SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission file number 0-6216
March 31, 1994
BRENTON BANKS, INC.
Incorporated in Iowa I.R.S. Employers Identification
No. 42-0658989
Suite 300, Capital Square, 400 Locust, Des Moines, Iowa 50309
Registrant's telephone number, including area code: 515-237-5100
Former name, former address and former fiscal year, if changed
since last report: Not applicable
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, May 6,
1994.
7,902,166 shares of Common Stock, $5.00 par value
PART 1 -- Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
March 31, December 31,
1994 1993
-------------- --------------
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,860,185 42,548,497
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . . 109,690 --
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . 12,400,000 41,875,000
Trading account securities . . . . . . . . . . . . . . . . . . . . . . . . 389,754 9,850
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404,482,615 412,209,721
Held to maturity (approximate market value of
$70,675,000 and $66,892,000 at March 31, 1994
and December 31, 1993, respectively) . . . . . . . . . . . . . . . . . . 70,938,935 66,384,042
-------------- --------------
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,421,550 478,593,763
-------------- --------------
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,516,661 4,349,422
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 910,988,351 875,881,387
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . (10,280,274) (9,817,864)
-------------- --------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,708,077 866,063,523
-------------- --------------
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . 23,352,609 23,147,521
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 12,854,070 12,815,884
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,796,604 11,192,586
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,490,409,200 1,480,596,046
============== ==============
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131,694,463 127,131,654
Interest-bearing:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,169,001 232,005,404
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,666,422 307,615,814
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616,688,705 627,610,822
-------------- --------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,285,218,591 1,294,363,694
-------------- --------------
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . 56,258,354 37,664,328
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . -- --
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . 12,766,607 11,688,256
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,388,292 20,054,913
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,374,629,844 1,363,771,191
-------------- --------------
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . 4,300,513 4,407,190
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;
5,264,751 shares issued at March 31, 1994, and
5,253,151 shares issued at December 31, 1993 . . . . . . . . . . . . . 26,323,755 26,265,755
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,733,670 5,598,027
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,544,419 77,517,613
Unrealized gains (losses) on assets
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . (125,001) 3,036,270
-------------- --------------
Total common stockholders' equity . . . . . . . . . . . . . . . . . . . . . 111,476,843 112,417,665
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . $ 1,490,409,200 1,480,596,046
============== ==============
See accompanying notes to consolidated financial statements.
PART 1 -- Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the 3 months ended March 31,
1994 1993
--------------- ----------------
Interest Income
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . $ 17,895,259 16,960,100
Interest and dividends on investments:
Available for sale - taxable . . . . . . . . . . . . . . . . . . . . 3,363,579 391,578
Available for sale - tax-exempt . . . . . . . . . . . . . . . . . . 1,483,278 --
Held to maturity - taxable . . . . . . . . . . . . . . . . . . . . . 334,933 5,263,474
Held to maturity - tax-exempt . . . . . . . . . . . . . . . . . . . 668,035 1,877,790
--------------- ----------------
Total interest and dividends on investments . . . . . . . . . . . . . 5,849,825 7,532,842
--------------- ----------------
Interest on federal funds sold and securities
purchased under agreements to resell . . . . . . . . . . . . . . . . 107,021 103,854
Other interest income . . . . . . . . . . . . . . . . . . . . . . . . 4,522 27
--------------- ----------------
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . 23,856,627 24,596,823
--------------- ----------------
Interest Expense
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . 9,850,568 10,760,790
Interest on federal funds purchased and securities
sold under agreements to repurchase . . . . . . . . . . . . . . . . 218,781 213,926
Interest on other short-term borrowings . . . . . . . . . . . . . . . -- 1,025
Interest on long-term borrowings . . . . . . . . . . . . . . . . . . . 358,354 311,354
--------------- ----------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 10,427,703 11,287,095
--------------- ----------------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 13,428,924 13,309,728
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . 402,413 443,826
--------------- ----------------
Net interest income after provision for loan losses . . . . . . . . . . 13,026,511 12,865,902
--------------- ----------------
Noninterest Income
Service charges on deposit accounts . . . . . . . . . . . . . . . . . 1,384,546 1,380,841
Insurance commissions and fees . . . . . . . . . . . . . . . . . . . . 505,668 455,345
Other service charges, collection and exchange
charges, commissions and fees . . . . . . . . . . . . . . . . . . . 891,174 738,934
Investment brokerage commissions . . . . . . . . . . . . . . . . . . . 820,856 660,969
Fiduciary income . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,248 488,737
Net gains (losses) from securities 43,561 46,172
available for sale . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . 200,265 314,262
--------------- ----------------
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . . . 4,406,318 4,085,260
--------------- ----------------
Noninterest Expense
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . 5,956,143 5,441,632
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,548 1,242,990
Occupancy expense of premises, net . . . . . . . . . . . . . . . . . . 1,140,974 1,057,259
Furniture and equipment expense . . . . . . . . . . . . . . . . . . . 752,634 654,407
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . 673,327 695,130
FDIC deposit insurance assessment . . . . . . . . . . . . . . . . . . 724,977 676,750
Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . 384,034 337,311
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . 2,482,475 2,475,099
--------------- ----------------
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . 13,515,112 12,580,578
--------------- ----------------
Income before income taxes and minority interest . . . . . . . . . . . . 3,917,717 4,370,584
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 888,411 1,122,024
--------------- ----------------
Income before minority interest . . . . . . . . . . . . . . . . . . . . 3,029,306 3,248,560
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,728 139,494
--------------- ----------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,893,578 3,109,066
=============== ================
Per common and common equivalent share before the stock split in
the form of a stock dividend:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .55 .59
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165 .145
Per common and common equivalent share after the stock split in
the form of a stock dividend:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .37 .39
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 .097
=============== ================
See accompanying notes to consolidated financial statements.
PART 1 -- Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the 3 months ended March 31,
1994 1993
-------------- --------------
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,893,578 3,109,066
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses . . . . . . . . . . . . . . 402,413 443,826
Depreciation and amortization . . . . . . . . . . . . 900,975 801,509
Net gains from securities available for sale . . . . . (43,561) (46,172)
Net decrease in loans held for sale . . . . . . . . . 832,761 817,733
Increase in accrued interest receivable
and other assets . . . . . . . . . . . . . . . . (1,897,454) (763,402)
Decrease in accrued expenses, other
liabilities and minority interest . . . . . . . . 635,507 38,081
-------------- --------------
Net cash provided from operating activities . . . . . . . . . . 3,724,219 4,400,641
-------------- --------------
Investing Activities:
Investment securities available for sale:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (37,746,081) --
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 39,574,079 --
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,860,285 10,014,585
Investment securities held to maturity:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (13,777,225) (75,925,369)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 5,148,277 66,295,086
Net increase in loans . . . . . . . . . . . . . . . .. . . . . (35,046,967) (6,739,559)
Purchases of bank premises and equipment, net . . . . . . . . (980,080) (1,046,829)
-------------- --------------
Net cash used by investing activities . . . . . . . . . . . . . (37,967,712) (7,402,086)
-------------- --------------
Financing Activities:
Net increase (decrease) in noninterest-bearing, interest-bearing
demand and savings deposits . . . . . . . . . . . . . . . . 1,777,014 (29,887,324)
Net decrease in time deposits . . . . . . . . . . . .. . . . . (10,922,117) (1,862,065)
Net increase in federal funds purchased and
securities sold under agreements to repurchase . . . . . . 18,594,026 6,048,159
Net decrease in other short-term borrowings . . . . . . . . . -- (119,784)
Proceeds of long-term borrowings . . . . . . . . . . . . . . . 908,632 2,293,000
Repayment of long-term borrowings . . . . . . . . . . . . . . (114,651) (1,736,524)
Dividends on common stock . . . . . . . . . . . . . . . . . . (866,772) (755,143)
Proceeds from issuance of common stock under
the employee stock purchase plan . . . . . . . . . . . . . -- 116,883
Proceeds from issuance of common stock under
the stock option plan . . . . . . . . . . . . . . . . . . . 193,643 141,053
-------------- --------------
Net cash provided from financing activities . . . . . . . . . . 9,569,775 (25,761,745)
-------------- --------------
Net decrease in cash and cash equivalents . . . . . . . . . . . (24,673,718) (28,763,190)
Cash and cash equivalents at the beginning of the year . . . . . 84,433,347 90,907,949
-------------- --------------
Cash and cash equivalents at the end of the period . . . . . . . $ 59,759,629 62,144,759
============== ==============
Supplemental Cash Flow Information
(Unaudited)
Interest paid during the period . . . . . . . . . . . . . . . . $ 9,498,543 10,856,391
Income taxes paid during the period . . . . . . . . . . . . . . 0 1,288,000
Transfers from investment securities to assets held for. . . . . 4,074,055 1,297,299
============== ==============
See accompanying notes to consolidated financial statements.
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 1993 Annual Report to Shareholders for
more detailed footnote information.
3. Statements of Cash Flows
In the statements of cash flows, cash and cash
equivalents include cash and due from banks, interest-
bearing deposits with banks, and federal funds sold and
securities purchased under agreements to resell.
4. Income Taxes
Federal income tax expense for the three months ended
March 31, 1994 and 1993, was computed using the consolidated
effective federal income tax rates.
For the first three months of 1994 and 1993, the
Company also recognized income tax expense pertaining to
state franchise taxes payable individually by the subsidiary
banks.
5. Common Stock Transactions
On April 11, 1994, the Board of Directors declared a 3-
for-2 stock split in the form of a stock dividend, for
shareholders of record on April 21, 1994. The stock
certificates were issued on May 3, 1994.
During the first three months of 1994, options on
11,600 shares of common stock were exercised under the
Company's stock option plans. The exercise price on these
options was the fair market value of the Company's common
stock at the date of grant. This transaction added $193,643
to the equity of the Company.
Part 1 -- Item 1
Page 2 of 2
5. Common Stock Transaction, cont.
In 1992, the Company originated a long-term stock
compensation plan for key management personnel. The plan
provides for 240,000 shares of the Company's common stock to
be reserved for grant over a four year period. Each grant
of shares will cover a three year performance period, 35
percent of which will vest upon completion of employment for
the performance period and 65 percent of which will vest
based on a tiered achievement scale tied to financial
performance goals established by the Board of Directors.
Under the plan, 60,995 shares were granted covering the
performance period from 1992 through 1994; 52,429 shares
were granted covering the performance period from 1993
through 1995; and 60,195 shares were granted covering the
performance period from 1994 through 1996. There was no
stock compensation expense associated with this plan for the
first three months of 1994 or 1993.
6. Income Per Share
Income per common and common equivalent share
computations are based on the weighted average number of
shares of common stock outstanding during the period. The
weighted average number of shares for 1994 and 1993 were
5,295,131 and 5,273,565, respectively, which included shares
related to the Long-Term Stock Compensation Plan.
Part 1 -- Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Capital Resources
Net income for the first quarter of 1994 was $2,893,578, down
from $3,109,066 one year ago. On a per common and common
equivalent share basis, net income moved from $.59 per share last
year to $.55 per share for the first quarter of 1994. The
Company's annualized return on average assets (ROA) was .82
percent, compared to .93 percent for the same period in 1993; the
annualized return on average equity (ROE) was 10.38 percent,
compared to 12.63 percent one year ago.
These earnings added to common stockholder's equity for the
first quarter. Additionally, options exercised under the Non-
Qualified Stock Option Plan added $193,643 to the Company's common
stock and surplus. Cash dividends on common stock rose to $.165
per share in January 1994, up 13.8 percent from the $.145 dividend
paid in January 1993.
On April 12, 1994, the Board of Directors declared a 3-for-2
stock split in the form of a stock dividend to shareholders of
record on April 21, 1994 payable on May 3, 1994. This stock split
increased the number of shares outstanding, and proportionately
affected the per share stock price.
Effective December 31, 1993, the Company adopted the Statement
of Financial Accounting Standards No. 115. Under this new
accounting standard, the method of classifying investment
securities is based on the Company's intended holding period.
Accordingly, securities which the Company may sell at its
discretion prior to maturity are recorded at their fair value.
Additionally, the aggregate unrealized net gains or losses
including the effect of income tax and minority interest are
recorded as a component of common stockholder's equity. At March
31, 1994, the aggregate unrealized losses from investments
available for sale totaled $125,001, while the December 31, 1993
aggregate unrealized gains totaled $3,036,270.
The Company's risk-based core capital ratio was 12.00 percent
at March 31, 1994, and the total risk-based capital ratio was 13.13
percent. These exceeded the minimum regulatory requirements of
4.00 and 8.00 percent, respectively. The Company's tier 1 leverage
ratio, which measures capital excluding intangible assets, was 7.41
percent at March 31, 1994, exceeding the regulatory minimum
requirement range of 3.00 to 5.00 percent. Each of these capital
calculations include the unrealized losses on investments available
for sale.
Part I -- Item 2
Page 2 of 7
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 11.0 percent at March 31, 1994. The Parent Company
had $5,584,000 of cash and short-term investments at the end of
March, 1994. Additionally, the Parent Company has a $2 million
line of credit with a regional bank that was unused at the end of
March. Long-term borrowings of the Parent Company consisted
entirely of $12,238,000 of capital notes, with a weighted average
interest cost of 8.49 percent.
Brenton Banks, Inc. common stock closed March 1994 at $26.50
per share, which is 1.25 times the book value per share of $21.17
on the same date. This closing stock price represented a price-
to-trailing-12-months-earnings multiple of 10.0 times.
Liquidity
The Company actively monitors and manages its liquidity
position. The objective is to maintain sufficient cash flows to
fund operations and meet customer commitments. Federal funds sold,
trading account securities, loans held for sale, and assets
available for sale are readily marketable. Maturities of all
investment securities are managed to meet the Company's normal
liquidity needs. Investment securities available for sale may be
sold prior to maturity to meet liquidity needs, to respond to
market changes, or to adjust the Company's asset-liability
position. Federal funds sold, trading account securities, loans
held for sale, and assets available for sale comprised 28.2 percent
of the Company's total assets at the end of March 1994.
Net cash provided from Company operations is another major
source of liquidity. The net cash provided from operating
activities was $3,724,219 for the first quarter of 1994. The
Company's trend of strong cash from operations is expected to
continue into the foreseeable future.
The Company's stable deposit base and relatively low levels of
large deposits resulted in low dependence on volatile liabilities.
The Company borrowed $8 million from the Federal Home Loan Bank of
Des Moines as a means of providing long-term fixed-rate funding for
certain fixed-rate assets. Additionally, the Company was in a net
Federal funds borrowing position at the end of the first quarter.
The combination of a high level of potentially liquid assets,
strong cash from operations, and low dependence on volatile
liabilities provided sufficient liquidity for the Company at March
31, 1994.
Part 1 -- Item 2
Page 3 of 7
Asset-Liability Management and Net Interest Margin
During the last two years, the Company has improved the
sophistication of its asset-liability system. This new system
simulates the effect of various interest rate scenarios on net
interest income. This analysis process is also used to project the
results of alternative investment decisions. Management performs
in-depth analysis of the simulations to manage interest rate risk
and the Company's net interest margin. This new system is very
valuable in this time of unstable interest rates.
At the end of March, the Company's stable one-year GAP
position was negative, meaning fewer assets are scheduled to
reprice within one year than liabilities. This situation suggests
that a decline in interest rates may benefit the Company and that
a rise in interest rates may negatively impact the net interest
margin. The Company can partly neutralize the effect of interest
rate changes by controlling the timing of rate changes on deposit
accounts.
The Company's assets and liabilities continued to reprice at
lower interest rates during the past year, increasing pressure on
the net interest margin, which fell to 4.10 percent from 4.32
percent one year ago. During the last year, the Company's interest
rates earned on assets declined more than rates paid on deposits
and other borrowings. Average loans grew 17.6 percent from one
year ago, mitigating the decline in rates earned on assets and thus
the net interest margin.
Net interest income for the first three months of 1994 grew
0.9 percent to $13,428,924 from $13,309,728 one year ago. This
minimal growth is the primary reason for the first-quarter earnings
decline, since expenses related to the Company's current growth
initiatives rely on the Company's strong net interest income base.
Results of Operations
THE THREE MONTHS ENDED MARCH 31, 1994, COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1993
Net Income
During the first quarter of 1994, the Company's earnings
declined $215,488 from the first quarter of 1993. This decline was
caused primarily by the net interest margin, which fell to 4.10
percent from 4.32 percent one year ago. Additionally, the Company
experienced normal expense growth.
Part 1 -- Item 2
Page 4 of 7
While the first quarter results are disappointing, a number of
successes that will provide future earnings growth for the Company
occurred. Some of these first quarter accomplishments include:
- A 17.6 percent increase in average loans;
- A 7.9 percent increase in noninterest income;
- A 24.2 percent increase in investment brokerage income;
- A 49.6 percent increase in real estate fees associated with
new or refinanced secondary market mortgage loans;
- An 11.1 percent increase in insurance commissions and fees;
- Additional banking and investment brokerage offices; and,
- Expanded customer service, operational, and marketing
abilities.
Noninterest Income
Noninterest income is critical to the Company's earnings
performance, particularly during periods of compressed net interest
margins. The Company is continuing to diversify its income stream
through the growth of fee-based financial services. For the first
quarter of 1994, total noninterest income grew 7.9 percent over one
year ago to $4,406,318.
Contributing to this growth was a 24.2 percent increase in
commissions generated by Brenton Brokerage, Inc., which increased
its staff by eight brokers in the past year. The expansion of this
rapidly growing income producer continues as it opens additional
retail offices.
Other charges and fees rose 20.6 percent, largely due to a
49.6 percent increase in real estate loan fees associated with new
and refinanced home mortgage loans sold in the secondary market.
During the first quarter, real estate loan closings represented
$20.6 million, compared to $17.2 million for the first quarter of
1993. Six real estate originators were added in the past 12 months
to enhance consumer access to our real estate mortgage services.
Additionally, the Company is moving toward selling mortgage loans
directly to FNMA (Fannie Mae) and FHLMC (Freddie Mac) to further
increase profitability.
Growth in insurance commissions and fees is expected as a
result of our first-quarter purchase of a Tama/Toledo insurance
agency, which added six insurance representatives. The Company is
also teaming up with two Iowa insurance companies to offer more
life insurance and annuity products through our banking locations.
Part 1 -- Item 2
Page 5 of 7
Noninterest Expense
For the first three months of 1994, noninterest expense rose
7.4 percent, as planned, to $13,515,112. Accounting for 71.9
percent of this increase were personnel costs. In addition to
normal annual salary increases, commissions paid to brokers in the
areas of investment brokerage, insurance and real estate loan
origination rose proportionately to the related income.
The Company also added personnel to expand customer service,
operational and marketing abilities. Among these were two data
processing programmers to keep up with changing products, two
representatives to focus on cash management services, and an
international banking specialist.
Expenses related to occupancy, furniture and equipment rose
10.6 percent. This increase stems from facility redesigns,
technological enhancements and new facilities, which - over the
past year - have included opening an additional Davenport bank
office and a new bank office in Ankeny, a growing suburban market
near Des Moines. In addition, steps were taken toward opening a
new banking office in Iowa City and investment brokerage offices in
downtown Des Moines and Newton.
Other operating expenses rose only 0.3 percent from one year
ago. The Company's choice to list Brenton Banks, Inc. stock with
the Nasdaq National Market added an fee of $30,000 in the first
quarter. Other changes were not significant.
The Company's net noninterest margin was 2.49 percent for the
first quarter of 1994, compared to 2.45 percent one year ago. The
reduction of this margin, which measures operating efficiency, is
a major goal of the Company. The increase in this margin for the
first quarter of the year, resulted from the lower-than-expected
growth in average assets and expected increases in noninterest
expense.
Income Taxes
The Company's income tax strategies include reducing income
taxes by purchasing securities and originating loans which produce
tax-exempt income. The goal is to maintain the maximum 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 as a percent of income before income tax and
minority interest was 22.7 percent for the first quarter of 1994,
compared to 25.7 percent one year earlier.
Part 1 -- Item 2
Page 6 of 7
Loan Growth and Quality
For the first quarter of 1994, the Company posted $886.7
million in average loans, a 17.6 percent increase over the first
quarter of 1993. This year's annual growth is anticipated to
exceed 10 percent.
Brenton Banks, Inc.'s solid loan quality was again
demonstrated during the first quarter of this year. Nonperforming
loans for the quarter were $5,390,000, up from $4,444,000 one year
ago. This reflects only 0.59 percent of loans, which is virtually
unchanged from 0.58 percent one year earlier.
The Company's reserve for loan losses as a percentage of
nonperforming loans was a strong 190.73 percent, compared to 210.93
percent one year ago. The first-quarter provision for loan losses
expenses was $402,413, down from $443,826 for the first three
months of 1993. For the first quarter, the Company experienced net
recoveries of previously charged-off loans representing .03 percent
of average loans.
The Company continues to rank highly among its peers in asset
quality, according to the December 31, 1993, Midwest Regional
Banking Review issued by Stifel Nicolaus & Co., Inc. Among 40
peers, Brenton Banks, Inc. ranked sixth in nonperforming loans to
total loans, fifth in provision expense to average loans, and
fourth in net charge-offs to average loans.
The Economy
Rising interest rates, health care reform and weather are key
issues that will affect Iowa's economy during 1994, say economists
and politicians. Prompting optimism, however, are the improvements
of key economic indicators for the month of March, according to the
Des Moines Register's Iowa Economic Index. According to that
report, "Comparisons with the country as a whole..show that Iowa
and the Midwest are now doing better than other parts of the
nation."
The state's unemployment rate continued to decline in the
first quarter, ending March at 3.6 percent. More Iowans were
employed in manufacturing than at any time sine 1980, working an
average 42.1 hours per week, up from 41.3 hours one year ago. Non-
farm employment grew to 1.29 million, compared to 1.25 million in
March 1993.
New residential home construction, which grew throughout 1993,
remained strong throughout the first quarter. In major Iowa
communities, the value of new housing permits grew to $62.4 million
in March, up from $49.7 million in March 1993.
Part 1 -- Item 2
Page 7 of 7
The farm profit index, which is a ratio of farm prices
received to prices paid, experienced its third consecutive year of
growth. For the month of March, the 1994 ratio was 69 percent,
compared to 68 percent in 1993 and 64 percent in 1992. For the
remainder of 1994, weather will be a driving force in the state's
overall economy. Approximately 8 percent of the Company's loans
are to farmers.
Looking Ahead
Diversifying financial services has long been a Company
strategy to increase fee income while complementing traditional
bank products and services. Management is committed to further
expanding product offerings to include new and emerging financial
services. In addition, the Company continues to investigate
acquisition opportunities in metropolitan and regional economic
centers of Iowa and surrounding states as a means for further
growth.
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 three months ended March 31, 1994.
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)
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Dated /s/ Robert L. DeMeulenaere
President
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Dated /s/ Steven T. Schuler
Chief Financial Officer and
Vice President/Treasurer/Secretary