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, 1996
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 2, 1996.
7,406,170 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,
1996 1995
-------------- --------------
</CAPTION>
<S> <C> <C>
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,771,560 71,159,078
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . 768,548 265,072
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . . . . . . . . . . . . . 16,700,000 37,600,000
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 420,563,407 396,370,443
Held to maturity (approximate market value of
$97,624,000 and $109,131,000 at June 30, 1996,
and December 31, 1995, respectively) . . . . . . . . . . . . . . . . . 97,394,602 108,082,213
-------------- --------------
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 517,958,009 504,452,656
-------------- --------------
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,826,189 8,707,309
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914,515,330 910,193,212
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . (11,607,844) (11,069,869)
-------------- --------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902,907,486 899,123,343
-------------- --------------
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 31,423,536 32,849,842
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . 13,505,599 14,494,261
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,518,164 14,127,759
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,579,379,091 1,582,779,320
============== ==============
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,333,796 143,220,373
Interest-bearing:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,883,521 399,308,392
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,722,292 215,488,846
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,890,408 603,925,104
-------------- --------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,332,830,017 1,361,942,715
-------------- --------------
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . . . . . . . 57,501,939 41,107,411
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 16,500,000 2,500,000
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 16,202,339 15,083,453
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 33,472,126 38,177,803
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,456,506,421 1,458,811,382
-------------- --------------
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . 4,458,663 4,434,307
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;
7,470,170 shares outstanding at June 30, 1996 and
7,653,252 shares outstanding at December 31, 1995 . . . . . . . . . . 37,350,850 38,266,260
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2,020,518
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,825,777 77,888,451
Unrealized gains (losses) on assets
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . (762,620) 1,358,402
-------------- --------------
Total common stockholders' equity . . . . . . . . . . . . . . . . . . . . 118,414,007 119,533,631
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $1,579,379,091 1,582,779,320
============== ==============
<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*
1996 1995 1996 1995
---------- ---------- ---------- ----------
</CAPTION>
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $39,338,548 40,686,206 19,775,045 20,632,253
Interest and dividends on investments:
Available for sale - taxable 9,317,665 7,000,113 4,779,138 3,738,574
Available for sale - tax-exempt 2,095,422 2,373,303 1,027,548 1,125,402
Held to maturity - taxable 1,762,572 1,602,848 774,975 850,800
Held to maturity - tax-exempt 1,544,225 1,528,951 744,948 773,196
----------- ----------- ----------- -----------
Total interest and dividends on investments 14,719,884 12,505,215 7,326,609 6,487,972
----------- ----------- ----------- -----------
Interest on federal funds sold and securities
purchased under agreements to resell 781,378 1,255,415 380,482 733,325
Other interest income 43,032 16,391 30,268 (1,341)
----------- ----------- ----------- -----------
Total interest income 54,882,842 54,463,227 27,512,404 27,852,209
----------- ----------- ----------- -----------
Interest Expense
Interest on deposits 24,820,576 26,187,405 12,268,081 13,749,983
Interest on federal funds purchased and securities
sold under agreements to repurchase 1,004,196 780,050 585,280 317,769
Interest on other short-term borrowings 226,628 207,125 160,746 102,846
Interest on long-term borrowings 1,295,085 1,228,959 630,902 635,977
----------- ----------- ----------- -----------
Total interest expense 27,346,485 28,403,539 13,645,009 14,806,575
----------- ----------- ----------- -----------
Net interest income 27,536,357 26,059,688 13,867,395 13,045,634
Provision for loan losses 1,500,000 918,550 800,000 458,625
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 26,036,357 25,141,138 13,067,395 12,587,009
----------- ----------- ----------- -----------
Noninterest Income
Service charges on deposit accounts 3,268,408 2,563,038 1,676,747 1,352,310
Investment brokerage commissions 1,952,904 1,426,814 933,628 805,777
Insurance commissions and fees 1,441,830 1,267,516 731,455 648,093
Mortgage banking fees 1,001,368 533,301 410,376 312,921
Other service charges, collection and exchange
charges, commissions and fees 1,325,832 1,310,671 671,280 637,768
Fiduciary income 1,377,035 1,213,775 765,146 596,606
Net gains (losses) from securities available for sale 314,406 (2,498) 139,881 (2,498)
Other operating income 491,859 457,004 293,421 147,812
----------- ----------- ----------- -----------
Total noninterest income 11,173,642 8,769,621 5,621,934 4,498,789
----------- ----------- ----------- -----------
Noninterest Expense
Salaries and wages 12,221,667 11,725,481 6,231,540 5,806,853
Employee benefits 2,219,720 2,362,693 1,056,230 1,044,655
Occupancy expense of premises, net 2,666,955 2,498,433 1,309,521 1,264,771
Furniture and equipment expense 1,918,416 1,897,145 972,986 944,619
Data processing expense 1,280,426 1,269,113 646,551 634,237
FDIC deposit insurance assessment 249,887 1,502,965 131,160 751,483
Advertising and promotion 850,409 920,759 399,458 477,452
Supplies 741,694 598,423 315,347 279,430
Other operating expense 4,676,499 4,642,559 2,407,841 2,532,817
----------- ----------- ----------- -----------
Total noninterest expense 26,825,673 27,417,571 13,470,634 13,736,317
----------- ----------- ----------- -----------
Income before income taxes and minority interest 10,384,326 6,493,188 5,218,695 3,349,481
Income taxes 2,943,349 1,234,081 1,497,652 660,947
----------- ----------- ----------- -----------
Income before minority interest 7,440,977 5,259,107 3,721,043 2,688,534
Minority interest 293,219 245,089 153,532 124,294
----------- ----------- ----------- -----------
Net income $ 7,147,758 5,014,018 3,567,511 2,564,240
=========== =========== =========== ===========
Per common and common equivalent share**:
Net income $ 0.93 0.64 0.47 0.33
Cash dividends 0.24 0.22 0.12 0.11
==== ==== ==== ====
<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 Cash Flows
For the 6 months ended June 30,
1996 1995
-------------- -------------
</CAPTION>
<S> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,147,758 5,014,018
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses . . . . . . . . . . . . . . 1,500,000 918,550
Depreciation and amortization . . . . . . . . . . . . 2,247,045 2,066,788
Net (gains) losses from securities available
for sale . . . . . . . . . . . . . . . . . . . . . . (314,406) 2,498
Net increase in loans held for sale . . . . . . . . . (3,118,880) (5,608,898)
(Increase) decrease in accrued interest receivable
and other assets . . . . . . . . . . . . . . . . 538,671 (2,012,457)
Increase in accrued expenses, other
liabilities and minority interest . . . . . . . . 1,191,684 2,569,793
-------------- --------------
Net cash provided by operating activities . . . . . . . . . . . 9,191,872 2,950,292
-------------- --------------
Investing Activities:
Investment securities available for sale:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (161,548,700) (155,642,829)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 98,565,601 147,421,021
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,767,623 2,883,821
Investment securities held to maturity:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (32,820,737) (45,445,704)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 43,508,348 26,955,742
Net (increase) decrease in loans . . . . . . . . . . . . . . . (5,284,143) 6,507,476
Purchases of bank premises and equipment . . . . . . . . . . . (1,407,703) (7,030,115)
Proceeds from sale of bank premises and equipment . . . . . . 814,003 --
-------------- --------------
Net cash used by investing activities . . . . . . . . . . . . . (22,405,708) (24,350,588)
-------------- --------------
Financing Activities:
Net increase (decrease) in noninterest-bearing, interest-
bearing demand and savings deposits . . . . . . . . . . . . (6,078,002) 12,312,726
Net decrease in time deposits . . . . . . . . . . . . . . . . (23,034,696) (3,549,419)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase . . . . . . 16,394,528 (31,835,414)
Net increase (decrease) in other short-term borrowings . . . . 14,000,000 (5,000,000)
Proceeds of long-term borrowings . . . . . . . . . . . . . . . 484,000 12,271,000
Repayment of long-term borrowings . . . . . . . . . . . . . . (5,189,678) (315,897)
Dividends on common stock . . . . . . . . . . . . . . . . . . (1,823,366) (1,726,788)
Proceeds from issuance of common stock under
the stock option plan . . . . . . . . . . . . . . . . . . . 54,154 13,250
Payment for shares acquired under common stock
repurchase plan . . . . . . . . . . . . . . . . . . . . . . (4,711,981) (3,081,798)
Proceeds from issuance of common stock under the
long-term stock compensation plan 334,835 361,602
Other -- (1,012)
-------------- ---------------
Net cash provided (used) by financing activities . . . . . . . . (9,570,206) (20,551,750)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents . . . . . . (22,784,042) (41,952,046)
Cash and cash equivalents at the beginning of the year . . . . . 109,024,150 117,848,410
-------------- ---------------
Cash and cash equivalents at the end of the period . . . . . . . $ 86,240,108 75,896,364
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
(Unaudited)
</CAPTION>
<S> <C> <C>
Interest paid during the period . . . . . . . . . . . . . . . . $ 27,123,690 24,476,731
Income taxes paid during the period . . . . . . . . . . . . . . 2,532,406 2,275,192
============== ==============
<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)
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 1995 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,
1996 and 1995, was computed using the consolidated effective
federal income tax rates.
For the first six months of 1996 and 1995, 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 1996, options on 5,000 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. These
transactions added $54,154 to the equity of the Company.
<PAGE>
Part 1 -- Item 1
Page 2 of 2
5. Common Stock Transactions, cont.
In 1992, the Company originated a long-term stock compensation
plan for key management personnel. Compensation expense associated
with this plan for the first six months of 1996 and 1995 was
$600,893 and $195,822, respectively.
The Company issued 14,718 and 20,089 shares of common stock
under the long-term stock compensation plan for 1996 and 1995,
respectively. These transactions added $334,835 and $361,602 to the
equity of the Company for the years 1996 and 1995, respectively.
In 1994, the Board of Directors authorized a plan to
repurchase the Company's common stock. In May 1996, the Board of
Directors authorized the repurchase of up to $10 million of common
stock during 1996. Through June 30, 1996, 202,800 shares had been
repurchased at a cost of $4,711,981. Since the plan's inception,
the Company has repurchased 505,733 shares at a total cost of
$10,393,042.
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 1996 and 1995 were 7,645,579 and 7,820,107,
respectively, which included shares related to the long-term stock
compensation plan.
<PAGE>
PART I -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Capital Resources
Brenton Banks, Inc. (the "Company") produced strong earnings
growth during the first half of 1996, with net income increasing to
$7,147,758, compared to $5,014,018 for the first six months of
1995, an increase of 42.6 percent. The Company's annualized return
on average assets (ROA) was .95 percent, compared to .68 percent
for the same period in 1995; the annualized return on average
equity (ROE) was 11.97 percent, compared to 8.80 percent one year
ago.
Common stockholders' equity totaled $118,414,007 as of June
30, 1996, a .9 percent decrease from December 31, 1995. This
decrease was primarily caused by the repurchase of common stock and
a change from a net gain to a net loss position in the unrealized
gains (losses) on assets available for sale from the end of the
year to June 30, 1996.
As part of the Company's ongoing stock repurchase plan,
202,800 shares have been repurchased during the first half of 1996
at a cost of $4,711,981. In May, 1996, the Board of Directors
approved an increase in the authorization amount for the common
stock repurchase plan from $5 million to $10 million for calendar
year 1996. Since the inception of the plan in 1994, the Company
has repurchased 505,733 shares at a total cost of $10,393,042.
As mentioned above, part of the decrease in stockholders'
equity was attributable to the change in the unrealized gains or
losses on assets available for sale. At June 30, 1996, aggregate
unrealized losses on assets available for sale totaled $762,620,
while at December 31, 1995, aggregate unrealized gains on assets
available for sale totaled $1,358,402. This change resulted in a
net decrease of $2,121,022 in common stockholders' equity at June
30, 1996.
The Company continues to monitor its capital position to
enhance overall shareholder value, while maintaining adequate
capital levels for regulatory purposes. The Company's risk-based
core capital ratio was 11.72 percent at June 30, 1996, and the
total risk-based capital ratio was 12.88 percent. These exceeded
the minimum regulatory requirements of 4.00 and 8.00 percent,
respectively. The Company's tier 1 leverage ratio, which measures
capital excluding intangible assets, was 7.50 percent at June 30,
1996, exceeding the regulatory minimum requirement range of 3.00 to
5.00 percent. Each of these capital calculations exclude the
unrealized gains on assets available for sale.
<PAGE>
Part 1 -- Item 2
Page 2 of 8
The Company paid dividends of $.24 per common share in the
first six months of 1996 compared to $.22 per common share for the
same period of 1995, an increase of 9.1 percent. Dividends for the
first six months totaled $1,823,366. In July, 1996, the Board of
Directors increased the regular quarterly cash dividend to $.13 per
common share compared, to $.12 per common share for the previous
quarter.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 9.9 percent at June 30, 1996. This percentage has
decreased by .5 percent from the December 31, 1995 ratio of 10.4
percent. In addition, the Parent Company has a $2 million line of
credit with a regional bank that was unused at the end of June,
1996.
Brenton Banks, Inc. common stock closed June, 1996 at $24.25
per share, which is 1.53 times the book value per share of $15.85
on the same date. This closing stock price represented a price-
to-trailing-12-months-earnings multiple of 14.9 times.
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 has a fully integrated asset-liability management
system to assist in managing the balance sheet. This system
performs simulations of the effects of various interest rate
scenarios on net interest income and is used to project the results
of alternative investment decisions. Management performs analysis
of the simulations to manage interest rate risk, the net interest
margin and levels of net interest income.
The asset-liability simulations indicate that net interest
income will be maximized in a stable interest rate environment.
The Company currently believes that net interest income would fall
by less than 5 percent if interest rates immediately increased or
decreased by 300 basis points, which is within the Company policy
limit.
Many steps have been taken over the past year to restructure
the Company's balance sheet in a way that will lessen the impact of
interest rate fluctuations on net interest income. The Company has
increased its variable rate consumer loans by $48.6 million since
the inception of this product in December, 1994.
<PAGE>
Part 1 -- Item 2
Page 3 of 8
The Company has also reduced its reliance on residential real
estate loans with long repricing periods. This was done by
securitizing approximately $56 million of these loans during 1995.
At June 30, 1996, $44 million of these loan pools had been sold at
a loss of approximately $25,500, and $10 million were held in the
Company's available for sale investment portfolio. In addition,
the residential real estate loan portfolio is down by $90 million
from June 30, 1995, or 30.8 percent.
In addition to normal balance sheet instruments, the Company
has utilized Federal Home Loan Bank borrowings and interest rate
swaps to reduce interest rate risk.
Liquidity
The Company actively monitors and manages its liquidity
position. The objective is to maintain sufficient cash flows to
fund operations and meet customer commitments. Federal funds sold,
loans held for sale and assets 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 asset-liability position. Federal funds sold and assets
available for sale comprised 28.4 percent of the Company's total
assets at June 30, 1996.
Net cash provided from Company operations is another major
source of liquidity. The net cash provided from operating
activities was $9,191,872 for the first half of 1996. The
Company's trend of strong cash flows from operations is expected to
continue into the foreseeable future.
The Company's stable deposit base and relatively low levels of
large deposits resulted in low dependence on volatile liabilities.
As of June 30, 1996, the Company had borrowings of $38,150,000 from
the Federal Home Loan Bank of Des Moines, of which $28,150,000 were
used as a means of providing long-term fixed-rate funding for
certain fixed-rate assets and managing interest rate risk. The
remaining $10,000,000 of borrowings from the Federal Home Loan Bank
represents a variable rate, short-term line of credit used to fund
mortgage loans originated for sale.
The combination of a high level of potentially liquid assets,
strong cash flows from operations and low dependence on volatile
liabilities provided sufficient liquidity for the Company at June
30, 1996.
<PAGE>
Part 1 -- Item 2
Page 4 of 8
Results of Operations
The six months ended June 30, 1996, compared to the six months
ended June 30, 1995.
Net Income
For the six months ended June 30, 1996, Brenton recorded net
income of $7,147,758, which is an increase of 45.3 percent from net
income for the first six months of 1995, which totaled $5,014,018.
On a per common and common stock equivalent share basis, net income
was $.93 per share for the first half of 1996, compared to $.64 per
share for the first half of 1995. The Company's total assets at
June 30, 1996 were consistent with 1995 levels of $1.6 billion.
Net Interest Income
During the first six months of 1996, net interest income grew
5.7 percent to $27,536,357, compared to $26,059,688 for the same
period a year ago. The increase was primarily due to improved net
interest margin, which increased 16 basis points from 3.84 percent
for the first half of 1995 to 4.00 percent for the first half of
1996. This improvement in margin was primarily the result of
interest-bearing liability costs decreasing more than the yield on
interest-earning assets.
Loan Quality
The Company's loan quality remained solid through June 30,
1996. Nonperforming loans increased slightly to $5,236,000 or .57
percent of loans at June 30, 1996. Reserves remained strong at
221.7 percent of nonperforming loans and 1.27 percent of total
loans. Nonperforming loans include loans on nonaccrual status,
loans that have been renegotiated to below market interest rates or
terms, and loans past due 90 days or more.
The provision for loan losses totaled $1,500,000 for the six
months ended June 30, 1996, compared to $918,550 for the same
period one year ago. The increase in the provision is related to
an increase in delinquencies and net charge-offs on consumer loans
during the first quarter of 1996. Delinquency levels were reduced
in the second quarter. The Company also desires to gradually
increase the reserve as a percent of loans over the next few years.
Net charge-offs were .21 percent of average loans for the first six
months of 1996, compared with .13 percent for the same period last
year.
<PAGE>
Part 1 -- Item 2
Page 5 of 8
Noninterest Income
The Company has made a conscious effort to enhance fee-based
financial services. Noninterest income for the six months ended
June 30, 1996 was $10,859,236 (excluding securities gains and
losses), a 23.8 percent increase from $8,772,119 one year ago. All
categories of noninterest income were higher than prior year.
Brokerage commissions rose 36.9 percent, reflecting a strong
market and substantially higher volumes. Insurance commissions and
fees were up 13.8 percent, primarily due to higher sales of credit
insurance and increases in insurance agency commissions.
Service charges on deposits increased 27.5 percent to
$3,268,408 from the first half of 1995. This increase was due to
focusing on collecting a higher percentage of fees that are
assessed. Mortgage banking fees totaled $1,001,368 for the first
six months of 1996, compared to $533,301 for the prior year. This
increase is attributed to a higher volume of real estate mortgage
loan originations and a greater percentage of loans being sold into
the secondary market.
Fiduciary income rose 13.5 percent to $1,377,035. Other
operating income and other service charges, collection and exchange
charges, commissions and fees showed moderate increases of 7.6
percent and 1.2 percent, respectively.
Securities transactions created an additional increase in
noninterest income. Securities gains for the first half of 1996
totaled $314,406 versus losses for the first half of 1995 of
$2,498.
Noninterest income (excluding securities gains and losses) for
the six months ended June 30, 1996 represented 1.38 percent of
average assets and 39.44 percent of total operating income, which
were the highest levels in the history of the Company. For the six
months ended June 30, 1995, noninterest income (excluding
securities gains and losses) represented 1.12 percent of average
assets and 33.66 percent of total operating income.
Noninterest Expense
Noninterest expense for the first half of 1996 decreased 2.2
percent to $26,825,673, compared to $27,417,571 for the same period
one year ago. The improvement was primarily due to an 83.4 percent
reduction in FDIC insurance premium assessments on deposits and a
decline of 6.1 percent in employee benefit expenses.
<PAGE>
Part 1 -- Item 2
Page 6 of 8
Salaries and wages increased 4.2 percent to $12,221,667 for
the first half of 1996, compared to $11,725,481 for 1995. Fixed
compensation expense was down from the prior year while variable
compensation expense grew due to higher sales of insurance,
mortgage and investment products.
Occupancy expense for the six months ended June 30, 1996
totaled $2,666,955 compared to $2,498,433 for the prior year, an
increase of $168,522 or 6.7 percent. Increases in this category
are related to depreciation expense and repairs and maintenance
expenses. The $61,559 increase in depreciation is due to realizing
a full year of depreciation in 1996 on new and renovated banking
offices completed in 1995. The $54,620 increase in building
repairs and maintenance is primarily due to engaging a third party
facility manager, who will provide better service and over time,
cost savings for the organization.
Supplies expense increased by $143,271, or 23.9 percent over
same period of prior year. The majority of this increase was due
to increased check orders related to the 1995 bank merger. The
Company provided check reorders free of charge to customers who had
duplicate account numbers related to the merger.
Furniture and equipment, data processing and other operating
expenses remained virtually flat over the prior year with increases
of only 1.1 percent, .9 percent and .7 percent, respectively.
The Company continues to focus on cost management and
evaluates all major expense items in an effort to control the
growth rate of various noninterest expense categories.
The Company's net noninterest margin, which measures operating
efficiency, was 2.03 percent, compared to 2.41 percent one year
ago. Another ratio that measures productivity is the efficiency
ratio. At June 30, 1996, the Company's efficiency ratio was 67.07
percent, compared to 75.10 percent one year ago.
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 28.3 percent for the first six months of
1996 compared to 19.0 percent for 1995.
<PAGE>
Part 1 -- Item 2
Page 7 of 8
Results of Operations
The three months ended June 30, 1996, compared to the three months
ended June 30, 1995.
Net Income
For the three months ended June 30, 1996, net income totaled
$3,567,511, compared to $2,564,240, an increase of 39.1 percent.
Earnings per common and common equivalent share totaled $.47 for
the second quarter of 1996, compared to $.33 for the second quarter
for 1995.
Net Interest Income
Net interest income for the quarter totaled $13,867,395, an
increase of $821,761 or 6.3 percent over the second quarter of the
prior year. The second quarter net interest margin was 4.01
percent, compared to 3.87 percent in 1995.
Provision for Loan Losses
The provision for loan losses for the second quarter of 1996
totaled $800,000, compared to $458,625 for the second quarter of
1995. Net charge-offs were .18 percent of average loans for the
second quarter of 1996, compared with .12 percent for the same
period last year. The increased provision relates to the higher
level of net charge-offs and the Company's desire to increase the
reserve as a percent of total loans.
Noninterest Income
Noninterest income increased by $1,123,145 or 25.0 percent,
from the second quarter of 1995 to the second quarter of 1996.
Similar to the results for the first half of the year, every
category of noninterest income posted an increase over prior year.
Service charges on deposit accounts increased $324,437 or 24.0
percent. Fiduciary income increased 28.3 percent, brokerage
commissions increased 15.9 percent and mortgage banking income
increased 31.1 percent.
<PAGE>
Part 1 -- Item 2
Page 8 of 8
Noninterest Expense
Noninterest expense decreased 1.9 percent when comparing the
second quarter of 1996 with the second quarter of 1995. FDIC
deposit insurance assessment premiums had the largest change with
a decrease of $620,323 or 82.6 percent. Salary and related fringe
benefit costs increased 6.4 percent. This increase was due to the
increase in variable compensation cost related to increased financial
services income discussed under noninterest income. Fixed
compensation expense actually showed a decrease. The Company's net
noninterest margin was 2.02 percent for the second quarter of 1996
compared to 2.36 percent for the second quarter of 1995.
Looking Ahead
The development and implementation of the "Strategy for
Success" continues throughout 1996. This plan called for several
changes that are now in place including greater customer focus, a
new line of business structure, the development of alternative
delivery systems and the merger of our 13 commercial banks. The
Company has experienced a number of new efficiencies with these
changes in place. As the plan continues, management is turning its
attention toward the development of successful sales initiatives,
particularly in the areas of direct consumer lending and fee-
producing services.
This strategy continues to emphasize a strong commitment to
customer relationships and the communities we serve while providing
profitability for the shareholders.
The Board of Directors is submitting to the shareholders for
their approval the 1996 Stock Option Plan (the "Plan") that was
unanimously approved by the Board of Directors on July 11, 1996.
The Plan authorizes the granting of options or up to 500,000 shares
of the Company's stock to key employees of the Company. The
purpose of the Plan is to support the creation of shareholder value
by aligning the interests of key employees with those of the
shareholders. On September 5, 1996, there will be a special
meeting of stockholders to vote on this plan.
<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, 1996.
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)
Robert L. DeMeulenaere
Dated (Signature)
President
Steven T. Schuler
Dated (Signature)
Chief Financial Officer/
Treasurer/Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 68,771,560
<INT-BEARING-DEPOSITS> 768,548
<FED-FUNDS-SOLD> 16,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 420,563,407
<INVESTMENTS-CARRYING> 97,394,602
<INVESTMENTS-MARKET> 97,624,000
<LOANS> 926,341,519
<ALLOWANCE> (11,607,844)
<TOTAL-ASSETS> 1,579,379,091
<DEPOSITS> 1,332,830,017
<SHORT-TERM> 74,001,939
<LIABILITIES-OTHER> 20,661,002
<LONG-TERM> 33,472,126
<COMMON> 37,350,850
0
0
<OTHER-SE> 81,063,157
<TOTAL-LIABILITIES-AND-EQUITY> 1,579,379,091
<INTEREST-LOAN> 39,338,548
<INTEREST-INVEST> 14,719,884
<INTEREST-OTHER> 824,410
<INTEREST-TOTAL> 54,882,842
<INTEREST-DEPOSIT> 24,820,576
<INTEREST-EXPENSE> 2,525,909
<INTEREST-INCOME-NET> 27,536,357
<LOAN-LOSSES> 1,500,000
<SECURITIES-GAINS> 314,406
<EXPENSE-OTHER> 27,118,892
<INCOME-PRETAX> 10,091,107
<INCOME-PRE-EXTRAORDINARY> 10,091,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,147,758
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
<YIELD-ACTUAL> 7.55
<LOANS-NON> 3,096,000
<LOANS-PAST> 1,793,000
<LOANS-TROUBLED> 347,000
<LOANS-PROBLEM> 5,236,000
<ALLOWANCE-OPEN> 11,069,869
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