BHWB Blackhawk Bancorp Inc (QX)

Blackhawk Bancorp, Inc. (OTCBB: BHWB) reports that net income for the first quarter of 2014 increased 20% to $700,000 compared to $583,000 earned in the first quarter of 2013. Earnings per diluted share for the quarter increased $0.05 to $0.24 compared to $0.19 the first quarter last year. The company’s total assets increased 4% to $604.2 million as of March 31, 2014 compared to $583.4 million at the end of 2013.

“The increase in earnings reflects a continued improvement in credit quality,” said Rick Bastian, the company’s president and CEO. “The provision for loan losses dropped 53% to $511,000 compared to $1,080,000 last year. We also realized a slight increase in net interest income, but these gains were largely offset by a slowdown in secondary market loan production,” he added.

The following table summarizes key performance and asset quality measures for the quarter ended March 31, 2014 compared to the previous four quarters:

Key Performance and Asset Quality Measures

    1st Qtr

2014

    4th Qtr

2013

    3rd Qtr

2013

    2nd Qtr

2013

    1st Qtr

2013

                Diluted Earnings per share $0.24 $0.75 $0.36 $0.16 $0.19 Return on average assets .49% 1.25% .67% .35% .42% Return on common equity 5.70% 17.47% 8.95% 3.66% 4.52% Net interest margin 3.70% 3.79% 3.69% 3.66% 3.76% Efficiency ratio 79.1% 62.4% 74.4% 68.2% 74.9% Nonaccrual loans to total loans 1.49% 1.63% 1.97% 1.68% 2.46% Nonaccrual loans and OREO to total loans 1.89% 2.11% 2.75% 2.55% 3.07% Allowance for loan losses to total loans 1.26% 1.26% 1.58% 1.86% 1.77% Allowance for loan losses to nonaccrual loans 84.7% 77.5% 82.3% 110.7% 72.2% Subsidiary bank total risk-based capital     13.80%     13.51%     13.46%     13.64%     13.62%  

Net Interest Income

Net interest income for the first quarter increased 1% to $4,776,000 compared to $4,731,000 for the first quarter of 2013; however, the net interest margin decreased 6 basis points to 3.70% compared to 3.76% the first quarter last year. “Loan and investment re-pricing in this prolonged low rate environment continues to put downward pressure on the net interest margin,” said Todd James, the company’s chief financial officer. “Loan growth and lower funding costs are offsetting most of the margin squeeze, but have not been robust enough to improve it,” he added.

Average total earning assets for the quarter increased by $15.8 million to $541.5 million compared to $525.7 million in the first quarter of 2013. The growth in earning assets includes a $16.1 million, or 4.4%, increase in average total loans. Average total deposits for the first quarter increased by $6.3 million, or 1%, to $501.1 million compared to $494.8 million the first quarter of last year. The increase in average total deposits represents growth in demand deposits accounts.

Provision for Loan Losses and Credit Quality

The provision for loan losses in the first quarter dropped by $569,000, or 53%, to $511,000 compared to $1,080,000 in first quarter of 2013 reflecting improving asset quality. Nonaccrual loans and other real estate owned totaled $7.1 million, or 1.89% of total loans, at March 31, 2014 compared to $8.1 million, or 2.10% of total loans, at December 31, 2013 and $11.1 million, or 3.1% of total loans, at March 31, 2013.

Net loan charge-offs decreased by 43% to $664,000 compared to $1,175,000 the first quarter of 2013. The following table summarizes the activity in the allowance for loan losses for the quarters ended March 31, 2014 and 2013 and the year ended December 31, 2013:

Activity in Allowance For Loan Losses:           Year Ended (in Thousands) Quarter Ended March 31, December 31, 2014   2013 2013 Beginning allowance for loan losses 4,894 6,520 6,520 Provision for loan losses 511 1,080 4,140 Charge-offs (761) (1,234) (6,590) Recoveries 97 59 824 Ending allowance for loan losses 4,741 6,425 4,894

Net charge-offs to average total loans, annualized

0.69% 1.31%

 

1.55%

 

The ratio of the allowance for loan losses to total loans was 1.26% as of March 31, 2014, which was unchanged from the previous quarter and down by 51 basis points compared to 1.77% at March 31, 2013. However, the ratio of the allowance for loan losses to nonaccrual loans increased to 85% at March 31, 2014 compared to 78% at December 31, 2013 and 72% at March 31, 2013.

Non-Interest Income and Operating Expenses

Non-interest income for the first quarter of 2014 decreased by 15% to $1,843,000 compared to $2,158,000 the first quarter of the prior year. Net revenue from the sale and servicing of mortgage loans decreased in the first quarter by 50% to $372,000 compared to $740,000 the prior year.

Operating expenses for the first quarter increased $104,000, or 2%, to $5,371,000 compared to $5,267,000 in the first quarter of 2013.

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 and nonperforming loans. While the level of nonperforming loans has been decreasing 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 March 31, 2014     2013 (Amounts in thousands, except share and per share data) Interest Income: Interest and fees on loans $ 4,620 $ 4,692 Interest on trading securities 4 14 Interest and dividends on available-for-sale securities: Taxable 465 537 Tax-exempt 335 291 Interest on federal funds sold and securities purchased under agreements to resell 64 94 Interest on interest-bearing deposits in banks   1     3   Total interest and dividend income   5,489     5,631   Interest Expense: Interest on deposits 534 747 Interest on borrowings 27 98 Interest on subordinated debentures and notes   152     55   Total interest expense   713     900   Net interest and dividend income before provision for loan losses 4,776 4,731 Provision for loan losses   511     1,080   Net interest and dividend income after provision for loan losses   4,265     3,651     Noninterest Income: Service charges on deposits accounts 654 656 Net gain on sale of loans 298 771 Net loan servicing income (loss) 74 (31 ) Debit card interchange fees 542 544 Net gains (losses) on trading activities 17 4 Net gains (losses) on available-for-sale securities 198 - Net other gains (losses) (276 ) (76 ) Increase in cash surrender value of bank-owned life insurance 80 81 Other   256     209   Total noninterest income   1,843     2,158     Noninterest Expenses: Salaries and employee benefits 2,884 2,753 Occupancy and equipment 668 660 Data processing 606 581 FDIC assessment 185 185 Advertising and marketing 63 88 Amortization of intangibles 25 35 Professional fees 230 273 Office Supplies 89 86 Telephone 92 87 Other   529     519   Total noninterest expenses   5,371     5,267   Income before income taxes 737 542 Provision for income taxes   37     (41 ) Net income $ 700   $ 583     Key Ratios               Basic Earnings Per Common Share $ 0.25 $ 0.19 Diluted Earnings Per Common Share 0.24 0.19   Net Interest Margin (FTE) 3.70 % 3.76 % Efficiency Ratio (FTE) 79.12 % 74.91 % Return on Assets 0.49 % 0.42 % Return on Common Equity 5.70 % 4.52 %           BLACKHAWK BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2014 AND DECEMBER 31, 2013 (UNAUDITED) March 31, December 31, Assets     2014     2013 (Amounts in thousands, except share and per share data) Cash and due from banks $ 29,312 $ 11,350 Federal funds sold and securities purchased under agreements to resell 13,048 21,064 Interest-bearing deposits in banks   418     2,078   Total cash and cash equivalents   42,778     34,492   Trading securities 226 315 Securities available-for-sale 153,033 127,985 Loans held for sale 249 1,161 Federal Home Loan Bank stock, at cost 2,266 2,266 Loans, less allowance for loan losses of $4,741 and $4,894 at March 31, 2014 and December 31, 2013, respectively 371,911 382,295 Office buildings and equipment, net 8,846 8,922 Goodwill 5,037 5,037 Other intangible assets, net 2,945 3,091 Cash surrender value of bank-owned life insurance 9,391 9,311 Other assets   7,540     8,565   Total assets $ 604,222   $ 583,440     Liabilities and Stockholders' Equity   Liabilities Deposits: Noninterest-bearing $ 106,012 $ 91,450 Interest-bearing   418,270     419,308   Total deposits 524,282 510,758 Borrowings (including $2,140 and $2,157 at fair value at March 31, 2014 and December 31, 2013, respectively) 15,920 10,157 Subordinated debentures and notes (including $1,031 at fair value at March 31, 2014 and December 31, 2013) 11,255 11,255 Other liabilities   3,026     2,968   Total liabilities   554,483     535,138     Stockholders’ equity Preferred stock, $0.01 par value, 1,000,000 shares authorized; 10,500 shares issued as of March 31, 2014 and December 31, 2013, respectively 10,500 10,483 Common stock, $0.01 par value, 10,000,000 shares authorized; 2,312,199 and 2,299,496 shares issued as of March 31, 2014 and December 31, 2013, respectively 23 23 Surplus 9,807 9,768 Retained earnings 29,714 29,166

Treasury stock, 87,167 and 83,252 shares at cost as of March 31, 2014

and December 31, 2013, respectively (960 ) (909 ) Accumulated other comprehensive income (loss)   655     (229 ) Total stockholders' equity   49,739     48,302   Total liabilities and stockholders' equity $ 604,222   $ 583,440                 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 March 31, 2014 Three months ended March 31, 2013 Average Average Average Average Balance Interest   Rate Balance Interest   Rate Interest Earning Assets: Interest-bearing deposits in banks $ 2,836 $ 1 0.19 % $ 3,818 $ 3 0.28 % Federal funds sold & securities purchased under agreements to resell 19,745 64 1.31 % 30,744 94 1.24 % Investment securities: Taxable investment securities 100,037 469 1.90 % 93,801 551 2.38 % Tax-exempt investment securities   39,189     335   5.22 %   33,849     291   5.19 % Total Investment securities 139,226 804 2.84 % 127,650 842 3.13 % Loans   379,691     4,620   4.93 %   363,520     4,692   5.23 %   Total Earning Assets $ 541,498 $ 5,489   4.24 % $ 525,732 $ 5,631   4.45 % Allowance for loan losses (4,920 ) (6,260 ) Cash and due from banks 12,726 13,030 Other assets   34,250     35,834     Total Assets $ 583,554   $ 568,336     Interest Bearing Liabilities: Interest bearing checking accounts $ 159,944 $ 116 0.29 % $ 158,038 $ 234 0.60 % Savings and money market deposits 145,533 53 0.15 % 146,721 71 0.20 % Time deposits   104,929     365   1.41 %   106,701     442   1.68 % Total interest bearing deposits 410,406 534 0.53 % 411,460 747 0.74 % Subordinated debentures and notes 15,662 152 5.56 % 6,103 55 3.67 % Borrowings   11,083     27   0.69 %   15,116     98   2.63 %   Total Interest-Bearing Liabilities $ 437,151 $ 713   0.66 % $ 432,679 $ 900   0.84 %   Interest Rate Spread 3.58 % 3.61 %   Noninterest checking accounts 90,674 83,358 Other liabilities   6,258     3,282   Total liabilities 534,083 519,319 Preferred Stock 10,490 10,392 Common Stockholders' equity   38,981     38,625   Total Stockholders' equity 49,471 49,017 Total Liabilities and Stockholders' Equity $ 583,554   $ 568,336     Net Interest Income/Margin $ 4,776   3.70 % $ 4,731   3.76 %

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