UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 0-6216
BRENTON BANKS, INC.
(Exact name of registrant as specified in its charter)
Incorporated in Iowa No. 42-0658989
State or other jurisdiction of I.R.S. Employer Identification
incorporation or organization
Suite 300, Capital Square, 400 Locust, Des Moines, Iowa 50309
(Address of principle executive offices) (zip code)
515-237-5100
(Registrant's telephone number, including area code)
Not applicable
Former name, former address and former fiscal year, if changed
since last report
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date,
August 3, 1995.
7,699,802 shares of Common Stock, $5.00 par value
<PAGE>
<TABLE>
PART 1 -- Item 1. Financial Statements
<CAPTION>
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
June 30, December 31,
1995 1994
-------------- --------------
</CAPTION>
<S> <C> <C>
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,510,458 58,387,727
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . 385,906 64,255
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . . . . . . . . . . . . . 9,000,000 59,396,428
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 363,049,590 349,208,773
Held to maturity (approximate market value of
$113,531,000 and $92,284,000 at June 30, 1995,
and December 31, 1994, respectively) . . . . . . . . . . . . . . . . . 112,974,096 94,484,134
-------------- --------------
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 476,023,686 443,692,907
-------------- --------------
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,713,390 2,104,492
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 963,081,592 970,214,498
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . (11,206,163) (10,913,043)
-------------- --------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 951,875,429 959,301,455
-------------- --------------
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 32,306,569 27,103,630
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . 13,634,571 13,064,921
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,224,189 18,211,034
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,573,674,198 1,581,326,849
============== ==============
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 135,485,839 136,547,995
Interest-bearing:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,401,164 315,369,233
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,389,135 255,046,184
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629,770,279 633,319,698
-------------- --------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349,046,417 1,340,283,110
-------------- --------------
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . . . . . . . 38,868,322 70,703,736
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 7,000,000 12,000,000
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 17,288,107 14,749,917
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 40,894,516 28,939,413
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,453,097,362 1,466,676,176
-------------- --------------
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . 4,451,171 4,220,328
Redeemable preferred stock, $1 par; 500,000 shares
authorized; issuable in series, none issued . . . . . . . . . . . . . . -- --
Common stockholders' equity:
Common stock, $5 par; 25,000,000 shares authorized;
7,726,002 shares issued at June 30, 1995, and
7,871,546 shares issued at December 31, 1994 . . . . . . . . . . . . 38,630,010 39,357,730
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,231,118 5,210,344
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,265,542 70,979,317
Unrealized gains (losses) on assets
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . (1,005) (5,117,046)
-------------- --------------
Total common stockholders' equity . . . . . . . . . . . . . . . . . . . . 116,125,665 110,430,345
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $1,573,674,198 1,581,326,849
============== ==============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PART 1 -- Item 1. Financial Statements
<CAPTION>
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
June 30* June 30*
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 40,686,206 36,828,330 20,632,253 18,933,071
Interest and dividends on investments:
Available for sale - taxable 7,000,113 6,656,096 3,738,574 3,292,517
Available for sale - tax-exempt 2,373,303 2,897,524 1,125,402 1,414,246
Held to maturity - taxable 1,602,848 703,507 850,800 368,574
Held to maturity - tax-exempt 1,528,951 1,308,940 773,196 640,905
------------ ----------- ----------- -----------
Total interest and dividends on investments 12,505,215 11,566,067 6,487,972 5,716,242
------------ ----------- ----------- -----------
Interest on federal funds sold and securities
purchased under agreements to resell 1,255,415 321,633 733,325 214,612
Other interest income 16,391 7,953 (1,341) 3,431
------------ ----------- ----------- -----------
Total interest income 54,463,227 48,723,983 27,852,209 24,867,356
------------ ----------- ----------- -----------
Interest Expense
Interest on deposits 26,187,405 19,766,445 13,749,983 9,915,877
Interest on federal funds purchased and
securities sold under agreements to
repurchase 780,050 640,665 317,769 421,884
Interest on other short-term borrowings 207,125 6,817 102,846 6,817
Interest on long-term borrowings 1,228,959 828,682 635,977 470,328
------------ ----------- ----------- -----------
Total interest expense 28,403,539 21,242,609 14,806,575 10,814,906
------------ ----------- ----------- -----------
Net interest income 26,059,688 27,481,374 13,045,634 14,052,450
Provision for loan losses 918,550 829,162 458,625 426,749
------------ ----------- ----------- -----------
Net interest income after provision
for loan losses 25,141,138 26,652,212 12,587,009 13,625,701
------------ ----------- ----------- -----------
Noninterest Income
Service charges on deposit accounts 2,563,038 2,759,398 1,352,310 1,374,852
Insurance commissions and fees 1,267,516 1,011,736 648,093 506,068
Other service charges, collection and
exchange charges, commissions and fees 1,843,972 1,772,793 950,689 881,619
Investment brokerage commissions 1,426,814 1,514,437 805,777 693,581
Fiduciary income 1,213,775 1,117,795 596,606 557,547
Net gains (losses) from securities
available for sale (2,498) 36,944 (2,498) (6,617)
Other operating income 457,004 378,586 147,812 178,321
------------ ----------- ----------- -----------
Total noninterest income 8,769,621 8,591,689 4,498,789 4,185,371
------------ ----------- ----------- -----------
Noninterest Expense
Salaries and wages 11,725,481 11,891,964 5,806,853 5,935,821
Employee benefits 2,362,693 2,537,865 1,044,655 1,137,317
Occupancy expense of premises, net 2,498,433 2,273,757 1,264,771 1,132,783
Furniture and equipment expense 1,897,145 1,513,793 944,619 761,159
Data processing expense 1,269,113 1,310,082 634,237 636,755
FDIC deposit insurance assessment 1,502,965 1,449,955 751,483 724,978
Advertising and promotion 920,759 804,948 477,452 420,914
Other operating expense 5,240,982 5,234,834 2,812,247 2,752,359
------------ ----------- ----------- -----------
Total noninterest expense 27,417,571 27,017,198 13,736,317 13,502,086
------------ ----------- ----------- -----------
Income before income taxes and
minority interest 6,493,188 8,226,703 3,349,481 4,308,986
Income taxes 1,234,081 1,943,184 660,947 1,054,773
------------ ----------- ----------- -----------
Income before minority interest 5,259,107 6,283,519 2,688,534 3,254,213
Minority interest 245,089 283,128 124,294 147,400
------------ ----------- ----------- -----------
Net income $ 5,014,018 6,000,391 2,564,240 3,106,813
============ =========== =========== ===========
Per common and common equivalent share**:
Net income $ 0.64 0.76 0.33 0.39
Cash dividends 0.22 0.22 0.11 0.11
==== ==== ==== ====
<FN>
*See accompanying notes to consolidated financial statements.
**Restated for the 3-for-2 stock split in the form of a stock dividend effective May 1994.
</TABLE>
<PAGE>
<TABLE>
PART 1 -- Item 1. Financial Statements
<CAPTION>
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the 6 months ended June 30,
1995 1994
-------------- --------------
</CAPTION>
<S> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,014,018 6,000,391
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses . . . . . . . . . . . . . . 918,550 829,162
Depreciation and amortization . . . . . . . . . . . . 2,066,788 1,806,772
Net (gains) losses from securities available
for sale . . . . . . . . . . . . . . . . . . . . . 2,498 (36,944)
Net (increase) decrease in loans held for sale . . . . (5,608,898) 1,859,892
(Increase) decrease in accrued interest receivable
and other assets . . . . . . . . . . . . . . . . (2,012,457) 280,457
Decrease in accrued expenses, other
liabilities and minority interest . . . . . . . . 2,569,793 1,614,365
-------------- --------------
Net cash provided from operating activities . . . . . . . . . . 2,950,292 12,354,095
-------------- --------------
Investing Activities:
Investment securities available for sale:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (155,642,829) (52,751,708)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 147,421,021 84,475,315
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,883,821 10,529,096
Investment securities held to maturity:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (45,445,704) (26,264,479)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 26,955,742 10,742,452
Net (increase) decrease in loans . . . . . . . . . . . . . . . 6,507,476 (76,166,093)
Purchases of bank premises and equipment, net . . . . . . . . (7,030,115) (3,244,052)
-------------- --------------
Net cash used by investing activities . . . . . . . . . . . . . (24,350,588) (52,679,469)
-------------- --------------
Financing Activities:
Net increase (decrease) in noninterest-bearing, interest-
bearing demand and savings deposits . . . . . . . . . . . . 12,312,726 (15,044,910)
Net increase (decrease) in time deposits . . . . . . . . . . . (3,549,419) 920,797
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase . . . . . . (31,835,414) 21,021,520
Net increase (decrease) in other short-term borrowings . . . . (5,000,000) 4,000,000
Proceeds of long-term borrowings . . . . . . . . . . . . . . . 12,271,000 11,660,000
Repayment of long-term borrowings . . . . . . . . . . . . . . (315,897) (1,196,913)
Dividends on common stock . . . . . . . . . . . . . . . . . . (1,726,788) (1,736,035)
Proceeds from issuance of common stock under
the stock option plan . . . . . . . . . . . . . . . . . . . 13,250 265,088
Payment for shares acquired under common stock
repurchase plan . . . . . . . . . . . . . . . . . . . . . . (3,081,798) (108,025)
Issuance of common stock under the long-term
stock compensation plan . . . . . . . . . . . . . . . . . . 361,602 --
Payment for fractional shares in 3-for-2 stock split . . . . . -- (4,301)
Other (1,012) --
-------------- ---------------
Net cash provided from (used by) financing activities . . . . . (20,551,750) 19,777,221
-------------- ---------------
Net decrease in cash and cash equivalents . . . . . . (41,952,046) (20,548,153)
Cash and cash equivalents at the beginning of the year . . . . . 117,848,410 84,433,347
-------------- ---------------
Cash and cash equivalents at the end of the period . . . . . . . $ 75,896,364 63,885,194
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
(Unaudited)
</CAPTION>
<S> <C> <C>
Interest paid during the period . . . . . . . . . . . . . . . . $ 24,476,731 19,651,394
Income taxes paid during the period . . . . . . . . . . . . . . 2,275,192 2,309,137
Transfers from investment securities to
assets held for sale . . . . . . . . . . . . . . . . . . . . . -- 4,074,055
============== ==============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PART 1 -- Item 1. Financial Statements
BRENTON BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Adjustments and Reclassifications
The accompanying financial statements for the interim periods
were prepared without audit. In the opinion of management, all
adjustments which were necessary for a fair presentation of
financial position and results of operations have been made.
These adjustments were of a normal recurring nature.
2. Additional Footnote Information
In reviewing these financial statements, reference should be
made to the 1994 Annual Report to Shareholders for more detailed
footnote information.
3. Statements of Cash Flows
In the statements of cash flows, cash and cash equivalents
include cash and due from banks, interest-bearing deposits with
banks, and federal funds sold and securities purchased under
agreements to resell.
4. Income Taxes
Federal income tax expense for the six months ended
June 30, 1995 and 1994, was computed using the consolidated
effective federal income tax rates.
For the first six months of 1995 and 1994, the Company also
recognized income tax expense pertaining to state franchise taxes
payable individually by the subsidiary banks.
5. Common Stock Transactions
During the first six months of 1995, options on 3,000 shares
of common stock were exercised under the Company's stock option
plans. The exercise price on these options was the fair market
value of the Company's common stock at the date of grant. This
transaction added $13,250 to the equity of the Company.
In 1992, the Company originated a long-term stock compensation
plan for key management personnel. The plan provides for 360,000
shares of the Company's common stock to be reserved for grant over
a four year period. Each grant of shares will cover a three year
performance period, 35 percent of which will vest upon completion
of employment for the performance period and 65 percent of which
will vest based on a tiered achievement scale tied to finanical
performance goals established by the Boared of Directors. Under
the plan, 91,490 shares were granted covering the performance
period from 1992 through 1994; 78,644 shares were granted covering
the performance period from 1993 through 1995; 90,292 shares were
granted covering the performance period from 1994 through 1996; and
87,808 shares were granted covering the performance period from
1995 through 1997. Compensation expense associated with this plan
for the first six months of 1995 and 1994 was $195,822 and $0,
respectively.
<PAGE>
Part 1 -- Item 1
Page 2 of 2
5. Common Stock Transaction, continued
In 1995, 31,108 shares of common stock were issued under the
long-term stock compensation plan. This transaction added $361,602
to the equity of the Company.
In 1994, the Board of Directors authorized a plan to
repurchase the Company's common stock. In 1995, 194,833 shares had
been repurchased at a cost of $3,562,448. Since the plans
inception, the Company has repurchased 213,433 shares at a total
cost of $3,932,748. In July 1995, the Board of Directors
authorized the repurchase of $6 million of Company stock for 1995.
6. Income Per Share
Income per common and common equivalent share computations are
based on the weighted average number of shares of common stock
outstanding during the period. The weighted average number of
shares for 1995 and 1994 were 7,820,107 and 7,951,423,
respectively, which includes shares related to the long-term stock
compensation plan.
<PAGE>
<PAGE>
PART I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Financial Summary
For the first six months of 1995, Brenton Banks, Inc. and
subsidiaries (the "Company") recorded net income of $5,014,018,
compared to $6,000,391 for the same period of 1994. The lower
earnings were primarily the result of a $1,421,686 reduction in net
interest income, attributed to a lower net interest margin.
The Company's annualized return on average assets was .68
percent compared to .84 percent for the same period of 1994. The
Company's annualized return on average equity was 8.80 percent
compared to 10.77 percent one year ago. The Company's total assets
grew 4.7 percent from one year ago to $1.6 billion at June 30,
1995.
Strategic Planning
Although current earnings are disappointing, the Company is
addressing this issue aggressively with the implementation of its
strategic plan, which was developed in 1994. The goal of this plan
is to build on the existing strengths of the Company while
addressing the fundamental changes within the financial services
industry. Significant actions currently in process include:
Becoming One Bank. This year, Brenton plans to merge its 13
commercial banks into one statewide organization. This one
bank structure will provide customers more convenient access
to all Brenton locations, while improving operational
efficiency in the Company. Regulatory approvals are on
schedule, with an anticipated merger date of September 30,
1995.
Providing Alternative Delivery Systems. In the future,
consumers will demand anytime/anywhere access to bank services
through ATMs, the telephone and home computers. Anticipating
this, the Company:
Launched "Brenton Direct," a telebanking center that
handles loan applications, opening of new accounts, and
customer service;
Introduced the Brenton "SmartCheck" debit card, which
cardholders can use to make purchases at participating
Visa merchants and have the amount automatically
withdrawn from their checking accounts;
<PAGE>
Part I -- Item 2
Page 2 of 8
Opened a supermarket bank branch in the growing market of
Iowa City on July 17, 1995. This is the second grocery
store branch for the Company. The first "SuperBank"
branch was opened November 1994 in a Cedar Rapids
EconoFoods store.
Emphasis on Cost Management. The Company is developing
long-term cost management strategies to enhance return on
dollars spent. Current initiatives include right-sizing our
operations to bring compensation expense in line with the
industry and other financial services providers; standardizing
internal policies for major expenses; renegotiating contracts
with vendors; and added management controls.
Line of Business Reporting. Systems are being implemented to
measure financial performance by line of business rather than
solely by geographic area. As part of this process, the
Company will be divided into business segments for financial
reporting purposes. This system will make it possible to
measure managers on their ability to enhance the Company
earnings, based on sales and controllable costs.
Focusing on Profitable Customers. Research shows that 25% of
a bank's customers are responsible for more than 90% of net
revenue and that more than 30% of all customers are
unprofitable. Recognizing this, Brenton has invested in
technology that will identify our most profitable customers
and tailor products and services for them.
Results of Operations
THE SIX MONTHS ENDED JUNE 30, 1995, COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1994.
Net Income
For the six months ended June 30, 1995, Brenton recorded net
income of $5,014,018, which is a decline of 16.4 percent from the
first six months of 1994 which totaled $6,000,391. On a per common
and common stock equivalent share basis, net income was $.64 per
share for the first half of 1995 compared to $.76 one year ago.
<PAGE>
Part I -- Item 2
Page 3 of 8
Net Interest Income
Average earning assets rose 2.9 percent from the first six
months of 1994 to the first six months of 1995. This growth was
offset by a decline in the net interest margin, which fell from
4.16 percent for the first half of 1994 to 3.84 percent for 1995.
This resulted in a decrease in net interest income of $1,421,686
from one year ago.
Net interest income has been sensitive to the Federal
Reserve's adjustments in short-term interest rates and generally,
rates on short-term assets and liabilities are higher than one year
ago. As rates increased, assets repriced at a slower pace than
deposits, causing the net interest margin to compress.
It is a significant goal for net interest income to be less
dependent on the direction of interest rates. During the last
several months, the Company has been working to move the balance
sheet to a position that is less vulnerable to changes in interest
rates. For example, through a recent home equity loan compaign,
the level of variable-rate consumer loans has doubled during 1995.
This is one of several initiatives designed to reduce interest rate
risk and improve profitability. Other initiatives include more
focus on variable rate commercial loans and less focus on long-term
fixed rate mortgage loans.
In addition, since June 1994, the Company has increased
Federal Home Loan Bank borrowings, and brought in a large
commercial deposit account relationship. While these transactions
have increased total assets and net interest income in total, the
spread earned has been relatively small. If these transactions are
excluded from June 1995 results, the net interest margin would
beapproximately 3.95 percent for the first six months of 1995.
Loan Quality
Brenton's loan quality remains exceptional. For the first
six months, nonperforming loans were a low .47 percent of total
loans, and the reserve for loan losses was a solid 248.64 percent
of nonperforming loans and 1.16 percent of total loans.
For the first half of 1995, the Company's average loans grew
4.9 percent over one year ago. The majority of this increase
related to commercial loans, which rose 16.8 percent from June 30,
1994. The Company's loan growth led to a 10.8 percent increase
in the provision for loan losses expense, which was $918,550 for
the six months ended June 30, 1995, compared to $829,162 one year
ago.
<PAGE>
Page I -- Item 2
Page 4 of 8
January 1, 1995 was the effective date for Financial
Accounting Standards Board Statement 114, "Accounting by Creditors
for Impairment of a Loan". This standard made fundamental changes
in certain accounting procedures for impaired loans, including the
determination of the allowance for loan losses and financial
disclosures. This new Standard has not had a material effect on
the financial statements of the Company.
Noninterest Income
Year-to-date noninterest income was $8,772,119 (excluding
securities gains and losses), a 2.5 percent increase from
$8,554,745 one year ago. Several factors contributed to this
growth. There was a 25.3 percent increase in insurance revenues,
primarily due to commissions from credit life and accident & health
insurance sales. Increasing volumes in residential real estate
sales and the establishment of a real estate office in Adel, Iowa
led to a 43.9 percent rise in commissions from real estate
brokerage activities. In addition, increasing volumes in benefit
plan administration, revenue from the Brenton Family of Mutual
Funds and favorable market conditions led to an 8.6 percent
increase in fiduciary income.
These improvements helped offset declines in other noninterest
income areas during the first half of 1995. From one year ago,
brokerage commissions declined 5.8 percent and service charges on
deposit accounts fell 7.1 percent to $2,563,038. Fees from
secondary market real estate loans fell $262,070 as the Company
experienced lower volumes in real estate loan originations.
Noninterest Expense
Noninterest expense totalled $27,417,571 and rose only 1.5
percent from the first half of 1994, due to a strong focus on
controlling expense growth. Increased expenses were related to
additional costs for occupancy and furniture and equipment
associated with new branches and technology upgrades which totalled
$608,028. In addition, public relations activities in local
communities caused advertising expenses to rise 14.4 percent.
As evidence of right-sizing efforts, compensation expense
declined 2.4 percent from the first six months of 1994. All other
expenses were consistent with 1994 levels.
The Company's net noninterest margin, which measures operating
efficiency, was 2.41 percent compared to 2.48 percent one year ago.
<PAGE>
Part I -- Item 2
Page 5 of 8
Income Taxes
The Company's income tax strategies include reducing income
taxes by purchasing securities and originating loans that produce
tax-exempt income. The goal is to maintain the maximum level of
tax-exempt assets in order to benefit the Company on both a tax
equivalent yield basis and in income tax savings. The effective
rate of income tax expense as a percent of income, before income
tax and minority interest, was 19.0 percent for the first six
months of 1995 compared to 23.6 percent for 1994. This decline in
effective rate was due to lower overall Company earnings and
reduced state franchise taxes.
In 1994, the Company established out-of-state investment
subsidiaries to manage the investment portfolios for each Brenton
bank. These subsidiaries provide an opportunity to lower the
amount of state franchise taxes paid by the Company. The State of
Iowa enacted legislation that eliminated the tax benefits derived
from these subsidiaries, effective July 1, 1995. The Company
dissolved its subsidiaries on June 30, 1995.
Results of Operations
THE THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1994.
Net Income
For the three months ended June 30, 1995, net income totalled
$2,564,240 compared to $3,106,813 one year ago. Earnings per
common and common equivalent share totalled $.33 for the second
quarter of 1995 compared to $.39 for the second quarter of 1994.
In comparing the results of operations, there is much similarity in
the analysis of the second quarter and the first six months. The
primary factor in the earnings decline was lower net interest
income, which was partially offset by modest growth in noninterest
income and slower growth in noninterest expenses.
Net Interest Income
Net interest income for the quarter totalled $13,045,634 and
declined 7.2 percent from the second quarter of 1994. The net
interest margin was 3.87 percent in 1995 compared to 4.22 percent
in 1994. The decline in margin was due primarily to
interest-earning assets repricing at a slower pace than rates on
interest-bearing liabilities.
<PAGE>
Part I -- Item 2
Page 6 of 8
Provisions for Loan Losses
The provision for loan losses for the second quarter of 1995
totalled $458,625, an increase of 7.5 percent over the same period
of 1994.
Noninterest Income
Noninterest income increased by $313,418 or 7.5 percent, from
the second quarter of 1994 to the second quarter of 1995. The
majority of this increase is due to higher insurance commissions,
primarily from sales of credit life and accident & health insurance
at subsidiary banks, and an increase of $112,196 in investment
brokerage commissions. In addition, real estate brokerage
commissions grew 12.6 percent to $271,000.
Offsetting these increases, service charges on deposit
accounts declined 1.6 percent and fees on secondary market real
estate loans were $45,000 lower than the second quarter of 1994.
Noninterest Expense
As with the results of the first half of the year, noninterest
expense rose only slightly (1.7 percent) from the prior year's
quarter. Salary and related fringe benefit costs declined 3.1
percent. Occupancy expense and furniture and equipment expense
were up a combined 19.3 percent, again relating to new facilities
and facility remodeling. The Company's net noninterest margin was
2.36 percent for the second quarter of 1995 compared to 2.49
percent for the second quarter of 1994.
Capital Resources
Common stockholders' equity totalled $116,125,665 as of
June 30, 1995, a 5.2 percent increase from December 31, 1994. This
increase was primarily due to current earings coupled with the
equity adjustment required by Statement of Financial Accounting
Standard (FAS) No. 115. Under this accounting standard which was
adopted December 31, 1993, the method of classifying investment
securities is based on the Company's intended holding period.
Accordingly, securities that the Company may sell at its discretion
prior to maturity are recorded at their fair value. The aggregate
unrealized net gains or losses (including the income tax and
minority interest effect) are recorded as a component of
stockholders' equity. At June 30, 1995, aggregate unrealized
losses from assets available for sale totalled $1,005, while at
December 31, 1994, aggregate unrealized losses totalled $5,117,046.
This resulted in a net increase of $5,116,041 in common
stockholders' equity in 1995.
<PAGE>
Part I -- Item 2
Page 7 of 8
The Company's risk-based core capital ratio was 11.4 percent
at June 30, 1995 and the total risk-based capital ratio was 12.5
percent. These exceeded the minimum regulatory requirements of
4.00 percent and 8.00 percent, respectively. The Company's tier 1
leverage ratio, which measures capital excluding intangible assets,
was 7.35 percent at June 30, 1995, exceeding the regulatory minimum
requirement range of 3.00 to 5.00 percent. Each of these capital
calculations exclude unrealized gains or losses on assets available
for sale.
The Company paid a dividend of $.11 per common share in the
second quarter of 1995. This dividend was unchanged from the prior
quarter and one year ago, resulting in a second quarter dividend
payout ratio of 33.3 percent of earnings per share and a six-month
dividend payout ratio of 34.4 percent.
As part of the Company's ongoing stock repurchase plan,
168,633 shares have been purchased in 1995 at a cost of $3,081,798.
The Board of Directors recently approved the repurchase of $6
million in the Company's stock for the current year. Since the
inception of the plan, 213,433 shares have been repurchased at a
total cost of $3,932,748. These shares are expected to be used for
the issuance of shares under the Company's long-term stock
compensation plan and stock options.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 10.9 percent at June 30, 1995. This percentage is
unchanged from December 31, 1994. In addition, the Parent Company
has a $2 million line of credit with a regional bank that was
unused at the end of June.
Brenton Banks, Inc. common stock closed June of 1995 at a bid
price of $18.19 per share, which is 121 percent of the book value
per share of $15.03 on the same date. This closing stock price
represented a price-to-trailing 12 months earnings multiple of 15.8
times. Excluding the December 1994 restructuring charge from
earnings, the price-to-earnings ratio was a multiple of 13.7.
Brenton Banks, Inc. continues to pursue acquisition and
expansion opportunities that fit the Company's strategic business
and financial plans. There are currently no pending acquisitions
that would require Brenton Banks, Inc. to secure capital from
public or private markets.
Asset-Liability Management
The Company utilizes a computer simulation-based
asset-liability management system. This system simulates the
effect of various interest rate scenarios and the impact of balance
sheet management decisions on net interest income. Management
utilizes
<PAGE>
Part I -- Item 2
Page 8 of 8
this system to manage interest rate risk, the net interest margin
and the level of total net interest income.
In late 1994 and 1995, the Company implemented policies to
assist in reducing interest rate risk. Many decisions regarding
loan, investment, and deposit strategies have been made with the
intent of reducing net interest income fluctuations caused by
changes in interest rates. While the asset-liability policy calls
for a five percent limitation on net interest income fluctuations
given a three percent change in interest rates, the current goal is
to limit the fluctuation to three percent or less.
Liquidity
The Company actively monitors and manages its liquidity
position with the objective of maintaining sufficient cash flows to
fund operations and meet customer commitments. Federal funds sold,
loans held for sale, and investments available for sale are readily
marketable assets. Maturities of all investment securities are
managed to meet the Company's normal liquidity needs. Investment
securities available for sale may be sold prior to maturity to meet
liquidity needs, to respond to market changes or to adjust the
Company's interest rate risk position. Federal funds sold and
assets available for sale comprised 24.1 percent of the Company's
total assets at June 30, 1995.
The Company's stable deposit base and relatively low levels of
large deposits resulted in low dependence on volatile liabilities.
As of June 30, 1995, the Company had borrowings of $35,150,000 from
the Federal Home Loan Bank of Des Moines as a means of providing
long-term, fixed-rate funding for specific transactions and
assisting in controlling interest rate risk.
The combination of a high level of potentially liquid assets,
strong cash flow from operations, and low dependence on volatile
liabilities provides strong liquidity for the Company at June 30,
1995.
<PAGE>
PART 2 -- Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed
for the six months ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BRENTON BANKS, INC.
-----------------------------------
(Registrant)
-----------------------------------------------------------------
Dated Robert L. DeMeulenaere
President
----------------------------------------------------------------
Dated Steven T. Schuler
Chief Financial Officer/
Treasurer/Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 66,510,458
<INT-BEARING-DEPOSITS> 385,906
<FED-FUNDS-SOLD> 9,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 363,049,590
<INVESTMENTS-CARRYING> 112,974,096
<INVESTMENTS-MARKET> 113,532,000
<LOANS> 970,794,982
<ALLOWANCE> 11,206,163
<TOTAL-ASSETS> 1,573,674,198
<DEPOSITS> 1,349,046,417
<SHORT-TERM> 45,868,322
<LIABILITIES-OTHER> 21,739,278
<LONG-TERM> 40,894,516
<COMMON> 38,630,010
0
0
<OTHER-SE> 77,495,655
<TOTAL-LIABILITIES-AND-EQUITY> 1,573,674,198
<INTEREST-LOAN> 40,686,206
<INTEREST-INVEST> 12,505,215
<INTEREST-OTHER> 1,271,806
<INTEREST-TOTAL> 54,463,227
<INTEREST-DEPOSIT> 26,187,405
<INTEREST-EXPENSE> 2,216,134
<INTEREST-INCOME-NET> 26,059,688
<LOAN-LOSSES> 918,550
<SECURITIES-GAINS> (2,498)
<EXPENSE-OTHER> 27,662,660
<INCOME-PRETAX> 6,248,099
<INCOME-PRE-EXTRAORDINARY> 6,248,099
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,014,018
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<YIELD-ACTUAL> 7.55
<LOANS-NON> 3,205,000
<LOANS-PAST> 1,029,000
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