This proxy statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of Heartland Financial USA, Inc. (“Heartland,HTLF,” the “Company” or “we”) of proxies to be voted at the 2023 Annual Meeting of Stockholders (the “Annual Meeting”). The Annual Meeting will be a virtual meeting of stockholders conducted exclusively online via webcast. You will be able to be held atattend the Hotel Julien Dubuque, 200 Main Street, Dubuque, Iowa,Annual Meeting online by visiting www.virtualshareholdermeeting.com/HTLF2023 on Wednesday, May 22, 2019,June 14, 2023, at 6:1:00 p.m. Central DaylightMountain Time, or at any adjournments or postponements of the meeting. We first mailed this proxy statement and proxy card on or about April 12, 2019.27, 2023.
Please read this proxy statement carefully. You should consider the information contained in this proxy statement when deciding how to vote your shares at the Annual Meeting. The following information regarding the meeting and the voting process is presented in a question and answer format.
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| (1) | Elect three fourindividuals to serve as Class II directorsIII Directors for a three-year term expiringending in 20222026 |
| (2) | Approve an amendmentManagement proposal to the Company’s Certificatedeclassify our Board of Incorporation to increase the number of authorized shares of common stock from 40,000,000 to 60,000,000 sharesDirectors |
| (3) | Approve an amendment to the Company’s Certificate of Incorporation to increase the maximum Board size from 11 members to 13 membersNon-binding, advisory vote on executive compensation |
| (4) | RatifyNon-binding, advisory vote on the frequency of future advisory votes on executive compensation |
| (5) | Ratification of the appointment of KPMG LLP as the Company'sCompany’s independent registered public accounting firm for the fiscal year ending December 31, 20192023 |
(5)(6) | Take a non-binding, advisory vote on executive compensation |
(6) | Transact such other business as may properly be presented at the Annual Meeting |
þThe Board of Directors recommends a vote “FOR” the threefour Class IIIII nominees for election as directorsDirectors for a three-year termsterm ending 2022,2026, as listed in the proxy statement, and a vote “FOR” Proposals 2, 3, 4 and 5.5, and “1 Year” for Proposal 4.
These matters are more fully described in this proxy statement. We are not aware of any other matters that will be voted onproposed at the Annual Meeting. However, if you have voted your shares and a proposal is properly presented at the Annual Meeting that is not identified in the proxy materials, the proxy holder will vote your shares, pursuant to your proxy, in accordance with his or her judgment.
HOW MANY VOTES DO OUR STOCKHOLDERS HAVE?
Holders of common stock have one vote for each share of common stock owned at the close of business on March 25, 2019,April 17, 2023, the record date for the Annual Meeting.
HOW DO I VOTE?
Stockholders of Record
In addition to voting your shares in persononline at the Annual Meeting, you canmay also vote your shares of common stock in advance of the Annual Meeting by submitting a proxy using one of the following options:
*online using the instructions for Internet voting shown on the Internet Notice or proxy card; |
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* | online using the instructions for Internet voting shown on the Notice or proxy card; |
* | by telephone using the instructions for telephone voting shown on the proxy card; or |
* | by mail by marking the proxy card with your instructions and then signing, dating and returning the proxy card in the enclosed return addressed envelope. |
*by telephone using the instructions for telephone voting shown on the proxy card; or*by mail by marking the proxy card with your instructions and then signing, dating and returning the proxy card in the enclosed return addressed envelope.
Plan Holders
If you hold shares in a retirement plan account (“Plan”) that allows you to direct the Plan trustee how to vote the shares in your account (“Plan Shares”), please follow the voting instructions provided to you by the Plan trustee or administrator. In the absence of instructions from you on how to vote any Plan Shares, the Plan trustee may vote those shares in accordance with the terms of the Plan.
“Street Name” Holders
You must followIn addition to voting your shares online at the Annual Meeting, you may also vote your shares of common stock in advance of the Annual Meeting by following the voting instructions provided by your broker or other nominee. Under Nasdaq Stock Market (“Nasdaq”) listing standards, brokersBrokers who hold your shares in “street name” have the authority to vote shares for which they do not receive instructions on all routine matters submitted for approval at the Annual Meeting. In the absence of your specific instructions as to how to vote, your broker will not have authority to vote on the matters considered non-routine, which includes all actions other than Proposal 4,5, the ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019.2023, resulting in a so-called “broker non-vote”. If you hold your shares through a broker or other nominee it is important that you cast your vote if you want it to count on all of the matters to be considered at the Annual 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 Annual Meeting. You may do this by:
*signing another proxy with a later date and returning that proxy to Mr. Jay L. Kim, Corporate Secretary, Heartland Financial USA, Inc., 1800 Larimer Street, Suite 1800, Denver, Colorado 80202; |
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* | signing another proxy with a later date and returning that proxy to Ms. Angela W. Kelley, Secretary, Heartland Financial USA, Inc., 1398 Central Avenue, Dubuque, Iowa 52001; |
* | sending notice to us that you are revoking your proxy; or |
* | voting in person at the Annual Meeting. |
*sending notice to us that you are revoking your proxy; or*voting online at the Annual Meeting.
If you hold your shares in the name of your broker and desire to revoke your proxy in advance of the Annual Meeting, you may submit another vote in accordance with the voting instructions sent to you, or you will need to contact your broker. You may also change your vote by voting online at the Annual Meeting.
HOW MANY VOTES DO WE NEED TO HOLD THE ANNUAL MEETING?
A majority of the shares of common stock that are outstanding as of the record date must be present in person or by proxy at the Annual Meeting in order to hold the Meeting and conduct business.
Shares are counted as present at the Annual Meeting if the stockholder either:
*is present online at the Annual Meeting; or |
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* | is present and votes in person at the Annual Meeting; or |
* | has properly voted via Internet, phone, or proxy card. |
*has properly voted via Internet, phone, or proxy card prior to the Annual Meeting.
On March 25, 2019,April 17, 2023, there were _________ shares of common stock outstanding. Therefore, shares of common stock with at least ________________________ votes need to be present to constitute a quorum to hold the Annual Meeting and conduct business. Presence may be in person or by proxy. Abstentions and broker non-votes are counted as present and entitled to vote at the Annual Meeting for purposes of defining a quorum. Virtual attendance at our Annual Meeting constitutes presence in person for purposes of a quorum at the meeting.
WHERE CAN STOCKHOLDERS GET COPIES OF OUR ANNUAL REPORT?
Stockholders may receive a free copy of our 20182022 Annual Report on Form 10-K, including financial statements, by sending a written request to Ms. Angela W. Kelley,Mr. Jay L. Kim, Corporate Secretary, Heartland Financial USA, Inc., 1398 Central Avenue, Dubuque, Iowa 52001.1800 Larimer Street, Suite 1800, Denver, Colorado 80202.
WHAT HAPPENS IF A NOMINEE FOR DIRECTOR 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 proxy may be voted for athe substitute nominee. Alternatively, the Board may reduce its size. You cannot vote for more than threefour 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.meeting, other than for the vote on the frequency of future advisory votes on executive compensation, for which you may vote “1 Year”, “2 Years”, “3 Years” or “ABSTAIN”.
HOW MANY VOTES ARE NEEDED FOR EACH PROPOSAL?
The directors are elected by a plurality of the outstanding shares of our common stock represented at the Annual Meeting and entitled to vote, meaning that the threefour individuals receiving the highest number of votes cast “FOR” their election will be elected as directors of Heartland. HTLF. Withholding against the nominees has no effect.
TheBecause our Board unanimously approved the proposed amendment and restatement of our Certificate of Incorporation, the vote on amending and restating our Certificate of Incorporation to declassify the Board of Directors requires the affirmative vote of a majority of the issued and outstanding shares of our common stock is required to approve the amendments to our Certificate of Incorporation.
The affirmative vote of a majority of the outstanding shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote is required to approve the other proposals.
The vote on executive compensation is advisory and will not be binding upon Heartland or the Board of Directors. However, the Compensation/Nominating Committee of the Board will consider the voting resultsthereon in establishing our executive compensation plan for subsequent years.
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. So long as a quorum is present, broker non-votes will have no effect on the outcome of the mattersorder to be taken up at the meeting.approved. Abstentions and withhold votesbroker non-votes will have the same effect as negative votes.
The votes on executive compensation and frequency of future votes on executive compensation require the affirmative vote of a majority of the shares of voting stock represented at the meeting. Abstentions and broker non-votes will have the same effect as negative votes. For the frequency of future votes on executive compensation, if no frequency option receives majority support, the option that receives the greatest number of votes will be the frequency selected by stockholders.
The vote on auditor ratification requires the affirmative vote of a majority of the shares of voting stock represented at the meeting. Abstentions will have the same effect as negative votes.
WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
We will announce preliminary voting results at the Annual Meeting. The voting results will also be disclosed in a Current Report on Form 8-K that we will file with the Securities and Exchange Commission (the “SEC”) by the close of business on the fourth business day after the Annual Meeting.
WHO BEARS THE COST OF SOLICITING PROXIES?
We bear the cost of soliciting proxies. In addition to solicitations by mail, officers, directors and employees of Heartland,HTLF, or its subsidiaries, may solicit proxies in person or by telephone. These persons will not receive any special or additional compensation for soliciting proxies.proxies and we have not engaged a third party proxy solicitor. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to stockholders.
WHAT IF I SHARE THE SAME ADDRESS AS ANOTHER STOCKHOLDER?
If you share an address with one or more other stockholders, you may have received only a single copy of the Annual Report to Stockholders, proxy statement or Internet Notice for your entire household. This practice, known as “householding,” is intended to reduce printing and mailing costs. If you are a registered stockholder and you prefer to receive a separate Annual Report to Stockholders, proxy statement or Internet Notice this year or in the future, or if you are receiving multiple copies at your address and would like to enroll in “householding” and receive a single copy, contact Broadridge at 1-866-540-7095 or by mail to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717. If you are a beneficial owner of
shares held in street name, please contact your bank, brokerage firm or other intermediary to make your request. There is no charge for separate copies.
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| PROPOSAL 1 | | ELECTION OF DIRECTORS |
Elect threefour individuals to serve as Class II directorsIII Directors for a three-year term expiringending in 20222026 | þ | The Board of Directors recommends that you vote your shares FOR each of the nominees. |
Our Board of Directors carefully considers the qualifications of each director candidate and the overall composition of the Board, and believes that Board deliberations are enhanced by the diversity of backgrounds represented and a balance of tenure. The Board has a robust director selection process that is focused on creating a diverse group of candidates who possess the background, skills, and expertise to make significant contributions to the Board. The Board strives to balance the need for continuity with that of obtaining fresh perspectives relevant to the Board’s work. The Board currently consists of ten directors, with over half having served five or fewer years, which reflects the Board’s commitment to ongoing refreshment.
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| Board Diversity Matrix (As of January 31, 2023) |
| Female | Male |
| Total Number of Directors | 10 |
| Part I: Gender Identity | | |
| Directors | 3 | 7 |
| Part II: Demographic Background | | |
| African American or Black | 1 | |
| White | 2 | 7 |
At the Annual Meeting, on Wednesday, May 22, 2019, you will be entitled to vote for threefour Class IIIII Directors to serve for terms expiringending in 2022. The2026; provided that, as further discussed below under Proposal 2 - Mechanics of Declassification, if Proposal 2 is approved by stockholders, those Directors whose terms do not expire at the 2024 annual meeting, including those elected pursuant to this proposal, intend to accelerate declassification by offering their resignation and being immediately reappointed to the Board ofby the remaining Directors is divided into three classes of directors having staggered terms of three years.for a term ending at the 2024 annual meeting. Each of the nominees has agreed to serve as a director, if elected. If for any reason any of the nominees becomes unable to serve before the election, the holders of proxies reserve the right to substitute another person of their choice as a nominee when voting at the meeting.
In 2018, we increased the size of our Board from nine to eleven members. Ms. Murphy joinedmeeting, or the Board effective July 26, 2018, and Ms. Hopkins joinedmay reduce its size.
The Board utilizes a variety of sources to identify potential nominees to the Board, effective December 12, 2018.including third-party search firms. Where utilized, the role of the search firm will be to assist the Board in prioritizing candidate characteristics and experience and to identify potential nominees.
The Compensation, Nominating and Corporate Governance Committee (the “Compensation Committee”) seeks to identify potential nominees that share the Company’s philosophy, including the same sense of mission, vision and values. The Board also considers it important to increase the diversity of the Board, based on race, ethnicity, gender, geographic or other meaningful differences. No nominees presented in this proxy were identified through the use of a search firm, however the Board continues to actively utilize search firms to identify diverse candidates to serve on the Board.
Set forth below is information concerning the nominees for election and concerning the other directors whose terms of office will continue after the meeting. Included in the information is each director'sdirector’s age, year first elected and business experience during at least the previous five years.
Directors standing for election: |
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DIRECTOR NOMINEES
CLASS II (Term Expires 2022) III |
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Mark C. FalbRobert B. Engel | Director Since 19952019 | Age 7169 |
| | Professional and Educational Background: | | |
| | Mr. FalbEngel, Chair of the Risk Committee, has served as Managing Director and Chief Executive Officer of BLT Advisory Services, LLC, a boutique advisory firm, since 2017. Prior to that, he served as President and Chief Executive Officer of CoBank, ACB from 2006 to 2017, presiding over its transformation into a high growth financial institution consistently ranked as one of the world’s safest banks and serving customers throughout rural America in all 50 states. Prior to CoBank, he spent 14 years at HSBC Bank, USA, ultimately serving as its chief banking officer. He has over 40 years of business and leadership experience, including over 30 years of experience in the banking industry. Mr. Engel brings to our Board considerable financial services expertise and insights on risk management, strategic growth, collaborative relationships and talent development. Mr. Engel earned a BBA in accounting and an honorary doctorate, both from Niagara University. |
| | Other Boards and Appointments: | |
| | Director of Allied Motion Technologies, Inc since 2019; Chairman of the Board for Alaska Power & Telephone since 2017. |
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| Thomas L. Flynn | Director Since 2002 | Age 67 |
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| | Mr. Flynn, has served as Vice Chairman of the Board of Heartland and ChairmanHTLF since 2005. Prior to his retirement, Mr. Flynn was President of the Audit/Corporate Governance Committee of Heartland since 2001, and served as Chairman of the Compensation/Nominating Committee of HeartlandAggregate Materials Company from 2001 to 2015. He has been Chairman of the Board1999 until 2014, President and Chief Executive Officer of Kendall/Hunt Publishing Company,Flynn Ready-Mix Concrete Co. from 1999 until 2012, and Chief Financial Officer of Flynn Ready-Mix from 1977 until 1999. He is a publisher of textbooks for the Pre-Kindergarten through 12th grade market and the higher education market, since 1992. He has beenpast Chairman of the Board of Directors of the National Ready-Mix Concrete Association and Chief Executive Officera former member of Westmark Enterprises, Inc.,the Iowa Legislature, having served for eight years as a real estate development company, since 1993. A Certified Public Accountant (inactive),State Senator. He also served for ten years as an adjunct faculty member in the Business Department of a local liberal arts college teaching courses in finance and business research methods. Mr. FalbFlynn brings to our Board considerable experience in executive management of nationally-based organizations and experience in finance and financial accounting. Mr. Falb has significant communitysmall business expertise, business contacts and is considered a leader in one of our principal markets and skill in Dubuque, Iowa and the Tri-State area of Iowa, Illinois and Wisconsin.governance. He holds an MBA from the University of Dubuque and a BBABA in Accounting and Finance from Loras College. |
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| Jennifer K. Hopkins | Director Since 2018 | Age 62 |
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| | Ms. Hopkins has been a managing partner at Crescendo Capital, a private investment firm for early stage companies, since 2007. From 2009 through 2021 she was CEO of one of Crescendo’s portfolio companies, American Medical - The Oxygen Concentrator Store. Prior to joining Crescendo Capital, Ms. Hopkins had a twenty-year career with Hewlett Packard and Agilent, with executive roles across all functional areas. Her career with Agilent culminated in the role of Vice President of the Global Solutions Business Unit. In this role she managed a global organization with full financial responsibility for over 2000 employees. Ms. Hopkins brings to our Board a technology background and operational expertise across both entrepreneurial and large corporate organizations. She holds a Masters in Industrial Engineering from Stanford University and a BS in Industrial Engineering from North Dakota State University. |
| | Other Boards and Appointments: | |
| | Board member of Spectra Logic Corporation since 2012 and Sartori Cheese Corporation since 2013; Member of the Board of Trustees for North Dakota State University Foundation; a trustee for the Denver Museum of Nature and Science; and a member of the Colorado Forum. |
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| Bruce K. Lee | Director Since 2017 | Age 62 |
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| | Mr. Lee is the President and Chief Executive Officer of HTLF. He was named Chief Executive Officer effective June 1, 2018, and has served as President since 2015. He has over 30 years of experience in the banking industry. Prior to joining HTLF, Mr. Lee had a twelve year career with Fifth Third, where he held numerous leadership positions including Executive Vice President and Chief Credit Officer; Executive Vice President and Director of Special Assets; and Executive Vice President, Commercial Banking Division Head and Affiliate Senior Commercial Banker. Prior to that, he served as President and CEO of a Fifth Third affiliate bank, where he managed sales and service functions for retail, commercial, residential mortgage and investments, along with the staff functions of finance, human resources and marketing. Mr. Lee has wide-ranging banking experience and perspective as HTLF expands its size and geographic reach. He earned his BA in Business Administration and Management from Siena Heights University. |
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Directors not up for election:
CLASS I (Term Expires in 2024)
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| Christopher S. Hylen | Director Since 2020 | Age 62 |
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| | Mr. Hylen served as the Chief Executive Officer and board member of Reltio, Inc., a leading software as a service company headquartered in Redwood City, California, from September 2020 to August 2022, where he provided leadership for strategy, operations, overall performance and growth. Prior to that he was the Chief Executive Officer and a director of Imperva, Inc. from 2017 to 2019, where he led the successful turnaround and then sale of the company. He served in executive leadership roles at Citrix Systems from 2013 to 2017, including President and Chief Executive Officer of the Citrix mobility business unit GetGo, and also held leadership roles in the Intuit Payment Solutions division of Intuit Corporation, from 2006 to 2013. Mr. Hylen contributes expertise on information technology and data privacy for financial services companies at a strategic level, with over 25 years of related technology and financial services experience. Mr. Hylen holds an MBA from Harvard Business School and a bachelor’s degree in engineering from Widener University. |
| | Other Boards and Appointments: |
| | Previously served as a member of the Board of Directors of Reltio, Inc. from September 2020 to August 2022. |
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| Susan G. Murphy | Director Since 2018 | Age 66 |
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| | Ms. Murphy, Chair of the Audit Committee, has been a Principal at The Grace Alliance, LLC in Denver, which assists individuals and families in developing and maintaining financial strategies for the future, since 2005. She served as Trustee of the Colorado Public Employees’ Retirement Association from 2007 to 2021, providing oversight to a public pension fund managing $60 billion in assets for 620,000 beneficiaries. She started her career at Ernst and Young and has been a consultant to a variety of businesses and transactions. She is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants. Ms. Murphy brings significant public accounting, investment advisory and public policy expertise along with knowledge of the Denver metropolitan area. She graduated with a BA in Accounting from the University of Iowa.Notre Dame. |
| | Other Boards and Appointments: | |
| | PresidentTrustee of Arrupe Jesuit High School 2010 to 2016 and Board of Directors, Iowa Scholarship Fund, since 1997; Vice President of the Grand Opera House Foundation since 2006; Lifetime Member on the Board of Trustees for the University of Dubuque since 2015.Chair 2019 to 2022. |
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John K. SchmidtMartin J. Schmitz | Director Since 20012018 | Age 5965 |
| | Professional and Educational Background:
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| | Mr. Schmitz was the Chairman of the Board of Citywide Banks, now known as HTLF Bank, prior to HTLF’s acquisition of Citywide Banks. Mr. Schmitz oversaw business development and commercial banking. In addition, he was involved in the administration of credit management, audit and regulatory functions over his twenty-one years at Citywide Banks. Prior to his time at Citywide Banks, Mr. Schmitz spent eighteen years in the Denver commercial real estate business as Vice President with a commercial real estate group specializing in investment real estate. Mr. Schmitz brings to our Board community bank leadership experience and knowledge of the Denver metropolitan area. He holds a BA in Accounting, Business Administration and Economics from Regis University. |
| | Other Boards and Appointments: | |
| | Trustee of Regis University, Denver, Colorado, since 2004; and Director of Boys and Girls Clubs of Metro Denver since 2008. |
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| Kathryn Graves Unger | Director Since 2021 | Age 48 |
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| | Ms. Graves Unger is Vice President, Environmental, Social and Governance at Boston Scientific Corporation, a global developer, manufacturer and marketer of medical devices, a role she has held since September 2022. Prior that, she held executive roles at Cargill Inc., a global agriculture company, from 2014 to 2022, most recently serving as Vice President, North America - Cargill Government Relations from 2019 to 2022 and Managing Director, North America - Cargill Aqua Nutrition from 2014 to 2019. From 2005 to 2014, Ms. Graves Unger served in management roles at Cummins, Inc. Ms. Unger is also a certified public accountant. She graduated from the University of North Carolina - Chapel Hill with a BA in Spanish education and a Masters of Accounting. She then received her MBA from Stanford University. Ms. Graves Unger brings to the board substantial business, government relations, and ESG expertise, as well as education, Spanish language, accounting and tax experience. |
| | Other Boards and Appointments: | |
| | Urban Ventures Board member since 2016, and current board chair; Economic Club of Washington DC board member since 2022; previous board member of U.S. Global Leadership Coalition board member from 2020 to 2022: Member of the Board of Advisors for the Cargill Hispanic-Latino Council from 2015 to 2022. |
CLASS II (Term Expires 2025)
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| John K. Schmidt | Director Since 2001 | Age 63 |
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| | Mr. Schmidt has served as the independent Chairman of the HTLF Board since March 2022. Mr. Schmidt has been the Senior Vice President and Chief Financial Officer of A.Y. McDonald Industries, a leading manufacturer of water works, plumbing, pumps, and natural gas products, since 2013 and was named Corporate Secretary in 2014. Mr. Schmidt was theserved as HTLF’s Chief Financial Officer from 1991 to 2013 and Chief Operating Officer (from 2004) and Chief Financial Officer (from 1991) of Heartlandfrom 2004 to 2013 until joining A.Y. McDonald Industries. Mr. Schmidt was also an officer of Dubuque Bank and Trust Company from 1984 to 2004 and President from 1999 to 2004. Prior to joining Dubuque Bank and Trust Company in 1984, Mr. Schmidt was employed by the Office of the Comptroller of the Currency (the “OCC”) and Peat Marwick Mitchell, currentlynow known as KPMG LLP. A Certified Public Accountant (inactive), Mr. Schmidt brings to our Board extensive knowledge in operational bank management and accounting. He graduated with a BA from the University of Northern Iowa. |
| | Other Boards and Appointments: | |
| | DirectorPast President of Heartland subsidiaries Dubuque Bank and Trust Company, Citizens Finance Co., Citizens Finance of Illinois Co. and Citizens Finance Parent Co. for more than five years; MemberSteeple Square; Former member of the Loras College Board of Regents, Dubuque, Iowa, since 2011; Vice President of Steeple Square, Dubuque, Iowa;from 2011 to 2021; Board Member and Treasurer, High Voltage LLC; and Director of A.Y. McDonald Industries since 2013. |
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| Duane E. White | Director Since 2013 | Age 6368 |
| | Professional and Educational Background:
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| | Mr. White, has beenChair of the Compensation Committee, is the retired Executive Vice President and Chief Product Officer forof Medecision, a healthcare IT provider, sinceprovider. He served in that role from May 2018.2018 until December 2019. Mr. White was a partnerPartner at Aveus, a management consulting firm in St. Paul, Minnesota from 2013 until the firm was acquired by Medecision in May 2018. Prior to joining Aveus, he was an independent consultant for six years. Mr. White has 15 years of financial services experience, including nine years with U.S. Bancorp. Positions at U.S. Bancorp included President of the mortgage division, Senior Vice PresidentSVP of Mergers and Acquisitions and Senior Vice PresidentSVP of Marketing Support and Product Management. He began his career as an examiner for the OCC and was also involved with the regulatory supervision of problem banks in his role as the Assistant to the Regional Director of Special Projects. Mr. White brings considerable expertise in financial services to our Board, including merger and acquisition activity, public company board experience and knowledge and perspective with respect to the Minneapolis and St. Paul metropolitan area. He holds an MBA from Harvard Business School and a BBA in Business Economics from the University of Wisconsin-EauWisconsin – Eau Claire. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiary Minnesota Bank & Trust for more than five years; and Director of Fair Isaac Corporation from 2009 to 2016. |
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CONTINUING DIRECTORS
CLASS III (Term Expires 2020)
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Thomas L. Flynn | Director Since 2002 | Age 63 |
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| Mr. Flynn, who has served as Vice Chairman of the Board of Heartland since 2005 and Chairman of the Compensation/Nominating Committee of Heartland since 2015, was President of Aggregate Materials Company located in East Dubuque, Illinois from 1999 until his retirement in 2014. Mr. Flynn was President and Chief Executive Officer of Flynn Ready-Mix Concrete Co. from 1999 until his retirement in 2012. He was Chief Financial Officer of Flynn Ready-Mix from 1977 until 1999. He is a past Chairman of the Board of Directors of the National Ready-Mix Concrete Association. Mr. Flynn is a former member of the Iowa Legislature, having served for eight years as a State Senator. He also served for ten years as an adjunct faculty member in the Business Department of a local liberal arts college teaching courses in finance and business research methods. Mr. Flynn brings to our Board considerable small business expertise, business contacts in one of our principal markets and skill in governance. He holds an MBA from the University of Dubuque and a BA in Accounting and Finance from Loras College. |
| | Other Boards and Appointments: | |
| | Director and Vice Chairman of the Board of Heartland subsidiaries Dubuque Bank and Trust Company, Citizens Finance Co., Citizens Finance of Illinois Co. and Citizens Finance Parent Co. for more than five years. |
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Jennifer K. Hopkins | Director Since 2018 | Age 58 |
| | Professional and Educational Background:
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| Ms. Hopkins has been a managing partner at Crescendo Capital, a private investment firm for early stage companies, since 2007, and has served as CEO of one of Crescendo’s portfolio companies, American Medical - The Oxygen Concentrator Store, since 2009. Prior to joining Crescendo Capital, Ms. Hopkins had a twenty-year career with Hewlett Packard and Agilent Technologies, leading teams in research and development, marketing, and operations. Her career with Agilent culminated in the role of Vice President of the Global Solutions business unit. Ms. Hopkins brings to our Board a technology background and operational expertise. In addition, she has small business and executive management experience, as well as contacts in our largest market, the Denver metropolitan area. She holds a Masters in Industrial Engineering from Stanford University and a BS in Industrial Engineering from North Dakota State University. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiary Citywide Banks since 2018. Board member of Spectralogic Corporation since 2012; Board of Advisors for Sartori Cheese Corporation since 2013; Alumni Association and Board of Trustees, North Dakota State University since 2005; and Director of Craig Hospital Foundation Board since 2015. |
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Bruce K. Lee | Director Since 2017 | Age 58 |
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| Mr. Lee is the President and Chief Executive Officer of Heartland. He was named Chief Executive Officer effective June 1, 2018, and he has served as President since 2015. He has over 30 years of experience in the banking industry. Prior to joining Heartland, Lee spent twelve years at Fifth Third, a $130 billion regional bank holding company headquartered in Cincinnati, Ohio. At Fifth Third, he held numerous leadership positions, including the following: Executive Vice President and Chief Credit Officer; Executive Vice President and Director of the company’s special assets group; and Executive Vice President, Commercial Banking Division Head and Affiliate Senior Commercial Banker. Prior to that, he served as President and CEO of a Fifth Third affiliate bank in northwestern Ohio, where he managed sales and service functions for retail, commercial, residential mortgage and investments, along with the staff functions of finance, human resources and marketing. Mr. Lee has wide-ranging banking experience and perspective as Heartland expands its size and geographic reach. He earned his BA in Business Administration and Management from Siena Heights University. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiary Citywide Banks since 2017; and Director of Heartland subsidiary First Bank & Trust since 2018. |
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Kurt M. Saylor | Director Since 2013 | Age 66 |
| | Professional and Educational Background:
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| Mr. Saylor retired in December 2016 from his role as President and Chief Executive Officer of Morrill & Janes Bank and Trust Company, a Heartland subsidiary bank. He had served in that role since 2002. He began his banking career as an examiner with the Office of State Bank Commissioner in Kansas after graduating from college. He joined Morrill & Janes Bank and Trust Company in 1975. During his tenure with Morrill & Janes Bank and Trust Company, he served as Chairman and Chief Executive Officer of Century Capital Financial (City National Bank) in Kilgore, Texas, from 1997 to 2008 and as Chairman and Chief Executive Officer of FBC Financial Corp (1st Bank Oklahoma) in Claremore, Oklahoma, from 1998 to 2011. Mr. Saylor brings to our Board community bank leadership experience and familiarity with operating under a multi-bank holding company structure. In addition, he has community knowledge and perspective with respect to the Kansas City metropolitan area. Mr. Saylor graduated with a BBA in Finance from Kansas State University. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiary Morrill & Janes Bank and Trust Company for more than five years. |
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CONTINUING DIRECTORS
CLASS I (Term Expires 2021)
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Lynn B. Fuller | Director Since 1987 | Age 69 |
| | Professional and Educational Background:
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| Mr. Fuller has served as the Executive Operating Chairman of Heartland since June 1, 2018. Previously, he had been Chief Executive Officer of Heartland since 1999, Chairman of the Board of Heartland since 2000 and was President of Heartland from 1990 until 2015. He began his banking career with Dubuque Bank and Trust Company in 1971. He then worked as an officer at First National Bank of St. Paul from 1976 until returning to Dubuque Bank and Trust Company in 1978. Mr. Fuller has the deepest knowledge and understanding of Heartland and has extensive experience in the banking business, with hands-on operational experience and decades of experience in all aspects of commercial banking. He earned an MBA from the University of Iowa and a BS from the University of Dubuque. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiaries Dubuque Bank and Trust Company, Wisconsin Bank & Trust, New Mexico Bank & Trust, Arizona Bank & Trust, Rocky Mountain Bank, Minnesota Bank & Trust, Morrill & Janes Bank and Trust Company, Citizens Finance Co., Citizens Finance of Illinois Co. and Citizens Finance Parent Co. for more than five years; Director of Premier Valley Bank since its acquisition by Heartland in 2015; Director of Citywide Banks since its acquisition by Heartland in 2017; Director of First Bank & Trust since its acquisition by Heartland in 2018. |
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R. Michael McCoy | Director Since 2014 | Age 70 |
| | Professional and Educational Background:
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| Mr. McCoy was the President and CEO of the McCoy Group, Inc. from 1998 to 2012. Parent company to seven subsidiaries, including Midwest-based Freightliner dealerships Truck Country and Stoops, and transportation-focused companies, Foodliner, Quest Liner and McCoy NationaLease, the McCoy Group is a diversified, national transportation enterprise of more than 2,600 employees. Mr. McCoy brings Heartland not only significant experience in the operation of a business headquartered in Dubuque, Iowa, but significant business contacts in the central Iowa and Wisconsin markets from which a significant portion of small business loans we originate are sourced. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiary Dubuque Bank and Trust Company for more than five years. |
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Susan G. Murphy | Director Since 2018 | Age 62 |
| | Professional and Educational Background:
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| Ms. Murphy has been a Principal at The Grace Alliance, LLC in Denver, which assists individuals and families in developing and maintaining financial strategies for the future, since 2005. She has also served as Trustee of the Colorado Public Employees’ Retirement Association since 2007, providing oversight to a public pension fund managing $48 billion in assets for 606,000 beneficiaries. She started her career at Ernst and Young. She is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants. Ms. Murphy brings Heartland significant public accounting, investment advisory and public policy expertise along with knowledge of the Denver metropolitan area. She graduated with a BA in Accounting from the University of Notre Dame. |
| | Other Boards and Appointments: | |
| | Director of Heartland subsidiary Citywide Banks since 2017; Board Member of Arrupe Jesuit High School 2010-16 and 2017-Present, currently Chair Elect; Trustee for the Colorado Public Employees’ Retirement Association since 2007. |
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Martin J. Schmitz | Director Since 2018
| Age 61 |
| | Professional and Educational Background:
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| Mr. Schmitz is the Chairman of Citywide Banks, Heartland’s subsidiary bank in Colorado. Prior to Heartland’s acquisition of Citywide, he was Chairman of the Board along with overseeing business development and commercial banking. In addition, he was involved in the administration of credit management, audit and regulatory functions. He was with the organization for 21 years. Prior to his time at Citywide, Mr. Schmitz spent 18 years in the Denver commercial real estate business as Vice President with a commercial real estate group specializing in investment. Mr. Schmitz brings to our Board community bank leadership experience and knowledge of the Denver metropolitan area. He holds a BA in Accounting, Business Administration and Economics from Regis University. |
| | Other Boards and Appointments: | |
| | Director of Citywide Banks, which became a Heartland subsidiary in 2017, for more than five years; Trustee of Regis University, Denver, Colorado, since 2004; and Director of Boys and Girls Clubs of Metro Denver since 2008. |
All of our directors will hold office for the terms indicated, and until their respective successors are duly elected and qualified. Other than Mr. Saylor, who was first elected a directorqualified unless Proposal 2 in accordance withthis proxy statement is approved and the Merger Agreement with Morrill Bancshares, Inc. on October 18, 2013, and Mr. Schmitz, who was first nominatedDirectors accelerate declassification as a director in accordance with the Merger Agreement with Citywide Banks of Colorado, Inc. in 2018, nofurther discussed below. No director has been nominated or is serving pursuant to any arrangement that requires that they be selected as a director.
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| CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS |
Our Board of Directors
There are currently eleventen members on the Board of Directors of Heartland.HTLF. Although it is the responsibility of Heartland'sHTLF’s officers to manage day-to-day operations, the Board oversees our business and monitors the performance of our management.
Director Independence. Our Board has determined that each of Mses. Hopkins, Murphy and Unger and Messrs. Falb,Engel, Flynn, McCoy,Hylen, Schmidt, Schmitz, and White and Mmes. Hopkins and Murphy areis an “independent” directorsDirector as defined in the listing standards of Nasdaq and the rules and regulations of the SEC. The Board has also determined that Mr. Fuller, as Executive Operating Chairman, and Mr. Lee as(as President and Chief Executive Officer of Heartland, areHTLF) is not independent. Mr. Saylor is not an independent director because he served through December 2016 as President and Chief Executive Officer of Morrill & Janes Bank and Trust Company, a Heartland subsidiary bank. Mr. Schmitz is a former Chairman of the Board of Citywide Banks, a Heartland subsidiary bank, and is not an independent director. In considering the independence of the directors, our Board reviewed questionnaires prepared by each director,Director, reviewed its own records of transactions with directorsDirectors and their family members, and inquired of directorsDirectors whether they, or any member of their immediate families, had engaged in any transaction with us, other than transactions made in the ordinary course of business.
Meetings. Our directors meet The Board meets on at least a quarterly basis, or as needed at special meetings held periodically throughout the year. During 2018,2022, the Board of Directors held fourseven regular meetings and foureleven special meetings. Allmeetings, and all directors attended at least 75% of the aggregate of (i) the total number of the meetings of the Board and (ii) the total number of Directors and its Committeesthe meetings held by all committees on which they served.
The independent directors are offered the opportunity at each meeting of the Board of Directors to meet separately in executive session. During 2018,2022, the independent directorsDirectors met thirteen times in such capacity five times.capacity. Each of our Audit/Audit Committee, Compensation, Nominating and Corporate Governance Committee (the “Compensation Committee”) and our Compensation/NominatingRisk Committee consists solely of independent directors, and these committeesDirectors who also meet regularly in conjunction with most regular board meetings.executive session without management present.
It is Heartland'sHTLF’s practice that all directorsDirectors be in attendance at the Annual Meeting unless excused by the Chairman of the Board. In 2018,2022, all directorsDirectors attended the Annual Meeting in person.Meeting.
Board Leadership. We currently have an independent Chairman separate from the CEO. Under our Bylaws, theMr. Schmidt, our Chairman, of the Board presides at meetings of the Board at which he is in attendance. Mr. Fuller, our Executive OperatingThe Board believes that at this time, its structure with an independent Chairman has been Chairmanof the Board who is not an executive officer best serves the Company by reinforcing the independence of the Board from management, creating an environment that encourages objective oversight of the
management performance, maintaining a healthy governance culture, and enhancing the effectiveness of our Board as a whole. The Board believes it is important to maintain flexibility in its Board leadership structure depending on the Company’s needs at the time, but firmly supports having an independent Director in a Board leadership position at all times. Accordingly, in 2023 we amended our Corporate Governance Guidelines to provide that in the absence of Directors since 2000. As the director with the most knowledge of Heartland’s business,an independent Chair, the Board has determined that Mr. Fuller is thewill designate a Lead Independent Director who shall be an independent director most capable of leading discussions on important matters affecting Heartland, including formulation and implementation of corporate strategy. In addition, ouras defined by NASDAQ regulations. The Board believes that Mr. Fuller’s roleits approach to risk oversight, as Chairman creates a firm link with management, a clear indication of management authority, and causesmore fully discussed below, ensures that the Board can choose many leadership structures while continuing to function more effectively and efficiently. Our Board believes that our performance during Mr. Fuller’s tenure reflects the effectiveness of his leadership and his goal of advancing Heartland’s interests over personal gain.oversee risk.
Mr. Falb and Mr. Flynn, in their capacities as Vice Chairmen of the Board, assist in setting the agendas for Board meetings and executive sessions of the Board, as well as regularly interacting with Messrs. Fuller and Lee to convey concerns of the independent directors.
In 2018, the Board voted to add the role of Lead Director and appointed Mr. Flynn to serve in that capacity. In this role, Mr. Flynn serves as the liaison between the directors and management, promoting open and constructive conversation. He also works closely with our Executive Operating Chairman, Mr. Fuller, and our President and Chief Executive Officer, Mr. Lee, to ensure Heartland is building a healthy governance culture. As lead director, Mr. Flynn chairs the executive sessions of the Board, facilitates the Board evaluation process, and works with Messrs. Fuller and Lee to monitor progress on the strategic plan and succession planning.
Risk Management - Background. Heartland HTLF applies the three lines of defense model to its risk management.management framework. Under this structure, the first line of defense is management at Heartland’sHTLF’s subsidiaries, together with managers of centralized operations units at Heartland assigned to support them. Collectively, they are accountable and responsible for managing the risks appurtenant toassociated with their areas of responsibility. This responsibility includes developing policies, procedures and controls, and executing them. At theThe second line of defense, Heartland applies enterprise risk management concepts, under the leadershipsupervision of the Chief Risk Officer, to coordinate, monitorconsists of formal enterprise risk management functions that facilitate risk identification, assessment, monitoring and reportreporting on the adequacy and effectiveness of risk management processes. Within theThe centralized risk management function at Heartlandfunctions are enterprise risk, consumer compliance, loan reviewEnterprise Risk Management (“ERM”), Consumer Compliance, Loan Review, Security (Information/Cybersecurity) and Bank Secrecy Act functions. Finally, Heartland
maintains at the holding company level an internal audit function, providingFinancial Crimes Risk Management (BSA/AML/OFAC and Fraud). The third line of defense oversightis the centralized Internal Audit function which provides independent quality assurance and validation of the effectiveness of the control environment and entire risk management framework.
Risk Management - The Board.The Risk Committee of the Board of Directors is involved in overseeing all risks acrosshas oversight responsibilities for the Company’s enterprise risk management and actively participates by establishingreporting framework. The Risk Committee reviews reports on the risk policies, limits and tolerances, and reviewing reportsmanagement framework provided by management and the Chief Risk Officer, forincluding quarterly assessments of the Company’s top risks, emerging risk and its evolving risk profile. The Risk Committee is also provided with robust reporting and monitoring those activities.compliance information related to its approved risk appetite statement, associated metrics and limits. The Audit/Corporate GovernanceAudit Committee oversees risks associated with financial reporting, including internal controlcontrols over financial reporting, and identifiesthe effectiveness of the third line Internal Audit function, and appoints and oversees compliance with changing laws and regulations.the Company’s independent registered public accounting firm. The Compensation/NominatingCompensation Committee identifies, reviews and oversees risks created by Heartland’srelated to HTLF’s executive benefit programs and employee compensation programs, including its annual and long-term incentive plans. The Compensation/NominatingCompensation Committee also consults withreviews the results of the annual incentive compensation risk assessment presented by the Chief Risk Officer for risk input pertaining to compensation.Officer.
Risk Management - Senior Management.Senior Managers, having leadership Management has responsibility for developing plans and managerial responsibility forimplementing effective controls to manage and mitigate risk as part of the first line of defense, ensure the formation of a risk-appropriate plan, and the effectiveness of first line of defense in executing it.defense. This includes coordination of product, service and servicecustomer related activities that are largely the domain ofprimarily undertaken locally by our membersubsidiary banks with operational processes and support activities that are largely the domain of Heartland business units, and ensuring that all aspects of it are aligned with our strategic plan. They receive information about risks from the Riskmanaged centrally. Management System, and also report information about their risks and how they are managed into that system. Top-level management is also responsible for establishing and maintaining appropriate segregation of duties, defined roles and responsibilities, and accountabilities to facilitate the Boardsuccessful execution of Directors for ensuring that the Chief Risk Officer position is adequately staffed,our strategic plan and for providing administrative oversight to the Chief Risk Officer, as he functionally reports to the Board of Directors.objectives.
Committees of the Board
Audit/Corporate GovernanceAudit Committee. The membersAudit Committee is chaired by Ms. Murphy, and additionally consists of the Audit/Corporate Governance Committee are Messrs. Falb, Flynn, McCoy, Schmidt and White and Mmes.Mses. Hopkins, and Murphy. EachUnger and Messrs. Engel and Flynn, each of Messrs. Falb, Flynn, McCoy, Schmidt and White and Mmes. Hopkins and Murphywhom is an “independent” director under the listing standards of Nasdaq and the rules and regulations of the SEC. The Board of Directors has determined that each of Messrs. Falb,Engel and Flynn and SchmidtMses. Murphy and Ms. MurphyUnger qualify as, and should be named as an “audit committee financial expert” as set forth in the rules and regulations of the SEC. Each member of the Audit/Corporate GovernanceAudit Committee also meets the financial literacy and additional independence requirements for audit committee membership under the listing standards of Nasdaq and the rules and regulations of the SEC.
The primary duties and functions of the Audit/Corporate GovernanceAudit Committee are to:
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| * | monitor the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting, risk management, and legal compliance; |
| * | retain, oversee, review and terminate, if necessary, the Company’s independent registered public accounting firm and pre-approve all services performed by such firm; |
| * | provide an avenue of communication among the Company’s independent registered public accounting firm, management, the risk management function (i.e., Chief Risk Officer, Loan Review and Compliance), the internal audit function, and the Board of Directors; |
| * | oversee processes to enforce HTLF’s code of conduct; including those for the receipt, retention and treatment of complaints received; and those processes for the confidential, anonymous submission by employees; |
| * | encourage adherence to, and continuous improvement of, the Company’s policies, procedures and practices at all levels; |
| * | review areas of potentialpotentially significant financial risk to the Company; and |
| * | oversee the activities and performance of the Company’s internal audit function; and |
| * | monitor compliance with legal and regulatory requirements and establish appropriate corporate governance policies for the Company. |
The Audit/Corporate Governance Committee'sAudit Committee’s duties and functions are set forth in more detail in its Charter. In addition, the Board of Directors adopted Corporate Governance Guidelines to codify its governance practices. The Charter and the Corporate Governance Guidelinescharter, which can be found under the Investor Relations section of our website, ir.htlf.com.
Mr. FalbMs. Murphy has served as ChairmanChairperson of the Audit/Corporate GovernanceAudit Committee since 2001.she replaced Mr. Schmidt in April 2022. During 2018,2022, the Audit/Corporate Governance CommitteeAudit Committee met five ninetimes. To promote independence of the audit function, the Audit/Corporate GovernanceAudit Committee consults both separately and jointly with our independent registered public accounting firm, internal auditors, and management.
The Report of the Audit/Corporate GovernanceAudit Committee is contained later in this proxy statement, and the processes used by the Audit/Corporate GovernanceAudit Committee to approve audit and non-audit services are described later in this proxy
statementbelow under the caption, “Relationship With Independent Registered Public Accounting Firm-Audit/Firm - Audit Committee Pre-Approval Policy”.
Compensation, Nominating and Corporate Governance Committee. The Compensation, Nominating and Corporate Governance Committee Pre-Approval Policy.”
Compensation/Nominating Committee. The Compensation/Nominating Committee(the “Compensation Committee”) is comprised of Messrs. Falb, Flynn, McCoy, Schmidt andchaired by Mr. White, and Mmes.additionally consists of Mses. Hopkins and Murphy.Unger and Messrs. Flynn, Hylen, and Schmitz. Each of Messrs. Falb, Flynn, McCoy, Schmidt and White and Mmes. Hopkins and Murphymember is an “independent” director as defined byunder the listing requirementsstandards of Nasdaq and the rules and regulations of the NasdaqSEC and a “non-employee” director under Section 16 of the Securities Exchange Act of 1934. Mr. Flynn has served as Chairman of the Compensation/Nominating Committee since May 2015.1934 (the “Exchange Act”).
The primary duties and functions of the Compensation/NominatingCompensation Committee are to:
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| * | discharge the responsibilities of the Board relating to the compensation of the Company’s executive officers, including the President and Chief Executive Officer; |
| * | evaluate and make recommendations to the Board relating to the compensation of individuals serving as directors of the Company; |
| * | direct the preparation of and approve an Annual Report on Executive Compensation for inclusion in the Company’s 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.Stockholders; and |
| * | develop and establish corporate governance policies and procedures for the Company. |
The Compensation/NominatingCompensation Committee duties and functions are set forth in more detail in its Charter,charter, which can be found under the Investor Relations section of our website, ir.htlf.com. The Compensation/NominatingCompensation Committee held eightnine meetings in 2018.2022.
The process used by the Compensation/NominatingCompensation Committee to evaluate and determine executive compensation is described in this proxy statement under the caption “Executive Officers Compensation - Compensation“Compensation Discussion and Analysis - Administration of Our Compensation Program.”Program”. The Report of the Compensation/NominatingCompensation Committee is also contained later in this proxy statement.
Risk Committee. The Risk Committee is chaired by Mr. Engel, and additionally consists of Ms. Murphy and Messrs. Hylen, and White. Each member is an “independent” director under the listing standards of Nasdaq and the rules and regulations of the SEC and a “non-employee” director under Section 16 of the Exchange Act.
The primary duties and functions of the Risk Committee are to:
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| * | oversee the risk management program and provide guidance to management on risk matters; |
| * | oversee management’s implementation of the ERM Policy, which defines the enterprise risk management and reporting framework (including use of objective and quantitative metrics), approve the Risk Appetite Statement, and review reporting provided by management on risk identification and monitoring of the Company’s risk profile; |
| * | review and discuss with management emerging (both internal and external) significant risk exposures, including risk mitigating actions as highlighted by enterprise risk management reporting; |
| * | ensure that the risk management function is adequately established and maintained, with sufficient resources, independence and authority to perform its duties commensurate with the size and complexity of the Company; |
| * | review reports from Compliance, Financial Crimes Risk Management, Loan Review, Third Party Risk Management, Model Risk Management and Security (Information/Cybersecurity); and |
| * | receive regulatory updates including exam results and other pertinent updates that impact the Company’s risk profile. |
The Risk Committee duties and functions are set forth in more detail in its charter, which can be found under the Investor Relations section of our website, ir.htlf.com. The Risk Committee held four meetings in 2022.
Director Nominations and Qualifications
Qualifications.In carrying out its nominating function, the Compensation/NominatingCompensation Committee evaluates all potential nominees for election, including incumbent directors, Board nominees and stockholder nominees, inindividuals recommended by stockholders. In addition to meeting minimum requirements of the same manner. We did not receive any stockholder recommendations for nominees forNasdaq Stock Market, the 2019 Annual Meeting. The Compensation/Nominating Committee believes that,Board seeks candidates who at a minimum potential directors should havepossess the highest personal and professional ethics, integrity and values, a sufficient educational and professional background that enables them to understand our business, 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. following additional attributes:
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| * | highest personal and professional ethics, integrity and values; |
| * | sufficient educational and professional background to enable them to understand the Company’s business; |
| * | exemplary management and communication skills; |
| * | demonstrated leadership skills; |
| * | sound judgment in their professional and personal life; |
| * | a commitment to representing the long-term interests of all the Company’s stockholders; |
| * | a strong sense of service to the communities which we serve; and |
| * | ability to meet the standards and duties set forth in the Company’s Code of Business Conduct and Ethics. |
The Compensation Committee also believes that directors should share the Company’s philosophy, including the same sense of mission, vision and values. Additionally, the Committee would prefer experience with publicly held companies, growth businesses or sales.takes into account a potential nominee’s:
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| * | senior corporate leadership experience; |
| * | experience with publicly held companies of a similar or larger size than HTLF; and |
| * | unique perspective by virtue of their race, gender, ethnicity, geographic or other meaningful differences. |
No
Pursuant to our Corporate Governance Guidelines, no nominee is eligible for election or re-election as a director if, at the time of the stockholders’ meeting at which such election,director is elected, such person is 72 or more years of age. Each nominee must also be willing to devote sufficient time to carrying out his or hertheir Board duties and responsibilities effectively. Although our Compensation/Nominating Committee considers diversity, including diversity of experience, gender and ethnicity in nominations, it does not have a formal diversity policy.
The Compensation/NominatingCompensation 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 listing standards (to ensure that at least a majority of the directors will, at all times, be independent). In the past, the Compensation/Nominating Committee has not retained any third party to assist it in identifying candidates, but it has the authority to retain a third-party firm or professional for purposes of identifying candidates. Ms. Murphy and Ms. Hopkins were recommended for the Board by another director, Mr. Schmitz.
Stockholder Communications with the Board, Recommendations, Nomination and Proposal Procedures
General Communications with the Board. As set forth on our website, ir.htlf.com, our Board of Directors canmay be contacted at our corporate headquarters at 1398 Central Avenue, P.O. Box 778, Dubuque, Iowa 52004-0778,1800 Larimer Street, Suite 1800, Denver, Colorado 80202, Corporate Governance and the Board of Directors Attn: Angela W. Kelley,Jay L. Kim, Corporate
Secretary, or by telephone at our administrative offices at (563) 589-2100(303) 285-9200 or toll freetoll-free at (888) 739-2100. Each communication relating to the Board’s duties or responsibilities will be forwarded to the Board or the specific directors identified in the communication as soon as reasonably possible. Correspondence that is unrelated to a director’s duties will be handled at the Corporate Secretary’s discretion.
Nominations of Directors. In orderRecommendations. Should stockholders wish to recommend individuals for a stockholder nominee to be considerednomination by the Compensation/Nominating Committee as a nominee andBoard, such correspondence should be included in our proxy statement, the nominating stockholder must file a written notice of the proposed director nomination withsent to our Corporate Secretary at the above address, at least 120 days prior to the anniversaryaddress. The Compensation Committee will review each recommendation made, and take into account all factors it considers appropriate, including those described under “Director Nominations and Qualifications” above.
Nominations of the date the previous year’s proxy statement was mailed to stockholders. For our 2020 Annual Meeting, such notice would need to be received on or before December 16, 2019. 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.
Directors. In accordance with our Bylaws, a stockholder may nominate a director from the floor for election at an Annual Meeting of Stockholders only if such stockholder deliversstockholder’s written notice of the nomination is delivered to or mailed and received by us, at our Corporate Secretary, at theSecretary’s, address set forth above, address, not less than 30 days nor more than 75 days prior to the date of the Annual Meeting.Meeting, irrespective of any deferrals, postponements or adjournments thereof to a later date; provided, however, that in the event that less than 40 days’ notice or prior public disclosure of the date of the meeting is given or made to the stockholders, the stockholders’s written notice of the nomination must be received by us not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. The stockholder'sstockholder’s notice of intention to nominate a director must comply with the requirements set forth in the advance notice provisions of our bylaws. For example, the notice 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 address 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 persons) 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 SEC, 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 from any proposed nominee after receiving the notification for the purpose of determining the proposed nominee'snominee’s eligibility to serve as a director. Persons nominated for election to the Board in accordance with the above requirements will not be included in our proxy statement. In addition to complying with the requirements set forth in the advance notice provisions of our bylaws, to nominate a director, stockholders must also give timely notice that complies with the additional requirements of Rule 14a-19, and which must be received no later than April 15, 2024.
Other Stockholder Proposals.To be consideredIf a stockholder wishes to submit a proposal pursuant to Rule 14a-8 under the Exchange Act for inclusion in ourHTLF’s proxy statement for the 2020its 2024 Annual Meeting of Stockholders, stockholder proposalsHTLF must behave received by our Corporate Secretary,such proposal and supporting statements, if any, at the above address,its principal executive office no later than December 16, 2019,29, 2023, unless the date of HTLF’s 2024 Annual Meeting of Stockholders is changed by more than 30 days from June 14, 2024 (the one-year anniversary date of the 2023 Annual Meeting of Stockholders), in which case the proposal must be received a reasonable time before HTLF begins to print and must otherwise comply with the notice and other provisions of our Bylaws, as well as SEC rules and regulations.mail its proxy materials.
For proposals to be made by a stockholder fromoutside of Rule 14a-8 and to be brought before the floor and voted upon at an Annual Meeting, the stockholder must filestockholder’s written notice of the proposal withmust be delivered, mailed or telegraphed to us, at our Corporate SecretarySecretary’s address set forth above, not less than 30 days nor more than 75 days prior to the scheduled date of the Annual Meeting.
Meeting, regardless of any postponements, deferrals or adjournments of the meeting to a later date; provided, however, that if less than 40 days’ notice of the date of the scheduled meeting is given or made by the Company, the stockholder’s written notice must be delivered, mailed or telegraphed to us not later than the close of business on the 10th day following the date on which notice of the date of the scheduled meeting was first mailed to stockholders. The stockholder proposalstockholder’s notice must comply with the requirements set forth in the advance notice provisions of our bylaws. For example, the stockholder’s notice must include as to each matter the stockholder proposes to bring before the Annual Meeting: (i) a brief description of the proposal desired to be brought before the meeting and the reasons for makingconducting such business at the proposal;meeting; (ii) the name and address, as they appear with our Transfer Agent,on the corporation’s books, of the stockholder proposing such business; (iii) the number of shares of the corporation’s common stock heldbeneficially owned by such stockholder on the stockholder;date of such stockholder’s notice; and (iv) any other financial or other interestsinterest of such stockholder in the proposal.
Code of Business Conduct and Ethics
Ethics.We have adopted a Code of Business Conduct and Ethics that applies to all directors and employees. The Code sets forth the standard of ethics we expect all of our directors and employees to follow, including our Chief Executive Officer and Chief Financial Officer. All employees and directors have received, and acknowledged in writing, the Code of Business Conduct and Ethics Policy, along with the Code of Business Conduct and Ethics Violation Reporting Procedure.Procedure, which includes procedures that facilitate the confidential reporting of matters on an anonymous basis. The Code of Business Conduct is posted on our website, ir.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 of Business Conduct with respect to our Chief Executive Officer and Chief Financial Officer and persons performing similar functions, by posting such information on our website.
Director Compensation
Compensation. Our Board of Directors believes that compensation received by a non-employee directorDirector should be tied directly to the success of HeartlandHTLF and by extension, the success of all Heartlandits stockholders. Non-employee directorsDirectors are compensated for service on the Heartland Board of Directors by an annual equity retainer committee meeting fees, and issuance of restricted stock units (“RSUs”) that vest one year after granted, underand annual retainers (paid in cash, RSUs, or a mix, at the Amended and Restated 2012 Long-Term Incentive Plan in an amount determined by the Compensation/Nominating Committee at its Annual Meeting. In 2018, the grant date fair valueoption of the RSUs was $60,000. TheDirector) for service on the Board and service on committees, and as Chair of the Audit/Corporate Governance Committee received an additionalBoard or a committee, as further detailed below. In the event that a Director attends less than 75% of all Board and assigned committee meetings held between the date of grant of RSUs with a grant date fair value of $15,000, whileand the Chairearlier of the Compensation/Nominating Committee received an additional grant of RSUs with a grantvesting date fair value of $10,000.
The RSUs are awarded as ofand the date of the next Annual Meeting and vest on June 5thfollowing the date of the following year.grant, they forfeit their unvested equity retainer. In the event a director leaves the Board for any reason prior to any vesting date or a change in control (other than due to death or change of control)death), the director forfeits all right to the respectiveunvested RSUs. In the event of the death of the non-employee director or a change in control, theall unvested RSUs vest immediately and completely. Additionally, non-employee directors receive a $25,000 annual retainer, which each director may elect to receive in cash or equivalent-value RSUs. Directors serving as committee members of the Compensation/Nominating Committee or Audit/Corporate Governance Committee are also paid $1,000 per committee meeting.immediately.
The following table highlights the material elements of our director compensation program:
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| Compensation Elements | |
| Annual Independent Board Chair Retainer | $ | 50,000 | | (1)(2) |
| Annual Board Member Retainer | $ | 47,500 | | (2) |
| Annual Board Member Equity Award | $ | 60,000 | | (3) |
| Annual Committee Chair Retainer | $ | 10,000 | | (2) |
| Annual Committee Member Retainer | $ | 7,500 | | (2) |
| | |
| (1) Instituted in 2022 following the election of an independent Board chair | | |
| (2) Directors may elect to receive the retainer in RSUs or cash |
| (3) Payable only in RSUs |
|
| | | | | |
| Compensation Element | | 2018 |
| Annual Retainer | | $ | 25,000 |
| (1) |
| Annual Equity Award | | $ | 60,000 |
| (2) |
| Annual Audit/Corporate Governance Committee Chair Equity Award | | $ | 15,000 |
| (2) |
| Annual Compensation/Nominating Committee Chair Equity Award | | $ | 10,000 |
| (2) |
| Committee Meeting Fees | | $ | 1,000 |
| (3) |
| | | | |
| (1) Directors may elect to receive the retainer in RSUs or cash |
| (2) Represents grant date fair value, payable in RSUs |
| (3) Paid per meeting attended |
To further reinforce the tie between directors and stockholders, our directorsDirectors who are subject to stock ownership guidelines that require them to hold common stock with a value of at least three times annual total director compensation. Directors must achieve this holding within five years of being named a director.
Mr. Fuller and Mr. Lee, who were Heartland officers in 2018, didemployees do not receive any compensation for serving on the Board of HeartlandHTLF or any of its subsidiary banks.subsidiary.
Messrs. Flynn McCoy, Saylor, Schmidt,and Schmitz and White and Mmes. Murphy and Hopkins also servereceived compensation for their service on the Boardadvisory board of one of our subsidiary banks and receive cash compensation and/or Heartland common stock for such service. Our subsidiary banksbanks. We compensate directors for service on subsidiary bank advisory boards and advisory committees by granting HTLF RSUs for Heartland common stock, though the directors are paid inand paying cash, for committee work on the Boards of our subsidiary banks. Heartland directorsrespectively. HTLF Directors who served as directorson an advisory board of a subsidiary banksbank each received 125175 RSUs during 20182022 for their services on the Boards of subsidiary banks.service.
The following table shows non-employee director compensation during 2018 for service on the HeartlandHTLF Board and any subsidiary banks during 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| DIRECTOR COMPENSATION |
| Name | | Fees Earned or Paid in Cash(1) | | Stock Awards(2) | | All Other Compensation | | Total |
| Robert B. Engel | | $ | 73,700 | | | $ | 59,065 | | | $ | — | | | $ | 132,765 | |
| Thomas L. Flynn | | $ | 49,500 | | | $ | 81,278 | | | $ | — | | | $ | 130,778 | |
Lynn B. Fuller(3) | | $ | 47,500 | | | $ | 59,065 | | | $ | — | | | $ | 106,565 | |
| Jennifer K. Hopkins | | $ | 47,500 | | | $ | 73,873 | | | $ | — | | | $ | 121,373 | |
| Christopher S. Hylen | | $ | 47,500 | | | $ | 73,873 | | | $ | — | | | $ | 121,373 | |
| Susan J. Murphy | | $ | 73,700 | | | $ | 59,065 | | | $ | — | | | $ | 132,765 | |
| Barry H. Orr | | $ | 3,400 | | | $ | — | | | $ | — | | | $ | 3,400 | |
| John K. Schmidt | | $ | 118,300 | | | $ | 59,065 | | | $ | — | | | $ | 177,365 | |
| Martin J. Schmitz | | $ | 47,500 | | | $ | 66,469 | | | $ | — | | | $ | 113,969 | |
| Kathryn Graves Unger | | $ | 62,500 | | | $ | 59,065 | | | $ | — | | | $ | 121,565 | |
| Duane E. White | | $ | 72,500 | | | $ | 59,065 | | | $ | — | | | $ | 131,565 | |
| | | | | | | | |
(1) The amounts in this column include the annual retainer, committee retainer, and committee and board chair retainer paid in cash for service to HTLF or one of HTLF’s subsidiaries. For the annual retainer portion of director compensation, Messrs. Engel, Fuller, Schmidt, and White, along with Ms. Unger elected to receive $47,500 in cash. Messrs. Flynn, Hylen and Schmitz, along with Mses. Hopkins and Murphy, elected to receive equivalent-value RSUs, and were each granted 1,105 RSUs. Mr. Schmidt elected to receive his compensation related to his service as Board Chairman in cash. Messrs. Engel and White and Ms. Murphy elected to receive committee Chair retainers in cash. For the Compensation Committee membership retainer, Mses. Murphy and Unger, along with Messrs. Engel and White elected to receive $15,000 in cash for service on two Committees. Mses. Hopkins and Messrs. Flynn and Hylen elected to receive RSUs and were granted 300 RSUs for service on two committees. Mr. Schmidt elected to receive $7,500 cash for service on one Committee. Messrs. Engel, Flynn, Orr and Schmidt, along with Ms. Murphy received cash payments of $1,200, $2,000, $3,400, $800 and $1,200, respectively, for committee service at one of HTLF’s subsidiaries. |
(2) The amounts in this column represent the fair value, determined based upon the market price of our common stock on the date of grant in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, of RSUs granted for service as directors of HTLF, as well as RSUs granted for service as advisory directors of subsidiary banks. See the discussion of equity awards in Note 15 of our financial statements for the year ended December 31, 2022, contained in our Annual Report on Form 10-K for all assumptions made in the valuation of the RSUs. Each of Messrs. Engel, Flynn, Fuller, Hylen, Schmidt, Schmitz and White and Mses. Hopkins, Murphy and Unger was granted 1,396 RSUs on June 15, 2022. Mr. Flynn received 175 RSUs for service as an advisory director of Dubuque Bank and Trust Company on June 15, 2022, and Mr. Schmitz received 175 RSUs for service as an advisory director of HTLF Bank on June 15, 2022. The aggregate number of RSUs outstanding at December 31, 2022 for each director was: 1,396 for Mr. Engel, 2,851 for Mr. Hylen, 3,026 for Mr. Flynn, 2,851 for Ms. Hopkins, 2,501 for Ms. Murphy, 1,396 for Mr. Schmidt, 2,676 for Mr. Schmitz, 1,396 for Ms. Unger and 1,396 for Mr. White. |
| (3) Mr. Fuller’s RSUs were forfeited upon his resignation from the Board in December 2022. |
Environmental, Social, and Governance (“ESG”) Overview
HTLF is committed to enriching lives one customer, employee, and community at a time. We believe our continued growth and the growth of the communities we serve is guided by our values of integrity, accountability, community, and excellence. These priorities inspire us to nurture and develop diverse talent and build trust through collaboration with our partners. We recognize that our commitment to our customers, communities, employees and stockholders is inextricably linked to our long-term success and sustained financial performance. We see ESG not as a goal to be achieved, but as a guiding framework to assist us in focusing on those factors that contribute to our long-term performance and helping us enrich lives one customer, employee, and community at a time. Below are some of the highlights of ESG Governance at HTLF.
ESG Board Oversight. Recognizing that the tone of an organization is set at the top, our Board of Directors provides overall supervision and leadership with respect to HTLF’s ESG program. The Board ensures alignment of management by overseeing the ESG Steering Committee, which is further discussed below. The Board understands the importance of ESG-related risks and opportunities and sets expectations related to ESG reporting and prioritization. There is also an individual performance component of each executive’s compensation, which provides the Compensation Committee with the ability to ensure executive alignment with ESG priorities set by the Board.
ESG Steering Committee. In 2022, HTLF embarked on its journey to thoughtfully focus and formalize our ESG efforts while ensuring that they are undertaken intentionally and with a view towards achieving overall company-wide objectives. Because we believe that executive support is necessary to ensure the success of any important undertaking, our newly-formed ESG Steering Committee is co-chaired by Jay Kim, HTLF’s Chief Administrative Officer, and Tamina O’Neill, HTLF’s Chief Risk Officer. Having two members of our Executive Leadership Team as co-chairs of the ESG Steering Committee ensures that diverse internal perspectives are represented and that those diverse perspectives drive the important decisions that are made. The ESG Steering Committee is a cross functional working group that is comprised of key senior leaders throughout the organization, and is tasked with coordinating and guiding management’s overall ESG efforts. This structure ensures broad representation and a coordinated approach across the organization.
ESG Assessment. To ensure the coordination of HTLF’s ESG program, and to ensure that all stakeholders were represented, HTLF created an ESG Assessment and Prioritization Framework (the “ESG Assessment”) in 2022. This involved assessing the importance of various priorities to both external stakeholders (e.g., customers, communities, and investors) and internal stakeholders including employees and the BoardsBoard. We started the process by considering key sustainability/ESG reporting frameworks such as SASB in order to develop a broad list of categories. We then narrowed our focus to those issues that are most relevant to HTLF and upon which we can have the greatest impact. The ESG Assessment included leaders representing nearly every function within the Company, and is intended to serve as a key tool in helping us identify and prioritize ESG-related issues. In addition, the ESG Assessment will be used to develop key metrics with the goal of transparently measuring our progress and contributions towards corporate social responsibility.
ESG Reporting. Building on these initial efforts, and in an effort to provide our diverse constituencies with transparent reporting on our progress, we intend to issue our first Corporate Responsibility Report before the end of the year.
ESG Implementation at HTLF
Achieving a more sustainable future for HTLF means helping solve problems and delivering solutions. It also means supporting our employees and being an outstanding partner with the businesses and communities we call home. Below are just a few of the recent initiatives we have undertaken to support our customers, communities, and employees.
Diversity, Equity and Inclusion (“DEI”). DEI is a fundamental aspect of ESG at HTLF. It is the right thing to do, and we believe it also leads to a more positive culture, higher-performing teams, and helps us deliver better and more relevant products and services to our customers. Once again, the tone has been set at the top. We have ensured that all new Directors are selected from a diverse group of candidates which allows us to thoughtfully create a Board that reflects different backgrounds and experiences. At the management level, and under the supervision of the Board, HTLF has ensured focus on this critical facet of ESG by creating the position of Chief Diversity, Equity and Inclusion Officer in 2021. This new position reinforces HTLF’s company values and commitment to DEI, and ensures that there is overall coordination of HTLF’s DEI efforts. In 2022, we published our first DEI Report, and our most recent DEI Report is available on our website at https://www.htlf.com/diversityequityinclusion.
Employee Support. Our social responsibility begins with our employees. One of the key ways we have supported our employees is through the creation of Employee Business Resource Groups (“EBRGs”), which are employee-led networks supported by HTLF and formed around common social identities. These groups, promote a more diverse and inclusive
environment where everyone feels valued and empowered to succeed. Further demonstrating our commitment to employee development and retention, in 2022 we launched a leadership training program for high potential employees designed to allow our employees to grow with us.
Financial Inclusion. Part of our subsidiary banks:mission is to enrich the lives of our customers. We are committed to financial inclusion through the implementation of new products and services to help support customers through the development of innovative products designed to address the needs of those customers who are traditionally underserved by financial institutions. To address these needs, we recently launched a new checkless checking product called Bank-on, that has no overdrafts fees. We are a part of a national movement to increase safe and affordable banking and bring the underbanked and unbanked into the financial mainstream.
Environmental Sustainability. Achieving a more sustainable future means helping solve problems and being an outstanding partner with our customers and communities. HTLF partnered with One Tree Planted, a nonprofit organization focused on reforestation and conservation, to plant one tree for every one of our employees in honor of National Arbor Day. The trees were planted in areas of our geographic footprint impacted by devastating forest fires. Other sustainability efforts include LEED Certified buildings, decreasing paper printing volumes by 48 percent since 2019, utilizing solar panels, and converting to LED lighting.
|
| | | | | | | | | | | | |
| DIRECTOR COMPENSATION |
| Name | | Fees Earned or Paid in Cash(1) | | Stock Awards(2) | | Total |
| Mark C. Falb | | $ | 37,350 |
| | $ | 76,103 |
| | $ | 113,453 |
|
| Thomas L. Flynn | | $ | 44,850 |
| | $ | 77,956 |
| | $ | 122,806 |
|
Jennifer K. Hopkins(3) | | $ | 12,500 |
| | $ | 28,191 |
| | $ | 40,691 |
|
| R. Michael McCoy | | $ | 40,850 |
| | $ | 67,554 |
| | $ | 108,404 |
|
Susan J. Murphy(4) | | $ | 24,750 |
| | $ | 62,423 |
| | $ | 87,173 |
|
| Kurt M. Saylor | | $ | 29,050 |
| | $ | 67,685 |
| | $ | 96,735 |
|
| John K. Schmidt | | $ | 41,200 |
| | $ | 67,554 |
| | $ | 108,754 |
|
| Martin J. Schmitz | | $ | 28,700 |
| | $ | 67,673 |
| | $ | 96,373 |
|
| Duane E. White | | $ | 39,425 |
| | $ | 67,654 |
| | $ | 107,079 |
|
| | | | | | | |
| (1) The amounts in this column include the annual retainer and fees paid for service on a committee at Heartland or one of Heartland’s subsidiaries. For the retainer portion of director compensation, Messrs. Falb, Schmidt and Schmitz elected to receive $25,000 in cash. Messrs. McCoy, Flynn, Saylor and White, along with Mmes. Murphy and Hopkins, elected to receive equivalent-value RSUs. Messrs. McCoy, Flynn, Saylor and White were granted 460 RSUs. Ms. Murphy received 384 RSUs and Ms. Hopkins received 273 RSUs to reflect the prorated portion of their retainers based upon their appointment dates to the Board. |
(2) The amounts in this column represent the fair value, determined based upon the market price of our common stock on the date of grant in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, of RSUs granted for service as directors of Heartland, as well as RSUs granted for service as directors of subsidiary banks. Each of Messrs. McCoy, Saylor, Schmidt, Schmitz and White were granted 1,110 RSUs on May 16, 2018, as compensation for service on the Board of Directors of Heartland for the period from the 2018 Annual Meeting to the 2019 Annual Meeting. Mr. Falb, who chairs the Audit/Corporate Governance Committee, was granted 1,390 RSUs. Mr. Flynn who chairs the Compensation/Nominating Committee, was granted 1,300 RSUs. Ms. Murphy, who was appointed to the Board effective July 26, 2018, received a prorated total of 925 RSUs for 2018-19 service. Ms. Hopkins, who was appointed to the Board effective December 12, 2018, received a prorated total of 555 RSUs for 2018-19 service. Messrs. Flynn, McCoy and Schmidt each received 125 RSUs for service as directors of Dubuque Bank and Trust Company on May 15, 2018, Mr. Saylor received 125 RSUs for service as director of Morrill & Janes Bank on May 17, 2018, Mr. White received 125 RSUs for service as director of Minnesota Bank & Trust on May 18, 2018, and Mr. Schmitz and Ms. Murphy received 125 RSUs for service as directors of Citywide Banks on May 25, 2018. Ms. Hopkins joined the Citywide Banks Board in December 2018 and was granted 62 RSUs for her service as a 2018-19 Citywide Banks director. The aggregate number of RSUs outstanding for each director at December 31, 2018 was: 1,390 for Mr. Falb, 1,885 for Mr. Flynn, 890 for Ms. Hopkins, 1,695 for Mr. McCoy, 1,434 for Ms. Murphy, 1,695 for Mr. Saylor, 1,235 for Mr. Schmidt, 1,235 for Mr. Schmitz and 1,695 for Mr. White. |
| (3) Ms. Hopkins joined the Board effective December 12, 2018. |
| (4) Ms. Murphy joined the Board effective July 26, 2018. |
|
| | | | | | | | | | | | | |
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
The following table lists the beneficial ownership of our common stock as of JanuaryMarch 31, 2019,2023, by each person we know to beneficially own more than 5% of our outstanding common stock, by each director or each executive officer named in the summary compensation tableNamed Executive Officer, and by all directors and executive officers of HeartlandHTLF as a group.group. Except as otherwise indicated below, each of the entities or persons named in the table has sole voting and investment power with respect to all common stock beneficially owned set forth opposite their name. |
| | | | | | |
| Name of Beneficial Owner | | Amount and Nature
of Beneficial Ownership(1) | | | Percent
of Class(2) |
| 5% Stockholders | | | | | |
| BlackRock, Inc., 55 East 52nd Street, New York, NY 10022 | | 2,252,763 |
| (3) | | 6.5% |
| Directors and Nominees | |
| | | |
| Mark C. Falb | | 180,874 |
| (4) | | * |
| Thomas L. Flynn | | 80,334 |
| (5) | | * |
| Lynn B. Fuller | | 1,047,370 |
| (6) | | 3.0% |
| Jennifer K. Hopkins | | — |
| | | * |
| Bruce K. Lee | | 19,274 |
| | | * |
| R. Michael McCoy | | 48,510 |
| (7) | | * |
| Susan J. Murphy | | 2,539 |
| | | * |
| Kurt M. Saylor | | 160,531 |
| (8) | | * |
| John K. Schmidt | | 129,964 |
| (9) | | * |
| Martin J. Schmitz | | 295,097 |
| (10) | | * |
| Duane E. White | | 19,924 |
| | | * |
| Other Named Executive Officers | |
| | | |
| Brian J. Fox | | 17,114 |
| (11) | | * |
| Bryan R. McKeag | | 17,198 |
| (12) | | * |
| Andrew E. Townsend | | 29,051 |
| (13) | | * |
| All Directors and Executive Officers as a Group (20 persons) | | 2,094,639 |
| | | 6.1% |
| | | | | | |
| * Less than one percent |
| (1) The above beneficial owners have sole voting and investment power with respect to shares of common stock owned, except as set forth in the footnotes below. Share totals include restricted stock units that will vest within 60 days of January 31, 2019. |
| (2) Based upon 34,567,872 shares of common stock outstanding on January 31, 2019, plus any restricted stock units that will vest within 60 days of January 31, 2019 for that person. |
| (3) Based upon a Schedule 13G/A filed on February 4, 2019. BlackRock, Inc. has sole voting power with respect to 2,114,283 shares and sole dispositive power with respect to 2,252,763 shares. |
| (4) Includes 68,856 shares held in a trust for which Mr. Falb's spouse serves as trustee, 40,018 shares held in a trust for which Mr. Falb serves as trustee, and 72,000 shares held in a charitable foundation in which Mr. Falb has no pecuniary interest. |
| (5) Includes 3,081 shares held by Mr. Flynn's spouse in an individual retirement account (IRA) and 37,411 shares held by Mr. Flynn jointly with his spouse. |
| (6) Includes 5,000 shares held in a trust for which Mr. Fuller’s spouse serves as trustee, 59,019 shares held in a GST trust for which Mr. Fuller serves as sole trustee, and 301,616 shares held in a limited liability limited partnership, for which Mr. Fuller acts as a general partner and for which his spouse and two sons are limited partners. Of the shares of common stock disclosed in the table, Mr. Fuller has pledged 151,177 shares as collateral for a personal loan. |
| (7) Includes 35,043 shares held by Mr. McCoy jointly with his spouse and 13,467 shares held in a trust for which Mr. McCoy's spouse serves as trustee. |
| (8) Includes 46,311 shares held in a trust for which Mr. Saylor's spouse serves as trustee, and 114,220 shares held in a trust for which Mr. Saylor serves as trustee. |
| (9) Includes an aggregate of 18,483 shares held by Mr. Schmidt’s spouse and minor child and 3,506 shares held by Mr. Schmidt jointly with his spouse. |
| (10) Includes 226,460 shares held by Padekeky Investments, LLC, of which Mr. Schmitz is a controlling stockholder. |
| (11) Shares are held in a revocable trust for which Mr. Fox serves as trustee. |
| (12) Shares are held in a living trust for which Mr. McKeag serves as trustee. |
| (13) Includes 24,485 shares held by Mr. Townsend jointly with his spouse. |
| | | | | | | | | | | | | | | | | |
| Name of Beneficial Owner | | Amount and Nature of Beneficial Ownership(1) | | | Percent of Class(2) |
| 5% Stockholders | | | | | |
| BlackRock, Inc., 55 East 52nd Street, New York, NY 10055 | | 5,090,999 | | (3) | | 12.0% |
| Earnest Partners, LLC 1180 Peachtree Street NE, Atlanta, GA 30309 | | 3,078,796 | | (5) | | 7.2% |
| The Vanguard Group, 100 Vanguard Blvd., Malvern, PA 19355 | | 3,071,748 | | (6) | | 7.2% |
| Dimensional Fund Advisors LP, 6300 Bee Cave Road, Building One, Austin, TX 78746 | | 2,178,085 | | (4) | | 5.1% |
| Directors and Nominees | | | | | |
| Robert B. Engel | | 13,389 | | | | * |
| | | | | |
| Thomas L. Flynn | | 93,660 | | (7) | | * |
| Jennifer K. Hopkins | | 13,840 | | | | * |
| Christopher S. Hylen | | 3,658 | | | | * |
| Bruce K. Lee | | 65,039 | | | | * |
| | | | | |
| Susan J. Murphy | | 11,231 | | | | * |
| John K. Schmidt | | 123,561 | | (8) | | * |
| Martin J. Schmitz | | 277,275 | | (9) | | * |
| Kathryn Graves Unger | | 2,450 | | | | * |
| Duane E. White | | 26,150 | | (10) | | * |
| Other Named Executive Officers | | | | | |
| Bryan R. McKeag | | 38,386 | | (11) | | * |
| Jay L. Kim | | 764 | | | | * |
| David A. Prince | | 13,353 | | | | * |
| Kevin G. Quinn | | 12,369 | | | | * |
| All Directors and Executive Officers as a Group (23 persons) | | 728,076 | | | | 1.7% |
| | | | | |
| * Less than one percent |
| (1) The beneficial owners identified below have sole voting and investment power with respect to shares of common stock owned, except as set forth in the footnotes below. Share totals include restricted stock units that will vest within 60 days of March 31, 2023. |
| (2) Based upon 42,558,726 shares of common stock outstanding on March 31, 2023, plus any RSUs that will vest within 60 days of March 31, 2023 for that person. |
| (3) Based upon the Schedule 13G/A filed on January 26, 2023, BlackRock, Inc. has sole voting power with respect to 4,789,973 shares and sole dispositive power with respect to 5,090,999 shares as of December 31, 2022. |
| (4) Based upon the Schedule 13G filed on February 10, 2023, Dimensional Fund Advisors LP. has sole voting power with respect to 2,140,035 shares and sole dispositive power with respect to 2,178,085 shares as of December 31, 2022. |
| (5) Based upon the Schedule 13G/A filed on February 14, 2023, Earnest Partners, LLC has sole voting power with respect to 2,151,759 shares and sole dispositive power with respect to 3,078,796 shares as of December 31, 2022. |
| (6) Based upon the Schedule 13G/A filed on February 9, 2023, The Vanguard Group has sole voting power with respect to 0 shares and sole dispositive power with respect to 2,992,946 shares. It has shared voting power with respect to 39,456 shares and shared dispositive power with respect to 78,802 shares as of December 31, 2022. |
| (7) Includes 3,335.3820 shares held by Mr. Flynn’s spouse in an individual retirement account (IRA) and 37,411.1945 shares held by Mr. Flynn jointly with his spouse. |
| (8) Includes an aggregate of 39,670 shares held by Mr. Schmidt’s spouse. |
|
| | | | | | | | | | | | | | | | |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE(9) Includes 211,935 shares held by Padekeky Investments, LLC, of which Mr. Schmitz is a controlling stockholder. Of the shares of common stock disclosed in the table, Mr. Schmitz has pledged 24,558 shares as collateral for a personal loan. |
| (10) Includes 16,244 shares held in an IRA. |
| (11) Includes 18,818 shares held in a living trust for which Mr. McKeag serves as trustee. |
Preferred Equity
In 2020, we issued 4.6 million depositary shares, each representing a 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E, which do not have voting rights. As of March 31, 2023, Mr. Engel held 23,000 depositary shares of our preferred stock, and Mr. Hylen held 3,500 depositary shares of our preferred stock. No other directors or executive officers owned preferred stock as of March 31, 2023.
| | | | | | | | | | | | | | |
| DELINQUENT SECTION 16(a) REPORTS |
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 SEC. Such persons are also required to furnish us with copies of all Section 16(a) forms they file. The following directorsBased solely on a review of the forms filed during, or with respect to, calendar year 2022 and written representations from each reporting person, we believe that our Directors and executive officers each filed one late report covering one transaction on Form 4 during the year ended December 31, 2018: Messrs. Coyle, Fox, Lynn B. Fuller, Lynn H. Fuller, McKeag, Sloan, Townsend and Ms. Quick. Based upon information provided by officers and directors, except with respect to these late reports, we believe all our officers, directors and 10% stockholders filed all required reports on a timely basis, in 2018.except for a late Form 4 filing related to a grant of RSUs to Mr. Kim, and a late Form 4 filing related to a grant of RSUs to Mr. Fuller, both of which were not reported timely due to inadvertent administrative errors.
|
| | | | | | | | | | |
| PROPOSAL 2 | | MANAGEMENT PROPOSAL TO DECLASSIFY OUR BOARD OF DIRECTORS |
| Management proposal to declassify our Board of Directors | þ | The Board of Directors recommends that you vote your shares FOR this proposal to declassify our Board of Directors. |
Upon the recommendation of the Compensation Committee, the Board of Directors adopted, subject to stockholder approval, the Amended and Restated Certificate of Incorporation (the “Amended Certificate”) attached to this Proxy Statement as Appendix A in order to declassify the Board.
As more fully detailed below, our Directors believe it is appropriate to accelerate the pace of declassification, and those members whose terms would not otherwise expire at the 2024 Annual Meeting intend to tender their resignations (including the Class III director nominees nominated by the Board in this proxy statement for election at the 2023 Annual Meeting) and the remaining Board members intend to immediately reappoint each resigning Director to the Board for a term ending at the 2024 annual meeting.If the Amended Certificate is approved, the Board will also adopt conforming changes to the Bylaws (which do not require stockholder approval), with such changes as the Board may approve, consistent with the amended Certificate.
Reasons for Declassifying the Board of Directors.The Board considered a number of factors in making its decision to recommend declassification. The Board recognizes that a classified board structure can be viewed as diminishing a board’s accountability to stockholders, because such structure does not enable stockholders to express a view on each director’s performance by means of an annual vote. Annual voting allows stockholders to express their views on the individual performance of each director and on the entire board of directors more frequently than does a classified board structure. In addition, many institutional investors believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to hold management accountable for implementing those policies.
After weighing the factors above, among others, the Board determined that retaining a classified board structure is no longer in the best interests of the Company and its stockholders. For this reason, the Board approved, subject to the approval of stockholders of this proposal, and declared as advisable the adoption of the Amended Certificate attached hereto as Appendix A.
Description of the Amended and Restated Certificate of Incorporation.Currently, the Company’s Certificate of Incorporation provides that the Board be divided into three classes with the number of Directors in each class being as nearly equal as reasonably possible. Accordingly, approximately one-third of the directors are elected annually, with each serving a three-year term.
The proposed Amended Certificate provides that each Director elected at an annual meeting of stockholders will serve a one-year term, serving until the following annual meeting of stockholders and until his or her respective successor is duly elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.
Under the Company’s existing Certificate of Incorporation, and Delaware law (unless the certificate of incorporation provides otherwise), directors of companies that have a classified board of directors may be removed only for cause. Delaware law requires that directors of companies that do not have a classified board must also be removable without cause. Accordingly, if the Amended Certificate is approved, any Director elected to the Board at or after the 2023 Annual Meeting may be removed from office at any time, with or without cause, by the affirmative vote of the holders of not less than 70% of the outstanding shares of stock of the Company entitled to vote generally in the election of directors cast at an annual meeting of stockholders or at a meeting of the stockholders called for that purpose.
Mechanics of Declassification. If the stockholders approve this proposal, the Amended Certificate will become effective upon filing with the Secretary of State of the State of Delaware. We intend to file the Amended Certificate as soon as practicable following the 2023 Annual Meeting after the requisite vote for this proposal is obtained. Because such filing would follow the election of Directors at the 2023 Annual Meeting, those Directors elected at the 2023 Annual Meeting will have been elected for a three-year term.
To facilitate the declassification of the Board of Directors more expeditiously, each current member of the Board whose term would not otherwise end at the 2024 Annual Meeting (including the Class III director nominees nominated by the Board in this proxy statement for election at the 2023 Annual Meeting) intends to tender his or her resignation following the 2023 Annual Meeting if he or she is a member of the Board at that time. The Board intends to accept such resignation of each Director, and the remainder of the Board intends to immediately reappoint each such Director to the declassified Board such that each member of the Board will serve a one-year term following the 2023 Annual Meeting and stand for election annually, beginning at the Company’s 2024 annual meeting of stockholders.
| | | | | | | | | | | |
| PROPOSAL 3 | | NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION |
| Non-binding, advisory vote on executive compensation | þ | The Board of Directors recommends that you vote
your shares FOR the approval of HTLF’s executive
compensation. |
As required by Section 14A of the Securities Exchange Act of 1934, as amended, this proposal seeks a stockholder advisory vote to approve the compensation of our Named Executive Officers as disclosed pursuant to Item 402 of Regulation S-K through the following resolution:
“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.”
This advisory vote will not be binding upon the Board of Directors; however, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. We have asked for this advisory vote on an annual basis, and we will continue to do so pending the outcome of Proposal 4, which is our advisory vote on the frequency of our future say-on-pay votes.
| | | | | | | | | | | | | | |
| NAMED EXECUTIVE OFFICER COMPENSATION
Compensation Discussion and Analysis
|
Overview
This Compensation Discussion and Analysis (“CD&A”) addresses our total compensation philosophy and objectives with respect to our 2022 named executive officers.officers: Bruce K. Lee, President and Chief Executive Officer; Bryan R. McKeag, Executive Vice President, Chief Financial Officer; Jay L. Kim, Executive Vice President, General Counsel, Chief Administrative Officer, and Corporate Secretary; David A. Prince, Executive Vice President, Head of Commercial Banking; and Kevin G. Quinn, Executive Vice President and Chief Banking Officer (collectively, the “Named Executive Officers”). The CD&A also covers compensation factors,policies, elements of compensation, administration of compensation, risk considerations and the basis for compensation decisions for 2018.2022.
We designCompensation Philosophy. The Compensation, Nominating and Corporate Governance Committee (the “Compensation Committee”) has adopted an Executive Officer Compensation Philosophy that embodies the guiding principles behind compensation decisions related to all our executive officers, including the Named Executive Officers. Below is a summary of the main pillars of the Executive Officer Compensation Philosophy:
*Compensation levels should be competitive to ensure we attract and retain a highly qualified management team to lead and grow the company.
*Compensation should reward superior performance.
*Incentive compensation should reward consistent sustained performance over the long term.
*Incentive compensation should avoid excessive or disproportionate risks.
*Incentive compensation should encourage stewardship of the organization as a whole.
*Compensation opportunities should consider qualitative items in addition to metrics.
The Compensation Committee has designed our executive compensation program to be both competitive in the marketplace and to align the interests of our executive officers with the long-term interests of our stockholders. Our goalThis is to paydone by providing total direct compensation (base salary plus annualthat rewards superior performance with elements of variable, performance-based compensation, and long-term incentive compensation) that is competitive in our markets in order to attract and that attracts and retainsretain talented executives. This generally means that we pay total direct compensation nearAt the median of our peer group for comparable positions for target performance. Base salariessame time, it is designed to align the
interests of our executives are typically nearwith those of stockholders and to prevent our compensation program from incentivizing excessive risk taking. This is done by providing a substantial portion of compensation in the peer group median, andform of long-term equity-based awards that vest over multi-year periods, which discourages making short-term decisions that could have a positive effect on performance in conjunction with annual and long-term incentive compensation, are targeteda single year at the median. Incentives canexpense of performance in future years.
2022 BusinessHighlights. In 2022, our employees, led by our CEO and the executive leadership team (including our Named Executive Officers), did an outstanding job of executing on our strategic plans to drive organic growth, improve customer experience, and improve our operational efficiency. This was achieved in part by consolidating 11 branch locations and reducing the number of our subsidiary banks from eleven to seven at year-end, which increased our operating capacity, reduced costs, and improved operational processes. The consolidation of our subsidiary banks is expected to be earned at above-median rates, but generally only for outstanding performance relative to the performance standards established by the Compensation/Nominating Committee.
Chief Executive Officer Succession. At our Annual Meeting of Stockholderscompleted in 2023 and deliver $20 million in annual cost savings on May 16, 2018, we announced that Bruce Lee, President and a director of Heartland, would be appointed to the additional office of Chief Executive Officer effective June 1, 2018. Mr. Lee succeeded existing Chief Executive Officer Lynn Fuller, who moved into the role of Executive Operating Chairman, allowing him to continue his strategic guidance for the Company.
2018 Highlights. 2018 was a year of solid performance for our Company, including the following highlights:
an ongoing basis. Our key business results are summarized below: |
| | | | | |
| * | Annual net income available to common stockholders of $117.0$204.1 million an increase of 55% over 2017;or $4.79 per diluted common share. | | HIGHLIGHTS |
| * | Total year-end assets increased to $11.41$20.24 billion, an increase of 16%$970 million or 5% from year end 2017; | December 31, 2021. |
| * | Loan growth of $1.47 billion or 14.8%. |
| * | Total deposit growth of $1.10 billion or 6.7%. | |
| * | Net interest margin of 4.26%,improved to 3.32% compared to 4.04% during 2017;from 3.29% for 2021. | | * Annual Net Income Ý55%
|
| * | Diversified our market area and asset base with the acquisitionReturn on average common equity of Signature Bank of Minnetonka, Minnesota (1st Quarter 2018) and First Bank & Trust of Lubbock, Texas (2nd Quarter 2018); and11.74%, a substantial improvement from 10.49% for 2021. | | * Total Assets Ý16%
|
| * | * 4.26% Net Interest Margin |
*Continued strong credit quality, with 30-89 day delinquencies of 0.04% of total loans as of December 31, 2022. | Announced agreement to acquire Bank of Blue Valley of Kansas City, Kansas (1st Quarter 2019). | | |
2022 Compensation Highlights. In 2022, based on strong support from stockholders and in accordance with our Compensation Philosophy, we retained the structure of our executive compensation program to ensure that incentive payments to our Named Executive Officers remained market-based, commensurate with performance, in alignment with our stockholders’ interests, and do not incentivize improper risk taking.
Each of our Named Executive Officers received an annual cash incentive payout of between 89% and 93% of the original target. Our2020-2022 stock-based performance-based awards paid out at 77% of target.
Elements of Executive Compensation. Compensation. Our executive compensation program includes a mix of base salary, annual incentive,cash incentives, and long-term equity awards. Variable compensation based on performance is a significant component of total compensation. Our
For 2022, 80% of an executive’s annual cash incentive award was based on performance standards linked to profitability, credit quality and growth. Revenue and profitability were measured by pre-provision pre-tax net revenue and noninterest income. Credit quality was measured by the ratio of non-performing assets to total assets relative to peers and net charge-offs to average total loans relative to peers. Growth was measured by organic loan growth for annualall Named Executive Officers except for Mr. Prince, for whom it was measured by Commercial and Agricultural loan growth. The remaining 20% was based on a subjective assessment of a number of qualitative factors, including liquidity and capital management, operational execution, demonstrated leadership skill, and quantitative measures outside those taken into account in the performance standards. Target opportunities for Named Executive Officer incentive cash awards linkranged from 50% to return on tangible common equity, efficiency ratio, loan growth and deposit growth. Payout continues to range100% of base salary, with the amount that could be earned ranging from 0% to 150% for all incentive opportunitiesof target, in order to enhance the sensitivity of awards to performance. An executive’s total award is further adjusted using a multiplier based on HTLF’s return on average assets relative to peers. Targets for our performance standards arewere determined with reference to mediantaking into account a variety of data, including peer performance, Heartland’sHTLF’s historical performance and Heartland’s 2018 financial plan targets. The performance standards and qualitative factors utilized, as well as the allocation between performance standards and qualitative factors, are reviewed annually based on Company priorities and alignment with peers.
For long-term incentives, we continue to use a balanced portfolio approach, whereby we grantedwith individual equity grants consisting of 40% time-based restricted stock units (“RSUs”) and 60% performance-based restricted stock units (“PSUs”). Annual RSU and PSU awards are typically made in the first quarter of the subsequent fiscal year. Initial awards are determined based on a blend of time-based RSUs and one-year and three-year performance-based RSUs. Time-based RSUstarget award amount, although no employees are entitled to a specific or minimum initial award amount. RSU awards vest ratably over three years generally contingent on employment. PSU awards are generally contingent upon employment for three years and contingent upon and subject to performance metrics using a three-year performance period to avoid excessive risk-taking for short-term results, while the one-
year performance-based RSUs vest two years after measurementfurther encouraging long-term decision-making. This aligns with prevailing practices among our peer group, and avoids duplication of performance measures from our annual cash incentive awards. Vesting of PSUs occurs after HTLF and relevant peer data is available for the three-year performance-based RSUs vest immediately upon measurement of performance. One-year performance-based RSUs were awarded based on 2018 earnings per share and both organic and acquired loan growth. Three-year performance-based RSUs were based on three-year earnings per share growth in comparison to peers and three-year return on tangible common equity in comparison to peers. Return on tangible common equity is defined as the amount equal to (a) net income available to common shareholders, divided by (b) average common equity less goodwill and core deposit intangibles and customer relationship intangibles, net. This measure is not determined in accordance with generally accepted accounting principles (“GAAP”).full performance period.
We believe that thisour executive compensation program has, over the past five years,provides appropriate incentives and sets expectations that align very closely alignedwith the value we have generated for stockholders withover the compensation of our executives.past three years. The table below, which graphs CEO pay against total stockholder return (“TSR”), illustrates the alignment of CEO pay with companyCompany performance:
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| |
(1) Indexed TSR assumes an initial investment of $100 at the start of year one (2014)(2020) and reflects the annual increase/(decrease)change in such investment as a result of annual total shareholder return ("TSR").TSR. |
(2) 2018 representsRepresents Mr. Lee'sLee’s Total Compensation in each of the 2020, 2021 and 2022 fiscal years as disclosed in the Summary Compensation Table. Years 2014-2017 represent Mr. Fuller's Total Compensation as disclosed in the Summary Compensation Table. |
(3) Reflects the 50th percentile of Heartland's 2018 primarythe peer group used to set HTLF’s 2022 compensation, which is described later in this Compensation Discussion and Analysis section. |
(4) Reflects the 50th percentile of Heartland’s 2018 secondary peer group, a broader group of banks with total assets ranging in size from $6.8B to $25B in Assets.Analysis. |
Administration of Our Executive Compensation Program
Role of the Compensation/NominatingCompensation Committee. The Compensation/NominatingCompensation Committee, which consists solely of independent directors, is primarily responsible for setting executive compensation for Heartland and then reporting its decisions to our Board of Directors. Each year, at its January and March meetings, the Compensation/NominatingHTLF. The Compensation Committee makes
decisions on base salary, adjustments, annual incentive plan metrics and awards, and long-term incentive awards based on prior performance,metrics and performance standards and targets for the coming year.awards.
In making compensation decisions, the Compensation/NominatingCompensation Committee reviews and evaluates a broad range of material requested and received from management and its independent compensation consultant, including but not limited to, the following:
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| | | | |
| * | financial reports covering, among other things, historical and year-to-date financial performance vs. the financial plan and financial performance vs. thea defined peer group; |
| * | individual performance information forassessments of the CEOChief Executive Officer and other executive officers;Named Executive Officers; |
| * | reports on Heartland’sHTLF’s strategic objectives and future financial plans; |
| * | information on executive officers’ stock ownership;compensation best practices in the financial services industry; |
| * | agreements and other plan documents regarding compensation; and |
* | competitive market data from consultants retained by the Compensation/Nominating Committee. |
| | | | | |
| * | peer data and analysis; and |
| * | competitive market surveys. |
In formulating our performance-based compensation programs, including those for our executive officers, our Compensation/Nominatingthe Compensation Committee considers the risk created by tying compensation to financial goals, including the risk of encouraging short-term behavior by tying a portion of compensation to annual goals, and the risks presented by encouraging higher earnings and asset and deposit growth. The Compensation/NominatingCompensation Committee is guided by the Guidance on Sound Incentive Compensation Policies jointly issued by the financial institution regulatory agencies in 2010, which establishes a framework for assessing the soundness of incentive compensation plans, programs and arrangements maintained by financial institutions, and encourages balanced risk-taking incentives compatible with effective controls and risk management and with general principles of strong corporate governance. The Compensation/NominatingCompensation Committee meets with Heartland’sHTLF’s Chief Risk Officer annually and discusses the assessment and management of any risks presented by its incentive compensation programs, including both annual incentive program.and long-term incentives.
The Compensation/NominatingCompensation Committee believes that a sensible approach to balancing risk-taking and rewarding
achievement of reasonable, but not necessarily easily attainable, goals has always been ais an important component of the executive
compensation program. The Compensation/NominatingCompensation Committee has regularly revisitedalso utilizes the joint agency guidance as an effective tool for conducting its own assessment of the balance between risk and reward built into Heartland’sHTLF’s executive compensation program.
The Compensation/NominatingChief Risk Officer and Enterprise Risk Management perform an annual review of incentive compensation plans as part of a formal risk assessment in compliance with regulatory guidance. This risk review utilizes a formalized framework, taking a comprehensive approach that reviews governance and oversight, compensation philosophy, incentive plan metrics and standards, plan administration and controls, plan changes, inherent risks, mitigating controls, and resulting residual risks. The risk assessment results are presented to the Compensation Committee reviewed withby the Chief Risk Officer of Heartland theOfficer. The risk assessment evaluates whether incentive compensation arrangements for the named executive officersNamed Executive Officers and has made reasonable efforts to ensure that such arrangementsother members of senior management are appropriately balanced, do not create inappropriate risk-takingfocused on long-term value creation, and do not impair the safety and soundness of Heartland and its subsidiary banks.encourage inappropriate or excessive risk-taking. We believe that tying a substantial portion of total direct compensation to long-term incentives keeps the named executive officersNamed Executive Officers focused on the company’sHTLF’s long-term performance. Othervalue creation rather than short-term results. Our incentive compensation programs are further designed with risk mitigating features in our executive compensation program discourage excessive risk-taking and encourage a focus on long-term performance. These features includesuch as performance standards that account for quality of growth meaningful stock ownership guidelines and a clawback provisions.policy (as described below). The Compensation Committee has concluded that our compensation policies and practices are not likely to encourage inappropriate or excessive risk-taking.
Role of Management. Our management evaluates employee performance, establishes business and individual performance targets and objectives, and recommends salaries, cash incentive and equity awards. Our Executive Operating Chairman, President and CEO, Corporate Secretary and Chief Human Resources Officer assist the Chairman of the Compensation/Nominating Committee with setting the agenda for the Committee’s meetings and coordinate the preparation of materials for all such meetings. At the request of the Compensation/NominatingCompensation Committee, our Executive Operating Chairman, President and CEO and Chief Human Resources Officer also provide information regarding our strategic objectives, evaluations of executive officers’ performance, and compensation recommendations for executive officers other than themselves. Our Executive Operating Chairman, President and CEO and Chief Human Resources Officer do not approve the compensation arrangements of any executive officersNamed Executive Officers or participate in the formulation of their own compensation.compensation, and are not present at meetings or portions of meetings where their own compensation is discussed or approved.
Role of Advisors - Peer Comparison. Grant Thornton LLP (“GT”) wasThe Compensation Committee has retained by the Compensation/Nominating Committee in 2018Aon to provideserve as its independent compensation consulting services. GT’sconsultant. Aon’s compensation advisory role includes providing market information on executive and director compensation levels and practices, assisting in the design and implementation of executive and director compensation programs, and providing input on related technical and regulatory mattersmatters.
The Compensation Committee annually reviews the independence and working with other advisors in developing peer groups.
performance of its compensation consultant and the consulting services provided. In evaluating the independence and performance and considering the retention of GT,its compensation consultant, the Compensation/NominatingCompensation Committee assessed GT’sassesses the consultant’s independence in accordance with Nasdaq listing standardsstandards.
In 2022, Aon provided consulting services related to executive and considered that:director compensation, including the form and characteristics of the awards made to our Named Executive Officers, advised on overall incentive plan design, and provided compensation benchmarking services.
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* | GT does not provide any other services to Heartland; |
* | The fees paid to GT by Heartland for its services as compensation consultant represent an insignificant portion of the total revenues of GT; |
* | GT maintains policies and procedures designed to prevent conflicts of interest between GT and the companies to which it provides services, as well as between its individual employees and such companies; |
* | Neither Heartland nor any member of the Compensation/Nominating Committee has any other business or personal relationship with GT or the employees of GT who provide services to the Committee; |
* | GT, and its employees who provide services to the Compensation/Nominating Committee, do not own any shares of Heartland common stock; and |
* | No executive officer of Heartland has any business or personal relationship with GT or its employees who provide services to the Compensation/Nominating Committee. |
Based upon these and other factors, the Compensation/NominatingCompensation Committee concluded that the retention of GTAon did not present any conflicts of interest, that Aon was independent, and that such retention was appropriate.
Peer Comparison. The Compensation/NominatingCompensation Committee annually reviews a competitive analysis of peer companies generated by its compensation consultant as a benchmark forkey part of assessing the competitiveness of our executive compensation
program. The Compensation Committee establishes appropriate and competitive ranges of annual and long-term compensation, with consideration for comparable benchmarks withinutilizing the primary peer group.group as an important indication of the competitive market. Various components of executive compensation (e.g., base salaries, equity compensation, retirement plan contributions and other benefits) are benchmarked againstcompared, individually and in total, to comparable positions within the primary peer group. In addition, the Compensation/NominatingCompensation Committee reviews information prepared by the compensation consultant on the usage of shares and related dilution levels for equity incentive plans within the primary peer group.
Peer Group. The Compensation/NominatingCompensation Committee, with the assistance of its compensation consultant, annually reviews the primary peer group which it uses to analyze the competitiveness of our executive compensation program. The members of the primary peer group are selected based on comparable industry, amounttotal assets, geography, and commercial loans as a percentage of total assets, market cap, and growth and returns over the past three to five years. Based on the criteria above, the 2018 primary peer group added two companies, Bank of Hawaii and Trustmark Corporation, and removed three companies from the 2017 primary peer group, FCB Financial holdings, Inc., 1st Source Corporation and First Busey Corporation.loans. The table below lists the 27 companies that comprise our 2018 primarythe peer group:
group used to set 2022 compensation: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAME | | CITY, STATE | | TICKER | | NAME | | CITY, STATE | | TICKER |
Western Alliance BancorporationAmeris Bancorp | | Phoenix, AZAtlanta, GA | | WALABCB | | Associated Banc-Corp | | Green Bay, WI | | ASB |
| Bank OZK | | Little Rock, AR | | OZK | | Banner CorporationCorp | | Walla Walla, WA | | BANR |
ChemicalCathay General Bancorp | | Los Angeles, CA | | CATY | | CVB Financial CorporationCorp. | | Midland, MIOntario, CA | | CHFC | | Banc of California, Inc. | | Irvine, CA | | BANCCVBF |
Bank of Hawaii CorporationEnterprise Financial Services | | Honolulu, HISt. Louis, MO | | BOHEFSC | | First Financial Bancorp | | Cincinnati, OH | | FFBC |
| First Financial Bankshares | | Abilene, TX | | FFIN | | First Interstate BancSystem | | Billings, MT | | FIBK |
| First Merchants Corporation | | Muncie, IN | | FRME | | Glacier Bancorp Inc. | | Kalispell, MT | | GBCI |
| Hope Bancorp | | Los Angeles, CA | | HOPE | | Independent Bk Group Inc. | | McKinney, TX | | IBTX |
| Pacific Premier Bancorp | | Irvine, CA | | PPBI | | Renasant Corp. | | Tupelo, MS | | RNST |
Simmons First National CorporationCorp. | | Pine Bluff, AR | | SFNC | | NBT Bancorp Inc.Trustmark Corp | | Norwich, NYJackson, MS | | NBTBTRMK |
Trustmark CorporationUnited Bankshares Inc. | | Jackson, MSCharleston, WV | | TRMKUBSI | | LegacyTexas Financial Group,United Community Banks Inc. | | Plano, TXBlairsville, GA | | LTXBUCBI |
Union Bankshares CorporationWashington Federal Inc. | | Richmond, VASeattle, WA | | UBSHWAFD | | Independent Bank Corp.WesBanco, Inc. | | Rockland, MAWheeling, WV | | INDB |
Columbia Banking System, Inc. | | Tacoma, WA | | COLB | | Eagle Bancorp, Inc. | | Bethesda, MD | | EGBN |
First Interstate BancSystem, Inc. | | Billings, MT | | FIBK | | Southside Bancshares, Inc. | | Tyler, TX | | SBSI |
Great Western Bancorp, Inc. | | Sioux Falls, SD | | GWB | | BancFirst Corporation | | Oklahoma City, OK | | BANF |
International Bancshares Corporation | | Laredo, TX | | IBOC | | Park National Corporation | | Newark, OH | | PRK |
Glacier Bancorp, Inc. | | Kalispell, MT | | GBCI | | S&T Bancorp, Inc. | | Indiana, PA | | STBA |
Ameris Bancorp | | Moultrie, GA | | ABCB | | Tompkins Financial Corporation | | Ithaca, NY | | TMP |
Customers Bancorp, Inc. | | Wyomissing, PA | | CUBI | | Flushing Financial Corporation | | Uniondale, NY | | FFIC |
Renasant Corporation | | Tupelo, MS | | RNST | | | | | | WSBC |
Because it recognizes the inherent limitations on benchmarked data, the Compensation/NominatingCompensation Committee does not establish compensation based on pre-established ratios of executive compensation to peer group data. Instead, peer group data is one factor in the Compensation Committee’s analysis, and it is used for a validation check of the final compensation package chosen for our executives.
Consideration of Advisory Vote. As determined by our stockholders in 2017, weWe annually submit our executive compensation arrangements to stockholders for a non-binding, advisory vote. The Compensation/NominatingCompensation Committee believes that an annual “say on pay” vote provides it with more direct and current input regarding the effectiveness of itsthe executive compensation policies.program. At eachour last Annual Meeting, 88% of the votes cast by stockholders who voted on our Annual Meetings since theadvisory “say on pay” vote began, over 94% ofproposal approved the votes have been cast in favor2021 compensation of our executive compensation program. The Compensation/NominatingNamed Executive Officers. Although the Compensation Committee interprets this high level of approval as an indication of our stockholders’ endorsement of the program. The Compensation/Nominating Committeeour compensation program as a whole, it also recognizes that an effective practicescompensation program must continue to evolve and the Committee will continue to consider changeschange as needed to keep our executive compensation programit both competitive in the marketplace and performance-based.aligned with market practices and stockholder expectations.
Elements of Compensation
The compensation of our named executive officers is comprisedNamed Executive Officers consists of four primary components: (1) base salary, (2) annual cash incentive cash awards, and (3) long-term incentive equity compensation which together constitute(together with base salary and annual cash incentive awards constituting total direct compensation,compensation), and (4) additional benefits.
As illustrated by the following table, a substantial part of our CEO’s total target direct compensation for 20182022 was performance-based:variable-based:
|
| | | | | | | |
| 2018 CEO Total Direct Compensation Mix - Bruce K. Lee |
| Fixed Compensation | | Amount | | % of Total Compensation |
| Base Salary | | $ | 576,000 |
| | 40 | % |
| Total Fixed Compensation | | $ | 576,000 |
| | 40 | % |
| | | | | |
| Variable-Based Compensation | | Amount | | % of Total Compensation |
| Long-Term Equity Incentive - Performance-Based RSUs | | $ | 294,427 |
| | 20 | % |
| Long-Term Equity Incentive - Time-Based RSUs | | $ | 126,191 |
| | 9 | % |
| Annual Incentive Cash Award | | $ | 455,263 |
| | 31 | % |
| Total Variable-Based Compensation | | $ | 875,881 |
| | 60 | % |
| | |
|
| | |
| Total Direct Compensation | | $ | 1,451,881 |
| | 100 | % |
26
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| 2022 CEO Total Target Direct Compensation Mix - Bruce K. Lee |
| Fixed Compensation | Amount | | % of Total Compensation |
| Year-End Base Salary | $ | 850,000 | | | 28 | % |
| Total Fixed Compensation | $ | 850,000 | | | 28 | % |
| | | |
| Variable-Based Compensation | Amount | | % of Total Compensation |
| Annual Cash Incentive Award | $ | 850,000 | | | 28 | % |
| Long-Term Equity Incentive - PSUs | $ | 768,379 | | | 27 | % |
| Long-Term Equity Incentive - RSUs | $ | 517,906 | | | 17 | % |
| Total Variable-Based Compensation | $ | 2,136,285 | | | 72 | % |
| Total Direct Compensation | $ | 2,986,285 | | | 100 | % |
Base Salary. The Compensation/NominatingCompensation Committee regards base salary as an important component of executive compensation because it provides executives with the assurance of a regular income. Base salaries are intended to assist us in attracting executives and recognizing different levels of responsibility and contribution. The Compensation/NominatingCompensation Committee generally targets base salaries for our named executive officersNamed Executive Officers near the peer group median for comparable positions, with additional consideration given to the executive’s qualifications and experience, scope of responsibility and potential to achieve the goals and objectives established. Past performance and internal pay equity are also considered.
The following table lists the base salaries forearned by our named executive officersNamed Executive Officers in 20182022 in comparison to 2017 and 2016:2021:
| | | | | | | | | | | | | |
| Officer | | | 2022 | | 2021 |
| Bruce K. Lee | | | $ | 850,000 | | | $ | 825,000 | |
| Bryan R. McKeag | | | $ | 455,013 | | | $ | 436,250 | |
Jay L. Kim(1) | | | $ | 380,835 | | | $ | — | |
| David A. Prince | | | $ | 406,000 | | | $ | 396,250 | |
Kevin G. Quinn(1) | | | $ | 426,667 | | | $ | — | |
| | | | | |
| (1) Messrs. Kim and Quinn became Named Executive Officers in 2022 and therefore their 2021 base salaries are not included. |
|
| | | | | | | | | | | | |
| Officer | | 2016 | | 2017 | | 2018 |
| Bruce K. Lee | | $ | 400,000 |
| | $ | 485,417 |
| | $ | 576,000 |
|
| Lynn B. Fuller | | $ | 499,219 |
| | $ | 501,675 |
| | $ | 512,963 |
|
| Bryan R. McKeag | | $ | 312,113 |
| | $ | 316,913 |
| | $ | 343,500 |
|
| Brian J. Fox | | $ | — |
| | $ | 275,025 |
| | $ | 298,000 |
|
| Andrew E. Townsend | | $ | 240,000 |
| | $ | 266,250 |
| | $ | 297,500 |
|
Mr. Lee, who was appointed to the role of CEO effective June 1, 2018, received a significant increase in base salary in conjunction with his promotion. Mr. Fuller, who moved from CEO to the position of Executive Operating Chairman in June 2018, received a modest base salary increase in line with market trends for his position. Messrs. McKeag, Fox and Townsend received base salary increases in 2018 to align them more closely to the peer group median for their positions.
Annual Cash Incentive Cash Awards. Our Compensation/Nominating The Compensation Committee administers an executive incentive program that allowspursuant to which our named executive officersNamed Executive Officers are eligible to earn annual cash incentive cash awards. The performance standards for the awards are designed to be aligned with the interests of stockholders, to encourage not onlystrong financial performance but to ensureand growth in quality assets, to limit excessive risk-taking and to reward adherence toperformance that supports our longer-term financial plan. For our named executive officers, targets for the performance standards are based on Heartland’s financial plan targets, with all of our named executive officers having a portion of their annual incentive tiedgoals, and to Heartland’s return on tangible common equity (“ROTCE”); efficiency ratio; loan growth, exclusive of loans obtained through acquisitions (“organic loan growth”); acquired loan growth; deposit growth, excluding certificates of deposit and deposits obtained through acquisitions (“organic deposit growth”); and acquired deposit growth. As Chief Credit Officer, Mr. Townsend does not have a component for deposit growth, but instead has performance standards for non-performing assets and net charge-offs.avoid excessive risk-taking.
The target annual cash incentive cash award for each named executive officer isNamed Executive Officer was based upon a percentage of his base salary. For 2018,2022, the target annual incentive was 80%100% of year-end base salary for Messrs.Mr. Lee, and Fuller, 60% for Mr.Messrs. McKeag and Quinn, and 50% for Messrs. TownsendKim and Fox.Prince.
The total annual cash incentive cash award for each named executive officerNamed Executive Officer is the sum of smaller awards based onthe amounts earned for each of the performance standards described above. The smaller awards arebelow. Each portion of the award is calculated using the following formula:
|
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| Award Based on Each Performance Standard | = | Executive Officer’s Salary | x | Target Annual Incentive | x | Weighting of
Performance
Standard
| x | (20182022 Result ÷ 20182022 Target) |
|
The named executive officers may receiveannual incentive calculation is further adjusted by a maximum payoutreturn on average assets (“ROAA”) modifier, which is applied to the overall award resulting from the above calculations. If HTLF’s ROAA is equal to or below the 25th percentile of upthe peer group, the overall award is decreased by 25%, if it is equal to 150%the 50th percentile, no adjustment is made, and if HTLF’s ROAA equals or exceeds the 75th percentile, the overall award is increased by 25%, in each case with results in between these being interpolated. HTLF’s 2022 ROAA was equal to the 17th percentile of targetpeers for 2022; therefore each Named Executive Officer’s annual cash incentive was reduced by 25%.
Eighty percent of a Named Executive Officer’s annual cash incentive award was based on all performance standards. No payout is received if thresholdstandards linked to profitability, credit quality and loan growth, and the remaining 20% was based on qualitative factors. Profitability was measured by adjusted core pre-provision pre-tax net revenue (“PPNR”) and adjusted noninterest income, with PPNR weighted 35% and adjusted noninterest income weighted 10% of each Named Executive Officer’s annual cash incentive award. Credit quality was measured by non-performing assets to assets relative to peers and net charge-offs to average loans relative to peers, with each weighted 7.5%. Loan growth was measured by organic loan growth and weighted 20%.
Targets for each performance standard were set at levels deemed by the Compensation Committee to be challenging but achievable, and were set taking into account expected peer performance, HTLF’s historical performance, and HTLF’s financial plan targets. Target annual cash incentive awards are based on year-end base salaries.
PPNR was selected as a measure of performance are not met, with payouts beginningprofitability and at 50% of targeted award levels for threshold performance.
Because we believe earnings and ROTCE are35%, was the most important indicatorsheavily weighted annual incentive performance measure. PPNR is a non-GAAP measure of marketnet income excluding provision for credit losses and income taxes. The Compensation Committee believed this metric was appropriate because other components of the annual cash incentive address credit quality performance, which provides balance in the overall annual incentive plan. Despite challenging revenue headwinds in 2022, including the absence of PPP loans and therefore best aligneconomic uncertainty, the 2022 PPNR target was set at an amount that represented an increase of 1% over actual PPNR for 2021.
Adjusted noninterest income is a measure that aligns the interests of our named executive officersNamed Executive Officers with our stockholders and was weighted at 10%. The 2022 target was set at an amount that represented a 10 percent increase over 2021.
Given the largest proportionwide range of plausible economic conditions that could impact credit performance, two credit quality measures relative to peer performance were included in the annual cash incentive plan. These measures, non-performing assets and net charge-offs, were each weighted at 7.5% of the potential annualoverall incentive cash awardopportunity. Both metrics were measured relative to the 2022 peer group, with target performance set at the 50th percentile, thus measuring HTLF relative to its peers on credit performance in order to take into account changes in credit quality experienced by the overall market.
Organic loan growth was included as a performance measure with a weighing of 20% for each of our named executive officersNamed Executive Officers. Organic loan growth is based upon ROTCE. To encourage superior performance, our ROTCE target is set at 15% or greater, which we believe is strong performance in relation to our peers based on competitive analysis.
The efficiency ratio is the second largest factor in the named executive officers’ annual incentive cash awards. This performance standard focuses attention on organizational efficiency. We believe the efficiency ratio, which measures productivity, is another important indicator of returning value to our stockholders.
As a growth-oriented bank holding company, it is also our objective to encouragenon-GAAP measure defined as growth in our most important asset: loans. Accordingly, bothall portfolios, excluding Paycheck Protection Program (“PPP”) loans, purchased government guaranteed loans, acquired loans, and loan reclassified to held for sale. PPP loans were excluded because they represented a one-time component of loan origination during the pandemic, and therefore their absence in 2022 was not a reflection on loan origination performance. Mr. Prince’s organic loan growth measure excluded changes in the residential mortgage and acquiredconsumer loan growth are significant factors for the annual incentive cash award of each of our named executive officers. Furthermore, because Mr. Townsend is inportfolios due to his role being focused entirely on HTLF’s commercial lending. 2022 targets were set at an amount that represented a particularly important position to influence the quality of loan growth, we base a portion of his annual incentive cash award on the ratio of nonperforming assets to total assets and on the ratio of net charge-offs to average total loans.12% increase over 2021.
Our Compensation/Nominating Committee also bases a portion of the annual incentive cash award on organic deposit growth and acquired deposit growth for all named executive officers other than Mr. Townsend. Deposit growth is important to maintain liquidity and healthy reserves and to uphold a strong net interest margin.
The remaining component upon which a portion20% of a named executive officer’seach Named Executive Officer’s annual cash incentive cash award may be earned is a discretionary standard.opportunity was based on qualitative factors. This allowsallowed the Compensation/NominatingCompensation Committee to take a broader view of the prior year’s performance and allowsallowed the Compensation Committee to consider additionalthe unique contributions and qualitative factors of each Named Executive Officer’s performance, including achievements related to individual leadership, strategic objectives, ESG initiatives, risk management, customer and community service, bank operations, communication, and quantitative factors, including risk management, merger and acquisition activity, credit quality, talent management, leadership, regulatory relations, special projects and unplanned/unexpected circumstances. Because of the strong leadership of Messrs. McKeag, Fox and Townsend in their respective functional areas: finance, operations, and credit, the Committee awarded a payout of 125% to eachmeasures outside those taken into account in the discretionary category. performance metrics detailed above.
The Committee believed Messrs. Fuller and Lee provided solid strategic leadership for the Company, with Mr. Fuller focusing on investor relations, merger and acquisition activity, and risk management, and Mr. Lee focusing on operational leadership and management. Accordingly,Compensation Committee awarded Mr. Fuller a 100% payout and Mr. Lee a 90% payout withinat 140% on qualitative factors based on his strong leadership during the discretionary category.year, including his role in shaping and executing on a long-term strategic plan, navigating through organizational transitions that included projects such as charter consolidation, achieving strong operating results, and providing overall leadership for HTLF’s ESG program, including its DEI initiatives. The Compensation Committee awarded Mr. McKeag a payout at 110% on qualitative factors based on his successful completion of strategic initiatives, and efforts related to charter consolidation. The Compensation Committee awarded Mr. Prince a payout at 135% on qualitative factors based upon his individual leadership and results related to increasing commercial loan growth. The Compensation Committee awarded Mr. Kim a 135% payout on qualitative factors for successfully leading the charter consolidation project, achieving successful resolution of several important disputes, and successfully supporting ESG initiatives through his co-chairing of the ESG Steering Committee. The Compensation Committee awarded Mr. Quinn a 135% payout on qualitative factors related to his overall leadership and operational execution improvements that contributed directly to improving HTLF’s efficiency and strategically aligning HTLF’s subsidiary banks as part of charter consolidation.
The tables below show business plan targets and 20182022 results (dollars in thousands) that were used to calculate the annual cash incentive cash award for each of our named executive officers, dollars in thousands.Named Executive Officers, with the final 2022 score adjusted to reflect the ROAA modifier. Payouts can be found in the column “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table:Table.
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Lee | | |
| Performance Standard | Weighting | | 2022 Target | | 2022 Result | | 2022 Score |
Adjusted Core Pre-Provision Pre-Tax Net Revenue (non-GAAP)(1) | 35 | % | | $ | 273,000 | | | $ | 295,749 | | | 142 | % |
Adjusted Noninterest Income(2) | 10 | % | | $ | 135,000 | | | $ | 129,311 | | | 78 | % |
| Nonperforming Assets to Total Assets | 7.5 | % | | 0.29 | % | | 0.33 | % | | 55 | % |
| Net Charge-offs as a Percent of Average Loans | 7.5 | % | | 0.06 | % | | 0.11 | % | | — | % |
Organic Loan Growth(3) | 20 | % | | $ | 1,220,000 | | | $ | 1,544,702 | | | 150 | % |
| Qualitative Factors | 20 | % | | 100 | % | | 140 | % | | 140 | % |
| Return on Average Assets Multiplier | | | | | | | 78 | % |
| Final 2022 score | | | | | | | 93 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. McKeag | | |
| Performance Standard | Weighting | | 2022 Target | | 2022 Result | | 2022 Score |
Adjusted Core Pre-Provision Pre-Tax Net Revenue (non-GAAP)(1) | 35 | % | | $ | 273,000 | | | $ | 295,749 | | | 142 | % |
Adjusted Noninterest Income(2) | 10 | % | | $ | 135,000 | | | $ | 129,311 | | | 78 | % |
| Nonperforming Assets to Total Assets | 7.5 | % | | 0.29 | % | | 0.33 | % | | 55 | % |
| Net Charge-offs as a Percent of Average Loans | 7.5 | % | | 0.06 | % | | 0.11 | % | | — | % |
Organic Loan Growth(3) | 20 | % | | $ | 1,220,000 | | | $ | 1,544,702 | | | 150 | % |
| Qualitative Factors | 20 | % | | 100 | % | | 110 | % | | 110 | % |
| Return on Average Assets Multiplier | | | | | | | 78 | % |
| Final 2022 score | | | | | | | 89 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Kim | | |
| Performance Standard | Weighting | | 2022 Target | | 2022 Result | | 2022 Score |
Adjusted Core Pre-Provision Pre-Tax Net Revenue (non-GAAP)(1) | 35 | % | | $ | 273,000 | | | $ | 295,749 | | | 142 | % |
Adjusted Noninterest Income(2) | 10 | % | | $ | 135,000 | | | $ | 129,311 | | | 78 | % |
| Nonperforming Assets to Total Assets | 7.5 | % | | 0.29 | % | | 0.33 | % | | 55 | % |
| Net Charge-offs as a Percent of Average Loans | 7.5 | % | | 0.06 | % | | 0.11 | % | | — | % |
Organic Loan Growth(3) | 20 | % | | $ | 1,220,000 | | | $ | 1,544,702 | | | 150 | % |
| Qualitative Factors | 20 | % | | 100 | % | | 135 | % | | 135 | % |
| Return on Average Assets Multiplier | | | | | | | 78 | % |
| Final 2022 score | | | | | | | 93 | % |
|
| | | | | | | | | | | | | | |
| Mr. Lee | | |
| Performance Standard | | Weighting | | 2018 Target | | 2018 Result | | 2018 Score |
Return on Tangible Common Equity (non-GAAP)(1) | | 40.00 | % | | 15.00 | % | | 14.79 | % | | 90.00 | % |
Efficiency Ratio (non-GAAP)(2) | | 10.00 | % | | 65.00 | % | | 63.54 | % | | 137.00 | % |
| Loan Growth, Organic | | 7.50 | % | | $ | 255,659 |
| | $ | 106,712 |
| | —% |
|
| Loan Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 1,005,548 |
| | 150.00 | % |
| YTD Non-Time Deposit Growth, Organic | | 7.50 | % | | $ | 288,938 |
| | $ | 326,748 |
| | 126.00 | % |
| YTD Non-Time Deposit Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 918,051 |
| | 142.00 | % |
| Board Discretionary | | 20.00 | % | | 100.00 | % | | 90.00 | % | | 90.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Prince | | |
| Performance Standard | Weighting | | 2022 Target | | 2022 Result | | 2022 Score |
Adjusted Core Pre-Provision Pre-Tax Net Revenue (non-GAAP)(1) | 35 | % | | $ | 273,000 | | | $ | 295,749 | | | 142 | % |
Adjusted Noninterest Income(2) | 10 | % | | $ | 135,000 | | | $ | 129,311 | | | 78 | % |
| Nonperforming Assets to Total Assets | 7.5 | % | | 0.29 | % | | 0.33 | % | | 55 | % |
| Net Charge-offs as a Percent of Average Loans | 7.5 | % | | 0.06 | % | | 0.11 | % | | — | % |
Organic Loan Growth(3) | 20 | % | | $ | 1,125,000 | | | $ | 1,433,435 | | | 150 | % |
| Qualitative Factors | 20 | % | | 100 | % | | 135 | % | | 135 | % |
| Return on Average Assets Multiplier | | | | | | | 78 | % |
| Final 2022 score | | | | | | | 93 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Quinn | | |
| Performance Standard | Weighting | | 2022 Target | | 2022 Result | | 2022 Score |
Adjusted Core Pre-Provision Pre-Tax Net Revenue (non-GAAP)(1) | 35 | % | | $ | 273,000 | | | $ | 295,749 | | | 142 | % |
Noninterest Income(2) | 10 | % | | $ | 135,000 | | | $ | 129,311 | | | 78 | % |
| Nonperforming Assets to Total Assets | 7.5 | % | | 0.29 | % | | 0.33 | % | | 55 | % |
| Net Charge-offs as a Percent of Average Loans | 7.5 | % | | 0.06 | % | | 0.11 | % | | — | % |
Organic Loan Growth(3) | 20 | % | | $ | 1,220,000 | | | $ | 1,544,702 | | | 150 | % |
| Qualitative Factors | 20 | % | | 100 | % | | 135 | % | | 135 | % |
| Return on Average Assets Multiplier | | | | | | | 78 | % |
| Final 2022 score | | | | | | | 93 | % |
| | | | | | | |
(1) Refer to the table, “Calculation of Measures Used for Annual Incentive Awards - Adjusted Core Pre-Provision Pre-Tax Net Revenue”. |
(2) Refer to the table, “Calculation of Measures Used for Annual Incentive Award - Adjusted Noninterest Income”. |
(3) Refer to the table, “Calculation of Measures Used for Annual Incentive Award - Organic Loan Growth”. |
|
|
| | | | | | | | | | | | | | |
| Mr. Fuller | | |
| Performance Standard | | Weighting | | 2018 Target | | 2018 Result | | 2018 Score |
Return on Tangible Common Equity (non-GAAP)(1) | | 40.00 | % | | 15.00 | % | | 14.79 | % | | 90.00 | % |
Efficiency Ratio (non-GAAP)(2) | | 10.00 | % | | 65.00 | % | | 63.54 | % | | 137.00 | % |
| Loan Growth, Organic | | 7.50 | % | | $ | 255,659 |
| | $ | 106,712 |
| | —% |
|
| Loan Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 1,005,548 |
| | 150.00 | % |
| YTD Non-Time Deposit Growth, Organic | | 7.50 | % | | $ | 288,938 |
| | $ | 326,748 |
| | 126.00 | % |
| YTD Non-Time Deposit Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 918,051 |
| | 142.00 | % |
| Board Discretionary | | 20.00 | % | | 100.00 | % | | 100.00 | % | | 100.00 | % |
Calculation of Measures Used for Annual Incentive Awards
In awarding incentive compensation, the Compensation Committee made adjustments to measures defined by generally accepted accounting principles (“GAAP”). The Compensation Committee considers adjustments to performance metrics used for incentive compensation purposes that are consistent with the performance and behaviors that the plan is meant to encourage and reward, including adjustments of items that represent unanticipated event-specific items not indicative of performance. |
| | | | | | | | | | | | | | |
| Mr. McKeag | | |
| Performance Standard | | Weighting | | 2018 Target | | 2018 Result | | 2018 Score |
Return on Tangible Common Equity (non-GAAP)(1) | | 40.00 | % | | 15.00 | % | | 14.79 | % | | 90.00 | % |
Efficiency Ratio (non-GAAP)(2) | | 10.00 | % | | 65.00 | % | | 63.54 | % | | 137.00 | % |
| Loan Growth, Organic | | 7.50 | % | | $ | 255,659 |
| | $ | 106,712 |
| | —% |
|
| Loan Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 1,005,548 |
| | 150.00 | % |
| YTD Non-Time Deposit Growth, Organic | | 7.50 | % | | $ | 288,938 |
| | $ | 326,748 |
| | 126.00 | % |
| YTD Non-Time Deposit Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 918,051 |
| | 142.00 | % |
| Board Discretionary | | 20.00 | % | | 100.00 | % | | 125.00 | % | | 125.00 | % |
|
| | | | | | | | | | | | | | |
| Mr. Fox | | |
| Performance Standard | | Weighting | | 2018 Target | | 2018 Result | | 2018 Score |
Return on Tangible Common Equity (non-GAAP)(1) | | 40.00 | % | | 15.00 | % | | 14.79 | % | | 90.00 | % |
Efficiency Ratio (non-GAAP)(2) | | 10.00 | % | | 65.00 | % | | 63.54 | % | | 137.00 | % |
| Loan Growth, Organic | | 7.50 | % | | $ | 255,659 |
| | $ | 106,712 |
| | —% |
|
| Loan Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 1,005,548 |
| | 150.00 | % |
| YTD Non-Time Deposit Growth, Organic | | 7.50 | % | | $ | 288,938 |
| | $ | 326,748 |
| | 126.00 | % |
| YTD Non-Time Deposit Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 918,051 |
| | 142.00 | % |
| Board Discretionary | | 20.00 | % | | 100.00 | % | | 125.00 | % | | 125.00 | % |
|
| | | | | | | | | | | | | | |
| Mr. Townsend | | |
| Performance Standard | | Weighting | | 2018 Target | | 2018 Result | | 2018 Score |
Return on Tangible Common Equity (non-GAAP)(1) | | 40.00 | % | | 15.00 | % | | 14.79 | % | | 90.00 | % |
Efficiency Ratio (non-GAAP)(2) | | 10.00 | % | | 65.00 | % | | 63.54 | % | | 137.00 | % |
| Loan Growth, Organic | | 7.50 | % | | $ | 255,659 |
| | $ | 106,712 |
| | —% |
|
| Loan Growth, Acquired | | 7.50 | % | | $ | 500,000 |
| | $ | 1,005,548 |
| | 150.00 | % |
| Nonperforming Assets to Total Assets | | 10.00 | % | | 0.80 | % | | 0.69 | % | | 128.00 | % |
Net Charge-Offs to Average Loans Outstanding(3) | | 10.00 | % | | 0.15 | % | | 0.21 | % | | —% |
|
| Board Discretionary | | 15.00 | % | | 100.00 | % | | 125.00 | % | | 125.00 | % |
| | | | | | | | | |
| (1) Refer to the table, “Reconciliation of Non-GAAP Measure - Return on Tangible Common Equity.” |
| (2) Refer to the table “Reconciliation of Non-GAAP Measure - Efficiency Ratio.” |
| (3) Mr. Townsend’s net charge-off result excludes a $3.1 million charge-off related to the sale of the loan portfolios of Citizens Finance Co. and Citizens Finance of Illinois Co. (collectively, “Citizens”). The Citizens’ loan portfolios were required to be recorded at fair value due to the held for sale classification, which resulted in a charge-off of $3.1 million in the fourth quarter of 2018. |
BelowThese adjustments are further described below, and were made by the componentsCompensation Committee in order to ensure that management performance was judged based on those factors that were reflective of their performance with respect to each of the return on tangible common stockholders’ equity calculation that reconcile to the most directly comparable GAAP measures,metrics.
The table below shows how PPNR was calculated, dollars in thousands:
| | | | | |
| Adjusted Core Pre-Provision Pre-Tax Revenue | |
| For the Year Ended
December 31, 2022 |
| Net income (GAAP) | $ | 212,180 | |
| Provision for credit losses | 15,370 | |
| Income taxes | 55,573 | |
| Pre-Provision Pre-Tax Net Revenue | 283,123 | |
| Partnership investments in tax credit projects | 5,040 | |
| Acquisition, integration and restructuring costs | 7,586 | |
| Adjusted Core Pre-Provision Pre-Tax Net Revenue (non-GAAP) | $ | 295,749 | |
|
| | | |
| Reconciliation on Non-GAAP Measure - Return on Tangible Common Equity | |
| | For the Year Ended December 31, 2018 |
| Net income available to common stockholders (GAAP) | $ | 116,959 |
|
| | |
| Average common stockholders’ equity (GAAP) | $ | 1,177,346 |
|
| Less average goodwill | 340,352 |
|
| Less average core deposit intangibles and customer relationship intangibles, net | 46,206 |
|
| | $ | 790,788 |
|
| | |
| Return on average common equity (GAAP) | 9.93 | % |
Return on average tangible common equity (non-GAAP)(1) | 14.79 | % |
| | |
| (1) Return on average tangible common equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer deposit intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP. |
BelowThe Compensation Committee reviewed and approved two adjustments to pre-provision pre-tax net revenue in computing PPNR. The first adjustment approved was for the cost of investments in tax credit transactions, the costs of which are the componentspart of the efficiency ratio that reconcileinitial calculation of PPNR even though the offsetting tax benefits are not included in PPNR because it is a pre-tax calculation. Adjustments were also made related to the most directly comparable GAAP measures, dollarsimpact of charter consolidation costs. Both of these adjustments ensure that management is not unfairly penalized for making decisions that we believe will have a long-term benefit, but which have a negative impact in thousands:the current year. For example, charter consolidation is anticipated to have a $20 million annual savings for HTLF, but represents a cost in the current year. |
| | | |
| Reconciliation of Non-GAAP Measure - Efficiency Ratio | |
| | For the Year Ended December 31, 2018 |
| Net interest income (GAAP) | $ | 413,954 |
|
Tax-equivalent adjustment(1) | 6,228 |
|
| Net interest income - tax equivalent (non-GAAP) | 420,182 |
|
| Noninterest income | 109,160 |
|
| Securities gains, net | (1,085 | ) |
| Unrealized gain on equity securities, net | (212 | ) |
| Adjusted income (non-GAAP) | $ | 528,045 |
|
| | |
| Total noninterest income expenses (GAAP) | $ | 353,888 |
|
| Less: | |
| Core deposit intangibles and customer relationship intangibles amortization | 9,355 |
|
| Partnership investment in historic rehabilitation tax credits | 4,233 |
|
| Loss on sales/valuations of assets, net | 2,208 |
|
| Restructuring expenses | 2,564 |
|
| Adjusted noninterest income expenses (non-GAAP) | $ | 335,528 |
|
Efficiency ratio, fully tax-equivalent (non-GAAP)(2) | 63.54 | % |
| |
| (1) Computed on a tax equivalent basis using an effective tax rate of 21%. |
| (2) Efficiency ratio, fully tax-equivalent, expresses adjusted noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis, which adjusts net interest income and noninterest income expenses for the tax favored status of certain loans, securities, and tax credit projects. Management believes the presentation of this non-GAAP measure enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items, as noted in the table. This measure should not be considered a substitute for operating results determined in accordance with GAAP. |
The table below shows how adjusted noninterest income was calculated (dollars in thousands):
| | | | | |
| Adjusted Noninterest Income |
| For the Year Ended
December 31, 2022 |
| Total noninterest income (GAAP) | $ | 128,264 | |
| Securities losses, net | 425 |
| Unrealized loss on equity securities | 622 |
| Adjusted Noninterest income (non-GAAP) | $ | 129,311 | |
The Compensation Committee reviewed and approved two small adjustments to noninterest income for annual incentive compensation purposes. These adjustments, in accordance with past practices, related to excluding net securities losses and unrealized losses on equity securities, which the Compensation Committee deemed appropriate because it excludes unrealized losses which may never be realized on equity securities primarily related to our Community Reinvestment Act activities, and excludes the variability of realized securities losses from financial results.
The table below shows how organic loan growth was calculated (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Organic Loan Growth | | |
| (dollars in thousands) | Balance as of 12/31/2021
(GAAP) | | Purchased Loans | | Balance as of 12/31/2022
(GAAP) | | Total
Change
(GAAP) | | Change exclusive
of PPP loans and
purchased government
guaranteed loans | | Change exclusive
of PPP loans, purchased government guaranteed
loans, residential
mortgages and consumer
loans |
| Commercial and industrial | $ | 2,645,085 | | | $ | 16,644 | | | $ | 3,464,414 | | | $ | 819,329 | | | $ | 802,685 | | | $ | 802,685 | |
| PPP | 199,883 | | | — | | | 11,025 | | | (188,858) | | | — | | | — | |
| Owner occupied commercial real estate | 2,240,334 | | | 38,129 | | | 2,265,307 | | | 24,973 | | | (13,156) | | | (13,156) | |
| Non-owner occupied commercial real estate | 2,010,591 | | | 22,876 | | | 2,330,940 | | | 320,349 | | | 297,473 | | | 297,473 | |
| Real estate construction | 856,119 | | | — | | | 1,076,082 | | | 219,963 | | | 219,963 | | | 219,963 | |
| Agricultural and agricultural real estate | 753,753 | | | 40,287 | | | 920,510 | | | 166,757 | | | 126,470 | | | 126,470 | |
| Residential mortgage | 829,283 | | | — | | | 853,361 | | | 24,078 | | | 24,078 | | | — | |
| Consumer | 419,524 | | | — | | | 506,713 | | | 87,189 | | | 87,189 | | | — | |
| Total | $ | 9,954,572 | | | $ | 117,936 | | | $ | 11,428,352 | | | $ | 1,473,780 | | | $ | 1,544,702 | | | $ | 1,433,435 | |
Organic loan growth was calculated by the Compensation Committee as loan growth excluding the changes in PPP loans and purchased government guaranteed loans. The Compensation Committee believed that these adjustments were appropriate because they provide a more complete understanding of management performance by excluding changes in one-time government related lending programs and those increases in loan balances related to purchased loans.
Long-Term Incentive Equity Compensation. The Compensation/NominatingCompensation Committee believes that equity compensation can beis an effective tool for aligningboth retention of management, and to align management incentives with the long-term interests of management with those of stockholders. Since 2012,The Compensation Committee annually grants our Compensation/Nominating Committee has grantedexecutives, including our named executive officersNamed Executive Officers, a combination of RSUs that vest based on time and continued employment, and RSUsPSUs that must be earned based upon performance and continued employment. Annual RSU and PSU awards are typically made in the first quarter of the year based on target values set for the previous year. Initial RSUs are determined based on a target award amount and PSUs are based on target performance, although no employees are entitled to a specific or minimum initial award amount. RSUs vest in three equal annual performance. In additioninstallments generally contingent on employment, starting one year after the date of grant, and becoming fully vested three years after the grant date. PSUs are generally contingent upon employment for three years and vest based on achievement of
performance metrics using a three-year performance period in order to our time-based
RSUs and one-year performance-based RSUs, in 2016, the Compensation/Nominating Committee added three-year performance-based RSUs to the long-term equity compensation pool tofurther encourage long-term decision-making.decisionmaking. The metrics chosen by the Compensation Committee avoid duplication of performance measures used for our annual cash incentive awards. Vesting of PSUs occurs after performance data is available for the full three-year performance period. All forms of equity incentive are intended to enhance our ability to retainattract and attract senior leadershipretain talent, provide compensation opportunities tied to long-term service and stockholder value, and reinforce our pay-for-performance and stockholder-alignment philosophy. The equity compensation is administered throughEquity awards are granted under our Amended and Restated 20122020 Long-Term Incentive Plan.
The time-based RSUs that we have granted under this program vest in three equal installments, starting on the first anniversary of the date of grant, and become fully vested on the third anniversary of the grant date. All outstanding time-based RSUs with a grant date in 2015 or earlier vest in three equal installments, starting on the third anniversary of the grant date, and become fully vested on the fifth anniversary of the grant.
The one-year performance-based RSUs that wePSUs granted in 2018 have a one-year performance period and are earned (1) 70% based upon achieving earnings per share targets, and (2) 30% based upon achieving loan growth targets, both organic and acquired. The one-year performance-based RSUs vest two years after they are earned. Named executive officers may receive a maximum payout of 150% of target for outstanding performance. No payout is received if threshold levels of performance are not met, with payouts beginning at 50% of targeted award levels for threshold performance. In 2018, the named executive officers received no score for the one-year performance-based RSUs tied to achievement of Heartland’s earnings per share targets. The named executive officers received a 150% score for acquired loan growth and no score for organic loan growth, resulting in a 75% score for the loan growth metric in the one-year performance-based RSUs. Accordingly, the named executive officers received a payout of 22.5% of target for the one-year performance-based RSUs.
The three-year performance-based RSUs that we granted in 20182022 have a three-year performance period and are earned (1) 50% based upon Heartland’sHTLF’s earnings per share growth in comparisoncompared to its secondaryour proxy peer group and (2) 50%as set forth below. The total number of PSUs vesting is adjusted by up to 25% as shown below, based upon Heartland’sHTLF’s total stockholder return on tangible common equity in comparisoncompared to its secondarythe peer group. The three-year performance-based RSUsPSUs granted in 20182022 will vest based on a measurement date in 2021, upon a review of aggregate performance from fiscal year 2018 through fiscal year 2020. Named executive officers may receive a maximum payout of 150% of target for outstanding performance. No payout is received if threshold levels of performance are not met, with payouts beginning at 50% of targeted award levels for threshold performance.the three-year period ending December 31, 2024.
| | | | | | | | | | | | | | | | |
| Peer Performance | | Earnings Per Share Growth | | | | Total Stockholder Return |
| 25th Percentile | | Threshold (50% of Target) | | | | Threshold (-25%) |
| 50th Percentile | | Target (100% of Target) | | | | Target (0%) |
| 75th Percentile | | Maximum (150% of Target) | | | | Maximum (+25%) |
In granting performance-based RSUsPSUs to the named executive officers,Named Executive Officers, the Compensation/NominatingCompensation Committee considersconsidered the overall allocation of RSUsequity compensation to ensure that the target number of performance-based RSUsPSUs granted is equal to or greater than the number of time-based RSUs granted. In 2018,For 2022, Named Executive Officers received 40% of restricted stock unit awards in the RSU awards to the named executive officers were roughly 30% time-based RSUs, 30% one-year performance-basedform of RSUs and 40% three-year performance-based RSUs.60% in PSUs. The Compensation/NominatingCompensation Committee strives to grant RSUs with an aggregate grant date fair valueand PSUs in amounts that isare competitive in the context of an executive’s performance and position.
The performance period for our PSU awards granted in 2020 ended as of December 31, 2022. Based on above peer median performance on earnings per share growth and below peer median total stockholder return for the three-year period ended December 31, 2022, the PSUs paid out at 77% of target, which consisted of a 102% weighted payout on earnings per share growth and a -25% modifier based on total stockholder return compared to peers. All metrics for these PSUs were provided by S&P Global Market Intelligence.
In appropriate circumstances, the Compensation Committee may make awards to individuals, including the Named Executive Officers, to recognize extraordinary effort or performance not fully measured through the Company’s annual or long-term incentive plans, or to address unique situations or ensure retention. In 2022, the Compensation Committee made an award of RSUs to Mr. Kim related to his promotion to Chief Administrative Officer, and made stock option awards to each of Messrs. Kim, Prince and Quinn. These awards related to extraordinary efforts on the part of these individuals during the year, and were also intended to address market competitiveness and other retention issues. The Compensation Committee structured the awards as stock options due to the fact that the ten-year exercise period provides retentive value to the Company over a longer term, and the nature of stock options further aligns the recipients with the long-term interests of stockholders by correlating the value of the award to the recipient with HTLF’s long-term stock price. The stock option awards vest ratably over a four year period. The exercise price for each stock option awarded is equal to the closing price of the Company’s common stock on the grant date. We prohibit the repricing of stock options without the approval of stockholders.
Other Compensation and Benefits. We have historically limited perquisites and other types of non-cash benefits to reinforce aour pay-for-performance orientationphilosophy and to minimize expenses. Such non-cash benefits, when provided, can include use of a company-owned vehicle or a vehicle allowance, payment of 50% of country club or social club dues, and a housing allowance or an allowance for moving expenses.
HeartlandHTLF is a majority owner of a Cessna business jet. The aircraft is used to transport personnel to meetings at various HeartlandHTLF locations which have a large geographic spread and include difficult-to-reach locations. The jetaircraft also provides transportation for HeartlandHTLF executives to business meetings, transports HTLF executives and transports Heartland executives, directors, major stockholders and customersis used for business development purposes. It is our policy that the aircraft is not to be utilized for personal benefit; however, on occasion, and subject to applicable regulations, an executive officer'sofficer’s or a director'sdirector’s family member may board a flight if an empty seat is available on a regularly-scheduled business flight. We believe such usage does not create any incremental cost to Heartland.HTLF, and there was no such usage in 2022.
Heartland does provideHTLF provides additional life insurance benefits to certain officers of HeartlandHTLF, including our Named Executive Officers, under a number ofseveral different executive life insurance programs.
Named Executive officersOfficers also participate in our other broad-based employee benefit programs on the same terms as similarly situated employees, including our 2016 Employee Stock Purchase Plan, health insurance plans, and a defined
contribution retirement savings plan. HTLF also has a non-qualified Deferred Compensation Plan that allows eligible employees to make voluntary contributions. Any non-elective Company contributions to this plan are subject to approval by the HTLF Board of Directors.
We provide severance and change in control arrangements to our named executive officersNamed Executive Officers that are described under “Potential Payments upon Termination or Change in Control.”Control”.
Other Key Policies
Stock Ownership Guidelines. To further reinforce the link between executives and stockholders, in 2022 the Compensation Committee adopted stock ownership requirements applicable to all executive officers. Under these guidelines, our CEO is required to beneficially own stock equal to five times his base salary, and other executive officers are required to beneficially own stock equal to two times each of their base salary. Compliance with these guidelines is required by the later of (i) five years from the adoption of the ownership guidelines, or (ii) five years from the individual being named an executive officer. In addition, Directors are required to beneficially own common stock with a value of at least three times their annual total cash and equity compensation within five years of being named a director. All Directors with more than five years of service are in compliance with this requirement.
Prohibition on Hedging. Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards,forward contracts, equity swaps, collars, and exchange funds.exchange-traded options. Such hedging transactions may permit a director or executive officerstockholder to continue to own securities of the Company,HTLF, but without the full risks and rewards of ownership. When this situation occurs, the director or executive officerowner may no longer have the same objectives as the Company’sHTLF’s other stockholders. Therefore, directorsDirectors and executive officers are prohibited from engaging in any such hedging transactions.transactions with regard to the equity securities of HTLF or its subsidiaries.
Restrictions on Stock Pledges. Directors and executive officers are prohibited from pledging HTLF securities as collateral, including, but not limited to, by holding any such securities in a margin account, without the prior approval of the Compensation Committee.
Clawback Provisions. RegardlessPolicy. It is in the best interests of whether we meetHTLF and its stockholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces HTLF’s pay-for-performance compensation philosophy. Accordingly, the performance targets, however, our Compensation/NominatingCompensation Committee has authority to claw backadopted a clawback policy which provides for the RSUs if we are subject to significant regulatory action or a regulatory body has identified any material weakness in our operations or the operationsrecoupment of performance-based cash and equity incentive compensation from certain employees, including each of our subsidiaries. Bothexecutive officers, in the time-basedevent of an accounting restatement or ethical violation resulting from material noncompliance with financial reporting requirements under U.S. federal securities laws and/or as a result of a wrongful act. All RSU and performance-based RSUPSU agreements contain clawback provisions that allow any amount or benefit received to be canceled, recouped, rescinded, or otherwise reduced.
Tax Deductible Compensation. Section 162(m) We intend to revise our clawback policy to be compliant with the requirements of the Internal Revenue Code, as in effect prior to the enactment of the Tax CutsDodd-Frank Wall Street Reform and JobsConsumer Protection Act of 20172010 (“TCJA”Dodd-Frank Act”), generally disallowedfollowing the adoption of a tax deduction to public companies for compensation of more than $1 million paid in any taxable year to each “covered employee,” consisting of the CEOfinal clawback rule by Nasdaq.
Compensation, Nominating and the three other highest paid executive officers employed at the end of the year (other than the CFO). Performance-based compensation was exempt from this deduction limitation if the Company met specified requirements set forth in the Internal Revenue Code and applicable Treasury Regulations. The TCJA retained the $1 million deduction limit, but repealed the performance-based compensation exemption from the deduction limit and expanded the definition of “covered employees,” effective for taxable years beginning after December 31, 2017. Consequently, compensation paid in 2018 and later years to our named executive officers in excess of $1 million will not be deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017. While the Compensation/Nominating Committee considers the deductibility of executive compensation under Section 162(m) when evaluating particular compensation programs in the context of the Compensation Committee's broader compensation objectives and overall compensation philosophy, the Compensation Committee believes it is important to maintain cash and equity incentive compensation at the levels needed to attract and retain the named executive officers essential to our success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limitation.
Compensation/NominatingCorporate Governance Committee Report
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 the proxy statement for the year ended December 31, 2018.
| | |
| Members of the Compensation, Nominating and Corporate Governance Committee, |
|
Members of the Compensation/Nominating Committee, |
|
Mark C. Falb |
| Thomas L. Flynn |
| Jennifer K. Hopkins |
R. Michael McCoyChristopher S. Hylen |
Susan G. MurphyMartin J. Schmitz |
John K. SchmidtKathryn Graves Unger |
| Duane E. White (Chair) |
Summary Compensation Table
The following table sets forth information concerning the compensation of our Chief Executive Officer, our Chief Financial Officer and our other three most highly compensated executive officers (collectively, the “named executive officers”“Named Executive Officers”) for the fiscal years ended December 31, 2018, 20172022, 2021, and 2016. Effective June 1, 2018, our President, Bruce K. Lee, was promoted to2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name & Principal Position | Year | | Salary (1) | | Stock Awards (2)(3) | | Option Awards (4) | | Non-Equity
Incentive
Plan
Compensation | | All Other Compensation (5) | | Total |
| Bruce K. Lee | 2022 | | $ | 850,000 | | | $ | 1,286,285 | | | $ | — | | | $ | 794,385 | | | $ | 125,208 | | | $ | 3,055,878 | |
| President | 2021 | | $ | 825,000 | | | $ | 1,224,086 | | | $ | — | | | $ | 688,567 | | | $ | 114,637 | | | $ | 2,852,290 | |
| Chief Executive Officer | 2020 | | $ | 731,250 | | | $ | 823,760 | | | $ | — | | | $ | 565,864 | | | $ | 125,008 | | | $ | 2,245,882 | |
| Bryan R. McKeag | 2022 | | $ | 455,013 | | | $ | 381,581 | | | $ | — | | | $ | 244,125 | | | $ | 50,387 | | | $ | 1,131,106 | |
| Executive Vice President | 2021 | | $ | 436,250 | | | $ | 380,819 | | | $ | — | | | $ | 228,974 | | | $ | 45,592 | | | $ | 1,091,635 | |
| Chief Financial Officer | 2020 | | $ | 405,000 | | | $ | 234,308 | | | $ | — | | | $ | 182,531 | | | $ | 51,130 | | | $ | 872,969 | |
Jay L. Kim(6) | 2022 | | $ | 380,835 | | | $ | 241,276 | | | $ | 98,845 | | | $ | 185,352 | | | $ | 37,164 | | | $ | 943,472 | |
| Executive Vice President, General Counsel | 2021 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Chief Administrative Officer | 2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| David A. Prince | 2022 | | $ | 406,000 | | | $ | 302,652 | | | $ | 103,778 | | | $ | 189,059 | | | $ | 39,604 | | | $ | 1,041,093 | |
| Executive Vice President | 2021 | | $ | 396,250 | | | $ | 314,187 | | | $ | — | | | $ | 159,776 | | | $ | 37,063 | | | $ | 907,276 | |
| Head of Commercial Banking | 2020 | | $ | 367,500 | | | $ | 194,052 | | | $ | — | | | $ | 133,219 | | | $ | 40,705 | | | $ | 735,476 | |
Kevin G. Quinn(6) | 2022 | | $ | 426,667 | | | $ | 216,917 | | | $ | 108,726 | | | $ | 239,104 | | | $ | 62,110 | | | $ | 1,053,524 | |
| Executive Vice President | 2021 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Chief Banking Officer | 2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| (1) The amounts shown include amounts deferred at the discretion of the Named Executive Officer under our retirement plan and Deferred Compensation Plan. |
| (2) For 2021 and 2022, 60% of the stock awards made at target were PSUs and 40% were RSUs, and for 2020, PSUs and RSUs each represented 50% of the awards made at target. The target level of performance is 100% for all awards. |
| (3) The amounts shown represent the grant date fair value of RSUs and PSUs computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. With respect to the PSUs, the value reflected assumes that the target level of performance will be achieved; however, named executive officers may receive a maximum payout of 150% of target and an additional maximum TSR modifier of +25%. Assuming the maximum achievement of PSUs, the total value of all RSUs granted in 2022 is: $1,670,474 for Mr. Lee; $495,543 for Mr. McKeag, $283,457 for Mr. Kim, $393,044 for Mr. Prince, and $281,696 for Mr. Quinn. See the discussion of equity awards in Note 15 of our financial statements for the year ended December 31, 2022, contained in our Annual Report on Form 10-K, for all assumptions made in the valuation of the RSUs. |
| (4) The amounts shown represent the grant date fair value of stock options computed in accordance with FASB ASC Topic 718. See the discussion of equity awards in Note 15 of our financial statements for the year ended December 31, 2022, contained in our Annual Report on Form 10-K, for all assumptions made in the valuation of the stock options. |
| (5) The elements of “All Other Compensation” include company contributions to our 401(k) defined contribution plan, our non-qualified Deferred Compensation Plan, and payment of executive life insurance premiums for certain executives. For Mr. Lee, “All Other Compensation” includes payment of an auto allowance in 2022. For Mr. Quinn, “All Other Compensation” includes payment of an auto allowance and club dues. The table on the following page sets forth these amounts for each Named Executive Officer. |
| (6) Messrs. Kim and Quinn became Named Executive Officers in 2022. |
The table below sets forth the additional officecomponents of Chief Executive Officer, and Lynn B. Fuller transitioned to Executive Operating Chairman:All Other Compensation during 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Employer
Contributions to
401(k) Retirement Plan | | Employer Contributions to
Non-Qualified Deferred
Compensation Plan | | Executive Split-Dollar Life Insurance Program | | Perquisites(1) | | Total |
| Bruce K. Lee | | $ | 21,350 | | | $ | 86,350 | | | $ | 2,508 | | | $ | 15,000 | | | $ | 125,208 | |
| Bryan R. McKeag | | $ | 21,350 | | | $ | 26,529 | | | $ | 2,508 | | | $ | — | | | $ | 50,387 | |
| Jay L. Kim | | $ | 21,350 | | | $ | 15,814 | | | $ | — | | | $ | — | | | $ | 37,164 | |
| David A. Prince | | $ | 21,350 | | | $ | 18,254 | | | $ | — | | | $ | — | | | $ | 39,604 | |
| Kevin G. Quinn | | $ | 21,350 | | | $ | 20,093 | | | $ | 2,917 | | | $ | 17,750 | | | $ | 62,110 | |
| | | | | | | | | | |
| (1) Mr. Lee received a $15,000 auto allowance in 2022. Mr. Quinn received a $12,000 auto allowance and $5,750 of club dues in 2022. Each other Named Executive Officer had perquisites totaling less than $10,000 and, accordingly, those amounts are not included in this table as permitted by SEC rules. |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Name & Principal Position | | Year | | Salary(1) | | Stock Awards(2) | | Non-Equity Incentive Plan Compensation | | All Other Compensation(3) | | Total |
| Bruce K. Lee | | 2018 | | $ | 576,000 |
| | $ | 420,618 |
| | $ | 455,263 |
| | $ | 40,164 |
| | $ | 1,492,045 |
|
| President & | | 2017 | | $ | 485,417 |
| | $ | 395,684 |
| | $ | 341,345 |
| | $ | 18,900 |
| | $ | 1,241,346 |
|
| Chief Executive Officer | | 2016 | | $ | 400,000 |
| | $ | 289,302 |
| | $ | 336,179 |
| | $ | 18,550 |
| | $ | 1,044,031 |
|
| Lynn B. Fuller | | 2018 | | $ | 512,963 |
| | $ | 422,110 |
| | $ | 413,647 |
| | $ | 21,256 |
| | $ | 1,369,976 |
|
| Executive Operating Chairman | | 2017 | | $ | 501,675 |
| | $ | 417,944 |
| | $ | 352,778 |
| | $ | 20,833 |
| | $ | 1,293,230 |
|
| | | 2016 | | $ | 499,219 |
| | $ | 369,591 |
| | $ | 416,426 |
| | $ | 20,380 |
| | $ | 1,305,616 |
|
| Bryan R. McKeag | | 2018 | | $ | 343,500 |
| | $ | 200,612 |
| | $ | 218,051 |
| | $ | 20,904 |
| | $ | 783,067 |
|
| Executive Vice President | | 2017 | | $ | 316,913 |
| | $ | 195,980 |
| | $ | 167,713 |
| | $ | 19,025 |
| | $ | 699,631 |
|
| Chief Financial Officer | | 2016 | | $ | 312,113 |
| | $ | 123,238 |
| | $ | 173,568 |
| | $ | 18,550 |
| | $ | 627,469 |
|
Brian J. Fox(4) | | 2018 | | $ | 298,000 |
| | $ | 147,187 |
| | $ | 157,640 |
| | $ | 19,250 |
| | $ | 622,077 |
|
| Executive Vice President | | 2017 | | $ | 275,025 |
| | $ | 108,394 |
| | $ | 123,060 |
| | $ | 18,900 |
| | $ | 525,379 |
|
| Operations | | 2016 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Andrew E. Townsend | | 2018 | | $ | 297,500 |
| | $ | 144,589 |
| | $ | 137,183 |
| | $ | 19,911 |
| | $ | 599,183 |
|
| Executive Vice President | | 2017 | | $ | 266,250 |
| | $ | 124,942 |
| | $ | 126,363 |
| | $ | 19,502 |
| | $ | 537,057 |
|
| Chief Credit Officer | | 2016 | | $ | 240,000 |
| | $ | 150,705 |
| | $ | 140,400 |
| | $ | 18,886 |
| | $ | 549,991 |
|
| | | | | | | | | | | | | |
| (1) The amounts shown include amounts deferred at the discretion of the executive officer under our retirement plan. |
| (2) The amounts shown represent the grant date fair market value of RSUs computed in accordance with FASB ASC Topic 718. With respect to the performance-based RSUs, the value reflected assumes that the targeted level of performance conditions will be achieved; however, named executive officers may receive a maximum payout of 150% of target. The maximum value of stock awards granted in 2018 is: $567,832 for Mr. Lee; $569,849 for Mr. Fuller; $270,836 for Mr. McKeag; $195,198 for Mr. Townsend; and $198,734 for Mr. Fox. See the discussion of equity awards in Note 16 of our financial statements for the year ended December 31, 2018, contained in our Annual Report to Stockholders, for all assumptions made in the valuation of the RSUs. |
| (3) The elements of “All Other Compensation” include company contributions to our 401(k) defined contribution plan, payment of executive life insurance premiums for four executives, and for Mr. Lee, payment of an auto allowance in 2018. The table below sets forth the components of All Other Compensation during 2018. |
| (4) Mr. Fox became a named executive officer in 2017. |
|
| | | | | | | | | | | | | | | | |
| Name | | Employer Contributions to 401(k) Retirement Plan | | Executive Split-Dollar Life Insurance Program | | Perquisites(1) | | Total |
| Bruce K. Lee | | $ | 19,250 |
| | $ | 276 |
| | $ | 20,638 |
| | $ | 40,164 |
|
| Lynn B. Fuller | | $ | 19,250 |
| | $ | 2,006 |
| | $ | — |
| | $ | 21,256 |
|
| Bryan R. McKeag | | $ | 19,250 |
| | $ | 1,654 |
| | $ | — |
| | $ | 20,904 |
|
| Brian J. Fox | | $ | 19,250 |
| | $ | — |
| | $ | — |
| | $ | 19,250 |
|
| Andrew E. Townsend | | $ | 19,250 |
| | $ | 661 |
| | $ | — |
| | $ | 19,911 |
|
| | | | | | | | | |
| (1) Mr. Lee’s perquisites are comprised of a $15,000 auto allowance, $4,498 in club dues, and $1,140 in taxable long-term disability insurance premiums. Each remaining executive officer had perquisites totaling less than $10,000 and, accordingly, those amounts are not included in this table in accordance with SEC rules. |
Grants of Plan-Based Awards
The following table sets forth certain information concerning grants of plan-based awards made during 20182022 to named executive officers:the Named Executive Officers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | | | | | | |
| Name | | Grant
Date | | Threshold
($) | Target
($) | Maximum
($) | | Threshold
(#) | Target
(#) | Maximum
(#) | | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | | All Other
Option
Awards:
Number
of
Securities/
Underlying
Options
(#) | | Exercise
or
Base
Price
of
Option
Awards
($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
| Bruce K. Lee | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | | | $ | 318,750 | | $ | 850,000 | | $ | 1,593,750 | | | | | | | | | | | | | |
| PSUs | | 03/15/22 | | | | | | 5,783 | | 15,420 | 28,913 | | | | | | | | $ | 768,379 | |
| RSUs | | 03/15/22 | | | | | | | | | | 10,280 | | | | | | $ | 517,906 | |
| Bryan R. McKeag | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | | | $ | 103,129 | | $ | 275,010 | | $ | 515,644 | | | | | | | | | | | | | |
| PSUs | | 03/15/22 | | | | | | 1,715 | | 4,574 | 8,576 | | | | | | | | $ | 227,922 | |
| RSUs | | 03/15/22 | | | | | | | | | | 3,050 | | | | | | $ | 153,659 | |
| Jay L. Kim | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | | | $ | 75,000 | | $ | 200,000 | | $ | 375,000 | | | | | | | | | | | | | |
| PSUs | | 03/15/22 | | | | | | 635 | | 1,693 | 3,174 | | | | | | | | $ | 84,362 | |
| RSUs | | 03/15/22 | | | | | | | | | | 1,129 | | | | | | $ | 56,879 | |
| RSUs | | 08/01/22 | | | | | | | | | — | 2,375 | | | | | | $ | 100,035 | |
| Stock Options | | 12/01/22 | | | | | | | | | | — | | 6,452 | | $ | 48.79 | | | $ | 98,845 | |
| David A. Prince | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | | | $ | 76,500 | | $ | 204,000 | | $ | 382,500 | | | | | | | | | | | | | |
| PSUs | | 03/15/22 | | | | | | 1,361 | | 3,628 | 6,803 | | | | | | | | $ | 180,783 | |
| RSUs | | 03/15/22 | | | | | | | | | | 2,419 | | | | | | $ | 121,869 | |
| Stock Options | | 12/01/22 | | | | | | | | | | — | | 6,774 | | $ | 48.79 | | | $ | 103,778 | |
| Kevin G. Quinn | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | | | $ | 96,750 | | $ | 258,000 | | $ | 483,750 | | | | | | | | | | | | | |
| PSUs | | 03/15/22 | | | | | | 975 | | 2,600 | 4,875 | | | | | | | | $ | 129,558 | |
| RSUs | | 03/15/22 | | | | | | | | | | 1,734 | | | | | | $ | 87,359 | |
| Stock Options | | 12/01/22 | | | | | | | | | | — | | 7,097 | | $ | 48.79 | | | $ | 108,726 | |
| | | | | | | | | | | | | | | | | | |
| (1) The amounts shown represent possible annual incentive cash awards that could have been earned in 2022. HTLF’s annual incentive program (including the applicable performance targets) is described in the section entitled “Annual Cash Incentive Awards” in the Compensation Discussion and Analysis above. Threshold amounts are calculated as the threshold performance for each component metric with the maximum negative ROAA modifier applied. The actual payments under this program are shown in the column entitled “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table above. |
| (2) The amounts shown represent PSUs granted in 2022. Threshold performance represents the lowest achievement with respect to EPS growth and the maximum negative adjustment based on TSR compared to peers. HTLF’s 2022 PSU grants (including the applicable performance targets and vesting schedules) are described in the section entitled “Long-Term Incentive Compensation” in the Compensation Discussion and Analysis above. |
| | | | | |
| | | | | |
| (3) The amounts shown represent RSUs and stock options granted in 2022. HTLF’s 2022 RSU grants (including the applicable vesting schedules) are described in the section entitled “Long-Term Incentive Compensation” in the Compensation Discussion and Analysis above. |
| (4) The amounts shown represent the grant date fair value of RSUs, PSUs and stock options computed in accordance with FASB ASC Topic 718. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Estimated Future Payouts under Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts under Equity Incentive Plan Awards(2) | | | | |
| Name | | Grant Date | | Threshold ($)(3) | | Target ($) | | Maximum ($) | | Threshold (#)(4) | | Target (#) | | Maximum (#) | | All Other Stock Awards: Number of Shares of Stock or Units (#)(5) | | Grant Date Fair Value of Stock Awards ($)(6) |
| Bruce K. Lee | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | — | | $ | — |
| | $ | 460,800 |
| | $ | 691,200 |
| | — |
| | | | — |
| | | | $ | — |
|
| Performance-Based RSUs (1-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 2,284 | | 3,426 |
| | | | $ | 126,191 |
|
| Performance-Based RSUs (3-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 3,045 | | 4,568 |
| | | | $ | 168,236 |
|
| Time-Based RSUs | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | | | — |
| | 2,284 | | $ | 126,191 |
|
| Lynn B. Fuller | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | — | | $ | — |
| | $ | 410,370 |
| | $ | 615,555 |
| | — |
| | | | — |
| | | | $ | — |
|
| Performance-Based RSUs (1-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 2,292 | | 3,438 |
| | | | $ | 126,633 |
|
| Performance-Based RSUs (3-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 3,056 | | 4,584 |
| | | | $ | 168,844 |
|
| Time-Based RSUs | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | | | — |
| | 2,292 | | $ | 126,633 |
|
| Bryan R. McKeag | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | — | | $ | — |
| | $ | 206,100 |
| | $ | 309,150 |
| | — |
| | | | — |
| | | | $ | — |
|
| Performance-Based RSUs (1-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 1,089 | | 1,634 |
| | | | $ | 60,167 |
|
| Performance-Based RSUs (3-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 1,453 | | 2,180 |
| | | | $ | 80,278 |
|
| Time-Based RSUs | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | | | — |
| | 1,089 | | $ | 60,167 |
|
| Brian J. Fox | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | — | | $ | — |
|
| $ | 149,000 |
| | $ | 223,500 |
| | — |
| | | | — |
| | | | $ | — |
|
| Performance-Based RSUs (1-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 799 | | 1,199 |
| | | | $ | 44,145 |
|
| Performance-Based RSUs (3-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 1,066 | | 1,599 |
| | | | $ | 58,897 |
|
| Time-Based RSUs | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | | | — |
| | 799 | | $ | 44,145 |
|
| Andrew E. Townsend | | | | | | | | | | | | | | | | | | |
| Annual Incentive | | — | | $ | — |
|
| $ | 148,788 |
| | $ | 223,182 |
| | | | | | — |
| | | | $ | — |
|
| Performance-Based RSUs (1-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 785 | | 1,178 |
| | | | $ | 43,371 |
|
| Performance-Based RSUs (3-year) | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | 1,047 | | 1,571 |
| | | | $ | 57,847 |
|
| Time-Based RSUs | | 3/13/2018 | | $ | — |
| | | | $ | — |
| | — |
| | | | — |
| | 785 | | $ | 43,371 |
|
| | | | | | | | | | | | | | | | | | | |
| (1) The amounts shown represent possible annual incentive cash awards that could have been earned in 2018. Heartland’s executive incentive program (including the applicable performance targets) is described in the section entitled “Annual Incentive Cash Awards” in the Compensation Discussion and Analysis above. The actual payments under this program are shown in the column entitled “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table above. |
| (2) The amounts shown represent performance-based RSUs granted in 2018. Heartland’s equity compensation program (including the applicable performance targets, earning and vesting schedules) is described in the section entitled “Long-Term Incentive Equity Compensation” in the Compensation Discussion and Analysis above. |
| (3) Because no annual incentive payment will be earned if the performance standards are not met, the threshold amount is deemed to be zero. |
| (4) Because no performance-based RSUs will be earned if the performance standards are not met, the threshold amount is deemed to be zero. |
| (5) The amounts shown represent time-based RSUs granted in 2018. Heartland’s equity compensation program (including the applicable vesting schedules) is described in the section entitled “Long-Term Incentive Equity Compensation” in the Compensation Discussion and Analysis above. |
| (6) The amounts shown represent the grant date fair value of RSUs computed in accordance with FASB ASC Topic 718. |
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning outstanding stock options, RSUs and PSUs held atas of December 31, 2018,2022, by the named executive officers:Named Executive Officers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Stock Awards |
| | | | | | | | | | | | Equity Incentive Plan Awards: |
| Name | Grant Date | Vested (#) | Unvested (#)(1) | Option Exercise Price ($) | Option Expiration Date | | Grant Date | Number of shares or units of stock that have not vested (#) | | Market value of shares or units of stock that have not vested ($)(2) | Grant Date | Number of unearned shares, units that have not vested
(#) | | Market or payout value of unearned shares or units that have not vested ($)(2) |
| Bruce K. Lee | | | | | | | 3/15/22 | 10,280 | (3) | $ | 479,254 | | 3/15/22 | 15,420 | (6) | $ | 718,880 | |
| | | | | | | 3/16/21 | 6,278 | (3) | 292,680 | | 3/16/21 | 14,054 | (7) | 655,197 | |
| | | | | | | 3/17/20 | 4,216 | (4) | 196,550 | | | | | |
| | | | | | | 3/17/20 | 9,737 | | (5) | 453,939 | | | | | |
| Bryan R. McKeag | | | | | | | 3/15/22 | 3,050 | (3) | 142,191 | | 3/15/22 | 4,574 | (6) | 213,240 | |
| | | | | | | 3/16/21 | 1,954 | (3) | 91,095 | | 3/16/21 | 4,372 | (7) | 203,823 | |
| | | | | | | 3/17/20 | 1,199 | (4) | 55,897 | | | | | |
| | | | | | | 3/17/20 | 2,770 | | (5) | 129,137 | | | | | |
| Jay L. Kim | 12/01/22 | — | | 6,452 | | $ | 48.79 | | 12/1/32 | | 3/15/22 | 1,129 | (3) | 52,634 | | 3/15/22 | 1,693 | (6) | 78,928 | |
| | | | | | | 8/1/22 | 2,375 | (8) | 110,723 | | 3/16/21 | 1,374 | (7) | 64,056 | |
| | | | | | | 3/16/21 | 614 | (4) | 28,625 | | | | | |
| David A. Prince | 12/01/22 | — | | 6,774 | 48.79 | | 12/1/32 | | 3/15/22 | 2,419 | (3) | 112,774 | | 3/15/22 | 3,628 | (6) | 169,137 | |
| | | | | | | 3/16/21 | 1,612 | (3) | 75,151 | | 3/16/21 | 3,607 | (7) | 168,158 | |
| | | | | | | 3/17/20 | 993 | (4) | 46,294 | | | | | |
| | | | | | | 3/17/20 | 2,294 | | (5) | 106,946 | | | | | |
| Kevin G. Quinn | 12/01/22 | — | | 7,097 | 48.79 | | 12/1/32 | | 3/15/22 | 1,734 | (3) | 80,839 | | 3/15/22 | 2,600 | (6) | 121,212 | |
| | | | | | | 3/16/21 | 837 | (3) | 39,021 | | 3/16/21 | 1,874 | (7) | 87,366 | |
| | | | | | | 3/17/20 | 506 | (4) | 23,590 | | | | | |
| | | | | | | 3/17/20 | 1,168 | (5) | 54,452 | | | | | |
| | | | | | | | | | | | | | | |
| (1) Awards of stock options become exercisable in four equal annual installments from the date of grant, subject generally to the continued employment of the executive officer. |
| (2) Market values for outstanding RSUs and PSUs are based on $46.62 per share, the closing price of HTLF shares of common stock on December 30, 2022 (the last trading day of the year). |
| (3) Reflects RSUs that vest in three equal installments on March 21st in the first, second and third years following the grant date, subject to the continued employment of the executive officer. |
| (4) Reflects RSUs that vest in three equal annual installments on March 6th in the first, second and third years following the grant date, subject to the continued employment of the executive officer. |
| (5) Reflects PSUs with a performance period of 2020-2022. The final award calculation was 77%, and these awards vested on February 28, 2023. |
| (6) Reflects PSUs assuming target performance, with a performance period of 2022-2024. Final award determination and vesting will be made after the completion of the 2024 performance year, generally subject to continued employment of the executive officer. |
| (7) Reflects PSUs assuming target performance, with a performance period of 2021-2023. Final award determination and vesting will be made after the completion of the 2023 performance year, generally subject to continued employment of the executive officer. |
| (8) Reflects RSUs that vest in three equal installments on August 1st, 2023, March 21, 2024, and March 21, 2025, subject to the continued employment of the executive officer. |
|
| | | | | | | | | | | | | | | | | | | | |
| Stock Awards |
| Name | | Grant Date | | Number of shares or units of stock that are earned but have not vested (#) | | | Market value of shares or units of stock that are earned but have not vested ($)(1) | | Grant Date | | Equity incentive plan awards: number of unearned shares or units that have not vested (#) | | | Equity incentive plan awards: market or payout value of unearned shares or units that have not vested ($)(1) |
| Bruce K. Lee | | 3/13/2018 | | 2,284 |
| (6) | | $ | 100,382 |
| | 3/13/2018 | | 2,284 |
| (2) | | $ | 100,382 |
|
| | | 3/8/2017 | | 1,995 |
| (2) | | $ | 87,680 |
| | 3/13/2018 | | 3,045 |
| (3) | | $ | 133,828 |
|
| | | 1/17/2017 | | 2,181 |
| (7) | | $ | 95,855 |
| | 3/8/2017 | | 1,635 |
| (4) | | $ | 71,858 |
|
| | | 3/8/2016 | | 4,148 |
| (2) | | $ | 182,305 |
| | 3/8/2016 | | 1,976 |
| (5) | | $ | 86,845 |
|
| | | 1/19/2016 | | 1,242 |
| (8) | | $ | 54,586 |
| | | | | | | |
| | | 1/20/2015 | | 2,667 |
| (9) | | $ | 117,215 |
| | | | | | | |
| Lynn B. Fuller | | 3/13/2018 | | 2,292 |
| (6) | | $ | 100,733 |
| | 3/13/2018 | | 2,292 |
| (2) | | $ | 100,733 |
|
| | | 3/8/2017 | | 2,108 |
| (2) | | $ | 92,647 |
| | 3/13/2018 | | 3,056 |
| (3) | | $ | 134,311 |
|
| | | 1/17/2017 | | 2,303 |
| (7) | | $ | 101,217 |
| | 3/8/2017 | | 1,727 |
| (4) | | $ | 75,902 |
|
| | | 3/8/2016 | | 5,300 |
| (2) | | $ | 232,935 |
| | 3/8/2016 | | 2,524 |
| (5) | | $ | 110,930 |
|
| | | 1/19/2016 | | 1,587 |
| (8) | | $ | 69,749 |
| | | | | | | |
| | | 1/20/2015 | | 3,333 |
| (9) | | $ | 146,485 |
| | | | | | | |
| | | 3/11/2014 | | 1,733 |
| (9) | | $ | 76,165 |
| | | | | | | |
| Bryan R. McKeag | | 3/13/2018 | | 1,089 |
| (6) | | $ | 47,862 |
| | 3/13/2018 | | 1,089 |
| (2) | | $ | 47,862 |
|
| | | 3/8/2017 | | 988 |
| (2) | | $ | 43,423 |
| | 3/13/2018 | | 1,453 |
| (3) | | $ | 63,859 |
|
| | | 1/17/2017 | | 1,080 |
| (7) | | $ | 47,466 |
| | 3/8/2017 | | 810 |
| (4) | | $ | 35,600 |
|
| | | 3/8/2016 | | 1,767 |
| (2) | | $ | 77,660 |
| | 3/8/2016 | | 842 |
| (5) | | $ | 37,006 |
|
| | | 1/19/2016 | | 529 |
| (8) | | $ | 23,250 |
| | | | | | | |
| | | 1/20/2015 | | 1,250 |
| (9) | | $ | 54,938 |
| | | | | | | |
| | | 3/11/2014 | | 625 |
| (9) | | $ | 27,469 |
| | | | | | | |
| Brian J. Fox | | 3/13/2018 | | 799 |
| (6) | | $ | 35,116 |
| | 3/13/2018 | | 799 |
| (2) | | $ | 35,116 |
|
| | | 3/8/2017 | | 547 |
| (2) | | $ | 24,041 |
| | 3/13/2018 | | 1,066 |
| (3) | | $ | 46,851 |
|
| | | 1/17/2017 | | 597 |
| (7) | | $ | 26,238 |
| | 3/8/2017 | | 448 |
| (4) | | $ | 19,690 |
|
| | | 3/8/2016 | | 1,465 |
| (2) | | $ | 64,387 |
| | 3/8/2016 | | 698 |
| (5) | | $ | 30,677 |
|
| | | 1/19/2016 | | 439 |
| (8) | | $ | 19,294 |
| | | | | | | |
| | | 1/20/2015 | | 1,167 |
| (9) | | $ | 51,290 |
| | | | | | | |
| | | 3/11/2014 | | 490 |
| (9) | | $ | 21,536 |
| | | | | | | |
| Andrew E. Townsend | | 3/13/2018 | | 785 |
| (6) | | $ | 34,501 |
| | 3/13/2018 | | 785 |
| (2) | | $ | 34,501 |
|
| | | 3/8/2017 | | 630 |
| (2) | | $ | 27,689 |
| | 3/13/2018 | | 1,047 |
| (3) | | $ | 46,016 |
|
| | | 1/17/2017 | | 689 |
| (7) | | $ | 30,282 |
| | 3/8/2017 | | 516 |
| (4) | | $ | 22,678 |
|
| | | 3/8/2016 | | 1,379 |
| (2) | | $ | 60,607 |
| | 3/8/2016 | | 657 |
| (5) | | $ | 28,875 |
|
| | | 1/19/2016 | | 1,080 |
| (8) | | $ | 47,466 |
| | | | | | | |
| | | 1/20/2015 | | 833 |
| (9) | | $ | 36,610 |
| | | | | | | |
| | | 3/11/2014 | | 417 |
| (9) | | $ | 18,327 |
| | | | | | | |
| | | | | | | | | | | | | | | |
| (1) Market values for outstanding RSUs are based on $43.95 per share, the closing price of Heartland shares of common stock on December 31, 2018 (the last trading day of the year). |
| (2) Reflects one-year performance-based RSUs that were earned in the applicable fiscal year based upon satisfaction of that fiscal year’s performance targets. Such earned RSUs vest fully two years after the end of the performance period, subject to the continued employment of the executive officer. |
|
| | | | | | | | | | | | | | | | | | | | |
(3) Reflects three-year performance-based RSUs assuming target performance, with a performance period of 2018-2020. Final award determinationOption Exercises and vesting will be made after the completion of the 2020 performance year, subject to the continued employment of the executive officer. |
(4) Reflects three-year performance-based RSUs assuming target performance, with a performance period of 2017-2019. Final award determination and vesting will be made after the completion of the 2019 performance year, subject to the continued employment of the executive officer. |
(5) Reflects three-year performance-based RSUs assuming target performance, with a performance period of 2016-2018. Final award determination and vesting will be made after the completion of the 2018 performance year, subject to the continued employment of the executive officer. |
(6) Reflects time-based RSUs that vest in three equal annual installments on March 6th in the first, second and third years following the grant date, subject to the continued employment of the executive officer. |
(7) Reflects time-based RSUs that vest in three equal annual installments on January 19th in the first, second and third years following the grant date, subject to the continued employment of the executive officer. |
(8) Reflects time-based RSUs that vest in three equal annual installments on the first, second and third anniversaries of the grant date, subject to the continued employment of the executive officer. |
(9) Reflects time-based RSUs that vest in three equal annual installments on the third, fourth, and fifth anniversaries of the grant date, subject to the continued employment of the executive officer. |
Stock Vested
There were no options exercised in 2022. The following table sets forth certain information concerning restricted stock unit awardsRSUs and PSUs that vested during 20182022 for the named executive officers:
| | | | | | | | | | | | | | |
| | Stock Awards |
| Name | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(1) |
| Bruce K. Lee | | 15,689 | | | $ | 774,812 | |
| Bryan R. McKeag | | 5,695 | | | 281,359 | |
| Jay L. Kim | | 302 | | | 15,200 | |
| David A. Prince | | 4,715 | | | 232,941 | |
| Kevin G. Quinn | | 3,138 | | | 155,044 | |
|
| (1) The amounts in this column were calculated by multiplying the number of vested shares by the closing price per share of HTLF common stock on the dates the shares vested. |
Nonqualified Deferred Compensation
Our Deferred Compensation Plan is a non-qualified plan that provides eligible employees, including the Named Executive Officers, with the general opportunity to defer up to 75% of their base compensation and up to 100% of their annual cash incentive awards earned during a year.
HTLF may, from time to time in its sole and absolute discretion, credit contributions to any participant, which will be done for all participants on the same basis.
Participants’ deferred cash accounts earn a daily rate of return that tracks the investment return achieved under participant-selected investment funds, all of which are offered to participants in our 401(k) Plan. The table below represents the investment funds that were available and the respective rate of return for 2022. Participants are able to change their investment allocation on any business day.
| | | | | | | | | | | | | | | | | | | | |
| Fund Name | | 2022 Rate of Return | | Fund Name | | 2022 Rate of Return |
| Money Market Taxable | | 1.60 | % | | High-Yield Bond | | (11.39) | % |
| Short-Term Bond | | (4.49) | % | | Emerging Markets Bond | | (17.53) | % |
| Inflation-Protected Bond | | (11.89) | % | | Intermediate Core Bond | | (13.16) | % |
| Intermediate Core Plus Bond | | (14.79) | % | | Global Bond | | (5.79) | % |
| Allocation 30-50% Equity | | (9.01) | % | | Mid-Cap Value | | (6.96) | % |
| Large Value | | (2.05) | % | | Small Blend | | (16.12) | % |
| Large Blend | | (18.13) | % | | Foreign Large Blend | | (16.01) | % |
| Mid-Cap Growth | | 22.41 | % | | Large Growth | | (31.08) | % |
| Foreign Small/Mid Growth | | (30.94) | % | | Foreign Large Growth | | (22.72) | % |
| Commodities Broad Basket | | 8.85 | % | | Diversified Emerging Markets | | (10.74) | % |
| Allocation 50-70% Equity | | (16.56) | % | | Real Estate | | (24.70) | % |
At the time of the deferral election, participants must also select a distribution date and form of distribution: | | | | | |
| * | Participants may not receive distributions for at least one year following the date on which the cash otherwise would have been paid out, except in the case of termination, retirement or death as described below. |
| * | Participants who are active employees may elect to receive distributions in a single payment or up to five annual installments, with a minimum deferral period of three years. |
| * | Upon termination other than for retirement or death, a participant’s deferred compensation payable in a lump sum will be paid out upon the later of January 1st of the calendar year following separation or the last business day of the sixth month following separation. |
|
| | | | | | | |
| | | Stock Awards |
| Name | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(1) |
| Bruce K. Lee | | 6,465 |
| | $ | 356,988 |
|
| Lynn B. Fuller | | 11,564 |
| | $ | 640,490 |
|
| Bryan R. McKeag | | 3,632 |
| | $ | 201,035 |
|
| Brian J. Fox | | 3,525 |
| | $ | 195,111 |
|
| Andrew E. Townsend | | 3,598 |
| | $ | 199,352 |
|
| |
| (1) The amounts in this column were calculated by multiplying the number of vested shares by the closing trading price per share of Heartland common stock on the dates the shares vested. |
| | | | | |
| * | In connection with a participant’s retirement or separation from service, he or she may elect to receive distributions in a single payment or up to ten annual installments. |
| * | Upon the death of a participant, all remaining vested account balances will be paid to his or her beneficiary in a single lump sum no later than December 31st of the calendar year following the year of the participant’s death. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-qualified Deferred Compensation |
| Name | | Balance at
1/1/2022 | | 2022 Executive Contributions(1) | | 2022 Plan Earnings(2) | | 2022 Employer Contributions(3) | | Balance at 12/31/2022(4) |
| Bruce K. Lee | | $ | 588,669 | | | $ | 167,628 | | | $ | (106,179) | | | $ | 86,350 | | | $ | 736,468 | |
| Bryan R. McKeag | | $ | 908,632 | | | $ | 364,891 | | | $ | (215,598) | | | $ | 26,529 | | | $ | 1,084,454 | |
| Jay L. Kim | | $ | 29,082 | | | $ | 34,050 | | | $ | (2,885) | | | $ | 15,814 | | | $ | 76,061 | |
| David A. Prince | | $ | 1,051,972 | | | $ | 171,587 | | | $ | (193,104) | | | $ | 18,254 | | | $ | 1,048,709 | |
| Kevin G. Quinn | | $ | 160,367 | | | $ | 59,204 | | | $ | (29,847) | | | $ | 20,093 | | | $ | 209,817 | |
|
| (1) The amounts in this column are included in the “Salary” column in the Summary Compensation Table for 2022. |
| (2) The amounts in this column are not included in the “Salary” column in the Summary Compensation Table for 2022. |
| (3) The amounts in this column are included in the “All Other Compensation” column in the Summary Compensation Table for 2022. |
| (4) The amounts of $489,624, $710,473 and $885,709 with respect to Messrs. Lee, McKeag and Prince, respectively, were reported in the Summary Compensation Table in prior years. |
Potential Payments upon Termination or Change in Control
As described below, we provide for certain payments and benefits upon death, disability, retirement or retirement.involuntary termination without cause (not in connection with a change in control). We have also entered into change in control agreements with our named executive officersNamed Executive Officers that provide for certain payments and benefits upon involuntary termination without cause or voluntary termination with good reason, in each case in connection with a change in control. In the face of corporate changes, we believe these arrangements help ensure the continuity of our management and staff, allow them to function more objectively and in a manner that is in the best interests of stockholders.
Payments Made Upon Death. Heartland HTLF has a Split-Dollar Life Insurance Plan and an Executive Supplemental Life Insurance Plan (collectively, the “plans”) that provide death benefits to the designated beneficiaries of the officers who have been enrolled in the plans. Participation in these plans is limited to persons in the position of Executive Vice President, or higher, with at least three years of service. The combined death benefit under these plans is the lesserleast of (1) one million dollars, or$1,000,000, (2) two times current compensation at the time of termination (salary plus cash incentive and commissions), or (3) one hundred percent100% of the difference between total death proceeds payable under the policy and the cash surrender value of the policy. For those participants who entered the plans prior to 2008, this benefit continues for the officer when employment has terminated as a result of disability, retirement or a change in control. For those participants who entered the plans in 2008 or later (which includes all of our Named Executive Officers), this benefit continues for the officer when employment has terminated as a result of disability or a change in control. In January 2020, the Compensation Committee determined that no additional Split-Dollar Life Insurance purchases would be made.
The terms of our performance-based RSU2020 and 2021 PSU agreements provide that, upon termination due to death, all earned shares become fully vested and all other RSUsunearned units would continue to remain outstanding until the measurement date and then become vested to the extent earned.Compensation Committee determines the number of PSUs earned, upon which date the earned PSUs would vest. The terms of our time-based RSU agreements provide that, upon termination due to death, all unvested RSUs immediately vest. For PSUs granted in 2022, the awards would immediately vest at target performance.
Payments Made Upon Disability. Long-term disability (“LTD”) coverage is provided to all full-time employees on the first of the month following hire date. Full-time employees are eligible for a maximum monthly long-term disability benefit of $20,000, which is based upon eligible earnings and age.
“Eligible earnings” includes base salary plus prior 12-month calculation of bonus and/or commission, which will be reduced by other income received or eligible to receive due to disability such as Social Security disability insurance, workers’ compensation, other employer-based insurance coverage, unemployment benefits or settlements/judgments for income loss or retirement benefits the employer fully or partially pays. This benefit is employer paid and the benefits are tax-free when received by the participant.
The terms of our performance-based RSU2020 and 2021 PSU agreements provide that, upon termination due to disability, all earned shares become fully vested and all other RSUsunearned units would continue to remain outstanding until the measurement date and then become vested to the extent earned. Additionally,Compensation Committee determines the number of PSUs earned, upon
which date the earned PSUs would vest. The terms of our time-based RSU agreements provide that, upon termination due to disability, all unvested RSUs immediately vest. For PSUs granted in 2022, the awards would immediately vest at target performance.
Payments Made Upon Retirement. Upon retirement,a Qualifying Retirement, as defined below, unearned performance-based RSUPSU awards, other than those made in 2022, will continue to remain outstanding until the date the Compensation/NominatingCompensation Committee determines the number of performance-based RSUsPSUs earned, upon which date the earned performance-basedPSUs will vest in the full amount that would have vested had they been employed through the end of the performance period. For awards of PSUs made in 2022, upon a Qualifying Retirement a pro-rated portion of the award will immediately vest in an amount based on performance through the end of the last fiscal quarter preceding the Qualifying Retirement. RSUs will vest. Earned performance-based RSU awards will vest immediately upon retirement. Time-based RSUs will vestin full as of the date of termination of service in the case of retirement.a Qualifying Retirement. A Qualifying Retirement is defined as reaching age 62 and having provided at least five years of service to the Company. In each case, we requireHTLF, provided that retirees must execute a waiver of claims against the Company, andHTLF, covenant not to compete with the CompanyHTLF, and agree to maintain the confidentiality of itsour information, as a condition to acceleration. As of December 31, 2022, Messrs. Lee, McKeag and Quinn were eligible for a Qualifying Retirement.
Payments Made Upon Involuntary Termination without Cause (Not in Connection with a Change Inin Control). Our RSU and PSU awards provide for accelerated vesting upon involuntary termination without Cause, such as a branch closure or a Company-wide reduction in force, for those employees who have at least five years of service, have reached the age of 60, and who (i) execute a waiver of claims against HTLF, (ii) covenant not to compete with HTLF, and (iii) agree to maintain the confidentiality of our information. As of December 31, 2022, Messrs. Lee, McKeag, and Quinn would qualify for accelerated vesting of their RSUs and PSUs under these circumstances. Upon involuntary termination without Cause, as defined under “Payments Made upon Change in Control,” unearned PSU awards would continue to remain outstanding until the date the Compensation Committee determines the number of PSUs earned, upon which date the earned PSUs would vest. Earned RSUs would vest immediately upon termination.
Payments Made Upon Qualifying Termination in Connection with a Change of Control. As of December 31, 2022, each Named Executive Officer was party to a Change Inof Control Agreements are in place for each of the named executive officers.Agreement. The agreements provide that, if the executive officer’s employment is terminated by HeartlandHTLF other than for “Cause,” death or disability, or is terminated by the officer for “Good Reason,” within six months prior to, or 24 months after, a “Change inof Control” of Heartland,HTLF, then the executive officer is entitled to a special severance payment. The severance payment is equal to a severance multiple of one to two times the sum of (1) the executive officer’s salary, plus (2) the average of the three most recent bonuses paid to the executive officer.officer. For Messrs. FullerLee and LeeMcKeag, the severance multiple is twothree times, and for Messrs. McKeag, FoxKim, Prince, and Townsend, one time.Quinn, it is two times. The agreements also provide for continuation of health and welfare benefits with no employee contribution after termination for 12 to 24 months for Messrs. Kim, McKeag, Prince, and Quinn, and 18 months for Messrs. Lee and for out-placement services or training in an amount not to exceed one-fourth of base compensation.
The agreements do not provide for the payment of “gross-ups��“gross-ups” to cover any applicable federal or state taxes but instead provide that applicable taxes, if owed, will be paid by the officers covered under the agreements and if any payments under the agreements would constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended, the aggregate amount due under the agreement will be reduced to one dollar less than the amount that would cause an excess parachute payment.
The agreements generally define “Cause” as (1) the continued willful failure, after 20 days’ notice, to perform employment obligations, (2) conviction of a felony or a crime of embezzlement or fraud, (3) breach of fiduciary responsibility, or (4) an act of dishonesty that materially injures Heartland.HTLF. “Good Reason” for termination under the agreements is generally defined to include (subject to certain notice and cure provisions) (1) a material and adverse diminution in the nature, scope or status of the officer’s position, including a failure to continue in the position as an executive officer of a public company, (2) a material reduction in base compensation, (3) a relocation of the primary place of employment by more than 50 miles or a material increase in travel obligations, (4) a failure by the acquiring entity to assume the agreement or to comply with the agreement, or (5) a material breach of the agreement. A “Change inof Control” is generally defined in the agreements to include: (1) the acquisition by a person of 51% or more of Heartland’sHTLF’s voting securities; (2) the election of persons to constitute a majority of the Board who were not nominated by our Board or one of its committees; (3) the consummation of a merger where the prior stockholders do not hold at least 51% of the resulting entity; or (4) the liquidation or dissolution of Heartland.HTLF.
Our RSU and PSU agreements contain terms that provide that, if the obligations under those agreements are not assumed by a successor, the vesting of the option or RSU and PSU will accelerate upon a change inof control. Because of the amendment and restatement of the Company’s 2012 Long-Term Incentive Plan in 2016, beginning in 2017,If assumed by a successor, our award agreements include double-triggerprovide for “double-trigger” vesting, sosuch that future awards will accelerate only if the executive officer’s employment is terminated other than for Cause, death or disability, or is terminated by the executive officer for Good Reason, within six months prior to, or 24 months after, a Change in Controlchange of Heartland.control of HTLF with PSUs becoming vested as though 100% of the performance targets had been achieved.
Payments Made Upon Termination for Any Other Reason. Except for the payments and benefits upon involuntary termination without cause, death, disability, retirement or an involuntary termination in connection with a change inof control discussed above, no additional payments or benefits will accrue or be paid upon termination of a named executive officer.officer other than any prorated bonus, accrued vacation pay and Deferred Compensation Plan contributions and earnings.
The following table shows the value of potential payments and benefits to the named executive officersNamed Executive Officers upon involuntary termination, disability, death, retirement, or in connection with certain terminations related to a change in control of Heartland.HTLF. The amounts shown assume that termination was effective as of December 31, 2018,30, 2022, the last business day of the fiscal year, and are estimates of the amounts that would be paid to the executives upon termination in addition to the base salary and other compensation earned by the executives during 2018. The2022. Because the calculations in the table are based upon SEC disclosure rules and made as of a specific date, there can be no assurance that an actual change of control, if one were to occur, would result in the same or similar compensation being paid, and the actual amounts to be paid can only be determined at the actual time of an executive's termination:executive’s termination.
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| POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL |
| Name | | Type of Payment | | Payments
Upon
Death | | Payments
Upon
Disability | | Payments Upon Retirement(1) | | Termination Payments Following Change of Control(2) | | Involuntary Termination
Without Cause
(Not Following a
Change of Control) |
| Bruce K. Lee | | Disability Benefit(3) | | $ | — | | | $ | 240,000 | | | $ | — | | | $ | — | | | $ | — | |
| | Cash Severance(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 4,536,724 | | | $ | — | |
| | Continued Health/Welfare Benefits(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 7,369 | | | $ | — | |
| | Out-Placement Counseling(5) | | $ | — | | | $ | — | | | $ | — | | | $ | 378,060 | | | $ | — | |
| | Value of Acceleration of Stock Awards(6) | | $ | 2,932,118 | | | $ | 2,932,118 | | | $ | 2,412,927 | | | $ | 2,932,118 | | | $ | 2,932,118 | |
| | Group Term Life Insurance | | $ | 500,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | Split-Dollar Life Insurance | | $ | 1,000,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Bryan R. McKeag | | Disability Benefit(3) | | $ | — | | | $ | 240,000 | | | $ | — | | | $ | — | | | $ | — | |
| | Cash Severance(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 2,042,885 | | | $ | — | |
| | Continued Health/Welfare Benefits(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 13,884 | | | $ | — | |
| | Out-Placement Counseling(5) | | $ | — | | | $ | — | | | $ | — | | | $ | 170,240 | | | $ | — | |
| | Value of Acceleration of Stock Awards(6) | | $ | 873,939 | | | $ | 873,939 | | | $ | 719,932 | | | $ | 873,939 | | | $ | 873,939 | |
| | Group Term Life Insurance | | $ | 500,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | Split-Dollar Life Insurance | | $ | 1,000,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Jay L. Kim | | Disability Benefit(3) | | $ | — | | | $ | 240,000 | | | $ | — | | | $ | — | | | $ | — | |
| | Cash Severance(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 1,065,077 | | | $ | — | |
| | Continued Health/Welfare Benefits(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 8,516 | | | $ | — | |
| | Out-Placement Counseling(5) | | $ | — | | | $ | — | | | $ | — | | | $ | 133,135 | | | $ | — | |
| | Value of Acceleration of Stock Awards(6) | | $ | 334,965 | | | $ | 334,965 | | | $ | — | | | $ | 334,965 | | | $ | — | |
| | Group Term Life Insurance | | $ | 500,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | Split-Dollar Life Insurance | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| David A. Prince | | Disability Benefit(3) | | $ | — | | | $ | 240,000 | | | $ | — | | | $ | — | | | $ | — | |
| | Cash Severance(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 1,137,992 | | | $ | — | |
| | Continued Health/Welfare Benefits(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 22,090 | | | $ | — | |
| | Out-Placement Counseling(5) | | $ | — | | | $ | — | | | $ | — | | | $ | 142,249 | | | $ | — | |
| | Value of Acceleration of Stock Awards(6) | | $ | 710,936 | | | $ | 710,936 | | | $ | — | | | $ | — | | | $ | — | |
| | Group Term Life Insurance | | $ | 500,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | Split-Dollar Life Insurance | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | |
| POTENTIAL PAYMENTS UPON DEATH, DISABILITY, RETIREMENT OR CHANGE IN CONTROL |
| Name | | Type of Payment | | Payments Upon Death | | Payments Upon Disability | | Payments Upon Retirement(1) | | Termination Payments Upon Change In Control(2) |
| Bruce K. Lee | | Disability Benefit(3) | | $ | — |
| | $ | 240,000 |
| | $ | — |
| | $ | — |
|
| | | Cash Severance(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,397,804 |
|
| | | Health/Welfare Benefits(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 26,402 |
|
| | | Out-Placement Counseling(5) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 232,459 |
|
| | | Value of Acceleration of Stock Awards(6) | | $ | 1,030,936 |
| | $ | 1,030,936 |
| | $ | — |
| | $ | 1,030,936 |
|
| | | Group Term Life Insurance | | $ | 500,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | Split-Dollar Life Insurance | | $ | 1,000,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Lynn B. Fuller | | Disability Benefit(3) | | $ | — |
| | $ | 240,000 |
| | $ | — |
| | $ | — |
|
| | | Cash Severance(4) | | $ | — |
| | | | $ | — |
| | $ | 1,773,640 |
|
| | | Health/Welfare Benefits(4) | | $ | — |
| | | | $ | — |
| | $ | 28,899 |
|
| | | Out-Placement Counseling(5) | | $ | — |
| | | | $ | — |
| | $ | 221,705 |
|
| | | Value of Acceleration of Stock Awards(6) | | $ | 1,241,807 |
| | $ | 1,241,807 |
| | $ | 1,241,807 |
| | $ | 1,241,807 |
|
| | | Group Term Life Insurance | | $ | 325,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | Split-Dollar Life Insurance | | $ | 711,415 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Bryan R. McKeag | | Disability Benefit(3) | | $ | — |
| | $ | 240,000 |
| | $ | — |
| | $ | — |
|
| | | Cash Severance(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 513,387 |
|
| | | Health/Welfare Benefits(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 23,196 |
|
| | | Out-Placement Counseling(5) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 128,347 |
|
| | | Value of Acceleration of Stock Awards(6) | | $ | 506,395 |
| | $ | 506,395 |
| | $ | — |
| | $ | 506,395 |
|
| | | Group Term Life Insurance | | $ | 500,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | Split-Dollar Life Insurance | | $ | 971,426 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Brian J. Fox | | Disability Benefit(3) | | $ | — |
| | $ | 240,000 |
| | $ | — |
| | $ | — |
|
| | | Cash Severance(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 413,419 |
|
| | | Health/Welfare Benefits(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 18,888 |
|
| | | Out-Placement Counseling(5) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 103,355 |
|
| | | Value of Acceleration of Stock Awards(6) | | $ | 374,236 |
| | $ | 374,236 |
| | $ | 374,236 |
| | $ | 374,236 |
|
| | | Group Term Life Insurance | | $ | 250,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | Executive Life Insurance Bonus Plan | �� | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL |
| Name | | Type of Payment | | Payments
Upon
Death | | Payments
Upon
Disability | | Payments Upon Retirement(1) | | Termination Payments Following Change of Control(2) | | Involuntary Termination
Without Cause
(Not Following a
Change of Control) |
| Kevin G. Quinn | | Disability Benefit(3) | | $ | — | | | $ | 240,000 | | | $ | — | | | $ | — | | | $ | — | |
| | Cash Severance(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 1,133,677 | | | $ | — | |
| | Continued Health/Welfare Benefits(4) | | $ | — | | | $ | — | | | $ | — | | | $ | 26,130 | | | $ | — | |
| | Out-Placement Counseling(5) | | $ | — | | | $ | — | | | $ | — | | | $ | 141,710 | | | $ | — | |
| | Value of Acceleration of Stock Awards(6) | | $ | 422,750 | | | $ | 422,750 | | | $ | 335,208 | | | $ | 422,750 | | | $ | 422,750 | |
| | Group Term Life Insurance | | $ | 500,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | Split-Dollar Life Insurance | | $ | 1,768,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| (1) For the purposes of the Value of Acceleration of Stock Awards row of this column, it has been assumed that all shares will be earned at target even those which as described above continue to be subject to the earning provisions as if the officer had continued employment with HTLF. |
| (2) Reflects the vesting of PSUs based on Target performance in accordance with the terms of the PSU awards. |
| (3) The disability benefit is shown as the annual maximum benefit available to each executive. |
| (4) Cash severance will be paid in equal monthly payments for the number of months specified for each executive officer as follows: Messrs. Lee and McKeag - 36 months, and Messrs. Kim, Prince, and Quinn - 24 months. The amount shown for each person does not reflect any adjustment that would be made in the event that any payment or distribution of any type would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended. The Change of Control Agreements also provide for continuation of health and welfare benefits after termination for 12 months for Messrs. Kim, McKeag, Prince, and Quinn, and 18 months for Mr. Lee. |
| (5) The amounts reflected are the maximum amounts allowed and are to be paid in the form of either (i) reimbursement of the expenses incurred for out-placement counseling within the 12-month period following the employment termination date, or (ii) a pre-paid executive level program. |
| (6) The amounts reflect the value of acceleration in the vesting of RSUs, PSUs and stock options and were determined by multiplying the number of shares that would vest (assuming target performance for all PSUs) by $46.62, the closing market price of a share of our common stock on December 30, 2022. |
|
| | | | | | | | | | | | | | | | | | |
| Andrew E. Townsend | | Disability Benefit(3) | | $ | — |
| | $ | 240,000 |
| | $ | — |
| | $ | — |
|
| | | Cash Severance(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 438,382 |
|
| | | Health/Welfare Benefits(4) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 40,943 |
|
| | | Out-Placement Counseling(5) | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 109,596 |
|
| | | Value of Acceleration of Stock Awards(6) | | $ | 387,552 |
| | $ | 387,552 |
| | $ | — |
| | $ | 387,552 |
|
| | | Group Term Life Insurance | | $ | 500,000 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | Split-Dollar Life Insurance | | $ | 847,726 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | |
| (1) For the purposes of the Value of Acceleration of Stock Awards row of this column, it has been assumed that all shares will be earned at target even though they continue to be subject to the earning provisions as if the officer had continued employment with Heartland. |
| (2) For the purposes of the Value of Acceleration of Stock Awards row of this column, it has been assumed that the performance-based RSU agreements are not fully assumed in the Change in Control and, therefore, all shares immediately vest. All other stock awards immediately vest upon a Change in Control, whether or not the executive terminates employment. |
| (3) The disability benefit is shown as the annual maximum benefit available to each executive. |
| (4) Cash severance will be paid in equal monthly payments for the number of months specified for each executive officer as follows: Messrs. Fuller and Lee - 24 months, and Messrs. McKeag, Fox and Townsend - 12 months. Mr. Lee is the only executive for whom the severance amount was reduced to avoid exceeding the limitation of Section 280G of the Internal Revenue Code of 1986, as amended. Health/welfare benefits will be provided for the same periods. |
| (5) The amounts reflected are the maximum amounts allowed and are to be paid in the form of either (i) reimbursement of the expenses incurred for out-placement counseling within the 12-month period following the employment termination date, or (ii) a pre-paid executive level program. |
| (6) The amounts reflect the value of acceleration in the vesting of RSUs and were determined by multiplying the number of shares that vest by $43.95, the closing market price of a share of our common stock on December 31, 2018. |
Pay Ratio Disclosure
The following pay ratio and supporting information compares the annual total compensation of our employees other than our CEO (including full-time, part-time and temporary employees) and the annual total compensation of our CEO, as required by Section 953(b) of the Dodd-Frank Act. The pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
For 2018,2022, our last completed fiscal year, the median of the annual total compensation of all employeesthe median employee of our companyCompany (other than our CEO) was $44,682$72,303, and the annualizedannual total compensation of Bruce Lee, our current CEO, was $1,662,756. This total compensation was calculated by annualizing Mr. Lee’s base pay of $626,000, which was effective June 1, 2018, upon his promotion to the role of CEO. For his annual incentive compensation, we used a calculation of 80% target multiplied by his annualized compensation of $626,000 and then multiplied by Mr. Lee’s annual incentive payout of 99% in 2018. This resulted in an annual incentive compensation total of $495,792. His long-term incentive compensation was calculated by multiplying his 80% target by his annualized compensation for a total of $500,800. These figures, combined with his “other compensation” amount of $40,164, when added together produce Mr. Lee’s annualized total compensation of $1,662,756.$3,055,878.
Based on this information, the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 37.242 to 1.
To determine the pay ratio and our median employee, we determined that as of December 31, 2018,2022, our employee population consisted of approximately 2,8381,987 individuals located in the United States. This population consistsconsisted of our full-time, part-time and temporary employees.
To identify the median employee, we calculated the annual total compensationutilized Box 5 wages for 2018 among our employee population,medicare purposes for 2022, excluding our CEO, as it isCEO. We then took the identified employee and calculated intheir compensation in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in a median employee with annual total compensation of $44,682. $72,303. The median employee’s annual total compensation includes salary received in 2018,2022, annual incentive payment received in 2018, equity awards granted in 2018, company-paidfor 2022, and Company-paid 401(k) Plan match and non-discriminatory discretionary contributions made during 2018, and company-paid life insurance premiums paid during 2018.2022.
With respect to the CEO, we used the annualized total annual compensation for Mr. Lee.Lee as calculated for the Summary Compensation Table. Any adjustments, estimates and assumptions used to calculate total annual compensation are described in footnotes to the Summary Compensation Table.
This pay ratio is a reasonable estimate calculated in good faith, in a manner consistent with Item 402(u) of Regulation S-K, based on our payroll and employment records and the methodology described above. The SEC rules for identifying the “median employee” and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratios reported by other companies may not be comparable to the pay ratio set forth above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
|
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| PAY VERSUS PERFORMANCE DISCLOSURE |
In accordance with rules adopted by the Securities and Exchange Commission pursuant to the Dodd-Frank Act, we provide the following disclosure regarding executive compensation for our principal executive officer (“PEO”) and non-PEO Named Executive Officers (“NEO”) and Company performance for the fiscal years listed below. The Compensation Committee did not consider pay versus performance disclosure below in making its pay decisions for any of the years shown.
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| Year | | Summary Compensation Table Total for Bruce K. Lee(1) ($) | | Compensation Actually Paid to Bruce K. Lee 1, 2, 3 ($) | | Average Summary Compensation Table Total for Non-PEO NEOs(1) ($) | | Average Compensation Actually Paid to Non-PEO NEOs 1, 2, 3 ($) | | Value of Initial Fixed $100 Investment based on: (4) | | Net Income
($ Millions) | | PPNR(5) ($ Millions) |
| | | | | TSR ($) | | Peer Group TSR
($) | | |
| (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) |
| 2022 | | $ | 3,055,878 | | | $ | 2,675,277 | | | $ | 1,042,299 | | | $ | 1,134,119 | | | $ | 100.07 | | | $ | 97.52 | | | $ | 212.2 | | | $ | 295.7 | |
| 2021 | | $ | 2,852,290 | | | $ | 3,100,827 | | | $ | 1,041,819 | | | $ | 1,112,786 | | | $ | 106.17 | | | $ | 124.06 | | | $ | 219.9 | | | $ | 265.7 | |
| 2020 | | $ | 2,245,882 | | | $ | 2,372,655 | | | $ | 854,562 | | | $ | 866,117 | | | $ | 83.03 | | | $ | 89.68 | | | $ | 137.9 | | | $ | 241.1 | |
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| (1) Bruce K. Lee was our PEO for each year presented. The individuals comprising the Non-PEO NEOs for each year are as follows: 2022-Bryan R. McKeag, Jay L. Kim, David A. Prince, and Kevin G. Quinn; 2021-Lynn B. Fuller, Bryan R. McKeag, David A. Prince, and Daniel C. Stevens; 2020-Lynn B. Fuller, Bryan R. McKeag, David A. Prince, and Daniel C. Stevens. |
| (2) The amounts shown for Compensation Actually Paid have been recalculated in accordance with Item 402(v) of Regulation S-K and do not reflect compensation actually earned, realized or received by the Company’s NEOs. These amounts reflect the Summary Compensation Table Total with certain adjustments as described in footnote 3 below. |
| (3) Compensation Actually Paid reflects the exclusions and inclusions of certain amounts for the PEO and the Non-PEO NEOs as set forth below. Amounts shown in the Exclusion of Stock Awards and Option Awards columns below are the totals from the Stock Awards and Option Awards columns set forth in the Summary Compensation Table contained in our Proxy Statement for the respective reporting year. Amounts in the Inclusion of Equity Values below are not reported elsewhere and have been calculated in accordance with FASB ASC Topic 718. |
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| Year | | Summary Compensation Table Total for
Bruce K. Lee
($) | | Exclusion of Stock Awards
and Option Awards for
Bruce K. Lee
($) | | Inclusion of Equity Values for Bruce K. Lee
($) | | Compensation Actually Paid to Bruce K. Lee
($) |
| 2022 | | $ | 3,055,878 | | | $ | (1,286,285) | | | $ | 905,684 | | | $ | 2,675,277 | |
| 2021 | | $ | 2,852,290 | | | $ | (1,224,086) | | | $ | 1,472,623 | | | $ | 3,100,827 | |
| 2020 | | $ | 2,245,882 | | | $ | (823,760) | | | $ | 950,533 | | | $ | 2,372,655 | |
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| Year | | Average Summary Compensation Table
Total for Non-PEO NEOs
($) | | Average Exclusion of Stock Awards and Option Awards for Non-PEO NEOs
($) | | Average Inclusion of Equity Values for Non-PEO NEOs
($) | | Average Compensation Actually Paid to Non-PEO NEOs
($) |
| 2022 | | $ | 1,042,299 | | | $ | (363,444) | | | $ | 455,264 | | | $ | 1,134,119 | |
| 2021 | | $ | 1,041,819 | | | $ | (341,049) | | | $ | 412,016 | | | $ | 1,112,786 | |
| 2020 | | $ | 854,562 | | | $ | (187,636) | | | $ | 199,191 | | | $ | 866,117 | |
The amounts in the Inclusion of Equity Values in the tables above are derived from the amounts set forth in the following tables:
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| Year | | Year-End Fair Value of Equity
Awards Granted During Year
that Remain Unvested as of Last
Day of Year for
Bruce K. Lee
($) | | Change in Fair Value from Last
Day of Prior Year to Last Day of
Year of Unvested Equity Awards
for Bruce K. Lee
($) | | Change in Fair Value from Last
Day of Prior Year to Vesting
Date of Unvested Equity Awards
that Vested During Year for
Bruce K. Lee
($) | | Total-Inclusion of Equity Values
for Bruce K. Lee
($) |
| 2022 | | $ | 1,165,725 | | | $ | (260,018) | | | $ | (23) | | | $ | 905,684 | |
| 2021 | | $ | 1,184,798 | | | $ | 187,350 | | | $ | 100,475 | | | $ | 1,472,623 | |
| 2020 | | $ | 990,077 | | | $ | 460 | | | $ | (40,004) | | | $ | 950,533 | |
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| Year | | Average Year-End Fair Value of
Equity Awards Granted During
Year That Remained Unvested
as of Last Day of Year
for Non-PEO NEOs
($) | | Average Change in Fair Value
from Last Day of Prior Year
to Last Day of Year of
Unvested Equity Awards for
Non-PEO NEOs
($) | | Average Change in Fair Value
from Last Day of Prior Year to
Vesting Date of Unvested Equity
Awards that Vested During Year
for Non-PEO NEOs
($) | | Total-Average Inclusion
of Equity Values for
Non-PEO NEOs
($) |
| 2022 | | $ | 500,718 | | | $ | (46,425) | | | $ | 971 | | | $ | 455,264 | |
| 2021 | | $ | 330,103 | | | $ | 44,002 | | | $ | 37,911 | | | $ | 412,016 | |
| 2020 | | $ | 225,519 | | | $ | (5,286) | | | $ | (21,042) | | | $ | 199,191 | |
In calculating the Inclusion of Equity Values in the preceding tables, we value performance awards with a market condition using a Monte Carlo simulation model; this methodology differs from the manner in which we calculated the value on the date of grant in the relevant Grants of Plan-Based Awards tables and Summary Compensation Tables.
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| (4) The Peer Group TSR set forth in this table utilizes the KBW Bank Index, which we also utilize in the stock performance graph required by Item 201(e) of Regulation S-K included in our Annual Report on Form 10-K for the year ended December 31, 2022. The comparison assumes $100 was invested for the period starting December 31, 2019, through the end of the listed year in the Company and in the KBW Nasdaq Bank Index, respectively. Historical stock performance in not necessarily indicative of future stock performance. |
| (5) We determined adjusted core pre-provision pre-tax net revenue (“PPNR”) to be the most important financial performance measure used to link Company performance to Compensation Actually Paid to our PEO and Non-PEO NEOs in 2022. See the reconciliation of our comparable GAAP financial measures to PPNR in the table below. |
The table below shows how PPNR was calculated, dollars in thousands:
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| Reconciliation of Non-GAAP Measure-Adjusted Core Pre-Provision Pre-Tax Net Revenue |
| For the Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net income (GAAP) | $ | 212,280 | | | $ | 219,923 | | | $ | 137,938 | |
| Provision (benefit) for credit losses | 15,370 | | | (17,575) | | | 67,066 | |
| Income taxes | 55,573 | | | 55,335 | | | 36,053 | |
| Pre-provision pre-tax revenue | 283,223 | | | 257,683 | | | 241,057 | |
| Partnership investment in tax credit projects | 5,040 | | | 6,303 | | | — | |
| Acquisition costs | 7,586 | | | — | | | — | |
| IT project write-offs | — | | | 1,743 | | | — | |
| Adjusted core pre-provision pre-tax net revenue (non-GAAP) | $ | 295,849 | | | $ | 265,729 | | | $ | 241,057 | |
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our non-PEO NEOs, and the Company’s cumulative TSR over the three most recently completed fiscal years.
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our Non-PEO NEOs, and our net income during the three most recently completed fiscal years.
The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of the Compensation Actually Paid to our Non-PEO NEOs, and our PPNR during the three most recently completed fiscal years.
The following chart compares our cumulative TSR over the three most recently completed fiscal years to that of the KBW Nasdaq Bank Index over the same period.
Below are the financial performance measures that the Company considers to have been the most important in linking Compensation Actually Paid to our PEO and other NEOs for 2022 to Company performance. The measures are not ranked.
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| * | EPS Growth |
| * | Loan Growth |
| * | Noninterest Income |
| * | PPNR |
| * | Return on Average Assets |
| * | Total Stockholder Return |
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| RELATED PERSON TRANSACTIONS |
Directors and officers of HeartlandHTLF and our subsidiaries, and their associates, were customers of and had banking transactions with one or more of Heartland'sHTLF’s subsidiaries during 2018.2022. Additional transactions may be expected to take place in the future. All outstanding loans, commitments to loan, transactions in repurchase agreements, 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 unrelated persons and did not involve more than the normal risk of collectability or present other unfavorable features. All such loans are approved by the subsidiary bank'sbank’s Board of Directors in accordance with the bank regulatory requirements. Additionally, the Audit/Corporate Governance Committee Charter provides that the Committee will consider and approve other material non-lending transactions between a “related person” and Heartland, or its subsidiaries, to ensure that such transactions are done at arm's length and do not affect a director's independence. For such purposes, a “related person” includes any officer or director, or any nominee for director, of Heartland,HTLF, any holder of 5% or more of our common stock, or any immediate family member of those persons. In addition to such lending transactions, we engaged in the following transactions with named executive officers, directors and members of their families during the past fiscal year:
Heartland, Kendall/Hunt Publishing Company (“Kendall/Hunt”) and Westmark Enterprises, Inc. (“Westmark”) are joint owners of a Cessna Citation aircraft that Heartland uses in its business. Mark C. Falb, a Heartland director, is CEO and Chairman of the Board of Kendall/Hunt and Westmark. Heartland has contracted with Westmark to employ the flight crew, maintain and store the aircraft, and pays Westmark annually for its allocated portion of these expenses and direct flight expense. For the year ended December 31, 2018, Heartland paid Westmark $1,158,421 under this arrangement. Heartland’s purchase of the fractional interest in the aircraft and the shared ownership arrangement was approved by its Board of Directors. The Board has also determined that this transaction does not compromise Mr. Falb’s independence. Heartland believes this arrangement is typical for shared ownership of aircraft and is on terms at least as favorable as could be obtained from unaffiliated third parties.
Lynn H. Fuller, hasthe son of former HTLF director Lynn B. Fuller, served as Executive Vice President and CEORegional Bank President until February 2022. In 2022, Mr. Fuller received total compensation of $404,670, including in connection with his separation from the Company, as well as vesting of his RSUs through March 22, 2022. This amount is consistent with compensation to similarly-situated employees.
Allyn Piland, the daughter of former HTLF Director Barry H. Orr, serves as President of PrimeWest Mortgage Corporation (“PrimeWest”), a division of our subsidiary DubuqueFirst Bank & Trust (“First Bank”). In 2022, Ms. Piland received base pay of $207,188, incentive and Trust Company since July 1, 2017,commissions of $155,585, and is a member of Heartland’s executive management team. During 2018, Mr. Fuller earned $255,625 of base salary, an annual incentive cash award of $119,217, and he was granted long-term incentivean equity awardsaward with a grant date fair value of $105,141. These$15,215. Ms. Piland also received other benefits valued at $38,569, and an employer contribution to her 401(k) account of $20,300. This compensation actions were approved by Heartland’s Compensation Committee in accordance with the terms of our executive compensation program as described in this proxy statement and in a mannerwas consistent with the process forcompensation to similarly-situated employees.
Michael Lee serves as Associate Director of Capital Markets.In 2022, Mr. Lee received base pay of $123,478, incentive compensation of $27,687, other subsidiary bank presidents.benefits of $14,181, and an employer contribution to his 401(k) account of $8,400. Mr. FullerLee is the son of ourHTLF’s director, President and Chief Executive Operating Chairman,Officer, Bruce K. Lee. This compensation was consistent with compensation to similarly-situated employees.
On December 14, 2022, HTLF entered into an Agreement with certain of its stockholders, including Lynn B. Fuller.
Heartland is party to a Consulting Agreement with director nominee Martin J. Schmitz dated February 13, 2017,Fuller (collectively, the “Stockholder Group”), pursuant to which Mr. Schmitz cultivates existing customers in Heartland’s Colorado market, introduces prospective customersFuller agreed to Citywide Banks,resign from the Board of HTLF, and performs other services as agreed upon by the parties. Heartland pays Mr. Schmitz $15,500 per month as a consulting fee. The Consulting Agreement had an effective date of July 7, 2017, has a two-year term, and is renewable upon written agreementeach member of the parties. Mr. Schmitz is past chairmanStockholder Group agreed to promptly terminate the Stockholder Group. In addition, each member of Citywide Banks,the Stockholder Group agreed to certain restrictions related to, among other things, (a) purchasing or selling short voting securities of HTLF, or soliciting proxies or entering into any voting arrangement with respect to them, (b) seeking or submitting any nomination or otherwise seeking representation on HTLF’s board, (c) proposing or encouraging any merger, acquisition or similar transaction related to HTLF, (d) calling a Heartland subsidiary.special meeting, or (e) making any request for HTLF’s books and records. In exchange, HTLF agreed to reimburse members of the Stockholder Group for out-of-pocket fees and expenses of legal and financial advisors in the amount of $456,785.
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AUDIT/CORPORATE GOVERNANCE COMMITTEE REPORTPROPOSAL 4 | | NON-BINDING, ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION |
| Non-binding, advisory vote on the frequency of future advisory votes on executive compensation | þ | The Board of Directors recommends that you vote your shares for “1 YEAR” for the frequency of future advisory Say on Pay votes. |
The Audit/Corporate GovernanceDodd-Frank Act and Section 14A of the Exchange Act require that, at least once every six years, stockholders be afforded the opportunity to recommend to the Board of Directors whether future advisory votes on executive compensation should occur every one, two or three years. This proposal offers stockholders the opportunity to cast a non-binding advisory vote on how often we should include a “say on pay” proposal in our proxy materials for future annual stockholder meetings (or special stockholder meetings for which we must include executive compensation information in the proxy statement for that meeting).
The Board believes that setting appropriate compensation, directly or through its committees, for executive officers and the Board itself is one of its most important functions, and that stockholders should have direct input regarding such compensation. Accordingly, our Board has determined that an annual advisory vote on executive compensation is appropriate for the Company. Annual advisory votes will continue to allow our stockholders to advise us whether they agree with our compensation philosophy, policies and practices as disclosed in our proxy statement each year. This is consistent with our efforts to seek input from our stockholders, and will make the results of the vote more relevant and meaningful to the Board of Directors.
The proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining from voting). The advisory vote on the frequency of future advisory votes on executive compensation requires the affirmative vote of a majority of the shares of voting stock represented at the meeting. Abstentions and broker non-votes will have the same effect as negative votes. If no frequency option receives majority support, the option that receives the greatest number of votes will be the frequency selected by stockholders.
As an advisory vote, this proposal is not binding upon us, however, the Board and the Compensation Committee, which administers our executive compensation program, value the opinions expressed by stockholders in their vote on this proposal, and will consider the outcome of the vote when making a determination regarding the frequency of future advisory votes. We are required to submit how often to include a “say on pay” proposal to our stockholders for their advisory approval every six years, and thus the next vote to approve how often to include a “say on pay” proposal to our stockholders will take place in 2029.
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| PROPOSAL 5 | | RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
| Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023 | þ | The Board of Directors recommends that you vote your shares FOR ratification of the appointment of KPMG LLP as our independent registered public accounting firm. |
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 our independent registered public accounting firm is not ratified, the Audit Committee of the Board of Directors will consider, but retains sole authority over, the matter of the appointment. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the Company and our stockholders.
The Audit Committee assists the Board in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The Audit/Corporate GovernanceAudit 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 GovernanceAudit Committee has:
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| * | reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2018,2022, with our management and KPMG LLP, our independent registered public accounting firm; |
| * | discussed with KPMG LLP the matters required to be discussed under Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the applicable requirements of the Public Company Accounting Oversight Board (the “PCAOB”), and SEC Rule 2-07, Communications with Audit Committees;the SEC; and |
| * | received and discussed the written disclosures and the letter from KPMG LLP, required byin accordance with the applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and discussed with the independent accountantKPMG LLP its independence. |
Based on the foregoing review and discussions with management and KPMG LLP, the Audit/Corporate GovernanceAudit 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, 2018,2022, for filing with the SEC.
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Members of the Audit/Corporate GovernanceAudit Committee, |
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Mark C. FalbRobert B. Engel |
| Thomas L. Flynn |
| Jennifer K. Hopkins |
R. Michael McCoy |
| Susan G. Murphy (Chair) |
John K. Schmidt |
Duane E. WhiteKathryn Graves Unger |
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| RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
KPMG LLP has served as our independent registered public accounting firm since June 1994, and our Audit/Corporate GovernanceAudit Committee has selected KPMG LLP to be our independent registered public accounting firm for the fiscal year ending December 31, 2019.2023.
The aggregate fees billed for each of the last two fiscal years for professional services rendered by KPMG LLP arewere as follows: | | | | Fiscal Year 2018 | | Fiscal Year 2017 | | Fiscal Year 2022 | | Fiscal Year 2021 |
| Audit Fees | $ | 1,326,500 |
| | $ | 1,247,500 |
| Audit Fees | $ | 1,510,000 | | | $ | 1,325,000 | |
| Audit-Related Fees | $ | 115,000 |
| | $ | 130,000 |
| Audit-Related Fees | 62,500 | | | 195,000 | |
| Tax Fees | $ | 258,725 |
| | $ | 285,585 |
| Tax Fees | 334,109 | | | 298,119 | |
| All Other Fees | $ | 1,780 |
| | $ | 1,780 |
| All Other Fees | 2,500 | | | 2,500 | |
| Total | $ | 1,702,005 |
| | $ | 1,664,865 |
| Total | $ | 1,909,109 | | | $ | 1,820,619 | |
“Audit Fees” were related to KPMG LLP’s work in performing the integrated audit of our consolidated annual financial statements and the internal control attestation reports related to the Federal Deposit Insurance Corporation Improvement Act, review of interim quarterly financial statements included in our Form 10-Q reports, and services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements.
“Audit-Related Fees” in 20182022 and 20172021 related to services rendered in connection with compliance with the requirements of the U.S. Department of Housing and Urban Development (“HUD”) and the filing with the SEC of registration statements on Form S-4. Additionally, the 2018 Audit-Related Fees include services rendered in connection with Uniform Single Attestation Program (“USAP”) compliance.. Additionally, the 2022 Audit-Related fees include filings with SEC on Form S-3 registrations statements, and the 2021 Audit-Related fees include services rendered for the issuance of a comfort letter for our subordinated debt offering.
“Tax Fees” were incurred for the preparation of our state and federal tax returns and for consultation with KPMG LLP on various tax matters.
“All Other Fees” were incurred in connection with HeartlandHTLF obtaining access to KPMG LLP’s electronic accounting research tool and accounting disclosure checklist tool.
The Audit/Corporate GovernanceAudit Committee, after consideration of these matters, does not believe that the rendering of these services by KPMG LLP is incompatible with maintaining their independence as our independent registered public accounting firm.
Audit/Corporate GovernanceAudit Committee Pre-Approval Policy
Among other things, the Audit/Corporate GovernanceAudit Committee is responsible for appointing, setting compensation for, and overseeing the work of the independent registered public accounting firm. The Audit/Corporate GovernanceAudit Committee has adopted a policy requiring pre-approval of any services to be paid to the independent registered public accounting firm before work begins, regardless of dollar amount. Pre-approval may come from the full Committee, the Chairman of theAudit Committee or its Chair; however, the Vice Chairman of the Committee in the absence of the Chairman; however,Chair shall present for ratification all services by such firm must be brought forth toat the full Committee at their next regularly scheduled Audit Committee meeting. All of the fees earned by KPMG LLP described above were attributable to services pre-approved or ratified by the Audit/Corporate GovernanceAudit Committee.
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PROPOSAL 2 | | APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES |
Approve an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 40,000,000 to 60,000,000 shares | þ | The Board of Directors recommends that you vote your shares FOR the amendment to increase authorized shares of common stock. |
Proposed Charter Amendment To Increase the Number of Authorized Shares
On January 22, 2019, our Board of Directors voted to approve, and to recommend that you approve at the 2019 Annual Meeting of Stockholders, an amendment (the “Authorized Shares Charter Amendment”) to our Certificate of Incorporation that will increase the number of authorized shares of our common stock from 40,000,000 shares to 60,000,000 shares.
Specifically, we are proposing that the first paragraph of Article IV of our Certificate of Incorporation be amended to provide as follows:
Article IV
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The total number of shares of stock which the corporation shall have authority to issue is 60,000,000 shares of Common Stock, par value of $1.00 per share, and 200,000 shares of Preferred Stock, par value of $1.00 per share. |
We are not proposing to increase the authorized shares of preferred stock. The additional shares of common stock for which we are seeking authorization would be part of the existing class of our common stock and, if and when issued, would have the same rights and privileges as the shares of common stock that are currently outstanding. The additional shares would not (and the shares of common stock presently outstanding do not) entitle the holders thereof to preemptive or cumulative voting rights.
Reasons for the Authorized Shares Charter Amendment
As of March 25, 2019, there were _________ shares of our common stock issued and outstanding. Also, a total of _______ shares of common stock were reserved for issuance under outstanding RSUs and stock options granted under our Amended and Restated 2012 Long-Term Incentive Plan and ________ shares of common stock were reserved for equity awards that may be made in the future under such plan. Also, ______ shares of common stock were reserved for issuance under our 2016 Employee Stock Purchase Plan.
In addition, an aggregate of 2,431,000 shares have been reserved in connection with our pending acquisition of Blue Valley Ban Corp. (“BVBC”), which is provided for in an Agreement and Plan of Merger dated as of January 16, 2019 between Heartland and BVBC. After taking into account all of the share reservations as described above, as of March 25, 2019, we had only ____ shares of common stock available for future issuances.
Our Board of Directors believes that increasing the authorized number of shares of our common stock is necessary to support our future growth plans. Our Board periodically considers mergers and other acquisitions in which Heartland issues shares of our common stock as part of the consideration in such transactions. We may also issue shares to increase our capital and available funds. In addition, the Board believes that additional authorized shares of common stock may be necessary to allow us to take timely advantage of market conditions and the availability of financing opportunities without the delay and expense associated with convening a special stockholders’ meeting. The additional shares of common stock would also permit us increased
flexibility with respect to stock dividends (including stock splits in the form of stock dividends), additional RSUs or other equity awards and for other general corporate purposes.
Except as may be required by the rules of the NASDAQ Stock Market and the Delaware General Corporation Law, we are not currently required to obtain a vote of our stockholders to issue or sell additional shares of common stock, and we will not be required to obtain any vote of stockholders to issue the additional shares of common stock, unless any additional shares not sold in a public offering represent, and will represent after issuance, more than 20 percent of the shares of common stock outstanding before the issuance, or the issuance would result in a change in control of Heartland.
Certain Anti-Takeover Effects of the Authorized Shares Charter Amendment
Our Board of Directors believes that our protections against a potential hostile contest for control are adequate and is not proposing the Authorized Shares Charter Amendment to increase those protections. Nevertheless, the increase in the number of authorized but unissued shares of common stock could, under certain circumstances, be used to create voting impediments to frustrate persons seeking to effect a takeover or otherwise gain control of Heartland. Our Certificate of Incorporation currently requires at least 70% of our outstanding shares to be voted in favor of a proposal to approve certain business combinations involving Heartland. Although our Board presently has no intention of doing so, shares of authorized but unissued common stock could be issued to a holder who would obtain sufficient voting power that would significantly reduce the likelihood that any such business combination would receive the required 70% stockholder vote. In addition, to the extent that the adoption of the Authorized Shares Charter Amendment renders less likely a merger or other transaction that is not negotiated with and approved by our incumbent Board of Directors, such adoption may result in the Board of Directors and management retaining their current positions.
Some provisions of our Certificate of Incorporation and Bylaws could make the acquisition of control of Heartland or the removal of our existing management more difficult, including the following:
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* | we have a classified Board of Directors with each class serving a staggered three-year term; |
* | a vote of 70% of the outstanding shares of voting stock is required to remove directors, and such directors may only be removed for cause; |
* | a vote of 70% of the outstanding shares of voting stock is required to amend, alter or repeal our bylaws and certain sections of our Certificate of Incorporation; |
* | a vote of 70% of the outstanding shares of voting stock is required to effect various forms of business combination transactions; |
* | our Board of Directors may increase the number of directors up to the limit permitted by our Certificate of Incorporation and may appoint new directors to serve for the full term of the class of directors to which a new director is appointed, and may fill vacancies on the Board of Directors occurring for any reason for the remainder of the term of the class of director in which the vacancy occurred; |
* | our Board of Directors may designate series of preferred stock and determine the powers, rights, preferences, qualifications and limitations of each series, and may issue preferred stock, without a vote of stockholders; |
* | stockholder actions cannot be taken by written consent without a meeting; |
* | we have advance notice procedures that require stockholder proposals and director nominations to be provided to us not less than 30 days or more than 75 days before the date of the originally scheduled annual meeting; and |
* | we have adopted a stockholder rights plan under which the dilution resulting from the acquisition of beneficial ownership of more than 15% of our voting stock without approval of our Board causes most forms of hostile contest for control to be impracticable. |
These provisions are expected to discourage coercive takeover practices and inadequate takeover bids. They are also designed to encourage persons seeking to acquire control of Heartland to first negotiate with our Board of Directors. We believe that the benefits of increased protection give us the potential ability to negotiate with a bidder making an unfriendly or unsolicited proposal to acquire or restructure Heartland, and that these benefits outweigh the disadvantages of discouraging any such proposals. Among other things, negotiating with the bidder could result in an improvement of the terms of the proposal. Our Board has considered the potential anti-takeover effects of the Authorized Shares Charter Amendment and does not believe such effects should deter you from voting your shares of Heartland common stock in favor of the Authorized Shares Charter Amendment.
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PROPOSAL 3 | | APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE MAXIMUM NUMBER OF BOARD MEMBERS |
Approve an amendment to the Company’s Certificate of Incorporation to increase the maximum Board size from 11 members to 13 members | þ | The Board of Directors recommends that you vote your shares FOR the amendment to increase the maximum size of the Board. |
Proposed Charter Amendment To Increase the Maximum Size of the Board
On January 22, 2019, our Board of Directors voted to approve, and to recommend that you approve at the 2019 Annual Meeting of Stockholders, an amendment (the “Board Size Charter Amendment”) to our Certificate of Incorporation that will increase the maximum Board size from 11 members to 13 members.
In order to effect the Board Size Charter Amendment, the first paragraph of Article XII of our Certificate of Incorporation would be amended and restated to provide as follows:
Article XII
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The number of directors constituting the entire board of directors shall not be less than three nor more than thirteen as fixed from time to time by resolution of not less than 66 2/3% of the number of directors which immediately prior to such proposed change had been fixed, in the manner prescribed herein, by the board of directors of the corporation, provided, however, that the number of directors shall not be reduced as to shorten the term of any director at the time in office. |
Reasons for the Board Size Charter Amendment
Our Board regularly reviews the Company’s corporate governance policies and procedures. In light of recent acquisitions and regulatory requirements, the Board has determined that it would be in the best interests of the Company and its stockholders to increase the maximum size of the Board from 11 to 13 directors.
The Board believes the Company would benefit from having a larger Board. If the size of the Board is increased, the Board will have a greater number of directors with different backgrounds and have increased breadth and depth of experience and skills necessary for proper oversight of the Company’s affairs. The Board Size Charter Amendment will also facilitate the Company’s ability to address and meet evolving corporate governance standards and the rules, regulations and other requirements of the SEC, the Federal Deposit Insurance Corporation, the Federal Reserve Board and Nasdaq. Finally, a larger Board will help enable the Board to meet its goal of having greater diversity among the Company’s directors.
In reviewing the board size of the members of our peer group companies, 18 of our 27 peer group companies had larger boards than Heartland is currently permitted to have.
Our Board is comprised of a majority of independent directors. Only independent directors serve on each of the two standing Board Committees: the Compensation/Nominating Committee and the Audit/Corporate Governance Committee. The Board will remain comprised of a majority of independent directors if the Board Size Charter Amendment is approved by the stockholders. If the proposed Board Size Charter Amendment is approved and the number of directors is increased, the oversight and other responsibilities of the Board can be spread among a larger number of directors.
If the Board Size Charter Amendment is approved by our stockholders, the Board intends to expand the Board size to 13 directors. Pursuant to the Company’s Bylaws, any vacancies in the Board resulting from an increase in the number of directors may be filled by the Board, acting by a majority vote of the directors then in office. The Board, through its Compensation/Nominating Committee, has been engaged in discussions with various persons who could join our Board. Pursuant to an Agreement and Plan of Merger dated December 12, 2017 between the Company and First Bank Lubbock Bancshares, Inc., the Company has agreed to nominate Barry Orr for election to the Board at an annual meeting of the Company’s shareholders at such time as Mr. Orr’s appointment as a director would not result in the number of Heartland directors who are not “independent” (as defined in the listing standards of Nasdaq) to exceed the number of independent directors. However, our Board has not yet determined who the remaining additional director will be if the Board Size Charter Amendment is approved.
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PROPOSAL 4 | | RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
Ratify the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2019 | þ | The Board of Directors recommends that you vote your shares FOR ratification of the appointment of KPMG LLP as our independent registered public accounting firm. |
Our Board of Directors recommends that the stockholders ratify the appointment of KPMG LLP as our independent registered public accounting firm. 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 our independent registered public accounting firm is not ratified, the Audit/Corporate Governance Committee of the Board of Directors will consider, but retains sole authority over, the matter of the appointment.
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PROPOSAL 5 | | ADVISORY VOTE ON EXECUTIVE COMPENSATION |
Take a non-binding, advisory vote on executive compensation | þ | The Board of Directors recommends that you vote your shares FOR the approval of Heartland’s executive compensation. |
We are asking our stockholders to provide advisory approval of the compensation to our executive officers set forth in the “Summary Compensation Table” and related tables in this proxy statement, and described in the “Compensation Discussion and Analysis” section of this proxy statement. Consistent with the direction of our stockholders and our Board of Directors, we submit executive compensation to our stockholders for their advisory approval on an annual basis. Although your vote is advisory and not binding upon the Compensation/Nominating Committee, the Committee will take the results of the vote into account in formulating executive compensation in future years. We are requesting your vote on the following resolution:
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RESOLVED, that the stockholders approve the compensation of Heartland’s executives as described in the Compensation Discussion and Analysis, the Summary Compensation Table and the other executive compensation tables and related disclosure contained in the Heartland proxy statement dated April 12, 2019. |
As described in more detail in the “Compensation Discussion and Analysis” section of this proxy statement, Heartland's compensation program has been reflective of its results of operations. The objective of our Board has been to provide salary levels to our executives that are competitive relative to their peers and longer-term incentives that both align executive officer compensation with the success of meeting long-term strategic operating and financial goals and minimizing risks to Heartland. The Board believes our compensation policies and procedures achieve these objectives.
We do not know of any other matters that may be presented for consideration at the Annual Meeting. If any other business does properly come before the Annual Meeting, the persons named as proxies on the enclosed proxy card will vote in accordance with his or her judgment.
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| Sincerely, | |
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Lynn B. FullerJohn K. Schmidt | Bruce K. Lee |
Executive Operating Chairman | President and CEO |
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Dubuque, IowaDenver, Colorado | Denver, Colorado |
| April 27, 2023 | April 27, 2023 |
April 12, 2019
ALL STOCKHOLDERS ARE URGED TO SUBMIT THEIR PROXIES PROMPTLY
