- Mortgage refinance activity drives 11% increase in first quarter net income
- Earnings per share increases 7% over first quarter of last year
- Deposits grow 5% during first quarter
BELOIT, Wis., April 22 /PRNewswire-FirstCall/ -- Blackhawk Bancorp, Inc. (OTC Bulletin Board: BHWB) today reported net income for the quarter ended March 31, 2009 of $662,000, an 11% increase compared to $597,000 earned the same quarter last year. Earnings per share increased 7% to $0.29 per diluted common share, a record for the first quarter, compared to $0.27 per diluted common share earned in the first quarter of 2008. "We were able to achieve record first quarter earnings performance as improved margin and non-interest income growth more than compensated for a 240% increase in the quarter's provision for loan losses," said Rick Bastian, president and CEO.
The increase in non-interest income reflects a 186% increase in gain on sale of mortgage loans, which was driven by a high volume of refinance activity. "We ranked number two in the Rock River Valley in residential mortgage loan production, originating over $73 million in mortgage loans in the first quarter," said Bastian. "We've assembled a great team of mortgage originators and processors, which has positioned Blackhawk to benefit from the combination of low rates, less competition and what we consider to be missteps by some of the larger institutions in the market," he added.
1(st) 4(th) 3(rd) 2(nd) 1(st)
Qtr Qtr Qtr Qtr Qtr
Key Performance Ratios: 2009 2008 2008 2008 2008
---- ---- ---- ---- ----
Net interest margin 3.46% 3.39% 3.59% 3.41% 3.39%
Efficiency ratio 70.9% 78.9% 73.3% 72.5% 77.6%
Return on average assets .53% .31% .63% .68% .51%
Return on common equity 9.62% 6.32% 12.45% 13.14% 9.53%
Nonperforming loans to total
loans 2.24% 1.50% .75% .98% .91%
Allowance to total loans 1.08% .90% .90% .88% .87%
Subsidiary bank total risk
based capital 12.75% 10.41% 10.81% 11.35% 11.26%
Despite the recessionary economy and steps being taken to fortify the bank's balance sheet, Blackhawk shows improvement in the first quarter in net interest margin, return on average assets, return on common equity and the efficiency ratio compared to the quarters ended December 31, 2008 and March 31, 2008. To fortify the balance sheet the company is focusing on three key areas: strengthening capital ratios, ensuring sufficient loan loss reserves, and increasing on balance sheet liquidity.
In March of 2009 the company received $10 million in capital under the U.S. Treasury's voluntary Capital Purchase Program, a part of the Emergency Economic Stabilization Act of 2008, designed to provide capital to healthy financial institutions to promote confidence and stabilization in the economy. "We are well capitalized and profitable," said Bastian. "This investment gives us additional resources to meet the borrowing needs of businesses and individuals in our markets at a time when other sources of capital have become cost prohibitive, if available at all," he added.
The provision for loan losses was up by 240% compared to the first quarter of last year, increasing the allowance for loan losses to total loans by 18 basis points to 1.08% compared to .90% at December 31, 2008. Strong deposit growth has also allowed the company to build substantial on balance sheet liquidity. Total cash and cash equivalent investments are up by $26.1 million, or 140%, compared to December 31, 2008. A strong liquidity position allows the bank to be more responsive to customer borrowing needs and reduces the company's dependence on wholesale funding for supporting loan growth.
Net Interest Income Rises
Net interest income for the first quarter increased 9% to $3.9 million as compared with $3.6 million in the first quarter 2008. The increase includes both an increase in the earning asset base and an increase in the net interest margin. The net interest margin for the quarter increased 7 basis points to 3.46% compared to 3.39% in the first quarter of 2008. Average earning assets for the quarter ended March 31, 2009 increased $39.8 million, or 9% over the first quarter of 2008. Strong loan and deposit growth and higher investment portfolio yields accounted for the gains in net interest income and the improved net interest margin.
Average total loans for the first quarter increased $33.4 million, or 11% to $328.1 million compared with $297.7 million in first quarter 2008. The majority of the loan growth was generated through the company's business banking activities, increasing the average balance of the commercial and commercial real estate loans for the first quarter by $27.7 million over the average balance for the first quarter of 2008.
Average total deposits for the first quarter of 2009 increased 12% to $382.4 million compared with $342.3 million in the same period a year ago. This includes a $31.6 million increase in the average balance of interest checking, driven by the success of Blackhawk's EasyMoney Checking product. "The number of new checking accounts opened, net of the accounts closed, was up by 60% for the first quarter of 2009 compared the first quarter of last year," explained Bastian.
"Our attractive product line and solutions-oriented customer service has helped us earn the confidence of new and existing customers, especially in this uncertain economic environment," said Bastian. "This confidence has translated into phenomenal growth in core deposits, which are up more than 5% since December 31, 2008," he added.
Noninterest Income and Operating Expenses
Noninterest income for the quarter increased 59% to $2,134,000 compared to $1,340,000 the first quarter of 2008. Gain on sale of mortgage loans increased 186% to $1,295,000 compared to $453,000 the first quarter of 2008. The increase in gain on sale of mortgage loans was partially offset by $130,000 of accelerated amortization of mortgage servicing rights related to loans that were refinanced and a $103,000 decrease in trust and investment revenue due to the market value decline in assets under management.
Total operating expenses for the first quarter increased 13% to $4.4 million compared with $3.9 million for the first quarter of 2008. This includes an increase of $305,000 in compensation and benefits and an increase of $83,000 in data processing expense. The increase in compensation and benefits is primarily due to the high level of mortgage loan originations, which are produced by commission based employees, however it also reflects merit increases and the operation of the new Rockford banking center, which was opened in the fourth quarter of 2008. Higher data processing costs reflect the increases in the number of accounts and transaction volume being processed, including a significant increase in debit card transaction activity.
The credit quality of the loan portfolio remains strong however, nonperforming loans at March 31, 2009 have increased to $7.3 million compared to $4.9 million at December 31, 2008 and $2.7 million at March 31, 2008. The number of delinquent borrowers is increasing and management anticipates an elevated level of nonperforming loans and charge-offs for the remainder of 2009 as the bank's customers experience the effects of the economic recession.
The provision for loan losses in the first quarter increased by 240% to $775,000 compared to $228,000 recorded in first quarter of 2008. The increase in the provision strengthened the ratio of allowance for loan losses to total loans to 1.08% compared to .90% at December 31, 2008 and .87% at March 31, 2008. Net loan charge-offs in the first quarter increased by $176,000 to $226,000 compared to $50,000 for the same period in 2008. Annualized net loan charge-offs to total average loans for the first quarter was .28% compared to .25% for the year ended December 31, 2008. "Although our level of problem loans has increased with deterioration in the overall economy, our level of charge-offs has remained remarkably low," commented Bastian.
The ratio of the allowance for loan losses to non-performing loans has decreased to 48% compared to 60% at December 31, 2008 and 96% at March 31, 2008. Non-performing loans plus other real estate owned equaled 2.41% of total assets at March 31, 2009 compared with 1.64% at December 31, 2008 and 1.05% at March 31, 2008.
"We expect to continue strengthening loan loss reserves especially if economic conditions continue to deteriorate," said Bastian. "We believe we've created a strong credit culture and processes to support it, but the potential for a prolonged economic downturn has us focused on fortifying our balance sheet. Accepting capital under the US Treasury's Capital Purchase Program is just one of the things we're doing to ensure we have the ability to continue growing and meeting the credit needs of our customers," he added.
The mortgage business remains strong and should continue to substantially contribute to non-interest income at least through the second quarter.
Blackhawk continues to seek profitable growth opportunities in its Wisconsin and Illinois markets, without sacrificing profitability or credit quality. It emphasizes the value of its personal attention and the service it provides that remain unmatched by larger competitors.
In the fourth quarter of 2008, Blackhawk completed construction of a new full service facility in a manufacturing and business section of Rockford, Illinois, convenient to its niche markets of small to medium sized manufacturing companies and the area's Hispanic immigrant population. In spite of the economic downturn, the company believes by continuing its commitment to service and personalized attention it can continue to grow and prosper.
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, Ill. to Beloit, Wis. 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, investment management, and estate and succession planning. The bank has received numerous accolades for its work with the fast-growing Hispanic population in its served markets.
Further information is available on the company's website at www.blackhawkbank.com.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF INCOME
Three Months Ended
(Dollars in thousands, except per share data) 2009 2008
--------------------------------------------- ---- ----
Interest and Dividend Income $6,847 $7,031
Interest Expense 2,910 3,423
Net Interest and Dividend Income 3,937 3,608
Provision for loan losses 775 228
Non-Interest Income 2,134 1,340
Non-Interest Expense 4,371 3,885
Income Before Income Taxes 925 835
Income Taxes 263 238
Net Income $662 $597
Diluted Earnings Per Common Share $0.29 $0.27
Dividends Per Common Share 0.09 0.09
Average Outstanding Common Shares 2,158,683 2,171,962
Ending Outstanding Common Shares 2,163,678 2,171,527
Net Interest Margin 3.46% 3.39%
Efficiency Ratio 70.90% 77.55%
Return on Assets 0.53% 0.51%
Return on Common Equity 9.62% 9.53%
CONDENSED BALANCE SHEETS
March 31, December 31,
(Dollars in thousands) 2009 2008
---------------------- ---- ----
Cash and cash equivalents $44,637 $18,558
Interest-bearing deposits in banks 1,854 1,080
Trading securities 17,693 19,603
Securities available-for sale 103,344 103,274
Federal Home Loan Bank Stock, at cost 4,085 4,085
Loans, net of allowances for loan losses 323,756 326,358
Office buildings and equipment, net 8,903 9,042
Intangible assets, net 7,290 6,739
Cash surrender value of bank-owned life insurance 7,989 7,915
Other assets 5,433 3,787
Total Assets $524,984 $500,441
Liabilities and Stockholders' Equity:
Deposits $396,816 $376,995
Borrowings 84,248 88,369
Subordinated debentures 4,958 5,158
Other liabilities 3,907 3,569
Total liabilities 489,929 474,091
Preferred Stock 10,000 -
Common Stockholders' equity 25,055 26,350
Total Stockholders' equity 35,055 26,350
Total liabilities and stockholders' equity $524,984 $500,441
SOURCE Blackhawk Bancorp, Inc.