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, 2000
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
------ ----------
(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 20, 2000, there were 2,353,904 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 2000 1999
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Cash and cash equivalents:
Cash and due from banks $ 109,900 $ 109,548
Federal funds sold and securities purchased
under agreements to resell 40,325 46,240
--------------------------------------------------------------------------------
Total cash and cash equivalents 150,225 155,788
--------------------------------------------------------------------------------
Investment securities:
Held-to-maturity at cost (market value, $40,881
for 2000 and $65,957 for 1999) 40,523 65,849
Available-for-sale, at market 394,683 361,503
--------------------------------------------------------------------------------
Total investment securities 435,206 427,352
--------------------------------------------------------------------------------
Loans held-for-sale 2,073 32,444
Loans, net of allowance for loan losses of
$28,271 in 2000 and $26,010 in 1999 1,658,078 1,596,194
Land, buildings and equipment, net 41,145 38,656
Other assets 79,846 88,019
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Total assets $2,366,573 $2,338,453
------------------------------------------------------==========================
Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------
Deposits $1,816,647 $1,818,476
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 279,687 270,316
Other 10,919 10,392
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Total short-term borrowings 290,606 280,708
--------------------------------------------------------------------------------
Accounts payable and accrued liabilities 25,334 17,886
Notes payable 13,000 10,000
Guaranteed preferred beneficial interests in the
Company's subordinated debentures 57,500 57,500
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Total liabilities 2,203,087 2,184,570
--------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $5 par value; 10,000,000 shares
authorized, 2,783,650 shares issued 13,918 13,918
Capital surplus 21,672 21,673
Retained earnings 169,779 156,653
Treasury stock, at cost (429,561 shares in
2000 and 391,498 shares in 1999) (40,917) (35,965)
Accumulated other comprehensive loss (966) (2,396)
--------------------------------------------------------------------------------
Total stockholders' equity 163,486 153,883
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,366,573 $2,338,453
------------------------------------------------------==========================
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,
----------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------
Interest income:
Loans $39,229 $33,324 $114,240 $ 96,146
Investment securities 6,815 5,042 20,007 15,593
Federal funds sold and securities
purchased under agreements to
resell, and other 648 354 1,901 1,305
--------------------------------------------------------------------------------
Total interest income 46,692 38,720 136,148 113,044
--------------------------------------------------------------------------------
Interest expense:
Deposits 16,696 13,237 47,799 38,636
Federal funds purchased and
securities sold under agreement
to repurchase 4,171 2,823 12,220 8,078
Convertible capital notes 0 238 0 721
Subordinated debentures 1,184 1,185 3,553 3,554
Other borrowings 821 313 1,721 893
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Total interest expense 22,872 17,796 65,293 51,882
--------------------------------------------------------------------------------
Net interest income 23,820 20,924 70,855 61,162
Provision for loan losses 2,655 3,030 7,965 8,340
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Net interest income after
provision for loan losses 21,165 17,894 62,890 52,822
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Noninterest income:
Service charges on deposit accounts 3,511 3,191 10,183 8,973
Fiduciary income 3,146 3,387 9,383 9,951
Credit card fees 2,763 2,408 7,799 6,773
Securities gains 0 0 0 541
Other service charges, fees and income 2,972 3,041 9,349 8,714
--------------------------------------------------------------------------------
Total noninterest income 12,392 12,027 36,714 34,952
--------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 11,444 10,275 34,639 30,240
Professional services 1,052 1,041 4,036 2,740
Net occupancy and equipment expense 3,030 2,855 8,764 7,789
Advertising and promotional activities 986 757 3,903 2,518
Data processing expense 1,483 1,172 4,158 3,348
Supplies 651 764 1,986 1,877
Postage and dispatch 594 575 1,886 1,611
Goodwill amortization 635 487 1,942 1,293
Deposit insurance assessment 86 70 283 197
Other 2,166 2,490 7,295 7,582
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Total noninterest expenses 22,127 20,486 68,892 59,195
--------------------------------------------------------------------------------
Income before provision for
income taxes 11,430 9,435 30,712 28,579
Provision for income taxes 4,470 3,655 12,227 11,113
--------------------------------------------------------------------------------
Net income 6,960 5,780 18,485 17,466
Other comprehensive income (loss) 1,189 (271) 1,430 (1,783)
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Comprehensive income $ 8,149 $ 5,509 $ 19,915 $ 15,683
-------------------------------------------=====================================
Per share data:
Basic earnings per share $2.94 $2.84 $7.78 $8.59
-------------------------------------------=====================================
Diluted earnings per share $2.91 $2.44 $7.69 $7.37
-------------------------------------------=====================================
Cash Dividends $0.75 $0.60 $2.25 $1.80
-------------------------------------------=====================================
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
-----------------------
2000 1999
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Cash provided (absorbed) by operating activities:
Net Income $ 18,485 $ 17,466
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 7,965 8,340
Provision for depreciation and amortization 6,779 5,630
Amortization of premium and accretion of discount
on investment securities (886) (47)
Gain on sale of investment securities 0 (541)
Loss on retirement of convertible capital notes 0 240
Changes in assets and liabilities:
Loans held for sale (1,974) 3,622
Prepaid expenses and other assets 608 (14,004)
Income taxes 9,200 2,902
Interest receivable (3,749) (2,311)
Interest payable 5,523 8,064
Other liabilities 773 13,441
Other (162) 30
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Net cash provided by operating activities 42,562 42,832
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Cash provided (absorbed) by investing activities:
Purchase of investment securities (196,909) (214,355)
Investment securities matured or called 192,325 146,502
Proceeds from sale of investment securities 0 592
Net increase in loans (38,781) (150,001)
Purchases of land, buildings and equipment (8,139) (5,583)
Proceeds from sale of equipment 1,686 59
Proceeds from sale of other real estate
and repossessions 1,462 995
Other (526) (1,005)
--------------------------------------------------------------------------------
Net cash absorbed by investing activities (48,882) (222,796)
--------------------------------------------------------------------------------
Cash provided (absorbed) by financing activities:
Proceeds from assumption of liabilities and
acquisition of assets of bank branches, net 0 219,217
Net decrease in deposits (1,829) (52,373)
Net increase (decrease) in short-term borrowings 9,898 (13,891)
Proceeds from notes payable 3,000 0
Retirement of convertible capital notes (1) (311)
Cash dividends (5,359) (3,659)
Purchase of treasury stock (4,952) (1,114)
--------------------------------------------------------------------------------
Net cash provided by financing activities 757 147,869
--------------------------------------------------------------------------------
Decrease in cash and cash equivalents (5,563) (32,095)
Cash and cash equivalents at beginning of period 155,788 200,606
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period $150,225 $168,511
-----------------------------------------------------------=====================
Supplemental disclosures
Interest paid $59,770 $43,819
Income tax paid $ 3,007 $ 8,189
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 1999 INTRUST
Financial Corporation Annual Report on Form 10-K. Reference is made to the
"Notes to Consolidated Financial Statements" under Item 8 of the 1999 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, 2000 and 1999 (in thousands):
2000 1999
-----------------------------------------------------------------------------
Balance, January 1 $26,010 $21,703
Additions:
Allowance acquired 0 310
Provision for loan losses 7,965 8,340
-----------------------------------------------------------------------------
33,975 30,353
Deductions:
Loans charged off 7,299 7,183
Less recoveries on loans
previously charged off 1,595 1,611
-----------------------------------------------------------------------------
Net loan losses 5,704 5,572
-----------------------------------------------------------------------------
Balance, September 30 $28,271 $24,781
---------------------------------------------------------====================
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 related to loans considered impaired of
$409,000 and $672,000 at September 30, 2000 and 1999 respectively. 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, for 1999, assumes that the 9% convertible
subordinated capital notes had been converted into common stock as of the
beginning of the period 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
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Net income for basic earnings per share $18,485 $17,466
Interest expense on convertible debt, net of taxes 0 447
--------------------------------------------------------------------------------
Net income for diluted earnings per share $18,485 $17,913
------------------------------------------------------------====================
Weighted average shares for basic earnings per share 2,376,295 2,033,242
Shares issuable upon exercise of stock options 27,551 39,911
Shares issuable upon conversion of capital notes 0 356,992
--------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 2,403,846 2,430,145
----------------------------------------------------------======================
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------
Revenues from external customers
Consumer banking $21,468 $22,320 $64,828 $66,512
Commercial banking 9,766 8,939 29,447 25,326
Wealth management 3,861 4,139 11,892 11,977
Community banking 1,733 1,586 4,900 4,775
Intercompany revenues
Consumer banking $ (18) $(2,442) $ (158) $(7,360)
Commercial banking 0 0 0 0
Wealth management 119 104 349 317
Community banking 170 274 615 566
Segment profit
Consumer banking $ 5,593 $ 4,681 $16,902 $15,709
Commercial banking 5,304 5,025 15,532 13,894
Wealth management 882 932 2,566 2,777
Community banking 722 647 1,891 1,730
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Profit from segments before tax 12,501 11,285 36,891 34,110
Expenses at corporate level not
allocated to segments (1,071) (1,850) (6,179) (5,531)
-------------------------------------------------------------------------------
Consolidated income before tax $11,430 $ 9,435 $30,712 $28,579
-----------------------------------------======================================
<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, 2000 totaled $6,960,000, declining $35,000 from
second quarter levels. As noted previously, the Company received an $850,000
reimbursement during the second quarter from an insurance carrier pertaining to
a litigation issue that was settled in the first quarter. This non-recurring
item had the effect of increasing second quarter net income by slightly more
than $500,000. Excluding this reimbursement, third quarter earnings would have
been approximately 7.3% higher than comparable second quarter amounts.
Year-to-date net income of the Company totaled $18,485,000, an increase of 5.8%
over 1999 amounts. Year-to-date results excluding the previously discussed
litigation settlement and subsequent reimbursement would be approximately 9.4%
above comparable 1999 amounts.
NET INTEREST INCOME. Current year net interest income continues to exceed
comparable 1999 amounts. Third quarter net interest income was $23,820,000
increasing 13.8% over 1999 third quarter amounts. However, third quarter net
interest income amounts were $262,000 less than comparable second quarter
amounts. The reduction in net interest income was a function of both declines in
average interest-earning assets and compression in the Company's interest
spread.
As noted in its second quarter filing, the Company's loan growth moderated in
the second quarter. During the third quarter, the Company recorded a decline in
average loans. The Company ended the third quarter with period-end loans of
$1,686,349,000, a decline of $31 million from the beginning of the quarter.
While the Company typically records a lesser amount of loan growth during the
third quarter due to seasonal factors, other factors also impacted the Company's
third quarter loan outstandings this year. The Company recorded a decline of
approximately $13 million in its commercial portfolio in the third quarter, as a
sizeable customer of one of the Company's subsidiary banks moved its business,
and many of the Company's customers indicated a somewhat more cautious approach
to business expansion. The Company has continued to reduce its automobile loan
origination activity, resulting in a decline of $19.3 million in its installment
loan (excluding credit card) portfolio. As a result of the reduction in the loan
portfolio, the Company's average interest-earning assets declined $18.6 million
from second quarter levels. With loans comprising a lesser percentage of
interest-earning assets, the Company also recorded a five basis point decline in
its interest spread.
Yields on average interest-earning assets increased twenty points during the
quarter ended September 30, 2000. The fifty basis point increase by the Federal
Reserve in mid-May impacted credit card yields in the third quarter, as loans
written with quarterly adjustments repriced upward. In addition, installment
loans originated by the Company in the third quarter carried higher interest
rates than those that paid-off during the same period. Offsetting these
increases to a modest degree, was the fact that loans comprised a lesser
percentage of interest-earning assets in the third quarter. Loans comprised 78%
of average interest-earning assets in the third quarter, compared to 78.4% in
the second quarter.
Funding costs also rose during the quarter. The cost of interest-bearing
liabilities was twenty-five basis points higher than the comparable second
quarter amount. The Company anticipates that it will continue to see pressure
with respect to funding costs for the remainder of the year, as its principal
markets remain quite competitive with respect to the acquisition of deposits.
Average interest-bearing liabilities declined approximately $21 million in the
third quarter. However, the reduction in loan volume was greater than the
decline recorded in deposits, so the Company was able to reduce its level of
Federal Home Loan Bank borrowings.
As a result of the competitive market for funds, the Company anticipates
compression in its interest margin throughout the remainder of the year.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of
$2,655,000 in the third quarter, equal to the amount recorded in the preceding
quarter and $375,000 less than the amount recorded in the third quarter of 1999.
Charge-offs in the third quarter increased $296,000 from second quarter amounts.
Year-to-date charge-offs this year total $7,299,000, increasing nominally from
comparable prior year amounts. The quarter-over-quarter change in charge-offs is
due principally to a charge-off recorded in the third quarter on an agricultural
credit. Nonaccrual and past due loans increased $1,651,000 this quarter. These
loans comprised .39% of total loans at September 30, 2000 increasing eleven
basis points from prior quarter amounts. There was no particular industry or
segment of the loan portfolio that accounted for the increase in nonaccrual and
past due loans. The credits that were downgraded this quarter were in different
geographic markets and in different industries.
The Company's allowance for loan losses at September 30, 2000 was equal to 1.68%
of total loans and 433% of loans considered risk elements. Comparable amounts at
June 30, 2000 and December 31, 1999 were 1.62% and 570%, and 1.60% and 624%,
respectively. All segments of the loan portfolio are generally performing as had
been expected. As noted above, the majority of the commercial lending segment
charge-offs arose from the charge-off of one credit in the agricultural segment
of the portfolio, and loans placed on nonaccrual status have come from different
geographical areas and various industries. 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 fourth quarter remain consistent with that
experienced to date, it is expected that the 2000 provision for loan losses will
be approximately equal to the amount recorded in 1999.
Summary of Loan Loss Experience (in thousands of dollars)
--------------------------------------------------------------------------------
September 30,
2000 1999
--------------------------------------------------------------------------------
Amount of loans at period-end $1,686,349 $1,561,290
------------------------------------------------------==========================
YTD Average loans outstanding $1,700,782 $1,499,967
------------------------------------------------------==========================
Beginning balance of allowance for loan losses $26,010 $21,703
Allowance acquired related to loans purchased 0 310
Loans charged-off
Commercial, Financial and Agricultural 2,531 2,562
Real Estate-Construction 40 0
Real Estate-Mortgage 0 14
Credit Card 3,450 3,343
Installment 1,278 1,264
--------------------------------------------------------------------------------
Total loans charged off 7,299 7,183
--------------------------------------------------------------------------------
Recoveries on charge-offs
Commercial, Financial and Agricultural 419 418
Real Estate-Mortgage 21 19
Credit Card 838 784
Installment 317 390
--------------------------------------------------------------------------------
Total recoveries 1,595 1,611
--------------------------------------------------------------------------------
Net loans charged off 5,704 5,572
Provision charged to expense 7,965 8,340
--------------------------------------------------------------------------------
Ending balance of allowance for loan losses $28,271 $24,781
------------------------------------------------------==========================
Net charge-offs/average loans 0.34% 0.37%
------------------------------------------------------==========================
Allowance for loan losses/loans at period-end 1.68% 1.59%
------------------------------------------------------==========================
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 (in thousands of dollars).
September 30, 2000 December 31, 1999
--------------------------------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
--------------------------------------------------------------------------------
Commercial, Financial and Agricultural $ 759,693 45.0% $ 775,027 47.8%
Real Estate-Construction 63,739 3.8 63,112 3.9
Real Estate-Mortgage 452,082 26.8 326,174 20.1
Installment, excluding credit card 284,803 16.9 330,732 20.4
Credit card 126,032 7.5 127,159 7.8
--------------------------------------------------------------------------------
Subtotal 1,686,349 100.0% 1,622,204 100.0%
Allowance for loan losses (28,271) (26,010)
--------------------------------------------------------------------------------
Total $1,658,078 $1,596,194
------------------------------------------======================================
As noted above, loans considered risk elements increased slightly this quarter.
These loans comprised .39% of total loans, compared to .28% of total loans at
June 30, 2000 and .26% of total loans at December 31, 1999. Management is not
aware of issues that would significantly impact the credit quality of the loan
portfolio in 2000. Management believes the allowance for loan losses to be
adequate at this time.
September 30, December 31,
(in thousands of dollars) 2000 1999
--------------------------------------------------------------------------------
Loan Categories
Nonaccrual Loans $4,634 $3,063
Past Due 90 days or more 1,890 1,105
--------------------------------------------------------------------------------
Total $6,524 $4,168
------------------------------------------------================================
LIQUIDITY AND CAPITAL RESOURCES. The Company considered its liquidity level
adequate at September 30, 2000. At the end of the third quarter, the Company's
loan/deposit ratio was 92.8%, a decline of 2.8% from June 30 levels. As noted
above, the Company recorded a decline in loan outstandings this quarter. The
decline in loan demand resulted in an approximate $50 million reduction in other
short-term borrowings (principally Federal Home Loan Bank of Topeka
indebtedness) this quarter.
Approximately 75% of the Company's investment portfolio is comprised of United
States government and agency securities, with mortgage-backed securities
representing another 23% of the portfolio. The Company maintains a short
weighted average maturity in this portion of its investment portfolio. At
September 30, 2000, the average maturity of United States government and agency
securities and mortgage-backed securities was 1 year and 2 months, and the
average maturity of municipal securities was 3 years and 6 months.
The Company has thoroughly reviewed its investment security portfolio and has
determined that at September 30, 2000, it has the ability and intent to hold all
securities in the portfolio that have been classified as held-to-maturity. As
noted in previous filings, the Company 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 Tier 1 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, 2000, the Company's total capital to risk-weighted assets ratio
was 11.3% and its Tier 1 capital to risk-weighted assets ratio was 9.9%.
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 totaled
$12,392,000, declining $138,000, or 1.1% from second quarter levels. Total
noninterest income in the third quarter did increase 3% over comparable 1999
amounts. While the Company recorded nominal increases in most areas of
noninterest income, these increases were more than offset by a quarterly decline
in other service charges, fees and income. As discussed below, third quarter
revenues at two of the Company's non-bank subsidiaries declined from prior
quarter levels.
Service charges on deposit accounts increased 1.9% this quarter, and were 10%
higher than comparable prior year amounts. As noted in previous filings, the
year-over-year increase is due in large part to the increase in number of
accounts serviced arising from the accounts acquired by the Company in its
purchase in September, 1999 of the Kansas branches of another financial
institution. Third quarter account activity continued to grow at the same 2%
annualized rate recorded during the first two quarters of the year. OD and NSF
volumes continued to increase in the third quarter, although at a slower rate.
OD and NSF fees for the quarter ended September 30, 2000 were approximately 5%
higher than comparable second quarter amounts.
Fiduciary income continued to show a year-over-year decline in the third
quarter, as current quarter revenue totals were 7.1% less than comparable 1999
amounts. However, the Company did reverse the declining revenue trend in place
for the first half of the year. Third quarter fiduciary income was 2.2% higher
than comparable second quarter amounts. Assets under management at September 30,
2000 were approximately 4% greater than comparable June 30, 2000 amounts, but
remain 3% less than September 30, 1999 levels.
Quarterly credit card fees recorded a year-over-year increase of 14.7%, and
increased 5.5% over second quarter amounts. A greater amount of cash flow
arising from the Company's securitized credit card accounts generated the
majority of the quarterly increase in credit card fees. No significant quarterly
changes were recorded in either merchant fees or other credit card fees.
As noted in previous filings, the Company does not engage in securities trading
activity. The securities gains recorded in 1999 were the result of nonrecurring
transactions. There have been no similar transactions in 2000.
Other service charges, fees and income recognized in the third quarter declined
$415,000 from second quarter levels and declined nominally from comparable 1999
amounts. Quarterly revenue at the Company's broker/dealer subsidiary and at its
actuarial service and recordkeeping subsidiary declined from comparable prior
quarter amounts by approximately $170,000. The Company also recorded reduced
letter of credit fee and credit life commission revenue in the third quarter.
ATM fees, after increasing 15% in the second quarter, were flat in the third
quarter. Other revenue sources in this line item caption showed little increase
when compared to second quarter amounts.
Total noninterest expense in the third quarter increased $1,641,000, or 8%, over
comparable prior year amounts. Quarterly noninterest expense, however, declined
$261,000 from second quarter amounts. While the Company's advertising
expenditures in the third quarter declined $692,000, second quarter noninterest
expense was reduced by an $850,000 insurance reimbursement that was described in
the Company's previous quarterly filing. The comparability of year-over-year
changes in many noninterest expense line items continues to be impacted by the
additional volumes attributable to the acquisition of the Kansas branches of
another financial institution described above.
Salaries and employee benefit costs in the third quarter have increased
$1,169,000, or 11.4% over comparable 1999 amounts, but declined $156,000 from
second quarter levels. $654,000 of the year-over-year increase is attributable
to staffing costs associated with the new locations acquired in 1999. Absent the
impact of the new locations, the year-over-year increase in salaries and
employee benefit costs would have been 5%. Approximately 20% of this remaining
increase is due to the Company's enhancement of its tuition assistance program
and increased health insurance costs.
Professional service costs, while little-changed from quarterly amounts recorded
in 1999, increased significantly from second quarter amounts. However, second
quarter amounts were impacted by the previously-disclosed $850,000 insurance
reimbursement. Excluding the effect of this reimbursement, quarterly costs would
have increased 18.6%. This increase is due solely to a consulting initiative
presently underway at one of the Company's banking subsidiaries. The Company
anticipates that these costs will remain somewhat higher than historical
averages through the fourth quarter, at which time the consulting project should
be concluded.
The year-over-year increase in net occupancy and equipment expense of $175,000
is due to costs incurred at the Company's new locations. As has been discussed
in previous filings, the Company has undertaken a major advertising campaign
this year, and has substantially increased its advertising expenditures. As
noted in previous filings, the Company anticipated a reduction in advertising
costs from second quarter levels. Third quarter advertising and promotional
expense declined $692,000 from prior quarter levels, and the Company anticipates
fourth quarter advertising costs will also decline. As discussed above,
increased account volumes have resulted in increased data processing, supplies
and postage costs. Additionally, the Company presently has a number of
initiatives underway in the technology area. Efforts associated with updating
the Company's retail Internet site were substantially completed during the third
quarter, but other development projects will continue for the foreseeable
future.
The year-over-year increase in goodwill amortization was $148,000. This is due
solely to the goodwill recorded in the branch acquisition discussed elsewhere.
The year-over-year decline in other noninterest expense arises from a reduction
in net credit card interchange costs and rebates received on the assessments due
on certain credit card products.
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.
The Company does not anticipate that adoption of Statement No. 133 will have a
material impact on its operating results or its financial condition.
FORWARD-LOOKING STATEMENTS. This 10-Q contains various forward-looking
statements and includes assumptions concerning the Company's operations, future
results and prospects. These forward-looking statements are based on current
expectations, are subject to risk and uncertainties and the Company undertakes
no obligation to update any such statement to reflect later developments. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides the following cautionary
statement identifying important economic, political and technological factors,
among others, the absence of which could cause the actual results or events to
differ materially from those set forth in or implied by the forward-looking
statements and related assumptions.
Such factors include the following: (i) continuation of the current and
projected future business environment, including interest rates and capital and
consumer spending; (ii) competitive factors and competitor responses to Company
initiatives; (iii) successful development and market introductions of
anticipated new products; (iv) stability of government laws and regulations,
including taxes; and (v) trends in the banking industry.
<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 13, 2000 By: /s/ C.Q. Chandler IV
------------------------
C.Q. Chandler IV
President
(Principal Executive Officer)
Date: November 13, 2000 By: /s/ Jay L. Smith
--------------------
Jay L. Smith
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number Description
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27 Financial Data Schedule
<PAGE>
