SOURCE: Blackhawk Bancorp, Inc.

Blackhawk Bancorp, Inc.

February 05, 2016 12:18 ET

Blackhawk Bancorp Achieves Record Earnings in 2015

BELOIT, WI--(Marketwired - February 05, 2016) -  Blackhawk Bancorp, Inc. (OTCQX: BHWB) reported that it achieved record earnings in 2015 with net income of $3,919,000 and fully diluted earnings per share of $1.73, exceeding the previous high watermarks of $3,915,000 and $1.47, respectively, which were attained in 2013. The more dramatic increase in the record earnings per share compared to the increase in net income reflects the 2014 redemption of the Company's preferred securities. Since that redemption, which eliminated the related preferred stock dividends, all earnings are attributable to common shareholders. 

The Company earned net income of $985,000 for the fourth quarter of 2015, a $40,000 increase from the $945,000 reported for the fourth quarter of 2014. Earnings per diluted share for the quarter was $0.43, up $0.01 from the $0.42 realized in the fourth quarter of 2014. 

The $3,919,000 net income reported for the year was a 74% increase compared to the $2,252,000 earned in 2014. The $1.73 diluted earnings per share for 2015 represents an 88% increase compared to the $0.92 earned the prior year. Excluding the securities related fraud loss that was included in the prior year results, net income and diluted earnings per share for 2015 increased by $74,000 and $0.10, respectively, compared to the prior year results. 

"We're pleased to be reporting record performance for 2015 with results that reflect stability and growth in core earnings," said Rick Bastian, the Company's chairman and chief executive officer. "We've made modest but constant progress in growing net interest income and recurring fee income while at the same time controlling operating expenses and credit losses," he added. 

"Despite a $1.3 million increase in nonperforming assets during the fourth quarter the overall credit quality of the loan portfolio continues to improve," said Bastian. "The resolution of some of our long term problem credits has contributed to the increase in nonperforming assets, but improved our position overall." 

The following table summarizes key performance and asset quality measures for the quarter ended December 31, 2015 compared to the previous four quarters: 


Key Performance and Asset Quality Measures
4th Qtr 2015     3rd Qtr 2015     2nd Qtr 2015     1st Qtr 2015     4th Qtr 2014  
Diluted EPS $ 0.43     $ 0.51     $ 0.42     $ 0.38     $ 0.42  
Return on Average Assets   .64 %     .75 %     .63 %     .61 %     .65 %
Return on Average Common Equity   8.59 %     10.15 %     8.65 %     8.16 %     8.93 %
Efficiency Ratio*   73.65 %     71.8 %     72.5 %     75.9 %     74.2 %
Net Interest Margin (tax-equivalent basis)   3.58 %     3.68 %     3.66 %     3.70 %     3.73 %
Nonaccrual Loans to Total Loans   1.59 %     1.31 %     1.30 %     1.28 %     1.43 %
Nonaccrual Loans and OREO to Total Loans   2.00 %     1.61 %     1.61 %     1.53 %     1.66 %
Allowance for Loan Losses to Total Loans   1.20 %     1.29 %     1.17 %     1.21 %     1.11 %
Allowance for Loan Losses to Nonaccrual Loans   75.5 %     97.9 %     89.7 %     94.3 %     77.4 %
* The efficiency ratio calculation excludes net gains and losses on securities and net gains and losses on other assets.  

Net Interest Income

Net interest income for the fourth quarter increased 3% to $5,015,000 compared to $4,884,000 for the fourth quarter of 2014; however, the net interest margin fell to 3.58% compared to 3.68% the most recent quarter and 3.73% the same quarter last year. The decrease in the net interest margin was partially due to a significant increase in average non-maturity deposits for the quarter. The increase is expected to be short-term in nature; therefore, the proceeds from the increase have been invested short-term producing very little incremental net interest income. The increase in balance sheet leverage with minimal impact on net interest income negatively affected the net interest margin ratio. 

For the year, net interest income increased $287,000, or 2%, to $19,633,000 compared to $19,346,000 for 2014. The 2015 net interest margin of 3.65% was down 2 basis points compared to the prior year. The increase in the average balance of non-maturity deposits in the fourth quarter also contributed to the decrease in the net interest margin for the year, but to a much lesser extent. 

Average total earning assets for the fourth quarter increased by $35.6 million to $572.5 million compared to $536.9 million in the fourth quarter of 2014. The increase in average total earning assets includes a $16.9 million, or 4%, increase in average total loans and a $17.5 million increase in average short-term investments and investment securities. Average total deposits for the fourth quarter were $37.2 million, or 7%, higher than they were in the fourth quarter of 2014. This includes a $9.3 million increase in average non-interest bearing demand deposits and a $46.1 million increase in average interest-bearing non-maturity deposits, which was offset by an $18.2 million decrease in average time deposits. 

Average total earning assets for the twelve months ended December 31, 2015 increased by $9.9 million to $554.7 million compared to $544.8 million for 2014; however, total average loans were up by $22.4 million to $407.0 million compared to $384.6 million the year before. The increase in average total loans for both the quarter and the year was driven by growth in the commercial and commercial real estate portfolios. Average total deposits for 2015 increased by $8.2 million, or 2%, compared to the year before. 

Provision for Loan Losses and Credit Quality

The provision for loan losses in the fourth quarter decreased by $166,000, or 32%, to $350,000 compared to $516,000 in fourth quarter of 2014. For the year the provision for loan losses decreased $146,000 to $2,139,000 compared to $2,285,000 for 2014. 

Nonaccrual loans and other real estate owned totaled $8.0 million, or 2.0% of total loans, at December 31, 2015 compared to $6.7 million, or 1.61% of total loans, at September 30, 2015 and $6.5 million, or 1.66% of total loans, at December 31, 2014. The increase in nonaccrual loans and OREO includes $786,000 related to a troubled debt restructuring that improved the Company's position on the remaining $3.8 million balance of the relationship.

Net loan charge-offs for 2015 decreased 37% to $1,745,000 compared to $2,783,000 in 2014. The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 2015 and 2014:

       
Activity in Allowance For Loan Losses:      
(in Thousands)   Year Ended December 31,  
    2015     2014  
Beginning allowance for loan losses   4,396     4,894  
Provision for loan losses   2,139     2,285  
Charge-offs   (2,506 )   (3,170 )
Recoveries   761     387  
Ending allowance for loan losses   4,790     4,396  
             
Net charge-offs to average total loans - annualized   0.43 %   0.72 %
             

The ratio of the allowance for loan losses to total loans was 1.20% as of December 31, 2015, compared 1.28% at September 30, 2015, and 1.11% at December 31, 2014. The ratio of the allowance for loan losses to nonaccrual loans was 75.5% at December 31, 2015 compared to 97.9% at September 30, 2015 and 77.4% at December 31, 2014. 

Non-Interest Income and Operating Expenses

Non-interest income for the fourth quarter of 2015 declined by $133,000, or 6%, to $2,068,000 compared to $2,201,000 for the fourth quarter of 2014. For the full year 2015 non-interest income increased by $3,059,000, or 51%, to $9,015,000 compared to $5,956,000 the year before. Excluding the fraud loss of $2,611,000 that was recorded in 2014, non-interest income increased $448,000, including a $254,000 increase in revenue from the sale and servicing of loans originated for sale into the secondary market. 

Operating expenses for the quarter increased by $90,000, or 2%, to $5,450,000 compared to $5,360,000 the fourth quarter of 2014. For the year operating expenses are up $591,000, or 3%, to $21,341,000 compared to $20,750,000 in 2014. 

Outlook

Blackhawk expects to grow by pursuing creditworthy and profitable business and consumer relationships in its Wisconsin and Illinois markets, emphasizing the value of its personal attention and service that remains unmatched by larger competitors. This growth combined with ongoing strengthening of the Company's credit quality are expected to lead to continued earnings improvement. Growth and earnings could however be tempered by uncertain economic conditions, which continue to be less than ideal in the markets served by Blackhawk. Competitive pressures, regulation and the on-going low interest rate environment are additional factors that will challenge growth and earnings. 

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 Janesville, 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 the financial products its provides. 

 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"; inability to recover previously recorded losses as anticipated, 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  
DECEMBER 31, 2015 AND DECEMBER 31, 2014  
(UNAUDITED)  
    December 31,     December 31,  
Assets   2015     2014  
    (Amounts in thousands, except  
    share and per share data)  
Cash and due from banks   $ 11,653     $ 9,847  
Securities purchased under agreements to resell     14,955       -  
Interest-bearing deposits in banks and other     1,144       11,744  
      Total cash and cash equivalents     27,752       21,591  
Securities available-for-sale     139,533       129,184  
Loans held for sale     3,014       1,537  
Federal Home Loan Bank stock, at cost     2,266       2,266  
Loans, less allowance for loan losses of $4,790 and $4,396 at December 31, 2015 and December 31, 2014, respectively     395,187       391,448  
Premises and equipment, net     7,715       8,320  
Goodwill     5,037       5,037  
Mortgage Servicing rights     2,395       2,640  
Cash surrender value of bank-owned life insurance     9,902       9,602  
Other assets     9,711       9,848  
    Total assets   $ 602,512     $ 581,473  
                 
Liabilities and Stockholders' Equity                
                 
Liabilities                
  Deposits:                
    Noninterest-bearing   $ 102,943     $ 99,068  
    Interest-bearing     420,114       416,716  
      Total deposits     523,057       515,784  
Subordinated debentures and notes (including $1,031 at fair value at December 31, 2015 and December 31, 2014)     11,255       11,255  
Senior secured term note     8,500       9,000  
Other borrowings     11,250       -  
Other liabilities     3,302       3,398  
      Total liabilities     557,364       539,437  
                 
Stockholders' equity                
  Common stock, $0.01 par value, 10,000,000 shares authorized; 2,327,197 and 2,318,496 shares issued as of December 31, 2015 and                
  December 31, 2014, respectively     23       23  
  Additional paid-in capital     10,362       9,960  
  Retained earnings     34,376       31,091  
  Treasury stock, 88,783 and 87,865 shares at cost as of December 31, 2015 and December 31, 2014, respectively     (983 )     (969 )
  Accumulated other comprehensive income (loss)     1,370       1,931  
    Total stockholders' equity     45,148       42,036  
    Total liabilities and stockholders' equity   $ 602,512     $ 581,473  
                 
                 
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF INCOME  
(UNAUDITED)  
    Three months ended
December 31,
 
    2015     2014  
    (Amounts in thousands, except  
    share and per share data)  
Interest Income:                
  Interest and fees on loans   $ 4,772     $ 4,765  
  Interest and dividends on available-for-sale securities:                
    Taxable     518       530  
    Tax-exempt     297       321  
  Interest on securities purchased under agreements to resell     58       1  
  Interest on other     5       2  
    Total interest and dividend income     5,650       5,619  
Interest Expenses:                
  Interest on deposits     389       489  
  Interest on subordinated debentures     154       153  
  Interest on senior secured term note     89       92  
  Interest on other borrowings     3       1  
    Total interest expense     635       735  
    Net interest and dividend income before provision for loan losses     5,015       4,884  
Provision for loan losses     350       516  
    Net interest and dividend income after provision for loan losses     4,665       4,368  
                 
Noninterest Income:                
  Service charges on deposits accounts     744       731  
  Net gain on sale of loans     415       533  
  Net loan servicing income     66       44  
  Debit card interchange fees     551       543  
  Net gains on sales of securities available-for-sale     310       1  
  Net other gains (losses)     (469 )     14  
  Increase in cash value of bank-owned life insurance     73       71  
  Other     378       264  
    Total noninterest income     2,068       2,201  
                 
Noninterest Expenses:                
  Salaries and employee benefits     2,830       2,859  
  Premises and equipment     661       619  
  Data processing     595       587  
  Advertising and marketing     91       82  
  Professional fees     280       187  
  Office Supplies     93       88  
  Telephone     111       106  
  Other     789       832  
    Total noninterest expenses     5,450       5,360  
    Income before income taxes     1,283       1,209  
Provision for income taxes     298       264  
    Net income   $ 985     $ 945  
                 
Key Ratios                
                 
Basic Earnings Per Common Share   $ 0.43     $ 0.42  
Diluted Earnings Per Common Share     0.43       0.42  
Dividends Per Common Share     0.04       0.02  
                 
Net Interest Margin (FTE)     3.58 %     3.73 %
Efficiency Ratio (FTE)     73.65 %     74.13 %
Return on Assets     0.64 %     0.65 %
Return on Common Equity     8.59 %     8.93 %
                 
                 
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF INCOME  
(UNAUDITED)  
   
    2015     2014  
    (Amounts in thousands, except per share data)  
    share and per share data)  
Interest Income:                
  Interest and fees on loans   $ 18,953     $ 18,711  
  Interest and dividends on available-for-sale securities:                
    Taxable     1,998       2,106  
    Tax-exempt     1,203       1,314  
  Interest on securities purchased under agreements to resell     61       156  
  Interest on other     19       18  
    Total interest and dividend income     22,234       22,305  
Interest Expense:                
  Interest on deposits     1,616       2,067  
  Interest on subordinated debentures and notes     612       609  
  Interest on senior secured term note     361       249  
  Interest on other borrowings     12       34  
    Total interest expense     2,601       2,959  
    Net interest and dividend income before provision for loan losses     19,633       19,346  
Provision for loan losses     2,139       2,285  
    Net interest and dividend income after provision for loan losses     17,494       17,061  
                 
Noninterest Income:                
  Service charges on deposits accounts     2,716       2,832  
  Net gain on sale of loans     2,021       1,824  
  Net loan servicing income     293       236  
  Debit card interchange fees     2,242       2,223  
  Net gains on sales of securities available-for-sale     631       470  
  Net other gains (losses)     (450 )     (2,869 )
  Increase in cash surrender value of bank-owned life insurance     299       291  
  Other     1,263       949  
    Total noninterest income     9,015       5,956  
                 
Noninterest Expenses:                
  Salaries and employee benefits     11,557       11,295  
  Premises and equipment     2,589       2,522  
  Data processing     2,381       2,344  
  Advertising and marketing     276       249  
  Professional fees     1,024       875  
  Office Supplies     352       373  
  Telephone     423       386  
  Other     2,739       2,706  
    Total noninterest expenses     21,341       20,750  
    Income before income taxes     5,168       2,267  
Provision for income taxes     1,249       15  
    Net income   $ 3,919     $ 2,252  
                 
Key Ratios                
                 
Basic Earnings Per Common Share   $ 1.73     $ 0.92  
Diluted Earnings Per Common Share     1.73       0.92  
Dividends Per Common Share     0.12       0.06  
                 
Net Interest Margin (FTE)     3.65 %     3.67 %
Efficiency Ratio (FTE)     73.33 %     73.16 %
Return on Assets     0.66 %     0.38 %
Return on Common Equity     8.90 %     5.05 %
                 
                 
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 December 31, 2015     Three months ended December 31, 2014  
    Average         Average     Average         Average  
    Balance     Interest   Rate     Balance     Interest   Rate  
Interest Earning Assets:                                        
  Interest-bearing deposits in banks   $ 6,268     $ 5   0.34 %   $ 4,959     $ 2   0.18 %
  Federal funds sold and securities purchased under agreements to resell     15,111       58   1.53 %     728       1   0.67 %
  Investment securities:                                        
    Taxable investment securities     100,945       518   2.04 %     99,045       530   2.12 %
    Tax-exempt investment securities     39,244       297   4.60 %     38,076       321   5.02 %
      Total Investment securities     140,189       815   2.75 %     137,121       851   2.92 %
  Loans     410,964       4,772   4.61 %     394,045       4,765   4.80 %
                                         
Total Earning Assets   $ 572,532     $ 5,650   4.02 %   $ 536,853     $ 5,619   4.27 %
  Allowance for loan losses     (4,821 )                 (4,482 )            
  Cash and due from banks     13,270                   13,128              
  Other assets     35,472                   35,947              
                                         
Total Assets   $ 616,453                 $ 581,446              
                                         
Interest Bearing Liabilities:                                        
  Interest bearing checking accounts   $ 157,669     $ 110   0.28 %   $ 157,000     $ 111   0.28 %
  Savings and money market deposits     200,662       114   0.22 %     155,190       64   0.16 %
  Time deposits     78,691       165   0.84 %     96,931       314   1.29 %
    Total interest bearing deposits     437,022       389   0.35 %     409,121       489   0.47 %
  Subordinated debentures     11,255       154   5.42 %     11,255       152   5.38 %
  Borrowings     14,351       92   2.54 %     11,019       93   3.34 %
                                         
Total Interest-Bearing Liabilities   $ 462,628     $ 635   0.54 %   $ 431,395     $ 734   0.68 %
                                         
Interest Rate Spread                 3.48 %                 3.59 %
                                         
Noninterest checking accounts     104,357                   94,996              
  Other liabilities     3,954                   13,049              
  Total liabilities     570,939                   539,440              
  Common Stockholders' equity     45,514                   42,006              
Total Stockholders' equity     45,514                   42,006              
Total Liabilities and Stockholders' Equity   $ 616,453                 $ 581,446              
                                         
Net Interest Income/Margin           $ 5,015   3.58 %           $ 4,885   3.73 %
                                         
                                         
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)   Twelve months ended December 31, 2015     Twelve months ended December 31, 2014  
    Average         Average     Average         Average  
    Balance     Interest   Rate     Balance     Interest   Rate  
Interest Earning Assets:                                        
  Interest-bearing deposits in banks   $ 7,386     $ 19   0.26 %   $ 3,245     $ 18   0.17 %
  Federal funds sold and securities purchased under agreements to resell     4,479       61   1.37 %     11,536       156   1.35 %
  Investment securities:                                        
    Taxable investment securities     97,539       1,998   2.05 %     106,584       2,106   1.99 %
    Tax-exempt investment securities     38,251       1,203   4.81 %     38,853       1,314   5.08 %
      Total Investment securities     135,790       3,201   2.83 %     145,437       3,420   2.82 %
  Loans     407,010       18,953   4.66 %     384,583       18,711   4.87 %
                                         
Total Earning Assets   $ 554,665     $ 22,234   4.12 %   $ 544,801     $ 22,305   4.22 %
  Allowance for loan losses     (4,814 )                 (4,609 )            
  Cash and due from banks     13,163                   12,981              
  Other assets     35,507                   34,103              
                                         
Total Assets   $ 598,521                 $ 587,276              
                                         
Interest Bearing Liabilities:                                        
  Interest bearing checking accounts   $ 163,613     $ 452   0.28 %   $ 162,483     $ 465   0.29 %
  Savings and money market deposits     174,451       311   0.18 %     155,447       228   0.15 %
  Time deposits     82,278       853   1.04 %     101,632       1,374   1.35 %
    Total interest bearing deposits     420,342       1,616   0.38 %     419,562       2,067   0.49 %
  Subordinated debentures and notes     11,255       612   5.43 %     11,199       609   5.44 %
  Borrowings     17,279       373   2.16 %     14,852       283   1.91 %
                                         
Total Interest-Bearing Liabilities   $ 448,876     $ 2,601   0.58 %   $ 445,613     $ 2,959   0.66 %
                                         
Interest Rate Spread                 3.54 %                 3.56 %
                                         
Noninterest checking accounts     101,484                   94,015              
  Other liabilities     4,123                   3,504              
  Total liabilities     554,483                   543,132              
  Common Stockholders' equity     44,038                   44,144              
Total Stockholders' equity     44,038                   44,144              
Total Liabilities and Stockholders' Equity   $ 598,521                 $ 587,276              
                                         
Net Interest Income/Margin           $ 19,633   3.65 %           $ 19,346   3.67 %

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