Exhibit 13
The Annual Report to Shareholders of Brenton Banks, Inc., for the
1993 calendar year.
158
Blue background, with the words, "Growth, Change, Service, Excellence"
repeated 4 times, fading into the background, to display the depth
of the importance of those to the Company.
159
CORPORATE PROFILE
Brenton Banks, Inc. is a multi-bank holding company headquartered
in Des Moines, Iowa. Assets total $1.5 billion with another $.6
billion under trust agreement and $.2 billion in investment
brokerage accounts.
Brenton Banks, Inc. operates 13 commercial banks and one savings
bank in 42 banking facilities across Iowa, including the major
metropolitan areas of Des Moines, Cedar Rapids, Davenport and Ames. The
Company's 10 community banks are in highly productive trade areas
and county seat communities. In addition to banking, investment
brokerage and trust business, Brenton Banks, Inc. operates mortgage,
insurance and real estate subsidiaries.
The first Brenton Bank was founded in Dallas Center, Iowa in 1881.
Brenton Banks, Inc., incorporated in 1948, was Iowa's first bank
holding company.
The Company's common stock is publicly traded on Nasdaq National
Market under the symbol BRBK, and is also listed in various
newspapers as BrentB.
Contents
Financial Highlights 1
Message to Shareholders 2
Management Changes 5
A Closer Look 7
Management's Discussion and Analysis 10
Consolidated Average Balances and Rates 18
Selected Financial Data 19
Consolidated Financial Statements and Notes 20
Management's Report 35
Independent Auditor's Report 36
Stock Information 37
Corporate Structure 38
Brenton Banks and Assets 39
160
FINANCIAL HIGHLIGHTS
Brenton Banks, Inc. and Subsidiaries
Operating Results 1993 1992 1991
Net interest income $54,228,718 51,786,369 46,873,888
Provision for loan losses 1,251,588 1,410,730 799,157
Total noninterest income 17,863,271 14,684,040 12,714,549
Total noninterest expense 50,414,942 46,590,756 42,283,746
Income before income taxes and minority interest 20,425,459 18,468,923 16,505,534
Net income 14,249,970 12,953,094 11,659,427
Per Common and Common Equivalent Share 1993 1992 1991
Net income $ 2.70 2.50 2.25
Cash dividends .600 .525 .485
Book value, including unrealized gains (losses)* 21.40 18.71 16.74
Book value, excluding unrealized gains (losses)** 20.82 18.71 16.75
Closing bid price 26.25 26.00 20.75
At December 31 1993 1992 1991
Assets $ 1,480,596,046 1,431,139,829 1,360,941,588
Loans 875,881,387 753,454,137 751,909,813
Nonperforming loans 4,013,000 4,593,000 5,622,000
Deposits 1,294,363,694 1,269,940,325 1,215,088,230
Common stockholders' equity* 112,417,665 97,430,163 86,712,022
Ratios 1993 1992 1991
Return on average common stockholders' equity (ROE) 13.82% 14.13 14.27
Return on average assets (including minority interest) (ROA) 1.04 .98 .93
Net interest margin 4.28 4.23 4.04
Net noninterest margin (2.31) (2.31) (2.26)
Primary capital to assets* 8.50 7.67 7.23
Tier 1 leverage capital ratio* 7.55 6.71 6.21
Nonperforming loans as a percent of loans .46 .61 .75
Net charge-offs as a percent of average loans .05 .13 .15
Allowance for loan losses as a percent of nonperforming loans 244.65 196.09 152.05
* including unrealized gains (losses) on assets available for sale
** excluding unrealized gains (losses) on assets available for sale
Net Income (In thousands) 89 90 91 92 93
$8,704 10,339 11,659 12,953 14,250
Return on Average Equity 89 90 91 92 93
14.50% 14.39 14.27 14.13 13.82
Net Interest Margin 89 90 91 92 93
4.38% 4.11 4.04 4.23 4.28
Return on Average Assets 89 90 91 92 93
1.00% .95 .93 .98 1.04
161
MESSAGE TO THE SHAREHOLDERS
The year 1993 was excellent for our Company. This is true from both a
financial and an operational standpoint.
We are proud of our Company's financial gains in 1993. Earnings
reached record levels for the sixth consecutive year at $14.25
million, a 10.0 percent increase over 1992. Earnings per common
share were $2.70 for 1993, compared with $2.50 for 1992. Our goal
is to grow earnings per share by ten percent per year. This year
earnings per share grew 8.0 percent, compared to 11.1 percent in
1992 and 12.5 percent in 1991.
Our common stock ended the year at a bid price of $26.25, which
represents 123 percent of book value and 9.7 times current year's
earnings. Dividends paid in 1993 rose 14.3 percent to $.60 per
share, a payout of 22.2 percent of earnings per share. The January
1994 dividend was increased to $.165 per common share.
We are proud that our loan quality remains excellent. This is
reflected by net loans charged off for the year of only 0.05
percent of average loans. Also, nonperforming loans represented a
low 0.46 percent of loans at the end of the year. Both the net
loans charged off and nonperforming loan experience rank Brenton
in the top ten percent among our midwestern peers.
Our deposit growth slowed in 1993. Growth in noninterest income
through brokerage, insurance, trust and mortgage services is
designed to provide diversification and increased earnings, even
if deposit growth remains slow. These services are discussed
further in A Closer Look.
Our plan for the Company is to remain independent and to expand
our presence into new geographic markets. This will be
accomplished through acquisitions, branch expansion and a wider
array of financial services. A number of initiatives are currently
underway in this area.
The Iowa economy has remained robust, despite the occurrence of
unprecedented flooding and its negative impact on agriculture. The
average work week, housing permits, sales tax receipts, non-farm
employment and bank loans set record levels for Iowa through
December 1993, while unemployment dropped to record lows.*
Our goal is to provide premier service to consumer, commercial,
and agricultural customers through community and metro banking
affiliates. We emphasize local authority, supported by the
centralized services of the Parent Company and its service
providers. This, we feel, is the best combination for Brenton. We
function in a setting of strong centralized controls in the areas
of credit, investment, and bank regulation. A well developed and
extensive financial reporting system, which reports and compares
performance, is the communication link between the Parent Company
and our subsidiaries.
Our Company is bound together by a common and measurable Mission
statement. Our strength is in the highly capable and experienced
group of professional bankers both at our affiliate and Parent
Company levels. We are very confident and proud of the collective
leadership within Brenton.
We will continue to remain conservative in the way we lend money
and the way we borrow money for new corporate endeavors. Our
excellent loan quality and low debt-to-equity ratios demonstrate
these strengths.
Thank you, our shareholders, for your investment in Brenton Banks,
Inc. Your continued confidence and support energizes our goal to
be Iowa's premier banking organization. We strive to offer the
best service to our customers and the greatest value to you, our
shareholders.
C. Robert Brenton
Chairman of the Board
William H. Brenton
Chairman of the Executive Committee and
Vice Chairman of the Board
J.C. (Buz) Brenton
President
* Source Des Moines Register, January 30, 1994
162
(picture of William H. Brenton, J.C. Brenton, and C. Robert
Brenton)
Pictured (left to right) are William H. Brenton, Chairman of the
Executive Committee & Vice Chairman of the Board, J.C. Brenton,
President, and C. Robert Brenton, Chairman of the Board.
(picture of Robert L. DeMeulenaere)
Pictured is Robert L. DeMeulenaere, elected President of Brenton
Banks, Inc. at the January 19, 1994 Board of Director's meeting.
He succeeds J.C. Brenton as President. Mr. DeMeulenaere joined the
organization in 1964 at the Davenport bank. In 1972, he moved to
the Cedar Rapids bank as Executive Vice President and in 1982
became President. In 1985, he moved to Des Moines as Senior Vice
President-Metro Bank Division and also became President of Brenton
Mortgages, Inc. in 1988. He returned to Cedar Rapids in 1990 as CEO of the
Cedar Rapids bank as a result of a major acquisition. In 1994, he returned
to Des Moines to assume his new responsibilities with Brenton Banks, Inc.
as President.
163
(picture of executives - caption on following page)
164
MANAGEMENT CHANGES
In June, 1993, J.C. (Buz) Brenton announced his intention to step
down from his duties as President of the Company at year-end. He
also announced that Robert L. DeMeulenaere, thirty-year employee
of the Company and recent President of the Cedar Rapids affiliate,
would be elected President in January, 1994.
Dear Brenton Associates:
I wish to announce to you that at this year-end I will step down
as President of our Company. Bob DeMeulenaere will replace me as
President.
I will remain on the Board of our Company, but otherwise be
inactive except to be available for counsel or other help as
needed and as my time will permit.
There will be a period of time when Bob DeMeulenaere will report
to me. He will be elected as President at this year-end and move
to the corporate offices. I plan to take office space within
Capital Square so as to be accessible but not engaged actively,
except to participate on the Board of Directors and in the affairs
of the Company, once Bob ceases to report to me.
Bill and Bob Brenton's jobs and titles will remain the same.
This move from active banking is part of a plan I have held, and
shared with my brothers, for three or four years. There is much to
try to do in life of a worthwhile nature. I wish to direct my
energies more fully toward environmental and humanitarian affairs,
if possible.
I want you to know that I have and do love my work, my Company,
and you, my associates. My relations with my brothers, always
have, and continue to be, a strength for me and, I believe, the
Company.
In Bob DeMeulenaere, we have a leader who is exceptionally well
qualified in background, character, and intellect to do the job.
He commands the highest respect within the Company and the
industry.
The future is bright indeed!
Yours,
J.C. (Buz) Brenton
President
Brenton Banks, Inc.
(picture of the following executives on facing page)
Front Row: (l-r) Phillip L. Risley, Executive Vice President;
Roger D. Winterhof, Senior Vice President-Community Bank Division;
Larry Mindrup, President, Brenton National Bank-Poweshiek County,
Grinnell, and Community Bank Area Manager
Second Row: (l-r) John R. Amatangelo, Senior Vice President-
Operations; Saulene M. Richer, Senior Vice President-
Marketing/Technology;
Steven T. Schuler, Chief Financial Officer & Vice
President/Treasurer/Secretary
Third Row: (l-r) Steven F. Schneider, Vice President-Brokerage
Services; Charles N. Funk, Vice President-Investments; Gary D.
Ernst, Vice President-Trust
Fourth Row: (l-r) Norman D. Schuneman, Senior Vice President-
Lending; Mary F. Sweeney, Vice President-Human Resources
165
(photo of a male and female customer at a desk, with a Brenton
broker behind the desk. There is a sign which reads: Brenton
Brokerage. No photo caption)
166
A CLOSER LOOK
Over the past several years, significant changes have been made at
the Company. The purpose of this section of The Annual Report is
to provide to shareholders, prospective shareholders and customers
an overview of our Company and its direction.
Brenton Bank's, Inc. Mission
In 1989, the Company adopted a Mission which we think is unique in
that it demands measurement throughout our system.
Our Mission is to be the premier banking organization in Iowa in:
* Service to customers;
* Products that appeal to customers;
* Professional appearance of our people and facilities; and
* As a place to work.
We will make measured progress in these areas on an annual basis.
We also strive to be leading community citizens.
Our profit objective is to rank in the top quarter of similar
sized bank holding companies. In this way, we seek to
substantially enhance shareholder value while remaining strong for
our customers, employees and communities.
Over the past several years, our staff has focused its attention
and energy on accomplishing the objectives identified in our
Mission. Our Mission, which we continually measure and document, gives
us a unity of purpose and focus. We utilize comparisons, surveys and
information-sharing to maintain our commitment to strive for improvement
and achieve success. This concentration of effort has directly benefitted
our customers, employees and shareholders.
Growth and Expansion
In 1993, average balance sheet growth equalled 3.5 percent, which
was below that of recent years. The current low interest rate
environment causes deposit funds to move from traditional bank
investments to annuities, mutual funds, stock market and insurance
products. As interest rates increase and Brenton is able to pay
higher rates on deposits and receive higher yields on loans and
investments, there will again be an inflow into traditional bank
deposit products.
We have recognized the need to offer off-balance-sheet products
directly to our customers as an alternative investment for those
seeking a higher rate of return. For this reason, Brenton greatly
expanded its brokerage business in 1993. Last year the number of
Brenton brokers grew by one-third and brokerage sales increased
88.1 percent, contributing $.8 million to the Company's pretax net
income. Brenton is also strengthening its offerings in the mutual
funds area and has a goal of developing its own proprietary funds.
Annuity products are now being offered by all of our banks and
life insurance products will be offered in 1994.
In addition to internal growth, Brenton is pursuing expansion. Our
expansion goals are designed to increase market share in our
metropolitan markets and to expand into new regional economic
centers in Iowa.
Late in 1993, Brenton received approval to open a new banking
office in Ankeny, Iowa. This office will be affiliated with our
Ames subsidiary, Brenton Savings Bank, FSB. In addition, we have
applied for a banking office charter in Iowa City, Iowa. Both
Ankeny and Iowa City are rapidly expanding markets not presently
served by Brenton. In early 1994, Brenton also purchased an
insurance agency in the Tama/Toledo, Iowa area. Our intentions are
to expand the Tama/Toledo location to include lending services.
During 1994, Brenton will open a loan production and investment
167
brokerage office in Newton, Iowa. Brenton Brokerage Services, Inc.
will also be opening a retail location in downtown Des Moines.
Changes and Enhancements
During 1993, our Company undertook and completed a number of new
initiatives. We completed the centralization of our operations
from individual banks into Brenton Bank Services Corporation,
which began in 1992. This has increased the Company's ability to
control costs and standardize products and services.
Standardization will greatly enhance our ability to market
products and services in a concentrated and professional manner.
Operational enhancements allow us to take advantage of technology
in developing customer information. These are significant steps for Brenton.
Excellence
Brenton has recently remodeled the majority of its facilities. The
improvements were designed to enhance the marketing and selling of
products and services. Strategically placed graphic sales displays
were included in virtually all banking locations. Cumulatively,
the remodeling projects were a major effort to enhance our overall
appearance and stimulate sales.
During 1993, Brenton completed the centralization of its Human
Resource activities under the direction of Vice President-Human
Resources, Mary F. Sweeney. The standardization of our benefit
programs and policies has strengthened our relationship with our
most valuable asset, our business associates.
By the end of 1993, all of our banks were offering a new checking
account, the Select Account. This deposit product is priced based
on the customer's total banking relationship with Brenton. It is
very appealing for those customers using more than one Brenton
service and therefore, provides the opportunity to turn single-
service customers into multiple-service customers. We feel this
account will quickly grow to be the backbone of our relationship
with the majority of our deposit customers.
Leasing and international banking services both expanded in 1993.
We consider them integral to our commercial and agricultural
product offerings and intend them to be a growing contribution to
our noninterest income.
Last year we made a major commitment to the area of corporate cash
management, with the hiring of Douglas F. Lenehen, Vice President-
Cash Management Services, and the addition of computer hardware
and specialized software. These services are needed and desired by
most Brenton business customers, so we consider this an important
addition.
In 1993, we decided to expand our mortgage banking operation.
Although our banks have been making residential mortgages for
years, we have experienced increased activity over the past three
years. We have added specialized real estate loan originators in
many Brenton locations and sold more than $121 million of loans to
the secondary market in 1993. These activities, with the exception
of mortgage servicing, have been decentralized. We feel that
substantive additional income is possible by expanding mortgage
origination and centralizing our secondary market operations. The
planning process for this mortgage banking expansion began in
1993, with implementation commencing in 1994.
Measured by any standard, credit quality remains a hallmark at
Brenton. We are very proud of our lending record. With strong loan
administration and control, managed by Senior Vice President-
Lending, Norman D. Schuneman, we are confident we will maintain
our sound loan portfolio over the years.
Asset-Liability management under the guidance of Vice President-
Investments, Charles N. Funk, made significant progress during
1993. Asset-Liability management is the management of the
relationship between the repricing of loans and investments and
their chief funding source, primarily deposits. By the end of
1993, Brenton had installed a standardized mechanism for
projecting earnings variances, given various changes of general
interest rates in the economy. This information allows us to
arrive at better conclusions regarding loan and deposit pricing
and maturity decisions. This new system of measuring interest rate
risk significantly improves our planning process.
This culmination of expansion, new products, improved appearance
and more technical analysis provides us the competitive advantages
needed to excel in our industry and accomplish our Mission.
168
(photo of a meeting being conducted by a Brenton Trust Officer,
showing six of the participants at round tables. No photo
caption.)
169
MANAGEMENT'S DISCUSSION AND ANALYSIS
For 1993 and the sixth consecutive year, Brenton Banks, Inc. and
subsidiaries (the "Company") reported record earnings. Net income
for the year was $14,249,970, a 10.0 percent increase over 1992.
Earnings per common and common equivalent share rose to $2.70 for
1993, up 8.0 percent from $2.50 in 1992.
Capital Resources
The Company's record earnings contributed to the 15.4 percent
growth in common stockholders' equity, which totaled $112,417,665
at December 31, 1993. Share issuances under the Employee Stock
Purchase Plan added $361,194 to the Company's equity while the
exercise of previously granted stock options added $461,185.
Effective December 31, 1993, the Company adopted the Statement of
Financial Accounting Standards No. 115. Under this new accounting
standard, the method of classifying investment securities is based
on the Company's intended holding period. Accordingly, securities
which the Company may sell at its discretion prior to maturity are
recorded at their fair value. Additionally, the aggregate
unrealized net gains, including the effect of income tax and
minority interest, are recorded as a component of common
stockholders' equity. At December 31, 1993, aggregate unrealized
gains totaled $3,036,270.
Because of the Company's strong earnings performance, the Board of
Directors increased 1993 dividends to common stockholders 14.3
percent over 1992 to $.60 per share, a dividend payout ratio of
22.2 percent of earnings per share. In January 1994, the Board
declared a dividend of $.165 per share, which was up 13.8 percent
from the first quarter of 1993 and 3.1 percent from the prior
quarter.
The Company's risk-based core capital ratio was 12.64 percent at
December 31, 1993, and the total risk-based capital ratio was
13.75 percent. These exceeded the minimum regulatory requirements
of 4.00 percent and 8.00 percent respectively. The Company's tier
1 leverage ratio, which measures capital excluding intangible
assets, was 7.55 percent at December 31, 1993, exceeding the
regulatory minimum requirement range of 3.00 to 5.00 percent. Each
of these capital calculations includes unrealized gains on assets
available for sale.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 10.7 percent at December 31, 1993, compared to 12.4
percent at the end of 1992. The Parent Company's available $2
million line of credit with a regional bank was unused at the end
of 1993. Long-term borrowings of the Parent Company consisted
entirely of $12,022,000 of capital notes.
Brenton Banks, Inc. common stock closed 1993 at a bid price of
$26.25 per share, representing 1.23 times the book value per share
of $21.40 on the same date. The year-end stock price represented a
price-to-1993-earnings multiple of 9.7 times.
Annual Dividends per Common Share 89 90 91 92 93
$.33 .41 .485 .525 .60
89 90 91 92 93
Primary Capital Ratio 7.77% 6.98 7.23 7.67 8.50
Tier 1 Leverage Capital Ratio 6.73% 5.86 6.21 6.71 7.55
170
Liquidity
The objective of liquidity management is to maintain sufficient
cash flows to fund operations and meet customer commitments.
Insufficient liquidity can cause higher costs of obtaining funds
when needed, while excess liquidity can lead to the loss of income
opportunity.
Federal funds sold, trading account securities, and assets
available for sale are readily marketable. Maturities of all
investment securities are managed to meet the Company's normal
liquidity needs. Investment securities available for sale may be
sold prior to maturity to meet liquidity needs, to respond to
market changes, or to adjust the Company's asset-liability
position. Federal funds sold, trading account securities, and
assets available for sale comprised 30.7 percent of the Company's
total assets.
Net cash provided from Company operations is another major source
of liquidity. The net cash provided from operating activities was
$20,429,680 in 1993; $17,822,173 in 1992; and $16,067,732 in 1991.
This trend of strong cash from operations is expected to continue
into the foreseeable future.
The Company's stable deposit base and relatively low levels of
large deposits resulted in low dependence on volatile liabilities.
During 1993, the Company chose to borrow $8 million from the
Federal Home Loan Bank of Des Moines as a means of providing long-
term fixed-rate funding for certain fixed-rate assets.
The combination of a high level of potentially liquid assets,
strong cash from operations, and low dependence on volatile
liabilities provided excellent liquidity for the Company at
December 31, 1993.
The Parent Company, whose primary funding sources are management
fees and dividends from the banking subsidiaries, had sufficient
cash flow and liquidity at December 31, 1993. Dividends totaling
$30 million were available to be paid to the Parent Company by
subsidiary banks without reducing capital ratios below regulatory
minimums. At the end of 1993, the Parent Company had $3.5 million
of short-term investments and additional borrowing capacity.
Brenton Banks, Inc. continues to pursue its growth mission by
seeking acquisition opportunities that strengthen the Company's
presence in current and selected new market areas. There are
currently no pending acquisitions that would require Brenton
Banks, Inc. to secure capital from public or private markets.
Asset-Liability Management
During the last 18 months, the Company has improved the
sophistication of its asset-liability management system. This new
system simulates the effect of various interest rate scenarios on
net income. This analysis process is also used to project the
results of alternative investment decisions. Management performs
in-depth analyses of the simulations to manage interest rate risk
and the Company's net interest margin.
At December 31, 1993, the Company's stable one-year GAP position
was negative at .55:1, meaning fewer assets are scheduled to
reprice within one year than liabilities. This situation suggests
that a decline in interest rates may benefit the Company and that
a rise in interest rates may negatively impact net interest
income. The negative GAP position is largely the result of
treating interest-bearing demand and savings accounts as
immediately repriceable based on their contractual terms. The
Company can partly neutralize the effect of interest rate changes
by controlling the timing of rate changes on these deposit
accounts.
171
(photo of a Brenton Real Estate Originator, with a male and female
couple in a home construction scene.)
172
Results of Operations - 1993 Compared to 1992
Net Income
Brenton recorded its sixth consecutive year of record net income
with $14,249,970 in 1993, a 10.0 percent increase over $12,953,094
in 1992. This continued improvement was attributable to an
increase in net interest income and fee-and commission-based
diversified services.
The Company's total assets grew 3.5 percent to $1.5 billion at
1993. Return on average assets (ROA) improved to 1.04 percent in
1993, compared to 0.98 percent for 1992. Due to the Company's
increasing equity position, the return on average equity (ROE) was
13.82 percent, compared to 14.13 percent one year earlier.
Net Interest Income
Net interest income rose 4.7 percent to $54,228,718 for 1993. This
increase was partially due to the higher net interest margin of
4.28 percent, compared to 4.23 percent last year. Influenced by
the falling interest rate environment, the Company experienced a
more rapid decline in rates paid on deposits and other liabilities
than in yields earned on assets. Loans, which typically earn
higher yields than investment securities, rose 16.2 percent. On a
tax equivalent basis for 1993, loans earned an average rate of
8.77 percent while investment securities yielded an average 6.05
percent. The net interest spread, which is the difference between
the rate earned on assets and the rate paid on liabilities, rose
to 3.86 percent from 3.73 percent last year.
During the course of 1993, the Company's net interest margin
declined 19 basis points. The goal to continue expansion of net
interest income is, therefore, centered on growth in interest-
earning assets. The majority of this growth is sought in loans.
Loan Quality
Brenton's loan quality remains strong compared to its peers and is
the foundation of the Company's financial performance.
Demonstrating this, the Company's nonperforming loans were a low
0.46 percent of loans or $4,013,000 at December 31, 1993, down
12.6 percent from $4,593,000 one year ago. 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. Brenton ranked second among 33
Midwestern peer banks with its 0.61 percent ratio of nonperforming
loans to loans at the end of 1992, according to the Stifel,
Nicolaus & Co., Inc. December 31, 1992 Midwest Regional Banking
Review. By December 31, 1993, this ratio had improved to 0.46
percent.
89 90 91 92 93
Provision for Loan Losses $760 869 799 1,411 1,252
Net Charge-offs (In thousands) $401 814 1,122 953 440
Nonperforming Loans (In thousands) 89 90 91 92 93
$6,718 $5,460 $5,622 $4,593 $4,013
173
The allowance for loan losses represented 244.65 percent of
nonperforming loans at the end of 1993, compared to 196.09 percent
one year ago. The Company's net charge-offs to average loans,
which ranked best among the 33 peer banking organizations for
1992, improved from 0.13 percent for 1992 to 0.05 percent for
1993. This high-quality loan portfolio led to a modest provision
expense for loan losses, which represented 0.16 percent of average
loans in 1993.
Though parts of Iowa experienced record flooding during the summer
of 1993, the state's economy did not falter and most Iowans
rebounded quickly. The flood had a varied impact in both
metropolitan and agricultural areas of the state. Only a few of
the businesses served by Brenton were affected by the flood. In
some areas, crop production was reduced 25 to 35 percent from
flooding, as well as excessive rainfall and fewer days of
sunshine; other areas were less severely impacted. Due to the
strength of Brenton's borrowers, multi-peril crop insurance,
disaster assistance, and government guarantees, Brenton
anticipates that the flood will have very little impact on its
loan portfolio quality.
Quality control and risk management are carefully balanced with
goals for loan growth. The Company's rigorous loan evaluation and
approval system requires large loans to be approved by a team of
top Company officers and all loans to be routinely reviewed by
qualified loan examiners.
To limit the risk exposure of commercial real estate loans, the
Company closely monitors and restricts its loans for commercial
multi-tenant buildings and speculative land-development loans.
Instead, the Company concentrates on owner-occupied residential
and commercial mortgages used to finance facilities built and
occupied by the customer. Additionally, Brenton believes that
loan quality is enhanced by maintaining full-service banking
relationships with borrowing customers.
The allowance for loan losses is the amount available to absorb
actual loan losses within the portfolio. 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, individual loan evaluations
at each bank.
Through the Company's loan evaluation process, individual banks
evaluate loan characteristics, the borrower's financial condition,
and collateral value. From these evaluations, the loan portfolio
quality is quantified and the bank assesses and computes the
required allowance for loan losses. This process is expanded into
an adequacy analysis of the allowance on a Company-wide basis.
The adequacy of the allowance is subject to future events and
uncertainties. Because of the in-depth analysis process,
management believes the allowance for loan losses at December 31,
1993 was sufficient to absorb possible loan losses within the
present portfolio.
Total Assets (In millions) 89 90 91 92 93
$961 1,274 1,361 1,431 1,481
Net Noninterest Margin 89 90 91 92 93
2.46% 2.29 2.26 2.31 2.31
174
Loan Composition
Real Estate 57.5%
Consumer 24.5%
Commercial 10.3%
Loans to Farmers 7.6%
Other .1%
Beginning in 1995, the Financial Accounting Standards Board will
mandate a standard that will fundamentally change certain
accounting procedures for impaired loans, including the
determination of the allowance for loan losses and financial
disclosures. This new Standard is not expected to have a material
effect on the future financial statements of the Company.
Net Noninterest Margin
To measure operating efficiency, the Company uses the net
noninterest margin, which is the difference between noninterest
income and noninterest expense as a percent of average assets. For
1993 and 1992, the net noninterest margin was 2.31 percent. To
reduce this margin, which is a significant goal, the Company must
continue to increase its asset base, develop fee-based services,
and use new technology and procedures to enhance operational
efficiencies.
Noninterest Income
Over the last several years, Brenton has expanded its fee-based
services, including trust, investment brokerage, secondary market
real estate loan origination, insurance, and farm management.
These services were the basis of the Company's 21.7 percent
growth in noninterest income during 1993 and are expected to
continue to grow.
Investment brokerage commissions grew 88.1 percent to $3.0 million
for the year, compared to $1.6 million for 1992. After considering
related expenses, investment brokerage contributed $.8 million to
the Company's pre-tax net income, compared to $.3 million last
year. The number of full-time brokers grew by one-third in 1993
and management expects that number to continue growing. The
brokerage business is a natural extension of the banking business,
as it allows Brenton to expand the array of financial services
provided to existing customers.
Other charges and fees rose 29.8 percent for the year, largely
from a 59.6 percent, or nearly $800,000, increase in fees on real
estate loans originated for the secondary market. Three years ago,
the Company was originating under $20 million of mortgage loans
for sale into the secondary market. In 1993, the volume was more
than six times that amount, totaling over $121 million. To respond
to the increased demand for new real estate loans and refinancings
prompted by current low interest rates, Brenton added specialized
real estate loan originators in several of its locations.
Fiduciary income from trust services rose 8.8 percent to $1.9
million in 1993 through the addition of new employee benefit and
personal trusts, and growth of existing trusts. At the end of
1993, the Company's trust department managed $607 million in
assets.
Securities transactions also influenced the increase in
noninterest income. Management realigned a portion of the
investment portfolio that is available for sale in response to the
interest rate environment, realizing securities gains of $595,168.
The main purpose of this realignment was to diversify reinvestment
risk and reduce interest rate risk in the investment portfolio.
175
Noninterest Expense
Total noninterest expense rose 8.2 percent in 1993 to $50,414,942
from $46,590,756 one year ago. The 9.8 percent increase in
salaries and wages, which stems partly from commissions related to
increased investment brokerage and secondary market real estate loan
origination, comprised more than half of the total noninterest expense
increase. This increase in salaries caused a proportionate rise in the
related benefits expense. Also in 1993, the Company increased its
matching contribution to the employee 401(k) plan by 1 percent of salaries.
Brenton has recently redesigned most of its facilities and added
technological enhancements to improve the marketing and selling of
products and services. These projects are a major effort to enhance
Brenton's overall image and stimulate sales. As a result, expenses
related to occupancy, furniture, and equipment rose 9.3 percent.
During 1993, Brenton initiated several successful promotion
campaigns in offering new products that serve Brenton customers.
These campaigns, along with various event sponsorships throughout
the state, added 16.9 percent to the advertising and promotion
expenses.
Data processing expense and FDIC deposit insurance assessments
were both down slightly from last year. All Brenton banks pay an
FDIC insurance premium rate of $.23 per $100 of deposits, the
lowest rate under the FDIC's risk-based premium system. Other
operating expense rose only 4.7 percent, with expenses related to
any given category increasing only modestly.
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 as a percent of income before income tax and
minority interest was 27.0 percent for 1993 compared to 26.4
percent for 1992.
In January 1993, the Company adopted a new accounting standard
relating income taxes. This standard allows the Company to
recognize deferred tax benefits based on the likelihood of
realization of those benefits in future years. Also during 1993,
the Company's effective federal income tax rate rose because of
statutory federal changes. Neither of these items had a material
effect on the financial statements of the Company.
Results of Operations - 1992 Compared to 1991
Acquisitions
On October 1, 1992, Brenton Banks, Inc. merged with Ames Financial
Corporation and acquired its wholly-owned subsidiary, Ames Savings
Bank, FSB of Ames, Iowa. With its name changed to Brenton Savings
Bank, FSB, the institution continues to operate as a federal savings
bank. The merger transaction, accounted for as a pooling-of-interests,
resulted in the restatement of historical information to reflect
combined results of Brenton and Ames Financial Corporation. The merger
was accomplished by a stock-for-stock exchange. No bank borrowings
were required since the only cash paid was for fractional shares of
common stock.
Net Income
The Company's record earnings of $12,953,094 in 1992 was an 11.1
percent increase over $11,659,427 in 1991. Earnings per share also
grew 11.1 percent to $2.50 for 1992 compared to $2.25 for 1991.
The Company's ROA improved to .98 percent from .93 percent in
1991. The ROE was 14.13 percent, down slightly from 14.27 percent
for 1991, the result of an increase in equity capital.
Net Interest Income
Net interest income rose 10.5 percent over 1991 to $51,786,369,
and was prompted by growth in interest-earning assets and
declining interest rates. The net interest margin was 4.23 percent
for 1992 compared to 4.04 percent one year earlier.
Loan Quality
Nonperforming loans of $4,593,000 at the end of 1992 represented
0.61 percent of loans. While remaining low, the provision expense
for loan losses rose $611,573 in 1992. This provision increased
the allowance for loan losses to $9,006,290 at December 31, 1992,
representing 196.09 percent of nonperforming loans and 1.20
percent of loans. Net loans charged off for 1992 represented a low
0.13 percent of average loans.
Noninterest Income
Noninterest income rose 15.5 percent from 1991 to $14,684,040 for
1992. The Company capitalized on mortgage origination during an
interest rate environment that encouraged new home building and
refinancing. Mortgage fees on residential mortgage loans sold into
the secondary market totaled $1,449,807 for 1992, more than four
times that of 1991.
Brenton Brokerage Services, Inc. became a licensed broker dealer
in April 1992, and experienced excellent growth in personnel and
sales volume during the year. Investment brokerage commissions
totaled $1,600,324 for 1992, a 76.9 percent increase over 1991.
Noninterest Expense
Noninterest expense rose 10.2 percent to $46,590,756 in 1992.
Brenton implemented several changes to improve operating
efficiency and control the growth of noninterest expenses. Initial
costs, which significantly impacted this increase, were necessary
to fully incorporate these efficiencies.
Improvements in Brenton's computer technology designed to improve
customer service and streamline operations resulted in a 36.7
percent increase in equipment depreciation over 1991.
The transition to centralized backroom operations in 1992 added
some expense because of some necessary initial parallel
operations. As part of this centralization effort, the proof and
item capture functions were out-sourced to the Federal Home Loan
Bank of Des Moines in November 1991. While providing overall cost
savings, this shifted expenses of $581,154 from salaries and
benefits, occupancy expense, and furniture and equipment expense
to other operating expenses in 1992.
The October 1992 merger with Ames Financial Corporation caused
one-time legal, accounting, and regulatory costs of $332,500.
A long-term stock incentive plan for the Company's senior officers
and bank presidents was approved and implemented during the fourth
quarter of 1992. This plan provides financial incentives based on
service to the Company and Company performance over the next
several years. In addition, it encourages senior managers to
pursue maximizing shareholder value by providing them an
opportunity to own Brenton stock. This stock compensation expense
was $560,000 for 1992.
Noninterest expense categories all increased with the exception of
electronic data processing fees, which decreased through
negotiations of Brenton's contract for data processing services.
Federal Deposit Insurance Corporation assessments rose 13.8
percent to $2,750,378. All Brenton banks pay an FDIC insurance
premium rate of $.23 per $100 of deposits, the lowest rate under
the FDIC's risk-based premium system.
Income Taxes
The Company's income tax strategy includes reducing taxes by
purchasing assets which produce tax-exempt income. The effective
rate of income tax as a percent of income before income tax and
minority interest was 26.4 percent for 1992, compared to 26.1
percent for 1991.
177
CONSOLIDATED AVERAGE BALANCES AND RATES
CONSOLIDATED AVERAGE BALANCES AND RATES
Brenton Banks, Inc. and Subsidiaries
Average Balances (In thousands) 1993 1992 1991 1990 1989
Assets
Cash and due from banks $ 46,025 41,715 35,656 36,012 34,061
Interest-bearing deposits with banks 762 6,240 18,335 13,562 5,823
Federal funds sold and securities purchased under
agreements to resell 23,725 27,082 35,154 40,095 24,889
Investment securities:
Available for sale 53,174 6,512 _ _ -
Held to maturity-taxable 299,993 384,301 342,466 303,243 285,237
Held to maturity-tax exempt 164,520 139,296 106,658 58,507 29,892
Loans held for sale 6,165 2,553 _ _ -
Loans 802,088 736,646 727,870 659,283 512,822
Allowance for loan losses (9,615) (8,894) (8,819) (8,763) (8,226)
Bank premises and equipment 23,045 21,400 18,876 17,003 15,027
Other 26,543 30,422 32,243 26,843 21,976
$1,436,425 1,387,273 1,308,439 1,145,785 921,501
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 119,322 112,054 102,795 102,225 100,985
Interest-bearing:
Demand 217,754 209,642 175,595 152,434 121,226
Savings 299,640 260,568 235,894 205,433 191,153
Time 622,789 646,261 654,776 560,679 404,868
Total deposits 1,259,505 1,228,525 1,169,060 1,020,771 818,232
Federal funds purchased and securities sold
under agreements to repurchase 42,715 33,240 20,340 18,912 13,459
Other short-term borrowings 33 2,170 5,361 3,027 246
Accrued expenses and other liabilities 12,805 13,735 14,739 14,432 9,966
Long-term borrowings 14,077 14,067 13,619 13,347 16,222
Total liabilities 1,329,135 1,291,737 1,223,119 1,070,489 858,125
Minority interest 4,150 3,845 3,589 3,472 3,350
Common stockholders' equity 103,140 91,691 81,731 71,824 60,026
$1,436,425 1,387,273 1,308,439 1,145,785 921,501
Summary of Average Interest Rates
Average rates earned:
Interest-bearing deposits with banks 2.88% 4.92 7.10 8.69 9.29
Federal funds sold and securities purchased
under agreements to resell 2.05 2.41 5.77 7.84 9.08
Investment securities:
Available for sale 5.28 6.63 _ _ _
Held to maturity_taxable 5.54 6.88 8.50 8.93 8.56
Held to maturity_tax-exempt (tax equivalent basis) 6.97 7.66 8.85 9.74 10.54
Loans held for sale 8.43 9.33 _ _ _
Loans 8.77 9.65 10.52 10.85 10.99
Average rates paid:
Deposits 3.70% 4.70 6.19 6.71 6.47
Federal funds purchased and securities
sold under agreements to repurchase 2.41 2.78 4.74 6.16 6.88
Other short-term borrowings 3.63 5.57 8.70 10.18 9.05
Long-term borrowings 8.60 9.14 9.57 10.16 10.77
Average yield on interest-earning assets 7.57% 8.43 9.62 10.11 10.10
Average rate paid on interest-bearing liabilities 3.71 4.70 6.21 6.76 6.57
Net interest spread 3.86 3.73 3.41 3.35 3.53
Net interest margin 4.28 4.23 4.04 4.11 4.38
178
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
Brenton Banks, Inc. and Subsidiaries
Year-end balances
(In thousands) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Total assets $1,480,596 1,431,140 1,360,942 1,274,301 961,370 921,207 908,933 956,505 963,190 991,097
Interest-earning assets 1,400,709 1,323,252 1,267,402 1,181,172 883,721 845,571 836,029 865,364 880,666 900,785
Interest-bearing
liabilities 1,224,951 1,181,013 1,141,008 1,052,597 769,717 733,133 728,597 771,416 785,851 804,428
Liabilities
Demand deposits 127,132 137,212 115,479 125,626 113,349 118,392 116,830 123,883 117,624 116,831
Long-term borrowings 20,055 13,284 13,634 12,675 14,701 16,215 17,509 18,759 19,707 19,729
Preferred stock _ _ _ _ _ - 2,000 3,000 4,000 5,000
Common stockholders' 112,418 97,430 86,712 77,258 63,522 56,401 49,618 44,976 41,815 47,832
equity
Results of operations
(In thousands)
Interest income $ 98,656 106,560 115,561 106,826 85,722 76,745 74,774 84,321 96,181 102,731
Interest expense 44,427 54,773 68,687 64,431 49,102 43,180 43,149 52,920 63,175 71,968
Net interest income 54,229 51,787 46,874 42,395 36,620 33,565 31,625 31,401 33,006 30,763
Provision for loan losses 1,252 1,411 799 869 760 1,214 2,132 11,605 17,320 7,375
Net interest income after 52,977 50,376 46,075 41,526 35,860 32,351 29,493 19,796 15,686 23,388
provision for loan losses
Noninterest income 17,863 14,684 12,715 11,554 10,113 10,367 9,064 16,483 9,306 8,002
Noninterest expense 50,415 46,591 42,284 37,820 32,781 32,066 32,952 32,558 30,427 29,352
Income (loss) before 20,425 18,469 16,506 15,260 13,192 10,652 5,605 3,721 (5,435) 2,038
income taxes and
minority interest
Income taxes 5,508 4,884 4,308 4,388 4,016 2,527 408 116 (887) (1,804)
Minority interest 667 632 539 533 472 422 290 84 39 248
Net income (loss) 14,250 12,953 11,659 10,339 8,704 7,703 4,907 3,521 (4,587) 3,594
Preferred stock dividend _ _ _ _ _ 81 265 360 455 550
requirement
Net income (loss) $ 14,250 12,953 11,659 10,339 8,704 7,622 4,642 3,161 (5,042) 3,044
available to
common stockholders
Average common shares 5,279 5,189 5,172 5,163 4,797 4,797 4,797 4,797 4,797 4,797
outstanding*
Per common and common equivalent share*
Net income (loss) $ 2.70 2.50 2.25 2.00 1.81 1.59 .97 .66 (1.05) .63
Cash dividends .600 .525 .485 .410 .330 .175 .000 .000 .203 .314
Common stockholders' 21.40 18.71 16.74 14.96 13.24 11.76 10.34 9.38 8.72 9.97
equity
Selected operating ratios
Return on average assets 1.04% .98 .93 .95 1.00 .90 .57 .38 (.47) .40
(including minority
interest)
Return on average common 13.82 14.13 14.27 14.39 14.50 14.34 9.78 7.35 (11.03) 6.41
stockholders' equity
Common dividend payout 22.22 21.00 21.56 20.50 18.23 11.01 .00 .00 N/M 49.84
Allowance for loan 1.12 1.20 1.14 1.25 1.55 1.60 1.75 2.09 1.95 1.05
losses as a percent
of loans
Net charge-offs to average .05 .13 .15 .12 .08 .18 .75 2.61 2.54 1.18
loans outstanding
*Restated for 2-for-1 stock split effective in 1990.
N/M - Not meaningful, Company incurred a net loss.
179
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
CONSOLIDATED STATEMENTS OF CONDITION
Brenton Banks, Inc. and Subsidiaries
December 31
Assets 1993 1992
Cash and due from banks (note 3) $ 42,548,497 66,410,098
Interest-bearing deposits with banks _ 2,372,851
Federal funds sold and securities purchased under agreements to resell 41,875,000 22,125,000
Trading account securities 9,850 _
Investment securities:
Available for sale (note 4) 412,209,721 29,825,757
Held to maturity (market value of $66,892,000 and $517,151,000
at December 31, 1993 and 1992, respectively) (note 4) 66,384,042 510,976,506
Investment securities 478,593,763 540,802,263
Loans held for sale 4,349,422 4,497,261
Loans (note 5) 875,881,387 753,454,137
Allowance for loan losses (note 6) (9,817,864) (9,006,290)
Loans, net 866,063,523 744,447,847
Bank premises and equipment (notes 7 and 11) 23,147,521 22,280,589
Accrued interest receivable 12,815,884 13,454,136
Other assets (note 9) 11,192,586 14,749,784
$1,480,596,046 1,431,139,829
Liabilities and Stockholders' Equity
Deposits (note 8):
Noninterest-bearing $ 127,131,654 137,212,165
Interest-bearing:
Demand 232,005,404 213,825,352
Savings 307,615,814 296,251,035
Time 627,610,822 622,651,773
Total deposits 1,294,363,694 1,269,940,325
Federal funds purchased and securities sold under agreements to repurchase 37,664,328 34,881,600
Other short-term borrowings (note 10) _ 119,784
Accrued expenses and other liabilities 11,688,256 11,496,858
Long-term borrowings (note 11) 20,054,913 13,283,855
Total liabilities 1,363,771,191 1,329,722,422
Minority interest in consolidated subsidiaries 4,407,190 3,987,244
Redeemable preferred stock, $1 par; 500,000 shares authorized;
issuable in series, none issued _ _
Common stockholders' equity (notes 12, 13 and 15):
Common stock, $5 par; 25,000,000 shares authorized;
5,253,151 and 5,207,870 shares issued at
December 31, 1993 and 1992, respectively 26,265,755 26,039,350
Capital surplus 5,598,027 5,002,053
Retained earnings 77,517,613 66,405,950
Unrealized gains (losses) on assets available for sale 3,036,270 (17,190)
Total common stockholders' equity 112,417,665 97,430,163
$1,480,596,046 1,431,139,829
Commitments and contingencies (notes 16 and 17).
See accompanying notes to consolidated financial statements.
180
CONSOLIDATED STATEMENTS OF OPERATIONS
Brenton Banks, Inc. and Subsidiaries
Years Ended December 31
Interest Income 1993 1992 1991
Interest and fees on loans (note 5) $70,816,746 71,364,279 76,545,213
Interest and dividends on investments:
Taxable 19,436,763 26,804,831 29,116,364
Tax-exempt 7,894,225 7,429,582 6,569,424
Interest on interest-bearing deposits with banks 21,934 307,248 1,302,070
Interest on federal funds sold and securities purchased under
agreements to resell 485,912 653,886 2,028,373
Total interest income 98,655,580 106,559,826 115,561,444
Interest Expense
Interest on deposits (note 8) 42,188,138 52,443,250 65,954,608
Interest on federal funds purchased and securities
sold under agreements to repurchase 1,027,324 923,853 963,419
Interest on other short-term borrowings (note 10) 1,200 120,912 466,157
Interest on long-term borrowings (note 11) 1,210,200 1,285,442 1,303,372
Total interest expense 44,426,862 54,773,457 68,687,556
Net interest income 54,228,718 51,786,369 46,873,888
Provision for loan losses (note 6) 1,251,588 1,410,730 799,157
Net interest income after provision for loan losses 52,977,130 50,375,639 46,074,731
Noninterest Income
Service charges on deposit accounts 5,846,770 5,735,963 5,784,257
Insurance commissions and fees 1,730,387 1,695,699 1,467,639
Other service charges, collection and exchange charges,
commissions and fees 4,120,732 3,175,552 2,146,847
Investment brokerage commissions 3,010,004 1,600,324 904,704
Fiduciary income 1,912,442 1,758,203 1,629,495
Net gains (losses) from securities available for sale (note 4) 595,168 79,474 (21,587)
Other operating income 647,768 638,825 803,194
Total noninterest income 17,863,271 14,684,040 12,714,549
Noninterest Expense
Salaries and wages 22,952,044 20,894,947 18,570,522
Employee benefits (note 14) 4,162,486 3,609,995 3,270,760
Occupancy expense of premises, net (notes 7 and 16) 3,988,525 3,710,772 3,596,108
Furniture and equipment expense (notes 7 and 16) 2,622,747 2,339,605 1,920,159
Data processing expense (note 17) 2,526,280 2,532,410 2,808,215
FDIC deposit insurance assessment 2,749,969 2,750,378 2,416,652
Advertising and promotion 1,521,712 1,301,545 1,221,589
Other operating expense 9,891,179 9,451,104 8,479,741
Total noninterest expense 50,414,942 46,590,756 42,283,746
Income before income taxes and minority interest 20,425,459 18,468,923 16,505,534
Income taxes (note 9) 5,507,849 4,884,145 4,307,625
Income before minority interest 14,917,610 13,584,778 12,197,909
Minority interest 667,640 631,684 538,482
Net income $14,249,970 12,953,094 11,659,427
Per common and common equivalent share (note 12):
Net income $ 2.70 2.50 2.25
Cash dividends .600 .525 .485
See accompanying notes to consolidated financial statements.
181
CONSOLIDATED STATEMENTS OF CASH FLOWS
Brenton Banks, Inc. and Subsidiaries
Years Ended December 31
Operating Activities 1993 1992 1991
Net income $ 14,249,970 12,953,094 11,659,427
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,251,588 1,410,730 799,157
Depreciation and amortization 3,100,977 2,780,907 2,257,965
Deferred income taxes (531,013) (88,728) 478,681
Net (gains) losses from securities held for sale (595,168) (79,474) 21,587
Decrease in accrued interest receivable and other assets 2,456,544 3,104,394 2,102,323
Increase (decrease) in accrued expenses, other liabilities
and minority interest 496,782 (2,258,750) (1,251,408)
Net cash provided from operating activities 20,429,680 17,822,173 16,067,732
Investing Activities
Cash used for acquisitions from the RTC _ _ (333,500)
Cash and cash equivalents of RTC acquisitions _ _ 16,110,116
Investment securities available for sale:
Purchases (166,637,785) _ _
Maturities 34,834,992 _ _
Sales 98,446,394 37,841,160 _
Investment securities held to maturity:
Purchases (132,198,518) (407,542,480) (305,134,642)
Maturities 233,316,414 283,315,958 250,101,854
Sales _ _ 8,466,321
Net (increase) decrease in loans held for sale 147,839 (4,497,261) _
Net increase in loans (122,867,264) (2,496,838) (45,659,105)
Purchases of bank premises and equipment (3,487,797) (4,864,458) (3,611,388)
Net cash used by investing activities (58,445,725) (98,243,919) (80,060,344)
Financing Activitie
Net increase in noninterest-bearing, interest-bearing
demand and savings deposits 19,464,320 92,823,328 45,184,386
Net increase (decrease) in time deposits 4,959,049 (37,971,233) 15,045,923
Net increase in federal funds purchased
and securities sold under agreements to repurchase 2,782,728 11,291,161 4,458,260
Net decrease in other short-term borrowings (119,784) (4,053,769) (3,375,754)
Proceeds of long-term borrowings 9,337,000 2,293,000 2,626,000
Repayment of long-term borrowings (2,565,942) (2,643,637) (1,666,344)
Dividends on common stock (3,138,307) (2,577,619) (2,330,688)
Proceeds from issuance of common stock under
the employee stock purchase plan 361,194 _ _
Proceeds from issuance of common stock under
the stock option plan 461,185 341,756 143,694
Net cash provided from financing activities 31,541,443 59,502,987 60,085,477
Net decrease in cash and cash equivalents (6,474,602) (20,918,759) (3,907,135)
Cash and cash equivalents at the beginning of the year 90,907,949 111,826,708 115,733,843
Cash and cash equivalents at the end of the period $ 84,433,347 90,907,949 111,826,708
See accompanying notes to consolidated financial statements.
182
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Brenton Banks, Inc. and Subsidiaries
Common Stock Capital Surplus Retained Earnings Unrealized Gains(Losses) To
Balance,
December 31, 1990 $25,825,400 4,730,553 46,701,736 _ 77,257,689
Net income _ _ 11,659,427 _ 11,659,427
Net change
in unrealized
gains (losses) _ _ _ (18,100) (18,100)
Dividends on common stock
$.485 per share _ _ (2,330,688) _ (2,330,688)
Issuance of 13,400
shares of common stock
under the stock option
plan (note 15) 67,000 76,694 _ _ 143,694
Balance,
December 31, 1991 25,892,400 4,807,247 56,030,475 (18,100) 86,712,022
Net income _ _ 12,953,094 _ 12,953,094
Net change in
unrealized gains
(losses) _ _ _ 910 910
Dividends on common stock
$.525 per share _ _ (2,577,619) _ (2,577,619)
Issuance of 22,600
shares of common stock
under the stock option
plan (note 15) 113,000 188,756 _ _ 301,756
Issuance of common stock
under the Ames Financial
Corporation stock
option plan 33,950 6,050 _ _ 40,000
Balance,
December 31, 1992 26,039,350 5,002,053 66,405,950 (17,190) 97,430,163
Net income _ _ 14,249,970 _ 14,249,970
Net change in unrealized
gains (losses) _ _ - 3,053,460 3,053,460
Dividends on common stock
$.60 per share _ _ (3,138,307) - (3,138,307)
Issuance of 32,200 shares
of common stock under
the stock option plan
(note 15) 161,000 300,185 _ _ 461,185
Issuance of 13,081 shares
of common stock under
the employee stock
purchase plan (note 15) 65,405 295,789 _ _ 361,194
Balance,
December 31, 1993 $26,265,755 5,598,027 77,517,613 3,036,270 112,417,665
See accompanying notes to consolidated financial statements.
183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brenton Banks, Inc. and Subsidiaries December 31, 1993, 1992 and 1991
(1) Summary of Significant Accounting Policies and Related Matters
The accounting and reporting policies of Brenton Banks, Inc. and
its subsidiaries (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 Company provides banking and
related services to domestic markets. 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 being amortized over
10 to 40 years and are included in other assets in the
consolidated statements of condition. Intangible assets totaled
$5,411,000 and $5,834,000 at December 31, 1993 and 1992,
respectively.
Investment Securities The Company adopted Statement of Financial
Accounting Standards No. 115, effective December 31, 1993. Under
this new Standard, the method of classifying investment securities
is 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
which the Company intends 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
common stockholders' equity. Securities held to maturity are
recorded at cost, adjusted for amortization of premiums and
accretion of discounts. The timing of the amortization and
accretion for mortgage-backed securities are adjusted for actual
and projected prepayments.
Prior to the adoption of the new Standard, the Company isolated
certain securities which could be sold as part of the Company's
asset-liability management strategy. These securities were
classified as available for sale and accounted for using the
aggregate lower of cost or fair value.
Net gains or losses on the sales of securities are shown in the
statements of operations. Gains or losses are computed using the
specific security identification method.
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, except on discounted loans where unearned
income is recorded as income over the life of the loans based on
the interest method.
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, previously accrued interest is charged
to the allowance for loan losses.
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 necessary to support management's evaluation
of potential losses in the loan portfolio, after considering
various factors including prevailing and anticipated economic
conditions. Loan losses or recoveries are charged or credited
directly to the allowance account.
Bank Premises and Equipment Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is
provided predominantly by the straight-line method over estimated
useful lives of 8 to 40 years for buildings and leasehold
improvements, and 3 to 25 years for furniture and equipment.
184
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 $948,000 and $1,935,000 at December 31,
1993 and 1992, respectively. Such property is carried at the lower
of cost or estimated fair value. Periodic 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.
When income and expense are recognized in different periods for
financial and income tax reporting purposes, deferred taxes are
provided for such temporary differences unless limited.
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, federal funds sold and securities
purchased under agreements to resell and trading account
securities.
Income Per Common and Common Equivalent Share Income per common
and common equivalent share computations are based on the weighted
average number of common and common stock equivalent shares
outstanding. In October 1992, the Company merged with Ames
Financial Corporation. The average number of shares, after
considering the stock plans and the merger was 5,279,040 for 1993,
5,188,797 for 1992 and 5,171,675 for 1991.
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 Bank'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. These methods are
presented in each applicable footnote. The recorded value of cash
and cash equivalents approximates market value. Likewise, the
recorded value approximates market value for federal funds
purchased and securities sold under agreements to repurchase,
because of the structure of those instruments.
(2) Acquisitions
The Company acquired all outstanding shares of Ames Financial
Corporation (Ames) and its wholly owned subsidiary Ames Savings
Bank, FSB in exchange for 371,380 shares of common stock on
October 1, 1992. The merger was accounted for using the pooling-
of-interests method and, accordingly, the consolidated financial
statements were restated to include the financial position and
results of operations of Ames for all periods presented.
(3) 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 $4,818,000 at December 31, 1993.
185
(4) Investment Securities
The Company adopted Statement of Financial Accounting Standards
No. 115, relating to the classification of investment securities,
effective December 31, 1993. As a result, $412,210,000 of
securities were established as available for sale.
The amortized cost and estimated fair value of investment securities
follow. The estimated fair value of investment securities has been
valued using available quoted market prices for similar securities.
December 31, 1993 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Investment securities available for sale:
Taxable investments:
U.S. Treasury securities $ 63,418 418 (59) 63,777
Securities of U.S. government agencies 58,645 566 (30) 59,181
Mortgage-backed and related securities 137,951 1,354 (561) 138,744
Other investments 5,930 21 (26) 5,925
Tax-exempt investments:
Obligations of states
and political subdivisions 141,325 3,419 (161) 144,583
$407,269 5,778 (837) 412,210
Investment securities held to maturity:
Taxable investments:
Mortgage-backed and related securities $ 24,882 227 (3) 25,106
Other investments 5,563 _ (6) 5,557
Tax-exempt investments:
Obligations of states and
political subdivisions 35,939 473 (183) 36,229
$ 66,384 700 (192) 66,892
December 31, 1992
Investment securities available for sale:
Taxable investments:
U.S. Treasury investments $ 28,660 218 _ 28,878
Mortgage-backed and related securities 1,166 _ _ 1,166
$ 29,826 218 _ 30,044
Investment securities held to maturity:
Taxable investments:
U.S. Treasury securities $ 55,586 885 _ 56,471
Securities of U.S. government agencies 67,324 1,170 (96) 68,398
Mortgage-backed and related securities 225,659 2,545 (614) 227,590
Other investments 11,769 98 (17) 11,850
Tax-exempt investments:
Obligations of states and
political subdivisions 150,639 2,532 (329) 152,842
$510,977 7,230 (1,056) 517,151
186
Gross gains of $944,000 and gross losses of $349,000 were recorded
on sales of investment securities held for sale in 1993, gross
gains of $424,000 and gross losses of $345,000 were recorded in
1992, and no gains and losses of $22,000 were recorded in 1991.
Other investments at December 31, 1993 and 1992 consisted
primarily of corporate bonds. U.S. Government agencies originate
or guarantee primarily all of the mortgage-backed and related
securities. The amortized cost of obligations of states and
political subdivisions included industrial development revenue
bonds of $10,316,000 and $7,850,000 at December 31, 1993 and 1992,
respectively.
The scheduled maturities of investment securities at December 31,
1993 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 historical prepayment rates.
(In thousands) Amortized Cost Estimated Fair Value
Investment securities available for sale:
Due in one year or less $120,613 121,255
Due after one year through
five years 221,943 223,501
Due after five years through
ten years 39,118 40,920
Due after ten years 25,595 26,534
$407,269 412,210
Investment securities held to maturity:
Due in one year or less $ 22,265 22,258
Due after one year through
five years 32,114 32,367
Due after five years through
ten years 5,267 5,477
Due after ten years 6,738 6,790
$ 66,384 66,892
Investment securities carried at $95,641,000 and $92,598,000 at
December 31, 1993 and 1992, respectively, were pledged to secure
public and other funds on deposit and for other purposes.
(5) Loans
A summary of loans follows:
(In thousands) December 31, 1993 1992
Real estate loans:
Commercial construction
and land development $ 24,189 25,180
Secured by 1-4 family
residential property 349,810 324,124
Other 129,574 101,418
Loans to financial institutions
(primarily bankers' acceptances) _ 393
Loans to farmers 66,574 62,471
Commercial and industrial loans 90,521 75,062
Loans to individuals for personal
expenditures, net of unearned
income of $741 and $1,373
at December 31, 1993 and
1992, respectively 214,401 163,876
All other loans 812 930
$875,881 753,454
The Company originates commercial, real estate, agribusiness and
personal loans with customers throughout Iowa. The portfolio has
unavoidable geographic risk as a result.
At December 31, 1993 and 1992, the Company had nonaccrual loans of
$1,605,000 and $1,884,000, respectively, and restructured loans of
$323,000 and $448,000, respectively. Interest income recorded
during 1993 and 1992 on nonaccrual and restructured loans was
$191,000 and $151,000, respectively. Interest income which would
have been recorded if these loans had been current in accordance
with original terms was $359,000 in 1993 and $432,000 in 1992.
The estimated fair value of loans, net of an adjustment for credit
risk was $886 million at December 31, 1993 and $752 million at
December 31, 1992. 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.
187
Loan customers 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, 1992 $ 5,486
Additional loans 2,817
Loan payments (1,103)
Balance at December 31, 1993 $ 7,200
(6) Allowance for Loan Losses
A summary of activity in the allowance for loan losses follows:
(In thousands) 1993 1992 1991
Balance at beginning of year $ 9,006 8,548 8,871
Provision 1,252 1,411 799
Recoveries 1,091 991 1,214
Loans charged off (1,531) (1,944) (2,336)
Balance at end of year $9,818 9,006 8,548
(7) Bank Premises and Equipment
A summary of bank premises and equipment follows:
(In thousands) December 31, 1993 1992
Land $ 2,971 2,949
Buildings and leasehold
improvements 22,956 1,609
Furniture and equipment 15,538 13,512
Construction in progress 471 442
41,936 38,512
Less accumulated depreciation 18,788 16,231
$23,148 22,281
Depreciation expense included in operating expenses amounted to
$2,621,000, $2,301,000 and $1,824,000 in 1993, 1992 and 1991,
respectively.
(8) Deposits
Time deposits included deposits in denominations of $100,000 or
more of $62,727,000 and $42,999,000 at December 31, 1993 and 1992,
respectively.
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 estimated fair value of deposits was $1.304
billion at December 31, 1993, and $1.280 billion at December 31,
1992. 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.
A summary of interest expense by deposit classification follows:
(In thousands) 1993 1992 1991
Demand $ 4,552 5,277 7,531
Savings 7,697 9,385 11,521
Time deposits
of $100,000 or more 2,091 2,169 2,763
Other time deposits 27,848 35,612 44,140
$42,188 52,443 65,955
The Company made cash interest payments of $44,141,000,
$56,647,000 and $69,473,000 on deposits and borrowings in 1993,
1992 and 1991, respectively.
(9) Income taxes
The current and deferred income tax provisions included in the
consolidated statements of operations follow:
1993 (In thousands) Current Deferred Total
Federal $4,855 (523) 4,332
State 1,184 (8) 1,176
$6,039 (531) 5,508
1992
Federal $3,965 (91) 3,874
State 1,008 2 1,010
$4,973 (89) 4,884
1991
Federal $3,062 390 3,452
State 767 89 856
$3,829 479 4,308
188
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 $4,514,000, $3,486,000
and $2,930,000 to the IRS, and $1,301,000, $713,000 and $1,055,000
to the State of Iowa in 1993, 1992 and 1991, 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.
The Company adopted the use of Statement of Financial Accounting
Standards No. 109, relating to accounting for income taxes,
effective January 1, 1993. These rules had an immaterial impact on
the financial statements of the Company upon its adoption.
Accumulated deferred income tax debits are included in other
assets in the consolidated statements of condition. There was no
valuation allowance at the date of adoption or at December 31,
1993. A summary of the temporary differences resulting in deferred
income taxes and the related tax effect of each follows:
(In thousands) 1993 1992
Provision for loan losses $ 3,384 2,952
Unrealized gains on securities
available for sale (1,790) _
Depreciation (563) (450)
Stock compensation plan 461 198
Other, net (94) (43)
$1,398 2,657
The reasons for the difference between the amount computed by
applying the statutory federal income tax rate of 35 percent in
1993 and 34 percent in 1992 and 1991, and income tax expense
follow:
(In thousands) 1993 1992 1991
At statutory rate $ 7,149 6,279 5,612
Increase (reduction):
Tax-exempt interest (2,766) (2,541) (2,247)
State taxes, net of
federal benefit 764 667 565
Nondeductible interest expense
to own tax-exempts 361 377 340
Other, net - 102 38
$ 5,508 4,884 4,308
(10) Other Short-term Borrowings
The Company had no short-term borrowings at December 31, 1993. At
December 31, 1992, $120,000 was borrowed from the U.S. Treasury,
under a tax depository note option with an average rate of 3.15%.
The estimated fair value of that borrowing approximated the
recorded balance.
The Parent Company has arranged an unsecured, available line of
credit of $2,000,000 which was unused at December 31, 1993. It is
at the prime interest rate and is subject to annual review and
renewal.
(11) Long-term Borrowings
Long-term borrowings consisted of the following:
(In thousands) December 31, 1993 1992
Capital notes, 6.25% to 11.50% $ 12,022 11,907
Contracts payable, 10.00% _ 179
Other, 8.75% _ 10
Total Parent Company 12,022 12,096
Borrowings from FHLB, average rate
of 4.84% at December 31, 1993 8,000 _
Mortgage debt, average rate of
9.40% at December 31, 1993 33 1,188
$ 20,055 13,284
Mortgage debt was secured by real property with a carrying value
of $41,000 at December 31, 1993. Borrowings from the Federal Home
Loan Bank of Des Moines (FHLB) were secured by residential
mortgage loans equal to 170 percent of the borrowing and FHLB
stock.
The estimated fair value of long-term borrowings of $21 million
and $14 million at December 31, 1993 and 1992, respectively, was
valued using a present value discounted cash flow with a discount
rate approximating the current market for similar borrowings.
The mortgage debt and borrowings from the FHLB were direct
obligations of the individual subsidiaries.
Scheduled maturities of long-term borrowings at December 31, 1993
follow:
(In thousands) Parent Company Consolidated
1994 $ 996 999
1995 53 2,056
1996 1,067 3,570
1997 1,603 3,604
1998 1,177 2,678
Thereafter 7,126 7,148
$ 12,022 20,055
189
(12) Common Stock Transactions
The Company acquired all outstanding shares of Ames Financial
Corporation and its wholly owned subsidiary Ames Savings Bank, FSB
in exchange for 371,380 shares of common stock on October 1, 1992.
The merger was accounted for using the pooling-of-interests
method.
(13) 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 received.
National banks, state banks and savings banks are subject to
certain statutory and regulatory restrictions that affect dividend
payments.
Based on minimum regulatory capital guidelines as published by
those regulators, the maximum dividends which could be paid by the
subsidiary banks to the Parent Company at December 31, 1993
approximated $30 million.
(14) Employee Retirement Plan
The Company provides a defined contribution retirement plan for
the benefit of employees. The plan is a combination profit sharing
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 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 percent of each employee's eligible
compensation. Retirement plan costs charged to operating expenses
in 1993, 1992 and 1991 amounted to $1,211,000, $952,000 and
$856,000, respectively. The Company offers no material post-
retirement benefits.
(15) Stock Plans
The Company's long-term stock compensation plan for key management
personnel plan provides for 240,000 shares of the Company's common
stock to be reserved for grant over a four year period. Each grant
of shares covers a three year performance period, 35 percent of
which vests upon completion of employment for the performance
period and 65 percent of which vests based on a tiered achievement
scale tied to financial performance goals established by the Board
of Directors. Under the plan, 60,995 shares were granted covering
the performance period of 1992 through 1994, and 52,429 were
granted for 1993 through 1995. The total stock compensation
expense associated with this plan was $683,000 and $560,000 for
1993 and 1992 respectively.
The Company's nonqualified stock option plan permits the Board of
Directors to grant options to purchase up to 200,000 shares of the
Company's $5 par value common stock. The options may be granted to
officers 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 vesting requirements and maximum exercise periods, as
established by the Board of Directors.
Changes in options outstanding and exercisable during 1993, 1992
and 1991 were as follows:
Exercisable Options Outstanding Options Option Price per Share
December 31, 1990 100,100 191,500 $6.63-14.19
Vested--1991 39,100 _ 6.63-14.19
Exercised--1991 (13,400) (13,400) 6.63
December 31, 1991 125,800 178,100 6.63-14.19
Vested--1992 35,600 _ 6.63-14.19
Exercised--1992 (22,600) (22,600) 6.63
Forfeited--1992 _ (300) 6.63
December 31, 1992 138,800 155,200 6.63-14.19
Vested--1993 6,800 _ 9.63-14.19
Exercised--1993 (32,200) (32,200) 6.63
December 31, 1993
(5,600 shares
available for grant) 113,400 123,000 $6.63-14.19
The Company's Employee Stock Purchase Plan allows employees to
purchase the Company's common stock at 85 percent of the current
market price. During 1993, 13,081 shares of common stock were
purchased by employees under this plan.
190
(16) Lease Commitments
Rental expense included in the consolidated statements of
operations amounted to $1,373,000, $1,345,000 and $1,530,000 in
1993, 1992 and 1991, respectively. Future minimum rental
commitments for all noncancelable leases with terms of one year or
more total approximately $800,000 per year through 2002, with a
total commitment of $7,393,000.
(17) Commitments and Contingencies
In the normal course of business, the Company is party to
financial instruments necessary to meet the financing needs of
customers, which are not reflected on the consolidated statements
of condition. These financial instruments include commitments to
extend credit, standby letters of credit 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 uses the same
credit policies in making commitments as it does in making loans.
Commitments to extend credit are legally binding agreements to
lend to customers. Commitments generally have fixed expiration
dates and may require payment of a fee. Based upon management's
credit assessment of the customer, 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. At December 31, 1993 the Company had
outstanding commitments to extend credit of $116 million. Since
commitments are generally priced at market rates of interest at
the time of funding, the estimated fair value approximates the
outstanding commitment balance.
Standby letters of credit are conditional commitments issued by
the Company guaranteeing the financial performance of a customer
to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending
loans. At December 31, 1993 there were $8,842,000 of standby
letters of credit outstanding. The stated amount of standby
letters of credit approximates the estimated fair value. The
Company does not anticipate losses as a result of issuing
commitments to extend credit or standby letters of credit.
During 1993, the Company entered into an interest rate swap
agreement with a notional value of $1,600,000, involving the
exchange of a fixed and floating rate interest stream. The
estimated fair value of the swap approximated the book value at
the end of 1993.
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.
Effective December 1991, the Company entered into a five-year data
processing facilities management agreement with Systematics, Inc.,
whereby Systematics, Inc. manages and operates the Company's data
processing facility. The contract involves fixed payments of
$2,568,000 in 1994, $2,546,000 in 1995 and $2,315,000 in 1996.
These fixed payments will be adjusted for inflation and volume
fluctuations.
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.
191
(18) Brenton Banks, Inc. (Parent Company) Condensed Financial
Information
Statements of Condition
December 31 (In thousands) 1993 1992
Assets
Cash and deposits $ 316 376
Short-term investments 3,500 -
Advances to bank subsidiaries 450 50
Investments in:
Bank subsidiaries 116,595 105,065
Bank-related subsidiaries 264 1,164
Excess cost over net assets 2,048 2,121
Premises and equipment 528 524
Other assets 2,865 1,711
$126,566 111,011
Liabilities and Stockholders' Equity
Accrued expenses payable
and other liabilities $ 2,126 1,485
Long-term borrowings 12,022 12,096
Common stockholders' equity 112,418 97,430
$126,566 111,011
Statements of Operations
Years Ended December 31 (In thousands) 1993 1992 1991
Income
Dividends from subsidiaries $ 8,150 7,643 6,147
Interest income 84 33 44
Management fees 1,580 1,507 1,797
Other operating income 1,881 1,769 1,958
11,695 10,952 9,946
Expense
Salaries and benefits 3,976 3,886 3,205
Interest on short-term borrowings _ 98 452
Interest on long-term borrowings 1,108 1,108 1,074
Other operating expense 1,998 2,298 1,494
7,082 7,390 6,225
Income before income taxes and equity
in undistributed earnings of subsidiaries 4,613 3,562 3,721
Income taxes (1,175) (1,259) (898)
Income before equity in undistributed
earnings of subsidiaries 5,788 4,821 4,619
Equity in undistributed earnings
of subsidiaries 8,462 8,132 7,040
Net income $14,250 12,953 11,659
192
(18) Brenton Banks, Inc. (Parent Company) Condensed Financial
Information (continued)
Statements of Cash Flows
Years Ended December 31 (In thousands) 1993 1992 1991
Operating Activities
Net income $ 14,250 12,953 11,659
Adjustments to reconcile net income
to net cash provided from operating activities:
Equity in undistributed earnings
of subsidiaries (8,462) (8,132) (7,040)
Depreciation and amortization 188 169 161
Increase in other assets (1,154) (345) (62)
Increase (decrease) in accrued expenses
payable and other liabilities 641 479 (307)
Net cash provided from operating activities 5,463 5,124 4,411
Investing Activities
Increase in short-term investments (3,500) _ _
Redemption (purchase) of subsidiary equity, net 886 (26) (328)
Principal collected or (advances to) subsidiaries (400) 150 400
Purchase of premises and equipment, net (119) (129) (136)
Net cash used by investing activities (3,133) (5) (64)
Financing Activities
Net decrease in short-term borrowings _ (3,950) (3,400)
Net proceeds (repayment) of long-term borrowings (74) 1,097 1,152
Proceeds from issuance of common stock
under the stock option plans 822 342 144
Dividends on common stock (3,138) (2,578) (2,331)
Net cash provided from (used by) financing activities (2,390) (5,089) (4,435)
Net increase (decrease) in cash and
interest-bearing deposits (60) 30 (88)
Cash and interest-bearing deposits at the
beginning of the year 376 346 434
Cash and interest-bearing deposits at the
end of the year $ 316 376 346
193
(19) Unaudited Quarterly Financial Information
The following is a summary of unaudited quarterly financial
information.
(In thousands, except per common and common equivalent share data)
1993
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $24,597 24,830 24,688 24,541
Interest expense 11,287 11,067 11,064 11,009
Net interest income 13,310 13,763 13,624 13,532
Provision for loan losses 444 295 290 223
Net interest income after
provision for loan losses 12,866 13,468 13,334 13,309
Noninterest income 4,085 4,418 4,509 4,851
Noninterest expense 12,581 12,601 12,493 12,740
Income before income taxes and
minority interest 4,370 5,285 5,350 5,420
Income taxes 1,122 1,452 1,465 1,469
Minority interest 139 169 176 183
Net income $ 3,109 3,664 3,709 3,768
Per common and common
equivalent share:
Net income $ .59 .70 .70 .71
1992
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $27,534 26,881 26,530 25,615
Interest expense 15,102 14,232 13,245 12,194
Net interest income 12,432 12,649 13,285 13,421
Provision for loan losses 328 337 335 411
Net interest income after
provision for loan losses 12,104 12,312 12,950 13,010
Noninterest income 3,349 3,513 3,647 4,175
Noninterest expense 11,138 11,187 11,797 12,469
Income before income taxes
and minority interest 4,315 4,638 4,800 4,716
Income taxes 1,164 1,157 1,340 1,223
Minority interest 144 158 163 167
Net income $ 3,007 3,323 3,297 3,326
Per common and common
equivalent share:
Net income $ .58 .64 .64 .64
194
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 judgements
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. There were no matters considered to be
reportable conditions under Statement of Auditing Standards No. 60
by the independent auditors.
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.
J. C. (Buz) Brenton
President (1990-1993)
Robert L. DeMeulenaere
President
Steven T. Schuler
Chief Financial Officer and
Vice President/Treasurer/Secretary
Thea H. Oberlander
Corporate Controller
195
INDEPENDENT AUDITOR'S 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, 1993 and 1992, and the related consolidated statements of
operations, changes in common stockholders' equity and cash flows
for each of the years in the three-year period ended December 31,
1993. 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,
1993 and 1992, and the results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements,
the Company changed its method of accounting for investment
securities to adopt the provisions of Statement of Financial
Accounting Standards No.115 on December 31, 1993. As discussed in
note 9 to the consolidated financial statements, the Company
changed its method of accounting for income taxes to adopt the
provisions of Statement of Financial Accounting Standards No. 109
on January 1, 1993.
KPMG Peat Marwick
Des Moines, Iowa
January 31, 1994
196
STOCK INFORMATION
Brenton Banks, Inc. common stock is traded on the Nasdaq Small-Cap
Market and quotations are furnished by the Nasdaq System. In
February 1994, the Company began trading on the Nasdaq National
Market. There were 1,564 common stockholders of record on December
31, 1993.
MARKET AND DIVIDEND INFORMATION
1993 High Low Dividends
1st quarter $31 1/4 26 .145
2nd quarter 30 1/4 26 1/4 .145
3rd quarter 30 25 1/2 .15
4th quarter 29 1/4 26 1/4 .16
1992
1st quarter $24 1/4 20 3/4 .125
2nd quarter 23 1/2 22 .13
3rd quarter 25 1/4 23 .135
4th quarter 27 25 .135
The above table sets forth the high and low sales prices and cash
dividends per share for the Company's common stock.
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
The Chicago Corporation
Herzog Heine Geduld, Inc.
Howe, Barnes & Johnson, Inc.
Keefe, Bruyette & Woods, Inc.
Stifel, Nicolaus & Co., Inc.
S.J. Wolfe & Co.
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 AND VICE PRESIDENT/TREASURER/SECRETARY, AT THE CORPORATE
HEADQUARTERS.
STOCKHOLDER INFORMATION
Corporate Headquarters
Suite 300, Capital Square
400 Locust Street
Des Moines, Iowa 50309
Telephone 515/237-5100
Annual Shareholders' Meeting
May 20, 1994, 5:00 p.m.
Des Moines Convention Center
501 Grand Avenue
Des Moines, Iowa 50309
Corporate Structure
Transfer Agent/Registrar/
Dividend Disbursing Agent
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60690
Legal Counsel
Brown, Winick, Graves, Donnelly,
Baskerville and Schoenebaum
Suite 1100, Two Ruan Center
601 Locust Street
Des Moines, Iowa 50309
Independent Auditors
KPMG Peat Marwick
2500 Ruan Center
666 Grand Avenue
Des Moines, Iowa 50309
Annual Report Design
Designgroup, Inc.
Photography: Bill Nellans
197
CORPORATE STRUCTURE
DIRECTORS
C. Robert Brenton
Chairman of the Board
Brenton Banks, Inc.
William H. Brenton
Chairman of the Executive Committee
& Vice Chairman of the Board
Brenton Banks, Inc.
J.C. Brenton
President (1990-1993)
Brenton Banks, Inc.
Robert L. DeMeulenaere
President
Brenton Banks, Inc.
R. Dean Duben
Vice Chairman of the Board
Brenton First National Bank,
Davenport
Thomas R. Smith
Tom Smith and Associates,
Marshalltown
EXECUTIVE OFFICERS
C. Robert Brenton
Chairman of the Board
William H. Brenton
Chairman of the Executive Committee
& Vice Chairman of the Board
Robert L. DeMeulenaere
President
Phillip L. Risley
Executive Vice President
Roger D. Winterhof
Senior Vice President-Community
Bank Division
Norman D. Schuneman
Senior Vice President-Lending
Saulene M. Richer
Senior Vice President-Marketing/Technology
John R. Amatangelo
Senior Vice President-Operations
Steven T. Schuler
Chief Financial Officer &
Vice President/Treasurer/Secretary
Gary D. Ernst
Vice President-Trust
Steven F. Schneider
Vice President-Brokerage Services
OFFICERS
Charles N. Funk
Vice President-Investments
Charles G. Riepe
Vice President-Corporate and
International Banking
Mary F. Sweeney
Vice President-Human Resources
Thea H. Oberlander
Corporate Controller
David K. Horner
Vice President-Audit
Todd A. Stumberg
Vice President-Loan Review
V. Beth McGeough
Vice President-Marketing
Ruth O. Rasmussen
Office Manager/Assistant Treasurer
Jennifer H. Carney
Senior Auditor
Louise E. Mickelson
Compliance Officer
Leah I. Trent
Administrative Officer
BANK PRESIDENTS & CHIEF EXECUTIVE OFFICERS
Woodward G. Brenton
President and CEO
Brenton First National Bank,
Davenport
James H. Crane
President
Brenton Bank of Palo Alto County,
Emmetsburg
Michael A. Cruzen
President
Brenton Bank, N.A. Knoxville
William L. Homan
President and CEO
Brenton Savings Bank, FSB,
Ames
Michael D. Hunter
President
Brenton State Bank of Jefferson
Ronald D. Larson
President and CEO
Brenton Bank and Trust Company of
Cedar Rapids
James L. Lowrance
President
Brenton Bank and Trust Company,
Marshalltown
Marc J. Meyer
President
Brenton National Bank of Perry
Clay A. Miller
President
Brenton Bank and Trust Company,
Clarion
Larry A. Mindrup
President
Brenton National Bank-Poweshiek County,
Grinnell
Daryl K. Petty
President
Brenton Bank and Trust Company, Adel
Clark H. Raney
President
Warren County Brenton Bank and Trust,
Indianola
Phillip L. Risley
President and CEO
Brenton Bank, N.A., Des Moines
Bruce L. Seymour
President
Brenton State Bank, Dallas Center
198
BRENTON BANKS AND ASSETS
COMMUNITY BANKS
1. Brenton Bank and Trust Company
Main Bank: Adel
Other Communities: Dexter, Redfield
and Van Meter
Assets: $85,722
2. Brenton Bank and Trust Company
Main Bank: Clarion
Other Communities: Eagle Grove
and Rowan
Assets: $55,764
3. Brenton State Bank
Main Bank: Dallas Center
Other Communities: Granger,
Waukee and Woodward
Assets: $69,957
4. Brenton Bank of Palo Alto County
Main Bank: Emmetsburg
Other Communities: Ayrshire
and Mallard
Assets: $57,494
5. Brenton National Bank-
Poweshiek County
Main Bank: Grinnell
Assets: $115,976
6. Warren County Brenton Bank
and Trust
Main Bank: Indianola
Assets: $45,082
7. Brenton State Bank of Jefferson
Main Bank: Jefferson
Assets: $57,282
8. Brenton Bank, N.A. Knoxville
Main Bank: Knoxville
Assets: $63,304
9. Brenton Bank and Trust Company
Main Bank: Marshalltown
Other Locations: Meadowlane
Other Communities: Albion
Assets: $98,315
10. Brenton National Bank of Perry
Main Bank: Perry
Assets: $82,823
METRO BANKS
11. Brenton Savings Bank, fsb
Main Bank: Ames, Main Street
Other Metro Location: North Grand
Other Community: Story City
Assets: $100,112
12. Brenton Bank and Trust Company
of Cedar Rapids
Main Bank: Cedar Rapids, First Ave.
Other Metro Locations: Southwest, Northeast and Marion
Assets: $170,570
13. Brenton First National Bank
Main Bank: Davenport, Brady Street
Other Metro Locations: 53rd and Utica Ridge, Village Shopping
Center and West
Assets: $150,838
14. Brenton Bank, N.A.
Main Bank: Des Moines, Capital Square
Other Metro Locations: Country Club, Ingersoll, Johnston,
Northwest, South,
Urbandale, Wakonda and West
Assets: $328,047
(assets in thousands)
Map of the United States in the upper left corner, showing the
outline of Iowa. Main map in the center is a map of Iowa, with
counties where the Company has banking locations enlarged and drawn
above the map. The enlarged counties include dots designating Brenton
bank locations. See listing of bank locations and assets on the
same page.
Iowa
Community Banks
Metro Banks
Offices
199
BRENTON BANKS, INC.
Suite 300, Capital Square
400 Locust Street
Des Moines, Iowa 50309
Telephone 515/237-5100
200
Appendix to Annual Report
Referencing Graphic and Image Material
All graphic and image material has been described in the text of
the annual report. Set forth below is a listing of such mateial
with a reference to the description of such material in the text of
the Annual Report and 10-K.
1. Cover - first unnumbered page of annual report, page 159 of the
10-K.
2. Bar graphs of net Income, Return on Average Equity, Net interest
Margin and Return on Average assets (all in thousands) - page 1 of
Annual Report, page 161 of 10-K.
3. 2 Photos on page three of Annual Report, page 163 of 10-K.
4. Photograph on page 4 of Annual Report, page 164 of 10-K.
5. Photograph on page 6 of Annual Report, page 166 of 10-K.
6. Photograph on page 9 of Annual Report, page 169 of 10-K.
7. Bar graphs of Annual Dividends per Commn Share, Primary
Capital Ratio and Tier 1 Leverage Capital Ratio on page 10 of
Annual Report, page 170 of 10-K.
8. Photograph on page 12 of Annual Report, page 127 of 10-K.
9. Bar graphs of Provision for Loan Loses, Net Charge-offs and
Nonperforming loans (all in thousands) on page 13 of Annual Report,
page 173 of 10-K.
10. Bar graphs of total assets (in millions) and Net Noninterest
Margin on page 14 of Annual Report and page 174 of 10-K.
11. Pie chart of Loan Composition on page 15 of Annual Report,
page 175 of 10-K.
12. Map on page 39 of Annual Report, page 199 of 10-K.
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