Blackhawk Bancorp Announces Second Quarter 2011 Results

BELOIT, Wis., July 28, 2011 /PRNewswire/ -- Blackhawk Bancorp, Inc. (OTCBB: BHWB) today reported earnings of $439,000 for the quarter ended June 30, 2011, a 34% decrease compared to $664,000 earned in the second quarter of 2010.  Net income for the six months ended June 30, 2011 was $1,078,000, an 18% decrease compared to the first six months of 2010.  Modest increases in revenue for both the three and six month periods ended June 30, 2011  were more than offset by increases in credit and collection related costs and other operating expenses when compared to the same three and six months periods of 2010.    

(Logo: http://photos.prnewswire.com/prnh/20110728/CG42912LOGO)

Earnings per diluted share for the quarter decreased to $0.13 compared to $0.23 the second quarter of 2010.  The Company earned $0.34 per diluted share for the six month period ended June 30, 2011 compared to $0.46 per share the first six months of 2010.  The Company's assets totaled $538.5 million at June 30, 2011 compared to $539.9 million at December 31, 2010.    

The following table summarizes key performance and asset quality measures for the quarter ended June 30, 2011 compared to the previous four quarters.    



Key Performance and Asset Quality Measures

2nd Qtr

2011

1st Qtr

2011

4th Qtr

2010

3rd  Qtr

2010

2nd  Qtr

2010







Diluted Earnings per share

$0.13

$0.22

$0.33

$0.30

$0.23

Return on average assets

.32%

.47%

.62%

.60%

.51%

Return on common equity

3.50%

6.29%

9.62%

8.91%

7.08%

Net interest margin

3.83%

3.97%

4.12%

4.07%

3.97%

Efficiency ratio

73.19%

71.86%

67.93%

63.34%

68.24%

Nonaccrual loans to total loans

2.31%

1.99%

1.73%

2.30%

2.45%

Nonaccrual loans and OREO to total loans

3.12%

2.73%

2.61%

2.68%

2.70%

Allowance for loan losses to total loans

1.83%

1.86%

1.82%

1.88%

1.79%

Allowance for loan losses to nonaccrual loans

79%

94%

105%

82%

73%

Subsidiary bank total risk-based capital

13.78%

13.57%

13.57%

13.05%

13.16%




"We continue to realize growth in core deposits, adding hundreds of new customer relationships each month," said Rick Bastian, the Company's president and chief executive officer. "However, borrower caution and intense competition for high quality credits have constrained loan growth and put downward pressure on the net interest margin.  In addition, credit related expenses continue to stress earnings, and are expected to remain at elevated levels for the remainder of the year," he added.    

Net Interest Income

Net interest income for the second quarter increased 1% to $4.8 million compared to $4.7 million in the second quarter 2010.  Total average earning assets for the quarter were $511.2 million, a 3.9% increase compared to $492.0 million the same quarter last year.  The net interest margin for the quarter decreased 14 basis points to 3.83% compared to 3.97% the second quarter of 2010.  The increase in earning assets includes a $9.8 million, or 3%, increase in average loans and a $9.3 million, or 6% increases in investment securities and short-term investments.  Average total deposits for the second quarter increased $32.8 million, or 7%, compared to the second quarter of 2010.  The increase includes a $3.3 million, or 1% increase in non-maturity deposits such as checking, savings, and money market accounts. The remainder of the increase in total average deposits was in time deposits.  Strong deposit growth allowed for a $14.3 million, or 32%, decrease in the average total borrowings to $30.0 million for the quarter compared to $44.4 million the second quarter of 2010.      

Net interest income for the first six months increased 3% to $9.6 million compared to $9.4 million the first six months of 2010.  Average earning assets for the first six months of 2011 increased 4% to $508.8 million compared to $488.4 million for the six month period ended June 30, 2010.   The net interest margin for the first half of 2011 decreased by 7 basis points to 3.90% compared to 3.97% for the first half of 2010.  The increase in earning assets includes a $12.3 million, or 4%, increase in total average loans and an $8.1 million, or 5%, increase in investment securities and short-term investments.  Average total deposits for the six months ended June 30, 2011 increased $42.0 million, or 8.8%, compared to average total deposits the first half of 2010.  Average total borrowings decreased by $22.5 million, or 46%, for the six months ended June 30, 2011 compared to the first six months of the prior year.      

Non-Interest Income and Operating Expenses

Noninterest income for the second quarter increased 3% to $1.8 million compared to $1.7 million the second quarter of the prior year.  Noninterest income for the first six months increased 3% to $3.6 million compared to $3.5 million for first half of 2010.  Increases in deposit service charges and debit card revenue for both the quarter and the six month period ended June 30, 2011 offset a reduction in gain on sale of mortgage loans compared to the same periods in 2010.              

Operating expenses for the second quarter increased 8% to $4.9 million compared to $4.5 million in the second quarter of 2010.  For the six months ended June 30, 2011 operating expenses increased 9% to $9.7 million compared to $8.9 million for the first six months of 2010.  The increase in operating expenses for both the quarter and six month period reflect higher compensation and benefits, data processing costs and credit related expenses.  

Provision for Loan Losses and Credit Quality

The provision for loan losses in the second quarter increased 9% to $1,154,000 compared to $1,061,000 in second quarter 2010.   During the second quarter the Company had net loan charge-offs of $1,309,000 compared to $1,171,000 for the second quarter of the previous year.  For the six months ended June 30, 2011 the provision for loan losses increased 2% to $2,054,000 compared to $2,022,000 the first six months of 2010.  Net charge-offs for the six months ended June 30, 2011 were $2,128,000 compared to $1,607,000 for the first six months of 2010.  "While certain sectors of the local economy have recovered from the recession, the collapse of the housing and construction market, high unemployment and depressed real estate values continue to drive loan losses and other credit and collection related expenses," said Bastian.    

Nonaccrual loans and other real estate owned totaled $10.4 million, or 3.12% of total loans, at June 30, 2011 compared to $8.8 million, or 2.61% of total loans, at December 31, 2010 and $8.9 million, or 2.70% of total loans, at June 30, 2010.  

The ratio of allowance for loan losses to total loans was 1.83% at June 30, 2011 compared to 1.82% at December 31, 2010, and 1.79% at June 30, 2010.  The ratio of the allowance for loan losses to nonaccrual loans was 79% at June 30, 2011 down from 105% at December 31, 2010, but up from 73% at June 30, 2010.

The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 2011 and 2010, and the year ended December 31, 2010.


Activity in Allowance for Loan Losses


Six Months Ended June 30,


Year Ended

December 31,


2011


2010


2010

Beginning allowance for loan losses

$     6,142,000


$   5,471,000


$     5,471,000

Provision for loan losses

2,054,000


2,022,000


4,544,000

Charge-offs

(2,404,000)


(1,692,000)


(4,116,000)

Recoveries

276,000


85,000


243,000

Ending allowance for loan losses

$     6,068,000


$  5,886,000


$     6,142,000

Net charge-offs to average total loans, annualized

1.29%


1.01%


1.18%




Outlook

Blackhawk has created a strong credit culture and the processes to support it, but the on-going 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 which 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 offices 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. The bank has received numerous accolades for its work with the fast-growing Hispanic population in the markets it serves.  

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 SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2011 AND DECEMBER 31, 2010

(UNAUDITED)


June 30,


December 31,

Assets

2011


2010


(Amounts in thousands, except


share and per share data)

Cash and due from banks

$            11,402


$                 7,877

Federal funds sold and securities purchased under agreements to resell

13,847


23,751

         Total cash and cash equivalents

25,249


31,628

Interest-bearing deposits in banks

435


639

Trading securities

2,874


3,559

Securities available-for-sale

143,144


132,858

Loans held for sale

2,729


5,301

Federal Home Loan Bank (FHLB) Stock, at cost

4,085


4,085

Loans, less allowance for loan losses of $6,068 and $6,142




   at June 30, 2011 and December 31, 2010, respectively

325,904


326,833

Office buildings and equipment, net

8,989


9,136

Intangible assets, net

8,020


8,172

Cash surrender value of bank-owned life insurance

8,578


8,440

Other assets

8,458


9,266

    Total assets

$          538,465


$             539,917





Liabilities and Stockholders' Equity








Liabilities




  Deposits:




    Noninterest-bearing

$            67,829


$               62,282

    Interest-bearing (including $2,243 and $4,238 at fair value at




      June 30, 2011 and December 31, 2010, respectively)

393,501


411,583

         Total deposits

461,330


473,865

Short-term borrowings

4,900


-

Long-term borrowings (including $2,213 and $2,172 at fair value at




 June 30, 2011 and December 31, 2010, respectively)

21,929


17,535

Subordinated debentures (including $834 and $834 at fair value at




 June 30, 2011 and December 31, 2010, respectively)

4,958


4,958

Other liabilities

2,905


3,091

         Total liabilities

496,022


499,449





Stockholders’ equity




 Preferred stock, $0.01 par value, 1,000,000 shares authorized;




  10,500 shares issued as of June 30, 2011 and




   December 31, 2010, respectively

10,233


10,183

 Common stock, $0.01 par value, 10,000,000 shares authorized;




  2,279,004 and 2,258,047 shares issued as of June 30, 2011 and




   December 31, 2010, respectively

23


22

 Surplus

9,397


9,359

 Retained earnings

22,603


21,848

 Treasury stock, 83,252 and 85,252 shares at cost as of June 30, 2011 and




   December 31, 2010, respectively

(914)


(931)

 Accumulated other comprehensive income (loss)

1,101


(13)

    Total stockholders' equity

42,443


40,468

    Total liabilities and stockholders' equity

$          538,465


$             539,917



BLACKHAWK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


Three months ended June 30,


2011


2010


(Amounts in thousands, except


share and per share data)

Interest Income:




    Interest and fees on loans

$                    4,877


$                  4,922

    Interest on trading securities

15


7

    Interest and dividends on securities:




         Taxable

1,031


1,357

         Tax-exempt

246


218

    Interest on federal funds sold and securities purchased under agreements to resell

59


52

    Interest on interest-bearing deposits in banks

1


1

         Total interest and dividend income

6,229


6,557

Interest Expenses:




    Interest on deposits

1,175


1,323

    Interest on short-term borrowings

4


3

    Interest on long-term borrowings

233


441

    Interest on subordinated debentures

34


35

         Total interest expense

1,446


1,802

         Net interest and dividend income

4,783


4,755

Provision for loan losses

1,154


1,061

         Net interest and dividend income after provision for loan losses  

3,629


3,694





Noninterest Income:




    Service charges on deposits accounts

685


623

    Net gain on sale of loans

451


593

    Net mortgage servicing income

29


18

    Debit card interchange fees

444


362

    Net gains (losses) on trading activities

(223)


34

    Net gains (losses) on available-for-sale securities

209


(59)

    Net other gains (losses)

(82)


(26)

    Increase in cash value of bank-owned life insurance

70


70

    Other

221


142

         Total noninterest income

1,804


1,757





Noninterest Expenses:




    Salaries and employee benefits

2,428


2,268

    Occupancy and equipment

568


593

    Data processing

561


481

    FDIC assessment

225


232

    Advertising and marketing

122


112

    Amortization of intangibles

35


62

    Professional fees

221


213

    Office Supplies

91


66

    Telephone

70


75

    Other

573


418

         Total noninterest expenses

4,894


4,520

         Income before income taxes

539


931

Income Taxes

100


267

         Net income

$                       439


$                     664





Key Ratios








Basic Earnings Per Common Share

$                      0.13


$                    0.23

Diluted Earnings Per Common Share

0.13


0.23





Net Interest Margin (FTE)

3.83%


3.97%

Efficiency Ratio (FTE)

73.19%


68.24%

Return on Assets

0.32%


0.51%

Return on Common Equity

3.50%


7.08%



BLACKHAWK BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


June 30,


2011


2010


(Amounts in thousands, except


share and per share data)

Interest Income:




    Interest and fees on loans

$                    9,731


$                  9,802

    Interest on trading securities

49


65

    Interest and dividends on securities:




         Taxable

2,134


2,666

         Tax-exempt

496


413

    Interest on federal funds sold and securities purchased under agreements to resell

136


128

    Interest on interest-bearing deposits in banks

2


3

         Total interest and dividend income

12,548


13,077

Interest Expenses:




    Interest on deposits

2,364


2,612

    Interest on short-term borrowings

5


13

    Interest on long-term borrowings

467


976

    Interest on subordinated debentures

67


105

         Total interest expense

2,903


3,706

         Net interest and dividend income

9,645


9,371

Provision for loan losses

2,054


2,022

         Net interest and dividend income after provision for loan losses  

7,591


7,349





Noninterest Income:




    Service charges on deposits accounts

1,331


1,214

    Net gain on sale of loans

834


1,158

    Net mortgage servicing income

60


27

    Debit card interchange fees

830


696

    Net gains (losses) on trading activities

(204)


(10)

    Net gains (losses) on available-for-sale securities

290


(65)

    Net other gains (losses)

(204)


(107)

    Increase in cash value of bank-owned life insurance

139


150

    Other

483


392

         Total noninterest income

3,559


3,455





Noninterest Expenses:




    Salaries and employee benefits

4,867


4,419

    Occupancy and equipment

1,162


1,215

    Data processing

1,095


967

    FDIC assessment

464


460

    Advertising and marketing

226


216

    Amortization of intangibles

97


125

    Professional fees

428


400

    Office Supplies

185


145

    Telephone

140


148

    Other

1,055


822

         Total noninterest expenses

9,719


8,917

         Income before income taxes

1,431


1,887

Income Taxes

353


570

         Net income

$                    1,078


$                  1,317





Key Ratios








Basic Earnings Per Common Share

$                      0.34


$                    0.46

Diluted Earnings Per Common Share

0.34


0.46





Net Interest Margin (FTE)

3.90%


3.97%

Efficiency Ratio (FTE)

72.52%


68.27%

Return on Assets

0.40%


0.51%

Return on Common Equity

4.87%


7.10%



BLACKHAWK BANCORP, INC. AND SUBSIDIARY

     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, 2011


Three months ended June 30, 2010


Average


Average


Average


Average


Balance

Interest

Rate


Balance

Interest

Rate

Interest Earning Assets:








 Interest-bearing deposits in banks

$                    948

$                   1

0.51%


$                     915

$                   1

0.63%

 Federal funds sold & securities








   purchased under agreements to








   resell

19,057

59

1.23%


13,531

52

1.55%

 Investment securities:








      Taxable investment securities

134,102

1,046

3.13%


133,000

1,364

4.11%

      Tax-exempt investment securities

23,947

246

5.79%


21,277

218

6.23%

           Total Investment securities

158,049

1,292

3.53%


154,277

1,582

4.40%

 Loans

333,162

4,877

5.87%


323,341

4,922

6.11%









Total Earning Assets

$             511,216

$            6,229

4.97%


$              492,064

$            6,557

5.44%

 Allowance for loan losses

(6,386)




(6,015)



 Cash and due from banks

10,301




10,541



 Other Assets

35,346




30,984











Total Assets

$             550,477




$              527,574











Interest Bearing Liabilities:








 Interest bearing checking accounts

$             132,658

$               434

1.31%


$              150,818

$               555

1.48%

 Savings and money market deposits

139,567

122

0.35%


126,403

188

0.60%

 Time deposits

131,139

619

1.89%


101,651

580

2.29%

      Total interest bearing deposits

403,364

1,175

1.17%


378,872

1,323

1.40%

 Short-term borrowings

4,230

4

0.39%


2,613

3

0.50%

 Subordinated debentures

4,958

34

2.75%


4,958

35

2.79%

 Long-term borrowings

20,866

233

4.47%


36,827

441

4.81%









Total Interest-Bearing Liabilities

$             433,418

$            1,446

1.34%


$              423,270

$            1,802

1.71%









Interest Rate Spread



3.63%




3.73%









Noninterest checking accounts

70,211




61,914



 Other liabilities

4,301




4,244



 Total liabilities

507,930




489,428



 Preferred Stock

10,221




10,121



 Common Stockholders' equity

32,326




28,025



Total Stockholders' equity

42,547




38,146



Total Liabilities and








 Stockholders' Equity

$             550,477




$              527,574











Net Interest Income/Margin


$            4,783

3.83%



$            4,755

3.97%



BLACKHAWK BANCORP, INC. AND SUBSIDIARY

     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, 2011


Six months ended June 30, 2010


Average


Average


Average


Average


Balance

Interest

Rate


Balance

Interest

Rate

Interest Earning Assets:








 Interest-bearing deposits in banks

$                  842

$                   2

0.57%


$                 1,034

$                   3

0.51%

 Federal funds sold & securities








   purchased under agreements to








   resell

23,218

136

1.18%


18,562

128

1.39%

 Investment securities:








      Taxable investment securities

128,223

2,183

3.43%


127,623

2,731

4.31%

      Tax-exempt investment securities

23,493

496

5.95%


20,482

413

6.38%

           Total Investment securities

151,716

2,679

3.82%


148,105

3,144

4.60%

 Loans

333,000

9,731

5.89%


320,649

9,802

6.16%









Total Earning Assets

$           508,776

$          12,548

5.05%


$             488,350

$          13,077

5.50%

 Allowance for loan losses

(6,385)




(5,835)



 Cash and due from banks

10,999




12,035



 Other Assets

35,480




31,328











Total Assets

$           548,870




$             525,878











Interest Bearing Liabilities:








 Interest bearing checking accounts

$           131,100

$               846

1.30%


$             147,382

$            1,063

1.45%

 Savings and money market deposits

144,084

261

0.37%


125,106

393

0.63%

 Time deposits

133,217

1,257

1.90%


101,380

1,156

2.30%

      Total interest bearing deposits

408,401

2,364

1.17%


373,868

2,612

1.41%

 Short-term borrowings

2,633

5

0.42%


2,256

13

1.51%

 Subordinated debentures

4,958

67

2.74%


4,958

105

4.26%

 Long-term borrowings

19,205

467

4.90%


42,092

976

4.68%









Total Interest-Bearing Liabilities

$           435,197

$            2,903

1.34%


$             423,174

$            3,706

1.77%









Interest Rate Spread



3.71%




3.73%









Noninterest checking accounts

68,223




60,798



 Other liabilities

3,397




3,957



 Total liabilities

506,817




487,929



 Preferred Stock

10,209




10,108



 Common Stockholders' equity

31,844




27,841



Total Stockholders' equity

42,053




37,949



Total Liabilities and








 Stockholders' Equity

$           548,870




$             525,878











Net Interest Income/Margin


$            9,645

3.90%



$            9,371

3.97%



SOURCE Blackhawk Bancorp, Inc.



RELATED LINKS
http://www.blackhawkbank.com

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