Regulatory Capital Requirements and Restrictions on Subsidiary Dividends |
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, 2012 and 2011, that the Heartland banks met all capital adequacy requirements to which they were subject.
As of December 31, 2012 and 2011, 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 tables below, 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, 2012 | | | | | | | | | | | | | Total Capital (to Risk-Weighted Assets) | | | | | | | | | | | | | Consolidated | | $ | 532,502 |
| | 15.35 | % | | $ | 277,485 |
| | 8.00 | % | | N/A |
| | | Dubuque Bank and Trust Company | | 138,698 |
| | 12.44 |
| | 89,164 |
| | 8.00 |
| | 111,455 |
| | 10.00 | % | Galena State Bank & Trust Co. | | 28,027 |
| | 14.20 |
| | 15,790 |
| | 8.00 |
| | 19,738 |
| | 10.00 |
| Riverside Community Bank | | 30,097 |
| | 13.03 |
| | 18,476 |
| | 8.00 |
| | 23,095 |
| | 10.00 |
| Wisconsin Bank & Trust | | 64,378 |
| | 13.84 |
| | 37,213 |
| | 8.00 |
| | 46,516 |
| | 10.00 |
| New Mexico Bank & Trust | | 90,765 |
| | 14.51 |
| | 50,047 |
| | 8.00 |
| | 62,559 |
| | 10.00 |
| Arizona Bank & Trust | | 30,903 |
| | 14.13 |
| | 17,499 |
| | 8.00 |
| | 21,874 |
| | 10.00 |
| Rocky Mountain Bank | | 53,291 |
| | 16.46 |
| | 25,902 |
| | 8.00 |
| | 32,377 |
| | 10.00 |
| Summit Bank & Trust | | 12,317 |
| | 13.26 |
| | 7,432 |
| | 8.00 |
| | 9,290 |
| | 10.00 |
| Minnesota Bank & Trust | | 14,446 |
| | 14.04 |
| | 8,234 |
| | 8.00 |
| | 10,293 |
| | 10.00 |
| Heritage Bank, N.A. | | 11,796 |
| | 20.13 |
| | 4,688 |
| | 8.00 |
| | 5,860 |
| | 10.00 |
| Tier 1 Capital (to Risk-Weighted Assets) | | | | | | | | | | | | | Consolidated | | $ | 463,371 |
| | 13.36 | % | | $ | 138,743 |
| | 4.00 | % | | N/A |
| | | Dubuque Bank and Trust Company | | 129,473 |
| | 11.62 |
| | 44,582 |
| | 4.00 |
| | 66,873 |
| | 6.00 | % | Galena State Bank & Trust Co. | | 25,985 |
| | 13.17 |
| | 7,895 |
| | 4.00 |
| | 11,843 |
| | 6.00 |
| Riverside Community Bank | | 27,206 |
| | 11.78 |
| | 9,238 |
| | 4.00 |
| | 13,857 |
| | 6.00 |
| Wisconsin Bank & Trust | | 60,183 |
| | 12.94 |
| | 18,606 |
| | 4.00 |
| | 27,910 |
| | 6.00 |
| New Mexico Bank & Trust | | 83,902 |
| | 13.41 |
| | 25,023 |
| | 4.00 |
| | 37,535 |
| | 6.00 |
| Arizona Bank & Trust | | 28,116 |
| | 12.85 |
| | 8,750 |
| | 4.00 |
| | 13,125 |
| | 6.00 |
| Rocky Mountain Bank | | 49,243 |
| | 15.21 |
| | 12,951 |
| | 4.00 |
| | 19,426 |
| | 6.00 |
| Summit Bank & Trust | | 11,155 |
| | 12.01 |
| | 3,716 |
| | 4.00 |
| | 5,574 |
| | 6.00 |
| Minnesota Bank & Trust | | 13,485 |
| | 13.10 |
| | 4,117 |
| | 4.00 |
| | 6,176 |
| | 6.00 |
| Heritage Bank, N.A. | | 11,796 |
| | 20.13 |
| | 2,344 |
| | 4.00 |
| | 3,516 |
| | 6.00 |
| Tier 1 Capital (to Average Assets) | | | | | | | | | | | | | Consolidated | | $ | 463,371 |
| | 9.84 | % | | $ | 188,284 |
| | 4.00 | % | | N/A |
| | | Dubuque Bank and Trust Company | | 129,473 |
| | 8.73 |
| | 59,341 |
| | 4.00 |
| | 74,176 |
| | 5.00 | % | Galena State Bank & Trust Co. | | 25,985 |
| | 8.84 |
| | 11,757 |
| | 4.00 |
| | 14,697 |
| | 5.00 |
| Riverside Community Bank | | 27,206 |
| | 6.53 |
| | 16,660 |
| | 4.00 |
| | 20,825 |
| | 5.00 |
| Wisconsin Bank & Trust | | 60,183 |
| | 10.59 |
| | 22,741 |
| | 4.00 |
| | 28,426 |
| | 5.00 |
| New Mexico Bank & Trust | | 83,902 |
| | 8.47 |
| | 39,640 |
| | 4.00 |
| | 49,550 |
| | 5.00 |
| Arizona Bank & Trust | | 28,116 |
| | 9.93 |
| | 11,327 |
| | 4.00 |
| | 14,158 |
| | 5.00 |
| Rocky Mountain Bank | | 49,243 |
| | 11.41 |
| | 17,268 |
| | 4.00 |
| | 21,585 |
| | 5.00 |
| Summit Bank & Trust | | 11,155 |
| | 10.48 |
| | 4,256 |
| | 4.00 |
| | 5,320 |
| | 5.00 |
| Minnesota Bank & Trust | | 13,485 |
| | 11.73 |
| | 4,600 |
| | 4.00 |
| | 5,750 |
| | 5.00 |
| Heritage Bank, N.A. | | 11,796 |
| | 11.59 |
| | 4,071 |
| | 4.00 |
| | 5,089 |
| | 5.00 |
|
| | | | | | | | | | | | | | | | | | | | | | | | 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 Bank & Trust | | 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 Bank & Trust | | 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 Bank & Trust | | 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 |
|
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 $175.8 million as of December 31, 2012, under the most restrictive minimum capital requirements. Retained earnings that could be available for the payment of dividends to Heartland totaled approximately $115.5 million as of December 31, 2012, under the capital requirements to remain well capitalized. |