1)	Amount Previously Paid:
2)	Form, Schedule, or Registration Statement No.:
3)	Filing Party:
4)	Date Filed:

 

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                                                                                                            April 6, 2005

            This proxy statement is furnished in connection with the solicitation by the board of directors of Heartland Financial USA, Inc. of proxies to be voted at the annual meeting of stockholders to be held at the Grand River Center located at 500 Bell Street, Dubuque, Iowa, on Wednesday, May 18, 2005, at 6:00 p.m. local time, or at any adjournments or postponements of the meeting. We first mailed this proxy statement on or about April 6, 2005.

            Heartland Financial USA, Inc., a Delaware corporation, is a diversified financial services holding company headquartered in Dubuque, Iowa. We offer full-service community banking through eight banking subsidiaries with a total of 47 banking locations in Iowa, Illinois, Wisconsin, New Mexico, Arizona and Montana. In addition, we have separate subsidiaries in the consumer finance, vehicle leasing/fleet management, insurance agency and investment banking businesses. Our primary strategy is to balance our focus on increasing profitability with asset growth and diversification through acquisitions, de novo bank formations, branch openings and expansion into non-bank subsidiary activities.

             The following information regarding the meeting and the voting process is presented in a question and answer format.

Why am I receiving this proxy statement and proxy card?

            You are receiving a proxy statement and proxy card from us because on March 21, 2005, you owned shares of our common stock. This proxy statement describes the matters that will be presented for consideration by the stockholders at the annual meeting. It also gives you information concerning the matters to be voted upon to assist you in making an informed decision.

            When you sign the enclosed proxy card, you appoint the proxy holder as your representative at the meeting. The proxy holder will vote your shares as you have instructed in the proxy card, thereby ensuring that your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, you should complete, sign and return your proxy card in advance of the meeting just in case your plans change.

            If you have signed and returned the proxy card and an issue comes up for a vote at the meeting that is not identified on the form, the proxy holder will vote your shares, pursuant to your proxy, in accordance with his or her judgment.

What matters will be voted on at the meeting?

            You are being asked to vote on the election of two Class III directors of Heartland for a term expiring in 2008, to approve the adoption of our 2005 Long-Term Incentive Plan, to approve the adoption of our 2006 Employee Stock Purchase Plan and to ratify the selection of KPMG LLP to continue as our independent public accountants for the fiscal year ending December 31, 2005. These matters are more fully described in this proxy statement.

How do I vote?

            You may vote either by mail or in person at the meeting. To vote by mail, complete and sign the enclosed proxy card and mail it in the enclosed pre-addressed envelope. No postage is required if mailed in the United States. If you mark your proxy card to indicate how you want your shares voted, your shares will be voted as you instruct.

            If you sign and return your proxy card but do not mark the form to provide voting instructions, the shares represented by your proxy card will be voted “for” all nominees named in this proxy statement, “for” adoption of our 2005 Long-Term Incentive Plan, “for” the adoption of our 2006 Employee Stock Purchase Plan and “for” the ratification of our auditors.

            If you want to vote in person, please come to the meeting. We will distribute written ballots to anyone who wants to vote at the meeting. Please note, however, that if your shares are held in the name of your broker (or in what is usually referred to as “street name”), you will need to arrange to obtain a separate proxy from your broker in order to vote in person at the meeting.

What does it mean if I receive more than one proxy card?

            It means that you have multiple holdings reflected in our stock transfer records and/or in accounts with brokers. Please sign and return ALL proxy cards to ensure that all your shares are voted.

If I hold shares in the name of a broker, who votes my shares?

            If you received this proxy statement from your broker, your broker should have given you instructions for directing how your broker should vote your shares. It will then be your broker’s responsibility to vote your shares for you in the manner you direct.

            Under the rules of various national and regional securities exchanges, brokers may generally vote on routine matters, such as the election of directors, but cannot vote on non-routine matters, such as an amendment to the certificate of incorporation or the adoption or amendment of a stock option plan, unless they have received voting instructions from the person for whom they are holding shares. If your broker does not receive instructions from you on how to vote particular shares on matters on which your broker does not have discretionary authority to vote, your broker will return the proxy form to us, indicating that he or she does not have the authority to vote on these matters. This is generally referred to as a “broker non‑vote” and will affect the outcome of the voting as described below, under “How many votes are needed for approval of each proposal?” Therefore, we encourage you to provide directions to your broker as to how you want your shares voted on all matters to be brought before the meeting. You should do this by carefully following the instructions your broker gives you concerning its procedures. This ensures that your shares will be voted at the meeting.

What if I change my mind after I return my proxy?

            If you hold your shares in your own name, you may revoke your proxy and change your vote at any time before the polls close at the meeting. You may do this by:

            If you hold your shares in the name of your broker and desire to revoke your proxy, you will need to contact your broker to revoke your proxy.

How many votes do we need to hold the annual meeting?

            A majority of the shares that are outstanding and entitled to vote as of the record date must be present in person or by proxy at the meeting in order to hold the meeting and conduct business.

            Shares are counted as present at the meeting if the stockholder either:

            On March 21, 2005, the record date, there were 16,494,482 shares of common stock issued and outstanding. Therefore, at least 8,247,242 shares need to be present at the annual meeting in order to hold the meeting and conduct business.

What happens if a nominee is unable to stand for election?

            The board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented by proxies may be voted for a substitute nominee. You cannot vote for more than two nominees. The board has no reason to believe any nominee will be unable to stand for election.

What options do I have in voting on each of the proposals?

            You may vote “for” or “withhold authority to vote for” each nominee for director. You may vote “for,” “against” or “abstain” on any other proposal that may properly be brought before the meeting.

How many votes may I cast?

            Generally, you are entitled to cast one vote for each share of stock you owned on the record date.

How many votes are needed for each proposal?

            The two individuals receiving the highest number of votes cast “for” their election will be elected as directors of Heartland. All other matters, including the adoption of our 2005 Long-Term Incentive Plan, the adoption of our 2006 Employee Stock Purchase Plan and the ratification of our auditors, must receive the affirmative vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote.

Broker non-votes will not be counted as entitled to vote, but will count for purposes of determining whether or not a quorum is present on the matter. So long as a quorum is present, broker non-votes will have no effect on the outcome of the matters to be taken up at the meeting.

Where do I find the voting results of the meeting?

            We will announce voting results at the meeting. The voting results will also be disclosed in our Form 10-Q for the quarter ended June 30, 2005.

Who bears the cost of soliciting proxies?

            We will bear the cost of soliciting proxies. In addition to solicitations by mail, officers, directors and employees of Heartland or its subsidiaries may solicit proxies in person or by telephone. These persons will not receive any special or additional compensation for soliciting proxies. We may reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to stockholders.

ELECTION OF DIRECTORS

            At the annual meeting to be held on May 18, 2005, you will be entitled to elect two Class III directors for terms expiring in 2008. The board of directors is divided into three classes of directors having staggered terms of three years. Each of the nominees for election as a Class III director is an incumbent director. We have no knowledge that any of the nominees will refuse or be unable to serve, but if any of the nominees become unavailable for election, the holders of proxies reserve the right to substitute another person of their choice as a nominee when voting at the meeting.

            Set forth below is information concerning the nominees for election and for the other directors whose terms of office will continue after the meeting, including the age, year first elected a director and business experience of each during the previous five years. The nominees for Class III directors, if elected at the annual meeting, will serve for a three-year term expiring in 2008. The board of directors recommends that you vote your shares FOR each of the nominees.

NOMINEES

CONTINUING DIRECTORS

            James F. Conlan.  Mr. Conlan is a graduate of the University of Iowa College of Law, receiving his JD with Honors in 1988. Upon graduation, Mr. Conlan joined the international law firm of Sidley Austin Brown & Wood LLP, where he became a partner in 1996.

            John W. Cox, Jr.  Mr. Cox is a graduate of John Marshall Law School of Chicago, receiving his JD (cum laude) in 1975. Mr. Cox is a partner in the law firm of Cox and Ward, P.C., in Galena, Illinois, and a former Member of the U.S. House of Representatives from Illinois’ 16^th District. During his term in the U.S. Congress, Mr. Cox served on the House Banking and Finance Committees. Mr. Cox also served as State’s Attorney for Jo Daviess County, Illinois and as City Attorney of Galena.

            Mark C. Falb.  Mr. Falb is a graduate of the University of Iowa and a Certified Public Accountant. Mr. Falb was employed in an executive role with the Wm. C. Brown Company Publishers for nearly 20 years until a majority of the company was sold in 1992. He continues to serve as chief executive officer of the remaining divisions of the company, which are primarily involved in real estate ventures and textbook publishing.

            Thomas L. Flynn.  Mr. Flynn obtained a BA degree in accounting and finance from Loras College and an MBA Degree from the University of Dubuque. Mr. Flynn was elected to the Iowa State Senate in 1994, where he served two full terms. During his terms he served on various committees, including the Senate Appropriations Committee; Administration and Regulation Budget Subcommittee; Commerce, Ways and Means Committee; and the Small Business, Economic Development & Tourism Committee. Mr. Flynn is the owner of a concrete and construction materials firm with locations in Iowa, Illinois and Wisconsin. He has also served for many years as an adjunct faculty member in the business department at Clarke College in Dubuque, Iowa.

            Lynn B. Fuller.  Mr. Fuller graduated from the University of Dubuque and obtained an MBA from the University of Iowa. He joined Dubuque Bank and Trust in 1971 and remained with the bank until 1976 when he entered an officer-training program at First National Bank of St. Paul. He has held various executive positions within the bank and with Heartland since his return in 1978.

            Ronald A. Larson.  Mr. Larson graduated from Minnesota State University, the Stonier Graduate School of Banking at Rutgers University and the National Commercial Lending Graduate School at the University of Oklahoma. Mr. Larson is the founder of Larson Group L.C. of Scottsdale, Arizona. He is a founding investor and director of Heartland member bank, Arizona Bank & Trust, in Chandler, Arizona.

            John K. Schmidt.  Mr. Schmidt is a graduate of the University of Northern Iowa and a Certified Public Accountant. Before joining Dubuque Bank and Trust in 1984, Mr. Schmidt was employed by the Office of the Comptroller of the Currency and Peat Marwick Mitchell, currently known as KPMG, in Des Moines, Iowa. He has held various executive positions within the bank.

            All of our directors will hold office for the terms indicated, or until their respective successors are duly elected and qualified. There are no arrangements or understandings between Heartland and any other person pursuant to which any of our directors have been selected for their respective positions. With the exception of Mr. Conlan, who is the brother-in-law of Mr. Fuller, no member of the board of directors is related to any other member of the board of directors.

                 CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS

General

            There are currently seven members of the board of directors of Heartland. Generally, the board oversees our business and monitors the performance of our management. In accordance with our corporate governance procedures, the board does not involve itself in the day-to-day operations of Heartland, which is monitored by our executive officers and management. Our directors fulfill their duties and responsibilities by attending regular meetings of the full board, which are held on a quarterly basis, special meetings held from time to time and through committee membership, which is discussed below. Our directors also discuss business and other matters with Mr. Fuller, our chief executive officer, other key executives and our principal external advisers (legal counsel, auditors and other consultants).

            With the exception of Messrs. Fuller, Schmidt and Conlan, our current directors are “independent” as defined by the rules of the Nasdaq Stock Market, Inc. and the rules and regulations of the Securities and Exchange Commission. The board of directors has established an audit/corporate governance committee and a compensation/nominating committee. The four “independent” directors, Cox, Falb, Flynn and Larson, serve on both the audit/corporate governance and the compensation/nominating committees. Mr. Falb, who is chairman of these two committees, has not been formally designated as a “lead” independent director, but he acts in such a capacity due to his positions as chairman.

            During 2004, the board of directors held four regular meetings and six special meetings. All directors during their terms of office in 2004 attended at least 75% of the total number of meetings of the board and of meetings held by all committees of the board on which any such director served.

Executive Sessions

            Consistent with the Nasdaq listing requirements, the independent directors regularly have the opportunity to meet without Messrs. Fuller, Schmidt and Conlan in attendance.

It is Heartland’s policy that all directors be in attendance at annual meetings unless excused by the chairman of the board. Last year all of our directors attended the annual meeting.

Audit/Corporate Governance Committee

            Currently, the members of the audit/corporate governance committee are directors Falb, Cox, Flynn and Larson. The board of directors has determined that each member of the audit/corporate governance committee qualifies as and should be named as an “audit committee financial expert”, as set forth in the rules and regulations of the Securities and Exchange Commission. The board based this decision on the experience of each of the committee members as executive officers of other companies and other relevant experience using and analyzing financial statements, as well as their education or experience with accounting issues. During 2004, all members of the audit/corporate governance committee were “independent” according to listing standards set forth by Nasdaq and the rules and regulations of the Securities and Exchange Commission. 

      The audit/corporate governance committee charter can be found under the investor relations section of our website, www.htlf.com. The primary duties and functions of the audit/corporate governance committee are to:

            The audit/corporate governance committee’s duties and functions are set forth in more detail in its charter.

      Mr. Falb has served as chairman of the audit/corporate governance committee since May of 2001. During 2004, the audit/corporate governance committee met four times. To promote independence of the audit function, the audit/corporate governance committee consults both separately and jointly with the independent auditors, the internal auditors and management.

Compensation/Nominating Committee

            The compensation/nominating committee currently consists of directors Falb, Cox, Flynn and Larson. Each of these members is considered “independent” as such term is defined by Nasdaq listing requirements, an “outside” director pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, and a “non employee” director under Section 16 of the Securities Exchange Act of 1934.

            The charter of the compensation/nominating committee can be found under the investor relations section of our website, www.htlf.com. The primary duties and functions of the compensation/nominating committee are to:

            The compensation/nominating committee’s duties and functions are set forth in more detail in its charter.

            Mr. Falb has served as chairman of the compensation/nominating committee since April of 2001. During 2004, the compensation/nominating committee met five times.

Director Nominations and Qualifications

In carrying out its nominating function, the compensation/nominating committee evaluates all potential nominees for election, including incumbent directors, board nominees and stockholder nominees, in the same manner, although it is not currently seeking out candidates to serve on the board and we did not receive any stockholder nominations for the 2005 annual meeting. Generally, the committee believes that, at a minimum, directors should possess certain qualities, including the highest personal and professional ethics, integrity and values, a sufficient educational and professional background, exemplary management and communications skills, demonstrated leadership skills, sound judgment in his or her professional and personal life, a strong sense of service to the communities which we serve and an ability to meet the standards and duties set forth in our code of conduct. Additionally, no nominee can be eligible for election or re‑election as a director if at the time of such election such person is 70 or more years of age, and each nominee must be willing to devote sufficient time to carrying out his or her board duties and responsibilities effectively.

The committee also evaluates potential nominees to determine if they have any conflicts of interest that may interfere with their ability to serve as effective board members and whether they are “independent” in accordance with Nasdaq requirements (to ensure that at least a majority of the directors will, at all times, be independent). The committee has not, in the past, retained any third party to assist it in identifying candidates, but it has the authority to retain a third party firm or professional for the purpose of identifying candidates.

Stockholder Communications with the Board, Nomination and Proposal Procedures

General Communications with the Board. As set forth on our website, www.htlf.com, our board of directors can be contacted through Heartland’s corporate headquarters at 1398 Central Avenue, P.O. Box 778, Dubuque, Iowa 52004-0778, Attn: Lois K. Pearce, or by telephone at Heartland’s administrative offices, at 563-589-2100. Each communication will be forwarded to the board or the specific directors identified in the communication as soon as reasonably possible.

Nominations of Directors.  In order for a stockholder nominee to be considered by the compensation/nominating committee to be its nominee and included in our proxy statement, the nominating stockholder must file a written notice of the proposed director nomination with our corporate secretary, at the above address, at least 120 days prior to the anniversary of the date the previous year’s proxy statement was mailed to stockholders. Nominations must include the full name and address of the proposed nominee and a brief description of the proposed nominee’s business experience for at least the previous five years. All submissions must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. The committee may request additional information in order to make a determination as to whether to nominate the person for director.

In accordance with our bylaws, a stockholder may otherwise nominate a director for election at an annual meeting of stockholders by delivering written notice of the nomination to our corporate secretary, at the above address, not less than 30 days nor more than 75 days prior to the date of the annual meeting. The stockholder’s notice of intention to nominate a director must include (i) the name and address of record of the stockholder who intends to make the nomination; (ii) a representation that the stockholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the name, age, business and residence addresses, and principal occupation or employment of each nominee; (iv) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or person) pursuant to which the nomination or nominations are to be made by the stockholder; (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, as then in effect; and (vi) the consent of each nominee to serve as a director of the corporation if so elected. We may request additional information after receiving the notification for the purpose of determining the proposed nominee’s eligibility to serve as a director. Persons nominated for election to the board pursuant to this paragraph will not be included in our proxy statement.

Other Stockholder Proposals.  To be considered for inclusion in our proxy statement and form of proxy for our 2006 annual meeting of stockholders, stockholder proposals must be received by our corporate secretary, at the above address, no later than December 8, 2005, and must otherwise comply with the notice and other provisions of our bylaws, as well as Securities and Exchange Commission rules and regulations.

For proposals to be otherwise brought by a stockholder and voted upon at an annual meeting, the stockholder must file written notice of the proposal to our corporate secretary not less than 30 or more than 75 days prior to the scheduled date of the annual meeting.

Code of Business Conduct and Ethics

We have a code of business conduct and ethics in place that applies to all of our directors and employees. The code sets forth the standard of ethics that we expect all of our directors and employees to follow, including our chief executive officer and chief financial officer. The code is posted on our website, www.htlf.com. We intend to satisfy the disclosure requirements under Item 10 of Form 8-K regarding any amendment to or waiver of the code with respect to our chief executive officer and chief financial officer, and persons performing similar functions, by posting such information on our website.

Director Fees

For 2004, each of our directors was paid a fee of $600 for each board meeting attended and $400 for each committee meeting attended, except for Messrs. Fuller and Schmidt who, as executive officers, do not receive any fees for their services as directors. For 2005, the board meeting fee will be $800 and the committee meeting fee will be $500. Additionally, the director acting as chairman of a board meeting or committee meeting will be paid an additional $250. Heartland directors that serve on the boards of its subsidiaries receive the same fees as the other directors of the subsidiaries. Messrs. Fuller and Schmidt, to the extent they also serve as directors of a Heartland subsidiary, do not receive any fees for board service.

Non-employee directors are also eligible to receive incentive stock awards under the 2003 Stock Option Plan. No awards were granted to non-employee directors during 2004. Beginning in 2005, we may begin granting at least $6,000 of stock annually to each of our non-employee directors in addition to the board fees described above.

                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
                               AND MANAGEMENT

            The following table sets forth certain information with respect to the beneficial ownership of our common stock at March 21, 2005, by each person known by us to be the beneficial owner of more than 5% of the outstanding common stock, by each director or nominee, by each executive officer named in the summary compensation table and by all directors and executive officers of Heartland as a group. The address of each 5% stockholder is 1398 Central Avenue, Dubuque, Iowa 52001.

*      Less than one percent

                (1)            The information contained in this column is based upon information furnished to Heartland by the persons named above and the members of the designated group. Amounts reported include shares held directly as well as shares which are held in retirement accounts and shares held by certain members of the named individuals’ families or held by trusts of which the named individual is a trustee or substantial beneficiary, with respect to which shares the respective director may be deemed to have sole or shared voting and/or investment power. Also included are shares obtainable through the exercise of options within 60 days of the date of the information presented in this table in the following amounts: Mr. Lynn B. Fuller – 7,750 shares; Mr. Schmidt – 77,250 shares; Mr. Erickson –86,250 shares; Mr. Horstmann – 75,500 shares; Mr. Everts – 96,250 shares and all directors and executive officers as a group – 352,000 shares. The nature of beneficial ownership for shares shown in this column is sole voting and investment power, except as set forth in the footnotes below. Inclusion of shares shall not constitute an admission of beneficial ownership or voting and investment power over included shares.

                (2)            Includes 382,483 shares over which Dubuque Bank and Trust, Heartland’s lead bank subsidiary, has sole voting and investment power and 170,982 shares over which Dubuque Bank and Trust has shared voting or investment power.

                (3)            Includes shares held by the Heartland Partnership, L.P., over which Mr. Fuller has sole voting and investment power, as well as 62,270 shares held by a trust for which Mr. Fuller’s spouse is a trustee and 123,078 shares held in a trust for which Mr. Fuller serves as co-trustee, over which Mr. Fuller has shared voting and investment power.

                (4)            Mr. Lynn S. Fuller, a former director of Heartland and a stockholder of more than 5% of the outstanding shares, is the general partner of Heartland Partnership, L.P., and in such capacity exercises sole voting and investment power over such shares.

                (5)            Includes 35,750 shares held by a trust for which Mr. Conlan’s spouse is trustee and 21,000 shares held by the Heartland Partnership, L.P., over which Mr. Conlan has no voting or investment power but in which Mr. Conlan’s spouse does have a beneficial interest.

                (6)            Includes 14,540 shares held by John W. Cox Jr. Inc., of which Mr. Cox is a controlling stockholder and 4,085 shares held by McJoyce, Inc. of which Mr. Cox is a controlling stockholder.

                (7)            Includes 68,856 shares held by Mr. Falb’s spouse, as trustee, over which Mr. Falb has no voting or investment power.

                (8)            Includes 2,413 shares held by Mr. Flynn’s spouse in an individual retirement account, over which Mr. Flynn has no voting or investment power.

                (9)            Includes an aggregate of 8,186 shares held by Mr. Fuller’s spouse and minor children and 116,772 shares held in a trust for which Mr. Fuller serves as co-trustee, over which Mr. Fuller has shared voting and investment power. Includes 21,000 shares held by the Heartland Partnership, L.P., over which Mr. Fuller has no voting or investment power but in which Mr. Fuller does have a beneficial interest.

                (10)          Includes an aggregate of 22,912 shares held by Mr. Schmidt’s spouse and minor children and 1,549 shares held by Mr. Schmidt jointly with his spouse, over which Mr. Schmidt has shared voting and investment power.

                (11)          Includes 69,875 shares held by Mr. Erickson’s spouse.

                (12)          Includes 217 shares held by Mr. Everts’s adult son, over which Mr. Everts has no voting and investment power, and 300 shares held by Mr. Everts’s spouse under a 401(k) plan, over which Mr. Everts has no voting and investment power.

                (13)          Includes 27,000 shares held by Mr. Horstmann’s spouse, over which Mr. Horstmann has shared voting and investment power.

     Section 16(a) of the Securities Exchange Act of 1934 requires that our directors, executive officers and 10% stockholders file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of such forms, we are not aware that any of our directors, executive officers or 10% stockholders failed to comply with the filing requirements of Section 16(a) during 2004, except Mr. Conlan failed to timely file a Form 4 upon the acquisition of shares by his spouse in March of 2004.

     The following table sets forth information concerning the compensation paid or granted to our chief executive officer and to each of the other four most highly compensated executive officers of Heartland or our subsidiaries for the fiscal year ended December 31, 2004:

                 (1)           Includes amounts deferred under our retirement plan.

                 (2)           The amounts shown represent amounts received under our management incentive compensation plan.

                (3)           The amounts shown represent amounts contributed on behalf of the respective officer to our retirement plan and the allocable portion of the premium paid for life insurance under our executive death benefit program. For Mr. Fuller, the amounts shown include an automobile allowance of $2,131 for 2004, $2,131 for 2003 and $2,131 for 2002. For Mr. Schmidt, the amounts shown include an automobile allowance of $3,100 for 2004, $2,849 for 2003 and $2,014 for 2002. For Mr. Horstmann, the amounts shown include an automobile allowance of $534 for 2004. For 2004, 2003 and 2002, the amount contributed for each officer under our retirement plan was $24,621, $24,020 and $24,886 for Mr. Fuller, $24,621, $24,020 and $24,886 for Mr. Schmidt, $24,621, $24,020 and $22,661 for Mr. Erickson, $21,985, $20,209 and $18,807 for Mr. Horstmann and $19,111, $18,430 and $17,753 for Mr. Everts.

            The following table sets forth certain information concerning the number and value of stock options granted in the last fiscal year to the individuals named in the summary compensation table:

                (1)            Options become exercisable in three equal portions on the day after the third, fourth and fifth anniversaries of the January 20, 2004, date of grant.

                (2)            The Black-Scholes valuation model was used to determine the grant date present values. Significant assumptions include: risk-free interest rate, 4.13%; expected option life, 10 years; expected volatility, 20.67%; expected dividends, 1.66%.

                (3)            The ultimate value of the options will depend on the future market price of our common stock, which cannot be forecast with reasonable accuracy. The actual value, if any, an executive may realize upon the exercise of an option will depend on the excess of the market value of our common stock, on the date the option is exercised, over the exercise price of the option.

                The following table sets forth information concerning the stock options at December 31, 2004, held by the named executive officers.

                (1)            In January of 2005, Mr. Fuller acquired 13,500 shares of the shares underlying exercisable options.

            The change in control agreements discussed in our 2004 proxy expired on December 31, 2004.  The compensation/nominating committee anticipates that Heartland will enter into new change of control agreements with the listed officers during 2005. The new agreements will take into consideration the changes in the various elements of the executives' compensation discussed herein. The change of control agreements, in conjunction with all other elements of compensation paid to the listed officers, will be consistent with the overall compensation philosophy of this committee.

Compensation/Nominating Committee Report on Executive Compensation

            The incorporation by reference of this proxy statement into any document filed with the Securities and Exchange Commission by Heartland shall not be deemed to include the following report unless such report is specifically stated to be incorporated by reference into such document.

            General.  During 2004, the compensation/nominating committee was comprised of directors Falb, Cox, Flynn and Larson, each of whom is expected to serve on the committee through 2005. Each of the members is considered “independent” by the board according to the Nasdaq listing requirements, an “outside” director pursuant to Section 162(m) of the Internal Revenue Code and a “non-employee” director pursuant to Section 16 of the Securities Exchange Act of 1934. The committee administers our compensation program, which includes determining the aggregate compensation to be paid to Mr. Fuller, our chief executive officer. In addition, the committee reviews and recommends to the full board the compensation for our other executive officers. The committee also administers our stock and long-term incentive plans and meets either independently or in conjunction with our full board of directors to grant awards to eligible individuals in accordance with the terms of the plans.

            Compensation Overview.  Our executive compensation policies are intended to support the achievement of Heartland’s strategic business goals and the creation of value for our stockholders. Key objectives of our executive compensation program are to:

            In determining appropriate levels of executive and director compensation, the compensation/nominating committee has at its disposal independent reference information regarding compensation ranges and levels for executive and director positions in comparable companies, including public information for regional bank peer companies and published information from various nationally recognized compensation surveys. The comparison companies in our peer group are also included in the Nasdaq Bank Index used in preparation of the Performance Graph, except to the extent they are not listed on Nasdaq. Frederic W. Cook & Co., Inc. has been engaged to serve as an independent executive and director compensation advisor to the compensation/nominating committee. Key areas of service include providing market data on executive and director compensation pay levels and practices, developing executive and director compensation recommendations intended to support the committee’s objectives and keeping the committee abreast of technical and regulatory developments related to executive and director compensation.

            The three major components of executive officer compensation are base salary, annual incentive awards and long-term incentive awards. The process utilized by the committee in determining executive officer compensation levels for all of these components is based upon the committee’s subjective judgment and takes into account both qualitative and quantitative factors. No specific weights are assigned to such factors with respect to any compensation component. In reviewing and establishing an executive’s compensation, the committee considers and evaluates all components of the executive officer’s total compensation package. This involves reviewing the executive’s salary, bonus, incentive stock awards, perquisites, participation in our 401(k) plan, payments due upon retirement or a change of control, if any, and all other payments and awards that the executive officer earns. Among the factors considered by the committee are the recommendations of the chief executive officer with respect to the compensation of our other key executive officers. However, the committee makes the final compensation decisions concerning such officers.

            The compensation of executive officers during 2004 was based upon a number of factors, including:

Components of Compensation.

            Salary.  The compensation/nominating committee reviews each executive’s base salary on an annual basis. The committee believes that the base salaries should offer security to each executive and allow us to attract qualified executives and maintain a stable management team and operating environment. The committee targets base salaries of executive officers at levels generally comparable with, but slightly below, those of similar positions within the marketplace, taking into consideration the executive’s current market position and market salary movements generally. Additionally, base salaries are determined by examining, among other things, an executive’s level of responsibility, prior experience, breadth of knowledge, span of control, and performance against internal performance objectives. The committee may also consider Heartland’s performance and financial condition, as well as other payments and awards that the executive may receive in determining salaries. All of the factors described herein are considered on a subjective basis in the aggregate, and none of the factors is accorded a specific weight. When establishing the salary of executives other than his own, Mr. Fuller participated and made recommendations to the committee.      

            Bonus.  Annual performance incentives are provided to executives through cash bonuses based on the achievement of established performance goals. Bonus payments are primarily related to Heartland’s financial performance, as measured by return on equity and growth in core deposits. Other financial factors including, but not limited to, earnings per share growth, return on assets, asset growth, loan loss reserves, and asset quality, are also considered by the committee, along with various non-financial factors.  Individual performance criteria are also considered by the committee in determining bonuses.  Bonus opportunities are targeted at levels generally comparable to, but slightly above, those of similar positions within the marketplace. In conjunction with the targeting of base salaries slightly below market levels, this weighting is intended to reinforce Heartland’s pay-for-performance philosophy.

            Stock Ownership; Long-Term Incentive Awards.  The board and the compensation/nominating committee believe in employee ownership of our common stock. A variety of stock incentives have been used by Heartland, including the 2003 Stock Option Plan and the Employee Stock Purchase Plan. In addition, the proposed 2005 Long-Term Incentive Plan and 2006 Employee Stock Purchase Plan are being presented for stockholder approval at the 2005 Annual Meeting (see pages 23 and 32 of this proxy statement for more detail). The primary purpose of these long-term incentive plans is to enhance our long-term financial performance by further aligning the interests of participating employees with our stockholders through opportunities for increased employee ownership of Heartland, thereby creating an incentive to create long-term value for stockholders.

            Stock options are awarded annually to executives and other key employees. Stock options may be exercised subject to continued service over a multi-year vesting period at a price generally equal to the stock price at the date of grant. In determining stock option awards for executives, the Committee considers the executive’s level of responsibility, ability to influence long-term performance, individual performance and contribution, and level of prior stock option awards, as well as the Company’s financial performance. During 2004, the committee recommended, and the board of directors approved, the granting of options for a total of 97,250 shares to 71 employees. Options granted to Mr. Fuller and the other named executive officers in 2004 are shown in the tables above.

            Starting in 2005, performance shares will be granted to executive officers in addition to stock options. Performance shares, as authorized under the proposed 2005 Long-Term Incentive Plan, are restricted stock grants that may be fully earned by continued service and achievement of long-term performance goals. Stock ownership guidelines have also been adopted for executives to reinforce our core philosophy of employee stock ownership. 

Chief Executive Officer’s Compensation.  The committee establishes Mr. Fuller’s compensation consistent with the policies and considerations described above. Mr. Fuller’s compensation for 2004 reflects the committee’s satisfaction with Heartland’s overall financial performance, including its continued growth and profitability, as well as Mr. Fuller’s leadership and personal performance as chief executive officer. In addition to these factors, the Committee also considered Mr. Fuller’s previous years’ salaries and the salary levels of chief executive officers of comparable financial institutions in setting his base salary at $263,375 for 2004. His bonus of $195,000 was awarded based on the committee’s evaluation of Heartland’s financial performance in regard to, among other factors, return on equity and growth in core deposits, his individual performance, and bonus and annual compensation (salary plus bonus) levels of chief executive officers at comparable institutions. We awarded 15,000 stock options to Mr. Fuller in 2004, which was the same number of stock options he received in 2003. He also received $27,613 in other compensation, as reported in the summary compensation table of page 15.

Compliance with Section 162(m) of the Internal Revenue Code of 1986.  Section 162(m) of the Internal Revenue Code limits the deductibility of annual compensation in excess of $1 million paid to the our chief executive officer and any of the four other highest-paid officers, to the extent they are listed officers on the last day of any given tax year. Compensation is exempt from this limit, however, if it qualifies as “performance-based compensation.” Performance-based compensation generally includes only payments that are contingent on achievement of performance objectives, and excludes fixed or guaranteed payments. We believe performance-based compensation is an important tool to provide incentive to senior executives, matching their compensation levels to our performance.

The committee also believes that appropriate actions have been taken to preserve the deductibility of compensation of executives. Although we will consider deductibility under Section 162(m) with respect to the compensation arrangements for executive officers, deductibility will not be the sole factor used in determining appropriate levels or methods of compensation. Since our objectives may not always be consistent with the requirements for full deductibility, we may enter into compensation arrangements under which payments would not be deductible under Section 162(m) when we believe that such arrangements are in the best interest of the Company and its stockholders.

Conclusion.  The compensation/nominating committee believes the executive compensation policies and programs described above effectively serve the interests of shareholders and Heartland. The committee believes these policies motivate executives to contribute to our overall future success, thereby enhancing the value of Heartland for the benefit of all shareholders.

Respectfully,

Mark C. Falb, John W. Cox, Jr., Thomas L. Flynn, Ronald A. Larson

Compensation/Nominating Committee Interlocks and Insider Participation in Compensation Decisions

            During 2004, none of the directors serving on the compensation/nominating committee of Heartland or Dubuque Bank and Trust served as an executive officer of either organization, and none of these individuals was a former officer or employee of either organization. In addition, during 2004 no executive officer served on the board of directors or compensation committee of any other corporation with respect to which any member of our committee was engaged as an executive officer.

    The incorporation by reference of this proxy statement into any document filed with the Securities and Exchange Commission by Heartland shall not be deemed to include the following performance graph and related information unless such graph and related information is specifically stated to be incorporated by reference into such document.

            The following graph shows a five-year comparison of cumulative total returns for Heartland Financial USA, Inc., the Nasdaq Stock Market (U.S.) and an index of Nasdaq Bank Stocks. Figures for our common stock represent inter-dealer quotations, without retail markups, markdowns or commissions and do not necessarily represent actual transactions. Heartland became listed on Nasdaq in May, 2003. The graph was prepared at our request by Research Data Group, Inc.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

ASSUMES $100 INVESTED ON DECEMBER 31, 1999

[Graph depicting values in the table below]

^*Total return assumes reinvestment of dividends

            Directors and officers of Heartland and our subsidiaries, and their associates, were customers of and had transactions with us and one or more of our subsidiaries during 2004. Additional transactions may be expected to take place in the future. All outstanding loans, commitments to loan, transactions in repurchase agreements and certificates of deposit and depository relationships, in the opinion of management, were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features.

ADOPTION OF THE HEARTLAND FINANCIAL USA, INC. 2005 LONG-TERM INCENTIVE PLAN

            A proposal will be presented at the annual stockholders’ meeting to approve the Heartland Financial USA, Inc. 2005 Long-Term Incentive Plan (“2005 Long-Term Incentive Plan”). The board of directors approved the 2005 Long-Term Incentive Plan on February 10, 2005, subject to stockholder approval. A summary of the material provisions of the 2005 Long-Term Incentive Plan is set forth below. A copy of the 2005 Long-Term Incentive Plan is set forth in Exhibit A.

            The 2005 Long-Term Incentive Plan authorizes the issuance of up to 1,000,000 shares of Heartland Financial USA, Inc. common stock to participants pursuant to the various awards permitted under the plan. As of February 10, 2005, there were 698,750 shares remaining under the Heartland Financial USA, Inc. 2003 Stock Option Plan (“2003 Stock Option Plan”). Because no additional awards will be granted under the 2003 Stock Option Plan following stockholder approval of the 2005 Long-Term Incentive Plan, there will be a net increase of 301,250 shares available for issuance to participants. We feel that the additional 301,250 shares will enable us to grant awards to employees and directors at a level that is consistent with our overall compensation philosophy.

            The 2005 Long-Term Incentive Plan was also adopted by the board of directors in order to provide the nominating/compensation committee the authority to grant restricted stock awards to participants, which the 2003 Stock Option Plan did not. Subject to stockholder approval, the nominating/compensation committee has granted to certain executives performance-based restricted stock awards that will vest upon the attainment of pre-established earnings and asset growth targets. The achievement of these targets is consistent with the primary goals of our current five-year plan.

            The 2005 Long-Term Incentive Plan’s effective date is February 10, 2005, subject to approval by stockholders and, if approved, will continue in effect until terminated by the board of directors; provided, however, that no awards may be granted under the 2005 Long-Term Incentive Plan after the ten-year anniversary of its effective date. Any awards that are outstanding after the 2005 Long-Term Incentive Plan terminates shall remain subject to the terms of the 2005 Long-Term Incentive Plan.

               The 2005 Long-Term Incentive Plan has been established to:

            The 2005 Long-Term Incentive Plan is intended to promote the long-term financial interest of Heartland and its subsidiaries, including the growth in value of its equity and enhancement of long-term stockholder return.

            Heartland has proposed the 2005 Long-Term Incentive Plan at this time because it believes in the merits of linking executives’ overall compensation opportunities to the enhancement of long-term stockholder return. Heartland has historically used equity-based compensation in the form of options as key elements of its executives’ compensation packages. Because we believe it is important for the employees and directors of Heartland and its subsidiaries to have an equity interest in Heartland, the board of directors has approved the 2005 Long-Term Incentive Plan, and is now recommending it to stockholders for approval. Heartland has previously established a set of guidelines aimed at increasing officer stock ownership. Adoption of the 2005 Long-Term Incentive Plan will help achieve this goal and is necessary in order for Heartland to continue making equity awards to employees and directors at competitive levels.

General

            The 2005 Long-Term Incentive Plan provides that it will be administered by a committee (the “Committee”) comprised of two (2) or more members of the board of directors who are both non-employee directors and outside directors, as these terms are used in Rule 16b-3 of the Exchange Act and Section 162(m) of the Code, respectively. The Committee selects from the eligible Participants, the types of awards to be granted and the applicable terms, conditions, performance criteria, restrictions and other provisions of such awards. Eligible Participants are employees of Heartland or any of its subsidiaries, or consultants, directors or other persons providing services to Heartland or any of its subsidiaries. The Committee may delegate all or any portion of its responsibilities or powers under the 2005 Long-Term Incentive Plan to persons selected by it. If the Committee does not exist, or for any other reason determined by the board of directors, and to the extent not prohibited by applicable law or the applicable rules of any stock exchange, the board of directors may take any action under the 2005 Long-Term Incentive Plan that would otherwise be the responsibility of the Committee.

            The 2005 Long-Term Incentive Plan provides for the grant of non-qualified and incentive stock options, stock appreciation rights (“SARs”), stock awards and cash incentive awards.

            The maximum number of shares that may be delivered to Participants, or their beneficiaries, under the 2005 Long-Term Incentive Plan shall equal one million (1,000,000) shares of stock and any shares of stock that are represented by awards granted under the 2003 Stock Option Plan that are forfeited, expire or are canceled after the effective date without delivery of shares of stock or which result in the forfeiture of the shares of stock back to Heartland to the extent that such shares would have been added back to the reserve under the terms of the applicable 2003 Stock Option Plan. The maximum number of shares of stock that may be delivered to Participants and their beneficiaries under the 2005 Long-Term Incentive Plan as stock awards (as defined in the Plan) may not exceed thirty percent (30%) of the foregoing number of shares of stock. Any shares covered by an award that are not delivered on an unrestricted basis (for example, because the award is forfeited or canceled) shall not be deemed to have been delivered for this purpose.

               The following additional limits apply to awards under the 2005 Long-Term Incentive Plan:

               The shares of stock with respect to which awards may be made under the 2005 Long-Term Incentive Plan shall be:

            The Committee may use shares of stock available under the 2005 Long-Term Incentive Plan as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of Heartland or a subsidiary, including the plans and arrangements of Heartland or a subsidiary or of any entity which may be assumed in business combinations.

            In the event of a corporate transaction involving the stock of Heartland (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the foregoing share limitations and all outstanding awards will automatically be adjusted to reflect such event; provided that the Committee may adjust awards to preserve the benefits or potential benefits of the awards, including the prevention of automatic adjustments if appropriate. Action by the Committee may include:

            Except as otherwise provided by the Committee, awards under the 2005 Long-Term Incentive Plan are not transferable except as designated by the participant by will or by laws of descent and distribution.

Eligibility

            All employees and directors of, and service providers to, Heartland or its subsidiaries are eligible to become participants in the 2005 Long-Term Incentive Plan, except that non-employees may not be granted incentive stock options. As of February 10, 2005, Heartland and its subsidiaries had approximately 950 employees. The Committee will determine the specific employees who, in the future, will be granted awards under the 2005 Long-Term Incentive Plan and the type and amount of any such awards. On February 10, 2005, listed executive officers were granted performance-based restricted stock awards under the 2005 Long-Term Incentive Plan. Such awards shall be cancelled in the event that the stockholders do not approve this plan.

Options

            The Committee may grant an incentive stock option or non-qualified stock option to purchase stock at an exercise price determined under the option. Except as described below, the exercise price for an option shall not be less than the fair market value of the stock at the time the option is granted or, if greater, the par value of a share of stock. The exercise price of an option may not be decreased after the date of grant nor may an option be surrendered to Heartland as consideration for the grant of a replacement option with a lower exercise price, except as approved by our stockholders or as adjusted for corporate transactions described above.

            The option shall be exercisable in accordance with the terms established by the Committee. The full purchase price of each share of stock purchased upon the exercise of any option shall be paid at the time of exercise of an option. Except as otherwise determined by the Committee, the purchase price of an option shall be payable in cash, by promissory note (as permitted by law), in shares of stock (valued at fair market value as of the day of exercise), by authorizing a third party to sell shares of stock and remit a sufficient portion of the proceeds to Heartland, or a combination thereof. The Committee, in its discretion, may impose such conditions, restrictions, and contingencies on stock acquired pursuant to the exercise of an option as the Committee determines to be desirable.

Stock Appreciation Rights

            An SAR entitles the participant to receive stock equal in value to the amount by which the fair market value of a specified number of shares on the exercise date exceeds an exercise price established by the Committee. Except as described below, the exercise price for an SAR shall not be less than the fair market value of the stock at the time the SAR is granted. The SAR shall be exercisable in accordance with the terms established by the Committee. The Committee, in its discretion, may impose such conditions, restrictions, and contingencies on stock acquired pursuant to the exercise of a SAR as the Committee determines to be desirable.

Stock Awards

            The following types of “stock awards” may be granted, as determined by the Committee:

Cash Incentive Awards

            A cash incentive award is the grant of a right to receive a payment of cash, determined on an individual basis or as an allocation of an incentive pool that is contingent on the achievement of performance objectives established by the Committee. The Committee may grant cash incentive awards (including the right to receive payment of cash or stock having the value equivalent to the cash otherwise payable) that may be contingent on achievement of a participant’s performance objectives over a specified period established by the Committee. The grant of cash incentive awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Committee.

$1 Million Limit

            A U.S. income tax deduction for Heartland will generally be unavailable for annual compensation in excess of One Million Dollars ($1,000,000) paid to any of the five most highly compensated officers of a public corporation. However, amounts that constitute “performance-based compensation” are not counted toward the $1 million limit. It is expected that, generally, options and SARs granted under the 2005 Long-Term Incentive Plan will satisfy the requirements for “performance-based compensation.” The Committee may designate whether any stock awards or cash incentive awards being granted to any participant are intended to be “performance-based compensation” as that term is used in section 162(m) of the Code. Any such stock awards designated as intended to be “performance-based compensation” shall be conditioned on the achievement of one or more performance measures, to the extent required by Code section 162(m).

            “Performance-based compensation” stock awards shall be based on any one or more of the following company, subsidiary, operating unit or division performance measures as selected by the Committee: earnings; financial return ratios; operating or net cash flows; cash flow return on investment; total stockholder return; market share; net operating income, operating income or net income; debt load reduction; expense management; economic value added; stock price; assets, asset quality level, charge offs, loan reserves, non-performing assets, loans, deposits, growth of loans, deposits or assets; interest sensitivity gap levels, regulatory compliance, improvement of financial rating, achievement of balance sheet or income statement objectives, and strategic business objectives, consisting of one or more objectives based on meeting specific cost targets, business expansion goals and goals relating to acquisitions or divestitures. Performance measures may be based on the performance of Heartland as a whole or of any one or more subsidiaries or business units of Heartland or a subsidiary and may be measured relative to a peer group, and index or a business plan. The terms of any award may provide that partial achievement of performance criteria may result in partial payment or vesting of the award. Additionally, in establishing the performance measures, the Committee may provide for the inclusion or exclusion of certain items.

Change In Control

            Upon the occurrence of a change in control of the company all outstanding options and SARs held by a participant who is employed by, or providing services to, Heartland or its subsidiaries at the time of such change in control, shall become fully exercisable and all stock awards or cash incentive awards shall be fully earned and vested (subject to limitations on performance-based awards). For the purposes of the 2005 Long-Term Incentive Plan, a “change in control” is generally deemed to occur when (i) any person becomes the beneficial owner of fifty-one percent (51%) or more of the voting stock of Heartland Financial USA, Inc., (ii) the majority of the board of directors consists of individuals other than incumbent directors, which term means the members of the board of directors on the effective date of the 2005 Long-Term Incentive Plan; provided that any person becoming a director subsequent to such date whose election or nomination for election was supported by a majority of the directors who then comprised the incumbent directors shall be considered to be an incumbent; (iii) the complete liquidation or dissolution or an agreement for the disposition of all or substantially all of the assets of Heartland Financial USA, Inc.; or (iv) Heartland Financial USA, Inc. combines or merges with another company and immediately after the combination, the stockholders of Heartland Financial USA, Inc. immediately prior to the combination hold, directly or indirectly, less that fifty-one percent (51%) of the voting stock of the combined company.

Amendment And Termination

            The board of directors may at any time amend or terminate the 2005 Long-Term Incentive Plan or any award granted under the 2005 Long-Term Incentive Plan, provided that no amendment or termination may adversely affect the rights of any Participant without the Participant’s written consent. The board of directors may not amend the provision of the 2005 Long-Term Incentive Plan related to repricing, materially increase the original number of securities which may be issued under the 2005 Long-Term Incentive Plan (other than as provided in the 2005 Long-Term Incentive Plan), materially increase the benefits accruing to participant, or materially modify the requirements for participation in the 2005 Long-Term Incentive Plan without approval of stockholders.

United States Income Tax Considerations

            The following is a summary of the U.S. federal income tax consequences that may arise in conjunction with participation in the 2005 Long-Term Incentive Plan.

            Non-Qualified Options. The grant of a non-qualified option will not result in taxable income to the participant. Except as described below, the participant will realize ordinary income at the time of exercise in an amount equal to the excess of the fair market value of the shares acquired over the exercise price for those shares and Heartland will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise.

            Incentive stock Options. The grant of an incentive stock option will not result in taxable income to the participant. The exercise of an incentive stock option will not result in taxable income to the participant provided that the participant was, without a break in service, an employee of Heartland or a subsidiary during the period beginning on the date of the grant of the option and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the participant is disabled, as that term is defined in the Code).

            The excess of the fair market value of the shares at the time of the exercise of an incentive stock option over the exercise price is an adjustment that is included in the calculation of the participant’s alternative minimum taxable income for the tax year in which the incentive stock option is exercised. For purposes of determining the participant’s alternative minimum tax liability for the year of disposition of the shares acquired pursuant to the incentive stock option exercise, the participant will have a basis in those shares equal to the fair market value of the shares at the time of exercise.

            If the participant does not sell or otherwise dispose of the shares within two years from the date of the grant of the incentive stock option or within one year after the transfer of such stock to the participant, then, upon disposition of such shares, any amount realized in excess of the exercise price will be taxed to the participant as capital gain. A capital loss will be recognized to the extent that the amount realized is less than the exercise price.

            If the foregoing holding period requirements are not met, the participant will generally realize ordinary income at the time of the disposition of the shares, in an amount equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise over the exercise price, or (ii) the excess, if any, of the amount realized upon disposition of the shares over the exercise price and Heartland will be entitled to a corresponding deduction. If the amount realized exceeds the value of the shares on the date of exercise, any additional amount will be capital gain. If the amount realized is less than the exercise price, the participant will recognize no income, and a capital loss will be recognized equal to the excess of the exercise price over the amount realized upon the disposition of the shares.

            Stock Appreciation Rights. The grant of an SAR will not result in taxable income to the participant. Upon exercise of an SAR, the fair market value of shares received will be taxable to the participant as ordinary income and Heartland will be entitled to a corresponding deduction. Gains and losses realized by the participant upon disposition of any such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise.

            Stock Awards.  A participant who has been granted a stock award will not realize taxable income at the time of grant, provided that that the stock subject to the award is not delivered at the time of grant, or if the stock is delivered, it is subject to restrictions that constitute a “substantial risk of forfeiture” for U.S. income tax purposes. Upon the later of delivery or vesting of shares subject to an award, the holder will realize ordinary income in an amount equal to the then fair market value of those shares and Heartland will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of delivery or vesting. Dividends paid to the holder during the restriction period, if so provided, will also be compensation income to the participant and Heartland will be entitled to a corresponding deduction.

            Withholding Of Taxes.  Heartland may withhold amounts from participants to satisfy withholding tax requirements. Except as otherwise provided by the Committee, participants may have shares withheld from awards or may tender previously owned shares to Heartland to satisfy tax withholding requirements. The shares withheld from awards may only be used to satisfy Heartland’s minimum statutory withholding obligation.

            Change In Control.  Any acceleration of the vesting or payment of awards under the 2005 Long-Term Incentive Plan in the event of a change in control in Heartland may cause part or all of the consideration involved to be treated as an “excess parachute payment” under the Code, which may subject the participant to a 20% excise tax and preclude deduction by Heartland

            Tax Advice.  The preceding discussion is based on U.S. tax laws and regulations presently in effect, which are subject to change, and the discussion does not purport to be a complete description of the U.S. income tax aspects of the 2005 Long-Term Incentive Plan. A participant may also be subject to state and local taxes in connection with the grant of awards under the 2005 Long-Term Incentive Plan. Heartland suggests that participants consult with their individual tax advisors to determine the applicability of the tax rules to the awards granted to them in their personal circumstances.

New 2005 Long-Term Incentive Plan Benefits

            The number and types of awards to be made pursuant to the 2005 Long-Term Incentive Plan is subject to the discretion of the committee and not determinable at this time; however, the following table summarizes the awards granted under the 2005 Long-Term Incentive Plan on February 10, 2005, contingent upon the plan being approved by stockholders.

The board of directors recommends that you vote your shares FOR adoption of the Heartland Financial USA, Inc. 2005 Long-Term Incentive Plan.

ADOPTION OF HEARTLAND FINANCIAL USA, INC. 2006 EMPLOYEE STOCK
PURCHASE PLAN

            A proposal will be presented at the annual stockholders’ meeting to approve the Heartland Financial USA, Inc. 2006 Employee Stock Purchase Plan (the “2006 Employee Stock Purchase Plan). The board of directors approved the 2006 Employee Stock Purchase Plan on February 10, 2005, subject to stockholder approval. A summary of the material provisions of the 2006 Employee Stock Purchase Plan is set forth below. A copy of the 2006 Employee Stock Purchase Plan is set forth in Exhibit B.

            The 2006 Employee Stock Purchase Plan will become effective on January 1, 2006, (the “Effective Date”) upon the approval by the stockholders and, if approved, will continue in effect until terminated (as discussed in more detail below). Heartland established the 2006 Employee Stock Purchase Plan to secure for Heartland, its related companies and its stockholders the benefits of the incentive inherent in the ownership of common stock by employees. Such benefits are currently satisfied by the Heartland Financial USA, Inc. 1996 Employee Stock Purchase Plan (the “1996 Employee Stock Purchase Plan”) which expires January 1, 2006. The 2006 Employee Stock Purchase Plan will replace the 1996 Employee Stock Purchase Plan, as it expires. Adoption of the 2006 Employee Stock Purchase Plan insures employees will be able to continue to participate in a stock purchase plan.

            The 2006 Employee Stock Purchase Plan provides employees the right to withhold a percentage of their compensation to be used to purchase shares of Heartland Financial USA, Inc.’s common stock. Those employees eligible to participate in the 2006 Employee Stock Purchase Plan are hereinafter referred to as “Participants.”

General

            The 2006 Employee Stock Purchase Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The 2006 Employee Stock Purchase Plan provides that it will be administered by a committee (the “Committee”) comprised of two (2) or more members of the Board who are both non-employee, disinterested directors, as these terms are used in Rule 16b-3 of the Exchange Act. The Committee has the authority to (i) establish or change the duration of any offering period; (ii) limit or increase the frequency and/or number of changes in the amounts withheld during an offering period; (iii) establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of common stock for each Participant properly correspond with amounts withheld from the Participant’s compensation; (iv) delegate all or any portion of its responsibilities or powers under the 2006 Employee Stock Purchase Plan to persons selected by it; (v) establish new terms with respect to the shares under the 2006 Employee Stock Purchase Plan; and (vi) establish other limitations or procedures as it determines that are consistent with the administration of the 2006 Employee Stock Purchase Plan.

            The maximum number of shares subject to the 2006 Employee Stock Purchase Plan include (i) five hundred thousand (500,000) shares that are reserved for the issuance and purchase under the 2006 Employee Stock Purchase Plan and (ii) the shares currently authorized but unissued, or currently held or, to the extent permitted by applicable law, subsequently acquired by Heartland as treasury shares, including shares purchased in the open market or in private transactions.

            Employees may elect to participate in the 2006 Employee Stock Purchase Plan each year (the “Offering Period”) by submitting an enrollment form to Heartland by a specified date. This form will specify the percentage of compensation the Participant desires to have withheld to be used to purchase Heartland Financial USA, Inc. common stock. Each Participant’s payroll deduction will be credited to a payroll deduction account. These amounts are assets of Heartland Financial USA, Inc. and may be used by Heartland Financial USA, Inc. for any corporate purpose. No interest shall accrue or be paid on amounts credited to a payroll deduction account. On the last day of the Offering Period, each Participant shall be deemed to have exercised rights under the 2006 Employee Stock Purchase Plan to purchase shares of Heartland Financial USA, Inc.’s common stock. The number of shares each Participant is deemed to have purchased is determined by dividing the current balance of the Participant’s payroll deduction account by the purchase price as determined by the method establish by the Committee prior to the being of the Offering Period. The Committee may establish the purchase price using any of the following standards:

            Unless modified by the Committee, the purchase price shall be one hundred percent (100%) of the Fair Market Value on the Grant Date.

            The following additional limits apply to the shares purchased under the 2006 Employee Stock Purchase Plan:

            Unless otherwise provided by the Committee, in the event of a change to the capitalization or the stock of Heartland Financial USA, Inc., the number and kind of securities underling each Participant’s right to purchase shares under the 2006 Employee Stock Purchase Plan will automatically be adjusted to reflect such event. Such adjustment will not change the total price for the Participant’s option to purchase the shares, but will include an adjustment in the price of the shares, to the extent consistent with Section 424 of the Code.

Eligibility

            Each employee is eligible to participate in the 2006 Employee Stock Purchase Plan beginning on January 1 of each year, unless modified by the Committee, (the “Plan Year”) following the date on which the employee has been employed. The Committee may change the eligibility criteria for any Plan Year, in advance of such Plan Year, provided that such criterion is permissible under Code Section 423.

Amendment and Termination

            The Board may at any time amend the 2006 Employee Stock Purchase Plan, provided that no amendment may retroactively impair or otherwise adversely affect any Participant’s rights to accrued benefits under the 2006 Employee Stock Purchase Plan.

            The Board may also terminate the 2006 Employee Stock Purchase Plan at any time. If not terminated by the Board, the Employee Stock Purchase Plan will terminate on the earlier of: (i) the date on which there are no additional shares reserved under the Employee Stock Purchase Plan for issuance to Participants; or (ii) December 31, 2015. Upon termination, Heartland will refund each Participant any payroll deductions credited to their payroll deduction account.

Federal Income Tax Consequences

            The following is a summary of the U. S. federal income tax consequences that generally will arise with respect to purchases made under the 2006 Employee Stock Purchase Plan and with respect to the sale of common stock acquired under the 2006 Employee Stock Purchase Plan. This summary is based on the federal tax laws in effect as of the date of this proxy statement. Changes to these laws could alter the tax consequences described below.

            In general, a participant will not recognize taxable income upon enrolling in the 2006 Employee Stock Purchase Plan or upon purchasing shares of Heartland Financial USA, Inc. common stock at the end of an offering period. If the participant disposes of shares purchased pursuant to the 2006 Employee Stock Purchase Plan more than two (2) years from the entry date (as defined in the 2006 Employee Stock Purchase Plan) and more than one (1) year from the date on which the shares were purchased, then the participant will recognize taxable income in an amount equal to the lesser of (i) excess of the fair market value of the stock on the date of sale over the price at which the participant purchased the common stock, or (ii) the excess of the fair market value of the stock at the time the option was granted over the purchase price.

            Any gain on the disposition in excess of the amount treated as ordinary income will be capital gain. Heartland is not entitled to take a deduction for the amount of the discount in circumstances indicated above.

            If the participant disposes of shares purchased pursuant to the 2006 Employee Stock Purchase Plan within two years after the Entry Date or within one year after the purchase date, the employee will recognize ordinary income on the excess, if any, of the fair market value of the stock on the purchase date over the purchase price. Any difference between the sale price of the shares and the fair market value on the purchase date will be capital gain or loss. Heartland is entitled to a deduction from income equal to the amount the employee is required to report as ordinary compensation income.

            The preceding discussion is based on U.S. tax laws and regulations presently in effect, which are subject to change, and the discussion does not purport to be a complete description of the U.S. income tax aspects of the 2005 Long-Term Incentive Plan. A Participant may also be subject to state and local taxes in connection with the grant of awards under the 2005 Long-Term Incentive Plan. Heartland suggests that Participants consult with their individual tax advisors to determine the applicability of the tax rules to the awards granted to them in their personal circumstances.

The board of directors recommends that you vote your shares FOR adoption of the Heartland Financial USA, Inc. 2006 Employee Stock Purchase Plan.

EQUITY COMPENSATION PLAN INFORMATION

            The table below sets forth the following information as of December 31, 2004 for (i) all compensation plans previously approved by Heartland's shareholders and (ii) all compensation plans not previously approved by Heartland's shareholders:

      (a)  the number of securities to be issued upon the exercise of outstanding options, warrants and rights;

      (b)  the weighted-average exercise price of such outstanding options, warrants and rights;

      (c)  other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans.

AUDIT/CORPORATE GOVERANCE COMMITTEE REPORT

            The incorporation by reference of this proxy statement into any document filed with the Securities and Exchange Commission by Heartland shall not be deemed to include the following report unless such report is specifically stated to be incorporated by reference into such document.

            The audit/corporate governance committee assists the board in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The committee also reviews the audited financial statements and recommends to the board that they be included in our annual report on Form 10-K.

            The audit/corporate governance committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2004, with our management and KPMG LLP, our independent auditors. The committee has also discussed with KPMG LLP the matters required to be discussed by SAS 61 (Codification for Statements on Auditing Standards) as well as having received and discussed the written disclosures and the letter from KPMG LLP required by Independence Standards Board Statement No. 1 (Independence Discussions with Audit Committees). Based on the review and discussions with management and KPMG LLP, the committee has recommended to the board that the audited financial statements be included in our annual report on Form 10-K for the fiscal year ended December 31, 2004, for filing with the Securities and Exchange Commission.

Respectfully,
Mark C. Falb, John W. Cox, Jr., Thomas L. Flynn, Ronald A. Larson

RELATIONSHIP WITH INDEPENDENT AUDITORS

    At the recommendation of the audit/corporate governance committee, we have appointed KPMG, LLP to be our independent auditors for the fiscal year ending December 31, 2005, and our board of directors recommends that the stockholders ratify the appointment.  KPMG LLP has been our auditor since June 1994.  A representative of KPMG LLP is expected to attend the meeting and will be available to respond to appropriate questions and to make a statement if he or she so desires.  If the appointment of independent auditors is not ratified, the audit/corporate governance committee of the board of directors will consider the matter of the appointment.  The board of directors recommends that you vote your shares FOR ratification of this appointment.

Accountant Fees

            Audit Fees.  The aggregate amount of fees billed by KPMG LLP for its audit of our annual financial statements for fiscal years 2004 and 2003 and for its required reviews of our unaudited interim financial statements included in our quarterly reports filed during fiscal 2004 and 2003 were $440,000 and $111,250, respectively. A significant portion of these fees were attributable to the requirements under Sarbanes Oxley Section 404 which required an examination of our assessment of the effectiveness of internal control over financial reporting under the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Additionally, these fees were attributable to the implementation of new accounting pronouncements, examination of our internal control structure as required under the FDICIA of 1991 and audit procedures required as a result of our bank subsidiaries’ participation in programs offered by the Federal Home Loan Bank and FHLMC.

            Audit Related Fees.  The aggregate amounts of audit related fees billed by KPMG LLP for fiscal years 2004 and 2003 were $31,600 and $8,600, respectively. The majority of these services were related to filings with the Securities and Exchange Commission. Additionally, services related to the audits of our employee benefit and retirement plans and our employee stock purchase plan were included in these fees.

            Tax Fees.  KPMG LLP did not provide any tax related services to us for the fiscal years 2004 and 2003.

                        All Other Fees.  We did not incur any fees from KPMG LLP for fiscal years 2004 and 2003 other than the fees reported above.

            The audit/corporate governance committee, after consideration of these matters, does not believe that the rendering of these services by KPMG LLP to be incompatible with maintaining their independence as our principal accountants.

            Among other things, the audit/corporate governance committee is responsible for appointing, setting compensation for and overseeing the work of the independent accountant. The audit/corporate governance committee has not adopted any formal policy concerning pre‑approval of the audit and permissible non‑audit services to be provided by KPMG LLP. These services include audit and audit‑related services, tax services and other services. Instead, on a case by case basis, any audit or permissible non‑audit service proposed to be performed is considered by and, if deemed appropriate, approved by the audit/corporate governance committee in advance of the performance of such service. All of the fees earned by KPMG LLP described above were attributable to services pre‑approved by the audit/corporate governance committee.

FAILURE TO INDICATE CHOICE

       If any stockholder fails to indicate a choice in items (1), (2), (3) or (4) on the proxy card, the shares of such stockholder shall be voted FOR in each instance. 

Dubuque, Iowa

April 6, 2005