QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _____to _____
------------
Commission file number 2-78658
INTRUST Financial Corporation
-----------------------------
(Exact name of registrant as specified in its charter)
Kansas 48-0937376
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
105 North Main Street
Box One
Wichita, Kansas 67201
--------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code: (316) 383-1111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At July 15, 1998, there were 2,149,962 shares of the registrant's common stock,
par value $5 per share, outstanding.
<PAGE>
Part 1. Financial Information
INTRUST Financial Corporation
Consolidated Condensed Statements of Financial Condition
(Unaudited - dollars in thousands except per share data)
June 30, December 31,
Assets 1998 1997
- --------------------------------------------------------------------------------
Cash and cash equivalents:
Cash and due from banks $ 169,826 $ 171,494
Federal funds sold and securities purchased
under agreements to resell 50,600 89,615
- --------------------------------------------------------------------------------
Total cash and cash equivalents 220,426 261,109
- --------------------------------------------------------------------------------
Investment securities:
Held-to-maturity (market value, $219,441 for 1998
and $280,715 for 1997) 217,900 270,971
Available-for-sale, at market 142,858 33,346
Equity, at cost 2,778 2,833
- --------------------------------------------------------------------------------
Total investment securities 363,536 307,150
- --------------------------------------------------------------------------------
Loans held-for-sale 26,740 16,422
Loans, net of allowance for loan losses of
$20,342 in 1998 and $17,932 in 1997 1,283,007 1,244,527
Land, buildings and equipment, net 26,231 26,529
Other assets 62,079 68,085
- --------------------------------------------------------------------------------
Total assets $1,982,019 $1,923,822
- ------------------------------------------------------==========================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Deposits $1,516,907 $1,552,766
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 217,158 183,678
Other 9,621 7,507
- --------------------------------------------------------------------------------
Total short-term borrowings 226,779 191,185
- --------------------------------------------------------------------------------
Accounts payable and accrued liabilities 17,359 13,007
Notes payable 15,000 23,000
Convertible capital notes 11,143 11,219
Guaranteed preferred beneficial interests in the
Company's subordinated debentures 57,500 0
- --------------------------------------------------------------------------------
Total liabilities 1,844,688 1,791,177
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,416,820 shares issued 12,084 12,075
Capital surplus 12,421 12,377
Retained earnings 132,524 124,877
Treasury stock, at cost (264,218 shares in
1998 and 240,277 shares in 1997) (19,823) (17,081)
Unrealized securities gains net of tax 125 397
- --------------------------------------------------------------------------------
Total stockholders' equity 137,331 132,645
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,982,019 $1,923,822
- ------------------------------------------------------==========================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTRUST Financial Corporation
Consolidated Condensed Statements of Income
(Unaudited - Dollars In Thousands Except per Share Data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Interest income:
Loans $29,494 $28,242 $58,595 $53,919
Investment securities 5,366 4,335 10,303 8,814
Federal funds sold and securities
purchased under agreements to
resell, and other 1,551 300 3,517 996
- --------------------------------------------------------------------------------
Total interest income 36,411 32,877 72,415 63,729
- --------------------------------------------------------------------------------
Interest expense:
Deposits 12,888 12,185 25,458 24,133
Federal funds purchased and securities
sold under agreement to repurchase 2,569 1,868 5,185 3,618
Convertible capital notes 252 253 504 505
Subordinated debentures 1,185 0 2,106 0
Other borrowings 375 485 786 946
- --------------------------------------------------------------------------------
Total interest expense 17,269 14,791 34,039 29,202
- --------------------------------------------------------------------------------
Net interest income 19,142 18,086 38,376 34,527
Provision for write-down of loans
held-for-sale 0 4,645 0 4,645
Provision for loan losses 2,350 2,420 5,950 4,020
- --------------------------------------------------------------------------------
Net interest income after
provision for loan losses 16,792 11,021 32,426 25,862
- --------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 2,764 2,497 5,198 4,866
Wealth management fees 2,570 1,779 5,142 3,411
Credit card fees 2,067 3,230 4,418 6,637
Securities gains 0 165 126 165
Other service charges, fees and income 2,519 2,601 6,580 5,364
- --------------------------------------------------------------------------------
Total noninterest income 9,920 10,272 21,464 20,443
- --------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 9,350 8,798 18,549 17,166
Net occupancy and equipment expense 2,143 2,038 4,292 4,070
Advertising and promotional activities 1,130 1,029 2,000 2,084
Data processing expense 913 824 1,868 1,782
Supplies 612 642 1,209 1,155
Postage and dispatch 525 575 1,051 1,144
Goodwill amortization 405 403 810 807
Deposit insurance assessment 63 61 122 32
Other 3,398 4,085 7,292 7,982
- --------------------------------------------------------------------------------
Total noninterest expenses 18,539 18,455 37,193 36,222
- --------------------------------------------------------------------------------
Income before provision for
income taxes 8,173 2,838 16,697 10,083
Provision for income taxes 3,736 797 6,878 3,486
- --------------------------------------------------------------------------------
Net income $ 4,437 $ 2,041 $ 9,819 $ 6,597
- ---------------------------------------------===================================
Per share data:
Basic earnings per share $2.05 $0.93 $4.53 $3.00
- ---------------------------------------------===================================
Diluted earnings per share $1.78 $0.86 $3.94 $2.68
- ---------------------------------------------===================================
Cash Dividends $0.50 $0.35 $1.00 $0.70
- ---------------------------------------------===================================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTRUST Financial Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of dollars)
Six Months Ended
June 30,
---------------------
1998 1997
- --------------------------------------------------------------------------------
Cash provided (absorbed) by operating activities:
Net Income $ 9,819 $ 6,597
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 5,950 8,665
Provision for depreciation and amortization 3,478 3,378
Amortization of premium and accretion of discount on
investment securities (552) (172)
Gain on sale of investment securities (126) (165)
Changes in assets and liabilities:
Loans held for sale (10,318) (701)
Prepaid expenses and other assets 203 (938)
Income taxes 9,287 (1,489)
Interest receivable (2,052) (1,518)
Interest payable 3,992 4,383
Other liabilities (415) 12,661
Other (78) 14
- --------------------------------------------------------------------------------
Net cash provided by operating activities 19,188 30,715
- --------------------------------------------------------------------------------
Cash provided (absorbed) by investing activities:
Purchase of investment securities (145,098) (37,795)
Investment securities matured or called 89,054 58,859
Proceeds from sale of investment securities 161 1,463
Net increase in loans (45,813) (140,116)
Purchases of land, buildings and equipment (1,819) (1,875)
Proceeds from sale of equipment 17 7
Proceeds from sale of other real estate
and repossessions 1,865 1,594
Other (2,537) (854)
- --------------------------------------------------------------------------------
Net cash absorbed by investing activities (104,170) (118,717)
- --------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Net increase (decrease) in deposits (35,859) 7,837
Net increase in short-term borrowings 35,594 45,651
Proceeds from notes payable 0 4,000
Payments on notes payable (8,000) 0
Retirement of convertible capital notes (23) 0
Proceeds from subordinated debentures 57,500 0
Cash dividends (2,171) (1,542)
Purchase of treasury stock (2,742) (247)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 44,299 55,699
- --------------------------------------------------------------------------------
Decrease in cash and cash equivalents (40,683) (32,303)
Cash and cash equivalents at beginning of period 261,109 185,104
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 220,426 $ 152,801
- ----------------------------------------------------------======================
Supplemental disclosures
Interest paid $30,047 $24,819
Income tax paid (refunded) $(2,409) $ 4,975
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTRUST Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
--------------------------------------------
The accompanying consolidated financial statements include the accounts of
INTRUST Financial Corporation and subsidiaries. All significant intercompany
accounts and transactions have been eliminated. In the opinion of management,
the consolidated financial statements reflect all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
The significant accounting policies followed in the preparation of the quarterly
financial statements are the same as those disclosed in the 1997 INTRUST
Financial Corporation Annual Report on Form 10-K. Reference is made to the
"Notes to Consolidated Financial Statements" under Item 8 of the 1997 Form 10-K
for additional disclosure.
2. ALLOWANCE FOR LOAN LOSSES
-------------------------
The following is a summary of the allowance for loan losses for the six months
ended June 30, 1998 and 1997 (in thousands):
1998 1997
------- -------
Balance, January 1 $17,932 $15,536
Additions:
Provision for loan losses 5,950 4,020
------- -------
23,882 19,556
Deductions:
Loans charged off 4,347 3,670
Less recoveries on loans
previously charged off 807 829
------- -------
Net loan losses 3,540 2,841
------- -------
Balance, June 30 $20,342 $16,715
======= =======
Statement of Financial Accounting Standards ("SFAS") No. 114 requires that
certain impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's original effective interest rate. As a
practical expedient, impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
Less than 1% of the Company's total loan portfolio meet the criteria defined in
SFAS Nos. 114 and 118 for classification as an impaired loan. The Company
maintained a valuation allowance of $609,000 at June 30, 1998 related to loans
considered impaired. Interest income on this classification of loans has been
recorded by the Company in a manner consistent with its income recognition
policies on other loans. Such amount of interest income is not material to the
Company's financial statements.
3. EARNINGS PER SHARE CALCULATIONS
-------------------------------
Basic earnings per share is computed based upon the weighted average number of
shares outstanding. Diluted earnings per share includes shares issuable upon
exercise of stock options and assumes that the 9% convertible subordinated
capital notes had been converted into common stock as of the beginning of each
respective period presented with related adjustments to interest and income tax
expense. The following is a reconciliation of the numerators and denominators of
basic and diluted earnings per share:
Six Months Ended
June 30,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Net income for basic earnings per share $ 9,819 $6,597
Interest expense on convertible debt, net of taxes 328 328
- --------------------------------------------------------------------------------
Net income for diluted earnings per share $10,147 $6,925
- ------------------------------------------------------------====================
Weighted average shares for basic earnings per share 2,166,287 2,201,646
Shares issuable upon exercise of stock options 32,561 4,280
Shares issuable upon conversion of capital notes 373,605 373,967
- --------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 2,572,453 2,579,893
- ----------------------------------------------------------======================
Pro forma disclosures of earnings per share, 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 followed by the Company.
4. COMPREHENSIVE INCOME
--------------------
The Company has adopted SFAS No. 130 which establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements. It
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and capital surplus
in the equity section of a statement of financial condition.
Total comprehensive income for the periods ending June 30, 1998 and 1997 was
$9,547 and $6,997 respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Unaudited consolidated net income of INTRUST Financial Corporation for the six
months ended June 30, 1998 was $9,819,000, increasing 48.8% over 1997's net
income for the comparable period. As noted in previous filings, 1997 earnings
were negatively impacted by an additional write-down of the Company's national
credit card portfolio in the second quarter. That portfolio was subsequently
sold in the third quarter of 1997. There have been no similar charges in 1998.
Second quarter earnings of $4,437,000 declined $945,000 from first quarter
levels. The majority of this decline is attributable to changes in Kansas state
tax law enacted in the second quarter. These changes were required to be applied
retroactively to January 1, 1998 and resulted in the recording of a nonrecurring
charge in the second quarter of approximately $700,000. Two other factors that
affect the comparability of the first and second quarter net income amounts were
the previously reported first quarter sale of the Company's national merchant
processing business and a reduction in the second quarter's provision for loan
losses.
NET INTEREST INCOME. The Company's second quarter net interest income increased
$1,056,000, or 5.8%, over prior year levels. The increase in net interest income
is volume-related, as the Company continues to experience compression in its
interest margin. Average interest-earning assets for the quarter ended June 30,
1998 were approximately 13% higher than comparable 1997 amounts and increased
1.7% over first quarter, 1998 totals. Total loans exceeded $1.3 billion at June
30, and were $46 million higher than the comparable total at March 31. Average
interest-bearing liabilities increased 1.3% over prior quarter levels. The
Company continues to experience growth in its total number of deposit accounts,
and total deposits at June 30, 1998 were 5.6% higher than they were at June 30,
1997. In addition to its efforts to increase its deposit base, the Company
continues to evaluate alternative funding sources.
Yields on average interest-earning assets for the first six months of 1998 were
little-changed from 1997 levels. 1998 yields were 8.22%, compared to 8.24% in
1997. Second quarter 1998 yields did decline four basis points from first
quarter levels, as proceeds from maturing investment securities were reinvested
at somewhat lower interest rates and the market for lending activity remained
very competitive.
Funding costs have increased this year, with the cost of interest-bearing
liabilities for the first half of the year rising six basis points from 1997
levels. Second quarter, 1998 funding costs were seven basis points higher than
comparable first quarter amounts. Approximately 30% of this increase in funding
costs is attributable to the impact on interest expense of the Company's trust
preferred issuance. The Company continues to operate in a very competitive
market, and anticipates that it will continue to confront pressure on its
interest margins throughout the remainder of the year.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three months
ended June 30, 1998 was $2,350,000, compared to a provision of $3,600,000 in the
first quarter of 1998 and $2,420,000 in the second quarter of 1997. Net
charge-offs were $1,747,000 in the quarter ended June 30, 1998, declining
slightly from the first quarter, 1998 amount of $1,793,000. The Company
continues to build its allowance for loan losses in recognition of the
significant growth it has experienced in its loan portfolio.
The Company's allowance for loan losses has increased 21.7% over June 30, 1997
levels, to $20,342,000. Average loans during this same time period have
increased 11.2%. At June 30, 1998, the allowance for loan losses as a percentage
of loans was 1.56%. Comparable percentages at December 31, 1997 and June 30,
1997 were 1.42% and 1.36%, respectively.
<PAGE>
Summary of Loan Loss Experience
================================================================================
June 30,
1998 1997
- --------------------------------------------------------------------------------
Amount of loans at period-end $1,303,349 $1,224,980
- --------------------------------------------------------========================
YTD Average loans outstanding $1,270,926 $1,142,654
- --------------------------------------------------------========================
Beginning balance of allowance for loan losses $17,932 $15,536
Loans charged-off
Commercial, Financial and Agricultural 743 927
Real Estate-Mortgage 0 19
Credit Card 2,600 1,825
Installment 1,004 914
- --------------------------------------------------------------------------------
Total loans charged off 4,347 3,670
- --------------------------------------------------------------------------------
Recoveries on charge-offs
Commercial, Financial and Agricultural 195 357
Real Estate-Mortgage 8 19
Credit Card 430 315
Installment 174 138
- --------------------------------------------------------------------------------
Total recoveries 807 829
- --------------------------------------------------------------------------------
Net loans charged off 3,540 2,841
Provision charged to expense 5,950 4,020
- --------------------------------------------------------------------------------
Ending balance of allowance for loan losses $20,342 $16,715
- -----------------------------------------------------------=====================
Net charge-offs/average loans 0.28% 0.25%
- -----------------------------------------------------------=====================
Allowance for loan losses/loans at period-end 1.56% 1.36%
- -----------------------------------------------------------=====================
The accompanying table summarizes, by type, the Company's outstanding loans,
excluding loans held-for-sale. Installment loans are principally comprised of
loans secured by automobiles.
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
- --------------------------------------------------------------------------------
Commercial, Financial and Agricultural $ 651,399 50.0% $ 623,707 49.4%
Real Estate-Construction 30,302 2.3 29,179 2.3
Real Estate-Mortgage 239,617 18.4 230,133 18.2
Installment, excluding credit card 272,572 20.9 259,074 20.5
Credit card 109,459 8.4 120,366 9.6
- --------------------------------------------------------------------------------
Subtotal $1,303,349 100.0% 1,262,459 100.0%
Allowance for loan losses (20,342) (17,932)
- --------------------------------------------------------------------------------
$1,283,007 $1,244,527
- -----------------------------------------=======================================
Loans considered risk elements declined 15% in the second quarter, and
represented .37% of total loans at June 30, 1998. At June 30, 1998, the
Company's allowance for loan losses was equal to 417% of those loans considered
risk elements. Comparable amounts at March 31, 1998 and December 31, 1997 were
342% and 266%, respectively. While the Company anticipates some increase in its
1998 provision for loan losses arising from growth in loan volumes during the
second half of 1998, it does not expect a significant change from 1997 levels.
June 30, December 31,
1998 1997
- --------------------------------------------------------------------------------
Loan Categories
Nonaccrual Loans $4,145 $4,618
Past Due 90 days or more 735 2,120
- --------------------------------------------------------------------------------
Total $4,880 $6,738
- --------------------------------------------------==============================
LIQUIDITY AND CAPITAL RESOURCES. The Company considered its liquidity level
adequate at June 30, 1998. Continued growth in the Company's loan portfolio,
combined with a reduction in deposit levels arising from seasonal factors,
resulted in the Company's net loan/deposit ratio at June 30, 1988 increasing to
86.3%. The comparable prior year ratio was 88.5%. The Company continues to
maintain an investment portfolio with a relatively short weighted average
maturity. At June 30, 1998, the average maturity of United States government and
agency securities in the investment portfolio was 1 year and 7 months, and the
average maturity of municipal securities was 4 years and 2 months.
The Company has thoroughly reviewed its investment security portfolio and has
determined that at June 30, 1998, it has the ability and intent to hold to
maturity all securities in the portfolio that have been classified as
held-to-maturity. With the increases the Company is experiencing in its loan
portfolio, the Company began in 1998 to classify purchases of United States
government and agency securities as available-for-sale. The Company believes
that it has a variety of sources of additional liquidity available. These
include, but are not limited to, the following: securities classified as
available-for-sale, the regularly scheduled maturities of those securities
presently held in its investment portfolio, the securitization of credit card
receivables, the ability to securitize other receivables, such as automobile
loans, and federal funds lines available through other financial institutions.
The Company believes these sources provide sufficient liquidity to meet
depositors' needs and make available lendable funds within its service area.
As disclosed in the March 31, 1998 Form 10-Q, the Company completed a
$57,500,000 offering of trust preferred securities in January, 1998. These
preferred securities are considered capital for regulatory purposes but are
classified as indebtedness for financial reporting and income tax purposes.
The Company's capital position substantially exceeds regulatory capital
requirements. The Company must maintain a minimum ratio of total capital to
risk-weighted assets of 8%, of which at least 4% must qualify as Tier 1 capital.
At June 30, 1998, the Company's total capital to risk-weighted assets ratio was
13.1% and its Tier 1 capital to risk-weighted assets ratio was 8.6%.
In addition to the aforementioned regulatory requirements, each of the Company's
subsidiary banks met all capital ratios required at the individual bank level.
OTHER INCOME AND OTHER EXPENSE. Second quarter noninterest income declined
$352,000, or 3.4% from prior year levels, and was $1,624,000 less than that
recognized in the first quarter. The quarter-over-quarter decline is
attributable to the nonrecurring $1.5 million gain recorded by the Company in
the first quarter arising from the sale of its national merchant processing
business. As noted in previous filings, the Company believes its efforts can be
more effective if focused on its regional trade territory, and elected to sell
its national merchant processing business. The year-over-year decline results
from the amortization of one of the Company's credit card securitization
transactions in 1997 and to the nonrecurring fees received in 1997 for servicing
the national credit card portfolio.
Service charges on deposit accounts increased 10.7% over prior year levels, and
increased 13.6% over comparable first quarter amounts. Expansion in the
Company's product lines and delivery systems has afforded continued growth in
the number of deposit accounts served, particularly in the commercial account
area.
As discussed in previous filings, the Company has substantially increased its
investment in the wealth management area. Quarterly fee income generated by this
line of business was $2,570,000, increasing 44.5% over prior year levels. Assets
under management in the Company's wealth management area now exceed $2 billion.
Securities gains in the first quarter were the result of the sale of stock in
accordance with a previously executed contractual agreement. There were no sales
of securities in the second quarter.
Credit card fees in the second quarter were 36% lower than 1997 levels and were
$284,000 less than the amount recorded in the first quarter. As noted above, the
amortization of one of the Company's securitization transactions in 1997 is the
principal reason for the difference in the year-over-year amounts. The decline
in credit card fees in the second quarter this year is attributable to seasonal
factors associated with volume levels. Holiday purchases usually result in
higher volumes for both merchant and cardholder activity in the first quarter of
the year.
Other service charges, fees and income declined modestly from the same period of
the preceding year and were $1,542,000 less than first quarter amounts. The
quarterly change resulted from the aforementioned sale of the national merchant
processing business in the first quarter. The year-over-year change in the
second quarter amounts is due to various factors. The decline in processing fee
revenue arising from the sale of the national credit card portfolio in the third
quarter of 1997 resulted in the Company recording a lesser level of fee income
in 1998. This reduction in revenue was substantially offset by fee income
generated by the Company's securitization and sale of approximately $45 million
in automobile loans in December, 1997 and a higher sales level of alternative
investment products.
Total noninterest expenses in the second quarter were little-changed from
comparable prior year levels and first quarter, 1998 amounts. Increases in
salaries and employee benefits were offset by declines in credit card processing
costs. Salaries and employee benefits increased 6.3% over comparable 1997
amounts. This increase is due principally to wage pressures and increases in
benefit costs, as employment levels at June 30, 1998 were slightly less than
they were a year ago. At June 30, 1998, the Company had 896 full-time equivalent
employees compared to 904 at June 30, 1997. As noted in previous filings,
unemployment in the Company's principal market is quite low, and competition for
personnel is significant. Also, after two years of modest increases, health care
costs have increased at double-digit rates. Increases in this benefit area were
responsible for approximately 15% of the total increase in salaries and employee
benefits.
Second quarter other noninterest expenses declined 16.8% from prior year levels
and were 12.7% less than those recorded in the first quarter. The change from
1997 levels is due primarily to a reduction in net credit card processing costs,
as the sale of the national credit card portfolio in the third quarter of 1997
resulted in a substantial decrease in the volume of accounts processed by the
Company. The Company is also experiencing a reduction in net interchange costs,
as debit card usage increases and a higher percentage of credit card
transactions are being conducted in the Company's trade territory. While these
factors also impacted 1998 quarterly results, the Company also experienced
second quarter cost reductions in its item processing costs and costs associated
with the disposition of repossessed assets.
Quarterly net occupancy and equipment costs continue to be slightly higher than
1997 levels, as the Company continues to invest in technology equipment and
upgrades its electronic delivery systems. Advertising and promotional costs
increased in the second quarter as anticipated and as discussed in the prior
quarter Form 10-Q. Changes in other noninterest expense line items were not
significant.
YEAR 2000 ISSUES. As described in previous filings, the Company is actively
engaged in efforts to assess the impact of the inability of existing data
processing hardware and software to recognize calendar dates beginning in the
year 2000. The Company outsources its principal data processing activities to
third party vendors, and all significant software applications are also
purchased from third parties. These outsourced systems include its core loan,
deposit, credit card, trust and general ledger systems. The Company believes
that its vendors are actively addressing the "Year 2000" issue. The Company's
"Year 2000" project team is actively engaged in the development, monitoring and
updating of business unit workplans. The Company believes its efforts in this
area are presently on schedule. The assessment phase for the Company's critical
data processing systems has been completed, and the Company is working with its
principal vendors on the testing phase of its plan. While the Company does not
expect that its "Year 200" efforts will have a material impact on its financial
position or its results of operations, it does believe that "Year 2000" efforts
will delay its ability to implement system enhancements that would provide
increased efficiencies. In addition, the failure of bank customers to adequately
prepare for "Year 2000" compatibility could have a significant adverse effect on
such customer's operations and profitability, thereby impacting that customer's
ability to repay loans in accordance with their terms. The Company continues its
progress in contacting and surveying its customer base on their "Year 2000"
efforts. It anticipates that this process will be completed in the third
quarter. While survey results to date have generally been favorable, until more
information has been obtained to enable the Company to assess the degree to
which customer's operations are susceptible to potential "Year 2000" problems,
the Company will be unable to quantify the potential for losses from loans to
its commercial customers.
NEW ACCOUNTING STANDARDS. Statement of Financial Accounting Standards No. 131,
which is effective for fiscal years beginning after December 15, 1997, requires
additional disclosure information with regard to business segments.
Statement of Financial Accounting Standards No. 132 revises employers'
disclosures about pension and other postretirement benefit plans effective for
fiscal years beginning after December 15, 1997. It does not change the
measurement or recognition of those plans.
Statement of Financial Accounting Standards No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999.
The Company does not anticipate that adoption of any of the above Statements
will have a material impact on operating results or its financial condition.
<PAGE>
PART 2. OTHER INFORMATION
Item 6(b). Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTRUST Financial Corporation
Date: August 14, 1998 By: /s/ C.Q. Chandler IV
---------------------
C. Q. Chandler IV
President
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ Jay L. Smith
-----------------
Jay L. Smith
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
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