SOURCE: Blackhawk Bancorp, Inc.

Blackhawk Bancorp, Inc.

April 27, 2016 13:05 ET

Blackhawk Bancorp Announces First Quarter Earnings

BELOIT, WI--(Marketwired - April 27, 2016) - Blackhawk Bancorp, Inc. (OTCQX: BHWB) reported that its first quarter 2016 earnings were boosted by the recovery of a fraud loss that was incurred in 2014. Blackhawk reported net income of $2,573,000, a 197% increase over the $865,000 earned in the first quarter of 2015. Fully diluted earnings per share for the first quarter was $1.12, a 196% increase over the first quarter of last year. Excluding the large recovery net income for the first quarter of 2016 would have been $795,000, or $0.35 per diluted share. 

"We are extremely pleased to have recovered the fraud loss we incurred in 2014," said Rick Bastian, the company's chairman and chief executive officer. "It makes a great contribution to our on-going efforts to fortify and strengthen our balance sheet, but we're not letting it mask the challenges we face and our focus on growing core earnings," he added. 

The following table summarizes key performance and asset quality measures for the quarter ended March 31, 2016 compared to the previous four quarters: 

                     

Key Performance and Asset Quality Measures
  1st Qtr 2016   4th Qtr 2015   3rd Qtr 2015   2nd Qtr 2015   1st Qtr 2015
Diluted EPS   $1.12   $0.43   $0.51   $0.42   $0.38
Diluted EPS, excluding fraud recovery   $0.35   $0.43   $0.51   $0.42   $0.38
ROAA   1.63%   .64%   .75%   .63%   .61%
ROAA, excluding fraud recovery   .51%   .64%   .75%   .63%   .61%
ROACE   22.27%   8.59%   10.15%   8.65%   8.16%
ROACE, excluding fraud recovery   6.89%   8.59%   10.15%   8.65%   8.16%
Efficiency Ratio*   77.17%   73.65%   71.8%   72.5%   75.9%
Net Interest Margin (tax-equivalent basis)   3.48%   3.58%   3.68%   3.66%   3.70%
Nonaccrual Loans to Total Loans   1.51%   1.59%   1.31%   1.30%   1.28%
Nonaccrual Loans and OREO to Total Loans   1.98%   2.00%   1.61%   1.61%   1.53%
Allowance for Loan Losses to Total Loans   1.34%   1.20%   1.29%   1.17%   1.21%
Allowance for Loan Losses to Nonaccrual Loans   88.7%   75.5%   97.9%   89.7%   94.3%
 * - 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 first quarter increased 4% to $4,923,000 compared to $4,715,000 for the first quarter of 2015; however, the net interest margin fell to 3.48% compared to 3.58% the most recent quarter and 3.70% the same quarter last year. The decrease in the net interest margin compared to the first quarter of 2015 was due to a $60.0 million, or 12%, increase in average total deposits, which was accompanied by an increase of only $1.2 million, or less than 1%, in average total loans. The excess liquidity was held in short-term investments and on deposit at the Federal Reserve Bank. The elevated deposit balances are temporary and are expected to decline significantly in the second quarter. The increase in balance sheet leverage had minimal impact on net interest income, but negatively affected the net interest margin ratio. 

While average total loans for the first quarter was up slightly over the same quarter a year ago, it decreased by $13.5 million, or 3%, compared to the most recent quarter. The decrease was the result of some planned and unplanned pay-offs. The pay-offs were due to one customer selling their business, one selling commercial real estate and the SBA funding their subordinated interest in another credit. "While disappointed in the level of loan growth for the first quarter, we're not willing to compromise on credit quality or structure to gain volume when demand is a little soft," said Bastian. "We have a good pipeline of high quality credit opportunities and expect to see moderate growth for the remainder of the year," he added. 

Provision for Loan Losses and Credit Quality

The provision for loan losses in the first quarter decreased by $122,000, or 20%, to $495,000 compared to $617,000 in first quarter of 2015. With a provision for loan losses of $495,000 and net loan recoveries of $23,000 for the quarter, the ratio of the allowance for loan losses to total loans increased to 1.34% compared to 1.20% at December 31, 2015 and 1.21% March 31, 2015. 

Nonaccrual loans and other real estate owned totaled $7.8 million, or 1.98% of total loans, at March 31, 2016 compared to $8.0 million, or 2.0% of total loans, at December 31, 2015 and $6.2 million, or 1.53% of total loans, at March 31, 2015. The following table summarizes the activity in the allowance for loan losses for the quarters ended March 31, 2016 and 2015 and the year ended December 31, 2015:

         
Activity in Allowance For Loan Losses:        
(in Thousands)   Quarter Ended March 31,   Year Ended
December 31,
    2016   2015   2015
Beginning allowance for loan losses   4,886   4,396   4,396
Provision for loan losses   495   617   2,139
Charge-offs   (170)   (185)   (2,506)
Recoveries   193   58   761
Ending allowance for loan losses   5,309   4,886   4,790
             
Net charge-offs to average loans, annualized   (.02%)   .13%   .43%
             

The ratio of the allowance for loan losses to nonaccrual loans was 88.7% at March 31, 2016 compared to 75.5% at December 31, 2015 and 94.3% at March 31, 2015. 

Non-Interest Income and Operating Expenses:

Excluding the fraud recovery, non-interest income for the first quarter of 2016 declined by $114,000, or 5%, to $2,065,000 compared to $2,179,000 for the first quarter of 2015. The decrease reflects a reduction in net securities gains to $0 compared to $200,000 the first quarter of last year. Modest increases in deposit service charges and debit card revenue offset a small decrease in income from the sale and servicing of secondary market mortgage loans.

Operating expenses for the quarter increased by $288,000, or 6%, to $5,508,000 compared to $5,220,000 the first quarter of 2015. 

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 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        
MARCH, 2016 AND DECEMBER 31, 2015        
(UNAUDITED)        
    March 31,   December 31,
Assets   2016   2015
    (Amounts in thousands, except
    share and per share data)
Cash and due from banks   $ 12,561     $ 11,653  
Securities purchased under agreements to resell     12,202       14,955  
Interest-bearing deposits in banks and other     47,258       1,144  
      Total cash and cash equivalents     72,021       27,752  
Securities available-for-sale     172,143       139,533  
Loans held for sale     3,101       3,014  
Federal Home Loan Bank stock, at cost     2,266       2,266  
Loans, less allowance for loan losses of $5,309 and $4,790 at March 31, 2016 and December 31, 2015, respectively     390,805       395,187  
Premises and equipment, net     7,724       7,715  
Goodwill     5,037       5,037  
Mortgage Servicing rights     2,286       2,395  
Cash surrender value of bank-owned life insurance     9,986       9,902  
Other assets     12,053       9,711  
  Total assets   $ 677,422     $ 602,512  
                 
Liabilities and Stockholders' Equity                
                 
Liabilities                
  Deposits:                
    Noninterest-bearing   $ 109,125     $ 102,943  
    Interest-bearing     496,136       420,114  
      Total deposits     605,261       523,057  
Subordinated debentures and notes (including $1,031 at fair value at March 31, 2016 and December 31, 2015)     11,255       11,255  
Senior secured term note     8,250       8,500  
Other borrowings     -       11,250  
Other liabilities     4,127       3,301  
      Total liabilities     628,893       557,363  
                 
Stockholders' equity                
  Common stock, $0.01 par value, 10,000,000 shares authorized; 2,370,371 and 2,327,197 shares issued as of March 31, 2016 and December 31, 2015, respectively     24       23  
  Additional paid-in capital     10,411       10,362  
  Retained earnings     36,858       34,376  
  Treasury stock, 90,284 and 88,783 shares at cost as of March 31, 2016 and December 31, 2015, respectively     (1,010 )     (982 )
  Accumulated other comprehensive income (loss)     2,246       1,370  
    Total stockholders' equity     48,529       45,149  
    Total liabilities and stockholders' equity   $ 677,422     $ 602,512  
       
       
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES      
CONSOLIDATED STATEMENTS OF INCOME      
(UNAUDITED)      
  Three months ended March 31,
  2016   2015
  (Amounts in thousands, except per share data)
  share and per share data)
Interest Income:      
  Interest and fees on loans $ 4,635   $ 4,614  
  Interest and dividends on available-for-sale securities:            
    Taxable   561     466  
    Tax-exempt   301     316  
  Interest on securities purchased under agreements to resell   44     -  
  Interest on other   29     5  
    Total interest and dividend income   5,570     5,401  
Interest Expense:            
  Interest on deposits   398     444  
  Interest on subordinated debentures and notes   157     152  
  Interest on senior secured term note   91     90  
  Interest on other borrowings   1     -  
    Total interest expense   647     686  
    Net interest and dividend income before provision for loan losses   4,923     4,715  
Provision for loan losses   495     617  
    Net interest and dividend income after provision for loan losses   4,428     4,098  
             
Noninterest Income:            
  Service charges on deposits accounts   689     621  
  Net gain on sale of loans   353     457  
  Net loan servicing income   81     58  
  Debit card interchange fees   568     554  
  Net gains on sales of securities available-for-sale   -     200  
  Net other gains (losses)   2,933     (32 )
  Increase in cash surrender value of bank-owned life insurance   85     82  
  Other   279     239  
    Total noninterest income   4,988     2,179  
             
Noninterest Expenses:            
  Salaries and employee benefits   3,136     2,873  
  Premises and equipment   645     657  
  Data processing   599     596  
  Advertising and marketing   94     58  
  Professional fees   230     255  
  Office Supplies   86     90  
  Telephone   103     108  
  Other   615     583  
    Total noninterest expenses   5,508     5,220  
    Income before income taxes   3,908     1,057  
Provision for income taxes   1,335     192  
    Net income $ 2,573   $ 865  
             
Key Ratios            
             
Basic Earnings Per Common Share $ 1.13   $ 0.39  
Diluted Earnings Per Common Share   1.12     0.38  
Dividends Per Common Share   0.04     0.02  
             
                         
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND RATES
                         
Average Balance Sheet with Resultant Interest and Rates                
(Amounts in thousands)127027                        
(Yields on a tax-equivalent basis)   Three months ended March 31, 2016   Three months ended March 31, 2015
    Average       Average   Average       Average
    Balance   Interest   Rate   Balance   Interest   Rate
Interest Earning Assets:                        
  Interest-bearing deposits in banks   $ 23,741     $ 29   0.50 %   $ 9,111     $ 4   0.19 %
  Federal funds sold and securities purchased under agreements to resell     13,521       44   1.31 %     17       1   0.15 %
  Investment securities:                                        
    Taxable investment securities     112,907       561   2.00 %     91,111       466   2.07 %
    Tax-exempt investment securities     39,952       301   4.64 %     37,592       316   5.15 %
      Total Investment securities     152,859       862   2.69 %     128,703       782   2.97 %
Loans     397,481       4,635   4.69 %     396,302       4,614   4.72 %
                                         
Total Earning Assets   $ 587,602     $ 5,570   3.92 %   $ 534,133     $ 5,401   4.22 %
  Allowance for loan losses     (4,968 )                 (4,566 )            
  Cash and due from banks     15,445                   12,974              
  Other assets     35,192                   35,945              
                                         
Total Assets   $ 633,271                 $ 578,486              
                                         
Interest Bearing Liabilities:                                        
  Interest bearing checking accounts   $ 202,125     $ 161   0.32 %   $ 161,225     $ 113   0.28 %
  Savings and money market deposits     172,779       68   0.16 %     152,676       60   0.16 %
  Time deposits     80,401       169   0.84 %     89,732       271   1.22 %
    Total interest bearing deposits     455,305       398   0.35 %     403,633       444   0.45 %
  Subordinated debentures and notes     11,255       157   5.59 %     11,255       152   5.47 %
  Borrowings     10,710       92   3.48 %     10,014       90   3.67 %
                                         
Total Interest-Bearing Liabilities   $ 477,270     $ 647   0.55 %   $ 424,902     $ 686   0.65 %
                                         
Interest Rate Spread                 3.37 %                 3.57 %
                                         
Noninterest checking accounts     105,530                   97,133              
  Other liabilities     4,011                   13,299              
  Total liabilities     586,811                   535,334              
  Common Stockholders' equity     46,460                   43,152              
Total Stockholders' equity     46,460                   43,152              
Total Liabilities and Stockholders' Equity   $ 633,271                 $ 578,486              
                                         
Net Interest Income/Margin           $ 4,923   3.48 %           $ 4,715   3.70 %
                                         

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