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
5,
2006
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 17, 2006, 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 2005 Annual Report to Stockholders
is
also enclosed. At the meeting, we will report on operations and the outlook
for
the year ahead.
At
the
meeting, you will be asked to vote on a number of matters. Our
compensation/nominating committee has nominated two persons to serve as
Class I
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, 2006.
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 2005. 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 17, 2006
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 17, 2006, at 6:00 p.m., for the purpose of considering and voting upon
the
following matters:
1. to
elect
two Class I directors;
2. to
ratify
the appointment of KPMG LLP as our independent registered public accounting
firm
for the fiscal year ending December 31, 2006; 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 20, 2006, 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 |
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/s/
Lois K. Pearce
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| Lois K. Pearce |
| Secretary |
Dubuque,
Iowa
April
5,
2006
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 17, 2006, 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 5, 2006.
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 eight banking subsidiaries with a total of 50 banking locations
in Iowa, Illinois, Wisconsin, New Mexico, Arizona and Montana. In addition,
we
have separate subsidiaries in the consumer finance, vehicle leasing/fleet
management, insurance agency and investment banking businesses. Our primary
strategy is to balance our focus on increasing profitability with asset
growth
and diversification through acquisitions, de
novo
bank
formations, branch openings and expansion into non-bank subsidiary
activities.
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 20,
2006,
you owned shares of our common stock. This proxy statement describes the
matters
that will be presented for consideration by the stockholders at the annual
meeting. It also gives you information concerning the matters to be voted
upon
to assist you in making an informed decision.
When
you
sign the enclosed proxy card, you appoint the proxy holder as your
representative at the meeting. The proxy holder will vote your shares as
you
have instructed in the proxy card, thereby ensuring that your shares will
be
voted whether or not you attend the meeting. Even if you plan to attend
the
meeting, you should complete, sign and return your proxy card in advance
of the
meeting just in case your plans change.
If
you
have signed and returned the proxy card and an issue comes up for a vote
at the
meeting that is not identified on the form, the proxy holder will vote
your
shares, pursuant to your proxy, in accordance with his or her
judgment.
What
matters will be voted on at the meeting?
You
are
being asked to vote on the election of two Class I directors of Heartland
for a
term expiring in 2009 and to ratify the selection of KPMG LLP to continue
as our
independent registered public accounting firm for the fiscal year ending
December 31, 2006. 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
20, 2006, the record date, there were 16,547,885 shares of common stock
issued
and outstanding. Therefore, at least 8,273,944 shares need to be present
at the
annual meeting in order to hold the meeting and conduct business.
What
happens if a nominee is unable to stand for election?
The
board
may, by resolution, provide for a lesser number of directors or designate
a
substitute nominee. In the latter case, shares represented by proxies may
be
voted for a substitute nominee. You cannot vote for more than two nominees.
The
board has no reason to believe any nominee will be unable to stand for
election.
What
options do I have in voting on each of the proposals?
You
may
vote “for” or “withhold authority to vote for” each nominee for director. You
may vote “for,” “against” or “abstain” on any other proposal that may properly
be brought before the meeting.
How
many votes may I cast?
Generally,
you are entitled to cast one vote for each share of stock you owned on
the
record date.
How
many votes are needed for each proposal?
The
directors are elected by a plurality and the two individuals receiving
the
highest number of votes cast “for” their election will be elected as directors
of Heartland. All other matters, including the ratification of our independent
registered public accounting firm, must receive the affirmative vote of
a
majority of the shares present in person or by proxy at the meeting and
entitled
to vote.
Broker
non-votes will not be counted as entitled to vote, but will count for purposes
of determining whether or not a quorum is present on the matter. So long
as a
quorum is present, broker non-votes will have no effect on the outcome
of the
matters to be taken up at the meeting.
Where
do I find the voting results of the meeting?
We
will
announce preliminary voting results at the meeting. The voting results
will also
be disclosed in our Form 10-Q for the quarter ended June 30, 2006.
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 17, 2006, you will be entitled to elect
two
Class I directors for terms expiring in 2009. The board of directors is
divided
into three classes of directors having staggered terms of three years.
Each of
the nominees for election as a Class I director is an incumbent director.
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 I directors, if elected at
the
annual meeting, will serve for a three-year term expiring in 2009. 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
I
(Term
Expires 2009)
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Lynn
B.Fuller
(Age
56)
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1987
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Chairman
of the Board, President and Chief Executive Officer of Heartland;
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; Chairman of the Board
(2004-present); Director and President of Citizens Finance; Chairman
of
the Board of ULTEA; Chairman of the Board (2003-present) of HTLF
Capital
Corp.
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John
W. Cox, Jr.
(Age
58)
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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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CONTINUING
DIRECTORS
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Name
(Age)
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Served
as Heartland
Financial
USA, Inc.
Director
Since
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Positions
with Heartland Financial USA, Inc.
and
its Subsidiaries and
Principal
Occupation
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CLASS
II
(Term
Expires 2007)
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Mark
C. Falb
(Age
58)
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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
46)
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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 & Trust; 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 of ULTEA, Inc.
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Ronald
A. Larson
(Age
58)
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2004
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Chairman
of the Board (2003-present) of Arizona Bank & Trust; Managing Partner
of Larson Group LC
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CLASS
III
(Term
Expires 2008)
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James
F. Conlan
(Age
42)
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2000
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Director
of Dubuque Bank and Trust; Director of Citizens Finance; Member
of
Executive Committee (2005-present), Partner and Vice Chairman
of the
Firm-wide Corporate Reorganization Practice of Sidley Austin
LLP
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Thomas
L. Flynn
(Age
50)
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2002
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Vice
Chairman of the Board (2003-present) of Heartland; Director 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
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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 and a member of the Executive Committee
in 2005.
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 continues to serve as chief executive officer
of
the remaining divisions of the 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 has also served for many
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.
Ronald
A.
Larson.
Mr.
Larson graduated from Minnesota State University, the Stonier Graduate
School of
Banking at Rutgers University and the National Commercial Lending Graduate
School at the University of Oklahoma. Mr. Larson is the founder of Larson
Group
L.C. of Scottsdale, Arizona. He is a founding investor and director of
Heartland
member bank, Arizona Bank & Trust, in Chandler, Arizona.
John
K.
Schmidt.
Mr.
Schmidt is a graduate of the University of Northern Iowa and an inactive
holder
of the certified public accountant certification. Before joining Dubuque
Bank
and Trust in 1984, Mr. Schmidt was employed by the Office of the Comptroller
of
the Currency and Peat Marwick Mitchell, currently known as KPMG LLP, in
Des
Moines, Iowa. He has held various executive positions within Heartland
and its
subsidiaries.
All
of our
directors will hold office for the terms indicated, or until their respective
successors are duly elected and qualified. There are no arrangements or
understandings between Heartland and any other person pursuant to which
any of
our directors have been selected for their respective positions. With the
exception of Mr. Conlan, who is the brother-in-law of Mr. Fuller, no member
of
the board of directors is related to any other member of the board of
directors.
CORPORATE
GOVERNANCE AND THE BOARD OF DIRECTORS
General
There
are
currently seven members of the board of directors of Heartland. Generally,
the
board oversees our business and monitors the performance of our management.
In
accordance with our corporate governance procedures, the board does not
involve
itself in the day-to-day operations of Heartland, which is monitored by
our
executive officers and management. Our directors fulfill their duties and
responsibilities by attending regular meetings of the full board, which
are held
on a quarterly basis, special meetings held from time to time and through
committee membership, which is discussed below. Our directors also discuss
business and other matters with Mr. Fuller, our chief executive officer,
other
key executives and our principal external advisers (legal counsel, auditors
and
other consultants).
With
the
exception of Messrs. 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. The board
of
directors has established an audit/corporate governance committee and a
compensation/nominating committee. The four “independent” directors, Cox, Falb,
Flynn and Larson, serve on both the audit/corporate governance and the
compensation/nominating committees. Mr. Falb, who is chairman of these
two
committees, has not been formally designated as a “lead” independent director,
but he acts in such a capacity due to his positions as chairman.
During
2005, the board of directors held four regular meetings and four special
meetings. All directors during their terms of office in 2005 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 regularly
have
the opportunity to meet without Messrs. Fuller, Schmidt and Conlan in
attendance.
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, except Mr. Falb attended via telephonic
conference.
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 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 2005, 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,
and we
attached it to our proxy statement for the 2004 annual meeting.
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
2005, 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
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.
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:
|
|
•
|
|
discharge
the responsibilities of the board of directors relating to the
compensation of our executive officers;
|
|
|
•
|
|
evaluate
and make recommendations to the board of directors relating to
the
compensation of individuals serving as directors;
|
|
|
•
|
|
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
|
|
•
|
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.
|
The
compensation/nominating committee’s duties and functions are set forth in more
detail in its charter.
Mr.
Falb
has served as chairman of the compensation/nominating committee since April
of
2001. During 2005, the compensation/nominating committee met five
times.
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 2006 annual meeting. Generally, the
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
committee also evaluates potential nominees to determine if they have any
conflicts of interest that may interfere with their ability to serve as
effective board members and whether they are “independent” in accordance with
Nasdaq requirements (to ensure that at least a majority of the directors
will,
at all times, be independent). The 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.
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 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
2007
annual meeting of stockholders, stockholder proposals must be received
by our
corporate secretary, at the above address, no later than December 8, 2006,
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.
Director
Fees
For
2005,
each of our directors was paid a fee of $800 for each board meeting attended
and
$500 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 2006, the board meeting fee will be $900 and the committee
meeting fee will be $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, 2005, each non-employee director was awarded 278 shares of
Heartland common stock. The fair market value of the stock awarded to each
non-employee director was $6,000. Beginning in 2006, each existing non-employee
director will receive 300 shares of Heartland common stock annually on
December
31.
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 20, 2006, by each person known by
us to
be the beneficial owner of more than 5% of the outstanding common stock,
by each
director or nominee, by each executive officer named in the summary compensation
table and by all directors and executive officers of Heartland as a group.
The
address of each 5% stockholder is 1398 Central Avenue, Dubuque, Iowa
52001.
|
Name
of Individual and
Number
of Persons in Group
|
Amount
and Nature of
Beneficial
Ownership (1)
|
Percent
of
Class
|
|
5%
Stockholders and Directors
|
||
|
Dubuque
Bank and Trust Company
|
2,063,667(2)
|
12.5%
|
|
Lynn
S. Fuller
|
1,386,042(3)
|
8.4%
|
|
Heartland
Partnership, L.P.
|
834,000(4)
|
5.0%
|
|
James
F. Conlan
|
91,778(5)
|
*
|
|
John
W. Cox, Jr.
|
20,256(6)
|
*
|
|
Mark
C. Falb
|
95,045(7)
|
*
|
|
Thomas
L. Flynn
|
27,011(8)
|
*
|
|
Lynn
B. Fuller
|
714,917(9)
|
4.3%
|
|
Ronald
A. Larson
|
1,278
|
*
|
|
John
K. Schmidt
|
225,926(10)
|
1.4%
|
|
Other
Executive Officers
|
||
|
|
||
|
Kenneth
J. Erickson
|
223,448(11)
|
1.4%
|
|
Edward
H. Everts
|
185,243(12)
|
1.1%
|
|
Douglas
J. Horstmann
|
192,363(13)
|
1.2%
|
|
All
directors and executive officers as
a group (12 persons)
|
1,971,880
|
11.9%
|
* 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 - 20,500 shares; Mr. Schmidt - 85,000
shares; Mr. Erickson -71,500 shares; Mr. Horstmann - 64,500 shares; Mr.
Everts -
75,500 shares and all directors and executive officers as a group - 361,750
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
351,726 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 1,540,959
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
47,778 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
14,789 shares held by John W. Cox Jr. Inc., of which Mr. Cox is a controlling
stockholder and 4,155 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
2,413 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 8,275 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 23,621 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
221 shares held by Mr. Everts’s adult son, over which Mr. Everts has no voting
and investment power, and 304 shares held by Mr. Everts’s spouse under a 401(k)
plan, 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 2004, except the seven executives
failed to timely file a Form 4 upon the grant of non-qualified stock options
to
them in February of 2005. Additionally, Mr. Everts failed to timely file
a Form
4 upon the exercise of options to acquire shares in November of
2005.
EXECUTIVE
COMPENSATION
The
following table sets forth information concerning the compensation paid
or
granted to our chief executive officer and to each of the other four most
highly
compensated executive officers of Heartland or our subsidiaries for the
fiscal
year ended December 31, 2005:
|
SUMMARY
COMPENSATION TABLE
|
|||||||
|
Annual
Compensation
|
Long-Term
Compensation
Awards
|
||||||
|
(a)
Name
and
Principal
Position
|
(b)
Year
|
(c)
Salary(1)
|
(d)
Bonus(2)
|
(f)
Restricted
Stock
Awards
|
(g)
Securities
Underlying
Options/
SARs
|
(h)
LTIP
Payouts
|
(i)
All
Other
Compensation(3)
|
|
Lynn
B. Fuller
President
and Chief Executive Officer of Heartland
|
2005
2004
2003
|
$278,000
263,375
245,000
|
$212,361
195,000
165,000
|
$---
---
---
|
15,000
15,000
15,000
|
$---
---
---
|
$28,266
27,613
26,920
|
|
John
K. Schmidt
Executive
Vice President, Chief Operating Officer & Chief
Financial Officer of Heartland
|
2005
2004
2003
|
$205,000
194,250
185,000
|
$97,332
100,000
84,500
|
$---
---
---
|
10,000
10,000
10,500
|
$---
---
---
|
$28,223
27,968
27,075
|
|
Kenneth
J. Erickson
Executive
Vice President of Heartland
|
2005
2004
2003
|
$175,000
157,500
150,000
|
$70,787
70,000
54,800
|
$---
---
---
|
4,000
4,000
6,000
|
$---
---
---
|
$25,758
24,957
24,314
|
|
Douglas
J. Horstmann
Senior
Vice President of Heartland
|
2005
2004
2003
|
$150,000
138,124
123,000
|
$49,815
45,000
44,400
|
$---
---
---
|
3,000
3,000
4,500
|
$---
---
---
|
$26,974
22,824
20,496
|
|
Edward
H. Everts
Senior
Vice President of Heartland
|
2005
2004
2003
|
$135,000
119,000
115,000
|
$48,666
50,000
40,100
|
$---
---
---
|
3,000
3,000
4,500
|
$---
---
---
|
$22,615
19,411
18,692
|
(1) Includes
amounts deferred under our retirement plan.
(2) The
amounts shown represent amounts received under our management incentive
compensation plan.
(3) The
amounts shown represent amounts contributed on behalf of the respective
officer
to our retirement plan and the allocable portion of the premium paid for
life
insurance under our executive death benefit program. For Mr. Fuller, the
amounts
shown include an automobile allowance of $1,836 for 2005, $2,131 for 2004
and
$2,131 for 2003. For Mr. Schmidt, the amounts shown include an automobile
allowance of $2,613 for 2005, $3,100 for 2004 and $2,849 for 2003. For
Mr.
Horstmann, the amounts shown include an automobile allowance of $2,479
for 2005
and $534 for 2004. For 2005, 2004 and 2003, the amount contributed for
each
officer under our retirement plan was $25,221, $24,621 and $24,020 for
Mr.
Fuller, $25,221, $24,621 and $24,020 for Mr. Schmidt, $25,221, $24,621 and
$24,020 for Mr. Erickson, $24,144, $21,985 and $20,209 for Mr. Horstmann
and
$22,219, $19,111 and $18,430 for Mr. Everts.
Stock
Option Information
The
following table sets forth certain information concerning the number and
value
of stock options granted in the last fiscal year to the individuals named
in the
summary compensation table:
|
OPTION
GRANTS IN LAST FISCAL YEAR
|
|||||
|
Individual
Grants
|
|||||
|
(a)
Name
|
(b)
Options
Granted(1)
|
(c)
%
of Total Options Granted to Employees in Fiscal
Year
|
(d)
Exercise
or Base Price ($/Share)
|
(e)
Expiration
Date
|
(f)
Grant
Date Present Value(2)(3)
|
|
Lynn
B. Fuller
|
15,000
|
14.2%
|
$21.60
|
2/10/15
|
$91,950
|
|
John
K. Schmidt
|
10,000
|
9.5%
|
$21.60
|
2/10/15
|
$61,300
|
|
Kenneth
J. Erickson
|
4,000
|
3.8%
|
$21.60
|
2/10/15
|
$24,520
|
|
Douglas
J. Horstmann
|
3,000
|
2.8%
|
$21.60
|
2/10/15
|
$18,390
|
|
Edward
H. Everts
|
3,000
|
2.8%
|
$21.60
|
2/10/15
|
$18,390
|
(1) Options
become exercisable in three equal portions on the day after the third,
fourth
and fifth anniversaries of the February 10, 2005, date of grant.
(2) The
Black-Scholes valuation model was used to determine the grant date present
values. Significant assumptions include: risk-free interest rate, 4.00%;
expected option life, 10 years; expected volatility, 19.75%; expected dividends,
1.52%.
(3) 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.
The
following
table sets forth information concerning the stock options at December 31,
2005,
held by the named executive officers.
|
AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR
VALUES
|
||||||
|
(a)
Name
|
(b)
Shares
Acquired on Exercise
|
(c)
Value
Realized
|
(d)
Number
of Securities
Underlying
Unexercised Options/SARs at FY-end
Exercisable Unexercisable
|
(e)
Value
of Unexercised In-the-Money Options/SARs
at
FY-end
Exercisable
Unexercisable
|
||
|
Lynn
B. Fuller
|
13,500
|
$
91,395
|
12,750
|
55,500
|
$
164,500
|
$
322,250
|
|
John
K. Schmidt
|
-
|
$
-
|
80,250
|
36,000
|
$
910,460
|
$
200,470
|
|
Kenneth
J. Erickson
|
18,500
|
$
245,915
|
68,750
|
16,500
|
$
799,140
|
$
101,570
|
|
Douglas
J. Horstmann
|
14,000
|
$
206,220
|
62,500
|
12,500
|
$
756,340
|
$
77,810
|
|
Edward
H. Everts
|
24,000
|
$
374,160
|
73,250
|
13,000
|
$
860,340
|
$
84,210
|
Long-Term
Incentive Plan Awards
In
2005,
we adopted the Heartland Financial USA, Inc. 2005 Long-Term Incentive Plan
for
the benefit of our directors, officers and employees. Stockholders approved
the
plan at last year’s annual meeting and authorized 1,000,000 shares of common
stock for issuance under the plan. This plan provides for the issuance
of
incentive stock options, nonqualified stock options, stock appreciation
rights,
stock awards and cash incentive awards.
In
2005,
we awarded stock options to purchase an aggregate of 105,750 shares of
Heartland
common stock to 87 employees. The stock options awarded to the named executive
officers during 2005 are included in the tables above.
The
following table sets forth certain information concerning performance-based
restricted stock awards granted to the named executive officers on May
18, 2005,
under the plan:
|
LONG-TERM
INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
|
|||||
|
Estimated
Future Payouts Under
Non-Stock
Price-Based Plans
|
|||||
|
(a)
Name
|
(b)
Number
of
Shares
|
(c)
Performance
or
Other
Period
Until
Maturation
or
Payout
|
(d)
Threshold
|
(e)
Target
|
(f)
Maximum
|
|
Lynn
B. Fuller
|
40,000
|
12/31/11
|
-
|
40,000
|
40,000
|
|
John
K. Schmidt
|
16,000
|
12/31/11
|
-
|
16,000
|
16,000
|
|
Kenneth
J. Erickson
|
8,000
|
12/31/11
|
-
|
8,000
|
8,000
|
|
Douglas
J. Horstmann
|
7,500
|
12/31/11
|
-
|
7,500
|
7,500
|
|
Edward
H. Everts
|
7,500
|
12/31/11
|
-
|
7,500
|
7,500
|
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 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.
Stock
Purchase Plan
In
2005,
we also adopted and stockholders approved the Heartland Financial USA,
Inc. 2006
Employee Stock Purchase Plan. The plan is intended to qualify as an employee
stock purchase plan under Section 423 of the Internal Revenue Code. The
plan
allows employees of Heartland and our subsidiaries to purchase shares of
common
stock available under the plan.
Change
of Control Agreements
The
change in control agreements discussed in our 2004 proxy expired on December
31,
2004. The compensation/nominating committee anticipates that Heartland
will
enter into new change of control agreements with the listed officers during
2006. We anticipate that the new agreements will take into consideration
the
various elements of the executives' compensation discussed in this proxy
statement. The change of control agreements, in conjunction with all other
elements of compensation paid to the listed officers, will be consistent
with
the overall compensation philosophy of the compensation/nominating committee
and
Heartland.
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.
General.
During
2005, the compensation/nominating committee was comprised of directors
Falb,
Cox, Flynn and Larson, each of whom is expected to serve on the committee
through 2006. Each of the members is considered “independent” by the board
according to the Nasdaq listing requirements, an “outside” director pursuant to
Section 162(m) of the Internal Revenue Code and a “non-employee” director
pursuant to Section 16 of the Securities Exchange Act of 1934. The committee
administers our compensation program, which includes determining the aggregate
compensation to be paid to Mr. Fuller, our chief executive officer. In
addition,
the committee reviews and recommends to the full board the compensation
for our
other executive officers. The committee also administers our stock and
long-term
incentive plans and meets either independently or in conjunction with our
full
board of directors to grant awards to eligible individuals in accordance
with
the terms of the plans.
Compensation
Overview.
Our
executive compensation policies are intended to support the achievement
of
Heartland’s strategic business goals and the creation of value for our
stockholders. Key objectives of our executive compensation program are
to:
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link
executive compensation to company and individual performance,
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•
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Align
the interests of executives with our stockholders through opportunities
for increased ownership of Heartland,
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•
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attract
and retain executives and other key employees of Heartland through
competitive compensation opportunities, and
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•
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motivate
such employees to further the long-term goals of Heartland.
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In
determining appropriate levels of executive and director compensation,
the
compensation/nominating committee has at its disposal independent reference
information regarding compensation ranges and levels for executive and
director
positions in comparable companies, including public information for regional
bank peer companies and published information from various nationally recognized
compensation surveys. The comparison companies in our peer group are also
included in the Nasdaq Bank Index used in preparation of the Performance
Graph,
except to the extent they are not listed on Nasdaq. Frederic W. Cook & Co.,
Inc. has been engaged to serve as an independent executive and director
compensation advisor to the compensation/nominating committee. Key areas
of
service include providing market data on executive and director compensation
pay
levels and practices, developing executive and director compensation
recommendations intended to support the committee’s objectives and keeping the
committee abreast of technical and regulatory developments related to executive
and director compensation.
The
three
major components of executive officer compensation are base salary, annual
incentive awards and long-term incentive awards. The process utilized by
the
committee in determining executive officer compensation levels for all
of these
components is based upon the committee’s subjective judgment and takes into
account both qualitative and quantitative factors. No specific weights
are
assigned to such factors with respect to any compensation component. In
reviewing and establishing an executive’s compensation, the committee considers
and evaluates all components of the executive officer’s total compensation
package. This involves reviewing the executive’s salary, bonus, incentive stock
awards, perquisites, participation in our 401(k) plan, payments due upon
retirement or a change of control, if any, and all other payments and awards
that the executive officer earns. Among the factors considered by the committee
are the recommendations of the chief executive officer with respect to
the
compensation of our other key executive officers. However, the committee
makes
the final compensation decisions concerning such officers.
The
compensation of executive officers during 2005 was based upon a number
of
factors, including:
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•
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our
overall compensation program philosophy;
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•
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the
individual’s performance, experience, expertise and length of service with
our organization;
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•
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progress
toward our annual and long-term performance objectives; and
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•
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compensation
of officers with similar duties and responsibilities at comparable
organizations.
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Components
of Compensation.
Salary.
The
compensation/nominating committee reviews each executive’s base salary on an
annual basis. The committee believes that the base salaries should offer
security to each executive and allow us to attract qualified executives
and
maintain a stable management team and operating environment. The committee
targets base salaries of executive officers at levels generally comparable
with,
but slightly below, those of similar positions within the marketplace,
taking
into consideration the executive’s current market position and market salary
movements generally. Additionally, base salaries are determined by examining,
among other things, an executive’s level of responsibility, prior experience,
breadth of knowledge, span of control, and performance against internal
performance objectives. The committee may also consider Heartland’s performance
and financial condition, as well as other payments and awards that the
executive
may receive in determining salaries. All of the factors described herein
are
considered on a subjective basis in the aggregate, and none of the factors
is
accorded a specific weight. When establishing the salary of executives
other
than his own, Mr. Fuller participated and made recommendations to the committee.
Bonus.
Annual
performance incentives are provided to executives through cash bonuses
based on
the achievement of established performance goals. Bonus payments are primarily
related to Heartland’s financial performance, as measured by return on equity
and growth in assets. Other financial factors including, but not limited
to,
earnings per share growth, return on assets, core deposit growth, loan
loss
reserves, and asset quality, are also considered by the committee, along
with
various non-financial factors. Individual performance criteria are also
considered by the committee in determining bonuses. Bonus opportunities
are
targeted at levels generally comparable to, but slightly above, those of
similar
positions within the marketplace. In conjunction with the targeting of
base
salaries slightly below market levels, this weighting is intended to reinforce
Heartland’s pay-for-performance philosophy.
Stock
Ownership; Long-Term Incentive Awards.
The
board and the compensation/nominating committee believe in employee ownership
of
our common stock. A variety of stock incentives have been used by Heartland,
including the 2005 Long-Term Incentive Plan and 2006 Employee Stock Purchase
Plan which were approved by stockholders at the 2005 Annual Meeting. The
primary
purpose of these long-term incentive plans is to enhance our long-term
financial
performance by further
aligning the interests of participating employees with our stockholders
through
opportunities for increased employee ownership of Heartland, thereby creating
an
incentive to create long-term value for stockholders.
Stock
options are awarded annually to executives and other key employees. Stock
options may be exercised subject to continued service over a multi-year
vesting
period at a price generally equal to the stock price at the date of grant.
In
determining stock option awards for executives, the committee considers
the
executive’s level of responsibility, ability to influence long-term performance,
individual performance and contribution, and level of prior stock option
awards,
as well as the Company’s financial performance. During 2005, the committee
recommended, and the board of directors approved, the granting of options
for a
total of 105,750 shares to 87 employees. Options granted to Mr. Fuller
and the
other named executive officers in 2005 are shown in the tables
above.
Starting
in 2005, performance shares were granted to executive officers in addition
to
stock options. Performance shares, as authorized under the 2005 Long-Term
Incentive Plan, are restricted stock grants that may be fully earned by
continued service and achievement of long-term performance goals. Stock
ownership guidelines have also been adopted for executives to reinforce
our core
philosophy of employee stock ownership.
Chief
Executive Officer’s Compensation.
The
committee establishes Mr. Fuller’s compensation consistent with the policies and
considerations described above. Mr. Fuller’s compensation for 2005 reflects the
committee’s satisfaction with Heartland’s overall financial performance,
including its continued growth and profitability, as well as Mr. Fuller’s
leadership and personal performance as chief executive officer. In addition
to
these factors, the Committee also considered Mr. Fuller’s previous years’
salaries and the salary levels of chief executive officers of comparable
financial institutions in setting his base salary at $278,000 for 2005.
His
bonus of $212,361 was awarded based on the committee’s evaluation of Heartland’s
financial performance in regard to, among other factors, return on equity
and
growth in core deposits, his individual performance, and bonus and annual
compensation (salary plus bonus) levels of chief executive officers at
comparable institutions. We awarded 15,000 stock options to Mr. Fuller
in 2005,
which was the same number of stock options he received in 2004. He also
received
$28,266 in other compensation, as reported in the summary compensation
table of
page 15.
Compliance
with Section 162(m) of the Internal Revenue Code of
1986.
Section
162(m) of the Internal Revenue Code limits the deductibility of annual
compensation in excess of $1 million paid to the our chief executive officer
and
any of the four other highest-paid officers, to the extent they are listed
officers on the last day of any given tax year. Compensation is exempt
from this
limit, however, if it qualifies as “performance-based compensation.”
Performance-based compensation generally includes only payments that are
contingent on achievement of performance objectives, and excludes fixed
or
guaranteed payments. We believe performance-based compensation is an important
tool to provide incentive to senior executives, matching their compensation
levels to our performance.
The
committee also believes that appropriate actions have been taken to preserve
the
deductibility of compensation of executives. Although we will consider
deductibility under Section 162(m) with respect to the compensation arrangements
for executive officers, deductibility will not be the sole factor used
in
determining appropriate levels or methods of compensation. Since our objectives
may not always be consistent with the requirements for full deductibility,
we
may enter into compensation arrangements under which payments would not
be
deductible under Section 162(m) when we believe that such arrangements
are in
the best interest of the Company and its stockholders.
Conclusion.
The
compensation/nominating committee believes the executive compensation policies
and programs described above effectively serve the interests of shareholders
and
Heartland. The committee believes these policies motivate executives to
contribute to our overall future success, thereby enhancing the value of
Heartland for the benefit of all shareholders.
Respectfully,
Mark
C.
Falb, John W. Cox, Jr., Thomas L. Flynn, Ronald A. Larson
Compensation/Nominating
Committee Interlocks and Insider Participation in Compensation
Decisions
During
the last completed fiscal year, at the invitation of the compensation/nominating
committee, in addition to each of the members of the committee, Messrs.
Fuller,
Schmidt and Conlan also participated in committee deliberations concerning
executive compensation. However, Messrs. Fuller and Schmidt did not participate
in any discussions regarding their own compensation and Mr. Schmidt did
not
participate in discussions regarding Mr. Fuller’s compensation. Mr. Fuller
serves as chairman of the board, president and chief executive officer
of
Heartland. Mr. Schmidt is the executive vice president, chief operating
officer
and chief financial officer of Heartland. With respect to the members of
the
committee, Messrs. Falb and Flynn also serve as directors of Dubuque Bank
and
Trust, Mr. Cox also serves as a director of Galena State Bank and Trust
and Mr.
Larson also serves as chairman of the board of Arizona Bank & Trust.
During
2005, 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 2005 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, 2000
[Graph
depicting values in the table below]
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Cumulative
Total Return Performance
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12/31/00
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12/31/01
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12/31/02
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12/31/03
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12/31/04
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12/31/05
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|
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Heartland
Financial USA, Inc.
|
$100
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$99
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$138
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$226
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$248
|
$273
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Nasdaq
Stock Market (U.S.)
|
100
|
79
|
56
|
83
|
91
|
93
|
|
Nasdaq
Bank Index
|
100
|
106
|
107
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137
|
154
|
150
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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 2005. 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.
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 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, 2005, with
our
management and KPMG LLP, our independent registered public accounting firm.
The
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 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, 2005, 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, 2006, 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 amount of fees billed by KPMG LLP for its audit of our annual
financial statements for fiscal years 2005 and 2004 and for its required
reviews
of our unaudited interim financial statements included in our quarterly
reports
filed during fiscal 2005 and 2004 were $454,250 and $440,000, respectively.
A
significant portion of these fees were attributable to the requirements
under
Sarbanes Oxley Section 404 which required an examination of our assessment
of
the effectiveness of internal control over financial reporting under the
criteria established in Internal
Control - Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Additionally, these fees were attributable to the implementation of new
accounting pronouncements and audit procedures required as a result of
our bank
subsidiaries’ participation in programs offered by the Federal Home Loan Bank
and Federal Home Loan Mortgage Corporation.
Audit
Related
Fees.
The
aggregate amounts of audit related fees billed by KPMG LLP for fiscal years
2005
and 2004 were $24,500 and $31,600, respectively. The majority of these
services
were related to filings with the Securities and Exchange Commission.
Additionally, 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 provide any tax related services to us for the fiscal years 2005
and
2004.
All
Other
Fees.
We did
not incur any fees from KPMG LLP for fiscal years 2005 and 2004 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
5,
2006
ALL
STOCKHOLDERS ARE URGED TO SIGN
AND
MAIL THEIR PROXIES PROMPTLY
PROXY
FOR COMMON SHARES SOLICITED ON BEHALF OF THE BOARD
OF
DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
HEARTLAND
FINANCIAL USA, INC. TO BE HELD ON MAY 17, 2006
The
undersigned hereby appoints Lynn B. Fuller and John K. Schmidt, or either
one of
them acting in the absence of the other, with power of substitution, attorneys
and proxies, for and in the name and place of the undersigned, to vote
the
number of common shares that the undersigned would be entitled to vote
if then
personally present at the annual meeting of stockholders of Heartland Financial
USA, Inc., to be held at the Grand River Center, 500 Bell Street, Dubuque,
Iowa,
on the 17th day of May, 2006, at 6:00 p.m., local time, or any adjournments
or
postponements thereof, upon the matters set forth in the Notice of Annual
Meeting and Proxy Statement, receipt of which is hereby acknowledged, as
follows:
1. ELECT
DIRECTORS:
|
¨FOR
all nominees listed below (except as marked to the
contrary below) |
¨WITHHOLD
AUTHORITY
to
vote for all nominees listed below
|
(INSTRUCTIONS:
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH
THE NOMINEE'S NAME IN THE LIST BELOW.)
Class
I (Term Expires 2009):
Lynn B.
Fuller and John W. Cox, Jr.
2. APPROVE
THE APPOINTMENT OF KPMG LLP as
Heartland Financial USA, Inc.’s independent registered public accounting firm
for the year ending December 31, 2006:
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¨ FOR
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¨ AGAINST
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¨ ABSTAIN
|
3. In
accordance with their discretion, upon all other matters that may properly
come
before said meeting and any adjournments or postponements thereof.
THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR
THE NOMINEES LISTED UNDER PROPOSAL 1 AND FOR PROPOSAL 2.
Dated: __________,
2006
Signature(s)________________________
NOTE:
PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR ABOVE. ALL
JOINT
OWNERS OF SHARES SHOULD SIGN. STATE FULL TITLE WHEN SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY IN THE
ENCLOSED ENVELOPE.