SCHEDULE 14A
INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy
Statement
o Confidential, for Use
of the Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive Proxy
Statement
o Definitive Additional
Materials
o Soliciting Material
Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HEARTLAND
FINANCIAL USA, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than
Registrant)
Payment of Filing Fee (Check the appropriate box):
x No fee required
o Fee computed on table
below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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Title of each class of securities to which
transaction applies:
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Aggregate number of securities to which
transaction applies:
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3)
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Per unit price or other underlying value of
transaction computed puruant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is
calculated and state how it was determined):
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Proposed maximum aggregate value of
transaction:
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Total fee
paid:
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o Fee paid previously with
preliminary materials.
o Check box if any part of the
fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the
off setting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
off setting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
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Amount Previously Paid:
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Form, Schedule, or Registration Statement
No.:
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Filing Party:
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Date Filed: |
April 9, 2008
Dear
Fellow Stockholder:
You are
cordially invited to attend the annual stockholders’ meeting of Heartland
Financial USA, Inc. to be held at the Grand River Center, 500 Bell Street,
Dubuque, Iowa, on Wednesday, May 21, 2008, at 6:00 p.m. The accompanying notice
of the annual meeting of stockholders and proxy statement discuss the business
to be conducted at the meeting. A copy of our 2007 Annual Report to Stockholders
is also enclosed. At the meeting, we will report on operations and the outlook
for the year ahead.
At the
meeting, you will be asked to vote on a number of matters. Our
compensation/nominating committee has nominated two persons to serve as Class
III directors and the board of directors recommends that you vote your shares
for each of the director nominees. Additionally, our audit/corporate governance
committee has selected, and we recommend that you ratify the selection of KPMG
LLP to continue as our independent registered public accounting firm for the
year ending December 31, 2008.
We
encourage you to attend our annual meeting in person and enjoy fellowship with
other stockholders at the reception following our meeting. Whether or not you plan to attend,
however, please complete, sign and date the enclosed proxy and return it in the
accompanying postage-paid return envelope as promptly as possible. This
will ensure that your shares are represented at the meeting.
I look forward with pleasure to seeing
you and visiting with you at the meeting.
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Very best
personal wishes,
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| /s/ Lynn B. Fuller |
| Lynn B. Fuller |
| Chairman of the Board |
1398
Central Avenue · Dubuque, Iowa 52001 · (563) 589-2100
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We
especially ask you to join the directors and other fellow stockholders for
cocktails and hors d’oeuvres following the meeting as we celebrate our
successes during 2007. In order to comfortably accommodate all
stockholders, we ask that you please return the enclosed reservation card.
Doing so will allow us to have a nametag prepared for each attendee. This
celebration will be held at our corporate headquarters located in the main
bank building of Dubuque Bank and Trust, 1398 Central Avenue, Dubuque,
Iowa, beginning at approximately 7:00 p.m. You need not attend the annual
meeting in order to attend the
celebration.
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD MAY 21, 2008
TO
THE STOCKHOLDERS:
The annual meeting of stockholders of
HEARTLAND FINANCIAL USA,
INC. will be held at the Grand River Center, 500 Bell Street,
Dubuque, Iowa, on Wednesday, May 21, 2008, at 6:00 p.m., for the purpose of
considering and voting upon the following matters:
1. to
elect two Class III directors;
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to
ratify the appointment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending December 31, 2008;
and
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3.
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to
transact such other business as may properly be brought before the meeting
or any adjournments or postponements of the
meeting.
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The board of directors is not aware of
any other business to come before the meeting. Stockholders of record at the
close of business on March 24, 2008, are the stockholders entitled to vote at
the meeting and any adjournments or postponements of the meeting. In the event
there are an insufficient number of votes for a quorum or to approve or ratify
any of the foregoing proposals at the time of the annual meeting, the meeting
may be adjourned or postponed in order to permit further solicitation of
proxies.
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By order
of the Board of Directors
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/s/ Lois
K. Pearce
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| Lois K. Pearce |
| Secretary |
Dubuque,
Iowa
April 9,
2008
IMPORTANT:
THE PROMPT RETURN OF PROXIES WILL SAVE US THE EXPENSE OF FURTHER REQUESTS FOR
PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED
STATES.
PROXY
STATEMENT
This proxy statement is furnished in
connection with the solicitation by the board of directors of Heartland
Financial USA, Inc. of proxies to be voted at the annual meeting of stockholders
to be held at the Grand River Center located at 500 Bell Street, Dubuque, Iowa,
on Wednesday, May 21, 2008, at 6:00 p.m. local time, or at any adjournments or
postponements of the meeting. We first mailed this proxy statement on or about
April 9, 2008.
Heartland Financial USA, Inc., a
Delaware corporation, is a diversified financial services holding company
headquartered in Dubuque, Iowa. We offer full-service community banking through
ten bank subsidiaries with a total of 60 banking locations in Iowa, Illinois,
Wisconsin, New Mexico, Arizona, Montana, Colorado and Minnesota. In addition, we
have separate subsidiaries in the consumer finance and insurance agency
businesses. Our primary strategy is to increase profitability and diversify our
market area and asset base by expanding existing subsidiaries, by establishing
de novo banks and
through acquisitions.
The following information regarding the
meeting and the voting process is presented in a question and answer
format.
Why
am I receiving this proxy statement and proxy card?
You are receiving a proxy statement
and proxy card from us because on March 24, 2008, you owned shares of our common
stock. This proxy statement describes the matters that will be presented for
consideration by the stockholders at the annual meeting. It also gives you
information concerning the matters to be voted upon to assist you in making an
informed decision.
When you sign the enclosed proxy
card, you appoint the proxy holder as your representative at the meeting. The
proxy holder will vote your shares as you have instructed in the proxy card,
thereby ensuring that your shares will be voted whether or not you attend the
meeting. Even if you plan to attend the meeting, you should complete, sign and
return your proxy card in advance of the meeting just in case your plans
change.
If you have signed and returned the
proxy card and an issue comes up for a vote at the meeting that is not
identified on the form, the proxy holder will vote your shares, pursuant to your
proxy, in accordance with his or her judgment.
What
matters will be voted on at the meeting?
You are being asked to vote on the
election of two Class III directors of Heartland for a term expiring in 2011 and
to ratify the selection of KPMG LLP to continue as our independent registered
public accounting firm for the fiscal year ending December 31, 2008. These
matters are more fully described in this proxy statement.
How
do I vote?
You may vote either by mail or in
person at the meeting. To vote by mail, complete and sign the enclosed proxy
card and mail it in the enclosed pre-addressed envelope. No postage is required
if mailed in the United States. If you mark your proxy card to indicate how you
want your shares voted, your shares will be voted as you instruct.
If you sign and return your proxy
card but do not mark the form to provide voting instructions, the shares
represented by your proxy card will be voted “for” all nominees named in this
proxy statement and “for” the ratification of our independent registered public
accounting firm.
If you want to vote in person, please
come to the meeting. We will distribute written ballots to anyone who wants to
vote at the meeting. Please note, however, that if your shares are held in the
name of your broker (or in what is usually referred to as “street name”), you
will need to arrange to obtain a separate proxy from your broker in order to
vote in person at the meeting.
What
does it mean if I receive more than one proxy card?
It means that you have multiple
holdings reflected in our stock transfer records and/or in accounts with
brokers. Please sign and return ALL proxy cards to ensure that all your shares
are voted.
If
I hold shares in the name of a broker, who votes my shares?
If you received this proxy statement
from your broker, your broker should have given you instructions for directing
how your broker should vote your shares. It will then be your broker’s
responsibility to vote your shares for you in the manner you
direct.
Under the rules of various national
and regional securities exchanges, brokers may generally vote on routine
matters, such as the election of directors, but cannot vote on non-routine
matters, such as an amendment to the certificate of incorporation or the
adoption or amendment of a stock incentive plan, unless they have received
voting instructions from the person for whom they are holding shares. If your
broker does not receive instructions from you on how to vote particular shares
on matters on which your broker does not have discretionary authority to vote,
your broker will return the proxy form to us, indicating that he or she does not
have the authority to vote on these matters. This is generally referred to as a
“broker non-vote” and will affect the outcome of the voting as described below,
under “How many votes are needed for approval of each proposal?” Therefore, we
encourage you to provide directions to your broker as to how you want your
shares voted on all matters to be brought before the meeting. You should do this
by carefully following the instructions your broker gives you concerning its
procedures. This ensures that your shares will be voted at the
meeting.
What
if I change my mind after I return my proxy?
If you hold your shares in your own
name, you may revoke your proxy and change your vote at any time before the
polls close at the meeting. You may do this by:
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signing
another proxy with a later date and returning that proxy to Ms. Lois K.
Pearce, Secretary, Heartland Financial USA, Inc., 1398 Central Avenue,
Dubuque, Iowa 52001;
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sending
notice to us that you are revoking your proxy; or
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voting
in person at the meeting.
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If you hold your shares in the name
of your broker and desire to revoke your proxy, you will need to contact your
broker to revoke your proxy.
How
many votes do we need to hold the annual meeting?
A majority of the shares that are
outstanding and entitled to vote as of the record date must be present in person
or by proxy at the meeting in order to hold the meeting and conduct
business.
Shares are counted as present at the
meeting if the stockholder either:
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is
present and votes in person at the meeting;
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has
properly submitted a signed proxy card or other
proxy.
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On March 24, 2008, the record date,
there were 16,362,529 shares of common stock issued and outstanding. Therefore,
at least 8,181,266 shares need to be present at the annual meeting in order to
hold the meeting and conduct business.
What
happens if a nominee is unable to stand for election?
The board may, by resolution, provide
for a lesser number of directors or designate a substitute nominee. In the
latter case, shares represented by proxies may be voted for a substitute
nominee. You cannot vote for more than two nominees. The board has no reason to
believe any nominee will be unable to stand for election.
What
options do I have in voting on each of the proposals?
You may vote “for” or “withhold
authority to vote for” each nominee for director. You may vote “for,” “against”
or “abstain” on any other proposal that may properly be brought before the
meeting.
How
many votes may I cast?
Generally, you are entitled to cast one
vote for each share of stock you owned on the record date.
How
many votes are needed for each proposal?
The directors are elected by a
plurality and the two individuals receiving the highest number of votes cast
“for” their election will be elected as directors of Heartland. All other
matters, including the ratification of our independent registered public
accounting firm, must receive the affirmative vote of a majority of the shares
present in person or by proxy at the meeting and entitled to vote.
Broker
non-votes will not be counted as entitled to vote, but will count for purposes
of determining whether or not a quorum is present on the matter. So long as a
quorum is present, broker non-votes will have no effect on the outcome of the
matters to be taken up at the meeting.
Where
do I find the voting results of the meeting?
We will announce preliminary voting
results at the meeting. The voting results will also be disclosed in our Form
10-Q for the quarter ended June 30, 2008.
Who
bears the cost of soliciting proxies?
We will bear the cost of soliciting
proxies. In addition to solicitations by mail, officers, directors and employees
of Heartland or its subsidiaries may solicit proxies in person or by telephone.
These persons will not receive any special or additional compensation for
soliciting proxies. We may reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation materials to stockholders.
ELECTION
OF DIRECTORS
At the annual meeting to be held on May
21, 2008, you will be entitled to elect two Class III directors for terms
expiring in 2011. The board of directors is divided into three classes of
directors having staggered terms of three years. Both of the nominees for
election as Class III directors are incumbent directors. We have no knowledge
that either of the nominees will refuse or be unable to serve, but if any of the
nominees become unavailable for election, the holders of proxies reserve the
right to substitute another person of their choice as a nominee when voting at
the meeting.
Set forth below is information
concerning the nominees for election and for the other directors whose terms of
office will continue after the meeting, including the age, year first elected a
director and business experience of each during the previous five years. The
nominees for Class III directors, if elected at the annual meeting, will serve
for a three-year term expiring in 2011. The board of directors recommends
that you vote your shares FOR each of the nominees.
NOMINEES
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Name
(Age)
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Served
as Heartland
Financial
USA, Inc.
Director
Since
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Positions
with Heartland Financial USA, Inc. and its Subsidiaries and
Principal
Occupation
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CLASS
III
(Term
Expires 2011)
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James
F. Conlan
(Age
44)
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2000
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Director
of Dubuque Bank and Trust; Director of Citizens Finance; Partner
(1996-Present) and Member of Executive Committee (2005-present) of Sidley
Austin LLP; Vice Chairman (2000-2006) and Co-Chairman (2006-present) of
the Firm-wide Corporate Reorganization Practice of Sidley Austin
LLP
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Thomas
L. Flynn
(Age
52)
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2002
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Vice
Chairman of the Board of Heartland; Director (2000-present) and Vice
Chairman of the Board (2006-present) of Dubuque Bank and Trust; Director
of Citizens Finance; President, Chief Executive Officer and Chief
Financial Officer of Flynn Ready-Mix Concrete
Co.
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CONTINUING
DIRECTORS
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Name
(Age)
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Served
as Heartland
Financial
USA, Inc.
Director
Since
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Positions
with Heartland Financial USA, Inc. and its Subsidiaries and
Principal
Occupation
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CLASS
I
(Term
Expires 2009)
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Lynn
B. Fuller
(Age
58)
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1987
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Chairman
of the Board, President and Chief Executive Officer of Heartland; Director
and Vice Chairman of the Board of Dubuque Bank and Trust; Director
(1992-2004) and Vice Chairman of the Board (2001-2004) of Galena State
Bank; Director (1994-2004) and Vice Chairman of the Board (2001-2004) of
First Community Bank; Director (1995-2004) and Vice Chairman of the Board
(2001-2004) of Riverside Community Bank; Director and Vice Chairman of the
Board of Wisconsin Community Bank and New Mexico Bank & Trust;
Director and Vice Chairman of the Board of Arizona Bank & Trust;
Director (2004-present) and Vice Chairman of the Board (2004-present) of
Rocky Mountain Bank; Director (2006-present) and Vice Chairman of the
Board (2006-present) of Summit Bank & Trust; Director and President of
Citizens Finance; Director and Chairman of the Board of HTLF Capital
Corp.; Director (2008-present) and Vice Chairman of the Board
(2008-present) of Minnesota Bank & Trust
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John
W. Cox, Jr.
(Age
60)
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2003
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Director
of Galena State Bank; Attorney at Law; Partner of Cox & Ward P.C.
(1998-2007); Sole Practitioner of Cox Law Offices (2007-present); Vice
President of External Affairs and General Counsel (2007-present) for
Jo-Carroll Energy; In-House Counsel (2008-present) for the City of
Galena, Illinois
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CONTINUING
DIRECTORS
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Name
(Age)
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Served
as Heartland
Financial
USA, Inc.
Director
Since
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Positions
with Heartland Financial USA, Inc. and its Subsidiaries and
Principal
Occupation
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CLASS
II
(Term
Expires 2010)
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Mark
C. Falb
(Age
60)
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1995
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Vice
Chairman of the Board of Heartland; Chairman and Director of Dubuque Bank
and Trust; Director of Citizens Finance; Chairman of the Board and Chief
Executive Officer of Westmark Enterprises, Inc. and Kendall/Hunt
Publishing Company
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John
K. Schmidt
(Age
48)
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2001
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Chief
Operating Officer (2004-present) Executive Vice President and Chief
Financial Officer of Heartland; Director, Vice Chairman of the Board
(2004-present), President (2000-2004) and Chief Executive Officer
(2000-2004) of Dubuque Bank and Trust; Director (2004-present) and Vice
Chairman of the Board (2004-present) of Galena State Bank and Riverside
Community Bank; Director (2004-2007) and Vice Chairman of the Board
(2004-2007) of First Community Bank; Director and Treasurer of
Citizens Finance
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James
R. Hill
(Age
56)
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2007
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President
of Hill Companies, LLC; Director (2006-present) and Chairman of the Board
(2006-present) of Summit Bank &
Trust
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James
F. Conlan. Mr. Conlan is a graduate of the University of Iowa College of
Law, receiving his JD with Honors in 1988. Upon graduation, Mr. Conlan joined
the law firm of Sidley Austin LLP, where he became a partner in 1996, Vice
Chairman of the firm-wide Corporate Reorganization Practice in 2000, member of
the Executive Committee in 2005 and Co-Chairman of the firm-wide Corporate
Reorganization Practice in 2006. Sidley Austin LLP is one of the largest law
firms in the world.
John W. Cox,
Jr. Mr. Cox is a
graduate of John Marshall Law School of Chicago, receiving his JD (cum laude) in
1975. Mr. Cox is sole practitioner in Cox Law Offices in Galena, Illinois, and a former Member of the U.S. House
of Representatives from Illinois’ 16th District. During his term in the U.S.
Congress, Mr. Cox served on the House Banking and Finance Committees. Mr. Cox
also served as State’s Attorney for Jo Daviess County, Illinois and continues to
serve as City Attorney of Galena.
Mark
C. Falb. Mr.
Falb is a graduate of the University of Iowa and a certified public accountant
(inactive). Mr. Falb was employed in an executive role with the Wm. C. Brown
Company Publishers for nearly 20 years until a majority of the company was sold
in 1992. He
currently serves as chairman and chief executive officer of Westmark Enterprises
and Kendall/Hunt Publishing, which are primarily involved in real estate
ventures and textbook publishing.
Thomas
L. Flynn. Mr. Flynn obtained a BA degree in accounting and
finance from Loras College and an MBA Degree from the University of
Dubuque. Mr. Flynn was elected to the Iowa State Senate in 1994, where he served
two full terms. During his terms he served on various committees, including the
Senate Appropriations Committee; Administration and Regulation Budget
Subcommittee; Commerce, Ways and Means Committee; and the Small Business,
Economic Development & Tourism Committee. Mr. Flynn is an owner of a
concrete and construction materials firm with locations in Iowa, Illinois and
Wisconsin. He also previously served for ten years as an adjunct faculty member
in the business department at Clarke College in Dubuque, Iowa.
Lynn
B. Fuller.
Mr. Fuller graduated from the University of Dubuque and obtained an MBA from the
University of Iowa. He joined Dubuque Bank and Trust in 1971 and remained with
the bank until 1976 when he entered an officer-training program at First
National Bank of St. Paul. He has held various executive positions within
Heartland and its subsidiaries since his return in 1978.
James
R. Hill. Mr.
Hill graduated from the University of Western Ontario and obtained an MBA from
the York University. He is president of Hill Companies, LLC, a real estate
investment company located in Englewood, Colorado. Mr. Hill is a founding
investor and director of Summit Bank & Trust in Broomfield,
Colorado.
John
K. Schmidt.
Mr. Schmidt is a graduate of the University of Northern Iowa and an inactive
holder of the certified public accountant certification. Before joining Dubuque
Bank and Trust in 1984, Mr. Schmidt was employed by the Office of the
Comptroller of the Currency and Peat Marwick Mitchell, currently known as KPMG
LLP, in Des Moines, Iowa. He has held various executive positions within
Heartland and its subsidiaries.
All of our directors will hold office
for the terms indicated, or until their respective successors are duly elected
and qualified. There are no arrangements or understandings between Heartland and
any other person pursuant to which any of our directors have been selected for
their respective positions. With the exception of Mr. Conlan, who is the
brother-in-law of Mr. Fuller, no member of the board of directors is related to
any other member of the board of directors.
CORPORATE
GOVERNANCE AND THE BOARD OF DIRECTORS
General
There are currently seven members of
the board of directors of Heartland. Generally, the board oversees our business
and monitors the performance of our management. In accordance with our corporate
governance procedures, the board does not involve itself in the day-to-day
operations of Heartland, which is monitored by our executive officers and
management. Our directors fulfill their duties and responsibilities by attending
regular meetings of the full board, which are held on a quarterly basis, special
meetings held from time to time and through committee membership, which is
discussed below. Our directors also discuss business and other matters with Mr.
Fuller, our chief executive officer, other key executives and our principal
external advisers (legal counsel, auditors and other consultants).
With the exception of Messrs. Conlan,
Fuller and Schmidt, our current directors are “independent” as defined by the
rules of the NASDAQ Stock Market and the rules and regulations of the Securities
and Exchange Commission. The board of directors has established an
audit/corporate governance committee and a compensation/nominating committee.
Messrs. Cox, Falb, Flynn and Hill serve on both the audit/corporate governance
and the compensation/nominating committees. Mr. Falb, who is chairman of these
two committees, has not been formally designated as a “lead” independent
director, but he acts in such a capacity due to his positions as
chairman.
During 2007, the board of directors
held four regular meetings and two special meetings. All directors during their
terms of office in 2007 attended 100% of all board and committee
meetings.
Executive
Sessions
Consistent with the NASDAQ listing
requirements, the independent directors, in conjunction with service on the
audit/corporate governance committee, regularly have the opportunity to meet
without Messrs. Fuller, Schmidt and Conlan in attendance. During 2007, the
independent directors met in such capacity four times.
Policy
On Director Attendance at Annual Meetings
It is
Heartland’s policy that all directors be in attendance at annual meetings unless
excused by the chairman of the board. Last year all of our directors attended
the annual meeting in person.
Audit/Corporate
Governance Committee
Currently, the members of the
audit/corporate governance committee are directors Falb, Cox, Flynn and Hill.
The board of directors has determined that each member of the audit/corporate
governance committee qualifies as, and should be named as, an “audit committee
financial expert” as set forth in the rules and regulations of the Securities
and Exchange Commission. The board based this decision on the experience of each
of the audit/corporate governance committee members as executive officers of
other companies and other relevant experience using and analyzing financial
statements, as well as their education or experience with accounting issues.
During 2007, all members of the audit/corporate governance committee were
“independent” according to listing standards set forth by NASDAQ and the rules
and regulations of the Securities and Exchange Commission.
The audit/corporate governance
committee charter can be found under the investor relations section of our
website, www.htlf.com.
The primary duties and functions of the audit/corporate governance committee are
to:
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monitor
the integrity of the financial reporting process and systems of internal
controls regarding finance, accounting and legal
compliance;
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retain,
oversee, review and terminate our independent registered public accounting
firm and pre-approve all services performed by the independent registered
public accounting firm;
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provide
an avenue of communication among the independent registered public
accounting firm, management, the internal audit function and the board of
directors;
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encourage
adherence to, and continuous improvement of, our policies, procedures and
practices at all levels;
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review
areas of potential significant financial risk; and
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monitor
compliance with legal and regulatory requirements and establish
appropriate corporate governance policies for
Heartland.
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The
audit/corporate governance committee’s duties and functions are set forth in
more detail in its charter.
Mr. Falb has served as chairman of
the audit/corporate governance committee since 2001. During 2007, the
audit/corporate governance committee met four times. To promote independence of
the audit function, the audit/corporate governance committee consults both
separately and jointly with the Company’s independent registered public
accounting firm, internal auditors and management.
Compensation/Nominating
Committee
Committee Members
and Independence. The
compensation/nominating committee currently consists of directors Falb, Cox,
Flynn and Hill. Each of these members is considered “independent” as such term
is defined by NASDAQ listing requirements, an “outside” director pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended, and a “non
employee” director under Section 16 of the Securities Exchange Act of
1934. Mr. Falb has served as chairman of the compensation/nominating
committee since 2001.
The charter of the
compensation/nominating committee can be found under the investor relations
section of our website, www.htlf.com. The primary
duties and functions of the compensation/nominating committee are
to:
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discharge
the responsibilities of the board of directors relating to the
compensation of our executive officers;
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evaluate
and make recommendations to the board of directors relating to the
compensation of individuals serving as directors;
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direct
the creation of and approve the annual compensation discussion and
analysis on executive compensation for inclusion in our proxy statement in
accordance with all applicable rules and regulations;
and
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identify
individuals qualified to become members of the board of directors and
select such individuals as director nominees for the next annual meeting
of stockholders.
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The
compensation/nominating committee’s duties and functions are set forth in more
detail in its charter.
Committee
Meetings/Process. The
compensation/nominating committee meets as often as necessary to evaluate the
performance of the named executive officers, to determine salaries and bonuses
for the coming year and to consider and approve any grants under incentive
compensation programs. Five meetings were held in 2007.
While many compensation decisions for
the coming year are made in the last quarter of the fiscal year, the
compensation planning process continues throughout the year. Because the
compensation program is designed to promote the Company’s business objectives
and strategic business plans, management performance and current business
environment are evaluated throughout the year.
The compensation/nominating committee
receives materials in advance of each meeting. These materials include
information that management believes will be helpful to the
compensation/nominating committee as well as additional materials requested by
the compensation/nominating committee. Materials used by the
compensation/nominating committee include, but are not limited to:
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•
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financial
reports covering, among other things, historical and year-to-date
financial performance vs. budget and financial performance vs.
representative peer groups;
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•
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reports
on levels of achievement of individual and corporate performance
objectives;
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•
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reports
on the Company’s strategic objectives and future
budgets;
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•
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reports
on the Company’s performance against its 5 year plan;
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|
•
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information
on executive officers’ stock ownership and option
holdings;
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•
|
agreements
and other plan documents regarding compensation; and
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•
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reports
from consultants retained by the compensation/nominating
committee.
|
Role of
Management. Management
plays a role in the compensation process. The major aspects of management’s role
are employee performance evaluation, establishment of business performance
targets and objectives and recommendation of salaries, bonuses and equity
awards. The chief executive officer assists the compensation/nominating
committee chair with setting the agenda for compensation/nominating committee
meetings and also coordinates the preparation of materials for
compensation/nominating committee meetings. At the request of the
compensation/nominating committee, the chief executive officer also provides
information regarding the Company’s strategic objectives, evaluation of
executive officer performance and compensation recommendations for executive
officers other than himself.
Role of
Advisors. The
compensation/nominating committee charter authorizes the
compensation/nominating committee to retain and terminate any third party
compensation consultant for the purpose of evaluating the executive officers and
the chief executive officer, as well as recommending appropriate compensation
for such individuals. Such consultants report directly to the
compensation/nominating committee.
Since 2004, Frederic W. Cook &
Co., Inc., (“FWCC”) has been retained by the compensation/nominating committee
to provide compensation consulting services. The compensation/nominating
committee has determined that FWCC is independent as it has no other ties to the
Company and does not perform any other services for the Company or any
affiliates. FWCC’s role includes providing market information on compensation
levels and practices, assisting in the design of compensation components, and
providing input on related technical and regulatory matters.
Director
Nominations and Qualifications
In
carrying out its nominating function, the compensation/nominating committee
evaluates all potential nominees for election, including incumbent directors,
board nominees and stockholder nominees, in the same manner, although it is not
currently seeking out candidates to serve on the board and we did not receive
any stockholder nominations for the 2008 annual meeting. Generally, in addition
to prior service on a subsidiary bank board, the compensation/nominating
committee believes that, at a minimum, directors should possess certain
qualities, including the highest personal and professional ethics, integrity and
values, a sufficient educational and professional background, exemplary
management and communications skills, demonstrated leadership skills, sound
judgment in his or her professional and personal life, a strong sense of service
to the communities which we serve and an ability to meet the standards and
duties set forth in our code of conduct. Additionally, no nominee can be
eligible for election or re-election as a director if, at the time of such
election, such person is 70 or more years of age. Each nominee must
also be willing to devote sufficient time to carrying out his or her board
duties and responsibilities effectively.
The
compensation/nominating committee also evaluates potential nominees to determine
if they have any conflicts of interest that may interfere with their ability to
serve as effective board members and whether they are “independent” in
accordance with NASDAQ requirements (to ensure that at least a majority of the
directors will, at all times, be independent). In the past, the
compensation/nominating committee has not retained any third party to assist it
in identifying candidates, but it has the authority to retain a third party firm
or professional for the purpose of identifying candidates.
Stockholder
Communications with the Board, Nomination and Proposal Procedures
General
Communications with the Board. As set forth on our website,
www.htlf.com, our board
of directors can be contacted through Heartland’s corporate headquarters at 1398
Central Avenue, P.O. Box 778, Dubuque, Iowa 52004-0778, Attn: Lois K. Pearce, or
by telephone at Heartland’s administrative offices, at 563-589-2100. Each
communication will be forwarded to the board or the specific directors
identified in the communication as soon as reasonably possible.
Nominations of
Directors. In order for a stockholder nominee to be considered
by the compensation/nominating committee to be its nominee and included in our
proxy statement, the nominating stockholder must file a written notice of the
proposed director nomination with our corporate secretary, at the above address,
at least 120 days prior to the anniversary of the date the previous year’s proxy
statement was mailed to stockholders. Nominations must include the full name and
address of the proposed nominee and a brief description of the proposed
nominee’s business experience for at least the previous five years. All
submissions must be accompanied by the written consent of the proposed nominee
to be named as a nominee and to serve as a director if elected. The
compensation/nominating committee may request additional information in order to
make a determination as to whether to nominate the person for
director.
In
accordance with our bylaws, a stockholder may otherwise nominate a director for
election at an annual meeting of stockholders by delivering written notice of
the nomination to our corporate secretary, at the above address, not less than
30 days nor more than 75 days prior to the date of the annual meeting. The
stockholder’s notice of intention to nominate a director must include (i) the
name and address of record of the stockholder who intends to make the
nomination; (ii) a representation that the stockholder is a holder of record of
shares of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii) the name, age, business and residence addresses, and
principal occupation or employment of each nominee; (iv) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or person) pursuant to which the
nomination or nominations are to be made by the stockholder; (v) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, as then in effect; and (vi) the
consent of each nominee to serve as a director of the corporation if so elected.
We may request additional information after receiving the notification for the
purpose of determining the proposed nominee’s eligibility to serve as a
director. Persons nominated for election to the board pursuant to this paragraph
will not be included in our proxy statement.
Other Stockholder
Proposals. To
be considered for inclusion in our proxy statement and form of proxy for our
2009 annual meeting of stockholders, stockholder proposals must be received by
our corporate secretary, at the above address, no later than December 10, 2008,
and must otherwise comply with the notice and other provisions of our bylaws, as
well as Securities and Exchange Commission rules and regulations.
For
proposals to be otherwise brought by a stockholder and voted upon at an annual
meeting, the stockholder must file written notice of the proposal to our
corporate secretary not less than 30 or more than 75 days prior to the scheduled
date of the annual meeting.
Code
of Business Conduct and Ethics
We have
adopted a code of business conduct and ethics that applies to all of our
directors and employees. The code sets forth the standard of ethics that we
expect all of our directors and employees to follow, including our chief
executive officer and chief financial officer. The code is posted on our
website, www.htlf.com.
We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K
regarding any amendment to or waiver of the code with respect to our chief
executive officer and chief financial officer, and persons performing similar
functions, by posting such information on our website.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT
The following table sets forth
certain information with respect to the beneficial ownership of our common stock
at March 24, 2008, by each person known by us to be the beneficial owner of more
than 5% of the outstanding common stock, by each director or nominee, by each
executive officer named in the summary compensation table and by all directors
and executive officers of Heartland as a group. The address of each 5%
stockholder is 1398 Central Avenue, Dubuque, Iowa 52001.
|
Name of Individual and
Number of Persons in Group
|
Amount and Nature of
Beneficial Ownership (1)
|
Percent
of Class
|
|
5%
Stockholders, Directors and Nominees
|
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|
Lynn
S. Fuller
|
1,384,706(2)
|
8.5%
|
|
Heartland
Partnership, L.P.
|
834,000(3)
|
5.1%
|
|
James
F. Conlan
|
130,078(4)
|
*
|
|
John
W. Cox, Jr.
|
21,533(5)
|
*
|
|
Mark
C. Falb
|
95,645(6)
|
*
|
|
Thomas
L. Flynn
|
30,034(7)
|
*
|
|
Lynn
B. Fuller
|
760,560(8)
|
4.6%
|
|
James
R. Hill
|
200(9)
|
*
|
|
John
K. Schmidt
|
234,079(10)
|
1.4%
|
|
Other
Executive Officers
|
||
|
Kenneth
J. Erickson
|
230,461(11)
|
1.4%
|
|
Edward
H. Everts
|
171,676
|
1.0%
|
|
Douglas
J. Horstmann
|
177,567(12)
|
1.1%
|
|
All
directors and executive officers
as
a group (12 persons)
|
2,056,287
|
12.6%
|
* Less
than one percent
(1) The
information contained in this column is based upon information furnished to
Heartland by the persons named above and the members of the designated group.
Amounts reported include shares held directly as well as shares which are held
in retirement accounts and shares held by certain members of the named
individuals’ families or held by trusts of which the named individual is a
trustee or substantial beneficiary, with respect to which shares the respective
director may be deemed to have sole or shared voting and/or investment power.
Also included are restricted shares awarded under our 2005 Long-Term Incentive
Plan. Additionally, shares obtainable through the exercise of options within 60
days of the date of the information presented in this table are included in the
following amounts: Mr. Lynn B. Fuller – 38,250 shares; Mr. Schmidt – 58,250
shares; Mr. Erickson – 37,750 shares; Mr. Horstmann – 15,000 shares; Mr. Everts
– 35,250 shares and all directors and executive officers as a group – 224,416
shares. The nature of beneficial ownership for shares shown in this column is
sole voting and investment power, except as set forth in the footnotes below.
Inclusion of shares shall not constitute an admission of beneficial ownership or
voting and investment power over included shares.
(2) Includes
shares held by the Heartland Partnership, L.P., over which Mr. Fuller has sole
voting and investment power, as well as 66,611 shares held by a trust for which
Mr. Fuller’s spouse is a trustee and 123,078 shares held in a trust for which
Mr. Fuller serves as co-trustee, over which Mr. Fuller has shared voting and
investment power.
(3) Mr.
Lynn S. Fuller, a former director of Heartland and a stockholder of more than 5%
of the outstanding shares, is the general partner of Heartland Partnership,
L.P., and in such capacity exercises sole voting and investment power over such
shares.
(4) Includes
53,578 shares held by a trust for which Mr. Conlan’s spouse is trustee and
21,000 shares held by the Heartland Partnership, L.P., over which Mr. Conlan has
no voting or investment power but in which Mr. Conlan’s spouse does have a
beneficial interest, and 14,000 shares held in trust for children.
(5) Includes
15,277 shares held by John W. Cox Jr. Inc., of which Mr. Cox is a controlling
stockholder and 4,292 shares held by McJoyce, Inc. of which Mr. Cox is a
controlling stockholder.
(6) Includes
68,856 shares held by Mr. Falb’s spouse, as trustee, over which Mr. Falb has no
voting or investment power.
(7) Includes
2,486 shares held by Mr. Flynn’s spouse in an individual retirement account,
over which Mr. Flynn has no voting or investment power.
(8) Includes
an aggregate of 8,555 shares held by Mr. Fuller’s spouse and minor children and
123,078 shares held in a trust for which Mr. Fuller serves as co-trustee, over
which Mr. Fuller has shared voting and investment power. Includes 21,000 shares
held by the Heartland Partnership, L.P., over which Mr. Fuller has no voting or
investment power but in which Mr. Fuller does have a beneficial
interest.
(9) Mr.
Hill is an investor in Heartland’s de novo, Summit Bank &
Trust, in Broomfield, Colorado.
(10) Includes
an aggregate of 24,463 shares held by Mr. Schmidt’s spouse and minor children
and 1,549 shares held by Mr. Schmidt jointly with his spouse, over which
Mr. Schmidt has shared voting and investment power.
(11) Includes
69,875 shares held by Mr. Erickson’s spouse.
(12) Includes
27,000 shares held by Mr. Horstmann’s spouse, over which Mr. Horstmann has
shared voting and investment power.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities
Exchange Act of 1934 requires that our directors, executive officers and 10%
stockholders file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Such persons are also required to furnish us
with copies of all Section 16(a) forms they file. Based solely upon our review
of such forms, we are not aware that any of our directors, executive officers or
10% stockholders failed to comply with the filing requirements of Section 16(a)
during 2007, except that Mr. Horstmann was two days late filing a Form 4 upon
the exercise of options to acquire shares in November of 2007.
EXECUTIVE
OFFICERS AND DIRECTORS COMPENSATION
Compensation
Discussion and Analysis
The Compensation
Discussion and Analysis addresses our compensation philosophy and objectives
with respect to our named executive officers, compensation factors, elements of
compensation and the basis for compensation for 2007. As is widely
known, 2007 was a challenging year for the economy and financial services firms
in particular. While the Company has not been involved in the types
of activity that have brought media attention to other financial institutions
and the economy in general, the Company has not been immune to broader market
forces that have negatively impacted the market. The Company believes
that executive compensation must be reflective of market conditions and
accordingly bonuses for the named executive officers in 2007 were lower than
2006 and the 2008 salaries of the top two named executive officers, Mr. Fuller
and Mr. Schmidt, were kept at their 2007 level.
Compensation
Philosophy and Objectives.
Our compensation philosophy is to design and provide an overall compensation
program for the executive officers that will further align the interests of
those officers with those of our stockholders
Compensation plans are designed to
drive growth in both earnings per share and earning assets, consistent with the
Company’s aggressive 1-year and 5-year budgets and plans, thereby motivating and
rewarding executives for the achievement of same, as well as attracting and
rewarding executives capable of achieving these aggressive plans and budgets.
Accordingly, total compensation is higher for individuals with greater
responsibility and greater ability to influence the Company’s achievement of
targeted results and strategic objectives. As position and responsibility
increase, a larger portion of the executive officer’s total compensation is
performance-based pay contingent upon the achievement of targeted results and
strategic objectives. Additionally, the interests of executive officers are
further aligned with stockholders through opportunities for increased ownership
of the Company. Equity-based compensation is higher for executive officers with
greater levels of responsibility resulting in a significant percentage of the
officers’ total compensation dependent upon long-term appreciation of the price
of the Company stock. Finally, we believe the compensation program
encourages the retention of executives and other key employees of the Company by
remaining competitive in the marketplace.
Stock Ownership
and Retention Guidelines. To reinforce our philosophy of equity
ownership for executives and to further align the interests of our executives
with our stockholders, we adopted share retention and ownership guidelines for
our executives, including bank presidents. The stock ownership requirements vary
based upon position level, and for our named executive officers, range from
30,000 to 100,000 shares. Executives subject to our ownership policy are
required to retain a portion of shares received from equity awards until the
guideline level is attained. Currently all executive officers exceed these
ownership guidelines.
Compensation
Factors. Individual
and corporate performance objectives for executive officers are set
annually. The compensation/nominating committee works with the chief
executive officer to review strategic objectives and performance targets for
each individual as well as the appropriateness of the financial measures used in
incentive plans and the potential to achieve such performance
targets.
Corporate
Performance. The
compensation/nominating committee looks at a number of corporate measures in
making compensation determinations, including achievement of the Company’s
1-year and 5-year plans, asset growth, return on equity and earnings per share,
and comparison to its established peer group. The compensation/nominating
committee utilizes asset growth and return on equity as well as earnings per
share in making determinations regarding equity-based compensation. The
Committee believes these factors provide the best measure of the Company’s
performance. Additionally, consideration is also given to a broad
overview of the Company’s financial performance ratios as compared to a peer
group. Such ratios include, but are not limited to, net interest margin,
non-performing assets/loans, net charge-offs and net overhead.
Individual
Performance. When
determining compensation, the compensation/nominating committee also looks at
individual performance factors such as performing exceptional work, potential
for future growth with the Company, planning/budgeting capabilities,
mentoring and motivation and capacity for vision and leadership.
Peer
Comparison. The compensation/nominating committee believes it
is appropriate to establish compensation levels based upon comparisons to a peer
group. The compensation/nominating committee believes there are a variety of
forces that constitute significant factors in crafting appropriate
compensation levels, such as competitive pressure, development and retention of
valuable officers and employees, creation of an excellent working environment
and, accordingly, looks to peer data as developed by FWCC to provide meaningful
information to be considered in the design of compensation
programs.
As established, the peer group
consists of similar-sized, publicly traded bank holding companies in the Midwest
and Western United States. The compensation/nominating committee, with the
assistance of FWCC, annually reviews and approves the peer group and establishes
appropriate and competitive ranges of short and long-term compensation based
upon the median of the peer group. Various components of executive compensation
(i.e., base salary, bonus, options, retirement plans and other benefits) are
compared to the peer group median for similar positions. In addition,
information on the usage of shares and related dilution levels for equity
incentives is also obtained and reviewed with the compensation/nominating
committee.
The companies included in the peer
group are reviewed and updated annually and may change based upon size, merger
and acquisition activity as well as the recommendation of consultants such as
FWCC. The companies included in the 2007 analysis included Capitol
Bancorp, CoBiz, First State Bancorporation, Glacier Bancorp, Main Street Trust,
Mercantile Bank, Midwest Bank Holdings, National Penn Bancshares, Old Second
Bancorp, Prosperity Bancshares, S&T Bancorp, S.Y. Bancorp, Sterling
Bancshares, Umpqua Holdings and West Coast Bancorp
Overall, our goal is to pay total
cash compensation (base salary plus bonus) near the median of the peer group for
comparable positions and performance. To reinforce our pay-for-performance
philosophy, base salaries will generally be below the comparable peer median.
Bonuses will generally be above peer median, given comparable positions and
performance.
A historical review of the Company’s
compensation for the executive officers indicated that as of December 31, 2003,
total cash compensation for the Company’s executive officers was substantially
below that of the peer group. Given the competitive gap between the Company and
market median pay levels for the top five officers identified in 2003, the
compensation/nominating committee developed a multi-year plan for bringing
officer pay levels to market levels consistent with our philosophy of
emphasizing variable compensation tied to performance. As of 2007,
base compensation has increased but remains somewhat below the median level of
the peer group. Total compensation (salary, bonus and long-term equity
incentives) has increased as well for executive officers, however, remains below
median peer levels.
Targeted
Compensation Levels. Based
upon the Company’s performance, individual performance, benchmarking, historical
compensation levels, competitive peer practices, and industry conditions, the
compensation/nominating committee establishes total compensation levels for each
of the executive officers. These determinations are guided by the compensation
philosophy described herein.
Performance
Pay. In
setting targeted total compensation levels the compensation/nominating committee
determines the proportion of total compensation that will be performance-based
pay. Performance-based pay in general includes cash bonuses for the achievement
of specific performance objectives and equity-based compensation, the value
of which is based upon specific financial performance measures and long-term
appreciation in price.
Elements of
Compensation. There are four components to our executive
officers’ compensation: base salary, cash bonus, equity compensation and
additional benefits.
Base
Salary. Base
salary is an important component of executive compensation because it provides
executives with a regular income. Base salaries are intended to assist us in
attracting executives and recognizing different levels of responsibility and
contribution among executives. The determination of base salaries is based upon
the executive’s qualifications and experience, scope of responsibility and
potential to achieve the goals and objectives established for the executive.
Additionally, past performance, internal pay equity and comparison to
competitive salary practices in the peer group are also considered. The
compensation/nominating committee looks at the median base salary of executives
in similar positions in peer group bank holding companies and compares our
corporate performance with that of the peer group. The compensation/nominating
committee, with the help of FWCC, establishes an appropriate base salary for
each of the executive officers, which is set at a level lower than the peer
group median to allow for a significant percentage of the total compensation to
be performance-based pay.
Consistent with the intent of the
compensation/nominating committee in 2004 to bring executive pay levels closer
to but still below the median of the peer group over a period of time,
salaries for the named executive officers in 2007 increased in a range from 3.5%
to 6%.
For 2008, the salaries of Messrs.
Fuller and Schmidt remain at the 2007 level. While Company performance in 2007
compared favorably to much of the industry, Messrs. Fuller and Schmidt
suggested, and the compensation/nominating committee agreed, that
their salaries not be increased in a period of economic
uncertainty. The salaries of Messrs. Everts, Horstmann and Erickson
were increased between 6.7% and 9% to reflect their increased responsibilities
in the Company.
Performance-Based
Bonus Plan. Under
SEC disclosure rules, what the Company has historically reported as bonus
compensation is reported as non-equity incentive plan compensation, and
accordingly, bonus compensation shall be reported as such in the compensation
tables. We will, however, for purposes of continuity and simplicity, continue to
refer to such compensation in this discussion as bonus. The bonus plan is
designed to incentivize executives to achieve the Company’s 1-year and 5-year
plans. The plan annually offers participants, including executive officers, the
opportunity to earn a cash bonus for the Company’s achievement of targeted goals
for asset growth and return on equity (“ROE”). If the required level of
achievement is reached, the participants will earn cash bonuses as calculated by
a formula explained in the following paragraph.
The bonus calculation is comprised of
two components:
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•
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70%
is based upon earnings and growth of earning assets for the calendar year
relative to the Company’s 5-year plan. This 70% of the bonus is further
broken down into two components; 70% based upon achievement of ROE goals,
and 30% on achievement of growth in asset goals. In order to achieve a
100% score for this component, the ROE for 2007 needed to be 15.22% and
assets needed to reach $3.7 billion. A score of 100% in this
component (ROE plus asset growth equal to the 5-year plan) would earn 70%
of the targeted bonus; and
|
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|
•
|
The remaining 30% is
comprised of an individual score based on the individual’s performance
against previously established criteria. For the individual score the
payout can be anywhere from 85% to 115%, but if performance targets are
not met, the payout could be zero.
Historically, this score has been somewhat discretionary as the
factors are not entirely objective (potential for growth,
planning/budgeting, mentoring and motivation, vision and
leadership). Additionally, the score is based on a wide range
of financial performance measures and
ratios.
|
Under the bonus plan, however, no
payments will be earned for a year in which the Company’s ROE falls below 8% for
that year.
The compensation/nominating committee
believes that such weighting solidifies the alignment of the officers’ interests
with that of the Company. As described earlier, the compensation/nominating
committee believes that the combination of somewhat below peer salaries with
somewhat above peer bonuses encourages best efforts from the
officers. As noted in the beginning of this discussion, the Company
also believes bonus payouts should reflect Company performance in the current
economy. Accordingly, 2007 total bonus payouts were actually less
than payouts possible (70% based upon the formula plus 30% individual
performance) per named executive officer, other than Mr. Horstmann. These
reduced payouts ranged from $34,000 to $140,000. Under the plan, the possible
payouts could have ranged from $55,000 to $260,000. Of the total
bonus payouts possible under the plan, Mr. Fuller earned 54% and Messrs.
Erickson, Everts and Schmidt earned 61%. Mr. Horstmann earned 76% of
the maximum payout possible which was reflective of the performance of Dubuque
Bank and Trust Company during 2007.
As President of Dubuque Bank and
Trust Company, as well as an executive officer of Heartland, Mr. Horstmann’s
bonus calculation varies from the other four executive officers in the following
manner:
|
•
|
20%
is based upon earnings and growth of average assets for the calendar year
relative to the Company’s 5-year plan. This 20% of the bonus is further
broken down into two components; 70% based upon achievement of ROE goals,
and 30% on achievement of growth in average asset goals. A score of 100%
in this component (annual ROE plus annual average asset growth equal to a
combined score of 22%) would earn 20% of the targeted bonus;
|
||
|
•
|
60%
is based upon earnings and growth of average assets of Dubuque Bank and
Trust Company. This 60% of the bonus is further broken down into two
components; 70% based upon achievement of annual ROE goals, and 30% on
achievement of growth in average asset goals. A score of 100% in this
component (ROE plus asset growth) would earn 60% of the targeted bonus;
and
|
||
|
•
|
20%
is comprised of individual performance against previously established
criteria. The payout for this component can be anywhere from 50% to 150%,
but if performance targets are not met, the payout could be zero.
Historically, this score has been somewhat discretionary as the factors
are not entirely objective (potential for growth, planning/budgeting,
mentoring and motivation, vision and leadership). Additionally,
the score is based on a wide range of financial performance measures and
ratios.
|
The bonus for all the named executive
officers is paid in two parts: 1) the first installment of 70% is paid in
January, which coincides with the availability of year-end financial results,
and 2) the second installment of 30% is paid on or before March 15.
Equity
Compensation. The
compensation/nominating committee believes that equity compensation is an
effective way of creating a long-term link between the compensation provided to
officers and other key management personnel with gains to be realized by
stockholders. The equity compensation program is also intended to support a
pay-for-performance culture, foster employee stock ownership, and focus the
management team on increasing value for the stockholders. In addition, the
compensation/nominating committee believes that equity compensation provides
balance to the overall compensation program, with the bonus program focusing on
the achievement of year-to-year goals, while equity compensation creates
incentives for increases in stockholder value over a longer term. The equity
compensation program for executives includes performance-based restricted stock
and non-qualified stock options.
Performance-Based Restricted
Stock. Performance-based
restricted stock directly supports our goal of doubling earnings per share and
assets every five years. Under the Company’s Performance Based Restricted Stock
Plan approved by stockholders in 2005, a percentage of the restricted shares
granted under the plan may be earned each year through 2009 based upon the
cumulative attainment of the overall 5-year performance goal ending on December
31, 2009. The number of performance-based restricted shares granted to each
executive officer is based upon the executive’s position, scope of
responsibility and ability to affect profits and shareholder value as well as
the executive’s past performance and market practices.
Pursuant to the terms of the awards,
the restricted shares shall be earned upon the attainment of pre-established
cumulative earnings to $7.63 per share and total asset growth to $4.0 billion.
These goals are also weighted 70% based on diluted earnings per share and 30% on
asset growth. Beginning on December 31, 2005, and each December 31 thereafter
through 2009, the actual growth in earnings and assets will be compared to the
Company’s 5-year plan and that portion of the awarded shares will be considered
earned. Earned shares will become vested upon the two-year anniversary of the
date earned only if the executive is employed through such two-year period, the
targeted performance measures are met or exceeded on the vesting date, and
certain regulatory events have not occurred. If the targeted performance
measures are not met or exceeded on the vesting date, the shares will not be
vested. The awarded shares are registered in the name of the executive but are
retained by the Company during the restricted period. The executive is entitled
to vote the awarded shares but will not receive dividends on the awarded shares
until vested. Shares earned based on 2007 performance will be subject
to the additional two-year service period and related conditions, as described
above. Shares for the 2005 performance period vested in January 2008 upon
authorization by the compensation/nominating committee.
As reported in the following
compensation tables, year-end 2007 financial results indicate that 54% of the
total performance-based restricted awards have been earned in 2005, 2006 and
2007 for each of the executive officers, other than Mr. Horstmann who earned 66%
in the same time period. As President of Dubuque Bank and Trust Company, as well
as an executive officer of the Company, Mr. Horstmann’s earned shares vary from
the other four executive officers because 50% of his award is based on his
bank’s performance. The performance thresholds for Mr. Horstmann’s bank are
based on growth in assets and earnings as a function of the 5-year plan taking
into consideration the bank’s current market and its own specific growth
potential.
Non-qualified
Stock Options. Non-qualified
stock options are also utilized as an equity compensation vehicle. The value
received by the executives from a non-qualified stock option is based upon the
growth of the stock price above the option price. Historically, stock options
share the following features:
|
•
|
The
term of the option does not exceed 10 years;
|
||
|
•
|
The
grant price is not less than the market price on the date of the
grant;
|
||
|
•
|
Grants
do not contain “reload” provisions;
|
||
|
•
|
Option
repricing is prohibited;
|
||
|
•
|
Grants
are determined as soon as possible after the end of the fiscal year;
and
|
||
|
•
|
Non-qualified
stock options are historically provided in a much smaller amount to the
executive officers who have received performance-based restricted
stock.
|
The factors affecting the amount of
the options are: 1) individual performance; 2) internal pay equity; and 3) the
need to be competitive with similar positions in other publicly traded companies
in the Midwest and West. The option price of non-qualified stock options is set
in accordance with a compensation/nominating committee-approved formula. This
formula calculates the weighted average market price of Heartland stock that was
traded over the open market in the five days prior to the date on which the
options were granted. The non-qualified options granted to employees must be
exercised within ten years of the date of grant and become exercisable in three
equal portions on the third, fourth and fifth anniversaries of the date of
grant. Options not exercised by the tenth anniversary of the date of grant are
forfeited.
The compensation/nominating committee
has historically taken the position that the exercise price of non-qualified
stock options granted for the current year should be no less than the price
established for Company stock to be purchased through the Heartland Financial
USA, Inc. 2006 Employee Stock Purchase Plan during the same calendar
year. Because the formula used to establish the exercise price of
options granted in 2007 (a nominating/compensation approved formula, which
calculated the weighted average market price of Heartland stock that was traded
over the open market in the five days prior to the date on which the options
were granted) resulted in an exercise price lower than the price set for the
purchase of shares in 2007 through the Heartland Employee Stock Purchase Plan,
the exercise price of non-qualified options in 2007 was raised to equal the
price set for shares to be purchased during 2007 through the Employee Stock
Purchase Plan. Additionally, the compensation/nominating committee
has historically monitored the overhang for all equity awards, both currently
granted and outstanding, as well as ungranted shares which can be issued under
the plan, to be no greater than that of comparable bank holding companies.
Beginning in 2008, the nominating/compensation committee has established that
the exercise price of non-qualified stock options shall be the closing price as
of the date of the grant. As in prior years, in no instance can the
exercise price of non-qualified stock options granted for the current year be
less than the price established for Company stock purchased through the
Heartland Financial USA Inc. 2006 Employee Stock Purchase Plan during the same
calendar year.
The philosophy for the allocation of
non-qualified stock options is to provide a proportionately larger allocation to
executives not participating in the performance-based restricted stock program.
In 2007, we awarded stock options to purchase an aggregate of 146,750 shares of
Heartland common stock to 117employees.
Other
Compensation and Benefits. We
have historically provided perquisites and other types of non-cash benefits on a
very limited basis in an effort to avoid an entitlement mentality, reinforce a
pay-for-performance orientation and minimize expense. Such benefits, when
provided, can include the use of a company-owned automobile, payment of 50% of
country club or social club dues and additional life insurance. In keeping with
our philosophy of limited usage, the value of these benefits is, in aggregate,
below the SEC rule ($10,000 per individual) requiring disclosure. Accordingly,
no amounts for perquisites or other personal benefits for our named executive
officers are reported in the “All Other Compensation” column in the Summary
Compensation Table below.
The Company is a majority owner of a
Cessna business jet. The aircraft is used to transport Company personnel to
meetings at various Company locations, particularly in the West and Southwest,
and to provide transportation for Company executives to business meetings. The
aircraft is also used to transport Company executives, directors, major
stockholders and customers for business development purposes. It is the
Company’s policy that the aircraft is not to be utilized for personal benefit.
On occasion, an executive officer or director’s family member may board a flight
if an empty seat is available on a regularly scheduled business flight. The
Company believes such usage does not create any incremental cost to the
Company.
Executive officers also participate
in the Company’s other broad-based employee benefit programs on the same terms
as similarly situated employees. Health insurance is provided to all full-time
employees. The Company pays approximately two-thirds of the annual health
insurance premium with employees paying the balance through payroll deductions.
The Company offers several types of coverage so each employee has the choice of
subscribing to the program that best accommodates the employee’s
needs.
The Heartland Financial USA, Inc.
2006 Employee Stock Purchase Plan was adopted and approved by stockholders in
2005 and is intended to qualify as an employee stock purchase plan under Section
423 of the Internal Revenue Code. The plan generally allows employees of
Heartland and its subsidiaries, including Heartland’s executive officers, to
purchase shares of our common stock. Maximum participation in the Heartland
Financial USA, Inc. 2006 Employee Stock Purchase Plan is 15% of annual cash
income, with a maximum of $25,000 of stock per annum. This benefit is available
to all employees who are employed on the anniversary of the Heartland Financial
USA, Inc. 2006 Employee Stock Purchase Plan’s effective date, which is January 1
of each calendar year. Participation is through payroll deduction. The price of
stock purchased through the Heartland Financial USA, Inc. 2006 Employee Stock
Purchase Plan has been established by the compensation/nominating committee to
be 100% of fair market value on the first day of the offering period. In 2007
the fair market value was the weighted average market price of Heartland stock
that was traded over the open market in the five days prior to the last business
day of the year. Beginning in 2008 the fair market value on the first
day of the offering period is the closing price on the last business day of the
year prior to the first day of the offering period.
The Company’s retirement income
program for employees consists of a qualified defined contribution program. The
program provides for a 2% matching contribution when the employee contributes at
least 3% of the employee’s salary. The program will provide a 2/3 match for any
employee contribution of less than 3% of salary. The Company also provides for a
discretionary profit sharing program that is generally available to
employees.
Summary
Compensation Table
The following table sets forth
information concerning the compensation paid or granted to our chief executive
officer, our chief financial officer and to each of the other three most highly
compensated executive officers of Heartland or our subsidiaries for the fiscal
years ended December 31, 2007 and 2006:
|
SUMMARY
COMPENSATION TABLE
|
|||||||
|
Name
and
Principal
Position
|
Year
|
Salary(1)
|
Stock
Awards(2)
|
Option
Awards(3)
|
Non-Equity
Incentive Plan Compensation(4)
|
All
Other Compensation(5)
|
Total
Compensation
|
|
Lynn
B. Fuller
President
and Chief Executive Officer of Heartland
|
2007
2006
|
$
330,000
$
318,000
|
$
106,890
$
106,890
|
$
180,895
$
65,611
|
$
140,000
$
215,459
|
$
18,586
$ 26,422
|
$
776,371
$
732,382
|
|
John
K. Schmidt
Executive
Vice President, Chief Operating Officer &
Chief
Financial Officer of Heartland
|
2007
2006
|
$
244,500
$
235,000
|
$
42,756
$
42,756
|
$
43,954
$
39,618
|
$
78,200
$
101,548
|
$ 18,586
$ 26,422
|
$
427,996
$
445,344
|
|
Kenneth
J. Erickson
Executive
Vice President of Heartland
|
2007
2006
|
$
202,000
$
194,000
|
$
21,378
$
21,378
|
$
42,336
$
17,818
|
$
62,496
$
76,824
|
$ 18,586
$ 26,422
|
$
346,796
$
336,442
|
|
Douglas
J. Horstmann
Senior
Vice President of Heartland
|
2007
2006
|
$
180,000
$
170,000
|
$
20,042
$
20,042
|
$
22,220
$
13,835
|
$
44,100
$
52,828
|
$ 18,586
$ 26,422
|
$
284,948
$
283,127
|
|
Edward
H. Everts
Senior
Vice President of Heartland
|
2007
2006
|
$
164,000
$
157,000
|
$
20,042
$
20,042
|
$
32,075
$
14,464
|
$
33,699
$
45,918
|
$ 17,339
$ 24,701
|
$
267,155
$
262,125
|
(1) Includes
amounts deferred at the discretion of the executive officer under our retirement
plan.
(2) The
amounts shown are calculated based upon FAS 123R and equal the compensation cost
recorded on our consolidated statement of income for the respective year. Under
FAS 123R, a pro-rata portion of the total expense at the time the restricted
awards are granted is recognized over the applicable service period. For further
discussion on the calculation of the compensation costs recorded under FAS 123R,
see footnote seventeen to our audited consolidated financial statements for the
years ended December 31, 2007 and 2006. The amounts reported in this column
relate to restricted stock grants originally made on May 18, 2005. The original
total cost of these awards was based on the number of shares awarded and the
fair market value of Heartland’s common stock on the date of grant.
(3) The
amounts shown are calculated based upon FAS 123R and equal the compensation cost
recorded on our consolidated statement of income for the respective year. Under
FAS 123R, a pro-rata portion of the total expense at the time the grant is made
is recognized over the applicable service period, generally corresponding with
the vesting schedule of the grants. For further discussion on the calculation of
the compensation costs recorded under FAS 123R, see footnote seventeen to our
audited consolidated financial statements for the years ended December 31, 2007
and 2006. For 2007, the amounts in this column relate to option grants made
annually from 2002 through 2007. For 2006, the amounts in this column
relate to option grants made annually from 2001 through 2006. The original cost
of these grants was based on the fair value of the option grants as estimated
using the Black-Scholes pricing model.
(4) The
amounts shown represent amounts received under our performance-based bonus plan.
For prior years, these amounts were reported as bonuses. Under current reporting
rules, discretionary or guaranteed bonuses are disclosed as bonuses. These
payments are based on our achievement of certain performance targets and,
accordingly, are now reported in this column as non-equity incentive plan
compensation.
(5) The
amounts shown represent amounts contributed on behalf of the respective officer
to our retirement plan. For Messrs. Fuller, Schmidt, Erickson and Horstmann, the
amounts shown include a matching contribution to the 401(k) component of our
retirement plan in the amount of $4,523. For Mr. Everts, the amount shown
includes a matching contribution to the 401(k) component of our retirement plan
in the amount of $4,219.
Grants
of Plan-Based Awards
The following table sets forth
certain information concerning grants of plan-based awards made during 2007 to
the individuals named in the summary compensation table:
|
GRANTS
OF PLAN-BASED AWARDS
|
|||||||
|
Name
|
Grant
Date
|
Estimated
Future Payments Under Non-Equity Incentive Plan Awards(1)
|
All
Other Awards: Number of Securities Underlying Options(2)
|
Exercise
or Base Price of Option Awards ($/Share)(3)
|
Closing
Market Price
|
Grant
Date Fair Value of Stock and Options Awards(4)
|
|
|
Target
|
Maximum
|
||||||
|
Lynn
B. Fuller
Performance-based
bonus
Stock
option grants
|
1/16/07
|
$260,000
|
$260,000
|
10,000
|
$29.65
|
$27.85
|
$76,900
|
|
John
K. Schmidt
Performance-based
bonus
Stock
option grants
|
1/16/07
|
$128,000
|
$128,000
|
4,000
|
$29.65
|
$27.85
|
$30,760
|
|
Kenneth
J. Erickson
Performance-based
bonus
Stock
option grants
|
1/16/07
|
$102,000
|
$102,000
|
2,000
|
$29.65
|
$27.85
|
$15,380
|
|
Douglas
J. Horstmann
Performance-based
bonus
Stock
option grants
|
1/16/07
|
$58,000
|
$67,500
|
1,500
|
$29.65
|
$27.85
|
$11,535
|
|
Edward
H. Everts
Performance-based
bonus
Stock
option grants
|
1/16/07
|
$55,000
|
$55,000
|
1,500
|
$29.65
|
$27.85
|
$11,535
|
(1) Because
there is the possibility of no incentive payout if the performance objectives
are not met, the threshold amount is deemed to be zero for all the named
executive officers. In addition, since the Company’s goal is to meet all
performance objectives, the target incentive for all the named executive
officers, except for Mr. Horstmann, is deemed to be the same as the maximum
incentive amount.
(2) Options
become exercisable in three equal portions on the day of the third, fourth and
fifth anniversaries of the January 16, 2007, date of grant.
(3) The
price of non-qualified stock options granted in 2007 is based on a formula that
calculates the weighted average market price of Heartland stock that was traded
over the open market in the five days prior to the date on which the options
were granted; this price in all cases cannot be lower than the price established
for the Employee Stock Purchase Plan, as was the case in 2007.
(4) The
Black-Scholes valuation model was used to determine the grant date present
values. For further discussion on this calculation, see footnote seventeen to
our audited consolidated financial statements for the year ended December 31,
2007. Significant assumptions include: risk-free interest rate, 4.74%; expected
option life, 6 years; expected volatility, 24.20%; expected dividends, 1.25%.
The ultimate value of the options will depend on the future market price of our
common stock, which cannot be forecast with reasonable accuracy. The actual
value, if any, an executive may realize upon the exercise of an option will
depend on the excess of the market value of our common stock, on the date the
option is exercised, over the exercise price of the option.
Outstanding
Equity Awards
The following table sets forth
information concerning unexercised stock options and unvested restricted stock
awards held at December 31, 2007, by the named executive officers:
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
||||||
|
Option
Awards (1)
|
Stock
Awards
|
|||||
|
Name
|
#
of Securities Underlying Unexercised Options Exercisable
|
#
of Securities Underlying Unexercised Options Unexercisable
|
Option
Exercise Price
|
Option
Expiration Date
|
Equity
Incentive Plan Awards: Number of Shares or Units of Stock That Have Not
Vested
|
Equity
Incentive Plan Awards: Market or Present Value of Unearned Shares, Units
or Other Rights That Have Not Vested(2)(3)
|
|
Lynn
B. Fuller
|
-
-
-
5,000
10,000
8,250
|
10,000
10,000
15,000
10,000
5,000
-
|
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
|
1/16/2017
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
|
40,000
|
$742,800
|
|
John
K. Schmidt
|
-
-
-
3,333
7,000
3,750
9,000
9,000
16,000
|
4,000
4,000
10,000
6,667
3,500
-
-
-
-
|
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
|
1/16/2017
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
|
16,000
|
$297,120
|
|
Kenneth
J. Erickson
|
-
-
-
1,333
4,000
2,250
3,000
4,500
18,000
|
2,000
2,000
4,000
2,667
2,000
-
-
-
-
|
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
|
1/16/2017
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
|
8,000
|
$148,560
|
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
||||||
|
Option
Awards (1)
|
Stock
Awards
|
|||||
|
Name
|
#
of Securities Underlying Unexercised Options Exercisable
|
#
of Securities Underlying Unexercised Options Unexercisable
|
Option
Exercise Price
|
Option
Expiration Date
|
Equity
Incentive Plan Awards: Number of Shares or Units of Stock That Have Not
Vested
|
Equity
Incentive Plan Awards: Market or Present Value of Unearned Shares, Units
or Other Rights That Have Not Vested(2)(3)
|
|
Douglas
J. Horstmann
|
-
-
-
1,000
3,000
1,500
3,000
3,000
|
1,500
1,500
3,000
2,000
1,500
-
-
-
|
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
|
1/16/2017
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
|
7,500
|
$139,275
|
|
Edward
H. Everts
|
-
-
-
1,000
3,000
2,250
3,000
4,500
18,000
|
1,500
1,500
3,000
2,000
1,500
-
-
-
-
|
$29.65
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
|
1/16/2017
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
|
7,500
|
$139,275
|
(1) The
schedule below reflects the vesting dates for the option awards outstanding as
of December 31, 2007:
|
Grant Date
|
Expiration Date
|
One-third Vests On Each
Of:
|
||
|
1/16/2007
|
1/16/2017
|
January
16, 2010, January 16, 2011 and January 16, 2012
|
||
|
1/24/2006
|
1/24/2016
|
January
24, 2009, January 24, 2010 and January 24, 2011
|
||
|
2/10/2005
|
2/10/2015
|
February
10, 2008, February 10, 2009 and February 10, 2010
|
||
|
1/20/2004
|
1/20/2014
|
January
20, 2007, January 20, 2008 and January 20, 2009
|
||
|
1/21/2003
|
1/21/2013
|
January
21, 2006, January 21, 2007 and January 21, 2008
|
||
|
1/15/2002
|
1/15/2012
|
January
15, 2005, January 15, 2006 and January 15, 2007
|
||
|
6/1/2001
|
6/1/2011
|
June
1, 2004, June 1, 2005 and June 1, 2006
|
||
|
1/17/2000
|
1/17/2010
|
January
17, 2003, January 17, 2004 and January 17, 2005
|
||
|
1/2/1999
|
1/2/2009
|
January
2, 2002, January 2, 2003 and January 2,
2004
|
(2) The
amounts in this column were calculated using a per share value of $18.57, the
closing market price of a share of Heartland common stock on December 31, 2007,
the last business day of the year.
(3) Pursuant
to the terms of the awards, the restricted shares shall be earned upon the
attainment of pre-established earnings and asset growth targets, which are
consistent with the primary goals of Heartland’s current five-year plan. The
performance measures for all the listed executives, except Mr. Horstmann, are
based upon the performance of Heartland as a whole. For Mr. Horstmann, a portion
of the performance measure is based upon the performance of Heartland as a whole
and a portion is based upon the performance of Dubuque Bank and Trust, the bank
subsidiary of which he is president. On December 31 of each year beginning in
2005 and ending in 2009, the actual growth in earnings and assets will be
compared to the pre-established targets and that portion of the awarded shares
will be considered earned. Shares earned as of December 31, 2005, and vested on
January 24, 2008, were 6,603 for Mr. Fuller, 2,641 for Mr. Schmidt, 1,321 for
Mr. Erickson, 1,746 for Mr. Horstmann and 1,238 for Mr. Everts. Shares earned as
of December 31, 2006, were 7,551 for Mr. Fuller, 3,021 for Mr. Schmidt, 1,510
for Mr. Erickson, 1,399 for Mr. Horstmann and 1,416 for Mr. Everts. Shares
earned as of December 31, 2007, were 7,408 for Mr. Fuller, 2,963 for Mr.
Schmidt, 1,482 for Mr. Erickson, 1,772 for Mr. Horstmann and 1,389 for Mr.
Everts. Shares earned will become vested upon the two-year
anniversary of the date earned only if the executive is employed through such
two-year period, the targeted performance measures are met or exceeded on the
vesting date and certain regulatory events have not occurred. The awarded shares
have been registered in the name of the executive but are retained by Heartland
during the restricted period. The executive is entitled to vote the awarded
shares but will not receive any dividends on the awarded shares until
vested.
Option
Exercises and Stock Vested
The following table sets forth
certain information concerning stock option awards exercised and restricted
stock awards vested during 2007 for the named executive officers:
|
OPTION
EXERCISES AND STOCK VESTED
|
||
|
Name
|
Option
Awards
|
|
|
#
of Shares Acquired on Exercise
|
Value
Realized Upon Exercise(1)
|
|
|
Lynn
B. Fuller
|
15,000
|
$ 140,550
|
|
John
K. Schmidt
|
48,000
|
$ 836,240
|
|
Kenneth
J. Erickson
|
24,000
|
$ 209,040
|
|
Douglas
J. Horstmann
|
33,000
|
$ 252,870
|
|
Edward
H. Everts
|
24,000
|
$ 194,640
|
(1) The
amounts in this column were calculated by subtracting the exercise price per
share from the market value per share of Heartland common stock on the date of
exercise.
Potential
Payments Upon Termination or Change in Control
Payments Made
Upon Disability. All full-time employees and officers of the
Company, after six months of employment, are eligible for a long-term disability
benefit. The benefit begins after 90 days of total disability. The monthly
benefit amount for all full-time officers of the Company is 66 2/3 percent of
monthly earnings with a maximum monthly benefit amount of $7,000. The monthly
payments continue until the participant dies, ceases to have a disability or
reaches age 65. The benefit includes an annual increase and a survivor benefit
of one lump sum payment equal to three times the employee’s last full monthly
benefit.
If employment of any of our officers
who have received equity awards is terminated due to disability, the terms of
our standard stock option agreement provide that the options become fully
exercisable and expire if not exercised within 12 months of the date of
disability. Additionally, the terms of our standard restricted stock agreement
provide that, upon termination due to disability, all earned shares become fully
vested and any unearned shares are forfeited.
Payments Made
Upon Death. The
Company has a Split-Dollar Life Insurance Plan and Executive Supplemental Life
Insurance Plan that provide a death benefit to the designated beneficiaries of
the officers who have been enrolled in the plans, generally only those officers
who are in a position of Vice President or higher and have provided at least
three years of service to the Company. The combined death benefit under the
plans is two times current compensation (salary plus bonus or commission) not to
exceed $1,000,000. This benefit continues for the officer when employment has
terminated as a result of disability, retirement or a change in control at a
benefit level that is locked at two times compensation as in effect as of the
date of termination. Effective at the close of business on December 31, 2007,
participation in these life insurance plans was terminated for officers not
qualifying for the early retirement provisions. Included in this terminated
group were Messrs. Schmidt and Horstmann. An executive life insurance bonus plan
was adopted by the Company for all the officers whose participation in the
split-dollar life insurance plans had been terminated. The bonus plan provides
for a bonus amount equal to the annual premium on a life insurance policy
purchased for the officer, plus an amount equal to 40% of the annual premium
amount. The annual premium amount will be paid directly to the insurance company
and the 40% amount will be paid directly to the employee to help cover the taxes
associated with the reporting of the premium payment as additional compensation.
The policies were designed to provide a death benefit equal to two times salary
at December 31, 2007, with annual increases of 5% per year until retirement at
age 65. Additionally, the policies were designed for premium payments until age
65 for continued coverage through age 80 with no premium payments after age 65.
Under this new plan there will be no continuation of premium payments by
the Company after the employee has left employment with the Company for any
reason, including disability or retirement. The employee is the owner of the
policy and may continue premium payments or cash out the policy upon leaving the
employment of the Company.
Payments Made
Upon Retirement. If
employment of any of our officers who have received equity awards is terminated
due to retirement, as defined within the plan, the terms of our standard stock
option agreement provide that the options become fully exercisable and expire if
not exercised within 6 months of the date of retirement. Additionally, the terms
of our standard restricted stock agreement provide that, upon termination due to
retirement, all earned shares become fully vested and any unearned shares
continue to be subject to the earning provisions as if the officer had continued
employment with the Company. The definition of retirement for both these equity
awards is on or after the date (i) the officer reaches the age of 55 and has
provided 10 years of service to the Company or (ii) the officer retires pursuant
to the provisions of the Company’s retirement plan, which is currently at age
65. As of December 31, 2007, Messrs. Fuller, Erickson and Everts qualified for
retirement.
Payments Made
Upon Change In
Control. In July of 2007 the Company entered into Change in
Control Agreements (“Agreements”) with certain officers of the Company,
including the named executive officers. These Agreements replace
prior agreements which expired on December 31, 2004, and were discussed in our
2004 proxy statement. The new agreements are intended to support the best
interests of stockholders by providing reasonable and fair benefits to the named
executive officers in the event of a change in control of the Company while
minimizing the potential costs to the Company. Under the terms of the
Agreements, officers covered by the Agreements will receive a payout ranging
from 1 to 2 times the sum of their salary plus bonus and retirement
contribution, and continuation of insurance benefits from 12 to 24
months. Furthermore, the Agreements do not provide for the payment of
“gross-ups” in order to cover any applicable federal or state
taxes. Applicable taxes, if owed, will be paid by the officers
covered under the Agreements. The Agreements will only take effect under the
following circumstances: (i) the acquisition by a person of 51% or more of the
Company’s voting securities; (ii) non-incumbent directors becoming a majority of
the Board; (iii) the consummation of a merger where the prior stockholders do
not hold at least 51% of the resulting entity; or (iv) the liquidation or
dissolution of the Company.
Our standard stock option and
restricted stock agreements contain terms that provide for the acceleration of
the vesting of any unvested stock options or shares of restricted stock upon a
change in control. Under the standard stock option agreement, the options become
fully exercisable and expire if not exercised within 6 months of the date of a
change in control. Under the standard restricted stock agreement, all earned
shares vest immediately. Unearned shares also vest immediately if the restricted
stock agreement is not fully assumed in the change in control. To the extent the
restricted stock agreements are assumed, any unearned shares will vest
immediately upon the officer’s termination of employment (i) by the successor
entity for any reason other than cause at any time following the change in
control or (ii) by the officer for good reason within 24 months of the change in
control.
Payments Made
Upon Termination. If
the employment of any of the named executive officers is voluntarily or
involuntarily terminated, no additional payments or benefits will accrue to him
or be paid to him and any non-equity incentive plan compensation for the year
would be forfeited.
Under the standard stock option
agreement, the involuntary termination of employment by any of the named
executive officers will trigger the forfeiture of all vested and unvested stock
options. If termination of employment is voluntary and the officer does not
compete with the Company, all vested stock options must be exercised within 6
months of the termination of employment and all unvested stock options are
forfeited. In the case of a voluntary or involuntary termination of employment
of any of the named executive officers, any unvested, earned or unearned, shares
of restricted stock will be forfeited.
The following table shows potential
payments to the named executive officers upon disability, death, retirement or
termination upon a change in control of Heartland on December 31,
2007:
|
POTENTIAL
PAYMENTS UPON DISABILITY, DEATH, RETIREMENT OR CHANGE IN
CONTROL
|
|||||
|
Name
|
Type
of Payment
|
Payments
Upon Disability
|
Payments
Upon Death
|
Payments
Upon Retirement(4)
|
Payments
Upon Change In Control(5)
|
|
Lynn
B. Fuller
|
Annual
Base Pay
Cash
Severance (1)
Health/Welfare
Benefits (1)
Value
of Acceleration: Stock Options
(2)
Value of Acceleration: Stock
Awards (3)
Split-Dollar
Life Insurance
|
$84,000
$33,650
$400,406
$ -
|
$ -
$33,650 $400,406
$1,000,000
|
$ -
$33,650 $742,800
$ -
|
$ -
$1,090,285
$ 23,965
$ 33,650
$742,800
$ -
|
|
John
K. Schmidt
|
Annual
Base Pay
Cash
Severance (1)
Health/Welfare
Benefits (1)
Value
of Acceleration: Stock
Options (2)
Value
of Acceleration: Stock Awards (3)
Split-Dollar
Life Insurance
|
$84,000
$23,555
$160,166
$ -
|
$ -
$23,555
$160,166
$645,400
|
$ -
$ - $ -
$ -
|
$ -
$634,747
$ 20,970
$ 23,555 $297,120
$ -
|
|
Kenneth
J. Erickson
|
Annual
Base Pay
Cash
Severance (1)
Health/Welfare
Benefits (1)
Value
of Acceleration: Stock
Options (2)
Value
of Acceleration: Stock
Awards (3)
Split-Dollar
Life Insurance
|
$84,000
$13,460 $80,092
$ -
|
$ -
$13,460 $80,092
$528,992
|
$ -
$13,460 $148,560
$ -
|
$ -
$439,685
$ 17,974
$ 13,460
$148,560
$ -
|
|
Douglas
J. Horstmann
|
Annual
Base Pay
Cash
Severance (1)
Health/Welfare
Benefits (1)
Value
of Acceleration: Stock
Options (2)
Value of Acceleration: Stock
Awards (3)
Split-Dollar
Life Insurance
|
$84,000
$10,095
$91,309
$ -
|
$ -
$10,095 $91,309
$448,200
|
$ -
$ - $ -
$ -
|
$ -
$248,985
$ 11,983
$ 10,095
$139,275
$ -
|
|
Edward
H. Everts
|
Annual
Base Pay
Cash
Severance (1)
Health/Welfare
Benefits (1)
Value
of Acceleration: Stock
Options (2)
Value of Acceleration: Stock
Awards (3)
Split-Dollar
Life Insurance
|
$84,000
$10,095 $75,079
$ -
|
$ -
$10,095 $75,079
$395,398
|
$ -
$10,095 $139,275
$ -
|
$ -
$344,301
$ 7,503
$ 10,095
$139,275
$ -
|
(1) The
amounts reflected on these lines will be paid in equal monthly payments for the
number of months specified for each as follows: Mr. Fuller – 24
months, Mr. Schmidt – 21 months, Messrs. Erickson and Everts – 18 months and Mr.
Horstmann – 12 months. For Mr. Fuller, the severance amount has been reduced by
$22,100 to avoid exceeding the 280G limitation.
(2) The
amount computed for the stock options was determined by multiplying the
difference between the closing market price of a share of our common stock on
December 31, 2007, the last business day of the year ($18.57) and the exercise
price per share for that option by the number of shares subject to that
option.
(3) The
amount computed for the stock awards was determined by multiplying the number of
shares that vest by $18.57 the closing market price of a share of our common
stock on December 31, 2007, the last business day of the year.
(4) For
the purposes of this calculation, it is assumed that all shares will be earned
even though they continue to be subject to the earning provisions as if the
officer had continued employment with the Company.
(5) For
the purposes of this calculation, it is assumed that the restricted stock
agreements are not fully assumed in the change in control and, therefore, all
shares immediately vest.
Director
Compensation
For 2007,
each of our directors was paid a fee of $950 for each board meeting attended and
$700 for each committee meeting attended, except for Messrs. Fuller and Schmidt
who, as executive officers, do not receive any fees for their services as
directors. Additionally, the director acting as chairman of a board meeting or
committee meeting was paid an additional $350. Heartland directors
that serve on the boards of its subsidiaries receive the same fees as the other
directors of the subsidiaries. Messrs. Fuller and Schmidt, to the extent they
also serve as directors of a Heartland subsidiary, do not receive any fees for
board service.
Non-employee
directors are also eligible to receive incentive stock awards under the 2005
Long-Term Incentive Plan. In 2005, we began granting stock annually to each of
our non-employee directors in addition to the board fees described above. On
December 31, 2007, each non-employee director was awarded 300 shares of
Heartland common stock (other than Mr. Hill who was awarded 200 shares). The
fair market value of the stock awarded to each non-employee director was
$5,571.
The
following table shows the compensation earned by each of our directors during
2007 for service on the Heartland and its subsidiary boards:
|
DIRECTOR
COMPENSATION
|
|||
|
Name(1)
|
Fees
Earned or Paid in Cash (2)
|
Stock
Awards (3)
|
Total
|
|
James
F. Conlan
|
$ 19,650
|
$ 5,571
|
$ 25,221
|
|
John
W. Cox, Jr.
|
$ 19,600
|
$ 5,571
|
$ 25,171
|
|
Mark
C. Falb
|
$ 26,725
|
$ 5,571
|
$ 32,296
|
|
Thomas
L. Flynn
|
$ 24,725
|
$ 5,571
|
$ 30,296
|
|
James
R. Hill
|
$
8,950
|
$ 3,714
|
$ 12,664
|
|
Ronald
A. Larson
|
$ 16,050
|
-
|
$ 16,050
|
(1) Mr.
Hill was elected to the Heartland board in May of 2007 to replace Mr. Larson who
did not seek reelection at the 2007 Annual Meeting.
(2) The
amounts in this column include fees earned or paid in cash for services as a
director at one of Heartland’s bank subsidiaries. For service on the
board of Dubuque Bank and Trust Company, Mr. Conlan received fees of $11,150,
Mr. Falb received fees of $10,875 and Mr. Flynn received fees of
$11,675. For service on the board of Galena State Bank & Trust
Co., Mr. Cox received fees of $6,900. For service on the board of
Arizona Bank & Trust, Mr. Larson received fees of $11,100.
(3) This
amount represents the fair value ($18.57) on December 31, 2007, the date of
award and issuance.
Beginning
in 2008, non-employee directors will be compensated for service during the
period from the Company’s regularly scheduled 2008 Annual Meeting to the
Company’s regularly scheduled 2009 Annual Meeting compensation solely in the
form of restricted shares of Company stock granted under the 2005 Long-Term
Incentive Plan in an amount determined by the Committee at its meeting on
December 3, 2007. Such shares shall be awarded as of the date of the 2008
Annual Meeting and shall vest on the earlier of the one year anniversary of
grant or the date of the 2009 Annual Meeting. In the event a director
leaves the board for any reason prior to any vesting date (other than due to
death or disability), the Committee shall retain sole discretion to
determine the disposition of the unvested shares. In the event of the
death or disability of the director, the shares shall fully vest. The
following grants were approved at the December 3,
2007, compensation/nominating committee meeting:
James F.
Conlan (1) 900
shares
John W.
Cox,
Jr.
1,000 shares
Mark C.
Falb(2)
1,100 shares
Thomas L.
Flynn 1,000
shares
James R.
Hill
1,000 shares
(1) The
total number of shares for Mr. Conlan has been reduced by 100 shares due to his
nonparticipation on the audit/corporate governance and compensation/nominating
committees.
(2) The
total number of shares for Mr. Falb includes 100 additional shares due to his
service as chair of the board and committee meetings.
The Board of Directors directed this
change because the Board firmly believes that any compensation received by
non-employee directors should be tied directly to the success of the Company
and, by extension, the success of all of the Company’s
stockholders.
For the period January 1, 2008 until
the date of the Company’s 2008 Annual Meeting, non-employee directors will be
paid a fee of $950 for each board meeting attended and $700 for each committee
meeting attended. Additionally, the director acting as chairman of a
board meeting or committee meeting will be paid an additional
$350. These fees shall be paid in the form of unrestricted shares of
Company stock to be calculated by dividing the dollar amount of fees earned by
the price of shares of Company stock at market close on the date of the
regularly scheduled 2008 Annual Meeting.
Compensation/Nominating
Committee Report on Executive Compensation
We have reviewed and discussed the
Compensation Discussion and Analysis with management. Based on our review and
discussion with management, we have recommended to the board of directors that
this Compensation Discussion and Analysis be included in this proxy statement
and in Heartland’s Annual Report on Form 10-K for the year ended December 31,
2007.
Respectfully,
Mark C.
Falb, John W. Cox, Jr., Thomas L. Flynn, James R. Hill
Compensation/Nominating
Committee Interlocks
During 2007, none of the directors
serving on the compensation/nominating committee of Heartland or Dubuque Bank
and Trust served as an executive officer of either organization, and none of
these individuals was a former officer or employee of either organization. In
addition, during 2007 no executive officer served on the board of directors or
compensation committee of any other corporation with respect to which any member
of our committee was engaged as an executive officer.
Stockholder
Return Performance Presentation
The incorporation by reference of
this proxy statement into any document filed with the Securities and Exchange
Commission by Heartland shall not be deemed to include the following performance
graph and related information unless such graph and related information is
specifically stated to be incorporated by reference into such
document.
The following graph shows a five-year
comparison of cumulative total returns for Heartland Financial USA, Inc., the
NASDAQ Composite Index and the NASDAQ Bank Index. Figures for our common stock
represent inter-dealer quotations, without retail markups, markdowns or
commissions and do not necessarily represent actual transactions. Heartland
became listed on NASDAQ in May 2003. The graph was prepared at our request by
Research Data Group, Inc.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN*
ASSUMES
$100 INVESTED ON DECEMBER 31, 2002
*Total return assumes reinvestment of dividends
|
Cumulative
Total Return Performance
|
||||||
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
|
|
Heartland
Financial USA, Inc.
|
$100
|
$164
|
$181
|
$198
|
$267
|
$175
|
|
NASDAQ
Composite
|
100
|
150
|
165
|
169
|
188
|
205
|
|
NASDAQ
Bank
|
100
|
131
|
145
|
142
|
159
|
126
|
TRANSACTIONS
WITH MANAGEMENT
Directors and officers of Heartland
and our subsidiaries, and their associates, were customers of and had
transactions with us and one or more of our subsidiaries during 2007. Additional
transactions may be expected to take place in the future. All outstanding loans,
commitments to loan, transactions in repurchase agreements and certificates of
deposit and depository relationships, in the opinion of management, were made in
the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. All such loans are
approved by the subsidiary bank’s board of directors in accordance with the bank
regulatory requirements. Additionally, the audit/corporate governance committee
charter provides that the committee consider and approve other material
non-lending transactions between a director and Heartland, including its
subsidiaries, to ensure that such transactions are done at arm’s length and do
not affect a director’s independence.
AUDIT/CORPORATE
GOVERANCE COMMITTEE REPORT
The incorporation by reference of
this proxy statement into any document filed with the Securities and Exchange
Commission by Heartland shall not be deemed to include the following report
unless such report is specifically stated to be incorporated by reference into
such document.
The audit/corporate governance
committee assists the board in carrying out its oversight responsibilities for
our financial reporting process, audit process and internal controls. The
audit/corporate governance committee also reviews the audited financial
statements and recommends to the board that they be included in our annual
report on Form 10-K.
The audit/corporate governance
committee has reviewed and discussed our audited financial statements for the
fiscal year ended December 31, 2007, with our management and KPMG LLP, our
independent registered public accounting firm. The audit/corporate governance
committee has also discussed with KPMG LLP the matters required to be discussed
by SAS 61 (Codification for Statements on Auditing Standards) as well as having
received and discussed the written disclosures and the letter from KPMG LLP
required by Independence Standards Board Statement No. 1 (Independence
Discussions with Audit Committees). Based on the review and discussions with
management and KPMG LLP, the audit/corporate governance committee has
recommended to the board that the audited financial statements be included in
our annual report on Form 10-K for the fiscal year ended December 31, 2007, for
filing with the Securities and Exchange Commission.
Respectfully,
Mark C.
Falb, John W. Cox, Jr., Thomas L. Flynn, James R. Hill
RELATIONSHIP
WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
At the recommendation of the
audit/corporate governance committee, we have appointed KPMG LLP to be our
independent registered public accounting firm for the fiscal year ending
December 31, 2008, and our board of directors recommends that the stockholders
ratify the appointment. KPMG LLP has been our auditor since June 1994. A
representative of KPMG LLP is expected to attend the meeting and will be
available to respond to appropriate questions and to make a statement if he or
she so desires. If the appointment of independent registered public accounting
firm is not ratified, the audit/corporate governance committee of the board of
directors will consider the matter of the appointment. The board of directors recommends
that you vote your shares FOR ratification of this
appointment.
Accountant
Fees
Audit
Fees. The aggregate amounts of fees billed by KPMG LLP during
fiscal years 2007 and 2006 for its audit of our annual financial statements and
for its required reviews of our unaudited interim financial statements included
in our quarterly reports filed were $487,000 and $467,500,
respectively.
Audit Related
Fees. The
aggregate amounts of audit related fees billed by KPMG LLP during fiscal years
2007 and 2006 were $15,500 and $19,600, respectively. The majority of these
services were related to filings with the Securities and Exchange Commission and
services related to the audits of our employee benefit and retirement plans, our
employee stock purchase plan and agreed upon procedures for the participation of
the Company’s bank subsidiaries in loan programs through the Federal Home Loan
Banks.
Tax
Fees. The aggregate
amount of fees billed by KPMG LLP during fiscal year 2007 for tax related
services was $37,700. During fiscal year 2006, KPMG LLP did not bill
the Company for any tax related services.
All Other
Fees. We
did not incur any fees from KPMG LLP for fiscal years 2007 and 2006 other than
the fees reported above.
The audit/corporate governance
committee, after consideration of these matters, does not believe that the
rendering of these services by KPMG LLP to be incompatible with maintaining
their independence as our independent registered public accounting
firm.
Among other things, the
audit/corporate governance committee is responsible for appointing, setting
compensation for and overseeing the work of the independent registered public
accounting firm. The audit/corporate governance committee has not adopted any
formal policy concerning pre-approval of the audit and permissible non-audit
services to be provided by KPMG LLP. These services include audit and
audit-related services, tax services and other services. Instead, on a case by
case basis, any audit or permissible non-audit service proposed to be performed
is considered by and, if deemed appropriate, approved by the audit/corporate
governance committee in advance of the performance of such service. All of the
fees earned by KPMG LLP described above were attributable to services
pre-approved by the audit/corporate governance committee.
FAILURE
TO INDICATE CHOICE
If
any stockholder fails to indicate a choice in items (1) or (2) on the proxy
card, the shares of such stockholder shall be voted FOR in each
instance.
|
By order
of the Board of Directors
|
| /s/ Lynn B. Fuller |
| Lynn B. Fuller |
| Chairman of the Board |
Dubuque,
Iowa
April 9,
2008
ALL
STOCKHOLDERS ARE URGED TO SIGN
AND
MAIL THEIR PROXIES PROMPTLY