-----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, W1lJzqYQsMWgC+NZEPzsejMz4SUeZPdZ39mwi4pIQfWKH9Xy/METoOGDbEOjfyoq J15ESC7tq6b+5poPRaWDxA== 0000916131-99-000010.txt : 19990505 0000916131-99-000010.hdr.sgml : 19990505 ACCESSION NUMBER: 0000916131-99-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 40 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRENTON BANKS INC CENTRAL INDEX KEY: 0000014060 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 420658989 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-06216 FILM NUMBER: 99579494 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 UNITED STATES 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 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _____________________ Commission file number 0-6216 BRENTON BANKS, INC. (Exact name of registrant as specified in its charter) Incorporated in Iowa No. 42-0658989 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Suite 200, 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, $2.50 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 [ ]. The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 8, 1999, was $163,219,238. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date, March 8, 1999. 18,730,840 shares Common Stock, $2.50 par value DOCUMENTS INCORPORATED BY REFERENCE The Appendix to the Proxy Statement for the 1998 calendar year is incorporated by reference into Part I, Part II and Part IV 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, 1998, is incorporated by reference into Part III hereof to the extent indicated in such Part. 1 of 242 Total Pages 2 TABLE OF CONTENTS PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (A) General Description . . . . . . . . . . . . . . . . . . . . 5 (B) Recent Developments . . . . . . . . . . . . . . . . . . . . 6 (C) Affiliated Banks . . . . . . . . . . . . . . . . . . . . . 7 (D) Bank-Related Subsidiaries and Affiliates . . . . . . . . . 7 (E) Executive Officers and Policymakers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 7 (F) Employees . . . . . . . . . . . . . . . . . . . . . . . . . 9 (G) Supervision and Regulation . . . . . . . . . . . . . . . . 9 (H) Governmental Monetary Policy and Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . 10 (I) Competition . . . . . . . . . . . . . . . . . . . . . . . . 10 (J) Statistical Disclosure . . . . . . . . . . . . . . . . . . 12 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 25 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 25 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . 26 3 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . 26 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 26 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . 26 Item 13. Certain Relationships and Related Transactions . . . . . . . . . 26 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, 1998, the Parent Company had direct control of 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. Both of the affiliated banks are members of the Federal Deposit Insurance Corporation. Brenton Banks, Inc. and its subsidiaries (the "Company") engage in retail, commercial, business and agricultural banking and related financial services from 47 locations throughout Iowa. In connection with this banking industry segment, the Company provides the usual products and services of banking such as deposits, commercial loans, business loans, agribusiness loans, personal loans, cash management services, international banking services, investment management and trust services. The principal services provided by the Company are accepting deposits and making loans. The significant loan categories are commercial, business, commercial real estate, agribusiness and personal. Commercial and business loans are made to business enterprises principally to finance inventory, operations or other assets at terms generally up to 5 years. The principal risk involves the customers' management skills and general economic conditions. Commercial real estate mortgage loans are routinely made for terms up to 20 years for real property used in a borrower's business. Repayment primarily depends upon the financial performance and the cash flow of the business enterprise. Declines in commercial real estate values could ultimately affect the collectibility of these types of loans. Agribusiness loans are made to farmers for financing crop inputs, equipment, livestock and real property used in farming activities. Agribusiness loans are also made to businesses related to or that support the production and sale of agricultural products. Weather conditions and government policies have major influences on agricultural financial performance and ultimately the borrower's ability to repay loans. Personal loans are made to individuals primarily on a secured basis to finance such items as residential mortgages, home improvements, personal property, education and vehicles. Unsecured personal loans are made on a limited basis. The individual's credit worthiness and economic conditions affecting the job market are the primary risks associated with personal loans. Personal loans generally do not exceed 5 years. For all loan types, the primary criteria used in determining whether to make a loan is the borrower's ability to repay, which is based upon a cash flow analysis, and willingness to pay supported by a historical review of credit performance. The principal markets for these loans are businesses and individuals in Iowa. Iowa has two primary regional market segments. One market consists of selected metropolitan areas across the state, which includes service and manufacturing industries. The other market involves rural areas which are predominately agricultural in nature. These loans are made by the affiliated banks, and some are sold on the secondary market. The Company also engages in activities that are closely related to banking, including mortgage banking, investment, insurance and real estate brokerage. 5 (B) Recent Developments. Director Retirements. After many years of distinguished service, R. Dean Duben and Hubert G. Ferguson retired from the Board of Directors in May 1998. New Directors. In January 1998, the Board of Directors increased the number of directors by one and named Robert J. Currey to fill the position. Mr. Currey is the President of 21st Century Telecom Group, Inc. in Chicago, Illinois. Mr. Currey has no prior relationship or affiliation with the Company. In September 1998, the Board of Directors increased the number of directors from six to seven and named Robert C. Carr to fill the position. Mr. Carr is Vice President of Amoco Corporation in Chicago, Illinois. Mr. Carr has no prior relationship or affiliation with the Company. Stock Split. In January 1998, the Board of Directors declared a 2-for- 1 stock split for stockholders of record as of February 10, 1998, payable February 20, 1998. As a result, the par value of the Company's common stock was reduced from $5.00 to $2.50 per share and authorized shares were increased to 50 million. Common Stock Dividends. On May 21, 1998, the Board of Directors declared a ten percent common stock dividend to stockholders of record on June 1, 1998. On May 6, 1997, the Board of Directors declared a ten percent common stock dividend to stockholders of record on May 15, 1997. Fractional shares resulting from both stock dividends were paid in cash. Stock Option Plan. On September 5, 1996, a special meeting of stockholders was held to approve the Brenton Banks, Inc. 1996 Stock Option Plan (the "Plan"). The Plan, which was approved, authorizes the granting of options on up to 1,331,000 shares (all share and per-share data have been restated for the 2-for-1 stock split and the ten percent common stock dividends) of the Company's common stock to key employees of the Company. The price at which options may be exercised cannot be less than the fair market value of the shares at the date the options are granted. The options are subject to certain performance vesting requirements and maximum exercise periods, as established by the Compensation Committee of the Board of Directors. In accordance with the performance vesting schedule, 33 percent of outstanding options have vested based upon cumulative net income for the period January 1, 1996, through December 31, 1998. During 1998, 1997 and 1996, 1,301,470 options have been granted and are outstanding under the Plan to 67 current employees of the Company with option prices ranging from $9.157 to $20.688 per share. Common Stock Repurchase Plan. As part of the Company's ongoing capital management and stock repurchase plan, in 1998 the Board of Directors authorized additional stock repurchases of $10,000,000 of the Company's common stock. For the years ended December 31, 1998, 1997 and 1996, the Company repurchased 512,650, 805,904 and 915,365 shares (restated for the 2- for-1 stock split and 10 percent common stock dividends), respectively, at total costs of $10,000,900, $10,014,087 and $8,248,331. Growth and Acquisitions. As part of management's strategic growth plans, Brenton Banks, Inc. investigates growth and expansion opportunities which would strengthen the Company's presence in current or selected new market areas. The Company continues expansion of its traditional and non- traditional products and services. In December 1998, the Company opened a branch office in a convenience store in Ames, Iowa, thus increasing the number of service locations to 47. Year 2000. The information appearing on pages 9 and 10 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. Sales Culture. In the past three years the Company has intensified its company-wide commitment to making Brenton a proactive sales organization. The Company has also emphasized promoting partnering across business units to better serve our clients' total financial needs. The objective is to provide tools to Brenton bankers to enable them to take a proactive role in understanding their clients' 6 needs and goals and then to develop custom-tailored financial strategies and solutions. The desired results are to strengthen existing and new relationships with clients across Iowa and to provide them with lifetime financial solutions. (C) Affiliated Banks. The two affiliated banks had 43 banking locations at December 31, 1998, located in 11 of Iowa's 99 counties. These banks serve both metropolitan and agricultural areas. The location and certain other information about the affiliated banks are given below. The main office of Brenton Bank is located in Des Moines, Iowa. Des Moines is the largest city in Iowa. In addition to its main banking location, Brenton Bank has 38 offices located throughout Iowa and provides services to clients in numerous counties across the state. Brenton Savings Bank, FSB is located in Ames, Iowa, and has offices in Ames and Story City. The savings bank primarily serves clients in Story County. (D) Bank-Related Subsidiaries and Affiliates. Brenton Investments, Inc., a wholly-owned subsidiary of Brenton Bank, provides a full array of retail investment brokerage products and services to clients. The company is not involved with the direct issuance, flotation or underwriting of securities. At December 31, 1998, this subsidiary had 33 licensed brokers serving all Brenton banking locations. Brenton Mortgages, Inc., a wholly-owned subsidiary of Brenton Savings Bank, FSB, engages in the mortgage banking business. This subsidiary originates and services mortgage loans sold to institutional investors and the mortgage loan portfolios of the affiliated banks. Brenton Realty Services, Ltd. and Brenton Insurance, Inc. are wholly- owned subsidiaries of Brenton Bank. Brenton Realty Services, Ltd. operates two real estate brokerage agencies. Brenton Insurance, Inc. provides individual and group life, annuity, health, fire, crop, homeowner's, automobile and liability insurance products to Brenton clients. Brenton Insurance Services, Inc., a wholly-owned subsidiary of the Parent Company, is currently inactive. (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 8, 1999, the primary 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 68 Chairman of the Board 1990 Chairman, Brenton Bank - Des Moines, Iowa Brenton Banks, Inc. October 1995 to November 1997
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Company Position Name and Address Age Position or Subsidiary Commenced Other Positions ________________ ___ ______________________ _________ _______________ Robert L. DeMeulenaere 59 President and Chief 1994 President, Brenton Bank - January 1994 to Des Moines, Iowa Executive Officer November 1997; President/Treasurer, Brenton Brenton Banks, Inc. Mortgages, Inc. - August 1989 to July 1994; Chairman and Chief 1997 CEO, Brenton Bank and Trust Company of Executive Officer Cedar Rapids - August 1990 to January 1994; Brenton Bank Senior Vice President of the Parent Company - August 1990 to January 1994 Larry A. Mindrup 57 President 1997 CEO, Brenton Savings Bank, FSB; Ames - April Des Moines, Iowa Chief Banking Officer 1995 1994 to March 1996; President, Brenton Bank, 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 Phillip L. Risley 56 Executive Vice President/ 1997 Executive Vice President of the Parent Des Moines, Iowa Chief Administrative 1995 Company - January 1992 to December 1995; Officer/ President and CEO, Brenton Bank, N.A., Brenton Bank Des Moines - February 1990 to May 1995; Chairman of the Board, Brenton Bank Services Corporation - May 1992 to September 1995 Steven T. Schuler 47 Chief Financial Officer/ 1990 Executive Vice President, Brenton Bank Des Moines, Iowa Treasurer/Secretary 1986 Services Corporation - May 1992 to Brenton Banks, Inc. and September 1995 Brenton Bank Perry C. Atwood 44 Chief Sales Officer 1996 Des Moines, Iowa Brenton Bank Elizabeth M. Piper/Bach 46 Chief Financial Services 1997 Des Moines, Iowa Officer Brenton Bank President 1995 Brenton Investments, Inc. Woodward G. Brenton 48 Chief Commercial 1995 President and CEO, Brenton First National Des Moines, Iowa Banking Officer Bank - January 1992 to October 1995 Brenton Bank Charles N. Funk 44 Regional President 1997 Chief Investment/ALCO Officer - October 1995 Des Moines, Iowa President, Des Moines 1997 to September 1997; Vice President - Brenton Bank Investments, Brenton Banks, Inc. - December 1991 to October 1995 Norman D. Schuneman 56 Chief Credit Officer 1995 Senior Vice President - Lending of the Des Moines, Iowa Brenton Bank Parent Company - January 1990 to December 1995; Executive Vice President, Brenton Bank, N.A., Des Moines - July 1985 to October 1995 All of the foregoing individuals have been employed by the Company for the past five years, except for Perry C. Atwood, who was Senior Vice President at Valley National Bank (merged with Bank One) in Phoenix, Arizona from January 1992 to April 1996 and also held positions of Director of Business Banking, Director of Sales and Regional Manager during that time period; and 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.
8 (F) Employees. On December 31, 1998, the Company had 661 full-time employees and 157 part-time employees. On December 31, 1998, the Parent Company had five 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 Company cannot predict what other legislation may be enacted or what regulations may be adopted, or, if enacted or adopted, the effect thereof. 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 percent of the voting shares of any company that 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 which permits the OTS to restrict or prohibit activities that are determined to be a serious 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 bank-related 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-chartered 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 its 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. 9 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. The savings bank is required to maintain certain minimum capital ratios established by the OTS and must meet a qualified thrift lender test (the "QTL") to avoid certain restrictions upon its operations. On December 31, 1998, 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. During 1994, the "Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Banking Act") was enacted. This law amended 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 Interstate Banking Act seeks to provide a uniform interstate banking law for all 50 states. The provisions of the law allow states to impose certain "non-discriminatory" conditions upon interstate mergers, including limits on the concentration of deposits. According to Iowa's banking law, Iowa-based banks and bank holding companies can acquire banks and bank holding companies located in other states. Iowa law prohibits a bank holding company or bank controlled by a bank holding company from acquiring additional Iowa-based banks or bank holding companies if the total deposits in Iowa of such bank holding company and its affiliates would exceed 10 percent of the total deposits of all banks and thrifts in the state. 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. (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 services companies 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 banking companies, 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. As of June 30, 1998, Brenton Banks, Inc.'s affiliated banks held approximately 3.3% of total Iowa bank and thrift deposits. There are seven other multi-bank holding companies that operate banks in Iowa, but are domiciled in other states. During 1998, the five largest of these holding companies changed ownership and/or names. The Iowa deposits of five of these holding companies are of similar size or greater when compared to Brenton 10 Banks, Inc. The Company considers the ownership/name changes of these out- of-state holding companies to be a competitive advantage to the Company. 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 expanded the mortgage banking business in the past few years by increasing the number of mortgage loan originators and by expanding the number of locations where mortgage banking services are offered. The volume of loan closings in 1998 increased over 180 percent compared to 1997. The Company has also expanded the investment brokerage business in the last several years, placing brokers in many Brenton bank locations as well as individual brokerage offices. The Brenton brokers compete with brokers from regional and national investment brokerage firms as well as internet trading services. 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 earned and average rates paid for each of the three years ending December 31:
1998 (dollars in thousands) ___________________________________________ Interest Average Average Income or Yields or Balance Expense Rates _______ _________ _________ Assets: Interest-earning assets: Interest-bearing deposits with banks $ 3,706 $ 176 4.74% Federal funds sold and securities purchased under agreements to resell 31,048 1,659 5.35 Trading account securitites --- --- --- Investment securities available for sale: Taxable investments: United States Treasury securities 40,898 2,319 5.67 Securities of United States government agencies 97,770 5,955 6.09 Mortgage-backed and related securities 236,280 14,545 6.16 Other investments 15,643 952 6.09 Tax-exempt investments: Obligations of states and political subdivisions(2) 125,237 8,382 6.69 Investment securities held to maturity: Taxable investments: Securities of United States government agencies 1,402 89 6.33 Mortgage-backed and related securities 1,869 140 7.48 Other investments 727 48 6.68 Tax-exempt investments: Obligations of states and political subdivisions(2) 53,130 3,623 6.82 Loans held for sale 37,841 2,690 7.11 Loans (1,2) 999,232 87,339 8.74 _________ _______ ____ Total interest-earning assets (2) 1,644,783 $127,917 7.78% _______ ____ Allowance for loan losses (13,738) Cash and due from banks 65,874 Premises and equipment 31,883 Other assets 51,318 _________ Total assets $1,780,120 _________ Liabilities and stockholders' equity: Interest-bearing liabilities: Interest-bearing deposits: Demand $ 90,589 $ 2,800 3.09% Savings 585,598 17,429 2.98 Time 556,056 30,543 5.49 Federal funds purchased and securities sold under agreements to repurchase 116,388 5,092 4.38 Other short-term borrowings 65,205 3,757 5.76 Long-term borrowings 47,605 3,017 6.34 _________ _______ ____ Total interest-bearing liabilities 1,461,441 $ 62,638 4.29% _______ ____ Noninterest-bearing deposits 164,403 Accrued expenses and other liabilities 17,020 _________ Total liabilities 1,642,864 Minority interest 4,834 Common stockholders' equity 132,422 _________ Total liabilities and stockholders' equity $1,780,120 _________ Net interest spread (2) 3.49% ____ Net interest income/margin (2) $ 65,279 3.97% _______ ____ (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 federal income tax rate of 35 percent 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.
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1997 1996 ___________________________________________ ___________________________________ Interest Average Interest Average Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates _______ _________ _________ _______ _________ _________ $ 2,460 $ 118 4.80% $ 1,393 $ 68 4.87% 31,472 1,742 5.54 26,188 1,417 5.41 12 1 4.26 --- --- --- 45,459 2,748 6.05 36,582 2,109 5.76 71,958 4,555 6.33 77,436 4,606 5.95 217,817 13,835 6.35 207,029 12,780 6.17 12,998 832 6.40 8,955 568 6.34 99,868 7,035 7.04 85,471 6,097 7.13 7,925 485 6.11 38,596 2,362 6.12 2,594 191 7.36 3,509 261 7.45 2,181 136 6.25 4,166 255 6.12 56,204 3,777 6.72 51,639 3,449 6.68 10,284 811 7.89 7,983 676 8.47 970,115 85,540 8.82 919,578 79,921 8.69 _________ _______ ____ _________ _______ ____ 1,531,347 $121,806 7.95% 1,468,525 $114,569 7.80% _______ ____ _______ ____ (12,171) (11,440) 58,681 65,439 29,841 31,728 41,771 28,642 _________ _________ $1,649,469 $1,582,894 _________ _________ $ 81,430 $ 2,332 2.86% $ 376,259 $ 11,194 2.98% 551,509 15,903 2.88 241,250 6,134 2.54 567,258 31,075 5.48 583,508 32,179 5.51 78,234 3,413 4.36 59,276 2,470 4.17 53,223 3,183 5.98 17,294 1,015 5.87 32,056 2,199 6.86 33,094 2,339 7.07 _________ _______ ____ _________ _______ ____ 1,363,710 $ 58,105 4.26% 1,310,681 $ 55,331 4.22% _______ ____ _______ ____ 139,480 131,051 17,097 17,521 _________ _________ 1,520,287 1,459,253 4,691 4,471 124,491 119,170 _________ _________ 1,649,469 1,582,894 _________ _________ 3.69% 3.58% ____ ____ $ 63,701 4.16% $ 59,238 4.03% _______ ____ _______ ____
13 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:
1998 vs. 1997 1997 vs. 1996 __________________________ __________________________ Variance Variance due to due to _______________ _______________ Variance Volume Rate Variance Volume Rate ________ ______ ____ ________ ______ ____ (in thousands) (in thousands) Interest Income: Interest-bearing deposits with banks $ 50 59 (1) $ 50 51 (1) Federal funds sold and securities purchased under agreements to resell (83) (23) (60) 325 291 34 Trading account securities (1) 1 (2) 1 1 --- Investment securities available for sale: Taxable investments: United States Treasury securities (429) (265) (164) 639 532 107 Securities of United States government agencies 1,400 1,578 (178) (51) (337) 286 Mortgage-backed and related securities 710 1,147 (437) 1,055 678 377 Other investments 120 163 (43) 264 259 5 Tax-exempt investments: Obligations of states and political subdivisions (2) 1,347 1,713 (366) 938 1,015 (77) Investment securities held to maturity: Taxable investments: Securities of United States government agencies (396) (412) 16 (1,877) (1,874) (3) Mortgage-backed and related securities (51) (54) 3 (70) (67) (3) Other investments (88) (96) 8 (119) (124) 5 Tax-exempt investments: Obligations of states and political subdivisions (2) (154) (208) 54 328 306 22 Loans held for sale 1,879 1,950 (71) 135 184 (49) Loans (1,2) 1,799 2,550 (751) 5,619 4,443 1,176 ______ _____ _____ ______ ______ _____ 6,111 8,103 (1,992) 7,237 5,358 1,879 ______ _____ _____ ______ ______ _____ Interest Expense: Interest-bearing deposits: Demand 468 274 194 (8,862) (8,458) (404) Savings 1,526 1,003 523 9,769 8,847 922 Time (532) (616) 84 (1,104) (891) (213) Federal funds purchased and securities sold under agreements to repurchase 1,679 1,670 9 943 822 121 Other short-term borrowings 574 695 (121) 2,168 2,148 20 Long-term borrowings 818 996 (178) (140) (72) (68) ______ _____ _____ ______ ______ _____ 4,533 4,022 511 2,774 2,396 378 ______ _____ _____ ______ ______ _____ Net interest income $ 1,578 4,081 (2,503) $ 4,463 2,962 1,501 ______ _____ _____ ______ ______ _____ Note: The change in interest due to both rate and volume has been allocated to change due to volume and 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 a tax-equivalent basis using a federal income tax rate of 35 percent and adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments.
14 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, 1998. 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 ---- ------ ------ ------ ----- ------- ----- (dollars in thousands) Interest-earning assets: Interest-bearing deposits with banks $ 2,167 --- --- 2,167 --- --- 2,167 Federal funds sold and securities purchased Under agreements to resell 6,000 --- --- 6,000 --- --- 6,000 Investment securities: Available for sale: Taxable investments (3) 19,663 26,611 79,511 125,785 298,357 19,606 443,748 Tax-exempt investments 4,678 7,309 8,380 20,367 74,720 66,349 161,436 Held to maturity: Taxable investments 429 183 1,033 1,645 295 39 1,979 Tax-exempt investments 2,160 5,072 7,902 15,134 16,960 8,954 41,048 _________ ________ _________ _________ ________ _______ _________ Total investment securities 26,930 39,175 96,826 162,931 390,332 94,948 648,211 Loans held for sale 98,147 --- --- 98,147 --- --- 98,147 Loans (1)(3) 389,017 26,539 58,116 473,672 427,928 123,856 1,025,456 _________ ________ _________ _________ ________ _______ _________ Total interest-earning assets $ 522,261 65,714 154,942 742,917 818,260 218,804 1,779,981 _________ ________ _________ _________ ________ _______ _________ Interest-bearing liabilities: Interest-bearing deposits: Demand and savings deposits (2) $ 734,970 --- --- 734,970 --- --- 734,970 Time deposits 98,882 114,673 150,024 363,579 207,416 85 571,080 Federal funds purchased and securities sold under agreements to repurchase 155,847 --- --- 155,847 --- --- 155,847 Other short-term borrowings --- 27,000 60,050 87,050 --- --- 87,050 Long-term borrowings --- --- 1,263 1,263 36,362 3,921 41,546 _________ ________ _________ _________ ________ _______ _________ Total interest-bearing liabilities $ 989,699 141,673 211,337 1,342,709 243,778 4,006 1,590,493 _________ ________ _________ _________ ________ _______ _________ Interest sensitivity GAP $ (467,438) (75,959) (56,395) (599,792) 574,482 214,798 189,488 _________ _________ _________ _________ ________ _______ _________ Interest sensitivity GAP ratio .53:1 .46:1 .73:1 .55:1 3.36:1 54.62:1 1.12:1 _________ _________ _________ _________ ________ _______ _________ Cumulative interest sensitivity GAP $ (467,438) (543,397) (599,792) (599,792) (25,310) 189,488 189,488 _________ _________ _________ _________ ________ _______ _________ Cumulative interest sensitivity GAP ratio .53:1 .52:1 .55:1 .55:1 .98:1 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. (3) Assumed repayments on mortgage-related loans and investments are based upon projected prepayment speeds which are determined by considering Wall Street estimates.
15 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:
1998 1997 1996 ____ ____ ____ (in thousands) Investment securities available for sale (fair value): Taxable investments: United States Treasury securities $ 43,292 38,790 41,351 Securities of United States government agencies 140,417 86,660 98,153 Mortgage-backed and related securities 233,055 230,933 219,447 Other investments 26,984 20,957 8,193 Tax-exempt investments: Obligations of states and political subdivisions 161,436 109,314 93,955 _______ _______ _______ 605,184 486,654 461,099 _______ _______ _______ Investment securities held to maturity (amortized cost): Taxable investments: Securities of United States government agencies --- 5,025 15,065 Mortgage-backed and related securities 1,529 2,363 3,041 Other investments 450 1,518 2,466 Tax-exempt investments: Obligations of states and political subdivisions 41,048 60,173 52,183 _______ _______ _______ 43,027 69,079 72,755 _______ _______ _______ Total investment securities $648,211 555,733 533,854 _______ _______ _______
16 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, 1998:
Investments by Maturity and Yields at December 31, 1997 ____________________________________________________________________________ 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 $ 15,224 4.43% $ 28,068 4.77% $ --- ----% $ -- ----% Securities of United States government agencies --- --- 118,538 5.63 18,821 6.40 3,058 7.88 Mortgage-backed and related securities 63,948 6.36 142,861 6.38 22,689 6.34 3,557 6.13 Other investments 9,493 6.00 16,565 5.77 --- --- 926 6.56 Tax-exempt investments: Obligations of states and political subdivisions 20,527 6.79 75,170 6.34 52,124 6.51 13,615 7.70 _______ ____ _______ ____ _______ ____ ______ ____ 109,192 6.14 381,202 5.99 93,634 6.45 21,156 7.41 _______ ____ _______ ____ _______ ____ ______ ____ Investment securities held to maturity: Taxable investments: Mortgage-backed and related securities 227 7.54 770 7.54 532 7.54 --- ---- Other investments 115 6.60 312 6.93 23 8.24 --- ---- Tax-exempt investments: Obligations of states and political subdivisions 16,176 5.99 15,926 6.87 5,287 7.87 3,659 8.47 _______ ____ _______ ____ _______ ____ ______ ____ 16,518 6.01 17,008 6.90 5,842 7.84 3,659 8.47 _______ ____ _______ ____ _______ ____ ______ ____ Total investment securities $125,710 6.12% $398,210 6.03% $ 99,476 6.53% $24,815 7.57% _______ ____ _______ ____ _______ ____ ______ ____
NOTE: The weighted average yields are calculated on the basis of the cost and effective yields for each scheduled maturity group. The maturities of mortgage-backed securities have been included in the period of anticipated payment considering estimated prepayment rates. The weighted average yields for tax-exempt obligations have been adjusted to a fully-taxable basis, assuming a 35 percent federal income tax rate and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. As of December 31, 1998, 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. 17 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 ____________________________________________________ 1998 1997 1996 1995 1994 ____ ____ ____ ____ ____ (in thousands) 1. Real estate loans: a. Commercial construction and land development $ 54,941 30,007 42,693 38,123 26,549 b. Secured by 1-4 family residential property, including home equity loans 302,731 342,134 338,010 319,430 389,713 c. Other 151,995 161,989 150,395 163,739 143,960 2. Loans to financial institutions --- --- --- --- --- 3. Loans to farmers 84,554 79,036 69,660 68,543 71,853 4. Commercial and industrial loans 179,414 160,428 132,395 119,368 115,280 5. Loans to individuals for personal expenditures 251,636 217,405 207,197 199,489 221,627 6. All other loans 8,284 2,190 1,594 1,501 1,232 _________ _______ _______ _______ _______ $1,033,555 993,189 941,944 910,193 970,214 _________ _______ _______ _______ _______
18 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio, Continued The following table shows the maturity distribution of loans as of December 31, 1998 (excluding real estate loans secured by 1-4 family residential property and loans to individuals for personal expenditures):
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 $ 49,856 4,086 999 54,941 b. Other 37,495 59,570 54,930 151,995 2. Loans to financial institutions --- --- --- --- 3. Loans to farmers 47,864 34,465 2,225 84,554 4. Commercial and industrial loans 107,717 57,142 14,555 179,414 5. All other loans 1,718 22 6,544 8,284 _______ _______ ______ _______ $244,650 155,285 79,253 479,188 _______ _______ ______ _______
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.
1998 1997 1996 1995 1994 ____ ____ ____ ____ ____ (in thousands) Nonaccrual $ 8,099 3,227 2,663 2,639 3,784 Restructured 289 513 568 178 298 Past due 90 days or more 2,901 2,972 2,936 2,802 940 ______ _____ _____ _____ _____ Nonperforming loans $11,289 6,712 6,167 5,619 5,022 ______ _____ _____ _____ _____
Interest income recorded during 1998 on nonaccrual and restructured loans amounted to $215,000. The amount of interest income which would have been recorded during 1998, if nonaccrual and restructured loans had been current in accordance with the original terms, was $827,000. 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. 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, interest credited to income in the current year is reversed and interest accrued in prior years 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 some 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 concern may eventually result in certain of these loans being classified in one of the above-scheduled categories. At December 31, 1998, these loans amounted to less than $1 million. As of December 31, 1998, 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 $389,000 and $341,000 at December 31, 1998, and 1997, respectively. 20 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:
1998 1997 1996 1995 1994 ____ ____ ____ ____ ____ (dollars in thousands) Total loans at the end of the year $1,033,555 993,189 941,944 910,193 970,214 _________ _______ _______ _______ _______ Average loans outstanding 999,232 970,115 919,578 945,724 936,370 _________ _______ _______ _______ _______ Allowance for loan losses - beginning of the year $ 12,732 11,328 11,070 10,913 9,818 _________ _______ _______ _______ _______ Amount of charge-offs during year: Real estate loans 478 299 479 41 83 Loans to financial institutions -- -- -- -- -- Loans to farmers 261 196 365 36 31 Commercial and industrial loans 592 890 594 340 337 Loans to individuals for personal expenditures 2,997 2,844 2,623 2,960 1,943 All other loans 79 -- -- -- 48 _________ _______ _______ _______ _______ Total charge-offs 4,407 4,229 4,061 3,377 2,442 _________ _______ _______ _______ _______ Amount of recoveries during year: Real estate loans 133 217 68 66 101 Loans to financial institutions -- -- -- -- -- Loans to farmers 37 109 138 50 146 Commercial and industrial loans 268 184 95 400 334 Loans to individuals for personal expenditures 1,198 1,223 1,118 1,153 947 All other loans 11 -- -- -- 21 _________ _______ _______ _______ _______ Total recoveries 1,647 1,733 1,419 1,669 1,549 _________ _______ _______ _______ _______ Net loans charged-off during year 2,760 2,496 2,642 1,708 893 _________ _______ _______ _______ _______ Additions to allowance charged to operating expense 4,200 3,900 2,900 1,865 1,988 _________ _______ _______ _______ _______ Allowance for loan losses - end of the year $ 14,172 12,732 11,328 11,070 10,913 _________ _______ _______ _______ _______ Ratio of allowance to loans outstanding at end of year 1.37% 1.28 1.20 1.22 1.12 ____ ____ ____ ____ ____ Ratio of net charge-offs to average loans outstanding .28% .26 .29 .18 .10 ___ ___ ___ ___ ___
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:
December 31 ___________________________________________________________________________________________________________________________ 1998 1997 1996 1995 1994 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 $ 3,000 49.3% $ 2,400 53.8% $ 2,200 56.4% $ 2,400 57.3% $ 2,600 57.7% Loans to financial institutions -- -- -- -- -- -- -- -- -- -- Loans to farmers 1,600 8.2 1,200 8.0 1,000 7.4 1,300 7.5 1,400 7.4 Commercial and industrial loans 4,100 17.4 3,800 16.1 3,200 14.0 2,900 13.1 2,800 11.9 Loans to individuals for personal expenditures 5,472 24.3 5,332 21.9 4,928 22.0 4,470 21.9 4,113 22.8 All other loans -- .8 -- .2 -- .2 -- .2 -- .2 ______ _____ ______ _____ ______ _____ ______ _____ ______ _____ $14,172 100.0% 12,732 100.0% $11,328 100.0% $11,070 100.0% $10,913 100.0% ______ _____ ______ _____ ______ _____ ______ _____ _____ _____
22 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 __________________________________________ 1998 1997 1996 ____________ ____________ ____________ Amount Rate Amount Rate Amount Rate ______ ____ ______ ____ ______ ____ (dollars in thousands) Noninterest-bearing deposits $ 164,403 --% $ 139,480 --% $ 131,051 --% $ Interest-bearing deposits: Demand 90,589 3.09 81,430 2.86 376,259 2.98 Savings 585,598 2.98 551,509 2.88 241,250 2.54 Time 556,056 5.49 567,258 5.48 583,508 5.51 _________ _________ _________ $1,396,646 $1,339,677 $1,332,068 _________ _________ _________
The following sets forth the maturity distribution of all time deposits of $100,000 or more as of December 31, 1998: Maturity Remaining Amount __________________ ________ (in thousands) Less than 3 months $25,056 Over 3 through 6 months 35,466 Over 6 through 12 months 14,691 Over 12 months 22,452 ______ $97,665 ______ VI. Return on Equity and Assets Various operating and equity ratios for the years indicated are presented below:
Year Ended December 31 ________________________ 1998 1997 1996 ____ ____ ____ Return on average total assets: (Net income before deduction of minority interest) 1.18% 1.14% .92% Return on average equity: (Including unrealized gains (losses) on securities available for sale 15.37 14.47 11.76 Common dividend payout ratio 33.24 27.25 27.25 Average equity to average assets 7.44 7.55 7.53 Equity to assets ratio 6.81 7.36 7.41 Tier 1 leverage capital ratio 7.17 7.63 7.62 Primary capital to assets 7.74 8.32 8.33
23 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:
1998 1997 1996 ____ ____ ____ (dollars in thousands) Amount outstanding at December 31 $155,847 92,633 66,826 Weighted average interest rate at December 31 4.24% 4.48 3.74 Maximum amount outstanding at any month-end $155,847 92,633 73,359 Average amount outstanding during the year $116,388 78,234 59,276 Weighted average interest rate during the year 4.38% 4.36 4.17
Information relative to other short-term borrowings, which consist primarily of Federal Home Loan Bank advances, follows:
1998 1997 1996 ____ ____ ____ (dollars in thousands) Amount outstanding at December 31 $ 87,050 73,700 34,150 Weighted average interest rate at December 31 5.38% 6.02 5.97 Maximum amount outstanding at any Month-end $ 87,050 73,700 34,150 Average amount outstanding during the year $ 65,205 53,223 17,294 Weighted average interest rate during the year 5.76% 5.98 5.87
24 Item 2. Properties. At December 31, 1998, the affiliated banks and subsidiaries had 47 service locations with approximately 338,000 square feet, all located in Iowa. Of these locations, 32 were owned by the Company - approximately 262,000 square feet; three were owned buildings on leased land - approximately 30,000 square feet and 12 were operated under lease contracts with unaffiliated parties - approximately 46,000 square feet. In December 1998, the Company entered into an agreement to purchase a parcel of land for $2.1 million in Clive, Iowa. The land will be utilized for construction of a new operations and sales support facility. The new building is in the planning stages and is expected to be completed in the third quarter of 2000. The new building will replace space, which the Company currently leases, and will include room for future growth. The Company leases certain real estate and equipment under long-term and short-term leases. The Company owns certain real estate that 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 to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information appearing on pages 26 and 34 of the Corporation's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. There were approximately 2,057 holders of record of the Parent Company's $2.50 common stock as of March 8, 1999. The closing price of the Parent Company's common stock was $15.06 on March 8, 1999. The Parent Company increased dividends to common shareholders in 1998 to $.349 per share, a 40.7 percent increase over $.248 for 1997. Dividend declarations are evaluated and determined by the Board of Directors on a quarterly basis. In January 1999, the Board of Directors declared a dividend of $.095 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 12 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information appearing on pages 3 through 10 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosure About Market Risk. The information appearing on page 8 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The information appearing on pages 13 through 33 of the Company's Appendix to the Proxy Statement, 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 in or disagreements with 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, 1998, is incorporated herein by reference. See also Item 1(E) of this Form 10-K captioned "Executive Officers and Policymakers 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, 1998, 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, 1998, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. All loans made by the Parent Company's affiliated banks to directors, nominees, executive officers and associates of such persons were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with unaffiliated persons, and did not involve more than the normal risk of collectibility or present other unfavorable features. There were no other reportable transactions. 26 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 13 through 33 of the Company's Appendix to the Proxy Statement, 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. 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, as amended, and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1997. Exhibit 10.1 Summary of the Company's Bonus Plans under which some of the executive officers of the Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. Exhibit 10.2 1996 Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 1,331,000 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996) of the Company's $2.50 par value common stock. This 1996 Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1996. Exhibit 10.3 Directors' Incentive Plan. This Directors' Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995. Exhibit 10.4 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. 27 Exhibit 10.5 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company were eligible to receive options to purchase an aggregate of 798,600 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996) of the Company's $2.50 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, 1997. Exhibit 10.6 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents were 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 10.7 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents were eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents were 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, 1995. Exhibit 10.9 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. Exhibit 10.10 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1998, setting forth the terms of the Parent Company's $5,000,000 short-term debt agreement. 28 Exhibit 10.11 Data Processing Agreement dated December 1, 1991, by and between ALLTEL Information Services, Inc., (formerly Systematics, Inc.) and Brenton Bank (formerly 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, 1996. Exhibit 10.12 Correspondent Services Agreement dated November 13, 1996, between Brenton Bank and the Federal Home Loan Bank of Des Moines. This Correspondent Services Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. Exhibit 10.13 Adoption Agreement #003 - Nonstandardized Code Section 401(k) Profit Sharing Plan, effective July 1, 1998. Exhibit 10.14 Indenture Agreement with respect to Capital Notes dated April 12, 1993. Exhibit 10.15 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, 1997. Exhibit 10.16 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, 1996. Exhibit 10.17 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, 1996. Exhibit 10.18 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 10.19 Indenture Agreement with respect to Capital Notes dated April 10, 1995. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. 29 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated April 10, 1996. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. Exhibit 10.21 Indenture Agreement with respect to Capital Notes dated April 23, 1997. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1997. Exhibit 10.22 Indenture Agreement with respect to Capital Notes dated April 16, 1998. Exhibit 10.23 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 10.24 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 10.25 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of Junius C. Brenton, dated January 12, 1997. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. Exhibit 10.26 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. 30 Exhibit 10.27 Twelfth Amendment to Data Processing Agreement dated July 1, 1995, by and between ALLTEL Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). 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 10.28 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). This Thirteenth Amendment to Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. Exhibit 10.29 Fourteenth Amendment to Data Processing Agreement dated January 1, 1998, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). Exhibit 10.30 Fifteenth Amendment to Data Processing Agreement dated January 1, 1998, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). Exhibit 10.31 Purchase Agreement dated December 31, 1998, by and between West Lakes Development Company and Brenton Bank. Exhibit 10.32 Purchase Agreement dated December 31, 1998, by and between West End Diner, Inc. and Brenton Bank. Exhibit 11 Statement of computation of earnings per share. Exhibit 12 Statement of computation of ratios. Exhibit 13 The Appendix to the Proxy Statement for Brenton Banks, Inc. for the 1998 calendar year. 31 Exhibit 21 Subsidiaries. Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated January 29, 1999, relating to certain consolidated financial statements 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 1998. 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/ Robert L. DeMeulenaere President and Director ROBERT L. DEMEULENAERE Date: March 11, 1999 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/ Robert L. DeMeulenaere President and Director ROBERT L. DEMEULENAERE Principal Executive Officer Date: March 11, 1999 By /s/ Steven T. Schuler Chief Financial Officer/Treasurer/Secretary STEVEN T. SCHULER Chief Financial Officer Chief Accounting Officer Date: March 11, 1999 33 BOARD OF DIRECTORS By: /s/ C. Robert Brenton C. ROBERT BRENTON Chairman of the Board Date: March 11, 1999 By /s/ William H. Brenton WILLIAM H. BRENTON Date: March 11, 1999 By /s/ Junius C. Brenton JUNIUS C. BRENTON Date: March 11, 1999 By: /s/ Robert C. Carr ROBERT C. CARR Date: March 11, 1999 By /s/ Gary M. Christensen GARY M. CHRISTENSEN Date: March 11, 1999 By /s/ Robert J. Currey ROBERT J. CURREY Date: March 11, 1999 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, as amended, and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1997. . . . . . . . . . . . . . 40 Exhibit 10.1 Summary of the Company's Bonus Plans under which some of the executive officers of the Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. . . . . . . . . . . . . . . . . 41 Exhibit 10.2 1996 Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 1,331,000 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996) of the Company's $2.50 par value common stock. This 1996 Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1996. . . . . . . . . . . . . . . . . . . . 43 Exhibit 10.3 Directors' Incentive Plan. This Directors' Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Exhibit 10.4 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.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Exhibit 10.5 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company were eligible to receive options to purchase an aggregate of 798,600 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996) of the Company's $2.50 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, 1997.. . . . . . . . ... 46 35 Exhibit 10.6 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents were 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.. . . . . . . . . . . . . 47 Exhibit 10.7 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents were eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. . . . . . . . . . . . . . . . . . 48 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents were 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, 1995... . . . 63 Exhibit 10.9 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Bank and the Federal Home Loan Bank of Des Moines.. . . . . . . . . . . . . . . . . . . . 64 Exhibit 10.10 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1998, setting forth the terms of the Parent Company's $5,000,000 short-term debt agreement. . . . . . . . . . . . . . . . . . . . . . . 69 Exhibit 10.11 Data Processing Agreement dated December 1, 1991, by and between ALLTEL Information Services, Inc., (formerly Systematics, Inc.) and Brenton Bank (formerly 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, 1996. . . . . 75 Exhibit 10.12 Correspondent Services Agreement dated November 13, 1996, between Brenton Bank and the Federal Home Loan Bank of Des Moines. This Correspondent Services Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. . . . . . . . . 76 36 Exhibit 10.13 Adoption Agreement #003 - Nonstandardized Code Section 401(k) Profit Sharing Plan, effective July 1, 1998. . . . 77 Exhibit 10.14 Indenture Agreement with respect to Capital Notes dated April 12, 1993. . . . . . . . .. . . . . . . . . . . . . 121 Exhibit 10.15 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, 1997. . . . . . . . . . . . 140 Exhibit 10.16 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, 1996. . . . . . . . . . . . . . 141 Exhibit 10.17 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, 1996. . . . . 142 Exhibit 10.18 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.. . . .. 143 Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 10, 1995. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995.. . . . 144 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated April 10, 1996. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. . . . 145 Exhibit 10.21 Indenture Agreement with respect to Capital Notes dated April 23, 1997. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1997. . . . . 146 37 Exhibit 10.22 Indenture Agreement with respect to Capital Notes dated April 16, 1998. . . . . . . . . . . . . . . . . . . . 147 Exhibit 10.23 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.. . . . . . . . . . . . . . . . . . . . 166 Exhibit 10.24 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. . . . . . . . . . . . . . . . . . . . 167 Exhibit 10.25 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of Junius C. Brenton, dated January 12, 1997. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. . . . . . . . . . . . . . . . . . . 168 Exhibit 10.26 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. . . . . . . . . . . . . 169 Exhibit 10.27 Twelfth Amendment to Data Processing Agreement dated July 1, 1995, by and between ALLTEL Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). 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. . . . . . . . . . . 170 Exhibit 10.28 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Banks Services Corporation). This Thirteenth Amendment to Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. . . . . . . . . . . . . . . . . . . . . 171 38 Exhibit 10.29 Fourteenth Amendment to Data Processing Agreement dated January 1, 1998, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). . . . . . . . . . . . . 172 Exhibit 10.30 Fifteenth Amendment to Data Processing Agreement dated January 1, 1998, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). . . . . . . . . . . . . 176 Exhibit 10.31 Purchase Agreement dated December 31, 1998, by and between West Lakes Development Company and Brenton Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 Exhibit 10.32 Purchase Agreement dated December 31, 1998, by and between West End Diner, Inc. and Brenton Bank. . . . . . . 187 Exhibit 11 Statement of computation of earnings per share. . . . . . . 194 Exhibit 12 Statement of computation of ratios. . . . . . . . . . . . . 196 Exhibit 13 The Appendix to the Proxy Statement for Brenton Banks, Inc. for the 1998 calendar year. . . . . . . . . . . . . . 200 Exhibit 21 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 238 Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated January 29, 1999, relating to certain consolidated financial statements of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. . . . . . . . . . . . . . . . . . . 240 Exhibit 27 Financial Data Schedule (filed only with Electronic Transmission). . . . . . . . . . . . . . . . . . . . . . . 242 39 EX-3 2 Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation, as amended, and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1997. 40 EX-10.1 3 Exhibit 10.1 Summary of the Company's Bonus Plans under which some of the executive officers of the Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. 41 1998 BRENTON BANKS, INC. BONUS PLANS For 1998, the Company (Brenton Banks, Inc. and Subsidiaries) has bonus plans that cover executive officers, line of business managers, senior managers, market managers, and other key personnel. The following chart summarizes the main features of these bonus plans: Bonus potential (as percent of base pay): Executive officers 37.50% to 45.00% Line of business managers 30.00% to 35.00% Market managers 30.00% to 40.00% Senior managers and other key personnel 10.00% to 37.50% Bonus threshold for executive officers: Bonus achievement is tied to a consolidated earnings threshold of $20,000,000 whereby no bonus will be paid if this earnings threshold is not achieved. For executive officers 50% to 100% of bonus is tied to consolidated net income. The same tiered earnings bonus matrix applies to all employees who have a portion of their bonus tied to consolidated net income. The tiered bonus matrix, for that portion of the bonus tired to net income, provides for no bonus unless net income exceeds $20,000,000 and provides for 100% of bonus to be earned when net income exceeds $21,000,000. Bonus criteria: Bonus amounts are paid for achievement of certain pre-established financial and personal goals, the most significant of which are as follows: Consolidated net income Subsidiary or line of business controllable net income Sales goals Growth in loans Growth in core deposits Fee income generation Noninterest income Noninterest expense Customer portfolio profitability Key personal objectives Bonus achievements: Bonus amounts are earned ratably based on actual results compared to a tiered bonus achievement matrix. 42 EX-10.2 4 Exhibit 10.2 1996 Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 1,331,000 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996) of the Company's $2.50 par value common stock. This 1996 Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1996. 43 EX-10.3 5 Exhibit 10.3 Directors' Incentive Plan. This Directors' Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995. 44 EX-10.4 6 Exhibit 10.4 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. 45 EX-10.5 7 Exhibit 10.5 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company were eligible to receive options to purchase an aggregate of 798,600 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996) of the Company's $2.50 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, 1997. 46 EX-10.6 8 Exhibit 10.6 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents were 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. 47 EX-10.7 9 Exhibit 10.7 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents were eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. 48 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 2,033 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 3775 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. 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 8th day of February, 1994. BRENTON BANKS, INC. By_____________________________________ Its____________________________________ COMPANY _______________________________________ Phillip L. Risley GRANTEE 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. 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. 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. 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. 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. 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. 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: 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). 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). 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 1994, 1995 and 1996. All Grants shall vest or be forfeited, pursuant to the provisions of the Plan, on or before January 1, 1997. 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 1994, 1995 and 1996. All Incentive Stock Grants shall vest or be forfeited, pursuant to the provisions of the Plan, on or before March 15, 1997. 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. 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 EX-10.8 10 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents were 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, 1995. 63 EX-10.9 11 Exhibit 10.9 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Bank and the Federal Home Loan Bank of Des Moines. 64 FEDERAL HOME LOAN BANK OF DES MOINES Des Moines, Iowa AGREEMENT FOR ADVANCES, PLEDGE AND SECURITY AGREEMENT Blanket Pledge This Agreement for Advances, Pledge and Security Agreement ("Agreement"), effective the 16th day of DECEMBER 1993, is entered between BRENTON FIRST NATIONAL BANK ("Member"), with principal offices at 1606 BRADY, DAVENPORT, IA 52803 and the Federal Home Loan Bank of Des Moines ("Bank"), with principal offices at 907 Walnut, Des Moines, Iowa 50309. WHEREAS, The Bank in accordance with the Federal Home Loan Bank Act, regulations and directives of the Federal Housing Finance Board, and policies promulgated by its own Board, makes available advances to its members. The available advances are set forth by the Bank in a statement of "Credit Policy," as may be amended from time to time. WHEREAS, The Member may, from time to time, apply for an advance or advances which may be available to it. NOW THEREFORE, For valuable consideration and with respect to each and every such advance, the Parties agree as follows: SECTION 1. CONFIRMATION OF ADVANCE. To be bound by the terms and conditions set forth herein, in the confirmation of advance issued with respect to each advance, and in the Bank's Credit Policy as may be amended from time to time. A confirmation of advance shall mean a writing or machine readable electronic transmission in such form or forms as may be determined by the Bank from time to time. SECTION 2. PAYMENT TO THE BANK. To repay each and any advance together with interest thereon according to the confirmation of each such advance communicated to the Member by the Bank, together with any unpaid costs and expenses in connection therewith. Such payment shall be made at the office of the Bank in Des Moines, Iowa, or at such other place as the Bank, or its successors or assigns, may from time to time appoint in writing. The default rate on past due principal and interest may, at the option of the Bank, be at a rate 1% per annum higher than the then current rate being charged by the Bank for advances. SECTION 3. ASSIGNMENT TO BANK OF SECURITY INTEREST IN BANK STOCK. The Member hereby assigns, transfers and pledges to the Bank, its successors or assigns, all stock of the Federal Home Loan Bank of Des Moines owned by the Member as collateral security for payment of any and all indebtedness, whether in the nature of an advance or otherwise, of the Member to the Bank, its successors and assigns. SECTION 4. ASSIGNMENT OF SECURITY INTEREST IN OTHER COLLATERAL. As additional collateral security for any and all such advances, Member assigns, transfers, and pledges to the Bank, its successors or assigns, each and every note or other instrument evidencing a debt and any mortgage, deed of trust, title, or document of title securing it; all securities (including, but not limited to mortgage-backed securities issued or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, obligations of or guaranteed by the United States or an agency thereof, share certificates or other participation interests in any securities trust, mortgage loan participation certificates); all contract for deeds, all chattel paper; any chose in action; all general intangibles; all deposit accounts; certificates of deposit; and proceeds from any of the above (hereinafter "Collateral"). With respect to such Collateral, Member undertakes and agrees as follows: A. That such security interest shall extend to after acquired Collateral of a similar nature; B. That the Member shall be at liberty to use, commingle, and dispose of all or part of the Collateral, and to collect, compromise, and dispose of the proceeds of the Collateral without being required to account for the proceeds or replace the Collateral subject only to its obligation to maintain the Collateral as herein provided; C. To keep and maintain such Collateral free and clear of pledges, liens, and encumbrances to others at the required collateral maintenance level. The "required collateral maintenance level" means the amount of collateral the member is required to maintain free and clear of pledge, liens, and encumbrances to others as set forth from time to time in the Credit Policy; D. To assemble and deliver Collateral to the Bank or its authorized agents immediately upon demand of the Bank, and as specified by the Bank in its Credit Policy from time to time, and to pay for the safekeeping collateral as established by the Bank; E. To make, execute, and deliver to the Bank such assignments, endorsements, listings, powers, financing statements or other instruments as the Bank may reasonably request respecting such Collateral. SECTION 5. DUTY TO USE REASONABLE CARE. In the event Member delivers security to Bank or its Agent pursuant to paragraph 4 above, the duty of the Bank with respect to said security shall be solely to use reasonable care in the custody and preservation of the security in its possession. SECTION 6. ADDITIONAL SECURITY. Member shall assign additional or substituted Collateral for such advances at any time the Bank shall deem it necessary for the Bank's protection. SECTION 7. EVENTS OF DEFAULT. The Bank may consider the Member in default hereunder upon the occurrence of any of the following events or conditions: A. Failure of the Member to pay any interest, or repay any principal, of any advances as herein required; or B. Breach or failure to perform by the Member of any covenant, promise, condition, obligation or liability contained or referred to herein, or any other agreement to which the Member and the Bank are parties; or C. Proof being made that any representations, statements or warranty made or furnished in any manner to the Bank by or on behalf of the Member in connection with all or part of any advance was false in any material respect when made or furnished; or D. Loss, theft, damage, destruction, sale or encumbrance to or of any of the Collateral except as herein permitted, or the making of any levy, seizure or attachment thereof or therein; or E. Any tax levy, attachment, garnishment, levy of execution or other process issued against the Member or the Collateral; or F. Any suspension of payment by the Member to any creditor or any events which result in acceleration to the maturity of any indebtedness of the Member to others under any indenture, agreement or undertaking, or G. Application for, or appointment of, a receiver of any part of the property of the Member, or in case of adjudication of insolvency, or assignment for benefit of creditors, or general transfer of assets by the Member, of if management of the Member is taken over by any supervisory authority, or in case of any other form of liquidation, merger, sale of assets or voluntary dissolution, or upon termination of the membership of the Member in the Federal Home Loan Bank of Des Moines, or in the case of advances made under the provisions of 12 U.S.C. Section 1431(g)(4), if at any time thereafter the creditor liabilities of the Member, excepting its liabilities to the Bank, are increased in any manner to an amount exceeding 5% of its net assets; or H. Determination by the Bank that a material adverse change has occurred in the financial condition of the Member from that disclosed at the time of the making of any advance, or from the condition of the Member as theretofore most recently disclosed to the Bank in any manner; or I. If the Bank reasonably and in good faith deems itself insecure even though the Member is not otherwise in default. SECTION 8. BANK REMEDIES IN THE EVENT OF DEFAULT. At any time after any default as herein before provided, the Bank may, at its option, declare the entire amount of any and all advances to be immediately due and payable. The Bank shall have all of the remedies of a secured party under the Uniform Commercial Code of the State of Iowa. In addition thereto, the Bank may take immediate possession of any of the Collateral or any part thereof wherever the same may be found. The Member agrees to pay all the costs and expenses of the Bank in the collection of the secured indebtedness and enforcement of the Bank's rights hereunder including, without limitation, reasonable attorney's fees. The Bank may sell the Collateral or any part thereof in such manner and for such price as the Bank deems appropriate without any liability for any loss due to decrease in the market value of the Collateral during the period held. The Bank shall have the right to purchase all or part of the Collateral at public or private sale. If any notification of intended disposition of any of the Collateral is required by law, such notification shall be deemed reasonable and properly given if mailed, postage prepaid, at least five days before any such disposition to the address of the Member appearing on the records of the Bank. The proceeds of any sale shall be applied in the following order: First, to pay all costs and expenses of every kind for the care, collection, safekeeping, sale, foreclosure, delivery or otherwise respecting the Collateral (including expenses incurred in the protection of the Bank's title to or lien upon or right in any of the Collateral, expenses for legal services of any kind in connection therewith or in making any such sale or sales, insurance, commission for sales and guaranty); then to interest on all indebtedness of the Member to the Bank; then to the principal amount of any such indebtedness whether or not such indebtedness is due or accrued. The Bank, at its discretion, may apply any surplus to indebtedness of Member to third parties claiming a secondary security interest in the Collateral. Any remaining surplus shall be paid to the Member. SECTION 9. APPOINTMENT OF BANK AS ATTORNEY-IN-FACT. In the event of default, and without limiting any other rights the Bank might have as a secured party under the Uniform Commercial Code of Iowa, or the laws of any jurisdiction under which Bank might be exercising rights hereunder, and under this Agreement, Member does hereby make, constitute and appoint Bank its true and lawful attorney-in-fact to deal with the Collateral and, in its name and stead to release, collect, compromise, settle and release or record any mortgage of deed or trust which is a part of such Collateral as fully as the Member could do if acting for itself. The powers herein granted are coupled with an interest, and are irrevocable, and full power of substitution is granted to the Bank in the premises. SECTION 10. AUDIT AND VERIFICATION OF COLLATERAL. In extension and not in limitation of all requirements of law respecting examination of the Member by or on behalf of the Bank, the Member agrees that all Collateral pledged hereunder shall always be subject to audit and verification by or on behalf of the Bank in its corporate capacity. SECTION 11. RESOLUTION TO BE FURNISHED BY MEMBER. Member agrees to furnish to the Bank from time to time a certified copy of resolution of its Board of Directors or other governing body authorizing such of the Member's officers, as the Member shall select, to apply for advances from the Bank. Unless the Bank shall be otherwise notified in writing, the Bank may honor applications made by such officers other than in writing; but, in such event the Member shall confirm such application for advance in writing on forms furnished by the Bank. But the Member shall forever be estopped to deny its obligation to repay such advance whether or not an application in writing is ever received by the Bank so long only as the advance is made in good faith by the Bank on the request of an officer or employee so authorized by the Member. SECTION 12. APPLICABILITY OF BANK ACT. In addition to the terms and conditions herein specifically set forth, all advances are subject to the rights, powers, privileges and duties conferred upon the Federal Housing Finance Board, the Federal Home Loan Banks, and on member institutions by the Act of Congress entitled, "Federal Home Loan Bank Act, as amended." SECTION 13. JURISDICTION. In any action or proceeding brought by the Bank or the Member in order to enforce any right or remedy under this Agreement, Member will submit to the jurisdiction of the United States District Court for the Southern District of Iowa, or if such action or proceeding may not be brought in Federal Court, the jurisdiction of the Iowa District Court in Polk County. If any action or proceeding is brought by the Member seeking to obtain relief against the Bank arising out of this Agreement and such relief is not granted by a court of competent jurisdiction, the Member will pay all attorney's fees and court costs incurred by the Bank in connection therewith. SECTION 14. CHOICE OF LAW. This Agreement shall be construed and enforced according to the laws of the State of Iowa, except that the rate of interest on advances hereunder shall be governed by the provisions of 12 U.S.C. Section 1430 (as amended). SECTION 15. AGREEMENT CONSTITUTES ENTIRE AGREEMENT. This Agreement embodies the entire Agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes all prior agreements between such parties that relate to the subject matter except that: The Credit Policy as duly adopted by the Bank's Board of Directors from time to time shall be incorporated herein, unless agreed to in writing by both parties. Advances made by the Bank to Member prior to the execution of this Agreement shall continue to be governed exclusively by the terms of the prior agreements pursuant to which such advances were made, except that (i) any default thereunder shall constitute default hereunder, (ii) Collateral furnished as security hereunder shall also secure such prior advances and (iii) the rights and obligations with respect to such Collateral shall be governed by the terms of this Agreement. SECTION 16. SECTION HEADINGS. Section headings are not to be considered part of this Agreement. Section headings are solely for convenience of reference, and shall not effect the meaning or interpretation of this Agreement or any of its provisions. SECTION 17. SEVERABILITY OF SECTIONS. If any section or portion thereof is deemed void in any legal proceeding, the remainder of the Agreement shall remain in full force and effect. SECTION 18. The person signing this document on behalf of the Member represents that its execution was authorized by appropriate action of the directors of the Member which was completed on the 19th day of NOVEMBER, 1993, and that such action is duly reflected in the records of the Member. BRENTON FIRST NATIONAL BANK FEDERAL HOME LOAN BANK OF DES MOINES (Full Corporate Name of Member) By: /s/ Marsha A. Findlay By: Title: Executive Vice President Title: & COO Date:. December 16, 1993 Date: By: /s/ Nicholas E. Heisdorffer By: Title:. Assistant Vice President Title: Date: December 16, 1993 Date: Revised 5/91 EX-10.10 12 Exhibit 10.10 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1998, setting forth the terms of the Parent Company's $5,000,000 short-term debt agreement. 69 April 30, 1998 Brenton Banks, Inc. Capital Square, Suite 300 P.O. Box 961 Des Moines, Iowa 50304 Gentlemen: This letter will replace the previous Letter Agreement regarding the negative pledge on Brenton Bank stock dated April 30, 1997. This letter is in reference to the certain Promissory Note (Unsecured) dated April 30, 1998, 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 Five Million and 00/100 Dollars 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. Page 2 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 Tim Ruby, Officer of ANB. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO BY: /s/ ITS: Correspondent Banking Officer Accepted and agreed to this 30th day of April, 1998. BRENTON BANKS, INC. an Iowa corporation BY: /s/ Steven T. Schuler (written) Steven T. Schuler (printed) ITS: CFO/Treasurer/Secretary American National Bank And Trust Company of Chicago PROMISSORY NOTE (UNSECURED) $5,000,000.00 Chicago, Illinois April 30, 1998 Due April 30, 1999 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 FIVE MILLION AND 00/100 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 ("Borrower's Liabilities") shall be due and payable on April 30, 1999. This Note restates and replaces a Promissory Note (Unsecured) in the principal amount of $2,000,000.00, dated April 30, 1997 executed by Borrower in favor of Bank (the "Prior Note") and is not a repayment or novation of the Prior Note. The unpaid principal balance of Borrower's Liabilities due hereunder shall bear interest from the date of disbursement until paid, computed at a daily rate equal to the daily rate equivalent of 1.00% per annum (computed on the basis of a 360-day year and actual days elapsed) below 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 stun of the rate that would otherwise be in effect plus 3%. The rate of interest to be charged by Bank to Borrower 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 on the same day of each month, and at maturity, commencing with the last day of May, 1998 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. After maturity, accrued interest on all of Borrower's Liabilities shall be payable on demand. 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. Any deposits or other sums at any time credited by or payable or due from Bank to Borrower, or any monies, cash, cash equivalents, securities, instruments, documents or other assets of Borrower in the possession or control of Bank or its bailee for any purpose, may be reduced to cash and applied by Bank to or setoff by Bank against Borrower's Liabilities. 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 to pay any of Borrower's Liabilities when due and payable or declared due and payable (whether by scheduled maturity, required payment, acceleration, demand or otherwise); (b) if Borrower or any guarantor of any of Borrower's Liabilities fails or neglects to perform, keep or observe any term, provision, condition, covenant, warranty or representation contained in this Note; (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 of Borrower's Liabilities or by any person or entity which has granted to Bank a security interest or lien in and to some or all such person's or entity's real or personal property to secure the payment of Borrower's Liabilities; (e) if any of Borrower's assets are attached, seized, subjected to a writ, 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 a notice of lien, levy or assessment is filed of record or given to Borrower with respect to all or any of Borrower's assets by any federal, state or local department or agency; (g) 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 Title 11 of the United States Code or any similar law or regulation is filed by or against Borrower or any such guarantor, if Borrower or any such guarantor Page l of 3 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 if Borrower or any such guarantor is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs; (h) the death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or the appointment of a conservator for all or any portion of Borrower's assets; (i) the revocation, termination or cancellation of any guaranty of Borrower's Liabilities without written consent of Bank; (j) 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; (k) if Borrower or any guarantor of Borrower's Liabilities is in default in the payment of any obligations, indebtedness or other liabilities to any third party and such default is declared and is not cured within the time, if any, specified therefor in any agreement governing the same; (l) if any material statement, report or certificate made or delivered by Borrower, any of Borrower's partners, officers, employees or agents or any guarantor of Borrower's Liabilities is not true and correct; or (m) 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 immediately due and payable. 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, immediately upon demand by Bank, any and all costs, fees and expenses (including reasonable 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. This Note shall be deemed to have been submitted by Borrower to Bank and to have been made at Bank's principal place of business. This Note shall be governed and controlled by the internal laws of the State of Illinois and not the law of conflicts. Advances under this Note may be made by Bank upon oral or written request of any person authorized to make such requests on behalf of Borrower ("Authorized Person"). Borrower agrees that Bank may act on requests which Bank in good faith believes to be made by an Authorized Person, regardless of whether such requests are in fact made by an Authorized Person. Any such advance shall be conclusively presumed to have been made by Bank to or for the benefit of Borrower. Borrower does hereby irrevocably confirm, ratify and approve all such advances by Bank and agrees to indemnify Bank against any and all losses and expenses (including reasonable attorneys' fees) and shall hold Bank harmless with respect thereto. 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, SUIT, COUNTERCLAIM 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 Page 2 of 3 AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Capital Square, Suite 300 BRENTON BANKS, INC. P.O. Box 961 an Iowa corporation Des Moines, Iowa 50304 42-06558989 By: /s/ Steven T. Schuler FEIN Steven T. Schuler, CFO/Treasurer/Secretary Page 3 of 3 EX-10.11 13 Exhibit 10.11 Data Processing Agreement dated December 1, 1991, by and between ALLTEL Information Services, Inc., (formerly Systematics, Inc.) and Brenton Bank (formerly 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, 1996. 75 EX-10.12 14 Exhibit 10.12 Correspondent Services Agreement dated November 13, 1996, between Brenton Bank and the Federal Home Loan Bank of Des Moines. This Correspondent Services Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. 76 EX-10.13 15 Exhibit 10.13 Adoption Agreement #003 - Nonstandardized Code Section 401(k) Profit Sharing Plan, effective July 1, 1998. 77 ADOPTION AGREEMENT #003 NONSTANDARDIZED CODE SECTION 401(k) PROFIT SHARING PLAN The undersigned, BRENTON BANKS, INC. ("Employer"), by executing this Adoption Agreement, elects to become a participating Employer in the BRENTON BANK Defined Contribution Master Plan (basic plan document #01) by adopting the accompanying Plan and Trust in full as if the Employer were a signatory to that Agreement. The Employer makes the following elections granted under the provisions of the Master Plan. ARTICLE I DEFINITIONS 1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (Choose (a) or (b)) [ ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan. [ X ] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan. [Note: The Employer may not elect Option (b) if a Custodian executes the Adoption Agreement.] 1.03 PLAN. The name of the Plan as adopted by the Employer is BRENTON BANKS, INC. EMPLOYEES' RETIREMENT PLAN. 1.07 EMPLOYEE. The following Employees are not eligible to participate in the Plan: (Choose (a) or at least one of (b) through (g)) [ X ] (a) No exclusions. [ ] (b) Collective bargaining employees (as defined in Section 1.07 of the Plan). [Note: If the Employer excludes union employees from the Plan, the Employer must be able to provide evidence that retirement benefits were the subject of good faith bargaining.] [ ] (c) Nonresident aliens who do not receive any earned income (as defined in Code Section 911(d)(2)) from the Employer which constitutes United States source income (as defined in Code Section 861(a)(3)). [ ] (d) Commission Salesmen. [ ] (e) Any Employee compensated on a salaried basis. [ ] (f) Any Employee compensated on an hourly basis. [ ] (g) (Specify) _________________________. Leased Employees. Any Leased Employee treated as an Employee under Section 1.31 of the Plan, is: (Choose (h) or (i)) [ X ] (h) Not eligible to participate in the Plan. [ ] (i) Eligible to participate in the Plan, unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07. Related Employers. If any member of the Employer's related group (as defined in Section 1.30 of the Plan) executes a Participation Agreement to this Adoption Agreement, such member's Employees are eligible to participate in this Plan, unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07. In addition: (Choose (j) or (k)) [ X ] (j) No other related group member's Employees are eligible to participate in the Plan. [ ] (k) The following nonparticipating related group member's Employees are eligible to participate in the Plan unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07: __________________. 1.12 COMPENSATION. Treatment of elective contributions. (Choose (a) or (b)) [ X ] (a) "Compensation" includes elective contributions made by the Employer on the Employee's behalf. [ ] (b) "Compensation" does not include elective contributions. Modifications to Compensation definition. (Choose (c) or at least one of (d) through (j)) [ ] (c) No modifications other than as elected under Options (a) or (b). [ ] (d) The Plan excludes Compensation in excess of $_____________. [ ] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation means any earnings reportable as W-2 wages for Federal income tax withholding purposes, subject to any other election under this Adoption Agreement Section 1.12. [ ] (f) The Plan excludes bonuses. [ ] (g) The Plan excludes overtime. [ ] (h) The Plan excludes Commissions. [ ] (i) Compensation will not include Compensation from a related employer (as defined in Section 1.30 of the Plan) that has not executed a Participation Agreement in this Plan unless, pursuant to Adoption Agreement Section 1.07, the Employees of that related employer are eligible to participate in this Plan. [ X ] (j) (Specify) The term "Compensation" shall mean all wages, salaries, and other payments for personal services actually rendered in the course of employment with the Employer, including bonuses, commissions, overtime pay, incentive pay, benefit payments under the Company's short-term disability plan and salary reduction contributions voluntarily authorized as contributions to this Plan, Brenton Banks, Inc. Executive Savings Plan, or to the Employer's Cafeteria Plan by eligible employees. This definition of compensation does not include: stock options, club dues, automobile, educational assistance, moving expenses, split dollar life insurance, severance pay, or benefits under the Employer's employee stock purchase program, long term stock compensation program, group term life insurance plan, employee P.C. purchase plan, or other similar fringe benefits. For any self employed individual, "Compensation" shall mean Earned Income. If, for any Plan Year, the Plan uses permitted disparity in the contribution or allocation formula elected under Article III, any election of Options (f), (g), (h) or (j) is ineffective for such Plan Year with respect to any Nonhighly Compensated Employee. Special definition for matching contributions. "Compensation" for purposes of any matching contribution formula under Article III means: (Choose (k) or (l) only if applicable) [ x ] (k) Compensation as defined in this Adoption Agreement Section 1.12. [ ] (l) (Specify)______________________________. Special definition for salary reduction contributions. An Employee's salary reduction agreement applies to his Compensation determined prior to the reduction authorized by that salary reduction agreement, with the following exceptions: (Choose (m) or at least one of (n) or (o), if applicable) [ X ] (m) No exceptions. [ ] (n) If the Employee makes elective contributions to another plan maintained by the Employer, the Advisory Committee will determine the amount of the Employee's salary reduction contribution for the withholding period: (Choose (1) or (2)) [ ] (1) After the reduction for such period of elective contributions to the other plan(s). [ ] (2) Prior to the reduction for such period of elective contributions to the other plan(s). [ ] (o) (Specify)_____________________________. 1.17 PLAN YEAR/LIMITATION YEAR. Plan Year. Plan Year means: (Choose (a) or (b)) [ X ] (a) The 12 consecutive month period ending every 12/31. [ ] (b) (Specify)__________________________. Limitation Year. The Limitation Year is: (Choose (c) or (d)) [ x ] (c) The Plan Year. [ ] (d) The 12 consecutive month period ending every _____. 1.18 EFFECTIVE DATE. New Plan. The "Effective Date" of the Plan is _____. Restated Plan. The restated Effective Date is July 1, 1998. This Plan is a substitution and amendment of an existing retirement plan(s) originally established December 22, 1986. [Note: See the Effective Date Addendum.] 1.27 HOUR OF SERVICE. The crediting method for Hours of Service is: (Choose (a) or (b)) [ x ] (a) The actual method. [ ] (b) The ____________ equivalency method, except: [ ] (1) No exceptions. [ ] (2) The actual method applies for purposes of: (Choose at least one) [ ] (i) Participation under Article II. [ ] (ii) Vesting under Article V. [ ] (iii) Accrual of benefits under Section 3.06. [Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll periods" or "monthly."] 1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor service the Plan must credit by reason of Section 1.29 of the Plan, the Plan credits Service with the following predecessor employer(s): Ames Savings Bank, FSB and ALLTEL Information Services, Inc.. Service with the designated predecessor employer(s) applies: (Choose at least one of (a) or (b); (c) is available only in addition to (a) or (b)) [ x ] (a) For purposes of participation under Article II. [ x ] (b) For purposes of vesting under Article V. [ ] (c) Except the following Service: ________________________. [Note: If the Plan does not credit any predecessor service under this provision, insert "N/A" in the first blank line. The Employer may attach a schedule to this Adoption Agreement, in the same format as this Section 1.29, designating additional predecessor employers and the applicable service crediting elections.] 1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan and also participates in a plan maintained by the leasing organization: (Choose (a) or (b)) [ X ] (a) The Advisory Committee will determine the Leased Employee's allocation of Employer contributions under Article III without taking into account the Leased Employee's allocation, if any, under the leasing organization's plan. [ ] (b) The Advisory Committee will reduce a Leased Employee's allocation of Employer nonelective contributions (other than designated qualified nonelective contributions) under this Plan by the Leased Employee's allocation under the leasing organization's plan, but only to the extent that allocation is attributable to the Leased Employee's service provided to the Employer. The leasing organization's plan: [ ] (1) Must be a money purchase plan which would satisfy the definition under Section 1.31 of a safe harbor plan, irrespective of whether the safe harbor exception applies. [ ] (2) Must satisfy the features and, if a defined benefit plan, the method of reduction described in an addendum to this Adoption Agreement, numbered 1.31. ARTICLE II EMPLOYEE PARTICIPANTS 2.01 ELIGIBILITY. Eligibility conditions. To become a Participant in the Plan, an Employee must satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c) is optional as an additional election) [ X ] (a) Attainment of age 21 (specify age, not exceeding 21). [ X ] (b) Service requirement. (Choose one of (1) through (3)) [ ] (1) One Year of Service. [ ] (2) Months (not exceeding 12) following the Employee's Employment Commencement Date. [ X ] (3) One Hour of Service. [ X ] (c) Special requirements for non-401(k) portion of plan. (Make elections under (1) and under (2)) (1) The requirements of this Option (c) apply to participation in: (Choose at least one of (i) through (iii)) [ X ] (i) The allocation of Employer nonelective contributions and Participant forfeitures. [ X ] (ii) The allocation of Employer matching contributions (including forfeitures allocated as matching contributions). [ X ] (iii) The allocation of Employer qualified nonelective contributions. (2) For participation in the allocations described in (1), the eligibility conditions are: (Choose at least one of (i) through (iv)) [ X ] (i) 1 (one or two) Year(s) of Service, without an intervening Break in Service (as described in Section 2.03(A) of the Plan) if the requirement is two Years of Service. [ ] (ii) ____ months (not exceeding 24) following the Employee's Employment Commencement Date. [ ] (iii) One Hour of Service. [ X ] (iv) Attainment of age 21 (Specify age, not exceeding 21). Plan Entry Date. "Plan Entry Date" means the Effective Date and: (Choose (d), (e) or (f)) [ ] (d) Semi-annual Entry Dates. The first day of the Plan Year and the first day of the seventh month of the Plan Year. [ ] (e) The first day of the Plan Year. [ X ] (f) (Specify entry dates) For (k) portion of plan - first day of the month following 30th calendar day of employment; For non-401(k) portion of plan - - - the first day of the Plan Year and the first day of the seventh month of the Plan Year. Time of Participation. An Employee will become a Participant (and, if applicable, will participate in the allocations described in Option (c)(1)), unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date (if employed on that date): (Choose (g), (h) or (i)) [ X ] (g) immediately following [ ] (h) immediately preceding [ ] (i) nearest the date the Employee completes the eligibility conditions described in Options (a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement Section 2.01. [Note: The Employer must coordinate the selection of (g), (h) or (i) with the "Plan Entry Date" selection in (d), (e) or (f). Unless otherwise excluded under Section 1.07, the Employee must become a Participant by the earlier of: (1) the first day of the Plan Year beginning after the date the Employee completes the age and service requirements of Code Section 410(a); or (2) 6 months after the date the Employee completes those requirements.] Dual eligibility. The eligibility conditions of this Section 2.01 apply to: (Choose (j) or (k)) [ X ] (j) All Employees of the Employer, except: (Choose (1) or (2)) [ X ] (1) No exceptions. [ ] (2) Employees who are Participants in the Plan as of the Effective Date. [ ] (k) Solely to an Employee employed by the Employer after _______. If the Employee was employed by the Employer on or before the specified date, the Employee will become a Participant: (Choose (1), (2) or (3)) [ ] (1) On the latest of the Effective Date, his Employment Commencement Date or the date he attains age ____ (not to exceed 21). [ ] (2) Under the eligibility conditions in effect under the Plan prior to the restated Effective Date. If the restated Plan required more than one Year of Service to participate, the eligibility condition under this Option (2) for participation in the Code Section 401(k) arrangement under this Plan is one Year of Service for Plan Years beginning after December 31, 1988. [For restated plans only] [ ] (3) (Specify) __________________. 2.02 YEAR OF SERVICE - PARTICIPATION. Hours of Service. An Employee must complete: (Choose (a) or (b)) [ X ] (a) 1,000 Hours of Service [ ] (b) _____ Hours of Service during an eligibility computation period to receive credit for a Year of Service. [Note: The Hours of Service requirement may not exceed 1,000.] Eligibility computation period. After the initial eligibility computation period described in Section 2.02 of the Plan, the Plan measures the eligibility computation period as: (Choose (c) or (d)) [ ] (c) The 12 consecutive month period beginning with each anniversary of an Employee's Employment Commencement Date. [ x ] (d) The Plan Year, beginning with the Plan Year which includes the first anniversary of the Employee's Employment Commencement Date. 2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule described in Section 2.03(B) of the Plan: (Choose (a) or (b)) [ x ] (a) Does not apply to the Employer's Plan. [ ] (b) Applies to the Employer's Plan. 2.06 ELECTION NOT TO PARTICIPATE. The Plan: (Choose (a) or (b)) [ x ] (a) Does not permit an eligible Employee or a Participant to elect not to participate. [ ] (b) Does permit an eligible Employee or a Participant to elect not to participate in accordance with Section 2.06 and with the following rules: (Complete (1), (2), (3) and (4)) (1) An election is effective for a Plan Year if filed no later than ______. (2) An election not to participate must be effective for at least ____ Plan Year(s). (3) Following a re-election to participate, the Employee or Participant: [ ] (i) May not again elect not to participate for any subsequent Plan Year. [ ] (ii) May again elect not to participate, but not earlier than the _____ Plan Year following the Plan Year in which the re-election first was effective. (4) (Specify)_________________. [Insert "N/A" if no other rules apply]. ARTICLE III EMPLOYER CONTRIBUTIONS AND FORFEITURES 3.01 AMOUNT. Part I. [Options (a) through (g)] Amount of Employer's contribution. The Employer's annual contribution to the Trust will equal the total amount of deferral contributions, matching contributions, qualified nonelective contributions and nonelective contributions, as determined under this Section 3.01. (Choose any combination of (a), (b), (c) and (d), or choose (e)) [ x ] (a) Deferral contributions (Code Section 401(k) arrangement). (Choose (1) or (2) or both) [ x ] (1) Salary reduction arrangement. The Employer must contribute the amount by which the Participants have reduced their Compensation for the Plan Year, pursuant to their salary reduction agreements on file with the Advisory Committee. A reference in the Plan to salary reduction contributions is a reference to these amounts. [ ] (2) Cash or deferred arrangement. The Employer will contribute on behalf of each Participant the portion of the Participant's proportionate share of the cash or deferred contribution which he has not elected to receive in cash. See Section 14.02 of the Plan. The Employer's cash or deferred contribution is the amount the Employer may from time to time deem advisable which the Employer designates as a cash or deferred contribution prior to making that contribution to the Trust. [ x ] (b) Matching contributions. The Employer will make matching contributions in accordance with the formula(s) elected in Part II of this Adoption Agreement Section 3.01. [ x ] (c) Designated qualified nonelective contributions. The Employer, in its sole discretion, may contribute an amount which it designates as a qualified nonelective contribution. [ x ] (d) Nonelective contributions. (Choose any combination of (1) through (4)) [ x ] (1) Discretionary contribution. The amount (or additional amount) the Employer may from time to time deem advisable. [ ] (2) The amount (or additional amount) the Employer may from time to time deem advisable, separately determined for each of the following classifications of Participants: (Choose (i) or (ii)) [ ] (i) Nonhighly Compensated Employees and Highly Compensated Employees. [ ] (ii) (Specify classifications) ___________. Under this Option (2), the Advisory Committee will allocate the amount contributed for each Participant classification in accordance with Part II of Adoption Agreement Section 3.04, as if the Participants in that classification were the only Participants in the Plan. [ x ] (3) 4.5% of the Compensation of all Participants under the Plan, determined for the Employer's taxable year for which it makes the contribution. [Note: The percentage selected may not exceed 15%.] [ ] (4) _____% of Net Profits but not more than $_______. [ ] (e) Frozen Plan. This Plan is a frozen Plan effective _____. The Employer will not contribute to the Plan with respect to any period following the stated date. Net Profits. The Employer: (Choose (f) or (g)) [ x ] (f) Need not have Net Profits to make its annual contribution under this Plan. [ ] (g) Must have current or accumulated Net Profits exceeding $_____ to make the following contributions: (Choose at least one) [ ] (1) Cash or deferred contributions described in Option (a)(2). [ ] (2) Matching contributions described in Option (b), except: _____. [ ] (3) Qualified nonelective contributions described in Option (c). [ ] (4) Nonelective contributions described in Option (d). The term "Net Profits" means the Employer's net income or profits for any taxable year determined by the Employer upon the basis of its books of account in accordance with generally accepted accounting practices consistently applied without any deductions for Federal and state taxes upon income or for contributions made by the Employer under this Plan or under any other employee benefit plan the Employer maintains. The term "Net Profits" specifically excludes ___________________. [Note: Enter "N/A" if no exclusions apply.] If the Employer requires Net Profits for matching contributions and the Employer does not have sufficient Net Profits under Option (g), it will reduce the matching contribution under a fixed formula on a prorata basis for all Participants. A Participant's share of the reduced contribution will bear the same ratio as the matching contribution the Participant would have received if Net Profits were sufficient bears to the total matching contribution all Participants would have received if Net Profits were sufficient. If more than one member of a related group (as defined in Section 1.30) execute this Adoption Agreement, each participating member will determine Net Profits separately but will not apply this reduction unless, after combining the separately determined Net Profits, the aggregate Net Profits are insufficient to satisfy the matching contribution liability. "Net Profits" includes both current and accumulated Net Profits. Part II. [Options (h) through (j)] Matching contribution formula. [Note: If the Employer elected Option (b), complete Options (h), (i) and (j).] [ x ] (h) Amount of matching contributions. For each Plan Year, the Employer's matching contribution is: (Choose any combination of (1), (2), (3), (4) and (5)) [ ] (1) An amount equal to _____% of each Participant's eligible contributions for the Plan Year. [ x ] (2) An amount equal to 100% of each Participant's first tier of eligible contributions for the Plan Year, plus the following matching percentage(s) for the following subsequent tiers of eligible contributions for the Plan 50% for the second tier. [ ] (3) Discretionary formula. [ ] (i) An amount (or additional amount) equal to a matching percentage the Employer from time to time may deem advisable of the Participant's eligible contributions for the Plan Year. [ ] (ii) An amount (or additional amount) equal to a matching percentage the Employer from time to time may deem advisable of each tier of the Participant's eligible contributions for the Plan Year. [ ] (4) An amount equal to the following percentage of each Participant's eligible contributions for the Plan Year, based on the Participant's Years of Service: Number of Years of Service Matching Percentage _____ _____% _____ _____% _____ _____% _____ _____% The Advisory Committee will apply this formula by determining Years of Service as follows: ____________________. [ ] (5) A Participant's matching contributions may not: (Choose (i) or (ii)) [ ] (i) Exceed ___________________. [ ] (ii) Be less than _____________. Related Employers. If two or more related employers (as defined in Section 1.30) contribute to this Plan, the related employers may elect different matching contribution formulas by attaching to the Adoption Agreement a separately completed copy of this Part II. Note: Separate matching contribution formulas create separate current benefit structures that must satisfy the minimum participation test of Code Section 401(a)(26).] [ x ] (i) Definition of eligible contributions. Subject to the requirements of Option (j), the term "eligible contributions" means: (Choose any combination of (1) through (3)) [ x ] (1) Salary reduction contributions. [ ] (2) Cash or deferred contributions (including any part of the Participant's proportionate share of the cash or deferred contribution which the Employer defers without the Participant's election). [ ] (3) Participant mandatory contributions, as designated in Adoption Agreement Section 4.01. See Section 14.04 of the Plan. [ x ] (j) Amount of eligible contributions taken into account. When determining a Participant's eligible contributions taken into account under the matching contributions formula(s), the following rules apply: (Choose any combination of (1) through (4)) [ ] (1) The Advisory Committee will take into account all eligible contributions credited for the Plan Year. [ ] (2) The Advisory Committee will disregard eligible contributions exceeding ____________. [ x ] (3) The Advisory Committee will treat as the first tier of eligible contributions, an amount not exceeding: 3%. The subsequent tiers of eligible contributions are: 1%. [ ] (4) (Specify) __________. Part III. [Options (k) and (l)]. Special rules for Code Section 401(k) Arrangement. (Choose (k) or (l), or both, as applicable) [ x ] (k) Salary Reduction Agreements. The following rules and restrictions apply to an Employee's salary reduction agreement: (Make a selection under (1), (2), (3) and (4)) (1) Limitation on amount. The Employee's salary reduction contributions: (Choose (i) or at least one of (ii) or (iii)) [ ] (i) No maximum limitation other than as provided in the Plan. [ x ] (ii) May not exceed 13% of Compensation for the Plan Year, subject to the annual additions limitation described in Part 2 of Article III and the 402(g) limitation described in Section 14.07 of the Plan. [ ] (iii) Based on percentages of Compensation must equal at least _____. (2) An Employee may revoke, on a prospective basis, a salary reduction agreement: (Choose (i), (ii), (iii) or (iv)) [ ] i) Once during any Plan Year but not later than _____ of the Plan Year. [ ] (ii) As of any Plan Entry Date. [ x ] (iii) As of the first day of any month. [ ] (iv) (Specify, but must be at least once per Plan Year) _____. (3) An Employee who revokes his salary reduction agreement may file a new salary reduction agreement with an effective date: (Choose (i), (ii), (iii) or (iv)) [ ] (i) No earlier than the first day of the next Plan Year. [ x ] (ii) As of any subsequent Plan Entry Date. [ ] (iii) As of the first day of any month subsequent to the month in which he revoked an Agreement. [ ] (iv) (Specify, but must be at least once per Plan Year following the Plan Year of revocation) _______________. (4) A Participant may increase or may decrease, on a prospective basis, his salary reduction percentage or dollar amount: (Choose (i), (ii), (iii) or (iv)) [ ] (i) As of the beginning of each payroll period. [ ] (ii) As of the first day of each month. [ x ] (iii) As of any Plan Entry Date. [ ] (iv) (Specify, but must permit an increase or a decrease at least once per Plan Year) __________. [ ] (l) Cash or deferred contributions. For each Plan Year for which the Employer makes a designated cash or deferred contribution, a Participant may elect to receive directly in cash not more than the following portion (or, if less, the 402(g) limitation described in Section 14.07 of the Plan) of his proportionate share of that cash or deferred contribution: (Choose (1) or (2)) [ ] (1) All or any portion. [ ] (2) _____%. 3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate deferral contributions, matching contributions, qualified nonelective contributions and nonelective contributions in accordance with Section 14.06 and the elections under this Adoption Agreement Section 3.04. Part I. [Options (a) through (d)]. Special Accounting Elections. (Choose whichever elections are applicable to the Employer's Plan) [ x ] (a) Matching Contributions Account. The Advisory Committee will allocate matching contributions to a Participant's: (Choose (1) or (2); (3) is available only in addition to (1)) [ x ] (1) Regular Matching Contributions Account. [ ] (2) Qualified Matching Contributions Account. [ ] (3) Except, matching contributions under Option(s) _____ of Adoption Agreement Section 3.01 are allocable to the Qualified Matching Contributions Account. [ x ] (b) Special Allocation Dates for Salary Reduction Contributions. The Advisory Committee will allocate salary reduction contributions as of the Accounting Date and as of the following additional allocation dates: June 30. [ x ] (c) Special Allocation Dates for Matching Contributions. The Advisory Committee will allocate matching contributions as of the Accounting Date and as of the following additional allocation dates: June 30. [ x ] (d) Designated Qualified Nonelective Contributions - Definition of Participant. For purposes of allocating the designated qualified nonelective contribution, "Participant" means: (Choose (1), (2) or (3)) [ ] (1) All Participants. [ x ] (2) Participants who are Nonhighly Compensated Employees for the Plan Year. [ ] (3) (Specify) __________. Part II. Method of Allocation - Nonelective Contribution. Subject to any restoration allocation required under Section 5.04, the Advisory Committee will allocate and credit each annual nonelective contribution (and Participant forfeitures treated as nonelective contributions) to the Employer Contributions Account of each Participant who satisfies the conditions of Section 3.06, in accordance with the allocation method selected under this Section 3.04. If the Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of Compensation allocated to all Participants, "Compensation" does not include any exclusions elected under Adoption Agreement Section 1.12 (other than the exclusion of elective contributions), and the Advisory Committee must take into account the Participant's Compensation for the entire Plan Year. (Choose an allocation method under (e), (f), (g) or (h); (i) is mandatory if the Employer elects (f), (g) or (h); (j) is optional in addition to any other election.) [ ] (e) Nonintegrated Allocation Formula. (Choose (1) or (2)) [ ] (1) The Advisory Committee will allocate the annual nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (2) The Advisory Committee will allocate the annual nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. For purposes of this Option (2), "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation will not exceed 3% of his Compensation for the Plan Year. [ x ] (f) Two-Tiered Integrated Allocation Formula - Maximum Disparity. First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i). The Advisory Committee then will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (g) Three-Tiered Integrated Allocation Formula. First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation may not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i). Solely for purposes of the allocation in this first paragraph, "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year: (Choose (1) or (2)) [ ] (1) No other Participant. [ ] (2) Any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation under this Option (g) will not exceed 3% of his Compensation for the Plan Year. As a second tier allocation, the Advisory Committee will allocate the nonelective contributions in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Excess Compensation, may not exceed the allocation percentage in the first paragraph. Finally, the Advisory Committee will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (h) Four-Tiered Integrated Allocation Formula. First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Compensation. Solely for purposes of this first tier allocation, a "Participant" means, in addition to any Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B) of the Plan. As a second tier allocation, the Advisory Committee will allocate the nonelective contributions in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Excess Compensation. As a third tier allocation, the Advisory Committee will allocate the annual Employer contributions in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum Disparity Table following Option (i). The Advisory Committee then will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ x ] (i) Excess Compensation. For purposes of Option (f), (g) or (h), "Excess Compensation" means Compensation in excess of the following Integration Level: (Choose (1) or (2)) [ x ] (1) 100% (not exceeding 100%) of the taxable wage base, as determined under Section 230 of the Social Security Act, in effect on the first day of the Plan Year: (Choose any combination of (i) and (ii) or choose (iii)) [ ] (i) Rounded to _____ (but not exceeding the taxable wage base). [ ] (ii) But not greater than $_____. [ x ] (iii) Without any further adjustment or limitation. [ ] (2) $_____ [Note: Not exceeding the taxable wage base for the Plan Year in which this Adoption Agreement first is effective.] Maximum Disparity Table. For purposes of Options (f), (g) and (h), the applicable percentage is:
Integration Level (as Applicable Percentages for Applicable percentage of percentage of taxable Option (f) or Option (g) for Option (h) wage base) _____________________ __________________________ ________________________ 100% 5.7% 2.7% More than 80% but less than 100% 5.4% 2.4% More than 20% (but not less than $10,001) and not more than 80% 4.3% 1.3% 20% (or $10,000, if greater) or less 5.7% 2.7%
[ ] (j) Allocation offset. The Advisory Committee will reduce a Participant's allocation otherwise made under Part II of this Section 3.04 by the Participant's allocation under the following qualified plan(s) maintained by the Employer: _____________________. The Advisory Committee will determine this allocation reduction: (Choose (1) or (2)) [ ] (1) By treating the term "nonelective contribution" as including all amounts paid or accrued by the Employer during the Plan Year to the qualified plan(s) referenced under this Option (j). If a Participant under this Plan also participates in that other plan, the Advisory Committee will treat the amount the Employer contributes for or during a Plan Year on behalf of a particular Participant under such other plan as an amount allocated under this Plan to that Participant's Account for that Plan Year. The Advisory Committee will make the computation of allocation required under the immediately preceding sentence before making any allocation of nonelective contributions under this Section 3.04. [ ] (2) In accordance with the formula provided in an addendum to this Adoption Agreement, numbered 3.04(j). Top Heavy Minimum Allocation - Method of Compliance. If a Participants allocation under this Section 3.04 is less than the top heavy minimum allocation to which he is entitled under Section 3.04(B): (Choose (k) or (l)) [ x ] (k) The Employer will make any necessary additional contribution to the Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan. [ ] (l) The Employer will satisfy the top heavy minimum allocation under the following plan(s) it maintains: ___________. However, the Employer will make any necessary additional contribution to satisfy the top heavy minimum allocation for an Employee covered only under this Plan and not under the other plan(s) designated in this Option (l). See Section 3.04(B)(7)(b) of the Plan. If the Employer maintains another plan, the Employer may provide in an addendum to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan necessary to satisfy the top heavy requirements under Code Section 416. Related employers. If two or more related employers (as defined in Section 1.30) contribute to this Plan, the Advisory Committee must allocate all Employer nonelective contributions (and forfeitures treated as nonelective contributions) to each Participant in the Plan, in accordance with the elections in this Adoption Agreement Section 3.04: (Choose (m) or (n)) [ X ] (m) Without regard to which contributing related group member employs the Participant. [ ] (n) Only to the Participants directly employed by the contributing Employer. If a Participant receives Compensation from more than one contributing Employer, the Advisory Committee will determine the allocations under this Adoption Agreement Section 3.04 by prorating among the participating Employers the Participant's Compensation and, if applicable, the Participant's Integration Level under Option (i). 3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation required under Sections 5.04 or 9.14, the Advisory Committee will allocate a Participant forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c) and (d) are optional in addition to (a) or (b)) [ x ] (a) As an Employer nonelective contribution for the Plan Year in which the forfeiture occurs, as if the Participant forfeiture were an additional nonelective contribution for that Plan Year. [ ] (b) To reduce the Employer matching contributions and nonelective contributions for the Plan Year: (Choose (1) or (2)) [ ] (1) in which the forfeiture occurs. [ ] (2) immediately following the Plan Year in which the forfeiture occurs. [ ] (c) To the extent attributable to matching contributions: (Choose (1), (2) or (3)) [ ] (1) In the manner elected under Options (a) or (b). [ ] (2) First to reduce Employer matching contributions for the Plan Year: (Choose (i) or (ii)) [ ] (i) in which the forfeiture occurs, [ ] (ii) immediately following the Plan Year in which the forfeiture occurs, then as elected in Options (a) or (b). [ ] (3) As a discretionary matching contribution for the Plan Year in which the forfeiture occurs, in lieu of the manner elected under Options (a) or (b). [ ] (d) First to reduce the Plans ordinary and necessary administrative expenses for the Plan Year and then will allocate any remaining forfeitures in the manner described in Options (a), (b) or (c), whichever applies. If the Employer elects Option (c), the forfeitures used to reduce Plan expenses: (Choose (1) or (2)) [ ] (1) relate proportionately to forfeitures described in Option (c) and to forfeitures described in Options (a) or (b). [ ] (2) relate first to forfeitures described in Option . Allocation of forfeited excess aggregate contributions. The Advisory Committee will allocate any forfeited excess aggregate contributions (as described in Section 14.09): (Choose (e), (f) or (g)) [ ] (e) To reduce Employer matching contributions for the Plan Year: (Choose (1) or (2)) [ ] (1) in which the forfeiture occurs. [ ] (2) immediately following the Plan Year in which the forfeiture occurs. [ ] (f) As Employer discretionary matching contributions for the Plan Year in which forfeited, except the Advisory Committee will not allocate these forfeitures to the Highly Compensated Employees who incurred the forfeitures. [ x ] (g) In accordance with Options (a) through (d), whichever applies, except the Advisory Committee will not allocate these forfeitures under Option (a) or under Option (c)(3) to the Highly Compensated Employees who incurred the forfeitures. 3.06 ACCRUAL OF BENEFIT. Compensation taken into account. For the Plan Year in which the Employee first becomes a Participant, the Advisory Committee will determine the allocation of any cash or deferred contribution, designated qualified nonelective contribution or nonelective contribution by taking into account: (Choose (a) or (b)) [ ] (a) The Employees Compensation for the entire Plan Year. [ x ] (b) The Employees Compensation for the portion of the Plan Year in which the Employee actually is a Participant in the Plan. Accrual Requirements. Subject to the suspension of accrual requirements of Section 3.06(E) of the Plan, to receive an allocation of cash or deferred contributions, matching contributions, designated qualified nonelective contributions, nonelective contributions and Participant forfeitures, if any, for the Plan Year, a Participant must satisfy the conditions described in the following elections: (Choose (c) or at least one of (d) through (f)) [ ] (c) Safe harbor rule. If the Participant is employed by the Employer on the last day of the Plan Year, the Participant must complete at least one Hour of Service for that Plan Year. If the Participant is not employed by the Employer on the last day of the Plan Year, the Participant must complete at least 501 Hours of Service during the Plan Year. [ x ] (d) Hours of Service condition. The Participant must complete the following minimum number of Hours of Service during the Plan Year: (Choose at least one of (1) through (5)) [ x ] (1) 1,000 Hours of Service. [ ] (2) (Specify, but the number of Hours of Service may not exceed 1,000) ____________. [ x ] (3) No Hour of Service requirement if the Participant terminates employment during the Plan Year on account of: (Choose (i), (ii) or (iii)) [ x ] (i) Death. [ x ] (ii) Disability. [ x ] (iii) Attainment of Normal Retirement Age in the current Plan Year or in a prior Plan Year. [ ] (4) _____ Hours of Service (not exceeding 1,000) if the Participant terminates employment with the Employer during the Plan Year, subject to any election in Option (3). [ x ] (5) No Hour of Service requirement for an allocation of the following contributions: Employer match and employee salary deferral. [ x ] (e) Employment condition. The Participant must be employed by the Employer on the last day of the Plan Year, irrespective of whether he satisfies any Hours of Service condition under Option (d), with the following exceptions: (Choose (1) or at least one of (2) through (5)) [ ] (1) No exceptions. [ x ] (2) Termination of employment because of death. [ x ] (3) Termination of employment because of disability. [ x ] (4) Termination of employment following attainment of Normal Retirement Age. [ x ] (5) No employment condition for the following contributions: Employer match and employee salary deferral. [ ] (f) (Specify other conditions, if applicable):_________________. Suspension of Accrual Requirements. The suspension of accrual requirements of Section 3.06(E) of the Plan: (Choose (g), (h) or (i)) [ x ] (g) Applies to the Employer's Plan. [ ] (h) Does not apply to the Employer's Plan. [ ] (i) Applies in modified form to the Employer's Plan, as described in an addendum to this Adoption Agreement, numbered Section 3.06(E). Special accrual requirements for matching contributions. If the Plan allocates matching contributions on two or more allocation dates for a Plan Year, the Advisory Committee, unless otherwise specified in Option (l), will apply any Hours of Service condition by dividing the required Hours of Service on a prorata basis to the allocation periods included in that Plan Year. Furthermore, a Participant who satisfies the conditions described in this Adoption Agreement Section 3.06 will receive an allocation of matching contributions (and forfeitures treated as matching contributions) only if the Participant satisfies the following additional condition(s): (Choose (j) or at least one of (k) or (l)) [ x ] (j) No additional conditions. [ ] (k) The Participant is not a Highly Compensated Employee for the Plan Year. This Option (k) applies to: (Choose (1) or (2)) [ ] (1) All matching contributions. [ ] (2) Matching contributions described in Option(s) _____ of Adoption Agreement Section 3.01. [ ] (l) (Specify) __________________. 3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15 apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b) or (c)) [ ] (a) The product of: (i) the total Excess Amount allocated as of such date (including any amount which the Advisory Committee would have allocated but for the limitations of Code Section 415), times (ii) the ratio of (1) the amount allocated to the Participant as of such date under this Plan divided by (2) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Code Section 415). [ x ] (b) The total Excess Amount. [ ] (c) None of the Excess Amount. 3.18 DEFINED BENEFIT PLAN LIMITATION. Application of limitation. The limitation under Section 3.18 of the Plan: (Choose (a) or (b)) [ ] (a) Does not apply to the Employer's Plan because the Employer does not maintain and never has maintained a defined benefit plan covering any Participant in this Plan. [ x ] (b) Applies to the Employer's Plan. To the extent necessary to satisfy the limitation under Section 3.18, the Employer will reduce: (Choose (1) or (2)) [ ] (1) The Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [ x ] (2) Its contribution or allocation on behalf of the Participant to the defined contribution plan under which the Participant participates and then, if necessary, the Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [Note: If the Employer selects (a), the remaining options in this Section 3.18 do not apply to the Employer's Plan.] Coordination with top heavy minimum allocation. The Advisory Committee will apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan with the following modifications: (Choose (c) or at least one of (d) or (e)) [ x ] (c) No modifications. [ ] (d) For Non-Key Employees participating only in this Plan, the top heavy minimum allocation is the minimum allocation described in Section 3.04(B) determined by substituting ____% (not less than 4%) for "3%," except: (Choose (i) or (ii)) [ ] (i) No exceptions. [ ] (ii) Plan Years in which the top heavy ratio exceeds 90%. [ ] (e) For Non-Key Employees also participating in the defined benefit plan, the top heavy minimum is: (Choose (1) or (2)) [ ] (1) 5% of Compensation (as determined under Section 3.04(B) or the Plan) irrespective of the contribution rate of any Key Employee, except: (Choose (i) or (ii)) [ ] (i) No exceptions. [ ] (ii) Substituting "7 1/2%" for "5%" if the top heavy ratio does not exceed 90%. [ ] (2) 0%. [Note: The Employer may not select this Option (2) unless the defined benefit plan satisfies the top heavy minimum benefit requirements of Code Section 416 for these Non-Key Employees.] Actuarial Assumptions for Top Heavy Calculation. To determine the top heavy ratio, the Advisory Committee will use the following interest rate and mortality assumptions to value accrued benefits under a defined benefit plan: N/A. If the elections under this Section 3.18 are not appropriate to satisfy the limitations of Section 3.18, or the top heavy requirements under Code Section 416, the Employer must provide the appropriate provisions in an addendum to this Adoption Agreement. ARTICLE IV PARTICIPANT CONTRIBUTIONS 4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a) or (b); (c) is available only with (b)) [ x ] (a) Does not permit Participant nondeductible contributions. [ ] (b) Permits Participant nondeductible contributions, pursuant to Section 14.04 of the Plan. [ ] (c) The following portion of the Participant's nondeductible contributions for the Plan Year are mandatory contributions under Option (i)(3) of Adoption Agreement Section 3.01: (Choose (1) or (2)) [ ] (1) The amount which is not less than: ________________. [ ] (2) The amount which is not greater than: _____________. Allocation dates. The Advisory Committee will allocate nondeductible contributions for each Plan Year as of the Accounting Date and the following additional allocation dates: (Choose (d) or (e)) [ ] (d) No other allocation dates. [ ] (e) (Specify) ___________________. As of an allocation date, the Advisory Committee will credit all nondeductible contributions made for the relevant allocation period. Unless otherwise specified in (e), a nondeductible contribution relates to an allocation period only if actually made to the Trust no later than 30 days after that allocation period ends. 4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Mandatory Contributions Account, if any, prior to his Separation from Service: (Choose (a) or at least one of (b) through (d)) [ X ] (a) No distribution options prior to Separation from Service. [ ] (b) The same distribution options applicable to the Deferral Contributions Account prior to the Participant's Separation from Service, as elected in Adoption Agreement Section 6.03. [ ] (c) Until he retires, the Participant has a continuing election to receive all or any portion of his Mandatory Contributions Account if: (Choose (1) or at least one of (2) through (4)) [ ] (1) No conditions. [ ] (2) The mandatory contributions have accumulated for at least _____ Plan Years since the Plan Year for which contributed. [ ] (3) The Participant suspends making nondeductible contributions for a period of ___ months. [ ] (4) (Specify) ____________. [ ] (d) (Specify) _____________. ARTICLE V TERMINATION OF SERVICE - PARTICIPANT VESTING 5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is: (Choose (a) or (b)) [ x ] (a) 62 [State age, but may not exceed age 65]. [ ] (b) The later of the date the Participant attains _____ years of age or the _____ anniversary of the first day of the Plan Year in which the Participant commenced participation in the Plan. [The age selected may not exceed age 65 and the anniversary selected may not exceed the 5th.] 5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section 5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c)) [ ] (a) Does not apply. [ x ] (b) Applies to death. [ x ] (c) Applies to disability. 5.03 VESTING SCHEDULE. Deferral Contributions Account/Qualified Matching Contributions Account/Qualified Nonelective Contributions Account/Mandatory Contributions Account. A Participant has a 100% Nonforfeitable interest at all times in his Deferral Contributions Account, his Qualified Matching Contributions Account, his Qualified Nonelective Contributions Account and in his Mandatory Contributions Account. Regular Matching Contributions Account/Employer Contributions Account. With respect to a Participant's Regular Matching Contributions Account and Employer Contributions Account, the Employer elects the following vesting schedule: (Choose (a) or (b); (c) and (d) are available only as additional options) [ ] (a) Immediate vesting. 100% Nonforfeitable at all times. [Note: The Employer must elect Option (a) if the eligibility conditions under Adoption Agreement Section 2.01(c) require 2 years of service or more than 12 months of employment.] [ x ] (b) Graduated Vesting Schedules. Top Heavy Schedule (Mandatory) Years of Nonforfeitable Service Percentage _______ ______________ Less than 1 0% 1 0% 2 20% 3 50% 4 75% 5 100% 6 or more 100% Non Top Heavy Schedule (Optional) Years of Nonforfeitable Service Percentage _______ ______________ Less than 1 0% 1 0% 2 25% 3 50% 4 75% 5 100% 6 100% 7 or more 100% [ x ] (c) Special vesting election for Regular Matching Contributions Account. In lieu of the election under Options (a) or (b), the Employer elects the following vesting schedule for a Participant's Regular Matching Contributions Account: (Choose (1) or (2)) [ x ] (1) 100% Nonforfeitable at all times. [ ] (2) In accordance with the vesting schedule described in the addendum to this Adoption Agreement, numbered 5.03(c). [Note: If the Employer elects this Option (c)(2), the addendum must designate the applicable vesting schedule(s) using the same format as used in Option (b).] [Note: Under Options (b) and (c)(2), the Employer must complete a Top Heavy Schedule which satisfies Code Section 416. The Employer, at its option, may complete a Non Top Heavy Schedule. The Non Top Heavy Schedule must satisfy Code Section 411(a)(2). Also see Section 7.05 of the Plan.] [ x ] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under Option (c)(2)) applies: (Choose (1) or (2)) [ ] (1) Only in a Plan Year for which the Plan is top heavy. [ x ] (2) In the Plan Year for which the Plan first is top heavy and then in all subsequent Plan Years. [Note: The Employer may not elect Option (d) unless it has completed a Non Top Heavy Schedule.] Minimum vesting. (Choose (e) or (f)) [ x ] (e) The Plan does not apply a minimum vesting rule. [ ] (f) A Participant's Nonforfeitable Accrued Benefit will never be less than the lesser of $_____ or his entire Accrued Benefit, even if the application of a graduated vesting schedule under Options (b) or (c) would result in a smaller Nonforfeitable Accrued Benefit. Life Insurance Investments. The Participant's Accrued Benefit attributable to insurance contracts purchased on his behalf under Article XI is: (Choose (g) or (h)) [ X ] (g) Subject to the vesting election under Options (a), (b) or (c). [ ] (h) 100% Nonforfeitable at all times, irrespective of the vesting election under Options (b) or (c)(2). 5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section 5.04(C) of the Plan: (Choose (a) or (b)) [ x ] (a) Does not apply. [ ] (b) Will apply to determine the timing of forfeitures for 0% vested Participants. A Participant is not a 0% vested Participant if he has a Deferral Contributions Account. 5.06 YEAR OF SERVICE - VESTING. Vesting computation period. The Plan measures a Year of Service on the basis of the following 12 consecutive month periods: (Choose (a) or (b)) [ x ] (a) Plan Years. [ ] (b) Employment Years. An Employment Year is the 12 consecutive month period measured from the Employee's Employment Commencement Date and each successive 12 consecutive month period measured from each anniversary of that Employment Commencement Date. Hours of Service. The minimum number of Hours of Service an Employee must complete during a vesting computation period to receive credit for a Year of Service is: (Choose (c) or (d)) [ x ] (c) 1,000 Hours of Service. [ ] (d) _____ Hours of Service. [Note: The Hours of Service requirement may not exceed 1,000.] 5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically excludes the following Years of Service: (Choose (a) or at least one of (b) through (e)) [ x ] (a) None other than as specified in Section 5.08(a) of the Plan. [ ] (b) Any Year of Service before the Participant attained the age of ___. [Note: The age selected may not exceed age 18.] [ ] (c) Any Year of Service during the period the Employer did not maintain this Plan or a predecessor plan. [ ] (d) Any Year of Service before a Break in Service if the number of consecutive Breaks in Service equals or exceeds the greater of 5 or the aggregate number of the Years of Service prior to the Break. This exception applies only if the Participant is 0% vested in his Accrued Benefit derived from Employer contributions at the time he has a Break in Service. Furthermore, the aggregate number of Years of Service before a Break in Service do not include any Years of Service not required to be taken into account under this exception by reason of any prior Break in Service. [ ] (e) Any Year of Service earned prior to the effective date of ERISA if the Plan would have disregarded that Year of Service on account of an Employee's Separation from Service under a Plan provision in effect and adopted before January 1, 1974. ARTICLE VI TIME AND METHOD OF PAYMENTS OF BENEFITS Code Section 411(d)(6) Protected Benefits. The elections under this Article VI may not eliminate Code Section 411(d)(6) protected benefits. To the extent the elections would eliminate a Code Section 411(d)(6) protected benefit, see Section 13.02 of the Plan. Furthermore, if the elections liberalize the optional forms of benefit under the Plan, the more liberal options apply on the later of the adoption date or the Effective Date of this Adoption Agreement. 6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Distribution date. A distribution date under the Plan means the 60th day following each semi-annual valuation date . [Note: The Employer must specify the appropriate date(s). The specified distribution dates primarily establish annuity starting dates and the notice and consent periods prescribed by the Plan. The Plan allows the Trustee an administratively practicable period of time to make the actual distribution relating to a particular distribution date.] Nonforfeitable Accrued Benefit Not Exceeding $3,500. Subject to the limitations of Section 6.01(A)(1), the distribution date for distribution of a Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a), (b), (c), (d) or (e)) [ ] (a) ___________ of the _________ Plan Year beginning after the Participant's Separation from Service. [ x ] (b) the first distribution date following the Participant's Separation from Service. [ ] (c) __________ of the Plan Year after the Participant incurs _____ Break(s) in Service (as defined in Article V). [ ] (d) _________ following the Participant's attainment of Normal Retirement Age, but not earlier than __________ days following his Separation from Service. [ ] (e) (Specify) __________. Nonforfeitable Accrued Benefit Exceeds $3,500. See the elections under Section 6.03. Disability. The distribution date, subject to Section 6.01(A)(3), is: (Choose (f), (g) or (h)) [ ] (f) __________ after the Participant terminates employment because of disability. [ x ] (g) The same as if the Participant had terminated employment without disability. [ ] (h) (Specify) ________. Hardship. (Choose (i) or (j)) [ x ] (i) The Plan does not permit a hardship distribution to a Participant who has separated from Service. [ ] (j) The Plan permits a hardship distribution to a Participant who has separated from Service in accordance with the hardship distribution policy stated in: (Choose (1), (2) or (3)) [ ] (1) Section 6.01(A)(4) of the Plan. [ ] (2) Section 14.11 of the Plan. [ ] (3) The addendum to this Adoption Agreement, numbered Section 6.01. Default on a Loan. If a Participant or Beneficiary defaults on a loan made pursuant to a loan policy adopted by the Advisory Committee pursuant to Section 9.04, the Plan: (Choose (k), (l) or (m)) [ x ] (k) Treats the default as a distributable event. The Trustee, at the time of the default, will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. To the extent the loan is attributable to the Participant's Deferral Contributions Account, Qualified Matching Contributions Account or Qualified Nonelective Contributions Account, the Trustee will not reduce the Participant's Nonforfeitable Accrued Benefit unless the Participant has separated from Service or unless the Participant has attained age 59 1/2. [ ] (l) Does not treat the default as a distributable event. When an otherwise distributable event first occurs pursuant to Section 6.01 or Section 6.03 of the Plan, the Trustee will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. [ ] (m) (Specify) __________. 6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will apply Section 6.02 of the Plan with the following modifications: (Choose (a) or at least one of (b), (c), (d) and (e)) [ ] (a) No modifications. [ ] (b) Except as required under Section 6.01 of the Plan, a lump sum distribution is not available: ___________. [ x ] (c) An installment distribution: (Choose (1) or at least one of (2) or (3)) [ ] (1) Is not available under the Plan. [ ] (2) May not exceed the lesser of _____ years or the maximum period permitted under Section 6.02. [ x ] (3) (Specify) option is available in which a participant may elect to take a partial distribution on a semi annual basis with a $1,000 minimum per semi-annual distribution. [ x ] (d) The Plan permits the following annuity options: purchase and delivery of a single premium annuity contract. Any Participant who elects a life annuity option is subject to the requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See Section 6.04(E). [Note: The Employer may specify additional annuity options in an addendum to this Adoption Agreement, numbered 6.02(d).] [ ] (e) If the Plan invests in qualifying Employer securities, as described in Section 10.03(F), a Participant eligible to elect distribution under Section 6.03 may elect to receive that distribution in Employer securities only in accordance with the provisions of the addendum to this Adoption Agreement, numbered 6.02(e). 6.03 BENEFIT PAYMENT ELECTIONS. Participant Elections After Separation from Service. A Participant who is eligible to make distribution elections under Section 6.03 of the Plan may elect to commence distribution of his Nonforfeitable Accrued Benefit: (Choose at least one of (a) through (c)) [ ] (a) As of any distribution date, but not earlier than __________ of the _________ Plan Year beginning after the Participant's Separation from Service. [ x ] (b) As of the following date(s): (Choose at least one of Options (1) through (6)) [ ] (1) Any distribution date after the close of the Plan Year in which the Participant attains Normal Retirement Age. [ x ] (2) Any distribution date following his Separation from Service with the Employer. [ ] (3) Any distribution date in the __________ Plan Year(s) beginning after his Separation from Service. [ ] (4) Any distribution date in the Plan Year after the Participant incurs _____ Break(s) in Service (as defined in Article V). [ ] (5) Any distribution date following attainment of age _____ and completion of at least _____ Years of Service (as defined in Article V). [ ] (6) (Specify) ___________. [ ] (c) (Specify) __________. The distribution events described in the election(s) made under Options (a), (b) or (c) apply equally to all Accounts maintained for the Participant unless otherwise specified in Option (c). Participant Elections Prior to Separation from Service - Regular Matching Contributions Account and Employer Contributions Account. Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Regular Matching Contributions Account and Employer Contributions Account prior to his Separation from Service: (Choose (d) or at least one of (e) through (h)) [ x ] (d) No distribution options prior to Separation from Service. [ ] (e) Attainment of Specified Age. Until he retires, the Participant has a continuing election to receive all or any portion of his Nonforfeitable interest in these Accounts after he attains: (Choose (1) or (2)) [ ] (1) Normal Retirement Age. [ ] (2) _____ years of age and is at least ____% vested in these Accounts. [Note: If the percentage is less than 100%, see the special vesting formula in Section 5.03.] [ ] (f) After a Participant has participated in the Plan for a period of not less than _____ years and he is 100% vested in these Accounts, until he retires, the Participant has a continuing election to receive all or any portion of the Accounts. [Note: The number in the blank space may not be less than 5.] [ ] (g) Hardship. A Participant may elect a hardship distribution prior to his Separation from Service in accordance with the hardship distribution policy: (Choose (1), (2) or (3); (4) is available only as an additional option) [ ] (1) Under Section 6.01(A)(4) of the Plan. [ ] (2) Under Section 14.11 of the Plan. [ ] (3) Provided in the addendum to this Adoption Agreement, numbered Section 6.03. [ ] (4) In no event may a Participant receive a hardship distribution before he is at least _____% vested in these Accounts. [Note: If the percentage in the blank is less than 100%, see the special vesting formula in Section 5.03.] [ ] (h) (Specify) ___________. [Note: The Employer may use an addendum, numbered 6.03, to provide additional language authorized by Options (b)(6), (c), (g)(3) or (h) of this Adoption Agreement Section 6.03.] Participant Elections Prior to Separation from Service - Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account. Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account prior to his Separation from Service: (Choose (i) or at least one of (j) through (l)) [ x ] (i) No distribution options prior to Separation from Service. [ ] (j) Until he retires, the Participant has a continuing election to receive all or any portion of these Accounts after he attains: (Choose (1) or (2)) [ ] (1) The later of Normal Retirement Age or age 59 1/2. [ ] (2) Age _____ (at least 59 1/2). [ ] (k) Hardship. A Participant, prior to this Separation from Service, may elect a hardship distribution from his Deferral Contributions Account in accordance with the hardship distribution policy under Section 14.11 of the Plan. [ ] (l) (Specify) _____________. [Note: Option (l) may not permit in service distributions prior to age 59 1/2 (other than hardship) and may not modify the hardship policy described in Section 14.11.] Sale of trade or business/subsidiary. If the Employer sells substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business or sells a subsidiary (within the meaning of Code Section 409(d)(3)), a Participant who continues employment with the acquiring corporation is eligible for distribution from his Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account: (Choose (m) or (n)) [ x ] (m) Only as described in this Adoption Agreement Section 6.03 for distributions prior to Separation from Service. [ ] (n) As if he has a Separation from Service. After March 31, 1988, a distribution authorized solely by reason of this Option (n) must constitute a lump sum distribution, determined in a manner consistent with Code Section 401(k)(10) and the applicable Treasury regulations. 6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The annuity distribution requirements of Section 6.04: (Choose (a) or (b)) [ x ] (a) Apply only to a Participant described in Section 6.04(E) of the Plan (relating to the profit sharing exception to the joint and survivor requirements). [ ] (b) Apply to all Participants. ARTICLE IX ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS 9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other than a distribution from a segregated Account and other than a corrective distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan) occurs more than 90 days after the most recent valuation date, the distribution will include interest at: (Choose (a), (b) or (c)) [ ] (a) _____% per annum. [Note: The percentage may equal 0%.] [ ] (b) The 90 day Treasury bill rate in effect at the beginning of the current valuation period. [ x ] (c) (Specify) Distributions will include interest at money market rates. 9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant to Section 14.12, to determine the allocation of net income, gain or loss: (Complete only those items, if any, which are applicable to the Employer's Plan) [ x ] (a) For salary reduction contributions, the Advisory Committee will: (Choose (1), (2), (3), (4) or (5)) [ x ] (1) Apply Section 9.11 without modification. [ ] (2) Use the segregated account approach described in Section 14.12. [ ] (3) Use the weighted average method described in Section 14.12, based on a _____ weighting period. [ ] (4) Treat as part of the relevant Account at the beginning of the valuation period ___% of the salary reduction contributions: (Choose (i) or (ii)) [ x ] (i) made during that valuation period. [ ] (ii) made by the following specified time: __________. [ ] (5) Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(a). [ x ] (b) For matching contributions, the Advisory Committee will: (Choose (1), (2), (3) or (4)) [ X ] (1) Apply Section 9.11 without modification. [ ] (2) Use the weighted average method described in Section 14.12, based on a __________ weighting period. [ ] (3) Treat as part of the relevant Account at the beginning of the valuation period ___% of the matching contributions allocated during the valuation period. [ ] (4) Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(b). [ ] (c) For Participant nondeductible contributions, the Advisory Committee will: (Choose (1), (2), (3), (4) or (5)) [ ] (1) Apply Section 9.11 without modification. [ ] (2) Use the segregated account approach described in Section 14.12. [ ] (3) Use the weighted average method described in Section 14.12, based on a __________ weighting period. [ ] (4) Treat as part of the relevant Account at the beginning of the valuation period _____% of the Participant nondeductible contributions: (Choose (i) or (ii)) [ ] (i) made during that valuation period. [ ] (ii) made by the following specified time: __________. [ ] (5) Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(c). ARTICLE X TRUSTEE AND CUSTODIAN, POWERS AND DUTIES 10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the aggregate investments in qualifying Employer securities and in qualifying Employer real property: (Choose (a) or (b)) [ x ] (a) May not exceed 10% of Plan assets. [ ] (b) May not exceed _____% of Plan assets. [Note: The percentage may not exceed 100%.] 10.14 VALUATION OF TRUST. In addition to each Accounting Date, the Trustee must value the Trust Fund on the following valuation date(s): (Choose (a) or (b)) [ ] (a) No other mandatory valuation dates. [ x ] (b) (Specify) June 30. EFFECTIVE DATE ADDENDUM (Restated Plans Only) The Employer must complete this addendum only if the restated Effective Date specified in Adoption Agreement Section 1.18 is different than the restated effective date for at least one of the provisions listed in this addendum. In lieu of the restated Effective Date in Adoption Agreement Section 1.18, the following special effective dates apply: (Choose whichever elections apply) [ ] (a) Compensation definition. The Compensation definition of Section 1.12 (other than the $200,000 limitation) is effective for Plan Years beginning after _________. [Note: May not be effective later than the first day of the first Plan Year beginning after the Employer executes this Adoption Agreement to restate the Plan for the Tax Reform Act of 1986, if applicable.] [ x ] (b) Eligibility conditions. The eligibility conditions specified in Adoption Agreement Section 2.01 are effective for Plan Years beginning after December 31, 1996. [ ] (c) Suspension of Years of Service. The suspension of Years of Service rule elected under Adoption Agreement Section 2.03 is effective for Plan Years beginning after _____. [ ] (d) Contribution/allocation formula. The contribution formula elected under Adoption Agreement Section 3.01 and the method of allocation elected under Adoption Agreement Section 3.04 is effective for Plan Years beginning after _____. [ ] (e) Accrual requirements. The accrual requirements of Section 3.06 are effective for Plan Years beginning after _____. [ ] (f) Employment condition. The employment condition of Section 3.06 is effective for Plan Years beginning after _____. [ ] (g) Elimination of Net Profits. The requirement for the Employer not to have net profits to contribute to this Plan is effective for Plan Years beginning after _____. [Note: The date specified may not be earlier than December 31, 1985.] [ ] (h) Vesting Schedule. The vesting schedule elected under Adoption Agreement Section 5.03 is effective for Plan Years beginning after _____. [ ] (i) Allocation of Earnings. The special allocation provisions elected under Adoption Agreement Section 9.11 are effective for Plan Years beginning after _____. [ x ] (j) (Specify) The vesting schedule will be effective for all participants who complete one hour of service after the effective date of January, 1998. For Plan Years prior to the special Effective Date, the terms of the Plan prior to its restatement under this Adoption Agreement will control for purposes of the designated provisions. A special Effective Date may not result in the delay of a Plan provision beyond the permissible Effective Date under any applicable law requirements. Execution Page The Trustee (and Custodian, if applicable), by executing this Adoption Agreement, accepts its position and agrees to all of the obligations, responsibilities and duties imposed upon the Trustee (or Custodian) under the Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan and Trust, and in witness of its agreement, the Employer by its duly authorized officers, has executed this Adoption Agreement, and the Trustee (and Custodian, if applicable) signified its acceptance, on this 18th day of December, 1998. Name and EIN of Employer: BRENTON BANKS, INC. 42-0658989 Signed: /s/ Steven T. Schuler CFO/Treasurer/Secretary Name(s) of Trustee: Brenton Bank Signed: /s/ Name of Custodian: N/A Signed: _______________________________ [Note: A Trustee is mandatory, but a Custodian is optional. See Section 10.03 of the Plan.] Plan Number. The 3-digit plan number the Employer assigns to this Plan for ERISA reporting purposes (Form 5500 Series) is: 002. Use of Adoption Agreement. Failure to complete properly the elections in this Adoption Agreement may result in disqualification of the Employer's Plan. The 3-digit number assigned to this Adoption Agreement (see page 1) is solely for the Master Plan Sponsor's recordkeeping purposes and does not necessarily correspond to the plan number the Employer designated in the prior paragraph. Master Plan Sponsor. The Master Plan Sponsor identified on the first page of the basic plan document will notify all adopting employers of any amendment of this Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor of its maintenance of this Master Plan. For inquiries regarding the adoption of the Master Plan, the Master Plan Sponsor's intended meaning of any plan provisions or the effect of the opinion letter issued to the Master Plan Sponsor, please contact the Master Plan Sponsor at the following address and telephone number: P.O. BOX 10478 DES MOINES, IA 50306-0478 (515) 237-5160. Reliance on Opinion Letter. The Employer may not rely on the Master Plan Sponsor's opinion letter covering this Adoption Agreement. For reliance on the Plan's qualification, the Employer must obtain a determination letter from the applicable IRS Key District office. PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 18th day of December, 1998. Name of Participating Employer: Brenton Bank Signed: /s/ Steven T. Schuler CFO/Treasurer/Secretary Participating Employer's EIN: 42-0994231 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-18-98 [Date] Signed: /s/ Steven T. Schuler CFO/Treasurer/Secretary Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 18th day of December, 1998. Name of Participating Employer: Brenton Insurance Services, Inc. Signed: /s/ Steven T. Schuler Director/Secretary Participating Employer's EIN: 42-1012438 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-18-98 [Date] Signed: /s/ Steven T. Schuler CFO/Treasurer/Secretary Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 22nd day of December, 1998. Name of Participating Employer: Brenton Savings Bank, FSB Signed: /s/ Kevin Z. Geis Participating Employer's EIN: 42-0114100 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-30-98 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 22nd day of December, 1998. Name of Participating Employer: Brenton Savings Financial Services, Inc. Signed: /s/ Kevin Z. Geis Participating Employer's EIN: 42-1206701 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-30-98 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ /TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 18th day of December, 1998. Name of Participating Employer: Brenton Realty Services, Ltd. Signed: /s/ Participating Employer's EIN: 42-1231886 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-30-98 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 18th day of December, 1998. Name of Participating Employer: Brenton Mortgages, Inc. Signed: /s/ , President Participating Employer's EIN: 42-1014357 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-30-98 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 18th day of December, 1998. Name of Participating Employer: Brenton Insurance, Inc. Signed: /s/ Elizabeth Piper/Bach Participating Employer's EIN: 42-1231828 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-30-98 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 18th day of December, 1998. Name of Participating Employer: Brenton Investments, Inc. Signed: /s/ Elizabeth Piper/Bach Participating Employer's EIN: 42-1378382 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 12-30-98 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: July 1, 1998. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 30th day of December, 1998. Name of Participating Employer: Brenton Brothers Inc. Signed: /s/ C. Robert Brenton Participating Employer's EIN: 42-1385118 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: [Date] Signed: /s/ Name(s) of Trustee: Brenton Bank Accepted: 12-30-98 [Date] Signed: /s/ [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] EX-10.14 16 Exhibit 10.14 Indenture Agreement with respect to Capital Notes dated April 12, 1993. 121 I N D E N T U R E A G R E E M E N T W I T H R E S P E C T T O C A P I T A L N O T E S D A T E D A P R I L 1 2, 1 9 9 3 INDENTURE AGREEMENT THIS INDENTURE AGREEMENT is made as of the 12th day of April, 1993, between BRENTON BANKS, INC., a corporation organized and existing under the laws of Iowa with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Company," and BANKERS TRUST COMPANY, a state banking corporation organized under the laws of the State of Iowa, with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Trustee." W I T N E S S E T H: WHEREAS, Company is duly authorized by its Articles of Incorporation and By-Laws to borrow money for its corporate purposes; and, WHEREAS, Company was heretofore duly authorized by a unanimous affirmative vote of its directors at a meeting duly called and held for such purpose to borrow the sum of $5,000,000 for use in connection with its ordinary operations and to issue its Capital Notes in the total sum of $5,000,000, with the same to be secured by an appropriate Indenture Agreement with Bankers Trust Company, Des Moines, Iowa, as Trustee for the Capital Note holders. NOW, THEREFORE, in consideration of One Dollar ($1.00) in hand paid to Trustee, and in consideration of the purchase and acceptance of Capital Notes of Company by various purchasers, Company hereby covenants and declares that its Capital Notes in the maximum principal sum of $5,000,000, and hereinafter more fully described, shall be issued by it upon and subject to the following terms, conditions, and covenants, and Trustee by its execution hereof agrees to act as Trustee for all such Capital Note holders under and pursuant to the terms of this Agreement. ARTICLE I Capital Notes 1.01 Company shall issue its Capital Notes, in the maximum total principal sum of $5,000,000 with the same being in the series, maturing on the dates, and bearing interest at the rates enumerated on Exhibit A attached hereto, which said Capital Notes shall constitute those issued under and pursuant to this Indenture. Such Capital Notes shall be issued in denominations of multiples of $1,000. 1.02 The Capital Notes to be issued under and pursuant to the terms hereof shall be in the form attached hereto as Exhibit B. 1.03 All Capital Notes issued pursuant to this Indenture shall be issued directly to the registered owners as to principal and interest, and shall be transferable by the registered owner in person or by duly authorized attorney at the office of the Company upon surrender and cancellation of the original Capital Note, at which time a new registered Capital Note(s) shall be executed and delivered by Company in lieu thereof with the same registered in the name of the transferee or transferees. Each Capital Note issued in consummation of an assignment and transfer of an original issue, or any subsequent Capital Notes issued and outstanding under the terms hereof, shall be appropriately recorded by both Company and by Trustee. 1.04 All Capital Notes issued under and pursuant to this Indenture shall be certified by Trustee and shall not be valid for any purpose until so certified. Whenever a Capital Note is surrendered for transfer or assignment and a new Capital Note issued in lieu thereof, the same shall be certified at that time by Trustee prior to its delivery to the registered owner or owners. 1.05 All Capital Notes issued under the terms hereof shall have equal priority as to principal. Upon the happening of an "event of default," all interest due and unpaid on that date on all Capital Notes issued and outstanding shall have priority over any principal amounts of such Capital Notes, and shall be paid ratably either in money or property among the Capital Note holders to whom the said unpaid interest is due and owing, and no payment of principal shall be made until all said unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall then be paid. For the purpose of principal payment, whether by virtue of distribution of money or property, priority with respect thereto shall be equal between all such outstanding Capital Notes. 1.06 Any Capital Note issued under the terms hereof which has been lost, destroyed, or stolen shall be replaced by Company with an identical new Capital Note, certified by Trustee, upon proof of loss, destruction, or theft satisfactory to Company and Trustee and the giving of a bond to secure Company and Trustee from loss, if and to the extent required by Company and Trustee. 1.07 Any Capital Note surrendered to Company by the holder thereof on payment or redemption shall be promptly cancelled by Company and after cancellation delivered to Trustee for recordation and return to Company. A Capital Note surrendered upon an assignment or transfer shall also be so cancelled by Company and delivered to Trustee for recordation and return to Company. 1.08 All Capital Notes issued pursuant to the terms hereof shall bear interest, payable semi-annually on June 1 and December 1 of each year prior to maturity, call for redemption or redemption pursuant to Section 1.11 hereof. No payment of principal shall be made until all unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall be paid. For the purpose of principal payments, whether by virtue of distribution of money or property, priority with respect thereto shall be equal in all respects between all such outstanding Capital Notes. 1.09 Capital Notes issued and outstanding under the terms hereof shall be paid on maturity to the extent that payment is not prohibited by the terms hereof, and after payment of all interest due and payable on any such outstanding Capital Notes at that time. 1.10 Any Capital Note issued pursuant to this Indenture may be redeemed in whole or in part by Company, on any interest payment date after eight (8) years from the date of issuance of such Capital Note, in advance of maturity at any time thirty (30) days after notice by Company of its election to do so by paying all interest due thereon together with the principal amount thereof. 1.11 Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exercisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. 1.12 In the event any Capital Note is not presented for surrender and cancellation on maturity or when called for redemption by Company, Company shall deposit a sum equal to the amount due thereon, with Trustee in trust for payment thereof, and no interest shall be due and payable to the holder of such Capital Note from and after its maturity or redemption date. Such payment by Company to Trustee shall be made within thirty (30) days after the due date. Thereafter, Trustee shall pay over said sum to the owner upon delivery and surrender of the pertinent Capital Note(s) for redemption and cancellation. 1.13 Nothing contained in this Indenture or in any of the Capital Notes shall be construed to cause the Capital Notes issued hereunder to become immediately due and payable in the event of any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or any sale or conveyance of the property of the Company as an entirety or substantially as an entirety, to any other corporation (whether or not affiliated with the Company) or the purchase of stock and subsequent liquidation of the assets into the purchasing entity (hereinafter "purchase and liquidation") authorized to acquire and operate the same if the following are delivered to the Trustee: (1) an opinion by a certified public accountant appointed by the successor corporation or entity opining that the net worth of the successor corporation or entity following the acquisition, merger, consolidation, sale of assets, or purchase and liquidation determined on a pro forma basis using the successor corporation's or entity's and the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation is in excess of the net worth of the Company as reflected on the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation; (2) an Assumption Agreement in which the successor corporation or entity expressly assumes the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company; and (3) an opinion of counsel appointed by the successor corporation or entity that the Assumption Agreement is a valid and binding obligation of such successor corporation or entity enforceable in accordance with its terms and the Capital Notes are valid and binding obligations of the successor corporation or entity. In case of any such consolidation, merger, sale, conveyance, or purchase and liquidation and upon the assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company. 1.14 Any notices which Company is required to give under the terms of this Indenture, or which are deemed necessary or proper by Company, shall be given by first class mail with postage prepaid addressed to each Capital Note holder at the address shown for him on the books and records of Company, and notices so given shall be deemed given upon the date of the mailing thereof. ARTICLE II Covenants of Company 2.01 Company covenants and agrees to pay all principal and interest as the same becomes due and payable upon any Capital Notes issued and outstanding under the terms of this Indenture; provided, however, that principal shall only be paid by it upon surrender of the appropriate Capital Notes for cancellation, or if not surrendered, by payment to Trustee as provided in this Indenture. 2.02 Subject to the provisions of Section 1.13 hereof, Company covenants to continue the operation of its business, all as required and permitted by its Articles of Incorporation and By-Laws, and to at all times maintain sufficient assets and property to continue such general operations so long as any of its Capital Notes remain issued and outstanding under the terms hereof. 2.03 Company covenants to meet all requirements relative to issuance of said Capital Notes, payment of principal and interest thereon from the sources specified, and all other conditions relating thereto as provided in Article I hereof. 2.04 Company further covenants to furnish Trustee true copies of all quarterly and annual reports normally prepared by Company. 2.05 On an annual basis Company covenants to furnish trustee with a certificate indicating whether there has been an "event of default", as defined in Article III hereof, on the Capital Notes. Said statement shall be certified by an officer of the Company that it is true and accurate according to the Company's best knowledge and belief. The Company shall deliver the certificate to the Trustee within ninety (90) days of the Company's fiscal year end. 2.06. The Company further covenants to furnish Trustee a quarterly statement listing the current capital noteholders. Said statement shall be certified by an officer of the Company to be true and accurate according to the Company's best knowledge and belief. ARTICLE III Defaults: Rights, Remedies, and Duties of Trustee and Capital Note Holders 3.01 An "event of default" shall constitute any one of the following: a. Failure of Company to pay interest or principal or any part thereof, within thirty (30) days after due; b. Failure of Company to fully perform any other covenant or obligation made and to be kept or performed by Company by virtue of this Indenture which is not remedied within sixty (60) days after notice of such failure from Trustee or from the holders of twenty-five percent (25%) of the principal amount of all Capital Notes issued and outstanding under the terms hereof at that time. c. Adjudication of Company as a bankrupt or insolvent in any state or federal court, or appointment by any court of a receiver to take over and conduct the business, affairs, and property of Company, or commencement of liquidation of Company, either voluntary or involuntary, pursuant to any bankruptcy, insolvency or receivership. 3.02 Subject to the provisions of Section 4.01(e), upon the happening of an "event of default," Trustee shall declare all principal and interest on all Capital Notes of Company then issued and outstanding under the terms hereof due and payable at once by written notice to Company, and thereafter, Trustee may sue at law or in equity or proceed in any other manner authorized by law to enforce payment of all sums due on any such outstanding Capital Notes and to establish and enforce all rights and priorities of every kind and nature of the holders of all such Capital Notes and of such Trustee. 3.03 Subject to the provisions of Section 4.01(e), upon the occurrence of an "event of default" as defined in this Indenture, Trustee, within thirty (30) days after knowledge thereof, shall give written notice thereof to all registered owners of Capital Notes outstanding under the terms of this Indenture at that time, said notice to be by ordinary first class mail addressed to each owner at the address shown on Trustee's records. Failure to give notices under the terms hereof, however, shall not make Trustee liable for any claim resulting therefrom. 3.04 In any action or proceeding in which rights of Capital Note holders in and to the assets and property of Company are or may be affected, or to enforce payment of interest or principal due under this Indenture or any of the Capital Notes issued pursuant to the same, or to otherwise enforce performance by Company of any obligations made or to be performed by it under the terms hereof or of Capital Notes issued pursuant to this Indenture, Trustee shall act for and on behalf of all Capital Note Holders, and shall file and make proof of debts, claims, petitions, pleadings, and all other instruments, and may take all action and steps deemed necessary or proper to enforce, protect, and preserve all rights and properties of the holders of outstanding Capital Notes. 3.05 Trustee may employ counsel as in its discretion deemed proper in the case of any "event of default" of Company, or any other actions as in this Indenture described or provided for with respect to Trustee either in its own right or for and on behalf of Capital Note holders, and Company shall pay all fees and expenses of such counsel and of Trustee in any such acts, actions, or proceedings taken by Trustee under terms hereof. 3.06 All moneys collected or received by Trustee by virtue of any act, action, or proceeding taken under the terms hereof or received by Trustee for and on behalf of Capital Note holders shall be disbursed as follows: a. In payment of all costs, expenses, charges, and fees of Trustee, including counsel and attorney's fees; b. In payment of all principal and interest due and unpaid on the Capital Notes issued and outstanding at that time. If there are insufficient funds to fully pay all such principal and interest, the funds available shall be applied and paid first ratably to the payment of unpaid interest and then ratably to the payment of principal; c. The remainder, if any, to Company. 3.07 In case of an "event of default" by Company by virtue of which the Trustee may elect to institute an action or proceeding on behalf of the Capital Note holders against Company, if Trustee does not institute an action within thirty (30) days after its elective right to so do has accrued, the holders of Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding by written demand given to Trustee may require Trustee to institute any action or proceeding which they direct Trustee to initiate, provided however, that Trustee, before bringing any such action, may, as is hereinafter more fully spelled out, require adequate security from such Capital Note holders to protect it against any loss by virtue of expenses, charges, and fees incident to any action so required. In the event that two or more groups of holders of Capital Notes each of which holds Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding direct the trustee to proceed in a conflicting manner(s), the trustee may interplead the funds into or may seek a declaratory determination of the conflict(s) from the District Court for Polk County, Iowa. 3.08 No holder of any Capital Note issued hereunder shall have the right to institute any suit, action, or proceeding in equity or at law for the execution of any trust or power hereof or for the endorsement or any remedy under this Indenture or any Capital Note issued hereunder unless: a. Such holder shall have previously given the Trustee written notice of some existing "event of default" and of the continuance thereof; b. The holders of twenty-five percent (25%) in principal amount of the Capital Notes at the time outstanding shall have requested the Trustee to exercise such power or right of action after the right to do so has accrued hereunder and have afforded the Trustee a reasonable opportunity to proceed upon such request; c. Such holders shall have offered to Trustee indemnity satisfactory to it against the costs, expenses, and liabilities to be incurred thereby; and d. The Trustee shall have failed or refused to comply with such request within a period of sixty (60) days. Compliance with the foregoing conditions shall at the option of the Trustee be a condition precedent to the exercise of the powers and trusts of this Indenture and to any action or proceeding for the enforcement of any remedy hereunder, and no holder of any Capital Note shall have any right to enforce any right on account of this Indenture or his Capital Note, except in the manner herein provided, and in any event all proceedings hereunder at law or in equity shall be instituted and maintained for the ratable benefit of all holders of outstanding Capital Notes in the manner and with the interest priority provided for in Section 1.05 and Section 3.06, and any other applicable provisions hereof. ARTICLE IV Trustee, Its Rights and Duties, and Successor Trustees 4.01 The Trustee, for itself and its successors, hereby accepts the trust created by this Indenture and assumes the duties imposed, but upon the following terms and conditions: a. Trustee shall be entitled to reasonable compensation for all services from time to time rendered by it under and by virtue of the terms of this Indenture including an acceptance fee, together with all expenses from time to time incurred by it, including fees paid for counsel and for legal services. The parties hereto shall agree upon Trustee's fees for ordinary services from time to time hereunder. In the event the parties do not agree, or in the event of extraordinary services by virtue of events of default or liquidation of Company, or any other matter which may require extraordinary services from Trustee, Trustee's compensation may be fixed by an appropriate court. Company covenants to pay all compensation to which Trustee may be entitled, including expenses and fees from time to time, promptly upon demand. b. Trustee shall not be responsible for the correctness of any recitals in this Indenture of any Capital Notes issued under and pursuant to the same (except certificates and authentications by Trustee). c. Trustee may employ and consult with counsel whenever deemed necessary, and the opinion of such counsel shall be full and complete authorization and protection to and for Trustee in respect of any action taken or suffered by it in good faith and in accordance with the opinion of such counsel. d. Trustee may rely upon the correctness of any certificate or statement, of the President or a Vice President of Company furnished from time to time under the terms hereof and shall not be liable in any way for any act done or any omission to act in reliance on any such certificate or statement. e. Trustee hereunder shall have no responsibility for determining when or whether an "Event of Default" has occurred except for those events of default which would come to its knowledge and attention in the ordinary course of business under this form of Trust Indenture. 4.02 Trustee shall not be liable for any act of commission or omission on its part in connection with the discharge and performance of its duties and obligations under this Indenture and any Capital Notes issued pursuant hereto, except to the extent that any such act or omission shall constitute willful misconduct or negligence, and reliance upon certificates and statements of Company, the President or a Vice President thereof, opinions of counsel (whether counsel for Company or not), and good faith errors in judgment by a responsible officer or officers of Trustee shall not be held to be negligent in any case. 4.03 Trustee shall keep at all times a current list of the names and addresses of registered Capital Note holders, issued and outstanding under the terms of this Indenture. Company shall promptly notify Trustee of all changes in names or addresses of Capital Note holders known to it. 4.04 Trustee may resign whenever it may elect to so do, sixty (60) days after a written notice of its intention to so do has been served on Company and on all Capital Note owners shown by the records of Trustee (notices in all cases to be by ordinary, first class mail with the date of service thereof), and in the event Trustee shall resign, or in the event Trustee shall be dissolved and cease to do business as a bank or trust company, Company shall designate by an appropriate written instrument a successor Trustee which shall be a state or national bank or trust company with its principal office in the state of Iowa. Any successor trustee appointed by Company under the terms hereof shall have all rights, powers, and duties of the original Trustee as herein provided, and whenever in this Indenture the word "Trustee" appears or the Trustee is referred to, it shall mean and includes any and all successor Trustees who may be appointed hereunder. 4.05 Trustee shall not be in any manner precluded from buying, selling, owning, or dealing in Capital Notes issued pursuant to this agreement, either in its own right or as agent for others, as fully and completely as any other individual, firm, or corporation could do. 4.06 Trustee or Company may (and on written request of owners of twenty- five percent (25%) in principal amount of outstanding Capital Notes shall) call a meeting of all Capital Note owners for any appropriate purpose. Such meeting shall be called by giving a written notice of the time and place thereof by ordinary, first class mail to all Capital Note owners whose names and addresses are first shown in the records of Trustee, mailed not less than five (5) days prior to the date fixed for such meeting. The Company shall pay for the costs of calling and holding said meeting. 4.07 In any case in which Trustee is required or may deem it proper or advisable to give a notice to Company, a Capital Note holder or any other person, firm, or agency, such notice shall be given by ordinary, first class mail, addressed to the last known post office address of any such person, firm, or agency, and the time of service thereof shall be the time of mailing thereof. ARTICLE V 5.01 The Company and Trustee may make arrangements varying, amending or changing this Indenture as Company and Trustee shall from time to time deem proper without the approval of the noteholders, provided only that no such amendment shall adversely affect any rights or interests of owners of Capital Notes then issued and outstanding under and pursuant to this Indenture. 5.02 Upon the execution of any Supplemental Indenture pursuant to the provisions of this Article V, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties, and immunities under this Indenture of the Trustee, the Company, and the holders of Capital Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. IN WITNESS WHEREOF, Brenton Banks, Inc. has caused this Indenture to be executed in its name and on its behalf by its President, duly attested by its Secretary, with its corporate seal hereto attached, and Bankers Trust Company, Des Moines, Iowa, to evidence its acceptance of the trusts hereby created, has caused this instrument to be signed in its name and on its behalf by a duly authorized officer, all on or as of this 12th day of April, 1993. BRENTON BANKS, INC. BANKERS TRUST COMPANY By /s/ By /s/ Junius C. Brenton, Bryan Hall, Trust Officer President ATTEST: By /s/ Steven T. Schuler, Chief Financial Officer and Vice President/Treasurer/Secretary STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 9th day of April, 1993, before me, a Notary Public in and for Polk County, Iowa, personally appeared Junius C. Brenton, President, and Steven T. Schuler, Chief Financial Officer and Vice President/Treasurer/Secretary, of Brenton Banks, Inc., the corporation which executed the above and foregoing instrument, who being to me known as the identical persons who signed the foregoing instrument, and by me duly sworn, each for himself, did say that they are respectively the President and the Chief Financial Officer/Vice President/ Secretary/Treasurer of said corporation, and that said instrument was by them signed and sealed on behalf of the said corporation by authority of its Board of Directors, and each of them acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and each of them voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. /s/ Pamela J. Slippy Notary Public in and for Polk County Seal STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 16 day of April, 1993, before me, a Notary Public in and for Polk County, Iowa, personally appeared Bryan Hall, of Bankers Trust Company, the corporation which executed the above and foregoing instrument, who being to me known as the identical person who signed the foregoing instrument, and by me duly sworn, did say that he is the Trust Officer of said corporation, and that said instrument was by him signed and sealed on behalf of the said corporation by authority of its Board of Directors, and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and by him voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. /s/ John D. Hunter Notary Public in and for Polk County Seal EXHIBIT A 5.00% Capital Notes Series SS-21 through SS-32 Due 1997 through 2008 5.25% Capital Notes Series TT-21 through TT-32 Due 1997 through 2008 5.50% Capital Notes Series UU-21 through UU-32 Due 1997 through 2008 5.75% Capital Notes Series VV-21 through VV-32 Due 1997 through 2008 6.00% Capital Notes Series G-21 through G-32 Due 1997 through 2008 6.25% Capital Notes Series Q-21 through Q-32 Due 1997 through 2008 6.50% Capital Notes Series J-21 through J-32 Due 1997 through 2008 6.75% Capital Notes Series K-21 through K-32 Due 1997 through 2008 7.00% Capital Notes Series M-21 through M-32 Due 1997 through 2008 7.25% Capital Notes Series N-21 through N-32 Due 1997 through 2008 7.50% Capital Notes Series R-21 through R-32 Due 1997 through 2008 7.75% Capital Notes Series T-21 through T-32 Due 1997 through 2008 8.00% Capital Notes Series U-21 through U-32 Due 1997 through 2008 8.25% Capital Notes Series V-21 through V-32 Due 1997 through 2008 8.50% Capital Notes Series W-21 through W-32 Due 1997 through 2008 8.75% Capital Notes Series X-21 through X-32 Due 1997 through 2008 9.00% Capital Notes Series Y-21 through Y-32 Due 1997 through 2008 9.25% Capital Notes Series B-21 through B-32 Due 1997 through 2008 9.50% Capital Notes Series A-21 through A-32 Due 1997 through 2008 9.75% Capital Notes Series C-21 through C-32 Due 1997 through 2008 10.00% Capital Notes Series D-21 through D-32 Due 1997 through 2008 10.25% Capital Notes Series E-21 through E-32 Due 1997 through 2008 10.50% Capital Notes Series F-21 through F-32 Due 1997 through 2008 10.75% Capital Notes Series H-21 through H-32 Due 1997 through 2008 11.00% Capital Notes Series I-21 through I-32 Due 1997 through 2008 11.25% Capital Notes Series L-21 through L-32 Due 1997 through 2008 11.50% Capital Notes Series 0-21 through 0-32 Due 1997 through 2008 11.75% Capital Notes Series S-21 through S-32 Due 1997 through 2008 12.00% Capital Notes Series Z-21 through Z-32 Due 1997 through 2008 12.25% Capital Notes Series P-21 THROUGH P-32 Due 1997 through 2008 12.50% Capital Notes Series SS-21 through SS-32 Due 1997 through 2008 12.75% Capital Notes Series AA-21 through AA-32 Due 1997 through 2008 13.00% Capital Notes Series BB-21 through BB-32 Due 1997 through 2008 EXHIBIT "B" KNo. _______________ BRENTON BANKS, INC. DES MOINES, IOWA $__________________ REGISTERED CAPITAL NOTE (SERIES _______________ CALLABLE) Brenton Banks, Inc., a corporation organized and existing under the laws of the State of Iowa, hereinafter referred to as the Corporation, for value received hereby promises to pay to the registered holder hereof, upon presentation of this Capital Note, the sum of $___________________ on the 1st day of June,______________, at the main office of the Corporation in the City of Des Moines, Iowa. The Corporation further agrees to pay interest on the principal amount from the __________ day of ____________________, until paid, at the rate of _______% per annum, payable semi-annually on the first day of June and December of each year. The Corporation shall, upon request of the registered holder hereof, mail a check representing the interest hereon, or the principal when due, to the registered holder at his address appearing on the books of registration. The Capital Note is subject to being called on any interest payment date occurring more than eight (8) years after the date of issuance hereof, at the option of the Corporation on not less than thirty (30) days' prior written notice given by the Corporation by ordinary mail to the holder of the Capital Note at such holder's address appearing on the books of registration, at 100% of the principal amount of this Capital Note, together with interest accrued and unpaid on this Capital Note, to the date fixed for such call. Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exercisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. This Capital Note is one of an authorized issue of fully registered Capital Notes of Brenton Banks, Inc., issued in multiples of $1,000 and limited to the aggregate principal amount of $5,000,000 at any one time outstanding, all issued pursuant to an Indenture dated April 12, 1993, executed and delivered by the Corporation to the Trustee, to which Indenture reference is hereby made for a description of rights, duties and obligations thereunder of the Corporation, the Trustee and the Owners of the Capital Notes. In the event of default in the payment of principal of, or interest on, this Capital Note, the total principal amount of this Capital Note, and all interest hereof, shall become due and payable and the Corporation shall immediately pay the same. Books for the registry hereof are maintained at the office of the Corporation or at the agency of the Corporation established for that purpose in the city of Des Moines, Iowa. This Capital Note is transferable by the registered holder hereof in person, or by his duly authorized attorney, at the office or agency of the Corporation for such purpose in the city of Des Moines, Iowa, upon surrender for cancellation of this Capital Note at said office or agency. Thereupon, a new Capital Note for a like principal amount, or new Capital Notes in such authorized denominations and registered in such name or names, as shall have been requested, shall be issued and delivered. No transfer hereof shall be valid unless made on the Corporation's books, at the office of the Corporation or the agency established for that purpose, in accordance with the provisions of the foregoing paragraph. The Corporation and its agents may deem and treat the person in whose name this Capital Note is registered as the absolute owner of the Capital Note for the purpose of receiving payment hereof and interest due hereon, but the Corporation may, at any time, require the presentation hereof as a condition precedent to such payment. No recourse shall be had for the payment of the principal of, or interest upon, this Capital Note, against any shareholder, officer, or director of the Corporation, by reason of any matter prior to the delivery of this Note, or otherwise, all such liability, by the acceptance hereof, and as a part of the consideration of this issue hereof, being expressly waived. In the event any Capital Note is not presented for payment when due or when called by the Corporation, the Corporation shall deposit a sum equal to the amount due thereon with Trustee in trust for payment thereof and neither the Corporation nor Trustee shall thereafter be liable for any interest thereon. This Capital Note and any subsequent Capital Note issued on transfer and surrender hereunder shall not be valid for any purpose until duly certified by the Trustee under the Indenture supporting the name. This Capital Note is not a deposit and is not insured by the Federal Deposit Insurance Corporation. IN WITNESS WHEREOF, the Corporation has caused this Capital Note to be executed by its Chairman, Vice president, President or Treasurer, and attested by another authorized officer, and its corporate seal affixed hereto, at Des Moines, Iowa, on the day and year appearing below. Corporate Seal: Date: ________________________________ BRENTON BANKS, INC. By: __________________________________ (Chairman, Vice Chairman, President or Treasurer) ATTEST: ______________________________________ (Secretary, Asst. Secretary, Treasurer, Asst. Treasurer, Controller or Asst. Controller) REGISTRATION (No writing on this registered Capital Note except by an officer or agent of the Corporation) Date of In Whose Registry Registration Name Registered Address Officer _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ TRUSTEE'S CERTIFICATE The foregoing Capital Note is hereby certified by the undersigned Bank as Trustee as one of the series of Capital Notes of Brenton Banks, Inc., described in the Indenture referred to therein, made between the Corporation and this Bank as Trustee. Dated as of this _______ day of ____________________, ______. _______________________________ (Trustee) By_____________________________ Its____________________________ (Title) ASSIGNMENT For value received I hereby assign to __________________________________ the within registered Capital Note and hereby irrevocably appoint _____________ ____________________________________ attorney to transfer the registered Capital Note on the books of the within named Corporation with full power of substitution in the premises. Dated:_________________________ Signatures guaranteed by the __________________________ Signature (in whose name _______________________________ registered) (Bank) __________________________ _______________________________ Signature (in whose name Signature registered) _______________________________ Date Office & Title The transfer of any notes represented by this certificate to any person who is not then a bona fide resident of the State of Iowa purchasing such notes for the purpose of investment and not for resale is restricted pursuant to the terms of a subscription form executed by the original holder of such notes. EX-10.15 17 Exhibit 10.15 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, 1997. 140 EX-10.16 18 Exhibit 10.16 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, 1996. 141 EX-10.17 19 Exhibit 10.17 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, 1996. 142 EX-10.18 20 Exhibit 10.18 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. 143 EX-10.19 21 Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 10, 1995. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1995. 144 EX-10.20 22 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated April 10, 1996. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. 145 EX-10.21 23 Exhibit 10.21 Indenture Agreement with respect to Capital Notes dated April 23, 1997. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1997. 146 EX-10.22 24 Exhibit 10.22 Indenture Agreement with respect to Capital Notes dated April 16, 1998. I N D E N T U R E A G R E E M E N T W I T H R E S P E C T T O C A P I T A L N O T E S D A T E D A P R I L 16, 1 9 9 8 INDENTURE AGREEMENT THIS INDENTURE AGREEMENT is made as of the 16th day of April, 1998, between BRENTON BANKS, INC., a corporation organized and existing under the laws of Iowa with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Company," and BANKERS TRUST COMPANY, a state banking corporation organized under the laws of the State of Iowa, with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Trustee." W I T N E S S E T H: WHEREAS, Company is duly authorized by its Articles of Incorporation and By-Laws to borrow money for its corporate purposes; and, WHEREAS, Company was heretofore duly authorized by a unanimous affirmative vote of its directors at a meeting duly called and held for such purpose to borrow the sum of $5,000,000 for use in connection with its ordinary operations and to issue its Capital Notes in the total sum of $5,000,000, with the same to be secured by an appropriate Indenture Agreement with Bankers Trust Company, Des Moines, Iowa, as Trustee for the Capital Note holders. NOW, THEREFORE, in consideration of One Dollar ($1.00) in hand paid to Trustee, and in consideration of the purchase and acceptance of Capital Notes of Company by various purchasers, Company hereby covenants and declares that its Capital Notes in the maximum principal sum of $5,000,000, and hereinafter more fully described, shall be issued by it upon and subject to the following terms, conditions, and covenants, and Trustee by its execution hereof agrees to act as Trustee for all such Capital Note holders under and pursuant to the terms of this Agreement. ARTICLE I Capital Notes 1.01 Company shall issue its Capital Notes, in the maximum total principal sum of $5,000,000 with the same being in the series, maturing on the dates, and bearing interest at the rates enumerated on Exhibit A attached hereto, which said Capital Notes shall constitute those issued under and pursuant to this Indenture. Such Capital Notes shall be issued in denominations of multiples of $1,000. 1.02 The Capital Notes to be issued under and pursuant to the terms hereof shall be in the form attached hereto as Exhibit B. 1.03 All Capital Notes issued pursuant to this Indenture shall be issued directly to the registered owners as to principal and interest, and shall be transferable by the registered owner in person or by duly authorized attorney at the office of the Company upon surrender and cancellation of the original Capital Note, at which time a new registered Capital Note(s) shall be executed and delivered by Company in lieu thereof with the same registered in the name of the transferee or transferees. Each Capital Note issued in consummation of an assignment and transfer of an original issue, or any subsequent Capital Notes issued and outstanding under the terms hereof, shall be appropriately recorded by both Company and by Trustee. 1.04 All Capital Notes issued under and pursuant to this Indenture shall be certified by Trustee and shall not be valid for any purpose until so certified. Whenever a Capital Note is surrendered for transfer or assignment and a new Capital Note issued in lieu thereof, the same shall be certified at that time by Trustee prior to its delivery to the registered owner or owners. 1.05 All Capital Notes issued under the terms hereof shall have equal priority as to principal. Upon the happening of an "event of default," all interest due and unpaid on that date on all Capital Notes issued and outstanding shall have priority over any principal amounts of such Capital Notes, and shall be paid ratably either in money or property among the Capital Note holders to whom the said unpaid interest is due and owing, and no payment of principal shall be made until all said unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall then be paid. For the purpose of principal payment, whether by virtue of distribution of money or property, priority with respect thereto shall be equal between all such outstanding Capital Notes. 1.06 Any Capital Note issued under the terms hereof which has been lost, destroyed, or stolen shall be replaced by Company with an identical new Capital Note, certified by Trustee, upon proof of loss, destruction, or theft satisfactory to Company and Trustee and the giving of a bond to secure Company and Trustee from loss, if and to the extent required by Company and Trustee. 1.07 Any Capital Note surrendered to Company by the holder thereof on payment or redemption shall be promptly cancelled by Company and after cancellation delivered to Trustee for recordation and return to Company. A Capital Note surrendered upon an assignment or transfer shall also be so cancelled by Company and delivered to Trustee for recordation and return to Company. 1.08 All Capital Notes issued pursuant to the terms hereof shall bear interest, payable semi-annually on June 1 and December 1 of each year prior to maturity, call for redemption or redemption pursuant to Section 1.11 hereof. No payment of principal shall be made until all unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall be paid. For the purpose of principal payments, whether by virtue of distribution of money or property, priority with respect thereto shall be equal in all respects between all such outstanding Capital Notes. 1.09 Capital Notes issued and outstanding under the terms hereof shall be paid on maturity to the extent that payment is not prohibited by the terms hereof, and after payment of all interest due and payable on any such outstanding Capital Notes at that time. 1.10 Any Capital Note issued pursuant to this Indenture may be redeemed in advance of maturity in whole or in part by Company, on any interest payment date occurring on or after the midpoint between the date of issuance and the stated maturity date of such Capital Note, at any time after thirty (30) days notice by Company of its election to do so by paying all interest due thereon together with the principal amount thereof. 1.11 Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exercisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. 1.12 In the event any Capital Note is not presented for surrender and cancellation on maturity or when called for redemption by Company, Company shall deposit a sum equal to the amount due thereon, with Trustee in trust for payment thereof, and no interest shall be due and payable to the holder of such Capital Note from and after its maturity or redemption date. Such payment by Company to Trustee shall be made within thirty (30) days after the due date. Thereafter, Trustee shall pay over said sum to the owner upon delivery and surrender of the pertinent Capital Note(s) for redemption and cancellation. 1.13 Nothing contained in this Indenture or in any of the Capital Notes shall be construed to cause the Capital Notes issued hereunder to become immediately due and payable in the event of any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or any sale or conveyance of the property of the Company as an entirety or substantially as an entirety, to any other corpora- tion (whether or not affiliated with the Company) or the purchase of stock and subsequent liquidation of the assets into the purchasing entity (hereinafter "purchase and liquidation") authorized to acquire and operate the same if the following are delivered to the Trustee: (1) an opinion by a certified public accountant appointed by the successor corporation or entity opining that the net worth of the successor corporation or entity following the acquisition, merger, consolidation, sale of assets, or purchase and liquidation determined on a pro forma basis using the successor corporation's or entity's and the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation is in excess of the net worth of the Company as reflected on the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation; (2) an Assumption Agreement in which the successor corporation or entity expressly assumes the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company; and (3) an opinion of counsel appointed by the successor corporation or entity that the Assumption Agreement is a valid and binding obligation of such successor corporation or entity enforceable in accordance with its terms and the Capital Notes are valid and binding obligations of the successor corporation or entity. In case of any such consolidation, merger, sale, conveyance, or purchase and liquidation and upon the assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company. 1.14 Any notices which Company is required to give under the terms of this Indenture, or which are deemed necessary or proper by Company, shall be given by first class mail with postage prepaid addressed to each Capital Note holder at the address shown for him on the books and records of Company, and notices so given shall be deemed given upon the date of the mailing thereof. ARTICLE II Covenants of Company 2.01 Company covenants and agrees to pay all principal and interest as the same becomes due and payable upon any Capital Notes issued and outstanding under the terms of this Indenture; provided, however, that principal shall only be paid by it upon surrender of the appropriate Capital Notes for cancellation, or if not surrendered, by payment to Trustee as provided in this Indenture. 2.02 Subject to the provisions of Section 1.13 hereof, Company covenants to continue the operation of its business, all as required and permitted by its Articles of Incorporation and By-Laws, and to at all times maintain sufficient assets and property to continue such general operations so long as any of its Capital Notes remain issued and outstanding under the terms hereof. 2.03 Company covenants to meet all requirements relative to issuance of said Capital Notes, payment of principal and interest thereon from the sources specified, and all other conditions relating thereto as provided in Article I hereof. 2.04 Company further covenants to furnish Trustee true copies of all quarterly and annual reports normally prepared by Company. 2.05 On an annual basis Company covenants to furnish trustee with a certificate indicating whether there has been an "event of default", as defined in Article III hereof, on the Capital Notes. Said statement shall be certified by an officer of the Company that it is true and accurate according to the Company's best knowledge and belief. The Company shall deliver the certificate to the Trustee within ninety (90) days of the Company's fiscal year end. 2.06 The Company further covenants to furnish Trustee a quarterly statement listing the current capital noteholders. Said statement shall be certified by an officer of the Company to be true and accurate according to the Company's best knowledge and belief. ARTICLE III Defaults: Rights, Remedies, and Duties of Trustee and Capital Note Holders 3.01 An "event of default" shall constitute any one of the following: a. Failure of Company to pay interest or principal or any part thereof, within thirty (30) days after due; b. Failure of Company to fully perform any other covenant or obligation made and to be kept or performed by Company by virtue of this Indenture which is not remedied within sixty (60) days after notice of such failure from Trustee or from the holders of twenty-five percent (25%) of the principal amount of all Capital Notes issued and outstanding under the terms hereof at that time. c. Adjudication of Company as a bankrupt or insolvent in any state or federal court, or appointment by any court of a receiver to take over and conduct the business, affairs, and property of Company, or commencement of liquidation of Company, either voluntary or involuntary, pursuant to any bankruptcy, insolvency or receivership. 3.02 Subject to the provisions of Section 4.01(e), upon the happening of an "event of default," Trustee shall declare all principal and interest on all Capital Notes of Company then issued and outstanding under the terms hereof due and payable at once by written notice to Company, and thereafter, Trustee may sue at law or in equity or proceed in any other manner authorized by law to enforce payment of all sums due on any such outstanding Capital Notes and to establish and enforce all rights and priorities of every kind and nature of the holders of all such Capital Notes and of such Trustee. 3.03 Subject to the provisions of Section 4.01(e), upon the occurrence of an "event of default" as defined in this Indenture, Trustee, within thirty (30) days after knowledge thereof, shall give written notice thereof to all registered owners of Capital Notes outstanding under the terms of this Indenture at that time, said notice to be by ordinary first class mail addressed to each owner at the address shown on Trustee's records. Failure to give notices under the terms hereof, however, shall not make Trustee liable for any claim resulting therefrom. 3.04 In any action or proceeding in which rights of Capital Note holders in and to the assets and property of Company are or may be affected, or to enforce payment of interest or principal due under this Indenture or any of the Capital Notes issued pursuant to the same, or to otherwise enforce performance by Company of any obligations made or to be performed by it under the terms hereof or of Capital Notes issued pursuant to this Indenture, Trustee shall act for and on behalf of all Capital Note Holders, and shall file and make proof of debts, claims, petitions, pleadings, and all other instruments, and may take all action and steps deemed necessary or proper to enforce, protect, and preserve all rights and properties of the holders of outstanding Capital Notes. 3.05 Trustee may employ counsel as in its discretion deemed proper in the case of any "event of default" of Company, or any other actions as in this Indenture described or provided for with respect to Trustee either in its own right or for and on behalf of Capital Note holders, and Company shall pay all fees and expenses of such counsel and of Trustee in any such acts, actions, or proceedings taken by Trustee under terms hereof. 3.06 All moneys collected or received by Trustee by virtue of any act, action, or proceeding taken under the terms hereof or received by Trustee for and on behalf of Capital Note holders shall be disbursed as follows: a. In payment of all costs, expenses, charges, and fees of Trustee, including counsel and attorney's fees; b. In payment of all principal and interest due and unpaid on the Capital Notes issued and outstanding at that time. If there are insufficient funds to fully pay all such principal and interest, the funds available shall be applied and paid first ratably to the payment of unpaid interest and then ratably to the payment of principal; c. The remainder, if any, to Company. 3.07 In case of an "event of default" by Company by virtue of which the Trustee may elect to institute an action or proceeding on behalf of the Capital Note holders against Company, if Trustee does not institute an action within thirty (30) days after its elective right to so do has accrued, the holders of Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding by written demand given to Trustee may require Trustee to institute any action or proceeding which they direct Trustee to initiate, provided however, that Trustee, before bringing any such action, may, as is hereinafter more fully spelled out, require adequate security from such Capital Note holders to protect it against any loss by virtue of expenses, charges, and fees incident to any action so required. In the event that two or more groups of holders of Capital Notes each of which holds Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding direct the trustee to proceed in a conflicting manner(s), the trustee may interplead the funds into or may seek a declaratory determination of the conflict(s) from the District Court for Polk County, Iowa. 3.08 No holder of any Capital Note issued hereunder shall have the right to institute any suit, action, or proceeding in equity or at law for the execution of any trust or power hereof or for the endorsement or any remedy under this Indenture or any Capital Note issued hereunder unless: a. Such holder shall have previously given the Trustee written notice of some existing "event of default" and of the continuance thereof; b. The holders of twenty-five percent (25%) in principal amount of the Capital Notes at the time outstanding shall have requested the Trustee to exercise such power or right of action after the right to do so has accrued hereunder and have afforded the Trustee a reasonable opportunity to proceed upon such request; c. Such holders shall have offered to Trustee indemnity satisfactory to it against the costs, expenses, and liabilities to be incurred thereby; and d. The Trustee shall have failed or refused to comply with such request within a period of sixty (60) days. Compliance with the foregoing conditions shall at the option of the Trustee be a condition precedent to the exercise of the powers and trusts of this Indenture and to any action or proceeding for the enforcement of any remedy hereunder, and no holder of any Capital Note shall have any right to enforce any right on account of this Indenture or his Capital Note, except in the manner herein provided, and in any event all proceedings hereunder at law or in equity shall be instituted and maintained for the ratable benefit of all holders of outstanding Capital Notes in the manner and with the interest priority provided for in Section 1.05 and Section 3.06, and any other applicable provisions hereof. ARTICLE IV Trustee, Its Rights and Duties, and Successor Trustees 4.01 The Trustee, for itself and its successors, hereby accepts the trust created by this Indenture and assumes the duties imposed, but upon the following terms and conditions: a. Trustee shall be entitled to reasonable compensation for all services from time to time rendered by it under and by virtue of the terms of this Indenture including an acceptance fee, together with all expenses from time to time incurred by it, including fees paid for counsel and for legal services. The parties hereto shall agree upon Trustee's fees for ordinary services from time to time hereunder. In the event the parties do not agree, or in the event of extraordinary services by virtue of events of default or liquidation of Company, or any other matter which may require extraordinary services from Trustee, Trustee's compensation may be fixed by an appropriate court. Company covenants to pay all compensation to which Trustee may be entitled, including expenses and fees from time to time, promptly upon demand. b. Trustee shall not be responsible for the correctness of any recitals in this Indenture of any Capital Notes issued under and pursuant to the same (except certificates and authentications by Trustee). c. Trustee may employ and consult with counsel whenever deemed necessary, and the opinion of such counsel shall be full and complete authorization and protection to and for Trustee in respect of any action taken or suffered by it in good faith and in accordance with the opinion of such counsel. d. Trustee may rely upon the correctness of any certificate or statement, of the President or a Vice President of Company furnished from time to time under the terms hereof and shall not be liable in any way for any act done or any omission to act in reliance on any such certificate or statement. e. Trustee hereunder shall have no responsibility for determining when or whether an "Event of Default" has occurred except for those events of default which would come to its knowledge and attention in the ordinary course of business under this form of Trust Indenture. 4.02 Trustee shall not be liable for any act of commission or omission on its part in connection with the discharge and performance of its duties and obligations under this Indenture and any Capital Notes issued pursuant hereto, except to the extent that any such act or omission shall constitute willful misconduct or negligence, and reliance upon certificates and statements of Company, the President or a Vice President thereof, opinions of counsel (whether counsel for Company or not), and good faith errors in judgment by a responsible officer or officers of Trustee shall not be held to be negligent in any case. 4.03 Trustee shall keep at all times a current list of the names and addresses of registered Capital Note holders, issued and outstanding under the terms of this Indenture. Company shall promptly notify Trustee of all changes in names or addresses of Capital Note holders known to it. 4.04 Trustee may resign whenever it may elect to so do, sixty (60) days after a written notice of its intention to so do has been served on Company and on all Capital Note owners shown by the records of Trustee (notices in all cases to be by ordinary, first class mail with the date of service thereof), and in the event Trustee shall resign, or in the event Trustee shall be dissolved and cease to do business as a bank or trust company, Company shall designate by an appropriate written instrument a successor Trustee which shall be a state or national bank or trust company with its principal office in the state of Iowa. Any successor trustee appointed by Company under the terms hereof shall have all rights, powers, and duties of the original Trustee as herein provided, and whenever in this Indenture the word "Trustee" appears or the Trustee is referred to, it shall mean and includes any and all successor Trustees who may be appointed hereunder. 4.05 Trustee shall not be in any manner precluded from buying, selling, owning, or dealing in Capital Notes issued pursuant to this agreement, either in its own right or as agent for others, as fully and completely as any other individual, firm, or corporation could do. 4.06 Trustee or Company may (and on written request of owners of twenty- five percent (25%) in principal amount of outstanding Capital Notes shall) call a meeting of all Capital Note owners for any appropriate purpose. Such meeting shall be called by giving a written notice of the time and place thereof by ordinary, first class mail to all Capital Note owners whose names and addresses are first shown in the records of Trustee, mailed not less than five (5) days prior to the date fixed for such meeting. The Company shall pay for the costs of calling and holding said meeting. 4.07 In any case in which Trustee is required or may deem it proper or advisable to give a notice to Company, a Capital Note holder or any other person, firm, or agency, such notice shall be given by ordinary, first class mail, addressed to the last known post office address of any such person, firm, or agency, and the time of service thereof shall be the time of mailing thereof. ARTICLE V 5.01 The Company and Trustee may make arrangements varying, amending or changing this Indenture as Company and Trustee shall from time to time deem proper without the approval of the noteholders, provided only that no such amendment shall adversely affect any rights or interests of owners of Capital Notes then issued and outstanding under and pursuant to this Indenture. 5.02 Upon the execution of any Supplemental Indenture pursuant to the provisions of this Article V, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties, and immunities under this Indenture of the Trustee, the Company, and the holders of Capital Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. IN WITNESS WHEREOF, Brenton Banks, Inc. has caused this Indenture to be executed in its name and on its behalf by its President, duly attested by its Secretary, with its corporate seal hereto attached, and Bankers Trust Company, Des Moines, Iowa, to evidence its acceptance of the trusts hereby created, has caused this instrument to be signed in its name and on its behalf by a duly authorized officer, all on or as of this 16th day of April, 1998. BRENTON BANKS, INC. BANKERS TRUST COMPANY By /s/ By /s/ Robert L. DeMeulenaere Bryan Hall, Trust Officer President ATTEST: By /s/ Steven T. Schuler, Chief Financial Officer and Treasurer/Secretary STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 16th day of April, 1998, before me, a Notary Public in and for Polk County, Iowa, personally appeared Robert L. DeMeulenaere, President, and Steven T. Schuler, Chief Financial Officer and Treasurer/Secretary, of Brenton Banks, Inc., the corporation which executed the above and foregoing instrument, who being to me known as the identical persons who signed the foregoing instrument, and by me duly sworn, each for himself, did say that they are respectively the President and the Chief Financial Officer/Secretary/Treasurer of said corporation, and that said instrument was by them signed and sealed on behalf of the said corporation by authority of its Board of Directors, and each of them acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and each of them voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. /s/ Pamela J. Slippy , Notary Public in and for Polk County Seal STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 16th day of April, 1998, before me, a Notary Public in and for Polk County, Iowa, personally appeared Bryan Hall, of Bankers Trust Company, the corporation which executed the above and foregoing instrument, who being to me known as the identical person who signed the foregoing instrument, and by me duly sworn, did say that he is the Trust Officer of said corporation, and that said instrument was by him signed and sealed on behalf of the said corporation by authority of its Board of Directors, and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and by him voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. /s/ John D. Hunter , Notary Public in and for Polk County Seal. Exhibit A 5.00% Capital Notes Series RR-26 through RR-37 Due 2002 through 2013 5.25% Capital Notes Series TT-26 through TT-37 Due 2002 through 2013 5.50% Capital Notes Series UU-26 through UU-37 Due 2002 through 2013 5.75% Capital Notes Series VV-26 through VV-37 Due 2002 through 2013 6.00% Capital Notes Series G-26 through G-37 Due 2002 through 2013 6.25% Capital Notes Series Q-26 through Q-37 Due 2002 through 2013 6.50% Capital Notes Series J-26 through J-37 Due 2002 through 2013 6.75% Capital Notes Series K-26 through K-37 Due 2002 through 2013 7.00% Capital Notes Series M-26 through M-37 Due 2002 through 2013 7.25% Capital Notes Series N-26 through N-37 Due 2002 through 2013 7.50% Capital Notes Series R-26 through R-37 Due 2002 through 2013 7.75% Capital Notes Series T-26 through T-37 Due 2002 through 2013 8.00% Capital Notes Series U-26 through U-37 Due 2002 through 2013 8.25% Capital Notes Series V-26 through V-37 Due 2002 through 2013 8.50% Capital Notes Series W-26 through W-37 Due 2002 through 2013 8.75% Capital Notes Series X-26 through X-37 Due 2002 through 2013 9.00% Capital Notes Series Y-26 through Y-37 Due 2002 through 2013 9.25% Capital Notes Series B-26 through B-37 Due 2002 through 2013 9.50% Capital Notes Series A-26 through A-37 Due 2002 through 2013 9.75% Capital Notes Series C-26 through C-37 Due 2002 through 2013 10.00% Capital Notes Series D-26 through D-37 Due 2002 through 2013 10.25% Capital Notes Series E-26 through E-37 Due 2002 through 2013 10.50% Capital Notes Series F-26 through F-37 Due 2002 through 2013 10.75% Capital Notes Series H-26 through H-37 Due 2002 through 2013 11.00% Capital Notes Series I-26 through I-37 Due 2002 through 2013 11.25% Capital Notes Series L-26 through L-37 Due 2002 through 2013 11.50% Capital Notes Series O-26 through O-37 Due 2002 through 2013 11.75% Capital Notes Series S-26 through S-37 Due 2002 through 2013 12.00% Capital Notes Series Z-26 through Z-37 Due 2002 through 2013 12.25% Capital Notes Series P-26 through P-37 Due 2002 through 2013 12.50% Capital Notes Series SS-26 through SS-37 Due 2002 through 2013 12.75% Capital Notes Series AA-26 through AA-37 Due 2002 through 2013 13.00% Capital Notes Series BB-26 through BB-37 Due 2002 through 2013 EXHIBIT "B" S No. _______________ BRENTON BANKS, INC. DES MOINES, IOWA $__________________ REGISTERED CAPITAL NOTE (SERIES _______________________ CALLABLE) Brenton Banks, Inc., a corporation organized and existing under the laws of the State of Iowa, hereinafter referred to as the Corporation, for value received hereby promises to pay to the registered holder hereof, upon presentation of this Capital Note, the sum of $___________________ on the 1st day of June,______________, at the main office of the Corporation in the City of Des Moines, Iowa. The Corporation further agrees to pay interest on the principal amount from the __________ day of ____________________, until paid, at the rate of _______% per annum, payable semi-annually on the first day of June and December of each year. The Corporation shall, upon request of the registered holder hereof, mail a check representing the interest hereon, or the principal when due, to the registered holder at his address appearing on the books of registration. The Capital Note is subject to being called on any interest payment date occurring on or after the date that is the midpoint between the original issuance date and the stated maturity date, at the option of the Corporation on not less than thirty (30) days' prior written notice given by the Corporation by ordinary mail to the holder of the Capital Note at such holder's address appearing on the books of registration, at 100% of the principal amount of this Capital Note, together with interest accrued and unpaid on this Capital Note, to the date fixed for such call. Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exercisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. This Capital Note is one of an authorized issue of fully registered Capital Notes of Brenton Banks, Inc., issued in multiples of $1,000 and limited to the aggregate principal amount of $5,000,000 at any one time outstanding, all issued pursuant to an Indenture dated April 16, 1998, executed and delivered by the Corporation to the Trustee, to which Indenture reference is hereby made for a description of rights, duties and obligations thereunder of the Corporation, the Trustee and the Owners of the Capital Notes. In the event of default in the payment of principal of, or interest on, this Capital Note, the total principal amount of this Capital Note, and all interest hereof, shall become due and payable and the Corporation shall immediately pay the same. Books for the registry hereof are maintained at the office of the Corporation or at the agency of the Corporation established for that purpose in the city of Des Moines, Iowa. This Capital Note is transferable by the registered holder hereof in person, or by his duly authorized attorney, at the office or agency of the Corporation for such purpose in the city of Des Moines, Iowa, upon surrender for cancellation of this Capital Note at said office or agency. Thereupon, a new Capital Note for a like principal amount, or new Capital Notes in such authorized denominations and registered in such name or names, as shall have been requested, shall be issued and delivered. No transfer hereof shall be valid unless made on the Corporation's books, at the office of the Corporation or the agency established for that purpose, in accordance with the provisions of the foregoing paragraph. The Corporation and its agents may deem and treat the person in whose name this Capital Note is registered as the absolute owner of the Capital Note for the purpose of receiving payment hereof and interest due hereon, but the Corporation may, at any time, require the presentation hereof as a condition precedent to such payment. No recourse shall be had for the payment of the principal of, or interest upon, this Capital Note, against any shareholder, officer, or director of the Corporation, by reason of any matter prior to the delivery of this Note, or otherwise, all such liability, by the acceptance hereof, and as a part of the consideration of this issue hereof, being expressly waived. In the event any Capital Note is not presented for payment when due or when called by the Corporation, the Corporation shall deposit a sum equal to the amount due thereon with Trustee in trust for payment thereof and neither the Corporation nor Trustee shall thereafter be liable for any interest thereon. This Capital Note and any subsequent Capital Note issued on transfer and surrender hereunder shall not be valid for any purpose until duly certified by the Trustee under the Indenture supporting the name. This Capital Note is not a deposit and is not insured by the Federal Deposit Insurance Corporation. IN WITNESS WHEREOF, the Corporation has caused this Capital Note to be executed by its Chairman, President or Treasurer, and attested to by another authorized individual, and its corporate seal affixed hereto, at Des Moines, Iowa, on the day and year appearing below. Corporate Seal: Date: ________________________________ BRENTON BANKS, INC. By: __________________________________ (Chairman, Vice Chairman or President) ATTEST: ______________________________________ (Secretary, Asst. Secretary Treasurer, or other authorized individual) REGISTRATION (No writing on this registered Capital Note except by an officer or agent of the Corporation) Date of In Whose Registry Registration Name Registered Address Officer _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ TRUSTEE'S CERTIFICATE The foregoing Capital Note is hereby certified by the undersigned Bank as Trustee as one of the series of Capital Notes of Brenton Banks, Inc., described in the Indenture referred to therein, made between the Corporation and this Bank as Trustee. Dated as of this _______ day of ____________________, ______. _______________________________ (Trustee) By_____________________________ Its____________________________ (Title) ASSIGNMENT For value received I hereby assign to __________________________________ the within registered Capital Note and hereby irrevocably appoint _____________ ____________________________________ attorney to transfer the registered Capital Note on the books of the within named Corporation with full power of substitution in the premises. Dated:_________________________ Signatures guaranteed by the __________________________ Signature (in whose name _______________________________ registered) (Bank) __________________________ _______________________________ Signature (in whose name Signature registered) _______________________________ Date Office & Title The transfer of any notes represented by this certificate to any person who is not then a bona fide resident of the State of Iowa purchasing such notes for the purpose of investment and not for resale is restricted pursuant to the terms of a subscription form executed by the original holder of such notes. EX-10.23 25 Exhibit 10.23 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. 166 EX-10.24 26 Exhibit 10.24 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 year ended December 31, 1994. 167 EX-10.25 27 Exhibit 10.25 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of Junius C. Brenton, dated January 12, 1997. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1996. 168 EX-10.26 28 Exhibit 10.26 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. 169 EX-10.27 29 Exhibit 10.27 Twelfth Amendment to Data Processing Agreement dated July 1, 1995, by and between ALLTEL Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). 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. 170 EX-10.28 30 Exhibit 10.28 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). This Thirteenth Amendment to Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. 171 EX-10.29 31 Exhibit 10.29 Fourteenth Amendment to Data Processing Agreement dated January 1, 1998, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). 172 EX-10.30 32 Exhibit 10.30 Fifteenth Amendment to Data Processing Agreement dated January 1, 1998, by and between ALLTEL Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corporation). 176 EX-10.31 33 Exhibit 10.31 Purchase Agreement dated December 31, 1998, by and between West Lakes Development Company and Brenton Bank. 180 EX-10.32 34 Exhibit 10.32 Purchase Agreement dated December 31, 1998, by and between West End Diner, Inc. and Brenton Bank. 187 EX-11 35 Exhibit 11 Statement of computation of earnings per share. 194 Statements re: Computation of Earnings Per Share Brenton Banks, Inc.
December 31, 1998 1997 1996 Basic EPS Computation Numerator: Net income $ 20,350,921 $ 18,010,107 $ 14,015,430 Denominator: Average common shares outstanding 18,957,449 19,255,188 19,900,974 Basic EPS $ 1.07 $ 0.94 $ 0.70 Diluted EPS Computation Numerator: Net income $ 20,350,921 $ 18,010,107 $ 14,015,430 Denominator: Average common shares outstanding 18,957,449 19,255,188 19,900,974 Average stock options 389,555 312,303 176,873 Average long-term stock compensation plan --- 154,169 215,082 19,347,004 19,721,660 20,292,929 Diluted EPS $ 1.05 $ 0.91 $ 0.69 Note: Amounts are restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998 and 1997.
195 EX-12 36 Exhibit 12 Statement of computation of ratios. 196 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, 1998 1997 1996 Return on average total assets: Net income (before deduction of minority interest) $ 21,071 18,753 14,618 * divided by * Average assets $ 1,780,120 1,649,469 1,582,894 Ratio 1.18% 1.14% 0.92% Return on average common stockholders' equity: Net income $ 20,351 18,010 14,015 * divided by * Average common stockholders' equity $ 132,422 124,491 119,170 Ratio 15.37% 14.47% 11.76% Common dividend payout ratio: Cash dividends per share $ 0.349 0.248 0.188 * divided by * Net income per share - diluted $ 1.05 0.91 0.69 Ratio 33.24% 27.25% 27.25% Average equity to average assets: Average equity $ 132,422 124,491 119,170 * divided by * Average assets $ 1,780,120 1,649,469 1,582,894 Ratio 7.44% 7.55% 7.53% Equity to assets ratio: Common stockholders' equity excluding unrealized gains (losses) on assets available for sale $ 131,892 126,159 120,877 * divided by * Total assets excluding unrealized gains (losses) on assets available for sale $ 1,936,238 1,715,264 1,631,018 Ratio 6.81% 7.36% 7.41%
197
December 31, 1998 1997 1996 Tier 1 leverage capital ratio: Common stockholders' equity excluding unrealized gains (losses) on assets available for sale $ 131,891 126,159 120,877 Minority interest 4,931 4,859 4,615 Less: intangibles (1,970) (2,087) (2,704) Less: minimum MSR's to be deducted (388) --- (115) Tier 1 capital $ 134,446 128,931 122,673 * divided by * Quarterly average total assets excluding unrealized gains (losses) on assets available for sale 1,878,074 1,692,176 1,613,223 Less: intangibles (1,970) (2,087) (2,704) Less: minimum MRS's to be deducted (388) --- (115) Tier 1 assets $ 1,875,716 1,690,089 1,610,404 Ratio 7.17% 7.63% 7.62% Primary capital to assets: Common stockholders' equity excluding unrealized gains (losses) on assets available for sale $ 131,892 126,159 120,877 Minority interest 4,913 4,859 4,615 Allowance for loan losses 14,172 12,732 11,328 Primary capital $ 150,977 143,750 136,820 * divided by * Total assets excluding unrealized gains (losses) on assets available for sale $ 1,936,238 1,715,264 1,631,018 Allowance for loan losses 14,172 12,732 11,328 Allowable assets $ 1,950,410 1,727,996 1,642,346 Ratio 7.74% 8.32% 8.33%
198
December 31, 1998 1997 1996 Net Noninterest Margin: Noninterest income $ 33,358 27,506 23,327 Less: Securities gains (losses) 665 494 321 Less: Noninterest expense 61,392 57,699 56,091 Net noninterest income $ (28,699) (30,687) (33,085) * divided by * Year-to-date average assets $ 1,780,120 1,649,469 1,582,894 Ratio -1.61% -1.86% -2.09% Efficiency Ratio: Noninterest expense $ 61,392 57,699 56,091 * divided by * Noninterest income 33,358 27,506 23,327 Less: Securities gains (losses) 665 494 321 Less: Loan gains (losses) 81 78 84 T.E. net interest income 65,279 63,701 59,238 Subtotal 97,891 90,635 82,160 Ratio 62.71% 63.66% 68.27%
199 EX-13 37 Exhibit 13 The Appendix to the Proxy for Brenton Banks, Inc. for the 1998 calendar year. 200 BRENTON BANKS, INC. APPENDIX TO THE PROXY STATEMENT FISCAL YEAR 1998 TABLE OF CONTENTS PAGE General Information 1 Financial Highlights 2 Management's Discussion and Analysis 3 Consolidated Average Balances and Rates 11 Selected Financial Data 12 Consolidated Statements of Condition 13 Consolidated Statements of Operations 14 Consolidated Statements of Cash Flows 15 Consolidated Statements of Changes in Common Stockholders' Equity 16 Consolidated Statements of Comprehensive Income 17 Notes to Consolidated Financial Statements 18 Management's Report 33 Independent Auditors' Report 33 Stock Information 34 Corporate Structure 35 BRENTON BANKS, INC. GENERAL INFORMATION Brenton Banks, Inc. (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956 and a savings and loan holding company under the Savings and Loan Holding Company Act. Brenton Banks, Inc. was organized as an Iowa corporation under the name of Brenton Companies in 1948. Subsequently, the Company's name was changed to its current name, Brenton Banks, Inc. Brenton Banks, Inc. is the largest, Iowa-based bank holding company, with 47 service locations in metropolitan markets and regional economic centers across the state. The Company offers a complete range of financial products and services - including retail, agricultural, commercial and business banking; trust and investment management services; investment, insurance and real estate brokerage; mortgage banking; cash management and international banking services; as well as our own proprietary mutual funds. The Company's stock trades on the NASDAQ national market under the symbol BRBK. 1
BRENTON BANKS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS 1998 1997 1996 Operating Results Net interest income $ 61,387,326 60,133,764 56,052,142 Provision for loan losses 4,200,000 3,900,000 2,900,000 Total noninterest income 33,357,827 27,505,789 23,327,441 Total noninterest expense 61,391,528 57,698,564 56,090,571 Income before income taxes and minority interest 29,153,625 26,040,989 20,389,012 Net income 20,350,921 18,010,107 14,015,430 Per Common Share* Net income-basic $ 1.07 .94 .70 Net income-diluted 1.05 .91 .69 Cash dividends .349 .248 .188 Book value, including unrealized gains (losses)** 7.21 6.79 6.23 Book value, excluding unrealized gains (losses)*** 7.03 6.62 6.18 Closing price 16.75 18.18 11.42 At December 31 Assets $1,939,556,765 1,718,483,797 1,632,095,082 Loans 1,033,554,556 993,189,110 941,943,513 Nonperforming loans 11,289,000 6,712,000 6,167,000 Deposits 1,496,675,131 1,364,270,491 1,353,057,111 Common stockholders' equity** 135,210,319 129,379,299 121,954,229 Market capitalization of common stock 314,102,382 346,646,292 223,367,021 Ratios Return on average common stockholders' equity (ROE)** 15.37% 14.47 11.76 Return on average assets (including minority interest) (ROA) 1.18 1.14 .92 Net interest margin 3.97 4.16 4.03 Net noninterest margin (1.61) (1.86) (2.09) Efficiency ratio 62.71 63.66 68.27 Loan to deposit ratio 69.06 72.80 69.62 Allowance for loan losses to total loans 1.37 1.28 1.20 Primary capital to assets*** 7.74 8.32 8.33 Equity to assets*** 6.81 7.36 7.41 Tier 1 leverage capital ratio*** 7.17 7.63 7.62 Nonperforming loans as a percent of loans 1.09 .68 .65 Net charge-offs as a percent of average loans .28 .26 .29 Allowance for loan losses as a percent of nonperforming loans 125.54 189.69 183.69 * Restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998 and 1997. ** Including unrealized gains (losses) on securities available for sale. *** Excluding unrealized gains (losses) on securities available for sale.
2 Management's Discussion and Analysis Introduction The following presentation describes Brenton Banks, Inc. and Subsidiaries' ("Brenton" or the "Company") results of operations for the three-year period ended December 31, 1998, capital resources, market risk management, asset/liability management, liquidity, Year 2000 efforts and the impact of recently issued accounting standards. This discussion should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto which are included elsewhere in this report. Forward-Looking Information Forward-looking information relating to the financial results or strategies of the Company is referenced throughout Management's Discussion and Analysis. The following paragraphs identify forward-looking statements and the risks that need to be considered when reading those statements. Forward-looking statements include such words as believe, expect, anticipate, target, goal, objective or other words with similar meaning. The Company is under no obligation to update such forward-looking information statements. The risks involved in the operations and strategies of the Company include competition from other financial institutions and other financial service providers, changes in interest rates, changes in economic or market conditions and changes in regulations from federal and state regulators. These risks, which are not all inclusive, cannot be estimated. Results of Operations - 1998 Compared to 1997 Net Income For the year ended December 31, 1998, Brenton recorded net income of $20,350,921, an increase of 13.0 percent over 1997, which totaled $18,010,107. Diluted earnings per common share were $1.05 compared to $.91 for 1997. Return on average assets (ROA) was 1.18 percent in 1998, compared to 1.14 percent in 1997. The return on average equity (ROE) was 15.37 percent, compared to 14.47 percent one year earlier. Both the ROA and ROE were the highest ever achieved by the Company. Net Interest Income Net interest income rose 2.1 percent to $61,387,326 for 1998 as favorable volume variances exceeded unfavorable rate variances. Average earning assets increased 7.4 percent over 1997 while average interest-bearing liabilities increased 7.2 percent. The average yield earned on earning assets declined 17 basis points, due to the declining interest rate environment. Meanwhile, the average rate paid on interest-bearing liabilities increased three basis points as a result of an aggressive effort to gain new client relationships, which resulted in the sale of higher-priced transaction deposit products. The net interest spread, which is the difference between the yield earned on assets and the rate paid on liabilities, declined to 3.49 percent from 3.69 percent a year earlier. Net interest margin, which is tax-equivalent net interest income as a percent of average earning assets, averaged 3.97 percent in 1998 compared to 4.16 percent in 1997. Loan Growth/Loan Quality At December 31, 1998, total loans had grown 4.1 percent to $1,033.6 million from $993.2 million a year earlier. This $40.4 million increase was achieved despite a $39.4 million decline in the residential real estate loan portfolio, which resulted from increased refinancings as borrowers took advantage of the lower long-term fixed-rate interest environment. Loan quality remained good with nonperforming loans at December 31, 1998, totaling $11,289,000, or 1.09 percent of loans. This compares to $6,712,000 at December 31, 1997, or .68 percent of loans. The increase was primarily due to a small number of commercial loans for which collateral exists; however, worst case analysis suggests losses of less than $500,000 for which a specific reserve has been established. 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. Loan quality control and risk management is cautiously balanced with goals for loan growth. The Company has a formal structure for reviewing and approving all loans. Documentation and loan quality reviews are performed routinely by internal loan review personnel and external third party loan review professionals, as well as by regulatory examiners. 3 The allowance for loan losses, which totaled $14.2 million, represented 125.54 percent of nonperforming loans at the end of 1998, compared to 189.69 percent one year ago. The provision for loan losses totaled $4,200,000 for the year ended December 31, 1998, compared to $3,900,000 for 1997. The increase in the provision is related to the $29.1 million increase in average loans outstanding during 1998 and projected future loan growth. The Company's net charge-offs as a percent of average loans was .28 percent for 1998 compared to .26 percent for 1997, both of which were better than historical industry peer group averages. Loan losses for both years were primarily concentrated in the consumer loan portfolio. The allowance for loan losses represents a reserve available to absorb estimated possible future loan losses within the loan portfolio. The allowance is based on management's judgment after considering various factors such as the current and anticipated economic environment, historical loan loss experience, and most importantly, the evaluation of individual loans by loan officers, loan administration officers and internal loan review personnel. Using the Company's standard evaluation process, each loan is evaluated based on its specific characteristics, the borrower's financial condition and collateral values. All loans are rated on a 1 to 8 rating scale. From these assessments, the Reserve Adequacy Committee performs quarterly reviews of the loan portfolio quality, quantifies the results and reviews the calculations of the allowance for loan losses. In addition, the Reserve Adequacy Committee approves charge-offs and reviews subsequent collection action plans for problem loans. Management believes the allowance for loan losses at December 31, 1998, was sufficient to absorb potential loan losses within the portfolio. Net Noninterest Margin/Efficiency Ratio To measure operating efficiency, Brenton uses the net noninterest margin, which is the difference between noninterest income (excluding security gains or losses) and noninterest expense as a percent of average assets. For 1998, the net noninterest margin improved to (1.61) percent compared to (1.86) percent in 1997. Another ratio the Company utilizes to measure productivity is the efficiency ratio. This ratio is computed by dividing noninterest expense by the sum of tax-equivalent net interest income plus noninterest income (excluding gains and losses on the sale of securities). For the year ended December 31, 1998, the Company's efficiency ratio improved to 62.71 percent, compared to 63.66 percent one year ago. To enhance operating efficiency throughout the organization, the Company continues to focus on cost management and the development of strategic improvements in noninterest income. Noninterest Income Brenton achieved record levels of noninterest income in 1998. For 1998, total noninterest income (excluding securities transactions) increased 21.0 percent to $32,692,377 from $27,011,967 one year ago. Noninterest income (excluding securities gains and losses) for 1998 represented 1.84 percent of average assets and 34.8 percent of total operating income, which were the highest levels in the history of the Company. All categories of noninterest income, except insurance commissions and fees, reflected strong growth from the prior year. Service charges on deposit accounts increased 8.2 percent in 1998 to $7,885,513. This growth related to increased account analysis charges on commercial and business deposit accounts due to a higher number of clients. Mortgage banking revenue rose 138.2 percent to $7,797,577 for 1998 compared to $3,274,215 in 1997. This revenue growth was the result of a significantly higher volume of mortgage loan originations produced by a growing staff of mortgage loan originators and the favorable interest rate environment. Residential real estate loan closings for 1998 totaled $513.4 million compared to $179.1 million in 1997. Refinancings represented 58.7 percent of the closings in 1998 and 41.6 percent in 1997. Investment brokerage commissions totaled $5,334,309 for 1998, an increase of 11.0 percent over 1997 due to greater broker productivity and active financial markets. Fiduciary revenues climbed 11.5 percent to $3,497,030 in 1998 compared to $3,136,078 in 1997. This revenue improvement was due to increased assets from existing trust accounts and new business. Insurance commissions and fees declined 50.7 percent to $1,382,917 in 1998 due to the third quarter 1997 sale of one of the Company's insurance agencies and a 44.7 percent decline in credit-related insurance commissions. Other service charges, commissions and fees increased 22.3 percent to $4,208,330 in 1998 compared to 1997 as a result of increases from real estate sales commissions, ATM/debit card fees, international fees and commercial line of credit fees. 4 Other operating income increased by $329,277 from one year ago. The increase was primarily due to higher levels of income from bank-owned life insurance policies and miscellaneous one-time items, which exceeded a 1997 gain on the sale of one of the Company's insurance agencies as discussed above. Securities transactions also contributed to the increase in noninterest income. Securities gains of $665,450 were recorded in 1998 versus gains of $493,822 in 1997. The growth in various noninterest income categories has enabled Brenton to reach targeted levels of total income. The Company will continue to focus on generating fee income by providing a broad array of financial products and services to existing and new clients. The continued growth rate of fee income could be vulnerable to future economic conditions and competition from other financial institutions and other financial service providers that cannot be estimated by the Company. Noninterest Expense Total noninterest expense increased 6.4 percent in 1998 to $61,391,528 from $57,698,564 one year ago. Compensation, the largest component of noninterest expense, increased $2,317,134, or 8.6 percent, over 1997. Standard salaries, which comprised 69.3 percent of total compensation expense, increased by 11.6 percent compared to 1997 due to an increase in the number of full-time equivalent employees and normal annual salary increases. Variable compensation increased 43.3 percent as a result of higher sales of fee-related products and services. Other compensation decreased $1,917,090 because of the expiration of a long-term stock compensation plan. The number of full-time equivalent employees increased 9.8 percent at December 31, 1998, compared to the end of 1997 as a result of filling a number of open positions. Benefit expense increased 13.3 percent due to increased compensation, higher health insurance premiums and increased retirement plan contributions. Occupancy expense rose 3.5 percent, or $197,959, in 1998 as a result of increases in depreciation expense, repairs and maintenance and utility costs. Furniture and equipment expense grew to $4,163,137, a 14.6 percent increase from the prior year. The increase was due to depreciation on technology upgrades and increased repairs and maintenance expense. Transferring the personal computer "help desk" function to an internal operation reduced data processing expense $226,668, or 8.0 percent. Other operating expenses increased $173,054, or 1.5 percent, when comparing 1998 results to 1997. Increases in consulting fees, personnel recruitment expenses, check processing fees and correspondent bank service charges exceeded reductions in legal fees, bank operational losses, miscellaneous expense and loss on sale of fixed assets. The Company continues to focus on cost management and evaluates all major expense items in an effort to control the growth rate of noninterest expenses. Income Taxes Brenton'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 27.7 percent for 1998 compared to 28.0 percent for 1997. Results of Operations - 1997 Compared to 1996 Net Income For the year ended December 31, 1997, Brenton recorded net income of $18,010,107, an increase of 28.5 percent over 1996 net income of $14,015,430. Diluted earnings per common share were $.91 compared to $.69 for 1996. Return on average assets (ROA) was 1.14 percent in 1997, compared to .92 percent in 1996. The return on average equity (ROE) was 14.47 percent, compared to 11.76 percent one year earlier. 5 Net Interest Income Net interest income rose 7.3 percent to $60,133,764 for 1997. The increase in net interest income was directly attributable to both favorable rate and volume variances. Average earning assets increased 4.3 percent over 1996 while average interest-bearing liabilities increased 4.0 percent. The average yield earned on earning assets increased 15 basis points, while the average rate paid on interest-bearing liabilities increased 4 basis points. The net interest spread rose to 3.69 percent from 3.58 percent in 1996. Net interest margin averaged 4.16 percent in 1997 compared to 4.03 percent in 1996. Loan Quality Loan quality was strong in 1997 with nonperforming loans at December 31, 1997, totaling $6,712,000 or .68 percent of loans. This compared to .65 percent at December 31, 1996, or $6,167,000. The allowance for loan losses, which totaled $12.7 million, represented 189.69 percent of nonperforming loans at the end of 1997, compared to 183.69 percent one year earlier. The provision for loan losses totaled $3,900,000 for the year ended December 31, 1997, compared to $2,900,000 for 1996. The increase in the provision of $1,000,000 was primarily related to the $50.5 million increase in average loans outstanding during 1997. The Company's net charge-offs as a percent of average loans were .26 percent for 1997 compared to .29 percent for 1996. Loan losses for both years were primarily concentrated in the consumer loan portfolio. Net Noninterest Margin/Efficiency Ratio For 1997, the net noninterest margin improved to (1.86) percent compared to (2.09) percent in 1996. For the year ended December 31, 1997, the Company's efficiency ratio was 63.66 percent, compared to 68.27 percent in 1996. Noninterest Income For 1997, total noninterest income (excluding securities transactions) increased 17.4 percent to $27,011,967 from $23,006,185 one year earlier. Noninterest income (excluding securities gains and losses) for 1997 represented 1.64 percent of average assets and 31.0 percent of total operating income. All categories of noninterest income, except insurance commissions and fees, reflected strong growth from the prior year. Service charges on deposit accounts increased 8.6 percent in 1997 to $7,290,765. The growth related to a continued focus on collecting a higher percentage of fees assessed and increased sales of fee generating accounts, particularly commercial accounts. Mortgage banking income totaled $3,274,215 for 1997 compared to $2,168,593 in 1996, an increase of 51.0 percent. The increase was attributable to a higher volume of real estate mortgage loan originations, which totaled $179.1 million compared to $110.8 million in 1996. Investment brokerage commissions totaled $4,808,048 for 1997, an increase of 27.7 percent over the 1996 total of $3,766,436. Strong financial markets and successful sales initiatives drove the increase in this category. Fiduciary revenues climbed 14.3 percent to $3,136,078 in 1997 compared to $2,744,530 in 1996. The increase in revenue was due to increased volumes of personal trusts, investment management fees and employee benefit plan fees. Insurance commissions and fees declined 3.8 percent to $2,803,983 in 1997 due to the sale of one of the Company's insurance agencies. The decrease in property and casualty commission income due to the agency sale was largely offset by a 68.8 percent increase in credit-related insurance commissions. The significant increase in credit-related insurance was due to the strong increase in direct consumer lending and increased sales efforts during 1997. Other service charges, commissions and fees increased 23.8 percent to $3,441,454 in 1997 compared to 1996 due to increases from letter of credit fees, fees received from purchased receivables and real estate sales commissions. Other operating income increased by $338,840 from one year earlier. The increase was due to income from bank-owned life insurance policies that did not exist until December 1996 and a gain on the sale of the Company's insurance agency as discussed above. Several one-time revenue items also affected this category in 1996. Securities transactions produced an additional increase in noninterest income. Securities gains of $493,822 were recorded in 1997 versus gains of $321,256 in 1996. 6 Noninterest Expense Total noninterest expense increased only 2.9 percent in 1997 to $57,698,564 from $56,090,571 in 1996. Exclusive of a one-time special assessment by the FDIC totaling $1,288,000 in 1996, noninterest expense increased 5.3 percent. Compensation increased $1,363,843, or 5.4 percent, over 1996. The increase was primarily related to commissions and incentives paid on higher sales of fee-related products discussed above, and expense tied to bonuses and a stock performance plan which were both directly related to higher 1997 earnings and the Company's advancing stock price. Standard salaries, which comprised 67.5 percent of total compensation expense, decreased by 3.8 percent compared to 1996. The number of full-time equivalent employees declined by .2 percent at December 31, 1997 compared to year-end 1996. The total increase in compensation expense led to a proportionate increase in employee benefits. Occupancy expense totaled $5,609,600 for 1997, compared to $5,502,904 for 1996, an increase of 1.9 percent. The increase was primarily related to building repairs and maintenance. Depreciation expense declined slightly and lease expense increased due to the sale and relocation of one facility in late 1996. Furniture and equipment expense declined to $3,634,336, a 2.4 percent reduction from the prior year. Decreases in furniture and equipment depreciation, repairs and maintenance, and furniture and equipment rentals more than offset an increase in depreciation expense for technology-related equipment. Data processing expense increased $258,910, or 10.0 percent, due to increased costs during 1997 associated with contracted core processing. Expense related to the FDIC deposit assessments declined $1,520,230 from 1996 to $281,416. Prior year's expense included the previously discussed, one- time $1,288,000 special assessment to fully fund SAIF. Marketing and supplies expenses declined 22.5 and 15.2 percent, respectively, for 1997. These cost reductions were the result of concerted efforts to minimize the growth of overall noninterest expense and renegotiating pricing with various vendors. Also, 1996 supplies expense included one-time charges related to the 1995 merger of the commercial banks. Other operating expenses increased by $2,040,604, or 21.3 percent, when comparing 1997 results to 1996. The increase was primarily due to increases in check processing fees, consulting and legal fees and miscellaneous losses. Income Taxes The Company's income tax strategies included reducing income taxes by purchasing securities and originating loans that produce tax-exempt income. The effective rate of income tax expense as a percent of income before income tax and minority interest was 28.0 percent for 1997 compared to 28.3 percent for 1996. Capital Resources Common stockholders' equity totaled $135,210,319 as of December 31, 1998, a 4.5 percent increase from the prior year. In January 1998, the Board of Directors (the "Board") declared a 2-for-1 stock split for holders of record as of February 10, 1998, payable February 20, 1998. As a result of this action, each shareholder received one additional share of common stock for each share outstanding. The par value of the stock was reduced from $5.00 to $2.50 and authorized shares were increased to 50 million. In May 1998, the Board declared a 10 percent common stock dividend. As a result of this action, each shareholder received one additional share of common stock for every 10 shares they owned. Fractional shares were paid in cash. All per-share data has been restated to reflect the 2-for-1 stock split and the 10 percent common stock dividend. Cash dividends for 1998 totaled $6,622,340, or $.349 per common share, which represents an increase of 40.7 percent over 1997 dividends of $.248 per share. The dividend payout ratio for 1998 was 33.24 percent of earnings per share. As part of Brenton's ongoing stock repurchase plan, 512,650 shares of common stock (adjusted for the 2-for-1 stock split and the 10 percent common stock dividend) were repurchased during 1998 at a cost of $10,000,900. Since the inception of the plan in 1994, the Company has repurchased 3,040,327 shares (adjusted for the 2-for-1 stock split and 10 percent common stock dividends) at a total cost of $33,944,378. The Board has extended this plan for 1999 by authorizing up to an additional $4 million for stock repurchase. The Company continues to monitor its capital position to balance the goals of maximizing return on average equity, while maintaining adequate capital levels for regulatory purposes. The Company's risk-based core capital ratio at December 31, 1998, was 10.29 percent and the total risk-based capital ratio was 11.37 percent. These ratios exceeded the minimum regulatory requirements of 4.00 and 8.00 percent, respectively. The Company's tier 1 leverage capital ratio, which measures capital excluding intangible assets, was 7.17 percent at December 31, 1998, exceeding the regulatory minimum requirement for well- capitalized institutions of 5.0 percent. 7 The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent Company") was 6.7 percent at December 31, 1998, compared to 7.8 percent at the end of 1997. The Parent Company's $5 million line of credit with a regional bank was unused at the end of the year. Long-term borrowings of the Parent Company at December 31, 1998, consisted entirely of capital notes totaling $9,046,000. Brenton Banks, Inc. common stock closed on December 31, 1998, at $16.75, a decrease of 7.9 percent from the prior year-end. The closing price at December 31, 1998, was 232.3 percent of the book value per share of $7.21. The year-end stock price represented a price-to-1998-diluted-earnings multiple of 16.0 times. Brenton Banks, Inc. continues to pursue acquisition and expansion opportunities, which fit the strategic direction of and enhance the financial performance of the Company as well as strengthen the Company's presence in current and new markets. There are currently no pending acquisitions that would require Brenton Banks, Inc. to secure capital from public or private markets. Market Risk Management Market risk is the risk of earnings volatility that results from adverse changes in interest rates and market prices. The Company's market risk is comprised primarily of interest rate risk arising from its core banking activities of lending and deposit taking. Interest rate risk is the risk that changes in market interest rates may adversely affect the Company's net interest income. Management continually develops and applies strategies to mitigate this risk. Management does not believe that the Company's primary market risk exposures and how those exposures were managed in 1998 changed when compared to 1997. The Company uses a third-party computer software simulation modeling program to measure its exposure to potential interest rate changes. For various assumed hypothetical changes in market interest rates, numerous other assumptions are made such as prepayment speeds on loans and securities backed by mortgages, the slope of the Treasury yield curve, the rates and volumes on the Company's deposit products and the rates and volumes on the Company's loan production. The following table sets forth the estimated changes in net interest income (expressed as a percent of base net interest income) for projected hypothetical changes in market interest rates. Base net interest income is the projected net income assuming no change in interest rates. As shown in the table, the Company's net interest income is more sensitive in a prolonged falling rate scenario than in a rising rate scenario. As market rates decline, the assumed speed of fixed-rate loan repayments increases, causing the funds received to be reinvested at lower rates. Current interest rates on certain liabilities are at a level that does not allow for significant downward repricing should market interest rates decline significantly. As market rates increase, fixed-rate loans are less likely to prepay, therefore slowing the opportunity to reinvest at the assumed higher rates. In either a rising or falling interest rate environment, the Company believes it has taken actions to minimize the actual impact on net interest income. Those actions include the origination of variable-rate consumer and commercial loans, the use of fixed- rate Federal Home Loan Bank advances as alternatives to certificates of deposit and active management of the investment securities portfolio to provide for cash flows that will facilitate interest rate risk management. In selected cases, the Company may enter into interest rate swaps, however, the amount of swaps at December 31, 1998, and assumed in the projection of net interest income are not material. The Company entered into an interest rate floor contract at the end of 1997 to mitigate the effect falling interest rates would have on certain deposit accounts with contracted minimum interest rates. Actual changes in net interest income may differ from estimated changes set forth in this table due to various risks and uncertainties concerning how actual repricing opportunities will differ from assumed repricing opportunities.
Changes in net interest income due to projected hypothetical changes in market interest rates _____________________________________________ Assumed changes in market rates 1999 2000 2001 _______________ _____ _____ _____ - - -300 bps -0.6% -9.7% -19.9% - - -200 bps 0.3% -6.6% -14.6% - - -100 bps 1.8% 0.8% -2.1% +100 bps -0.3% 0.4% 3.5% +200 bps -2.4% -3.1% 3.5% +300 bps -4.5% -6.0% 3.9% (Changes in hypothetical interest rates are assumed to be instantaneous and sustained parallel shifts in the yield curve.)
8 Asset/Liability Management Brenton has a fully integrated asset/liability management system to assist in managing the balance sheet. The process, which is used to project the results of alternative investment decisions, includes the development of simulations, as previously discussed, that reflect the effects of various interest rate scenarios on net interest income. Management utilizes the simulations to manage interest rate risk, the net interest margin and levels of net interest income. The goal of asset/liability management is to structure the balance sheet so that net interest income and net interest margin fluctuate in a narrow range during periods of changing interest rates. The Company currently believes that net interest income would fall by less than 5 percent if interest rates increased or decreased by 300 basis points over a one-year time horizon. This is within the Company's policy limits. The slope of the yield curve is also a major determinant in the net interest income of the Company. Generally, the steeper the intermediate treasury curve to the one-week LIBOR rate, the better the prospects for net interest income improvement. This curve was inverted at December 31, 1998. To improve net interest income and lessen interest rate risk, management continued its strategy of de-emphasizing fixed-rate portfolio residential real estate loans with long repricing periods. When appropriate for interest rate management purposes, the Company will consider securitization of real estate loans. The Company continues to focus on reducing interest rate risk by emphasizing growth in variable-rate loans. In addition to normal balance sheet instruments, the Company has utilized Federal Home Loan Bank advances and interest rate swaps to reduce interest rate risk. Other actions taken to minimize interest rate risk were previously discussed under the heading "Market Risk Management." Liquidity Management Brenton actively monitors and manages its liquidity position with the objective of maintaining sufficient cash flows to fund operations, meet client commitments, take advantage of market opportunities and provide a margin against unforeseeable liquidity needs. Federal funds sold, loans held for sale and investment securities available for sale are readily marketable assets. Maturities of all investment securities are managed to meet the Company's normal liquidity needs. Investment securities available for sale may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's interest rate risk position. Readily marketable assets, as defined above, comprised 36.6 percent of the Company's total assets at December 31, 1998. Net cash provided from operations (exclusive of increases or decreases in loans held for sale) of the Company is another major source of liquidity and totaled $24,749,000 in 1998, $23,303,000 in 1997 and $23,889,000 in 1996. 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 a low dependence on volatile liabilities. At December 31, 1998, the Company had advances of $119,550,000 from the Federal Home Loan Bank ("FHLB") of Des Moines, of which $75,550,000 were used as a means of providing both long-term, fixed-rate funding for certain assets and managing interest rate risk. The remaining $44,000,000 represents an advance on a variable-rate, short-term line of credit used to fund mortgage loans originated for sale. The Company had additional borrowing capacity available from the FHLB of approximately $52 million at December 31, 1998. The combination of high levels of potentially liquid assets, strong cash flows from operations, low dependence on volatile liabilities and additional borrowing capacity provided strong liquidity for the Company at December 31, 1998. On December 31, 1998, Brenton entered into an agreement to purchase a parcel of land for $2.1 million. The land will be utilized for the construction of an operations and sales support facility. The building, which is in the planning stage, will replace currently leased space and will also allow for additional growth. The Parent Company had sufficient cash flow and liquidity at December 31, 1998. The primary funding source for the Parent Company is dividends from its subsidiaries. Dividends of approximately $6 million were available to be paid to the Parent Company by subsidiary banks without reducing capital ratios below regulatory minimums. At the end of 1998, the Parent Company had $1.1 million of interest-bearing deposits with banks, a $5 million unused line of credit and additional borrowing capacity. Year 2000 The "Year 2000" issue is a top priority for Brenton. The Company's critical core loan and deposit applications are ALLTEL Information Services, Inc. ("ALLTEL") software programs and Brenton outsources the data processing function to ALLTEL. Brenton and 9 ALLTEL are working in partnership to resolve the Year 2000 issues of the critical core application programs as well as all other computer software programs used in the Company. Also considered has been the readiness of vendors and other third parties with which the Company does business, and an assessment of significant clients is underway. The Company could be faced with severe consequences if Year 2000 issues are not identified and resolved in a timely manner by the Company and significant third parties, which include public utilities and various governmental agencies. A worst case scenario would result in the short-term inability to update client financial records due to unforeseen processing issues. This would result in clients being unable to receive timely information regarding their balances. The incremental expense associated with becoming Year 2000 compliant is not anticipated to be material. However, there is an opportunity cost associated with this project in that the people involved are regular Brenton and ALLTEL employees who would normally be spending their time on other projects. The incremental direct costs associated with this project were approximately $350,000 in 1998. It is estimated these costs will approach $500,000 in 1999. There are additional benefits that result from this project because in addition to becoming Year 2000 compliant, systems are being improved. The Company has a Year 2000 committee and a formal plan in place and has been executing on that plan. The Company completed substantially all Year 2000 work associated with its critical core application systems in 1998 and remediation of all other critical software products will take place in early 1999, with testing to take place in March and April of 1999. The committee is also developing contingency plans for unforeseen difficulties related to the Year 2000 issue. It is anticipated that those plans will be complete by June 30, 1999. As a result of modifications and upgrades to existing systems, management believes the Year 2000 issue will not be a significant operational matter for the Company. The Company has also contracted with an outside consultant to monitor the progress of Year 2000 efforts and provide reports to management. Management periodically reports on the status of the Year 2000 project to the Board of Directors and its Audit Committee. The Company is also subject to review by various banking regulatory agencies. Those agencies prescribe very strict guidelines that must be adhered to by financial institutions. The preceding paragraphs include forward-looking statements that involve inherent risks and uncertainties. A number of important factors could result in the actual costs of Year 2000 compliance and impact of Year 2000 issues to differ from what is anticipated. Those uncertainties include incomplete inventory and assessment results, higher than anticipated costs to update software and hardware, and the lack of ability of vendors, significant customers and other third parties to effectively address the Year 2000 issue. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" which will be effective for the Company for the year beginning January 1, 2000. This statement requires recognition of all derivative instruments as either assets or liabilities in the statement of financial position measured at fair value. This statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses from derivatives to offset related results on the hedged item in the income statement, and requires a company to formally document, designate and assess the effectiveness of transactions for which hedge accounting is applied. Management is evaluating the impact adoption of SFAS No. 133 will have on the Company's financial statements. The Company expects to adopt SFAS No. 133 when required. In October 1998, the FASB issued Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." This statement requires that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. This statement conforms the subsequent accounting for securities retained after the securitization of mortgage loans by a mortgage banking enterprise with that of nonmortgage enterprises. The Company will adopt SFAS No. 134 in the first quarter of 1999. Adoption is not expected to have a material effect on the Company. 10
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCES AND RATES Average Balances (in thousands) 1998 1997 1996 1995 1994 Assets: Cash and due from banks $ 65,874 58,681 65,439 57,138 46,301 Interest-bearing deposits with banks 3,706 2,460 1,393 1,076 124 Federal funds sold and securities purchased under agreements to resell 31,048 31,472 26,188 39,763 37,666 Trading account securities --- 12 --- --- 116 Investment securities: Available for sale--taxable 390,591 348,232 330,002 244,786 245,913 Available for sale--tax-exempt 125,237 99,868 85,471 100,859 132,040 Held to maturity--taxable 3,998 12,700 46,271 65,959 35,794 Held to maturity--tax-exempt 53,130 56,204 51,639 50,235 44,584 Loans held for sale 37,841 10,284 7,983 5,908 2,575 Loans 999,232 970,115 919,578 945,724 936,370 Allowance for loan losses (13,738) (12,171) (11,440) (11,166) (10,502) Premises and equipment 31,883 29,841 31,728 31,436 24,545 Other assets 51,318 41,771 28,642 29,508 25,663 __________ _________ _________ _________ _________ $ 1,780,120 1,649,469 1,582,894 1,561,226 1,521,189 Liabilities and Stockholders' Equity: Deposits: Noninterest-bearing $ 164,403 139,480 131,051 128,770 127,464 Interest-bearing: Demand 90,589 81,430 376,259 355,819 250,520 Savings 585,598 551,509 241,250 231,633 294,715 Time 556,056 567,258 583,508 626,497 625,981 __________ ________ _________ _________ _________ Total deposits 1,396,646 1,339,677 1,332,068 1,342,719 1,298,680 Federal funds purchased and securities sold under agreements to repurchase 116,388 78,234 59,276 40,237 61,656 Other short-term borrowings 65,205 53,223 17,295 6,536 4,860 Accrued expenses and other liabilities 17,020 17,097 17,520 14,896 13,254 Long-term borrowings 47,605 32,056 33,094 37,264 26,500 __________ _________ _________ _________ _________ Total liabilities 1,642,864 1,520,287 1,459,253 1,441,652 1,404,950 Minority interest in Consolidated subsidiaries 4,834 4,691 4,471 4,391 4,290 Common stockholders' equity 132,422 124,491 119,170 115,183 111,949 __________ _________ _________ _________ __________ $ 1,780,120 1,649,469 1,582,894 1,561,226 1,521,189 Summary of Average Interest Rates: Average yields earned: Interest-bearing deposits with banks 4.74% 4.80 4.87 6.20 6.65 Trading account securities --- 4.26 --- --- 6.36 Federal funds sold and securities purchased under agreements to resell 5.35 5.54 5.41 5.69 4.53 Investment securities: Available for sale--taxable 6.09 6.31 6.08 5.96 5.30 Available for sale--tax exempt (tax equivalent basis) 6.69 7.04 7.13 6.71 6.37 Held to maturity--taxable 6.93 6.39 6.22 6.17 5.20 Held to maturity--tax-exempt (tax equivalent basis) 6.82 6.72 6.68 8.05 7.70 Loans held for sale 7.11 7.89 8.47 6.71 7.50 Loans 8.74 8.82 8.69 8.69 8.14 Average rates paid: Deposits 4.12% 4.11 4.12 4.37 3.55 Federal funds purchased and securities sold under agreements to repurchase 4.38 4.36 4.17 4.08 3.38 Other short-term borrowings 5.76 5.98 5.87 5.67 5.42 Long-term borrowings 6.34 6.86 7.07 7.03 6.86 Average yield on interest-earning assets 7.78% 7.95 7.80 7.86 7.31 Average rate paid on interest- bearing liabilities 4.29 4.26 4.22 4.45 3.62 Net interest spread 3.49 3.69 3.58 3.41 3.69 Net interest margin 3.97 4.16 4.03 3.89 4.12
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BRENTON BANKS, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA Year-end Balances (in thousands) 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 Total assets $1,939,557 1,718,484 1,632,095 1,582,779 1,581,327 1,480,596 1,431,140 1,360,942 1,274,301 961,370 Interest-earning assets 1,788,081 1,578,923 1,497,600 1,461,218 1,475,473 1,400,709 1,323,252 1,267,402 1,181,172 883,721 Interest-bearing liabilities 1,590,493 1,406,258 1,335,609 1,300,508 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597 769,717 Noninterest-bearing deposits 190,625 161,007 153,284 143,220 136,548 127,132 137,212 115,479 125,626 113,349 Long-term borrowings 41,546 36,662 34,860 38,178 28,939 20,055 13,284 13,634 12,675 14,701 Common stockholders' equity** 135,210 129,379 121,954 119,534 110,430 112,418 97,430 86,712 77,258 63,522 Results of Operations (in thousands) Interest income $ 124,026 118,239 111,383 111,040 101,223 98,656 106,560 115,561 106,826 85,722 Interest expense 62,639 58,105 55,331 57,708 45,772 44,427 54,773 68,687 64,431 49,102 Net interest income 61,387 60,134 56,052 53,332 55,451 54,229 51,787 46,874 42,395 36,620 Provision for loan losses 4,200 3,900 2,900 1,865 1,988 1,252 1,411 799 869 760 Net interest income after provision for loan losses 57,187 56,234 53,152 51,467 53,463 52,977 50,376 46,075 41,526 35,860 Noninterest income 33,358 27,506 23,327 17,847 16,593 17,863 14,684 12,715 11,554 10,113 Noninterest expense 61,392 57,699 56,090 55,051 56,657 50,415 46,591 42,284 37,820 32,781 Income before income taxes and minority interest 29,153 26,041 20,389 14,263 13,399 20,425 18,469 16,506 15,260 13,192 Income taxes 8,082 7,288 5,771 3,205 2,701 5,508 4,884 4,308 4,388 4,016 Minority interest 720 743 603 651 591 667 632 539 533 472 Net income 20,351 18,010 14,015 10,407 10,107 24,250 12,953 11,659 10,339 8,704 Average common shares outstanding (in thousands)* 18,957 19,255 19,901 20,426 21,004 20,893 20,711 20,650 20,615 19,156 Per Common Share* Net income-basic $ 1.07 .94 .70 .51 .48 .68 .63 .56 .50 .45 Net income-diluted 1.05 .91 .69 .50 .47 .67 .62 .56 .50 .45 Cash dividends .349 .248 .188 .169 .165 .150 .131 .121 .103 .083 Common stockholders' equity*** 7.03 6.62 6.18 5.80 5.52 5.21 4.69 4.19 3.74 3.32 Closing price 16.75 18.18 11.42 7.98 6.86 6.57 6.51 5.20 3.38 3.82 Selected Operating Ratios Return on average assets (including minority interest) 1.18% 1.14 .92 .71 .70 1.04 .98 .93 .95 1.00 Return on average common stockholders' equity** 15.37 14.47 11.76 9.04 9.03 13.82 14.13 14.27 14.39 14.50 Equity to assets*** 6.81 7.36 7.41 7.47 7.28 7.40 6.81 6.37 6.06 6.61 Common dividend payout 33.24 27.25 27.25 33.80 35.11 22.39 21.13 21.61 20.60 18.44 Allowance for loan losses as a percent of loans 1.37 1.28 1.20 1.22 1.12 1.12 1.20 1.14 1.25 1.55 Net charge-offs as a percent of average loans .28 .26 .29 .18 .10 .05 .13 .15 .12 .08 * Restated for 2-for-1 stock split effective February 1998, 10 percent common stock dividends effective in 1998, 1997 and 1996, 3-for-2 stock split effective in 1994 and 2-for-1 stock split effective in 1990. ** Including unrealized gains (losses) on securities available for sale. *** Excluding unrealized gains (losses) on securities available for sale.
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BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION December 31 1998 1997 Assets: Cash and due from banks (note 2) $ 76,460,049 77,468,210 Interest-bearing deposits with banks 2,167,288 1,319,700 Federal funds sold and securities purchased under agreements to resell 6,000,000 9,300,000 Trading account securities --- 77,220 Investment securities: Available for sale (note 3) 605,183,788 486,653,872 Held to maturity (market value of $44,011,000 and $69,852,000 at December 31, 1998, and 1997, respectively) (note 3) 43,027,501 69,079,622 Investment securities 648,211,289 555,733,494 Loans held for sale 98,147,391 19,303,411 Loans (notes 4, 9 and 10) 1,033,554,556 993,189,110 Allowance for loan losses (note 5) (14,172,264) (12,732,131) Loans, net 1,019,382,292 980,456,979 Premises and equipment (notes 6) 32,523,113 28,898,589 Accrued interest receivable 16,458,066 15,233,682 Other assets (notes 4 and 8) 40,207,277 30,692,512 $ 1,939,556,765 1,718,483,797 Liabilities and Stockholders' Equity: Deposits (note 7): Noninterest-bearing $ 190,625,140 161,007,156 Interest-bearing: Demand 131,602,358 117,664,352 Savings 603,367,340 527,364,856 Time 571,080,293 558,234,127 Total deposits 1,496,675,131 1,364,270,491 Federal funds purchased and securities sold under agreements to repurchase 155,847,300 92,632,576 Other short-term borrowings (note 9) 87,050,000 73,700,000 Accrued expenses and other liabilities 18,315,348 16,980,763 Long-term borrowings (note 10) 41,546,000 36,662,000 Total liabilities 1,799,433,779 1,584,245,830 Minority interest in consolidated subsidiaries 4,912,667 4,858,668 Redeemable preferred stock, $1 par; 500,000 shares authorized; issuable in series, none issued --- --- Common stockholders' equity (notes 12, 13, 14 and 16): Common stock, $2.50 par; 50,000,000 shares authorized; 18,752,381 and 17,334,048 shares issued and outstanding at December 31, 1998, and 1997, respectively 46,880,953 43,335,120 Capital surplus --- --- Retained earnings 85,010,569 82,824,333 Accumulated other comprehensive income -- unrealized gains on securities available for sale, net 3,318,797 3,219,846 Total common stockholders' equity 135,210,319 129,379,299 $ 1,939,556,765 1,718,483,797 Commitments and contingencies (notes 17 and 18). See accompanying notes to consolidated financial statements.
13
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31 1998 1997 1996 Interest Income: Interest and fees on loans (note 4) $ 89,739,711 86,020,464 80,301,707 Interest and dividends on investments: Available for sale--taxable 23,770,870 21,969,148 20,063,114 Available for sale--tax-exempt 5,866,972 4,929,898 4,250,463 Held to maturity--taxable 277,075 811,729 2,878,982 Held to maturity--tax-exempt 2,536,082 2,647,149 2,404,155 Interest on federal funds sold and securities purchased under agreements to resell 1,659,405 1,742,284 1,416,539 Other interest income 175,678 118,695 68,157 ___________ ___________ ___________ Total interest income 124,025,793 118,239,367 111,383,117 Interest Expense: Interest on deposits (note 7) 50,772,501 49,310,346 49,507,425 Interest on federal funds purchased and securities sold under agreements to repurchase 5,092,162 3,413,432 2,469,939 Interest on other short-term borrowings (note 9) 3,756,817 3,183,053 1,015,110 Interest on long-term borrowings (note 10) 3,016,987 2,198,772 2,338,501 ___________ ___________ ___________ Total interest expense 62,638,467 58,105,603 55,330,975 Net interest income 61,387,326 60,133,764 56,052,142 Provision for loan losses (note 5) 4,200,000 3,900,000 2,900,000 ___________ ___________ ___________ Net interest income after provision for loan losses 57,187,326 56,233,764 53,152,142 Noninterest Income: Service charges on deposit accounts 7,885,513 7,290,765 6,712,874 Mortgage banking income 7,797,577 3,274,215 2,168,593 Investment brokerage commissions 5,334,309 4,808,048 3,766,436 Fiduciary income 3,497,030 3,136,078 2,744,530 Insurance commissions and fees 1,382,917 2,803,983 2,915,666 Other service charges, collection and exchange charges, commissions and fees 4,208,330 3,441,454 2,779,502 Net realized gains from securities available for sale (note 3) 665,450 493,822 321,256 Other operating income 2,586,701 2,257,424 1,918,584 ___________ ___________ ___________ Total noninterest income 33,357,827 27,505,789 23,327,441 Noninterest Expense: Compensation 29,141,441 26,824,307 25,460,464 Employee benefits (note 15) 4,873,271 4,303,104 4,245,682 Occupancy expense of premises, net (notes 6 and 17) 5,807,559 5,609,600 5,502,904 Furniture and equipment expense (notes 6 and 17) 4,163,137 3,634,336 3,725,150 Data processing expense (note 18) 2,623,727 2,850,395 2,591,485 Marketing 1,472,632 1,361,963 1,756,473 Supplies 1,226,212 1,195,762 1,409,690 FDIC deposit insurance assessment 272,814 281,416 1,801,646 Other operating expense 11,810,735 11,637,681 9,597,077 ___________ ___________ ___________ Total noninterest expense 61,391,528 57,698,564 56,090,571 Income before income taxes and minority interest 29,153,625 26,040,989 20,389,012 Income taxes (note 8) 8,082,355 7,287,628 5,770,600 ___________ ___________ ___________ Income before minority interest 21,071,270 18,753,361 14,618,412 Minority interest 720,349 743,254 602,982 ___________ ___________ ___________ Net income $ 20,350,921 18,010,107 14,015,430 Per common share (notes 1 and 13): Net income-basic $ 1.07 .94 .70 Net income-diluted 1.05 .91 .69 Cash dividends .349 .248 .188 See accompanying notes to consolidated financial statements.
14
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 1998 1997 1996 Operating Activities: Net income $ 20,350,921 18,010,107 14,015,430 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 4,200,000 3,900,000 2,900,000 Depreciation and amortization 4,683,179 4,216,828 4,301,776 Deferred income taxes 1,396,220 (685,223) 949,396 Net realized gains from securities available for sale (665,450) (493,822) (321,256) Investment securities amortization and accretion 1,043,735 1,346,704 1,710,902 Net (increase) decrease in loans held for sale (78,843,980) (13,433,113) 2,837,011 Net increase in accrued interest receivable and other assets (7,644,451) (3,501,066) (1,402,881) Net increase in accrued expenses, other liabilities and minority interest 1,384,709 509,873 1,735,569 ___________ ___________ ___________ Net cash provided (used) by operating activities (54,095,117) 9,870,288 26,725,947 Investing Activities: Investment securities available for sale: Purchases (461,159,506) (303,699,052) (289,154,999) Maturities 252,551,601 161,716,090 148,785,952 Sales 89,996,385 119,401,553 67,547,581 Investment securities held to maturity: Purchases (6,166,526) (26,324,353) (45,015,563) Maturities 32,130,525 29,768,259 78,826,937 Net increase in loans (43,125,313) (53,741,825) (26,364,596) Purchase of other assets for investment (5,000,000) (5,000,000) (10,017,329) Purchases of premises and equipment (7,911,645) (2,526,958) (2,734,491) Proceeds from sales of premises and equipment 7,291 225,080 1,356,634 _____________ ___________ ___________ Net cash used by investing activities (148,677,188) (80,181,206) (76,769,874) Financing Activities: Net increase in noninterest-bearing, interest-bearing demand and savings deposits 119,558,474 25,683,433 22,335,320 Net increase (decrease) in time deposits 12,846,166 (14,470,053) (31,220,924) Net increase in federal funds purchased and securities sold under agreements to repurchase 63,214,724 25,806,456 25,718,709 Net increase (decrease) in other short-term borrowings (9,700,000) 25,550,000 15,500,000 Proceeds of long-term borrowings 29,394,000 17,806,000 14,604,000 Repayment of long-term borrowings (1,460,000) (2,004,024) (1,771,779) Dividends on common stock (6,622,340) (4,781,675) (3,748,653) Proceeds from issuance of common stock under the employee stock purchase plan 758,090 551,247 71,675 Proceeds from issuance of common stock under the stock option plan 290,039 1,286,157 290,748 Proceeds from issuance of common stock under the long-term stock compensation plan 970,220 246,915 334,834 Payment for shares reacquired under common stock repurchase plan (10,000,900) (10,014,087) (8,248,331) Payment for fractional shares resulting from common stock dividend (13,961) (16,399) (13,744) _____________ ___________ ___________ Net cash provided by financing activities 199,234,512 65,643,970 33,851,855 _____________ ___________ ___________ Net decrease in cash and cash equivalents (3,537,793) (4,666,948) (16,192,072) Cash and cash equivalents at the beginning of the year 88,165,130 92,832,078 109,024,150 _____________ ____________ ___________ Cash and cash equivalents at the end of the year $ 84,627,337 88,165,130 92,832,078 See accompanying notes to consolidated financial statements.
15
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY Years Ended December 31 1998 1997 1996 Common Stock Beginning of year balance $ 43,335,120 40,428,420 38,266,260 Ten percent common stock dividend (note 13) 4,315,398 3,966,905 3,684,215 Issuance of shares of common stock under the stock option plan (note 16) 99,825 501,760 128,000 Issuance of shares of common stock under the long-term stock compensation plan (note 16) 268,960 82,945 73,590 Issuance of shares of common stock under the employee stock purchase plan (note 16) 94,150 93,790 14,855 Shares reacquired under the common stock repurchase plan (note 13) (1,232,500) (1,738,700) (1,738,500) _____________ ___________ ___________ End of year balance 46,880,953 43,335,120 40,428,420 Capital Surplus Beginning of year balance --- --- 2,020,518 Ten percent common stock dividend (note 13) (78,529) --- --- Issuance of shares of common stock under the stock option plan (note 16) 190,214 784,397 162,748 Issuance of shares of common stock under the long-term stock compensation plan (note 16) 842,685 163,970 261,244 Issuance of shares of common stock under the employee stock purchase plan (note 16) 664,018 457,457 56,820 Shares reacquired under the common stock repurchase plan (note 13) (1,618,388) (1,405,824) (2,501,330) _____________ ___________ ___________ End of year balance --- --- --- Retained Earnings Beginning of year balance 82,824,333 80,448,768 77,888,451 Net income 20,350,921 18,010,107 14,015,430 Dividends on common stock ($.349, $.248, and $.188 per share, respectively*) (6,622,340) (4,781,675) (3,748,653) Ten percent common stock dividend (note 13) (4,236,869) (3,966,905) (3,684,215) Fractional shares resulting from common stock dividend (13,961) (16,399) (13,744) Issuance of shares of common stock under the long-term stock compensation plan (note 16) (141,425) --- --- Issuance of shares of common stock under the employee stock purchase plan (note 16) (78) --- --- Shares reacquired under the common stock repurchase plan (note 13) (7,150,012) (6,869,563) (4,008,501) _____________ ___________ ___________ End of year balance 85,010,569 82,824,333 80,448,768 Accumulated Other Comprehensive Income Beginning of year balance 3,219,846 1,077,041 1,358,402 Change in unrealized holding gains (losses) on securities, net 98,951 2,142,805 (281,361) _____________ ___________ ___________ End of year balance 3,318,797 3,219,846 1,077,041 _____________ ___________ ___________ Total Stockholder's Equity $ 135,210,319 129,379,299 121,954,229 * Reflects the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998 and 1997. See accompanying notes to consolidated financial statements.
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BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 1998 1997 1996 Net income $ 20,350,921 18,010,107 14,015,430 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities available for sale: Unrealized holding gains (losses) arising during the period (net Of deferred tax of $(311,674), $(1,470,886) and $48,346, respectively) 512,861 2,451,444 (80,576) Less: reclassification adjustment for net realized gains included in net income (net of tax expense of $251,540, $185,183 and $120,471, respectively) (413,910) (308,639) (200,785) _____________ __________ __________ Other comprehensive income (loss), net of tax 98,951 2,142,805 (281,361) _____________ __________ __________ Comprehensive income $ 20,449,872 20,152,912 13,734,069 See accompanying notes to consolidated financial statements.
17 BRENTON BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 (1) Summary of Significant Accounting Policies and Related Matters ______________________________________________________________________________ Nature of Operations Brenton Banks, Inc. and subsidiaries (the Company) engage in retail, commercial, business, and agricultural banking and related financial services from 47 locations throughout the state of Iowa. The Company provides the usual products and services of banking such as deposits, commercial loans, business loans, agribusiness loans, personal loans and trust and investment management services. The Company also engages in activities that are closely related to banking, including mortgage banking, investment, insurance and real estate brokerage. The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practices within the banking industry. The following describe the more significant accounting policies: The Principles of Consolidation The consolidated financial statements include the accounts of Brenton Banks, Inc. (the Parent Company) and its subsidiaries. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. Certain reclassifications were made in the financial statements to agree with the current year presentation. The excess cost over underlying net assets of consolidated subsidiaries and other intangible assets are being amortized over 15 to 40 years and are included in other assets in the consolidated statements of condition. Intangible assets totaled $3,395,000 and $3,795,000 at December 31, 1998, and 1997, 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 that the Company has the ability and intent 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 other comprehensive income until realized. Securities held to maturity are recorded at cost, adjusted for amortization of premiums and accretion of discounts. The timing of the amortization and accretion of mortgage-backed securities is adjusted for actual and projected prepayments. Net realized gains or losses on the sale of securities are shown in the statements of operations. Gains or losses are computed using the specific security identification method. Trading Account Securities Trading account securities are carried at market value and include securities purchased with the intent to resell in a relatively short period of time. Gains and losses on trading account activities, including market value adjustments, are reported in noninterest income in the consolidated statements of operations. Loans Loans are carried primarily at the unpaid principal balance. Interest income on loans is accrued and recorded as income based on contractual interest rates and daily outstanding principal balances, except on discounted loans where unearned income is recorded as income over the life of the loans based on the interest method. The accrual of interest income is stopped when the ultimate collection of a loan becomes doubtful. A loan is placed on nonaccrual status when it becomes 90 days past due, if it is neither well secured or in the process of collection. Once determined uncollectible, interest credited to income in the current year is reversed and interest accrued in prior years is charged to the allowance for loan losses. Under the Company's credit policies, all nonaccrual and restructured commercial, business, agricultural, commercial real estate and construction loans are considered to be impaired loans. In determining when a loan is impaired, management considers the delinquency status of the borrower, the borrower's ability to generate cash and the fair market value of the collateral. Specific allowances are established for any impaired commercial, business, agricultural, commercial real estate or construction loan where the recorded investment exceeds the measured value of the loan. On a practical basis, the measured value of a loan is obtained by using the observable market price of a loan or the fair value of the collateral, if the loan is collateral dependent. Otherwise, the measured value of a loan is based upon the present value of expected future cash flows discounted at the loan's effective interest rate. Impaired loans are charged-off on the basis of management's ongoing evaluation, but generally when it is deemed probable that the borrower cannot generate sufficient funds to comply with contractual terms in the normal course of business. Cash received on impaired loans is applied to principal until principal is satisfied or until the borrower demonstrates the ability to perform according to agreed-upon terms. Loans held for sale include real estate mortgage loans originated with the intent to sell. These loans are carried at the lower of aggregate cost or fair value. Allowance for Loan Losses The allowance for loan losses is maintained at a level considered appropriate to support management's evaluation of potential losses in the loan portfolio. Management's evaluation is based upon several factors including economic conditions, historical loss and collection experience, risk characteristics of the portfolio, underlying collateral values, industry risk and credit concentrations. Loan losses or recoveries are charged or credited directly to the allowance account. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided predominantly by the straight-line method over estimated useful lives of 5 to 40 years for buildings and leasehold improvements, and 3 to 20 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 $389,000 and $341,000 at December 31, 1998, and 1997, respectively. Such property is carried at the lower of cost or estimated fair value, less estimated selling costs. Periodic appraisals are obtained to support carrying values. Net expense of 18 ownership and declines in carrying values are charged to operating expenses. Employee Retirement Plan All employees of the Company are eligible, after meeting certain requirements, for inclusion in the defined contribution retirement plan. The plan is a combination profit sharing and 401(k) plan. Retirement plan costs are expensed as the Company contributes to the plan. The Company does not provide any material post-retirement benefits. Income Taxes The Company files a consolidated federal income tax return. Federal income taxes are allocated to the Parent Company and each subsidiary on the basis of its taxable income or loss included in the consolidated return. The effects of current or deferred taxes are recognized as a current and deferred tax liability or asset based on current tax laws. Accordingly, income tax expense in the consolidated statements of operations includes charges or credits to properly reflect the current and deferred tax asset or liability. Statements of Cash Flows In the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks and federal funds sold and securities purchased under agreements to resell. Income Per Common Share Basic net income per common share amounts are computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share amounts are computed by dividing net income by the weighted average number of common shares and all dilutive potential common shares outstanding during the year. In January 1998, the Company declared a 2-for-1 stock split effective February 10, 1998 and in June 1998, May 1997 and October 1996, the Company declared 10 percent common stock dividends. The average number of common shares and dilutive potential common shares have been restated for the stock split and stock dividends. The following information was used in the computation of net income per common share on both a basic and diluted basis for the years ended December 31, 1998, 1997 and 1996:
(in thousands, except for EPS data) 1998 1997 1996 _____________________________________________________________________________ Basic EPS Computation Numerator: Net income $20,351 18,010 14,015 ______ ______ ______ Denominator: Average common shares outstanding 18,957 19,255 19,901 ______ ______ ______ Basic EPS $ 1.07 .94 .70 ______ ______ ______ ______ ______ ______ Diluted EPS Computation Numerator: Net income $20,351 18,010 14,015 ______ ______ ______ Denominator: Average common shares outstanding 18,957 19,255 19,901 Average stock options 390 313 177 Average long-term stock compensation plan --- 154 215 ______ ______ ______ 19,347 19,722 20,293 ______ ______ ______ ______ ______ ______ Diluted EPS $ 1.05 .91 .69 ______ ______ ______ ______ ______ ______
Fair Value of Financial Instruments Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at one time. Unless included in assets available for sale, it is the Company's general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Estimated fair values have been determined by the Company using the best available data and an estimation method suitable for each category of financial instruments. Interest Rate Swaps Amounts paid or received, related to outstanding swap contracts that are used in the asset/liability management process, are recognized into earnings as an adjustment to interest income over the estimated life of the related assets. Gains or losses associated with the termination of interest rate swap agreements for identified positions are deferred and amortized over the remaining lives of the related assets as an adjustment to yield. Interest Rate Floor An interest rate floor requires the seller to pay the purchaser, at specified dates, the amount, if any, by which the market interest rate falls below the agreed-upon floor, applied to a notional principal amount. Initial cash amounts paid on positions accounted for as hedges are deferred and amortized over the 19 instrument's contractual life. Subsequent payments received are recognized into earnings as an adjustment to interest on deposits. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A significant estimate that is particularly sensitive to change relates to the allowance for loan losses. Changes in Accounting Policies: Accounting for Stock-Based Compensation Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of the grant only if the current market price of the underlying stock exceeded the exercise price. Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement requires that after a transfer of financial assets, the Company must recognize the financial and servicing assets controlled and liabilities incurred and derecognize financial assets and liabilities in which control is surrendered or debt is extinguished. In such a case, servicing assets are determined based upon estimated future revenues from contractually specified servicing fees and other ancillary revenues that are expected to compensate the Company for performing the servicing. The adoption of SFAS No. 125 did not have a material effect on the Company. Earnings per Share Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per Share." This statement replaces the primary earnings per share (EPS) disclosure with basic and diluted EPS disclosures to simplify the calculation and improve international comparability. The adoption of SFAS No. 128 did not have a material effect on the Company. Reporting Comprehensive Income Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of financial staements. The adoption of SFAS No. 130 did not have a material effect on the Company. Segment Reporting Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This statement requires disclosure about operating segments that are components of the Company that engage in business activities that generate revenue and incur expenses. A segment is further defined as a component whose operating results are reviewed by the chief operating decision-maker in the determination of resource allocation and performance. The statement also establishes standards for related disclosures about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not have any impact on the Company's financial position other than additional financial disclosures. (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 $15,308,000 at December 31, 1998. (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. 20
Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1998 (in thousands) Cost Gains Losses Value Investment securities available for sale: Taxable investments: U.S. Treasury securities $ 43,076 360 (144) 43,292 Securities of U.S. government agencies 139,372 1,293 (248) 140,417 Mortgage-backed and related securities 231,955 1,497 (397) 233,055 Other investments 26,948 61 (25) 26,984 Tax-exempt investments: Obligations of states and political subdivisions 158,283 3,344 (191) 161,436 _______ _____ _____ _______ $599,634 6,555 (1,005) 605,184 Investment securities held to maturity: Taxable investments: Mortgage-backed and related securities $ 1,529 12 --- 1,541 Other investments 450 11 --- 461 Tax-exempt investments: Obligations of states and political subdivisions 41,048 964 (3) 42,009 _______ _____ _____ ______ $ 43,027 987 (3) 44,011
Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1997 (in thousands) Cost Gains Losses Value Investment securities available for sale: Taxable investments: U.S. Treasury securities $ 38,502 288 --- 38,790 Securities of U.S. government agencies 86,185 490 (15) 86,660 Mortgage-backed and related securities 229,334 1,778 (179) 230,933 Other investments 20,925 36 (4) 20,957 Tax-exempt investments: Obligations of states and political subdivisions 106,804 2,522 (12) 109,314 _______ _____ _____ _______ $481,750 5,114 (210) 486,654 Investment securities held to maturity: Taxable investments: Securities of U.S. government agencies $ 5,025 --- (6) 5,019 Mortgage-backed and related securities 2,363 74 --- 2,437 Other investments 1,518 9 (1) 1,526 Tax-exempt investments: Obligations of states and political subdivisions 60,173 773 (76) 60,870 _______ _____ _____ ______ $ 69,079 856 (83) 69,852
21 Proceeds from the sale of available for sale securities were $89,996,000, $119,402,000 and $67,548,000 in 1998, 1997, and 1996, respectively. Gross gains of $667,000 in 1998, $874,000 in 1997 and $558,000 in 1996 and gross losses of $2,000 in 1998, $380,000 in 1997 and $237,000 in 1996 were realized on those sales. Other investments at December 31, 1998, and 1997, consisted primarily of corporate bonds and Federal Home Loan Bank stock. U.S. government agencies originate or guarantee primarily all of the mortgage-backed and related securities. The scheduled maturities of investment securities at December 31, 1998 follow. Actual maturities may differ from scheduled maturities because issuers may have the right to call obligations without penalties. The maturities of mortgage-backed securities have been included in the period of anticipated payment considering estimated prepayment rates.
Estimated Amortized Fair (in thousands) Cost Value Investment securities available for sale: Due in one year or less $108,758 109,192 Due after one year through five years 378,352 381,202 Due after five years through ten years 92,176 93,634 Due after ten years 20,348 21,156 $599,634 605,184 Investment securities held to maturity: Due in one year or less $ 16,518 16,613 Due after one year through five years 17,008 17,288 Due after five years through ten years 5,842 6,150 Due after ten years 3,659 3,960 $ 43,027 44,011
Investment securities carried at $265,405,000 and $314,865,000 at December 31, 1998, and 1997, respectively, were pledged to secure public and other funds on deposit and for other purposes. (4) Loans ______________________________________________________________________________ A summary of loans at December 31 follows:
(in thousands) 1998 1997 Real estate loans: Commercial construction and land development $ 54,941 30,007 Secured by 1-4 family residential property 127,351 194,055 Home equity 175,380 148,079 Other 151,995 161,989 Loans to farmers 84,554 79,036 Commercial and industrial loans 179,414 160,428 Loans to individuals for personal expenditures: Direct 69,452 66,252 Indirect 182,184 151,153 All other loans 8,284 2,190 $1,033,555 993,189
The Company originates commercial, business, real estate, agricultural and personal loans with clients throughout Iowa. The portfolio has unavoidable geographic risk as a result. Total nonperforming loans and assets at December 31 were:
(in thousands) 1998 1997 Impaired loans: Nonaccrual $ 8,099 3,227 Restructured 289 513 Total impaired loans 8,388 3,740 Loans past due 90 days or more 2,901 2,972 Total nonperforming loans 11,289 6,712 Other real estate owned 389 341 Total nonperforming assets $11,678 7,053
The average balances of impaired loans for the years ended December 31, 1998, and 1997, were $5,901,000 and $3,076,000, respectively. The allowance for loan losses related to impaired loans at December 31, 1998, and 1997, was $2,506,000 and $1,187,000, respectively. Impaired loans of $311,000 and $704,000 were not subject to a related allowance for loan losses at December 31, 1998, and 1997, respectively, because of the net realizable value of loan collateral, guarantees and other factors. The effect of nonaccrual and restructured loans on interest income for each of the three years ended December 31 was:
(in thousands) 1998 1997 1996 Interest income: As originally contracted $827 402 363 As recognized 215 157 174 Reduction of interest income $612 245 189
Loan clients 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, 1997 $ 5,918 Additional loans 2,090 Loan payments (3,237) Balance at December 31, 1998 $ 4,771
Mortgage Servicing Rights The fair market value of capitalized servicing rights at December 31, 1998 was approximately $5,986,000. To determine the fair value of the servicing rights, the Company used comparable market prices. In determining the fair market value and potential impairment at the end of 1998, the Company disaggregated the portfolio by its predominate risk factor, interest rate. The fair value of the portfolio was determined by 22 calculating the present value of future cash flows. The Company incorporated assumptions that market participants would use in estimating future net servicing income which include estimates of the cost of servicing per loan, the discount rate, float value, an inflation rate, ancillary income per loan, prepayment speeds and default rates. Capitalized servicing rights on originated loan servicing, included in other assets, as of December 31 follows:
(in thousands) 1998 1997 Balance at beginning of year $2,274 1,026 Additions from originations 4,186 1,491 Amortization (685) (238) Impairment --- (5) Balance at end of year $5,775 2,274
(5) Allowance for Loan Losses ______________________________________________________________________________ A summary of activity in the allowance for loan losses follows:
(in thousands) 1998 1997 1996 Balance at beginning of year $12,732 11,328 11,070 Provision 4,200 3,900 2,900 Recoveries 1,647 1,733 1,419 Loans charged off (4,407) (4,229) (4,061) Balance at end of year $14,172 12,732 11,328
(6) Premises and Equipment _____________________________________________________________________________ A summary of premises and equipment as of December 31 follows:
(in thousands) 1998 1997 Land $ 3,338 2,919 Buildings and leasehold improvements 33,881 31,511 Furniture and equipment 29,853 25,047 Construction in progress 324 145 67,396 59,622 Less accumulated depreciation 34,873 30,723 $32,523 28,899
Depreciation expense included in operating expenses amounted to $4,282,000, $3,783,000 and $3,848,000 in 1998, 1997 and 1996, respectively. (7) Deposits _____________________________________________________________________________ Time deposits include deposits in denominations of $100,000 or more of $97,665,000 and $80,896,000 at December 31, 1998, and 1997, respectively. A summary of interest expense by deposit classification follows:
(in thousands) 1998 1997 1996 Demand $ 2,800 2,332 11,194 Savings 17,429 15,903 6,134 Time deposits of $100,000 or more 4,835 4,833 3,935 Other time deposits 25,708 26,242 28,244 $50,772 49,310 49,507
The Company made cash interest payments of $61,964,000, $57,932,000 and $55,455,000 on deposits and borrowings in 1998, 1997 and 1996, respectively. At December 31, 1998, the scheduled maturities of time deposits are as follows: (in thousands) 1999 $363,579 2000 146,791 2001 30,402 2002 17,238 2003 and thereafter 13,070 $571,080 (8) Income Taxes _____________________________________________________________________________ The current and deferred income tax provisions included in the consolidated statements of operations follow:
1998 (in thousands) Current Deferred Total Federal $5,301 1,512 6,813 State 1,385 (116) 1,269 $6,686 1,396 8,082 1997 Federal $6,562 (577) 5,985 State 1,411 (108) 1,303 $7,973 (685) 7,288 1996 Federal $3,754 894 4,648 State 1,067 56 1,123 $4,821 950 5,771
Since the income tax returns are filed after the issuance of the financial statements, amounts reported are subject to revision based on actual amounts used in the income tax returns. The Company made cash income tax payments of $6,000,000, $6,100,000 and $4,250,000 to the IRS, and $1,510,000, $1,568,000 and $435,000 to the state of Iowa in 1998, 1997 and 1996, 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. 23 The reasons for the difference between the amount computed by applying the statutory federal income tax rate of 35 percent and income tax expense follow:
(in thousands) 1998 1997 1996 At statutory rate $ 10,204 9,114 7,136 Increase (reduction) due to: Tax-exempt interest (3,169) (2,916) (2,556) State taxes, net of federal benefit 825 847 730 Nondeductible interest expense to own tax-exempts 572 536 426 Other, net (350) (293) 35 $ 8,082 7,288 5,771
Accumulated deferred income tax assets are included in other assets in the consolidated statements of condition. There was no valuation allowance at December 31, 1998, or 1997. A summary of the temporary differences resulting in deferred income taxes and the related tax effect on each follow:
(in thousands) 1998 1997 Allowance for loan losses $5,576 4,575 Unrealized gains on securities available for sale (2,157) (2,006) Deposit base intangibles (458) (489) Premises and equipment (366) (468) Stock compensation plan --- 1,077 Mortgage servicing rights (2,348) (852) Real estate mortgage, loan points deferred (257) (283) Other, net 333 316 $ 323 1,870
(9) Other Short-Term Borrowings _____________________________________________________________________________ The Company had short-term borrowings with the Federal Home Loan Bank of Des Moines (FHLB) totaling $87,050,000 and $73,700,000 at December 31, 1998, and 1997, respectively. The average rate on these borrowings at December 31, 1998 was 5.38 percent. These borrowings were secured by FHLB stock and residential mortgage loans equal to 130 percent of the borrowings. The Parent Company has arranged an unsecured line of credit of $5,000,000, which was unused at December 31, 1998. It is at the prime interest rate and is subject to annual review and renewal. (10) Long-Term Borrowings _____________________________________________________________________________ Long-term borrowings consisted of the following at December 31:
(in thousands) 1998 1997 Capital notes, 6.00% to 10.00% Total Parent Company $ 9,046 10,112 Borrowings from FHLB, average rate of 5.74% at December 31, 1998 32,500 26,550 $ 41,546 36,662
Borrowings from the FHLB were secured by FHLB stock and residential mortgage loans equal to 130 percent of the borrowings and were direct obligations of the individual subsidiaries. Scheduled maturities of long-term borrowings at December 31, 1998 follow:
Parent (in thousands) Company Consolidated 1999 $ 1,263 1,263 2000 803 19,303 2001 1,358 15,358 2002 757 757 2003 944 944 Thereafter 3,921 3,921 $ 9,046 41,546
24 (11) Fair Value of Financial Instruments _____________________________________________________________________________ The estimated fair values of the Company's financial instruments were as follows:
December 31, 1998 December 31, 1997 _________________ _________________ Recorded Fair Recorded Fair (in thousands) Amount Value Amount Value _______________________________________________________________________________________ Financial assets: Cash and due from banks $ 76,460 76,460 $ 77,468 77,468 Interest-bearing deposits with banks 2,167 2,167 1,320 1,320 Federal funds sold and securities purchased under agreements to resell 6,000 6,000 9,300 9,300 Trading account securities --- --- 77 77 Investment securities 648,211 649,195 555,733 556,506 Loans held for sale 98,147 98,147 19,303 19,303 Loans, net 1,019,382 1,029,536 980,457 981,664 Financial liabilities: Deposits $ 1,496,675 1,504,006 $1,364,270 1,369,448 Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings 242,897 242,897 166,333 166,333 Long-term borrowings 41,546 42,912 36,662 37,156 Off-balance-sheet assets (liabilities): Commitments to extend credit $ --- --- $ --- --- Letters of credit --- (100) --- (111) Interest rate swaps --- --- --- (34) Interest rate floor 98 400 195 206
The recorded amount of cash and due from banks and interest- bearing deposits with banks approximates fair value. The recorded amount of federal funds sold and securities purchased under agreements to resell and trading account securities approximates fair value as a result of the short-term nature of the instruments. The estimated fair value of investment securities has been determined using available quoted market prices for similar securities. The estimated fair value of loans is net of an adjustment for credit risk. For loans with floating interest rates, it is presumed that estimated fair values generally approximate the recorded book balances. Real estate loans secured by 1-4 family residential property were valued using trading prices for similar pools of mortgage-backed securities. Other fixed-rate loans were valued using a present-value discounted cash flow with a discount rate approximating the market for similar assets. Deposit liabilities with no stated maturities have an estimated fair value equal to the recorded balance. Deposits with stated maturities have been valued using a present-value discounted cash flow with a discount rate approximating the current market for similar deposits. The fair-value estimate does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The Company believes the value of these depositor relationships to be significant. The recorded amount of the federal funds purchased, securities sold under agreements to repurchase and short-term borrowings approximates fair value as a result of the short-term nature of these instruments. The estimated fair value of long-term borrowings was determined using a present-value discounted cash flow with a discount rate approximating the current market for similar borrowings. The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements. The fair value of interest rate swaps and the interest rate floor contract is the estimated amount that the Company would receive or pay to terminate the swap and floor agreements at the reporting date. 25 (12) Regulatory Capital _____________________________________________________________________________ The Company is subject to various regulatory capital requirements administered by both federal and state banking agencies. Failure to comply with minimum capital requirements could result in actions taken by regulators that could have a direct material impact on the Company's financial statements. Under the capital adequacy guidelines established by regulators, the Company must meet specific capital guidelines that involve the measurement of the Company's assets, liabilities and certain off-balance sheet items. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators as it relates to components, risk weightings and other factors. Quantitative measures established by regulators to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the following table) of total and tier 1 capital to risk weighted assets and of tier 1 capital to average assets. As of December 31, 1998, management believes the Company is well- capitalized, as defined under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Company must maintain minimum total risk-based, tier 1 risk-based and tier 1 leverage ratios as set forth in the table. The Company's actual capital amounts and ratios are also presented in the table.
To Be Well- Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ________________________________________________________________________________________ Amount Ratio Amount Ratio Amount Ratio (dollar amounts in thousands) As of December 31, 1998: Total Capital (to Risk Weighted Assets): Consolidated $148,644 11.37% $104,548 > 8.0% N/A _ Brenton Bank 136,371 11.04 98,842 > 8.0 $123,553 > 10.0% _ _ Tier 1 Capital (to Risk Weighted Assets): Consolidated 134,446 10.29 52,274 > 4.0 N/A _ Brenton Bank 123,087 9.96 49,421 > 4.0 74,132 > 6.0 _ _ Tier 1 Capital (to Average Assets): Consolidated 134,446 7.17 56,271 > 3.0 N/A _ Brenton Bank 123,087 7.64 64,429 > 4.0 80,536 > 5.0 _ _
(13) Common Stock Transactions _____________________________________________________________________________ In January 1998, the Company declared a 2-for-1 stock split for holders of record as of February 10, 1998. As a result, the par value of the Company's common stock was changed from $5.00 to $2.50 per share, the number of outstanding shares doubled and authorized shares were increased to 50 million. In June 1998, the Company declared a 10 percent common stock dividend. This transaction resulted in the issuance of 1,726,159 shares of common stock and the transfer of $4,236,869 from retained earnings to common stock. In May 1997, the Company declared a 10 percent common stock dividend. As a result of this action, 1,586,762 shares of common stock were issued and $3,966,905 was transferred from retained earnings to common stock. Fractional shares resulting from both 10 percent common stock dividends were paid in cash. Net income and cash dividends per share information in the financial statements have been retroactively restated to reflect these transactions. As part of the Company's ongoing stock repurchase plan, the Board of Directors authorized additional common stock repurchases of $10 million in 1998. For the years ended December 31, 1998, 1997 and 1996, the Company repurchased 512,650, 805,904 and 915,365 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996), respectively, at a total cost of $10,000,900, $10,014,087 and $8,248,331. (14) Dividend Restrictions _____________________________________________________________________________ The Parent Company derives a substantial portion of its cash flow, including that available for dividend payments to stockholders, from the subsidiary banks in the form of dividends. 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 that could be paid by the subsidiary banks to the Parent Company at December 31, 1998, were approximately $6 million. (15) Employee Retirement Plan _____________________________________________________________________________ The Company provides a defined contribution retirement plan for the benefit of employees. The plan is a combination profit sharing and 401(k) plan. All employees 21 years of age or older and 26 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 1/2 percent of each employee's eligible compensation. Retirement plan costs charged to operating expenses in 1998, 1997 and 1996 amounted to $1,506,000, $1,290,000 and $1,284,000, respectively. The Company offers no material post-retirement benefits. (16) Stock Plans _____________________________________________________________________________ In 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"), which was approved by a vote of stockholders. The Plan authorizes the granting of options on up to 1,331,000 shares of the Company's common stock to key employees of the Company. The price at which options may be exercised cannot be less than the fair market value of the shares at the date the options are granted. The options are subject to certain performance vesting requirements, but if vesting is not achieved from performance vesting, 100 percent vesting occurs nine years and six months following the grant date. Options expire ten years and one month following the grant date. As of December 31, 1998, 33 percent of the outstanding options vested. For purposes of estimating the fair value of the Company's stock options at the grant-date, the Company's option pricing model was used with the following weighted average assumptions for 1998, 1997 and 1996, respectively: expected dividend yields of 2.06, 2.05 and 2.15 percent; risk-free interest rates of 5.55%, 6.52% and 6.85%; volatility factors of the expected market price of the Company's common stock of 19.6%, 18.5% and 18.0%; and weighted average expected life of the options of 6 years. The weighted average fair value of options granted in 1998, 1997 and 1996, respectively, was $4.64, $3.74 and $2.73. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 Net income (in thousands): As reported $20,351 18,010 14,015 Pro forma 19,732 17,735 13,769 Basic earnings per share: As reported $1.07 .94 .70 Pro forma 1.04 .92 .69 Diluted earnings per share: As reported $1.05 .91 .69 Pro forma 1.03 .90 .68
Pro forma net income reflects only options granted in 1998, 1997 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' expected vesting period. Changes in options outstanding during 1998, 1997 and 1996 were as follows (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996):
Exercisable Outstanding Option Price Options Options Per Share December 31, 1995 --- --- $ --- Granted - 1996 --- 1,139,336 9.16-9.76 December 31, 1996 --- 1,139,336 9.16-9.76 Granted - 1997 --- 95,898 11.36-15.23 Forfeited - 1997 --- (39,930) 9.16 December 31, 1997 --- 1,195,304 9.16-15.23 Granted - 1998 --- 131,400 16.69-20.69 Forfeited - 1998 --- (25,234) 9.16-18.33 Vested - 1998 429,467 --- 9.16-20.69 December 31, 1998 (29,530 shares available for grant) 429,467 1,301,470 $ 9.16-20.69
A total of 930,504 shares were granted to key management personnel under the Company's long-term stock compensation plan. Under provisions of the plan, no grants were made after 1995. Each grant of shares covered a three-year performance period, 35 percent of which vested upon completion of employment for the performance period and 65 percent of which vested 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 $0, $1,731,000, and $1,302,000 for 1998, 1997 and 1996, respectively. Changes in outstanding grant shares during 1998, 1997 and 1996 were as follows (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996):
Performance 1993 to 1994 to 1995 to Period 1995 1996 1997 December 31, 1995 181,754 204,730 219,605 Forfeited - 1996 --- (23,048) (25,093) Expired - 1996 (118,142) --- --- Vested and Issued - 1996 (63,612) --- --- December 31, 1996 --- 181,682 194,512 Forfeited - 1997 --- --- (26,084) Expired - 1997 --- (118,088) --- Vested and Issued - 1997 --- (63,594) --- December 31, 1997 --- --- 168,428 Vested and Issued - 1998 --- --- (168,428) Outstanding grant shares At December 31, 1998 --- --- ---
The Company's 1987 nonqualified stock option plan permitted the Board of Directors to grant options on up to 798,600 shares of the Company's common stock to officers of the Company. Under provisions of the plan, no further grants can be made and no grants were made in 1998. The price at which options were exercisable 27 was not less than the fair market value of the shares at the date the options were granted. The options were subject to certain vesting requirements and maximum exercise periods, as established by the Board of Directors. Changes in options outstanding and exercisable during 1998, 1997 and 1996 were as follows (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996):
Exercisable Outstanding Option Price Options Options Per Share December 31, 1995 329,289 329,289 $1.66-3.55 Exercised - 1996 (64,856) (64,856) 1.66 December 31, 1996 264,433 264,433 1.66-3.55 Exercised - 1997 (224,503) (224,503) 1.66-3.55 December 31, 1997 39,930 39,930 2.41 Exercised - 1998 (39,930) (39,930) 2.41 December 31, 1998 --- --- $ ---
The Company's Employee Stock Purchase Plan allows qualifying employees to purchase the Company's common stock at 85 percent of the current market price on four defined purchase dates during the year. During 1998, 1997 and 1996, 39,986, 42,768 and 43,502 shares (restated for the 2-for-1 stock split effective February 1998 and the 10 percent common stock dividends effective in 1998, 1997 and 1996), respectively, of common stock were purchased by employees under this plan. (17) Lease Commitments _____________________________________________________________________________ Rental expense included in the consolidated statements of operations amounted to $1,849,000, $1,963,000 and $1,919,000 in 1998, 1997 and 1996, respectively. Future minimum rental commitments for all noncancelable leases with terms of one year or more total approximately $1,030,000 per year through 2000, $545,000 per year through 2003, $420,000 per year through 2008 and $40,000 per year through 2013, with a total commitment of $5,980,000. (18) Commitments and Contingencies _____________________________________________________________________________ In the normal course of business, the Company is party to financial instruments necessary to meet the financial needs of clients, which are not reflected on the consolidated statements of condition. These financial instruments include commitments to extend credit, standby letters of credit, commercial letters of credit, commitments to sell residential real estate mortgage loans and interest rate swaps. The Company's risk exposure in the event of nonperformance by the other parties to these financial instruments is represented by the contractual amount of these instruments. The Company is also a party to an interest rate floor contract, which is designated as a hedge of certain client deposit accounts with contracted minimum interest rates. The notional amount for an interest rate floor does not represent the amount at risk because the notional amount will not be exchanged. The Company uses the same credit policies in making commitments as it does in making loans. A summary of commitments outstanding at December 31 follows:
(in thousands) 1998 1997 _____________________________________________________________________________ Commitments to extend credit $ 274,945 245,356 Standby letters of credit 19,956 22,150 Commercial letters of credit 1,751 1,748 Commitments to sell residential real estate mortgage loans 70,690 15,397
Commitments to extend credit are legally binding agreements to lend to clients. Commitments generally have fixed expiration dates and may require payment of a fee. Based upon management's credit assessment of the client, collateral may be obtained. The type and amount of collateral varies, but may include real estate under construction, property, equipment and other business assets. In many cases, commitments expire without being drawn upon, so the total amount of commitments does not necessarily represent future liquidity requirements. Standby and commercial letters of credit are conditional commitments issued by the Company guaranteeing the financial performance of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans. The Company does not anticipate losses as a result of issuing commitments to extend credit, standby letters of credit or commercial letters of credit. The Company enters into forward contracts for future delivery of residential mortgage loans at specified yields to reduce the interest rate risk associated with fixed-rate residential mortgages held for sale and commitments to sell residential mortgages. Credit risk arises from the possible inability of the other parties to comply with the contract terms. The majority of the Company's contracts are with government-sponsored agencies (FNMA, FHLMC). The Company enters into interest rate swap agreements as part of its asset/liability management strategy to manage interest-rate risk. The notional value of these agreements was $0 and $11,690,000 at December 31, 1998, and 1997, respectively. The interest rate swap agreements subject the Company to market risk associated with changes in interest rates, as well as the risk of default by the counterparty to the agreement. The credit worthiness of the counterparties was evaluated by the Company's loan committee prior to entering into the agreements. In December 1997, the Company entered into an interest rate floor agreement to manage interest-rate risk. The notional value of this agreement was $100,000,000 and expires on December 31, 1999. The interest rate floor agreement requires the counterparty to pay the Company, at specified dates, the amount, if any, by which the market interest rate falls below the agreed- upon floor, applied to the notional principal amount. The credit worthiness of the counterparty was evaluated by the Company's loan committee prior to entering into the agreement. Brenton Savings Bank, FSB converted from a mutual savings and loan association to a federal stock savings bank in 1990, at which time a $4 million liquidation account was established. Each eligible savings account holder who had maintained a deposit account since the conversion would be entitled to a distribution if the savings bank were completely liquidated. This distribution to savers would have priority over distribution to the Parent Company. The Company does not anticipate such a liquidation. 28 The Company maintains a data processing agreement with ALLTEL Information Services, Inc. (ALLTEL), whereby ALLTEL manages and operates the Company's data processing facility. The contract involves fixed payments of $2,298,000 in 1999, $2,190,000 through 2001 and $1,095,000 in 2002. These fixed payments will be adjusted for inflation and volume fluctuations. On December 31, 1998, the Company entered into an agreement to purchase a parcel of land for $2.1 million. The land will be utilized for a new operations and sales support center. The Company is involved with various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements. (19) Brenton Banks, Inc. (Parent Company) Condensed Financial Information _____________________________________________________________________________
Statements of Condition December 31 (in thousands) 1998 1997 Assets Interest-bearing deposits with banks $ 1,088 3,596 Investments in: Bank subsidiaries 136,687 132,008 Excess cost over net assets 1,679 1,753 Premises and equipment 503 563 Other assets 4,722 5,103 ________ _______ $ 144,679 143,023 Liabilities and Stockholders' Equity Accrued expenses payable and other liabilities $ 423 3,532 Long-term borrowings 9,046 10,112 Common stockholders' equity 135,210 129,379 _______ _______ $ 144,679 143,023
Statements of Operations Years Ended December 31 (in thousands) 1998 1997 1996 Income Dividends from subsidiaries $ 16,869 14,850 10,766 Interest income 93 213 341 Other operating income 103 119 43 ________ ______ ______ 17,065 15,182 11,150 Expense Compensation and benefits 439 2,331 1,884 Interest on borrowings 735 849 970 Other operating expense 613 584 655 ________ ______ ______ 1,787 3,764 3,509 Income before income taxes and equity in undistributed earnings of subsidiaries 15,278 11,418 7,641 Income taxes (519) (1,155) (1,040) Income before equity in undistributed earnings of subsidiaries 15,797 12,573 8,681 Equity in undistributed earnings of subsidiaries 4,554 5,437 5,334 ________ ______ ______ Net income $ 20,351 18,010 14,015
29 (19) Brenton Banks, Inc. (Parent Company) Condensed Financial Information _____________________________________________________________________________
Statements of Cash Flows Years Ended December 31 (in thousands) 1998 1997 1996 Operating Activities Net income $ 20,351 18,010 14,015 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (4,554) (5,437) (5,334) Depreciation and amortization 161 163 163 Net (increase) decrease in other assets 354 (1,962) 18 Net increase (decrease) in accrued expenses payable and other liabilities (3,109) 1,056 871 ________ ______ ______ Net cash provided by operating activities 13,203 11,830 9,733 Investing Activities Decrease in short-term investments --- --- 7,500 Purchase of subsidiary equity, net (26) --- (7) Principal collected from subsidiaries --- --- 115 Purchase of premises and equipment, net --- (8) 669 ________ ______ ______ Net cash provided (used) by investing activities (26) (8) 8,277 Financing Activities Net repayment of long-term borrowings (1,066) (1,136) (1,187) Proceeds from issuance of common stock under the long-term stock compensation plan 970 247 335 Proceeds from issuance of common stock under the stock option plan 290 1,286 291 Proceeds from issuance of common stock under the employee stock purchase plan 758 551 72 Payment for shares reacquired under common stock repurchase plan (10,001) (10,014) (8,248) Payment for fractional shares from common stock (14) (16) (14) dividends Dividends on common stock (6,622) (4,782) (3,749) ________ ______ ______ Net cash used by financing activities (15,685) (13,864) (12,500) Net increase (decrease) in cash and interest- bearing deposits (2,508) (2,042) 5,510 Cash and interest-bearing deposits at the beginning of the year 3,596 5,638 128 Cash and interest-bearing deposits at the end of the year $ 1,088 3,596 5,638
30 (20) Segment Information ______________________________________________________________________________ The Company has one reportable operating segment: banking. The banking segment generates revenues through personal, business, agricultural and commercial lending, management of the investment securities portfolio, providing deposit account services and providing trust services. The Company evaluates the banking segment's performance on the basis of profit. Included in all other in the table below are mortgage banking, investment brokerage, insurance sales and real estate brokerage. All operations are concentrated in the state of Iowa. The Company accounts for intercompany sales and transactions as if they were to third parties and attempts to set fees consistent with those that would apply in an arm's length transaction with a nonaffiliate. There can be no assurance the rates charged reflect those that would have been agreed upon following an arm's length transaction. The following table presents a summary of the Company's operating segments for the three years ended December 31, 1998:
All Parent Intersegment Reported Banking Other Company Eliminations Balances (in thousands) _________________________________________________________________________________________ 1998 _________________________________________________________________________________________ Net income income $ 61,112 917 (642) --- 61,387 Noninterest income from nonaffiliates 17,649 15,621 103 (15) 33,358 Noninterest income from affiliates 296 --- 16,869 (17,165) --- Income before income taxes and minority interest 26,227 4,517 15,278 (16,869) 29,153 Income taxes 7,030 1,571 (519) --- 8,082 Depreciation & amortization 4,274 254 161 (6) 4,683 Capital expenditures 7,311 601 --- --- 7,912 Segment assets 1,885,617 117,268 144,679 (208,007) 1,939,557
1997 _________________________________________________________________________________________ Net income income $ 60,333 437 (636) --- 60,134 Noninterest income from nonaffiliates 15,864 11,560 119 (37) 27,506 Noninterest income from affiliates 286 67 14,850 (15,203) --- Income before income taxes and minority interest 26,534 2,939 11,418 (14,850) 26,041 Income taxes 7,420 1,023 (1,155) --- 7,288 Depreciation & amortization 3,803 255 163 (4) 4,217 Capital expenditures 2,407 112 8 --- 2,527 Segment assets 1,701,495 24,933 143,023 (150,967) 1,718,484
1996 _________________________________________________________________________________________ Net income income $ 56,314 367 (629) --- 56,052 Noninterest income from nonaffiliates 14,239 9,391 43 (346) 23,327 Noninterest income from affiliates 359 49 10,766 (11,174) --- Income before income taxes and minority interest 22,217 1,296 7,641 (10,765) 20,389 Income taxes 6,358 453 (1,040) --- 5,771 Depreciation & amortization 3,912 232 163 (5) 4,302 Capital expenditures 2,409 282 43 --- 2,734 Segment assets 1,622,678 12,407 135,678 (138,668) 1,632,095 __________________________________________________________________________________________
The following table shows the detail of intersegement eliminations for segment assets shown in the previous table:
1998 1997 1996 _____________________________________________________ (in thousands) Investment in subsidiaries $138,539 133,860 126,893 Other consolidating adjustments 69,468 17,107 11,775 _______ _______ _______ $208,007 150,967 138,668
31 (21) Unaudited Quarterly Financial Information _____________________________________________________________________________ The following is a summary of unaudited quarterly financial information (in thousands, except per common share data):
1998 Three months ended March 31 June 30 Sept. 30 Dec. 31 Interest income $ 30,320 30,693 31,190 31,823 Interest expense 15,056 15,428 15,930 16,225 _______ ______ ______ ______ Net interest income 15,264 15,265 15,260 15,598 Provision for loan losses 1,050 1,050 1,050 1,050 _______ ______ ______ ______ Net interest income after provision for loan losses 14,214 14,215 14,210 14,548 Noninterest income 7,487 8,106 8,549 9,216 Noninterest expense 14,908 15,154 15,172 16,158 _______ ______ ______ ______ Income before income taxes and minority interest 6,793 7,167 7,587 7,606 Income taxes 1,907 1,994 2,101 2,080 Minority interest 167 178 190 185 _______ ______ ______ ______ Net income $ 4,719 4,995 5,296 5,341 Per common share: Net income-basic $ .25 .26 .28 .28 Net income-diluted .24 .26 .27 .28
1997 Three months ended March 31 June 30 Sept. 30 Dec. 31 Interest income $ 28,473 29,182 30,168 30,416 Interest expense 13,855 14,448 14,631 15,171 _______ ______ ______ ______ Net interest income 14,618 14,734 15,537 15,245 Provision for loan losses 900 900 1,100 1,000 _______ ______ ______ ______ Net interest income after provision for loan losses 13,718 13,834 14,437 14,245 Noninterest income 6,449 6,239 7,839 6,979 Noninterest expense 14,036 13,674 14,881 15,108 _______ ______ ______ ______ Income before income taxes and minority interest 6,131 6,399 7,395 6,116 Income taxes 1,754 1,809 2,176 1,549 Minority interest 176 183 209 175 _______ ______ ______ ______ Net income $ 4,201 4,407 5,010 4,392 Per common share: Net income-basic $ .22 .23 .26 .23 Net income-diluted .21 .22 .26 .22
32 MANAGEMENT'S REPORT The management of Brenton Banks, Inc. is responsible for the content of the consolidated financial statements and other information included in this annual report. Management believes that the consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the consolidated financial statements, management has made judgments and estimates of the expected effects of events and transactions that are accounted for or disclosed. Management of the Company believes in the importance of maintaining a strong internal accounting control system, which is designed to provide reasonable assurance that assets are safeguarded and transactions are appropriately authorized. The Company maintains a staff of qualified internal auditors who perform periodic reviews of the internal accounting control system. Management believes that the internal accounting control system provides reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or detected and corrected on a timely basis. The Board of Directors has established an Audit Committee to assist in assuring the maintenance of a strong internal accounting control system. The Audit Committee meets periodically with management, the internal auditors and the independent auditors to discuss the internal accounting control system and the related internal and external audit efforts. The internal auditors and the independent auditors have free access to the Audit Committee without management present. There were no matters considered to be reportable conditions under Statement of Auditing Standards No. 60 by the independent auditors. The consolidated financial statements of Brenton Banks, Inc. and subsidiaries are examined by independent auditors. Their role is to render an opinion on the fairness of the consolidated financial statements based upon audit procedures they consider necessary in the circumstances. Brenton Banks, Inc. Robert L. DeMeulenaere President and Chief Executive Officer Steven T. Schuler Chief Financial Officer/Treasurer/Secretary INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Brenton Banks, Inc: We have audited the accompanying consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1998, and 1997, and the related consolidated statements of operations, comprehensive income, changes in common stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998. 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, 1998, and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Des Moines, Iowa January 29, 1999 33 STOCK INFORMATION Brenton Banks, Inc. common stock is traded on the NASDAQ National Market and quotations are furnished by the NASDAQ System. There were 1,704 common stockholders of record on December 31, 1998.
MARKET AND DIVIDEND INFORMATION 1998 High Low Dividends 1st quarter $20.00 16.36 .077 2nd quarter 21.00 18.41 .087 3rd quarter 24.25 18.25 .090 4th quarter 19.13 15.75 .095
1997 High Low Dividends 1st quarter $11.78 11.26 .054 2nd quarter 12.50 11.42 .058 3rd quarter 15.00 12.33 .063 4th quarter 18.53 13.69 .073
The above table sets forth the high and low sales prices and cash dividends per share for the Company's common stock, after the effect of the February 1998 2-for-1 stock split and June 1998 and May 1997 10 percent common stock dividends. The market quotations, reported by NASDAQ, represent prices between dealers and do not include retail markup, markdown or commissions. NASDAQ Symbol: BRBK Wall Street Journal and Other Newspapers: BrentB Market Makers ABN AMRO Incorporated Herzog, Heine, Geduld, Inc. Howe, Barnes Investments, Inc. Keefe, Bruyette & Woods, Inc. Sandler, O'Neill & Partners, L.P. Stifel, Nicolaus & Co., Inc. FORM 10-K COPIES OF BRENTON BANKS, INC. ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FORM 10-K WILL BE MAILED WHEN AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST TO STEVEN T. SCHULER, CHIEF FINANCIAL OFFICER/TREASURER/SECRETARY, AT THE CORPORATE HEADQUARTERS. IT IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S INTERNET WEB SITE AT HTTP://WWW.SEC.GOV/CGI-BIN/SRCH-EDGAR. STOCKHOLDER INFORMATION Corporate Headquarters Suite 200, Capital Square 400 Locust Street Des Moines, Iowa 50309 Telephone 800/627-3686 Annual Shareholders' Meeting Wednesday, May 19, 1999, 5:00 p.m. West Des Moines Marriott Hotel 1250 74th Street West Des Moines, Iowa 50266 Transfer Agent/Registrar/ Dividend Disbursing Agent Harris Trust and Savings Bank 311 West Monroe Street Chicago, Illinois 60606 Legal Counsel Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C. Suite 1100, Two Ruan Center 601 Locust Street Des Moines, Iowa 50309 Independent Auditors KPMG Peat Marwick LLP 2500 Ruan Center 666 Grand Avenue Des Moines, Iowa 50309 34 CORPORATE STRUCTURE BRENTON BANKS, INC. BOARD OF DIRECTORS C. Robert Brenton Chairman of the Board Brenton Banks, Inc. William H. Brenton Past Chairman and President Brenton Banks, Inc. J.C. Brenton Past President Brenton Banks, Inc. Robert C. Carr Vice President Amoco Corporation Gary M. Christensen President & CEO Pella Corporation Robert J. Currey President 21st Century Telecom Group, Inc. Robert L. DeMeulenaere President and Chief Executive Officer Brenton Banks, Inc. BRENTON BANKS, INC. EXECUTIVE OFFICERS C. Robert Brenton Chairman of the Board Robert L. DeMeulenaere President and Chief Executive Officer Steven T. Schuler Chief Financial Officer/Treasurer/ Secretary BRENTON BANK SENIOR MANAGEMENT TEAM Robert L. DeMeulenaere Chairman and Chief Executive Officer Larry A. Mindrup President Phillip L. Risley Executive Vice President and Operations & Technology Center President Steven T. Schuler Chief Financial Officer/Treasurer/ Secretary Perry C. Atwood Chief Sales Officer Elizabeth M. Piper/Bach Chief Financial Services Officer SALES SUPPORT MANAGERS Judy S. Bohrofen Human Resources Director Gregory M. Cole Loan Development Center Director W. Bradley Cunningham Investment/ALCO Director Marsha A. Findlay Retail Manager Douglas R. Gulling Corporate Controller/Cashier Monica L. Haun Operations and Technology Manager Catherine I. Reed Marketing Director Norman D. Schuneman Chief Credit Officer LINE OF BUSINESS MANAGERS AND REGIONAL BANK PRESIDENTS Woodward G. Brenton Commercial Banking Chief Commercial Banking Officer Mark J. Hoffschneider Mortgage Banking Division President Douglas F. Lenehan Diversified Commercial Services Division President David W. Mackaman Commercial Banking Division Manager Larry A. Mindrup Retail Banking President Elizabeth M. Piper/Bach Financial Services Chief Financial Services Officer Allen W. Shafer Business Banking Division President Thomas J. Vincent Agricultural Banking Division President Charles N. Funk Central Region President Dennis H. Hanson East Central Region President Ronald D. Larson East Region President Marc J. Meyer West Region President EX-21 38 Exhibit 21 Subsidiaries. 238 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 Investments, Inc. Iowa Des Moines, Iowa Brenton Insurance Services, Inc. Iowa Des Moines, Iowa Brenton Mortgages, Inc. Iowa Des Moines, Iowa Brenton Insurance Inc. Iowa Adel, Iowa Brenton Realty Services, Ltd. Iowa Marshalltown, Iowa Brenton Savings Financial Services, Inc. Iowa Ames, Iowa 239 EX-23 39 Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated January 29, 1999, relating to certain consolidated financial statements of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. 240 INDEPENDENT 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 January 29, 1999, relating to the consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1998 and 1997, 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, 1998, which report appears in the December 31, 1998, annual report on Form 10-K of Brenton Banks, Inc. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Des Moines, Iowa March 29, 1999 241 EX-27 40 1998 FDS SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1 12-MOS DEC-31-1998 DEC-31-1998 76,460,049 2,167,288 6,000,000 0 605,183,788 43,027,501 44,011,000 1,033,554,556 (14,172,264) 1,939,556,765 1,496,675,131 242,897,300 23,228,015 41,546,000 0 0 46,880,953 88,329,366 1,939,556,765 89,739,711 32,450,999 1,835,083 124,025,793 50,772,501 11,865,966 61,387,326 4,200,000 665,450 62,111,877 28,433,276 28,433,276 0 0 20,350,921 1.07 1.05 3.73 8,099,000 2,901,000 289,000 900,000 12,732,131 4,407,372 1,647,505 14,172,264 14,172,264 0 0
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