A longtime executive at one of Dubuque’s largest employers was removed as executive operating chairman of the company’s board Tuesday night after he and a group of shareholders called for a “better steward” for the organization.
Officials at HTLF announced that Lynn B. Fuller had been removed as executive operating chairman of the Board of Directors, effective immediately. The announcement came one week after 13 shareholders that control a total of 6.1% of common stock in HTLF sent a letter to the board echoing concerns cited by Fuller when he announced last month his plans to retire. The group includes Fuller, a member of HTLF’s Board of Directors and board chairs at some of HTLF’s banks.
In the letter, the shareholders cite their concerns that changes brought about by current HTLF leadership are “fundamentally jeopardizing the value of the Heartland franchise so patiently developed over the years, while failing to provide a clear strategy for growth and expansion of shareholder value.”
“We just think it’s time for a new steward to guide the company,” said Barry Orr, a member of HTLF’s Board of Directors and chairman of the board at HTLF’s FirstBank & Trust in Texas, in an interview with the Telegraph Herald. “We just believe that’s the method that will best increase our financial performance. We have no confidence in the current leadership that they can turn earnings around.”
On Tuesday night, HTLF announced the appointment of John Schmidt, who has been on the board since 2001, as independent chairman of the board, replacing Fuller. Schmidt has been senior vice president and chief financial officer at A.Y. McDonald Manufacturing Co. since 2013, and he worked at HTLF as chief operating officer and chief financial officer before joining A.Y. McDonald.
Fuller remains a member of the Board of Directors until his term ends in 2024.
“The board determined that Mr. Fuller was no longer best positioned to serve in the chairman role in light of his public disagreement with the company’s leadership and strategy, which was previously and unanimously approved by the board,” Schmidt said in a press release from HTLF. “The board has full and complete confidence in management and the company’s strategic plan to drive growth and deliver long-term value to shareholders.”
In an interview after the decision was announced, Fuller said he will remain on HTLF’s payroll until its annual stockholder meeting this spring and will continue to be compensated as part of his retirement plan until June 18. However, he said he effectively is not working for HTLF from this point forward.
“I think (the board’s decision) was retaliation because I was critical of the performance of the company, and I’m part of the (shareholder) group,” Fuller said.
HTLF officials said Tuesday night that they could not provide the TH with an interview related to the board’s decision.
In response to the shareholder letter, HTLF officials referred the TH to a press release that stated they would review it, but they also contended that the company’s financial performance has been solid.
“Our board and management team are committed to creating value for all shareholders, and we will continue to take actions that will enable us to achieve this objective,” said Thomas Flynn, vice chair of the board at HTLF, in the release.
Lynn Fuller in February announced plans to retire from his position at HTLF in May, citing his disappointment with the company’s recent performance. He also told the TH he was concerned about a plan approved by the company’s board to consolidate its 11 bank charters into one charter based in Colorado that he said would result in the business moving its headquarters to Denver.
This month, he and Thomas J. Fuller, who is Lynn’s son and a shareholder in HTLF, sent a letter to HTLF’s board on behalf of the shareholder group. The letter references a leadership shift at HTLF in 2018, when Lynn Fuller, who at the time was CEO, transitioned to his role as executive operating chairman and Bruce Lee became president and CEO of what then was Heartland Financial USA.
Since that time, HTLF has “significantly underperformed the S&P bank index,” the shareholders said, which they blamed on a decision by current leadership to “abandon the culture that made for a successful community bank for its customers and employees, and the acquirer of choice for its future partners.”
A chart in HTLF’s 2021 annual report states that a $100 investment in HTLF at the end of 2016 would have been worth $114.08 at the end of 2021, while an investment of the same amount would have been worth $304.85 for the Nasdaq Composite Index, $164.80 for the KBW Nasdaq Bank Index and $160.89 for the S&P U.S. BMI Banks Index.
The shareholders said HTLF’s board should seek a “better steward” for the organization and review its strategic alternatives, including selling the company to another banking organization.
Lynn Fuller said he sees a number of courses the board could take, including finding or adding new leadership, merging with another company or adopting a better strategy.
“It’s really up to the board to hold management accountable to do whatever it needs to do to get the shareholders the return they deserve,” he said.
Thomas Fuller said in an interview that he was concerned with HTLF’s performance compared to its peer group and reiterated the call to find “a new steward for the ship.”
The shareholders represented by the Fullers include Orr; Kurt Saylor, chairman of the board at Bank of Blue Valley in Kansas; and Thomas Richards, chairman of the board at Premier Valley Bank in California. Neither Saylor nor Richards responded to requests for comment.
Orr, who started FirstBank & Trust, said that in the four years since his bank was sold to HTLF, he has been disappointed in HTLF’s financial performance.
“I think we’ve been more focused on operating issues and internal issues at the expense of earnings performance,” Orr said. “I believe the charter collapse and the relocation of headquarters is just a red herring to get everybody’s eye off the earning performance, and we’re not taking our eye off of earnings performance.”
In the HTLF press release responding to the letter, Flynn noted that the decision to consolidate its bank charters was unanimously approved by the Board of Directors. HTLF officials have told the TH that current administrative operations will remain in Dubuque.
He also pointed to HTLF’s financial performance in fiscal year 2021, which saw a record $211.9 million in net income returned to shareholders, an increase in earnings per common share and an increase in the company’s dividend “by more than 20% in the last year.”