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, 1997
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 200, 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
1, 1997.
8,706,514 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,
1997 1996
______________ ____________
</CAPTION>
<S> <C> <C>
Assets:
Cash and due from banks $ 76,963,588 76,900,524
Interest-bearing deposits with banks 1,001,071 731,554
Federal funds sold and securities purchased
under agreements to resell 17,000,000 15,200,000
Trading account securities 9,788 ----
Investment securities:
Available for sale 441,599,523 461,099,272
Held to maturity (approximate market value of
$67,441,000 and $73,316,000 at June 30 1997,
and December 31, 1996, respectively) 66,455,907 72,754,985
_____________ _____________
Investment securities 508,055,430 533,854,257
_____________ _____________
Loans held for sale 10,621,117 5,870,298
Loans 980,320,114 941,943,513
Allowance for loan losses (12,286,775) (11,328,359)
_____________ _____________
Loans, net 968,033,339 930,615,154
_____________ _____________
Premises and equipment 29,756,531 30,379,446
Accrued interest receivable 13,746,979 14,417,786
Other assets 30,219,830 24,126,063
_____________ _____________
Total assets $1,655,407,673 1,632,095,082
============== =============
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 150,726,180 153,284,094
Interest-bearing:
Demand 91,949,005 99,277,477
Savings 533,034,143 527,791,360
Time 561,978,129 572,704,180
_____________ _____________
Total deposits 1,337,687,457 1,353,057,111
_____________ _____________
Federal funds purchased and securities sold
under agreements to repurchase 82,732,157 66,826,120
Other short-term borrowings 59,650,000 34,150,000
Accrued expenses and other liabilities 15,083,329 16,633,068
Long-term borrowings 30,413,000 34,860,024
_____________ _____________
Total liabilities 1,525,565,943 1,505,526,323
_____________ _____________
Minority interest in consolidated subsidiaries 4,774,236 4,614,530
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;
8,716,624 and 8,085,684 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 43,583,120 40,428,420
Capital surplus ---- ----
Retained earnings 78,954,277 80,448,768
Unrealized gains on securities available for sale 2,530,097 1,077,041
_____________ _____________
Total common stockholders' equity 125,067,494 121,954,229
_____________ _____________
Total liabilities and stockholders' equity $1,655,407,673 1,632,095,082
============= =============
<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
1997 1996 1997 1996
_____________ ____________ ______________ ____________
</CAPTION>
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $41,571,371 39,338,548 $21,130,004 19,775,045
Interest and dividends on investments:
Available for sale - taxable 11,052,977 9,317,665 5,404,855 4,779,138
Available for sale - tax-exempt 2,366,534 2,095,422 1,203,524 1,027,548
Held to maturity - taxable 495,653 1,762,572 181,472 774,975
Held to maturity - tax-exempt 1,290,316 1,544,225 670,556 744,948
__________ __________ __________ __________
Total interest and dividends on
investments 15,205,480 14,719,884 7,460,407 7,326,609
__________ __________ __________ __________
Interest on federal funds sold and
securities purchased under agreements
to resell 833,085 781,378 555,941 380,482
Other interest income 44,843 43,032 35,505 30,268
__________ __________ __________ __________
Total interest income 57,654,779 54,882,842 29,181,857 27,512,404
__________ __________ __________ __________
Interest Expense
Interest on deposits 24,382,409 24,820,576 12,303,536 12,268,081
Interest on federal funds purchased
and securities sold under agreements
to repurchase 1,652,606 1,004,196 942,007 585,280
Interest on other short-term borrowings 1,197,491 226,628 670,247 160,746
Interest on long-term borrowings 1,070,372 1,295,085 531,797 630,902
__________ __________ __________ __________
Total interest expense 28,302,878 27,346,485 14,447,587 13,645,009
__________ __________ __________ __________
Net interest income 29,351,901 27,536,357 14,734,270 13,867,395
Provision for loan losses 1,800,000 1,500,000 900,000 800,000
___________ __________ __________ __________
Net interest income after provision for
loan losses 27,551,901 26,036,357 13,834,270 13,067,395
__________ __________ __________ __________
Noninterest Income
Service charges on deposit accounts 3,529,124 3,268,408 1,818,666 1,676,747
Investment brokerage commissions 2,156,101 1,952,904 1,140,498 933,628
Insurance commissions and fees 1,727,444 1,441,830 767,895 731,455
Fiduciary income 1,522,648 1,377,035 713,511 765,146
Mortgage banking income 1,238,019 1,001,368 687,747 480,161
Other service charges, collection and
exchange charges, commissions and fees 1,529,629 1,325,832 790,755 671,280
Net gains (losses) from securities
available for sale 276,456 314,406 25,791 139,881
Other operating income 708,798 491,859 293,695 223,636
__________ __________ __________ __________
Total noninterest income 12,688,219 11,173,642 6,238,558 5,621,934
__________ __________ __________ __________
Noninterest Expense
Compensation 12,589,353 12,221,667 6,306,759 6,231,540
Employee benefits 2,319,417 2,219,720 1,024,864 1,056,230
Occupancy expense of premises, net 2,864,366 2,666,955 1,398,308 1,309,521
Furniture and equipment expense 1,762,192 1,918,416 793,424 972,986
Data processing expense 1,440,376 1,280,426 716,469 646,551
FDIC deposit insurance assessment 143,224 249,887 71,937 131,160
Marketing 780,277 850,409 435,298 399,458
Supplies 519,907 741,694 246,119 315,347
Other operating expense 5,290,945 4,676,499 2,680,705 2,407,841
__________ __________ __________ __________
Total noninterest expense 27,710,057 26,825,673 13,673,883 13,470,634
__________ __________ __________ __________
Income before income taxes and
minority interest 12,530,063 10,384,326 6,398,945 5,218,695
Income taxes 3,562,999 2,943,349 1,809,278 1,497,652
__________ __________ __________ __________
Income before minority interest 8,967,064 7,440,977 4,589,667 3,721,043
Minority interest 358,758 293,219 182,717 153,532
__________ __________ __________ __________
Net income $ 8,608,306 7,147,758 4,406,950 3,567,511
========== ========== ========== ==========
Per common and common equivalent share:
Net income $ .95 .77 .49 .39
Cash dividends .245 .198 .127 .099
<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
(Unaudited)
For the six months ended June 30,
1997 1996
------ -------
</CAPTION>
<S> <C> <C>
Operating Activities:
Net income $ 8,608,306 7,147,758
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,800,000 1,500,000
Depreciation and amortization 2,147,111 2,247,045
Net gains from securities available
for sale (276,456) (314,406)
Net increase in loans held for sale (4,750,819) (3,118,880)
Net (increase) decrease in accrued interest
receivable and other assets (1,570,106) 538,671
Net increase (decrease) in accrued expenses,
other liabilities and minority interest (1,443,038) 1,191,684
__________ ___________
Net cash provided (used) by operating activities 4,514,998 9,191,872
__________ ___________
Investing Activities:
Investment securities available for sale:
Purchases (128,965,345) (161,548,700)
Maturities 85,399,173 98,565,601
Sales 65,762,070 35,767,623
Investment securities held to maturity:
Purchases (13,730,268) (32,820,737)
Maturities 20,029,346 43,508,348
Net increase in loans (39,218,185) (5,284,143)
Purchase of other assets for investment (5,000,000) ----
Purchases of premises and equipment (1,232,094) (1,407,703)
Proceeds from sale of premises and equipment (58,588) 814,003
___________ ____________
Net cash used by investing activities (17,013,891) (22,405,708)
___________ ____________
Financing Activities:
Net decrease in noninterest-bearing, interest-
bearing demand and savings deposits (4,643,603) (6,078,002)
Net decrease in time deposits (10,726,051) (23,034,696)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 15,906,037 16,394,528
Net increase in other short-term borrowings 13,500,000 14,000,000
Proceeds of long-term borrowings 9,233,000 484,000
Repayment of long-term borrowings (1,680,024) (5,189,678)
Dividends on common stock (2,166,398) (1,823,366)
Proceeds from issuance of common stock under
the employee stock purchase plan 262,724 ----
Proceeds from issuance of common stock under
the stock option plan 218,768 54,154
Proceeds from issuance of common stock under
the long-term stock compensation plan 460,345 334,835
Payment for shares acquired under common stock
repurchase plan (5,707,138) (4,711,981)
Payment for fractional shares resulting from stock dividend (16,398) ----
__________ ___________
Net cash provided (used) by financing activities 14,641,262 (9,570,206)
__________ ___________
Net increase (decrease) in cash and cash equivalents 2,142,369 (22,784,042)
Cash and cash equivalents at the beginning of the year 92,832,078 109,024,150
__________ ___________
Cash and cash equivalents at the end of the period $94,974,447 86,240,108
========== ===========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
(Unaudited)
</CAPTION>
<S> <C> <C>
Interest paid during the period $ 27,611,552 27,123,690
Income taxes paid during the period 4,569,615 2,532,406
=========== ==========
<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 notes to consolidated financial statements contained
in the Appendix to the Proxy Statement for the year ended December
31, 1996.
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. Changes in Accounting Policies
Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," was issued in February 1997 and will be
effective for the Company for periods ending after December 15,
1997, and may not be adopted prior to such date. This statement
establishes standards for computing and presenting earnings per
share. The Company expects to adopt SFAS No. 128, when required,
and management anticipates adoption of this statement will not have
a material effect on earnings-per-share disclosures.
5. Income Taxes
Federal income tax expense for the six months ended June
30, 1997 and 1996, was computed using the consolidated effective
federal income tax rates.
For the first six months of 1997 and 1996, the Company
also recognized income tax expense pertaining to state franchise
taxes payable individually by the subsidiary banks.
<PAGE>
Part 1 -- Item 1
Page 2 of 2
6. Common Stock Transactions
On May 6, 1997, the Board of Directors declared a ten
percent common stock dividend for stockholders of record on May 15,
1997. The stock dividend certificates were distributed on May 28,
1997. Fractional shares resulting from this stock dividend were
paid in cash.
During the first six months of 1997, options on 18,160
shares of common stock were exercised under the Company's 1987
Nonqualified Stock Option Plan. 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 $218,768 to the equity
of the Company.
In 1992, the Company instituted a long-term stock
compensation plan for key management personnel. Compensation
expense associated with this plan for the first six months of 1997
and 1996 was $600,000 and $600,893, respectively.
The Company issued 16,589 and 14,718 shares of
common stock under the long-term stock compensation plan
during the first six months of 1997 and 1996, respectively,
adding $460,345 and $334,834, respectively, to the equity of
the Company.
As part of the Company's on-going stock repurchase plan,
in January 1997, the Board of Directors approved the repurchase of
up to $10 million of the Company's common stock during 1997.
Through June 30, 1997, 206,900 shares had been repurchased at a
cost of $5,707,138.
The Company's Employee Stock Purchase Plan allows
employees to purchase the Company's common stock at 85 percent of
the current market price on four defined purchase dates during the
year. The Company issued 9,710 shares of common stock under this
plan during the first six months of 1997. This transaction added
$262,724 to the equity of the Company.
7. 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 1997 and 1996 was 9,024,879 and 9,251,151,
respectively, which included common stock equivalent shares related
to the 1995 Long-Term Stock Compensation Plan and the 1996 Stock
Option Plan.
<PAGE>
Part 1 -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Capital Resources
Brenton Banks, Inc. and subsidiaries (the "Company")
reported strong earnings growth during the first half of 1997, with
net income increasing to $8,608,306, compared to $7,147,758 for the
first six months of 1996, an increase of 20.4 percent. The
Company's annualized return on average assets (ROA) was 1.10
percent, compared to .95 percent for the same period in 1996; the
annualized return on average equity (ROE) was 14.09 percent,
compared to 11.97 percent one year ago.
Common stockholders' equity totaled $125,067,494 as of
June 30, 1997, a 2.6 percent increase from December 31, 1996. The
Company continues to monitor its capital position to balance the
goals of maximizing return on average equity, while maintaining
adequate capital levels for business risk and regulatory purposes.
The Company's risk-based core capital ratio at June 30, 1997, was
11.25 percent and the total risk-based capital ratio was 12.36
percent. These ratios exceeded the minimum regulatory requirements
of 4.00 and 8.00 percent, respectively. The Company's tier 1
leverage capital ratio, which measures capital excluding intangible
assets, was 7.64 percent at June 30, 1997, exceeding the regulatory
minimum requirement for well-capitalized institutions of 5.0
percent.
As part of the Company's ongoing stock repurchase plan,
206,900 shares have been repurchased during the first half of 1997
at a cost of $5,707,138. The Board of Directors has approved the
repurchase of $10 million of Company stock during 1997. Since the
inception of the plan in 1994, the Company has repurchased 857,533
shares at a total cost of $19,636,530.
In May 1997, the Board of Directors declared a 10 percent
common stock dividend. As a result of this action, each
shareholder received one additional share of Brenton Banks, Inc.
common stock for every 10 shares they owned. Fractional shares
were paid in cash. All per-share data has been restated to reflect
the 10 percent common stock dividend.
The Company paid dividends of $.245 per common share in
the first six months of 1997, compared to $.198 per common share
for the same period of 1996, an increase of 23.7 percent.
Dividends for the first six months of 1997 totaled $2,166,398. In
July 1997, the Board of Directors increased the regular quarterly
cash dividend to $.14 per common share, compared to $.127 per
common share for the previous quarter. The dividend payout ratio
for the first half of 1997 was 25.8 percent of earnings per share.
<PAGE>
Part 1 -- Item 2
Page 2 of 9
The debt-to-equity ratio of Brenton Banks, Inc. (the
"Parent Company") was 8.3 percent at June 30, 1997. This
percentage has decreased by .9 percent from the December 31, 1996,
ratio of 9.2 percent. The Parent Company has a $2 million line of
credit with a regional bank that was unused at the end of June,
1997. Long-term borrowings of the Parent Company at June 30, 1997,
consisted entirely of capital notes totaling $10,363,000.
Brenton Banks, Inc. common stock closed on June 30, 1997,
at a bid price of $27.50 per share, an increase of 37.2 percent
over the prior year. The closing price at June 30, 1997, was 192
percent of the book value per share of $14.35. This closing stock
price represented a price-to-trailing-12-months-earnings multiple
of 16.1 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.
Forward-Looking Information
Forward-looking information relating to the financial
results or strategies of the Company are referenced throughout
Management's Discussion and Analysis. The following paragraphs
identify forward-looking statements and the risks that need to be
considered when reading those statements.
Forward-looking statements include such words as believe,
expect, anticipate, target, goal, objective or other words with
similar meaning. The Company is under no obligation to update such
forward-looking information statements.
The risks involved in the operations and strategies of
the Company include competition from other financial institutions,
changes in interest rates, changes in economic or market conditions
and changes in regulations from the federal and state regulators.
These risks, which are not all inclusive, cannot be estimated.
Asset-Liability Management
The Company has a fully-integrated asset-liability
management system to assist in managing the balance sheet. The
process, which is used to project the results of alternative
investment decisions, includes the development of simulations that
reflect the effects of various interest rate scenarios on net
interest income. Management analyzes the simulations to manage
interest rate risk, the net interest margin and levels of net
interest income.
<PAGE>
Part 1 -- Item 2
Page 3 of 9
The goal is to structure the balance sheet so net
interest margin fluctuates in a relatively narrow range during
periods of changing interest rates. The Company currently believes
that net interest income would fall by less than 4 percent if
interest rates increased or decreased by 300 basis points over a
one-year time horizon. This is within the Company's policy limits.
The slope of the yield curve is also a major determinant
in the net interest income of the Company. Generally, the steeper
the intermediate treasury to LIBOR curve, the better the prospects
for net interest income improvement.
The Company continues to reduce its reliance on
residential real estate loans with long repricing periods. When
appropriate for interest rate management purposes, the Company will
consider securitization of real estate loans. Another key to
interest rate risk management is continuing to increase variable-
rate loans as a percent of total earning assets. Progress
continues to be made in this area.
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 with the objective of maintaining sufficient cash flows to
fund operations and meet customer commitments. Federal funds sold,
trading account securities, loans held for sale and investment
securities 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. Readily marketable assets, as defined above,
comprised 28.3 percent of the Company's total assets at June 30,
1997.
Net cash provided from Company operations is another
primary source of liquidity. The net cash provided from operating
activities was $4,514,998 for the first half of 1997. The
Company's trend of strong cash flows from operations is expected to
continue into the foreseeable future.
The Company has historically maintained a stable deposit
base and a relatively low level of large deposits which result in a
low dependence on volatile liabilities. As of June 30, 1997, the
Company had borrowings of $79,700,000 from the Federal Home Loan
Bank ("FHLB") of Des Moines, of which $76,200,000 were used as a
means of providing both long-term, fixed and variable rate funding
for certain assets, managing interest rate risk and funding the
<PAGE>
Part 1 -- Item 2
Page 4 of 9
purchase of certain investment securities. The remaining
$3,500,000 represents an advance on a variable rate, short-term
$10,000,000 line of credit used to fund mortgage loans originated
for sale. The Company had additional borrowing capacity available
from the FHLB of approximately $52 million at June 30, 1997.
The combination of high levels of potentially liquid
assets, strong cash flows from operations, low dependence on
volatile liabilities and additional borrowing capacity provided
sufficient liquidity for the Company at June 30, 1997.
Results of Operations
THE SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1996.
Net Income
For the six months ended June 30, 1997, Brenton recorded
net income of $8,608,306, which is an increase of 20.4 percent from
net income for the first six months of 1996 of $7,147,758. On a
per common and common stock equivalent share basis, net income was
$.95 per share for the first half of 1997, compared to $.77 per
share for the first half of 1996, an increase of 23.4 percent.
Net Interest Income
During the first six months of 1997, net interest income
grew 6.6 percent to $29,351,901, compared to $27,536,357 for the
same period a year ago. Net interest margin increased 12 basis
points from 4.00 percent for the first half of 1996 to 4.12 percent
for the first half of 1997. The increase in net interest margin is
directly attributable to an increase in the yield earned on average
earning assets of 12.5 basis points. Year-to-date average earning
assets increased 3.6 percent from the first six months of 1996 to
the first six months of 1997. Along with this increase, the
Company also experienced a favorable change in the mix of average
earning assets. The average balance of commercial and consumer
loans increased $55.2 million, while the average balance of
residential real estate loans decreased $22.7 million. This change
in the loan mix improves the margin as well as lessens interest
rate risk for the Company.
Loan Quality
Nonperforming loans totaled $7,350,000 at June 30, 1997,
compared to $5,236,000 at June 30, 1996. Nonperforming loans
include loans on nonaccrual status, loans that have been
renegotiated to below market interest rates or terms, and loans
<PAGE>
Part 1 -- Item 2
Page 5 of 9
past due 90 days or more. The increase in nonperforming loans
resulted from a small number of commercial loans going more than 90
days past due. The nonaccrual loan category has actually decreased
by $1,188,000 over one year ago. Asset quality remains strong, and
reserves are considered adequate at 1.25 percent of total loans.
The provision for loan losses totaled $1,800,000 for the
six months ended June 30, 1997, compared to $1,500,000 for the same
period one year ago. The increase in the provision is related to
recent and projected growth in the loan portfolio. Annualized net
charge-offs were .18 percent of average loans for the first six
months of 1997, compared with .21 percent for the same period last
year.
Noninterest Income
Noninterest income for the six months ended June 30,
1997, was $12,411,763 (excluding securities gains and losses), a
14.3 percent increase from $10,859,236 one year ago.
Compared to the same period a year ago, service charges
on deposits were up $260,716 or 8.0 percent. This growth is due to
the continued focus of collecting a higher percentage of assessed
fees. The amount of fees collected as a percent of fees assessed
was 94.1 percent for the first half of 1997, compared to 84.3
percent for the first half of 1996.
Led by significant growth in credit insurance sales,
insurance commissions and fees were up 19.8 percent. Insurance
commissions and fees totaled $1,727,444 for the first six months of
1997, compared to $1,441,830 for the same period of 1996.
Investment brokerage commissions increased by $203,197 or
10.4 percent. Mortgage banking revenues rose 23.6 percent to total
$1,238,019 for the first half of 1997. The increase in mortgage
banking revenues is the result of increased volumes of loans closed
and sold on the secondary market compared to the same period of
last year.
Fiduciary income increased 10.6 percent to $1,522,648.
This increase is related to increased fees from personal trusts,
investment management and employee benefit plans.
Other service charges, collection and exchange charges,
commissions and fees increased $203,797 from the prior year
primarily due to increased fees from ATM/debit cards and fees
received from purchased receivables.
<PAGE>
Part 1 -- Item 2
Page 6 of 9
Other operating income increased $216,939 from one year
ago. Income from bank-owned life insurance policies, which did not
exist during the first half of 1996, accounted for the increase in
this category.
In addition, securities transactions produced gains of
$276,456, down 12.1 percent from gains of $314,406 for the same
period in 1996.
Noninterest Expense
Noninterest expense totaled $27,710,057 at June 30, 1997,
a 3.3 percent increase from the first six months of 1996.
Compensation, the largest component of noninterest
expense, increased 3.0 percent over the prior year. Fixed
salaries, those that are not based on commissions or incentives,
actually decreased by 3.1 percent, while variable compensation,
which is related to the sales of loans and fee-related products and
services, increased 26.2 percent. The Company is moving to more of
a variable performance-based incentive compensation philosophy
versus fixed-based compensation. The number of full-time
equivalent employees decreased by 3.8 percent from 1996.
Benefit expense increased 4.5 percent, due to increased
compensation expense, as well as benefits on year-end incentive and
bonus payouts. This item is historically higher in the first half
of the year.
Occupancy expense totaled $2,864,366 for the six months
ended June 30, 1997, compared to $2,666,955 for the same period of
1996. Increases within this category were associated with rents,
leases and building repairs and maintenance.
Furniture and equipment expense decreased by $156,224 for
the first half of 1997. Depreciation on furniture decreased by
$88,501, while depreciation on technological equipment increased by
$31,487. Repairs and maintenance for this category were lower than
1996 totals by $55,226.
The Company's FDIC deposit insurance assessment expense
decreased 42.7 percent from the prior year, primarily as a result
of a reduced assessment rate in 1997 related to the Savings
Insurance Association Fund ("SAIF") being fully funded in September
1996 through a federally mandated assessment.
<PAGE>
Part 1 -- Item 2
Page 7 of 9
The categories of marketing and supplies were down
$70,132 and $221,787, respectively, from the prior year. Data
processing expense increased $159,950 or 12.5 percent due to
increased costs during 1997 associated with contracted core
processing. Other operating expense increased by $614,446,
primarily due to increases in check processing fees, consulting
fees and miscellaneous losses.
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 1.88 percent, compared to 2.03 percent
one year ago. Another ratio that the Company utilizes to measure
productivity is the efficiency ratio. This ratio divides
noninterest expense by the sum of tax-equivalent net interest
income plus noninterest income (excluding gains and losses on the
sale of securities and loans). At June 30, 1997, the Company's
efficiency ratio had improved to 63.70 percent, compared with 67.07
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 28.4 percent for the first six
months of 1997 compared to 28.3 percent for 1996.
Results of Operations
THE THREE MONTHS ENDED JUNE 30, 1997, COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1996.
Net Income
For the three months ended June 30, 1997, net income
totaled $4,406,950, compared to $3,567,511 for the second quarter
of 1996, an increase of 23.5 percent. Earnings per common and
common equivalent share totaled $.49 for the second quarter of
1997, compared to $.39 for the second quarter of 1996.
<PAGE>
Part 1 -- Item 2
Page 8 of 9
Net Interest Income
Net interest income for the quarter totaled $14,734,270,
an increase of $866,875 or 6.3 percent over the second quarter of
the prior year. Net interest margin for the second quarter of 1997
was 4.11 percent, compared to 4.01 percent for the second quarter
of 1996. Similar to the six-month comparison, the increase in net
interest margin is related to an increase in the yield on average
earning assets. Quarter-to-date average earning assets increased
$58,964,340 or 4.0 percent over the second quarter of 1996. This
increase is partially related to the Company experiencing a lower
cash reserve requirement at the Federal Reserve Bank during 1997.
Provision for Loan Losses
The provision for loan losses for the second quarter of
1997 totaled $900,000, compared to $800,000 for the second quarter
of 1996. Annualized net charge-offs as a percent of average loans
were .24 percent for the second quarter of 1997, compared to .18
percent for the same period of 1996.
Noninterest Income
Noninterest income increased by $616,624 or 11.0 percent
from the second quarter of 1996 to the second quarter of 1997.
Service charges on deposit accounts increased $141,919 or 8.5
percent.
Mortgage banking income grew by $207,586 due to both
increased loan origination volume and smaller losses on loans sold
into the secondary market during 1997. Investment brokerage
commissions totaled $1,140,498, a 22.2 percent increase over the
second quarter of 1996.
Other service charges, collection and exchange charges,
commissions and fees increased $119,475 from the prior year, of
which $36,457 was attributable to increased fees from ATM/debit
cards and $45,390 from fees received from purchased receivables.
Net gains from securities transactions totaled $25,791
for the second quarter of 1997, compared to $139,881 for the same
period of 1996, a decrease of $114,090.
Noninterest Expense
Noninterest expense increased by 1.5 percent when
comparing the second quarter of 1997 with the second quarter of
1996. The Company's net noninterest margin was 1.83 percent for
the second quarter of 1997, compared to 2.02 percent for the second
quarter of 1996.
<PAGE>
Part 1 -- Item 2
Page 9 of 9
Compensation and related fringe benefit costs increased
by .6 percent over the second quarter of 1996. In total, these
costs remained steady, but the composition has changed from a year
ago. Fixed salaries decreased by 5.3 percent, while variable
compensation increased by 32.1 percent. The second quarter of 1996
also included severance-related costs of $130,523, while the second
quarter of 1997 did not include any such expense.
Occupancy expense for the second quarter of 1997 was
$1,398,308, an increase of 6.8 percent over the same period of the
prior year. The largest increase in this category was in rents and
leases, which increased by $61,029. Offsetting this increase was a
decrease of $26,425 in depreciation expense on buildings.
Furniture and equipment expense totaled $793,424 for the
second quarter of 1997, compared to $972,986 for the second quarter
of 1996. The decrease in this category is related to a decrease in
depreciation of $115,111 and a decrease in repairs and maintenance
of $44,147.
Data processing and marketing expenses increased by
$69,918 and $35,840, respectively, when comparing the second
quarter of 1997 to the second quarter of 1996. Expense related to
FDIC deposit insurance assessment and supplies declined by $59,223
and $69,228, respectively when comparing the two quarters.
Other operating expense for the second quarter of 1997
grew 11.3 percent, primarily due to increases in check processing
fees, legal fees and miscellaneous losses.
Looking Ahead
The company-wide commitment to sales and continuous
improvement produced significant results during the first two
quarters of 1997. The Company will continue to focus on creating a
sales-oriented culture throughout the organization. Through on-
going sales training, growing market competence and a renewed focus
on our clients and communities, the Company is producing
dramatically improved results.
The Company is emphasizing convenience banking by
delivering products and services via telephone through Brenton
Direct and a computerized response Anytime line, as well as through
transaction cards, ATMs, direct deposit and automatic payment
programs.
The Company also established a web site on the Internet
during the past quarter. The web site, at www.brentonbank.com,
contains information about the Company's products and services.
<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, 1997.
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)
August 5, 1997 /s/ Robert L. DeMeulenaere
- -----------------------------------------------------------------
Dated Robert L. DeMeulenaere
President
August 5, 1997 /s/ Steven T. Schuler
- ----------------------------------------------------------------
Dated Steven T. Schuler
Chief Financial Officer/
Treasurer/Secretary and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 76,963,588
<INT-BEARING-DEPOSITS> 1,001,071
<FED-FUNDS-SOLD> 17,000,000
<TRADING-ASSETS> 9,788
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<INVESTMENTS-CARRYING> 66,455,907
<INVESTMENTS-MARKET> 67,441,000
<LOANS> 980,320,114
<ALLOWANCE> (12,286,775)
<TOTAL-ASSETS> 1,655,407,673
<DEPOSITS> 1,337,687,457
<SHORT-TERM> 142,382,157
<LIABILITIES-OTHER> 19,857,565
<LONG-TERM> 30,413,000
<COMMON> 43,583,120
0
0
<OTHER-SE> 81,484,374
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<INTEREST-TOTAL> 57,654,779
<INTEREST-DEPOSIT> 24,382,409
<INTEREST-EXPENSE> 3,920,469
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<LOAN-LOSSES> 1,800,000
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<INCOME-PRETAX> 12,171,305
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<NET-INCOME> 8,608,306
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