SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number: 0-24724
HEARTLAND FINANCIAL USA, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
42-1405748
(I.R.S. Employer identification number)
1398 Central Avenue, Dubuque, Iowa) (52001
(Address of principal executive offices Zip Code)
(319) 589-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Exchange Class)
None
(Name of Each Exchange on which Registered)
Common Stock $1.00 par value
(Title of Class)
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 Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The index to exhibits follows the signature page.
As of March 22, 1999, the Registrant had issued and outstanding
9,518,805 shares of the Registrant's Common Stock. The aggregate
market value of the voting stock held by non-affiliates of the
Registrant as of March 22, 1999, was $108,576,625.* Such figures
include 733,908 shares of the Registrant's Common Stock held in a
fiduciary capacity by the Trust Department of the Dubuque Bank &
Trust Company, a wholly-owned subsidiary of the Registrant.
*Based on the last reported price of an actual transaction in
Registrant's Common Stock on March 22, 1999, and reports of
beneficial ownership filed by directors and executive officers of
Registrant and by beneficial owners of more than 5% of the
outstanding shares of Common Stock of Registrant; however, such
determination of shares owned by affiliates does not constitute
an admission of affiliate status or beneficial interest in shares
of Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III.
HEARTLAND FINANCIAL USA, INC.
Form 10-K Annual Report
Table of Contents
Part I
Item 1. Business
A. General Description
B. Recent Developments
C. Market Areas
D. Competition
E. Employees
F. Accounting Standards
G. Supervision and Regulation
H. Governmental Monetary Policy and Economic Conditions
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I.
ITEM 1.
BUSINESS
A. GENERAL DESCRIPTION
Heartland Financial USA, Inc. ("Heartland"), reincorporated in
the state of Delaware in 1993, is a multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended
("BHCA"). Heartland has five bank subsidiaries which are located
in Dubuque, Iowa, Cottage Grove, Wisconsin, Galena and Rockford,
Illinois and Albuquerque, New Mexico and one federal savings bank
subsidiary which is located in Keokuk, Iowa (collectively, the
"Bank Subsidiaries"). All six Bank Subsidiaries are members of
the Federal Deposit Insurance Corporation ("FDIC"). Dubuque Bank
and Trust Company ("DB&T") is chartered under the laws of the
State of Iowa and has two wholly-owned subsidiaries: DB&T
Insurance, Inc. ("DB&T Insurance"), a multi-line insurance agency
and DB&T Community Development Corp. ("DB&T Development"),
majority owner of a senior housing project. Galena State Bank
and Trust Company, Galena, Illinois, ("GSB") and Riverside
Community Bank, Rockford,Illinois, ("RCB") are chartered under
the laws of the State of Illinois. First Community Bank, FSB
("FCB")is a federal savings association organized under the laws
of the United States. FCB has one subsidiary, KFS Services, Inc.
Wisconsin Community Bank, previously Cottage Grove State Bank,
("WCB") is chartered under the laws of the State of Wisconsin and
has one subsidiary, DBT Investment Corporation ("DBT
Investment"), an investment management company. New Mexico Bank &
Trust ("NMB") is chartered under the laws of the state of New
Mexico. The Bank Subsidiaries operate 19 banking locations in
Iowa, Illinois, Wisconsin and New Mexico. Heartland has three non-
bank subsidiaries. Citizens Finance Co. ("Citizens") is a
consumer finance company. ULTEA, Inc. ("ULTEA") is a fleet
leasing company headquartered in Madison, Wisconsin. Keokuk
Bancshares, Inc. ("Keokuk") is an investment management company.
All subsidiaries are wholly-owned with the exception of NMB, of
which Heartland is the 80% owner.
The Bank Subsidiaries provide full service retail banking within
Dubuque and Lee Counties in Iowa, within Jo Daviess, Hancock and
Winnebago Counties in Illinois, within Dane County in Wisconsin
and Bernalillo County in New Mexico. Deposit products include
checking and other demand deposit accounts, NOW accounts, savings
accounts, money market accounts, certificates of deposit,
individual retirement accounts and other time deposits. The
deposits in the Bank Subsidiaries are insured by the FDIC to the
full extent permitted by law. Loans include commercial and
industrial, agricultural, real estate mortgage, consumer, home
equity, credit cards and lines of credit. Other products and
services include VISA debit cards, automatic teller machines,
safe deposit boxes and trust services. The principal service of
the Bank Subsidiaries consists of making loans to businesses and
individuals. These loans are made at the offices of the Bank
Subsidiaries. The Bank Subsidiaries also engage in activities
that are closely related to banking, including investment
brokerage.
Although each of the subsidiaries of Heartland operates under the
direction of its own Board of Directors, Heartland has standard
operating policies regarding asset/liability management,
liquidity management, investment management, lending policies and
deposit structure management. Heartland has historically
centralized certain operations where economies of scale can be
achieved.
Operating Strategy
Corporate policy, strategy and goals are established by the Board
of Directors of Heartland (the "Heartland Board"). Pursuant to
Heartland's philosophy, operational and administrative policies
for the Bank Subsidiaries are also established by the Heartland
Board. Within this framework, each of the Bank Subsidiaries
focuses on providing personalized services and quality products
to its customers to meet the needs of the communities which it
serves.
Heartland operates its banking subsidiaries as traditional
community banks with conveniently located facilities and
professional, highly motivated staffs which are active in the
communities in which they are located. Heartland focuses on long-
term relationships with customers and provides individualized
quality service. In addition, within credit and rate of return
parameters, Heartland attempts to ensure that each of the Bank
Subsidiaries meets the credit needs of its communities and
invests in local municipal obligations.
Heartland uses a variety of marketing strategies to attract and
retain customers, with a particular emphasis on a strong sales
culture within the Bank Subsidiaries and an outside officer
calling program. Many of Heartland's sales employees work on a
salary plus commission basis, thus providing them with a strong
incentive to aggressively market Heartland's financial products.
Officers of each of the Bank Subsidiaries also regularly call on
customers and potential customers of the institutions to maintain
and develop deposit and other special service relationships,
including cash management, employee benefit plan administration,
and trust services.
Heartland has an internal data processing division and has
attempted to remain at the forefront of the banking industry in
new technological innovations. Heartland believes that retaining
control of its data processing leads to decreased operating costs
and more effective service to its customers. Accordingly, during
1997, all Bank Subsidiaries converted to the Fiserv Comprehensive
Banking System program, a national leader in bank software
technology. To provide a high level of customer service and to
manage effectively its growth, acquisition and operating
strategies, Heartland also focuses on continued improvement of
the internal operating systems of the Bank Subsidiaries.
Acquisition and Expansion Strategy
Heartland seeks to diversify both its market area and asset base
while increasing profitability through acquisitions and
expansion. Heartland's goal is to expand through the acquisition
of established financial service organizations, primarily
commercial banks or thrifts, to the extent suitable candidates
can be identified and acceptable business terms negotiated.
Heartland's acquisition strategy has focused primarily on
traditional community banks and thrifts located in stable and
growing areas of Iowa, Wisconsin, Minnesota and Illinois.
Heartland intends to look beyond these geographic areas for
acquisition opportunities as evidenced by the de novo bank in
Albuquerque, New Mexico. In addition to price and terms, other
factors considered by Heartland in determining the desirability
of an acquisition candidate include financial condition, earnings
potential, quality of management, market area and competitive
environment.
The Heartland Board may in the future consider establishing
branches, loan production offices or other business facilities as
a means of expanding its presence in current or new market areas.
The Heartland Board may also investigate expansion into other
lines of business closely related to banking if it believes these
lines could be profitable without undue risk to Heartland and if
Heartland can be competitive. Heartland does not currently have
any definitive understandings or agreements for any acquisitions
material to Heartland. However, Heartland will continue to look
for further expansion opportunities.
Lending Activities
General
The Bank Subsidiaries provide a range of commercial and retail
lending services to corporations, partnerships and individuals.
These credit activities include agricultural, commercial,
residential real estate and installment loans, as well as loan
participations and lines of credit.
The Bank Subsidiaries aggressively market their services to
qualified lending customers. Lending officers actively solicit
the business of new companies entering their market areas as well
as long-standing members of the Bank Subsidiaries' respective
business communities. Through professional service and
competitive pricing, the Bank Subsidiaries have been successful
in attracting new lending customers. Heartland also actively
pursues consumer lending opportunities. With convenient
locations, advertising and customer communications, the Bank
Subsidiaries have been successful in capitalizing on the credit
needs of their market areas.
Commercial Loans
The Bank Subsidiaries have a strong commercial loan base and
DB&T, in particular, continues to be a premier commercial lender
in the tri-state area of northeast Iowa, northwest Illinois and
southwest Wisconsin. The Bank Subsidiaries' areas of emphasis
include, but are not limited to, loans to wholesalers, hotel and
real estate developers, manufacturers, building contractors,
business services companies and retailers. The Bank Subsidiaries
provide a wide range of business loans, including lines of credit
for working capital and operational purposes and term loans for
the acquisition of equipment and real estate. Loans may be made
on an unsecured basis where warranted by the overall financial
condition of the borrower. Terms of commercial business loans
generally range from one to five years. The majority of the Bank
Subsidiaries' commercial business loans have floating interest
rates or reprice within one year.
DB&T has also generated loans which are guaranteed by the U.S.
Small Business Administration and has been certified as one of
that agency's Preferred Lenders. Management believes that making
these guaranteed loans helps its local communities as well as
provides Heartland with a source of income and solid future
lending relationships as such businesses grow and prosper. DB&T
is also currently one of the state of Iowa's top lenders in the
"Linked Investment for Tomorrow" program. This state-sponsored
program offers interest rate reductions to businesses opened by
minorities and those in rural areas.
The primary repayment risk for commercial loans is the failure of
the business due to economic or financial factors. In most cases,
the Bank Subsidiaries have collateralized these loans and/or
taken personal guarantees to help assure repayment.
As the credit portfolios of the Bank Subsidiaries have continued
to grow, several changes have been made in their lending
departments resulting in an overall increase in these
departments' skill levels. Loan review personnel and commercial
lenders interact with their respective Boards of Directors each
month. Heartland also utilizes an internal loan review function
to analyze credits of the Bank Subsidiaries. Management has
attempted to identify problem loans at an early date and to
aggressively seek a resolution of these situations. The result
has been a significantly below average level of problem loans
compared to the Heartland Banks' industry peer groups in recent
years.
Agricultural Loans
DB&T is one of the largest agricultural lenders in the state of
Iowa. Agricultural loans continue to be emphasized by both DB&T
and GSB due to their concentration of customers in rural markets.
Agricultural loans remain balanced, however, in proportion to the
rest of Heartland's consolidated loan portfolio. In connection
with their agricultural lending, all of the Bank Subsidiaries
have remained close to their traditional geographic market areas.
The majority of the outstanding agricultural operating and real
estate loans are within 60 miles of their main or branch offices.
Agricultural loans, many of which are secured by crops, machinery
and real estate, are provided to finance capital improvements and
farm operations as well as acquisitions of livestock and
machinery. The agricultural loan departments work closely with
all agricultural customers, including companies and individual
farmers, and review the preparation of budgets and cash flow
projections for the ensuing crop year. These budgets and cash
flow projections are monitored closely during the year and
reviewed with agricultural customers at least once a year. In
addition, the Bank Subsidiaries work closely with governmental
agencies, including the Farmers Home Administration, to assist
agricultural customers in obtaining credit enhancement products
such as loan guarantees.
Real Estate Mortgage Loans
Mortgage lending has been a focal point of the Bank Subsidiaries
as each of them continues to build real estate lending business.
A declining rate environment along with expanded production
capabilities combined to increase the number of loan originations
as compared to prior years. The majority of home loans generated
by the Bank Subsidiaries were sold to government agencies in the
secondary mortgage market with servicing rights retained on over
one-half of these sales. Management believes that the retention
of mortgage servicing provides the Bank Subsidiaries with a
relatively steady source of fee income as compared to fees
generated solely from mortgage origination operations. Moreover,
the retention of such servicing rights allows each of the Bank
Subsidiaries to continue to have regular contact with mortgage
customers.
Consumer Lending
The Bank Subsidiaries' consumer lending departments provide all
types of consumer loans including motor vehicle, home
improvement, home equity, student loans, credit cards, signature
loans and small personal credit lines.
Consumer loan demand is also serviced through Citizens which
currently serves the consumer credit needs of over 2,500
customers in the three state area of Iowa, Illinois and Wisconsin
from its Dubuque, Iowa, Madison and Appleton, Wisconsin, and
Loves Park, Illinois offices.
Trust Departments
The trust departments for DB&T, GSB and FCB have been providing
trust services to their respective communities for many years.
Trust personnel from DB&T also work with RCB and WCB personnel to
provide trust services to all bank subsidiaries. Currently, the
Bank Subsidiaries have over $496 million of consolidated assets
under management and provide a full complement of trust and
investment services for individuals and corporations.
The trust department of DB&T is nationally recognized as a
leading provider of socially responsible investment services and
manages investment portfolios for religious and other non-profit
organizations located throughout the United States. The Bank
Subsidiaries' trust departments are also active in the management
of employee benefit and retirement plans in their market areas.
The Bank Subsidiaries have targeted their trust departments as
primary areas for future growth.
Brokerage and Other Services
DB&T contracts with a third-party vendor, Focused Investments
LLC, an affiliate of Wayne Hummer & Co., to operate independent
securities offices within DB&T's main office, Grandview and
Kennedy Mall branch offices and GSB's main office. DB&T's Farley
office also schedules regular hours for a broker to be available
to meet with customers. Focused Investments LLC offers full-
service stock and bond trading, direct investments, annuities and
mutual funds.
DB&T Insurance has continued to grow its personal and commercial
insurance lines and the number of independent insurance companies
it represents. DB&T Insurance is a multi-line insurance agency in
the Dubuque area and offers a complete array of vehicle, property
and casualty, life and disability insurance, as well as
commercial lines and tax-free annuities.
B. MARKET AREAS
DB&T is located in Dubuque County,Iowa, which encompasses the
city of Dubuque and a number of surrounding rural communities.
The city of Dubuque is located in northeastern Iowa, on the
Mississippi River, approximately 175 miles west of Chicago,
Illinois, and approximately 200 miles northeast of Des Moines,
Iowa. It is strategically situated at the intersection of the
state borders of Iowa, Illinois and Wisconsin. Based upon the
results of the 1990 census, the city of Dubuque had a total
population of approximately 61,000.
In addition to its main banking office, DB&T has seven branch
offices, all of which are located in the Dubuque County area. As
a subsidiary of DB&T, DB&T Insurance has substantially the same
market area as the parent organization. Citizens also operates
within this market area, and, in addition, offices were opened in
Madison, Wisconsin, during June, 1996, Appleton, Wisconsin,
during August, 1998 and Loves Park, Illinois during February,
1999.
GSB is located in Galena, Illinois, which is less than five miles
from the Mississippi River, approximately 20 miles east of
Dubuque and 155 miles west of Chicago. GSB also has an office in
Stockton, Illinois, and as such, services customers in Jo Daviess
County, Illinois. Based on the 1990 census, the county had a
population of approximately 22,000 people.
FCB's main office is in Keokuk, Iowa, which is located in the
southeast corner of Iowa near the borders of Iowa, Missouri and
Illinois. Due to its location, FCB serves customers in the tri-
county region of Lee County, Iowa, Hancock County, Illinois and
Clark County, Missouri. Lee, Hancock and Clark Counties have
populations of approximately 43,100, 23,900 and 8,500,
respectively. FCB has one branch office in Keokuk and another
branch in the city of Carthage in Hancock County, Illinois.
Keokuk is an industrial community with a population of
approximately 13,500.
RCB is located on the northeast edge of Rockford, Illinois, which
is approximately 75 miles west of Chicago in Winnebago County.
Based on the 1990 census, the county had a population of 284,000
and the city of Rockford had a population of 140,000.
WCB operates one office from its location in Cottage Grove,
Wisconsin, which is approximately 10 miles east of Madison in
Dane County. A branch office was opened in Middleton, a suburb of
Madison, in February, 1998. According to the 1990 census, the
county had a population of 390,000, and the village of Cottage
Grove had a population of 1,100.
NMB operates one office in the northeast section of Albuquerque,
New Mexico in Bernalillo County. Based upon the 1990 census, the
county had a population of 480,000 and the city had a population
of 385,000.
C. COMPETITION
Heartland encounters competition in all areas of its business
pursuits. In order to compete effectively, to develop its market
base, to maintain flexibility and to move in pace with changing
economic and social conditions, Heartland continuously refines
and develops its products and services. The principal methods of
competition in the financial services industry are price, service
and convenience.
The Bank Subsidiaries' combined market area is highly
competitive. Many financial institutions based in the communities
surrounding Dubuque, Galena, Rockford, Cottage Grove, Keokuk and
Albuquerque actively compete for customers within Heartland's
market area. The Bank Subsidiaries also face competition from
finance companies, insurance companies, mortgage companies,
securities brokerage firms, money market funds, loan production
offices and other providers of financial services.
Heartland competes for loans principally through the range and
quality of the services it provides, interest rates and loan
fees. Heartland believes that its long-standing presence in the
community and personal service philosophy enhance its ability to
compete favorably in attracting and retaining individual and
business customers. Heartland actively solicits deposit-oriented
clients and competes for deposits by offering customers personal
attention, professional service and competitive interest rates.
D. EMPLOYEES
At December 31, 1998, Heartland employed 396 full-time equivalent
employees. Heartland places a high priority on staff development
which involves extensive training, including customer service
training. New employees are selected on the basis of both
technical skills and customer service capabilities. None of
Heartland's employees are covered by a collective bargaining
agreement with Heartland. Heartland offers a variety of employee
benefits and management considers its employee relations to be
excellent.
E. ACCOUNTING STANDARDS
Effect of New Financial Accounting Standards -Heartland adopted
SFAS No. 130,"Reporting Comprehensive Income,"on January 1, 1998.
SFAS No. 130 establishes standards for the reporting and display
of comprehensive income in the financial statements.
Comprehensive income consists of net income and certain amounts
reported directly in stockholders' equity, such as the net
unrealized gains or losses on available for sale securities. The
statement requires only additional disclosures in the
consolidated financial statements; it does not affect Heartland's
financial position or results of operations. Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
SFAS No. 131,"Disclosure About Segments of an Enterprise and
Related Information," was effective for Heartland for the year
beginning January 1, 1998, and established disclosure
requirements for segment operations. The adoption had no effect
on Heartland's financial statement disclosures.
SFAS No. 132,"Employers' Disclosures About Pensions and Other
Postretirement Benefits," was effective for Heartland for the
year beginning January 1, 1998, and revises the disclosure
requirements for pension and other postretirement benefit plans.
The adoption had no effect on Heartland's financial statement
disclosures.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will be effective for Heartland for the year
beginning January 1, 2000. Heartland expects to adopt SFAS No.
133 when required. Management does not believe the adoption of
SFAS No. 133 will have a material impact on the consolidated
financial statements.
F. SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are
extensively regulated under federal and state law. As a result,
the growth and earnings performance of Heartland can be affected
not only by management decisions and general economic conditions,
but also by the requirements of applicable state and federal
statutes and regulations and the policies of various governmental
regulatory authorities, including the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), the FDIC, the
OTS, the Iowa Superintendent of Banking (the "Iowa
Superintendent"), the Illinois Commissioner of Banks and Real
Estate (the "Illinois Commissioner"), the Division of Banking of
the Wisconsin Department of Financial Institutions (the
"Wisconsin DFI"), the New Mexico Financial Institutions Division
(the "New Mexico Division"), the Internal Revenue Service and
state taxing authorities and the Securities and Exchange
Commission (the "SEC"). The effect of applicable statutes,
regulations and regulatory policies can be significant, and
cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions, such as Heartland and its subsidiaries,
regulate, among other things, the scope of business, investments,
reserves against deposits, capital levels relative to operations,
the nature and amount of collateral for loans, the establishment
of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to Heartland and its
subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the
protection of the FDIC's deposit insurance funds and the
depositors, rather than the shareholders, of financial
institutions.
The following is a summary of the material elements of the
regulatory framework that applies to Heartland and its
subsidiaries. It does not describe all of the statutes,
regulations and regulatory policies that apply to Heartland and
its subsidiaries, nor does it restate all of the requirements of
the statutes, regulations and regulatory policies that are
described. As such, the following is qualified in its entirety by
reference to the applicable statutes, regulations and regulatory
policies. Any change in applicable law, regulations or
regulatory policies may have a material effect on the business of
Heartland and its subsidiaries.
Recent Regulatory Developments
Pending Legislation
Legislation has been introduced in the Congress that would allow
bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities
and insurance activities. The expanded powers generally would be
available to a bank holding company only if the bank holding
company and its bank subsidiaries remain well-capitalized and
well-managed. Unlike prior financial modernization bills
considered by the Congress, the pending legislation does not
include provisions eliminating the federal savings association
charter and requiring all federal savings associations to convert
to banks. At this time, Heartland is unable to predict whether
the proposed legislation will be enacted and, therefore, is
unable to predict the impact such legislation may have on
Heartland and the Bank Subsidiaries.
Heartland
General
Heartland, as the sole shareholder of DB&T, GSB, RCB and WCB and
the controlling shareholder of NMB, is a bank holding company.
As a bank holding company, Heartland is registered with, and is
subject to regulation by, the Federal Reserve under the Bank
Holding Company Act, as amended (the "BHCA"). In accordance with
Federal Reserve policy, Heartland is expected to act as a source
of financial strength to the Bank Subsidiaries and to commit
resources to support the Bank Subsidiaries in circumstances where
Heartland might not otherwise do so. Under the BHCA, Heartland
is subject to periodic examination by the Federal Reserve.
Heartland is also required to file with the Federal Reserve
periodic reports of Heartland's operations and such additional
information regarding Heartland and its subsidiaries as the
Federal Reserve may require.
Heartland's ownership of FCB makes Heartland a savings and loan
holding company, as defined in the HOLA. Although savings and
loan holding companies generally are subject to supervision and
regulation by the OTS, companies that, like Heartland, are both
bank holding companies and savings and loan holding companies are
generally exempt from OTS supervision. Federal law, however,
requires the Federal Reserve to consult with the OTS, as
appropriate, in establishing the scope of a Federal Reserve
examination of any such holding company, to provide the OTS, upon
request, with copies of Federal Reserve examination reports and
other supervisory information concerning any such holding
company, and to cooperate with the OTS in any enforcement action
against any such holding company if the conduct at issue involves
the company's savings association subsidiary.
Investments and Activities
Under the BHCA, a bank holding company must obtain Federal
Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank
holding company if, after the acquisition, it would own or
control more than 5% of the shares of the other bank or bank
holding company (unless it already owns or controls the majority
of such shares); (ii) acquiring all or substantially all of the
assets of another bank; or (iii) merging or consolidating with
another bank holding company. Subject to certain conditions
(including certain deposit concentration limits established by
the BHCA), the Federal Reserve may allow a bank holding company
to acquire banks located in any state of the United States
without regard to whether the acquisition is prohibited by the
law of the state in which the target bank is located. In
approving interstate acquisitions, however, the Federal Reserve
is required to give effect to applicable state law limitations on
the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository
institution affiliates in the state in which the target bank is
located (provided that those limits do not discriminate against
out-of-state depository institutions or their holding companies)
and state laws which require that the target bank have been in
existence for a minimum period of time (not to exceed five years)
before being acquired by an out-of-state bank holding company.
The BHCA also generally prohibits Heartland from acquiring direct
or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in
any business other than that of banking, managing and controlling
banks or furnishing services to banks and their subsidiaries.
This general prohibition is subject to a number of exceptions.
The principal exception allows bank holding companies to engage
in, and to own shares of companies engaged in, certain businesses
found by the Federal Reserve to be "so closely related to banking
... as to be a proper incident thereto." Under current
regulations of the Federal Reserve, Heartland and its non-bank
subsidiaries are permitted to engage in a variety of banking-
related businesses, including the operation of a thrift, sales
and consumer finance, equipment leasing, the operation of a
computer service bureau (including software development), and
mortgage banking and brokerage. The BHCA generally does not
place territorial restrictions on the domestic activities of non-
bank subsidiaries of bank holding companies.
Federal law also prohibits any person or company from acquiring
"control" of an FDIC-insured depository institution or its
holding company without prior notice to the appropriate federal
bank regulator. "Control" is defined in certain cases as the
acquisition of 10% of the outstanding shares of an institution or
holding company.
Capital Requirements
Bank holding companies are required to maintain minimum levels of
capital in accordance with Federal Reserve capital adequacy
guidelines. If capital falls below minimum guideline levels, a
bank holding company, among other things, may be denied approval
to acquire or establish additional banks or non-bank businesses.
The Federal Reserve's capital guidelines establish the following
minimum regulatory capital requirements for bank holding
companies: a risk-based requirement expressed as a percentage of
total risk-weighted assets, and a leverage requirement expressed
as a percentage of total assets. The risk-based requirement
consists of a minimum ratio of total capital to total risk-
weighted assets of 8%, at least one-half of which must be Tier 1
capital. The leverage requirement consists of a minimum ratio of
Tier 1 capital to total assets of 3% for the most highly rated
companies, with a minimum requirement of 4% for all others. For
purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible
assets (other than certain mortgage servicing rights and
purchased credit card relationships). Total capital consists
primarily of Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion
of the company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements. Higher capital levels will be required if warranted
by the particular circumstances or risk profiles of individual
banking organizations. For example, the Federal Reserve's capital
guidelines contemplate that additional capital may be required to
take adequate account of, among other things, interest rate risk,
or the risks posed by concentrations of credit, nontraditional
activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant
growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all
intangible assets), well above the minimum levels.
As of December 31, 1998, Heartland had regulatory capital in
excess of the Federal Reserve's minimum requirements, with a risk-
based capital ratio of 12.13% and a leverage ratio of 8.58%.
Dividends
The Delaware General Corporation Law (the "DGCL") allows
Heartland to pay dividends only out of its surplus (as defined
and computed in accordance with the provisions of the DGCL) or if
Heartland has no such surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the
preceding fiscal year. Additionally, the Federal Reserve has
issued a policy statement with regard to the payment of cash
dividends by bank holding companies. The policy statement
provides that a bank holding company should not pay cash
dividends which exceed its net income or which can only be funded
in ways that weaken the bank holding company's financial health,
such as by borrowing. The Federal Reserve also possesses
enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe
or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the
payment of dividends by banks and bank holding companies.
Federal Securities Regulation
Heartland's common stock is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Consequently, Heartland is subject to the information, proxy
solicitation, insider trading and other restrictions and
requirements of the SEC under the Exchange Act.
The Bank Subsidiaries
General
DB&T is an Iowa-chartered bank, the deposit accounts of which are
insured by the FDIC's Bank Insurance Fund ("BIF"). As a BIF-
insured, Iowa-chartered bank, DB&T is subject to the examination,
supervision, reporting and enforcement requirements of the Iowa
Superintendent, as the chartering authority for Iowa banks, and
the FDIC, as administrator of the BIF.
GSB and RCB are Illinois-chartered banks, the deposit accounts of
which are insured by the BIF of the FDIC. As BIF-insured,
Illinois-chartered banks, GSB and RCB are subject to the
examination, supervision, reporting and enforcement requirements
of the Illinois Commissioner, as the chartering authority for
Illinois banks, and the FDIC, as administrator of the BIF.
WCB is a Wisconsin-chartered bank, the deposit accounts of which
are insured by the BIF of the FDIC. As a BIF-insured, Wisconsin-
chartered bank, WCB is subject to the examination, supervision,
reporting and enforcement requirements of the Wisconsin DFI, as
the chartering authority for Wisconsin banks, and the FDIC, as
administrator of the BIF.
NMB is a New Mexico-chartered bank, the deposit accounts of which
are insured by the BIF of the FDIC. As a BIF-insured, New Mexico-
chartered bank, NMB is subject to the examination, supervision,
reporting and enforcement requirements of the New Mexico
Division, as the chartering authority for New Mexico banks, and
the FDIC, as administrator of the BIF.
FCB is a federally chartered savings association, the deposits of
which are insured by the FDIC's Savings Association Insurance
Fund ("SAIF"). As a SAIF-insured, federally chartered savings
association, FCB is subject to the examination, supervision,
reporting and enforcement requirements of the OTS, as the
chartering authority for federal savings associations, and the
FDIC as administrator of the SAIF.
Deposit Insurance
As FDIC-insured institutions, the Bank Subsidiaries are required
to pay deposit insurance premium assessments to the FDIC. The
FDIC has adopted a risk-based assessment system under which all
insured depository institutions are placed into one of nine
categories and assessed insurance premiums based upon their
respective levels of capital and results of supervisory
evaluations. Institutions classified as well-capitalized (as
defined by the FDIC) and considered healthy pay the lowest
premium while institutions that are less than adequately
capitalized (as defined by the FDIC) and considered of
substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
During the year ended December 31, 1998, both BIF and SAIF
assessments ranged from 0% of deposits to 0.27% of deposits. For
the semi-annual assessment period beginning January 1, 1999, both
BIF and SAIF assessment rates will continue to range from 0% of
deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured
depository institution if the FDIC determines, after a hearing,
that the institution (i) has engaged or is engaging in unsafe or
unsound practices, (ii) is in an unsafe or unsound condition to
continue operations or (iii) has violated any applicable law,
regulation, order, or any condition imposed in writing by, or
written agreement with, the FDIC. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a
permanent termination of insurance if the institution has no
tangible capital. Management of Heartland is not aware of any
activity or condition that could result in termination of the
deposit insurance of the Bank Subsidiaries.
FICO Assessments
Since 1987, a portion of the deposit insurance assessments paid
by SAIF members has been used to cover interest payments due on
the outstanding obligations of the Financing Corporation
("FICO"). FICO was created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance
Corporation, the SAIF's predecessor insurance fund. As a result
of federal legislation enacted in 1996, beginning as of January
1, 1997, both SAIF members and BIF members became subject to
assessments to cover the interest payments on outstanding FICO
obligations. These FICO assessments are in addition to amounts
assessed by the FDIC for deposit insurance. Until January 1,
2000, the FICO assessments made against BIF members may not
exceed 20% of the amount of the FICO assessments made against
SAIF members. Between January 1, 2000 and the final maturity of
the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on
a pro rata basis. During the year ended December 31, 1998, the
FICO assessment rate for SAIF members ranged between
approximately 0.061% of deposits and approximately 0.063% of
deposits, while the FICO assessment rate for BIF members ranged
between approximately 0.012% of deposits and approximately 0.013%
of deposits. During the year ended December 31, 1998, the Bank
Subsidiaries paid FICO assessments totaling $118.
Supervisory Assessments
All Iowa banks, Illinois banks, Wisconsin banks, New Mexico banks
and federal savings associations are required to pay supervisory
assessments to the Iowa Superintendent, the Illinois
Commissioner, the Wisconsin DFI, the New Mexico Division and the
OTS, respectively, to fund the operations of such agencies. In
general, the amount of such supervisory assessments is based upon
each institution's total assets. During the year ended December
31, 1998, the Bank Subsidiaries paid supervisory assessments
totaling $42.
Capital Requirements
The FDIC has established the following minimum capital standards
for state-chartered insured non-member banks, such as DB&T, GSB,
RCB, WCB and NMB: a leverage requirement consisting of a minimum
ratio of Tier 1 capital to total assets of 3% for the most highly-
rated banks with a minimum requirement of at least 4% for all
others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of
8%, at least one-half of which must be Tier 1 capital. For
purposes of these capital standards, Tier 1 capital and total
capital consist of substantially the same components as Tier 1
capital and total capital under the Federal Reserve's capital
guidelines for bank holding companies (see "--Heartland--Capital
Requirements").
Pursuant to the HOLA and OTS regulations, savings associations,
such as FCB, are subject to the following minimum capital
requirements: a core capital requirement, consisting of a
minimum ratio of core capital to total assets of 3%; a tangible
capital requirement, consisting of a minimum ratio of tangible
capital to total assets of 1.5%; and a risk-based capital
requirement, consisting of a minimum ratio of total capital to
total risk-weighted assets of 8%, at least one-half of which must
consist of core capital. Core capital consists primarily of
permanent stockholders' equity less (i) intangible assets other
than certain supervisory goodwill, certain mortgage servicing
rights and certain purchased credit card relationships and (ii)
investments in subsidiaries engaged in activities not permitted
for national banks. Tangible capital is substantially the same as
core capital except that all intangible assets other than certain
mortgage servicing rights must be deducted. Total capital
consists primarily of core capital plus certain debt and equity
instruments that do not qualify as core capital and a portion of
the Bank's allowances for loan and leases losses.
The capital requirements described above are minimum
requirements. Higher capital levels will be required if warranted
by the particular circumstances or risk profiles of individual
institutions. For example, the regulations of the FDIC and the
OTS provide that additional capital may be required to take
adequate account of, among other things, interest rate risk or
the risks posed by concentrations of credit or nontraditional
activities.
During the year ended December 31, 1998, none of the Bank
Subsidiaries was required by its primary federal regulator to
increase its capital to an amount in excess of the minimum
regulatory requirement. As of December 31, 1998, each of the
Bank Subsidiaries exceeded its minimum regulatory capital
requirements, as follows:
Total
Risk-Based Leverage Tangible
Capital Capital Capital
Ratio Ratio Ratio
--------- --------- ---------
DB&T 10.10 7.38 N/A
GSB 13.66 7.76 N/A
RCB 11.23 7.03 N/A
WCB 13.60 9.14 N/A
NMB 45.85 40.62 N/A
FCB 13.53 8.36 8.25
The OTS has proposed to amend its regulations to establish a
minimum core capital requirement of 3% of total assets for any
savings association assigned a composite rating of 1 as of the
association's most recent OTS examination, with a minimum core
capital requirement of 4% of total assets for all other savings
associations. It is not anticipated that the adoption of this
proposal would affect FCB's ability to comply with the OTS
capital requirements.
Federal law provides the federal banking regulators with broad
power to take prompt corrective action to resolve the problems of
undercapitalized institutions. The extent of the regulators'
powers depends on whether the institution in question is "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation.
Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include: requiring
the institution to submit a capital restoration plan; limiting
the institution's asset growth and restricting its activities;
requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired;
restricting transactions between the institution and its
affiliates; restricting the interest rate the institution may pay
on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the
payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution. As of
December 31, 1998, each of the Bank Subsidiaries was "well
capitalized," as defined by applicable regulations.
Additionally, institutions insured by the FDIC may be liable for
any loss incurred by, or reasonably expected to be incurred by,
the FDIC in connection with the default of commonly controlled
FDIC insured depository institutions or any assistance provided
by the FDIC to commonly controlled FDIC insured depository
institutions in danger of default. Because Heartland owns more
than 25% of the outstanding stock of each of the Bank
Subsidiaries, the Bank Subsidiaries are deemed to be commonly
controlled.
Dividends
In general, under applicable state law, DB&T, GSB, RCB, WCB and
NMB may not pay dividends in excess of their undivided profits.
OTS regulations impose limitations upon all capital distributions
by savings associations, including cash dividends. Under the OTS
rule that is presently in effect, an institution that exceeds all
applicable capital requirements both before and after the
proposed capital distribution (a "Tier 1 Institution") may,
after prior notice to, but without the approval of, the OTS, make
capital distributions during a calendar year in an aggregate
amount of up to the higher of (i) 100% of its net income to date
during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (i.e., the amounts of its
capital in excess of its capital requirements) at the beginning
of the calendar year, or (ii) 75% of its net income over the most
recent preceding four quarter period. Any additional capital
distributions would require prior OTS approval. As of December
31, 1998, FCB was a Tier 1 Institution.
The OTS has amended its regulations governing capital
distributions (including cash dividends) by savings associations.
The amended rule, which takes effect April 1, 1999, will require
prior OTS approval for any capital distribution by a savings
association that is not eligible for expedited processing under
the OTS's application processing regulations. In order to
qualify for expedited processing, a savings association must:
(i) have a composite examination rating of 1 or 2; (ii) have a
Community Reinvestment Act rating of satisfactory or better;
(iii) have a compliance rating of 1 or 2; (iv) meet all
applicable regulatory capital requirements; and (v) not have been
notified by the OTS that it is a problem association or an
association in troubled condition. Savings associations that
qualify for expedited processing will be required to obtain OTS
approval prior to making a capital distribution if: (a) the
amount of the proposed capital distribution, when aggregated with
all other capital distributions during the same calendar year,
will exceed an amount equal to the association's year-to-date net
income plus its retained net income for the preceding two years;
(b) after giving effect to the distribution, the association will
not be at least "adequately capitalized" (as defined by OTS
regulation); or (c) the distribution would violate a prohibition
contained in an applicable statute, regulation or agreement with
the OTS or the FDIC or violate a condition imposed in connection
with an OTS-approved application or notice. The amended
regulation will continue to require that the OTS be given prior
notice of certain types of capital distributions, including any
capital distribution by a savings association that, like FCB, is
a subsidiary of a holding company, or by a savings association
that, after giving effect to the distribution, would not be "well-
capitalized" (as defined by OTS regulation).
The payment of dividends by any financial institution or its
holding company is affected by the requirement to maintain
adequate capital pursuant to applicable capital adequacy
guidelines and regulations, and a financial institution generally
is prohibited from paying any dividends if, following payment
thereof, the institution would be undercapitalized. As described
above, each of the Bank Subsidiaries exceeded its minimum capital
requirements under applicable guidelines as of December 31, 1998.
Further, under applicable regulations of the OTS, FCB may not pay
dividends in an amount which would reduce its capital below the
amount required for the liquidation account established in
connection with FCB's conversion from the mutual to the stock
form of ownership in 1991. As of December 31, 1998,
approximately $33 million was available to be paid as dividends
to Heartland by the Bank Subsidiaries. Notwithstanding the
availability of funds for dividends, however, the banking
regulators may prohibit the payment of any dividends by the Bank
Subsidiaries if such payment is deemed to constitute an unsafe or
unsound practice.
Insider Transactions
The Bank Subsidiaries are subject to certain restrictions imposed
by federal law on extensions of credit to Heartland and its
subsidiaries, on investments in the stock or other securities of
Heartland and its subsidiaries and the acceptance of the stock or
other securities of Heartland or its subsidiaries as collateral
for loans. Certain limitations and reporting requirements are
also placed on extensions of credit by the Bank Subsidiaries to
their respective directors and officers, to directors and
officers of Heartland and its subsidiaries, to principal
stockholders of Heartland, and to "related interests" of such
directors, officers and principal stockholders. In addition,
federal law and regulations may affect the terms upon which any
person becoming a director or officer of Heartland or one of its
subsidiaries or a principal stockholder of Heartland may obtain
credit from banks with which one of the Bank Subsidiaries
maintains a correspondent relationship.
Safety and Soundness Standards
The federal banking agencies have adopted guidelines which
establish operational and managerial standards to promote the
safety and soundness of federally insured depository
institutions. The guidelines set forth standards for internal
controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, asset quality and
earnings. In addition, in October 1998, the federal banking
regulators issued safety and soundness standards for achieving
Year 2000 compliance, including standards for developing and
managing Year 2000 project plans, testing remediation efforts and
planning for contingencies.
In general, the safety and soundness guidelines prescribe the
goals to be achieved in each area, and each institution is
responsible for establishing its own procedures to achieve those
goals. If an institution fails to comply with any of the
standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan
for achieving and maintaining compliance. If an institution fails
to submit an acceptable compliance plan, or fails in any material
respect to implement a compliance plan that has been accepted by
its primary federal regulator, the regulator is required to issue
an order directing the institution to cure the deficiency. Until
the deficiency cited in the regulator's order is cured, the
regulator may restrict the institution's rate of growth, require
the institution to increase its capital, restrict the rates the
institution pays on deposits or require the institution to take
any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by
the safety and soundness guidelines may also constitute grounds
for other enforcement action by the federal banking regulators,
including cease and desist orders and civil money penalty
assessments.
Branching Authority
Iowa law strictly regulates the establishment of bank offices.
Under the Iowa Banking Act, an Iowa state bank, such as DB&T, may
not establish a bank office outside the boundaries of the
counties contiguous to or cornering upon the county in which the
principal place of business of the bank is located. Further,
Iowa law prohibits an Iowa bank from establishing de novo
branches in a municipality other than the municipality in which
the bank's principal place of business is located, if another
bank already operates one or more offices in the municipality in
which the de novo branch is to be located. The number of offices
an Iowa bank may establish in a particular municipality is also
limited depending upon the municipality's population.
Illinois banks, such as GSB and RCB, have authority under
Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory
approvals. Likewise, under the laws of Wisconsin and New Mexico,
Wisconsin banks and New Mexico banks, respectively, have
statewide branching authority, subject to regulatory approval.
Under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act"), both state and national
banks are allowed to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits
that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of new
interstate branches or the acquisition of individual branches of
a bank in another state (rather than the acquisition of an out-of-
state bank in its entirety) is allowed by the Riegle-Neal Act
only if specifically authorized by state law. The legislation
allowed individual states to "opt-out" of certain provisions of
the Riegle-Neal Act by enacting appropriate legislation prior to
June 1, 1997. The laws of Iowa, Illinois, Wisconsin and New
Mexico permit interstate bank mergers, subject to certain
conditions, including a prohibition against interstate mergers
involving an Iowa, Illinois, Wisconsin or New Mexico bank,
respectively, that has been in existence and continuous operation
for fewer than five years.
Federally chartered savings associations which qualify as
"domestic building and loan associations," as defined in the
Internal Revenue Code, or meet the qualified thrift lender test
(see "-The Bank -- Qualified Thrift Lender Test") have the
authority, subject to receipt of OTS approval, to establish or
acquire branch offices anywhere in the United States. If a
federal savings association fails to qualify as a "domestic
building and loan association," as defined in the Internal
Revenue Code, and fails to meet the qualified thrift lender test
the association may branch only to the extent permitted for
national banks located in the savings association's home state.
As of December 31, 1998, First Community qualified as a "domestic
building and loan association," as defined in the Internal
Revenue Code and met the qualified thrift lender test.
State Bank Activities
Under federal law and FDIC regulations, FDIC insured state banks
are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are
not permissible for a national bank. Federal law and FDIC
regulations also prohibit FDIC insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as
principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and
continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant
risk to the deposit insurance fund of which the bank is a member.
These restrictions have not had, and are not currently expected
to have, a material impact on the operations of DB&T, GSB, RCB,
WCB or NMB.
Qualified Thrift Lender Test
The HOLA requires every savings association to satisfy a
"qualified thrift lender" ("QTL") test. Under the HOLA, a
savings association will be deemed to meet the QTL test if it
either (i) maintains at least 65% of its "portfolio assets" in
"qualified thrift investments" on a monthly basis in nine out of
every 12 months or (ii) qualifies as a "domestic building and
loan association," as defined in the Internal Revenue Code. For
purposes of the QTL test, "qualified thrift investments" consist
of mortgage loans, mortgage-backed securities, education loans,
small business loans, credit card loans and certain other housing
and consumer-related loans and investments. "Portfolio assets"
consist of a savings association's total assets less goodwill and
other intangible assets, the association's business properties
and a limited amount of the liquid assets maintained by the
association pursuant to the liquidity requirements of the HOLA
and OTS regulations (see "--The Bank--Liquidity Requirements").
A savings association that fails to meet the QTL test must either
convert to a bank charter or operate under certain restrictions
on its operations and activities. Additionally, within one year
following the loss of QTL status, the holding company for the
savings association will be required to register as, and will be
deemed to be, a bank holding company. A savings association that
fails the QTL test may requalify as a QTL but it may do so only
once. As of December 31, 1998, FCB satisfied the QTL test, with
a ratio of qualified thrift investments to portfolio assets of
83.87%, and qualified as a "domestic building and loan
association," as defined in the Internal Revenue Code.
Liquidity Requirements
OTS regulations currently require each savings association to
maintain, for each calendar quarter, an average daily balance of
liquid assets (including cash, certain time deposits, bankers'
acceptances, and specified United States Government, state or
federal agency obligations) equal to at least 4% of either (i)
its liquidity base (i.e., its net withdrawable accounts plus
borrowings repayable in 12 months or less) as of the end of the
preceding calendar quarter or (ii) the average daily balance of
its liquidity base during the preceding calendar quarter. This
liquidity requirement may be changed from time to time by the OTS
to an amount within a range of 4% to 10% of the liquidity base,
depending upon economic conditions and the deposit flows of
savings associations. The OTS may also require a savings
association to maintain a higher level of liquidity than the
minimum 4% requirement if the OTS deems necessary to ensure the
safe and sound operation of the association. Penalties may be
imposed for failure to meet liquidity ratio requirements. At
December 31, 1998, FCB was in compliance with OTS liquidity
requirements, with a liquidity ratio of 10.43%.
Federal Reserve System
Federal Reserve regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular
checking accounts), as follows: for transaction accounts
aggregating $46.5 million or less, the reserve requirement is 3%
of total transaction accounts; and for transaction accounts
aggregating in excess of $46.5 million, the reserve requirement
is $1.395 million plus 10% of the aggregate amount of total
transaction accounts in excess of $46.5 million. The first $4.9
million of otherwise reservable balances are exempted from the
reserve requirements. These reserve requirements are subject to
annual adjustment by the Federal Reserve. The Bank Subsidiaries
are in compliance with the foregoing requirements. The balances
used to meet the reserve requirements imposed by the Federal
Reserve may be used to satisfy the liquidity requirements to
which FCB is subject under the HOLA and OTS regulations.
G. GOVERNMENTAL MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of Heartland are affected by the policies of
regulatory authorities, including the Federal Reserve System
whose 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 Heartland. Future policies of
the Federal Reserve System and other authorities cannot be
predicted, nor can their effect on future earnings be predicted.
ITEM 2.
PROPERTIES
The principal offices of Heartland are located in DB&T's main
office at 1398 Central Avenue, Dubuque, Iowa 52001. This office
is owned by DB&T and consists of a three-story glazed terra cotta
building constructed in 1922. The main office building currently
comprises approximately 59,500 square feet, all of which is
occupied by DB&T and Heartland. Construction of a three-story
addition of approximately 32,000 square feet was completed in
1994.
DB&T has a total of seven branch offices in addition to its main
office. Five of these offices are located in the city of Dubuque,
and three branches are located in the surrounding Iowa
communities of Epworth, Farley and Holy Cross. DB&T owns all of
its branch offices without material encumbrances, except its
branch located at Kennedy Mall. DB&T owns the buildings but
leases the land under long term agreements at its Kennedy Mall
branch and Main Street office location. The DB&T subsidiaries,
operate out of the main office.
Citizens' Dubuque office is located in the Main Street Office
location of DB&T. The Madison office for Citizens is located in
a leased building at 1771 Thierer Road, Madison, Wisconsin 53707,
and the Appleton office is located in a leased building at 740
West Northland Avenue, Appleton, Wisconsin 54914. The Loves Park
office is located in a leased building at 6345 North Second
Street, Loves Park, Illinois 61132.
GSB's main office is located at 971 Gear Street on the west side
of Galena, Illinois. Construction of this new 18,000 square foot
brick banking facility was completed in 1996. A drive-up facility
is also located in downtown Galena. One branch office is located
in Stockton, Illinois, which is located approximately 24 miles
east of Galena. Each of these offices is owned without material
encumbrances.
The main office of FCB is located at 4th and Concert Street,
Keokuk, Iowa 52632. The property was purchased by FCB in 1983 and
consists of a one-story brick building constructed in 1951. This
building comprises approximately 6,000 square feet, all of which
is occupied by FCB. During 1996, FCB opened a 2,100 square foot
branch on the northwest side of Keokuk. FCB also has one branch
office located in Carthage, Illinois, which is located
approximately 15 miles east of Keokuk, Iowa. The one-story wooden
frame building constructed in 1976 comprises approximately 3,000
square feet, all of which is occupied by FCB. Each of these
offices are owned without material encumbrances.
RCB operates from an 8,000 square foot one-story brick building
located at 6700 East Riverside Boulevard, Rockford, Illinois
61114.
The main office of WCB is located at 580 N. Main Street, Cottage
Grove, Wisconsin 53527. The property was constructed by WCB in
1972 and consists of a one-story stucco building. This building
comprises approximately 6,000 square feet, all of which is
occupied by WCB. A branch facility was purchased in Middleton,
Wisconsin in 1997. This branch facility is a one-story wood
building totaling 2,500 square feet, all of which is occupied by
WCB and is owned without material encumbrances.
NMB operates from its leased facility, an 8,665 square foot
facility at Suite 100, 6501 Americas Parkway NE, Albuquerque, New
Mexico 87110.
ULTEA leases a 1900 square foot facility at 2976 Triverton Pike,
Madison, Wisconsin 53711. During 1998, Heartland acquired all of
the assets and assumed certain liabilities of Arrow Motors, Inc.,
a Wisconsin corporation, doing business as Lease Associates Group
("LAG"). With the purchase of LAG, ULTEA operates a second leased
facility of 3000 square feet at 1433 West Silver Springs Drive,
Milwaukee, Wisconsin 53209.
ITEM 3.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
Heartland or any of its subsidiaries is a party or of which any
of their property is the subject.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1998 to a
vote of security holders.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Heartland's Common Stock was held by approximately 800
shareholders of record as of March 22, 1999, and is traded in the
over-the-counter market.
The following table shows, for the periods indicated, the range
of reported prices per share of Heartland's Common Stock in the
over-the-counter market. These quotations represent inter-dealer
prices without retail markups, markdowns or commissions and do
not necessarily represent actual transactions.
Heartland Common Stock Actual
Calendar Quarter High Low
1997:
First $12 $13 3/16
Second 12 5/8 13 21/32
Third 12 1/2 15 1/4
Fourth 13 15
1998:
First $14 5/16 $16
Second 14 16 7/8
Third 15 3/4 19
Fourth 16 3/4 19
Cash dividends have been declared by Heartland quarterly during
the past two years ending December 31, 1998. The following table
sets forth the cash dividends per share paid on Heartland's
Common Stock for the past two years:
Calendar Quarter
1998 1997
First $.075 $.065
Second .075 .065
Third .08 .065
Fourth .08 .065
ITEM 6.
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
For the Years Ended December 31,
1998 1997 1996
--------------------------------
STATEMENT OF INCOME DATA
Interest income $ 64,517 $ 59,261 $ 51,886
Interest expense 36,304 31,767 27,644
-------- -------- --------
Net interest income 28,213 24,494 24,242
Provision for loan and
lease losses 951 1,179 1,408
-------- -------- --------
Net interest income after
provision for loan and
lease losses 27,262 26,215 22,834
Noninterest income 17,297 8,565 7,364
Noninterest expense 31,781 22,927 19,507
Provision for income taxes 3,757 3,338 2,685
-------- -------- --------
Net income $ 9,021 $ 8,515 $ 8,006
======== ======== ========
PER COMMON SHARE DATA (1)
Net income-basic $ 0.95 $ 0.90 $ 0.85
Net income-diluted 0.94 $ 0.89 0.84
Cash dividends 0.31 .26 .20
Dividend payout ratio 32.48% 28.96% 23.53%
Book value $ 8.84 $ 8.19 $ 7.42
Weighted average shares
outstanding 9,463,313 9,476,342 9,430,018
BALANCE SHEET DATA
Investments and federal
funds sold $259,964 $234,666 $183,966
Total loans and leases,
net of unearned 590,133 556,406 484,085
Allowance for loan and lease
losses 7,945 7,362 6,191
Total assets 953,785 852,060 736,552
Total deposits 717,877 623,532 558,343
Long-term obligations 57,623 43,023 42,506
Stockholders' equity 84,270 77,772 70,259
EARNINGS PERFORMANCE DATA
Return on average total assets 1.01% 1.09% 1.16%
Return on average stockholders'
equity 11.26 11.59 12.00
Net interest margin ratio (2) 3.58 3.89 3.98
ASSET QUALITY RATIOS
Nonperforming assets to total
assets 0.28% 0.34% 0.34%
Nonperforming loans and leases
to total loans and leases 0.30 0.37 0.41
Net loan and lease charge-offs
to average loans and leases 0.07 0.08 0.17
Allowance for loan and lease
losses to total loans and
leases 1.35 1.32 1.28
Allowance for loan and lease
losses to nonperforming
loans and leases 453.74 362.30 313.63
CAPITAL RATIOS
Average equity to average
assets 9.01% 9.39% 9.66%
Total capital to risk-adjusted
assets 12.13 12.71 14.28
Tier 1 leverage 8.58 8.76 9.54
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
For the Years Ended
December 31,
1995 1994
--------------------
STATEMENT OF INCOME DATA
Interest income $49,149 $ 43,373
Interest expense 25,529 20,128
-------- --------
Net interest income 23,620 23,245
Provision for loan and lease losses 820 811
-------- --------
Net interest income after provision
for loan and lease losses 22,800 22,434
Noninterest income 4,981 4,965
Noninterest expense 17,323 17,244
Provision for income taxes 2,884 3,015
-------- ---------
Net income $ 7,574 $ 7,140
======== ========
PER COMMON SHARE DATA (1)
Net income-basic $ 0.79 $ 0.74
Net income-diluted 0.78 0.74
Cash dividends .15 .13
Dividend payout ratio 19.03% 17.99%
Book value $ 6.88 $ 5.88
Weighted average shares
outstanding 9,610,368 9,691,296
BALANCE SHEET DATA
Investments and federal funds sold $171,726 $162,968
Total loans and leases, net of unearned 454,905 422,216
Allowance for loan and lease losses 5,580 5,124
Total assets 677,313 626,490
Total deposits 534,587 513,239
Long-term obligations 45,400 23,562
Stockholders' equity 64,506 56,930
EARNINGS PERFORMANCE DATA
Return on average total assets 1.18% 1.18%
Return on average stockholders' equity 12.28 12.82
Net interest margin ratio (2) 4.13 4.32
ASSET QUALITY RATIOS
Nonperforming assets to total assets 0.28% 0.17%
Nonperforming loans and leases
to total loans and leases 0.26 0.21
Net loan and lease charge-offs
to average loans and leases
Allowance for loan and lease losses 0.08 0.03
to total loans and leases 1.23 1.21
Allowance for loan and lease losses
to nonperforming loans and leases 463.84 580.95
CAPITAL RATIOS
Average equity to average assets 9.59% 9.22%
Total capital to risk-adjusted assets 14.46 15.04
Tier 1 leverage 9.47 9.32
(1) Per share data has been restated to reflect the two-for-one
stock split effected in the form of a stock dividend on June 30,
1998.
(2) Tax equivalent using a 34% tax rate.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS (Dollars in thousands)
The following presents management's discussion and analysis of
the consolidated financial condition and results of operations of
Heartland Financial USA, Inc. ("Heartland") as of the dates and
for the periods indicated. This discussion should be read in
conjunction with the Selected Financial Data, Heartland's
Consolidated Financial Statements and the Notes thereto and other
financial data appearing elsewhere in this report.
The consolidated financial statements include the accounts of
Heartland and its subsidiaries: Dubuque Bank and Trust Company
("DB&T"); Galena State Bank and Trust Company ("GSB"); Riverside
Community Bank ("RCB"); Wisconsin Community Bank ("WCB"); New
Mexico Bank & Trust ("NMB"); First Community Bank, FSB ("FCB");
Citizens Finance Co. ("Citizens"); ULTEA, Inc. ("ULTEA"); DB&T
Insurance, Inc.; DB&T Community Development Corp.; DBT Investment
Corporation and Keokuk Bancshares, Inc. (dba KBS Investment
Corp.). All of Heartland's subsidiaries are wholly-owned except
for NMB, of which Heartland is an 80% owner.
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Heartland intends such forward-looking statements to
be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe
harbor provisions. Forward-looking statements, which are based
on certain assumptions and describe future plans, strategies and
expectations of Heartland are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. Heartland's
ability to predict results or the actual effect of future plans
or strategies is inherently uncertain. Factors which could have
a material adverse affect on the operations and future prospects
of Heartland and the subsidiaries include, but are not limited
to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of the loan
or investment portfolios, demand for loan products, deposit
flows, competition, demand for financial services in Heartland's
market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be
placed on such statements. Further information concerning
Heartland and its business, including additional factors that
could materially affect Heartland's financial results, is
included in Heartland's filings with the Securities and Exchange
Commission.
OVERVIEW
Heartland recorded its eighth consecutive year of increased
annual earnings during 1998, up $506 or 5.94% from 1997. On a
basic per common share basis, the 1998 earnings increased 5.56%.
Return on common equity was 11.26% and return on assets was 1.01%
for 1998 compared to 11.59% and 1.09% for 1997, respectively. Net
income increased $509 or 6.36% in 1997 from 1996. On a basic per
common share basis, 1997 net income increased 5.88% from 1996.
Return on common equity was 11.59% and return on assets was 1.09%
for 1997 compared to 12.00% and 1.16%, respectively, for 1996.
These sustained increases in earnings are particularly gratifying
given the additional overhead expended to develop the growth
initiatives which Heartland had underway during the previous two
years. Total assets grew $101,725 or 11.94% to $953,785 at
December 31, 1998, and $115,508 or 15.68% to $852,060 at December
31, 1997. At the same time, total deposits increased $94,345 or
15.13% during 1998 and $65,189 or 11.68% during 1997. Loans and
leases were up $33,727 or 6.06% at December 31, 1998, and $72,321
or 14.94% at December 31, 1997. The initiatives undertaken to
generate this growth and sustain earnings included:
The spring 1998 de novo expansion into Albuquerque, New Mexico
with NMB.
Expansion into the vehicle leasing and fleet management
business with the purchase of ULTEA in late 1996 and Lease
Associates Group ("LAG") in the summer of 1998.
The 1997 acquisition of WCB and its early 1998 opening of a
branch facility in Middleton, Wisconsin.
The conversion of all Heartland banks to new banking software
in early 1997.
Enhancement of banking operations at RCB, Heartland's 1995 de
novo banking operation in Rockford, Illinois.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is the difference between interest income
earned on earning assets and interest expense paid on interest
bearing liabilities. As such, net interest income is affected by
changes in the volume and yields on earning assets and the volume
and rates paid on interest bearing liabilities. Net interest
margin is the ratio of tax equivalent net interest income to
average earning assets.
Net interest income on a fully tax equivalent basis was $28,999,
$28,280 and $25,476 for 1998, 1997 and 1996, respectively, an
increase of 2.54% for 1998 and 11.01% for 1997. Expressed as a
percentage of average earning assets, Heartland's net interest
margin decreased to 3.58% in 1998 and 3.89% in 1997, compared to
3.98% in 1996. These decreases occurred for several reasons:
As a result of the acquisitions of ULTEA and LAG, additional
interest expense was incurred on debt utilized to fund the
vehicles under operating leases while the income derived from
these leases is recorded as noninterest income.
A decline and flattening of the yield curve resulted in an
acceleration of paydowns in the mortgage-backed securities and
loan portfolio and pressure from loan customers to lower rates
charged on their balances.
The return on Heartland's securities portfolio declined as
several higher-yielding securities matured or were called and
the average life of the portfolio was reduced as prepayments
accelerated on the mortgage-backed securities portfolio.
Growth in noninterest bearing deposits remained relatively
flat during 1997.
Heartland continues to manage its balance sheet on a proactive
basis. The following table sets forth certain information
relating to Heartland's average consolidated balance sheets and
reflects the yield on average earning assets and the cost of
average interest bearing liabilities for the years indicated.
Such yields and costs are derived by dividing income or expense
by the average balance of assets or liabilities. Average balances
are derived from daily balances, and nonaccrual loans are
included in each respective loan category.
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
For the Year Ended
December 31, 1998
Average
Balance Interest Rate
------- -------- ----
EARNING ASSETS
Securities:
Taxable $196,206 $ 11,515 5.87%
Nontaxable (1) 20,507 1,716 8.37
--------- --------- ------
Total securities 216,713 13,231 6.11
--------- --------- ------
Interest bearing deposits 8,313 386 4.64
Federal funds sold 29,830 1,582 5.30
--------- --------- ------
Loans and leases:
Commercial and commercial
real estate (1) 249,326 21,523 8.63
Residential mortgage 162,545 12,854 7.91
Agricultural and agricultural
real estate (1) 75,685 6,751 8.92
Consumer 66,138 6,702 10.13
Direct financing leases, net 8,367 625 7.47
Fees on loans - 1,649 -
Less: allowance for loan
and lease losses (7,944) - -
--------- --------- ------
Net loans and leases 554,117 50,104 9.04
--------- --------- ------
Total earning assets 808,973 65,303 8.07
--------- --------- ------
NONEARNING ASSETS
Total nonearning assets 80,317 - -
--------- --------- ------
TOTAL ASSETS $889,290 $ 65,303 7.34%
========= ========= ======
INTEREST BEARING LIABILITIES
Interest bearing deposits:
Savings accounts $266,282 $ 9,512 3.57%
Time, $100,000 and over 51,283 2,905 5.66
Other time deposits 282,142 16,228 5.75
Short-term borrowings 78,484 4,076 5.19
Other borrowings 56,137 3,583 6.38
--------- --------- ------
Total interest bearing
liabilities 734,328 36,304 4.94
--------- --------- ------
NONINTEREST BEARING LIABILITIES
Noninterest bearing deposits 60,514 - -
Accrued interest and other
liabilities 14,343 - -
--------- --------- ------
Total noninterest bearing
liabilities 74,857 - -
--------- --------- ------
Stockholders' Equity 80,105 - -
--------- --------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $889,290 $ 36,304 4.08%
========= ========= ======
Net interest income (1) $ 28,999
=========
Net interest income
to total earning assets (1) 3.58%
======
Interest bearing liabilities
to earning assets 90.77%
=========
(1) Tax equivalent basis is calculated using an effective tax
rate of 34%.
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
For the Year Ended
December 31, 1997
Average
Balance Interest Rate
------- -------- ----
EARNING ASSETS
Securities:
Taxable $169,086 $ 10,393 6.15%
Nontaxable (1) 19,700 1,773 9.00
--------- --------- ------
Total securities 188,786 12,166 6.44
--------- --------- ------
Interest bearing deposits 2,972 98 3.30
Federal funds sold 12,570 681 5.42
--------- --------- ------
Loans and leases:
Commercial and commercial
real estate (1) 222,157 19,683 8.86
Residential mortgage 178,362 14,083 7.90
Agricultural and agricultural
real estate (1) 66,294 6,037 9.11
Consumer 55,218 5,672 10.27
Direct financing leases, net 6,739 501 7.43
Fees on loans - 1,126 -
Less: allowance for loan
and lease losses (6,998) - -
--------- --------- ------
Net loans and leases 521,772 47,102 9.03
--------- --------- ------
Total earning assets 726,100 60,047 8.27
--------- --------- ------
NONEARNING ASSETS
Total nonearning assets 56,596 - -
--------- --------- ------
TOTAL ASSETS $782,696 $ 60,047 7.67%
========= ========= ======
INTEREST BEARING LIABILITIES
Interest bearing deposits:
Savings accounts $237,730 $ 8,317 3.50%
Time, $100,000 and over 34,913 1,961 5.62
Other time deposits 268,201 15,487 5.77
Short-term borrowings 70,313 3,740 5.32
Other borrowings 36,406 2,262 6.21
--------- --------- ------
Total interest bearing
liabilities 647,563 31,767 4.91
--------- --------- ------
NONINTEREST BEARING LIABILITIES
Noninterest bearing deposits 51,770 - -
Accrued interest and other
liabilities 9,906 - -
--------- --------- ------
Total noninterest bearing
liabilities 61,676 - -
--------- --------- ------
Stockholders' Equity 73,457 - -
--------- --------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $782,696 $ 31,767 4.06%
========= ========= ======
Net interest income (1) $ 28,280
=========
Net interest income
to total earning assets (1) 3.89%
======
Interest bearing liabilities
to earning assets 89.18%
=========
(1) Tax equivalent basis is calculated using an effective tax
rate of 34%.
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
For the Year Ended
December 31, 1996
Average
Balance Interest Rate
------- -------- ----
EARNING ASSETS
Securities:
Taxable $136,107 $ 8,392 6.17%
Nontaxable (1) 31,005 3,108 10.02
--------- --------- ------
Total securities 167,112 11,500 6.88
--------- --------- ------
Interest bearing deposits 4,332 163 3.76
Federal funds sold 11,532 610 5.29
--------- --------- ------
Loans and leases:
Commercial and commercial
real estate (1) 195,372 17,058 8.73
Residential mortgage 160,511 12,637 7.87
Agricultural and agricultural
real estate (1) 58,975 5,377 9.12
Consumer 41,302 4,250 10.29
Direct financing leases, net 7,502 549 7.32
Fees on loans - 976 -
Less: allowance for loan
and lease losses (6,026) - -
--------- --------- ------
Net loans and leases 457,636 40,847 8.93
--------- --------- ------
Total earning assets 640,612 53,120 8.29
--------- --------- ------
NONEARNING ASSETS
Total nonearning assets 50,473 - -
--------- --------- ------
TOTAL ASSETS $691,085 $ 53,120 7.69%
========= ========= ======
INTEREST BEARING LIABILITIES
Interest bearing deposits:
Savings accounts $214,401 $ 7,474 3.49%
Time, $100,000 and over 37,806 2,131 5.64
Other time deposits 239,300 13,585 5.68
Short-term borrowings 37,100 1,943 5.24
Other borrowings 41,936 2,511 5.99
--------- --------- ------
Total interest bearing
liabilities 570,543 27,644 4.85
--------- --------- ------
NONINTEREST BEARING LIABILITIES
Noninterest bearing deposits 45,205 - -
Accrued interest and other
liabilities 8,606 - -
--------- --------- ------
Total noninterest bearing
liabilities 53,811 - -
--------- --------- ------
Stockholders' Equity 66,731 - -
--------- --------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $691,085 $ 27,644 4.00%
========= ========= ======
Net interest income (1) $ 25,476
=========
Net interest income
to total earning assets (1) 3.98%
======
Interest bearing liabilities
to earning assets 89.06%
=========
(1) Tax equivalent basis is calculated using an effective tax
rate of 34%.
The following table allocates the changes in net interest income
to differences in either average balances or average rates for
earning assets and interest bearing liabilities. The changes have
been allocated proportionately to the change due to volume and
change due to rate. Interest income is measured on a tax
equivalent basis using a 34% tax rate.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
For the Year Ended
December 31,
1998 Compared to 1997
Change Due to
Volume Rate Net
-----------------------
EARNING ASSETS/INTEREST INCOME
Securities
Taxable $1,668 $ (546) $1,122
Nontaxable 72 (129) (57)
Interest bearing deposits 176 112 288
Federal funds sold 935 (34) 901
Loans and leases 2,920 82 3,002
------- ------- -------
TOTAL EARNING ASSETS 5,771 (515) 5,256
LIABILITIES/INTEREST EXPENSE
Interest bearing deposits
Savings accounts 999 196 1,195
Time, $100,000 and over 919 25 944
Other time deposits 805 (64) 741
Short-term borrowings 435 (99) 336
Other borrowings 1,226 95 1,321
------- ------- -------
TOTAL INTEREST BEARING
LIABILITIES 4,384 153 4,537
------- ------- -------
NET INTEREST INCOME $1,387 $ (668) $ 719
======= ======= =======
ANALYSIS OF CHANGES IN NET INTEREST INCOME
For the Year Ended
December 31,
1997 Compared to 1996
Change Due to
Volume Rate Net
-----------------------
EARNING ASSETS/INTEREST INCOME
Securities
Taxable $2,033 $ (32) $2,001
Nontaxable (1,133) (202) (1,335)
Interest bearing deposits (51) (14) (65)
Federal funds sold 55 16 71
Loans and leases 5,725 530 6,255
------- ------- -------
TOTAL EARNING ASSETS 6,629 298 6,927
LIABILITIES/INTEREST EXPENSE
Interest bearing deposits
Savings accounts 813 30 843
Time, $100,000 and over (163) (7) (170)
Other time deposits 1,641 261 1,902
Short-term borrowings 1,739 58 1,797
Other borrowings (331) 82 (249)
------- ------- -------
TOTAL INTEREST BEARING
LIABILITIES 3,699 424 4,123
------- ------- -------
NET INTEREST INCOME $2,930 $ (126) $2,804
======= ======= =======
ANALYSIS OF CHANGES IN NET INTEREST INCOME
For the Year Ended
December 31,
1996 Compared to 1995
Change Due to
Volume Rate Net
-----------------------
EARNING ASSETS/INTEREST INCOME
Securities
Taxable $1,260 $ (430) $ 830
Nontaxable 574 (137) 437
Interest bearing deposits 48 (1) 47
Federal funds sold (71) (59) (130)
Loans and leases 1,456 230 1,686
------- ------- -------
TOTAL EARNING ASSETS 3,267 (397) 2,870
LIABILITIES/INTEREST EXPENSE
Interest bearing deposits
Savings accounts 286 (150) 136
Time, $100,000 and over 425 48 473
Other time deposits 296 256 552
Short-term borrowings 883 (176) 707
Other borrowings 285 (38) 247
------- ------- -------
TOTAL INTEREST BEARING
LIABILITIES 2,175 (60) 2,115
------- ------- -------
NET INTEREST INCOME $1,092 $(337) $ 755
======= ======= =======
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses decreased $328 or 25.65%
during 1998 and $129 or 9.16% during 1997. During 1996,
additional provision resulted from a $469 writedown in the
commercial loan portfolio at FCB on a pool of leases purchased
from the Bennett Funding Group. During 1998, provision was
reduced as a result of a $357 recovery on this same pool of
leases. The allowance for loan and lease losses as a percentage
of total loans and leases increased to 1.35% at December 31,
1998, from 1.32% at December 31, 1997 and 1.28% at December 31,
1996.
NONINTEREST INCOME
For the Years Ended
December 31,
1998 1997 1996
------------------------
Service charges and fees $ 3,013 $ 2,723 $ 2,437
Trust fees 2,284 2,009 1,810
Brokerage commissions 413 324 212
Insurance commissions 751 563 650
Securities gains, net 1,897 1,446 1,889
Rental income on operating leases 7,428 811 -
Gains on sale of loans 1,212 373 131
Other noninterest income 299 316 235
-------- -------- --------
Total noninterest income $17,297 $ 8,565 $ 7,364
======== ======== ========
The above table shows Heartland's noninterest income for the
years indicated. Total noninterest income increased $8,732 or
101.95% during 1998, as compared to an increase of $1,201 or
16.31% during 1997.
Expansion into the vehicle leasing and fleet management business
was responsible for the significant growth in noninterest income
during both years. Rental income on operating leases accounted
for 75.78% and 67.53% of the change in 1998 and 1997,
respectively. ULTEA's first full year of operation as a
Heartland subsidiary occurred in 1997. During the third quarter
of 1998, LAG was acquired and subsequently merged into ULTEA.
Gains on sale of loans increased $839 or 224.93% during 1998 and
$242 or 184.73% during 1997. Heartland experienced refinancing
activity in its real estate mortgage loan portfolio, especially
during 1998, as a result of decreasing interest rates. The
majority of these new fixed rate 15- and 30-year real estate
loans were sold into the secondary market.
Securities gains increased $451 or 31.19% during 1998 compared to
1997 and were attributable to the strong performance of
Heartland's equity portfolio. During 1997, securities gains
decreased $443 or 23.45% compared to 1996. A gain of $1,174 on
the sale of Federal Home Loan Mortgage Corporation common stock
held in the investment portfolio at FCB was recorded in 1996.
Heartland was able to sustain a portion of those gains during
1997 due to its equity portfolio performance.
Emphasis during the past several years on enhancing revenues from
services provided to customers has influenced the growth of fee
income. Service charges, trust fees and brokerage commissions
all increased by more than 10% during each of the past two years.
NONINTEREST EXPENSE
For the Years Ended
December 31,
1998 1997 1996
------------------------
Salaries and employee
benefits $15,218 $13,070 $11,035
Occupancy, net 1,695 1,354 1,268
Furniture and equipment 1,998 1,537 1,236
Outside services 1,416 1,439 1,155
FDIC deposit insurance
assessment 118 116 746
Advertising 1,150 826 996
Depreciation on equipment under
operating leases 5,296 584 -
Other noninterest expense 4,890 4,001 3,071
-------- -------- --------
Total noninterest expense $31,781 $22,927 $19,507
======== ======== ========
Efficiency ratio (1) 71.58% 64.77% 63.03%
======== ======== ========
(1) Noninterest expense divided by the sum of net interest
income and noninterest income less securities gains.
The above table shows Heartland's noninterest expense for the
years indicated. Noninterest expense increased $8,854 or 38.62%
in 1998 as compared to 1997. Total 1997 noninterest expense
represented an increase of $3,420 or 17.53% from the 1996 total.
The largest component of the increase in noninterest expense
during 1998 was related to the addition of LAG to the ULTEA
operations, as depreciation on equipment under operating leases
increased $4,712 or 806.85%. During 1997, the depreciation on
equipment under operating leases accounted for $584 of the change
in noninterest expense. Exclusive of depreciation on equipment
under operating leases, the change in noninterest expense during
1998 was $4,142 or 18.54%.
Salaries and employee benefits expense continued to experience
increases during both 1998 and 1997, growing $2,148 or 16.43% and
$2,035 or 18.44%, respectively. In addition to the normal merit
and cost of living raises, these increases were attributable to
Heartland's continued expansion efforts, particularly the
additions of NMB, WCB and ULTEA.
In addition to the increases experienced in salaries and employee
benefits, the expansion efforts underway during the past two
years have resulted in additional occupancy, furniture and
equipment and advertising/public relations costs. These expenses
increased $1,126 or 30.29% during 1998 and $217 or 6.20% during
1997. Exclusive of a one-time contribution of stock from FCB's
securities portfolio to a public charitable trust at a cost basis
of $220 during 1996, these costs increased $437 or 13.32% during
1997.
Other noninterest expenses grew $889 or 22.22% during 1998
compared to an increase of $930 or 30.28% during 1997.
Amortization and maintenance expense on software have contributed
to this increase primarily due to the conversion of the bank
subsidiaries to Fiserv's Comprehensive Banking Systems during the
spring of 1997.
Federal Deposit Insurance Corporation ("FDIC") premium expense
decreased $630 (84.45%) during 1997 compared to 1996. The one-
time special assessment on all savings associations to capitalize
the Savings Association Insurance Fund ("SAIF") amounted to $545
at FCB and was recorded during 1996. Also contributing to this
change was the reduction in FDIC premium expense on January 1,
1997, at FCB when the assessment for SAIF members dropped from
.23% to .065% of deposits.
INCOME TAXES
Income tax expense increased $419 or 12.55% for 1998 and $653 or
24.32% for 1997. The effective tax rate increased from 25.11% in
1996, to 28.16% in 1997 and 29.40% in 1998. Reductions in tax-
exempt income contributed to these increases.
FINANCIAL CONDITION
LENDING ACTIVITIES
Heartland's major source of income is interest on loans and
leases. The table below presents the composition of Heartland's
loan portfolio at the end of the years indicated.
LOAN PORTFOLIO
December 31,
1998 1997
Amount Percent Amount Percent
------ ------- ------ -------
Commercial and commercial
real estate $277,765 46.88% $242,868 43.46%
Residential mortgage 156,415 26.40 175,268 31.37
Agricultural and
agricultural real estate 77,211 13.03 69,302 12.40
Consumer 72,642 12.26 64,223 11.49
Lease financing, net 8,508 1.43 7,171 1.28
-------- ------- -------- -------
Gross loans and leases 592,541 100.00% 558,832 100.00%
======= =======
Unearned discount (2,136) (2,077)
Deferred loan fees (272) (349)
--------- ---------
Total loans and leases 590,133 556,406
Allowance for loan and
lease losses (7,945) (7,362)
--------- ---------
Loans and leases, net $582,188 $549,044
========= =========
LOAN PORTFOLIO
December 31,
1996 1995
Amount Percent Amount Percent
------ ------- ------ -------
Commercial and commercial
real estate $206,523 42.46% $191,866 42.00%
Residential mortgage 166,999 34.33 158,324 34.66
Agricultural and
agricultural real estate 57,526 11.83 59,089 12.94
Consumer 48,361 9.94 38,988 8.54
Lease financing, net 7,042 1.44 8,530 1.86
-------- ------- -------- -------
Gross loans and leases 486,451 100.00% 456,797 100.00%
======= =======
Unearned discount (1,962) (1,510)
Deferred loan fees (404) (382)
--------- ---------
Total loans and leases 484,085 454,905
Allowance for loan and
lease losses (6,191) (5,580)
--------- ---------
Loans and leases, net $477,894 $449,325
========= =========
LOAN PORTFOLIO
December 31,
1994
Amount Percent
------ -------
Commercial and commercial
real estate $170,998 40.32%
Residential mortgage 150,147 35.41
Agricultural and
agricultural real estate 56,736 13.38
Consumer 36,068 8.51
Lease financing, net 10,076 2.38
-------- -------
Gross loans and leases 424,025 100.00%
=======
Unearned discount (1,438)
Deferred loan fees (371)
---------
Total loans and leases 422,216
Allowance for loan and
lease losses (5,124)
---------
Loans and leases, net $417,092
=========
The table below sets forth the remaining maturities by loan and
lease category.
MATURITY AND RATE SENSITIVITY OF LOANS AND LEASES (1)
December 31, 1998
Over 1 Year
Through 5 Years
One Year Fixed Floating
or less Rate Rate
------------------------------
Commercial and commercial
real estate $115,214 $102,354 $ 29,232
Residential mortgage 62,947 22,622 28,761
Agricultural and
agricultural real estate 35,278 28,707 6,163
Consumer 18,618 35,961 7,514
Lease financing, net 2,571 5,737 -
-------- -------- --------
Total $234,628 $195,381 $ 71,670
======== ======== ========
Over 5 Years
Fixed Floating
Rate Rate Total
-------------------------------
Commercial and commercial
real estate $ 7,838 $ 23,127 $277,765
Residential mortgage 12,891 29,194 156,415
Agricultural and
agricultural real estate 2,279 4,784 77,211
Consumer 3,706 6,843 72,642
Lease financing, net 200 - 8,508
-------- -------- --------
Total $ 26,914 $ 63,948 $592,541
======== ======== ========
(1) Maturities based upon contractual dates.
Net loans and leases grew $33,144 or 6.04% from December 31,
1997, to December 31, 1998, compared to $71,150 or 14.89% from
December 31, 1996, to December 31, 1997. The opening of NMB
accounted for $28,829 or 86.98% of the growth during 1998 while
the WCB acquisition accounted for $22,906 or 32.19% of the growth
during 1997.
During both years, the largest dollar growth occurred in
commercial and commercial real estate loans, which increased
$34,897 or 14.37% during 1998 and $36,345 or 17.60% during 1997.
NMB made up $22,860 or 65.51% of the 1998 growth while WCB
accounted for $10,789 or 29.68% of the 1997 growth in this loan
category.
Consumer loan outstandings grew $8,419 or 13.11% during 1998.
Loans at NMB made up $2,721 or 32.32% of this change. Exclusive
of the WCB loan portfolio, consumer loan outstandings grew
$11,474 or 23.73% during 1997. These increases were attributed
to significant growth in consumer lines of credit and dealer
paper.
Agricultural and agricultural real estate loans experienced
$7,909 or 11.41% growth during 1998. This same loan category,
exclusive of WCB, grew $10,569 or 18.37% during 1997. These
increases reflected the solid reputation and expertise DB&T has
developed in agricultural lending, combined with continued
calling efforts.
Residential mortgage loan outstandings, the only loan category to
experience a decrease during 1998, declined $18,853 or 10.76%.
This decrease occurred as customers chose fixed rate 15- and 30-
year mortgages which the subsidiary banks elected to sell into
the secondary market. In 1997, exclusive of WCB, Heartland's
total outstanding residential mortgage loans increased $1,406 or
.84%.
Although the risk of nonpayment for any reason exists with
respect to all loans, specific risks are associated with each
type of loan. The primary risks associated with commercial and
agricultural loans are the quality of the borrower's management
and the impact of national and regional economic factors. Risks
associated with real estate loans include fluctuating land values
and concentrations of loans in a specific type of real estate.
Consumer loans also have risks associated with concentrations of
loans in a single type of loan and the risk of a borrower's
unemployment as a result of deteriorating economic conditions.
Heartland monitors its loan concentrations and does not believe
it has concentrations in any specific industry other than
agriculture.
Heartland's strategy with respect to the management of these
types of risks, whether loan demand is weak or strong, is to
encourage the Heartland banks to follow tested and prudent loan
policies and underwriting practices which include: (i) granting
loans on a sound and collectible basis; (ii) investing funds
profitably for the benefit of stockholders and the protection of
depositors; (iii) serving the needs of the community and each
bank's general market area while obtaining a balance between
maximum yield and minimum risk; (iv) ensuring that primary and
secondary sources of repayment are adequate in relation to the
amount of the loan; (v) administering loan policies through a
Board of Directors and an officers' loan committee; (vi)
developing and maintaining adequate diversification of the loan
portfolio as a whole and of the loans within each loan category;
and (vii) ensuring that each loan is properly documented and, if
appropriate, guaranteed by government agencies and that insurance
coverage is adequate.
NONPERFORMING LOANS AND LEASES AND OTHER NONPERFORMING ASSETS
The table below sets forth the amounts of nonperforming loans and
leases and other nonperforming assets on the dates indicated.
NONPERFORMING ASSETS
December 31,
1998 1997 1996 1995 1994
----------------------------------
Nonaccrual loans and
leases $1,324 $1,819 $1,697 $ 977 $ 748
Loan and leases
contractually past
due 90 days or more 426 187 247 226 134
Restructured loans
and leases - 26 30 - -
------ ------ ------ ------ ------
Total nonperforming
loans and leases 1,750 2,032 1,974 1,203 882
Other real estate 857 774 532 640 134
Other repossessed assets 77 124 21 51 39
------ ------ ------ ------ ------
Total nonperforming assets $2,684 $2,930 $2,527 $1,894 $1,055
====== ====== ====== ====== ======
Nonperforming loans and
leases to total loans
and leases 0.30% 0.37% 0.41% 0.26% 0.21%
Nonperforming assets
to total loans and
leases plus repossessed
property 0.45% 0.53% 0.52% 0.42% 0.25%
Nonperforming assets to
total assets 0.28% 0.34% 0.34% 0.28% 0.17%
Under Heartland's internal loan review program, a loan review
officer is responsible for reviewing existing loans and leases,
identifying potential problem loans and leases and monitoring the
adequacy of the allowance for possible loan and lease losses at
each of the Heartland banks.
Heartland constantly monitors and continues to develop systems to
oversee the quality of its loan portfolio. One integral part is a
loan rating system which assigns a rating on each loan and lease
within the portfolio based on the borrower's repayment ability,
collateral position and repayment history. This emphasis on
quality is reflected in Heartland's credit quality figures which
compare very favorably to peer data in the September 1998 Bank
Holding Company Performance Report published by the Federal
Reserve Board for bank holding companies with assets of $500
million to $1 billion. In this report, the peer group reported
nonperforming assets to total assets of .49% and .50% for
September 30, 1998, and December 31, 1997, respectively.
Heartland's ratios at December 31, 1998 and 1997, were .28% and
.34%, respectively.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The adequacy of the allowance for loan and lease losses is
determined by an internally-developed system which equally weighs
formulas established by the Office of the Comptroller of the
Currency and the Bank Administration Institute, in addition to
Heartland's historical charge-offs. This system addresses loan
portfolio composition, loan and lease delinquencies, potential
and existing internally classified credits and other factors
that, in management's judgment, deserve evaluation in estimating
loan and lease losses. The adequacy of the allowance for loan and
lease losses is monitored on an ongoing basis by the loan review
staff, senior management and the Heartland Board of Directors.
Heartland increased its allowance for loan and lease losses
during 1998 and 1997 due to a number of factors considered by the
Heartland Loan Review Committee, including the following: (i) a
continued increase in higher-risk consumer and more-complex
commercial and agricultural loans from relatively lower-risk
residential real estate loans; (ii) the entrance into new markets
in which Heartland had little or no previous lending experience;
and (iii) the economies in Heartland's primary market areas have
been stable for some time and the growth of the allowance is
intended to anticipate the cyclical nature of most economies.
There can be no assurances that the allowance for loan and lease
losses will be adequate to cover all losses, but management
believes that the allowance for loan and lease losses was
adequate at December 31, 1998. While management uses available
information to provide for loan and lease losses, the ultimate
collectibility of a substantial portion of the loan portfolio and
the need for future additions to the allowance will be based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the allowance for loan and lease losses
carried by the Heartland subsidiaries. Such agencies may require
Heartland to make additional provisions to the allowance based
upon their judgment about information available to them at the
time of their examinations.
The table below summarizes activity in the allowance for loan and
lease losses for the years indicated, including amounts of loans
and leases charged off, amounts of recoveries, additions to the
allowance charged to income and the ratio of net charge-offs to
average loans and leases outstanding.
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES
December 31,
1998 1997 1996 1995 1994
--------------------------------------
Allowance at
beginning of year $7,362 $6,191 $5,580 $5,124 $4,433
Charge-offs:
Commercial and
commercial real
estate 289 93 578 108 94
Residential mortgage 20 21 23 6 16
Agricultural and
agricultural real
estate 41 21 2 - -
Consumer 473 449 323 381 244
Lease financing - - - - -
------ ------ ------ ------ ------
Total charge-offs 823 584 926 495 354
------ ------ ------ ------ ------
Recoveries:
Commercial and
commercial
real estate 372 36 16 22 27
Residential mortgage - 8 1 15 5
Agricultural and
agricultural
real estate 1 2 45 8 43
Consumer 82 99 67 86 148
Lease financing - - - - -
------ ------ ------ ------ ------
Total recoveries 455 145 129 131 223
------ ------ ------ ------ ------
Net charge-offs 368 439 797 364 131
Provision for loan
and lease losses 951 1,279 1,408 820 811
Additions related
to acquisitions - 331 - - -
Keokuk merger
adjustments - - - - 11
------ ------ ------ ------ ------
Allowance at end
of period $7,945 $7,362 $6,191 $5,580 $5,124
====== ====== ====== ====== ======
Net charge-offs to
average loans and
leases 0.07% 0.08% 0.17% 0.08% 0.03%
====== ====== ====== ====== ======
The table below shows Heartland's allocation of the allowance for
loan and lease losses by types of loans and leases and the amount
of unallocated reserves.
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
As of December 31,
1998 1997
---------------------------------------
Loan/ Loan/
Lease Lease
Category Category
to Gross to Gross
Loans & Loans &
Amount Leases Amount Leases
------ --------- ------ ---------
Commercial and
commercial real
estate $2,180 46.88% $1,889 43.46%
Residential
mortgage 697 26.40 725 31.37
Agricultural and
agricultural real
estate 583 13.03 577 12.40
Consumer 1,096 12.26 1,044 11.49
Lease financing(1) 44 1.43 30 1.28
Unallocated 3,345 - 3,097 -
------- ------- ------- -------
$7,945 100.00% $7,362 100.00%
======= ======= ======= =======
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
As of December 31,
1996 1995
---------------------------------------
Loan/ Loan/
Lease Lease
Category Category
to Gross to Gross
Loans & Loans &
Amount Leases Amount Leases
------ --------- ------ ---------
Commercial and
commercial real
estate $1,568 42.46% $1,430 42.00%
Residential
mortgage 590 34.33 500 34.66
Agricultural and
agricultural real
estate 480 11.83 518 12.94
Consumer 818 9.94 618 8.54
Lease financing(1) 28 1.44 34 1.86
Unallocated 2,707 - 2,480 -
------- ------- ------- -------
$6,191 100.00% $5,580 100.00%
======= ======= ======= =======
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
As of December 31, 1994
--------------------------
Loan/
Lease
Category
to Gross
Loans &
Amount Leases
------- --------
Commercial and commercial
real estate $1,321 40.32%
Residential mortgage 501 35.41
Agricultural and agricultural
real estate 423 13.38
Consumer 593 8.51
Lease financing(1) 45 2.38
Unallocated 2,241 -
------- -------
$5,124 100.00%
======= =======
SECURITIES
The primary objective of the securities portfolio continues to be
to provide the Heartland bank subsidiaries with a source of
liquidity given their high loan-to-deposit ratios. Securities
represented 25.42% of total assets at December 31, 1998, as
compared to 23.68% at December 31, 1997 and 24.98% at December
31, 1996.
To maximize the return on the portfolio, as treasury securities
matured during 1998 and 1997, many of the replacement purchases
were made in U.S. government agencies and fixed-rate
collateralized mortgage obligations ("CMO's"). During 1998 and
1997, the portion of the securities portfolio held in U.S.
treasuries decreased to .71% and 6.62%, respectively, compared to
7.67% at December 31, 1996. Heartland continued to purchase
tightly structured tranches in well-seasoned CMO's to reduce its
exposure to prepayments. These investments closely resemble
treasury securities in their repayment predictability and
accordingly are less volatile to interest rate fluctuations,
while still providing an increased spread when compared to U.S.
treasuries with similar maturities. The state tax-exempt nature
on selected U.S. government agencies made them attractive
purchases for Heartland's Illinois bank subsidiaries.
The tables below presents the composition and maturities of the
securities portfolio by major category.
SECURITIES PORTFOLIO COMPOSITION
December 31,
1998 1997 1996
-----------------------------------------------
% of % of % of
Portfolio Portfolio Portfolio
Amount Amount Amount
-------------------------------------------------
U. S. Treasury
securities $ 1,709 0.71% $ 13,342 6.62% $ 14,117 7.67%
U. S. government
agencies 77,361 31.90 64,360 31.90 61,332 33.34
Mortgage-backed
securities 128,317 52.92 87,015 43.13 75,017 40.78
States and
political
subdivisions 21,536 8.88 20,702 10.26 18,812 10.23
Other securities 13,565 5.59 16,329 8.09 14,688 7.98
-------- ------ ------- ------ -------- ------
Total $242,488 100.00% $201,748 100.00% $183,966 100.00%
======== ======= ======== ======= ======== =======
SECURITIES PORTFOLIO COMPOSITION
Held to Maturity Available for Sale
% of % of
December 31, 1998 Amount Portfolio Amount Portfolio
---------------------------------------
U.S. Treasury
securities $ - -% $ 1,709 0.71%
U.S. government
agencies - - 77,361 31.90
Mortgage-backed
securities - - 128,317 52.92
States and political
subdivisions 2,718 1.12 18,818 7.76
Other securities - - 13,565 5.59
------ ------- -------- -------
Total $2,718 1.12% $239,770 98.88%
====== ======= ======== =======
SECURITIES PORTFOLIO COMPOSITION
Total
% of
December 31, 1998 Amount Portfolio
-------------------
U.S. Treasury securities $ 1,709 0.71%
U.S. government agencies 77,361 31.90
Mortgage-backed securities 128,317 52.92
States and political
subdivisions 21,536 8.88
Other securities 13,565 5.59
-------- -------
Total $242,488 100.00%
======== =======
SECURITIES PORTFOLIO COMPOSITION
Held to Maturity Available for Sale
% of % of
December 31, 1997 Amount Portfolio Amount Portfolio
---------------------------------------
U.S. Treasury
securities $ - -% $ 13,342 6.62%
U.S. government
agencies 598 .30 63,762 31.60
Mortgage-backed
securities 325 .16 86,690 42.97
States and political
subdivisions 2,956 1.46 17,746 8.80
Other securities - - 16,329 8.09
------ ------- -------- -------
Total $3,879 1.92% $197,869 98.08%
====== ======= ======== =======
SECURITIES PORTFOLIO COMPOSITION
Total
% of
December 31, 1997 Amount Portfolio
-------------------
U.S. Treasury securities $ 13,342 6.62%
U.S. government agencies 64,360 31.90
Mortgage-backed securities 87,015 43.13
States and political
subdivisions 20,702 10.26
Other securities 16,329 8.09
-------- -------
Total $201,748 100.00%
======== =======
SECURITIES PORTFOLIO MATURITIES
After One But
Within One Year Within Five Years
--------------- -----------------
December 31, 1998 Amount Yield Amount Yield
------------------------------------
U.S. Treasury
securities $ 1,709 6.41% $ - 0.00%
U.S. government
agencies 15,549 6.03 61,794 5.55
Mortgage-backed
securities 58,863 6.92 60,718 6.79
States and political
subdivisions (1) 45 9.99 6,107 8.67
Other securities 612 8.48 1,881 5.65
-------- ------- ------- -------
Total $ 76,778 6.74% $130,500 6.28%
======== ======= ======== =======
SECURITIES PORTFOLIO MATURITIES
After Five But
Within Ten Years After Ten Years
---------------- -----------------
Amount Yield Amount Yield
------------------------------------
U.S. Treasury
securities $ - -% $ - -%
U.S. government
agencies - - 18 10.25
Mortgage-backed
securities - - 8,736 8.17
States and political
subdivisions (1) 6,184 7.99 9,200 7.27
Other securities - - - -
------- ------- ------- ------
Total $ 6,184 7.99% $17,954 7.71%
======= ======= ======= ======
SECURITIES PORTFOLIO MATURITIES
Total
Amount Yield
-------------------
U.S. Treasury securities $ 1,709 6.41%
U.S. government agencies 77,361 5.65
Mortgage-backed securities 128,317 6.94
States and political
subdivisions (1) 21,536 7.88
Other securities 2,493 6.35
-------- -------
Total $231,416 6.59%
======== =======
(1) Rates on obligations of states and political subdivisions
have been adjusted to tax equivalent yields using a 34% income
tax rate.
DEPOSITS AND BORROWED FUNDS
Heartland has a relatively stable core deposit base drawn from
within its market areas. Total average deposits increased
$67,607 or 11.41% from the total average deposits during 1997.
All the subsidiary banks, with the exception of FCB, were able to
grow average deposits by more than seven percent during 1998 with
the de novo community banks of RCB and NMB making up $22,335 or
33.04% of this growth. Exclusive of WCB, total average deposits
increased $27,578 or 5.14% during 1997. This was an improvement
over the $22,818 or 4.44% increase experienced during 1996 and
was primarily attributable to strong growth at GSB and RCB.
Average noninterest bearing deposits grew $8,744 or 16.89% during
1998 and $2,575 or 5.70%, exclusive of WCB, during 1997. Average
interest bearing deposits increased $58,863 or 10.88% during 1998
and $25,003 or 5.09%, exclusive of WCB, during 1997. In order to
attract additional customers, all of the subsidiary banks have
continued to enhance their deposit product lines.
The mix of individual account balances to total deposits has
remained very constant over each of the past three years. The
table below sets forth the distribution of Heartland's average
deposit account balances and the average interest rates paid on
each category of deposits for the years indicated.
AVERAGE DEPOSITS
For the year ended December 31, 1998
Percent
Average of
Balance Deposits Rate
------------------------
Demand deposits $ 60,514 9.17% 0.00%
Savings accounts 266,282 40.33 3.57
Time deposits less than $100,000 282,142 42.73 5.75
Time deposits of $100,000 or more 51,283 7.77 5.66
-------- -------
Total deposits $660,221 100.00%
======== =======
AVERAGE DEPOSITS
For the year ended December 31, 1997
Percent
Average of
Balance Deposits Rate
------------------------
Demand deposits $ 51,770 8.74% 0.00%
Savings accounts 237,730 40.12 3.50
Time deposits less than $100,000 268,201 45.25 5.77
Time deposits of $100,000 or more 34,913 5.89 5.62
-------- -------
Total deposits $592,614 100.00%
======== =======
AVERAGE DEPOSITS
For the year ended December 31, 1996
Percent
Average of
Balance Deposits Rate
------------------------
Demand deposits $ 45,205 8.42% 0.00%
Savings accounts 214,401 39.95 3.49
Time deposits less than $100,000 239,300 44.59 5.68
Time deposits of $100,000 or more 37,806 7.04 5.64
-------- -------
Total deposits $536,712 100.00%
======== =======
The following table sets forth the amount and maturities of time
deposits of $100,000 or more at December 31, 1998.
Time Deposits $100,000 and Over
December 31,
1998
------------
3 months or less $17,769
Over 3 months through 6 months 14,686
Over 6 months through 12 months 12,428
Over 12 months 17,410
-------
$62,293
=======
All of the Heartland banks, except for WCB and NMB, own stock in
the Federal Home Loan Bank ("FHLB") of Des Moines and of Chicago,
enabling them to borrow funds from their respective FHLB for
short- or long-term purposes under a variety of programs. Total
FHLB borrowings at December 31, 1998 and 1997, were $40,618 and
$64,400, respectively. During 1997, Heartland used additional
FHLB advances as loan demand exceeded deposit growth. As deposit
growth exceeded loan demand during the course of 1998, no
additional advances were taken and total advances declined as
borrowings matured.
Heartland also utilizes securities sold under agreements to
repurchase as a source of funds. All the bank subsidiaries
provide repurchase agreements to their customers as a cash
management tool, sweeping excess funds from demand deposit
accounts into these agreements. This source of funding does not
increase the bank's reserve requirements, nor does it create an
expense relating to FDIC premiums on deposits. Although the
aggregate balance of repurchase agreements is subject to
variation, the account relationships represented by these
balances are principally local and have been maintained for
relatively long periods of time.
On October 31, 1997, Heartland entered into a four year,
unsecured revolving credit agreement with an unaffiliated bank.
The total borrowings under this credit line were $16,200 and
$3,500 at December 31, 1998 and 1997, respectively. This credit
line was established to provide working capital to the nonbanking
subsidiaries and to meet general corporate commitments, including
the $12,050 capital investment in NMB.
The following table reflects short-term borrowings which in the
aggregate have average balances during the period greater than
30% of stockholders equity at the end of the period.
SHORT-TERM BORROWINGS
At or for the
Year Ended December 31,
1998 1997 1996
------------------------
Balance at end of period $ 75,920 $96,239 $56,358
Maximum month-end amount
outstanding 102,313 96,239 56,358
Average month-end amount
outstanding 80,277 73,170 42,025
Weighted average interest
rate at year-end 5.00% 5.49% 5.75%
Weighted average interest
rate for the year ended 5.19 5.32% 5.24%
CAPITAL RESOURCES
Heartland's risk-based capital ratios, which take into account
the different credit risks among banks' assets, have remained
strong over the past three years. Tier 1 and total risk-based
capital ratios were 11.05% and 12.13%, respectively, on December
31, 1998, compared with 11.54% and 12.71% at December 31, 1997,
and 13.10% and 14.28% for December 31, 1996. At December 31,
1998, Heartland's leverage ratio, the ratio of Tier 1 capital to
total average assets, was 8.58% compared to 8.76% and 9.54% at
December 31, 1997 and 1996, respectively.
Commitments for capital expenditures are an important factor in
evaluating capital adequacy. Heartland completed the acquisition
of WCB on March 1, 1997. Cash payments remaining under the
agreement are $823 in 1999, $594 in 2000 and $584 in 2001, plus
interest at rates of 7.00% to 7.50%.
On July 17, 1998, Heartland completed the acquisition and merger
into ULTEA of Arrow Motors Inc., a Wisconsin corporation doing
business as LAG. In conjunction with this merger, Heartland
agreed to three equal cash payments of $643 in 1999, 2000 and
2001, plus interest at 7.50%.
In February, 1999, WCB entered into an office purchase and
assumption agreement with Bank One Wisconsin to acquire their
Monroe bank. Pending regulatory approval and the satisfaction of
certain conditions, the transaction is anticipated to close in
July with a cash payment of $11,487 and an additional capital
investment of approximately $7,000.
NMB has committed to the purchase of a $1,000 facility in north-
central Albuquerque with an anticipated closing date of April,
1999. Additionally, NMB contracted for the construction of a
$1,700 facility in Rio Rancho, a suburb northeast of Albuquerque,
with a targeted completion date of June, 1999.
Expansion efforts are also underway at RCB, as it committed to
the construction of a $1,300 facility in southeast Rockford.
Completion of this branch is targeted for June, 1999.
Heartland continues to explore other opportunities to expand its
umbrella of independent community banks through mergers and
acquisitions as well as de novo and branching opportunities.
Future expenditures relating to these efforts are not estimable
at this time.
Heartland's capital ratios are detailed in the table below.
RISK-BASED CAPITAL RATIOS(1)
December 31,
1998 1997 1996
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------
Capital Ratios:
Tier 1 capital $ 81,149 11.05% $ 71,713 11.54% $ 67,701 13.10%
Tier 1 capital
minimum
requirement 29,379 4.00 24,854 4.00 20,667 4.00
-------- ------ -------- ------ -------- -----
Excess $ 51,770 7.05% $ 46,859 7.54% $ 47,034 9.10%
======== ====== ======== ====== ======== ======
Total capital $ 89,093 12.13% $ 78,995 12.71% $ 73,777 14.28%
Total capital
minimum
requirement 58,757 8.00 49,707 8.00 41,334 8.00
-------- ------ -------- ------ -------- -----
Excess $ 30,336 4.13% $ 29,288 4.71% $ 32,443 6.28%
======== ====== ======== ====== ======== ======
Total risk-
adjusted
assets $734,463 $621,338 $516,678
======== ======== ========
(1) Based on the risk-based capital guidelines of the Federal
Reserve, a bank holding company is required to maintain a
Tier 1 to risk-adjusted assets ratio of 4.00% and total to
risk-adjusted assets ratio of 8.00%.
LEVERAGE RATIOS(1)
December 31,
1998 1997 1996
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------
Capital Ratios:
Tier 1 capital $ 81,149 8.58% $ 71,713 8.76% $ 67,701 9.54%
Tier 1 capital
minimum
requirement(2) 37,810 4.00 32,729 4.00 28,375 4.00
-------- ------ -------- ------ -------- -----
Excess $ 43,339 4.58% $ 38,984 4.76% $ 39,326 5.54%
======== ====== ======== ====== ======== =====
Average adjusted
assets $945,242 $818,232 $709,387
======== ======== ========
(1)The leverage ratio is defined as the ratio of Tier 1 capital
to average total assets.
(2)Management of Heartland has established a minimum target
leverage ratio of 4.00%. Based on Federal Reserve
guidelines, a bank holding company generally is required to
maintain a leverage ratio of 3.00% plus an additional cushion
of at least 100 basis points.
LIQUIDITY
Liquidity refers to Heartland's ability to maintain a cash flow
which is adequate to meet maturing obligations and existing
commitments, to withstand fluctuations in deposit levels, to fund
operations and to provide for customers' credit needs.
Heartland's usual and primary sources of funding have been
deposits, loan and mortgage-backed security principal repayments,
sales of loans, cash flow generated from operations and FHLB
borrowings.
Heartland's short-term borrowing balances are dependent on
commercial cash management and smaller correspondent bank
relationships and, as such, will normally fluctuate. Heartland
believes these balances, on average, to be stable sources of
funds; however, it intends to rely on deposit growth and
additional FHLB borrowings in the future.
In the event of short term liquidity needs, the bank subsidiaries
may purchase federal funds from each other or from correspondent
banks. The bank subsidiaries may also borrow funds from the
Federal Reserve Bank, but have not done so during the periods
covered in this report. Also, the subsidiary banks' FHLB
memberships give them the ability to borrow funds for short- and
long-term purposes under a variety of programs.
Heartland's revolving credit agreement provides for total
borrowings of up to $20,000 at any one time. The agreement
contains specific covenants which, among other things, limit
dividend payments and restrict the sale of assets by Heartland
under certain circumstances. Also contained within the agreement
are certain financial covenants, including the maintenance of a
maximum nonperforming assets to total loans ratio, minimum return
on average assets ratio, maximum funded debt to total equity
capital ratio, and requires that each of the bank subsidiaries
remain well capitalized, as defined from time to time by the
federal banking regulators. At December 31, 1998, Heartland was
in compliance with the above covenants.
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from adverse changes in
market prices and rates. Heartland's market risk is comprised
primarily of interest rate risk resulting from its core banking
activities of lending and deposit gathering. Interest rate risk
measures the impact on earnings from changes in interest rates
and the effect on current fair market values of Heartland's
assets, liabilities and off-balance sheet contracts. The
objective is to measure this risk and manage the balance sheet to
avoid unacceptable potential for economic loss.
Heartland management continually develops and applies strategies
to mitigate market risk. Exposure to market risk is reviewed on a
regular basis by the asset/liability committees at the banks and,
on a consolidated basis, by the Heartland Board of Directors.
Monthly, management utilizes both the standard balance sheet GAP
report and an independently developed income statement GAP report
to analyze the effect of changes in interest rates on net
interest income and to manage interest rate risk. Also utilized
periodically during the year is an interest rate sensitivity
analysis which simulates changes in net interest income in
response to various interest rate scenarios. This analysis
considers current portfolio rates, existing maturities, repricing
opportunities and market interest rates, in addition to
prepayments and growth under different interest rate assumptions.
Through the use of these tools Heartland has determined that the
balance sheet is structured such that changes in net interest
margin in response to changes in interest rates would be minimal,
all other factors being held constant. Management does not
believe that Heartland's primary market risk exposures and how
those exposures were managed in 1998 have changed when compared
to 1997.
Derivative financial instruments include futures, forwards,
interest rate swaps, option contracts and other financial
instruments with similar characteristics. Heartland was not a
party to these types of derivatives at December 31, 1998.
However, Heartland does enter into financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. Commitments to
extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates and
may require collateral from the borrower. Standby letters of
credit are conditional commitments issued by Heartland to
guarantee the performance of a customer to a third party up to a
stated amount and with specified terms and conditions. These
commitments to extend credit and standby letters of credit are
not recorded on the balance sheet until the instrument is
exercised.
The table below summarizes the scheduled maturities of market
risk sensitive assets and liabilities as of December 31, 1998.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
TABLE OF MARKET RISK-SENSITIVE INSTRUMENTS
December 31, 1998
MATURING IN: 1999 2000 2001 2002
------------------------------------
ASSETS
Federal funds sold $ 17,476 $ - $ - $ -
Time deposits in other
financial institutions 542 4,679 876 -
Securities 76,778 68,954 22,588 25,948
Loans and leases:
Fixed rate loans 140,991 65,080 67,017 32,558
Variable rate loans 91,229 37,334 17,601 9,886
-------- -------- -------- --------
Loans and leases, net 232,220 102,414 84,618 42,444
-------- -------- -------- --------
Total Market Risk-
Sensitive Assets $327,016 $176,047 $108,082 $ 68,392
======== ======== ======== ========
LIABILITIES
Savings $292,852 $ - $ - $ -
Time deposits
Fixed rate time
certificates less
than $100,000 145,662 88,870 23,438 11,944
Variable rate time
certificates less
than $100,000 139 5,247 - -
-------- -------- -------- --------
Time deposits less
than $100,000 145,801 94,117 23,438 11,944
Time deposits of
$100,000 or more 44,883 14,824 800 919
Federal funds purchased,
securities sold
under repurchase
agreements and
other short-term
borrowings 75,920 - - -
Other borrowings:
Fixed rate borrowings - 18,664 7,654 5,005
Variable rate borrowings - - 16,200 2,000
-------- -------- -------- --------
Other borrowings - 18,664 23,854 7,005
-------- -------- -------- --------
Total Market Risk-
Sensitive Liabilities $559,456 $127,605 $ 48,092 $ 19,868
======== ======== ======== ========
Average Estimated
Interest Fair
MATURING IN: 2003 Thereafter Total Rate Value
------------------------------------------
ASSETS
Federal funds sold $ - $ - $ 17,476 5.10% $ 17,476
Time deposits in
other financial
institutions - 30 6,127 5.54 6,127
Securities 13,011 35,209 242,488 6.59 242,641
Loans and leases:
Fixed rate loans 30,726 26,914 363,286 8.51 365,899
Variable rate
loans 6,849 63,948 226,847 8.03 228,286
-------- -------- -------- --------
Loans and leases,
net 37,575 90,862 590,133 594,185
-------- -------- -------- --------
Total Market Risk-
Sensitive Assets $ 50,586 $126,101 $856,224 $860,429
======== ======== ======== ========
LIABILITIES
Savings $ - $ - $292,852 3.34% $292,852
Time deposits
Fixed rate time
certificates less
than $100,000 16,434 127 286,475 5.68 289,887
Variable rate time
certificates less
than $100,000 - - 5,386 5.37 5,388
-------- -------- -------- --------
Time deposits less
than $100,000 16,434 127 291,861 295,275
Time deposits of
$100,000 or more 867 - 62,293 5.53 62,769
Federal funds purchased,
securities sold
under repurchase
agreements and
other short-term
borrowings - - 75,920 5.00 75,920
Other borrowings:
Fixed rate
borrowings 1,505 6,595 39,423 6.19 40,672
Variable rate
borrowings - - 18,200 5.54 18,200
-------- -------- -------- --------
Other borrowings 1,505 6,595 57,623 58,872
-------- -------- -------- --------
Total Market Risk
Sensitive
Liabilities $ 18,806 $ 6,722 $780,549 $785,688
======== ======== ======== ========
EFFECTS OF INFLATION
Consolidated financial data included in this report has been
prepared in accordance with generally accepted accounting
principles. Presently, these principles require reporting of
financial position and operating results in terms of historical
dollars. Changes in the relative value of money due to inflation
or recession are generally not considered.
In management's opinion, changes in interest rates affect the
financial condition of a financial institution to a far greater
degree than changes in the inflation rate. While interest rates
are greatly influenced by changes in the inflation rate, they do
not change at the same rate or in the same magnitude as the
inflation rate. Rather, interest rate volatility is based on
changes in the expected rate of inflation, as well as on changes
in monetary and fiscal policies. A financial institution's
ability to be relatively unaffected by changes in interest rates
is a good indicator of its capability to perform in today's
volatile economic environment. Heartland seeks to insulate itself
from interest rate volatility by ensuring that rate-sensitive
assets and rate-sensitive liabilities respond to changes in
interest rates in a similar time frame and to a similar degree.
YEAR 2000
Heartland began to identify and react to issues related to the
Year 2000 in 1996. A Year 2000 project team, comprised of
individuals from key areas throughout Heartland, was formed. The
mission of the Year 2000 project team was, and is, to identify
issues related to the Year 2000, to initiate remedial measures
necessary to eliminate any adverse effects on Heartland's
operations, and to continue to monitor Year 2000 related
concerns. Following the guidelines established by the Federal
Financial Institutions Examination Council, a Year 2000 Plan was
developed for Heartland and its subsidiaries. The project team
developed a comprehensive, prioritized inventory of all hardware,
software, and material third-party providers that may be
adversely affected by the Year 2000 date change, and has
contacted these vendors requesting their status as it relates to
the Year 2000. This inventory includes both information
technology ("IT") and non-IT systems, such as heating and cooling
systems, alarms, building access systems and elevators, which
typically contain embedded technology such as microcontrollers.
This inventory is periodically reevaluated to ensure that
previously assigned priorities remain accurate and to monitor the
progress each vendor is making in resolving its Year 2000
problems. Heartland relies on software purchased from third-
party vendors rather than internally-generated software. All
mission-critical software has been tested and found to be Year
2000 compliant. Testing was done on a test computer rented
specifically for this purpose, which was connected to Heartland's
existing equipment in a manner similar to the production computer.
The Year 2000 project team has also developed a communication
plan that updates the directors, management and employees on
Heartland's Year 2000 status. A customer awareness program was
implemented in late 1998 and will continue throughout 1999. In
addition, a separate plan was developed to manage the Year 2000
risks posed by commercial borrowing customers. This plan
identified material loan customers, assessed their preparedness,
evaluated their credit risk to Heartland, and implemented
appropriate controls to mitigate the risk. Surveys of customer
preparedness have been used to identify the customer risk and
will be used on all new credits going forward.
In accordance with regulatory guidelines, the project team has
begun preparing a comprehensive contingency plan in the event
that Year 2000 related failures are experienced. The plan will
list the various strategies and resources available to restore
core business processes. Testing of this plan is scheduled for
completion by April 30, 1999. In conjunction with the
development of this contingency plan, the team continues to
monitor Year 2000 progress by the public utility providers. As
the utility companies complete their testing in 1999, Heartland
will decide the appropriateness of purchasing or leasing a backup
generator for its main facility. The generator would provide an
alternative source of power for a limited time period. Also
being assessed as part of the contingency plan is the adequacy of
Heartland's sources of liquidity to meet any cash demands the
bank subsidiaries' customers may place on them during the fourth
quarter of 1999.
Management anticipates that the total out-of-pocket expenditures
required for bringing the systems into compliance for the Year
2000 will be approximately $360 of which $60 remains to be
expended during 1999. Management believes that these required
expenditures will not have a material adverse impact on
operations, cash flow, or financial condition. This amount,
including costs for upgrading equipment specifically for the
purpose of Year 2000 compliance, staff expense for testing and
contingency development, and certain administrative expenditures,
has been provided for in Heartland's Year 2000 budget. Although
management feels confident that all necessary upgrades have been
identified, and budgeted accordingly, no assurance can be made
that Year 2000 compliance can be achieved without additional
unanticipated expenditures. It is not possible at this time to
quantify the estimated future costs due to possible business
disruption caused by vendors, suppliers, customers or even the
possible loss of electric power or phone service; however, such
costs could be substantial. As a result of the Year 2000
project, Heartland has not had any material delay regarding its
information systems projects.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands, except per share data)
Notes 1998 1997
----- -------- --------
ASSETS
Cash and due from banks 3 $ 25,355 $ 24,267
Federal funds sold 17,476 32,918
-------- --------
Cash and cash equivalents 42,831 57,185
Time deposits in other
financial institutions 6,127 194
Securities: 4
Available for sale-at market
(cost of $236,417 for 1998
and $193,805 for 1997) 239,770 197,869
Held to maturity-at cost
(approximate market value
of $2,871 for 1998 and
$3,999 for 1997) 2,718 3,879
Loans and leases: 5
Held for sale 10,985 10,437
Held to maturity 579,148 545,969
Allowance for possible
loan and lease losses 6 (7,945) (7,362)
-------- --------
Loans and leases, net 582,188 549,044
Assets under operating leases 34,622 3,750
Premises, furniture and
equipment, net 7 19,780 17,184
Other real estate, net 857 774
Other assets 24,892 22,181
-------- --------
TOTAL ASSETS $953,785 $852,060
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits: 8
Demand $ 70,871 $ 60,950
Savings 292,852 252,292
Time 354,154 310,290
-------- --------
Total deposits 717,877 623,532
Short-term borrowings 9 75,920 96,239
Accrued expenses and other
liabilities 18,095 11,494
Other borrowings 11 57,623 43,023
-------- --------
TOTAL LIABILITIES 869,515 774,288
-------- --------
STOCKHOLDERS' EQUITY: 13,14,16
Preferred stock
(par value $1 per
share; authorized
200,000 shares) - -
Common stock
(par value $1 per share;
authorized, 12,000,000
shares; issued, 9,707,252
shares at December 31,
1998, and 4,853,626 at
December 31, 1997) 9,707 4,854
Capital surplus 10,131 13,706
Retained earnings 65,007 58,914
Accumulated other
comprehensive income 2,107 2,545
Treasury stock at cost
(172,173 and 106,251 shares
at December 31, 1998, and
December 31, 1997, respectively) (2,682) (2,247)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 84,270 77,772
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $953,785 $852,060
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
Notes 1998 1997 1996
----- -------- -------- --------
INTEREST INCOME:
Interest and fees on
loans and leases 5 $49,901 $46,919 $40,670
Interest on securities:
Taxable 11,515 10,393 8,392
Nontaxable 1,133 1,170 2,051
Interest on federal funds sold 1,582 681 610
Interest on interest bearing
deposits in other financial
institutions 386 98 163
-------- -------- --------
TOTAL INTEREST INCOME 64,517 59,261 51,886
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits 8 28,645 25,765 23,190
Interest on short-term
borrowings 4,076 3,740 1,943
Interest on other borrowings 3,583 2,262 2,511
-------- -------- --------
TOTAL INTEREST EXPENSE 36,304 31,767 27,644
-------- -------- --------
NET INTEREST INCOME 28,213 27,494 24,242
Provision for possible
loan and lease losses 6 951 1,279 1,408
-------- -------- --------
Net interest income after
provision for possible loan
and lease losses 27,262 26,215 22,834
-------- -------- --------
OTHER INCOME:
Service charges and fees 3,013 2,723 2,437
Trust fees 2,284 2,009 1,810
Brokerage commissions 413 324 212
Insurance commissions 751 563 650
Securities gains, net 1,897 1,446 1,889
Rental income on operating leases 7,428 811 -
Gains on sale of loans 1,212 373 131
Other 299 316 235
-------- -------- --------
TOTAL OTHER INCOME 17,297 8,565 7,364
-------- -------- --------
OTHER EXPENSES:
Salaries and employee
benefits 12 15,218 13,070 11,035
Occupancy 13 1,695 1,354 1,268
Furniture and equipment 1,998 1,537 1,236
Depreciation on equipment
under operating leases 5,296 584 -
Outside services 1,416 1,439 1,155
FDIC deposit insurance
assessment 118 116 746
Advertising 1,150 826 996
Other operating expenses 4,890 4,001 3,071
-------- -------- --------
TOTAL OTHER EXPENSES 31,781 22,927 19,507
-------- -------- --------
Income before income taxes 12,778 11,853 10,691
Income taxes 10 3,757 3,338 2,685
-------- -------- --------
NET INCOME $ 9,021 $ 8,515 $ 8,006
======== ======== ========
EARNINGS PER COMMON SHARE-BASIC $ 0.95 $ 0.90 $ 0.85
======== ======== ========
EARNINGS PER COMMON SHARE-
DILUTED 1 $ 0.94 $ 0.89 $ 0.84
======== ======== ========
CASH DIVIDENDS DECLARED PER
COMMON SHARE $ 0.31 $ 0.26 $ 0.20
======== ======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
Common Capital Retained
Stock Surplus Earnings
------- ------- --------
Balance at January 1, 1996 $ 2,427 $13,090 $49,171
Net Income - 1996 8,006
Unrealized loss on securities
available for sale
Reclassification adjustment for
gains realized in net income
Income taxes
Comprehensive income
Cash dividends declared:(1)
Common, $.20 per share (1,886)
Two-for-one stock split 2,427 (2,427)
Purchase of 32,446 shares of
common stock
Sale of 64,943 shares of
common stock 276
------- ------- -------
Balance at December 31, 1996 4,854 13,366 52,864
Net Income - 1997 8,515
Unrealized gain on securities
available for sale
Reclassification adjustment for
gains realized in net income
Income taxes
Comprehensive income
Cash dividends declared:(1)
Common, $.26 per share (2,465)
Purchase of 32,835 shares
of common stock
Sale of 44,650 shares
of common stock 340
------- ------- -------
BALANCE AT DECEMBER 31, 1997 4,854 13,706 58,914
Net Income - 1998 9,021
Unrealized gain on securities
available for sale
Reclassification adjustment for
gains realized in net income
Income taxes
Comprehensive income
Cash dividends declared:
Common, $.31 per share (2,928)
Two-for-one stock split 4,853 (4,853)
Purchase of 166,970 shares
of common stock
Sale of 328,857 shares
of common stock 1,278
------- ------- -------
BALANCE AT DECEMBER 31, 1998 $ 9,707 $14,984 $60,154
======= ======= =======
Accumulated
Other
Comprehensive Treasury
Income Stock Total
------------- -------- -----
Balance at January 1, 1996 $ 2,620 $(2,802) $64,506
Net Income - 1996 8,006
Unrealized loss on securities
available for sale (70) (70)
Reclassification adjustment for
gains realized in net income (1,889) (1,889)
Income taxes 666 666
-------
Comprehensive income 6,713
Cash dividends declared:(1)
Common, $.20 per share (1,886)
Two-for-one stock split -
Purchase of 32,446 shares
of common stock (759) (759)
Sale of 64,943 shares
of common stock 1,409 1,685
------- ------- -------
Balance at December 31, 1996 1,327 (2,152) 70,259
Net Income - 1997 8,515
Unrealized gain on securities
available for sale 3,291 3,291
Reclassification adjustment for
gains realized in net income (1,446) (1,446)
Income taxes (627) (627)
-------
Comprehensive income 9,733
Cash dividends declared:(1)
Common, $.26 per share (2,465)
Purchase of 32,835 shares
of common stock (865) (865)
Sale of 44,650 shares
of common stock 770 1,110
------- ------- -------
Balance at December 31, 1997 2,545 (2,247) 77,772
Net Income - 1998 9,021
Unrealized gain on securities
available for sale 1,233 1,233
Reclassification adjustment for
gains realized in net income (1,897) (1,897)
Income taxes 226 226
-------
Comprehensive income 8,583
Cash dividends declared:
Common, $.31 per share (2,928)
Two-for-one stock split -
Purchase of 166,970 shares
of common stock (4,431) (4,431)
Sale of 328,857 shares of
common stock 3,996 5,274
------- ------- -------
BALANCE AT DECEMBER 31, 1998 $ 2,107 $(2,682) $84,270
======= ======= =======
(1) Restated to reflect the two-for-one stock split effected in
the form of a stock dividend on June 30, 1998.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share data)
1998 1997 1996
---- ---- ----
Cash Flows from Operating
Activities:
Net income $ 9,021 $ 8,515 $ 8,006
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 7,856 2,635 1,341
Provision for possible loan
and lease losses 951 1,279 1,408
Provision for income taxes (488) 114 (393)
Net amortization/(accretion)
of premium/(discount)
on securities 875 (292) (769)
Securities gains, net (1,897) (1,446) (1,889)
Loans originated for sale (139,554) (44,035) (23,408)
Proceeds on sales of loans 142,328 49,563 27,672
Net gain on sales of loans (1,212) (373) (131)
Increase in accrued
interest receivable (620) (354) (530)
Increase in accrued interest
payable 623 449 186
Other, net 470 (2,265) (1,196)
------- ------- -------
Net cash provided by operating
activities 18,353 13,790 10,297
------- ------- -------
Cash Flows from Investing
Activities:
Purchase of time deposits (5,934) (33) (122)
Proceeds on maturities of time
deposits - 201 100
Proceeds from the sale of
securities available for sale 27,928 20,053 22,747
Proceeds from the sale of
mortgage-backed securities
available for sale 2,276 3,980 1,621
Proceeds from the maturity of
and principal paydowns on
securities held to maturity 837 2,732 717
Proceeds from the maturity of
and principal paydowns on
securities available for sale 41,902 13,647 36,384
Proceeds from the maturity of
and principal paydowns on
mortgage-backed securities
held to maturity 343 - -
Proceeds from the maturity of
and principal paydowns on
mortgage-backed securities
available for sale 53,040 13,175 11,767
Purchase of securities
held to maturity - - (500)
Purchase of securities
available for sale (70,211) (24,485) (58,841)
Purchase of mortgage-backed
securities available for sale (96,543) (30,612) (49,170)
Purchase of interest in low-
income housing project - - (2,865)
Net increase in loans and
leases (36,262) (55,546) (33,384)
Increase in assets under
operating leases (12,161) (3,259) -
Capital expenditures (4,365) (2,522) (5,589)
Net cash and cash equivalents
(paid)/received in acquisition
of subsidiaries 2,730 670 (43)
Net cash received from minority
interest stockholders 2,950 - -
Proceeds on sale of fixed assets 8 1 2
Proceeds on sale of repossessed
assets 831 7 208
------- ------- -------
Net cash used by investing
activities (92,631) (61,991) (76,968)
Cash Flows from Financing
Activities:
Net increase in demand deposits
and savings accounts 50,481 17,137 19,663
Net increase in time deposit
accounts 43,864 15,182 4,093
Net increase in other
borrowings 15,250 23,886 4,500
Net increase (decrease) in
short-term borrowings (42,979) 11,483 25,039
Purchase of treasury stock (4,431) (865) (759)
Proceeds from sale of
treasury stock 669 948 1,296
Dividends (2,930) (2,465) (1,886)
------- ------- -------
Net cash provided by
financing activities 59,924 65,306 51,946
------- ------- -------
Net increase (decrease) in cash
and cash equivalents (14,354) 17,105 (14,725)
Cash and cash equivalents at
beginning of year 57,185 40,080 54,805
------- ------- -------
Cash and cash equivalents at
end of period $42,831 $57,185 $40,080
======= ======= =======
Supplemental disclosures:
Cash paid for income/franchise
taxes $ 3,303 $ 3,090 $ 3,065
Cash paid for interest $35,681 $31,318 $27,458
Securities contributed to
public charitable trust - - 220
Other borrowings transferred
to short-term borrowings $15,323 $25,500 8,000
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
ONE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations-Heartland Financial USA, Inc. ("Heartland")
is a multi-bank holding company primarily operating full-service
retail banking offices in Dubuque and Lee Counties in Iowa; Jo
Daviess, Hancock and Winnebago Counties in Illinois; Dane County
in Wisconsin and Bernalillo County in New Mexico, serving
communities in and around those counties. The principal services
of Heartland, through its subsidiaries, are FDIC-insured deposit
accounts and related services, and loans to businesses and
individuals. The loans consist primarily of commercial and
commercial real estate and residential real estate.
Principles of Presentation-The consolidated financial statements
include the accounts of Heartland and its subsidiaries: Dubuque
Bank and Trust Company ("DB&T"); Galena State Bank and Trust
Company ("GSB"); Riverside Community Bank ("RCB"); Wisconsin
Community Bank ("WCB"), previously Cottage Grove State Bank); New
Mexico Bank & Trust ("NMB"); First Community Bank, FSB ("FCB");
Citizens Finance Co.("Citizens"); ULTEA, Inc. ("ULTEA"); DB&T
Insurance, Inc.; DB&T Community Development Corp.; DBT Investment
Corporation; and Keokuk Bancshares, Inc. dba KBS Investment Corp.
All subsidiaries are wholly-owned with the exception of NMB of
which Heartland is the 80% owner. All significant intercompany
balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and with
general practice within the banking industry. In preparing such
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible
to significant change relate to the determination of the
allowance for possible loan and lease losses.
Securities-All securities consist of debt or marketable equity
securities.
Securities Available for Sale-Available for sale securities
consist of those securities not classified as held to maturity or
trading, which management intends to hold for indefinite periods
of time or that may be sold in response to changes in interest
rates, prepayments or other similar factors. Such securities are
stated at fair value with any unrealized gain or loss, net of
applicable income tax, reported as a separate component of
stockholders' equity. Security premiums and discounts are
amortized/accreted using the interest method over the period from
the purchase date to the maturity or call date of the related
security. Gains or losses from the sale of available for sale
securities are determined based upon the adjusted cost of the
specific security sold.
Securities Held to Maturity-Securities which Heartland has the
ability and positive intent to hold to maturity are classified as
held to maturity. Such securities are stated at amortized cost,
adjusted for premiums and discounts that are amortized/accreted
using the interest method over the period from the purchase date
to the maturity date of the related security.
Loans and Leases-Interest on loans is accrued and credited to
income based primarily on the principal balance outstanding.
Income from leases is recorded in decreasing amounts over the
term of the contract resulting in a level rate of return on the
lease investment. The policy of Heartland is to discontinue the
accrual of interest income on any loan or lease when, in the
opinion of management, there is a reasonable doubt as to the
timely collection of the interest and principal. When interest
accruals are deemed uncollectible, interest credited to income in
the current year is reversed and interest accrued in prior years
is charged to the allowance for possible loan and lease losses.
Nonaccrual loans and leases are returned to an accrual status
when, in the opinion of management, the financial position of the
borrower indicates that there is no longer any reasonable doubt
as to the timely payment of interest and principal.
Under Heartland's credit policies, all nonaccrual and
restructured loans are defined as impaired loans. Loan
impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest
rate, except where more practical, at the observable market price
of the loan or the fair value of the collateral if the loan is
collateral dependent.
Net nonrefundable loan and lease origination fees and certain
direct costs associated with the lending process are deferred and
recognized as a yield adjustment over the life of the related
loan or lease.
Loans held for sale are stated at the lower of individual cost or
estimated fair value. Loans are sold on a nonrecourse basis with
either servicing released or retained, and gains and losses are
recognized based on the difference between sales proceeds and the
carrying value of the loan.
Mortgage loan servicing rights retained on loans sold to others,
which are not material to the financial position or results of
operation, are not included in the accompanying consolidated
financial statements. The unpaid principal balances of these
loans as of December 31, 1998 and 1997, were $154,089 and
$109,203, respectively. Custodial escrow balances maintained in
connection with the loan servicing portfolio were approximately
$894 and $667 as of December 31, 1998 and 1997, respectively.
Allowance for Possible Loan and Lease Losses-The allowance for
possible loan and lease losses is maintained at a level estimated
by management to provide for known and inherent risks in the loan
and lease portfolios. The allowance is based upon a continuing
review of past loan and lease loss experience, current economic
conditions, volume growth, the underlying collateral value of the
loans and leases and other relevant factors. Loans and leases
which are deemed uncollectible are charged off and deducted from
the allowance. Provisions for possible loan and lease losses and
recoveries on previously charged-off loans and leases are added
to the allowance.
Premises, Furniture and Equipment-Premises, furniture and
equipment are stated at cost less accumulated depreciation. The
provision for depreciation of premises, furniture and equipment
is determined by straight-line and accelerated methods over the
estimated useful lives of 18 to 39 years for buildings, 15 years
for land improvements and 3 to 7 years for furniture and
equipment.
Other Real Estate-Other real estate represents property acquired
through foreclosures and settlements of loans. Property acquired
is carried at the lower of the principal amount of the loan
outstanding at the time of acquisition, plus any acquisition
costs, or the estimated fair value of the property, less cost to
dispose. The excess, if any, of such costs at the time acquired
over the fair value is charged against the allowance for possible
loan and lease losses. Subsequent write downs estimated on the
basis of later evaluations, gains or losses on sales and net
expenses incurred in maintaining such properties are charged to
operations.
Goodwill-Goodwill represents the excess of the purchase price of
acquired subsidiaries' net assets over their fair value. Goodwill
is amortized over periods from 15 to 25 years on the straight-
line basis. On a periodic basis, Heartland reviews goodwill for
events or circumstances that may indicate a change in the
recoverability of the underlying basis.
Income Taxes-Heartland and its subsidiaries file a consolidated
federal income tax return. For state tax purposes, DB&T, GSB,
RCB, FCB, WCB and NMB ("Banks")file income or franchise tax
returns as required. The other entities file corporate income or
franchise tax returns as required by the various states.
Heartland has a tax allocation agreement which provides that each
subsidiary of the consolidated group pay a tax liability to, or
receive a tax refund from Heartland, computed as if the
subsidiary had filed a separate return.
Heartland recognizes certain income and expenses in different
time periods for financial reporting and income tax purposes. The
provision for deferred income taxes is based on an asset and
liability approach and represents the change in deferred income
tax accounts during the year, including the effect of enacted tax
rate changes. Deferred tax assets are recognized if their
expected realization is "more likely than not".
Treasury Stock-Treasury stock is accounted for by the cost
method, whereby shares of common stock reacquired are recorded at
their purchase price.
Trust Department Assets-Property held for customers in fiduciary
or agency capacities is not included in the accompanying
consolidated balance sheets, as such items are not assets of the
Banks.
Earnings Per Share - Basic earning per share, pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", is determined using net income and
weighted average common shares outstanding. Diluted
earnings per share, as defined by SFAS No. 128, is computed by
dividing net income by the weighted average common shares
outstanding plus the assumed incremental common shares issued
upon exercise of stock options. Amounts used in the determination
of basic and diluted earnings per share for the years ended
December 31, 1998, 1997, and 1996 are shown in the table below.
1998 1997 1996
------ ------ -------
Net income $9,021 $8,515 $8,006
====== ====== ======
Weighted average common shares
outstanding 9,463 9,476 9,430
Assumed incremental common shares
issued upon exercise of stock
options 148 143 122
------ ------ ------
Weighted average common shares
for diluted earnings per share 9,611 9,619 9,552
====== ====== ======
Cash Flows-For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and
federal funds sold. Generally, federal funds are purchased and
sold for one-day periods.
Effect of New Financial Accounting Standards - Heartland adopted
SFAS No. 130,"Reporting Comprehensive Income,"on January 1, 1998.
SFAS No. 130 establishes standards for the reporting and display
of comprehensive income in the financial statements.
Comprehensive income consists of net income and certain amounts
reported directly in stockholders' equity, such as the net
unrealized gains or losses on available for sale securities. The
statement requires only additional disclosures in the
consolidated financial statements; it does not affect Heartland's
financial position or results of operations. Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
SFAS No. 131,"Disclosure About Segments of an Enterprise and
Related Information," was effective for Heartland for the year
beginning January 1, 1998, and established disclosure
requirements for segment operations. The adoption had no effect
on Heartland's financial statement disclosures.
SFAS No. 132,"Employers' Disclosures About Pensions and Other
Postretirement Benefits," was effective for Heartland for the
year beginning January 1, 1998, and revises the disclosure
requirements for pension and other postretirement benefit plans.
The adoption had no effect on Heartland's financial statement
disclosures.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will be effective for Heartland for the year
beginning January 1, 2000. Heartland expects to adopt SFAS No.
133 when required. Management does not believe the adoption of
SFAS No. 133 will have a material impact on the consolidated
financial statements.
TWO
ACQUISITIONS
Heartland regularly explores opportunities for acquisitions of
financial institutions and related businesses. Generally,
management does not make a public announcement about an
acquisition opportunity until a definitive agreement has been
signed.
On February 10, 1999, WCB entered into an office purchase and
assumption agreement with Bank One Wisconsin to acquire their
Monroe bank ("Monroe"). This transaction will require a cash
payment of $11,487 which will be funded by Heartland's revolving
credit line. Monroe will become a branch of WCB, headquartered
in Cottage Grove, Wisconsin. The transaction is subject to
regulatory approval and is expected to close in the third quarter
of 1999. This transaction will be accounted for as a purchase.
On July 17, 1998, Heartland acquired all of the assets and
assumed certain liabilities of Arrow Motors, Inc., a Wisconsin
corporation doing business as Lease Associates Group ("LAG") in
Milwaukee. With $28,000 in total assets, LAG was merged into
ULTEA, Heartland's wholly-owned fleet leasing subsidiary. The
stockholders of LAG, at the acquisition date, received 287,644
shares of Heartland common stock and the remaining balance of
$1,929 in a promissory note payable over three years bearing a
rate of 7.50%. The excess of the purchase price over the fair
value of net assets acquired was $632 and is being amortized
using the straight-line method over 25 years. The transaction
was accounted for as a purchase transaction, and accordingly, the
results of operations are included in the consolidated financial
statements from the acquisition date. The pro forma effect of
the acquisition was not material to the financial statements.
During 1997, Heartland entered into an agreement with a group of
New Mexico business leaders to establish a new bank in
Albuquerque. NMB opened on May 4, 1998, and Heartland funded the
remaining $10,850 of the $12,050 initial capital investment
through the use of the revolving credit line.
On March 1, 1997, Heartland acquired Cottage Grove State Bank
(subsequently named WCB), a $39,287 Wisconsin state bank located
in Cottage Grove, Wisconsin, at a cost of $7,890. The
stockholders of Cottage Grove State Bank, at the date of
acquisition, received cash of $4,892 and the remaining balance in
contracts payable over two, three or four years, at their
discretion, bearing rates of 7.00% and 7.50%. The amount paid in
excess of the equity of WCB allocated to securities and office
property and equipment was $138 and $672, respectively. The
amounts are being amortized over the remaining lives of the
assets using the methods and lives as described in note one. The
remaining purchase price paid in excess of the fair value of net
assets acquired was $2,465 and is being amortized using the
straight-line method over 25 years. This transaction was
accounted for as a purchase; accordingly, WCB's results of
operations were included in the consolidated financial statements
from the acquisition date.
Pro forma unaudited operating results, giving effect to the WCB
acquisition as if it had occurred at the beginning of the years
ended December 31, 1997 and 1996 are as follows:
1997 1996
---- ----
Interest income $59,749 $54,758
Interest expense 32,037 29,214
Provision for loan losses 1,334 1,492
Noninterest income 8,606 7,623
Noninterest expense 23,075 20,527
------- -------
Income before income taxes 11,909 11,148
Income taxes 3,374 2,913
------- -------
Net income $ 8,535 $ 8,235
======= =======
Earnings per common
share-basic $ .90 $ .87
======= =======
THREE
CASH AND DUE FROM BANKS
The Banks are required to maintain certain average cash reserve
balances as a member of the Federal Reserve System. The reserve
balance requirements at December 31, 1998 and 1997 were $1,257
and $1,420 respectively.
FOUR
SECURITIES
The amortized cost, gross unrealized gains and losses and
estimated fair values of held to maturity and available for sale
securities as of December 31, 1998 and 1997, are summarized as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- --------- --------
1998
Securities held to
maturity:
Obligations of
states and political
subdivisions $ 2,718 $ 153 $ - $ 2,871
-------- -------- -------- --------
Total $ 2,718 $ 153 $ - $ 2,871
======== ======== ======== ========
Securities available
for sale:
U.S. Treasury securities $ 1,701 $ 8 $ - $ 1,709
U.S. government
corporations and
agencies 76,471 1,005 (115) 77,361
Mortgage-backed
securities 127,732 817 (232) 128,317
Obligations of states
and political
subdivisions 17,281 1,542 (5) 18,818
Corporate debt
securities 2,454 40 (1) 2,493
-------- -------- --------- --------
Total debt
securities 225,639 3,412 (353) 228,698
Equity securities 10,778 647 (353) 11,072
-------- -------- --------- --------
Total $236,417 $ 4,059 $ (706) $239,770
======== ======== ========= ========
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- --------- ---------
1997
Securities held to
maturity:
U. S. government
corporations and
agencies $ 598 $ 2 $ - $ 600
Mortgage-backed
securities 325 - - 325
Obligations of
states and political
subdivisions 2,956 119 (1) 3,074
-------- -------- -------- --------
Total $ 3,879 $ 121 $ (1) $ 3,999
======== ======== ======== ========
Securities available
for sale:
U.S. Treasury securities $ 13,232 $ 110 $ - $ 13,342
U.S. government
corporations and
agencies 63,649 177 (64) 63,762
Mortgage-backed
securities 86,010 813 (133) 86,690
Obligations of states
and political
subdivisions 16,741 1,054 (49) 17,746
Corporate debt
securities 700 24 - 724
-------- -------- --------- --------
Total debt
securities 180,332 2,178 (246) 182,264
Mutual funds 548 - (36) 512
Equity securities 12,925 2,199 (31) 15,093
-------- -------- --------- --------
Total $193,805 $ 4,377 $ (313) $197,869
======== ======== ========= ========
The amortized cost and estimated fair value of debt securities
held to maturity and available for sale at December 31, 1998, by
estimated maturity, are as follows. Expected maturities will
differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without penalties.
Estimated
Amortized Fair
Cost Value
--------- ---------
Securities held to maturity:
Due in 1 year or less $ 45 $ 46
Due in 1 to 5 years 1,476 1,516
Due in 5 to 10 years 852 925
Due after 10 years 345 384
-------- --------
Total $ 2,718 $ 2,871
======== ========
Securities available for sale:
Due in 1 year or less $ 76,384 $ 76,733
Due in 1 to 5 years 127,862 129,024
Due in 5 to 10 years 5,111 5,332
Due after 10 years 16,282 17,609
-------- --------
Total $225,639 $228,698
======== ========
As of December 31, 1998, securities with a market value of
$111,819 were pledged to secure public and trust deposits, short-
term borrowings and for other purposes as required by law.
Gross gains and losses related to sales of securities for the
years ended December 31, 1998, 1997 and 1996, are summarized as
follows:
1998 1997 1996
-------- -------- --------
Securities sold:
Proceeds from sales $30,204 $24,033 $24,368
Gross security gains 1,945 1,526 2,240
Gross security losses 48 80 351
FIVE
LOANS AND LEASES
Loans and leases as of December 31, 1998 and 1997, were as
follows:
1998 1997
------ ------
Loans:
Commercial and commercial
real estate $277,765 $242,868
Residential mortgage 156,415 175,268
Agricultural and agricultural
real estate 77,211 69,302
Consumer 72,642 64,223
-------- --------
Loans, gross 584,033 551,661
Unearned discount (2,136) (2,077)
Deferred loan fees (272) (349)
-------- --------
Loans, net 581,625 549,235
-------- --------
Direct financing leases:
Gross rents receivable 7,281 6,240
Estimated residual value 2,514 2,097
Unearned income (1,287) (1,166)
-------- --------
Direct financing leases, net 8,508 7,171
-------- --------
Allowance for possible loan and
lease losses (7,945) (7,362)
-------- --------
Loans and leases, net $582,188 $549,044
======== ========
Direct financing leases receivable are generally short-term
equipment leases. Future minimum lease payments as of December
31, 1998, were as follows: 1999 $2,898; 2000, $2,032; 2001,
$1,928; 2002, $1,548; 2003, $973 and thereafter, $416.
As DB&T is the largest subsidiary of Heartland, the majority of
the loan portfolio is concentrated in northeast Iowa, northwest
Illinois and southwest Wisconsin.
Loans and leases on a nonaccrual status amounted to $1,324 and
$1,819 at December 31, 1998 and 1997, respectively. The allowance
for loan and lease losses related to these nonaccrual loans was
$176 and $208, respectively. Nonaccrual loans of $314 and $1,163
were not subject to a related allowance for loan and lease losses
at December 31, 1998 and 1997, respectively, because of the net
realizable value of loan collateral, guarantees and other
factors. The average balances of nonaccrual loans for the years
ended December 31, 1998, 1997 and 1996 were $1,437, $1,585 and
$1,212, respectively. For the years ended December 31, 1998,
1997 and 1996, interest income which would have been recorded
under the original terms of these loans and leases amounted to
approximately $59, $87 and $108, respectively and interest income
actually recorded amounted to approximately $10, $9 and $7,
respectively.
Loans are made in the normal course of business to directors,
officers and principal holders of equity securities of Heartland.
The terms of these loans, including interest rates and
collateral, are similar to those prevailing for comparable
transactions and do not involve more than a normal risk of
collectibility. Changes in such loans during the year ended
December 31, 1998, were as follows:
1998
--------
Balance at beginning of year $15,415
New loans 5,910
Repayments 9,815
--------
Balance at end of year $11,510
========
SIX
ALLOWANCE FOR POSSIBLE
LOAN AND LEASE LOSSES
Changes in the allowance for possible loan and lease losses for
the years ended December 31, 1998, 1997 and 1996, were as
follows:
1998 1997 1996
------ ------ ------
Balance at beginning of year $7,362 $6,191 $5,580
Provision for possible loan and
lease losses 951 1,279 1,408
Recoveries on loans and leases
previously charged off 455 145 129
Loans and leases charged off (823) (584) (926)
Additions related to acquisitions - 331 -
------ ------ ------
Balance at end of year $7,945 $7,362 $6,191
====== ====== ======
SEVEN
PREMISES, FURNITURE AND EQUIPMENT
Premises, furniture and equipment as of December 31, 1998 and
1997, were as follows:
1998 1997
------- -------
Land and land improvements $ 3,366 $ 2,107
Buildings and building improvements 15,787 15,366
Furniture and equipment 12,349 9,831
------- -------
Total 31,502 27,304
Less accumulated depreciation (11,722) (10,120)
------- -------
Premises, furniture and equipment, net $19,780 $17,184
======= =======
Depreciation expense on premises, furniture and equipment was
$1,730 for 1998, $1,443 for 1997 and $1,121 for 1996.
EIGHT
DEPOSITS
The aggregate amount of time certificates of deposit in
denominations of one hundred thousand dollars or more as of
December 31, 1998 and 1997, were $62,293 and $38,885,
respectively. At December 31, 1998, the scheduled maturities of
time certificates of deposit were as follows:
1998
---------
1999 $190,684
2000 108,941
2001 24,238
2002 12,863
2003 thereafter 17,428
--------
Total $354,154
========
Interest expense on deposits for the years ended December 31,
1998, 1997 and 1996, was as follows:
1998 1997 1996
------ ------ ------
Savings and insured money
market accounts $ 9,512 $ 8,317 $ 7,474
Time certificates of deposit in
denominations of $100 or more 2,905 1,961 2,131
Other time deposits 16,228 15,487 13,585
------- ------- -------
Interest expense on deposits $28,645 $25,765 $23,190
======= ======= =======
NINE
SHORT-TERM BORROWINGS
Short-term borrowings as of December 31, 1998 and 1997, were as
follows:
1998 1997
------- -------
Securities sold under
agreements to repurchase $36,716 $45,328
Federal funds purchased 13,175 6,550
Federal Home Loan Bank ("FHLB")
advances 14,504 27,500
U.S. Treasury demand note 3,636 15,728
Notes payable on leased assets 6,423 310
Contracts payable to previous
owners of LAG for acquisition 643 -
Contracts payable to previous
stockholders of WCB for
acquisition 823 823
------- -------
Total $75,920 $96,239
======= =======
See Note 11 related to collateral pledged for FHLB advances.
All repurchase agreements as of December 31, 1998 and 1997, were
due within six months.
Average and maximum balances and rates on aggregate short-term
borrowings outstanding during the years ended December 31, 1998,
1997 and 1996, were as follows:
1998 1997 1996
-------- ------- -------
Maximum month-end balance $102,313 $96,239 $56,358
Average month-end balance 80,277 73,170 42,025
Weighted average interest
rate for the year 5.19% 5.32% 5.24%
Weighted average interest
rate at year-end 5.00 5.49 5.75
TEN
INCOME TAXES
Income taxes for the years ended December 31, 1998, 1997 and
1996, were as follows:
Current Deferred Total
-------------------------
1998:
Federal $2,900 $ 300 $3,200
State 577 (20) 557
------ ------ ------
Total $3,477 $ 280 $3,757
====== ====== ======
1997:
Federal $2,977 $ (47) $2,930
State 428 (20) 408
------ ------ ------
Total $3,405 $ (67) $3,338
====== ====== ======
1996:
Federal $2,291 $ (42) $2,249
State 500 (64) 436
------ ------ ------
Total $2,791 $ (106) $2,685
====== ====== ======
Temporary differences between the amounts reported in the
financial statements and the tax basis of assets and liabilities
result in deferred taxes. No valuation allowance was required
for deferred tax assets. Based upon Heartland's level of
historical taxable income and anticipated future taxable income
over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that Heartland
will realize the benefits of these deductible differences.
Deferred tax liabilities and assets for the years ended December
31, 1998 and 1997, were as follows:
1998 1997
------ ------
Deferred tax assets:
Allowance for possible loan
and lease losses $ 2,997 $ 2,710
Deferred compensation 244 240
Securities 136 -
Net operating loss 468 225
------- -------
Gross deferred tax assets $ 3,845 $ 3,175
------- -------
Deferred tax liabilities:
Unrealized gain on securities
available for sale $(1,246) $(1,519)
Fixed assets (4,470) (1,440)
Leases (1,360) (1,360)
Tax bad debt reserves (697) (830)
Securities - (145)
Prepaid expenses (165) (120)
Other (30) (35)
------- -------
Gross deferred tax liabilities $(7,968) $(5,449)
------- -------
Net deferred tax (liability) $(4,123) $(2,274)
======== ========
The actual income taxes differ from the expected amounts
(computed by applying the U.S. federal corporate tax rate of 35%
for 1998, 1997 and 1996, to income before income taxes) as
follows:
1998 1997 1996
--------------------------
Computed "expected" amount $4,472 $4,149 $3,742
Increase (decrease) resulting from:
Nontaxable interest income (511) (510) (560)
State income taxes, net of federal
tax benefit 360 260 280
Appreciated property contributed - - (230)
Graduated income tax rates (100) (100) (110)
Tax credits (440) (440) (440)
Other (24) (21) 3
------ ------ ------
Income taxes $3,757 $3,338 $2,685
====== ====== ======
Effective tax rates 29.4% 28.2% 25.1%
====== ====== =======
Heartland has investments in certain low-income housing projects
totaling $6,104 and $6,028 as of December 31, 1998 and 1997,
respectively, which are included in other assets in the
consolidated financial statements. These investments are
expected to generate federal income tax credits of approximately
$440 per year through 2005.
ELEVEN
OTHER BORROWINGS
Other borrowings at December 31, 1998 and 1997, were
as follows:
1998 1997
------- -------
Advances from the FHLB;
weighted average maturity dates at
December 31, 1998 and 1997, were
July, 2002 and August, 2001,
respectively; and weighted average
interest rates were 6.12% and 6.06%,
respectively $26,114 $36,900
Notes payable on leased assets with
interest rates varying from 5.87% to
9.50% 12,845 622
Revolving credit line 16,200 3,500
Contracts payable to previous stock-
holders of LAG for acquisition due
over a three-year schedule at 7.50%
through July, 2001. 1,286 -
Contracts payable to previous stock-
holders of WCB for acquisition due
in annual payments over two-, three- or
four-year schedules at interest rates
of 7.00% to 7.50% through March, 2001 1,178 2,001
------- ------
Total $57,623 $43,023
======= =======
DB&T, GSB, FCB and RCB are members of the FHLB of Des Moines or
of Chicago. The advances from the FHLB are collateralized by the
Banks' investment in FHLB stock of $3,659 and $6,431 at December
31, 1998, and December 31, 1997, respectively. Additional
collateral is provided by the Banks' one-to-four unit residential
mortgages totaling $116,520 at December 31, 1998, and $142,777 at
December 31, 1997.
On October 31, 1997, Heartland entered into a four-year,
unsecured revolving credit line with an unaffiliated bank, which
provides for variable-rate borrowings of up to $20,000. Under the
terms of this agreement, Heartland must maintain a minimum return
on average assets, maximum nonperforming assets to total loans
ratio, maximum funded debt to total equity capital ratio and each
of Heartland's banking subsidiaries must remain well capitalized.
Future payments at December 31, 1998, for all other borrowings
were as follows:
2000 $ 18,664
2001 23,854
2002 7,005
2003 1,505
Thereafter 6,595
--------
Total $ 57,623
========
TWELVE
EMPLOYEE BENEFIT PLANS
Heartland sponsors retirement plans covering substantially all
employees. Contributions to the plans are subject to approval by
the Heartland Board of Directors, and the Heartland subsidiaries
fund and record as an expense all approved contributions. Costs
charged to operating expenses were $435 for 1998, $418 for 1997
and $382 for 1996.
Heartland also has a non-contributory, defined contribution
pension plan covering substantially all employees. Annual
contributions are based upon 5% of qualified compensation as
defined in the plan. Costs charged to operating expense were $435
for 1998, $418 for 1997 and $382 for 1996. Heartland also has an
employee savings plan covering substantially all employees. Under
the employee savings plan, the Heartland subsidiaries make
matching contributions of up to 2% of the participants' wages.
Costs charged to operating expenses were $161 for 1998, $150 for
1997 and $140 for 1996.
THIRTEEN
COMMITMENTS AND CONTINGENT LIABILITIES
Heartland leases certain land and facilities under operating
leases. Minimum future rental commitments at December 31, 1998,
for all non-cancelable leases were as follows:
1999 $264
2000 90
2001 60
2002 22
2003 22
Thereafter 89
----
Total $547
====
Rental expense for premises and equipment leased under operating
leases was $268 for 1998, $78 for 1997 and $128 for 1996.
In the normal course of business, the Banks make various
commitments and incur certain contingent liabilities that are not
presented in the accompanying consolidated financial statements.
The commitments and contingent liabilities include various
guarantees, commitments to extend credit and standby letters of
credit.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Banks upon
extension of credit, is based upon management's credit evaluation
of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties. Standby letters of credit
and financial guarantees written are conditional commitments
issued by the Banks to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. At
December 31, 1998 and 1997, commitments to extend credit
aggregated $229,332 and $140,677 and standby letters of credit
aggregated $6,230 and $5,267, respectively. Heartland does not
anticipate any material loss as a result of the commitments and
contingent liabilities.
FOURTEEN
STOCK PLANS
Heartland's Stock Option Plan ("Plan") is administered by the
Compensation Committee ("Committee") of the Board of Directors
whose members determine to whom options will be granted and the
terms of each option. Under the Plan, 1,200,000 common shares
have been reserved for issuance. Directors and key policy-making
employees are eligible for participation in the Plan. Options may
be granted that are either intended to be "incentive stock
options" as defined under Section 422 of the Internal Revenue
Code or not intended to be incentive stock options ("non-
qualified stock options"). The exercise price of stock options
granted will be established by the Committee, but the exercise
price for the incentive stock options may not be less than the
fair market value of the shares on the date that the option is
granted. Each option granted is exercisable in full at any time
or from time to time, subject to vesting provisions, as
determined by the Committee and as provided in the option
agreement, but such time may not exceed ten years from the grant
date. At December 31, 1998 and 1997 respectively, there were
468,519 and 628,006 shares available for issuance under the Plan.
Under the Plan, stock appreciation rights ("SARS") may also be
granted alone or in tandem with or with reference to a related
stock option, in which event the grantee, at the exercise date,
has the option to exercise the option or the SARS, but not both.
SARS entitle the holder to receive in cash or stock, as
determined by the Committee, an amount per share equal to the
excess of the fair market value of the stock on the date of
exercise over the fair value at the date the SARS or related
options were granted. SARS may be exercisable for up to ten years
after the date of grant. No SARS have been granted under the
Plan.
A summary of the status of the Plan as of December 31, 1998, 1997
and 1996, and changes during the years ended follows:
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------ -------- ------ ---------
Outstanding
at beginning
of year 522 $ 9 392 $ 8 248 $ 8
Granted 196 15 146 12 222 9
Exercised (28) 15 (4) 13 (47) 11
Forfeited (36) 16 (12) 13 (31) 11
---- ---- ---
Outstanding at
end of year 654 $10 522 $ 9 392 $ 8
==== === ===
Options
exercisable
at end of year 6 $12 6 $12 6 $12
Weighted-average
fair value of
options
granted during
the year $3.65 $3.83 $2.07
As of December 31, 1998 and 1997, options outstanding had
exercise prices ranging from $8 to $14.75 per share and a
weighted-average remaining contractual life of 7.40 and 8.00
years, respectively.
The fair value of stock options granted was determined utilizing
the Black Scholes Valuation model. Significant assumptions
include:
1998 1997 1996
------ ------ ------
Risk-free interest rate 5.75% 6.30% 5.68%
Expected option life 10 Years 10 Years 10 Years
Expected volatility 24.27% 24.27% 28.62%
Expected dividends 1.76% 2.17% 2.29%
Heartland applies APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation cost for its stock options has
been recognized in the financial statements. Had Heartland
determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123 "Accounting for
Stock-Based Compensation", Heartland's net income would have been
reduced to the pro forma amounts indicated below:
1998 1997 1996
---- ---- ----
Net income as reported $9,021 $8,515 $8,006
Pro forma 8,745 8,317 7,853
Earnings per share-basic
as reported $ .95 $ .90 $ .85
Pro forma .92 .88 .83
Earnings per share-diluted
as reported $ .94 $ .89 $ .84
Pro forma .91 .86 .82
Pro forma net income reflects only options granted in 1998, 1997,
1996 and 1995. 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 is reflected over the options' vesting
period, and compensation cost for options granted prior to
January 1, 1995, is not considered.
In 1996, Heartland adopted the Heartland Employee Stock Purchase
Plan ("ESPP"), which permits all eligible employees to purchase
shares of Heartland common stock at a price of not less than 85%
of the fair market value on the determination date (as determined
by the Committee). A maximum of 400,000 shares is available for
sale under the ESPP. For the years ended December 31, 1998 and
1997, Heartland approved a price of 100% of fair market value at
December 31, 1997 and December 31, 1996, respectively. At
December 31, 1998 and 1997, respectively, 15,333 and 19,146
shares were purchased under the ESPP at no charge to Heartland's
earnings.
During each of the years ended December 31, 1998, 1997 and 1996,
Heartland acquired shares for use in the executive stock purchase
plan, the Plan and the ESPP. Shares acquired totaled 290,924,
65,670 and 74,618 for 1998, 1997 and 1996, respectively.
In 1991, Heartland adopted a stock purchase plan which provides
executive officers of Heartland and the Banks the opportunity to
purchase up to a cumulative total of 400,000 common shares of
Heartland stock. Under this plan, Heartland may issue treasury
shares at a price equal to the price paid when acquired as
treasury shares. Cumulative shares sold through December 31,
1997 under the plan were 399,800. Total compensation expense
associated with this plan was $267 and $42 for 1997 and 1996,
respectively. No additional shares are anticipated to be issued
under this plan. A summary of the activity in the executive
restricted stock purchase plan for the years ended December 31,
1997 and 1996 follows:
1997 1996
------- -------
Granted 55,268 139,076
Exercised 55,068 83,808
Forfeited 200 55,268
Average Offering Price $ 8.10 $ 8.10
FIFTEEN
FAIR VALUE OF FINANCIAL INSTRUMENTS
Following are disclosures of the estimated fair value of
Heartland's financial instruments. The estimated fair value
amounts have been determined using available market information
and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts
Heartland could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
December 31, December 31,
1998 1997
-------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------------
Financial Assets:
Cash and cash equivalents $ 42,831 $ 42,831 $ 57,185 $ 57,185
Time deposits in other
banks 6,127 6,127 194 194
Securities available for
sale 239,770 239,770 197,869 197,869
Securities held to
maturity 2,718 2,871 3,879 3,999
Loans and leases, net of
unearned 590,133 594,185 556,406 558,515
Financial Liabilities:
Demand deposits $ 70,871 $ 70,871 $ 60,950 $ 60,950
Savings deposits 292,852 292,852 252,292 252,292
Time deposits 354,154 358,044 310,290 310,869
Short-term borrowings 75,920 75,920 96,239 96,239
Other borrowings 57,623 58,872 43,023 43,288
Cash and Cash Equivalents and Time Deposits in Other Banks - The
carrying amount is a reasonable estimate of fair value.
Securities - For securities either held to maturity or available
for sale, fair value equals quoted market price if available. If
a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans and Leases - The fair value of loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. The fair
value of loans held for sale is estimated using quoted market
prices.
Deposits - The fair value of demand deposits, savings accounts
and certain money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Short-term and Other Borrowings - Rates currently available to
the Banks for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt.
Commitments to Extend Credit, Unused Lines of Credit and Standby
Letters of Credit - Based upon management's analysis of the off
balance sheet financial instruments, there are no significant
unrealized gains or losses associated with these financial
instruments based upon our review of the fees currently charged
to enter into similar agreements, taking into account the
remaining terms of the agreements and the present
creditworthiness of the counterparties.
SIXTEEN
REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS ON SUBSIDIARY
DIVIDENDS
The 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 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 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, 1998 and 1997,
that the Banks met all capital adequacy requirements to which
they were subject.
As of December 31, 1998, the most recent notification from the
FDIC categorized each of the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized, the 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 the institution's category.
The Banks' actual capital amounts and ratios are also presented
in the table below.
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
As of December 31, 1998
Total Capital (to Risk-
Weighted Assets)
Consolidated $89,093 12.13% $58,757 >8.0% N/A
DB&T 44,380 10.10 35,144 >8.0 $43,930 >10.0%
GSB 10,850 13.66 6,353 >8.0 7,941 >10.0
FCB 9,385 13.53 5,551 >8.0 6,939 >10.0
RCB 4,818 11.23 3,431 >8.0 4,288 >10.0
WCB 4,774 13.60 2,809 >8.0 3,511 >10.0
NMB 14,901 45.85 2,600 >8.0 3,250 >10.0
Tier 1 Capital (to Risk-
Weighted Assets)
Consolidated $81,149 11.05% $29,379 >4.0% N/A
DB&T 39,960 9.10 17,572 >4.0 $26,358 >6.0%
GSB 9,857 12.41 3,177 >4.0 4,765 >6.0
FCB 8,516 12.27 2,776 >4.0 4,163 >6.0
RCB 4,398 10.26 1,715 >4.0 2,573 >6.0
WCB 4,358 12.41 1,405 >4.0 2,107 >6.0
NMB 14,535 44.72 1,300 >4.0 1,950 >6.0
Tier 1 Capital
(to Average Assets)
Consolidated $81,149 8.58% $37,810 >4.0% N/A
DB&T 39,960 7.38 21,670 >4.0 $27,088 >5.0%
GSB 9,857 7.76 5,082 >4.0 6,353 >5.0
FCB 8,516 8.36 4,073 >4.0 5,092 >5.0
RCB 4,398 7.03 2,502 >4.0 3,127 >5.0
WCB 4,358 9.14 1,908 >4.0 2,385 >5.0
NMB 14,535 40.62 1,431 >4.0 1,789 >5.0
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
-------------- -------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
As of December 31, 1997
Total Capital (to Risk-
Weighted Assets)
Consolidated $78,995 12.71% $49,707 >8.0% N/A
DB&T 43,180 10.92 31,629 >8.0 $39,537 >10.0%
GSB 9,526 13.09 5,821 >8.0 7,276 >10.0
FCB 9,068 11.05 6,563 >8.0 8,204 >10.0
RCB 3,710 12.04 2,465 >8.0 3,081 >10.0
WCB 4,855 18.32 2,120 >8.0 2,650 >10.0
Tier 1 Capital (to Risk-
Weighted Assets)
Consolidated $71,713 11.54% $24,854 >4.0% N/A
DB&T 38,754 9.80 15,815 >4.0 $23,722 > 6.0%
GSB 8,615 11.84 2,910 >4.0 4,366 > 6.0
FCB 8,197 9.99 3,282 >4.0 4,922 > 6.0
RCB 3,354 10.89 1,232 >4.0 1,849 > 6.0
WCB 4,524 17.07 1,060 >4.0 1,590 > 6.0
Tier 1 Capital
(to Average Assets)
Consolidated $71,713 8.76% $32,729 >4.0% N/A
DB&T 38,754 7.81 19,841 >4.0 $24,801 > 5.0%
GSB 8,615 7.06 4,883 >4.0 6,103 > 5.0
FCB 8,197 7.53 4,355 >4.0 5,444 > 5.0
RCB 3,354 7.79 1,723 >4.0 2,153 > 5.0
WCB 4,524 11.11 1,628 >4.0 2,035 > 5.0
The ability of Heartland to pay dividends to its stockholders is
dependent upon dividends paid by its subsidiaries. The Banks are
subject to certain statutory and regulatory restrictions on the
amount they may pay in dividends. To maintain acceptable capital
ratios in the Banks, certain portions of their retained earnings
are not available for the payment of dividends. Retained earnings
which could be available for the payment of dividends to
Heartland totaled approximately $33,220 as of December 31, 1998,
under the most restrictive minimum capital requirements.
SEVENTEEN
PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Heartland Financial USA, Inc.
is as follows:
Balance Sheets
December 31, 1998 1997
--------- ---------
Assets:
Cash and interest bearing deposits $ 695 $ 716
Investment in subsidiaries 100,585 80,584
Other assets 1,442 1,703
Due from subsidiaries - 1,350
--------- ---------
Total $102,722 $ 84,353
========= =========
Liabilities
and stockholders' equity:
Liabilities:
Contracts payable for acquisition of
WCB $ 2,001 $ 2,824
Notes payable 16,200 3,500
Accrued expenses and other liabilities 251 257
--------- ---------
Total liabilities 18,452 6,581
--------- ---------
Stockholders' equity:
Common stock 9,707 4,854
Capital surplus 10,131 13,706
Retained earnings 65,007 58,914
Accumulated other comprehensive
income 2,107 2,545
Treasury stock (2,682) (2,247)
--------- ---------
Total stockholders' equity 84,270 77,772
--------- ---------
Total $102,722 $ 84,353
========= =========
Income Statements for the
Years Ended December 31, 1998 1997 1996
------ ------ ------
Operating revenues:
Dividends from subsidiaries $7,413 $2,621 $5,611
Other 173 10 4
------ ------ ------
Total operating revenues 7,586 2,631 5,615
------ ------ ------
Operating expenses:
Interest 1,115 208 -
Outside services 151 219 197
Other operating expenses 442 350 443
------ ------ ------
Total operating expenses 1,708 777 640
------ ------ ------
Equity in undistributed earnings 2,684 6,398 2,815
------ ------ ------
Income before income tax benefit 8,562 8,252 7,790
Income tax benefit 459 263 216
------ ------ ------
Net income $9,021 $8,515 $8,006
====== ====== ======
Statements of Cash Flows For
the Years Ended December 31, 1998 1997 1996
------ ------ ------
Cash flows from operating
activities:
Net income $ 9,021 $ 8,515 $ 8,006
Adjustments to reconcile net
income to net cash provided by
operating activities:
Undistributed earnings of
subsidiaries (2,684) (6,398) (2,815)
(Increase) decrease in due
from subsidiaries 1,350 (1,135) (215)
Increase (decrease) in other
liabilities (6) 167 (54)
(Increase) decrease in other
assets 261 (1,499) (178)
------- ------- -------
Net cash provided (used)
by operating activities 7,942 (350) 4,744
------- ------- -------
Cash flows from investing
activities:
Capital injections for
subsidiaries (13,152) (2,855) (543)
Payments for purchase of
subsidiaries - (7,890) -
Retirement of subsidiary stock - 4,500 -
Other 4 - -
------- ------- -------
Net cash used by
investing activities (13,148) (6,245) (543)
------- ------- -------
Cash flows from financing
activities:
Payments on other borrowings (7,018) (1,042) -
Proceeds from contracts payable - 3,865 -
Proceeds from notes payable 18,895 3,500 -
Cash dividends paid (2,930) (2,465) (1,886)
Purchase of treasury stock (4,431) (865) (759)
Sale of treasury stock 669 1,110 1,296
------- ------- -------
Net cash provided (used) by
financing activities 5,185 4,103 (1,349)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents (21) (2,492) 2,852
Cash and cash equivalents at
beginning of year 716 3,208 356
------- ------- -------
Cash and cash equivalents at
end of year $ 695 $ 716 $ 3,208
======= ======= =======
Representations of Management
Management is responsible for the contents of the consolidated
financial statements and other information contained in other
sections of this annual report. 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. The consolidated financial statements
reflect management's judgments and estimates as to the effects of
events and transactions that are accounted for or disclosed. The
company maintains accounting and reporting systems, supported by
an internal accounting control system, which are adequate to
provide reasonable assurance that transactions are authorized,
assets are safeguarded, and reliable consolidated financial
statements are prepared, recognizing the cost and expected
benefits of internal accounting controls. A staff of internal
auditors conducts ongoing reviews of accounting practices and
internal accounting controls.
The consolidated financial statements as of December 31, 1998,
1997 and 1996, of Heartland Financial USA, Inc. and its
subsidiaries: Dubuque Bank and Trust Company; Galena State Bank
and Trust Company; Riverside Community Bank; Wisconsin Community
Bank; New Mexico Bank & Trust; First Community Bank, FSB; DB&T
Insurance, Inc.; DB&T Community Development Corp.; Citizens
Finance Co.; ULTEA, Inc.; Keokuk Bancshares, Inc. (dba KBS
Investment Corp); and DBT Investment Corporation were audited by
independent certified public accountants. Their role is to
render independent professional opinions of the fairness of the
consolidated financial statements based upon performance of
procedures they deem appropriate under generally accepted
auditing standards.
The Audit Committees of the Boards of Directors of member banks
meet periodically with the internal auditors to review matters
relating to internal accounting controls and the nature, extent
and results of audit efforts. The internal auditors and
independent certified public accountants have free access to the
Audit Committees.
/s/ Lynn B. Fuller
Lynn B. Fuller
President, Heartland Financial USA, Inc;
President and CEO, Dubuque Bank and Trust Company
/s/ John K. Schmidt
John K. Schmidt
Executive Vice President and CFO, Heartland Financial USA, Inc.;
Senior Vice President and CFO, Dubuque Bank and Trust Company
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heartland Financial USA, Inc.:
We have audited the accompanying consolidated balance sheets of
Heartland Financial USA, Inc. and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income,
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 Heartland Financial USA, Inc. and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations
and their cash flows for each the years in the three-year period
ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Des Moines, IA
January 21, 1999
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS
The information in the Heartland Proxy Statement for the 1999
annual meeting of stockholders dated April 5, 1999, (the "1999"
Proxy Statement") under the caption "Election of Directors" and
under the caption "Security Ownership of Directors and Executive
Officers and Certain Beneficial Owners" is incorporated by
reference. The information regarding executive officers is
included pursuant to Instruction 3 to Item 401 (b) and (c) of
Regulation S-K and is noted below.
EXECUTIVE OFFICERS
The term of office for the executive officers of Heartland 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 of Heartland as of December 31, 1998, offices
held by these officers on that date and other positions held with
Heartland and its subsidiaries are set forth below.
Position with Heartland
and Subsidiaries
Name Age and Principal Occupation
Lynn B. Fuller 49 Director and President
of Heartland; Director,
President and Chief Executive
Officer of DB&T; Director of
GSB, FCB, WCB, NMB, Keokuk,
DB&T Insurance, Citizens, DBT
Investment and DB&T
Development; President of
DB&T Insurance, DB&T
Development and Citizens;
Chairman and Director of RCB;
Chairman and Director of
ULTEA.
Lynn S. Fuller 74 Chairman of the Board
and Chief Executive Officer
of Heartland; Director and
Vice Chairman of the Board of
DB&T; Director of DB&T
Insurance, Citizens and DB&T
Development
James A. Schmid 75 Vice Chairman of the
Board of Heartland; Chairman
of the Board of DB&T;
Director of DB&T Insurance,
Citizens and DB&T Development
John K. Schmidt 39 Executive Vice President
and Chief Financial Officer
of Heartland; Senior Vice
President and Chief Financial
Officer of DB&T; Treasurer of
DB&T Insurance and Citizens;
Director of DBT Investment;
Vice President and Assistant
Secretary of ULTEA
Kenneth J. Erickson 47 Senior Vice President of
Heartland; Senior Vice
President, Lending of DB&T;
Senior Vice President of Cit-
izens; Director of ULTEA
Edward H. Everts 47 Senior Vice President,
Heartland; Senior Vice
President of Operations and
Retail Banking of DB&T
Douglas J. Horstmann 45 Senior Vice President,
Lending of Heartland; Senior
Vice President, Lending of
DB&T; Executive Vice
President of DB&T Development
Paul J. Peckosh 53 Senior Vice President,
Trust of DB&T
Mr. Lynn B. Fuller is the son of Mr. Lynn S. Fuller. There are no
other family relationships among any of the directors or
executive officers of Heartland.
Lynn B. Fuller has been a director of Heartland and of DB&T since
1984 and has been President of Heartland and DB&T since 1987. He
has been a director of GSB since its acquisition by Heartland in
1992 and of Keokuk and FCB since the merger in 1994. Mr. Fuller
joined DB&T in 1971 as a consumer loan officer and was named
DB&T's Executive Vice President and Chief Executive Officer in
1985. He was named Chairman and Director of RCB in conjunction
with the opening of the de novo operation in 1995, Director of
WCB in conjunction with the purchase of Cottage Grove State Bank
in 1997 and Director of NMB in conjunction with the opening of
the de novo bank in 1998.
Lynn S. Fuller has been a director of Heartland since its
formation in 1981 and of DB&T since 1964. Mr. Fuller began his
banking career in 1946 in Minnesota, and he returned to Iowa in
1949 to serve as Executive Vice President and Cashier of Jackson
State Savings Bank in Maquoketa. Mr. Fuller joined DB&T in 1964.
He was later named President of DB&T and held this position until
1987. Mr. Fuller remains as the Chairman of the Board and Chief
Executive Officer of Heartland.
James A. Schmid has been a director of Heartland since its
formation in 1981 and of DB&T since 1966. Mr. Schmid also
currently serves as the Vice Chairman of Heartland and as the
Chairman of the Board of DB&T.
John K. Schmidt has been Heartland's Executive Vice President and
Chief Financial Officer since 1991. He has been employed by DB&T
since September, 1984 and became DB&T's Vice President, Finance
in 1986, and Senior Vice President and Chief Financial Officer in
January, 1991. Mr. Schmidt is a certified public accountant and
worked at KPMG Peat Marwick in Des Moines, Iowa, from 1982 until
joining DB&T.
Kenneth J. Erickson has been Senior Vice President of Heartland
since 1992 and Senior Vice President, Lending of DB&T since 1989.
Mr. Erickson joined DB&T in 1975 and was appointed Vice
President, Commercial Loans in 1985.
Edward H. Everts was appointed as Senior Vice President of
Heartland in 1996. Mr. Everts joined DB&T as Senior Vice
President, Operations and Retail Banking in 1992. Prior to his
service with DB&T, Mr. Everts was Vice President and Lead Retail
Banking Manager of First Bank, Duluth, Minnesota.
Douglas J. Horstmann has been Senior Vice President, Lending, of
DB&T since 1989. Mr. Horstmann joined DB&T in 1980 and was
appointed Vice President, Commercial Loans in 1985. Prior to
joining DB&T, Mr. Horstmann was an examiner for the Iowa Division
of Banking.
Paul J. Peckosh has been Senior Vice President, Trust, of DB&T
since 1991. Mr. Peckosh joined DB&T in 1975 as Assistant Vice
President, Trust and was appointed Vice President, Trust in 1980.
Mr. Peckosh is an attorney and graduated from the Marquette
University of Law School in 1970.
ITEM 11.
EXECUTIVE COMPENSATION
The information in the 1999 Proxy Statement, under the caption
"Executive Compensation" is incorporated by reference, except for
the information contained under the heading "Compensation
Committee Report on Executive Compensation" and "Stockholder
Return Performance Presentation."
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the 1999 Proxy Statement, under the caption
"Security Ownership of Certain Beneficial Owners and Management"
is incorporated by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the 1999 Proxy Statement under the caption
"Transactions with Management" is incorporated by reference.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The documents filed as a part of this report are listed
below:
3. Exhibits
The exhibits required by Item 601 of Regulation S-K are
included along with this Form 10-K and are listed on the "Index
of Exhibits" immediately following the signature page.
(b) Reports of Form 8-K:
There were no reports on Form 8-K filed during the last
quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 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 on March 16, 1999.
Heartland Financial USA, Inc.
By:
/s/ Lynn S. Fuller /s/ John K. Schmidt
------------------------ ------------------------
Lynn S. Fuller John K. Schmidt
Chairman and Executive Vice President
Principal Executive Officer and Principal Financial
and Accounting Officer
Date: March 16, 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 indicated on
March 16, 1999.
/s/ Lynn B. Fuller /s/ Lynn S. Fuller
- ----------------------------- -----------------------------
Lynn B. Fuller Lynn S. Fuller
President and Director Chairman, CEO and Director
/s/ James A. Schmid /s/ Mark C. Falb
- ----------------------------- -----------------------------
James A. Schmid Mark C. Falb
Vice Chairman and Director Director
/s/ Gregory R. Miller /s/ Evangeline K. Jansen
- ----------------------------- -----------------------------
Gregory R. Miller Evangeline K. Jansen
Director and Director
Executive Vice President
/s/ Robert Woodward
- -----------------------------
Robert Woodward
Director
3. Exhibits
3.1 Certificate of Incorporation of Heartland
Financial USA, Inc. (Filed as Exhibit 3.1
to Registrant's Form S-4 for the fiscal year ended
December 31, 1993, and incorporated by reference
herein.)
3.2 Bylaws of Heartland Financial USA, Inc.
(Filed as Exhibit 3.2 to Registrant's Form S-4
for the fiscal year ended December 31, 1993, and
incorporated by reference herein.)
4.1 Specimen Stock Certificate of Heartland
Financial USA, Inc. (Exhibit 4.1 to the
Registration Statement on Form S-4 filed with the
Commission May 4, 1994, as amended (SEC File No. 33-
76228)
10.1 Heartland Financial USA, Inc. 1993 Stock
Option Plan (Filed as Exhibit 10.1 to
Registrant's Form S-4 for the fiscal year ended
December 31, 1993, and incorporated by reference
herein.)
10.2 Heartland Financial USA, Inc. Executive
Restricted Stock Purchase Plan (Filed as
Exhibit 10.2 to Registrant's Form S-4 for the fiscal
year ended December 31, 1993, and incorporated by
reference herein.)
10.3 Dubuque Bank and Trust Management Incentive
Compensation Plan (Filed as Exhibit 10.3 to
Registrant's Form S-4 for the fiscal
year ended December 31, 1993, and incorporated by
reference herein.)
10.4 Heartland Financial Money Purchase Pension Plan
and Defined Contribution Master Plan and Trust
Agreement dated January 1, 1995. (Filed as Exhibit
10.21 to Registrant's Form 10-K for the fiscal year
ended December 31, 1995, and incorporated
by reference herein.)
10.5 Dubuque Bank and Trust Company Executive Death
Benefit Program Plan Revisions, Enrollment Booklet,
and Universal Life Split-Dollar Agreement effective
December 1, 1995, and similar agreement are in place
at Galena State Bank and Trust Company, First
Community Bank, FSB, Riverside Community
Bank, Wisconsin Community Bank, New Mexico Bank & Trust
and ULTEA. (Filed as Exhibit 10.25 to Registrant's Form
10-K for the fiscal year ended December 31, 1995, and
incorporated by reference herein.)
10.6 Investment Center Agreement between Focused
Investment LLC and Heartland Financial USA, Inc.
dated August 1, 1995. (Filed as Exhibit 10.30
to Registrant's Form 10-K for the fiscal year ended
December 31, 1995, and incorporated by reference
herein.)
10.7 Heartland Financial USA, Inc. Employee Stock
Purchase Plan effective January 1, 1996.
(Filed in conjunction with Form S-8 on June 18, 1996,
and incorporated by reference herein.)
10.8 License and Service Agreement, Software License
Agreement, and Professional Services Agreement between
Fiserv and Heartland Financial USA, Inc. dated June 21,
1996. (Filed as Exhibit 10.43 to Registrant's form 10Q
for the quarter ended June 30, 1996, and incorporated
by reference herein.)
10.9 The Stock Purchase Agreement between Heartland
Financial USA, Inc. and the stockholders of Cottage
Grove State Bank dated November 8, 1996. (Filed as
Exhibit 10.36 to Registrant's Form 10K for the fiscal
year ended December 31, 1996, and incorporated by
reference herein.)
10.10 Stockholder Agreement between Heartland Financial
USA, Inc. and Investors in the Proposed New Mexico Bank
dated November 5, 1997. (Filed as Exhibit 10.23 to
Registrant's Form 10K for the fiscal year ended
December 31, 1997, and incorporated by reference
herein.)
10.11 Change of Control Agreements including Golden
Parachute Payment Adjustments and Restrictive Covenants
between Heartland Financial USA, Inc. and Executive Officers
dated January 1, 1999.
10.12 Change of Control Agreements between Heartland
Financial USA, Inc. and Executive Officers dated
January 1, 1999.
10.13 Heartland Financial USA, Inc. Health Care Plan dated
January 1, 1999.
10.14 Letter Agreement between Wisconsin Community Bank and
Bank One Wisconsin dated February 9, 1999.
10.15 Office Purchase and Assumption Agreement by and between
Bank One Wisconsin and Wisconsin Community Bank dated
February 9, 1999, excluding Schedules A through S.
11. Statement re Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
99.1 1999 Proxy Statement (only such parts as are incorporated
by reference into this Form 10-K)
Exhibit 10.11
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (this "Agreement") is made
as of the 1st day of January, 1999, (the "Effective Date") by and
between HEARTLAND FINANCIAL USA, INC., an Iowa corporation, (the
"Company") and (See Attachment to Exhibit 10.11)(the "Employee").
RECITALS
A. The Employee is currently serving as an employee of the
Company or one of its Affiliates.
B. The Company desires to continue to employ the Employee
as an employee of the Company or one of its Affiliates and the
Employer is willing to continue such employment.
C. The Company recognizes that circumstances may arise in
which a change of control of the Company through acquisition or
otherwise may occur thereby causing uncertainty of employment
without regard to the competence or past contributions of the
Employee, which uncertainty may result in the loss of valuable
services of the Employee, and the Company and the Employee wish
to provide reasonable security to the Employee against changes in
the employment relationship in the event of any such change of
control.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter contained, it is covenanted
and agreed by and between the parties hereto as follows:
1. Payment of Severance Amount. If the Employee's employment
by the Company, or any Affiliate or successor of the Company,
shall be subject to a Termination within the Covered Period, then
the Company shall pay the Employee an amount equal to the
applicable Severance Amount, payable within fifteen (15) days
after the Employee's termination that is related to the Change of
Control.
2. Definitions. As used throughout this Agreement, all of the
terms defined in this paragraph 2 shall have the meanings given
below.
A. An "Affiliate" shall mean any entity which owns or controls,
is owned by or is under common ownership or control with, the
Company.
B. "Base Annual Salary" shall mean the amount equal to the sum
of (i) the greater of Employee's then-current annual salary or
the Employee's annual salary as of the date one (1) day prior to
the Change of Control; (ii) the average of the three (3) most
recent bonuses paid to the Employee; and (iii) the average of the
three (3) most recent contributions made by the Company on behalf
of the Employee to the Company's tax-qualified retirement plans
(which, as of the date hereof, includes the profit sharing plan,
the money purchase pension plan and the 401(k) plan).
C. A "Change of Control" shall mean:
(i) the consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of fifty-one percent (51%) or more of the combined
voting power of the then outstanding Voting Securities of the
Company; or
(ii) the individuals who, as of the date hereof, are members of
the Board of Directors of the Company (the "Board") cease for any
reason to constitute a majority of the Board, unless the
election, or nomination for election by the stockholders, of any
new director was approved by a vote of a majority of the Board,
and such new director shall, for purposes of this Agreement, be
considered as a member of the Board; or
(iii) approval by stockholders of the Company of: (1) a
merger or consolidation if the stockholders, immediately before
such merger or consolidation, do not, as a result of such merger
or consolidation, own, directly or indirectly, more than fifty-
one percent (51%) of the combined voting power of the then
outstanding Voting Securities of the entity resulting from such
merger or consolidation in substantially the same proportion as
their ownership of the combined voting power of the Voting
Securities of the Company outstanding immediately before such
merger or consolidation; or (2) a complete liquidation or
dissolution or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because fifty-one percent (51%) or more
of the combined voting power of the then outstanding securities
of the Company are acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans
maintained for employees of the entity; or (2) any corporation
which, immediately prior to such acquisition, is owned directly
or indirectly by the stockholders in the same proportion as their
ownership of stock immediately prior to such acquisition.
D. "Covered Period" shall mean the period beginning six (6)
months prior to a Change of Control and ending twelve (12) months
after a Change of Control.
E. "Termination" shall mean termination of the Employee's
employment either:
(i) by the Company or its successor, as the case may be, during
the Covered Period, other than a Termination for Cause or any
termination as a result of death, disability, or normal
retirement pursuant to a retirement plan to which the Employee
was subject prior to any Change of Control; or
(ii) by the Employee, for any reason, during the period beginning
ten (10) days prior to a Change of Control and ending ten (10)
days after a Change of Control.
F. "Severance Amount" shall mean the sum of all amounts earned
or accrued through the Termination Date, including Base Annual
Salary, deferred compensation plan accruals and vacation pay,
plus (See Attachment to Exhibit 10.11) times the Employee's Base
Annual Salary.
G. "Termination for Cause" shall mean only a termination by the
Company as a result of the Employee's fraud, misappropriation of
or intentional material damage to the property or business of the
Company (including its Affiliates), substantial and material
failure by the Employee to fulfill the duties and
responsibilities of his or her regular position and/or comply
with the Company's or its Affiliates' policies, rules or
regulations, or the Employee's conviction of a felony.
H. "Termination Date" shall mean the date of employment
termination indicated in the written notice provided by the
Company or the Employee to the other.
I. "Voting Securities" shall mean any securities which
ordinarily possess the power to vote in the election of directors
without the happening of any pre-condition or contingency.
3. Golden Parachute Payment Adjustment. It is the intention of
the parties that the Severance Amount payments under this
Agreement shall not constitute "excess parachute payments" within
the meaning of Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code"), and any regulations thereunder. If the
independent accountants acting as auditors for the Company on the
date of a Change of Control (or another accounting firm
designated by the parties) determine, in consultation with legal
counsel acceptable to the parties, that any amount payable to the
Employee by the Company under this Agreement, or any other plan
or agreement under which the Employee participates or is a party,
would constitute an excess parachute payment within the meaning
of Section 280G of the Code and be subject to the "excise tax"
imposed by Section 4999 of the Code, then the Company shall pay
to the Employee the amount of such excise tax and all federal and
state income or other taxes with respect to the payment of the
amount of such excise tax, including all such taxes with respect
to any such additional amount. If at a later date, the Internal
Revenue Service assesses a deficiency against the Employee for
the excise tax which is greater than that which was determined at
the time such amounts were paid, the Company shall pay to the
Employee the amount of such excise tax plus any interest,
penalties and professional fees or expenses, incurred by the
Employee as a result of such assessment, including all such taxes
with respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of such
amounts will be used for purposes of determining the federal and
state income and other taxes with respect thereto. The Company
shall withhold from any amounts paid under this Agreement the
amount of any excise tax or other federal, state or local taxes
then required to be withheld. Computations of the amount of any
supplemental compensation paid under this subparagraph shall be
made by the independent public accountants then regularly
retained by the Company, in consultation with legal counsel
acceptable to the parties. The Company shall pay all accountant
and legal counsel fees and expenses.
4. Medical and Dental Benefits. If the Employee's employment
by the Company or any Affiliate or successor of the Company shall
be subject to a Termination within the Covered Period, then to
the extent that the Employee or any of the Employee's dependents
may be covered under the terms of any medical and dental plans of
the Company (or any Affiliate) for active employees immediately
prior to the termination, the Company will provide the Employee
and those dependents with equivalent coverages for a period not
to exceed twenty-four (24) months from the Termination Date. The
coverages may be procured directly by the Company (or any
Affiliate, if appropriate) apart from, and outside of the terms
of the plans themselves; provided that the Employee and the
Employee's dependents comply with all of the conditions of the
medical or dental plans. In the event the Employee or any of the
Employee's dependents become eligible for coverage under the
terms of any other medical and/or dental plan of a subsequent
employer which plan benefits are comparable to Company (or any
Affiliate) plan benefits, coverage under Company (or any
Affiliate) plans will cease for the eligible Employee and/or
dependent. The Employee and Employee's dependents must notify
the Company (or any Affiliate) of any subsequent employment and
provide information regarding medical and/or dental coverage
available. In the event the Company (or any Affiliate) discovers
that the Employee and/or dependent has become employed and not
provided the above notification, all payments and benefits under
this Agreement will cease.
5. Out-Placement Counseling. If the Employee's employment by
the Company or any Affiliate or successor of the Company shall be
subject to a Termination within the Covered Period, the Company
will provide out-placement counseling assistance in the form of
reimbursement of the expenses incurred for such assistance within
the twelve (12) month period following the Termination Date, such
reimbursement amount not to exceed one-quarter (1/4) of the
Employee's Base Annual Salary on the Termination Date.
6. A. Restrictive Covenant. The Company and the Employee have
jointly reviewed the customer lists and operations of the
Company and have agreed that the primary service area of the
lending and deposit taking functions of the Company in which the
Employee has actively participated extends to an area
encompassing a fifty (50) mile radius from the main office of
Dubuque Bank and Trust Company (DB&T). Therefore, as an
essential ingredient of and in consideration of this Agreement
and the payment of the Severance Amount, the Employee hereby
agrees that, except with the express prior written consent of the
Company, for a period of two (2) years after the termination of
the Employee's employment with the Company (the "Restrictive
Period"), he will not directly or indirectly compete with the
business of the Company, including, but not by way of limitation,
by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as
an employee, officer or director of or consultant to, or by
soliciting or inducing, or attempting to solicit or induce, any
employee or agent of the Company to terminate employment and
become employed by any person, firm, partnership, corporation,
trust or other entity which owns or operates, a bank, savings and
loan association, credit union or similar financial institution
(a "Financial Institution") within a fifty (50) mile radius of
DB&T's main office (the "Restrictive Covenant"). If the Employee
violates the Restrictive Covenant and the Company brings legal
action for injunctive or other relief, the Company shall not, as
a result of the time involved in obtaining such relief, be
deprived of the benefit of the full period of the Restrictive
Covenant. Accordingly, the Restrictive Covenant shall be deemed
to have the duration specified in this paragraph computed from
the date the relief is granted but reduced by the time between
the period when the Restrictive Period began to run and the date
of the first violation of the Restrictive Covenant by the
Employee. The foregoing Restrictive Covenant shall not prohibit
the Employee from owning directly or indirectly capital stock or
similar securities which do not represent more than one percent
(1%) of the outstanding capital stock of any Financial
Institution listed on a securities exchange or quoted on the
National Association of Securities Dealers Automated Quotation
System. Notwithstanding the above, the Restrictive Covenant will
be unenforceable in the event the Company terminates the
employment of the Employee for other than Cause at or after the
end of the Covered Period.
B. Remedies for Breach of Restrictive Covenant. The
Employee acknowledges that the restrictions contained in this
paragraph are reasonable and necessary for the protection of the
legitimate business interests of the Company, that any violation
of these restrictions would cause substantial injury to the
Company and such interests, that the Company would not have
entered into this Agreement with the Employee without receiving
the additional consideration offered by the Employee in binding
himself to these restrictions and that such restrictions were a
material inducement to the Company to enter into this Agreement.
In the event of any violation or threatened violation of these
restrictions, the Company, in addition to and not in limitation
of, any other rights, remedies or damages available to the
Company under this Agreement or otherwise at law or in equity,
shall be entitled to preliminary and permanent injunctive relief
to prevent or restrain any such violation by the Employee and any
and all persons directly or indirectly acting for or with him, as
the case may be.
7. Notices. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when
mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Company to:
Heartland Financial USA, Inc.
Attention: President
14th and Central Avenue
Box 778
Dubuque, Iowa 52004
If to the Employee to:
(See Attachment to Exhibit 10.11)
or to such other address as either party may furnish to
the other in writing, except that notices of changes of
address shall be effective only upon receipt.
8. Applicable Law. This Agreement is entered into under, and
shall be governed for all purposes by, the laws of the state of Iowa.
9. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement and all other provisions shall
remain in full force and effect.
10. Withholding of Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or
other taxes as may be required pursuant to any law, governmental
regulation or ruling.
11. Not an Employment Agreement. Nothing in this Agreement
shall give the Employee any rights (or impose any obligations) to
continued employment by the Company or any Affiliate or successor
of the Company, nor shall it give the Company any rights (or
impose any obligations) for the continued performance of duties
by the Employee for the Company or any Affiliate or successor of
the Company.
12. No Assignment. The Employee's rights to receive payments
or benefits under this Agreement shall not be assignable or
transferable whether by pledge, creation of a security interest
or otherwise, other than a transfer by will or by the laws of
descent or distribution. In the event of any attempted
assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be
assigned or transferred. This Agreement shall inure to the
benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
13. Successors. This Agreement shall be binding upon and
inure to the benefit of the Company, its successors and assigns
(including, without limitation, any company into or with which
the Company may merge or consolidate). The Company agrees that
it will not effect the sale or other disposition of all or
substantially all of its assets unless either (a) the person or
entity acquiring the assets, or a substantial portion of the
assets, shall expressly assume by an instrument in writing all
duties and obligations of the Company under this Agreement, or
(b) the Company shall provide, through the establishment of a
separate reserve, for the payment in full of all amounts which
are or may reasonably be expected to become payable to the
Employee under this Agreement.
14. Legal Fees. All reasonable legal fees and related
expenses (including the costs of experts, evidence and counsel)
paid or incurred by the Employee pursuant to any dispute or question
of interpretation relating this Agreement shall be paid or
reimbursed by the Company if the Employee is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
15. Term. This Agreement shall remain in effect through
December 31, 2001. In the event of a Change of Control during
the term of this Agreement, this Agreement shall remain in effect
for the Covered Period.
16. Amendment. This Agreement may not be amended or modified
except by written agreement signed by the Employee and the
Company.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered as of the day and year first
written.
HEARTLAND FINANCIAL USA, INC.
By: /s/ Lynn S. Fuller /s/ Employee
-------------------- --------------------
Lynn S. Fuller (See Attachment to
Chairman of the Board and CEO Exhibit 10.11)
ATTACHMENT TO EXHIBIT 10.11
TIMES
EMPLOYEE PAY ADDRESS
- --------------------- ------- -----------------------
1. Lynn B. Fuller four (4) 960 Prince Phillip Drive
Dubuque, IA 52003-7886
2. John K. Schmidt three (3) 837 Spires Drive
Dubuque, IA 52001-3191
3. Kenneth J. Erickson three (3) 11122 Hidden Springs Ct.
Dubuque, IA 52003-9659
Exhibit 10.12
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (this "Agreement") is made
as of the 1st day of January, 1999, (the "Effective Date") by and
between HEARTLAND FINANCIAL USA, INC., an Iowa corporation, (the
"Company") and (See Attachment to Exhibit 10.12)(the "Employee").
RECITALS
A. The Employee is currently serving as an employee of the
Company or one of its Affiliates.
B. The Company desires to continue to employ the Employee
as an employee of the Company or one of its Affiliates and the
Employer is willing to continue such employment.
C. The Company recognizes that circumstances may arise in
which a change of control of the Company through acquisition or
otherwise may occur thereby causing uncertainty of employment
without regard to the competence or past contributions of the
Employee, which uncertainty may result in the loss of valuable
services of the Employee, and the Company and the Employee wish
to provide reasonable security to the Employee against changes in
the employment relationship in the event of any such change of
control.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter contained, it is covenanted
and agreed by and between the parties hereto as follows:
1. Payment of Severance Amount. If the Employee's employment
by the Company, or any Affiliate or successor of the Company,
shall be subject to a Termination within the Covered Period, then
the Company shall pay the Employee an amount equal to the
applicable Severance Amount, payable within fifteen (15) days
after the Employee's termination that is related to the Change of
Control.
2. Definitions. As used throughout this Agreement, all of the
terms defined in this paragraph 2 shall have the meanings given
below.
A. An "Affiliate" shall mean any entity which owns or controls,
is owned by or is under common ownership or control with, the
Company.
B. "Base Annual Salary" shall mean the amount equal to the sum
of (i) the greater of Employee's then-current annual salary or
the Employee's annual salary as of the date one (1) day prior to
the Change of Control; (ii) the average of the three (3) most
recent bonuses paid to the Employee; and (iii) the average of the
three (3) most recent contributions made by the Company on behalf
of the Employee to the Company's tax-qualified retirement plans
(which, as of the date hereof, includes the profit sharing plan,
the money purchase pension plan and the 401(k) plan).
C. A "Change of Control" shall mean:
(i) the consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of fifty-one percent (51%) or more of the combined
voting power of the then outstanding Voting Securities of the
Company; or
(ii) the individuals who, as of the date hereof, are members of
the Board of Directors of the Company (the "Board") cease for any
reason to constitute a majority of the Board, unless the
election, or nomination for election by the stockholders, of any
new director was approved by a vote of a majority of the Board,
and such new director shall, for purposes of this Agreement, be
considered as a member of the Board; or
(iii) approval by stockholders of the Company of: (1) a
merger or consolidation if the stockholders, immediately before
such merger or consolidation, do not, as a result of such merger
or consolidation, own, directly or indirectly, more than fifty-
one percent (51%) of the combined voting power of the then
outstanding Voting Securities of the entity resulting from such
merger or consolidation in substantially the same proportion as
their ownership of the combined voting power of the Voting
Securities of the Company outstanding immediately before such
merger or consolidation; or (2) a complete liquidation or
dissolution or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because fifty-one percent (51%) or more of
the combined voting power of the then outstanding securities of the Company
are acquired by: (1) a trustee or other fiduciary holding securities under
one or more employee benefit plans maintained for employees of the entity;
or (2) any corporation which, immediately prior to such acquisition, is
owned directly or indirectly by the stockholders in the same proportion as
their ownership of stock immediately prior to such acquisition.
D. "Covered Period" shall mean the period beginning six (6)
months prior to a Change of Control and ending twelve (12) months
after a Change of Control.
E. "Termination" shall mean termination of the Employee's
employment either:
(i) by the Company or its successor, as the case may be, during
the Covered Period, other than a Termination for Cause or
any termination as a result of death, disability, or
normal retirement pursuant to a retirement plan to which
the Employee was subject prior to any Change of Control;
or
(ii) by the Employee, for any reason, during the period beginning
ten (10) days prior to a Change of Control and ending ten
(10) days after a Change of Control.
F. "Severance Amount" shall mean the sum of all amounts earned
or accrued through the Termination Date, including Base Annual
Salary, deferred compensation plan accruals and vacation pay,
plus (See Attachment to Exhibit 10.12) times the Employee's Base
Annual Salary.
G. "Termination for Cause" shall mean only a termination by the
Company as a result of the Employee's fraud, misappropriation of
or intentional material damage to the property or business of the
Company (including its Affiliates), substantial and material
failure by the Employee to fulfill the duties and
responsibilities of his or her regular position and/or comply
with the Company's or its Affiliates' policies, rules or
regulations, or the Employee's conviction of a felony.
H. "Termination Date" shall mean the date of employment
termination indicated in the written notice provided by the
Company or the Employee to the other.
I. "Voting Securities" shall mean any securities which
ordinarily possess the power to vote in the election of directors
without the happening of any pre-condition or contingency.
3. Medical and Dental Benefits. If the Employee's employment
by the Company or any Affiliate or successor of the Company shall
be subject to a Termination within the Covered Period, then to
the extent that the Employee or any of the Employee's dependents
may be covered under the terms of any medical and dental plans of
the Company (or any Affiliate) for active employees immediately
prior to the termination, the Company will provide the Employee
and those dependents with equivalent coverages for a period not
to exceed twelve (12) months from the Termination Date. The
coverages may be procured directly by the Company (or any
Affiliate, if appropriate) apart from, and outside of the terms
of the plans themselves; provided that the Employee and the
Employee's dependents comply with all of the conditions of the
medical or dental plans. In the event the Employee or any of the
Employee's dependents become eligible for coverage under the
terms of any other medical and/or dental plan of a subsequent
employer which plan benefits are comparable to Company (or any
Affiliate) plan benefits, coverage under Company (or any
Affiliate) plans will cease for the eligible Employee and/or
dependent. The Employee and Employee's dependents must notify
the Company (or any Affiliate) of any subsequent employment and
provide information regarding medical and/or dental coverage
available. In the event the Company (or any Affiliate) discovers
that the Employee and/or dependent has become employed and not
provided the above notification, all payments and benefits under
this Agreement will cease.
4. Out-Placement Counseling. If the Employee's employment by
the Company or any Affiliate or successor of the Company shall be
subject to a Termination within the Covered Period, the Company
will provide out-placement counseling assistance in the form of
reimbursement of the expenses incurred for such assistance within
the twelve (12) month period following the Termination Date, such
reimbursement amount not to exceed one-quarter (1/4) of the
Employee's Base Annual Salary on the Termination Date.
5. Notices. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when
mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Company to:
Heartland Financial USA, Inc.
Attention: President
14th and Central Avenue
Box 778
Dubuque, Iowa 52004
If to the Employee to:
(See Attachment to Exhibit 10.12)
or to such other address as either party may furnish to
the other in writing, except that notices of changes of
address shall be effective only upon receipt.
6. Applicable Law. This Agreement is entered into under, and
shall be governed for all purposes by, the laws of the state of
Iowa.
7. Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement and all other provisions shall
remain in full force and effect.
8. Withholding of Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or
other taxes as may be required pursuant to any law, governmental
regulation or ruling.
9. Not an Employment Agreement. Nothing in this Agreement
shall give the Employee any rights (or impose any obligations) to
continued employment by the Company or any Affiliate or successor
of the Company, nor shall it give the Company any rights (or
impose any obligations) for the continued performance of duties
by the Employee for the Company or any Affiliate or successor of
the Company.
10. No Assignment. The Employee's rights to receive payments or
benefits under this Agreement shall not be assignable or
transferable whether by pledge, creation of a security interest
or otherwise, other than a transfer by will or by the laws of
descent or distribution. In the event of any attempted
assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be
assigned or transferred. This Agreement shall inure to the
benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. Successors. This Agreement shall be binding upon and inure
to the benefit of the Company, its successors and assigns
(including, without limitation, any company into or with which
the Company may merge or consolidate). The Company agrees that
it will not effect the sale or other disposition of all or
substantially all of its assets unless either (a) the person or
entity acquiring the assets, or a substantial portion of the
assets, shall expressly assume by an instrument in writing all
duties and obligations of the Company under this Agreement, or
(b) the Company shall provide, through the establishment of a
separate reserve, for the payment in full of all amounts which
are or may reasonably be expected to become payable to the
Employee under this Agreement.
12. Legal Fees. All reasonable legal fees and related expenses
(including the costs of experts, evidence and counsel) paid or
incurred by the Employee pursuant to any dispute or question of
interpretation relating this Agreement shall be paid or
reimbursed by the Company if the Employee is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
13. Term. This Agreement shall remain in effect through
December 31, 2001. In the event of a Change of Control during
the term of this Agreement, this Agreement shall remain in effect
for the Covered Period.
14. Amendment. This Agreement may not be amended or modified
except by written agreement signed by the Employee and the
Company.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered as of the day and year first
written.
HEARTLAND FINANCIAL USA, INC.
By: /s/ Lynn S. Fuller /s/ Employee
---------------------- --------------------
Lynn S. Fuller (See Attachment to
Chairman of the Board and CEO Exhibit 10.12)
ATTACHMENT TO EXHIBIT 10.12
TIMES
EMPLOYEE PAY ADDRESS
- --------------------- ------- -----------------------
1. Edward H. Everts two (2) 1105 Richards Road
Dubuque, IA 52003
2. Paul J. Peckosh one (1) 1090 Langworthy Street
Dubuque, IA 52003-7316
3. Douglas J. Horstmann one (1) 2418 Beacon Hill Drive
Dubuque, IA 52003
Exhibit 10.13
PLAN DOCUMENT
HEARTLAND FINANCIAL USA, INC.
HEALTH CARE PLAN
Plan: 501
Heartland Financial USA, Inc. hereby establishes a program of
benefits constituting an "Employee Welfare Benefit Plan" under
the Employee Retirement Income Security Act of 1976 (ERISA), as
amended. By signing below, Heartland Financial USA, Inc. agrees
to be bound by the terms of the plan.
HEARTLAND FINANCIAL USA, INC.
By: /s/ Nancy Wilson
------------------------
Authorized Representative
Witnessed:
Date: January 4, 1999 By: /s/ Annette Arnold
-------------------- ------------------------
DISCLAIMER OF CLAIMS PROCESSOR
We have prepared these documents for your review and
consideration, but we are not legal counsel, nor are we in the
business of practicing law. As your plan's fiduciaries and/or
trustees, you are fully responsible for all legal issues which
concern the plan. If you are not an expert in this area, you may
wish to consult an attorney to assist you in reviewing this plan.
TABLE OF CONTENTS
SECTION PAGE
PLAN DESCRIPTION
PLAN SUMMARY
MANAGED CARE
Utilization Review Agent
Utilization Review
Penalty for Non-Certification
Continued Stay Review
COMPREHENSIVE MEDICAL EXPENSE BENEFITS
The Deductible
Family Deductible Feature
Deductible Carry-over Provision
Medical Eligible Expenses
COMPREHENSIVE DENTAL EXPENSE BENEFITS
The Deductible
Dental Eligible Expenses
Limitations
PRESCRIPTION DRUG EXPENSE BENEFIT
GENERAL LIMITATIONS
PRE-EXISTING CONDITIONS
ELIGIBILITY OF COVERAGE
Employee Eligibility and Effective Date
Dependent Eligibility and Effective Date
LATE ENROLLMENT
Special Enrollment
TERMINATION OF COVERAGE
Employee Termination
Dependent Termination
EXTENSION OF BENEFITS
Family and Medical Leave Act Provision
Uniformed Services Employment And Reemployment Rights Act
(USERRA)
COBRA Extension of Benefits
COORDINATION OF BENEFITS
SUBROGATION
RIGHTS UNDER ERISA
GENERAL PROVISIONS
DEFINITIONS
PLAN DESCRIPTION
Purpose
The Plan Document details the benefits, rights, and privileges of
Covered Individuals (as later defined), in a fund established by
Heartland Financial USA, Inc. and referred to as the "Plan." The
Plan Document explains the times when the Plan will pay or
reimburse all or a portion of Covered Expenses.
Effective Date
The effective date of the Plan is January 1, 1999.
Claims Processor
The Claims Processor of the Plan is Self Insured Services Company (SISCO).
Name Of Plan Heartland Financial USA, Inc. Health Care Plan
Name And Address Of Plan
Sponsor Heartland Financial USA, Inc.
1398 Central Avenue
Dubuque, IA 52001
Name And Address of Claims
Processor Self Insured Services Company (SISCO)
P.O. Box 389
Dubuque, IA 52004-0389
(800) 457-4726
Name And Address Of Review
Organization HEALTHCORP
P.O. Box 1475
Dubuque, IA 52004-1475
(800) 583-5888
Employer I.D. Number 42-1405748
Plan Number 501
Type Of Benefit Provided Medical and Dental Expense Coverage
Agent For Legal Service Heartland Financial USA, Inc.
Funding Of The Plan Heartland Financial USA, Inc. and Employee
Contributions
Medium For Providing Benefits The benefits are administered in
accordance with the Plan Document
by the Claims Processor.
Fiscal Year Of The Plan Beginning January 1st and ends December
31st.
Named Fiduciary And Plan Administrator
The Named Fiduciary and Plan Administrator is Heartland Financial
USA, Inc., who will have the authority to control and manage the
operation and administration of the Plan. The Named
Administrator may delegate responsibilities for the operation and
administration of the Plan. The Company will have the authority
to amend the Plan, to determine its policies, to appoint and
remove other supervisors, fix their compensation (if any), and
exercise general administrative authority over them. The
Administrator has the sole authority and responsibility to review
and make final decisions on all claims to benefit hereunder.
Contributions To The Plan
The amount of contributions to the Plan are to be made on the
following basis:
The Company reserves the right to increase or decrease Employee
or Dependent contributions from time to time. Notwithstanding
any other provision of the Plan, the Company's obligation to pay
claims otherwise allowable under the terms of the Plan will be
limited to its obligation to make contributions to the Plan as
set forth in the preceding sentence. Payment of said claims in
accordance with these procedures will discharge completely the
Company's obligation with respect to such payments. In the event
that the Company terminates the Plan, then as of the effective
date of termination, the Company and Covered Employees will have
no further obligation to make additional contributions to the
Plan.
Plan Modification And Amendments
Subject to any negotiated agreements, the Company may modify,
amend, or discontinue the Plan without the consent of or notice
to Employees. Any changes made shall be binding on each Employee
and on any other Covered Individuals. This right to make
amendments shall extend to amending the coverage (if any) granted
to retirees covered under the Plan, including the right to
terminate such coverage (if any) entirely.
Termination Of Plan
The Company reserves the right at any time to terminate the Plan
by a written instrument to that effect. All previous
contributions by the Company will continue to be issued for the
purpose of paying benefits under the provisions of this Plan with
respect to claims arising before such termination, or will be
used for the purpose of providing similar health benefits to
Covered Employees, until all contributions are exhausted.
Plan Is Not A Contract
The Plan Document constitutes the entire Plan. The Plan will not
be deemed to constitute a contract of employment or give any
Employee of the Company the right to be retained in the service
of the Company or to interfere with the right of the Company to
discharge or otherwise terminate the employment of any Employee.
Claim Procedure
In accordance with Section 503 of ERISA, the Company will provide
adequate notice in writing to any Covered Employees whose claim
for benefits under this Plan has been denied, setting forth the
specific reasons for such denial and written in a manner
calculated to be understood by the Employee. Further, the
Company will afford a reasonable opportunity to any Employee,
whose claim for benefits has been denied, for a full and fair
review of the decision denying the claim by the person designated
by the Company for that purpose.
Protection Against Creditors
No benefit payment under this Plan will be subject in any way to
alienation, sale, transfer, pledge, attachment, garnishment,
execution, or encumbrance of any kind, and any attempt to
accomplish the same will be void. If the Company will find that
such an attempt has been made with respect to any payment due or
to become due to any Covered Employee, the Company in its sole
discretion may terminate the interest of such Covered Employee or
former Covered Employee in such payment, and in such case will
apply the amount of such payment to or for the benefit of such
Covered Employee or former Covered Employee, his spouse, parent,
adult child, guardian of a minor child, brother or sister, or
other relative of a Dependent of such Covered Employee or former
Covered Employee, as the Company may determine, and any such
application will be a complete discharge of all liability with
respect to such benefit payment.
Indemnification Of Employees
Except as otherwise provided in ERISA, no director, officer, or
Employee of the Company or of the Claims Processor will incur any
personal liability for the breach of any responsibility,
obligation, or duty in connection with any act done or omitted to
be done in good faith in the administration or management of the
Plan and will be indemnified and held harmless by the Company
from and against any such personal liability, including all
expenses reasonably incurred in his defense if the Company fails
to provide such defense. The Company may purchase insurance to
cover the potential liability of directors, officers, and
Employees serving in a fiduciary capacity with respect to the
Plan, and the Plan, itself, at its expense, may insure itself
against loss by misdeeds or omissions of Plan Fiduciaries,
provided such insurance permits recourse by the insurer against
such Fiduciaries. The Company may also purchase insurance to
cover the exposure of its directors, officers, and Employees by
reason of such right of recourse.
PLAN SUMMARY FOR HEARTLAND FINANCIAL USA, INC.
Eligibility Provisions
EFFECTIVE DATE OF PLAN January 1, 1999
ELIGIBLE CLASS All Employees who work for the Company for at
least seventeen and one-half (17.5) hours
per week on a regular basis.
REQUIRED PERIOD OF SERVICE An individual will be eligible on the
first of the month coincident with
or next following ninety (90) days
of continuous, Active Work.
CONTRIBUTION The Plan may be evaluated from time to time to
determine the amount of Employee
contribution (if any) required.
MANAGED CARE
Hospital Pre-Admission
Certification The Plan requires that all non-emergency
inpatient hospitalizations be pre-certified
by the Review Organization prior to
the hospitalization; all emergency
inpatient hospitalizations must be
reported within forty-eight (48)
hours of admission. If an in-
Hospital stay is not pre-certified
by the Review Organization,
benefits related to the
hospitalization may be payable at
50%. (The penalty does not apply to
the Annual Deductible or Out-of-
Pocket Maximum.)
In regard to maternity or new born infant
admissions, the health Plan may not restrict
benefits for any Hospital length of stay in
connection with childbirth for the
mother or newborn child to less
than 48 hours following a normal
vaginal delivery, or less than 96
hours following a cesarean section,
or require that a provider obtain
authorization from the plan for
prescribing a length of stay not in
excess of the above periods.
However, Federal law generally does
not prohibit the mother's or
newborn's attending provider, after
consulting with the mother, from
discharging the mother or her
newborn earlier than 48 hours (or
96 hours as applicable).
Continued Stay Review If the Review Organization determines at any
time during an inpatient
hospitalization that inpatient care
is no longer Medically Necessary,
there will be no coverage for
expenses incurred thereafter
because the patient elects to
remain hospitalized.
Outpatient Management
Pre-Certification The Plan requires that scheduled diagnostic
tests (such as an MRI or CT Scan)
as well as any scheduled procedure
at a Hospital, clinic and/or
Physician's office, freestanding
diagnostic or treatment facility,
freestanding surgical center or
Hospital-based surgical center or
mobile units offering these
services be pre-certified by the
Review Organization prior to
receiving treatment. Scheduled
procedures do include both surgical
and diagnostic procedures as well
as various therapies to include
radiation, chemotherapy and
rehabilitation. It does not include
routine laboratory work, routine
office procedures, or emergency
room visits. If the service is not
pre-certified, eligible charges
related to the service may be
payable at 50%. (The penalty does
not apply to the Annual Deductible
or Out-of-Pocket Maximum)
Mental Health/Substance
Abuse Treatment Pre-
Certification The Plan requires that any Outpatient Mental
Health/Substance Abuse treatment in
excess of five (5) visits be pre-
certified by the Review
Organization prior to receiving
treatment. If the Mental
Health/Substance Abuse procedure is
not pre-certified, eligible charges
related to the Mental
Health/Substance Abuse procedure
may be payable at 50%. (The penalty
does not apply to the Annual
Deductible or Out-of-Pocket
Maximum)
Hospital Bill Auditing The Plan will reimburse the participant 25%
of an error on a hospital bill.
(The employee must be the initial
person discovering the error.)
COMPREHENSIVE MEDICAL EXPENSE BENEFITS
Annual Individual Deductible $250
Annual Family Deductible
(All Family members
combined) $500
Annual Out-of-Pocket Maximum
Including the Deductible
(Does not include the
benefit reduction for
failure to comply with the
Managed Care measures of
the Plan,ineligible charges,
coinsurance for Mental
Nervous/Substance Abuse
services, coinsurance for
infertility services,
coinsurance for
prescriptions, or any
amount over the usual,
customary, and reasonable
procedure rate.) Individual: $750
Family: $1,500 (All Family members combined)
Benefit Percentage for Mental
Nervous/Substance Abuse
Services 50% after the Annual Deductible
Benefit Percentage for Well-
Child Care up to Age 13 100% after the Annual Deductible
Benefit Percentage for
Routine Exams for In-
dividuals Age 13 and Over If a Covered Individual avails himself
of the services of a Preferred
Provider, benefits will be payable
at 90% after the Annual Deductible.
If a Covered Individual does not
avail himself of the services of a
Preferred Provider, benefits will
be payable at 80% after the Annual
Deductible.
Benefit Percentage for Out-
Patient Department Services
(co-pay waived if admitted) If a Covered Individual avails himself
of the services of a Preferred
Provider, benefits will be payable
at 90% after a $50 co-pay and the
Annual Deductible. If a Covered
Individual does not avail himself
of the services of a Preferred
Provider, benefits will be payable
at 80% after a $50 co-pay and the
Annual Deductible.
Benefit Percentage for
Prescription Drugs
(Effective February 1, 1999
Participants will be
required to pay only 50%
at the Pharmacy) 50%, no Deductible required (If a name brand drug
is purchased when a generic is
available, the participant is
responsible for the price
difference.)
Benefit Percentage for All
Other Eligible Medical
Expenses If a Covered Individual avails himself of the
services of a Preferred Provider, benefits will
be payable at 90% after the Annual
Deductible. If a Covered
Individual does not avail himself
of the services of a Preferred
Provider, benefits will be payable
at 80% after the Annual Deductible.
PLAN LIMITATIONS & MAXIMUMS
UCR All charges are subject to the usual,
customary, and reasonable (UCR) fee for the area
in which the service or supply is
received.
Hospital Room & Board
Limitation Semi-private rate; if a facility has only
private rooms or a private room is medically
necessary, the private room rate
will be allowed.
Intensive Care Unit
Limitation Actual ICU rate
Skilled Nursing Facility
Room & Board Limitation Semi-private rate
Maximum Lifetime Benefit
for All Medical Expenses
(Includes all other
lifetime maximums). $2,000,000
Maximum Lifetime Benefit
for Respite Care Inpatient: 15 days
Outpatient: 15 days
Maximum Lifetime Benefit
for Services and Supplies
Related to Infertility $15,000
Maximum Lifetime Benefit
for TMJ (Temporomandibular
Joint Disorder) $15,000
Maximum Lifetime Benefit
for Substance Abuse
Expenses $50,000
Maximum Annual Benefit for
Inpatient Mental Health
and/or Substance Abuse
Treatment Expenses Combined 30 days per Calendar Year, age 19 and under
60 days per Calendar Year, age 19 and over
Maximum Annual Benefit for
Outpatient Mental Health
and/or Substance Abuse
Treatment Expenses 30 days per Calendar Year
Maximum Annual Benefit for
Skilled Nursing Facility
Expenses 60 days per Calendar Year
Maximum Annual Benefit for
Home Health Care Services 100 visits per Calendar Year
Maximum Benefit for Family
Counseling Under Hospice
Care Benefit $200 per Hospice Period
DENTAL EXPENSE BENEFITS
Plan I
Annual Individual Deductible $25
Annual Family Deductible
(Three Individuals) $75
Benefit Percentage for Dental Expenses
Class I (Diagnostic and
Preventive Services) 100%, no Deductible required
Class II (Basic Restorative
Services) 80% after the Annual Deductible
Class III (Major Restorative
Services) 80% after the Annual Deductible
Class IV (Dentures and
bridges) 50% after the Annual Deductible
Class V (Gum and bone disease
-surgical) 50% after the Annual Deductible
Class VI (Orthodontia) 50% after the Annual Deductible, up to the
Lifetime Maximum
Maximum Annual Benefit per
Individual Classes I, II,
III, IV and V Combined $1,000 per individual per Calendar Year
Maximum Lifetime Benefit
Class VI $1,500 per individual
Maximum Benefit for Sealants $120 (limited to dependent children
up to age 15)
DENTAL EXPENSE BENEFITS
Plan II
Annual Individual Deductible $25
Annual Family Deductible
(Three Individuals) $75
Benefit Percentage for Dental Expenses
Class I (Diagnostic and
Preventive Services) 100%, no Deductible required
Class II (Basic Restorative
Services) 80% after the Annual Deductible
Class III (Major Restorative
Services) 80% after the Annual Deductible
Maximum Annual Benefit
Classes I, II and III $1,000 per individual per Calendar Year
Maximum Benefit for Sealants $120 (limited to dependent children
up to age 15)
MANAGED CARE
Utilization Review Agent
The Utilization Review Agent for this Plan is:
HEALTHCORP
P.O. Box 1475
Dubuque, Iowa 52004-1475
1-800-583-5888
Utilization Review
This Plan has a mandatory utilization review requirement called
"pre-certification". Pre-certification is required for all
scheduled Hospital admissions and Outpatient services (as
outlined in the Plan Summary). For emergency admissions to the
Hospital, the covered individual must notify the utilization
review agent within 48 hours of the admission. Pre-certification
of Outpatient mental health and/or substance abuse services is
required if the services exceed five (5) session. Pre-
certification determines that services received are Medically
Necessary. Pre-certification does not guarantee that proposed
Hospital admissions, Surgical Procedure, or Outpatient procedures
are covered under the Plan.
The Covered Individual must inform the provider that he
participates in a program which has pre-certification
requirements. In order to obtain pre-certification:
1. Notify the appropriate Utilization Review Agent of the upcoming
Hospital stay no later than twenty-four (24) hours prior
to the admission to the Hospital.
2. Notice can be given by: (a) the Hospital; (b) admitting
Physician; (c) Covered Individual; or (d) a Family member
of the Covered Individual, but it is ultimately the
responsibility of the Covered Individual to make sure a
Hospital admission, Surgical Procedure, or Outpatient
procedure has been pre-certified.
3. The Utilization Review Agent must be provided with information
necessary to make a decision as to the Medical Necessity
of the admission.
When the Utilization Review Agent provides pre-certification to
the Covered Individual, the Utilization Review Agent will assign
a certain number of inpatient Hospital days for the stay. If any
days are not Medically Necessary, and the Covered Individual
chooses to remain beyond the Medically Necessary length of stay,
the Covered Individual shall be liable for all Hospital charges
beyond the Medically Necessary length of stay.
Penalty for Non-Certification
If pre-certification is not obtained in connection with inpatient
hospitalization, home health care, Hospice care, or private duty
nursing, the services may be reduced by 50%. The additional
penalty will be figured before the Deductible and coinsurance are
applied. The penalty is not considered a covered expense.
Continued Stay Review
If the review organization determines at any time during the
inpatient hospitalization that it is not Medically Necessary for
the Covered Individual to remain an inpatient and the Covered
Individual elects to remain hospitalized, no benefits shall be
payable in relation to any day of hospitalization following the
date the review organization determines that inpatient
hospitalization is no longer Medically Necessary.
Hospital Bill Auditing
The Plan will reimburse the Participant 25% of an error on a
hospital bill. If you discover an error on a hospital bill that
results in savings to the Health Plan, you will be given 25% of
the savings. To be eligible you must be the first to discover
the error and notify the claims payer of the error. You will
need to document the error by supplying a copy of both the
incorrect billing and the corrected billing.
COMPREHENSIVE MEDICAL EXPENSE BENEFITS
Upon receipt of proof of loss, the Plan will pay the benefit
percentage listed in the Plan Summary for Eligible Expenses
incurred in each benefit period. The amount payable in no event
shall exceed the Maximum Lifetime Benefit stated in the Plan
Summary.
The Deductible
The Deductible is the amount of covered medical expenses which
must be paid before Comprehensive Medical Expense Benefits are
payable. The amount of the Deductible is shown in the Plan
Summary. Each Family member is subject to the Deductible up to
the Family maximum as shown in the Plan Summary.
Family Deductible Feature
If the Family Deductible limit, as shown in the Plan Summary, is
incurred by covered Family members during the Calendar Year, no
further Deductibles will be required on any members for the rest
of the year.
Deductible Carry-over Provision
The medical Deductible applies only once in any Calendar Year
even though there may be several different injuries or diseases.
So that Comprehensive Medical Benefit payments will not be
subject to a medical Deductible late in one Calendar Year and
soon again in the next following year, any expenses applied
against the medical Deductible in the last three (3) months of a
Calendar Year will reduce the medical Deductible for the next
Calendar Year.
Common Accident Provision
If two or more covered members of a Family sustain bodily
injuries in the same accident, only one applicable annual
individual medical Deductible amount will be applied for all
accident related charges.
Allocation And Apportionment Of Benefits
The Company reserves the right to allocate the Deductible amount
to any eligible charges and to apportion the benefits to the
Covered Individual and any assignees. Such allocation and
apportionment shall be conclusive and shall be binding upon the
Covered Individual and all assignees.
Medical Eligible Expenses
Medical Eligible Expenses are the following expenses listed below
that are incurred while coverage is in force for the Covered
Individual. If, however, any of the listed expenses are excluded
from coverage because of a reason described in the General
Limitations section, those expenses will not be considered
medical Eligible Expenses.
The Plan will make payment for eligible medical expenses subject
to the co-payment percentage and maximum amounts shown in the
Plan Summary.
Hospital Expenses
Hospital expenses are the charges made by a Hospital in its own
behalf. Such charges include:
1. Semi-private room and board. If a facility has only private
rooms, 90% of the private rate will be allowed. If a
private room is Medically Necessary due to the diagnosed
condition, the private-room rate will be allowable.
2. Necessary Hospital services other than room and board as
furnished by the Hospital.
3. Special care units, including burn care units, cardiac care
units, delivery rooms, intensive care units, isolation
rooms, operating rooms and recovery rooms.
Skilled Nursing Facility Expenses
Eligible Skilled Nursing Facility expenses under this benefit
must start within fourteen (14) days of discharge from a hospital
stay of at least three (3) days and will be limited up to the
maximums listed in the Plan Summary. Eligible services include:
1. Room and Board, including any charges made by the facility as a
condition of occupancy or on a regular daily or weekly
basis, such as general nursing services. The daily room
and board charges allowed will not exceed the average semi-
private rate.
2. Medical services customarily provided by the Skilled Nursing
Facility, with the exception of private-duty or special
nursing services and Physician fees.
3. Drugs, biologicals, solutions, dressings and casts furnished
for use during the convalescent period, but no other
supplies.
Hospice Expenses
A Hospice means a health care program providing services to
terminally ill patients. The following services and supplies
provided by a Hospice are covered:
1. Nursing care by a Registered Nurse (R.N.), or by a Licensed
Practical Nurse (L.P.N.), a vocational nurse, or a public
health nurse who is under the direct supervision of a
Registered Nurse.
2. Physical therapy, occupational therapy and speech therapy, when
rendered by a licensed therapist.
3. Medical supplies, including drugs and biologicals, and the use
of medical appliances.
4. Physicians' services.
5. Services, supplies, and treatments deemed Medically Necessary
and ordered by a licensed Physician.
6. Bereavement counseling up to the maximum listed in the Plan
Summary.
Respite Care Expenses
Respite care offers rest and relief help for the Family caring
for a terminally ill patient. Respite services must be received
in increments of at least five (5) consecutive days and are
limited to a lifetime maximum of fifteen (15) Outpatient days and
fifteen (15) inpatient days of respite care. Eligible inpatient
respite care can take place in a Hospital, Skilled Nursing
Facility or nursing home.
Home Health Care Expenses
Home health care expenses are the charges made by a Home Health
Care Agency, for the following services and supplies which are
ordered by a Physician and furnished to a Family member in his
home in accordance with a Home Health Care Plan.
1. Part-time or intermittent nursing care provided by a Registered
Nurse (R.N.), or by a Licensed Practical Nurse (L.P.N.), a
vocational nurse, or a public health nurse who is under
the direct supervision of a Registered Nurse.
2. Part-time or intermittent home health aide services which
consist primarily of caring for the patient, and is under
the supervision of an R.N. or L.P.N.
3. Medical supplies, drugs, and medicines prescribed by a
Physician, and laboratory services provided by or on
behalf of a Hospital, but only to the extent that such
charges would have been covered if the Family member had
remained in the Hospital or a Skilled Nursing Facility.
4. Charges for physical, speech or occupational therapy.
5. Charges for parenteral or enteral nutrition.
6. Charges for inhalation therapy.
7. Medical social services.
Home Health Care Expenses will not be covered if they are:
1. For services or supplies not specified in the Home Health Care
Plan.
2. For services by a member of the Employee's or Dependent's
Family or household.
3. For services for a period during which an Employee or Dependent
is not under the continuing care of a Physician.
4. For transportation services.
Each visit, up to eight (8) hours, by a Registered Nurse (R.N.)
or Licensed Practical Nurse (L.P.N.) to provide nursing care, by
a therapist to provide physical, occupational or speech therapy,
and each visit of up to eight (8) hours by a home health aide
shall be considered as one home health care visit.
Organ Transplant Expenses
Benefits are available to a Covered Individual who is a recipient
or donor for Medically Necessary covered services relating to
bone marrow, liver, heart, lung (single and double), combination
heart/lung, pancreas, pancreas/kidney, kidney, cornea and any
other non-experimental transplant. Eligible services include, but
are not limited to: testing to determine transplant feasibility
and donor compatibility; charges related to the transplant
itself, as well as follow-up care to include: diagnostic x-ray
and lab; procedures to determine rejection or success of
transplant, to include: Physician, lab, x-ray or Hospital
charges, and anti-rejection drugs.
Organ transplant expenses are those charges for services and
supplies in connection with non-experimental transplant
procedures, subject to the following criteria:
1. Except for transplant of a cornea, the recipient must be in
danger of death in the event the organ transplant is not
performed.
2. There must be a reasonable expectation of survival if he were
to receive the transplant.
3. Charges incurred by the donor are only payable if the donor
has no other coverage available, i.e. group health plan, a
government program, or a research program.
4. Pre-approval is required.
The following will not be eligible for coverage under this
benefit:
1. Expenses associated with the purchase of any organ.
2. Charges in connection with mechanical organs or a transplant
involving a mechanical organ; except charges in relation
to mechanical organs which may be necessary on a temporary
short-term basis until a suitable donor organ is available
will be eligible under the Plan.
3. Services or supplies furnished in connection with the
transportation of a living donor.
Physician Services
The Plan will allow Physician charges according to usual,
customary, and reasonable (UCR) guidelines for medical care
and/or surgical treatments, including office or home visits,
Hospital Inpatient or Outpatient care, clinic care, and surgical
opinion consultations. Payment for multiple surgical procedures
(not including the primary surgical procedure) performed at the
same time may be reduced to 50% of the UCR amount. If the
multiple surgical procedure is determined incidental, benefits
will be denied.
Covered Expenses In Or Out Of The Hospital
1. Fees for private-duty nursing when such services are: 1)
provided by Registered Nurses (R.N.'s) or Licensed
Practical Nurses (L.P.N.'s) in the Covered Individual's
home; 2) prescribed by a Physician for the treatment of an
Illness or Injury when the Covered Individual is
homebound; and 3) not more costly than alternative
services that would be effective for diagnosis and
treatment of the Covered Individual's condition.
2. Treatment or services rendered by a licensed Physical Therapist
in a home setting or at a facility or institution which
has the primary purpose of providing medical care for an
Illness or Injury. Charges for restorative or
rehabilitative physical therapy due to an Illness or
Injury, or due to surgery performed because of an Illness
or Injury will be eligible. Pre-certification is required
if therapy exceeds six (6) visits.
3. Charges for Medically Necessary local air or ground ambulance
service to and from the nearest, local adequate Hospital
or nursing facility where emergency care or treatment is
rendered, or to the nearest facility equipped to furnish
necessary medical treatment if not available at a local
Hospital. This Plan will only cover ambulance
transportation when: 1) no other method of transportation
is appropriate; 2) the services necessary to treat the
Illness or Injury are not available in the Hospital or
nursing facility where the Covered Individual is an
inpatient; and/or 3) the Hospital or nursing facility
where the ambulance takes the Covered Individual is the
nearest with adequate facilities.
4. Charges for x-rays, microscopic tests, and laboratory tests.
5. Charges for radiation therapy or treatment, and chemotherapy.
6. Charges for the processing and administration of blood or blood
components, including charges for the processing and
storage of autologous blood.
7. Charges for oxygen and other gases, and their administration.
8. Charges for electrocardiograms, electroencephalograms,
pneumoencephalogram, basal metabolism tests, allergy
tests, or similar well-established diagnostic tests
generally approved by Physicians throughout the United
States.
9. Charges for the cost and administration of anesthetic in
conjunction with a covered surgical or medical procedure.
10. Charges for dressings, sutures, casts, splints, crutches,
braces, or other necessary medical supplies, with the
exception of dental braces, orthopedic shoes, arch
supports, elastic stockings, trusses, lumbar braces,
garter belts and similar items which can be purchased
without a prescription.
11. Charges for the rental, up to the purchase price, of a
wheelchair, Hospital bed, iron lung, or other durable
medical equipment required for Medically Necessary
temporary therapeutic use, or the purchase of this
equipment if economically justified, whichever is less.
It is recommended that the Covered Individual obtain pre-
approval of the purchase.
12. Charges for prosthetic appliances used to replace a missing
natural body part, and charges for repairs of such an
appliance. Replacement of a prosthetic appliance will be
covered when due to a pathological change, or if it has
been more than five (5) years since the last placement of
such an item, unless replacement is needed as a result of
unintentional damage of the appliance, and it cannot be
made serviceable by repairs. Pre-authorization of a
replacement is recommended.
13. Charges made by an ambulatory surgical center or minor
emergency medical clinic when treatment has been rendered.
14. Charges for dialysis as an inpatient or at a Medicare-approved
Outpatient dialysis center.
15. Charges for allergens and allergy injections.
16. Charges for drugs requiring the written prescription of a
licensed Physician. Such drugs, with the exception of
oral contraceptives, must be necessary for the treatment
of an Illness or Injury. The Plan also covers insulin,
insulin supplies and syringes.
17. Outpatient cardiac rehabilitation programs to provide
supervised monitored exercise sessions following heart
surgery or a heart attack. The program must be completed,
or the individual must have a Physician's written release
from the program, to receive benefits.
18. Charges for restorative or rehabilitative speech therapy by a
licensed Speech Therapist due to an Illness or Injury, or
due to surgery performed because of an Illness or Injury.
Pre-certification is required if therapy exceeds six (6)
visits.
19. Charges for restorative or rehabilitative occupational therapy
by a licensed Occupational Therapist due to an Illness or
Injury, or due to surgery performed because of an Illness
or Injury. Pre-certification is required if therapy
exceeds six (6) visits.
20. Eligible Pregnancy related expenses for an Employee or a
Dependent, including Medically Necessary amniocentesis
tests, are considered the same as any other medical
condition under the Plan.
21. Charges in relation to a tubal ligation or vasectomy, but only
for the initial surgery. Benefits do not include the
reversal of a tubal ligation or vasectomy.
22. Charges for routine child Well-Care up to age thirteen (13)
Eligible Expenses include those for physical exams,
immunizations, except mass immunizations required for
travel, and laboratory services.
23. Exam and laboratory charges in relation to a routine annual
pap test.
24. Charges for routine physicals for persons age thirteen (13)
and over, up to the maximums listed in the Plan Summary.
Eligible Expenses will include those for the office exam,
immunizations, and any routine diagnostic x-ray and
laboratory services normally associated with a routine
exam.
25. Charges for dental services provided by a Dentist when
Medically Necessary, and limited to services provided for
the repair of damage to the jaw or sound natural teeth as
the direct result of, and completed within six (6) months
of an accidental Injury. Injury as a result of chewing or
biting will not be considered an accidental Injury. This
will not in any event be deemed to include charges for
treatment for the repair or replacement of a denture.
26. Charges for the following oral surgery whether performed by a
Dentist or a medical doctor will be considered as eligible
medical expenses:
a. Correction of congenital abnormalities of the jaw.
b. Reduction or manipulation of fractures of facial bones.
c. Excision of lesions of the mandible, mouth, lips or tongue.
d. Incision of the accessory sinuses, mouth, salivary glands or
ducts.
e. Manipulation of dislocations of the jaw.
f. Surgical extraction of impacted teeth.
27. Charges for services and supplies in relation to diabetes self-
management programs. Such services must be Medically
Necessary and prescribed by a Physician. A Covered
Individual will be limited to two (2) programs per
Lifetime.
28. Charges for services in connection with surgical treatment of
morbid obesity will be considered Eligible Expenses,
subject to the following conditions:
a. A second concurring surgical opinion is required prior to the
surgical procedure; and
b. Pre-authorization is required.
Coverage is subject to the following guidelines:
a. Body weight must be at least 200% of the optimal weight
b. The Covered Individual must have been considered morbidly obese
by a Physician for at least five (5) years prior to the
date surgical treatment is sought.
c. Non-surgical methods of weight reduction must have been
attempted under a Physician's supervision for at least a
three (3) year period immediately prior to the date
surgical treatment is sought.
29. Charges in relation to individual and group psychiatric care
(treatment of a psychiatric condition, alcoholism,
substance abuse or drug addiction) are limited to the co-
payment percentage of covered expenses in excess of the
Deductible up to the maximums as shown in the Plan
Summary. A psychiatric condition includes but is not
limited to anorexia nervosa and bulimia, schizophrenia,
and depressive disorders including but not limited to
manic depressive.
30. Hospital and Physician charges in relation to the routine care
of a newborn.
31. Charges by a Social Worker or Certified Counselor, but only
when the Social Worker or Certified Counselor is under the
supervision of an M.D., D.O., or Ph.D.
32. Charges for home infusion therapy, including the
administration of nutrients, antibiotics, and other drugs
and fluids intravenously or through a feeding tube.
33. Charges for injectable contraceptives.
34. Charges in relation to TMJ (temporomandibular joint disorder)
subject to the maximum listed in the Plan Summary.
35. Charges for one wig or hair piece per year for hair loss due
to chemotherapy or other treatment of a medical condition
or injury.
36. Charges in relation to the diagnosis and/or treatment of
infertility, including drug-induced stimulation of
ovulation, artificial insemination, in vitro
fertilization, or any infertility procedures currently
excluded as investigational when they become recognized as
acceptable medical practices, up to the maximums listed in
the Plan Summary. Prior approval is recommended to
confirm benefits.
Benefits are never available for the collection or purchase of
donor semen (sperm) or oocytes (eggs); services of a
surrogate parent; freezing of sperm, oocytes, or embryos;
or reversal of sterilization.
37. Charges for medically necessary mammoplasty following a
medically necessary mastectomy. Services include
reconstruction of the breast on which the mastectomy has
been performed and reconstruction of the other breast to
produce symmetrical appearance. Breast prostheses and
surgical brassieres are also eligible under the Plan.
Reduction mammoplasty will be covered if medical necessity
is established and upon approval of the Utilization Review
Agent.
COMPREHENSIVE DENTAL EXPENSE BENEFITS
Subject to the General Limitations and Exclusions of this Plan,
reasonable charges incurred for the following dental expenses
will be covered in accordance with the percentage of coverage,
Deductible amounts and maximums in the Plan Summary.
A pre-treatment review is recommended on all charges that will
result in a payment of $100 or more unless it can be shown that
treatment was made on an emergency basis.
The Deductible
The Deductible is the amount of covered dental expenses which
must be paid before Comprehensive Dental Expense Benefits are
payable. The amount of the Deductible is shown in the Plan
Summary. Each Family member is subject to the Deductible up to
the Family maximum as shown in the Plan Summary.
Dental Eligible Expenses
The term "Covered Dental Expenses" means the expenses incurred by
or on behalf of a Covered Individual for charges made by a
Dentist for the performance of dental service provided for in the
Plan Summary when the dental service is performed by or under the
direction of a Dentist, is essential for the necessary care of
the teeth, and begins while the Covered Individual is covered for
Dental Benefits. If the actual performance of a dental service
begins on a date other than the date the service was recommended
or determined to be necessary, the dental service will be
considered to begin on the date the actual performance of the
service begins. For an appliance or modification of an
appliance, an expense is considered incurred at the time the
impression is made. For a crown, bridge, or gold restoration, an
expense is considered incurred at the time the tooth or teeth are
prepared. For root canal therapy, an expense is considered
incurred at the time the pulp chamber is opened. All other
expenses are considered incurred at the time a service is
rendered or a supply furnished. Covered dental expenses do not
include any expenses that are in excess of the reasonable and
customary amount.
CLASS I - Diagnostic & Preventive Services
1. Oral examinations and routine cleaning (prophylaxis) of
teeth, but not more than once every six (6) consecutive
months.
2. Fluoride applied to the teeth, but not more than once
every six (6) months.
3. Dental x-rays:
a. Full mouth (single or multiple films), but not more
than once every three (3) years;
b. Bitewing x-rays, but not more than once every twelve
(12) months
c. Periapical, occlusal and extra oral x-rays when
dentally necessary and appropriate.
4. Periodontal prophylaxis.
CLASS II - Basic Restorative Services
1. Oral surgery, including pre- and post-operative care and
local anesthetic and analgesic.
2. Extraction of teeth.
3. Regular cavity fillings, including amalgam, synthetic
porcelains, composite and plastic fillings and stainless
steel restorations. If you choose tooth-colored
(composite) fillings to restore back teeth, benefits will
be limited to the amount paid for a silver filling, and
the difference will be your responsibility.
4. General anesthesia and intravenous sedation in connection
with oral surgery when billed by the operating Dentist.
5. Emergency treatment to relieve pain.
CLASS III - Major Restorative Services
1. Gold fillings and crown or jacket restorations are covered
only when the tooth, as a result of extensive carries or
fracture, cannot be restored with other filling material.
2. Non-surgical treatment of gum disease.
3. Root canal fillings (any x-ray, test, lab exam or follow-
up care is part of the allowance for root canal therapy
and not a separate dental service.)
4. Topical application of sealants for unmarried dependent
children up to age fifteen (15). Maximum benefit of $120
while covered under this Plan.
CLASS IV - Dentures and Bridges
1. Bridges.
2. Partial and complete dentures.
CLASS V - Gum and Bone Disease (Surgical)
Surgical procedures necessary for treatment of diseases of the
gums and bone supporting the teeth.
CLASS VI - Orthodontia
Services for the straightening of teeth. Eligible charges must
meet all of the following conditions:
1. An active appliance for that orthodontic procedure is
inserted while the person is a covered person for the
benefits of this coverage.
2. The orthodontic procedure is needed to correct: 1)
vertical or horizontal overlap of upper teeth over lower
teeth of at least four millimeters; 2) faulty alignment
of the upper and lower arches with each other by at least
the width of one tooth section (one cusp); or 3)
crossbite.
3. The service or supply is made part of an orthodontic
treatment plan that, before the orthodontic procedure is
performed, has been submitted for Predetermination of
Benefits.
Alternate Benefit Provision
When more that one dental service could provide suitable
treatment based on common dental standards, the Claims Processor
will determine the dental service on which payment will be based
and the expenses that will be included as covered expenses.
Limitations
1. Charges for anesthesia billed separately from the related
procedure or analgesia other than general anesthesia
administered in connection with oral surgery.
2. Charges for services or supplies to correct congenital
deformities, such as a cleft palate.
3. Charges for services or supplies which have the primary
purpose of improving the appearance of the teeth, rather
than restoring or improving dental form or function. Some
examples include: laminate and veneers.
4. Charges for infection control procedures (sepsis control -
rubber gloves, gowns, etc.) when billed separately from
actual dental treatment.
5. Charges for services or supplies provided by a Dentist who
is a Close Relative.
6. Charges for dental implants.
7. Charges for services or supplies you are not legally
obligated to pay for and for which you would not be
charged in the absence of this certificate.
8. Charges for the replacement of lost or stolen appliances.
9. Charges for services or supplies that you are entitled to
claim from any governmental program even if you waived or
failed to claim rights to such services, benefits, or
damages.
10. Charges for services or supplies not specifically listed
as a covered expense.
11. Charges for services or supplies for appliances, including
nightguards for the treatment of gum and bone disease or
to limit tooth grinding or jaw clenching.
12. Charges for services or supplies for crowns placed for the
primary purpose of periodontal splinting, altering
vertical dimension, or restoring the closing of the upper
and lower teeth (occlusion).
13. Charges for prescription drugs.
14. Charges for repair or replacement of any orthodontic
appliance.
15. Charges for any service or supply that could have been
compensated under Workers' Compensation laws, including
any services or supplies applied toward the satisfaction
of any Deductible under your employer's Workers'
Compensation coverage.
16. Charges for services or supplies for any treatment plan
when you receive the services or supplies after the date
of termination of coverage under this Plan.
17. Charges for replacement of a bridge, crown or denture
within five (5) years after the date it was originally
installed unless: 1) such replacement is made necessary by
the placement of an original opposing full denture or the
necessary extraction of natural teeth; or 2) the bridge,
crown or denture, while in the mouth, has been damaged
beyond repaid as a result of an injury received while a
person is covered for these benefits.
18. Charges for replacement of a bridge, crown, or denture
which is or can be made useable according to common dental
standards.
19. Charges for porcelain or acrylic veneers of crowns or
pontics on or replacing the upper and lower first, second,
and third molars.
20. Charges for bite registrations; precision or semi-
precision attachments; or splinting.
21. Charges for instruction for plaque control, oral hygiene
and diet.
22. Charges that are covered by the Medical Plan offered by
the Company.
23. Charges for services and supplies received from a
hospital.
Dental Late Enrollment
If an Employee applies for coverage more than thirty-one (31)
days following the date the Employee was first eligible for
coverage or after termination of coverage at the Employee's
request, he will be required to furnish evident of good dental
health to again be eligible for benefits. Evidence of good
health will be furnished, if necessary, at the expense of the
Employee.
PRESCRIPTION DRUG EXPENSE BENEFIT
The Plan will pay the usual and customary charge of prescription
drugs, less the copayment listed in the Plan Summary which is
payable by the Covered Individual for each prescription and each
refill of a prescription. The prescription copayment is not
eligible for benefits under the medical benefits portion of this
Plan.
The Prescription Drug Program will not cover the cost of
administration of any drug.
Under this program, the following drugs are never considered a
prescription/refill, regardless of use or diagnosis:
1. Any drug for which reimbursement is available under any other
group program or government program.
2. Drugs dispensed from or by any Hospital, Extended Care
Facility, clinic, or other institution to an inpatient or
outpatient; such drugs are covered by the medical portion
of the Plan.
3. Drugs dispensed by other than a retail pharmacy.
4. Drugs that do not require a written prescription of a licensed
physician (with the exception of insulin and the syringes
or needles for its administration).
The charge for more than a thirty-four (34) day supply shall not
be covered by the Plan unless the prescription is listed as a
maintenance drug and eligible to be dispensed in greater number
(100-day supply) under the Prescription Drug Agreement.
Also excluded are:
1. Devices or appliances (except for needles and syringes
necessary for the administration of insulin).
2. Refills of a prescription that is more than one (1) year old.
3. Nutritional supplements, cosmetic or growth hormone treatments,
or drugs or supplies associated with weight reduction.
4. Over the counter medications (including chemstrips, glucostix,
lancets)
5. Drugs dispensed while in a nursing home, hospital, etc.
6. Smoking cessation drugs.
7. Prescriptions for sexual dysfunction.
GENERAL LIMITATIONS
The following exclusions and limitations apply to expenses
incurred by all Covered Individuals:
1. Charges incurred prior to the effective date of coverage under
the Plan or after coverage is terminated, unless Extension
of Benefits applies.
2. Charges as a result of active participation in war or any act
of war, whether declared or undeclared, or caused during
service in the armed forces of any country.
3. No benefits or expenses will be paid or reimbursed to or for
any Covered Individual for any injury, illness,
occupational disease, or other loss which arises out of
and in the course of employment, and for which the Covered
Individual is reimbursed or entitled to reimbursement
under any federal or state law, including a workers'
compensation law or similar law. However, this exclusion
will not apply in the case of a self-employed individual
if the law does not require the Covered Individual to
obtain coverage under a workers' compensation law or
similar law, and that individual chooses not to obtain
such coverage. If the Covered Individual does purchase
the workers' compensation coverage or similar coverage,
there will be no coverage under this Plan.
4. Charges while confined in a Hospital owned or operated by the
United States government or any agency thereof, or charges
for services, treatments or supplies furnished by the
United States government or any agency thereof, unless
such benefits are mandated under federal law and/or
regulation.
5. Charges for which the Covered Individual is not (in the absence
of this coverage) legally obligated to pay, or for which a
charge would not ordinarily be made in the absence of this
coverage.
6. Charges incurred due to an Illness or Injury resulting from the
Covered Individual's voluntary participation in a criminal
act (such as burglary, robbery, assault, criminal
trespass, participation in a riot or civil disturbance),
or while the Covered Individual is engaged in an illegal
occupation.
7. Charges for services or supplies which constitute personal
comfort or beautification items; for television or
telephone use; for nutritional supplements; or in
connection with custodial care, education or training, or
expenses actually incurred by other persons.
8. Charges in connection with the care or treatment of or surgery
performed for a cosmetic procedure. This exclusion will
not apply when such treatment is rendered to correct a
condition resulting from an accidental Injury sustained
while coverage is in effect, or when rendered to correct a
congenital anomaly (i.e., a birth defect) of a Covered
Dependent. Pre-authorization is recommended.
9. Charges incurred in connection with services and supplies which
are not necessary for treatment of the Injury or Illness,
or are in excess of reasonable and customary charges, or
are not recommended and approved by a Physician, or are
not recognized by the American Medical Association as
generally accepted and Medically Necessary for the
diagnosis and/or treatment of an active Illness or Injury;
or charges for procedures, surgical or otherwise, which
are specifically listed by the American Medical
Association as having no medical value.
10. Charges incurred for routine medical examinations or care,
routine health checkups, or immunizations related to
school, employment, insurance or travel, except as
specifically shown as a covered expense elsewhere in the
Plan
11. Charges related to or in connection with the reversal of a
sterilization procedure.
12. Charges incurred in connection with routine eye refractions,
the purchase or fitting of eyeglasses, contact lenses, or
such similar aid devices except the initial purchase of
contact lenses or glasses following cataract surgery.
13. Charges for hearing aids and the exam or fitting thereof.
14. Charges for orthopedic shoes, arch supports, or any such
similar device, or exam for the prescription or fitting
thereof; or charges for splints or braces for non-medical
purposes (i.e., supports worn primarily during
participation in sports or similar physical activities).
15. Charges for dental services not specifically included in
benefits described in this Plan; or for Hospital charges
in relation to dental care, except those services which
are certified by a medical doctor to be Medically
Necessary to safeguard the life and health of the Covered
Individual due to the existence of a non-dental physical
condition. Pre-authorization is recommended.
16. Charges for inpatient concurrent services of Physicians,
unless there is a clinical necessity for supplemental
skills and the two or more Physicians attend the patient
for separate conditions during the same Hospital
admission.
17. Charges for abortion unless Medically Necessary to safeguard
the life of the mother.
18. Charges for services rendered by a Physician, nurse, or
licensed therapist if such Physician, nurse, or licensed
therapist is a Close Relative of the Covered Individual,
or resides in the same household of the Covered
Individual.
19. If a Covered Individual receives medical treatment outside of
the United States or its territories, benefits shall be
provided for those charges to the extent that the services
rendered are included as covered expenses in the Plan, and
provided the Covered Individual did not travel to such a
location for the sole purpose of obtaining medical
services, drugs, or supplies.
Additionally, charges for such treatment may not exceed the
limits specified herein as reasonable and customary in the
area of residence of the Covered Individual in the United
States. Fees and charges exceeding reasonable and
customary shall be disallowed as ineligible charges.
Charges equal to or less than reasonable and customary
shall be considered. In no event shall benefit payment
exceed that actual amount charged.
20. Charges for hospitalization when such confinement occurs
primarily for physiotherapy, hydrotherapy, convalescent or
rest care, or any routine physical examinations or tests
not connected with the actual Illness or Injury.
21. Physicians fees for any treatment or service which is not
rendered by and in the physical presence of a Physician.
22. Charges for professional nursing services if rendered by other
than a Registered Nurse (R.N.) or Licensed Practical Nurse
(L.P.N.), unless such care was vital as a safeguard of the
Covered Individual's life, and unless such care is
specifically listed as a covered expense elsewhere in the
Plan. In addition, the Plan will not cover certified
Registered Nurses in independent practice (other than an
anesthetist). This exclusion does not apply to private
duty nurses as addressed elsewhere in this Plan.
23. Charges for Experimental procedures, drugs, or research
studies, or for any services or supplies not considered
legal in the United States or not recognized by the
American Medical Association or the American College of
Surgeons and/or the United States Food & Drug
Administration. Experimental or investigational services.
This includes:
a. care, procedures, treatment protocol or technology which:
i. is not widely accepted as safe, effective and appropriate for
the Injury or Sickness throughout the recognized
medical profession and established medical
societies in the United States; or
ii. is Experimental, in the research or investigational stage or
conducted as part of research protocol, or has
not been proved by statistically significant
randomized clinical trials to establish increase
survival or improvement in the quality of life
over other conventional therapies.
b. drugs, tests, and technology which:
i. the FDA has not approved for general use;
ii. are considered Experimental;
iii. are for investigational use; or
iv. are approved for a specific medical condition but are applied
to another condition.
The Plan will rely on the Data project of the American Medical
Association, the National Institute of Health, the U.S.
Food and Drug Administration, The National Cancer
Institute, Office of Health Technology Assessment, the
Health Care Financing Administration of the U.S.
Department of Health and Human Services, and Congressional
Office of Technology Assessment in determining
investigational or experimental services.
24. Charges related to counseling for persons suffering from
gender identification problems, or services or supplies
related to the performance of gender transformation
procedures.
25. Charges for services or supplies for recreational or
educational therapy or forms of non-medical self-help or
self-cure.
26. Charges for services or supplies furnished for weight
reduction or in connection with morbid obesity; except as
specifically shown as a covered expense elsewhere in the
Plan. This includes dietary supplements, foods,
equipment, laboratory testing, exams and prescription
drugs, regardless of whether or not weight reduction is
medically appropriate.
27. Charges for services or supplies for marital and/or Family
counseling or training services.
28. Charges for hypnotherapy, biofeedback, or sleep therapy.
29. Charges for the purchase or rental of air conditioners,
humidifiers, dehumidifiers, air purifiers, exercise
equipment and other such equipment.
30. Charges for travel or lodging costs.
31. Charges for acupuncture.
32. Charges for penile prosthesis/implants and any charges
relating thereto.
33. Charges in relation to chelation therapy except in the
treatment of heavy metal poisoning.
34. Charges for routine foot care, such as removal of corns,
calluses, or trimming of toenails; except the services
necessary in the treatment of a peripheral-vascular
disease when recommended by a medical doctor or doctor of
osteopathy.
35. Charges in relation to radial keratotomy, corneal modulation,
refractive keratoplasty or any similar procedure.
36. Charges in relation to intentionally self-inflicted Injury or
self-induced Illness, whether sane or insane.
37. Charges for nutritional supplements, subcutaneous implants
such as Norplant, drugs or supplies associated with
smoking cessation, and drugs for sexual dysfunction.
38. Charges in relation to complications of a non-covered
procedure.
39. Charges related to maxillary or mandibular implants.
40. Charges related to the testing and treatment of communication
delay, motor development delay, growth development delay,
learning disabilities or disorders, except the diagnosis
and treatment of attention deficit disorder will be
considered Eligible Expenses under the Plan.
41. Charges for scheduled delivery for childbirth at home.
42. Charges for vocational rehabilitation.
43. Charges for chiropractic services.
44. Charges for orthoptic training unless prescribed by a
physician and performed by a licensed orthoptic technician
or optometrist.
45. Charges for accidental bodily Injury sustained or Illness
contracted as a result of alcohol or drug abuse.
PRE-EXISTING CONDITIONS
For a Covered Individual who enrolls in this Plan within thirty-
one (31) days after the date of his eligibility for coverage, or
for a Covered Individual who enrolls in the Plan under the
Special Enrollment, claims in relation to or resulting from
Pre-Existing Conditions (A disease, Injury, or Illness of a
Covered Individual for which the Covered Individual has been
under the care of a licensed Physician or has received medical
care, services, or supplies within the six (6) month period
immediately preceding: 1) for new hires, his date of employment;
or 2) for Special Enrollees his enrollment date with the Company)
will be excluded from coverage under the Plan until the Covered
Individual: 1) for new hires, has been employed by the Company
for a period of twelve (12) consecutive months; or 2) for Special
Enrollees, has been enrolled for coverage under the Plan for a
period of twelve (12) consecutive months, in which case the
pre-existing conditions limitation will no longer apply, and all
eligible charges incurred thereafter will be considered under the
Plan.
For a Covered Individual who enrolls in this Plan more than
thirty-one (31) days after the date of his eligibility for
coverage, claims in relation to or resulting from Pre-Existing
Conditions (A disease, Injury, or Illness, of a Covered
Individual for which the Covered Individual has been under the
care of a licensed Physician or has received medical care,
services, or supplies within the six (6) month period immediately
preceding his effective date of coverage) are excluded from
coverage under the Plan until the Covered Individual has been
enrolled under the Plan for a period of twelve (12) consecutive
months, in which case the pre-existing conditions limitation will
no longer apply, and all eligible charges incurred thereafter
will be considered under the Plan.
Exceptions to the Pre-Existing Condition Limitation:
1. The Plan's pre-existing condition exclusion does not apply to
pregnancy, or to a newborn, an adopted child under age
eighteen (18), or a child placed for adoption under age
eighteen (18), if the child becomes covered within thirty
(30) days of birth, adoption or placement for adoption.
2. The Pre-Existing Condition Limitation will be waived wholly or
in part in the event an individual was insured previously
by Creditable Coverage, and providing there was no break
in such coverage longer than sixty-three (63) days
immediately prior to: 1) for new hires, his date of
employment; or 2) for Special and Late Enrollees, the date
of enrollment in this Plan. Any time periods used to
satisfy the individual's Pre-Existing Condition Limitation
under the prior plan will be credited towards the
satisfaction of this Plan's Pre-Existing Conditions
Limitation, to the extent that such time was satisfied
under the prior plan.
For the purposes of this Plan, "Creditable Coverage" means, with
respect to an individual, coverage of the individual provided
under any of the following:
a. Part A or Part B of Title XVIII of the Social Security Act
(Medicare);
b. A group health plan;
c. An individual health insurance policy that provides benefits
similar to or exceeding benefits provided under a basic
health benefit plan;
d. Title XIX of the Social Security Act, other than coverage
consisting solely of benefits under section 1928
(Medicaid);
e. Chapter 55 of Title 10, United States Code (military-sponsored
health care);
f. A State health benefits risk pool;
g. A health plan offered under chapter 89 of Title 5, United
States Code (FEHBP);
h. A public health plan (as defined in the regulations); or A
medical care program of the Indian Health Service or of a
tribal organization; or
i. A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
ELIGIBILITY OF COVERAGE
Employee Eligibility and Effective Date
An Employee is eligible for coverage under the Plan when the
Employee:
1. Is employed by the Company on a regular, full/part-time basis
as specified in the Plan Summary; and
2. Is actively at work; and
3. Has satisfied the Required Period of Service as specified in
the Plan Summary; and
4. Is within the classification (if any) shown in the Plan
Summary.
If the Employee has met the above eligibility requirements on or
before on the effective date of this Plan, the date of
eligibility shall be the effective date of the Plan.
If the Employee meets the above eligibility requirements after
the effective date of the Plan, the date of eligibility shall be
the first day of the month following the day he first meets those
eligibility requirements.
Employee Coverage under the Plan shall become effective on the
date of the Employee's eligibility, provided he has made written
application for such coverage on or before such date. If an
Employee applies for coverage within thirty-one (31) days after
his date of eligibility, his coverage shall be retroactive to the
date of initial eligibility.
All Employee Coverage under the Plan shall commence at 12:01 A.M.
Standard Time, on the date such coverage is effective, provided
such Employee is able to be actively at work at such time. If
the Employee is not actively at work on the date this Employee
Coverage would otherwise take effect, but would have been able to
actively work at 12:01 A.M. Standard Time had such work commenced
at that time, such Employee shall be eligible for coverage on
that date. If an eligible Employee is not able to be actively at
work on the date this Employee Coverage would otherwise become
effective, for reasons other than those related to a health
condition, his coverage shall become effective on the day he
returns to active work.
An Employee who chooses not to keep his coverage in effect during
a period of an approved leave of absence which qualifies under
the Family and Medical Leave Act will be eligible to enroll for
the same type of coverage (single or Family) which was in effect
at the time of the leave of absence immediately upon return to
work.
Each Employee will become eligible for Dependent Coverage on the
latest of the following:
1. The date he becomes eligible for participant coverage
2. The date on which he first acquires a Dependent.
3. The date he first comes within the classification (if any) for
Dependent Coverage, as stated in the Plan Summary.
If both the husband and wife are employed by the Company and both
are eligible for Dependent Coverage, either the husband or wife,
but not both, may elect Dependent Coverage for their eligible
dependents.
Dependent Eligibility and Effective Date
A Dependent will be considered eligible for coverage on the date
the Employee becomes eligible for Dependent Coverage, subject to
all limitations and requirements of this Plan. Each Employee who
makes such written request for Dependent Coverage on a form
approved by the Company, shall, subject to the further provisions
of this section, become covered for Dependent Coverage as
follows:
1. If the Employee makes such written request on or before the
date he becomes eligible for Dependent Coverage, he shall
become covered, with respect to those persons who are then
his dependents, on the date he becomes covered for
participant coverage.
2. A newborn child of an Employee will be covered from the moment
of birth providing Dependent Coverage is in effect at that
time. If Dependent Coverage is not in effect, the
Employee will have thirty (30) days from the date of the
birth to make application for Dependent Coverage and
coverage will be retroactive to the date of the birth.
3. An adoptive child of an Employee will be covered from the date
the child is placed in the physical custody of the
Employee and the Employee is legally responsible for
medical expenses incurred by said child if Dependent
Coverage is in effect on that date. If Dependent Coverage
is not in effect, the Employee has thirty (30) days from
this date to make application for Dependent Coverage and
coverage will be retroactive to the date of physical
custody.
4. If a Dependent is acquired other than at the time of his birth
due to a court order, decree, or marriage, coverage for
this new Dependent will be effective on the date of such
court order, decree, or marriage if Dependent Coverage is
in effect under the Plan at that time. If the Employee
does not have Dependent Coverage in effect under the Plan
at the time of the court order, decree, or marriage and
requests such coverage and properly enrolls this new
Dependent within the thirty (30) day period immediately
following the date of the court order, decree, or
marriage, Dependent Coverage will be retroactive to the
date of the court order, decree, or marriage.
5. A newly eligible Dependent that meets the definition of a Full-
Time Student will be covered from the date of eligibility
providing Dependent Coverage is in effect at that time and
providing written request for coverage is made within the
thirty (30) day period immediately following the first day
of eligibility of the Dependent. If Dependent Coverage is
not in effect at that time, the Employee has thirty (30)
days from the date of the Dependent's eligibility to make
such written request and coverage will be retroactive to
the date the Dependent became a Full-Time Student.
LATE ENROLLMENT
Enrollment for coverage is required within thirty-one (31) days
for new Employees and thirty (30) days for other eligibility as
stated, of the date an individual would otherwise be eligible.
If enrollment is not completed within that time, or if a covered
Employee's and/or Dependent's coverage terminates because of
failure to make a contribution when due, such person will be
considered a late enrollee. Some late enrollments may be made
under the following Special Enrollment provision, however, if the
Special Enrollment provisions do not apply, a late enrollee will
only be eligible to enroll during the Annual enrollment period
designated by the Company. The Pre-Existing Condition limitation
of this Plan will apply to all late enrollees who do not qualify
to enroll under the Special Enrollment provision.
Special Enrollment
Eligible individuals may be entitled to enroll in the Plan at a
time other than during the Annual enrollment period. Special
enrollment rights may be triggered upon the occurrence of two
types of events - upon the loss of other health coverage and upon
the addition of a new dependent. When a triggering event occurs,
an eligible individual who does not enroll in the Plan within the
thirty (30) day deadlines explained below, will lose special
enrollment rights for that event.
1. First Type of Event
a. Loss of Other Health Coverage. Eligible Employees and their
Dependents who, at the time they were offered coverage
under the Plan were eligible for the coverage and declined
it because of other health coverage, are entitled to
enroll in the plan when the other coverage ends.
b. Other Coverage is COBRA Coverage. If the other coverage is
COBRA coverage, the eligible Employee must exhaust COBRA
coverage to be eligible for special enrollment in the
Plan. Exhaustion of COBRA coverage means that COBRA
coverage ends for any reason other than failure to pay
contributions on time or for cause.
c. Other Coverage is Not COBRA Coverage. If the other coverage is
not COBRA coverage, the Employee must lose the other
coverage as a result of loss of eligibility for the
coverage or termination of employment.
d. Deadline for Special Enrollment Period. The eligible Employee
is required to request special enrollment in the Plan not
later than thirty (30) days (i) after the exhaustion of
the other coverage; (ii) after the termination of the
other coverage as a result of the loss of eligibility for
the other coverage; or (iii) following the termination of
employer contributions toward that other coverage. If the
Plan Administrator does not receive the eligible
Employee's completed request for enrollment within this
deadline, the eligible Employee and his or her dependents
lose special enrollment rights for that event.
e. Effective Date of Enrollment. Enrollment in the Plan under the
Special Enrollment provision will be effective not later
than the first day of the first calendar month beginning
after the date the Plan Administrator receives your
completed request for enrollment.
2. Second Type of Event
a. Addition of a Dependent. An eligible Employee's marriage, or
the birth or adoption of his or her child, triggers
special enrollment rights.
b. Non-Participating Employee May Also Enroll. The addition of a
new Dependent triggers enrollment rights for an eligible
Employee even if he or she does not participate in the
Plan at the time of the event. For example, upon the
birth of an eligible Employee's child, the eligible
Employee (assuming that he or she did not previously
enroll), his or her spouse, and his or her Newborn child
may all enroll because of the child's birth. The same
rule applies to the eligible Employee's marriage or
adoption of a child if the eligible Employee had not
previously enrolled in the Plan.
c. Deadline for Special Enrollment Period. An eligible Employee
must request special enrollment within thirty (30) days of
marriage, or birth, adoption or placement for adoption of
his or her child. If the Plan Administrator does not
receive the eligible Employee's completed request for
enrollment within this deadline, he or his Dependents lose
special enrollment rights for that event.
d. Effective Date of Enrollment. The date of enrollment for
coverage will be the date of the event.
Pre-existing Condition Exclusion and Special Enrollees. Special
enrollees and their Dependents will not be treated as late
enrollees. The Plan will apply a Pre-Existing Condition
exclusion period of twelve (12) months to a special enrollee. The
Plan will not apply a Pre-Existing Condition exclusion to
Pregnancy, or to a Newborn or adopted child who is enrolled under
the special enrollment provisions.
TERMINATION OF COVERAGE
Employee Termination
Employee Coverage will automatically terminate immediately upon
the earliest of the following dates, except as provided in any
Extension of Benefits provision:
1. The last day of the month in which the Employee terminates
employment.
2. The last day of the month in which the Employee ceases to be in
a class of participants eligible for coverage.
3. The date ending the period for which the last contribution is
made if the Employee fails to make any required
contributions when due.
4. The date the Plan is terminated; or with respect to any
participant benefit of the Plan, the date of termination
of such benefit.
5. The date the Employee enters military duty.
6. The date of the Employee's death.
Dependent Termination
Dependent Coverage will automatically terminate immediately upon
the earliest of the following dates, except as provided in any
Extension of Benefits provision:
1. The last day of the month in which the Dependent ceases to be
an eligible Dependent as defined in the Plan.
2. The date of termination of the Employee's coverage under the
Plan.
3. The last day of the month in which the Employee ceases to be in
a class of participants eligible for Dependent Coverage.
4. The date for which the last contribution is made if the
Employee fails to make any required contributions when
due.
5. The date the Plan is terminated; or with respect to any
Dependent's benefit of the Plan, the date of termination
of such benefit.
6. The date the Dependent enters military duty.
7. The date the Dependent becomes covered under this Plan as an
individual participant.
8. The last day of the month in which a dependent child attains
the age specified in the definition of dependent.
9. The last day of the month in which the Employee's death occurs.
EXTENSION OF BENEFITS
Family and Medical Leave Act Provision
All provisions under the Plan are intended to be in compliance
with the Family and Medical Leave Act of 1993 (FMLA). To the
extent the FMLA applies to the Company, group health benefits may
be maintained during certain leaves of absence at the level and
under the conditions that would have been present as if
employment had not been interrupted. Employee eligibility
requirements, the obligations of the employer and employee
concerning conditions of leave, and notification and reporting
requirements are specified in the FMLA. Any plan provisions
which conflict with the FMLA are superseded by the FMLA to the
extent such provisions conflict with the FMLA. A Participant
with questions concerning any rights and/or obligations should
contact the Plan Administrator or his employer.
Uniformed Services Employment And Reemployment Rights Act (USERRA)
It is the intent of the Plan to adhere to the continuation of
coverage provisions of The Uniformed Services Employment and
Reemployment Rights Act (USERRA) effective October 14, 1994. An
individual who would like complete information regarding his
rights under USERRA, should contact the Company.
Extension of Benefits due to Lay Off
If termination of active employment is due to lay off, coverage
will continue for a period of not longer than three (3) months
provided required contributions are made. This extension of
benefits runs concurrent with COBRA.
Extension of Benefits for Leave of Absence
If a participants coverage terminates due to an approved leave of
absence, coverage will continue for a period of not longer than
six (6) months provided required contributions are made. This
extension of benefits runs concurrent with COBRA.
Disability Extension of Benefits
If a Covered Individual is totally disabled on the date this Plan
terminates or the employee terminates his employment, benefits
will continue as long as total disability continues up to a
maximum of twelve (12) months. These benefits are extended only
for the condition that totally disabled the Employee or
Dependent.
COBRA Extension of Benefits
It is the intent of the Plan to adhere to the continuation of
coverage provision of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA), its interpretations, and as
amended from time to time.
COORDINATION OF BENEFITS
The Coordination of Benefits provision is intended to prevent the
payment of benefits which exceed expenses. It applies when the
Employee or any eligible Dependent who is covered by this Plan is
also covered by any other plan or plans. When more than one
coverage exists, one plan normally pays its benefits in full and
the other plans pay a reduced benefit. This Plan will always pay
either its benefits in full, or a reduced amount which when added
to the benefits payable by the other plan or plans will not
exceed 100% of allowable expenses. Only the amount paid by the
Plan will be charged against the Plan maximums.
The Coordination of Benefits provision applies whether or not a
claim is filed under the other plan or plans. If needed,
authorization must be given this Plan to obtain information as to
benefits or services available from the other plan or plans, or
to recover overpayment.
All benefits contained in the Plan are subject to this provision.
Definitions
The term "plan" as used herein will mean any plan providing
benefits or services for or by reason of medical, vision, or
dental treatment, and such benefits or services are provided by:
1. Group insurance or any other arrangement for coverage for
Covered Individuals in a group whether on an insured or
uninsured basis, including but not limited to:
a. Hospital indemnity benefits.
b. Hospital reimbursement-type plans which permit the Covered
individual to elect indemnity at the time of claims.
2. Hospital or medical service organizations on a group basis,
group practice, and other group pre-payment plans.
3. Hospital or medical service organizations on an individual
basis having a provision similar in effect to this
provision.
4. A licensed Health Maintenance Organization (H.M.O.).
5. Any coverage for students which is sponsored by or provided
through a school or other educational institution.
6. Any coverage under a governmental program, and any coverage
required or provided by any statute.
7. Group automobile insurance.
8. Individual automobile insurance coverage on an automobile
leased or owned by the Company.
9. Individual automobile insurance coverage based upon the
principles of "No-Fault" coverage.
The term "plan" will be construed separately with respect to each
policy, contract, or other arrangement for benefits or services,
and separately with respect to that portion of any such policy,
contract, or other arrangement which reserves the right to take
the benefits or services of other plans into consideration in
determining its benefits and that portion which does not.
The term "allowable expenses" means any necessary item of
expense, the charge for which is reasonable, regular, and
customary, at least a portion of which is covered under at least
one of the plans covering the person for whom claim is made.
When a plan provides benefits in the form of services rather than
cash payments, then the reasonable cash value of each service
rendered will be deemed to be both an allowable expense and a
benefit paid.
The term "claim determination period" means a Calendar Year or
that portion of a Calendar Year during which the Covered
Individual for whom claim is made has been covered under this
Plan.
Coordination Procedures
Notwithstanding the other provisions of this Plan, benefits that
would be payable under this Plan will be reduced so that the sum
of benefits and all benefits payable under all other plans will
not exceed the total of allowable expenses incurred during any
claim determination period with respect to a Covered Individual
eligible for:
1. Benefits either as an insured person or participant or as a
Dependent under any other plan which has no provision
similar in effect to this provision, or
2. Dependent benefits under this Plan for a Covered Individual who
is also eligible for benefits:
a. As an insured person or participant under any other plan, or
b. As a dependent covered under another group plan.
3. Employee benefits under this Plan for an Employee who is also
eligible for benefits as an insured person or participant
under any other plan and has been covered continuously for
a longer period of time under such other plan.
Order Of Benefit Determination
Each plan makes its claim payment according to where it falls in
this order, if Medicare is not involved:
1. If a plan contains no provision for coordination of benefits,
then it pays before all other plans.
2. The plan which covers the claimant as an Employee or named
insured pays as though no other plan existed; remaining
recognized charges are paid under a plan which covers the
claimant as a Dependent.
3. If the claimant is a Dependent child, the plan of the parent
whose birthday occurs first in the Calendar Year shall pay
first. However, if his parents are divorced, then:
a. The plan of the parent with custody pays first, unless a court
order or decree specifies the other parent to have
financial responsibility; in which case, that parent's
plan would pay first.
b. The plan of a stepparent with whom he lives pays second (if
applicable).
c. The plan of the parent without custody pays third.
4. If a person is covered under a group plan due to continuation
of COBRA coverage, the plan covering this individual as an
active Employee or a Dependent of an active Employee shall
be primary.
5. If the order set out above does not apply in a particular case,
then the plan which has covered the claimant for the
longest period of time will pay first.
The Company has the right:
1. To obtain or share information with an insurance company or
other organization regarding Coordination of Benefits
without the claimant's consent.
2. To require that the claimant provide the Company with
information on such other plans so that this provision may
be implemented.
3. To pay the amount due under this Plan to an insurer or other
organization if this is necessary, in the Company's
opinion, to satisfy the terms of this provision.
Facility Of Payment
Whenever payments which should have been made under this Plan in
accordance with this provision have been made under any other
plan or plans, the Company will have the right, exercisable alone
and in its sole discretion, to pay to any insurance company or
other organization or person making such other payments any
amounts it will determine in order to satisfy the intent of this
provision, and amounts so paid will be deemed to be benefits paid
under this Plan and to the extent of such payments, the Company
will be fully discharged from liability under this Plan.
The benefits that are payable will be charged against any
applicable maximum payment or benefit of this Plan rather than
the amount payable in the absence of this provision.
Right To Receive And Release Necessary Information
For the purposes of determining the applicability of and
implementing the terms of this provision of the Plan or any
similar provision of any other plans, the Company may, without
the consent of or notice to any person, release to or obtain from
any insurance company or other organization or person any
information, with respect to any person, which the Company deems
to be necessary for such purposes. Any person claiming benefits
under this Plan shall furnish to the Company such information as
may be necessary to implement this provision.
Effect Of Medicare
It is the intent of the Plan to adhere to the laws of DEFRA,
TEFRA, and COBRA as currently constituted and as amended from
time to time. Any Employee or Dependent eligible for Medicare
should contact the Claims Processor for current rulings.
If any Covered Individual eligible for Medicare fails to enroll
therefor, benefits will be paid by the Plan as though he had
enrolled.
SUBROGATION
This Plan may withhold payment of benefits until such time that
liability is legally determined. This Plan does not provide
benefits to the extent that there is other coverage under non-
group medical payments (including auto) or medical expense type
coverage to the extent of that coverage.
This Plan will be reimbursed for all benefit payments made as the
result of injuries or illnesses which are caused by the actions
of a third party and which give rise to a court ordered financial
award or out-of-court settlement to a Covered Individual from a
third party tort-feasor, person or entity. This Plan will provide
benefits, otherwise payable under this Plan, to or on behalf of
the Covered Individual only on the following terms and
conditions:
1. In the event of any payment under this Plan, the Plan shall be
subrogated to all of the Covered Individual's rights of
recovery against any person or organization and the
Covered Individual shall execute and deliver instruments
and papers and do whatever else is necessary to secure
such rights. The Covered Individual shall do nothing
after loss to prejudice such rights. The Covered
Individual shall agree to cooperate with the Plan and/or
any representatives of the Plan in completing such forms
and in giving such information surrounding any accident as
the Plan or its representatives deem necessary to fully
investigate the incident.
2. The Plan is also granted a right of reimbursement from the
proceeds of any settlement, judgment or other payment
obtained by the Covered Individual. This right of
reimbursement is cumulative with and not exclusive of the
subrogation right granted in 1 above, but only to the
extent of the benefits paid by the Plan.
3. The Plan, by payment of any proceeds is granted a lien on the
proceeds of any settlement, judgment or other payment
received by the Covered Individual, and the Covered
Individual consents to said lien and agrees to take
whatever steps are necessary to help the Plan
Administrator secure such lien.
4. The subrogation and reimbursement rights and liens apply to any
recoveries made by the Covered Individual as a result of
the injuries sustained or Illness suffered, including but
not limited to the following:
a. Payments made directly by the third party tort-feasor or any
insurance company on behalf of the third party tort-
feasor or any other payments on behalf of the third
party tort-feasor.
b. Any payments or settlements or judgments or arbitration awards
paid by an insurance company under an uninsured or
underinsured motorist coverage, whether on behalf of
the Covered Individual or other person.
c. Any other payments from any source designed or intended to
compensate a Covered Individual for injuries sustained
or Illness suffered as the result of negligence or
alleged negligence of a third party.
d. Any workers compensation award or settlement.
5. No adult Covered Individual may assign any rights that it may
have to recover medical expenses from any tort-feasor or
other person or entity to any minor child or children of
said adult Covered Individual without the express prior
written consent of the Plan. The Plan's right to recover
(whether by subrogation or reimbursement) shall apply to
decedent's, minor's and incompetent or disabled person's
settlements or recoveries.
6. No Covered Individual shall make any settlement which
specifically excludes or attempts to exclude the medical
expenses paid by the Plan.
7. The proceeds of any settlement, judgment or other payment
recovered by or on behalf of the Covered Individual shall
be allocated first to full reimbursement of the Plan and,
after the Plan has been fully reimbursed, then to expenses
and compensation of the Covered Individual,
notwithstanding any so-called "Made-Whole Doctrine",
"Rimes Doctrine" or any other law which would compensate
the Covered Individual, in whole or in part, before
reimbursing a subrogee.
8. No Covered Individual shall incur any expenses on behalf of the
Plan, including but not limited to court costs or
attorney's fees, without the prior express written consent
of the Plan. The Plan's rights to full reimbursement
shall not be reduced because of any so-called "Fund
Doctrine", "Common Fund Doctrine", or any other law which
implies the Plan's agreement or otherwise requires the
Plan to pay, or to accept as a reimbursement in kind, any
amount or share of attorney's fees or other services or
expenses incurred by the Covered Individual in obtaining a
judgment, settlement or other payment from a third party.
9. The Plan shall recover the full amount of benefits paid without
regard to any claim of fault on the part of the Covered
Individual, whether under comparative negligence or
otherwise.
10. The benefits under this Plan are secondary to any coverage
under no-fault or similar insurance.
RIGHTS UNDER ERISA
Employee Retirement Income Security Act of 1974 (ERISA) provides
that all plan participants shall be entitled to:
Examine, without charge, at the Plan Sponsor's office and at
other specified locations, such as work sites, all plan
documents, including insurance contracts, collective
bargaining agreements and copies of all documents filed by the
plan with the U. S. Department of Labor, such as detailed
annual reports and plan descriptions.
Obtain copies of all plan documents and other plan information
upon written request to the Plan Sponsor. The Plan Sponsor
may make a reasonable charge for the copies.
Receive a summary of the plan's annual financial report, SAR.
The Plan Sponsor is required by law to furnish each
participant with a copy of this summary financial report.
In addition to creating rights for plan participants, ERISA
imposes duties upon the people who are responsible for the
operation of this Plan. The people who operate this Plan, called
"Fiduciaries" of the Plan, have a duty to do so prudently and in
the interest of all Plan Employees. No one, including the
employer, may fire or otherwise discriminate against a
participant in any way to prevent the participant from obtaining
a benefit or exercising his rights under ERISA.
If a claim for a benefit is denied, in whole or in part, the
participant may receive a written explanation of the reason for
the denial. He has the right to have the Plan Sponsor review and
reconsider the claim. He must submit a request for review in
writing within sixty (60) days of receiving denial of the claim.
The request should contain the reasons for appeal and copies of
any pertinent information.
Under ERISA, there are steps a participant can take to enforce
the above rights. For instance, if he requests materials from
the plan and does not receive them within thirty (30) days, he
may file suit in a federal court. In such a case, the court may
require the Plan Sponsor to provide the materials and pay him up
to $100 a day until he receives the materials, unless the
materials were not sent because of reasons beyond the control of
the Plan Sponsor.
If a claim for benefits is denied or ignored, in whole or in
part, the participant may file suit in a state or federal court.
If it should happen that the plan Fiduciaries misuse the plan's
money or if a participant is discriminated against for asserting
his rights, he may seek assistance from the U. S. Department of
Labor, or may file suit in a federal court. The court will
decide who should pay court costs and legal fees. If he is
successful, the court may order the person sued to pay these
costs and fees. If he loses, the court may order him to pay
these costs and fees (for example, if it finds the claim to be
frivolous).
If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest office of the
Pension and Welfare Benefits Administration, U.S. Department of
Labor, listed in your telephone directory or the Division of
Technical Assistance and Inquiries, Pension and Welfare Benefit
Administration, U.S. Department of Labor, 200 Constitution Avenue
NW, Washington, DC 20210.
GENERAL PROVISIONS
Notice Of Claim
Written notice of claim should be submitted to the Claims
Processor within ninety (90) days after the occurrence. All
claims must be filed within one (1) year and ninety (90) days of
the event on which claim is based or payment will be denied.
Written notice of claim given by or on behalf of the Covered
Individual to the Claims Processor, with information sufficient
to identify the Covered Individual, will be considered notice.
Failure to furnish proof within the time provided in the Plan
will not invalidate or reduce any claim if it will be shown not
to have been reasonably possible to furnish such proof and that
such proof was furnished as soon as reasonably possible.
Claim Review Procedure
The Claims Processor will process your claims no later than 90
days after receiving them. In some cases, an additional 90 days
may be needed and you will be notified of this during the first
90 day period.
If your claim is denied (in whole or in part), you will receive a
written explanation of the denial. Should your claim be denied
(or if 180 days have elapsed since it was filed and you have not
received a written decision), you may have your claim reviewed.
To do so, you must request a review no later than 60 days after
the denial (or after the end of the 180 day period) by writing to
the Plan Administrator.
Once you have requested this review, you may submit additional
pertinent information and comments on your claim to Plan
Administrator as long as you do so within 30 days of the date you
asked for the review. Also during this 30 day period, you may
review any documents held by the Claims Processor, if you make a
request in writing to do so.
Within 60 days of receiving your request for review, the Plan
Administrator will send you its decision on the claim. In
unusual situations, an additional 60 days may be needed for the
review and you will be notified of this during the first 60 day
period. In any case, by law, no more than 120 days can be taken
for a review even at your request.
Claim Forms
Claim forms for filing notice of claim may be obtained from the
office of the Claims Processor.
Proof Of Loss
The Plan Administrator will have the right and opportunity to
have examined any individual whose Injury or Sickness is the
basis of a claim hereunder when and as often as it may reasonably
require during the pendency of a claim, and also the right and
opportunity to make an autopsy in case of death (where such
autopsy is not forbidden by law).
Free Choice Of Physician
The Covered Individual will have free choice of any legally
qualified Physician or surgeon, and the Physician-patient
relationship will be maintained.
Payment Of Claims
All Plan benefits are payable to the Employee, or subject to any
written direction of the Employee. All or a portion of any
indemnities provided by the Plan on account of Hospital, nursing,
medical or surgical services may, at the Employee's option and
unless the Employee requests otherwise in writing not later than
the time of filing proof of such loss, be paid directly to the
Hospital or person rendering such services; however, if any such
benefit remains unpaid at the death of the Employee or if the
participant is a minor or is, in the opinion of the Plan
Administrator, legally incapable of giving a valid receipt and
discharge for any payment, the Plan Administrator may, at its
option, pay such benefits to any one or more of the following
relatives of the Employee: wife, husband, mother, father, child
or children, brother or brothers, sister or sisters. Any payment
so made will constitute a complete discharge of the Plan's
obligation to the extent of such payment, and the Plan will not
be required to see the application of the money so paid.
Assignment
Benefits may not be assigned except by consent of the Company,
other than to providers of medical services and according to the
provisions set forth in the Plan Document.
Rights Of Recovery
Whenever payments have been made by the Company with respect to
allowable expenses in excess of the maximum amount of payment
necessary to satisfy the intent of this Plan, the Company will
have the right, exercisable alone and in its sole discretion, to
recover such excess payments.
Changes In Coverage Classification
If coverage classifications are designated in the Plan Summary,
any change in the amount of coverage available to a Covered
Individual occasioned by a change in the Employee's
classification will become effective automatically on the
classification change date; however, if the Employee is not
actively at work within the eligible class on the date the amount
of his coverage would otherwise increase, such increase will not
become effective until the next following day on which he is
actively at work within the eligible class. In the case of a
Dependent, such increase will not become effective automatically
if on that date the Dependent is confined in a Hospital or
elsewhere. Such increase will become effective, however, on the
day the Dependent is released to resume the normal activities of
a person of like age and sex. This limitation will not apply to
a newborn who is Hospital-confined solely because of this birth.
If, however, a change in the coverage classification of a Covered
Individual which would decrease the Maximum Benefit applicable to
the Covered Individual becomes effective in accordance with the
terms of the Plan, such decrease will apply immediately with
respect to the Comprehensive Medical Expense Benefits applicable
to the Covered Individual, except that if the Covered Individual
is totally disabled on the date of change, the decrease will not
apply to the benefits payable for eligible charges incurred
during the subsequent period of continuous total disability
within the benefit period in which the change occurs and due
solely to the Illness or Injury which caused the total
disability.
WORKERS' COMPENSATION NOT AFFECTED
This Plan is not in lieu of and does not affect any requirement
for coverage by workers' compensation insurance.
LEGAL PROCEEDINGS
No action at law or in equity will be brought to recover on the
Plan prior to the expiration of sixty (60) days after proof of
loss has been filed in accordance with the requirements of the
Plan, nor will such action be brought at all unless brought
within three (3) years from the expiration of the time within
which proof of loss is required by the Plan.
CONFORMITY WITH GOVERNING LAW
If any provision of this Plan is contrary to any law to which it
is subject, such provision is hereby amended to conform thereto.
TIME LIMITATION
If any time limitation of the Plan with respect to giving notice
of claim or furnishing proof of loss, or the bringing of an
action at law or in equity is less than that permitted under the
guidelines of ERISA and/or any federally mandated law, such
limitation is hereby extended to agree with the minimum period
permitted by such law.
STATEMENTS
All statements made by the Company or by a Covered Individual
will, in the absence of fraud, be considered representations and
not warranties, and no statements made for the purpose of
obtaining benefits under this document will be used in any
contest to avoid or reduce the benefits provided by the document
unless contained in a written application for benefits and a copy
of the instrument containing such representation is or has been
furnished to the Covered Individual.
Any Covered Individual who knowingly and with intent to defraud
the Plan, files a statement of claim containing any materially
false information, or conceals for the purpose of misleading,
information concerning any material fact, commits a fraudulent
act. The Covered Individual may be subject to prosecution by the
United States Department of Labor. Fraudulently claiming
benefits may be punishable by a substantial fine, imprisonment,
or both.
MISCELLANEOUS
Section titles are for convenience of reference only, and are not
to be considered in interpreting the Plan.
Pronouns used in this Plan Document shall include both masculine
and feminine gender unless the context indicates otherwise.
Likewise, words used shall be construed as though they were in
the plural or singular number, according to the context.
No failure to enforce any provision of this Plan will affect the
right thereafter to enforce such provision, nor will such failure
affect its right to enforce any other provision of this Plan.
If an inadvertent error should occur due to interpretation of
mandated benefits, relevant laws and regulations before the final
regulations are issued, the Plan, Plan Administrator, Agent for
the Service of Legal Process, Trustee, Claims Processor, and
Company will be held harmless for such an error; and in no way
will such an error be construed as a precedent-setting event.
Payment for expenses in relation to services which are generally
accepted as cost-containment measures in large claim management
cases that are not normally covered under this Plan will be
reimbursable upon recommendation of the Claims Processor and
written approval by the Plan Administrator.
DEFINITIONS
ACCIDENTAL INJURY
A condition which is the result of bodily Injury caused by an
external force; or a condition caused as the result of an
incident which is precipitated by an act of unusual circumstances
likely to result in unexpected consequences; this incident must
be of a sufficient departure from the claimant's normal and
ordinary lifestyle or routine; the condition must be an
instantaneous one, rather than one which continues, progresses or
develops.
ACTIVELY AT WORK
An Employee is considered to be actively at work when performing,
in the customary manner, all of the regular duties of his
occupation with the Company. An Employee shall be deemed actively
at work on each day of a regular paid vacation, or if he is
absent solely due to injury or illness.
ALLOWABLE EXPENSES
Any Medically Necessary, usual, reasonable and customary
expense, incurred while you are eligible for benefits under this
Plan.
AMBULATORY SURGICAL CENTER
An institution or facility, either free-standing or as part of a
Hospital, with permanent facilities, equipped and operated for
the primary purpose of performing surgical procedures and to
which a patient is admitted to and discharged from within a
twenty-four (24) hour period. An office maintained by a
Physician for the practice of medicine or Dentistry or for the
primary purpose of performing terminations of pregnancy shall not
be considered to be an ambulatory surgical center.
AMENDMENT
A formal document that changes the provisions of the Plan
Document, duly signed by the authorized person or persons as
designated by the Plan Administrator
ANNUAL
Periodic, based on a Calendar Year.
BENEFIT PERCENTAGE
That portion of Eligible Expenses to be paid by the Plan in
accordance with the coverage provisions as stated in the Plan.
It is the basis used to determine any out-of-pocket expenses in
excess of the annual Deductible which are to be paid by the
Employee.
BENEFIT PERIOD
A time period of one Calendar Year. Such benefit period will
terminate on the earliest of the following dates:
1. The last day of the one-year period so established;
2. The day the Maximum Lifetime Benefit applicable to the Covered
Individual becomes payable; or
3. The day the Covered Individual ceases to be covered for Medical
Expense Benefits.
CALENDAR YEAR
A period of time commencing on January 1 and ending on December
31 of the same given year
CERTIFIED COUNSELOR
An individual qualified by education, training, and experience to
provide counseling in relation to emotional disorders,
psychiatric conditions, or substance abuse under the supervision
of an M.D., D.O., or Ph.D.
COMPANY
Heartland Financial USA, Inc.
CLAIM DETERMINATION PERIOD
A Calendar Year or that portion of a Calendar Year during which
the individual for whom claim is made has been covered under this
Plan.
CLAIMS PROCESSOR
The person or firm employed by the Company to provide consulting
services to the Company in connection with the operation of the
Plan and any other functions, including the processing and
payment of claims.
CLOSE RELATIVE
The spouse, parent, or child of the Covered Individual.
COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
CONFINEMENT
A continuous stay in the Hospital(s) or extended care
facility(ies) or combination thereof, due to a Sickness or Injury
diagnosed by a Physician.
CO-PAYMENT PERCENTAGE
That figure shown as a percentage in the Plan Summary used to
compute the amount of benefit payable when the Plan states that a
percentage is payable.
COSMETIC PROCEDURE
A procedure performed to:
- - change the texture or appearance of the skin; or
- - change the relative size or position of any part of the body;
when such surgery is performed primarily for psychological
purposes or for improvement of appearance rather than for
restoration or improvement of a bodily function.
COVERED INDIVIDUAL
Any Employee or Dependent of an Employee meeting the eligibility
requirements for coverage as specified in this Plan, and properly
enrolled in the Plan.
CUSTODIAL CARE
That type of care or service, wherever furnished and by whatever
name called, which is designed primarily to assist a Covered
Individual, whether or not totally disabled, in the activities of
daily living. Such activities include, but are not limited to:
bathing, dressing, feeding, preparation of special diets,
assistance in walking or in getting in and out of bed, and
supervision over medication which can normally be
self-administered.
DEDUCTIBLE
A specified dollar amount of covered expenses which must be
incurred during a benefit period before any other covered
expenses can be considered for payment according to the
applicable benefit percentage.
DEFRA
The Deficit Reduction Act of 1984, as amended.
DENTIST
An individual who is duly licensed to practice Dentistry or
perform oral surgery in the state where the dental service is
performed and who is operating within the scope of his license.
For the purpose of this definition, a Physician will be
considered to be a Dentist when he performs any of the dental
services described herein and is operating within the scope of
his license.
DEPENDENT
The term "Dependent" means:
A. The Employee's legal spouse, including common law spouse, who
is a resident of the same country in which the Employee
resides. Such spouse must have met all requirements of a
valid marriage contract of the State in which the marriage
of such parties was performed. For the purposes of this
definition, "spouse" shall not mean a domestic partner.
B. The Employee's child who meets all the following:
1. Requirements
a. Is a resident of the same country in which the Employee
resides.
b. Is unmarried.
c. Is a natural child, stepchild, legally adopted child, foster
child, a child placed in the Employee's physical
custody whom the Employee intends to adopt, a child
for whom the Employee and/or the Employee's spouse
has been named legal guardian, or a child for whom
the Employee is legally financially responsible.
d. The Employee must have primary physical custody of the child;
and
e. The child must be dependent on the Employee/Employee's spouse
for over 50% of his support.
f. Is less than nineteen (19) years of age.
2. Waivers
a. Requirements 1d., custody, and 1e., support, may be waived in
the event the Employee/Employee's spouse is required
to provide coverage due to a Qualified Medical Child
Support Order (QMCSO), court order or divorce
decree.
b. Requirements 1d., custody, and 1e., support will be waived for
those Dependents who satisfy the definition of
dependent in every other way and who were covered
under the health plan provided through the Company
on the day immediately preceding the effective date
of this Plan.
c. Requirement 1f., dependent age limit, may be waived if:
i. The child is less than age twenty-five (25) and is a regular
full-time student at an accredited educational
institution.
ii. The child is mentally retarded or physically handicapped,
provided that the child is incapable of self-
sustaining employment and is dependent upon the
Employee and the Employee's spouse (or former
spouse) for support and maintenance. The child
must have been covered under this Plan prior to
reaching the age limitation. Proof of
incapacity may be requested from time to time.
Those situations specifically excluded from the definition of a
Dependent are:
1. A spouse who is legally separated or divorced from the
Employee.
2. A child who is married.
3. Any person on active military duty.
4. Any Dependent covered under this Plan as an individual
Employee.
5. Any person who is covered as a Dependent by another Employee of
the Company.
DEPENDENT COVERAGE
Eligibility under the terms of the Plan for benefits payable as a
consequence of Eligible Expenses incurred for an Illness or
Injury of a Dependent.
DURABLE MEDICAL EQUIPMENT
Equipment which is able to withstand repeated uses, primarily and
customarily used to serve a medical purpose, and not generally
useful to a person in the absence of Illness or Injury.
EDUCATIONAL INSTITUTION
An institution accredited in the current publication of
accredited institutions of higher education including vocational
technical schools.
ELIGIBLE EXPENSE
Any Medically Necessary treatment, services, or supplies that are
not specifically excluded from coverage elsewhere in this Plan.
ELIGIBLE PROVIDER
Eligible Providers shall include the following legally licensed
or duly certified health care providers to the extent that same,
within the scope of the license, are permitted to perform
services which are considered Eligible Expenses under the Plan:
- - Ambulatory Surgical Center
- - Audiologist (MS degree)
- - Birthing Center
- - Certified Counselor under the supervision of an M.D., D.O.,
or Ph.D.
- - Certified Registered Nurse Anesthetist
- - Clinic
- - Dentist
- - Dialysis Center
- - Home Health Agency
- - Hospice
- - Hospital
- - Laboratory
- - Licensed Practical Nurse
- - Medical Supply Purveyor
- - Midwife
- - Nurse Practitioner
- - Occupational Therapist
- - Ophthalmologist
- - Optometrist
- - Oral Surgeon
- - Osteopath
- - Outpatient Psychiatric Treatment Facility
- - Outpatient Substance Abuse Treatment Facility
- - Pharmacy/Pharmacist
- - Physical Therapist
- - Physician (M.D.)
- - Physician's Assistant
- - Podiatrist
- - Professional ambulance service
- - Psychiatrist
- - Psychologist
- - Registered Dietitian
- - Registered Nurse
- - Skilled Nursing Facility
- - Social Worker under the supervision of an M.D., D.O., or Ph.D.
- - Speech Therapist
"Eligible Provider" shall not include the Covered Individual or
any close relative of the Covered Individual.
EMPLOYEE
An active employee of the Company receiving compensation from the
Company for services rendered to the Company. Employee means a
person who is in an employer-employee relationship with the
Company and who is classified by the Company as a regular
employee. The term "employee" shall not include any individual
classified by the Company as an independent contractor, a
consultant, an individual performing services for the Company who
has entered into an independent contractor or consultant
agreement with the Company (even if a court, the Internal Revenue
Service, or any other entity determines that such individual is a
common-law employee) or a leased employee as defined in Section
414(n) of the Code. The term employee does not include any
employee covered by a collective bargaining agreement that does
not provide for coverage under the Plan, provided that health
care benefits were the subject of good faith bargaining between
the employee's bargaining representative and the Company. The
term employee does not include an employee classified by the
Company as a temporary employee.
EMPLOYEE COVERAGE
Coverage hereunder providing benefits payable as a consequence of
an Injury or Illness of an Employee.
ERISA
The Employee Retirement Income Security Act of 1974, as amended.
EXPENSES INCURRED
The day expenses or services are rendered.
EXPERIMENTAL
Any medical procedure, equipment, treatment, or course of
treatment, or drug or medicine that is limited to research, not
proven in an objective manner to have therapeutic value or
benefit, restricted to use at medical facilities capable of
carrying out scientific studies, or is of questionable medical
effectiveness. To determine whether a procedure is experimental
the Company will consider, among other things, commissioned
studies, opinions, and references to or by the American Medical
Association, the Federal Drug Administration, the Department of
Health and Human Services, the National Institutes of Health, the
Council of Medical Specialty Societies and any other association
or federal program or agency that has the authority to approve
medical testing or treatment.
FAMILY
A Covered Employee and his eligible Dependents.
FULL-TIME STUDENT
An Employee's Dependent child who is enrolled in and regularly
attending an accredited educational institution for the minimum
number of credit hours required by that institution in order to
maintain full-time student status.
HOME HEALTH CARE AGENCY
A Medicare-approved public or private agency or organization that
specializes in providing medical care and treatment in the home.
Such a provider must be primarily engaged in and duly licensed by
the appropriate licensing authority (if such licensing is
required) to provide skilled nursing services and other
therapeutic services. It must have policies established by a
professional group associated with the agency or organization
including at least one Physician and at least one Registered
Nurse (R.N.) to govern the services provided, and it must provide
for full-time supervision of such services by a Physician or
Registered Nurse. Its staff must maintain a complete medical
record on each individual and it must have a full-time
administrator.
HOME HEALTH CARE PLAN
A program for continued care and treatment of the Covered
Individual, established and approved in writing by the Covered
Individual's attending Physician. The attending Physician must
certify that the proper treatment of the Illness or Injury would
require continued confinement as a resident inpatient in a
Hospital or extended care facility in the absence of the services
and supplies provided as part of the Home Health Care Plan.
HOSPICE
A health care program providing a coordinated set of services
rendered at home, in Outpatient settings, or in institutional
settings for Covered Individuals suffering from a condition that
has a terminal prognosis. A Hospice must have an
interdisciplinary group of personnel which includes at least one
Physician and one Registered Nurse, and its staff must maintain
central clinical records on all patients. A Hospice must meet
the standards of the National Hospice Organization (NHO) and
applicable state licensing.
HOSPICE BENEFIT PERIOD
A specified amount of time during which the Covered Individual
undergoes treatment by a Hospice. Such time period begins on the
date the attending Physician of a Covered Individual certifies a
diagnosis of terminally ill, and the Covered Individual is
accepted into a Hospice program. The period shall end the
earlier of six (6) months from this date or at the death of the
Covered Individual. A new benefit period may begin if the
attending Physician certifies that the patient is still
terminally ill; however, additional proof may be required before
such a new benefit period can begin.
HOSPITAL
An institution which meets all of the following conditions:
1. It is engaged primarily in providing medical care and treatment
to an ill or injured person on an inpatient basis at the
patient's expense.
2. It is constituted, licensed, and operated in accordance with
the laws of jurisdiction in which it is located which
pertain to hospitals.
3. It maintains on its premises all the facilities necessary to
provide for the diagnosis and medical and surgical
treatment of an Illness or an Injury.
4. Such treatment is provided for compensation by or under the
supervision of Physicians, with continuous twenty-four
(24) hour nursing services by Registered Nurses (R.N.'s).
5. It is accredited by the Joint Commission on the Accreditation
of Health Care Organizations (JCAHCO). The JCAHCO
accreditation limitation may be waived at the discretion
of the Plan if the only Hospital in the immediate area is
not JCAHCO approved.
6. It is a provider of services under Medicare.
7. It is not, other than incidentally, a place for rest, a place
for the aged, or a nursing home.
The definition of "Hospital" will also include an institution
qualified for the treatment of psychiatric problems, substance
abuse, or tuberculosis that does not have surgical facilities
and/or is not approved by Medicare, provided that such
institution satisfies the definition of Hospital in all other
respects.
HOSPITAL MISCELLANEOUS EXPENSES
The actual charges made by a Hospital in its own behalf for
services and supplies rendered to the Covered Individual which
are Medically Necessary for the treatment of such Covered Indi
vidual. Hospital miscellaneous expenses do not include charges
for room and board or for professional services (including
intensive nursing care by whatever name called), regardless of
whether the services are rendered under the direction of the
Hospital or otherwise.
ILLNESS
A bodily disorder, disease, physical Sickness, mental infirmity,
or functional nervous disorder of a Covered Individual. A
recurrent Illness will be considered one Illness. Concurrent
Illnesses will be considered one Illness unless the concurrent
Illnesses are totally unrelated. All such disorders existing
simultaneously which are due to the same or related causes shall
be considered one Illness.
INJURY
The term "Injury" shall mean only accidental bodily Injury caused
by an external force, occurring while the Plan is in effect. All
injuries to one person from one accident shall be considered an
"Injury."
INPATIENT CARE
Hospital room and board and general nursing care for a person
confined in a Hospital or extended care facility as a bed
patient.
INTENSIVE CARE UNIT (ICU)
An area within a Hospital which is reserved, equipped, and
staffed by the Hospital for the treatment and care of critically
ill patients who require extraordinary, continuous, and intensive
nursing care for the preservation of life.
LICENSED PRACTICAL NURSE (L.P.N.)
An individual who has received specialized nursing training and
practical nursing experience, and is duly licensed to perform
such nursing services by the state or regulatory agency
responsible for such licensing in the state in which that
individual performs such services.
LIFETIME
The term "lifetime," which is used in connection with benefit
maximums and limitations, means the period during which the
person is covered under this Plan, whether or not coverage is
continuous. Under no circumstances does "lifetime" mean during
the lifetime of the Covered Individual.
MEDICALLY NECESSARY
The service a patient receives which is recommended by a
Physician and is required to treat the symptoms of a certain
Illness or Injury. Although the service may be prescribed by
Physician, it does not mean the service is Medically Necessary.
The care or treatment 1) must be consistent with the diagnosis
and prescribed course of treatment for the Covered Individual's
condition; 2) must be required for reasons other than the
convenience of the Covered Individual or the attending Physician;
3) is generally accepted as an appropriate form of care for the
condition being treated; and 4) is likely to result in physical
improvement of the patient's condition with is unlikely to ever
occur if the treatment is not administered.
MEDICARE
The medical care benefits provided under Title XVIII of the
Social Security Act of 1965, as subsequently amended.
MINOR EMERGENCY MEDICAL CLINIC
A free-standing facility which is engaged primarily in providing
minor emergency and episodic medical care to a Covered
Individual. A board-certified Physician, a Registered Nurse, and
a registered x-ray technician must be in attendance at all times
that the clinic is open. The clinic's facilities must include
x-ray and laboratory equipment and a life support system. For
the purposes of this Plan, a clinic meeting these requirements
will be considered to be a minor emergency medical clinic, by
whatever actual name it may be called; however, a clinic located
on or in conjunction with or in any way made a part of a regular
Hospital shall be excluded from the terms of this definition.
NAMED FIDUCIARY
Heartland Financial USA, Inc., which has the authority to control
and manage the operation and administration of the Plan.
NEWBORN
An infant from the date of birth until the mother is discharged
from the Hospital.
OCCUPATIONAL THERAPIST
A licensed practitioner who treats, primarily, the loss of motor
function of skeletal muscles by educating the patient to use
other muscles and/or artificial devices to enable them to perform
acceptably in any particular occupation or the ordinary tasks of
daily living.
ORTHOTIC APPLIANCE
An external device intended to correct any defect in form or
function of the human body.
OUTPATIENT
The classification of a Covered Individual when that Covered
Individual received medical care, treatment, services, or
supplies at a clinic, a Physician's office, a Hospital if not a
registered bed patient at that Hospital, an Outpatient
psychiatric facility, or an Outpatient alcoholism treatment
facility.
OUTPATIENT PSYCHIATRIC TREATMENT FACILITY
An administratively distinct governmental, public, private or
independent unit or part of such unit that provides Outpatient
mental health services and which provides for a psychiatrist who
has regularly scheduled hours in the facility, and who assumes
the overall responsibility for coordinating the care of all
patients.
OUTPATIENT SUBSTANCE ABUSE TREATMENT FACILITY
An institution which provides a program for diagnosis,
evaluation, and effective treatment of alcoholism and/or
substance abuse; provides detoxification services needed with its
effective treatment program; provides infirmary-level medical
services that may be required; is at all times supervised by a
staff of Physicians; prepares and maintains a written plan of
treatment for each patient, based on the patient's medical,
psychological, and social needs and supervised by a Physician;
and meets licensing standards.
OUTPATIENT SURGERY
Outpatient surgery includes, but is not limited to, the following
types of procedures performed in a hospital or surgi-center:
1. Operative or cutting procedures for the treatment of an illness
or injury;
2. The treatment of fractures and dislocations; or
3. PT/OT therapy required after a surgical procedure; or
4. Endoscopic or diagnostic procedures such as biopsies,
cystoscopy, bronchoscopy, and angiocardiography.
PHYSICAL THERAPY
A licensed practitioner who treats patients by means of electro-,
hydro-, aero-, and mechano-therapy, massage and therapeutic
exercises. Where there is no licensure law, the physical
therapist must be certified by the appropriate professional body.
PHYSICIAN
A legally licensed medical or dental doctor or surgeon,
osteopath, podiatrist, optometrist, or registered clinical
psychologist to the extent that same, within the scope of his
license, is permitted to perform services provided in this Plan.
A Physician shall not include the Covered Individual or any Close
Relative of the Covered Individual.
PLAN
The term "Plan" means without qualification the Plan outlined
herein.
PLAN ADMINISTRATOR
The Company, which is responsible for the management of the Plan.
The Plan Administrator may employ persons or firms to process
claims and perform other Plan-connected services.
PLAN SPONSOR
Heartland Financial USA, Inc.
PRE-EXISTING CONDITION
A disease, Injury, or Illness of a Covered Individual for which
the Covered Individual has been under the care of a licensed
Physician or has received medical care, services, or supplies
within the six (6) month period immediately preceding his
employment date or effective date of coverage, whichever is
applicable. Medical care, services, or supplies shall include,
but shall not be limited to, medication, therapy, x-ray or lab
tests, counseling, or any other treatment recommended by a
licensed provider of medical care or services.
PREGNANCY
That physical state which results in childbirth, abortion, or
miscarriage, and any medical complications arising out of or
resulting from such state.
PRESCRIPTION
All drugs that are required under Federal law to bear the label,
"Caution: Federal law prohibits dispensing without
prescription," or any substitute required label, and injectable
insulin (whether or not by prescription), as long as the drug was
prescribed by a licensed Physician.
PRIMARY PLAN
A plan whose allowable benefits are not reduced by those of
another plan.
PRONOUNS
Any references to "You, Yours, or Yourself" means the eligible
Employee and Covered Dependents. "He, His, Him" refers to either
sex; not to be discriminatory, but to avoid "he/she" type
wording.
PSYCHIATRIC CARE
The term "psychiatric care," also known as psychoanalytic care,
means treatment for a mental Illness or disorder, a functional
nervous disorder, alcoholism, or drug addiction. A psychiatric
condition includes but is not limited to anorexia nervosa and
bulimia, schizophrenia, and depressive disorders including but
not limited to manic depressive.
PSYCHOLOGIST
A registered clinical psychologist. A psychologist who
specializes in the evaluation and treatment of mental Illness who
is registered with the appropriate state registering body or, in
a state where statutory licensure exists, holds a valid
credential for such practice or, if practicing in a state where
statutory licensure does not exist, meets the following
qualifications: has a doctoral degree from an accredited
university, college, or professional school and has two years of
supervised experience in health services of which at least one
year is post-doctoral and one year in an organized health
services program; or, holds a graduate degree from an accredited
university or college and has not less than six years as a
psychologist with at least two years of supervised experience in
health services.
QUALIFIED MEDICAL CHILD SUPPORT ORDER (QMCSO)
In order to meet the definition of a Qualified Medical Child
Support Order (QMCSO), a court order or divorce decree must
contain all of the following information:
1. The Employee's name and last known address.
2. The Dependent's full name and address.
3. A reasonable description of the coverage to be provided or the
manner in which coverage will be established, i.e. through
the employer.
4. The period for which coverage must be provided.
5. The order or decree must specifically name the Company as a
source of coverage.
REGISTERED NURSE (R.N.)
An individual who has received specialized nursing training and
is authorized to use the designation of "R.N.," and who is duly
licensed by the state or regulatory agency responsible for such
licensing in the state in which the individual performs such
nursing services.
REVIEW ORGANIZATION
The organization contracting with the Company to perform cost
containment services.
ROOM AND BOARD
All charges, by whatever name called, which are made by a
Hospital, Hospice, or extended care facility as a condition of
occupancy. Such charges do not include the professional services
of Physicians nor intensive nursing care (by whatever name
called).
SEMI-PRIVATE
A class of accommodations in a Hospital or extended care facility
in which at least two patient beds are available per room.
SICKNESS
Physical Sickness; disease; mental, emotional or nervous
disorders; and pregnancy. Recurrent, related or concurrent
Sicknesses are considered as one "Sickness," unless a concurrent
Sickness is totally unrelated to the other Sickness.
SKILLED NURSING FACILITY
An institution, or distinct part thereof, operated pursuant to
law, and one which meets all of the following conditions:
1. It is licensed to provide and is engaged in providing, on an
inpatient basis for persons convalescing from Injury or
Illness, professional nursing services rendered by a
Registered Nurse (R.N.) or by a Licensed Practical Nurse
(L.P.N.) under the direction of a Registered Nurse and
physical restoration services to assist patients to reach
a degree of body functioning to permit self-care in
essential daily living activities.
2. Its services are provided for compensation from its patients
and under the full-time supervision of a Physician or
Registered Nurse.
3. It provides 24-hour per day nursing services by licensed
nurses, under the direction of a full-time Registered
Nurse.
4. Its staff maintains a complete medical record on each patient.
5. It has an effective utilization review plan.
6. It is not, other than incidentally, a place for rest, the aged,
drug addicts, alcoholics, mentally handicapped, custodial
or educational care, or care of mental disorders.
7. It is approved and licensed by Medicare
This term shall apply to expenses incurred in an institution
referring to itself as a Skilled Nursing Facility, Extended Care
Facility, or any such other similar nomenclature.
SOCIAL WORKER
An individual who is qualified through education, training, and
experience to provide services in relation to the treatment of
emotional disorders, psychiatric conditions, or substance abuse
when employed by, or under the supervision of an M.D., D.O., or
Ph.D.
SPEECH THERAPIST
An individual who is skilled in the treatment of communication
and swallowing disorders due to Illness, Injury or birth defect,
who is a member of the American Speech and Hearing Association
and has a Certificate of Clinical Competence and who is licensed
in the state in which services are provided.
SURGICAL PROCEDURES
Cutting, suturing, treatment of burns, correction of fractures,
reduction of dislocation, manipulation of joints under general
anesthesia, electrocauterization, tapping (paracentesis),
application of plaster casts, administration of pneumothorax,
endoscopy, or injection of sclerosing solution by a licensed
Physician.
TEFRA
The Tax Equity and Fiscal Responsibility Act of 1982, as amended
from time to time.
THERAPY SERVICES
Services or supplies used for the treatment of an Illness or
Injury to promote the recovery of a Covered Individual. Therapy
services are covered to the extent specified in the Plan and may
include:
1. Chemotherapy - the treatment of malignant disease by chemical
or biological antineoplastic agents.
2. Dialysis Treatments - the treatment of acute or chronic kidney
disease which may include the supportive use of an
artificial kidney machine.
3. Occupational Therapy - treatment of a physically disabled
person by means of constructive activities designed and
adapted to promote the restoration of the person's ability
to satisfactorily accomplish the ordinary tasks of daily
living and those required by the person's particular
occupational role.
4. Physical Therapy - the treatment by physical means,
electrotherapy, hydrotherapy, heat, or similar modalities,
physical agents, bio-mechanical and neuro-physiological
principles, and devices to relieve pain, restore maximum
function, and prevent disability following disease,
Injury, or loss of body part.
5. Radiation Therapy - the treatment of disease by X-ray, radium,
or radioactive isotopes.
6. Respiration Therapy - introduction of dry or moist gases into
the lungs for treatment purposes.
7. Speech Therapy - treatment of communication and swallowing
disorders due to an Illness, Injury or birth defect.
TMJ
"TMJ" means temporomandibular joint syndrome and all related
complications or conditions.
TOTAL DISABILITY (TOTALLY DISABLED)
A physical state of a Covered Individual resulting from an
Illness or Injury which wholly prevents:
1. An Employee from engaging in his regular or customary
occupation and from performing any and all work for
compensation or profit.
2. A Dependent from performing the normal activities of a person
of like age and sex and in good health.
USUAL, CUSTOMARY, AND REASONABLE (UCR)
The term "usual, customary, and reasonable" refers to the
designation of a charge as being the usual charge made by a
Physician or other provider of services, supplies, medications,
or equipment that does not exceed the general level of charges
made by other providers rendering or furnishing such care or
treatment within the same area. The term "area" in this
definition means a county or such other area as is necessary to
obtain a representative cross section of such charges. Due
consideration will be given to the nature and severity of the
condition being treated and any medical complications or unusual
circumstances which require additional time, skill, or expertise.
WELL-CARE
The term "well-care" means medical treatment, services, or
supplies rendered solely for the purpose of health maintenance
and not for the treatment of an Illness or Injury.
Exhibit 10.14
February 9, 1999
Mr. Thomas Wilkinson
President and Chief Executive Officer
Wisconsin Community Bank
580 N. Main St.
Cottage Grove, Wisconsin 53527
Dear Mr. Wilkinson,
This Letter Agreement (the "Agreement") will evidence our mutual
understanding and agreement regarding the following referenced
matters in conjunction with the purchase of various branch
offices and other assets, and the assumption of certain deposit
and other liabilities, of Bank One Wisconsin, ("SELLER" herein)
by Wisconsin Community Bank ("BUYER" herein) pursuant to a
certain Office Purchase and Assumption Agreement by and between
BUYER and SELLER of even date herewith (and, as may be amended by
the parties, the "P&A Agreement" herein). Except as otherwise
noted, capitalized terms set forth herein shall have the same
meaning as set forth in the P&A Agreement. Section references
contained herein shall refer to the corresponding sections of the
P&A Agreement.
SELLER and BUYER hereby agree as follows:
1. Section 1.4(a)(iii) of the P&A Agreement is hereby amended
to read in its entirety as follows:
(iii) A percentage applied to the aggregate "Core Deposits" (as
hereinafter defined) of the Office as of the close of business on
the Closing Date calculated as set forth in Exhibit A attached
hereto and incorporated herein by reference. The term "Core
Deposits" shall mean the aggregate balance of all Deposit
Liabilities of the Office (which aggregate balance shall include
all interest included on such Deposit Liabilities as of the close
of business on the Closing Date, whether or not such interest is
actually posted to the account on the Closing Date) but shall
exclude deposits of governmental or political subdivisions, if
any. The amount calculated as set forth herein as of the close
of business on the Closing Date is hereinafter called the
"Acquisition Consideration;" and
2. Section 3.1(u) of the P&A Agreement is hereby amended to
provide that the "knowledge" of BANK ONE shall mean the actual
knowledge of the Area Manager of BANK ONE with responsibility for
the Office.
3. Section 7.2(c) of the P&A Agreement is hereby amended to add
the following:
Anything to the contrary herein notwithstanding, BUYER shall not
be liable to reimburse BANK ONE for costs incurred by BANK ONE in
conjunction with training of Transferred Employees in accordance
with this section.
4. Section 8.3 of the P&A Agreement is hereby amended to add
the following:
BANK ONE shall indemnify and hold harmless BUYER from and against
any liability to third-party borrowers which i) is actually
incurred by BUYER and which ii) arises as a direct result of
liability to third-party borrowers as a result of acts or conduct
of BANK ONE in conjunction with the management of the Office
Loans prior to the Closing (the "Office Loan Indemnification"
herein). The Office Loan Indemnification shall be subject to the
contingencies pertaining to notice and the ability of BANK ONE to
assume the defense of such claims otherwise relating to
indemnification by BANK ONE under the P&A Agreement and set forth
in section 8.3 thereof. Further, the Office Loan Indemnification
shall apply solely to the liability of BUYER to third-party
borrowers for losses incurred as a direct result of the foregoing
referenced actions against BUYER as provided herein which: i)
relate solely to the Office Loan, ii) are commenced prior to the
first anniversary of the Closing Date, iii) exceed the sum of
$12,500 for each such claim, and iii) in an aggregate amount do
not exceed the sum of $500,000.00. The Office Loan
Indemnification obligations of BANK ONE hereunder shall not
include any liability or loss; i) arising out of actions taken by
BUYER with respect to the Office Loans, ii) for matters that
would otherwise enable BUYER to exercise its right to "put back"
the Office Loans to BANK ONE under the terms of the Agreement
irrespective of the fact that the underlying claim is made by
BUYER after expiration of the Option Exercise Date, or iii)
arising with respect to matters pertaining to credit quality.
Nothing contained herein shall be construed as expanding the
rights of BUYER with respect to the "put option" as otherwise set
forth in Schedule S to the P&A Agreement.
5. Section 8.8 is hereby amended to provide that BANK ONE shall
remove its signs located at the Office at its own expense and
shall repair any damages to the Office resulting from such
removal.
6. Section 10.8(c) is hereby amended to provide as follows:
The term "Permitted Exceptions" shall mean, with respect to the
Owned Real Estate, (i) those five standard exceptions appearing
as Schedule B items in a standard ALTA owners or leasehold title
insurance policy, and any other exceptions, restrictions,
easements, rights of way, and encumbrances referenced in the
Title Commitment delivered by BANK ONE to BUYER under section
2.1(b) of this Agreement to which BUYER does not unreasonably
object; (ii) statutory liens for current taxes or assessments not
yet due, or if due not yet delinquent, or the validity of which
is being contested in good faith by appropriate proceedings; and
(iii) such other exceptions as are approved by BUYER in writing.
7. Section 10.15 is hereby amended to add the following;
Anything to the contrary herein not withstanding, BANK ONE shall
not retain the Deposit in the event that i) BANK ONE elects to
terminate the Agreement pursuant to Section 9.2(g) of the
Agreement or ii) in the event that BUYER is denied necessary
regulatory approvals for the transactions contemplated by the
Agreement unless such denial is based upon lack of capital
adequacy, competitive concerns, or Y2-k concerns.
Except as otherwise expressly provided herein, nothing contained
in this Agreement shall be deemed to modify, amend, or otherwise
impact the duties and obligations of SELLER and BUYER under the
terms of the P&A Agreement. Except as otherwise expressly
contemplated by this Agreement, in the event of a conflict
between the terms of this Agreement and the P&A Agreement the
terms of the P&A Agreement shall govern. The terms and
conditions of this Agreement shall be subject to the
confidentiality requirements of Section 8.01 of the P&A
Agreement.
Please indicate your acknowledgment and agreement with the
foregoing by signing in the space provided below and retaining
one originally signed copy for your files while returning one
originally signed copy to the undersigned.
Thank you.
Bank One Wisconsin
By: /s/ William E. Read
---------------------
Its: President & CEO
Acknowledged and agreed to
as of the date above written.
Wisconsin Community Bank
By: /s/ Thomas Wilkinson
---------------------
Its: President & CEO
Exhibit 10.15
Office Purchase and Assumption Agreement
by and between
Bank One Wisconsin
111 East Wisconsin Ave., Milwaukee, Wisconsin 53202
and
Wisconsin Community Bank
580 N. Main St., Cottage Grove, Wisconsin 53527
Dated as of the 9TH day of February, 1999
TABLE OF CONTENTS
Page
1. PURCHASE AND ASSUMPTION
1.1 Purchase and Sale of Assets
1.2 Transfer of Assets
1.3 Acceptance and Assumption
1.4 Payment of Funds
2. CONDUCT OF THE PARTIES PRIOR TO CLOSING
2.1 Covenants of BANK ONE
2.2 Covenants of BUYER
2.3 Covenants of All Parties
3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of BANK ONE
3.2 Representations and Warranties of BUYER
4. ACTIONS RESPECTING EMPLOYEES AND PENSIONS AND EMPLOYEE
BENEFIT PLANS
4.1 Employment of Employees
4.2 Terms and Conditions of Employment
4.3 Compliance with Law
4.4 Actions to be Taken by BANK ONE
5. CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions to BANK ONE's Obligations
5.2 Conditions to BUYER's Obligations
5.3 Non-Satisfactions of Conditions Precedent
5.4 Waivers of Conditions Precedent
6. CLOSING
6.1 Closing and Closing Date
6.2 BANK ONE's Actions at Closing
6.3 BUYER's Actions at the Closing
6.4 Methods of Payment
6.5 Availability of Closing Documents
6.6 Effectiveness of Closing
7. CERTAIN TRANSITIONAL MATTERS
7.1 Transitional Action by BUYER
7.2 Transitional Actions by BANK ONE
7.3 Overdrafts and Transitional Action
7.4 ATMs and Debit Cards
7.5 Environmental Matters
7.6 Effect of Transitional Action
8. GENERAL COVENANTS AND INDEMNIFICATION
8.1 Confidentiality Obligations of BUYER
8.2 Confidentiality Obligations of BANK ONE
8.3 Indemnification by BANK ONE
8.4 Indemnification by BUYER
8.5 Solicitation of Customers by BUYER Prior to Closing
8.6 Solicitation of Customers by BANK ONE After the Closing
8.7 Further Assurances
8.8 Operation of the Offices
8.9 Information After Closing
8.10 Individual Retirement Accounts
8.11 Covenant Not to Compete
8.12 Non-solicitation of Employees
9. TERMINATION
9.1 Termination by Mutual Agreement
9.2 Termination by BANK ONE
9.3 Termination by BUYER
9.4 Effect of Termination
10. MISCELLANEOUS PROVISIONS 10.1 Expenses
10.2 Certificates
10.3 Termination of Representations and Warranties
10.4 Waivers
10.5 Notices
10.6 Parties in Interest:Assignment; Amendment
10.7 Headings
10.8 Terminology
10.9 Flexible Structure
10.10 Press Releases
10.11 Entire Agreement
10.12 Governing Law
10.13 Counterparts
10.14 Tax Matters
10.15 Good Faith Deposit
10.16 Interim Transactions
SIGNATURES
SCHEDULES: (Schedules are not included in this filing)
Schedule A - Description of Owned Real Estate
Schedule B - Description of Leased Real Estate and Third Party
Lease
Schedule C - Furniture, Fixtures and Equipment
Schedule D - Assumed Contracts
Schedule E - List of Leases, Safekeeping Items and Agreements
Schedule F - Form of Assignment and Assumption of Lease and
Estoppel Certificate
Schedule G - RESERVED
Schedule H - RESERVED
Schedule I - Form of Certification of BUYER
Schedule J - Form of Opinion of Counsel for BUYER
Schedule K - Form of Certification of BANK ONE
Schedule L - Form of Opinion of Counsel for BANK ONE
Schedule M - Form of Assignment of Office Loans, Notes,
Agreements and Pledge
Schedule N - Form of Instrument of Assumption
Schedule O - Form of Assignment, Transfer and Appointment of
Successor Custodian for IRAs
Schedule P - Form of Preliminary Closing Statement
Schedule Q - Form of Final Settlement Statement
Schedule R - Listing of Employees of Offices
Schedule S - Put Provisions for Office Loans
OFFICE PURCHASE AND ASSUMPTION AGREEMENT
This Office Purchase and Assumption Agreement (the "Agreement"
herein), made and entered into this 9TH day of February, 1999, by
and between Wisconsin Community Bank , a Wisconsin banking
corporation with its principal office at 580 N. Main St., Cottage
Grove, Wisconsin ( the "BUYER" herein) and Bank One Wisconsin, a
Wisconsin banking corporation with its principal office at 111
East Wisconsin Ave., Milwaukee, Wisconsin 53202 ("BANK ONE"
herein).
WHEREAS, BUYER desires to purchase and assume from BANK ONE, and
BANK ONE desires to sell and assign to BUYER, certain assets and
liabilities associated with offices of BANK ONE as hereinafter
described;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, BUYER and BANK ONE hereby agree as
follows:
1. PURCHASE AND ASSUMPTION.
1.1 Purchase and Sale of Assets. At the Closing, as
defined in Section 6.1 hereof (the "Closing"), BUYER shall
purchase and acquire, and BANK ONE shall sell and assign, the
real estate and other assets described in Section 1.2 hereof
(collectively, the "Assets") all of which are used in and/or
relate to business conducted by BANK ONE at its branch offices
known as and located at the sites described in Schedules A and B
attached hereto and incorporated herein by reference, pursuant to
the terms and conditions set forth herein and subject to
exceptions, if any, set forth herein. The foregoing offices are
hereinafter sometimes collectively referred to as the "Offices"
and each, individually, sometimes as an "Office." The
transactions contemplated by this Agreement and the purchase of
assets and assumption of liabilities provided for herein is
sometimes referred to herein as the "Acquisition." Except as
otherwise expressly provided herein, the sale of the Assets is
without warranty or guarantee, express or implied, on an "as-is,
where-is" basis, and without recourse. Except as otherwise
expressly provided herein, the Assets are sold without any
representation or warranty whatsoever by BANK ONE.
1.2 Transfer of Assets. Subject to the terms and
conditions of this Agreement, BANK ONE shall assign, transfer,
convey and deliver to BUYER, on and as of the Closing on the
Closing Date, as defined in Section 6.1 hereof, the Assets, which
shall include the following:
(a) Owned Real Estate. All of BANK ONE's right, title
and interest in and to the real estate described in attached
Schedule A on which an Office is situated, together with all of
BANK ONE's rights in and to all improvements thereon; and all
easements rights, privileges and appurtenances associated
therewith (the "Owned Real Estate"). Schedule A shall
specifically identify the Owned Real Estate by street address,
legal description and/or tax parcel number; and shall not be
deemed to include any adjacent properties unless clearly set
forth in Schedule A at the time of execution of this Agreement.);
(b) Leased Real Estate. A good and valid leasehold
estate in the real estate described in attached Schedule B and
created by certain lease agreement(s) (individually and
collectively the "Third Party Lease") relating to the referenced
Offices (the "Leased Real Estate"), specifically identified by
street address, legal description and/or tax parcel numbers in
Schedule B attached hereto and incorporated herein by reference;
(c) Furniture and Equipment. All of BANK ONE's right,
title and interest in and to the furniture, fixtures and
equipment located at the Offices as of the Closing Date (the
"Fixed Assets"), a preliminary listing of which is contained in
Schedule C attached hereto and incorporated herein by reference,
specifically excluding, among other items, teller calculators and
other teller and platform equipment and systems, CRTs,
controllers and printers, signs and stands, printed supplies and
documents and other materials bearing any BANK ONE or affiliate
name and/or logo, network communications equipment and related
devices, any artwork, ATM surrounds, and marketing fixtures. A
final listing of specific items included in the Fixed Assets will
be provided to BUYER prior to the Closing.
(d) Safe Deposit Business. All right, title and
interest of BANK ONE in and to the safe deposit business (subject
to the allocation of safe deposit rental payments as provided in
Section 1.3(c)(ii) hereof) conducted at the Offices as of the
close of business on the Closing Date;
(e) Cash on Hand. All cash on hand at the Offices as
of the close of business on the Closing Date including vault
cash, petty cash, ATM cash and tellers' cash;
(f) Prepaid Expenses. All prepaid expenses recorded
or otherwise reflected on the books of BANK ONE as at October 31,
1998, or incurred in the ordinary course of business thereafter,
as being attributable to the Offices as of the close of business
on the day immediately preceding the Closing Date, but only to
the extent attributable to the Assets sold, assigned or
transferred to BUYER by BANK ONE pursuant to this Agreement and
only to the extent arising by reason of BUYER's use or ownership
of such Assets after the close of business on the Closing Date.
Any and all prepaid expenses incurred by BANK ONE with respect to
the Offices subsequent to October 31, 1998, shall be subject to
the prior written consent of BUYER;
(g) Office Loans. All right, title and interest in
and to all those loans and/or letters of credit which, as of the
close of business on the Closing Date, are (i) secured in whole
or in part by Deposit Accounts (as hereinafter defined)
attributable to an Office (the "Deposit Account Loans"), (ii)
commercial or other loans or letters of credit attributable to an
Office (if any, the "Other Loans") or (iii) automatically created
as the result of an overdraft of a Deposit Account pursuant to an
overdraft protection program offered by BANK ONE (except for
those overdraft protection loans which are charged to credit card
accounts not transferred to the BUYER hereunder, the "Overdraft
Loans"). The Deposit Account Loans, Other Loans, and Overdraft
Loans sold and assigned to BUYER hereunder will be identified as
of the Closing Date and listed in Schedule H attached hereto and
incorporated herein by reference (hereinafter referred to
individually and collectively as the "Office Loans"). Transfer
of the Office Loans will be subject to the terms and conditions
set forth in Schedule S attached hereto and incorporated herein
by reference. Except as otherwise expressly provided herein, the
transfer of the Office Loans will be made without recourse,
without any representation, warranty, or guarantee of any kind,
express or implied, and without any reserve for loan losses;
(h) Records of the Offices. All records and documents
related to the Assets transferred or liabilities assumed by BUYER
as may exist and are available and maintained at the Offices (in
whatever form or medium then maintained by BANK ONE) including,
but not limited to, those relating to (i) the Deposit Accounts
and (ii) the promissory notes and documents and instruments
evidencing the Liens ( as defined in Schedule S annexed hereto
and made a part hereof) relating to the Office Loans; and(i)
Contracts or Agreements. All of BANK ONE's right, title and
interest in and to the maintenance and service agreements related
to the Offices, as listed on Schedule D annexed hereto and made a
part hereof (the "Assumed Contracts"), provided the same are
assignable without cost to BANK ONE.
1.3 Acceptance and Assumption. Subject to the terms and
conditions of this Agreement, on and as of the Closing on the
Closing Date, BUYER shall:
(a) Assets. Receive and accept all of the Assets
assigned, transferred, conveyed and delivered to BUYER by BANK
ONE pursuant to this Agreement, including those identified in
Section 1.2 above.
(b) Deposit Liabilities. Assume and thereafter
discharge, pay in full and perform all of BANK ONE's obligations
and duties relating to the "Deposit Liabilities" (as hereinafter
defined). The term "Deposit Liabilities" is defined herein as
all of BANK ONE's obligations, duties and liabilities of every
type and character relating to all deposit accounts, other than
(i) KEOGH accounts and (ii) deposit accounts securing any loan of
BANK ONE which is not an Office Loan, for which BUYER assumes no
liability, which, as reflected on the books of BANK ONE as of the
close of business on the Closing Date, are attributable to the
Offices. The deposit accounts referred to in the immediately
preceding sentence (hereinafter the "Deposit Accounts") include,
without limitation, passbook, statement savings, checking, Money
Market, and NOW accounts, Individual Retirement Accounts for
which BANK ONE has not received, on or before the Closing Date,
the written advice from the account holder of such account
holder's objection or failure to accept BUYER as successor
custodian ("IRA's") and certificates of deposit. The
"obligations, duties and liabilities" referred to in the
immediately preceding sentence include, without limitation, the
obligation to pay and otherwise process all Deposit Accounts in
accordance with applicable law and their respective contractual
terms and the duty to supply all applicable reporting forms for
periods following the Closing Date including, without limitation,
IRS Form 1099 reports relating to the Deposit Accounts to be
filed and provided after the Closing Date relating to interest
accrued after the Closing Date. With regard to each IRA included
within the Deposit Accounts, BUYER shall also assume the
appropriate plan pertaining thereto and the trustee or custodial
arrangement in connection therewith.
(c) Liabilities Under Leases/Safe Deposit Business.
Assume and thereafter fully and timely perform and discharge, in
accordance with their respective terms, all of the liabilities
and obligations of BANK ONE arising after the Closing Date with
respect to:
(i) all leases listed on Schedules B and E to
this Agreement (including safe deposit leases if any) and sold,
assigned or transferred to BUYER by BANK ONE pursuant to this
Agreement;
(ii) the safe deposit business of the Offices
including, but not limited to, the maintenance of all necessary
facilities for the use of safe deposit boxes by the renters
thereof during the periods for which such persons have paid rent
therefor in advance to BANK ONE, subject to the agreed allocation
of such rents, which allocation shall be satisfied in full by
BANK ONE paying to BUYER, in the manner specified in Section 6.4
hereof, the amount of rental payment received by BANK ONE for
each such safe deposit box attributable to and prorated to
reflect the period from and after the Closing Date, subject to
the provisions of the applicable leases or other agreements
relating to such boxes; and
(iii) all safekeeping items and agreements listed
on Schedule E to this Agreement and delivered to BUYER by BANK
ONE pursuant to this Agreement, including, but not limited to,
all applicable safekeeping agreements, memoranda, or receipts so
delivered to BUYER by BANK ONE hereunder.
(d) Other Liabilities. Fully and timely perform and
discharge, as the same may be or become due, the Assumed
Contracts, the Third Party Lease for the Leased Real Estate,
obligations pertaining to the Office Loans, and all additional
liabilities, obligations and deferred expenses of BANK ONE as of
the date of this Agreement, which are reflected on the books of
BANK ONE as being attributable to an Office as of the close of
business on the Closing Date but only to the extent attributable
to the Assets sold, assigned or transferred to BUYER by BANK ONE
pursuant to this Agreement and only to the extent arising by
reason of BUYER's use or ownership of such Assets after the close
of business on the Closing Date. No additional material
liabilities and obligations of BANK ONE incurred subsequent to
the date of this Agreement shall be assumed by BUYER unless the
prior written consent of BUYER has been obtained prior to the
incursion of the material liability or obligation by BANK ONE.
(e) Other Obligations. Fully and timely perform its
obligations relative to employees of the Offices, if any, as set
forth hereinafter.
1.4 Payment of Funds. Subject to the terms and conditions
hereof, at the Closing:
(a) Consideration. In consideration of BUYER's
assumption of the Deposit Liabilities and its other agreements
herein, BANK ONE shall make available and transfer to BUYER, in
the manner specified in Section 6.4 hereof, funds equal to the
aggregate balance of all Deposit Accounts (including interest
posted or accrued to such accounts as of the close of business on
the Closing Date) plus the deferred expenses identified in
Section 1.3(d) hereof prorated as of the close of business on the
Closing Date less an amount equal to the sum of:
The amount of cash on hand at the Offices transferred to
BUYER as of the close of business on the Closing Date; and
(i) the net aggregate book value of the
Offices, valued as of the last day of the month ending
immediately prior to the month in which the Closing Date occurs;
and
(ii) the net aggregate book value of the
furniture, fixtures and equipment being transferred to BUYER,
valued as of the last day of the month ending immediately prior
to the month in which the Closing Date occurs; and
(iii) 11.13% of the aggregate "Core Deposits" (as
hereinafter defined) of the Offices as of the close of business
on the Closing Date. The term "Core Deposits" shall mean the
aggregate balance of all Deposit Liabilities of the Offices
(which aggregate balance shall include all interest accrued on
such Deposit Liabilities as of the close of business on the
Closing Date, whether or not such interest is actually posted to
the account on the Closing Date). The amount calculated as set
forth herein as of the close of business on the Closing Date is
hereinafter called the "Acquisition Consideration;" and
(iv) the amount of prepaid expenses described
in Section 1.2(f) of this Agreement, prorated as of the close of
business on the day immediately preceding the Closing Date; and
(v) the book value of the Office Loans together
with accrued and unpaid interest thereon and any and all late
fees and other fees relating thereto computed as of the close of
business on the Closing Date; and
(vi) the sum of $10,000.00 for each ATM or CBCT
located at the Offices; and
(vii) reimbursement for training expenses as
provided in Section 7.2(c) herein.
In the event that the sum of items (i) through (vii) above should
be in excess of the aggregate amount to be transferred by BANK
ONE pursuant to the first paragraph of this Section 1.4(a), the
full amount of such excess shall constitute an amount due from
BUYER to BANK ONE, and shall be paid to BANK ONE at the Closing
in the manner specified in Section 6.4 hereof. The parties shall
execute a Preliminary Settlement Statement at the Closing and a
Final Settlement Statement post-closing in accordance with
section 6.4 herein, in substantially the same form as set forth
in Schedules P and Q attached hereto and incorporated herein.
(b) Reimbursement and Proration of Certain Expenses.
All other expenses (i) due and payable at times after the Closing
Date for periods prior to the close of business on the Closing
Date or (ii) paid prior to the close of business on the Closing
Date for periods following the Closing Date, including the
prepaid expenses described in Section 1.2(f) hereof and deferred
expenses described in Section 1.3(d) hereof, including without
limitation, real estate taxes and assessments which are a lien
but not yet due and payable, utility payments, payments due on
leases assigned, payments due on assigned service and maintenance
contracts and similar expenses relating to the Offices shall be
prorated between BANK ONE and BUYER as of the close of business
on the day immediately preceding the Closing Date, provided,
however, that all real estate taxes and assessments, to the
extent payable by Seller and/or Buyer, shall be prorated at the
Closing on the basis of the most recently certified real estate
taxes and assessments, and all utility payments and lease
payments shall be prorated on the basis of the best information
available at Closing. Any security deposits relating to the
Leased Real Estate shall be credited to the Seller at Closing.
With respect to premiums paid to the FDIC for deposit insurance
for the Deposit Liabilities, it shall be assumed that all the
Deposit Liabilities are insured under the Bank Insurance Fund;
the proration of FDIC insurance premiums will be based on the
amount of the Deposit Liabilities as of the close of business on
the Closing Date and the number of days during any period for
which BANK ONE has prepaid premiums to the FDIC but during which
BUYER has held or will hold the Deposit Liabilities. For
prorations, if any, which cannot be reasonably calculated as of
the Closing, a post-closing adjustment shall be made in the
manner specified in Section 6.4 hereof.
(c) Expenses Relating to Real Property and other
Assets. The transfer (or conveyance) fees relating to the Owned
Real Estate and the costs, fees and expenses of all title
commitments, title guaranties and title examinations relating to
the procurement of the Title Commitments related to the Owned
Real Estate and the Leased Real Estate referred to in Sections
2.1(b) and 5.2(g) herein, shall be allocated to, and shall be
borne, solely and exclusively by BANK ONE. The costs, fees and
expenses relating to the premiums, including any endorsements for
extended coverage, for all title insurance policies (net of the
costs of all title commitments, guaranties and examinations),
recording costs and other similar costs, fees and expenses, if
any, relating to the sale and transfer of the Owned Real Estate
or the transfer of BANK ONE's interest in the Leased Real Estate
including, but not limited to, any conveyance fees, taxes,
recording costs and other similar fees and expenses relating to
the sale and transfer of any other Assets, shall be allocated to,
and shall be borne, solely and exclusively, by BUYER. To the
extent BUYER requests BANK ONE or its attorneys to seek certain
title endorsements or removal of exceptions noted on the title
commitments, BUYER shall reimburse BANK ONE at Closing for its
attorney fees related thereto. In no event shall BANK ONE be
required to undertake any negotiations with the title insurance
companies for any matters that relate to the scope of title
insurance coverage or the Permitted Exceptions. BANK ONE shall
reimburse BUYER at the Closing for all the costs, fees and
expenses allocated to BANK ONE pursuant to this Section 1.4(c)
but paid by BUYER, and BUYER shall reimburse BANK ONE at the
Closing for all of the costs, fees and expenses allocated to
BUYER pursuant to this Section 1.4(c) but paid by BANK ONE in the
manner specified in Section 6.4 herein. If this transaction does
not close by virtue of a breach of this Agreement, the breaching
party shall be responsible for and shall, as appropriate,
reimburse the other party for its expenses as set forth herein.
If this transaction does not close for any other reason, each
party shall reimburse the other party upon termination of this
Agreement for such party's share of expenses so that each party
shall pay the same share of expenses as it would have paid at
Closing.
(d) Insurance Premium Refunds. With respect to the
Insured Office Loans as defined in Section 7.2(j) herein, BANK
ONE shall provide a credit to BUYER in a sum equal to 10.5% of
the unearned premiums relating to the Insured Office Loans to
compensate BUYER, in advance, for estimated refunds otherwise
payable to BANK ONE in conjunction with future payoffs of such
Insured Office Loans prior to maturity (the "Premium Settlement
Payment" herein). Such Premium Settlement Payment shall be
calculated as of the Closing Date and shall appear as a credit to
BUYER in the Final Settlement Statement referenced in Section.6.4
herein.
2. CONDUCT OF THE PARTIES PRIOR TO CLOSING.
2.1 Covenants of BANK ONE. BANK ONE hereby covenants to
BUYER that, from the date hereof until the Closing, it will do or
cause the following to occur:
(a) Operation of the Offices. BANK ONE shall continue
to operate the Offices in a manner substantially equivalent to
that manner and system of operation employed immediately prior to
the date of this Agreement; provided, however, that it is
contemplated by the parties that, prior to Closing, BANK ONE will
be terminating certain programs which are currently in effect
which allow depositors to access Deposit Accounts through
electronic means.
Notwithstanding the foregoing and except as may be required to
obtain the required authorizations referred to in Section 2.3 of
this Agreement, between the date of this Agreement and the
Closing Date, and except as may be otherwise required by a
regulatory authority, BANK ONE shall not, without the prior
consent of BUYER, which consent shall not be unreasonably
withheld:
(i) cause any Office to engage or participate
in any material transaction or incur or sustain any obligation
which, in the aggregate, is material to its business, condition
or operations except in the ordinary course of business;
(ii) cause any Office to transfer to BANK ONE's
other operations any material amount of Assets, except for
(a) supplies, if any, which have unique function in the business
of BANK ONE and its affiliates and ordinarily would not be useful
to BUYER, (b) cash and other normal intrabank transfers which may
be transferred in the ordinary course of business in accordance
with normal banking practices and (c) signs, or those parts
thereof, bearing the BANK ONE or affiliate name and/or logo or
that of a BANK ONE contractor;
(iii) cause the Offices to transfer to BANK ONE's
other operations any deposits other than deposits securing loans
made by BANK ONE which are not Office Loans and deposits owned in
whole or in part by employees of BANK ONE or its affiliates who
are not Transferred Employees as defined in Section 4.1 of this
Agreement, except in the ordinary course of business at the
unsolicited request of depositors or cause any of BANK ONE's
other operations to transfer to the Offices any deposits, except
in the ordinary course of business at the unsolicited request of
depositors; provided, however, that BANK ONE shall be permitted
to make such transfers of any deposits to or from the Offices as
are in the normal course of business and do not violate the
foregoing restrictions;
(iv) invest in any Fixed Assets on behalf of any
Office, except for commitments made on or before the date of this
Agreement which are disclosed to BUYER on Schedule C of this
Agreement and for replacements of furniture, furnishings and
equipment and normal maintenance and refurbishing purchased or
made in the ordinary course of Office business;
(v) enter into or amend any continuing contract
(other than Deposit Liabilities, Office Loans, and Safe Deposit
agreements) relating to the Offices, which cannot be terminated
without cause and without payment of any amounts as a penalty,
bonus, premium or other compensation for termination, or which is
not made in the ordinary course of Office business;
(vi) hire (other than to replace a departing
employee and/or to bring the number of employees at the Offices
to normal staffing levels), transfer, reassign or terminate any
employee of the Offices, increase the compensation of any
employee of the Offices, or promote any of the employees of the
Offices except pursuant to and consistent with customary BANK ONE
procedures and policies; or
(vii) make any material change to its customary
policies for setting rates on deposits offered at the Offices.
(b) Title Commitments for Real Estate. BANK ONE shall
deliver to BUYER, at BANK ONE's expense, with respect to the
Owned Real Estate and Leased Real Estate, no later than thirty
(30) days after the date of this Agreement, a commitment or
commitments (the "Title Commitments") having an effective date as
near as feasible to the date of delivery of such Title
Commitments, from a title insurance company designated by BANK
ONE and reasonably satisfactory to BUYER, to issue to BUYER as
soon as practicable after the Closing Date, as applicable, an
American Land Title Association (ALTA) owners (Form B, 1970, Rev
1984) and/or leasehold title insurance (1975 Form) policies
having an effective date as of the Closing Date, covering the
Owned Real Estate and the Leased Real Estate, in an amount equal
to the most recently available certified tax assessed value for
the Owned Real Estate and the amount of the leasehold interest,
based on the remaining rental payments due under the balance of
the remaining term of the lease, to be transferred to BUYER
pursuant to the Third Party Leases, subject to the exceptions
specified in the Title Commitments. If title to all or part of
the Owned Real Estate or Lease Real Estate is unmarketable or is
subject to any defect, lien, encumbrance, easement, condition,
restriction or encroachment other than the Permitted Exceptions
as defined in Section 10.08(c) herein, then BUYER shall provide
written notice thereof to BANK ONE. BANK ONE shall have thirty
days after written notice thereof from BUYER, to elect to remedy
or remove any such defect, lien, encumbrance, easement,
condition, restriction or encroachment but, if BANK ONE does not,
BUYER may elect to attempt to cure or remove such defect or
encumbrance or other matter, for a period of thirty days
thereafter. If such defect or encumbrance or other matter is not
cured, then, in addition to any other rights which BUYER may have
hereunder, BUYER shall have the right with respect to the
relevant Office (i) to declare this Agreement terminated by
written notice to BANK ONE, (ii) to negotiate, at BUYER'S cost,
with the title company for certain endorsements to the standard
insurance coverage to address any such defects or encumbrances,
or (iii) to waive any objection to such defect or encumbrance or
other matter in which event such defect, encumbrance, or other
matter shall be deemed to be a Permitted Exception. The Owned
Real Estate is being sold by BANK ONE to BUYER hereunder free and
clear of all liens, claims, encumbrances and rights of tenants in
possession except for the Permitted Exceptions, and the
conveyance by Limited Warranty Deed to be delivered by BANK ONE
pursuant hereto shall be subject only to the Permitted
Exceptions. BANK ONE also shall execute and deliver to BUYER at
the time of Closing such affidavits and other instruments, if
any, as the title insurance company issuing the Title Commitments
may require to delete the standard exceptions appearing as
"Schedule B" items in a standard ALTA owners or leasehold owners
title insurance policy, other than those which may only be
deleted by a survey. BANK ONE also shall execute and deliver a
so-called FIRPTA affidavit at Closing. BUYER shall obtain duly
certified surveys for the Owned Real Estate and the Leased Real
Estate with a metes and bounds legal description, depicting all
easements, rights-of-way, set-back lines, and any encumbrances
appearing on the title commitment, and BANK ONE hereby grants to
BUYER and its surveyors, agents and contractors right of access
to the Owned Real Estate and Leased Real Estate, with the prior
consent of the landlord obtained by BUYER, for the purpose of
performing the surveys. The cost of such surveys shall be shared
equally by BANK ONE and BUYER at Closing. The legal descriptions
contained in the surveys shall be used in the Limited Warranty
Deeds to convey the Owned Real Estate and for title insurance for
both the Owned Real Estate and the Leased Real Estate. BUYER
shall obtain surveys within 15 days after the effective date of
this Agreement and copies of the same shall be furnished to BANK
ONE and the title companies.
(c) Required Authorizations. BANK ONE shall obtain
and procure all necessary internal corporate approvals and
authorizations, if any, required by BANK ONE to enable it to
fully perform all obligations imposed on it hereunder which must
be performed by it at or prior to the Closing.
(d) Creation of Liens and Encumbrances. With respect
to the Owned Real Estate, BANK ONE shall not create or allow any
liens, imperfections in title, charges, easements, restrictions
or encumbrances other than the Permitted Exceptions.
(e) Condemnation. If prior to Closing all or any
portion of the Owned Real Estate or Leased Real Estate is taken
or is made subject to eminent domain or other governmental
acquisition proceedings, then BANK ONE shall promptly notify
BUYER thereof, and BUYER may either complete the Closing and
receive the proceeds paid or payable on account of such
acquisition proceedings, or terminate this Agreement as to such
Office and related assets and liabilities. If BUYER terminates
this Agreement, both parties shall thereupon be relieved from all
further obligations hereunder as to such Office and related
assets and liabilities.
(f) Insurance Proceeds, Casualty and Condemnation
Payments. BANK ONE shall maintain adequate insurance on all the
Assets consisting of Owned Real Estate, Leased Real Estate and
Fixed Assets. In the event of any damage, destruction or
condemnation affecting such Assets between the date hereof and
the time of the Closing, BANK ONE shall deliver to BUYER any
insurance proceeds and other payments, to the extent of the
applicable amount set forth in Section 1.4(a)(ii) or (iii) hereof
with respect to Owned Real Estate and the replacement cost with
respect to the Fixed Assets, as the case may be, received (or
with respect to insurance proceeds, which would be received
assuming BANK ONE's insurance policy had no deductible) by BANK
ONE as a result thereof unless, in the case of damage or
destruction, BANK ONE has repaired or replaced the damaged or
destroyed property.
(g) IRA Accounts. Not later than thirty days prior to
the expected Closing Date, BANK ONE shall, at BANK ONE's expense,
mail notice of BANK ONE's resignation as Custodian and the
appointment of BUYER as the Successor Custodian, effective upon
Closing, of each Individual Retirement Account maintained at the
Offices. The notice shall include such other information that is
mutually agreed upon by BANK ONE and BUYER.
(h) Assignment of Leases. BANK ONE shall use its
reasonable good faith efforts to obtain any written consent of
any such landlord as shall be necessary for the effective
assignment of the Third Party Lease and assumption thereof by
BUYER as of the Closing Date. The assignment and assumption by
BUYER of the Third Party Lease shall be substantially the form of
Schedule F attached hereto and incorporated herein. In the event
such necessary consent to assignments is not obtained or other
arrangements satisfactory to BANK ONE made by ______ __, 199__,
BANK ONE may, at its sole option, terminate its duties and
obligations under this Agreement as to such Office and related
assets and liabilities.
2.2 Covenants of BUYER. BUYER hereby covenants to BANK ONE
that, from the date hereof until the Closing, it will do or cause
the following to occur:
(a) Regulatory Applications. BUYER shall prepare and
submit for filing, at no expense to BANK ONE, any and all
applications, filings, and registrations with, and notifications
to, all federal and state authorities required on the part of
BUYER or any shareholder or affiliate of BUYER for the
Acquisition to be consummated at the Closing as contemplated in
Section 6.01 herein and for BUYER to operate the Offices
following the Closing. BUYER shall provide BANK ONE with a draft
copy of each application, filing, registration, and notification
for BANK ONE's approval prior to filing, which approval by BANK
ONE will not be unreasonably withheld or delayed. Such
applications will be submitted to BANK ONE in draft form within
thirty (30) days from the date of this Agreement and filed by
BUYER without delay following BANK ONE's approval of such
applications; provided, however, that in no event will such
applications be filed later than sixty (60) days from the date of
this Agreement. Thereafter, BUYER shall pursue all such
applications, filings, registrations, and notifications
diligently and in good faith, and shall file such supplements,
amendments, and additional information in connection therewith as
may be reasonably necessary for the Acquisition to be consummated
at such Closing and for BUYER to operate the Offices following
the Closing. BUYER shall deliver to BANK ONE evidence of the
filing of each and all of such applications, filings,
registrations and notifications (except for any confidential
portions thereof), and any supplement, amendment or item of
additional information in connection therewith (except for any
confidential portions thereof). BUYER shall also deliver to BANK
ONE a copy of each material notice, order, opinion and other item
of correspondence received by BUYER from such federal and state
authorities (except for any confidential portions thereof) and
shall advise BANK ONE, at BANK ONE's request, of developments and
progress with respect to such matters.
(b) Required Authorizations. BUYER shall obtain and
procure all necessary corporate and other approvals and
authorizations, if any, required on its part to enable it to
fully perform all obligations imposed on it hereunder which must
be performed by it at or prior to the Closing.
(c) Satisfaction of Conditions. BUYER shall not
voluntarily undertake any course of action inconsistent with the
satisfaction of the requirements or the conditions applicable to
it, or its agreements, undertakings, obligations, or covenants
set forth in this Agreement, and it shall promptly do all such
reasonable acts and take all such reasonable measures as may be
appropriate to enable it to perform as early as possible the
agreements, undertakings, obligations, and covenants herein
provided to be performed by it, and to enable the conditions
precedent to BANK ONE's obligations to consummate the Closing of
the Acquisition to be fully satisfied. Additionally, BUYER shall
not knowingly, directly or through any existing or future
subsidiary or affiliate, take any action that would be in
conflict with, or result in the denial, delay, termination, or
withdrawal of, any of the regulatory approvals referred to in
this Agreement.
(d) Cooperation Regarding Leased Real Estate. BUYER
shall, at BANK ONE's request in connection with BANK ONE's
obtaining the consents specified in Section 2.1(h), advise, in
writing, the lessor of Leased Real Estate, of BUYER's intent to
assume and comply with the terms of the Third Party Lease (as to
matters arising from and after the Closing Date).
2.3 Covenants of All Parties. BANK ONE hereby covenants to
BUYER, and BUYER hereby covenants to BANK ONE that, from the date
hereof until the Closing, such party shall cooperate fully with
the other party in attempting to obtain all consents, approvals,
permits, or authorizations which are required to be obtained
pursuant to any federal or state law, or any federal or state
regulation thereunder, for or in connection with the transactions
described and contemplated in this Agreement.
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of BANK ONE. BANK ONE
represents and warrants to BUYER as follows:
(a) Good Standing and Power of BANK ONE. BANK ONE is
a national banking corporation duly organized, validly existing,
and in good standing under the laws of the State of Wisconsin
with corporate power to own its properties and to carry on its
business as presently conducted. BANK ONE is an insured bank as
defined in the Federal Deposit Insurance Act and applicable
regulations thereunder.
(b) Authorization of Agreement. The execution and
delivery of this Agreement, and the transactions contemplated
hereby, have been duly authorized by all necessary corporate
action on the part of BANK ONE, and this Agreement is a valid and
binding obligation of BANK ONE.
(c) Effective Agreement. Subject to the receipt of
any and all necessary regulatory approvals and required consents,
the execution, delivery, and performance of this Agreement by
BANK ONE and the consummation of the transactions contemplated
hereby, will not conflict with, result in the breach of,
constitute a violation or default, result in the acceleration of
payment or other obligations, or create a lien, charge or
encumbrance, under any of the provisions of Articles of
Incorporation or By-Laws of BANK ONE, under any judgment, decree
or order, under any law, rule, or regulation of any government or
agency thereof, or under any material contract, material
agreement or material instrument to which BANK ONE is subject,
where such conflict, breach, violation, default, acceleration or
lien would have a material adverse effect on the Assets or BANK
ONE's ability to perform its obligations hereunder.
(d) Title to Real Estate And Other Assets. Except for
the Owned Real Estate and Leased Real Estate, BANK ONE or an
affiliate is the sole owner of each of the Assets free and clear
of any mortgage, lien, encumbrance or restrictions of any kind or
nature. As to the Owned Real Estate, BANK ONE or an affiliate is
the sole owner of a fee simple interest in, and has good and
marketable title to, such Owned Real Estate, free and clear of
all liens, claims, encumbrances and rights of tenants in
possession except for the Permitted Exceptions and shall convey,
or cause to be conveyed, such real estate to BUYER by delivery at
the Closing of a limited warranty deed conveying such title
subject only to the Permitted Exceptions. BANK ONE or an
affiliate has a valid leasehold interest in the Leased Real
Estate pursuant, and subject to, the Third Party Lease and has
the use of the Leased Real Estate pursuant to the Third Party
Lease, which will be assigned to BUYER by delivery of an
assignment conveying such leasehold interest to BUYER at the
Closing.
(e) Zoning Variations. As of the date of this
Agreement, BANK ONE has no knowledge of receipt of, or
contemplation of any intent to provide, BANK ONE with any written
notice from any governmental authority of any uncorrected
violations of zoning and/or building codes relating to the Owned
Real Estate or Leased Real Estate.
(f) Condemnation Proceedings. BANK ONE has received
no written notice of any pending or threatened, nor is it aware
of any contemplated, condemnation proceeding affecting or
relating to the Offices.
(g) Taxes. All federal, state and local payroll,
withholding, property, sales, use and transfer taxes, if any,
which are due and payable by BANK ONE relating to the Offices
prior to the date of Closing shall be paid in full as of the
Closing Date or BANK ONE shall have made appropriate provision
for such payment in accordance with ordinary business practices.
Any claims for refunds of taxes which have been paid by BANK ONE
shall remain the property of BANK ONE.
(h) Operations Lawful. To the knowledge of BANK ONE,
the conduct of banking business at the Offices is in compliance
in all material respects with all federal, state, county and
municipal laws, ordinances and regulations applicable to conduct
of such business.
(i) Third-Party Claims. There are no actions, suits
or proceedings, pending or, to BANK ONE's knowledge, threatened
against or affecting BANK ONE which, if determined adversely to
BANK ONE, could have a material adverse effect on the aggregate
value of the banking business and Assets of the Offices.
(j) Insurance. BANK ONE maintains such insurance on
the Offices and the Fixed Assets to be purchased by or assigned
to BUYER as may be required or as is customary in the business of
banking.
(k) Labor Relations. No employee located at any of
the Offices is represented, for purposes of collective
bargaining, by a labor organization of any type. BANK ONE has no
knowledge of any efforts during the past three years to unionize
or organize any employees at any Office, and no material claim
related to employees at the Offices under the Fair Labor
Standards Act, National Labor Relations Act, Civil Rights of
1964, Walsh-Healy Act, Davis Bacon Act, Civil Rights of Act of
1866, Age Discrimination in Employment Act, Equal Pay Act of
1963, Executive Order No. 11246, Federal Unemployment Tax Act,
Vietnam Era Veterans Readjustment Act, Occupational Safety and
Health Act, Americans with Disabilities Act or any state or local
employment related law, order, ordinance or regulation, no unfair
labor practice, discrimination or wage-and-hour claim is pending
or, to the best of BANK ONE's knowledge, threatened against or
with respect to BANK ONE.
(l) Governmental Notices. BANK ONE has not received
notice from any federal or state governmental agency indicating
that it would oppose or not grant or issue its consent or
approval, if required, with respect to the transactions
contemplated by this Agreement.
(m) Environmental. To the knowledge of BANK ONE,
there are no actions, proceedings or investigations pending
before any environmental regulatory body, federal or state court
with respect to or threatened against or affecting BANK ONE in
respect of any Office under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or under the any federal, state, local or municipal
environmental statute, ordinance or regulation in respect thereof
and in connection with any release of any toxic or "hazardous
substance," pollutant or contaminant into the "environment," nor,
to the best knowledge of the executive officers of BANK ONE, is
there any reasonable basis for the institution of any such
actions or proceedings or investigations which is probable of
assertion, nor are there any such actions or proceedings or
investigations in which BANK ONE is a plaintiff or complainant.
To the knowledge of BANK ONE, BANK ONE is not responsible in any
material respect under any applicable environmental law for any
release by BANK ONE or for any release by an other "Person" at or
in the vicinity of any Office of a hazardous or toxic substance,
contaminant or pollutant caused by the spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of hazardous wastes or
other chemical substances, pollutants or contaminants into the
environment, nor is BANK ONE responsible for any material costs
(as a result of the acts or omissions of BANK ONE, or, to the
actual knowledge of the executive officers of BANK ONE, as a
result of the acts or omissions of any other "person") of any
remedial action including, without limitation, costs arising out
of security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken
by any environmental regulatory body having jurisdiction over
BANK ONE to prevent or minimize any actual or threatened release
by BANK ONE on premises any hazardous wastes or other chemical
substances, pollutants and contaminants into the environment
which would endanger the public health or the environment. All
terms contained in quotation marks in this paragraph and the
paragraph immediately following shall have the meaning ascribed
to such terms as defined in all federal, state and local
statutes, regulations or ordinances.
(n) Access to Real Estate. To the knowledge of BANK
ONE, no fact or condition exists which would result in the
termination or impairment of access to the Owned Real Estate from
adjoining public or private streets or ways or which could result
in discontinuation of necessary sewer, water, electric, gas,
telephone, or other utilities or services and sewage, sanitation,
plumbing, refuse disposal, and similar facilities servicing the
Owned Real Estate are in full compliance with applicable
governmental regulations.
(o) Mechanic's Liens. BANK ONE has paid or will pay
in full all bills and invoices for labor and material of any kind
arising from the ownership, operation, management, repair,
maintenance, or leasing as tenant of the Owned Real Estate and
the Leased Real Estate, and no actual or potential mechanic's
lien or other claims are outstanding or available to any party in
connection with the ownership, operation, management, repair,
maintenance, or leasing as tenant of said properties.
(p) Deposit. Attached as Schedule G hereto is a true
and accurate schedule of all Deposit Accounts (including
individual retirement accounts) domiciled at the Offices,
prepared as of a date within thirty (30) days prior to the date
of this Agreement, listing by Office and by category the amount
of all deposits and the interest rates and maturity dates
associated with such deposits, and indicating the deposits that
constitute Core Deposits.
(q) Office Loans. Attached hereto as Schedule H is a
true and accurate schedule of all Office Loans, including accrued
and unpaid interest thereon and any and all late fees and other
fees relating thereto, computed as of a date within thirty (30)
days prior to the date of this Agreement, excluding, however,
such Office Loans which are more than 60 days past due for
payment of principal or interest.
(r) Personal Property. Schedule C is a preliminary
listing of Fixed Assets owned by BANK ONE and located at the
Offices, which is subject to non-material change prior to the
Closing Date. A final listing of Fixed Assets will be provided
to BUYER by BANK ONE prior to the Closing Date.
(s) Assumed Contracts and Third Party Lease.
Schedule D is a true and accurate schedule of all Assumed
Contracts related to the Offices. Each Assumed Contract is valid
and subsisting and in full force and effect in accordance with
its terms.
(t) FIRPTA. BANK ONE is not a "foreign person" within
the meaning of the Internal Revenue Code 1445.
(u) For purposes of this section 3.1, the "knowledge"
of BANK ONE shall mean the actual knowledge of the President of
BANK ONE.
3.2 Representations and Warranties of BUYER. BUYER
represents and warrants to BANK ONE as follows:
(a) Good Standing and Power of BUYER. BUYER is a
Wisconsin banking corporation duly organized, validly existing,
and in good standing under the laws of the State of Wisconsin
with corporate power to own its properties and to carry on its
business as presently conducted. BUYER is an insured bank, as
defined in the Federal Deposit Insurance Act and applicable
regulations thereunder.
(b) Authorization of Agreement. The execution and
delivery of this Agreement, and the transactions contemplated
hereby, have been duly authorized by all necessary corporate
action on the part of BUYER, and this Agreement is a valid and
binding obligation of BUYER.
(c) Effective Agreement. Subject to the receipt of
any and all necessary regulatory approvals, the execution,
delivery, and performance of this Agreement by BUYER, and the
consummation of the transactions contemplated hereby, will not
conflict with, result in the breach of, constitute a violation or
default, result in the acceleration of payment or other
obligations, or create a lien, charge or encumbrance, under any
of the provisions of the Articles of Association or By-Laws of
BUYER, under any judgment, decree or order, under any law, rule
or regulation of any government or agency thereof, or under any
material agreement, material contract or material instrument to
which BUYER is subject, where such conflict, breach, violation,
default, acceleration or lien would have a material adverse
effect on BUYER's ability to perform its obligations hereunder.
4. ACTIONS RESPECTING EMPLOYEES AND PENSIONS AND EMPLOYEE
BENEFIT PLANS.
4.1 Employment of Employees.
(a) BUYER shall extend offers of employment, as of the
Closing Date, to such employees of the Offices listed in Schedule
R as may be employed by BANK ONE at the Offices as of the Closing
Date (including, without limitation, those employees who on the
Closing Date are on family and medical leave, military leave, or
personal or pregnancy leave and who elect to return to work not
later than one (1) year following the Closing Date; individually
and collectively the "Leave Employees" herein) for positions
entailing responsibilities in effect at BANK ONE as of the
Closing Date, and for a base salary not less than that paid by
BANK ONE as of the Closing Date. Employees accepting employment
with BUYER, including but not limited to the Leave Employees, are
referred to herein individually and collectively as the
"Transferred Employees". In the event that BUYER shall transfer
(except in a comparable position and for comparable compensation
to an office not more than 35 miles from the Office at which the
Transferred Employee is employed as of the Closing Date, or at
the request of the Transferred Employee), terminate employment
of, or reduce the base salary of, a Transferred Employee (the
"Terminated Employee") between the Closing Date and the date
which is one (1) year from the Closing Date, other than for
cause, BUYER shall pay to the Terminated Employee a sum equal to
the greater of that which the Terminated Employee would have
received on the date of such transfer, termination, or reduction
in salary under the severance plan of BANK ONE applicable to the
Terminated Employee as of the date hereof and set forth in
Schedule R or the severance plan of BUYER otherwise applicable to
the Terminated Employee as of the date of such transfer,
termination, or reduction in base salary. Such payment shall be
due and owing the Terminated Employee on the date of such
transfer, termination, or reduction in salary. Nothing contained
in this Agreement shall restrict or prohibit Buyer and any
Transferred Employee from entering into an agreement satisfactory
to both Buyer and the Transferred Employee providing for
resolution of matters set forth in this section.
(b) BANK ONE will cooperate with BUYER, to the extent
reasonably requested and legally permissible, to provide BUYER
with information about the employees of the Offices including,
without limitation, providing BUYER with the personnel files of
those employees of the Offices who provide BANK ONE with their
written consent thereto, and a means to meet with the subject
employees. BUYER hereby agrees to indemnify and to hold BANK ONE
and its affiliates and its and their officers, directors, agents,
and employees harmless from and against any and all liability,
loss, cost, and expense, however arising, as a result of release
of information and/or files concerning the referenced employees.
4.2 Terms and Conditions of Employment. Except as
otherwise provided explicitly in this Agreement, the terms of
employment for each Transferred Employee shall be determined
solely by BUYER's policies, procedures, and programs; provided,
however, that BUYER agrees that each Transferred Employee shall
be provided employment subject to the following terms and
conditions;
(a) Base salary shall be at least equivalent to the
rate of base salary paid by BANK ONE to such Transferred Employee
as of the close of business on the day prior to the Closing Date.
(b) Except as otherwise specifically provided herein,
Transferred Employees shall be provided employee benefits that
are no less favorable in the aggregate than those provided to
similarly situated employees of BUYER. BUYER shall provide such
Transferred Employees with credit for the Transferred Employee's
period of service with BANK ONE (including any service credited
from predecessors by merger or acquisition to BANK ONE) towards
the calculation of eligibility and vesting for such purposes as
vacation, sick days, personal days, severance and other benefits,
and participation and vesting in BUYER's qualified pension and/or
profit sharing 401(k) plans, as such plans may exist (but not for
purposes of funding of accrued pension or profit sharing plans
for such Transferred Employees with respect to any period prior
to the Closing Date).
(c) Each Transferred Employee shall be eligible to
participate in the medical, dental, or other welfare plans of
BUYER, as such plans may exist, on and after the Closing Date,
and any pre-existing conditions provisions of such plans shall be
waived with respect to any such Transferred Employees.
(d) With respect to any Transferred Employee who is
also a Leave Employee, upon conclusion of his or her short-term
disability or temporary leave of absence, subject to the terms
and conditions of the BUYER's plans and policies and applicable
law, each Transferred Employee on such leave shall receive the
salary and vacation benefits in effect when he or she went on
leave, shall otherwise be treated as a Transferred Employee, and,
to the extent practicable, shall be offered by the BUYER the same
or a substantially equivalent position to his or her position
with BANK ONE prior to having gone on leave.
(e) Except as provided herein, BANK ONE shall pay,
discharge, and be responsible for (i) all salary and wages
arising out of employment of the Transferred Employees through
the Closing Date, and (ii) any employee benefits arising under
BANK ONE's employee benefit plans and employee programs prior to
the Closing Date (but not including sick days and personal days
accrued but unused by the Transferred Employee through the
Closing Date and medical benefits, if any, to Transferred
Employees who retire after the Closing Date), including benefits
with respect to claims incurred prior to the Closing Date but
reported after the Closing Date and benefits inuring to Leave
Employees prior to any election by such Leave Employees to return
to work with BUYER. From and after the Closing Date, BUYER shall
pay, discharge, and be responsible for all salary, wages, and
benefits arising out of or relating to the employment of the
Transferred Employees by BUYER from and after the Closing Date,
including, without limitation, all claims for welfare benefits
plans incurred on or after the Closing Date. Claims are incurred
as of the date services are provided notwithstanding when the
injury or illness may have occurred. To the extent permitted
under BUYER's applicable 401(k) plan, BANK ONE and BUYER shall
cooperate in arranging for the transfer to BUYER's 401(k) plan,
as soon as practicable after the Closing Date and in a manner
that satisfies sections 414(l) and 411(d)(6) of the Internal
Revenue Code, as amended, of those accounts held under BANK ONE's
401(k) plan on behalf of Transferred Employees.
4.3 Compliance with Law. BUYER agrees that it shall comply
with any and all applicable requirements, if any, under the
Worker Adjustment and Retraining Notification Act in connection
with the transaction contemplated by this Agreement. BUYER hereby
agrees to indemnify and to hold BANK ONE and its affiliates and
its and their officers, directors, agents, and employees harmless
from and against any and all liability, loss, cost, and expense,
however arising, as a result of the failure of BUYER to comply
with its obligations as set forth in this section.
4.4 Actions to be Taken by BANK ONE. BANK ONE covenants to
BUYER that it will do or cause the following to occur:
(a) Solicitation of Transferred Employees. Except
with the written consent of BUYER, for a period of twelve months
following the Closing Date, BANK ONE will not directly solicit
Transferred Employees as prospective officers or employees of
BANK ONE; provided, however, that BANK ONE shall not be
prohibited or restricted from hiring a Transferred Employee if
such Transferred Employee contacts BANK ONE or an affiliate or
the parent organization of BANK ONE to seek hiring or retention,
whether in response to general advertising or otherwise, or if a
Transferred Employee is terminated by BUYER.
(b) Employee Benefit Programs. BANK ONE's obligations
to employees of the Offices, including Transferred Employees,
will be as set forth in established policies of BANK ONE
CORPORATION and/or BANK ONE, and BANK ONE shall continue its
employee benefit programs in full force and effect as benefit
programs for Transferred Employees through the Closing Date.
After the Closing, BANK ONE shall retain the responsibility and
liability for the funding and payment of all claims incurred
under such employee benefit programs through the Closing Date.
BUYER shall have no obligation or liability to compensate
Transferred Employees for benefits of any kind earned, accrued,
promised and/or provided to Transferred Employees as employees of
BANK ONE, except with respect to eligibility and vesting as set
forth in Section 4.02, above.
(c) Employees of the Offices. BANK ONE shall not,
without BUYER's prior written consent (i) increase the aggregate
full-time equivalent size of the work force at the Offices above
the aggregate normal staffing levels designated by BANK ONE for
the Offices at the date hereof, (ii) terminate any Transferred
Employee prior to the Closing Date, unless such person is
terminated for cause as determined at the sole discretion of BANK
ONE or otherwise pursuant to existing BANK ONE policies or
procedures, or (iii) increase the compensation of any Transferred
Employee except pursuant to existing BANK ONE policies and
procedures.
The obligations of BANK ONE and BUYER pursuant to this
Section 4.1 through 4.4 shall survive the Closing.
5. CONDITIONS PRECEDENT TO CLOSING.
5.1 Conditions to BANK ONE's Obligations. The obligations
of BANK ONE to consummate the Acquisition are subject to the
satisfaction, or the waiver in writing by BANK ONE to the extent
permitted by applicable law, of the following conditions at or
prior to the Closing:
(a) Prior Regulatory Approval. All filings and
registrations with, and notifications to, all federal and state
authorities required for consummation of the Acquisition shall
have been made, all approvals and authorizations of all federal
and state authorities required for consummation of the
Acquisition shall have been received and shall be in full force
and effect, and all applicable waiting periods shall have passed.
(b) Corporate Action. The Board of Directors of BUYER
shall have taken all corporate action necessary by it to
effectuate this Agreement and the Acquisition and BUYER shall
have furnished BANK ONE with a certified copy of each such
resolution adopted by the Board of Directors of BUYER evidencing
the same.
(c) Representations and Warranties. The
representations and warranties of BUYER set forth in this
Agreement shall be true and correct in all material respects on
the Closing Date with the same effect as though all such
representations and warranties had been made on and as of such
date, and BUYER shall have delivered to BANK ONE a Certificate to
that effect, dated as of the Closing Date to the effect specified
in Schedule I to this Agreement.
(d) Covenants. Each and all of the covenants and
agreements of BUYER to be performed or complied with at or prior
to Closing pursuant to this Agreement shall have been duly
performed or complied with in all material respects by BUYER, or
waived by BANK ONE, and BUYER shall have delivered to BANK ONE a
Certificate to that effect, dated as of the Closing Date to the
effect specified in Schedule I to this Agreement.
(e) No Proceeding or Prohibition. At the time of the
Closing, there shall not be any litigation, investigation,
inquiry, or proceeding pending or threatened in or by any court
or agency of any government or by any third party which in the
judgment of the executive officers of BANK ONE, with the advice
of counsel, presents a bona fide claim to restrain, enjoin, or
prohibit consummation of the transaction contemplated by this
Agreement or which might result in rescission in connection with
such transactions; and BANK ONE shall have been furnished with a
Certificate, substantially in the form as specified in Schedule I
to this Agreement, dated as of the Closing Date and signed by the
Chairman, President, or an Executive Vice President and Secretary
or Assistant Secretary of BUYER, to the effect that no such
litigation, investigation, inquiry, or proceeding is pending or,
to the best of their knowledge, threatened.
(f) Opinion of Counsel. BUYER shall have delivered to
BANK ONE an opinion, dated as of the Closing Date, of legal
counsel reasonably satisfactory to BANK ONE and its counsel, in
form and substance reasonably satisfactory to BANK ONE and its
counsel, to the effect specified in Schedule J to this Agreement.
(g) Receipt of Consents of Third Parties. BANK ONE
shall have received, in form and substance satisfactory to BANK
ONE, any and all consents, approvals or waivers of third parties
as BANK ONE, in its sole discretion, may deem necessary or
appropriate to enable it to consummate the transactions
contemplated by this Agreement without additional cost, expense,
or liability to BANK ONE or its affiliates.
5.2 Conditions to BUYER's Obligations. The obligations of
BUYER to consummate the Acquisition are subject to the
satisfaction, or the waiver in writing by BUYER to the extent
permitted by applicable law, of the following conditions at or
prior to the Closing:
(a) Prior Regulatory Approval. All filings and
registrations with, and notifications to, all federal and state
authorities required for consummation of the Acquisition and
operation of the Offices by BUYER shall have been made, all
approvals and authorizations of all federal and state authorities
required for consummation of the Acquisition and operation of the
Offices by BUYER shall have been received and shall be in full
force and effect, and all applicable waiting periods shall have
passed.
(b) Corporate Action. The Board of Directors of BANK
ONE shall have taken all corporate action necessary to effectuate
this Agreement and the Acquisition; and BANK ONE shall have
furnished BUYER with a certified copy of each such resolution
adopted by the Board of Directors of BANK ONE evidencing the
same.
(c) Representations and Warranties. The
representations and warranties of BANK ONE set forth in this
Agreement shall be true and correct in all material respects on
the Closing Date with the same effect as though all such
representations and warranties had been made on and as of such
date (unless a different date is specifically indicated in such
representations and warranties), and BANK ONE shall have
delivered to BUYER a Certificate to that effect, dated as of the
Closing Date to the effect specified in Schedule K to this
Agreement.
(d) Covenants. Each and all of the covenants and
agreements of BANK ONE to be performed or complied with pursuant
to this Agreement shall have been duly performed or complied with
in all material respects by BANK ONE, or waived by BUYER, and
BANK ONE shall have delivered to BUYER a Certificate to that
effect, dated as of the Closing Date to the effect specified in
Schedule K to this Agreement.
(e) No Proceedings or Prohibitions. At the time of
the Closing, there shall not be any litigation, investigation,
inquiry, or proceeding pending or threatened in or by any court
or agency of any government or by any third party which in the
judgment of the executive officers of BUYER, with the advice of
counsel, presents a bona fide claim to restrain, enjoin, or
prohibit consummation of the transactions contemplated by this
Agreement or which might result in rescission in connection with
such transactions; and BUYER shall have been furnished with a
Certificate, in substantially the form specified in Schedule K to
this Agreement, dated as of the Closing Date and signed by the
Chairman, President, or Vice President, and the Secretary or
Assistant Secretary of BANK ONE, to the effect that no such
litigation, investigation, inquiry, or proceeding is pending or
threatened to the best of their knowledge.
(f) Opinion of Counsel. BANK ONE shall have delivered
to BUYER an opinion, dated as of the Closing Date, of legal
counsel reasonably satisfactory to BUYER and its counsel, in form
and substance reasonably satisfactory to BUYER and its counsel,
to the effect specified in Schedule L to this Agreement.
(g) Real Property. The Title Commitment (as defined
in Section 2.1(b) herein) shall have been delivered to BUYER, and
updated to or as close as practicable to (but in no event more
than five (5) business days prior to) the Closing Date, in
accordance with the terms of such Section, and such updated Title
Commitment shall not include any special exceptions other than
those set forth in the original Title Commitment and any other
Permitted Exceptions.
(h) Fixed Assets. There shall have been no material
alteration in or adjustment to the Fixed Assets. For purposes of
this subsection (h), it will not be considered to be a material
alteration or adjustment to the Fixed Assets if (i) there is
damage or destruction to the Fixed Assets as contemplated by
Section 2.1(f) herein and BANK ONE complies with said
Section 2.1(f), (ii) BANK ONE makes additions to the Fixed Assets
with the prior written consent of BUYER or (iii) BANK ONE makes
additions to the Fixed Assets without BUYER's consent in order to
correct emergency situations which are threatening to impair BANK
ONE's operations at an Office.
5.3 Non-Satisfactions of Conditions Precedent. The non-
occurrence or delay of the Closing of the Acquisition by reason
of the failure of timely satisfaction of all conditions precedent
to the obligations of any party hereto to consummate the
Acquisition shall in no way relieve such party of any liability
to the other party hereto, nor be deemed a release or waiver of
any claims the other party hereto may have against such party, if
and to the extent the failure of timely satisfaction of such
conditions precedent is attributable to the actions or inactions
of such party.
5.4 Waivers of Conditions Precedent. The conditions
specified in Sections 5.1 and 5.2 herein shall be deemed
satisfied or, to the extent not satisfied, waived if the Closing
occurs unless such failure of satisfaction is reserved in a
writing executed by BUYER and BANK ONE at or prior to the
Closing.
6. CLOSING.
6.1 Closing and Closing Date. The Acquisition contemplated
by this Agreement shall be consummated and closed (the "Closing")
at such location as shall be mutually agreed upon by BUYER and
BANK ONE, on a date to be mutually agreed upon by BUYER and BANK
ONE which date is after all required regulatory approvals have
been obtained and all applicable regulatory waiting periods
associated therewith have expired. The precise date on which the
Closing shall occur (the "Closing Date") shall be confirmed by
the parties in writing not less than five (5) days after
receiving all required regulatory approvals.
6.2 BANK ONE's Actions at Closing. At the Closing (unless
another time is specifically stated in Section 6.4 hereof), BANK
ONE shall, with respect to the Offices:
(a) deliver to BUYER at the Offices such of the Assets
purchased hereunder as shall be capable of physical delivery,
including, without limitation, all assets comprising the safe
deposit box business, if any, of the Offices; and
(b) execute, acknowledge and deliver to BUYER all such
limited warranty deeds (qualified, as necessary, to reflect all
Permitted Exceptions), endorsements, assignments, bills of sale,
and other instruments of conveyance, assignment, and transfer as
shall reasonably be necessary or advisable to consummate the
sale, assignment, and transfer of the Assets sold or assigned to
BUYER hereunder and such other documents as the title company may
reasonably require; the originals of all blueprints, construction
plans, specifications and plat relating to the Owned Real Estate,
which are now in BANK ONE's possession or which BANK ONE has
reasonable access to; and such other documents or instruments as
may be reasonably required by BUYER, required by other provisions
of this Agreement, or reasonably necessary to effectuate the
Closing ;
(c) execute, acknowledge and deliver to BUYER a duly
executed and recordable assignment to BUYER of the Third Party
Lease and a consent to assignment from the landlord of the Third
Party Lease all in substantially the form as set forth in
Schedule F attached hereto and incorporated herein by reference;
(d) assign, transfer, and make available to BUYER such
of the following records as exist and are available and
maintained at the Offices (in whatever form or medium then
maintained by BANK ONE) pertaining to the Deposit Liabilities and
Office Loans:
(i) signature cards and IRA plan and account
documents (which will be provided on separate CD-ROMs and
delivered directly to BUYER from SELLER's image storage vendor.
BUYER shall contract directly with such vendor, at BUYER's
expense, to obtain paper copies of electronically stored
documents); and
(ii) other orders, contracts, and agreements
between BANK ONE and depositors of the Offices and borrowers with
respect to Office Loans, and records of similar character (which
may be provided, at the option of BANK ONE, in electronic format
on CD-ROM or otherwise) excepting, specifically; a) W8, and W9
forms which BUYER may obtain from customers, b) internally
generated CTR forms, and c) retail loan credit information (for
which no paper-based documents are maintained by BANK ONE); and
(iii) a trial balance listing of records of
account.
(e) assign, transfer, and deliver to BUYER such safe
deposit and safekeeping files and records (in whatever form or
medium then maintained by BANK ONE) pertaining to the safe
deposit business of the Offices transferred to BUYER hereunder as
exist and are available, together with the contents of the safe
deposit boxes maintained at the Offices, as the same exist as of
the close of business on the day immediately preceding the
Closing Date (subject to the terms and conditions of the leases
or other agreements relating to the same) and all securities and
other records, if any, held by the Offices for their customers as
of the close of business on the day immediately preceding the
Closing Date (subject to the terms and conditions of the
agreements or receipts relating to the same); and
(f) make available and transfer to BUYER on the
Closing Date and prior to the conclusion of the Closing any funds
required to be paid to BUYER pursuant to the terms of this
Agreement; and
(g) execute, acknowledge and deliver to BUYER all
Certificates and other documents required to be delivered to
BUYER by BANK ONE at the Closing pursuant to the terms of this
Agreement; and
(h) assign by endorsement substantially in a form as
provided in Schedule M attached hereto, transfer and deliver to
BUYER the contract, promissory note or other evidence of
indebtedness related to the Office Loans together with the loan
file and records (in whatever form or medium then maintained by
BANK ONE) pertaining to such Office Loans; and
(i) assign to BUYER all BANK ONE's rights in and to
the Assumed Contracts which are assignable and which constitute
part of the Assets.
6.3 BUYER's Actions at the Closing. At the Closing (unless
another time is specifically stated in Section 6.4 hereof), BUYER
shall, with respect to the Offices:
(a) execute, acknowledge, and deliver to BANK ONE, to
evidence the assumption of the liabilities and obligations of
BANK ONE by BUYER hereunder, an instrument of assumption in the
form set forth in Schedule N to this Agreement, and BANK ONE
shall then accept, execute, and acknowledge such instrument.
Copies of such instrument may be recorded in the public records
at the option of either party hereto. The execution and
acknowledgment of such instrument shall not be deemed to be a
waiver of any rights or obligations of any party to this
Agreement;
(b) receive, accept and acknowledge delivery of all
Assets, and all records and documentation relating thereto, sold,
assigned, transferred, conveyed or delivered to BUYER by BANK ONE
hereunder and BUYER shall be responsible for coordinating with
the title companies to effectuate the recording of limited
warranty deeds on or after Closing and securing GAP insurance
coverage in the event the limited warranty deeds are recorded
post-closing, at BUYER'S sole cost and expense; and
(c) execute and deliver to BANK ONE such written
receipts for the Assets, properties, records, and other materials
assigned, transferred, conveyed, or delivered to BUYER hereunder
as BANK ONE may reasonably have requested at or before the
Closing;
(d) pay to BANK ONE on the Closing Date and prior to
the conclusion of the Closing any funds required to be paid to
BANK ONE at the Closing pursuant to the terms of this Agreement;
(e) execute, acknowledge and deliver to BANK ONE all
Certificates and other documents required to be delivered to BANK
ONE by BUYER at the Closing pursuant to the terms hereof;
(f) execute, acknowledge and deliver to BANK ONE an
agreement wherein BUYER assumes obligations with respect to the
Third Party Lease and Assumed Contracts and the IRA's for all
periods following the Closing Date with respect thereto; and
(g) execute, acknowledge and deliver the Letter of
Credit Indemnity Agreement, pertaining to letters of credit
included in the Office Loans, in the form as attached to Schedule
S herein.
6.4 Methods of Payment. Subject to the adjustment
procedures set forth in this Section 6.4, the transfer of the
funds, if any, due to BUYER or to BANK ONE, as the case may be,
as set forth pursuant to the terms of Section 1.4(a) hereof,
shall be made on the Closing Date in immediately available United
States Federal Funds. At least two business days prior to the
Closing, BANK ONE and BUYER shall provide written notice to one
another indicating the account and bank to which such funds shall
be wire transferred. In order to facilitate the Closing, the
parties agree: (i) that the amount of funds transferred on the
Closing Date, pursuant to Section 1.4(a) hereof, shall be
computed based upon (a) the aggregate book value plus accrued
interest of the Office Loans as of the close of business on a day
to be agreed between the parties, not more than seven (7)
business days preceding the Closing Date, (b) cash on hand at the
Offices as of the close of business on a day to be agreed between
the parties, not more than seven (7) business days preceding the
Closing Date, and (c) the aggregate balance of all Deposit
Accounts (including interest posted or accrued to such accounts
and Individual Retirement Accounts which have become IRAs as a
result of the written appointment of BUYER as the successor
custodian and the failure of the account holders to object to
such appointment) as of the close of business on a day to be
agreed between the parties, not more than seven (7) business days
preceding the Closing Date, and the parties shall execute a
Preliminary Closing Statement in substantially the form set forth
in Schedule P attached. Furthermore, within ten (10) business
days after the Closing, the parties shall make appropriate post
closing adjustments, consistent with the provisions of Section
1.4 hereof, based upon actual Deposit Accounts as of the Closing
Date, Office Loans as of the Closing Date, and cash transactions
which took place on the Closing Date or which took place prior to
the Closing Date but which were not reflected in the Preliminary
Closing Statement, and shall execute the Final Settlement
Statement in substantially the form set forth in Schedule Q
attached. In addition, prorations of prepaid and deferred income
and expenses that cannot be reasonably calculated at the Closing
shall be settled and paid based on actual amounts and
calculations as soon as possible after the Closing.
6.5 Availability of Closing Documents. The documents
proposed to be used and delivered at the Closing shall be made
available for examination by the respective parties not later
than 12:00 noon, Ohio time, on the tenth Business Day prior to
the Closing Date.
6.6 Effectiveness of Closing. Upon the satisfactory
completion of the Closing, which does not include and shall not
require completion of the adjustment and proration arrangements
set forth in Section 6.4, the Acquisition shall be deemed to be
effective and the Closing shall be deemed to have occurred.
7. CERTAIN TRANSITIONAL MATTERS.
7.1 Transitional Action by BUYER. After the Closing,
unless another time is otherwise indicated:
(a) BUYER shall: (i) pay in accordance with the law
and customary banking practices and applicable Deposit Account
contract terms, all properly drawn and presented checks,
negotiable orders of withdrawal, drafts, debits, and withdrawal
orders presented to BUYER by mail, over the counter, through
electronic media, or through the check clearing system of the
banking industry, by depositors of the Deposit Accounts assumed
by BUYER hereunder, whether drawn on checks, negotiable orders or
withdrawal, drafts, or withdrawal order forms provided by BUYER
or BANK ONE; and (ii) in all other respects discharge, in the
usual course of the banking business, the duties and obligations
of BANK ONE with respect to the balances due and owing to the
depositors whose Deposit Accounts are assumed by BUYER hereunder;
provided, however, that any obligations of BUYER pursuant to this
Section 7.1 to honor checks, negotiable orders of withdrawal,
drafts, and withdrawal orders on forms provided by BANK ONE and
carrying its imprint (including its name and transit routing
number) shall not apply to any checks, drafts, withdrawal
orders, or returned items (i) presented to BUYER more than one
hundred eighty (180) days following the Closing Date, or (ii) on
which a stop payment has been requested by the deposit customer.
BUYER shall submit and file any required reports on IRS Form 1099
with respect to interest accrued on Deposit Liabilities after the
Closing Date. The provisions of this subsection 7.1(a) shall in
no way limit BUYER's duties or obligations arising under
Section 1.3(b) hereof.
(b) BUYER shall, not earlier than the time of
procurement of all regulatory approvals required for consummation
of the transaction contemplated by this Agreement nor later than
ten days prior to the Closing Date, notify all depositors of the
Offices by letter, acceptable to BANK ONE, produced in, if
appropriate, several similar, but different forms calculated to
provide necessary and specific information to the owners of
particular types of accounts, of BUYER's pending assumption of
the Deposit Liabilities hereunder, and, in appropriate instances,
notify depositors that on and after the Closing Date certain BANK
ONE deposit-related services and/or BANK ONE's debit card and
automatic teller machine services impacted by the transactions
contemplated by this Agreement, will be terminated. As an
enclosure to such notices, BUYER may furnish appropriate
depositors with brochures, forms and other written materials
related or necessary to the assumption of the Deposit Accounts by
BUYER and the conversion of said accounts to BUYER accounts,
including the provision of checks to appropriate depositors using
the forms of BUYER with instructions to such depositors to
utilize such BUYER checks on and after the Closing Date and
thereafter to destroy any unused checks on BANK ONE's forms. The
expenses of the printing, processing and mailing of such letter
notices and providing new BUYER checks and other forms and
written materials to appropriate customers shall be borne by
BUYER. Before Closing, except as provided in this paragraph,
BUYER will not contact BANK ONE's customers except as may occur
in connection with advertising or solicitations directed to the
public generally or in the course of obtaining the requisite
regulatory approvals of the transaction. Anything to the contrary
herein notwithstanding, BUYER shall provide, at no cost to BANK
ONE, any and all notices, communications, and filings which may
be required by law, regulation, or otherwise, relating to any
changes in terms and other matters relating to the Deposit
Accounts and the Office Loans occurring subsequent to the Closing
Date. Any and all such notices, communications, and filings which
may be required to be provided prior to the Closing Date shall be
submitted on a timely basis for review by BANK ONE and shall be
subject to the written approval of BANK ONE prior to delivery to
any third party. BUYER shall provide, at its sole cost and
expense and at no cost or expense to BANK ONE, that any and all
customer and other notices, communications, and filings provided
by BUYER hereunder, including the substance and timing of same,
fully comply with the requirements of applicable law and
regulation.
(c) BUYER shall promptly pay to BANK ONE an amount
equivalent to the amount of any checks, negotiable orders of
withdrawal, drafts, withdrawal orders, or returned items (net of
the applicable Acquisition Consideration paid by BUYER with
respect to the Deposit Liabilities represented by any such
instrument) credited as of the close of business on the Closing
Date to a Deposit Account assumed by BUYER hereunder which are
returned uncollected to BANK ONE after the Closing Date. The
foregoing shall include an amount equivalent to holds placed upon
such deposit account for items cashed by BANK ONE as of the close
of business on the Closing Date.
(d) All tasks and obligations concerning the provision
of data processing services to or for the Offices after the
Closing, other than those specifically set forth in, and to the
extent assumed by BANK ONE pursuant to, Section 7.2(b) herein, if
any, are the sole and exclusive responsibility of, and shall be
performed solely and exclusively by, BUYER.
(e) BUYER shall, not later than the close of business
on the business day immediately following the Closing Date,
supply suitable government-backed securities as security for any
deposits of governmental units included among the Deposit
Liabilities for which BANK ONE had provided similar security.
(f) BUYER shall, as soon as practicable but not more
than 10 business days after the Closing Date, prepare and
transmit at BUYER's expense to each of the obligors on Office
Loans transferred to BUYER pursuant to this Agreement a notice to
the effect that the loan has been transferred and directing that
payment be made to BUYER at the address specified by BUYER, with
BUYER's name as payee on any checks or other instruments used to
make payments, and, with respect to such loan on which a payment
notice or coupon book has been issued, to issue a new notice or
coupon book reflecting the name and an address of BUYER as the
person to whom and place at which payments are to be made. BUYER
shall submit and file any required reports on IRS Form 1098 with
respect to interest collected on Office Loans for the full
calendar year in which the Closing Date occurs including interest
collected during the period prior to the Closing Date.
(g) If the balance due on any Office Loan transferred
to BUYER pursuant to this Agreement has been reduced by BANK ONE
as a result of a payment by check or draft received prior to the
close of business on the Closing Date, which item is returned
unpaid to BANK ONE after the day immediately preceding the
Closing Date, the asset value represented by the loan transferred
shall be correspondingly increased and an amount in cash equal to
such increase shall be promptly paid by BUYER to BANK ONE.
(h) BUYER shall use its best efforts to cooperate with
BANK ONE in assuring an orderly transition of ownership of the
Assets and responsibility for the liabilities, including the
Deposit Liabilities, assumed by BUYER hereunder.
(i) BUYER hereby grants to BANK ONE and its
contractors access to the Offices until 8:00 A.M. local time on
the day following the Closing Date or such other later date and
time as the parties may agree, at no cost or expense to BANK ONE,
for conduct of activities consistent with this Agreement in
conjunction with the transactions contemplated hereby.
(j) The duties and obligations of Buyer in this
section 7.1 shall survive the Closing.
7.2 Transitional Actions by BANK ONE. After the Closing,
unless another time is otherwise indicated:
(a) BANK ONE shall use its best efforts to cooperate
with BUYER in assuring an orderly transition of ownership of the
Assets and responsibility for the liabilities, including the
Deposit Liabilities, assumed by BUYER hereunder. BANK ONE shall
provide final statements as of the Closing Date, in conjunction
with appropriate Deposit Liabilities, with interest and service
charges pro-rated to close of business on the Closing Date. BANK
ONE shall submit and file any required reports on IRS Form 1099
with respect to interest paid on Deposit Liabilities through the
Closing Date. BANK ONE shall provide to BUYER information
regarding interest collected on Office Loans during the calendar
year in which the Closing Date occurs, up to and including the
Closing Date.
(b) BANK ONE's sole and exclusive responsibilities
concerning the provision of data processing services to or for
the Deposit Accounts of the Offices after the Closing Date, if
any, shall be as set forth in this Section 7.2(b). As soon as
practicable following the date of this Agreement, BANK ONE shall
provide BUYER with applicable product functions and
specifications relating to the data processing support required
for the Deposit Accounts, Office Loans, and safe deposit business
(if such data processing support currently is provided with
respect to such business) maintained at the Offices (such Deposit
Accounts, Office Loans and safe deposit business, if applicable,
hereinafter called the "Accounts"). As soon as practicable
following the date of this Agreement, BANK ONE shall provide to
BUYER file formats relating to the Accounts and up to three (3)
sets of test tapes related to the Accounts in generic form which
are machine readable on IBM (or IBM compatible) equipment or
which shall be on eighteen track 3480 cartridges (non-compressed
data) or on nine channel 6250 B.P.I. EBCDIC formatted tape. By
not later than 3:00 P.M. local Columbus, Ohio, time on the day
immediately following the Closing Date, BANK ONE shall make the
foregoing documents and materials available for pick-up by BUYER
at Columbus, Ohio. BUYER shall review and analyze such materials
including, but not limited to, the file formats and tapes, and
shall advise BANK ONE in writing of any defects or concerns
relating thereto not later than 10 business days following
receipt thereof.
(c) Prior to the Closing Date, BANK ONE shall
cooperate with BUYER, at BUYER's expense and at no expense to
BANK ONE, in making Transferred Employees available at reasonable
times for whatever program of training BUYER deems advisable;
provided, however, that BUYER shall conduct such training program
in a manner that does not materially interfere with or prevent
the performance of the normal duties and activities of such
Transferred Employees. BUYER shall make request of BANK ONE for
training opportunities prior to the Closing Date, and shall
reimburse BANK ONE at the Closing for any and all costs relating
to such training including, but not limited to, regular and
overtime salary for Transferred Employees involved in training
for the period of such training, travel costs, and all expenses
incurred by BANK ONE or such Transferred Employees in conjunction
with the training. Such requests, which shall specify the time,
duration and place of such training, must be approved by BANK
ONE.
(d) BANK ONE shall cooperate with BUYER, at no expense
to BANK ONE, to make provision for the installation of teller and
platform equipment in the Offices subject to approval by BANK
ONE; provided, however, that BUYER shall arrange for the
installation and placement of such equipment at such times and in
a manner that does not significantly interfere with the normal
business activities and operation of BANK ONE or the Offices.
(e) BANK ONE shall resign as custodian of each IRA
account maintained at the Offices and assign the custodianship of
such accounts to BUYER upon Closing subject to receipt of
applicable customer consents and other provisions of this
Agreement including the provisions of section 8.10 hereof.
(f) BANK ONE shall terminate its ATM/debit card
service effective as of close of business on the business day
preceding the Closing Date or such other date and time as BANK
ONE and BUYER may agree. Such terminations will be preceded by
the notice described in Section 7.1(b) herein. BANK ONE shall
have no obligation with respect to conversion or change over with
respect to direct deposit or payroll and retirement payments
service relating to the Deposit Accounts following the Closing
and, further, BUYER shall assume all responsibility and liability
with respect thereto following the Closing. BANK ONE will
continue to redirect and/or pass through relevant ACH
transactions on Deposit Accounts for a period of ninety (90) days
following the Closing Date.
(g) As of the opening of business on the first
business day after the Closing Date, BANK ONE and BUYER shall
provide the appropriate Federal Reserve Bank (the "FRB") with all
information necessary in order to expedite the clearing and
sorting of all checks, drafts, instruments and other commercial
paper relative to the Deposit Liabilities and/or the Office Loans
(hereinafter collectively referred to as "Paper Items"). BUYER
shall bear all charges and costs imposed by the Federal Reserve
in connection with the reassignment of account number ranges for
sorting the Paper Items.
In the event the Federal Reserve and/or any other regional or
local clearinghouse for negotiable instruments fails, refuses or
is unable to direct sort such Paper Items for delivery to BUYER
with the result that such Paper Items are presented to BANK ONE,
by not later than 3:00 p.m. local time on each business day
following the Closing and continuing for ninety (90) days after
the Closing, BANK ONE will make available to BUYER for pick up
from BANK ONE's offices or the offices of BANK ONE's agent and/or
processor at Indianapolis, Indiana, all of the Paper Items which
are received by BANK ONE from the FRB and/or any regional or
local clearinghouse during the morning of each such business day
on an "as-received basis." At the same time BANK ONE shall also
make available to BUYER information and records, including but
not limited to systems printouts, concerning such Paper Items and
concerning incoming Automated Clearing House items ("ACH items")
as well as outstanding Automatic Teller Machine ("ATM")
transactions. Such information and records, including but not
limited to systems printouts, will utilize the most recent
account number designated by BANK ONE for each of the Deposit
Accounts and/or the Office Loans. BUYER shall initiate
appropriate Notification of Change requests relating to
appropriate routing matters at the sole expense of BUYER within
30 days following the Closing Date. Each business day BANK ONE
will endeavor to see that the sum of (a) the actual Paper Items
provided to BUYER plus (b) all ACH items and ATM transactions
captured by BANK ONE in its information and records balance with
the sum of (c) the information and records, including but not
limited to systems printouts, provided by BANK ONE relative to
the Paper Items plus (d) the information and records, including
but not limited to systems printouts, provided relative to the
ACH items and ATM transactions affecting the Deposit Accounts
and/or the Office Loans.
Except as otherwise expressly provided herein, BANK ONE shall
provide the foregoing at no charge to BUYER for a period not to
exceed thirty (30) days from the Closing Date except that BUYER
shall pay any charges assessed to BANK ONE by the FRB, a national
or local clearinghouse and/or BANK ONE's agent and/or processor
to the extent such assessments relate to the Deposit Accounts.
BUYER shall be responsible for pick up of the data to be provided
by BANK ONE and shall compensate BANK ONE for activity subsequent
to the referenced 30 day period as follows; $50.00 per day and
$.25 per item for days 31 through 60, and $100.00 per day and
$.50 per item for days 61 through 90. Any request for extension
of the 90 day period shall be submitted in writing by BUYER to
BANK ONE not later than 10 business days prior to the expiration
of such 90 day period or any extensions thereof and shall be
subject to approval by BANK ONE at its sole discretion. Fees for
activity subsequent to the 90 day period shall be as determined
by BANK ONE. Fees for activity subsequent to the initial 30 day
period shall be assessed on a daily basis and included in the
daily cash settlement.
Except as otherwise expressly provided herein, BUYER shall be
responsible for processing any and all ACH returns, received
subsequent to the Closing, directly through the appropriate
Federal Reserve Bank.
BANK ONE and BUYER shall arrange for appropriate daily settlement
between the parties in order that the transmission of all monies
associated with the matters set forth in this Section 7.2(g)
might be effected promptly.
BANK ONE shall not be liable to BUYER for any failure to provide
the data required by this Section 7.2(g) to the extent any such
failure results from causes beyond BANK ONE's control including
war, strike or other labor disputes, acts of God, errors or
failures of the FRB, and/or a participating regional or local
clearinghouse, or equipment failure or other emergency wherein
BANK ONE and/or its agent processor has been unable to process
inclearings from the FRB or such clearinghouse.
(h) BANK ONE shall, not earlier than the time of
procurement of all regulatory approvals required for consummation
of the transaction contemplated by this Agreement nor later than
twenty days prior to the Closing Date, notify all depositors of
the Offices and all borrowers of any Office Loan by letter
acceptable to BUYER, produced in, if appropriate, several
similar, but different forms calculated to provide necessary and
specific information to the owners of particular types of
accounts and/or loans, of BUYER's pending assumption of the
Deposit Liabilities and acquisition of the Office Loans
hereunder, and, in appropriate instances, notify depositors that
on and after the Closing Date certain BANK ONE deposit-related
services and/or BANK ONE's debit card and automatic teller
machine services, will be terminated. The expenses of the
printing, processing and mailing of such letter notices shall be
borne by BANK ONE. Anything to the contrary herein
notwithstanding, nothing in this Agreement shall be deemed to
constitute an assumption by BANK ONE of the duties and
obligations of BUYER with respect to the provision of applicable
notices, communications, and filings relating to changes in the
terms of any Deposit Accounts or Office Loans as set forth in
this Agreement.
(i) For a period of sixty (60) days after the Closing
Date, BANK ONE will forward to BUYER, within two (2) business
days of receipt, loan payments received by BANK ONE with respect
to the Office Loans. BUYER will forward, within two (2) business
days of receipt payments received by BUYER with respect to any
loans not assigned to BUYER under this Agreement. BUYER and BANK
ONE further agree to refer customers to the offices of the other
when such customers present payments over the counter to the
party not holding their respective loan. BUYER shall reimburse
BANK ONE within 30 days of notice by BANK ONE to BUYER for any
payments tendered by borrowers which were credited to the
outstanding balance of any Office Loan prior to the Closing Date
and which are subsequently returned or otherwise withdrawn for
any reason and BANK ONE shall assign to BUYER any rights of BANK
ONE to recovery of such payments as against the relevant
borrower.
(j) BANK ONE shall forward notice to appropriate
carriers for single premium prepaid life and A&H/Disability
insurance related to the Office Loans (the "Insured Office Loans"
herein) of BUYER's acquisition of the Insured Office Loans within
thirty (30) days following the Closing Date. Such notice shall
identify BUYER as the new obligee of the Insured Office Loans and
shall direct the insurance carriers to forward any premium
refunds otherwise payable to BANK ONE with respect to the Insured
Office Loans following the Closing (the "Premium Refunds" herein)
to BUYER. In the event that, following the Closing, any such
Insured Office Loans are paid in full prior to maturity and BUYER
receives a Premium Refund, BUYER shall credit the account of such
Insured Office Loan customer with the appropriate portion of any
such Premium Refund. The Premium Settlement Payment by BANK ONE
shall constitute the only obligation of BANK ONE to BUYER with
respect to matters pertaining to Premium Refunds, and BUYER shall
be responsible for any and all payments or credits due or owing
the Insured Office Loan customers with respect to payment in full
of the Insured Office Loans prior to maturity. The Premium
Settlement Payment defined in Section 1.04(d) herein shall be
calculated as of the Closing Date and based upon BANK ONE's
average commission rate of 35% and average early payoff
experience of 30% on loans with such insurance coverage. In the
event that an Insured Office Loan is put back to BANK ONE under
the terms of Schedule S of this Agreement BUYER shall, at the
time of such put back, pay to BANK ONE the amount of the Premium
Settlement Payment attributable to such Insured Office Loan.
(k) The duties and obligations of the parties in this
section 7.2 shall survive the Closing.
7.3 Overdrafts and Transitional Action. Overdrafts on the
Deposit Accounts will be the responsibility and risk of BUYER.
7.4 ATMs and Debit Cards.
(a) BANK ONE shall provide to BUYER no later than
sixty (60) days prior to the Closing Date, a test tape, along
with a file format or file layout and a production tape thirty
(30) days before the Closing Date, containing customer name, card
number, withdrawal limits, the Deposit Accounts activated by,
accessible to or committed to such cards issue dates and/or open
dates, last transaction dates, and expiration dates as to all ATM
and debit cards issued to customers of the BANK ONE Offices, and
shall notify the appropriate processor to deactivate the
operation of the BANK ONE ATM and debit cards completely or to
deactivate or disconnect the Deposit Accounts from such BANK ONE
ATM and debit cards no later than the business day cutoff on the
date prior to the Closing Date so that all activity generated by
the BANK ONE ATM and debit cards shall have settled prior to the
Closing Date. All transactions and activity related to the BANK
ONE ATM and debit cards following the Closing Date which are
received or forwarded to BANK ONE will be accepted and forwarded
by BANK ONE to BUYER along with all corresponding funds. BANK
ONE thereafter agrees to immediately notify its processor to
deactivate such ATM and debit cards and to forward all
transactions related thereto directly to BUYER.
(b) BANK ONE agrees to deactivate the ATMs located at
the Offices on or before the business day cutoff on the day prior
to the Closing Date. Thereafter, BUYER shall reconfigure the
ATMs to its standards for activation after the business day
cutoff on the Closing Date.
(c) BUYER and BANK ONE agree to cooperate with each
other to assure that all transactions originated through the ATM
or originated with the ATM Cards prior to or on the Closing Date
shall be for the account of BANK ONE and all transactions
originated after the Closing Date shall be for the account of
BUYER. A post closing adjustment shall be made in the manner set
forth in Section 6.4 hereof to reflect all such transactions
which cannot be reasonably calculated as of the Closing.
7.5 Environmental Matters.
(a) BANK ONE has provided to BUYER, and BUYER hereby
acknowledges receipt of, copies of Phase I environmental site
assessments (the "Phase I Assessments" herein) for all Owned Real
Estate.
(b) If such Phase I Assessments reasonably indicated
the necessity or desirability of further investigation to
determine whether or not an Environmental Hazard exists at such
Owned Real Estate, BUYER shall notify BANK ONE in writing, not
later than ten (10) days after the signing of this Agreement, of
BUYER's desire to have an environmental consultant selected by
BANK ONE (the "Environmental Consultant"), to the extent
reasonable and appropriate, conduct Phase II environmental site
assessments ( the "Phase II Assessments" herein). Any such
further investigation or testing shall be conducted in such a
manner so as not to interfere with the normal operation of the
Office(s) involved. All such Phase II Assessments shall be
treated as information subject to Section 8.01 of this Agreement,
shall be completed not less than thirty (30) days after the
signing of this Agreement, and shall be conducted at no cost or
expense to BANK ONE. Further, BUYER shall indemnify and hold
harmless BANK ONE and its affiliates and its and their employees,
officers, directors, agents, tenants, and landlords from and
against any and all liability, loss, cost, and expense, however
arising, including attorney fees, as a direct or indirect result
of any injuries to persons or property occurring in conjunction
with conduct of the Phase II Assessments.
(c) BANK ONE shall have a period of 10 business days
from receipt of such notice to elect, at its sole option, to
consent to conduct of the Phase II Assessment or to terminate
this Agreement with respect to the relevant Office which is the
proposed subject of the Phase II Assessment (the "Removed
Office") and any and all assets and liabilities associated
therewith. In the event of such termination, if the Removed
Office is the only Office which is the subject of this Agreement
this Agreement shall be deemed terminated in accordance with
Section 9.1 herein and the Deposit described in Section 10.15
shall be refunded to BUYER. In the event of such termination
where the Removed Office is not the only Office which is the
subject of this Agreement, this Agreement shall remain in full
force and effect except that the Removed Office and any and all
assets and liabilities associated therewith shall be deemed not
the subject of this Agreement and eliminated therefrom.
(d) In the event that the Phase II Assessment is
conducted and the Environmental Consultant discovers an
Environmental Hazard during any such Phase II Assessment at any
single parcel of Owned Real Estate, the remediation of which, in
the reasonable judgment of the Environmental Consultant, is or
would be the responsibility of BANK ONE, or BUYER should it
acquire such Owned Real Estate, and will result in projected
remediation costs of $100,000 or more for such single parcel of
Owned Real Estate, BUYER shall lease from BANK ONE such single
parcel of Owned Real Estate pursuant to a Lease Agreement which
shall provide as follows:
(i) Such Lease Agreement shall be for a term of
two(2) years from the Closing Date, with no obligation or right
to renew (it being the intention of BANK ONE that BUYER locate an
alternative branch site during such two years unless remediation
occurs pursuant to this Section 7.5), at a rental equal to a fair
market rental value;
(ii) BANK ONE may sell such Owned Real Estate to
any person at any time during the term of such Lease Agreement,
subject to such Lease Agreement, for a price;
(iii) During the term of such Lease Agreement, in
the event that BANK ONE shall deliver to BUYER a report of a
qualified environmental engineer or consultant certifying that
the Environmental Hazard, at or on any such parcel of Owned Real
Estate which is the subject of the Lease Agreement, has been
remediated to the extent reasonably required under applicable
Environmental Laws, BUYER shall be required to purchase such
parcel of Owned Real Estate at the net book value as of the close
of business of the month-end day most recently preceding the
Closing Date; and
(iv) Other terms and conditions of the Lease
Agreement shall be typical to branch leases in the relevant
market of the subject Owned Real Estate and as negotiated between
BANK ONE and BUYER.
If the projected remediation cost is less than $100,000 for any
single parcel of Owned Real Estate, BUYER shall acquire such
parcel and such cost shall be borne by BUYER without indemnity,
price adjustment, or set off under this Agreement, and BUYER
shall be deemed to have waived any and all claims against BANK
ONE and its affiliates and its and their officers, directors,
employees, or arising directly or indirectly as a result of the
Environmental Hazards.
(e) BUYER agrees that it and the Environmental
Consultant shall conduct any Phase II Assessments or other
investigations pursuant to this Section with reasonable care and
subject to customary practices among environmental consultants
and engineers, including, without limitation, following
completion thereof, the restoration of any site to the extent
practicable to its condition prior to such site assessment or
investigation and the removal of all monitoring wells.
(f) Any lease of a parcel of Owned Real Estate
pursuant to this Section 7.5 shall in no way affect the transfer
of any related assets or liabilities, other than such parcel of
Owned Real Estate, to the BUYER at the Closing.
(g) For purposes of this Section 7.5, the term
"Environmental Law" shall mean any Federal or state law, statute,
rule, regulation, code, order, judgment, decree, injunction, or
agreement with any Federal or state governmental authority, (x)
relating to the protection, preservation, or restoration of the
environment (including, without limitation, air, water, vapor,
surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource) or to human health or safety or (y) the exposure to, or
the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production,
release or disposal of hazardous substances, in each case as
amended and now in effect. Environmental Laws include, without
limitation, the Clean Air Act (42 U.S.C. section 7401 et seq.);
the Comprehensive Environmental Response Compensation and
Liability Act (42 U.S.C. section 9601 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. section 1251 et seq.); the
Occupational Safety and Health Act (29 U.S.C. section 651 et
seq.); provided, however, that the definition of "Environmental
Law" shall not include any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction or
agreement with any governmental authority relating to asbestos or
asbestos-containing materials.
(h) For purposes of this Section 7.5, the term
"Environmental Hazard" shall mean the presence of any Hazardous
Substance in violation of, and reasonably likely to require
material remediation costs under, applicable Environmental Laws;
provided, however, that the definition of Environmental Hazard
shall not include asbestos and asbestos-containing materials.
(i) For purposes of this Section 7.5, the term
"Hazardous Substance" shall mean any substance, whether liquid,
solid, or gas, (a) listed, identified or designated as hazardous
or toxic to a level which requires remediation under any
Environmental Law; (b) which, applying criteria specified in any
Environmental Law, is hazardous or toxic; or (c) the use or
disposal of which is regulated under Environmental Law.
7.6 Effect of Transitional Action. Except as and to the
extent expressly set forth in this Article 7, nothing contained
in this Article 7 shall be construed to be an abridgment or
nullification of the rights, customs and established practices
under applicable banking laws and regulations as they affect any
of the matters addressed in this Article 7.
8. GENERAL COVENANTS AND INDEMNIFICATION.
8.1 Confidentiality Obligations of BUYER. From and after
the date hereof, BUYER and its affiliates and parent company
shall treat all information received from BANK ONE concerning the
business, assets, operations, and financial condition of BANK ONE
and its affiliates and its and their customers (including without
limitation the Offices), as confidential, unless and to the
extent that BUYER can demonstrate that such information was
already known to BUYER and its affiliates, if any, or in the
public domain or received from a third person not known by BUYER
to be under any obligation to BANK ONE; and BUYER shall not use
any such information (so required to be treated as confidential)
for any purpose except in furtherance of the transactions
contemplated hereby. Upon the termination of this Agreement,
BUYER shall, and shall cause its affiliates, if any, to, promptly
return all documents and workpapers containing, and all copies
of, any such information (so required to be treated as
confidential) received from or on behalf of BANK ONE in
connection with the transactions contemplated hereby. The
covenants of BUYER contained in this Section 8.1 are of the
essence and shall survive any termination of this Agreement, but
shall terminate at the Closing, if it occurs, with respect to any
information that is limited solely to the activities and
transactions of the Offices; provided, however, that neither
BUYER nor any of its affiliates shall be deemed to have violated
the covenants set forth in this Section 8.1 if BUYER shall in
good faith disclose any of such confidential information in
compliance with any legal process, order or decree issued by any
court or agency of government of competent jurisdiction. It is
expressly acknowledged by BANK ONE that all information provided
to BUYER related to this purchase and assumption transaction may
be provided to BUYER's affiliates as necessary for the purpose of
consummating the transaction which is the subject of this
Agreement. The covenants and obligations of BUYER hereunder shall
survive the Closing and any earlier termination of this
Agreement.
8.2 Confidentiality Obligations of BANK ONE. From and
after the date hereof, BANK ONE, its affiliates and its parent
corporation shall treat all information received from BUYER
concerning BUYER's business, assets, operations, and financial
condition as confidential, unless and to the extent BANK ONE can
demonstrate that such information was already known to BANK ONE
or its affiliates or in the public domain, and BANK ONE shall not
use any such information (so required to be treated as
confidential) for any purpose except in furtherance of the
transactions contemplated hereby. Upon the termination of this
Agreement, BANK ONE shall promptly return all documents and
workpapers containing, and all copies of, any such information
(so required to be treated as confidential) received from or on
behalf of BUYER in connection with the transactions contemplated
hereby. The covenants of BANK ONE contained in this Section 8.2
are of the essence and shall survive any termination of this
Agreement; provided, however, that BANK ONE nor any of its
affiliates shall be deemed to have violated the covenants set
forth in this Section 8.2 if BANK ONE shall in good faith
disclose any of such confidential information in compliance with
any legal process, order or decree issued by any court or agency
of government of competent jurisdiction. It is expressly
acknowledged by BUYER that all information provided to BANK ONE
related to this purchase and assumption transaction may be
provided to BANK ONE CORPORATION and BANK ONE's affiliates for
the purpose of consummating the transaction which is the subject
of this Agreement. The covenants and obligations of BANK ONE
hereunder shall survive the Closing and any earlier termination
of this Agreement.
8.3 Indemnification by BANK ONE. From and after the
Closing Date, BANK ONE shall indemnify, hold harmless, and defend
BUYER from and against all losses and liabilities, including
reasonable attorneys' fees and expenses, arising out of any
actions, suits, or proceedings commenced prior to the Closing
(other than proceedings to prevent or limit the consummation of
the Acquisition) relating to operations at the Offices and/or the
Deposit Liabilities of the Offices; and BANK ONE shall further
indemnify, hold harmless, and defend BUYER from and against all
losses and liabilities, including reasonable attorneys' fees and
expenses, arising out of any actions, suits, or proceedings
commenced on or after the Closing to the extent the same relate
to operations at the Offices and/or the Deposit Liabilities prior
to the Closing. The obligations of BANK ONE under this Section
8.3 shall be contingent upon BUYER giving BANK ONE written notice
(i) of receipt by BUYER of any process and/or pleadings in or
relating to any actions, suits, or proceedings of the kinds
described in this Section 8.3, including copies thereof, and
(ii) of the assertion of any claim or demand relating to the
operation of the Offices and/or the Deposit Liabilities or Office
Loans prior to the Closing, including, to the extent known to
BUYER, the identity of the person(s) or entity(ies) asserting
such claim or making such demand and the nature thereof, and
including copies of any correspondence or other writings relating
thereto. The rights of BUYER under this section shall not apply
to any suits, judgments, demands, set-offs, or other claims
arising directly or indirectly in conjunction with the Office
Loans or other Assets transferred in accordance with this
Agreement except claims for personal injury arising from injuries
occurring at the Offices prior to the Closing. All notices
required by the preceding sentence shall be given within fifteen
days of the receipt by BUYER of any such process or pleadings or
any oral or written notice of the assertion of any such claims or
demands. BANK ONE shall have the right to take over BUYER's
defense in any such actions, suits, or proceedings through
counsel selected by BANK ONE, to compromise and/or settle the
same and to prosecute any available appeals or reviews of any
adverse judgment or ruling that may be entered therein. The
covenants and obligations of BANK ONE hereunder shall survive the
Closing and any earlier termination of this Agreement.
8.4 Indemnification by BUYER. From and after the Closing
Date, BUYER shall indemnify, hold harmless and defend BANK ONE
from and against all claims, losses, liabilities, demands and
obligations, including without limitation reasonable attorneys'
fees and operating expenses which BANK ONE may receive, suffer,
or incur in connection with (i) any losses incurred by BANK ONE
related to BANK ONE's compliance with instructions from BUYER
made pursuant to Section 7.4 of this Agreement and not related to
any negligence or malfeasance on the part of BANK ONE and (ii)
operations and transactions occurring after the Closing and which
involve the Assets transferred, the Deposit Liabilities or Office
Loans and the other obligations and liabilities assumed pursuant
to this Agreement. The obligations of BUYER under this Section
8.4 shall be contingent upon BANK ONE giving BUYER written notice
(i) of the receipt by BANK ONE of any process and/or pleadings in
or relating to any actions, suits or proceedings of the kinds
described in this Section 8.4, including copies thereof, and
(ii) of the assertion of any claim or demand relating to the
Assets transferred to and/or the Deposit Liabilities or Office
Loans and the other obligations and liabilities assumed by BUYER
on or after the Closing, including, to the extent known to BANK
ONE, the identity of the person(s) or entity(ies) asserting such
claim or making such demand and the nature thereof, and including
copies of any correspondence or other writings relating thereto.
All notices required by the preceding sentence shall be given
within fifteen (15) days of the receipt by BANK ONE of any such
process or pleadings or any oral or written notice of the
assertion of any such claims or demands. BUYER shall have the
right to take over BANK ONE's defense in any such actions, suits,
or proceedings through counsel selected by BUYER, to compromise
and/or settle the same and to prosecute any available appeals or
review of any adverse judgment or ruling that may be entered
therein. The covenants and obligations of BUYER hereunder shall
survive the Closing and any earlier termination of this
Agreement.
8.5 Solicitation of Customers by BUYER Prior to Closing.
At any time prior to the Closing Date, BUYER will not, and will
not permit any of its affiliates, if any, to conduct any
marketing, media or customer solicitation campaign which is
targeted to induce customers whose Deposit Account liabilities
are to be assumed or Office Loans are to be acquired by BUYER
pursuant to this Agreement to discontinue their account or
business relationships with BANK ONE or its affiliates.
Additionally, at any time prior to the Closing, BUYER shall not,
with respect to its offices in the same market as the Offices,
offer to pay on any transaction accounts or any new or renewal
savings accounts or certificates of deposits, rates of interest
greater than those offered or then being paid on similar accounts
for like term and amount by other offices of BUYER located in the
referenced market. Among other matters, it is the intent of this
provision to prevent BUYER from paying or offering to pay a rate
of interest on any deposit accounts in excess of that rate paid
for like accounts at other offices of BUYER within the market of
the Offices prior to execution of this Agreement.
8.6 Solicitation of Customers by BANK ONE After the
Closing. From the date of this Agreement and for one (1) year
following the Closing Date, BANK ONE will not knowingly directly
solicit a) deposit accounts from customers whose Deposit
Liabilities and/or Office Loans are assumed or acquired by BUYER
pursuant to this Agreement, or b) refinancing of Office Loans
from borrowers whose Office Loans are being acquired by BUYER
hereunder, except as may occur in connection with (i) advertising
or solicitations directed to the public generally, (ii)
solicitations outside the designated market area of the Offices
and (iii) customers or borrowers with a banking or other
relationship with BANK ONE or its affiliates at offices other
than the Offices, or who have or maintain more than one place of
business. The covenants and obligations of BANK ONE hereunder
shall survive the Closing.
8.7 Further Assurances. From and after the date hereof,
each party hereto agrees to execute and deliver such instruments
and to take such other actions as the other party hereto may
reasonably request in order to carry out and implement this
Agreement. Without limiting the foregoing, BANK ONE agrees to
execute and deliver such deeds, bills of sale, acknowledgments,
and other instruments of conveyance and transfer as, in the
reasonable judgment of BUYER, shall be necessary and appropriate
to vest in BUYER the legal and equitable title to the Assets of
BANK ONE being conveyed to BUYER hereunder. Further, BUYER, at
its sole cost and expense, shall prepare and shall file, or shall
cause to be prepared and filed, with any appropriate third
parties, any and all documents and notices which are necessary
and proper to transfer to BUYER any security interests and other
rights of BANK ONE in and to collateral securing the Office Loans
not later than the earlier to occur of exclusion of the relevant
Office Loan from the "put" provisions set forth in Schedule S
hereof or the Option Exercise Date as defined in Schedule S
hereof. BANK ONE shall cooperate with BUYER in executing any
necessary and proper documents and notices as may be appropriate
in furtherance of the foregoing covenant and consistent with the
terms of this Agreement provided, however, that nothing contained
herein shall relieve BUYER of its obligations as set forth
herein. The covenants and obligations of the parties hereunder
shall survive the Closing.
8.8 Operation of the Offices. Except as otherwise
expressly provided in this Agreement, after the Closing Date
neither BANK ONE, its subsidiaries, affiliates or parent
corporation shall be obligated to provide for any managerial,
financial, business, or other services to the Offices, including
without limitation any personnel, employee benefit, data
processing, accounting, risk management, or other services or
assistance that may have been provided to the Offices prior to
the close of business on the Closing Date, and BUYER shall take
such action as may in its judgment appear to be necessary or
advisable to provide for the ongoing operation and management of,
and the provision of services and assistance to, the Offices
after the Closing Date. Upon the Closing, BUYER shall change the
legal name of the Offices and, except for any documents or
materials in possession of the customers of the Offices
(including but not limited to deposit tickets and checks), shall
not use and shall cause the Offices to cease using any signs,
stationery, advertising, documents, or printed or written
materials that refer to the Offices by any name that includes the
words "BANK ONE" or "BANK ONE" or the name of any affiliate of
BANK ONE CORPORATION. Preceding the Closing, BANK ONE shall
cooperate with any reasonable requests of BUYER directed to
obtaining specifications for the procurement of new signs of
BUYER's choosing for installation by BUYER of new signs
immediately following the close of business on the Closing Date;
provided, however, that BUYER's receipt of all sign
specifications shall be obtained by BUYER in a manner that does
not significantly interfere with the normal business activities
and operations of the Offices and shall be at the sole and
exclusive expense of BUYER. As indicated in, and as limited by,
Section 1.2(c), BANK ONE will retain its signs located at the
Offices. If removed by BUYER in conjunction with its
installation of new signs, BUYER shall obtain BANK ONE's approval
for such removal and shall insure that said signs are removed
without damage to same. It is understood by the parties hereto
that, with the exception of the signs, all mounting facilities
for the signs shall be considered as Fixed Assets for purposes of
this Agreement. The covenants and obligations of the parties
hereunder shall survive the Closing.
8.9 Information After Closing. For a period of seven (7)
years following the Closing, upon written request of BANK ONE to
BUYER or BUYER to BANK ONE, as the case may be, such requested
party shall provide the requesting party with reasonable access
to, or copies of, information and records relating to the Offices
which are then in the possession or control of the requested
party reasonably necessary to permit the requesting party or any
of its subsidiaries or affiliates to comply with or contest any
applicable legal, tax, banking, accounting, or regulatory
policies or requirements, or any legal or regulatory proceeding
thereunder or requests related to customer relationships at the
Offices prior to Closing. In the event of any such requests, the
requesting party shall reimburse the requested party for the
reasonable costs of the requested party related to such request.
The covenants and obligations of the parties hereunder shall
survive the Closing.
8.10 Individual Retirement Accounts. All Individual
Retirement Accounts related to the Offices that shall not have
become IRAs by the close of business on the 30th day following
the Closing shall not be assigned by BANK ONE to BUYER or assumed
by BUYER. BANK ONE may thereafter, at its option, elect to
retain such Individual Retirement Accounts, advise the account
holders that it has withdrawn its resignation as custodian or
transfer the amount in such Individual Retirement Accounts to the
account holders.
8.11 Covenant Not to Compete. From and after the Closing
and for a period of two (2) years following the Closing Date,
BANK ONE shall not, and shall not enter into any agreement to,
acquire, lease, purchase, own, operate or use any building,
office or other facility or premises located within a three (3)
mile radius of any Office for the purpose of operating a full
service branch and making loans, accepting deposits or cashing
checks; provided, however, that the foregoing prohibition shall
not apply to: i) performance by BANK ONE or any current or future
affiliate or successor of BANK ONE of any of the foregoing
activities utilizing ATMs, CBCTs, ALMs, cash dispensing machines,
remote service facilities, terminals, or similar devices, or
through continued operation of existing offices, or ii)
performance by BANK ONE or any current or future affiliate or
successor of BANK ONE of the foregoing activities as a result of
a merger or other combination with, or acquisition of or by, BANK
ONE, BANK ONE CORPORATION, or an affiliate thereof with any third
party following the Closing Date. The covenants and obligations
of BANK ONE hereunder shall survive the Closing.
8.12 Non-solicitation of Employees. BUYER agrees that for a
period of twelve (12) months from the date of this Agreement, or
for a period of twelve (12) months from such date as this
Agreement may be terminated pursuant to Section 9 hereof, neither
BUYER nor any of its subsidiaries or affiliates will;
(a) directly or indirectly solicit for employment or
employ any persons who are employees in the retail group of BANK
ONE CORPORATION, BANK ONE or their subsidiaries or affiliates on
the date hereof or;
(b) directly or indirectly solicit for employment or
employ any other persons who are employees of BANK ONE
CORPORATION, BANK ONE or their subsidiaries or affiliates on the
date hereof and with whom BUYER has had contact or who became
known to BUYER solely in conjunction with any phase of the
transaction contemplated hereby, whether prior to execution of
this Agreement or subsequent thereto. As used solely in this
subsection 8.12(b), the term "solicit" shall not be deemed to
include general advertisements or general solicitations that are
not targeted or directed specifically to individuals who are
employees of BANK ONE or its subsidiaries or affiliates. Subject
to the prohibitions contained in subsection 8.12(a), nothing in
this section 8.12(b) shall prohibit BUYER or BUYER's affiliates
or subsidiaries from hiring a person covered by this subsection
8.12(b) who contacts BUYER on their own initiative (and not in
response to solicitation by BUYER in violation of this section)
or a person covered by this subsection 8.12(b) who is no longer
in the employ of BANK ONE CORPORATION, BANK ONE or its
subsidiaries or affiliates at the time of such solicitation.
The covenants and obligations of BUYER hereunder shall survive
the Closing or any earlier termination of this Agreement.
9. TERMINATION.
9.1 Termination by Mutual Agreement. This Agreement may be
terminated and the transactions contemplated hereby may be
abandoned by mutual consent of the parties authorized by a vote
of a majority of the Board of Directors (or by the vote of the
Executive Committee of such Board, if so empowered) of each of
BANK ONE and BUYER.
9.2 Termination by BANK ONE. This Agreement may be
terminated and the transactions contemplated hereby abandoned by
a vote of a majority of the Board of Directors (or by the vote of
the Executive Committee of such Board, if so empowered) of BANK
ONE:
(a) in the event of a material breach by BUYER of this
Agreement; or
(b) in the event any of the conditions precedent
specified in Section 5.1 of this Agreement has not been met as of
the date required by this Agreement and, if not so met, has not
been waived by BANK ONE; or
(c) in the event any regulatory approval for the
consummation of the Acquisition is denied by the applicable
regulatory authority or in the event that at any time prior to
the Closing Date it shall become reasonably certain to BANK ONE,
with the advice of counsel, that a regulatory approval required
for consummation of the Acquisition will not be obtained within a
time reasonably satisfactory to BANK ONE; or
(d) on or after a date which is 180 calendar days
following the date of this Agreement, (the "Termination Date") if
the Closing has not then occurred unless the failure to
consummate by such date is due to a breach of this Agreement by
BANK ONE; or
(e) at the option of BANK ONE in the event that BUYER
enters into an agreement or agreements, or intends to enter into
an agreement or agreements, providing for the merger,
acquisition, or sale of substantially all of the assets of BUYER
or its parent company such as would require prior regulatory
approval under the Change in Bank Control Act, as amended, or the
Bank Holding Company Act of 1956, as amended, or similar law or
regulation.
(f) at the option of BANK ONE in the event that there
is a material adverse change in the financial condition or
results of operation of BUYER, or pending or threatened
litigation or claims with respect to the transactions
contemplated by this Agreement which, in the opinion of BANK ONE,
may hinder or delay the ability of the parties to consummate the
transactions contemplated by this Agreement.
(g) at the option of BANK ONE in the event that
consents to the transactions contemplated by this Agreement from
such third parties as BANK ONE may reasonably deem necessary or
appropriate are not available prior to the Closing Date without
additional cost or expense to BANK ONE, or in the event that
releases of BANK ONE by such third parties as BANK ONE may
reasonably deem necessary or appropriate are not available prior
to the Closing Date without additional cost or expense to BANK
ONE.
9.3 Termination by BUYER. This Agreement may be terminated
and the transactions contemplated hereby abandoned by a vote of a
majority of the Board of Directors (or by the vote of the
Executive Committee of such Board, if so empowered) of BUYER:
(a) in the event of a material breach by BANK ONE of
this Agreement; or
(b) in the event any of the conditions precedent
specified in Section 5.2 of this Agreement has not been met as of
the date required by this Agreement and, if not so met, has not
been waived by BUYER; or in the event any regulatory approval
required for consummation of the Acquisition is denied by the
applicable regulatory authority or in the event that at any time
prior to the Closing Date it shall become reasonably certain to
BUYER, with the advice of counsel, that a regulatory approval
required for consummation of the Acquisition will not be
obtained; or
(c) on or after the Termination Date if the Closing
has not then occurred unless the failure to consummate by such
time is due to a breach of this Agreement by BUYER.
9.4 Effect of Termination. The termination of this
Agreement pursuant to Sections 9.2 or 9.3 of this Article 9 shall
not release any party hereto from any liability or obligation to
the other party hereto arising from (i) a breach of any provision
of this Agreement occurring prior to the termination hereof or
(ii) the failure of timely satisfaction of conditions precedent
to the obligations of a party to the extent that such failure of
timely satisfaction is attributable to the actions or inactions
of such party.
10. MISCELLANEOUS PROVISIONS.
10.1 Expenses. Except as and to the extent specifically
allocated otherwise herein, each of the parties hereto shall bear
its own expenses, whether or not the transactions contemplated
hereby are consummated.
10.2 Certificates. All statements contained in any
certificate ("Certificate") delivered by or on behalf of BANK ONE
or BUYER pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed to be
representations and warranties of the party delivering the
Certificate hereunder. Each such Certificate shall be executed
on behalf of the party delivering the Certificate by duly
authorized officers of such party.
10.3 Termination of Representations and Warranties. The
respective representations and warranties of BANK ONE and BUYER
contained or referred to in this Agreement or in any Certificate,
schedule, or other instrument delivered or to be delivered
pursuant to this Agreement shall terminate at the Closing, except
for:
(a) those representations and warranties contained in
any warranty deeds delivered by BANK ONE to BUYER at the Closing;
(b) those representations and warranties contained in
any bill of sale relating to the Assets delivered by BANK ONE to
BUYER at Closing;
(c) those representations and warranties contained in
any instrument of assumption or in any Certificate in the forms
of Schedule I and Schedule N, respectively, attached hereto and
delivered by BUYER to BANK ONE at the Closing;
(d) those representations and warranties contained in
any Certificate in the form of Schedule K attached hereto,
delivered by BANK ONE to BUYER at the Closing; and
(e) those representations and warranties of BANK ONE
contained in Section 3.1(o) of this Agreement.
10.4 Waivers. Each party hereto, by written instrument
signed by duly authorized officers of such party, may extend the
time for the performance of any of the obligations or other acts
of the other party hereto and may waive, but only as affects the
party signing such instrument:
(a) any inaccuracies in the representations or
warranties of the other party contained or referred to in this
Agreement or in any document delivered pursuant hereto;
(b) compliance with any of the covenants or agreements
of the other party contained in this Agreement;
(c) the performance (including performance to the
satisfaction of a party or its counsel) by the other party of
such of its obligations set out herein; and
(d) satisfaction of any condition to the obligations
of the waiving party pursuant to this Agreement.
10.5 Notices. All notices and other communications
hereunder may be made by mail, hand-delivery or by courier
service and notice shall be deemed to have been given when
received; provided, however, if notices and other communications
are made by nationally recognized overnight courier service for
overnight delivery, such notice shall be deemed to have been
given one business day after being forwarded to such a nationally
recognized overnight courier service for overnight delivery.
If to BANK ONE:
Bank One Wisconsin
111 East Wisconsin Ave.
Milwaukee, Wisconsin 53202
With a copy to:
BANK ONE CORPORATION
Attention: Jeffery E. Smith, Esq.
100 East Broad Street
18th Floor
Columbus, Ohio 43271-0158
If to BUYER:
Wisconsin Community Bank
c/o Heartland Financial USA, Inc.
1398 Central Ave.
Dubuque, Iowa 52004
Attention: Mr. John K. Schmidt
With a copy to:
Judith K. Muncy
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
or such other person or address as any such party may designate
by notice to the other parties, and shall be deemed to have been
given as of the date received.
10.6 Parties in Interest: Assignment; Amendment. The
rights and obligations of each individual banking association
which is a party hereto shall be exclusively and individually
binding upon, and shall inure exclusively and individually to the
benefit of, that banking association and its respective permitted
successors and assigns. Representations, warranties, and
covenants of BANK ONE contained herein shall be deemed made by
the appropriate respective banking association which is the owner
of the respective asset or obligor of the respective liability
related thereto and shall not be deemed made by or on behalf of
any banking association for any other banking association. This
Agreement is binding upon and is for the benefit of the parties
hereto and their respective successors, legal representatives,
and assigns, and no person who is not a party hereto (or a
permitted successor or assignee of such party) shall have any
rights or benefits under this Agreement, either as a third party
beneficiary or otherwise. This Agreement cannot be assigned by
BUYER by action of law or otherwise, and this Agreement cannot be
amended or modified, except by a written agreement executed by
the parties hereto or their respective permitted successors and
assigns.
10.7 Headings. The headings, table of contents, and index
to defined terms (if any) used in this Agreement are inserted for
convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
10.8 Terminology. The specific terms of art that are
defined in various provisions of this Agreement shall apply
throughout this Agreement (including without limitation each
schedule hereto), unless expressly indicated otherwise. In
addition, the following terms and phrases shall have the meanings
set forth for purposes of this Agreement (including such
schedule):
(a) The term "business day" shall mean any day other
than a Saturday, Sunday, or a day on which either BANK ONE or
BUYER is closed in accordance with applicable law or regulation.
Any action, notice, or right which is to be taken or given or
which is to be exercised or lapse on or by a given date which is
not a business day may be taken, given, or exercised, and shall
not lapse, until the next business day following.
(b) The term "affiliate" shall mean, with respect to
any person, any other person directly or indirectly controlling,
controlled by or under common control with such person.
(c) The term "Permitted Exceptions" shall mean, with
respect to the Owned Real Estate and the Leased Real Estate,
(i) those five standard exceptions appearing as Schedule B items
in a standard ALTA owners or leasehold title insurance policy,
and any other exceptions, restrictions, easements, rights of way,
and encumbrances referenced in the Title Commitment delivered by
BANK ONE to BUYER as indicated in Section 2.1(c) of this
Agreement; (ii) statutory liens for current taxes or assessments
not yet due, or if due not yet delinquent, or the validity of
which is being contested in good faith by appropriate
proceedings; (iii) such other liens, imperfections in title,
charges, easements, restrictions, and encumbrances (but in all
cases of Owned Real Estate excluding those which secure borrowed
money) which, individually and in the aggregate, do not
materially detract from the value of, or materially interfere
with the present use of, any property subject thereto or affected
thereby; and (iv) such other exceptions as are approved by BUYER
in writing.
(d) The term "person" shall mean any individual,
corporation partnership, limited liability company, association,
trust, or other entity, whether business, personal, or otherwise.
(e) Unless expressly indicated otherwise in a
particular context, the terms "herein," "hereunder," "hereto,"
"hereof," and similar references refer to this Agreement in its
entirety and not to specific articles, sections, schedules, or
subsections of this Agreement. Unless expressly indicated
otherwise in a particular context, references in this Agreement
to enumerated articles, sections, and subsections refer to
designated portions of this Agreement (but do not refer to
portions of any schedule unless such Schedule is specifically
referenced) and do not refer to any other document.
(f) The term "subsidiary" shall mean a corporation,
partnership, limited liability company, joint venture, or other
business organization more than 50% of the voting securities or
interests in which are beneficially owned or controlled by the
indicated parent of such entity.
10.9 Flexible Structure. References in this Agreement to
federal or state laws or regulations, jurisdictions, or
chartering or regulatory authorities shall be interpreted broadly
to allow maximum flexibility in consummating the transactions
contemplated hereby in light of changing business, economic, and
regulatory conditions. Without limiting the foregoing, in the
event BANK ONE and BUYER agree in writing to alter the legal
structure of the Acquisition contemplated by this Agreement
references in this Agreement to such laws, regulations,
jurisdictions, and authorities shall be deemed to be altered to
reflect the laws, regulations, jurisdictions, and authorities
that are applicable in light of such change.
10.10 Press Releases. BANK ONE or BUYER, as the case may
be, shall approve, in writing prior to issuance, the form and
substance of any press release or other public disclosure
relating to any matters relating to this Agreement issued by the
other. Nothing contained herein shall restrict or prohibit BUYER
or BANK ONE from issuance of press releases or public disclosures
which, based on the advice of counsel, are required by applicable
law or regulation and limited to information necessary for
compliance with same.
10.11 Entire Agreement. This Agreement supersedes any and
all oral or written agreements and understandings heretofore made
relating to the subject matter hereof and contains the entire
agreement of the parties relating to the subject matter hereof.
All schedules, exhibits, and appendices to this Agreement are
incorporated into this Agreement by reference and made a part
hereof.
10.12 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Ohio
and the laws of the United States, as well as regulations issued
by relevant agencies thereof.
10.13 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
10.14 Tax Matters. BUYER and BANK ONE agree that they will
file applicable tax returns and other related schedules and
documents related to their respective interests based on the
allocations in this Agreement.
10.15 Good Faith Deposit. BUYER and BANK ONE acknowledge
the deposit by BUYER of the sum of $75,000.00 for each Office
which is the subject of this Agreement (in aggregate, the
"Deposit" herein). BUYER agrees that BANK ONE may retain the
Deposit in the event that BUYER fails to consummate the
transactions contemplated herein by the date set forth in Section
9.2(d) herein through no material fault of BANK ONE, in the event
that BANK ONE elects to terminate the transactions contemplated
by this Agreement pursuant to the provisions of Section 9.2
herein, and/or in the event of a breach by BUYER of any of its
duties and obligations hereunder. Any such retention shall not be
deemed to constitute liquidated damages or a waiver by BANK ONE
of any rights in law or in equity arising out of a breach by
BUYER of the terms and conditions of this Agreement. Subject to
the foregoing, the Deposit shall be credited to the account of
BUYER upon the Closing of the transactions contemplated hereunder
in accordance with the terms hereof.
10.16 Interim Transactions. BUYER represents and warrants
that it has not and, subsequent to execution of this Agreement
and prior to the Closing will not, enter into any contract,
agreement, or understanding providing for the sale, transfer, or
assignment to any third party of any assets or liabilities which
are the subject of this Agreement without the prior written
consent of BANK ONE which may be withheld at its sole discretion.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective officers thereunto duly
authorized, all as of the date first above written.
Bank One Wisconsin
ATTEST:
/s/ Andrew Jester By:/s/ William E. Read
- -------------------------- ---------------------
Vice President & Secretary Its: President & CEO
Wisconsin Community Bank
ATTEST:
/s/ Clarke W. Kepplinger By:/s/ Thomas Wilkinson
- -------------------------- ---------------------
Its: President & CEO
Exhibit 11
EARNINGS PER SHARE
Net income for the year ended December 31, 1998 $9,021,000
==========
Weighted average common shares outstanding 9,463,313
Assumed incremental common shares issued
upon exercise of stock options 148,025
----------
Weighted average common shares for diluted
earnings per share 9,611,338
==========
Earnings per common share - basic $ .95
=====
Earnings per common share - diluted $ .94
=====
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Galena State Bank and Trust Company, an Illinois state
bank with its main office located in Galena, Illinois
2. Dubuque Bank and Trust Company, an Iowa state bank with
its main office located in Dubuque, Iowa
2.a. DB&T Insurance, Inc.
2.b. DB&T Community Development Corp.
3. Keokuk Bancshares, Inc. (dba KBS Investment Corp.)
4 First Community Bank, FSB, a federal savings bank with
its main office located in Keokuk, Iowa
4.a. KFS Services, Inc.
5. Riverside Community Bank, an Illinois state bank with its
main office located in Rockford, Illinois
6. Citizens Finance Co.
7. ULTEA
8. Wisconsin Community Bank, an Wisconsin bank with its main
office located in Cottage Grove, Wisconsin
8.a. DBT Investment Corporation
9. New Mexico Bank & Trust, a New Mexico state bank with its
main office located in Albuquerque, New Mexico
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Heartland Financial USA, Inc.
We consent to incorporation by reference in the Registration
Statement on Form S-8 for the 1993 Stock Option Plan of Heartland
Financial USA, Inc. of our report dated on January 21, 1999,
relating to the consolidated balance sheets of Heartland
Financial USA, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income,
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 Heartland
Financial USA, Inc. and subsidiaries.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
March 26, 1999
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<NAME> HEARTLAND FINANCIAL USA, INC.
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