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, 1999
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 13, 1999, there were 2,031,262 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 1999 1998
- --------------------------------------------------------------------------------
Cash and cash equivalents:
Cash and due from banks $ 102,655 $ 132,056
Federal funds sold and securities purchased
under agreements to resell 29,655 68,550
- --------------------------------------------------------------------------------
Total cash and cash equivalents 132,310 200,606
- --------------------------------------------------------------------------------
Investment securities:
Held-to-maturity (market value, $122,140 for 1999
and $178,305 for 1998) 121,373 176,305
Available-for-sale, at market 231,476 208,752
Equity, at cost 2,776 2,763
- --------------------------------------------------------------------------------
Total investment securities 355,625 387,820
- --------------------------------------------------------------------------------
Loans held-for-sale 30,950 34,834
Loans, net of allowance for loan losses of
$23,508 in 1999 and $21,703 in 1998 1,530,830 1,393,075
Land, buildings and equipment, net 30,550 29,509
Other assets 72,264 69,621
- --------------------------------------------------------------------------------
Total assets $2,152,529 $2,115,465
- ------------------------------------------------------==========================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Deposits $1,618,635 $1,647,354
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 287,264 241,955
Other 10,195 2,260
- --------------------------------------------------------------------------------
Total short-term borrowings 297,459 244,215
- --------------------------------------------------------------------------------
Accounts payable and accrued liabilities 18,696 13,207
Notes payable 12,500 12,500
Convertible capital notes 10,736 11,078
Guaranteed preferred beneficial interests in the
Company's subordinated debentures 57,500 57,500
- --------------------------------------------------------------------------------
Total liabilities 2,015,526 1,985,854
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,428,433 shares issued in 1999
and 2,418,573 issued in 1998 12,142 12,093
Capital surplus 12,711 12,464
Retained earnings 148,323 139,078
Treasury stock, at cost (396,647 shares in 1999
and 391,824 shares in 1998) (35,263) (34,626)
Unrealized securities gains (losses), net of tax (910) 602
- --------------------------------------------------------------------------------
Total stockholders' equity 137,003 129,611
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,152,529 $2,115,465
- ------------------------------------------------------==========================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
INTRUST Financial Corporation
Consolidated Condensed Statements of Income and Comprehensive Income
(Unaudited - dollars in thousands except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Interest income:
Loans $32,377 $29,494 $62,822 $58,595
Investment securities 5,078 5,366 10,551 10,303
Federal funds sold and securities
purchased under agreements to
resell, and other 350 1,551 951 3,517
- --------------------------------------------------------------------------------
Total interest income 37,805 36,411 74,324 72,415
- --------------------------------------------------------------------------------
Interest expense:
Deposits 12,822 12,888 25,399 25,458
Federal funds purchased and
securities sold under agreement
to repurchase 2,686 2,569 5,255 5,185
Convertible capital notes 242 252 483 504
Subordinated debentures 1,184 1,185 2,369 2,106
Other borrowings 287 375 580 786
- --------------------------------------------------------------------------------
Total interest expense 17,221 17,269 34,086 34,039
- --------------------------------------------------------------------------------
Net interest income 20,584 19,142 40,238 38,376
Provision for loan losses 3,030 2,350 5,310 5,950
- --------------------------------------------------------------------------------
Net interest income after
provision for loan losses 17,554 16,792 34,928 32,426
- --------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 3,032 2,764 5,782 5,198
Wealth management fees 3,317 2,570 6,564 5,142
Credit card fees 2,178 2,067 4,365 4,418
Securities gains 378 0 541 126
Other service charges, fees and income 2,924 2,519 5,673 6,580
- --------------------------------------------------------------------------------
Total noninterest income 11,829 9,920 22,925 21,464
- --------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 9,966 9,350 19,965 18,549
Net occupancy and equipment expense 2,542 2,143 4,934 4,292
Advertising and promotional activities 861 1,130 1,761 2,000
Data processing expense 1,088 913 2,176 1,868
Supplies 573 612 1,113 1,209
Postage and dispatch 542 525 1,036 1,051
Goodwill amortization 403 405 806 810
Deposit insurance assessment 64 63 127 122
Other 3,526 3,398 6,791 7,292
- --------------------------------------------------------------------------------
Total noninterest expenses 19,565 18,539 38,709 37,193
- --------------------------------------------------------------------------------
Income before provision for
income taxes 9,818 8,173 19,144 16,697
Provision for income taxes 3,832 3,736 7,458 6,878
- --------------------------------------------------------------------------------
Net income 5,986 4,437 11,686 9,819
Other comprehensive income (loss) (1,001) 147 (1,512) (272)
- --------------------------------------------------------------------------------
Comprehensive income $ 4,985 $ 4,584 $10,174 $ 9,547
- -------------------------------------------=====================================
Per share data:
Basic earnings per share $2.95 $2.05 $5.75 $4.53
- -------------------------------------------=====================================
Diluted earnings per share $2.53 $1.78 $4.93 $3.94
- -------------------------------------------=====================================
Cash Dividends $0.60 $0.50 $1.20 $1.00
- -------------------------------------------=====================================
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,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
Cash provided (absorbed) by operating activities:
Net Income $ 11,686 $ 9,819
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 5,310 5,950
Provision for depreciation and amortization 3,621 3,478
Amortization of premium and accretion of discount on
investment securities (32) (552)
Gain on sale of investment securities (541) (126)
Loss on retirement of convertible capital notes 155 0
Changes in assets and liabilities:
Loans held for sale 3,883 (10,318)
Prepaid expenses and other assets (758) 203
Income taxes 1,083 9,287
Interest receivable (674) (2,052)
Interest payable 4,135 3,992
Other liabilities (336) (415)
Other 19 (78)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 27,551 19,188
- --------------------------------------------------------------------------------
Cash provided (absorbed) by investing activities:
Purchase of investment securities (77,115) (145,098)
Investment securities matured or called 106,784 89,054
Proceeds from sale of investment securities 592 161
Net increase in loans (143,932) (45,813)
Purchases of land, buildings and equipment (3,326) (1,819)
Proceeds from sale of equipment 10 17
Proceeds from sale of other real estate
and repossessions 625 1,865
Other (732) (2,537)
- --------------------------------------------------------------------------------
Net cash absorbed by investing activities (117,094) (104,170)
- --------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Net increase (decrease) in deposits (28,719) (35,859)
Net increase (decrease) in short-term borrowings 53,244 35,594
Payments on notes payable 0 (8,000)
Retirement of convertible capital notes (201) (23)
Proceeds from subordinated debentures 0 57,500
Cash dividends (2,440) (2,171)
Purchase of treasury stock (637) (2,742)
- --------------------------------------------------------------------------------
Net cash provided (absorbed) by financing activities 21,247 44,299
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (68,296) (40,683)
Cash and cash equivalents at beginning of period 200,606 261,109
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 132,310 $ 220,426
- ------------------------------------------------------------====================
Supplemental disclosures
Interest paid $29,951 $30,047
Income tax paid (refunded) $ 6,353 $(2,409)
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 1998 INTRUST
Financial Corporation Annual Report on Form 10-K. Reference is made to the
"Notes to Consolidated Financial Statements" under Item 8 of the 1998 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, 1999 and 1998 (in thousands):
1999 1998
- --------------------------------------------------------------------------------
Balance, January 1 $21,703 $17,932
Additions:
Provision for loan losses 5,310 5,950
- --------------------------------------------------------------------------------
27,013 23,882
Deductions:
Loans charged off 4,570 4,347
Less recoveries on loans
previously charged off 1,065 807
- --------------------------------------------------------------------------------
Net loan losses 3,505 3,540
- --------------------------------------------------------------------------------
Balance, June 30 $23,508 $20,342
- ----------------------------------------------------------======================
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 $83,000 at June 30, 1999 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
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Net income for basic earnings per share $11,686 $ 9,819
Interest expense on convertible debt, net of taxes 299 328
- --------------------------------------------------------------------------------
Net income for diluted earnings per share $11,985 $10,147
- -----------------------------------------------------------=====================
Weighted average shares for basic earnings per share 2,032,792 2,166,287
Shares issuable upon exercise of stock options 39,564 32,561
Shares issuable upon conversion of capital notes 359,055 373,605
- --------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 2,431,411 2,572,453
- ---------------------------------------------------------=======================
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. Segment Reporting
Listed below is a presentation of revenues and profits for all segments. Taxes
are not allocated to segment operations, and the Company did not have
discontinued operations, extraordinary items or accounting changes for any of
the segments. There has been no material change in total segment assets from
amounts disclosed in the last annual report, and there has been no change in the
basis of segmentation or in the measurement of profit or loss since the last
annual report.
Three Months Ended Six Months Ended
June 30, June 30,
- --------------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------
Revenues from external customers
Consumer banking $20,205 $15,985 $39,823 $35,466
Commercial lending 7,582 7,190 14,685 14,227
Wealth management 4,080 3,088 7,839 6,202
Community banking 4,632 4,275 9,259 8,468
Intercompany revenues
Consumer banking $(2,470) $ (642) $(4,918) $(1,372)
Commercial lending 0 6 0 12
Wealth management 93 19 213 101
Community banking 211 307 291 684
Segment profit
Consumer banking $ 5,784 $ 4,306 $10,980 $ 9,792
Commercial lending 4,056 4,131 8,594 9,128
Wealth management 1,159 135 1,845 245
Community banking 548 813 1,405 1,458
-------------------------------------------------------------------------------
Profit from segments 11,547 9,385 22,824 20,623
Expenses at corporate level not
allocated to segments (1,729) (1,212) (3,680) (3,926)
-------------------------------------------------------------------------------
Consolidated income before tax $ 9,818 $ 8,173 $19,144 $16,697
-----------------------------------------======================================
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unaudited consolidated net income of INTRUST Financial Corporation for the three
months ended June 30, 1999 totaled $5,986,000, increasing 5.0% over first
quarter results and establishing a new quarterly record for the Company. Second
quarter 1999 net income was 34.9% higher than comparable 1998 amounts, and
earnings for the first six months of the year have increased 19% over 1998
amounts. Year-to-date 1999 earnings per share (on a diluted basis) are 25.1%
higher than 1998 amounts. The Company continues to experience solid growth in
its principal markets, leading to increased net interest income and noninterest
income. The Company's lending activities continue to generate increased volumes.
Average loans in the second quarter were 19.1% higher than comparable levels in
1998. The Company's wealth management activities continue to grow at a rapid
rate, with year-to-date fee revenue from this line of business increasing 27.7%
in 1999. The Company also recorded a non-recurring gain of $378,000 from the
sale of securities during the quarter. While the Company did experience an
increase in its net charge-offs in the second quarter, overall credit quality
remained sound, as nonaccrual loans and loans past due 90 days or more declined
21% from first quarter levels.
NET INTEREST INCOME. After increasing nominally in the first quarter, the
Company's net interest income increased 7.5% over comparable 1998 amounts in the
second quarter. The Company recorded a modest increase in its interest spread in
the second quarter, reversing a trend that had occurred throughout 1998 and into
the first quarter of 1999. The Company's yield on average interest-earning
assets increased slightly in the second quarter, as an increasing percentage of
its interest-earning assets are comprised of loans. Average loans (including
loans available-for-sale) grew approximately $90 million during the quarter and
represented 80% of average interest-earning assets in the second quarter. The
comparable 1998 percentage was 73.4%. The Company continues to operate in very
competitive markets, and does not believe it will be able to significantly
increase the percentage of interest-earning assets deployed in loans. While the
recent increase by the Federal Reserve in the targeted federal funds rate will
result in the upward repricing of a portion of the Company's loan portfolio, the
Company does expect, on a long-term basis, to continue to experience compression
in its interest margin.
Funding costs continued their modest decline in 1999, falling another two basis
points in the second quarter. The cost of interest-bearing liabilities in the
second quarter of 1999 was 4.24%, compared to 4.65% during the same period of
1998. While competition for funds remains significant, the Company's lead bank
experienced a net increase in the number of deposit accounts serviced during
each month of the second quarter. Noninterest-bearing demand deposits comprised
21.5% of total deposits at quarter-end, 1999, compared to 23.1% in 1998. In
addition to its efforts to increase its deposit base, the Company continues to
evaluate alternative funding sources.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of
$3,030,000 in the second quarter, an increase of $750,000 over first quarter
levels. Charge-offs in the quarter increased $834,000 over first quarter levels.
The Company charged-off two commercial loans in the second quarter, resulting in
a $945,000 increase in charge-offs in this line of business in the second
quarter. This increase in charge-offs was mitigated to some degree by a decrease
in the level of charge-offs for both the credit card and installment lending
categories. Year-to-date, net charge-offs in 1999 are $35,000 less than 1998
levels. Nonaccrual and past due loans have declined 22% from the level recorded
at the beginning of the year. Nonaccrual and loans past due 90 days or more
comprised .31% of total loans at June 30, 1999. Comparable percentages at March
31, 1999 and June 30, 1998 were .41% and .47%, respectively.
The Company's allowance for loan losses at June 30, 1999 was equal to 1.51% of
total loans and 494% of loans considered risk elements. Comparable percentages
at March 31, 1999 and December 31, 1998 were 1.55% and 377%, and 1.53% and 355%,
respectively. All segments of the loan portfolio are generally performing as had
been expected. The charge-offs in the commercial lending segment in the second
quarter were in unrelated industries and in different geographical areas.
Management will continue to actively review the activity in its loan portfolio
to ensure that the provision for loan losses and resultant allowance for loan
losses remain adequate to appropriately address the credit risk existing in the
portfolio. Should the Company's assessment of its credit risk for the rest of
the year remain consistent with that of the second quarter, it is expected that
the 1999 provision for loan losses will be approximately equal to the amount
recorded in 1998.
Summary of Loan Loss Experience
- --------------------------------------------------------------------------------
June 30,
1999 1998
- --------------------------------------------------------------------------------
Amount of loans at period-end $1,554,338 $1,303,349
- -------------------------------------------------------=========================
YTD Average loans outstanding $1,477,805 $1,270,926
- -------------------------------------------------------=========================
Beginning balance of allowance for loan losses $21,703 $17,932
Loans charged-off
Commercial, Financial and Agricultural 1,427 743
Credit Card 2,280 2,600
Installment 863 1,004
- --------------------------------------------------------------------------------
Total loans charged off 4,570 4,347
- --------------------------------------------------------------------------------
Recoveries on charge-offs
Commercial, Financial and Agricultural 298 195
Real Estate-Mortgage 6 8
Credit Card 492 430
Installment 269 174
- --------------------------------------------------------------------------------
Total recoveries 1,065 807
- --------------------------------------------------------------------------------
Net loans charged off 3,505 3,540
Provision charged to expense 5,310 5,950
- --------------------------------------------------------------------------------
Ending balance of allowance for loan losses $23,508 $20,342
- ----------------------------------------------------------======================
Net charge-offs/average loans 0.24% 0.28%
- ----------------------------------------------------------======================
Allowance for loan losses/loans at period-end 1.51% 1.56%
- ----------------------------------------------------------======================
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, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
- --------------------------------------------------------------------------------
Commercial, Financial and Agricultural $ 757,817 48.7% $ 707,326 50.0%
Real Estate-Construction 47,653 3.1 38,137 2.7
Real Estate-Mortgage 299,852 19.3 250,282 17.7
Installment, excluding credit card 335,924 21.6 299,884 21.2
Credit card 113,092 7.3 119,149 8.4
- --------------------------------------------------------------------------------
Subtotal 1,554,338 100.0% 1,414,778 100.0%
Allowance for loan losses (23,508) (21,703)
- --------------------------------------------------------------------------------
Total $1,530,830 $1,393,075
- -----------------------------------------=======================================
As noted above, loans considered risk elements, as presented in the following
table, totaled .31% of total loans, declining from prior quarter levels.
Management is not aware of issues that would significantly impact the credit
quality of the loan portfolio in 1999. Management believes the allowance for
loan losses to be adequate at this time.
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
Loan Categories
Nonaccrual Loans $4,036 $5,027
Past Due 90 days or more 721 1,090
- --------------------------------------------------------------------------------
Total $4,757 $6,117
- ---------------------------------------------------------=======================
LIQUIDITY AND CAPITAL RESOURCES. The Company considered its liquidity level
adequate at June 30, 1999. Growth in the Company's loan portfolio has, however,
resulted in an overall decline in liquidity levels. The Company's loan/deposit
ratio at June 30, 1999 was 96.0%, compared to 90.9 % at March 31, 1999 and 85.9%
at December 31, 1998.
The Company entered into additional Federal Funds borrowing relationships with
other financial institutions during the quarter. At June 30, the Company had
aggregate Federal Funds lines of $145 million. In addition, the Company entered
into a branch purchase and assumption agreement in the second quarter to
purchase certain assets and assume certain liabilities of the Kansas branches of
U.S. Bank, N.A. It is anticipated that this transaction, which is scheduled to
close in the late third or early fourth quarter of this year, will provide
additional liquidity to the Company.
The Company continues to maintain an investment portfolio with a relatively
short weighted average maturity. At June 30, 1999, the average maturity of
United States government and agency securities in the investment portfolio was 1
year and 6 months, and the average maturity of municipal securities was 3 years
and 9 months.
The Company has thoroughly reviewed its investment security portfolio and has
determined that at June 30, 1999, it has the ability and intent to hold all
securities in the portfolio that have been classified as held-to-maturity. With
the increases the Company is experiencing in its loan portfolio, it has started
classifying 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 has been disclosed in previous filings, in January, 1998, a statutory
business trust of the Company issued $57,500,000 in cumulative trust preferred
securities. These preferred securities, which qualify as capital for regulatory
reporting purposes, have a distribution rate of 8.24%, and will mature on
January 31, 2028, unless called or extended by the Company. The Company owns
100% of the common stock of the trust, and the only assets of the trust consist
of the 8.24% subordinated debentures due January 31, 2028 issued by the Company
to the trust. The Company has issued Back-up Obligations to the trust, which,
when taken in the aggregate, constitute the full and unconditional guarantee by
the Company of all of the trust's obligations under the preferred securities.
The Company's capital position continues to exceed 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, 1999, the Company's total capital to risk-weighted assets ratio was
11.1% and its Tier 1 capital to risk-weighted assets ratio was 9.2%.
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 was
$11,829,000, increasing 6.6% over first quarter levels, and increasing 19.2%
over second quarter, 1998 amounts. The Company recorded growth in all areas of
noninterest income during the quarter. Increased volumes resulted in additional
service charge and wealth management fee income. The Company also recorded
securities gains of $378,000, as stock issued to one of the Company's subsidiary
banks in connection with an initial public offering was sold.
Second quarter service charges on deposit accounts increased 9.7% over 1998
levels. The Company's lead bank continued to experience growth in the number of
deposit accounts serviced. Increases have also been realized in the number of
customers utilizing the Company's cash management services. These volume
increases, when combined with certain repricing initiatives, are the principal
reasons for the increase in this revenue line item. The Company has disclosed in
previous filings that it has significantly increased its investment in the
wealth management area. Assets under management in the wealth management area at
June 30, 1999 have increased 41.5% over comparable 1998 amounts, and this has
led to a 29.1% increase in second quarter wealth management fee income.
Credit card fee income was essentially unchanged from first quarter amounts, but
it did increase approximately 5.4% over comparable 1998 second quarter amounts.
Transactional volumes in the second quarter of 1999 did not experience the
seasonal fluctuation that they did in 1998, and certain repricing changes made
in the second half of 1998 resulted in somewhat higher levels of fee income.
These factors combined to offset the Company's increased costs associated with
its affinity groups. As noted above, the securities gains recorded this quarter
were the result of a non-recurring transaction. One of the Company's subsidiary
banks owned certain life insurance policies issued by a mutual insurance agency.
When that insurance company changed its ownership structure to one of stock
ownership, it issued common stock to its policyholders. The Company's subsidiary
bank subsequently sold the equity securities that it had been issued, resulting
in a gain of $375,000.
Other service charges, fees and income increased $175,000 over first quarter
levels and $405,000 over second quarter, 1998 amounts. A majority of the
quarterly change is due to an increase in the dollar amount of sales of annuity
products during the second quarter, as well as providing additional amounts of
employee benefit plan record-keeping and educational services. While the
year-over-year change was also effected by the aforementioned factors, it was
impacted to a greater extent by the increased volume of ATM transactions in
1999. The Company's expansion of its ATM delivery system into a market-leading
convenience store system in the second half of 1998 has greatly increased the
Company's ATM presence, and has resulted in a much higher level of ATM
transactions.
Total noninterest expenses in the second quarter increased 5.5% over comparable
1998 amounts and were 2.2% higher than comparable first quarter amounts.
Salaries and employee benefit costs increased 6.6% over prior year levels. The
year-over-year increase in average employment levels in the second quarter was
approximately 2.7%. In addition, employee benefit costs in the second quarter of
1999 were approximately 20% higher than during the same period of 1998. General
wage increases accounted for the remainder of the increase in this line item.
Net occupancy and equipment costs for the second quarter have increased 18.6%
over prior year amounts, and year-to-date have increased 15.0%. Increased
depreciation expense accounts for approximately 60% of this increase. As noted
in previous filings, the Company has replaced fully depreciated technology
equipment, replaced two facilities, and opened a new branch in Andover, Kansas
in the second half of 1998. Quarterly data processing expense increased $175,000
over 1998 levels as increased account volumes resulted in increased data
processing expense, and the Company continued to expend development efforts on
its Internet site and enhancement of its Internet banking products. Other
noninterest expenses in the second quarter increased 3.8% over 1998 amounts, due
principally to increases in item processing and credit card processing costs.
Increased transaction volume has resulted in increased costs in these expense
categories. Year-over-year changes in other noninterest expense categories were
relatively modest.
YEAR 2000 ISSUES. As described in previous filings, the Company, along with
other financial institutions, face potentially serious issues associated with
the inability of existing data processing hardware and software to appropriately
recognize calendar dates beginning in the year 2000. Computer programs that can
only distinguish the final two digits of the year entered may read entries for
the year 2000 as the year 1900 and compute payment, interest or delinquency
based on the wrong date or are expected to be unable to compute payment,
interest or delinquency amounts.
The Company has been actively engaged in efforts to assess, renovate, test and
implement necessary changes to its existing systems. The Company outsources its
principal data processing activities to third party vendors, and all significant
software application systems 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 problems associated with the Y2K issue. At June 30, 1999, the
Company has completed its assessment, renovation, testing and implementation
phases, and believes all significant software application systems are
Y2K-compliant.
The Company's Y2K efforts have not had a material impact on its financial
position or its results of operations. Payments to third parties as a result of
work performed in connection with Y2K have not been material. As the Company's
major systems are outsourced to third parties, the Company is not responsible
for the actual renovation of code for these systems. Y2K has, however, delayed
the Company's ability to implement system enhancements that might have otherwise
increased efficiencies. The failure to have these enhancements in place does not
present the Company with operational difficulties or impact the Company's
ability to adequately serve its customers.
The failure of the Company's customers to adequately prepare for Y2K could have
an adverse effect on such customer's operations and profitability, thereby
impacting the customer's ability to repay loans in accordance with their terms.
The Company has completed a survey of its customer base on their Y2K efforts.
Survey results were generally favorable. The Company has addressed the prospect
of any additional risk associated with its lending portfolio arising from Y2K
issues in the normal course of its overall risk analysis.
It is possible that Y2K may result in a greater demand for liquidity at the
Company's subsidiary banks. The Company's overall liquidity plan for its
subsidiary banks is complete. The modification of the Company's contingency
planning documents for Y2K issues is also complete, and testing of the plan has
been completed.
NEW ACCOUNTING STANDARDS. Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", 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, 2000.
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise", conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the subsequent accounting for securities
retained after the securitization of other types of assets by a nonmortgage
banking enterprise. This Statement became effective in the first fiscal quarter
of 1999.
The adoption of Statement No. 134 did not have a material impact on the
operating results or financial condition of the Company. The Company does not
anticipate that adoption of Statement No. 133 will have a material impact on its
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 4, 1999 By: /s/ C.Q. Chandler IV
---------------------
C. Q. Chandler IV
President
(Principal Executive Officer)
Date: August 4, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 102,655
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 29,655
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 231,476
<INVESTMENTS-CARRYING> 124,149
<INVESTMENTS-MARKET> 124,916
<LOANS> 1,585,288
<ALLOWANCE> 23,508
<TOTAL-ASSETS> 2,152,529
<DEPOSITS> 1,618,635
<SHORT-TERM> 297,459
<LIABILITIES-OTHER> 18,696
<LONG-TERM> 80,736
0
0
<COMMON> 12,142
<OTHER-SE> 124,861
<TOTAL-LIABILITIES-AND-EQUITY> 2,152,529
<INTEREST-LOAN> 62,822
<INTEREST-INVEST> 10,551
<INTEREST-OTHER> 951
<INTEREST-TOTAL> 74,324
<INTEREST-DEPOSIT> 25,399
<INTEREST-EXPENSE> 34,086
<INTEREST-INCOME-NET> 40,238
<LOAN-LOSSES> 5,310
<SECURITIES-GAINS> 541
<EXPENSE-OTHER> 38,709
<INCOME-PRETAX> 19,144
<INCOME-PRE-EXTRAORDINARY> 11,686
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,686
<EPS-BASIC> 5.75
<EPS-DILUTED> 4.93
<YIELD-ACTUAL> 0.00
<LOANS-NON> 4,036
<LOANS-PAST> 721
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,703
<CHARGE-OFFS> 4,570
<RECOVERIES> 1,065
<ALLOWANCE-CLOSE> 23,508
<ALLOWANCE-DOMESTIC> 23,508
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
