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 September 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, November
3, 1997.
8,726,059 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)
September 30, December 31,
1997 1996
______________ ____________
</CAPTION>
<S> <C> <C>
Assets:
Cash and due from banks $ 71,182,538 76,900,524
Interest-bearing deposits with banks 894,817 731,554
Federal funds sold and securities purchased
under agreements to resell 9,600,000 15,200,000
Trading account securities ---- ----
Investment securities:
Available for sale 450,023,300 461,099,272
Held to maturity (approximate market value of
$68,762,000 and $73,316,000 at September 30 1997,
and December 31, 1996, respectively) 68,160,461 72,754,985
_____________ _____________
Investment securities 518,183,761 533,854,257
_____________ _____________
Loans held for sale 15,260,430 5,870,298
Loans 999,659,753 941,943,513
Allowance for loan losses (12,416,151) (11,328,359)
_____________ _____________
Loans, net 987,243,602 930,615,154
_____________ _____________
Premises and equipment 29,069,468 30,379,446
Accrued interest receivable 16,324,241 14,417,786
Other assets 29,257,888 24,126,063
_____________ _____________
Total assets $1,677,016,745 1,632,095,082
============== =============
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 160,594,022 153,284,094
Interest-bearing:
Demand 105,385,769 99,277,477
Savings 528,514,984 527,791,360
Time 563,560,699 572,704,180
_____________ _____________
Total deposits 1,358,055,474 1,353,057,111
_____________ _____________
Federal funds purchased and securities sold
under agreements to repurchase 70,500,467 66,826,120
Other short-term borrowings 66,200,000 34,150,000
Accrued expenses and other liabilities 16,461,176 16,633,068
Long-term borrowings 32,976,000 34,860,024
_____________ _____________
Total liabilities 1,544,193,117 1,505,526,323
_____________ _____________
Minority interest in consolidated subsidiaries 4,847,597 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;
8,715,409 and 8,085,684 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 43,577,045 40,428,420
Capital surplus ---- ----
Retained earnings 81,423,607 80,448,768
Unrealized gains on securities available for sale 2,975,379 1,077,041
_____________ _____________
Total common stockholders' equity 127,976,031 121,954,229
_____________ _____________
Total liabilities and stockholders' equity $1,677,016,745 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)
Nine Months Ended Three Months Ended
September 30 September 30
1997 1996 1997 1996
_____________ ____________ ______________ ____________
</CAPTION>
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $63,794,768 59,357,416 $22,223,397 20,018,868
Interest and dividends on investments:
Available for sale - taxable 16,430,788 14,591,053 5,377,811 5,273,388
Available for sale - tax-exempt 3,622,530 3,130,176 1,255,996 1,034,754
Held to maturity - taxable 663,075 2,408,450 167,422 645,878
Held to maturity - tax-exempt 1,960,890 2,287,203 670,574 742,978
__________ __________ __________ __________
Total interest and dividends on
investments 22,677,283 22,416,882 7,471,803 7,696,998
__________ __________ __________ __________
Interest on federal funds sold and
securities purchased under agreements
to resell 1,281,514 974,937 448,429 193,559
Other interest income 69,031 57,126 24,188 14,094
__________ __________ __________ __________
Total interest income 87,822,596 82,806,361 30,167,817 27,923,519
__________ __________ __________ __________
Interest Expense
Interest on deposits 36,742,184 37,074,484 12,359,775 12,253,908
Interest on federal funds purchased
and securities sold under agreements
to repurchase 2,476,270 1,750,167 823,664 745,971
Interest on other short-term borrowings 2,079,292 510,084 881,801 283,456
Interest on long-term borrowings 1,636,215 1,824,879 565,843 529,794
__________ __________ __________ __________
Total interest expense 42,933,961 41,159,614 14,631,083 13,813,129
__________ __________
Net interest income 44,888,635 41,646,747 15,536,734 14,110,390
Provision for loan losses 2,900,000 2,100,000 1,100,000 600,000
___________ __________ __________ __________
Net interest income after provision for
loan losses 41,988,635 39,546,747 14,436,734 13,510,390
__________ _________ __________ __________
Noninterest Income
Service charges on deposit accounts 5,380,520 4,945,145 1,851,396 1,676,737
Investment brokerage commissions 3,507,317 2,857,076 1,351,216 904,172
Insurance commissions and fees 2,359,806 2,197,294 632,362 755,464
Fiduciary income 2,293,351 2,055,384 770,703 678,349
Mortgage banking income 2,208,019 1,536,292 970,000 534,924
Other service charges, collection and
exchange charges, commissions and fees 2,472,327 2,046,335 942,698 720,503
Net gains (losses) from securities
available for sale 418,199 309,244 141,743 (5,162)
Other operating income 1,888,068 1,003,080 1,179,270 511,221
__________ __________ __________ __________
Total noninterest income 20,527,607 16,949,850 7,839,388 5,776,208
__________ __________ __________ __________
Noninterest Expense
Compensation 19,476,360 18,384,847 6,887,007 6,163,180
Employee benefits 3,322,924 3,236,670 1,003,507 1,016,950
Occupancy expense of premises, net 4,247,228 4,093,186 1,382,862 1,426,231
Furniture and equipment expense 2,709,025 2,872,876 946,833 954,460
Data processing expense 2,157,305 1,937,834 716,929 657,408
FDIC deposit insurance assessment 212,749 1,649,610 69,525 1,399,723
Marketing 1,080,326 1,252,871 300,049 402,462
Supplies 845,441 1,090,741 325,534 349,047
Other operating expense 8,539,328 6,992,054 3,248,383 2,315,555
__________ __________ __________ __________
Total noninterest expense 42,590,686 41,510,689 14,880,629 14,685,016
__________ __________ __________ __________
Income before income taxes and
minority interest 19,925,556 14,985,908 7,395,493 4,601,582
Income taxes 5,739,483 4,218,102 2,176,484 1,274,753
__________ __________ __________ __________
Income before minority interest 14,186,073 10,767,806 5,219,009 3,326,829
Minority interest 567,632 446,640 208,874 153,421
__________ __________ __________ __________
Net income $13,618,441 10,321,166 5,010,135 3,173,408
========== ========== ========== ==========
Per common and common equivalent share:
Net income $ 1.52 1.13 .57 .36
Cash dividends .385 .305 .140 .107
<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 nine months ended September 30,
1997 1996
------- -------
</CAPTION>
<S> <C> <C>
Operating Activities:
Net income $ 13,618,441 10,321,166
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 2,900,000 2,100,000
Depreciation and amortization 3,223,459 3,472,856
Net gains from securities available
for sale (418,199) (309,244)
Net increase in loans held for sale (9,390,132) (1,092,403)
Net increase in accrued interest
receivable and other assets (3,564,096) (2,284,431)
Net increase (decrease) in accrued expenses,
other liabilities and minority interest (10,458) 3,278,980
__________ ___________
Net cash provided by operating activities 6,359,015 15,486,924
__________ ___________
Investing Activities:
Investment securities available for sale:
Purchases (221,254,898) (225,882,799)
Maturities 128,642,624 130,117,549
Sales 107,268,391 45,408,932
Investment securities held to maturity:
Purchases (18,344,806) (36,731,780)
Maturities 22,939,330 52,391,450
Net increase in loans (59,528,448) (7,982,932)
Purchase of other assets for investment (5,000,000) ----
Purchases of premises and equipment (1,655,853) (1,849,692)
Proceeds from sale of premises and equipment 76,213 833,453
___________ ___________
Net cash used by investing activities (46,857,447) (43,695,819)
___________ ___________
Financing Activities:
Net increase in noninterest-bearing, interest-
bearing demand and savings deposits 14,141,844 1,499,114
Net decrease in time deposits (9,143,481) (33,288,889)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 3,674,347 32,251,678
Net increase in other short-term borrowings 20,050,000 8,000,000
Proceeds of long-term borrowings 11,798,000 494,000
Repayment of long-term borrowings (1,682,024) (1,311,090)
Dividends on common stock (3,385,769) (2,789,973)
Proceeds from issuance of common stock under
the employee stock purchase plan 341,202 ----
Proceeds from issuance of common stock under
the stock option plan 990,420 132,832
Proceeds from issuance of common stock under
the long-term stock compensation plan 207,920 334,835
Payment for shares acquired under common stock
repurchase plan (7,632,352) (6,952,869)
Payment for fractional shares resulting from stock dividend (16,398) ----
___________ ___________
Net cash provided (used) by financing activities 29,343,709 (1,630,362)
___________ ___________
Net decrease in cash and cash equivalents (11,154,723) (29,839,257)
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 $ 81,677,355 79,184,893
========== ===========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
(Unaudited)
</CAPTION>
<S> <C> <C>
Interest paid during the period $ 41,749,179 39,657,506
Income taxes paid during the period 6,166,115 4,064,906
=========== ==========
<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 nine months ended
September 30, 1997 and 1996, was computed using the consolidated
effective federal income tax rates.
For the first nine 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 nine months of 1997, options on 82,202
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 $990,420 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 nine months of 1997
and 1996 was $1,350,837 and $901,343, respectively.
The Company issued 16,589 and 14,718 shares of
common stock under the long-term stock compensation plan
during the first nine months of 1997 and 1996, respectively,
adding $207,920 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 September 30, 1997, 274,840 shares had been repurchased at
a cost of $7,632,352.
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 12,393 shares of common stock under this
plan during the first nine months of 1997. This transaction added
$341,202 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 8,978,449 and 9,191,086,
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 nine months of
1997, with net income increasing to $13,618,441, compared to
$10,321,166 for the first nine months of 1996, an increase of 31.9
percent. The Company's annualized return on average assets (ROA)
was 1.16 percent, compared to .91 percent for the same period in
1996; the annualized return on average equity (ROE) was 14.73
percent, compared to 11.58 percent one year ago.
Common stockholders' equity totaled $127,976,031 as of
September 30, 1997, a 4.9 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 September 30, 1997,
was 11.14 percent and the total risk-based capital ratio was 12.23
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 7.74 percent at September 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,
274,840 shares have been repurchased during the first three
quarters of 1997 at a cost of $7,632,352. 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 925,473 shares at a total cost of $21,561,743.
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 $.385 per common share in
the first nine months of 1997, compared to $.305 per common share
for the same period of 1996, an increase of 26.2 percent. The
dividend payout ratio for the first three quarters of 1997 was 25.3
percent of earnings per share. Dividends for the first nine months
of 1997 totaled $3,385,769. In October 1997, the Board of
Directors increased the regular quarterly cash dividend to $.16 per
common share, compared to $.14 per common share for the previous
quarter.
<PAGE>
Part 1 -- Item 2
Page 2 of 9
The debt-to-equity ratio of Brenton Banks, Inc. (the
"Parent Company") was 8.1 percent at September 30, 1997. This
percentage has decreased 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 September, 1997. Long-
term borrowings of the Parent Company at September 30, 1997,
consisted entirely of capital notes totaling $10,426,000.
Brenton Banks, Inc. common stock closed on September 30,
1997, at a bid price of $32.50 per share, an increase of 58.9
percent over the prior year. The closing price at September 30,
1997, was 221 percent of the book value per share of $14.68. This
closing stock price represented a price-to-trailing-12-months-
earnings multiple of 16.8 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 5 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.
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 September
30, 1997.
Net cash provided from Company operations is another
primary source of liquidity. The net cash provided from operating
activities was $6,359,015 for the nine months ended September 30,
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 September 30, 1997,
the Company had borrowings of $88,750,000 from the Federal Home
Loan Bank ("FHLB") of Des Moines, of which $83,250,000 was used as
a means of providing both long-term, fixed and variable rate
funding for certain assets, managing interest rate risk and funding
the purchase of certain investment securities. The remaining
$5,500,000 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 $42 million at September 30, 1997.
<PAGE>
Part 1 -- Item 2
Page 4 of 9
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 September 30, 1997.
Results of Operations
The nine months ended September 30, 1997, compared to the nine
months ended September 30, 1996.
Net Income
For the nine months ended September 30, 1997, Brenton
recorded net income of $13,618,441, which is an increase of 31.9
percent from net income for the first nine months of 1996 of
$10,321,166. Year-to-date earnings per common share grew 34.5
percent to $1.52, compared to $1.13 for the first three quarters of
1996.
Net Interest Income
During the first nine months of 1997, net interest income
grew 7.8 percent to $44,888,635, compared to $41,646,747 for the
same period a year ago. Net interest margin increased 15 basis
points from 4.02 percent for the first nine months of 1996 to 4.17
percent for the first nine months of 1997. The increase in net
interest margin is directly attributable to an increase in the
yield earned on average earning assets of 16.5 basis points. Year-
to-date average earning assets increased 3.9 percent from the first
nine months of 1996 to the first nine 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 $63.0 million, while the
average balance of residential real estate loans decreased $21.8
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 $7,692,000 at September 30,
1997, compared to $8,496,000 at September 30, 1996, a decrease of
9.5 percent. 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. Asset quality
remains strong and reserves are considered adequate at 1.24 percent
of total loans.
<PAGE>
Part 1 -- Item 2
Page 5 of 9
The provision for loan losses totaled $2,900,000 for the
nine months ended September 30, 1997, compared to $2,100,000 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 .25 percent of average loans for
the first nine months of 1997, compared with .24 percent for the
same period last year.
Noninterest Income
Noninterest income for the nine months ended September
30, 1997, was $20,109,408 (excluding securities gains and losses),
a 20.8 percent increase from $16,640,606 one year ago.
Compared to the same period a year ago, service charges
on deposits were up $435,375 or 8.8 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 94.0 percent for the first nine months of 1997, compared to
86.0 percent for the same period of 1996.
Higher sales of credit insurance pushed insurance
commissions and fees up 7.4 percent. Insurance commissions and
fees totaled $2,359,806 for the first nine months of 1997, compared
to $2,197,294 for the same period of 1996.
Investment brokerage commissions increased by $650,241 or
22.8 percent. Mortgage banking revenues rose 43.7 percent to total
$2,208,019 for the first nine months of 1997. The increase in
mortgage banking revenues is the result of increased volumes of
loans closed and sold on the secondary market with servicing
retained as compared to the same period of last year.
Fiduciary income increased 11.6 percent to $2,293,351.
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 $425,992 from the prior year
primarily due to increases from ATM/debit cards fees, fees received
from purchased receivables and real estate commissions.
Other operating income increased $884,988 from one year
ago. Income from bank-owned life insurance policies, which did not
exist during the first nine months of 1996 contributed $500,605 of
this increase. Several one-time revenue items affected this
category in both periods. During the third quarter of 1997, the
Company recorded a gain of approximately $821,000 from the sale of
the Company's insurance agency in Marshalltown, Iowa. The Company
is committed to the insurance business and plans to grow its
insurance operations through other distribution channels. One-time
items recorded in 1996 totaled $474,536.
<PAGE>
Part 1 -- Item 2
Page 6 of 9
In addition, securities transactions produced gains of
$418,199, up 35.2 percent from gains of $309,244 for the same
period in 1996.
Noninterest Expense
Noninterest expense totaled $42,590,686 at September 30,
1997, a 2.6 percent increase from the first nine months of 1996.
Compensation, the largest component of noninterest
expense, increased 5.9 percent over the prior year. Fixed
salaries, those that are not based on commissions or incentives,
actually decreased by 3.8 percent, while variable compensation,
which is related to the sales of loans and fee-related products and
services, increased 29.6 percent. The Company is moving to more of
a variable performance-based incentive compensation philosophy
versus fixed-based compensation. Other compensation increased
$849,373 primarily due to bonuses and long-term stock compensation
expense, which are directly related to higher 1997 earnings and the
Company's advancing stock price. The number of full-time
equivalent employees decreased by 2.8 percent from 1996. Benefit
expense increased 2.7 percent due to increased compensation
expense.
Occupancy expense totaled $4,247,228 for the nine months
ended September 30, 1997, compared to $4,093,186 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 $163,851 for
the first nine months of 1997. Depreciation on furniture decreased
by $98,530, while depreciation on technological equipment increased
by $32,249. Repairs and maintenance for this category were lower
than 1996 totals by $56,432.
The Company's FDIC deposit insurance assessment expense
decreased by $1,436,861, or 87.1 percent from the prior year,
primarily due to the Savings Insurance Association Fund ("SAIF")
being fully funded in September 1996 by a special assessment
mandated by federal legislation. The Company's assessment,
recorded in the third quarter of 1996, totaled $1.3 million
The categories of marketing and supplies were down
$172,545 and $245,300, respectively, from the prior year. Data
processing expense increased $219,471 or 11.3 percent due to
increased costs during 1997 associated with contracted core
processing. Other operating expense increased by $1,547,274
primarily due to increases in check processing, consulting and
legal fees and miscellaneous losses.
<PAGE>
Part 1 -- Item 2
Page 7 of 9
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 (1.83) percent, compared to (2.11)
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 September 30, 1997, the
Company's efficiency ratio had improved to 63.05 percent, compared
with 68.44 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 an optimum
level of tax-exempt assets in order to benefit the Company both on
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 28.8 percent for the first
nine months of 1997 compared to 28.1 percent for 1996.
Results of Operations
The three months ended September 30, 1997, compared to the three
months ended September 30, 1996.
Net Income
For the three months ended September 30, 1997, net income
totaled $5,010,135, compared to $3,173,408 for the third quarter of
1996, an increase of 57.9 percent. Earnings per common and common
equivalent share totaled $.57 for the third quarter of 1997,
compared to $.36 for the third quarter of 1996.
Net Interest Income
Net interest income for the quarter totaled $15,536,734,
an increase of $1,426,344, or 10.1 percent, over the third quarter
of the prior year. Net interest margin for the third quarter of
1997 was 4.26 percent, compared to 4.08 percent for the third
quarter of 1996. Similar to the nine-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 $67,614,238, or 4.6 percent, over the third
quarter of 1996. This increase is partially related to the Company
experiencing a lower cash reserve requirement at the Federal
Reserve Bank during 1997.
<PAGE>
Part 1 -- Item 2
Page 8 of 9
Provision for Loan Losses
The provision for loan losses for the third quarter of
1997 totaled $1,100,000, compared to $600,000 for the third quarter
of 1996. Annualized net charge-offs as a percent of average loans
were .39 percent for the third quarter of 1997, compared to .30
percent for the same period of 1996.
Noninterest Income
Noninterest income increased by $2,063,180, or 35.7
percent, from the third quarter of 1996 to the third quarter of
1997. Service charges on deposit accounts increased $174,659, or
10.4 percent.
Investment brokerage commissions totaled $1,351,216, a
49.4 percent increase over the third quarter of 1996. Mortgage
banking income grew by $435,076 due to increased volumes of loans
closed and sold on the secondary market with servicing retained.
Insurance commissions and fees decreased by $123,102 from
the prior year. Included in this category are credit insurance
commissions, which increased by $255,091, and insurance agency
commissions, which decreased by $378,193. The decrease in
insurance agency commissions is related to the sale of the
Company's insurance agency in Marshalltown, Iowa, in the third
quarter of 1997.
Other service charges, collection and exchange charges,
commissions and fees increased $222,195 from the prior year, of
which $83,977 was attributable to increases in real estate
commissions, $27,477 from fees associated with ATM/debit cards and
$25,816 from commissions on the sale of official checks.
Other operating income increased $668,049 from the third
quarter of the prior year. The third quarter of 1997 included the
gain on the sale of the Marshalltown insurance agency of $821,000,
while the third quarter of 1996 included $350,948 of one-time
items.
Net gains from securities transactions totaled $141,743
for the third quarter of 1997, versus net losses in the third
quarter of 1996 of $5,162.
Noninterest Expense
Noninterest expense increased by 1.3 percent when
comparing the third quarter of 1997 with the third quarter of 1996.
The Company's net noninterest margin was (1.74) percent for the
third quarter of 1997, compared to (2.25) percent for the third
quarter of 1996.
<PAGE>
Part 1 -- Item 2
Page 9 of 9
When comparing the third quarter of 1997 to the third
quarter of 1996, the largest noninterest expense variances were in
the categories of FDIC deposit insurance assessment, other
operating expense and compensation.
The Company's FDIC deposit insurance assessment expense
decreased by $1,330,198 when comparing the third quarter of 1997 to
the same period for 1996. This decrease is due to the third
quarter 1996 one-time assessment mandated by federal legislation to
fully reserve the Savings Insurance Association Fund. The
Company's assessment, recorded in the third quarter of 1996,
totaled $1.3 million.
Compensation and related fringe benefit costs increased
by 9.9 percent over the third quarter of 1996. Fixed salaries
decreased by 5.0 percent, while variable compensation increased by
36.0 percent. Other compensation increased $634,846 primarily due
to bonuses and long-term stock compensation expense, which are
directly related to higher 1997 earnings and the Company's
advancing stock price.
Other operating expense for the third quarter of 1997
increased by $932,828, primarily due to increases in expenses
associated with consulting, legal and training, as well as an
increase in the loss on the sale of fixed assets.
Looking Ahead
The company-wide commitment to sales and continuous
improvement produced significant results during the first three
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 1997. 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 nine months ended September 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)
November 10, 1997 /s/ Robert L. DeMeulenaere
- -----------------------------------------------------------------
Dated Robert L. DeMeulenaere
President
November 10, 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
SEPTEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 71,182,538
<INT-BEARING-DEPOSITS> 894,817
<FED-FUNDS-SOLD> 9,600,000
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<LOANS> 999,659,753
<ALLOWANCE> (12,416,151)
<TOTAL-ASSETS> 1,677,016,745
<DEPOSITS> 1,358,055,474
<SHORT-TERM> 136,700,467
<LIABILITIES-OTHER> 21,308,773
<LONG-TERM> 32,976,000
<COMMON> 43,577,045
0
0
<OTHER-SE> 84,398,986
<TOTAL-LIABILITIES-AND-EQUITY> 1,677,016,745
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<INTEREST-DEPOSIT> 36,742,184
<INTEREST-EXPENSE> 6,191,777
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<LOAN-LOSSES> 2,900,000
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<EXPENSE-OTHER> 43,158,318
<INCOME-PRETAX> 19,357,924
<INCOME-PRE-EXTRAORDINARY> 19,357,924
<EXTRAORDINARY> 0
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<NET-INCOME> 13,618,441
<EPS-PRIMARY> 1.52
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