Cover - blue background, with the words:
Brenton Banks, Inc.
1994
Strategy for Success
Annual Report
198
Corporate Profile
Brenton Banks, Inc. is a bank holding company headquartered in Des Moines,
Iowa. Assets total $1.6 billion with another $.5 billion under trust agreement
and $.2 billion in investment brokerage accounts.
Brenton Banks, Inc. operates 14 banks, including one savings bank, in
44 banking facilities across Iowa. Markets served include 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, Brenton Banks, Inc. operates full-
service investment brokerage, trust, mortgage, insurance and real estate
subsidiaries.
The first Brenton Bank was founded in Dallas Center, Iowa, in 1881.
Brenton Banks, Inc. incorporated in 1948 as Iowa's first bank holding
company.
The Company's common stock trades on the Nasdaq National Market under
the symbol BRBK.
Contents
Financial Highlights 1
Message To Our Shareholders 2
Strategic Planning Process 5
President's Message 6
5-Year Review 8
A Closer Look 9
Management's Discussion and Analysis 12
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
Graph showing Net Income for 1990-1994 with additional bar showing Net Income
for 1994 prior to restructuring charge.
Net Income*
(In thousands)
90 91 92 93 94 94
$10,339 11,659 12,953 14,250 11,766 10,107
<FN>
*1994 graph presentation reflects
amounts before and after the
one-time restructuring charge.
199
Financial Highlights
Brenton Banks, Inc. and Subsidiaries
1994**** 1994**** 1993 1992
After Before
Operating Results Restructure Restructure
Net interest income $ 55,450,526 55,450,526 54,228,718 51,786,369
Provision for loan losses 1,987,909 1,987,909 1,251,588 1,410,730
Total noninterest income 16,592,988 16,592,988 17,863,271 14,684,040
Total noninterest expense 56,656,922 54,011,922 50,414,942 46,590,756
Income before income
taxes and minority
interest 13,398,683 16,043,683 20,425,459 18,468,923
Net income 10,107,387 11,765,802 14,249,970 12,953,094
Per Common and Common
Equivalent Share***
Net income $ 1.27 1.48 1.80 1.67
Cash dividends .44 .44 .40 .35
Book value, including
unrealized gains
(losses)* 14.03 14.03 14.27 12.47
Book value, excluding
unrealized gains
(losses)** 14.68 14.68 13.88 12.47
Closing bid price 18.25 18.25 17.50 17.33
At December 31
Assets $1,581,326,849 1,581,326,849 1,480,596,046 1,431,139,829
Loans 970,214,498 970,214,498 875,881,387 753,454,137
Nonperforming loans 5,022,000 5,022,000 4,013,000 4,593,000
Deposits 1,340,283,110 1,340,283,110 1,294,363,694 1,269,940,325
Common stockholders'
equity* 110,430,345 110,430,345 112,417,665 97,430,163
Ratios
Return on average common
stockholders' equity
(ROE) 9.03% 10.51% 13.82% 14.13%
Return on average assets
(including minority
interest) (ROA) .70 .81 1.04 .98
Net interest margin 4.12 4.12 4.28 4.23
Net noninterest margin (2.61) (2.44) (2.31) (2.31)
Primary capital to assets** 8.18 8.18 8.31 7.67
Tier 1 leverage capital
ratio** 7.23 7.23 7.36 6.71
Nonperforming loans as
a percent of loans .52 .52 .46 .61
Net charge-offs as a
percent of average loans .10 .10 .05 .13
Allowance for loan losses
as a percent of
nonperforming loans 217.30 217.30 244.65 196.09
<FN>
* including unrealized gains (losses) on assets available for sale
** excluding unrealized gains (losses) on assets available for sale
*** restated for the May 1994, 3-for-2 stock split
**** amounts shown for 1994, before and after the restructuring charge, are
for comparison only
Graph showing Total Assets for 1990-1994.
Total Assets
(In millions)
90 91 92 93 94
$1,274 1,361 1,431 1,481 1,581
Graph showing Nonperforming Loans from 1990-1994.
Nonperforming Loans
(In thousands)
90 91 92 93 94
$5,460 5,622 4,593 4,013 5,022
Graph showing Primary and Leverage Capital Ratios from 1990-1994.
Primary Capital Ratio
90 91 92 93 94
6.98% 7.23% 7.67% 8.31% 8.18%
Tier 1 Leverage
Capital Ratio
90 91 92 93 94
5.86% 6.21% 6.71% 7.36% 7.23%
200
Message To Our Shareholders
Strategic planning. For Brenton Banks, Inc. in 1994, it meant
examining industry trends, defining key issues and goals, and formulating
action plans to address those issues. Driven by a powerful corporate vision of
being one of Iowa's premier financial institutions, Brenton's new strategic
plan now provides a roadmap that will guide us toward future growth and
prosperity.
Operating earnings for 1994 were the third highest in the Company's
history. For the first time in six years, Brenton Banks, Inc.'s earnings fell
short of annual growth objectives. However, our 1994 achievements, coupled
with a new strategic plan, lay the foundation for future success.
Financial Results
Net Income for the year fell 29 percent to $10.1 million, which
compares to $14.2 million for 1993. The 1994 earnings include a $1.7 million
one-time restructuring charge to cover items included in the Company's
strategic plan. Earnings per common share before the restructuring charge
(which amounts to $.21 per share), were $1.48, compared to $1.80 one year ago.
The Company's return on average assets (ROA), excluding the one-time
charge, was .81 percent, compared to 1.04 percent in 1993. Similarly, the
adjusted return on average equity (ROE) was 10.51 percent, compared with
13.82 percent one year ago.
The decline in operating earnings was caused primarily
by: a lower net interest margin; growth in noninterest expenses; and
securities losses versus securities gains in 1993. Additionally, rising
interest rates caused secondary market loan fees to fall 56.1 percent from
the record level of 1993.
Total Loan Growth & Quality A key Company focus, loans grew 16.7
percent on average in 1994. Brenton's loan quality remains exceptional and is
ranked among the top five peer Midwest bank holding companies*. Nonperforming
loans remained low at .52 percent of loans, and the reserve for loan losses
was a solid 217.3 percent of nonperforming loans and 1.1 percent of total
loans.
* According to the 3rd-quarter 1994 Midwest Regional
Banking Review issued by Stifel, Nicolaus & Co., Inc.
Stock & Dividend Information During 1994, the Company paid dividends
per common share totaling $.44 for the year, a 10 percent increase over 1993.
To position the Company's common stock for growth in share price,
increase shareholder access to stock information, and enhance stock
visibility, Brenton moved its common stock to the Nasdaq National Market in
February 1994. In May, a 3-for-2 stock split in the form of a stock dividend
increased outstanding shares by 50 percent while reducing the per-share stock
price.
During 1994, the Company repurchased 44,800 shares of the Company's
common stock, at a total cost of $851,000. Recently, the Board approved an
additional stock repurchase of up to $2.5 million of Brenton stock.
Circle centered in the page with the words:
Brenton's focus has been on investing in THE future, introducing and
expanding initiatives that emphasize customer relationships, enhance products
and service delivery, in order to assure long-term earnings growth
Graph showing Annual Dividends per Common Share for 1990-1994.
Annual Dividends Per
Common Share
90 91 92 93 94
$0.273 0.323 0.350 0.400 0.440
201
Pictured (left to right) are
* C. Robert Brenton,
Chairman of the Board,
* William H. Brenton, Chairman of the Executive Committee & Vice Chairman
of the Board, and
* Robert L. DeMeulenaere, President.
1994 Achievements In 1994, Brenton focused on investing in the
future, introducing or expanding a number of initiatives, each designed to
emphasize customer relationships, enhance product and service delivery, and
help assure long-term earnings growth. Among these, Brenton:
* Opened new, non-traditional offices, including two investment
brokerage offices and a full-service bank branch inside a major supermarket;
* Expanded into two vibrant new markets by opening or announcing new
savings bank offices in Ankeny and Iowa City;
* Constructed a major new Davenport banking facility in one of the
city's key growth areas;
* Introduced the Brenton Family of Mutual Funds to provide customers
another solid investment opportunity, which will also contribute to the
Company's fee income;
* Expanded corporate services, including cash management services, as
a means to becoming a one-stop financial resource for Iowa's businesses;
* Strengthened the Brenton Mortgage distribution network to promote
mortgage lending in several of our markets.
A Closer Look, beginning on page 9 of this Annual Report, provides a
more in-depth look at these and other efforts.
Becoming One Statewide Banking Organization: Supporting Our Strategy
for Success An intense 1994 planning process involved 14 Brenton teams
analyzing and recommending changes throughout the organization. The result is
a dynamic new strategic plan that will guide our Company toward increased
operational efficiencies, stronger customer relationships, and a strengthened
sales focus.
To create the structure that supports implementation of this plan,
Brenton will combine its 13 commercial bank charters into one statewide
banking organization in 1995. Brenton
202
Savings Bank, FSB, of Ames will remain a separate entity, enabling the Company
to retain expanded branching opportunities available to savings banks.
The consolidation will streamline operations and reduce expenses by
as much as $2.5 million a year while allowing each location to retain local
decision making, customer focus, and community involvement _ all critical
components in the Company's Mission of becoming Iowa's premier financial
services institution.
A Robust State Economy* Iowa's economy continues to be strong and is
expected to generate "better than modest growth" in 1995, according to the
Iowa Economic Forecasting Council's December 1994 report.
* According to The Economic Index
published January 22, 1995 by The Des Moines Register
For the month of December 1994, Iowa's unemployment rate of 3.2
percent remained historically low, largely due to five-year growth trends in
non-farm employment and manufacturing work hours. Consumer confidence was
reflected in a $3.8 million increase in sales tax receipts over 1993 for the
three months ended December 31, and in a $2.8 million increase in December
housing permits issued in major Iowa communities. While 1994's near-record
soybean and corn crop harvests drove market prices down, the net effect was
increased cash flows for farmers - and for the state of Iowa.
All totaled, Iowa's strong economic environment offers the economic
support that will help fuel our organization's growth in the years ahead.
The Future Guided by our "Strategy for Success," we continue to focus
on becoming a total financial services provider. This, we believe, is what
will define the successful financial institutions in the year 2000, and
beyond. As we move toward the year 2000, Brenton Banks, Inc. will:
* Pursue expansion opportunities that fit into our culture and growth
strategy;
* Further diversify services to bring customers the financial
products and services they need while emphasizing relationship banking;
* Manage our balance sheet on a consolidated basis, enabling us to
focus on its composition and improve our net interest margin;
* Implement enhanced expense management tools to maximize operational
efficiencies.
All of these efforts are currently underway, and more are on the
horizon. As always, we appreciate your continued confidence as we work for
the common good of the Company, our customers, our employees and you, our
valued shareholders.
Sincerely,
/s/
C. Robert Brenton
Chairman of the Board
/s/
William H. Brenton
Chairman of the Executive Committee
& Vice Chairman of the Board
/s/
Robert L. DeMeulenaere
President
Of Special Note Hubert G. Ferguson, well known for his role as Senior Vice
President-National Sales Manager for a major Midwest brokerage firm, was
named to the Brenton Banks, Inc. Board of Directors in July 1994. Mr.
Ferguson brings more than 30 years experience and achievements in the
brokerage industry, and replaces veteran Brenton banker and Board member
Thomas R. Smith, who retired from the Board in 1994.
203
Picture of Strategic Planning Coordinating Team
Strategic Planning Process
Brenton's "Strategy for Success" was guided by the members of the Company's
central Strategic Planning Coordinating Team, comprised of (l-r): * Ronald D.
Larson, President & CEO, Brenton Bank and Trust Company of Cedar Rapids; *
Woodward G. Brenton, President & CEO, Brenton First National Bank, Davenport;
* Roger D. Winterhof, President & CEO, Brenton National Bank - Poweshiek
County, Grinnell; * Charles N. Funk, Vice President - Investments; * Norman
D. Schuneman, Senior Vice President - Lending; * Steven T. Schuler, Chief
Financial Officer Treasurer / Secretary; * Larry A. Mindrup, President & CEO,
Brenton Savings Bank, FSB - Ames; and * Phillip L. Risley, President & CEO,
Brenton Bank, N.A., Des Moines.
The Strategic Planning Process involved 14 Brenton strategic planning teams,
each focused on a critical aspect of the Company's operations. Nearly 100
team members dedicated hundreds of hours to identify and recommend
improvements that will cumulatively enhance operating efficiencies,
strengthen customer relationships and facilitate a more dynamic sales
approach. Through these teams' efforts, the Company now has a powerful
strategic direction for the future.
Picture of Team Leaders.
Team focuses, their leaders, and others integral to this critical process
include (Seated, l-r): * Cost Management - Doug Gulling, Senior Vice
President, Brenton Bank Services Corporation; * Employee Recruitment,
Training & Retention - Mary Sweeney, Vice President / Human Resources,
Brenton Banks, Inc.; * Integrated Delivery of Services - Steve Schneider,
President & CEO, Brenton Brokerage Services, Inc.; * Decision-Making
Processes - Bruce Seymour, President, Brenton State Bank - Dallas Center; *
Controller's Office - Jennifer Carney, Controller; * Sales Culture-
Relationship Banking - Saulene Richer, Senior Vice President, Brenton
Banks, Inc.; * Technology - John Amatangelo, President & CEO, Brenton Bank
Services Corporation; * Revenue Growth and New Business Lines - Jim Lowrance,
President, Brenton Bank and Trust Co. - Marshalltown. (Standing, l-r): *
Deposit and Asset Growth - Daryl Petty, President, Brenton Bank and Trust
Co., Adel; * Balance Sheet Management - Marc Meyer, President, Brenton
National Bank of Perry; * Marketing - Catherine Reed, Vice President-
Marketing Director, Brenton Banks, Inc.; * Team Management & Empowerment -
Kenneth Brenton, President, Brenton Mortgages, Inc.; * Brenton Trust &
Investment Management Division - Gary Ernst, Vice President & Senior Trust
Officer; * Bank Consolidation - Marsha Findlay, Executive Vice President &
COO, Brenton First National Bank, Davenport.
204
President's Message
The year 1994 - my 30th year with Brenton and my first as Company president -
was a year of progress, tremendous change, and some disappointment at Brenton
Banks, Inc. It was the year in which the Company focused on developing a
dynamic strategic plan that establishes a long-term direction for the
Company.
As mentioned in the Message to Our Shareholders, our "Strategy for
Success" encompasses many initiatives, each building upon the Company's
113-year tradition of Brenton family involvement and values .organizational
strength and stability .commitment to exceptional customer service, community
partnership, and responsiveness to change.
Recognizing today's competitive banking environment and the
fundamental changes in the industry, the Company began the strategic planning
process by implementing a team approach to managing our business. Our
strategic plan is the result of 100 Brenton associates involved in 14 teams
investing hundreds of hours to carefully analyze, recommend, and begin to
implement changes that will insure our success in the future.
The result is our "Strategy for Success," a plan that represents one
of the most intense and comprehensive planning efforts in our Company's
history. It's our blueprint for the future. Spanning all aspects of our
organization, it reinforces Brenton's commitment to our customers, employees,
communities, and shareholders. Among its components:
Create a Strong Sales Culture Numerous new initiatives address our commitment
to expanding customer relationships. We agreed to manage our Company as a
sales organization, focusing on the customer and the needs of
the customer.
Delivery Systems
By the end of the century, fewer than 40 percent of customers will
prefer to use branches. Most will demand non-branch delivery systems for
accessing financial services. New delivery systems to meet the customers'
expectations are part of the strategic plan. In 1995, we will open a
Telebanking Center which will allow customers to bank by phone. In the
future, we will continue to explore other non-branch delivery options.
Cost Management
With an objective of maximizing revenue, the Company is now
introducing or enhancing its programs for cost management. New technology and
internal expertise will enable us to expand our analytical capabilities in
the areas of industry and competitor trends, marketing programs, product and
customer profitability.
A separate, expense-reduction effort will include a company-wide re-
engineering initiative. This endeavor will examine, redefine, and restructure
our business in a way that reduces costs while keeping our customers' desires
and needs at the center of all decision making.
Become One Statewide Banking Organization
To provide the structure that will enable us to achieve our
objectives in sales, relationship banking, and profitability, Brenton Banks,
Inc. will apply for regulatory approval to combine all 14 Brenton Banks into
a single, statewide financial services organization. Brenton Savings Bank,
FSB, Ames, will retain its charter in order to take advantage of statewide
branching opportunities available to savings banks. Through this
consolidation, which is to be completed in 1995, customers will gain the
benefit of being able to bank at any Brenton bank location across Iowa. The
Company and its shareholders will benefit from streamlined, more efficient
operations. Employees will benefit by focusing on one common strategy. The
new bank will be the second largest in the state and the 284th largest bank
in the United States.
Circle centered in the page with the words:
Brenton's "Strategy For Success" builds upon the Company's 113-year tradition
of Brenton family involvement and values, organizational strength and
stability, commitment to exceptional customer service and relationship
banking, and responsiveness to change
205
Our strategic plan is truly a well-formulated, dynamic and exciting
blueprint that will guide Brenton Banks, Inc. into the next century as a
sales, customer-driven and profitable financial institution. It builds on the
Company's tradition of stability, growth, financial success, its Iowa roots,
and its strong ethics and values. Our strategic plan represents a proactive
response to a future of continued, rapid change.
With our strategic planning complete, and with the enthusiastic
support of our Board of Directors, bank presidents, senior officers, and
entire staff, Brenton Banks, Inc. is postured to achieve continuous success
in the future. We are beginning an exciting new journey!
Sincerely,
/s/
Robert L. DeMeulenaere
President, Brenton Banks, Inc.
Pictured are Award Recipients and Awards including Outstanding Bank of the
Year Award, Most Improved Bank Award, Employee of the Year Awards.
Special awards were presented to these Brenton employees and banks for their
outstanding efforts and contributions in 1993. (Standing, l-r): *
Representing the "Most Outstanding Bank" honored for exemplary performance
during 1994 - Bruce Seymour, President, Brenton State Bank, Dallas Center; *
Outstanding Teller: Wielka Cosgrove, Lead Teller, Cedar Rapids; * Outstanding
Lender: Richard Samek, Assistant Vice President / Consumer Loans, Cedar
Rapids; * Outstanding Administrative / Financial / Support (Brenton Banks,
Inc. / Brenton Bank Service Corporation): Claudia James, Bank Accounting
Manager; * Outstanding Customer Contact: John Anderson, Assistant Vice
President / Private Banking, Davenport. (Seated, l-r): * Outstanding
Administrative / Financial / Support (Individual Bank): Diane Burns, Loan
Assistant, Marshalltown; * Representing the "Most Improved Bank" honored for
exemplary performance during 1993 - Ronald Larson, President and CEO, Brenton
Bank and Trust Co., Cedar Rapids.
206
5-Year Review
Building on a Solid Foundation
Since Brenton Banks, Inc. became Iowa's first bank holding company in
1948, the Company has continued to grow and expand. For consumer, commercial
and agricultural customers, the Company has steadily introduced new financial
services and banking locations throughout the state. For our investors,
Brenton Banks, Inc. has represented a conservative and consistent investment
- dividends per share have risen 276 percent since 1989.
In recent years, the company's traditions of strength, stability and
growth are reflected in numerous accomplishments, summarized below. These
achievements combine with those of 1994 to lay a solid foundation on which
the Company can continue to build. These efforts, we believe, will help us
continue our tradition of enhancing shareholder value in the years ahead.
1993
Total Assets: $1.48 billion
Banking Locations: 42
* Product offerings expand through the introduction of
annuity investments, commercial leasing services,
and international banking services. Cash management
services are centralized to enhance sales efforts.
* Product sales and customer convenience are strengthened
with Brenton Brokerage Services' addition of nine full-time
brokers and the relocation of Des Moines' 42nd and
University office to the growing suburb of Clive.
* Brenton Banks, Inc. receives approval to open a new
savings bank office in Ankeny, Iowa.
1992
Total Assets: $1.43 billion
Banking Locations: 41
* Brenton enters the growing markets of Ames and Story City through the
acquisition of the three offices of Ames Savings Bank, FSB.
* A sophisticated Marketing Customer Information File (MCIF)
system is installed to facilitate expanded customer
relationships through marketing efforts.
* To create "retail" banking environments that foster product sales,
15 Brenton locations are remodeled or renovated.
* Brenton Brokerage Services becomes a registered broker-dealer and expands
to 12 full-time brokers.
1991
Total Assets: $1.25 billion
Banking Locations: 39
* Brenton acquires the Perry office of American Federal Savings
Association of Iowa.
* Technological improvements and operational efficiencies become major
focuses for the Company, leading to the implementation of platform
automation, optical storage and centralization of bank operations.
1990
Total Assets: $1.12 billion
Banking Locations: 40
* The Company expands its statewide presence through the acquisition of $124
million in deposits of four
BancIowa Federal Savings Bank
branches in Cedar Rapids; the Emmetsburg
branch of First Federal Savings & Loan
Association of Estherville; and the Indianola
branch of First Central Federal Savings Bank.
1989
Total Assets: $961 million
Banking Locations: 36
* Brenton Banks, Inc. sets Company earnings record of $8.7 million
and ranks 16th among the top 25 companies in terms of most improved
bank stock price in the nation by American Banker.
* Leads effort to pass regional interstate banking legislation,
which was signed into law in February 1990.
207
A Closer Look
Expansion. Diversification. Service and Sales. Operational
efficiencies. Community involvement. These are some of the elements that will
guide Brenton Banks, Inc. toward our mission of being a truly high-
performance, premier financial institution. To ensure continued progress in
each of these areas, the Company will be directed by its powerful new
strategic plan.
Expansion
Contributing to a future of growth and profitability are the
Company's strategic efforts to expand into new markets, enhance existing
delivery systems and improve customer access to products and services. Among
the successes in 1994, Brenton Banks, Inc.:
* Opened new, non-traditional distribution channels including a Cedar
Rapids' supermarket bank branch located within Econo Foods, a Nash-Finch
affiliate. In addition, the Company opened new Brenton Brokerage offices in
downtown Des Moines and Newton to accommodate its growing customer base.
Brenton Brokerage now has 29 brokers serving 19 of our bank offices and one
independent location.
* Expanded the banking franchise with the April opening of a savings
bank location in Ankeny. The company also received regulatory approval for a
new savings bank office in Iowa City, which will open in 1995. To position
itself for growth in the Davenport/Bettendorf area, a new banking facility
was opened in one of the city's key growth areas.
* Strengthened the Brenton Mortgages distribution system. This
enables Brenton Mortgages to enhance relationships with realtors and
contractors, who often guide buyers' choice of lenders. The Company also now
employs two full-time appraisers, who generate fees for the Company while
reducing dependence on third-party appraisers.
* Developed a Secondary Market Department for Brenton Mortgages. The
Company is enhancing its ability to sell mortgage loans into the secondary
market. It is also now operationally equipped to retain loan servicing, which
adds value in terms of maintaining customer relationships and increasing fee
income.
Diversification
Brenton Banks, Inc. continued to diversify its product lines and move
toward being a one-stop financial resource for consumer, commercial and
agribusiness customers in 1994. This promotes relationship banking while
fueling opportunities for income growth. For example:
* The Brenton Family of Mutual Funds was introduced in October.
Offered through Brenton Brokerage and managed by Brenton Trust & Investment
Management, the four Brenton Mutual Funds are: Brenton U.S. Government Mon
ey Market Fund, Brenton Intermediate U.S. Government Securities Fund, Brenton
Intermediate Tax-Free Fund and the Brenton Value Equity Fund.
* Brenton's first-quarter 1994 purchase of a Tama / Toledo insurance
agency added six insurance representatives and is expected to generate
future growth in insurance commissions
Circle centered on the page with the words:
To achieve our mission of being a premier financial institution, Brenton
Banks, Inc. is focused on expansion, diversification, service & sales,
operational efficiencies, and community involvement. In each of these areas,
the Company made significant progress in 1994
208
and fees. Additionally, the Company continues to expand opportunities to
offer bank customers a wider range of insurance products, such as life
insurance and annuities.
* Commercial services were expanded as a means to enhance long-term,
growth-oriented relationships with commercial customers. In addition to
successfully pursuing a higher volume of commercial loans, Brenton Banks,
Inc. expanded cash management services, which are now available at all
Brenton bank locations.
Service & Sales
A number of 1994 initiatives reflect the Company's focus on
customers, service, sales and relationship building:
* Education and training. An ag-gressive training schedule added to
employees' skills in the areas of finance, technology, sales and customer
service.
* The introduction of the "Brenton Step-Up Approval Program," which
enhances customer convenience by providing 48-hour approval on mortgage loan
applications. Brenton Mortgages also began development of a "construction-
permanent" loan, a progressive product that eliminates home buyers' need to
secure permanent financing once construction is complete.
* Initial development of extended-hours telephone banking. To be
introduced in 1995, Brenton Bank, N.A., Des Moines will introduce a telephone
banking center that will allow customers to access account information,
apply for loans, and conduct transactions over the phone. Telephone banking
will ultimately benefit Brenton bank customers throughout the state.
* Began development of Brenton's point-of-purchase VisaRegistration
Mark debit card, which is planned for introduction during 1995.
Operational Efficiencies
Brenton Banks, Inc. has long recognized that being a lower-cost
financial services provider is crucial to organizational longevity and
profitability. In 1994, the Company continued to pursue opportunities to
reduce expenses without sacrificing current, high customer-service levels.
For instance, Brenton Mortgages began evaluating systems and technology
improvements that will increase capacity. In another cost-saving move, the
Company completed standardization of all Brenton bank deposit products.
Community Involvement The 13 Brenton banks and one savings bank
annually provide contributions of time and money to their communities,
helping make them vibrant areas in which to live and work. Throughout
Brenton Banks, Inc., giving back to the markets we serve and going beyond
the Community Reinvestment Act (CRA) requirements is the norm; officers
and employees willingly volunteer their time and expertise to community
boards, committees and charitable causes.
Circle centered on the page with the words:
"We must plan for the future, because people who stay in the present
will remain in the past."
Abraham Lincoln
209
Picture of Brenton "Superbank".
Expanding into non-traditional delivery systems is one way Brenton is
enhancing customer convenience, service and sales. In November 1994, Brenton
opened its "SuperBank" branch in Cedar Rapids' EconoFoods SuperCenter, which,
at 106,000 square feet, is Iowa's largest grocery store. The bank branch is
open seven days and 60 hours per week, and offers the full range of Brenton
deposit and loan products.
Picture of Brenton employee reading book to class.
Every day, the efforts of Brenton employees reflect the Company's commitment
to giving back to the communities it serves. Here, Suzie German reads to Mrs.
Kunce's 1st grade class at Fairview School in Grinnell, Iowa.
210
Management's Discussion and Analysis
For 1994, Brenton Banks, Inc. and subsidiaries (the "Company")
reported net income of $10,107,387 compared to 1993 earnings of $14,249,970.
Included in net income was a one-time, after-tax restructuring charge of
$1,658,415 related to the Company's strategic plan.
Capital Resources
Common stockholders' equity totaled $110,430,345 as of December 31,
1994, a 1.8 percent decline from the prior year. This decline was primarily
due to the equity adjustment required by Statement of Financial Accounting
Standard (FAS) No. 115. Under this accounting standard, which was adopted
December 31, 1993, the method of classifying investment securities is
based on the company's intended holding period. Accordingly, securities that
the Company may sell at its discretion prior to maturity are recorded at
their fair value. The aggregate unrealized net gains or losses (including the
income tax and minority interest effect) are recorded as a component of
stockholders' equity. At December 31, 1994, aggregate unrealized losses from
assets available for sale totaled $5,117,046, while at December 31, 1993,
aggregate unrealized gains totaled $3,036,270. This resulted in a net change
of $8,153,316 in 1994.
The Board of Directors increased 1994 dividends to common
stockholders 10.0 percent over 1993 to $.44 per share, a dividend payout
ratio of 34.6 percent of earnings per share. Additionally, in an effort to
make Brenton stock more affordable to individual investors, the Company
declared a 3-for-2 stock split in the form of a stock dividend in May 1994.
In March 1994, the Board of Directors authorized a plan to repurchase
up to $2,000,000 of the Company's common stock. As of December 31, 1994, the
Company had repurchased 44,800 shares at a total cost of $850,950.
The Company's risk-based core capital ratio was 11.45 percent at
December 31, 1994, and the total risk-based capital ratio was 12.54 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 7.23 percent at December 31, 1994,
exceeding the regulatory minimum requirement range of 3.00 to 5.00 percent.
These capital calculations exclude unrealized gains or losses on assets
available for sale.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent
Company") was 11.5 percent at December 31, 1994, compared to 10.7 percent at
the end of 1993. This increase was primarily due to lower equity created by
the FAS 115 adjustment. The Parent Company's available $2 million line of
credit with a regional bank was unused throughout 1994. Long-term borrowings
of the Parent Company at December 31, 1994 consisted entirely of $12,644,000
of capital notes.
Brenton Banks, Inc. common stock closed 1994 at a bid price of $18.25
per share, representing 1.30 times the book value per share of $14.03 on the
same date. The year-end stock price represented a price-to-1994-earnings
multiple of 14.4 times. The price-to-earnings ratio, excluding the one-time
restructuring charge from earnings per share, was a multiple of 12.3.
Brenton Banks, Inc. continues to pursue acquisition and expansion
opportunities that strengthen the Company's presence in current and new
markets. There are currently no pending acquisitions that would require
Brenton Banks, Inc. to secure capital from public or private markets.
Graph showing Return on Average Assets for 1990-1994 with additional bar
showing 1994 Return on Average Assets without restructuring charge.
Return on Average Assets*
90 91 92 93 94 94
.95% .93% .98% 1.04% .81% .70%
<FN>
*1994 graph presentation reflects
amounts before and after the
one-time restructuring charge.
Graph showing Return on Average Equity for 1990-1994 with additional bar
showing 1994 Return on Average Equity without restructuring charge.
Return on Average Equity*
90 91 92 93 94 94
14.39% 14.27% 14.13% 13.82% 10.51% 9.03%
<FN>
*1994 graph presentation reflects
amounts before and after the
one-time restructuring charge.
211
Asset-Liability Management The Company has fully implemented an asset-
liability management system. This system simulates the effect of various
interest rate scenarios on net income and is 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. The Company's stable one-year GAP position continued to be negative
at December 31, 1994, meaning fewer assets are scheduled to reprice within
one year than liabilities. The Company does not rely on GAP management to
control interest rate risk, instead preferring simulation as a better
management tool. The asset-liability simulations indicate that net interest
margin will improve in a declining interest rate environment and decrease in
a rising rate environment.
In 1994, as in the past, balance sheet composition was evaluated on a
bank-by-bank basis, which resulted in 14 separate evaluations of
asset-liability management. As part of Brenton's strategic plan, assets and
liabilities will be managed on a consolidated basis, which management
believes will enhance earnings over time.
Liquidity
The Company actively monitors and manages its liquidity position
with the objective of maintaining sufficient cash flows to fund operations
and meet customer commitments. Federal funds sold, loans held for sale, and
investments available for sale are readily marketable assets. Maturities of
all investment securities are managed to meet the Company's normal liquidity
needs. Investment securities available for sale may be sold prior to maturity
to meet liquidity needs, to respond to market changes or to adjust the
Company's interest rate risk position. Federal funds sold and assets
available for sale comprised 29.7 percent of the Company's total assets at
December 31, 1994.
Net cash provided from Company operations is another major source of
liquidity and totaled $16,279,907 in 1994; $20,429,680 in 1993; and
$17,822,173 in 1992. This trend of strong cash flow 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. In 1994, the
Company had borrowings of $28 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 and managing interest rate risk.
The combination of a high level of potentially liquid assets, strong
cash from operations, and low dependence on volatile liabilities provides
strong liquidity for the Company at December 31, 1994.
The Parent Company, whose primary funding sources are management fees
and dividends from its banking subsidiaries, had sufficient cash flow and
liquidity at December 31, 1994. Dividends totaling $19 million were available
to be paid to the Parent Company by subsidiary banks without reducing capital
ratios below regulatory minimums. At the end of 1994, the Parent Company had
$8.5 million of short-term investments as well as additional borrowing
capacity.
Results of Operations - 1994 Compared to 1993
Net Income
For the year ended December 31, 1994, Brenton recorded net income
of $10,107,387, which included an after-tax restructuring charge of
$1,658,415 related to the Company's strategic plan. Earnings per common share
before the restructuring charge were $1.48 compared to $1.80 for 1993. The
restructuring charge totaled $.21 per share, reducing final 1994 earnings per
share to $1.27.
The Company's total assets grew 6.8 percent to $1.6 billion at
December 31, 1994. Return on average assets (ROA), excluding the one-time
charge, was 0.81 percent in 1994, compared to 1.04 percent in 1993. The
return on average equity (ROE), excluding the restructuring charge, was 10.51
percent, compared to 13.82 percent one year earlier. The restructuring charge
reduced ROA 0.11 percent and reduced ROE 1.48 percent.
Net Interest Income
Net interest income rose 2.3 percent to $55,450,526 for
1994. This growth resulted from an increase in average earning assets,
primarily due to a 16.7 percent increase in average loans in 1994. Loans,
which typically earn higher yields than investment securities, earned an
average of 8.14 percent in 1994. Investment securities yielded an average
5.83 percent on a tax equivalent basis. The net interest spread, which is the
difference between the rate earned on assets and the rate paid on
liabilities, fell to 3.69 percent from 3.86 percent last year.
212
During 1994, the Company's net interest margin declined 16 basis
points and averaged 4.12 percent. To aid in reversing the 1994 trend of lower
net interest margins, there is a focus on managing the Company's balance
sheet on a consolidated basis, which should enhance earnings over time.
Loan Quality Brenton's loan quality remains very 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 0.52 percent of loans or
$5,022,000 at December 31, 1994, up from $4,013,000 and 0.46 percent 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 fourth among 36 Midwestern peer banks with
its 0.40 percent ratio of nonperforming loans to loans at the end of the
third quarter of 1994, according to the Stifel, Nicolaus & Co., Inc.,
September 30, 1994, Midwest Regional Banking Review.
The allowance for loan losses represented 217.3 percent of
nonperforming loans at the end of 1994, compared to 244.65 percent one year
ago. The Company's net charge-offs to average loans, which ranked ninth among
the 36 peer banking organizations at September 30, 1994, were 0.10 percent
for 1994 compared to 0.05 percent for 1993. With continued growth in loan
volume, the Company increased the provision for loan losses, which totaled
$1,987,909 for the year ended December 31, 1994, compared to $1,251,588 for
1993.
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
major loans to be routinely reviewed by qualified loan examiners.
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, the evaluation of individual loans at each bank.
Through the Company's loan administration process, individual banks
evaluate loan characteristics, borrower's financial condition, and collateral
values. From these assessments, the loan portfolio quality is quantified and
the bank calculates a required allowance for loan losses. This process is
expanded into a reserve adequacy analysis 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, 1994 was sufficient to absorb
possible loan losses within the portfolio.
Beginning January 1, 1995, the Financial Accounting Standards Boards
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 1994, the net
noninterest margin, before the restructuring charge, was 2.44
Graphs showing Net Interest Margin Provisions for Loan Losses and Net
Charge Offs.
Net Interest Margin
90 91 92 93 94
4.11% 4.04% 4.23% 4.28% 4.12%
Provision for
Loan Losses
(In thousands)
90 91 92 93 94
$869 799 1,411 1,252 1,988
Net Charge-offs
(In thousands)
90 91 92 93 94
$814 1,122 953 440 893
213
percent compared to 2.31 percent in 1993. The restructuring charge negatively
impacted the net noninterest margin 0.17 percent. To reduce this margin,
which is a significant goal, the Company must continue to increase its asset
base, develop fee-based services, and manage the growth of operating expenses
to a lower level.
Noninterest Income
Generating noninterest income is a key component to the
Company's earning performance, particularly when compressed net interest
margins cause modest growth in net interest earnings. For 1994, total
noninterest income (excluding securities transactions) declined 2.0 percent
to $16,932,612 from $17,268,103 one year ago. Two significant areas created
the decline in noninterest income in 1994.
The first was lower service charges received on deposit accounts,
which declined about $422,000 or 7.22 percent from 1993. Reducing fees
charged for certain deposit account products is a trend that will continue in
the future and is being experienced throughout the banking industry. The
second area was a significant decline in secondary market real estate loan
fees. The higher interest rates during the past year caused a 56.1 percent
reduction in loan fees, which totaled $938,332 in 1994, compared to
$2,139,492 in 1993, when the lowest interest rates in 25 years produced
record levels of residential loan refinancings and originations.
Securities transactions caused an additional decline in noninterest
income. In response to the rising interest rate environment, securities were
sold from the investment portfolio at a net loss of $339,624, compared to net
gain of $595,168 in 1993. The objective in selling securities in 1994 was to
reduce interest rate risk in the balance sheet and enhance future earnings.
Offsetting the overall decline in noninterest income was a 22.2
percent growth in insurance commissions, which resulted primarily from the
acquisition of an insurance agency in Tama/Toledo, Iowa, and a 13.0 percent
rise in fiduciary income.
Noninterest Expense
Total noninterest expense rose 12.4 percent in 1994 to $56,656,922
from $50,414,942 one year ago. Included in 1994 expense is a one-time pre-tax
restructuring charge of $2,645,000. The restructuring charge was recorded
after the Company's Board of Directors approved an overall strategic plan
that includes plans to consolidate the Company's 13 commercial
banks, reduce Brenton's overall personnel levels, and close selected banking
branches. The restructuring charge is comprised of the following costs:
Salaries and wages $1,089,000
Employee benefits 289,000
Occupancy expense 192,000
Data processing expense 527,500
Abandonment losses 267,000
Legal, regulatory and other 280,500
$2,645,000
This restructuring plan is part of the Company's effort to streamline
its operations and fully implement a sales culture. The actions associated
with the plan will be substantially completed during 1995. A component of
this plan will be to reduce the growth rate of noninterest expense.
Without the restructuring charge, noninterest expense increased 7.1
percent from 1993 to 1994. The following analyses of other expenses excludes
the restructuring charge:
Salaries and benefits rose $1,063,409 from 1993 to 1994. The majority
of this increase is related to expansion of mortgage services, cash
management, and investment brokerage as well as the opening of new branches.
The increase in salaries created a proportionate rise in employee benefits
expense.
Occupancy and furniture and equipment expense increased in 1994 by
$959,493. This 14.5 percent increase is primarily due to rents for new
offices for banking, brokerage, and real estate activities, as well as
depreciation expense for remodeling facilities and new technology.
Data processing expenses were unchanged from last year at $2,556,319.
FDIC deposit insurance rose 5.7 percent in 1994, due to increasing deposit
levels. All Brenton banks pay an
214
FDIC insurance premium rate of $.23 per $100 of deposits, the lowest rate
under the FDIC's risk-based premium system.
During 1994, Brenton initiated several promotional campaigns offering
brokerage services, checking accounts, and home equity loans. These
campaigns, along with local community event sponsorships throughout the
state, added 16.5 percent to advertising and promotion expenses.
Other operating expenses rose 11.5 percent. Included in this increase
were the following new activities:
* Costs for listing Brenton Banks, Inc. stock on the Nasdaq National
Market;
* Costs related to new offices, such as a new savings bank facility
in Ankeny and a new branch in the EconoFoods supermarket in Cedar Rapids;
* The acquisition of real estate agencies in Marshalltown
and Adel;
* Expanded cash management services, now available at all Brenton
locations;
* The acquisition of an insurance agency in Tama/Toledo;
* The introduction of the Brenton Family of Mutual Funds;
* Expanded Brokerage activities, including two new independent
offices.
These growth and expansion activities added an additional $1.75
million of recurring noninterest expense to the Company in 1994. Management
expects these new activities to enhance revenues in future years.
Income Taxes The Company's income tax strategies include reducing
income taxes by purchasing securities and originating loans that produce
tax-exempt income. The goal is to maintain the maximum level of tax-exempt
assets in order to benefit the Company on both a tax equivalent yield basis
and in income tax savings. The effective rate of income tax expense as a
percent of income, before income tax and minority interest, was 20.2 percent
for 1994 compared to 27.0 percent for 1993. This decline in effective rate
was due to lower overall Company earnings and reduced state franchise taxes.
In 1994, the Company established out-of-state investment subsidiaries
to manage the investment portfolios for each Brenton bank. These subsidiaries
provide an opportunity to lower the amount of state franchise taxes paid by
the Company.
Results of Operations - 1993 Compared to 1992
Acquisition 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.
Graph showing Net Noninterest Margin for 1990-1994 with additional bar
showing Net Noninterest Margin without restructuring charge.
Net Noninterest Margin*
90 91 92 93 94 94
2.29% 2.26% 2.31% 2.31% 2.61% 2.44%
<FN>
*1994 graph presentation reflects
amounts before and after the
one-time restructuring charge.
215
Net Income
The Company's record earnings of $14,249,970 in 1993 was a 10.0
percent increase over $12,953,094 in 1992. Earnings per share also grew 7.8
percent to $1.80 for 1993 compared to $1.67 for 1992. The Company's ROA
improved to 1.04 percent from 0.98 percent in 1992. The ROE was 13.82
percent, down from 14.13 percent for 1992, the result of an increase in
equity capital.
Net Interest Income
Net interest income rose 4.7 percent over 1992 to $54,228,718
and was prompted by growth in interest-earning assets and declining
interest rates. The net interest margin was 4.28 percent for 1993
compared to 4.23 percent one year earlier.
Loan Quality
Nonperforming loans of $4,013,000 at the end of 1993 represented
0.46 percent of loans, down 12.6 percent from $4,593,000 one year earlier.
Provision expense for loan losses declined $159,142 in 1993. This provision
increased the allowance for loan losses to $9,817,864 at December 31, 1993,
representing 244.65 percent of nonperforming loans and 1.12 percent of loans.
Net loans charged off for 1993 represented a low 0.05 percent of average
loans.
Noninterest Income
Noninterest income rose 21.7 percent from 1992 to $17,863,271 for
1993. The Company capitalized on mortgage loan origination during an interest
rate environment that encouraged new home building and refinancing. Mortgage
fees on residential mortgage loans sold into the secondary market rose nearly
$800,000 in 1993 from the 1992 level.
Brenton Brokerage Services, Inc. became a licensed broker dealer in
April 1992 and capitalized on mutual funds sales, spurred by lower interest
rates on traditional deposit products. This resulted in an 88.1 percent
increase in investment brokerage commissions, which totaled $3 million in
1993.
Noninterest Expense
Noninterest expense rose 8.2 percent to $50,414,942 in 1993. Over
half of this increase was related to higher salaries and benefit expense,
which in part resulted from increased commission-based compensation on
investment brokerage sales and secondary market real estate loan origination.
Facilities remodeling and technological enhancements were fully
implemented in 1993. As a result, expenses related to occupancy and furniture
and equipment rose 9.3 percent. Also in 1993, the Company initiated
promotional campaigns and added technological enhancements to improve sales
of products and services. As a result, advertising and promotion expenses
increased 16.9 percent.
Data processing expense and FDIC deposit insurance assessments were
both down slightly from 1992. 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 strategy includes reducing taxes by
purchasing assets that produce tax-exempt income. 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
related to 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.
Pie chart showing Loan Composition for 1994.
1994
Loan Composition
Real Estate 57.7%
Consumer 22.8%
Commercial 11.9%
Loans to Farmers 7.4%
Other .1%
216
Consolidated Average Balances and Rates
Brenton Banks, Inc. and Subsidiaries
Average Balances (In thousands) 1994 1993 1992 1991 1990
Assets:
Cash and due from banks $ 46,301 46,025 41,715 35,656 36,012
Interest-bearing deposits with banks 124 762 6,240 18,335 13,562
Federal funds sold and securities purchased under
agreements to resell 37,666 23,725 27,082 35,154 40,095
Trading account securities 116 -- -- -- --
Investment securities:
Available for sale-taxable 245,913 53,174 6,512 -- --
Available for sale-tax-exempt 132,040 -- -- -- --
Held to maturity-taxable 35,794 299,993 384,301 342,466 303,243
Held to maturity-tax-exempt 44,584 164,520 139,296 106,658 58,507
Loans held for sale 2,575 6,165 2,553 -- --
Loans 936,370 802,088 736,646 727,870 659,283
Allowance for loan losses (10,502) (9,615) (8,894) (8,819) (8,763)
Bank premises and equipment 24,545 23,045 21,400 18,876 17,003
Other 25,663 26,543 30,422 32,243 26,843
$1,521,189 1,436,425 1,387,273 1,308,439 1,145,785
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing $ 127,464 119,322 112,054 102,795 102,225
Interest-bearing:
Demand 250,520 217,754 209,642 175,595 152,434
Savings 294,715 299,640 260,568 235,894 205,433
Time 625,981 622,789 646,261 654,776 560,679
Total deposits 1,298,680 1,259,505 1,228,525 1,169,060 1,020,771
Federal funds purchased and securities sold
under agreements to repurchase 61,656 42,715 33,240 20,340 18,912
Other short-term borrowings 4,860 33 2,170 5,361 3,027
Accrued expenses and other liabilities 13,254 12,805 13,735 14,739 14,432
Long-term borrowings 26,500 14,077 14,067 13,619 13,347
Total liabilities 1,404,950 1,329,135 1,291,737 1,223,119 1,070,489
Minority interest 4,290 4,150 3,845 3,589 3,472
Common stockholders' equity 111,949 103,140 91,691 81,731 71,824
$1,521,189 1,436,425 1,387,273 1,308,439 1,145,785
Summary of Average Interest Rates
Average rates earned:
Interest-bearing deposits with banks 6.65% 2.88 4.92 7.10 8.69
Trading account securities 6.36 -- -- -- --
Federal funds sold and securities purchased
under agreements to resell 4.53 2.05 2.41 5.77 7.84
Investment securities:
Available for sale-taxable 5.30 5.28 6.63 -- --
Available for sale-tax exempt (tax equivalent basis) 6.37 -- -- -- --
Held to maturity-taxable 5.20 5.54 6.88 8.50 8.93
Held to maturity-tax-exempt (tax equivalent basis) 7.70 6.97 7.66 8.85 9.74
Loans held for sale 7.50 8.43 9.33 -- --
Loans 8.14 8.77 9.65 10.52 10.85
Average rates paid:
Deposits 3.55% 3.70 4.70 6.19 6.71
Federal funds purchased and securities sold under agreements
to repurchase 3.38 2.41 2.78 4.74 6.16
Other short-term borrowings 5.42 3.63 5.57 8.70 10.18
Long-term borrowings 6.86 8.60 9.14 9.57 10.16
Average yield on interest-earning assets 7.31% 7.57 8.43 9.62 10.11
Average rate paid on interest-bearing liabilities 3.62 3.71 4.70 6.21 6.76
Net interest spread 3.69 3.86 3.73 3.41 3.35
Net interest margin 4.12 4.28 4.23 4.04 4.11
217
Selected Financial Data
Brenton Banks, Inc. and Subsidiaries
Year-end Balances
(In thousands) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
Total assets $1,581,327 1,480,596 1,431,140 1,360,942 1,274,301 961,370 921,207 908,933 956,505 963,190
Interest-earning
assets 1,475,473 1,400,709 1,323,252 1,267,402 1,181,172 883,721 845,571 836,029 865,364 880,666
Interest-bearing
liabilities 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597 769,717 733,133 728,597 771,416 785,851
Demand deposits 136,548 127,132 137,212 115,479 125,626 113,349 118,392 116,830 123,883 117,624
Long-term
borrowings 28,939 20,055 13,284 13,634 12,675 14,701 16,215 17,509 18,759 19,707
Preferred stock -- -- -- -- -- -- -- 2,000 3,000 4,000
Common stockholders'
equity 110,430 112,418 97,430 86,712 77,258 63,522 56,401 49,618 44,976 41,815
Results of operations
(In thousands)
Interest income $ 101,223 98,656 106,560 115,561 106,826 85,722 76,745 74,774 84,321 96,181
Interest expense 45,772 44,427 54,773 68,687 64,431 49,102 43,180 43,149 52,920 63,175
Net interest income 55,451 54,229 51,787 46,874 42,395 36,620 33,565 31,625 31,401 33,006
Provision for loan
losses 1,988 1,252 1,411 799 869 760 1,214 2,132 11,605 17,320
Net interest income
after provision
for loan losses 53,463 52,977 50,376 46,075 41,526 35,860 32,351 29,493 19,796 15,686
Noninterest income 16,593 17,863 14,684 12,715 11,554 10,113 10,367 9,064 16,483 9,306
Noninterest expense 56,657 50,415 46,591 42,284 37,820 32,781 32,066 32,952 32,558 30,427
Income (loss) before
income taxes and
minority interest 13,399 20,425 18,469 16,506 15,260 13,192 10,652 5,605 3,721 (5,435)
Income taxes 2,701 5,508 4,884 4,308 4,388 4,016 2,527 408 116 (887)
Minority interest 591 667 632 539 533 472 422 290 84 39
Net income (loss) 10,107 14,250 12,953 11,659 10,339 8,704 7,703 4,907 3,521 (4,587)
Preferred stock
dividend
requirement -- -- -- -- -- -- 81 265 360 455
Net income (loss)
available to
common
stockholders $ 10,107 14,250 12,953 11,659 10,339 8,704 7,622 4,642 3,161 (5,042)
Average common shares
outstanding* 7,952 7,919 7,783 7,758 7,745 7,196 7,196 7,196 7,196 7,196
Per common and common
equivalent share*
Net income (loss) $ 1.27 1.80 1.67 1.50 1.33 1.21 1.06 .65 .44 (.70)
Cash dividends .440 .400 .350 .323 .273 .22 .117 .000 .000 .135
Common stockholders
equity 14.03 14.27 12.47 11.16 9.97 8.83 7.84 6.89 6.25 5.81
Selected operating
ratios
Return on average
assets
(including minority
interest) .70% 1.04 .98 .93 .95 1.00 .90 .57 .38 (.47)
Return on average
common
stockholders'
equity 9.03 13.82 14.13 14.27 14.39 14.50 14.34 9.78 7.35 (11.03)
Common dividend payout 34.65 22.22 21.00 21.56 20.50 18.23 11.01 .00 .00 N/M
Allowance for loan
losses as a
percent of loans 1.12 1.12 1.20 1.14 1.25 1.55 1.60 1.75 2.09 1.95
Net charge-offs to
average loans
outstanding .10 .05 .13 .15 .12 .08 .18 .75 2.61 2.54
<FN>
*Restated for 3-for-2 stock split effective in 1994 and 2-for-1 stock split
effective in 1990.
N/M - Not meaningful, Company incurred a net loss.
218
Consolidated Statements of Condition
Brenton Banks, Inc. and Subsidiaries
December 31 1994 1993
Assets:
Cash and due from banks (note 3) $ 58,387,727 42,548,497
Interest-bearing deposits with banks 64,255 --
Federal funds sold and securities purchased under agreements to resell 59,396,428 41,875,000
Trading account securities -- 9,850
Investment securities:
Available for sale (note 4) 349,208,773 412,209,721
Held to maturity (market value of $92,284,000 and $66,892,000
at December 31, 1994 and 1993, respectively) (note 4) 94,484,134 66,384,042
Investment securities 443,692,907 478,593,763
Loans held for sale 2,104,492 4,349,422
Loans (note 5) 970,214,498 875,881,387
Allowance for loan losses (note 6) (10,913,043) (9,817,864)
Loans, net 959,301,455 866,063,523
Bank premises and equipment (notes 7 and 11) 27,103,630 23,147,521
Accrued interest receivable 13,064,921 12,815,884
Other assets (note 9) 18,211,034 11,192,586
$1,581,326,849 1,480,596,046
Liabilities and Stockholders' Equity:
Deposits (note 8):
Noninterest-bearing $ 136,547,995 127,131,654
Interest-bearing:
Demand 315,369,233 232,005,404
Savings 255,046,184 307,615,814
Time 633,319,698 627,610,822
Total deposits 1,340,283,110 1,294,363,694
Federal funds purchased and securities sold under agreements to repurchase 70,703,736 37,664,328
Other short-term borrowings (note 10) 12,000,000 --
Accrued expenses and other liabilities 14,749,917 11,688,256
Long-term borrowings (note 11) 28,939,413 20,054,913
Total liabilities 1,466,676,176 1,363,771,191
Minority interest in consolidated subsidiaries 4,220,328 4,407,190
Redeemable preferred stock, $1 par; 500,000 shares authorized;
issuable in series, none issued -- --
Common stockholders' equity (notes 13, 14 and 16):
Common stock, $5 par; 25,000,000 shares authorized;
7,871,546 and 5,253,151 shares issued at December 31, 1994 and 1993,
respectively 39,357,730 26,265,755
Capital surplus 5,210,344 5,598,027
Retained earnings 70,979,317 77,517,613
Unrealized gains (losses) on assets available for sale (5,117,046) 3,036,270
Total common stockholders' equity 110,430,345 112,417,665
$1,581,326,849 1,480,596,046
<FN>
Commitments and contingencies (notes 17 and 18)
See accompanying notes to consolidated financial statements.
219
Consolidated Statements of Operations
Brenton Banks, Inc. and Subsidiaries
Years Ended December 31 1994 1993 1992
Interest Income:
Interest and fees on loans (note 5) $ 76,456,964 70,816,746 71,364,279
Interest and dividends on investments:
Available for sale-taxable 13,032,050 3,143,004 431,746
Available for sale-tax-exempt 5,530,626 -- --
Held to maturity-taxable 1,862,628 16,293,759 26,373,085
Held to maturity-tax-exempt 2,619,333 7,894,225 7,429,582
Interest on federal funds sold and securities purchased
under agreements to resell 1,705,717 485,912 653,886
Other interest income 15,636 21,934 307,248
Total interest income 101,222,954 98,655,580 106,559,826
Interest Expense:
Interest on deposits (note 8) 41,609,766 42,188,138 52,443,250
Interest on federal funds purchased and securities sold
under agreements to repurchase 2,082,077 1,027,324 923,853
Interest on other short-term borrowings (note 10) 263,658 1,200 120,912
Interest on long-term borrowings (note 11) 1,816,927 1,210,200 1,285,442
Total interest expense 45,772,428 44,426,862 54,773,457
Net interest income 55,450,526 54,228,718 51,786,369
Provision for loan losses (note 6) 1,987,909 1,251,588 1,410,730
Net interest income after provision for loan losses 53,462,617 52,977,130 50,375,639
Noninterest Income:
Service charges on deposit accounts 5,424,547 5,846,770 5,735,963
Insurance commissions and fees 2,115,085 1,730,387 1,695,699
Other service charges, collection and exchange charges,
commissions and fees 3,558,900 4,120,732 3,175,552
Investment brokerage commissions 2,879,401 3,010,004 1,600,324
Fiduciary income 2,160,492 1,912,442 1,758,203
Net gains (losses) from securities available for sale (note 4) (339,624) 595,168 79,474
Other operating income 794,187 647,768 638,825
Total noninterest income 16,592,988 17,863,271 14,684,040
Noninterest Expense:
Salaries and wages 24,595,274 22,952,044 20,894,947
Employee benefits (note 15) 4,960,665 4,162,486 3,609,995
Occupancy expense of premises, net (notes 7 and 17) 4,702,208 3,988,525 3,710,772
Furniture and equipment expense (notes 7 and 17) 3,060,557 2,622,747 2,339,605
Data processing expense (note 18) 3,083,819 2,526,280 2,532,410
FDIC deposit insurance assessment 2,907,382 2,749,969 2,750,378
Advertising and promotion 1,772,852 1,521,712 1,301,545
Other operating expense 11,574,165 9,891,179 9,451,104
Total noninterest expense 56,656,922 50,414,942 46,590,756
Income before income taxes and minority interest 13,398,683 20,425,459 18,468,923
Income taxes (note 9) 2,700,640 5,507,849 4,884,145
Income before minority interest 10,698,043 14,917,610 13,584,778
Minority interest 590,656 667,640 631,684
Net income $10,107,387 14,249,970 12,953,094
Per common and common equivalent share (note 13):
Net income $ 1.27 1.80 1.67
Cash dividends .44 .40 .35
<FN>
See accompanying notes to consolidated financial statement.
220
Consolidated Statements of Cash Flows
Brenton Banks, Inc. and Subsidiaries
Years Ended December 31 1994 1993 1992
Operating Activities:
Net income $ 10,107,387 14,249,970 12,953,094
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,987,909 1,251,588 1,410,730
Depreciation and amortization 3,387,034 3,100,977 2,780,907
Deferred income taxes (1,257,325) (531,013) (88,728)
Net (gains) losses from securities held for sale 339,624 (595,168) (79,474)
(Increase) decrease in accrued interest receivable
and other assets (1,477,154) 2,456,544 3,104,394
Increase (decrease) in accrued expenses, other liabilities
and minority interest 3,192,432 496,782 (2,258,750)
Net cash provided from operating activities 16,279,907 20,429,680 17,822,173
Investing Activities:
Investment securities available for sale:
Purchases (122,339,026) (166,637,785) --
Maturities 154,659,319 34,834,992 --
Sales 21,484,178 98,446,394 37,841,160
Investment securities held to maturity:
Purchases (59,384,073) (132,198,518) (407,542,480)
Maturities 26,687,613 233,316,414 283,315,958
Net (increase) decrease in loans held for sale 2,244,930 147,839 (4,497,261)
Net increase in loans (95,225,841) (122,867,264) (2,496,838)
Purchases of bank premises and equipment (6,893,877) (3,487,797) (4,864,458)
Net cash used by investing activities (78,766,777) (58,445,725) (98,243,919)
Financing Activities:
Net increase in noninterest-bearing, interest-bearing
demand and savings deposits 40,210,540 19,464,320 92,823,328
Net increase (decrease) in time deposits 5,708,876 4,959,049 (37,971,233)
Net increase in federal funds purchased
and securities sold under agreements to repurchase 33,039,408 2,782,728 11,291,161
Net increase (decrease) in other short-term borrowings 12,000,000 (119,784) (4,053,769)
Proceeds of long-term borrowings 22,176,030 9,337,000 2,293,000
Repayment of long-term borrowings (13,291,530) (2,565,942) (2,643,637)
Dividends on common stock (3,471,901) (3,138,307) (2,577,619)
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 385,767 461,185 341,756
Payment for shares acquired under common stock repurchase plan (850,950) -- --
Payment for fractional shares in 3-for-2 stock split (4,307) -- --
Net cash provided from financing activities 95,901,933 31,541,443 59,502,987
Net increase (decrease) in cash and cash equivalents 33,415,063 (6,474,602) (20,918,759)
Cash and cash equivalents at the beginning of the year 84,433,347 90,907,949 111,826,708
Cash and cash equivalents at the end of the year $117,848,410 84,433,347 90,907,949
<FN>
See accompanying notes to consolidated financial statements.
221
Consolidated Statements of Changes in Common Stockholders' Equity
Brenton Banks, Inc. and Subsidiaries
Common Capital Retained Unrealized
Stock Surplus Earnings Gains (Losses) Total
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
$.35 per share* -- -- (2,577,619) -- (2,577,619)
Issuance of shares of common stock
under the stock option plan (note 16) 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
$.40 per share* -- -- (3,138,307) -- (3,138,307)
Issuance of shares of common stock
under the stock option plan (note 16) 161,000 300,185 -- -- 461,185
Issuance of 13,081 shares of common stock
under the employee stock purchase plan
(note 16) 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
Net income -- -- 10,107,387 -- 10,107,387
Net change in unrealized gains (losses) -- -- -- (8,153,316) (8,153,316)
Dividends on common stock
$.44 per share -- -- (3,471,901) -- (3,471,901)
3-for-2 stock split in the form of a
stock dividend (note 13) 13,169,475 -- (13,169,475) -- --
Fractional shares resulting from stock
split -- -- (4,307) -- (4,307)
Issuance of shares of common stock
under the stock option plan (note 16) 146,500 239,267 -- -- 385,767
Shares reacquired under
stock repurchase plan (note 13) (224,000) (626,950) -- -- (850,950)
Balance, December 31, 1994 $39,357,730 5,210,344 70,979,317 (5,117,046) 110,430,345
<FN>
*Reflects the 3-for-2 stock split in the form of a stock dividend in May 1994
See accompanying notes to consolidated financial statements.
222
Notes to Consolidated Financial Statements
Brenton Banks, Inc. and Subsidiaries
December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies and Related Matters
The accounting and reporting policies of Brenton Banks, Inc. and 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 $5,499,000 and $5,411,000 at December
31, 1994 and 1993, respectively.
Investment Securities Investment securities are classified based on the
Company's intended holding period. Securities which may be sold prior to
maturity, to meet liquidity needs, to respond to market changes or to adjust
the Company's asset-liability position, are classified as available for sale.
Securities 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.
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 non-accrual 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.
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 $502,000 and $948,000 at December 31,
1994 and 1993, 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.
223
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. In May 1994, the Company
declared a 3-for-2 stock split in the form of a stock dividend. The average
number of shares, after considering stock plans, the merger and the stock
split was 7,951,866 for 1994, 7,918,560 for 1993 and 7,783,195 for 1992.
Fair Value of Financial Instruments Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering the Company's entire holdings of a
particular financial instrument for sale at one time. Unless included in
assets available for sale, it is the Company's general practice and intent to
hold its financial instruments to maturity and not to engage in trading or
sales activities.
Fair value estimates are based on judgments regarding future expected
loss experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Estimated fair values have been determined by the Company using the
best available data, and an estimation method suitable for each category of
financial instruments.
Interest Rate Swaps Amounts paid or received, related to outstanding swap
contracts that are used in the asset/liability management process, are
recognized into earnings, as an adjustment to interest income over the
estimated life of the related assets. Gains or losses associated with the
termination of interest rate swap agreements for identified positions are
deferred and amortized over the remaining lives of the related assets as a
adjustment to yield.
Effect of New Financial Accounting Standards Statement of Financial
Accounting Standards (SFAS 119), "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments," was adopted by the
Company for the year ended December 31, 1994. SFAS 119 requires disclosures
about certain derivative financial instruments and additional information
about certain other financial instruments.
SFAS 114, "Accounting by Creditors for Impairment of a Loan," will be
effective for the Company beginning January 1, 1995 and requires measurement
of certain covered loans at the present value of expected future cash flows
discounted at the loan's observable market price or the fair value of
collateral if the loan is collateral dependent. The Company expects to adopt S
FAS 114 when required, and management believes adoption will not have a
material effect on the financial position and results of operations nor will
adoption require additional capital resources.
(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
557,070 shares of common stock (after the 3-for-2 stock split in the form of
a stock dividend) 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 $4,845,000 at December 31, 1994.
224
(4) Investment Securities
The amortized cost and estimated fair value of investment securities follow.
The estimated fair value of investment securities has been determined using
available quoted market prices for similar securities.
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1994 (In thousands)
Investment securities available for sale:
Taxable investments:
U.S. Treasury securities $ 51,198 -- (557) 50,641
Securities of U.S. government agencies 66,848 100 (911) 66,037
Mortgage-backed and related securities 108,491 156 (4,526) 104,121
Other investments 10,890 -- (78) 10,812
Tax-exempt investments:
Obligations of states
and political subdivisions 119,986 664 (3,052) 117,598
$357,413 920 (9,124) 349,209
Investment securities held to maturity:
Taxable investments:
Securities of U.S. government agencies $ 9,444 -- (127) 9,317
Mortgage-backed and related securities 35,282 5 (995) 34,292
Other investments 3,087 -- (35) 3,052
Tax-exempt investments:
Obligations of states
and political subdivisions 46,671 130 (1,178) 45,623
$ 94,484 135 (2,335) 92,284
December 31, 1993
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
Gross gains of $68,000 and gross losses of $408,000 were recorded on sales of
investment securities held for sale in 1994, gross gains of $944,000 and
gross losses of $349,000 were recorded in 1993, and gross gains of $424,000
and gross losses of $345,000 were recorded in 1992.
Other investments at December 31, 1994 and 1993 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 $9,549,000 and $10,316,000 at December 31, 1994
and 1993, respectively.
225
The scheduled maturities of investment securities at December 31,
1994 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.
Estimated
Amortized Fair
(In thousands) Cost Value
Investment securities available for sale:
Due in one year or less $139,038 133,582
Due after one year through
five years 158,086 153,143
Due after five years through
ten years 31,935 31,439
Due after ten years 28,354 31,045
$357,413 349,209
Investment securities held to maturity:
Due in one year or less $ 29,334 28,949
Due after one year through
five years 46,426 45,237
Due after five years through
ten years 8,052 7,841
Due after ten years 10,672 10,257
$ 94,484 92,284
Investment securities carried at $153,405,000 and $95,641,000 at December 31,
1994 and 1993, 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, 1994 1993
Real estate loans:
Commercial construction
and land development $ 26,549 24,189
Secured by 1-4 family
residential property 389,713 349,810
Other 143,960 129,574
Loans to farmers 71,853 66,574
Commercial and industrial loans 115,280 90,521
Loans to individuals for personal
expenditures, net of unearned
income of $751 and $741
at December 31, 1994 and
1993, respectively 221,627 214,401
All other loans 1,232 812
$970,214 875,881
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, 1994 and 1993, the Company had nonaccrual loans of
$3,784,000 and $1,605,000, respectively, and restructured loans of $298,000
and $323,000, respectively. Interest income recorded during 1994 and 1993 on
nonaccrual and restructured loans was $321,000 and $191,000, respectively.
Interest income which would have been recorded if these loans had been
current in accordance with original terms was $537,000 in 1994 and $359,000
in 1993.
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, 1993 $8,361
Additional loans 3,957
Loan payments (2,775)
Balance at December 31, 1994 $9,543
(6) Allowance for Loan Losses
A summary of activity in the allowance for loan losses follows:
(In thousands) 1994 1993 1992
Balance at beginning of year $ 9,818 9,006 8,548
Provision 1,988 1,252 1,411
Recoveries 1,549 1,091 991
Loans charged off (2,442) (1,531) (1,944)
Balance at end of year $10,913 9,818 9,006
(7) Bank Premises and Equipment
A summary of bank premises and equipment follows:
(In thousands) December 31, 1994 1993
Land $ 3,204 2,971
Buildings and leasehold
improvements 24,791 22,956
Furniture and equipment 18,137 15,538
Construction in progress 2,472 471
48,604 41,936
Less accumulated depreciation 21,500 18,788
$27,104 23,148
Depreciation expense included in operating expenses amounted to $2,938,000,
$2,621,000 and $2,301,000 in 1994, 1993 and 1992, respectively.
226
(8) Deposits
Time deposits included deposits in denominations of $100,000 or more of
$73,349,000 and $62,727,000 at December 31, 1994 and 1993, respectively.
A summary of interest expense by deposit classification follows:
(In thousands) 1994 1993 1992
Demand $ 5,418 4,552 5,277
Savings 6,878 7,697 9,385
Time deposits
of $100,000 or more 3,110 2,091 2,169
Other time deposits 26,204 27,848 35,612
$41,610 42,188 52,443
The Company made cash interest payments of $46,850,000, $44,141,000 and
$56,647,000 on deposits and borrowings in 1994, 1993 and 1992, respectively.
(9) Income Taxes
The current and deferred income tax provisions included in the consolidated
statements of operations follow:
1994 (In thousands) Current Deferred Total
Federal $3,037 (1,099) 1,938
State 921 (158) 763
$3,958 (1,257) 2,701
1993
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
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
$2,671,000, $4,514,000 and $3,486,000 to the IRS, and $1,226,000, $1,301,000
and $713,000 to the state of Iowa in 1994, 1993 and 1992, 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 reasons for the difference between the amount computed by
applying the statutory federal income tax rate of 34 percent in 1994 and 1992
and 35 percent in 1993, and income tax expense follow:
(In thousands ) 1994 1993 1992
At statutory rate $4,556 7,149 6,279
Increase (reduction):
Tax-exempt interest (2,768) (2,766) (2,541)
State taxes, net of
federal benefit 503 764 667
Nondeductible interest expense
to own tax-exempts 363 361 377
Other, net 47 -- 102
$2,701 5,508 4,884
Accumulated deferred income tax debits are included in other assets in the
consolidated statements of condition. There was no valuation allowance at
December 31, 1994 or 1993. A summary of the temporary differences resulting
in deferred income taxes and the related tax effect of each follows:
(In thousands) 1994 1993
Provision for loan losses $3,750 3,384
Unrealized (gains) losses on
assets available for sale 3,191 (1,790)
Restructuring charge 970 --
Depreciation (541) (563)
Stock compensation plan 418 461
Real estate mortgage
loan points deferred (357) --
Other, net (125) (94)
$7,306 1,398
(10) Other Short-Term Borrowings
At December 31,1994, the Company had short-term borrowings with the Federal
Home Loan Bank of Des Moines (FHLB) totaling $12,000,000. The notes were at
an average rate of 5.40 percent. These borrowings were secured by residential
mortgage loans equal to 170 percent of the borrowings and FHLB stock. The
Company had no short-term borrowings at December 31, 1993.
The Parent Company has arranged an unsecured, available line of
credit of $2,000,000 which was unused at December 31, 1994. 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, 1994 1993
Capital notes, 6.00% to 10.00%
Total Parent Company $12,644 12,022
Borrowings from FHLB, average rate
of 5.97% at December 31, 1994 16,150 8,000
Mortgage debt, average rate of
7.44% at December 31, 1994 100 33
Other, 8% at December 31, 1994 45 --
$28,939 20,055
227
Mortgage debt was secured by real property with a carrying value of $119,000
at December 31, 1994. Borrowings from the FHLB were secured by residential
mortgage loans equal to 170 percent of the borrowings and FHLB stock.
The mortgage debt and borrowings from the FHLB were direct
obligations of the individual subsidiaries.
Scheduled maturities of long-term borrowings at
December 31, 1994 follow:
Parent
(In thousands) Company Consolidated
1995 $ 53 106
1996 950 3,458
1997 1,603 13,762
1998 1,177 2,686
1999 1,750 1,800
Thereafter 7,111 7,127
$12,644 28,939
(12) Fair Value of Financial Instruments
The estimated fair values of the Comapny's financial instruments were as
follows:
December 31, 1994 December 31, 1993
Recorded Fair Recorded Fair
Amount Value Amount Value
(in thousands)
Financial assets:
Cash and due from banks $ 58,388 58,388 42,548 42,548
Interest-bearing deposits with banks 64 64 - -
Federal funds sold and securities purchased
under agreements to resell 59,396 59,396 41,875 41,875
Investment securities 443,693 441,493 478,604 479,112
Loans, net 959,301 950,861 866,064 885,878
Financial liabilities:
Deposits 1,340,283 1,341,969 1,294,364 1,303,840
Federal funds purchased, securities sold
under agreements repurchase and other
short term borrowings 82,704 82,704 37,664 37,664
Long term borrowings 28,939 28,061 20,055 20,963
Off-balance-sheet assets (liabilities):
Commitments to extend credit $ -- -- -- --
Letters of credit -- (42) -- (44)
Interest rate swap -- 51 -- --
The recorded amount of cash and due from banks and interest-bearing deposits
with banks approximates fair value.
The recorded amount of federal funds sold and securities
purchased under agreements to resell approximates fair value as a
result of the short-term nature of the instruments.
The estimated fair value of investment securities has been determined
using available quoted market prices for similar securities.
The estimated fair value of loans is net of an adjustment for credit
risk. For loans with floating interest rates, it is presumed that estimated
fair values generally approximate the recorded book balances. Real estate
loans secured by 1-4 family residential property were valued using trading
prices for similar pools of mortgage-backed securities. Other fixed rate
loans were valued using a present value discounted cash flow with a discount
rate approximating the market for similar assets.
Deposit liabilities with no stated maturities have an estimated fair
value equal to the recorded balance. Deposits with stated maturities have
been valued using a present value discounted cash flow with a discount rate
approximating the current market for similar deposits. The fair value
estimate does not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds
in the market. The Company believes the value of these depositor relationships
to be significant.
The recorded amount of the federal funds purchased,
securities sold under agreements to repurchase and short-term
borrowings approximates fair value as a result of the short-term nature of
these instruments.
The estimated fair value of long-term borrowings was determined using
a present value discounted cash flow with a discount rate approximating the
current market for similar borrowings.
The fair value of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements.
The fair value of interest rate swaps(used for hedging purposes) is
the estimated amount that the Company would receive or pay to terminate the
swap agreements at the reporting date.
228
(13) Common Stock Transactions
In May 1994, the Company declared a 3-for-2 stock split in the form of a 100
percent stock dividend. This transaction resulted in the issuance of
2,633,895 shares of common stock and the transfer of $13,169,475 from
retained earnings to common stock. Net income and cash dividends per share
information in the financial statements have been retroactively restated to
reflect this transaction.
In March 1994, the Board of Directors authorized a plan to repurchase
$2,000,000 of the Company's common stock. As of December 31, 1994, the
Company had repurchased 44,800 shares at a total cost of $850,950.
The Company acquired all outstanding shares of Ames Financial
Corporation and its wholly owned subsidiary Ames Savings Bank, FSB in
exchange for 557,070 shares of common stock (after the 3-for-2 stock split)
on October 1, 1992. The merger was accounted for using the
pooling-of-interests method.
(14) Dividend Restrictions
The Parent Company derives a substantial portion of its cash flow, including
that available for dividend payments to stockholders, from the subsidiary
banks in the form of dividends 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, 1994 were approximately $19 million.
(15) Employee Retirement Plan
The Company provides a defined contribution retirement plan for the benefit
of employees. The plan is a combination profit sharing and 401(k) plan. All
employees 21 years of age or older and employed by the Company for at least
one year are eligible for the plan. The Company contributes 4 1\2 percent of
eligible compensation of all participants to the profit sharing portion of
the plan, and matches employee contributions to the 401(k) portion of the
plan up to a maximum of 3 percent of each employee's eligible compensation.
Retirement plan costs charged to operating expenses in 1994, 1993 and 1992
amounted to $1,367,000, $1,211,000 and $952,000, respectively. The Company
offers no material post-retirement benefits.
(16) Stock Plans
The Company's long-term stock compensation plan for key management personnel
provides for 360,000 shares of the Company's common stock (after the May
1994, 3-for-2 stock split in the form of a stock dividend) 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, 91,493 shares were granted covering the
performance period of 1992 through 1994, 78,644 were granted for 1993 through
1995, and 90,293 were granted for 1994 through 1996. The total stock
compensation expense associated with this plan was $(102,000), $683,000 and
$560,000 for 1994, 1993 and 1992 respectively.
The Company's nonqualified stock option plan permits the Board of
Directors to grant options to purchase up to 300,000 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. No options were available
for grant at December 31, 1994.
Changes in options outstanding and exercisable during 1994, 1993 and
1992 were as follows (restated for the May 1994, 3-for-2 stock split in the
form of a stock dividend):
Exercisable Outstanding Option Price
Options Options Per Share
December 31, 1991 188,700 267,150 $4.42-9.46
Vested-1992 53,400 -- 4.42-9.46
Exercised-1992 (33,900) (33,900) 4.42
Forfeited-1992 -- (450) 4.42
December 31, 1992 208,200 232,800 4.42-9.46
Vested-1993 10,200 -- 6.42-9.46
Exercised-1993 (48,300) (48,300) 4.42
December 31, 1993 170,100 184,500 4.42-9.46
Granted-1994 -- 8,400 19.63
Vested-1994 7,200 -- 8.79-9.46
Exercised-1994 (36,850) (36,850) 4.42-8.79
December 31, 1994 140,450 156,050 $4.42-19.63
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 1994, 22,551 shares of common stock were purchased by
employees under this plan (after restatement for the May 1994 3-for-2 stock
split).
229
(17) Lease Commitments
Rental expense included in the consolidated statements of operations amounted
to $1,799,000, $1,373,000 and $1,345,000 in 1994, 1993 and 1992,
respectively. Future minimum rental commitments for all noncancelable leases
with terms of one year or more total approximately $1,100,000 per year
through 1999, $500,000 per year through 2004, $400,000 per year through 2009,
and $40,000 per year through 2014, with a total commitment of $10,370,000.
(18) 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, 1994 the Company had
outstanding commitments to extend credit of $154 million.
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, 1994 there were
$8,388,000 of standby letters of credit outstanding. 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 $1,280,000 at December 31, 1994, involving the
exchange of a fixed for a floating rate interest payment stream. The interest
rate swap agreement subjects the Company to market risk associated with
changes in interest rates, as well as the risk of default by the counterparty
to the agreement. The credit worthiness of the counterparty was evaluated by
the Company's loan committee prior to entering into the agreement. The
agreement runs through October 1998.
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. Thi
s 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 $2,330,000 in 1995 and
$2,117,000 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.
(19) Restructuring Charge
During the fourth quarter of 1994, the Company finalized plans to implement a
strategic restructuring program. As part of this plan, the Company will
combine its 13 commercial banks into a single, statewide banking
organization, consolidate facilities, and realign the Company's work force.
This plan resulted in a special charge of $2.6 million ($1.7 million after
tax or $.21 per share), in 1994. Costs associated with the restructuring
include severance costs for terminated employees (approximately 70 to 90
employees in various positions), data processing costs, regulatory fees and
legal fees related to the conversion to a single bank, and abandonment losses
on facilities and equipment.
230
(20) Brenton Banks, Inc. (Parent Company) Condensed Financial Information
Statements of Condition
December 31 (In thousands) 1994 1993
Assets
Cash and deposits $ 34 316
Short-term investments 8,500 3,500
Advances to bank subsidiaries 720 450
Investments in:
Bank subsidiaries 109,012 116,595
Bank-related subsidiaries 332 264
Excess cost over net assets 1,974 2,048
Premises and equipment 1,020 528
Other assets 3,235 2,865
$124,827 126,566
Liabilities and Stockholders' Equity
Accrued expenses payable
and other liabilities $ 1,753 2,126
Long-term borrowings 12,644 12,022
Common stockholders' equity 110,430 112,418
$124,827 126,566
Statements of Operations
Years Ended December 31 (In thousands) 1994 1993 1992
<c)
Income
Dividends from subsidiaries $11,691 8,150 7,643
Interest income 317 84 33
Management fees 1,222 1,580 1,507
Other operating income 2,128 1,881 1,769
15,358 11,695 10,952
Expense
Salaries and benefits 3,466 3,976 3,886
Interest on short-term borrowings -- -- 98
Interest on long-term borrowings 1,044 1,108 1,108
Other operating expense 2,263 1,998 2,298
6,773 7,082 7,390
Income before income taxes and
equity in undistributed
earnings of subsidiaries 8,585 4,613 3,562
Income taxes (1,083) (1,175) (1,259)
Income before equity in
undistributed earnings of
subsidiaries 9,668 5,788 4,821
Equity in undistributed
earnings of subsidiaries 439 8,462 8,132
Net income $10,107 14,250 12,953
231
(20) Brenton Banks, Inc. (Parent Company) Condensed Financial Information
Statements of Cash Flows
Years Ended December 31 (In thousands) 1994 1993 1992
Operating Activities
Net income $10,107 14,250 12,953
Adjustments to reconcile net
income to net cash provided
from operating activities:
Equity in undistributed
earnings of subsidiaries (439) (8,462) (8,132)
Depreciation and amortization 230 188 169
Increase in other assets (370) (1,154) (345)
Increase (decrease) in
accrued expenses payable
and other liabilities (373) 641 479
Net cash provided from
operating activities 9,155 5,463 5,124
Investing Activities
Increase in short-term investments (5,000) (3,500) --
Redemption (purchase) of subsidiary
equity, net (200) 886 (26)
Principal collected from or
(advances to) subsidiaries (270) (400) 150
Purchase of premises and
equipment, net (648) (119) (129)
Net cash used by investing activities (6,118) (3,133) (5)
Financing Activities
Net decrease in short-term borrowings -- -- (3,950)
Net proceeds (repayment) of
long-term borrowings 622 (74) 1,097
Proceeds from issuance of common
stock under the stock option plan 386 822 342
Payment for shares acquired
under common stock repurchase plan (851) -- --
Payment for fractional shares
in 3-for-2 stock split (4) -- --
Dividends on common stock (3,472) (3,138) (2,578)
Net cash used by financing activities (3,319) (2,390) (5,089)
Net increase (decrease) in
cash and interest-bearing deposits (282) (60) 30
Cash and interest-bearing
deposits at the beginning
of the year 316 376 346
Cash and interest-bearing
deposits at the end of the year $ 34 316 376
232
(21) Unaudited Quarterly Financial Information
The following is a summary of unaudited quarterly financial information.
(In thousands, except per common and common equivalent share data)
1994
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $23,857 24,867 25,682 26,817
Interest expense 10,427 10,815 11,610 12,920
Net interest income 13,430 14,052 14,072 13,897
Provision for loan losses 404 426 440 718
Net interest income after
provision for loan losses 13,026 13,626 13,632 13,179
Noninterest income 4,406 4,185 3,958 4,043
Noninterest expense 13,515 13,502 13,677 15,963
Income before income taxes
and minority interest 3,917 4,309 3,913 1,259
Income taxes 888 1,055 958 (201)
Minority interest 136 147 146 162
Net income $ 2,893 3,107 2,809 1,298
Per common and common
equivalent share:
Net income $ .37 .39 .35 .16
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 $ .39 .47 .47 .47
233
Management's Report
The management of Brenton Banks, Inc. is responsible for the content of the
consolidated financial statements and other information included in this
annual report. Management believes that the consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles appropriate to reflect, in all material respects, the substance of
events and transactions that should be included. In preparing the
consolidated financial statements, management has made judgments and
estimates of the expected effects of events and transactions that are
accounted for or disclosed.
Management of the Company believes in the importance of maintaining a
strong internal accounting control system, which is designed to provide
reasonable assurance that assets are safeguarded and transactions are
appropriately authorized. The Company maintains a staff of qualified internal
auditors who perform periodic reviews of the internal accounting control
system. Management believes that the internal accounting control system
provides reasonable assurance that errors or irregularities that could be
material to the consolidated financial statements are prevented or
detected and corrected on a timely basis.
The Board of Directors has established an Audit Committee to assist
in assuring the maintenance of a strong internal accounting control system.
The Audit Committee meets periodically with management, the internal auditors
and the independent auditors to discuss the internal accounting control
system and the related internal and external audit efforts. The internal
auditors and the independent auditors have free access to the Audit Committee
without management present. 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.
/s/
Robert L. DeMeulenaere
President
/s/
Steven T. Schuler
Chief Financial Officer/Treasurer/Secretary
/s/
Jennifer Hixson Carney
Controller
234
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, 1994 and 1993,
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, 1994. 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 overal
l 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally
accepted accounting principles.
/s/
KPMG Peat Marwick LLP
Des Moines, Iowa
February 17, 1995
235
Stock Information
Brenton Banks, Inc. common stock is traded on the Nasdaq National Market and
quotations are furnished by the Nasdaq System. There were 1,632 common
stockholders of record on December 31, 1994.
Market and Dividend Information
High Low Dividends
1994 1st quarter $18 3\8 17 1\2 .11
2nd quarter 20 17 5\8 .11
3rd quarter 20 1\2 19 .11
4th quarter 19 1\2 17 1\2 .11
1993 1st quarter $20 5\6 17 1\3 .097
2nd quarter 20 1\6 17 1\2 .097
3rd quarter 20 17 .100
4th quarter 19 1\2 17 1\2 .107
The above table sets forth the high and low sales prices and
cash dividends per share for the Company's common stock, after
the effect of the May 1994, 3-for-2 stock split in the form of
a stock dividend.
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.
Form 10-K
Copies of Brenton Banks, Inc. Annual Report to the Securities and Exchange
Commission Form 10-K will be mailed when available without charge to
shareholders upon written request to Steven T. Schuler, Chief Financial
Officer/Treasurer/Secretary, at the corporate headquaters.
Stockholder Information
Corporate Headquarters
Suite 300, Capital Square
400 Locust Street
Des Moines, Iowa 50309
Telephone 515/237-5100
Annual Shareholders' Meeting
May 12, 1995, 5:00 p.m.
Des Moines Convention Center
501 Grand Avenue
Des Moines, Iowa 50309
Transfer Agent/Registrar/
Dividend Disbursing Agent
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60690
Legal Counsel
Brown, Winick, Graves, Baskerville
and Schoenebaum, P.L.C.
Suite 1100, Two Ruan Center
601 Locust Street
Des Moines, Iowa 50309
Independent Auditors
KPMG Peat Marwick LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, Iowa 50309
Annual Report Design
Designgroup, Inc.
Photography: Pat Drickey
236
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
Past 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
Hubert G. Ferguson
Financial Services Consultant,
Minneapolis, Minnesota
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
Norman D. Schuneman
Senior Vice President-Lending
John R. Amatangelo
Senior Vice President-Operations/Technology
Steven T. Schuler
Chief Financial Officer/Treasurer/Secretary
Gary D. Ernst
Vice President-Trust
Charles N. Funk
Vice President-Investments
Steven F. Schneider
Vice President-Brokerage Services
Officers
Douglas F. Lenehan
Vice President-
Commercial Services/Cash Management
Catherine Reed
Vice President-Marketing Director
Charles G. Riepe
Vice President-Corporate and
International Banking
Mary F. Sweeney
Vice President-Human Resources
Jennifer Carney
Controller
David K. Horner
Vice President-Audit
Todd A. Stumberg
Vice President-Loan Review
Louise E. Mickelson
Compliance Officer
Kristi Straeb
Marketing Officer
Sara J. Harrison
Assistant Vice President
Leah I. Trent
Administrative Officer
Pamela J. Slippy
Administrative Officer/
Assistant Secretary to the Board
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
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 and CEO
Brenton Savings Bank, FSB,
Ames
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
Roger D. Winterhof
President and CEO
Brenton National Bank-Poweshiek County,
Grinnell
237
Brenton Banks and Assets
Community Banks
1. Brenton Bank and Trust Company
Main Bank: Adel
Other Communities: Dexter, Redfield
and Van Meter
Assets: $86,678
2. Brenton Bank and Trust Company
Main Bank: Clarion
Other Communities: Eagle Grove
and Rowan
Assets: $52,629
3. Brenton State Bank
Main Bank: Dallas Center
Other Communities: Granger,
Waukee and Woodward
Assets: $71,368
4. Brenton Bank of Palo Alto County
Main Bank: Emmetsburg
Other Communities: Ayrshire
and Mallard
Assets: $57,868
5. Brenton National Bank-
Poweshiek County
Main Bank: Grinnell
Assets: $116,112
6.Warren County Brenton Bank and Trust
Main Bank: Indianola
Assets: $46,518
7. Brenton State Bank of Jefferson
Main Bank: Jefferson
Assets: $56,457
8. Brenton Bank, N.A. Knoxville
Main Bank: Knoxville
Assets: $64,476
9. Brenton Bank and Trust Company
Main Bank: Marshalltown
Other Locations: Meadowlane
Other Communities: Albion
Assets: $137,026
10. Brenton National Bank of Perry
Main Bank: Perry
Assets: $85,285
Metro Banks
11. Brenton Savings Bank, fsb
Main Bank: Ames, Main Street
Other Metro Location: North Grand
Other Communities: Story City, Ankeny
Assets: $115,977
12. Brenton Bank and Trust Company
of Cedar Rapids
Main Bank: Cedar Rapids, First Avenue
Other Metro Locations: Southwest, Northeast, EconoFoods and Marion
Assets: $171,206
13. Brenton First National Bank
Main Bank: Davenport, Brady Street
Other Metro Locations: 53rd and Utica Ridge, Village Shopping Center, and
West
Assets: $159,651
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: $363,374
(assets in thousands)
Map depicting United States with Iowa highlighted. Also map of Iowa and
location of all Banks.
238
Back cover - blue background with the words:
Brenton Banks, Inc.
Suite 300, Capital Square
400 Locust Street
Des Moines, Iowa 50309
Telephone 515/237-5100
239
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 material 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 the Annual Report, page 198 of the
10-K.
2. Bar graph, second unnumbered page of the Annual Report, showing Net
Income from 1990-1994 on the inside front cover of the Annual Report,
page 199 of the 10-K.
3. Bar graph showing Total Assets in millions from 1990-1994;
Nonperforming Loans in thousands from 1990-1994; and Primary Capital
Ratio and Tier 1 Leverage Capital Ratio expressed as percentages from
1990-1994, on page 1 of the Annual Report, page 200 of the 10-K.
3a. Circle with text, centered on page, on page 2 of the Annual Report,
page 201 of the 10-K.
4. Bar graph showing Annual Dividends Per Common Share from 1990-1994
contained on page 2 of the Annual Report, page 201 of the 10-K.
5. Photograph on page 3 of the Annual Report, page 202 of the 10-K.
6. Two photographs on page 5 of the Annual Report, page 204 of the
10-K.
6a. Circle with text, centered on page, on page 6 of the Annual Report,
Page 205 of 10-K.
7. Photographs on page 7 of the Annual Report, page 206 of the 10-K.
7a. Circle with text, centered on page, on page 9 of the Annual Report,
page 208 of the 10-K.
7b. Circle with text, centered on page, on page 10 of the Annual Report,
page 209 of the 10-K.
8. Two photographs on page 11 of the Annual Report, page 210 of the
10-K.
9. Bar graphs showing the Return on Average Assets and Return on
Average Equity from 1990-1994, both expressed in terms of a percentage,
on page 12 of the Annual Report, page 211 of the 10-K.
10. Bar graph showing the Net Interest Margin from 1990-1994, expressed
in terms of a percentage, and a bar graph showing the Provision for
Loan Losses and Net Charge-offs, expressed in thousands, on page 14 of
the Annual Report, page 213 of the 10-K.
11. Bar graph showing the Net Noninterest Margin from 1990-1994, expressed
in terms of a percentage, on page 16 of the Annual Report, page 215 of the
10-K.
12. Pie chart showing Loan Composition for 1994, in terms of
percentages, on page 17 of the Annual Report, page 216 of the 10-K.
13. Map on page 39 of the Annual Report, page 238 of the 10-K.