Exhibit 13
The Appendix to the Proxy for Brenton Banks, Inc. for the 1997 calendar year.
173
BRENTON BANKS, INC.
APPENDIX TO THE PROXY STATEMENT
FISCAL YEAR 1997
TABLE OF CONTENTS
PAGE
General Information 1
Financial Highlights 2
Management's Discussion and Analysis 3
Consolidated Average Balances and Rates 11
Selected Financial Data 12
Consolidated Statements of Condition 13
Consolidated Statements of Operations 14
Consolidated Statements of Cash Flows 15
Consolidated Statements of Changes in
Common Stockholders' Equity 16
Notes to Consolidated Financial Statements 17
Management's Report 31
Independent Auditors' Report 31
Stock Information 32
Corporate Structure 33
BRENTON BANKS, INC.
GENERAL INFORMATION
Brenton Banks, Inc. (the "Company") is a bank holding company registered
under the Bank Holding Company Act of 1956 and a savings and loan holding
company under the Savings and Loan Holding Company Act. Brenton Banks, Inc.
was organized as an Iowa corporation under the name of Brenton Companies in
1948. Subsequently, the Company's name was changed to its current name,
Brenton Banks, Inc.
Brenton Banks, Inc. is the largest, Iowa-based bank holding company, with
46 service locations in metropolitan markets and regional economic centers
across the state. The Company offers a complete range of financial products
and services - including retail, agricultural, commercial and business
banking; trust and investment management services; investment, insurance and
real estate brokerage; mortgage banking; cash management and international
banking services; as well as our own proprietary mutual funds. The Company's
stock trades on the NASDAQ national market under the symbol BRBK.
BRENTON BANKS, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
1997 1996 1995
Operating Results
Net interest income $ 60,133,764 56,052,142 53,332,143
Provision for loan losses 3,900,000 2,900,000 1,864,801
Total noninterest income 27,505,789 23,327,441 17,846,740
Total noninterest expense 57,698,564 56,090,571 55,051,267
Income before income
taxes and minority
interest 26,040,989 20,389,012 14,262,815
Net income 18,010,107 14,015,430 10,407,354
Per Common Share*
Net income-basic $ 1.03 .78 .56
Net income-diluted 1.01 .76 .55
Cash dividends .273 .207 .186
Book value, including
unrealized gains
(losses)** 7.46 6.86 6.46
Book value, excluding
unrealized gains
(losses)*** 7.28 6.80 6.38
Closing bid price 19.63 12.56 8.78
At December 31
Assets $1,718,483,797 1,632,095,082 1,582,779,320
Loans 993,189,110 941,943,513 910,193,212
Nonperforming loans 6,712,000 6,167,000 5,619,000
Deposits 1,364,270,491 1,353,057,111 1,361,942,715
Common stockholders'
equity** 129,379,299 121,954,229 119,533,631
Ratios
Return on average common
stockholders' equity
(ROE)** 14.47% 11.76 9.04
Return on average assets
(including minority
interest) (ROA) 1.14 .92 .71
Net interest margin 4.16 4.03 3.89
Net noninterest margin (1.86) (2.09) (2.38)
Efficiency ratio 63.66 68.27 73.70
Loan to deposit ratio 72.80 69.62 66.83
Allowance for loan losses
to total loans 1.28 1.20 1.22
Primary capital to
assets*** 8.32 8.33 8.40
Equity to assets*** 7.36 7.41 7.47
Tier 1 leverage capital
ratio*** 7.63 7.62 7.45
Nonperforming loans as a
percent of loans .68 .65 .62
Net charge-offs as a
percent of average loans .26 .29 .18
Allowance for loan losses
as a percent of
nonperforming loans 189.69 183.69 197.01
<FN>
* Restated for the 2-for-1 stock split effective
February 1998 and the 10% common stock dividends
effective in 1997 and 1996.
** Including unrealized gains (losses) on securities
available for sale.
*** Excluding unrealized gains (losses) on securities
available for sale.
Management's Discussion and Analysis
For 1997, Brenton Banks, Inc. and Subsidiaries (the "Company") reported
net income of $18,010,107 compared to 1996 earnings of $14,015,430.
Capital Resources
Common stockholders' equity totaled $129,379,299 as of December 31, 1997,
a 6.1 percent increase from the prior year.
In January 1998, the Board of Directors (the "Board") declared a 2-for-1
stock split for holders of record as of February 10, 1998, payable February 20,
1998. As a result of this action, each shareholder received one additional
share of common stock for each share outstanding. The par value of the stock
was reduced from $5.00 to $2.50 and authorized shares were increased to 50
million.
In May 1997, the Board declared a 10 percent common stock dividend. As a
result of this action, each shareholder received one additional share of
common stock for every 10 shares they owned. Fractional shares were paid in
cash. All per-share data has been restated to reflect the 2-for-1 stock split
and the 10 percent common stock dividend. Cash dividends for 1997 totaled
$4,781,675, or $.273 per common share, which represents an increase of 31.9
percent over 1996 dividends of $.207 per share. The dividend payout ratio for
1997 was 27.0 percent of earnings per share.
As part of the Company's ongoing stock repurchase plan, 695,480 shares of
common stock (restated for the 2-for-1 stock split) were repurchased during
1997 at a cost of $10,014,087. Since the inception of the plan in 1994, the
Company has repurchased 1,996,746 shares at a total cost of $23,943,479. The
Board has extended this plan for 1998 by authorizing up to an additional $10
million for stock repurchase.
The Company continues to monitor its capital position to balance the goals
of maximizing return on average equity, while maintaining adequate capital
levels for regulatory purposes. The Company's risk-based core capital ratio
at December 31, 1997, was 10.88 percent and the total risk-based capital ratio
was 11.95 percent. These ratios exceeded the minimum regulatory requirements
of 4.00 and 8.00 percent, respectively. The Company's tier 1 leverage
capital ratio, which measures capital excluding intangible assets, was 7.63
percent at December 31, 1997, exceeding the regulatory minimum requirement
for well-capitalized institutions of 5.0 percent.
The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent Company") was
7.8 percent at December 31, 1997, compared to 9.2 percent at the end of 1996.
The Parent Company's $2 million line of credit with a regional bank was unused
throughout 1997. Long-term borrowings of the Parent Company at December 31,
1997, consisted entirely of $10,112,000 of capital notes.
Brenton Banks, Inc. common stock closed on December 31, 1997, at a bid
price of $19.63, an increase of 56.3 percent over the prior year-end. The
closing price at December 31, 1997, was 263.1 percent of the book value per
share of $7.46. The year-end stock price represented a price-to-1997-diluted-
earnings multiple of 19.4 times.
Brenton Banks, Inc. continues to pursue acquisition and expansion
opportunities which will fit the strategic direction of the company and enhance
the financial performance of the Company as well as 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.
Forward-Looking Information
Forward-looking information relating to the financial results or
strategies of the Company are referenced throughout Management's Discussion
and Analysis. The following paragraphs identify forward-looking statements
and the risks that need to be considered when reading those statements.
Forward-looking statements include such words as believe, expect,
anticipate, target, goal, objective or other words with similar meaning. The
Company is under no obligation to update such forward-looking information
statements.
The risks involved in the operations and strategies of the Company include
competition from other financial institutions, changes in interest rates,
changes in economic or market conditions and changes in regulations from
federal and state regulators. These risks, which are not all inclusive,
cannot be estimated.
Market Risk Management
Market risk is the risk of earnings volatility that results from adverse
changes in interest rates and market prices. The Company's market risk is
comprised primarily of interest rate risk arising from its core banking
activities of lending and deposit taking. Interest rate risk is the risk that
changes in market interest rates may adversely affect the Company's net
interest income. Management continually develops and applies strategies to
mitigate this risk. Management does not believe that the Company's primary
market risk exposures and how those exposures were managed in 1997 changed
when compared to 1996.
The Company uses a third-party computer software simulation modeling
program to measure its exposure to potential interest rate changes. For
various assumed hypothetical changes in market interest rates, numerous
other assumptions are made such as prepayment speeds on loans and securities
backed by mortgages, the slope of the Treasury yield curve, the rates and
volumes on the Company's deposit products and the rates and volumes on the
Company's loan production.
The following table sets forth the estimated changes in net interest
income (expressed as a percent of 1997 net interest income) for projected
hypothetical changes in market interest rates. As shown in the table, the
Company's net interest income is more sensitive in a falling rate scenario
than in a rising rate scenario. As market rates decline, the assumed speed
of fixed rate loan repayments increases, causing the funds received to be
reinvested at lower rates. Current interest rates on certain liabilities
are at a level that does not allow for significant downward repricing should
market interest rates decline significantly. As market rates increase, fixed
rate loans are less likely to prepay, therefore slowing the opportunity to
reinvest at the assumed higher rates. In either a rising or falling interest
rate environment, the Company believes it has taken actions to minimize the
actual impact on net interest income. Those actions include the origination
of variable-rate consumer and commercial loans, the use of fixed rate Federal
Home Loan Bank advances as alternatives to certificates of deposit and active
management of the investment securities portfolio to provide for cash flows
that will facilitate interest rate risk management. In selected cases, the
Company may enter into interest rate swaps, however, the amount of swaps at
December 31, 1997 and assumed in the projection of net interest income are
not material. The Company entered into an interest rate floor contract at
the end of 1997 to mitigate the effect falling interest rates would have on
certain deposit accounts with contracted minimum interest rates. Actual
changes in net interest income may differ from estimated changes set forth
in this table due to various risks and uncertainties concerning how actual
repricing opportunities will differ from assumed repricing opportunities.
Change in net interest income due to projected
hypothetical changes in market interest rates:
_________________________________________________________
Assumed changes
in market rates 1998 1999 2000
_______________ ____ ____ ____
-300 bps -4.8% -10.8% -14.1%
-200 bps -3.5% -8.3% -10.9%
-100 bps -2.1% -4.6% -6.2%
Flat -0.5% -1.4% -2.0%
+100 bps 0.6% 1.6% 2.3%
+200 bps -1.7% 0.3% 2.3%
+300 bps -3.6% -0.4% 3.0%
<FN>
(Changes in hypothetical interest rates are assumed to be instantaneous and
sustained parallel shifts in the yield curve.)
Asset/Liability Management
The Company has a fully-integrated asset/liability management system to
assist in managing the balance sheet. The process, which is used to project
the results of alternative investment decisions, includes the development of
simulations that reflect the effects of various interest rate scenarios on net
interest income. Management utilizes the simulations to manage interest rate
risk, the net interest margin and levels of net interest income.
The goal of asset/liability management is to structure the balance sheet
so net interest margin fluctuates in a narrow range during periods of changing
interest rates. The Company currently believes that net interest income would
fall by less than 5 percent if interest rates increased or decreased by 300
basis points over a one-year time horizon. This is within the Company's
policy limits.
The slope of the yield curve is also a major determinant in the net
interest income of the Company. Generally, the
steeper the intermediate treasury to LIBOR curve, the better the prospects for
net interest income improvement. This curve is very flat at this time.
To improve net interest income and lessen interest rate risk, management
continued its strategy of de-emphasizing fixed-rate portfolio residential real
estate loans with long repricing periods. When appropriate for interest rate
management purposes, the Company will consider securitization of real estate
loans. The Company continues to focus on reducing interest rate risk by
emphasizing growth in variable rate loans.
In addition to normal balance sheet instruments, the Company has utilized
Federal Home Loan Bank advances and interest rate swaps to reduce interest rate
risk.
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 investment
securities available for sale are readily marketable assets. Maturities of all
investment securities are managed to meet the Company's normal liquidity
needs. Investment securities available for sale may be sold prior to maturity
to meet liquidity needs, to respond to market changes or to adjust the
Company's interest rate risk position. Federal funds sold and assets
available for sale comprised 30.0 percent of the Company's total assets at
December 31, 1997.
Net cash provided from operations of the Company is another major source
of liquidity and totaled $8,523,584 in 1997, $25,015,045 in 1996 and
$8,388,374 in 1995. These strong cash flows from operations are expected to
continue in the foreseeable future.
The Company has historically maintained a stable deposit base and a
relatively low level of large deposits which result in a low dependence on
volatile liabilities. At December 31, 1997, the Company had advances of
$100,250,000 from the Federal Home Loan Bank ("FHLB") of Des Moines, of which
$90,250,000 were used as a means of providing long-term, fixed-rate funding for
certain fixed-rate assets and managing interest rate risk. The remaining
$10,000,000 represents an advance on a variable rate, short-term $10,000,000
line of credit used to fund mortgage loans originated for sale. The Company
had additional borrowing capacity available from the FHLB of approximately
$22 million at December 31, 1997.
The combination of high levels of potentially liquid assets, strong cash
flows from operations, low dependence on volatile liabilities and additional
borrowing capacity provided strong liquidity for the Company at December 31,
1997.
The Parent Company had sufficient cash flow and liquidity at December 31,
1997. The primary funding source for the Parent Company is dividends from its
subsidiaries. Dividends of approximately $15 million were available to be paid
to the Parent Company by subsidiary banks without reducing capital ratios below
regulatory minimums. At the end of 1997, the Parent Company had $3.6 million
of interest-bearing deposits with banks, a $2 million unused line of credit,
as well as additional borrowing capacity.
Results of Operations - 1997 Compared to 1996
Net Income
For the year ended December 31, 1997, Brenton Banks, Inc. recorded net
income of $18,010,107, an increase of 28.5 percent over 1996, which totaled
$14,015,430. Diluted earnings per common share were $1.01 compared to $.76 for
1996. Return on average assets (ROA) was 1.14 percent in 1997, compared to .92
percent in 1996. The return on average equity (ROE) was 14.47 percent,
compared to 11.76 percent one year earlier.
Net Interest Income
Net interest income rose 7.3 percent to $60,133,764 for 1997. The
increase in net interest income is directly attributable to both favorable
rate and volume variances. Average earning assets increased 4.3 percent over
1996 while average interest-bearing liabilities increased 4.0 percent. The
average rate earned on earning assets increased 15 basis points, while the
average rate paid on interest-bearing liabilities increased only 4 basis
points.
The net interest spread, which is the difference between the rate earned
on assets and the rate paid on liabilities, rose to 3.69 percent from 3.58
percent last year. Net interest margin, which is tax equivalent net interest
income as a percentage of
average earning assets, averaged 4.16 percent in 1997 compared to 4.03 percent
in 1996. To improve net interest margin and lessen interest rate risk, the
Company continued its strategy of de-emphasizing portfolio real estate loans
and developing more commercial, agricultural, business and consumer loans.
Loan Quality
Loan quality remains strong with nonperforming loans at December 31, 1997
totaling $6,712,000 or .68 percent of loans. This compares to .65 percent at
December 31, 1996, or $6,167,000. Nonperforming loans include loans on
nonaccrual status, loans that have been renegotiated to below market interest
rates or terms, and loans past due 90 days or more.
The allowance for loan losses, which totaled $12.7 million, represented
189.69 percent of nonperforming loans at the end of 1997, compared to 183.69
percent one year ago. The provision for loan losses totaled $3,900,000 for the
year ended December 31, 1997, compared to $2,900,000 for 1996. The increase in
the provision of $1,000,000 is primarily related to the $50.5 million increase
in average loans outstanding during 1997 and projected future loan growth. The
Company's net charge-offs as a percent of average loans were .26 percent for
1997 compared to .29 percent for 1996, both of which were better than
historical industry peer group averages. Loan losses for 1997 were primarily
concentrated in the consumer loan portfolio.
Loan quality control and risk management are carefully balanced with goals
for loan growth. The Company has a formal structure for reviewing and
approving all loans. Documentation and loan quality reviews are performed
routinely by internal loan review personnel, as well as by regulatory examiners.
The allowance for loan losses represents a reserve available to absorb
estimated possible future loan losses within the loan 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 by lending officers
and internal loan review personnel.
Using the Company's standard evaluation process, individual loan officers
evaluate loan characteristics, the borrower's financial condition and
collateral values and rate all loans on a 1 to 8 rating scale. From these
assessments, the Reserve Adequacy Committee performs quarterly reviews of the
loan portfolio quality, quantifies the results and reviews the calculations
of the required allowance for loan losses. In addition, the Reserve Adequacy
Committee approves charge-offs and reviews subsequent collection action plans
for problem credits.
Management believes the allowance for loan losses at December 31, 1997,
was sufficient to absorb potential loan losses within the portfolio.
Net Noninterest Margin
To measure operating efficiency, the Company uses the net noninterest
margin, which is the difference between noninterest income (excluding security
gains or losses) and noninterest expense as a percent of average assets. For
1997, the net noninterest margin improved to (1.86) percent compared to (2.09)
percent in 1996. Another ratio that the Company utilizes to measure
productivity is the efficiency ratio. This ratio divides noninterest expense
by the sum of tax-equivalent net interest income plus noninterest income
(excluding gains and losses on the sale of securities and loans). For the
year ended December 31, 1997, the Company's efficiency ratio was 63.66
percent, compared to 68.27 percent one year ago. To enhance operating
efficiency throughout the organization, the Company continues to focus on
cost management and the development of strategic improvements in noninterest
income and expense.
Noninterest Income
The Company achieved record levels of noninterest income in 1997. For
1997, total noninterest income (excluding securities transactions) increased
17.4 percent to $27,011,967 from $23,006,185 one year ago. Noninterest income
(excluding securities gains and losses) for 1997 represented 1.6 percent of
average assets and 31.0 percent of total operating income, which were the
highest levels in the history of the Company. All categories of noninterest
income, except insurance commissions and fees, reflect strong growth from the
prior year.
Service charges on deposit accounts increased 8.6 percent in 1997 to
$7,290,765. This growth related to a continued focus on collecting a higher
percentage of fees assessed and increased sales of fee-generating accounts,
particularly commercial accounts.
Investment brokerage commissions totaled $4,808,048 for 1997, an increase
of 27.7 percent over the 1996 total of $3,766,436. Strong financial markets
and successful new sales initiatives drove the increase in this category.
Mortgage banking income totaled $3,274,215 for 1997 compared to $2,168,593
in 1996, an increase of 51.0 percent. This increase is attributable to a
higher volume of real estate mortgage loan originations, which totaled $179.1
million compared to $110.8 million in 1996.
Fiduciary revenues climbed 14.3 percent to $3,136,078 in 1997 compared to
$2,744,530 in 1996. This increase in revenue is due to increased volumes of
personal trusts, investment management fees and employee benefit plan fees.
Insurance commissions and fees declined 3.8 percent to $2,803,983 in 1997
due to the sale of the Company's insurance agency in Marshalltown, Iowa. The
Company is committed to the insurance business but desires to grow its
insurance operations through other distribution channels. The decrease in
property and casualty commission income due to the agency sale was largely
off-set by a 68.8 percent increase in credit-related insurance commissions.
The significant increase was due to the strong increase in direct consumer
lending and increased sales efforts during 1997.
Other service charges and fees increased 23.8 percent to $3,441,454 in
1997 compared to 1996 due to increases from letters of credit fees, fees
received from purchased receivables and real estate commissions.
Other operating income increased by $338,840 from one year ago. The
increase was due to income from bank-owned life insurance policies which did
not exist until December 1996 and a gain on the sale of the Company's insurance
agency as discussed above. Several one-time revenue items also affected this
category in 1996.
Securities transactions produced an additional increase in noninterest
income. Securities gains of $493,822 were recorded in 1997 versus gains of
$321,256 in 1996.
The growth in various noninterest income categories has enabled the
Company to reach targeted levels of total income. The Company will continue
to focus on generating fee income by providing a broad array of financial
products and services to our clients. The continued growth rate of fee
income could be vulnerable to future economic conditions and competition by
other financial institutions that cannot be estimated by the Company.
Noninterest Expense
Total noninterest expense increased only 2.9 percent in 1997 to
$57,698,564 from $56,090,571 one year ago. Exclusive of a one-time special
assessment by the FDIC totaling $1,288,000 in 1996, noninterest expense
increased 5.3 percent.
Compensation, the largest component of noninterest expense, increased
$1,363,843, or 5.4 percent, over 1996. This increase is primarily related to
commissions and incentives paid on higher sales of the fee-related products
discussed above, and expense tied to bonuses and a stock performance plan which
were both directly related to higher 1997 earnings and the Company's advancing
stock price. Fixed salaries, those that are not based on commissions, which
comprised 67.5 percent of total compensation expense, actually decreased by 3.8
percent compared to 1996. The number of full-time equivalent employees
decreased by .2 and 3.8 percent at December 31, 1997, and 1996, respectively.
The total increase in compensation expense led to a proportionate increase in
employee benefits. The Company has adopted a pay for performance philosophy
and is focusing more on variable compensation tied to performance.
Occupancy expense totaled $5,609,600 for 1997, compared to $5,502,904 for
1996, an increase of 1.9 percent. The increase was primarily related to
building repairs and maintenance. Depreciation expense declined slightly and
lease expense increased due to the sale and relocation of one facility in
late 1996.
Furniture and equipment expense declined to $3,634,336, a 2.4 percent
reduction from the prior year. Decreases in furniture and equipment
depreciation, repairs and maintenance, and furniture and equipment rentals more
than offset an increase in depreciation expense for technology-related
equipment. The Company continues to focus on using technology to improve
efficiency and provide better service to our clients.
Data processing expense increased $258,910, or 10.0 percent, due to
increased costs during 1997 associated with contracted core processing.
Expense related to the FDIC deposit assessments declined $1,520,230 from
1996 to $281,416. Last year's expense included the previously-discussed, one-
time $1,288,000 special assessment to fully fund SAIF. The Company continues
to pay the lowest premiums available under the FDIC's risk-based premium system.
Marketing and supplies expenses declined 22.5 and 15.2 percent,
respectively, for 1997. These cost reductions were the result of concerted
efforts to minimize the growth of overall noninterest expense and renegotiating
pricing with various vendors. Also, 1996 supplies expense included one-time
charges related to the 1995 merger of the commercial banks.
Other operating expenses increased by $2,040,604, or 21.3 percent, when
comparing 1997 results to 1996. The increase was primarily due to increases in
check processing expense, consulting and legal fees and miscellaneous losses.
The "Year 2000 Issue", which has received much recent media coverage, is a
top priority for Brenton. The Company's core loan and deposit applications are
ALLTEL Information Services, Inc. ("ALLTEL") products and Brenton outsources
the data processing function to ALLTEL. Brenton and ALLTEL are working in
partnership to address the Year 2000 issues of the core application programs as
well as all other computer software programs used in the Company. The
incremental expense associated with becoming Year 2000 compliant is not
anticipated to be material. However, there is an opportunity cost associated
with this project in that the people involved are regular Brenton and ALLTEL
employees who would normally be spending their time on other projects. There
will be benefits as a result of this project because systems are being improved
in addition to becoming Year 2000 compliant.
The Company has a Year 2000 Committee and Plan in place and has been
executing on that plan. The Company expects to have all core application
systems Year 2000 compliant by the end of 1998 and all other software products
compliant by early 1999, with further testing to take place throughout the
remainder of 1999.
The Company continues to focus on cost management and evaluates all major
expense items in an effort to control the growth rate of noninterest expenses.
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 28.0 percent for 1997 compared to
28.3 percent for 1996.
Results of Operations - 1996 Compared to 1995
Net Income
For the year ended December 31, 1996, Brenton Banks, Inc. recorded net
income of $14,015,430, an increase of 34.7 percent over 1995, which totaled
$10,407,354. Diluted earnings per common share were $.76 compared to $.55 for
1995. Return on average assets (ROA) was .92 percent in 1996, compared to .71
percent in 1995. The return on average equity (ROE) was 11.76 percent,
compared to 9.04 percent one year earlier.
Net Interest Income
Net interest income rose 5.1 percent to $56,052,142 for 1996. Both
average earning assets and average interest-bearing liabilities increased
1.0 percent from 1995. The Company experienced a favorable change in the
mix of earning assets and interest-bearing liabilities which contributed to
an increase in net interest margin of 14 basis points over 1995. The
average rate earned on earning assets declined 6 basis points, while the
average rate paid on interest-bearing liabilities declined 23 basis points.
The net interest spread rose to 3.58 percent from 3.41 percent last year.
Net interest margin averaged 4.03 percent in 1996 compared to 3.89 percent in
1995.
Loan Quality
Loan quality was strong in 1996 with nonperforming loans at December 31,
1996, totaling $6,167,000 or .65 percent of loans. This compares to .62
percent at December 31, 1995, or $5,619,000. The majority of the increase
in nonperforming
loans was related to two loans that were restructured within the commercial
loan portfolio.
The allowance for loan losses, which totaled $11.3 million, represented
183.69 percent of nonperforming loans at the end of 1996, compared to 197.01
percent one year earlier. The provision for loan losses totaled $2,900,000 for
the year ended December 31, 1996, compared to $1,864,801 for 1995. The
increase of $1,035,199 in provision is primarily related to a $933,535, or
54.7 percent, increase in net loan charge-offs during 1996. The Company's
net charge-offs as a percent of average loans were .29 percent for 1996
compared to .18 percent for 1995. Loan losses for 1996 were concentrated in
the consumer loan portfolio.
Net Noninterest Margin
For 1996, the net noninterest margin improved to (2.09) percent compared
to (2.38) percent in 1995. At December 31, 1996, the Company's efficiency
ratio was 68.27 percent, compared to 73.70 percent in 1995.
Noninterest Income
For 1996, total noninterest income (excluding securities transactions)
increased 28.9 percent to $23,006,185 from $17,849,743 one year earlier.
Noninterest income (excluding securities gains and losses) for 1996 represented
1.45 percent of average assets and 29.10 percent of total operating income.
All categories of noninterest income reflect strong gains from the prior year.
Service charges on deposit accounts rose 21.0 percent in 1996 compared to
1995. This growth related to full implementation of standardized service
charges as well as a new focus on collecting a higher percentage of fees
assessed.
Investment brokerage commissions totaled $3,766,436 for 1996, an increase
of 23.7 percent over the 1995 total of $3,044,107. Strong financial markets
and successful new sales initiatives drove the increase in this category.
Insurance commissions and fees increased 24.6 percent to $2,915,666 in
1996 due primarily to higher sales of both credit-related insurance and
insurance agency operations.
Mortgage banking income totaled $2,168,593 for 1996 compared to $1,427,342
in 1995, an increase of 51.9 percent. This increase was attributable to a
higher volume of real estate mortgage loan originations, which totaled $110.8
million, and a greater percentage of loans being sold into the secondary
market with the servicing rights being retained.
Fiduciary income rose 13.2 percent to $2,744,530 in 1996 compared to
$2,425,105 in 1995. This increase in revenue was related to increased volumes
of personal trusts, investment management fees and employee benefit plans.
Other operating income increased by $1,288,140 when comparing 1996 to
1995. Gains on the sale of loans of $83,440 were recorded in 1996 versus
losses in 1995 of $232,454. Several one-time revenue items affected this
category in both periods.
Securities transactions produced an additional increase in noninterest
income. Securities gains of $321,256 were recorded in 1996 versus losses of
$3,003 in 1995.
Noninterest Expense
Total noninterest expense increased 1.9 percent in 1996 to $56,090,571
from $55,051,267 in 1995. Noninterest expense for 1996 included a
nonrecurring charge for a special assessment by the FDIC. This assessment
was based upon all deposits insured by the Savings Association Insurance
Fund (SAIF) as of March 31, 1995, and equaled approximately 65.7 basis
points per $100 of SAIF-insured deposits. Brenton's assessment was
$1,288,000. Excluding this one-time assessment, noninterest expense would
have actually decreased by .5 percent.
Compensation, the largest component of noninterest expense, increased
$2,645,244 or 11.6 percent over 1995. This increase was primarily related to
commissions paid on higher sales of fee-related products, expense tied to a
stock performance plan and severance costs. Fixed salaries actually decreased
by 6.6 percent. The number of full-time equivalent employees decreased by
3.8 percent and 13.6 percent at December 31, 1996 and 1995, respectively.
The total increase in compensation expense led to a proportionate increase
in employee benefits.
Several new facilities and remodeling projects were completed in 1996 and
1995, which explains the combined increase in the categories of occupancy and
furniture and equipment expense. Occupancy expense totaled $5,502,904 for
1996, compared to $4,912,417 for 1995. Increases within the occupancy
category were associated with rents, leases and depreciation expense related
to these new facilities. Results for 1996 included the first full year of
expense for these new facilities.
Furniture and equipment expense decreased $21,871 from the prior year.
Depreciation expense increased by $197,130 due to technology updates throughout
the Company. Decreases in repairs and maintenance, and furniture and equipment
rentals offset the increase in depreciation expense. During 1996, 62.8 percent
of the Company's capital expenditures were in the technology area.
Data processing expense totaled $2,591,485, an increase of 8.9 percent
compared to 1995. This increase was related to new data servicing contracts in
1996 for mortgage loan processing and personal computer network maintenance and
support. The expense associated with core main frame processing actually
decreased which offset the cost of the new contracts.
Expense related to the FDIC deposit assessments increased 1.0 percent in
1996 to $1,801,646, which includes the previously-discussed, one-time
$1,288,000 special assessment to fully fund SAIF. This assessment related to
the deposits insured by SAIF, which represented approximately 16.4 percent of
the Company's total deposits at the end of 1996.
Other operating expenses decreased $2.6 million, or 21.2 percent, when
comparing 1996 results to 1995. This decline was the result of benefits
derived in 1996 from the 1995 merger of the Company's 13 commercial banks
into one bank charter, cost control measures and one time costs incurred
in 1995.
Income Taxes
The Company's income tax strategies include reducing income taxes by
purchasing securities and originating loans that produce tax-exempt income.
The effective rate of income tax expense as a percent of income before income
tax and minority interest was 28.3 percent for 1996 compared to 22.5 percent
for 1995.
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCES AND RATES
Average Balances (In thousands) 1997 1996 1995 1994 1993
Assets:
Cash and due from banks $ 58,681 65,439 57,138 46,301 46,025
Interest-bearing deposits
with banks 2,460 1,393 1,076 124 762
Federal funds sold and
securities purchased under
agreements to resell 31,472 26,188 39,763 37,666 23,725
Trading account securities 12 --- --- 116 ---
Investment securities:
Available for sale-taxable 348,232 330,002 244,786 245,913 53,174
Available for sale-tax-exempt 99,868 85,471 100,859 132,040 ---
Held to maturity-taxable 12,700 46,271 65,959 35,794 299,993
Held to maturity-tax-exempt 56,204 51,639 50,235 44,584 164,520
Loans held for sale 10,284 7,983 5,908 2,575 6,165
Loans 970,115 919,578 945,724 936,370 802,088
Allowance for loan losses (12,171) (11,440) (11,166) (10,502) (9,615)
Premises and equipment 29,841 31,728 31,436 24,545 23,045
Other 41,771 28,642 29,508 25,663 26,543
__________ _________ _________ _________ _________
$ 1,649,469 1,582,894 1,561,226 1,521,189 1,436,425
Liabilities and Stockholders'
Equity:
Deposits
Noninterest-bearing $ 139,480 131,051 128,770 127,464 119,322
Interest-bearing:
Demand* 81,430 376,259 355,819 250,520 217,754
Savings* 551,509 241,250 231,633 294,715 299,640
Time 567,258 583,508 626,497 625,981 622,789
__________ _________ _________ _________ _________
Total deposits 1,339,677 1,332,068 1,342,719 1,298,680 1,228,525
Federal funds purchased and
securities sold under agreements
to repurchase 78,234 59,276 40,237 62,656 42,715
Other short-term borrowings 53,223 17,295 6,536 4,860 33
Accrued expenses and other
liabilities 17,097 17,520 14,896 13,254 12,805
Long-term borrowings 32,056 33,094 37,264 26,500 14,077
__________ _________ _________ _________ _________
Total liabilities 1,520,287 1,459,253 1,441,652 1,404,950 1,329,135
Minority interest in consolidated
subsidiaries 4,691 4,471 4,391 4,290 4,150
Common stockholders' equity 124,491 119,170 115,183 111,949 103,140
__________ _________ _________ _________ _________
$ 1,649,469 1,582,894 1,561,189 1,521,189 1,436,425
Summary of Average Interest Rates
Average rates earned:
Interest-bearing deposits with
banks 4.80% 4.87 6.20 6.65 2.88
Trading account securities 4.26 --- --- 6.36 ---
Federal funds sold and securities
purchased under agreements to
resell 5.54 5.41 5.69 4.53 2.05
Investment securities:
Available for sale-taxable 6.31 6.08 5.96 5.30 5.28
Available for sale-tax exempt
(tax equivalent basis) 7.04 7.13 6.71 6.37 ---
Held to maturity-taxable 6.39 6.22 6.17 5.20 5.54
Held to maturity-tax-exempt
(tax equivalent basis) 6.72 6.68 8.05 7.70 6.97
Loans held for sale 7.89 8.47 6.71 7.50 8.43
Loans 8.82 8.69 8.69 8.14 8.77
Average rates paid:
Deposits 4.11% 4.12 4.37 3.55 3.70
Federal funds purchased and
securities sold under agreements
to repurchase 4.36 4.17 4.08 3.38 2.41
Other short-term borrowings 5.98 5.87 5.67 5.42 3.63
Long-term borrowings 6.86 7.07 7.03 6.86 8.60
Average yield on interest-earning
assets 7.95% 7.80 7.86 7.31 7.57
Average rate paid on interest-
bearing liabilities 4.26 4.22 4.45 3.62 3.71
Net interest spread 3.69 3.58 3.41 3.69 3.86
Net interest margin 4.16 4.03 3.89 4.12 4.28
<FN>
* The variance in average balances between 1997 and 1996 is due to an internal
reclassification in late 1996 of certain accounts. The reclassification was
implemented to reduce Federal Reserve Bank reserve requirements.
BRENTON BANKS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Year-end Balances
(In thousands) 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
Total assets $1,718,484 $1,632,095 1,582,779 1,581,327 1,480,596 1,431,140 1,360,942 1,274,301 961,370 921,207
Interest-earning assets 1,578,923 1,497,600 1,461,218 475,473 1,400,709 1,323,252 1,267,402 1,181,172 883,721 845,571
Interest-bearing liabilities 1,406,258 1,335,609 1,300,508 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597 769,717 733,133
Noninterest-bearing
deposits 161,007 153,284 143,220 136,548 127,132 137,212 115,479 125,626 113,349 118,392
Long-term borrowings 36,662 34,860 38,178 28,939 20,055 13,284 13,634 12,675 14,701 16,215
Preferred stock --- --- --- --- --- --- --- --- --- ---
Common stockholders'
equity** 129,379 121,954 119,534 110,430 112,418 97,430 86,712 77,258 63,522 56,401
Results of operations
(In thousands)
Interest income $ 118,239 111,383 111,040 101,223 98,656 106,560 115,561 106,826 85,722 76,745
Interest expense 58,105 55,331 57,708 45,772 44,427 54,773 68,687 64,431 49,102 43,180
Net interest income 60,134 56,052 53,332 55,451 54,229 51,787 46,874 42,395 36,620 33,565
Provision for loan losses 3,900 2,900 1,865 1,988 1,252 1,411 799 869 760 1,214
Net interest income after
provision for loan losses 56,234 53,152 51,467 53,463 52,977 50,376 46,075 41,526 35,860 32,351
Noninterest income 27,506 23,327 17,847 16,593 17,863 14,684 12,715 11,554 10,113 10,367
Noninterest expense 57,699 56,090 55,051 56,657 50,415 46,591 42,284 37,820 32,781 32,066
Income before income
taxes and minority
interest 26,041 20,389 14,263 13,399 20,425 18,469 16,506 15,260 13,192 10,652
Income taxes 7,288 5,771 3,205 2,701 5,508 4,884 4,308 4,388 4,016 2,527
Minority interest 743 603 651 591 667 632 539 533 472 422
Net income 18,010 14,015 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,703
Preferred stock dividend
requirement --- --- --- --- --- --- --- --- --- 81
Net income available
to common stockholders $ 18,010 14,015 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,622
Average common shares
outstanding
(In thousands)* 17,505 18,092 18,569 19,095 18,994 18,829 18,773 18,741 17,414 17,414
Per common share*
Net income-basic $ 1.03 .78 .56 .53 .75 .69 .62 .55 .50 .44
Net income-diluted 1.01 .76 .55 .52 .74 .68 .61 .55 .49 .44
Cash dividends .273 .207 .186 .182 .165 .145 .134 .113 .091 .048
Common stockholders'
equity*** 7.28 6.80 6.38 6.07 5.74 5.15 4.61 4.12 3.65 3.24
Selected operating ratios
Return on average assets
(including minority
interest) 1.14% .92 .71 .70 1.04 .98 .93 .95 1.00 .90
Return on average common
stockholders' equity** 14.47 11.76 9.04 9.03 13.82 14.13 14.27 14.39 14.50 14.34
Equity to assets*** 7.36 7.41 7.47 7.28 7.40 6.81 6.37 6.06 6.61 6.12
Common dividend payout 27.03 27.24 33.82 35.00 22.30 21.32 21.97 20.55 18.57 10.91
Allowance for loan losses
as a percent of loans 1.28 1.20 1.22 1.12 1.12 1.20 1.14 1.25 1.55 1.60
Net charge-offs to average
loans outstanding .26 .29 .18 .10 .05 .13 .15 .12 .08 .18
<FN>
* Restated for 2-for-1 stock split, effective February 1998, 10% common stock
dividends effective in 1997 and 1996,
3-for-2 stock split effective in 1994 and 2-for-1 stock split effective in 1990.
** Including unrealized gains (losses) on securities available for sale.
*** Excluding unrealized gains (losses) on securities available for sale.
</table
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
December 31 1997 1996
Assets:
Cash and due from banks (note 2) $ 77,468,210 76,900,524
Interest-bearing deposits with banks 1,319,700 731,554
Federal funds sold and securities purchased
under agreements to resell 9,300,000 15,200,000
Trading account securities 77,220 ---
Investment securities:
Available for sale (note 3) 486,653,872 461,099,272
Held to maturity (market value of
$69,852,000 and $73,316,000
at December 31, 1997, and 1996,
respectively) (note 3) 69,079,622 72,754,985
Investment securities 555,733,494 533,854,257
Loans held for sale 19,303,411 5,870,298
Loans (notes 4, 9 and 10) 993,189,110 941,943,513
Allowance for loan losses (note 5) (12,732,131) (11,328,359)
Loans, net 980,456,979 930,615,154
Premises and equipment (notes 6 and 10) 28,898,589 30,379,446
Accrued interest receivable 15,233,682 14,417,786
Other assets (notes 4 and 8) 30,692,512 24,126,063
$ 1,718,483,797 1,632,095,082
Liabilities and Stockholders' Equity:
Deposits (note 7):
Noninterest-bearing $ 161,007,156 153,284,094
Interest-bearing:
Demand 117,664,352 99,277,477
Savings 527,364,856 527,791,360
Time 558,234,127 572,704,180
Total deposits 1,364,270,491 1,353,057,111
Federal funds purchased and securities sold
under agreements to repurchase 92,632,576 66,826,120
Other short-term borrowings (note 9) 73,700,000 34,150,000
Accrued expenses and other liabilities 16,980,763 16,633,068
Long-term borrowings (note 10) 36,662,000 34,860,024
Total liabilities 1,584,245,830 1,505,526,323
Minority interest in consolidated subsidiaries 4,858,668 4,614,530
Redeemable preferred stock, $1 par; 500,000
shares authorized; issuable in series, none
issued --- ---
Common stockholders' equity (notes 12, 13, 14
and 16):
Common stock, $2.50 par; 50,000,000 shares
authorized; 17,334,048 and 16,171,368 shares
issued and outstanding at December 31, 1997,
and 1996, respectively 43,335,120 40,428,420
Capital surplus --- ---
Retained earnings 82,824,333 80,448,768
Unrealized gains on securities available for
sale, net 3,219,846 1,077,041
Total common stockholders' equity 129,379,299 121,954,229
$ 1,718,483,797 1,632,095,082
<FN>
Commitments and contingencies (notes 17 and 18).
See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31 1997 1996 1995
Interest Income:
Interest and fees on loans (note 4) $ 86,020,464 80,301,707 82,525,850
Interest and dividends on investments:
Available for sale-taxable 21,969,148 20,063,114 14,577,652
Available for sale-tax-exempt 4,929,898 4,250,463 4,446,824
Held to maturity-taxable 811,729 2,878,982 4,069,617
Held to maturity-tax-exempt 2,647,149 2,404,155 3,090,185
Interest on federal funds sold and
securities purchased under agreements
to resell 1,742,284 1,416,539 2,263,734
Other interest income 118,695 68,157 66,705
___________ ___________ ___________
Total interest income 118,239,367 111,383,117 111,040,567
Interest Expense:
Interest on deposits (note 7) 49,310,346 49,507,425 53,075,352
Interest on federal funds purchased and
securities sold under agreements to
repurchase 3,413,432 2,469,939 1,641,516
Interest on other short-term borrowings
(note 9) 3,183,053 1,015,110 370,642
Interest on long-term borrowings (note 10) 2,198,772 2,338,501 2,620,914
___________ ___________ ___________
Total interest expense 58,105,603 55,330,975 57,708,424
Net interest income 60,133,764 56,052,142 53,332,143
Provision for loan losses (note 5) 3,900,000 2,900,000 1,864,801
___________ ___________ ___________
Net interest income after provision for
loan losses 56,233,764 53,152,142 51,467,342
Noninterest Income:
Service charges on deposit accounts 7,290,765 6,712,874 5,547,796
Investment brokerage commissions 4,808,048 3,766,436 3,044,107
Mortgage banking income 3,274,215 2,168,593 1,427,342
Fiduciary income 3,136,078 2,744,530 2,425,105
Insurance commissions and fees 2,803,983 2,915,666 2,339,817
Other service charges, collection and
exchange charges, commissions and fees 3,441,454 2,779,502 2,435,132
Net realized gains (losses) from
securities available for sale (note 3) 493,822 321,256 (3,003)
Other operating income 2,257,424 1,918,584 630,444
___________ ___________ ___________
Total noninterest income 27,505,789 23,327,441 17,846,740
Noninterest Expense:
Compensation 26,824,307 25,460,464 22,815,220
Employee benefits (note 15) 4,303,104 4,245,682 4,158,580
Occupancy expense of premises, net
(notes 6 and 17) 5,609,600 5,502,904 4,912,417
Furniture and equipment expense
(notes 6 and 17) 3,634,336 3,725,150 3,747,021
Data processing expense (note 18) 2,850,395 2,591,485 2,379,920
Marketing 1,361,963 1,756,473 1,741,390
Supplies 1,195,762 1,409,690 1,326,928
FDIC deposit insurance assessment 281,416 1,801,646 1,783,213
Other operating expense 11,637,681 9,597,077 12,186,578
___________ ___________ ___________
Total noninterest expense 57,698,564 56,090,571 55,051,267
Income before income taxes and
minority interest 26,040,989 20,389,012 14,262,815
Income taxes (note 8) 7,287,628 5,770,600 3,204,687
___________ ___________ ___________
Income before minority interest 18,753,361 14,618,412 11,058,128
Minority interest 743,254 602,982 650,774
___________ ___________ ___________
Net income $ 18,010,107 14,015,430 10,407,354
Per common share (notes 1 and 13):
Net income-basic $ 1.03 .78 .56
Net income-diluted 1.01 .76 .55
Cash dividends .273 .207 .186
<FN>
See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31 1997 1996 1995
Operating Activities:
Net income $ 18,010,107 14,015,430 10,407,354
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses 3,900,000 2,900,000 1,864,801
Depreciation and amortization 4,216,828 4,301,776 4,097,022
Deferred income taxes (685,223) 949,396 (25,181)
Net realized (gains) losses from
securities available for sale (493,822) (321,256) 3,003
Net (increase) decrease in loans held
for sale (13,433,113) 2,837,011 (6,602,817)
Net increase in accrued interest
receivable and other assets (3,501,066) (1,402,881) (1,678,132)
Net increase in accrued expenses, other
liabilities and minority interest 509,873 1,735,569 322,324
_____________ ____________ ____________
Net cash provided by operating activities 8,523,584 25,015,045 8,388,374
Investing Activities:
Investment securities available for sale:
Purchases (304,725,316) (289,895,560) (242,871,379)
Maturities 163,857,601 150,480,123 278,575,538
Sales 119,401,553 67,547,581 5,577,835
Investment securities held to maturity:
Purchases (26,528,449) (45,046,248) (121,543,300)
Maturities 30,203,812 79,614,914 59,896,255
Net (increase) decrease in loans (53,741,825) (26,364,596) 28,502,974
Purchase of other assets for
investment (5,000,000) (10,017,329) ---
Purchases of premises and equipment (2,526,958) (2,734,491) (9,733,181)
Proceeds from sales of premises and
equipment 225,080 1,356,634 360,470
_____________ ____________ ____________
Net cash used by investing activities (78,834,502) (75,058,972) (1,234,788)
Financing Activities:
Net increase in noninterest-bearing,
interest-bearing demand and savings
deposits 25,683,433 22,335,320 51,054,199
Net increase (decrease) in time deposits (14,470,053) (31,220,924) (29,394,594)
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase 25,806,456 25,718,709 (29,596,325)
Net increase (decrease) in other
short-term borrowings 25,550,000 15,500,000 (9,500,000)
Proceeds of long-term borrowings 17,806,000 14,604,000 12,429,000
Repayment of long-term borrowings (2,004,024) (1,771,779) (3,190,610)
Dividends on common stock (4,781,675) (3,748,653) (3,498,220)
Proceeds from issuance of common stock
under the employee stock purchase plan 551,247 71,675 ---
Proceeds from issuance of common stock
under the stock option plan 1,286,157 290,748 187,213
Proceeds from issuance of common stock
under the long-term stock compensation
plan 246,915 334,834 361,602
Payment for shares reacquired under common
stock repurchase plan (10,014,087) (8,248,331) (4,830,111)
Payment for fractional shares resulting
from common stock dividend (16,399) (13,744) ---
_____________ ____________ ____________
Net cash provided (used) by financing
activities 65,643,970 33,851,855 (15,977,846)
_____________ ____________ ____________
Net decrease in cash and
cash equivalents (4,666,948) (16,192,072) (8,824,260)
Cash and cash equivalents at the
beginning of the year 92,832,078 109,024,150 117,848,410
_____________ ____________ ____________
Cash and cash equivalents at the end
of the year $ 88,165,130 92,832,078 109,024,150
<FN>
See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Common Capital Retained Unrealized
Stock Surplus Earnings Gains (Losses) Total
Balance, December 31,
1994 $39,357,730 5,210,344 70,979,317 (5,117,046) 110,430,345
Net income --- --- 10,407,354 --- 10,407,354
Net change in
unrealized gains
(losses) --- --- --- 6,475,448 6,475,448
Dividends on common
stock
$.186 per share* --- --- (3,498,220) --- (3,498,220)
Issuance of shares of
common stock under
the stock option
plan (note 16) 98,750 88,463 --- --- 187,213
Issuance of shares of
common stock under
the long-term stock
compensation plan
(note 16) 100,445 261,157 --- --- 361,602
Shares reacquired under
the common stock
repurchase plan
(note 13) (1,290,665) (3,539,446) --- --- (4,830,111)
Balance, December 31,
1995 38,266,260 2,020,518 77,888,451 1,358,402 119,533,631
Net income --- --- 14,015,430 --- 14,015,430
Net change in
unrealized gains
(losses) --- --- --- (281,361) (281,361)
Dividends on common
stock
$.207 per share* --- --- (3,748,653) --- (3,748,653)
10% common stock
dividend (note 13) 3,684,215 --- (3,684,215) --- ---
Fractional shares
resulting from common
stock dividend --- --- (13,744) --- (13,744)
Issuance of shares of
common stock under
the stock option
plan (note 16) 128,000 162,748 --- --- 290,748
Issuance of shares of
common stock under
the long-term stock
compensation plan
(note 16) 73,590 261,244 --- --- 334,834
Issuance of shares
of common stock
under the employee
stock purchase plan
(note 16) 14,855 56,820 --- --- 71,675
Shares reacquired under
the common stock
repurchase plan
(note 13) (1,738,500) (2,501,330) (4,008,501) --- (8,248,331)
Balance, December 31,
1996 $40,428,420 --- 80,448,768 1,077,041 121,954,229
Net income --- --- 18,010,107 --- 18,010,107
Net change in
unrealized gains
(losses) --- --- --- 2,142,805 2,142,805
Dividends on common
stock
$.273 per share** --- --- (4,781,675) --- (4,781,675)
10% common stock
dividend (note 13) 3,966,905 --- (3,966,905) --- ---
Fractional shares
resulting from common
stock dividend --- --- (16,399) --- (16,399)
Issuance of shares of
common stock under
the stock option
plan (note 16) 501,760 784,397 --- --- 1,286,157
Issuance of shares of
common stock under
the long-term stock
compensation plan
(note 16) 82,945 163,970 --- --- 246,915
Issuance of shares
of common stock
under the employee
stock purchase plan
(note 16) 93,790 457,457 --- --- 551,247
Shares reacquired under
the common stock
repurchase plan
(note 13) (1,738,700) (1,405,824) (6,869,563) --- (10,014,087)
Balance, December 31,
1997 $43,335,120 --- 82,824,333 3,219,846 129,379,299
<FN>
* Reflects the 2-for-1 stock split effective February 1998 and the 10% common stock
dividends effective in 1997 and 1996.
** Reflects the 2-for-1 stock split effective February 1998 and the 10% common stock
dividend effective in 1997.
See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) Summary of Significant Accounting Policies and
Related Matters
Nature of Operations Brenton Banks, Inc. and subsidiaries (the
Company) engage in retail, commercial, business, and agricultural
banking and related financial services from 46 locations
throughout the state of Iowa. The Company provides the usual
products and services of banking such as deposits, commercial
loans, business loans, agribusiness loans, personal loans and
trust and investment management services. The Company also
engages in activities that are closely related to banking,
including mortgage banking, investment, insurance and real estate
brokerage.
The accounting and reporting policies of the Company conform
with generally accepted accounting principles and general
practices within the banking industry. The following describe
the more significant accounting policies:
The Principles of Consolidation The consolidated financial
statements include the accounts of Brenton Banks, Inc. (the
Parent Company) and its subsidiaries. All material intercompany
accounts and transactions have been eliminated in the
consolidated financial statements. Certain reclassifications
were made in the financial statements to agree with the current
year presentation.
The excess cost over underlying net assets of consolidated
subsidiaries and other intangible assets are being amortized over
10 to 40 years and are included in other assets in the
consolidated statements of condition. Intangible assets totaled
$3,795,000 and $4,696,000 at December 31, 1997, and 1996,
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 of mortgage-backed securities are
adjusted for actual and projected prepayments.
Net realized gains or losses on the sale of securities are
shown in the statements of operations. Gains or losses are
computed using the specific security identification method.
Trading Account Securities Trading account securities are
carried at market value and include securities purchased with the
intent to resell in a relatively short period of time. Gains and
losses on trading account activities, including market value
adjustments, are reported in noninterest income in the
consolidated statements of operations.
Loans Loans are carried primarily at the unpaid principal
balance. Interest income on loans is accrued and recorded as
income based on contractual interest rates and daily outstanding
principal balances, except on discounted loans where unearned
income is recorded as income over the life of the loans based on
the interest method.
The accrual of interest income is stopped when the ultimate
collection of a loan becomes doubtful. A loan is placed on
nonaccrual status when it becomes 90 days past due, if it is
neither well secured or in the process of collection. Once
determined uncollectible, interest credited to income in the
current year is reversed and interest accrued in prior years is
charged to the allowance for loan losses.
Under the Company's credit policies, all nonaccrual and
restructured commercial, business, agricultural, commercial real
estate and construction loans are considered to be impaired
loans. In determining when a loan is impaired, management
considers the delinquency status of the borrower, the borrower's
ability to generate cash and the fair market value of the
collateral. Specific allowances are established for any impaired
commercial, business, agricultural, commercial real estate or
construction loan where the recorded investment exceeds the
measured value of the loan. On a practical basis, the measured
value of a loan is obtained by using the observable market price
of a loan or the fair value of the collateral, if the loan is
collateral dependent. Otherwise, the measured value of a loan is
based upon the present value of expected future cash flows
discounted at the loan's effective interest rate. Impaired loans
are charged-off on the basis of management's ongoing evaluation,
but generally when it is deemed probable that the borrower cannot
generate sufficient funds to comply with contractual terms in the
normal course of business. Cash received on impaired loans is
applied to principal until principal is satisfied or until the
borrower demonstrates the ability to perform according to agreed-
upon terms.
Loans held for sale include real estate mortgage loans
originated with the intent to sell. These loans are carried at
the lower of aggregate cost or fair value.
Allowance for Loan Losses The allowance for loan losses is
maintained at a level considered appropriate to support
management's evaluation of potential losses in the loan
portfolio. Management's evaluation is based upon several factors
including economic conditions, historical loss and collection
experience, risk characteristics of the portfolio, underlying
collateral values, industry risk and credit concentrations. Loan
losses or recoveries are charged or credited directly to the
allowance account.
Premises and Equipment Premises and equipment are stated at cost
less accumulated depreciation. Depreciation is provided
predominantly by the straight-line method over estimated useful
lives of 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 $341,000 and $488,000 at December 31,
1997, and 1996, respectively. Such property is carried at the
lower of cost or estimated fair value, less selling costs.
Periodic appraisals are obtained to support carrying values. Net
expense of ownership and declines in carrying values are charged
to operating expenses.
Employee Retirement Plan All employees of the Company are
eligible, after meeting certain requirements, for inclusion in
the defined contribution retirement plan. The plan is a
combination profit sharing and 401(k) plan. Retirement plan
costs are expensed as the Company contributes to the plan. The
Company does not provide any material post-retirement benefits.
Income Taxes The Company files a consolidated federal income tax
return. Federal income taxes are allocated to the Parent Company
and each subsidiary on the basis of its taxable income or loss
included in the consolidated return.
The effects of current or deferred taxes are recognized as a
current and deferred tax liability or asset based on current tax
laws. Accordingly, income tax expense in the consolidated
statements of operations includes charges or credits to properly
reflect the current and deferred tax asset or liability.
Statements of Cash Flows In the statements of cash flows, cash
and cash equivalents include cash and due from banks, interest-
bearing deposits with banks, federal funds sold and securities
purchased under agreements to resell and trading accounting
securities.
Income Per Common Share Basic net income per common share
amounts are computed by dividing net income by the weighted
average number of common shares outstanding during the year.
Diluted net income per common share amounts are computed by
dividing net income by the weighted average number of common
shares and all dilutive potential common shares outstanding
during the year. In January 1998, the Company declared a 2-for-1
stock split effective February 10, 1998 and in May 1997 and
October 1996, the Company declared 10 percent common stock
dividends. The average number of common shares and dilutive
potential common shares have been restated for the stock split
and stock dividends.
The following information was used in the computation of net
income per common share on both a basic and diluted basis for the
years ended December 31, 1997, 1996 and 1995:
(In thousands, except for EPS data) 1997 1996 1995
Basic EPS Computation
Numerator:
Net income $18,010 14,015 10,407
_______ ______ ______
Denominator:
Average common shares
outstanding 17,505 18,092 18,569
_______ ______ ______
Basic EPS $ 1.03 .78 .56
_______ ______ ______
_______ ______ ______
Diluted EPS Computation
Numerator:
Net income $18,010 14,015 10,407
_______ ______ ______
Denominator:
Average common shares
outstanding 17,505 18,092 18,569
Average stock options 284 161 141
Average long-term stock
compensation plan 140 195 193
_______ ______ ______
17,929 18,448 18,903
_______ ______ ______
_______ ______ ______
Diluted EPS $ 1.01 .76 .55
_______ ______ ______
_______ ______ ______
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 an
adjustment to yield.
Interest Rate Floor An interest rate floor requires the seller
to pay the purchaser, at specified dates, the amount, if any, by
which the market interest rate falls below the agreed-upon floor,
applied to a notional principal amount. Initial cash amounts
paid on positions accounted for as hedges are deferred and
amortized over the instrument's contractual life.
Use of Estimates in the Preparation of Financial Statements The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. A
significant estimate that is particularly sensitive to change
relates to the allowance for loan losses.
Changes in Accounting Policies:
Accounting for Mortgage Servicing Rights Effective October 1,
1995, the Company adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement requires capitalization of
purchased mortgage servicing rights as well as internally
originated mortgage servicing rights. These mortgage servicing
rights are amortized over the estimated servicing period of the
related loans.
Accounting for Stock-Based Compensation Prior to January 1,
1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation
expense would be recorded on the date of the grant only if the
current market price of the underlying stock exceeded the
exercise price. Effective January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities Effective January 1, 1997, the
Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities." This statement requires that after a transfer of
financial assets, the Company must recognize the financial and
servicing assets controlled and liabilities incurred and
derecognize financial assets and liabilities in which control is
surrendered or debt is extinguished. In such a case, servicing
assets are determined based upon estimated future revenues from
contractually specified servicing fees and other ancillary
revenues that are expected to compensate the Company for
performing the servicing. The adoption of SFAS No. 125 did not
have a material effect on the Company.
Earnings per Share Effective December 31, 1997, the Company
adopted SFAS No. 128, "Earnings Per Share." This statement
replaces the primary earnings per share (EPS) disclosure with
basic and diluted EPS disclosures to simplify the calculation and
improve international comparability. The adoption of SFAS No.
128 did not have a material effect on the Company.
(2) Cash and Due From Banks
The subsidiary banks are required by federal banking regulations
to maintain certain cash and due from banks reserves. This
reserve requirement amounted to $16,504,000 at December 31, 1997.
(3) Investment Securities
The amortized cost and estimated fair value of investment
securities follow. The estimated fair value of investment
securities has been determined using available quoted market
prices for similar securities.
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1997 (In thousands) Cost Gains Losses Value
Investment securities available for sale:
Taxable investments:
U.S. Treasury securities $ 38,502 288 --- 38,790
Securities of U.S. government agencies 86,185 490 (15) 86,660
Mortgage-backed and related securities 229,334 1,778 (179) 230,933
Other investments 20,925 36 (4) 20,957
Tax-exempt investments:
Obligations of states and political
subdivisions 106,804 2,522 (12) 109,314
_______ _____ _____ _______
$481,750 5,114 (210) 486,654
Investment securities held to maturity:
Taxable investments:
Securities of U.S. government agencies $ 5,025 --- (6) 5,019
Mortgage-backed and related securities 2,363 74 --- 2,437
Other investments 1,518 9 (1) 1,526
Tax-exempt investments:
Obligations of states and political
subdivisions 60,173 773 (76) 60,870
_______ _____ _____ ______
$ 69,079 856 (83) 69,852
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
Investment securities available for sale:
Taxable investments:
U.S. Treasury securities $ 41,330 76 (55) 41,351
Securities of U.S. government agencies 98,357 143 (347) 98,153
Mortgage-backed and related securities 218,865 1,398 (816) 219,447
Other investments 8,213 --- (20) 8,193
Tax-exempt investments:
Obligations of states and political
subdivisions 92,519 1,606 (170) 93,955
_______ _____ _____
$459,284 3,223 (1,408) 461,099
Investment securities held to maturity:
Taxable investments:
Securities of U.S. government agencies $ 15,065 63 (112) 15,016
Mortgage-backed and related securities 3,041 72 --- 3,113
Other investments 2,466 15 (6) 2,475
Tax-exempt investments:
Obligations of states and political
subdivisions 52,183 681 (152) 52,712
_______ _____ _____ ______
$ 72,755 831 (270) 73,316
Proceeds from the sale of available for sale securities were
$119,402,000, $67,548,000 and $5,578,000 in 1997, 1996, and 1995,
respectively. Gross gains of $874,000 in 1997, $558,000 in 1996
and $19,000 in 1995 and gross losses of $380,000 in 1997,
$237,000 in 1996 and $22,000 in 1995 were realized on those
sales.
Other investments at December 31, 1997, and 1996, consisted
primarily of corporate bonds and Federal Home Loan Bank stock.
U.S. government agencies originate or guarantee primarily all of
the mortgage-backed and related securities.
The scheduled maturities of investment securities at
December 31, 1997 follow. Actual maturities may differ from
scheduled maturities because issuers may have the right to call
obligations without penalties. The maturities of mortgage-backed
securities have been included in the period of anticipated
payment considering estimated prepayment rates.
Estimated
Amortized Fair
(In thousands) Cost Value
Investment securities available
for sale:
Due in one year or less $143,877 144,385
Due after one year through
five years 221,832 224,024
Due after five years through
ten years 93,418 94,727
Due after ten years 22,623 23,518
$481,750 486,654
Investment securities held to
maturity:
Due in one year or less $ 26,100 26,176
Due after one year through
five years 28,690 28,909
Due after five years through
ten years 9,356 9,553
Due after ten years 4,933 5,214
$ 69,079 69,852
Investment securities carried at $314,865,000 and $246,552,000 at
December 31, 1997, and 1996, respectively, were pledged to secure
public and other funds on deposit and for other purposes.
(4) Loans
A summary of loans at December 31 follows:
(In thousands) 1997 1996
Real estate loans:
Commercial construction
and land development $ 30,007 42,693
Secured by 1-4 family
residential property
including home equity loans 342,134 338,010
Other 161,989 150,395
Loans to farmer 79,036 69,660
Commercial and industrial loans 160,428 132,395
Loans to individuals for personal
expenditures 217,405 207,197
All other loans 2,190 1,594
$993,189 941,944
The Company originates commercial, business, real estate,
agribusiness and personal loans with clients throughout Iowa.
The portfolio has unavoidable geographic risk as a result.
Total nonperforming loans and assets at December 31 were:
(In thousands) 1997 1996
Impaired loans:
Nonaccrual $3,227 2,663
Restructured 513 568
Total impaired loans 3,740 3,231
Loans past due 90 days
or more 2,972 2,936
Total nonperforming loans 6,712 6,167
Other real estate owned 341 488
Total nonperforming assets $7,053 6,655
The average balances of impaired loans for the years ended
December 31, 1997, and 1996, were $3,076,000 and $3,378,000,
respectively. The allowance for loan losses related to impaired
loans at December 31, 1997, and 1996, was $1,187,000 and
$481,000, respectively. Impaired loans of $704,000 and $456,000
were not subject to a related allowance for loan losses at
December 31, 1997, and 1996, respectively, because of the net
realizable value of loan collateral, guarantees and other
factors.
The effect of nonaccrual and restructured loans on interest
income for each of the three years ended December 31 was:
(In thousands) 1997 1996 1995
Interest income:
As originally contracted $402 363 418
As recognized 157 174 136
Reduction of interest income $245 189 282
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, 1996 $ 5,680
Additional loans 3,364
Loan payments (3,114)
Balance at December 31, 1997 $ 5,930
Mortgage Servicing Rights The fair market value of capitalized
servicing rights at December 31, 1997 was approximately
$2,548,000. To determine the fair value of the servicing rights,
the Company used comparable market prices. There was a $5,000
charge to the impairment account for the year ended December 31,
1997. In determining the fair market value and potential
impairment at the end of 1997, the Company disaggregated the
portfolio by its predominate risk factor, interest rate. The
fair value
of the portfolio was determined by calculating the present value
of future cash flows. The Company incorporated assumptions that
market participants would use in estimating future net servicing
income which include estimates of the cost of servicing per loan,
the discount rate, float value, an inflation rate, ancillary
income per loan, prepayment speeds and default rates.
Capitalized servicing rights on originated loan servicing,
included in other assets, as of December 31 follows:
(In thousands) 1997 1996
Beginning of year balance $1,026 252
Additions from originations 1,491 962
Amortization (238) (188)
Impairment (5) ---
Balance at end of year $2,274 1,026
(5) Allowance for Loan Losses
A summary of activity in the allowance for loan losses follows:
(In thousands) 1997 1996 1995
Balance at beginning of year $11,328 11,070 10,913
Provision 3,900 2,900 1,865
Recoveries 1,733 1,419 1,669
Loans charged off (4,229) (4,061) (3,377)
Balance at end of year $12,732 11,328 11,070
(6) Premises and Equipment
A summary of premises and equipment as of December 31 follows:
(In thousands) 1997 1996
Land $ 2,919 2,952
Buildings and leasehold
improvements 31,511 30,876
Furniture and equipment 25,047 23,463
Construction in progress 145 275
59,622 57,566
Less accumulated depreciation 30,723 27,187
$28,899 30,379
Depreciation expense included in operating expenses amounted to
$3,783,000, $3,848,000 and $3,626,000 in 1997, 1996 and 1995,
respectively.
(7) Deposits
Time deposits include deposits in denominations of $100,000 or
more of $80,896,000 and $82,011,000 at December 31, 1997, and
1996, respectively.
A summary of interest expense by deposit classification
follows:
(In thousands) 1997 1996 1995
Demand $ 2,332 11,194 11,842
Savings 15,903 6,134 6,638
Time deposits
of $100,000 or more 4,833 3,935 4,193
Other time deposits 26,242 28,244 30,402
$49,310 49,507 53,075
The Company made cash interest payments of $57,932,000,
$55,455,000 and $55,229,000 on deposits and borrowings in 1997,
1996 and 1995, respectively.
At December 31, 1997, the scheduled maturities of time deposits
are as follows:
(In thousands)
1998 $371,301
1999 134,459
2000 39,809
2001 9,981
2002 and thereafter 2,684
$558,234
(8) Income Taxes
The current and deferred income tax provisions included in the
consolidated statements of operations follow:
1997 (In thousands) Current Deferred Total
Federal $6,562 (577) 5,985
State 1,411 (108) 1,303
$7,973 (685) 7,288
1996
Federal $3,754 894 4,648
State 1,067 56 1,123
$4,821 950 5,771
1995
Federal $2,728 (76) 2,652
State 502 51 553
$3,230 (25) 3,205
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 $6,100,000, $4,250,000
and $2,500,000 to the IRS, and $1,568,000, $435,000 and $737,000
to the state of Iowa in 1997, 1996 and 1995, 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 35 percent
in 1997 and 1996 and 34 percent in 1995, and income tax expense
follow:
(In thousands) 1997 1996 1995
At statutory rate $ 9,114 7,136 4,849
Increase (reduction) due to:
Tax-exempt interest (2,916) (2,556) (2,566)
State taxes, net of
federal benefit 847 730 365
Nondeductible interest expense
to own tax-exempts 536 426 431
Other, net (293) 35 126
$ 7,288 5,771 3,205
Accumulated deferred income tax assets are included in other
assets in the consolidated statements of condition. There was no
valuation allowance at December 31, 1997, or 1996. A summary of
the temporary differences resulting in deferred income taxes and
the related tax effect on each follows:
(In thousands) 1997 1996
Allowance for loan losses $4,575 3,962
Unrealized gains on
securities available for sale (2,006) (670)
Deposit base intangibles (489) (315)
Premises and equipment (468) (588)
Stock compensation plan 1,077 682
Real estate mortgage
loan points deferred (283) (300)
Other, net (536) (251)
$1,870 2,520
(9) Other Short-Term Borrowings
The Company had short-term borrowings with the Federal Home Loan
Bank of Des Moines (FHLB) totaling $73,700,000 and $34,150,000 at
December 31, 1997, and 1996, respectively. The average rate on
these borrowings at December 31, 1997 was 6.02 percent. These
borrowings were secured by residential mortgage loans equal to
150 percent of the borrowings and FHLB stock.
The Parent Company has arranged an unsecured line of credit
of $2,000,000 which was unused at December 31, 1997. It is at
the prime interest rate and is subject to annual review and
renewal.
(10) Long-Term Borrowings
Long-term borrowings consisted of the following at December 31:
(In thousands) 1997 1996
Capital notes, 6.00% to 10.00%
Total Parent Company $ 10,112 11,248
Borrowings from FHLB, average rate
of 6.09% at December 31, 1997 26,550 23,550
Mortgage debt --- 62
$ 36,662 34,860
Borrowings from the FHLB were secured by residential mortgage
loans equal to 150 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,
1997, follow:
Parent
(In thousands) Company Consolidated
1998 $ 1,090 1,090
1999 1,417 23,467
2000 853 5,353
2001 1,383 1,383
2002 853 853
Thereafter 4,516 4,516
$10,112 36,662
(11) Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments
were as follows:
December 31, 1997 December 31, 1996
Recorded Fair Recorded Fair
(In thousands) Amount Value Amount Value
Financial assets:
Cash and due from banks $ 77,468 77,468 76,901 76,901
Interest-bearing deposits with
banks 1,320 1,320 732 732
Federal funds sold and securities
purchased under agreements to
resell 9,300 9,300 15,200 15,200
Trading account securities 77 77 --- ---
Investment securities 555,733 556,506 533,854 534,415
Loans held for sale 19,303 19,303 5,870 5,870
Loans, net 980,457 981,664 930,615 929,113
Financial liabilities:
Deposits $ 1,364,270 1,369,448 1,353,057 1,360,457
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 166,333 166,333 100,976 100,976
Long-term borrowings 36,662 37,156 34,860 35,025
Off-balance-sheet assets (liabilities):
Commitments to extend credit $ --- --- --- ---
Letters of credit --- (111) --- (59)
Interest rate swaps --- (34) --- (69)
Interest rate floor 195 206 --- ---
The recorded amount of cash and due from banks and interest-
bearing deposits with banks approximates fair value.
The recorded amount of federal funds sold and securities
purchased under agreements to resell and trading account
securities approximates fair value as a result of the short-term
nature of the instruments.
The estimated fair value of investment securities has been
determined using available quoted market prices for similar
securities.
The estimated fair value of loans is net of an adjustment
for credit risk. For loans with floating interest rates, it is
presumed that estimated fair values generally approximate the
recorded book balances. Real estate loans secured by 1-4 family
residential property were valued using trading prices for similar
pools of mortgage-backed securities. Other fixed-rate loans were
valued using a present-value discounted cash flow with a discount
rate approximating the market for similar assets.
Deposit liabilities with no stated maturities have an
estimated fair value equal to the recorded balance. Deposits
with stated maturities have been valued using a present-value
discounted cash flow with a discount rate approximating the
current market for similar deposits. The fair-value estimate
does not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost
of borrowing funds in the market. The Company believes the value
of these depositor relationships to be significant.
The recorded amount of the federal funds purchased,
securities sold under agreements to repurchase and short-term
borrowings approximates fair value as a result of the short-term
nature of these instruments.
The estimated fair value of long-term borrowings was
determined using a present-value discounted cash flow with a
discount rate approximating the current market for similar
borrowings.
The fair value of commitments to extend credit and standby
letters of credit are estimated using the fees currently charged
to enter into similar agreements.
The fair value of interest rate swaps and the interest rate
floor contract is the estimated amount that the Company would
receive or pay to terminate the swap and floor agreements at the
reporting date.
(12) Regulatory Capital
The Company is subject to various regulatory capital requirements
administered by both federal and state banking agencies. Failure
to comply with minimum capital requirements could result in
actions taken by regulators that could have a direct material
impact on the Company's financial statements. Under the capital
adequacy guidelines established by regulators, the Company must
meet specific capital guidelines that involve the measurement of
the Company's assets, liabilities and certain off-balance sheet
items. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators as it relates
to components, risk weightings and other factors.
Quantitative measures established by regulators to ensure
capital adequacy require the Company to maintain minimum amounts
and ratios (set forth in the following table) of total and tier 1
capital to risk weighted assets and of tier 1 capital to average
assets.
As of December 31, 1997, management believes the Company is
well-capitalized, as defined under the regulatory framework for
prompt corrective action. To be categorized as well-capitalized,
the Company must maintain minimum total risk-based, tier 1 risk-
based and tier 1 leverage ratios as set forth in the table. The
Company's actual capital amounts and ratios are also presented in
the table.
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollar amounts in thousands)
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
Consolidated $141,688 11.95% $94,832 > 8.0% N/A
_
Brenton Bank 132,756 11.87 89,443 > 8.0 $111,804 > 10.0%
_ _
Tier 1 Capital
(to Risk Weighted Assets):
Consolidated 128,931 10.88 47,416 > 4.0 N/A
_
Brenton Bank 120,887 10.81 44,722 > 4.0 67,082 > 6.0
_ _
Tier 1 Capital
(to Average Assets):
Consolidated 128,931 7.63 50,703 > 3.0 N/A
_
Brenton Bank 120,887 7.69 62,852 > 4.0 78,565 > 5.0
_ _
(13) Common Stock Transactions
In January 1998, the Company declared a 2-for-1 stock split for
holders of record as of February 10, 1998. As a result, the par
value of the Company's common stock was changed from $5.00 to
$2.50 per share, the number of outstanding shares doubled and
authorized shares were increased to 50 million. In May 1997, the
Company declared a 10 percent common stock dividend. As a result
of this action, 1,586,762 shares of common stock were issued and
$3,966,905 was transferred from retained earnings to common
stock. Fractional shares resulting from this stock dividend were
paid in cash. In October 1996, the Company declared a 10 percent
common stock dividend. This transaction resulted in the issuance
of 1,473,686 shares of common stock and the transfer of
$3,684,215 from retained earnings to common stock. Fractional
shares resulting from this stock dividend were paid in cash. Net
income and cash dividends per share information in the financial
statements have been retroactively restated to reflect these
transactions.
As part of the Company's ongoing stock repurchase plan, in
1997 the Board of Directors authorized additional common stock
repurchases of $10 million in 1997. For the years ended December
31, 1997, 1996 and 1995, the Company repurchased 695,480, 695,400
and 516,266 shares (restated for the 2-for-1 stock split),
respectively, at a total cost of $10,014,087, $8,248,331 and
$4,830,111.
(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. State 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, 1997,
were approximately $15 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 1997, 1996 and 1995 amounted to
$1,290,000, $1,284,000 and $1,263,000, respectively. The Company
offers no material post-retirement benefits.
(16) Stock Plans
In 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"), which was approved by a vote of stockholders. The Plan
authorizes the granting of options on up to 1,210,000 shares of
the Company's common stock to key employees of the Company. The
price at which options may be exercised cannot be less than the
fair market value of the shares at the date the options are
granted. The options are subject to certain performance vesting
requirements, but if vesting is not achieved from performance
vesting, 100 percent vesting occurs nine years and six months
following the grant date. Options expire ten years and one month
following the grant date.
The per-share weighted average fair value of stock options
granted during 1997 was $4.11 based on the date of grant using
the Company's option pricing model with the following weighted
average assumptions: expected dividend yield of 2.05 percent,
risk-free interest rate of 6.52 percent, expected life of 7.5
years and expected volatility of stock price of 18.5 percent.
The Company applies APB Opinion No. 25 in accounting for its
Plan and, accordingly, no compensation cost has been recognized
for its stock options in the financial statements. Had the
Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the
Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1997 1996
Net income:
As reported $18,010,107 14,015,430
Pro forma 17,734,878 13,768,662
Basic earnings per share:
As reported $1.03 .78
Pro forma 1.01 .76
Diluted earnings per share:
As reported $1.01 .76
Pro forma .99 .74
Pro forma net income reflects only options granted in 1997
and 1996. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income amounts presented above because compensation
cost is reflected over the options' expected life of 7.5 years.
Changes in options outstanding during 1997 and 1996 were as
follows (restated for the 2-for-1 stock split effective February
1998 and the 10 percent common stock dividends effective in 1997
and 1996):
Options Option Price
Outstanding Per Share
December 31, 1995 --- $ ---
Granted - 1996 1,035,760 10.07-10.74
December 31, 1996 1,035,760 10.07-10.74
Granted - 1997 87,180 12.50-16.75
Forfeited - 1997 (36,300) 10.07
December 31, 1997
(123,360 shares available
for grant) 1,086,640 $10.07-16.75
A total of 845,913 shares were granted to key management
personnel under the Company's long-term stock compensation plan.
Under provisions of the plan, no grants were made after 1995.
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. The total stock
compensation expense associated with this plan was $1,731,000,
$1,302,000 and $425,000 for 1997, 1996 and 1995, respectively.
Changes in outstanding grant shares during 1997, 1996 and 1995
were as follows (restated for the 2-for-1 stock split effective
February 1998 and the 10 percent common stock dividends effective
in 1997 and 1996):
Performance 1992 to 1993 to 1994 to 1995 to
Period 1994 1995 1996 1997
December 31, 1994 221,412 185,506 218,511 ---
Granted - 1995 --- --- --- 215,673
Forfeited - 1995 --- (20,275) (32,393) (16,032)
Expired - 1995 (143,919) --- --- ---
Vested - 1995 (77,493) --- --- ---
December 31, 1995 --- 165,231 186,118 199,641
Forfeited - 1996 --- --- (20,953) (22,812)
Expired - 1996 --- (107,402) --- ---
Vested - 1996 --- (57,829) --- ---
December 31, 1996 --- --- 165,165 176,829
Forfeited - 1997 --- --- --- (23,713)
Expired - 1997 --- --- (107,353) ---
Vested - 1997 --- --- (57,812) ---
Outstanding grant
shares at
December 31, 1997 --- --- --- 153,116
For the performance period 1995 to 1997, 153,116 shares vested on
January 1, 1998.
The Company's 1987 nonqualified stock option plan permits
the Board of Directors to grant options to purchase up to 726,000
shares of the Company's $2.50 par value common stock. Under
provisions of the plan, no further grants can be made and no
grants were made in 1997. The options may be granted to officers
of the Company. The price at which options may be exercised
cannot be less than the fair market value of the shares at the
date the options are granted. The options are subject to certain
vesting requirements and maximum exercise periods, as established
by the Board of Directors.
Changes in options outstanding and exercisable during 1997,
1996 and 1995 were as follows (restated for the 2-for-1 stock
split effective February 1998 and the 10 percent common stock
dividends effective in 1997 and 1996):
Exercisable Outstanding Option Price
Options Options Per Share
December 31, 1994 339,889 377,641 $1.83-8.12
Vested - 1995 7,260 --- 3.63-3.91
Exercised - 1995 (47,795) (47,795) 1.83
Forfeited - 1995 --- (30,492) 3.63-8.12
December 31, 1995 299,354 299,354 1.83-3.91
Exercised - 1996 (58,960) (58,960) 1.83
December 31, 1996 240,394 240,394 1.83-3.91
Exercised - 1997 (204,094) (204,094) 1.83-3.91
December 31, 1997 36,300 36,300 $2.65
The Company's Employee Stock Purchase Plan allows qualifying
employees to purchase the Company's common stock at 85 percent of
the current market price on four defined purchase dates during
the year. During 1997 and 1996, 37,516 and 33,224 shares
(restated for the 2-for-1 stock split effective February 1998),
respectively, of common stock were purchased by employees under
this plan.
(17) Lease Commitments
Rental expense included in the consolidated statements of
operations amounted to $1,963,000, $1,919,000 and $1,937,000 in
1997, 1996 and 1995, respectively. Future minimum rental
commitments for all noncancelable leases with terms of one year
or more total approximately $900,000 per year through 2002,
$500,000 per year through 2007, $90,000 per year through 2012,
and $40,000 per year through 2013, with a total commitment of
$7,200,000.
(18) Commitments and Contingencies
In the normal course of business, the Company is party to
financial instruments necessary to meet the financial needs of
clients, which are not reflected on the consolidated statements
of condition. These financial instruments include commitments to
extend credit, standby letters of credit and interest rate swaps.
The Company's risk exposure in the event of nonperformance by
the other parties to these financial instruments is represented
by the contractual amount of these instruments. The Company is
also party to an interest rate floor contract which is designated
as a hedge of certain client deposit accounts with contracted
minimum interest rates. The notional amount for an interest rate
floor does not represent the amount at risk because the notional
amount will not be exchanged. The Company uses the same credit
policies in making commitments as it does in making loans.
Commitments to extend credit are legally binding agreements
to lend to clients. Commitments generally have fixed expiration
dates and may require payment of a fee. Based upon management's
credit assessment of the client, collateral may be obtained. The
type and amount of collateral varies, but may include real estate
under construction, property, equipment and other business
assets. In many cases, commitments expire without being drawn
upon, so the total amount of commitments does not necessarily
represent future liquidity requirements. The Company had
outstanding commitments to extend credit of $245 million and $221
million at December 31, 1997, and 1996, respectively.
Standby letters of credit are conditional commitments issued
by the Company guaranteeing the financial performance of a client
to a third party. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending
loans. Outstanding standby letters of credit totaled $22,150,000
and $11,770,000 at December 31, 1997, and 1996, respectively.
The Company does not anticipate losses as a result of issuing
commitments to extend credit or standby letters of credit.
The Company enters into interest rate swap agreements as
part of its asset/liability management strategy to manage
interest-rate risk. The notional value of these agreements was
$11,690,000 and $16,205,000 at December 31, 1997, and 1996,
respectively. The interest rate swap agreements subject 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 counterparties was
evaluated by the Company's loan committee prior to entering into
the agreements. The agreements run through various dates in
1998.
In December 1997, the Company entered into an interest rate
floor agreement to manage interest-rate risk. The notional value
of this agreement was $100,000,000 and expires on December 31,
1999. The interest rate floor agreement requires the
counterparty to pay the Company, at specified dates, the amount,
if any, by which the market interest rate falls below the agreed-
upon floor, applied to the notional principal amount. The credit
worthiness of the counterparty was evaluated by the Company's
loan committee prior to entering into the agreement.
Brenton Savings Bank, FSB converted from a mutual savings
and loan association to a federal stock savings bank in 1990, at
which time a $4 million liquidation account was established.
Each eligible savings account holder who had maintained a deposit
account since the conversion would be entitled to a distribution
if the savings bank were completely liquidated. This
distribution to savers would have priority over distribution to
the Parent Company. The Company does not anticipate such a
liquidation.
The Company maintains a data processing agreement with
ALLTEL Information Services, Inc. (ALLTEL), formerly Systematics,
Inc., whereby ALLTEL manages and operates the Company's data
processing facility. The contract involves fixed payments of
$2,004,000 in 1998 through 2001 and $1,002,000 in 2002. 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) Brenton Banks, Inc. (Parent Company) Condensed Financial
Information
Statements of Condition
December 31 (In thousands) 1997 1996
Assets
Interest-bearing deposits with banks $ 3,596 5,638
Investments in:
Bank subsidiaries 132,008 124,383
Bank-related subsidiaries --- 45
Excess cost over net assets 1,753 1,826
Premises and equipment 563 618
Other assets 5,103 3,168
________ _______
$ 143,023 135,678
Liabilities and Stockholders' Equity
Accrued expenses payable
and other liabilities $ 3,532 2,476
Long-term borrowings 10,112 11,248
Common stockholders' equity 129,379 121,954
_______ _______
$ 143,023 135,678
Statements of Operations
Years Ended December 31 (In thousands) 1997 1996 1995
Income
Dividends from subsidiaries $ 14,850 10,766 8,997
Interest income 213 341 442
Management fees --- --- 1,634
Other operating income 119 43 2,644
________ ______ ______
15,182 11,150 13,717
Expense
Compensation and benefits 2,331 1,884 4,021
Interest on long-term borrowings 849 970 1,046
Other operating expense 584 655 2,006
________ ______ ______
3,764 3,509 7,073
Income before income taxes and
equity in undistributed earnings
of subsidiaries 11,418 7,641 6,644
Income taxes (1,155) (1,040) (759)
Income before equity in undistributed
earnings of subsidiaries 12,573 8,681 7,403
Equity in undistributed earnings of subsidiaries 5,437 5,334 3,004
________ ______ ______
Net income $ 18,010 14,015 10,407
</table
(19) Brenton Banks, Inc. (Parent Company) Condensed Financial
Information
Statements of Cash Flows
Years Ended December 31 (In thousands) 1997 1996 1995
Operating Activities
Net income $ 18,010 14,015 10,407
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (5,437) (5,334) (3,004)
Depreciation and amortization 163 163 230
Net (increase) decrease in other assets (1,962) 18 49
Net increase (decrease) in accrued expenses
payable and other liabilities 1,056 871 (148)
________ ______ ______
Net cash provided by operating activities 11,830 9,733 7,534
Investing Activities
Decrease in short-term investments --- 7,500 1,000
Redemption (purchase) of subsidiary equity, net --- (7) 156
Principal collected from or (advances to)
subsidiaries --- 115 (97)
Purchase of premises and equipment, net (8) 669 (512)
________ ______ ______
Net cash provided (used) by investing activities (8) 8,277 547
Financing Activities
Net repayment of long-term borrowings (1,136) (1,187) (209)
Proceeds from issuance of common stock under the
long-term stock compensation plan 247 335 362
Proceeds from issuance of common stock under the
stock option plan 1,286 291 188
Proceeds from issuance of common stock under the
employee stock purchase plan 551 72 ---
Payment for shares reacquired under common stock
repurchase plan (10,014) (8,248) (4,830)
Payment for fractional shares from common stock (16) (14) ---
dividends
Dividends on common stock (4,782) (3,749) (3,498)
________ ______ ______
Net cash used by financing activities (13,864) (12,500) (7,987)
Net increase (decrease) in cash and interest-
bearing deposits (2,042) 5,510 94
Cash and interest-bearing deposits at the
beginning of the year 5,638 128 34
Cash and interest-bearing deposits at the end
of the year $ 3,596 5,638 128
(20) Unaudited Quarterly Financial Information
The following is a summary of unaudited quarterly financial
information (in thousands, except per common share data):
1997
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $ 28,473 29,182 30,168 30,416
Interest expense 13,855 14,448 14,631 15,171
_______ ______ ______ ______
Net interest income 14,618 14,734 15,537 15,245
Provision for loan losses 900 900 1,100 1,000
_______ ______ ______ ______
Net interest income after
provision for loan losses 13,718 13,834 14,437 14,245
Noninterest income 6,449 6,239 7,839 6,979
Noninterest expense 14,036 13,674 14,881 15,108
_______ ______ ______ ______
Income before income taxes
and minority interest 6,131 6,399 7,395 6,116
Income taxes 1,754 1,809 2,176 1,549
Minority interest 176 183 209 175
_______ ______ ______ ______
Net income $ 4,201 4,407 5,010 4,392
Per common share:
Net income-basic $ .24 .25 .29 .25
Net income-diluted .23 .25 .28 .25
1996
Three months ended March 31 June 30 Sept. 30 Dec. 31
Interest income $ 27,370 27,512 27,923 28,578
Interest expense 13,701 13,645 13,813 14,172
_______ ______ ______ ______
Net interest income 13,669 13,867 14,110 14,406
Provision for loan losses 700 800 600 800
_______ ______ ______ ______
Net interest income after
provision for loan losses 12,969 13,067 13,510 13,606
Noninterest income 5,552 5,622 5,776 6,377
Noninterest expense 13,355 13,471 14,685 14,579
_______ ______ ______ ______
Income before income taxes
and minority interest 5,166 5,218 4,601 5,404
Income taxes 1,446 1,497 1,275 1,553
Minority interest 140 153 153 157
_______ ______ ______ ______
Net income $ 3,580 3,568 3,173 3,694
Per common share:
Net income-basic $ .19 .20 .18 .21
Net income-diluted .19 .19 .18 .20
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.
Robert L. DeMeulenaere
President and Chief Executive Officer
Steven T. Schuler
Chief Financial Officer/Treasurer/Secretary
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Brenton Banks, Inc:
We have audited the accompanying consolidated statements of condition
of Brenton Banks, Inc. and subsidiaries as of December 31, 1997, and 1996,
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, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Brenton Banks, Inc. and subsidiaries at December 31, 1997, and 1996, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1998
STOCK INFORMATION
Brenton Banks, Inc. common stock is traded on the NASDAQ National Market
and quotations are furnished by the NASDAQ System. There were 1,571 common
stockholders of record on December 31, 1997.
MARKET AND DIVIDEND INFORMATION
1997 High Low Dividends
1st quarter $12.96 12.39 .059
2nd quarter 13.75 12.56 .064
3rd quarter 16.50 13.56 .070
4th quarter 20.38 15.06 .080
1996 High Low Dividends
1st quarter $10.02 8.68 .050
2nd quarter 10.02 9.40 .050
3rd quarter 10.33 9.71 .053
4th quarter 12.73 10.23 .054
The above table sets forth the high and low sales prices and cash dividends
per share for the Company's common stock, after the effect of the
February 1998 2-for-1 stock split and May 1997 and October 1996 10%
common stock dividends.
The market quotations, reported by NASDAQ, represent prices between dealers
and do not include retail markup, markdown or commissions.
NASDAQ Symbol: BRBK
Wall Street Journal and
Other Newspapers: BrentB
Market Makers
ABN AMRO Chicago Corporation
Herzog, Heine, Geduld, Inc.
Howe, Barnes Investments, Inc.
Keefe, Bruyette & Woods, Inc.
Sandler, O'Neill & Partners, L.P.
Stifel, Nicolaus & Co., Inc.
FORM 10-K
COPIES OF BRENTON BANKS, INC. ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION FORM 10-K WILL BE MAILED WHEN AVAILABLE WITHOUT
CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST TO STEVEN T. SCHULER,
CHIEF FINANCIAL OFFICER/ TREASURER/SECRETARY, AT THE CORPORATE
HEADQUARTERS. IT IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE
COMMISSION'S INTERNET WEB SISTE AT HTTP://WWW.SEC.GOV/CGI-BIN/SRCH-
EDGAR.
STOCKHOLDER INFORMATION
Corporate Headquarters
Suite 200, Capital Square
400 Locust Street
Des Moines, Iowa 50309
Telephone 800/820-0088
Annual Shareholders' Meeting
Wednesday, May 20, 1998, 5:00 p.m.
West Des Moines Marriott Hotel
1250 74th Street
West Des Moines, Iowa 50266
Transfer Agent/Registrar/
Dividend Disbursing Agent
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Legal Counsel
Brown, Winick, Graves, Gross,
Baskerville and Schoenebaum, P.L.C.
Suite 1100, Two Ruan Center
601 Locust Street
Des Moines, Iowa 50309
Independent Auditors
KPMG Peat Marwick LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, Iowa 50309
CORPORATE STRUCTURE
BRENTON BANKS, INC.
BOARD OF DIRECTORS
C. Robert Brenton
Chairman of the Board
Brenton Banks, Inc.
William H. Brenton
Past Chairman and President
Brenton Banks, Inc.
J.C. Brenton
Past President
Brenton Banks, Inc.
Gary M. Christensen
President & CEO
Pella Corporation
Robert J. Currey
President
21st Century Telecom Group, Inc.
Robert L. DeMeulenaere
President and Chief Executive Officer
Brenton Banks, Inc.
R. Dean Duben
Past Vice Chairman and President
Brenton Bank - Davenport
Hubert G. Ferguson
Financial Services Consultant
New Brighton, Minnesota
BRENTON BANKS, INC.
EXECUTIVE OFFICERS
C. Robert Brenton
Chairman of the Board
Robert L. DeMeulenaere
President and Chief Executive Officer
Steven T. Schuler
Chief Financial Officer/Treasurer/
Secretary
BRENTON BANK
SENIOR OFFICERS AND
LINE OF BUSINESS MANAGERS
Robert L. DeMeulenaere
Chairman and Chief Executive Officer
Larry A. Mindrup
President
Phillip L. Risley
Executive Vice President
Perry C. Atwood
Chief Sales Officer
Woodward G. Brenton
Chief Commercial Banking Officer
Elizabeth M. Piper/Bach
Chief Financial Services Officer
Steven T. Schuler
Chief Financial Officer/Treasurer/
Secretary
Norman D. Schuneman
Chief Credit Officer
Judy S. Bohrofen
Director of Human Resources
Gregory M. Cole
Director of Credit Underwriting
W. Bradley Cunningham
Investment/ALCO Officer
Marsha A. Findlay
Senior Retail Banking Officer
Charles N. Funk
Regional President
President, Des Moines
Dennis H. Hanson
Regional President
President, Grinnell
Mark J. Hoffschneider
President, Brenton Mortgages
Steven C. Hyland
Senior Vice President,
Brenton Insurance
Ronald D. Larson
Regional President
President, Cedar Rapids
Douglas F. Lenehan
President, Diversified Commercial
Services Division
Marc J. Meyer
Regional President
President, Adel
Catherine I. Reed
Director of Marketing
Allen W. Shafer
President, Business Banking Division
Thomas J. Vincent
President, Agricultural Banking
Division
Steven D. Agan
President, Knoxville
John H. Anderson
President, Davenport
Thomas J. Friedman
President, Ankeny
Kevin Z. Geis
President, Brenton Savings Bank, FSB
Ames
Robert L. German
President, Dallas Center
John M. Hand
President, Emmetsburg
Richard H. Jones
President, Perry
V. Blaine Lenz
President, Eagle Grove
James L. Lowrance
President, Marshalltown
Clay A. Miller
President, Clarion
Jeffrey J. Nolan
President, Jefferson