUMMARY COMPENSATION TABLE
--------------------------
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's chief executive
officer and each of the Company's other three executive officers during each of
the last three fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------------------------- Awards
(a) (b) (c) (d) (e) (f) (g)
Other Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) Options (#) ($)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
C.Q. Chandler 1996 $330,000 $ 0 $22,360 0 $69,006
COB & CEO of the Company 1995 325,002 132,000 22,360 20,000 61,920
1994 300,000 135,000 22,360 0 47,516
C.Q. Chandler IV 1996 $262,500 $ 0 $ 0 7,500 $15,735
President of the Company, 1995 215,000 64,500 490 10,000 14,264
Chairman, President of IB 1994 214,829 75,250 490 0 6,098
J.V. Lentell 1996 $219,167 $ 0 $ 0 5,000 $ 9,500
Director of the Company 1995 215,000 64,500 0 2,500 9,240
Vice Chairman of IB 1994 215,000 75,250 0 0 3,442
R.L. Baldwin 1996 $168,455 $ 0 $ 0 5,000 $ 0
Director of the Company
Vice Chairman of IB
<FN>
R.L. Baldwin became an employee and executive officer of IB in February of 1996;
the table reflects compensation paid to Mr. Baldwin subsequent to such time.
There were no other individuals who were considered executive officers of the
Company at December 31, 1996.
(1) The amounts shown represent the above-market amounts paid on distributions
from the 1983, 1984, 1986, or 1990 Executive Deferred Compensation Plans during
each of the last three fiscal years. Does not include perquisites which certain
of the executive officers received, the aggregate amount of which did not exceed
the lessor of $50,000 or 10% of any such officer's salary and bonus.
(2) The amounts shown for "All other Compensation" include the following for the
current year:
C.Q. C.Q. J.V.
Chandler Chandler IV Lentell
- - --------------------------------------------------------------------------------
Above-market amounts earned on deferred
compensation plans $59,506 $8,805 $ 0
Company contributions to 401(k) plan 9,500 6,930 9,500
- - --------------------------------------------------------------------------------
$69,006 $15,735 $9,500
- - ------------------------------------------------================================
</FN>
</TABLE>
STOCK OPTION PLAN
-----------------
The Board of Directors of the Company on May 9, 1995, adopted, with
subsequent shareholder approval, the INTRUST Financial Corporation 1995
Incentive Plan (the "Plan"). The Plan provides that the Company may grant
Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Performance Shares, Phantom Stock and Restricted Stock to officers and key
employees of the Company, as defined in the Plan. The Plan provides for the
issuance or transfer of a maximum of 240,000 shares of the Company's common
stock. The exercise price, of any options granted under the Plan, cannot be less
than the fair market value of the Company's common stock at the date of grant.
The maximum term for options or rights cannot exceed ten years from the date
they are granted. At December 31, 1996, there were options granted and
unexercised for a total of 55,000 shares. The options outstanding have exercise
prices between $58 and $65, with a weighted average exercise price of $61. Of
the 55,000 shares granted, 6,500 were exercisable at December 31, 1996.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- - -------------------------------------------------------------------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price
Name (#) Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
- - -------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
C.Q. Chandler IV 7,500 33.3% $65 12/10/06 $307,000 $777,000
J.V. Lentell 5,000 22.2% $65 12/10/06 $204,000 $518,000
R.L. Baldwin 5,000 22.2% $65 12/10/06 $204,000 $518,000
</TABLE>
AGGREGATE FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at December 31, 1996 at December 31, 1996
------------------------------ -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- - ---- ------------------------------ -------------------------
C.Q. Chandler 4,000/20,000 $28,000/$140,000
C.Q. Chandler IV 2,000/17,500 $14,000/$70,000
J.V. Lentell 500/7,500 $3,500/$17,500
R.L. Baldwin none/5,000 none/none
The fair market value of the Company's common stock, used to calculate the
value of in-the-money options, was $65 per share as determined in the local
over-the-counter market by the National Quotation Bureau, Incorporated.
DEFINED BENEFIT PLANS
---------------------
The Company has adopted a defined benefit retirement plan for all of its
employees. Employees become participants in the plan on the next January first
or July first following the satisfaction of the following requirements: (i)
twelve consecutive months of employment in which the employee worked 1,000 or
more hours, and (ii) attainment of age 21, provided that the employee was less
than 60 years of age on the date of his employment. Although benefits under the
plan are payable in a variety of ways, the normal form of benefit payment
provides monthly payments to an employee for fifteen years. An employee's Normal
Retirement Benefit (as defined in the plan) is a monthly benefit equal to 1.0%
of such employee's Final Average Monthly Compensation (as defined in the plan),
plus 0.5% of his Final Average Monthly Compensation in excess of his Social
Security Covered Compensation (as defined in the plan), and multiplied by such
employee's number of completed years of Benefit Service (as defined in the plan)
not to exceed 35 years. Final Average Monthly Compensation is equal to the
average of an employee's monthly cash compensation (exclusive of bonuses) during
the five-year period prior to such employee's Normal or Early Retirement, or
termination of employment prior to Normal Retirement Date (as defined in the
plan).
As an addition to the defined benefit retirement plan, IB maintains a
supplemental retirement plan which is an unfunded excess benefit plan. The
purpose of this plan is to provide retirement benefits to its employees that
cannot be provided through its defined benefit retirement plan due to the
benefit limits imposed by Internal Revenue Code Section 415. Code Section 415
places a limit on the amount of annual benefits which can be provided to
individual employee participants in the defined benefit retirement plan.
The following table illustrates combined estimated annual benefits payable
upon retirement or upon written election of the participant if the participant
continues to work after his Normal Retirement Date, under the Company's defined
benefit retirement and IB's supplemental retirement plan, to persons in the
specified remuneration and years of service classifications. Because the covered
remuneration equals cash compensation, excluding bonuses, the remuneration
categories below reflect the base salary amounts in the summary compensation
table. The amounts presented are straight life annuity amounts and are not
subject to any deduction for social security or other offset amounts. The
following amounts are overstated to the extent that social security covered
compensation for an individual may exceed $15,000.
PENSION PLAN TABLE
REMUNERATION YEARS OF CREDITED SERVICE
- - ------------ ----------------------------------------------------------------
15 20 25 30 35
$200,000 $42,802 $ 57,070 $ 71,337 $ 85,604 $ 99,872
250,000 54,052 72,070 90,087 108,104 126,122
300,000 65,302 87,070 108,837 130,604 152,372
350,000 76,552 102,070 127,587 153,104 178,622
400,000 87,802 117,070 146,337 175,604 204,872
The following table sets forth the covered compensation and years of credited
service for pension plan purposes for each of the executive officers listed in
the summary compensation table as of December 31, 1996, as well as the number of
years of credited service which will have been completed by each of said persons
if they retire at the age of 65.
COVERED COMPLETED YEARS OF TOTAL YEARS OF CREDITED
COMPENSATION CREDITED SERVICE SERVICE AT NORMAL
NAME AS OF 12/31/96 AS OF 12/31/96 RETIREMENT AGE(65)
- - --------------------------------------------------------------------------------
C.Q. Chandler (1) $330,000 46.75 41.50
C.Q. Chandler IV 262,500 21.00 42.50
J.V. Lentell 219,167 30.83 37.42
R.L. Baldwin 168,455 0.92 21.40
(1) C.Q. Chandler elected in writing, as permitted under the plan, to commence
receipt of his normal retirement benefit in the form of a lump sum payment. This
payment was received by C.Q. Chandler in December 1992.
COMPENSATION OF DIRECTORS
-------------------------
The directors of the Company receive no remuneration for serving in that
capacity. However, the directors of the Company are also directors of IB, and in
that capacity receive fees of $1,000 per quarter and $500 for each board meeting
attended. Advisory directors receive a quarterly fee of $750. In addition,
directors who are not full-time bank employees of IB receive $150 for each
Discount Committee and CRA Committee meeting attended, $200 for each Audit
Committee meeting attended and for attendance by the chairman at the Trust
Department Examining Committee, and $100 for all other committee meetings
attended.
In 1983, 1984, and 1986, the Board of Directors of IB adopted unfunded
Outside Directors' Deferred Compensation Plans which were open to directors of
IB who are not full-time bank employees and who chose to participate. Under
these plans, a participating director had the option to defer up to 100 percent
of his quarterly fee. Benefit payment amounts relate to the fee deferred and
accrual of interest at an above market rate. At retirement (age 70), benefits
will be paid on a monthly basis for 120 months, with any installments not paid
prior to a participant's death being paid to his designated beneficiary. If a
director ceases to serve as such prior to attaining age 70, the participating
director will receive reduced benefit payments related to the fees deferred and
the duration of his participation.
The Board of Directors of the Company adopted an unfunded Outside Directors'
Deferred Compensation Plan in 1990 which was open to directors of the Company
who were not full-time Company or IB employees and who chose to participate.
Under the plan, a participating director had the option to defer 100 percent of
his 1990 quarterly fee paid by IB. Benefit payments and other terms of the plan
are the same as the IB plans described in the previous paragraph.
CHANGE-IN-CONTROL ARRANGEMENTS
------------------------------
Under unfunded Executive Deferred Compensation Plans established in 1983,
1984, and 1986 by IB and in 1990 by the Company, in which C.Q. Chandler and C.Q.
Chandler IV are participants, if the employee's employment with the Company
terminates for any reason other than death or voluntary separation of employment
after the date on which a Change in Control (as described below) occurs, then
the Company shall pay to the employee within 60 days after such termination, a
single lump sum in lieu of any other subsequent payments under the Plan. The
lump sum payment shall be equal to the sum of all amounts that the employee
would have received if the employee had retired on the employee's 65th birthday.
Such payment shall include all unpaid Interim Distributions, if any, and all
Retirement Payments. The entire lump sum payment shall be discounted by a
one-time charge of 8%. The amount of such payments, as of December 31, 1996, for
C.Q. Chandler and C.Q. Chandler IV, would have been $1,837,280 and $3,146,055
respectively.
If the employee dies after termination of employment but before payment of
any amount under this paragraph, then such amount shall be paid to the
beneficiary or beneficiaries named as soon as practical after the employee's
death.
A Change in Control of the Company shall be deemed to have occurred if: 1)
any person, partnership, corporation, trust, or similar entity or group shall
acquire or control more than 20%, after October 16, 1991, of the voting
securities of the Company in a transaction or series of transactions; or 2) at
any time during any two-year period a majority of the Board of Directors of the
Company is not comprised of individuals who were members of such Board of
Directors at the commencement of such two-year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------
The current members of the Company's compensation committee are C. Robert
Buford, Richard G. Chance, and Donald C. Slawson. None of the members of the
committee have ever served as an officer or employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- - -------- ---------------------------------------------------------------
The following table sets forth information as of February 4, 1997 relating to
the beneficial ownership of the Company's common stock and capital notes by each
person known by the Company to own beneficially more than five percent of the
outstanding shares of the Company's common stock, by each director, by each
nominee for director, by each executive officer and by all directors and
executive officers of the Company as a group. The information as to beneficial
ownership of the Company's common stock was supplied by the individuals
involved. For purposes of this table, beneficial ownership is as defined in the
rules and regulations of the Securities and Exchange Commission. Unless
otherwise indicated, the individual possesses sole voting and investment power
as to the shares shown as being beneficially owned:
<TABLE>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
--------------------------------
OWNED AT SHARES ISSUABLE
FEBRUARY 4, UPON CONVERSION OF FACE AMOUNT OF
NAME ADDRESS 1997(2) CAPITAL NOTES(3) CAPITAL NOTES
- - ---- ------- ----------- ------------------ -------------
<S> <C> <C> <C> <C>
Ronald L. Baldwin 13915 Pinnacle Dr. 1,000 0 $ 0
Wichita, KS 67230
C. Robert Buford Fourth Financial Center, 2,053 293 $ 8,800
Suite 505
Wichita, KS 67202
Frank L. Carney 2611 Wilderness Court, 1,132 732 $ 22,000
Wichita, KS 67226
Richard G. Chance 676 S. 119th St. W. 180 0 $ 0
Wichita, KS 67235
Charles Q. Chandler Box One 64,808(4) 16,736(4) $ 502,100
Wichita, KS 67201
Charles Q. Chandler IV Box One 39,061(5) 20,766(5) $ 623,000
Wichita, KS 67201
Anderson W. Chandler 4718 West Hills Dr. 348,286(6) 47,946(6) $1,438,400
Topeka, KS 66606
David T. Chandler c/o First National Bank 338,377(6) 48,337(6) $1,450,200
Pratt, KS 67124
George T. Chandler c/o First National Bank 296,559(6) 28,739(6) $ 862,200
Pratt, KS 67124
Jamie B. Coulter P.O. Box 12248 350 50 $ 1,500
Wichita, KS 67202
Robert L. Darmon 8509 Huntington 5,880(7) 1,140(7) $ 34,200
Wichita, KS 67206
Charles W. Dieker 632 Birkdale Dr. 2,866 366 $ 11,000
Wichita, KS 67230
W.J. Easton, Jr P.O. Box 889 1,919 559 $ 16,800
Wichita, KS 67201
Martin K. Eby, Jr P.O. Box 1679 6,332 2,332 $ 70,000
Wichita, KS 67201
Warren B. Gillespie 8201 E. Harry 120,000 0 $ 0
Unit 303
Wichita, KS 67202
Eric T. Knorr P.O. Box 206 22,436(8) 1,879(8) $ 56,400
Wichita, KS 67201
Charles G. Koch P.O. Box 2256 97,938 8,566 $ 257,000
Wichita, KS 67201
J.V. Lentell 1700 Laurel Cove 125 0 $ 0
Wichita, KS 67206
Paul A. Seymour, Jr Box 8287 Munger Station 121,031(9) 20,131(9) $ 604,000
Wichita, KS 67208
Donald C. Slawson 104 South Broadway, 2,886(10) 0 $ 0
Suite 200
Wichita, KS 67202
John T. Stewart III Box 2 145,226 24,106 $ 723,200
Wellington, KS 67152
Patrick H. Thiessen 115 South Rutan-6A 6,279(11) 2,319(11) $ 69,600
Wichita, KS 67218
Polly G. Townsend Five Live Oak 120,000 0 $ 0
Fernandina Beach, FL 32034
Directors and Executive
Officers as a Group (19 persons) 818,061(12) 128,714(12) $3,861,800
</TABLE>
(1) Including and excluding shares issuable upon conversion of the Convertible
Capital Notes ("capital notes"), the officers, executive officers, and
directors who beneficially owned more than 1.0% of the outstanding shares
and other persons who beneficially owned more than 5.0% of the outstanding
shares were:
Percentage Ownership of Common Stock
------------------------------------
Including Shares Excluding Shares
Issuable Upon Issuable Upon Percentage
Conversion of Conversion of Ownership of
Capital Notes Capital Notes Capital Notes
------------- ------------- -------------
Charles Q. Chandler III 2.92% 2.18% 4.48%
Charles Q. Chandler IV 1.76% 0.83% 5.55%
Anderson W. Chandler* 15.49% 13.64% 12.82%
David T. Chandler* 15.04% 13.18% 12.93%
George T. Chandler* 13.30% 12.17% 7.69%
Warren B. Gillespie 5.45% 5.45% 0.00%
Charles G. Koch 4.43% 4.06% 2.29%
Paul A. Seymour, Jr 5.45% 4.58% 5.38%
John T. Stewart III 6.53% 5.50% 6.45%
Polly G. Townsend 5.45% 5.45% 0.00%
*Includes shares directly owned and shares controlled as co-trustees. See (6).
The Directors and Executive Officers as a group beneficially
owned 35.11% of the Company's common stock including shares
issuable upon conversion of the capital notes, 31.32% of the
common stock excluding shares issuable upon conversion of the
capital notes, and 34.42% of the capital notes.
(2) Includes shares issuable upon conversion of the capital notes.
(3) Shares issuable upon conversion in accordance with the terms of the
Convertible Capital Notes issued December 22, 1987. The capital notes are
convertible into common stock, at any time prior to the close of business
on the fifteenth day prior to maturity on December 22, 1999, at a
conversion price of $30.00 per share, subject to adjustment in certain
circumstances.
(4) Does not include 400 shares of common stock and $2,000 of capital notes,
convertible into 66 shares of common stock, owned by Georgia J. Chandler
(wife), 267,820 shares of common stock and $862,200 of capital notes,
convertible into 28,739 shares of common stock, beneficially owned by
George T. Chandler (uncle), and 18,295 shares of common stock and $623,000
of capital notes, convertible into 20,766 shares of common stock,
beneficially owned by Charles Q. Chandler IV (son).
(5) Does not include 95 shares of common stock owned by Marla J. Chandler
(wife).
(6) Anderson, David and George Chandlers' beneficial ownership is comprised of
the following:
(a) Shares beneficially owned by all three over which they share voting
and investment power:
(1) 61,160 shares of common stock and $305,800 of capital notes
(10,193 shares) held as co-trustees for the Grace Gannon Trust.
(2) 110,120 shares of common stock and $550,600 of capital notes
(18,353 shares) held as co-trustees for the Olive C. Clift Trust.
(b) Shares beneficially owned by David and George over which they share
voting and investment power:
(1) 95,380 shares of common stock held as co-trustees for the George
T. Chandler Trust #1.
(2) 1,160 shares of common stock and $5,800 of capital notes (193
shares) held as co-trustees for the Barbara A. Chandler Trust #1.
(c) Shares beneficially owned by David Chandler who has sole voting and
investment power:
(1) 4,545 shares of common stock and $141,900 of capital notes (4,730
shares) held in the George T. Chandler Trust #2 for benefit of
David T. Chandler.
(2) 4,545 shares of common stock and $142,000 of capital notes (4,733
shares) held in the George T. Chandler Trust #2 for benefit of
George T. Chandler, Jr.
(3) 4,545 shares of common stock and $141,900 of capital notes (4,730
shares) held in the George T. Chandler Trust #2 for benefit of
Paul T. Chandler.
(4) 4,545 shares of common stock and $142,000 of capital notes (4,733
shares) held in the George T. Chandler Trust #2 for benefit of
Barbara Ann Chandler.
(d) 129,060 shares of common stock and $582,000 of capital notes (19,399
shares) held in Anderson Chandler's name over which he has sole voting
and investment power.
(e) 3,040 shares of common stock and $15,200 of capital notes (506 shares)
held in David Chandler's name over which he has sole voting and
investment power.
(f) 1,000 shares of common stock and $5,000 of capital notes (166 shares)
held by Michele M. Chandler (wife of David Chandler) over which David
Chandler has shared voting and investment power.
(7) Mr. Darmon's beneficial ownership is comprised of 45 shares of common stock
and $34,200 of capital notes (1,140 shares) held in his name over which he
has sole voting and investment power and 4,695 shares held in a trust with
his wife, Beatrice F. Darmon, with whom he shares voting and investment
power.
(8) Mr. Knorr's beneficial ownership is comprised of: (a) 7,511 shares of
common stock and $29,200 of capital notes (973 shares) held in his name;
(b) 1,252 shares of common stock held by him in an Individual Retirement
Account; (c) 6,254 shares of common stock held in a trust with his wife,
Darlene R. Knorr over which he has sole voting and investment power; (d)
5,440 shares of common stock and $27,200 of capital notes (906 shares) held
jointly with his wife over which he has shared voting and investment power;
and (e) 100 shares of common stock held by Eric T. Knorr, Custodian for
Elizabeth T. Knorr under the Uniform Gifts To Minors Act over which he has
sole voting and investment power. Does not include 200 shares of common
stock, owned by Darlene R. Knorr, in which Mr. Knorr disclaims beneficial
ownership.
(9) Mr. Seymour's beneficial ownership is comprised of the following: (a) 100
shares of common stock held in his name over which he has sole voting and
investment power; (b) 26,800 shares of common stock and $39,000 of capital
notes (1,300 shares) held by John Wofford Seymour and $120,000 of capital
notes (4,000 shares) held in the John Wofford Seymour family trust over
which he shares voting and investment power with Dorothea W. Seymour; (c)
26,160 shares of common stock and $155,800 of capital notes (5,193 shares)
held by William Todd Seymour over which he shares voting and investment
power with Dorothea W. Seymour; (d) 23,920 shares of common stock and
$144,600 of capital notes (4,819 shares) held by INTRUST Bank, N.A.,
Trustee of Elizabeth Seymour Trust U/A dated June 1, 1980 over which he
shares voting and investment power with Dorothea W. Seymour; (e) 23,920
shares of common stock and $144,600 of capital notes (4,819 shares) held by
INTRUST Bank, N.A., Trustee of Katherine Seymour Trust U/A dated February
11, 1981 over which he shares voting and investment power with Dorothea W.
Seymour.
(10) Mr. Slawson's beneficial ownership is comprised of 100 shares of common
stock held in his name over which he has sole voting and investment power,
2,586 shares of common stock held by Judith A. Slawson (wife) over which he
has shared voting and investment power and 200 shares of common stock held
by Donald C. Slawson and Bill Wohlford, co-trustees of the Charles J.
Slawson Family Trust over which he has shared voting and investment power.
(11) Mr. Thiessen's beneficial ownership is comprised of 3,000 shares of common
stock and $64,800 of capital notes (2,159 shares) held in his name over
which he has sole voting and investment power and 960 shares of common
stock and $4,800 of capital notes (160 shares) held by Lorraine Ross
Thiessen (wife) over which he has shared voting and investment power.
(12) Includes shares as to which beneficial owner shares investment and/or
voting power with others, after eliminating duplication within the table.
Item 13. Certain Relationships and Related Transactions.
- - -------- -----------------------------------------------
Certain Business Relationships
------------------------------
On January 25, 1995, Koch Industries, Inc. ("Koch"), in which Charles G.
Koch, a director and stockholder of the Company, owns more than 10% of the
common stock, purchased an investor participation certificate in the amount of
$50,000,000 representing an interest in the INTRUST Bank Credit Card Trust
1995-A at a certificate rate of 8.9% per annum. These certificates were
purchased by Koch pursuant to a Certificate Purchase Agreement dated January 25,
1995 by and between INTRUST Bank N.A. and Koch. Pursuant to a Pooling and
Servicing Agreement dated as of January 1, 1995, the First National Bank of
Chicago agreed to serve as the Trustee of the INTRUST Credit Card Trust 1995-A
and INTRUST Bank N.A. agreed to be the servicer of the accounts transferred to
the Trust. Interest only is due under the Certificate during the first two years
of the agreement and principal plus interest will be paid during the third year
of the agreement.
Neither the Company nor any of its subsidiaries entered into during 1996 or
has proposed to enter into any other material transactions with officers,
directors or principal stockholders of the Company or its subsidiaries, or any
immediate family member of the foregoing persons who has the same home as such
person.
Indebtedness of Management
--------------------------
There are outstanding loans by certain of the Subsidiary Banks to other
officer and directors of the Company or its subsidiaries or to their immediate
family members or associates, but all such loans have been made in compliance
with applicable regulations, in the ordinary course of business, and on
substantially the same terms, including interest rates and collateral, and the
same underwriting standards as those prevailing at the time for comparable
transactions with other persons. These loans did not involve more than the
normal risk of collectibility or present other unfavorable features.
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- - -------- ----------------------------------------------------------------
(a) The following documents are filed as a part of this Report.
1. Financial Statements - The following financial statements of INTRUST
Financial Corporation are included in PART II, Item 8 of this report:
Report of Independent Public Accountants
Consolidated Statements of Financial Condition as of December 31, 1996
and 1995
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits:
Number Description
------ -----------
3(a) Restated Bylaws of the Registrant, as amended through July, 1993
(incorporated herein by reference to Exhibit 3(a) to
Registrant's 1994 10-K , File No. 2-78658)
3(b) Restated Articles of Incorporation of Registrant, as amended
through May 14, 1996 (appears herein as exhibit)
4(a) Trust Indenture, dated as of December 1, 1987, between First
Bancorp of Kansas and Boatmen's First National Bank of Kansas
City (incorporated herein by reference to Exhibit 4.1 to
Registrant's Registration Statement No. 33-17564)
10(a)* Description of INTRUST Bank, N.A. Executive Officers' Deferred
Compensation Plans (incorporated herein by reference to Exhibit
10(h) to Registrant's 1993 10-K, File No. 2-78658)
10(b)* Description of INTRUST Financial Corporation Executive Deferred
Compensation Plan (incorporated herein by reference to Exhibit
10(i) to Registrant's 1993 10-K, File No. 2-78658)
10(c)* Description of INTRUST Bank, N.A. Salary Continuation Plan
(incorporated herein by reference to Exhibit 10(j) to
Registrant's 1993 10-K, File No. 2-78658)
10(d)* Description of INTRUST Bank, N.A. Deferred Compensation Plans
for Directors (incorporated herein by reference to Exhibit 10(k)
to Registrant's 1993 10-K, File No. 2-78658)
10(e)* Description of INTRUST Financial Corporation Deferred
Compensation Plan for Directors (incorporated herein by
reference to Exhibit 10(l) to Registrant's 1993 10-K, File No.
2-78658)
10(f)* Registrant's 1995 Incentive Plan (incorporated herein by
reference to Exhibit 10(i) to Registrant's 1995 10-K, File No.
2-78658)
10(g)* Registrant's Grant of Incentive Stock Options as provided by the
1995 Incentive Plan (incorporated herein by reference to Exhibit
10(j) to Registrant's 1995 10-K, File No. 2-78658)
10(h)* Registrant's Non-Qualified Stock Option Agreement as provided by
the 1995 Incentive Plan (incorporated herein by reference to
Exhibit 10(k) to Registrant's 1995 10-K, File No. 2-78658)
11 Computation of Earnings Per Share (appears herein as exhibit)
21 Subsidiaries of the Registrant (appears herein as exhibit)
27 Financial Data Schedule (appears herein as exhibit)
* Exhibit relates to management compensation
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTRUST Financial Corporation
Date: March 11 , 1997 By /s/ C. Q. Chandler
---- -------------------
C. Q. Chandler
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Date: March 11 , 1997 /s/ C. Q. Chandler
----------------------
C. Q. Chandler
Director, Chairman of the Board
and Chief Executive Officer
Date: March 11 , 1997 /s/ Jay L. Smith
--------------------
Jay L. Smith
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 11 , 1997 /s/ Ronald L. Baldwin
-------------------------
Ronald L. Baldwin
Director
Date: March ____, 1997
-------------------------
C. Robert Buford
Director
Date: March ____, 1997
-------------------------
Frank L. Carney
Director
Date: March 11 , 1997 /s/ Richard G. Chance
-------------------------
Richard G. Chance
Director
Date: March 11 , 1997 /s/ C. Q. Chandler IV
-------------------------
C. Q. Chandler IV
Director
Date: March 11 , 1997 /s/ George T. Chandler
--------------------------
George T. Chandler
Director
Date: March ____, 1997
-------------------------
Jamie B. Coulter
Director
Date: March 11 , 1997 /s/ R. L. Darmon
--------------------
R. L. Darmon
Director
Date: March 11 , 1997 /s/ Charles W. Dieker
-------------------------
Charles W. Dieker
Director
Date: March 11 , 1997 /s/ W. J. Easton
--------------------
W. J. Easton Jr.
Director
Date: March 11 , 1997 /s/ Martin K. Eby Jr.
-------------------------
Martin K. Eby Jr.
Director
Date: March 11 , 1997 /s/ Eric T. Knorr
---------------------
Eric T. Knorr
Director
Date: March ____, 1997
-------------------------
Charles G. Koch
Director
Date: March 11, 1997 /s/ J. V. Lentell
---------------------
J. V. Lentell
Director
Date: March 11 , 1997 /s/ Paul A. Seymour, Jr.
----------------------------
Paul A. Seymour, Jr.
Director
Date: March 11 , 1997 /s/ Donald C. Slawson
-------------------------
Donald C. Slawson
Director
Date: March 11 , 1997 /s/ John T. Stewart III
--------------------------
John T. Stewart III
Director
Date: March 11 , 1997 /s/ Patrick H. Thiessen
---------------------------
Patrick H. Thiessen
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT. Concurrently with the filing of this Form
10-K, Registrant is furnishing the Commission, for its information, four copies
of INTRUST Financial Corporation's Annual Report to Shareholders and Notice of
Annual Meeting of Shareholders and form of proxy with respect to the annual
meeting of shareholders of Registrant to be held April 8, 1997.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT # DESCRIPTION
- - --------- -----------
3 Restated Articles of Incorporation
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant
27 Financial Data Schedule
EXHIBIT 3
RESTATED ARTICLES OF INCORPORATION
We, the undersigned, incorporators, hereby associate ourselves together
to form and establish a corporation FOR profit under the laws of the State of
Kansas.
FIRST: The name of the Corporation is INTRUST FINANCIAL CORPORATION,
formerly First Bancorp of Kansas, Inc. originally incorporated May 28, 1971.
SECOND: The location of its Principal Place of Business in this state
is 105 North Main, Wichita, Kansas 67202.
THIRD: The location of its registered office in Kansas is 105 North
Main, Wichita, Sedgwick County, Kansas, 67202, and the resident agent in charge
thereof at such address is INTRUST FINANCIAL CORPORATION.
FOURTH: This Corporation is organized FOR profit and the nature of its
business is to engage in any lawful act or activity for which corporations may
be organized under the Kansas general corporation code and federal laws.
FIFTH: The total amount of capital of this Corporation is Fifty Million
($50,000,000), and the total number of shares into which it is divided is as
follows:
10,000,000 shares of common stock, par value of Five Dollars ($5.00)
each. The Corporation shall have authority to issue five million shares of
non-voting, non-cumulative, preferred stock, with a par value and other
designating preferences, rights, and qualifications to be determined by the
Board of Directors at the time of the issuance of the preferred stock.
SIXTH: The term for which this Corporation is to exist is perpetual.
SEVENTH: The Number of Directors shall be not less than three (3) with
the maximum number to be determined from time to time as prescribed by the
By-Laws. The Directors shall be divided into three (3) classes; the term of
office of those in the first class to expire at the 1990 annual meeting; the
term of office of those in the second class to expire at the 1991 annual
meeting; and the term of office of those in the third class to expire at the
1992 annual meeting. At each annual election held after such classification and
election, Directors shall be chosen for a full three (3) year term to succeed
those whose terms expire.
EIGHTH: (a) No Director of this Corporation shall be held personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director including merger and acquisition decisions,
provided that this provision shall not eliminate or limit the liability of a
Director (1) for any breach of the Director's duty of loyalty to this
Corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) under
the provisions of K.S.A. 17-6424 and any amendments thereto, or (4) for any
transaction from which the Director derived an improper personal benefit. In
connection with merger and acquisition decisions, a Director may consider
factors in addition to financial adequacy of the offered price such as the
impact on employees, customers, the community, and the likelihood of shareholder
approval. (b) This Article shall not eliminate or limit the liability of a
Director for any act or omission occurring prior to the effective date of the
Amendment adding this Article EIGHTH to the Restated Articles of Incorporation
of this Corporation. (c) Any repeal or modification of this Article shall be
prospective only and shall not adversely affect any limitation on the personal
liability of a Director of this Corporation existing at the time of such repeal
or modification.
NINTH: Any person, or such person's heir, executor or administrator may
be indemnified or reimbursed by the Corporation for reasonable expenses actually
incurred in connection with any action, suit or proceeding, civil or criminal,
to which such person shall be made a party by reason of being or having been a
director, officer or employee of the Corporation or of any firm, corporation or
organization which such person served in any such capacity at the request of the
Corporation; provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit or proceeding as to
which such person shall finally be adjudged to have been guilty of or liable for
gross negligence, willful misconduct or criminal acts in the performance of such
person's duties to the Corporation; and, provided further, that no person shall
be so indemnified or reimbursed in relation to any matter in such action, suit
or proceeding which has been made the subject of a compromise settlement, except
with the approval of a court of competent jurisdiction, or the holders of record
of a majority of the outstanding shares of the Corporation, or the Board of
Directors, acting by vote of Directors not parties to the same or substantially
the same action, suit or proceeding, constituting a majority of the whole number
of Directors. The foregoing right of indemnification or reimbursement shall
specifically include all matters arising from merger and acquisition decisions
made by the director, officer or employee and shall not be exclusive of other
rights to which such person, or such person's heir, executor or administrator
may be entitled as a matter of law.
The Corporation may, upon the affirmative vote of a majority of its
Board of Directors, purchase insurance for the purpose of indemnifying its
directors, officers and other employees to the extent that such indemnification
is allowed in the preceding paragraph.
Such insurance may, but need not, be for the benefit of all directors, officers
or employees.
TENTH: With respect to action on amendment to these Articles of
Incorporation, on a plan of merger or share exchange, on the disposition of
substantially all of the property of the Corporation, on the disposition of
property by an entity controlled by the Corporation, and on the dissolution of
the Corporation, the vote of two-thirds or more of the shares of each class
entitled to vote in favor of such action shall be required for approval of such
action.
These Restated Articles of Incorporation were duly adopted by the Board
of Directors on May 14, 1996, pursuant to K.S.A. 17-6605, without a vote of the
shareholders, because they only restate and integrate and do not further amend
the provisions of the Articles of Incorporation as heretofore previously
amended, and there is no discrepancy between those provisions and the provisions
of the Restated Articles of Incorporation, except as permitted by K.S.A.
17-6605.
------------------------------
C.Q.Chandler, III, Chairman
Attest: _____________________________
Rosemary Wright, Secretary
State of Kansas )
) ss.
County of Sedgwick )
Be it remembered that before me, a Notary Public in and for the
aforesaid county and state, personally appeared C.Q. Chandler III, Chairman, and
Rosemary Wright, Secretary, of Intrust Financial Corporation, who are known to
me to be the same persons who executed the foregoing certificate, and duly
acknowledged the execution of the same this 14th day of May, 1996.
------------------------------
Notary Public
My appointment or commission expires _______________, 199_.
EXHIBIT 11
INTRUST FINANCIAL CORPORATION
Computation of Earnings Per Share
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share data)
1996 1995 1994
- - --------------------------------------------------------------------------------
Primary Earnings Per Share:
Net income $1,680 $12,387 $18,969
- - --------------------------------------------====================================
Weighted average common shares
outstanding 2,285,513 2,344,762 2,371,377
Primary earnings per share $0.74 $5.28 $8.00
- - --------------------------------------------====================================
Fully Diluted Earnings per Share:
Net Income $1,680 $12,387 $18,969
Net reduction in interest expense
assuming conversion of capital notes 675 699 713
- - --------------------------------------------------------------------------------
Net income $2,355 $13,086 $19,682
- - --------------------------------------------====================================
Weighted average common shares
outstanding assuming conversion
of capital notes 2,672,691 2,743,307 2,771,377
Fully diluted earnings per share $0.88 $4.77 $7.10
- - --------------------------------------------====================================
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1996
PERCENTAGE
OF VOTING
JURISDICTION SECURITIES
NAME OF ORGANIZATION OWNED
- - --------------------------------------------------------------------------------
INTRUST Bank, National Association National Bank 100%
Will Rogers Bank Oklahoma 100%
NestEgg Consulting Inc. Kansas 100%
INTRUST Community Development Corporation Kansas 100%
Note: As of September 16, 1996, The First Bank, Moore, Oklahoma no longer
operates as a separate subsidiary of the Company, having merged into Will Rogers
Bank. As of December 18, 1996, First Moore Insurance Agency, Inc. was merged
into the Company and no longer operates as a separate subsidiary.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 123,378
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 61,726
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,498
<INVESTMENTS-CARRYING> 294,140
<INVESTMENTS-MARKET> 297,332
<LOANS> 1,156,175
<ALLOWANCE> 15,536
<TOTAL-ASSETS> 1,721,402
<DEPOSITS> 1,428,395
<SHORT-TERM> 128,875
<LIABILITIES-OTHER> 13,159
<LONG-TERM> 28,879
0
0
<COMMON> 12,075
<OTHER-SE> 110,019
<TOTAL-LIABILITIES-AND-EQUITY> 1,721,402
<INTEREST-LOAN> 107,312
<INTEREST-INVEST> 20,968
<INTEREST-OTHER> 4,183
<INTEREST-TOTAL> 132,463
<INTEREST-DEPOSIT> 47,334
<INTEREST-EXPENSE> 56,436
<INTEREST-INCOME-NET> 76,027
<LOAN-LOSSES> 37,626
<SECURITIES-GAINS> 37
<EXPENSE-OTHER> 70,438
<INCOME-PRETAX> 1,731
<INCOME-PRE-EXTRAORDINARY> 1,680
<EXTRAORDINARY> 0
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<NET-INCOME> 1,680
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 5.07
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<RECOVERIES> 2,967
<ALLOWANCE-CLOSE> 15,536
<ALLOWANCE-DOMESTIC> 15,536
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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