UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-6216
BRENTON BANKS, INC.
(Exact name of registrant as specified in its charter)
Incorporated in Iowa No. 42-0658989
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
Suite 200, Capital Square, 400 Locust, Des Moines, Iowa 50309
(Address of principle executive offices) (zip code)
515-237-5100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date, May 3, 2000.
20,357,371 shares of Common Stock, $2.50 par value
PART 1 - Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
March 31, December 31,
2000 1999
_________ ____________
Assets:
Cash and due from banks $ 78,844,325 85,064,053
Interest-bearing deposits with banks 2,626,954 2,361,784
Federal funds sold 22,300,000 ---
Investment securities:
Available for sale 541,783,285 556,191,355
Held to maturity (approximate market value of
$24,659,000 and $25,351,000 at March 31, 2000,
and December 31, 1999, respectively) 24,554,469 25,201,876
Total investment securities 566,337,754 581,393,231
Loans held for sale 15,625,198 26,201,221
Loans 1,156,025,736 1,195,986,791
Allowance for loan losses (14,997,668) (14,413,104)
Loans, net 1,141,028,068 1,181,573,687
Premises and equipment 38,582,959 37,978,240
Accrued interest receivable 15,858,727 15,856,895
Other assets 57,277,037 55,025,590
Total assets $1,938,481,022 1,985,454,701
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 197,376,813 189,333,019
Interest-bearing:
Demand 138,771,055 145,131,184
Savings 645,921,868 640,963,380
Time 577,986,371 554,655,720
Total deposits 1,560,056,107 1,530,083,303
Federal funds purchased and securities sold under agreements
to repurchase 132,488,747 166,806,442
Other short-term borrowings 64,240,000 110,423,584
Accrued expenses and other liabilities 17,054,072 13,896,056
Long-term borrowings 26,744,000 27,704,000
Total liabilities 1,800,582,926 1,848,913,385
Minority interest in consolidated subsidiaries 4,637,134 4,607,865
Redeemable preferred stock, $1 par; 500,000 shares
authorized; issuable in series, none issued --- ---
Common stockholders' equity:
Common stock, $2.50 par; 50,000,000 shares authorized;
20,357,371 and 20,354,454 shares issued and outstanding at
March 31, 2000, and December 31, 1999, respectively 50,893,427 50,886,135
Capital surplus 21,148 ---
Retained earnings 89,496,259 86,682,119
Accumulated other comprehensive income (loss)--unrealized
gains (losses) on securities available for sale (7,149,872) (5,634,803)
Total common stockholders' equity 133,260,962 131,933,451
Total liabilities and stockholders' equity $1,938,481,022 1,985,454,701
<FN>
See accompanying notes to consolidated financial statements.
PART 1 - Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2000 1999
____ ____
Interest Income
Interest and fees on loans $ 25,129,467 22,342,324
Interest and dividends on investments:
Available for sale-taxable 6,059,257 6,531,217
Available for sale-tax-exempt 1,839,870 1,788,474
Held to maturity-taxable 17,464 37,935
Held to maturity-tax-exempt 302,544 495,804
Total interest and dividends on investments 8,219,135 8,853,430
Interest on federal funds sold 71,026 36,593
Other interest income 36,579 39,049
Total interest income 33,456,207 31,271,396
Interest Expense
Interest on deposits 13,737,386 12,697,515
Interest on federal funds purchased
and securities sold under agreements
to repurchase 1,732,840 1,253,850
Interest on other short-term borrowings 1,483,293 1,431,039
Interest on long-term borrowings 426,399 638,064
Total interest expense 17,379,918 16,020,468
Net interest income 16,076,289 15,250,928
Provision for loan losses 1,050,000 1,050,000
Net interest income after provision for
loan losses 15,026,289 14,200,928
Noninterest Income
Service charges on deposit accounts 2,479,492 2,108,255
Investment brokerage commissions 1,261,398 1,024,816
Fiduciary income 974,226 1,065,918
Mortgage banking income 725,553 1,638,097
Insurance commissions and fees 268,134 284,513
Other service charges, collection and exchange
charges, commissions and fees 1,233,749 1,261,230
Net realized gains from securities available
for sale 28,204 62,936
Other operating income 557,591 349,212
Total noninterest income 7,528,347 7,794,977
Noninterest Expense
Compensation 7,026,795 7,244,346
Employee benefits 1,471,497 1,760,661
Occupancy expense of premises, net 1,731,743 1,482,723
Furniture and equipment expense 1,400,630 1,106,652
Data processing expense 755,372 690,902
Marketing 305,907 417,395
Supplies 285,900 313,597
Other operating expense 3,213,511 2,644,552
Total noninterest expense 16,191,355 15,660,828
Income before income taxes and minority interest 6,363,281 6,335,077
Income taxes 1,590,585 1,589,339
Income before minority interest 4,772,696 4,745,738
Minority interest 184,332 167,508
Net income $ 4,588,364 4,578,230
Per common share:
Net income-basic $ 0.23 0.22
Net income-diluted 0.22 0.22
Cash dividends 0.087 0.086
<FN>
See accompanying notes to consolidated financial statements.
PART 1 - Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
For the three months ended March 31,
2000 1999
_____________ _______________
Operating Activities:
Net income $ 4,588,364 4,578,230
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,050,000 1,050,000
Depreciation and amortization 1,794,655 1,197,508
Net realized gains from securities available for sale (28,204) (62,936)
Investment securities amortization and accretion 327,164 687,217
Net increase in loans held for sale 10,576,023 37,220,884
Net increase in accrued interest receivable and other
assets (1,526,146) (2,631,194)
Net increase (decrease) in accrued expenses, other
liabilities and minority interest 3,254,585 (2,101,995)
Net cash provided by operating activities 20,036,441 39,937,714
Investing Activities:
Investment securities available for sale:
Purchases (21,874,509) (50,496,605)
Maturities 26,514,339 34,100,983
Sales 6,944,924 9,799,060
Investment securities held to maturity:
Purchases --- (872,303)
Maturities 652,959 2,500,289
Net decrease in loans 2,020,019 603,828
Sale of loans 37,475,600 ---
Sale of deposits (3,790,380) ---
Purchases of premises and equipment (2,286,244) (2,115,934)
Proceeds from sales of premises and equipment 103,962 ---
Net cash provided (used) by investing activities 45,760,670 (6,480,682)
Financing Activities:
Net increase (decrease) in noninterest-bearing,
interest-bearing demand and savings deposits 8,767,566 (5,839,774)
Net increase (decrease) in time deposits 21,737,828 (9,473,495)
Net decrease in federal funds purchased and
securities sold under agreements to repurchase (31,067,695) (47,573,080)
Net increase (decrease) in other short-term borrowings (47,183,584) 15,600,000
Proceeds of long-term borrowings 40,000 15,000
Repayment of long-term borrowings --- ---
Dividends on common stock (1,774,224) (1,780,224)
Proceeds from issuance of common stock under
the employee stock purchase plan 28,440 243,573
Payment for shares reacquired under common stock
repurchase plan --- (1,011,562)
Net cash used by financing activities (49,451,669) (49,819,562)
Net increase (decrease) in cash and cash equivalents 16,345,442 (16,362,530)
Cash and cash equivalents at the beginning of the year 87,425,837 84,627,337
Cash and cash equivalents at the end of the period $ 103,771,279 68,264,807
Supplemental Cash Flow Information
(Unaudited)
Interest paid during the period $ 16,168,000 15,366,685
Income taxes paid during the period --- ---
<FN>
See accompanying notes to consolidated financial statements.
PART 1 - Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Changes in Common Stockholders' Equity
(Unaudited)
For the three months ended March 31,
2000 1999
_____________ _______________
Common Stock
Beginning of year balance $ 50,886,135 46,880,953
Issuance of shares of common stock
under the employee stock purchase plan 7,292 33,647
Shares reacquired under the common
stock repurchase plan --- (162,500)
End of period balance 50,893,427 46,752,100
Capital Surplus
Beginning of year balance --- ---
Issuance of shares of common stock
under the employee stock purchase plan 21,148 209,926
Shares reacquired under the common
stock repurchase plan --- (209,926)
End of period balance 21,148 ---
Retained Earnings
Beginning of year balance 86,682,119 85,010,569
Net income 4,588,364 4,578,230
Dividends on common stock (1,774,224) (1,780,224)
Shares reacquired under the common
stock repurchase plan --- (639,136)
End of period balance 89,496,259 87,169,439
Total Stockholders' Equity before Accumulated
Other Comprehensive Income (Loss) 140,410,834 133,921,539
Accumulated Other Comprehensive Income (Loss)
Beginning of year balance (5,634,803) 3,318,797
Change in unrealized holding gains (losses)
on securities available for sale (1,515,069) (1,486,482)
End of period balance (7,149,872) 1,832,315
Total Stockholders' Equity $ 133,260,962 135,753,854
<FN>
See accompanying notes to consolidated financial statements.
PART 1 - Item 1. Financial Statements
Brenton Banks, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
2000 1999
_________ ________
Net Income $ 4,588,364 4,578,230
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 $898,465 and $879,571, respectively) (1,497,442) (1,447,336)
Less: reclassification adjustment for net
realized gains included in net income (net
of tax expenses of $10,577 and $23,790,
respectively) (17,627) (39,146)
__________ __________
Other comprehensive income (loss), net of tax (1,515,069) (1,486,482)
__________ __________
Comprehensive income $ 3,073,295 3,091,748
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
PART 1 -- ITEM 1. FINANCIAL STATEMENTS
BRENTON BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Adjustments and Reclassifications
The accompanying financial statements for the interim periods were prepared
without audit. In the opinion of management, all adjustments which were
necessary for a fair presentation of financial position and results of
operations have been made. These adjustments were of a normal recurring
nature.
2. Additional Footnote Information
In reviewing these financial statements, reference should be made to the notes
to consolidated financial statements contained in the Appendix to the Proxy
Statement for the year ended December 31, 1999.
3. Statements of Cash Flows
In the statements of cash flows, cash and cash equivalents include cash and due
from banks, interest-bearing deposits with banks and federal funds sold.
4. Changes in Accounting Policies
There have been no changes in accounting policy in the first quarter of 2000.
5. Income Taxes
Federal income tax expense for the three months ended March 31, 2000, and 1999,
was computed using the consolidated effective federal income tax rates.
For the first three months of 2000 and 1999, the Company also recognized income
tax expense pertaining to state franchise taxes payable individually by the
subsidiary banks.
6. Common Stock Transaction
On May 24, 1999, the Board of Directors declared a 10 percent common stock
dividend for stockholders of record on June 1, 1999. The stock dividend
certificates were distributed on June 18, 1999. Fractional shares resulting
from this stock dividend were paid in cash.
Part 1 -- Item 1
Page 2 of 2
7. Income Per Share
Basic net income per common share amounts are computed by dividing net income
by the weighted average number of common shares outstanding during the period.
The weighted average number of common shares outstanding for the three months
ended March 31, 2000, and 1999, was 20,356,377 and 20,614,026, respectively.
Diluted net income per common share amounts are computed by dividing net income
by the weighted average number of common shares and all dilutive potential
common shares outstanding during the period. The weighted average number of
common shares and all dilutive potential common shares outstanding for the
three months ended March 31, 2000, and 1999, was 20,460,630 and 20,957,822,
respectively.
8. 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 following table presents a summary of the Company's operating segments for
the three months ended March 31, 2000, and 1999 (in thousands):
All Parent Intersegment Reported
Banking Other Company Eliminations Balances
_______________________________________________________________
2000
____________________________
Net interest income $ 15,910 230 (64) --- 16,076
Noninterest income from
nonaffiliates 5,081 2,419 28 --- 7,528
Noninterest income from
affiliates 28 --- 3,030 (3,058) ---
Income before income taxes
and minority interest 6,473 172 2,747 (3,029) 6,363
1999
____________________________
Net interest income $ 14,926 474 (149) --- 15,251
Noninterest income from
nonaffiliates 4,605 3,167 23 --- 7,795
Noninterest income from
affiliates 57 --- 4,356 (4,413) ---
Income before income taxes
and minority interest 6,103 698 3,889 (4,355) 6,335
Part 1 -- Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Introduction
The following presentation describes Brenton Banks, Inc. and Subsidiaries
("Brenton" or the "Company") results of operations for the three-month periods
ended March 31, 2000, and 1999, capital resources, market risk management,
asset/liability management, liquidity management, the impact of recently issued
accounting standards and a look towards the future. 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 the federal and state regulators. These risks,
which are not all inclusive, cannot be estimated.
Results of Operations
The three months ended March 31, 2000, compared to the three months ended March
31, 1999.
Net Income
Brenton Banks, Inc. recorded net income of $4,588,364 for the three months
ended March 31, 2000. Earnings were 7.9 percent above the prior quarter and
were slightly above the net income of $4,578,230 reported for the first three
months of last year, which was the highest earnings quarter in 1999.
Improvements in net interest income, service charges on deposit accounts and
lower compensation related expense were offset by lower mortgage banking
revenue and increased operating expenses. Net income was also affected by
several one-time income and expense items, including a $254,619 payment to the
State of Iowa's sinking fund for Brenton's proportionate share of the uninsured
public funds at Hartford-Carlisle Savings Bank. Diluted net income per common
share held steady at $.22 per share for the first quarter of both years.
Part 1 -- Item 2
Page 2 of 8
The Company's annualized return on average equity (ROE), including unrealized
gains (losses) on securities available for sale, was 13.88 percent for the
first three months of 2000, compared to 13.65 percent for the same period last
year. The annualized return on average assets (ROA) was .98 percent, which
compared to 1.01 percent for the first three months of 1999.
Net Interest Income
Net interest income rose 5.4 percent to $16,076,289, compared to $15,250,928
for the first three months of 1999 due to favorable volume and rate variances.
The yield on earning assets increased 32 basis points while the rate paid on
interest-bearing liabilities increased 20 basis points. Net interest margin
improved 10 basis points from 3.70 percent for the first three months of 1999
to 3.80 percent for the current quarter. Average earning assets increased 1.6
percent, while average interest-bearing liabilities increased 2.7 percent from
the first three months of 1999 to the first three months of 2000.
Loan Quality
At March 31, 2000, total loans had grown 12.0 percent to $1.16 billion from
$1.03 billion a year earlier, with improvements in all major categories. A
$50.6 million (27.4 percent) increase in average indirect consumer loans, a
$46.3 million (19.0 percent) increase in average commercial loans and a $44.2
million (18.6 percent) increase in average direct consumer loans led the
growth.
Loan quality remained strong with nonperforming loans declining to $8,511,000,
or .74 percent of total loans, at March 31, 2000, compared to $10,389,000, or
1.01 percent, at March 31, 1999. Nonperforming loans include loans on
nonaccrual status, loans that have been renegotiated to below market interest
rates or terms, and loans past due 90 days or more. The allowance for loan
losses, which totaled $15.0 million, represented 176.22 percent of
nonperforming loans and 1.30 percent of total loans at March 31, 2000. At
March 31, 1999, the same ratios were 139.47 percent and 1.40 percent,
respectively.
The provision for loan losses totaled $1,050,000 for the three months ended
March 31, 2000, and 1999. Annualized year-to-date net charge-offs were .16
percent of average loans for the first three months of 2000, compared with .29
percent for the same period last year and .36 percent for all of 1999.
The Company has a formal structure for reviewing and approving loans. Loan
quality control and risk management are carefully balanced with goals for loan
growth. Management believes the allowance for loan losses at March 31, 2000,
was sufficient to absorb probable loan losses within the portfolio.
Part 1 -- Item 2
Page 3 of 8
Noninterest Income
Noninterest income for the three months ended March 31, 2000, was $7,500,143
(excluding securities gains and losses), a 3.0 percent decline from $7,732,041
one year ago. Increases in service charges on deposits, investment brokerage
commissions and other income were offset by lower mortgage banking revenues.
Compared to the same period a year ago, service charges on deposits were up
$371,237, or 17.6 percent. This growth was the result of increased account
analysis income from business accounts, revised fee schedules and an increase
in the client base due to the acquisition of offices in Pella and Knoxville in
late 1999.
Investment brokerage commissions increased by $236,582, or 23.1 percent, as per
broker revenue improved over the prior year.
Other operating income increased $208,379 from one year ago to $557,591 because
of several one-time gains, including a gain on the sale of two banking offices
in the first quarter and a gain on the sale of loans.
Mortgage banking revenues declined 55.7 percent to total $725,553 for the first
three months of 2000 compared to $1,638,097 for 1999. Rising mortgage interest
rates led to a decline in mortgage loan origination volume and mortgage banking
revenues. Residential real estate loan closings for the first quarter of 2000
totaled $65 million, compared to $117 million for the first quarter of 1999.
Portfolio real estate loans totaling $37.5 million were sold in the first three
months of 2000, resulting in capitalized servicing income of $337,000.
Securities transactions produced gains of $28,204 compared to gains of $62,936
for the same period in 1999.
Noninterest Expense
Expense management continues to be an area of focus in 2000. Noninterest
expense growth for the three months ended March 31, 2000, was held to 3.4
percent compared to the first three months of 1999 and totaled $16,191,355.
Compensation expense, the largest component of noninterest expense, declined
3.0 percent over the prior year partially due to lower variable compensation
costs related to lower mortgage loan origination volume. Also contributing to
the reduction in compensation costs was a 6.7 percent decline in the number of
full-time equivalent employees from March 31, 1999.
Benefits expense declined $289,164 as a result of reduced compensation expense
and lower bonus payments in the first three months of 2000.
Part 1 -- Item 2
Page 4 of 8
Occupancy expense increased 16.8 percent to $1,731,743 due to the accelerated
write-off of certain leasehold improvements.
Furniture and equipment expense increased $293,978, or 26.6 percent, to
$1,400,630 due to depreciation on technology upgrades and increased software
maintenance expense.
Other operating expense increased by 21.5 percent to $3,213,511. The primary
reason for the increase was the previously mentioned payment of $254,619 to the
State of Iowa's sinking fund for Brenton's proportionate share of uninsured
public funds. All Iowa banks with public fund deposits were assessed a portion
of the losses at Hartford-Carlisle Savings Bank. Other increases in this
category included higher intangible amortization due to the third quarter
1999 acquisition of two bank offices and increased consulting fees. The
first three months of 1999 also included a recovery on the disposition of
other real estate owned.
The Company's net noninterest margin, which measures operating efficiency, was
(1.78) percent, compared to (1.68) percent one year ago. Another ratio that 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 and loans). For the three months ended March 31, 2000, the
Company's efficiency ratio was 66.28 percent compared to 65.67 percent one year
ago.
Income Taxes
The Company's income tax strategies include reducing income taxes by purchasing
securities and originating loans that produce tax-exempt income. The goal is
to maintain 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 25.0 percent for the first three months of 2000
compared to 25.1 percent for 1999.
Part 1 -- Item 2
Page 5 of 8
Capital Resources
Common stockholders' equity totaled $133,260,962 as of March 31, 2000, a 1.0
percent increase from December 31, 1999. Excluding the change in accumulated
other comprehensive income (loss), realized common stockholders' equity
increased 2.1 percent compared to year-end 1999 and totaled $140,410,834. The
Company continues to monitor its capital position to balance the goals of
maximizing return on average equity, while maintaining adequate capital levels
for business risk and regulatory purposes. The Company's risk-based core
capital ratio at March 31, 2000, was 9.55 percent and the total risk-based
capital ratio was 10.58 percent. These ratios exceeded the minimum regulatory
requirements of 4.00 and 8.00 percent, respectively. The Company's tier 1
leverage capital ratio, which measures capital excluding intangible assets, was
7.05 percent at March 31, 2000, exceeding the regulatory minimum requirement
for well-capitalized institutions of 5.0 percent.
Since the inception in 1994 of a stock repurchase plan, the Company has
repurchased 3,644,983 shares (adjusted for the 2-for-1 stock split in February
1998 and 10 percent common stock dividends) at a total cost of $37,948,804. At
this time, the Board of Directors has decided not to extend this plan for 2000.
In May 1999, the Board of Directors declared a 10 percent common stock dividend
for holders of record as of June 1, 1999, payable June 18, 1999. 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
appropriate per-share data has been restated to reflect the 10 percent common
stock dividend.
The Company paid a dividend of $.087 per common share in the first quarter of
2000, which represents an increase of 1.2 percent over $.086 per share for the
first quarter of 1999. Dividends totaled $1,774,224 for the three months ended
March 31, 2000, and the dividend payout ratio was 39.6 percent of diluted
earnings per common share. The Board of Directors declared a second quarter
dividend of $.087 per share, which was paid on April 28, 2000, to shareholders
of record as of April 20, 2000.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent Company") was 6.8
percent at March 31, 2000, compared to 4.9 percent at December 31, 1999. Long-
term borrowings of the Parent Company at March 31, 2000, consisted entirely of
capital notes totaling $6,494,000. In addition, the Parent Company has a $5
million line of credit with a regional bank on which $3 million was outstanding
as of the end of March 2000.
Brenton Banks, Inc. common stock closed on March 31, 2000, at $8.38 per share,
compared to $11.82 a year earlier. The closing price at March 31, 2000, was
127.9 percent of the book value per share of $6.55. This closing stock price
represented a price-to-trailing-12-months-diluted-earnings multiple of 10.5
times.
Part 1 -- Item 2
Page 6 of 8
Brenton Banks, Inc. continues to pursue acquisition and expansion opportunities
that fit the Company's strategic business and financial plans. There are
currently no pending acquisitions that would require Brenton Banks, Inc. to
secure capital from public or private markets.
Market Risk Management
Market risk is the risk of earnings volatility that results from adverse
changes in interest rates and market prices. The Company's market risk is
comprised primarily of interest rate risk arising from its core banking
activities of lending and deposit taking. Interest rate risk is the risk that
changes in market interest rates may adversely affect the Company's net
interest income. Management continually develops and applies strategies to
mitigate this risk. Management does not believe that the Company's primary
market risk exposures and how those exposures have been managed to-date in 2000
changed significantly when compared to 1999.
Asset/Liability Management
The Company has a fully integrated asset/liability management system to assist
in managing the balance sheet. The process, which is used to project the
results of alternative investment decisions, includes the development of
simulations that reflect the effects of various interest rate scenarios on net
interest income. Management analyzes the simulations to manage interest rate
risk, the net interest margin and levels of net interest income.
The goal is to structure the balance sheet so 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.
Part 1 -- Item 2
Page 7 of 8
To improve net interest income and lessen interest rate risk, management
continues its strategy of de-emphasizing fixed-rate portfolio residential real
estate loans with long repricing periods. When appropriate for interest rate
management purposes, the Company securitizes residential real estate loans.
The Company also continues to focus on reducing interest rate risk by
emphasizing growth in variable-rate consumer and commercial loans. Other
actions include the use of fixed-rate Federal Home Loan Bank (FHLB) advances as
alternatives to certificates of deposit, active management of the available for
sale investment securities portfolio to provide for cash flows that will
facilitate interest rate risk management and, in selected cases, the use of
interest rate swaps and interest rate floor contracts.
Liquidity
The Company 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 29.9 percent of the Company's total assets at March
31, 2000.
Net cash provided from Company operations is another primary source of
liquidity. For the three months ended March 31, 2000 and 1999, net cash
provided by operating activities was $20,036,441 and $39,937,714, respectively.
The Company's trend of strong cash flows from operations is expected to
continue into the foreseeable future.
The Company has historically maintained a stable deposit base and a relatively
low level of large deposits, which result in a low dependence on volatile
liabilities. As of March 31, 2000, the Company had advances of $81,490,000
from the FHLB of Des Moines, of which $38,740,000 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- and short-term, fixed-rate funding
for certain assets and managing interest rate risk. The Company had additional
borrowing capacity available from the FHLB of approximately $100 million at
March 31, 2000.
The combination of high levels of potentially liquid assets, strong cash flows,
low dependence on volatile liabilities and additional borrowing capacity
provided sufficient liquidity for the Company at March 31, 2000.
Part 1 -- Item 2
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The Company has entered into agreements for the construction of an operations
and sales support facility with an estimated total cost of $10.3 million,
exclusive of land. Groundbreaking occurred in October 1999, construction is
underway and completion is expected in the fourth quarter of 2000. The
building will replace currently leased space and will also allow for additional
growth.
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 is scheduled to be
effective for the Company for the year beginning 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.
Looking Ahead
The outlook for 2000 is positive and the Company expects earnings improvement
over 1999 results. Brenton continues to enhance our sales and partnership
culture in an effort to improve revenues and gain market share as the largest
Iowa-based bank holding company. By delivering a broad range of financial
products and services tailored to the needs of our clients, we continue to
create value for both clients and shareholders. The goal is to deliver the
entire bank to every client at every opportunity, enabling Brenton to
strengthen client relationships and generate additional sales.
During the first quarter of 2000, Brenton's new on-line Anytime Banking service
was launched and has been well received. Brenton Investment Direct clients
will soon have access to their account information and on-line transaction
convenience at www.brentoninvestments.com
At this time, it appears the Company's planned expansion into Moline, Illinois,
will take place in the first half of 2001. It will mark the first time Brenton
has crossed into another state with a full-service banking office. Regulatory
approval for this location has been obtained.
Part 1 -- Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The information appearing on page 6 of Item 2 under the heading "Market
Risk Management" is incorporated herein by reference.
PART 2 -- Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for the
three months ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRENTON BANKS, INC.
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(Registrant)
May 5, 2000 /s/ Robert L. DeMeulenaere
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Dated Robert L. DeMeulenaere
President and Chief Executive
Officer
May 5, 2000 /s/ Steven T. Schuler
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Dated Steven T. Schuler
Chief Financial Officer/
Treasurer/Secretary and
Chief Accounting Officer