SOURCE: Blackhawk Bancorp, Inc.

July 23, 2015 13:34 ET

Blackhawk Bancorp Announces Second Quarter 2015 Results

BELOIT, WI--(Marketwired - July 23, 2015) - Blackhawk Bancorp, Inc. (OTCQX: BHWB) reported net income of $940,000 for the second quarter of 2015, down 4% compared to $982,000 reported in the second quarter of the prior year. Earnings per diluted share for the quarter was $0.42, unchanged from the second quarter of 2014.

Net income for the six months ended June 30 2015 increased 7% to $1,805,000 compared to $1,683,000 earned the first half of 2014. Earnings per diluted share for the six month period was $0.81, a 23% increase compared to the $0.66 earned the first half of 2014. The higher percentage increase in earnings per share compared to the percentage increase in net income reflects the impact of the Company redeeming $10.5 million of preferred stock in the second quarter of 2014. Since the redemption, all of the Company's earnings are attributable to common shareholders.

The Company's return on average common equity for the first half of 2015 was 8.42%, an increase of 85 basis points compared to 7.57% for the first half of 2014. Return on average assets for the first six months of 2015 increased to .62% compared to .58% the first half of 2014.

"Modest loan growth, an increase in mortgage banking activity and a reduction in credit related costs accounted for the year to date improvement in earnings," said Rick Bastian, the Company's chief executive officer. "Our unique approach to banking continues to attract new clients as we use our deep understanding their businesses or personal financial situations to provide ideas, advice and solutions to help them succeed," added Bastian.

"Credit quality has stabilized with net charge-offs and losses on sale of other assets being down substantially; however, we continued the provision for loan losses at about the same level as last year. A stronger allowance for loan losses is part of our strategy to fortify the balance sheet and will give us the flexibility we need to more aggressively resolve the remaining nonperforming assets," said Bastian. "We expect to continue this strategy in the near future, although lowering provisions continues to be one of our best opportunities for earnings improvement," he added.

The following table summarizes key performance and asset quality measures for the quarter ended June 30, 2015 compared to the previous four quarters:

           

Key Performance and Asset Quality Measures
 2nd Qtr
2015
 1st Qtr
2015
 4th Qtr
2014
 3rd Qtr
2014
 2nd Qtr
2014
Diluted EPS  $0.42  $0.38  $0.42  ($0.17)  $0.42
Diluted EPS, excluding net securities fraud loss  $0.42  $0.38  $0.42  $0.54  $0.42
ROAA  .63%  .61%  .65%  (.25%)  .67%
ROAA, excluding net securities fraud loss  .63%  .61%  .65%  .81%  .67%
ROACE  8.65%  8.16%  8.93%  (3.55%)  9.37%
ROACE, excluding net securities fraud loss  8.65%  8.16%  8.93%  11.53%  9.37%
Efficiency Ratio*  72.5%  75.9%  74.2%  71.2%  69.3%
Net interest margin (tax-equivalent basis)  3.66%  3.70%  3.73%  3.66%  3.60%
Nonaccrual loans to total loans  1.30%  1.28%  1.43%  1.53%  1.38%
Nonaccrual loans and OREO to total loans  1.61%  1.53%  1.66%  1.79%  1.72%
Allowance for loan losses to total loans  1.17%  1.21%  1.11%  1.12%  1.14%
Allowance for loan losses to nonaccrual loans  89.7%  94.3%  77.4%  73.1%  82.7%
           
  • - The efficiency ratio calculation excludes net gains and losses on trading and available for sale securities, net gains and losses on other assets and the fraud loss on repurchase agreements.

Net Interest Income

Net interest income for the second quarter increased 3% to $4,884,000 compared to $4,754,000 for the second quarter of 2014, and the net interest margin increased 6 basis points to 3.66%, compared to 3.60% the second quarter of 2014.

For the first six months of 2015 net interest income increased less than 1% to $9,598,000 compared to $9,530,000 the first half of 2014. The 2015 year to date net interest margin was 3.68%, up 3 basis points compared to the first half of 2014.

Average total earning assets for the quarter increased by $5.2 million to $553.5 million compared to $548.3 million in the second quarter of 2014. The increase in average total earning assets includes a $29.2 million, or 8%, increase in average total loans that was offset with a $24.0 million decrease in average short-term investments and investment securities. Average total deposits for the second quarter were $5.0 million, or 1%, higher than they were in the second quarter of 2014. This includes a $19.6 million increase in average non-maturity deposits offset by a $14.6 million decrease in average time deposits.

Average total earning assets for the six months ended June 30, 2015 decreased by $1.1 million to $543.8 million compared to $544.9 million the first half of 2014; however, total average loans were up by $23.0 million to $402.1 million compared to $379.1 million the year before. The increase in average total loans for both the quarter and year to date periods was driven by growth in the commercial and commercial real estate portfolios. The shift in earning assets from investments to loans has been helpful in maintaining and improving the net interest margin, despite downward pressure from the prolonged low rate environment and intense competition for quality commercial credits. Average total deposits for the first half of 2015 increased by $5.3 million, or 1%, compared to the first half of the year before.

Provision for Loan Losses and Credit Quality

The provision for loan losses in the second quarter decreased by $64,000, or 9%, to $617,000 compared to $681,000 in second quarter of 2014. For the first six months of 2015 the provision for loan losses increased $42,000 to $1,233,000 compared to $1,191,000 the first half of 2014.

Nonaccrual loans and other real estate owned totaled $6.6 million, or 1.61% of total loans, at June 30, 2015 compared to $6.2 million, or 1.53% of total loans, at March 31, 2015 and $6.5 million, or 1.72% of total loans, at June 30, 2014.

Net loan charge-offs for the first half of 2015 decreased 60% to $834,000 compared to $1,762,000 in the first six months of 2014. The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 2015 and 2014 and the year ended December 31, 2014:

   
Activity in Allowance For Loan Losses:    
(in Thousands) Six Months Ended June 30,  Year Ended December 31,
  2015  2014  2014
Beginning allowance for loan losses 4,396  4,894  4,894
Provision for loan losses 1,233  1,191  4,140
Charge-offs (931)  (1,940)  (3,170)
Recoveries 97  178  387
Ending allowance for loan losses 4,795  4,323  4,396
Net charge-offs to average total loans - annualized 0.42%  0.93%  

0.72%
      

The ratio of the allowance for loan losses to total loans was 1.17% as of June 30, 2015, compared to 1.21% at March 31, 2015 and 1.14% at June 30, 2014. The ratio of the allowance for loan losses to nonaccrual loans was 89.7% at June 30, 2015 compared to 94.3% at March 31, 2015 and 82.7% at June 30, 2014.

Non-Interest Income and Operating Expenses

Non-interest income for the second quarter of 2015 increased by $182,000, or 9% to $2,285,000 compared to $2,103,000 the second quarter of the prior year. The increase includes a $134,000 increase in revenue from the sale and servicing of mortgage loans originated for sale into the secondary market. For the first six months of 2015 non-interest income is up $575,000, or 15%, to $4,494,000 compared to $3,919,000 the first half of last year. The year-to-date increase includes a $279,000 increase in revenue from the origination and sale of mortgage loans and a $369,000 improvement in the net gain (loss) on the sale of other assets, primarily real estate received in settlement of loans.

Operating expenses for the quarter increased by $391,000, or 8%, to $5,290,000 compared to $4,899,000 the second quarter of 2014. For the first six months of the year operating expenses are up $268,000, or 3%, to $10,510,000 compared to $10,242,000 the first half of 2014.

Outlook

Blackhawk has created a strong credit culture and the processes to support it; however, economic uncertainties 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 is expected to 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 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 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"; 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  
JUNE 30, 2015 AND DECEMBER 31, 2014  
(UNAUDITED)  
   June 30,   December 31,  
Assets  2015   2014  
   (Amounts in thousands, except  
   share and per share data)  
Cash and due from banks  $16,024   $9,847  
Interest-bearing deposits in banks and other   966    11,744  
   Total cash and cash equivalents   16,990    21,591  
Securities available-for-sale   134,897    129,184  
Loans held for sale   2,384    1,537  
Federal Home Loan Bank stock, at cost   2,266    2,266  
Loans, less allowance for loan losses of $4,795 and $4,396 at June 30, 2015 and December 31, 2014, respectively   404,550    391,448  
Premises and equipment, net   8,067    8,320  
Goodwill   5,037    5,037  
Mortgage Servicing rights   2,519    2,640  
Cash surrender value of bank-owned life insurance   9,756    9,602  
Other assets   10,026    9,848  
 Total assets  $596,492   $581,473  
            
Liabilities and Stockholders' Equity           
            
Liabilities           
 Deposits:           
  Noninterest-bearing  $103,481   $99,068  
  Interest-bearing   414,689    416,716  
   Total deposits   518,170    515,784  
Subordinated debentures and notes (including $1,031 at fair value at June 30, 2015 and December 31, 2014)   11,255    11,255  
Senior secured term note   9,000    9,000  
Other borrowings   11,580    -  
Other liabilities   3,312    3,398  
   Total liabilities   553,317    539,437  
            
Stockholders' equity           
 Preferred stock, $0.01 par value, 1,000,000 shares authorized; 0 and 10,500 shares issued as of June 30, 2015 and December 31,2014, respectively   -    -  
 Common stock, $0.01 par value, 10,000,000 shares authorized; 2,320,454 and 2,318,496 shares issued as of June 30, 2015 and December 31, 2014, respectively   23    23  
 Additional paid-in capital   10,057    9,960  
 Retained earnings   32,441    31,091  
 Treasury stock, 88,783 and 87,865 shares at cost as of June 30, 2015 and December 31, 2014, respectively   (983 )  (969 )
 Accumulated other comprehensive income (loss)   1,637    1,931  
  Total stockholders' equity   43,175    42,036  
  Total liabilities and stockholders' equity  $596,492   $581,473  
         
         
         
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF INCOME  
(UNAUDITED)  
   Six months ended June 30,  
   2015  2014  
   (Amounts in thousands, except  
   share and per share data)  
Interest Income:          
 Interest and fees on loans  $9,354  $9,213  
 Interest and dividends on available-for-sale securities:          
  Taxable   976   987  
  Tax-exempt   610   668  
 Interest on securities purchased under agreements to resell   -   110  
 Interest on other   11   10  
  Total interest and dividend income   10,951   10,988  
Interest Expense:          
 Interest on deposits   863   1,060  
 Interest on subordinated debentures and notes   304   304  
 Interest on senior secured term note   182   65  
 Interest on other borrowings   4   29  
  Total interest expense   1,353   1,458  
  Net interest and dividend income before provision for loan losses   9,598   9,530  
Provision for loan losses   1,233   1,191  
  Net interest and dividend income after provision for loan losses   8,365   8,339  
           
Noninterest Income:          
 Service charges on deposits accounts   1,247   1,359  
 Net gain on sale of loans   1,040   775  
 Net loan servicing income   134   120  
 Debit card interchange fees   1,136   1,119  
 Net gains on sales of securities available-for-sale   200   255  
 Net other gains (losses)   5   (364 )
 Increase in cash surrender value of bank-owned life insurance   154   150  
 Other   578   505  
  Total noninterest income   4,494   3,919  
           
Noninterest Expenses:          
 Salaries and employee benefits   5,849   5,591  
 Premises and equipment   1,278   1,271  
 Data processing   1,175   1,178  
 Advertising and marketing   116   112  
 Professional fees   483   452  
 Office Supplies   174   178  
 Telephone   206   182  
 Other   1,229   1,278  
  Total noninterest expenses   10,510   10,242  
  Income before income taxes   2,349   2,016  
Provision for income taxes   544   333  
  Net income  $1,805  $1,683  
           
Key Ratios          
           
Basic Earnings Per Common Share  $0.81  $0.67  
Diluted Earnings Per Common Share   0.81   0.66  
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)                       
(Yields on a tax-equivalent basis)  Six months ended 
June 30, 2015
  Six months ended 
June 30, 2014
 
   Average      Average   Average      Average  
   Balance   Interest  Rate   Balance   Interest  Rate  
Interest Earning Assets:                           
 Interest-bearing deposits in banks  $9,004   $11  0.25 % $3,020   $2  0.16 %
 Federal funds sold & securities purchased under agreements to resell   40    1  0.14 %  16,442    110  1.35 %
 Investment securities:                           
  Taxable investment securities   94,657    975  2.08 %  106,990    995  1.88 %
  Tax-exempt investment securities   38,092    610  4.92 %  39,366    668  5.15 %
   Total Investment securities   132,749    1,585  2.90 %  146,356    1,663  2.76 %
 Loans   402,056    9,354  4.69 %  379,093    9,213  4.90 %
                            
Total Earning Assets  $543,849   $10,951  4.18 % $544,911   $10,988  4.19 %
 Allowance for loan losses   (4,692 )          (4,826 )        
 Cash and due from banks   12,959            12,832          
 Other assets   35,457            33,897          
                            
Total Assets  $587,573           $586,814          
                            
Interest Bearing Liabilities:                           
 Interest bearing checking accounts  $165,642   $231  0.28 % $162,644   $236  0.29 %
 Savings and money market deposits   162,905    122  0.15 %  152,258    109  0.15 %
 Time deposits   86,672    510  1.19 %  101,550    715  1.42 %
  Total interest bearing deposits   415,219    863  0.42 %  416,452    1,060  0.51 %
 Subordinated debentures and notes   11,255    304  5.46 %  11,142    304  5.50 %
 Borrowings   13,648    186  2.74 %  14,141    94  1.35 %
                            
Total Interest-Bearing Liabilities  $440,122   $1,353  0.62 % $441,735   $1,458  0.67 %
                            
Interest Rate Spread           3.56 %          3.52 %
                            
Noninterest checking accounts   100,006            93,434          
 Other liabilities   4,198            3,306          
 Total liabilities   544,326            538,475          
 Common Stockholders' equity   43,247            48,339          
Total Stockholders' equity   43,247            48,339          
                            
Total Liabilities and Stockholders' Equity  $587,573           $586,814          
                            
Net Interest Income/Margin       $9,598  3.68 %      $9,530  3.65 %
                     
                     
                     
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF INCOME  
(UNAUDITED)  
   Three months ended June 30,  
   2015  2014  
   (Amounts in thousands, except  
   share and per share data)  
Interest Income:          
 Interest and fees on loans  $4,740  $4,594  
 Interest and dividends on available-for-sale securities:          
  Taxable   496   522  
  Tax-exempt   308   333  
 Interest on securities purchased under agreements to resell   -   46  
 Interest on other   7   5  
  Total interest and dividend income   5,551   5,500  
Interest Expenses:          
 Interest on deposits   420   526  
 Interest on subordinated debentures   152   152  
 Interest on senior secured term note   92   65  
 Interest on other borrowings   3   3  
  Total interest expense   667   746  
  Net interest and dividend income before provision for loan losses   4,884   4,754  
Provision for loan losses   617   681  
  Net interest and dividend income after provision for loan losses   4,267   4,073  
           
Noninterest Income:          
 Service charges on deposits accounts   627   705  
 Net gain on sale of loans   583   478  
 Net loan servicing income   75   46  
 Debit card interchange fees   582   577  
 Net gains on sales of securities available-for-sale   -   57  
 Net other gains (losses)   37   (106 )
 Increase in cash value of bank-owned life insurance   72   70  
 Other   309   276  
  Total noninterest income   2,285   2,103  
           
Noninterest Expenses:          
 Salaries and employee benefits   2,976   2,708  
 Premises and equipment   621   603  
 Data processing   579   572  
 Advertising and marketing   58   49  
 Professional fees   228   223  
 Office Supplies   84   88  
 Telephone   98   90  
 Other   646   566  
  Total noninterest expenses   5,290   4,899  
  Income before income taxes   1,262   1,277  
Provision for income taxes   322   295  
  Net income  $940  $982  
           
Key Ratios          
           
Basic Earnings Per Common Share  $0.42  $0.42  
Diluted Earnings Per Common Share   0.42   0.42  
Dividends Per Common Share   0.02   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)                       
(yields on a tax-equivalent basis)  Three months ended 
June 30, 2015
  Three months ended 
June 30, 2014
 
   Average      Average   Average      Average  
   Balance   Interest  Rate   Balance   Interest  Rate  
Interest Earning Assets:                           
 Interest-bearing deposits in banks  $8,898   $7  0.32 % $3,202   $1  0.17 %
 Federal funds sold & securities purchased under agreements to resell   63    -  0.14 %  13,175    46  1.41 %
 Investment securities:                           
  Taxable investment securities   98,165    496  2.03 %  113,868    526  1.85 %
  Tax-exempt investment securities   38,586    308  4.89 %  39,541    333  5.08 %
   Total Investment securities   136,751    804  2.83 %  153,409    859  2.68 %
 Loans   407,747    4,740  4.66 %  378,502    4,594  4.87 %
                            
Total Earning Assets  $553,459   $5,551  4.14 % $548,288   $5,500  4.15 %
 Allowance for loan losses   (4,816 )          (4,733 )        
 Cash and due from banks   12,944            12,936          
 Other assets   35,228            33,593          
                            
Total Assets  $596,815           $590,084          
                            
Interest Bearing Liabilities:                           
 Interest bearing checking accounts  $170,011   $118  0.28 % $165,314   $120  0.29 %
 Savings and money market deposits   164,034    62  0.15 %  155,812    57  0.15 %
 Time deposits   83,647    240  1.15 %  98,209    349  1.43 %
  Total interest bearing deposits   417,692    420  0.40 %  419,335    526  0.50 %
 Subordinated debentures   11,255    152  5.44 %  11,201    152  5.45 %
 Borrowings   17,243    95  2.21 %  12,637    68  2.16 %
                            
Total Interest-Bearing Liabilities  $446,190   $667  0.60 % $443,173   $746  0.68 %
                            
Interest Rate Spread           3.54 %          3.47 %
                            
Noninterest checking accounts   102,849            96,164          
 Other liabilities   4,180            3,528          
 Total liabilities   553,219            542,865          
 Common Stockholders' equity   43,596            47,219          
Total Stockholders' equity   43,596            47,219          
Total Liabilities and Stockholders' Equity  $596,815           $590,084          
                            
Net Interest Income/Margin       $4,884  3.66 %      $4,754  3.60 %

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