REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS ON SUBSIDIARY DIVIDENDS

The Heartland banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Heartland banks’ financial statements. The regulations prescribe specific capital adequacy guidelines that involve quantitative measures of a bank’s assets, liabilities and certain off balance sheet items as calculated under regulatory accounting practices. Capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Heartland banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2011 and 2010, that the Heartland banks met all capital adequacy requirements to which they were subject.

As of December 31, 2011 and 2010, the FDIC categorized each of the Heartland banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Heartland banks must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed each institution’s category.

The Heartland banks’ actual capital amounts and ratios are also presented in the table below:



(Dollars in thousands)
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount	Ratio
As of December 31, 2011
Total Capital (to Risk-Weighted Assets)
Consolidated	$	481,513	15.87	%	$	242,715	8.00	%	N/A
Dubuque Bank and Trust Company	125,478		12.55		79,962		8.00		99,953	10.00	%
Galena State Bank & Trust Co.	26,354		13.34		15,804		8.00		19,755	10.00
Riverside Community Bank	27,636		13.83		15,982		8.00		19,978	10.00
Wisconsin Community Bank	50,475		14.77		27,348		8.00		34,185	10.00
New Mexico Bank & Trust	85,006		13.45		50,560		8.00		63,200	10.00
Arizona Bank & Trust	21,045		12.10		13,913		8.00		17,392	10.00
Rocky Mountain Bank	48,182		16.16		23,859		8.00		29,823	10.00
Summit Bank & Trust	12,170		16.03		6,075		8.00		7,594	10.00
Minnesota Bank & Trust	13,878		20.63		5,381		8.00		6,726	10.00
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	427,145	14.08	%	$	121,357	4.00	%	N/A
Dubuque Bank and Trust Company	116,103		11.62		39,981		4.00		59,972	6.00	%
Galena State Bank & Trust Co.	24,511		12.41		7,902		4.00		11,853	6.00
Riverside Community Bank	25,134		12.58		7,991		4.00		11,987	6.00
Wisconsin Community Bank	46,989		13.75		13,674		4.00		20,511	6.00
New Mexico Bank & Trust	78,345		12.40		25,280		4.00		37,920	6.00
Arizona Bank & Trust	18,814		10.82		6,957		4.00		10,435	6.00
Rocky Mountain Bank	44,452		14.91		11,929		4.00		17,894	6.00
Summit Bank & Trust	11,220		14.78		3,038		4.00		4,556	6.00
Minnesota Bank & Trust	13,290		19.76		2,690		4.00		4,036	6.00
Tier 1 Capital (to Average Assets)
Consolidated	$	427,145	10.24	%	$	166,865	4.00	%	N/A
Dubuque Bank and Trust Company	116,103		8.77		52,961		4.00		66,201	5.00	%
Galena State Bank & Trust Co.	24,511		8.41		11,654		4.00		14,568	5.00
Riverside Community Bank	25,134		7.78		12,922		4.00		16,152	5.00
Wisconsin Community Bank	46,989		9.57		19,634		4.00		24,542	5.00
New Mexico Bank & Trust	78,345		8.47		37,010		4.00		46,263	5.00
Arizona Bank & Trust	18,814		8.50		8,849		4.00		11,062	5.00
Rocky Mountain Bank	44,452		10.50		16,938		4.00		21,173	5.00
Summit Bank & Trust	11,220		11.72		3,830		4.00		4,787	5.00
Minnesota Bank & Trust	13,290		16.53		3,215		4.00		4,019	5.00



(Dollars in thousands)
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount	Ratio
As of December 31, 2010
Total Capital (to Risk-Weighted Assets)
Consolidated	$	465,666	16.23	%	$	229,521	8.00	%	N/A
Dubuque Bank and Trust Company	110,860		13.26		66,867		8.00		83,584	10.00	%
Galena State Bank & Trust Co.	25,194		14.47		13,929		8.00		17,411	10.00
First Community Bank	11,226		16.12		5,570		8.00		6,962	10.00
Riverside Community Bank	26,616		13.75		15,490		8.00		19,363	10.00
Wisconsin Community Bank	48,634		13.51		28,798		8.00		35,998	10.00
New Mexico Bank & Trust	80,422		12.87		50,006		8.00		62,507	10.00
Arizona Bank & Trust	24,562		15.67		12,543		8.00		15,679	10.00
Rocky Mountain Bank	46,474		15.68		23,706		8.00		29,632	10.00
Summit Bank & Trust	12,483		19.63		5,088		8.00		6,360	10.00
Minnesota Bank & Trust	13,926		31.51		3,536		8.00		4,420	10.00
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	403,357	14.06	%	$	114,760	4.00	%	N/A
Dubuque Bank and Trust Company	100,408		12.01		33,433		4.00		50,150	6.00	%
Galena State Bank & Trust Co.	23,370		13.42		6,965		4.00		10,447	6.00
First Community Bank	10,346		14.86		2,785		4.00		4,177	6.00
Riverside Community Bank	24,182		12.49		7,745		4.00		11,618	6.00
Wisconsin Community Bank	44,761		12.43		14,399		4.00		21,599	6.00
New Mexico Bank & Trust	72,676		11.63		25,003		4.00		37,504	6.00
Arizona Bank & Trust	22,539		14.38		6,272		4.00		9,407	6.00
Rocky Mountain Bank	42,769		14.43		11,853		4.00		17,779	6.00
Summit Bank & Trust	11,682		18.37		2,544		4.00		3,816	6.00
Minnesota Bank & Trust	13,373		30.26		1,768		4.00		2,652	6.00
Tier 1 Capital (to Average Assets)
Consolidated	$	403,357	9.92	%	$	162,580	4.00	%	N/A
Dubuque Bank and Trust Company	100,408		8.33		48,209		4.00		60,261	5.00	%
Galena State Bank & Trust Co.	23,370		8.27		11,302		4.00		14,128	5.00
First Community Bank	10,346		8.94		4,627		4.00		5,784	5.00
Riverside Community Bank	24,182		8.12		11,911		4.00		14,889	5.00
Wisconsin Community Bank	44,761		9.56		18,730		4.00		23,412	5.00
New Mexico Bank & Trust	72,676		8.01		36,290		4.00		45,362	5.00
Arizona Bank & Trust	22,539		9.45		9,539		4.00		11,923	5.00
Rocky Mountain Bank	42,769		10.02		17,065		4.00		21,332	5.00
Summit Bank & Trust	11,682		12.07		3,870		4.00		4,838	5.00
Minnesota Bank & Trust	13,373		23.59		2,267		4.00		2,834	5.00

The ability of Heartland to pay dividends to its stockholders is dependent upon dividends paid by its subsidiaries. The Heartland banks are subject to certain statutory and regulatory restrictions on the amount they may pay in dividends. To maintain acceptable capital ratios in the Heartland banks, certain portions of their retained earnings are not available for the payment of dividends. Retained earnings that could be available for the payment of dividends to Heartland totaled approximately $125.3 million as of December 31, 2011, under the most restrictive minimum capital requirements. Retained earnings that could be available for the payment of dividends to Heartland totaled approximately $77.9 million as of December 31, 2011, under the capital requirements to remain well capitalized.