Blackhawk Bancorp, Inc. (OTCBB: BHWB) reports net
income $513,000 for the second quarter of 2013, a 31% drop compared
to $745,000 earned in the second quarter of 2012. For the six
months of 2013 the company’s net income was $1,096,000, a 23%
decrease compared to $1,423,000 earned the first six months of
2012.
Earnings per diluted share for the quarter decreased $0.11, to
$0.16 compared to $0.27 per diluted share the second quarter of
2012. For the first half of 2013 the company earned $0.35 per
diluted share, a 30% decrease compared to the $0.50 per diluted
share earned the first half of 2012. The company had total assets
of $593.8 million at June 30, 2013, a $34.0 million increase
compared to $559.8 million at December 31, 2012.
“The decline in earnings was due to elevated loan losses
associated with continued weakness in local real estate values,”
said Rick Bastian the company’s president & CEO. “While
disappointed in the bottom line, we are very pleased with the
progress we’ve made growing the core business of the bank and
reducing nonperforming assets to their lowest level in years.” The
company’s total revenue is little changed from last year despite
continued pressure on the net interest margin from competition for
high quality loans and the overall low rate environment. Loan and
core deposit growth has helped offset margin contraction with
average total loans for the first half of the year increasing 5%
over last year. Noninterest income is down by 5% compared to last
year due to a reduction in mortgage banking revenue; however the
level of non-interest income continues to be strong, making up 36%
of the company’s revenue so far in 2013, with mortgage banking
being the largest source. Operating expenses are under control,
increasing only 2% for the first six months of the year, with
increases reflecting investments in talent and technology.
In addition, nonperforming assets are at their lowest level
since the fourth Quarter of 2009 with total nonperforming loans and
OREO of $9.2 million, or 2.55% of total loans at June 30, 2013. At
June 30, 2013 the ratio of the allowance for loan losses to total
loans is 1.86% and the ratio of the allowance for loan losses to
nonperforming loans is 111%. The allowance coverage of
nonperforming loans is the highest it’s been since the recession
began in 2008.
The following table summarizes key performance and asset quality
measures for the quarter ended June 30, 2013 compared to the
previous four quarters:
2nd Qtr
1st Qtr
4th Qtr
3rd Qtr
2nd Qtr
Key Performance and Asset Quality Measures 2013
2013 2012
2012 2012 Diluted Earnings per share
$0.16 $0.19 $0.28 $0.25 $0.27 Return on average assets .35% .42%
.55% .50% .53% Return on common equity 3.66% 4.52% 6.69% 6.00%
6.82% Net interest margin 3.66% 3.76% 3.75% 3.72% 3.80% Efficiency
ratio 68.24 74.91% 72.92% 68.16% 67.37% Nonaccrual loans to total
loans 1.68% 2.46% 3.09% 3.77% 3.01% Nonaccrual loans and OREO to
total loans 2.55% 3.07% 3.57% 4.38% 3.76% Allowance for loan losses
to total loans 1.86% 1.77% 1.78% 1.74% 1.98% Allowance for loan
losses to nonaccrual loans 110.7% 72.2% 57.11% 46.1% 65.8%
Subsidiary bank total risk-based capital 13.64% 13.62% 13.51%
13.62% 13.58%
Net Interest Income
Net interest income for the second quarter decreased less than
1% to $4,790,000 compared to $4,809,000 in the second quarter 2012.
Average total earning assets for the second quarter increased by
$16.8 million to $541.0 million compared to $524.2 million in the
second quarter of 2012. The growth in earning assets includes a
$10.8 million, or 3%, increase in average total loans and net $6.0
million increase in investment securities and short-term
investments. The net interest margin realized on earning assets
decreased 14 basis points to 3.66% for the quarter ended June 30,
2013 compared to 3.80% for the second quarter of 2012. Average
total deposits for the second quarter increased by $14.9 million,
or 3%, to $502.6 million compared to $487.7 million the second
quarter of last year. The increase in average total deposits
includes a $17.4 million, or 4%, increase in average non-maturity
deposits such as demand deposit, interest checking, savings and
money market accounts, which was offset by a $2.6 million decrease
in the average balance of time deposits.
Net interest income for the six months ended June 30, 2013
increased by $21,000 to $9,521,000 compared to $9,500,000 for the
first half of 2012. Average total earning assets for the first half
of the 2013 increased by $12.6 million to $533.4 million compared
to $520.8 million for the first half of 2012. The earning asset
growth included a $17.3 million, or 5%, increase in average total
loans. The net interest margin for the first six months of 2013
declined by 6 basis points to 3.71% compared to 3.77% for the first
half of last year. Average total deposits for the first half of
2013 increased by $15.5 million, or 3%, to $500.4 million compared
to $484.8 million in the first six months of 2012. The increase in
average total deposits includes an increase of $20.5 million, or
5%, in average non-maturity deposits such as demand deposit,
interest checking, savings and money market accounts. The increase
in average non-maturity deposits was partially offset with a $5.0
million reduction in average time deposits.
Provision for Loan Losses and Credit Quality
The provision for loan losses in the second quarter increased by
$440,000, or 29%, to $1,980,000 compared to $1,540,000 in second
quarter 2012. For the six months ended June 30, 2013 the provision
for loan losses increased by $260,000, or 9%, to $3,060,000
compared to $2,800,000 for the first half of 2012.
The company had net loan charge-offs of $2,858,000 in the first
six months of 2013, compared to $2,665,000 for the first half of
2012. Nonaccrual loans and other real estate owned totaled $9.2
million, or 2.55% of total loans, at June 30, 2013 compared to
$11.1 million, or 3.07% of total loans, at March 31, 2013, and
$13.2 million, or 3.6% of total loans, at December 31, 2012.
The following table summarizes the activity in the allowance for
loan losses for the six months ended June 30, 2013 and 2012, and
the year ended December 31, 2012:
Activity in Allowance for Loan Losses: Six Months
Ended Year Ended
(In Thousands) June
30, December 31, 2013 2012 2012 Beginning allowance for loan
losses 6,520 6,943 6,943 Provision for loan losses 3,060 2,800
5,620 Charge-offs (3,001) (2,852) (6,391) Recoveries 143 187 348
Ending allowance for loan losses 6,722 7,078 6,520
Net charge-offs to average total loans,
annualized
1.59% 1.51% 1.71%
The ratio of allowance for loan losses to total loans was 1.86%
as of June 30, 2013 compared to 1.77% at March 31, 2013, and 1.78%
at December 31, 2012. The ratio of the allowance for loan losses to
nonaccrual loans was 111% at June 30, 2013, compared to 72% at
March 31, 2013 and 57% at December 31, 2012.
Non-Interest Income and Operating Expenses
Noninterest income for the second quarter of 2013 increased by
$126,000, or 4%, to $3,042,000 compared to $2,916,000 the second
quarter of the prior year. A net decrease of $180,000 in mortgage
banking revenue was offset with increases in securities gains. For
the six months ended June 30, 2013 noninterest income decreased
$272,000 to $5,200,000 compared to $5,472,000 the first half of
2012. The decrease is primarily attributable to a reduction in
mortgage banking revenue.
Operating expenses for the second quarter increased $147,000, or
3%, to $5,444,000 compared to $5,297,000 in the second quarter of
2012. For the six months ended June 30, 2013 operating expenses
increased by $252,000, or 2% to $10,711,000 compared to $10,459,000
the first half of 2012. The increase in operating expenses for both
the three and six month periods ended June 30, 2013 was due to
increased compensation expense and occupancy and equipment costs
related to technology investments.
Outlook
Blackhawk has created a strong credit culture and the processes
to support it; however, the economic recession and depressed real
estate values have resulted in an elevated level of nonperforming
loans. While the level of nonperforming loans has begun to decrease
and should result in improved earnings, the potential for
continuing economic weakness presents a heightened level of risk.
For that reason, the company expects to continue fortifying its
balance sheet by conserving capital, strengthening the allowance
for loan losses and maintaining ample liquidity to meet the demands
of its customer base. The company will however continue to seek
profitable growth opportunities in its Wisconsin and Illinois
markets, without sacrificing profitability or credit quality.
Blackhawk emphasizes the value of its personal attention and the
service it provides that remain unmatched by larger
competitors.
About Blackhawk Bancorp
Blackhawk Bancorp, Inc. is headquartered in Beloit, Wisconsin
and is the parent company of Blackhawk Bank, which operates eight
banking centers in south central Wisconsin and north central
Illinois, along the I-90 corridor from Belvidere, Illinois to
Beloit, Wisconsin. Blackhawk’s locations serve individuals and
small businesses, primarily with fewer than 200 employees. The
company offers a variety of value-added consultative services to
small businesses and their employees related to its banking
products such as health savings accounts and investment
management.
Forward-Looking Statements
When used in this communication, the words “believes,”
“expects,” and similar expressions are intended to identify
forward-looking statements. The company’s actual results may differ
materially from those described in the forward-looking statements.
Factors which could cause such a variance to occur include, but are
not limited to: heightened competition; adverse state and federal
regulation; failure to obtain new or retain existing customers;
ability to attract and retain key executives and personnel; changes
in interest rates; unanticipated changes in industry trends;
unanticipated changes in credit quality and risk factors, including
general economic conditions; success in gaining regulatory
approvals when required; changes in the Federal Reserve Board
monetary policies; unexpected outcomes of new and existing
litigation in which Blackhawk or its subsidiaries, officers,
directors or employees is named defendants; technological changes;
changes in accounting principles generally accepted in the United
States; changes in assumptions or conditions affecting the
application of “critical accounting policies”; and the inability of
third party vendors to perform critical services for the company or
its customers.
Further information is available on the Company’s website at
www.blackhawkbank.com.
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JUNE 30, 2013 AND DECEMBER
31, 2012 (UNAUDITED) June 30, December 31,
Assets 2013 2012 (Amounts in
thousands, except share and per share data) Cash and due from banks
$ 14,041 $ 11,579 Federal funds sold and securities purchased under
agreements to resell 38,705 25,442 Interest-bearing deposits in
banks 9,308 1,539 Total cash and cash
equivalents 62,054 38,560 Trading
securities 1,207 1,614 Securities available-for-sale 131,232
121,077 Loans held for sale 4,945 2,558 Federal Home Loan Bank
(FHLB) Stock, at cost 2,266 2,266
Loans, less allowance for loan losses of
$6,722 and $6,425 at June 30, 2013 and December 31, 2012,
respectively
354,647 359,928 Office buildings and equipment, net 9,055 8,407
Intangible assets, net 8,267 8,274 Cash surrender value of
bank-owned life insurance 9,166 9,016 Other assets 10,933
8,059 Total assets $ 593,772 $ 559,759
Liabilities and Stockholders' Equity
Liabilities Deposits: Noninterest-bearing $ 86,491 $ 84,311
Interest-bearing 430,515 409,510 Total
deposits 517,006 493,821
Borrowings (including $2,176 and $2,217 at
fair value at June 30, 2013 and December 31, 2012,
respectively)
16,176 10,010
Subordinated debentures (including $834 at
fair value at June 30, 2013 and December 31, 2012)
10,874 4,958 Other liabilities 3,374 3,146
Total liabilities 547,430
511,935
Stockholders’ equity Preferred stock,
$0.01 par value, 1,000,000 shares authorized;
10,500 shares issued as of June 30, 2013
and December 31, 2012, respectively
10,433 10,383 Common stock, $0.01 par value, 10,000,000 shares
authorized;
2,299,496 and 2,287,496 shares issued as
of June 30, 2013 and December 31, 2012, respectively
23 23 Surplus 9,689 9,619 Retained earnings 26,669 25,896
Treasury stock, 83,252 shares at cost as
of June 30, 2013 and December 31, 2012
(909 ) (909 ) Accumulated other comprehensive income (loss)
437 2,812 Total stockholders' equity
46,342 47,824
Total liabilities and
stockholders' equity $ 593,772 $ 559,759
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended June 30, 2013 2012
(Amounts in thousands, except share and per share data) Interest
Income: Interest and fees on loans $ 4,714 $ 4,908 Interest on
trading securities 13 22 Interest and dividends on securities:
Taxable 518 710 Tax-exempt 288 289 Interest on federal funds sold
and securities purchased under agreements to resell 115 70 Interest
on interest-bearing deposits in banks 1 4
Total interest and dividend income 5,649
6,003 Interest Expenses: Interest on deposits
658 922 Interest on short-term borrowings 1 2 Interest on long-term
borrowings 47 234 Interest on subordinated debentures 153
36
Total interest expense 859
1,194
Net interest and dividend income
4,790 4,809 Provision for loan losses 1,980
1,540
Net interest and dividend income after provision
for loan losses 2,810 3,269
Noninterest Income: Service charges on deposits accounts 684 682
Net gain on sale of loans 968 1,168 Net mortgage servicing income
(22 ) (42 ) Debit card interchange fees 579 587 Net gains (losses)
on trading activities 3 (27 ) Net gains (losses) on
available-for-sale securities 587 296 Net other gains (losses) 56
(43 ) Increase in cash value of bank-owned life insurance 69 71
Other 118 224
Total noninterest
income 3,042 2,916
Noninterest Expenses: Salaries and employee benefits 2,825 2,711
Occupancy and equipment 646 598 Data processing 601 634 FDIC
assessment 185 185 Advertising and marketing 63 89 Amortization of
intangibles 35 35 Professional fees 301 301 Office Supplies 92 100
Telephone 98 77 Other 598 567
Total
noninterest expenses 5,444 5,297
Income before income taxes 408 888 Provision for income
taxes (105 ) 143
Net income $ 513
$ 745
Key Ratios
Basic Earnings Per Common Share $ 0.16 $ 0.27 Diluted
Earnings Per Common Share 0.16 0.27 Net Interest Margin
(FTE) 3.66 % 3.80 % Efficiency Ratio (FTE) 0.00 % 67.37 % Return on
Assets 0.35 % 0.53 % Return on Common Equity 3.66 % 6.82 %
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Six
months ended June 30, 2013 2012 (Amounts
in thousands, except share and per share data) Interest Income:
Interest and fees on loans $ 9,407 $ 9,639 Interest on trading
securities 27 33 Interest and dividends on available-for-sale
securities: Taxable 1,055 1,499 Tax-exempt 579 577 Interest on
federal funds sold and securities purchased under agreements to
resell 209 149 Interest on interest-bearing deposits in banks
4 6
Total interest and dividend
income 11,281 11,903 Interest
Expenses: Interest on deposits 1,405 1,875 Interest on borrowings
147 455 Interest on subordinated debentures 208
73
Total interest expense 1,760
2,403
Net interest and dividend income before
provision for loan losses 9,521 9,500 Provision for loan losses
3,060 2,800
Net interest and
dividend income after provision for loan losses 6,461
6,700 Noninterest Income: Service
charges on deposits accounts 1,339 1,297 Net gain on sale of loans
1,740 2,067 Net loan servicing income (loss) (53 ) (122 ) Debit
card interchange fees 1,124 1,148 Net gains (losses) on trading
activities 7 (43 ) Net gains (losses) on available-for-sale
securities 587 522 Net other gains (losses) (20 ) (17 ) Increase in
cash surrender value of bank-owned life insurance 149 153 Other
327 467
Total noninterest income
5,200 5,472 Noninterest
Expenses: Salaries and employee benefits 5,579 5,427 Occupancy and
equipment 1,305 1,204 Data processing 1,182 1,254 FDIC assessment
370 370 Advertising and marketing 151 179 Amortization of
intangibles 70 70 Professional fees 574 555 Office Supplies 178 196
Telephone 185 152 Other 1,117 1,052
Total noninterest expenses 10,711
10,459
Income before income taxes 950 1,713 Provision
for income taxes (146 ) 290
Net income
$ 1,096 $ 1,423
Key Ratios
Basic Earnings Per Common Share $ 0.35
$ 0.50 Diluted Earnings Per Common Share 0.35 0.50 Net
Interest Margin (FTE) 3.71 % 3.77 % Efficiency Ratio (FTE) 71.34 %
68.59 % Return on Assets 0.39 % 0.51 % Return on Common Equity 4.09
% 6.42 %
Blackhawk Bancorp, Inc.R. Richard Bastian, III, President
& CEOrbastian@blackhawkbank.comorTodd J. James, EVP &
CFOtjames@blackhawkbank.comPhone: (608) 364-8911
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