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Investment Managers AddedMEMORANDUM September 5, 2002 TO: FROM: SUBJECT: The Honorable Mayor and City Council Members Michael C. Van Milligen, City Manager Investment Managers Finance Director Ken TeKippe recommends adding an additional investment manager for City of Dubuque funds. The additional firm is First Community Trust, which was recently formed by Dale Repass and Chip Murray to provide trust services to the credit unions. The three current investment managers, Dubuque Bank and Trust, U.S. Bank and Dana each hold $8 million for the City. One million dollars will be removed from each of their portfolios to provide $3 million to FCT. While we will keep all four investment managers, over time, Dana of Madison, Wisconsin, will have less funds than the others. As FCT develops a track record, they may also be increased above the $3 million level. You will recall that as the City implements some of the major capital improvements that are happening over the next two years, the amount of funds the City has to be managed will also be diminished. I concur with the recommendation and respectfully request Mayor and City Council approval. MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Ken TeKippe, Finance Director TO: FROM: SUBJECT: DATE: CITY 'OF DUBUQUE, IOWA MEMORANDUM Michael Van Milligen, City Manager Ken TeKippe, Finance Director/Treasurer Investment Manager and Custodian Agreement September 11, 2002 INTRODUCTION Enclosed is a City Council resolution to request approval authorizing the City Manager to enter into an Investment Advisor Agreement with First Community Trust (FCT) and to enter into an Investment Custodian Agreement with American Trust and Savings Bank for the account. DISCUSSION At the July 25th Investment Oversight Advisory Committee meeting, representatives Dale Repass, Francis "Chip" Murray, and John Gonner from First Community Trust (FCT) made a proposal for their firm to provide investment management services for a portion of City funds. After discussion, the commission recommended allocating $1,000,000 from each of three current managers ($3,000,000 total) to FCT. The City currently has approximately $24,000,000 of funds managed by three investment managers: Dubuque Bank and Trust, U.S. Bank and Dana. The commission and Finance Department will review FCT's performance for possibly increasing their allocation in the future. A copy of their proposal is enclosed. Copies of the proposed Investment Advisor Agreement and Custodian Agreement are also enclosed. There has not been a change in investment managers or custodian since 1992. The agreements with FCT would be the same as with the three current managers, Dana investment Advisors, U.S. Bank (original agreement with First National Bank) and Dubuque Bank and Trust. American Trust and Savings Bank provides custodian services for the investment advisors and would do so for FCT as well. The Finance Department will continue to direct the investment of all operating funds (those funds required to be expended within the next 397 days) utilizing eligible short- term instruments. ACTION Please present the resolution to the City Council for consideration of approval. If there are any questions on the resolution, please contact me. Thank you for your assistance. KT/jg Enclosures RESOLUTION NO. 498-02 RESOLUTION AUTHORIZING THE CITY MANAGER TO ENTER INTO A CUSTODIAN AGREEMENT BY AND BETVVEEN AMERICAN TRUST AND SAVINGS BANK AND THE CITY OF DUBUQUE, IOWA, AND A SEPARATE INVESTMENT ADVISOR AGREEMENT BY AND BETWEEN FIRST COMMUNITY TRUST AND THE CITY OF DUBUQUE, IOWA Whereas, the City of Dubuque desires to enter into an agreement with American Trust and Savings Bank of Dubuque, Iowa, as Custodian to undertake the duties and responsibilities set forth in the attached Custodian Agreement and related documents for the assets to be managed by an additional City of Dubuque Investment Advisor; and Whereas, the City of Dubuque desires to enter into a separate agreement with an additional Investment Advisor, namely First Community Trust (FCT) to provide investment advisory services as set forth in the attached Investment Advisor Agreement and related documents. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. That the City Manager is hereby authorized and directed to enter into said agreements by and between the City of Dubuque, Iowa, and American Trust and Savings Bank providing for custodian services for the assets managed by an additional City of Dubuque Investment Advisor, namely, First Community Trust (FCT); and Section 2. That the City Manager is hereby authorized and directed to enter into said agreement attached hereto and made a part hereof by and between the City of Dubuque, Iowa, and First Community Trust (FCT) providing for investment advisor services for the City's "non-operating" funds as defined and restricted in the attached Investment Advisor Agreement. Passed, approved and adopted this 16th day of September, 2002. Terrance M. Duggan, Mayor Attest: Jeanne F. Schneider, City Clerk INVESTMENT ADVISOR AGREEMENT between the CITY OF DUBUQUE, IOWA and FIRST COMMUNITY TRUST, N.A. (FCT) INVESTMENT ADVISOR AGREEMENT This Investment Advisor Agreement (the "Agreement") is made by and between the City of Dubuque, Iowa, an Iowa municipality acting in accordance with Iowa Code Chapter 453 and Section 452.10 (the "City"), and First Community Trust, N.A. (FCT), an Iowa corporation (the "Advisor") as follows: WHEREAS, pursuant to a Custodian Agreement (the "Custodian Agreement") dated October 1 , 2002 American Trust & Savinqs Bank is Custodian (the "Custodian") of certain funds and securities of the City, including all dividends, interest and income derived there from (collectively, the "Assets"); and WHEREAS, the City desires to avail itself of the experience, resources, advice and assistance of the Advisor in investing the Assets and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of the City, as provided herein; and WHEREAS, the Advisor is willing to undertake to render such services, on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants hereinafter set forth, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DELIVERY OF DOCUMENTS Section 1.1. Documents Delivered by City. The City has delivered to the Advisor properly certified or authenticated copies of each of the following documents and will deliver all future amendments and supplements thereto, if any: (A) Certified resolutions of the City Council of the City authorizing the appointment of First Community Trust, N.A. (FCT), as Advisor of the City and approving the form of this Agreement; (B) Investment Policy of the City dated July 12, 1999, (such Investment Policy, as presently in effect and as the same may be amended or supplemented from time to time, is herein called the "Investment Policy"); (C) Wdtten investment instructions of the City to the Advisor, dated October 1,2002, setting forth the type of investments to be made by the Advisor in conformance with the Investment Policy and this Agreement (such instructions, as presently in effect and as the same may be amended or supplemented from time to time, are herein called the "Instructions"); (D) A certificate of the City Clerk of the City setting forth the names and specimen signatures of the individuals authorized to act on behalf of the City in connection with matters arising hereunder as authorized officers; (E) A copy of the Custodian Agreement dated October 1,2002; and (F) A copy of the Investment Advisor Agreement dated October 1,2002. Section 1.2. Documents Delivered by Advisor. The Advisor has delivered to the City a certificate of the Chief Executive Officer of the Advisor, dated ,2002, to the effect that: (A) The Advisor is organized and existing under and by virtue of the laws of the state of Iowa, is lawfully empowered, fully qualified and authorized to execute this Agreement, has full power and authority to accept the duties and responsibilities as provided herein and has taken all necessary corporate action to authorize the acceptance of its obligations under this Agreement and the execution hereof; (B) The persons named therein are the elected and qualified incumbents of the offices of the Advisor set forth therein, and that such off~cers were authorized to execute this Agreement and to accept the duties and responsibilities on behalf of the Advisor hereunder; (C) Copies of appropriate excerpts from resolutions of the Board of Directors of the Advisor are attached to said certificate and are in full force and effect and have not been rescinded or amended; and (D) The Advisor has in force and effect a blanket indemnity bond (Form 24) as required by federal and state regulatory authorities, and further has in force and effect errors and omissions insurance coverage as described therein, with certificates evidencing the blanket indemnity bond and errors and omissions insurance being attached thereto. (E) The Advisor is authorized to act as an investment advisor under federal and state law. ARTICLE II. APPOINTMENT, DUTIES AND COMPENSATION Section 2.1. Appointment of Advisor. The City hereby appoints First Community Trust, N.A. (FCT) as Advisor of the City on the terms and for the period set forth in this Agreement, and First Community Trust, N.A. (FCT), hereby accepts such appointment and agrees to perform the services and duties set forth in Sections 2.2 through 2.4 hereof for the compensation provided in Section 2.5 hereof. Section 2.2. Services and Duties: (1) The Advisor shall: (a) Supervise continuously the investment and reinvestment of the Assets on behalf of the City, the administration of the City's investment program with respect thereto, and the composition of its portfolio; 2 (b) Provide investment reseamh, evaluation and supervision of the City's investments; (c) Determine what investment instruments shall be purchased or sold by the City; (d) Arrange for the purchase and the sale of investment instruments held under management by the Advisor on behalf of the City; (e) In connection with the purchase of certificates of deposit by the City, establish and maintain a list of state banks, national banks, savings and loan associations, and savings banks located within Iowa that qualify as depositories of public agencies under Iowa law and meet criteria established or approved by the City Council of the City; (f) Place all orders for the purchase, sale, or exchange of the City's Assets; (g) Attend meetings of the City Council or City staff upon request of the City Manager; (h) Furnish the City with statistical information and reports with respect to the investment performance of the Assets and comparable industry indices, and such other information as the City Manager may reasonably request for the proper management of the Assets; (i) Evaluate the performance of the Custodian and furnish such other information as the City Manager may require for the management of the City's Assets. Such evaluations and information will be furnished in response to inquiries from the City Manager and in responding thereto the Advisor will seek such information, as is appropriate, from the Custodian and from other parties. The Advisor will not undertake extensive independent investigations in order to respond to such inquiries and will therefore not be liable for losses or claims incurred by the City arising as a result of problems investigated by the Advisor; and (j) Assist the City with measures intended to assure compliance with the Instructions and Investment Policy of the City, the Agreement, other City policies and procedures, and applicable laws and rules. In conjunction with the City's legal counsel and public accounting firm, provide support and assistance with audits and reviews as may be required by the City. (2) Compliance. The Advisor shall act in conformity with the Investment Policy and with the Instructions and directions of the City and shall conform to and comply with all applicable federal and state laws, rules and regulations. (3) Placement of Orders. The Advisor shall place all orders for the purchase or sale of investment instruments for the City's account with brokers or dealers selected by the Advisor. The Advisor shall consult with the City in determining whether particular investment instruments are permitted investments under the Instructions. The Advisor is authorized as the agent of the City to give oral instructions to the City's Custodian, in accordance with the Instructions, as to deliveries of securities and payments for the account of the City. All such transactions shaII be settled on a "delivery versus payment" basis, and no investment instruments shall be delivered without full payment therefore (i.e., 3 no "free deliveries" shall be permitted). In connection with the selection of brokers and dealers and the placing of orders, the Advisor is directed to seek the most favorable execution and price. (4) Best Judclment. The Advisor shall give the City the benefit of its best judgment, experience and effort in rendering services hereunder, but the Advisor shall not be liable for any loss sustained by reason of the adoption of any Investment Policy or Instructions or the purchase, sale or retention of any investment instrument, if the purchase, sale or retention is made in accordance with the Instructions. Nothing herein contained shall, however, be construed to protect the Advisor against any liability to the City by reason of failure to comply with the Instructions or any misfeasance, bad faith or negligence in the performance of its duties, nor shall anything herein contained constitute a waiver or limitation on any dghts which the City may have under any federal securities laws. Section 2.3. Monthly Valuations. The Advisor shall value the investment portfolio of the City on a market value basis. Such value shall be recorded and shall be confirmed in wdfing as provided in Section 2.4. Section 2,4. Monthly Reports. The Advisor shall prepare and furnish to the City no later than the tenth (10th) Iowa banking day of each month: (a) a list of the Assets as of the last day of the preceding month; (b) a statement setting forth all of the City's transactions dudng the preceding month; (c) a list of all outstanding investments; and (d) the confirmation of the monthly valuations of the investment portfolio of the City. Section 2.5. Compensation. For the services to be rendered and the obligations assumed by the Advisor pursuant to Sections 2.2 through 2.4 of this Agreement, the City will pay to the Advisor as full compensation a fee as provided in attachment Exhibit A. The Advisor shal~ pay afl expenses associated with the performance of this Agreement. Section 2,6. Annual Report. The Advisor annually shall provide the City with the audited financial statements and related report on the internal control structure of the Advisor, together with the report of the independent auditors with respect thereto. The foregoing materials shall be provided no later than one hundred twenty (120) days following the close of the Advisor's fiscal year. Section 2.7. Other Reports. The Advisor shall notify the City in writing immediately upon the occurrence of one of the following events: (i) the Advisor% receipt of any communication from an independent auditor or the Auditor of State or any regulatory authority concerning the existence of a material 4 weakness in internal control structure, or with respect to any regulatory inquiry or orders to or sanctions against the Advisor with regard to the type of services being performed by the Advisor hereunder or (ii) the tiling or commencement of any governmental investigation, administrative proceeding or other third-party litigation concerning the Advisor's compliance with any federal, State or local laws governing its operations and affairs. Section 2.8. Access to Information. All books and records of the Advisor which relate to the investment instruments made subject to this Agreement shall be public records and opened at all times dudng regular business hours to inspection by the City's duly authorized employees or agents. The Advisor shall produce copies of any requested books and records at its expense upon wdtten request from an authorized person and shall provide the City with all information with respect to the services rendered to it hereunder as the City may request. ARTICLE III. DURATION AND TERMINATION Section 3.1. Termination. This Agreement may be terminated at any time by either party, without the payment of any penalty by either party, upon thirty (30) days wdtten notice. Section 3.2. Termination on Assiqnment or Failure to Provide Information. This Agreement automatically and immediately terminates without notice or penalty in the event of assignment by any party hereto without giving prior written consent to such assignment or failure by the Advisor to supply information or books or records upon demand. ARTICLE IV. CONSULTATION AND RELIANCE Section 4.1. Consultation with Counsel. The Advisor may consult with reputable and experienced legal counsel (who shall be approved by the City for that purpose and who may be counsel to the City) concerning any question that may arise with reference to its duties under this Agreement, and the opinion of such counsel is full and complete protection in respect of any action taken or omitted by the Advisor in good faith and in accordance with the opinion. 5 Section 4.2. Reliance on Certificates. The Advisor is not liable and is fully protected in relying upon any notice, instrument, direction or other communication that the Advisor reasonably believes (based on the most recent certificate of the City Clerk of the City that has been received by the Advisor) to have been given by an individual authorized to act on behalf of the City consistent with the Agreement, the Custodian Agreement, and the policies and procedures of the City of which it has notice, including the Instructions. ARTICLE V. MISCELLANEOUS Section 5.1. Other Activities of the Advisor. Nothing in this Agreement shall prevent the Advisor or its officers, directors or employees from acting as investment advisor for any other person, firm, corporation or entity and shall not in any way limit or restrict the Advisor or any of its directors, officers, partners or employees, or any of its affiliates' directors, officers, partners or employees from buying, selling or trading any investment instruments for its or their own accounts, or for the accounts of others for whom it or they may be acting. The Advisor represents that it will undertake no activities which, in its judgment, will materially adversely affect the performance of its obligations to the City under this Agreement. Section 5.2. Opinions and Reports. The Advisor shall provide such opinions and reports of legal counsel and certified public accountants as may be requested regarding this Agreement and its relationship with the City and the adequacy and sufficiency of accounting, record keeping, and reporting obligations of the Advisor pursuant to this Agreement. Section 5.3. Recommendations. The Advisor shall not recommend, or arrange for, the purchase by the City of any investment instrument which is not a permitted investment under the Instructions or the purchase or other acquisition of which would constitute a violation of the investment restrictions applicable to the Advisor set fodh in the Instructions or the policies and procedures of the City of which it has notice. Section 5.4. Amendments. This Agreement shatl not be modified or amended without the consent of each party, which consent must be evidenced by an instrument in wdting executed by each party, or by their respective successors or permitted assigns. Section 5.5. Captions. The captions in this Agreement are included for convenience of reference only and shall in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. Section 5,6. Severability. If any prevision of this Agreement shall be held invalid under any applicable 6 statute or regulation or by a decision of a court of competent jurisdiction, this invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions are severable. Section 5.7. Bindinq Effect. Subject to the provisions of Section 3.3, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 5.8. Notices. Notices or consents of any kind required or permitted under this Agreement shall be in writing and shall be deemed duly delivered if delivered in person or if mailed by certified mail, return receipt requested, postage prepaid, to the appropriate party as follows: If to the City: City of Dubuque City Hall 50 West 13th Street Dubuque, IA 52001-4864 Attn: City Manager If to the Advisor: First Community Trust, N.A. (FCT) 2223 Kev Way Drive, Ste. 200 Dubuque, IA 52002 Attn: Chief Executive Officer or at such other address or to the attention of such other individual specified by written notice. Section 5.9. Entire Aqreement. This Agreement, and the documents delivered pursuant to Sections 1.1 and 1.2 constitute the entire agreement between the parties. Section 5.10. Applicable law. This Agreement shall be deemed to have been executed in the state of Iowa, and the laws of the state of Iowa govern the construction of this Agreement and the dghts and remedies of the respective parties hereto. Section 5.11. Enforcement and Waiver. Each party has the dght at ali times to enforce the provisions of this Agreement in strict accordance with the terms, notwithstanding any conduct or custom on the part of such party in refraining from so doing at any time or times. The failure to enforce its rights under those provisions, stdctly in accordance with the same, is not construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or 7 waived the same. Ali rights and remedies of the respective parties are cumulative and concurrent and the exercise of one dght or remedy shall not be deemed a waiver or release of any other right or remedy. Section 5.12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. Section 5.13. Effectiveness. This Agreement shall take effect October t, 2002. IN WITNESS WHEREOF, the parties hereby have caused this instrument to be executed by their officers designated below as of the , day of ,2002. CITY OF DUBUQUE, IOWA Attest: By By Ci~Manager Ci~Clerk First Community Trust, N.A. (FCT) Attest: By By Chief Executive Officer Secretary 8 EXHIBITA The annual Advisor fee shall be payable quarterly and computed at an annual rate equal to: · 0.40% on theflmt · 0.35 On the next · 0.30 On the next · 0.25 Over $5,000,000 of fair market value 5,000,000 of fair market value 5,000,000 of fair market value 15,000,000 of fair market value This fee structure shall be in effect for a minimum of three years. The fee may be modified upon the mutual agreement of the parties to this Agreement in writing. CERTIFICATE OF FIRST COMMUNITY TRUST, N.A. (FCT) AS ADVISOR I, Dale R. Repass, Chief Executive Officer of First Community Trust, N.A. (FCT), the "Advisor," certify as follows: (A) The Advisor is organized and existing under and by vidue of the laws of the state of Iowa, is lawfully empowered, fully quaIified and authorized to execute the Investment Advisor Agreement (the "Agreement"), effective October 1, 2002, between the City of Dubuque and the Advisor. The Advisor has full power and authority to accept the duties and responsibilities as provided in the Agreement and to act as Advisor. The Advisor has taken all necessary corporate action to authorize the acceptance of its obligations under and the execution of the Agreement. (B) The persons named below are on this date the elected and qualified incumbents of the offices of the Advisor and the signatures appearing at the right of their respective names are the genuine signatures of these officers. These officers were authorized to execute the Agreement and to accept the duties and responsibilities of the Advisor: TITLE Chief Executive Officer Secretary NAME Dale P. Repass Francis A. Murray, Jr. SIGNATURE (C) Attached as Exhibit A are copies of appropriate excerpts from resolutions of the Board of Directors of the Advisor which are in full force and effect and have not been rescinded or amended. The resolutions confirm the authority of the officers to execute the Agreement and to accept the duties and responsibilities of the Advisor. (D) The Advisor has in force and effect a blanket indemnity bond (Form 24) as required by federal and state regulatory authorities. Further, the Advisor has in force and effect errors and omissions insurance with the insurance company of St. Paul po[icy number 563CM0693. Attached Exhibits C and D are certificates evidencing the blanket indemnity bond and errors and omissions insurance. (E) The Advisor is authorized to act as an investment advisor under federal and state law. Dated this day of September, 2002, at Dubuque, Iowa. First Community Trust, N.A. (FCT) By Chief Executive Officer 2 CUSTODIAN AGREEMENT between the CITY OF DUBUQUE, IOWA and AMERICAN TRUST AND SAVINGS BANK CUSTODIAN AGREEMENT This Agreement is made by and between the City of Dubuque, Iowa, an Iowa municipality acting in accordance with Iowa Code Chapter 453 and Section 452.10 (the "City"), and American Trust and SavingS Bank, (the "Custodian"). WITNESSETH: WHEREAS, pursuant to an Investment Advisor Agreement (the "Investment Advisor Agreement") dated October 1,2002 between the City and First Community Trust, N.A. (FCT), (the "Advisor"), First Community Trust~ N.A. (FCT) is to serve as Advisor to the City with respect to certain funds and securities, including all dividends, interest and income derived therefrom, described on Exhibit A attached hereto (collectively, the "Assets"); and WHEREAS, the City desires to avail itself of the experience, resources, services, and assistance of the Custodian and to have the Custodian undertake the duties and responsibilities set forth, on behalf of the City, as provided; and WHEREAS, the Custodian is willing to serve as Custodian with respect to the Assets and to undertake to render such services on the terms and conditions set forth. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE I. DELIVERY OF DOCUMENTS Section 1.1. Documents Delivered by City. The City has delivered to the Custodian properly certified or authenticated copies of each of the following documents and will deliver to it ali future amendments and supplements thereto, if any: (A) Certified resolutions of the City Council of the City authorizing the appointment of American Trust & Savings Bank, as Custodian of the City with respect to the Assets and approving the form of this Agreement; (B) Investment Policy of the City dated July 12. 1999, (such Investment Policy, as presently in effect and as it may be amended or supplemented from time to time, is herein called the "Investment Policy"); (C) A certificate of the City Clerk of the City setting forth the names and specimen signatures of the individuals authorized to act on behalf of the City in connection with matters arising hereunder as authorized officers (such certificate to be amended periodically to reflect changes of such authorized officers); (D) A certificate of the City Clerk of the City setting forth the names and specimen signatures of the individuals authorized to act on behalf of the Advisor as Advisor Representative; (E) A copy of the Investment Advisor Agreement dated October 1,2002 and the attached Instructions dated October 1, 2002, hereinafter called the "Instructions"; and (F) A copy of the Custodian Agreement dated October 1, 2002. Section 1.2. Documents Delivered by Custodian. The Custodian has delivered to the City a certificate of the of the Custodian dated 2002 to the effect that: (A) The Custodian is organized and existing under and by virtue of the laws of the state of Iowa is lawfully empowered, fully qualified and authorized to execute this Agreement, has full power and authority to accept the duties and responsibilities as provided herein and has taken all necessary corporate action to authorize the acceptance of its obligations under this Agreement and the execution hereof; (B) The persons named therein are the elected and qualified incumbents of the offices of the Custodian set forth therein, and that such officers were authorized to execute this Agreement and to accept the duties and responsibilities of 'the Custodian hereunder; (C) Copies of appropriate excerpts from resolutions of the Board of Directors of the Custodian are attached to said certificate and are in full force and effect and have not been rescinded or amended; (D) Copies of current financial statements of the Custodian are attached to said certificate as evidence that the Custodian has a capital surplus and retained earnings aggregating at least $25,000,000; and (E) The Custodian has in force and effect a Bankers Blanket Bond (including Computer cdme) and errors and omissions insurance as described therein, with certificates evidencing the blanket bond and errors and omissions insurance being attached thereto. ARTICLE II. APPOINTMENT OF CUSTODIAN Section 2.1. Appointment of Custodian. The City hereby appoints American Trust and Savings Bank as Custodian of the City on the terms and for the pedod set forth in this Agreement. Section 2.2. Acceptance of Appointment. Amedcan Trust and Savings Bank hereby accepts appointment as Custodian and agrees to perform the services and duties hereinafter set forth for the compensation provided for in Article VI hereof. 2 ARTICLE 111. CUSTODY OF CASH AND INVESTMENTS Section 3.1. Delivery of Investments and Moneys. The City will 'deliver or cause to be delivered to the Custodian alt moneys or other Assets to be held by the Custodian, at any time during the term of this Agreement. The Custodian will not be responsible for such moneys or ether Assets until actually received by it and fully collected. Receipt by the Custodian of the Assets described in Exhibit A is hereby acknowledged. The Custodian shall execute receipts and confirmations on behalf of the City For all cash or other Assets delivered to it for the account of the City. Section 3.2. Receipt and Safekeeping of Investment Instruments and Moneys. (A) The Custodian shall keep safely, in a separate account, all of the Assets and other investment instruments and moneys of the City. On behalf of the City, the Custodian shall from time to time receive delivery of certificates for safekeeping and shall keep such certificates physically segregated at all times from those of any other person. The Custodian shall maintain records of all receipts, deliveries and locations of such investment instruments, together with a current inventory thereof, and shall conduct pedodic physical inspections (including sampling counts) of certificates representing bonds and other investment instruments held by it under this Agreement in such manner as the Custodian shall determine from time to time to be advisable in order to verify the accuracy of such inventory. With respect to investment instruments held by any sub-custodian, the Custodian may rely upon certificates from such agent as to the holdings of such agent. The Custodian will promptly report to the City the results of such inspections, indicating any shortages or discrepancies uncovered thereby, and take appropriate action to remedy any such shortages or discrepancies. (B) Custodian may cause any Assets of the City to be registered in, or transferred into, the Custodian's name or the name of a nominee or nominees, including but not limited to that of the Custodian, a clearing corporation, or a depository, or in book entry form, or to cause any such Asset to be retained unregistered or in a form permitting transfer by delivery, provided that the books and records of the Custodian shall at all times show that such Assets are held on behalf of the City; and the Custodian may cause any such Asset, or the evidence thereof, to be held by the Custodian in a depository, in a clearing corporation, in book entry form, or by any other entity or in any other manner permitted by law. The City agrees to furnish to the Custodian appropriate instruments to-enable the Custodian to hold or deliver in 3 proper form for transfer, or to register in the name of its nominee, any investment instruments which it may hold for the account of the City and which may from time to time be registered in the name of the City. lC) Notwithstanding any other provision of this Agreement, it is expressly understood and agreed that the Custodian is authorized in the performance of its duties hereunder to use the facilities of the Federal Reserve Bank as a securities depository pursuant to the Federal Reserve Book Entry Deposit System (the System) for eligible investment instruments held for the account of the City. Without limiting the generality of such use, it is agreed that the following provisions shall apply thereto: (1) Safekeepinq. Investment instruments and any cash of the City. deposited in the System will at all times be segregated from any assets and cash controlled by the Custodian in other than a fiduciary or custodian capacity. The Custodian will pay out money only upon the receipt of investment instruments and will deliver investment instruments only upon the receipt of money, this practice being commonly known as "delivery versus payment.' (2) Indemnification. The Custodian is liable to the City with respect to investment instruments and cash to which the City is entitled, held or received in the System as agent for the Custodian, as if the same were held or received by the Custodian at its own offices. (3) Access to Information. All books and records maintained by the Custodian which relate to the City's participation in the System will at all times during regular business hours be open to the inspection of the City's duly authorized employees or agents, and the City will be furnished with ail the information in respect of the services rendered to it as it may require. Section 3.3. Certain Custody Limitations. All investment instruments and moneys delivered to the Custodian shall be held or disposed of by the Custodian for the City pursuant to the terms of this Agreement. The Custodian shall have no power or authority to assign, hypothecate, pledge or otherwise dispose of any such investment instruments, except pursuant to the terms of this Agreement or the written directions of the City and only for the account of the City as set forth in this Agreement. The City's claim to such investment instruments and moneys shall be based on a right of possession in specific property and not as a general creditor of the Custodian. Section 3.4. Certain Duties Reqardin~l Investment Instruments. Unless otherwise specifically instructed to the contrary by a Certificate delivered on behalf of the City, the Custodian shall, with respect to all investment instruments and moneys held by it for the City: lA) Promptly collect any and all income due or payable; lB) Promptly present for payment and collect the amount payable upon all investment instruments which may mature or be called, redeemed, or retired, or otherwise become payable; lC) Execute, as Custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect; and 4 (D) Hold for the account of the City all warrants, rights and similar instruments issued with respect to any investment instruments held by it hereunder. shall: Section 3.5. Certain Actions. Upon receipt of a certificate by the City, and not otherwise, the Custodian (A) Execute and deliver to such person as may be designated in such certificate, consents, authorizations, and any other instruments whereby the authority of the City as owner of any investment instruments may be exemised; (B) Deliver any investment instruments held for the City in exchange for other investment instruments or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any person, or the exemise of any conversion privilege; and (C) Deliver any investment instruments held for the City to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of Assets of any person, and receive and hold under the terms of this Agreement such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery. Section 3.6. Monthly Reports. The Custodian shall prepare and furnish to the City and the Advisor no later than the fifteenth (15th) Iowa banking day of each month: (a) a list of the City Assets in its custody as of the last day of the preceding month and (b) a statement setting forth all of the City's transactions during the preceding month. Section 3.7. Annual Report. The Custodian annually shall provide the City with the audited financial statements and related report on the internal control structure of the Custodian, together with the report of the independent auditors with respect thereto. The foregoing materials shall be provided no later than one hundred twenty (120) days following the close of the Custodian's fiscal year. Section 3.8. Other Reports. The Custodian shall notify the City in writing immediately upon the occurrence of one of the following events: (i) the Custodian's receipt of any communication from an independent auditor or the Auditor of State or any regulatory authority concerning the existence of a material weakness in internal control structure, or with respect to any regulatory inquiry or orders to or sanctions against the Custodian with regard to the type of services being performed by the Custodian hereunder or (ii) the filing or commencement of any governmental investigation, administrative proceeding or other third-party litigation concerning the Custodian's compliance with any federal, State or local taws governing its operations and affairs. Section 3.9. Access to Information. All books and records of the Custodian which relate to the investment instruments made subject to this Agreement shall be public records and opened at all times 5 during regular business hours to inspection by the City's duly authorized employees or agents. The Custodian shall produce requested books and records at its expense and upon written request from an authorized officer and shall provide the City with all information with respect to the services rendered to it hereunder as the City may request. ARTICLE IV. PURCHASE AND SALE OF INVESTMENT INSTRUMENTS BY THE CITY Section 4.1. Purchases. Promptly after each purchase of an investment instrument by the City, the Advisor on behalf of the City shall cause to be delivered to the Custodian oral instructions (promptly confirmed thereafter in wdfing as provided in the Instructions) or a Certificate specifying with respect to each such purchase: (A) The name of the issuer and the title of the investment instrument; (B) The par and principal amount purchased and accrued interest thereon, if any; (C) The date of purchase and settlement; (D) The purchase price; (E) The total amount payable upon such purchase; and (F) The name of the person from whom or the broker or dealer threugh whom the purchase was made. The Custodian shall receive ali investment instruments purchased by or for the City from the persons through or from whom the same were purchased, and upon receipt thereof (i.e., on a 'delivery versus payment' basis) shalt pay, out of the moneys held for the account of the City, the total amount payable upon such purchase as set forth in such oral instructions or such certificate provided that the same conforms to the total amount payable described by such oral instructions or shown on such Certificate. The Custodian shall obtain possession of any and all investment instruments that are the subject of or underlying obligations for any repurchase agreement. Section 4.2. Sales. Promptly after each sale of an investment instrument by the City, the Advisor on behalf of the City shall deliver to the Custodian oral instructions (promptly confirmed thereafter in writing as provided in the Instructions) or a Certificate specifying with respect to each such sale: (A) The name of the issuer and the title of the investment instrument; 6 (B) The par and principal amount sold and accrued interest thereon, if any; (C) The date of sale; (D) The sale price; (E) The total amount payable to the City upon such sale; and (F) The name of the broker or dealer through whom or the person to whom the sale was made. The Custodian shall transfer the investment instrument thus designated to the broker or dealer or other person described by such oral instructions or named in such Certificate upon receipt of the total amount payable to the City in connection with the settlement of such transaction, provided that the same conforms to the total amount payable to the City shown in such oral instructions or such Certificate with respect to such sale. The Custodian may accept payment in such form as shall be satisfactory to it, and may deliver investment instruments and arrange for payment, in accordance with the customs and usages prevailing among brokers and dealers in investment instruments of similar tenor and type, with the condition that no investment instruments be delivered out of the account of the City, without full payment (i.e., no "free deliveries" shall be permitted). ARTICLEV. FUNDS TRANSFER SERVICES Section 5.1. Protocols. The Custodian shall service and maintain a federal reserve wire transfer system, an automated clearinghouse debit system, and a checking system and provide certain other fund transfer services in conjunction with its duties described herein. Section 5.1. Compensation1 Fees and Expenses. The Custodian shall be entitled to receive, and the City hereby agrees to pay to the Custodian, such compensation as may be agreed upon from time to time between the Custodian and the City. The schedule of compensation to be paid to the Custodian shall be that set forth in Exhibit B attached hereto and made a part hereof. ARTICLE VII. CONCERNING THE CUSTODIAN Section 7.1. Actual Receipt. The Custodian shall not be liable for, or considered to be the Custodian of, any moneys represented by any check, draft, or other instrument for the payment of moneys received by it on behalf of the City, until the Custodian actually receives such moneys. 7 Section 7.2. Collection. The Custodian is not under any duty or obligation to take action to effect collection of any amount, if the investment instruments upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until: (a) it is directed to take such action in a Certificate signed on behalf of the City and (b) it is assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. Section 7.3. Sub-Custodians. The Custodian shall not appoint any sub-custodians, other than affiliates of the Custodian, except upon terms and conditions approved in writing by the City prior to such appointment; provided, however, that the City hereby consents to the use of nominees in the manner set forth in Section 3.2 hereof. Section 7.4. Reliance upon Authorized Officer. The Custodian is entitled to rely upon any Certificate signed by two Authorized Officers of the City that is received by the Custodian and believed in good faith by the Custodian to be genuine. The Custodian is entitled to rely upon any oral instructions received by the Custodian from an Authorized Officer if such oral instructions and the Custodians confirmation thereof conform in all respects to the Instructions. Section 7.5. Reliance on Advisor Representative. The Custodian is entitled to rely upon any Advisor instructions if received in wdting and signed by two Advisor Representatives, authorized by a Certificate from the City Clerk, and believed in good faith by the Custodian to be genuine and is entitled to rely upon any oral instructions received from the Advisor Representative if they are received in accordance with the Instructions with the required callback protocol for the Advisor and if believed in good faith by the Custodian to be genuine. Section 7.6. Consultation with Counsel. The Custodian may consult with reputable and experienced legal counsel (who shall be approved by an Authorized Officer for that purpose and who may be counsel to the City) concerning any question that may arise with reference to its duties under this Agreement, and the opinion of such counsel shall be full and complete protection in respect of any action taken or omitted by the Custodian in good faith and in accordance with such opinion. ARTICLE VIII. LIMITATIONS OF LIABILITY Section 8.1. City's Liability Limitation. The Custodian assumes only those duties and obligations expressly identified herein. It specifically assumes no responsibility for the management, investment or 8 reinvestment of the Assets of the City. The responsibility for the proper and timely management, investment and reinvestment of those Assets shall be that of the City and the Advisor. The Custodian shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Agreement, nor shall the Custodian be responsible for the consequences of any error of judgment un[ess negligent or lacking in good faith; and the Custodian shall not be answerable except for its own action, neglect or default, nor for any loss unless the same shall have been through the negligence or want of good faith by the Custodian. To the extent authorized by law, the City will indemnify the Custodian for, and hold it harmless against, any liability incurred by the Custodian for which it is not answerable pumuant to this paragraph including costs and expenses incurred (including attorneys fees) as a result of any claim of liability. ARTICLE IX. DURATION AND TERMINATION Section 9.1. Term of Aqreement. This Agreement, unless sooner terminated as provided in Section 9.2 or 9.3 hereof, shall continue until midnight October 1, 2003. Section 9.2. Early Termination. Notwithstanding the provisions of the preceding Section 9.1, this Agreement may be terminated by either the Custodian or the City at any time, without the payment of any penalty upon thirty (30) days written notice to the other party. Section 9.3. Termination on Assiqnment or Failure to Provide Information. This Agreement shall automatically and immediately terminate without notice or penalty in the event of its assignment by any party hereto without the giving of prior written consent to such assignment by the other party hereto or upon failure by the Custodian to provide information. ARTICLE X. MISCELLANEOUS Section 10.1. Certificates. The term "certificate" shall mean any notice, instruction or other instrument in wdting, authorized or required by this Agreement to be given to the Custodian signed by two authorized officers on behalf of the City or two Advisor Representatives on behalf of the Advisor. Section 10.2. Authorized Officers. 9 (A) The term "authorized officer" shall be deemed to include the City Treasurer/Finance Director, the Administrative Services Manager or the City Manager who are authorized by the City Council acting within the scope of their authority, this Agreement, and the policies and procedures of the City to execute any certificate, instruction, notice or other instrument on behalf of the City, or to deliver oral instructions on behalf of the City pursuant to this Agreement and the policies and procedures of the City. (B) The term "advisor representatives" shall be deemed to include those persons set forth in the certificate of the City Clerk of the City setting forth the authorized representative of the Advisor. (C) The City agrees to furnish to the Custodian a new Certificate in similar form to that delivered pursuant to Section 1.1(C) and (D) hereof in the event that any such present authorized officer ceases to be an authorized officer are elected or appointed. Until such new certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement and the policies and procedures of the City of which the Custodian has notice upon the oral instructions or signatures of the present authorized officers as set forth in said certificate or upon oral instructions or the signatures of the present authorized officers a set forth in a subsequently issued certificate. Section 10.3. Amendments. This Agreement shall not be modified or amended without the consent of each party hereto, which consent must be evidenced by an instrument in writing executed by each party hereto, or by their respective successors or permitted assigns. Section 10.4. Captions. The captions in this Agreement are included for convenience of reference only and shall in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. Section 10.5. Severability. If any provision of this Agreement shall be .held invalid under any applicable statute or regulation or decision of a court of competent jurisdiction, such invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable. Section 10.6. Bindinq Effect. This Agreement is binding upon and shall inure to the benefit of the parties and their respective successors and permitted assigns. Section 10.7. Notices. Notices (other than certificates) or consents of any kind required or permitted under this Agreement shall be in writing and deemed delivered if delivered in person or if mailed by certified mail, return receipt requested, postage prepaid, or telegraphed to the appropriate party as follows: If to the City: City of Dubuque City Hall 50 West 13th Street Dubuque, IA 52001-4864 Attn: City Manager with copy to the Advisor; If to the Custodian: American Trust and Savinqs Bank Town Clock Plaza Dubuque, IA 52001 Attn: Robert J. Donovan or at such other address or to the attention of such other individual as shall be specified by the respective parties by written notice. Section 10.8. Entire Agreement. This Agreement and the documents delivered pursuant to Section 1.1, constitute the entire agreement between the parties hereto with respect to the subject matter hereof. Section 10.9. Applicable Law. This Agreement has been executed in the state of Iowa and the laws of the state of Iowa shall govern the construction of this Agreement and the rights and remedies of the respective parties hereto. Section 10.10. Enforcement and Waiver. Each party has the dght at ali times to enforce the provisions of this Agreement in strict accordance with the terms, notwithstanding any conduct or custom on the part of such party in refraining from so doing at any time or times. The failure of a party hereto at any time or times to enforce its rights under such provisions, strictIy in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. All rights and remedies of the respective parties hereto are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. Section 10.11. Authorization. This Agreement has been duly authorized, executed and delivered by the parties hereto and constitutes a legal, valid and binding obligation of such parties, enforceable in accordance with its terms. Each individual signatory hereto represents and warrants that he is duly authorized to execute this Agreement on behaIf of his principal. 11 Section 10.12. Counterparts. This Agreement may be executed in one or more counterparts, each of which is deemed to be an original, but all of which together constitute but one and the same instrument. Section 10.13. Effectiveness. This Agreement shall take effect October 1,2002. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the Ist day of October, 2002. CITY OF DUBUQUE, IOWA Attest: By By City Manager City Clerk AMERICAN TRUST & SAVINGS BANK Attest: By By Robert J. Donovan Executive Vice President 12 EXHIBIT A The Assets made subject of this Agreement shall consist of the following: Everything in the Custodian account number 623733045 with American Trust and Savinqs Bank The City may from time to time, by written direction to the Custodian, add to the foregoing list of Assets. Upon receipt by the Custodian with respect thereto, any such additional Assets shall thereafter be entitled to the protection and provisions of this Agreement. EXHIBIT B The annual Custodian fee shall be payable monthly and computed at an annual rate equal to .25% of the City's average daily Assets up to $1 million. If the City's average daily Assets are greater than $1 million but [ess than $2 million, the fee shall be · 15 of the City's average daily Assets for that amount in excess of $1 million. If the City's average daily Assets are greater thin $2 million, but less than $3 million the fee shall be .10% of the City's average daily Assets for that amount in excess of $2 miIlion. If the City's average daily Assets are ~reater than $3 million, the fee shall be .05% of the City's average daily Assets for that amount in excess of $3 million. The fee may be modified upon the mutual agreement of the parties to this Agreement in writing· tn addition to the above charges there will be an annual base maintenance fee of $400 per sub-account; a client terminal fee of $100 monthly with a one time setup charge of $200; and a $20 per month per sub- account performance measurement fee. CERTIFICATE OF American Trust and Savings Bank AS CUSTODIAN I, __, of American Trust and Savings Bank, Dubuque, Iowa (the "Bank"), certify as follows: (A) The Bank is organized and existing under and by virtue of the laws of the state of Iowa, and is lawfully empowered, fully qualified and authorized to execute the Custodian Agreement (the 'Agreement'), effective October 1, 2002, between the City of Dubuque and the Bank. The Bank has full power and authority to accept the duties and responsibilities as provided in the Custodian Agreement and to act as Custodian. The Bank has taken all necessary corporate action to authorize the acceptance of its obligations under and the execution of the Agreement. (B) The persons named below are on this data the elected and qualified incumbents of the offices of the Bank and the signatures appearing at the dght of their respective names are the genuine signatures of these officers. These officers were authorized to execute the Agreement and to accept the duties and responsibilities as provided in the Agreement for the Bank: TITLE NAME SIGNATURE (C) Attached as Exhibit A are copies of appropriate excerpts from resolutions of the Board of Directors of the Bank which are in full force and effect and have not been rescinded or amended. The resolutions confirm the authority of the officers to execute the Agreement and to accept the duties and responsibilities of the Bank. (D) Attached as Exhibit B is a copy of current financial statements of the Bank as evidence that the Bank has a capital and surplus aggregating at least $25 million. (E) The Bank has in force and effect fidelity bond and errors and omissions insurance. Attached as Exhibit C are certificates evidencing fidelity bond and errors and omissions insurance of the Bank. Dated this day of ,2002, at Dubuque, Iowa. American Trust and Savings Bank By 2 CITY OF DUBUQUE, IOWA MEMORANDUM TO: FROM: Michael Van Mitligen, City Manager Ken TeKippe, Finance Director r'~t.¢~ SUBJECT: Investment Managers DATE: August 6, 2002 At the July 25th Investment Oversight Advisory Committee meeting, representatives Dale Repass, Francis "Chip" Murray, and John Gonner from First Community Trust (FCT) made a proposal for their firm to provide investment management services for a portion of City funds. After discussion, the commission recommended allocating $1,000,000 from each of three current managers ($3,000,000 total) to FCT. The City currently has approximately $24,000,000 of funds managed by three investment managers: Dubuque Bank and Trust, U.S. Bank, and Dana. The commission will review FCT's results in the future for potentially increasing their allocation. A copy of their proposal is enclosed. According to the City Investment Policy, the City Treasurer ts vested with the authority for management of the investment program. As City Treasurer, I support the commission's recommendation and request your concurrence to proceed with implementing the change effective at the beginning of the next calendar quarter, October 1,2002. If you have questions on this issue, please feel free to contact me at 4133. Thank you. KT/jg Enclosure An Investment Management Proposal For: THE CItY OF ~ First Communi_tv Trust, N.A. Dale P. Repass Chief Executive Officer Ph: (563) 557-1700 Email: drepass~fctmst.com John J. Conner, CFA Senior Vice President Ph: (563) 587-0534 Email: j gonner~fctmst, com Francis A. "Chip" Murray President Ph: (563) 587-0041 Email: cmurray~fctmst.com First Community Trust, N.A. (~cT) is a limited purpose national bank, chartered and regulated by the Comptroller of the Currency (OCC), which is a division of the U.S. Treasury Department. FCT offers a full array of trust, asset management, estate planning and qualified retirement plans (401k, Rollover IRAs, Pensions, etc.) and services. FCT has aligned itself with some of the premier financial service organizations in eastern Iowa and western Illinois, including Dupaco Community Credit Union and DuTrac Community Credit Union in the Dubuque area. As a national bank, our services are available to all people and organizations in the communities where we have offices (Dubuque, Waterloo, Cedar Rapids, Iowa City and the Quad Cities). Many of our goals and philosophies mirror those of our partners. We all have a strong sense of community as well as a commitment to provide state-of-the-art technologies and services through our local professionals. FCT is a privately owned and operated financial institution. Up until 2001, credit unions in Iowa have not had the ability to offer trnst/fiduciary services to their members. Even though the credit unions do not have an ownership interest, several of their board members and executive managers do. These credit unions have a financial interest in FCT providing services within the Dubuque area, such as to the City of Dubuque. FCT has 38 shareholders, 30 of whom reside within the Dubuque land area. FCT is a Subchapter S organization thereby making all company profits subject to federal and state taxation at the shareholder level. The company has nine full time officers with over 150 years of collective experience in the trust and financial services indust~. Eight of the ten Board of Directors have prior board experience with other financial organizations and seven live in this area. Attached is a list of our board members. FCT's professional team has the knowledge and experience to thrive in today's investment management industry. The principal players on our team are: Dale P. Repass, Chairman and Chief Executive Officer. Mr. Repass has over 28 years ~xperience in the f'mancial services industry. He was most recently Regional President for Firstar Bank in Northeast Iowa Mr. Repass has been involved in all phases of banking and trust services serving in positions as senior lender, trust department manager and President/CEO/Chairman of two banks. Mr2 Repass received his undergraduate degree fi-om Wartburg College and his law degree fi-om Drake University. Francis A. "Chip" Murray, President and Chief Operating Officer. Mr. Murray brings over 19 years of financial and trust experience to The Company. Mr. Murray most recently was a Senior Vice President at Dupaco Community Credit Uhion, Dubuque, Iowa Prior to this time he served 15 years in various capacities for Mercantile Bank- Midwest. From 1990 to 1996, he managed the trust division for the bank and oversaw significant growth in trust assets. Mr. Murray received his undergraduate degree fi-om Loras College. 2 John J. Gonner, Senior Vice President-Investments. Mr. Gonner is a Chartered Financial Analyst (CFA), specializing in the selection of individual stocks, bonds, and mutual funds for client portfolios. He joined the Company after 11 years of managing investments in the trust department at Dubuque Bank and Trust. Prior to that he spent three years with Arthur Andersen in Chicago where he achieved the CPA designation. John earned his bachelor's degree in Accounting and Finance from Loras College where he served as an adjunct faculty member. Mr. Gonner has also achieved the Certified Financial Planner (CFP) designation and is a member of the Madison Investment Management Society. Paul A. Kronlage, Senior Vice President. Mr. Kronlage has extensive experience in pension, profit sharing, and 401(k) plan design and administration. Mr. Kronlage was most recently Vice President for Firstar Bank. Iowa City, Iowa and responsible for a number of large retirement plans. He has been working with ERISA related activities, including plan design, asset allocation and employee educatiorde~ollment, for over ten years. Mr. Kronlage received his undergraduate degree from the University of Northern Iowa and his M.B.A_ from the University of Iowa. Sharlene B. Kiine. Vice President. Ms. Kline has over 18 years of experience in the financial industry. Most recently, she served as Vice President, Retail Manager for Firsrar Bank, Dubuque, Iowa, where she had extensive experience in the area of Individual Retirement Accounts. Ms. Kline managed the entire IRA function, including contributions, distributions, minimum required distributions, and the investment of IRA accounts. Diane M. Reuter, Vice President-Trust Operations. Ms. Reuter has over 22 years of trust operations, accounting and administrative experience. Most recently she was responsible for the administration of employee benefit accounts including overseeing the development and supervision of the employee benefits record keeping division for Firstar Bank, Dubuque, IA_ Prior to that time she was the manager of the Trust Department's operations division overseeing the record keeping and custodial activities for over $500 million in trust assets. Ms. Reuter is a graduate of the University of Dubuque with degrees in Accounting and Business Administration. Kathleen "Kathy" Donnelly, Vice President. Ma. Donnelly has more than 16 years of experience in personal trust administration and trust tax planning. She has worked closely with trust clients in the areas of estate planning, risk-based investing and tax planning. Most recently, Ms. Donnelly was a personal trust officer with Firstar Bank, Cedar Rapids, IA_ She is a graduate of the ABA National Trust School and Canon Financial Institute for persOnal Trust Administration. Diane I~L Neebel, Vice President. Ms. Neebel has over 15 years of experience in personal trust administration and estate administration. Most recently, she was a personal trust officer at Firstar Bank, in Waterloo, IA, where she specialized in working with individual clients on their personal trust needs and settling their estates. She received her undergraduate degree fi.om Upper Iowa University and has attended both the ABA National Trust School and Canon Financial Institute for Estate Planning. Shirley C. Fliehler, Vice President. Ms. Fliehler brings more than 14 years of trust account management experience. She most recently worked at the U.S. Bank Trust Division in Iowa City, IA where she had an account base of both employee benefit-and personal trust relationships. She also was the tax coordinator for the departmem and was involved in the preparation of fiduciary tax returns, as well as employee benefit tax returns. She has achieved the Certified Retirement Plan Specialist (CRPS) designation fi-om The Canon Financial Institute. Investment Discipline We believe successful investment management starts with defining investmem objectives. The City has a very complete and thorough investment policy. It would be our responsibility to implement and monitor the City's investment strategy as laid out. Our disciplined process assures you that all factors are considered when making investmem decisions. Asset allocation is the central theme of the First Community Trust investment philosophy and the dominant factor in determining total portfolio return Studies have shown that asset allocation decisions account for more than 90% of the variation of total returns, while security selection accounts for only a small residual portion of the variance of total returns. Therefore, the overwhelming determinant of the success of an investment strategy is not which securities or mutual funds were bought or sold, but how the assets were divided among the various asset classes. Portfolio Structure is the next step once an asset allocation is determined. The stock and bond market are composed of numerous, styles and sectors (i.e. large cap value, small cap growth, government bonds, corporate bonds, etc.). To access the total return potential of the financial markets and reduce risk, a portfolio must be diversified within each asset class as well. Multiple Money Managers are used to implement asset management strategies. First Commtmity Trust utilizes a wide array of money managers who are specialists in their investment discipline, such as large company growth managers, have the opportunity to focus their approach and anticipate changes within their area of the market. This focus provides the oppommity for greater consistency and predictability of results. The use of specialist managers is consistent with our view on diversification across and within asset classes. 4 Continuous Portfolio Management is a process. Once needs are defined, a plan developed, and strategy implemented~ an ongoing confirmation, review and reevaluation process takes place. There are two critical components of this process. Fh-st, each portfolio is rebalanced regularly to assure that the mix of assets defined to achieve goals is constantly in place. Rebalancing reduces risk and keeps the investment plan on the righi course. Second~ we constantly review the specialist money managers being utilized. Each manager is continually monitored and is subject to replacement should they fail to achieve stated goals or deviate form their stated philosophy or process. Investment Philosophy First Community Trust takes pride in the investment expertise offered to our clients. Our investment philosophy is simply stated, "to provide the best risk adjusted rate of return to our clients". Our investment philosophy is based on minimizing risk while providing excellent investment rems. Equity Investment Style · Select stocks and funds with superior earnings growth az reasonable valuations. · A preference for companies with above average profitability, leadership position in its business, strong balance sheet and evidence of sustained unit growth. · Represent major components of the economy through diversification of industry ~ · Stocks nmst be followed by either Value Line or Standard and Poors Stock Investor Guide and must be rated B- or better for financial strength. Fixed Income Investment Style · Emphasize safety of principal and liquidity. Bonds and bond funds must be rated "A" or higher · Manage the average maturity of the portfolio according to interest rate forecasts and the shape of the yield curve. · Capitalize on the differential in yields among various sectors of the bond market. 5 Mutual Fund Investment Style · Offer diversification througli a disciplined approach and utilization of highly rated nmtual funds. · Mtrtual funds must have a Morningstar rating of Three Stars or higher. · Funds must have a five-year hack record and lower than average expense ratio. FCT's Investment Management Proposal FCT has reviewed the City of Dubuque, Iowa Investment Policy, as revised July 12, 1999. We understand the parameters established by this Policy and are willing to abide by all of its terms and guidelines. In addition, we firmly believe that our investment results will be very competitive to those operating under the same Policy and we will do so at a reasonable fee structure. Dale P. Repass will be the assigned account officer for your accounts and John J. Gouner will serve as the investment officer. Their short biographies are inserted above. John Gouner's investment performance has been quite good. John has been in the trust and investment business for eleven years. He is a Chartered Financial Analyst and a Certified Public Accountant. John has, most recently, been managing over $500,000,000 at another local financial institution. COMPARISON OF INVESTMENT RESLrLTS Co panng FCT s ~nvestment results of the 5 d~fferent Model Portfolios utilized by many of our clients to standard industry benchmarks will illustrate FCT's performance capabilities. FCT's own Portfolio is shown for 2001 and through June 30, 2002. National Banks, like First Community Trust, have very regulated investment guidelines for their invested capital, which is very similar to those established under the City's guidelines. We invested the Company's equity of $4,000,000 on January 2, 2001; thereby, providing a 12-month and 6-month results of a similar portfolio to that used by the City of Dubuque. 6 Model Account Performance For the Year 2001 Account % Bonds Weighted i Benchmark Variance % Stocks Return Max. Income 90/10 6.70 5.90 0.80 Income 70/30 4.12 2.84 1.28 Income & 50/50 1.25 -t.02 2.27 Growth Growth 30/70 -2.41 -6.13 3.72 Max. Growth 10/90 -2.77 -10.21 7.44 FCT' s 100/0 7.92 8.19 -0.27 Portfolio Model Account Performance For the Six Months Ending 6/30/02 (not annualized) Account % Bonds Weighted Benchmark Variance % Stocks Return Max. Income 90/10 1.43 1.80 -0.37 Income 70/30 -1.07 -0.74 -0.33 Income & 50/50 4.28 -3.98 -0.30 Growth Growth 30/70 -6.52 -8.23 1.71 Max. Growth 10/90 -7.50 -11.62 4.12 FCT' s 100/0 2.93 3.05 -0.12 Portfolio John Gonner and Dale Repass are available to meet with the City Investment Oversight Advisory Committee and Finance Department at your convenience to review investment results, economic outlook for the foreseeable furore and to discuss your needs/expectations from the accounts going forward, FCT has sophisticated reporting capabilities available to our clients. First, we offer both a time-weighted and dollar-weighted reports that measure investment performance. Secondly, we can offer portfolio reviews by market value, asset allocation and performance versus the established benchmarks. Normally accounts on our system receive quarterly reports mailed out within 15 days of the end of each period; however, with American Trust serving as custodian of the City's investment portfolio, all reports will come from their office. 7 FCT utilizes an asset-based fee, which is guaranteed for three years and calculated as follows: · 0.40% On the first · 0.35 On the next · 0.30 On the next · 0.25 Over $5,000,000 of fair market value 5,000,000 of fair market value 5,000,000 of fair market value 15,000,000 of fair market value Closing There are a number of reasons that we would like City Management's and the Oversight Committee's endorsement of FCT's Proposal: · FCT's officers have the experience and prior track record in providing this service to the city of Dubuque. Our nine officers have over 150 collective years of fmancial services background. FCT is a part of the Dubuque community and has a partnership with two major Dubuque financial institutions: Dupaco Community Credit Union and DuTrac Community Credit Union. Dupaco and DuTrac are significant employers with 238 collective employees and pay $185,000 in Dubuque real estate taxes that help support city/county government services, etc. This employee base reSUlts in a significant payroll factor and a tremendous civic and charitable time commitment. * Dupaco and DuTrac have over 70,000 members. While this information is not available for the other area financial institutions, it is believed that Dupaco/DuTrac have more members/depositors than any other area financial institution. ~ Dupaco and DuTrac will benefit f~om FCT acting as a fourth investment advisor with responsibility over a portion of the longer-term portfolio. First Community Trust, its Board and Officers would love the oppommity to work with you in providing professional investment management for your investment portfolio. The change can be accomplished very simply with the preparation of a few documents. Attachments: Client Reference Letters FCT's 2001 Audited Financial Statement Explanation of Financial ReSUlts and Auditor's Letter Meet our Directors Dupaco & DuTrac Letters of Support Dubuque Area Financial Institution Data AGP-,I- INDUSTRIAL PLASTICS COMPANY February 21, 2002 Mr. M~chael Van Milligen City Manager of Dubuque 50 West 13m Street Dubuque, IA 520014864 Dear Mr. Van Milligen: I have been asked by First Community Trust, N.A~ (FCT) to provide a reference addressing their customer service and management of investment portfolios. I have bad fiduciary account relationships with FCT for the last 12 months and with Misters Repass and Murray for another 10 years (through First National, Hawkeye, Mercantile, First Banks in Dubuque). FCT's customer service is quite exceptional: providing meaningful, timely and accurate reports. They are very responsive to specific requests, well prepared for periodic meetings and provide a broad spectrum of financial knowledge. FCT's investment services manage several related accounts for me totaling in the 8-figure range. I have been pleased with their professional investment knowledge, attention to my investmems (both equities and fixed income), as well as the performance versus comparable benchmarks. I am confident that you and the City of Dubuque will be as pleased with FCT's service and investment performance as I have been. If I can provide additional information, please call me. President P. O. Box 950· ,-c~,'- '~-'l~d. Iowa 52556 · Phone 64~ -4/~--,~-~ "88 · -"". ,~^ 6,-" 4/2-,- -~n~_ February 28, 2002 Mr. Michael Van Milligen City Manager of Dubuque 50 West 13~ Street Dubuque, IA 52001-4864 Dear Mr. Van Mill tgen: have been asked by First Community Trust, N.A. (FCT) to provide a reference addressing their customer service and management of investment portfolios. I have had fiduciary account relationships with FCT for almost six months. Plus, I have known Chip Murray for the past several years. FCT's customer service is very good. They provide me with timely and accurate reports. They are very responsive to specific requests, well prepared for periodic meetings and provide a broad spectrum of financial knowledge. FCT is handling my accounts as I prepare to semi-retire. I have confidence that their expertise and experience will serve me well. I am confident that you and the City of Dubuque will be as pleased with FCT's service and investment performance as I have been. If I can provide additional information, please call me. Sincerely, Roger R. Ster~und, MD __ UNIVERSITY OF IOWA COMMUNITY CREDIT UNION POST OreICE BOX 2630, IOWA CITY, IOWA 52244 - TELEPHONE: (319) 341-2110 February 21, 2002 Mr. Michael Van Milligen City Manager's Office 50 West 13th Street Dubuque, Iowa 52004-4864 Dear Mr. Van Milligen, I am writing in reference to the asset management services currently being provided to us by First Community Trust (FCT). We have been a client of FCT since the spdng of 2001, using a number of different services. After hearing a recent proposal to enhance the yield within our investment portfolio we will be doing even more business with them in the near future. As a $270 million financial institution in existence for 64 years, we believed that we had already been maximizing our investment performance, but a well laid out and presented plan from FCT quickly changed a great deal of that thinking. We consider ourselves very fortunate to have the expertise of these fine individuals not only at our service, but in a manner that is so much more accessible and 'user-fdendly' than many of their local, regional, or national competitors. It is with this commitment to service that we're confident in moving even more of our future asset management and employee benefit needs in their direction in the months and years to come. It is our pleasure to recommend their services to you, and would be more than happy to answer any questions that you or your constituents might have about their impeccable qualifications. Our best wishes for your continued success, and again please do not hesitate to call if we can ever be of service. Sincerely, Jeffrey A. Disterhoft President / CEO The University of Iowa Community Credit Union Cc: Dale Repass, FCT IOWA AVENUE MORMON TREK TOWNCREST CORALVILLE GRSNNELL 319-339-1000 319-339-1002 319-339-1030 319-339-1020 641-236-8822 FIRST COPra'trINITY TRUST, N.A. DUBUQUE, IOWA F INAiNCIAL STATEiV!ENTS AS OF DECEMBER 31, 2001 AND INDEPP_~NDENT AUDITORS' REPORT FIRST CO~!TY TRTJST, N.A. DUBUQUE IOWA CONTENTS INdEPENdeNT AUDITORS' REPORT BAILANCE SHEET STATe'lENT OF iNCO~IE 'LOSS) INCOMi (LOSS} STATEdViENT OF STOCIfI-10LDERS~ STATEtW?ENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS .~N~ COMPREH~NS!VE EQUITY Pace No. 3 4 5 6 12 INrDEPEI~IDENT A~JOITORS ' REPORT The Board of Directors First Community Trust, Dubu~ae, Iowa 52002 We have audited the accompanying balance sheet of FIRST C0~ITY TRUST, N.A. as of December 31, 2001 and the related statements of income (loss) and comprehensive income (loss), stocl~ho!ders' e_quity, and cash flows for the year then ended. These financial statements are the responsibility of the Cbmpany's m.~nagement. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we pt~n and perforra the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Am 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 sigmificant estimates made by m~nagement, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2001, and the results of tkeir operations and their cash flows for the year then ended in conform, ity with generally accepted accounting principles. JIM KIRCHER, CPA, P.C ~nbuque, January 16, 2002 FIRST COMlVru,~_-!TY TRUST, N.A. BA_LA~NCE SHEET AS OF DnCEMB~R 31 2001 ASSETS Cas~ in Bank Available-For-Sale Securities, at Fair Value (Notes 3 & 4) Federal Reserve Stock, at Cost (Note 3) Accrued Investment Income Receivable Fees Receivable E~eipment, at Cost, Net of Depreciation of $8,626 (Note 3) Prepaid Expenses Other Assets, Net (Note 3) Total Assets 25,706 3,305,582 126,750 65,105 32,868 37,555 2,525 22,000 S 3~6i8~091 LIABILITIES AiYD STOC~0LDERS' EQUITY Liabilities: Accounts payable Accrued pension contribution Accrued expenses and other liabilities Total Liabilities Co_mm_~ments (Notes 9, !0 & 1i) Stockholders' Equity: (Notes 3, 5 & 6) Common stock, $1 par value, 1,000,000 shares authorized, 422,500 shares issued and outstanding Additional paid in capital Accumulated other comprehensive income {loss) Acc'~lulated deficit Total Stockholders' E~eity Total Liabilities and Stockholders' Equity See Notes to Financial Statements. 21,123 47,946 4,445 422,500 3,802,500 56,018 (736,44!) $ 73,514 3~544,577 s 3,61~s,, 09! FIRST CONP!I3~TITY TRUST, N.A. STATEi~NT O? INCON~ (LOSS) }zND COMPREHENSIVE iNCOME (LOSS) FOR THE YE}t ENDED DEC~V~ER 31, 2001 income: Estates and Trusts Custodial and agency Employee benefit trusts investment securities Total Income Operating Expenses: Salaries Payroll taxes Pension contribution (note 7} Employee benefits Outside services Occupancy CCC exam fees Professional-fees Office expenses Vehicle ex!penses Depreciation and amortization Insurance Dues and subscriptions Marketing and public relations Other Total Operating Expenses Income (Loss) From Operations Other Income (Expenses): Start-up costs (note 8} Interest earned on escrow funds Net Other Ex_Denses Income Taxes (Note 12) Net Income (Loss) O~_er Comprehensive income (Loss): Unrealized holding gains (losses) securities available for sale Co~@rehensive income (Loss) (Note 3) on $ 68,644 110,786 2,418 225,415 $ 622,315 43,054 47,946 22,420 42,955 8,364 22,321 31,639 32,902 9,481 14,126 18,383 7,830 13,159 18~440 $ (204,380) !6~011 $ 407,263 955,335 (548,072 188,369) $. (736,441) 56,018 (680,423 See Notes to Financial Statements. -3- FIRST COFLMU~iTY TRUST, N.A. STATEP~_~T OF STOC~qOLDERS' EQUITY FOR THE YEAt LN~ED DECF-PiBER 31, 200i Issuance of 422,500 shares of stock $ Accumulated Additional Other Common Paid-In Comprehensive Stock Capital Income {Loss) 422,500 $ 3,802,500 $ -0- -0- Net Loss Other Compre- hensive Income (Loss) Accumulated Deficit Total -0- $ -0- $ 4,225,000 -0- (736,441) (736,44t) -0- -0- 56,0!8 -0- 56,018 56,018 at 12-31-01 $ 422~500 3,802,500 S $ {7361441) S 3,544,577 See Motes To Financial Statements. FIRST COPR4U~iTY THUST, N.A. STATEMENT OF CASH FLOWS FOR THE YE~ ENDED DECEMBER 31, 2001 Cash Flows From Operating Activities: Net income (loss) Adjustments to Reconcile Net Income (Loss) to Net Cash from Operating Activities: Depreciation and ~ortization Changes In: Accrued investment income receivable Fees receivable Prepaid expenses Other assets Accounts payable Accrued pension contribution Accrued expenses and other liabilities Net Adjustments Net Cash Provided By (Used In) Operating Activities Cash Flows From Investing Activities: Purchase of investment securities available for sale Redemption of investment securities available for sale Purchase of federal reserve stock Purchase of equipment Net Cash Used in Investment Activities Cash Flows From Financing Activities: Proceeds from issuance of common stock Cash in Bank, End of Year Noncash Investing and Financing Activities From SFAS 115 Adjustments: Gross unrealized gains (losses) on available for sale securities Deferred income taxes (note 12) Net (decrease) increase in stockholders' $ 14,126 (65~105) (32,868) (2,525) (27,500) 2!,i23 47,948 4~445 $ (736,44!} $ (4,503,125) 1,253,561 (126,750) (46,181) e~aity (776,799) (3,422,495) 4,225,000 S 25,706 $ 56,018 S 56~018 See Notes To Financial Statements. -5- FIRST COM1Kfu3I!TY TRUST, N.A. NOTES TO FINAzNCIAL STATEldF~NTS DECE~ER 3!, 200! Note ! Back,round First Community Trust, N.A. (FCT) was organized on November 10, 2000 as an office of the Comptroller of the Currency (OCC) chartered bank with trust powers only. FCT received final approval of their charter appiication from the Kansas City office of the OCC in late December, 2000 to commence operations on January 2, 2001. Note 2 Nature of Business FCT is a national banking association with trust powers only. FCT engages in the business of offering fiduciary/trust services to the general public and the m~mbership base of six major credit unions. FCT~s income is derived from fees charged on fiduciary/trust accounts and interest earned on investment securities. Its principal expenses are salaries for trust persoN_nel, equipment costs, accounting systems, and general operating expenses. FCT is based in Dubuque, Iowa and offers trust, investment and retirement services in Dubuque, Waterloo, Cedar Rapids, and Iowa City, Iowa and also in Rock Island Illinois. The market for FCT is individuals, businesses, non-profit organizations and credit union members in the communities serviced. Note 3 Summary of Sicr~_ificant Accountinc Policies The accounting and financial reporting policies of FCT conform with U.S. generally accepted accounting principles. The following is a description of significant accounting policies. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and ass~aptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash Equivalents For purposes of the statement of cash flows, FCT considers all short-term instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash e~ivalents at December 31, 200!. F~RST COt~Av53NITY NOTES TO FIN~_NCIkL STATE,~w~TS DECE~BER 3!, 2001 Note 3 Summary of Sicnificant Accountinc Policies (Continued Comprehensive Income {Loss} The Company accounts for comprehensive income (loss) in accordance with Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income", which requires comprehensive income and its components to be reported when a company has items of other comprehensive income. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events from non-owner sources. Comprehensive income (loss) is the total of net income (loss) and other comprehensive income (loss), which for FCT is comprised entirely of unrealized gains and losses on securities available for sale. Investment Securities FCT follows the provisions of Statement of Financial Accounting Standards No. 115, ~Accounting for Certain Investments in Debt and Equity Securities~ (SFAS 115). The Bank has designated its entire investment security portfolio[ as available for sale. Under SFAS 115, investment securities classified as available for sale are reported at the aggregate 'of estimated market value. Net u~.reaiized gains and losses on investment securities available for sale, are excluded from net income and reported by FCT as other comprehensive income (loss) and as a separate component of stockholders' e~ity. Accordingly~ these amounts are also reported as other comprehensive income (loss) and as a separate component of stockholders' equity of the Company. Market values are based on quoted market prices. Restricted Securities The investment in Federal Rese~¢e Bank stock is a restricted security that is. recorded at cost, which approximates fair value. Ec~iDment Depreciation of equipment is computed primarily by accelerated and straight-line methods utilizing estimated useful lives of 5 to 8 years for furniture and equipment. During 2001~ depreciation charged to operations was $8,626. -7- FIRST COMM-JNITY TRUST, N.A. NOTES ro F!N~C!AL STATemENTS DECE}~ER 31, 2001 Note Su~-~aarv of Sic~ificanm Accountinc Policies (Continued} Orcanizational Cosms Cosms incurred in the organization of the Company were e~cp_ensed when incurred. Note 4 - Other Assets/Amortization Amortizable assets are recorded at cost. ~ortization is calculated by the straight-line method over the estimated useful lives of the assets. During 2001 amortization charged to operations was S5,500. Investment Securimmes As of December 31, 2001, all investment securities were designed as available for sale under the provisions of SFAS 115 and are reflected in the balance sheet at their estimated market value. The amortized cosm, gross unrealized gains, gross unrealized losses and estimated market value of available for sale securities as of December 31, 2001 were as follows: Amortized Cost U.S. Goverr~ment Agencies $ 2,025,000 $ 39,750 Corporate Debt Securities 841,505 16,845 Mutual Fund fixed Income !50,000 -0- Go!~man Federal Fund 233,058 -O- Total S 3,249,563 S 56,595 investment Gross Gross Estimated Unrealized Unrealized Market Gains Losses Value -0- $ 2,064,750 -0- 858,350 (576) 149,424 -0- 233,058 (576} S 3,305,582 -8- F!KS? C©PiCU~iTY TRUST, NOTES TO FIN~NCIA~ STATEPLENT DECEMBER 3!, 2001 Note 4 - Investment Securities (Continued) The ~mo_~z~=d and estimated market value of investment securztzes desi~ated as available for sale as of December 3!, 2001, by contractual maturity, are shoern below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated A~ortized Market Cost Value $ 1,918,005 $ 1,950,756 948~500 972,344 S 2,866~505 $ 2,923,100 Within one year After one through five years Total Note 5 - Note 6 - Stoc~qolders' EcPaity The Comptroller of the Currency (OCC) requires that FCT shall maintain a minimum of $2 million in Tier 1 capital at all times. Tier t capital is all capital items except accumulated other comprehensive income (loss). At December 31, 2001, Tier ! capital amounted to $3,488,559. Stock 0~tion Plan The Company has a Stock Option Plan providing for the granting of a maximum of !00,000 options to purchase common stock by employees of PCT. The option price per share may not be less than the fair market value of a share on the date an option is granted (at least 110% of fair market for options granted to 10% or more stockholders). The maximnm term of an option may not be more than ten years (not more than five years for options granted to 10% or more stocl~ko!ders). The Stock Option Plan terminates January, 17, 2011 and options issued prior to that date shall remain in effect under their original term. No compensation expense has been recognized as a result of granting the stock options. -9- FIRST COPPEJNiTY TRUST, N.A. NOTES TO FINANCIAL STATEMENTS DECE~?~ER 31, 2001 Note 6 - Stock O~tion Plan (Continued} A summary of stock'o~tions granted and outstanding as of December 31, 2001 is as follows: Year Exercise Expiration Granted Price Date 2001 2001 2001 Total Options Options Options Granted Canceled Outstandinc 50,000 7 500 ~z,500 2,500 -0- 2,500 5,000 -0- 5,000 5___~7~500 7~500 __50,000 $ 10 11-30-2010 $ 10 8-23-2011 $ i0 10-11-2011 Note 7 Employee Benefit Plans FCT has established both a 40!(k) Profit Sharing Plan and a Money Purchase Plan covering all employees. Under the te_rras of the 401(k) Profit Sharing Plan, the Company can elect to make discretionary contributions. FCT did not make a contribution in 2001. Under the te-rms of the Money Purchase plan, PCT will contribute 10% of each participant's cor%eensation for the plan year. During 2001, the contribution amounted to $47,946. The Money Purchase Plan was te_rminated December 31, 2001. Note 8 - Start-Up Costs Costs incurred prior to FCT commencing operations on January 2, 2001 include the following: Salaries Legal and other $ 149,857 54,523 $ 204,380 All start-up costs were expensed to operations in 2001. -!0- FIRST CON/~Sl~ITY TRUST, N.A. NOTES TO FIN:~_NCiAL STATEMENTS DmCW_lVfBmR 31, 2001 Note 9 - Lease Acreements The Company leases its office facilities -under a lease that will expire November 30, 2003. The lease provides for monthly rental payments of $600. The Company also leases two motor vehicles under non-cance!able operating leases that will expire November 2003. The leases provide for monthly lease payments of $1,275. Future minim~ lease payments on these leases are as follows Year ending Office December 31 Lease Vehicle Leases Total 2002 7,200 15,300 22,500 2003 6,600 12,750 19,350 Note t0 Trust Services and Marketinc AGreements FCT has entered into six (6) agreements with Credit Unions whereby FCT agrees to offer certain Trust services to Credit Union members and as appropriate promote Credit Union products and services and Credit Union will provide ~uch assistance to FCT as it is necessary to promote the services offered by FCT. The initial term of the agreements is for five (5) years commencing January !, 2001 and will expire December 31, 2005. The agreements will automatically continue for additional successive three year periods after the initial term, subject to certain te_~nsand conditions. Each year FCT will pay to Credit Union a fee e~aal to 10% of all fees received or retained by FCT with respect to sales of trust services at the trust services office during that year. During 2001 FCT paid $ 5,741 to the Credit Unions as a result of these agreements. -!iI FIRST COMlVffo~iTY TRUST, N.A. NOTES TO FiN}zNC!AL STATF2VlIENTS DEC~ER 31, 2001 Note 11 - Sunward Aqreemenu FCT has entered into a five (5 year agreement with Sungard Asset Management Systems (S~ngard) whereby Sungard will provide FCT with certain computer programs proprietary to Sungard which will provide FCT an automated sysmem of Trust Department accounting. The agreement stipulates that PCT will pay Sungard a monthly fee based on a predetermined compensation formula. During 2001, FCT paid Sungard $4'5,955 under this agreement Note 12 - Taxes FCT elected in 2001 to be recognized as an S Corporation under the internal Revenue Code whereby the Company pays no tax on its earnings, rather the earnings or losses are reported by the shareholders on their individual income taxes returns. -12- Cedar Rapids Dubuque Iowa City Quad Cities Waterloo Memorandum To: City Oversight Committee Michael Van Milligen Ken TeKippe From: Dale P. Repass Dated: July 25, 2002 Re: Explanation of 2001 Financial Results of FCT In reviewing the 2001 Audit of FCT's financial statements you will note that the company had an operating loss in 2001. As with any new business, there is a period during the initial years of operation when an operating loss is unavoidable. FCT, in our application to the Comptroller of the Currency (OCC) projected an operating loss during the first three years of operation. 2001's operating loss was within $10,000 of our initial projections and year to date in 2002 are also close to the projected budget. Our accountant, Jim Kircher has an attached letter regarding this point. During the application process the OCC made sure that FCT raised sufficient capital to sustain losses incurred during the initial years of operation. The OCC required that FCT maintain a capital level of at least $2 million at all times. During the OCC's annual examination, they were quite pleased to see FCT's performance for 2001 was in line with original projections. We expect to reach profitability by the end of next year. Based upon the success of the last 18 months, we anticipate meeting or exceeding our budget in the coming years. FIRST (O~AM~JNITY TRUST, H,A. March 19, 2002 Mr. Michael Van MilIigen Dubuque City Manager City Hall Dubuque, Iowa 52001 Re: First Community Trust, N.A. Dear ~Mr. Van Milligen: It is our understanding the City of Dubuque is exploring the possibility of engaging First Community Trust (FCT) to manage City funds. We will attempt To briefly outline our association with FCT. Sometime in June, 2000, we met with Messrs. Dale Repass and Chip Murray who at that time had the concept and desire to orgarfize a national bank with Trust powers only. A truly innovative concept in the banking industry. By the end of 2000, the concept became a reality and as of January 2, 2001 FCT commenced operations. During 2001, our firm was engaged to perform certain accounting anal payroll functions. In addition, our fn-m performed an A~eed-Upon Procedures Review of FCT's Trust operations and finally a Independent Certified Audit of FCT's financial statements. Both reports were issued with no adverse findings. In early 2002, we participated in a limited way with CCC in their Safety and Soundness/Asset Management Annual Examination. Their report was a favorable one. In conclusion, we hgve been impressed with the management a~.d organizational sells Of Messrs. Repass and Murray. They have been on budget, not an easy task for any entity bur particularly difficult for a start up company. The main stren~hs of FCT our its'founders, the quality mm~agement team they have required at ali locations, and a dedicated and active Board of Directors. It wilI be no sm~rise to this Firm, that FCT will be profitable before its ori~nal target by the fourth year. We believe FCT will be the ideal model for future Trust powers only banks ro follow. FCT's attractiveness is its focus on Trust operations only. Respectfully submitted, JIM KIRCI-IER, CPA, P.C. By Jim I<2ircher, CPA IK/sd cc/Messrs. Repass and Murray Cedar Rapids Dubuque Iowa City O_uad Cities Waterloo MEET OUR DIRECTORS Richard J. Bur,qmeier - Burgmeier is a retired business executive from Cycare Systems, Inc., a computer software company he helped originate. Mr. Burgmeier served as an executive officer and director of the company for many years. He currently is volunteer director for DuPaco Community Credit Union in Dubuque, IA. Mr. Burgmeier is a graduate of the University of Detroit with a degree in accounting. K. Bruce Laudtsen - Lauritsen is President and CEO of Flexsteel Industries, a large furniture manufacturing company headquartered in Dubuque, IA. He is a graduate of Creighton University and served in the U.S. Army. Mr. Lauritsen was recently a member of the Board of Regents of Loras College in Dubuque. IA. He also served on the Board of Directors of Mercantile Bank in Dubuque for eleven years. Richard K. Smith - Smith is the owner and founder of Agfi-lndustrial Plastics, a plastics company located in Fairfield, IA. He received his undergraduate degree from the University of Iowa and a MBA degree from Rensselaer/Polytechnical Institute. Mr. Smith served on the Board of Directors of Iowa State Bank and Trust in Fairfield, IA for seven years. Barry Stump - Stump is a retired Cedar Rapids business executive, who spent 25 years at St. Luke's Methodist Hospital as Vice President of Human Resources. He graduated from California State University with a BS in Business Administration. Stump has served as a director of Collins Community Credit Union in Cedar Rapids for the last 18 years and currently is Chairperson of the Board. Dean Bor,q - Borg is Director of Information and Broadcast Producer at the University of Iowa, Iowa City, Iowa, since 1973. He received his undergraduate degree from Iowa State University, Ames, Iowa and his MBA degree from the University of Iowa. Mr. Borg has served on the Board of Directors of the University of Iowa Community Credit Union for the last 20 years and is currently Chairperson of the Board. Mr. Borg is often seen on Iowa Public Television as the host and commentator for a number of their programs. FIRST COMMUNITY TRg$T, N,A. Don Iverson - Jverson is a successftJI business entrepreneur who has been involved in several ventures, principally in the construction business. He is currently owner of Doniver, Inc. lverson received his Engineering Degree from Wisconsin Institute, Platteville, W~sconsin Carolyn Haupert - Haupert is a retired business executive from McKesson HBOC/Cycare Systems, where she served on the Board of Directors and was employed for 25 years. Haupert received her undergraduate degree from Clarke College, Dubuque, Iowa. She currently teaches as an adjunct professor at Clarke College, in the computer department. Marvin Becker- Becker is a retired business executive from Flexsteel Industries, where he worked for 40 years, most recently as CFO and Treasurer of the Board of Directors. Becket was also Chairperson of the Board of Harvest Savings Bank, Dubuque, Iowa, for 12 years. He orchestrated the very successful sate of Harvest to Firstar Bank several years ago. Dale P. Repass - Repass has been associated with commercial banking since 1975. Most recently he served as community and regional president for a large regional banking organization. He also has extensive trust experience and is a member of the Iowa and American Bar Associations. Francis A. Murray - Murray has been associated with commercial banking for 17 years. He has extensive trust experience and most recently served as Executive Vice president - Retail Banking for a large regional banking organization. In November 1999, he joined a large credit union as Senior Vice President Lending and Business Development Inly 11, 2002 Michael VamMilligen, City Manager City of Dubuque City Hall Dubuque, Iowa 52001 Re: First Community Trust Investment Proposal for City Funds Dear Mike: I am writing in support of and to encourage you and City Investment Oversight Committee to look favorably upon First Community Trust's proposal. Please consider the following as you prepare your recommendations: First Community Trust is locally owned and has partnered with two major financial institutions in this community, ie: Dupaco Community and DuTrac Community Credit Unions. We have become significant employers as well as property and sales tax collectors within our community. Success of First Community Trust will mean further · success for both Dupaco and DuTrac in that each will receive a portion of the fees received for this service. Chip Murray played a major role in implementing your investment policy of ali city funds deposited at Firstar Trust in previous years. These same skills and talents can now be put to work here through the locally owned First Community Trust, N.A. with the execution of this proposal, First Community Trust is also a tax paying entity, which employs six professionals living in the Dubuque County. This proposal presents you additional diversification and investment guidance with the ultimate goal of achieving the best possible results for the citizens of the City of Dubuque. I ask for your full consideration ~vith a recommendation to implement use of First Community Trust Services to the Investment Oversight Committee with eventual completion of a serwice a~eemem. Should you have any further questions or concerns, please direct those calls to me at 557-1700, extension #2251. I will be happy to discuss any concerns you may have. Thank you fo your full consideration. Sincerely, Robert W. Hoefer President/CEO cc: Ken TeK/ppe Dale Repass You' Trusted ?~c~a! Parrner Community Credit Union July 11, 2002 Michael VamMilligen, City Manager Dubuque City Hail 50 W. I? Street Dubuque, IA 52001 Dear Mr. VanM/ll/gen, First Commumty Trust, NA, has recendy submitted a proposal to manage a portion of Dubuque's investment purtfoho. Th/s letter is to encourage you and the Investment Oversight Committee to look favorably upon their proposal. First Corarnunity Trust, NA, does have a s~rategic alliance with us and Dupaco Commumty Credit Un/on to provide trust services to our ruemberships. Obviously, we have chosen them to provide th/s service because they have the expertise, resource and competitive fee structure that w/il provide the quality of service demanded by our member/owners and m~n~gemant of our two financial ins~mtious. We also feel their expertise and resource can remain quite focused to providing maximum benefit and quality product for our memberships due to their limited purpose charter. I believe the limited charter and added competition for m~n~gement of City funds will also provide similar benefits to the Dubuque coInmumry. In combination, DuTmc Community Cred/t Un/on and Dupaco Co~muanity Credit Unions, provide financial services to a significant port/on of the residents of Dubuque. Your favorable consideration ro First Corranunity's proposal will provide direct ~eKefit m our credit unions and to the residents we serve. Your use of their financial expertise and management will not oniy add stzengzh to their organization, but will also benefit residents of Dubuque directly througtt your abii/ties to continue City services with the quality and level of service we have all gown to expect. Your favorable consideration and recommendation will be greatly appreciated. Thank you in advance for your help in ttfis regard. Very lzuly yours, om N. Sarv~s ' Presid&nt/CEO CREDIT UNIDNS' Cedar Rapid: Dubuque Iowa City Quad Cid,s Memorandum Michael Vma Milligen Ken TeKippe From: Dale P. Repass Date: July 25, 2002 Re: Dubuque Financial Institution Dam The foliowing Dubuque Financial Institution data ~s obtained from the Greater Dubuque Development Corporafio~k as of January 2002. Institution Deposits (millions) % Of Total area Deposits Dubuque Bamk & Trust 496 27.5 American Trust 428 23.7 Firstar Bank 254 14. I Dupaco 220 12.2 DuTmc 182 10.1 East Dubuque 111 6.1 Liberty Bank 61 3.4 Premier Bank 54 3.0 Total 1806 100.1 Since First Commardty Trust has a srrate~c alliance with both Dupaeo and DuTrac credit tmiom, it is fak to evaluate their combined size, which is $402 million or 22.3% of the total Dubuque area deposits. On a combined deposit bas/s Dupaco/DuTrac come m a solid third place in the Dubuque community. Other than DB&T, Americam and Firsmr there are no Dubuque area trust divisions that could handle the current request of First Community Trust (in aasoc/ation with Dupaco and DuTrac). We do not foresee that cha~ging in the foreseeable future. FIRS? ~OMM~tlITY Y~lJ$~ ~V,A.