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
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 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 _____
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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
--------------- -----
(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, 1999, there were 2,040,077 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 1999 1998
- --------------------------------------------------------------------------------
Cash and cash equivalents:
Cash and due from banks $ 116,896 $ 132,056
Federal funds sold and securities purchased
under agreements to resell 51,615 68,550
- -------------------------------------------------------------------------------
Total cash and cash equivalents 168,511 200,606
- -------------------------------------------------------------------------------
Investment securities:
Held-to-maturity (market value, $88,567 for 1999
and $178,305 for 1998) 88,311 176,305
Available-for-sale, at market 361,622 208,752
Equity, at cost 2,783 2,763
- -------------------------------------------------------------------------------
Total investment securities 452,716 387,820
- -------------------------------------------------------------------------------
Loans held-for-sale 31,211 34,834
Loans, net of allowance for loan losses of
$24,781 in 1999 and $21,703 in 1998 1,536,509 1,393,075
Land, buildings and equipment, net 37,558 29,509
Other assets 102,630 69,621
- -------------------------------------------------------------------------------
Total assets $2,329,135 $2,115,465
- -------------------------------------------------------========================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------
Deposits $1,825,097 $1,647,354
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 221,620 241,955
Other 8,704 2,260
- -------------------------------------------------------------------------------
Total short-term borrowings 230,324 244,215
- -------------------------------------------------------------------------------
Accounts payable and accrued liabilities 52,186 13,207
Notes payable 12,500 12,500
Convertible capital notes 10,354 11,078
Guaranteed preferred beneficial interests in the
Company's subordinated debentures 57,500 57,500
- -------------------------------------------------------------------------------
Total liabilities 2,187,961 1,985,854
- -------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,439,877 shares issued in 1999
and 2,418,573 issued in 1998 12,199 12,093
Capital surplus 13,011 12,464
Retained earnings 152,885 139,078
Treasury stock, at cost (400,249 shares in 1999
and 391,824 shares in 1998) (35,740) (34,626)
Unrealized securities gains (losses), net of tax (1,181) 602
- -------------------------------------------------------------------------------
Total stockholders' equity 141,174 129,611
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,329,135 $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 Nine Months
Ended September 30, Ended September 30,
----------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Interest income:
Loans $33,324 $30,322 $ 96,146 $ 88,917
Investment securities 5,042 5,426 15,593 15,729
Federal funds sold and securities
purchased under agreements to
resell, and other 354 1,587 1,305 5,104
- --------------------------------------------------------------------------------
Total interest income 38,720 37,335 113,044 109,750
- --------------------------------------------------------------------------------
Interest expense:
Deposits 13,237 13,232 38,636 38,690
Federal funds purchased and
securities sold under agreement
to repurchase 2,823 2,742 8,078 7,927
Convertible capital notes 238 249 721 753
Subordinated debentures 1,185 1,184 3,554 3,290
Other borrowings 313 388 893 1,174
- --------------------------------------------------------------------------------
Total interest expense 17,796 17,795 51,882 51,834
- --------------------------------------------------------------------------------
Net interest income 20,924 19,540 61,162 57,916
Provision for loan losses 3,030 2,760 8,340 8,710
- --------------------------------------------------------------------------------
Net interest income after
provision for loan losses 17,894 16,780 52,822 49,206
- --------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 3,191 2,916 8,973 8,114
Wealth management fees 3,387 2,786 9,951 7,928
Credit card fees 2,408 2,351 6,773 6,769
Securities gains 0 0 541 126
Other service charges, fees and income 3,041 2,649 8,714 9,229
- --------------------------------------------------------------------------------
Total noninterest income 12,027 10,702 34,952 32,166
- --------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 10,275 9,467 30,240 28,016
Net occupancy and equipment expense 2,855 2,236 7,789 6,528
Advertising and promotional activities 757 1,269 2,518 3,269
Data processing expense 1,172 996 3,348 2,864
Supplies 764 612 1,877 1,821
Postage and dispatch 575 521 1,611 1,572
Goodwill amortization 487 404 1,293 1,214
Deposit insurance assessment 70 63 197 185
Other 3,531 3,606 10,322 10,898
- --------------------------------------------------------------------------------
Total noninterest expenses 20,486 19,174 59,195 56,367
- --------------------------------------------------------------------------------
Income before provision for
income taxes 9,435 8,308 28,579 25,005
Provision for income taxes 3,655 3,002 11,113 9,880
- --------------------------------------------------------------------------------
Net income 5,780 5,306 17,466 15,125
Other comprehensive income (loss) (271) 1,102 (1,783) 830
- --------------------------------------------------------------------------------
Comprehensive income $ 5,509 $ 6,408 $ 15,683 $ 15,955
- -----------------------------------------=======================================
Per share data:
Basic earnings per share $2.84 $2.47 $8.59 $7.00
- -----------------------------------------=======================================
Diluted earnings per share $2.44 $2.14 $7.37 $6.08
- -----------------------------------------=======================================
Cash Dividends $0.60 $0.50 $1.80 $1.50
- -----------------------------------------=======================================
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,
--------------------
1999 1998
- --------------------------------------------------------------------------------
Cash provided (absorbed) by operating activities:
Net Income $ 17,466 $ 15,125
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 8,340 8,710
Provision for depreciation and amortization 5,630 5,132
Amortization of premium and accretion of discount on
investment securities (47) (761)
Gain on sale of investment securities (541) (126)
Loss on retirement of convertible capital notes 240 0
Changes in assets and liabilities:
Loans held for sale 3,622 (14,111)
Prepaid expenses and other assets (14,004) (8,992)
Income taxes 2,902 9,654
Interest receivable (2,311) (2,553)
Interest payable 8,064 6,028
Other liabilities 13,441 (127)
Other 30 (28)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 42,832 17,951
- --------------------------------------------------------------------------------
Cash provided (absorbed) by investing activities:
Purchase of investment securities (214,355) (194,449)
Investment securities matured or called 146,502 130,653
Proceeds from sale of investment securities 592 161
Net increase in loans (150,001) (61,782)
Purchases of land, buildings and equipment (5,583) (4,449)
Proceeds from sale of equipment 59 177
Proceeds from sale of other real estate and repossessions 995 2,316
Other (1,005) (2,732)
- --------------------------------------------------------------------------------
Net cash absorbed by investing activities (222,796) (130,105)
- --------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Proceeds from assumption of liabilities
and acquisition of assets of bank branches, net of
premium paid and cash acquired 219,217 0
Net decrease in deposits (52,373) (30,709)
Net increase (decrease) in short-term borrowings (13,891) 35,167
Payments on notes payable 0 (8,000)
Retirement of convertible capital notes (311) (36)
Proceeds from subordinated debentures 0 57,500
Cash dividends (3,659) (3,246)
Purchase of treasury stock (1,114) (3,394)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 147,869 47,282
- --------------------------------------------------------------------------------
Decrease in cash and cash equivalents (32,095) (64,872)
Cash and cash equivalents at beginning of period 200,606 261,109
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $168,511 $196,237
- ------------------------------------------------------------====================
Supplemental disclosures
Interest paid $43,819 $45,806
Income tax paid $ 8,189 $ 226
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 nine months
ended September 30, 1999 and 1998 (in thousands):
1999 1998
-----------------------------------------------------------------------------
Balance, January 1 $21,703 $17,932
Additions:
Allowance acquired 310 0
Provision for loan losses 8,340 8,710
-----------------------------------------------------------------------------
30,353 26,642
Deductions:
Loans charged off 7,183 6,044
Less recoveries on loans
previously charged off 1,611 1,454
-----------------------------------------------------------------------------
Net loan losses 5,572 4,590
-----------------------------------------------------------------------------
Balance, September 30 $24,781 $22,052
-----------------------------------------------------------==================
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 $672,000 at September 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:
Nine Months Ended
September 30
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Net income for basic earnings per share $17,466 $15,125
Interest expense on convertible debt, net of taxes 447 489
- --------------------------------------------------------------------------------
Net income for diluted earnings per share $17,913 $15,614
- -------------------------------------------------------------===================
Weighted average shares for basic earnings per share 2,033,242 2,160,866
Shares issuable upon exercise of stock options 39,911 34,534
Shares issuable upon conversion of capital notes 356,992 372,250
- --------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 2,430,145 2,567,650
- -----------------------------------------------------------=====================
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 the measurement of profit or
loss since the last annual report.
There has been no material change in total segment assets or in the basis of
segmentation since the last annual report. However, as a result of changes made
in the Company's management reporting structure, the Kansas bank offices located
in communities outside of the Wichita, Kansas metropolitan area, that were
previously reported within the community banking segment, are now reported
within the consumer and commercial banking segments. Reporting for the Oklahoma
bank offices remains in the community banking segment. The following segment
information has been restated, for all periods presented, to reflect this
change. Also, because of the above change, total assets in the consumer banking
segment increased approximately $124 million , commercial banking segment assets
increased $95 million while community banking segment assets decreased by
corresponding amounts when compared to totals reported in the last annual
report.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------------------------------------------------------------------------------
Revenues from external customers
Consumer banking $22,320 $19,765 $66,512 $59,042
Commercial banking 8,939 7,603 25,326 23,649
Wealth management 4,139 3,238 11,977 9,442
Community banking 1,586 1,577 4,775 4,414
Intercompany revenues
Consumer banking $(2,442) $(1,363) $(7,360) $(2,729)
Commercial banking 0 7 0 20
Wealth management 104 156 317 257
Community banking 274 229 566 906
Segment profit
Consumer banking $ 4,681 $ 4,496 $15,709 $14,032
Commercial banking 5,025 3,650 13,894 13,201
Wealth management 932 267 2,777 491
Community banking 647 642 1,730 1,953
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Profit from segments 11,285 9,055 34,110 29,677
Expenses at corporate level
not allocated to segments (1,850) (746) (5,531) (4,672)
-------------------------------------------------------------------------------
Consolidated income before tax $ 9,435 $ 8,309 $28,579 $25,005
---------------------------------------========================================
5. Liabilities Assumed and Assets Acquired
On September 24, 1999, INTRUST Bank, N.A., a wholly-owned subsidiary of INTRUST
Financial Corporation, assumed certain liabilities and acquired certain assets
related to twenty bank branch offices from U.S. Bank National Association. U.S.
Bank National Association is not affiliated with the registrant. Cash
consideration of $216 million was paid to INTRUST Bank, N.A. Liabilities
assumed, totaling $247 million, consisted primarily of banking customer deposits
of $244 million. Assets acquired, totaling $31 million, consisted of cash, $3.5
million, deposit related loans, $3.2 million, banking facilities, $7.7 million
and goodwill $16.5 million.
The transaction was accounted for as a purchase.
<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 September 30, 1999 totaled $5,780,000, decreasing $206,000 from
second quarter levels. Third quarter earnings were impacted by costs incurred in
connection with the acquisition of the Kansas branches of U.S. Bank, N.A. Also,
as discussed in previous filings, the Company recorded a non-recurring gain of
$378,000 from the sale of investment securities in the second quarter.
The positive trend in year-over-year earnings continued in the quarter ended
September 30. 1999 third quarter net income increased 8.9% over comparable 1998
amounts, while earnings per share (on a diluted basis) increased 14%. The
Company's net interest income in the third quarter increased modestly over
second quarter levels, and non-interest income (excluding the non-recurring gain
recorded in the second quarter) grew 5%. Third quarter charge-offs declined
slightly from comparable second quarter amounts, and loans considered risk
elements ended the quarter at $4,424,000, declining 7% from second quarter
amounts.
NET INTEREST INCOME. Net interest income increased $340,000, or 1.65%, over
second quarter levels, as average interest-earning assets increased
approximately 1% this quarter and interest spreads were little changed. Loan
growth slowed this quarter. After an increase of $90 million in the second
quarter, average loans (including loans held-for-sale) grew approximately $20
million in the third quarter. During the third quarter, the Company revised the
pricing on its indirect lending business slightly upward. This resulted in a
slower rate of growth in this lending classification this quarter. After
increasing $22 million in the second quarter, installment loans grew $5.8
million in the third quarter.
Yields on average interest-earning assets increased eleven basis points in the
quarter ended September 30, 1999. The Company experienced no significant change
in the composition of its interest-earning assets in the third quarter. As noted
in previous filings, the Company operates in very competitive markets and does
not believe it will be able to significantly increase the percentage of
interest-earning assets deployed in loans. Average loans comprised 80% of
average interest-earning assets in both the second and third quarters. The
increase in yields recorded by the Company was due mainly to the two increases
by the Federal Reserve in the targeted federal funds rate and the pricing
revisions discussed above.
After declining modestly in the first two quarters of 1999, funding costs rose
eleven basis points in the third quarter. The cost of interest-bearing
liabilities in the third quarter of 1999 was 4.35%, compared to 4.71% during the
same period of 1998. The deposits acquired by the Company from U.S. Bank, N.A.
carry funding costs that are approximately 30 basis points higher than the
Company's comparable cost of funds. The Company believes that its overall cost
of funds will increase by approximately five basis points as a result of the
acquisition of these deposits. Noninterest-bearing demand deposits comprised
19.8% of total deposits at September 30, 1999, compared to 20.5% of total
deposits at June 30, 1999. This decline is attributable to the deposits acquired
from U.S. Bank. Only 7% of the U.S. Bank, N.A. deposits that were acquired were
noninterest-bearing. Approximately two-thirds of the acquired deposit base
consisted of interest-bearing time deposits.
The Company believes its principal markets will continue to remain quite
competitive. As a result, the Company anticipates further compression in its
interest margin
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of
$3,030,000 in the third quarter, equal to the amount recorded in the second
quarter of the year. Charge-offs in the third quarter totaled $2,613,000, a
decline of $89,000 from comparable second quarter amounts. There was a slight
increase in recoveries this month, as current quarter amounts were $546,000,
compared to $462,000 last quarter. There were no significant changes in the
composition of the charge-offs recorded by the Company for the quarter ended
September 30. Nonaccrual and past due loans declined again this quarter. These
loans comprised .28% of total loans at September 30, 1999. Comparable
percentages at June 30, 1999 and September 30, 1998 were .31% and .52%,
respectively.
The Company's allowance for loan losses at September 30, 1999 was equal to 1.59%
of total loans and 560% of loans considered risk elements. Comparable amounts at
June 30, 1999 and December 31, 1998 were 1.51% and 494%, 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 third
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 experienced to date, 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
- --------------------------------------------------------------------------------
September 30,
1999 1998
- --------------------------------------------------------------------------------
Amount of loans at period-end $1,561,290 $1,317,902
- ---------------------------------------------------=============================
YTD Average loans outstanding $1,499,967 $1,283,024
- ---------------------------------------------------=============================
Beginning balance of allowance for loan losses $21,703 $17,932
Allowance acquired related to loans purchased 310 0
Loans charged-off
Commercial, Financial and Agricultural 2,562 877
Real Estate-Mortgage 14 0
Credit Card 3,343 3,713
Installment 1,264 1,454
- --------------------------------------------------------------------------------
Total loans charged off 7,183 6,044
- --------------------------------------------------------------------------------
Recoveries on charge-offs
Commercial, Financial and Agricultural 418 413
Real Estate-Mortgage 19 11
Credit Card 784 756
Installment 390 274
- --------------------------------------------------------------------------------
Total recoveries 1,611 1,454
- --------------------------------------------------------------------------------
Net loans charged off 5,572 4,590
Provision charged to expense 8,340 8,710
- --------------------------------------------------------------------------------
Ending balance of allowance for loan losses $24,781 $22,052
- ---------------------------------------------------=============================
Net charge-offs/average loans 0.37% 0.36%
- ---------------------------------------------------=============================
Allowance for loan losses/loans at period-end 1.59% 1.67%
- ---------------------------------------------------=============================
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, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Percent Percent
Amount Of Total Amount of Total
- --------------------------------------------------------------------------------
Commercial, Financial
and Agricultural $ 731,691 46.9% $ 707,326 50.0%
Real Estate-Construction 58,113 3.7 38,137 2.7
Real Estate-Mortgage 310,240 19.9 250,282 17.7
Installment, excluding credit card 341,732 21.9 299,884 21.2
Credit card 119,514 7.6 119,149 8.4
- --------------------------------------------------------------------------------
Subtotal 1,561,290 100.0% 1,414,778 100.0%
Allowance for loan losses (24,781) (21,703)
- --------------------------------------------------------------------------------
Total $1,536,509 $1,393,075
- -------------------------------------===========================================
As noted above, loans considered risk elements, as presented in the following
table, totaled .28% 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.
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
Loan Categories
Nonaccrual Loans $3,590 $5,027
Past Due 90 days or more 834 1,090
- --------------------------------------------------------------------------------
Total $4,424 $6,117
- --------------------------------------------------==============================
LIQUIDITY AND CAPITAL RESOURCES. The Company considered its liquidity level
adequate at September 30, 1999. The acquisition of approximately $244 million in
deposits on September 24, 1999 from U.S. Bank, N.A. resulted in an increase in
liquidity levels. These additional deposits resulted in a decline in the
Company's loan/deposit ratio at September 30, 1999. That ratio at quarter-end
was 85.5%, compared to 96.0% at June 30, 1999 and 85.9% at December 31, 1998.
The Company continues to have available to it $145 million in Federal Funds
lines with other financial institutions.
Approximately 74% of the Company's investment portfolio is comprised of United
States government and agency securities, with mortgage-backed securities
representing another 22% of the portfolio. The Company maintains a short
weighted average maturity in this portion of its investment portfolio. At
September 30, 1999, the average maturity of United States government and agency
securities and mortgage-backed securities was 1 year and 7 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 September 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 has experienced in its loan portfolio, it has
continued 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 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 September 30, 1999, the Company's total capital to risk-weighted assets ratio
was 10.1% and its Tier 1 capital to risk-weighted assets ratio was 8.3%.
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 was
$12,027,000, increasing approximately $198,000 over comparable second quarter
amounts, and 12.4% over third quarter, 1998 amounts. The Company recorded
year-over-year gains in all areas of noninterest income.
Wealth management fee income increased slightly in the third quarter. Assets
under management did not change appreciably from second quarter levels, as new
business volume was substantially offset by volatility in the equity markets.
When viewed on a year-over-year basis, wealth management fee revenue increased
21.6% during the quarter. Assets under management in the third quarter of 1999
averaged approximately $2.8 billion, compared to $2.1 billion during the same
period of 1998.
Service charges on deposit accounts increased 5.2% over second quarter amounts
and were 9.4% greater than comparable 1998 amounts. 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. With the acquisition of the deposit accounts from U.S.
Bank N.A., the Company anticipates an increase in service charge revenue during
the fourth quarter.
Credit card fee income in the third quarter increased 10.6% from second quarter
levels. In 1998, third quarter credit card fee income was 13.7% higher than
second quarter amounts. Third quarter fee income typically reflects volume
increases associated with seasonal back-to-school shopping. The year-over-year
change in credit card fee income in the third quarter was $57,000, or 2.4%.
Increases in credit card fees this year have been offset by an $800,000 increase
in affinity group costs.
Other service charges, fees and income increased $117,000 over second quarter
levels and $392,000 over third quarter, 1998 amounts. There were no individually
significant line items responsible for the quarterly change in 1999. Rather, the
Company recorded gains during the quarter in data processing fees, loan fees and
commission income. The majority of the year-over-year change was the result of
the increased volume of ATM transactions as the Company expanded its ATM
delivery system into a market leading convenience store system in the second
half of 1998, along with increased commission revenue generated through the sale
of non-traditional financial products.
After recording a year-over-year increase of 5.5% in noninterest expense in the
second quarter, third quarter noninterest expense increased 6.8% over comparable
1998 amounts. Salaries and employee benefit costs for the quarter increased 8.5%
over comparable prior year amounts. The Company employed approximately 3% more
people in the third quarter of 1999 than it did during the comparable period of
1998. In addition, the acquisition of the Kansas branches of U.S. Bank, N.A.,
resulted in the Company adding 80 employees and incurring compensation costs for
approximately one week for these people in the third quarter. The Company also
modified certain provisions of its employee benefit plans, which, when combined
with the larger employee base, has resulted in year-to-date costs that are
approximately $200,000 higher than 1998 amounts.
Net occupancy and equipment costs have continued to increase. Third quarter
amounts were 27.7% higher than comparable 1998 amounts and 12.3% higher than
second quarter levels. Fixed asset additions in 1998 were substantially higher
than those made in the preceding two years, which has generated additional
depreciation expense in 1999. During the first half of the current year, fixed
asset additions were 83% higher than comparable 1998 amounts, again resulting in
increased depreciation expense. Additions during the third quarter of 1999 did
decline 14% from comparable 1998 levels, but the Company does anticipate that
depreciation costs in the fourth quarter will exceed comparable 1998 amounts.
Advertising and promotional costs continue to run below 1998 levels. However,
the Company does anticipate that these costs will increase in the fourth quarter
as advertising campaigns take place in the new markets the Company entered with
the acquisition of the Kansas branches of U.S. Bank, N.A. Quarterly data
processing expense increased 17.7% 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. The increase in supplies and postage and dispatch costs is due
to the branches acquired from U.S. Bank, N.A. It was necessary to supply these
locations with Company forms and materials, and the Company incurred additional
postage expense as it undertook mailings to its new customers. The
year-over-year change in goodwill amortization is attributable to the goodwill
arising from the U.S. Bank, N.A. acquisition.
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. 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) The Company filed a report on Form 8-K, on August 13, 1999,
reporting a change in registrant's certifying accountant.
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, 1999 By: /s/ C.Q. Chandler IV
--------------------
C.Q. Chandler IV
President
(Principal Executive Officer)
Date: November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 116,896
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 51,615
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 361,622
<INVESTMENTS-CARRYING> 91,094
<INVESTMENTS-MARKET> 91,350
<LOANS> 1,592,501
<ALLOWANCE> 24,781
<TOTAL-ASSETS> 2,329,135
<DEPOSITS> 1,825,097
<SHORT-TERM> 230,324
<LIABILITIES-OTHER> 52,186
<LONG-TERM> 80,354
0
0
<COMMON> 12,199
<OTHER-SE> 128,975
<TOTAL-LIABILITIES-AND-EQUITY> 2,329,135
<INTEREST-LOAN> 96,146
<INTEREST-INVEST> 15,593
<INTEREST-OTHER> 1,305
<INTEREST-TOTAL> 113,044
<INTEREST-DEPOSIT> 38,636
<INTEREST-EXPENSE> 51,882
<INTEREST-INCOME-NET> 61,162
<LOAN-LOSSES> 8,340
<SECURITIES-GAINS> 541
<EXPENSE-OTHER> 59,195
<INCOME-PRETAX> 28,579
<INCOME-PRE-EXTRAORDINARY> 17,466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,466
<EPS-BASIC> 8.59
<EPS-DILUTED> 7.37
<YIELD-ACTUAL> 0.00
<LOANS-NON> 3,590
<LOANS-PAST> 834
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,703
<CHARGE-OFFS> 7,183
<RECOVERIES> 1,611
<ALLOWANCE-CLOSE> 24,781
<ALLOWANCE-DOMESTIC> 24,781
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
