SOURCE: Blackhawk Bancorp, Inc.

Blackhawk Bancorp, Inc.

October 23, 2015 14:41 ET

Blackhawk Bancorp Announces Third Quarter 2015 Results

BELOIT, WI--(Marketwired - October 23, 2015) - Blackhawk Bancorp, Inc. (OTCQX: BHWB) reported net income of $1,129,000 for the third quarter of 2015, a $1,504,000 increase from the $375,000 loss reported for the third quarter of 2014. Earnings per diluted share for the quarter was $0.51, up $0.68 from the $0.17 per diluted share loss realized in the third quarter of 2014. The dramatic increase compared to the third quarter of last year reflects the securities fraud loss realized last year, which reduced net income by $1,593,000 in the third quarter of 2014.

Net income for the nine months ended September 2015 increased 124% to $2,933,000 compared to $1,308,000 earned the first three quarters of 2014. Earnings per diluted share for the nine month period was $1.31, a 162% increase compared to the $0.50 earned the first nine months of 2014. Excluding the fraud related loss recognized in the third quarter of 2014, net income for the first nine months of 2015 increased $32,000, or 2%, and diluted earnings per share increased $0.10, or 8%, compared to the first nine months of 2014.

"We're pleased to be reporting another quarter of solid performance," said Rick Bastian, the Company's chief executive officer. "We continue to grow our core business by providing the personal attention and financial solutions business owners and consumers want from their Bank," he added.

"Our credit quality and the strength of our reserves continue to improve. While the provision for loan losses is about the same as last year, net charge-offs are down by 63%. With the reduction in charge-offs, the allowance for loan losses has increased by 21% since the end of 2014. The added strength of our reserves gives us more flexibility to aggressively resolve remaining nonperforming loans," said Bastian. "We don't expect to be releasing any reserves, although the stabilization in credit quality could lead to reduced provision levels in the future," he added.

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

                

Key Performance and Asset Quality Measures
 3rd Qtr 2015  2nd Qtr 2015  1st Qtr 2015  4th Qtr 2014  3rd Qtr 2014
Diluted EPS  $0.51  $0.42  $0.38  $0.42  ($0.17)
Diluted EPS, excluding net securities fraud loss  $0.51  $0.42  $0.38  $0.42  $0.54
ROAA  .75%  .63%  .61%  .65%  (.25%)
ROAA, excluding net securities fraud loss  .75%  .63%  .61%  .65%  .81%
ROACE  10.15%  8.65%  8.16%  8.93%  (3.55%)
ROACE, excluding net securities fraud loss  10.15%  8.65%  8.16%  8.93%  11.53%
Efficiency Ratio*  71.8%  72.5%  75.9%  74.2%  71.2%
Net interest margin (tax-equivalent basis)  3.68%  3.66%  3.70%  3.73%  3.66%
Nonaccrual loans to total loans  1.31%  1.30%  1.28%  1.43%  1.53%
Nonaccrual loans and OREO to total loans  1.61%  1.61%  1.53%  1.66%  1.79%
Allowance for loan losses to total loans  1.29%  1.17%  1.21%  1.11%  1.12%
Allowance for loan losses to nonaccrual loans  97.9%  89.7%  94.3%  77.4%  73.1%
           
* - The efficiency ratio calculation excludes net gains and losses on securities, net gains and losses on other assets and the securities related fraud loss.

Net Interest Income

Net interest income for the third quarter increased 2% to $5,019,000 compared to $4,932,000 for the third quarter of 2014, and the net interest margin increased to 3.68% compared to 3.66% the most recent quarter and the third quarter of 2014.

For the first nine months of 2015 net interest income increased $156,000, or 1%, to $14,618,000 compared to $14,462,000 the nine months of 2014. The 2015 year to date net interest margin was 3.68%, up 3 basis points compared to the first three quarters of 2014.

Average total earning assets for the quarter increased by $5.5 million to $558.0 million compared to $552.5 million in the third quarter of 2014. The increase in average total earning assets includes a $26.9 million, or 7%, increase in average total loans that was offset with a $24.6 million decrease in average short-term investments and investment securities. Average total deposits for the third quarter were $7.4 million, or 2%, higher than they were in the third quarter of 2014. This includes a $7.3 million increase in average non-interesting bearing demand deposits.

Average total earning assets for the nine months ended September 30, 2015 increased by $1.2 million to $548.6 million compared to $547.4 million the first nine months of 2014; however, total average loans were up by $24.2 million to $405.7 million compared to $381.3 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 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 three quarters of 2015 increased by $1.5 million, or less than 1%, compared to the same period the year before.

Provision for Loan Losses and Credit Quality

The provision for loan losses in the third quarter decreased by $23,000, or 4%, to $555,000 compared to $578,000 in third quarter of 2014. For the first nine months of 2015 the provision for loan losses increased $20,000 to $1,789,000 compared to $1,769,000 for the first three quarters of 2014.

Nonaccrual loans and other real estate owned totaled $6.7 million, or 1.61% of total loans, at September 30, 2015 compared to $6.6 million, or 1.61% of total loans, at June 30, 2015 and $7.0 million, or 1.79% of total loans, at September 30, 2014.

Net loan charge-offs for the first nine months of 2015 decreased 64% to $837,000 compared to $2,276,000 in the first nine months of 2014. The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2015 and 2014 and the year ended December 31, 2014:

       
Activity in Allowance For Loan Losses:     Year Ended
(in Thousands)  Nine Months Ended September 30,  December 31,
   2015  2014  2014
Beginning allowance for loan losses  4,396  4,894  4,894
Provision for loan losses  1,789  1,769  4,140
Charge-offs  (1,028)  (2,556)  (3,170)
Recoveries  191  280  387
Ending allowance for loan losses  5,348  4,387  4,396
Net charge-offs to average total loans - annualized  0.28%  0.80%  

0.72%
       

The ratio of the allowance for loan losses to total loans was 1.29% as of September 30, 2015, compared 1.17% at June 30, 2015, and 1.12% at September 30, 2014. The ratio of the allowance for loan losses to nonaccrual loans was 97.9% at September 30, 2015 compared to 89.7% at June 30, 2015 and 73.1% at September 30, 2015.

Non-Interest Income and Operating Expenses

Excluding the securities fraud loss from the prior year, non-interest income for the third quarter of 2015 increased $5,000 to $2,452,000 compared to $2,447,000 for the third quarter of 2014. For the first nine months of 2015 it's up by $581,000, or 9%, compared to $6,366,000 for the first nine months of last year. The year to date improvement in non-interest income includes a $350,000, or 24%, increase in revenue from the sale and servicing of mortgage loans originated for sale into the secondary market.

Operating expenses for the quarter increased by $235,000, or 5%, to $5,381,000 compared to $5,146,000 the third quarter of 2014. For the first nine months of the year operating expenses are up $503,000, or 3%, to $15,892,000 compared to $15,389,000 the first nine months 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        
SEPTEMBER 30, 2015 AND DECEMBER 31, 2014        
(UNAUDITED)        
  September 30,   December 31,  
Assets 2015   2014  
  (Amounts in thousands, except  
  share and per share data)  
Cash and due from banks $10,175   $9,847  
Interest-bearing deposits in banks and other  19,819    11,744  
  Total cash and cash equivalents  29,994    21,591  
Securities available-for-sale  134,519    129,184  
Loans held for sale  1,300    1,537  
Federal Home Loan Bank stock, at cost  2,266    2,266  
Loans, less allowance for loan losses of $5,348 and $4,396 at September 30, 2015 and December 31, 2014, respectively  411,321    391,448  
Premises and equipment, net  7,919    8,320  
Goodwill  5,037    5,037  
Mortgage Servicing rights  2,475    2,640  
Cash surrender value of bank-owned life insurance  9,828    9,602  
Other assets  9,473    9,848  
 Total assets $614,132   $581,473  
           
Liabilities and Stockholders' Equity          
           
Liabilities          
 Deposits:          
  Noninterest-bearing $101,064   $99,068  
  Interest-bearing  444,934    416,716  
   Total deposits  545,998    515,784  
Subordinated debentures and notes (including $1,031 at fair value at          
September 30, 2015 and December 31, 2014)  11,255    11,255  
Senior secured term note  8,750    9,000  
Other borrowings  -    -  
Other liabilities  3,192    3,398  
   Total liabilities  569,195    539,437  
           
Stockholders' equity          
 Common stock, $0.01 par value, 10,000,000 shares authorized;          
 2,320,454 and 2,318,496 shares issued as of September 30, 2015 and          
 December 31, 2014, respectively  23    23  
 Additional paid-in capital  10,280    9,960  
 Retained earnings  33,480    31,091  
 Treasury stock, 88,783 and 87,865 shares at cost as of September 30, 2015 and December 31, 2014, respectively  (983 )  (969 )
 Accumulated other comprehensive income (loss)  2,137    1,931  
  Total stockholders' equity  44,937    42,036  
  Total liabilities and stockholders' equity $614,132   $581,473  
         
         
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES        
CONSOLIDATED STATEMENTS OF INCOME        
(UNAUDITED)        
  Three months ended September 30,  
  2015   2014  
  (Amounts in thousands, except  
  share and per share data)  
Interest Income:          
 Interest and fees on loans $4,827   $4,732  
 Interest and dividends on available-for-sale securities:          
  Taxable  504    595  
  Tax-exempt  296    325  
 Interest on securities purchased under agreements to resell  3    45  
 Interest on other  2    1  
  Total interest and dividend income  5,632    5,698  
Interest Expenses:          
 Interest on deposits  364    518  
 Interest on subordinated debentures  153    152  
 Interest on senior secured term note  89    92  
 Interest on other borrowings  7    4  
  Total interest expense  613    766  
  Net interest and dividend income before provision for loan losses  5,019    4,932  
Provision for loan losses  555    578  
  Net interest and dividend income after provision for loan losses  4,464    4,354  
           
Noninterest Income:          
 Service charges on deposits accounts  724    741  
 Net gain on sale of loans  565    516  
 Net loan servicing income  93    72  
 Debit card interchange fees  555    561  
 Net gains on sales of securities available-for-sale  121    214  
 Net other gains (losses)  14    (2,515 )
 Increase in cash value of bank-owned life insurance  73    71  
 Other  307    176  
  Total noninterest income  2,452    (164 )
           
Noninterest Expenses:          
 Salaries and employee benefits  2,878    2,845  
 Premises and equipment  650    632  
 Data processing  611    579  
 Advertising and marketing  69    55  
 Professional fees  261    235  
 Office Supplies  85    108  
 Telephone  105    98  
 Other  722    594  
  Total noninterest expenses  5,381    5,146  
  Income before income taxes  1,535    (956 )
Provision for income taxes  406    (581 )
  Net income $1,129   $(375 )
           
Key Ratios          
           
Basic Earnings Per Common Share $0.51   $(0.17 )
Diluted Earnings Per Common Share  0.51    (0.17 )
Dividends Per Common Share  0.04    0.02  
           
Net Interest Margin (FTE)  3.68 %  3.66 %
Efficiency Ratio (FTE)  71.80 %  71.15 %
Return on Assets  0.75 %  -0.25 %
Return on Common Equity  10.15 %  -3.56 %
        
         
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES        
CONSOLIDATED STATEMENTS OF INCOME        
(UNAUDITED)        
  Nine months ended September 30,  
  2015   2014  
  (Amounts in thousands, except  
  share and per share data)  
Interest Income:          
 Interest and fees on loans $14,181   $13,946  
 Interest and dividends on available-for-sale securities:          
  Taxable  1,480    1,590  
  Tax-exempt  906    994  
 Interest on securities purchased under agreements to resell  3    154  
 Interest on other  14    3  
  Total interest and dividend income  16,584    16,687  
Interest Expense:          
 Interest on deposits  1,227    1,578  
 Interest on subordinated debentures and notes  458    456  
 Interest on senior secured term note  271    157  
 Interest on other borrowings  10    34  
  Total interest expense  1,966    2,225  
  Net interest and dividend income before provision for loan losses  14,618    14,462  
Provision for loan losses  1,789    1,769  
  Net interest and dividend income after provision for loan losses  12,829    12,693  
           
Noninterest Income:          
 Service charges on deposits accounts  1,972    2,100  
 Net gain on sale of loans  1,606    1,291  
 Net loan servicing income  227    192  
 Debit card interchange fees  1,691    1,680  
 Net gains on sales of securities available-for-sale  321    469  
 Net other gains (losses)  19    (2,879 )
 Increase in cash surrender value of bank-owned life insurance  227    221  
 Other  884    681  
  Total noninterest income  6,947    3,755  
           
Noninterest Expenses:          
 Salaries and employee benefits  8,727    8,436  
 Premises and equipment  1,928    1,903  
 Data processing  1,786    1,757  
 Advertising and marketing  185    167  
 Professional fees  743    688  
 Office Supplies  259    285  
 Telephone  312    280  
 Other  1,952    1,873  
  Total noninterest expenses  15,892    15,389  
  Income before income taxes  3,884    1,059  
Provision for income taxes  951    (249 )
  Net income $2,933   $1,308  
           
Key Ratios          
           
Basic Earnings Per Common Share $1.31   $0.50  
Diluted Earnings Per Common Share  1.31    0.50  
Dividends Per Common Share  0.08    0.04  
           
Net Interest Margin (FTE)  3.68 %  3.65 %
Efficiency Ratio (FTE)  73.22 %  72.84 %
Return on Assets  0.66 %  0.30 %
Return on Common Equity  9.01 %  3.69 %
        
 
            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, 2015  Three months ended September 30, 2014
   Average     Average  Average     Average
   Balance  Interest  Rate  Balance  Interest  Rate
Interest Earning Assets:                  
 Interest-bearing deposits in banks  $5,322  $2  0.17%  $1,973  $1  0.14%
 Federal funds sold & securities                  
 purchased under agreements to                  
 resell  2,581  3  0.49%  12,693  45  1.39%
 Investment securities:                  
  Taxable investment securities  99,801  504  2.00%  113,325  595  2.08%
  Tax-exempt investment securities  37,573  296  4.79%  38,623  325  5.02%
   Total Investment securities  137,374  800  2.77%  151,948  920  2.83%
 Loans  412,801  4,827  4.64%  385,923  4,732  4.86%
                   
Total Earning Assets  $558,078  $5,632  4.12%  $552,537  $5,698  4.21%
 Allowance for loan losses  (5,045)        (4,310)      
 Cash and due from banks  13,459        13,129      
 Other assets  35,639        32,914      
                   
Total Assets  $602,131        $594,270      
                   
Interest Bearing Liabilities:                  
 Interest bearing checking accounts  $165,566  $112  0.27%  $167,651  $118  0.28%
 Savings and money market deposits  170,955  75  0.17%  143,616  54  0.15%
 Time deposits  77,221  177  0.91%  102,407  346  1.34%
  Total interest bearing deposits  413,742  364  0.35%  413,674  518  0.50%
 Subordinated debentures  11,255  153  5.40%  11,255  152  5.37%
 Borrowings  27,351  96  1.39%  20,084  96  1.90%
                   
Total Interest-Bearing Liabilities  $452,348  $613  0.54%  $445,013  $766  0.68%
                   
Interest Rate Spread        3.58%        3.53%
                   
Noninterest checking accounts  101,517        94,177      
 Other liabilities  4,149        13,180      
 Total liabilities  558,014        552,370      
 Common Stockholders' equity  44,117        41,900      
Total Stockholders' equity  44,117        41,900      
Total Liabilities and                  
 Stockholders' Equity  $602,131        $594,270      
                   
Net Interest Income/Margin     $5,019  3.68%     $4,932  3.66%
             
                 
                 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, 2015   Nine months ended September 30, 2014  
   Average      Average   Average      Average  
   Balance   Interest  Rate   Balance   Interest  Rate  
Interest Earning Assets:                           
 Interest-bearing deposits in banks  $7,763   $14  0.24 % $2,667   $3  0.16 %
 Federal funds sold & securities                           
 purchased under agreements to                           
 resell   896    3  0.48 %  15,179    154  1.36 %
 Investment securities:                           
  Taxable investment securities   96,391    1,480  2.05 %  109,125    1,590  1.95 %
  Tax-exempt investment securities   37,917    906  4.88 %  39,116    994  5.11 %
   Total Investment securities   134,308    2,386  2.85 %  148,241    2,584  2.78 %
 Loans   405,677    14,181  4.67 %  381,395    13,946  4.89 %
                            
Total Earning Assets  $548,644   $16,584  4.16 % $547,482   $16,687  4.20 %
 Allowance for loan losses   (4,811 )          (4,652 )        
 Cash and due from banks   13,127            12,932          
 Other assets   35,518            33,531          
                            
Total Assets  $592,478           $589,293          
                            
Interest Bearing Liabilities:                           
 Interest bearing checking accounts  $165,617   $343  0.28 % $164,331   $354  0.29 %
 Savings and money market deposits   165,618    197  0.16 %  152,495    164  0.14 %
 Time deposits   83,487    687  1.10 %  103,216    1,060  1.37 %
  Total interest bearing deposits   414,722    1,227  0.40 %  420,042    1,578  0.50 %
 Subordinated debentures and notes   11,255    458  5.44 %  11,180    456  5.46 %
 Borrowings   18,266    281  2.06 %  16,144    191  1.58 %
                            
Total Interest-Bearing Liabilities  $444,243   $1,966  0.59 % $447,366   $2,225  0.66 %
                            
Interest Rate Spread           3.57 %          3.54 %
                            
Noninterest checking accounts   100,516            93,684          
 Other liabilities   4,179            3,378          
 Total liabilities   548,938            544,428          
 Common Stockholders' equity   43,540            44,865          
Total Stockholders' equity   43,540            44,865          
Total Liabilities and Stockholders' Equity  $
592,478
          $
589,293
         
                            
Net Interest Income/Margin       $14,618  3.68 %      $14,462  3.65 %
                     

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