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, 1998
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
3, 1998.
18,972,551 shares of Common Stock, $2.50 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,
1998 1997
____________ ____________
</CAPTION>
<S> <C> <C>
Assets:
Cash and due from banks $ 73,930,693 77,468,210
Interest-bearing deposits with banks 1,664,526 1,319,700
Federal funds sold and securities purchased
under agreements to resell 10,000,000 9,300,000
Trading account securities 64,429 77,220
Investment securities:
Available for sale 490,839,549 486,653,872
Held to maturity (approximate market value of
$56,199,000 and $69,852,000 at June 30, 1998,
and December 31, 1997, respectively) 55,471,609 69,079,622
_____________ _____________
Investment securities 546,311,158 555,733,494
_____________ _____________
Loans held for sale 29,292,110 19,303,411
Loans 1,005,400,747 993,189,110
Allowance for loan losses (13,920,495) (12,732,131)
_____________ _____________
Loans, net 991,480,252 980,456,979
_____________ _____________
Premises and equipment 32,060,009 28,898,589
Accrued interest receivable 14,651,238 15,233,682
Other assets 38,673,859 30,692,512
_____________ _____________
Total assets $1,738,128,274 1,718,483,797
============== =============
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 164,483,514 161,007,156
Interest-bearing:
Demand 108,290,761 117,664,352
Savings 563,340,376 527,364,856
Time 539,835,746 558,234,127
_____________ _____________
Total deposits 1,375,950,397 1,364,270,491
_____________ _____________
Federal funds purchased and securities sold
under agreements to repurchase 107,494,436 92,632,576
Other short-term borrowings 60,000,000 73,700,000
Accrued expenses and other liabilities 14,959,443 16,980,763
Long-term borrowings 42,683,000 36,662,000
_____________ _____________
Total liabilities 1,601,087,276 1,584,245,830
_____________ _____________
Minority interest in consolidated subsidiaries 4,858,214 4,858,668
Redeemable preferred stock, $1 par; 500,000 shares
authorized; issuable in series, none issued -- --
Common stockholders' equity:
Common stock, $2.50 par; 50,000,000 shares authorized;
18,972,551 and 17,334,048 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 47,431,377 43,335,120
Capital surplus -- --
Retained earnings 82,166,731 82,824,333
Accumulated other comprehensive income--
unrealized gains on securities available for sale, net 2,584,676 3,219,846
_____________ _____________
Total common stockholders' equity 132,182,784 129,379,299
_____________ _____________
Total liabilities and stockholders' equity $1,738,128,274 1,718,483,797
============= =============
<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,
1998 1997 1998 1997
____ ____ ____ ____
</CAPTION>
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $44,163,781 41,571,371 22,293,115 21,130,004
Interest and dividends on investments:
Available for sale - taxable 11,690,595 11,052,977 5,826,002 5,404,855
Available for sale - tax-exempt 2,645,446 2,366,534 1,363,429 1,203,524
Held to maturity - taxable 199,943 495,653 55,412 181,472
Held to maturity - tax-exempt 1,367,237 1,290,316 666,209 670,556
__________ __________ __________ __________
Total interest and dividends on investments 15,903,221 15,205,480 7,911,052 7,460,407
__________ __________ __________ __________
Interest on federal funds sold and securities
purchased under agreements to resell 828,828 833,085 437,624 555,941
Other interest income 117,015 44,843 50,800 35,505
__________ __________ __________ __________
Total interest income 61,012,845 57,654,779 30,692,591 29,181,857
__________ __________ __________ __________
Interest Expense
Interest on deposits 24,776,555 24,382,409 12,493,375 12,303,536
Interest on federal funds purchased and
securities sold under agreements
to repurchase 2,271,047 1,652,606 1,208,980 942,007
Interest on other short-term borrowings 1,989,554 1,197,491 978,752 670,247
Interest on long-term borrowings 1,447,130 1,070,372 746,870 531,797
__________ __________ __________ __________
Total interest expense 30,484,286 28,302,878 15,427,977 14,447,587
__________ __________ __________ __________
Net interest income 30,528,559 29,351,901 15,264,614 14,734,270
Provision for loan losses 2,100,000 1,800,000 1,050,000 900,000
__________ __________ __________ __________
Net interest income after provision for
loan losses 28,428,559 27,551,901 14,214,614 13,834,270
__________ __________ __________ __________
Noninterest Income
Service charges on deposit accounts 3,692,655 3,529,124 1,854,981 1,818,666
Investment brokerage commissions 2,822,852 2,156,101 1,383,123 1,140,498
Mortgage banking income 3,458,706 1,238,019 2,047,648 687,747
Fiduciary income 1,658,248 1,522,648 816,000 713,511
Insurance commissions and fees 768,801 1,727,444 411,138 767,895
Other service charges, collection and
exchange charges, commissions and fees 2,080,875 1,529,629 1,066,268 790,755
Net realized gains from securities
available for sale 244,576 276,456 125,265 25,791
Other operating income 866,119 708,798 401,729 293,695
__________ __________ __________ __________
Total noninterest income 15,592,832 12,688,219 8,106,152 6,238,558
__________ __________ __________ __________
Noninterest Expense
Compensation 13,979,392 12,589,353 7,161,872 6,306,759
Employee benefits 2,669,280 2,319,417 1,152,332 1,024,864
Occupancy expense of premises, net 2,940,789 2,864,366 1,476,984 1,398,308
Furniture and equipment expense 2,040,497 1,762,192 1,078,862 793,424
Data processing expense 1,286,203 1,440,376 651,916 716,469
Marketing 737,172 780,277 387,146 435,298
Supplies 613,003 519,907 287,583 246,119
FDIC deposit insurance assessment 138,898 143,224 69,339 71,937
Other operating expense 5,656,378 5,290,945 2,887,865 2,680,705
__________ __________ __________ __________
Total noninterest expense 30,061,612 27,710,057 15,153,899 13,673,883
__________ __________ __________ __________
Income before income taxes and minority interest 13,959,779 12,530,063 7,166,867 6,398,945
Income taxes 3,900,410 3,562,999 1,993,561 1,809,278
__________ __________ __________ __________
Income before minority interest 10,059,369 8,967,064 5,173,306 4,589,667
Minority interest 344,829 358,758 177,744 182,717
__________ __________ __________ __________
Net income $ 9,714,540 8,608,306 4,995,562 4,406,950
========== ========== ========== ==========
Per common share:
Net income-basic $ .51 .45 .26 .23
Net income-diluted .50 .43 .26 .22
Cash dividends .164 .112 .087 .058
<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,
1998 1997
_____________ _______________
</CAPTION>
<S> <C> <C>
Operating Activities:
Net income $ 9,714,540 8,608,306
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses 2,100,000 1,800,000
Depreciation and amortization 2,295,890 2,147,111
Net realized gains from securities available
for sale (244,576) (276,456)
Investment securities amortization and accretion 232,573 781,602
Net increase in loans held for sale (9,988,699) (4,750,819)
Net increase in accrued interest
receivable and other assets (2,268,848) (1,570,106)
Net decrease in accrued expenses, other
liabilities and minority interest (1,998,618) (1,443,038)
____________ ____________
Net cash provided (used) by operating activities (157,738) 5,296,600
____________ ____________
Investing Activities:
Investment securities available for sale:
Purchases (178,348,015) (128,483,102)
Maturities 154,499,821 84,289,900
Sales 18,674,948 65,762,070
Investment securities held to maturity:
Purchases (3,209,835) (13,654,207)
Maturities 16,789,103 19,798,713
Net increase in loans (13,148,273) (39,218,185)
Purchase of other assets for investment (5,000,000) (5,000,000)
Purchases of premises and equipment (5,256,803) (1,232,094)
Proceeds from sale of premises and equipment --- (58,588)
____________ ____________
Net cash used by investing activities (14,999,054) (17,795,493)
____________ ____________
Financing Activities:
Net increase (decrease) in noninterest-bearing, interest-
bearing demand and savings deposits 30,078,287 (4,643,603)
Net decrease in time deposits (18,398,381) (10,726,051)
Net increase in federal funds purchased and
securities sold under agreements to repurchase 14,861,860 15,906,037
Net increase (decrease) in other short-term borrowings (20,700,000) 13,500,000
Proceeds of long-term borrowings 14,324,000 9,233,000
Repayment of long-term borrowings (1,303,000) (1,680,024)
Dividends on common stock (3,127,307) (2,166,398)
Proceeds from issuance of common stock under
the employee stock purchase plan 463,289 262,724
Proceeds from issuance of common stock under
the stock option plan --- 218,768
Proceeds from issuance of common stock under
the long-term stock compensation plan 970,220 460,345
Payment for shares reacquired under common stock
repurchase plan (4,568,126) (5,707,138)
Payment for fractional shares resulting from
common stock dividend (13,961) (16,398)
____________ ____________
Net cash provided by financing activities 12,586,881 14,641,262
____________ ____________
Net increase (decrease) in cash and cash equivalents (2,569,911) 2,142,369
Cash and cash equivalents at the beginning of the year 88,165,130 92,832,078
____________ ____________
Cash and cash equivalents at the end of the period $ 85,595,219 94,974,447
============ ============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
(Unaudited)
</CAPTION>
<S> <C> <C>
Interest paid during the period $ 30,165,166 27,611,552
Income taxes paid during the period 4,217,500 4,569,615
=========== ==========
<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 Comprehensive Income
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
_________ ________ ______ ______
</CAPTION>
<S> <C> <C> <C> <C>
Net Income $9,714,540 8,608,306 4,995,562 4,406,950
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
available for sale:
Unrealized holding gains (losses) arising
during the period, net of tax (482,310) 1,625,841 (369,719) 1,956,363
Less: reclassification adjustment for net gains
included in net income, net of tax (152,860) (172,785) (78,291) (16,119)
_________ __________ _________ _________
Other comprehensive income, net of tax (635,170) 1,453,056 (448,010) 1,940,244
_________ __________ _________ _________
Comprehensive income $9,079,370 10,061,362 4,547,552 6,347,194
========= ========== ========= =========
<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, 1997.
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
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997,
and was adopted by the Company effective January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. The statement of comprehensive
income has been added to the accompanying financial statements.
5. Income Taxes
Federal income tax expense for the six months ended June 30, 1998, and
1997, was computed using the consolidated effective federal income tax
rates.
For the first six months of 1998 and 1997, 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 3
6. Common Stock Transactions
On May 21, 1998, the Board of Directors declared a 10 percent common
stock dividend for stockholders of record on June 1, 1998. The stock
dividend certificates were distributed on June 15, 1998. Fractional
shares resulting from this stock dividend were paid in cash.
On January 29, 1998, the Board of Directors declared a 2-for-1 stock
split for holders of record on February 10, 1998. As a result, the par
value of the Company's common stock was changed from $5.00 to $2.50 per
share and authorized shares were increased to 50 million. The additional
common stock certificates were distributed on February 20, 1998. All
per-share data has been restated to reflect the 2-for-1 stock split and
the ten percent common stock dividend.
During the first six months of 1998, no options were exercised under the
Company's 1987 Nonqualified Stock Option Plan.
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 1998 and 1997, was $0 and $600,000,
respectively. The Company issued 107,584 and 33,178 shares of common
stock under the long-term stock compensation plan during the first six
months of 1998 and 1997, respectively, adding $970,220 and $460,345,
respectively, to the equity of the Company. All outstanding grants vested
as of December 31, 1997, and no restricted or performance shares are
outstanding as of June 30, 1998.
As part of the Company's on-going stock repurchase plan, in January 1998,
the Board of Directors approved the repurchase of up to $10 million of
the Company's common stock during 1998. Through June 30, 1998, 218,500
shares had been repurchased at a cost of $4,568,126.
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 23,260
shares of common stock under this plan during the first six months of
1998. This transaction added $463,289 to the equity of the Company.
<PAGE>
Part 1 -- Item 1
Page 3 of 3
7. Income Per Share
Basic net income per common share amounts are computed by dividing net
income by the weighted average number of common shares outstanding during
the period. The weighted average number of common shares outstanding for
the six months ended June 30, 1998, and 1997, was 19,063,481 and
19,366,446, respectively.
Diluted net income per common share amounts are computed by dividing net
income by the weighted average number of common shares and all dilutive
potential common shares outstanding during the period. The weighted
average number of common shares and all dilutive potential common shares,
including the 1996 Stock Option Plan, the 1987 Nonqualified Stock Option
Plan and the Long-term Stock Compensation Plan, outstanding for the six
months ended June 30, 1998, and 1997, was 19,474,765 and 19,848,906,
respectively.
<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
continued earnings growth during the first half of 1998. Net income
increased 12.9 percent to $9,714,540, compared to $8,608,306 for the
first six months of 1997. The Company's annualized return on average
equity (ROE) was 14.83 percent, compared to 14.09 percent one year ago;
the annualized return on average assets (ROA) was 1.16 percent, compared
to 1.10 percent for the same period in 1997.
Common stockholders' equity totaled $132.2 million as of June 30,
1998, a 2.2 percent increase from December 31, 1997. 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, 1998, was 10.99 percent and the
total risk-based capital ratio was 12.15 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 7.60 percent at June
30, 1998, exceeding the regulatory minimum requirement for well-
capitalized institutions of 5.0 percent.
As part of the Company's ongoing stock repurchase plan, 218,500
shares have been repurchased during the first half of 1998 at a cost of
$4,568,126. The Board of Directors has approved the repurchase of $10
million of Company stock during 1998. Since the inception of the plan in
1994, the Company has repurchased 2,215,246 shares at a total cost of
$28,511,605.
In May 1998, 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.
In January 1998, the Board of Directors declared a 2-for-1 stock
split for holders of record as of February 10, 1998, payable February 20,
1998. As a result of this action, each shareholder received one
additional share of common stock for each share outstanding. The par
value of the stock was reduced from $5.00 to $2.50 and authorized shares
were increased to 50 million. All per-share data has been restated to
reflect the 10 percent common stock dividend and the 2-for-1 stock split.
<PAGE>
Part 1 -- Item 2
Page 2 of 10
The Company paid dividends of $.164 per common share in the first
six months of 1998, compared to $.112 per common share for the same
period of 1997, an increase of 46.4 percent. Dividends for the first six
months of 1998 totaled $3,127,307. In July 1998, the Board of Directors
increased the regular quarterly cash dividend to $.09 per common share,
compared to $.087 per common share for the previous quarter. The
dividend payout ratio for the first half of 1998 was 32.8 percent of
diluted earnings per common share.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 6.9 percent at June 30, 1998. This percentage has
decreased by .9 percent from the December 31, 1997, ratio of 7.8 percent.
Long-term borrowings of the Parent Company at June 30, 1998, consisted
entirely of capital notes totaling $9,133,000. In addition, the Parent
Company has a $5 million line of credit with a regional bank that was
unused at the end of June 1998.
Brenton Banks, Inc. common stock closed on June 30, 1998, at a bid
price of $20.13 per share, an increase of 61.0 percent over the prior
year. The closing price at June 30, 1998, was 288.8 percent of the book
value per share of $6.97. This closing stock price represented a price-
to-trailing-12-months-diluted-earnings multiple of 20.5 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 is 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.
<PAGE>
Part 1 -- Item 2
Page 3 of 10
Market Risk Management
Market risk is the risk of earnings volatility that results from
adverse changes in interest rates and market prices. The Company's
market risk is comprised primarily of interest rate risk arising from its
core banking activities of lending and deposit taking. Interest rate
risk is the risk that changes in market interest rates may adversely
affect the Company's net interest income. Management continually
develops and applies strategies to mitigate this risk. Management does
not believe that the Company's primary market risk exposures and how
those exposures have been managed to-date in 1998 changed when compared
to 1997.
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.
The goal is to structure the balance sheet so net interest margin
fluctuates in a 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. This curve is flat at this time.
To improve net interest income and lessen interest rate risk,
management continues its strategy of de-emphasizing fixed-rate portfolio
residential real estate loans with long repricing periods. When
appropriate for interest rate management purposes, the Company will
consider securitization of real estate loans. The Company continues to
focus on reducing interest rate risk by emphasizing growth in the
origination of variable-rate consumer and commercial loans. Other
actions include the use of fixed-rate Federal Home Loan Bank advances as
alternatives to certificates of deposit, active management of the
available for sale investment securities portfolio to provide for cash
flows that will facilitate interest rate risk management and, in selected
cases, the use of interest rate swaps and interest rate floor contracts.
<PAGE>
Part 1 -- Item 2
Page 4 of 10
Liquidity
The Company actively monitors and manages its liquidity position
with the objective of maintaining sufficient cash flows to fund
operations, meet customer commitments, take advantage of market
opportunities and provide a margin against unforeseeable liquidity needs.
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 30.5 percent of the
Company's total assets at June 30, 1998.
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, 1998, the Company had advances
of $93,550,000 from the Federal Home Loan Bank ("FHLB") of Des Moines, of
which $68,550,000 were used as a means of providing long-term, fixed-rate
funding for certain fixed-rate assets and managing interest rate risk.
The remaining $25,000,000 represents an advance on a variable-rate,
short-term $25,000,000 line of credit used to fund mortgage loans
originated for sale. The Company had additional borrowing capacity
available from the FHLB of approximately $40 million at June 30, 1998.
The combination of high levels of potentially liquid assets, low
dependence on volatile liabilities and additional borrowing capacity
provided sufficient liquidity for the Company at June 30, 1998.
Results of Operations
The six months ended June 30, 1998, compared to the six months ended June
30, 1997.
Net Income
For the six months ended June 30, 1998, Brenton recorded net income
of $9,714,540, which is an increase of 12.9 percent from net income for
the first six months of 1997 of $8,608,306. Diluted net income per
common share was $.50 per share for the first half of 1998, compared to
$.43 per share for the first half of 1997, an increase of 16.3 percent.
<PAGE>
Part 1 -- Item 2
Page 5 of 10
Net Interest Income
During the first six months of 1998, net interest income grew 4.0
percent to $30,528,559, compared to $29,351,901 for the same period a
year ago as favorable volume variances exceeded unfavorable rate
variances. Year-to-date 1998 average interest-earning assets increased
6.1 percent, while average interest-bearing liabilities rose 5.7 percent
compared to the first half of 1997. The average balance of commercial
and consumer loans increased $66.3 million, while the average balance of
residential real estate loans decreased $36.5 million as borrowers
increased refinancing activity to take advantage of the lower interest
rate environment.
Net interest margin declined 7 basis points to 4.05 percent for the
first half of 1998 from 4.12 percent for the first half of 1997. An
increase in the cost of funds resulted from higher interest-bearing
checking account balances and an aggressive effort to win new customer
deposits through the sale of competitively-priced accounts.
Loan Quality
At June 30, 1998, total loans had grown 2.6 percent to $1,005.4
million from $993.2 million a year earlier. This $25.1 million increase
was achieved despite a $40.5 million decline in the residential real
estate loan portfolio, which resulted from increased refinancings as
borrowers took advantage of the lower interest rate environment.
Nonperforming loans increased to $11,165,000, or 1.11 percent of loans,
at June 30, 1998, compared to $10,380,000, or 1.05 percent, at the end of
the first quarter and $7,350,000, or .75 percent, one year ago. The
increase was primarily due to commercial loans for which adequate
collateral exists and for which losses are not anticipated. While
nonperforming loans have grown and are an area of focus and concern,
asset quality remains strong and an increase in loan losses is not
expected. 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 $2,100,000 for the six months
ended June 30, 1998, compared to $1,800,000 for the same period one year
ago. The increase in the provision is related to recent and projected
growth in the loan portfolio. Annualized year-to-date net charge-offs
for both years were 0.18 percent of average loans.
The allowance for loan losses, which totaled $13.9 million,
represented 124.68 percent of nonperforming loans and 1.38 percent of
total loans at June 30, 1998, compared to 167.17 percent and 1.25
percent, respectively, at June 30, 1997.
<PAGE>
Part 1 -- Item 2
Page 6 of 10
The Company has a formal structure for reviewing and approving
loans. Loan quality control and risk management are carefully balanced
with goals for loan growth. Management believes the allowance for loan
losses at June 30, 1998, is sufficient to absorb potential loan losses
within the portfolio.
Noninterest Income
Noninterest income for the six months ended June 30, 1998, was
$15,348,256 (excluding securities gains and losses), a 23.7 percent
increase from $12,411,763 for the first six months of 1997.
Compared to the same period a year ago, service charges on deposits
climbed $163,531, or 4.6 percent. This growth was primarily due to
increased account analysis charges on commercial and business deposit
accounts.
Investment brokerage commissions increased by $666,751, or 30.9
percent, by virtue of greater broker productivity and strong financial
markets.
Mortgage banking revenues rose 179.4 percent to total $3,458,706 for
the first half of 1998. This revenue growth was the result of
dramatically higher mortgage loan origination volume fueled by the lower
interest rate environment. Residential real estate loan closings for the
first half of 1998 totaled $228 million, compared to $67 million for the
first half of 1997.
Other service charges, collection and exchange charges, commissions
and fees increased $551,246, or 36.0 percent. The increase was primarily
due to higher real estate sales commissions and letter of credit fees.
An increase of $157,321 in other operating income resulted from
higher levels of income on bank-owned life insurance policies and
miscellaneous income.
Insurance commissions and fees declined 55.5 percent to $768,801 for
the first six months of 1998. The reduction resulted from the July 1997
sale of one of the Company's insurance agencies and lower levels of
credit-related insurance commissions.
Investment securities gains totaled $244,576 compared to gains of
$276,456 for the same period in 1997.
<PAGE>
Part 1 -- Item 2
Page 7 of 10
Noninterest Expense
Noninterest expense totaled $30,061,612 at June 30, 1998, an 8.5
percent increase from the first six months of 1997.
Compensation expense, the largest component of noninterest expense,
increased 11.0 percent over the prior year. Standard salaries rose 7.1
percent, while variable compensation, including commissions and
incentives, increased 54.8 percent due to higher sales of fee-related
products. Other compensation decreased by $426,113, because of the
expiration of a long-term stock compensation plan. The number of full-
time equivalent employees increased by 7.0 percent to 733.5 as a result
of filling a number of approved open positions.
Benefits expense increased 15.1 percent, due to increased
compensation, higher health insurance premiums and increased retirement
plan contributions.
Furniture and equipment expense increased by $278,305 to $2,040,497
for the first half of 1998. Depreciation on furniture and equipment
decreased by $24,315, while depreciation on computer equipment increased
by $211,729 due to computer technology upgrades. Repairs and maintenance
for this category increased $78,624 over the prior year.
Transferring the personal computer "help desk" function to an
internal operation has reduced year-to-date data processing expense by
$154,173, or 10.7 percent.
Other operating expense grew by $365,433, primarily due to increases
in check processing fees, personnel recruitment expense, consulting fees
and dataline costs. Offsetting the increases was a reduction in
miscellaneous bank operational losses.
The Company continues to focus on cost management and evaluates all
major expense items in an effort to control the growth rate of
noninterest expense.
The Company's net noninterest margin, which measures operating
efficiency, was (1.70) percent, compared to (1.88) percent one year
earlier. Another ratio 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, 1998,
the Company's efficiency ratio had improved to 62.90 percent, compared
with 63.70 percent one year ago.
<PAGE>
Part 1 -- Item 2
Page 8 of 10
The "Year 2000" issue, is a top priority for Brenton. The Company's
core loan and deposit applications are ALLTEL Information Services, Inc.
("ALLTEL") software programs and Brenton outsources the data processing
function to ALLTEL. Brenton and ALLTEL are working in partnership to
address the Year 2000 issues of the core application programs as well as
all other computer software programs used in the Company. The
incremental expense associated with becoming Year 2000 compliant is not
anticipated to be material. However, there is an opportunity cost
associated with this project in that the people involved are regular
Brenton and ALLTEL employees who would normally be spending their time on
other projects. There are additional benefits that result from this
project because in addition to becoming Year 2000 compliant systems are
being improved.
The Company has a Year 2000 Committee and Plan in place and has been
executing on that Plan. The Company expects to have all core application
systems Year 2000 compliant by the end of 1998 and all other software
products compliant by early 1999, with further testing to take place
throughout 1999.
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 taxes and minority interest was 27.9
percent for the first six months of 1998 compared to 28.4 percent for
1997.
Results of Operations
The three months ended June 30, 1998, compared to the three months ended
June 30, 1997.
Net Income
For the three months ended June 30, 1998, net income increased 13.4
percent to $4,995,562, compared to $4,406,950 for the second quarter of
1997. Diluted earnings per common share totaled $.26 for the second
quarter of 1998, compared to $.22 for the second quarter of 1997.
<PAGE>
Part 1 -- Item 2
Page 9 of 10
Net Interest Income
Net interest income for the quarter totaled $15,264,614, an increase
of $530,344, or 3.6 percent over the second quarter of the prior year.
Like the year-to-date comparison, favorable volume variances exceeded
unfavorable rate variances. Net interest margin for the second quarter
of 1998 was 4.02 percent, compared to 4.11 percent for the second quarter
of 1997. The decrease in net interest margin is related to an increase
in the rate paid on interest-bearing checking account balances and a
slight decline in the yield on earning assets.
Provision for Loan Losses
The provision for loan losses for the second quarter of 1998 totaled
$1,050,000, compared to $900,000 for the second quarter of 1997.
Annualized net charge-offs as a percent of average loans were 0.19
percent for the second quarter of 1998, compared to .24 percent for the
same period of 1997.
Noninterest Income
Noninterest income increased by $1,867,594, or 29.9 percent from the
second quarter of 1997 to the second quarter of 1998.
Investment brokerage commissions grew 21.3 percent to $1,383,123 for
the quarter. Mortgage banking income climbed 197.7 percent to $2,047,648
as a result of a dramatic increase in volume of mortgage loan
originations.
Other service charges, collection and exchange charges, commissions
and fees increased $275,513 from the prior year due to increases in real
estate sales commissions, credit card commissions, ATM/debit card fees
and letter of credit fees.
Insurance commissions and fees declined 46.5 percent, or $356,757,
compared to the second quarter of 1997. The July 1997 sale of one of the
Company's insurance agencies caused $321,590 of the reduction and the
remainder consisted of lower levels of credit-related insurance
commissions.
Net gains from securities transactions totaled $125,265 for the
second quarter of 1998, compared to $25,791 for the same period of 1997,
an increase of $99,474.
Noninterest Expense
Noninterest expense increased by 10.8 percent when comparing the
second quarter of 1998 with the second quarter of 1997. The Company's
net noninterest margin was (1.64) percent for the second quarter of 1998,
compared to (1.83) percent for the second quarter of 1997.
<PAGE>
Part 1 -- Item 2
Page 10 of 10
Compensation costs increased by 13.6 percent over the second quarter
of 1997. Fixed salaries increased by 10.9 percent, while variable
compensation tied to sales of fee-related products and services increased
by 51.4 percent. Offsetting these increases was a $244,147 decline in
other compensation due to the expiration of a long-term stock
compensation plan. Similar to the six-month period, employee benefits
increased 12.4 percent due to increased compensation, higher health
insurance premiums and increased retirement plan contributions.
Furniture and equipment expense totaled $1,078,862 for the second
quarter of 1998, compared to $793,424 for the second quarter of 1997.
The increase in this category is related to increases in depreciation of
$215,922 and repairs and maintenance of $49,566.
Other operating expense for the second quarter of 1998 grew 7.7
percent, primarily due to increases in check processing fees, consulting
fees, personnel recruitment, and dataline and telephone expenses. These
increases were somewhat offset by a reduction of $101,369 in
miscellaneous bank operational losses.
Looking Ahead
The company-wide commitment to making Brenton a proactive sales
organization produced significant results in the first six months of
1998. As sales training continues, an emphasis will be placed on
promoting partnering across Company business units in order to better
serve our clients' total financial needs. The objective is to provide
tools to Brenton bankers to enable them to take a more proactive role in
understanding their clients' goals and to develop custom-tailored
financial strategies and solutions for them. The desired results are to
strengthen new and existing relationships with clients across Iowa and to
provide them with lifetime financial solutions.
The Company will also continue to focus on improving value for our
clients and shareholders by aggressively pursuing strategies to increase
loans, fee income and core deposits, while controlling costs.
<PAGE>
Part 1 -- Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The information appearing on page 3 of Item 2 under the heading
"Market Risk Management" is incorporated herein by reference.
<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, 1998.
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 4, 1998 /s/ Robert L. DeMeulenaere
- -------------------------------------------------------
Dated Robert L. DeMeulenaere
President and Chief Executive
Officer
August 4, 1998 /s/ Steven T. Schuler
- -------------------------------------------------------
Dated Steven T. Schuler
Chief Financial Officer/
Treasurer/Secretary and
Chief Accounting Officer
Exhibit 11
Statements re: Computation of Earnings per Share
Brenton Banks, Inc.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
_____ ____ ______ ______
</CAPTION>
<S> <C> <C> <C> <C>
Basic EPS Computation
Numerator:
Net income $ 9,714,540 8,608,306 4,995,562 4,406,950
========== ========== ========== ==========
Denominator:
Average common shares
outstanding 19,063,481 19,366,446 18,994,772 19,254,290
========== ========== ========== ==========
Basic EPS $ 0.51 $ 0.45 $ 0.26 $ 0.23
========== ========== ========== ==========
Diluted EPS Computation
Numerator:
Net income $ 9,714,540 8,608,306 4,995,562 4,406,950
========== ========== ========== ==========
Denominator:
Average common shares
outstanding 19,063,481 19,366,446 18,994,772 19,254,290
Average stock options 411,284 299,937 411,284 299,937
Average long-term stock
compensation plan 0 182,523 0 182,523
__________ __________ __________ __________
19,474,765 19,848,906 19,406,056 19,736,750
========== ========== ========== ==========
Diluted EPS $ 0.50 $ 0.43 $ 0.26 $ 0.22
========== ========== ========== ==========
<FN>
Note: Amounts are restated for the 2-for-1 stock split effective February 1998 and
the 10% common stock dividend effective in June 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 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-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 73,930,693
<INT-BEARING-DEPOSITS> 1,664,526
<FED-FUNDS-SOLD> 10,000,000
<TRADING-ASSETS> 64,429
<INVESTMENTS-HELD-FOR-SALE> 490,839,549
<INVESTMENTS-CARRYING> 55,471,609
<INVESTMENTS-MARKET> 56,199,000
<LOANS> 1,005,400,747
<ALLOWANCE> (13,920,495)
<TOTAL-ASSETS> 1,738,128,274
<DEPOSITS> 1,375,950,397
<SHORT-TERM> 167,494,436
<LIABILITIES-OTHER> 19,817,657
<LONG-TERM> 42,683,000
0
0
<COMMON> 47,431,377
<OTHER-SE> 84,751,407
<TOTAL-LIABILITIES-AND-EQUITY> 1,738,128,274
<INTEREST-LOAN> 44,163,781
<INTEREST-INVEST> 15,903,221
<INTEREST-OTHER> 945,843
<INTEREST-TOTAL> 61,012,845
<INTEREST-DEPOSIT> 24,776,555
<INTEREST-EXPENSE> 5,707,731
<INTEREST-INCOME-NET> 30,528,559
<LOAN-LOSSES> 2,100,000
<SECURITIES-GAINS> 244,576
<EXPENSE-OTHER> 30,406,441
<INCOME-PRETAX> 13,614,950
<INCOME-PRE-EXTRAORDINARY> 13,614,950
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,714,540
<EPS-PRIMARY> .51<F1>
<EPS-DILUTED> .50<F1>
<YIELD-ACTUAL> 3.82
<LOANS-NON> 5,733,000
<LOANS-PAST> 4,912,000
<LOANS-TROUBLED> 520,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,732,131
<CHARGE-OFFS> 1,913,636
<RECOVERIES> 1,002,000
<ALLOWANCE-CLOSE> 13,920,495
<ALLOWANCE-DOMESTIC> 13,920,495
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Note: Earnings per share amounts have been restated for the 2-for-1 stock
split effective February 1998 and the 10% common stock dividend effective in
June 1998.
</FN>
</TABLE>
