Heartland Financial USA Inc. of Dubuque, Iowa, said it expects to post a loss of $2 million to $3 million for the fourth quarter, as a result of a spike in problem loans in Arizona, Colorado, and Montana.

The $3.4 billion-asset company earned $6.8 million in the fourth quarter of 2007.

Despite the anticipated loss, Heartland said in a filing with the Securities and Exchange Commission late Friday that it will still be in the black for the full year, with earnings of $11 million to $12 million. In 2007 it earned $25.6 million.

Heartland is a 10-bank holding company with operations in Iowa, Illinois, Wisconsin, Minnesota, Colorado, New Mexico, Arizona, and Montana.

It said in the preliminary earnings filing that it expects to report that its loan-loss provision for the fourth quarter surged 355% from a year earlier and more than doubled from the third quarter, to $15 million. That would mean the yearend tripled from a year earlier, to $30 million.

Heartland said the need for an elevated provision was identified late in the quarter and was driven by lower internal risk ratings, reduced appraised values, higher levels of chargeoffs, and an increase in nonperforming loans.

The company said it expects to report that its nonperforming assets climbed 158%, to $88 million, and were concentrated in Arizona, Colorado, and Montana.

Given the provisioning, Heartland said it expects its allowance for loan losses as a percentage of total loans to be unchanged from the third quarter, at 1.47%.

Stephen Geyen, an analyst with Stifel, Nicolaus & Co. Inc., called the allowance ratio "a bit surprising" in a research note released Monday. He wrote that even though Heartland's ratio is significantly better than those of other Midwest banking companies, it is below the 1.8% to 1.9% he would expect during this credit cycle.

Heartland intends to announce fourth-quarter and full-year earnings Jan. 26.

By late Monday its shares had fallen nearly 8% from Friday's close, to $17.60.

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