Brenton Banks, Inc. Annual Report Making A Difference 1996 is center in the background in the middle of the page on top of Making A Difference 1996 Financial Highlights 2 Letter to Shareholders 3 Financial Review 9 Making a difference in the lives of our customers. Making a difference in our communities. Making a difference in the spirit and confidence of Brenton associates across Iowa. Making a difference for our shareholders. Creating new partnerships, discovering new efficiencies, seizing new opportunities - adding value. In 1996, Brenton more than changed. By making a difference in every area of our operations, we literally redefined our ability to serve, to perform, to grow and to succeed. Brenton Banks, Inc. is Iowa's largest, home-based bank holding company, with 45 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 and commercial banking; trust and investment management services: investment, insurance and real estate brokerage; mortgage banking; cash management and international banking services; as well as our own proprietary mutual funds. The Company's stock trades on the NASDAQ national market under the symbol BRBK or BrentB. 1 Financial Highlights Brenton Banks, Inc. and Subsidiaries 1996 1995 1994 Operating Results Net interest income $ 56,052,142 53,332,143 5,450,526 Provision for loan losses 2,900,000 1,864,801 1,987,909 Total noninterest income 23,327,441 17,846,740 16,592,988 Total noninterest expense 56,090,571 55,051,267 56,656,922 Income before income taxes and minority interest 20,389,012 14,262,815 13,398,683 Net income 14,015,430 10,407,354 10,107,387 Per Common and Common Equivalent Share*** Net income $ 1.69 1.22 1.15 Cash dividends .454 .409 .40 Book value, including unrealized gains (losses)* 15.08 14.20 12.75 Book value, excluding unrealized gains (losses)** 14.95 14.04 13.35 Closing bid price 27.63 19.32 16.59 At December 31 Assets $1,632,095,082 1,582,779,320 1,581,326,849 Loans 941,943,513 910,193,212 970,214,498 Nonperforming loans 6,167,000 5,619,000 5,022,000 Deposits 1,353,057,111 1,361,942,715 1,340,283,110 Common stockholders' equity 121,954,229 119,533,631 110,430,345 Ratios Return on average common stockholders' equity (ROE) 11.76% 9.04 9.03 Return on average assets (including minority interest) (ROA) .92 .71 .70 Net interest margin 4.03 3.89 4.12 Net noninterest margin (2.09) (2.38) (2.61) Efficiency ratio 68.27 73.70 74.63 Loan to deposit ratio 69.62 66.83 72.39 Allowance for loan losses to total loans 1.20 1.22 1.12 Primary capital to assets** 8.33 8.40 8.18 Equity to assets** 7.41 7.47 7.28 Tier 1 leverage capital ratio** 7.62 7.45 7.23 Nonperforming loans as a percent of loans .65 .62 .52 Net charge-offs as a percent of average loans .29 .18 .10 Allowance for loan losses as a percent of nonperforming loans 183.69 197.01 217.30 <FN> * Including unrealized gains (losses) on securities available for sale. ** Excluding unrealized gains (losses) on securities available for sale. *** Restated for the 10% common stock dividend effective in 1996. Three bar graphs on the left hand side of the page: Graph showing Common Stock Closing Bid Price (Restated for Stock Split/Dividends) (1987-1996): 87 88 89 90 91 92 93 94 95 96 3.64 5.99 9.24 8.18 12.58 15.76 15.91 16.59 19.32 27.63 Dual Graph showing Net Income per Common Share Dividends per Common Share (Restated for stock splits/dividends) (1992-1996): 92 93 94 95 96 1.52 1.64 1.15 1.22 1.69 0.32 0.36 0.40 0.41 0.45 Graph showing Return on Average Equity (1992-1996): 92 93 94 95 96 14.13 13.82 9.03 9.04 11.76 1996 Brenton Banks, Inc. Annual Report 2 To Our Shareholders To say that 1996 was a very important year for Brenton would be an understatement. It was a defining year - a year in which our significant investments in people, technology and new operating efficiencies produced dramatic successes for shareholders, customers and employees, alike. In 1996, Brenton's earnings jumped 34.7 percent to $14.0 million, compared to net income of $10.4 million in 1995. Earnings per common share advanced 38.5 percent to $1.69, adjusted for a 10 percent common stock dividend which was distributed in October. Total assets grew 3.1 percent to $1.6 billion. Shareholders' equity rose 2.0 percent to $122.0 million. Thanks to the efforts of Brenton bankers across Iowa Our focus on building new partnerships and generating greater revenues produced outstanding results in 1996, as we realized substantial gains in literally every category of fee-related income. During the year, noninterest income grew by 28.9 percent to $23.0 million (excluding securities gains and losses). Successful new sales initiatives and strong financial markets pushed brokerage commissions up 23.7 percent. Insurance commissions and fees jumped 24.6 percent, led by a 59.2 percent increase in credit-related insurance. Fiduciary revenues were up 13.2 percent, thanks to increased volumes in personal trusts, investment management fees and employee benefit plans. Mortgage banking income increased 51.9 percent due to both increased production, which totaled $110.8 million, and an improved margin on the loans produced. Service charges on deposits grew Picture of Chairman and President on right hand side of page - reads as follows: C. Robert Brenton, Chairman Robert L. DeMeulenaere, President 3 21.0 percent for the year, while securities transactions produced gains of $321, 256, compared to 1995 losses of $3,003. These dramatic revenue increases were offset by only modest rises in noninterest expenses, which were up 1.9 percent to $56.1 million. While total compensation was up 11.6 percent over 1995, salaries actually decreased by 6.6 percent. Variable compensation, including commissions and incentives, increased by 40.4 percent as a result of higher sales of fee-related products and services. Data processing expenses grew 8.9 percent. Other operating expenses decreased 21.2 percent, due to the implementation of cost control measures, the realization of efficiencies related to the 1995 merger of the Company's commercial banks, and the fact we experienced some one-time expenses in 1995. The Company's FDIC deposit insurance assessment increased 1.0 percent over 1995, as a result of a one-time $1.3 million assessment to fully finance the government's SAIF fund. Without this special assessment, the FDIC expense would have actually decreased by 71.2 percent. Net interest income advanced 5.1 percent to $56.1 million in 1996, compared to $53.3 million in 1995. Net interest margin rose to 4.03 percent, compared to 3.89 percent a year ago. Total loans grew 3.5 percent to $941.9 million. Nonperforming loans rose 9.8 percent to $6.2 million, yet overall loan quality remained strong at year-end with reserves standing at 183.7 percent of nonperforming loans and 1.20 percent of total loans. To improve net interest margin and lessen interest rate risk, management continued its strategy of de-emphasizing fixed-rate portfolio real estate loans and developing more commercial and consumer business. One of the significant accomplishments of 1996 was a $40.9 million increase in direct consumer loans. Making a difference in the way we see the future Taken individually and as a whole, our 1996 accomplishments give us great optimism for even greater success in the years ahead. Our employees know that by sharing a common focus and commitment, we can indeed become a high earning, high performing bank. We are believers. Our growing income base is already enabling us to provide customers with more and better products, faster response, new delivery channels and superior service. We are also pleased to reward the continuing confidence of our shareholders with growing dividends and per share value. Cash dividends for 1996 were $.454 per share, up 11.0 percent over 1995. During the year, the common stock market price per share rose 43.0 percent, closing at $27.63 on December 31, 1996. In 1997, we will continue focusing on revenue growth, rather than balance sheet growth. We will continue to refine the strategies that worked so well in the year just closed. Text on the left hand side of the page: While we're pleased to celebrate the many successes Brenton produced in 1996, ours is a growing and dynamic business. As this annual report goes to press, we are already pursuing a number of 1997 initiatives designed to help us build on the accomplishments of the past year. We are intensifying our focus on growth in loans, fee income and core deposits. We are working to expand our convenience banking services - adding experienced insurance and mortgage representatives to Centered in a box in this text on the left hand side of the page: THEN ______ NOW our Brenton Direct telebanking team, enhancing our supermarket offices and even exploring the development of a Web page. Through the creation of a new Small Business Banking Division, we are positioning Brenton to play a leading role in serving one of Iowa's fastest growing market segments. We are also installing technology that will enable us to quickly respond to customer requests, while maintaining the personal touch that has always been a Brenton tradition. 1996 Brenton Banks, Inc. Annual Report The word Change is centered in the background over pages 3 and 4. 4 Text on the right hand side of the page: By making the promise of full-service telephone banking a reality, Brenton Direct is not only helping us attract and serve a growing number of customers, it is also enabling us to deliver financial services with remarkable efficiency and effectiveness. Customers appreciate the fact that they can handle much of their financial business from their favorite easy chair - outside traditional banking hours. But perhaps the most important benefit Brenton Direct provides for customers is the opportunity to work - - one on one - with experienced lenders, Centered in a box in this text on the right hand side of the page: RING ______ RING mortgage bankers, insurance professionals and investment advisors. In 1996, we expanded staff, installed new call tracking technology, established a Small Business Line, and began to successfully integrate mortgage, brokerage and insurance professionals into the team. We also began to use our outbound calling capabilities to provide information to customers. In 1997, Brenton Direct will play an increasingly more active role in the development of new customers, as well as the strengthening of our relationships with current customers. Text on the rest of page 5 in the middle of the page: Making a difference in the lives of our customers Building stronger, more accessible relationships with the people we serve provides advantages for everyone involved in the equation. Today, Brenton customers enjoy greater convenience - not only because they can satisfy more of their financial needs in one place, but also because they can personally speak to an experienced financial professional before work, after dinner, on the weekend, at the grocery store or over the phone. Brenton employees enjoy the satisfaction of making meaningful differences in customers' lives - helping them buy new homes at affordable rates, invest successfully for the future, insure their lives and property, and make the most of their good credit. Redefining our retail banking culture Approximately half of our personal bankers had never made a loan prior to 1996, which makes what we accomplished last year even more remarkable. Our goal on the retail side of the bank was to grow direct consumer loans by $30 million. But through training, support, motivation and individual effort, Brenton bankers produced growth of more than $40 million in direct consumer loans for the year. Admittedly, we borrowed a few ideas on how to build an effective, service-oriented sales culture from the real estate and insurance industries. We divided our company-wide growth objective into specific monthly goals for each office and individual banker. We conducted regular meetings to share ideas and results. Our new, centralized credit-scoring system supported local production by providing fast, consistent review of applications and credit information. Back at the office, bankers 5 could spend more time communicating with customers and understanding their needs. As our confidence grew, we became more proficient at asking customers for more of their financial business (and seeking referrals from associates in other areas of the bank). By the end of the year, 35 top loan producers had become members of our new Million Dollar Club as we set our sights on even greater performance in the year ahead. Serving a greater share of our customers' financial needs At the heart of our One Bank strategy has been the objective to build our financial services infrastructure, so we could concentrate less on transaction business, while devoting more attention to developing investment, insurance, employee benefit, trust and other fee-based services. Indeed, we believe that future Brenton profitability hinges on our ability to strengthen and expand customer relationships by successfully serving more of their financial needs. In 1996, we made clear progress toward achieving this goal. Through recruiting, advanced training and educational conferences, we helped improve both the quality and availability of Brenton investment brokerage representatives. We also worked to develop quality partnerships among all lines of business. Supported by advertising, focused campaigns, strategic incentive programs and a steadily growing stream of referrals, we produced substantial increases in brokerage, trust, investment management and insurance commissions and fees. Growth in trust and investment management revenues reflected our emerging leadership in serving the 401(k) needs of Iowa businesses and employees. Beyond the competitive benefits of our 401(k) product, itself, customers appreciate our high standards of service and dedication to employee education, as well as the investment philosophies at work in our four proprietary Brenton mutual funds. Good markets, coupled with good timing, research and equity selection produced very satisfying returns for our customers in 1996. Aggressively improving our mortgage banking business Residential mortgage loan production increased by nearly 20 percent in 1996. While part of this growth can be attributed to systems put in place in 1995, much of the credit goes to Brenton mortgage bankers who devoted considerable effort to calling on builders, realtors and former customers. By refining our mortgage product line, focusing on attractive portfolio products and adding more secondary market outlets, we have become more aggressive - both in terms of pricing and features. At the same time, we have continued to improve the operational side of our mortgage business, providing much faster underwriting and higher quality services for customers. 1996 Brenton Banks, Inc. Annual Report The word Growth is centered in the background over pages 5 and 6. 6 Making a difference for farmers and businesses across Iowa With large out-of-state banks entering the Iowa marketplace (and familiar old banking names fading away), the value of the Brenton brand continues to grow. As a well-known, well-respected organization with a long history of serving Iowans' financial needs, Brenton associates are discovering new opportunities to build strong working relationships with farmers and businesses of all sizes - all across the state. Through the development of new services and partnerships, as well as new operating efficiencies, we produced positive results in 1996. But more importantly, we positioned the Company for significant growth in our ag and commercial lines of business going forward. These are exciting times for everyone associated with Brenton. Capitalizing on our strong history in agriculture From the day our Company was founded, more than 115 years ago, Brenton has been known as an ag bank, which gives us a tremendous advantage in this age of bank consolidations. We're here. We're strong. And we know the Iowa agricultural market and communities better than any of our competitors. In 1996, we worked to strengthen our relationships with Iowa farmers and agribusinesses by developing prototype alliances with non-banking organizations that serve our customers. In July, more than 200 farmers joined us for a day-long ag finance and marketing conference at Iowa State University. Later in the year, we co-sponsored an intensive, three-day ag financial management seminar with the Iowa Farm Bureau and the Iowa Pork Producers Association. More than 100 farm producers attended one of four regional sessions conducted across the state. 7 Through additional alliances with agricultural trade organizations, such as the Farm Bureau, the Agribusiness Association of Iowa and the Iowa-Nebraska Equipment Dealers Association, we began to access certain agribusiness markets more efficiently than in the past. These groups use Brenton products and services to add value to the relationship they bring their members. At the same time, their endorsements and combined marketing efforts enable us to reach and serve a larger potential audience. Also in 1996, as our system-wide sales culture took root, we made significant progress toward our goal of being a full service financial provider for our farm customers. Focusing on our commercial banking strengths On the commercial side, 1996 was a satisfying year for Brenton, as we continued to refine our capabilities to serve the growing needs of Iowa businesses, large and small. While the Company produced gains in commercial loans, average to average, we were most pleased by the growth of such fee-based services as cash management and international banking. Strong market demand, combined with outstanding sales efforts, generated substantially increased cash management fees for the year. The Company's International Division also produced increased fee income during 1996. During the year, we undertook a number of initiatives, including the development of a commercial banking service team, designed to centralize administrative operations so Brenton commercial officers could devote more time to customer contact and developing strong customer relationships. We are working to significantly reduce turnaround time on all loan requests. As we continue to invest in developing the skills and experience of our people, supporting their efforts and rewarding their success, we look for dramatic growth in the commercial line of business in the years ahead. Looking to the future with excitement and optimism Taken as a whole, Brenton's performance in 1996 more than validated management's strategy of reinventing our Company for the future. We are stronger and more efficient than at any time in our history. We have proven that by working together - in a true spirit of partnership - we can truly make a difference for our customers and our Company. We have embraced a philosophy that focuses on customers and long-term relationships, rather than transactions. And along the way, we have produced an improving bottom line. For shareholders, customers and employees alike, there's never been a better time to be associated with Brenton. Together, we are making a difference. /s/ C. Robert Brenton Chairman of the Board /s/ Robert L. DeMeulenaere President Text on the right hand side of the page: Iowa's ag economy continues to be strong. With the exception of the cattle market, all commodities performed well in 1996. And indicators suggest continued positive performance in 1997. But with the government transitioning out of the subsidy business, we are devoting more time to helping our farm customers develop their risk management and financial skills. In the future, as they become more reliant on the forces of nature and the forces of the market, they'll need to be well-equipped Centered in a box in this text on the right hand side of the page: PAST ______ FUTURES and well-informed to succeed. Brenton is committed to helping them in that effort. Through our Company-wide focus on providing a full range of financial services, on developing alliances, on targeting specific market segments and on understanding the needs of individual customers, we are already making progress. Agriculture is fundamental to Iowa's past, present and future. It is at the heart of Brenton's history. And we will continue being a leader in serving the total financial needs of Iowa farmers and agribusinesses. 1996 Brenton Banks, Inc. Annual Report The word Innovate is centered in the background over pages 7 and 8. 8 Financial Review Contents Independent Auditors' Report 9 Selected Financial Data 10 Financial Review / Graphs 11 Consolidated Statements of Condition 15 Consolidated Statements of Operations 16 Consolidated Statements of Cash Flow 17 Consolidated Statements of Changes in Common Stockholders' Equity 18 Allowance for Loan Losses 18 Consolidated Average Balances and Rates 19 Stock Information 20 Corporate Structure 21 Brenton Service Locations 22 Independent Auditors' Report The Board of Directors of Brenton Banks, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996 (not presented herein); and in our report dated February 7, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the condensed consolidated financial information appearing on page 15 to 18 is fairly presented, in all material respects, in relation to the consolidated financial statements from which it has been derived. /s/ KPMG Peat Marwick LLP Des Moines, Iowa February 7, 1997 9 Selected Financial Data Brenton Banks, Inc. and Subsidiaries Year-end Balances (In thousands) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Total assets $1,632,095 1,582,779 1,581,327 1,480,596 1,431,140 1,360,942 1,274,301 961,370 961,207 908,933 Interest-earning assets 1,497,600 1,461,218 475,473 1,400,709 1,323,252 1,267,402 1,181,172 883,721 845,571 836,029 Interest-bearing liabilities 1,335,609 1,300,508 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597 769,717 733,133 728,597 Demand deposits 153,284 143,220 136,548 127,132 137,212 115,479 125,626 113,349 118,392 116,830 Long-term borrowings 34,860 38,178 28,939 20,055 13,284 13,634 12,675 14,701 16,215 17,509 Preferred stock --- --- --- --- --- --- --- --- --- 2,000 Common stockholders' equity** 121,954 119,534 110,430 112,418 97,430 86,712 77,258 63,522 56,401 49,618 Results of operations (In thousands) Interest income $ 111,383 111,040 101,223 98,656 106,560 115,561 106,826 85,722 76,745 74,774 Interest expense 55,331 57,708 45,772 44,427 54,773 68,687 64,431 49,102 43,180 43,149 Net interest income 56,052 53,332 55,451 54,229 51,787 46,874 42,395 36,620 33,565 31,625 Provision for loan losses 2,900 1,865 1,988 1,252 1,411 799 869 760 1,214 2,132 Net interest income after provision for loan losses 53,152 51,467 53,463 52,977 50,376 46,075 41,526 35,860 32,351 29,493 Noninterest income 23,327 17,847 16,593 17,863 14,684 12,715 11,554 10,113 10,367 9,064 Noninterest expense 56,090 55,051 56,657 50,415 46,591 42,284 37,820 32,781 32,066 32,952 Income before income taxes and minority interest 20,389 14,263 13,399 20,425 18,469 16,506 15,260 13,192 10,652 5,605 Income taxes 5,771 3,205 2,701 5,508 4,884 4,308 4,388 4,016 2,527 408 Minority interest 603 651 591 667 632 539 533 472 422 290 Net income 14,015 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,703 4,907 Preferred stock dividend requirement --- --- --- --- --- --- --- --- 81 265 Net income available to common stockholders $ 14,015 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,622 4,642 Average common shares outstanding (In thousands)* 8,312 8,528 8,747 8,711 8,561 8,534 8,520 7,916 7,916 7,916 Per common and common equivalent share* Net income $ 1.69 1.22 1.15 1.64 1.52 1.36 1.21 1.10 .96 .59 Cash dividends .454 .409 .400 .364 .318 .294 .248 .200 .106 .000 Common stockholders' equity*** 14.95 14.04 13.35 12.62 11.34 10.15 9.06 8.03 7.13 6.26 Selected operating ratios Return on average assets (including minority interest) .92% .71 .70 1.04 .98 .93 .95 1.00 .90 .57 Return on average common stockholders' equity 11.76 9.04 9.03 13.82 14.13 14.27 14.39 14.50 14.34 9.78 Equity to assets*** 7.41 7.47 7.28 7.40 6.81 6.37 6.06 6.61 6.12 5.46 Common dividend payout 26.86 33.58 34.65 22.22 21.00 21.56 20.50 18.23 11.01 .00 Allowance for loan losses as a percent of loans 1.20 1.22 1.12 1.12 1.20 1.14 1.25 1.55 1.60 1.75 Net charge-offs to average loans outstanding .29 .18 .10 .05 .13 .15 .12 .08 .18 .75 <FN> * Restated for 10% common stock dividend effective in 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 1996 Brenton Banks, Inc. Annual Report 10 Brenton Banks, Inc. Financial Review This summary annual report contains a condensed version of the financial statements and a review of operations for Brenton Banks, Inc. and subsidiaries (the "Company"). The full financial statements and management's discussion and analysis are included in the Appendix to the Proxy Statement filed with the Securities and Exchange Commission, which has been provided to all shareholders. Copies are available upon request. Earnings Analysis For the year ended December 31, 1996, Brenton Banks, Inc. recorded net income of $14,015,430, an increase of 34.7 percent over 1995, which totaled $10,407,354. The increase in earnings is attributable to both increases in net interest income and noninterest income. Earnings per common share were $1.69 compared to $1.22 for 1995. Return on average assets (ROA) was .92 percent in 1996, compared to .71 percent in 1995. The return on average equity (ROE) was 11.76 percent, compared to 9.04 percent one year earlier. Net interest income rose 5.1 percent to $56,052,142 for 1996. Both average earning assets and average interest-bearing liabilities increased 1.0 percent from 1995. The Company experienced a favorable change in the mix of earning assets and interest-bearing liabilities which contributed to an increase in net interest margin of 14.1 basis points over 1995. Net interest margin, which is tax equivalent net interest income as a percent of average earning assets, averaged 4.03 percent in 1996, compared to 3.89 percent in 1995. The yield on average earning assets decreased 5.9 basis points, while the average rate on interest-bearing liabilities declined 22.4 basis points. The Company achieved record levels of noninterest income in 1996. Several factors contributed to this accomplishment. Service charges on deposits increased $1,165,078 or 21.0 percent. This growth related to full implementation of standardized service charges as well as a new focus on collecting a higher percentage of fees assessed. Successful new sales initiatives and strong financial markets drove brokerage commissions up 23.7 percent. Insurance commissions and fees increased 24.6 percent due primarily to higher sales of both credit-related insurance and insurance agency operations. Mortgage banking income increased 51.9 percent due to both increased mortgage loan originations, which totaled $110.8 million, and an improved margin on the loans produced. Fiduciary revenues were up 13.2 percent due to increased volumes of personal trusts, investment management fees and employee benefit plans. The Company's continued focus on sales and offering our customers the products they want was rewarded with higher revenues in all of these areas. Noninterest income (excluding securities gains and losses) for 1996 represented 1.45 percent of average assets and 41.04 percent of total operating income, which were the highest levels in the history of the Company. While total noninterest income, excluding securities transactions, increased 28.9 percent, noninterest expense for 1996 increased just 1.9 percent to $56,090,571, compared to $55,051,267 for 1995. Noninterest expense for 1996 included a nonre- Two bar graphs on the left hand side of the page: Graph showing Net Income (in thousands) (1992-1996): 92 93 94 95 96 12,953 14,250 10,107 10,407 14,015 Graph showing Return on Average Assets (1992-1996): 92 93 94 95 96 0.98 1.04 0.70 0.71 0.92 11 curring charge for a special assessment by the FDIC totaling $1,288,000. This assessment applied to all deposits insured by the Savings Association Insurance Fund (SAIF) as of March 31, 1995, and equaled approximately 65.7 basis points per $100 of SAIF-insured deposits. Excluding this one-time assessment, noninterest expense would have actually decreased by .5 percent. Salaries and wages, the largest component of noninterest expense, increased $2,645,244 or 11.6 percent over 1995. This increase is primarily related to commissions paid on higher sales of the fee-related products discussed above, expense tied to a stock performance plan and severance costs. Fixed salaries, which comprised 73.9 percent of total salaries and wages, actually decreased by 6.6 percent compared to 1995. The total increase in salaries and wages led to a proportionate increase in employee benefits. Several new facilities and remodeling projects were completed in the past two years, which explain the combined increase in the categories of occupancy and furniture and equipment expense. Occupancy expense totaled $5,502,904 for 1996, compared to $4,912,417 for 1995. Increases within the occupancy category were associated with rents, leases and depreciation expense related to these new facilities. Results for 1996 include the first full year of expense for these new facilities. Furniture and equipment expense actually decreased $21,871 from the prior year. Depreciation expense increased by $197,130 due to technology updates throughout the Company. Decreases in repairs and maintenance, and furniture and equipment rentals offset the increase in depreciation expense. The Company continues to focus on using technology to improve efficiency and provide better service to our customers. During 1996, 62.8 percent of the capital expenditures were in the technology area. Data processing expense totaled $2,591,485, an increase of 8.9 percent compared to 1995. This increase is related to new data processing service contracts in 1996 for mortgage loan processing and personal computer network maintenance and support. The expense associated with core main frame data processing actually decreased which offset the cost of the new contracts. Expense related to the FDIC deposit insurance assessments increased 1.0 percent in 1996 to $1,801,646, which includes the previously discussed one-time $1,288,000 assessment to fully fund SAIF. This assessment related to the deposits insured by SAIF, which represented approximately 16.4 percent of the Company's total deposits at the end of 1996. The Company continues to pay the lowest premiums available under the FDIC's risk-based premium system. Other operating expenses decreased by $2,589,501 or 21.2 percent when comparing 1996 results to 1995. In 1996, the Company began to realize the anticipated benefits of the 1995 merger of the Company's 13 commercial banks into one bank charter. Results for 1995 also included one-time consulting expenses along with charges associated with the merger of the banks. The Company's net noninterest margin, which measures operating efficiency, was (2.09) percent for Two bar graphs on the right hand side of the page: Graph showing Net Interest Margin (1992-1996): 92 93 94 95 96 4.23 4.28 4.12 3.89 4.03 Graph showing Noninterest Income as a Percent of Total Operating Income (1992-1996): 92 93 94 95 96 28.20 31.84 30.54 33.47 41.04 1996 Brenton Banks, Inc. Annual Report 12 1996, compared to (2.38) percent in 1995. The Company's efficiency ratio was 68.27 percent, compared to 73.70 percent one year ago. To enhance operating efficiency throughout the organization, the Company continues to focus on cost management and the development of strategic improvements in noninterest income and expense. Balance Sheet Analysis Total assets at December 31, 1996, were $1,632,095,000, an increase of 3.1 percent over December 31, 1995. On average, total assets had a modest increase of 1.4 percent. However, the change in the mix of the assets contributed to a favorable increase in the net interest margin for the Company (see previous discussion). Loans increased 3.5 percent over 1995 to reach a balance of $941,944,000 at December 31, 1996. To improve net interest income and lessen interest rate risk, management continued its strategy of de-emphasizing fixed-rate portfolio real estate loans and developing more commercial and consumer loan business. A significant accomplishment in 1996 was the $40.9 million increase in direct consumer loans. The Company continues to focus on reducing interest rate risk by emphasizing growth in variable rate loans. Core customer funds, which are a source of stable and relatively low-cost financing for the Company, increased 5.5 percent over the prior year. Core customer funds include noninterest-bearing demand, interest-bearing demand and savings, and securities sold under agreements to repurchase. The Company also utilizes borrowings from the Federal Home Loan Bank as a source of funding. At December 31, 1996, FHLB borrowings totaled $57.7 million. The balance of investment securities increased from December 31, 1995, by $29.4 million or 5.8 percent. This increase in investments was offset by a corresponding $22.4 million decrease in the balance of federal funds sold. Asset-Liability Management The Company has a fully-integrated asset-liability management system to assist in managing the balance sheet. The process, which is used to project the results of alternative investment decisions, includes the development of simulations that reflect the effects of various interest rate scenarios on net interest income. Management analyzes the simulations to manage interest rate risk, the net interest margin and levels of net interest income. The asset-liability management simulations indicate that net interest income should not fluctuate significantly due to interest rate changes in the market place. The Company currently believes that net interest income would fall by less than 4 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. Loan Quality Nonperforming loans at December 31, 1996, were $6,167,000, which represented .65 percent Two bar graphs on the left hand side of the page: Graph showing Net Noninterest Margin (1992-1996): 92 93 94 95 96 2.31 2.31 2.61 2.38 2.09 Graph showing Total Assets (in millions) (1992-1996): 92 93 94 95 96 1,431 1,481 1,581 1,583 1,632 13 of total loans. This was an increase of $548,000 from one year ago, when the ratio was .62 percent of total loans. Loan quality remained strong at December 31, 1996, with reserves standing at 183.7 percent of nonperforming loans and 1.20 percent of total loans. The provision for loan losses totaled $2,900,000 for the year ended December 31, 1996, compared to $1,864,801 for 1995. The increase of $1,035,199 or 55.5 percent over 1995 was related to a 54.7 percent increase in net charge-offs in 1996. The Company's net charge-offs as a percent of average loans were .29 percent for 1996 compared to .18 percent for 1995, both of which were better than industry peer group averages. Capital Resources Common stockholders' equity totaled $121,954,229 at December 31, 1996, an increase of 2.0 percent over the prior year. As part of a stock repurchase plan which originated in 1994, the Company repurchased 347,700 shares of common stock during 1996 at a cost of $8,248,331. The Company will continue the repurchase of stock during 1997. 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, 1996, was 11.57 percent and the total risk-based capital ratio was 12.64 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 7.62 percent at December 31, 1996, exceeding the regulatory minimum requirement for well- capitalized institutions of 5.0 percent. Dividends paid to common stockholders totaled $3,748,653 or $.454 per share for 1996, an increase of 11.0 percent from the prior year. In addition to these cash dividends, the Company distributed a 10 percent common stock dividend in October 1996. Brenton Banks, Inc. common stock closed on December 31, 1996 at $27.63, an increase of 43.0 percent over the prior year-end. The closing price at December 31, 1996, was 183.2 percent of the book value per share of $15.08 on the same date. The year-end stock price represented a price-to-1996-earnings multiple of 16.3 times. Brenton Banks, Inc. continues to pursue acquisition and expansion opportunities which will 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. Two bar graphs on the right hand side of the page: Dual Bar Graph showing Primary Capital Ratio Tier 1 Leverage Capital Ratio (1992-1996): 92 93 94 95 96 7.67 8.31 8.18 8.40 8.33 6.71 7.36 7.23 7.45 7.62 Dual Bar Graph showing Nonperforming Loans as a Percent of Loans Net Charge-offs as a Percent of Average Loans (1992-1996): 92 93 94 95 96 0.61 0.46 0.46 0.52 0.62 0.13 0.05 0.10 0.18 0.29 1996 Brenton Banks, Inc. Annual Report 14 Consolidated Statements of Condition Brenton Banks, Inc. and Subsidiaries December 31 1996 1995 Assets: Cash and due from banks $ 76,900,524 71,159,078 Interest-bearing deposits with banks 731,554 265,072 Federal funds sold and securities purchased under agreements to resell 15,200,000 37,600,000 Investment securities: Available for sale 461,099,272 396,370,443 Held to maturity (market value of $73,316,000 and $109,131,000 at December 31, 1996 and 1995, respectively 72,754,985 108,082,213 Investment securities 533,854,257 504,452,656 Loans held for sale 5,870,298 8,707,309 Loans 941,943,513 910,193,212 Allowance for loan losses (11,328,359) (11,069,869) Loans, net 930,615,154 899,123,343 Premises and equipment 30,379,446 32,849,842 Accrued interest receivable 14,417,786 14,494,261 Other assets 24,126,063 14,127,759 $ 1,632,095,082 1,582,779,320 Liabilities and Stockholders' Equity: Deposits: Noninterest-bearing $ 153,284,094 143,220,373 Interest-bearing: Demand 99,277,477 399,308,392 Savings 527,791,360 215,488,846 Time 572,704,180 603,925,104 Total deposits 1,353,057,111 1,361,942,715 Federal funds purchased and securities sold under agreements to repurchase 66,826,120 41,107,411 Other short-term borrowings 34,150,000 2,500,000 Accrued expenses and other liabilities 16,633,068 15,083,453 Long-term borrowings 34,860,024 38,177,803 Total liabilities 1,505,526,323 1,458,811,382 Minority interest in consolidated subsidiaries 4,614,530 4,434,307 Redeemable preferred stock, $1 par; 500,000 shares authorized; issuable in series, none issued --- --- Common stockholders' equity: Common stock, $5 par; 25,000,000 shares authorized; 8,085,684 and 7,653,252 shares issued and outstanding at December 31, 1996 and 1995, respectively 40,428,420 38,266,260 Capital surplus --- 2,020,518 Retained earnings 80,448,768 77,888,451 Unrealized gains on securities available for sale 1,077,041 1,358,402 Total common stockholders' equity 121,954,229 119,533,631 $ 1,632,095,082 1,582,779,320 15 Consolidated Statements of Operations Brenton Banks, Inc. and Subsidiaries Years Ended December 31 1996 1995 1994 Interest Income: Interest and fees on loans $ 80,301,707 82,525,850 76,456,964 Interest and dividends on investments: Available for sale-taxable 20,063,114 14,577,652 13,032,050 Available for sale-tax-exempt 4,250,463 4,446,824 5,530,626 Held to maturity-taxable 2,878,982 4,069,617 1,862,628 Held to maturity-tax-exempt 2,404,155 3,090,185 2,619,333 Interest on federal funds sold and securities purchased under agreements to resell 1,416,539 2,263,734 1,705,717 Other interest income 68,157 66,705 15,636 ___________ ___________ ___________ Total interest income 111,383,117 111,040,567 101,222,954 Interest Expense: Interest on deposits 49,507,425 53,075,352 41,609,766 Interest on federal funds purchased and securities sold under agreements to repurchase 2,469,939 1,641,516 2,082,077 Interest on other short-term borrowings 1,015,110 370,642 263,658 Interest on long-term borrowings 2,338,501 2,620,914 1,816,927 ___________ ___________ ___________ Total interest expense 55,330,975 57,708,424 45,772,428 Net interest income 56,052,142 53,332,143 55,450,526 Provision for loan losses 2,900,000 1,864,801 1,987,909 ___________ ___________ ___________ Net interest income after provision for loan losses 53,152,142 51,467,342 53,462,617 Noninterest Income: Service charges on deposit accounts 6,712,874 5,547,796 5,424,547 Investment brokerage commissions 3,766,436 3,044,107 2,879,401 Insurance commissions and fees 2,915,666 2,339,817 2,115,085 Fiduciary income 2,744,530 2,425,105 2,160,492 Mortgage banking income 2,168,593 1,427,342 1,216,690 Other service charges, collection and exchange charges, commissions and fees 2,779,502 2,435,132 2,342,210 Net gains (losses) from securities available for sale 321,256 (3,003) (339,624) Other operating income 1,918,584 630,444 794,187 ___________ ___________ ___________ Total noninterest income 23,327,441 17,846,740 16,592,988 Noninterest Expense: Salaries and wages 25,460,464 22,815,220 24,595,274 Employee benefits 4,245,682 4,158,580 4,960,665 Occupancy expense of premises, net 5,502,904 4,912,417 4,702,208 Furniture and equipment expense 3,725,150 3,747,021 3,060,557 Data processing expense 2,591,485 2,379,920 3,083,819 FDIC deposit insurance assessment 1,801,646 1,783,213 2,907,382 Advertising and promotion 1,756,473 1,741,390 1,772,852 Supplies 1,409,690 1,326,928 1,386,639 Other operating expense 9,597,077 12,186,578 10,187,526 ___________ ___________ ___________ Total noninterest expense 56,090,571 55,051,267 56,656,922 Income before income taxes and minority interest 20,389,012 14,262,815 13,398,683 Income taxes 5,770,600 3,204,687 2,700,640 ___________ ___________ ___________ Income before minority interest 14,618,412 11,058,128 10,698,043 Minority interest 602,982 650,774 590,656 ___________ ___________ ___________ Net income $ 14,015,430 10,407,354 10,107,387 Per common and common equivalent share:* Net income $ 1.69 1.22 1.15 Cash dividends .454 .409 .400 <FN> *Restated for the 10% common stock dividend effective in 1996. 1996 Brenton Banks, Inc. Annual Report 16 Consolidated Statements of Cash Flows Brenton Banks, Inc. and Subsidiaries Years Ended December 31 1996 1995 1994 Operating Activities: Net income $ 14,015,430 10,407,354 10,107,387 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,900,000 1,864,801 1,987,909 Depreciation and amortization 4,301,776 4,097,022 3,387,034 Deferred income taxes 949,396 (25,181) (1,257,325) Net (gains) losses from securities available for sale (321,256) 3,003 339,624 Net (increase) decrease in loans held for sale 2,837,011 (6,602,817) 2,244,930 Increase in accrued interest receivable and other assets (11,420,210) (1,678,132) (1,477,154) Increase in accrued expenses, other liabilities and minority interest 1,735,569 322,324 3,192,432 _____________ ____________ ____________ Net cash provided by operating activities 14,997,716 8,388,374 18,524,837 Investing Activities: Investment securities available for sale: Purchases (289,895,560) (242,871,379) (122,339,026) Maturities 150,480,123 278,575,538 154,659,319 Sales 67,547,581 5,577,835 21,484,178 Investment securities held to maturity: Purchases (45,046,248) (121,543,300) (59,384,073) Maturities 79,614,914 59,896,255 26,687,613 Net (increase) decrease in loans (26,364,596) 28,502,974 (95,225,841) Purchases of premises and equipment (2,734,491) (9,733,181) (6,920,455) Proceeds from sales of premises and equipment 1,356,634 360,470 26,578 _____________ ____________ ____________ Net cash used by investing activities (65,041,643) (1,234,788) (81,011,707) Financing Activities: Net increase in noninterest-bearing, interest-bearing demand and savings deposits 22,335,320 51,054,199 40,210,540 Net increase (decrease) in time deposits (31,220,924) (29,394,594) 5,708,876 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 25,718,709 (29,596,325) 33,039,408 Net increase (decrease) in other short-term borrowings 15,500,000 (9,500,000) 12,000,000 Proceeds of long-term borrowings 14,604,000 12,429,000 22,176,030 Repayment of long-term borrowings (1,771,779) (3,190,610) (13,291,530) Dividends on common stock (3,748,653) (3,498,220) (3,471,901) Proceeds from issuance of common stock under the employee stock purchase plan 71,675 --- --- Proceeds from issuance of common stock under the stock option plan 290,748 187,213 385,767 Proceeds from issuance of common stock under the long-term stock compensation plan 334,834 361,602 --- Payment for shares acquired under common stock repurchase plan (8,248,331) (4,830,111) (850,950) Payment for fractional shares resulting from stock dividend (13,744) --- (4,307) _____________ ____________ ____________ Net cash provided (used) by financing activities 33,851,855 (15,977,846) 95,901,933 _____________ ____________ ____________ Net increase (decrease) in cash and cash equivalents (16,192,072) (8,824,260) 33,415,063 Cash and cash equivalents at the beginning of the year 109,024,150 117,848,410 84,433,347 _____________ ____________ ____________ Cash and cash equivalents at the end of the year $ 92,832,078 109,024,150 117,848,410 <FN> See accompanying notes to consolidated financial statements. 17 Consolidated Statements of Changes in Common Stockholders' Equity Brenton Banks, Inc. and Subsidiaries Common Capital Retained Unrealized Stock Surplus Earnings Gains (Losses) Total Balance, December 31, 1993 $26,265,755 5,598,027 77,517,613 3,036,270 112,417,665 Net income --- --- 10,107,387 --- 10,107,387 Net change in unrealized gains (losses) --- --- --- (8,153,316) (8,153,316) Dividends on common stock $.400 per share* --- --- (3,471,901) --- (3,471,901) 3-for-2 stock split in the form of a stock dividend 13,169,475 --- (13,169,475) --- --- Fractional shares resulting from stock split --- --- (4,307) --- (4,307) Issuance of shares of common stock under the stock option plan 146,500 239,267 --- --- 385,767 Shares reacquired under stock repurchase plan (224,000) (626,950) --- --- (850,950) Balance, December 31, 1994 39,357,730 5,210,344 70,979,317 (5,117,046) 110,430,345 Net income --- --- 10,407,354 --- 10,407,354 Net change in unrealized gains (losses) --- --- --- 6,475,448 6,475,448 Dividends on common stock $.409 per share** --- --- (3,498,220) --- (3,498,220) Issuance of shares of common stock under the stock option plan 98,750 88,463 --- --- 187,213 Issuance of shares of common stock under the stock compensation plan 100,445 261,157 --- --- 361,602 Shares reacquired under stock repurchase plan (1,290,665) (3,539,446) --- --- (4,830,111) Balance, December 31, 1995 38,266,260 2,020,518 77,888,451 1,358,402 119,533,631 Net income --- --- 14,015,430 --- 14,015,430 Net change in unrealized gains (losses) --- --- --- (281,361) (281,361) Dividends on common stock $.454 per share** --- --- (3,748,653) --- (3,748,653) 10% common stock dividend 3,684,215 --- (3,684,215) --- --- Fractional shares resulting from stock dividend --- --- (13,744) --- (13,744) Issuance of shares of common stock under the stock option plan 128,000 162,748 --- --- 290,748 Issuance of shares of common stock under the stock compensation plan 73,590 261,244 --- --- 334,834 Issuance of shares of common stock under the employee stock purchase plan 14,855 56,820 --- --- 71,675 Shares reacquired under stock repurchase plan (1,738,500) (2,501,330) (4,008,501) --- (8,248,331) Balance, December 31, 1996 $40,428,420 --- 80,448,768 1,077,041 121,954,229 <FN> * Reflects the 10% common stock dividend effective in 1996 and the 3-for-2 stock split effective in 1994. ** Reflects the 10% common stock dividend effective in 1996. Allowance for Loan Losses Brenton Banks, Inc. and Subsidiaries Years End December 31 1996 1995 1994 Balance at beginning of year $11,069,869 10,913,043 9,817,864 Provision for loan losses 2,900,000 1,864,801 1,987,909 Loans charged off (4,061,211) (3,377,002) (2,442,185) Loan loss recoveries 1,419,701 1,669,027 1,549,455 Balance at end of year $11,328,359 11,069,869 10,913,043 <FN> The allowance for loan losses schedule is not covered by the Independent Auditors' Report. 1996 Brenton Banks, Inc. Annual Report 18 Consolidated Average Balances and Rates Brenton Banks, Inc. and Subsidiaries Average Balances (In thousands) 1996 1995 1994 1993 1992 Assets: Cash and due from banks $ 65,439 57,138 46,301 46,025 41,715 Interest-bearing deposits with banks 1,393 1,076 124 762 6,240 Federal funds sold and securities purchased under agreements to resell 26,188 39,763 37,666 23,725 27,082 Trading account securities --- --- 116 --- --- Investment securities: Available for sale-taxable 330,002 244,786 245,913 53,174 6,512 Available for sale-tax-exempt 85,471 100,859 132,040 --- --- Held to maturity-taxable 46,271 65,959 35,794 299,993 384,301 Held to maturity-tax-exempt 51,639 50,235 44,584 164,520 139,296 Loans held for sale 7,983 5,908 2,575 6,165 2,553 Loans 919,578 945,724 936,370 802,088 736,646 Allowance for loan losses (11,440) (11,166) (10,502) (9,615) (8,894) Premises and equipment 31,728 31,436 24,545 23,045 21,400 Other 28,642 29,508 25,663 26,543 30,422 __________ _________ _________ _________ _________ $ 1,582,894 1,561,226 1,521,189 1,436,425 1,387,273 Liabilities and Stockholders' Equity: Deposits Noninterest-bearing $ 131,051 128,770 127,464 119,322 112,054 Interest-bearing: Demand 376,259 355,819 250,520 217,754 209,642 Savings 241,250 231,633 294,715 299,640 260,568 Time 583,508 626,497 625,981 622,789 646,261 __________ _________ _________ _________ _________ Total deposits 1,332,068 1,342,719 1,298,680 1,259,505 1,228,525 Federal funds purchased and securities sold under agreements to repurchase 59,276 40,237 61,656 42,715 33,240 Other short-term borrowings 17,295 6,536 4,860 33 2,170 Accrued expenses and other liabilities 17,520 14,896 13,254 12,805 13,735 Long-term borrowings 33,094 37,264 26,500 14,077 14,067 __________ _________ _________ _________ _________ Total liabilities 1,459,253 1,441,652 1,404,950 1,329,135 1,291,737 Minority interest 4,471 4,391 4,290 4,150 3,845 Common stockholders' equity 119,170 115,183 111,949 103,140 91,691 __________ _________ _________ _________ _________ $ 1,582,894 1,561,226 1,521,189 1,436,425 1,387,273 Summary of Average Interest Rates Average rates earned: Interest-bearing deposits with banks 4.87% 6.20 6.65 2.88 4.92 Trading account securities --- --- --- 6.36 --- Federal funds sold and securities purchased under agreements to resell 5.41 5.69 4.53 2.05 2.41 Investment securities: Available for sale-taxable 6.08 5.96 5.30 5.28 6.63 Available for sale-tax exempt (tax equivalent basis) 7.13 6.71 6.37 --- --- Held to maturity-taxable 6.22 6.17 5.20 5.54 6.88 Held to maturity-tax-exempt (tax equivalent basis) 6.68 8.05 7.70 6.97 7.66 Loans held for sale 8.47 6.71 7.50 8.43 9.33 Loans 8.69 8.69 8.14 8.77 9.65 Average rates paid: Deposits 4.12% 4.37 3.55 3.70 4.70 Federal funds purchased and securities sold under agreements to repurchase 4.17 4.08 3.38 2.41 2.78 Other short-term borrowings 5.87 5.67 5.42 3.63 5.57 Long-term borrowings 7.07 7.03 6.86 8.60 9.14 Average yield on interest-earning assets 7.80% 7.86 7.31 7.57 8.43 Average rate paid on interest- bearing liabilities 4.22 4.45 3.62 3.71 4.70 Net interest spread 3.58 3.41 3.69 3.86 3.73 Net interest margin 4.03 3.89 4.12 4.28 4.23 19 Stock Information Brenton Banks, Inc. common stock is traded on the Nasdaq National Market and quotations are furnished by the Nasdaq System. There were 1,562 common stockholders of record on December 31, 1996. Market and Dividend Information 1996 High Low Dividends 1st quarter $22.05 19.09 .109 2nd quarter 22.05 20.68 .109 3rd quarter 22.73 21.36 .118 4th quarter 28.00 22.50 .118 1995 High Low Dividends 1st quarter $17.05 16.14 .10 2nd quarter 17.27 16.14 .10 3rd quarter 18.64 16.25 .10 4th quarter 20.68 17.50 .109 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 October 1996 10% common stock dividend. The market quotations, reported by Nasdaq, represent prices between dealers and do not include retail markup, markdown or commissions. Nasdaq Symbol: BRBK Wall Street Journal and Other Newspapers: BrentB Market Makers ABN AMRO Chicago Corporation Herzog, Heine, Geduld, Inc. Howe, Barnes Investments, Inc. Keefe, Bruyette & Woods, Inc. Stifel, Nicolaus & Co., Inc. Wedbush Morgan Securities, Inc. FORM 10-K COPIES OF BRENTON BANKS, INC. ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FORM 10-K WILL BE MAILED WHEN AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST TO STEVEN T. SCHULER, CHIEF FINANCIAL OFFICER/TREASURER/SECRETARY, AT THE CORPORATE HEADQUARTERS. Stockholder Information Corporate Headquarters Suite 200, Capital Square 400 Locust Street Des Moines, Iowa 50309 Telephone 515/237-5100 Annual Shareholders' Meeting Wednesday, May 7, 1997, 5:00 p.m. Des Moines Convention Center 501 Grand Avenue Des Moines, Iowa 50309 Transfer Agent/Registrar/ Dividend Disbursing Agent Harris Trust and Savings Bank 311 West Monroe Street Chicago, Illinois 60690 Legal Counsel Brown, Winick, Graves, Gross, Baskerville 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 Design: Designgroup, Inc. 1996 Brenton Banks, Inc. Annual Report 20 Corporate Structure BRENTON BANKS, INC. BOARD OF DIRECTORS C. Robert Brenton Chairman of the Board Brenton Banks, Inc. William H. Brenton Past Chairman (21 Years) Past Chairman, 	Executive Committee (5 years) Past President (5 Years) Brenton Banks, Inc. J.C. Brenton Past President Brenton Banks, Inc. Gary M. Christensen President & CEO Pella Corporation Robert L. DeMeulenaere President Brenton Banks, Inc. R. Dean Duben Vice Chairman of the Board Brenton Bank, Davenport Hubert G. Ferguson Financial Services Consultant New Brighton, Minnesota BRENTON BANKS, INC. Executive Officers C. Robert Brenton Chairman of the Board Robert L. DeMeulenaere President Steven T. Schuler Chief Financial Officer/Treasurer/Secretary BRENTON BANK SENIOR OFFICERS AND LINE OF BUSINESS MANAGERS C. Robert Brenton Chairman of the Board Robert L. DeMeulenaere Chief Executive Officer/President Larry A. Mindrup Chief Banking Officer President, Des Moines Phillip L. Risley Chief Administrative Officer/Cashier Perry C. Atwood Chief Sales Officer Woodward G. Brenton Chief Commercial Banking Officer Charles N. Funk Chief Investment/ALCO Officer Ronald D. Larson Regional President Eastern Iowa Division President, Cedar Rapids Marc J. Meyer Regional President Western Iowa Division President, Adel Steven T. Schuler Chief Financial Officer/Treasurer/Secretary Norman D. Schuneman Chief Credit Officer Steven D. Agan President, Knoxville John H. Anderson President, Davenport Thomas J. Friedman President, Ankeny Kevin Z. Geis President, Brenton Savings Bank, FSB Ames Robert L. German President, Dallas Center John M. Hand President, Emmetsburg Dennis H. Hanson President, Grinnell Richard H. Jones President, Perry V. Blaine Lenz President, Eagle Grove James L. Lowrance President, Marshalltown Clay A. Miller President, Clarion Jeffrey J. Nolan President, Jefferson Clark H. Raney President, Indianola Gary D. Ernst President, Trust Division Marsha A. Findlay Senior Vice President, Des Moines Senior Retail Banking Officer Mark J. Hoffschneider President, Brenton Mortgages Douglas F. Lenehan President, Diversified Commercial Services Division Loras J. Neuroth President, Brenton Insurance Elizabeth M. Piper/Bach President, Brenton Investments Catherine Reed Senior Marketing Officer Thomas J. Vincent President, Agricultural Banking Division 21 Brenton Service Locations - Iowa Adel Ames, 424 Main Street Ames, North Grand Mall Ankeny Ayrshire Cedar Rapids, 150 First Avenue, NE Cedar Rapids, 3010 Williams Blvd., SW Cedar Rapids, 1800 51st Street, NE Cedar Rapids, 2300 Edgewood Road, SW Clarion Clive, 10101 University Clive, 13631 University Dallas Center Davenport, 1618 N. Main Street Davenport, Village Shopping Center Davenport, West Third and Division Davenport, 53rd and Utica Ridge Des Moines, 400 Locust Street Des Moines, 29th & Ingersoll Des Moines, 2805 Beaver Des Moines, S.W. 9th and McKinley Dexter Dubuque* Eagle Grove Emmetsburg Granger Grinnell Indianola Iowa City Jefferson Johnston Knoxville Mallard Marion Marshalltown, 102 South Center Marshalltown, 1724 South Center Newton* Perry Redfield Story City Toledo** Urbandale Van Meter Waukee Woodward * Investment, insurance and mortgages services only. ** Investment and insurance services only. On the bottom of the page is a map of Iowa with dots showing the location of the above banks. 22 Brenton Banks, Inc. Suite 200, Capital Square 400 Locust Street Des Moines, Iowa 50309 Telephone 515/237-5100 Appendix to Annual Report Referencing Graphic and Image Material All graphic and image material has been described in text of the annual report. Set forth below is a list of such material. 1. Cover - first unnumbered page of the Annual Report. 2. Bar graphs, second page of the Annual Report, showing Common Stock Closing Bid Price from 1987-1996; Net Income per Common Shares from 1992-1996; and Return on Average Equity from 1992- 1996. 3. Two photgraphs on page 3 of the Annual Report. 4. Text, located on the right hand side, on page 4 of the Annual Report. 5. Text, located on the left hand side, on page 5 of the Annual Report. 6. Text, located on the right hand side, on page 8 of the Annual Report. 7. Bar graphs showing the Net Income from 1992-1996 and the Return on Average Assets from 1992-1996, on page 11 of the Annual Report. 8. Bar graphs showing the Net Interest Margin from 1992-1996 and the Noninterest Income as a Percent of Total Operating Income from 1992-1996), on page 12 of the Annual Report. 9. Bar graphs showing the Net Noninterest Margin from 1992-1996 and the Total Assets from 1992-1996), on page 13 of the Annual Report. 10. Bar graphs showing the Primary Capital Ratio from 1992-1996 and the Nonperforming Loans as a Percent of Loans from 1992-1996, on page 14 of the Annual Report. 11. Map of Iowa on page 22 of the Annual Report.