QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _____to _____
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Commission file number 2-78658
INTRUST Financial Corporation
(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 67201
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(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 October 15, 1998, there were 2,147,268 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)
September 30, December 31,
Assets 1998 1997
- --------------------------------------------------------------------------------
Cash and cash equivalents:
Cash and due from banks $ 101,862 $ 171,494
Federal funds sold and securities purchased
under agreements to resell 94,375 89,615
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Total cash and cash equivalents 196,237 261,109
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Investment securities:
Held-to-maturity (market value, $195,131 for 1998
and $272,490 for 1997) 192,458 270,971
Available-for-sale, at market 178,116 33,346
Equity, at cost 2,769 2,833
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Total investment securities 373,343 307,150
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Mortgage loans held-for-sale 30,533 16,422
Loans, net of allowance for loan losses of
$22,052 in 1998 and $17,932 in 1997 1,295,850 1,244,527
Land, buildings and equipment, net 27,635 26,529
Other assets 71,019 68,085
- --------------------------------------------------------------------------------
Total assets $1,994,617 $1,923,822
- --------------------------------------------------------========================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Deposits $1,522,057 $1,552,766
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 217,228 183,678
Other 9,124 7,507
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Total short-term borrowings 226,352 191,185
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Accounts payable and accrued liabilities 20,564 13,007
Notes payable 15,000 23,000
Convertible capital notes 11,104 11,219
Guaranteed preferred beneficial interests in the
Company's subordinated debentures 57,500 0
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Total liabilities 1,852,577 1,791,177
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Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,417,707 shares issued 12,089 12,075
Capital surplus 12,443 12,377
Retained earnings 136,756 124,877
Treasury stock, at cost (269,339 shares in
1998 and 240,667 shares in 1997) (20,475) (17,081)
Unrealized securities gains net of tax 1,227 397
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Total stockholders' equity 142,040 132,645
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,994,617 $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 Nine Months
Ended September 30, Ended September 30,
----------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
Interest income:
Loans $30,322 $29,054 $ 88,917 $82,973
Investment securities 5,426 4,377 15,729 13,191
Federal funds sold and securities
purchased under agreements to
resell, and other 1,587 481 5,104 1,477
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Total interest income 37,335 33,912 109,750 97,641
- --------------------------------------------------------------------------------
Interest expense:
Deposits 13,232 12,464 38,690 36,597
Federal funds purchased and securities
sold under agreement to repurchase 2,742 1,983 7,927 5,601
Convertible capital notes 249 252 753 757
Subordinated debentures 1,184 0 3,290 0
Other borrowings 388 522 1,174 1,468
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Total interest expense 17,795 15,221 51,834 44,423
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Net interest income 19,540 18,691 57,916 53,218
Provision for write-down of loans
held-for-sale 0 0 0 4,645
Provision for loan losses 2,760 2,300 8,710 6,320
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Net interest income after
provision for loan losses 16,780 16,391 49,206 42,253
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Noninterest income:
Service charges on deposit accounts 2,916 2,552 8,114 7,418
Wealth management fees 2,786 2,158 7,928 5,569
Credit card fees 2,351 3,353 6,769 9,990
Securities gains 0 0 126 165
Other service charges, fees and income 2,649 2,478 9,229 7,842
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Total noninterest income 10,702 10,541 32,166 30,984
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Noninterest expenses:
Salaries and employee benefits 9,467 9,040 28,016 26,206
Net occupancy and equipment expense 2,236 2,291 6,528 6,361
Advertising and promotional activities 1,269 870 3,269 2,954
Data processing expense 996 850 2,864 2,632
Supplies 612 577 1,821 1,732
Postage and dispatch 521 546 1,572 1,690
Goodwill amortization 404 404 1,214 1,211
Deposit insurance assessment 63 59 185 91
Other 3,606 4,112 10,898 12,094
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Total noninterest expenses 19,174 18,749 56,367 54,971
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Income before provision for
income taxes 8,308 8,183 25,005 18,266
Provision for income taxes 3,002 3,035 9,880 6,521
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Net income $ 5,306 $ 5,148 $ 15,125 $11,745
- -------------------------------------------=====================================
Per share data:
Basic earnings per share $2.47 $2.34 $7.00 $5.34
- -------------------------------------------=====================================
Diluted earnings per share $2.14 $2.06 $6.08 $4.74
- -------------------------------------------=====================================
Cash Dividends $0.50 $0.35 $1.50 $1.05
- -------------------------------------------=====================================
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)
Nine Months Ended
September 30,
----------------------
1998 1997
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Cash provided (absorbed) by operating activities:
Net Income $ 15,125 $ 11,745
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 8,710 10,965
Provision for depreciation and amortization 5,132 5,057
Amortization of premium and accretion of discount on
investment securities (761) (311)
Gain on sale of investment securities (126) (165)
Changes in assets and liabilities:
Loans held for sale (14,111) (3,412)
Prepaid expenses and other assets (8,992) 1,026
Income taxes 9,654 1,546
Interest receivable (2,553) (2,235)
Interest payable 6,028 5,717
Other liabilities (127) (444)
Other (28) 321
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Net cash provided by operating activities 17,951 29,810
- --------------------------------------------------------------------------------
Cash provided (absorbed) by investing activities:
Purchase of investment securities (194,449) (93,747)
Investment securities matured or called 130,653 102,727
Proceeds from sale of investment securities 161 1,463
Net increase in loans (61,782) (102,813)
Purchases of land, buildings and equipment (4,449) (3,272)
Proceeds from sale of land, buildings and equipment 177 2,286
Proceeds from sale of other real estate
and repossessions 2,316 2,371
Other (2,732) (1,138)
- --------------------------------------------------------------------------------
Net cash absorbed by investing activities (130,105) (92,123)
- --------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Net increase (decrease) in deposits (30,709) 8,268
Net increase in short-term borrowings 35,167 47,505
Proceeds from notes payable 0 8,000
Payments on notes payable (8,000) (160)
Retirement of convertible capital notes (36) 0
Proceeds from subordinated debentures 57,500 0
Cash dividends (3,246) (2,312)
Purchase of treasury stock (3,394) (2,247)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 47,282 59,054
- --------------------------------------------------------------------------------
Decrease in cash and cash equivalents (64,872) (3,259)
Cash and cash equivalents at beginning of period 261,109 185,104
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 196,237 $ 181,845
- ----------------------------------------------------------======================
Supplemental disclosures
Interest paid $45,806 $38,706
Income tax paid $ 226 $ 4,975
The accompanying notes are an integral part of these consolidated financial
statements.
INTRUST Financial Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
--------------------------------------------
The accompanying consolidated financial statements include the accounts of
INTRUST Financial Corporation and subsidiaries. All significant intercompany
accounts and transactions have been eliminated. In the opinion of management,
the consolidated financial statements reflect all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
The significant accounting policies followed in the preparation of the quarterly
financial statements are the same as those disclosed in the 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 nine months
ended September 30, 1998 and 1997 (in thousands):
1998 1997
- --------------------------------------------------------------------------------
Balance, January 1 $17,932 $15,536
Additions:
Provision for loan losses 8,710 6,320
- --------------------------------------------------------------------------------
26,642 21,856
Deductions:
Loans charged off 6,044 5,349
Less recoveries on loans
previously charged off 1,454 1,394
- --------------------------------------------------------------------------------
Net loan losses 4,590 3,955
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Balance, September 30 $22,052 $17,901
- -------------------------------------------------------=========================
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 $800,000 at September 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:
Nine Months Ended
September 30,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Net income for basic earnings per share $15,125 $11,745
Interest expense on convertible debt, net of taxes 489 492
- --------------------------------------------------------------------------------
Net income for diluted earnings per share $15,614 $12,237
- ------------------------------------------------------------====================
Weighted average shares for basic earnings per share 2,160,866 2,199,537
Shares issuable upon exercise of stock options 34,534 6,203
Shares issuable upon conversion of capital notes 372,250 373,967
- --------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 2,567,650 2,579,706
- ----------------------------------------------------------======================
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 September 30, 1998 and 1997
was $15,955 and $12,172 respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unaudited consolidated net income of INTRUST Financial Corporation for the nine
months ended September 30, 1998 was $15,125,000, increasing 28.8% 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.
Third quarter earnings were $5,306,000, increasing $869,000 over previous
quarter levels. As noted last quarter, a change in Kansas state tax law resulted
in a one-time charge in the second quarter of approximately $700,000. Third
quarter state tax expense returned to more historical levels, and increased
volumes resulted in additional revenues that more than offset increases in the
Company's provision for loan losses and non-interest expenses.
Basic earnings per share through September 30, 1998 have increased 31.1% over
comparable 1997 amounts, while cash dividends paid per share have increased
42.9% during the same period.
NET INTEREST INCOME. Third quarter net interest income continued the trend of
the previous two quarters, increasing $849,000 over prior year amounts. Third
quarter net interest income was also $398,000 greater than the comparable second
quarter amount. The Company's growth in net interest income is volume-related,
as 1998 interest spreads continue to compress, when compared to 1997 levels.
Average interest-earning assets in the third quarter were 14.7% higher than
comparable 1997 amounts, and were approximately $40 million higher than second
quarter amounts. Increases in average loans accounted for approximately 75% of
the change between the second and third quarters of 1998. The Company continues
to experience growth in the total number of deposit accounts served by its lead
bank. Average interest-bearing liabilities increased approximately $26 million
over prior quarter levels, and were approximately 15.5% greater than comparable
prior year amounts. Total deposits at September 30, 1998 were 5.9% higher than
they were at September 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 changed little in the third quarter.
Through the first six months of 1998, yields averaged 8.22%. The yield on
average interest-earning assets in the third quarter was also 8.22%. Yields on
loans in the third quarter did not differ significantly from yields recorded in
the second quarter. Modest declines in the yields of investment securities were
offset by a slight change in the overall composition of interest-earning assets.
Loans accounted for 73.6% of average interest-earning assets in the third
quarter, compared to 73.4% in the second quarter.
Funding costs increased again in the third quarter. After rising seven basis
points in the second quarter, funding costs increased six basis points in the
third quarter. The Company continues to operate in a very competitive
marketplace, with deposit funding costs increasing six basis points over second
quarter levels. It is anticipated that the Company's markets will remain quite
competitive for the foreseeable future. The recent reductions by the Federal
Reserve in the Federal funds rate and corresponding reductions in the prime
lending rate, will put further pressure on interest margins in future quarters.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three months
ended September 30, 1998 was $2,760,000 compared to a provision of $2,350,000 in
the second quarter and $2,300,000 in the third quarter of 1997. Net charge-offs
declined this quarter. After averaging $1.77 million for the first two quarters
of the year, third quarter net charge-offs were $1,050,000. Reductions were
realized in both commercial and credit card net charge-offs in the third
quarter.
The Company recorded net recoveries in the third quarter in the commercial,
financial and agricultural segment of its loan portfolio. $743,000 in
commercial, financial and agricultural loans were charged-off during the first
six months of 1998, but gross charge-offs totaled only $134,000 in the third
quarter in this segment of the loan portfolio. With recoveries of previously
charged-off commercial loans totaling $218,000, net recoveries of $84,000 were
recorded in the quarter ended September 30, 1998.
Credit card charge-offs in the third quarter were $1,113,000, $187,000 less than
average quarterly charge-offs for the first six months of 1998. Recoveries on
previously charged-off credit card loans totaled $326,000 in the third quarter,
after aggregating $430,000 for the first six months of the year.
The Company continues to build its allowance for loan losses in recognition of
the significant growth it has experienced in its loan portfolio. At September
30, 1998, the Company's allowance for loan losses equaled $22,052,000,
increasing 23.2% over September 30, 1997 levels. At September 30, 1998, the
allowance for loan losses as a percentage of loans was 1.67%. Comparable
percentages at September 30, 1997 and December 31, 1997 were 1.45% and 1.42%,
respectively.
Summary of Loan Loss Experience
September 30,
1998 1997
- --------------------------------------------------------------------------------
Amount of loans at period-end $1,317,902 $1,235,056
- -------------------------------------------------------=========================
YTD Average loans outstanding $1,283,024 $1,173,578
- -------------------------------------------------------=========================
Beginning balance of allowance for loan losses $17,932 $15,536
Loans charged-off
Commercial, Financial and Agricultural 877 1,139
Real Estate-Mortgage 0 12
Credit Card 3,713 2,835
Installment 1,454 1,363
- --------------------------------------------------------------------------------
Total loans charged off 6,044 5,349
- --------------------------------------------------------------------------------
Recoveries on charge-offs
Commercial, Financial and Agricultural 413 694
Real Estate-Mortgage 11 25
Credit Card 756 466
Installment 274 209
- --------------------------------------------------------------------------------
Total recoveries 1,454 1,394
- --------------------------------------------------------------------------------
Net loans charged off 4,590 3,955
Provision charged to expense 8,710 6,320
- --------------------------------------------------------------------------------
Ending balance of allowance for loan losses $22,052 $17,901
- -------------------------------------------------------=========================
Net charge-offs/average loans 0.36% 0.34%
- -------------------------------------------------------=========================
Allowance for loan losses/loans at period-end 1.67% 1.45%
- -------------------------------------------------------=========================
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.
September 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
- --------------------------------------------------------------------------------
Commercial, Financial and Agricultural $ 649,879 50.0% $ 623,707 49.4%
Real Estate-Construction 33,557 2.3 29,179 2.3
Real Estate-Mortgage 242,940 18.4 230,133 18.2
Installment, excluding credit card 280,943 20.9 259,074 20.5
Credit card 110,583 8.4 120,366 9.6
- --------------------------------------------------------------------------------
Subtotal $1,317,902 100.0% 1,262,459 100.0%
Allowance for loan losses (22,052) (17,932)
- --------------------------------------------------------------------------------
$1,295,850 $1,244,527
- -----------------------------------------=======================================
Loans considered risk elements increased 41% in the third quarter, although they
continue to represent a relatively nominal percentage (.52%) of total loans.
During the third quarter two commercial credits were placed on nonaccrual
status, accounting for the increase in loans considered risk elements. The
Company believes that amounts previously allocated in the allowance for loan
losses for these credits will be sufficient to address any losses on these two
particular loans. At September 30, 1998, the Company's allowance for loan losses
was equal to 320% of those loans considered risk elements. Comparable amounts at
June 30, 1998 and December 31, 1997 were 417% and 266%. The Company does not
expect that its provision for loan losses in the fourth quarter of 1998 will
differ significantly from the provision it has averaged for the first three
quarters of the year.
September 30, December 31,
1998 1997
- --------------------------------------------------------------------------------
Loan Categories
Nonaccrual Loans $5,907 $4,618
Past Due 90 days or more 974 2,120
- --------------------------------------------------------------------------------
Total $6,881 $6,738
- -------------------------------------------------===============================
LIQUIDITY AND CAPITAL RESOURCES. The Company considered its liquidity level
adequate at September 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 increasing from 86.3%
at June 30, 1988 increasing to 87.1% at September 30, 1998. The comparable prior
year ratio was 85.9%. The Company continues to maintain an investment portfolio
with a relatively short weighted average maturity. At September 30, 1998, the
average maturity of United States government and agency securities in the
investment portfolio was 1 year and 8 months, and the average maturity of
municipal securities was 4 years and 3 months.
The Company has thoroughly reviewed its investment security portfolio and has
determined that at September 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 September 30, 1998, the Company's total capital to risk-weighted assets ratio
was 12.9% and its Tier 1 capital to risk-weighted assets ratio was 8.7%.
In addition to the aforementioned regulatory requirements, each of the Company's
subsidiary banks met all capital ratios required at the individual bank level.
OTHER INCOME AND OTHER EXPENSE. Third quarter noninterest income increased
$161,000, or 1.5% from prior year levels. Third quarter revenue levels for all
significant areas of noninterest income exceeded second quarter amounts,
resulting in a quarter-over-quarter increase in noninterest income of $782,000,
or 7.9%.
Service charges on deposit accounts increased 14.3% over prior year levels, and
year-to-date, has increased 9.4%. 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. Once again, the Company's
lead bank experienced net gains in the number of deposit accounts serviced in
each month of the quarter.
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 $2,786,000, increasing 29.1% over prior year levels. 1998
year-to-date wealth management fee income has increased 42.4% over 1997 levels.
The Company anticipates that growth rates from this source of fee income will
slow next year, due principally to two factors. First, continued uncertainty in
the equity markets may result in increased volatility in the market value of
assets under management. Second, the growth in assets under management
effectively increases the denominator on which the rate of growth is computed.
There were no sales of securities in the third quarter. The year-to-date
securities gains of $126,000 were the result of the sale of stock in accordance
with a previously executed contractual agreement.
Credit card fees in the third quarter were 29.9% less than comparable 1997
amounts, after declining 31% and 36%, respectively in the first and second
quarters of this year. As has been noted previously, 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. Third quarter credit card fees did
increase 13.7% from second quarter levels, as back-to-school seasonal purchases
were made and the Company instituted certain pricing changes.
Other service charges, fees and income increased 6.9% over prior year levels and
were 5.2% higher than second quarter amounts. Mortgage loan originations, the
majority of which are pre-sold into the secondary market, increased
substantially during the quarter, as homeowners refinanced their home loans and
new home sales in the Company's principal markets remained strong. As a result
of this increased level of originations, the Company recorded a higher level of
fee income.
Total noninterest expenses in the third quarter increased 2.3% over prior year
levels and were 3.4% higher than second quarter, 1998 amounts. The Company's
third quarter employment costs were 4.7% higher than comparable 1997 amounts, as
wage pressures in the Company's principal markets continue to exist, and health
insurance costs have increased at a more rapid rate this year than they have the
last few years.
Quarterly advertising and promotional costs increased $399,000 over prior year
amounts, as the Company advertised heavily in connection with the expansion of
its delivery system to include ATMs in the convenience store chain with the
highest market share in its geographic area. Data processing expense increased
17.2% over comparable 1997 amounts as increased volumes and delivery system
expansion have resulted in higher costs. The Company also continues to invest in
and upgrade its Internet banking solution.
Third quarter other noninterest expenses declined 12.3% from prior year levels.
As noted previously, the sale of the national credit card portfolio has resulted
in a decline in credit card processing costs. 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. The Company also experienced modest reductions in the areas of
losses sustained, and the costs associated with the disposition of repossessed
assets.
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. It believes that
approximately 70% of its software has been updated, with 50% of its software
validated and tested. Current plans call for all software to be renovated,
tested and implemented by the first quarter of 1999.
While the Company does not expect that its "Year 2000" 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. However, the failure to
have these enhancements in place immediately does not present the Company with
operational difficulties or impact the Company's ability to adequately serve its
customers.
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 has completed the survey of
its customer base on their "Year 2000" efforts. Survey results were generally
favorable. The Company has addressed the prospect of any additional risk
associated with its lending portfolio arising from the "Year 2000" issue in the
normal course of its overall risk analysis.
The Company is in the process of modifying and updating its internal contingency
planning documents for the "Year 2000" issue. It anticipates that this
contingency plan will be completed by April 30, 1999.
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: November 12, 1998 By: /s/ C.Q. Chandler IV
---------------------
C. Q. Chandler IV
President
(Principal Executive Officer)
Date: November 12, 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>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 101,862
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 94,375
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 178,116
<INVESTMENTS-CARRYING> 195,227
<INVESTMENTS-MARKET> 376,016
<LOANS> 1,348,435
<ALLOWANCE> 22,052
<TOTAL-ASSETS> 1,994,617
<DEPOSITS> 1,522,057
<SHORT-TERM> 226,352
<LIABILITIES-OTHER> 20,564
<LONG-TERM> 83,604
0
0
<COMMON> 12,089
<OTHER-SE> 129,951
<TOTAL-LIABILITIES-AND-EQUITY> 1,994,617
<INTEREST-LOAN> 88,917
<INTEREST-INVEST> 15,729
<INTEREST-OTHER> 5,104
<INTEREST-TOTAL> 109,750
<INTEREST-DEPOSIT> 38,690
<INTEREST-EXPENSE> 51,834
<INTEREST-INCOME-NET> 57,916
<LOAN-LOSSES> 8,710
<SECURITIES-GAINS> 126
<EXPENSE-OTHER> 56,367
<INCOME-PRETAX> 25,005
<INCOME-PRE-EXTRAORDINARY> 15,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,125
<EPS-PRIMARY> 7.00
<EPS-DILUTED> 6.08
<YIELD-ACTUAL> 0.00
<LOANS-NON> 5,907
<LOANS-PAST> 974
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,932
<CHARGE-OFFS> 6,044
<RECOVERIES> 1,454
<ALLOWANCE-CLOSE> 22,052
<ALLOWANCE-DOMESTIC> 22,052
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
