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, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 0-6216
BRENTON BANKS, INC.
(Exact name of registrant as specified in its charter)
Incorporated in Iowa No. 42-0658989
State or other jurisdiction of I.R.S. Employer Identification
incorporation or organization
Suite 300, Capital Square, 400 Locust, Des Moines, Iowa 50309
(Address of principle executive offices) (zip code)
515-237-5100
(Registrant's telephone number, including area code)
Not applicable
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date,
November 3, 1995.
7,687,052 shares of Common Stock, $5.00 par value
PART 1 -- Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
September 30, December 31,
1995 1994
-------------- --------------
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,600,371 58,387,727
Interest-bearing deposits with banks . . . . . . . . . . . . . . . . . . 495,147 64,255
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . . . . . . . . . . . . . 18,500,000 59,396,428
Investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 354,732,388 349,208,773
Held to maturity (approximate market value of
$131,240,000 and $92,284,000 at September 30, 1995,
and December 31, 1994, respectively) . . . . . . . . . . . . . . . . . 130,544,314 94,484,134
-------------- --------------
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 485,276,702 443,692,907
-------------- --------------
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,755,033 2,104,492
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937,084,849 970,214,498
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . (11,074,834) (10,913,043)
-------------- --------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926,010,015 959,301,455
-------------- --------------
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 33,335,320 27,103,630
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . 16,611,851 13,064,921
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,392,361 18,211,034
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,573,976,800 1,581,326,849
============== ==============
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 137,439,343 136,547,995
Interest-bearing:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374,428,899 315,369,233
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,011,708 255,046,184
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615,589,300 633,319,698
-------------- --------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,344,469,250 1,340,283,110
-------------- --------------
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . . . . . . . 41,003,504 70,703,736
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 7,000,000 12,000,000
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 17,714,604 14,749,917
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 40,898,631 28,939,413
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,451,085,989 1,466,676,176
-------------- --------------
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . 4,496,953 4,220,328
Redeemable preferred stock, $1 par; 500,000 shares
authorized; issuable in series, none issued . . . . . . . . . . . . . . -- --
Common stockholders' equity:
Common stock, $5 par; 25,000,000 shares authorized;
7,700,002 shares issued at September 30, 1995 and
7,871,546 shares issued at December 31, 1994 . . . . . . . . . . . . 38,504,010 39,357,730
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,758,818 5,210,344
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,415,172 70,979,317
Unrealized gains (losses) on assets
available for sale . . . . . . . . . . . . . . . . . . . . . . . . . 715,858 (5,117,046)
-------------- --------------
Total common stockholders' equity . . . . . . . . . . . . . . . . . . . . 118,393,858 110,430,345
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $1,573,976,800 1,581,326,849
============== ==============
<FN>
See accompanying notes to consolidated financial statements.
PART 1 -- Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended Three Months Ended
September 30* September 30*
1995 1994 1995 1994
---------- ---------- ---------- -----------
Interest Income
Interest and fees on loans $ 61,983,238 56,548,698 21,297,032 19,720,368
Interest and dividends on investments:
Available for sale - taxable 10,686,650 9,738,281 3,686,537 3,082,185
Available for sale - tax-exempt 3,418,074 4,220,675 1,044,771 1,323,151
Held to maturity - taxable 2,790,642 1,203,333 1,187,794 499,826
Held to maturity - tax-exempt 2,309,793 1,942,355 780,842 633,415
------------ ----------- ----------- -----------
Total interest and dividends on investments 19,205,159 17,104,644 6,699,944 5,538,577
------------ ----------- ----------- -----------
Interest on federal funds sold and securities
purchased under agreements to resell 1,678,596 742,408 423,181 420,775
Other interest income 37,982 10,642 21,591 2,689
------------ ----------- ----------- -----------
Total interest income 82,904,975 74,406,392 28,441,748 25,682,409
------------ ----------- ----------- -----------
Interest Expense
Interest on deposits 39,609,621 30,253,638 13,422,216 10,487,193
Interest on federal funds purchased and securities
sold under agreements to repurchase 1,217,323 1,193,747 437,273 553,082
Interest on other short-term borrowings 307,445 17,698 100,320 10,881
Interest on long-term borrowings 1,939,973 1,387,690 711,014 559,008
------------ ----------- ----------- -----------
Total interest expense 43,074,362 32,852,773 14,670,823 11,610,164
------------ ----------- ----------- -----------
Net interest income 39,830,613 41,553,619 13,770,925 14,072,245
Provision for loan losses 1,404,675 1,269,494 486,125 440,332
------------ ----------- ----------- -----------
Net interest income after provision for loan losses 38,425,938 40,284,125 13,284,800 13,631,913
------------ ----------- ----------- -----------
Noninterest Income
Service charges on deposit accounts 3,876,014 4,110,788 1,312,976 1,351,390
Insurance commissions and fees 1,858,890 1,580,985 591,374 569,249
Other service charges, collection and exchange
charges, commissions and fees 2,846,516 2,706,778 1,002,544 933,985
Investment brokerage commissions 2,230,828 2,129,798 804,014 615,361
Fiduciary income 1,815,172 1,671,182 601,397 553,387
Net gains (losses) from securities available for sale (2,486) (261,229) 12 (298,173)
Other operating income 524,182 611,516 67,178 232,930
------------ ----------- ----------- -----------
Total noninterest income 13,149,116 12,549,818 4,379,495 3,958,129
------------ ----------- ----------- -----------
Noninterest Expense
Salaries and wages 17,596,544 17,945,066 5,871,063 6,053,102
Employee benefits 3,403,182 3,625,907 1,040,489 1,088,042
Occupancy expense of premises, net 3,780,918 3,399,869 1,282,485 1,126,112
Furniture and equipment expense 2,793,805 2,347,274 896,660 833,481
Data processing expense 1,891,496 1,956,777 622,383 646,695
FDIC deposit insurance assessment 1,550,221 2,178,668 47,256 728,713
Advertising and promotion 1,372,249 1,275,853 451,490 470,905
Other operating expense 8,430,876 7,965,025 3,189,894 2,730,191
------------ ----------- ----------- -----------
Total noninterest expense 40,819,291 40,694,439 13,401,720 13,677,241
------------ ----------- ----------- -----------
Income before income taxes and minority interest 10,755,763 12,139,504 4,262,575 3,912,801
Income taxes 2,376,711 2,901,714 1,142,630 958,530
------------ ----------- ----------- -----------
Income before minority interest 8,379,052 9,237,790 3,119,945 2,954,271
Minority interest 367,419 428,763 122,330 145,635
------------ ----------- ----------- -----------
Net income $ 8,011,633 8,809,027 2,997,615 2,808,636
============ =========== =========== ===========
Per common and common equivalent share**:
Net income $ 1.03 1.11 0.39 0.35
Cash dividends 0.33 0.33 0.11 0.11
==== ==== ==== ====
<FN>
*See accompanying notes to consolidated financial statements.
**Restated for the 3-for-2 stock split in the form of a stock dividend effective May 1994.
PART 1 -- Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the 9 months ended September 30,
1995 1994
-------------- --------------
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,011,633 8,809,027
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses . . . . . . . . . . . . . . 1,404,675 1,269,494
Depreciation and amortization . . . . . . . . . . . . 3,090,697 2,744,625
Net losses from securities available for sale . . . . 2,486 261,229
Net (increase) decrease in loans held for sale . . . . (7,650,541) 1,844,422
Increase in accrued interest receivable
and other assets . . . . . . . . . . . . . . . . (3,720,308) (3,455,757)
Increase in accrued expenses, other
liabilities and minority interest . . . . . . . . 3,011,076 2,342,846
-------------- --------------
Net cash provided from operating activities . . . . . . . . . . 4,149,718 13,815,886
-------------- --------------
Investing Activities:
Investment securities available for sale:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (212,282,649) (80,749,881)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 213,573,173 110,970,989
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,883,809 19,396,510
Investment securities held to maturity:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . (68,782,167) (42,149,626)
Maturities . . . . . . . . . . . . . . . . . . . . . . . . 32,721,987 17,932,906
Net (increase) decrease in loans . . . . . . . . . . . . . . . 31,886,765 (90,197,801)
Purchases of bank premises and equipment, net . . . . . . . . (8,967,634) (4,443,386)
-------------- --------------
Net cash used by investing activities . . . . . . . . . . . . . (8,966,716) (69,240,289)
-------------- --------------
Financing Activities:
Net increase in noninterest-bearing, interest-
bearing demand and savings deposits . . . . . . . . . . . . 21,916,538 12,474,585
Net increase (decrease) in time deposits . . . . . . . . . . . (17,730,398) 893,923
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase . . . . . . (29,700,232) 26,329,847
Net decrease in other short-term borrowings . . . . . . . . . (5,000,000) --
Proceeds of long-term borrowings . . . . . . . . . . . . . . . 12,296,000 22,045,030
Repayment of long-term borrowings . . . . . . . . . . . . . . (336,782) (1,256,971)
Dividends on common stock . . . . . . . . . . . . . . . . . . (2,575,774) (2,605,216)
Proceeds from issuance of common stock under
the stock option plan . . . . . . . . . . . . . . . . . . . 179,975 265,088
Payment for shares acquired under common stock
repurchase plan . . . . . . . . . . . . . . . . . . . . . . (3,846,823) (264,775)
Issuance of common stock under the long-term
stock compensation plan . . . . . . . . . . . . . . . . . . 361,602 --
Payment for fractional shares in 3-for-2 stock split . . . . . -- (4,301)
-------------- ---------------
Net cash provided from (used by) financing activities . . . . . (24,435,894) 57,877,210
-------------- ---------------
Net increase (decrease) in cash and cash equivalents . . . . . . (29,252,892) 2,452,807
Cash and cash equivalents at the beginning of the year . . . . . 117,848,410 84,433,347
-------------- ---------------
Cash and cash equivalents at the end of the period . . . . . . . $ 88,595,518 86,886,154
============== ===============
Supplemental Cash Flow Information
(Unaudited)
Interest paid during the period . . . . . . . . . . . . . . . . $ 38,114,867 29,807,052
Income taxes paid during the period . . . . . . . . . . . . . . 2,407,492 3,511,137
Transfers from investment securities to
assets held for sale . . . . . . . . . . . . . . . . . . . . . -- 4,074,055
============== ==============
<FN>
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 1994 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 nine months ended
September 30, 1995 and 1994, was computed using the consolidated
effective federal income tax rates.
For the first nine months of 1995 and 1994, the Company also
recognized income tax expense pertaining to state franchise taxes
payable individually by the subsidiary banks.
5. Common Stock Transactions
During the first nine months of 1995, options on 19,000 shares
of common stock were exercised under the Company's stock option
plans. The exercise price on these options was the fair market
value of the Company's common stock at the date of grant. These
transactions added $179,975 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 360,000
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 finanical
performance goals established by the Board of Directors. Under
the plan, 91,490 shares were granted covering the performance
period from 1992 through 1994; 78,644 shares were granted covering
the performance period from 1993 through 1995; 90,292 shares were
granted covering the performance period from 1994 through 1996; and
87,808 shares were granted covering the performance period from
1995 through 1997. Compensation expense associated with this plan
for the first nine months of 1994 and 1995 was $0 and $340,811,
respectively.
In 1995, 31,108 shares of common stock were issued under the
long-term stock compensation plan. This transaction added $361,602
to the equity of the Company.
In 1994, the Board of Directors authorized a plan to
repurchase the Company's common stock. In 1995, 209,833 shares had
been repurchased at a cost of $3,846,823. Since the plans
inception, the Company has repurchased 254,633 shares at a total
cost of $4,697,773. In July 1995, the Board of Directors
authorized the repurchase of $6 million of stock for 1995.
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 1995 and 1994 were 7,789,468 and 7,952,453,
respectively, which include shares related to the long-term stock
compensation plan.
PART I -- ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Financial Summary
For the first nine months of 1995, Brenton Banks, Inc. and
subsidiaries (the "Company") recorded net income of $8,011,633,
compared to $8,809,027 for the same period of 1994. The lower
earnings reflect a $1,723,006 reduction in net interest income,
attributed to a lower net interest margin.
In the third quarter of 1995, earnings were $433,375 higher
than the second quarter of 1995 and $188,979 higher than the same
period one year ago. The increase from 1994 was due to higher
noninterest income, especially in investment brokerage, insurance
and real estate brokerage. In addition, the Company received a
refund of FDIC deposit insurance premiums totalling approximately
$700,000. These increases in net income were offset by a loss of
$400,000 on the sale of real estate loans, which was taken to
reduce the interest rate risk position within the Company's balance
sheet.
The Company's annualized return on average assets was .72
percent compared to .82 percent for the same period of 1994. The
Company's annualized return on average equity was 9.27 percent
compared to 10.53 percent one year ago. The Company's total assets
grew 2.0 percent from one year ago to $1.6 billion at September 30,
1995.
Strategic Planning
The Company is continuing to work on implementing its
strategic plan. "Strategy for Success" was developed in 1994 with
the goals of creating a strong sales culture, developing non-branch
delivery systems, managing costs and establishing a corporate
structure that supports implementation of the plan. This strategy,
which led to the September 30, 1995 consolidation of Brenton's 13
commercial banks into one statewide banking organization, continues
to emphasize a strong commitment to customer relationships and
communities. Brenton bank branches operate in diverse economic
environments, including metropolitan, agricultural and industrial
areas, and all have differing needs. Recognizing this, the Company
is making changes designed to provide bankers the time and
resources necessary to effectively serve their customers and
communities.
COST MANAGEMENT The Company continues to right-size operations
to bring compensation expenses in line with industry peers.
Between December 31, 1994 and the end of September 1995, salary and
benefits expenses have been reduced, on an annualized basis,
approximately $3 million. Over half of this was realized through
attrition.
PART I -- ITEM 2
Page 2 of 8
In addition, the Company's cost management team continues to
evaluate all major expense items in an effort to identify and gain
savings in the areas of supplies, record retention and storage, and
occupancy expenses.
RETAIL BANKING A key goal of the Company's Retail Banking
Division is to improve customer service and sales. This includes
working with personal bankers as their roles expand to include
consumer lending, in addition to handling consumer deposit
activity. To accomplish this, all personal bankers will attend
product and sales training, which will enhance their ability to
recommend the best products to suit individual customer needs.
AGRIBUSINESS BANKING The Company has historically had strong
agribusiness banking relationships in its community banks. Because
of this, there is an effort underway to capitalize on the expertise
of Brenton employees and make a renewed commitment to this area by
establishing the Agricultural Banking Division. This group will
focus on sales and service to traditional farm operations and
ag-related businesses. To date, marketing efforts have been
directed toward generating loans. However, evidence suggests there
is strong demand for fee-based products and services, such as cash
management, farm management and employee benefits plans. This
division will be working to expand these services to all
agribusiness customers.
RESULTS OF OPERATIONS
THE NINE MONTHS ENDED SEPTEMBER 30, 1995, COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1994.
Net Income
For the nine months ended September 30, 1995, Brenton recorded
net income of $8,011,633, which is a decline of 9.1 percent from
the first nine months of 1994 which totalled $8,809,027. On a per
common and common stock equivalent share basis, net income was
$1.03 per share for the first three quarters of 1995 compared to
$1.11 one year ago.
Net Interest Income
Average earning assets rose 2.3 percent from the first nine
months of 1994 to the first nine months of 1995. This growth was
offset by a decline in the net interest margin, which fell from
4.16 percent for the first nine months of 1994 to 3.88 percent for
1995. This resulted in a decrease in net interest income of
$1,723,006 from one year ago.
PART I -- ITEM 2
Page 3 of 8
Many steps have been taken to restructure our balance sheet in
a way that will lessen net interest income's dependence on the
direction of interest rates. For example, variable rate commercial
and consumer loans have been increasing, and $26 million of fixed-
rate real estate loans were sold during the third quarter.
Although this sale resulted in a loss of approximately $400,000, it
should allow for higher and more stable interest margins in the
future.
In addition, since June 1994, the Company has increased
Federal Home Loan Bank borrowings, and brought in a large
commercial deposit account relationship. While these transactions
have increased total assets and net interest income, the spread
earned has been relatively small.
Loan Quality
Brenton's loan quality remains outstanding. For the first
nine months, nonperforming loans were a low .48 percent of total
loans, and the reserve for loan losses was a solid 245.73 percent
of nonperforming loans and 1.18 percent of total loans.
While overall loan quality remains exceptional, the level of
consumer loan delinquencies and charge-offs have been higher than
one year ago, a trend which is being experienced throughout the
industry. Net charge-offs were .17% of average loans for the first
nine months of 1995 compared with .07% for the same period last
year. Underwriting standards have been reviewed and modified in
light of this trend.
For the first nine months of 1995, the Company's average loans
grew 2.8 percent over one year ago. The majority of this increase
related to commercial loans, which rose on average, 14.2 percent
from September 30, 1994. The Company's loan growth led to a 10.6
percent increase in the provision for loan losses expense, which
was $1,404,675 for the nine months ended September 30, 1995,
compared to $1,269,494 one year ago.
January 1, 1995 was the effective date for Financial
Accounting Standards Board Statement 114, "Accounting by Creditors
for Impairment of a Loan". This standard made fundamental changes
in certain accounting procedures for impaired loans, including the
determination of the allowance for loan losses and financial
disclosures. This new Standard has not had a material effect on
the financial statements of the Company.
Noninterest Income
Year-to-date noninterest income was $13,151,602 (excluding
securities gains and losses), a 2.7 percent increase from
$12,811,047 one year ago. Higher insurance revenues, brokerage
commissions, fiduciary income and real estate commissions and fees
were all contributing factors.
PART I -- ITEM 2
Page 4 of 8
Insurance commissions increased 17.6 percent, due primarily to
sales from credit related insurance. Brokerage revenues for the
year were up 4.7 percent and totalled $2,230,828. The first nine
months of 1995 saw increased fiduciary income of 8.6 percent or
$1,815,172 and revenues from real estate brokerage activities
increased 20.2 percent from one year ago.
These improvements offset declines in other noninterest income
categories. While service charge revenues fell 5.7 percent to
$3,876,014 for the first three quarters of 1995, the third quarter
reflected slight improvement over previous quarters.
One-time revenues and charges further impacted third-quarter
noninterest income. There was a $215,718 gain on the sale of a
building and loan recoveries and gains totalling approximately
$146,000, as well as the $400,000 loss on the sale of real estate
loans.
Securities transactions also influenced the increase in
noninterest income. In 1994, the Company realized losses of
$261,229, compared to $2,486 in 1995. This resulted in increased
noninterest income of $258,743 from 1994 to 1995.
Noninterest Expense
Noninterest expense totalled $40,819,291, only $124,852 or .31
percent higher than the first nine months of 1994. Salaries and
benefits expenses declined 2.6 percent to $20,999,726 from the
first three quarters of 1994. Occupancy and furniture and
equipment expenses rose $827,580 from 1994, due to costs associated
with new facilities in Ames, Ankeny, Davenport and Iowa City,
office remodelings and technology upgrades.
In September 1995, the FDIC refunded approximately $700,000 of
deposit insurance assessments. This was a result of the full
funding of reserves required by the FDIC to insure the deposits of
the banking industry. In future quarters, the Company's FDIC
premium expense will decline approximately 68 percent. The Company
continues to pay the lowest rates available under the FDIC's
risk-based premium system.
Other operating expense rose $465,851 from 1994 levels, due in
part to payments made to EDS, a management consulting group that
was hired to reengineer the retail and commercial banking areas and
assist in developing a formalized process of enhancing noninterest
income.
The net noninterest margin, which measures operating
efficiency, was 2.37 percent compared to 2.47 percent one year ago,
a reflection of the Company's commitment to expense reduction and
noninterest income enhancement.
PART I -- ITEM 2
Page 5 of 8
Income Taxes
The Company's income tax strategies include reducing income
taxes by purchasing securities and originating loans that produce
tax-exempt income. The goal is to maintain the maximum level of
tax-exempt assets in order to benefit the Company on both a tax
equivalent yield basis and in income tax savings. The effective
rate of income tax expense as a percent of income, before income
tax and minority interest, was 22.1 percent for the first six
months of 1995 compared to 23.9 percent for 1994. This decline in
effective rate was due to lower overall Company earnings and
reduced state franchise taxes.
In 1994, the Company established out-of-state investment
subsidiaries to manage the investment portfolios for each Brenton
bank. These subsidiaries provided an opportunity to lower the
amount of state franchise taxes paid by the Company. The State of
Iowa enacted legislation that eliminated the tax benefits derived
from these subsidiaries, effective July 1, 1995. The Company
dissolved its subsidiaries on June 30, 1995.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1994.
Net Income
For the three months ended September 30, 1995, net income
totalled $2,997,615 compared to $2,808,636 one year ago, an
increase of 6.7%. Earnings per common and common equivalent share
totalled $.39 for the third quarter of 1995 compared to $.35 for
the third quarter of 1994. In comparing the results of operations,
there is much similarity in the analysis of the third quarter and
the first nine months. The primary factor in the earnings increase
was the refund of FDIC deposit insurance premiums and higher
noninterest income. This was partially offset by moderate growth
in other noninterest expenses.
Net Interest Income
Net interest income for the quarter totalled $13,770,925 and
declined 2.1 percent from the third quarter of 1994. The net
interest margin was 4.00 percent in 1995 compared to 4.15 percent
in 1994. The decline in margin was due primarily to interest-
earning assets repricing at a slower pace than rates on interest-
bearing liabilities.
PART I -- ITEM 2
Page 6 of 8
Provisions for Loan Losses
The provision for loan losses for the third quarter of 1995
totalled $486,125, an increase of 10.4 percent over the same period
of 1994.
Noninterest Income
Noninterest income increased by $421,366 or 10.6 percent, from
the third quarter of 1994 to the third quarter of 1995. The
majority of this increase is due to brokerage commissions which
rebounded from slower sales earlier in the year, producing a 30.7
percent increase in revenue from the third quarter one year ago.
A gain on the sale of real estate led to increased operating income
of $259,214 for the third quarter of 1995, compared to one year
ago. In addition, third quarter 1994 securities losses totalled
$298,173, compared to 1995 gains of $12.
Offsetting these increases, service charges on deposit
accounts totalled $1,312,976, a declined of 2.8 percent and other
operating income decreased $165,752 due to losses on the sale of
real estate loans.
Noninterest Expense
Noninterest expense declined $275,521 to $13,401,720 for the
first nine months of 1995 compared to $13,677,241 for the prior
year quarter. Salary and related fringe benefit costs declined 3.2
percent. Occupancy expense and furniture and equipment expense
were up a combined 11.2 percent, relating to new facilities,
facility remodeling and technology upgrades. The Company's net
noninterest margin was 2.29 percent for the third quarter of 1995
compared to 2.62 percent for the third quarter of 1994.
Capital Resources
Common stockholders' equity totalled $118,393,858 as of
September 30, 1995, a 7.2 percent increase from December 31, 1994.
This increase was primarily due to current earnings coupled with
the equity adjustment required by Statement of Financial Accounting
Standard (FAS) No. 115. Under this accounting standard which was
adopted December 31, 1993, the method of classifying investment
securities is based on the Company's intended holding period.
Accordingly, securities that the Company may sell at its discretion
prior to maturity are recorded at their fair value. The aggregate
unrealized net gains or losses (including the income tax and
minority interest effect) are recorded as a component of
stockholders' equity. At September 30, 1995, aggregate unrealized
gains from assets available for sale totalled $715,858, while at
December 31, 1994, aggregate unrealized losses totalled $5,117,046.
This resulted in a net increase of $5,832,904 in common
stockholders' equity in 1995.
PART I -- ITEM 2
Page 7 of 8
The Company's risk-based core capital ratio was 11.74 percent
at September 30, 1995 and the total risk-based capital ratio was
12.85 percent. These exceeded the minimum regulatory requirements
of 4.00 percent and 8.00 percent, respectively. The Company's tier
1 leverage ratio, which measures capital excluding intangible
assets, was 7.50 percent at September 30, 1995, exceeding the
regulatory minimum requirement range of 3.00 to 5.00 percent. Each
of these capital calculations exclude unrealized gains or losses on
assets available for sale.
The Company paid a dividend of $.11 per common share in the
third quarter of 1995. This dividend was unchanged from the prior
quarter and one year ago, resulting in a third quarter dividend
payout ratio of 28.2 percent of earnings per share and a nine month
dividend payout ratio of 32.0 percent. The fourth quarter 1995
dividend was increased 9.1% to $.12 per common share.
As part of the Company's ongoing stock repurchase plan,
209,833 shares have been purchased in 1995 at a cost of $3,846,823.
The Board of Directors has approved the repurchase of $6 million in
the Company's stock for the current year. Since the inception of
the plan, 254,633 shares have been repurchased at a total cost of
$4,697,773. These shares are expected to be used for the issuance
of shares under the Company's long-term stock compensation plan and
stock option plan.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 10.7 percent at September 30, 1995. In addition, the
Parent Company has a $2 million line of credit with a regional bank
that was unused at the end of September.
Brenton Banks, Inc. common stock closed September of 1995 at
a bid price of $20.125 per share, which is 131 percent of the book
value per share of $15.37 on the same date. This closing stock
price represented a price-to-trailing 12 months earnings multiple
of 17.1 times. Excluding the December 1994 restructuring charge
from earnings, the price-to-earnings ratio was a multiple of 15.1.
Brenton Banks, Inc. continues to pursue acquisition and
expansion opportunities that fit the Company's strategic business
and financial plans. There are currently no pending acquisitions
that would require Brenton Banks, Inc. to secure capital from
public or private markets.
Asset-Liability Management
The Company utilizes a computer simulation-based asset-
liability management system. This system simulates the effect of
various interest rate scenarios and the impact of balance sheet
management decisions on net interest income. Management utilizes
this system to manage interest rate risk, the net interest margin
and the level of total net interest income.
PART I -- ITEM 2
Page 8 of 8
In late 1994 and 1995, the Company implemented policies to
assist in reducing interest rate risk. Many decisions regarding
loan, investment, and deposit strategies have been made with the
intent of reducing net interest income fluctuations caused by
changes in interest rates.
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,
loans held for sale, and investments 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. Federal funds sold and
assets available for sale comprised 24.3 percent of the Company's
total assets at September 30, 1995.
The Company's stable deposit base and relatively low levels of
large deposits resulted in low dependence on volatile liabilities.
As of September 30, 1995, the Company had borrowings of $35,150,000
from the Federal Home Loan Bank of Des Moines as a means of
providing long-term, fixed-rate funding for specific transactions
and assisting in controlling interest rate risk.
The combination of a high level of potentially liquid assets,
strong cash flow from operations, and low dependence on volatile
liabilities provides strong liquidity for the Company at September
30, 1995.
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, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BRENTON BANKS, INC.
(Registrant)
Robert L. DeMeulenaere
Dated (Signature)
President
Steven T. Schuler
Dated (Signature)
Chief Financial Officer/
Treasurer/Secretary