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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2)
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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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4)
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Proposed
maximum aggregate value of
transaction:
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5)
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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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2)
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Form, Schedule, or Registration Statement
No.:
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Filing Party:
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4)
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Date Filed: |
April
4,
2007
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 16, 2007, at 6:00 p.m. The accompanying
notice
of annual meeting of stockholders and proxy statement discuss the business
to be
conducted at the meeting. A copy of our 2006 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 three persons to serve as
Class
II 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, 2007.
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.
Very
best
personal wishes,
/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 2006. 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 16, 2007
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 16, 2007, at 6:00 p.m., for the purpose of considering and voting upon
the
following matters:
1. to
elect
three Class II directors;
2. to
ratify
the appointment of KPMG LLP as our independent registered public accounting
firm
for the fiscal year ending December 31, 2007; and
3. to
transact such other business as may properly be brought before the meeting
or
any adjournments or postponements of the meeting.
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 19, 2007, 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.
By
order
of the Board of Directors
/s/
Lois
K.
Pearce
Lois
K. Pearce
Secretary
Dubuque,
Iowa
April
4,
2007
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 16, 2007, 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 4, 2007.
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 nine banking subsidiaries with a total of 54 banking locations
in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana and Colorado.
In
addition, we have separate subsidiaries in the consumer finance and insurance
agency businesses. Our primary strategy is to balance our focus on increasing
profitability with asset growth and diversification through acquisitions,
de
novo
bank
formations and branch openings.
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 19, 2007,
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 three Class II directors of Heartland
for
a term expiring in 2010 and to ratify the selection of KPMG LLP to continue
as
our independent registered public accounting firm for the fiscal year ending
December 31, 2007. 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
19, 2007, the record date, there were 16,489,041 shares of common stock issued
and outstanding. Therefore, at least 8,244,522 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 three 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 three 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, 2007.
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 16, 2007, you will be entitled to elect
three
Class II directors for terms expiring in 2010. The board of directors is
divided
into three classes of directors having staggered terms of three years. Two
of
the nominees for election as Class II directors are incumbent directors and
the
third nominee is currently a director of one of our subsidiary banks. We
have no
knowledge that any 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 II directors, if elected at the
annual meeting, will serve for a three-year term expiring in 2010. 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
II
(Term
Expires 2010)
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Mark
C. Falb
(Age
59)
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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
47)
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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, Riverside
Community Bank and First Community; Director (2003-present) and
Treasurer
of Citizens Finance; Treasurer (1996-2006) of ULTEA, Inc.
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James
R. Hill
(Age
55)
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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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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
III
(Term
Expires 2008)
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James
F. Conlan
(Age
43)
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2000
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Director
of Dubuque Bank and Trust; Director of Citizens Finance; Partner
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
51)
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2002
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Vice
Chairman of the Board (2003-present) of Heartland; Director and
Vice
Chairman of the Board (2006-present) of Dubuque Bank and Trust;
Director
(2002-present) of Citizens Finance; Iowa State Senator (1994-2002);
President, Chief Executive Officer and Chief Financial Officer
of Flynn
Ready-Mix Concrete Co.
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CLASS
I
(Term
Expires 2009)
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Lynn
B. Fuller
(Age
57)
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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 (2003-present) and Vice Chairman of the Board (2003-present)
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 (1996-2006)
and
Chairman of the Board (1996-2006) of ULTEA; Director (2003-present)
and
Chairman of the Board (2003-present) of HTLF Capital Corp.
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John
W. Cox, Jr.
(Age
59)
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2003
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Director
of Galena State Bank; Attorney at Law, Partner of Cox & Ward,
P.C.
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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 Corporate
Reorganization Practice in 2000, member of the Executive Committee in 2005
and
Co-Chairman of the 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 a partner in the law firm of Cox & Ward, P.C., 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 as City Attorney of Galena.
Mark
C. Falb.
Mr. Falb
is a graduate of the University of Iowa and an inactive holder of the certified
public accountant certification. 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 of the board and
chief
executive officer of Westmark Enterprises, Inc. and Kendall/Hunt Publishing
Company, 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 the 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 our newest de
novo
bank,
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.
We
wish to
express our appreciation to Mr. Larson, who is not seeking another term as
a
director of Heartland, for his past years of service and look forward to
his
continued service as a director of our Arizona Bank & Trust subsidiary
bank.
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. Fuller, Schmidt and Conlan, our current directors are
“independent” as defined by the rules of the Nasdaq Stock Market, Inc. and the
rules and regulations of the Securities and Exchange Commission. Mr. Hill,
if
elected by stockholders, will also be considered “independent.” The board of
directors has established an audit/corporate governance committee and a
compensation/nominating committee. Messrs. Cox, Falb and Flynn serve on both
the
audit/corporate governance and the compensation/nominating committees.
Additionally, Mr. Larson, a director whose term expires at the upcoming annual
meeting, also currently serves on those 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
2006, the board of directors held four regular meetings and two special
meetings. All directors during their terms of office in 2006 attended at
least
75% of the total number of meetings of the board and of meetings held by
all
committees of the board on which any such director served.
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 2006, the independent directors met in such capacity five
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 Larson. 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 2006, 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
May of
2001. During
2006, the audit/corporate governance committee met five times. To
promote independence of the audit function, the audit/corporate governance
committee consults both separately and jointly with the independent registered
public accounting firm, the internal auditors and management.
Compensation/Nominating
Committee
Committee
Members and Independence.
The
compensation/nominating committee currently consists of directors Falb, Cox,
Flynn and Larson. 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
April
of 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 an annual report 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. Three meetings were held in 2006.
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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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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Reports
on levels of achievement of individual and corporate performance
objectives;
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Reports
on the Company’s strategic objectives and future
budgets;
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Reports
on the Company’s performance against its 5 year plan;
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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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Reports
from consultants retained by the compensation/nominating
committee.
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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. 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 2007 annual meeting. Generally, 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, and each nominee
must
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
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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). The compensation/nominating
committee has not, in the past, 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.
During
2006, the compensation/nominating committee did consider potential qualified
candidates to fill the directorship being vacated by Mr. Larson. After reviewing
the slate of potential candidates, the compensation/nominating committee
selected Mr. Hill, whom the compensation/nominating committee believes possesses
all the qualities desired in a Heartland director. Of particular consideration
was the knowledge he brings forth as a successful business owner in the Denver,
Colorado market where we recently formed our newest de
novo
bank,
Summit Bank & Trust. Mr. Hill is one of the minority stockholders in Summit
Bank & Trust and serves on its board of directors as chairman. The
compensation/nominating committee felt it important to fill the vacancy with
an
individual who is familiar with this new market. Additionally, with the
Heartland’s continued expansion in the West, it was felt beneficial to have a
representative from that region of the United States. If elected by
stockholders, Mr. Hill will be considered to be an “independent” director in
accordance with the “Nasdaq” definition. In making this determination, this
board took into account Mr. Hill’s membership on Summit Bank & Trust’s
board, his minority stock ownership, as well as Heartland’s possible purchase of
his minority ownership in the future.
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
2008
annual meeting of stockholders, stockholder proposals must be received by
our
corporate secretary, at the above address, no later than December 7, 2007,
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 a
code of business conduct and ethics in place 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 19, 2007, 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.
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Name
of Individual and
Number
of Persons in Group
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Amount
and Nature of
Beneficial
Ownership (1)
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Percent
of
Class
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5%
Stockholders, Directors and Nominees
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Dubuque
Bank and Trust Company
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2,092,045(2)
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12.7%
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Lynn
S. Fuller
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1,386,042(3)
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8.4%
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Heartland
Partnership, L.P.
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834,000(4)
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5.1%
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James
F. Conlan
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98,078(5)
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*
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John
W. Cox, Jr.
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20,833(6)
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*
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Mark
C. Falb
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95,345(7)
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*
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Thomas
L. Flynn
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27,635(8)
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*
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Lynn
B. Fuller
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734,134(9)
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4.4%
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James
R. Hill
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Ronald
A. Larson
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1,578
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John
K. Schmidt
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218,851(10)
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1.3%
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Other
Executive Officers
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Kenneth
J. Erickson
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219,643(11)
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1.3%
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Edward
H. Everts
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165,952(12)
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1.0%
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Douglas
J. Horstmann
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181,863(13)
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1.1%
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All
directors and executive officers
as
a group (12 persons)
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1,951,468
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11.8%
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* 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 - 56,083
shares; Mr. Erickson - 57,083 shares; Mr. Horstmann - 44,500 shares; Mr.
Everts
- 55,750 shares and all directors and executive officers as a group - 286,083
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
328,691 shares over which Dubuque Bank and Trust, Heartland’s lead bank
subsidiary, has sole voting and investment power, 170,982 shares over which
Dubuque Bank and Trust has shared voting or investment power and 1,592,371
shares over which Dubuque Bank and Trust has no voting or investment
power.
(3) Includes
shares held by the Heartland Partnership, L.P., over which Mr. Fuller has
sole
voting and investment power, as well as 67,279 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.
(4) 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.
(5) Includes
48,078 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.
(6) Includes
14,990 shares held by John W. Cox Jr. Inc., of which Mr. Cox is a controlling
stockholder and 4,211 shares held by McJoyce, Inc. of which Mr. Cox is a
controlling stockholder.
(7) Includes
68,856 shares held by Mr. Falb’s spouse, as trustee, over which Mr. Falb has no
voting or investment power.
(8) 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.
(9) Includes
an aggregate of 8,507 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.
(10) Includes
an aggregate of 24,200 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
224 shares held by Mr. Everts’s adult son, over which Mr. Everts has no voting
and investment power.
(13) 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 2006, except that Mr. Fuller
filed a
Form 4 in 2006 reporting four transactions that occurred in August of 2004
by a
trust in which Mr. Fuller is co-trustee and were previously not reported
and Mr.
Horstmann failed to timely file a Form 4 upon the exercise of options to
acquire
shares in May of 2006.
EXECUTIVE
OFFICERS AND DIRECTORS COMPENSATION
Compensation
Discussion and Analysis
The
Compensation Discussion and Analysis addresses our compensation philosophy
and
objectives for our named executive officers; compensation factors, elements
of
compensation and the basis for compensation for 2006.
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 shareholders.
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 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
officer’s total compensation dependent upon long-term appreciation of the 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 ranges from 30,000 shares 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 in the 4th quarter of each fiscal year. The compensation/nominating
committee works with the chief executive officer to review strategic objectives
and performance targets 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 its 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. 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.
The
compensation/nominating committee also looks at individual performance factors
such as business succession likelihood, planning/budgeting capabilities,
mentoring and motivation and capacity for vision and leadership when determining
compensation.
Benchmarking.
The
compensation/nominating committee believes it is appropriate to establish
compensation levels based upon comparisons to a peer group. The
compensation/nominating committee believes competitive forces constitute
a
significant factor in crafting appropriate compensation levels, 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 and other pertinent
factors. The companies included in the 2006 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, Texas Regional Bankshares, Umpqua Holdings and West Coast
Bancorp.
Accordingly,
our goal is to pay total cash compensation (base salary plus bonus) near
the
median of the peer group for comparable positions and performance. Base salaries
will generally be 15% below the comparable peer median. Bonuses will generally
be 15% above peer median, given comparable positions and
performance.
A
historical review of the Company’s compensation for the executive officers shows
that as of December 31, 2003, total cash compensation for Heartland’s executive
officers was substantially below that of the peer group. Given the competitive
gap between Heartland 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. As of 2007, base
compensation has steadily increased to reach near the median level of the
peer
group. Total compensation (salary, bonus and long-term equity incentives)
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.
As
targeted total compensation levels are determined, 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 whose value 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 banks 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, such base salary deliberately 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 the median of the peer group over a period
of
time, salaries for the named executive officers in 2006 increased in a range
from 11% to 16%.
For
2007,
the salary of each of the executive officers was increased by 4%, which is
representative of industry average salary increases as well as the target
average increase for all employees of the Company. The size of the increase
was
less than the period 2005 - 2006 because executive officer salaries have
moved
closer to peer median over time as envisioned by the compensation/nominating
committee.
Performance-Based
Bonus Plan.
Under
new SEC disclosure rules, what the Company has historically reported as bonus
compensation is now 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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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. 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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•
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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 and is
based on a
wide range of financial performance measurements and ratios, as
well as
business succession, planning/budgeting, mentoring and motivation,
vision,
leadership and turnover.
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In
no
case, however, will any bonus payments be earned for a year if 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 above peer bonuses is intended to encourage
best efforts from the officers. Accordingly, 2006 total bonus payouts possible
(70% based upon the formula plus 30% individual performance) per named executive
officer, other than Mr. Horstmann, under the plan generally ranged from $52,000
to $244,000. Of the total bonus payouts possible, each named executive officer
earned approximately 88%, except for Mr. Horstmann who earned 83%, of the
maximum payout as calculated by the formula.
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:
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•
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20%
is based upon earnings and growth of earning 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 asset goals. A score of 100%
in this
component (ROE plus asset growth equal to the 5-year plan) would
earn 20%
of the targeted bonus;
|
|
|
•
|
60%
is based upon earnings and growth of earning assets of Dubuque
Bank and
Trust Company. This 60% 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. 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 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 and is based on a wide range of
financial
performance measurements and ratios, as well as business succession,
planning/budgeting, mentoring and motivation, vision, leadership
and
turnover.
|
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 shareholders. 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 shareholder 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 earnings and asset growth targets, which are
consistent with the primary goals of the Company’s current five-year plan of
doubling earnings and assets every five years. 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 awarded. The awarded shares are
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 dividends on the awarded shares until vested.
As
reported in the following compensation tables, year-end 2006 financial results
indicate that 35% of the total performance-based restricted awards have been
earned in 2005 and 2006 for each of the executive officers, other than Mr.
Horstmann. As President of Dubuque Bank and Trust Company, as well as an
executive officer of Heartland, 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.
Shares earned based on 2006 performance will be subject to the additional
two-year service period and related conditions, as described above. No shares
have vested as of year end 2006 because the two-year vesting period for shares
earned based on 2005 and 2006 performance periods will not be satisfied until
the end of 2007 and 2008 respectively.
Non-qualified
Stock Options.
At
Heartland, 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,
which in all cases is not less than fair market value as of the grant date
nor
can it be less than the price established for Company stock to be purchased
through the Heartland Financial USA, Inc. 2006 Employee Stock Purchase Plan.
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
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. Fair market value of Heartland Financial USA,
Inc. 2006 Employee Stock Purchase Plan stock is calculated by the same formula
as that for setting the price of non-qualified stock options. Additionally,
the
compensation/nominating committee has historically limited 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.
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 2006, we awarded stock options
to
purchase an aggregate of 130,750 shares of Heartland common stock to 105
employees.
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 a car allowance, 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 shareholders 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 our 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. The fair market value is determined by
calculating the weighted average price of stock traded on the open market
on the
five trading days prior to year end.
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 year ended December 31, 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
|
2006
|
$318,000
|
$106,890
|
$65,611
|
$215,459
|
$26,422
|
$732,382
|
|
John
K. Schmidt
Executive
Vice President, Chief Operating Officer & Chief
Financial Officer of Heartland
|
2006
|
$235,000
|
$42,756
|
$39,618
|
$101,548
|
$26,422
|
$445,344
|
|
Kenneth
J. Erickson
Executive
Vice President of Heartland
|
2006
|
$194,000
|
$21,378
|
$17,818
|
$76,824
|
$26,422
|
$336,442
|
|
Douglas
J. Horstmann
Senior
Vice President of Heartland
|
2006
|
$170,000
|
$20,042
|
$13,835
|
$52,828
|
$26,422
|
$283,127
|
|
Edward
H. Everts
Senior
Vice President of Heartland
|
2006
|
$157,000
|
$20,042
|
$14,464
|
$45,918
|
$24,701
|
$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 2006. 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
year
ended December 31, 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 2006. 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 year ended December 31,
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, only purely 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 $4,422. For Mr. Everts, the amount shown
includes a matching contribution to the 401(k) component of our retirement
plan
in the amount of $4,134.
Grants
of Plan-Based Awards
The
following table sets forth certain information concerning grants of plan-based
awards made during 2006 to the individuals named in the summary compensation
table:
|
GRANTS
OF PLAN-BASED AWARDS
|
|||||||
|
Name
|
Grant
Date
|
Estimated
Future Payments Under Non-Equity Incentive Plan
Awards(1)
|
All
Other Awards: Number of Securities Underlying Options(2)
|
Exercise
or Base Price of Option Awards ($/Share)(3)
|
Closing
Market Price
|
Grant
Date Fair Value of Stock and Options Awards(4)
|
|
|
Target
|
Maximum
|
||||||
|
Lynn
B. Fuller
|
-
1/24/06
|
$244,000
-
|
$244,000
-
|
-
10,000
|
-
$21.60
|
-
$21.98
|
-
$56,500
|
|
John
K. Schmidt
|
-
1/24/06
|
$115,000
-
|
$115,000
-
|
-
4,000
|
-
$21.60
|
-
$21.98
|
-
$22,600
|
|
Kenneth
J. Erickson
|
-
1/24/06
|
$87,000
-
|
$87,000
-
|
-
2,000
|
-
$21.60
|
-
$21.98
|
-
$11,300
|
|
Douglas
J. Horstmann
|
-
1/24/06
|
$42,500
-
|
$63,750
-
|
-
1,500
|
-
$21.60
|
-
$21.98
|
-
$8,475
|
|
Edward
H. Everts
|
-
1/24/06
|
$52,000
--
|
$52,000
-
|
-
1,500
|
-
$21.60
|
-
$21.98
|
-
$8,475
|
(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 24, 2006, date of grant.
(3) The
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.
(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,
2006. Significant assumptions include: risk-free interest rate, 4.52%; expected
option life, 7 years; expected volatility, 22.00%; expected dividends, 2.00%.
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, 2006, by the named
executive officers:
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
||||||
|
Option
Awards
|
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(1)(2)
|
|
Lynn
B. Fuller
|
-
-
-
5,000
5,500
15,000
|
10,000
15,000
15,000
10,000
2,750
-
|
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
|
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
|
40,000
|
$1,154,000
|
|
John
K. Schmidt
|
-
-
-
3,500
2,500
9,000
9,000
24,000
24,000
16,000
|
4,000
10,000
10,000
7,000
1,250
-
-
-
-
-
|
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
$9.83
$8.00
|
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
1/02/2008
1/02/2007
|
16,000
|
$461,600
|
|
Kenneth
J. Erickson
|
-
-
-
2,000
1,500
3,000
4,500
18,000
24,000
|
2,000
4,000
4,000
4,000
750
-
-
-
-
|
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
$9.83
|
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
1/02/2008
|
8,000
|
$230,800
|
|
Douglas
J. Horstmann
|
-
-
-
1,500
1,000
3,000
3,000
9,000
24,000
|
1,500
3,000
3,000
3,000
500
-
-
-
-
|
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
$9.83
|
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
1/02/2008
|
7,500
|
$216,375
|
|
Edward
H. Everts
|
-
-
-
1,500
1,500
3,000
4,500
18,000
24,000
|
1,500
3,000
3,000
3,000
750
-
-
-
-
|
$21.60
$21.00
$19.48
$11.84
$8.80
$8.67
$12.00
$12.00
$9.83
|
1/24/2016
2/10/2015
1/20/2014
1/21/2013
1/15/2012
6/01/2011
1/17/2010
1/02/2009
1/02/2008
|
7,500
|
$216,375
|
(1) The
amounts in this column were calculated using a per share value of $28.85,
the
closing market price of a share of Heartland common stock on December 29,
2006,
the last business day of the year.
(2) 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, 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 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 2006 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
|
-
|
$-
|
|
John
K. Schmidt
|
-
|
$-
|
|
Kenneth
J. Erickson
|
19,500
|
$339,885
|
|
Douglas
J. Horstmann
|
24,000
|
$421,080
|
|
Edward
H. Everts
|
24,000
|
$443,040
|
(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 other 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.
As
is the
case with disability, if employment of any of our officers who have received
equity awards is terminated due to death, the terms of our standard stock
option
agreement provide that the options become fully exercisable and will expire
if
not exercised within 12 months of the date of death. Additionally, the terms
of
our standard restricted stock agreement provide that, upon termination due
to
death, all earned shares become fully vested and any unearned shares are
forfeited.
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, 2006, Messrs. Fuller, Erickson and Everts qualified
for
retirement.
Payments
Made Upon Change In Control.
We
currently have no employment or severance agreements with any of our named
executive officers. We anticipate entering into change in control agreements
with our named executive officers in 2007 to replace prior agreements which
expired on December 31, 2004, and were discussed in our 2004 proxy statement.
The new agreements will be 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.
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:
|
POTENTIAL
PAYMENTS UPON DISABILITY, DEATH, RETIREMENT OR CHANGE IN
CONTROL
|
|||||
|
Name
|
Type
of Payment
|
Payments
Upon Disability
|
Payments
Upon Death
|
Payments
Upon Retirement(3)
|
Payments
Upon Change In Control(4)
|
|
Lynn
B. Fuller
|
Annual
Base Pay
Value
of Acceleration:
Stock
Options(1)
Stock
Awards(2)
Split-Dollar
Life Insurance
|
$84,000
$556,038
$408,343
$-
|
$-
$556,038
$408,343
$1,000,000
|
$-
$556,038
$1,154,000
$-
|
$-
$556,038
$1,154,000
$-
|
|
John
K. Schmidt
|
Annual
Base Pay
Value
of Acceleration:
Stock
Options(1)
Stock
Awards(2)
Split-Dollar
Life Insurance
|
$84,000
$345,333
$163,349
$-
|
$-
$345,333
$163,349
$673,096
|
$-
$-
$-
$-
|
$-
$345,333
$461,600
$-
|
|
Kenneth
J. Erickson
|
Annual
Base Pay
Value
of Acceleration:
Stock
Options(1)
Stock
Awards(2)
Split-Dollar
Life Insurance
|
$84,000
$166,458
$81,674
$-
|
$-
$166,458
$81,674
$541,648
|
$-
$166,458
$230,800
$-
|
$-
$166,458
$230,800
$-
|
|
Douglas
J. Horstmann
|
Annual
Base Pay
Value
of Acceleration:
Stock
Options(1)
Stock
Awards(2)
Split-Dollar
Life Insurance
|
$84,000
$123,590
$90,733
$-
|
$-
$123,590
$90,733
$445,656
|
$-
$-
$-
$-
|
$-
$123,590
$216,375
$-
|
|
Edward
H. Everts
|
Annual
Base Pay
Value
of Acceleration:
Stock
Options(1)
Stock
Awards(2)
Split-Dollar
Life Insurance
|
$84,000
$128,603
$76,568
$-
|
$-
$128,603
$76,568
$405,836
|
$-
$128,603
$216,375
$-
|
$-
$128,603
$216,375
$-
|
(1) 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 29, 2006, the last business day of the year ($28.85) and the exercise
price per share for that option by the number of shares subject to that
option.
(2) The
amount computed for the stock awards was determined by multiplying the number
of
shares that vest by $28.85, the closing market price of a share of our common
stock on December 29, 2006, the last business day of the year.
(3) 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.
(4) 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
2006,
each of our directors was paid a fee of $900 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. For 2007, the board meeting fee will be $950 and the committee
meeting fee will remain at $700. Additionally, the director acting as chairman
of a board meeting or committee meeting will be 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, 2006, each non-employee director was awarded 300 shares of
Heartland common stock. The fair market value of the stock awarded to each
non-employee director was $8,895. In 2007, each existing non-employee director
will receive 300 shares of Heartland common stock December 31, 2007, if the
director is serving on the board at that date.
The
following table shows the compensation of each of our directors during 2006
for
service on the Heartland board:
|
DIRECTOR
COMPENSATION
|
|||
|
Name
|
Fees
Earned or Paid in Cash
|
Stock
Awards
|
Total
|
|
James
F. Conlan
|
$8,700
|
$8,895
|
$17,595
|
|
John
W. Cox, Jr.
|
$10,800
|
$8,895
|
$19,695
|
|
Mark
C. Falb
|
$10,500
|
$8,895
|
$19,395
|
|
Thomas
L. Flynn
|
$11,500
|
$8,895
|
$20,395
|
|
Ronald
A. Larson
|
$10,800
|
$8,895
|
$19,695
|
Compensation/Nominating
Committee Report on Executive Compensation
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.
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, 2006.
Respectfully,
Mark
C.
Falb, John W. Cox, Jr., Thomas L. Flynn, Ronald A. Larson
Compensation/Nominating
Committee Interlocks
During
2006, 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 2006 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 Stock Market (U.S.) and an index
of
Nasdaq Bank Stocks. 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, 2001
*Total
return assumes reinvestment of dividends
|
Cumulative
Total Return Performance
|
||||||
|
12/31/01
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
|
|
Heartland
Financial USA, Inc.
|
$100
|
$138
|
$227
|
$250
|
$274
|
$370
|
|
Nasdaq
Composite
|
100
|
72
|
107
|
117
|
121
|
137
|
|
Nasdaq
Bank
|
100
|
59
|
89
|
104
|
131
|
166
|
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 2006. 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 considers other non-lending
transactions between a director and Heartland, including its subsidiaries,
to
ensure that such transactions 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, 2006, 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, 2006, for filing with the Securities and Exchange
Commission.
Respectfully,
Mark
C.
Falb, John W. Cox, Jr., Thomas L. Flynn, Ronald A. Larson
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, 2007, 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 2006 and
2005
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 $467,500 and $454,250, respectively.
Audit
Related Fees.
The
aggregate amounts of audit related fees billed by KPMG LLP during fiscal
years
2006 and 2005 were $19,600 and $24,500, 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
and
our employee stock purchase plan were included in these fees.
Tax
Fees.
KPMG LLP
did not bill the Company for any tax related services during the fiscal years
2006 and 2005.
All
Other Fees.
We did
not incur any fees from KPMG LLP for fiscal years 2006 and 2005 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), (2) or (3) 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
4,
2007
ALL
STOCKHOLDERS ARE URGED TO SIGN
AND
MAIL THEIR PROXIES PROMPTLY