Exhibit 13
The Appendix to the Proxy Statement for Brenton Banks,
Inc. for the 1999 calendar year.
242
BRENTON BANKS, INC.
APPENDIX TO THE PROXY STATEMENT
FISCAL YEAR 1999
243
TABLE OF CONTENTS
PAGE
General Information 1
Financial Highlights 2
Management's Discussion and Analysis 3
Consolidated Average Balances and Rates 11
Selected Financial Data 12
Consolidated Statements of Condition 13
Consolidated Statements of Operations 14
Consolidated Statements of Cash Flows 15
Consolidated Statements of Changes in
Common Stockholders' Equity 16
Consolidated Statements of Comprehensive
Income 17
Notes to Consolidated Financial Statements 18
Management's Report 33
Independent Auditors' Report 33
Stock Information 34
Corporate Structure 35
244
BRENTON BANKS, INC.
GENERAL INFORMATION
Brenton Banks, Inc. (the "Company") is a bank holding company registered
under the Bank Holding Company Act of 1956 and a savings and loan holding
company under the Savings and Loan Holding Company Act. Brenton Banks, Inc.
was organized as an Iowa corporation under the name of Brenton Companies in
1948. Subsequently, the Company's name was changed to its current name,
Brenton Banks, Inc.
Brenton Banks, Inc. is the largest, Iowa-based bank holding company, with
44 service locations in metropolitan markets and regional economic centers
across the state. The Company offers a complete range of financial products
and services - including retail, agricultural, commercial and business
banking; trust and investment management services; investment, insurance and
real estate brokerage; mortgage banking; cash management and international
banking services; as well as proprietary mutual funds. The Company's stock
trades on the NASDAQ stock market under the symbol BRBK.
1 245
BRENTON BANKS, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
1999 1998 1997
Operating Results
Net interest income $ 62,599,137 61,387,326 60,133,764
Provision for loan losses 4,250,000 4,200,000 3,900,000
Total noninterest income 29,793,656 33,357,827 27,505,789
Total noninterest expense 65,374,270 61,391,528 57,698,564
Income before income
taxes and minority
interest 22,768,523 29,153,625 26,040,989
Net income 16,560,117 20,350,921 18,010,107
Per Common Share*
Net income-basic $ .81 .98 .85
Net income-diluted .80 .96 .83
Cash dividends .346 .317 .225
Book value, including
unrealized gains
(losses)** 6.48 6.55 6.17
Book value, excluding
unrealized gains
(losses)*** 6.76 6.39 6.02
Closing price 10.13 15.23 16.53
At December 31
Assets $1,985,454,701 1,939,556,765 1,718,483,797
Loans 1,195,986,791 1,033,554,556 993,189,110
Nonperforming loans 9,452,000 11,289,000 6,712,000
Deposits 1,530,083,303 1,496,675,131 1,364,270,491
Realized common
stockholders' equity*** 137,568,254 131,891,522 126,159,453
Total common stockholders'
equity** 131,933,451 135,210,319 129,379,299
Market capitalization of
common stock 206,088,847 314,102,382 346,646,292
Ratios
Return on average total
common stockholders'
equity (ROE)** 12.35% 15.37 14.47
Return on average realized
common stockholders'
equity (ROE)*** 12.31 15.77 14.68
Return on average assets
(including minority
interest) (ROA) .89 1.18 1.14
Net interest margin 3.73 3.97 4.16
Net noninterest margin (1.84) (1.61) (1.86)
Efficiency ratio 67.99 62.71 63.66
Loan to deposit ratio 78.16 69.06 72.80
Allowance for loan losses
to total loans 1.21 1.37 1.28
Equity to assets*** 6.91 6.81 7.36
Risk-based capital ratio 10.18 11.37 11.95
Tier 1 leverage capital
ratio*** 6.80 7.17 7.63
Nonperforming loans as a
percent of loans .79 1.09 .68
Net charge-offs as a percent
of average loans .36 .28 .26
Allowance for loan losses as
a percent of nonperforming
loans 152.49 125.54 189.69
<FN>
* Restated for the 2-for-1 stock split effective February 1998
and the 10 percent common stock dividends effective in
1999 and 1998.
** Including unrealized gains (losses) on securities available for
sale.
*** Excluding unrealized gains (losses) on securities available for
sale.
2 246
Management's Discussion and Analysis
Introduction
The following presentation describes Brenton Banks, Inc. and Subsidiaries'
("Brenton" or the "Company") results of operations for the three-year period
ended December 31, 1999, capital resources, market risk management,
asset/liability management, liquidity, year 2000 results and the impact of
recently issued accounting standards. This discussion should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto which are included elsewhere in this report.
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 and other financial service
providers, changes in interest rates, changes in economic or market conditions
and changes in regulations from federal and state regulators. These risks,
which are not all inclusive, cannot be estimated.
Results of Operations - 1999 Compared to 1998
Net Income
For the year ended December 31, 1999, Brenton recorded net income of
$16,560,117, a decline of 18.6 percent from net income of $20,350,921 in 1998.
Lower mortgage banking revenues and investment brokerage commissions, along
with normal expense growth including costs associated with the Company's growth
initiatives contributed to the reduction. Continued compression of the net
interest margin held the growth in net interest income to a modest amount.
Diluted earnings per common share were $.80 compared to $.96 for 1998.
The Company's return on average assets (ROA) was .89 percent in 1999, compared
to 1.18 percent in 1998. The return on average equity (ROE), including
unrealized gains (losses) on securities available for sale, was 12.35 percent,
compared to 15.37 percent one year earlier.
Net Interest Income
Net interest income rose 2.0 percent to $62,599,137 for 1999 as favorable
volume variances were tempered by tighter interest spreads. The growth of net
interest income was limited because of compression of the net interest margin
due to Iowa's highly competitive banking environment. Average earning assets
increased 8.7 percent over 1998 while average interest-bearing liabilities
increased 9.3 percent.
The net interest spread, which is the difference between the yield earned
on assets and the rate paid on liabilities, declined to 3.28 percent from 3.49
percent a year earlier. The average yield on earning assets declined 34 basis
points while the rate on interest-bearing liabilities declined 13 basis points.
Net interest margin, which is tax-equivalent net interest income as a percent
of average earning assets, was 3.73 percent in 1999 compared to 3.97 percent in
1998.
Loan Growth/Loan Quality
At December 31, 1999, total loans had grown 15.7 percent to $1,196.0
million from $1,033.6 million a year earlier. The areas of significant growth
included indirect consumer loans, direct consumer loans which were primarily
home equity loans and commercial construction loans. Loan quality remained
good with nonperforming loans at December 31, 1999, totaling $9,452,000, or .79
percent of loans. This compares to $11,289,000 at December 31, 1998, or 1.09
percent of loans. 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.
Loan quality control and risk management is continually balanced with
goals for loan growth. The Company has a formal structure for reviewing and
approving all loans. Documentation and loan quality reviews are performed
systematically by internal loan review personnel and external third party loan
review professionals, as well as by regulatory personnel.
3 247
The allowance for loan losses, which totaled $14.4 million, represented
152.49 percent of nonperforming loans at the end of 1999, compared to 125.54
percent one year ago. The provision for loan losses totaled $4,250,000 for
1999 and $4,200,000 in 1998. The Company's net charge-offs as a percent of
average loans were .36 percent for 1999 compared to .28 percent for 1998, both
of which were better than historical industry averages. Loan losses for both
years were primarily concentrated in the indirect and direct consumer loan
portfolio.
The allowance for loan losses represents a reserve available to absorb
probable loan losses within the loan portfolio as of December 31, 1999. The
allowance is based on management's judgment after considering various factors
such as the current and anticipated economic environment, historical loan loss
experience, and most importantly, the evaluation of individual loans by loan
officers, loan administration officers and loan review personnel.
Using the Company's loan grading process, each loan is evaluated based on
its specific characteristics, the borrower's financial condition and collateral
values. All loans are rated on a 1-to-9 rating scale. From these assessments,
the Reserve Adequacy Committee performs quarterly reviews of the loan
portfolio, quantifies the results and reviews the calculations of the allowance
for loan losses.
Management considered the allowance for loan losses at December 31, 1999,
as sufficient to absorb probable loan losses within the portfolio.
Net Noninterest Margin/Efficiency Ratio
To measure operating efficiency, Brenton uses the net noninterest margin,
which is the difference between noninterest income (excluding security gains or
losses) and noninterest expense as a percent of average assets. For 1999, the
net noninterest margin was (1.84) percent compared to (1.61) percent in 1998.
Another ratio the Company utilizes to measure productivity is the efficiency
ratio. This ratio is computed by dividing noninterest expense by the sum of
tax-equivalent net interest income plus noninterest income (excluding gains and
losses on the sale of securities). For the year ended December 31, 1999, the
Company's efficiency ratio was 67.99 percent, compared to 62.71 percent one
year ago. To enhance operating efficiency throughout the organization, the
Company continues to focus on cost management and the development of strategic
sources and improvements in noninterest income.
Noninterest Income
Noninterest income (excluding securities transactions) for 1999 was
$29,578,016, a 9.5 percent decline from $32,692,377 in 1998. Noninterest
income (excluding securities gains and losses) for 1999 represented 1.52
percent of average assets and 32.1 percent of total operating income. All
categories of noninterest income, except mortgage banking, investment brokerage
commissions and other income reflected strong growth from the prior year.
Service charges on deposit accounts increased 18.9 percent in 1999 to
$9,372,840. This growth related to increased account analysis charges on
commercial and business deposit accounts due to a higher number of clients and
revised fee schedules for deposit products.
Fiduciary revenues climbed 5.4 percent to $3,685,449 in 1999 compared to
$3,497,030 in 1998. This revenue improvement was due to increased trust
assets.
Insurance commissions and fees rose 16.3 percent to $1,608,661 in 1999 due
to a 42.4 percent increase in credit-related insurance commissions.
Other service charges and fees increased 3.4 percent to $4,791,432 in 1999
compared to 1998 as a result of improvements in merchant credit card fees,
ATM/debit card fees, official check commissions and international fees. These
increases were somewhat offset by declines in real estate sales commissions and
purchased receivable fees.
Mortgage banking revenue declined 45.8 percent to total $4,225,351 for
1999 compared to a record level of $7,797,577 in 1998. Rising mortgage
interest rates during 1999 led to higher than anticipated losses on sales of
originated loans. Residential real estate loan closings for 1999 totaled
$430.6 million compared to $513.4 million in 1998.
Investment brokerage commissions totaled $4,160,138 for 1999, a reduction
of 22.0 percent from 1998. The decline was due to lower transaction volume as
a result of broker turnover early in 1999.
Despite higher levels of income from bank-owned life insurance policies in
1999, other operating income declined by $426,357 from one year ago. Several
miscellaneous one-time items were recorded in 1998.
4 248
Securities transactions also contributed to the decrease in noninterest
income. Securities gains of $215,640 were recorded in 1999 versus gains of
$665,450 in 1998.
The Company will continue to focus on generating fee income by providing a
broad array of financial products and services to existing and new clients.
The Company has become a proactive sales organization by developing a
partnership culture. Referrals are made between lines of business in an effort
to meet all of the financial needs of our clients'. The growth rate of fee
income could be vulnerable to future economic conditions and competition from
other financial institutions and other financial service providers that cannot
be estimated by the Company.
Noninterest Expense
Total noninterest expense increased 6.5 percent in 1999 to $65,374,270
from $61,391,528 one year ago.
Compensation, the largest component of noninterest expense, increased
$1,083,876, or 3.7 percent, over 1998 as a result of normal salary adjustments
and the Company's growth initiatives. Included in compensation is variable
compensation, which declined 12.7 percent as a result of lower sales of
mortgage and investment products and services. The number of full-time
equivalent employees at December 31, 1999, declined 1.5 percent compared to the
end of 1998 as a result of continued focus on staffing levels and improvements
in efficiency in various operating areas. Benefit expense increased 13.4
percent due to increased compensation expense, higher health insurance premiums
and an award of Brenton stock to most employees during the first quarter of
1999.
Occupancy expense rose 4.4 percent, or $256,425, in 1999 as a result of
increases in depreciation expense and real estate taxes, and an 11 percent
decline in rental income from outside tenants.
Furniture and equipment expense grew to $5,295,734, a 27.2 percent
increase from the prior year. The increase was due to depreciation on
technology upgrades and higher costs for software maintenance agreements.
Data processing expense increased $249,692, or 9.5 percent. This increase
was driven by contractual terms based on growth in the number of loan and
deposit accounts.
Marketing expense rose $311,842 to $1,784,474 because of expanded
marketing efforts for various lines of business and costs related to revising
the Company's deposit products.
Supplies expense increased 14.5 percent to $1,404,316 from $1,226,212 last
year. The increase was primarily due to a higher volume of debit cards issued
and a higher volume of new account checks and deposit slips provided as a
result of new accounts opened, including the acquisition of deposit accounts in
Pella and Knoxville from U.S. Bank.
Other operating expenses increased only $118,380, or 1.0 percent, when
comparing 1999 results to 1998. Increases in legal fees, check processing
fees, bank operational losses and Year 2000 related expenses exceeded
reductions in personnel recruitment costs and consulting fees.
In late 1998, the Company began a strategic growth process called "Quantum
Leap." The objective is to attract profitable clients at a rate significantly
above Iowa's population and economic growth rates. The initiative is designed
to further evolve the Company's growing sales culture by substantially
increasing the sales staff over the next three years, by creating opportunities
for additional sales from the existing sales staff and by strengthening
partnerships with the sales support staff. The Company's substantial
investment and commitment to this initiative will provide revenue growth in the
years to come. The net after-tax cost of the initiative in 1999 was
$1,035,000. While the Company's growth initiatives have caused and will
continue to cause some components of expense to increase, the Company continues
to carefully focus on cost management and evaluates all major expense items in
an effort to control the growth rate of noninterest expenses.
Income Taxes
Brenton'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 24.4 percent for 1999 compared to
27.7 percent for 1998.
Results of Operations - 1998 Compared to 1997
Net Income
For the year ended December 31, 1998, Brenton recorded net income of
$20,350,921, an increase of 13.0 percent over 1997, which
5 249
totaled $18,010,107. Diluted earnings per common share were $.96 compared to
$.83 for 1997. Return on average assets (ROA) was 1.18 percent in 1998,
compared to 1.14 percent in 1997. The return on average equity (ROE) was 15.37
percent, compared to 14.47 percent one year earlier.
Net Interest Income
Net interest income rose 2.1 percent to $61,387,326 for 1998 as favorable
volume variances exceeded unfavorable rate variances. Average earning assets
increased 7.4 percent over 1997 while average interest-bearing liabilities
increased 7.2 percent. The average yield earned on earning assets declined 17
basis points, due to the declining interest rate environment. Meanwhile, the
average rate paid on interest-bearing liabilities increased three basis points
as a result of an aggressive effort to gain new client relationships, which
resulted in the sale of higher-priced transaction deposit products.
The net interest spread declined to 3.49 percent from 3.69 percent a year
earlier. Net interest margin averaged 3.97 percent in 1998 compared to 4.16
percent in 1997.
Loan Growth/Loan Quality
At December 31, 1998, total loans had grown 4.1 percent to $1,033.6
million from $993.2 million a year earlier. Loan quality remained good with
nonperforming loans at December 31, 1998, totaling $11,289,000, or 1.09 percent
of loans. This compared to $6,712,000 at December 31, 1997, or .68 percent of
loans.
The allowance for loan losses, which totaled $14.2 million, represented
125.54 percent of nonperforming loans at the end of 1998, compared to 189.69
percent one year earlier. The provision for loan losses totaled $4,200,000 for
the year ended December 31, 1998, compared to $3,900,000 for 1997. The
increase in the provision was related to the $29.1 million increase in average
loans outstanding during 1998. The Company's net charge-offs as a percent of
average loans was .28 percent for 1998 compared to .26 percent for 1997. Loan
losses for both years were primarily concentrated in the consumer loan
portfolio.
Net Noninterest Margin/Efficiency Ratio
For 1998, the net noninterest margin improved to (1.61) percent compared
to (1.86) percent in 1997. For the year ended December 31, 1998, the Company's
efficiency ratio improved to 62.71 percent, compared to 63.66 percent in 1997.
Noninterest Income
Brenton achieved record levels of noninterest income in 1998. For 1998,
total noninterest income (excluding securities transactions) increased 21.0
percent to $32,692,377 from $27,011,967 one year earlier. Noninterest income
(excluding securities gains and losses) for 1998 represented 1.84 percent of
average assets and 34.8 percent of total operating income. All categories of
noninterest income, except insurance commissions and fees, reflected strong
growth from the prior year.
Service charges on deposit accounts increased 8.2 percent in 1998 to
$7,885,513. This growth related to increased account analysis charges on
commercial and business deposit accounts due to a higher number of clients.
Mortgage banking revenue rose 138.2 percent to $7,797,577 for 1998
compared to $3,274,215 in 1997. This revenue growth was the result of a
significantly higher volume of mortgage loan originations and the favorable
interest rate environment. Residential real estate loan closings for 1998
totaled $513.4 million compared to $179.1 million in 1997. Refinancings
represented 58.7 percent of the closings in 1998 and 41.6 percent in 1997.
Investment brokerage commissions totaled $5,334,309 for 1998, an increase
of 11.0 percent over 1997 due to greater broker productivity and active
financial markets.
Fiduciary revenues climbed 11.5 percent to $3,497,030 in 1998 compared to
$3,136,078 in 1997. This revenue improvement was due to increased assets from
existing trust accounts and new business.
Insurance commissions and fees declined 50.7 percent to $1,382,917 in 1998
due to the third quarter 1997 sale of one of the Company's insurance agencies
and a 44.7 percent decline in credit-related insurance commissions.
6 250
Other service charges, commissions and fees increased 22.3 percent to
$4,208,330 in 1998 compared to 1997 as a result of increases from real estate
sales commissions, ATM/debit card fees, international fees and commercial line
of credit fees.
Other operating income increased by $329,277 from 1997. The increase was
primarily due to higher levels of income from bank-owned life insurance
policies and miscellaneous one-time items, which exceeded a 1997 gain on the
sale of one of the Company's insurance agencies, as discussed above.
Securities transactions also contributed to the increase in noninterest
income. Securities gains of $665,450 were recorded in 1998 versus gains of
$493,822 in 1997.
Noninterest Expense
Total noninterest expense increased 6.4 percent in 1998 to $61,391,528
from $57,698,564 in 1997.
Compensation expense increased $2,317,134, or 8.6 percent, over 1997.
Standard salaries, which comprised 69.3 percent of total compensation expense,
increased by 11.6 percent compared to 1997 due to an increase in the number of
full-time equivalent employees and normal annual salary increases. Variable
compensation increased 43.3 percent as a result of higher sales of fee-related
products and services. Other compensation decreased $1,917,090 because of the
expiration of a long-term stock compensation plan. The number of full-time
equivalent employees increased 9.8 percent at December 31, 1998, compared to
the end of 1997 as a result of filling a number of open positions. Benefit
expense increased 13.3 percent due to increased compensation, higher health
insurance premiums and increased retirement plan contributions.
Occupancy expense rose 3.5 percent, or $197,959, in 1998 as a result of
increases in depreciation expense, repairs and maintenance and utility costs.
Furniture and equipment expense grew to $4,163,137, a 14.6 percent
increase from 1997. The increase was due to depreciation on technology
upgrades and increased repairs and maintenance expense.
Transferring the personal computer "help desk" function to an internal
operation reduced data processing expense $226,668, or 8.0 percent.
Other operating expenses increased $173,054, or 1.5 percent, when
comparing 1998 results to 1997. Increases in consulting fees, personnel
recruitment expenses, check processing fees and correspondent bank service
charges exceeded reductions in legal fees, bank operational losses,
miscellaneous expense and loss on sale of fixed assets.
Income Taxes
Brenton's income tax strategies included reducing income taxes by
purchasing securities and originating loans that produce tax-exempt income.
The effective rate of income tax expense as a percent of income before income
tax and minority interest was 27.7 percent for 1998 compared to 28.0 percent
for 1997.
Capital Resources
Common stockholders' equity totaled $131,933,451 as of December 31, 1999,
a 2.4 percent decline from the prior year. Excluding the change in accumulated
other comprehensive income (loss), realized stockholders' equity increased 4.3
percent compared to year-end 1998 and totaled $137,568,254.
In May 1999, the Board declared a 10 percent common stock dividend. As a
result of this action, each shareholder received one additional share of common
stock for every 10 shares they owned. Fractional shares were paid in cash. All
per-share data has been restated to reflect the 2-for-1 stock split in 1998 and
the 10 percent common stock dividends in 1999 and 1998. Cash dividends for
1999 totaled $7,112,542, or $.346 per common share, which represents an
increase of 9.2 percent over 1998 dividends of $.317 per share. The dividend
payout ratio for 1999 was 43.25 percent of earnings per share.
As part of Brenton's ongoing stock repurchase plan, 300,624 shares of
common stock (adjusted for the 10 percent common stock dividend) were
repurchased during 1999 at a cost of $4,004,426. Since the inception of the
plan in 1994, the Company has repurchased 3,644,983 shares (adjusted for the 2-
for-1 stock split and 10 percent common stock dividends) at a total cost of
$37,948,804. At this time, the Board has decided not to extend this plan for
2000.
7 251
The Company continues to monitor its capital position to balance the goals
of maximizing return on average equity, while maintaining adequate capital
levels for regulatory purposes. The Company's risk-based core capital ratio at
December 31, 1999, was 9.20 percent and the total risk-based capital ratio was
10.18 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 6.80 percent at
December 31, 1999, exceeding the regulatory minimum requirement for well-
capitalized institutions of 5.0 percent.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent Company") was
4.9 percent at December 31, 1999, compared to 6.7 percent at the end of 1998.
The Parent Company's $5 million line of credit with a regional bank was unused
at the end of the year. Long-term borrowings of the Parent Company at December
31, 1999, consisted entirely of capital notes totaling $6,454,000.
Brenton Banks, Inc. common stock closed on December 31, 1999, at $10.13, a
decline of 33.5 percent from the prior year-end. The closing price at December
31, 1999, was 156.4 percent of the book value per share of $6.48. The year-end
stock price represented a price-to-1999-diluted-earnings multiple of 12.7
times.
Brenton Banks, Inc. continues to pursue acquisition and expansion
opportunities, which fit the strategic direction and enhance the financial
performance of the Company, as well as strengthen the Company's presence in
current and new markets. On September 24, 1999, the Company completed the
acquisition of two U.S. Bank offices in Pella and Knoxville, with deposits
totaling approximately $53 million. There are currently no pending
acquisitions that would require Brenton Banks, Inc. to secure capital from
public or private markets.
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 were managed in 1999 changed when
compared to 1998.
The Company uses a third-party computer software simulation modeling
program to measure its exposure to potential interest rate changes. For
various assumed hypothetical changes in market interest rates, numerous other
assumptions are made such as prepayment speeds on loans and securities backed
by mortgages, the slope of the Treasury yield curve, the rates and volumes on
the Company's deposit products and the rates and volumes on the Company's loan
production.
The following table sets forth the estimated changes in net interest
income (expressed as a percent of base net interest income) for projected
hypothetical changes in market interest rates. Base net interest income is the
projected net interest income assuming no change in interest rates. As shown
in the table, the Company's net interest income is more sensitive in a
prolonged falling rate scenario than in a rising rate scenario. As market
rates decline, the assumed speed of fixed-rate loan repayments increases,
causing the funds received to be reinvested at lower rates. Current interest
rates on certain liabilities are at a level that does not allow for significant
downward repricing should market interest rates decline significantly. As
market rates increase, fixed-rate loans are less likely to prepay, therefore,
slowing the opportunity to reinvest at the assumed higher rates. In either a
rising or falling interest rate environment, the Company believes it has taken
actions to minimize the actual impact on net interest income. Those actions
include the origination of variable-rate consumer and commercial loans, the use
of fixed-rate Federal Home Loan Bank advances as alternatives to certificates
of deposit and active management of the investment securities portfolio to
provide for cash flows that will facilitate interest rate risk management. In
selected cases, the Company may enter into interest rate swaps, however, the
amount of swaps assumed in the projection of net interest income are not
material. The Company has entered into interest rate floor contracts to
mitigate the effect falling interest rates would have when certain deposit
categories could not be priced proportionately lower. Actual changes in net
interest income may differ from estimated changes set forth in this table due
to various risks and uncertainties concerning how actual repricing
opportunities will differ from assumed repricing opportunities.
Changes in net interest income due to projected
hypothetical changes in market interest rates
_____________________________________________
Assumed changes
in market rates 2000 2001 2002
_______________ _____ _____ _____
- -300 bps 1.9% -1.6% -6.7%
- -200 bps 1.8% 0.3% -3.7%
- -100 bps 1.3% 2.1% 0.2%
+100 bps -0.8% -0.4% 1.6%
+200 bps -1.5% -2.8% 1.7%
+300 bps -2.5% -5.5% 1.2%
<FN>
(Changes in hypothetical interest rates are assumed to be instantaneous and
sustained parallel shifts in the yield curve.)
8 252
Asset/Liability Management
Brenton 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, as previously discussed, that reflect the effects of various
interest rate scenarios on net interest income. Management utilizes the
simulations to manage interest rate risk, the net interest margin and levels of
net interest income.
The goal of asset/liability management is to structure the balance sheet
so that net interest income and net interest margin fluctuate in a narrow range
during periods of changing interest rates. The Company currently believes that
net interest income would fall by less than five 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 the one-week LIBOR rate, the better the prospects for net interest
income improvement.
To improve net interest income and lessen interest rate risk, management
continued 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 securitizes residential real estate loans.
The Company continues to focus on reducing interest rate risk by emphasizing
growth in variable-rate commercial and consumer loans.
In addition to normal balance sheet instruments, the Company has utilized
Federal Home Loan Bank advances and, in selected cases, interest rate swaps and
interest rate floor contracts to reduce interest rate risk. Other actions
taken to minimize interest rate risk were previously discussed under the
heading "Market Risk Management."
Liquidity Management
Brenton actively monitors and manages its liquidity position with the
objective of maintaining sufficient cash flows to fund operations, meet client
commitments, take advantage of market opportunities and provide a margin
against unforeseeable liquidity needs. Federal funds sold, 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 29.3 percent of the Company's total assets at
December 31, 1999.
Net cash provided from operations (exclusive of increases or decreases in
loans held for sale) of the Company is another major source of liquidity and
totaled $20,729,000 in 1999, $24,749,000 in 1998 and $23,303,000 in 1997.
These strong cash flows from operations are expected to continue in the
foreseeable future.
The Company has historically maintained a stable deposit base and a
relatively low level of large deposits, which results in a low dependence on
volatile liabilities. At December 31, 1999, the Company had advances of
$131,674,000 from the Federal Home Loan Bank ("FHLB") of Des Moines, of which
$52,200,000 represents a variable-rate line of credit used to fund mortgage
lending operations. The remaining balance was used as a means of providing
both long-term, fixed-rate funding for certain assets and managing interest
rate risk. The Company had additional borrowing capacity available from the
FHLB of approximately $7 million at December 31, 1999.
The combination of high levels of potentially liquid assets, strong cash
flows from operations, low dependence on volatile liabilities and additional
borrowing capacity provided strong liquidity for the Company at December 31,
1999.
The Company has entered into agreements for the construction of an
operations and sales support facility with an estimated total cost, exclusive
of land, of $10.3 million. Groundbreaking occurred in October 1999,
construction has begun and completion is expected in the fourth quarter of
2000. The building will replace currently leased space and will also allow for
additional growth.
The Parent Company had sufficient cash flow and liquidity at December 31,
1999. The primary funding source for the Parent Company is dividends from its
subsidiaries. Dividends of approximately $28 million were available to be paid
to the Parent Company by subsidiary banks without reducing capital ratios below
regulatory minimums. At the end of 1999 the Parent Company had $3.4 million of
interest-bearing deposits with banks, a $5 million unused line of credit and
additional borrowing capacity.
Year 2000
The "Year 2000" issue was a top priority for Brenton since the
establishment of a Year 2000 Committee and a formal plan in August 1997. The
purpose of the committee and the formal plan was to minimize the risk of
potential disruption related to computers or other equipment with date-
sensitive software. Based on the Company's assessment of operations through
February 2000, we have not
9 253
experienced any significant year 2000 issues. The Company has surveyed our
larger clients, vendors and significant third parties and believes they have
experienced no significant year 2000 issues, which could adversely affect the
Company. The Company will continue to monitor year 2000 issues.
The incremental expense associated with becoming Year 2000 compliant
totaled approximately $325,000 in 1999 and $530,000 overall, which was not
material to the Company's financial position. There were additional benefits
that resulted from this project, because in addition to becoming Year 2000
compliant, systems were improved.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which originally was scheduled
to be effective for the Company for the year beginning January 1, 2000. The
effective date has been postponed until January 1, 2001. This statement
requires recognition of all derivative instruments as either assets or
liabilities in the statement of financial position measured at fair value.
This statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows gains and losses from
derivatives to offset related results on the hedged item in the income
statement, and requires a company to formally document, designate and assess
the effectiveness of transactions for which hedge accounting is applied. The
impact the adoption of SFAS No. 133 will have on the Company's financial
statements has not been determined. The Company expects to adopt SFAS No. 133
when required.
10 254
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCES AND RATES
Average Balances (in thousands) 1999 1998 1997 1996 1995
Assets:
Cash and due from banks $ 72,186 65,874 58,681 65,439 57,138
Interest-bearing deposits with
banks 3,526 3,706 2,460 1,393 1,076
Federal funds sold and
securities purchased under
agreements to resell 7,118 31,048 31,472 26,188 39,763
Trading account securities - - 12 - -
Investment securities:
Available for sale--taxable 430,740 390,591 348,232 330,002 244,786
Available for sale--tax-exempt 155,558 125,237 99,868 85,471 100,859
Held to maturity--taxable 1,514 3,998 12,700 46,271 65,959
Held to maturity--tax-exempt 33,982 53,130 56,204 51,639 50,235
Loans held for sale 56,218 37,841 10,284 7,983 5,908
Loans 1,098,732 999,232 970,115 919,578 945,724
Allowance for loan losses (14,519) (13,738) (12,171) (11,440) (11,166)
Premises and equipment 36,010 31,883 29,841 31,728 31,436
Other assets 62,761 51,318 41,771 28,642 29,508
$ 1,943,826 1,780,120 1,649,469 1,582,894 1,561,226
Liabilities and Stockholders'
Equity:
Deposits:
Noninterest-bearing $ 192,211 164,403 139,480 131,051 128,770
Interest-bearing:
Demand 109,535 90,589 81,430 376,259 355,819
Savings 641,308 585,598 551,509 241,250 231,633
Time 546,868 556,056 567,258 583,508 626,497
Total deposits 1,489,922 1,396,646 1,339,677 1,332,068 1,342,719
Federal funds purchased and
securities sold under
agreements to repurchase 150,387 116,388 78,234 59,276 40,237
Other short-term borrowings 117,377 65,205 53,223 17,295 6,536
Accrued expenses and other
liabilities 15,940 17,020 17,097 17,520 14,896
Long-term borrowings 31,330 47,605 32,056 33,094 37,264
Total liabilities 1,804,956 1,642,864 1,520,287 1,459,253 1,441,652
Minority interest in
consolidated subsidiaries 4,734 4,834 4,691 4,471 4,391
Common stockholders' equity 134,136 132,422 124,491 119,170 115,183
$ 1,943,826 1,780,120 1,649,469 1,582,894 1,561,226
Summary of Average Interest
Rates:
Average yields earned:
Interest-bearing deposits with
banks 4.90% 4.74 4.80 4.87 6.20
Trading account securities - - 4.26 - -
Federal funds sold and
securities purchased under
agreements to resell 4.91 5.35 5.54 5.41 5.69
Investment securities:
Available for sale--taxable 5.83 6.09 6.31 6.08 5.96
Available for sale--tax-exempt
(tax equivalent basis) 6.46 6.69 7.04 7.13 6.71
Held to maturity--taxable 6.72 6.93 6.39 6.22 6.17
Held to maturity--tax-exempt
(tax equivalent basis) 7.03 6.82 6.72 6.68 8.05
Loans held for sale 7.07 7.11 7.89 8.47 6.71
Loans 8.26 8.74 8.82 8.69 8.69
Average rates paid:
Deposits 3.96% 4.12 4.11 4.12 4.37
Federal funds purchased and
securities sold under
agreements to repurchase 4.41 4.38 4.36 4.17 4.08
Other short-term borrowings 5.46 5.76 5.98 5.87 5.67
Long-term borrowings 6.43 6.34 6.86 7.07 7.03
Average yield on interest-
earning assets 7.44% 7.78 7.95 7.80 7.86
Average rate paid on interest-
bearing liabilities 4.16 4.29 4.26 4.22 4.45
Net interest spread 3.28 3.49 3.69 3.58 3.41
Net interest margin 3.73 3.97 4.16 4.03 3.89
11 255
BRENTON BANKS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year-end Balances
(in thousands) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
Total assets $ 1,985,455 1,939,557 1,718,484 1,632,095 1,582,779 1,581,327 1,480,596 1,431,140 1,360,942 1,274,301
Interest-earning assets 1,805,943 1,788,081 1,578,923 1,497,600 1,461,218 1,475,473 1,400,709 1,323,252 1,267,402 1,181,172
Interest-bearing
liabilities 1,645,684 1,590,493 1,406,258 1,335,609 1,300,508 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597
Noninterest-bearing
deposits 189,333 190,625 161,007 153,284 143,220 136,548 127,132 137,212 115,479 125,626
Long-term borrowings 27,704 41,546 36,662 34,860 38,178 28,939 20,055 13,284 13,634 12,675
Common stockholders'
equity** 131,933 135,210 129,379 121,954 119,534 110,430 112,418 97,430 86,712 77,258
Results of Operations
(in thousands)
Interest income $ 128,979 124,026 118,239 111,383 111,040 101,223 98,656 106,560 115,561 106,826
Interest expense 66,380 62,639 58,105 55,331 57,708 45,772 44,427 54,773 68,687 64,431
Net interest income 62,599 61,387 60,134 56,052 53,332 55,451 54,229 51,787 46,874 42,395
Provision for loan losses 4,250 4,200 3,900 2,900 1,865 1,988 1,252 1,411 799 869
Net interest income after
provision for loan losses 58,349 57,187 56,234 53,152 51,467 53,463 52,977 50,376 46,075 41,526
Noninterest income 29,794 33,358 27,506 23,327 17,847 16,593 17,863 14,684 12,715 11,554
Noninterest expense 65,374 61,392 57,699 56,090 55,051 56,657 50,415 46,591 42,284 37,820
Income before income
taxes and minority
interest 22,769 29,153 26,041 20,389 14,263 13,399 20,425 18,469 16,506 15,260
Income taxes 5,565 8,082 7,288 5,771 3,205 2,701 5,508 4,884 4,308 4,388
Minority interest 644 720 743 603 651 591 667 632 539 533
Net income $ 16,560 20,351 18,010 14,015 10,407 10,107 14,250 12,953 11,659 10,339
Average common shares
outstanding
(in thousands)* 20,498 20,853 21,181 21,891 22,469 23,105 22,983 22,782 22,716 22,677
Per Common Share*
Net income-basic $ .81 .98 .85 .64 .46 .44 .62 .57 .51 .46
Net income-diluted .80 .96 .83 .63 .46 .43 .61 .56 .51 .45
Cash dividends .346 .317 .225 .171 .154 .150 .137 .120 .110 .093
Common stockholders'
equity*** 6.76 6.39 6.02 5.62 5.27 5.01 4.74 4.26 3.81 3.40
Closing price 10.13 15.23 16.53 10.38 7.26 6.23 5.98 5.92 4.72 3.07
Selected Operating
Ratios
Return on total average
common stockholders'
equity** 12.35% 15.37 14.47 11.76 9.04 9.03 13.82 14.13 14.27 14.39
Return on average realized
common stockholders'
equity*** 12.31 15.77 14.68 11.79 8.91 8.99 13.82 14.12 14.26 14.39
Return on average assets
(including minority
interest) .89 1.18 1.14 .92 .71 .70 1.04 .98 .93 .95
Equity to assets*** 6.91 6.81 7.36 7.41 7.47 7.28 7.40 6.81 6.37 6.06
Common dividend
payout 43.25 33.02 27.11 27.14 33.48 34.88 22.46 21.43 21.57 20.67
Allowance for loan
losses as a percent
of loans 1.21 1.37 1.28 1.20 1.22 1.12 1.12 1.20 1.14 1.25
Net charge-offs as a
percent of average
loans .36 .28 .26 .29 .18 .10 .05 .13 .15 .12
<FN>
* Restated for 2-for-1 stock split effective February 1998, 10 percent
common stock dividends effective in 1999, 1998, 1997 and 1996 and
3-for-2 stock split effective in 1994.
** Including unrealized gains (losses) on securities available for sale.
*** Excluding unrealized gains (losses) on securities available for sale.
12 256
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
December 31 1999 1998
Assets:
Cash and due from banks (note 2) $ 85,064,053 76,460,049
Interest-bearing deposits with banks 2,361,784 2,167,288
Federal funds sold and securities purchased
under agreements to resell - 6,000,000
Investment securities:
Available for sale (note 3) 556,191,355 605,183,788
Held to maturity (market value of
$25,351,000 and $44,011,000
at December 31, 1999, and 1998,
respectively) (note 3) 25,201,876 43,027,501
Investment securities 581,393,231 648,211,289
Loans held for sale 26,201,221 98,147,391
Loans (notes 4, 9 and 10) 1,195,986,791 1,033,554,556
Allowance for loan losses (note 5) (14,413,104) (14,172,264)
Loans, net 1,181,573,687 1,019,382,292
Premises and equipment (note 6) 37,978,240 32,523,113
Accrued interest receivable 15,856,895 16,458,066
Other assets (notes 4 and 8) 55,025,590 40,207,277
1,985,454,701 1,939,556,765
Liabilities and Stockholders' Equity:
Deposits (note 7):
Noninterest-bearing 189,333,019 190,625,140
Interest-bearing:
Demand 145,131,184 131,602,358
Savings 640,963,380 603,367,340
Time 554,655,720 571,080,293
Total deposits 1,530,083,303 1,496,675,131
Federal funds purchased and securities sold
under agreements to repurchase 166,806,442 155,847,300
Other short-term borrowings (note 9) 110,423,584 87,050,000
Accrued expenses and other liabilities 13,896,056 18,315,348
Long-term borrowings (note 10) 27,704,000 41,546,000
Total liabilities 1,848,913,385 1,799,433,779
Minority interest in consolidated
subsidiaries 4,607,865 4,912,667
Redeemable preferred stock, $1 par;
500,000 shares authorized; issuable
in series, none issued - -
Common stockholders' equity (notes 12,
13, 14 and 16):
Common stock, $2.50 par; 50,000,000
shares authorized; 20,354,454 and
18,752,381 shares issued and outstanding
at December 31, 1999, and 1998, respectively 50,886,135 46,880,953
Capital surplus - -
Retained earnings 86,682,119 85,010,569
Accumulated other comprehensive income
(loss)-- unrealized gains (losses) on
securities available for sale (5,634,803) 3,318,797
Total common stockholders' equity 131,933,451 135,210,319
$ 1,985,454,701 1,939,556,765
<FN>
Commitments and contingencies (notes 17 and 18).
See accompanying notes to consolidated financial statements.
13 257
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31 1999 1998 1997
Interest Income:
Interest and fees on loans (note 4) $ 94,493,565 89,739,711 86,020,464
Interest and dividends on investments:
Available for sale--taxable 25,125,818 23,770,870 21,969,148
Available for sale--tax-exempt 7,058,222 5,866,972 4,929,898
Held to maturity--taxable 101,816 277,075 811,729
Held to maturity--tax-exempt 1,677,406 2,536,082 2,647,149
Interest on federal funds sold and
securities purchased under agreements
to resell 349,298 1,659,405 1,742,284
Other interest income 172,918 175,678 118,695
Total interest income 128,979,043 124,025,793 118,239,367
Interest Expense:
Interest on deposits (note 7) 51,330,450 50,772,501 49,310,346
Interest on federal funds purchased
and securities sold under
agreements to repurchase 6,630,927 5,092,162 3,413,432
Interest on other short-term
borrowings (note 9) 6,403,143 3,756,817 3,183,053
Interest on long-term borrowings
(note 10) 2,015,386 3,016,987 2,198,772
Total interest expense 66,379,906 62,638,467 58,105,603
Net interest income 62,599,137 61,387,326 60,133,764
Provision for loan losses (note 5) 4,250,000 4,200,000 3,900,000
Net interest income after provision
for loan losses 58,349,137 57,187,326 56,233,764
Noninterest Income:
Service charges on deposit accounts 9,372,840 7,885,513 7,290,765
Mortgage banking income 4,225,351 7,797,577 3,274,215
Investment brokerage commissions 4,160,138 5,334,309 4,808,048
Fiduciary income 3,685,449 3,497,030 3,136,078
Insurance commissions and fees 1,608,661 1,382,917 2,803,983
Other service charges, collection
and exchange charges, commissions
and fees 4,791,432 4,634,529 3,879,609
Net realized gains from securities
available for sale (note 3) 215,640 665,450 493,822
Other operating income 1,734,145 2,160,502 1,819,269
Total noninterest income 29,793,656 33,357,827 27,505,789
Noninterest Expense:
Compensation 30,225,317 29,141,441 26,824,307
Employee benefits (note 15) 5,525,097 4,873,271 4,303,104
Occupancy expense of premises,
net (notes 6 and 17) 6,063,984 5,807,559 5,609,600
Furniture and equipment expense
(notes 6 and 17) 5,295,734 4,163,137 3,634,336
Data processing expense (note 18) 2,873,419 2,623,727 2,850,395
Marketing 1,784,474 1,472,632 1,361,963
Supplies 1,404,316 1,226,212 1,195,762
Other operating expense 12,201,929 12,083,549 11,919,097
Total noninterest expense 65,374,270 61,391,528 57,698,564
Income before income taxes and
minority interest 22,768,523 29,153,625 26,040,989
Income taxes (note 8) 5,564,805 8,082,355 7,287,628
Income before minority interest 17,203,718 21,071,270 18,753,361
Minority interest 643,601 720,349 743,254
Net income $ 16,560,117 20,350,921 18,010,107
Per common share (notes 1 and 13):
Net income-basic $ .81 .98 .85
Net income-diluted .80 .96 .83
Cash dividends .346 .317 .225
<FN>
See accompanying notes to consolidated financial statements.
14 258
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 1999 1998 1997
Operating Activities:
Net income $ 16,560,117 20,350,921 18,010,107
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Provision for loan losses 4,250,000 4,200,000 3,900,000
Depreciation and amortization 5,916,858 4,683,179 4,216,828
Deferred income taxes (242,812) 1,396,220 (685,223)
Net realized gains from securities
available for sale (215,640) (665,450) (493,822)
Investment securities amortization
and accretion 2,386,752 1,043,735 1,346,704
Net (increase) decrease in loans
held for sale 71,946,170 (78,843,980) (13,433,113)
Net increase in accrued interest
receivable and other assets (3,540,983) (7,644,451) (3,501,066)
Net increase (decrease) in accrued
expenses, other liabilities and
minority interest (4,385,521) 1,384,709 509,873
Net cash provided (used) by operating
activities 92,674,941 (54,095,117) 9,870,288
Investing Activities:
Investment securities available for sale:
Purchases (135,073,603) (461,159,506) (303,699,052)
Maturities 129,035,932 252,551,601 161,716,090
Sales 38,067,415 89,996,385 119,401,553
Investment securities held to maturity:
Purchases (975,625) (6,166,526) (26,324,353)
Maturities 18,678,932 32,130,525 29,768,259
Net increase in loans (164,147,009) (43,125,313) (53,741,825)
Acquisition of deposits and loans, net 46,120,354 - -
Purchase of other assets for investment - (5,000,000) (5,000,000)
Purchases of premises and equipment (10,856,360) (7,911,645) (2,526,958)
Proceeds from sales of premises and
equipment 8,274 7,291 225,080
Net cash used by investing activities (79,141,690) (148,677,188) (80,181,206)
Financing Activities:
Net increase in noninterest-bearing,
interest-bearing demand and savings
deposits 33,567,260 119,558,474 25,683,433
Net increase (decrease) in time
deposits (53,909,352) 12,846,166 (14,470,053)
Net increase in federal funds
purchased and securities sold under
agreements to repurchase 10,959,142 63,214,724 25,806,456
Net increase (decrease) in other
short-term borrowings (2,126,416) (9,700,000) 25,550,000
Proceeds of long-term borrowings 14,663,000 29,394,000 17,806,000
Repayment of long-term borrowings (3,005,000) (1,460,000) (2,004,024)
Dividends on common stock (7,112,542) (6,622,340) (4,781,675)
Proceeds from issuance of common
stock under the employee stock
purchase plan 243,573 758,090 551,247
Proceeds from issuance of common
stock under the stock option plan 4,013 290,039 1,286,157
Proceeds from issuance of common stock
under the long-term stock compensation
plan - 970,220 246,915
Payment for shares reacquired under
common stock repurchase plan (4,004,426) (10,000,900) (10,014,087)
Payment for fractional shares
resulting from common stock dividend (14,003) (13,961) (16,399)
Net cash provided (used) by financing
activities (10,734,751) 199,234,512 65,643,970
Net increase (decrease) in cash and
cash equivalents 2,798,500 (3,537,793) (4,666,948)
Cash and cash equivalents at the
beginning of the year 84,627,337 88,165,130 92,832,078
Cash and cash equivalents at the
end of the year $ 87,425,837 84,627,337 88,165,130
<FN>
See accompanying notes to consolidated financial statements.
15 259
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Years Ended December 31 1999 1998 1997
Common Stock
Beginning of year balance $ 46,880,953 43,335,120 40,428,420
Ten percent common stock
dividend (note 13) 4,655,915 4,315,398 3,966,905
Issuance of shares of common stock
under the stock option plan
(note 16) 33,680 99,825 501,760
Issuance of shares of common stock
under the long-term stock
compensation plan (note 16) - 268,960 82,945
Issuance of shares of common stock
under the employee stock purchase
plan (note 16) 33,647 94,150 93,790
Shares reacquired under the common
stock repurchase plan (note 13) (718,060) (1,232,500) (1,738,700)
End of year balance 50,886,135 46,880,953 43,335,120
Capital Surplus
Beginning of year balance - - -
Ten percent common stock dividend
(note 13) - (78,529) -
Issuance of shares of common stock
under the stock option plan
(note 16) (29,667) 190,214 784,397
Issuance of shares of common stock
under the long-term stock
compensation plan (note 16) - 842,685 163,970
Issuance of shares of common stock
under the employee stock purchase
plan (note 16) 209,926 664,018 457,457
Shares reacquired under the common
stock repurchase plan (note 13) (180,259) (1,618,388) (1,405,824)
End of year balance - - -
Retained Earnings
Beginning of year balance 85,010,569 82,824,333 80,448,768
Net income 16,560,117 20,350,921 18,010,107
Dividends on common stock
($.346, $.317, and $.225 per share,
respectively) (7,112,542) (6,622,340) (4,781,675)
Ten percent common stock dividend
(note 13) (4,655,915) (4,236,869) (3,966,905)
Fractional shares resulting from
common stock dividend (14,003) (13,961) (16,399)
Issuance of shares of common stock
under the long-term stock
compensation plan (note 16) - (141,425) -
Issuance of shares of common stock
under the employee stock purchase
plan (note 16) - (78) -
Shares reacquired under the common
stock repurchase plan (note 13) (3,106,107) (7,150,012) (6,869,563)
End of year balance 86,682,119 85,010,569 82,824,333
Total Stockholders' Equity before
Accumulated Other Comprehensive
Income (Loss) 137,568,254 131,891,522 126,159,453
Accumulated Other Comprehensive
Income (Loss)
Beginning of year balance 3,318,797 3,219,846 1,077,041
Change in unrealized holding
gains (losses) on securities
available for sale (8,953,600) 98,951 2,142,805
End of year balance (5,634,803) 3,318,797 3,219,846
Total Stockholders' Equity $ 131,933,451 135,210,319 129,379,299
<FN>
See accompanying notes to consolidated financial statements.
16 260
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31 1999 1998 1997
Net income $ 16,560,117 20,350,921 18,010,107
Other comprehensive income (loss),
net of tax:
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during the period (net
of deferred tax of $5,291,295,
$(311,674) and $(1,470,886),
respectively) (8,818,825) 512,861 2,451,444
Less: reclassification adjustment
for net realized gains included
in net income (net of tax expense
of $80,865, $251,540 and $185,183,
respectively) (134,775) (413,910) (308,639)
Other comprehensive income (loss),
net of tax (8,953,600) 98,951 2,142,805
Comprehensive income $ 7,606,517 20,449,872 20,152,912
<FN>
See accompanying notes to consolidated financial statements.
17 261
BRENTON BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) Summary of Significant Accounting Policies and
Related Matters
______________________________________________________________________________
Nature of Operations Brenton Banks, Inc. and subsidiaries (the Company)
engage in retail, commercial, business, and agricultural banking and related
financial services from 44 locations throughout the state of Iowa. The
Company provides the usual products and services of banking such as deposits,
commercial loans, business loans, agribusiness loans, personal loans and trust
and investment management services. The Company also engages in activities
that are closely related to banking, including mortgage banking, investment,
insurance and real estate brokerage.
The accounting and reporting policies of the Company conform with
generally accepted accounting principles and general practices within the
banking industry. The following describe the more significant accounting
policies:
The Principles of Consolidation The consolidated financial statements include
the accounts of Brenton Banks, Inc. (the Parent Company) and its subsidiaries.
All material intercompany accounts and transactions have been eliminated in
the consolidated financial statements. Certain reclassifications were made in
the financial statements to agree with the current year presentation.
The excess cost over underlying net assets of consolidated subsidiaries
and other intangible assets are generally being amortized over 10 to 15 years
and are included in other assets in the consolidated statements of condition.
Intangible assets totaled $8,125,000 and $3,395,000 at December 31, 1999, and
1998, respectively.
Acquisition On September 24, 1999, the Company completed the acquisition of
two branch offices in Pella and Knoxville, Iowa from U.S. Bank. The two
offices had deposits totaling approximately $53 million. The acquisition was
accounted for by the purchase method. Intangible assets of $5.3 million,
including $4.3 million of goodwill, were created in the transaction. Goodwill
is being amortized to other operating expense on a straight-line basis over 15
years.
Investment Securities Investment securities are classified based on the
Company's intended holding period. Securities, which may be sold prior to
maturity to meet liquidity needs, to respond to market changes or to adjust
the Company's asset-liability position, are classified as available for sale.
Securities that the Company has the ability and intent to hold to maturity
are classified as held to maturity.
Investment securities available for sale are recorded at fair value. The
aggregate unrealized gains or losses, net of the income tax and minority
interest effect, are recorded as a component of other comprehensive income
until realized. Securities held to maturity are recorded at cost, adjusted
for amortization of premiums and accretion of discounts. The timing of the
amortization and accretion of mortgage-backed securities is adjusted for
actual and projected prepayments.
Net realized gains or losses on the sale of securities are shown in the
statements of operations. Gains or losses are computed using the specific
security identification method on the trade date.
Loans Loans are carried primarily at the unpaid principal balance. Interest
income on loans is accrued and recorded as income based on contractual
interest rates and daily outstanding principal balances.
The accrual of interest income is stopped when the ultimate collection of
a loan becomes doubtful. A loan is placed on nonaccrual status when it
becomes 90 days past due, if it is neither well secured or in the process of
collection. Once determined uncollectible, interest credited to income in the
current year is reversed and interest accrued in prior years is charged to the
allowance for loan losses.
Under the Company's credit policies, all nonaccrual and restructured
commercial, business, agricultural, commercial real estate and construction
loans are considered to be impaired loans. In determining when a loan is
impaired, management considers the delinquency status of the borrower, the
borrower's ability to generate cash and the fair market value of the
collateral. Specific allowances are established for any impaired commercial,
business, agricultural, commercial real estate or construction loan where the
recorded investment exceeds the measured value of the loan. On a practical
basis, the measured value of a loan is obtained by using the observable market
price of a loan or the fair value of the collateral, if the loan is collateral
dependent. Otherwise, the measured value of a loan is based upon the present
value of expected future cash flows discounted at the loan's effective
interest rate. Impaired loans are charged-off on the basis of management's
ongoing evaluation, but generally when it is deemed probable that the borrower
cannot generate sufficient funds to comply with contractual terms in the
normal course of business. Cash received on impaired loans is applied to
principal until principal is satisfied or until the borrower demonstrates the
ability to perform according to agreed-upon terms.
Loans held for sale include real estate mortgage loans originated with
the intent to sell. These loans are carried at the lower of aggregate cost or
fair value.
Allowance for Loan Losses The allowance for loan losses is maintained at a
level considered appropriate to support management's evaluation of probable
losses in the loan portfolio as of the balance sheet date. Management's
evaluation is based upon several factors including economic conditions,
historical loss and collection experience, risk characteristics of the
portfolio, underlying collateral values, industry risk and credit
concentrations. Loan losses or recoveries are charged or credited directly to
the allowance account.
Premises and Equipment Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided predominantly by the
straight-line method over estimated useful lives of 5 to 40 years for
buildings and leasehold improvements, and 3 to 20 years for furniture and
equipment.
Other Real Estate Owned Included in other assets is property acquired through
foreclosure, acceptance of deed in lieu of foreclosure or other transfers in
settlement of outstanding loans and related contract sales of such property
until the contract is transferred to earning assets based upon sufficient
equity in the asset. Amounts totaled $1,186,000 and $389,000 at December 31,
1999, and 1998, respectively. Such property is carried at the lower of cost
or estimated fair value, less estimated selling costs. Periodic
18 262
appraisals are obtained to support carrying values. Net expense of ownership
and declines in carrying values are charged to operating expenses.
Employee Retirement Plan All employees of the Company are eligible, after
meeting certain requirements, for inclusion in the defined contribution
retirement plan. The plan is a combination profit sharing and 401(k) plan.
Retirement plan costs are expensed as the Company contributes to the plan.
The Company does not provide any material post-retirement benefits.
Income Taxes The Company files a consolidated federal income tax return.
Federal income taxes are allocated to the Parent Company and each subsidiary
on the basis of its taxable income or loss included in the consolidated
return.
The effects of current or deferred taxes are recognized as a current and
deferred tax liability or asset based on current tax laws. Accordingly, income
tax expense in the consolidated statements of operations includes charges or
credits to properly reflect the current and deferred tax asset or liability.
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.
Income Per Common 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 year. 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
year. In January 1998, the Company declared a 2-for-1 stock split effective
February 10, 1998 and in May 1999, June 1998, and May 1997, the Company
declared 10 percent common stock dividends. The average number of common
shares and dilutive potential common shares have been restated for the stock
split and stock dividends.
The following information was used in the computation of net income per
common share on both a basic and diluted basis for the years ended December
31, 1999, 1998 and 1997:
(in thousands, except for EPS data) 1999 1998 1997
_____________________________________________________________________________
Basic EPS Computation
Numerator:
Net income $16,560 20,351 18,010
______ ______ ______
Denominator:
Average common shares
outstanding 20,498 20,853 21,181
______ ______ ______
Basic EPS $ .81 .98 .85
______ ______ ______
______ ______ ______
Diluted EPS Computation
Numerator:
Net income $16,560 20,351 18,010
______ ______ ______
Denominator:
Average common shares
outstanding 20,498 20,853 21,181
Average stock options 303 429 343
Average long-term stock
compensation plan --- --- 170
______ ______ ______
20,801 21,282 21,694
______ ______ ______
Diluted EPS $ .80 .96 .83
______ ______ ______
______ ______ ______
Fair Value of Financial Instruments Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering the Company's entire holdings of a
particular financial instrument for sale at one time. Unless included in
assets available for sale, it is the Company's general practice and intent to
hold its financial instruments to maturity and not to engage in trading or
sales activities.
Fair value estimates are based on judgments regarding future expected
loss experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Estimated fair values have been determined by the Company using the best
available data and an estimation method suitable for each category of
financial instruments.
Interest Rate Floor An interest rate floor requires the seller to pay the
purchaser, at specified dates, the amount, if any, by which the market
interest rate falls below the agreed-upon floor, applied to a notional
principal amount. Initial cash amounts paid on positions accounted for as
hedges are deferred and amortized over the instrument's contractual life.
Subsequent payments received are recognized into earnings as an adjustment to
interest on deposits.
19 263
Use of Estimates in the Preparation of Financial Statements The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. A significant estimate that is
particularly sensitive to change relates to the allowance for loan losses.
Changes in Accounting Policies:
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise Effective
January 1, 1999, the Company adopted SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." This statement requires that after
the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities
or other retained interests based on its ability and intent to sell or hold
those investments. The adoption of SFAS no. 134 did not have a material
effect on the Company.
(2) Cash and Due From Banks
______________________________________________________________________________
The subsidiary banks are required by federal banking regulations to maintain
certain cash and due from banks reserves. This reserve requirement amounted
to $27,301,000 at December 31, 1999.
(3) Investment Securities
______________________________________________________________________________
The amortized cost and estimated fair value of investment securities follow.
The estimated fair value of investment securities has been determined using
available quoted market prices for similar securities.
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Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1999 (in thousands) Cost Gains Losses Value
Investment securities available for sale:
Taxable investments:
U.S. Treasury securities $ 32,730 22 (340) 32,412
Securities of U.S. government agencies 157,098 6 (4,890) 152,214
Mortgage-backed and related securities 186,940 113 (2,808) 184,245
Other investments 32,224 --- (357) 31,867
Tax-exempt investments:
Obligations of states and political
subdivisions 156,564 1,402 (2,513) 155,453
_______ _____ ______ _______
$565,556 1,543 (10,908) 556,191
Investment securities held to maturity:
Taxable investments:
Mortgage-backed and related securities $ 662 3 --- 665
Other investments 335 2 (1) 336
Tax-exempt investments:
Obligations of states and political
subdivisions 24,205 249 (104) 24,350
_______ _____ ______ _______
$ 25,202 254 (105) 25,351
December 31, 1998 (in thousands)
Investment securities available for sale:
Taxable investments:
U.S. Treasury securities $ 43,076 360 (144) 43,292
Securities of U.S. government agencies 139,372 1,293 (248) 140,417
Mortgage-backed and related securities 231,955 1,497 (397) 233,055
Other investments 26,948 61 (25) 26,984
Tax-exempt investments:
Obligations of states and political
subdivisions 158,283 3,344 (191) 161,436
_______ _____ ______ _______
$599,634 6,555 (1,005) 605,184
Investment securities held to maturity:
Taxable investments:
Mortgage-backed and related securities $ 1,529 12 --- 1,541
Other investments 450 11 --- 461
Tax-exempt investments:
Obligations of states and political
subdivisions 41,048 964 (3) 42,009
_______ _____ ______ _______
$ 43,027 987 (3) 44,011
21 265
Proceeds from the sale of available for sale securities were $38,067,000,
$89,996,000 and $119,402,000 in 1999, 1998, and 1997, respectively. Gross
gains of $337,000 in 1999, $667,000 in 1998 and $874,000 in 1997 and gross
losses of $121,000 in 1999, $2,000 in 1998 and $380,000 in 1997 were realized
on those sales.
Other investments at December 31, 1999, and 1998, consisted primarily of
corporate bonds and Federal Home Loan Bank stock. U.S. government agencies
originate or guarantee primarily all of the mortgage-backed and related
securities.
The scheduled maturities of investment securities at December 31, 1999
follow. Actual maturities may differ from scheduled maturities because
issuers may have the right to call obligations without penalties. The
maturities of mortgage-backed securities have been included in the period of
anticipated payment considering estimated prepayment rates.
Estimated
Amortized Fair
(in thousands) Cost Value
Investment securities available
for sale:
Due in one year or less $118,891 118,077
Due after one year through
five years 343,631 336,395
Due after five years through
ten years 87,744 85,978
Due after ten years 15,290 15,741
$565,556 556,191
Investment securities held to
maturity:
Due in one year or less $ 7,128 7,127
Due after one year through
five years 10,471 10,519
Due after five years through
ten years 6,539 6,629
Due after ten years 1,064 1,076
$ 25,202 25,351
Investment securities carried at $237,586,000 and $265,405,000 at December 31,
1999, and 1998, respectively, were pledged to secure public and other funds on
deposit and for other purposes.
(4) Loans
______________________________________________________________________________
A summary of loans at December 31 follows:
(in thousands) 1999 1998
Real estate loans:
Commercial construction
and land development $ 86,725 54,941
Secured by 1-4 family
residential property 158,755 127,351
Home equity 197,793 175,380
Commercial and other 163,202 151,995
Loans to farmers 75,624 84,554
Commercial and industrial loans 193,690 179,414
Loans to individuals for personal
expenditures:
Direct 68,025 69,452
Indirect 238,664 182,184
All other loans 13,509 8,284
$1,195,987 1,033,555
The Company originates commercial, business, real estate, agricultural and
personal loans with clients throughout Iowa. The portfolio has unavoidable
geographic risk as a result.
Total nonperforming loans and assets at December 31 were:
(in thousands) 1999 1998
Impaired loans:
Nonaccrual $ 7,259 8,099
Restructured 399 289
Total impaired loans 7,658 8,388
Loans past due 90 days
or more 1,794 2,901
Total nonperforming loans 9,452 11,289
Other real estate owned 1,186 389
Total nonperforming assets $10,638 11,678
The average balances of impaired loans for the years ended December 31, 1999,
and 1998, were $8,610,000 and $5,901,000, respectively. The allowance for
loan losses related to impaired loans at December 31, 1999, and 1998, was
$2,827,000 and $2,506,000, respectively. Impaired loans of $0 and $311,000
were not subject to a related allowance for loan losses at December 31, 1999,
and 1998, respectively, because of the net realizable value of loan
collateral, guarantees and other factors.
The effect of nonaccrual and restructured loans on interest income for each of
the three years ended December 31 was:
(in thousands) 1999 1998 1997
Interest income:
As originally contracted $973 827 402
As recognized 212 215 157
Reduction of interest income $761 612 245
Loan clients of the Company include certain executive officers, directors
and principal shareholders, and their related interests and associates. All
loans to this group were made in the ordinary course of business at prevailing
terms and conditions. The aggregate indebtedness of all executive officers,
directors and principal shareholders of Brenton Banks, Inc. and its
significant subsidiaries, and indebtedness of related interests and associates
of this group (except where the indebtedness of such persons was less than
$60,000) included in loans follows:
(in thousands) Amount
Balance at December 31, 1998 $ 4,691
Additional loans 20,605
Loan payments (957)
Balance at December 31, 1999 $ 24,339
Mortgage Servicing Rights The fair market value of capitalized servicing
rights at December 31, 1999 was approximately $8,168,000. To determine the
fair value of the servicing rights, the Company used comparable market prices.
In determining the fair market value and potential impairment, the Company
disaggregated the portfolio by its predominate risk factor, interest rate.
The fair value of the portfolio was determined by calculating the present
value of future cash flows. The Company incorporated assumptions that market
participants would use in estimating future
22 266
net servicing income which include estimates of the cost of servicing per
loan, the discount rate, float value, an inflation rate, ancillary income per
loan, prepayment speeds and default rates.
Capitalized servicing rights on originated loan servicing, included in other
assets, as of December 31 follows:
(in thousands) 1999 1998
Balance at beginning of year $ 5,775 2,274
Additions from originations 4,580 4,186
Amortization (1,083) (685)
Sale of servicing (2,012) ---
Impairment --- ---
Balance at end of year $ 7,260 5,775
(5) Allowance for Loan Losses
______________________________________________________________________________
A summary of activity in the allowance for loan losses follows:
(in thousands) 1999 1998 1997
Balance at beginning of year $14,172 12,732 11,328
Provision 4,250 4,200 3,900
Recoveries 2,395 1,647 1,733
Loans charged off (6,404) (4,407) (4,229)
Balance at end of year $14,413 14,172 12,732
(6) Premises and Equipment
A summary of premises and equipment as of December 31 follows:
(in thousands) 1999 1998
Land $ 5,428 3,338
Buildings and leasehold
improvements 34,765 33,881
Furniture and equipment 33,991 29,853
Construction in progress 1,578 324
75,762 67,396
Less accumulated depreciation 37,784 34,873
$37,978 32,523
Depreciation expense included in operating expenses amounted to $5,393,000,
$4,282,000 and $3,783,000 in 1999, 1998 and 1997, respectively.
(7) Deposits
Time deposits include deposits in denominations of $100,000 or more of
$79,118,000 and $97,665,000 at December 31, 1999, and 1998, respectively.
A summary of interest expense by deposit classification follows:
(in thousands) 1999 1998 1997
Demand $ 3,481 2,800 2,332
Savings 19,289 17,429 15,903
Time deposits
of $100,000 or more 4,561 4,835 4,833
Other time deposits 24,000 25,708 26,242
$51,331 50,772 49,310
The Company made cash interest payments of $67,684,000, $61,964,000 and
$57,932,000 on deposits and borrowings in 1999, 1998 and 1997, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
(in thousands)
2000 $364,329
2001 92,105
2002 73,316
2003 19,805
2004 and thereafter 5,101
$554,656
(8) Income Taxes
The current and deferred income tax provisions included in the consolidated
statements of operations follow:
1999 (in thousands) Current Deferred Total
Federal $4,641 (203) 4,438
State 1,167 (40) 1,127
$5,808 (243) 5,565
______________________________________________________________________________
1998
Federal $5,301 1,512 6,813
State 1,385 (116) 1,269
$6,686 1,396 8,082
1997
Federal $6,562 (577) 5,985
State 1,411 (108) 1,303
$7,973 (685) 7,288
Since the income tax returns are filed after the issuance of the financial
statements, amounts reported are subject to revision based on actual amounts
used in the income tax returns. The Company made cash income tax payments of
$3,500,000, $6,000,000 and $6,100,000 to the IRS, and $990,000, $1,510,000 and
$1,568,000 to the state of Iowa in 1999, 1998 and 1997, respectively. Cash
income tax payments for a year include estimated payments for current year
income taxes and final payments for prior year income taxes. State income tax
expense relates to state franchise taxes payable individually by the
subsidiary banks.
23 267
The reasons for the difference between the amount computed by applying the
statutory federal income tax rate of 35 percent and income tax expense follow:
(in thousands) 1999 1998 1997
At statutory rate $ 7,969 10,204 9,114
Increase (reduction) due to:
Tax-exempt interest (3,268) (3,169) (2,916)
State taxes, net of
federal benefit 733 825 847
Nondeductible interest expense
to own tax-exempts 635 572 536
Income on life insurance
Policies (421) (368) (252)
Other, net (83) 18 (41)
$ 5,565 8,082 7,288
Accumulated deferred income tax assets are included in other assets in the
consolidated statements of condition. There was no valuation allowance at
December 31, 1999, or 1998. A summary of the temporary differences resulting
in deferred income taxes and the related tax effect on each follow:
(in thousands) 1999 1998
Allowance for loan losses $ 5,959 5,576
Unrealized gains (losses) on
securities available for sale 3,512 (2,157)
Deposit base intangibles (373) (458)
Premises and equipment (308) (366)
Executive savings plan 690 386
Mortgage servicing rights (3,038) (2,348)
Real estate mortgage,
loan points deferred (166) (257)
Other, net (42) (53)
$ 6,234 323
(9) Other Short-Term Borrowings
The Company had short-term borrowings with the Federal Home Loan Bank of Des
Moines (FHLB) totaling $110,424,000 and $87,050,000 at December 31, 1999, and
1998, respectively. The average rate on these borrowings at December 31, 1999
was 5.04 percent. These borrowings were secured by FHLB stock and residential
mortgage loans equal to 130 percent of the borrowings.
The Parent Company has arranged an unsecured line of credit of
$5,000,000, which was unused at December 31, 1999. It is at the prime
interest rate and is subject to annual review and renewal.
(10) Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
(in thousands) 1999 1998
Capital notes, 5.50% to 10.00%
Total Parent Company $ 6,454 9,046
Borrowings from FHLB, average rate
of 5.80% at December 31, 1999 21,250 32,500
$ 27,704 41,546
Borrowings from the FHLB were secured by FHLB stock and residential mortgage
loans equal to 130 percent of the borrowings and were direct obligations of
the individual subsidiaries.
Scheduled maturities of long-term borrowings at December 31, 1999 follow:
Parent
(in thousands) Company Consolidated
2000 $ 793 793
2001 812 8,062
2002 446 446
2003 142 14,142
2004 1,328 1,328
Thereafter 2,933 2,933
$ 6,454 27,704
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(11) Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments were as
follows:
December 31, 1999 December 31, 1998
_________________ _________________
Recorded Fair Recorded Fair
(in thousands) Amount Value Amount Value
_______________________________________________________________________________________
Financial assets:
Cash and due from banks $ 85,064 85,064 $ 76,460 76,460
Interest-bearing deposits with
banks 2,362 2,362 2,167 2,167
Federal funds sold and securities
purchased under agreements to
resell --- --- 6,000 6,000
Investment securities 581,393 581,542 648,211 649,195
Loans held for sale 26,201 26,201 98,147 98,147
Loans, net 1,181,574 1,176,790 1,019,382 1,029,536
Financial liabilities:
Deposits $ 1,530,083 1,537,292 $1,496,675 1,504,006
Federal funds purchased, securities
sold under agreements to
repurchase and other short-term
borrowings 277,230 277,230 242,897 242,897
Long-term borrowings 27,704 27,259 41,546 42,912
Off-balance-sheet assets
(liabilities):
Commitments to extend credit $ --- --- $ --- ---
Letters of credit --- (96) --- (100)
Interest rate floors 314 7 98 400
The recorded amount of cash and due from banks and interest- bearing deposits
with banks approximates fair value.
The recorded amount of federal funds sold and securities purchased under
agreements to resell and trading account securities approximates fair value as
a result of the short-term nature of the instruments.
The estimated fair value of investment securities has been determined
using available quoted market prices for similar securities.
The estimated fair value of loans is net of an adjustment for credit
risk. For loans with floating interest rates, it is presumed that estimated
fair values generally approximate the recorded book balances. Real estate
loans secured by 1-4 family residential property were valued using trading
prices for similar pools of mortgage-backed securities. Other fixed-rate
loans were valued using a present-value discounted cash flow with a discount
rate approximating the market for similar assets.
Deposit liabilities with no stated maturities have an estimated fair
value equal to the recorded balance. Deposits with stated maturities have
been valued using a present-value discounted cash flow with a discount rate
approximating the current market for similar deposits. The fair-value
estimate does not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the market. The Company believes the value of these depositor relationships
to be significant.
The recorded amount of the federal funds purchased, securities sold under
agreements to repurchase and short-term borrowings approximates fair value as
a result of the short-term nature of these instruments.
The estimated fair value of long-term borrowings was determined using a
present-value discounted cash flow with a discount rate approximating the
current market for similar borrowings.
The fair value of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements.
The fair value of interest rate floor contracts is the estimated amount
that the Company would receive or pay to terminate the floor agreements at the
reporting date.
25 269
(12) Regulatory Capital
The Company is subject to various regulatory capital requirements administered
by both federal and state banking agencies. Failure to comply with minimum
capital requirements could result in actions taken by regulators that could
have a direct material impact on the Company's financial statements. Under
the capital adequacy guidelines established by regulators, the Company must
meet specific capital guidelines that involve the measurement of the Company's
assets, liabilities and certain off-balance sheet items. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators as it relates to components, risk weightings and other factors.
Quantitative measures established by regulators to ensure capital
adequacy require the Company to maintain minimum amounts and ratios (set forth
in the following table) of total and tier 1 capital to risk weighted assets
and of tier 1 capital to average assets. To be categorized as well-
capitalized, the Company must maintain minimum total risk-based, tier 1 risk-
based and tier 1 leverage ratios as set forth in the table. The Company's
actual capital amounts and ratios are also presented in the table.
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
________________________________________________________________________________________
Amount Ratio Amount Ratio Amount Ratio
(dollar amounts in thousands)
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets):
Consolidated $149,630 10.18% $117,592 > 8.0% N/A
_
Brenton Bank 132,639 9.77 108,613 > 8.0 $135,766 > 10.0%
_ _
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated 135,192 9.20 58,796 > 4.0 N/A
_
Brenton Bank 119,316 8.79 54,307 > 4.0 81,460 > 6.0
_ _
Tier 1 Capital
(to Average Assets):
Consolidated 135,192 6.80 59,612 > 3.0 N/A
_
Brenton Bank 119,316 6.59 72,474 > 4.0 90,592 > 5.0
_ _
(13) Common Stock Transactions
In January 1998, the Company declared a 2-for-1 stock split for holders of
record as of 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, the number of
outstanding shares doubled and authorized shares were increased to 50 million.
In May 1999, the Company declared a 10 percent common stock dividend. This
transaction resulted in the issuance of 1,862,366 shares of common stock and
the transfer of $4,655,915 from retained earnings to common stock. In June
1998, the Company declared a 10 percent common stock dividend. As a result of
this action, 1,726,159 shares of common stock were issued and $4,236,869 was
transferred from retained earnings to common stock. Fractional shares
resulting from both 10 percent common stock dividends were paid in cash. Net
income and cash dividends per share information in the financial statements
have been retroactively restated to reflect these transactions.
As part of the Company's ongoing stock repurchase plan, the Board of
Directors authorized additional common stock repurchases of $4 million in
1999. For the years ended December 31, 1999, 1998 and 1997, the Company
repurchased 300,624, 563,915 and 886,494 shares (restated for the 2-for-1
stock split effective February 1998 and the 10 percent common stock dividends
effective in 1999, 1998 and 1997), respectively, at a total cost of
$4,004,426, $10,000,900 and $10,014,087.
(14) Dividend Restrictions
The Parent Company derives a substantial portion of its cash flow, including
that available for dividend payments to stockholders, from the subsidiary
banks in the form of dividends. State and federal savings banks are subject to
certain statutory and regulatory restrictions that affect dividend payments.
Based on minimum regulatory risk-based capital guidelines as published by
those regulators, the maximum dividends that could be paid by the subsidiary
banks to the Parent Company at December 31, 1999, were approximately $28
million.
(15) Employee Retirement Plan
The Company provides a defined contribution retirement plan for the benefit of
employees. The plan is a combination profit sharing
26 270
and 401(k) plan. All employees 21 years of age or older and employed by the
Company for at least one year are eligible for the plan. The Company
contributes 4 1/2 percent of eligible compensation of all participants to the
profit sharing portion of the plan, and matches employee contributions to the
401(k) portion of the plan up to a maximum of 3 1/2 percent of each employee's
eligible compensation. Retirement plan costs charged to operating expenses in
1999, 1998 and 1997 amounted to $1,636,000, $1,506,000 and $1,290,000,
respectively. The Company offers no material post-retirement benefits.
(16) Stock Plans
In 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"), which
was approved by a vote of stockholders. During 1999, the Board of Directors
authorized a ten percent expansion of the Plan. The Plan authorizes the
granting of options on up to 1,607,100 shares of the Company's common stock to
key employees of the Company. The price at which options may be exercised
cannot be less than the fair market value of the shares at the date the
options are granted. The options are subject to certain performance vesting
requirements, but if vesting is not achieved from performance vesting, 100
percent vesting occurs nine years and six months following the grant date.
Options expire ten years and one month following the grant date. As of
December 31, 1999, 59 percent of the outstanding options have vested.
For purposes of estimating the fair value of the Company's stock options
at the grant-date, the Company's option pricing model was used with the
following weighted average assumptions for 1999, 1998 and 1997, respectively:
expected dividend yields of 2.20%, 2.06% and 2.05%; risk-free interest rates
of 6.26%, 5.55% and 6.52%; volatility factors of the expected market price of
the Company's common stock of 26.1%, 19.6% and 18.5%; and weighted average
expected life of the options of 6 years. The weighted average fair value of
options granted in 1999, 1998 and 1997, respectively, was $3.40, $4.22 and
$3.40.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
1999 1998 1997
Net income (in thousands):
As reported $16,560 20,351 18,010
Pro forma 16,207 19,732 17,735
Basic earnings per share:
As reported $.81 .98 .85
Pro forma .79 .95 .83
Diluted earnings per share:
As reported $.80 .96 .83
Pro forma .78 .94 .82
Pro forma net income reflects only options granted in 1999, 1998, 1997
and 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' expected vesting period.
Changes in options outstanding during 1999, 1998 and 1997 were as follows
(restated for the 2-for-1 stock split effective February 1998 and the 10
percent common stock dividends effective in 1999, 1998 and 1997):
Exercisable Outstanding Option Price
Options Options Per Share
December 31, 1996 --- 1,253,270 $ 8.32-8.87
Granted - 1997 --- 105,488 10.33-13.84
Forfeited - 1997 --- (43,923) 8.32
December 31, 1997 --- 1,314,835 8.32-13.84
Granted - 1998 --- 148,940 15.00-18.81
Forfeited - 1998 --- (27,758) 8.32-16.66
Vested - 1998 473,866 --- 8.32-18.81
December 31, 1998 473,866 1,436,017 8.32-18.81
Granted - 1999 --- 120,250 10.19-14.43
Exercised - 1999 (46,072) (46,072) 8.32-11.31
Forfeited - 1999 --- (56,684) 8.32-16.66
Expired - 1999 (5,481) (5,481) 10.85-16.66
Vested - 1999 430,192 --- 8.32-18.81
December 31, 1999
(112,998 shares available
for grant) 852,505 1,448,030 $ 8.32-18.81
A total of 1,023,554 shares were granted to key management personnel
under a long-term stock compensation plan. Under provisions of the plan, no
grants were made after 1995. Each grant of shares covered a three-year
performance period, 35 percent of which vested upon completion of employment
for the performance period and 65 percent of which vested based on a tiered
achievement scale tied to financial performance goals established by the Board
of Directors. The total stock compensation expense associated with this plan
was $0, $0, and $1,731,000 for 1999, 1998 and 1997, respectively. Changes in
outstanding grant shares during 1999, 1998 and 1997 were as follows (restated
for the 2-for-1 stock split effective February 1998 and the 10 percent common
stock dividends effective in 1999, 1998 and 1997):
Performance 1994 to 1995 to
Period 1996 1997
December 31, 1996 199,850 213,963
Forfeited - 1997 --- (28,692)
Expired - 1997 (129,897) ---
Vested and Issued - 1997 (69,953) ---
December 31, 1997 --- 185,271
Vested and Issued - 1998 --- (185,271)
December 31, 1998 --- ---
Vested and Issued - 1999 --- ---
______________________________________________________________________________
Outstanding grant shares
at December 31, 1999 --- ---
The Company's 1987 nonqualified stock option plan permitted the Board of
Directors to grant options on up to 878,460 shares of the Company's common
stock to officers of the Company. Under provisions of the plan, no further
grants can be made and no grants
27 271
were made in 1999 or 1998. The price at which options were exercisable was
not less than the fair market value of the shares at the date the options were
granted. The options were subject to certain vesting requirements and maximum
exercise periods, as established by the Board of Directors.
Changes in options outstanding and exercisable during 1999, 1998 and 1997
were as follows (restated for the 2-for-1 stock split effective February 1998
and the 10 percent common stock dividends effective in 1999, 1998 and 1997):
Exercisable Outstanding Option Price
Options Options Per Share
December 31, 1996 290,876 290,876 $1.51-3.23
Exercised - 1997 (246,953) (246,953) 1.51-3.23
December 31, 1997 43,923 43,923 2.19
Exercised - 1998 (43,923) (43,923) 2.19
December 31, 1998 --- --- $ ---
Exercised - 1999 --- --- ---
______________________________________________________________________________
December 31, 1999 --- --- $ ---
The Company's Employee Stock Purchase Plan allows qualifying employees to
purchase the Company's common stock at 85 percent of the current market price
on four defined purchase dates during the year. During 1999, 1998 and 1997,
37,132, 43,985 and 47,045 shares (restated for the 2-for-1 stock split
effective February 1998 and the 10 percent common stock dividends effective in
1999, 1998 and 1997), respectively, of common stock were purchased by
employees under this plan.
(17) Lease Commitments
Rental expense included in the consolidated statements of operations amounted
to $1,861,000, $1,849,000 and $1,963,000 in 1999, 1998 and 1997, respectively.
Future minimum rental commitments for all noncancelable leases with terms of
one year or more total approximately $1,128,000 for 2000, $612,000 per year
through 2004, $502,000 per year through 2009 and $43,000 per year through
2013, with a total commitment of $6,260,000.
(18) Commitments and Contingencies
In the normal course of business, the Company is party to financial
instruments necessary to meet the financial needs of clients, which are not
reflected on the consolidated statements of condition. These financial
instruments include commitments to extend credit, standby letters of credit,
commercial letters of credit, commitments to sell residential real estate
mortgage loans and interest rate swaps. The Company's risk exposure in the
event of nonperformance by the other parties to these financial instruments is
represented by the contractual amount of these instruments. The Company is
also a party to interest rate floor contracts, which are designated as hedges
of certain client deposit accounts with contracted minimum interest rates.
The notional amount for an interest rate floor does not represent the amount
at risk because the notional amount will not be exchanged. The Company uses
the same credit policies in making commitments as it does in making loans. A
summary of commitments outstanding at December 31 follows:
(in thousands) 1999 1998
_____________________________________________________________________________
Commitments to extend credit $ 377,610 274,945
Standby letters of credit 19,262 19,956
Commercial letters of credit 4,048 1,751
Commitments to sell residential
real estate mortgage loans 19,375 70,690
Commitments to extend credit are legally binding agreements to lend to
clients. Commitments generally have fixed expiration dates and may require
payment of a fee. Based upon management's credit assessment of the client,
collateral may be obtained. The type and amount of collateral varies, but may
include real estate under construction, property, equipment and other business
assets. In many cases, commitments expire without being drawn upon, so the
total amount of commitments does not necessarily represent future liquidity
requirements.
Standby and commercial letters of credit are conditional commitments
issued by the Company guaranteeing the financial performance of a client to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans. The Company does
not anticipate losses as a result of issuing commitments to extend credit,
standby letters of credit or commercial letters of credit.
The Company enters into forward contracts for future delivery of
residential mortgage loans at specified yields to reduce the interest rate
risk associated with fixed-rate residential mortgages held for sale and
commitments to sell residential mortgages. Credit risk arises from the
possible inability of the other parties to comply with the contract terms. The
majority of the Company's contracts are with government-sponsored agencies
(FNMA, FHLMC).
The Company has entered into interest rate floor agreements to manage
interest-rate risk. The notional value of agreements at December 31, 1999 was
$120,000,000 and they expire in 2002. The interest rate floor agreements
require the counterparty to pay the Company, at specified dates, the amount,
if any, by which the market interest rate falls below the agreed-upon floor,
applied to the notional principal amounts. The credit worthiness of the
counterparty was evaluated by the Company's loan committee prior to entering
into the agreements.
Brenton Savings Bank, FSB converted from a mutual savings and loan
association to a federal stock savings bank in 1990, at which time a $4
million liquidation account was established. Each eligible savings account
holder who had maintained a deposit account since the conversion would be
entitled to a distribution if the savings bank were completely liquidated.
This distribution to savers would have priority over distribution to the
Parent Company. The Company does not anticipate such a liquidation.
28 272
The Company maintains a data processing agreement with ALLTEL Information
Services, Inc. (ALLTEL), whereby ALLTEL manages and operates the Company's
data processing facility. The contract involves fixed payments of $2,190,000
in 2000, $2,190,000 in 2001 and $1,095,000 in 2002. These fixed payments will
be adjusted for inflation and volume fluctuations.
The Company has entered into agreements totaling approximately $10.3
million for the construction of a new operations and sales support center.
The Company is involved with various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial statements.
(19) Brenton Banks, Inc. (Parent Company) Condensed Financial Information
Statements of Condition
December 31 (in thousands) 1999 1998
Assets
Interest-bearing deposits with banks $ 3,350 1,088
Investments in:
Bank subsidiaries 129,017 136,687
Excess cost over net assets 1,606 1,679
Premises and equipment 446 503
Other assets 4,318 4,722
________ _______
$ 138,737 144,679
Liabilities and Stockholders' Equity
Accrued expenses payable
and other liabilities $ 350 423
Long-term borrowings 6,454 9,046
Common stockholders' equity 131,933 135,210
_______ _______
$ 138,737 144,679
Statements of Operations
Years Ended December 31 (in thousands) 1999 1998 1997
Income
Dividends from subsidiaries $ 16,218 16,869 14,850
Interest income 143 93 213
Other operating income 97 103 119
________ ______ ______
16,458 17,065 15,182
Expense
Compensation and benefits 526 439 2,331
Interest on borrowings 597 735 849
Other operating expense 502 613 584
________ ______ ______
1,625 1,787 3,764
Income before income taxes and
equity in undistributed earnings
of subsidiaries 14,833 15,278 11,418
Income taxes (443) (519) (1,155)
Income before equity in undistributed
earnings of subsidiaries 15,276 15,797 12,573
Equity in undistributed earnings of subsidiaries 1,284 4,554 5,437
________ ______ ______
Net income $ 16,560 20,351 18,010
29 273
(19) Brenton Banks, Inc. (Parent Company) Condensed Financial Information
Statements of Cash Flows
Years Ended December 31 (in thousands) 1999 1998 1997
Operating Activities
Net income $ 16,560 20,351 18,010
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (1,284) (4,554) (5,437)
Depreciation and amortization 158 161 163
Net (increase) decrease in other assets 376 354 (1,962)
Net increase (decrease) in accrued expenses
payable and other liabilities (73) (3,109) 1,056
________ ______ ______
Net cash provided by operating activities 15,737 13,203 11,830
Investing Activities
Purchase of subsidiary equity, net --- (26) ---
Purchase of premises and equipment, net --- --- (8)
________ ______ ______
Net cash used by investing activities --- (26) (8)
Financing Activities
Net repayment of long-term borrowings (2,592) (1,066) (1,136)
Proceeds from issuance of common stock under the
long-term stock compensation plan --- 970 247
Proceeds from issuance of common stock under the
stock option plan 4 290 1,286
Proceeds from issuance of common stock under the
employee stock purchase plan 244 758 551
Payment for shares reacquired under common stock
repurchase plan (4,004) (10,001) (10,014)
Payment for fractional shares from common stock
dividends (14) (14) (16)
Dividends on common stock (7,113) (6,622) (4,782)
________ ______ ______
Net cash used by financing activities (13,475) (15,685) (13,864)
Net increase (decrease) in cash and interest-
bearing deposits 2,262 (2,508) (2,042)
Cash and interest-bearing deposits at the
beginning of the year 1,088 3,596 5,638
Cash and interest-bearing deposits at the end
of the year $ 3,350 1,088 3,596
30 274
(20) Segment Information
______________________________________________________________________________
The Company has one reportable operating segment: banking. The banking segment
generates revenues through personal, business, agricultural and commercial
lending, management of the investment securities portfolio, providing deposit
account services and providing trust services. The Company evaluates the
banking segment's performance on the basis of profit.
Included in all other in the table below are mortgage banking, investment
brokerage, insurance sales and real estate brokerage. All operations are
concentrated in the state of Iowa.
The Company accounts for intercompany sales and transactions as if they
were to third parties and attempts to set fees consistent with those that would
apply in an arm's length transaction with a nonaffiliate. There can be no
assurance the rates charged reflect those that would have been agreed upon
following an arm's length transaction. The following table presents a
summary of the Company's operating segments for the three years ended December
31, 1999:
All Parent Intersegment Reported
Banking Other Company Eliminations Balances
(in thousands)
_________________________________________________________________________________________
1999
_________________________________________________________________________________________
Net income income $ 61,418 1,635 (454) --- 62,599
Noninterest income from
nonaffiliates 19,017 10,685 92 --- 29,794
Noninterest income from
affiliates 155 --- 16,223 (16,378) ---
Income before income taxes
and minority interest 23,536 618 14,833 (16,218) 22,769
Income taxes 5,789 219 (443) --- 5,565
Depreciation & amortization 5,438 326 158 (5) 5,917
Capital expenditures 10,316 540 --- --- 10,856
Segment assets 1,923,822 66,064 138,737 (143,168) 1,985,455
1998
_________________________________________________________________________________________
Net income income $ 61,112 917 (642) --- 61,387
Noninterest income from
nonaffiliates 17,649 15,621 103 (15) 33,358
Noninterest income from
affiliates 296 --- 16,869 (17,165) ---
Income before income taxes
and minority interest 26,227 4,517 15,278 (16,869) 29,153
Income taxes 7,030 1,571 (519) --- 8,082
Depreciation & amortization 4,274 254 161 (6) 4,683
Capital expenditures 7,311 601 --- --- 7,912
Segment assets 1,885,617 117,268 144,679 (208,007) 1,939,557
1997
_________________________________________________________________________________________
Net income income $ 60,333 437 (636) --- 60,134
Noninterest income from
nonaffiliates 15,864 11,560 119 (37) 27,506
Noninterest income from
affiliates 286 67 14,850 (15,203) ---
Income before income taxes
and minority interest 26,534 2,939 11,418 (14,850) 26,041
Income taxes 7,420 1,023 (1,155) --- 7,288
Depreciation & amortization 3,803 255 163 (4) 4,217
Capital expenditures 2,407 112 8 --- 2,527
Segment assets 1,701,495 24,933 143,023 (150,967) 1,718,484
__________________________________________________________________________________________
The following table shows the detail of intersegement eliminations for segment
assets shown in the previous table:
1999 1998 1997
_____________________________________________________
(in thousands)
Investment in subsidiaries $130,869 138,539 133,860
Other consolidating adjustments 12,299 69,468 17,107
_______ _______ _______
$143,168 208,007 150,967
31 275
(21) Unaudited Quarterly Financial Information
The following is a summary of unaudited quarterly financial information
(in thousands, except per common share data):
1999
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $ 31,271 31,425 32,511 33,772
Interest expense 16,020 16,094 16,912 17,354
_______ ______ ______ ______
Net interest income 15,251 15,331 15,599 16,418
Provision for loan losses 1,050 1,050 1,050 1,100
_______ ______ ______ ______
Net interest income after
provision for loan losses 14,201 14,281 14,549 15,318
Noninterest income 7,795 8,247 6,744 7,008
Noninterest expense 15,661 16,712 16,577 16,424
_______ ______ ______ ______
Income before income taxes
and minority interest 6,335 5,816 4,716 5,902
Income taxes 1,589 1,430 1,062 1,484
Minority interest 168 157 152 167
_______ ______ ______ ______
Net income $ 4,578 4,229 3,502 4,251
Per common share:
Net income-basic $ .22 .21 .17 .21
Net income-diluted .22 .20 .17 .21
1998
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $ 30,320 30,693 31,190 31,823
Interest expense 15,056 15,428 15,930 16,225
_______ ______ ______ ______
Net interest income 15,264 15,265 15,260 15,598
Provision for loan losses 1,050 1,050 1,050 1,050
_______ ______ ______ ______
Net interest income after
provision for loan losses 14,214 14,215 14,210 14,548
Noninterest income 7,487 8,106 8,549 9,216
Noninterest expense 14,908 15,154 15,172 16,158
_______ ______ ______ ______
Income before income taxes
and minority interest 6,793 7,167 7,587 7,606
Income taxes 1,907 1,994 2,101 2,080
Minority interest 167 178 190 185
_______ ______ ______ ______
Net income $ 4,719 4,995 5,296 5,341
Per common share:
Net income-basic $ .22 .24 .26 .26
Net income-diluted .22 .23 .25 .26
32 276
MANAGEMENT'S REPORT
The management of Brenton Banks, Inc. is responsible for the content of
the consolidated financial statements and other information included in this
annual report. Management believes that the consolidated financial statements
have been prepared in conformity with generally accepted accounting principles
appropriate to reflect, in all material respects, the substance of events and
transactions that should be included. In preparing the consolidated financial
statements, management has made judgments and estimates of the expected effects
of events and transactions that are accounted for or disclosed.
Management of the Company believes in the importance of maintaining a
strong internal accounting control system, which is designed to provide
reasonable assurance that assets are safeguarded and transactions are
appropriately authorized. The Company maintains a staff of qualified internal
auditors who perform periodic reviews of the internal accounting control
system. Management believes that the internal accounting control system
provides reasonable assurance that errors or irregularities that could be
material to the consolidated financial statements are prevented or detected and
corrected on a timely basis.
The Board of Directors has established an Audit Committee to assist in
assuring the maintenance of a strong internal accounting control system. The
Audit Committee meets periodically with management, the internal auditors and
the independent auditors to discuss the internal accounting control system and
the related internal and external audit efforts. The internal auditors and the
independent auditors have free access to the Audit Committee without management
present.
The consolidated financial statements of Brenton Banks, Inc. and
subsidiaries are examined by independent auditors. Their role is to render an
opinion on the fairness of the consolidated financial statements based upon
audit procedures they consider necessary in the circumstances.
Brenton Banks, Inc.
Robert L. DeMeulenaere
President and Chief Executive Officer
Steven T. Schuler
Chief Financial Officer/Treasurer/Secretary
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Brenton Banks, Inc:
We have audited the accompanying consolidated statements of condition of
Brenton Banks, Inc. and subsidiaries as of December 31, 1999, and 1998, and the
related consolidated statements of operations, cash flows, changes in common
stockholders' equity and comprehensive income for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Brenton
Banks, Inc. and subsidiaries at December 31, 1999, and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Des Moines, Iowa
January 28, 2000
33 277
STOCK INFORMATION
Brenton Banks, Inc. common stock is traded on the NASDAQ Stock Market and
quotations are furnished by the NASDAQ System. There were 2,095 common
stockholders of record on December 31, 1999.
MARKET AND DIVIDEND INFORMATION
1999 High Low Dividends
1st quarter $15.91 11.82 .086
2nd quarter 17.25 12.55 .086
3rd quarter 17.00 11.63 .087
4th quarter 15.00 9.00 .087
1998 High Low Dividends
1st quarter $18.18 14.87 .070
2nd quarter 19.09 16.74 .079
3rd quarter 22.05 16.59 .082
4th quarter 17.39 14.32 .086
The above table sets forth the high and low sales prices and cash dividends
per share for the Company's common stock, after the effect of the
February 1998 2-for-1 stock split and June 1999 and June 1998 ten percent
common stock dividends.
The market quotations, reported by NASDAQ, represent prices between dealers
and do not include retail markup, markdown or commissions.
NASDAQ Symbol: BRBK
Wall Street Journal and
Other Newspapers: BrentB
Market Makers
ABN AMRO Incorporated
Herzog, Heine, Geduld, Inc.
Howe, Barnes Investments, Inc.
Keefe, Bruyette & Woods, Inc.
Sandler, O'Neill & Partners, L.P.
Stifel, Nicolaus & Co., Inc.
FORM 10-K
COPIES OF BRENTON BANKS, INC. ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION FORM 10-K WILL BE MAILED WHEN AVAILABLE WITHOUT CHARGE TO
SHAREHOLDERS UPON WRITTEN REQUEST TO STEVEN T. SCHULER, CHIEF FINANCIAL
OFFICER/TREASURER/SECRETARY, AT THE CORPORATE HEADQUARTERS. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S INTERNET WEB SITE AT
HTTP://WWW.SEC.GOV/CGI-BIN/SRCH-EDGAR.
STOCKHOLDER INFORMATION
Corporate Headquarters
Suite 200, Capital Square
400 Locust Street
Des Moines, Iowa 50309
Telephone 800/627-3686
Annual Shareholders' Meeting
Wednesday, May 17, 2000, 5:00 p.m.
Polk County Convention Complex
501 Grand Avenue
Des Moines, Iowa 50309
Transfer Agent/Registrar/
Dividend Disbursing Agent
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Legal Counsel
Brown, Winick, Graves, Gross,
Baskerville and Schoenebaum, P.L.C.
Suite 1100, Two Ruan Center
601 Locust Street
Des Moines, Iowa 50309
Independent Auditors
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, Iowa 50309
34 278
CORPORATE STRUCTURE
BRENTON BANKS, INC.
BOARD OF DIRECTORS
C. Robert Brenton
Chairman of the Board
Brenton Banks, Inc.
William H. Brenton
Past Chairman and President
Brenton Banks, Inc.
J.C. Brenton
Past President
Brenton Banks, Inc.
Robert C. Carr
Retired
Gary M. Christensen
President & CEO
Pella Corporation
Robert J. Currey
President
21st Century Telecom Group, Inc.
Robert L. DeMeulenaere
President and Chief Executive Officer
Brenton Banks, Inc.
BRENTON BANKS, INC.
EXECUTIVE OFFICERS
C. Robert Brenton
Chairman of the Board
Robert L. DeMeulenaere
President and Chief Executive Officer
Steven T. Schuler
CFO/Treasurer/Secretary
BRENTON BANK SENIOR SALES
SUPPORT OFFICERS
Robert L. DeMeulenaere
Chairman and Chief Executive Officer
Larry A. Mindrup
President
Phillip L. Risley
Executive Vice President
Steven T. Schuler
CFO/Treasurer/Secretary
Judy S. Bohrofen
Human Resources Director
Woodward G. Brenton
Chief Commercial Banking Officer
Gregory M. Cole
Loan Development Center Director
W. Bradley Cunningham
Investment/ALCO Director
Marsha A. Findlay
Professional Development Director
Douglas R. Gulling
Corporate Controller/Cashier
Monica L. Haun
Operations and Technology Director
Douglas F. Lenehan
Chief Sales Officer
Catherine I. Reed
Marketing Director
Norman D. Schuneman
Chief Credit Officer
BRENTON LINE OF BUSINESS
AND REGIONAL BANK
MANAGERS
Woodward G. Brenton
Mortgage Banking
Douglas F. Lenehan
Diversified Commercial Services
David W. Mackaman
Commercial Banking
Larry A. Mindrup
Retail Banking
Elizabeth M. Piper/Bach
Financial Services
Allen W. Shafer
Business Banking
Thomas J. Vincent
Agricultural Banking
Charles N. Funk
Central Regional Manager
Dennis H. Hanson
East Central Regional Manager
G. Darryl Harmon
Davenport/Moline Regional Manager
Ronald D. Larson
Cedar Rapids/Iowa City Regional
Manager
Marc J. Meyer
Western Regional Manager
35 279