BHWB Blackhawk Bancorp Inc (QX)

Blackhawk Bancorp, Inc. (OTCBB: BHWB) reports net income of $980,000 for the third quarter of 2013, a 38% increase compared to $708,000 earned in the third quarter of 2012. For the first nine months of 2013 the company’s net income was $2,076,000, a 3% decrease compared to $2,132,000 earned the first nine months of 2012.

Earnings per diluted share for the quarter increased $0.11, to $0.36 compared to $0.25 per diluted share the third quarter of 2012. For the nine months ended September 30, 2013 the company earned $0.71 per diluted share, a 5% decrease compared to the $0.75 per diluted share earned the first nine months of 2012. The company had total assets of $587.5 million at September 30, 2013, a $27.8 million increase compared to $559.8 million at December 31, 2012.

“This is the best quarterly result we’ve reported since the second quarter of 2008,” said R. Richard Bastian, president and chief executive officer. “Reflecting improvements in the economy, the earnings gain was driven by a significant reduction in the provision for loan losses, which was down by 76% compared to the most recent quarter and by 69% compared to the same quarter last year,” Bastian continued. The improvement in the provision for loan losses for the quarter was partially offset by lower mortgage banking income as the recent up-tick in mortgage rates has slowed refinance activity. Year to date the provision for loan losses is improved by $820,000, or 19%, and is offset by a $1,013,000, or 30%, decline in net revenue from the sale and servicing of mortgage loans.

The following table summarizes key performance and asset quality measures for the quarter ended September 30, 2013 compared to the previous four quarters:

         

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

Key Performance and Asset Quality Measures 2013   2013   2013   2012   2012   Diluted Earnings per share $0.36 $0.16 $0.19 $0.28 $0.25 Return on average assets .67% .35% .42% .55% .50% Return on common equity 8.95% 3.66% 4.52% 6.69% 6.00% Net interest margin 3.69% 3.66% 3.76% 3.75% 3.72% Efficiency ratio 74.4% 68.2% 74.9% 72.9% 68.2% Nonaccrual loans to total loans 1.97% 1.68% 2.46% 3.09% 3.77% Nonaccrual loans and OREO to total loans 2.75% 2.55% 3.07% 3.57% 4.38% Allowance for loan losses to total loans 1.62% 1.86% 1.77% 1.78% 1.74% Allowance for loan losses to nonaccrual loans 82.3% 110.7% 72.2% 57.11% 46.1% Subsidiary bank total risk-based capital   13.46%   13.64%   13.62%   13.51%   13.62%  

Net Interest Income

Net interest income for the third quarter increased 2% to $4,848,000 compared to $4,741,000 in the third quarter 2012. Average total earning assets for the third quarter increased by $17.1 million to $539.5 million compared to $522.4 million in the third quarter of 2012. The growth in earning assets includes a $15.0 million, or 4%, increase in average total loans and net $4.0 million increase in investment securities and short-term investments. The net interest margin realized on earning assets decreased 3 basis points to 3.69% for the quarter ended September 30, 2013 compared to 3.72% for the third quarter of 2012. Average total deposits for the third quarter increased by $15.5 million, or 3%, to $505.5 million compared to $490.0 million the third quarter of last year. The increase in average total deposits includes a $17.8 million, or 5%, increase in average non-maturity deposits such as demand deposit, interest checking, savings and money market accounts, which was offset by a $2.3 million decrease in the average time deposits.

Net interest income for the nine months September 30, 2013 increased by $128,000 to $14,369,000 compared to $14,241,000 for the nine months of 2012. Average total earning assets for the first nine months of the 2013 increased by $14.1 million to $535.4 million compared to $521.4 million for the first three quarters of 2012. The earning asset growth included a $16.5 million, or 5%, increase in average total loans. The net interest margin for the first nine months of 2013 declined by 5 basis points to 3.70% compared to 3.75% for the first three quarters of last year. Average total deposits for the first nine months of 2013 increased by $16.0 million, or 3%, to $503.3 million compared to $487.3 million in the first three quarters of 2012. The increase in average total deposits includes an increase of $20.1 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 $4.0 million reduction in average time deposits.

Provision for Loan Losses and Credit Quality

The provision for loan losses in the third quarter dropped by $1,080,000, or 69%, to $480,000 compared to $1,560,000 in third quarter 2012. For the nine months ended September 30, 2013 the provision for loan losses decreased by $820,000, or 19%, to $3,540,000 compared to $4,360,000 for the first three quarters of 2012. The decreased provision reflects improved asset quality and a significant recovery in the third quarter of a loan that was charged off earlier in the year.

The company had net loan charge-offs of $3,930,000 in the first nine months of 2013, compared to $5,034,000 for the nine months of 2012. Nonaccrual loans and other real estate owned totaled $10.4 million, or 2.75% of total loans, at September 30, compared to $9.2 million, or 2.55% of total loans, at June 30, 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 nine months ended September 30, 2013 and 2012, and the year ended December 31, 2012:

    Activity in Allowance for Loan Losses: Year Ended

(In Thousands)

Nine Months Ended September 30, December 31, 2013   2012 2012 Beginning allowance for loan losses 6,520 6,943 6,943 Provision for loan losses 3,540 4,360 5,620 Charge-offs (4,695) (5,295) (6,391) Recoveries 765 261 348 Ending allowance for loan losses 6,130 6,269 6,520  

Net charge-offs to average total loans, annualized

1.43% 1.89% 1.71%  

The ratio of allowance for loan losses to total loans was 1.62% as of September 30, 2013 compared to 1.86% at June 30, 2013, and 1.78% at December 31, 2012. The ratio of the allowance for loan losses to nonaccrual loans was 82% at September 30, 2013, compared to 111% at June 30, 2013 and 57% at December 31, 2012.

Non-Interest Income and Operating Expenses

Noninterest income for the third quarter of 2013 decreased by $704,000, or 24%, to $2,191,000 compared to $2,895,000 the third quarter of the prior year. For the nine months ended September 30, 2013 noninterest income decreased $977,000, or 12%, to $7,391,000 compared to $8,368,000 the first three quarters of 2012. The decrease in noninterest income for both the quarter and year to date is primarily due to a reduction in mortgage banking revenue reflecting the slow-down in refinance activity.

Operating expenses for the third quarter increased $65,000, or 1%, to $5,366,000 compared to $5,301,000 in the third quarter of 2012. For the nine months ended September 30, 2013 operating expenses increased by $317,000, or 2% to $16,077,000 compared to $15,760,000 the first three quarters of 2012.

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 losses 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 STATEMENTS OF INCOME (UNAUDITED) Three months ended September 30, 2013   2012 (Amounts in thousands, except share and per share data) Interest Income: Interest and fees on loans $ 4,757 $ 4,862 Interest on trading securities 11 18 Interest and dividends on securities: Taxable 445 610 Tax-exempt 337 292 Interest on federal funds sold and securities purchased under agreements to resell 83 57 Interest on interest-bearing deposits in banks   2     4   Total interest and dividend income   5,635     5,843   Interest Expenses: Interest on deposits 602 883 Interest on borrowings 33 183 Interest on subordinated debentures   152     36   Total interest expense   787     1,102   Net interest and dividend income 4,848 4,741 Provision for loan losses   480     1,560   Net interest and dividend income after provision for loan losses   4,368     3,181     Noninterest Income: Service charges on deposits accounts 760 742 Net gain on sale of loans 613 1,506 Net mortgage servicing income 17 (121 ) Debit card interchange fees 564 559 Net gains (losses) on trading activities 33 (6 ) Net gains (losses) on available-for-sale securities 27 (1 ) Net other gains (losses) (262 ) (100 ) Increase in cash value of bank-owned life insurance 74 73 Other   365     243   Total noninterest income   2,191     2,895     Noninterest Expenses: Salaries and employee benefits 2,840 2,760 Occupancy and equipment 651 588 Data processing 587 652 FDIC assessment 185 185 Advertising and marketing 54 75 Amortization of intangibles 35 35 Professional fees 305 242 Office Supplies 100 89 Telephone 93 95 Other   516     580   Total noninterest expenses   5,366     5,301   Income before income taxes 1,193 775 Provision for income taxes   213     67   Net income $ 980   $ 708     Key Ratios           Basic Earnings Per Common Share $ 0.37 $ 0.25 Diluted Earnings Per Common Share 0.36 0.25   Net Interest Margin (FTE) 3.69 % 3.72 % Efficiency Ratio (FTE) 74.43 % 68.16 % Return on Assets 0.67 % 0.50 % Return on Common Equity 8.95 % 6.00 %     BLACKHAWK BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Nine months ended September 30, 2013   2012 (Amounts in thousands, except share and per share data) Interest Income: Interest and fees on loans $ 14,163 $ 14,500 Interest on trading securities 38 51 Interest and dividends on available-for-sale securities: Taxable 1,501 2,109 Tax-exempt 916 868 Interest on federal funds sold and securities purchased under agreements to resell 292 207 Interest on interest-bearing deposits in banks   6     11   Total interest and dividend income   16,916     17,746   Interest Expenses: Interest on deposits 2,006 2,758 Interest on borrowings 180 638 Interest on subordinated debentures   361     109   Total interest expense   2,547     3,505   Net interest and dividend income before provision for loan losses 14,369 14,241 Provision for loan losses   3,540     4,360   Net interest and dividend income after provision for loan losses   10,829     9,881     Noninterest Income: Service charges on deposits accounts 2,099 2,039 Net gain on sale of loans 2,353 3,572 Net loan servicing income (loss) (36 ) (242 ) Debit card interchange fees 1,687 1,707 Net gains (losses) on trading activities 40 (49 ) Net gains (losses) on available-for-sale securities 614 522 Net other gains (losses) (282 ) (116 ) Increase in cash surrender value of bank-owned life insurance 224 225 Other   692     710   Total noninterest income   7,391     8,368     Noninterest Expenses: Salaries and employee benefits 8,419 8,187 Occupancy and equipment 1,956 1,792 Data processing 1,769 1,906 FDIC assessment 555 555 Advertising and marketing 205 254 Amortization of intangibles 104 105 Professional fees 880 797 Office Supplies 278 285 Telephone 278 247 Other   1,633     1,632   Total noninterest expenses   16,077     15,760   Income before income taxes 2,143 2,489 Provision for income taxes   67     357   Net income $ 2,076   $ 2,132     Key Ratios           Basic Earnings Per Common Share $ 0.72 $ 0.75 Diluted Earnings Per Common Share 0.71 0.75   Net Interest Margin (FTE) 3.70 % 3.75 % Efficiency Ratio (FTE) 72.34 % 68.45 % Return on Assets 0.48 % 0.51 % Return on Common Equity 5.68 % 6.27 %             BLACKHAWK BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES   Average Balance Sheet with Resultant Interest and Rates (Amounts in thousands) (yields on a tax-equivalent basis) Three months ended September 30, 2013 Three months ended September 30, 2012 Average Average Average Average

Balance

Interest

Rate

Balance

Interest

Rate

Interest Earning Assets: Interest-bearing deposits in banks $ 3,362 $ 2 0.24 % $ 4,987 $ 4 0.35 % Federal funds sold & securities purchased under agreements to resell 28,636 83 1.15 % 19,912 57 1.15 % Investment securities: Taxable investment securities 94,436 456 1.91 % 104,898 628 2.38 % Tax-exempt investment securities   38,982       337   5.17 %   33,474       292   5.14 % Total Investment securities 133,418 793 2.86 % 138,372 920 3.05 % Loans   374,124       4,757   5.04 %   359,139       4,862   5.39 %   Total Earning Assets $ 539,540 $ 5,635   4.27 % $ 522,410 $ 5,843   4.56 % Allowance for loan losses (7,005 ) (6,737 ) Cash and due from banks 12,653 12,246 Other assets   37,594     34,611     Total Assets $ 582,782   $ 562,530     Interest Bearing Liabilities: Interest bearing checking accounts $ 165,199 $ 130 0.31 % $ 156,981 $ 334 0.85 % Savings and money market deposits 147,445 52 0.14 % 144,403 85 0.23 % Time deposits   105,977       420   1.57 %   108,273       464   1.71 % Total interest bearing deposits 418,621 602 0.57 % 409,657 883 0.86 % Subordinated debentures 10,876 152 5.56 % 4,958 36 2.89 % Borrowings   12,784       33   1.01 %   15,005       183   4.85 %   Total Interest-Bearing Liabilities $ 442,281 $ 787   0.71 % $ 429,620 $ 1,102   1.02 %   Interest Rate Spread 3.56 % 3.54 %   Noninterest checking accounts 86,890 80,340 Other liabilities   6,368     5,501   Total liabilities 535,539 515,461 Preferred Stock 10,442 10,217 Common Stockholders' equity   36,801     36,852   Total Stockholders' equity 47,243 47,069 Total Liabilities and Stockholders' Equity $ 582,782   $ 562,530     Net Interest Income/Margin $ 4,848   3.69 % $ 4,741   3.72 %               BLACKHAWK BANCORP, INC. AND SUBSIDIARIES AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES   Average Balance Sheet with Resultant Interest and Rates (Amounts in thousands) (Yields on a tax-equivalent basis) Nine months ended September 30, 2013 Nine months ended September 30, 2012 Average Average Average Average Balance   Interest   Rate Balance   Interest   Rate Interest Earning Assets: Interest-bearing deposits in banks $ 3,450 $ 6 0.23 % $ 4,932 $ 11 0.30 % Federal funds sold & securities purchased under agreements to resell 32,581 292 1.20 % 23,196 207 1.19 % Investment securities: Taxable investment securities 97,308 1,539 2.11 % 110,141 2,160 2.62 % Tax-exempt investment securities   35,567       916   5.18 %   33,031       868   5.18 % Total Investment securities 132,875 2,455 2.94 % 143,172 3,028 3.21 % Loans   366,582       14,163   5.17 %   350,061       14,500   5.53 %   Total Earning Assets $ 535,488 $ 16,916   4.34 % $ 521,361 $ 17,746   4.65 % Allowance for loan losses (6,587 ) (6,941 ) Cash and due from banks 13,078 12,329 Other assets   36,334     33,876     Total Assets $ 578,313   $ 560,625     Interest Bearing Liabilities: Interest bearing checking accounts $ 162,178 $ 542 0.45 % $ 154,501 $ 715 0.91 % Savings and money market deposits 148,382 173 0.16 % 144,385 217 0.28 % Time deposits   106,078       1,291   1.63 %   110,176       1,826   1.70 % Total interest bearing deposits 416,638 2,006 0.64 % 409,062 2,758 0.90 % Subordinated debentures 9,300 361 5.18 % 4,958 634 2.92 % Borrowings   14,093       180   1.70 %   19,159       113   4.68 %   Total Interest-Bearing Liabilities $ 440,031 $ 2,547   0.77 % $ 433,179 $ 3,505   1.08 %   Interest Rate Spread 3.57 % 3.57 %   Noninterest checking accounts 86,686 78,215 Other liabilities   3,017     3,343   Total liabilities 529,734 514,737 Preferred Stock 10,417 10,320 Common Stockholders' equity   38,162     35,568   Total Stockholders' equity 48,579 45,888 Total Liabilities and Stockholders' Equity $ 578,313   $ 560,625     Net Interest Income/Margin $ 14,369   3.70 % $ 14,241   3.75 %     BLACKHAWK BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2013 AND DECEMBER 31, 2012 (UNAUDITED) September 30, December 31, Assets   2013   2012 (Amounts in thousands, except share and per share data) Cash and due from banks $ 16,246 $ 11,579 Federal funds sold and securities purchased under agreements to resell 26,536 25,442 Interest-bearing deposits in banks   2,685     1,539   Total cash and cash equivalents   45,467     38,560   Trading securities 749 1,614 Securities available-for-sale 127,647 121,077 Loans held for sale 2,819 2,558 Federal Home Loan Bank (FHLB) Stock, at cost 2,266 2,266 Loans, less allowance for loan losses of $6,130 and $6,425 at September 30, 2013 and December 31, 2012, respectively 372,119 359,928 Office buildings and equipment, net 9,088 8,407 Intangible assets, net 8,232 8,274 Cash surrender value of bank-owned life insurance 9,241 9,016 Other assets   9,907     8,059   Total assets $ 587,535   $ 559,759     Liabilities and Stockholders' Equity   Liabilities Deposits: Noninterest-bearing $ 89,185 $ 84,311 Interest-bearing   430,075     409,510   Total deposits 519,260 493,821 Borrowings (including $2,168 and $2,217 at fair value at September 30, 2013 and December 31, 2012, respectively) 7,168 10,010 Subordinated debentures (including $834 at fair value at June 30, 2013 and December 31, 2012) 10,878 4,958 Other liabilities   2,820     3,146   Total liabilities   540,126     511,935     Stockholders’ equity Preferred stock, $0.01 par value, 1,000,000 shares authorized; 10,500 shares issued as of September 30, 2013 and December 31, 2012, respectively 10,458 10,383 Common stock, $0.01 par value, 10,000,000 shares authorized; 2,299,496 and 2,287,496 shares issued as of September 30, 2013 and December 31, 2012, respectively 23 23 Surplus 9,728 9,619 Retained earnings 27,488 25,896 Treasury stock, 83,252 shares at cost as of September 30, 2013 and December 31, 2012 (909 ) (909 ) Accumulated other comprehensive income (loss)   621     2,812   Total stockholders' equity   47,409     47,824   Total liabilities and stockholders' equity $ 587,535   $ 559,759    

Blackhawk Bancorp, Inc.R. Richard Bastian, III, President & CEOrbastian@blackhawkbank.comorTodd J. James, EVP & CFOtjames@blackhawkbank.comPhone: (608) 364-8911