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Blackhawk Bancorp Announces Third Quarter 2011 Results

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BELOIT, Wis., Oct. 26, 2011 /PRNewswire/ -- Blackhawk Bancorp, Inc.  (OTCBB: BHWB) today reported earnings of $617,000 for the quarter ended September 30, 2011, a 25% decrease compared to $822,000 earned in the third quarter of 2010.  Net income for the nine months ended September 30, 2011 was $1,695,000, a 21% decrease compared to the first nine months of 2010.

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

Earnings per diluted share for the quarter decreased to $0.21 compared to $0.30 the third quarter of 2010.  The Company earned $0.55 per diluted share for the nine month period ended September 30, 2011 compared to $0.76 per share the first nine months of 2010.  The Company's assets totaled $550.1 million at September 30, 2011 compared to $539.9 million at December 31, 2010.  A tightening net interest margin and lower revenue from the sale and servicing of mortgage loans contributed to the decrease over the prior year for both the quarter and nine month period ended September 30, 2011.  The following table summarizes key performance and asset quality measures for the quarter ended September 30, 2011 compared to the previous four quarters:



Key Performance and Asset Quality Measures

3rd Qtr

2011

2nd Qtr

2011

1st Qtr

2011

4th Qtr

2010

3rd  Qtr

2010







Diluted Earnings per share

$0.21

$0.13

$0.22

$0.33

$0.30

Return on average assets

.45%

.32%

.47%

.62%

.60%

Return on common equity

5.49%

3.50%

6.29%

9.62%

8.91%

Net interest margin

3.71%

3.83%

3.97%

4.12%

4.07%

Efficiency ratio

70.17%

73.19%

71.86%

67.93%

63.34%

Nonaccrual loans to total loans

2.61%

2.31%

1.99%

1.73%

2.30%

Nonaccrual loans and OREO to total loans

3.38%

3.12%

2.73%

2.61%

2.68%

Allowance for loan losses to total loans

1.78%

1.83%

1.86%

1.82%

1.88%

Allowance for loan losses to nonaccrual loans

68%

79%

94%

105%

82%

Subsidiary bank total risk-based capital

13.71%

13.78%

13.57%

13.57%

13.05%




"The weak economy and uncertain political climate resulted in borrowers being very cautious," said Rick Bastian, the company's president & CEO. "This environment, combined with historically low interest rates, has created intense competition for high quality credits while other investment alternatives offer little return.  In addition, credit related expenses continue to stress earnings, and are expected to remain elevated into next year," he added.    

Net Interest Income

Net interest income for the third quarter decreased 8% to $4.7 million compared to $5.1 million in the third quarter 2010.  Total average earning assets for the quarter were $509.5 million, a 1% increase compared to $504.1 million the same quarter last year.  The net interest margin for the quarter decreased 36 basis points to 3.71% compared to 4.07% the third quarter of 2010.  The increase in earning assets includes a $3.1 million increase in average short term investments and investment securities, and a $2.3 million increase in average loans.  The yield on earning assets decreased by 59 basis points to 4.86% for the quarter compared to 5.45% the third quarter of last year.  The decrease in the yield on earning assets for the quarter compared to the third quarter of last year reflects the reinvestment of proceeds from the repayment of loans, and the amortization, sale and maturity of investment securities in a historically low interest rate environment.  

Average total deposits for the third quarter increased $14.4 million, or 3%, compared to the third quarter of 2010.  The increase includes a $9.4 million, or 16% increase in non-interest bearing demand deposit accounts.  Average interest bearing deposits increased $4.9 million, or 1%, for the third quarter compared to same quarter last year.  The increase in interest bearing deposits was driven by growth in savings and money market accounts.  Strong deposit growth allowed for an $11.1 million, or 30%, decrease in the average total borrowings to $25.7 million for the quarter compared to $36.8 million the third quarter of 2010.   The rate paid on average interest-bearing liabilities for the third quarter decreased 23 basis points to 1.35% compared to 1.58% the same quarter last year.  The reduction in the rate paid on interest bearing liabilities reflects the re-pricing of deposits in a historically low interest rate environment and the shift in the funding mix, which replaced higher cost borrowings with core deposits.      

Net interest income for the nine months ended September 30, 2011 decreased 2% to $14.3 million compared to $14.6 million the first nine months of last year.  Average earning assets for the first nine months of 2011 increased 3% to $509.2 million compared to $493.7 million for the nine month period ended September 30, 2010.   The net interest margin for the first three quarters of 2011 decreased by 21 basis points to 3.84% compared to 4.05% for the first three quarters of last year.  The increase in earning assets includes a $9.0 million, or 3%, increase in total average loans and a $6.6 million, or 4%, increase in investment securities and short-term investments.  The yield earned on average assets for the nine months ended September 30, 2011 decreased by 54 basis points to 4.98% compared to 5.52% for the first nine months of 2010.  The decrease in earning asset yields for the nine months ended September 30, 2011 compared to the first three quarters of last year reflects the reinvestment of proceeds from the repayment of loans, and the amortization, sale and maturity of investment securities in a historically low interest rate environment.  

Average total deposits for the nine months ended September 30, 2011 increased $33.0 million, or 7%, compared to average total deposits the first three quarters of 2010.  Average total borrowings decreased by $18.7 million, or 41%, for the nine months ended September 30, 2011 compared to the first nine months of the prior year.  The rate paid on average interest bearing liabilities decreased 35 basis points in the first three quarters of 2011 to 1.35% compared to 1.70% for the same nine months last year.  The reduction in the rate paid on interest bearing liabilities reflects the re-pricing of deposits in a historically low interest rate environment and the shift in the funding mix, which replaced higher cost borrowings with core deposits.      

Non-Interest Income and Operating Expenses

Non-interest income for the third quarter decreased 4% to $2.2 million compared to $2.3 million the third quarter of the prior year.  The decrease for the quarter was due to a decrease in mortgage banking revenue, which was partially offset by growth in deposit service charges and debit card interchange income.  There was a much higher level of refinance activity in the third quarter of 2010 than there was in the third quarter this year.  Non-interest income for the first nine months increased 3% to $5.8 million compared to $5.6 million for first three quarters of 2010.  For the nine months ended September 30, 2011 a $410,000 improvement in the net gain (loss) on securities and trading activity, a $148,000 increase in deposit charges, and $224,000 increase in debit card interchange income more than offset a $651,000 decline mortgage banking revenue compared to the first nine months of last year.                

Operating expenses for the third quarter increased 3% to $4.9 million compared to $4.7 million in the third quarter of 2010. For the nine months ended September 30, 2011 operating expenses increased 7% to $14.6 million compared to $13.6 million for the first nine months of 2010.  The increase in operating expenses for both the quarter and nine 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 third quarter decreased 18% to $1,150,000 compared to $1,411,000 in third quarter 2010.   During the third quarter the Company had net loan charge-offs of $1,190,000 compared to $929,000 for the third quarter of the previous year.  For the nine months ended September 30, 2011 the provision for loan losses decreased 7% to $3,204,000 compared to $3,433,000 the first nine months of 2010.  Net charge-offs for the nine months ended September 30, 2011 were $3,318,000 compared to $2,536,000 for the first nine 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 $11.4 million, or 3.38% of total loans, at September 30, 2011 compared to $8.8 million, or 2.61% of total loans, at December 31, 2010 and $9.1 million, or 2.68% of total loans, at September 30, 2010.  

The ratio of allowance for loan losses to total loans was 1.78% at September 30, 2011 compared to 1.82% at December 31, 2010, and 1.88% at September 30, 2010.  The ratio of the allowance for loan losses to nonaccrual loans was 68% at September 30, 2011 down from 105% at December 31, 2010 and 82% at September 30, 2010.

The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2011 and 2010, and the year ended December 31, 2010:

Activity in Allowance for Loan Losses


Nine months Ended September 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

3,204,000


3,433,000


4,544,000

Charge-offs

(3,673,000)


(2,671,000)


(4,116,000)

Recoveries

355,000


135,000


243,000

Ending allowance for loan losses

$     6,028,000


$  6,368,000


$     6,142,000

Net charge-offs to average total loans, annualized

1.33%


1.05%


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.

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


SEPTEMBER 30, 2011 AND DECEMBER 31, 2010


(UNAUDITED)



September 30,


December 31,

Assets

2011


2010


(Amounts in thousands, except


share and per share data)

Cash and due from banks

$            10,671


$             7,877

Federal funds sold and securities purchased under agreements to resell

21,955


23,751

         Total cash and cash equivalents

32,626


31,628

Interest-bearing deposits in banks

3,387


639

Trading securities

2,676


3,559

Securities available-for-sale

140,158


132,858

Loans held for sale

1,630


5,301

Federal Home Loan Bank (FHLB) Stock, at cost

4,085


4,085

Loans, less allowance for loan losses of $6,028 and $6,142




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

330,720


326,833

Office buildings and equipment, net

8,874


9,136

Intangible assets, net

7,977


8,172

Cash surrender value of bank-owned life insurance

8,649


8,440

Other assets

9,332


9,266

    Total assets

$          550,114


$         539,917





Liabilities and Stockholders' Equity








Liabilities




  Deposits:




    Noninterest-bearing

$            65,508


$           62,282

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




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

391,670


411,583

         Total deposits

457,178


473,865

Short-term borrowings

4,478


-

Other borrowings (including $2,258 and $2,172 at fair value at




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

35,652


17,535

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




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

4,958


4,958

Other liabilities

4,186


3,091

         Total liabilities

506,452


499,449





Stockholders’ equity




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




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




   December 31, 2010, respectively

10,258


10,183

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




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




   December 31, 2010, respectively

23


22

 Surplus

9,422


9,359

 Retained earnings

23,059


21,848

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




   December 31, 2010, respectively

(914)


(931)

 Accumulated other comprehensive income (loss)

1,814


(13)

    Total stockholders' equity

43,662


40,468

    Total liabilities and stockholders' equity

$          550,114


$         539,917



BLACKHAWK BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF INCOME


(UNAUDITED)



Three months ended September 30,


2011


2010


(Amounts in thousands, except


share and per share data)

Interest Income:




    Interest and fees on loans

$ 4,902


$ 5,137

    Interest on trading securities

21


96

    Interest and dividends on securities:




         Taxable

904


1,256

         Tax-exempt

234


240

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

76


71

    Interest on interest-bearing deposits in banks

1


1

         Total interest and dividend income

6,138


6,801

Interest Expenses:




    Interest on deposits

1,210


1,344

    Interest on short-term borrowings

2


2

    Interest on long-term borrowings

229


367

    Interest on subordinated debentures

34


36

         Total interest expense

1,475


1,749

         Net interest and dividend income

4,663


5,052

Provision for loan losses

1,150


1,411

         Net interest and dividend income after provision for loan losses  

3,513


3,641





Noninterest Income:




    Service charges on deposits accounts

771


741

    Net gain on sale of loans

743


1,166

    Net mortgage servicing income

(62)


(124)

    Debit card interchange fees

439


349

    Net gains (losses) on trading activities

(28)


(73)

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

97


38

    Net other gains (losses)

(66)


(71)

    Increase in cash value of bank-owned life insurance

71


71

    Other

227


185

         Total noninterest income

2,192


2,282





Noninterest Expenses:




    Salaries and employee benefits

2,435


2,418

    Occupancy and equipment

556


605

    Data processing

582


476

    FDIC assessment

180


240

    Advertising and marketing

117


111

    Amortization of intangibles

35


62

    Professional fees

224


191

    Office Supplies

96


95

    Telephone

70


69

    Other

587


457

         Total noninterest expenses

4,882


4,724

         Income before income taxes

823


1,199

Income Taxes

206


377

         Net income

$    617


$    822





Key Ratios








Basic Earnings Per Common Share

$   0.21


$   0.30

Diluted Earnings Per Common Share

0.21


0.30





Net Interest Margin (FTE)

3.71%


4.07%

Efficiency Ratio (FTE)

70.17%


63.34%

Return on Assets

0.45%


0.60%

Return on Common Equity

5.49%


8.91%



BLACKHAWK BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF INCOME


(UNAUDITED)



Nine Months Ended September 30,


2011


2010


(Amounts in thousands, except


share and per share data)

Interest Income:




    Interest and fees on loans

$ 14,633


$ 14,938

    Interest on trading securities

70


308

    Interest and dividends on securities:




         Taxable

3,037


3,921

         Tax-exempt

730


653

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

211


199

    Interest on interest-bearing deposits in banks

4


4

         Total interest and dividend income

18,685


20,023

Interest Expenses:




    Interest on deposits

3,574


3,956

    Interest on short-term borrowings

7


15

    Interest on long-term borrowings

696


1,342

    Interest on subordinated debentures

101


141

         Total interest expense

4,378


5,454

         Net interest and dividend income

14,307


14,569

Provision for loan losses

3,204


3,433

         Net interest and dividend income after provision for loan losses  

11,103


11,136





Noninterest Income:




    Service charges on deposits accounts

2,102


1,954

    Net gain on sale of loans

1,578


2,324

    Net mortgage servicing income

(2)


(97)

    Debit card interchange fees

1,269


1,045

    Net gains (losses) on trading activities

(232)


(229)

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

387


(26)

    Net other gains (losses)

(270)


(178)

    Increase in cash value of bank-owned life insurance

209


221

    Other

710


576

         Total noninterest income

5,751


5,590





Noninterest Expenses:




    Salaries and employee benefits

7,302


6,837

    Occupancy and equipment

1,718


1,820

    Data processing

1,677


1,443

    FDIC assessment

645


700

    Advertising and marketing

343


346

    Amortization of intangibles

132


187

    Professional fees

652


591

    Office Supplies

281


239

    Telephone

210


216

    Other

1,641


1,260

         Total noninterest expenses

14,601


13,639

         Income before income taxes

2,253


3,087

Income Taxes

558


948

         Net income

$   1,695


$   2,139





Key Ratios








Basic Earnings Per Common Share

$     0.55


$     0.76

Diluted Earnings Per Common Share

0.55


0.76





Net Interest Margin (FTE)

3.84%


4.05%

Efficiency Ratio (FTE)

71.72%


66.44%

Return on Assets

0.41%


0.54%

Return on Common Equity

5.08%


7.73%



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 September 30, 2011


Three months ended September 30, 2010


Average


Average


Average


Average


Balance

Interest

Rate


Balance

Interest

Rate

Interest Earning Assets:








 Interest-bearing deposits in banks

$     2,107

$        1

0.23%


$        781

$        1

0.58%

 Federal funds sold & securities








   purchased under agreements to








   resell

25,163

76

1.19%


18,289

71

1.54%

 Investment securities:








      Taxable investment securities

123,880

925

2.96%


131,427

1,352

4.08%

      Tax-exempt investment securities

24,409

234

5.46%


21,943

240

6.59%

           Total Investment securities

148,289

1,159

3.37%


153,370

1,592

4.12%

 Loans

333,978

4,902

5.82%


331,654

5,137

6.14%









Total Earning Assets

$ 509,537

$ 6,138

4.86%


$ 504,094

$ 6,801

5.45%

 Allowance for loan losses

(5,823)




(6,217)



 Cash and due from banks

10,511




11,156



 Other Assets

35,035




31,811











Total Assets

$ 549,260




$ 540,844











Interest Bearing Liabilities:








 Interest bearing checking accounts

$ 136,139

$    423

1.23%


$ 141,258

$    470

1.32%

 Savings and money market deposits

143,466

126

0.35%


133,518

192

0.57%

 Time deposits

126,827

661

2.07%


126,670

682

2.13%

      Total interest bearing deposits

406,432

1,210

1.18%


401,446

1,344

1.33%

 Short-term borrowings

1,272

2

0.60%


1,432

2

0.49%

 Subordinated debentures

4,958

34

2.69%


4,958

36

2.90%

 Long-term borrowings

19,471

229

4.67%


30,385

367

4.79%









Total Interest-Bearing Liabilities

$ 432,133

$ 1,475

1.35%


$ 438,221

$ 1,749

1.58%









Interest Rate Spread



3.51%




3.87%









Noninterest checking accounts

68,451




59,038



 Other liabilities

5,016




4,021



 Total liabilities

505,600




501,280



 Preferred Stock

10,246




10,146



 Common Stockholders' equity

33,414




29,418



Total Stockholders' equity

43,660




39,564



Total Liabilities and








 Stockholders' Equity

$ 549,260




$ 540,844











Net Interest Income/Margin


$ 4,663

3.71%



$ 5,052

4.07%



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)

Nine months ended September 30, 2011


Nine months ended September 30, 2010


Average


Average


Average


Average


Balance

Interest

Rate


Balance

Interest

Rate

Interest Earning Assets:








 Interest-bearing deposits in banks

$     1,467

$          4

0.33%


$        948

$          4

0.55%

 Federal funds sold & securities








   purchased under agreements to








   resell

23,874

211

1.18%


18,470

199

1.44%

 Investment securities:








      Taxable investment securities

126,759

3,107

3.28%


128,905

4,229

4.39%

      Tax-exempt investment securities

23,802

730

5.78%


20,975

653

6.52%

           Total Investment securities

150,561

3,837

3.67%


149,880

4,882

4.68%

 Loans

333,330

14,633

5.87%


324,358

14,938

6.16%









Total Earning Assets

$ 509,232

$ 18,685

4.98%


$ 493,656

$ 20,023

5.52%

 Allowance for loan losses

(6,196)




(5,963)



 Cash and due from banks

10,636




11,739



 Other Assets

35,317




31,618











Total Assets

$ 548,989




$ 531,050











Interest Bearing Liabilities:








 Interest bearing checking accounts

$ 132,798

$   1,268

1.28%


$ 145,319

$   1,534

1.41%

 Savings and money market deposits

144,406

388

0.36%


128,141

586

0.61%

 Time deposits

131,064

1,918

1.95%


109,903

1,836

2.23%

      Total interest bearing deposits

408,268

3,574

1.17%


383,363

3,956

1.38%

 Short-term borrowings

2,174

7

0.45%


1,996

15

0.98%

 Subordinated debentures

4,958

101

2.72%


4,958

141

3.80%

 Long-term borrowings

19,295

696

4.82%


38,147

1,342

4.71%









Total Interest-Bearing Liabilities

$ 434,695

$   4,378

1.35%


$ 428,464

$   5,454

1.70%









Interest Rate Spread



3.63%




3.82%









Noninterest checking accounts

68,300




60,194



 Other liabilities

3,399




3,770



 Total liabilities

506,394




492,428



 Preferred Stock

10,222




10,117



 Common Stockholders' equity

32,373




28,505



Total Stockholders' equity

42,595




38,622



Total Liabilities and








 Stockholders' Equity

$ 548,989




$ 531,050











Net Interest Income/Margin


$ 14,307

3.84%



$ 14,569

4.05%



SOURCE Blackhawk Bancorp, Inc.



RELATED LINKS
http://www.blackhawkbank.com

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