Labor Costs Weigh on Profits at Heartland in Iowa

Heartland Financial USA (HTLF) in Dubuque, Iowa, reported lower quarterly earnings as compensation expenses rose.

The $4.9 billion-asset company said Monday that it earned $12.6 million in the first quarter of 2012, 2% lower than in the first quarter of 2012. Yet per-share earnings of 70 cents beat Bloomberg analysts’ expectations by 13 cents.

Noninterest expense surged 16%, to $46.7 million, driven by a $5.7 million rise in salary and benefit costs, to $29.7 million. The higher costs were the result of an expansion of Heartland’s mortgage-origination operations, which helped raise its headcount by nearly 300, to 1,532.

Heartland also added  to its staff through acquisitions. Last year, the company bought First Shares in Platteville, Wis., and agreed to buy Heritage Bank in Phoenix.

Net interest income rose 1%, to $38.7 million, as both interest expense and income fell. Average interest-earning assets increased 11%, to $3.4 billion, but net interest margin decreased by 36 basis points, to 3.77%.

Noninterest income rose 13%, to $26.5 million, on higher income from service charges and fees and  gains from loan sales.

Heartland’s asset quality improved, as nonperforming assets fell 23%, to $71.2 million, and provision for loan losses dropped to $637,000, from $2.4 million. Net chargeoffs were $1.8 million, compared with a net recovery of $200,000 in the first quarter of 2012.