-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LOr4kYyHy1JrHQeiFx1BC5t1MxURkKAIX/DjZUBwl7J43Zez8wyr9VOEj7EwNBDH H4QsIuTHk5pGU82IN7WDRw== 0000916131-96-000006.txt : 19960401 0000916131-96-000006.hdr.sgml : 19960401 ACCESSION NUMBER: 0000916131-96-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 39 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRENTON BANKS INC CENTRAL INDEX KEY: 0000014060 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 420658989 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06216 FILM NUMBER: 96541023 BUSINESS ADDRESS: STREET 1: 400 LOCUST ST STREET 2: STE 300 CAPITAL SQ CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152375100 MAIL ADDRESS: STREET 1: 400 LOCUST ST STREET 2: SUITE 300 CAPITAL SQ CITY: DES MOINES STATE: IA ZIP: 50309 10-K 1 BRENTON BANKS, INC. FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period form ___________________ to _____________________ Commission file number 0-6216 BRENTON BANKS, INC. (Exact name of registrant as specified in its charter) Incorporated in Iowa No. 42-0658989 State of other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) Suite 300, Capital Square, 400 Locust, Des Moines, Iowa 50309 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 515-237-5100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5 par value (Title of class) 1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 13, 1996, was $101,791,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date, March 13, 1996. 7,587,070 shares Common Stock, $5 par value DOCUMENTS INCORPORATED BY REFERENCE The Annual Report to Shareholders for the 1995 calendar year is incorporated by reference into Part I and Part II hereof to the extent indicated in such Parts. The definitive proxy statement of Brenton Banks, Inc. which will be filed not later than 120 days after the close of the Company's fiscal year ending December 31, 1995, is incorporated by reference into Part III hereof to the extent indicated in such Part. 1 of 154 Total Pages 2 TABLE OF CONTENTS PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (A) General Description . . . . . . . . . . . . . . . . . . . . 5 (B) Recent Developments . . . . . . . . . . . . . . . . . . . . 5 (C) Affiliated Banks . . . . . . . . . . . . . . . . . . . . . 6 (D) Bank-Related Subsidiaries and Affiliates . . . . . . . . . 6 (E) Executive Officers and Policymakers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 7 (F) Employees . . . . . . . . . . . . . . . . . . . . . . . . . 8 (G) Supervision and Regulation . . . . . . . . . . . . . . . . 8 (H) Governmental Monetary Policy and Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . 10 (I) Competition . . . . . . . . . . . . . . . . . . . . . . . . 10 (J) Statistical Disclosure . . . . . . . . . . . . . . . . . . 12 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 26 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 26 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 26 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . 27 3 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . 27 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 27 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 13. Certain Relationships and Related Transactions . . . . . . . . . 27 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 27 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4 PART I Item 1. Business. (A) General Description. Brenton Banks, Inc. (the "Parent 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 Brenton Companies in 1948. Subsequently, the Parent Company changed its corporate name to its current name, Brenton Banks, Inc. On December 31, 1995, the Parent Company had direct control of both its commercial and savings bank (hereinafter the "affiliated banks"), both located in Iowa. The commercial bank is a state bank incorporated under the laws of the State of Iowa and the savings bank is a federal savings bank organized under the laws of the United States. On December 31, 1995, the affiliated banks were operating 45 banking locations in Iowa. Both of the affiliated banks are members of the Federal Deposit Insurance Corporation. Brenton Banks, Inc. and its subsidiaries (the "Company") engages in retail, commercial, and agricultural banking and related financial services. In connection with this banking industry segment, the Company provides the usual products and services of banking such as deposits, commercial loans, agribusiness loans, personal loans, and trust services. The principal service provided by the Company consists of making loans. The principal markets for these loans are businesses and individuals. These loans are made at the offices of the affiliated banks and subsidiaries, and some are sold on the secondary market. The Company also engages in activities that are closely related to banking, including mortgage banking and investment brokerage. (B) Recent Developments. Restructuring of Organization. Brenton Banks, Inc. completed its restructuring plan during 1995. The plan, authorized in December, 1994, included consolidating the Company's 13 commercial banks into one bank, reducing the Company's overall personnel levels and closing selected banking branches. During the third quarter of 1995, the Company completed the merger of its 13 commercial banks into a single, state chartered banking organization under the laws of the State of Iowa. As part of this merger process, Brenton Bank Services Corporation was liquidated and became part of the one bank, Brenton Bank. Brenton Mortgages, Inc., formerly a wholly-owned subsidiary of the holding company, is now a subsidiary of Brenton Savings Banks, FSB. The move of this subsidiary was made to accommodate the funding of residential real estate loans with the Federal Home Loan Bank borrowings. New Directors. In February 1995, the Board of Directors increased the number of directors from six to seven and named Gary M. Christensen to fill the position. Mr. Christensen is the President and Chief Executive Officer of Pella Corporation in Pella, Iowa. Common Stock Repurchase Plan. As part of the Company's ongoing stock repurchase plan, in 1995 the Board of Directors authorized additional stock repurchases of $5,000,000 of the Company's common stock. For the years ended December 31, 1995 and 1994, the Company repurchased 258,133 and 44,800 shares, respectively, at a total cost of $4,830,111 and $850,950. Regulatory Developments. Recently, Congress announced the introduction of legislation which could substantially change the regulatory framework in which banks and other financial institutions operate. At the present time, it is impossible for the Company to predict whether such legislation will be enacted and the nature of the effects on the Company, if enacted. Among the legislation Congress is considering is proposed legislation to recapitalize the Savings Association Insurance Fund (SAIF). This proposed legislation would assess a one-time premium, currently estimated between $1.2 million and $1.5 million, on 5 all SAIF deposits and would be expensed when and if legislation is passed. The Company has approximately $225 million of SAIF deposits. Growth and Acquisitions. As part of management's strategic growth plans, Brenton Banks, Inc. investigates growth and expansion opportunities which strengthen the Company's presence in current or selected new market areas. The Company continues expansion of its traditional and non- traditional services. On October 1, 1992, Brenton Banks, Inc. merged with Ames Financial Corporation and acquired its wholly-owned subsidiary, Ames Savings Bank, FSB, of Ames, Iowa whose name has since been changed to Brenton Savings Bank, FSB. The institution continues to operate as a federal savings bank, requiring Brenton Banks, Inc. to also register as a savings and loan holding company. As a savings and loan holding company, Brenton Banks, Inc. is required to file certain reports with and be regulated by the Office of Thrift Supervision. See Item 1, Section (G), Supervision and Regulation. Other. The information appearing on pages 2 through 7 of the Company's Annual Report to Stockholders for the year ended December 31, 1995 (the "Annual Report") filed as Exhibit 13, is incorporated by reference. (C) Affiliated Banks. The 2 affiliated banks had 45 banking locations at December 31, 1995, located in 13 of Iowa's 99 counties. These banks serve both agricultural and metropolitan areas. The location and certain other information about the affiliated banks are given below. The main office of Brenton Bank is located in the Des Moines, Iowa, metropolitan area. Des Moines is the largest city in Iowa. In addition to their main banking location, Brenton Bank has 42 offices located throughout Iowa and provides services to customers in numerous counties across the state. See page 39 of the Company's Annual Report, filed as Exhibit 13 hereto, for individual office locations. Brenton Savings Bank, FSB is located in Ames, Iowa and has offices in Ames and Story City. The savings bank serves customers in Story County. At December 31, 1995, Brenton Bank owned and operated real estate agencies and insurance agencies handling group, fire, crop, homeowner's, automobile and liability insurance. These activities are conducted through separate corporate subsidiaries as well as directly in offices of the bank. The total commissions from the insurance and real estate agencies were not substantial in relation to total other receipts of Brenton Bank. During 1994, the Company established out-of-state investment subsidiaries to manage the investment portfolios of each Brenton bank, excluding the savings bank. These subsidiaries provided an opportunity to lower the amount of state franchise taxes paid by the Company. Effective July 1, 1995, the state of Iowa enacted legislation that eliminated the tax benefits derived from these subsidiaries. The Company dissolved these subsidiaries on June 30, 1995. (D) Bank-Related Subsidiaries and Affiliates. Brenton Brokerage Services, Inc., a wholly owned subsidiary of Brenton Bank, was formed in 1992 and provides a full array of retail investment brokerage services to customers. The company is not involved with the direct issuance, flotation or underwriting of securities. At December 31, 1995, this subsidiary had 28 licensed brokers serving all Brenton banks. Brenton Mortgages, Inc., a wholly-owned subsidiary of Brenton Savings Bank, FSB, engages in the mortgage banking business. This subsidiary services numerous mortgage loans sold to institutional investors and the mortgage loan portfolios of the affiliated banks. 6 Brenton Insurance Services, Inc., a wholly-owned subsidiary of the Parent Company, provides insurance risk management services for the Company. (E) Executive Officers and Policymakers of the Registrant. The term of office for the executive officers and policymakers of the Company is from the date of election until the next Annual Organizational Meeting of the Board of Directors. The names and ages of the executive officers and policymakers of the Company as of March 13, 1996, the offices held by these executive officers and policymakers on that date, the period during which the officers have served as such and the other positions held with the Company by these officers during the past five years are set forth below and on the following page:
Company Position Name and Address Age Position or Subsidiary Commenced Other Positions ________________ ___ ______________________ _________ _______________ C. Robert Brenton 65 Chairman of the Board 1990 Des Moines, Iowa Robert L. DeMeulenaere 56 President 1994 President/Treasurer, Brenton Mortgages, Inc. Des Moines, Iowa - August 1989 to July, 1994; CEO, Brenton Bank and Trust Company of Cedar Rapids - August 1990 to January 1994; Senior Vice President of the Parent Company - August 1990 to January 1994 Larry A. Mindrup 54 Chief Banking Officer - 1995 CEO, Brenton Savings Bank, FSB; Ames - April Des Moines, Iowa President, Des Moines 1994 to present; President, Brenton Bank, N.A., Des Moines - May 1995 to September 1995; President, Brenton Savings Bank, FSB, Ames - April 1994 to April 1995; President, Trust Officer and Director, Brenton National Bank - Poweshiek County - January 1991 to March 1994 Woodward G. Brenton 45 Chief Commercial 1995 President and CEO, Brenton First National Des Moines, Iowa Banking Officer Bank - January 1992 to October 1995; Executive President, Davenport 1992 Vice President, Brenton First National Bank, Davenport - January 1991 to January 1992 Charles N. Funk 41 Chief Investment/ 1995 Vice President - Investments, Brenton Banks, Des Moines, Iowa ALCO Officer Inc. - December 1991 to October 1995 Ronald D. Larson 47 Regional President 1995 President, Brenton Bank and Trust Company, Cedar Rapids, Iowa Eastern Iowa Division Marshalltown - January 1991 to July 1993 President, Cedar Rapids 1993 Marc J. Meyer 42 Regional President 1995 Executive Vice President, Brenton National Perry, Iowa Agricultural Division Bank of Perry - January 1991 to January 1992 President, Perry 1992 Phillip L. Risley 53 Chief Administrative 1995 Executive Vice President of the Parent Des Moines, Iowa Officer Company - January 1992 to December 1995; Cashier 1995 President and CEO, Brenton Bank, N.A., Des Moines - February 1990 to May 1995; Vice President - Operations of the Parent Company - May 1984 to January 1992; Chairman of the Board, Brenton Bank Services Corporation - May 1992 to September 1995; Executive Vice President/ Treasurer, Brenton Information Systems, Inc. - April 1990 to May 1992
7
Company Position Name and Address Age Position or Subsidiary Commenced Other Positions ________________ ___ ______________________ _________ _______________ Steven T. Schuler 44 Chief Financial Officer/ 1990 Executive Vice President, Brenton Bank Des Moines, Iowa Treasurer/Secretary 1986 Services Corporation - May 1992 to September 1995 Norman D. Schuneman 53 Chief Credit Officer 1995 Senior Vice President - Lending of the Des Moines, Iowa Parent Company - January 1990 to December 1995; Executive Vice President, Brenton Bank, N.A., Des Moines - July 1985 to October 1995; Vice President - Loans of the Parent Company - January 1988 to January 1990 Gary D. Ernst 52 President - Trust 1995 Vice President - Trust of the Parent Des Moines, Iowa Division Company - June 1990 to December 1995 Elizabeth M. Piper/Bach 43 President, Brokerage 1995 Des Moines, Iowa All of the foregoing individuals have been employed by the Company for the past five years, except for Elizabeth M. Piper/Bach, who was Vice President and Director of Investment Management Consulting and Training for John G. Kinnard & Co. from 1993 to 1995 and Vice President and Director of the Investment Management Group of Dain Bosworth in Minneapolis, Minnesota prior to 1993 and Charles N. Funk, who was Senior Vice President, Bank and Trust Investments of Union National Bank, Wichita, Kansas from December 1984 to December 1991.
(F) Employees. On December 31, 1995, the Parent Company had 56 full-time employees and 4 part-time employees. On December 31, 1995, the Company had 612 full- time employees and 137 part-time employees. None of the employees of the Company are represented by unions. The relationship between management and employees of the Company is considered good. (G) Supervision and Regulation. The Company is restricted by various regulatory bodies as to the types of activities and businesses in which it may engage. References to the provisions of certain statutes and regulations are only brief summaries thereof and are qualified in their entirety by reference to those statutes and regulations. The Parent Company cannot predict what other legislation may be enacted or what regulations may be adopted, or, if enacted or adopted, the effect thereof. Furthermore, certain regulatory and legislative changes are discussed in Item 1, Section (B), Recent Developments. The Parent Company, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956 (the "Act") and is registered with the Board of Governors of the Federal Reserve System. Under the Act, the Parent Company is prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to its affiliated banks. However, the Parent Company may engage in and may own shares of companies engaged in certain businesses found by the Board of Governors to be so closely related to banking "as to be a proper incident thereto." The Act does not place territorial restrictions on the activities of bank-related subsidiaries of bank holding companies. The Parent Company is required by the Act to file periodic reports of its operations with the Board of Governors and is subject to examination by the Board of Governors. Under the Act and the regulations of the Board of Governors, bank holding companies and their subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. As a savings and loan holding company, Brenton Banks, Inc. is subject to federal regulation and examination by the Office of Thrift Supervision (the "OTS"). The OTS has enforcement authority over the Company. This authority permits the OTS to restrict or prohibit activities that are determined to be a serious 8 risk to the subsidiary savings institution. Generally, the activities for a bank holding company are more limited than the authorized activities for a savings and loan holding company. The Parent Company, its affiliated banks and its bank-related subsidiaries are affiliates within the meaning of the Federal Reserve Act and OTS regulations. As affiliates, they are subject to certain restrictions on loans by an affiliated bank to the Parent Company, other affiliated banks or such other subsidiaries, on investments by an affiliated bank in their stock or securities and on an affiliated bank taking such stock and securities as collateral for loans to any borrower. The Company is also subject to certain restrictions with respect to direct issuance, flotation, underwriting, public sale or distribution of certain securities. Brenton Bank is a state bank subject to the supervision of and regular examination by the Iowa Superintendent of Banking and, because of its membership in the Federal Deposit Insurance Corporation ("FDIC"), is subject to examination by the FDIC. Brenton Bank is required to maintain certain minimum capital ratios established by their primary regulator. The provisions of the FDIC Act restrict the activities that insured state chartered banks may engage in to those activities that are permissible for national banks, except where the FDIC determines that the activity poses no significant risk to the deposit insurance fund and the bank remains adequately capitalized. Furthermore, the FDIC Act grants the FDIC the power to take prompt regulatory action against certain undercapitalized and seriously undercapitalized institutions in order to preserve the deposit insurance fund. The affiliated savings bank is subject to the supervision of and regular examination by the OTS and FDIC. In addition to the fees charged by the FDIC, the savings bank is assessed fees by the OTS based upon the savings bank's total assets. As a savings institution, the savings bank is a member of the Federal Home Loan Bank of Des Moines, must maintain certain minimum capital ratios established by the OTS and is required to meet a qualified thrift lender test (the "QTL") to avoid certain restrictions upon its operations. On December 31, 1995, Brenton Savings Bank, FSB, complied with the current minimum capital guidelines and met the QTL test, which it has always met since the test was implemented. The Company's affiliated banks are assessed fees based on the banks' deposits by the FDIC, to insure the funds of customers on deposit with the banks. The deposits acquired from the Resolution Trust Corporation and the deposits of the savings bank are insured by SAIF, while deposits of the Company's commercial bank are insured by BIF. The FDIC has implemented the "Risk-Based Assessment System" which is a system designed to assess higher FDIC insurance premiums to those institutions that are more likely to result in a loss to the deposit insurance fund. Currently, SAIF insured institutions are assessed premiums from $.23 to $.31 per $100 of deposits. All SAIF insured deposits of the Company are subject to a FDIC insurance premium rate of $.23 per $100 of deposits, the lowest rate under the "Risk- Based Assessment System". In September 1995, the FDIC suspended BIF deposit insurance premiums for all well capitalized banks and retroactively refunded assessments to May 1995. This was a result of the full funding of reserves required by the FDIC to insure the deposits of the banking industry. Brenton Bank qualified as a well capitalized bank and is not subject to any FDIC insurance premium on BIF deposits. See Item 1, Section (B), Recent Developments, for proposed legislation on SAIF deposits. According to Iowa's regional interstate banking law, Iowa-based banks and bank holding companies can acquire banks and bank holding companies located in certain other states. Additionally, certain non-Iowa based banks and bank holding companies can acquire Iowa banks and bank holding companies, provided that the total deposits of all banks and savings and loan associations (hereinafter "thrifts") controlled by out of state bank holding companies does not exceed thirty-five percent of the total deposits of all banks and thrifts in the state. The law allows regional interstate banking between Iowa and Illinois, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin. Bank holding companies and banks may acquire thrifts in any state, regardless of whether the acquiror can operate a bank in that state. Such thrifts must conform their activities to those that are permissible for banks or bank holding companies and their subsidiaries. 9 During 1994, the "Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Banking Act") was enacted. This law amends certain provisions of the federal banking laws (including the Bank Holding Company Act) to permit the acquisition of banks by banks or bank holding companies domiciled outside of the home state of the acquired bank. The law will become effective on June 1, 1997. The Interstate Banking Act seeks to provide a uniform interstate banking law for all 50 states. Provisions of the law allow individual states to "opt-out" of the provisions of the Interstate Banking Act by expressly prohibiting merger transactions with out-of-state banks. Also, states are permitted to impose certain conditions upon interstate mergers. States electing to opt-out of the Interstate Banking Act must pass such a law prior to June 1, 1997. In addition, the Interstate Banking Act also permits certain affiliated financial institutions to act as agents for each other, establishes limits upon the maximum deposits that may be held by any one institution in the nation and in any one state and seeks to equalize the competitive opportunities between the United States and the foreign banks. Whether Iowa or other states surrounding Iowa will "opt-out" of the provisions of the Interstate Banking Act prior to June 1, 1997 is unknown. The full extent of the provisions of the Interstate Banking Act and its effect upon the Company is unknown at this time. Generally, banks in Iowa are prohibited from operating offices in counties other than the county in which the bank's principal office is located and contiguous counties. However, certain banks located in the same or different municipalities or urban complexes may consolidate or merge and retain their existing banking locations by converting to a United Community Bank. The resulting bank would adopt one principal place of business, and would retain the remaining banking locations of the merged or consolidated banks as offices. The Company relied upon the United Community Bank law when it merged its 13 commercial banks into one state chartered bank in 1995. Generally, thrifts can operate offices in any county in Iowa and may, under certain circumstances, acquire or branch into thrifts in other states with the approval of the OTS. (H) Governmental Monetary Policy and Economic Conditions. The earnings of the Company are affected by the policies of regulatory authorities, including the Federal Reserve System. Federal Reserve System monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the economy and in the money markets, as a result of actions by monetary and fiscal authorities, interest rates, credit availability and deposit levels may change due to circumstances beyond the control of the Company. Future policies of the Federal Reserve System and other authorities cannot be predicted, nor can their effect on future earnings be predicted. (I) Competition. The banking business in Iowa is highly competitive and the affiliated banks compete not only with banks and thrifts, but with sales, finance and personal loan companies; credit unions; and other financial institutions which are active in the areas in which the affiliated banks operate. In addition, the affiliated banks compete for customer funds with other investment alternatives available through investment brokers, insurance companies, finance companies and other institutions. The multi-bank holding companies which own banks in Iowa are in direct competition with one another. Brenton Banks, Inc. is the largest multi-bank holding company domiciled in Iowa. The second largest Iowa-based multi-bank holding company has 33 locations in Iowa and deposits approximately 29 percent less than those of the Company. There are four other multi-bank holding companies, which operate banks in Iowa, but are domiciled in other states. One such holding company, domiciled in Minnesota, has 44 banking locations located in various parts of Iowa. Two Missouri based multi-bank holding companies operate banks in Iowa, one has 33 banking locations and the other has 27 banking locations. Another multi-bank holding company, domiciled in Wisconsin, has 44 locations in Iowa. 10 Certain of the subsidiary banks of these multi-bank holding companies may compete with certain of the Parent Company's affiliated banks and any other affiliated financial institutions which may be acquired by the Parent Company. These multi-bank holding companies, other smaller bank holding companies, chain banking systems and others may compete with the Parent Company for the acquisition of additional banks. The Company has also expanded into the related investment brokerage business in the last several years, placing brokers in many Brenton bank locations. The Brenton brokers compete with brokers from regional and national investment brokerage firms. 11 Item 1(J) Business - Statistical Disclosure The following statistical disclosures relative to the consolidated operations of the Company have been prepared in accordance with Guide 3 of the Guides for the Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934. Average balances were primarily calculated on a daily basis. I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential The following summarizes the average consolidated statement of condition by major type of account, the interest earned and interest paid and the average yields and average rates paid for each of the three years ending December 31, 1995:
1995 1994 1993 ______________________________ ______________________________ ______________________________ Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Interest Rates __________ _________ _________ __________ _________ _________ __________ _________ _________ (Dollars in thousands) Assets: Interest-earning assets Loans (1,2) $ 945,724 $ 82,136 8.68% $ 936,370 $ 76,271 8.14% $ 802,088 $ 70,310 8.77% Investment securities held to maturity: Taxable investments: United States Treasury securities -- -- -- -- -- -- 24,598 1,290 5.24 Securities of United States government agencies 27,381 1,570 5.73 2,001 98 4.92 58,522 3,410 5.83 Mortgage-backed and related securities 36,214 2,370 6.54 29,834 1,679 5.63 204,130 10,857 5.32 Other investments 2,364 130 5.49 3,959 85 2.15 12,743 1,071 8.41 Tax-exempt investments: Obligations of states and political subdivisions(2) 50,235 4,044 8.05 44,584 3,433 7.70 164,520 11,471 6.97 Investment securities available for sale: United States Treasury securities 42,416 2,271 5.35 55,580 2,519 4.53 44,605 2,315 5.19 Securities of United States government agencies 79,000 4,939 6.25 58,603 3,016 5.15 8,439 486 5.76 (1) The average outstanding balance is net of unearned income and includes nonaccrual loans. (2) Interest income and yields are stated on a tax equivalent basis using a 34 percent federal income tax rate for 1995 and 1994 and 35 percent rate for 1993, and are adjusted to reflect the effect of the nondeductible interest expense of owning tax- exempt investments. The standard federal income tax rate is used for consistency of presentation.
12 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential, Continued
1995 1994 1993 ______________________________ ______________________________ ______________________________ Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Interest Rates __________ _________ _________ __________ _________ _________ __________ _________ _________ (Dollars in thousands) Mortgage-backed and related securities 113,834 6,658 5.85 124,591 6,864 5.51 -- -- -- Other investments 9,536 710 7.44 7,255 641 8.87 130 8 6.00 Tax-exempt investments: Obligations of states and political subdivisions (1) 100,859 6,763 6.71 132,040 8,412 6.37 -- -- -- Loans held for sale 5,908 396 6.70 2,575 193 7.50 6,165 520 8.43 Federal funds sold and securities purchased under agreements to resell 39,763 2,264 5.69 37,666 1,706 4.53 23,725 486 2.05 Interest-bearing deposits with banks 1,076 67 6.20 124 8 6.65 762 22 2.88 _________ _______ ____ _________ _______ ____ _________ _______ ____ Total interest-earning assets(1) 1,454,310 $114,318 7.86% 1,435,182 $104,925 7.31% 1,350,427 $102,246 7.57% Allowance for loan losses (11,166) (10,502) (9,615) Cash and due from banks 57,138 46,301 46,025 Bank premises and equipment 31,436 24,545 23,045 Other assets 29,508 25,663 26,543 _________ _________ _________ Total assets $1,561,226 $1,521,189 $1,436,425 (1) Interest income and yields are stated on a tax equivalent basis using a 34 percent federal income tax rate for 1995 and 1994 and 35 percent rate for 1993, and are adjusted to reflect the effect of the nondeductible interest expense of owning tax- exempt investments. The standard federal income tax rate is used for consistency of presentation.
13 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential, Continued
1995 1994 1993 ______________________________ ______________________________ ______________________________ Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Expense Rates _________ __________ _________ __________ _________ _________ __________ _________ _________ (Dollars in thousands) Liabilities and stockholders' equity: Interest-bearing liabilities: Interest-bearing deposits: Demand $ 355,819 $11,842 3.33% $ 250,520 $ 5,418 2.16% $ 217,754 $ 4,552 2.09% Savings 231,633 6,638 2.87 294,715 6,878 2.33 299,640 7,697 2.57 Time 626,497 34,595 5.52 625,981 29,313 4.68 622,789 29,940 4.81 Federal funds purchased and securities sold under agreements to repurchase 40,237 1,641 4.08 61,656 2,082 3.38 42,715 1,027 2.41 Other short-term borrowings 6,536 371 5.67 4,860 264 5.42 33 1 3.62 Long-term borrowings 37,264 2,621 7.03 26,500 1,817 6.86 14,077 1,210 8.60 _________ ______ ____ _________ ______ ____ _________ ______ ____ Total interest-bearing liabilities 1,297,986 $57,708 4.45% 1,264,232 $45,772 3.62% 1,197,008 $44,427 3.71% Noninterest-bearing deposits 128,770 127,464 119,322 Accrued expenses and other liabilities 14,896 13,254 12,805 _________ _________ _________ Total liabilities 1,441,652 1,404,950 1,329,135 Minority interest 4,391 4,290 4,150 Common stockholders' equity 115,183 111,949 103,140 _________ _________ _________ Total liabilities and stockholders' equity $1,561,226 $1,521,189 $1,436,425 Net interest spread (1) 3.41% 3.69% 3.86% Net interest income/margin (1) $56,610 3.89% $59,153 4.12% $57,819 4.28% (1) Interest income and yields are stated on a tax equivalent basis using a 34 percent federal income tax rate for 1995 and 1994 and a 35 percent rate for 1993, and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. The standard federal income tax rate is used for consistency of presentation.
14 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential, Continued The following shows the changes in interest earned and interest paid due to changes in volume and changes in rate for each of the two years ended December 31, 1995:
1995 vs. 1994 1994 vs. 1993 __________________________ __________________________ Variance Variance due to due to _______________ _______________ Variance Volume Rate Variance Volume Rate ________ ______ ____ ________ ______ ____ (In thousands) (In thousands) Interest Income: Loans (1,2) $ 5,865 769 5,096 $ 5,961 11,185 (5,224) Investment securities held to maturity: Taxable investments: United States Treasury securities -- -- -- (1,290) (1,290) -- Securities of United States government agencies 1,472 1,452 20 (3,312) (2,843) (469) Mortgage-backed and related securities 691 392 299 (9,178) (9,775) 597 Other investments 45 (45) 90 (986) (474) (512) Tax-exempt investments: Obligations of states and political subdivisions (2) 611 450 161 (8,038) (9,126) 1,088 Investment securities available for sale: Taxable Investments: United States Treasury securities (248) (658) 410 204 522 (318) Securities of United States government agencies 1,923 1,189 734 2,530 2,587 (57) Mortgage-backed and related securities (206) (614) 408 6,864 6,864 -- Other investments 69 180 (111) 633 628 5 Tax-exempt Investments: Obligations of states and political subdivisions (2) (1,649) (2,072) 423 8,412 8,412 -- Loans held for sale 203 225 (22) (327) (275) (52) Federal funds sold and securities purchased under agreements to resell 558 99 459 1,220 399 821 Interest-bearing deposits with banks 59 60 (1) (14) (28) 14 _______ _______ _______ _______ _______ _______ 9,393 1,427 7,966 2,679 6,786 (4,107) _______ _______ _______ _______ _______ _______ Interest expense: Interest-bearing deposits: Demand 6,424 2,815 3,609 866 704 162 Savings (240) (1,634) 1,394 (820) (125) (695) Time 5,282 24 5,258 (626) 153 (779) Federal funds purchased and securities sold under agreements to repurchase (441) (818) 377 1,055 552 503 Other short-term borrowings 107 95 12 4 6 (2) Long-term borrowings 804 756 48 866 1,082 (216) _______ _______ _______ _______ _______ _______ 11,936 1,238 10,698 1,345 2,372 (1,027) _______ _______ _______ _______ _______ _______ Net interest income (expense) $ (2,543) 189 (2,732) $ 1,334 4,414 (3,080) _______ _______ _______ _______ _______ _______ Note: The change in interest due to both rate and volume has been allocated to change due to volume and change due to rate in proportion to the relationship of the absolute dollar amounts of the change in each. (1) Nonaccrual loans have been included in the analysis of volume and rate variances. (2) Computed on tax equivalent basis using a 34 percent federal income tax rate for 1995 and 1994 and a 35 percent rate for 1993, and adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments.
15 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential, Continued Interest Rate Sensitivity Analysis The following schedule shows the matching of interest sensitive assets to interest sensitive liabilities by various maturity or repricing periods as of December 31, 1995. As the schedule shows, the Company is liability sensitive within the one-year time frame. Included in the three months or less sensitivity category are all interest-bearing demand and savings accounts. Although these deposits are contractually subject to immediate repricing, management believes a large portion of these accounts are not synchronized with overall market rate movements.
3 Months Over 3 Over 6 Total Over 1 or through 6 through 12 within through 5 Over Less Months Months 1 Year Years 5 Years Total ---- ------ ------ ------ ----- ------- ----- (In thousands) Interest-earning assets: Loans (1) $ 262,988 29,799 45,930 338,717 410,101 158,736 907,554 Investment securities: Available for sale: Taxable investments 95,496 26,116 52,950 174,562 121,747 2,274 298,583 Tax-exempt investments 4,886 9,921 4,154 18,961 40,559 36,155 95,675 Held to maturity: Taxable investments 19,377 11,751 16,894 48,022 10,601 1,884 60,507 Tax-exempt investments 1,755 5,657 13,163 20,575 20,778 8,335 49,688 Loans held for sale 8,707 -- -- 8,707 -- -- 8,707 Federal funds sold and securities purchased under agreements to resell 37,600 -- -- 37,600 -- -- 37,600 Interest-bearing deposits with banks 265 -- -- 265 -- -- 265 _________ _________ _________ _________ ________ _______ _________ Total interest-earning assets $ 431,074 83,244 133,091 647,409 603,786 207,384 1,458,579 _________ _________ _________ _________ ________ _______ _________ Interest-bearing liabilities: Interest-bearing deposits: Demand and savings deposits (2) $ 614,797 -- -- 614,797 -- -- 614,797 Time deposits 114,510 90,152 143,802 348,464 252,214 3,247 603,925 Federal funds purchased and securities sold under agreements to repurchase 41,107 -- -- 41,107 -- -- 41,107 Other short-term borrowings -- -- 2,500 2,500 -- -- 2,500 Long-term borrowings -- -- 917 917 31,443 5,818 38,178 _________ _________ _________ _________ ________ _______ _________ Total interest-bearing liabilities $ 770,414 90,152 147,219 1,007,785 283,657 9,065 1,300,507 _________ _________ _________ _________ ________ _______ _________ Interest sensitivity GAP $ (339,340) (6,908) (14,128) (360,376) 320,129 198,319 158,072 _________ _________ _________ _________ ________ _______ _________ Interest sensitivity GAP ratio .56:1 .92:1 .90:1 .64:1 2.13:1 22.88:1 1.12:1 _________ _________ _________ _________ ________ _______ _________ Cumulative interest sensitivity GAP $ (339,340) (346,248) (360,376) (360,376) (40,247) 158,072 158,072 _________ _________ _________ _________ ________ _______ _________ Cumulative interest sensitivity GAP ratio .56:1 .60:1 .64:1 .64:1 .97:1 1.12:1 1.12:1 _________ _________ _________ _________ ________ _______ _________ (1) Nonaccrual loans have been excluded from the interest rate sensitivity analysis. (2) Interest-bearing demand and savings deposits are included in the 3 months or less sensitivity category.
16 Item 1(J) Business - Statistical Disclosure, Continued II. Investment Portfolio The carrying value of investment securities at December 31 for each of the past three years follows:
Amortized Cost at December 31, ______________________________ 1995 1994 1993 ____ ____ ____ (In thousands) Investment securities available for sale: Taxable investments: United States Treasury securities $ 27,775 50,641 63,777 Securities of United States government agencies 72,822 66,037 59,181 Mortgage-backed and related securities 191,028 104,121 138,744 Other investments 9,071 10,812 5,925 Tax-exempt investments: Obligations of states and political subdivisions 95,674 117,598 144,583 _______ _______ _______ 396,370 349,209 412,210 _______ _______ _______ Investment securities held to maturity: Taxable investments: Securities of United States government agencies 48,595 9,444 -- Mortgage-backed and related securities 3,653 35,282 24,882 Other investments 6,145 3,087 5,563 Tax-exempt investments: Obligations of states and political subdivisions 49,689 46,671 35,939 _______ _______ _______ 108,082 94,484 66,384 _______ _______ _______ Total investment securities $504,452 443,693 478,594 _______ _______ _______
17 Item 1(J) Business - Statistical Disclosure, Continued II. Investment Portfolio The following table shows the maturity distribution and weighted average yields of investment securities at December 31, 1995: (caption> Investments by Maturity and Yields at December 31, 1995 ____________________________________________________________________________ After One After Five Within but through but through After One Year Five Years Ten Years Ten Years _______________ _______________ _______________ _______________ Amount Yield Amount Yield Amount Yield Amount Yield ______ _____ ______ _____ ______ _____ ______ _____ (Dollars in thousands) Investment securities available for sale: Taxable investments: United States Treasury securities $ 14,632 5.60% $ 13,143 6.01% $ -- --% $ -- --% Securities of United States government agencies 11,977 6.05 56,562 5.74 4,283 5.42 -- -- Mortgage-backed and related securities 55,650 6.45 100,308 6.57 17,902 6.98 17,168 6.81 Other investments 6,780 7.32 2,291 5.80 -- -- -- -- Tax-exempt investments: Obligations of states and political subdivisions 19,220 6.12 36,446 7.47 14,878 9.48 25,130 8.42 _______ ____ _______ ____ ______ ____ ______ ____ 108,259 6.28 208,750 6.46 37,063 7.80 42,298 7.76 _______ ____ _______ ____ ______ ____ ______ ____ Investment securities held to maturity: Taxable investments: Securities of United States government agencies 12,043 6.03 15,623 6.37 20,929 4.89 -- -- Mortgage-backed and related securities 972 5.43 1,152 4.83 732 5.52 797 5.35 Other investments 3,249 5.74 2,157 6.44 50 6.90 689 7.06 Tax-exempt investments: Obligations of states and political subdivisions 18,586 6.87 20,372 6.75 4,250 8.55 6,481 8.98 _______ ____ _______ ____ ______ ____ ______ ____ 34,850 6.44 39,304 6.53 25,961 5.51 7,967 8.45 _______ ____ _______ ____ ______ ____ ______ ____ Total investment securities $143,109 6.32% $248,054 6.47% $63,024 6.86% $50,265 7.87% _______ ____ _______ ____ ______ ____ ______ ____
NOTE: The weighted average yields are calculated on the basis of the cost and effective yields for each scheduled maturity group. The weighted average yields for tax-exempt obligations have been adjusted to a fully taxable basis, assuming a 34 percent federal income tax rate for 1995 and 1994, and a 35 percent rate for 1993, and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. As of December 31, 1995, the Company did not have securities from a single issuer, other than the United States Government or its agencies, which exceeded 10 percent of consolidated common stockholders' equity. Maturities of all investment securities are managed to meet the Company's normal liquidity needs. Investment securities available for sale may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's asset/liability position. 18 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio The following table shows the amount of loans outstanding by type as of December 31 for each of the past five years:
December 31 ____________________________________________________ 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ (In thousands) 1. Real estate loans: a. Commercial construction and land development $ 38,123 26,549 24,189 25,180 16,155 b. Secured by 1-4 family residential property 319,430 389,713 349,810 324,124 321,721 c. Other 163,739 143,960 129,574 101,418 96,805 2. Loans to financial institutions (primarily bankers' acceptances) -- -- -- 393 4,785 3. Loans to farmers 68,543 71,853 66,574 62,471 60,898 4. Commercial and industrial loans 119,368 115,280 90,521 75,062 93,180 5. Loans to individuals for personal expenditures, net of unearned income 199,489 221,627 214,401 163,876 151,529 6. All other loans 1,501 1,232 812 930 6,837 _______ _______ _______ _______ _______ $910,193 970,214 875,881 753,454 751,910 _______ _______ _______ _______ _______
19 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio, Continued The following table shows the maturity distribution of loans as of December 31, 1995 (excluding real estate loans secured by 1-4 family residential property and loans to individuals for personal expenditures):
Loans by Maturity at December 31, 1995 ________________________________________ After One Year Within through After Five One Year Five Years Years Total ________ __________ _____ _____ (In thousands) 1. Real estate loans: a. Commercial construction and land development $ 30,487 6,316 1,320 38,123 b. Other 46,155 65,866 51,718 163,739 2. Loans to financial institutions -- -- -- -- 3. Loans to farmers 39,235 22,861 6,447 68,543 4. Commercial and industrial loans 69,402 34,972 14,994 119,368 5. All other loans 371 571 559 1,501 _______ _______ ______ _______ $185,650 130,586 75,038 391,274 _______ _______ ______ _______
The above loans due after one year which have predetermined and floating interest rates follow: Predetermined interest rates $ 96,299 _______ Floating interest rates $109,325 _______ 20 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio, Continued The following schedule shows the dollar amount of loans at December 31 for each of the past five years which were either accounted for on a nonaccrual basis, had been restructured to below market terms to provide a reduction or deferral of interest or principal, or were 90 days or more past due as to interest or principal. Each particular loan has been included in only the most appropriate category.
1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ (In thousands) Nonaccrual $2,639 3,784 1,605 1,884 2,931 Restructured 178 298 323 448 1,019 Past due 90 days or more 2,802 940 2,085 2,261 1,672 _____ _____ _____ _____ _____ Nonperforming loans $5,619 5,022 4,013 4,593 5,622 _____ _____ _____ _____ _____
Interest income recorded during 1995 on nonaccrual and restructured loans amounted to $136,000. The amount of interest income which would have been recorded during 1995 if nonaccrual and restructured loans had been current, in accordance with the original terms, was $418,000. The amounts scheduled above include the entire balance of any particular loan. Much of the scheduled amount is adequately collateralized, and thus does not represent the amount of anticipated charge-offs in the future. The loans scheduled are representative of the entire customer base of the Company and, therefore, are not concentrated in a specific industry or geographic area other than the loans to farmers in Iowa. Overdrafts are loans for which interest does not normally accrue. Since overdrafts are generally low volume, they were not included in the above schedule, unless there was serious doubt concerning collection. 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, unless it is both well secured and in the process of collection. Once determined uncollectible, previously accrued interest is charged to the allowance for loan losses. In addition to the loans scheduled above, management has identified other loans which, due to a change in economic circumstances or a deterioration in the financial position of the borrower, present serious concern as to the ability of the borrower to comply with present repayment terms. Additionally, management considers the identification of loans classified for regulatory or internal purposes as loss, doubtful, substandard or special mention. This serious concern may eventually result in certain of these loans being classified in one of the above scheduled categories. At December 31, 1995, these loans amounted to approximately $2 million. As of December 31, 1995, management is unaware of any other material interest-earning assets which have been placed on a nonaccrual basis, have been restructured, or are 90 days or more past due. The amount of other real estate owned, which has been received in lieu of loan repayment, amounted to $869,000 and $502,000 at December 31, 1995 and 1994, respectively. 21 Item 1(J) Business - Statistical Disclosure, Continued IV. Summary of Loan Loss Experience The following is an analysis of the allowance for loan losses for years ended December 31, for each of the past five years:
Year Ended December 31 _______________________________________________ 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ (In thousands) Total loans at the end of the year $910,193 970,214 875,881 753,454 751,910 Average loans outstanding 945,724 936,370 802,088 736,646 727,870 _______ _______ _______ _______ _______ Allowance for loan losses - beginning of the year $ 10,913 9,818 9,006 8,548 8,871 _______ _______ _______ _______ _______ Amount of charge-offs during year: Real estate loans 41 83 109 276 110 Loans to financial institutions -- -- -- -- -- Loans to farmers 36 31 68 45 48 Commercial and industrial loans 340 337 54 252 769 Loans to individuals for personal expenditures 2,960 1,943 1,230 1,304 1,404 All other loans -- 48 70 67 5 _______ _______ _______ _______ _______ Total charge-offs 3,377 2,442 1,531 1,944 2,336 _______ _______ _______ _______ _______ Amount of recoveries during year: Real estate loans 66 101 101 32 60 Loans to financial institutions -- -- -- -- -- Loans to farmers 50 146 81 179 135 Commercial and industrial loans 400 334 248 125 303 Loans to individuals for personal expenditures 1,153 947 641 635 716 All other loans -- 21 20 20 -- _______ _______ _______ _______ _______ Total recoveries 1,669 1,549 1,091 991 1,214 _______ _______ _______ _______ _______ Net loans charged off during year 1,708 893 440 953 1,122 _______ _______ _______ _______ _______ Additions to allowance charged to operating expense 1,865 1,988 1,252 1,411 799 _______ _______ _______ _______ _______ Allowance for loan losses - end of the year $ 11,070 10,913 9,818 9,006 8,548 _______ _______ _______ _______ _______ Ratio of allowance to loans outstanding at end of year 1.22% 1.12 1.12 1.20 1.14 ____ ____ ____ ____ ____ Ratio of net charge-offs to average loans outstanding .18% .10 .05 .13 .15 ___ ___ ___ ___ ___
NOTE: The provision for loan losses charged to operating expenses is based on management's evaluation of the loan portfolio, past loan loss experience and other factors that deserve current recognition in estimating loan losses. The allowance for loan losses is maintained at a level necessary to support management's evaluation of potential losses in the loan portfolio, after considering various factors including prevailing and anticipated economic conditions. 22 Item 1(J) Business - Statistical Disclosure, Continued IV. Summary of Loan Loss Experience, Continued In the following summary, the Company has allocated the allowance for loan losses, according to the amount deemed to be reasonably necessary to provide for losses within each category of loans. The amount of the allowance applicable to each category and the percentage of loans in each category to total loans follows:
Year Ended December 31 __________________________________________________________________________________________ 1995 1994 1993 1992 1991 _________________ _________________ _________________ _________________ __________________ Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent for of Loans for of Loans for of Loans for of Loans for of Loans Loan to Total Loan to Total Loan to Total Loan to Total Loan to Total Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans ______ _____ ______ _____ ______ _____ ______ _____ _____ _____ (Dollars in thousands) Real estate loans $ 2,400 57.3% $ 2,600 57.7% $2,400 57.5% $2,200 59.8% $2,002 57.8% Loans to financial institutions -- -- -- -- -- -- -- .1 -- .6 Loans to farmers 1,300 7.5 1,400 7.4 1,600 7.6 1,200 8.3 1,500 8.1 Commercial and industrial loans 2,900 13.1 2,800 11.9 2,700 10.3 2,700 10.0 2,600 12.4 Loans to individuals for personal expenditures 4,470 21.9 4,113 22.8 3,118 24.5 2,906 21.3 2,446 20.2 All other loans -- .2 -- .2 -- .1 -- .5 -- .9 ______ _____ ______ _____ _____ _____ _____ _____ _____ _____ $11,070 100.0% $10,913 100.0% $9,818 100.0% $9,006 100.0% $8,548 100.0% ______ _____ ______ _____ _____ _____ _____ _____ _____ _____
23 Item 1(J) Business - Statistical Disclosure, Continued V. Deposits A classification of the Company's average deposits and average rates paid for the years indicated follows:
Year Ended December 31 __________________________________________ 1995 1994 1993 ____________ ____________ ____________ Amount Rate Amount Rate Amount Rate ______ ____ ______ ____ ______ ____ (Dollars in thousands) Noninterest-bearing deposits $ 128,770 --% $ 127,464 --% $ 119,322 --% Interest-bearing deposits: Demand 355,819 3.33 250,520 2.16 217,754 2.09 Savings 231,633 2.87 294,715 2.33 299,640 2.57 Time 626,497 5.52 625,981 4.68 622,789 4.81 _________ ____ _________ ____ _________ ____ $1,342,719 $1,298,680 $1,259,505 _________ _________ _________
The following sets forth the maturity distribution of all time deposits of $100,000 or more as of December 31, 1995: Large Time Deposits by Maturity at Maturity Remaining December 31, 1995 __________________ ___________________ (In thousands) Less than 3 months $14,411 Over 3 through 6 months 21,395 Over 6 through 12 months 13,653 Over 12 months 14,555 ______ $64,014 ______ VI. Return on Equity and Assets Various operating and equity ratios for the years indicated are presented below:
Year Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ Return on average total assets: Net income before deduction of minority interest .71% .70% 1.04% Return on average equity 9.04 9.03 13.82 Common dividend payout ratio 33.58 34.65 22.22 Average equity to average assets 7.38 7.36 7.18 Equity to assets ratio 7.55 6.98 7.59 Tier 1 leverage capital ratio 7.45 7.23 7.36 Primary capital ratio 8.40 8.18 8.31 ____ ____ ____
24 Item 1(J) Business - Statistical Disclosure, Continued VII. Short-Term Borrowings Information relative to federal funds purchased and securities sold under agreements to repurchase follows:
1995 1994 1993 ____ ____ ____ (Dollars in thousands) Amount outstanding at December 31 $41,107 70,704 37,664 Weighted average interest rate at December 31 4.14% 4.73 2.31 Maximum amount outstanding at any quarter-end $41,107 70,704 66,740 Average amount outstanding during the year $40,237 61,656 42,715 Weighted average interest rate during the year 4.08% 3.38 2.41 ____ ____ ____
Information relative to other short-term borrowings, which consist primarily of Federal Home Loan Bank borrowings, follows:
1995 1994 1993 ____ ____ ____ (Dollars in thousands) Amount outstanding at December 31 $2,500 12,000 -- Weighted average interest rate at December 31 4.68% 5.40 -- Maximum amount outstanding at any quarter-end $7,000 12,000 -- Average amount outstanding during the year $6,536 4,860 33 Weighted average interest rate during the year 5.67% 5.42 3.63 ____ ____ ____
25 Item 2. Properties. At December 31, 1995, the affiliated banks had 45 banking locations with approximately 301,000 square feet, all located in Iowa. Of these banking locations, 32 were owned by the Company - approximately 236,000 square feet; 3 were owned buildings on leased land - approximately 30,000 square feet and 10 were operated under lease contracts with unaffiliated parties - approximately 35,000 square feet. The Company leases certain real estate and equipment under long- term and short-term leases. The Company owns certain real estate which is leased to unrelated persons. Item 3. Legal Proceedings. The Company (Brenton Banks, Inc. and its subsidiaries) is involved in 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 position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information appearing on pages 30 and 36 of the Corporation's Annual Report, filed as Exhibit 13 hereto, is incorporated herein by reference. There were approximately 1,575 holders of record of the Parent Company's $5 common stock as of March 13, 1996. The closing bid price of the Parent Company's common stock was $22.875 on March 13, 1996. The Parent Company increased dividends to common shareholders in 1995 to $.45 per share, a 2.3 percent increase over $.44 for 1994. Dividend declarations are evaluated and determined by the Board of Directors on a quarterly basis. In January 1996, the Board of Directors declared a dividend of $.12 per common share. There are currently no restrictions on the Parent Company's present or future ability to pay dividends. Item 6. Selected Financial Data. The information appearing on page 19 of the Company's Annual Report, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information appearing on pages 12 through 17 of the Company's Annual Report, filed as Exhibit 13 hereto, is incorporated herein by reference. 26 Item 8. Financial Statements and Supplementary Data. The information appearing on pages 20 through 35 of the Company's Annual Report, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Within the twenty-four months prior to the date of the most recent financial statements, there has been no change of accountants of the Company. PART III Item 10. Directors and Executive Officers of the Registrant. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ending December 31, 1995, is incorporated herein by reference. See also Item 1(E) of this Form 10-K captioned "Executive Officers of the Registrant." Item 11. Executive Compensation. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ended December 31, 1995, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ending December 31, 1995, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ending December 31, 1995, is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. The following exhibits and financial statement schedules are filed as part of this report: (a) 1. Financial Statements: See the financial statements on pages 20 through 35 of the Company's Annual Report, filed as Exhibit 13 hereto, which are incorporated by reference herein. 2. Financial Statement Schedules: See Exhibits 11 and 12, for computation of earnings per share and ratios. 27 3. Exhibits (not covered by independent auditors' report). Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. Exhibit 10.1 Summary of the Bank Bonus Plans under which some of the executive officers of the Parent Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. Exhibit 10.2 Summary of the Executive Bonus Plan under which some of the executive officers of the Parent Company are eligible to receive a bonus each year. Exhibit 10.3 Summary of the Trust Division Bonus Plan under which one of the policymakers of the Parent Company is eligible to receive a bonus each year. Exhibit 10.4 Summary of the Brokerage Bonus Plan under which one of the policymakers of the Parent Company is eligible to receive a bonus each year. Exhibit 10.5 Director's Incentive Plan. This Director's Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc., for the quarter ended September 30, 1995. Exhibit 10.6 Employment Agreement, dated July 6, 1989, between William H. Brenton and Brenton Banks, Inc. This Employment Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.7 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 300,000 shares of the Company's $5 par value common stock. This Non-Qualified Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. 28 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.9 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. Exhibit 10.10 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1992, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1992, are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. Exhibit 10.11 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. Exhibit 10.12 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. This standard Agreement for Advances, Pledge and Security Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. Exhibit 10.13 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1995, setting forth the terms of the Parent Company's $2,000,000 short-term debt agreement. Exhibit 10.14 Data Processing Agreement dated December 1, 1991 by and between Systematics, Inc. and Brenton Information Systems, Inc. This Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. 29 Exhibit 10.15 Item Processing Agreement dated December 1, 1991 between Brenton Bank Services Corporation and the Federal Home Loan Bank of Des Moines. This Item Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. Exhibit 10.16 Restated Trust Agreement for Brenton Banks, Inc. Retirement Plan, effective January 1, 1986. This Restated Trust Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. Exhibit 10.17 Amendments to the Restated Trust Agreement for Brenton Banks, Inc. Retirement Plan, effective January 1, 1987, January 1, 1993 and January 1, 1994. These Amendments to the Restated Trust Agreement are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.18 Indenture Agreement with respect to Capital Notes dated April 12, 1993. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 14, 1992. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated August 5, 1991. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1991. Exhibit 10.21 Indenture Agreement with respect to Capital Notes dated March 27, 1991. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1991. Exhibit 10.22 Indenture Agreement with respect to Capital Notes dated April 5, 1985. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1991. 30 Exhibit 10.23 Indenture Agreement with respect to Capital Notes dated April 8, 1994. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.24 Indenture Agreement with respect to Capital Notes dated April 10, 1995. Exhibit 10.25 Split Dollar Insurance Agreement between the Company, William H. Brenton Crummy Trust and William H. Brenton Crummy Trust II, dated November 23, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.26 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of C. Robert Brenton, dated August 12, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.27 Agreement between Robert L. DeMeulenaere and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.28 Agreement between Larry A. Mindrup and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. Exhibit 10.29 Agreement between Norman D. Schuneman and the Company regarding the change in control arrangements, dated December 31, 1994. 31 Exhibit 10.30 Twelfth Amendment to Data Processing Agreement dated July 1, 1995 by and between ALLTEL Financial Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Banks Services Corp. (formerly Brenton Information Systems, Inc.). This Twelfth Amendment to Data Processing Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc., for the quarter ended September 30, 1995. Exhibit 10.31 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995 by and between ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Banks Services Corp.). Exhibit 11 Statement of computation of earnings per share. Exhibit 12 Statement of computation of ratios. Exhibit 13 The Annual Report to Shareholders of Brenton Banks, Inc., for the 1995 calendar year. Exhibit 21 Subsidiaries. Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated February 9, 1996, relating to certain consolidated statements of condition of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. Exhibit 27 Financial Data Schedule (filed only with Electronic Transmission). The Parent Company will furnish to any shareholder upon request a copy of any exhibit upon payment of a fee of $.50 per page. Requests for copies of exhibits should be directed to Steven T. Schuler, Chief Financial Officer/Treasurer/Secretary, at Brenton Banks, Inc., P.O. Box 961, Des Moines, Iowa 50304-0961. (b) Reports on Form 8-K: No reports on Form 8-K were required to be filed during the last quarter of 1995. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRENTON BANKS, INC. By /s/ C. Robert Brenton Chairman of the Board of Directors C. ROBERT BRENTON Date: March 14, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ C. Robert Brenton Chairman of the Board and Director C. ROBERT BRENTON Principal Executive Officer Date: March 14, 1996 33 By /s/ Robert L. DeMeulenaere President and Director ROBERT L. DEMEULENAERE Principal Executive Officer Date: March 14, 1996 By /s/ Steven T. Schuler Chief Financial Officer/Treasurer/Secretary STEVEN T. SCHULER Chief Financial Officer Date: March 14, 1996 BOARD OF DIRECTORS By /s/ William H. Brenton WILLIAM H. BRENTON Date: March 14, 1996 By /s/ Junius C. Brenton JUNIUS C. BRENTON Date: March 14, 1996 By /s/ R. Dean Duben R. DEAN DUBEN Date: March 14, 1996 By /s/ Hubert G. Ferguson HUBERT G. FERGUSON Date: March 14, 1996 By /s/ Gary M. Christensen GARY M. CHRISTENSEN Date: March 14, 1996 34 EXHIBIT INDEX Exhibits Page Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. . . . . . . . . . . . . . . . . . 40 Exhibit 10.1 Summary of the Bank Bonus Plans under which some of the executive officers of the Parent Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. . . . . . . . . . . . . . . . . 41 Exhibit 10.2 Summary of the Executive Bonus Plan under which some of the executive officers of the Parent Company are eligible to receive a bonus each year. . . . . . . . . . . 43 Exhibit 10.3 Summary of the Trust Division Bonus Plan under which one of the policymakers of the Parent Company is eligible to receive a bonus each year. . . . . . . . . . . . . . . 45 Exhibit 10.4 Summary of the Brokerage Bonus Plan under which one of the policymakers of the Parent Company is eligible to receive a bonus each year. . . . . . . . . . . . . . . . . 47 Exhibit 10.5 Director's Incentive Plan. This Director's Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc., for the quarter ended September 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Exhibit 10.6 Employment Agreement, dated July 6, 1989, between William H. Brenton and Brenton Banks, Inc. This Employment Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . . . . . . . 50 Exhibit 10.7 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 300,000 shares of the Company's $5 par value common stock. This Non-Qualified Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. . . . . 51 35 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . . . . . . . . . . 52 Exhibit 10.9 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. . . . . . . . . . . . . . . . . . . . . 53 Exhibit 10.10 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1992, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1992, are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. . . . . . . . . . . . 54 Exhibit 10.11 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. . . . . . . . . . . . . . 55 Exhibit 10.12 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. This standard Agreement for Advances, Pledge and Security Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. . . . . 69 Exhibit 10.13 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1995, setting forth the terms of the Parent Company's $2,000,000 short-term debt agreement. . . . . . . . . . . . . . . . . 70 36 Exhibit 10.14 Data Processing Agreement dated December 1, 1991 by and between Systematics, Inc. and Brenton Information Systems, Inc. This Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. . . . . . . . . . . . . . . . . . . . . 74 Exhibit 10.15 Item Processing Agreement dated December 1, 1991 between Brenton Bank Services Corporation and the Federal Home Loan Bank of Des Moines. This Item Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. . . . . . . . . . . . . . . . . . . . . 75 Exhibit 10.16 Restated Trust Agreement for Brenton Banks, Inc. Retirement Plan, effective January 1, 1986. This Restated Trust Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. . . . . . . . . . . 76 Exhibit 10.17 Amendments to the Restated Trust Agreement for Brenton Banks, Inc. Retirement Plan, effective January 1, 1987, January 1, 1993 and January 1, 1994. These Amendments to the Restated Trust Agreement are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Exhibit 10.18 Indenture Agreement with respect to Capital Notes dated April 12, 1993. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. . . . . 78 Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 14, 1992. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. . . . . 79 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated August 5, 1991. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. . . . . 80 Exhibit 10.21 Indenture Agreement with respect to Capital Notes dated March 27, 1991. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. . . . . 81 37 Exhibit 10.22 Indenture Agreement with respect to Capital Notes dated April 5, 1985. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. . . . . 82 Exhibit 10.23 Indenture Agreement with respect to Capital Notes dated April 8, 1994. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . 83 Exhibit 10.24 Indenture Agreement with respect to Capital Notes dated April 10, 1995. . . . . . . . . . . . . . . . . . . 84 Exhibit 10.25 Split Dollar Insurance Agreement between the Company, William H. Brenton Crummy Trust and William H. Brenton Crummy Trust II, dated November 23, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . 86 Exhibit 10.26 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of C. Robert Brenton, dated August 12, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . . . . . . . . . . 87 Exhibit 10.27 Agreement between Robert L. DeMeulenaere and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . . . 88 Exhibit 10.28 Agreement between Larry A. Mindrup and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. . . . . . . . . . . . . . 89 Exhibit 10.29 Agreement between Norman D. Schuneman and the Company regarding the change in control arrangements, dated December 31, 1994. . . . . . . . . . . . . . . . . . . . . 90 38 Exhibit 10.30 Twelfth Amendment to Data Processing Agreement dated July 1, 1995 by and between ALLTEL Financial Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Banks Services Corp. (formerly Brenton Information Systems, Inc.). This Twelfth Amendment to Data Processing Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc., for the quarter ended September 30, 1995. . . 93 Exhibit 10.31 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995 by and between ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Banks Services Corp.). . . . . . . . . . . . . . . 94 Exhibit 11 Statement of computation of earnings per share. . . . . . . 102 Exhibit 12 Statement of computation of ratios. . . . . . . . . . . . . 104 Exhibit 13 The Annual Report to Shareholders of Brenton Banks, Inc., for the 1995 calendar year. . . . . . . . . . . . . . 107 Exhibit 21 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 150 Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated February 9, 1996, relating to certain consolidated statements of condition of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. . . . . . . . . . . . . . . . . . . 152 Exhibit 27 Financial Data Schedule (filed only with Electronic Transmission). . . . . . . . . . . . . . . . . . . . . . . 154 39 EX-3 2 Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. 40 EX-10.1 3 Exhibit 10.1 Summary of the Bank Bonus Plans under which some of the executive officers of the Parent Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. 41 1995 BANK BONUS PLANS Bank Bonus Plans are in place for all subsidiary banks. The plans vary somewhat from bank to bank. However, the following general structure exists in all plans: A. Applies to bank presidents and certain other bank personnel. B. Bank presidents and other bank personnel can earn up to a maximum of 32.5% of their salary. Bonus percentage potential tied to consolidated earnings threshold of $14,250,000 and a specific bank earnings threshold. For senior bank officers, no bonus potential if earnings do not reach the thresholds. For other bank officers, a partial phase out of bonus potential if earnings do not reach the thresholds. C. Based on meeting certain pre-established financial and personal goals, the most significant of which are as follows: 1. Net income; 2. Net interest income/margin; 3. Net noninterest margin; 4. Noninterest income; 5. Core deposit growth; 6. Commercial and consumer loan growth; 7. Asset quality; and 8. Key personal objectives tied to bank financial or mission measurement goals. D. Bonus amounts are earned ratably based on tiered achievement scales negotiated between the bank's management and senior management of the holding company. 42 EX-10.2 4 Exhibit 10.2 Summary of the Executive Bonus Plan under which some of the executive officers of the Parent Company are eligible to receive a bonus each year. 43 BRENTON BANKS, INC. (Parent Company) EXECUTIVE BONUS PLAN The Executive Bonus Plans for 1995 cover certain executive officers. The specific provisions of each plan differs somewhat by executive; however, the following general structure exists for all plans: A. Executives can earn up to a maximum of 32.5% of their salary. Bonus percentage potential tied to consolidated earnings threshold of $14,250,000. No bonus potential if earnings do not reach the thresholds, except where individually negotiated discretionary bonuses exist. B. The bonus is based on meeting certain pre-established financial or personal goals, the most significant of which are as follows: 1. Net income of the Company or Division; 2. Net interest income/margin; 3. Noninterest income; 4. Noninterest margin; 5. Core deposit growth; 6. Commercial and consumer loan growth; 7. Asset quality; and 8. Key personal financial objectives tied to the area of responsibility. C. Bonus amounts are earned ratably based on tiered achievement scales. 44 EX-10.3 5 Exhibit 10.3 Summary of the Trust Division Bonus Plan under which one of the policymakers of the Parent Company is eligible to receive a bonus each year. 45 1995 TRUST DIVISION BONUS PLAN The following is a summary of the Trust Division Bonus Plan for 1995: A. The bonus plan covers the President-Trust Division. B. The President-Trust Division may earn up to a maximum of 40.0% of base compensation. C. The bonus amount is earned ratably based on a tiered achievement scale relating to net pre-tax earnings of the Trust Division. D. The tiered achievement scale is negotiated between the President-Trust Division and the Chairman of the Board. 46 EX-10.4 6 Exhibit 10.4 Summary of the Brokerage Bonus Plan under which one of the policymakers of the Parent Company is eligible to receive a bonus each year. 47 1995 BROKERAGE BONUS PLAN The following is a summary of the Brokerage Bonus Plan for 1995: A. The bonus plan covers the President-Brokerage Services. B. The President-Brokerage Services may earn up to a maximum of 40.0% of base compensation. C. The bonus amount is earned ratably based on a tiered achievement scale relating to pre-tax operating earnings of the brokerage operation. D. The tiered achievement scale is negotiated between the President- Brokerage Services and the Chairman of the Board. 48 EX-10.5 7 Exhibit 10.5 Director's Incentive Plan. This Director's Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc., for the quarter ended September 30, 1995. 49 EX-10.6 8 Exhibit 10.6 Employment Agreement, dated July 6, 1989, between William H. Brenton and Brenton Banks, Inc. This Employment Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 50 EX-10.7 9 Exhibit 10.7 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 300,000 shares of the Company's $5 par value common stock. This Non-Qualified Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. 51 EX-10.8 10 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreement and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 52 EX-10.9 11 Exhibit 10.9 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreement and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. 53 EX-10.10 12 Exhibit 10.10 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1992, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1992, are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. 54 EX-10.11 13 Exhibit 10.11 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. 55 BRENTON BANKS, INC. Long-Term Stock Compensation Plan Grant Agreement This Grant Agreement made on the date set forth below, by and between Brenton Banks, Inc., an Iowa Corporation (the "Company") and Phillip L. Risley, an employee of the Company or a Subsidiary thereof (the "Grantee"). The Company desires to carry out the purpose of its Long-Term Stock Compensation Plan by awarding Restricted Stock Grants and Incentive Stock Grants to the Grantee pursuant to the terms set forth herein. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement and for good and valuable consideration, the Company and the Employee have agreed, and do by this Agreement agree, as follows: 1. Terms. Those terms defined in the Brenton Banks, Inc., Long-Term Stock Compensation Plan or in the Administrative Rules adopted thereunder shall have the same meaning when used in this Agreement. 2. Restricted Stock Grant. The Company by this Agreement irrevocably awards the Grantee the rights to acquire 2,923 shares of the Company's Stock pursuant to the terms of a Restricted Stock Grant, set forth in the provisions of the Plan (a copy of which is attached hereto as Exhibit A), the Administrative Rules adopted pursuant to the Plan (a copy of which are attached hereto as Exhibit B), and the Resolution of the Company's Board of Directors (a copy of which is attached hereto as Exhibit C). 3. Incentive Stock Grant. The Company by this Agreement irrevocably awards the Grantee the rights to acquire 5,429 shares of the Company's Stock pursuant to the terms of a Incentive Stock Grant, set forth in the provisions of the Plan (a copy of which is attached hereto as Exhibit A), the Administrative Rules adopted pursuant to the Plan (a copy of which are attached hereto as Exhibit B), the Resolution of the Company's Board of Directors (a copy of which is attached hereto as Exhibit C) and the Performance Criteria adopted by the Board (a copy of which is attached hereto as Exhibit D). 4. Terms. All of the terms, conditions and provisions contained in the Plan, Administrative Rules, Resolutions of the Board and Performance Criteria set forth in Exhibits A, B, C, and D shall be incorporated herein by this reference, and shall govern the provisions of awards set forth in this Agreement. 5. Stock Legend. The Grantee hereby consents to the imposition of an appropriate legend upon the Stock issued pursuant to the Grants. The legend shall be in the form prescribed by the Company's legal counsel if said counsel deems it necessary. 6. Notices. Any notices provided for under this Agreement shall be in writing and shall be delivered in person to the party to be notified or sent by certified mail. Notices sent to the Company shall be addressed to Brenton Banks, Inc., 300 Capital Square, Des Moines, Iowa, 50309. Notices sent to the Grantee shall be sent to the Grantee's address as it appears in the Company's regular records. 56 7. Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Grantee. No waiver, modification or amendment of any of the terms of this Agreement shall be effective unless set forth in a written agreement signed by the Company and the Grantee. In Witness Whereof, the parties have executed this Agreement on the 15th day of February, 1995. BRENTON BANKS, INC. By_____________________________________ Its____________________________________ COMPANY _______________________________________ Phillip L. Risley GRANTEE 57 BRENTON BANKS, INC. Long-Term Stock Compensation Plan 1. Purpose. The Long-Term Stock Compensation Plan (the "Plan") is intended to advance the interests of Brenton Banks, Inc. (the "Company"), it shareholders, and its subsidiaries by providing financial incentives to key management personnel and by encouraging and enabling selected officers and other key employees upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its stock. 2. Definitions. 2.1 "Board" means the Board of Directors of the Company. 2.2 "Stock" means the Company's $5.00 par value Common Stock or, in the event that the Company issues a different class of stock with the same or higher dividend and liquidation rights as the Company's $5.00 Common Stock but with lesser voting rights, such stock. 2.3 "Date of Grant" means the date on which the Board authorizes a grant under the Plan. 2.4 "Grant" means the right to acquire Common Stock and/or cash awarded under the Plan (including both Incentive Stock Grants and Restricted Stock Grants). 2.5 "Incentive Stock Grant" means a Grant of Stock pursuant to the provisions of Section 6.2. 2.6 "Restricted Stock Grant" means a Grant of Stock pursuant to the provisions of Section 6.1. 2.7 "Grantee" means a person to whom a Grant has been awarded under the Plan. 2.8 "Disability" or "Disabled" shall be as defined under the Company's disability plan, if any, or under the Social Security Rules. 2.9 "Subsidiary" or "Subsidiaries" means a subsidiary corporation or corporations of the Company as defined in Section 425 of the Internal Revenue Code. 2.10 "Successor" means the legal representative of the estate of a deceased Grantee or the person or persons who acquire the right to exercise a Grant by bequest or inheritance or otherwise by reason of the death or disability of any Grantee. 2.11 "Administrative Rules" means Rules adopted by a majority vote of the Board to interpret the provisions of the Plan or to impose other terms, conditions and restrictions on the Grant, issuance and transfer of Grants and Stock issued pursuant to the award of Grants. Administrative Rules shall, upon adoption, become part of this Plan as if originally stated herein. The Rules adopted by the Board shall be passed by resolution and kept at the Company's main office. 2.12 "Change in Control" shall mean a change in the ownership of 50% or more of the Company's par Value $5.00 Common Stock as certified by the Secretary of the Company. 2.13 "Performance Criteria" shall mean the criteria established by the Board pursuant to Section 6.2.3 of the Plan. 58 2.14 "Qualified Contingent Vesting Event" shall mean an event described in Sections 6.2.4.2, 6.2.4.3, and 6.2.4.4. 3. Administration of Plan. The Plan shall be administered by the Board. Grants to members of the Board may be granted only by a majority of the disinterested members of the Board. The Board shall have full and final authority in its discretion, subject to the provisions of the Plan, to determine the individuals to whom and the time or times at which Grants shall be made and the number of shares of Stock covered by each Grant; to determine the Performance Criteria with respect to Incentive Stock Grants; to construe and interpret the Plan; to determine the terms and provisions of the respective Grant agreements and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons. 4. Stock Subject to Grant. The aggregate number of shares of the Company's Stock which may be issued upon the exercise of Grants made under the Plan shall not exceed 240,000, subject to adjustment under the provisions of Section 11. The shares of Stock to be granted may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any Grant shall, for any reason, terminate or expire or be surrendered to the Company, the shares subject to such Grant shall again be available to be awarded under the Plan. 5. Participants. Grants may be awarded under the Plan to officers, directors and key employees of the Company or of any of its Subsidiaries. 6. Terms and Conditions of Grants. Any Grant under the Plan shall be evidenced by an agreement executed by the Company and the applicable Grantee and shall contain such terms and be in such form as the Board may from time to time approve, subject to the following limitations and conditions: 6.1 Restricted Stock Grants. 6.1.1 Authorized Shares. The aggregate number of shares that may be awarded to employees under the Plan pursuant to Restricted Stock Grants shall not exceed 84,000 shares of Stock. In the event any Restricted Stock Grant shall, for any reason, be forfeited, terminated, expire or be surrendered to the Company, the shares subject to such Restricted Stock Grant shall again be available to be awarded as a Restricted Stock Grant under the Plan. 6.1.2 Restricted Stock Grants. Restricted Stock may be awarded by the Board to participants of the Company chosen by the Board in its sole discretion. The amount of each award shall be subject to the terms and conditions set forth in an agreement between the Company and the Grantee containing the terms and conditions of the award, which shall be consistent with the provisions set forth in this Plan and the Administrative Rules adopted by the Board. All Restricted Stock Grants that do not vest pursuant to the provisions of Section 6.1.3 shall be forfeited. 6.1.3 Vesting of Restricted Stock Grants. Restricted Stock Grants shall vest with the Grantee following the Grantee's completion of three (3) successive calendar years of employment with the Company or any Subsidiary, with said years being specified by the Board. The Restricted Stock Grants awarded to Grantees shall be considered vested or forfeited on the January 1st following completion of the third successive calendar year of employment with the Company or any Subsidiary. 59 6.1.4 Notwithstanding the foregoing: 6.1.5 Termination of Employment. Upon termination of a Grantee's employment with the Company or with any of its Subsidiaries for reasons other than death, disability, retirement after age 65 or retirement before age 65 with Board approval, the Grantee's and the Company's rights, duties and obligations under the Restricted Stock Grant shall be terminated and the Restricted Stock Grants shall be forfeited. 6.1.6 Death or Disability of Grantee. If a Grantee to whom a Restricted Stock Grant shall have been awarded, shall die or become disabled while the Grantee is employed by the Company or one or more of its Subsidiaries, such Restricted Stock Grant shall thereupon be 100% vested. 6.1.7 Retirement of Grantee. In the event that a Grantee to whom a Restricted Stock Grant shall have been awarded shall retire upon or after the age of 65, any Restricted Stock Grant held by such retired Grantee shall thereupon be 100% vested. In the event Grantee retires prior to age 65, with the approval of the Board in its sole discretion, the Restricted Stock Grant will become (i) one-third (1/3) vested if the retirement occurs after the completion of the first calendar year specified by the Board but prior to the completion of the second calendar year specified by the Board and (ii) 100% vested if the retirement occurs after the completion of the second calendar year specified by the Board. If the Grantee retires prior to the age of 65 without the approval of the Board, the provisions of Section 6.1.4.1 shall control. 6.1.8 Change in Control of the Company. In the event of a Change in Control of the Company, the outstanding Restricted Stock Grants shall thereupon be 100% vested, and, to the extent permitted by law, the Grantees shall be permitted to participate in the sale or merger resulting in the Change in Control. 6.1.9 Incentive Stock Grants. 6.1.10 Authorized Shares. The aggregate number of shares that may be awarded to employees under the Plan pursuant to Incentive Stock Grants shall not exceed 156,000 shares of Stock. In the event any Incentive Stock Grant shall, for any reason, be forfeited, terminate or expire or be surrendered to the Company, the shares subject to such Incentive Stock Grant shall again be available to be awarded as a Incentive Stock Grant under the Plan. 6.1.11 Incentive Stock Grants. Incentive Stock Grants may be awarded by the Board to participants of the Company chosen by the Board in its sole discretion. The amount of each award shall be subject to the terms and conditions set forth in an agreement between the Company and the Grantee containing the terms and conditions of the award, which shall be consistent with the provisions set forth in this Plan and the Administrative Rules adopted by the Board. All Incentive Stock Grants that do not vest pursuant to the provisions of Section 6.2.3 shall be forfeited. 6.1.12 Vesting of Incentive Stock Grants. Incentive Stock Grants shall vest with the Grantee following: (a) the Grantee's completion of three (3) successive calendar years of employment, with said years specified by the Board; and (b) the Company achieving the Performance Criteria specified by the Board on the Grant Date. The number of shares vested pursuant to any Grant, if any, shall be determined pursuant to the Performance Criteria set by the Board. The Stock awarded pursuant to Incentive Stock Grant shall be considered vested or forfeited on the January 1st following completion of the third successive calendar year specified by the Board. 60 6.1.13 Performance Criteria. The Performance Criteria shall be set by the Board. The Performance Criteria shall be the same for each Grantee receiving a Grant on a particular Grant Date, provided that the Performance Criteria set with respect to a particular Grant Date may be different from Performance Criteria set for prior or subsequent Grant Dates. The Board shall determine the Performance Criteria prior to or during the first year of the performance period specified by the Board. 6.1.14 Performance in Excess of 100% of Incentive Stock Grant. The Board may establish Performance Criteria in amounts that exceed 100% of the Performance Stock Granted to the Grantees. In the event that the Performance Criteria set by the Board exceed 100% of the Stock to be awarded by a Grant, any and all amounts in excess of 100% shall be paid in cash to the Grantee based upon the Fair Market Value of the Stock on the date Incentive Stock Grant Vests. For the purposes hereof, "Fair Market Value" shall be as determined by the Board and such determination shall be binding upon the Company and upon the Grantee. The Board may make such determination: (i) in the case of Stock not then listed and traded upon a recognized securities exchange, upon the basis of the mean between the closing bid and asked quotations for such stock on the date the Incentive Stock Grants vest (as reported by the Wall Street Journal "NASDAQ Bid and Asked Quotations" National Market Listings or as reported by NASDAQ if not reported in the Wall Street Journal) or in the event that there shall be no bid or asked quotations on such date, then upon the basis of the bid and asked quotations nearest preceding such date, or (ii) in the case the Stock shall then be listed and traded upon a recognized securities exchange, upon the basis of the mean between the highest and lowest selling prices at which shares of Stock were traded on such recognized securities exchange on the date the Incentive Stock Grants vest, as reported in the Wall Street Journal or, if the Stock was not traded on said date, the date nearest preceding such date, and (iii) upon any other factors which the Board shall deem appropriate. 6.1.15 Notwithstanding the foregoing: 6.1.16 Termination of Employment. Upon termination of a Grantee's employment with the Company or with any of its Subsidiaries for reasons other than death, disability, retirement after age 65 or retirement before age 65 with Board approval, the Grantee's and the Company's rights, duties and obligations under the Incentive Stock Grant shall be terminated and the Incentive Stock Grant shall be forfeited. 6.1.17 Death or Disability of Grantee. If a Grantee to whom an Incentive Stock Grant shall have been awarded shall die or become disabled while he shall be employed by the Company or one or more of its Subsidiaries, such Incentive Stock Grant shall thereupon be vested in accordance with the provisions of Section 6.2.5 and said death or disability shall be deemed to be a Qualified Contingent Vesting Event. 6.1.18 Retirement of Grantee. In the event that a Grantee to whom an Incentive Stock Grant shall have been awarded shall retire upon or after the age of 65, such Incentive Stock Grant held by such retired Grantee shall thereupon be vested in accordance with the provisions of Section 6.2.5 and said retirement shall be deemed to be a Qualified Contingent Vesting Event. In the event Grantee retires prior to age 65, the Incentive Stock Grant may become vested in accordance with the provisions of Section 6.2.5 upon the approval of the Board in its sole discretion; and upon such approval by the Board said retirement shall be deemed to be a Qualified Contingent Vesting Event. If the Grantee retires prior to the age of 65 without the approval of the Board, the provisions of Section 6.2.4.1 shall control. 61 6.1.19 Change in Control of the Company. In the event of a Change in Control of the Company, such Incentive Stock Grants shall thereupon be vested in accordance with the provisions of Section 6.2.5, and said Change in Control shall be deemed to be a Qualified Contingent Vesting Event. Furthermore, to the extent permitted by law, the Grantees shall be permitted to participate in the sale or merger resulting in the Change in Control. 6.1.20 Contingent Vesting Rules. Pursuant to the provisions of Sections 6.2.4.2, 6.2.4.3, and 6.2.4.4 the Incentive Stock Grants shall vest upon the occurrence of a Qualified Contingent Vesting Event, in accordance with the terms set forth below. 6.1.21 If a Qualified Contingent Vesting Event occurs prior to the completion of the first year of the performance period specified by the Board, all of the Incentive Stock Grants shall be forfeited and none of the Incentive Stock Grants shall thereafter become vested in the Grantee. 6.1.22 If a Qualified Contingent Vesting Event occurs after the completion of the first year of the performance period specified by the Board but prior to the completion of the second year of the performance period specified by the Board, the Grantee shall be entitled to receive one-third (1/3) of the Incentive Stock Grant that would vest if the Performance Criteria was applied to the financial results of the Company for the first fiscal year of the performance period. All other Incentive Stock Grants not vested pursuant to the provisions of the preceding sentence shall be forfeited. 6.1.23 If a Qualified Contingent Vesting Event occurs after the completion of the second year of the performance period specified by the Board, but prior to the completion of the third year of the performance period specified by the Board, the Grantee shall be entitled to receive 100% of the Incentive Stock Grant that would vest if the Performance Criteria was applied to the financial results of the Company for the first and second fiscal years of the performance period. All other Incentive Stock Grants not vested pursuant to the provisions of the preceding sentence shall be forfeited. 7. Delivery of Stock. Stock and any cash payments (if applicable) to be delivered to a Grantee pursuant to the vesting of a Grant, shall be delivered to the Grantee within 90 days of the date the Grant vests. In the event that a Grantee is unable to accept the Stock due to death, disability or otherwise, the Stock and any cash payments (if applicable) shall be delivered to the Grantee's Successor. 8. Fractional Shares. No factional shares of Stock shall be issued to any participant pursuant to the terms of the Plan. The vesting of any Grant shall be rounded to the nearest whole share. In the event that 50% or more of a share shall vest pursuant to the terms of the Plan, the Participant shall be vested with the next whole share; to the extent that less than 50% of a share shall vest, the participant shall rounded down to the next whole share and the percentage of the share shall be disregarded. 9. Shareholder Rights. Neither a Grantee nor his Successor shall have any of the rights of a shareholder (including but not limited to voting or dividend rights) of the Company until the Grants have vested and the stock certificates evidencing the shares awarded by the Grants are properly delivered to such Grantee or his Successor; provided, however, that the Grantee shall be entitled to receive a cash payment (in the form of a bonus or death benefit) from the Company equal to the amount of any dividends which would have been payable on the Stock if the Stock had been issued to the Grantee on the date the Grant vested. 62 10. No Alteration of Employment Terms. The Grant to an eligible person does not alter in any way the Company's or the relevant Subsidiary's existing rights to terminate such person's employment at any time for any reason, nor does it confer upon such person any rights or privileges except as specifically provided for in the Plan. 11. Adjustments. In the event that the outstanding shares of Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, or dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Board in the number and kind of shares as to which Grants may be made under the Plan. In addition, there shall be appropriate adjustments made in the number and kind of shares of Stock as to which outstanding Grants shall be issued, to the end that the proportionate interest of the holder of the Grant shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding Grants shall be made through a change in the total number or kind of shares awarded in the Grant. 12. Restrictions on Issuing Shares. The issuance of Stock pursuant to the vesting of a Grant shall be subject to the condition that, if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, the delivery of the Stock pursuant thereto, then in any such event, such delivery shall be deferred until such time as such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 13. Suspension and/or Termination of Plan. The Board may at any time suspend or terminate the Plan. Unless previously terminated by the Board, no further Grants shall be awarded under the Plan after December 31, 1995. No Grants may be awarded during any suspension or termination of the Plan. No suspension or termination of the Plan shall, without a Grantee's consent, alter or impair any of the rights or obligations under any Grant theretofore awarded to such Grantee under the Plan. 14. Nontransferability of Grants. No Grant awarded under the Plan shall be transferable otherwise than by bequest or by laws of descent and distribution, and during the lifetime of the Grant only the Grantee or Grantee's Successor may receive stock or cash from the Grant. 15. Effectiveness of the Plan. The Plan shall become effective only after the Board shall, by the affirmative vote of a majority of its members, have approved the Plan. 16. Time of Awarding Grants. Nothing contained in the Plan nor in any resolution adopted or to be adopted by the Board of Directors or the stockholders of the Company nor any action taken by the Board shall constitute a Grant. A Grant shall take place only when a written Agreement is duly executed by the Company and the Grantee to whom such Grant shall be awarded. 63 ADMINISTRATIVE RULES FOR BRENTON BANKS, INC. LONG-TERM STOCK COMPENSATION PLAN 1. Definitions. Those terms defined in the Plan shall have the same meaning when used in these Rules. 2. Withholding Taxes. Prior to issuing any Stock pursuant to the terms of a Grant, a Grantee shall be required to make adequate provisions for the withholding of any and all applicable State, Federal and local taxes (hereinafter "Withholding Taxes"). The manner in which Withholding Taxes shall be remitted to the appropriate taxing authorities shall be by a cash payment to the Company from the Grantee in an amount equal to the amount of Withholding Taxes that must be remitted to the respective taxing authorities unless the Grantee elects to pay the withholding taxes pursuant to an alternative method described in either Section 2.1 or 2.2 hereof. After the Grantee determines whether the alternative method will apply, the Board, in its sole discretion, shall determine which alternative method is applied to the particular Grantee. 2.1 Loan. The Grantee may obtain a loan from the Company or one of the Company's subsidiaries in an amount equal to the amount of Withholding Taxes that must be remitted to the respective taxing authorities. Any loan to a Grantee must be made with interest payable at prime and the loan being due and payable on December 31 of the year in which the withholding taxes are due and payable. All loans made to a Grantee must comply with all federal and applicable state banking laws. Nothing contained in this paragraph shall require any subsidiary of the Company to make a loan to a Grantee. 2.2 Exchange of Stock. The Grantee may exchange the right to receive a portion of the Stock issuable pursuant to a Grant for an amount of cash equal in value to the amount of Withholding Taxes that must be remitted to the respective taxing authorities based upon the Fair Market Value of the Stock at the time of withholding. 3. Performance Criteria. The performance criteria established by the Board shall have the following meanings and shall be interpreted in accordance with the following rules. 3.1 "Average Annual Earnings Per Share Growth (EPS)" shall be determined by dividing the sum of the "Annual Percentage Growth Rates in EPS" for each of the years contained in the performance period by the total number of years in the performance period. 3.2 "Annual Percentage Growth Rates in EPS" shall mean annual percentage growth in the Company's Earnings Per Share (for consolidated financial reporting purposes) after the effect of adjusting earnings for the financial statement expense of Grants under the Plan pursuant to Generally Accepted Accounting Principles. 3.3 "Earnings Per Share" shall be the primary earnings per share of the Company for consolidated financial reporting purposes. The following example shall illustrate the definitions set forth above: 64 During the years 1991, 1992, 1993 and 1994 the Company's Earnings Per Share are $1.80, $2.10, $2.31 and $2.60 respectively. After adjustment for the financial statement expense of Grants under the Plan, the Company's earnings per share are $1.80, $1.90, $2.20 and $2.40 for 1991, 1992, 1993 and 1994 respectively. The Annual Percentage Growth Rate in EPS for 1992 is computed by subtracting the 1991 adjusted earning per share ($1.80) from the adjusted 1992 earning per share ($1.90) and dividing that number by the 1991 adjusted earning per share ($1.80). Therefore, the Annual Percentage Growth Rate in EPS for 1992 is 5.55%. The Annual Percentage Growth Rate in EPS for 1993 and 1994 (computed in the same manner) is 15.78% and 9.09% respectively. The Average Annual Earning Per Share Growth for the years 1992, 1993 and 1994 is 10.13% ((5.55 + 15.78 + 9.09)/3) 4. Restricted Stock Grants - Vesting and Forfeiture Rules. The following examples are intended to act as an illustration of the Board's intentions with respect to Restrictive Stock Grant awards pursuant to the Plan. All of the examples set forth below are based upon the following facts: Employee X is granted a restricted stock Grant in 1992. The terms of the Grant entitle the employee to receive 100 shares of Stock if the X is employed with the Company or any Subsidiary on January 1, 1995. 4.1 Death or Disability. On June 15, 1992, Employee X becomes disabled or dies. Employee X becomes fully vested in the 100 shares of Stock. 4.2 Termination. On November 15, 1994, Employee X is terminated by the Company. Because Employee X is not employed by the Company on January 1, 1995 and has not been continuously employed by Company the for three consecutive years, none of the Restricted Stock Grants shall vest. 5. Incentive Stock Grants - Vesting and Forfeiture Rules. The following examples are intended to act as an illustration of the Board's intentions with respect to Incentive Stock Grants awarded pursuant to the Plan. All of the examples set forth below are based upon the following facts: Employee X is granted an Incentive Stock Grant in 1992. The terms of the Grant entitle the employee to receive up to 100 shares of Stock if (1) X is employed with the Company or any Subsidiary on January 1, 1995; and (2) the Company meets or exceeds certain Performance Criteria. The Performance Criteria adopted by the Board specify that if the Average Earnings Per Share Growth of the Company's Stock is below 7.50% - none of the Incentive Stock Grants will vest; if the Average Earnings Per Share Growth of the Company's Stock is from 7.50% to 8.74% - 50% of the Incentive Stock Grants will vest; if the Average Earnings Per Share Growth of the Company's Stock is from 8.75% to 9.99% - 75% of the Incentive Stock Grants will vest; if the Average Earnings Per Share Growth of the Company's Stock is from 10.00% to 11.99% - 100% of the Incentive Stock Grants will vest. The Company's Earnings Per Share Growth for the years 1992, 1993 and 1994 are 10.00%, 9.25% and 7.25% respectively. 5.1 Achievement of Company performance goals. Employee X continues to work for the Company through January 1, 1995. The Average Earnings Per Share is 8.83% ((10% + 9.25% + 7.25%)/3). Therefore, in January of 1995, Employee X will have 75% of the Stock granted pursuant to the Incentive Stock Grant vested. The number of shares that will be delivered to Employee X is determined by multiplying the percentage of vested Incentive Stock Grants by the total number of shares Granted in the Incentive Stock Grant (75% X 100 shares = 75 shares). 65 5.2 Qualified Contingent Vesting Event - Year Two of the Performance Period. Employee X continues to be employed by the Company through June 1, 1993, at which time a Qualified Contingent Vesting Event occurs. On June 1, 1993, the Company would apply the performance criteria to the financial results of the Company for the first fiscal year - 1992. The Average Earning Per Share as of December 31, 1992 would be 10% (10%/1). A 10% Average Earnings Per Share will result in 100% of the Incentive Stock Grant vesting. However, pursuant to Section 6.2.5.2. of the Plan, only one-third (1/3) of the Incentive Stock Grants will vest if the Qualified Contingent Vesting Event occurs during the second year of performance period. Therefore, the number of shares that will be delivered to Employee X is determined by multiplying the percentage of vested Incentive Stock Grants pursuant to measurement via Performance Criteria by the total number of shares Granted in the Incentive Stock Grant and by one-third (100% X 100 shares X 1/3 = 33 shares). 5.3 Qualified Contingent Vesting Event - Year Three of the Performance Period. Employee X continues to be employed by the Company through June 1, 1994, at which time a Qualified Contingent Vesting Event occurs. On June 1, 1994, the Company would apply the performance criteria to the financial results of the Company for the first and second fiscal years - 1992 and 1993. The Average Earning Per Share would be 9.625% ((10% + 9.25%)/2). A 9.625% Average Earnings Per Share will result in 75% of the Incentive Stock Grant vesting. Pursuant to Section 6.2.5.3. of the Plan, 100% of the Incentive Stock Grants will vest if the Qualified Contingent Vesting Event occurs during the third year of the performance period. Therefore, the number of shares that will be delivered to Employee X is determined by multiplying the percentage of vested Incentive Stock Grants pursuant to measurement via Performance Criteria by the total number of shares Granted in the Incentive Stock Grant (75% X 100 shares = 75 shares). 66 RESOLUTIONS ADOPTED BY THE BRENTON BANKS, INC. BOARD OF DIRECTORS At a regular meeting of the Board of Directors of the Company the following resolutions were unanimously adopted by the Board of Directors. Resolved, that pursuant to the provisions of the Company's Long-Term Stock Compensation Plan, the Board approves the awarding of Grants to the employees of the Company upon the terms and conditions set forth below. 1. That Restricted Stock Grants are to be awarded to those employees listed on Exhibit A attached hereto, in the amounts set forth in the column titled "Restricted Shares". The Restricted Stock Grants shall be subject to the terms and conditions set forth in the Plan. The Board further specifies that the three successive calendar years of employment, the completion of which the Restricted Stock Grants are conditioned upon, are 1995, 1996 and 1997. All Grants shall vest or be forfeited, pursuant to the provisions of the Plan, on or before January 1, 1998. 2. That Incentive Stock Grants are to be awarded to those employees listed on Exhibit A attached hereto, in the amounts set forth in the column titled "Performance Shares". The Incentive Stock Grants shall be subject to the terms and conditions set forth in the Plan, Administrative Rules and those set forth below. a. The Board hereby specifies that the three successive calendar years of employment (the "Performance Period"), the completion of which the Incentive Stock Grants are conditioned upon, are 1995, 1996 and 1997. All Incentive Stock Grants shall vest or be forfeited, pursuant to the provisions of the Plan, on or before March 15, 1998. b. The Board further specifies that the Performance Criteria that the Company must achieve prior to the vesting of any of the Incentive Stock Grants shall be as set forth on Exhibit B attached hereto. To the extent that a Grant fails to vest, the shares shall be deemed to be forfeited pursuant to the terms of the Plan. Those terms defined in the Company's Long Term Stock Compensation Plan or Rules adopted thereunder by the Board shall have the same meaning when used in this Resolution. 67 EXHIBIT B Average Annual Earnings Per Share Growth over the Tiered Achievement Three Year Performance Period Scale Less than 7.5% . . . . . . . . . . . . . . . . . . . . . . . . 0% vested 7.50% to 8.74% . . . . . . . . . . . . . . . . . . . . . . . . 50% vested 8.75% to 9.99% . . . . . . . . . . . . . . . . . . . . . . . . 75% vested 10.00% to 11.99% . . . . . . . . . . . . . . . . . . . . . . . 100% vested 12.00% to 13.99% . . . . . . . . . . . . . . . . . . . . . . . 115% vested 14.00% to 15.99% . . . . . . . . . . . . . . . . . . . . . . . 130% vested Greater than 16.00% . . . . . . . . . . . . . . . . . . . . . 150% vested 68 EX-10.12 14 Exhibit 10.12 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. This standard Agreement for Advances, Pledge and Security Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. 69 EX-10.13 15 Exhibit 10.13 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1995, setting forth the terms of the Parent Company's $2,000,000 short-term debt agreement. 70 American National Bank and Trust Company of Chicago 33 North LaSalle Street/Chicago, Illinois 60690/(312) 661-5000 April 30, 1995 Brenton Banks, Inc. Capital Square 400 Locust Des Moines, Iowa 50304 Gentlemen: This letter will replace the previous Letter Agreement regarding the negative pledge on Brenton Bank stock dated April 30, 1994. This letter is in reference to the certain Promissory Note dated 4/30/95, both by Brenton Banks, Inc. ("Brenton") in favor of American National Bank and Trust Company of Chicago ("ANB") in connection with a commitment in the amount of $2,000,000 to be extended by ANB to Brenton and any subsequent renewals and modification ("Commitment"). In consideration of ANB providing the Commitment, Brenton hereby covenants that it will not create, assume or suffer to exist, any Lien upon the stock of a Subsidiary bank. For the purpose of this Letter Agreement, the following definitions shall apply: "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "Subsidiary" shall mean a corporation with respect to which more than 50% of the outstanding shares of stock of each class having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) is at the time owned by Brenton or by one or more Subsidiaries of Brenton. 71 Page 2 April 30, 1995 If the foregoing correctly states your understanding of our agreement, please execute the enclosed copy of the Letter Agreement in the space indicated and return it to Catherine Bunch, Correspondent Banking Officer of ANB. American National Bank and Trust Company of Chicago By: /s/ Catherine A. Bunch Its: Officer Accepted and agreed to this 30th day of April, 1995 Brenton Banks, Inc. By: /s/ Steven T. Schuler (hand written) Steven T. Schuler (printed) Its: Chief Financial Officer/Treasurer/Secretary 72 PROMISSORY NOTE (UNSECURED) Grid Note Max Chicago, Illinois April 30, 1995 $2,000,000.00 Due April 30, 1996 FOR VALUE RECEIVED the undersigned (jointly and severally if more than one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in Chicago, Illinois or such other place as Bank may designate from time to time hereafter, the principal sum of Two Million and no/100 Dollars, or such lesser principal sum as may then be owed by Borrower to Bank hereunder. Borrower's obligations and liabilities to Bank under this Note ("Borrowers Liabilities") shall be due and payable on April 30, 1996. The unpaid principal balance of Borrower's Liabilities due hereunder shall bear interest from the date hereof until paid, computed as follows (DELETE INAPPLICABLE PROVISIONS): (i)XXXXX (ii) at a daily rate equal to the daily rate equivalent of 0% per annum (computed on the basis of a 360-day year and actual days elapsed) in excess of the rate of interest announced or published publicly from time to time by Bank as its prime or base rate of interest (the "Base Rate"); provided, however, that in the event that any of Borrower's Liabilities are not paid when due, the unpaid amount of Borrower's Liabilities shall bear interest after the due date until paid at a rate equal to the sum of (a) the rate in effect prior to the due date and (b) 3%. If the rate of interest to be charged by Bank to Borrower hereunder is that specified in clause (ii) such rate shall fluctuate hereafter from time to time concurrently with, and in an amount equal to, each increase or decrease in the Base Rate, whichever is applicable. Accrued interest shall be payable by Borrower to Bank with each principal installment of Borrower's Liabilities due hereunder, or as billed by Bank to Borrower, at Bank's principal place of business, or at such other place as Bank may designate from time to time hereafter. Borrower warrants and represents to Bank that Borrower shall use the proceeds represented by this Note solely for proper business purposes, and consistently with all applicable laws and statutes. The occurrence of any one of the following events shall constitute a default by the Borrower ("Event of Default") under this Note: (a) if Borrower fails pay any of Borrower's Liabilities when due and payable; (b) if Borrower fails to perform, keep or observe any term, provision, condition, covenant, warranty, or representation contained in this Note which is required to be performed, kept, or observed by Borrower; (c) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered by or on behalf of Borrower to Bank; (d) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered to Bank by any guarantor or Borrower's Liabilities; (e) if any of Borrower's assets are attached, seized, subjected to a writ of distress warrant, or are levied upon or become subject to any lien or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; (f) if Borrower or any guarantor of Borrower's Liabilities becomes insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due, if a petition under any section or chapter of the Bankruptcy Reform Act of 1978 or any similar law or regulation is filed by or against Borrower or any such guarantor, if Borrower or any such guarantor shall make an assignment for the benefit of creditors, if any case or proceeding is filed by or against Borrower or any such guarantor for its dissolution or liquidation, or upon the death or incompetency of Borrower or any such guarantor, or the appointment of a conservator for all or any portion of Borrower's assets; or (g) if a contribution failure occurs with respect to any pension plan maintained by Borrower or any corporation, trade or business that is, along with Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses (as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or Section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") sufficient to give rise to a lien under Section 302(f) of ERISA; or (h) if Bank is reasonably insecure. Upon the occurrence of an Event of Default, at Bank's option, without notice by Bank to or demand by Bank of Borrower, all of Borrower's Liabilities shall be due and payable forthwith. All of Bank's rights and remedies under this Note are cumulative and non-exclusive. The acceptance by Bank of any partial payment made hereunder after the time when any of Borrower's Liabilities become due and payable will not establish a custom, or waive any rights of Bank to enforce prompt payment hereof. Bank's failure to require strict performance by Borrower of any provision of this Note shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Any waiver of an Event of Default hereunder shall not suspend, waive or affect any other Event of Default hereunder. Borrower and every endorser waive presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of this Note, and hereby ratify and confirm whatever Bank may do in this regard. Borrower further waives any and all notice or demand to which Borrower might be entitled with respect to this Note by virtue of any applicable statute or law (to the extent permitted by law). Borrower agrees to pay, upon Bank's demand therefor, any and all costs, fees and expenses (including attorneys' fees, costs and expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and (ii) in representing Bank in any litigation, contest, suit or dispute, or to commence, defend or intervene or to take any action with respect to any litigation, contest, suit or dispute (whether instituted by Bank, Borrower or any other person) in any way relating to this Note or Borrower's Liabilities, and to the extent not paid the same shall become part of Borrower's Liabilities hereunder. This Note shall be deemed to have been submitted by Borrower to Bank at Bank's principal place of business and shall be deemed to have been made thereat. This Note shall be governed and controlled by the laws of the State of Illinois as to interpretation, enforcement, validity, construction, effect, choice of law and in all other respects. TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER, IRREVOCABLY, AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH. BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. C/O Brenton Banks, Inc. Brenton Banks, Inc. 400 Locust, Box 961 By: /s/ Robert L. DeMeulenare (signature) Des Moines, IA 50304 Its: President (title) Address By: /s/ Steven T. Schuler (signature) Its: Chief Financial Officer/Treasurer/ Secretary (title) F77-3575 R-6-90 73 EX-10.14 16 Exhibit 10.14 Data Processing Agreement dated December 1, 1991 by and between Systematics, Inc. and Brenton Information Systems, Inc. This Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. 74 EX-10.15 17 Exhibit 10.15 Item Processing Agreement dated December 1, 1991 between Brenton Bank Services Corporation and the Federal Home Loan Bank of Des Moines. This Item Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. 75 EX-10.16 18 Exhibit 10.16 Restated Trust Agreement for Brenton Banks, Inc. Retirement Plan, effective January 1, 1986. This Restated Trust Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1991. 76 EX-10.17 19 Exhibit 10.17 Amendments to the Restated Trust Agreement for Brenton Banks, Inc. Retirement Plan, effective January 1, 1987, January 1, 1993 and January 1, 1994. These Amendments to the Restated Trust Agreement are incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 77 EX-10.18 20 Exhibit 10.18 Indenture Agreement with respect to Capital Notes dated April 12, 1993. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1993. 78 EX-10.19 21 Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 14, 1992. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1992. 79 EX-10.20 22 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated August 5, 1991. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1991. 80 EX-10.21 23 Exhibit 10.21 Indenture Agreement with respect to Capital Notes dated March 27, 1991. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1991. 81 EX-10.22 24 Exhibit 10.22 Indenture Agreement with respect to Capital Notes dated April 5, 1985. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1991. 82 EX-10.23 25 Exhibit 10.23 Indenture Agreement with respect to Capital Notes dated April 8, 1994. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 83 EX-10.24 26 Exhibit 10.24 Indenture Agreement with respect to Capital Notes dated April 10, 1995. 84 This Indenture Agreement contains the same terms, conditions and provisions as set forth in the Indenture Agreement dated April 8, 1994 (Exhibit 10.23, which is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994), except for series number, maturity date and date executed. 85 EX-10.25 27 Exhibit 10.25 Split Dollar Insurance Agreement between the Company, William H. Brenton Crummy Trust and William H. Brenton Crummy Trust II, dated November 23, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 86 EX-10.26 28 Exhibit 10.26 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of C. Robert Brenton, dated August 12, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 87 EX-10.27 29 Exhibit 10.27 Agreement between Robert L. DeMeulenaere and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 88 EX-10.28 30 Exhibit 10.28 Agreement between Larry A. Mindrup and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1994. 89 EX-10.29 31 Exhibit 10.29 Agreement between Norman D. Schuneman and the Company regarding the change in control arrangements, dated December 31, 1994. 90 RESOLUTION TO BE ADOPTED BY BOARD OF DIRECTORS BRENTON BANKS, INC. RESOLVED, That the Board (Robert L. DeMeulenaere abstained) ratifies the special pay arrangements (ATTACHMENT A) between management, Robert L. DeMeulenaere, Larry A. Mindrup and Norman D. Schuneman. 91 ATTACHMENT A NORMAN D. SCHUNEMAN AGREEMENT 12/31/94 It is the intent of Brenton Banks, Inc. to pay Norm Schuneman $375,000 if the Company is sold and he is released one year after the sale. If he is released after one year of the sale, however, within two years of the sale, he will receive $187,500.00. The payment may be made over a 24 month period of time. If his pay is decreased, he would receive an amount for each year up to three years which, when added to his new salary, will equal his old salary. This Agreement is null and void three years from the above date. /s/ Robert L. DeMeulenaere, President BRENTON BANKS, INC. 92 EX-10.30 32 Exhibit 10.30 Twelfth Amendment to Data Processing Agreement dated July 1, 1995 by and between ALLTEL Financial Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Banks Services Corp. (formerly Brenton Information Systems, Inc.). This Twelfth Amendment to Data Processing Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc., for the quarter ended September 30, 1995. 93 EX-10.31 33 Exhibit 10.31 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995 by and between ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Banks Services Corp.). 94 THIRTEENTH AMENDMENT TO DATA PROCESSING AGREEMENT This Thirteenth Amendment ("Thirteenth Amendment") is effective as of the 1st day of December, 1995 ("Thirteenth Amendment Effective Date") and amends and supplements that certain Data Processing Agreement ("Agreement") dated as of the first day of December, 1991 by and between Brenton Bank (formerly Brenton Banks Services Corp.) ("Client") and ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) ("ALLTEL Financial"). W I T N E S S E T H: WHEREAS, Client desires ALLTEL Financial to provide certain one-time services to define and implement Client's Standard Hardware and Software Configuration and to provide ongoing management of Client's distributed computer environment; and WHEREAS, ALLTEL Financial is willing to provide such services pursuant to the terms and conditions contained herein. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. ALLTEL Financial shall assist Client in the definition of Client's Standard Hardware and Software Configuration by performing the following one time tasks: (i) defining the hardware and software standards and requirements; (ii) establishing a process for managing the computer network; (iii) planning for implementation of the Standard Hardware and Software Configuration; (iv) implementing the Standard Hardware and Software Configuration in a pilot mode and defining the procedure and schedule for utilization. 2. ALLTEL Financial shall coordinate and implement the following tasks for the Standard Hardware and Software Configuration as directed by Client: (i) upgrade of existing hardware to established standards; (ii) upgrade of existing software to current releases; (iii) training of personnel on software standards; (iv) installation of additional hardware and software as needed; (v) definition of Client's ongoing training program. 95 3. ALLTEL Financial shall perform an annual review of Client's LAN/WAN environment and present the recommendations resulting from such review to Client's senior management. 4. ALLTEL Financial shall assist Client in the establishment of a strategic technology plan which shall include business strategies for each of Client's business areas, alternative delivery systems, a plan for the connection of Client's locations, a plan for central coordination of critical network resources and the ongoing revision and review of the strategic technology plan as appropriate. 5. ALLTEL Financial shall provide the following services ("DCS Services") beginning on the Thirteenth Amendment Effective Date and continuing until the earlier to occur of the termination of the DCS Services pursuant to Section 7 below or the expiration or termination of the Agreement: (i) Equipment and Software Services. ALLTEL Financial shall acquire, install, maintain, replace and provide inventory control of information technology equipment and software for Client. The financial responsibility for the procurement, maintenance and replacement of such equipment and software shall be Client's. (ii) LAN/WAN Administration. ALLTEL Financial shall manage and administer Client's local area networks and wide area network connections and will coordinate with Client's vendor(s) for support of the wide area networks. ALLTEL Financial shall provide Client an annual review of Client's LAN/WAN networks which shall include suggestions for upgrades, modifications or other changes. ALLTEL Financial shall work with Client to develop a migration plan for implementing and upgrading the LANs to support Client's business plans. (iii) Help Desk Services. ALLTEL Financial shall provide help desk functions with a comprehensive set of services to support Client's PC end users. Such comprehensive set of services would include using the help desk to order equipment, check on equipment status, report on equipment, software or operational problem, ask for basic assistance on systems supported by the help desk, provide help with logons, security and other system services, request services, check on status of outstanding service requests and obtain information on products and services. (iv) Training Advisory Services. ALLTEL Financial shall develop a training program for Client's end users. ALLTEL Financial shall coordinate with Client to define the needs of the end users and the technology needs of major users. Training will be built in the 96 application implementation plan for the Standard Hardware and Software Configuration described above. ALLTEL Financial will coordinate the ongoing training requirements for Client during the term of this Agreement. (v) Applications Management. ALLTEL Financial shall provide technical support services for all applications listed in Item 8 of this Thirteenth Amendment. Such services would include installation and testing of new releases, customization services consistent with Client's standards, troubleshooting, coordination with software providers and technical support for the help desk. (vi) Management Functions. ALLTEL Financial shall provide certain management functions including vendor management, call tracking and service history and monthly activity reporting. (vii) Disaster Recovery Plan. ALLTEL Financial shall assist Client in developing a disaster recovery plan after the specific configuration specifications for Client's network environment have been completed. (viii) Consulting. ALLTEL Financial will provide Client consulting services on a mutually agreed basis. 6. To provide the DCS Services to Client, ALLTEL Financial shall provide the following staff ("DCS Staff"): Help Desk Personnel (2); PC Technical Specialists, LAN/WAN Staff (3); Project Manager for eighteen months (1). Client shall be afforded the opportunity to interview prospective DCS Staff applicants, examine such applicant's qualifications, and provide comments to ALLTEL Financial. ALLTEL Financial shall give due regard to such comments by Client and will take appropriate action within the discretion of ALLTEL Financial. In the event the service requirements related to Client's Standard Hardware and Software Configuration or the applications supported pursuant to this Thirteenth Amendment either increases or decreases, Client and ALLTEL Financial mutually agree to adjust staffing levels. 97 7. In consideration of the provision of the DCS Services by ALLTEL Financial, Client shall, in addition to all other fees payable under the Agreement, pay ALLTEL Financial in accordance with the following schedule: CONTRACT YEAR MONTHLY FEE ONE 12-95 to 11-96 $38,333 TWO 12-96 to 11-97 $34,167 THREE 12-97 to 11-98 $32,083 FOUR 12-98 to 11-99 $32,083 FIVE 12-99 to 11-2000 $32,083 SIX 12-2000 to 11-2001 $32,083 SEVEN 12-2001 to 6-2002 $32,083 For the purposes of this Section only, a "Contract Year" is a twelve month period beginning on the Thirteenth Amendment Effective Date or each anniversary of the Thirteenth Amendment Effective Date and continuing until the next anniversary or the expiration of the Agreement, whichever occurs first. The fees set out in this Section shall be adjusted in accordance with Section 7 of Exhibit C to the Agreement as amended in the Eleventh and Twelfth Amendments. The fees set out in this Section shall be included in any calculations of any fees for termination pursuant to Sections 10.4 or 10.5 of the Agreement. Section 7.1 (c) of the Agreement shall not apply to the personnel provided under this Thirteenth Amendment. The DCS Services and the parties' obligations under this Thirteenth Amendment may be terminated, without cause, by Client prior to the expiration or termination of the Agreement upon the satisfaction of each of the following conditions: (a) Client shall give written notice ("Early Termination Notice") to ALLTEL Financial of Client's intention to terminate the DCS Services pursuant to this Section; (b) Such Early Termination Notice shall specify a date ("Early Termination Date") which is at least six (6) months after the receipt by ALLTEL Financial of the Early Termination Notice; (c) The Early Termination Date may not occur prior to the second annual anniversary of the Thirteenth Amendment Effective Date; 98 (d) Client shall pay a fee with the Early Termination Notice equal to the following percentages of the fees payable under this Thirteenth Amendment between the Early Termination Date and the Expiration Date: Applicable Period Percent of Remaining Fees from Early Termination Date Months 01 - 24 No Termination Months 25 - 48 30% Months 49 - 60 25% Months 61 and after 20% (e) Client shall reimburse ALLTEL Financial for any expenses incurred as a result of such termination including but not limited to severance pay and relocation of the DCS Staff and the book value of software and/or hardware purchased by ALLTEL Financial for the performance of the DCS Services. Upon such termination, Client may offer employment to members of the DCS Staff, to be effective only after the Early Termination Date. 8. The applications to be supported by the DCS Services include the following or others mutually agreed upon by the parties: Banking Applications: FTI's LoanCalc Customer Insight - MCIF Loan Mor Call Management Software Leasing Software Insurance Software Branch Banker TISA Software IRA Software Office Systems Applications Components (or any replacements) WordPerfect Lotus 1-2-3 Paradox Harvard Graphics SMART Mail (host based) Noteworks 99 ALLTEL Financial applications SIMS ALMS FMS Report Writer On-Line Collections 3270 Communications Software Attachmate - Gateway Irma - direct host connect 9. ALLTEL Financial may subcontract any or all of the DCS Services but shall remain responsible to Client for the performance of all the DCS Services. 10. Proposed Support Standards for the DCS Services are attached hereto in Exhibit 13-A. Such Support Standards shall be reviewed by each party, modified, if needed and agreed to by the parties within ninety (90) days of the Thirteenth Amendment Effective Date. This Thirteenth Amendment is subject to Sections 9.6, 9.7, and 9.8 of the Agreement if ALLTEL Financial fails to reasonably perform to the agreed to Support Standards for these DCS Services. 11. All references in the Agreement to "Systematics" or "SI" shall be deemed to refer to ALLTEL Financial. 12. All terms and conditions of the Agreement not amended herein remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Thirteenth Amendment by their duly authorized representatives as of the Thirteenth Amendment Effective Date. ALLTEL FINANCIAL INFORMATION BRENTON BANK SERVICES, INC. BY: /s/ J. Michael Hill BY: /s/ John R. Amatangelo NAME: J. Michael Hill NAME: John R. Amatangelo TITLE: Senior Vice President TITLE: President - Operations and Technology Division 100 EXHIBIT 13-A PROPOSED SUPPORT STANDARDS OBJECTIVE STANDARD Response to phone calls The Help Desk will have a live person answering calls from 8:00 a.m. to 5:00 p.m. M-F and an on call person 24 hours a day, seven days a week. Ninety-five percent of calls will be returned within 30 minutes. If the Help Desk technicians are on the phone or busy, the user will have the option to leave a voice message or roll to an attendant who will page a technician. Hardware repairs All DCS hardware issues will be forwarded to a technician within one hour of call from user. The technician will respond to user within 4 hours after notification. The DCS hardware problem will be resolved within 48 hours for standard configuration workstations. Requests for repair of non-standard configurations will be resolved as soon as possible. Critical Problems All critical DCS hardware issues will be assigned to a technician immediately and the technician will be dispatched within 1 hour of the call. The technician will be on-site within 2 hours (unless geographical location will not allow). The problem will be resolved within 12 hours of initial call if hardware part is available immediately; otherwise the problem will be resolved within 12 hours of component availability. Standard Pricing ALLTEL Financial will submit pricing request to vendor on "same day" of Client request. Ordering Place order within 24 hours of receiving proper authorization. Installation of hardware, Within 5 working days of item software, and individual received. upgrades Special projects - new LAN To be completed by date agreed installs, new applications, upon by ALLTEL Financial and and major new application Client. release, etc. 101 EX-11 34 Exhibit 11 Statement of computation of earnings per share. 102 Statements re: Computation of Earnings Per Share Brenton Banks, Inc.
December 31, 1995 1994 1993 Net income $10,407,354 $10,107,387 $14,249,970 Average common shares outstanding 7,673,175 7,889,889 7,848,795 Average shares under long-term stock compensation plan 79,691 61,398 69,765 Average common equivalent shares outstanding 7,752,866 7,951,866 7,918,560 Earnings per share 1.34 1.27 1.80
Note: Amounts are restated to reflect the May 1994 3-for-2 stock split in the form of a stock dividend. 103 EX-12 35 Exhibit 12 Statement of computation of ratios. 104 Statements re: Computation of Ratios Item 1(l) Business - Statistical Disclosure VI. Return on Equity and Assets Brenton Banks, Inc.
(Dollars in thousands) December 31, 1995 1994 1993 Return on average total assets: Net income (before deduction of minority interest) $ 11,058 10,698 14,918 * divided by * Average assets $ 1,561,226 1,521,189 1,436,425 Ratio 0.71% 0.70% 1.04% Return on average common stockholders' equity: Net income $ 10,407 10,107 14,250 * divided by * Average common stockholders' equity $ 115,183 111,949 103,140 Ratio 9.04% 9.03% 13.82% Common dividend payout ratio: Cash dividends per share $ 0.45 0.44 0.40 * divided by * Net income per share $ 1.34 1.27 1.80 Ratio 33.58% 34.65% 22.22% Average equity to average assets: Average equity $ 115,183 111,949 103,140 * divided by * Average assets $ 1,561,226 1,521,189 1,436,425 Ratio 7.38% 7.36% 7.18% Equity to assets ratio: Common stockholders' equity $ 119,534 110,430 112,418 * divided by * Total assets $ 1,582,779 1,581,327 1,480,596 Ratio 7.55% 6.98% 7.59%
105
December 31, 1995 1994 1993 Tier 1 leverage capital ratio: Common stockholders' equity $ 119,534 110,430 112,418 Minority interest 4,434 4,220 4,407 Unrealized (gains) losses on assets available for sale (1,358) 5,117 (3,036) Less: intangibles (5,282) (5,499) (5,499) Tier 1 capital $ 117,328 114,268 108,290 * divided by * Total assets $ 1,582,779 1,581,327 1,480,596 Unrealized (gains) losses on assets available for sale (1,358) 5,117 (3,036) Less: intangibles (5,282) (5,499) (5,499) Tier 1 assets $ 1,576,139 1,580,945 1,472,061 Ratio 7.45% 7.23% 7.36% Primary capital to assets: Common equity $ 119,534 110,430 112,418 Minority interest 4,434 4,220 4,407 Unrealized (gains) losses on assets available for sale (1,358) 5,117 (3,036) Allowance for loan losses 11,070 10,913 9,818 Primary capital $ 133,680 130,680 123,607 * divided by * Total assets $ 1,582,779 1,581,327 1,480,596 Unrealized (gains) losses on assets available for sale (1,358) 5,117 (3,036) Allowance for loan losses 11,070 10,913 9,818 Allowable assets $ 1,592,491 1,597,357 1,487,378 Ratio 8.40% 8.18% 8.31%
106 EX-13 36 Exhibit 13 The Annual Report to Shareholders of Brenton Banks, Inc., for the 1995 calendar year. 107 Cover - blue background with picture of "Tiger Bank" with the words: Brenton Bank One Bank, Unlimited Opportunities BRENTON BANKS, INC. 1995 Annual Report After 114 years of growth and success, we have become one. Brenton Bank is now one bank instead of many. We share one vision instead of many. We are better positioned than ever before to build on our long heritage of service, strength and leadership. And a world of opportunities await. Brenton Banks, Inc. is Iowa's largest, home-based bank holding company, with $1.6 billion in assets and 45 offices serving metropolitan markets and regional economic centers across the state. The Company offers a complete range of financial products and services -- including retail, agricultural and commercial 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 system under the symbol BRBK or BrentB. CONTENTS Financial Highlights 1 Message To Our Shareholders 2 A Closer Look 8 Management's Discussion and Analysis 12 Consolidated Average Balances and Rates 18 Selected Financial Data 19 Consolidated Financial Statements and Notes 20 Management's Report 35 Independent Auditor's Report 35 Stock Information 36 Corporate Structure 37 Board Of Directors 38 Brenton Banks and Locations 39 On the cover: Derek Johnson and Kristi Sickels, students at Marshalltown's J.C. Hoglan Elementary School, learn the benefits of saving from Brenton Bank's Diane Gilliland. Hoglan School's "Tiger Bank", which began in 1994 as a result of a business partnership between Brenton Bank and Hoglan School, underscores our commitment to serving local communities and helping children build futures of unlimited opportunity. ONE BANK, UNLIMITED OPPORTUNITIES Nineteen Ninety Five Annual Report
FINANCIAL HIGHLIGHTS Brenton Banks, Inc. and Subsidiaries 1995 1994 1993 Operating Results Net interest income $ 53,332,143 55,450,526 54,228,718 Provision for loan losses 1,864,801 1,987,909 1,251,588 Total noninterest income 17,846,740 16,592,988 17,863,271 Total noninterest expense 55,051,267 56,656,922 50,414,942 Income before income taxes and minority interest 14,262,815 13,398,683 20,425,459 Net income 10,407,354 10,107,387 14,249,970 Per Common and Common Equivalent Share*** Net income $ 1.34 1.27 1.80 Cash dividends .45 .44 .40 Book value, including unrealized gains (losses)* 15.62 14.03 14.27 Book value, excluding unrealized gains (losses)** 15.44 14.68 13.88 Closing bid price 21.25 18.25 17.50 At December 31 Assets $1,582,779,320 1,581,326,849 1,480,596,046 Loans 910,193,212 970,214,498 875,881,387 Nonperforming loans 5,619,000 5,022,000 4,013,000 Deposits 1,361,942,715 1,340,283,110 1,294,363,694 Common stockholders' equity* 119,533,631 110,430,345 112,417,665 Ratios Return on average common stockholders' equity (ROE) 9.04% 9.03 13.82 Return on average assets (including minority interest)(ROA) .71 .70 1.04 Net interest margin 3.89 4.12 4.28 Net noninterest margin (2.38) (2.61) (2.31) Primary capital to assets** 8.40 8.18 8.31 Tier 1 leverage capital ratio** 7.45 7.23 7.36 Nonperforming loans as a percent of loans .62 .52 .46 Net charge-offs as a percent of average loans .18 .10 .05 Allowance for loan losses as a percent of non- performing loans 197.01 217.30 244.65 * including unrealized gains (losses) on assets available for sale. ** excluding unrealized gains (losses) on assets available for sale. *** restated for the May 1994, 3-for-2 stock split.
Message To Our Shareholders Analysts may argue the point. But from our perspective, the most important number in this entire document may be the smallest number of all. One. Because in 1995, the 13 community banks of Brenton Banks, Inc. became one. Together with our Ames savings bank, we adopted a single, unified vision of the future. We became one team of financial professionals, dedicated to providing the highest quality products and services for our neighbors and colleagues across the state of Iowa. We planned, invested and accomplished much, as we positioned your Company for significant growth and success in the months and years ahead. Along the way, we produced positive financial results. Net income for 1995 rose 3.0 percent to $10.407 million, compared to $10.107 million in 1994. Earnings per common share were $1.34, up 5.5 percent from $1.27 for the prior year. The increase in earnings per share was partially due to the Company's repurchase of 258,000 shares under our common stock repurchase plan. During the year, stockholders' equity grew 8.2 percent to $119.534 million, compared to $110.430 million on December 31, 1994. Book value per common and common equivalent share, increased to $15.62, up 11.3 percent from $14.03 for the previous year. Overall asset quality remained strong, with nonperforming loans of just .62 percent of total loans. On December 31, 1995, the reserve for loan losses stood at a solid 197.01 percent of nonperforming loans and 1.22 percent of total loans. For the year, net interest income declined 3.8 percent to $53.332 million, compared to $55.451 million for 1994. The net interest margin fell to 3.89 percent for 1995, compared to 4.12 percent for the prior year. The lower margin resulted from interest-bearing liability rates rising faster than rates for interest-earning assets. To better control future interest rate risk and improve earnings performance, management began to revise the loan portfolio's composition in 1995, selling portfolio real estate loans and developing more commercial and direct consumer loan business. Our "Strategy for Success" calls for significant lending growth in 1996, thanks to the increased lending capacity created by the merger, as well our growing ability to serve more customers in each of our communities. Graph showing Net Income Per Common Share (1991-1995):
91 92 93 94 95 $1.50 1.67 1.80 1.27 1.34
Graph showing Dividends Per Common Share (1991-1995):
91 92 93 94 95 $0.32 0.35 0.40 0.44 0.45
Graph showing Total Assets (in millions) (1991-1995):
91 92 93 94 95 $1,361 1,431 1,481 1,581 1,583
Picture of banker with a customer and the words: We planned, invested and accomplished much, as we positioned your company for significant growth and success in the months and year ahead. Caption to picture reads: Don Van Houweling, President, Van Wall Equipment, Inc. in Perry visits with Marc Meyer, President - Brenton Agricultural Banking and Brenton Bank - Perry. Brenton was founded as an ag banking company in 1881, and our long experience in serving the needs of both production agriculture and agribusiness has enabled us to develop quality products and services that add value for our customers. Picture of Bank President and community leader. Caption to picture reads: Working in partnership with other community leaders, Craig Agan, Marketing Director of Knoxville's National Sprint Car Hall of Fame and Mike Cruzen, President, Brenton Bank - Knoxville, have helped create a winning image of the city for racing fans across America. Serving more customers more profitably is at the very heart of our strategic plan, which recognizes not only the growing global competition in today's financial services industry, but also the unique opportunities Brenton enjoys as Iowa's largest home-based banking company. For more than 114 years, no other company has been more committed to serving the needs of Iowa farmers, businesses, families and communities. In 1995, our unmatched experience translated into a number of initiatives designed to ensure our ongoing leadership well into the 21st century. The Company merged its 13 commercial banks into a single bank with a unified mission and clear set of objectives. We elected a new, "One Bank" board of directors representing the diverse needs and experience of clients across Iowa. By consolidating certain operations, streamlining management and combining assets, Brenton became better positioned to serve and to prosper. Cost savings in many areas have already been realized and efficient new processes and technologies are now in place. As part of the merger process, the Company established a line of business management structure designed to help customers profit from our expertise in a wide range of financial areas -- including commercial and agricultural banking, retail banking, trust and investment management services, private banking, mortgage banking, investment, insurance and real estate brokerage. Rather than a company of banking generalists, we have become a statewide resource of financial services specialists, enabling us to bring additional value to every customer relationship. As part of this effort, we are making - -- and will continue to make -- significant investments in educating and motivating our people to forge new partnerships, create new efficiencies and deliver higher quality products and services. By developing alternative delivery systems and consolidating backroom and support operations, your Company began to realize additional economies of scale in 1995, while freeing local bankers to focus on their customers and become even more involved in their communities. Two additional grocery store branches were opened in Iowa City and Cedar Rapids. Brenton Direct, a new telephone banking center, was developed and staffed to provide higher levels of service and Words centered in the middle of the page: Rather than a company of banking generalists, we have become a statewide resource of financial services specialists, enabling us to bring additional value to every customer relationship. expanded hours of operation, including evenings and weekends. We expanded and enhanced the diversified commercial services area, which provides cash management and other valuable banking services for commercial customers. Several of these initiatives produced immediate returns, with 1995 noninterest income growing by 5.4 percent to $17.850 million, excluding securities gains and losses. Brokerage commissions rose 5.7 percent, due to a strong market and higher volume. Service charges on deposits grew 2.3 percent. Insurance commissions and fees jumped 10.6 percent, as a result of both higher sales of credit-related insurance and increased insurance agency sales. Fiduciary revenues were up 12.2 percent, thanks to increased volumes in personal trusts, investment management fees and employee benefit plans. Noninterest expenses for the year fell 2.8 percent to $55.051 million, compared to $56.657 million for 1994. a one time $2.6 million restructuring charge related to the implementation of the Company's strategic plan was taken in 1994. Results for 1995 included savings in salaries and employee benefits, lower FDIC premium assessments on deposits and a reduction in data processing costs. These savings were partially offset by increased occupancy expenses related to new bank facilities in Ames, Ankeny and Davenport and new branch openings in Iowa City and Cedar Rapids, as well as $1.8 million in consulting and professional fees tied to the merger and restructuring. To say that we literally reinvented our business in 1995 would be an understatement. And in 1996 and beyond, shareholders, customers and employees alike, will benefit from the efficiencies, opportunities and advantages created through our merger and restructuring. More than a simple consolidation for economy's sake, the new Brenton organization represents a rededication to the spirit and philosophies that have served us so well through the years. Building shareholder value. Serving customers and communities well. Being a leader in local economic development. And setting our sights on a future even stronger than our past. If you're searching for a banking organization that can serve your long-term objectives of service, value, growth, experience and true partnership, look no further than Brenton. We are the one. /s/ C. Robert Brenton Chairman of the Board /s/ Robert L. DeMeulenaere President Picture of banker and community leader looking at blueprints in an office. Caption to picture reads: John Hand, President, Brenton Bank - Emmetsburg and Dave Nixon, Campaign Chairman for the Wellness Center Project, review blueprints for the city's new library and wellness center complex. The facility, which will be located in a single building on the Iowa Lakes Community College campus, will serve local residents and help attract new economic development to the area. Brenton Bank participated in the planning and fundraising efforts and purchased $620,000 in municipal bonds that helped finance the project. Words on blue background following picture reads: More than a simple consolidation for economy's sake, the new Brenton organization represents a rededication to the spirit and philosophies that have served us so well through the years. A CLOSER LOOK: Implementing Our Strategy For Success It's a classic case of high tech, high touch. On the one hand, customers want access to banking products and services outside of regular banking hours. For certain activities or to seek information, they'd rather call on the phone than visit a branch. And who can blame them? On the other hand, personal bankers have long been chained to their desks by paperwork and regulatory details. Without question, their time could be better spent getting to know and understand the needs of our customers -- and serving them well. In 1995, Brenton made significant investments in technology and process improvements designed to provide better service for customers, greater efficiency for our enterprise and additional opportunities for our local bankers to become more involved in their communities. Brenton's new 28,000 sq. ft. Operations & Technology Center consolidates technical and customer support services for all 45 offices in a single location. The facility, which also houses the Company's data processing partner, handles collections, loan and deposit support, statementing, lockbox services and more. It is also home to Brenton Direct, a new telephone banking center, which is on the leading edge of our "Strategy for Success." Much more than an automated information line, Brenton Direct is a resource of personalized information and service. It is staffed by experienced banking professionals who are available to serve customer needs during and after normal banking hours, including evenings and weekends. In addition to helping existing customers, Brenton Direct is positioned to help the Company attract new customers in new communities, enabling us to serve our entire Iowa market. The facility, which began operation in April, 1995, is already handling an average of 30,000 calls per month. Working in partnership with local community boards of directors, Brenton will continue its long heritage of providing leadership in local economic development. Brenton bankers have always lived and worked in the communities we serve, and we have always stood ready to contribute time, effort and financial resources to worthwhile local groups, projects and activities. We will continue to share, participate and invest in our communities. Indeed, our commitment is even stronger than it has been in the past. Strong growth in direct consumer lending is forecast for 1996, as our company-wide retail banking strategy becomes fully implemented. The plan calls for local bank presidents to lead our efforts Words centered in the middle of the page: We are committed to getting closer to our customers and communities -- to listening, serving, and satisfying all of their financial needs. to proactively reach out to current and prospective customers through personal calling, targeted direct mail and telephone follow-up. We are committed to getting closer to our customers and communities -- to listening, serving and satisfying all of their financial needs. The development of new support processes and personnel frees front line bankers to become fully involved in this effort. Led by commercial loan growth and higher cash management revenues, the commercial side of our business experienced substantial growth in 1995, particularly in the metropolitan markets of Des Moines, Davenport, Cedar Rapids and Ames. We expect this growth to continue in 1996, as we provide more training, support and incentives for our commercial officers. Brenton offers a full line of commercial banking products and services, from lending and cash management to international services. In partnership with our Trust Division, we also work to provide a strong package of employee benefit and corporate trust products and services. By establishing a separate line of business for agricultural banking, the Company continued to build on its 114-year heritage of service to Iowa farmers and agribusinesses. Our roots are in agricultural banking. We know the business of farming. And our experienced ag banking officers work to develop long-term, mutually profitable partnerships with our farm customers. On November 11, 1995, the Brenton Center for Agricultural Instruction and Technology Transfer was dedicated at Iowa State University in Ames. The center, which was supported in part through a gift from the Brenton family, is a resource of information, instruction and outreach services for students, farmers and agri-businesses across Iowa and around the world. Increased volumes in employee benefit plans, personal trusts and investment management fees produced 12.2 percent growth in fiduciary revenues during 1995. Working in partnership with personal bankers and commercial officers, Trust is projecting even stronger growth in the year ahead. With our proven record of customer service and investment performance, Brenton is well positioned to serve the expanding 401(k) market. Assets in Brenton's four proprietary mutual funds totaled more than $103 million at year-end 1995. While total mortgage volume was down in 1995, primarily due to a slowdown in refinancing, we project substantial growth in 1996, as rates continue to trend lower. We also Words centered in the middle of the page: On November 11, 1995, the Brenton Center for Agricultural Instruction and Technology Transfer was dedicated at Iowa State University in Ames. expect to profit from last year's restructuring of our mortgage operations. We consolidated processing from 14 bank locations to two regional processing centers. The recent conversion to new servicing software and the purchase of laptop computers has positioned our originators to get away from their desks and go out in the field to develop new business. We introduced an alternative documentation system that enables us to approve loans in four days or less, subject to appraisals. In addition, we are now retaining the servicing rights to most residential loans that we originate. As a result, we not only realize the full economic value of the servicing process, we also maintain valuable customer contact over the full life of the loan. Our full-service investment broker-dealer continues to grow, with revenues increasing by 5.7 percent in 1995. The operation provides a full range of investment products to serve client needs -- including stocks, unit investment trusts, individual bonds, mutual funds, insurance and annuities. Brenton investment executives focus on planning and tailoring total financial solutions. The objective is to create long-term, mutually rewarding relationships with current and prospective customers. Brenton Insurance, our independent agency, produced double-digit growth for the third consecutive year. Working out of free-standing offices as well as in-bank locations, the operation markets personal and commercial lines of property and casualty coverages, life and health insurance and selected group plans. The growth of our insurance business reflects your Company's objective to serve the total financial needs of our customers. Significant additional insurance revenue is budgeted for 1996. At Brenton, our greatest strength has always been our people. That is why, each year, we celebrate their success and recognize their accomplishments. At our One Bank Celebration on November 18, we honored the following individuals and banks for their outstanding efforts and contributions to the overall success of our enterprise: Deb Hall of Cedar Rapids, Outstanding Teller; Myrna Bayer of Marshalltown, Outstanding Customer Service Person; Joyce Larson of Brokerage, Outstanding Sales Person; Allen Shafer of Cedar Rapids, Outstanding Lender; LaRae Bouchard of Operations and Technology, Outstanding Administrative/Financial/Support Person; and John Maier of Brenton Mortgage, Outstanding Administrative/Financial/Support Person. The Brenton Award of Progress was presented to our Clarion bank. Marshalltown was named our Outstanding Bank for 1995. Words centered in the middle of the page: The objective is to create long-term, mutually rewarding relationships with current and prospective customers. Bankers meeting customer at customer's hardware store. Caption to picture reads: Jerry Logan, President, Logan Contractors Supply, Inc., meets with Woody Brenton, President - Commercial Banking and Doug Schulte, Assistant Vice-President, Brenton Trust Division. From commercial lending and cash management programs to employee benefits and insurance services, Brenton provides a complete package of sophisticated financial products and services for business customers across Iowa. Management's Discussion and Analysis For 1995, Brenton Banks, Inc. and subsidiaries (the "Company") reported net income of $10,407,354 compared to 1994 earnings of $10,107,387. Capital Resources Common stockholders'equity totaled $119,533,631 as of December 31, 1995, an 8.2 percent increase from the prior year. This increase was primarily due to current year earnings and the equity adjustment required by Statement of Financial Accounting Standard (SFAS) No. 115. Under this accounting standard, which was adopted December 31, 1993, the method of classifying investment securities is based on the Company's intended holding period. Accordingly, securities that the Company may sell at its discretion prior to maturity are recorded at their fair value. The aggregate unrealized net gains or losses (including the income tax and minority interest effect) are recorded as a component of stockholders' equity. At December 31, 1995, aggregate unrealized gains from assets available for sale totaled $1,358,402, while at December 31, 1994, aggregate unrealized losses totaled $5,117,046. This resulted in a net increase of $6,475,448 in common stockholders' equity in 1995. The Board of Directors increased 1995 dividends to common stockholders 2.3 percent over 1994 to $.45 per share, a dividend payout ratio of 33.6 percent of earnings per share. Dividends for 1995 totaled $3,498,220. As part of the Company's ongoing stock repurchase plan, the Board of Directors authorized additional stock repurchases of $5,000,000 of the Company's common stock in 1995. For the year ended December 31, 1995, the Company repurchased 258,133 shares at a total cost of $4,830,111. The Board has extended this plan for 1996. The Company's risk-based core capital ratio was 11.60 percent at December 31, 1995, and the total risk-based capital ratio was 12.69 percent. These ratios exceeded the minimum regulatory requirements of 4.00 percent and 8.00 percent, respectively. The Company's tier 1 leverage ratio, which measures capital excluding intangible assets, was 7.45 percent at December 31, 1995, exceeding the regulatory minimum requirement range of 3.00 to 5.00 percent. Each of these capital calculations excludes unrealized gains or losses on assets available for sale. The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent Company") was 10.4 percent at December 31, 1995, compared to 11.5 percent at the end of 1994. This decrease was primarily due to higher equity created by the SFAS 115 adjustment and current year earnings. The Parent Company's $2 million line of credit with a regional bank was unused throughout 1995. Long-term borrowings of the Parent Company at December 31, 1995 consisted entirely of $12,435,000 of capital notes. Brenton Banks, Inc. common stock closed 1995 at a bid price of $21.25 per share, representing 136 percent of the book value per share of $15.62. The year-end stock price represented a price-to-1995-earnings multiple of 15.9 times. Brenton Banks, Inc. continues to pursue acquisition and expansion opportunities that strengthen the Company's presence in current and new markets. There are currently no pending acquisitions that would require Brenton Banks, Inc. to secure capital from public or private markets. Asset-Liability Management The Company has a fully integrated asset- liability management system to assist in managing the balance sheet. This system performs simulations of the effects of various Graph showing Primary Capital Ratio (1991-1995):
1991 1992 1993 1994 1995 7.23% 7.67 8.31 8.18 8.40
Graph showing Tier 1 Leverage Capital Ratio (1991-1995)
1991 1992 1993 1994 1995 6.21% 6.71 7.36 7.23 7.45
Graph showing Net Interest Margin (1991-1995):
1991 1992 1993 1994 1995 4.04% 4.23 4.28 4.12 3.89
interest rate scenarios on net interest income and is used to project the results of alternative investment decisions. Management performs analysis of the simulations to manage interest rate risk, the net interest margin and levels of net interest income. The asset-liability simulations indicate that net interest income will be maximized in a stable interest rate environment. The Company currently believes that net interest income would fall by less than 5 percent if interest rates immediately increased or decreased by 300 basis points, which is within the Company policy limit. Many steps have been taken over the past year to restructure the Company's balance sheet in a way that will lessen the impact of interest rate fluctuations on net interest income. The Company has increased its variable rate consumer loans by $33.4 million since December 31, 1994. The Company has also reduced its reliance on residential real estate loans with longer repricing periods. This was done by securitizing approximately $56 million of these loans during 1995. As of December 31, 1995, $26 million of these loan pools had been sold at a loss of approximately $400,000, and $30 million were held in the Company's available for sale investment portfolio. In addition to normal balance sheet instruments, the Company has utilized Federal Home Loan Bank borrowings 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 investments available for sale are readily marketable assets. Maturities of all investment securities are managed to meet the Company's normal liquidity needs. Investment securities available for sale may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's interest rate risk position. Federal funds sold and assets available for sale comprised 28.0 percent of the Company's total assets at December 31, 1995. Net cash provided from operations of the Company is another major source of liquidity and totaled $14,991,191 in 1995, $16,279,907 in 1994 and $20,429,680 in 1993. These strong cash flows from operations are expected to continue in the foreseeable future. The Company has historically maintained a stable deposit base and a relatively low level of large deposits which results in low dependence on volatile liabilities. At December 31, 1995, the Company had borrowings of $28,150,000 from the Federal Home Loan Bank of Des Moines as a means of providing long-term, fixed-rate funding for certain fixed-rate assets and managing interest rate risk. The combination of high levels of potentially liquid assets, strong cash flows from operations and low dependence on volatile liabilities provided strong liquidity for the Company at December 31, 1995. The Parent Company, whose primary funding sources are management fees and dividends from its subsidiaries, had sufficient cash flow and liquidity at December 31, 1995. 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 1995, the Parent Company had $7.5 million of short-term investments, as well as additional borrowing capacity. Results of Operations - 1995 Compared to 1994 Net Income For the year ended December 31, 1995, Brenton recorded net income of $10,407,354. Earnings per common share were $1.34 compared to $1.27 for 1994. The Company's total assets were consistent with 1994 levels of $1.6 billion on December 31, 1995. Return on average assets (ROA) was .71 percent in 1995, compared to .70 percent in 1994. The return on average equity (ROE) was 9.04 percent, compared to 9.03 percent one year earlier. Net Interest Income Net interest income declined $2,118,383 or 3.8 percent to $53,332,143 for 1995. Although average earning assets increased 1.3 percent from 1994, average interest-bearing liabilities increased 2.7 percent. In addition, the average rate earned on earning assets rose 55 basis points, while the average rate paid on interest-bearing liabilities increased 83 basis points. The net interest spread, which is the difference between the rate earned on assets and the rate paid on liabilities, fell to 3.41 percent from 3.69 percent last year. Net interest margin, which is tax equivalent net interest income as a percent of average earning assets, declined 23 basis points in 1995 and averaged 3.89 percent, compared to 4.12 percent in 1994. The Company does not expect further net interest margin compression. With the focus on commercial and consumer loan growth, the goal is for improvement in net interest income and net interest margin. Loan Quality Brenton's loan quality remained strong in 1995. The Company's nonperforming loans were a low 0.62 percent of loans or $5,619,000 at December 31, 1995, up from $5,022,000 or 0.52 percent one year ago. Nonperforming loans include loans on nonaccrual status, loans that have been renegotiated to below market interest rates or terms, and loans past due 90 days or more. The increase in nonperforming loans from one year ago was due to an increase in commercial and consumer loans that were 90 days or more past due. Nonaccrual and renegotiated loans are below the levels of one year ago. The allowance for loan losses, which totaled $11.1 million, represented 197.01 percent of nonperforming loans at the end of 1995, compared to 217.3 percent one year ago. The provision for loan losses totaled $1,864,801 for the year ended December 31, 1995, compared to $1,987,909 for 1994. The Company's net charge-offs to average loans were 0.18 percent for 1995 compared to 0.10 percent for 1994. Loan losses for 1995 were concentrated in the consumer loan portfolio. Quality control and risk management are carefully balanced with goals for loan growth. The Company has a formal structure for reviewing and approving new loans, with all loans greater than $1,000,000 being approved by the senior loan approval committee. 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 the reserve available to absorb potential 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 a standard evaluation process, individual loan officers evaluate loan characteristics, the borrower's financial condition and collateral values. From these assessments, the Reserve Adequacy Committee reviews 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 subsequent collection and action plans for problem credits. Management believes the allowance for loan losses at December 31, 1995, was sufficient to absorb all potential loan losses within the portfolio, recognizing that the adequacy of the reserve is subject to future economic events and uncertainties. Beginning January 1, 1995, the Financial Accounting Standards Board mandated a standard that fundamentally changed certain accounting procedures for impaired loans, including the determination of the allowance for loan losses and financial disclosures. This new Standard has not had a material effect on the financial statements of the Company. Net Noninterest Margin To measure operating efficiency, the Company uses the net noninterest margin, which is the difference between noninterest income and noninterest expense as a percent of Graph showing Return on Average Assets (1991-1995):
1991 1992 1993 1994 1995 0.93% 0.98 1.04 0.70 0.71
Graph showing Return on Average Equity (1991-1995):
1991 1992 1993 1994 1995 14.27% 14.13 13.82 9.03 9.04
average assets. For 1995, the net noninterest margin was (2.38) percent compared to (2.61) percent in 1994. Although this is a positive trend, the Company is aggressively working on further reductions by developing fee-based services and reducing the growth of operating expenses. Noninterest Income Generating noninterest income is a key component to the Company's earnings performance, particularly when lower net interest margins cause reductions in net interest income. For 1995, total noninterest income (excluding securities transactions) increased 5.4 percent to $17,849,743 from $16,932,612 one year ago. The increases were seen in substantially all noninterest income categories. Service charges on deposit accounts rose 2.3 percent in 1995, compared to one year earlier. This increase occurred in the fourth quarter of 1995, when the Company implemented standardized service charges and initiatives to reduce the amount of waived charges and fees. Insurance commissions and fees increased 10.6 percent to $2,339,817 in 1995. This was due to higher sales of credit-related insurance and higher sales from insurance agency operations. Secondary market real estate loan income also rose and posted a 22.9 percent increase from one year earlier. Secondary market income for 1995 totaled $1,153,066. Fiduciary income rose 12.2 percent to $2,425,105 in 1995 compared to $2,160,492 in 1994. This increase was due to a growing customer base in the areas of personal trusts, investment management, employee benefit plans and the Brenton Family of Mutal Funds. Higher revenues were the result of this growth and favorable market conditions. Securities transactions created an additional increase in noninterest income. Securities losses for 1995 totaled $3,003 compared to 1994 losses of $339,624. Offsetting the overall increase in noninterest income was a 20.6 percent decline in other operating income. The major cause for the decline was $232,454 of net losses on the sale of loans in 1995 compared to 1994 gains of $167,519. Noninterest Expense Total noninterest expense decreased 2.8 percent in 1995 to $55,051,267 from $56,656,922 one year ago. Included in 1994 expense was a one-time restructuring charge of $2,645,000. The restructuring charge was taken to cover costs related to the Company's strategic plan that included consolidating the Company's 13 commercial banks, reducing Brenton's overall personnel levels and closing selected banking branches. A summary of the estimated costs expensed in 1994 and the actual costs incurred in 1995 follows:
1994 Estimated Costs 1995 Actual Costs Salaries and wages $1,089,000 $ 565,263 Employee benefits 289,000 83,409 Occupancy expenses 192,000 -- Data processing expense 527,500 389,432 Abandonment losses 267,000 164,945 Legal, regulatory and other 280,500 409,085 $2,645,000 $1,612,134
The difference between the estimated costs recorded in 1994 and the actual costs incurred was reversed, thereby reducing or charging the above expense categories in 1995. The major restructuring charge reversals occurred in salaries and wages and employee benefit categories. The actual costs were well below original estimates due to employee attrition, which assisted in meeting necessary salary reductions without incurring severance. In addition, occupancy costs and abandonment losses were lower than original estimates. This was due to a planned branch closing that did not occur in 1995, but is expected to occur in 1996. Another branch which was expected to be abandoned was sold with the Company incurring no loss. Salary expense declined approximately $710,000 from one year ago after eliminating the effects of the restructuring charge, due to overall staff reductions. The number of full-time equivalent employees decreased by 13.6 percent when comparing year- end 1995 personnel levels to year-end 1994. The decrease in salaries was offset by increases in incentives, insurance sales commissions and executive compensation plan expenses. The reductions in salaries and wages led to a proportionate decline in employee benefits. The increases in occupancy and furniture and equipment expense were due primarily to rents and depreciation for new and renovated banking offices in Ames, Ankeny, Cedar Rapids, Davenport and Iowa City. The Company invested approximately $7 million in these new facilities. Data processing expenses were unchanged from last year after eliminating the impact of the restructuring charge. Advertising expenses were also unchanged from one year ago. In September 1995, the FDIC refunded assessments retroactively to May 1995 and lowered deposit insurance premiums for all well capitalized banks. This was a result of the full funding of reserves required by the FDIC to insure the deposits of the banking industry. This reduced 1995 expenses by $1,124,169, in comparison to 1994. The Company continues to pay the lowest rates available under the FDIC's risk-based premium system. At the present time, Congress is considering proposed legislation to recapitalize the Savings Association Insurance Fund (SAIF). This proposed legislation would assess a one-time premium, currently estimated between $1.2 million and $1.5 million, on all SAIF deposits and would be expensed when and if legislation is passed. The Company has approximately $225 million of SAIF deposits. Other operating expenses rose $2.5 million or 22.6 percent after eliminating the impact of the restructuring charge. A large part of this increase relates to payments made to EDS, a management consulting firm that was hired to reengineer the retail and commercial banking processes and assist in developing a formalized program for enhancing noninterest income. In addition, the Company has contracted with other consultants to perform sales training and develop management reporting systems. In 1995, the Company also recorded approximately $1 million for estimated costs related to branch closings anticipated in 1996. 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 22.5 percent for 1995 compared to 20.2 percent for 1994. In 1994, the Company established out-of-state investment subsidiaries to manage the investment portfolios of each Brenton bank. These subsidiaries provided an opportunity to lower the amount of state franchise taxes paid by the Company. Effective July 1, 1995, the state of Iowa enacted legislation that eliminated the tax benefits derived from these subsidiaries. The Company dissolved these subsidiaries on June 30, 1995. Effect of New Accounting Standards Two new Statements of Financial Accounting Standards (SFAS) were issued in 1995, but will not be effective until 1996: SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and SFAS No. 123 "Accounting for Stock-Based Compensation." The adoption of both SFAS 121 and SFAS 123 is not expected to have a material effect on the Company's future financial statements. Results of Operations - 1994 Compared to 1993 Net income For the year ended December 31, 1994, Brenton recorded net income of $10,107,387, which included an after-tax restructuring charge of $1,658,415 related to the Company's strategic plan. Earnings per common share before the restructuring charge were $1.48 compared to $1.80 for 1993. The restructuring charge totaled $.21 per share, reducing final 1994 earnings per share to $1.27. The Company's total assets grew 6.8 percent to $1.6 billion at December 31, 1994. The Company's ROA, excluding the one-time charge, was .81 percent in 1994, compared to 1.04 percent in 1993. The ROE, excluding the restructuring charge, was 10.51 percent, compared to 13.82 percent one year earlier. The restructuring charge reduced ROA to .70 percent and reduced ROE to 9.03 percent. Net Interest Income Net interest income rose 2.3 percent to $55,450,526 for 1994. This growth was prompted by an increase in average earning assets, primarily from a 16.7 percent increase in average loans in 1994. During 1994, the Company's net interest margin declined 16 basis points from one year earlier and averaged 4.12 percent. Loan Quality Nonperforming loans of $5,022,000 at the end of 1994 represented 0.52 percent of loans, up 25.1 percent from one year earlier. Provision expense for loan losses increased $736,321 in 1994. This provision increased the allowance for loan losses to $10,913,043 at December 31, 1994, representing 217.30 percent of nonperforming loans. Net loans charged off for 1994 represented a low 0.10 percent of average loans. Noninterest Income For 1994, total noninterest income (excluding securities transactions) declined 2.0 percent to $16,932,612 from $17,268,103 one year prior. Service charges received on deposit accounts declined about $422,000 from 1993. Higher interest rates caused a 56.1 percent decline in secondary market real estate loan fees, which totaled $938,332 in 1994. Securities transactions caused an additional decline in noninterest income. In response to the rising interest rate environment, securities were sold from the investment portfolio at a net loss of $339,624. Offsetting the overall decline in noninterest income was a 22.2 percent growth in insurance commissions, which resulted primarily from the acquisition of an insurance agency in Tama/Toledo, Iowa. Noninterest Expense Total noninterest expense rose 12.4 percent in 1994 to $56,656,922 from $50,414,942 one year ago. Included in 1994 expense was a one-time, pre-tax restructuring charge of $2,645,000. Without the restructuring charge, noninterest expense increased 7.1 percent from the prior year. The following comparisons exclude the restructuring charge. Salaries and benefits rose $1,063,409 from 1993 to 1994. The majority of this increase was related to expansion of mortgage services, cash management and investment brokerage, as well as the opening of new branches. The increase in salaries created a proportionate rise in employee benefits expense. Occupancy and furniture and equipment expenses increased in 1994 by $959,493. This was primarily due to rents associated with new offices for banking, brokerage and real estate brokerage activities, and depreciation expense for remodeled facilities and new technology. Data processing expenses were unchanged from 1993. FDIC deposit insurance rose 5.7 percent in 1994, due to increasing deposit levels. During 1994, Brenton initiated several promotional campaigns offering brokerage services, no-fee checking accounts and home equity loans. These campaigns, along with local community events, added 16.5 percent to advertising and promotion expenses. Other operating expenses rose 11.5 percent. This increase was a result of many new activities including costs for new banking offices, acquisition of real estate and insurance agencies, expanded cash management services and the introduction of the Brenton Family of Mutual Funds. Growth and expansion activities in 1994 added an additional $1.75 million of recurring noninterest expense. Income Taxes The Company's income tax strategies include reducing income taxes by purchasing assets that produce tax-exempt income. The effective rate of income tax expense as a percent of income before income tax and minority interest was 20.2 percent for 1994 compared to 27.0 percent for 1993. This decline in effective rate was due to lower overall Company earnings and reduced state franchise taxes. In 1994, the Company established out-of-state investment subsidiaries to provide an opportunity to lower the amount of state franchise taxes paid by the Company. Graph showing Nonperforming Loans (in thousands) (1991-1995):
1991 1992 1993 1994 1995 $5,622 4,593 4,013 5,022 5,619
Graph showing Net Noninterest Margin (1991-1995);
1991 1992 1993 1994 1995 2.26% 2.31 2.31 2.61 2.38
Consolidated Average Balances and Rates Brenton Banks, Inc. and Subsidiaries Average Balances (In thousands) 1995 1994 1993 1992 1991 Assets: Cash and due from banks $ 57,138 46,301 46,025 41,715 35,656 Interest-bearing deposits with banks 1,076 124 762 6,240 18,335 Federal funds sold and securities purchased under agreements to resell 39,763 37,666 23,725 27,082 35,154 Trading account securities -- 116 -- -- -- Investment securities: Available for sale-taxable 244,786 245,913 53,174 6,512 -- Available for sale-tax-exempt 100,859 132,040 -- -- -- Held to maturity-taxable 65,959 35,794 299,993 384,301 342,466 Held to maturity-tax-exempt 50,235 44,584 164,520 139,296 106,658 Loans held for sale 5,908 2,575 6,165 2,553 -- Loans 945,724 936,370 802,088 736,646 727,870 Allowance for loan losses (11,166) (10,502) (9,615) (8,894) (8,819) Bank premises and equipment 31,436 24,545 23,045 21,400 18,876 Other 29,508 25,663 26,543 30,422 32,243 $1,561,226 1,521,189 1,436,425 1,387,273 1,308,439 Liabilities and Stockholders' Equity: Deposits: Noninterest-bearing $ 128,770 127,464 119,322 112,054 102,795 Interest-bearing: Demand 355,819 250,520 217,754 209,642 175,595 Savings 231,633 294,715 299,640 260,568 235,894 Time 626,497 625,981 622,789 646,261 654,776 Total deposits 1,342,719 1,298,680 1,259,505 1,228,525 1,169,060 Federal funds purchased and securities sold under agreements to repurchase 40,237 61,656 42,715 33,240 20,340 Other short-term borrowings 6,536 4,860 33 2,170 5,361 Accrued expenses and other liabilities 14,896 13,254 12,805 13,735 14,739 Long-term borrowings 37,264 26,500 14,077 14,067 13,619 Total liabilities 1,441,652 1,404,950 1,329,135 1,291,737 1,223,119 Minority interest 4,391 4,290 4,150 3,845 3,589 Common stockholders' equity 115,183 111,949 103,140 91,691 81,731 $1,561,226 1,521,189 1,436,425 1,387,273 1,308,439 Summary of Average Interest Rates Average rates earned: Interest-bearing deposits with banks 6.20% 6.65 2.88 4.92 7.10 Trading account securities -- 6.36 -- -- -- Federal funds sold and securities purchased under agreements to resell 5.69 4.53 2.05 2.41 5.77 Investment securities: Available for sale-taxable 5.96 5.30 5.28 6.63 -- Available for sale-tax exempt (tax equivalent basis) 6.71 6.37 -- -- -- Held to maturity-taxable 6.17 5.20 5.54 6.88 8.50 Held to maturity-tax-exempt (tax equivalent basis) 8.05 7.70 6.97 7.66 8.85 Loans held for sale 6.71 7.50 8.43 9.33 -- Loans 8.69 8.14 8.77 9.65 10.52 Average rates paid: Deposits 4.37% 3.55 3.70 4.70 6.19 Federal funds purchased and securities sold under agreements to repurchase 4.08 3.38 2.41 2.78 4.74 Other short-term borrowings 5.67 5.42 3.63 5.57 8.70 Long-term borrowings 7.03 6.86 8.60 9.14 9.57 Average yield on interest-earning assets 7.86% 7.31 7.57 8.43 9.62 Average rate paid on interest-bearing liabilities 4.45 3.62 3.71 4.70 6.21 Net interest spread 3.41 3.69 3.86 3.73 3.41 Net interest margin 3.89 4.12 4.28 4.23 4.04
Selected Financial Data Brenton Banks, Inc. and Subsidiaries Year-end Balances (In thousands) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Total assets $1,582,779 1,581,327 1,480,596 1,431,140 1,360,942 1,274,301 961,370 921,207 908,933 956,505 Interest-earning assets 1,461,218 1,475,473 1,400,709 1,323,252 1,267,402 1,181,172 883,721 845,571 836,029 865,364 Interest-bearing liabilities 1,300,508 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597 769,717 733,133 728,597 771,416 Demand deposits 143,220 136,548 127,132 137,212 115,479 125,626 113,349 118,392 116,830 123,883 Long-term borrowings 38,178 28,939 20,055 13,284 13,634 12,675 14,701 16,215 17,509 18,759 Preferred stock -- -- -- -- -- -- -- -- 2,000 3,000 Common stockholders' equity** 119,534 110,430 112,418 97,430 86,712 77,258 63,522 56,401 49,618 44,976 Results of operations (In thousands) Interest income $ 111,040 101,223 98,656 106,560 115,561 106,826 85,722 76,745 74,774 84,321 Interest expense 57,708 45,772 44,427 54,773 68,687 64,431 49,102 43,180 43,149 52,920 Net interest income 53,332 55,451 54,229 51,787 46,874 42,395 36,620 33,565 31,625 31,401 Provision for loan losses 1,865 1,988 1,252 1,411 799 869 760 1,214 2,132 11,605 Net interest income after provision for loan losses 51,467 53,463 52,977 50,376 46,075 41,526 35,860 32,351 29,493 19,796 Noninterest income 17,847 16,593 17,863 14,684 12,715 11,554 10,113 10,367 9,064 16,483 Noninterest expense 55,051 56,657 50,415 46,591 42,284 37,820 32,781 32,066 32,952 32,558 Income before income taxes and minority interest 14,263 13,399 20,425 18,469 16,506 15,260 13,192 10,652 5,605 3,721 Income taxes 3,205 2,701 5,508 4,884 4,308 4,388 4,016 2,527 408 116 Minority interest 651 591 667 632 539 533 472 422 290 84 Net income 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,703 4,907 3,521 Preferred stock dividend requirement -- -- -- -- -- -- -- 81 265 360 Net income available to common stockholders $ 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,622 4,642 3,161 Average common shares outstanding* 7,753 7,952 7,919 7,783 7,758 7,745 7,196 7,196 7,196 7,196 Per common and common equivalent share* Net income $ 1.34 1.27 1.80 1.67 1.50 1.33 1.21 1.06 .65 .44 Cash dividends .450 .440 .400 .350 .323 .273 .22 .117 .000 000 Common stockholders' equity** 15.62 14.03 14.27 12.47 11.16 9.97 8.83 7.84 6.89 6.25 Selected operating ratios Return on average assets (including minority interest) .71% .70 1.04 .98 .93 .95 1.00 .90 .57 .38 Return on average common stockholders' equity 9.04 9.03 13.82 14.13 14.27 14.39 14.50 14.34 9.78 7.35 Common dividend payout 33.58 34.65 22.22 21.00 21.56 20.50 18.23 11.01 .00 .00 Allowance for loan losses as a percent of loans 1.22 1.12 1.12 1.20 1.14 1.25 1.55 1.60 1.75 2.09 Net charge-offs to average loans outstanding .18 .10 .05 .13 .15 .12 .08 .18 .75 2.61 *Restated for 3-for-2 stock split effective in 1994 and 2-for-1 stock split effective in 1990. **Including unrealized gains (losses) on assets available for sale.
Consolidated Statements of Condition Brenton Banks, Inc. and Subsidiaries December 31 1995 1994 Assets: Cash and due from banks (note 2) $ 71,159,078 58,387,727 Interest-bearing deposits with banks 265,072 64,255 Federal funds sold and securities purchased under agreements to resell 37,600,000 59,396,428 Investment securities: Available for sale (note 3) 396,370,443 349,208,773 Held to maturity (market value of $109,131,000 and $92,284,000 at December 31, 1995 and 1994, respectively) (note 3) 108,082,213 94,484,134 Investment securities 504,452,656 443,692,907 Loans held for sale 8,707,309 2,104,492 Loans (note 4) 910,193,212 970,214,498 Allowance for loan losses (note 5) (11,069,869) (10,913,043) Loans, net 899,123,343 959,301,455 Bank premises and equipment (notes 6 and 10) 32,849,842 27,103,630 Accrued interest receivable 14,494,261 13,064,921 Other assets (note 8) 14,127,759 18,211,034 $1,582,779,320 1,581,326,849 Liabilities and Stockholders' Equity: Deposits (note 7): Noninterest-bearing $ 143,220,373 136,547,995 Interest-bearing: Demand 399,308,392 315,369,233 Savings 215,488,846 255,046,184 Time 603,925,104 633,319,698 Total deposits 1,361,942,715 1,340,283,110 Federal funds purchased and securities sold under agreements to repurchase 41,107,411 70,703,736 Other short-term borrowings (note 9) 2,500,000 12,000,000 Accrued expenses and other liabilities 15,083,453 14,749,917 Long-term borrowings (note 10) 38,177,803 28,939,413 Total liabilities 1,458,811,382 1,466,676,176 Minority interest in consolidated subsidiaries 4,434,307 4,220,328 Redeemable preferred stock, $1 par; 500,000 shares authorized; issuable in series, none issued -- -- Common stockholders' equity (notes 12, 13 and 15): Common stock, $5 par; 25,000,000 shares authorized; 7,653,252 and 7,871,546 shares issued at December 31, 1995 and 1994, respectively 38,266,260 39,357,730 Capital surplus 2,020,518 5,210,344 Retained earnings 77,888,451 70,979,317 Unrealized gains (losses) on assets available for sale 1,358,402 (5,117,046) Total common stockholders' equity 119,533,631 110,430,345 $1,582,779,320 1,581,326,849 Commitments and contingencies (notes 16 and 17). See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations Brenton Banks, Inc. and Subsidiaries Years Ended December 31 1995 1994 1993 Interest Income: Interest and fees on loans (note 4) $ 82,525,850 76,456,964 70,816,746 Interest and dividends on investments: Available for sale-taxable 14,577,652 13,032,050 3,143,004 Available for sale-tax-exempt 4,446,824 5,530,626 -- Held to maturity-taxable 4,069,617 1,862,628 16,293,759 Held to maturity-tax-exempt 3,090,185 2,619,333 7,894,225 Interest on federal funds sold and securities purchased under agreements to resell 2,263,734 1,705,717 485,912 Other interest income 66,705 15,636 21,934 Total interest income 111,040,567 101,222,954 98,655,580 Interest Expense: Interest on deposits (note 7) 53,075,352 41,609,766 42,188,138 Interest on federal funds purchased and securities sold under agreements to repurchase 1,641,516 2,082,077 1,027,324 Interest on other short-term borrowings (note 9) 370,642 263,658 1,200 Interest on long-term borrowings (note 10) 2,620,914 1,816,927 1,210,200 Total interest expense 57,708,424 45,772,428 44,426,862 Net interest income 53,332,143 55,450,526 54,228,718 Provision for loan losses (note 5) 1,864,801 1,987,909 1,251,588 Net interest income after provision for loan losses 51,467,342 53,462,617 52,977,130 Noninterest Income: Service charges on deposit accounts 5,547,796 5,424,547 5,846,770 Insurance commissions and fees 2,339,817 2,115,085 1,730,387 Other service charges, collection and exchange charges, commissions and fees 3,862,474 3,558,900 4,120,732 Investment brokerage commissions 3,044,107 2,879,401 3,010,004 Fiduciary income 2,425,105 2,160,492 1,912,442 Net gains (losses) from securities available for sale (note 3) (3,003) (339,624) 595,168 Other operating income 630,444 794,187 647,768 Total noninterest income 17,846,740 16,592,988 17,863,271 Noninterest Expense: Salaries and wages 22,815,220 24,595,274 22,952,044 Employee benefits (note 14) 4,158,580 4,960,665 4,162,486 Occupancy expense of premises, net (notes 6 and 16) 4,912,417 4,702,208 3,988,525 Furniture and equipment expense (notes 6 and 16) 3,747,021 3,060,557 2,622,747 Data processing expense (note 17) 2,379,920 3,083,819 2,526,280 FDIC deposit insurance assessment 1,783,213 2,907,382 2,749,969 Advertising and promotion 1,741,390 1,772,852 1,521,712 Other operating expense 13,513,506 11,574,165 9,891,179 Total noninterest expense 55,051,267 56,656,922 50,414,942 Income before income taxes and minority interest 14,262,815 13,398,683 20,425,459 Income taxes (note 8) 3,204,687 2,700,640 5,507,849 Income before minority interest 11,058,128 10,698,043 14,917,610 Minority interest 650,774 590,656 667,640 Net income $ 10,407,354 10,107,387 14,249,970 Per common and common equivalent share (note 12): Net income $ 1.34 1.27 1.80 Cash dividends .45 .44 .40 See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows Brenton Banks, Inc. and Subsidiaries Years Ended December 31 1995 1994 1993 Operating Activities: Net income $ 10,407,354 10,107,387 14,249,970 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,864,801 1,987,909 1,251,588 Depreciation and amortization 4,097,022 3,387,034 3,100,977 Deferred income taxes (25,181) (1,257,325) (531,013) Net (gains) losses from securities held for sale 3,003 339,624 (595,168) (Increase) decrease in accrued interest receivable and other assets (1,678,132) (1,477,154) 2,456,544 Increase in accrued expenses, other liabilities and minority interest 322,324 3,192,432 496,782 Net cash provided by operating activities 14,991,191 16,279,907 20,429,680 Investing Activities: Investment securities available for sale: Purchases (242,871,379) (122,339,026) (166,637,785) Maturities 278,575,538 154,659,319 34,834,992 Sales 5,577,835 21,484,178 98,446,394 Investment securities held to maturity: Purchases (121,543,300) (59,384,073) (132,198,518) Maturities 59,896,255 26,687,613 233,316,414 Net (increase) decrease in loans held for sale (6,602,817) 2,244,930 147,839 Net (increase) decrease in loans 28,502,974 (95,225,841) (122,867,264) Purchases of bank premises and equipment (9,372,711) (6,893,877) (3,487,797) Net cash used by investing activities (7,837,605) (78,766,777) (58,445,725) Financing Activities: Net increase in noninterest- bearing, interest-bearing demand and savings deposits 51,054,199 40,210,540 19,464,320 Net increase (decrease) in time deposits (29,394,594) 5,708,876 4,959,049 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase (29,596,325) 33,039,408 2,782,728 Net increase (decrease) in other short-term borrowings (9,500,000) 12,000,000 (119,784) Proceeds of long-term borrowings 12,429,000 22,176,030 9,337,000 Repayment of long-term borrowings (3,190,610) (13,291,530) (2,565,942) Dividends on common stock (3,498,220) (3,471,901) (3,138,307) Proceeds from issuance of common stock under the employee stock purchase plan -- -- 361,194 Proceeds from issuance of common stock under the stock option plan 187,213 385,767 461,185 Proceeds from issuance of common stock under the long-term stock compensation plan 361,602 -- -- Payment for shares acquired under common stock repurchase plan (4,830,111) (850,950) -- Payment for fractional shares in 3-for-2 stock split -- (4,307) -- Net cash provided (used) by financing activities (15,977,846) 95,901,933 31,541,443 Net increase (decrease) in cash and cash equivalents (8,824,260) 33,415,063 (6,474,602) Cash and cash equivalents at the beginning of the year 117,848,410 84,433,347 90,907,949 Cash and cash equivalents at the end of the year $ 109,024,150 117,848,410 84,433,347 See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Common Stockholders' Equity Brenton Banks, Inc. and Subsidiaries Common Capital Retained Unrealized Stock Surplus Earnings Gains (Losses) Total Balance, December 31, 1992 $26,039,350 5,002,053 66,405,950 (17,190) 97,430,163 Net income -- -- 14,249,970 -- 14,249,970 Net change in unrealized gains (losses) -- -- -- 3,053,460 3,053,460 Dividends on common stock $40 per share* -- -- (3,138,307) -- (3,138,307) Issuance of shares of common stock under the stock option plan (note 15) 161,000 300,185 -- -- 461,185 Issuance of shares of common stock under the employee stock purchase plan (note 15) 65,405 295,789 -- -- 361,194 Balance, December 31, 1993 26,265,755 5,598,027 77,517,613 3,036,270 112,417,665 Net income -- -- 10,107,387 -- 10,107,387 Net change in unrealized gains (losses) -- -- -- (8,153,316) (8,153,316) Dividends on common stock $.44 per share* -- -- (3,471,901) -- (3,471,901) 3-for-2 stock split in the form of a stock dividend (note 12) 13,169,475 -- (13,169,475) -- -- Fractional shares resulting from stock split -- -- (4,307) -- (4,307) Issuance of shares of common stock under the stock option plan (note 15) 146,500 239,267 -- -- 385,767 Shares reacquired under stock repurchase plan (note 12) (224,000) (626,950) -- -- (850,950) Balance, December 31, 1994 39,357,730 5,210,344 70,979,317 (5,117,046) 110,430,345 Net income -- -- 10,407,354 -- 10,407,354 Net change in unrealized gains (losses) -- -- -- 6,475,448 6,475,448 Dividends on common stock $.45 per share -- -- (3,498,220) -- (3,498,220) Issuance of shares of common stock under the stock option plan (note 15) 98,750 88,463 -- -- 187,213 Issuance of shares of common stock under the stock compensation plan (note 15) 100,445 261,157 -- -- 361,602 Shares reacquired under stock repurchase plan (note 12) (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 *Reflects the 3-for-2 stock split in the form of a stock dividend in May 1994. See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements Brenton Banks, Inc. and Subsidiaries December 31, 1995, 1994 and 1993 (1) Summary of Significant Accounting Policies and Related Matters Nature of Operations Brenton Banks, Inc. and subsidiaries (the Company) engage in retail, commercial, and agricultural banking and related financial services from 45 locations throughout the state of Iowa. The Company provides the usual products and services of banking such as deposits, commercial loans, agribusiness loans, personal loans, and trust services. The Company also engages in activities that are closely related to banking, including mortgage banking and investment 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 $5,282,000 and $5,499,000 at December 31, 1995, and 1994, respectively. Investment Securities Investment securities are classified based on the Company's intended holding period. Securities which may be sold prior to maturity, to meet liquidity needs, to respond to market changes or to adjust the Company's asset-liability position, are classified as available for sale. Securities which the Company intends to hold to maturity are classified as held to maturity. Investment securities available for sale are recorded at fair value. The aggregate unrealized gains or losses, net of the income tax and minority interest effect, are recorded as a component of common stockholders' equity. Securities held to maturity are recorded at cost, adjusted for amortization of premiums and accretion of discounts. The timing of the amortization and accretion for mortgage-backed securities are adjusted for actual and projected prepayments. Net gains or losses on the sales of securities are shown in the statements of operations. Gains or losses are computed using the specific security identification method. Loans Loans are carried primarily at the unpaid principal balance. Interest income on loans is accrued and recorded as income based on contractual interest rates and daily outstanding principal balances, except on discounted loans where unearned income is recorded as income over the life of the loans based on the interest method. The accrual of interest income is stopped when the ultimate collection of a loan becomes doubtful. A loan is placed on non-accrual status when it becomes 90 days past due, if it is neither well secured or in the process of collection. Once determined uncollectible, previously accrued interest is charged to the allowance for loan losses. Loans held for sale include real estate mortgage loans originated with the intent to sell. These loans are carried at the lower of aggregate cost or fair value. Allowance for Loan Losses The allowance for loan losses is maintained at a level necessary to support management's evaluation of potential losses in the loan portfolio, after considering various factors including prevailing and anticipated economic conditions. Loan losses or recoveries are charged or credited directly to the allowance account. Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided predominantly by the straight-line method over estimated useful lives of 8 to 40 years for buildings and leasehold improvements, and 3 to 25 years for furniture and equipment. Other Real Estate Owned Included in other assets is property acquired through foreclosure, acceptance of deed in lieu of foreclosure or other transfers in settlement of outstanding loans and related contract sales of such property until the contract is transferred to earning assets based upon sufficient equity in the asset. Amounts totaled $869,000 and $502,000 at December 31, 1995, and 1994, respectively. Such property is carried at the lower of cost or estimated fair value. Periodic appraisals are obtained to support carrying values. Net expense of ownership and declines in carrying values are charged to operating expenses. Employee Retirement Plan All employees of the Company are eligible, after meeting certain requirements, for inclusion in the defined contribution retirement plan. The plan is a combination profit sharing and 401(k) plan. Retirement plan costs are expensed as the Company contributes to the plan. The Company does not provide any material post-retirement benefits. Income Taxes The Company files a consolidated federal income tax return. Federal income taxes are allocated to the Parent Company and each subsidiary on the basis of its taxable income or loss included in the consolidated return. When income and expense are recognized in different periods for financial and income tax reporting purposes, deferred taxes are provided for such temporary differences unless limited. Statements of Cash Flows In the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, federal funds sold and securities purchased under agreements to resell and trading account securities. Income Per Common and Common Equivalent Share Income per common and common equivalent share computations are based on the weighted average number of common and common stock equivalent shares outstanding. In May 1994, the Company declared a 3-for-2 stock split in the form of a stock dividend. The average number of shares, after considering stock plans and the stock split, was 7,752,866 for 1995, 7,951,866 for 1994 and 7,918,560 for 1993. 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. 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. Effect of New Financial Accounting Standards Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) 114, "Accounting by Creditors for Impairment of a Loan," and its amendment SFAS 118 "Income Recognition and Disclosures." Under the Company's credit policies, all nonaccrual and restructured loans are considered to meet the definition of impaired loans under SFAS 114 and 118. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, except where more practical, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. The adoption of SFAS 114 and 118 did not have a material effect on the financial position or results of operations of the Company. Effective October 1, 1995, the Company adopted SFAS 122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." The adoption of SFAS 122 did not have a material effect on the financial position or results of operations of the Company. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," was issued in March 1995 and requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. Adoption of SFAS 121 is required for fiscal years beginning after December 15, 1995. The adoption of SFAS 121 is not expected to have a material effect on the Company's future financial statements. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995 and requires that the impact of the fair value of employee stock-based compensation plans on net income and earnings per share be disclosed on a pro forma basis in a footnote to the consolidated financial statements for awards granted after December 15, 1994, if the accounting for such awards continues to be in accordance with the Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to Employees". Alternatively, SFAS 123 permits that the fair value of employee stock-based compensation plans be recorded as a component of compensation expense in the statement of income as of the date of grant of awards related to such plans. Adoption of SFAS 123 is required for fiscal years beginning after December 15, 1995. The adoption of SFAS 123 is not expected to have a material effect on the Company's future financial statements. (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 $25,022,000 at December 31, 1995. (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 Cost Gains Losses Value December 31, 1995 (In thousands) Investment securities available for sale: Taxable investments: U.S. Treasury securities $ 27,621 161 (7) 27,775 Securities of U.S. government agencies 72,705 214 (97) 72,822 Mortgage-backed and related securities 190,953 927 (852) 191,028 Other investments 9,089 -- (18) 9,071 Tax-exempt investments: Obligations of states and political subdivisions 94,014 1,893 (233) 95,674 $394,382 3,195 (1,207) 396,370 Investment securities held to maturity: Taxable investments: Securities of U.S. government agencies $ 48,595 375 (44) 48,926 Mortgage-backed and related securities 3,653 32 (2) 3,683 Other investments 6,145 25 (4) 6,166 Tax-exempt investments: Obligations of states and political subdivisions 49,689 794 (127) 50,356 $108,082 1,226 (177) 109,131 December 31, 1994 Investment securities available for sale: Taxable investments: U.S. Treasury securities $ 51,198 -- (557) 50,641 Securities of U.S. government agencies 66,848 100 (911) 66,037 Mortgage-backed and related securities 108,491 156 (4,526) 104,121 Other investments 10,890 -- (78) 10,812 Tax-exempt investments: Obligations of states and political subdivisions 119,986 664 (3,052) 117,598 $357,413 920 (9,124) 349,209 Investment securities held to maturity: Taxable investments: Securities of U.S. government agencies $ 9,444 -- (127) 9,317 Mortgage-backed and related securities 35,282 5 (995) 34,292 Other investments 3,087 -- (35) 3,052 Tax-exempt investments: Obligations of states and political subdivisions 46,671 130 (1,178) 45,623 $94,484 135 (2,335) 92,284
Gross gains of $19,000 and gross losses of $22,000 were recorded on sales of investment securities held for sale in 1995, gross gains of $68,000 and gross losses of $408,000 were recorded in 1994, and gross gains of $944,000 and gross losses of $349,000 were recorded in 1993. Other investments at December 31, 1995, and 1994, consisted primarily of corporate bonds. U.S. government agencies originate or guarantee primarily all of the mortgage-backed and related securities. The amortized cost of obligations of states and political subdivisions included industrial development revenue bonds of $7,269,000 and $9,549,000 at December 31, 1995, and 1994, respectively. Under provisions of the Financial Accounting Standards Board Special Report entitled "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," the Company transferred securities with amortized costs of $48,049,000 in December 1995 from held to maturity to available for sale. Unrealized gains related to such securities transferred were $315,000. The scheduled maturities of investment securities at December 31, 1995 follow. Actual maturities may differ from scheduled maturities because issuers may have the right to call obligations without penalties. The maturities of mortgage-backed securities have been included in the period of anticipated payment considering historical prepayment rates.
Estimated Amortized Fair (In thousands) Cost Value Investment securities available for sale: Due in one year or less $108,311 108,259 Due after one year through five years 208,035 208,751 Due after five years through ten years 36,408 37,063 Due after ten years 41,628 42,297 $394,382 396,370 Investment securities held to maturity: Due in one year or less $ 34,851 34,857 Due after one year through five years 39,304 39,441 Due after five years through ten years 25,960 26,441 Due after ten years 7,967 8,392 $108,082 109,131 Investment securities carried at $163,418,000 and $153,405,000 at December 31, 1995 and 1994, respectively, were pledged to secure public and other funds on deposit and for other purposes.
(4) Loans A summary of loans follows:
(In thousands) December 31, 1995 1994 Real estate loans: Commercial construction and land development $ 38,123 26,549 Secured by 1-4 family residential property 319,430 389,713 Other 163,739 143,960 Loans to farmers 68,543 71,853 Commercial and industrial loans 119,368 115,280 Loans to individuals for personal expenditures, net of unearned income of $313 and $751 at December 31, 1995 and 1994, respectively 199,489 221,627 All other loans 1,501 1,232 $910,193 970,214
The Company originates commercial, real estate, agribusiness and personal loans with customers throughout Iowa. The portfolio has unavoidable geographic risk as a result. At December 31, 1995, and 1994, the Company had nonaccrual loans of $2,639,000 and $3,784,000, respectively, and restructured loans of $178,000 and $298,000, respectively. The average balance of nonaccrual and restructured loans for the year ended December 31, 1995 was $3,353,000, and the allowance for loan losses related to these impaired loans was $425,000. Interest income recorded during 1995, 1994 and 1993 on nonaccrual and restructured loans was $136,000, $321,000 and $191,000 respectively. Interest income which would have been recorded if these loans had been current in accordance with original terms was $418,000 in 1995, $537,000 in 1994 and $359,000 in 1993. Loan customers of the Company include certain executive officers, directors and principal shareholders, and their related interests and associates. All loans to this group were made in the ordinary course of business at prevailing terms and conditions. The aggregate indebtedness of all executive officers, directors and principal shareholders of Brenton Banks, Inc. and its significant subsidiaries, and indebtedness of related interests and associates of this group (except where the indebtedness of such persons was less than $60,000) included in loans follows:
(In thousands) Amount Balance at December 31, 1994 $5,334 Additional loans 2,154 Loan payments (589) Balance at December 31, 1995 $6,899
(5) Allowance for Loan Losses A summary of activity in the allowance for loan losses follows:
(In thousands) 1995 1994 1993 Balance at beginning of year $10,913 9,818 9,006 Provision 1,865 1,988 1,252 Recoveries 1,669 1,549 1,091 Loans charged off (3,377) (2,442) (1,531) Balance at end of year $11,070 10,913 9,818
(6) Bank Premises and Equipment A summary of bank premises and equipment follows:
(In thousands) December 31, 1995 1994 Land $ 3,614 3,204 Buildings and leasehold improvements 32,045 24,791 Furniture and equipment 21,756 18,137 Construction in progress 33 2,472 57,448 48,604 Less accumulated depreciation 24,598 21,500 $32,850 27,104
Depreciation expense included in operating expenses amounted to $3,626,000, $2,938,000 and $2,621,000 in 1995, 1994 and 1993,respectively. (7) Deposits Time deposits included deposits in denominations of $100,000 or more of $64,014,000 and $73,349,000 at December 31, 1995, and 1994, respectively. A summary of interest expense by deposit classification follows:
(In thousands) 1995 1994 1993 Demand $11,842 5,418 4,552 Savings 6,638 6,878 7,697 Time deposits of $100,000 or more 4,193 3,110 2,091 Other time deposits 30,402 26,204 27,848 $53,075 41,610 42,188
The Company made cash interest payments of $55,229,000, $46,850,000 and $44,141,000 on deposits and borrowings in 1995, 1994 and 1993, respectively. (8) Income Taxes The current and deferred income tax provisions included in the consolidated statements of operations follow:
1995 (In thousands) Current Deferred Total Federal $2,728 (76) 2,652 State 502 51 553 $3,230 (25) 3,205 1994 Federal $3,037 (1,099) 1,938 State 921 (158) 763 $3,958 (1,257) 2,701 1993 Federal $4,855 (523) 4,332 State 1,184 (8) 1,176 $6,039 (531) 5,508
Since the income tax returns are filed after the issuance of the financial statements, amounts reported are subject to revision based on actual amounts used in the income tax returns. The Company made cash income tax payments of $2,500,000, $2,671,000 and $4,514,000 to the IRS, and $737,000, $1,226,000 and $1,301,000 to the state of Iowa in 1995, 1994 and 1993, respectively. Cash income tax payments for a year include estimated payments for current year income taxes and final payments for prior year income taxes. State income tax expense relates to state franchise taxes payable individually by the subsidiary banks. The reasons for the difference between the amount computed by applying the statutory federal income tax rate of 34 percent in 1995 and 1994 and 35 percent in 1993, and income tax expense follow:
(In thousands) 1995 1994 1993 At statutory rate $ 4,849 4,556 7,149 Increase (reduction): Tax-exempt interest (2,566) (2,768) (2,766) State taxes, net of federal benefit 365 503 764 Nondeductible interest expense to own tax-exempts 431 363 361 Other, net 126 47 -- $ 3,205 2,701 5,508
Accumulated deferred income tax debits are included in other assets in the consolidated statements of condition. There was no valuation allowance at December 31, 1995, or 1994. A summary of the temporary differences resulting in deferred income taxes and the related tax effect of each follows:
(In thousands) 1995 1994 Provision for loan losses $3,985 3,750 Unrealized (gains) losses on assets available for sale (694) 3,191 Restructuring charge -- 970 Depreciation (452) (541) Stock compensation plan 372 418 Real estate mortgage loan points deferred (479) (357) Alternative minimum tax credit carry-forward 442 -- Other, net 272 (125) $3,446 7,306
(9) Other Short-Term Borrowings The Company had short-term borrowings with the Federal Home Loan Bank of Des Moines (FHLB) totaling $2,500,000 and $12,000,000 at December 31, 1995, and 1994, respectively. The average rate on these borrowings at December 31, 1995, was 4.68 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, available line of credit of $2,000,000 which was unused at December 31, 1995. 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:
(In thousands) December 31, 1995 1994 Capital notes, 6.00% to 10.00% Total Parent Company $12,435 12,644 Borrowings from FHLB, average rate of 6.42% at December 31, 1995 25,650 16,150 Mortgage debt, average rate of 7.47% at December 31, 1995 93 100 Other -- 45 $38,178 28,939
Mortgage debt was secured by real property with a carrying value of $115,000 at December 31, 1995. 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, 1995, follow:
Parent (In thousands) Company Consolidated 1996 $ 910 918 1997 1,603 17,762 1998 1,177 10,687 1999 1,736 1,786 2000 1,213 1,216 Thereafter 5,796 5,809 $12,435 38,178
(11) Fair Value of Financial Instruments The estimated fair values of the Company's financial instruments were as follows:
December 31, 1995 December 31, 1994 Recorded Fair Recorded Fair (In thousands) Amount Value Amount Value Financial assets: Cash and due from banks $ 71,159 71,159 58,388 58,388 Interest-bearing deposits with banks 265 265 64 64 Federal funds sold and securities purchased under agreements to resell 37,600 37,600 59,396 59,396 Investment securities 504,452 505,501 443,693 441,493 Loans held for sale 8,707 8,707 2,104 2,104 Loans, net 899,123 910,338 959,301 950,861 Financial liabilities: Deposits $1,361,943 1,367,680 1,340,283 1,341,969 Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings 43,607 43,607 82,704 82,704 Long-term borrowings 38,178 40,610 28,939 28,061 Off-balance-sheet assets (liabilities): Commitments to extend credit $ -- -- -- -- Letters of credit -- (63) -- (42) Interest rate swaps -- (224) -- 51
The recorded amount of cash and due from banks and interest-bearing deposits with banks approximates fair value. The recorded amount of federal funds sold and securities purchased under agreements to resell approximates fair value as a result of the short-term nature of the instruments. The estimated fair value of investment securities has been determined using available quoted market prices for similar securities. The estimated fair value of loans is net of an adjustment for credit risk. For loans with floating interest rates, it is presumed that estimated fair values generally approximate the recorded book balances. Real estate loans secured by 1-4 family residential property were valued using trading prices for similar pools of mortgage-backed securities. Other fixed-rate loans were valued using a present-value discounted cash flow with a discount rate approximating the market for similar assets. Deposit liabilities with no stated maturities have an estimated fair value equal to the recorded balance. Deposits with stated maturities have been valued using a present-value discounted cash flow with a discount rate approximating the current market for similar deposits. The fair-value estimate does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The Company believes the value of these depositor relationships to be significant. The recorded amount of the federal funds purchased, securities sold under agreements to repurchase and short-term borrowings approximates fair value as a result of the short-term nature of these instruments. The estimated fair value of long-term borrowings was determined using a present-value discounted cash flow with a discount rate approximating the current market for similar borrowings. The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements. The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swap agreements at the reporting date. (12) Common Stock Transactions In May 1994, the Company declared a 3-for-2 stock split in the form of a 100 percent stock dividend. This transaction resulted in the issuance of 2,633,895 shares of common stock and the transfer of $13,169,475 from retained earnings to common stock. Net income and cash dividends per share information in the financial statements have been retroactively restated to reflect this transaction. As part of the Company's ongoing stock repurchase plan, in 1995 the Board of Directors authorized additional stock repurchases of $5,000,000 of the Company's common stock. For the years end December 31, 1995, and 1994, the Company repurchased 258,133 and 44,800 shares, respectively, at a total cost of $4,830,111 and $850,950. (13) Dividend Restrictions The Parent Company derives a substantial portion of its cash flow, including that available for dividend payments to stockholders, from the subsidiary banks in the form of dividends received. 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, 1995, were approximately $15 million. (14) Employee Retirement Plan The Company provides a defined contribution retirement plan for the benefit of employees. The plan is a combination profit sharing and 401(k) plan. All employees 21 years of age or older and employed by the Company for at least one year are eligible for the plan. The Company contributes 4 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 1995, 1994 and 1993 amounted to $1,263,000, $1,367,000 and $1,211,000, respectively. The Company offers no material post-retirement benefits. (15) Stock Plans A total of 349,551 shares were granted over the past four years to key management personnel under the Company's long-term stock compensation plan. Under provisions of the plan, no grants will be 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 $425,000, $(102,000) and $683,000 for 1995, 1994 and 1993, respectively and changes in the outstanding grant shares during 1995 were as follows (restated for the May 1994, 3-for-2 stock split in the form of a stock dividend):
Performance 1992 to 1993 to 1994 to 1995 to Period 1994 1995 1996 1997 December 31, 1992 91,493 -- -- -- Granted - 1993 -- 78,644 -- -- December 31, 1993 91,493 78,644 -- -- Granted - 1994 -- -- 90,293 -- Forfeited - 1994 -- (1,989) -- -- December 31, 1994 91,493 76,655 90,293 -- Granted - 1995 -- -- -- 89,121 Forfeited - 1995 -- (8,378) (13,385) (6,625) Expired - 1995 (59,471) -- -- -- Vested - 1995 (32,022) -- -- -- Outstanding grant shares at December 31, 1995 -- 68,277 76,908 82,496
For the performance period 1993 to 1995, 23,897 shares vested and 44,380 shares expired on January 1, 1996. The Company's nonqualified stock option plan permits the Board of Directors to grant options to purchase up to 300,000 shares of the Company's $5 par value common stock. The options may be granted to officers of the Company. The price at which options may be exercised cannot be less than the fair market value of the shares at the date the options are granted. The options are subject to certain vesting requirements and maximum exercise periods, as established by the Board of Directors. Changes in options outstanding and exercisable during 1995, 1994 and 1993 were as follows (restated for the May 1994, 3-for-2 stock split in the form of a stock dividend):
Exercisable Outstanding Option Price Options Options Per Share December 31, 1992 208,200 232,800 $4.42-9.46 Vested - 1993 10,200 -- 6.42-9.46 Exercised - 1993 (48,300) (48,300) 4.42 December 31, 1993 170,100 184,500 4.42-9.46 Granted - 1994 -- 8,400 19.65 Vested - 1994 7,200 -- 8.79-9.46 Exercised - 1994 (36,850) (36,850) 4.42-8.79 December 31, 1994 140,450 156,050 4.42-19.65 Vested - 1995 3,000 -- 8.79-9.46 Exercised - 1995 (19,750) (19,750) 4.42 Forfeited - 1995 -- (12,600) 8.79-19.65 December 31, 1995 (12,600 shares available for grant) 123,700 123,700 $4.42-9.46
The Company's Employee Stock Purchase Plan allows 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 1995, 21,032 shares of common stock were purchased by employees under this plan. (16) Lease Commitments Rental expense included in the consolidated statements of operations amounted to $1,937,000, $1,799,000 and $1,373,000 in 1995, 1994 and 1993, respectively. Future minimum rental commitments for all noncancelable leases with terms of one year or more total approximately $1,200,000 per year through 2000, $500,000 per year through 2005, $200,000 per year through 2010, and $40,000 per year through 2015, with a total commitment of $9,700,000. (17) Commitments and Contingencies In the normal course of business, the Company is party to financial instruments necessary to meet the financing needs of customers, which are not reflected on the consolidated statements of condition. These financial instruments include commitments to extend credit, standby letters of credit and interest rate swaps. The Company's risk exposure in the event of nonperformance by the other parties to these financial instruments is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does in making loans. Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates and may require payment of a fee. Based upon management's credit assessment of the customer, collateral may be obtained. The type and amount of collateral varies, but may include real estate under construction, property, equipment and other business assets. In many cases, commitments expire without being drawn upon, so the total amount of commitments does not necessarily represent future liquidity requirements. At December 31, 1995, the Company had outstanding commitments to extend credit of $166 million. Standby letters of credit are conditional commitments issued by the Company guaranteeing the financial performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans. At December 31, 1995, there were $20,513,000 of standby letters of credit outstanding. The Company does not anticipate losses as a result of issuing commitments to extend credit or standby letters of credit. The Company has entered into two interest rate swap agreements with a notional value of $10,960,000 at December 31, 1995, involving the exchange of a fixed for a floating rate interest payment stream. 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 1998. Brenton Savings Bank, FSB converted from a mutual savings and loan association to a federal stock savings bank in 1990, at which time a $4 million liquidation account was established. Each eligible savings account holder, who had maintained a deposit account since the conversion, would be entitled to a distribution if the savings bank were completely liquidated. This distribution to savers would have priority over distribution to the Parent Company. The Company does not anticipate such a liquidation. During 1995, the Company amended the data processing agreement with ALLTEL Financial Information Services, Inc. (ALLTEL), formerly Systematics, Inc., whereby ALLTEL manages and operates the Company's data processing facility. The contract involves fixed payments of $2,250,000 in 1996 and $2,400,000 in 1997 through 2001 and $1,200,000 in 2002. These fixed payments will be adjusted for inflation and volume fluctuations. Congress is considering proposed legislation to recapitalize the Savings Association Insurance Fund (SAIF). This proposed legislation would assess a one-time premium on all SAIF deposits and would be expensed when and if legislation is passed. The Company has approximately $225 million of SAIF deposits. 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. (18) Restructuring Charge During the fourth quarter of 1994, the Company finalized plans for a strategic restructuring program. This plan resulted in a special charge of $2.6 million ($1.7 million after tax or $.21 per share), in 1994. A summary of the estimated costs expensed in 1994 and the actual costs incurred in 1995 follows:
1994 Estimated 1995 Actual Costs Costs Salaries and wages $1,089,000 $ 565,263 Employee benefits 289,000 83,409 Occupancy expense 192,000 -- Data processing expense 527,500 389,432 Abandonment losses 267,000 164,945 Legal, regulatory and other 280,500 409,085 $2,645,000 $1,612,134
The difference between the estimated costs recorded in 1994 and the actual costs incurred was credited or charged to the above expense categories in the fourth quarter of 1995. (19) Brenton Banks, Inc. (Parent Company) Condensed Financial Information Statements of Condition
December 31 (In thousands) 1995 1994 Assets Cash and deposits $ 128 34 Short-term investments 7,500 8,500 Advances to bank subsidiaries 165 720 Investments in: Bank subsidiaries 119,325 109,012 Bank-related subsidiaries 43 332 Excess cost over net assets 1,900 1,974 Premises and equipment 1,375 1,020 Other assets 3,138 3,235 $133,574 124,827 Liabilities and Stockholders' Equity Accrued expenses payable and other liabilities $ 1,605 1,753 Long-term borrowings 12,435 12,644 Common stockholders' equity 119,534 110,430 $133,574 124,827
Statements of Operations
Years Ended December 31 (In thousands) 1995 1994 1993 Income Dividends from subsidiaries $ 8,997 11,691 8,150 Interest income 442 317 84 Management fees 1,634 1,222 1,580 Other operating income 2,644 2,128 1,881 13,717 15,358 11,695 Expense Salaries and benefits 4,021 3,466 3,976 Interest on long-term borrowings 1,046 1,044 1,108 Other operating expense 2,006 2,263 1,998 7,073 6,773 7,082 Income before income taxes and equity in undistributed earnings of subsidiaries 6,644 8,585 4,613 Income taxes (759) (1,083) (1,175) Income before equity in undistributed earnings of subsidiaries 7,403 9,668 5,788 Equity in undistributed earnings of subsidiaries 3,004 439 8,462 Net income $10,407 10,107 14,250
(19) Brenton Banks, Inc. (Parent Company) Condensed Financial Information Statements of Cash Flows
Years Ended December 31 (In thousands) 1995 1994 1993 Operating Activities Net income $10,407 10,107 14,250 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (3,004) (439) (8,462) Depreciation and amortization 230 230 188 (Increase) decrease in other assets 49 (370) (1,154) Increase (decrease) in accrued expenses payable and other liabilities (148) (373) 641 Net cash provided by operating activities 7,534 9,155 5,463 Investing Activities (Increase) decrease in short-term investments 1,000 (5,000) (3,500) Redemption (purchase) of subsidiary equity, net 156 (200) 886 Advances to subsidiaries (97) (270) (400) Purchase of premises and equipment, net (512) (648) (119) Net cash provided (used) by investing activities 547 (6,118) (3,133) Financing Activities Net proceeds (repayment) of long-term borrowings (209) 622 (74) Proceeds from issuance of common stock under the long-term stock compensation plan 362 -- -- Proceeds from issuance of common stock under the stock option plan 188 386 822 Payment for shares acquired under common stock repurchase plan (4,830) (851) -- Payment for fractional shares in 3-for-2 stock split -- (4) -- Dividends on common stock (3,498) (3,472) (3,138) Net cash provided (used) by financing activities (7,987) (3,319) (2,390) Net increase (decrease) in cash and interest-bearing deposits 94 (282) (60) Cash and interest-bearing deposits at the beginning of the year 34 316 376 Cash and interest-bearing deposits at the end of the year $ 128 34 316
(20) Unaudited Quarterly Financial Information The following is a summary of unaudited quarterly financial information. (In thousands, except per common and common equivalent share data)
1995 Three months ended March 31 June 30 Sept. 30 Dec. 31* Interest income $26,611 27,852 28,442 28,135 Interest expense 13,597 14,807 14,670 14,634 Net interest income 13,014 13,045 13,772 13,501 Provision for loan losses 460 459 486 460 Net interest income after provision for loan losses 12,554 12,586 13,286 13,041 Noninterest income 4,271 4,499 4,379 4,697 Noninterest expense 13,681 13,736 13,402 14,232 Income before income taxes and minority interest 3,144 3,349 4,263 3,506 Income taxes 573 661 1,143 828 Minority interest 121 124 122 283 Net income $ 2,450 2,564 2,998 2,395 Per common and common equivalent share: Net income $ .31 .33 .39 .31
1994 Three months ended March 31 June 30 Sept. 30 Dec. 31* Interest income $23,857 24,867 25,682 26,817 Interest expense 10,427 10,815 11,610 12,920 Net interest income 13,430 14,052 14,072 13,897 Provision for loan losses 404 426 440 718 Net interest income after provision for loan losses 13,026 13,626 13,632 13,179 Noninterest income 4,406 4,185 3,958 4,043 Noninterest expense 13,515 13,502 13,677 15,963 Income before income taxes and minority interest 3,917 4,309 3,913 1,259 Income taxes 888 1,055 958 (201) Minority interest 136 147 146 162 Net income $ 2,893 3,107 2,809 1,298 Per common and common equivalent share: Net income $ .37 .39 .35 .16 *See footnote 18 regarding the restructure charge.
Management's Report The management of Brenton Banks, Inc. is responsible for the content of the consolidated financial statements and other information included in this annual report. Management believes that the consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the consolidated financial statements, management has made judgments and estimates of the expected effects of events and transactions that are accounted for or disclosed. Management of the Company believes in the importance of maintaining a strong internal accounting control system, which is designed to provide reasonable assurance that assets are safeguarded and transactions are appropriately authorized. The Company maintains a staff of qualified internal auditors who perform periodic reviews of the internal accounting control system. Management believes that the internal accounting control system provides reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or detected and corrected on a timely basis. The Board of Directors has established an Audit Committee to assist in assuring the maintenance of a strong internal accounting control system. The Audit Committee meets periodically with management, the internal auditors and the independent auditors to discuss the internal accounting control system and the related internal and external audit efforts. The internal auditors and the independent auditors have free access to the Audit Committee without management present. There were no matters considered to be reportable conditions under Statement of Auditing Standards No. 60 by the independent auditors. The consolidated financial statements of Brenton Banks, Inc. and subsidiaries are examined by independent auditors. Their role is to render an opinion on the fairness of the consolidated financial statements based upon audit procedures they consider necessary in the circumstances. Brenton Banks, Inc. /s/ Robert L. DeMeulenaere President /s/ Steven T. Schuler Chief Financial Officer/Treasurer/Secretary Independent Auditor's Report The Board of Directors and Shareholders of Brenton Banks, Inc.: We have audited the accompanying consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1995, and 1994, 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, 1995. 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, 1995, and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Des Moines, Iowa February 9, 1996 Stock Information Brenton Banks, Inc. common stock is traded on the NASDAQ National Market and quotations are furnished by the NASDAQ System. There were 1,605 common stockholders of record on December 31, 1995.
Market and Dividend Information 1995 High Low Dividends 1st quarter $18 3\4 17 3\4 .11 2nd quarter 19 17 3\4 .11 3rd quarter 20 1\2 17 7\8 .11 4th quarter 22 3\4 19 1\4 .12
1994 High Low Dividends 1st quarter $18 3\8 17 1\2 .11 2nd quarter 20 17 5\8 .11 3rd quarter 20 1\2 19 .11 4th quarter 19 1\2 17 1\2 .11
The above table sets forth the high and low sales prices and cash dividends per share for the Company's common stock, after the effect of the May 1994, 3-for-2 stock split in the form of a stock dividend. The market quotations, reported by NASDAQ, represent prices between dealers and do not include retail markup, markdown or commissions. NASDAQ Symbol: BRBK Wall Street Journal and Other Newspapers: BrentB Market Makers The Chicago Corporation Herzog, Heine, Geduld, Inc. Howe, Barnes Investments, Inc. Keefe, Bruyette & Woods, Inc. Principal Financial Securities S.J. Wolfe & Co. 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. Stockholder Information Corporate Headquarters Suite 300, Capital Square 400 Locust Street Des Moines, Iowa 50309 Telephone 515/237-5100 Annual Shareholders' Meeting May 8, 1996, 5:00 p.m. Des Moines Convention Center 501 Grand Avenue Des Moines, Iowa 50309 Transfer Agent/Registrar/ Dividend Disbursing Agent Harris Trust and Savings Bank 311 West Monroe Street Chicago, Illinois 60690 Legal Counsel Brown, Winick, Graves, Gross, Baskerville, Schoenebaum and Walker, 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 Design: Designgroup, Inc. Photography: Scott Sinklier Corporate Structure BRENTON BANKS, INC. BOARD OF DIRECTORS C. Robert Brenton Chairman of the Board Brenton Banks, Inc. William H. Brenton Past Chairman (21 Years) Past Chairman, Executive Committee (5 Years) Past President (5 Years) Brenton Banks, Inc. J.C. Brenton Past President Brenton Banks, Inc. Gary M. Christensen President & CEO Pella Corporation Robert L. DeMeulenaere President Brenton Banks, Inc. R. Dean Duben Vice Chairman of the Board 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 Steven T. Schuler Chief Financial Officer/Treasurer/Secretary BRENTON BANK SENIOR OFFICERS AND LINE OF BUSINESS MANAGERS C. Robert Brenton Chairman of the Board Robert L. DeMeulenaere President Larry A. Mindrup Chief Banking Officer President, Des Moines Woodward G. Brenton Chief Commercial Banking Officer President, Davenport Charles N. Funk Chief Investment/ALCO Officer Ronald D. Larson Regional President Eastern Iowa Division President, Cedar Rapids Marc J. Meyer Regional President Agricultural Division President, Perry Phillip L. Risley Chief Administrative Officer Cashier Steven T. Schuler Chief Financial Officer/Treasurer/Secretary Norman D. Schuneman Chief Credit Officer John H. Anderson Chief Operating Officer, Davenport Michael A. Cruzen President, Knoxville 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 Michael D. Hunter President, Jefferson V. Blaine Lenz President, Eagle Grove James L. Lowrance President, Marshalltown Clay A. Miller President, Clarion Daryl K. Petty President, Adel Clark H. Raney President, Indianola Roger D. Winterhof President, Grinnell John R. Amatangelo President, Operations and Technology Division Kenneth R. Brenton President, Brenton Mortgages Gary D. Ernst President, Trust Division Marsha A. Findlay Senior Vice President, Des Moines Senior Retail Banking Officer Douglas F. Lenehan President, Diversified Commercial Services Division Loras J. Neuroth President, Brenton Insurance Elizabeth M. Piper/Bach President, Brokerage Catherine Reed Senior Marketing Officer Board Of Directors - One Bank Pictures (three pictures showing Bank Directors): Robert L. DeMeulenaere, President Brenton Banks, Inc., Des Moines John Kibbie, Farmer and State Senator Emmetsburg James L. Daubendiek, President Jefferson Telephone Co., Jefferson Ron Swanson, Farmer Clarion Dr. Beverly Nelson, Executive Vice President Valley Community College and State Representative, Marshalltown Richard J. Oggero, Chairman Weitz Co., Inc., Des Moines Paul Buchanan, Co-owner Weise Corp., Perry James E. Van Werden, Attorney Adel Gayle Nelson Vogel, Attorney Knoxville C. Robert Brenton, Chairman Brenton Banks, Inc., Des Moines William H. Brenton, Director Brenton Banks, Inc., Des Moines Arlen Schrum, CPA Schull & Co., Indianola Bruce G. Kelly, Chief Executive Officer Employers Mutual Co., Des Moines Douglas Pyle, CPA Partner D. D. Pyle Co., Ames Not Pictured: James Altorfer, President Altorfer Machinery, Cedar Rapids Charles A. Ruhl, Jr., Executive Vice President Ruhl & Ruhl Realtors, Davenport Front of the back cover - blue background with picture depicting State of Iowa and the locations of bank offices within Iowa. Brenton Bank Locations - Iowa Adel Dexter Albion Eagle Grove Ames, 424 Main Street Emmetsburg Ames, North Grand Mall Granger Ankeny Grinnell Ayrshire Indianola Cedar Rapids, 150 First Avenue, NE Iowa City Cedar Rapids, 31010 Williams Blvd., SW Jefferson Cedar Rapids, 1800 51st Street, NE Johnston Cedar Rapids, 2300 Edgewood Road, SW Knoxville Clarion Mallard Clive, 10101 University Marion Clive, 13631 University Marshalltown, 102 South Center Dallas Center Marshalltown, 1724 South Center Davenport, 1606 Brady Perry Davenport, Village Shopping Center Redfield Davenport, West Third and Division Rowan Davenport, 53rd and Utica Ridge Story City Des Moines, 400 Locust Street Urbandale Des Moines, 29th & Ingersoll Van Meter Des Moines, 2805 Beaver Waukee Des Moines, S.W. 9th and McKinley Woodward Des Moines, 4303 Fleur Back cover - black background with the words: Brenton Banks, Inc. Suite 300, Capital Square 400 Locust Street Des Moines, Iowwa 50309 Telephone 515/237-5100 Appendix to Annual Report Referencing Graphic and Image Material All graphic and image material has been described in text of the annual report. Set forth below is a listing of such material. 1. Cover - first unnumbered page of the Annual Report. 2. Bar graphs, second page of the Annual Report, showing Net Income Per Common Share from 1991-1995; Dividends Per Common Share from 1991-1995; and Total Assets (in millions) from 1991-1995. 3. Photograph on page 3 of the Annual Report. 4. Photograph on page 4 of the Annual Report. 5. Text, centered on page, on page 5 of the Annual Report. 6. Photograph on page 7 of the Annual Report. 7. Text, centered on page, on page 8 of the Annual Report. 8. Text, centered on page, on page 9 of the Annual Report. 9. Text, centered on page, on page 10 of the Annual Report. 10. Photograph on page 11 of the Annual Report. 11. Bar graph showing Primary Capital Ratio and Tier 1 Leverage Capital Ratio expressed as percentages from 1991-1995, on page 12 of the Annual Report, and Net Interest Margin for 1991-1995. 12. Bar graph showing the Return on Average Assets and Return on Average Equity from 1991-1995, both expressed in terms of a percentage, on page 14 of the Annual Report. 13. Bar graph showing the Nonperforming Loans (in thousands) and Net Noninterest Margin from 1991-1995, on page 17 of the Annual Report. 14. Three photographs on page 38 of the Annual Report. 15. Map on page 39 of the Annual Report. EX-21 37 Exhibit 21 Subsidiaries. 150 Subsidiaries The subsidiaries of Brenton Banks, Inc., their location, the jurisdiction in which they are incorporated or organized, and the names under which subsidiaries do business are: Name Under which Subsidiary Jurisdiction in Does Business and Location which Incorporated or of Subsidiary Organized Banks Brenton Savings Bank, FSB United States Ames, Iowa Brenton Bank Iowa Des Moines, Iowa Non-Bank Subsidiaries Brenton Brokerage Services, Inc. Iowa Des Moines, Iowa Brenton Insurance Services, Inc. Iowa Des Moines, Iowa Brenton Mortgages, Inc. Iowa Des Moines, Iowa Brenton Insurance Inc. Iowa Marshalltown, Iowa Brenton Independent Insurance Iowa Services of Tama County, Inc. Toledo, Iowa Brenton Realty Services, Ltd. Iowa Marshalltown, Iowa 151 EX-23 38 Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated February 9, 1996, relating to certain consolidated statements of condition of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. 152 AUDITORS' CONSENT The Board of Directors Brenton Banks, Inc.: We consent to incorporation by reference in the Registration Statement on Form S-8 of Brenton Banks, Inc. of our report dated February 9, 1996, relating to the consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1995 and 1994 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, 1995 which report appears in the December 31, 1995 annual report on Form 10-K of Brenton Banks, Inc. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Des Moines, Iowa March 25, 1996 153 EX-27 39
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1 YEAR DEC-31-1995 DEC-31-1995 71,159 265,000 37,600,000 0 396,370,000 108,082,000 109,131,000 918,901,000 11,070,000 1,582,779,000 1,361,943,000 43,607,000 19,518,000 38,178,000 38,266,000 0 0 81,267,000 1,582,779,000 82,526,000 26,184,000 2,330,000 111,040,000 53,075,000 4,633,000 53,332,000 1,865,000 (3,000) 55,702,000 13,612,000 13,612,000 0 0 10,407,000 1.34 1.34 7.64 2,639,000 2,802,000 178,000 5,619,000 10,913,000 3,377,000 1,669,000 11,070,000 11,070,000 0 0
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